The Compound and Friends - 2024 S&P Targets With Sam Ro, Dow All-Time Highs and the Gold Rally

Episode Date: December 20, 2023

On this episode of TCAF Tuesday, Josh Brown is joined by Sam Ro to discuss the 2024 market forecasts. Then, Josh joins Michael Batnick for an all-new episode of What Are Your Thoughts! Topics include: all-time highs, the gold rally, M&A's comeback, the best sector, and much more! Thanks to Rocket Money for sponsoring this episode! Cancel your unwanted subscriptions by going to: https://rocketmoney.com/compound 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

Ladies and gentlemen, welcome to the compound and friends. Tonight's show is brought to us by rocket money. So this is a cool app. It's a personal finance app, similar to what a mint used to do. Put all your spending in one place, help you create budgets, monitor your credit score. But there's another feature that I want to talk about. They help you cancel subscriptions that you just, you're paying for them. You don't know why you're paying for them. You don't know why you're paying for them.

Maybe you forgot. Rocket money will detect everything that you're paying for, and it'll even help you cancel it or potentially get money back that you've wasted. They can actually negotiate lower bills for you. So 5 million people are using this thing and they've been saving an average of $720 a year. Rocket Money claims to have helped users cancel $500 million worth of subscriptions that they no longer wanted. So go to rocketmoney.com slash compound. It's really easy to set this thing up and start saving money immediately. Why wait? Rocketmoney.com slash compound. On tonight's show, we talk to Sam Rowe. Sam Rowe

is the writer at Ticker.co. Sam tells us all about the price targets that Wall Street is putting out for 2024, some of the math behind those targets, some of the thinking going into the various strategist pieces. We have some bears, we have some bulls, we have some people looking for a flat year, and we get into all the reasons why. Directly following that, it's Michael Batnick. It's me, Josh Brown, and we are playing What Are Your Thoughts? We'll start off with the Barron's cover, Stocks Beat the Odds This Year, Why They Can Do It Again in 2024. Nothing makes people bullish like a bull market. We also talk about the Dow going out this year at all-time highs, the big rally in gold

that's currently underway. We look at some sectors. We have a mystery chart. It's a loaded show. I don't know what else to tell you. Thank you guys so much for coming and listening. We appreciate it. Enjoy the show.

I'll send you there now. 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 Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. positions in the securities discussed in this podcast.

Hey, everybody. Here with Sam Rowe. Sam is the author and founder of one of my favorite sub-stack letters, TKER. Sam is here to talk about Wall Street's 2024 S&P 500 targets, economic outlooks, etc. Welcome back to the show, Sam. How are you? Great. Thanks for having me. So the tone this year is obviously way more positive than last year, I guess because we didn't have the recession and everything just went up a lot. So people tend to feel better after things go up and tend to feel not so positive about the future after things go down. You think there's more to it than that? Yeah, I think the only thing I would add is that you have a Federal Reserve that's a little

bit more dovish. Well, I don't know if it's necessarily explicitly dovish, but it's certainly not as hawkish as it was coming into 2023. Because we were still dealing with inflation, right? Like it was still sort of like the early innings of inflation rates coming down. And so everyone was freaked out a year ago that, you know, the Fed is going to have to, you know, continue hiking. And of course, the idea of more hiking and more tightening policy means recession risk was going to be very high, which is why people were so cautious last year.

But that's no longer the case. Yeah, it's a year later. A lot has happened. It's a year later. A lot has happened. New things have come to light. New information. A lot of ins and outs, a lot of what have yous. As we're recording this, we have most of the big firms at this point have put out their outlooks. So I just want to walk through. One of the things you pointed out is how wide the range is. So the highest price, let's set the table. The S&P 500 as of this recording is about 4740. So the highest target that you have here is capital economics, looking for 5500 next year.

That's about a 20% gain from where we are today. The low target, interestingly, is JP Morgan, 4,200. Who's the strategist with that target? I think you guys talked to him quite a bit about that, but that's Dubrovko Lekos Bougias. It's interesting. Their fundamental outlook is actually constructive. It's just that they just think that the valuation, the multiple that they're putting on the earnings outlook is kind of on the low end. So they're looking for the year to end at 17 times earnings, which if you just, the difference between 17 times earnings versus 18 times earnings versus 19 times earnings is

astronomical. And by putting 17 times forward earnings as their multiple puts them at the low end of the category. It's interesting how big of a difference that makes on the S&P's price. It seems so incremental when you talk about PE ratio ranging from 17 to 19, but that would account for a fall of 8.5% from today's level if that's where the PE multiple settles out by the end of next year. Right. And that's assuming that they nail whatever their earnings target is. And so the price targets that everyone has is extremely sensitive to a combination of the multiple and their earnings forecast. And as soon as you start tweaking either of those, you have these wide variations. And when

you tweak both of them, you have these very wide variations. But I guess another thing to sort of point out, though, is even within this range, Josh, like 4,200 to 5,500, and most of them are pretty close to sort of this median area of about $5,000 and high $4,000s. The range is actually kind of tight when you sort of think about the history of market returns. There's many instances where you have greater than 15%, 20% annual returns in the S&P. And there's a lot of years where you have pretty significant losses. Not frequent, but there are a lot of times. The range here is probably a little bit wider than usual. But generally speaking, if I were to bet money, I would say that the year is probably going to end 2023 or 2024 at either above the high end or below the low end.

So one of the most interesting things about the history of market returns is that average returns themselves almost never appear. Right. So if you think, let's say like a 50-year average return for the S&P 500 is 8%, you almost never have a plus 8% year. You have more years that are double-digit gains than you have of average years. And so we end up with an average because of those swings, but we really don't get that quote unquote average year very often. Right. And the average and the median among strategists right now is right around 5,000 for the S&P. And that's like about 8%, which again is smack dab in that average range. Of course. And it's not an accident that that's where we land.

No, no, exactly. The average of the strategist price targets gives us the standard 8% average return for 2024. Okay. There's a cluster in the middle. Wells Fargo's at 4625. Goldman's at 4700. Sock Gen's at 4750. Barclay's at 4800. After the year that we've had,

obviously, those would be a little bit of a letdown, but not terrible. Like if you were to average out 23, which it looks, where are we going to finish 2023? Up 22%? Yeah, a little over 20% probably. Yeah. Okay. So if you were to average that with the flat year that those firms are predicting for 24 and you were to take an average of those two years, you would say, all right, plus 11, I can live an average of 11% returns over those two years. Okay. Yeah.

And just to get back to how crazy some of these one-year targets and this whole exercise of trying to nail the target is. Josh, you mentioned that, you know, Goldman had a target of 4,700. Well, you know, just before we started talking, you know, Goldman released an update to their 2024 outlook. And they revised their 2024 target to 5,100. Oh, my God. Which gets you about 10%. I can't believe it.

It's like, they had their target out for a month. And then within that month, we had an incredible year in the stock market since November and October. Yeah. And so by revising up their new price target, they initiate at 4,700. We're trading at about 4,700 now. Add 8% to that and you get to 5,100. I'm sure somebody has done this research.

Maybe you've seen it. Has anyone ever looked at the tendency to revise a price target higher in December based on whether or not November went up? Or how frequently are revisions higher versus lower at the end of the year? I would bet they're almost always higher because December is almost always a good month. I think you're right about that. So the great Helene Meisler on Twitter, this great, incredible veteran technician, always says sentiment follows price. Yeah, she's right about that.

I've always agreed with that. And it's also been the case for these outlooks too. So one of the things that I include whenever I put together these roundups of these year ahead outlooks is I have a disclaimer that I copy and paste every single time I publish this at the very bottom. And I say these targets will frequently get revised throughout the year.

And some of these targets that you're looking at are actually revisions to those year ahead targets. So it is actually not uncommon for a firm to revise their next year's target before we actually enter that year. It's such a great point. These things start from somewhere and then they will shift. And it, they, I mean, you could say, well, that's like, uh, changing your bet on a football game at halftime. Okay. But it's not a football game. This is investing. And if you change your mind, you should change your outlook. Right. Right. Yeah. It's not a magic trick. Right. It's not a magic trick. It's not a magic trick. You pointed out that the S&P 500 calendar year bottoms up, earnings per share estimates are actually ticking higher as well, which I think we've learned it's not the end all be all, but it definitely doesn't hurt when directionally speaking, earnings are growing.

