The Compound and Friends - 12 Reasons to Be Bullish

Episode Date: December 22, 2023

On episode 123 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Dan Nathan to discuss: what to expect in 2024, 0DTE options, Tesla fundamentals, GDP growth, the rate hike cycle, the best and worst days for the market in 2023, and much more! Thanks to Public for sponsoring this episode. To see your transfer offer with no obligation, go to public.com/switch. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Transfer offer terms and conditions: https://public.com/disclosures/brokerage-bonus-offerAll investing involves the risk of loss, including loss of principal. Brokerage services for alternative assets are offered by Dalmore Group, LLC, member FINRA & SIPC. Cryptocurrency trading services are offered by Bakkt Crypto Solutions, LLC (NMLS ID 1828849), which is licensed to engage in virtual currency business activity by the NYSDFS. Cryptocurrency is highly speculative, involves a high degree of risk, and has the potential for loss of the entire amount of an investment. Cryptocurrency holdings are not protected by the FDIC or SIPC. Brokerage services for U.S. Treasury accounts offering 6 months T-Bills are through Jiko Securities, Inc., member FINRA & SIPC. Banking services are offered by Jiko Bank, a division of Mid-Central National Bank. Securities investments: Not FDIC Insured; No Bank Guarantee; May Lose Value.ETFs, options, Bonds through Public Investing, alternative assets, cryptocurrency, and 6 month T-Bills in Jiko treasury accounts are available to US members only. See public.com/#disclosures-main for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

You look amazing. I am at my target weight. When I was a year ago— You're a wee guvvy? Yeah. You don't have that Ozempic face that people say. No one does. That's total bullshit.

That's the New York Post. For whatever reason, they have something up their ass about this thing. And once a week, they post some horrible story out of millions of people that are doing this. And it's improving their lives metabolically, like a whole host of things in all these ways. And they just want to post the one thing. Dude, I'll take Ozempic face over what I have now, which is Nabisco face. Like, how is your muscle mass? It's awesome. Dude, I've been working out. I sleep better. Let me see. Make a butt. I don't snore anymore. So I wake up and I have a great sleep. I wake up

and I work out. Listen, like any weight loss regime, if you are on a heavy diet, okay, you will lose muscle mass. Okay. So if that's the biggest gripe, you got to work out. Like that's the whole thing. And so then the drug acts as a bit of a jet pack to the whole thing. And that's my friend, Zach, who's the CEO of Roman. And that's what I do, this row body through, they prescribe the medicine, they manage the whole process. It's nutrition, it's exercise. Take that stupid mail-order drug test that people – Yeah, but why is that stupid? Blood test.

Do you like going to the doctor and giving blood? So this thing took 25 minutes. How are you friends with somebody like famous people? What's your story? Me? I don't know. Josh is the most famous person I know. CRB.

And I heard – Who are these famous people he's friends with? The CEO of Roman? He was stud. Is it Roman Reigns? I won famous people he's friends with the CEO of Roman he was stud is it Roman Reigns I won't say it who's the CEO who's the CEO of Roman

is he a famous person no he will be the Celtics dude oh oh Wick Grosbeck how do you know that guy oh he's a great dude good friend of mine

Rick Heitzman who runs First Mark Capital here in New York and he is actually an investor in Rowe early investor he's on the board Wick is actually an investor in Roe, early investor. He's on the board. Wick is also an investor there.

That's how I know those. You just connected the dots there. Pretty good. Wick actually has a television show that John Cryer is going to be the lead in. It's called Extended Family. I just saw the preview for that. And Wick and his wife, Amelia.

Is this John Wick? Who are we talking about? Wick Grosbeck. So he's the lead owner of the Celtics, and he wrote this with his wife and a team of writers. It's about their lives because Amelia's his second wife, and it's talking about the

relationship between these two extended families. It's a good premise because that's something that has always worked on television. Yeah. Go back to Brady Bunch. And you know who else has always worked? John Cryer. John Cryer. I love that guy. Yeah. Right? Well, what else was he in besides Two and a Half Men? I don't really know.

He was in this movie in the 80s. I know the movie. Yeah. Remember that? It was excellent. What was that called? Something Away or... It's like a two-word thing. Yeah. Hiding out. Hiding out. How about Hot Shots? Oh, when the kid goes to high school to get away from, like, a crazy drug deal or something like that. Oh, he's, He's dressed up like a high schooler.

Yeah, yeah, yeah. Well, he's the nerd friend, I think, John Cryer. He's the guy in Hot Shots with the glasses or he can't see. He's got this weird vision thing. He's John Cryer. He's a legend. Maybe he's a legend. And you know what the good thing for you, Josh, is that you know?

Think about all these people who've been recycled with Stranger Things. You were a legend in the aughts. And 20 years from now, it'll all come back. You'll be retro. I love that they brought Winona Ryder back. She's great. But think about all those guys. Sean Astin, remember, from Rudy.

Like, you know, all those things. Lord of the Rings. Yeah. Very cool. Well, they'll bring me back someday. All right, let's get the show on the road. What do you think? Turn him up. He wants to hear us louder. More, more. There it is. All right, let's get the show on the road. What do you think? Turn him up.

He wants to hear us louder. More, more. There it is. All right. Regulators, mount up. Hey, what show is this, John? This is Common Friends episode one, two, three. Welcome to the Compound and Friends.

All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Redholz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Redholz Wealth Management may maintain positions in the securities discussed in this podcast. management may maintain positions in the securities discussed in this podcast. Today's episode of The Compound and Friends is brought to you by Public.com and the Public app. I love this special offer that Public is doing for the holidays. They have this great bonus thing where if you switch your portfolio to Public from a different brokerage firm, you're going to get something. And I'll explain. Everyone will get a unique offer based on the portfolio that they're moving.

And it takes less than a minute, literally less than a minute. All you have to do is enter a few details at public and they will send you a personalized offer. On average, their offers are more than double what the other firms are paying. 85% of people who apply will get an offer of at least $100. Unlike most of the other brokerages out there, Publix offers are uncapped, and the highest offer for switching they've given so far is $19,000. $19,000. Maybe you could beat that. Maybe not. Pretty good. Check it out and see what your offer is with no obligation. I want you to go to public.com slash switch. The average offer is $396. Most people get at least 2% of their portfolio value as a bonus. You can boost your offer if you also want to transfer cash directly from your bank account. Once again, public.com slash switch. This is a paid endorsement for public.com. Terms and conditions apply to the transfer offer. Brokerage services for U.S. listed,

registered securities, options, and bonds in a self-directed account are offered by Open to the Public Investing Incorporated, member FINRA, and SIPC. Additional disclosures and the link to transfer terms and conditions can be seen in the episode description. Episode one, two, three. Guys, this is the last show of the year. And I have to tell you, we could not have brought in a more fitting, appropriate guest. Dan is the principal of Risk Reversal Advisors. You know him as the co-host of On The Tape podcast. Founder of On The Tape.

You and Guy and Danny. And Danny Moses. All right. I think a big chunk of our audience listens to On The Tape, you and Guy and Danny. And Danny Moses. All right. I think a big chunk of our audience listens to On The Tape. You also have the OK Computer podcast, and Paki's on that, right? Paki comes on that. I haven't seen Paki all year.

We've got to get Paki on here. How's he doing? He's doing great. Yeah. He was heads down during crypto winter. Yeah, he had no choice. That's the life. Can I give a shout out to Paki?

He just wrote, I've written, I've spent many hours reading his blogs, his essays. And the one that he wrote this week about losing momentum and getting it back, it's f***ing great. And he launched a new video series, Age of Miracles. So that's one of the things we talked about. He's just a really curious guy.

He's a really smart guy. He's not condescending. You know, how many blog posts, and this is one of the reasons I talked about. He's just a really curious guy. He's a really smart guy. He's not condescending. How many blog posts? And this is one of the reasons I think you guys both had such tremendous success. Demystifying difficult topics in a non-condescending fashion. You know what I mean? And I think he does that. He's a gentleman.

No, he's lovable. And we got to get him back here. And you are a panelist on CNBC's Fast Money. That's how you and I met for the first time. How long have you been on? What year was that? When did you start? I started doing options action in April of 2009.

I started doing Fast Money regularly in 2011. How'd they find you? How'd you find them? You know, it's crazy. It was 2008. I was at Merrill Lynch. I was trading a prop book in the derivatives, equity derivatives group.

