The Compound and Friends - 12 Things Everyone Got Wrong About Inflation

Episode Date: July 19, 2023

On this TCAF Tuesday, Barry Ritholtz joins Downtown Josh Brown to discuss his recent piece on 12 things everyone got wrong about inflation. Then, at the 29:00 mark, join Downtown Josh Brown and Michael Batnick for another episode of What Are Your Thoughts and see what they have to say about the biggest topics in investing and finance! On this episode they discuss: earnings season, a goldilocks period for equities, signals from the stock market, the new Hamptons, and much more! Thanks to YCharts for sponsoring this episode. Check out YCharts Earnings Season Playbook for Q2 2023: https://get.ycharts.com/resources/blog/earnings-season-playbook-upcoming-earnings/?utm_source=Animal+Spirits 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/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Cue me in like we're in Abbey Road Studio One. Ladies and gentlemen, welcome to The Compound and Friends. This is TCAF Tuesday. On today's show, we're going to play What Are Your Thoughts with Michael Batnick. But first, a conversation with my partner and your favorite radio host, Barry Ritholtz, about 12 things everyone got wrong when it came to inflation, where we stand today, CPI, the Fed, et cetera. So stick around. 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 Hey guys, we're here with Barry Ritholtz.

We're going to talk about his post was called A Dozen Contrarian Thoughts About Inflation. But I want to frame this as 12 things everyone got wrong about inflation. And you did this post July 13th, but you referenced a lot of the stuff that you've been writing over the past, let's call it year, year and a half. What's the overarching idea right now about a consumer price index that's up 3% year over year, which is what we saw last week and the current environment. So I don't want to get too wonky, but since you referenced CPI, you got to start with, hey, it's a model and all models are wrong, but some are useful. And with the case of CPI,

not only is it a little wrong, it's a lot wrong because the way it calculates rental housing costs, and then it's on a giant lag. And it's telling you, hey, here's what happened a couple of months ago. For the Fed to rely on, it means they're missing inflation when it's on the upswing, inflation when it peaks and reverses, and inflation when it comes down. Right. Well, we don't have any data about the future, so we have to rely on- Just be patient. Be patient. It's coming. All right. Let's go through these one by one. Sure. The first is inflation peaked in June of 2022. I think that's obvious to everyone right now,

maybe not as obvious as it was happening. Although you actually, and a few other people, but you actually said June 29th of 2022, hey, this is probably pretty much it. Tell us what you were looking at then and why it was obvious to you that we were living through the actual peak at that time. Sure. Well, in 21, I did a post. Here's what's driving inflation. I named 15 or 16 things. And a lot of those things had started to improve by the middle of 22 and prices had come down. So when you look at the surge in used automobile prices or lumber or copper or certain types

of food and certainly energy, it was pretty clear that they had peaked and were falling. The lag in services, first goods went up when during the pandemic, everybody shifted from services to goods because we were locked down. When we reopened, everyone went crazy and went back to services. Not a surprise, services took a little while to fall off the peak than goods. But wherever you looked, energy, Rolexes, cars, lumber, everything was falling. And some stuff like wood was back to pre-pandemic level. You had blow-off tops in a lot of those things. And even in real time, you could see that they might not immediately drop in price, but the rate of acceleration was not going to

be sustainable. Just thinking out loud, remembering the chart of lumber and saying, you guys know this stuff literally grows on trees, right? That's why every commodity trader knows the cure for high prices is high prices. And unlike semiconductors, it doesn't take 18 months to go out and cut down a tree. Right. All right. Let's talk about long and variable lags. So you mentioned in your recent post in the 1970s when inflation was persistent and home mortgages were double digit, it was fair to assume it may have taken as long as 18 months for FOMC policy to be felt. And you think 18 months these days sounds a little bit long.

We probably shouldn't be experiencing a year and a half lag in the modern economy. Can you say more? Sure. Well, think about it. First of all, back in the day, the Fed didn't even announce they were changing rates. There was no policy statement. There was none of that. You would see it in the bond market. And so that would eventually translate into the credit market, the mortgage market. So it would take a long time. The 1970s was a million years ago. Modern economy, everything is transparent. Information moves instantly. Plus, when the Fed is at zero, when mortgages are, what is it, 61% of people with outstanding mortgages have rates below 4%. That's a big shift. And when

rates go up, it's felt pretty quickly, at least in the portion of inflation that is rate sensitive. The fiscal stimulus, some of the supply chain things, shortages of houses and labor, rates are irrelevant to that. Right. Transitory. So you say transitory wasn't wrong. It just took longer than expected. So by that metric, everything is transitory. But this is you. A once in a century pandemic with an unprecedented global lockdown simply took much longer to unwind than expected. There was literally no modern analog or comparison. Everyone was forced to make a guess. That said, 27 months instead of 12 to 18 is less of a miss than many have made it out to be. So the Fed was sort of right saying transitory,

but maybe they should have said it's transitory so long as we hike interest rates by 500 basis points. I don't even think it's that. When you break down what was driving inflation, it wasn't necessarily zero. Remember, we were at Zerp and QE for almost all of the 2010s. What was driving inflation was a large part, a giant fiscal stimulus, $5, $6, $7 trillion, was a large part a giant fiscal stimulus, $5, $6, $7 trillion, still unwinding with the Semiconductor Act, the infrastructure bill, the Inflation Reduction Act. We're still going to have more fiscal stimulus, just nothing like we saw during the CARES Act 1, 2, and 3. And when supply chains get snarled, when you don't have enough bodies at the port in Long Beach, when Chinese shipping containers are just backed up for miles and miles.

We all saw those photos in 21 and early 22. It's a process to deal with that. And I think we thought it would take a few weeks to resolve. It took five or six quarters, not five or six months. And so that's why, you know, two years later, Hey, you want something, you still can't get everything you want on a timely basis, but you get most of it. That was a key driver of, of high prices. Yeah. But like the camp, the camp transitory, uh, or the people that were in the boat for transitory, they can't retroactively come back and take their W.

I gave it to them. Krugman can't do that. So here's the thing, and I've talked about this from the perspective of people who are investing and just don't have the patience to let their money compound for them. There is no past. There is no future. There is no future. There's only the right now. The past has the rosy tinge of nostalgia. It has a warm glow with a lot of misperceived memories.

The future is just lots of expectations and wishful thinking. The reality is here and now. And when people said this is going to be transitory, very few people are going to say transitory two and a half years because it's just not how humans operate in the real world. Okay. Gotcha. All right. Inflation models are inaccurate. So we all get that. And to some extent they have to be. But tell us what you think this did for all of the predictions and forecasts and maybe why this time was different than other times that we've had in the past trying to figure out when inflation would abate. Sure. So inflation models are inaccurate because all models are inaccurate. They're a computer

depiction of reality. And so the best they can hope for is something that kind of resembles reality, but they're not perfect, not just because they're on a lag, but perfect example, it's very hard to figure out how the cost of rental apartments are going up. And so the BLS and their CPI data came up with this thing called owner's equivalent rent. This finds its way into a few bullet points because it's 40%. It's the single biggest chunk of inflation. It's the largest component of the services side, and it's over a third of the total CPI. Perversely, during the financial crisis in the 2000s, when there were a lot of available houses and credit was cheap, owner's equivalent rent made housing look like it wasn't in a bubble because all these

people were buying houses and they had fled. They had moved from the rental apartment market into houses. So rental prices went down. Look, housing is deflationary when it was in the midst of a historical mortgage bubble. Today, you have high rates, no houses, very little supply around. And so owner's equivalent rent somehow, because you're taking people who would otherwise be homebuyers and forcing them into the apartment rental market, all that extra demand is sending that up. The Fed perversely is causing CPI to go up. Inflation expectation surveys, you've been ranting about this for a long, you don't like surveys at all. We know this. Well, let me ask you a question because you've done this. I have to ask this to you. Your whole career, you've been dealing with investors,

traders, speculators. When you say to somebody, hey, what's your risk tolerance? How aggressive or how conservative are they? What is the single most driving factor in that? However the stock market behaved in the last five days. And so when you ask a bunch of random people by phone, where is inflation going to be in five years, LOL, what is inflation going to be in five years, LOL? What are they going to tell you?

