← Trends with Friends
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- [00:00]
Howard Morgan
Foreign.
- [00:08]
Howard Lindzon
People. Good afternoon. Welcome to Trends with Friends. Frank Rotman. Welcome to the program. QED Investors. Great to have you here.
- [00:20]
Frank Rotman
Glad to be here.
- [00:23]
Howard Lindzon
Howard is having technical difficulties, if you're not aware. Howard has technical difficulties every week. And we cover over. We cover for him. He's got problems with the microphone, blah, blah, blah. This week. We can't cover him for him. So he's just so, you know, it's so absurd and hilarious that a. You know, a seed. Seed. Seed capital investor in the technology space can't get his. Can't get his camera right.
- [00:55]
Frank Rotman
He's avoiding me.
- [00:57]
Howard Lindzon
He's avoiding Frank. He never liked you, by the way. He was telling me before.
- [01:02]
Frank Rotman
The same person. We can't be in the same room at the same time, right?
- [01:06]
Michael Parek
Anti matter.
- [01:07]
Howard Lindzon
You're him with the wig. You got a little. You got a little wig on. J.C. what's up, buddy?
- [01:12]
JC
Oh, it's a bull market. You know, look around. Doesn't it feel like a bull market? I mean, you're seeing it in price. More parties, people are having more fun. I'm getting invited to bougie dinners like this wasn't happening two years ago. It's just a different environment. And I don't. I say, like, kind of like kidding and fun, but like serious. Like seriously think about what society was like and our experiences socially when it was a bear market. And think about what it is now and tell me that it's not vastly different.
- [01:41]
Howard Lindzon
And we're only. And we only live once, right? We all have an expiration date, so we might as well enjoy the good times. And we have your Dow theory confirmation chart coming up later in the program that. Confirming the bull market. Old school style. Michael Perak. What's up, buddy?
- [01:59]
JC
Baby, let's go.
- [02:00]
Howard Lindzon
It's a beautiful thing. Michael. What's up, buddy?
- [02:02]
Michael Parek
But always be ready for the bad times. I'm sorry. I love bull markets.
- [02:08]
Howard Morgan
But you gotta be ready for.
- [02:12]
Howard Lindzon
He is our. For those of you familiar with psychoanalytic theory, Michael Par is our Thanatos. He's a little bit of death instinct for us hanging around, just giving us the. Just. Just adding balance.
- [02:28]
Michael Parek
Prepare for the worst. Always prepare for the worst.
- [02:30]
JC
If I was a perma bull, I, I, you know. But Pearlman, you guys know, I don't give a. What the. Like, I'll take either side right from. And tell.
- [02:40]
Howard Lindzon
I am. I am a Pro Bowl. Okay, so let's get right to it. Frank, it's. Frank, it's great to have you here. I mean, you have, you know, I was looking at some of the old, I was looking at some of your old stuff, by the way, your blog posts, when you go really top down, what is the value of money? And all that stuff, man, Great stuff. If you're not familiar with Frankie's fintech junkie on Twitter, he puts his, he puts blog posts right on the platform there. So it makes it really easy.
- [03:07]
Frank Rotman
Junk ie. Not fintech junk y but fintech junkie ie there.
- [03:14]
Howard Lindzon
And his stuff is just fantastic. He's got a little cute little cartoon avatar and everything and his commentary, if you like sort of, you know, philosophical and big picture, high level thinking, man, he'll knock you down with that stuff. And so anyway, you were being interviewed, I was looking back at some of the, some of the earlier stuff you put out too. And I was, I was looking at an interview that you did with Howard, like three years going back. This first segment, we're just going to call it VC's Behaving Badly. And you were talking about the froth and sort of what was happening, the FOMO occurring already in that market before. We sort of have more recently seen the fallout to it. So I just want to give you a shout out and a quick quote and then ask you to comment on where we are now. Crazy funding rounds and hyperbolic narratives crafted by founders have created FOMO everywhere in the VC ecosystem. FOMO fuels the crazy funding, rewards founders with hyper hyper that have the hyperbolic narratives. Where are we now? That was three years ago, July. Where are we now?
- [04:27]
Frank Rotman
Well, I think we're actually back. So when you, when you think about lessons learned, you know, you hope that, you know, new things happen, good things happen, bad things happen. But, you know, you're learning all the time, right? You have an ecosystem, it's constantly evolving. And I think during the 20, 2021 period, you know, we had froth, we had an exploding ecosystem of VCs and startups. It was almost like this Cambrian explosion where you had tons of startups and you had tons of new VCs. Lots of money pouring in. The public markets were rewarding the companies that could go public with these great narratives. But at some point Darwin comes back. And I think that was really the story of 2022 and 2023 is that Darwin had gone on vacation for know, three or four years and then finally came back. And when Darwin came back, all of a sudden you're saying, wait a minute, what's the point of a company? Like the whole purpose of a company is to manufacture something and sell it for more than it costs you to actually build, right? So you, you build something, you sell it, you have manufacturing costs, and then you have to sell it for more than it costs you to actually produce. And if you can do that at scale, you've got a great business. So Darwin comes back, starts looking at these businesses and says, you know what, some of them are good, but some of them aren't. And valuations come crashing down. A lot of the VCs are scratching their head and said, wait a minute, look at all these great companies that I have. Look at all the great problems they're solving. And the markets are saying, yeah, but how good of a business is it? Not are you solving problems, but how good of a business is it? So a lot of lessons learned. And the problem is, I think those lessons are being forgotten very quickly, you know, so everyone said, wow, 2022, 2023, really tough time. A lot of crying going on with founders, a lot of crying going on in the VC ecosystem. It actually was a pretty painful time. But now all of a sudden there's a new shiny object called AI and there's a new shiny object called let's take this S curve, shove it into every single company, put a AI at the end of it, and guess what? We can start telling narratives again, right? It's not just about, hey, here's how a business manufactures something and here's how they sell it. Let's just tell a narrative. And when you can really start throwing companies into the market that are narrative backwards investments instead of building forwards and really putting the pieces together to build a great business, then the FOMO starts again. And you know what I'm worried about is that the lessons that we learned so hard about putting too much money into companies before they're ready for it, not de risking in stages, not running experiments, and then being honest about whether those experiments work or don't work. I mean, if you're just putting money into companies based on narratives, you're really going to light a lot of that money on fire. And I think you're seeing a lot of that happening in the VC ecosystem again.
