Why Brian Wesbury is Bearish

Summary

Podcast Summary: The Compound and Friends – Episode: "Why Brian Westbury is Bearish"

Podcast Information:

• Title: The Compound and Friends
• Host: Downtown Josh Brown, Michael Batnick
• Guest: Brian Westbury, Chief Economist at First Trust Advisors
• Release Date: January 3, 2025
• Description: Downtown Josh Brown, Michael Batnick, and rotating friends discuss expert insights and hot takes on the latest in business and investing.

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1. Introduction and Guest Welcome

[07:54] Josh Brown: Welcomes listeners to the episode and introduces Brian Westbury as the Chief Economist at First Trust Advisors, highlighting his extensive experience and previous roles, including his position on the Board of Trustees at Hillsdale College.

[08:32] Host Commentary: Michael Batnick expresses enthusiasm about having Brian Westbury on the show, emphasizing the value Brian brings to the discussion.

---

2. Economic Outlook and Earnings Concerns

[12:35] Josh Brown: Discusses the sustainability of earnings growth, expressing skepticism about the longevity of artificially inflated profits due to government stimulus during COVID-19. He states, “We’ll pay a price. If we have a recession, they’ll be weak.”

[13:00] Josh Brown: Introduces his "capitalized profits model," indicating that the stock market’s current valuation is overstretched compared to historical norms, making it more susceptible to corrections.

[16:18] Michael Batnick: Points out the market performance disparity between top-performing and bottom-performing S&P 500 stocks, with the top 50 having exceedingly high P/E ratios.

[21:16] Brian Westbury: Questions the relevance of the 10-year treasury yield in evaluating companies like Nvidia, sparking a debate on valuation metrics.

[24:01] Josh Brown: Confirms bullish earnings forecasts are overly optimistic, reiterating concerns about the sustainability of current market valuations.

---

3. Government Spending and Deficits

[32:04] Josh Brown: Highlights that half of the GDP growth over the past two years is attributed to government spending and deficits, criticizing Keynesian economics. He states, “All short-term, you push a lot of money in. It can make the numbers look better.”

[35:21] Michael Batnick: Discusses political challenges in reducing deficits, citing recent Supreme Court rulings and the influence of private interests over Congressional actions.

[38:00] Josh Brown: Illustrates the historical context of government deficits, comparing current deficits (~6.2-6.4% of GDP) to past periods like WWII and the 2008 financial crisis, emphasizing the unsustainable growth in government spending.

Notable Quote:

• Josh Brown [38:44]: "If you take everything Pauline makes and give it to Peter, now he can buy a house, but she can't."

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4. Monetary Policy and Money Supply

[45:28] Josh Brown: Elaborates on the significance of M2 money supply growth, criticizing the Federal Reserve's policies. He mentions, “We've had this massive increase in M2, and it caused inflation.”

[50:49] Michael Batnick: Brings up the relationship between quantitative easing (QE) and the money supply, questioning the Federal Reserve's management of monetary policy.

[51:33] Josh Brown: Criticizes the Federal Reserve's failure to address the rising money supply adequately, stating, “I started writing about inflation... the Fed didn’t have that increase in M2.”

[55:00] Josh Brown: Connects rising money supply to growing government deficits, warning of long-term economic consequences: “We're now using the government to redistribute resources.”

Notable Quote:

• Josh Brown [38:42]: "Our biggest problem in America is just the pure size of the government."

---

5. Stock Market Valuation and AI Impact

[16:33] Brian Westbury: Discusses SPACs and growth equity bubbles, noting their limited impact compared to historical bubbles like the housing market in 2006-2007.

[25:39] Brian Westbury: Presents a chart showing Nvidia's exceptional stock performance, questioning its sustainability.

[27:11] Michael Batnick: Highlights the dependency of major tech companies on Nvidia for AI advancements, expressing concern about overreliance and potential market corrections.

[28:02] Michael Batnick: Expresses worry over the optimistic earnings forecasts tied to AI, suggesting that if AI doesn’t translate into real profits, stock valuations could plummet: “If AI doesn't pay off with profits, it's going to eventually happen.”

[29:11] Josh Brown: Predicts an upcoming recession, emphasizing that it will emerge from the bottom: “I really, I really do.”

Notable Quotes:

• Josh Brown [24:06]: "I really, I really do think we're gonna have a recession."
• Michael Batnick [27:02]: "Microsoft is the worst performer of the Mag 7 last year, up 12%."

---

6. Bitcoin and Digital Assets

[67:33] Michael Batnick: Shifts the conversation to Bitcoin adoption, noting its growing complexity for investors and the introduction of the iShares Bitcoin Trust ETF (IBIT).

[68:35] Josh Brown: Discusses Bitcoin’s potential as a currency and its interaction with the U.S. economy, emphasizing its immutability compared to fiat currencies.

[69:00] Josh Brown: Addresses the relationship between Bitcoin and inflation, arguing that Bitcoin’s value increases as fiat currencies lose purchasing power: “If you actually compare the S&P 500 to gold or to bitcoin, it's not doing well at all.”

[71:11] Josh Brown: Advocates for a return to a gold or Bitcoin standard to prevent government overreach in monetary policy.

Notable Quote:

• Josh Brown [68:35]: "I think there are people out there who think bitcoin will become a money."

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7. Social Issues and Leadership Development

[81:03] Michael Batnick: Introduces a lighter topic, asking Brian about his experience as an Eagle Scout and its importance in leadership development.

[82:03] Josh Brown: Reflects on the declining leadership qualities among younger men, attributing it to the lack of structured programs like the Boy Scouts. He mentions, “I think this is one of the reasons why people are flocking to [Jordan] Peterson.”

[84:35] Michael Batnick: Discusses societal concerns about young adults lacking direction and guidance, pondering the role of traditional leadership programs in addressing this issue.

[86:07] Josh Brown: Emphasizes the importance of leadership training from a young age, criticizing modern societal structures for failing to instill these values.

Notable Quote:

• Josh Brown [86:07]: "Every man that's ever walked on the moon is an Eagle Scout."

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8. Conclusion and Final Thoughts

[89:08] Josh Brown: Provides listeners with resources to learn more about Brian Westbury and First Trust Advisors, directing them to the company’s website and social media channels.

[89:30] Michael Batnick: Wraps up the discussion by highlighting key takeaways and expressing appreciation for Brian’s insights.

[88:17] Josh Brown: Concludes the episode with a positive note, expressing hope for future collaborations: “I hope we get to do it again.”

---

Key Takeaways:

• Bearish Economic Outlook: Brian Westbury and Josh Brown express concerns about the sustainability of current economic growth driven by government spending and artificial stimulus measures.
• Government Deficits: The conversation critically examines the growing size of government deficits and their long-term implications on the economy.
• Monetary Policy Critique: The Federal Reserve’s management of the money supply, particularly through quantitative easing, is scrutinized for its role in inflation and economic instability.
• Stock Market Valuations: High P/E ratios, especially among top-performing tech stocks like Nvidia, raise alarms about potential market corrections.
• Bitcoin and Alternative Assets: Bitcoin is discussed as a potential hedge against fiat currency inflation, with emphasis on its increasing adoption and the complexities of investing in digital assets.
• Leadership and Social Development: The importance of structured leadership programs like the Boy Scouts is highlighted as a solution to the perceived decline in leadership qualities among young men.
• Future Predictions: The hosts anticipate an upcoming recession driven by underlying economic issues and warn about the overreliance on technology sectors without sustainable earnings growth.

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Notable Quotes with Timestamps:

• Josh Brown [32:04]: “I believe half of our GDP growth and we've been growing 2.5% of the last two years is because of government spending and these deficits.”
• Josh Brown [38:42]: “Our biggest problem in America is just the pure size of the government.”
• Josh Brown [45:28]: “We've had this massive increase in M2, and it caused inflation.”
• Josh Brown [67:33]: “Everyone should own Bitcoin.”
• Josh Brown [81:03]: “Every man that's ever walked on the moon is an Eagle Scout.”

---

Recommended Resources:

• First Trust Advisors Website: ftportfolios.com
• Brian Westbury’s Blog: Accessible through the First Trust Advisors website
• Social Media:
  • Brian Westbury on X (formerly Twitter): Follow as @Westbury
  • Brian Westbury on LinkedIn: Follow as Brian Westbury

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Final Note: This episode delves deep into the current economic landscape, analyzing the intertwined roles of government policy, monetary measures, and market valuations. Guests provide a critical perspective on the sustainability of growth driven by artificial stimuli and highlight the importance of returning to fundamental economic principles. Additionally, the discussion touches on societal leadership challenges and the evolving role of digital assets like Bitcoin in the modern economy.

Transcript

[Josh Brown]

The secret of going to Colorado is from the moment you wake up in the morning and you're flying there, you gotta drink water.

[Michael Batnick]

Drink. Start drinking water.

[Josh Brown]

Start drinking water from the moment you wake up, but don't.

[Michael Batnick]

Because of the altitude.

[Josh Brown]

Yeah.

[Michael Batnick]

Now, am I skinnier when I'm in Colorado? How does that part work?

[Josh Brown]

You can kick a ball, hit farther, and you can hit a golf ball farther. That's for sure. I don't know about being skinnier, though.

[Michael Batnick]

So we did an event last year in Colorado Springs, right.

[Josh Brown]

At the Broadmoor. Yeah. Beautiful.

[Michael Batnick]

You know what, though? Timed a little bit too soon in the season.

[Josh Brown]

Right.

[Michael Batnick]

We did it in March.

[Josh Brown]

Yeah.

[Michael Batnick]

We froze.

[Josh Brown]

It can be perfect in March.

[Michael Batnick]

This year we're going to do it in May.

[Josh Brown]

Yeah, it'll be. It could be. Absolutely.

[Michael Batnick]

The Broadmoor is super cool. The golf. The golf area where they have all those. All the memorabilia from the tournaments. They have a lot of stuff there.

[Josh Brown]

Oh, yeah. No, it's very famous course.

[Michael Batnick]

Yeah.

[Josh Brown]

Used to have a big tournament there.

[Michael Batnick]

And then the Bolt and the bowling lanes was probably the highlight of the trip.

[Josh Brown]

Yeah.

[Michael Batnick]

I mean, the last night when all the content was over.

[Josh Brown]

Right.

[Michael Batnick]

The people that put the conference on, myself included, said, let's go bowling. And that was hilarious, dude.

[Josh Brown]

Side of the bar there, they have that humongous fireplace.

[Michael Batnick]

Yes.

[Josh Brown]

And I've had many a good cigar out there.

[Michael Batnick]

Yeah, that's a good scene. And you are a west coast Florida guy or. No, no, no.

[Josh Brown]

I lived in Chicago for 35 years.

[Michael Batnick]

No, no, no. But I was asking, you don't have a place down there?

[Josh Brown]

No, I'm looking. Looking in Naples, but we have a bunch of guys in Naples right now.

[Michael Batnick]

Cause I know you're finally with Belsky and he's now there.

[Josh Brown]

Yeah, I see him there all the time.

[Brian Westbury]

We're going to Naples in a few weeks. It's so hot right now.

[Josh Brown]

Yeah, I see him all the time. Belsky. Whenever I go to the Fox studio there, like, Belsky's right before me or right after me. It's funny.

[Brian Westbury]

Are you guys some.

[Josh Brown]

He wears shorts, by the way, and for his hits. Yeah, yeah, he does.

[Brian Westbury]

But you guys, you gu. Different outlook, right?

