Odd Lots - Why Tom Lee Thinks We Could See S&P 15,000 by 2030

Episode Date: June 24, 2024

The stock market has had a torrid run in 2024 despite the fact that interest rate cuts haven't materialized in the way people had expected at the start of the year. In fact, outside of a few blips here and there (like spring 2020), US stocks have been phenomenal performers for years. Tom Lee, the founder of Fundstrat and FS Insight has been bullish for a long time, having caught the correct side of this lengthy trend. On this episode, we speak to the former JPMorgan strategist about how he thinks about the market, what he sees happening right now in macro and demographic trends, and why he thinks it’s plausible that the market could roughly triple in the next six years.See omnystudio.com/listener for privacy information.

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Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe, every once in a while, I think it's a good idea to pause and consider everything that's happened in the market and how it actually matched up to initial expectations. Because I think, you know, we're recording this on, let's see, June 18th. P500 is at another record. Meanwhile, 10-year treasury yields are at what, like 4.3% now. And I think

certainly two years ago, maybe even a year ago, I don't think anyone would have thought that stocks would rally this much in a rising rate environment. No. I mean, I think this has been, you know, the beginning, the middle of 2020, I'm starting to lose track of the years. parts of 2022, obviously the stock market was total dead money and going into 2023. I think there was a lot of pessimism recession. And that would have been like, well, yes, this is what we expect when we get a rising rate environment. Stocks go down. The economy slows. Maybe a recession happens. And then the market turned around. The economy continued to boom. But it's not like they cut rates or anything. And in fact, the main story has been that rate cuts keep getting pushed further into the

future. Rate cut expectations. Yeah, absolutely. But, But despite the record in the S&P 500 and all these, you know, we keep talking on the podcast about all the lines going up into the right. Yeah. And there are a lot of them at the moment. There's some nervousness in the market right now. I think that's fair to say. So you see a lot of people, for instance, talking about the lack of breadth in stocks.

Yeah. Look, if you're an S&P 500 index fund holder, then there's a lot of conversations you just turn out. So it's like, oh, there's lack of breadth. It's like, yeah, whatever. Man, my, my ETF is up 15% through the year. I'm happy with that. You know, like, that's pretty great no matter what. But if you're an active manager, you want to beat the index. If you're worried about, like, durability, you might notice the fact that, like, you know, if you strip out a few really big tech stocks like Nvidia and a few others, returns are much worse. And so that

raises all kinds of anxiety. Is this entire thing just sort of hanging on endless demand for chips to run AI models. Absolutely. So today, I am pleased to say we do indeed have the perfect guest. You know, I said in the intro that almost no one would have expected stocks to be where they are. This person did expect stocks to be where they are currently. This person is one of the few that I can think of that has basically called a lot of the market right over the past year or two. So probably someone we should talk to. Yes, absolutely. So we are going to be speaking with Tom Lee. He is, of course, the co-founder and head of research at FundStrat Global Advisors and FS Insight. Tom, welcome to the show.

Thank you very much. So I know you're sometimes described as an Uber Bowl. Is that a fair characterization of how you feel about markets? I think that label is not reflective of how I feel about markets. I think that label is generally used by perma bears who've been perma wrong. and it's a cheap shot taken. Okay, but I get that it sounds like a cheap shot, but on the other hand, Uber bowls or permoboles

historically have like 100 years of lines going up into the right on their side. So my view, when I hear someone being described as a permable, is, oh, this is someone who, except for like five minutes here and there in 2020 and 2009, is permacrect. Yeah, I'd say so. I think people don't live. in those longer time frames.

You know, in the day-to-day, people live as if this is a street battle. And the label Uberble is like someone, well, you know what? He might lead us out, but I don't trust him because we're in a street fight. And so it's generally, I find people saying it more as a cheap show. No, the people who say it are all really obnoxious. That I agree. I didn't mean to be obnoxious. Wait, did you just call me obnoxious?

