“Unrealized” Capital Gains Tax is Economic Suicide

The Compound and Friends – Ep. "Unrealized" Capital Gains Tax is Economic Suicide

Date: February 18, 2026
Hosts: Josh Brown (A), Ben Carlson (B; filling in for Michael Batnick)
Theme: In-depth discussion of the current market environment, earnings season, the realities of AI-driven disruption, sector rotations, international outperformance, and the dangers of unrealized capital gains taxes, using the recent Netherlands law as a case study.

Episode Overview

Josh Brown and Ben Carlson take listeners through the biggest investing stories and hot topics of Q1 2026, focusing on the resilience of corporate America’s profit engine, AI’s knock-on effects for productivity and labor markets, "Halo" stocks, sector rotations, the rise of international equities, and the folly of taxing unrealized capital gains. They blend banter, data deep-dives, historical analogy, and skeptical riffs about political and economic trends.

Key Topics and Insights

1. A Historic Earnings Season and Profit Resilience

(03:51–17:27)

Record-Breaking Earnings Performance:
- 74% of S&P 500 companies have reported, with Q4 2025 showing 13.2% year-over-year earnings growth (fifth consecutive double-digit quarter) and 9% revenue growth (the best rate since Q3 2022).
- The outperformance is broad: "If I blindfolded you and just read you the numbers... you'd probably guess [the market] is doing pretty well." (Josh, [03:39])
- Beat rates in both revenue and earnings remain at or slightly above historical averages.
Enduring Corporate Strength—Despite Macro Headwinds:
- Companies have navigated COVID, high inflation, supply chain shocks, tariffs, remote work, and now AI disruption—yet profit margins and earnings keep hitting new highs.
- "Corporations are the last vestige here... Think about what they've been through... and they've come out just fine on the other side." (Ben, [04:40])
- AI is credited as a major driver, with savings and productivity gains potentially spreading beyond the initial "hyperscalers" and tech sector.
Skepticism Over ‘Infinite’ Profits:
- Bullish projections for AI-driven GDP growth are met with skepticism—“Get out of here with 10 or 20% [annual growth].” (Ben, [10:28])
- Hosts question who actually benefits from this productivity—a key set-up for later inequality discussions.

2. Sector Rotations: The "Halo" Phenomenon and Revenge of the 493

(17:27–26:38)

Rotation Away from Tech Giants:
- For the first time, 2026 sees the Mag 7 (tech megacaps) underperforming, while the S&P 493 (the rest of the index), small caps, value stocks, dividend aristocrats, and internationals outperform.
- "It's just interesting... all these Mag 7 stocks have kind of rolled over... and the equal weight is doing really, really well." (Ben, [17:43])
Halo Stocks Explained:
- Josh introduces "Halo": Heavy Assets, Low Obsolescence—firms whose physical assets and irreplicable businesses render them less disruptible by AI.
- Tangible, industrial companies are winning back favor after a decade dominated by software and asset-light growth models.
- "We've gone from intangible back to tangible..." (Ben, [21:32])
Global Parallel:
- This cycle isn’t limited to the US: heavy-asset companies dominate value indices globally, explaining outperformance abroad.

3. Unrealized Capital Gains Tax—Case Study: Netherlands

(26:38–34:03)

The Policy:
- The Netherlands has introduced a 10% annual tax on unrealized investment gains over a certain threshold, to address the widening wealth gap.
- "Not realized. Capital gains unrealized. Like the year ends and they assess the gains on your investments... You'll owe 10% of that gain, even if you didn't sell." (Josh, [28:54])
Unintended Consequences:
- Such policies incentivize capital flight, reduce investment, hinder job creation, and ultimately harm the broader economy.
- “The one thing we know about the super rich is that their money is more portable than ever.” (Josh, [28:51])
- Ben proposes a more sensible fix: tax borrowing against investment portfolios, as it’s effectively consumption.
Philosophical Critique:
- Reflecting on US policy, the hosts argue it’s better to broaden the investing class than to punish ownership, regretting delays in financial inclusivity (e.g., delayed tax-advantaged accounts for youth).