[Josh Brown]

Yeah, I. I haven't. I haven't seen his outlook lately. I'm bearish, but I think he is bullish. So I. I don't know how bullish.

[Brian Westbury]

How. How bearish. Like, I think.

[Michael Batnick]

Oh, we're going to find out.

[Josh Brown]

We're going to put.

[Michael Batnick]

As soon as we click action. We're about to find out.

[Josh Brown]

Well, you know, here's I.

[Brian Westbury]

On a scale of roubini to husband, where.

[Josh Brown]

Where do you.

[Brian Westbury]

Where do you fall?

[Josh Brown]

I'm not a roubini or a husband. The I. I haven't been bearish in a long. People used to call me a perma bull. That was their biggest argument. A perma. He's a perma. Perma bull. Per. Guy come up to me before a speech the other day, and he goes, you know, you used to be a perma bull.

[Brian Westbury]

Not a lot.

[Josh Brown]

You're a perma bear.

[Michael Batnick]

So then you're not perma.

[Brian Westbury]

Yeah.

[Josh Brown]

By definition, I'm like. By definition, like, repeat that sentence to yourself. And listen, ask yourself if that makes sense.

[Brian Westbury]

When did you start turning to the dark side?

[Josh Brown]

Kind of last year.

[Brian Westbury]

Okay.

[Josh Brown]

Yeah. I mean, we'll say this, but I always think we had a car wreck. Covid was a car wreck. We broke our leg in four places. The ambulance showed up, pumped us full of morphine. And then they take you to the hospital and they go, how are you feeling? You go, man, I've never felt better. And that's where I think people are.

[Brian Westbury]

Would you rather have not had the morphine?

[Josh Brown]

Yes, I would have rather not had the car wreck. We should have never locked it.

[Michael Batnick]

I don't know if I love that. I feel like the steroid analogy is better than the morphine analogy. I just think it sped up things that would have taken 10 years. Happened all at once.

[Josh Brown]

Yeah. And I know we're going to get.

[Michael Batnick]

Five years worth of wage growth, 10 years worth of stimulus.

[Josh Brown]

Oh.

[Brian Westbury]

But it's interesting. If we didn't have the lockdown, we wouldn't be here.

[Josh Brown]

Right, Right.

[Brian Westbury]

Like, in the financial situation that we're in, everything would have been different.

[Josh Brown]

Yeah, everything would have been different. And. And I mean, and I know we're going to get into this, but I mean, the gap between the wealthy and the not wealthy, people who own assets versus people who don't, has just exploded. I mean, you look at delinquencies and credit cards and auto loans, and they're going through the roof. And it's because anybody that didn't have assets got crushed with all this, all the steroids.

[Michael Batnick]

Can I ask you a question that you are uniquely positioned to answer if that's really such a huge issue, and I think it is, too. Why are they all voting Republican?

[Josh Brown]

Yeah.

[Michael Batnick]

No, seriously.

[Josh Brown]

Yeah. Well, it's a good. I mean, this whole thing is interesting because somehow Trump didn't get blamed for all the steroids. In other words, like, maybe fauci did.

[Michael Batnick]

No, no, no. He has the working class vote.

[Josh Brown]

Right.

[Michael Batnick]

The union leadership voted for Kamala. The union members voted for Trump.

[Josh Brown]

But they put the policies of big spending and all the money printing, the things that caused the inflation. I believe that they blame Democrats and Biden for it, even though it started under Trump.

[Brian Westbury]

Well, they both.

[Josh Brown]

Right. Yeah, yeah, they both. I mean, it started under Trump, no doubt about it. But. But he get. But Biden gets blamed.

[Brian Westbury]

Trump did the shot and Biden did the chaser.

[Josh Brown]

Yeah, there you go. That's exactly right. Although, I mean, Biden kept spending the deficits we've had in the last two years the most irresponsible government policies that may be in the. In the history of the country we've ever had.

[Michael Batnick]

But the irony is they paid for it in the election results.

[Josh Brown]

Yeah, they did.

[Michael Batnick]

It's not supposed to work that way.

[Josh Brown]

Right.

[Michael Batnick]

If you're the president that's throwing money at everyone, you're supposed to win again.

[Josh Brown]

If you're Santa Claus. Yeah.

[Michael Batnick]

That's how bad these policies were.

[Josh Brown]

Yes.

[Michael Batnick]

They were so bad that the wage hikes that everyone got and all this free money actually worked against the administration. You would think it would be the opposite.

[Josh Brown]

Yeah. I think Charles Payne said it fantastically. I think he said. He goes, a lot of my brothers said, quit giving me money. Just let me have an opportunity. And he goes. And finally people have woken up to that, that they threw so much at us and they told us, just count on us. And he goes. People started to get offended by it.

[Michael Batnick]

Michael and I were walking the other day and talking about this, and we were saying the message of, no, no, no, you're working class. Nobody wants to hear that shit. People don't want to hear that they're working class and that they're somehow like, you're supposed to be down and out. That was sort of the Democratic message. It's like, no, no, no, no, no. You need us to take care of you. And I think more people this time said, what if I didn't need you to take care of me? What if what the other guy is saying is that I could climb out of this?

[Josh Brown]

Right.

[Michael Batnick]

And, you know, whether or not you can is a different conversation, but I think that resonated more.

[Josh Brown]

Yeah, they were offended by it. Totally agree.

[Michael Batnick]

Yeah. I don't think anybody wants to, like, wards of the state.

[Josh Brown]

Right.

[Michael Batnick]

So losing message.

[Brian Westbury]

Speaking of wards of the state, Nicole, get on in here.

[Michael Batnick]

Wards of the firm.

[Josh Brown]

Yes. All right.

[Michael Batnick]

Happy New Year, Nicole. What episode is this? Top Head and friends episode? 172 today's show is sponsored by iShares by BlackRock. Bitcoin adoption continues to accelerate, but for many investors, holding Bitcoin directly can be complex. Introducing IBIT, the iShares Bitcoin Trust ETF. IBIT offers you convenient exposure to Bitcoin through an exchange traded product, eliminating the operational, tax and custody complexities. With holding Bitcoin directly, IBIT has also been the most traded Bitcoin exchange traded product, providing investors with potentially lower transaction costs. To learn more, visit iShares.com bitcoin or talk to your financial planner. Investing in digital assets such as Bitcoin involves significant risks, including possible loss of principal. For more information on the Ishares Bitcoin Trust etf, including a link to the prospectus, please see the show notes.

[Josh Brown]

Welcome to the Compound and Friends.

[Michael Batnick]

All opinions expressed by Josh Brown, Michael Batnick and their cast mates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Oh boy. All right, first episode of the year. I must say, we have outdone ourselves in terms of casting for this episode. I don't know. Is there anyone that you'd rather have heard from than Brian Westbury today?

[Brian Westbury]

No. Zero people.

[Michael Batnick]

Zero people. This is awesome. Hey guys, we are back. Hope everybody had a beautiful, happy, safe, healthy holiday season. We have a very special guest with us today. Brian Westbury is the Chief Economist at First Trust Advisors, a financial services firm with over $260 billion in AUM. Brian is also a member of the Board of Trustees at Hillsdale College. Is that the school from Back to Future? What was that called?

[Josh Brown]

Yeah, I don't think.

[Michael Batnick]

John. No. All right.

[Josh Brown]

Yeah.

[Michael Batnick]

Okay. Hillsdale College. Before First Trust, Brian had various senior economist roles, including Chief Economist for the Joint Economic committee of the U.S. congress.

[Brian Westbury]

This U.S. congress.

[Michael Batnick]

That's right.

[Josh Brown]

Yeah. Before one.

[Michael Batnick]

And has written two books, including it Is not as Bad as yous think in 2009. Great title for 2009. Mr. Brian Westbury. Thank you so much for coming. This is your first time on the Compound And Friends, although I've had you on my solo podcast before. Okay, you have? Josh, I don't know what took us so long, but we're so thrilled to have you here. Tell people, before we get into the meat of what we're gonna talk about, tell people a little bit more About First Trust.

[Josh Brown]

Yeah, first trust. 32 years old now, started maybe 33. Anyway, started back in early 1990. 91. We're called first Trust because the roots of our firm invented the first unit Investment trust of municipal bond. So we call. That's why we're called First Trust. I mean it sounds like. Oh, First Drive. What a boring name. Well, there's really a reason for it.

[Michael Batnick]

UITs were ETFs before they were ETFs.

[Josh Brown]

Exactly. It's the same legal structure. So the UIT is now turned morphed. We still are the leader. We're 85% of the market of UITs. We're number six in the world, I guess, in ETFs and have about 260 billion. We're private, we're never going public. And I'm not the CEO. But that's what our CEO Jim Bowen says. Because you want to be private these days, especially when you don't follow the narrative of the rest of the world. We'll never be esg, we'll never be dei. And we want to stay private to make sure it stays that way. Our focus, and this is our co founder, Jim Bowen, who's the CEO today, is on the financial advisor. So you will never see our name in the outfield of a stadium. You'll never see our name on a stadium because we spend our resources on the advisor. We believe the advisor has the relationships with the client. So what we want to do. And that's what you're not B to C. No, we're like, we're B to like. We're C to C. You're B to A.

[Michael Batnick]

B to B Business advisor.

[Josh Brown]

Yeah, whatever. Yeah. B2B I guess is the way to put it. And that's our focus. So that's where we spend all our money. Meetings, you know, we. I do. I give 180. A lot of steaks, a lot of meat. We should have our own ranch, by the way. But, But I do 180 speeches a year. So that's, that's what I do. Yeah, I travel. I live on an airplane and in a ballroom with.

[Brian Westbury]

So you're like a standup economist?

[Josh Brown]

Yes, I do. I am a little bit, yes.

[Michael Batnick]

I want to. I want to start with this chart that. So one of the things about last year, half the gains came from multiple expansion for the s and P500, but half came from earnings growth. And earnings growth is expected to be good yet again this coming year. I know that you're a person that goes back to Basics and says, well, are profits growing or are they not growing?

[Josh Brown]

Right.

[Michael Batnick]

From my perspective, the profit part is easier to figure out than the interest rate part.

[Josh Brown]

Right.

[Michael Batnick]

I in other words, we had four rate cuts this year, 25 basis points and 100 basis points higher in the 10 year. I can't tell you what interest rate's going to be a year from now. I don't think the earnings picture will be terribly far off from the consensus. Do you agree with me? That's the easier part to get right?

[Josh Brown]

Absolutely. Although I have a little worse outlook for the earnings picture.

[Michael Batnick]

We want to hear that for sure.

[Josh Brown]

Yeah. This goes back to the I just believe and you called it steroids, I'll call it morphine. That all that money printing, all that government spending and handouts that we did because of COVID was morphine or steroids or however you wanna say it because it artificially boosted the economy. I think it artificially boosted tax receipts to the federal government. I think it artificially boosted revenues. I mean look at Amazon. Amazon doubled its workforce during COVID All the mom and pop stores were shut down. Who won the s and P500? The tech companies especially because we all zoomed and did all this stuff. So I think there was a real push to artificially inflate those earnings. And I think earnings forecast for this year, while you're right, they're easier to get than the 10 year. I think they're a little too high. We're gonna pay a price. If we have a recession, they'll be weak.

[Michael Batnick]

Would you not have done it? You're not saying we shouldn't have done it. You're saying don't be fooled by what it was.