Obviously, at the end of 08, they were not going to be trading prop anymore as we headed into 09 in the merger with Bank of America. Yeah, well, it's for another pot. Something about the balance sheet, et cetera, et cetera. I literally had a headhunter call me. Are you saying you caused the crisis? Well, actually, in Q4 of 2008, that equity derivatives group made a billion dollars. John Thain, who was the then CEO, called it out on their conference call, earnings call, basically saying, thank you for that. And my friend James

was in charge of that. We needed that billion dollars. Yes. Well, that offset the 80 billion they lost. Journal it over to Bank of America, please. No. So it was basically a headhunter. They were trying to place folks like us at hedge funds that, you know, equity-driven options were just blowing up at the time, right? And in a good way, you know? And so lots of funds, if you go and trace back a lot of these multi-strat funds that have these big vol strategies, it really goes back to that period because there's a lot of really smart people, quants, but also just kind of just really focused on vol directionally. And they lifted them out of there and started- You were trading the bank's money or you were working with clients or both? I had no client contact whatsoever. So I was off in a corner. It was great. I mean, listen,

I grew up on the buy side. So the idea, I always dealt with all these major sell-side banks. I just was not in the business of sales. I didn't know anything about it. So for me, it was really interesting to be inside of that operation for 07 when things couldn't have been better, right? Think about how quickly things changed to 08 and how quickly they went bad. And none of us ever thought a bank of that size could go away, right? And it did like that. Did they buy Countrywide? Yeah. They did, right? Yeah. Oh my God. I think the summer of 07, they bought- Oh, that was so funny. Dude, that was so funny.

But how did you get to CNBC? Finish that story. So a headhunter who was trying to put me in front of some hedge funds at the time said, this is kind of a weird one. CNBC is looking to cast a show of options traders who can walk, talk, and chew gum at the same time. And I think you might fit that bill. So I went into a screen test. So what, he had a list and you

were just on the list? Yeah. He thought of you because you knew him. He thought of me because I probably had gone and interviewed at a couple of hedge funds. You know what I mean? And then at that time, fund performance was horrible. So like no one was hiring to do anything, you know, and I was actually just going to go on the beach. I'd only been there for a couple of years. Think about this. I worked with so many guys at Merrill who'd spent their whole careers there. So let's say two, I don't know, a half of their comp for the last 10 years was in that stock. Part of the culture was you never sold that stock. Oh, MER, Merrill Lynch stock. MER, yeah. So it was just, it was actually a really sad thing to see. And I'll tell you this

from my experience on the buy side and dealing with Merrill, they were always one of the best firms ever to deal with. They were just solid citizens, good people. They did care about, you know, you and your business and all that sort of stuff. So it was actually a really sad kind of- Oh, I agree. And I still don't understand why they continue to downplay the Merrill insignia. The logo is gone. They ripped the name off everything. It was like one of the greatest Wall Street brand names, other than in that two-year period. But for like, I don't know, 70 years,

that was an amazing brand. And they just like, it's like it never existed. I almost want to buy that brand. Didn't someone buy EF Hutton recently? Yes. Somebody bought EF Hutton. Somebody bought Robbie Stevens. Robbie Stevens was a great firm in the 90s.

The Lehman name will make a comeback in some way, shape or form. Yeah. Because these names, if you can get past like that two year stretch, like they, they have equity. Like there's a, well, here's another life. Here's a better question. Is there a boutique that exists today that has the potential to get to a first tier sort of firm investment bank as we think about it, because we haven't seen one of those bubble up and become that. They don't want to. The good ones, like Allen and Company, they don't want that. You don't think Willis would want to be like a Jeffries or something like that? I think the next Merrill Lynch, it's an RIA called Rockefeller. I think it's Rockefeller Partners. Yeah, they're doing a big roll up. Is that right?

They're just, they're like, all right, how much do we have to give you to come over? 300% of your trailing, whatever. We'll just do that. Advisors are signing on there because they know what they're doing in terms of tech. And they're giving you that wire house experience but with a way better payout. And it's kind of cool to call your clients and say, I'm joining the Rockefeller family office. to call your clients and say, I'm joining the Rockefeller family office.

Either your client, if your older clients think it's like related to the real Rockefellers, your younger clients think it's Jay-Z. Either way, it's really good optics to say that you just got recruited by Rockefeller. So that's one part of the business. But let me ask you this. They're going to get big though.

What about under James Gorman, what Morgan Stanley did? They bought Eaton Vance. They bought E-Trade. They bought a lot of other- Those are lead sources for wealth management. It was really smart. The other thing that you're going to see happen though, is you're going to see the bulge brackets or the wire houses, whatever you want to call them. Those wealth management operations are all going to become multi-tier. And like Wells Fargo is a great example. Rather than lose all of their best people to opening their own

firms and completely severing ties. Wells Fargo like built a playground where they could pretend to be entrepreneurs. They could run their own business, but it's on Wells' platform. And that's in response to the Wells Fargo name having been somewhat tarnished like over the last few years, like seven or eight scandals in a row. So it's just like, look, we don't, we can support these advisors. We don't want them to leave and go join Dynasty or Hightower. So let's keep them in house, but we'll give them like a little bit of fake freedom so that, you know, they can tell people,

oh, my firm is, you know, Mountain River or whatever, you know, whatever the f**k. So that's like the big trends going on, I think. And those firms will get bigger. But there's a benefit to that too, to being attached to a large money center bank. You can actually give them better rates on mortgages. When the IPO calendar comes,

I mean, there's a whole host of things that kind of make people want. Right, if you have clients that have $100 million, they want the services of those banks. Like UBS, Wells Fargo, it's meaningful. They don't need everything the banks do. But if you UBS, Wells Fargo, it's meaningful. They don't need everything the banks do. But if you're an advisor

to that category, like it's scary. In the next 10 years, RAs will be able to offer all of those banking services. So that's the other side of the coin is like Schwab is leveling up

what they're enabling us to do. But don't you want to buy the picks and shovels who are helping them do that? No, it's a low margin business. Dan, go like this. You've got some fuzz in that beautiful head of hair. They call it a fly away.

It's from the Santa hat. No, it's from the Santa hat. It's not your fault. You have so much hair, it can't come out. Nicole, bring him a brush. Okay. All right, we're starting over. All right.

What is the whole thing? You go first. All right. It's a good question. So, Dan, your handle on Twitter is Risk Reversal. It's the name of your company. So I saw this chart from Bloomberg. Dollar risk reversal is least bullish in over three years.

So for the audience, what in the hell is a risk reversal? So risk reversal, it's in derivatives. It's in futures. It's basically doubling up on something. If the call gives you the right, let's say, to own something at a particular point in time at a specific price and a put gives you that same right to sell something. So think about it this, if you're doubling up on that, if I was really bullish on something, I might sell a put, which is actually bullish, and buy a call. That's a bullish risk reversal.

What makes that a bullish risk reversal? Because if you're selling the put- Why is actually bullish and buy a call. That's a bullish risk reversal. A collar makes that a bullish risk. What makes that a bullish risk reversal? Because if you're selling the price, it's basically, I mean, it's just technical jargon. You know what I mean? Like, like, you know how we come up with names for all this sort of stuff. And so like the specific question that you're asking is basically talking about the skew. And I don't want to get into like weird things, but like the price that it costs to buy a put and the price that it costs to buy a call at the equal distance away from the actual strike. One will be overvalued, the other will be undervalued. Correct. And usually that's the case. And that's what that's saying is that it's really cheap

right now. And I've noticed this, you see this all the time in periods like we are in right now. Normally, okay, there would be greater demand for puts, right? The higher something goes, right? Like the more you want to protect it. So therefore, option dealers know that, right? And they're going to price it up. Right now, even as the market is going higher, the stock market, okay, the everything rally. Did you name that? Who named that?

You know, there's greater demand. Somebody bearish. There's greater demand for calls right now. So the skew is towards calls, which tells you something about – That could flip so fast, though, can it? It can. Well, it flipped yesterday, right? So we're recording this Thursday afternoon.

We saw what happened. In which market? Oh, you mean the S&P? Yeah, yeah, yeah. So it's a great – like you guys have probably been talking about the RSI has not been – the relative strength index has not been this skewed. You know what I mean? Can we talk about that? Yeah.

A reporter asked me why the market went down intraday. He called me too. 700 doubt points. And I said, oh, it's options gamma. towards. Can we talk about that? Yeah. A reporter asked me why the market went down intraday. He called me too. 700 doubt points. And I said, oh, it's options gamma. And I don't even know what that is. I just had to go. Like, I didn't want to like get into a whole thing. So do you think that there is an options related reason for a three o'clock sell-off that catches everyone? Now it doesn't really matter because the market's bouncing back today, but like, what, what is that about? We just named our pod. I just did it with Danny and Guy. We named our pod. You guys can't use

this. Brokeback market, okay, because they can't quit them. Duncan, would we ever use that? Wait, because what? Because they can't quit them, okay? Think about that. I just can't quit you. Obviously not a big brokeback guy. I'll explain't quit you. Oh, obviously not a big Brokeback guy.

I'll explain it to you later, all right? So, and then also a song, Guy's Mind immediately went to Led Zeppelin on their inaugural album. I can't quit you, baby. Guy's Mind goes to Led Zeppelin. Obviously, okay. So the point is, is like, we had that sell-off.

It felt real, right? Because like some of the biggest market leaders got hit. Everything got hit across the board. You know, it was the first big down day in a while. And here we are, you wake up and they're just bid up. You know what I mean? And they kept on going. Does something trigger that, that's a rebalance or options related or? Yeah. So, so I don't have a good answer. You're right on the gamma and we're not going to get into the specifics of it, but what happens is this, okay? They're zero days to expiration options. They literally expire at the end of the day. They expire to cash. You don't have to exercise them. Okay. Like, days to expiration options, they literally expire at the end of the day.