It won't always help you, but very infrequently, it's going to hurt. You talk a little bit about where we're at with earnings expectations? Yeah. So 2023, it's looking like we're going to close out for S&P 500 earnings at about $2.22 a share, about $2.20. The consensus right now for next year is calling for $2.46 per share. So that's about a 10% gain. Of course, that's right in line with the averages, right? Right.

And there are some early 2025 forecasts right now too. And that consensus is at $2.76 per share. And so that's a little over 10%. So that's how you're getting a lot of these more sort of bullish forecasts from analysts because these are the year-end 2024 targets, right? So they are applying a forward earnings multiple based off of an assumption on 2025 earnings. Right. Now you make a really interesting point. We're not looking at huge GDP growth forecasts, but one of the ways in which stock market earnings growth could outpace economic growth is if there's a swing back from consumer services spending, like travel and restaurants, to consumer goods, or any goods, consumer goods, or any goods, quite frankly, which have a much bigger weighting in S&P earnings than services do.

I think it's more than two-thirds of S&P earnings come from goods and less than a third comes from services, which is obviously not the composition of the real economy, but it is the composition of S&P earnings. Can you explain that a little bit better than I have? Yeah. So there's a couple of ways to sort of unpack this, but S&P 500 companies tend to be these larger companies that because of their scale, or I don't know if it's a cause or effect, they are in the manufacturing business. And when you're big, manufacturing is where you have the advantage. Whereas with smaller businesses, which make up a considerable part of the economy,

tends to be a little bit more services-oriented. So yeah, when you measure U.S. GDP, yeah, I think it's probably closer to about two-thirds is sort of services-oriented. Whereas with S&P 500 earnings, you're about two-thirds goods-oriented. This is so important for people to understand because we try to tell people, you, me, our little cabal of content creators, we try to explain to people in a million different ways

how the stock market is not the economy. This is one of the fundamental reasons why that's true. The composition of where profits are coming from does not mirror US GDP. Right. And on top of that, the S&P 500 gets about 30% to 40% of their business overseas. And when you're just talking about big publicly traded companies, most of them are doing businesses across the world. And one of the advantages you get from that, in addition to scale and all this stuff, is businesses can shift their operations depending on where the demand is. emerging market that your company is operating in, maybe you double down in some place that's hot so that you can get your sales and earnings up. Because that's your job as a corporate executive, as a big company that answers to shareholders. You got to get those earnings up.

So speaking of earnings, the source of those earnings are profit margins. And one of the points that you make here, contrary to popular belief, there was no real mean reversion to profit margins. Corporate profit margins actually rebounded from 22 into 23. I think the layoffs at large companies probably played a role in this. But I also just think like maybe the raises not being quite as acute that we saw in 22 not continuing to 23.

You had a lot of supply chain and commodity price pressure come off. So just to give people a little bit of a background, profit margins in 2021 were very high. Companies largely were doing as much business, but not paying for people to be anywhere. And that had to come off somewhat into 22. were doing as much business, but not paying for people to be anywhere. And, and, and, you know, that had to come off somewhat into 22. And of course it did, but then we rebounded in 23. So corporate, it looks like net margins, which is all that really matters, still about 12%, which is consistent with 2017, 2018, 2019. And they just have not collapsed in the way that a lot of bearers had predicted they would. Right. And yeah, and so this is actually driving a lot of the variation between

the strategists when it comes to their earnings forecasts. There's definitely some divide there in that there are some strategists who are convinced that with slowing economic growth and excess savings going sideways on, you know, people who are sort of, I guess, overspent and starting to dip into, you know, dip into their savings or using credit or whatever, as that cools off, you know, there is this idea that, you know, maybe companies start to compete on price, which is going to be a head win for margins. But on the other side of it, you know, the consensus just still says that, you know, at worst, you know, margins will probably just go sideways. Because, you know, again, we're not talking about, you know, consumers and businesses

going from okay levels to crisis levels of spending and crisis levels of, you know, unhealthy finances. We're coming off of this extremely unusual period where household finances were unusually strong and business finances were unusually strong. So the general narrative, I think, that most of these strategists would agree with is the slowdown is not necessarily recessionary, but it's more of going from a very hot economy

to something that's a little bit more normal. I think one of the other interesting aspects here is the question of whether or not we're going to have a recession is going to have a huge impact on revenue expectations. And I mean, we could ask this question at the beginning of any year, but this will determine what the revisions look like halfway through the year.

If we get what looks like a recession in the first two quarters, which is not the current consensus, it's going to change a lot of people's opinions about how the year ends, which of course makes perfect sense. It's just one of those things that we can't really see this far out in advance. things that we can't really see this far out in advance. Yeah. And historically, when you do get a recession, you have on average, you get an earnings drawdown of about 30%. And, you know, because earnings are so critical to stock prices, you can expect quite a bit of volatility there. But, you know, something that's like kind of, you know, I'm trying to still unpack is, you know, conviction about a recession in the near term is much lower. Like people are much more confident that, you know, we're going to dodge a recession in 2024 than they were a year ago coming into 2023. Well, you said the economists that these stock market forecasters work with. So let's be clear, the strategist at these firms is a separate role from chief economist, and they have lunch.

So you point out the economists are split on whether the US will go into recession sometime during 2024. But you also point out those who are expecting continued expansion are really only expecting modest growth. And those who are looking for a recession are using terms like brief and shallow. So we might be split, but it's not that wide of a chasm between moderate growth versus shallow recession. Right. Whereas last year, everyone was saying that a recession was happening. That was the consensus call. Yeah, right. Exactly. And it was the difference between if it was going to be a shallow recession or a deep recession. So yeah, the, you know, it's like, there's nothing particularly rosy about, you know, the economic outlook right now,

but whatever it is, it's enough that the strategists are convinced that earnings growth will outpace GDP growth. Let's get into a couple of these individual calls. So let's start with JP Morgan, which is the low target on the street. $4,200 on $225 in earnings per share. So to your point, they're not looking for an earnings collapse or anything like that. They're just applying a lower multiple than the others. Quote, with a step down in economic growth next year,

7% year over year, I guess that's GDP. Yep. Down from 2.8% in the fourth quarter of 23. Eroding household excess savings and liquidity and tightening credit. We see 2024 consensus, hockey stick earnings per share growth of 11% as unrealistic. Negative corporate sentiment should be a catalyst for sharply lower estimates early next year. So that's

Dubrovko-Lakos, we think? Yeah. Okay. So he's basically looking at the consensus. He's saying, you guys want to bet the S&P grows earnings by 11% next year? I don't think so. But what's this part with negative corporate sentiment? Will that come from companies missing estimates or some other source? I think that the expectation here is that the economic headwinds have not quite come through at the corporate level yet. I don't think it's crazy for him to flag things like eroding excess savings and stuff. These were things that were driving the excess demand in the last couple of years. Stuff that was preventing, as much as you try to hit the economy with high rates, all that the high rates were doing, it wasn't driving us into recession.

It was just taking off a lot of this excess demand. But without these sort of forces like extra job openings, extra savings and all this stuff bolstering the economy, I think it's fair to say that probably the odds of a recession or the vulnerability is probably a little bit greater than it was a year ago. But I'm no economist. Well, no, but it's interesting because most people don't see it that way. And mostly it's because stock prices have rallied so furiously. It's now the furthest thing from people's mind.

But it really is not a risk that's off the table. And I think that's a good call out. Can we talk about Mike Wilson? Sure. So Mike famously was the most consistently bearish in 2023, which turned out to not be the correct posture. And no disrespect to Mike, it's a really tough job. He seems like he's not doubling down. He's at 4,500, and we're at 47 and change.

So that's not a wildly bearish prediction. Is he softening his stance toward the environment? Or what seems to be changing in the way he's writing about the current conditions? So something that he's been writing about actually for maybe like the last year and a half, and it's pretty constructive, is he's been writing a lot about how companies, when things should turn around or when business should pick up, would benefit from operating leverage. So this whole idea that during the early stages of the pandemic with all the layoffs and all the restructurings and all this stuff, that corporations were going to be in a much better position to benefit from earnings growth because their operations were going to be that much more efficient because they laid off all the laggards and they were able to replace equipment.

They got fit, right? Yeah, they got fit, right. So he's been saying this for a little while. So it's like if you disagree with his price target, that's one thing. But the fundamentals that he's been talking about has always been pretty constructive. And so when you look at like, you know, when you sort of really, you know, dive into his research, you know, for his 2024 outlook, he's talking about all the same stuff, like, you know, AI, new equipment, all this stuff is going to drive productivity, and that's going to help amplify earnings growth.