[Josh Brown]

Well, I think we did more than we should have. I don't think we should have locked. I don't think we should have locked down. I think we should have followed the Swedish model. But I mean obviously that's water under the bridge and I don't have to. But once you do lockdown, that's called the taking, right? I don't let you open your restaurant, your bar, now I gotta compensate you. It's called just compensation in the constitution. Right. So I have to give you just in the law. And so once we locked down, we had to do that. Now the last two years we've had under 4% unemployment and no world war. Still stimulating and we're still having $2 trillion deficit. So that was the big mistake.

[Brian Westbury]

But what if we had the bus in 2022 already? Like so all of the over hiring that these companies were forced to do.

[Michael Batnick]

Right.

[Brian Westbury]

Because the world changed overnight and Amazon couldn't keep up with all of the. So they already all paid the price because the stocks went up and they went all the way back down. And there was the year of efficiency, I think, in 22. Right. Like Meta was right. Sizing Uber was first to that. And they did all that. We had the boom and the bust. Like. Or do you think that there's more to come?

[Josh Brown]

Yeah, I think there's more to come. But this is a debate even inside my shop. My, my, my. Bob Stein is my deputy chief economist. And one of his points is that, hey, we never, even though we had all this stimulus, all these steroids, all this morphine, all this money, like, all this spending, we didn't really get mal investment, you know, which is what that comes from. Mises and Hayek, like, we never got a bubble like in 06 and 07 in housing and growth equity. We did in 90. Yeah. I'm not saying earnings PE ratios didn't go way high for the MAG 7 and all that, but it wasn't like, oh, you know, 07 and 8 in housing or 6 and 7 or 99. I mean, in the stock market, we.

[Brian Westbury]

Had the SPAC bubble in 21. We had the series F through Z for the giant growth equity companies.

[Michael Batnick]

But these are financial. These are.

[Josh Brown]

These.

[Michael Batnick]

That's not really overbuilding junk infrastructure.

[Josh Brown]

Right.

[Michael Batnick]

Like what they do in China.

[Josh Brown]

I'm not saying we didn't have some bubbles. I think we might have a bubble in Bitcoin right now. But, but, and we'll get to talk about that. But, but they weren't as big as the bubbles were in 98, 99 or in housing.

[Brian Westbury]

Is that good or bad?

[Josh Brown]

Yeah, it's good. Because if you don't have the big bubble, then you don't have the big crash. It's. It's weird because if you put $5 trillion in an economy, how do you not get a bubble? And so we have to debate why that might not happen. I still think there is a bubble. I think there was a bubble earnings. If you compare earnings today to where they were in 2019, it's absolutely amazing. But they really haven't grown in the last two years. And so maybe that's the correction. We just go sideways. So you talked about stocks in the last year. Here's two years, the S&P 500 is up 62% in two years, earnings are up 5%. So to me, that's the multiple expansion. And I think It's a sign of how much we're overdone. Now we're not overdone. Like 99. We're not. We're 20% overvalued. But if earnings stay up, the market will stay up. If Musk and Ramaswamy and they can cut deregulation and AI and Ozempic and all this stuff make us boom, then guess what, I'm wrong.

[Brian Westbury]

So you think that could earnings be flat and stocks could be down 15, 20%?

[Josh Brown]

Yeah, it could, yeah. They, they should be. I mean, and it's especially because of interest rates. So the model we use, real simple profits. I just call it a capitalized profits model.

[Michael Batnick]

Let's hit that chart. So this one, this is, this is where I wanted to go next. That's a great segue. Describe for. Because some of the people are listening to this. So just describe to people what's on the chart and why. This is your model.

[Josh Brown]

Yeah. So this chart goes back to 1955. It shows the S&P 500. All right. And I kept this as simple as you possibly can when you're valuing stocks. I mean, people use all kinds of dividend discount models and et cetera, et cetera. But there's two important.

[Michael Batnick]

We just use the 200 day moving average. So we're simpler than you.

[Josh Brown]

Yes, yeah, but I just use two components. Number one, profits. And by the way, I don't use s and P500 reported profits. I use the government profits that come from what's called the NIPA accounts. National income profit, national income and product accounts. And that's data that's reported to the irs. Okay. So I figure if you're a company and you report earnings to the irs, you owe taxes. So you really did make it. All right. So that's why I ignore the S&P 500.

[Michael Batnick]

Does that deviate greatly from the reported earnings of The S&P 500?

[Josh Brown]

Not greatly. It's not a massive difference, but there are differences.

[Michael Batnick]

It's not used.

[Brian Westbury]

That's like sugar in the raw to continue your sweetener allowance.

[Josh Brown]

Exactly, exactly. And so I take those profits and then I. That's quarterly report.

[Michael Batnick]

It's a quarterly report.

[Josh Brown]

Quarterly numbers.

[Michael Batnick]

Okay.

[Josh Brown]

And then I discount Those by the 10 year treasury yield every quarter. So we, every quarter we have three pieces of data, forward or backward, it's all just real time. So it's all like, we do it quarterly. So every piece of data is for the fourth quarter. Every piece of data is for the fourth quarter.

[Michael Batnick]

So this week you have last Quarter's data.

[Josh Brown]

Yep.

[Michael Batnick]

And you have the 10 year current.

[Josh Brown]

Yeah. So we use fourth quarter profits. The 10 year, you can do whatever you want with it. You could use last quarter's, we could adjust it for this quarter's. And then we have the s and.

[Michael Batnick]

P4 and a half.

[Josh Brown]

If you give me two of those, I'll calculate the third. It's just an average like over 70 years of data. And so what this show, this model for the last 15 years up until this past year, I was bullish. I mean people are like swine flu. I'm like buying. They're like brexit buy. Fiscal cliff buy like murder hornets. I'm like triple buy. You know, it's like it didn't matter. We have.

[Michael Batnick]

No, you have because I read you every week. The light blue line is the capital profits model minus the s and P500.

[Josh Brown]

Well, the dark blue line is the S and P. The light blue line is the forecast is the fair, is the fair value. So you can see for 15 years we were massively undervalued. And then interest rates shot up in the last couple of years. And that's really the driver that brought that light blue line. And it is now for the first time in 15 years, below the S&P 500 or in other words, our model says for the first time in 15 years the market's overvalued. Now it was overvalued for a year. So I've been bearish. Shush, shush for a year.

[Brian Westbury]

Okay, all right, so let me ask you this. Doesn't the source of the profits matter? Because if it continues to come from the Mag 7 stocks who really don't give a shit what the tenure is. Right. What does a 10 year have to do with Nvidia's earnings powers?

[Josh Brown]

Nothing.

[Brian Westbury]

Literally nothing.

[Josh Brown]

Nothing.

[Brian Westbury]

Right. So you would stipulate that.

[Josh Brown]

Yeah. Other than it's a discount mechanism so that the market, if Nvidia earns a dollar and interest rates are 5, it's worth in a sense less than.

[Brian Westbury]

All right, so you're not so using that as a discount mechanism, not as a cost of capital. Got it.

[Josh Brown]

Yeah. Now what?

[Michael Batnick]

We've been one of your big surprises though for last year because it's how.

[Josh Brown]

Much those seven, how little those companies.

[Michael Batnick]

Cared whether the overnight fed funds rate was 5% or 0%.

[Josh Brown]

Right.

[Michael Batnick]

It, it was almost like a non event.

[Josh Brown]

Yep.

[Michael Batnick]

It was definitely non event. It might have actually worked in the inverse. They were printing money on the cash side of their balance sheet.

[Josh Brown]

Yep.

[Michael Batnick]

With the higher Rates, it actually helped them.

[Josh Brown]

Yeah, I totally. Well and I mean if you look at Apple, they had a lot of debt on their books at way less than current market rates. And I mean, what. Their CFO is brilliant. I mean they did just magnificent things buying back all their stock, all that stuff. But if you, we, I mean we can all look at the PE ratios for those companies that are 37, 38, 39. I mean that's historically overvalued and everybody is betting that AI is this massive profit producer, but it hasn't worked yet. And so it's not exactly the same because 3 com, remember Palm Pilot? I mean in 99 I used to.

[Michael Batnick]

Sell that stock to people and tell them they were going to get the Palm spin off.

[Josh Brown]

Yeah, exactly.

[Michael Batnick]

That was like my, I probably opened 100 retail brokerage accounts pitching that story.

[Josh Brown]

It wasn't. I mean that company was so far ahead of the world, it was brilliant. I had a Palm Pilot, I traded futures on my Palm Pilot. It was. And mine had a pen, but then it. Yeah, mine had a pen and then it blew up. But all that technology, I mean, I don't know about the exact software behind it all, but everything that PalmPilot can do is in your iPhone today. It was right. They were right. They were just early.

[Michael Batnick]

They're right on the innovation, wrong on the timeline for which this would be profitable.

[Josh Brown]

And that's what worries me about AI. AI's the real deal. It's gonna help hospitals, doctors, it's gonna help all of us get diagnosed better, faster, cleaner, like all it's.

[Michael Batnick]

That is the source of the overvalued. Putting aside the rate on the 10 year treasury in your model.

[Josh Brown]

Yep.

[Michael Batnick]

The real. If the market turns out to have been overvalued, I guess we'll find out in a year.

[Josh Brown]

Right?

[Michael Batnick]

That's the source. Optimism related to the AI opportunity, no doubt.

[Brian Westbury]

So Apple, probably a beneficiary of some of this future hope, revenue is flat for the last couple of years, like literally revenue is not growing. The Stock was up 30% last year. Now the margins are going up. Right, because of the source of the revenue. But again, flat revenue stock up 30% and not a small stock either. One of the top two in the world.

[Josh Brown]

Exactly. And that's the stuff that worries me. And so when we go talk to financial advisors, our CIO, Dave McGarrell, he's got some unbelievable ways of showing this. But if you look at the top 50 stocks in the S&P 500, it's 37, 38 PE you look at the bottom 50 stocks. I mean you got companies like Dover which has increased. It's a $30 billion company. It's increased its dividend for 60 years in a row and yet it's like.

[Michael Batnick]

Three, it's three basis points and it's going that way. Market cap valuation is the right word. Monotonically. That's a stair step, isn't that right?

[Josh Brown]

Yeah, okay. Yeah, it's a stair step.

[Michael Batnick]

And it also correlated with performance last year.

[Josh Brown]

Yeah. And their PE ratios, the PE of the bottom 50 is 1413. I'm not remembering exactly, but don't quote me on that number. But it's something like that.

[Michael Batnick]

So I've been saying that I think one of the biggest risks for the market in the first quarter is Nvidia's earning February 25th or 6th. They'll report one of those two days. Not because they're gonna have a bad report, it's just that the ante up.

[Brian Westbury]

Let me show you this chart.

[Michael Batnick]

They have to ante so much higher each time to maintain people's enthusiasm.

[Brian Westbury]

Let me show you this chart. So I had a chart kit, it's on my computer. I'll turn it around in a sec. Nvidia is up 835% over the last two years. It has not fallen more than 10% in a single day. I would guess that that might not have ever happened where a Stock had a two year run of 840% and not a single day more than down 10%. So here's what happened to Nvidia. What we're looking at is the gray bar is Nvidia forecasted 12 month earnings push forward 12 months versus what they actually did.

[Josh Brown]

Right.

[Brian Westbury]

And you could see the bar just went vertical. But they continue to pull vault even higher than that. But at some point, yeah, they're going.

[Josh Brown]

To miss at some point.

[Brian Westbury]

And if and when they do the stocks to go down 20% on the.

[Josh Brown]

Day they have competitors coming online with.