They expire to cash. You don't have to exercise them, okay? Or they can. There's different expirations. So if all of a sudden at 2.30, somebody bought the at-the-money puts that expire in an hour and a half, and they bought a lot of them, okay? And they might have bought a lot of other ones and some other names, some of the details that I saw. There's a great Baycrest report out about this. I'll send it to you guys. You can put it in your show notes, okay? And it was talking about this behavior that happened late in the day, heightened complacency. The VIX was at 12 and a half.

You know what I mean? Think about that, right? And everything's the dollars down, all this stuff that we think about that are like, you know what I mean? Like risk on. Harvest conditions for bulls. And so you can use a tiny amount of notional value.

You get a couple of dealers who sell those options to you off-sides. They scramble to hedge. They might do it in other expirations, okay, in the SPY. This was in the SPY. They may hedge with futures, and that might cause a chain reaction of other things, especially in a low volume. So you think it's intentional? Oh, yeah. Somebody wanted to create volatility and profit off of it in the last hour. This is coming to a theater near you next year,

and I'm going to tell you why. There are going to be all these funds, these quant funds, they're going to be probing these sorts of, they look for inefficiencies, right? It has nothing to do with fundamentals. It has to do with market structure. It has to do with where the retail is obsessed with. I know a kid in California, he's a senior. He's going to college next year, okay? He wakes up really early to trade zero days to expiration options. Think about that. He's 18 years old.

It's the new trading NFTs or shit coins or this and that or whatever. So all those things came to an end. I mean, we know that, right? Meme stocks, all this sort of stuff. So something's going to happen next year. There's going to be some sort of- What, like a Von Leggett type thing?

Yeah. I mean, listen, and you know, like no one complains. Guy just said this on the pod and I think it's a great point. No one complains on the way up when all of this is adding like an underlying bid to the market.

But do we think that that's what's happening? Do we think that that's what's happening also at the same time is that the grind higher over the last two months or so is being aided and abetted by options activity? Well, I think some of this – if you look at some of the most actively traded options on any given day, their options have expired at the end of the day. But there are also a lot of very short-dated. So if you're looking at it in the indices or if you're looking at sector options, it is vol suppressing, right?

So a lot of folks would say it doesn't have to be that way. People are always buying options. But if the market's going higher, complacency is rising, right? And there's not a lot of demand for downside, then if everyone gets to one side of the boat, it does have the potential to get things haywire. And now we have the ability to just go and hedge with futures in a really easy way. Retail has those sorts of abilities. So if a lot of people have lots of different options in which to speculate, but also hedge and everyone runs for the door at the same time, that's the only reason why. Stupid question because I don't know any better. 43% of daily options trading is in zero date.

Does that sound right? Yeah. Well, it could be. Yeah. I think that's the case right now. And that's really, really elevated. It's tough for something that expires in an hour to create a lasting phenomenon on the market. If there is some sort of incident, then the next day, people just don't put those trades in to the same extent. And then on the third day, it's like it never happened. No, that's smart, except for the fact that go back and remember what it feels like. We've just had eight consecutive weeks of the market going higher. We've had 10 of the last 11 days where the stock market went higher. There's periods where it goes the other way too, right?

And sometimes it's hard to remember that when you're in the throes of the sort of market environment, the sort of sentiment that we have right now. And I think what's interesting to me is that this market in 2023, and I think you guys would agree, has climbed a wall of worry. Twice. Correct. Two of them. And, you know, but there's still a lot of underlying sort of things that should make, you know, folks a little worried because, like, I think we're getting to a point right now at the end of this year where visibility is not particularly great.

You know what I mean? As it relates to companies and the guidance that they're giving. I don't think the Fed has a whole— It's a lot better than it was. You know what I mean? As it relates to companies and the guidance that they're giving. I don't think the Fed has a whole lot better. It's a lot better than it was. Is it worse than usual? No, but if I look at the market in 2022 versus 2023,

if I look at the economy in 2022 versus 20, they're like kind of mirror opposites of each other in a way. So that leads me to believe, you know, that next year might be a bit more challenging. Coming into 2023,

it was unanimous. Everybody, money managers, retail, economists, CFOs, everyone, recession. Now, everyone, for the most part, agrees that we did it. We did the soft landing. So you're right. Slade inflation. I want to ask you, we start...

By the way, what did you answer, the reporter? Because I think my answer was better. What did you say? I either said Delta or Gamma. Okay, so after all of this, I just said it's noise. Yeah. Oh, I should have said that. Like, what do you— You know that—

What's happening? Like, what? The market was up— I don't even take these calls anymore. The market was up eight weeks in a row. It can't have a down day? Yeah, but if you guys had someone call into your firm and just say, hey, what the hell happened today? You would say it's noise.

Yeah. But if you have somebody who's reading, you know, the Wall Street Journal to find out why the market reversed. It's a Greek letter. No, I'm so glad you said this because we started that conversation. You were about to say something about RSI. And I wanted to ask you, when something is overbought, now all this depends on your time frame. To me, as not a day trader, that's bullish as hell. If there's an overwhelming amount of buyers versus sellers, I'd love that. Now, if I was a short-term trader, I might want to fade that enthusiasm, right? So it's just, it's different timeframes and people talking past each other.

Yeah. I mean, the timeframe thing is really important because sometimes, you know, I start out in the business with a short timeframe and trying to find catalysts, whether they be fundamental inputs, whether they be events, you events, a whole host of other technical things and everything. And part of the goal was just to have a pretty big toolbox, right? And if you learn how to kind of play the momentum and understand investor psychology and sentiment, that sort of thing, then there's ways to make money doing that, right? And then try to apply that skill set, though, to longer-term investing. It's really hard. Try to apply speaking about the markets every day to an investment process. You know what I mean? That's longer. I don't mean struggle with it, but I know that oftentimes

when you're asked on the set of a halftime report, when the market, something's going on, your one half of your brain is thinking about the sort of things that you talk to clients about every day. The other half is like, if you're a sociopath

who's tuned in at 1230 to watch CNBC because you care about what's going on in the markets, you care right now. So I would say Josh, I would say Josh is the best in the world

at towing that line between contextualizing for investors, best in the world at better than at towing that line between the show right now between contextualizing for investors but also putting it in like okay this is happening today and this matters but does it really matter well the question is not does it matter the question is is this an opportunity for people that don't care about this yeah that's the way i almost always answer is no so i i um i said this on our fast money call today at 1230. So we play this little game in the beginning of the year. They ask us to do an acronym and come up with like four or five, you know, uh, the initial letter of a stock. And then they grade you on the

performance of that. It's, you know, it's goofy, but like the people love it or whatever. And mine this year was T S L Q. Okay. So it was TLT. It Lyft. It was Snap. It was QQQ. And I've been saying this for two years. Okay. Wait, explain this. What Tesla, Snap, Lyft, and QQQ is. When did you say that? What is this? So this was the first week of January. Okay. On CNBC's Fast Money. And that was my acronym. Okay. And so the point there- For this past year. For this past year. How'd it go? It went great. I'm winning. Okay. So what I said there for this past year, for this past year, it went great. I'm winning. Okay. So, so my, my, what I said of all of 2022, and I had people who worked for me, young people, I said, the first seven grand that you have that you can put in an IRA that you

didn't just go out and drink or whatever, you know what I mean? Just dollar cost average Q's and twos. And I say twos like for TLT. Okay. Like, like, and do it anyway. And the whole idea is, is like, if you just dollar cost average it. When you guys were in our pod in late, I think in the spring, I said, when we started Q2 after a pretty rocky period, I was like, if you just dollar cost average the QQQ

for every trading day from April, you know, May and June, you're going to be a good spot, especially if you have a long-term timer. So my only point is like, that's what everybody should be doing, okay? Coming up with like a shorthand for what they think the theme would be of the coming year. Yeah, but just dollar cost advertising. You want to hear mine? Yeah. Okay.

Well, that's not what they want. Go ahead. Mine is, no, no, it's important. J-E-W-M. Yeah. Jeffrey Epstein was murdered. Oh my God. Think about it. What the f*** is happening? Just think. Why?

Stop. I know. Dan, people want stock picks. They want shortcuts. Why give them the picks? So what I said is do as I say. What's wrong with you? Do as I, do as.

Do you really think he killed himself? Why randomly would he all of a sudden? He's been up against these allegations for eight years. All right. One night, all of a sudden he decided this is the night. So Dan, you were saying? Unlikely. Who did it? We know who did it. I'll tell you after the years. All right. One night, all of a sudden, he decided this is the night. So who did it? Unlikely. Who did it?

We know who did it. I'll tell you after the show. I can't name names. So my only point was Qs and 2s. Dollar cost averaged them. And then I thought— Snap? Great call, by the way.

