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.

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."

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."

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."

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.

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

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.