- [07:26]
Howard Lindzon
And so how, how long does that take to play? I mean, like, what inning are we in right now? Do you just by your experience, I mean, you've seen this play out over and over again. Start with the dot com bubble, you know, going back 25 years.
- [07:41]
Howard Morgan
How.
- [07:42]
Howard Lindzon
What, in what inning are we in, Frank?
- [07:45]
Frank Rotman
Well, we're in the excitement stage again. And it's almost like cornered animals in desperation, you know, so you Go through this period where you raised a bunch of money, you had really high valuations in your portfolio, you have to mark them down. You go back into a fundraising cycle and you've got to go back out to your LPs as a VC and say, here's our track record, here's our performance, we'd like some more money, please. And we can talk about how the VCs kind of broke the LP ecosystem and how all of that works, but you're reaching your hand out every couple of years and saying, I'd like some more money so that I can put it to work. And when you're raising on a track record where you just had to write down a lot of your companies, you're looking for news, you're looking for that shiny object that you can basically tell to the LPs and say, look, we've written down the old portfolio, but guess what? Going forward, everything is going to be amazing. And the way you do that is by investing in companies where you can get quick markups with high valuations, et cetera, et cetera. And the cycle kind of repeats again. And I think we're at the beginning part of that cycle again where the VCs are looking for those quick markups, they're looking for the hyperbolic narratives so that they can raise money again. You know, after a period where they were marking down a lot of companies.
- [09:05]
Michael Parek
Michael, the one thing I would add, I think Frank has great points here, but after 30 years of watching VC, we have one new dynamic, which is that the flood of money around the world, institutional money, sovereign money, just the globalization, deglobalization, etc, there is so much money that the lines are obviously blurring between VCs and private equity and how many, how long companies stay private versus public. All those dynamics have lent meant the top VCs are now increasingly managing for the size of AUM versus the results of the of the AUM. What does that mean? That means they're focused on the 2% of their of their compensation more than the 20%, meaning the more if they run 10, 20 billion, they don't need to worry about the results per investment as they used to. And so that demarcation is a very important thing to watch for. So to Frank, your point, they can cover a lot of sins from one fund to the other. The evolution of secondary markets means they can leverage from one fund to another relatively smooth. These are mechanisms we did not have 10 years ago, 15 years ago.
- [10:16]
Frank Rotman
It's hard for people to internalize. But you Know, you should want a capital efficient business, right? Like you should want to put as little money as possible into something and then have the machine turn that into something worth a lot more. But when you're in this AUM game and you're raising lots of capital and you're playing the 2 and 20 game, you're an asset manager more than anything else. And you love capital inefficient businesses because you can put a lot of money to work forever. A lot of the high trend, you know, you're playing venture capital with an extra one or two zeros on the front, but also an extra one or two zeros on the back. If your narrative is right, and it's a very, very different game than how VC was played in the past, it's.
- [10:55]
Michael Parek
Billions of dollars in fees per year.
- [10:59]
Howard Morgan
Caller Howard Linson, nice of you to join us. Howie. Riverside. Fuck you, Riverside. No, seriously, you Riverside. I know you're in. Anyways, welcome.
- [11:13]
Michael Parek
There goes that sponsorship deal.
- [11:17]
Howard Morgan
Crap piece of site.
- [11:20]
JC
I'm so just email me about how great it is and how it's so much better than mine.
- [11:24]
Howard Morgan
Yeah, it's, it's. Well, yours is simple zoom and obs the but anyways, boys, when do the LPs care? Frank? Like, we could, we can make fun of this all day long, but doesn't matter what we say. The LPs are being dumb.
- [11:44]
Michael Parek
Or most LPs I talk to, they want to go direct now. It's like, I mean, but they're also. They care and they don't care.
- [11:51]
Howard Morgan
Raising these rounds, these $5 billion funds, if the returns aren't going to be there.
- [11:56]
Frank Rotman
Yeah, again, I think it's back to narrative backwards investing. It's about creating generational companies. It's about the power law and the exception rather than the rule. It's about the new S curve that everyone can kind of hang their hat on and say, there is something happening here globally, and there's no doubt that some gigantic generational companies are going to be built based on what's happening in the AI ecosystem right now. And when you have the promise of building multi, let's call them decacorns or even $100 billion plus companies, you don't really want to miss it. And if you end up being kind of in the kingmaker position for a lot of these companies because you have the capital and you have access to the GPUs and you know, you can see and spot the trends because you're seeing everything that's happening, then at least there's a narrative behind the money flowing in. And you're not going to know whether you're right or wrong for 6 years, 8 years, 10 years. Like it could take a really long time for this to play out. And I'll tell you, like it's a game that I, I'm not very comfortable with. This is just me personally, you know, if we have a write off of 10 million or 15 or 20 million dollars, like it hurts to my core, you know, I can imagine what it would be like, you know, investing hundreds of millions or billions of dollars in a company and then getting it wrong and having to write that off. And I think that's going to become a lot more the norm, you know, when you're taking these gigantic swings to build generational companies.