Can I tell you why I said Snap and Lyft? Because I thought there would be strategic M&A for some of these— Somebody should buy that Lyft thing. No, I don't. Google should buy it just for the data. You know, like whatever. And then Snap— No, they should not. There's nothing there. But should buy it just for the data. I mean, like, whatever. And then Snap. No, they should not.

There's nothing there. But that's fine. They will get bought, ultimately, maybe for parts. Private equity. Yeah, so listen. But my point was, that was the theme. And then the other part of the, this was the double entendre, TSLQ was the inverse Tesla.

And I was dead right on the fundamentals of this company this year. L-O-L. I was right on fundamentals. Get the f*** out of here. Hold on. Of Tesla. Dead wrong. Dead wrong on the stock performance.

All that being said, okay, they have had three consecutive disappointments. Their earnings are going to be down 25% year over year. Their gross margins have gone from 25% to 18%, okay? They're going to miss their delivery. Dan, I love you, but we know you don't get paid on fundamentals. Okay. But, but what I do get paid on is having sound analysis. Okay. And I'm wrong a lot. And anybody in this market who tells you they're not wrong that much,

they're full of shit. Okay. So here's the thing. Like you have to have a fundamental grounding for any reason of you're going to buy or sell something, even if you're selling something after you've already bought it. And so like, listen, you could get the fundamentals wrong and the stock price right. I think anybody who bought the stock right now, but it comes back to time horizons, right? So margins have just contracted massively as, you know, competition has increased. And then all of a sudden, maybe there's some issues in China. I'm not railing against this thing. I actually said on Fast Money the other day that there's a good chance that the fundamentals bottom out at some point early next year. What they got wrong is they thought there was going to be lots of price elasticity. They've

been cutting prices for these cars. I know somebody who bought a Model Y for $67,000 a year ago. You can buy that same car for $47,000. Is that how much they've cut? Yes. They've been killing. And you've lost the subsidy along the way. And let me tell you something. The more Trump goes up in the polls, how likely do you think there's going to be a $7,500 EV subsidy in Trump 2.0 administration? So there's lots of headwinds for this company. Here's the other thing.

This stock went into the S&P 500 exactly three years ago at $232. It's trading at $255. It's barely up. The S&P is up 30%. Yeah. Okay. So like, so to me, it is about timeframes. Fundamentals do matter,

especially if you're picking stocks. Not if you're trading them. Not if you're trading zero days expiration. Not if you're trading weeklies and Tesla. Well, on Tesla, we'll move on at this, but on Tesla specifically, this is a way better stock to have bearish commentary on than actual bearish positions. You agree with that?

Yeah, because I lost a lot of money this year. All right. I want to do this chart of the year because it ties into what we were saying before, how completely opposite 23 was from 22. Sam Rowe said this is his chart of the year. I love it. This is from UBS, Jonathan Golub, and it shows economists' forecasts for GDP growth in 2023,

how they evolved over the last two years. Sam says, quote, the GDP chart below highlights the improvement in economic growth that we've experienced over the course of 23. So, I don't remember another year that looked like this. So, for the listener,

in January of 2022, it went straight down all year in January, 2022, people were looking for two and a half percent growth for this year. It spent all of 22 collapsing basically to zero. And then in January of this year, it ratchets right back up to where it started. It doesn't always work with the story, but that's the S&P 500. That's the stock market chart. Yeah. I mean, this is- It's consumer confidence.

It's everything. So Fed Chair Powell told us last week at his presser that they're expecting 1.4% next year. So if the stock market went up this year 23%, the S&P 500, the NASDAQ went up 50% on just back to where- 50? The NASDAQ 100 is off. 50%. Yeah. So think about that.

So this V reversal, we're back to that kind of leveling off period from January of 2022. That happens to be the all-time high in the S&P 500 at 4,800. This is why I think next year is much harder. You know what I mean? Can I tell you one thing though?

For the BTFD folks. Next chart, please. Let me remind you, sir. Uh-oh. The NASDAQ should not be up 50% this year in the face of this. Take a look. This is all of the rate hikes of this cycle. So this starts March of 22. You ready? 25 bips, 50 bips, 75 bips, 75 bips, 75 bips, 75, four in a row, 50, 25, 25, 25, 25. That is one hell of a rate hike cycle. That all took place between March of 22 and July of 23.

We've endured a lot and stocks are still up as much as they are. So I can conclude one of two things. You tell me which one you think is closer to reality. Number one, stocks love rate hikes. No, we don't like that one. Okay. Here's another one. Number two, yes, there's more uncertainty going into this year, but one thing we know for sure, this is a very, very strong backdrop given all that we've endured. And probably the next move is some of this starts

coming off. What are your thoughts? Yeah. So, all right. So, the coming off part is the most important part. So, the dot plots in that last Fed meeting suggest three rate cuts next year, right? And so, if I go back, I entered the market- Is that what it's saying now, three rate cuts? And pulled forward to, I think, potentially March. Okay. So think about this. This is another chart that Sam Rowe could have come up with. He probably did. He's very thorough. You know, rate cuts were priced in like this year.

For this year. Like the prior year. You know what I mean? So like, for instance, the Fed doesn't have a clue. No one's got a clue. Everyone's chasing. That's the point. They were chasing on the way down.

They're chasing on the way up. That V reversal in GDP expectations looks exactly like the S&P 500 from January 2022. It was at 4,800. It went down to 3,600. And now it's back at 4,750. It's incredible. So here's the one chart.

And maybe I'll forward it to you guys. So I entered the markets in 1997. There's been rate hiking cycles into 2000. They paused. It was good for stocks for a bit. And then when they started cutting, it was lights out, okay? And then they came off that 1% bound and they started raising, right, into 2007. They paused.

It was great for stocks until it wasn't. And still they started cutting. S&P gets cut in half again, okay? So in my career, the rate hiking periods followed by a pause, good for stocks, okay? When they start to cut, bad for stocks. Oh, wait a minute. Except for 2019, which you conveniently left out. Well, 2019, the economy was already-

At the risk. Hold on. The economy, first of all, it was gradual. In 2018, Josh, hold on a second. In 2018, the stock market dropped 20% in a straight line. Twice. From October, okay, to December, and the Fed pivoted. Okay?

They pivoted. And then the stock market got back that in 2019. The yield curve inverted. Three rate cuts in 19. In 19? Yeah, the first two quarters. Okay, three rate cuts. Because they were redoing what they did in 2018. Dan, the stock market went up 30% that year. Yeah, and it went down.

I mean, it was the only down year that we had since 2000. Those were like, those were rate cuts. No, it didn't go down. In 2019, the Fed cut rates. The market did not fall. It went up 30%. And in fact, rallied into COVID, was continuing to rally in 2020. So I'm just saying that's an exception to that.

I get the story. If the Fed's cutting, there's probably something really wrong. It's just not always. That would be my only caveat. Just not always. Okay, they land the plane, and then they had to cut to zero. Well, but that's not a Fed. I mean, yes, they had to cut to zero because it time they had an opportunity. Well, but that's not a Fed. I mean, yes, they had to cut to zero

because it was COVID. Here's what's undeniable. The market is optimistic. This is S&P 500 win these weekly win streaks. We're now, this is going to be the eighth straight week. That looks super toppy. So the market is obviously expecting good news to persist. Whether or not it does, obviously, remains to be seen.

So I used Google Bard for this. Fun fact, ChatGPT is pretty frigging useless for what we do for a living. 100%. ChatGPT 3.5 will not include anything that has to do with stock market, even most economic data. It's throttling the utilization

and it just won't include answers. So I used BARD for this. And what I basically did as a prompt is I said, please make a list of the five best, up the most, and five worst, meaning down the most, days of 2023 for the US stock market. These dates must be from the year 2023 only. I highlighted all this stuff. The computer f***ed up. But it's a pretty decent list. So the best days of this year, we had a day in January, the first day of the year,

January 3rd, might've been the second day. I don't know. Up 3.09%. That was, and they'll give you the reason, optimism for a new year and positive earnings reports.

Good call. April 5th, this is coming out of the bank crisis. Upbeat jobs data and a potential shift in the Fed's aggressive rate hike policy. July 26th, up 2.5%. And then December 5th, remember that day, up 2.5% on positive retail sales? That was the soft landing day. And then they say December 22nd, which is weird because today's the 21st.

So I think they're pulling in last, the prior year. So they screwed that up. So I highlighted it. Then you do the worst days. I won't go through them all. They have the Russian invasion of Ukraine, which clearly did not happen in February of 2023. Happened in 22.

And then they include the collapse of cryptocurrency as the fifth worst day, November 9th, 2023. Happened in 2022. And then they include the collapse of cryptocurrency as the fifth worst day. November 9th, 2023. Nobody's perfect. That was the year before. My point is, I asked for 10 things from Bard. I asked for 10 things from ChachiBT. They gave me zero. They said, sorry, we can't do that.

