Watching credit spreads with Nick and Jessica, "Bessent Fever," the ponzi sleeve

Summary

Podcast Summary: The Compound and Friends Episode: Watching Credit Spreads with Nick and Jessica, "Besant Fever," the Ponzi Sleeve
Release Date: November 27, 2024
Host: Josh Brown & Michael Batnick
Guests: Nick Kolis & Jessica Rabe (DataTrack Research)

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Introduction

In this episode of The Compound and Friends, hosts Josh Brown and Michael Batnick welcome their regular guests, Nick Kolis and Jessica Rabe from DataTrack Research. As the final show before the Thanksgiving holidays, the hosts express gratitude towards their community, highlighting the podcast's significant growth in 2024 with millions of downloads and views. They set the stage for an in-depth discussion on corporate credit spreads, market valuations, the potential for a new Minsky moment, regulatory legacies, and emerging economic policies under the incoming Treasury Secretary, Scott Besant.

Notable Quote:
Josh Brown [00:00]: "It's just incredible how far we've come in 2024. It's millions and millions of downloads and views and it's all because you guys are a part of it."

Market Overview

Nick and Jessica kick off the conversation by addressing the current market sentiment. They discuss the possibility of a market "melt up" and whether investor confidence is sustainable or if complacency could pave the way for future downturns.

Notable Quote:
Nick Kolis [03:30]: "The market momentum is a very powerful force. And as we always say @DataTrack, never sell a new high."

Corporate Credit Spreads at Record Lows

A significant portion of the discussion centers on corporate credit spreads, which are currently at their lowest levels in 17 years, dating back to the mid-1990s. Nick explains that both investment-grade and high-yield corporate bond spreads over Treasuries have shrunk dramatically, indicating unprecedented confidence in corporate earnings and the broader economy.

Notable Quote:
Nick Kolis [05:08]: "Corporate bond investors... they're seeing nothing but blue skies ahead for us, corporate profits, profitability, profit margins and the economy. That's really a remarkable level of optimism."

Earnings Multiples and Market Valuations

Jessica presents data on Price-to-Earnings (P/E) ratios, highlighting that the S&P 500 is trading at a 3.9-point premium over its 10-year average. She emphasizes that this premium is driven by investor confidence in sustained economic growth and corporate earnings rather than just interest rate effects. The discussion also touches on sector-specific valuations, with technology leading the pack in multiple expansions.

Notable Quote:
Jessica Rabe [18:55]: "We really think that this is markets discounting stronger US economic growth relative to other regions."

Potential Minsky Moment

The hosts delve into the concept of a Minsky moment—a sudden market collapse driven by speculative activity. Josh Brown references the stages of lending from Minsky's theory and questions whether the current market's high optimism could be setting the stage for such a collapse. Nick and Jessica analyze current credit spreads and market behaviors to assess the likelihood of approaching a new Minsky moment.

Notable Quote:
Josh Brown [11:11]: "Isn't this the most dangerous time to be putting on risk when everyone is calm and comfortable with taking risk and there's a lot of complacency?"

Discussion on Scott Besant and Treasury

Transitioning to fiscal policy, the conversation shifts to Scott Besant, the incoming Treasury Secretary under the Trump administration. Michael Batnick and Josh Brown express optimism about Besant's appointment, citing his extensive experience in macroeconomic trades and his alignment with pro-growth policies. They discuss his potential impact on deregulation, energy independence, and manufacturing revival.

Notable Quote:
Michael Batnick [46:35]: "He seems to be a serious person with serious ideas and I'm optimistic."

Legacy of Gary Gensler

The episode scrutinizes the tenure of outgoing SEC Chairman Gary Gensler. The hosts critique his regulatory approach, particularly concerning cryptocurrency and ETF approvals, suggesting that his stringent enforcement may have hindered innovation and market growth. They debate whether Gensler's policies were well-intentioned but ultimately counterproductive.

Notable Quote:
Josh Brown [85:25]: "There are people that really genuinely think that he, he was like he had personal vendettas against Brian Armstrong."

The "Ponzi Sleeve"

In a candid segment, Josh Brown introduces the idea of a "Ponzi sleeve" in modern portfolios—allocations to assets labeled as Ponzi schemes but held strategically for potential high returns. This provocative concept sparks a discussion on risk management, investor behavior, and the evolving landscape of asset allocation in a volatile market.

Notable Quote:
Josh Brown [72:41]: "Just buy it anyway because what if you're completely wrong? And if it goes to zero, who cares? It's a small sleeve."

Stock Performances: MicroStrategy, Zoom, DocuSign

The conversation shifts to specific stock performances, with a focus on MicroStrategy's dramatic rise due to its Bitcoin investments, Zoom's fluctuating growth post-pandemic, and DocuSign's impressive earnings and stock surge. The hosts analyze these movements in the context of market trends and corporate strategies.

Notable Quote:
Michael Batnick [94:58]: "Docusign's going higher, but I think I would buy Zoom."

Audience Interaction and Memes

Throughout the episode, there are moments of light-hearted interaction, including references to memes and audience comments. While these segments provide entertainment, they also underscore the engaged and dynamic nature of the podcast's community.

Notable Quote:
Josh Brown [97:48]: "If you're not a hardcore into this shit, but you just don't want to completely miss out. That sounds like it's the right mentality."

Conclusion

As the episode wraps up, Josh Brown and Michael Batnick recap the main discussions, emphasizing the bullish signals in the market while cautioning against complacency. They encourage listeners to continue engaging with their content and remain informed about the evolving economic landscape.

Notable Quote:
Josh Brown [98:49]: "Whether it's bitcoin or any other stock or whatever that's appreciated... there's no right. It's personal. Whatever's best for you, that's what you do."

Takeaways

• Record Low Credit Spreads: Indicate heightened corporate confidence but also raise concerns about potential overvaluation.
• High Earnings Multiples: Reflect strong investor confidence in U.S. economic growth and corporate profitability.
• Potential Minsky Moment: While current optimism is strong, the risk of a sudden market downturn due to complacency remains.
• Regulatory Impact: Gary Gensler's stringent policies may have inhibited market innovation, particularly in the cryptocurrency space.
• Strategic Asset Allocation: Introducing high-risk "Ponzi sleeve" assets could diversify portfolios, though it comes with significant risk.
• Stock Dynamics: Companies like MicroStrategy, Zoom, and DocuSign showcase varied responses to current market conditions and strategic decisions.

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*For more insights and detailed analysis, visit Ritholtz Wealth Management and follow The Compound and Friends on YouTube.

Transcript

[Josh Brown]

Ladies and gentlemen, welcome to the compound. And friends, this is our last show before the Thanksgiving holidays. I want to start by saying Happy holidays to all of you and thank you so much for listening all year. You cannot imagine how thankful. Michael, Ben, myself, Duncan, Sean, John, Daniel, Nicole, Rob, Graham, all the people that Chart kidnapped, all the people who work so hard to put these shows out for you. But we get so much love back from you all in return. And I just wanted to start by saying Happy Thanksgiving and thank you so much for making this community awesome. It's just incredible how far we've come in 2024. It's millions and millions of downloads and views and it's all because you guys are a part of it. Otherwise we'd be talking. We. I'd be yelling into the void. So thank you guys. We love you. Tonight's show is epic. Nick and Jessica came by and we did a whole thing about whether or not we're approaching a new Minsky moment. So you'll find out what that means in a bit. We talk about corporate credit spreads being at 17 year lows relative to the risk free rate on bonds. We talk about the multiple on earnings going into 2025. And we take a look at why this market is not really comparable valuation wise to markets in the past. And as always, Nick and Jessica will blow you away with how smart they are and how they look at things. And then it's an all new additional body of thoughts. Michael Batnik, it's me. We look at the legacy of the outgoing SEC chairman Gary Gensler. We take a look at the Ponzi phenomenon in markets these days. Not really. We're pejoratively referring to things as Ponzi that probably aren't Ponzi's, but whatever, go with me on that. And we take a look at the Besant bump. So incoming new Treasury Secretary Scott Besant caught the attention of the markets this week in a favorable way. And we do a little bit of a dive into his history and some of the reasons why we are optimistic about this pick from the incoming Trump administration. Okay, that's it for me. I'm gonna send you right into the show now. And once again, thank you. We'll talk to you soon. Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Red Holtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Hello, everyone, and welcome to an all new edition of what Did We Learn? I'm here as always with my friends Nick Kolis and Jessica Rabe. They are the co founders of DataTrack Research and the authors of DataTrack's Morning Briefing newsletter, which goes out daily to over 1,000 institutional and retail clients. They're also two of the smartest people I know. Nick and Jessica have their own YouTube channel, which you could find a link to in the description below. Hi, guys. How are we today?

[Nick Kolis]

Good.

[Jessica Rabe]

Well, thank you. How are you?

[Josh Brown]

I'm doing well, Nick. Are you in an undisclosed location?

[Nick Kolis]

I'm in Memphis, Tennessee with the in laws.

[Josh Brown]

All right, very cool. I wanted to start off with what's happening just generally speaking in the markets. If everybody's expecting a melt up, which seems to be the case, can we actually still have a melt up or are we ruining it for ourselves? Are we jinxing it? What do you think?

[Nick Kolis]

Oh, it feels like a bit of a jinx. But the market momentum is a very powerful force. And as we always say @DataTrack, never sell a new high.

[Josh Brown]

Yeah. You guys note that investor confidence in the US Economy is extremely high. I would point out I was looking at the polls right after the election and everything that people said was wrong all of a sudden became right. And we stopped hearing about inflation and started hearing about robust growth. And it's the same data and a lot of that quote, unquote uncertainty has now turned into confidence. So I love the vibe shift. And I feel like no matter who somebody voted for, they should, I think, be happy that people are willing to say for regardless of the reason, hey, the economy is actually really good right now. And maybe there are reasons to be a little bit more optimistic. What do you guys think to be?

[Jessica Rabe]

They have to be happy with their, their portfolio returns since the election.

[Josh Brown]

Right. You don't have to like everyone that was elected to every post, but the. That's what the money's for is the way I like to put it. Can we talk about record low spreads?

[Nick Kolis]

Yes.

[Josh Brown]

All right, Nick, why don't you cook on this?