- [13:21]
Michael Parek
Well, it's a good segue I guess on Nvidia the they obviously had very good earnings. The core thing I would say on Nvidia is that, and again this is not a stock recommendation, but after 30 years of watching technology, etc. This, this is the one company, especially founder CEO Jensen, the execution is just impeccable so far. And everyone asks when is this thing over? When will people migrate away from Nvidia chips? From where I sit on a fundamental bottom up watching of how AI is evolving and to Frank's point about narratives, this narrative on AI on a fundamental basis has barely gotten started. Nvidia's positioning on what they built on hardware and software stacks. Cuda I've written big posts on this like their software mode, et cetera, their game is just starting. And on top of that, Nvidia Jensen has done a marvelous job of making sure his top customers, which are almost 50% of his revenues, each spending 10, 20 billion dollars a quarter to build all these data centers. He's getting them to make bigger and bigger data centers with his latest chips. And that gives you, gives him a Runway. That's at least three years in the context of his quarterly models. And I've had a post up yesterday called Supersize it. Basically about a year ago, everything OpenAI did or Microsoft did in terms of large language models, you did it with maybe 10, 20, 30,000 GPU data centers. Today the benchmark is 100,000. Elon just built 100,000 GPU cluster in Tennessee and Jensen helped him get the chips and talked him up in terms of how fast he did it. Meta is doing the same thing. In the next six to eight months you're going to see these data centers go up to 2, 300,000 GPUs to give you a sense. 100,000 GPU cluster is $3 billion. That's just for the chips. If you add the power and the cooling and the data center and the bare metal and the real estate and all that, that's $10 billion. And the only supplier is Nvidia. There are a lot of other competitor options. Each one of his customers is building big chips, but it'll take years to do that. This raises Nvidia's to lose. So Nvidia continues to be in the pole position on AI. Number one, he's supersizing his customers. Number two. And number three, the actual work of the AI building is just barely. It's. We ain't seen anything yet. It's just getting started. We're going to figure, we have to have to figure out how to use this compute, this intelligence. But there are 8 billion people who will have lots of applications for this, most of which have not been invented. And this November 30th, right around Thanksgiving is the second anniversary of ChatGPT. And ChatGPT is this is the hottest app that we've seen with AI. And it is just the beginning of the beginning. ChatGPT is not for most people, most mainstream people, it's for early adopters. And good news, there are tens of millions of those. So that's why ChatGPT is so big. 300 million users a month. But we need billions of AI users which will happen over the next three years. But for that we need the compute. For that we need Nvidia chips. We need it not in hundreds of thousands of chips, we need it in millions. It takes a while to put the data centers in and that's over the next two or three years. So Nvidia is in a good place. Jensen continues to execute.
- [17:10]
JC
I think that semiconductors continue to struggle. Right? It's been really difficult for investors and semiconductors. New 10 week lows today relative to the S&P 500. Nvidia was really the only party in town. While a lot of these others have been struggling, there's no evidence at all that struggle city ends anytime soon. Technology in general, like we look at semiconductors 10 week lows today on a relative basis you've seen a lot of rotation industry group rotation within the sector of technology out of semiconductors into software. Software stocks are definitely the leaders within tech, but a small segment of the group which was why most of technology continues to struggle. New three year lows last week in small cap tech relative to the rest of small caps and semiconductors. Really struggling here as well. So I don't see if you, if you look at the long term chart of technology relative to the rest of the market, this one goes back to the dot com bubble highs. It should be no surprise that technology has been a massive underperformer since first getting back to those March 2000 highs. Right. Like I don't think that this is a coincidence that Struggle City has started in our first time back to those dot com bubble highs. So I think that the underperformance from technology is probably here to stay. I mean it's hard for me to argue on a bullish technology, mega cap technology. You know, we might have some bounces and it could be choppy, doesn't mean it needs to crash. Could be choppy, but the, the leadership is elsewhere, not in tech.
- [18:49]
Howard Lindzon
Okay. Speaking of the relative, relative performance and you're really talking about tech relative to the broader market which by the way, S&P 500 and the total market index are making all, are making all time highs. VTI closed at an all time high. It's a Vanguard total Total market index. ETF closed an all time high yesterday and you're seeing tech going lower. But speaking of just sort of this relative view of the world, comparing apples and oranges, over the past week we've had this incredible, this incredible phenomenon playing out. We see it every once in a while where you have two assets that are comparable. Assets get really out of whack with each other. And I'm talking about microstrategy and the price of Bitcoin. And MicroStrategy is really levered to the price of Bitcoin because they're just buying it like crazy and you know, go. I mean, I mean my first memory of this limits of arbitrage is sort of what the behavioral economists call it, going Back to like 3Com and Palm. Michael, I'm sure you have plenty to talk about there on that one. But here's this chart of microstrategy to bitcoin. This one I think is before today because we're seeing a little bit of unwind. Although bitcoin's down too. But jc, why don't you just, why don't you just take us through this and then with the, with the rest of the group, we'll have a discussion about sort of the behavioral components of what's happening here.
- [20:25]
JC
Yeah, I mean, listen, you've seen massive outperformance from microstrategy over bitcoin. You could see it was the opposite before. And then as soon as they started incorporating the Bitcoin strategy four years ago. MicroStrategy has outperformed every single stock in the S P 500, every single one, including Nvidia, since incorporating the strategy. And you could see this major base. So the question becomes, is this the beginning of this, you know, the greatest strategy in the history of the stock market? Literally earning more money faster than anybody in the history of the stock market? Is that what this is? Or is it really just a bitcoin? It's really just a bitcoin play. Throw up slide 10 there where you can see MicroStrategy overlaid with the price of Bitcoin. It's really going to be that, you know, bitcoin sells off. MicroStrategy is going to get hammered. Bitcoin does well. MicroStrategy is going to do even better. It's really just a high beta play, basically, like a 2-2-2x the price of Bitcoin. And then, don't forget, it gets better. Like, you know, that commercial. But wait, there's more. Then you have the 2x leveraged microstrategies ETF. So now you're essentially getting a 4x bitcoin. What could go wrong?
- [21:39]
Howard Lindzon
Beautiful.
- [21:41]
Howard Morgan
This goes to the Nile. Just. I don't know if Frank touched on this. So again, Phil, you dropped off. You got to get your WI FI fixed. That's not Riverside. That's you. But, Phil, we kind of jumped. We jumped in Nvidia. I want to go back to make sure we covered Frank's topics. So, Phil, just. We. We were. When you turned off.