But he's also applying one of the more conservative multiples on that earnings expectation. He's at 17. He's at 17, yeah. So, again, it's like that's going to determine your price target, whether or not you look like a bull or a bear. And I don't know. I don't want to characterize him as like a perma bear or like super like bearish. He's not, he's not. Cause if he were, he would say 15 times and he'd be talking about crises brewing

and he's not doing anything like that. So he seems to be moderating. He's looking at $229 a share in earnings, putting 17 times on that. That's how you get to 4,500. And he points out, or you point out, the 20-year average PE ratio is 15.6. So he's actually above the 20-year average PE, given all of those things that you talked about.

So he's not a perma bear. And I don't think people should look at his commentary that way anymore. Yeah, yeah. And just as a general matter with these PE ratios, I think the last time I was on the compound and friends with you guys, we talked about the reliability of applying PE ratios when it comes to figuring out what your price is. It's not easy.

It's not easy and it never works. There's literally no correlation between the current PE ratio and stock prices one year removed. And so, again, a lot of the commentary you'll see driving the divergences in a lot of these outlooks is some people think 17 might be too high. But there are people who will say that 19 might actually be low. I'm just looking at the tweet. Well, a 19 PE is, from my perspective, the labor market stays strong, GDP surprises to the upside all year, inflation continues to moderate.

And interest rates come down. And the tech giants keep tech gianting, you could easily be at a 19 PE. That should not be even a stretch. Obviously, I'm asking a lot of conditions. Let me get to two more with you. Bank of America. Is this Civita?

Let me do, I'll get to two more with you. Bank of America, is this Civita or is this? Okay. Quote, the equity risk premium could fall further, especially ex-tech. We are past maximum macro uncertainty. The market has absorbed significant geopolitical shocks already. And the good news is we're talking about the bad news.

Macro signals are not muddled, but idiosyncratic alpha increased this year. I don't know what that means. We're bullish, not because we expect the Fed to cut, but because of what the Fed has accomplished. Companies have adapted to higher rates and inflation. I agree with all of that, that I understood. She's at S&P 5,000 on $235 worth of earnings. That seems like a reasonable, like look at everything that we have absorbed. Look at everything that companies have gotten accustomed to. I think it's important that we do that.

Yeah, no, no. I think that's right. And absorbing significant geopolitical risks, right? Like everything that's terrible that we've heard about in the last couple of months, and you know, in the last two years, you know, the world economy has managed to get past that. So that's probably a good thing that you know, uncertainty premiums are coming down there. Unfortunately, you know, it's not the, you know, the stuff that we already know about that sense of rock markets. It's like, what happens tomorrow? What happens two months from now?

Everyone was saying things were looking really good before the COVID pandemic hit. February 2020, I don't know if you remember, there was a really high degree of quote-unquote certainty going into 2020. Because 2019 was, okay, we got rate cuts and all this. This is great. But of course, something comes out and I'm not trying to predict another pandemic, but the history often shows that it's the stuff that we don't expect. And sometimes we get surprised by

things. Well, Sam, all the time we get surprised by things when it really matters. So to your point, we have all of the commentary from 10 different strategists about their outlook for next year. If something were to come along and really throw a monkey wrench in and materially change everything, it's not something that they would, by definition, be writing about right now. Nobody was writing about a global pandemic at the end of 2019. It was not on the radar of any chief strategist at any firm, nor should it have been. Because those unknown unknowns are the thing. Even with those shocks, like the COVID pandemic and the unexpected persistence of high inflation, a lot of this stuff ends up forcing economists and strategists to slash their near-term outlooks very aggressively. And something that's just incredibly ironic over the past couple of years is, I mean, just look at 2022 and going into 2021.

Everything looked like the world was coming to an end, but the next thing you know, you have this massive recovery in earnings, massive recovering in the economy, and massive recovery in stock prices. And it's the same thing, you know, even coming into, I guess, 2022 or 2023, right? Like, the nightmare bear market of 2022 was going to continue into 2023. But for some reason, things turned around. And so suddenly you have the same strategist slashing their 2023 outlooks going into 2023. And then they turn around and they have to revise things up. You made that your chart of the day, chart of the year, rather. Jonathan Golub, I think at UBS. Yep.

He shows the decline in GDP and then the snapback and just like how unexpected that was by the consensus, which of course it is by definition. These are always surprises. Reserve made the exact same assumptions. If you go back to early 2022, they had a very rosy outlook for the 2023 economy. If you look at the beginning of 2023, they thought that we were going to barely start a recession and they were looking for like 0.2% growth in 2023. And then just last week, they give us the latest economic forecast and they're at like.6% or 2.7% growth for 2023 GDP. So they did a complete run. Up from zero point something expected. Yeah, yeah, yeah.

So nobody's good at this. All right, the last one I wanted to get. And they have all the inside information too, right? They're actually causing it. Here's the last one I wanted to get to. Who the hell is this guy or gal at Capital Economics? This was interesting. Yeah. So a lot of people exclude Capital Economics from their roundups. I include them. They're a pretty big shop. They've been around for a little while and they share their stuff with me. But I think it's great in that- Who is the strategist? Do you know, they, they share their stuff with me. Um, but you know, I think it's

great in that. Well, who is this? Who is the strategist? Do you know a fan? Uh, I think his name is Thomas Matthews. He's there's a couple of people over there who've been writing about stocks for a couple of years now. They're legit calling for a bubble. Can I read this and then I'll have you react to it. Okay. Capital economics Capital economics, 5,500 target as of December 1st. Quote, still time for the S&P 500 to party like it's 1999. It has come a long way lately thanks to both a rise in its valuation and an increase in expectations for earnings. This partly reflects investors' enthusiasm about AI technology. If AI enthusiasm is inflating a bubble in the S&P 500, it's one that is still in its early stages. We think the

index could therefore make further gains. Our end 2024 forecast is 5,500, 20% above the current level. So this guy's like, if it's going to be a party, we just started. Yeah, and listen, I think 2024 is going to be the year where we start to get a better understanding of the returns on implementing AI technology into corporate operating structures. That's interesting. We've had a year with it at this point. So now, what does it look like in financial terms? Right, exactly. And I think we've gotten some manifestations of this in terms of how, I don't know if it's desperation from these companies,

but there's always an urgency to get your earnings growth going and getting your operations more efficient. We're hearing about these media companies who just let AI run amok and start publishing stories on their sites. I don't think that's the future. And I don't think, you know, frankly, I don't think that's the right way to implement it into your media operation. There's probably good ways to, you know, cut costs by using it, but that's not the right way. But I think we're going to start to see, you know, the real payoffs next year. And the question is, are we overestimating it or underestimating it? And when you look at 10% earnings growth, like an average year's worth of earnings growth,

I wonder if we might be underestimating that. And what are the ramifications, not just for S&P earnings and profit margins, but the labor market, which might be a 25 story or 26 story? It could be a 25, it could be a 26 story, but that's another thing where the history is actually pretty encouraging, whether it's farm equipment or ATMs or Excel. I recently wrote a thing about Excel changing how people manage their books. What happens is jobs that are directly related to what's being disrupted will disappear. But there's this whole new wave of new jobs that are defined by how they leverage that disruptive technology. So when all the bookkeepers got

laid off, when Excel was rolled out to everybody in the nineties or whatever, that made way for all these, you know, financial analysts and strategists and stuff who, you know, are no longer penciling in numbers into, you know, handwritten spreadsheets. They're now able to, you know, put that into Excel in 30 seconds and now begin to analyze and just do more with it. That's right. Yeah. That's the same thing with TurboTax and accountants.

It's you still, you have more accountants now than ever. You've had TurboTax for 30 years. Why? Because they're using TurboTax to get better at their own jobs. Yeah. And, you know, every day there's new software coming out and, you know, we're talking about 3.7 unemployment right now. And on top of that, you know, there's still a little bit of demand for labor.

There's still a lot of job openings. As much as job openings have come down in the last year and a half. It's still 8 million plus. Yeah. If you believe the number. Exactly. So that tells me that there's a lot of companies that still need productivity. So maybe the answer is not to just lay off people when you implement this new technology.

So maybe the answer is not to just lay off people when you implement this new technology, but it's like you implement this new technology and now you give your staff some different work to do. Or now maybe people are 1.5 times more productive. And that's incredibly bullish both from an employment perspective as well as an earnings perspective. I love it. People can follow Ticker. It's T-K-E-R dot com? C-O. C-O dot co. Okay. So I get the letter. What are you doing? Three a week? Four a week? It depends on the news flow. I try not to clog people's email inboxes. I read it all. I'm a high volume user.

