Why Oil Could Be Next Year’s Gold

Summary

Podcast Summary: The Compound and Friends – "Why Oil Could Be Next Year’s Gold"

Date: November 28, 2025
Host(s): Downtown Josh Brown, Michael Batnik
Guest: Peter Boockvar (author of "The Book Report" on Substack, CIO at One Point BFG Wealth Partners)

---

Episode Overview

In this high-energy pre-Thanksgiving episode, hosts Josh Brown and Michael Batnik welcome back market strategist and fan favorite Peter Boockvar. The discussion dives deep into the current state of tech, AI, and energy markets, before shifting focus to macro risks and the changing narrative around inflation, the Fed, and commodities — with a bold thesis that oil may be next year’s “gold.” The hosts and Peter also blend market chat with candid takes on investor psychology, market cycles, and the politics behind the current inflation and capex surge.

---

Key Discussion Points and Insights

1. Market Surprises and Seasonality (00:00–11:30)

• Conversation opens with commentary on recent volatility and market psychology, noting how Thanksgiving week often sees a cheerful market mood.
• Quotes:
  • "When the market tops on good news, like, okay, that's usually about it at least in the short term. And this is just the opposite. It's so bizarre." – Josh Brown (00:25)

2. The State of AI and Big Tech Narratives (13:54–26:09)

• Peter and the hosts dissect the fast-evolving AI investment theme and how market favorites shift rapidly. Discussion includes recent sharp sell-off and rebound in AI stocks, and the meaningful divergence between OpenAI/Microsoft-related names versus others like Google.
  • "The market starts to differentiate the winners and losers." – Peter Boockvar (14:57)
  • Discussion of Sam Altman and OpenAI’s influence (15:15)
  • The importance of writing investment narratives in pencil, not pen, due to rapid narrative shifts (20:48)
• Critical analysis on tech companies’ capital expenses, new trends in "asset light" shifting to "capital intensive," especially among cloud giants and AI leaders:
  • "Oracle is spending 52% of their revenue on capex... It was 10% in 2021." – Peter Boockvar (27:22)
  • Are these expenditure rates sustainable or setting up disappointment? (27:58)

3. CapEx, Profitability, and Tech Industry Themes (26:09–34:52)

• Examination of how large tech firms are pivoting CAPEX messaging toward efficiency and ROI, with Alphabet seen as a new leader in responsible AI infrastructure spend. (29:11)
  • "The market's rewarding Alphabet for getting some discipline and thinking about cost." – Michael Batnik (29:11)
  • Google’s fortress balance sheet and capital flexibility discussed (29:11–30:12)
• International AI competition:
  • Chinese AI models and strategies differ vastly from the US approach, leading to open-source advances but questions on true competitiveness (32:09–34:52).

4. Market Rotation, Small Caps, and Year-End Trends (34:52–41:47)

• The hosts and Peter discuss the sudden rally in small caps (Russell 2000), how "year-end-chasing" exaggerates market moves, and renewed questions about the ability of the Fed to meaningfully stimulate borrowing or address inflation through rate cuts.
  • "Small caps are the best beta to own in that sort of rate cutting environment..." – Peter Boockvar (36:53)
  • On international returns: Spanish IBEX and Italian stock markets up 40–50% in dollar terms (39:40)
  • Ongoing search for "the next narrative" and skepticism about the real breadth of new opportunities: "Everyone wants a new narrative... but so often the most obvious thing in the world is the same old thing." – Michael Batnik (40:03)

5. Valuation, Margins, and Bubble Talk (41:47–47:50)

• A close look at current S&P 500 valuations normalized by margins, with recognition that profit margins (and their sustainability) are the wildcards in all valuation models.
  • "To me, this whole bubble talk was sort of conflated... are we building too many data centers? That's a legitimate conversation." – Peter Boockvar (45:21)
• AI is not a bubble, but the capex arms race may be.
• On the essentialness and pricing power of AI tools like ChatGPT:
  • "If it quintupled, I would pay for it." – Josh Brown (46:00)
  • "You can no longer function without it if you are a working person in America... And don't tell me you're not willing to pay more." – Michael Batnik (46:40)

6. Commodities: Why Oil Could Be Next Year’s Gold (61:03–64:00)

• In the context of impending US rate cuts and potential dollar weakness, Peter lays out the bull case for oil outpacing gold as an outperformer in 2026, citing low energy weighting in the S&P 500 and fundamental supply risks.
  • "One of the cheapest assets in the world is a barrel of oil at 60 bucks in nominal terms." – Peter Boockvar (61:38)
  • Underlines that shale oil production is rolling over, with all the best US drilling basins now seeing declines (62:55).
  • Rig counts at post-2021 lows; discussion about Venezuela and geopolitical supply (63:45).

7. Macro: The Fed, Inflation, Politics, and Social Implications (49:21–60:56)

• Lively analysis of mounting political pressure around inflation, utilities, and energy bills — especially as they affect younger Americans and renters.
  • "Inflation is a nightmare for the average person... The big anchor point... is the cost of housing and buying a house for that young person." – Peter Boockvar (52:41)
• Discussion of the risks of Fed rate cuts reigniting inflation, particularly in housing, and the limited efficacy of manipulating short-term rates when there are structural supply constraints.
  • "If we start to cut interest rates and start jamming up demand, do we screw up the progress?" – Michael Batnik (60:09)
  • "Inflation volatility" is the most likely, rather than perpetually high inflation (60:52)
• If dollar weakens further with rate cuts: bullish on gold, international stocks, hard assets, and especially oil (61:03–61:45).

---

Notable Quotes & Memorable Moments

• Market humility:
  • "I am shocked at the four-day return... The market is humbling Peter." – Josh Brown (00:24–00:52)
• Advice for Tech Investors:
  • "If you're investing in tech, you almost have to be reading every day or you're going to miss the next shift... Maybe invest in a different sector." – Michael Batnik (20:48)
• On Google’s Comeback:
  • "You probably shouldn't bet against the potential of a pivot from a company that has a printing press in its basement." – Michael Batnik (25:13)
• AI and Productivity:
  • "You can no longer function without it... and don't tell me you're not willing to pay more." – Michael Batnik (46:40)
• Oil Bullishness:
  • "No one is long. It's less than 3% of the S&P right now." – Michael Batnik (61:55)
  • "One of the cheapest assets in the world is a barrel of oil at 60 bucks in nominal terms." – Peter Boockvar (61:38)

---

Important Timestamps

• 00:00–04:03: Thanksgiving banter
• 13:54–18:11: AI stocks' recent reversal and "winner/loser" market differentiation
• 26:09–34:52: Tech CapEx discussion, sustainability of spending, Alphabet’s efficiency lead, global AI narratives
• 34:52–41:47: Rotation and breadth in markets, international stocks, and “year-end rally” behavior
• 41:47–47:50: Valuation normalization, is AI a bubble?, CapEx vs. use-case debate
• 49:21–53:29: Political/economic tension of inflation, utility bills, generational impact
• 61:03–64:00: Oil as next year’s “gold,” supply/demand dynamics, US shale, rig counts, Venezuela

---

Episode Tone and Style

• Conversational, candid, irreverent at times
• Clear expertise informed by deep market experience
• Frequent use of humor and real talk to cut through common investor and media narratives
• Willingness to admit mistakes and maintain humility
• Encourages constant learning and skepticism of consensus views

---

Conclusion

This episode is a quintessential example of what "The Compound and Friends" does best: blending sharp market commentary, humor, and open debate about where opportunities and risks lie next. The hosts and Peter Boockvar critically dissect narratives in technology, commodities, and macro policy, making the case for why oil could be the stealth winner as market cycles and economic policy evolve—a can’t-miss for investors trying to understand the next rotation.

Transcript

[Josh Brown]

How smart is Warren?

[Peter Buchvar]

Warren's great. I enjoy listening to him. I don't know him personally but I enjoy when he's on TV or you know like the long form interviews with you guys. So we were just very thoughtful.

[Josh Brown]

We recorded on Thursday morning and obviously third by Thursday afternoon.

[Michael Batnik]

Right.

[Peter Buchvar]

Because you guys were talking about. It was a few hours into Nvidia. It was a 5% and then a couple hours later. Right.

[Josh Brown]

So I am.

[Michael Batnik]

I'm not on here.

[Josh Brown]

Yep. I am shocked at the plug it in the four day return since then like you know that when the market tops on good news like okay. That's usually about it at least in the short term. And this is just the opposite. It's so bizarre.

[Peter Buchvar]

It's the 50 to 100 point s and P moves like five days in a row.

[Josh Brown]

But Thursday after the close were you like all right, I guess we're going to chill out for a little bit.

[Michael Batnik]

Go on.

[Peter Buchvar]

Yeah, I thought like in the short term it's probably a top and we'll see what happens into year end.

[Josh Brown]

Unbelievable.

[Peter Buchvar]

And we find market. Find something else to buy.

[Josh Brown]

Unbelievable. No humbling Peter.

[Peter Buchvar]

Oh, always. Always. You know what?