- [22:03]
Howard Lindzon
It's a perfect time to bring that up.
- [22:04]
JC
Beautiful.
- [22:04]
Howard Morgan
Okay.
- [22:05]
Michael Parek
It's all good.
- [22:06]
Howard Morgan
All right, Frank, go ahead.
- [22:08]
Frank Rotman
Yeah, so look, MicroStrategy is making something easy to buy that's difficult to buy for most people. Now there are new vehicles that are coming into the market with ETFs, etc. Etc. But I think there's a narrative around this that people are buying into. And the narrative is one that, you know, you can unwind very, very easily with logic, right? Like it is irrational to own MicroStrategy versus Bitcoin. You know, if you own the bitcoin, you basically can get two for one, you know, relative to MicroStrategy. But being part of the cult of microstrategy, being associated with it, being able to, you know, I hate to say it, but be the schmuck at the dinner party that talks about, you know, Michael Saylor and talks about MicroStrategy and being an investor in it. And how he's a genius and how he's spotted something that no one else has ever spotted and how it's the best performing stock, blah, blah, blah, blah, blah. Like there's a narrative around that that's attached to the stock that is more than the stock itself. Now, I'm not saying this is rational. I'm saying that it comes with the territory of investing in microstrategy. It's something that's easier to buy. People know how to buy it, they know how to get leverage on it, they know how to do a lot of things with it. So it's a package and a container. But it's also a narrative associated with it as well. And I think that can't be lost.
- [23:32]
Howard Lindzon
Go ahead, Michael.
- [23:34]
Michael Parek
Look, I've been directed on the show, several shows in a row on crypto and bitcoin, et cetera, on a fundamental basis. I love technology and I understand technology bottom up. I understand the technology behind crypto and bitcoin, I love it, the potential, etc. It's been 15 years, we haven't seen one mainstream app around this stuff other than trading and making money. And it just goes up into the right when there's political elements that say, oh, this is going to be a reserve currency and all of that. A friend of the show just sent me a thing that said these guys are getting high on their own supply. It reminded me of the movie Scarface. Everyone is just celebrating the bull momentum here. The charts are up and to the right. We've seen this time and time again for thousands of years. I mentioned the tulip thing and JC pointed out that was one cycle. This is hundreds of cycles. They're just meme coins, bitcoin, microstrategies, et cetera. And fundamentals matter, as you said, Frank, the dinner table, the bull case is, oh, it's going up. And this guy's so smart and he's made more value than Jensen, etc. Horse, Bucky, I mean, Jensen stuff that, those chips and so on. There is absolute real narrative. Real narrative, Frank. There is real narrative and fake narrative. And I just want to point out the difference when we talk about these things.
- [25:03]
Frank Rotman
So I wrote something on this today, actually. Thank you. I will read it called what is Value? And it's actually a highbrow philosophical thing about money and value and how we can ascribe value to anything that we want to ascribe value to. And I think that there's a big difference between a company and a company is designed to manufacture products or services at a lower cost than they can actually distribute it and sell it for. That's the whole point of business, is to capture the value in between. And if you have a machine that can do a lot of that and can do it durably, that's great. The machine is worth a lot of money. But we can ascribe value to anything that we want to ascribe value to as a society. You know, and, you know, if we decide something is worth something and collectively as society, we say we're going to use that as a store of value, we're going to use that to be able to trade, then it's not up to you or me to say, look, it's not a company, it's not a value producing it. It's not a cash flow producing asset. But it is something that collectively as society, we've agreed, has value. Now, bitcoin to me is much more interesting at 100,000 than it was at 300, because the collective belief in what that thing is is actually more interesting now because it's now entered society. And we say, look, this now is a vehicle for trade. This is a vehicle for a store of value. This is something that we can all agree that if things go wrong in country X and country, you know, people in country X want to move to country Y, like, they have the ability to take their value with them because collectively as society, we've agreed that this is a store of value.
- [26:47]
Howard Morgan
And these all come along. Mike, I think this is what's interesting. This goes to the. I just had to look up nihilism. So, Frank, you've said it. Justin Paterno said it. I'm embarrassed. I didn't know what the term meant.
- [26:57]
JC
But now that Ibowski the nihilist, they believe, said nothing. Lebowski, they believe.
- [27:04]
Howard Morgan
We've seen this play out over the last few days. I don't know if we saw this with pumped out funders. Seems like the founders are nihilists. But enough isn't enough, right? It's not enough that they're making a million dollars a day. They got a live stream lunacy on top of it. All right, that's nihilism to me. But going back to this, this is all also happening at a perfect time, right? You had this, the money printing. You had the sloppy LPs, you have the sloppy VC behavior. You have this. It's not just happening in. In bitcoin, Mike. It's happening in AI. It's happening in creator economy. How many hundreds of millions did Andreessen and co. And these knockoffs in creating another Facebook just for Rihanna or just for Taylor Swift, like Facebook wasn't good enough. We'll create a new one with a whole new like system. So this has been going on for three or four cycles. It started with Web2. And what made Web2 fun was we were coming out of a bear market. So no one believed, right? YouTube came out, this won't work. Twitter came out, this won't work. And by 2016, it wasn't that this would work, it was that this can't not work. And that's when SoftBank came in and started pricing things insane and bullying money around. This was like the perfect storm beginning. And then it wasn't just that SoftBank did it. Everybody predicted SoftBank was the top because we had never seen anything like that stupidity. And guess what happened? They turned out to be halfway there. Meaning people started copying SoftBank. Right. And so it's not surprising to me that not only do we have MicroStrategy, we have MicroStrategy. U M S T R U. Because good traders would rather trade something with even more volatility than MicroStrategy. So, Mike, this is just. This goes to Frank's point, because this is why I love talking to Frank. This is like. This just keeps building, right? Like, we thought 2016 was silly, we thought Covid was silly, we thought Trump 1.0 was silly, we thought Trump 2.0 silly. And now we enter this era of not all this liquidity, stupidity, degenerate economy. You also have a new real time economy brewing on top of this, which is not Twitter. Twitter's dead. People can make fun of us for saying Twitter's dead. You know, it's not dead. Netflix and Spotify, their ability to funnel people to an event that can be gambled on, watched. We have coffee. So as much as I like. And this is where JC can go to the market breadth, spreading out. Not only we have silly in one corner of the market, but the financials are breaking out and biotechs and discretionary and biotechs can't be killed, even though RFK I want to kill them, right? And vaccines are bad.