I send a free newsletter out every Sunday. We're on hiatus until the new year, but I send a free newsletter out every Sunday. And during the week, I'll send out one to three more updates depending on the news flow for paid subscribers. Guys, Sam Rowe is the best in the business. If you're looking to level up your investing knowledge,

make sure you're getting his, at least you're getting his weekly updates on what's going on on the street. And Sam, thank you so much for spending some time with us today. I want to wish you a Merry Christmas. Thanks for all your insights this year. Happy New Year.

And I hope we have you back very early in the new year. Yeah, thanks for having me, Josh. Happy New Year. You're the man. How you like me now? Told you I stay on my gangster at all times. Look at this. Is this cool?

I'm the only person in here. That's a fake background. Bro, it's not a fake background. I am literally coming to you guys live from the cathedral of capitalism. Literally ground zero for all things finance, investing, trading. I'm here at New York stock exchange. Shout out to the NYSE for playing host to me today. Uh, we were here for Joe Terranova's bell ringing ceremony, which was amazing. His wife and kids came so proud, so proud of, uh, so proud of Joe and, uh, welcome everyone. Thank you guys so much for joining us live. Who's here tonight?

Oh, everybody. Roger, Jack's here, Drew Hickman, Cliff, Georgie D, what's happening? I saw Rachel. Who else is here? Giancarlo, Bob Sacamano, Nick Kaspersky. Good to see everybody. Doctor, I see you. Alright. We have a lot to do tonight. Market

closed at an all-time high. It's pretty exciting to be here as the closing bell rang. I looked up at the literally the big board. It was an all-time closing. It was pretty exciting to be here as the closing bell rang. I looked up at literally the big board. It was an all-time closing high today? Yeah, dude. Look. Isn't it? Oh, shit. Honestly, I didn't know. You're so jaded. It doesn't even register with you how amazing this market is. Oh, I know. Everything. I'm grateful. Everything went up. All right. So I looked up at the big board. All I saw was green. Every sector, tons of stocks.

This is what bull markets look and feel like, both if you're in them and if you're on the outside looking in and not in them. This is what it's like. Every time it feels the same in my experience. Let's do the sponsor. And then we'll move on to… I don't think it's an all-time closing high. We're splitting hands. but I don't think— For what?

The S&P or the Dow? The S&P. The S&P. Check that again. I'm not sure if you're right. Okay. Well, listen. It's March.

Either way. No, it's— Dude, I'm celebrating. I'm happy. Michael, who's the sponsor tonight? Rocket Money. Okay, tell me more. Rocket Money is like Mint, which, by the way, went away. I love Rocket Money is like Mint, which by the way, went away.

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And I realized that I don't even know how this happened. I was subscribed twice to the New York Times without even realizing it. Don't take your money. It's phenomenal. Here's the deal. Rocket Money has over 5 million users and they've helped save its members an average of $720 a year with over $500 million in canceled subscriptions,

myself being one of them. So stop wasting money on things you don't use, cancel your unwanted or even duplicate subscriptions. Go to rocketmoney.com slash compound. That is rocketmoney.com slash compound. All right. Very well. Very good. Very well done. So let's talk about how balled up everybody is. We're going to start off with a chart. John, pop this for me. So I don't know if you, this is off. You know, when people say it's off the chart, this is off the chart. This is Friday.

This is off the chart. This is Friday. The S&P 500 SPY ETF, which is the biggest stock ETF in the world, had its biggest single day of inflows of all time, like literally back to ever. $20.8 billion came flying into the SPY ETF in a single trading day. Obviously, this is not just a few people making decisions. This is a lot of people. But if you read the press coverage of this, most of them are saying, oh, it's a rebalancing thing. I mean, maybe, but not only.

What are your thoughts? So this, that was my first thought. We've got another chart from Balchunis who stretched us back a little bit. This has to be – there's really no other – I mean look at this shit. Are you kidding me? There's no other explanation.

This had to be a model portfolio change or something of the like. But be that as it may, even if you back that out because only institutional money can move the needle to this extent, even if you back that out, the chase is on. I mean, fact. Caveata, however you want, the chase is on. And we've been saying that this is how the year is going to end. It literally ended exactly, I mean, we're not always right about this stuff, obviously, so I don't want too much credit, but starting from just before Thanksgiving, we said there's only one way a year like this should end historically. Everyone that swung to cash and stayed there has to buy something. And this is like – this is that writ large. One other thing happened.

They sold NASDAQ, which I guess lends credence to the rebalance theory. So it says the triple Q saw a $5.2 billion outflow the same day on Friday. And by the way, there are other trades on other days, but we're just focusing on Friday in particular. And Dave Lutz, who's the head of ETF said, Jones Trading said, a big indexer may have been rebalancing their books.

Okay, I'll buy that. But the NASDAQ's up 50% this year. They should be selling it. So 5 billion out, it's a $225 billion product. So if you adjust for that, it's not... Let's talk quickly about the rebalance or the reconstitution. Okay. So these are the companies that came out of the index. I own two of these. Came out of what? The S&P? No, the NASDAQ 100. The NASDAQ 100.

Align Technology. Isn't that all the way to zero? Align Technology. The ticker is ALGN. Why is this acting funny? Oh, no. I'm thinking, sorry. I'm thinking of Smile Direct, which went bankrupt.

This is different. This stock's been done poorly, but it's had a sick rally recently. eBay. Okay. I feel like eBay's... I don't follow that one anymore either. I have no idea where that's trading. eBay's time has passed.

JD.com. Okay. Lucid. Ticker LCID. Lucid got bounced out. None of these stocks have done well. They don't get kicked out because they're doing very well. So these are the two ones that I own.

Enphase Energy. I actually bought this stock at the top before like a 90% decline. I spoke about it on this show probably a year ago. I think I ate 20% of that 80% decline, but I bought it back up 25% in 10 days, not to brag, no big deal. This stock fell 90%. Close. What happened? Did they invent a new type of disease or something? What would make a stock do that? Although I think I righted the wrong. Was it two or three weeks ago when I shouted out clean energy stocks? Yeah. And then last one is Zoom, which you convinced me to buy, and I think you made a compelling case. Zoom got kicked out or added?

Zoom got kicked out. No. Oh, of the NASDAQ. Yeah, dude. Yeah. Yeah. It's possible. Yeah. It's possible.

So I said, we're having an argument. I was like, but they're not growing. And your point was exactly. Yeah. It's possible. So I said, we're having an argument. I was like, but they're not growing. And your point was exactly. Yeah. Well, exactly. No, but honestly, you're right. Nobody, nobody expects Zoom to do anything. I'll make a bet with you.

I own the stock. Still, I'll make another bet with you. I'll make another bet with you. Go ahead. Zoom finishes 2024 triple digits. Triple digits? Would you bet against that? Well. So you're long, with you. Go ahead. Zoom finishes 2024 triple digits. Triple digits? Would you bet against that? Well –

So you're long, but you'll probably sell – it'll go up three points and you're going to sell it. Would you make – would you bet against this stock getting over 100? Not before the end of the year. Closing the year above 100. I'm looking at a big fat gap at $97 that I feel pretty good. Would you say that's a meaty gap? It's very meaty. It's beefy. It's a beefy gap?

The gap is all the way up at 97. The stock is at 72 today. And I think that gap gets filled. Yeah. And guess what? I'm not selling before it does get filled. And you want to know something else? They kicked it out of the NASDAQ. It's going to get added to the S&P at some point. Okay. So here's what got added. It's going to have a full year of profits, and it'll have a market cap above $20 billion,

and it will get added. It will get added at some point to the S&P. This is my opinion. I don't know that for sure. Here's what came into the index. CW Corp. I don't know who that is. Do you?

No. Well, stock looks amazing. All-time high. What else? Coca-Cola Euro Pacific Partners. Is this like the European bottling company? Yeah, so this is dumb. They're like adding subsidiaries of Coca-Cola.

All right, go on. What else? Okay. DoorDash. Dead wrong about DoorDash. I hate the product. I wouldn't invest in it. It's so egregiously expensive, but the stock seems to be working. Roper Technologies, another one. This is water treatment equipment. Okay. It's a good one.