[Josh Brown]

Happy birthday to you. Happy birthday to you. Happy birthday dear John. Happy birthday to you. Happy birthday.

[Peter Buchvar]

The best.

[Michael Batnik]

Very confident in my assertions.

[Peter Buchvar]

We good now?

[Michael Batnik]

It wouldn't be the same if we didn't do it live. Happy birthday. Come get in a picture. Claire, can you have a pic of John? Wait, I want one too. Hold on.

[Josh Brown]

Peter, are you a hoster of Thanksgiving?

[Peter Buchvar]

Thank you, no. Locally I go to my cousin's.

[Josh Brown]

Okay, that makes it easier you. So we. We do host. That's a lot. But I do love. I do love being in my house.

[Peter Buchvar]

Yeah. Instead of traveling.

[Josh Brown]

Yeah, it's easy.

[Peter Buchvar]

Well, I was telling Josh. So for the last almost 30 years now, Dan and his brother and his aunt. I mean his mother and my mother, we would always see them during the day and go at night. Well, for me it's unfortunate that he bailed, but I have an easier Thanksgiving because now he's in Cleveland instead of here and his brother's in Florida. So now I don't have to travel during the day.

[Josh Brown]

I'm sure Dan would rather be with us than in Cleveland.

[Peter Buchvar]

All the respect, of course.

[Josh Brown]

Of course.

[Michael Batnik]

His wife's family's Cleveland.

[Peter Buchvar]

Yes, wife grew up there.

[Michael Batnik]

Listen, gotta do what you gotta do this this week out of the year.

[Peter Buchvar]

He really freed up my Thursday during the day.

[Michael Batnik]

I love it. Do you like the food on Thanksgiving?

[Peter Buchvar]

We just did this I like the obligatory turkey.

[Josh Brown]

So here's my take. I think this John's take is the right one.

[Michael Batnik]

I think it sucks.

[Josh Brown]

The quality's not good. No, but you know, it's good.

[Peter Buchvar]

You need the gravy.

[Josh Brown]

There's so much of it. You have a spoonful of everything.

[Michael Batnik]

I don't love so much of it.

[Josh Brown]

I don't love the sweet potatoes with the, with the marshmallows, but I love a spoonful.

[Michael Batnik]

Yeah.

[Josh Brown]

Like, I'll have a spoonful of everything. And when you add it up, it's the sum is greater than the parts.

[Peter Buchvar]

I agree. It's a nice mix of things.

[Michael Batnik]

I think the problem is my family's Jewish and not like Southern. Like, we don't get the fried turkey that they do in like a barrel.

[Peter Buchvar]

The real authentic stuff.

[Michael Batnik]

We don't like the. We don't get any of the cool shit. We just get like. Like I googled a turkey recipe last week. Like that. You know what I mean? I never like had like a dope ass Southern down home Thanksgiving where they really like go crazy. I don't know why I'm associating with southern. I know it's not a Southern holiday.

[Peter Buchvar]

So you don't finish the meal saying, wow, that was really good.

[Josh Brown]

No, never. You say, I want to throw up.

[Peter Buchvar]

Right. It's just.

[Michael Batnik]

Yeah, I definitely eat and drink too much too, which doesn't help. But like, it's never like, oh, this is going to be awesome. And it's not anyone's fault. I don't know how to make. Where do you think?

[Josh Brown]

Do you go share his cousin or something?

[Michael Batnik]

Yeah, it's always a different thing, but. And it's nobody's fault. It's just, it's the nature of the holiday. If it's not people that really go all out and do it. All I could do is watch Instagram.

[Josh Brown]

But you know, I do it right. I'm going to A N S this afternoon getting all the meats, all the cheeses.

[Michael Batnik]

What's all in the meats?

[Josh Brown]

Like all the Italian meats are.

[Michael Batnik]

You're adding Thanksgiving.

[Josh Brown]

Do you know who Christopher Columbus is, sir?

[Michael Batnik]

No. Christopher Columbus was not on the Mayflower.

[Josh Brown]

Absolutely.

[Michael Batnik]

This is the pilgrims.

[Josh Brown]

He discovered the. Come on. 1942, 1499.

[Michael Batnik]

No, no, no.

[Josh Brown]

Dude. He's sadly ocean blue. You know what you're talking about?

[Peter Buchvar]

This is the pilgrim mix to the menu.

[Michael Batnik]

Yeah, but you're not. Wait, you have an Italian Thanksgiving?

[Josh Brown]

We do everything. A little bit. A little matzo balls. No, no matzo balls.

[Peter Buchvar]

What's for dessert.

[Josh Brown]

That is a good question. Oh, no pies, right? Pies. Young's Farm. Yeah, Young's Farm is.

[Michael Batnik]

Pumpkin pie is like the thing.

[Josh Brown]

Young's Farm is a place on Long Island. They've got a chocolate chip cookie dough pie. It's outrageous.

[Peter Buchvar]

That does sound good. I'm a pie fan.

[Josh Brown]

What else do we get? I think it's mostly pies, right?

[Peter Buchvar]

Yeah, usually pies.

[Michael Batnik]

Yeah.

[Peter Buchvar]

And then all you want to do is go to sleep after.

[Josh Brown]

Yeah.

[Michael Batnik]

I feel like also it goes on for way too long as the other thing. So people that, like, know me in real life, I don't do anything for more than an hour.

[Peter Buchvar]

But do you think having.

[Michael Batnik]

I don't have four hours for any.

[Peter Buchvar]

Experience to have the football game is a little bit of a good distraction where, you know, people end up on the couch and you can at least watch some of the game. He's not a great head of that constant conversation.

[Michael Batnik]

I suck. It's me. It's not the company. It's not anybody. It's like, all right, got it. Hi. Nice to see you. Great.

[Josh Brown]

You're sort of like.

[Peter Buchvar]

So were you one of the last ones to show up because of that?

[Michael Batnik]

No. Cause my wife's never been late to anything in her life and will not leave until certain people.

[Peter Buchvar]

So when they say four o', clock, we want the brown.

[Josh Brown]

Josh is not quite as bad or not even close to as bad as Howard Stern as far as like a hang goes. But like, he's. He's like there. He's in the same realm.

[Peter Buchvar]

So you show up at 4. When do you get to leave?

[Michael Batnik]

No, I think we'll get there at 3 and leave at 8. It's not the end of the world.

[Peter Buchvar]

Yeah, it's just.

[Michael Batnik]

It's just. It's a lot.

[Josh Brown]

It is a lot.

[Peter Buchvar]

And then the drive home afterwards.

[Michael Batnik]

Yeah, well, I rarely can do the drive.

[Josh Brown]

You know the best thing about Thanksgiving? It's only once a year.

[Peter Buchvar]

It is once a year.

[Michael Batnik]

No. So that's.

[Peter Buchvar]

And you get the day off day at the market.

[Josh Brown]

It's a great week.

[Michael Batnik]

I think if it were like a two hour thing, I'd be really into it. Cause I do love seeing people that I haven't seen the whole year.

[Peter Buchvar]

The social aspect and what I love.

[Michael Batnik]

The most is watching my kids with their cousins because my brother lives on the west coast, so we don't get to do Thanksgiving with them. Really. They have their own whole thing going on.

[Peter Buchvar]

So they don't come in for this.

[Michael Batnik]

No. Because this is my wife's family. Yeah. So I like that my. And my kids are not growing up with their kids. It's just the reality of geography.

[Peter Buchvar]

So this is the one time a year.

[Michael Batnik]

So I really do love seeing, like. Right. I love seeing my kids know their family and be amongst their families. So that's my favorite part of it. I just. It doesn't have to be five hours.

[Josh Brown]

You know what else is great about Thanksgiving? I feel. I haven't looked at the data, but I feel like the Thursday morning session is always up.

[Michael Batnik]

Oh, yeah. Cause there's a liquidity. Because there's no liquidity. And everybody comes back from Thanksgiving with the stupidest stocks in the world they want to buy.

[Josh Brown]

Do you feel that way?

[Peter Buchvar]

People feel better. There's a better mood to the week. Right?

[Josh Brown]

Yeah. Yeah. Explains it.

[Michael Batnik]

I do think, is it going to cool off in here, or should I take off one of my Steve Bannon layers? The AC is on. It is on. All right. I'm basic.

[Peter Buchvar]

It's 60 degrees outside today.

[Michael Batnik]

Like a turkey, it's hot in here. All right, so in conclusion, I am literally the worst. I hate Thanksgiving. I hate everything else, too, equally.

[Peter Buchvar]

Is your family going to listen to this?

[Michael Batnik]

Oh, you want to hear. Yeah.

[Peter Buchvar]

Who cares?

[Michael Batnik]

You want to hear something even worse? My. So my friends all go out the night before Thanksgiving. It's like a tradition. I'm not going this year.

[Peter Buchvar]

And that's for social reasons.

[Michael Batnik]

Yeah. I just don't want to do it.

[Peter Buchvar]

Yeah.

[Michael Batnik]

It's a table for 50.

[Peter Buchvar]

So what'd they say to your Josh?