Whatever happened the past couple of months, they'll extrapolate five years out. And while we were just talking about transitory, people can't conceptualize two and a half years, five years is forever off in the distance. It's like, wait, you're asking somebody on the street, Joe Sixpack, where's inflation going to be five years? You might as well ask them which planet will be the first alien civilization to reach us. So why do we ask that question of people?

And where does that data actually wind up? Does anyone actually use it for anything seriously? Or is it just like something they use to write Wall Street Journal articles about? So the data comes from the Fed's own survey. They have, you know, the Fed has a giant research staff. And if you listen to some of the Jerome Powell pressers and some of the speeches he and other FOMC governors have given, they claim they rely on this. They say this gives us some insight into what's happening.

We talked before about how persistent inflation was in the 1970s. And so when you have about a decade of rapidly rising prices and people tell you they think inflation is going to stick around, they're not just giving you what happened the past three months. They're giving you years of recent experience. And so there's a little more resonance to that trend. The big problem we run into is so many of the senior economists today, they came of age in the 70s. Jerome Powell is 10 years older than me. He's going to be 71. His formative years were

the worst inflationary years. So he's got a little CPI PTSD from the era of disco and polyester and he needs to get modern. Okay. I wanted to ask you about the Fed driving home prices higher. I know you had mentioned this just now. This is a function of what exactly? Like I understand there's a supply issue And when you raise the price of money, you're obviously not doing a good job at providing liquidity for home builders to build more. But then there's a disagreement about whether or not they would either way. So what is the Fed doing that is actually working counterproductively from what they're trying to do in the housing market? So first, we have a shortage of homes as a builder reaction to the financial crisis in the 2000s. We really ramped up construction from the 90s to the peak around 05, 06. Remember,

housing rolled over long before the stock market did, a little unusual. And so for the next decade, market did, a little unusual. And so for the next decade, builders underbuilt homes as more households were formed, meaning people got married or moved in together. As the population went from 295 million in the late 1990s to today, we're 332 or so million. So you've got 30 more million people. We've underbuilt homes. So that's the first thing. The second issue was during the pandemic, if you remember, the people who were living in apartments in cities and couldn't take advantage of it, high density elevators, lobbies, it was not a good place to be. If they could afford it, they went out and bought a second home without a corresponding cell.

There's usually that chain of you, the starter home, buy something from the next person. Right. Multi-household families. So that whole thing froze. Let's get a place in the mountains. Let's get a place in the suburbs. Let's get a place in the Hamptons, Florida. So the pandemic just, right. People just bought up. And then last, normally, if someone wants, hey, a kid's on the way, something is going on, I got a bonus, a raise, let's move on up. 61% of outstanding mortgages have an interest rate of 4% or less. The most recent quote I read is 7.5% for a mortgage. So if you go from a house that's 500 to 650, that's not very expensive. That doesn't change your monthly nut. But if you go

from 375 to 7.5% on your mortgage, that's a giant increase in monthly payment, even if your payment, even if your house cost is the same. So people are frozen in place with these golden handcuffs of low mortgage. And that's why in many, many areas, home supplies are at the lowest they've ever been in history in the post-war era. It's crazy. The amount of homes that are for sale, that's why there's not a lot of choice. Prices are elevated and so many people are being forced into the rental market. Okay. Number eight, you say the Fed is driving owner's equivalent rent higher, which I think ties into that. You said, given the shortage of housing, the rapid increase in rates has perversely caused more, not less inflation, at least in the OER. And you have not been a fan of owner's equivalent rent for a long time. But how is that distorting CPI, I guess, is the question I'm asking.

It's the biggest portion of CPI. You're basically preventing people from putting their houses on the market because the mortgages are so high. Hey, if the mortgages were five and three quarters, five and a half, even 6%, I think people who want to move would finally come out and move. But when you look at people frozen in place, plus on top of that, not only is higher mortgages making it more expensive to build homes, but you have caused, you, the Fed has caused a huge swath of people who otherwise would be homebuyers, whether they're first-time homebuyers or retirement

homebuyers or whatever it is, to go into rental units. And that excess rental demand is a big part of the reason why, yes, it's more expensive to own a home today relative to renting than it's ever been, but it's also more expensive to rent a home or an apartment today than it's ever been. And that's really problematic. You want lower inflation, Jerome Powell? Drop rates 50 basis points. Inflation will actually come down. So that's your next point, for lower inflation, lower rates. This sounds very, obviously, very counterintuitive, although it shouldn't because we just spent the entire

post-financial crisis with near 0% rates here, negative rates overseas, no inflation to speak of, disinflation in a lot of cases. So why is this so hard for us to wrap our heads around? And what were you trying to say in the piece about this? So the government response to the financial crisis was primarily monetary. We're going to take rates to zero. We're going to set up all these credit facilities, all these liquidity facilities. We're going to purchase bonds. We're going to do everything we can to get rates down to zero. Yeah, here's a little fiscal stimulus. We'll extend unemployment a bit. A little tarp. We'll do a little tarp.

Right. But it was some rounding error. It was nothing. Fast forward to 2020, President Trump passes the CARES Act 1, 10% of GDP, biggest fiscal stimulus in history, $2 trillion. CARES Act 2, also under Trump, about $900 billion, just under a trillion. In comes Joe Biden, CARES Act 3, another $900 billion. So what are we up to? About $4 trillion. And then everything else that's over the next 10 years, infrastructure, semiconductors, inflation reduction, these are all massive fiscal stimulus. So we went from a 90-10 monetary to fiscal stimulus to the pandemic response pretty much the other way around, 90% fiscal and the continued persistence of the previous decade's monetary policy.

The rates, half a point one way or another, are not going to cause more inflation. Listen, the problem with houses are there ain't enough of them, whether they're built or on existing homes coming on the market. You want more homes on the market, give people a credit or give people lower mortgage rates and you'll basically get there. Right now, that's the problem. Once you bring rates to a place, and by the way, we had how long, you mentioned how long were rates at zero and we had an upside 2% target and no inflation. target and no inflation. Well, at zero or close to zero, let's say from 08 until 2021, the end of 2021. Remember all the hyperinflationistas, everybody talking about this is going to cause

collapse of the dollar. Inflation is going to go through the roof. As it turned out, we've had a deflationary economy for most of the past 30 or 40 years. Automation, technology, improved productivity, globalization go down all the lists, and even 0% interest rate didn't cause inflation post-financial crisis. But $5 or $6 trillion later of fiscal stimulus, guess what? That's the key driver of inflation. The monetary policy becomes almost secondary to that and the unwind of the pandemic. And that's why- Yeah, let's go a little deeper on that. So number 10, consumers and companies were inflation drivers. And you said, yes, consumers suffer from inflation,

but when they willingly pay up for goods and services, regardless of price increases, inflation but when they willingly pay up for goods and services regardless of price increases they cause inflation also um and then i think you like i think what you're getting out here is companies basically took advantage of the chaos and they got away with a lot of higher price push-throughs that maybe they wouldn't have ordinarily attempted so they took their cue from the consumer's willingness to just pay up, and they said, oh, here's what a burrito costs now. Oh, this is a new hotel room rate that we're introducing. And they got away with it for the most part.