[Nick Kolis]

A little show and tell here. This is corporate bond spreads over Treasuries. And the basic math here is that a corporate issuer has to pay more to issue a bond than the treasury does. Treasuries are risk free. Corporate bonds have some risk. This first chart shows investment grade spreads, the amount of basis points that a corporate issuer, a high quality corporate issuer, has to Pay above Treasuries, and you look at the right hand side of that chart, we're now sitting at lows that, that we haven't seen since the mid-1990s. So corporations that are high quality investment grade issuers, they're paying very little over Treasuries relative to history for the privilege of issuing debt. And that tells us that there's a lot of confidence in corporate issuers and corporate cash flows and corporate earnings, and not just for this year and next year, but the average duration of these bonds is eight or nine years. So it's a very long tale, a very long projection of a lot of good news. The next chart shows you high yield spreads. And here the story is very, very similar. High yield spreads now are near record lows again back to the early mid-1990s, levels we have not seen before. Even during the pandemic, with all that stimulus coming through the system, even during the 2010s, which was a fantastic economic boom even in the 2000s. You have to go back a long way to see spreads this low. And it just tells you corporate bond investors who are really kind of a quirky, risk averse kind of cohort, they're seeing nothing but blue skies ahead for us, corporate profits, profitability, profit margins and the economy. That's really a remarkable level of optimism.

[Josh Brown]

Are they taking their cues from the stock market or is this just something that's happening concurrently? People feeling better about both stock market risk and bond market risk, or is there some interoperability here?

[Nick Kolis]

Right, it feels like a little bit of both. The reason we look at these corporate bond spreads is because they're not as skewed to tech as the stock market, particularly the S&P 500. So the big corporate bond issuers are industrials and financials and consumer staples and discretionary. Much more of a classic mix of what you would consider to be economically sensitive groups. And those are the groups where the bond spreads are extremely tight. So it feels like maybe 30% stock market. Hey, the S and P is trading at 22 times earnings. Corporate bonds must be a good deal here. But 70% is just this latent optimism that we're seeing that's just hitting record highs.

[Josh Brown]

The s and P500 financial sector, stock wise, is up about 40% on the year. It's actually beating tech. It is the best performing sector of 2024 that is happening concurrently with a coming, we think, wave of deregulation, a continuation of the 2017 tax cuts and interest rates falling. If all of those pieces of the puzzle fall into place. Isn't the right question or isn't the right way to look at this, like, well, why wouldn't people feel good about taking risks in the bond market right now?

[Nick Kolis]

Yeah, that's absolutely true and I think directionally absolutely correct. The question is measured against history. We're now at levels that are extremely high. And it's not just the S&P 500. It's this much more risk sensitive part of the market. And corporate bonds, so totally fair that we'd feel good about taking risks. The question is, is it already 100% priced in?

[Josh Brown]

So, guys, that's my question. That's what I wanted to ask you. Isn't this the most dangerous time to be putting on risk when everyone is calm and comfortable with taking risk and there's a lot of complacency? Aren't those historically the breeding grounds for future trouble? Does that concern you at all?

[Nick Kolis]

Of course it does. The challenge is, and like we have another saying at data tracks, the end of the world is a great trade, but you have to time it just so.

[Josh Brown]

Maybe something between the end of the end of the world and Goldilocks melt up, like maybe something somewhere in between.

[Nick Kolis]

I'd feel a whole lot more comfortable with spreads that were higher than here because it would feel like there's a sensible, sensible amount of risk taking versus excessive risk taking. And if you go back to that high yield chart, for example, you'll see that spreads are now back down to 97 kind of levels. We continue to rally in the stock market through March of 2000. And high yield spreads did increase because first of an Asian and Russian debt crisis, currency crisis, and then the failure of long term capital. So it's not like we can not see an unwind of this very high level of optimism in the corporate bond market and not see stocks continue to rally. Both can absolutely happen. But it would be more comfortable if spreads were higher because it would say investors are thinking about risk more appropriately.

[Josh Brown]

I added this chart to the doc from Callum Thomas and this is US High yield credit spreads. So this is showing what you guys were showing, but these bands seem to be meaningful. So we're looking at standard deviations away from kind of the baseline for high yield credit spreads above Treasuries. And when you look at this and you just look at the years on the X axis below, just intuitively like, none of these periods of time of record low spreads coincided with amazing buying opportunities. And obviously some, some of them coincided with market tops, but not all of them.

[Nick Kolis]

Right. I mean, 97 was a pretty spectacular time to be long, the S and P. And that's when, you know, the line hits that yellow line at the end.

[Josh Brown]

Oh, you had to be long. You had to be long.

[Nick Kolis]

You had to be long. 97, with those record lows. You had to be long. You were going to get a close to a double in the S and P through March 2000. So. Yeah. But again, in 07, the next time it hits the level, not so good, obviously.

[Josh Brown]

Yeah, yeah.

[Jessica Rabe]

You don't want to. You don't want to be George Soros who gets into tech stocks late in the. At the. Towards the end of the 1990s stock market run, and then get caught off guard and get creamed in 2000.

[Josh Brown]

So I wanted to ask you guys, do you worry about this maybe not right at this second being a Minsky moment, but developing into a Minsky moment? And for the audience, a Minsky moment is defined as the onset of a market collapse brought on by speculative activity. That defines an unsustainably bullish period. Minsky was an economist who talked about these periods of time where everyone was so comfortable with risk that there weren't enough people hedging, there weren't enough people worried enough about the future and kind of people being all in. And I just want to show you two charts really quickly to illustrate this. So these are the three stages of lending. So an economic recovery after a crash starts off with hedge borrowing, and then it gets into speculative borrowing, and then it gets into full on Ponzi borrowing. And then you hit your Minsky moment where credit rolls over. Of course, equities go with them. The economy itself rolls over. And these are. The next chart is just kind of some definitions. So I don't know if we're. I don't think we're in the hedge phase is what I wanted to ask you guys. Where it's strict credit policies, investors favoring low risk activities, and sufficient levels of debt. The next phase, speculative borrowing, loose credit borrowing rises, asset prices rise, everyone's got healthy returns and the economy's booming. I sort of feel like we're there. The next phase would be the Ponzi phase. And if you talk to some of our colleagues, especially on Twitter, they would say we're in the Ponzi phase and we've been for a while. How do you guys think about these stages? Is this like an important consideration to your work or not really?

[Nick Kolis]

It's a great construct because it links money creation through lending to the economy. And that's philosophically a very solid foundation for the kind of way to the right way to think about the market. As for trying to spot where we are in one of those three phases, we don't think very much about it, but we think about in terms of. It's subjective. We prefer to use. Hence the name data trek. We prefer to use the data of things like over bond spreads to say where are we, you know, psychologically in the market? I'd say from that perspective, like you said, we're certainly in the. Not in the hedge that knocks off one of the three options. We're one and one of the last two. And I think about misky moments. They need a catalyst, you know, a specific catalyst. And identifying that catalyst is super important if you want to trade or invest around that philosophy. And right now we don't see the elements of a catalyst to then create the rollover that you saw in that first chart.

[Jessica Rabe]

Yeah, it typically comes from an oil shock.

[Josh Brown]

Okay, that's. And. But the oil shock occurs coincidence with markets already being in the Ponzi phase. And that's the thing that tips them over. Or just two separate concepts entirely.

[Nick Kolis]

Oh, it did. You know, the 2008 recession is interesting because oil prices had doubled over the prior year going to 2008 because of speculative. Speculative investment based on borrowing from a big source of liquidity. And that did create a recession. So that's actually a pretty good example of one 1990 oil shock there. Obviously not 2003 market lows, not as much. But the run up in the. In the dot com stocks certainly feels like a Minsky kind of framework.

[Josh Brown]

I am not referring specifically to any particular publicly traded instrument as a Ponzi, but a lot of people are. And last week there was a really interesting phenomenon in shares of MicroStrategy, which is a publicly traded company that is using shareholder money to hoard Bitcoin. It's up over 600% on the year. Last week it became the most widely traded stock in the entire US Stock market for at least one day. Traded more volume than Nvidia and Apple, both of which are significantly larger by market cap. I don't know that this is big enough to be a catalyst, but this is the sort of thing that people are pointing to and saying Minsky, Minsky, Minsky. These are people buying convertible bonds with a 0% coupon, hoping that the share price five years from now will be significantly higher to offset the risk they're taking and be even better than the return of a traditional interest rate bond. Does that get your attention or you just look at that kind of anecdotally as its own weird thing taking place and maybe not so emblematic of any particular stage that we're in.

[Nick Kolis]

Oh, you know, there were a hundred micro strategies in 1998 and 1999. There were literally they IPO'd every.

[Josh Brown]

Including micro strategy, by the way.

[Nick Kolis]

Including micro strategy. So yes, obviously I didn't know those stats, those are crazy. But I think back to when I was SAC trading with Steve Cohen and there were a hundred of these things floating around every day and every week there'd be a new IPO that would triple on the first trade. So yes, one is worrisome. It's when you get to scores of them that it becomes a big problem.

[Josh Brown]

Okay, so maybe when we check in next month we'll have, we'll have either less or more than than what we have today. Jessica, you, you're talking about stock market valuations this week and you're taking a look at the overall S P and the S P sectors. What do you, what do you see happening here?

[Jessica Rabe]

Yes, Wall street analysts have only been 2 to 5% overly optimistic on forward year earnings over the last few years. So they're pretty good at predicting this data. They currently give a $275 per share number, which we think is pretty reasonable, barring a shock. The issue of course is what the market's going to pay for that $275 ish number. So we have a fact set chart that shows the forward PE multiple trends over the last 10 years. Again, this is from Factset and we put in our annotations. But I have just three quick points here. And the first is that we've only had one brief recession in the last decade. Two, 2020. And yet the 10 year range for Ford PEs is 14 times to 22 times, which is a difference of over 50%. The second is that the only factor that explains why they move is investors confidence in the near future. So as you see in the chart, PEs can be low, like between 14 and 15 times during or after a crisis, like in 2014, 2015 and 2020, or of course when the Fed makes a policy mistake like in 2018. And then lastly, PEs can reach extremely high levels of over 21 times when fiscal and monetary policy avert a recession, like in 2020 and 2021. So at 22 times currently, of course, PEs reflect very high levels of confidence. So the upshot here is that high valuations and a lot of uncertainty over the next year make it easy to be bearish here. But like we always say, math is. Math is not an edge. We do think we have a solid setup going into 2025 with the US economy still growing. We still have solid corporate earnings and of course we have Fed. We have a Fed cutting rate. So again, barring an exogenous shock, we're still bullish from here.

[Josh Brown]

And then when you say math is not an edge, that's because everyone is aware of these numbers and still they continue to allocate the stocks. So just being the one that says wow, 22 sounds like it's a higher number than 21 or 20. Maybe stocks were expensive. That in and of itself is not terribly insightful.

[Jessica Rabe]

Exactly. Everyone has a calculator.

[Josh Brown]

Okay.