[Michael Batnik]

It's like, all dudes, all guys. I don't even see most of these people. I don't even see them anymore during the.

[Peter Buchvar]

Can you zoom into the conversation? So you can at least say, I don't want that.

[Michael Batnik]

That defeats the purpose. I don't want. It's just too many people. I have, like, really good friends going. And I'm like, guys, we can hang out anytime.

[Peter Buchvar]

Right?

[Michael Batnik]

This is not for me.

[Peter Buchvar]

Because with here and too many, so many people, you end up talking to three of them scream and screaming and. Right. You can't hear the other person.

[Michael Batnik]

So this is at a restaurant in my town, which will not be named, where not just the night before Thanksgiving, every night of the week.

[Josh Brown]

The worst.

[Michael Batnik]

It's like New Year's Eve every night of the week. It's a dj.

[Peter Buchvar]

Exhausting.

[Michael Batnik]

They give a guy a microphone like Sinatra, like karaoke. The guy with the microphone is singing over trying to compete with the DJ for volume. It's like, every table's packed. The bar is packed. God bless them. They make a lot of money. I can't spend more than one second in there without looking for the exits. That's. That's where.

[Peter Buchvar]

That I can understand.

[Josh Brown]

That's really horrendous.

[Michael Batnik]

That's where my friends want to do Thanksgiving Eve tonight.

[Peter Buchvar]

The. Thanks. The friendsgiving thing. Is that what they call it?

[Michael Batnik]

No, it's just like. It's just dudes getting drunk. It's perfectly fine. I do it every year. I have a tennis lesson, standing lesson, every Wednesday night. I texted the pro. I said, you know what? I'm not gonna be the fattest, drunkest 48 year old in town this year. I'm coming to tennis.

[Peter Buchvar]

You know what? I'm playing tonight, too.

[Josh Brown]

Good for you.

[Peter Buchvar]

I'm in a doubles game.

[Josh Brown]

Good for you guys.

[Peter Buchvar]

Yes, I'm playing tonight.

[Michael Batnik]

Good for you. So he's like, is anyone else coming? I'm like, hell no. They're all gonna be. They're all gonna be eating platters of.

[Peter Buchvar]

Parmesan for an hour. The attention.

[Michael Batnik]

I'm turning over a new leaf.

[Josh Brown]

Good for you.

[Michael Batnik]

I feel like I'm. I'm growing. I'm growing as a person. All right, let's do the show. Nicole, I haven't seen you do this for. In a. In a long time. You still got it. Let's say friends episode 219 okay, whoa, whoa, whoa.

[Josh Brown]

Stop the clock. Here's a word from our sponsor.

[Michael Batnik]

Today's episode is brought to you by. Crane Shares Morgan Stanley projects the humanoid robotics industry could grow into a 5 trillion dollar market by 2050, and investors are taking notice.

[Josh Brown]

That's right, Josh Crane Shares KOID ETF COID provides equal weight exposure to the companies powering this revolution. Its equal weight methodology avoids outsized exposure to mega caps like Nvidia or Tesla, which many investors may already own, while still capturing their influence on the theme.

[Michael Batnik]

Coid's holdings include innovators like Robo Sense, a company specializing in lidar sensor technology, ubtech, a significant humanoid robot maker, and Horizon Robotics, advancing AI chips that bring robots to life.

[Josh Brown]

Together with other holdings across Asia, the US And Europe, COID offers a broad based way to invest in the rapidly emerging humanoid robot sector. Learn [e-mail] Coid Coid is non diversified.

[Michael Batnik]

Diversification refers to theme, not regulatory status. Holdings change. See top [e-mail] Coid review the prospectus for risks and details. Investing involves risk, including loss of principal. COID is distributed by SEI Investments Distribution Company. Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of 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. All right, guys, guys, let's just talk about this. We are taping this the day before Thanksgiving. We have one of our fan favorite greatest guests of all time in the house. Somebody we look forward to catching up. We would be doing this whether the cameras were on or not. Would you agree?

[Peter Buchvar]

Absolutely.

[Michael Batnik]

When I want to talk markets, not for the purpose of making a show, but just talk markets, there's less than 10 people I think about. I really love to hear their take on. You're always on the list almost no matter what happens. So am I on your list?

[Peter Buchvar]

Absolutely. I love the realness of the conversation. I think we talk about things as they are, not as we want them to be.

[Michael Batnik]

I agree with that. Okay, guys. Peter Bocvar serves as Chief Investment Officer, at one point BFG Wealth Partners. A mouthful, I know. Did you put that in now? What. What is that one point? Big deal. What. What is the bfg? That's bfd.

[Peter Buchvar]

Well, the BFG was for Bleakly Financial Group, just to sort of maintain the. The firm's case.

[Michael Batnik]

They rebranded.

[Peter Buchvar]

Rebranded because Bleakly was the last name of a founder 40 years ago who left 35 years ago. And they just maintained it and felt like, okay, it's time to move on from that last name.

[Michael Batnik]

Okay, one point is a strong name. Can I make a prediction?

[Peter Buchvar]

Yes.

[Michael Batnik]

They're going to drop the BFG within two years.

[Peter Buchvar]

That's in the plan.

[Michael Batnik]

Oh. So nailed it. All right. Peter is also the author of the book report on Substack, a widely followed weekly blog on markets and the economy. Are you writing three to four times a day still?

[Peter Buchvar]

Pretty much.

[Michael Batnik]

I'm getting them, yeah.

[Peter Buchvar]

And you know what I write just because it helps me put together my thoughts and just to put it down on paper, I think it's helpful. So it's a good aggregator in my head of what's going on, and it sort of forces me to do all the work to get the information.

[Michael Batnik]

You are still doing succinct summation of the week's events each Friday, which used to be published on Barry Ritholtz's blog. Is it still. It's still there.

[Peter Buchvar]

I think Barry Still, I did that bullshit for years.

[Michael Batnik]

Michael had to do it.

[Peter Buchvar]

He. Yeah, sorry, Michael. Sorry.

[Michael Batnik]

So that's like a Friday piece where it's like, here are all the things that happened this week.

[Peter Buchvar]

Just a quick reminder of what went on, both good and bad, during the week.

[Michael Batnik]

Do that for yourself.

[Peter Buchvar]

It's. It's a good. Another aggregator at the end of the week. So I'm just copying, pasting what I wrote during the week and sticking totally.

[Michael Batnik]

AI ing this thing 100%. You're feeding your blogs to the AI and the AI is giving you your list.

[Peter Buchvar]

You know what? Copy and paste was one of the original AI brilliant inventions.

[Michael Batnik]

Okay. All right, we agree. Speaking of AI, the big thing that happened this week or over the past week was this insane reversal of the pretty short but pretty sharp sell off of AI stocks at the end of last week. So that took place on three Thursday, and then on Friday, we had a reversal. And then the weekend came. Monday we rallied. I think Tuesday we rallied, and some of these stocks broke out to new highs. All of them at least have found the bottom. Was that it. Was that the AI sell off?

[Peter Buchvar]

Well, what I think was interesting about the week is the market sort of differentiated. What camp are you in? Are you in the Google camp or the microphone or you're in the OpenAI camp?

[Michael Batnik]

Open AI at Microsoft Camp.

[Peter Buchvar]

So that was the interesting thing is, you know, the thing with technology, when something new comes out, everything goes up because it's this new, exciting thing. And then you reach a point where, well, not everyone can win. And then the market starts to differentiate the winners and losers.

[Michael Batnik]

Look at this.

[Peter Buchvar]

Oh, yeah, It's a perfect example. Right? That's a great chart.

[Josh Brown]

So we're looking at the Google exposed infrastructure versus OpenAI. And you know the names, it's the OpenAI, it's Oracle, AMD, Microsoft, Nvidia, et al, and the App Store Weave. The massive divergence is extremely noteworthy. And you know exactly when this happened? It's right after the podcast with Sam Altman and Brad Gerstner.

[Peter Buchvar]

Right. When Sam got pretty defensive. Right to the. To Brad's question, no doubt.

[Michael Batnik]

Google, the Google Exposed infrastructure is obviously Google. Then you got Broadcom, then you got light CLS and ttmi. I guess those are the suppliers to the Google Cloud, the ones.

[Peter Buchvar]

I would actually argue that this can stretch back to Oracle.

[Josh Brown]

Yeah.

[Peter Buchvar]

When people realize that, oh boy, 500 billion of these RPOs obligations, it's a lot is OpenAI. And then people say, wow, you know, 1.4 trillion of obligations over the next eight years. That's a lot.

[Josh Brown]

Yeah, it's a lot of math. So it's weird, it's weird to think about like was that it in the context of this great bull market the S and p had a 5% sell off and we're talking about is at the bottom. But listen, maybe it was Warren Pies who we had on last week has this great chart where he looks at the speculative short ETF volume and, and that spiked to 43% and he said outside of Liberation Day this is the highest percentage in more than two years. And 40% has marked the bottom of most corrections.

[Michael Batnik]

So what is it? A percent of what?

[Josh Brown]

The percentage of ETF volume that is that are short like the lever the inverse ETFs.