Another stock that's at an all-time high. And then lastly, Splunk. They're going to feel – yeah. I think – look, nobody cares that much about the NASDAQ 100 compared to the S&P 500. I care. But it is important to follow the ones that get added because they end up on a lot more people's screens and they end up becoming more important stocks often, not always. So we'll definitely do that.

I want to show you this thing from Barron's. So this is what's in store for 24. They got Ed Yardeni in here and they got a lot of great strategists in here. David Koston from Goldman, Mike Wilson's in here. Just on the whole, and I talked to Sam Rowe about this, on the whole, basically, there's a lot of dispersion seems to be in, is the S&P going to earn 225 or 229? Or is the multiple going to be 17 or 19, Chardoff? And nobody is really vociferously making the case for a really bad year this year. Contrast that with the way we came into 2023, where the consensus call was recession, and most of the strategists had price targets below the closing price. That's not what's going on now. Throw those back up, please.

Yeah. Keep talking. It's not materially below. The low target on the street is JP Morgan, which is not on here. It's 4,200. The high target is 5,500. Also not on here. If you look at most of the strategists, they're somewhere between 4,400 and 5,000. Now, what's really interesting, chart back off.

What's really interesting is that about half of the street is still making the recession call. The ones who are making it are saying it'll be mild. It'll be a shallow recession. The ones that are not making it are saying don't expect too much economic growth. So we're bulled up on stock prices, but nobody is really bulled up on the backdrop and the economy. But nobody is really bared up either. So it's a very moderate, and I think the up-down range is like negative 8% to positive 20% in terms of like price targets for the S&P. So it's an interesting setup. It's very, very different than how we went into 2023. And it is not as bullish as you would think it would get after a finish to the year like we're having right now. What are your thoughts? Mike Wilson yesterday, zero hedge Twitters. I

didn't read it. Equities have the green light to ramp higher so he's been the most vocal bear i don't think that's his i i saw that headline i didn't i didn't double click i don't think he said those words i think they paraphrased him and made it sound like he said equities have the green light i don't know if he actually literally used those those words or whatever he's dead to me anyway I don't know if he actually literally used those words or whatever. He's dead to me anyway. We don't care about Mike Wilson. He canceled on our podcast. So until he emails us and says, sorry, I did that. We're not covering Mike Wilson on this show. No need to air that. Too late. Why? Too late.

What do I think about the lack of this? Well, listen, in the short term, none of the fundamentals don't matter, right? Like the wind is at the lack of this? Well, listen, in the short term, none of the fundamentals don't matter, right? Like the wind is at the backs of equities for now. That's undeniable. Over the next 12 months, I think the market is clearly pricing in a soft landing, right? So it's hard to know what's baked into the pie. If we don't get that, stocks are going lower. I mean, right? If there's get that, stocks are going lower. I mean, right? If there's a recession, stocks are going lower. So yeah, because a recession hits revenue and a recession changes the way in which capital gets allocated. It hits revenues, margins, and multiples.

Screws everything up. So stocks will not earn $225 a share. They will not trade at 18 times earnings or wherever we are. They just won't. So the soft landing is baked in. And I hate saying that, but it is. It doesn't mean that stocks can't go up 20% next year. What if investors just get excited again? Yeah. I think I just wanted to make the point. You would think after a finish like we've just had and with the inflation fight, I'm not going to say completely over, but not an emergency anymore. And the Fed now saying that they don't need to go any further necessarily, like all of these things falling into place. You would think that strategists would be a lot more bowled up than they are. They're a little bit bowled up.

They don't want to embarrass themselves. They definitely are versus last year. They don't want to embarrass themselves. Right. Which I like. Which I like that setup. They don't sound like Belsky. They just don't. I love that setup. I think that if I had to bet, I'd bet that the market is significantly more likely to be up 15% next year than down. Like 70-30. Like two to one. Well, I mean, historically, you'd be right, wouldn't you? The market goes up 75% of all years. You're not really going out on a limb.

But I'm saying- Give me 100%. Come on, give it. No, but like, whatever. I don't know where I would push that, but markets more likely to be up 15% to 20% than down. That's my opinion. Tell me about all-time highs.

I like this chart, by the way. So fantastic chart from Grant Hockridge over at All-Star Charts. This is, to me, the perfect... This picture says a thousand words. This is the story of the American stock market. On top, you've got the price. And you see, directionally, it's up to the right.

You also see long... Well, OK. So then the next thing that you see is deep, deep, painful, massive drawdowns. Right. And this is, as we know, the price of admission. If you want the gains, you got to eat the pain. That's just what the deal is. The numbers inside of the drawdowns is the extent of how far down the market had gone from the prior high. Correct. So in the Great Depression, the market fell literally 89%. Yeah, I don't think that's in the cards. So I think that we've removed that. But

cutting in half, yeah, well, that'll happen again. I almost guarantee it. I don't know when, but we'll see that in our lifetime. Chart back on, please. And then the last period, the last pane on the bottom, and I'm going to say any one of these is more important than the other because they're all really important to painting the picture, is the length of time between all-time highs. So yeah, the trajectory of the market is up and to the right, just hard stop, but punctuate that with the caveat that you can go literally decades. So forget about the-

I want to go deeper on that. So this is a 6,000 plus consecutive days without an all-time high that starts in 1929 and doesn't end until the 50s? Yeah, so forget about – let's just use modern history. I don't think we're having a Great Depression anytime soon. But nevertheless, even 66 to 82, that was 2,558 days. Even recently, 1,700 days in the dot-com bubble. So anyway, stocks go up, massive corrections between really painful bear markets, and you have to wait a long time.

And that's the deal. Can we go chart back on? Can I tell you what my takeaway is? Sure. So my career starts at the end of the 1990s. So I have seen three of these spikes. I would argue the last one is not particularlys. So I have seen three of these spikes. I would argue the last one is not particularly meaningful. So I lived through two of these periods.

But if you actually go back, and I know we don't have that many samples here, but these spikes, these long periods of time without an all-time high, they seem to be growing lesser in intensity. And I think that's because we just have a more activist Fed than we've ever had before. And we've got a bigger retirement system, more heavily predicated on buying stocks, whether it's IRAs, 401ks, et cetera. And I think that that dampening that we've talked about when we talk about day-to-day volatility also has an effect

on this. There's just too much money being forced into the market for us to have 5,000 days without a new high. We have a few other things. I just don't really think that that can happen. We have higher margins. We have higher interest margins. Yeah, we have better corporations, good point. We have higher profit margins and significantly less economic volatility. The economy is much more stable today by orders of magnitude than it has been in the past. You sound so toppy right now. Sorry is what it is. So complacent.

I'm not complacent. I'm always scared. I'm just kidding. Next table. So they break this down. So we're looking at the Dow, which is at an all-time high. The leaders for the Dow, this is as of last week. Salesforce is a prime example of a company, a tech company that got religion, got lean, did a lot of layoffs, up 94% Intel.

Unbelievable. A company that had been left for dead. Nobody cared about it for years. Microsoft and Apple. that had been left for dead. Yeah. Nobody cared about it for years. Microsoft and Apple,

just a lot of companies having an incredible run on the other side of the ledger. Walgreens, I mean, it's been a really tough year for healthcare stocks. I am being corrected in the chat. It's the NASDAQ

that hit a new record high. All-time high day for the NASDAQ. So thank you to, who is that? Yada and Hawking1969. Nice. Anyway, just an incredible run. Really something that I could not have predicted.

Hey, let's talk about, speaking of rallies, let's talk about gold. Okay. So gold is very frustrating. I'm not a gold really like it doesn't really affect me one way the other but it has like been on the verge of a huge breakout for a really long time and i know it's sincere i know i know at some point it's just gonna leave 2000 behind and be like 3500 like it's i don't think it's gonna go from 2000 to,000 to 2,100. I think when it goes, it's going to go. But it keeps hitting its head on the same level and then fading away. And I don't really know what's going to be the reason for it doing that. I just know that when it does do that,

everyone's going to be piling in because they've been waiting for it for a long time. Do you agree with that? I do agree with that. And I do think that it's more likely the more times you butt up against resistance, you're going to break three. Yeah. Do we have a gold chart? I didn't see if we flashed it. So, all right.

This is gold price in US dollars in the top pane. And in the bottom pane is GLD, which is the most popular way to invest in gold. That's the ETF. And yeah, I mean, it looks like earlier this month, you made new, I don't know, all-time highs. Show the next chart. Backed off a little bit. Yeah, here's the chart. Backed off a little bit, but right back.