When I did that piece, Causes of Inflation 1 to 15, I think it was back in 21, I had greedflation at like number 14 or 15. I thought it was wildly exaggerated. And then over the subsequent year, lots of research and lots of studies came out and said, hey, look at corporate margins. They're doing great, even though sales, you know, my friend Sam Rines calls it margin over or price over volume. They'll sell a little less, but if they're charging a lot more and they're making more margin, they don't care. So I've slowly altered my tune on greed deflation.

I think it's become more- Can you define greed deflation for everyone? Even when you don't have higher input costs, but you identify a willingness of consumers to pay up companies that charge higher costs, higher costs, higher rates than they need to because that's their job, to maximize profit. The need part seems like a slippery slope. Yeah, no, it definitely is. And on the consumer side, my favorite example is someone says, I'm stuck in rush hour traffic. Hey, you're driving to me in New York or LA at five o'clock. hour traffic. Hey, you're driving to me in New York or LA at five o'clock. You're not stuck in rush hour traffic. You are rush hour traffic. And that's this thing from behavioral finance where

we all think of ourselves as outside of what's going on. We're special. We're everybody's unique. Well, I'm not part of the crowd. Yeah, you are. Everybody who paid up for everything from houses to used cars to lumber were drivers of inflation. I want to throw this out to you. Number 11, you say lose the 2% inflation target. I think Abby Joseph Cohen said something similar in Barron's this weekend. She's stealing my shit constantly. I got to get – have Hamburger send out a letter putting them on notice so um so it look i don't know far be it for me to say what the right target is but i've asked many smart people why two percent and literally the the answer that i get and it's they usually wink or smile when they say it is well one percent is too low. 3% is too high. That's where the 2% target comes from. Honestly, I don't think there's necessarily a rigorous answer. It just became

the Fed's mantra. And so we all are anchored to it. And maybe it's right. Welcome to the world of economics. All this stuff is- Why should they throw 2% out? So when you're coming out of the financial crisis, as Reinhart and Rogoff warned in advance of the post-financial crisis era, you should expect subpar GDP, no wage gains, weak job creation, poor consumer spending. And that's what we saw for about seven years after 08. It took to 15 for things to really start to not quite normalize because you just did a lot of damage economically by all the headaches that was caused in the credit market. You had a balance sheet recession.

Right. You had all these issues. And that's with the Fed at zero and the economy sort of bumbling along. Now, change this. You come out of a once in a century pandemic, inflation spikes to 9%, $5 or $6 trillion in stimulus, and the Fed goes to 5%. What logic would there be? Assume there's some rationality for 2%, which as you pointed out, there isn't. But let's assume there is. If 2% was the upside target in a slow economy at zero, Jesus, why 3% now when the economy is hitting on all cylinders except for the areas where the Fed is constraining? Our biggest problem isn't the availability of credit. Our biggest problem is shortages in labor, in semiconductors,

and in houses. Higher rates don't help any of that. And 2% target seems to be, when before the financial crisis did the Fed ever have a 2% target? That was a post-GFC target that should have been removed. We were undershooting. People forget. We never hit, right. And now we're on the other side. The target was above our heads. Right. What about the argument that

if they don't revert back to the 2% target and continue to talk about it, that they lose their credibility because of how long they did say 2% mattered? The Fed, so the mattered. The Fed. So, so the Fed needs, the Fed does need credibility.

Yes, but I don't think so. I agree with you. The Fed needs credibility. I don't think the 2% versus 3% target affects their credibility because they could say we had a 2% target before you guys did $6 trillion in stimulus. Now we're going to have a 3% target. Let me also add, the Fed was late to get off their emergency footing in the entire 2010s. They were late to recognize in March 2021 when inflation shot through that 2%

inflation target. They waited a full year to begin tightening. So they were late to that. They were late to recognize inflation had peaked and fallen. And now it looks like they're going to be late to recognize that they won. And any further tightening is going to put the economy at risk of making a soft landing more difficult. This is your last point. You said mission accomplished. Jerome Powell can take the summer off, enjoy fishing at Jackson Hole, chill out for the rest of the year. no need for further increases in rates as the battle is already won i i started saying this in the spring when the banks were blowing up uh and they've and they've continued to hike weights and they paused now it seems like they want to get off pause and hike again

but the data is overwhelmingly already directionally where they want it to be. So Michael and I are trying to figure this out. Why would you pause in June and then resume in July if you're data dependent and all of the data is telling you you're getting your way already? What's the unpause reason? So the answer to that correlates with the stuck in the 70s misunderstanding the modern economy. The only explanation that makes any sense is they're focused on the labor market, which is primarily driven by a shortage of low wage workers who don't have enough bodies. Too many people retired or out on disability, died during COVID, plus the past 10, 15 years has been-

Yeah, you're not getting them back. Right. Plus you have had a giant decrease in immigration as much as people want to blame Trump. That predates him by a decade. And Biden hasn't really changed legal immigration all that much. So we just don't have enough bodies. Somebody stuck in the 1970s, like Larry Summers, who says we need to throw 5 million people out of work to get inflation down. Well, we're at 3% and you have the lowest. You have to go back to like 1953 to find an unemployment level the same as this. They're wed to a, I don't know how else to describe it other than a horrific misunderstanding of how the modern labor market is. And so they think we need more unemployment for inflation to go down,

despite the past 18 months that have proven, no, you don't. You just need to get out of the way. You just need more houses. Pretty much it. More houses, more semiconductors for cars and more bodies that that's what you need. All right, BR, what else you, what else, what else are you up to this week? Got a busy one? Uh, yeah, busy week. I'm in the office a couple of days this week and, uh, I have a fun piece coming out that says how to get rich that I think you're going to love. It's one of those, I bet it's one of those snarky, funny. And, and I put, I say, here's the degree of difficulty,

here are the odds you'll be successful, and here's how long it takes. And it's pretty honest. And I think it's, you will not be surprised by my suggestions as to how to get rich. No spoilers. That's Barry Ritholtz, everyone, my partner, founder of Ritholtz Wealth Management, and the host of Masters in Business on Bloomberg. Thanks so much for listening, guys. We'll talk to you soon. Now stay tuned for What Are Your Thoughts? All right, gangsters. It's another all-new episode of What Are Your Thoughts? Starring me, Josh Brown.

My co-host, as always, Michael Batnick. Nicole is in the chat. John is here. Duncan is here controlling the show. Sean is somewhere out there as well. Thank you guys so much for joining us tonight. Mike, did you know that we have an all-new Compound & Friends hat

in the store? Is that it? What do you think you're talking to? Oh, wow, that looks great. Yeah, I know. John, throw that bad boy up. Look at this thing. High quality.

That's in chart off. Hat off. That's in idoneshop.com for the latest in financial blogger apparel. One more announcement I wanted to make. Whenever we hire for a new position, we hit you guys first because we would much, if possible, we would much rather pull somebody from within our community for one of these opportunities. And so I wanted to let you guys know that we are hiring a creative media editor.

So let me just give you very quickly. This is somebody that's going to come in and work with us on podcasts, on video. And there are some requirements here. So I would tell you, I'm going to have this job posted to my website in about two hours and all of the contact information that you need. Lots of requirements, not some, you gotta, you gotta have the chops. Gotta have the chops. Of course, this is not like a entry entry level, but it's also like something where if you have a year or two of experience, we could, we could have you plug right in. So, um, we have a sponsor tonight, Mike. Who's sponsoring the show?