[Jessica Rabe]

And then we do have another chart on the sector level, if you could please put that up. So given that the S&P 500 valuation premium versus longer run historical for given that the S P 500's valuation premium versus long run historical norms, we also this shows a fact set chart with a comparison of sector level price to earning ratios now versus their 10 year averages. And you can see the increase or decrease in forward earnings multiples. We put it in green which are current multiples higher than the 10 year average and then also in red which are lower than the 10 year average. And for real estate we just used a five year average since it's a newer sector. And I just have three points points here. The first is that and you can follow along in the chart. The S P 500 currently trades at a 3.9 pe point premium to its 10 year average at 22 times versus 18.1 times. So that's a 22% difference. But it's important to note that multiple expansion is not because of interest rates here. The 10 year treasury note currently yields about 4.3% and its 10 year average yield is only 2.45%. And then second, as you'd expect, as you can see towards the left side of the chart, Technology has seen the largest increase in multiples. These stand at 29.2 times today, up 8.1 points or 38% from their tenant year average of 21.1 times. And they're even 4.2 points above their five year average of 25 times. So again, despite higher rates, Tech is still seeing the greatest multiple expansion of any S and S P group relative to its long run average. And then third and lastly, almost every S&P 500 sector is trading about 1 to 5 points rich to its 10 year average PE ratio. You could see the only exceptions are real estate, but barely by just 0.1 pe point from its 5 year average. And then energy which is down.06 points. Both are understandable given recent trouble in real estate and reliance on commodity prices for energy. But the most important thing here is that all the other sectors ability to overcome higher interest rates suggests investors think structural returns on capital are higher than the average of the last decade. So the upshot here really is that tech has led the pack to higher US large cap tech value or sorry, higher US large cap stock valuations over the last decade. But eight other sectors has, eight other sectors have helped. So this is not just a tech phenomenon. We really think this is markets discounting stronger US economic growth relative to other regions. And also we think that global equity investors are increasingly seeing that US large caps have a superior ability to create shareholder value over time. And so they're choosing to allocate to them more and more as a result. And we've seen this firsthand with, when meeting with clients in Europe over the past few years. So yes, US stocks, US large caps in particular are expensive, but let's not forget that they've earned this premium over several years and we don't think that'll change anytime soon.

[Josh Brown]

I was going to say it's like a 15 year period of US large cap outperformance relative to every region in the world, pretty much every major country certainly. And at a certain point, if you can't beat them, join them. So I don't know how much of this, how much of this increased PE ratio just comes from overseas flows that want to be in these stocks. But I agree it's got to be some component here. The second thing I would ask you is when you say it's not interest rates being the reason for stocks having elevated pes relative to their own 10 year average. So what do you think it is? Is it profit margins? Are people structurally more comfortable with these companies because they're less likely to be wiped out in a recession given how profitable the starting point is for the way that they operate?

[Jessica Rabe]

Yeah, we think it's confidence in American tech innovation. We just have massive companies that are, are globally scalable with tons of cash flows and huge total addressable markets and really strong competitive moats. When we go talk to clients in Europe, for example, they're actually very jealous of the huge tech companies that we have. So they actually see it as a, not a bug that we have so much exposure to US big tech.

[Josh Brown]

Okay, we did A little bit of work on this that I wanted to just share with you guys and get your reactions. This is chart kid. Matt at my shop took a look at forward PE for the S&P 500 and it turns out that forward PE ratio is still below its previous cycle high. So even though stock prices have made new all time highs, we haven't yet seen the multiple take out the old highs. So what you can see here on the left is price for the S P500. Of course 6000 is a new record set the other day. And now look at forward PE though. In September of 2020 we hit 24.1 times. Arguably that was versus really depressed earnings as a result of the pandemic. So we are at 22.3 now, which is somewhat lower. Do you. I guess my first question looking at this would be do you think we print a new high on, on PE ratios relative to 2020 at some point in 25 or will earnings growth accelerate fast enough to keep us from doing that?

[Jessica Rabe]

I think, I think my main point here would be 2020 isn't an apples to apples comparison because we don't have $5 trillion worth of stimulus running through the system.

[Josh Brown]

Right. Okay, we looked at forward PE since 2000 here. Let's put the second table up. So what Matt's pointing to here, valuation, I guess when you look at large caps, look at mid caps, look at small caps, it's kind of, it's kind of a scenario where if you're a value hawk and you're worried that you're buying an all time expensive P E ratio or a generational expensive P E ratio, well, look at the S&P 416.2 times versus 19 times in 2020. Take a look at the small cap, 615.8 versus 18.2. So even though we're tying that cycle high in PE for the large caps, other opportunities have presented themselves. Are you guys thinking that way as well?

[Jessica Rabe]

Yeah, we do think small caps look attractive here and we've continued to write that in our, our data track warning briefing.

[Josh Brown]

Got got a pretty good rally going as we're, as we're talking. So led by of all things regional banks. So how do you like that? All right, let's, let's take a look at the US labor market guys. What are you showing me in these charts?

[Jessica Rabe]

Sure. So we all know the US jobs market data from this year, but we just wanted to put in into it into historical context to show just how strong the US labor market really is for two reasons. One, it helps explain why valuations are so high. And it also helps explain why Fed Chair Powell continues to reiterate the FOMC's ability to be patient when it comes to cutting near term rates. So I have a bunch of charts. I'm going to go through them like pre pretty quickly. So the is on initial claims. Yes. So you can see us Initial claims for unemployment insurance have been stable for the last three years, running at about an average of 220,000. 220,000. The big stat here is that that's about the same as in 1970, even as the US labor force has doubled in the last 50 years. And the last reading this past Thursday was only 213,000. That's the lowest since 209,000 this past April. And while continuing claims did rise slightly, they're still at 2017-2019 levels. Another important point here is that this report includes a reference week for November's jobs report. So it does suggest that the Fed will see a strong labor market reading going into the last FOMC meeting of the year. Then we also have a chart on the U.S. unemployment rate. Yes. So the U.S. unemployment rate at 4.1% is lower than it was during the entire 2000s economic expansion. The only times it was lower was at the end of the last two economic expansions in the late nine late 90s and 2000 and 2019 and 2018 and 2019 or during right after wartime. So Vietnam War in 1960s, Korean War in 1950s or 19.

[Josh Brown]

Amazing stat.

[Jessica Rabe]

Yeah.

[Josh Brown]

That we continue to find new lows on unemployment after all this time and all these interest rate hikes. I don't think most people would have expected this.

[Jessica Rabe]

Yeah. And with such a larger labor force.

[Josh Brown]

Yeah.

[Jessica Rabe]

Then we also have switching over to wage growth. We have the Atlanta Fed Wage Growth Tracker. This shows that the three month moving average of median wage growth is currently 4.6%. That's higher than the peaks of the two of the last two economic cycles. In fact, you have to go all the way back to the late 90s and early 2000s to see higher wage growth than now. I would say on the plus side, at least wage growth, wage growth was not keeping up with inflation, but at least now it is. Then we also have the ratio of job openings to unemployed workers. So it's currently 1.1 times, which is still one standard deviation above the long run average back to 2000. But it's also the same ratio as in 2018 and 2019 at the end of the last economic expansion and I think this is a point that's underappreciated. The labor shortage didn't start in the pandemic. It actually predated the pandemic starting in 2018. But for almost two decades, from 2000 to 2017, there are always more unemployed Americans than jobs available. And that's certainly still not the case now. And lastly, we have quits as a percentage of the labor force. If you couldn't. Oh, there it is. So this has fallen quickly from a record high of 2.8% in 2022 back to the long run average of 1.8% since 2000. So people are now quitting at normal rates. However, the next chart, layoffs and discharges as a percentage of the labor force, is historically low at 1.1%. That's even still below the 1.2% print right before the pandemic hit, when the US economy was super strong at the end of the last economic expansion. So while Americans are staying put with less confidence of finding a better job, employers are reluctant to lay off workers, given a still decent economy and how difficult they were to find and costly to train during the ongoing labor market shortage.

[Josh Brown]

Yeah, people, let's put, let's go back to quits really quickly. So for the listeners, we're at about a 1.8% quit rate. @ the peak of the quit rate, which was April of 2022, it looks like that was about 2.8%. So these are, they don't sound like huge swings, but this number is remarkably stable over long stretches of time. And again, the average is 1.8%. So that 2.8% quit rate was really aberrant. And it was just at this moment where we weren't sure were people ever going to go to work again? Was everyone going to start their own company? So now getting back to normal was not even painful because we're just at normal now. We, I don't think we don't want it, we don't want to see that number crash again. We're happy with where it is right now. If it could stay here.

[Jessica Rabe]

Yeah, and the Fed's super happy with it because people were. There was such high turnover because people were finding better paying jobs, which was pushing wage growth higher. And people of course wanted more flexibility with either remote or hybrid work, which actually leads to. I just have two more charts that show two high frequency labor market data points. The first is on US Office occupancy. US Office occupancy is still only about half of what it was pre pandemic. So worker workers put the most face time in on a Tuesday with occupancy reaching between as high as maybe 65% in New York to 75% in Austin. But on Fridays you still only see about a third of occupancy. And then if you look at us Google search volumes for remote work, they're still at five year highs or they just made a five year high, which is pretty remarkable. So clearly, clearly workers still have a strong desire for remote work. But even more importantly, they continue to feel they have the upper hand versus employers in keeping either hybrid or remote work. Otherwise it showed more face time in the office. We continue to think that this dynamic isn't going to change until we have an impending recession whereby workers trade job flexibility for job security. And just wrapping this up, the reason why we think this is so important is because such a strong labor market pushes interest rates high, pushes interest rates higher without sustainable productivity growth, especially with such high wage growth that feeds into overall inflation higher than the Fed's 2% target. And that's why, that's why the Fed chair Powell wants to keep rates still somewhat restricted and not, not, not cut them too quickly because he wants to see the labor market continue to cool so that inflation moves sustainably lower.

[Josh Brown]

Yeah, I think that's the really important point. If so, if you're modeling for next year and we don't have an interest rate forecast, but just hypothetically for someone that does, you should probably err on the side of less cuts versus more purely on the basis of the state of the labor market. It's still incredibly strong. So what would be the Fed's rush?

[Jessica Rabe]

Yeah, and you've seen Fed fund futures pull back their expectations too. They now only think there's going to be two to three cuts over the next 13 months.

[Josh Brown]

Okay, Nick, you want to get to the biggest market caps now versus the 90s. What's the big message here?

[Nick Kolis]

Yeah, so when we look at long term PE charts like the one that we were discussing earlier on this podcast, it assumes that the quality of companies is the same all the way through.

[Josh Brown]

Which it is not.

[Nick Kolis]

Which it is not. So let's throw up the table here. So this shows the three largest companies in the S&P. In 1995, when I was at First Boston, I would be sitting on morning calls and the guy who covered these companies always got to be on the morning call first because they were the most important companies to the S and P, the highest quality US Companies. And you can see they are GE and so forth. And then we have the same companies.

[Josh Brown]

Today, for the people listening, ExxonMobil and Coca Cola. Right, okay, got it.