I asked for 10 very simple things from Bard. It got on the surface, 3 of 10 very obviously wrong and just made up a lie anyway to give me an answer. When you see stuff like that, you don't really get that concerned about this AI stuff really manifesting itself within the economy, taking white-collar jobs. I just don't think it's – Well, I think there's two things that we want to break down. So that is a large language model that's being used for a consumer who's used to putting garbage in and getting garbage out at Google and the like, or Bing or whatever your service is. I get concerned about the folks who are infinitely smarter. They're thinking about

generative AI models away from large language, consumer-facing sort of things, how to integrate that technology to advance the processes that they are using in their products and services. You know what I mean? Like, that's what the smart guys are working on, not Unchatbots. The layer, though, they're building a layer on top of large language models. But I think one of the stories that you're going to hear and one of the reasons why I think probably Alphabet's going to play catch-up

to the Microsoft OpenAI narrative in 2024 is that they did not, they bookended this year by a really bad barred introduction in January or February. I think it was the first week of February. With a great Genesis launch. And then this Gemini, you know, like launch that they had just a couple of weeks ago wasn't particularly great, but the stock just made a new 52-week high. The stock trades at a much more favorable valuation to Microsoft, for instance. Now, Microsoft obviously doesn't own OpenAI for all intents and purposes.

And Google has said that they're an AI-first company for six or seven years. I think Sundar Pichai and the folks there, I think they'll probably get some things right in 2024. Did you notice yesterday when the whole market got killed, Alphabet was green? Yeah. And it was on an AI advertising headline. Yeah.

They're putting their whole digital ad business into the AI stuff. Yeah. I think you'd be right on that. It's cheap enough. I'm long the stock. I'm not long Microsoft. It's cheap enough to make a relative bet if you think even that some of this stuff is kind of long in the tooth. I want to make one other comment. I know it's your show. I just want to go back to 2019 for a second, because I

think this is really important. Okay. So the Fed started coming off their zero interest rate policy in late 2015. Okay. Fed Chair Powell is actually appointed by Trump in 2017, and he goes on this autopilot raising 25 basis points every other quarter. Trump hates it, okay, right? They also enacted this tax cut, right? So all of a sudden, they supercharged the economy, right, with this tax cut. Things were getting a little overheated. That gave Powell the confidence to keep raising. But it wasn't until 2018, we had this global growth scare late in the year. And it was China. It was emerging markets.

And the stock market started getting killed. And that's why they pivoted. That's why they cut it. This is the most important part about this, why I think about next year in 2024, why 2018 and 19 wasn't a good analog. We had, I think it was 2.2% GDP growth in 2017. It got to 2.9% in 2018, powered by the tax cuts, okay? And then it fell back to 2.3% in 2019.

The 210 inverted. They started cutting because of weakness in the economy. And this is really important. I saw you on Scott's show right after the Fed presser the other day. You came on after Jeffrey Gundlach. Jeffrey Gundlach show right after the Fed presser the other day. You came on after Jeffrey Gundlach. Jeffrey Gundlach thinks that when the Fed starts to cut, they're going to have to cut aggressively next year because of weakness. There's this whole cobble of folks out there.

What did he say? If they cut by 25 base points, they're going to have to cut 2% or something? Yes. And so the one point why I think it's great that you bring that up, okay, 2019, but if things do start to weaken, and again, I'm not an economist. I don't know, okay? The last time I was on here, I think the headline, the title was Dan Nathan predicts recession, okay? Okay, you nailed that one, okay? I predicted it. It didn't happen.

I think – I went back and listed that pod. It was a great pod, by the way. And, you know, we didn't say – You know you're a fan favorite here. Well, thank you. I appreciate it. I love being here. So that was why I wanted to make that point. So there's a lot of folks who think that the Fed, when he said we are going to have to start cutting before we get to our 2% inflation target, a lot of people think that they think there's bubbles or there's issues bubbling up, maybe in private credit, maybe there's some geopolitical thing or whatever. So that's the only point I want to make

is that the markets are pricing now a soft landing. That's what they're pricing. No doubt. You know what I mean? I totally agree. That's all I just want to make that point. 100% agree with you. Okay.

Ed Yardeni, a dozen reasons to be bullish in 2024. Only a dozen? Is 12 not enough? And I like Ed. He does great work and he's generally optimistic. Is that fair? Like you guys have followed him for a very long time. General, generally optimistic.

And that's actually been the right posture. Yeah. Uh, at least in, in recent memory, which do you think are the most likely of these or which are the most suspect? Ready? Yeah. I'm not gonna read the whole thing. I'll just give you the headlines.

Interest rates are back to normal. So the normalization theory implies the Fed might not lower interest rates next year as much as widely expected, but that's actually a good thing because it means the economy doesn't require them to ease at all. I mean, could that be interpreted as bullish? That would be a reemergence in inflation. And why would inflation reemerge? Either the economy is really strong. Oh, so if there's no inflation reemerge? Either the economy is really strong. Oh, so if there's no inflation reemerging, then we are getting cuts, period?

100%. Absolutely. Because then what happens is, think about this. If inflation gets their target and they have kept rates where they are, then it's really restricted. And then it runs the risk that you actually have a material slowdown.

And they do not want to be behind the curve on that. Because then they've got transitory wrong in 2021, right? they were some folks too tight and they call okay i'm with you uh consumers have purchasing power how tired are you hearing this yeah uh 40 percent of small business owners reported they have job openings wait hang on how is this bullish how is he saying how is this bullish many consumers may soon run out of their excess saving, as the economy naysayers are saying. Nevertheless, that's how. Most of them are likely to continue to consume as long as job security remains high.

Okay, I agree with that. We know that's true. Yeah, of course. Well, talk to anybody. Okay, so one of the things I think is really interesting, I think that the jobs market is kind of being bifurcated right now. So talk to anybody who does a knowledge job, okay? So if you were one of the people who

benefited from all these big tech platform companies in 2020 and 2021, hiring like drunken sailors and bidding up things in this or whatever, and you've just lost your job over the last year, it's been really hard to find another really good job. Yeah. One of these truck driver can get hired in a second. You're right. You're right. So if you're, if you're an associate editor at Condé Nast for $300,000 a year, you're not getting another version of that job anywhere. I'm a hundred percent with you on that. Are you following a firm and the news flow now about people are buying groceries at Walmart with buy now pay later at the rent. They're now taking buy now pay later at the register. And why are they doing it? Cause they've max pay later at the register. That's the story.

Why are they doing it? Because they've maxed out their credit cards. So think about that. It's really dangerous, okay? And it's really scary. And so Walmart just did this deal with a firm. And hopefully they're going to put, like, maybe it's going to be large,

like this sort of stuff. Dude, if you need to pay later for groceries, you're not in good shape. But maybe it's not groceries. Maybe they're allowing you to buy a flat screen TV or a computer. They have hard goods. You know what I mean? I know 50% of the stuff at Walmart is groceries. Let's hope that's the case because that would mean that the consumer, the lower end consumer is really tapped because they're out of credit and this is one of the last places to do it. Or it's just a smarter way. Or it's just a better alternative than a 28% APR MasterCard swipe.

It's just smarter. That's possible too. Yeah, I do think it's interesting that this is a stock, a firm, that was priced to go out of business. It was down 95% from its all-time highs about a year ago. The stock is incredible. Yeah, and now it's up. It's gone from 5 to 50 or something like that in a straight line this year.

I saw something about the short sellers on Twitter hate this guy, Max Levchin. What's his name? Yeah, Levchin. He was a PayPal founder. So they hate – for whatever reason, he's like the new Elon. The more the stock goes up, yeah, they're getting really mad that the stock is working. I don't know why though. I haven't read.

So this is really interesting. This was in the New York Times I think yesterday. The fact that it was in the New York Times. It wasn't in Barron's. It wasn't in the Wall is working. I don't know why, though. I haven't read. So this is really interesting. This was in the New York Times, I think, yesterday. OK. The fact that it was in the New York Times. It wasn't in Barron's. It wasn't in the Wall Street Journal. It wasn't on Bloomberg. It wasn't on CNBC.com.

Americans may be taking on too much pay later phantom debt. And it was talking about this in the New York Times. OK. So this is one of the top stories that I saw on the front page of the New York Times. Do we have numbers? Oh, geez. No one said there was going to be any math here. Estimates of size of this market vary widely.

Spending through pay later options was about $46 billion this year. That is a small compared to more than $3 trillion that Americans had on their credit cards last year. OK, but it's growing. And I think the more awareness it is, the more people are going to take up on it. And especially with rates higher. I know that the 10-year has gone from 5% to 3.9%. The mortgage, 30-year mortgage has gone from 8% to 6.9% or whatever.

Those credit card rates, they're not moving. So the New York Times reader is not going to read that and say, I should start doing buy now, pay later. You know when we're in trouble, when like Kevin O'Leary has commercials for his own, like buy now, Kev later. Like you know what I mean? That's when you know it will have gone too far.

I don't give a fuck. Don't edit that shit out. Leave that in. Will that be on the blockchain? Dude, I don't – And purchase through gold. Let's keep going. I'm this close to just going all the way.