YCharts. Okay, tell me about this. They want us to direct people. It's in the show notes, link in bio, that sort of stuff. They've got an earnings season playbook for Q2 2023. We're going to talk all about earnings today

and YCharts has it covered. They've got a ton of great data. I use it every day, all day. We'll be using it in the show. So if you're a new user looking for 20% off, hit them up. Tell them we signed you. You guys are going to see us doing all sorts of Y-chart stuff on the show tonight, as we always do. Just what an amazing tool that is. And thank you for sponsoring us. Let me say some quick shout outs and then we'll get into the first topic. I want to say hello to Kelly SF, John Carlo,

say some quick shout outs and then we'll get into the first topic. I want to say hello to Kelly SF, John Carlo, Jack Rosenfield. Dr. Horton is here. Roger is here. Let's see. Dr. Horton. Do you mean, is that, is that DR Horton or is that a joke? Is that a play on words? Dr. Horton. Or is it literally a doctor? It's my optometrist. He's, he's really into, he's really into the show. It's my optometrist. He's really into the show. Kevin Hawthorne is here. Chris Hayes is here. The whole crowd is here. Wanted to say hello. Rachel, I'm sorry you're late too. Better late than never. Seattle Michelle, what's happening? All right, let's talk about earnings season. This is like the very, very, very beginning of earnings season. We're like in day three or four, right? Friday was day one. Day zero, Well, I guess Thursday was day zero. We had JP Morgan and Citi, I guess, and BlackRock maybe. All right. Less negative than feared,

once again, is my early take. Without having seen a lot of reports, that's where I land on. Well, last year, we spoke a lot about analysts needing to take their expectations down, right? Yeah. Like before they did, and then they did, and they overshot apparently because now we're getting beats on the other side of that. And to your point, it doesn't have to be monster beats. It's how were they relative to expectations? And also, what do they say?

What do they guide? So this morning- Less bad than feared, right? This morning, Bank of America. Who's BK? Oh, Bank of New York Mellon. Schwab, Lockheed, Morgan Stanley, all beats. And all of these beat revenue too, except for PNC. So expectations matter a lot. Didn't we say, was it last week's show? Didn't we talk about this phenomenon where somebody was saying it's like jumping out of the basement window with a parachute on?

When the earnings expectations are as negative as they were going into this quarter, it doesn't mean everyone's going to beat. It just raises the likelihood that everyone's going to beat. Who I think is the owner of that quote, but I'm not positive. Billy Crystal. Close. Mark Dow. Really?

I think Mark Dow said that a long time ago. A long time ago. I heard that quote when I was like in fifth grade. No, he can't own it. He might be the person that you first heard say it. Well, I said maybe. I said maybe. Yeah, I think it's very old.

I think it's really, really much older than that. All right, what stood out to you on this morning? Let's do the stocks that we always talk about on the show. Let's do Schwab first. So it's exactly what you thought it would be. If you're following the story, the big concern about Schwab is that you were going to see a lot of the account holder base migrate away from holding their money market funds where Schwab keeps most of the interest and move that money into alternative ways to get more interest for the clients themselves. Wait, I'm sorry to jump in, but what do you mean is exactly what you'd expect? Exactly what who would expect? Well, this is what I'm saying, like the stock fell from 100

to 50. And the main reason why it did that was people were concerned that Schwab's profit engine was going to be under pressure. And when you have prevailing rates at 2% and Schwab is paying 0%, people don't really care that much. But when you saw Fed funds go to 5%, then all of a sudden, it's like, wait a minute, what am I getting on my cash? Like, how could that be? Yeah. What? Sorry. I had to drop that in there. Not important to you. Keep going. Prevailing. Keep going. Keep going. Did I say prevailing or prevalent? No, no, no. I just dropped the Howard Stern cookie for listeners. Keep going. Prevalent. I know. All right. Anyway, so that's exactly what happened. But the difference is Schwab, so Schwab did see money leave their traditional money market fund

in search of yield, but they also saw money go into their funds and into their asset management business. And not everyone moving money out of cash is going into T-bills. Some people are going into stocks. And it turns out that that's not so terrible for the largest brokerage in America. During the March bank panic, Straub was trading at 75 bucks. The next day it closed at 65. The next day it closed at 58. And then the next day it opened up and fell as low to 45. When everyone is afraid of something like that, you can get a panic very quickly. And the fears were partly justified because a ton of money left their low, their basically non-interest bearing accounts and went elsewhere and significantly drove up their cost of capital

and squished their margins. And guess what? 60% of the money comes from that, comes from the sweep or the spread. Yeah. from the sweep or the spread. And so the market, as it tends to do, just over-discounted how bad it potentially was. And yeah, it was bad, but it slowed down. And the CFO said, we observed a continued and substantial deceleration in the daily pace of cash outflows versus prior months. And that's all the market needed to hear. Yeah, it got overdone.

I also think the company did a really good job. You know, it's a crisis management thing. And they had put out a lot of information that they don't normally put out to the market to try to clear up some of the confusion, a lot of that confusion being deliberate. But they said like, this is how much of our assets are actually in, in long dated treasuries. This is how much we have in cash. They like,

they did whatever they had to do in that moment when nobody really is reacting to anything other than panic. I think that was a good, I think that was a good stretch for them. Last earnest call. They were in the thick of it. I mean, the last earnings call was in March sometime, wasn't it? It was March. It was April. So it was a few weeks after that. And they said they tried to instill confidence in the market. And so we speak a lot about expectations and how you can't really know what's in the price of a stock until you see the reaction, right? Yeah. So today, if you just saw this headline, Schwab's bank deposits, again, it's a bank.

Schwab's bank deposits fell again during the second quarter, dropping to $304 billion from $326 billion in Q1 and $442 billion year over year. So they were $440 billion and now they're $304 billion. Holy shit, that's a catastrophe, except the stock already got cut in half. So that's why you could report numbers like that and have the stock up 12% in a day. So I bought this thing back in March and I sold it like seven days later or something. You came into it more recently. You've had a really nice trade here. And you told me before that you're going to stick with it. Where do you think the stock can get back to? I am not sure. So it's rising to, it's crashing 200 and moving average, which I wouldn't be surprised if it stalls out here only, not because of the moving average, just because it did find a lot of resistance in this area of $66.

So if it has like some backing and filling over the next couple of months, I'll take it. An earlier version of me would have bailed today. I think I'm up like almost 30% in the stock. One thing I don't, one thing I don't. Hold on, Josh, last thing I'm going to say is just when there was an, and it's very easy to sell into a day like this, right? But when there was an overwhelming amount of demand for a stock that's been pressured, I just don't want to sell early.

It's hard to write a winner, but I'm going to try to. So I was just going to say one thing I don't, I like, I like that it broke back above the 200 day. One thing I don't love. No, it did not, but finish unless I'm looking at something else. Go ahead. Excuse me. Broke, broke a 50 day. Okay. One thing I don't love is just the lower highs dating back from the market mania in late 2021. And if it does stall out in the 70s, and maybe you'll be out of it and you won't care, like if it got into the 70s and it stalled out and started to head back down again, that would be three successive lower highs. So we don't know that that's going to happen. But if I were like an intermediate to longer term investor, that would be the thing I'd be concerned about.