[Michael Batnick]

With, with chipsets competing with their own customers.

[Josh Brown]

Yeah, yeah, exactly.

[Michael Batnick]

Yeah.

[Josh Brown]

And the question is how long will Google, Google Metal, I mean they're investing twice as much of their of their revenues in chips and new tech and R and D than they ever have. And I mean maybe if you go back to their very roots, like maybe they invested everything they ever made in the next generation of whatever. But right now they're, they're making more money than they've ever made but they're also investing more money than they've ever.

[Michael Batnick]

So I want to point out if.

[Josh Brown]

They slow down, Nvidia goes from 300% growth to 150 to 75 to 20. And now all of a sudden that multiple doesn't make sense anymore.

[Michael Batnick]

Microsoft is the worst performer of the Mag 7 last year, up 12%.

[Josh Brown]

Yeah.

[Michael Batnick]

Which is less than half of the S&P's performance. It's about a third of the NASDAQ's performance. They're the biggest spender on Nvidia.

[Josh Brown]

Yeah.

[Michael Batnick]

They are the number one customer.

[Josh Brown]

Yeah.

[Michael Batnick]

Not just Microsoft, but OpenAI, which Microsoft basically funds.

[Josh Brown]

Yeah.

[Michael Batnick]

They have the Copilot product, which is arguably the first large scale SaaS, AI product, B2B products for the enterprise. That's like maybe a sneak preview of what happens with all of these hyperscalers that are rolling out these services. Even if they get traction with the services, doesn't necessarily mean shareholders will reward them. And if it goes into reverse and Microsoft shareholders say, why is the stock down? Maybe stop spending.

[Josh Brown]

Right.

[Michael Batnick]

That's a chain reaction that I worry about. And I'm an Nvidia long.

[Josh Brown]

Right.

[Michael Batnick]

So you're more bearish than I am. But I'm, I think, experienced enough to understand Nvidia will be the last company to see this coming.

[Josh Brown]

Right.

[Michael Batnick]

They're the caboose.

[Josh Brown]

Right.

[Michael Batnick]

They're the people that are taking in the spending.

[Josh Brown]

Right.

[Michael Batnick]

The companies at the front end are the ones that you have to watch for.

[Josh Brown]

Yeah.

[Michael Batnick]

What's great about Nvidia reporting late February is their last.

[Josh Brown]

Right.

[Michael Batnick]

So if you hear from Zuckerberg and Sundar and they all say full speed ahead, don't worry about Nvidia's earnings.

[Josh Brown]

I totally agree. And they probably.

[Michael Batnick]

You don't hear that. It's different.

[Josh Brown]

They probably will. I mean, I.

[Brian Westbury]

Well, given, given all the recent comments, of course they're going to say that.

[Josh Brown]

Right.

[Brian Westbury]

It'd be a shock if all of a sudden they stop or slow down because.

[Josh Brown]

Because it's a. It's. It's a war. Right.

[Michael Batnick]

If it's a war, Alphabet, it's existent. It's existential for Alphabet.

[Josh Brown]

Yeah. If Google spends 11 billion, then Alphabet has to spend 12.

[Michael Batnick]

Yes.

[Josh Brown]

And so they're in a war right now and they have the money to spend. So I don't think Nvidia is going to crash tomorrow or anytime soon. That's not what I'm saying. What I am saying is if AI doesn't pay off with profits, it's. It's going to eventually happen.

[Michael Batnick]

Here's another one.

[Josh Brown]

I also think we're going to have a recession. I really, I really do. And it's bubbling up from the bottom.

[Michael Batnick]

So I want to go into your employment chart. One of the things that, that I was surprised by last year, how well the labor markets held up.

[Josh Brown]

Right.

[Michael Batnick]

We're not really worried about AI taking jobs anymore. I guess that was like a thing that we worried about for 10 minutes last year. Agentic AI is going to be the theme tech theme of 2025. Agentic AI will absolutely take customer service jobs and incinerate them in a way that LLMs on a standalone basis will not. Benioff told us this is the year of agentic AI. He ought to know what does he have. 450 of the top 500 companies in America on Salesforce, if they are literally able to tell a manager, Instead of having 20 employees under you, you now have 12. We're replacing those eight with chatbots and automated services. Okay. That's something I worry about. But let's take your employment.

[Brian Westbury]

Hang on, hang on. On that point, can you have unemployment tick up meaningfully and margin expansion and earnings?

[Josh Brown]

Probably. Well, well, if it's all generated by higher productivity, yeah. So would that be.

[Michael Batnick]

That's the one of these long consumer discretionary. In that scenario, would that be bad.

[Brian Westbury]

For the stock market?

[Josh Brown]

Productivity is never bad for profits or the stock market? Productivity never is. Although what this could cause is fear. Like, if you lose your job, you're not spending. So there's all kinds of forces. And the question is, how quickly does that productivity turn into new jobs and new arenas? Because that's the history of America. Right. Like the history of the Western civilization.

[Brian Westbury]

The pie grows.

[Josh Brown]

Yeah. We invent steam engines, and that means we don't need sailing ships. And so if you make sales, you're done. Buggy whips, all that stuff. But we, we had the pie grow. We have jobs created elsewhere, and then that stops the next.

[Michael Batnick]

One of the predictions in this vein is that I think by the end of 2025, there could be more AI agents employed at corporations than people in one year.

[Josh Brown]

Yeah, it could happen.

[Michael Batnick]

There's no doubt, because you might have five different agents that you are employing to help you with various parts of your job. Those were probably jobs that would go to a kid coming out of University of Chicago. Maybe you take three of them instead of five of them.

[Josh Brown]

Oh, yeah. To do research. I mean, I just perplexity, like, and it gives me sights and like, you know, whereas, you know, six months ago I picked up the phone and I called my office and I said, hey, put somebody on this. Well, now you just ask perplexity or I don't know which one you use. I use perplexity.

[Michael Batnick]

I use them all. If you. I like to get wrong answers on multiple screens, but if so. All right, so let's look at your chart. Tell us what your seeing here.

[Josh Brown]

Yeah, government jobs are up 2%. Private sector jobs are up like 1 1/2 percent.

[Michael Batnick]

Over what time frame since the pandemic?

[Josh Brown]

Like basically. Well, this goes back to basically the pandemic, but they crossed in late 22, early 23. These are these $2 trillion budget deficits that we've been running.

[Michael Batnick]

It takes the form of government jobs.

[Josh Brown]

Government job, government and health care jobs that health care is not on here, just government straight out versus the private sector. And that's the percentage growth over the previous year. So in other words, government jobs up 2% in the past year, private sector jobs up about one and a half percent.

[Michael Batnick]

Is this like in reverse now, given the political situation?

[Josh Brown]

All right, so this is where I wanted to go with this. I believe half of our GDP growth and we've been growing 2.5% of the last two years is because of government spending and these deficits. So I am not a deficit guy. I'm not a Keynesian. I do not believe in Keynesian economics. And you can spend your way to prosperity. However, in the short term, you push a lot of money in. It's like the morphine or the steroids. It can make you feel better or stronger. It can make the numbers look better. But here in New York, for example, the governor, Kathy Holcomb, did a press conference, I want to say, six, seven, eight months ago, where she talked about most of the jobs. A majority of the jobs created in the previous year in New York state were Medicaid. Was Medicaid paying kids grandkids to stay at home and take care of grandma?

[Brian Westbury]

What?

[Josh Brown]

Oh, yeah, Medicaid.

[Michael Batnick]

Would you say most of the jobs?

[Josh Brown]

Most. A majority. Straight words out of Kathy Hochul's mouth. She was going, we can't. And it's costing the state $5 billion a year. But the new rules in Medicaid allow a member of the family to get a salary.

[Michael Batnick]

Like they're a nurse.

[Josh Brown]

Yep, exactly. At. At home care. And so.

[Michael Batnick]

And the states are paying for this.

[Josh Brown]

Yeah. And the government block grants. The states, they give money, the federal government does to the states. But. But anyway, so that's just one category of jobs, but it's a huge one. And so if you put government and healthcare. Healthcare is mostly government anyway. So government and healthcare together, it's. Over half the jobs in the past two years have come from chips.

[Michael Batnick]

That doesn't sound sustainable.

[Josh Brown]

No, it's not. And especially when you have Musk and Ramaswamy coming in saying they want to cut $2 trillion.

[Michael Batnick]

You think that's really gonna. You think that's just Twitter shit, or that's really gonna happen?

[Josh Brown]

I think they want to do it.

[Michael Batnick]

Do I?

[Josh Brown]

You know. You know Jimmy Carter hired Alfred Khan. He was a professor at Cornell. He was the guy who took over the Civil Aeronautics Board. He's the only guy ever could have been a woman, but ever to take over a government agency and shut it down. Like people that come in and run Health and Human Services, they. Like Jack Kemp, he didn't get rid of it. He actually grew it when he was there, you know, so. So they claim they're going to shut government agencies down.

[Michael Batnick]

Was Alfred Kahn serving as the CEO of three different trillion dollar companies?

[Josh Brown]

He was not. He was a professor. He was a professor and Carter hired him as the inflation czar. And then he tried to quit, but he wouldn't let him. That guy is fascinating. He's one of my heroes. But just a quick aside, he was so. He was outspoken like Musk is. He was so, like, he didn't care what he said. He works for Carter, he starts talking about recession, and the whole Carter's whole team just blows up. They're like, what the heck? Like, you can't do that. You can't say that word. And so he started calling it a banana. And he's like, okay, I won't call it a recession, I'll call it a banana. And then the banana industry got mad at him for calling it a banana, so he changed it to kumquat. And this guy was a character. Anyway, the whole point of bringing him up is that he actually did it. All right. Then when Reagan came In, it was W.R. grace, it was called the Grace Commission. And they came up with like 2000 proposals to cut spending. Back then, I think it was 400 billion in spending that he found that they could cut. And they never got any of it done. And so here we. I think Musk and Ramasami are serious, but they haven't run into the bureaucratic Buzzsaw yet. They talk a lot.

[Michael Batnick]

They're also not elected officials and they can't sign anything.

[Josh Brown]

It's going to be really hard.

[Brian Westbury]

So, Brian, let me wind you up.

[Josh Brown]

But here, one quick side. So if. Let's just say we cut this deficit from 2 trillion to 1 trillion. Well, we just lost a lot of job growth, and that may be enough right there to cause a recession. Like, in other words, if we stop all this stimulus, just cold turkey, it hurts. You go off. I don't know from experience, but if you stop heroin, you go into withdrawal.

[Michael Batnick]

How does this conversation go? So Scott Besant bursts into the Oval Office and he says, Mr. Trump, it looks like a recession is now likely and the stock market is plunging. And Trump says, who did it? And he says, the Doge geniuses. We'll get them the hell out of here.

[Josh Brown]

Right.

[Michael Batnick]

We're not doing any of these things.

[Josh Brown]

And pick up the phone and call Powell and tell him to cut rates and start printing money again.

[Michael Batnick]

That's probably started today.

[Josh Brown]

Yes.

[Michael Batnick]

All right, Federal budget madness. Show us what's on this chart. What does this mean to you?

[Josh Brown]

Yeah, look at it. Look at these. It's really hard to tell because we have such huge, big budget deficit. So this is all the budget deficits or surpluses all the way back to 1930, obviously, World War II. And then you can see 0809, and then you see Covid. But the reason we put this together is look at the last two years. 6.2 and 6.4% of GDP, the biggest deficits ever, other than 0809, other than Covid and other than World War II. And we've had unemployment, you know, so the 1981 was 6% smaller than today's. But that was Reagan, but he was fighting the Cold War and he had 10% unemployment. Today we're not in a world war and we have under 4% unemployment.