There you go. So we're at 2,032.30. Am I reading that right? Yeah. Yeah that's 2032.30 an ounce. And the ETF is right there, of course. This just feels like it's the next thing to pop off. And the irony is everyone talks about it as an inflation hedge. I've always thought of it as a chaos hedge. If ever it's going to do this, it should do this in the election year between Biden and Trump and whatever's going on in Ukraine probably getting worse and whatever's going on in the Middle East maybe getting worse. Like I'm totally unsurprised by this timing. It's not going up with inflation rates going high.

It's not an inflation hedge. It is so far below its inflation-adjusted high that was made 40 years ago. That's right. Never made a new inflation-adjusted high. I'm cherry-picking, but over the last 40 years, inflation cumulatively is up, whatever, 300% that gold is flat. It's not an inflation hedge. I think it's something people reach for when they think things are bad. And as we talk about on the show, and as you and Ben talk about a lot on Animal Spirits, regardless of the actual reality of low unemployment, inflation falling, stocks at new highs, housing recovering, regardless of all of that, people just don't feel good about what's

going on. And I feel like gold is a reflection of that, however you want to quantify it. And here's a really great anecdote to make that case. Costco on its conference call said they sold a hundred million dollars worth of gold bars in the last quarter. Um, here, this is the company's CFO told analysts during Thursday's call, the one ounce bars members are limited to buying two bars usually sell out within a few hours. They have 72 million members at Costco. And anytime they put these things back on the website, they sell out in literally in hours. These are 24 carat bars from the Rand Refinery in South Africa and a Swiss supplier, PAMP Swiss. I don't know anything about this stuff. You guys could probably tell.

But they're selling these for $2,069.99. Nice. Nice. And they sell them out for hours, within hours. But if that's always the case, there's always an appetite for gold, sometimes more than others. Gold is uncorrelated. I mean, you can make up a narrative after the fact.

It does what it does. Can I tell you something, though? When I see the pictures of these bars, do we have that, John? I don't know if I asked you for that. When I see the pictures of these bars that Costco sells, I'm not like a gold guy. I kind of want one.

Should I get one? What do you think? It's pretty, right? Well, it's a store of value. I guess it is. One ounce of gold is always one ounce of gold. One ounce of gold will always buy a fine gentleman's suit. I think. Right?

Don't they say that? That's what makes it an inflation hedge. It was true in Shakespeare's time, and it's true today. I think this suit probably from one of those gold bars. Hey, did you ever buy Zillow? No, I have no guts. We spoke about this like three weeks ago. Yeah, it ran too.

You know what else I did that I'm an idiot? And this is a nice segue. Oh, no, we're going to do this later. All right, never mind. So the reason why I ask is not to rub. I mean, I literally, we just spoke about this, so I didn't know. Did you make money? I've been in it. Oh, okay.

Since the 10-year treasury peaked on October 19th, and it was getting creamed, homebuilders have been the best performing of the 163 gig sub-industries. On a relative basis, homebuilders broke out to its highest level since 2007 last week. So the furiosity with which stocks... What? You're laughing at me making up words? Yeah. Yeah. Hell yeah. Furiosa is from Mad Max. Furiosity is what I said.

Oh, furiosity? No, also fake. Okay, go on. Say more. Did you understand what I was saying? No. The furor? Is that what you're going for? So the rally since last Thursday is really the market is spiking in the football, even if Powell refuses to do so. So I wanted to look at the total return just on a sector basis since interest rates peaked a couple of months ago. As we mentioned, real estate on

fire. Consumer discretionary. These are not home builders. These are REITs, up 22%. Consumer discretionary financials. I had Nick Maggiuli make this incredible chart. Next one, please. So 37 sessions ago, it's not completely random. That's when the market bottomed in October. And what stands out to me, of course, real estate has not had a period like this over the last 10 years. Consumer discretionary had an incredible run. We only saw this- Oh, this is 10 years of data. That's how off the charts these moves are. Yeah.

Technology had a massive rally. Financials had a massive rally. So stocks did it. They are on fire. Yeah, and it's all over the place, which removes one of the things that a lot of people are complaining about. And that's, I think,

the most important part of this rally. What's this year to date returns? So this is one of the biggest beneficiaries of the perceived soft landing is unprofitable tech stocks, which in many cases are also the most shorted companies. So short sellers- A 50% year over year. I mean, but just look at the last couple of weeks, just a really vicious rally. Jason Gefford from Sentiment Trader tweeted, it's just the magnificent seven driving this rally. What a load of clickbaity crap. Thank you, Jason. The equal weight index just cycled from a 52-week low to a 52-week high in 33 days. Unbelievable.

Yeah, what do you want? The only time since 1957 it happened faster was in September 1982, when the average stock went on to gain 46% over the next year. Trot off, this is such a great example of I'll get in when the dust settles. The market doesn't let you in. It never does. I want to take this a step further. This is another thing that you and I got really right this year.

I think we did this on a show five or six weeks ago when that dispersion was at its peak. And it was really mostly Magnificent Seven driving most of the returns. And we said it doesn't always have to be a sell-off of the leaders. Most of the time, it's a catch-up trade. So there's a catch-down and a catch-up. So in one version of reality, Apple, Meta, Alphabet, Amazon get killed to match what the rest of the Russell 3000 is doing. That's not the version of reality that we live through. We live through the other version, which is the catch-up, where everything else catches a bid and those gigantic stocks take a breather without falling and crashing.

That is exactly how things played out. And I think anytime you hear somebody saying leadership is narrowing or the breadth is not confirming, it's like, all right, give it a minute. Before you decide that that's how this has to resolve, give it a minute, let's see. And if you did that, this is your catch-up trade. And it's important for people to remember, sometimes you get a happy ending. It doesn't have to go the way of every market top in history,

which is narrowing and narrowing and narrowing leadership, and then eventually it collapses. That's not how it always has to resolve. And I think we said that many times. If you look at the advanced decline line in like the lead up to the tech bubble, you didn't just see less and less participation. You saw the market rolling over

and a few big stocks were holding up the market. That is so far from what we saw this time. If that were happening, we would have flagged it. We would have said, this is dangerous. The rest of the market is falling apart and only the generals are holding it up. And when they shoot the generals, it's game over. And we flagged that many times. And one last chart from Urien Timmer. This is the RSP, or the Equal Weight Index, the S&P 500 Equal weight index, 90% of them are above the 50-day moving average. So did we resolve to the upside or did we resolve to the upside? And this is about as extreme as it gets, by the way. You don't get to 95%, right?

So the stove might be a little too hot right right at the moment you had nine nine out of ten nine out of ten names uh trading above their 50 day this is as resolve as you're going to get we we just had seven weeks up on the s&p 90 of stocks are above their 10 their their 50 day now is not the time to buy the triple qs on leverage okay so if you're like trying to get all bulldub now like just take a beat. Take a beat. Yeah, exactly. I agree with that.

OK, M&A, this is this is one of the missing ingredients of the last couple of years that I think is due for a comeback. I think we're starting to see the early stages. It makes sense that M&A would be chilled. Biden's got this activist woman in the FTC. M&A would be chilled. Biden's got this activist woman in the FTC. She seems to think that it's her job to just block everything that she possibly can. She's got an ideology that's anti very large companies.

And I understand it. And there's definitely issues in our society being created by the fact that so much economic power is being concentrated. However, she's losing most of these, like she's losing the important battles. And we don't even know if Biden is still the president a year from today.

So I think in that environment, when you see Microsoft win its battle to acquire Activision, you see rates calming down, You see rates calming down. You see volatility calming down. This is the right environment to start looking for more deals to happen. And of course, that's exactly what's starting to take place. Not just actual deals,

but just the feeling that deals are on the way. So I sold DocuSign way too early. I missed this huge move. Let's put this, I mean, dude, I don't even want to tell you where I sold it. I made, I think I made money, but my God. So I didn't expect, I didn't expect this. I bought this cause I thought they could turn the business around. I didn't, I didn't expect this,. Wait, when did you buy and sell it? Doesn't matter. Recently. I suck. I suck. Whatever. I missed this whole thing. It's fine. But DocuSign is open to strategic options is the headline. But this stock was front running that. You could see it happening before they actually came out and said it. Paramount, let's put this up.

before they actually came out and said it. Paramount, let's put this up. Obviously not as dramatic of a move. No, nothing. This happened because Shari Redstone is making the right noises about being amenable to talking. And she controls Paramount via National Amusements, which is a business that she inherited from her father.