[Michael Batnik]

So inverse ETF volume was 43% of all ETF volume of the speculative stuff. Okay.

[Josh Brown]

So of the leveraged ETFs the inverse spikes.

[Michael Batnik]

So the bearish. Correct.

[Josh Brown]

Correct.

[Michael Batnik]

40% is marked the bottom of most corrections. When else did we see that? Just for argument's sake after Liberation Day.

[Josh Brown]

So, so he's, he, he wants his chart and he zooms out but just generally speaking and you had like people in terms of investor flows, people got really defensive. Our friend Todd has a chart where he shows the category flows since. Since bitcoin peaked which was earlier in October. And munis, treasury bills, long dated treasuries all were gathering a ton of money. And on the opposite end of the spectrum people were selling crypto, they were selling loans, they were selling high yield and cyclical sectors. Like people got defensive pretty quickly.

[Peter Buchvar]

What I find interesting now is that there's a fundamental backdrop to some of these moves too. It's not just the wave of flows in one direction or the other. I can argue small caps maybe are trading better because the Fed's about to cut interest rates again and a lot of these small and medium sized companies that are borrowing sofr plus maybe are getting some cost of capital relief private credit loans. Well I think there's legitimate questions being asked about you know the quality of these loan books. Tech is now differentiating. It's not all just a one way trade. People are thinking okay, who's going to win, who's going to lose? And so I think that's actually great a good thing for the market and, and it's really thinking about individual stories and, and, and, and sector specific things and it makes it a very interesting and and investing environment with that. It's not just one big decision type.

[Michael Batnik]

A lot of these AI ETFs were built in 23 and 24 and earlier this year in a moment where if somebody wanted to quote, get long AI, the trade was you buy the MAG7 plus Broadcom and maybe you throw in some of these like optical networking plays and you had an AI portfolio. I don't think that's gonna work anymore. Yeah, cause change to like in other words, I don't want you to speak for Dan Ives. Does Dan Ives have to decide as a sell side analyst covering the space? Yes, I like them all, but I think this group of names is better than this. Therefore I'm changing the underlying index. What do they do now?

[Peter Buchvar]

Yeah, no, that's very interesting. I mean the creativity of Wall street will certainly find the open AI non OpenAI ETFs for sure.

[Michael Batnik]

You imagine like on off, remember those ETFs risk Gartman, can you imagine I.

[Josh Brown]

Haven'T said that name in a while.

[Michael Batnik]

Like long Sam Altman, short Sam Altman, two different or oh, that's coming long X Sam Altman I guess would be the way to express that.

[Peter Buchvar]

But also it's also reflective of. We're reminded again about how fast technology changes. You know, it's not like Procter and Gamble selling razor blades and shampoo. You know, if you're going to invest in technology you have to be really up to speed on the constant changes. And we're seeing that real time right now.

[Michael Batnik]

Michael and I made this point last night on what are your thoughts? He was saying like think of all the AI narratives of just of 2025 that have come and gone. Apple is losing now it's Apple did the right thing, they stayed out of this Capex mania. Oracle is winning. Oh, Oracle is stretching itself too thin. Meta is winning because Reels is the most AI enabled monetized product in the world. Oh, Metta is seeing attrition of all these billion dollar AI scientists and LAMA's losing, Llama's losing, Alphabet.

[Peter Buchvar]

Yeah, they're great example.

[Michael Batnik]

They're dead now. They're the king at Microsoft. Thank God they have this deal with Open Air. They nailed it to oh my God. They completely tethered themselves to this kid who may or may not know what he's doing. So like the shifting of all of those narratives that's just inside of this year. And I think for investors the takeaway is like write these things down in pencil, not pen, don't get married. Cuz to your point, if you're investing in tech, you almost have to be reading every day or you're going to miss the next shift and you might not care then maybe invest in a different sector.

[Peter Buchvar]

And also what heightens the importance of all this is just the amount of dollars that have been invested in the sector, the trillions of dollars, to the point where we know it's highly concentrated, the stock market. But we know the US economy has been highly dependent on this actual build out to the point where most of GDP growth in the first half of the year was the physical infrastructure build, whether it was the chips to the steel makers, to the cement makers. So in a way we've become highly dependent on this economically and market speaking. And that's why I'm not a good technology investor, because I don't know enough to be up to speed on this thing. And that's why I don't like to necessarily invest in these things because I'm just not good at reading up on all these industry periodicals to know like, who's in the next garage that's going to put my company that I own stock in out of business.

[Josh Brown]

We forget how fast the narratives change. So Google, for example, earlier last year there was an article I tried to look for it, I couldn't find it where somebody was talking about the death of Google, how the culture is atrophied and it's just so toxic and they had lost their way. Even earlier this year, Google's forward pe was 14 times. Now it's 31. The narratives change so fast. Google is having its best year since 2009. It's added $1.5 trillion. Next chart. John. $1.5 trillion in stock. I mean it's unbelievable.

[Peter Buchvar]

People thought AI would turn Google search into Eastman Kodak.

[Josh Brown]

So I have, I have receipts for this. Shield Manote quote tweeted Cotu who knows a thing or two about investing. Back in July they created their Fantastic 40, which was an index or a list that they created. Microsoft, Nvidia, Amazon, Meta. So shield tweeted Google was considered so out of the race in July that CO2 didn't even include it on their list of quote companies best product positioned to lead in an AI and technology driven world. Do you guys remember when Nate Silver and others were like, why is like Gemini so woke? Who negatively impacted society? More Elon tweeting memes or Hitler? Like, remember all of that? Like, why is Google inserting itself into the conversation?

[Michael Batnik]

In fairness, they were.

[Josh Brown]

They were. No, I'm not.

[Michael Batnik]

And they fixed it because they heard the uproar and great engineers didn't want to work there and employees were embarrassed to work there. You would search, you would ask Gemini 1.0, show me pictures of Nazis. They would show African Americans because very obviously somebody internally decided representative pictures of any group. It's going to be African American because this is us fixing the past. And it obviously backfired spectacularly. But that's what Alphabet was doing.

[Josh Brown]

Yes.

[Michael Batnik]

And then the guy's office got raided. People forget this shit, but I don't. One of Sundar's VPs had their office raided by employees who were staging a Gaza protest.

[Peter Buchvar]

Right.

[Michael Batnik]

And they got the police in there. They got rid of them. But in my opinion, that was when it was time to turn over the hourglass on this bearish Google narrative. Because, I mean, I'm saying that in hindsight, but that was when the company probably decided, okay, you know what? This is a for profit enterprise. We're not hiring activists anymore. We're not putting up with this shit internally. And we're gonna get serious about this challenge from the other AI players and we're gonna build it into search and we're gonna do all these things. And they did it. They literally did it.

[Josh Brown]

So it's not to say that that to your point at the time, the narratives were real and accurate, but they change so fast and you have to be nimble or don't invest.

[Peter Buchvar]

And the. So I give Google credit for being able to pivot that quickly because the history of technology is littered with companies that do not pivot and they, they go away. But also Google had access to all that information. I mean, Google search was basically gen AI when it was created. It was aggregating all the information out there. So they had all the tools to, to create that great product. And having that, all you need was the right people and they did it.

[Michael Batnik]

So I got this wrong. I sold Google way earlier than I should have. I sold it closer to 200 than 300. It's embarrassing, but the takeaway for me is you probably shouldn't bet against the potential of a pivot from a company that has a printing press in its basement. Like, if any company, like and this is me in hindsight now, if any company under threat were to have the resources of Google, the better bet is probably financial resources, let alone talent, technology. Of course, the better bet is like, all right, they're going to respond to this challenge. They're not just going to now. It doesn't always work. Sometimes you lose.

[Peter Buchvar]

But they responded.

[Michael Batnik]

They did respond. And that's. That was the better bet. Hang on to the stock, deal with the volatility and let Google respond and I didn't let them respond and they did. And this is one for the ages. This is one of the best turnarounds we've seen.

[Peter Buchvar]

So here's a question. I know you guys talked about it with Warren in terms of the level of CapEx and whether the business models in terms of the capital intensity has changed, which it clearly has. I mean that's one thing of the beauty of technology is it's typically been asset light. You can create a product, you can design it and you can have somebody else make it for you. You don't have to build factories even in the chip market, the phone market and just hardware generally you don't have to physically make it. Somebody else can. And are these companies sort of embedding this higher level of spend for a longer period of time which doesn't affect the product at which they're selling but it raises the capital intensity in terms of running the business on an ongoing basis. I went through all the quarterly numbers of the big companies just to sort of quantify the level of spend. Oracle was the most egregious. Oracle is spending is expected to spend 52% of their revenue, not cash flow of revenue. On capex it was when next year in their fiscal year saw 25 into 26. Not initially their calendar year but whatever.

[Michael Batnik]

They it's the most aggressive stuff.