[Michael Batnick]

So why are we doing this?

[Josh Brown]

Yeah.

[Michael Batnick]

Because it's easier for people who want to get elected every four years or every six years to just give everybody everything.

[Josh Brown]

Yeah, exactly. I mean, we.

[Michael Batnick]

Can I point something out on this chart, though, and ask your opinion about it? I heard Bill Clinton talk about how his administration was the last time we had a budget surplus, as though he did something. What we actually had was a stock market bubble.

[Josh Brown]

Yes.

[Michael Batnick]

And everyone paid taxes on those gains. And that's how you get a quote unquote balanced budget.

[Josh Brown]

Right.

[Michael Batnick]

In real life, you got one in the late 60s after that stock market extravaganza. And then you see you got one in the mid-40s after all the stimulus spending from the war translated into stock market bubble profits. You only ever don't have a deficit after a year in which The S&P 500 goes up 50% or the NASDAQ goes up 100%. That's how you balance the budget. It's tax receipts from a stock market bubble.

[Josh Brown]

Right.

[Michael Batnick]

And if you don't have that, then you're always going to be in some deficit.

[Josh Brown]

Yeah, I totally agree. Although we've had unbelievable stock markets and now we have worse.

[Michael Batnick]

Now we don't even try anymore.

[Josh Brown]

Yeah, we don't even try.

[Michael Batnick]

Okay.

[Brian Westbury]

And yeah, because we're Tesla's harvesting.

[Josh Brown]

Right. And then Clinton also. Clinton also. Did he, he did do welfare reform? You know, you have to work to get welfare. And, and so government spending wasn't growing under him. It wasn't growing as fast as the economy, let's put it that way. But the key. So yes, stock market. Totally agree. Gains help.

[Michael Batnick]

It's a capital gains tax windfall after a stock market bubble. That's how you balance a budget.

[Josh Brown]

Totally true. He also cut defense spending a lot, if I'm not mistaken. In his eight years, it started from 6% of GDP and it went all the way to 3. So he cut government spending on defense a ton. And you had a bubble in the market. Push revenues up, combination we end up with surpluses. Well, this time our guy just. I'm going to throw a few numbers out here. In 1789, we became a country. Our budget was zero. 219 years later, it was $3 trillion. All right, now that's a ton of money. I get it. Dr. Seuss is the only one that knows what a trillion is. But 3 trillion from. In the last 16 years, we went from 3 trillion to 6 and 3/4 trillion. That's how much spending we've done. 16 years we've spent more, added more to spending than we did in the previous 219 years. The Fed in the last 16 years, if you have a hundred dollar bill in your wallet, 60 of those dollars were created in the last 16 years. Proud of those dollars, 40 were created in the previous 219. That's how much morphine or steroids we've added. And hardly anybody talks about it. But I think it's made everybody that have assets, we think everything's fine. We're like the guy with a broken leg in the emergency room going, man, I've never felt better. I can't feel anything.

[Michael Batnick]

But if I give you a denominator, the size of the economy, and then I give you the size of the global economy in which the United States dominates, does that somewhat lessen the severity of that? How steep that that rises?

[Josh Brown]

Yeah, it.

[Michael Batnick]

What it's not in a vacuum, I guess, is my Point.

[Josh Brown]

No, it's not what. And, and I'm not, I'm, I'm trying to find the perfect way to say it shortly and that is that the Austrians, like if you will, they never. We, we don't need any more money printed.

[Michael Batnick]

He's talking about Schwarzenegger, Michael.

[Josh Brown]

Yeah, Austrians like Mises and Hayek and, and even Friedman who wasn't an Austrian, but he knew them, but he was their ilk. The, the, if you have a massive increase in productivity, you can absorb all that. It's like having a sponge. So it's a, but clearly we printed so much money that we got inflation. So it didn't work, at least in the short term. The question is, will it work in the long term? That's the same thing we were talking about with earnings. Can we absorb all this money with, without inflation by having a massive increase in productivity?

[Brian Westbury]

So the market seems to be unconcerned about the debt and the deficit.

[Michael Batnick]

Right.

[Josh Brown]

Don't care.

[Brian Westbury]

Look at the dollar, not in the stock market. Like the dollar. If there were some worries, I would think that's probably be the first place it would show up. Now you would say, well the 10 years is maybe a little bit worried, but who knows why that's rising. It could be a myriad of reasons for that. So if we're a year from now, two years from now, and nothing, there's no event, there's no catalyst, we're just having the same conversation. Would you say maybe that the artificial stimulus didn't really matter as much as I thought it would?

[Josh Brown]

Yeah, and that goes back to, you know, I mentioned a couple names here. Bob Stein is my deputy chief economist, used to be the top economist in the treasury under Hank Balson. He, he, he, he's like, maybe we haven't seen the negative effect of, of this bubble bursting because we never really had the mal investment, the bad investment from all this money. Maybe all this stuff is good we invented. I mean like I, I read a report the other day, Ozempic is going to increase GDP growth by 2% a year. Like I, I like make everybody healthier.

[Michael Batnick]

And people, people have more energy, they spend less of their time, they're more treated for illness.

[Josh Brown]

Yeah, we get rid of obesity. In other words, like that's a, Obesity is a very costly thing. You get rid of it. I think 2%'s way. It's crazy. It might add 0.2% to GDP, not 2. But what I'm getting to is there are people that AI Starlink, you know, all like these Things are the real deal and autonomous vehicles, all that. We could have this massive increase in productivity. And then that goes back to Michael. Your question, like, how many jobs does it cost? Is that the downside?

[Michael Batnick]

That's the Ed Yardeni kind of model of the new roaring 2020s idea, is that there's so much innovation happening that to focus on anything else is to miss the point.

[Josh Brown]

Yeah.

[Michael Batnick]

And he's been for four years so far.

[Josh Brown]

He's been absolutely right. I was. I was right. The first two years were undervalued, but then interest rates went up and now we're overvalued.

[Michael Batnick]

You are one of the people that has written the most about money supply.

[Josh Brown]

Yeah.

[Michael Batnick]

And you think that it's the most underappreciated factor in what drives everything. And not a lot of people seem to talk about it. The Fed doesn't really want to talk that much about it. You're on your soapbox about M2 money supply. So let's throw this chart up. What is it that you think everyone's missing? And why is this something that people should be paying more attention to?

[Josh Brown]

Yeah. So this is a chart of year over year. So, you know, December, over the previous December, growth in M2.

[Michael Batnick]

This is not the level. The growth of M2.

[Josh Brown]

Growth rate of M2.

[Michael Batnick]

So what is the average growth rate of the money supply supply back 60 years?

[Josh Brown]

You know, if you go from 1960 to today, I'm gonna tell you the average. Five, six, seven, somewhere right in there.

[Michael Batnick]

Okay. And three years ago, it hit 30.

[Josh Brown]

Look at that. Yeah. I mean, whenever I look at this chart, I always go, which one of these is not like the others?

[Michael Batnick]

You know, did we correct enough or.

[Josh Brown]

Well, that's where the inflation came from. It's really clear. I mean, it was the easy, one of the easiest.

[Michael Batnick]

Who disagrees with you about this?

[Josh Brown]

Jerome Powell.

[Michael Batnick]

Like, how does he disagree with that?

[Josh Brown]

He just says money doesn't matter.

[Michael Batnick]

Overtly.

[Josh Brown]

Or the heat. First of all, this is one of my pet peeves. You want me to get on my soapbox? You want me to get on my soapbox? We have.

[Michael Batnick]

Please close the door.

[Josh Brown]

How many. There's. How many reporters are in the room with Jerome Powell?

[Michael Batnick]

36.

[Josh Brown]

36. Okay. Not one of those 36 has ever asked him about the money supply.

[Michael Batnick]

That one can't be true.

[Josh Brown]

Not.

[Michael Batnick]

Not really.

[Josh Brown]

One.

[Michael Batnick]

Nobody.

[Josh Brown]

Not one. Not one. The only question I know that he's gotten about the money supply came from Senator Kennedy. You know, Senator Kennedy, you're like the squirrel got the raccoon by the tail, like that guy. All right, And. And he.

[Michael Batnick]

Louisiana. He's a character.

[Josh Brown]

Yeah, he south somewhere. Yeah, I. Gosh, I should know this. Anyway, sorry, Senator Kennedy, but he is a character. But he asked about the money supply directly to Powell, and Powell said, you know, used to talk about that when we were in school. But I think it's time for us to unlearn what we think we know about the. No, he dissed Milton Friedman, didn't use him by name, but he said we need to unlearn everything we've ever.

[Michael Batnick]

What's the money supply? Can you define it for the listener and for Michael?

[Josh Brown]

This is. M2 is all checking accounts, all savings accounts, all CDs, coins, coins, cash and currency. So it's all the deposits in all the banks.

[Michael Batnick]

What is the number? What is the number?

[Josh Brown]

It's about $21 trillion.

[Brian Westbury]

And M3 includes Bitcoin?

[Josh Brown]

Yes. No, M3 includes a little bit longer. They. I don't. I've never paid attention to M3 because they had some stuff.

[Michael Batnick]

How does the money supply grow? Grow or contract?

[Josh Brown]

All right, well, the. In this case, they do it with quantitative easing. And so what. They're what they. And, and, and it grows by the Federal Reserve, adds reserves to the bank. So let's say you're Citibank and they buy $10 billion worth of bonds that you own and they give you $10 billion worth of cash.

[Michael Batnick]

That's growth in the money supply.

[Josh Brown]

Well, they take the bonds and then. Yes, and then what happens is you lend it out. All right, but you have to keep some back for reserves. And then you lend it out. That ends up somebody buys an apartment in Manhattan, and then that ends as a deposit in the bank of whoever sold that to them. And then they lend it out, and it's called the money multiplier. So these banks take this money and I'm giving you a money in banking class in about two minutes. So it should take four hours. And then that's how you multiply the money supply. But what the Fed has done since Bernanke took over is they started doing qe. So they were buying trillions of dollars worth of bonds from the banks, flooding all that money into the banks. And then what they. Is, the Fed went there and said, hey, guess what, Citi jp, Bank of America, you have to hold more capital. You can't. In other words, they made them hold the cash and not start lending it out. And so they made increased liquidity rules. Jamie Dimon complains about this all the Time he goes, if you keep tightening these capital rules on me, I can't make a loan. Well, that's the whole reason they have them, because they're flooding the banking system with cash. And that's because we had two crises. 08. And then Covid and the Fed decided, oh, we're just going to flood the system with money. And that's the way we're going to keep the pain off. But it'll turn into inflation unless we bottle it up in the banks. So they increased capital rules and liquidity rules so much that they made the banks hold onto all these reserves. During COVID we actually relaxed the liquidity rules. And the reason we did it was because we wanted the banks to make those PPP loans, remember, during COVID So you shut down your bar and you get a loan to pay your employees, which you didn't have to pay back eventually. But the banks made all those loans. Well, they could not have made them if we didn't relax the rules. And so what happened is that's why the money supply shot up. And then about a year later, I think in. So we shut down in 2020, March of 2020. And then about June of 2021, they put the rules back into place. And then that's when the money supply collapsed.

[Michael Batnick]

And that's when you get Silicon Valley bank six months later.

[Josh Brown]

Exactly.