No, you described. When you said it, you were characterizing other people. Yes. Well, I feel like we should give people. I take no offense. Okay, excellent. I feel like we should give people the opportunity to describe their own work. But why don't we talk about something concrete, which is at the beginning of this month, Tom, you at Fundstra put on an S&P 500 target of 5,500. We're at about 5,475 or something like that right now. So just in that short time frame, you know, called it correctly. What did you see? this is actually a textbook rally at the start of this month we alerted our clients that since 1927 when you look at the start of June but markets were up in the first quarter but then had a

drawdown in April which is what we had yeah that happened 11 times 11 of 11 times June was a positive month so may is essentially a recovery month, and then June is the month where markets go back to risk on. The median gain since 1927 is 3.9 percent, which calculated a 5500. There you go. Simple math. Investing made easy. But zooming out, you're at FundStra for years prior to that, you're a JP Morgan. I was a big fan of your work then, correctly calling for much higher stock prices through much of the 2010s when, you know, there were still a lot of people calling for double dips and the sort of rise of a pretty large, bearish contingent. How do you work? What do you do? Because there are all different

approaches that people have towards, you know, making educated guesses as to where the stock market could go. How would you describe your approach? Well, fundamental to our process is evidence-based research. So, you know, at the core, we really try to frame where history could explain where we are today. We rely on a lot of cross-market signal. So to us, the bond market is always smarter than the stock market. That's why they say equities are the land-to-see students. And the third is, of course, monetary policy is really the driver, so you can't fight the Fed. And then I think the fourth is that thematic approaches surpass cyclical approaches. What does that mean? Well, part of our work relies on what we call like thematic drivers. One is millennials. So that's since 2018, we've talked about

how millennials, which is the largest generation, are reshaping the economy, which they are, mainly through fintech and, you know, changes in preference. But of course, now coming is a big generational wealth transfer of, you know, as much as $80 trillion. The second, of course, is that there is a huge global labor shortage, which has started in 2015 and won't be resolved until 2035 and the two previous instances of global labor shortage resulted in a parabolic move in technology stocks, which has been part of our thematic approach. And now we see two other things like energy security and cybersecurity are huge thematic drivers, especially because of AI. And so this grounds our work. We not only use it to judge markets, but we use it to build

our Granny Shots core stock portfolio, which is a thematic portfolio. Bix the strongest stocks within each theme. And that has outperformed every year since 2019. I'm trying to think how to phrase this question. But what do the strong themes mean for the overall market? Because I think everyone would agree that stuff like AI is interesting and promising, maybe a little overhyped at this point, but you could make the argument that there is potential there. And yet, you know, we've seen the S&P 500 as a whole go up. And the there is that argument over breadth, like how much of this is purely AI and the stuff that people are getting excited about versus general optimism about the market? Well, I mean, if I look at the stock market, I think it is playing out with all the things you just mentioned because the groups that are affected by high and tight monetary policy have really lagged, whether it's the regional banks or industrial multiples are being suppressed.

And we know that the spend and actually now, some of the synergy coming from AI is driving not only the producers of AI like Nvidia and some of the software companies, but in many of the companies that are leveraging this for revenue growth. So I think it is playing out. But overall, I think it's on balance a healthy economy because companies are generating good earnings growth and the labor market has come back into balance and consumers aren't highly levered, which is really the big deal because to me when consumers can't borrow more money because they borrow too much, that's really when the economy hits the tipping point. When it comes to consumer balance sheets just on

this, what do you look at when you say, okay, the consumer is not high levered? I would see discussion. It's like, oh, excess savings gone. People look at total credit card debt. Yeah. What do you look at? Well, I think the gold standard is still the debt service ratio, which the Federal Reserve puts a lot of time into and employs a lot of economists to build. a fair view and the debt service ratio today is still under 10%, which, you know, for instance, before this decade, you'd be in a sort of peak consumer borrowing at the 14 to 16% level. So consumers can, if interest rates don't move, they can borrow 40% more money. I think the cash excess savings is a spurious argument because I don't remember it in my 30

years people saying consumer cycles turn when their excess savings is gone. I mean, that's not really been how the business cycle works. You mentioned 30-year career just then, and I realized I'm kind of unfamiliar with you other than at FundStrat. Can you maybe give us a recap of what you've been doing for three decades? Yes, I've essentially had the same job for my entire post-college career. I started off at Kidder P-Body in the early 90s. One of my old bosses was at Kidder P-Body. David Dwyer?