[Peter Buchvar]

It was 10% in 2021. Even Meta has gone from now Meta. You know Mark Zuckerberg, when he believes in something, he's going to invest in it just like he did the Metaverse. So he doesn't care the pushback that Wall street gives. But he's spending about 35% of revenue. It was low teens. And even Microsoft and Google spending 25 to 27 it was low teens. Is this sort of a few year thing and they can ratchet back cap spending or are they embedding this higher level that's going to affect our returns on equity and free cash flow? I don't know the answer but that's the thing that I think people need to think about.

[Michael Batnik]

I'm going to hazard a guess, Alphabet. Part of the narrative here is that they're showing a new way that this can be done. They're going to use these tensor processing units not to replace their GPU demand but to augment it and make it more efficient. And I think just like we saw that era of efficiency thing take hold to pull us out of the tailspin of 2022, I think in 26 you're going to hear these companies start talking more about more bang for their buck. Like yes, we're spending, but we're way more focused on more near term roi because they're now all going to follow in the foot in the footsteps of what Alphabet is doing. I think Alphabet's leading the way and that's why you see all of a sudden Zuckerberg come out or a report we didn't hear from him, a report that Zuckerberg is considering using cheaper chips. That would have been a mark of shame six months ago. The market would have said don't do that, use the best chips. That's what we're rewarding your stock prices with. The more GPUs, the better. Grace Blackwell Great. Buy the next. Okay, the market's not rewarding you for doing that anymore. The market's rewarding Alphabet for getting some discipline and thinking about cost. I think there'll be other companies that do that next.

[Josh Brown]

So look at this chart. Josh mentioned the flexibility of Google's balance sheet to do whatever they're doing. So Google has $42 billion of debt. They've got $99 billion of cash and equivalents and they've got $127 billion of EBIT. So what we're looking at is the leverage ratio of these companies and we're considering the total net debt. So debt less cash divided by their operating earnings over the last 12 months. And Google has plenty of flexibility to push it forward. Oracle's not on the chart, but I'm assuming it's way higher than all of these other companies. And Peter, your question is the right one. Forget about this. This depreciation question that buries is hammering home. It's not about that. Four years, six years, it matters of course, but the real question is is Meta still spending 35% of their revenue in three years from now? Because if they are, that is obviously going to continue to weigh on margins. That's going to be pretty difficult to have any sort of multiple expansion under that scenario. And if they're still doing that and they're not figuring out how to generate some operational efficiency and leverage out of this spending, then the stocks probably aren't going to work.

[Peter Buchvar]

Yeah, that's the question. And also let's just say the efficiency part and these companies don't sustain this current level. What does it mean for the picks and shovels company companies that are selling into the actual physical building structures? You, you know, because they could be a collateral damage if Meta decides, you know what, instead of spending 35% over ratcheting that back to 20.

[Michael Batnik]

Here's the counterpoint. Somebody at Microsoft would say to you, our copilot users will, will pay any amount because they have now built this into their workflow. They have actually built this into the way that they hire and they're forcing employees to upskill to utilize these tools. We can't get rid of them. It's like the new, it's like the new consumer staple but on a corporate level, enterprise level, like we can't cancel this stuff so it's here to stay. And it's got pricing power. Whatever we were getting for a co pilot license last year, that can go up 10% a year. Companies are making so much money as a result of using it. That's what Microsoft would answer back.

[Josh Brown]

Well, is it possible, is it possible that these companies can continue to spend aggressively, forget about what the precise number, but also their revenue grows commensurate with it. It's. Is that possible that they get a massive.

[Michael Batnik]

That's the case that I'm laying out.

[Peter Buchvar]

Right on Microsoft's ability to monetize. And that also adds another question to this, the extent at which they can monetize if there are multiple models out there that consumers can choose from. And I also want to invite China into this conversation because China wants to be a player on this stage as well in terms of not just creating their models but selling them to the rest of the world, not just using it for themselves.

[Michael Batnik]

Their models will not get into enterprise.

[Peter Buchvar]

U.S. not in the U.S. but in.

[Michael Batnik]

Like China, Fortune 500 enterprise tech.

[Peter Buchvar]

Right. But let's just say in competing for that European customer or competing with the Japanese customer or whatever, are they going to be to a point where US technology companies, and I don't know the answer is US technology met its match in terms of global competition, not for U.S. customers, but for global customers.

[Michael Batnik]

Yeah. One of the more interesting takes on that, and this is me repeating something that somebody much more knowledgeable than me said. It's always going to look like China is leading in this AI era and there's a reason for that. All the great stuff that US companies are building is within their own closed controlled environment and they release these as fully formed products when they're ready. The Chinese are doing this differently. Everything's open sourced, everything is within the community and people have the ability to improve the models on their own, which is what's happening. So as a result that's all out in the open and it looks like it's far more advanced than our own capabilities. But is it still just as true?

[Peter Buchvar]

Is it still a competitive threat, though?

[Michael Batnik]

I think it depends on what we're talking about. I don't like, for example, if you tell me, like, if you tell me, Goldman Sachs, Charles Schwab, Fidelity, all these financial institutions are now utilizing AI, you know, within their organizations to speed up workflows or to save on hiring or whatever reason. Like they're not looking at an art. They're not doing an RFP and then sitting down with Alibaba.

[Peter Buchvar]

No, they're not. I'm talking about in terms of the global customer.

[Michael Batnik]

Yeah.

[Peter Buchvar]

China will use China's models. And actually China, I think is going to continue to use Chinese hardware where we're US Technology companies are using. Losing China as a customer. Yeah, because of. We basically incentivize them to create their own. And not only are we losing them as a customer, are we going to now invite a competitor, not just in AI, but on the hardware side too, on the chip side or whatever. I just think that when looking at over five to 10 years, obviously is irrelevant in the short term. China is a player on the competitive stage not for selling into our market, not for us to sell into their market, but for all the other customers around the world.

[Michael Batnik]

Yeah. I think the bullish cases that they are, which then forces our companies to work harder to compete. So I think that's good. I also don't think the Germans and the French would listen to this and say that they don't have anything to say on this topic. They're having AI festivals and helping to fund their companies. I know they're not gonna ever have their own Silicon Valley, but are they developing models?

[Peter Buchvar]

Yeah. Nistral in France.

[Michael Batnik]

Nistral in France. And you know, like, is it just US versus China and no one else is developing models? I'd say that's probably bullshit.

[Peter Buchvar]

Saudis want to create their own model. They're. There'll be sovereign models out there. That's what. That's the business that Nvidia is trying to tap into now.

[Michael Batnik]

Yeah, I agree. And that's. I think that's bullish, not bearish. I don't know why we need companies with global domination and 70% profit margins in every single endeavor that they ever compete in. It's just not realistic.

[Josh Brown]

Peter, part of the story last week that also wobbled stocks with some of the economic data that we got. And on the flip side, we had some economic data this week. Some Fed speak, particularly who the president is looking to insert. That is definitely impact in the market you're seeing rates go down, the 10 year broke, 4 percenter is right there and holy, nobody saw this coming on Thursday afternoon. But the Russell 2000 just had its best four day performance since post election. The Russell 2000 up 7.7% in the last four days.

[Michael Batnik]

Let's see this pretty notable spike.

[Peter Buchvar]

Well, one, one thing that we've learned in markets over many years is the action in the back half of November into December. Every move gets exaggerated. No one wants to miss a rally to the upside and no one wants to get caught in a downdraft. John Williams I think was the friend to the Russell 2000 because going into his speech the Fed funds futures were pricing in only about a 32% chance of a cut. And if there's a constituency of businesses out there that are going to benefit from a lower cost of capital, it's small, medium sized businesses, particularly those that borrow SOFR plus. Now people borrow across the curve. Some people borrow whether it's in real estate or business on the five year, others the 10 year. But there's a lot of SOFR now that said, I think this also ties into what's going on with private credit and just some questions being asked about the lending environment that we're in when all this money enters a space. There's too much money chasing not enough good loans. So if the Fed cuts interest rates by 25 basis points, well that SOFR +300 may be SOFR +325 if we're worried about the economy. So that benefit of lower of 25 basis point decline in SOFR but offset by a 25% rise in the spread may not help that small business. But I think the initial reaction was Fed's cutting rates. Small caps are the best beta to own in that sort of rate cutting environment. But then that begs the question was how much are they going to really be able to cut? Is a big dove coming in which they probably will to replace Powell? Well, how does the long end respond to that or the dollar? So there's just so many moving parts here.

[Michael Batnik]

Did the BDC stabilize with the Russell? Yes, over the last week. I feel like I'm not hearing, I don't follow the tickers, but I'm not hearing about them either.

[Josh Brown]

So yeah, they bounced pretty significantly, particularly Blue Owl as that story seems to be behind it, the worst of it. But yeah, they bounced. They're stabilized.

[Peter Buchvar]

Yeah, that's the hope. But the interesting thing is by the Fed continuing to cut interest rates, that reduces the interest income of these BDCs.

[Michael Batnik]

Which is now expected.

[Josh Brown]

Yeah but you know what everybody bigger.

[Michael Batnik]

Risk in the BDC people is the credit, not the yield.

[Josh Brown]

Everybody knows that for the yield people.

[Peter Buchvar]

Started to get worried about the dividend cuts because of the cuts in the fed funds rate. I mean even be cred Blackstone's product they cut their their dividend a few months.