[Brian Westbury]

Wouldn't you have thought if you saw this chart, you would have said, what the happened? How bad is it? And it didn't get that bad.

[Josh Brown]

Right. And so here's. So first of all, when the chart went through the roof, that's when middle of 2020, you can go back. I started writing about inflation, like really pounding the table in June, July of 2020, I think I've written 30 articles on inflation and it was the easiest forecast I ever made. And everybody's going, no, no, no, because Bernanke did QE and we didn't get inflation, so we're not going to get it this time. I'm like, yeah, but Bernanke didn't have that increase in M2. This is an easy forecast. And then boom, inflation was here.

[Michael Batnick]

Why do you think Powell speaks so dismissively then, if it's so obvious and looking at the chart and listening to your story, it sounds that way. Does he know and there's some other reason why he's dismissing it, or does he not understand it?

[Josh Brown]

Well, first of all, the Fed never wants to take the blame. Like you go back to the 70s.

[Michael Batnick]

Who does?

[Josh Brown]

Yeah, you go back to the 70s, they were saying the same thing. It's transitory. It's all because of the dollar. It's because of Saudi Arabia and the oil embargo. It's, it's because of a drought and wheat or like who knows, they, they made up 50 million excuses just like they did here. It's Putin, it's supply chains. It's like they did all of that supports. So that's number one. Number two, and this is more nefarious. And please don't think, listen me out before you think I'm wearing a tinfoil hat.

[Michael Batnick]

Turn on the TikTok camera.

[Josh Brown]

John, it's the aliens. Yes, there are Martians that landed. No, the, no, the Federal Reserve. Remember when I said 60 of every hundred dollars that's in your wallet was created in the last 16 years? The Federal Reserve massively changed monetary policy in 08 and no one talks about it. We went from a scarce reserve model where banks had 10% reserves. Every single bank in this country had a federal funds trading desk. And every day they traded hundreds of billions of dollars of federal funds. Then once we did QE, we flooded the banks with money. Banks now have 35% reserves, not 10 anymore. And everybody's over reserved. You only need 10. That's the kind of the law, the rule.

[Michael Batnick]

Cause we're still fighting the last war.

[Josh Brown]

Well they're not willing to drain it all back out so they put it in. Now what this really means is that the Fed has grown massively. So the Fed, when all this started in 07, the Fed had $800 billion on its books. That was its balance. She Today it's over 7 trillion on its books. So it used to be 1/10 the size of the banking system, now it's one third the size of the banking system. The Fed is bigger than you add up all the top 10 sovereign wealth funds in the world. The Fed's bigger than all of them combined.

[Brian Westbury]

I don't know that the Fed deserves credit for this. But we also in that time we haven't had a real recession outside. The man made one from COVID Right, right, exactly. Isn't that good?

[Josh Brown]

Well, partly, yeah. I mean I'm always glad when we.

[Michael Batnick]

Don'T have no recession in 15 years outside of the two months of COVID where we shut the economy down deliberately.

[Josh Brown]

Yeah, so. So I'm going to lead this little comment off with this. I hate Keynesian economics. I hate it because all you ever talk about. Well, but, but all because all you ever talk about is what government is doing. And I believe wealth is created by entrepreneurs. It's not created by government. You can't print your way to wealth. You can't spend your way to wealth. You know, you can't. That doesn't work. You have to invent new things. All right, you gotta be Elon Musk. You gotta be the.

[Michael Batnick]

Solve people's problems and charge money for it.

[Josh Brown]

Yes, exactly. And have them willing to pay for it, and they think they get more value than they give you. And that's, that's how wealth is.

[Michael Batnick]

The government should support that endeavor, not try to be the cause of it.

[Josh Brown]

Yeah, and, and, and, and so the reason I lead all this off is this way, is that it's all we talk about is government anymore. And even me, and I hate it. All right, so money supply collapsed after they put the rules back in for liquidity. And yet the economy didn't have a recession. And I think there's two reasons. Number one, it took longer than normal to absorb all the money. Number two, we collapsed the money supply, but we boosted the deficit. So you've had $2 trillion deficit. So in other words, you replaced the stimulus from money and spending, and now you don't have stimulus from money anymore, but you have stimulus from spending. And so I think the government kept us from experiencing the recession that we should have experienced. If you just look at an M2.

[Brian Westbury]

But why is that bad?

[Josh Brown]

Well, it's bad because it grows the government. And so, I mean, now we could go philosophical here a little bit. Our government, when Bill Clinton left non defense, so I'm going to exclude defense, was 15% of GDP. That's what we spent. 15 out of every hundred dollars. Today it's 21% of GDP. All right, if you add the federal government, it's 21 plus. Then add defense, then that's 3. So that they spend 24 cents out of every dollar. 24 out of every 100 state and local government spending is 20. And then we all have to comply with regulation. So compliance that we all deal with, taxes, all that stuff, that's another 7% of GDP. And you add all of that up, government takes 51% of everything we produce. 51%. So no wonder people can't afford houses. I mean, if you take 50% of everything Pauline makes and give it to Peter, neither one of them can afford a house. If you take everything Pauline makes and give it to Peter, now he can buy a house, but she can't. And so this is why houses aren't affordable government. And if all we're doing is Growing by creating jobs for people to stay home. And we're borrowing from other people to pay them to stay home to take care of grandma, which I think is a valuable thing in life and family. But we used to do that without the government paying for it. And one of the reasons we have to do it is because everybody, 50% of everything we produce, they take. And so that's what worries me is that you can get away with this for a while. It's like a heroin addict. It feels good. It feels good. It feels good. You got to keep going back, Keep going back.

[Michael Batnick]

What's the way to unravel that paradigm without causing even more harm than whatever harm you're generating by perpetuating it?

[Josh Brown]

Well, that's.

[Michael Batnick]

Nobody wants to be responsible for that.

[Josh Brown]

Nobody does, but either party. It's called tough love. And it's unfortunate. I wish we didn't have. See, this is one of the things.

[Michael Batnick]

So I don't think you're gonna see that this time around.

[Josh Brown]

If the market goes down, then we think everything's a failure. Right. We've just decided that. And I think that's what the Greenspan put is what it's about. And we've had it. Bernanke put. You know, we've called it different things. And now since 08, we're addicted to this stu. Really addictive. But when Reagan came in, we paid a huge price, like the market. The market went up toward the election because they knew he was going to win. Then right after the election, the market went up. And then 1981 was ugly. The S&P5. We had a nasty recession in America. The market went down. It went down the first half of.

[Michael Batnick]

The year because they were cutting spending.

[Josh Brown]

They were cutting spending and they had to fight inflation. There is a difference back then because we had 10% inflation when he came in. So they had to. Volcker had to jack rates up way high, caused a recession and they cut spending. And you put the combination of those two things down. The market got crushed for 18 months. And then his policies that were better tax cuts, regulatory cuts, less government. All of a sudden. Then the 80s and 90s boom took off. But it started. It didn't start until halfway through 82.

[Michael Batnick]

We've organized the entire economy around the benevolence of stock market returns. There is no going back. We have $158 trillion in household net worth. The majority of that is literally in the stock market. We are minting millionaire households literally by the hour. All of that is coming as a consequence of Higher stock prices, stock based compensation, stock options, venture backed companies going public, although not as many as we'd like. What? That's the basic premise of how America works now.

[Josh Brown]

Yep.

[Michael Batnick]

I don't know how you get out of that.

[Josh Brown]

No, you don't. And I, I kind of think that's.

[Michael Batnick]

All might be better than the alternatives to do it.

[Josh Brown]

I kind of think that's always been true. But I mean, we all know 401ks.

[Michael Batnick]

Were there in the early 80s. None. It's not always been true. They had pensions.

[Josh Brown]

Well, what it, maybe it's not always true that we're minting millionaires like the way you put it, but I'm saying the way we've created wealth, it's because of venture backed companies, it's because of companies growing and stock market and all of that. But it hasn't always been true that it's been driven by all this money printing. And that's what worries me is that you can't, you can't artificially stimulate any, you can't print your way to true prosperity. You can't. Now there's the way I'm wrong. The way I'm wrong. And I wrote a book in 1999 talking, it was called the New Era of Wealth. And I mean, you look at the benefits of networks, you know, I mean, remember when we used to talk about this, it's like, what was the very, the very first fax machine ever made, cost $50,000? 150, I don't know. But it was worthless because nobody else had a fax machine, right? So you had this thing, but you couldn't fax anybody. And then, now, then what happened is the price of fax machines kept coming down while their value kept going up. And it's the same. You go to bed at night, your iPhone's worth whatever it is to you. The next day there's two more apps that you can download. You might not like them, but somebody does, your phone's worth more. That's the world of networks, right? And so, and so my whole book effects, my whole book was about how this is. And if you look at the wealth in the last 20, 25, 30 years, that's where it's come from. And now you got Starlink putting everybody together and there's billions of people that can be on the Internet instead of just, you know, half of that.

[Brian Westbury]

So you don't sound too bearish, you sound just like, I'm just worried that.

[Josh Brown]

We haven't paid a price for Covid yet. It's like we locked 2022 was a.

[Brian Westbury]

Bad year for the stock market. Maybe not for the real economy, but these stocks got destroyed.

[Josh Brown]

Yeah, they did. But the PE ratio never went down. I mean, when Reagan won, the PE ratio was eight.

[Michael Batnick]

It's another world.

[Brian Westbury]

It's another world.

[Josh Brown]

Well, that's what everybody keeps telling me.

[Michael Batnick]

Profit margins grew 8% last year. Pretty aberrant. They normally grow 2% a year.

[Josh Brown]

I totally agree.

[Michael Batnick]

So should we have an 8 multiple in a market where companies are growing margin?

[Josh Brown]

I'm not saying we should. I'm just saying we haven't had anything like that. And we haven't ever printed this much money. We haven't ever borrowed and spent this much money. We haven't ever done these things at the same time. We haven't ever had the technology that has the promise. So it's like we've got two. Maybe I'm talking about government too much. Maybe I just need, you know, one theory that I've always believed in, and maybe this is talking myself out of being bearish. But I'm not going to because I think we're gonna have a recession. But is that no matter how dumb the government is, we were smarter? We always figure a way around.

[Michael Batnick]

I don't think the Americans have any faith in the government when they're asked the question. The only group that they have lower confidence in than Congress are journalists.

[Josh Brown]

Yeah.

[Michael Batnick]

Okay. Congress is effectively toothless at this point.

[Josh Brown]

Right.

[Michael Batnick]

Donald Trump is a private citizen. He has a very strong opinion about what should happen with TikTok. TikTok is supposed to be shut down on January 19th.

[Josh Brown]

Right.

[Michael Batnick]

The Supreme Court said you have 270 days from the time of this ruling to disband the relationship between TikTok in the US and China.

[Josh Brown]

Right.

[Michael Batnick]

And if you don't do it, the service gets shut down. Coincidentally, the date was supposed to be January 19th. It's the day before the inauguration.

[Josh Brown]

Right.

[Michael Batnick]

Trump's attorneys are now gonna be heard in front of the Supreme Court for why they shouldn't be shut down on the 19th. Because he's gonna come in on January 20th. And in his own words, he is the greatest user of social media ever.

[Josh Brown]

Right.

[Michael Batnick]

I'm not even joking. This is what's literally being argued. And the Supreme Court's gonna listen to it. So what that means is that the decision made in Congress that the court is there to uphold no longer means anything.

[Josh Brown]

Right.

[Michael Batnick]

If this happens, and you know it will.

[Josh Brown]

Yeah.