[Nick Kolis]

And then now we have the Same companies in 2024. Nvidia, Apple and Microsoft. And what this chart shows is it breaks down the fundamentals of these companies. What do they make per dollar of revenues? How much do they turn their asset base and revenues divided by shareholder equity. So the ROE components, then their ROE and the percentage of non US revenues. So how international is the company and how does it make in terms of return on equity? And the comparison is quite striking because the companies in the 90s were perfectly good companies. Excellent, as a matter of fact. And so they averaged an ROE of 31%. That's great. They had margins of roughly 10% and turned over their revenues to shareholder equity about three times. So very fine companies with 59% non US revenue. So very international, very profitable, very good return on equity. But then you fast forward to today and you got Nvidia, Apple and Microsoft, and their net margins are 36%. So three times the best companies in the 1990s, their revenues to shareholder equity are about the same 3.1 versus 2.9. But because the margins are so much better, the ROE has gone from 31% in the 90s for the best companies to 89% today and as high as 165 for Apple. And they have roughly the same percentage of non US revenues. So the direct comparison tells us that the market values big international companies. Okay, great. Both sets of companies have that. And then it measures roe. And on that basis the companies for today are materially like way better than the companies of the 1990s. So naturally valuations are going to be higher. So thinking about pes as a constant over time, that's not the way it works. Markets value roe and they value growth. And the companies today are just simply light years ahead of the companies in the 90s. And no, sure.

[Josh Brown]

Do you think this is the thing that the CAPE ratio people of 2010 and 2011 who just insisted that we were at this 90th percentile in the cyclically adjusted PE ratio, the 10 year PE ratio, do you think that this is the thing that they missed the most or most underestimated was how much more people would be willing to pay for today's giants versus yesterday's? Because I do. Okay, yes.

[Nick Kolis]

And it's not just that. I mean, the CAPE ratio is a very interesting measure because it goes back to the 1880s. So it gives you this comforting sense of a long term historical perspective. But if you look at it over time, you see it just tends to go up over time.

[Josh Brown]

It's got a tilt, it's got an upward tilt over time.

[Nick Kolis]

And it's got an upward tilt because it's just philosophically hard to compare the S &P of 1900 based on railroads with the S and P of today based on global Internet and global technology. To me, it's not just that it's a cooler technology, it's that the fundamental business models are much better, higher roe, much more judicious use of shareholder capital, much higher margins. And so you end up with. I think that's where the flaw of any kind of historical PE analysis really comes to the fore. Because you're comparing companies historically versus companies today. And we happen to have a batch of companies today that have incredibly high roe. And shareholders should want to pay more for that.

[Josh Brown]

Yeah, I think because of what you're showing me here. The biggest risk factor is anything that comes along and materially threatens profit margins, especially within large cap, consumer discretionary, large cap technology companies. Like if you're looking for the meteor that's going to hit Earth and wipe out the dinosaurs in this era. That's really the thing. What is the thing that all of a sudden comes along and threatens these kind of structurally higher and very well protected moats and margins? And I don't know what maybe you would have thought Lina Khan at the FTC and a very progressive populist left wing winning a lot of court cases. But that moment seems to have passed. And I feel like you can see that in the stock price action over the last two weeks.

[Nick Kolis]

I think it could end for two reasons, aside from just a financial crisis or something else that affects liquidity. The first is if you got competition from overseas. If Europe had as vibrant a tech industry as the US does, US multiples would be lower. So they don't have their own Microsoft, they don't have their own Amazon, they don't have their own Google. They use the American companies. If China had a different regulatory regime and actually encouraged global growth for its tech companies and could firewall them sufficiently politically, that'd be a threat. But neither one of those two things are happening and neither one of those two things seem likely to happen in the next decade. It takes too long to build these companies, so that could be a thing. The other one would be a disruptive company getting funded right now with venture capital that eventually takes over. Google, for example. And the plus side there is it's probably us and it probably ends up in the S and P. So you're hedged.

[Josh Brown]

Yeah, it's OpenAI or it's perplexity. Those are your privately held Google competitors that yes, I suppose it's possible. In 2003 and 2004, Google looked just as unlikely to be able to dethrone Yahoo. So these things do occasionally happen. Tough to bet on because so many times it doesn't happen. But you're right, it's definitely a threat. I would just point out one of the things about these companies that have these incredibly high margins is it allows them to experiment a lot. It allows them to cannibalize their own business. It allows them to throw a lot of money at projects that may not work because they're not preciously conserving a 5% profit margin. So Netflix being a really good example, two years ago, Wall street told them they had to change something. They came out with an ad supported platform that would have been a heresy in a prior era to have a company eat its own business. And yet they're actually more profitable on the ad supported tier than they are on the premium tier. This is something nobody could have imagined in 2022 when they announced that they would try it. You can't try it if you have no margin because it's every quarter is about survival. When your gross margins are 20, 30, 40%, you can try a lot of things and that helps you sustain your moat, which of course equity shareholders are now willing to pay more as a result of that sustainability. Any thoughts?

[Nick Kolis]

That feels right. And competitive advantage is what drives valuations.

[Josh Brown]

Absolutely.

[Nick Kolis]

These companies can prove that have proven they can persistently improve their competitive position or at least maintain it and grow at the same margin level they have historically. So it's just a very powerful combination.

[Josh Brown]

Have I told you guys lately that you're the best? Has it been too long? I love catching up with you both. Your research is incredible. I want to tell people that they can follow your YouTube channel, your YouTube.com, jessica Rabe, and of course you can go to data trek research.com to get all things Nick and Jessica. You guys are publishing every day, doing an amazing job. Thank you so much for joining us here on the Compound and we'll see you next month.

[Nick Kolis]

Thank you.

[Josh Brown]

Thank you guys. Hey, yo, Compound Nation. Happy Thanksgiving. Zoe, Jeff, Jay, Luther, Random Trends, Oliver, Michael, Cliff. I see you, Rachel. What's up? Giancarlo, Jerry. We miss you guys when we're not here. Thank you so much for being here for the live tonight. We appreciate you Have a happy holiday and get some rest. The rest of this year is about to be crazy. Welcome, ladies and gentlemen, to the Compound and Friends presents. What are your thoughts? Is that right? Sure, sort of.

[Michael Batnick]

I like it.

[Josh Brown]

Well, like on the audio, it's going on the Compound and Friends podcast feed, so. All right, we're back and tonight's show is going to be off the chain. So much to discuss with me tonight, as always is my co host, Mr. Mike Michael Batnick. Michael, say hello.

[Michael Batnick]

Hello. Hello.

[Josh Brown]

Duncan's here. Daniel is is behind the boards helping to control the show tonight. No Nicole this evening, guys, and we'll certainly miss her in the chat. But I want you guys to feel free to get rowdy in the chat. There's no policeman tonight, so you could basically get away with anything. I don't know who's, I don't know who's going to jump in here and do anything about, quite frankly. So. So knock yourselves out. Tonight's show is brought to us by public dot com. Michael, what can we say about Public?

[Michael Batnick]

Public is a brokerage house where one.

[Josh Brown]

Of the things, it's really like a lifestyle. I feel like that's a way, one.

[Michael Batnick]

Of those that you could do now. So 2023, it was all about cash, right? Get some yields in your cash. 20. No, 24. 23 and 24. Now going to the new year, it's all about the yellow near bonds, right? Cash is not hot anymore. The Fed is cutting. We know this. Interest rates at the long run of the curve are rising. You could take advantage of that. Easy peasy lemon squeezy. You can get some corporate bonds easy click, clickety clack. Apple, Microsoft, whatever you want at public got over 6% now. Not bad.

[Josh Brown]

Yeah, the bond account does it for you. So you don't have to pick and choose corporate bonds. Public built this thing to enable people to take an off ramp from cash and still find a way to get higher yields. And of course, it's a different type of risk. It's corporate bonds versus Treasuries. We understand this, but you guys should read more about [e-mail] this has been brought to you by Public Investing, member of FINRA and SIPC. As of 9 26, 24, the average annualized yield to worst across the bond account greater than 6% yield to worst is not guaranteed. Not an investment recommendation. All investing involves risk. Visit public.comdisclosures/bond account for more information or just go to public.com w a y T as in what are your thoughts? Okay, the Market caught Bess in Fever this week. Yeah, people are, people are excited. We got a Besson bump.

[Michael Batnick]

I'm excited. I just found out about this guy and I'm already excited.

[Josh Brown]

Let's put him on screen. How come we never. I mean, we're not in the hedge fund world. We've never talked about him. I've only heard the name in passing. Now all of a sudden the world is awash in Scott Besant experts. Yeah, it's, it's kind of interesting, right? Where were all these people?

[Michael Batnick]

Apparently he. Well, I would consider it. You know, we're like one of the assholes that are just discovering this guy. I, he. Apparently he was featured in More Money than God by Sebastian. Not. Not special. Younger. Special. Malibu.

[Josh Brown]

Malibu, yeah.

[Michael Batnick]

One of my favorite investment books of all time. I don't remember him being in there, but this guy was a chief investment officer for Solaros. Launched the biggest macro hedge fund at the time. When he did so storied career on Wall street and everything that I'm seeing, I'm happy about it. This is the chief financial officer of the United States and he seems to be a serious person with serious ideas and I'm optimistic.

[Josh Brown]

How many people on earth do you think have worked directly with Stan Druckenmiller, George Soros, Jim Rogers and Jim Chanos? 0.

[Michael Batnick]

1.

[Josh Brown]

Safe bet.

[Michael Batnick]

Yeah. 1.

[Josh Brown]

1.

[Michael Batnick]

I don't know, maybe a few others, but yeah.

[Josh Brown]

So that's the first thing. The second thing we listened to Ted Seide's excellent interview with Scott. Ted worked with Scott at Protege Partners a generation ago. And some of the stories that Scott Besant was telling about being involved in the Soros trade where he shorted the British pound, being involved with Jim Chanos in the late 80s and then shorting the savings and loan crisis. He was very heavily invested in the Abenomics trade where the yen got killed and Japanese stocks went up huge. Like he has been investing and early investing in some of the biggest macroeconomic trades of the last 40 years. I don't. We've never had a Treasury secretary who ha. Who I think understands stocks, commodities, currencies, fixed income and economic.

[Michael Batnick]

And the narrative.

[Josh Brown]

And the narrative. So I agree with you. I think the Bessen bump is warranted. I know a lot of people are already shit talking whatever he's saying about tariffs. It's kind of his job to spin what Trump wants to do. But the hope has to be that he has Trump's attention and can say, what if you didn't do this and you did that Trump respects him.

[Michael Batnick]

He's a billionaire. So Josh mentioned the TED side, his interview, which was great, talks a lot about his background, if you want to get a flavor of some of his current ideas. He was also on stage with Mike Green talking about some of his, like, political. Not political, just his policy ideas and some political stuff, which I thought was also worth worth listening to. So I'm excited. Listen, this is a very, very important role. The economy is front and center. It's the most important thing to most people, probably most people watching. So I am, I am. I'm happy with this choice.

[Josh Brown]

Let's go to this note. Take which one?

