The Compound and Friends - Buy the Election, Sell the Inauguration

Episode Date: November 15, 2024

On episode 166 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Adam Parker to discuss: the biggest risks to the market, David Einhorn on valuations, the Fed's next move, the dumbest chart ever, and much more! This episode is sponsored by KraneShares! Watch their post-election webinar with Terry Branstad at: http://kraneshares.com/compound Sign up for The Compound Newsletter and never miss out! Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ 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. The Compound Media, Incorporated, 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

We talked about it when we were together on election night, Josh and I, that like the poly market was right everywhere and the poll, I don't know who's going to believe a poll ever again. So I'm a bigger boomer than you because I had the New York Times needle on my screen. Because you're younger than me? Is that what you're doing? You're flexing your youthfulness already? No, I was the boomer that night.

I was looking at the needle. You were looking at currency markets and the poly market. Mexico, dollar cross. I was. You were looking at, he was looking at pesos to tell me who was gonna win the election I mean market and he got it well Polly market is gonna be a much bigger company in the future the question The question is interesting because there's a lot of economic data that we all react to that is survey based Yeah, so if polling and surveying is now worth

Zero less and you can maybe we'll just poly market like CEO confidence Michigan consumer comp like what maybe we'll just polymarket like CEO confidence. Like maybe you'll just be able to gamble on everything, right? Don't tell me what you think, show me your portfolio. Right. You can gamble right now on whether I think like the, I saw this on the polymarket earlier today on like, does it take a hundred days for the, you know, a war to end? Does it take, you know, 14% Ukraine ends before Trump?

Like there's a lot of increased interest in polymarket situations. I think in the midterms, polymarket is going to be way more cited than people like Nate Silver. So what we did is we, and this is super nerdy, but we looked at the, since the day that Biden announced he was out and then the Trump first assassination attempt, we looked at the daily change in the poly market probabilities for the candidates and compared to the daily returns for the S&P and the sectors I was trying to a little bit but like, you know, I just trying to be and look cuz you know when I do stuff I don't like to get political

you know Just because in the immortal words of Michael Jordan, you know Republicans buy sneakers also, so we're gonna You know also that's your content and by clients don't care which I get stocks right for stock analysis Yeah stock analysis, so I don't give my political opinions But so I thought that'd be an interesting way to look at it But you didn't have a huge sample size in the number of days But you had a couple huge inflections obviously that the Harris debate Where the perception was she won and then obviously the assassination where he peaked. You know, the assassination attempt. That's the first day that I believed that he would win.

The response to him being okay after that and that just that iconic photo of him with his little fist in the air. I said he's probably gonna win this thing. Yeah, Zuckerberg coming out and giving him credit like there's a lot of, you know, that was an inflection. But then I went back and forth a lot. Then I thought probably a month before that it would be her. Maybe, and then right up until the day before, I said, if it's a coin toss, I think she wins the coin toss, and I was wrong. I didn't like feel that strongly about it.

That was crazy because obviously it wasn't a coin toss. And Polymarket, the Betis were right the whole time. You could buy a Trump, you know, victory in the absolute vote for 23 cents the day before. For the popular vote. Wait, how does that work? So you got 4X in 24 hours. So it was worth a dollar right after? Yeah, 99. You could go from 23 to 99.

Because that was the strike price of the contract? All of it is. It's binary. It's yes or no. So I think there was a lot more action on who would win the election than there was in the popular race. Oh, wait. All right. So all these bets are priced as $1.

Yes. So they match. And then they could be above or below $1. I believe, like, predicted markets totally different than Polly. No, no, no, no, no. It can't be above $1. I'm asking.

No, it's either. If something is like 100% going to happen, then it'll trade at $0.98, for example. No, no, no, no, no. It can't be above a dollar I'm asking no, it's it's either if something is like a hundred percent gonna happen that it'll trade at 98 cents For example, like there's always a margin. Nothing will ever be Nothing will ever be at the pay. I'm to the payout as a dollar I do think there are situations though where the combination of the two are greater than one So combination of one like there was a moment where like So I'm meaning like there was a moment where like Harris plus Trump was greater than 150. Yes, 70, 50. 54 plus 51.