[Michael Batnick]

Cuz it's 2025.

[Josh Brown]

Right.

[Michael Batnick]

So this is bipartisan I think in the Senate, it was 79 to 18 in favor of shutting down TikTok. Absent a separation from China.

[Josh Brown]

Right.

[Michael Batnick]

In the House, it won't. It won tremendously.

[Josh Brown]

But.

[Michael Batnick]

So who gives a shit about government? They don't even make rules anymore. Now what you basically have is this hyper, Hyperbolic kind of executive branch oversight of the country. Either party. The money is coming from businesses, effectively Citizens United. So basically, it's like this coalition of the Elon Musks and the Peter Thiels and now Bob Iger and Tim Cook and everyone who's gonna pay for the inauguration. They set policy, not Congress. And why do we worry about government at all?

[Josh Brown]

Right?

[Michael Batnick]

They're not gonna do anything productive about the deficit?

[Josh Brown]

Well, they're not. In my opinion. They have to. I believe our biggest problem in America is just the pure size of the government. We wouldn't fight as much. We wouldn't have as much, like homeless. We wouldn't have. I, I believe. I believe this just. The pure, unadulterated size of the government is out of control. They're involved in every single aspect of life. And I get it that you can just kind of shut your eyes and go about your life and go to the football game and go to the baseball game and go to the basketball game and get on what people are happy to do and don't even care. But. But in the end, they spend over half of everything we produce. So all this great technology and yet half of all the things that, all the profit margins, all that stuff goes to fund government. And I think they're out of control. I think this experiment by the Fed of abundant reserves is going to lead to real problems down the road. And so one of the things to, to keep that comment to go back, why does the Fed say the money supply doesn't matter? Well, first of all, they want to ignore inflation. But they are becoming. If they keep doing this, we will have a national bank. All right? And this is not. I mean, Alexander Hamilton wanted a national bank. So this is like America is a history of experimenting with banking. All right? This is not a tinfoil hat comment. But they're getting so big that they now run monetary policy with regulation. And I believe this is unconstitutional. That Loper decision, it's the opposite of Chevron. So they got rid of Chevron. The Fed right now is making $100 billion a year of losses. All right? And I know I shift gears here. 100 billion a year in losses. How are they keeping the lights on like the Treasury?

[Brian Westbury]

No, they're Bitcoin holdings. So maybe that's a good segue. So what are your thoughts on the coin?

[Josh Brown]

Yeah, I mean, I think everybody should.

[Michael Batnick]

Own Michael's like, all right, I just sat through all this other shit. Can we talk about bitcoin? Yeah, stop. You've published on bitcoin recently.

[Josh Brown]

A little bit.

[Michael Batnick]

A little bit. You're not like going deep on bitcoin, but you do have this table. Can we throw this up?

[Josh Brown]

Yeah. Oh, yeah. We did our three on Thursday.

[Michael Batnick]

So this is the holders of bitcoin, you note, public companies own 2.8% of it. Most of that is sailor. ETFs now own 6.2%. Satoshi allegedly owns 5.2%.

[Brian Westbury]

Where's Scottie Pippen?

[Michael Batnick]

Still to be mined. 1.2 million Bitcoin or 5.7% or private companies. Governments are in here. Bitcoin, that's lost 18% of it. 18% of bitcoin is lost. Who's the all other holders? Retail investors?

[Josh Brown]

Yeah, just everybody.

[Brian Westbury]

Brian, do you think bitcoin's going up purely on ETF flow, supply and demand, or do you think it's responding to monetary fiscal policy?

[Josh Brown]

I think both. I think there are people out there who think bitcoin will become a money. And by the way, if bitcoin became the currency of the United States, it'd be a million dollars, a coin. Like we have a 20, 20 plus trillion dollar GDP and 21 million. Like, well, there's loss.

[Brian Westbury]

Wouldn't that be so inflationary if bitcoin went up that high?

[Josh Brown]

Actually, no.

[Michael Batnick]

Because everything else would lose value.

[Josh Brown]

Yeah, everything. If you actually, if you compare the S&P 500 to gold or to bitcoin, it's not doing well at all. In other words, if you adjust for the value of the $$ and like in, in bitcoin or in gold. And so the, The S&P 500 hasn't had that much rally. This may surprise you. If you made me king of the Fed. I like saying dictator. Dictator of the Fed because then that riles everybody up, right? Like, wants to be a dictator just for a day. I, I would, I would. Number one, I would go back to a scarce reserve model. And I know we didn't really.

[Michael Batnick]

Number one, you would take a selfie.

[Josh Brown]

Yeah. Like, yeah, take a selfie in front of the dictator. Yeah. And then.

[Michael Batnick]

But number two.

[Josh Brown]

But if you pushed it even further, I'd go to a gold standard. And actually a bitcoin standard would work too. Like a gold standard.

[Brian Westbury]

Why?

[Josh Brown]

Because didn't we try that, then they couldn't do quantitative easing. They can't do it. So during COVID if you wanted to lock the economy down and you wanted to borrow $5 trillion to pay people not to work, all right, where would you get the money? You'd have to go into the treasury market and issue $5 trillion worth of bonds and sell them to people who are willing to pay for it. But you know what they did? They sold them to the Fed. So quantitative easing lets government borrow money at will and pay the price for having people pay the price through inflation, because they bought all those bonds with printed money. And if you were on a bitcoin standard, you can't make any more of them.

[Michael Batnick]

What if I say if you're on a gold standard strength, Not a weakness, though. We're the only country in the world that can do what we do.

[Josh Brown]

Yeah, see, that's modern. It's modern monetary theory. And what they say is you can borrow and print as much as you want and never pay a price. And by the way, they would argue that we shouldn't have had the inflation that we did. And that is one. I think in the short run, that's what proves modern monetary. Their theory wrong.

[Michael Batnick]

What's their theory? That you cure inflation via taxing people.

[Josh Brown]

More, tax people more.

[Michael Batnick]

That's not going to be popular.

[Josh Brown]

Yeah, that's what, that's what. By the way, that's another thing that this abundant reserve model has done. So the treasury has an account. Actually, we have a chart in there of it. The treasury has an account. It's called the Treasury General Account.

[Brian Westbury]

John, chart six.

[Josh Brown]

For. For decades. It can affect monetary policy, by the way. So this just goes back to 1990, but I could push it all the way back to the 50s and 60s.

[Michael Batnick]

So after the financial crisis, it gets popping and then it never goes back.

[Josh Brown]

The Fed and the treasury kind of settled on this idea that the treasury could have about $5 billion in this checking account because then it wouldn't affect the money supply. But then what happened when they started doing quantitative easing in 08, the treasury started putting more and more money into this account. Now, how does the treasury get money in here? So what they do is they sell Michael a bond or they tax you, and the treasury takes that money in, and instead of spending it, paying it to Social Security or Welfare or whatever, they put it into a checking account at the Fed.

[Michael Batnick]

Why do they want to do that?

[Josh Brown]

Well, what it does is it takes money out of M2. So this is modern monetary theory. So they take money out. They take money out of your checking account, put it in theirs. And that does not. This chart, this treasury general account, does not count in M2. So now the treasury is part of monetary policy. This never was the case before. It used to only be the purview of the Fed. Now the treasury is involved. And so there's a couple of things. Today, The treasury has $750 billion in that account. So there's three things. I'll say real quick. Number one, we hit the debt ceiling today. All right? And then we hit.

[Michael Batnick]

Knew I felt something.

[Josh Brown]

Yes, we hit the debt ceiling around 1:00. Yeah, yeah, exactly. And then there was like, there's a $54 billion bond thing that it'll get us through, like, January 14th. So really we don't hit it till then. And then what Janet Yellen has said is, oh, then we're in trouble. We gotta take extraordinary measures. No, we have $750 billion in a checking account. We can run the government for four months on that. Like, even with a $2 trillion deficit. Like that's. And then we have. April is tax month. So you're gonna get a bunch of money, then we don't face any.

[Michael Batnick]

Is that money earning interest for the Treasury?

[Josh Brown]

It is. All right, is it.

[Michael Batnick]

Does it own Treasuries?

[Josh Brown]

I believe it's very meta.

[Michael Batnick]

It's becoming very meta.

[Josh Brown]

It's like. But here's the deal. We're paying for it. So all us taxpayers are paying the interest on that debt. That lets them hold it in there. And so they've extracted 750 billion from the money supply. When they start spending that, it's going to come back into the money supply.

[Brian Westbury]

Why don't they just do a buyback?

[Josh Brown]

Yeah, well, that's what I. That's inflationary.

[Michael Batnick]

When they start fighting.

[Josh Brown]

You made me king of the Fed, I take it. I don't want this account anymore. I would debank the Fed. That's what I would do. I would debank the Fed. I would tell them, forget it, you're gone and I don't want your money anymore. Put it in a real bank or just get it outta here, because I don't want this. And so this is the. Why does the treasury have $750 billion in cash? Like, why?

[Michael Batnick]

Looking at your.

[Josh Brown]

They never had it.

[Michael Batnick]

Looking at your chart, this took place under both Republican and Democratic administrations.

[Josh Brown]

It started under George Bus.

[Michael Batnick]

I think this doesn't look ideological. This looks technocratic.

[Josh Brown]

Ben. Ben. So we. I don't know how Much time we have left. But. But here. Here's one of my biggest dilemmas for the management of the United States. You're George Bush, Ben Bernanke and Hank Paulson come to you, former chair of Goldman. This guy.

[Michael Batnick]

This save the world.

[Josh Brown]

Yeah. Guy this close to the Nobel Prize, Ben Bernanke come to you. And they go, if you don't sign on to TARP and to quantitative easing, the whole world financial system is going to collapse.

[Michael Batnick]

Were they wrong?

[Josh Brown]

Yes, they were wrong.

[Michael Batnick]

We were collapsing.

[Josh Brown]

No, they were wrong. We needed to change Mark to market accounting, which is a whole other show. But we should have never had Mark to market accounting.

[Brian Westbury]

You would have said let it burn.

[Josh Brown]

No, it wouldn't have burned. I would have changed Mark to. I testified in front of Congress in March of 08, change mark to market account.

[Michael Batnick]

They did it a year later.

[Josh Brown]

Well, it was too late. By the way, they did QE in September of 08, TARP in October. TARP in October. And guess how much the market fell in the next six months? It kept going down another 40%.

[Michael Batnick]

Yes.

[Josh Brown]

When did it stop? March to market accounting. If they would have changed Mark to market accounting in June of 08, before they ever did Target.

[Michael Batnick]

I know you're right about this, but I also know that that was probably more complex than anybody wanted to debate. What they wanted to do is throw money at it.

[Josh Brown]

Yes. And that's so that. But that's my biggest thing. So you go to Bush, Paulson, Bernanke, greatest minds ever, tell him he has to do this. Of course he's going to do it. He's the what? He doesn't know anything. And by the way, all Steve Forbes, Newt Gingrich, Gary Wolfram, myself, there are a bunch of us that were saying, change Mark to market. Change Mark to market. And we never got to him.

[Michael Batnick]

Brian, they had a vote. They had a vote. And the Republicans defeated TARP the first time. They listened. And the stock market plunged a thousand points that afternoon.

[Josh Brown]

Well, I know, because. I know. But I would argue if people really knew what was going on, they wouldn't have done that. Okay. And so. And then, you know, that's why they passed it later on. Because then. And by the way, in the midst of all that, that's when, you know, the way George Bush defended it. This is how far they convinced him. He actually said, look, I get it, but we had to violate free market principles in order to save the free market. Yeah, well, think about that. I had to kill that guy to save the Ten Commandments.