Just because the market is telling you that the investors are not willing to hold out for the old highs. And a lot of big companies are back at old highs. So this is not one of them. And obviously, that's not science. And that's not even fundamentals. That's just market psychology. But that would be what I would watch for. I should mention, every time we talk about these stocks, like, what are you trading, this and that, I'm doing this in my IRA. So I don't care about taxes. Right. Right. So you can

change your mind quickly on this. And it's not going to have a really major impact on your actual uh post-tax pnl um all right i want to move on to morgan stanley not bank of america uh you want what do you want to say about bank of america just quickly i didn't see anything really in there they said the same thing that that that uh jp morgan said um all businesses this is from moynihan all businesses perform well we still improve market shares shares, particularly in sales. And okay. Um, but the, the, the one that I want to highlight is the, what did they say about the consumer? Um, our customer spending pattern is now more consistent with the pre pandemic, lower growth, lower inflation environment. I thought that nugget was interesting. And they said that the, the, the consumer is actually in pretty good shape.

Everyone's saying the same thing. Yeah. For the most part about the consumer. You have charts from Bank of America? So just loans and leases, the consumer banking, I don't know if it tells you that much, but it's fine. No stress showing up here. There's nothing aberrant in that. They showed weekly ending deposit trends. Again, nothing with nothing here,

really nothing to report on, neither good nor bad. It's fine. Things are fine. Yeah. What's this? Net interest, income. If you were to worry about something with a big bank, it would be like loan loss reserves and this. I don't think they picked up that much at any of the banks. No. They did that already. They already did that. Moynihan, we delivered one of the strongest quarters and first half net income periods in the company's history. We continue to see a healthy US economy that has grown at a slower pace with a resilient job market.

All signs point to the soft landing. So it could change, but that's what it is for now. Let's do Morgan Stanley. Profit overall down 13% versus one year ago. A lot of that is a decline in trading revenue, which was down 22%. Investment banking was flat year over year. That's interesting. That's interesting though. They already did the thing. They already did the thing. Investment banking revenue was what? I don't know for them specifically, but it was cut in half in a lot of places and now it's steady. It's just, it hasn't had the comeback yet.

That'll probably happen in like the third or fourth quarter. It's coming. Here's the thing about Morgan Stanley. They have built the machine in such a way that, yeah, it's a shitty quarter for trading, let's say, because there's no volatility. Stocks basically spent all of the second quarter going up in a straight line. Like that's what stocks did. And in that environment, it's not bad. It's not good. It's just not a great trading quarter. But Morgan Stanley has a lot of different divisions.

It's really great for wealth management, asset management, their index business, their stock plan business. So to me, I really love as an investor, I love a business like this where a very big part of it is going through a slow period, but another part of it is benefiting as a result of that slow period. That's how these companies are set up so that they can live forever. There's always going to be a great business and always going to be a not so great business. And the key is to not destroy one of them so badly that it can't sit out a few slow quarters and then recover. Wealth management is the driver and has been for a while. They acquired Eden Vance with Parametric and E-Trade. And so wealth management delivered strong net new client assets of $90 billion and

record net revenues of $6.7 billion. I think I saw somewhere today there's $6 trillion in the wealth management unit. That's not even- They said they're going to 10. That's a unit. Yeah, 10 and then 20. They think they can get to 10 trillion. And here's how the machine works. So they buy E-Trade. E-Trade is millions of do-it-yourselfers, most of whom are probably blowing themselves up. Those are all potential leads for the wealth management group if they're large enough accounts. Think about how many seven-figure portfolios are sitting at E-Trade and the person who's managing them, it's his own money.

It's usually him. He's like – he's got to – at some point, he's sick of trading his own shit around and he just wants somebody to help him. That money is already sitting under the umbrella of Morgan Stanley. No brainer. That's a, an introduction engine to the advisors there. Right. Think about, think about the stock plan. So stock plan is like a, a, a company in Silicon Valley goes public. They have, they have the 401k. They have like stock option stuff, this and that. All of that is being processed and managed by Morgan Stanley. Those are all millionaires or soon to be millionaires.

It's a great referral engine to the wealth management. So they have very, I think, intelligently set themselves up so that they can get to 10 trillion. And they're really good at most of their businesses. There's not a lot of Wall Street businesses that Morgan Stanley's in where they're like a laughingstock or they're not good at it. They're pretty much good at whatever they do. So I think the stock can continue higher. I don't own it, but I would own it. And I thought this report was really strong. It looks good. John, throw up that chart,

of the purple lines with the four banks. So this is Morgan, then Schwab, JP, and Bank of America. And they all reported earnings. And they're all, you know, look, look. Dude, they added $90 billion in new wealth management assets. It's a lot of coin. Yeah, it's impressive. They did the thing.

All right, so we got J's impressive. They did the thing. All right. So we got J.B. Hunt after the close. By the way, the transports, the Dow Jones transports highest close today since April 2022. What did J.B. Hunt say? I didn't say it yet. I think, let's see. I'm relying on the transcript here.

They put out good shit on Twitter. J.B. Hunt, quote, another double miss, demand for intermodal. I'm going to be honest. I don't know what that means. Demand for intermodal capacity continue to be impacted by weaker overall freight activity, particularly import-related freight. Intermodal is they take the actual freight and they can move it from a train to a truck to a boat very easily. They don't have to take out whatever's in the container and move it to a different container. What is going on here with their revenue, miss? Jeez, what happened?

Give this chart on, please. What happened? They're super sensitive to durable goods and we had a boom and now this is the bus that results from that look at 2022 look at 22 hang on okay so all right so no no no that's not so this is a funky chart so those are those are annual and then we're looking at q2 in 2022 versus Q2, 2023, my bad. So it's not, it's not as alarming as it looks. Okay. Anyway, they pioneered intermodal. They were the first. So if you could, if you could, with a crane, pull a shipping container

off of a truck and load it onto a train, it's a much more efficient way to move things. And that's what JBHT is, is known for. They all do intermodal things. And that's what JBHT is known for. They all do intermodal now, but that's what that is. All right. So we got Wednesday. We have a busy day. Tesla, Netflix, Goldman, SL Green, which I almost sold, but we'll see. What's the setup on Netflix?

What is the street looking for? They're looking for not sub growth, right? We're going to talk about Netflix in a little bit. I honestly don't know what this street is expecting, but what I do know is that Netflix is now in the gap, not the, not the April gap, which was really where it went from three 30 down to two 40. I was, I was on vacation. The gap that they're now in is the January 22 gap when Ackman sold. No, Ackman sold in April. My bad. In January 22, that was when they first alerted the street that, okay, we are losing subscribers. And the stock went down. Stock fell 20% that day.

It's now in that gap. All gaps get filled eventually. Been saying it. All right, let's move on. This is a quintinia trifecta, this topic. We've got Goldilocks. All right, this is from JP Morgan. Quote, typically, the end of hiking cycle both steepens the yield curve. If that phenomenon repeats, then this would be supportive of equity,

specifically tech and cyclicals. Combine this with increasingly positive macro data, and we may be entering a Goldilocks period. That's from the JP Morgan trade. I get the same guy's stuff. He's a trader at JP Morgan. He doesn't publish it like it's research, but everyone gets it. Can you tell people what bull steepening the curve means? Can you explain that a little bit? That is when the hold on. That's been the CFA was a while ago.