[Michael Batnik]

Yes but that 30% drawdown across the board is like accounting for the fact that everybody gets the distributions going lower next year, not higher everybody. The bigger worry is that money is too tight rates, rates are too restrictive and some of these companies have made loans that they probably wish they didn't and that's the bigger worry than how much is my dividend.

[Josh Brown]

Well also the good news is these loans are floating rate and so the companies that were under distress are going.

[Michael Batnik]

To be more easily the lifeline.

[Peter Buchvar]

Yeah, it's a little bit more there is that relief. It's not fully matched between the money, their cost of capital and what they pay out. But there's definitely a tight relationship Anyway.

[Josh Brown]

The public BDCs are bouncing pretty violently. Peter, to your point about market behavior towards the end of the year. So we shared this chart from chart kit at the end of September the average path in Q4 when the market is up a certain amount and yeah we know what happens people chase higher now we were I don't think anybody was saying that it's going to play out exactly that way and it hasn't. But the point remains that we are we're still up a decent amount going to the end of the year and absent some sort of news causing another sell off maybe Sam Altman going on another podcast the chase will be on.

[Peter Buchvar]

The only pushback I have to this chart is a lot of the times when November December is up it is because September October are soft. This September October flipped. It really was not soft. Yes we had that quick 5% but there was a V bottom when September October is soft usually get that year end rally. When it's not. You should chop around would I love a year end rally? Of course. I'm just not necessarily expecting it because September October relatively benign.

[Michael Batnik]

But you already know what's going to happen, don't you?

[Peter Buchvar]

Yeah, typically you know human behavior doesn't change the rally.

[Michael Batnik]

Think about how many people are now going to look at the dispersion of these max sevens and say ooh well that means that some of them are in 25% drawdowns meta opportunities.

[Peter Buchvar]

That also means that the outperformance the rest of the year could continue to be the smaller caps and the divergence can be in the S and P because not all. Because the market's separating out the top names in the S and P. Now.

[Michael Batnik]

How about international stocks up 30% this year. Like people have something to change.

[Peter Buchvar]

In dollar terms they're up even greater. The Spanish ibex in dollar terms is up north of 50%. The Italian stock market in dollar terms is up north of 40%.

[Michael Batnik]

Yes.

[Peter Buchvar]

The Hang Seng's up almost 30.

[Michael Batnik]

Okay, so now people have something legitimate to chase. Like they sort of. I, I don't know, I just.

[Peter Buchvar]

Well, that was the great thing about this year is the market widened its lens of opportunities.

[Michael Batnik]

Yeah. Don't you feel like people want to say something different is going to happen? But so often the most obvious thing in the world is the same old.

[Josh Brown]

Thing is going to happen by the max seven.

[Michael Batnik]

Yeah. Like everybody wants a new narrative. They get so excited when small caps have a 7% four day stretch. They get so excited when healthcare stocks outperform for 90 days. I'm excited too because every value investor.

[Peter Buchvar]

Is saying this is it, we're finally here.

[Michael Batnik]

The prophecy. This is what I've been prophesying for 12 years. Here it is. So I get it. There is this proclivity to want change and then to wishcast it like it becomes your forecast.

[Josh Brown]

I think don't we all want it to a certain extent? Like aren't we all like can't the max.

[Michael Batnik]

Can't have it.

[Josh Brown]

I know you can't have it. I want.

[Peter Buchvar]

Well, the Max 7 I think has splintered up into its own stories.

[Michael Batnik]

For now.

[Peter Buchvar]

For now. But, but I'm saying in terms of it's no longer one big trade. You need to pick and choose a bit.

[Josh Brown]

We had a chart, we had a chart yesterday and what are your thoughts showing the correlation of the Max 7 on the rolling 60 day period? And it crashed. Crashed. Which is wonderful. It's what we're talking about this.

[Michael Batnik]

What if you don't have to pick and choose? What if the theme still works? It's just different stocks leading it because that's really been the history recently. It's this rotation inside of the Mag 7. So right now obviously like Nvidia and Meta are not riding high. They might be in two months. Tell me what the narrative is. I'll tell you right now it's about like Apple and Alphabet. Both of those stocks were so severely out of favor just six months ago. So that could change on a dime. Not saying it definitely will but maybe the theme still works because there's always a couple of giant winners that pull the rest of the theme with them.

[Peter Buchvar]

And from a portfolio standpoint, it's just easier to own them all and not have to try to figure out who the winners.

[Michael Batnik]

Think about how hard that is to do. Tesla goes from 52 week low to 52 week high. Who the hell could do that, right? So I, I don't know, I, part of me just feels like large cap managers this time of year, they're going to look at the ones that lag the most because they could explain it. Yeah, they could just. I'm buying Meta 25% in the hole. Like right.

[Peter Buchvar]

They want to show it on their piano. It's a great story.

[Michael Batnik]

And they could say, and they could say like, yeah, of course I bought it. Okay, it didn't work. But here's why I bought it. It's explicable.

[Josh Brown]

Peter. One of the fun things about November was that we stopped saying the word bubble like it really it was. Enough already. When you see this chart, chart 11 please, John. We're looking at the forward PE of the S&P 500 normalized by profit margins, which are obviously a huge, huge part of the story. What does it say to you?

[Peter Buchvar]

Yes, I'm looking at it right now. Yeah, compared to 2000.

[Michael Batnik]

I mean this is Mike Wilson.

[Peter Buchvar]

I don't know, I, I, I, I wonder what his assumption is, how he adjusts for profit margins. Because does he, is he main, is he lowering the long term profit margin? I'm sorry, is he taking the current profit margin to call it 13% and he's lowering it to a more mean reverting number? I'm not sure what his assumption is.

[Josh Brown]

I don't know what the arithmetic is but I think his point, because I.

[Peter Buchvar]

Know that case Shiller that that also assumes normalize his profit margins and that is the opposite. So I wonder what his assumption is.

[Josh Brown]

Wait, hold on. The Shiller P doesn't adjust for profit margins?

[Peter Buchvar]

Well, what it tries to do is by smoothing out over a long period of time in inherently adjusted but profit.

[Josh Brown]

Margins should not be smoothed out over the last five years. Five years ago ChatGPT wasn't a thing.

[Peter Buchvar]

Well, if a lot of these companies are more capital intensive businesses, that would maybe say that profit margins are going to be lower over time. So by smoothing that out. To me, I think valuations people like to throw out their favorite number. If they are bullish, this one is cheap. If they're bearish, this one's Expensive. I think you got to look at a variety of ones. I'm curious to see what this one is because that's interesting. Then you can look at price to sales or price to ebitda. I know people like to look at Nvidia for example, on one one year of earnings and it looks inexpensive. But then people say, well, that only assumes a 75% profit margin, stays that way for many, many years. And I'd rather valuate on price to sales. To me, this whole bubble talk was sort of conflated. I would hear, is AI bubble? Well, AI has been around for 75 years, so AI itself is clearly not a bubble. I think the debate was more of are we building too many data centers? That's a legitimate conversation. You know, to think about this, the one incredible thing about technology is the hardware over time always gets smaller, but the computing power and the software always gets more powerful. So when MED is building a 4 million square foot facility in Louisiana for $27 billion, maybe that doesn't cost three years, maybe they only need 2 million square feet. They'll have greater compute power coming out of that facility, but maybe they only need half the space. So I think there are legitimate questions about are we building too many? And is this build out similar to the Internet where the users of IT and the development of the Internet just was exponential, but the infrastructure contributors to it? Well, we know Cisco stock is no higher than it was 25 years ago. So that I think is a legitimate conversation. But not is AI bubble. No, AI is software that has been, has gone up in leaps and bounds and we're all going to benefit from it. It's just the physical building.

[Michael Batnik]

A very simple test. Talk to 20 people that are like intelligent people that work for a living currently, right? Not people using chat GPT for a brown usb, but people that are like literally incorporating into their work and ask them if they would pay more or if I told you the price doubled, would you be willing to go back to working without it? Like it's a, it's a, it's a mental exercise. You can't really threaten that.

[Josh Brown]

If it quintupled, I would pay for it.

[Michael Batnik]

So I, I don't know what I pay for it.

[Peter Buchvar]

You can't live without it.

[Josh Brown]

I pay 20 bucks a month.

[Michael Batnik]

This is my point. So is it a bubble or somebody? It's a bubble. Okay, tell you what, lose your login, call me in 30 days, tell me if you want it back and what you'd be willing to pay right now. OpenAI is charging $20 for a month for a chat GPT license, lose it for 30 days, come back to me, tell me you wouldn't pay $50 a month, then tell me it's a bubble. Okay, so I'm with you. Is it a CapEx overreach in the short term debate? OK, I wouldn't be the one to know, but you can't tell me that this is the 3D printing bubble. It's just not.

[Peter Buchvar]

Agreed.

[Michael Batnik]

OK. You can no longer function without it. If you are a working person in America, look at how fast that happened. And don't tell me you're not willing to pay more. If and when the time comes and Google says give us more, you're going to give it, you know you're going to give it.