- [29:58]
Frank Rotman
People end up.
- [29:59]
Howard Morgan
So it's really kind of the weirdest. Sorry, Frank just finished up here. It's kind of the weirdest thing I've ever seen because everybody's behaving in a. The whole game seems to be different because all the players seem to have bought into some narrative that whoever is the better storyteller gets the mic. If you're A great storyteller like Joe Rogan, you get the president on. If you're a terrible storyteller, you have no shot. But if you're a great storyteller, it's not just MicroStrategy, it's Palantir, $150 billion company. Alex Karp has been an incredible storyteller the last two years, and quietly selling five. I don't blame him. Sold 400 million worth of stock. So it's not just Bitcoin, it's real companies. In Web two, it was Salesforce. Benioff told a great story, and he backed it up by buying the future with acquisitions. Then along comes web 2.0, and you could back it up with, like, unlimited growth. Uber would. You would. You would Download Uber, and 10 other friends would download it because you showed them the app. Robin. You do a trade on Robinhood, share it on Reddit. Ten people would do that. That ended. And we still have companies priced as if they're going to have negative customer acquisition rates. So it's just like everywhere I look, there's lunacy.
- [31:21]
Frank Rotman
Yeah. So this is human nature. I mean, we're all playing games, right? It could be a game in the stock market, it could be a game in life. It could be a game with your family. I mean, everything is a game. And, you know, there are rules to the game, and people try to understand the rules. And when they. When they're playing a game and they can understand the rules and they believe they can win with those rules, then they behave rationally. Right? Because they say, look, this is a game that I think that I can play. I think that I can win. You know, I can. I can end up where I want to end up. But when there's a game that you don't understand the rules or you don't think it's winnable, that's when nihilism comes in, and that's when things start to break down and become irrational. And that's where you're seeing people saying, wait a minute. If I just follow the playbook, everyone is telling me I lose, Right? So if I go to school and I do the things I'm supposed to, and then I go into the workforce and I get a job, and then I'm working, you know, a job that I don't like, and then I can barely pay my bills and I can't afford a house, and, like, I just don't see that this is a game that I want to play and I don't know how to win it, then Everything breaks down, right? And that's financial nihilism, like at its core, where they say, look, I don't want to play the game everyone is telling me to because I'm destined to lose. So let me play a different game. You know, let me play meme stocks, where, guess what? It has nothing to do with the fundamentals because I might be able to win that game. And I can have fun doing it. And I can yell at people and scream and do all of the things that come with it. And I can have a social experience so that even if I lose, I'm losing with a bunch of other people. And we can laugh because we're going to lose anyway. Like, it doesn't really matter. And when you, when you think about a lot of these extraordinarily high risk trades and a lot of the vehicles that are coming out and the betting that's happening, you know, people are moving away from fundamental investing because they don't think it adds up to, like, a game that they can actually win. So, you know, I'm in a lot of these crypto groups and NFT groups and meme coin groups. And for me, like, I'm. I'm the old guy that thinks more like Charlie Munger, you know, than, you know, all of the new guard people. Like, I think in terms of cash flows and I think in terms of companies. And people ask me, they're like, where's the next hundred x coming from? Where's the next hundred x? 100 x? And I say, well, if you can find something that can compound value at 20% a year for 25 years, like, there's your 100x. And they laugh at me. They're like, no, I mean by tomorrow, like, where can I find the hundred x that, by the way, we're here.
- [33:57]
Howard Morgan
Where can I find one of those for tomorrow?
- [34:00]
JC
Right, but it's like one of those.
- [34:02]
Michael Parek
That'S as old as time. People have always wanted the fast fix. It's the oldest thing on now.
- [34:07]
Frank Rotman
You can manufacture them. You can create narratives together.
- [34:13]
Michael Parek
Yes, but that doesn't mean anything. There are more atoms than there are sand on the beaches of the thing. Manufacturing doesn't mean anything. At some point people will say it doesn't make sense. I grew up in Kuwait. Okay, look up Sukhalmanak. There was a shopping mall and each stall was worth hundreds of millions of dollars for a bunch of years. In Kuwait, one of the richest.
- [34:34]
Howard Morgan
I remember that. That was in the 70s or 80s.
- [34:36]
Michael Parek
70S. It was before I was there. You know, my dad Lost his shirt. And he wasn't even trading. He was collateral damage because he had business dealings with somebody who got wiped out. And my point here is that. And they were manufacturing more shopping malls like they could because it was easy. And my point is, yeah, you can manufacture anything. Digital is fine, but please don't forget. To Frank's point, the way to make money is a Charlie Munger way. You got to look for the value. It's being patient.
- [35:08]
Frank Rotman
You know, that's investing versus.
- [35:11]
Michael Parek
But when we have a generation, we have generation of people in a bull market because we come on the show and we celebrate. It's a bull market is. Charts are going up into the right. That's why I'm the, I'm the, I'm the, I'm the person who says, hey, watch both sides. Because when, when it's excessive, we need to call out the other side that things are a little bit.