[Michael Batnick]

You're leaving out the precursor, which is we took a chainsaw to all the rules governing banks and mortgage brokers and real estate developers for the four years leading up to this. So that's why you had to mark.

[Josh Brown]

To market accounting was the cause of the crisis. We had gone. Anyway, I wrote a whole book on this. All right, but here's the point.

[Michael Batnick]

I believe the question was about Bitcoin, sir.

[Josh Brown]

Yeah, but here's the. That was a good one. The second point I'm getting to is, and you said this happened under all kinds of administrations. You're Trump Fauci, the smartest epidemiologist in the world. They come to you and they go, if you don't lock down the economy, 3 million Americans are going to die. And here's what we have to do. We have to print $4 trillion, spend $5 trillion, pay people to sit at home. This is what we have to do.

[Michael Batnick]

Social distance, all this shit.

[Josh Brown]

So you're President Trump. What do you do? So you're George Bush or you're Trump? So we are now in this place where every crisis requires government to do things that we've never done before, except in, like, World War II. And we had to win a world war. And so now, I think inflation adjusted.

[Michael Batnick]

We spent more on Covid than fighting the Nazis.

[Josh Brown]

Japanese probably. Like, I, I haven't seen those numbers, but I wouldn't disagree.

[Brian Westbury]

Look at our 401ks.

[Josh Brown]

Yeah, look at that. Yeah. And that's what I'm getting to. And so. So I just feel like, like these two crises have led us to get. We've grown our government massively as a share of gdp. We're all mad at each other. And I, and I think, because everybody's fighting over a piece of the piece. And that's the problem with government. It's a fixed pie. So everybody has to fight politically to get a piece. Where, as if it's the free market, you work your butt off to get a piece. All right? And we're now using the government to redistribute resources. And I just worry for every AI and Ozempic and Starlink and great new technology we have out there. We're also pushing hundreds and hundreds of billions of dollars toward things that we shouldn't be, like subsidizing solar and wind and electric, because the private sector wouldn't do this. And how do I know that? Because when Google needs power for AI, where do they want to get it? Nuclear, not solar and wind, which, by the way, you do a Google search on solar and wind, every top 20 stories. This is the greatest thing ever. Prices are plummeting. It's more profitable. Thank God we're doing this. It's saving the world. But then when they need energy, it's not where they go.

[Michael Batnick]

So to your point, Michael and I did a wrap up of 2024. The number one performing stock in the S&P 500 this year was Vistra Energy, which is supplying, privately supplying power to the AI.

[Josh Brown]

Oh, really?

[Michael Batnick]

Yeah. Number one, it actually outperformed Nvidia. It's the first time in 20 years that we've had a utility as the number one performer of the year. The best performing stock of the new year. We have one day in the can eqt, which is an Appalachian natural gas provider, directly into power centers like that's. They're regionally located in the perfect place for.

[Josh Brown]

Yeah.

[Michael Batnick]

So to your point, I want to. I want to go on a little bit of a lighter note and ask you before you put us on a gold standard, you've talked about publicly your time as an Eagle Scout, and this is an achievement that you earned. In August 1976, I was about seven months away from being born. You were in the Boy Scouts of America in Columbia, Missouri. And you've talked about this. It's a special thing to become an Eagle Scout. I think here only 2% of all scouts had ever gotten to the Eagle Scout ranks. Why is this, why was this important to you as a. As a young man? What should people know about this?

[Josh Brown]

You want me to start a fire right now with flint and like steel? We could do that right now. See, how about I could tie you up in knots that you could never get out of. No. I could set up a campsite. No. Eagle Scout is about leadership. And it happens when you're pretty young, 16, 17, you're in a troop. You have to. You have to prove that you can lead to get jobs done. And every Eagle Scout has to do an Eagle Scout out project.

[Brian Westbury]

This is government funded.

[Josh Brown]

No, it is not government funded. And it was started by Baden Powell and it really came out of England and spread wildly throughout the United States. Here's an interesting fact. Every. It happens to be man. Sorry, but every man that's ever walked on the moon is an Eagle Scout.

[Michael Batnick]

No.

[Josh Brown]

Is that true? True. Absolutely true.

[Michael Batnick]

How many men have walked on the moon?

[Josh Brown]

I don't know. 22.

[Michael Batnick]

Probably zero though, right?

[Josh Brown]

Just kidding. Yes. It all depends. I know a bunch of people who say zero. But every man who ever has walked, you learn leadership you learn well. Here, I'll finish on this. This is our Eagle Scout salute. And we say trustworthy, loyal. Oh, now I'm going to blow it.

[Michael Batnick]

Don't do that.

[Josh Brown]

Yes, I'm going to blow it. Trust me. The loyal. Honesty.

[Michael Batnick]

Revoke him.

[Josh Brown]

Yes, trust me. The loyal, Honest. I said it last night. I'm like, I was practicing because I knew this was coming up.

[Michael Batnick]

Wait, did you know?

[Josh Brown]

Trustworthy, loyal, helpful, friendly, courteous, kind, obedient, cheerful, thrifty, brave, clean and reverent. This is what a Boy Scouts.

[Brian Westbury]

There you go.

[Michael Batnick]

Did you know that you were a leader prior to having attained this rank within the Scouts? Is this like something that you said? I'm a leader, therefore I should be this. Or did it just become apparent through that process?

[Josh Brown]

It's kind. I mean you're young when you start in scouting. Cub Scouts leads to Boy Scouts. So you're really young. But you constantly have a. We earn merit badges. I know it sounds like corny, but as you grow and then you can become a leader of your squad and you have to, then you're an older kid and you can tell the younger kids like, don't worry, you're gonna have to get up and go to the bathroom. I like crazy things. It's about growing up, you know, like don't worry, get, get up and go. It's not scary over there. You're not going to get bit by a bear or whatever it is. And, and so you kind of, it's kind of, it's wild, it's, it's, it's coming of age but with, with tasks in front of you and you have to do it as a team.

[Michael Batnick]

Are we missing, are we missing some of this?

[Josh Brown]

Yes, we're missing a lot of it.

[Michael Batnick]

You read the piece in the Journal today about or yesterday about this epidemic of 30 year old men who just don't know what they're. They want to do, right? They want to, they want to live the life that their parents expected them to live. They just don't know how.

[Josh Brown]

Right.

[Michael Batnick]

There's no guidance, there's no order to anything they're told. Go to college, they do that. It doesn't lead to a lot.

[Brian Westbury]

Are we being gaslit? Is that even true? Just because they reported.

[Michael Batnick]

They have some stats that I read and I said I wouldn't have known this, but it feels this way.

[Josh Brown]

You know, there's a bunch of things that I've noticed over the years, you know, watching. I mean I grew up, I have.

[Michael Batnick]

A 15 year old son, so I Think about this.

[Josh Brown]

Yeah. When I grew up, men held the door open for women. They would sacrifice their life for a woman. And you know, so we have a lot of these shootings where you read about everybody hiding under their desk and very, very few people. I think 40 years ago it wouldn't have been that way. And I think today everybody's hiding under their desk. Like very few young men know what it means to be a man. And I'm kind of sounding like Jordan Peterson right now. And I think this is one of the reasons why people are flocking to him. And I happen to know a bunch of 16, 17, 18, 19 year old young men who will put on a tie and go see Gordon Peterson speak.

[Michael Batnick]

Jordan Peterson.

[Josh Brown]

Yeah, Jordan Peterson speak. And they will put on a tie to do it. And they want to be men. And if you look at the voting patterns, which, what's fascinating is that Gen.

[Michael Batnick]

Z men broke for Trump in a major way hard.

[Josh Brown]

And I think that's a reaction that we don't have enough of this. The Boy Scouts, it's really disappointing because they, they not. I, I'm perfectly fine for young men and young women working together to grow, to make each other better, but the Boy Scouts is for Boy Scouts.

[Michael Batnick]

Yeah.

[Josh Brown]

And it, it, it, we should have never let women in. And I, I've kind of.

[Michael Batnick]

Well, they have Girl Scouts.

[Josh Brown]

Yeah, well, I know. I, and that's the way it always was. And, and, but all of this movement for equity and inclusion and, and, and, and I, I think the Boy Scouts have given up and I think it's changed in a. Does it feel, culturally, though, I feel.

[Michael Batnick]

Terrible saying that, that the pendulum is swinging back and we're going to start appreciating, we're going to start appreciating people for what they are and stop classifying them based on, you know, all of these things that we were told this group has to get. This, this group's getting too much of this. We have to take some away. It feels like the national mood is swinging away from that.

[Josh Brown]

I, I believe it is. I believe it is.

[Michael Batnick]

So maybe that's like a, so maybe that's a, a silver lining of some of the things that you're concerned about.

[Brian Westbury]

I was thinking about starting a person scout group, but you're saying that's not a good idea.

[Josh Brown]

It's.

[Michael Batnick]

You would make a great people scout.

[Josh Brown]

Like, I think there's all kinds of ways. I, I think there's all kinds of ways to grow. Like there, there's a million different ways to grow. And I think for young men trying to find their way in this world, Boy Scouts was fabulous. All right. I mean, how many. We. We all know families where a kid doesn't know what they want to do when they're out of high school and they go into the military and. And then, boom, they.

[Michael Batnick]

They blow up a Tesla truck in front of a casino.

[Josh Brown]

Yes.

[Michael Batnick]

Boom.

[Josh Brown]

Yeah.

[Michael Batnick]

All right. We're not gonna go there. Brian Westbury, ladies and gentlemen. This. Was. This as much fun for you as it was for us?

[Josh Brown]

It was truly. It was very much fun. I hope we get to do it again.

[Michael Batnick]

Give me a nod. Did he have fun? Okay. You know him better than we do.

[Josh Brown]

Yeah.

[Michael Batnick]

All right, all right, all right. Listen, we. We read all your stuff. I. I'm constantly sharing your stuff within the firm. I'm a huge fan of the work that you do. I've learned a lot from reading you over the years. I want to tell people how they can learn more about First Trust and read your research. Where should they go?

[Josh Brown]

Yeah, Well, I think if you just do a Google Brian Westbury First Trust, it'll come up with ftportfolios.com somewhere.

[Michael Batnick]

Perfect.

[Josh Brown]

And then on there, you just click on my blog and you can sign up for our email. We. We send out Monday morning. Outlook is my favorite. We have three on Thursday. There's a bunch of things. And I promise we will never market to you ever, ever, ever, unless I write a new book. I'll tell you to please go get it. But. But other than that, we will never.

[Michael Batnick]

And you are at Westbury on E. X. Yep.

[Josh Brown]

On X. Without a T. With no T. That's very important.

[Michael Batnick]

Westbury. Right. Because we have a town of Westbury on Long Island.

[Josh Brown]

Yeah.

[Michael Batnick]

And you are Brian Westbury on LinkedIn. And you're active there as well.

[Josh Brown]

Yes.

[Michael Batnick]

All right, guys, make sure you're following Brian. Make sure you check out ftportfolios.com for the latest from Brian's team. Thank you so much for coming here. We appreciate it.

[Josh Brown]

Thanks, Josh.

[Michael Batnick]

We did a little selfie thing. All right. Special thanks to John for running the boards today solo. Well done. Rob's in studio. Nicole. Guys, great job this week. Great job to everyone, and thank you, Compound Nation. We'll talk to you soon. It.