That is when the short end of the curve falls faster than the long end. Okay. So it's basically- Positively sloped. It's when the yield curve starts to disinvert. Yeah, when it normalizes. So yeah, you would think that the stock market would like that. In a normal economic expansion, short-term money should be cheaper than longer-term money. You should be able to borrow at 3% short-term. And then if you want to borrow long-term, it should cost 5%. That would be a steep yield curve. You should get a normalization in the yield curve eventually

if we're actually going to have this economic expansion. So we're now at the S&P. The S&P is 2.5% from all-time highs, which is, you know, I see it, but I don't believe it. It's really just incredible. From Yardeni, our new S&P 500 target. We see the bull market that started on October 12th, 2022, continuing through at least the end of the next year with the S&P 500 reaching a new record high somewhere between 4,800 and 5,400,

most likely led by Infotech. And dude, tech is on such a whole ludicrous run. Tech is on such a whole ludicrous run. So Bank of America's Magnificent Seven is what they're calling them. The group is up 12 weeks in a row. Yeah. 37.5% gain for these stocks. Dude, we were talking with Semblist about this. This is from Bespoke.

Look at these charts. I don't know if I've ever seen charts like this from the mega cap. There's just, there's no pullback. Like I think Google, yeah, Google had a pullback, but maybe Amazon did too. But look at Apple, look at Meta. It was just, there's nothing. Did you see like Microsoft today made some announcement of like the pricing for an AI product? Yeah. I've got that later in the show. Don't step on it. I mean, I think this is really stupid. What's going on with these stocks at this point. And I own a bunch of them. We're now like in a, in a point at a point where there are some very large mutual funds that are being forced to sell them because they've got like, they've got like, uh, limitations in how they manage the money.

They can't be above a certain concentration. It's not like they're buying these stocks. These stocks have gone up so much that they're taking over active portfolios. And whenever you see headlines like that, I feel like they're the thing that you point back at eventually and say, we should have known that was the end or it was close to the end. You know what? It's maybe not the worst time to sell some calls. That's as far as you're willing to go? That's as far as I'm willing to go. Next chart, please. So I would really make this chart for me. This is an equal weight of the big seven is up 33% of the last mother of God in less than three months. And by the way, this is like a day or two old. So you get the point. It's a, it's just, wait, wait, the irony here. You mean to tell me all i had to do was buy

literally the best companies in the world and i could make 35 put that back up because that's what this is these are you don't have to like mark zuckerberg or you don't have to like elon musk but like arguably these are seven of maybe let's say the 20 best companies in the world right is that fair ish of course okay not at all times the 20 best companies in the world, right? Is that fair-ish? Yeah, of course. Okay. Not at all times, but right at the present moment. Meta might have been iffy to make that list a year ago, but not anymore.

So that's all you had to do. So I know Microsoft and Apple are at an all-time high. Tesla's not there yet. Amazon is still not really that close. Google as well. But Tesla, we spoke about this on the symbol list. Tesla is the only one where analyst estimates for earnings per share is not the only one. It is not going in the right direction.

So they report tomorrow. I am very excited what they have to say. Josh, what did you want? Let's give the final word to Kudlow. I just wanted to point out, yeah, Amazon is still quite a ways away. I just wanted to point out that whenever you hear Goldilocks, you should get nervous. It's like never, it never goes well when somebody says, oh, look, low inflation, earnings not as bad as we thought. The Fed will probably have to cut soon.

They're going to steepen the yield curve. Everyone is employed. Home prices are rebounding. Yes. Now, right now. All of those things sound Goldilocks-esque. I wouldn't disagree. And this is a classic.

Let's put this up, John. We'll put it up as an image. This is Larry. This is his Babe Ruth calling his shot into the outfield. This is one of his greatest hits. There's no recession coming. The pessimistas were wrong. It's not going to happen.

At a bare minimum, we are looking at Goldilocks 2.0. And that's a minimum. He said that. Goldilocks is alive and well. The Bush boom is alive and well. It's finishing up its sixth consecutive year with more to come. Yes, it's still the greatest story never told. He said that in December of 2007.

Listen, I was saying that in December 2007 as well. Sure you were. What followed was perhaps the worst financial crisis in 100 years. And I don't, chart off, I don't suggest that like, oh, Larry's an idiot. Everyone knew. It's just don't f***ing talk like that. Don't say Goldilocks. Like,

get up to a point where you're like, hey, you know what? Actually, things are pretty good. And then stop. Don't cross over into it's heaven on earth. Because it just,

even if things are okay for the next six months, it's still not going to age well. Would you have preferred if he just said things are good, not too, not too hot, not too cold? Well, let's, let's, yeah, right. Somebody's been sleeping on my bed. Let's also point out, he's not saying that in his capacity as an economist, which by the way, he never was, he was working for the Bush administration when he said that it's like a little bit, his job, like it's, that's kind of the gig. So I'm not, I don't want to keep that completely out of context.

So you're right. You're right. I know what you're saying, but just objectively, like it's not, it's not outlandish to say that right now things are, you know, things are where you want them to be. Uh, yeah. On a lot of fronts. Yeah. Low earnings expectations. Um, yeah, we've endured a lot of rate hikes. Nothing's broken yet. The system is functioning. There are companies with really exciting products. Like I it's okay. It's okay. I agree. I just don't want to go in the next, the next step and start using the G word. We have to all avoid doing that. I always look forward to the next VIX spike. So who knows what's going to cause it this time, but it's always around the corner. All right. Is this the start of the credit crunch? No. Is what? The New York Fed said that Americans are increasingly getting shot down.

Just real quick. I'm sorry. I meant to just say one thing on the bank stuff. Okay. So all of the large, we heard from all of the large quick, I'm sorry. I meant to just say one thing on the bank stuff. Okay. So all of the large, we heard from all of the large banks. I'm excited to hear from the regionals and we've got a lot of them this week. And not just hear from them. I don't care.

I mean, I care what they say, but I'm more excited to see the market's reaction to whatever they do say. Somebody in the chat mentioned that New York Community Bank is reporting in the next couple of days. That's, I think, the biggest winner off the lows. I don't know if you've watched that stock.

That's the one that I think I should have bought. Signature was probably its biggest competitor in New York and got taken down. Yeah, the stock looks very good. Stock looks great, right? NYCB or NYB, what's the ticker on that? Yeah, but this is NYCB. But this was, I mean, NYCB, but this was, I mean, they all were, but this was such a nasty waterfall. Geez. No, I know. I know. I didn't have

the guts. Well, that's why I just bought the index. All right. Go ahead. Americans are increasingly getting shot down when they seek out loans, said the New York Fed. They put out data on Monday. They said in June, credit was the hardest to get in years with fewer people seeking out loans and I suppose fewer loans being made. So this is part of a survey of consumer expectations, which Barry Ritholtz would probably hate. They poll respondents every four months about access to credit. respondents every four months about access to credit. The bank said that the rejection rate overall for credit applicants rose to its highest level since June of 2018. It's at 21.8%. In February, before the banking crisis, it was at 17.3%. The rejection rate was, quote,

broad-based across age groups and highest among those with credit scores below 680. No shit. Rejection rates for auto loans hit the highest level for a data series going back to 2013. Yeah, well, the auto market's all f***ed up. That's not that surprising. 14.2% versus 9% in February. I'm just – here's what I'm trying to say. No, throw the charts on.

Throw the charts on. Throw on the chart, but here's what I'm trying to say. No, throw the charts on. Throw the charts on. Throw on the chart. But here's, let me say the thing. One of the things that I was worried about this spring with the regional bank crisis was, is this going to severely curtail credit and the giving of loans in the economy where it counts on Main Street? It really hasn't in a noticeable way, but I think it really has not. It has not. Okay, fine. But there is an uptick now on this particular survey is all I'm saying.