- [35:31]
Howard Morgan
Mike. I mean let's, let's, let's, let's do. You did a great job last week. Everybody was fooled, including me. I called my mother and said I pissed off Michael. My Michael said, you know, my, my mom called me, you know, a couple of names and she said, as long as you were mean to Phil, then I forgive you being, you know, causing micro ruckus. But I honestly think on this show, and look who we got on this show when Frank was last on Panic with Friends. The reason I bought Frank on Panic with friends in 2021, because we knew it was a nut job then. So you also have to read between the lines. If you're smart enough to watch a show and the show's growing in audience, you're smart enough to know that we can separate being in a giddy mood from acting giddily. Right? True Zen. True Zen comes from looking at the market and doing nothing.
- [36:19]
Michael Parek
No, I agree, Howard, I agree. It's just that when I, when I am in an Uber and I've got a 25 year old saying that I know it's a major.
- [36:28]
Howard Morgan
I'm getting more of those with that signal.
- [36:30]
Michael Parek
I'm getting more of those.
- [36:31]
Howard Morgan
When we get a person like Joe on the show and we let him riff, I mean there is, there is a case to be said for these people playing this other game.
- [36:39]
Frank Rotman
Yeah, it is.
- [36:40]
Howard Morgan
I think where the trouble has crept in here is the so called professionals are doing the exact same thing as what they say the amateurs are doing.
- [36:50]
Michael Parek
Thank you.
- [36:50]
Howard Morgan
And I think that's, that's always what Stock Twitch was about, is like it was a Piss on that. You know, twitch is a British word, but it was a piss on. Who are the experts?
- [37:00]
Michael Parek
How would you put your finger on.
- [37:01]
Howard Morgan
They know who the experts are. They're on the show. There's Phil behaviorally, there's jc, top down, macro money flow. And there's Michael Parek, one of the smartest guys I've ever met. So whatever that's worth. And you have the resume to back it up. When we have guests like Frank on. Frank agrees to come on the show because he says, you know what? I know what, I trust these guys and we're going to talk about everything under the sun. But we have entered this weird. And people are lucky. They can go read Frank for free, or Phil for free, or JC for free, or you for free. But we have to be able to flesh this out and laugh too, because the behavior is laughable. What I see as nihilism, it hurts me. Right? Like, it hurts me. But I also understand what Frank's saying. Every time I walk in to buy nerds because I'm addicted to nerds, because somehow the fucking candy companies figured out how to turn candy into vaping. I see people buying the fucking Powerball and I'm like, how is this any sadder than the Powerball? This is just an extent.
- [38:02]
JC
Yeah.
- [38:02]
Frank Rotman
I think there is a.
- [38:04]
Howard Morgan
Sorry, Casey.
- [38:05]
JC
The tax on the stupid.
- [38:06]
Frank Rotman
Yeah, so I understand.
- [38:08]
Howard Morgan
So how is this nihilism any more nihilistic than the government's tax on stupid?
- [38:14]
JC
So again, because you can analyze trends here versus just.
- [38:18]
Howard Morgan
I agree. Every time I see a guy at the. At the store now buying a Powerball, I go, dude, download Spot Dog and blow your brains out. And they go, what? And I'm like, these people can't even get their. They can't even get their nihilism right. They are still playing a game that is attacks on stupidity versus a game that's potentially at least something that you could learn and not be the dumbest guy in the room. But again, probably all stupid to talk about. At least we talked about it. And I think the underlying thing of this market is surprisingly. And we should probably get to it at the end. Phil, when I leave is, how does this play out in the end? Is Trump 2.0 the end of this? Are we another Germany? Are we going to inflate this thing? And everybody leaves the room and we're left with zero. I mean, we all have to have that discussion at some point is like, how much is enough? And when does the. When do we all get caught in this? In this drain of nihilism that's happening in the market. But I'll send it back to you.
- [39:19]
Howard Lindzon
Okay, let's go to the most interesting chart in the world because it addresses this perfectly and I'm going to let J.C. walk through it. Earlier in the week Willie Delwich posted this chart and basically it cuts through all of the nihilism that we are discussing. The name of this program is Trends with Friends. We know that trends are something that we can quantify and then we can build rules around. So we post this chart. We've been in. We've been above a rising 200 day moving average for 369. 369 trading days. That is not nearly the longest stretch. So we know that it can go on a lot longer. JC why don't you just walk us through this and tell us what's going on here from, from your point of view.
- [40:17]
JC
Yeah, no, there's a, there's a chart from our, our friend Willie Delwich which is basically measuring if stocks are above their 200 day moving average. Very simple. And there's nothing magical about 200 day. Could be the 205 day, it could be the 193 day. But generally speaking of a stock or in this case an index is above a rising 200 day moving average, it's probably not in a downtrend. I mean it's just kind of like a very simple way to do it. There's a lot of other ways to do it. This is a very simple mathematical way to do it. You could play with it, you're gonna get the same data. We're in an uptrend, we know and this is just further evidence of that. Also from a breath deterioration standpoint, taking this one step further, the market historically doesn't peak when things are the best. In other words the indexes, the market overall continues higher for some time despite weakness underneath the surface and breath deterioration. So the fact that we have close to the most amount of stocks on the New York Stock Exchange making new 52 week highs above their 200 day moving average. Small caps made new all time highs. Transports made new all time highs. The Dow Jones Industrial average S&P 500 all making new all time highs. And we had the most amount of stocks on the New York Stock Exchange hitting new 52 week highs that we've seen in three years. Same thing on the NASDAQ by the way. So we have yet to start the period of breath deterioration which could take three, six, nine months before the major indexes peak. We mathematically haven't even started that process.
- [41:49]
Howard Morgan
Yet, so I think so.
- [41:50]
JC
Bigger picture, Steve.