No, no, someone else said. Anyway, sorry, keep going. Yeah, I got into stock research at that time, and I was working at the sector I was assigned to was wireless. So the first 14 years of my career arc was as a technology analyst covering the wireless industry, which, again, for my clients, many of which I still have from those days, no, I'm not an Uber bull because there were many times I had sell ratings on stocks. But it's not fun to be telling people the shortest stock that they own. That's when they're very angry. And then in the 2000s, wireless was consolidating. And I wanted to find some other things to do.

So I started to do some work on bankruptcy, bankrupts because many wireless stocks went bankrupt. I did a whole piece called the chapter after chapter 11 where I looked at over 2,000 publicly listed bankruptcies. I used our Mumbai team, or at the time we called it Mumbai team at J.P. Morgan. And we went through all these filings and we found that stocks that emerge from bankruptcy do well. So we had a whole strategy around buying bankruptcy stocks. And then JP Morgan asked me at the time if I wanted to become the small cap strategist on top of wireless. So I had two jobs. I ranked in both categories.

And then in 2007, they asked me if I wanted to become the chief equity strategist, which I've been doing ever since. And started FundStrat 2014. So this is our 10th year. Congratulations. Congratulations. Okay, so given your history with the wireless companies and technology overall, I feel like I have to ask you about AI and Invidia and all of that. Is there any common thread or any valid comparison between the AI boom that's happening right now and, say, the internet bubble of the late 1990s and early 2000s? There are a lot of parallels. When I started doing wireless, there were 34 million cell phones. Today, there's $7 billion. So it's a hypergrowth industry that grew almost in parallel with internet because without mobile, you wouldn't really have the internet that we have today.

In the early stages of that growth, so when you look at penetration, Wall Street always underestimates the importance of the technology. And part of it has to do with it's a generational lens. Every new technology is adopted by a young cohort. people in their 20s, teens or even 30s, but most people on Wall Street are in their 40s or 50s. So they're one generation removed. I remembered when our PC analyst at Kidder said, why would you have one computer per household or even more than that because they're $2,500. And I know when cell phones first emerged, people thought it was a yuppie toy and it was

going to be only for people make $75,000 a year. But what I learned as a wireless analyst was teenagers and young kids, especially in your Europe, we're using cell phones. So I used a vintage model saying that if 100% of like teenagers have a cell phone, by the time they're 60, the penetration rate should be whatever it is. That's like

AI, the adoption rate for AI is staggering, but the use case is important because there's a labor shortage. So to me, I think it's very likely we're underestimating how much revenue all these companies will make. I can give you some simple math.

Yeah, please. The global labor shortage by the end of this, just by the end of this decade is close to 40 million worker equivalence. And that's $3 trillion of wages. Okay. We're turning labor cost into silicon or into tech automation, of which we know today, 80% is hardware or silicon. So does that mean whoever is supplying the chips might have a $2 trillion revenue? Probably.

And right now, the largest share of that would go to a company like Nvidia. So if Nvidia is $100 billion in revenues now, by the end of the second, is it an $800 billion a trillion revenue company? And then what should we discount that rate? I'd say there's probably a lot of upside. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen in Moscow here to tell you about our new on-demand news report,

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And they line up the peak so that the peak always happens to be right now. But regardless of the fact that that's largely what knaves and scammers do, it is true that just from an overall index perspective, there is an incredible lot riding on a handful of companies right now, whether it's Nvidia specifically, the Mag 7 more broad. And that, you know, in 1999, there was just an incredible weight on Cisco and Sun Microsystems and Microsoft and a couple of others. Do you see any parallels in the market environment? Yes, there's a lot of parallels.

But there are some differences. You know, keep mine, Cisco sold a $100 box. Invidia selling a $50,000 chip. So the moat around that is much, much greater. I also think to contextualize this, we need to look at the global economy. Yeah. If we're turning labor cost into silicon, then which countries are really the primary suppliers of technology? The U.S., by a country mile, is the only supplier.