The charts back on. If you squint, if you knew nothing, you would say, uh, this looks wildly ordinary. And so does the next one. I mean, yeah, okay. One month of uptake, okay. These come directly from the New York feds. This is not like our interpretation of the data. Look, I definitely think that I was overly pessimistic about this. And I am now in search of any evidence

that will make me feel better about the thing that I was worried about. And I suppose I haven't found it yet, but I had to try. So it's called, so Michael's basically saying it's Goldilocks and credit too. I'm saying, don't worry. The market will never go down ever again. As long as we live, there will never be a recession. Nothing will ever happen. There are no risks. Squint a little harder. All right. I think it's you now. Oh, wait.

We have one more thing. Retail sales. Go ahead. This is from Bank of America this morning. I think the news here is that everything's okay. There was a slight miss. Retail sales. Headline retail sales were up 0.2% month over month in June, which was a little bit weaker than consensus, which was 0.5%. Retail ex-autos came in at 0.2%, which was below consensus.

The core control group grew by 0.6%, which was a little bit better than consensus, according to B of A. They say the most robust growth was non-store retailers. Do you know what that is? Is that Instagram? Maybe that's e-commerce. Is that Instagram? I guess. Non-store retailers soared by 11% annualized in the second quarter.

And if you exclude non-store retailers, everything is down. So maybe that's what that means. I don't know. It seems like we're okay on the consumer. Third month of retail sales coming in positively because the consumer is fine. The consumer is fine. Okay. All right.

I want to talk about this. Modest Proposal had a great tweet that made me think, and I just want to talk about it. That's what we're here to do. He said, when Netflix reversed course on Quickster, this was back in 2010, and Meta embraced the year of efficiency, obviously it's 2023, it's likely there were faster and more forceful decisions made because of feedback loops from being public. Sometimes short-termism is bad, but sometimes market signals are very useful. Chart off. is bad, but sometimes market signals are very useful. Chart off. So again, he said it. When the market is telling you something, for example- Right. How do you know?

How do you know if it's noise or not? And sometimes you don't. But Dara from Uber got the memo very early, right? That the street is, we can't be doing this anymore. We got to pivot. And holy shit, did they pivot. But sometimes it can screw you in the other direction. So you could respond. You could say, all right, listen, this is not just the ebbs and flows of the stock market and our stock is falling. There are times where you have to address the stock price because that's a direct reflection of your business.

But it could also F you in the other way. For example, I think streaming is a great example of that. Netflix was the bell of the ball, right? For years, especially in the pandemic. And everybody went all in on streaming at the exact worst possible time. And a lot of companies are on the other side of that now. Yeah. Yeah. So in other words, so in other words, like if you're going to obey a market signal, do it faster than everyone else and you'll come out of it on the other side faster than everyone else. I don't know. I don't, I don't know. I think sometimes the market sets a very clear signal and sometimes the market, you know, sometimes it's just your stock's just out of favor. So I think there's like definitely an art there. So speak,

we spoke about this earlier. In terms of how the stock market can signal or change the thinking of the executives, 100% that's coming with AI, 100%. So Microsoft said today, based on the positive feedback from our pilot testing, we're pleased to share our final pricing today. Microsoft 365 Coal Pilot will be available at $30 per user per month. And how did the stock respond? I made this at like three o'clock, so I don't know what the final numbers are, but chart on please. The stock added $145 billion worth of market cap in a day.

And the rest of the market will notice this very quickly and shit is about to go nuts with AI. This is so stupid though. I mean, what's the signal that Microsoft should obey here? More AI press releases? Not Microsoft. It's going to be other companies. Well, I mean, yeah, this is one of the things that we've been saying since the beginning of the year. You had $150 The bubble year for-

You had $150 billion worth of stock and other people will pay attention. Yeah. Listen, I think that's true. And why wouldn't they? This is like, it's human nature. What's this Verizon AT&T thing? You know what?

We're going to save this for next week. I got to go to Camp Coleman later. So let's skip this. It's visiting day. Oh, is it? Okay. It is. Let's keep it moving.

Atlantic Beach is the New Hamptons, according to the New York Post. I'm including this for a couple of reasons. Number one, you and I are both members of the same beach club in Atlantic Beach. For people that are not aware, Atlantic Beach is definitely not the New Hamptons,, it's on the border of Nassau County and Queens on the South shore. So it's like, so it's like you have Queens and then there's like a jetty and a little bit of water. And then the next thing you know,

you're in Atlantic beach and then it's long beach and then it's, uh, Lido beach. And then it's point lookout as you head. There are some sick houses on the water, but is not atlantic well they show they put up an 11 million dollar house 7 000 foot double lot which is a 7 000 square foot double lot atlantic beach son yeah damn where is that yeah now you're a landlord in nearby island park maybe you should consider investment properties in Atlantic.

Can I tell you the gist of why they're saying this? Only 1,800 people live in Atlantic Beach, which I didn't know. Tiny, tiny, tiny. They now have $11 million houses because Wall Street went back to a five-day work week, which means it's not feasible to commute from the Hamptons to your job on Wall Street.

Atlantic Beach is on the border of Queens and is probably like a 40-minute commute into Midtown. But how do you get there? What train station do you take? Which train do you take? Lawrence? No, you would take the train from the five towns or Long Beach. No, no, no. You're not doing Long Beach.

You wouldn't go back east. But you wouldn't go. Yeah, you wouldn't go back east. Maybe you would go into like Oceanside. What's interesting, it is super duper quiet, right? There's like, I can't imagine anybody's raising kids there for the most part, right? Because where do you send your kids to school? Many financiers are-

Dude, literally- There are 15 properties on the market right now at Atlantic Beach. Could we just scroll through some pics real quick john put this up so this is like this is it from the water these aren't beachfront a lot of it is beachfront it's not just on the other side it's bad that's the bay side yeah let's give me more what else you got all right not bad that's on the bay i think i want on the beach if i do this oh my god not that i have 11 million dollars to do this right now it's i mean it's there's sick stuff there ridiculous it's by the way but it's like

there's like four people listening that care about this um yeah those those houses ridiculous all right so i i spoke about this chart with animals with with benton and animal spirits it's from tam sarafagos and it's a great one. So everything was beating, cash was beating everything as the market was careening lower. Now, basically every ETF, or three out of four, chart on please, are beating cash, or BIL, short-term bonds, basically cash. And I want to make a very, very obvious point

that I think might get overlooked. Chart off please. So we spoke about this extensively on Animal Spirits today. I am not here to dunk on people who shifted some of their money into 5% no-risk treasuries. I think that's a rational move. Now, the market is inflicting pain upon you

if you took money out of the market and you moved to the safety. Like, yeah, it sucks. It's not fun in the short term. I still think it's rational. So I'm not here to dunk. But one point that I want to make, again, I know it's obvious, but it's important. If you're getting 5%, that is an annualized yield. You have to hold it for a year in order to get that return. In other words, if you get out of that in two months, and I don't know where rates are going to be going forward, but if you get out of that, it was all for nothing, right?

You're not getting the yield in a short period of time. If you're like, oh, I don't want the yield anymore. Actually, what I really want is to chase AMD, then you didn't get the 5%. Yeah, do not do that. Do not do that. So if the market is goading you into poor behavior, do not make a bad decision. It's not a bad decision. Going into those yields is make a bad decision. It's not a bad decision. Going into those yields is not a bad decision. It was a bad outcome. But do not make it worse

by now getting out of that, having not earned the yield, and chasing the stock market. Do not do that. I feel like just having a financial plan for the actual usage of the cash, not like, you need a financial planner. You don't, you don't, you just need to know like, what, what is the use of this bucket of money versus that bucket of money? So if you have money that you're like, not going to use for 10 or 15 years, that's not the money that you should have moved into T-bills with a 4% yield. But if you have money that, you know, you need to use next year, the 4% is still rational. I don't give a shit what the NASDAQ just did. I agree. I totally agree.