- [41:51]
Howard Morgan
Thank you. This is really what makes me happy to tune in, even though we get silly sometimes, is I want out. I'm 60 years old, Frank. I'm fucking sick of the game. I just saw Fred Wilson. We were having good laughs. We work really hard. Saw Roger Ehrenberg. I saw Howard Morgan. I got to sit with people that have been through. They have seen things like you, Frank, and Michael that, you know, I hope I don't see. And so I'm looking for J.C. to just tell me. I'm. I got one and a half feet. I got one foot. Half a prostate out the door, by the way. I just said prostate, and I have to pee, so I'm gonna run, but I got one. There was some divergences showing up a couple weeks ago in the indexes. Got a little nervous. JC said, don't worry yet. I watching what happened and pumped on fun the last few days. I'm sick to my stomach. I feel like we've lost our way. I feel like everybody's at Mar A Largo getting their share right now. But the breath. I mean, I don't want to let the price get in the way of what's happening. And the price says. I'm waiting for JC to just say, get worried. I'm fully worried from a nihilistic standpoint, but I'm zero worried based on the price action of what I'm seeing. So it's just one of those, like, weird moments in time for me.
- [43:20]
Michael Parek
It's like, Howard, I just want to underline. One of the key things you said today was the. It's at the core of what's worrying me as well, which is that the professionals, the big guys, are basically endorsing. They're all in. They're all in. And that's the worrisome aspect, right. When you mention previous trends, that is a. I don't know how to encapsulate that. And I'd love JC's advice. I mean, I don't know how to capture that in a chart, but we don't see that often. It's like the only other shoe to drop is Warren Buffett saying he bought $20 billion of crypto or bitcoin at this point. But I'm just saying that that's almost where we are. It feels like that. And. And.
- [44:05]
JC
It doesn't suggest that things are frothy at all.
- [44:07]
Michael Parek
No, no, I'm talking about the big guys, the professionals.
- [44:10]
Howard Morgan
Phil. I Gotta hop. My phone is on fire. Frank, sorry. And Mike, sorry for the technical difficulties on my njc. See you guys.
- [44:16]
JC
Thank you, Howard. We love you.
- [44:18]
Howard Lindzon
Adios, buddy.
- [44:19]
Michael Parek
Peace.
- [44:19]
Howard Lindzon
I just, I just have a comment about this and, and what JC's doing here and what Willie did was they are adding order to an apparently disorderly or chaotic or entropic world. And the beauty of it is, is that you can really distill it all down to a few simple rules. Like if we break below the 200 day moving average, going back to Marty's wig.
- [44:49]
JC
That'S a PTJ thing.
- [44:50]
Howard Lindzon
Paul Tudor Jones, the same thing. I remember Zweig talking about it on Wall street week back in like 19 bada bing. And. And so it adds order to the world. I mean, if we want to be. If we want to look at the nihilistic side, we want to look at the entropic side. We can go back forever. You know, the philosopher Yates, it's been 105 years since Yates wrote the center cannot hold. And the beautiful thing about what Willie does and what JC does is they add order to the world. And we can live in a universe. We can, we can. Our mind is fantastic. We can decide that the universe does have order. And we could just say, okay, we're going to, we're going to. We're going to make it simple. We're going to add order to it. And there's nobody that can tell you that that is false relative to what we're talking about before, which is also hugely relevant. I mean, there is so much insanity. Michael. My, my, my hypothesis would be that the adults were never adults.
- [46:00]
JC
They were.
- [46:01]
Howard Lindzon
There's never been adults. They're always. The pros. Have always been subject to the same emotional, you know, the same emotional whims that. Well said that the retail guys that the smallest. That your cab, your Uber driver, and.
- [46:18]
JC
The ego Perlman might even be more fragile.
- [46:20]
Michael Parek
Correct.
- [46:21]
Howard Lindzon
Might even be more fragile because they.
- [46:23]
Michael Parek
Have more fragile invested in.
- [46:25]
Howard Lindzon
This is, this is the hat I wear. This is my profession. I'm an expert. I'm running hundreds of millions and billions of dollars. Right, Right. Okay.
- [46:33]
Frank Rotman
When, when, when you're winning, you can take risk, you can do things and look silly. You know, you can build a track record. You can have people throwing money at you and say, look, I'm going to do things that might look silly on the surface, but you're going to trust me because of everything that I've done for you in the past. And then when you stub your toe doing these Silly things that we're talking about the professionals investing in a very strange way, it's just a correction. And then they pull out of what they were doing and they go back to playing the game that they know how to win. Back to fundamentals and hopefully you get another long stretch where Darwin is back and you say, great, we're going to evaluate things the way we did before because that was working for us. And that's where people are patting me on the back because I saw success. But when you can succeed doing irrational things and doing rational things, like you're actually going to do both. And by the way, sometimes people who have been playing a really straight game for a long time, they find it fun to do something a little bit different. They find it intellectually stimulating to do something a little bit different. So I think you go through these patterns and it's kind of like a pendulum that ends up swinging. And I think we're at the point where the pendulum is, is not in the center. Right. Like it's a little bit in the crazy land, you know, and we'll see what happens when people stub their toe when the world comes crashing back and we start evaluating things. Like how far does it swing back in the other direction.
- [48:02]
Michael Parek
Correct. Frank, one of your best coach today. Darwin goes on vacation. Awesome. You're totally right. And we just have to understand that he comes back or she comes back.
- [48:14]
Howard Lindzon
J.C. before you hop, any last words about this?
- [48:20]
JC
I would just sort of reiterate the underperformance in technology. I think nobody's really talking about it. I think people confuse what stocks are within technology and which ones are not. Amazon, Amazon is a big component of the consumer discretionary sector. Amazon is not in any of the technology indexes. So just understand that the strength in consumer discretionary, the strength in communications, mostly consumer discretionary, industrials, financials. And then within here you could see the equally weighted consumer discretionary index just hit new all time highs. So you have these people that are like, oh, the new all time highs in discretionary doesn't count. It doesn't count, JC because Amazon's 22% and Tesla's 14. Fake news. You know, it's too, you know, it's right. This eliminates all of that. Amazon and Tesla may not, may as well not even be in the consumer discretionary sector and it's still making new all time highs. And then on a relative basis, we talked about it for months, we talked about it. They need to step in, they need to buy discretionary because if this bull Market has legs, then discretionary is not going to complete a 10 year top and collapse. Because if discretionary completes a 10 year top relative to the market, bull market canceled, that's it. So if you don't think that bull market's canceled, then you got to reverse engineer that and buy Discretionary. That's what we did and you're seeing it play out. And if this bull market has legs, you're going to see Amazon continuing to make new all time highs. Rotation into Tesla continues. Regardless of any of the fundamental stuff. It's just money flow and the squeeze in consumer discretionary should continue. Long dicks keeps working, right? The old saying, you don't want the short dicks, you want the long dicks. New all time highs, absolutely killing it.