All the shareholder votes in Paramount are held at the national amusements level. She would have to sell that stock in order to facilitate an acquisition. The what? I don't even know that stock exists. What's it called? You can't trade it. It's the holding vehicle

for all of the things that got lumped into Paramount. Some of the Redstone owned Viacom. We used to call this Viacom. Yeah. And CBS got lumped in and Paramount. Some of the Redstone owned Viacom. We used to call this Viacom. And CBS got lumped in and Paramount. Well, those are the sub-brands of Viacom. But basically, it's a movie studio connected to a legacy broadcast network, CBS, connected to a streaming platform that's never going to make money. How about this? There's no buyers for Paramount. That's not true. You're

wrong. I think if there is a buyer, it's private equity. Who do you think it is? It's Ellison. Skydance is out there. There are private equity buyers backed by billionaires that are sniffing around this thing already. So that's what I said. When I said there are no buyers, I mean, there's no publicly... It's not like a publicly traded competitor if it gets bought with private equity money. So one of the hurdles here is there is no buyer, to your point, there is no buyer for whom all of these assets make sense. Right. There's nobody who wants –

It's not Disney or Apple or Netflix. No. Paramount is the – Paramount, the studio and the library is the best thing here. Unfortunately, it's attached to CBS. Now, CBS has a lot of valuable IP that they've been mining to very little effect like Star Trek, for example. Like what? It's not working. They have Star Trek.

It's big. They have a lot of franchises. But the legacy network is worth less every day. And then they've got things like MTV and Nickelodeon, which I don't really know what you do with them. Really, really hard to rejuvenate these brands for, for a new generation. It feels like that ship is out. The other thing is Paramount's got a shitload of debt. Well, they all do.

That's the, that's a legacy of making enough content to support the streaming business. So the market cap is $10 billion. The enterprise value is $25. Like, it's a lot, man. Don't be shocked. Don't be shocked if later this year, Zaslav at Warner Brothers Discovery makes a run at this. Don't be surprised. That's the way I think this will go.

If Paramount became part of HBO Max, or they call it Max now, and they were able to – No way. They are in such a boatload of shit themselves. Warner Brothers is not buying anybody. They need a lot of money. No, I think they need to merge and get rid of a lot of duplicate production cost. That's what I think has to happen. And then they'll spin stuff off.

Somebody will buy CBS. Somebody will buy it. It doesn't have to be owned by a streaming platform. So, I mean, we'll say, US Steel, did you see this one? I don't know what the hell happened here. So, they got a bid from

Nippon Steel, which is Japan. So, I forgot that this stock even existed. Want to hear something funny about U.S. Steel? I used to pitch this as a broker in 1998. This and Bethlehem Steel, and there were like two others, and they were all $5 stocks. And there was an activist buying up shares in all these things. And eventually a bunch of them did get merged.

Beth Steele ended up going bankrupt. And U.S. Steel has just been hanging around. And it's a shadow of its former self. This used to be the biggest company in the world, or one of the biggest companies in the world. Unbelievable. It was the first billion-dollar market cap in, like, 1901 or something. Yeah, there's a great scene in The Godfather, which is early 70s, Godfather II, where he meets the Meyer Lansky character.

What's his name? What's the old Jew? So good. In Florida? Hyman Roth. He meets Hyman Roth. And Hyman Roth lays out to him the plan to do all the casinos and blah, blah, blah. And he says, Michael will be bigger than U.S. Steel.

That's like $2 billion now. That's not very impressive. The 2023 Hyman Roth would not be using that analogy or that metaphor. All right. I do agree with your broader point, though, about the M&A market coming back. Yeah, it's time. Let's do some deals. Got too many things hanging around that need to be part of something bigger.

All over the market, every sector. Let's get it done. All right, show me these charts. What do we have here? This is Q3 2023 deal value fell 20% year over year. value fell 20% year over year. The $776 billion in deal value last quarter was the lowest quarterly value in 10 years outside of the COVID quarter. It's down 49% from the peak in 2021. This is crazy. Considering how insane 2021 was and how expensive... It was insane for IPOs, not

for deals. Considering how expensive money is, and a lot of this is financed with debt, I'm surprised it's not worse. This is North America alone. North American valuation metrics, next chart. So I guess this is 8.7 times over the trailing 12 months.

8.7 times enterprise value to EBITDA. That's where we're doing deals at. In 2021, it was 10.6. So valuations are lower. I think we're going to have some action the first half of this year. I'm actually pretty excited about it. You'll have even more in 2025 if Trump gets back in because that FTC ain't stopping any deals. But this year could be a comeback year for M&A.

I know the big Wall Street banks would love that for obvious reasons. Okay, what do you got for next topic? Our friend Aaron Dillon puts out an email blast every week, every other week, talking about what's going on in the pre-IPO market. And this caught my attention, ByteDance, which is TikTok's parent company, bought back. And last week we were talking about who are the next potential trillion dollar companies. This has to be near the top of the list. They bought back $5 billion worth of stock at a $268 billion valuation. I thought that was interesting. I don't know that I've ever seen that before. This is a privately held company. It's not public here. It's not public in China. Buying back its shares in the private market,

it's very interesting. ByteDance, for those who aren't familiar, is the parent company of TikTok. And it's a Chinese company. And I guess I don't really know how the mechanism works. I guess it's not very common. The private market ByteDance holders that I've seen information on, KKR, which originally invested in 2018, great investment, SoftBank, and General Atlantic. They started buying in when the company was worth $75 billion. And I think it's, what are we saying we think it's worth? $268. $268 billion. Okay. I want nothing to do with this because I feel like if it does come public, it'll be another VIE, which is the variable interest entity.

That's where they set up like a shell in the Caymans for Western investors to own a claim on the shares, but they don't actually own the shares. And you know we have no rights and no votes or anything like that. So you basically own like a phantom economic interest in a stock that primarily trades somewhere else. And if that's the way that they bring TikTok public, I'm probably going to sit that out. What do you think? I just, I hate everything about it.

Everything about it. And I also think it's undermining democracy and ruining the lives of our young people. And maybe you're going to bring them back at the end of the world. Yeah. That's the other thing that I thought of. That's the angle that I was talking about. I want,

I want nothing to do with this company. Nothing. Uh, what's this trailing 12 months revenue chart. Oh, so, but just, just in terms of how large they are.

So I just picked some companies that ran just to compare the size. So bite dance has done more revenue over the last 12 months than a little company called the American Express, Delta, and NVIDIA. I mean, this is a massive company. Wait, what? How much revenue? This is in

billions? Can that be real? Who made this chart? I did. 86 billion in revenue? Does that sound right to you? I guess if Meta's 127. That's what's being reported.

Wow. I had no idea. All right, I want in. I'm just kidding. Let's do Snap here while we're on the subject. I had no idea that Snap was on such a tear. Okay, Snap is my lock of the week. I'm just kidding.

I don't own this stock, and I also don't like this service. I don't use it. But my kids will never stop using it. This is just – it has completely captured the generation of people under the age of 30, and they live on it. And they use the Snap map to see where their friends are, and they're snapping their friends every minute of every day. When you see your kid holding the phone up, taking pictures of themselves, they're not using threads. I promise you that.

This is what they're doing. But the problem is that product has not translated into profits. Snap has never earned money. We've done this. We've done Snap Fundamentals a million times. They're not growing. Yeah. But here's what's interesting.

They're one of the few companies that I'm aware of that has an AI product that they're actually charging people for and people are paying. What is it? If you become a Snap Plus member, you get access to use their AI tools, which enhance the photos and videos that you're sending. And it's going a little bit viral amongst Snap users. What happens is your friend sends you this picture and you're like, oh, cool. How did you do that? And they say, oh, Snap Plus. And then you look at how much it costs to be a Snap Plus user.

It's like $2.99? Yeah, it's $3.99. So that is driving subscriptions. How many companies can you think of that actually have an AI product that's driving anything? It's mostly theoretical at this point. Here's how we're going to use AI. So I'm not saying it's an AI play.

I'm just saying it bears watching. AI. So I'm not saying it's an AI play. I'm just saying it bears watching. And by the way, they have, Snap just announced its subscription service. Snapchat Plus has topped 5 million subscribers up from 4 million in late June and 3 million in April. So that's growing faster than a lot of other things. And it's premium. People are paying for it. So that's why this stock is going nuts. There's no other reason that I'm aware of, and I think we need to pay attention to it. So they failed as an advertising platform. They failed as a content platform.