69, 32. But I haven't made it. I haven't placed. I haven't done one yet myself, so I probably should stop talking about something I haven't, you know. Okay. We kept the election. I think two things.

I think that a polymarket is going to end up like Robinhood, like crypto. It's going to just be a thing or like sports betting apps. It's just going to be a thing people do. It's going to become more mainstream, especially among young men who like to gamble. But also not just that, think about your clients. We used to always talk about who's going to win the election. What does this mean for the dollar, for the peso,

for this, for that? Just fucking bet. Just buy the election. Just buy the election. So it's like institutional. it gets bigger and more liquid. You can use it as a hedging device. I mean, there's a lot of different things you could do. So it's like the CME going to start doing this?

I mean, I guess. See, that's the thing. See, this is when technological revolution. Because the pie market's in crypto. A lot of it's done in crypto. When there's a revolution, there's always this air pocket where new entrants are unencumbered by existing regulations, or I think they are, and they get big really fast before the incumbents have a chance to

negotiate with their regulators. The CFTC would probably have a heart attack if the CME just started launching contracts like this. I did a risk dinner with seven or eight guys who were like chief chief risk officers already this week and like the one clear thing was just like Crypto wins like I think people couldn't see a path for that not being great in the next six twelve months And these are people who I would say are You know, we're generally but I'm very skeptical five years ago and announced or warming to the idea that it's just the size of the ass They want the warming to the idea because it's at 90,000.

Right, right. No, but they're saying more like it's become an institutional product, right? Like if you're somebody with, you know, you're in some big, you know, JP Morgan, Morgan Stanley, or Goldman, private wealth network, their advisors, and I'll say, well, if you have 20 million, you could put one or two in crypto. Like they're starting to make it a legitimate. I was on the air with. That's different than. Very much. But not everybody got the memo. I was on the air with... And that's different than... Very much. But not everybody got the memo. I was on the air with somebody today.

Crypto came up and he's a gentleman of a certain age and he's like, but it's too volatile to be a currency. I'm like, nobody fucking says cryptocurrency anymore. You're reading the script from 2014. We're saying crypto, period. It's not cryptocurrency. It's digital assets, crypto or Bitcoin, and we don't care if it's a currency. The use case is making a billion dollars. You need a better use case than that? That's what it is right now.

Yeah. By the way, it's just wonderful to see the color coordination of the picture up here. Yeah, that's my madness. Let's do it, John. Let's get it started. I love it. I love it. What am I doing? All right.

Is everyone comment on that? Is everyone? Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Hey guys, CraneShares is hosting a webinar with Terry Branstad, who was Trump's ambassador to China during his first term.

Branstad is unique because not only did he work with the Trump administration, he has a close relationship with Chinese president Xi Jinping as well. Branstad's relationship with China goes back to 1985. This is a man that knows what's going on and probably has a lot of things to share that you're going to want to hear. He plans to weigh in on trade tariffs and the future of the US China economic relationship. If you want to check this out, go to quainshares.com slash compound. 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 RIDHOLT's wealth management may maintain positions in the securities discussed in this podcast. Oh man. Episode 166? Oh boy. Do we have an episode for you today? Ladies and gentlemen, welcome to the compound and friends. Shout out to all the first time listeners. We love you. Welcome. This is your new favorite show. You don't know it yet, but I'm telling you that right now.

To our day ones, thank you so much for sticking with us. Thank you for all the likes, the feedback. You guys are the best. Guys, we have a fan favorite guest with us today. One of my favorite people on Wall Street, one of the smartest people on Wall Street, and he knows it. Not humble at all about the... about his intellect. Adam Parker is the founder and CEO of Trivariate Research, a US

equity focused boutique research platform. Adam was the chief US equity strategist at Morgan Stanley from 2010 to 2017, and he is a frequent contributor to CNBC. Adam Parker, welcome. Thanks for having me. Good to see you guys. With me today, as always, my co-host, Mr. Michael Banach. Michael, say hello.

Hello, hello. Nicole's here, John, Duncan, Rob, whole gangs in town. We're so excited to have you all listening. And let me tell you, this is like one of those weeks, historic weeks. You had a rate cut. You had the S&P hit $6,000. You have some really big stocks go absolutely crazy. Tesla, DJT, all the blue chips.