So the U.S. is essentially exporting technology now. And that's different because Internet was more democratized. People just put up towers and lead fiber. You can't create your own version of an NVIDIA chip. You have to buy it from NVIDIA. So I think that tech will probably be, you know, 40, 50% of the global stock market weight. Where are we now? That's probably 20.

Oh, wow. It's probably like 18. I mean, you know, in the U.S. it's only 40. And when in the U.S. it's 40, globally it's 18. And you say it's going to go to 40 to 50% globally. Yes, because you're replacing recurring labor costs with a capital investment. Oh, interesting. So you mentioned the net present value of tech stocks just then. And I'm curious, talk to us about rates, the higher interest rate environment and what it means for stock valuation. Because I think this is where people are either a little bit surprised or perhaps a little bit nervous, the idea that even in the higher rate environment, stocks can move upwards.

Yeah. Well, again, I can cite some history and then maybe provide some context. But since 1935, when you look at the relationship between the 10-year yield and forward PE, it is not linear. It is a dynamic relationship. And between 4 and 7%, it is positively correlated. So when interest rates go up, PE rises. Logically, it sort of makes sense because you're seeing it now. When you have higher rates, it's barriers to entry, so the existing companies make more money. and companies earn money on their cash.

So unlevered companies are actually, you know, for Apple, it's like $6, $7, $8 in earnings, right? It's some big number. Actually, with splits, it's lower. And between 4% and 5%, the median Ford PE has been 18.5. And 48% of the time, it's actually above 20. So what is the, what's SNP trading at now? Well, the P.E. The Ford P.E is probably around 18.

Okay. But the median Ford P is 16. What should we make of the fact that a lot of the market is not doing well? So, again, you know, for those of us who are just like the boring, put it in an index fund investors, amazing year, but there are big chunks of the market that doubt is only up 2%. I know or something like that. What should we read? Does it say anything that so much of the market is doing pretty, I guess, mediocre this year?

I think it speaks to a lot of things. One is the market is star for cash. There's six trillion of cash on the sidelines. FINRA margin debt is like 20% below where it was in October 2021. So there isn't a lot of money sloshing in the stock market. I know it's weird because we're at record highs. So if there is money actively trading, it's just buying the high volume sectors, which is tech. From a rates perspective that, and I kind of mentioned it before, like the groups that are hurt by tight policy have really been sucking wind.

So I think if monetary policy eases or people are more convinced of it, then breadth expansion is going to be pretty fierce later this year. What is your outlook for rates at this point? Because you mentioned the strong consumer earlier. But on the other hand, we have seen a little bit of weakening in the labor market. We have seen CPI start to soften, although there's a lot of debate over whether or not that's going to be a durable trend. But what are you seeing? Well, I think inflation, if we looked at historically how people looked at inflation, whether it's the surveys or ISMs, inflation's under control. Because like, for instance, the ISM services manufacturing, the price is paid component is below the long-term average right now.

So at 57, people think 57 means price going up. That's not true. It's averaged like 58 since inception. So actually, price trends are below. where they have been. I think people aren't using history to understand where we are now. And if you look at UMISC surveys, both one year and five-year inflation expectations are below the long-term average. So consumers and businesses in their perception don't think there's inflation. CPI is elevated, but as you guys know and talked about, and many economists point out,

it's really due to two components that are kind of lagging, right? One's shelter and one is auto insurance. And you know the median CPI inflation rate right now is 1.4% year-over-year, it's long-term average is 1-6. Everything except for housing and auto insurance is below trend. Median is when you just look at what each component is doing and some are higher and some are lower, but the median category is 1.14%. Yeah, there's 137 components. Another way to look at it is what percentage of the basket of CPI equal weight is below. their long-term year-over-year growth rate. So take each component and just say, where is it sit?

It's now at 55%. So if it, and the long-term average is 50. So more than 55% of sleep-packed components are below their long-term average. It's considered controlled when it's 50%. We're at 5473. Tracy mentioned your June target. Do you have a year-end target for the market or a one-year target or anything like that? We do.

Well, on the first week of December, 2023, we had said our target for 2024 was 5200, which at the time was almost 20% upside. Now our 5200 is low because we're above that level. Yeah. We haven't changed our target because our practice is typically to do it at the mid-year. Okay. So we're two weeks away. Can you give us a little hint? Yeah, I'd say at the, originally we said

earnings could be 270. Okay. And we'd put like an 18 multiple on that. And that's got you to 5200. 2025 earnings no longer look like 270. It looks more like 285. Okay.