[Peter Buchvar]

Right? The use case is not the bubble, it's, it's the, the actual infrastructure behind it.

[Michael Batnik]

Right. So I don't hear people saying tulips, beanie babies. They don't mean it in a bubble in that sense they're mostly talking about the CapEx.

[Josh Brown]

Well, it's open AI, it's wait a minute, you guys are doing $13 billion in revenue. You're supposed to spend 1.4 over the next X years.

[Michael Batnik]

How?

[Josh Brown]

That's, that's where the question is.

[Michael Batnik]

Obviously it's who's going to finance it and is it too, too much too soon. Right, right.

[Peter Buchvar]

That's what get over its skis. Spending half their revenue. And a lot of these companies, you know, I mentioned the percentage relative to revenue percentage of ebitda is like 50 to 75% now. So we all hope that this works because that level of spend, you know, obviously changes the business, which it probably will because they'll find efficient ways of using that capital. But right now that's the debate. It's the capex debate is whether it's too much or not. Not the use case of it all.

[Michael Batnik]

I think what's really interesting is nobody talks about GROK in terms of its capex. So everyone under, I think everyone understands that they are aiming to be as competitive as every other LLM and every other AI company. But they're also private, like it's XAI and it's not trading. And I guess people are trading Tesla as a proxy because let's assume the Tesla robots will use AI from xai. It's a little bit like interchangeable but like that's another really interesting part of this. It's like some of these companies are public and some are not and we just don't get all the information.

[Peter Buchvar]

And we know Elon does not want to lose out to Sam Altman on.

[Michael Batnik]

If anyone's going to spend less, it won't be him. He will not be the first. I don't think he'll be the first player in this game that says enough is enough.

[Peter Buchvar]

But that also that ties into the capex is. Is the spending just because they need to win and they'll spend whatever it takes, which human nature. You end up spending more than you, than. Than. Than you need.

[Josh Brown]

But they say it's existential. You don't. Do we not believe them?

[Peter Buchvar]

Right.

[Josh Brown]

Is it ego?

[Peter Buchvar]

I don't also. But a lot of the spend, though, is assuming that they win and they can monetize. But Tesla's in an interesting position where they can sort of be like Google, where a lot of their spend, they're creating their own vertically integrated situation where now they're not in cloud. Of course they're going to use others, but in terms of creating their own chips and their own software and integrating into their own products.

[Michael Batnik]

Yeah. One last thing on this and then we can move on. A lot of the columnists that I read are now writing about how this is all gonna come to a head politically probably in the next month or two. This is the next big fight. We're in this inflation battle. We've got consumer confidence, which I know we're about to talk about, which is severely impacted. You might say that's just the shutdown and it'll go away. Maybe that's true, but, like, people are not happy with their cost of living. Yes, it's true that inflation is moderating. It's not moderating fast enough. And prices aren't going back five years ago. And now you have utilities winning rate cases with their state regulator to get higher prices. And if you read the documents that they're filing with their state regulator, what they're saying explicitly is we need higher rates to compensate for the capex because we're building enough electricity to supply all of these data centers in this county, in that county. This is not gonna be popular. And we're going into a midterm election. And I feel like AI is about to become a much bigger political issue, not just a stock market issue. Not just is it a bubble or is it not? But a bigger issue of is this driving up the cost of living for people?

[Peter Buchvar]

It's a phenomenal point and it's 100% right. I'm already good at.

[Michael Batnik]

Very good at this.

[Peter Buchvar]

You nailed it. And I'm already Beginning to see pushbacks in local towns and counties that are beginning to see this. Yeah, when inflation goes up 2% a year, let's just call it, and I'm not a fan of the Fed's arbitrary number, but let's just say 1 to 2%, it's a manageable level of an increase in your cost of living because your wages typically will at least match that or go up more. When you see a vertical rise in inflation, it's a traumatic experience where people's income is just not going to match that in terms of speed. And there's a lot of PTSD out there. And I think that the big anchor point and tying into this utilities, is just the cost of housing generally and the cost of buying a house for that young person and the cost of even renting for that young person. I mean, who keeps talking about that 25 to 35 year old that is the most financially stressed? It's Chipotle, it's Sweetgreen that's tapping into that. It was, I think it was one of the retailers, maybe it was Kohl's for example, talked about that younger consumer because they're dealing with that. So they're the ones that can least afford a big rise in their utility bill because they're already paying a rent that's eating up a third to a half of their income. And that has created obviously this very splintered consumer out there that tied into the Fed. And I wrote about this today, everyone says the labor market's weakening in terms of hiring, which it is, it's softened and that means the Fed needs to cut. Okay, I understand that argument. But if one of the reasons why the US Economy is very mixed here and maybe seeing a slower pace of hiring is because the inflation that has been embedded into our economy both in terms of hurting consumers, but also cost pressures for small, medium sized businesses, particularly the impact of tariffs, which we can talk about that too because I get an opinion on that. Well, shouldn't the Fed still be focused on taming inflation? Because if you tame inflation, you can get a healthier economy that leads to more job growth. If you take your eye off the ball at inflation and says, oh, I need to cut because that's going to help the jobs market, but then you risk inflating inflation again, well then you're sort of, you're diluting the impact of those cuts. So we're at a very delicate balance here because inflation is a nightmare for the average person. And yeah, look at mom Dame winning. You can argue that's Inflation. The politics is defeated with this.

[Michael Batnik]

We don't have to argue. It's literally the affordability crisis writ large is Mom.

[Peter Buchvar]

Dani, I sympathize with the people that want the Fed to cut to help the labor market, but if they take the eye off the inflation part, the inflation is the disease. The symptom of that is a softening hiring market. Yeah, let's focus on the disease of inflation.

[Josh Brown]

Powell finish his term because.

[Peter Buchvar]

Yes, yes, I say that. I say that confidently. Not because I know, but because I know he doesn't want to be bullied out of the job.

[Michael Batnik]

And it's too close now and it's.

[Peter Buchvar]

Almost done and he's already making his summer vacation plans and his, and his tee times. So he, he sees the light at the end of the tunnel being, you know, the sunlight on the golf course. So. But he's not going to get bullied out.

[Michael Batnik]

Okay, so Kevin Hassett comes in. His economic philosophy is whatever Donald Trump.

[Josh Brown]

Says, a 50 basis point cut today.

[Michael Batnik]

Well, no, it might be if Donald Trump says 100 basis points, then that's what it's gonna be. He might try to talk him out of it, but in the end he's inoperative. That's what he is. He did it for George W. Bush. He's been around a long time. This is not news to anybody. The market sniffed that out. Probably why you got a small cap rally.

[Josh Brown]

Housing stocks rallied hard.

[Michael Batnik]

Yeah.

[Peter Buchvar]

Yes.

[Michael Batnik]

Okay, so they are, forget about, take their eye off the ball of inflation. They're already telling you right now we don't give a shit. We actually don't believe that there is inflation. We think that this is a Democrat plot to get people to think that their cost of living is unaffordable. And the truth is Trump is doing these amazing things and the last piece of the puzzle to make them actually help is get the rates down. They're saying it. It's not me being a smart ass or trying to piss off Trump people or, or Mamdani people. I don't give a shit. I hate you all equally. Okay, so this is just me as a normal rational person. I'm listening to what they're saying. They are gonna come in and drop rates even further. They don't care about the inflation piece. Do you think I have that right?

[Peter Buchvar]

You do.

[Michael Batnik]

Okay, how much gold then do you wanna buy in that scenario? Or what do you wanna buy?

[Peter Buchvar]

Well, I think a key part of that will be the reaction in the dollar and the reaction in the 10 year yield. European Central bank has cut interest rates 200 basis points. They've taken their deposit rate from 4 to 2. Yields in Germany and France are higher from when they started.

[Michael Batnik]

Yeah, wow.

[Peter Buchvar]

The bank of England has cut interest rates, gilt yields are higher.

[Josh Brown]

So what does that tell you?

[Peter Buchvar]

Even the fed has cut 150 basis points and now we're pricing in another 25. So call it 175. The 10 year yield from the summer of 2024. So before we had that big drop in the 10 year down to 360. On the day that they cut 50, the 10 year yield is barely down and versus the 300 and 60, the 10 year yield even at 4 is still 40 basis points above those lows.

[Michael Batnik]

The belly of the curve is no longer responding to what central banks are doing because it's focused on a bigger risk which is when they have to reverse all these cuts. Right, that's what you're saying.

[Peter Buchvar]

But also debts and deficits matter. They matter. In Japan we're seeing yields go up almost seemingly every day in the JGB market because people are now seeing the fiscal package that's being announced in Germany. You know, they're spending a lot more money. So debts and deficits matter. So what a central bank does on the short end doesn't mean the long end of the rest of the curve is going. So if I'm looking to buy a, I mean I can count on multiple hands the amount of real estate people that told me coming into 2024 the Fed is gonna save me, or I should say the back half of 24 going into 25 rate cuts are gonna save me.

[Michael Batnik]

But the 10 year is what mortgages key off of.