You have crypto hit 90,000. Morgan Stanley, KKR, there's been a lot of real companies that are up there. Now on top of that all, cabinet appointments. This is like everything is happening right now. Nvidia earnings next week. We're just in one of those insane news moments. It's really exciting.

And I'm so happy to have you with us this week. Can I play something for you? Yeah. Okay. In terms of just the overall macro picture, it sounds like you believe that despite some reemergence of inflation, growth won't be a problem. So you're not concerned about stagflation? No, I think the economy is pretty good and I think they're going to run it pretty hot.

And yeah, I see the stock market is good, right? And asset prices are high. Christmas should be good. Employment is good. Wages are up. I don't know, unit labor costs are up 3.5%. I think there's 2% of productivity on top of that, which means that wages must be at 5% or 6%.

So obviously not each person is in a great spot, but collectively this should be a pretty strong economy. But in your latest letter, you wrote that by most measures, it is the most expensive stock market that we have seen since the founding of Greenlight. But it sounds like you're not outright bearish. So what does that mean for your gross exposure? Yeah, we're not outright bearish, and it is the most expensive market of all time, as far as I can see, at least since I've been managing.

There's plenty of businesses that are pretty ordinary. They grow GDP or GDP plus one or two, and they're trading at 45 times earnings and stuff like this. And then there's other businesses that have a little bit more excitement than that, and they're trading at 45 times revenues and stuff like this and then there's other businesses that have a little bit more excitement than that and they're trading at you know 45 times revenues and things like that. This is a really really really pricey environment That of course is country legend Chris Stapleton That's David Einhorn at with Leslie Picker at CNBC's delivering alpha yesterday The most expensive market he's ever seen in his life. Was the quote yeah I totally disagree with that I mean I think he probably

disagrees with that yeah the most expensive market I've ever seen David Einhorn really that's not true on standard metrics like the median stock free casual you should we call should we get him on the phone or? No, I think if if your intro included a Me having a humility challenge. I think we're gonna okay We're gonna get redlined if we we get the two of us on the cell. I don't want to play like 20 minutes I mean we don't make fun of you know wildly successful geniuses I'm just but I'm saying I I think when I look at it the median sack I don't see it that way we're David Einhorn fans, so I listen to everything he says.

Totally. You guys are genius and a billionaire. I'm just saying the median stock is not at an all-time high on price, on free cash yield. And I think when you adjust for margins, a lot of companies have higher margins than they used to. And it's very true, tried and tested, that valuations related to margin. So maybe if he's saying, I think everything's wildly over earning that's true

But it's not true optically on today's valuation metrics that I can say and he's not bearish So he say he finished that by saying but we still think the market go higher from here So that's not what a lot a lot of value people Values the only input that they use to think about markets And so I think there's a huge arrogance to being a value investor. OK, it's really different than it was 25 years ago. I think when I started, I thought the growth guys were there, the guys had to envision some total available market

and whether the drug or the technology works. And the value felt like Janice. Janice attitude. I felt more humble, like value, like OK, I know how much default rate could be in the price. I know demand's supply for metal. I can kind of bet now that it was sort of like you could use backward looking data and be like a reasonable judgment value investor in the 90s or whatever.

And I think now it's like totally the reverse. Like the growth investor, just like I know the themes that are growing. We can list them off. I want to own semis, whatever we can list them up. And then I can buy the high quality companies that are in those. And I just wait if they roll over, I just buy more. I mean, that's all that's worked the last 15 years. Whereas value, I gotta be like, or you know, arrogant maybe it's like much harder.

I've gotta like envision some recovery. It's different than it used to be. Is value the most, is value right now in the modern era the most arrogant prism through which to view whether or not stocks are a buy? Maybe stubborn is a better word. Stubborn versus arrogant. So GMO, just funny to mention this, Adam,

GMO just wrote a piece that I haven't had the chance to read yet, but they say it opens with devalue stocks, our GMO asset allocations highest conviction investment idea. And they look at this. This is from 1999, 2000, 2001, 2002, 2003, 2004, I was in Grantham's office 20 years ago saying name a version, that stuff doesn't work. Because in a bed's margin.