And as I was citing, as interest rates moved up, the P.E. should be higher. So let's say 20 is a more appropriate P.E. multiple or even 21. then you get into the 5,800-ish level. But I think the open question is really, if you're in mid-June and December 31, is it a line up or is there a pullback and then a line up?

And I'm, I would probably, this is not evidence-based, just an opinion. I don't see why it would be straight up. Hmm. Here's something I always wanted to ask an equity strategist, but when you're coming up with the price targets, do the specific numbers actually matter for your clients? Or are they mostly interested in the overall direction? Like line go up, line go down. Well, it's, it's a, do you know, this is a lifelong debate? Because for 30 years, I covered wireless stocks and had price targets. And our salespeople would always say, no one cares about your price. target, but then first thing in the question, meeting people, what do you think, where do you think this thing goes? So they always care about the price target. I don't really value people's price targets, which is 10% above where you are now. Because to me, that's just like, that's like

staying in the middle of lane. And you can't make clients money. So whenever we did stock research, we always had to build a base case on what we think could happen and then discount it at what we think is a reasonable rate. A lot of our price targets seemed really crazy when we did wireless. I remember I upgraded. You can timestamp it. I actually show you Alamosa Holdings at 21 cents and it went to $22. My price target was not 30 cents. It was $12 at the time. And we upgraded Western Wireless at $1.74. Our price target was $25 and it ended up going to $40. So I think we tried to look at a normalized situation and in a normalized world, if this is

a normal S&P cycle, okay, following demographics, I could provide a chart later. S&P should be potentially 15,000 by the end of the decade. So, yeah, so to me, that's the more, as you move into

longer time frames, that's probably where I think we're moving towards. Can we title this episode, Tom Lee, why S&P could go to 15,000 by 2030? Is that cool? Sure. Okay. We have we have many charts to explain that number. Oh, you should send them to us. Yeah, we'll include them.

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I would love to just make this whole episode about the wireless in the late 90s because I have some memory of that period. What are the early warning signs? You know, I think you go back and you start to see things in the accounting that's like some of the sales quality is deteriorating or whatever. And I guess when people look at whether it's the Mag 7 or Nvidia, specifically are some of these other companies that are clearly just benefiting from this tremendous KPEC cycle. They're like, well, they want to like look at the signs. And granted, I know you see a long runway because we're part of the silicon to or labor to silicon transition. But just going to even thinking about late 90s, what were the sort of signs that a company

might suddenly not be able to live up to the hype? And what are the types of things people should look for? Yes, I can cite many. I'm not citing them in the order of importance. Sure. The first is I remembered when investors suddenly said our price targets weren't adequate. So I remember putting a buy rating on a stock and it had 25% upside and they're like, Tom, I can make that in a week. And it was at a time when many people in the markets were famously making $30,000 stocks when they made $10 million in a month. I mean, there were many people I was working with that were realizing trades like that. The second is when analysts have to suddenly shift discount rates to a level that removes all risk.

So the CLEX, for instance, you had to apply a 5% cost of money and you assumed everybody was paying market rate for fiber. I mean, it was that was not possible, but that's you had to fudge it. The third is capital markets. There was so much investment banking activity. There's no investment banking in IPOs right now. I mean, it's a paucity of it. So I don't think you could say there's a bubble even in the next two years because there aren't tons of AI IPOs.

There was so much IPO. I think it was, I don't know if the numbers were staggering. Like it was 40 or 50% of all IPOs were tech IPOs back then. It was some crazy number. And there were like dozens in a day. Yeah, that's right. And they all were doubling or tripling. Wait, but is there an argument to be made that in the current environment there's less incentive for companies to go public?

I mean, we talk about the amount of VC money, the amount of money floating around in private credit. Is it possible that, you know, the money is just private versus public? That has been a change now. If you look at the pre-Quine database, there's more privately held companies than publicly listed. But every company needs an exit. So there is going to be an IPO cycle or there should be a merger cycle. or there should be huge amounts of venture money pouring into this where allocators are fighting over themselves to allocate. I don't see any of that today.