[Michael Batnick]

Okay, take.

[Josh Brown]

Take us through what's in here.

[Michael Batnick]

So this is from, you know, chart off. Let me just, let me just set this up. Note off for a second. So this is a letter that he wrote to his hedge fund investors in, early, in early January 2024. And he laid out some ideas for how the market was going to go. And one of the things, and I love, I love seeing Neil Dutta's research in there. One of the things that, that was counterintuitive to me. Again, I'm not a hedge fund billionaire manager. This guy was that I thought was like, oh, I never thought about it this way. So there was a great chart that Neil Dutta did showing what happened when Trump was ahead in terms of the voting polls, like in terms of who was going to win versus what Biden was ahead. And when Trump was ahead, the stock market performed really well and vice versa. And he showed the cumulative spread and it was impactful. And I would have thought like, oh, okay, so the market is looking forward to a Trump presidency, more pro growth, more deregulation, you know, but actually the opposite was true. He was saying, no, no, no, no, no. When Trump is leading the polls, Yellen and Powell would be more likely to have pro growth policies because they want the market to do well in an election year. Because they are. Listen, most of the existing people in Washington were not Trump voters. Okay. So they thought that when Trump was ahead, they were going to do more to support the economy in the market.

[Josh Brown]

Oh, it would force them to tack more toward pro, pro market policy.

[Michael Batnick]

Exactly. Oh, that's interesting because they said that, like, in an election year, they would be more likely to let inflation run hot than have a recession. So that, like, counterintuitive narrative I thought was very interesting. So, okay, so he laid that out, and I would assume that he had a very good 2024 based on some of the policy choices that he was Making. Okay, so anyway. So char. So table back out or note back on. So he talks about the roaring 20s as he sees it. And just allow me for a second to read this. He said. Our base case is that a reelected Donald Trump will want to create an American, an economic lollapalooza and engineer what he will likely call, quote, the greatest four years in American history. Economist Ed Yardeni believes that post Covid America has a potential to have a boom similar to the Roaring Twenties of a century ago. We believe that a returning President Trump would like, would like this to be his legacy. In this scenario, the greatest risk factor, in our opinion, will be a sudden rise in long end rates. The talk of revenge will likely be limited to a small group of political enemies, and the wider policies of the administration will be oriented toward deregulation, energy independence and reviving US Manufacturing and extending the tax cuts. We find it unlikely that across the board tariffs, as currently reported by the media, would be enacted at the same time as he moves to fix the immigration crisis. The tariff gun will always be loaded and on the table, but rarely discharged. Of course, strategic and national security issues around China will remain. We'll get back to the tariff stuff in a minute because obviously that was front and center last night with what Trump tweeted. We'll get back to that. But, Les, I want to. I want to end with this because this is really the coup de gras of the note. Another differentiated view that we have is that Trump will pursue a weak dollar policy rather than implementing tariffs. Tariffs are inflationary and would strengthen the dollar, hardly a good starting point for a U.S. industrial renaissance. Weakening the dollar early in the second administration would make U.S. manufacturing competitive. A weak dollar and plentiful cheap energy could power a boom. The current Wall street consensus is for a strong dollar based on the tariffs. We strongly disagree. A strong dollar should emerge by the end of his term if the US Reshoring effort is successful. All right, I apologize for reading all that, but it's important because this is a no to his investors. Okay. This is not like a note to.

[Josh Brown]

Like, this was written a year ago.

[Michael Batnick]

A year ago. So this was, this was his. His investment thesis. This wasn't like, oh, I want to be secretary Treasury. This was his investment thesis. And it played out pretty strongly. So what are your thoughts on some of that stuff, Josh?

[Josh Brown]

Well, the way I put it, he laid out three macro ideas for 2024 last January, and all three of them came true. He pointed to Japanese raising bond yields actually being stimulative and you know, most people, they just assume like, oh, lowering rates of stimulus. No, it isn't. We only had, it only took us 15 years to figure that out post GFC. So he said that about Japan and that proved to be true. He also said that all of the onshoring, reshoring stuff in America, actually it would be expensive at first and maybe a little bit inflationary, but would ultimately prove to create more capacity and therefore be disinflationary. That's proving to be true. So that's two things. And then the first thing he said was that Trump would win. And he got that one right, too. So he made three really big macro calls in January of last year. It's 11 months later. He nailed them all to varying degrees. But I like the idea of somebody who thinks in markets and bets as opposed to somebody who thinks in what SOUNDBITE is going to play well on Twitter being in the spot. We talked to Sembelist last Monday about Janet Yellen being MIA and that being like one of the biggest messaging problems of the Biden administration. Maybe it goes beyond messaging. I don't think she is paying attention to stocks and bonds. I don't think that ever mattered to her, quite frankly. So this guy is like hyper focused on. I think what would look this is our base case is that a reelected Donald Trump will create an economic lollapalooza.

[Michael Batnick]

Well, yeah, let's do it.

[Josh Brown]

Who doesn't want the economic lollapalooza?

[Michael Batnick]

Yeah.

[Josh Brown]

One of the things he said with Ted that I really liked is that he thinks the new Republican Party in the wake of this election, and he said this on election eve, but he thinks the new party is this coalescence of the working class and business leaders. And then of course, like in between, you have a lot of people in the middle class, the overly educated, the intelligentsia, journalists, academics who are not part of that. So he's just talking about this idea. He's been poor. His father was a real estate speculator in South Carolina. He had a boom and bust childhood. I think he's saying a lot of the. I don't want to glaze this guy for an hour. I just, I think he's saying a lot of the right things in these early innings. And I think the market likes it, I guess is where I would fall on this.

[Michael Batnick]

Everything that we've heard. This guy's not like a political Looney Tune. He's not an ideal, like he's got ideas and he wants to serve the country and grow our way out of the Dead. And listen, let's hope that everything that he says comes to pass.

[Josh Brown]

One thing I would say, I know we have some charts, but one other thing I would say, having somebody. Here's what's interesting. Having somebody as the Treasury Secretary that a lot of people on Wall street know is also really interesting. So Yellen obviously is like a Fed lifer. Okay, fine. Not necessarily a known quantity in terms of like relationships all over the Street.

[Michael Batnick]

He's an academic.

[Josh Brown]

Yeah. Which is perfectly fine. No disrespect to Janet Yellen at all. It's just she's not. This Mnuchin was more of an investment banker, this guy. People working in the industry have had a lot of real life experience dealing with him in a business context, and he just seems accessible. He's doing everyone's podcast except for hours. So he's a known quantity on Wall street, so I think that's good. But I also think he's gonna have a Bloomberg on his desk. And if Trump is doing crazy shit that's really starting to leave a mark, I think he's gonna speak up because he thinks he knows better. All right, well, that's might get him.

[Michael Batnick]

Fired, but that's a great segue to this tweet from Sam Rose. So Sam. Sam tweeted this from Deutsche Bank. Will tariff policy respond to the equity market again? Over several rounds, escalation saw equity sell offs, which then prompted de escalations, especially after debt declines of about 10%. Like Scott Besant Will understands this chart and hopefully we'll be able to tone down this.

[Josh Brown]

I don't understand this chart. It's showing the S&P 500 during the last trade war.

[Michael Batnick]

Yeah. And it's showing periods of escalation and de escalation. Of course, escalation was not good. The esc escalation was good in terms of ups and downs for the market. And then last night you saw Trump Truth or whatever. We're calling the chart off, please. About 25% tariffs on everything imported from Canada, Mexico. And the market didn't really respond as you might have thought. And I don't know if the market's looking past what he's saying, but like to best its point about using the tariff gun as negotiating, it seems like that's what the market is thinking. Of course, we have, like a long way to go.

[Josh Brown]

Yeah. The market has figured out the game. Trump. And we've said this before. Trump's first book was called the Art of the Deal. There's a whole chapter about his negotiating strategy. And he likes to walk into the room and punch the other guy in the face.

[Nick Kolis]

Yeah.

[Josh Brown]

So the market, that's how he opens the negotiation. And maybe, maybe it's effective. We've seen that be effective. Look, the tariffs last time were an unmitigated disaster and there were a lot of backdoor shenanigans with, like, the farmers. He gave the farmers $28 billion over two years to repair the damage from China. Not buying our soybeans. That's, I don't know, to put that number into context, that's like the entire budget of the U.S. state Department over the course of a year. Like, he had to fix his own. He wouldn't call it a mistake, but like, I think he knows that across the board, tariffs actually do more harm than good. So I think that the market has figured this game out too well.

[Michael Batnick]

Next chart. So this is from Goldman. So we're looking for those of you who are listening and not watching. We're looking at PCE for all core goods that were not impacted by the Trump tariffs. And the inflation went down. And then it's showing the PCE prices across nine tariff impacted categories. And the prices went up, obviously because tariffs are inflationary.

[Josh Brown]

Yeah. And you know, there's stuff with the steel industry where nobody in the United States benefited from the steel tariffs. Like all of the, all of the downstream jobs that were affected. Like, it, it was not successful. But that doesn't mean waving them around like a cudgel in terms of rhetoric.

[Michael Batnick]

So anyway, the fact that we've, the fact that we've got a Wall street guy, a Main street guy, somebody that understands the market, the economy, currencies like that Trump respects is objectively whatever, whatever political side you were on before the election, you should be happy about that.

[Josh Brown]

I want to give a shout out to Larry Delevingne from Reuters. His byline is Lawrence Delevingne, but I always call people Lawrence. I call them Larry. He wrote about Scott's actual performance at the hedge fund itself.

[Michael Batnick]

Do you see what happens, Lawrence? Do you see what happens? Sorry?

[Josh Brown]

You see what happens, Lawrence? So there was one episode where there was a 90% decline in his hedge funds assets or something, which is the thing that a lot of people on the left are throwing out in response to people saying nice things about him, which I understand, that's the game. But if you look at the entirety of the track record. So just like to pull out a couple of stats that aren't terribly meaningful, but just interesting, I guess. He launched key Square in 2015. They raised four and a half billion, which is one of the largest hedge fund launches in history. That included 2 billion that Soros gave him. The returns were about 13% in 2016, which was their first year, which a lot of hedge funds got wrong. They were betting on Brexit being this, like, disruptive event, negative event, and it didn't work out that way. They lost 7% in 2017, which was a great year for stocks. Oh, well, broke even from 2018 to 2021.

[Michael Batnick]

He lost money in 2017. I take back everything I said.

[Josh Brown]

No, he was. He lost 7% in 2017, but then double digits in 2023 and 2024, it looks like. And the fund is up double digits over its history since inception.

[Michael Batnick]

I could look past that. The last decade for global macro investors has been really hard.

[Josh Brown]

2022, which was a meat grinder for everyone. He was up 30%. So that's what a hedge fund's supposed to do. Right? Is what I'm. What I'm. The point I'm trying to make. So he knows his. He knows his old business. And, and let's. Let's hope he knows his new business.