GMOs highest conviction bad 10 years ago was emerging market timber. No, but listen, you're right. I think that the iPhone changed everything. These companies fundamentally look different. Cloud computing probably equally. The margin profile looked different. What GMO got wrong, no disrespect at all, they're obviously legendary investors,

is that it was all about margins of the most meme reverting series in finance turned out to not be true because they didn't understand what Apple, the Mo, the Google, like they didn't understand it. So what they're saying is that the deep value, so the cheapest 20% of the market is in the fourth percentile, so almost never been cheaper and for good reason investors don't want it. If I print off for you, wait this is all time, the mega large cap companies that trade below 10 times forward earnings, and I show you them, there isn't a single one. Oh, did you know that it's like a general voters

a little bit cheap versus you're not going to be like, whoa. That's like totally undiscovered. Yeah, we're all aware. And it's just sitting there. What's different, and here's what I think is different, and I just measure stuff, right? I don't know, these guys are doing much more fundamental deep research, but it used to be a reasonable thing to say,

hey, you know what? I can buy this stock because it's discounting a normal recession. Now, the stocks where the multiples contract the most are still the worst during the recession, because the market learned last cycle, their earnings get most impaired. The numbers come down the most.

So the actual opt-through valuation isn't a positive sign that it's in the price. It's a negative sign that it's about to get annihilated on the earnings. So like, that's what I mean. Like, that's the arrogance. Yeah. It's like you're saying that the market's wrong. That's the arrogance. Right. And I feel like on average now, the market's right.

That there could be some great stuff in there. These are great stock pickers. Of course, Einhorn is a great. I'm just saying the basket of them are going to underperform. So it's harder to find the turnaround and gamble what's coming. You know what I mean? One of the points that he made was that we're in a market that's now obsessed with only one thing, which is earnings growth. The thing is we're paying 20 and 30 times earnings for companies that are maybe growing

2% faster than GDP. So the thing that investors like the most is not just the fastest growing earnings, although we love that, it's the consistency. We have companies that are so consistent finding ways to grow earnings every year like Microsoft and Apple and Metta. This is what the market price is above all things.

And that's why we pay 20 and 30 times gross margins If I look at we took a look at all the stocks in the growth universe that have beaten by 20% or more rolling over Time and we said what what did that 20% or more beat come from? Was it the multiple expanding alone which would be all it's expensive Was it earnings revisions earnings growth? The answer is that it's gross margins the ones that outperform by 20% or more had the most gross margin expansion why is that a proxy for future growth no but why do investors gravitate to because the business model of companies that have high gross margins is more it's more stable there must be

something about their pricing power or their product so I think when you look at the price for earnings on next 12 months earnings it looks expensive but if a lot of businesses are higher margin, they're not as expensive on two, three year out earnings. And those are more believable because of the margin. What percentage of your customer base understands that? I don't know. We focus, as you know, on institutional investors.

And I'd say pretty high percentage. I mean, it just depends. Some guys are really just bottom up biotech geniuses and not really thinking about that. That's a different world. They're thinking about it's the drug state for effective. But I think most generalist PMs who are trying to beat the S&P with a diversified portfolio just like bottom up, you know, biotech geniuses and not really thinking about that. That's a different world. It's a drug state for effective. But I think most generalist PMs who are trying to beat

the S&P with a diversified portfolio are pretty aware that to get to the long-term average of 17 times forward earnings, you would have like a collapse in the market. The only way we can get there is if you have a collapse in profit margin for the biggest company. So listen, so a lot of these people are using an outdated playbook.

Remember like Porter's Five Forces was like the Bible? And it said that if you have these high margins, that will attract competition and it will drive margins lower. It's the opposite. The high margin businesses are monopolies. They have the high margins because nobody can come in and take them.

Like Time One Semi is a perfect example. Like if you decide you want to start and beat Time One Semi today, like good luck. Right? But it's YouTube too. You just Right, right. So it's important. But it's YouTube too. You just go after YouTube. But it's bigger than that and people have talked about this.