4. AI, Inequality, and Historical Lessons

(34:03–37:14)

AI Exacerbates Wealth Gaps:
- Ben predicts AI will “make the spread between the winners and losers so much bigger,” likely creating acute pain for those in disruptable lines of work.
- He draws analogies to the 1920s, when technological shifts boomed the economy but impoverished certain classes—referencing The Jungle, Grapes of Wrath, and Gatsby as cultural lenses.
The Next Transition:
- "There are going to be whole groups of people or industries... where inequality just gets worse and worse, regardless of how well the economy is doing." (Josh, [36:30])

5. International Outperformance and Dollar Dynamics

(38:25–49:07)

International Stocks Surge:
- MSCI World ex-US, Europe, Japan, Asian Pacific, Emerging Markets—all sharply outperforming the S&P since early 2025.
- Most US investors are unaware: "I’m gonna say like three out of ten, maximum, even know how the year began." (Josh, [40:10])
- International small cap value, for example, has outperformed the S&P 500 over 5 years.
Why Now?
- Some attributing this shift to a weakening dollar and policy reforms abroad (esp. Japan and Europe).
- "[International stocks] underperformed, underperformed... and then there was a turn. But there was no way to know in the moment... another lesson." (Josh, [44:53])
EU Reforms as a Catalyst:
- Europe’s political leaders—meeting in a Belgian castle—are moving toward reducing regulation, integrating capital markets, and possibly launching pan-European bonds/stocks.
- “We might get a pan-European bond and stock market this year. Think about what a massive catalyst that could be.” (Josh, [51:38])

6. AI Disruption and Market Psychology

(52:32–57:33)

Viral AI Anxiety:
- Massive engagement with think pieces like “Something Big is Happening” signals that “everyone’s prepared, but nobody knows what’s gonna happen.” (Josh, [53:31])
- Josh pokes fun: “The only responsible thing to do is just resign now. Don’t make [AI] come find you.” ([53:55])
Software Sector Correction:
- The software sector’s P/E dropped from 51x to 27x in a year, now cheaper than many “boring” industries.
- Speculation over which verticals are insulated from AI: “If you’re aggregating public data, nobody needs you to do that anymore. That’s not a business.” (Josh summarizing Bustamante, [56:07])
The Rise of the 'Undisruptables':
- Defensive stocks (Costco, Walmart) now fetch massive premiums, potentially forming their own overvalued bubble.
- “The staples stocks are stupid... Coke and Pepsi had 85 RSIs last week.” (Josh, [57:33])

7. The Apple Play and Consumer AI

(60:16–66:56)

Apple as Silent AI Winner:
- Unlike most Big Tech, Apple’s capex is down, but hosts predict Apple will lead consumer AI via a supercharged “Agentic Siri”—an assistant capable of handling complex personal tasks by integrating across all apps.
- “Apple is going to own consumer AI… Agentic Siri is a grand slam and they’re gonna do it. And Apple is never first… They let everybody blow themselves up and then come in and say let me step aside, let me show you how it’s done.” (Josh, [62:38])
- The "at home vs. enterprise" AI use-case split: "Microsoft at work, I’m Apple at home." (Josh, [65:07])
Potential for Apple Stock to Shine:
- Despite lagging hype, Apple’s "closest to the customer" position and hardware ecosystem could make it the breakout stock as the next AI phase arrives.

8. Mystery Chart and Wrap-Up

(66:56–69:00)

Industrious Outperformance:
- Ben’s “mystery chart” shows US industrials (XLI) rivaling Mag 7 index returns since the market lows.
- “These are the most screwed companies in the world. Done. They will never make money again... Blah, blah, blah. Good call.” (Josh, [67:50])