[Michael Batnick]

Amen. Okay. All right. So it's a bull market. I don't know if you knew that. And one of the features of a bull market, not just this most recent episode of the bull market, but for the last 10 years, are obvious signs at the top. One that just came to my mind was when was it Elizabeth Banks who was doing the. The mid cap commercials for State Street? And then what did Mila Kunis say? What did Mila Kunis do that was signed at the top of 2013?

[Josh Brown]

Like venture investing, maybe. I feel like she was. Or the Ashton Kutcher was.

[Michael Batnick]

Is no Mila Kunis. There was a. There was a meal. It was so long ago, but there was a big hoopla, a brouhaha on Fintwit back in the day because Mila Kunis rotated into Apple or some shit. I can't remember. But the point is, the point is there are so many obvious signs of the top that we just, like, forget about because whatever, they just fall by the wayside. So let's look at some of the most recent ones. And by the way, it's not to say that this can't be a topic because, you know, who knows? Like, just because there's a magazine indicator covered doesn't mean it has to mark the exact top as long, as long as it's in within the vicinity, which. Let's just get to it. All right, so Dan Greenhouse with the S&P 500, by the way. Love Dan, but come on, Boomer, why are you hashtagging SPX and Spy with the. With the S&P 500?

[Josh Brown]

Somebody tell him we're still doing cash tags.

[Michael Batnick]

Yeah, what is happening?

[Josh Brown]

We're not doing cash tags.

[Michael Batnick]

There's two cash tags and then the S&P 500.

[Josh Brown]

And they're both for the same thing. They're both for the S&P 500. So with the S and P basically.

[Michael Batnick]

At an all time high, it's appropriate. It is appropriate. Yet to wonder where have all the people gone who are warning about the Fed draining liquidity? Weren't we reliably told what has happened couldn't happen. What Dan's talking about is cash added or drained from the banking system. And they tightened the shit out of the banking system and The S&P 500 did not care. We of course had a couple.

[Josh Brown]

This was a sign of the top. He just posted this today.

[Michael Batnick]

Or he's saying what happened to all the people that were saying don't fight the Fed?

[Josh Brown]

I don't remember that. Maybe because I wasn't on Twitter. But people were saying that the Fed is draining liquidity from the banking system.

[Michael Batnick]

Tightening the Fed. Tightening should have been bearish for the S and P. That's all. Of course.

[Josh Brown]

How is that a sign of the top? I'm missing. I'm missing the connection.

[Michael Batnick]

Can you just stop talking for a second? All right, how about a couple of weeks ago when there was the Nvidia watch party? That was supposed to be a sign at the top. Okay. Sam tweeted, Nvidia's up 17% since the earnings watch party. If you've rewind a little bit further when, when Jensen was signing the bra, I'm sure it's up even more since then. Yeah, Most recently we have the Haktua girl thanking Michael Saylor to launch to buy Bitcoin, which probably is a top, let's be honest. No, just kidding. Who knows? My point is.

[Josh Brown]

God, this is a thing that happened.

[Michael Batnick]

Well, and also she. I just saw like 20 minutes ago, she's launching a meme coin. Which, by the way, shouldn't these meme coins, shouldn't these like meme coins not be legal? I know, like everything's legal these days.

[Josh Brown]

But no more of them should be legal.

[Michael Batnick]

Anyhow. My point is. My point is a bull market doesn't just stop because people are doing dumb shit. You could argue that people have been doing dumb shits for the last 11 years.

[Josh Brown]

Just let me. So the Dan tweet doesn't really fit into this paradigm, but the other two I get. One of the things that I would say is that no matter when the market tops, you and me will, because we have great memories and we're living in this thing, three months after it tops, we will be able to remember immediately whatever the craziest shit that happened was at the top. And then we're going to say, see, that was the top. But your point is, all throughout the year at bottoms, in the middle, at tops, there's always stupid things like the Hawk. To a girl saying thank you to Michael Saylor. It's just like one of these things where if you're investing based on quote unquote, signs of the top, you're not a serious investor.

[Michael Batnick]

I remember this now this is from 2013. And you and I remember this because we were together at the time. Mila Kunis rotates from cash to stock. Remember that was, that was the headline in cnbc. Yeah.

[Josh Brown]

If you sold that, what, how you doing?

[Michael Batnick]

I mean that was the, was the S and P at a thousand.

[Josh Brown]

The better example from 2013 was the unicorn cover in Fortune where they said there are, they said there are 30 privately held venture backed startups worth more than a billion dollars.

[Michael Batnick]

We're all laughing now.

[Josh Brown]

There's 200 of them.

[Michael Batnick]

So how about the show Silicon Valley? If there's ever a sign at the top, they made a show about Silicon Valley and that was, that was 4,000% to go in the queues.

[Josh Brown]

Yeah, I like that. I think, Yeah, I think it's like really easy to go back after the market tops and be like, we should have known. But then you're ignoring all the things that weren't the top. Although if the Hawk Tour girl interviews Scott Besant this week, I'm probably going to sell something. I don't know what, but I'm probably going to lighten up a little bit. By the way, I don't really hate her. I feel like she has a big personality and people have like, people think she's fun.

[Michael Batnick]

She is fun. She hates her.

[Josh Brown]

Oh, people are mad that she's like all of a sudden the most famous person in the world. I'm not mad.

[Michael Batnick]

People are mad about everything.

[Josh Brown]

People, people are mad. I did some Skeets, can we put them up on screen?

[Michael Batnick]

That's what they're called.

[Josh Brown]

I don't know. I don't think I'm even allowed to say that, to be honest with you. Here's a Skeet, that I did.

[Michael Batnick]

Just stop saying that.

[Josh Brown]

All right. This is year date corporate buybacks as a percent of market cap on pace for an all time record accelerating into year end. Look, you could say that we're at the top, but then you would be saying that these people are all idiots accelerating their buybacks into the end of the year when they should be like preserving cash or whatever. So the corporates are undeterred by the fact that this market is up 20 some odd percent year to date and they're buying more.

[Michael Batnick]

So I don't pick this. Not a percent of anything. You tweet, you, you.

[Josh Brown]

Well, this is the.

[Michael Batnick]

You ski to that. But this is, this is. That's the four week average included.

[Josh Brown]

Included into the data though is the fact that it's also a record.

[Michael Batnick]

Oh, okay.

[Josh Brown]

As a percentage of market cap. But the chart is showing actual dollars.

[Michael Batnick]

Got it.

[Josh Brown]

This is from chart kid Matt. My next skeet. I don't know, is it the top third quarter earnings season is as good as you could have asked for if you wanted to justify the rally that started this September. S and P500 profits were up 9%, which was almost 500 basis points better than what we were expecting going into the quarter. 75% of companies beat. That's usually 77%. So right around the average sales were up too. So it's not just manipulated earnings quote unquote. And 8 of 11 sectors posted higher profits. The one sector that was like noticeably negative was not really that negative was the energy sector.

[Michael Batnick]

Can I ask you a favor? The next time you, you throw your sk onto a screen, can we please at least see the chart, for God's sakes? This is horrible. This is malpractice. Thank you, Daniel.

[Josh Brown]

I spoke too soon.

[Michael Batnick]

Thank you. I love it.

[Josh Brown]

Okay, so energy is just going to have volatile earnings all the time. Obviously it depends on the price of oil and gas. But away from that, like this is. So this is what you want to say is the top. All right. So all of these bars are going to be lower next quarter, next, next year. You know what I mean? So all of the. Thank you. Chart off all of the $6 million banana taped to the wall, all that stuff, it's fine. Maybe we'll look back on it and say we should have known, but probably not.

[Michael Batnick]

I mean we could. I think this is. Nobody would say this is not a. This is not a raging bull market. So don't, don't mishear us. Right? Like we're not. This is a raging bull market and there Are pockets of mania. Like no doubt about it, guys.

[Josh Brown]

On, on, on Blue sky, there's only one downtown Josh Brown, and that's my handle. If you see one that has an extra N on the end of brown, it's not me. And don't. That one, that's Michael. Don't buy crypto from whoever that is. What are we calling financial blue sky? Somebody said bluefin and then I liked butterfly. Butterfly because like you know how the, the symbol is a blue butterfly? I kind of liked butterfly. I don't know. We'll see. We'll see what? I don't like fin sky because when you write it out, it looks like finsky. Like it doesn't look right. We'll have to figure that out. Have you sent any, Skeets?

[Michael Batnick]

I sent one today.

[Josh Brown]

It was you scattered.

[Michael Batnick]

I scouted. It was my. The Spider man, the Otto Octavius meme of him saying it's about to stabilize or something. And I said, this is Michael Sailor. When Michael strategic hits its $47 trillion.

[Josh Brown]

Are you having fun there a little bit or. Not yet.

[Michael Batnick]

There's only so many hours in the day. I don't have time for this.

[Josh Brown]

I predict you will be a high volume skeeter very soon. Okay, I predict you do have time. All right. Oh, here's a new investment idea I wanted to run by you. So one way to, I think, think about asset allocation. You know, people like, they're like, oh, 1% gold sleeve or like maybe crypto 1%. Just anytime you hear people talking about a Ponzi scheme, you should have a sleeve in your portfolio where you just buy it just in, just in case it's micro strategy at $20 a share.

[Michael Batnick]

That's it's a pyramid, it's not a Ponzi. And it's a full.

[Josh Brown]

First of all, it's a Ponzi built on top of a pyramid. But just buy it anyway because what if you're completely wrong? And it's not that I think instead of saying, oh, you should have a bitcoin sleeve or oh, you should have a defi. Or just you know what, the minute people start calling something a Ponzi, the crowd is probably wrong and just buy it. And if it goes to zero, who cares? It's a small sleeve. If it 20 x's and you want to kill yourself, at least you own a bunch of it and you made some money. So I'm thinking about maybe a very rational decision for the modern asset allocator in the meme stock age is a Ponzi scheme where it doesn't really matter. Don't do any research at all. Just if people are saying, this is a Ponzi, it might not be. It might be micro strategy.

[Michael Batnick]

So finally, finally, you're learning just by the puns. Yeah.

[Josh Brown]

Think about it. Think about where we are right now and the way things work. It's like, bordering on lawlessness. Going into 2025, like, we're basically going to be in a situation where anyone who wants can launch anything and people are, like, deliberately looking for the wildest swings in the things that they operate. This is going to be a situation where Maybe you buy 10 things and nine of them are Ponzi's and the 10th one goes up 20,000% and pays for all of the losses and then some. So. Well, I think.

[Michael Batnick]

I think. I think unironically, and I'm being serious, a lot of people are doing that.

[Josh Brown]

I think. I think unironically they are.

[Michael Batnick]

Yeah.

[Josh Brown]

And I think that makes more sense than a one. What the hell is a 1% gold sleeve going to do for anyone? Yeah, gold's not going to 10x, so what's the point of that?