They are succeeding as a messaging platform, and now they might have a way to convince people to pay for it. So we should be – throw that chart back up, three-year chart. Three-year. So I'm just saying this is the market cap. It's $27 billion. It was $120 billion in the summer of 2021. Maybe it's not worth $120, but maybe it's also not worth $27. What do you think?

$27 still sounds high to me. I mean, what are they? Let's look at their price-to-sales ratio. I don't do fundamentals. I was going to say maybe they're one of the companies that's heavily shorted, but they're not. They're not a heavily shorted stock. Average. Price-to-sales ratio.

Oh, it's not bad. It was trading at 40 times in the peak craziness. It's now six times. So, okay. Speaking of M&A, this is still bite-size. This is under $30 billion, not a ton of debt or anything like that. This is like a manageable acquisition for somebody who wants a few hundred million users immediately. Who's that?

Who would buy it? Oh, I don't, I don't know. Not Facebook. Facebook just copies everything they do. Elon's not going to buy it. Well, if you want to reach people who are 27 years old and you think you have a better way to do content and ad business than Snap does, and you think you're smarter than Evan Spiegel, here's probably your last opportunity before this gets too expensive to buy. I think that's where this is headed. So I don't know anything. I have no theory.

I'm just saying maybe we need to keep this on our radar. So that's all I'm saying. Pfizer, a year from now, will be higher than where it's trading today. What do you think? Yeah, I feel pretty confident. I wrote about this this week. Did you read what I wrote?

I read what you wrote, and it's funny that you wrote it because I have this on my watch list. It's one of those companies that is, as you mentioned, a blue-chip stock that's been cut in half. But I've learned my lesson. I don't catch falling knives. I at least wait for the price to stop crashing, and it hasn't stopped crashing. Would you say you wait for the dust to settle? I do wait for the dust to settle. Yes, I do. What if I had a better answer? Anytime a blue chip stock gets cut in half, think of what your total position in the stock would be by a third immediately. And then see if you could buy the next third and the next third at lower prices.

A lot of the time you won't be able to. I don't think you're going to get a V-shaped recovery here. I think there's a chance you could buy it and it sits at $25 for the next year. And I think that'd be okay because that dividend is money good. I was with Jenny Harrington today. She swears by it. That 6% is money good. They got plenty of coverage. I don't know the balance sheet as well as she does. They got plenty of income coverage on that. The stock got clobbered the other day. Destroyed. What was the news? They keep lowering guidance. They suck at life. All right. So guess what? Guess what? That 12% gap got closed in five days. It closed that gap already. So maybe that is the bottom. Here's what I would say. They'll figure it out. They always do. This company has been around

since 1849. Okay. And what they screwed up is fixable. Basically they double and then triple down on COVID. So they did the drug. They saved the world. They got us all out of our houses. As soon as you got the vaccine, you also got Omicron. That's fine. You never go full COVID. We all lived through it. And then they made the bet that people would want a booster every year. And nobody wants that shit ever again. And that was what they did wrong.

And while they were doing that, companies like AbbVie were working on other stuff. Companies like Eli Lilly were focused on GLP-1 inhibitors and anti-obesity. Those stocks are flying. The XLV is starting to bounce after a really tough year. And this company is stuck in the mud, but they have not done nothing. They acquired something called Cgen, which we used to call Seattle Genetics, probably going to be 20 plus billion in revenue as they integrate that. And that deal just closed. And I think they just have to start meeting their earnings expectations. That's it. And this stock should have a meaningful bounce. They lost 140 billion in market cap in a year that the market rallied hard.

And it's just unlikely for that to continue forever. So that's me making the case. I want to make the case for a similar stock, if I could just steer you for your consideration, that looks similar. Also, same sector that got beaten not quite as badly, Bristol-Myers. So Bristol-Myers, unlike Pfizer, Bristol-Myers has stopped crashing. So that's a little bit more my speed. You know, all of these drug companies go through these feasts and famines as good as they are at managing. It's just really hard to always have the pipeline exactly where you need it to repeat one success after another. They all go through these periods where the generics

take over their big drug, it goes off patent, and then they don't have the next thing lined up or they make a bad acquisition and the science blows up. They all go through these moments. And if you buy them during these crises, you eventually are rewarded. It's very rare that you're not.

Pfizer was a Dow component for 16 years up until a couple of years ago. Like, I think it's too rare that you're not. Pfizer was a Dow component for 16 years up until a couple of years ago. Like I think it's too early to say this thing is dead money forever. I just, I can't picture it. So that's me making the case. I'm with you. You got a mystery chart before we roll out?

I've got two. Go. I don't know which we're doing first, John. Okay. So this is, just look at this. Just look at this. What we're looking at for those of you who are not- Is this a stock? Excuse me? For those of you who are not- Is this a stock or an index? Let me finish. Shut your mouth. Shut your mouth. For those of you who are not watching and are

just listening, what we're looking at is an incredible 10-year run followed by an incredible crash and holy mother of God, it is almost back to all-time highs. This is an individual stock, and it's a stock that we talk about frequently on this show and other outlets. The crash happened all this year. This is not very difficult. No, this was- Oh, no, no, no. Wait. 2022, the crash happened. This bottomed in 2022. It's Facebook. Yeah. Oh, I mean, all right. I mean, just, I'm really good at this. I mean, that's, this is not, no offense. It's not that difficult.

This is very, I mean, this is. But no offense. I got it with, I got it with no hints and on the first try. No offense. Not to brag. Next. Not to brag. Next. Would you buy this chart? This is a one-year view. Before you answer, this is a one-year view. The next chart is a 10-year view. So this has spent time at the previous level. Is this a ratio chart? This is a ratio chart. And from 20, I mean, you know, what do you think? Is this a bottom?

Would you buy this chart or would you not? Show me the first one. That's year to date. This is year to date. This is energy priced in S&P. Would you buy this chart? No. This is, the reveal please,

it's the equal weight divided by the cap weight. I would not buy that. Why? Because it broke the downtrend? I'm just asking questions. Would you buy this chart? Would you buy this chart with my money? I would not buy this chart.

I would not buy this chart either. I would not. And look how many failed breakouts along the way. I would not. Look how many times it looked like that. I wouldn't sell it either. I wouldn't this chart either. I would not. And look how many failed breakouts along the way. I would not. Look how many times it looked like that. I wouldn't sell it either. I wouldn't sell it either. I just, you know, it's sloppy.

It's all over the place. It's sloppy. It's super sloppy. All right. Hey, everybody. Did you know that tomorrow is Wednesday morning? Therefore, you're getting an all-new episode of Animal Spirits with Michael and Ben. Did you know that?

Did everyone know that? I did. We recorded it today. It's a long one. All right. All right. I got to say, last week's show was one of the best shows you with Michael and Ben. Did you know that? Did everyone know that? I did. We recorded it today. It's a long one. All right. I got to say, last week's show was one of the best shows you guys did all year. I just remember laughing out loud like three times. It's just, you know, it's my favorite show.

I never miss it. So new Animal Spirits on all podcast platforms on Wednesday. You get Ben doing Ask the Compound Thursday. Another all-new Compound and Friends. And Jill. Jill is this weekend. Hope you guys are enjoying the Jill Schlesinger show. It's called Jill on Money. It's on our

YouTube channel every Saturday. I believe that's the schedule. One more announcement. That's it. That's the schedule. This is our last week for the Compound and Friends. We're shutting it down for the season. There will be no what are your thoughts or competent friends

next week. However, there will be animal spirits because you can always count on us every Wednesday. Rain or shine. You guys don't miss. We never miss.

You guys don't miss. I don't want to do it to the audience. Yeah. Well, I'm going to take a little vacation. So I hope you guys enjoyed the show.

I hope you guys enjoyed the year. Thanks for rocking with us every Tuesday night. This year, we really appreciate it. You know how much we love you and we look forward to seeing you guys enjoyed the show. I hope you guys enjoyed the year. Thanks for rocking with us every Tuesday night. This year, we really appreciate it. You know how much we love you. And we look forward to seeing you guys here. So thank you so much for everything.

Go ahead and smash that like button on your way out. We'll see you on an all new What Are Your Thoughts in 2024. Happy New Year. Happy New Year. Whether you're just getting started as an investor Thank you. visit ritholtzwealth.com. Don't forget to check us out at youtube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts,

check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening. Ritholtz Wealth Management is a registered investment advisor. Advisory services are only offered to clients or prospective clients Thank you. Bye.