Notable Quotes & Memorable Moments

On AI's real impact:
“If we went from 2% growth to 3% growth [from AI productivity], that’d be amazing, right? Get out of here with 10 or 20%.” — Ben [10:28]
On the Netherlands tax:
“The problem with that attitude is the knock-on effects are on a lot of unintended consequences... It kills stock markets, it kills jobs, it sort of has a perverse impact on the profit motive.” — Josh [30:24]
On sector rotation:
“Have the tech industry… disrupted itself and maybe their own stocks?” — Ben [23:22]
On global investing cycles:
“There was no advance warning… They underperformed, underperformed, underperformed, underperformed. And then there was a turn. In the moment, there was no way to know.” — Josh [44:53]
On AI’s threat to software:
“If you’re aggregating public data, nobody needs you to do that anymore.” — Josh (paraphrasing Bustamante) [56:07]
On Apple’s strategy:
“Apple is never first... but once they do it, it’s lights out. We all already have the device.” — Josh [62:38]

Key Timestamps

03:51: Start discussion of earnings season and market resilience
11:30: Sector breakdown—tech growth is staggering but industrials and ‘halo’ stocks are the surprise
17:42: Rotation from Mag 7 to S&P 493 and other market segments
26:38: Unrealized capital gains tax in the Netherlands: mechanics and critique
34:03: AI’s likely exacerbation of wealth inequality and historical comparisons
38:25: International stocks’ resurgence; US investors’ ignorance of the trend
44:53: Lessons in market timing and the unpredictable “turn” point
49:07: Eurozone’s push for capital market unification and pro-growth reforms
52:32: Discussion of viral AI anxiety and how it’s transforming market narratives
60:16: Case for Apple as the future consumer AI leader
66:56: Mystery chart: industrials rival Mag 7 performance since market lows

Tone and Style

Conversational, candid, sometimes irreverent, with frequent playful barbs between hosts. They mix hard data, client anecdotes, skepticism toward easy narratives, and a strong sense of historical perspective. The tone is both expert and accessible, rarely missing a chance for a pop-culture or generational reference.

Final Thoughts

This episode offers a masterclass in real-world market analysis: blending sector data, structural shifts, and big-picture policy themes, always with an eye on investor behavior and psychological traps. It’s essential listening for those seeking practical, fact-based investing guidance amid AI disruption, global upheaval, and political–economic experimentation.

The Compound and Friends – Ep. "Unrealized" Capital Gains Tax is Economic Suicide

Episode Overview

Key Topics and Insights

1. A Historic Earnings Season and Profit Resilience

(03:51–17:27)

Record-Breaking Earnings Performance:
- 74% of S&P 500 companies have reported, with Q4 2025 showing 13.2% year-over-year earnings growth (fifth consecutive double-digit quarter) and 9% revenue growth (the best rate since Q3 2022).
- The outperformance is broad: "If I blindfolded you and just read you the numbers... you'd probably guess [the market] is doing pretty well." (Josh, [03:39])
- Beat rates in both revenue and earnings remain at or slightly above historical averages.
Enduring Corporate Strength—Despite Macro Headwinds:
- Companies have navigated COVID, high inflation, supply chain shocks, tariffs, remote work, and now AI disruption—yet profit margins and earnings keep hitting new highs.
- "Corporations are the last vestige here... Think about what they've been through... and they've come out just fine on the other side." (Ben, [04:40])
- AI is credited as a major driver, with savings and productivity gains potentially spreading beyond the initial "hyperscalers" and tech sector.
Skepticism Over ‘Infinite’ Profits:
- Bullish projections for AI-driven GDP growth are met with skepticism—“Get out of here with 10 or 20% [annual growth].” (Ben, [10:28])
- Hosts question who actually benefits from this productivity—a key set-up for later inequality discussions.

2. Sector Rotations: The "Halo" Phenomenon and Revenge of the 493

(17:27–26:38)

Rotation Away from Tech Giants:
- For the first time, 2026 sees the Mag 7 (tech megacaps) underperforming, while the S&P 493 (the rest of the index), small caps, value stocks, dividend aristocrats, and internationals outperform.
- "It's just interesting... all these Mag 7 stocks have kind of rolled over... and the equal weight is doing really, really well." (Ben, [17:43])
Halo Stocks Explained:
- Josh introduces "Halo": Heavy Assets, Low Obsolescence—firms whose physical assets and irreplicable businesses render them less disruptible by AI.
- Tangible, industrial companies are winning back favor after a decade dominated by software and asset-light growth models.
- "We've gone from intangible back to tangible..." (Ben, [21:32])
Global Parallel:
- This cycle isn’t limited to the US: heavy-asset companies dominate value indices globally, explaining outperformance abroad.