All right. Households are wealthy and liquid. $151 trillion in net worth in households. This is an undeniable bullish. Now, it's not spread out. We know it's haves and have-nots. Nobody would deny. Yeah, but there's $40 billion in pay later debt.

Yeah, $40 billion. I mean, you have to admit that's not a bad setup. That's not 2007. What else? All right. Demand for labor is strong. Okay, self-evident. That could change.

It just hasn't yet. We all stipulate? Okay. Onshoring boom is strong. Okay. Self-evident. That could change. It just hasn't yet. We all stipulate? Okay. Onshoring boom is boosting capital spending. This is the argument for buying the cats and the deers and the, you know... Caterpillar all-time high. Yeah, but by the way, deer was trading at... Do you believe in this story or not really? Deer was trading

at a 52-week low a month and a half ago. The onshoring boom and the federal government's increased spending on public infrastructure are boosting new orders for construction machinery, which is up 30.5% over the 24 months ending October. True story. Yeah. True story. Okay.

Housing is all set for a recovery. Do you believe this? Yes. I think I do. Just purely on the demand side. Housing only happens if unemployment doesn't go higher. Wait, but mortgage rates are dropping. Still 6.9% for a 30-year fixed.

Okay. All right, question mark. Corporate cash flow is at a record high. $3.4 trillion during Q3 2023. SOR. But still, this is real. Yeah, so the corporate stuff is interesting to me. These companies, especially the ones with lots of cash,

they're finally earning a return on it. They've been cutting costs, good for margins. Input costs hopefully are coming down. So the dollar coming down, you could make a very good argument that corporate profits are basically we had the profit recession. The stock market in 2022 discounted that in 2023, the year that actually profits are expected to be flat. I think facts that has S and P earnings in 2023, like up less than 1%, but consensus is calling for up 11% next year.

So let's say we end up somewhere in the high single digits, you know, like you tell me the stock market feels a little bit expensive at 19 and a half times. Did we, did we, did we, are we pricing that in that 11% in right now? Yeah. And you know, one of the things, and I think you guys are probably aware of this, like in the lows in October of 2022, you know, X the mag seven or the top 10 names or whatever, like most of the S and P was trading at like 13 or 14 times earnings. It was trading at a trough multiple, you know what I mean? And so like, that's important, but I guess, you know, a lot of folks, and this is the thing, I have a lot of issues with this. Okay. So a lot of people will say, well, over the last 50 years, you know, when we come out of a bear market, the prior leadership

is not going to lead again. I don't know how, if you just look at the weightings of these names, I don't know how those top 10 stocks, most of them can't continue to be the leaders because energy is low single digits. Financials is too small to matter. They're too small to matter. And then you think about these companies. They are moving into every part. They're just so disruptive. You know what I mean?

Think about an Amazon. They just move into whatever they want. You know what I mean? Like, you know, so to me, again, I think they have to lead. I'm not saying all of those stocks are going to be the top 10 stocks five or 10 years from now, but at least half of them are going to be. So can I tell you, Ken Langone is on record saying Eli Lilly is probably going to become the world's first trillion-dollar drug company. That's a non-fang. NVIDIA was not in this group of stocks until two years ago.

We can stipulate that. So there is some leadership change. It's just not like Apple and Microsoft coming down. Netflix got shadow banned from the- All right, let's keep going. Number eight, inflation is turning out to be transitory. Open question, and people would probably say, transitory after two years?

Yeah, it's cumulative. We just did the math, right? So like, you know, 3% this year is still a lot. It's still a lot relative to the last 15 years. Inflation wasn't transitory. Prices have stopped rising. The high-tech revolution is boosting productivity. Not a lot of people talking about this, but if all this AI shit turns out to be meaningful

to the real economy this year, productivity will improve. Yeah, I would say this, though, that if you think about this, I know I see everybody in your office here at Ritt Holtz Wealth Management. A lot of businesses still have hybrid work things that is massively unproductive. I mean, like, so the three days that they're out in their office, they could probably get everything done that they're doing their five days because they're not doing anything on Mondays and Fridays when they're not in the office. So I think we have a huge productivity issue as far as- Maybe your employees. Speak for yourself. Our employees are working their ass off.

My people grind. I just said they're all here. But what I'm saying – They're not all here. Okay. Half of them remote. Okay. But maybe you guys are a customer-facing sort of business, okay, and you're talking to a lot of people.

I mean there's a lot of processes that people are just like – even when they're in their office, they're made to look busy. I think 20-something-year-olds are really lazy. I agree that there's a lot of bullshit going on. So I think that just naturally, I think these companies are going to continue to call. Okay. I think that it was a land grab in 2021 and they could actually, it was easy to hire people that were remote. You didn't have to do all this stuff on premise and all that sort of stuff. I think they're going to continue to call a lot of these people. All right. My last ones,. Leading indicators are mostly misleading.

Well, you could take LEI and throw it in the garbage, I think, at this point. The recession signals are just misfiring to the point where it's not usable. So that's my opinion. All right, so can I turn this whole thing upside down for a second? Well, let me give you the last ones. The rest of the world's challenges should remain contained, I would say. Contained is a key word. Come on.

Roaring 2020s will broaden the bull market. I guess this is a call on Moore's participation. I don't know. All right. Go ahead. Callie Cox had a great chart showing that this is a very unusual

bull market that we're living through. 71% of S&P 500 constituents are underperforming the benchmark this year. That is the highest it's been this century. I think it's probably the highest ever. And when she looked at it, she broke it down sector by sector. The only sector that is outperforming

where the majority of components are outperforming the S&P, I mean, this is not news to anyone, it's tech. So 93% of utilities are underperforming, 90% of REITs, 97% of consumer staples, 91% of energy. The only stocks that are outperforming themselves because the size disparity, it's tech stocks. We know that. However, however, I was looking yesterday when all the Dow was going down because all of this nonsense noise. These are the companies within 3% of their all-time high.

Costco, Broadcom, Arista Networks. Arista Networks? MasterCard, NVIDIA, Marriott, Hilton, Waste Management, Lululemon. These are just S&P companies, by the way. Lamb Research, General Dynamics, Ameriprise, Booking Holdings, Visa, Apple, Phillips 66, Ross Stores, Chipotle, Caterpillar, ServiceNow, United Rentals, Pulte Group, McDonald's, Microsoft. These are all the companies with the 3%, not of their 52-week high, of their all-time

high. All-time high. So all of the data about companies underperforming the S&P, it's because these companies are so big, the winning ones. Apple is up 50% this year. It doesn't mean the rest of the market is falling apart. If anything, the market is telling you

that things are pretty good. And those are a lot of sectors. I kind of take the opposite side of that because, you know, like, so... I find that hard to believe. Go ahead. No, but,

so the RSP, the Equal Aid S&P is still down 5% from its all-time highs. The S&P is within, you know, earshot, like a 1%. It's interesting that you mentioned Microsoft and Apple, they make up 14.5% of the S&P 500, two stocks, 14.5%. They're at their all-time highs. They're $6 trillion in

market cap. You don't say, but they're like 20 businesses combined, but back to you. Well, I mean, at the end of the day, so, but like, so, you know, Google, Amazon, Meta, Netflix, Tesla, these guys, they're all still well below. So you can look at it both ways. You could say there is fuel in the tank, you know what I mean? If there's reasons to buy those stocks, and some of them are very cheap, Google and Meta and, you know what I mean, still that sort of thing. But you could also say they're basically underperforming the major industry on a relative

basis versus the all-time high. I mean, there's different ways to look at it. I was actually looking at a lot of what Callie was looking at too. And I was quoting this a couple of times over the last few weeks. On the day of the Fed meeting, I looked at the top, the 500 S&P 500 stocks. There was only, there were 210 of them that were down on the year that day. Okay. So this was what, two weeks ago or December 13th or something like that. There was 140 of them, to your point, I think that gets you to the 71%, that were underperforming the S&P 500's performance. So there was a lot of stocks in the largest index in our country that were trading really poorly. You could say it's about, I don't know.

I don't know. I mean, like to me, they should be reflective of their earnings potential and what's gone on. But a lot of companies, a lot of C-levels, they're not bullish. Like they're being cautiously optimistic when they're being optimistic, right? You guys look at a lot of transcripts. Yeah, but if you look at the percentage of new highs, it's building in equal weight in Russell. It's catching up. Two-year low, Josh, two weeks ago.

Or a month and a half ago, excuse me two weeks ago. A month and a half ago, excuse me. A month and a half ago. It looked like death and it's still 20% from its all-time highs in 2021. If the Russell can't break out of this 18-month range... You don't think it's bullish though for more and more of the components within the Russell

to start hitting 52-week highs? No, it is bullish. It needs to improve, obviously. I think that the market's going to overheat next year. I think there's a real possibility. Right out of the gate. Mike's risk is that things get too fast. I think that there's a non-zero percent chance that mortgage rates continue to fall with inflation.