You did the right thing. I totally agree. It's okay. Oh, you could underperform. Guess what? Nobody's paying attention to you. Nobody cares what you do. You're not doing this professionally. It's your money. Then you don't have to explain yourself to anyone. You made a conservative move, and it's fine. I totally agree with you. The dunking shit is whack. We're going to make the case and then we'll do a mystery

chart and we'll get out of here. I talked about this already on TV. I don't want anyone to follow me into the stock. I just want to talk about why I personally am involved in the stock and I could be wrong and it's volatile. And you know, did you pitch us already? Um, no, not on the show, but I've been involved with it

publicly. I started to buy it like a few months ago and I just doubled my position in it this week. I like to buy stocks when they're breaking above 52 week highs provided I didn't miss too much in the move. So I have a lower average cost than where it is now, but I did buy it where it is now. Also, uh, toast is basically a company selling into a $600 billion a year annual business, which is the restaurant industry. And so many restaurant, the restaurant industry is extremely fragmented. And as a result, toast is the largest player and they only have like 10% market share. And I like situations like that where one company can become an industry standard. Wait, can you just explain what they do? Every computer system that has anything to do with running a restaurant, whether it's point of sale,

where the waiter or waitress is swiping your card, or it's reservation system, or it's point of sale where the waiter or waitress is swiping your card or it's reservation system or it's ordering food for the chef or it's maximizing when the staff is going to be there in their hours, like any conceivable technological thing that you would need at your fingertips trying to efficiently run a restaurant, Toast will sell you that software and that equipment. And again, they're the biggest, but they have 80,000 restaurants as customers. They signed an enterprise deal with Marriott two weeks ago. All of the Marriott restaurants, which is everything from steakhouses to bars to coffee shops, I think are going to be equipped with To toast. And I just think they have like this once in a generation opportunity to just grab onto the industry and become the standard. The reason why that's

important for restaurant owners who are really just business owners in the end, there's so much turnover in restaurants and bars that you're constantly having new people come in. If they know how to use one particular type of software, it drastically cuts down on how much training is involved. So I think that that's why the industry will have a standard. And I think Toast has a shot to be there. Let's just do some of these charts really quickly. to be there. Let's just do some of these charts really quickly. Go back one to, oh, what is this? This is since inception. So it came public in 21, bad timing. Next chart. This is what I like. Yeah, it looks good. Breaking a 52-week high. This is earnings, revenue growth year over year. So obviously when it came public, it was pandemic era insanity.

53% is pretty legitimate. Here's a profit year over year, quarterly, and they don't have a full year of profitable earnings yet. Last one is cashflow. This is still a negative cashflow story. So expect it to be twice as volatile as the overall market. This is not for most people to do, and it's not a big position for me. Anyway, I wanted to throw that out there. Michael, do you want to do your mystery chart? I did, but before I do that, Josh, I didn't tell you this. I sold a breakeven dollar general, and I'm back in Caesars. Remember, I got shaken out of Caesars last time? I'm back. Yeahesars. Remember I got shaken out of Caesars last time? I'm back. Yeah. Why are you back? Because I think it's going to-

Do you like where the price is? Well, actually I bought it three days ago as it was approaching the... So I bought this in February at the exact same level. This is like the third time that it failed there. And I got a tight stop. So I think I lost like 8% whenever it was, something like that. And then I bought it on, what's today? I think I bought it on Friday and it had like three consecutive red days. I'm like, oh shit, I did it again. Like I bought it anticipating a breakout, but I think we're here. I think it's breaking out. Just a reminder. You could see the disclaimer below us. Nothing we ever say here is advice. We don't know you. We don't give advice on the internet. And as I mentioned, I'm having fun. I'm having fun. This is not like a... Yeah. Definitely don't give advice on the internet and as i mentioned i'm having fun i'm having fun this is not like uh yeah definitely don't think that we're giving you financial advice okay but i but but i

do think this is breaking out that being said okay here's my you could give me financial advice here's here's to me here's my mystery chart on please john all. So what we're looking at here is a ratio chart. Okay. It's a ratio. And that ratio represents market cap. Super volatile, these two stocks, one versus the other. Hold on. It's one stock's market cap priced in another? It's one stock's market cap divided by another. So what you would see is Priced in another? It's one stock's market cap divided by another. So what you would see is the now larger one, right? The one that is now 1.3 times larger than the other spent the first 15 years chasing it, okay?

Right? Okay, yes. And it broke above, crashed, boom, boom, ping, bong, boom. Next chart, please. These are the actual market caps. boom, boom. Next chart, please. These are the actual market caps. So the orange one is now bigger than the purple one? Correct. And we spoke about one of these companies today, and we didn't speak about its dog shit competitor. And I own both of these. And luckily, I own a lot more of the

one that's doing well than the one that's not doing well. I want to say like NVIDIA Intel? mean yeah i mean the intel no no you're not no no you're you're the comparisons are right but it's the wrong industry group the comparisons are right but it's wrong yeah like yeah i mean they're you know they're they're uh it's coke and pepsi basically oh uh netflix disney there you go wow look at this right. I got on the second try. I mean, Disney, could the news be any worse? It just keeps getting worse. So they're saying now publicly, they just put de facto, they just put the linear TV business on the block. It looks, so I know I'm, I know I'm holding a loser. Wait, wait. And they said that they want to cut content costs simultaneously.

They want to buy the one third of Hulu that they don't own. So they're going to sell ABC. They're going to sell like the biggest network and they're going to use that to buy the rest of Hulu. So who are they selling it to? Things look horrendous. It's a new article every single day. It's front page shit about what a disaster it is.

And the stock looks awful. Momentum has gone the wrong way. That being said- Did you see the snow white still photo? I saw it. I saw it. I saw it. I saw it.

I'm sorry. I'm not as bad as things look. And maybe this is going to bite me in the ass. I'm not selling Disney in a 58% drawdown with all of the news. We spoke about expectations a lot. Do you think that there is anything good in the price of the stock right now? Could expectations be any lower? No, I think I'm going to buy this stock in the 70s. But wait, but Josh, I would say you're right because it's hanging on by a thread. And I mean, it looks like it's going to break. It just does.

There's actually no reason for them to not come out and kitchen sink the next quarter. Well, guess what? They report, they report in a week and a half. So yeah, there's no reason for them to just not come out and like, just say, get it all out. Yeah. I think it's going to be like a, I think it's going to be like a, what's called cathartic. He's just going to be like, look, here's the deal. We got businesses that are not going anywhere good, and we're going to have to sell them.

And I think it's going to be like that. I think I'll buy it in the 70s. All right, guys, thank you so much for watching. Remember, tomorrow is Wednesday. Another all-new Animal Spirits episode will be out. That's Michael and Ben, my personal favorite podcast in existence. Thursday, Ben is going to do Ask the Compound right here on YouTube Live. I'm actually going to join that. And then on Friday, another kick-ass episode of The Compound and Friends. Thank you

guys so much for watching, for listening, rating, reviewing, subscribing, doing all the things. We love you. We'll see you very soon. Take us out. Whether you're just getting started as an investor or you're managing a multimillion dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit ritholtzwealth.com. Don't forget to check us out at youtube.com

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