[Michael Batnick]

How about this? How about this? Playing this, the meme market that we live in, whether it's crypto or levered ETFs or whatever, is probably a lot better and frankly, more fun than doing angel investing. No. So, no, answer my question.

[Josh Brown]

Yeah. So if that's the world that we're in, this stuff's liquid. So if Hawk to A launches a token and, like, it runs up to $5 billion in value, which of course it will, and everyone's on. On social media going like, this is a Ponzi scheme. Because here is the formula for I buy it. Okay, sure, maybe you're right. What if you're not? What if you're not? So this is how I'm starting to think.

[Michael Batnick]

Let me ask you this. Does it. Does it make you mad that Michael Saylor called his shot and then hit a home run?

[Josh Brown]

No, I'm not mad. I'm mad at myself. I didn't buy anything. This is what I'm trying to rectify. You understand? I'm not mad at all. I think it's.

[Michael Batnick]

But I think there's a difference between, like, it's amazing. I think, Mike, the Michael Saylor situation, very specifically, is super interesting. I think it's the craziest thing I've ever seen. But also, like, he said what he was going to do. He laid it out, and there was a lot of sophisticated people on Reddit that understood what he was doing with the. With the option pool and all that stuff. And it worked. And so I think that a lot of those people understandably get pissed off at people like us who are, like, sort of making fun. It's like, you. What? You guys are so smart. Like, okay, I mean, I made 41%.

[Josh Brown]

They were right. It. Listen, it might collapse, but it hasn't yet. And they make more money, like, literally every passing week. So they were 100% right in taking it seriously. We didn't take it seriously at all. We didn't even bother to. So this is. I think this is my point. Most things that everyone is saying, that is a Ponzi scheme probably will turn out to be Ponzi schemes. Some won't. Some won't. So now are you smart enough to really do the work and do the research? I don't really want to. So I'm thinking about maybe just like, all right, listen, we'll see what happens. You're so smart. Where's your billion dollars Twitter guy?

[Michael Batnick]

And let me also just say for the record, I don't actually think that Josh is advocating that people start spraying money.

[Josh Brown]

I don't advocate anything for anyone. I'm talking about for myself. I don't care what. There's literally no one. I care about what they do. I don't police recreational trading. I am saying for me, the next time everybody tells me, oh, see this Ponzi scheme. Yeah. Hang on one sec. Let me just get long. Can we talk about Ben Carlson selling Bitcoin?

[Michael Batnick]

Sure.

[Josh Brown]

Put up Ben's chart. I thought he made a good point here. He's not a no coiner. Ben bought in 2017 right after I did, and he's held it all this time. And I think he's taken profits a little bit along the way.

[Michael Batnick]

No, this is the first. This is the first time he sold. It's the first time he sold.

[Josh Brown]

Oh, so. But he's doing so, I think, in a very measured way where he's just like saying, look, this is about regret minimization for me.

[Michael Batnick]

Yes.

[Josh Brown]

And I'm not making a call on where I think the price will go. I'm making a call on how much it's up relative to the rest of my portfolio. So I thought that here he said, I came close to selling in 2021, and then he didn't sell at 70,000. It dropped back to 20,000. So now it's here at 90,000. And he said, you know what? It's 10% of my entire portfolio. It's too big.

[Michael Batnick]

Yeah.

[Josh Brown]

So he's taking it back five and so soft. But this chart, what this chart is showing. It's not a price chart. This is showing the drawdowns back to the inception of the. Of the thing. And, you know, Ben's basically saying, like, maybe it doesn't get this bad again as it has before, but remember how many times it's gone down 80%. And don't think that's impossible. This would be really painful if it did this again for. For Wall street at this point. Right. So 3 trillion and 80% drawdown.

[Michael Batnick]

That'd be bad.

[Josh Brown]

That'd be pretty bad.

[Michael Batnick]

It'll be bad. Something would have had. Something really bad would have had to happen for that to.

[Josh Brown]

Anyway. That is the Midwest's approach to bitcoin ownership. Now, listen, I respect it.

[Michael Batnick]

Whether it's bitcoin or any other stock or whatever that's appreciated. Like, nobody knows where the top is. And Ben's 100% right. It's about like, what can you live with? Whether you're right, you're wrong, it goes up, it goes down. And that's the part. There's no right. Listen, that's personal. Right? Whatever's best for you, that's what you do.

[Josh Brown]

Well, so here's what he's not doing. He's not counting up all the nodes and the volume and coming up with a formula for what fair value is for a bitcoin. That's not what's going on. Ben's saying is like, okay, that's enough for me, and I'll still own some, but I don't need to own this. Much respect and totally rational. If you were. If you were to. If you're not like hardcore into this shit, but you just don't want to completely miss out. That sounds like it's the right. It's the right mentality. It's like, when is enough enough for me personally, given how much risk I want? And I wanted to. I wanted to applaud Ben. Shout to Ben.

[Michael Batnick]

So, okay, where are we going next? Oh, let's do some charts. All right, so I think we'll pat ourselves on the back a little bit in 24, certainly. I don't know when exactly it started, actually at the end of 22. I know exactly when it started. The tech stocks bottom on December 31, 2022, and they went straight up in 2023. And they went straight up for the first half of 24, not the second half. But Josh and I had said a lot. Listen, don't worry about the, don't worry about the breadth. Not because we're telling you not to worry but only because it's not as if the rest of the market rolled over and it was just seven stocks. If that happened we would not have been saying that. We would have said oh, this is what happened 2000 and maybe we should chill out.

[Josh Brown]

You're not saying don't worry about the breadth, you're saying don't worry about the concentration.

[Michael Batnick]

Yes, we were saying like it's not like the rest of the market's doing shitty and it's only a few stocks, it's yeah, these seven stocks are doing amazing. And the rest of the market was up 8% through the first half. Like it was fine. So anyway, all of the worries have corrected to the upside chart on please. From chart kid. So you've got the price on top, the S P500 price and you've got the cumulative advanced decline confirming the price. Look at this confirmation. It's all coming together. Next chart please. From Y charts we've got the S P 500 up 20. This was, I made a second yesterday. The S&P5 bang up 27 year date. Look at the equal weight. The equal weight was up 20. The equal weight. Look at next chart we're going to run through some large. So large divided by small. This is kind of interesting. So on the left you've got a long term view and look at the right you've got so large divided by small is rolling over which shows that the Russell 2000 or the small cap 600 in this case which had an autumn high yesterday. The market is the, it's broadening, the rally is broadening. It's not just, it's not just mega cap which is, which is something that.

[Josh Brown]

You love to see. So large cap relative to small cap there though on the left side we're looking at the long term trend which is obviously large cap outperforming small. Of course we all know in the right chart that's rolling over in a shorter term time frame.

[Michael Batnick]

Yep. And I hate to show bullish charts in a bull market but whatever, that's what it is. Next chart. Equal weight staples. These are the most defensive areas of the market, both the long term and the short term ecoweight staples are getting their crap beat out of it by the rest of the market, which is what you want to see in a bull market.

[Josh Brown]

It means allocators are getting less defensive in what they're buying.

[Michael Batnick]

The defensive stocks are underperforming. Next, what is the most economically sensitive area of the stock market? It's industrials. Confirmation, confirmation, confirmation. Long term and short term. This is the equal weight industrials relative to the equate S P500. What else do we got here? Next, chart financials. So of course the long term looks disgusting because 2008 there was a, you know, a little event that happened. But look at the short term. Look how we, look how we BW past the SVB crisis. This is the equal weight financials divided by the S&P 500. Equal weight. This is extremely bullish. And that's all I have to say about that. Listen, this is not a forever thing, okay? This is like eventually this will run out of steam, but you have to make money in bull market. You have to make money in a bull market.

[Josh Brown]

Look, in 2023 the Fangs ran away with the cake and a lot of people were saying the rally's too concentrated. Like that was the mantra. It's like, oh, it's just seven stocks. That's where. That's the first time we started saying the Mag 7 and the S&P 493.

[Michael Batnick]

And it was mostly true. It was most true.

[Josh Brown]

That's the origin and it was true. But the thing that we said on this show 50, maybe 50 times was that every time over the last 15 years that we've had these like, oh, it's divergence, they have resolved to the upside, with maybe two exceptions. Like there on two occasions we had a correction. But for the most part, like a hundred times, those mega versus large versus mid small, those divergences, what ended up happening was the rest of the market ended up catching up. And did you know that financials were actually the best stocks in the market this year as a sector?

[Michael Batnick]

I did.

[Josh Brown]

The entire market, the entire sector. 95% of the components of the S and P financials are now above their 20 day moving average.

[Michael Batnick]

What's not?

[Josh Brown]

The entire sector is on fire. Yeah, FTX is the only laggard.

[Michael Batnick]

Speaking of, let's talk about Gensler's legacy. So Gensler is stepping down and Nick Rossi had a wonderful tweet for listeners. It's the meme of somebody pointing into the mirror and it's Gary Gensler looking back saying, you protected investors and my God, is the opposite true? This guy's legacy is a disaster.

[Josh Brown]

Arguably, you understand, he's still our regulator and he's 100% coming to your house. My house, I would assume the other one talking shit. I mean, you are Aware that.

[Michael Batnick]

Had there been an ETF approved back when the Winkleval applied for one, which was like 2012, 2014 maybe, or even 2017 or even 2019, a lot of the crime that we saw probably, almost definitely would not have taken place if there had just been an ETF.

[Josh Brown]

All right, there's an alternate universe where in 2017, when they first started seriously filing for ETFs, okay, so by 2017, Bitcoin comes out in 2008, 2017. The problem is we get all these ICOs, which are the original shitcoins, which are like IPOs, but it's people dropping, doing coin drops. I think 99% of them are frauds or scams or rug pulls or pump and dumps. It was bad. And he's the top cop at the time. And he's got a. He's got a. He's got. He's. He's not. Jay Clayton is there. He comes in with Biden into an even worse environment. 2020, 2021 is an even bigger carnival. He's got Tom Brady and all kinds of celebrities hanging out with sbf, who's making political donations to get himself into his office. Like, it's just. It's a wild west. I think Gensler kind of erred on the side of all of this is bad versus trying to, like, figure out what's the least bad way to allow this. I think it was just easier to say, no, we're not allowing any of it. In my opinion, it turned out to have been the wrong fight. Because if you have an ETF in 2018, 2019, 2020, you'll have UPS and downs and people will still get hurt by the price of bitcoin. But it probably obviates the need for there to be an FTX and a binance.

[Michael Batnick]

You think? And how about all of the money incinerators that have come to market under the past, whatever X number of years, between the spacs and the lever this and the lever that, and the fact that we couldn't just get a spot bitcoin etf, but we had a futures. I mean, just come on.