The housing market just explodes. Stocks go nuts. The IPO window opens up, and we overheat next year, and the Fed has to hike. IPO is really interesting. So you guys tell me, we have the NASDAQ that's up 50% on the year. We had Klaviyo, we had Instacart, we had Arm. I mean, if you can't bring an IPO in a market like this, when the hell are you going to do it? Next year, 2024 is the year.

Well, think about this. How many tech IPOs have actually performed particularly well since 2017? No appetite. It's amazing. You know what I mean? So it's interesting to me. So people ask, when's Stripe going public or whatever? You know what I mean? I don't know.

If they don't need the cash and they have other ways to kind of get their VCs and their employees, you know what I mean, kind of liquid, maybe that's a new trend. Maybe like private for longer. So here's what happened this year. Apple up 50%. We have a few charts. Maybe like private for longer. So here's what happened this year. Apple up 50%. We have a few charts. We're going to talk about Apple.

Added almost a trillion dollars in market cap. They're not growing their revenue. What happened was the stock was trading at 21 times earnings to start the year. It's trading at 31 times earnings at the end of the year. So this is Barron's cover story, which they put out today. And the gist of it is, the title is, Apple Needs New Growth to Justify Its Soaring Stock. It Won't Be Easy. There is no growth story at Apple.

Services are growing, but hardware is slowing faster. Revenue growth is negative multiple quarters. They haven't had a big product release since 2016 with the AirPods. But the services growth is just more profitable than hardware. So the stock has been bid and they are just buying back shares hand over fist and whatever they're not buying, Berkshire Hathaway is. And that's how you have a stock go from 20 to 30 times earnings with no growth in the course of this year, which is what's happened. So Savitz at Barron's is saying like,

okay, but seriously, now what? Yeah, so great conversation, to be honest with you. So a trillion dollars in market cap for a company whose margins are flat, their earnings are flat, mid single digits, revenue growth, lots of competition. China is a huge potential problem for them. Shadow banning of Apple iPhones by government workers, which could extend, Reshoring is expensive for them. It should kind of be a hit on margins. Their phones are evolutionary. Listen,

I do love their products, okay? But this is an iPhone 12. We're on 15, okay? And it works great. You know what I mean? So just saying, so I agree with that. The services thing, every time Epic wins a Google thing or this and that or whatever, that is going to be a pressure on services and their take rate on that, right? So if that's the story why we've got 10 turns from 20 to 30 times or whatever with flat. So to me, Apple seems challenges,

but I'm looking at this and I love this spreadsheet. It's on the Apple investor relations. Since 2012, when Tim Cook came in and took over for Steve Jobs, they instituted the buyback and the dividend. They have, you ready for this? They have bought back $630 billion for the stock. They have returned in dividends $150 billion. Okay. So do that math. That's 812. How many companies in the S&P 500 have an $800 billion market cap? 10. It's truly astounding. So it's an asset class in among themselves. It brings me back to what you're talking about, that 71%. It's a true unicorn. So I think passive investing, and you guys know this better than me,

I think it's changed the game. You could have hundreds of stocks down on the year in the S&P 500 and the S&P is up 23%. And I also heard this, who's this guy, Felix Zoloft? I saw him- It's been around forever. He's been bearish for 30 years. Okay. Like me, so it's my dad. Brilliant guy, always negative. No, but there was just one stat that he said, so 30% of passive investing money goes into the MAG7, okay? So we just do that math. We know that they're 30%. Globally, okay, the U.S. is 70% of global equity indexing, okay?

So think about all that money that's indexed. It's going into Apple and Amazon and Google and, you know what I mean, like all that sort of stuff. So we're really hitting on something right now that none of us in our careers have ever faced. Like people have said, well, we've always had this concentration of some of the big names. I think that's what could be different.

Like, have you ever seen those, the biggest stock in 1980, 90, 20, and it shows how like they've changed over time? I think there's a really good chance there's five or six of the top 10 stocks right now, 10 years from now. I agree with you. It's not going to be because of index funds though.

It's just index funds are not creating Apple's dynamism. These aren't shitty businesses. Hold on, listen, listen. These are incredible businesses. A few things. Number one, you're right. Index funds are obviously, the flows are undeniably massive.

The index percent of overall trading activity on a daily basis is in the single digits. Active traders are still setting prices, number one. Number two, index fund flows did not stop in 2022, and Amazon lost 55%. Google lost 50%. This is a f***ing non-story. Meta down 70.

It's not, the index fund flows are not keeping these stocks high. So what I think is more important, though, is that Elon Musk is the richest man in the world. He's the CEO of five really important companies. Let's say three really important companies, Sundar Pichai, Satya Nadella, Tim Cook. They are more powerful and more influential than most heads of state that we have in our country. I think that's what's changing. So take all these like these sci-fi dystopian things like Blade Runner and stuff like that.

You know what I mean? The leaders of those really effed up worlds going forward are not the elected officials. They're the people who run these multi-gazillion dollar companies. I thought that Amazon was going to own Whole Foods and that these companies were going to dominate streaming and Hollywood and sports. I see your Sundar Pichai and your Tim Cook, who honestly seems like both of those guys seem like lambs. And I raise you, Jay Pierpont Morgan.

They're killers. And I'll give you U.S. Steel. Do you think the trust busters could take these guys down? We don't even blink an eye anymore when there's some regulatory. FTC is suing this. Standard Oil fought trust busting for like 20 years. And eventually, trust busting won. He was like 90 years old at the time.

These things have happened in the past. I think the intelligence. They got busted up. Dan, the intelligent- AT&T, you're right. The intelligent, air quote, thing to say is, look at history. The top 10 stocks, there's always turnover.

What you're telling me is different this time? Yeah, a little bit. A little bit. Are these companies going to- Are they impenetrable forever? I'm not the top 10 of when you and I started our careers. It's Exxon. It's IBM.

It's banks and energy companies and IBM. Right. And Walmart. There's no analog to what these companies – and you said it. Amazon doesn't obey the rules. They're going to get into pharmacy now. Yeah. They just do whatever they want.

But they're absolute monopolies. But you could make the case that GE was a conglomerate. IBM was not selling groceries, right? So when you had that top 10, they looked pretty infallible. They ended up all being fallible. I think Enron might have been on that list at one point.

And all these companies, Microsoft, Amazon, Google, they power the internet with their cloud computing. Like they are, their tentacles just keep spreading wider and wider and wider. There's no one to say. We're in agreement on that. One thing, and I want to make this point because we just mentioned China with Apple. I think the data, economic data in China, and I think the deflationary readings that they're having, I think a huge risk that people are not focused on, and

again, not an economist, and this is not a recommendation to buy or sell anything on this, I think that there is huge potential for them to export that deflation. What if this whole race to 2% in inflation ends up being really deflationary, right? And so think back before the pandemic, people were really worried. The Fed was dying to get inflation up to 2%, right? So what I worry is, and think about what's gone on over there. I mean, there's stock markets in shambles. Look at the Shanghai. Shanghai is very near 52-week lows. The FXI, which is heavy, those big tech leaders, banks, and some industrials, they trade horribly.

They're trying to support that economy. It's not working. Going back to that conversation about 2018, it was a global growth scare about China. Back to 15 and 16, you remember all that volatility that we had in the summers into the Q1 of 16? All about China. Think about their reluctance potentially if Apple is moving away to India and some of these other manufacturing areas, if they're reorienting these supply chains, then the Chinese might just say, you know what, screw them. You know what I mean? Absolutely screw them. You know what I mean? What percent of Apple's revenue is China?

A lot. Yeah, it's important. It's important. Dan, it's the last episode of the year. Higher or lower next year? Interesting. You know, I was really wrong. I thought the potential that we'd have a really bad first half this year and end up, you know, probably other side of 5% either way. I think we're lower next year because I think of the volatility that we talked about as far as 2022 to 2023. I know election years are generally pretty good. I think at some point we'll probably be down 10% next year. Well, yes, of course. Does that make sense? We will have a 10% drawdown next year. Because on average, there's always a 10% or something like that. 20% higher.

You think 20% higher? Really? I do. 20% higher? I do. So you think this is like 95% to 2,000? I don't know what I think, so I don't know why I'm asking you that way. I think that, listen.

I don't really have that strong feeling. I'm just going to go out on a limb and say that I will probably be wrong because predictions are impossible. But I don't know what's going to knock the economy off track. And I think there's a possibility that just the market overheats and just people go nuts again. Well, that brings me to China. I mean, I just think that like a global slowdown with like geopolitical hotspots, you know, like inflation that doesn't come down as quick. I think inflation going higher would really screw up a lot. I think that's actually, I don't think it's the biggest risk, but I do think it's the risk that could play the most havoc with the market. Can't you see? If the Fed has to restart a hiking cycle, we're going to lose huge multiple on the

S&P. Michael, what if January 31st, when the Fed meets again, what if there are, it's probably too soon from December 13th, but what if there are like heightened inflationary fears or something like that? And then the Fed basically uses one word like any that sparked that rally, or you know what I mean? And takes that away and then says something a bit more restrictive or something. What do you think the S&P is going to do? It's going to drop 2% in a straight line. The market's not going to go 20% in a straight line next year. I mean, obviously. No, I agree. But can't you picture the headline that we see some scary stuff around the election season and Dow is up 1,100 points? Can't you see a dumb headline?