- [50:05]
Howard Lindzon
Hey, I'm getting questions from our chat real with the question about small caps. All of a sudden small caps are performing really well and we're getting a lot of questions. I know there's a January effect. You have a take here in this sort of, you know, into the end of the year.
- [50:22]
JC
Yeah, well it's, it's not that small caps are just getting going. There have been a lot of small caps that have been working this entire time. In fact, small cap industrials have been outperforming all the large cap indexes. So there have been small caps working this entire time. It's just that a quarter of the entire small cap indexes is regional banks and biotechs. There's a ton of them. So regional banks and biotechs are out of favor. Then the small cap indexes are going to have a hard time moving forward. So think about it like that. There are consumer discretionary, small cap discretionary working as well. Small cap technology not working, making new three year lows relative to the rest of the market. So when you think small caps, I would encourage everyone to dive in and go sector specific because there's super wide dispersion amongst returns within the small cap space which is not unusual at all by the way. So be careful when you think about small caps just starting to work. Been working. It's just that the indexes are now making new all time highs for the first time while the mid cap and large cap indexes already work.
- [51:27]
Jason
Jason, are you still seeing strength in the the mid cap area of the market?
- [51:32]
JC
Oh yeah. Oh yeah, of course.
- [51:34]
Jason
I know you were talking about mid caps the last few weeks.
- [51:37]
JC
And no question new all time highs for the S and P Mid Cap 400. The Jan Brady's of the world get don't get the attention that they deserve. But the mid caps are a great space for sure. Continue to work.
- [51:50]
Howard Lindzon
Riley, what's up buddy? You want to give us the love you guys later jc. See you Jason. Riley, you want to give us welcome. Great to see you. Are we out of there? Oh there it is. Trends with no Friends.
- [52:01]
Jason
We got an intro.
- [52:01]
Howard Lindzon
What do you got?
- [52:03]
Jason
Well selfishly I was asking JC about the the mid caps because we're looking at a mid cap industrial today. So Mass Tech is an $11 billion North American infrastructure construction company with 1600 followers on StockTwits. Looking at the stream, they average less than one post a day. So a relatively lower follower count. But even fewer or less activity on the stream. Late last month the company beat bottom line estimates it increased guidance. And we can see on this daily chart here just the steady stair step up into the right and then Kiki, if we can go ahead and take a look at that weekly chart, we can see this massive three year base that Mass Tech is emerging from. So we've already kind of broken out of these levels and it looks like as long as we're above 135, the path of least resistance is up and to the right following that stair step.
- [52:59]
Howard Lindzon
So this so for new viewers, Trends with no Friends is just finding great companies that are trending that nobody's look, nobody cares about. Right, that just has a low number of followers on stock twits. And here you have like the most boring of the boring. Infrastructure Play. Construction company, 100 year old company, 10 billion or $8 billion company. One message per day or less on stock twits. And meanwhile look at these beasts, these chart beasts. It's a great pick rally. Thanks buddy.
- [53:30]
Jason
Mm yeah, especially in this insane world that we're living in with what you guys are touching on meme coins. It's kind of refreshing for me to go through this practice every single day.
- [53:40]
Michael Parek
Keeps my head on waitron.
- [53:42]
Howard Lindzon
This is just, this is just pure value that you bring every time. We're running out of time, Michael.
- [53:47]
Howard Morgan
Thank you.
- [53:48]
Howard Lindzon
I'm Frank, I'm going to give you the last word. But before we go there, Michael, what do you got for us? Last words?
- [53:54]
Michael Parek
Last words on just AI in general. Look, I agree we have to separate the financial performance of these things from the fundamental and that's a very tough thing to do. So what JC said in terms of semiconductor charts, etc. Those are all, those are market actions in terms of today's near term perceptions. The longer term perspective, perspective on AI is that lot needs to be built and we're going to find lots of use for it. But at the same time we're not going to get immediate gratification quarter to quarter when you look at SMH for instance on semiconductors across the board. But when we have these air pockets, etc. If you're a long term investor, it helps just adding for the long term kind of thing, not stock advice.
- [54:35]
Howard Lindzon
Got it. So you're waiting long term perspective pendulum to swing back a little bit. Frank, great to have you. Any last words on the program?
- [54:43]
Frank Rotman
Yeah. The only thing I'll say is living in both worlds of fundamental investing but spending a lot of time with, you know, people who are trying to figure this out for the first time. There's a difference between speculating and investing. They are not the same thing. Know what game you're playing? You know, if you're investing it's about finding a source of compounding value and then letting time do its thing. Right. And speculating, it's not about that. Right. And it's okay. Like that is a different game to play. It's not necessarily a winnable game, but you can win unwinnable games. Right. And if people want to speculate, they can speculate. But don't conflate the two. You know, those are very, very different things.
- [55:23]
Howard Lindzon
Perfect summary wrap up on for today's program. Thank you again for being here. Thanks everybody for tuning in.
- [55:31]
Michael Parek
Michael, have a great Thanksgiving.
- [55:33]
Jason
See you guys.
- [55:34]
JC
Happy.
- [55:35]
Michael Parek
Great Thanksgiving everybody.
- [55:36]
JC
Beautiful.
- [55:37]
Howard Lindzon
Adios.
- [55:38]
Michael Parek
Wonderful. Thank you.