I think there's a lot of skepticism that AI has a lot of hype. Wait, but I did see this is a headline. Again, we're recording this June 18th. This is the headline that ran on the Bloomberg Terminal about an hour and a half ago. Steve Cohen's point 72 read his new hedge fund. targeting AI stocks. Steve Cohen is seeking, $1.72, seeking to raise

about $1 billion for a new stock picking hedge fund focused on artificial intelligence according to people familiar with the matter. The fund will bet on or against AI hardware, blah, blah, blah. It looks like the emergence of some vehicles perhaps where people just want to play this theme in some way or another.

Yes. So maybe it's starting. I wouldn't consider that a late. I would never consider farms like CO2 or 0.72 as late cycle signals. Yeah, fair enough. To me, they're probably the front edge of that. Outside of technology, stocks more broadly or the economy more generally, what would make you nervous? What would you watch out for as your bare signal? Well, in wireless, I did call many tops and stocks and had many fundamental shorts. So there is, of course, the key anchoring is, are the

price levels disconnected from a justifiable fundamental reality? I mean, I don't think so. I think if we have PEs of 100 for a mega cap stock, maybe that's something to question. The second, of course, is sentiment because when everybody is bullish, then one cannot be convinced there's upside because a lot of the best case would be priced in. We at Fundstrat don't find most of our clients are bullish.

Most of them are skeptics because many still don't feel October 2020 was a complete bottom because markets have since risen while the Fed has stayed tight. Most people cannot sleep at night with that notion. And they want to see how stocks react to the first Fed cut. And as you know, how many people tell you, oh, stocks are going to fall as soon as the Fed starts cutting? Because many people say that, I'm probably in the camp that markets rally on the first cut. I'm curious, sentiment is always one of those things that strikes me is easier to talk about measuring than actually measuring. And you cite some of the conversations you have with clients.

Are there other sort of surveys or market indicators that you have found to be good, reliable measures of sentiment over time? You know, most sentiment indicators are not reliable because most people don't take the time to fill them out. Okay. But at the extremes, they're quite useful. Like the AAII, I think is really useful. But if you look at surveys, they're not that reliable because the response rate's terrible. I mean, look at the labor surveys, right? Isn't the BLS, isn't the response rate like in the 40s now?

It's gone down a lot, yeah. Yeah. That's why, as a company, we pride ourselves. We are in conversations with our clients. We're not a blue chip bank. We have many clients that we're in constant contact with. But it does represent a meaningful percentage of professionally managed money. So we have a very real-time way to measure something.

sentiment. Can I ask about Bitcoin? Because in addition to getting the bull market of recent months and years, correct, the other prediction that you are known for is bullish calls on Bitcoin. And can you talk to us maybe about how you come up with a price target for Bitcoin? Because to me, it seems difficult to put it mildly. Like, to me, Bitcoin is almost a pure expression of momentum or flows and that kind of feeds on itself. And it just feels difficult to me to predict. And yet, you have been very specific in the numbers that you will put on this thing. Yes, Bitcoin is unlike other asset classes because there is a cooperative value. You know, the people who contribute to the network benefit from it. And that's different than any other asset class. When we first wrote

about Bitcoins in 2017, and Bitcoin was around 1,000 at the time, we published a white paper that said, even if you don't really believe in blockchain and the security of the network, we had pointed out at the time that just two variables explained over 80% of the price move of Bitcoin, which is the number of active wallets and the activity per wallet. And at the time, we made a simple projection. We said that in five years, so by 2022, if the number of wallets went up by 70%, and activity per wallet went up by 40,

Bitcoin would be $25,000 by 2022. So it was really kind of math, that Bitcoin, even if you don't understand it, and I think it's an incredible technology, right? It's a decentralized database, so secure, it hasn't been hacked in the 14 years of existence, Not a single entry on the Bitcoin ledger is fraudulent. In that same period of time, 6% of all bank ledger activity is considered suspicious by the FDIC.