3. Unrealized Capital Gains Tax—Case Study: Netherlands

(26:38–34:03)

The Policy:
- The Netherlands has introduced a 10% annual tax on unrealized investment gains over a certain threshold, to address the widening wealth gap.
- "Not realized. Capital gains unrealized. Like the year ends and they assess the gains on your investments... You'll owe 10% of that gain, even if you didn't sell." (Josh, [28:54])
Unintended Consequences:
- Such policies incentivize capital flight, reduce investment, hinder job creation, and ultimately harm the broader economy.
- “The one thing we know about the super rich is that their money is more portable than ever.” (Josh, [28:51])
- Ben proposes a more sensible fix: tax borrowing against investment portfolios, as it’s effectively consumption.
Philosophical Critique:
- Reflecting on US policy, the hosts argue it’s better to broaden the investing class than to punish ownership, regretting delays in financial inclusivity (e.g., delayed tax-advantaged accounts for youth).

4. AI, Inequality, and Historical Lessons

(34:03–37:14)

AI Exacerbates Wealth Gaps:
- Ben predicts AI will “make the spread between the winners and losers so much bigger,” likely creating acute pain for those in disruptable lines of work.
- He draws analogies to the 1920s, when technological shifts boomed the economy but impoverished certain classes—referencing The Jungle, Grapes of Wrath, and Gatsby as cultural lenses.
The Next Transition:
- "There are going to be whole groups of people or industries... where inequality just gets worse and worse, regardless of how well the economy is doing." (Josh, [36:30])

5. International Outperformance and Dollar Dynamics

(38:25–49:07)

International Stocks Surge:
- MSCI World ex-US, Europe, Japan, Asian Pacific, Emerging Markets—all sharply outperforming the S&P since early 2025.
- Most US investors are unaware: "I’m gonna say like three out of ten, maximum, even know how the year began." (Josh, [40:10])
- International small cap value, for example, has outperformed the S&P 500 over 5 years.
Why Now?
- Some attributing this shift to a weakening dollar and policy reforms abroad (esp. Japan and Europe).
- "[International stocks] underperformed, underperformed... and then there was a turn. But there was no way to know in the moment... another lesson." (Josh, [44:53])
EU Reforms as a Catalyst:
- Europe’s political leaders—meeting in a Belgian castle—are moving toward reducing regulation, integrating capital markets, and possibly launching pan-European bonds/stocks.
- “We might get a pan-European bond and stock market this year. Think about what a massive catalyst that could be.” (Josh, [51:38])

6. AI Disruption and Market Psychology

(52:32–57:33)

Viral AI Anxiety:
- Massive engagement with think pieces like “Something Big is Happening” signals that “everyone’s prepared, but nobody knows what’s gonna happen.” (Josh, [53:31])
- Josh pokes fun: “The only responsible thing to do is just resign now. Don’t make [AI] come find you.” ([53:55])
Software Sector Correction:
- The software sector’s P/E dropped from 51x to 27x in a year, now cheaper than many “boring” industries.
- Speculation over which verticals are insulated from AI: “If you’re aggregating public data, nobody needs you to do that anymore. That’s not a business.” (Josh summarizing Bustamante, [56:07])
The Rise of the 'Undisruptables':
- Defensive stocks (Costco, Walmart) now fetch massive premiums, potentially forming their own overvalued bubble.
- “The staples stocks are stupid... Coke and Pepsi had 85 RSIs last week.” (Josh, [57:33])

7. The Apple Play and Consumer AI

(60:16–66:56)

Apple as Silent AI Winner:
- Unlike most Big Tech, Apple’s capex is down, but hosts predict Apple will lead consumer AI via a supercharged “Agentic Siri”—an assistant capable of handling complex personal tasks by integrating across all apps.
- “Apple is going to own consumer AI… Agentic Siri is a grand slam and they’re gonna do it. And Apple is never first… They let everybody blow themselves up and then come in and say let me step aside, let me show you how it’s done.” (Josh, [62:38])
- The "at home vs. enterprise" AI use-case split: "Microsoft at work, I’m Apple at home." (Josh, [65:07])
Potential for Apple Stock to Shine:
- Despite lagging hype, Apple’s "closest to the customer" position and hardware ecosystem could make it the breakout stock as the next AI phase arrives.