[Josh Brown]

Okay, but I just want to point out Gensler is not the person that denied the first applications of spot Bitcoin ETFs, because he wasn't there. It was. It was Clayton in 17 during the first bitcoin boom. So it's like, it's important to remember this is the longstanding policy of the agency. It's not like he's the first person to come into the sec. And say no Bitcoin. So what I think, but I do think, I do think that, look, people really hate him and they claim he's corrupt and, and he's owned by the traditional financial system. I don't think that's true.

[Michael Batnick]

I don't believe any of that. I think he was trying to do a good job.

[Josh Brown]

I think he really. Right. I think my personal opinion is he just really believed that the existing securities laws more than covered most of this activity. And as a result, it wasn't for him to change the rules for them, it was for them to come into compliance. The legitimate complaint is that he just sued people rather than negotiated or met with them. And I think that just comes with a democratic regime and a more democratic mindset versus a Republican mindset of no.

[Michael Batnick]

They were complaining that it was policy by enforcement. So I don't think that he was a bad guy or anything like that. I just thought that the policies were bad.

[Josh Brown]

There are people that really genuinely think that he, he was like he had personal vendettas against Brian Armstrong. It appeared that way at Coinbase.

[Michael Batnick]

It did appear that way.

[Josh Brown]

It. From the outside and if you just like follow the stories on Twitter, it sort of did appear that way.

[Michael Batnick]

How about shutting down Silvergate?

[Josh Brown]

Yeah, the ripple thing, like I think it's still in court. It's like seven years of suing people. It just from the outside. And what that did. Here's what that did. And I understand the intention was to stop people from violating securities laws and I respect the SEC's mission and I do think that that's good for the investor class. But the. So that's the intent. Here's the effect. It keeps Fidelity from going all the way into doing clean version of crypto brokerage. It keeps Schwab still not in the game. Like Schwab has nothing in crypto. So it keeps the two, the two biggest brokerages, one of which really wanted to do this right on the sidelines. It keeps the ETF issuers away from putting out decent products. And I think it kept the traditional media away from really like discovering like the, like these stories like it, like CNBC kinda and Bloomberg. They had to cover an ft. They had to cover it skeptically because the regulators were saying this shit is all illegal. And so it probably set back a lot of innovation in the space that would not have been harmful to the public. So it's just one of these things where I really believe that it was well intentioned. And then it got to a point where it's Just like, all right, why are we, why are we still doing this like this? There's 50 million people in America who own crypto at this point. What are we protecting them from? They want to do it, they want to own it. So like, can we make constructive lanes for them to own again?

[Michael Batnick]

You're a hundred percent right. And the yes, you could buy this. No, you can't buy that. It was a bunch of malarkey.

[Josh Brown]

One of the stories about like regulatory overreach that people frequently cite. In the early 1980s when Apple was coming public, the securities regulators, the state of Massachusetts, said Massachusetts residents are forbidden from buying Apple, which eventually became the largest company in the world. Now you could have bought it the day after the ipo, no problem. So it's not like they really stop people from investing in Apple, but like banning the IPO in the state. And you know what the reason why was? Do you know why they, do you know why they said no Apple IPO in the state? You're going to laugh. Think about how quaint this is. The company was not profitable yet. I mean, can you imagine? But you know the puritanical idea about whether or not investors should be able to buy a money losing IPO. So I guess in the early 80s that made sense to people. And I'm sure there were all kinds of op eds being written about why they were doing the right thing by stopping it. What really happens is time marches on and things in the rearview mirror, it looks like. Wait, really? It looks like the priest in Footloose who wouldn't let the teenagers go to the school dance. Like no dancing. That's what it ends up looking like in hindsight. So yeah, it's a complicated legacy, I suppose, of his tenure.

[Michael Batnick]

Okay, go ahead. Let's move on.

[Josh Brown]

Making the case for you.

[Michael Batnick]

You're making the case for me.

[Josh Brown]

Here's two of our old friends from the post pandemic.

[Michael Batnick]

Hello darkness.

[Josh Brown]

You got to choose one.

[Michael Batnick]

Well, I already own one to get along.

[Josh Brown]

All right, let's do zoom. So they just reported earnings and the stock fell 5%. But it's still well within its uptrend and I wouldn't be surprised if it reverses higher. Here's the next one. Docusign. This one looks amazing right now. Yeah, what up? I just want to catch you up on the story. Docusign hit a 52 week high. I think today or yesterday. It's up 95% over the last 12 months, making it one of the best performing stocks in the market.

[Michael Batnick]

Wow.

[Josh Brown]

And 7% year over year increase in revenue, they hit 736 million in revenue. Non GAAP operating margins, 32%. $200 million in annualized free cash flow. Let me see, what else? 40% growth in non GAAP operating income year over year in this quarter. And they launched something called the Intelligent Agreement Management or IAM platform. And I think that's probably AI.

[Michael Batnick]

If I had to care about the fundamentals.

[Josh Brown]

All right, I'm just saying the fundamentals are, have turned positive. And that's coinciding with 52 week highs for the stock and a double in the price I see in the chat. DK Gong says Cathie Wood must be happy. Is that one of her names, Doc? DocuSign. You know, Ark, you know, ARC is rallying a little bit, right. Lately. And I'm sure this is helping a little. Anyway, that's Docusign. The next one is Zoom. Sean, put some slides in here.

[Michael Batnick]

I did.

[Josh Brown]

You did. All right. Very slow growth, but growth nonetheless. What.

[Michael Batnick]

What are you showing, man? DocuSign is not one of our top 10 holdings. I definitely used to be. Let me see the full holdings. All right, so what we're showing here is Zoom is not really growing that much, but maybe it's good enough. Total revenue is up 4%. Their enterprise, like their giant contracts. What does that say? Up 8%. They have a 98% retention rate for the larger clients. The customers that are over 100k. Not bad. So I own Zoom.

[Josh Brown]

I bought 192,000 enterprise customers. Is a big company.

[Michael Batnick]

Yeah, it's just. It's just not growing that much because everybody bought it in 2020, 2021. So look, next chart. Let's look at some of the. Some of the value, the valuation compression. So this was the dumbest stock in hindsight in the pandemic. It was bigger than Exxon. This is the price of sales ratio hit 120. Next chart, please. It's now down to 5.6. This is just Zoomed in a little bit. So the excess has clearly been washed out. The stock has been working. I bought it and I sold it before the recent rally, which was fun, but I bought it. I bought it. Yeah, it happens. You know what? I've done it because, dude, we're in a bull market. It's the only stock that I own that's not working.

[Josh Brown]

Get out of here. I was in this stock earlier this and I. And I didn't make any money. Yeah, I sold the break even.

[Michael Batnick]

So it happens. So I bought Zoom two days ago on the dip. And the snapback. So, yeah, I own Zoom. So there you go.

[Josh Brown]

A couple of people in the chat are saying that Zoom and Docusign should merge. I said that two years ago. Oh, I don't hate that when these stocks were at all time lows. They're very complimentary. We actually use Zoom as a company and I talked about this on, on CNBC today. They provide our phones and text messaging for our entire firm and they archive all our texts, which is a regulation in the investment business. And people think that it's the video business and they're just competing with teams. And Google Meet. No, they're selling software into the enterprise that does a lot of other things and video is just now a part of it. In fact, they just said today they're changing the name from Zoom Video Communications to Zoom Communications, the corporate.

[Michael Batnick]

So.

[Josh Brown]

Corporate name.

[Michael Batnick]

So DocuSign chart looks incredible. I won't buy it. It's going. That's why it's going higher. There's a big fat gap all the way up at 165, which is double from here. So for the longs, I hope it works. But yeah, it looks great.

[Josh Brown]

DocuSign. DocuSign's going higher, but I think I would. I think I would buy Zoom. I think I want to see if it's going to come close to retesting that, that 50 day.

[Michael Batnick]

Yeah. Well, here's the deal.

[Josh Brown]

74.

[Michael Batnick]

Zoom just reported earnings today. It wasn't great, but it got. It got bought up at the end of the day. We'll see. It's just one day. DocuSign is earnings next week. And given that the stock just ran from 60 to 90, basically, maybe it's got some give back. Who knows? We'll see.

[Josh Brown]

Yeah. All right, which one. So which one would. So which one would you pull the trigger on? Right now?

[Michael Batnick]

I own Zoom. I bought it this week. So that's.

[Josh Brown]

Oh, you're back in it.

[Michael Batnick]

I bought it. I bought it two days ago.

[Josh Brown]

Okay, good answer. I think that's the one that I would do, too. Joe Altamoro in the chat says throw in Ring Central. I'm glad you brought that up. We fired Ring Central.

[Michael Batnick]

What's the ticker?

[Josh Brown]

Who cares? It was. It was terrible. We fired.

[Michael Batnick]

Does that go in the Ponzi sleeve? No, ring center. Okay. All right, I got a quick mystery chart, then we'll get out of here first. Chart, please, Daniel. This is a long term chart, obviously of the price of a stock.

[Josh Brown]

Is it a stock?

[Michael Batnick]

It's a stock. That is good. The one. The next one is a little bit of a more zoomed in look. There we go. So this is over the last five years. Does this look good or bad?

[Josh Brown]

It looks amazing.

[Michael Batnick]

Okay. This is an important company.

[Josh Brown]

Well, it looks extended.

[Michael Batnick]

Okay.

[Josh Brown]

But amazing.

[Michael Batnick]

Okay, this. So we see it. Chart off, please. This is an important company. One of the top 10 most important companies in the country. Hold on, I'm almost done. It has the. I believe it's the number one revenue generator in the country. And I'll stop there.

[Josh Brown]

Walmart.

[Michael Batnick]

Yes.

[Josh Brown]

I am the smartest man alive. Respect my gangster.

[Michael Batnick]

I mean, I gave you.

[Josh Brown]

Come on, bro.

[Michael Batnick]

Dude, listen to me. I throw you. I throw you an alley. When I throw you an alley. Oop. You're allowed to say good pass.

[Josh Brown]

Good pass for sure.

[Michael Batnick]

Thank you.

[Josh Brown]

But also respect my gangster.

[Michael Batnick]

Good dunk.

[Josh Brown]

All right. Hey, guys, thanks so much for watching and listening. We really appreciate everyone who shows up for the live. And we will be back next Tuesday, 5pm Eastern. We want to wish you all a very happy Thanksgiving. I also want to let you know tomorrow is Wednesday, which means an all new edition of Animal Spirits, my favorite podcast with Michael and Ben on all podcast platforms, YouTube later in the day. There will be no episode of the Compound and Friends on Thursday because Thursday is Thanksgiving. So consider this my sign off for the week. We love you. We'll talk to you soon. Whether you're just getting started as an investor or you're managing a multimillion dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial Planner today, visit ritholtswealth.com don't forget to check us out at YouTube.com thecompoundrwm. Make sure to leave a rating and review on your favorite podcast investing app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.