But today, if you look at any time interval and say how much of the price move is explained by wallet, change, and activity per wallet, it's still over 80%. So to me, Bitcoin's price in the future will depend on how many people further adopt it and whether activity on the network will grow. we're confident both will take place and that's why you can get some really high exponential price levels from here. I know folks like Kathy Wood say it's in the $2 million. Believe it or not, if you go out

into far enough time frame let's say five years and you grow the number of wallets at a linear rate you can get in the millions for Bitcoin. But what drives the opening of wallets or adoption other than price? Because it seems almost

circuitous in many ways that people see, again, the line going up into the right and then they want to get in on it. And so they open a wallet. But when stuff starts to fall and go in reverse, you can have these very dramatic price cuts. Yeah. So I think it sounds like we're describing a currency because like dollar adoption probably looked that way, right? I mean, not everybody accepted dollars in the beginning, but more people accepted dollars. And then as more people accept it, they start to use it. I think in that way, the history of currencies could explain how Bitcoin could grow because over time as Bitcoin is more widely held, you can start to innovate around it, whether it's pricing off Bitcoin, letting people lend off Bitcoin or micropayments

around Bitcoin or settle things on the blockchain. That's what's happening. So I can't give you a single use case that will explain the growth in wallets, but we know that, instead of institutional adoptions growing. I mean, I think it was a huge deal that Black Rock has gotten into Bitcoin because it pretty much invalidates the idea that this is just a bunch of people in their basements playing with, you know, digital money. Going back to real money for a second or, you know, things that are maybe grounded traditional money. I want to talk more about your 2030 call. So what do we say 15,000 is a possibility in 2030? We're at 54806 as of the time. I said those words. What have, so that's, you know, six years, tripling almost. What has to take place or what takes place from a valuation perspective, et cetera,

an earnings growth perspective in the next six years that can get us to that number? Yeah, I haven't updated the numbers recently. So I can speak to it from, I think, three or four years ago when we first published that number. It's roughly a 20% annual price appreciation. Wow. Now, earnings growth would be 12 to 15% of that total. Okay. So then you have 5% a year PE expansion.

Now, can PE expand at 5% a year? I think one thing to keep in mind is COVID proved to us that businesses are a lot more resilient than we realized. So why should we assign the same PE to them that we assigned to them prior to this, knowing that if you shut down the global economy, jack up unemployment to 20% have huge supply chain disruptions and yet companies could manage earnings. I think they deserve a lot more credit. So I think the multiple can compound at a higher rate than 5%. Yeah, Tracy, actually, I have to say this is something that I've like, my thinking is sort

of sharpened on over the last few years. Essentially this like, U.S. businesses, at least the big ones, are really like well run. You know, the fact that, as Tom described, so many of them were, like, quickly able to adapt to the COVID environment. The fact that when interest rates started going up in early 2022, so much of the, so many of the overstaffed tech companies were quickly able to pivot. And when I say pivot, cut workers and maximize for free cash flow, which investors were clamoring to see. Like, just from a sort of objective investor-based standpoint, my estimation of the. sort of agility and skill of big U.S. corporations, I have been impressed over the last several years. Never underestimate American company's ability to make money. For real. Okay. Well, I have to ask

one question, which is, Tom, you've explained very well how you use history and data in your thinking. But I guess one thing I would love to know is, is there anything from the experience, the post-pandemic experience that has surprised you? There's things that have really. There's things that have reinforce some things I always wondered about. One is, I think as much as people say they're objective and they only look at things objectively, they always have a bias. And I think the bias since COVID has been that we are in a state of emergency, there's too much debt, there's still a virus out there, now AI is going to get us.

And that is played into how people view stocks and not as objective instruments of shareholder value. The second thing that is true is that there's what I always observed as the youngification of money management, which is, let's take, you know, the top 20 largest hedge funds and the top 20 largest, I don't know, active managers. Well, when we look at the average age of a fund manager, I don't know, they're probably in their late 30s. If you go back 10 years, they're also the same age in their late 30s. You know, because in hedge fund, most people retire because they made a lot of money or they don't survive, which means that the look back of institutional knowledge

isn't growing over time, it's the same. You know, they have 10 years of experience. So today, most people don't have necessarily real-time knowledge of GFC that are actually managing money. Yeah. So that means the pandemic is influencing how people view markets disproportionately without appreciating the historical backdrop, which is what, you know, which is something I'm continuing to observe.