8. Mystery Chart and Wrap-Up

(66:56–69:00)

Industrious Outperformance:
- Ben’s “mystery chart” shows US industrials (XLI) rivaling Mag 7 index returns since the market lows.
- “These are the most screwed companies in the world. Done. They will never make money again... Blah, blah, blah. Good call.” (Josh, [67:50])

Notable Quotes & Memorable Moments

On AI's real impact:
“If we went from 2% growth to 3% growth [from AI productivity], that’d be amazing, right? Get out of here with 10 or 20%.” — Ben [10:28]
On the Netherlands tax:
“The problem with that attitude is the knock-on effects are on a lot of unintended consequences... It kills stock markets, it kills jobs, it sort of has a perverse impact on the profit motive.” — Josh [30:24]
On sector rotation:
“Have the tech industry… disrupted itself and maybe their own stocks?” — Ben [23:22]
On global investing cycles:
“There was no advance warning… They underperformed, underperformed, underperformed, underperformed. And then there was a turn. In the moment, there was no way to know.” — Josh [44:53]
On AI’s threat to software:
“If you’re aggregating public data, nobody needs you to do that anymore.” — Josh (paraphrasing Bustamante) [56:07]
On Apple’s strategy:
“Apple is never first... but once they do it, it’s lights out. We all already have the device.” — Josh [62:38]

Key Timestamps

03:51: Start discussion of earnings season and market resilience
11:30: Sector breakdown—tech growth is staggering but industrials and ‘halo’ stocks are the surprise
17:42: Rotation from Mag 7 to S&P 493 and other market segments
26:38: Unrealized capital gains tax in the Netherlands: mechanics and critique
34:03: AI’s likely exacerbation of wealth inequality and historical comparisons
38:25: International stocks’ resurgence; US investors’ ignorance of the trend
44:53: Lessons in market timing and the unpredictable “turn” point
49:07: Eurozone’s push for capital market unification and pro-growth reforms
52:32: Discussion of viral AI anxiety and how it’s transforming market narratives
60:16: Case for Apple as the future consumer AI leader
66:56: Mystery chart: industrials rival Mag 7 performance since market lows

wavePod

Summary

The Compound and Friends – Ep. "Unrealized" Capital Gains Tax is Economic Suicide

Episode Overview

Key Topics and Insights

1. A Historic Earnings Season and Profit Resilience

2. Sector Rotations: The "Halo" Phenomenon and Revenge of the 493

3. Unrealized Capital Gains Tax—Case Study: Netherlands

4. AI, Inequality, and Historical Lessons

5. International Outperformance and Dollar Dynamics

6. AI Disruption and Market Psychology

7. The Apple Play and Consumer AI

8. Mystery Chart and Wrap-Up

Notable Quotes & Memorable Moments

Key Timestamps

Tone and Style

Final Thoughts

Transcript

Summary

The Compound and Friends – Ep. "Unrealized" Capital Gains Tax is Economic Suicide

Episode Overview

Key Topics and Insights

1. A Historic Earnings Season and Profit Resilience

2. Sector Rotations: The "Halo" Phenomenon and Revenge of the 493

3. Unrealized Capital Gains Tax—Case Study: Netherlands

4. AI, Inequality, and Historical Lessons

5. International Outperformance and Dollar Dynamics

6. AI Disruption and Market Psychology

7. The Apple Play and Consumer AI

8. Mystery Chart and Wrap-Up

Notable Quotes & Memorable Moments

Key Timestamps

Tone and Style

Final Thoughts