That would be so on-brand. Dow hits record high as chaos breaks out, God forbid, but you know what I mean. Listen, I'd buy stocks with two hands if you told me that the market's going to be up 20% heading into the November election and we're going to have a status quo in what goes on in Washington. Like literally, you know what I mean? Dow soars as rebels encircle U.S. capital. Oh, shit. election and we're going to have a status quo in what goes on in Washington. Like literally, you know what I mean? But I don't know. Dow soars as rebels encircle US Capitol.

You know, he's there. All right. Did you have fun on the show today? I love this show. I wanted to give a quick shout out because a couple of weeks ago, you guys had Morgan Hounsell on. Yeah. And I know he's a longtime friend of both of yours.

And you guys did not talk a lot about his book. But I heard him on Preet Bharara's podcast, Stay Tuned, I think last week or something. And I read the book immediately after. You listen to Preet Bharara's podcast? I love Preet. Where are you going with this? That book was awesome.

It's f***ing awesome. Same as ever? That's where I was going. I loved it. I loved it. It was just digestible. I loved all the narratives. He's the best.

He's incredible. He literally all the narratives. He's the best. Is he like, he is. He's incredible. He literally, the research that went into all of those different stories to make those cases. He collects them and he writes such beautiful, he writes so beautifully around these great anecdotes. That's what I was saying. It's not just the knowledge. And of course, it's the way that he delivers it to the readers.

It's very straightforward. And he's not, he doesn't use three adjectives in a sentence where one will suffice the way I do. And he also doesn't shift into the first person, which is another thing I do too much. He will start a paragraph from one perspective

and finish that paragraph in that same perspective. He's a beautiful man. I love him. Wait. Before we finish, what's going on with Paramount? Just get us up to a beautiful man. I love him. Wait, before we finish, what's going on with Paramount? Just get us up to speed real quick. I don't know. You got to take on the stream. Wait, hold on, Dan. On Tuesday, Josh was like talking about how Paramount's... I'm like,

there's no f***ing buyers for this s***. What are you talking about? Good call, Michael. 24 hours later, water... Well, but it's in fairness, it's merging. It's merging. It's not buying. I am really following this story because I find it fascinating that we broke the cable bundle and now we're going to put it back together

in just a new configuration. I think the most fascinating part of this pertains to the stock market in that what will ultimately happen is Amazon, Apple, and Alphabet will own all the entertainment assets. Netflix, Netflix, Netflix. And Netflix.

By the way, if they merge, you don't win. Merging is not buying. What? If Paramount and Warner Brothers merge, it's not good. I think it's close enough. I think it's good. Not really.

One of them will end up with the majority of the company. That's the buyer. It's a merger of two unequals. I've been saying the exact same thing, not specifically about these two things. All these things will be re-bundled and then their handlers are going to be Apple TV or this and that, whatever.

And there's going to be a handful of different, it's not going to be Spectrum or Comcast or this or whatever. So I think that makes perfect sense. That's going to happen. These businesses run as a standalone. So dude, Apple and Amazon are taking over Hollywood. Was that on your bigger card five years ago?

No, no. And it's not, forget Hollywood. Was that on your bigger card five years ago? No. No, and it's not – forget Hollywood. Hollywood is not even the prize. Sports. Sports. Well, pro sports. So what Netflix is doing with some of these live sports, that's the thing to watch. Where do you think this is going?

Where do you think this ends? They're just practicing. The most genius thing that I saw this year on Friday – okay, this is Black Friday. NFL has never had a game on Black Friday, right? They had a game that they Friday right they had a game that they gave for free and they kept on doing all these celebrity drops of products all these QR codes that's the future

I mean that was killer I mean I didn't enjoy it I don't give a shit but they were like don't go to the mall don't go to the department store stay here watch this football game scan the QR code this is why I've been bearish Disney. People are like, oh, Amazon will just buy or Apple will just buy ESPN.

They don't want all of Disney, but they'll just buy ESPN because it's like the number one name brand in sports. It's like, all right. But they have shrinking, literally shrinking subscribers from the cable bundle breaking up on one end. On the other end, they literally are going to have to bid against Netflix for sports.

They have to bid against bottomless pockets. Yeah. Like, so you're losing your revenue and your costs are going up.

That's why no one's bought ESPN yet. I can't wait to find out where Disney is in 12 months. I'm a shareholder, unfortunately.

But, because on the one hand, you have this push and pull of, could the news possibly be worse for Disney? Could the news possibly be worse? Well, the cable bundle thing is the thing. Most people are paying for all that shit and they don't even know they're paying for it. What is Nelson Peltz behind closed

doors telling Bob Iger he wants? It's not even clear what the solution is. It's not like Peltz has made this public case of how to fix it. He has like he has Perlmutter's shares or whatever the guy's name is. The old psychopath.

So he's got access to enough votes. He'll get on the board, but what is he what is the answer? I don't even know. So I find this a fascinating time in media. All right, we're going to wrap up from here, but we're going to do favorites before we get out of here. Michael, you have a favorite today. Start us off. Aaron Stanhope and the pseudonymous Jesse Livermore wrote, I actually didn't finish. I'm 40. I mean, it's long. I'm 40% of the way through this post.

Climbing the maturity wall of worry and they break down. So we've shown charts like how much debt is fixed for the S&P, how much more exposed the rest of 2000 is. So they get granular on which sectors are most exposed to higher interest rates. This was written, obviously, when higher for longer was consensus. But just an incredible, incredible piece of research. So what do they conclude? I'm only 40% of the way through. It's like 40,000.

So where do you find this? You go to Canvas? No, you go to our show notes. That's where you find it. Go to our show notes. Come on now. Who didn't think about that? Dan, you got a favorite for us?

I thought we were doing that with the Morgan Hounsell thing. You want to use that as yours? Yeah. Shout out to Morgan. Yeah. I just read it this week. I thought it was awesome. I got some new music.

Willie Nelson's 90th birthday took place at the Hollywood Bowl in April. They just put it out as an album on – I'm sure it's on Apple too. I saw it on Spotify. This is like – these are the final days, right, for these people. Like Charlie Munger just passed. I think we need to appreciate Willie more just as like an institution and just someone who never got, who never changed and was consistently good

for decades and decades and decades. And it's a pretty good listen, pretty good record. Okay. So I thought I'd hit you guys with that. All right, that's all I have. As our final show of the year, Duncan, are there any other announcements

that we should be making? Well, I just wanted to say, I think we found our number one listener from people that wrote in from Spotify Wrapped. We have Nathan with 0.01%. He has 11,884 minutes of listening this year. Holy cow. That was me. So thanks, Nathan. Nathan, thank you so much.

Merry Christmas. Happy Hanukkah. Happy New Year. We appreciate you. Let me just end the show for the year by saying how much I appreciate and Michael and we all appreciate the listeners. You guys are rocking with us all year. You guys are giving us amazing feedback, telling us everything that you like, what we're doing, sometimes telling us what you don't like, and we're reading it. We're listening to you.

Thank you guys so much for tuning in every week. Now, twice a week, we do this show. And I want to personally say thank you to all the people behind the scenes who make the show possible. So we'll start with our research associate, Sean, who's not here today. Rob Passarello, who joined us this year to manage the business end of the compound. Nicole, who is heading so many things. She's booking shows. She's running shows. She's the head of audience engagement. She's on our social channels.

She's responding to all your comments, and she does it with a gigantic smile on her face every day. So shout out to Nicole. I want to highlight the work that John has been doing all year. John knows what charts we want before we even know we want them on screen. He's intuiting and making the show so high quality, whether it's YouTube or it's audio, whatever. John, you're the best. And of course, can't leave out Duncan. Duncan's wearing a Dunder Mifflin Christmas sweater today. Duncan is the star, the co-star of Ask the Compound with Ben on YouTube. For those of you who aren't watching that show yet, you can see Duncan in action. But Duncan is really our creative director and has a hand in everything that we put out. And has just been so instrumental in improving the quality of what we do

and insisting on quality. Even when I beg him to cut corners, he will not do it. And it's the only friction that he and I have is I want faster and he says no, the audience demands better. And he's always right. So shout out to Duncan.

And we'll give Dan a shout out too. Newest member of the team. Hey, Dan, how are you? We're giving you So shout out to Duncan. And we'll give Dan a shout out too. Newest member of the team. Hey, Dan, how are you? We're giving you a shout out right now. I know you just joined. You haven't done a lot. You've done a lot of little things. And in 2024, you're going to become instrumental.

Big things have small beginnings. That's right. So we're so happy to have you here. Thank you for joining the team. All right. That's it for me. Guys, thanks for listening. Hope you have the best holidays.

Hope you have the best new year. and we will see you all in 2024. Thank you. That's a wrap.