Yeah. Yeah, that kind of recency bias is definitely a thing. Because I think for both Joe and myself, the 2008 financial crisis looms very large in our heads. Whereas for a lot of other people now, a lot of younger people. It's just history. Yeah, it's history. And it's like the pandemic that they think about. Anyway, Tom, that was so fascinating.

And we're so glad we've been meaning to have you on the show for a long time. I don't know why it hasn't happened before. But I'm glad we could finally do it. So thank you so much. And hopefully it's not another 30 years. No, we won't wait another 30 years. We'll have you back in 2030 when the S&P is at 15,000 to get your 2040 call. Yes, that's right. All right. Looking forward to it. Joe, that was really interesting, particularly hearing about Tom's experience as a wireless analyst in the early 2000s. And I got to go look up that bankruptcy research project that he mentioned because that sounds interesting as well.

But a couple things stuck out to me. So, one, when I think of Tom Lee and his work, I do often think about those very lofty, specific price targets. Yeah. And so it was interesting to hear him talk about why he goes down that route rather than just say, you know, 10% upside or something like that. And it kind of makes sense. Like, I guess that's a point of differentiation for him versus another equity strategist. No, totally. It's interesting that there is this perception is like people just want to know whether things are going up or down, which is sort of my standpoint. But then in the conversation, everyone's like, yeah, so what's the price target, even though that's notoriously hard to predict? Well, I guess we can see it in this conversation as well, because we will probably title this episode, you know, Tom Lee sees, what was it, the S&P 500 at 30, no, 15,000 and 2030.

Yeah. You know, there's a lot in there. Like I said, I could talk about, you know, late 90s wireless bubble stuff all the time. Go on, Joe. I know you want to. No, it never gets boring. On the flip side, I have been thinking about this a lot, which is just that the financial crisis really is fading into what I would call like capital H history as just something that is for you and I, it feels like on, you know, in many respects, we're still living in the aftermath of that event and this. decisions that were made and policies that were put in place in that aftermath and you and I could talk forever about how they still inform the markets today, I think, in profound ways. But I don't think that's the case for a lot of people thinking about markets. It's literally something that, you know, might as well be the Great Depression or the 1950s or the Vietnam War or any other period that just feels like something you learn in history books, but, you know, you don't think about as applying to your day to day.

Absolutely. The other thing that stood out for me was, I guess, connection between valuations and rates. And it does feel like maybe there is a growing recognition that you can have an environment where companies continue, to your point earlier, to make money, even when treasury yields have, like, doubled. That, you know, empirically, that seems to be happening. It's also interesting. I hadn't heard, so there is the fact that if you're one of these cash-rich mega-caps, then higher rates also just directly add to your earnings. because you don't have dead. But then the other element of higher rates as a moat that then makes new entrants more competitive is a really sort of interesting idea, the sort of higher rates

as this centralizing force for those who already have capital and this penalizing force for those who don't as interesting. And then also, as Tom pointed out, capital markets activity. And one thing that we haven't seen with AI is just this sort of endless train of AI-related companies coming to the market to grab people's wallets and maybe because there's not that many good ones out there. But for whatever reason, that aspect of the boom has not materialized. Yeah, although I suppose, you know, maybe it's only a matter of time or maybe, as we were discussing, more of that activity is just taking place in private markets now. I guess we'll see a year or two. All right. Shall we leave it there? Let's leave it there. This has been another episode

of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Allo. way. And I'm Joe Wisenthall. You can follow me at the stalwart. Follow our guest, Tom Lee. He's at Funstrat. Follow our producers, Carmen Rodriguez, at Carmen Armin, Dashel Bennett at Dashbot, and Kel Brooks at Kel Brooks. Thank you to our producer, Moses Andam. For more Oddlods content, go to Bloomberg.com slash oddlots, where we have transcripts, a blog, and a newsletter. And you can chat about all of these topics 24-7 in the Discord. Discord.g.g. And if you enjoy Oddlots, if you like it, when we talk about it, when we talk price targets with Tom Lee,

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