[Peter Buchvar]

Right. They barely got helped. And that first time buyer, they barely.

[Josh Brown]

Yeah.

[Peter Buchvar]

And the, the other, one of the other problems we have in getting back to inflation is what did the Fed do over the last 25 years? You know, they played God over interest rates and they lowered rates below where they should. So what they, what they did was they stimulated the demand for housing, for example, because we know if you're going to move interest rates, what's it going to impact? It's going to affect autos and housing the most of any other thing overnight because that's where people borrow. Well, if you increase the demand for housing via lower mortgage rates, but you don't have a coincident rise in supply. Well all you're doing is raising the price of the home that then completely offsets the benefit of lower mortgage rates. So people that says oh we need to help the housing market by cutting interest rates. Well, if I got to pay 10% extra more for the house because interest rates are stimulating demand, I get no benefit from lower mortgage rates. So they got to be very careful with this. We have 25 years of an experiment where artificially low interest rates doesn't necessarily mean that the economy gets stronger. And again, we saw that in Europe. We've seen that in Japan. Japan would be this booming economy if cheap money mattered. So there's this delicate balance.

[Michael Batnik]

Free money for 40 years didn't work.

[Peter Buchvar]

So here we have inflation right now tending on. If you look at the PCE or the CPI, call 2¾ 3 now it can be trending down. I think on the services side. Inflation is decelerating on the rental side. But another cut in the fed funds rate gets the fed funds at about 365 call it. That's not that far above inflation. You're actually where you should be because I believe that monetary policy should always be above the level of inflation. If I'm going to lend you money, I should get back more than inflation slightly.

[Michael Batnik]

But restrictive enough that it's not encouraging more inflation.

[Peter Buchvar]

Exactly. So historically, before the financial crisis, the fed funds rate was 2 to 300 basis points. The rate of inflation. Now it's down, not only down to 65 basis points. And people are still calling that restrictive. It's not restrictive. It's restrictive relative to zero, it's restrictive.

[Michael Batnik]

What do you say to the people, Peter, though that say, okay, of course we don't want to take our eye off the inflation ball, but we also don't want to be late to when the layoffs start because once that gets going, it's too late to deal with. It always goes to an extreme before we can get it under control. Do you believe in that or you don't?

[Peter Buchvar]

No. I'm very sympathetic to the desire to help the labor market with hiring now slowing. But what was Powell's big error with this whole transitory inflation? He didn't want to raise rates using the words he didn't want to raise rates because he wanted those jobs that were lost during COVID to come back. And he completely ignored inflation. And I'll get back to my point. You need low and stable prices and as the foundation for a healthy economy. A healthy economy leads to more hiring. If you lose the narrative on inflation, you're not gonna get those jobs back. So we talked about the biggest pain point for this economy right now is the cost of living for so many people. And now we're gonna start to cut interest rates that maybe can stoke another rise in the cost of living. So that's the thing that I am concerned about. And just to put a bow on this with cpi, we know that housing is the biggest component on rents and we're seeing a deceleration in rents, which is great prices too, and home prices too, because we're beginning to see more supply. That's a good thing. But if we start to cut interest rates and start jamming up demand, do.

[Michael Batnik]

We screw up the progress?

[Peter Buchvar]

Do we start to. Yes. And also you're beginning to already see a big drop off in the construction of multifamily cause we had this flood of supply last year and this year that created the supply to see the deceleration of prices. And now you're seeing a big drop in supply because the cost of construction has skyrocketed and so on. And the cost of borrowing is still high. Even with these rate cuts, are we sowing the seeds for an eventual increase in rental prices which would lead to an uptick? Inflation like my worry is not perpetually high inflation, it's inflation volatility. We saw the spike. We've now seen the deceleration. Or are we going to now sow the seeds for a pickup again in inflation? At the same time we have the treasury secretaries doing what Yellen did and financing the US government with T bills.

[Josh Brown]

Peter, your points are valid, but we are cutting rates.

[Peter Buchvar]

Oh, there's no question we're going to do that.

[Josh Brown]

So what do you do with that information?

[Peter Buchvar]

So Josh mentioned gold. Very bullish on precious metals. I think the dollar could take another leg down if they start cutting interest rates that the market pushes back on. Good for many stocks, good for risk assets. But not all stocks. Those stocks that are that, well, it depends if on how much you import from overseas. Because we know 40% of US imports are intermediate term goods. Because if the cost of your raw materials go up, that's the offset to the weaker dollar. If you're an exporter. International stocks are going to continue to do well. Other hard assets, My favorite asset class right now, what I think is the cheapest, one of the cheapest assets in the world is a barrel of oil at 60 bucks in nominal terms.

[Michael Batnik]

I'm so with you on that. When it goes. When it goes, it will go. It always does. When it goes, no one's going to be long.

[Peter Buchvar]

No one is long. It's less than 3% of the S and P right now.

[Michael Batnik]

That's right. No one is going to be ready. I will be.

[Josh Brown]

No, I should buy energy stocks. I think you're right.

[Peter Buchvar]

There's fundamental factors here too, is that. And I do a lot of reading and I followed oil for many years, but I'm no in the weeds expert. But there are a couple of things that are taking place here right now. About 85% plus over the last 15 to 20 years of non OPEC plus oil supply has come from US shale. US shale was a technological revolution that made the US the biggest oil producer in the world, exceeding Saudi Arabia because of US Shale. The EIA a couple weeks ago came out with a chart that basically went through all the big US basins. Eagle Ford, Haynesville, Bakken, Permian. The production numbers are all rolling over in all these key basins.

[Michael Batnik]

Is that because they've been tapped or is that because we're drilling less? I don't know.

[Peter Buchvar]

They've been tapped because the depletion rates on shale is very high and all the best basins and all the best pieces of them have been tapped.

[Josh Brown]

Not true. Are you watching Landman Season two?

[Michael Batnik]

Yeah. You might not be fully up to speed.

[Peter Buchvar]

I'm about to watch the first episode.

[Michael Batnik]

Okay. His son has just had a huge completion rate on a bunch of new wells that he's drilled.

[Peter Buchvar]

I'm going to have to change my thesis now.

[Michael Batnik]

Yeah, it's a great point.

[Peter Buchvar]

So US Oil production may actually be down next year. At the same time, rig counts are just off the lowest level since September 2021.

[Josh Brown]

Remember rig count? Twitter, like 2012 rig count.

[Michael Batnik]

Rig count versus dry bull.

[Peter Buchvar]

Few of us now watching it.

[Michael Batnik]

Yeah. Is that why ExxonMobil is talking about Guyana? Because like the, the. The fields are moving where. What's going to matter?

[Peter Buchvar]

Not only that, why do you think we're blowing up Venezuelan drug boats?

[Michael Batnik]

Yeah.

[Peter Buchvar]

Venezuela has the biggest reserves of oil in the entire world.

[Michael Batnik]

Yeah. I'm bullish on. I'm bullish on Venezuelan oil. My car will only take the finest Venezuelan oil. All right, dude, did you have fun on the show today?

[Peter Buchvar]

Always.

[Michael Batnik]

Yeah, we do. We have so much. We have so much fun.

[Josh Brown]

You were cooking today. Great job.

[Michael Batnik]

You absolutely were.

[Peter Buchvar]

It's always great hanging out with you guys.

[Michael Batnik]

All right, you want to do an now we're on healthcare or we're good? All right, guys. Peter Buchvar is an absolute treasure. I want to tell people how they can get more stuff from you. I get all your stuff. Can they go to.

[Peter Buchvar]

Go to Substack, the book report. Go to Substack, type in my name and it'll bring you to the book report there.

[Michael Batnik]

The book report. B O O, C K. All right, so you go to substack. Put in Peter Brookvar. Subscribe to Peter Substack. It's terrific. And you'll just, you'll get a little bit smarter every day.

[Peter Buchvar]

Thank you.

[Michael Batnik]

I know. That's, that's what happened to me ever since I began following Peter. I don't know, 500 years ago, however long you and I have been at.

[Peter Buchvar]

It, way back from the beginning.

[Michael Batnik]

All right, I want to. I don't know if any of the shit I talked about Thanksgiving at the top of the show made it into the final edit. I want to apologize to all Americans. It's actually, I don't hate Thanksgiving. It's not that bad. I want to apologize to my wife's family, too. I love everything about it. It's great. I hope it could be eight hours.

[Peter Buchvar]

And he can't wait to see you all.

[Michael Batnik]

I would love for it to be 12 hours if that's at all possible. John, Happy birthday, my friend. Thank you. Thank you for everything, and I hope you have a great weekend. Peter, we appreciate you. Thanks to all you guys for listening. Happy holidays. We'll see you soon. Thanks, guys.

[Peter Buchvar]

That was great. The world moves fast. Your workday even faster. Pitching products, drafting reports, analyzing data. Microsoft 365 Copilot is your AI assistant for work built into Word, Excel, PowerPoint, and other Microsoft 365 apps you use, helping you quickly write, analyze, create, and summarize so you can cut through clutter and clear a path to your best work. Learn [e-mail] M365 copilot.