We long ago, I think the US, the US fought this landmark case against Microsoft 25 years ago and it drug on, is that dragged? Dragged on? It dragged on. It's probably one of these books. I don't think it's drug on. It dragged on for like seven years and by the time it was resolved, it was a moot point. The lawsuit was about anti-competitive behavior when Microsoft bundled Internet Explorer,

the browser, with its Windows operating system. And the argument that the United States made was that this is reducing competition and it's ruining. The thing is, internet technology moved so fast. By the time that was resolved, Google had come along. And nobody gave a shit about the Windows Internet Explorer bundle. It was a moot point and browsers were free and everyone had one and it didn't matter. But I think what happened as a result of that ridiculous waste of time and money is that we kind of abandoned the idea of antitrust and we allowed a 15-year period where these companies not only built vertical monopolies,

they started building horizontal empires. You could buy anything with the technology. So here's a really good example today. Hims and Hers, which is a publicly traded company, telehealth company. Direct to consumer. So if you have an embarrassing problem like female pattern baldness or erectile dysfunction, you use Hims, you can call, you can use the internet, and they will give you a prescription which then gets delivered in a nondescript

Thing to your house. Okay, great great idea and there are five of those this row There's okay that stock got annihilated today because Amazon said oh, yeah We have a telehealth service. It's a low cost. You know the price up front It's a clinical visit and we bundle that with our drug delivery So the prescription is built right into the visit and it's available to prime users. It's all Walmart It's all Walmart and Amazon. They're gonna win right so but like that directed consumer businesses generally These are Warby Parker same thing like it's hard to Point here's a company that is a bookseller turned

Turned grocery store my dad bought because he liked the Kindle. But now they're in healthcare. And they're not just in healthcare. They're filling scripts. And they're putting people in front of doctors. Nobody doing research at GMO could have foreseen that 20 years ago. No, it's... Yeah, the market, I think fundamental analysts should spend a big chunk of their time on gross margins for a company and do they have a differentiated view from gross margins and consensus. If they're, you know, and there's a lot of things that go into that pricing mix, input costs, labor, you know, commodities, logistics, there's a lot of things that can make them

go up or down. But one of the things I've learned in the last 25 years is like, you don't want to short start with the gross margins are going up. Like that's like, but but but I think there's a legitimacy to TAM. I know it gets it gets embarrassingly misused. But I also think network effects. I don't know how you quantify the network effects of something like prime or Netflix or if these are these are so Netflix is gonna show the Tyson is it Jake Paul Logan Paul Jake Paul versus Tyson is Friday night I'm not suggesting it's gonna be like good boxing I'm just suggesting it might be

the most watched boxing match in the history of the world because it's Netflix so it's free and it's global synchronized all over the world at the same time and Netflix can translate it into other languages immediately. Right. It'll be like a Formula One race. So how do you compare that to a cable TV operator in 1989 with a straight face? Look, eight of the biggest ten US equities in the 80s were energy, right? They're high cap back. So if I'm going to compare margin profile from today and say it's expensive versus the 80s,

it's the ultimate apple versus orange comparison. So I think you got to focus on margins. And then the other thing, obviously, is the shareholder return, the management decision making, are the good stewards of capital. And so fundamentally else, I think, can differentiate. And that's where they should be spending their time. And a lot of these are the same.

But two things can be true. That the old playbook throw it up, you're using outdated models. But also, valuations do matter. It could using outdated models, but also valuations do matter. It could also still be expensive. And valuations do matter, and are these stocks too expensive? So I did a note a couple weeks ago inspired by Costco, which I think almost-

What's that trading at, 45? 40 times earnings. It got over 50 times forward. Yeah, and that's what inspired us to write the note. And I kind of set up as, look, we all like Costco, it's a great business, it had that Netflix moment of, they're going to stop Brown and Batnick from using the same ID. Like, you know, kind of monetize the door better. They get over 50% of their operating margin from that and it will fee. And, you know, it's a great business. Like the employees like working there, but at 50 times forward. So we said, let's look at every company in the market ever over the last 25 plus years that had been below 50 times earnings for the last few years and had ascended up to 50. What happened after? Because per Greenlight's view, it's not like its growth rate really changed that much, right? It's kind of a pretty solid grower, but the margins went up a little bit and that's associated. Basically, the answer is six to nine months later, you start seeing pretty steady margin, I'm sorry, multiple contraction and underperformance. Only about 24% of the stocks can maintain that 50 multiple two years later.

There's a limit. So you start fishing from a pretty disadvantaged sea. So what we start doing now at TriBerry is anytime we see a stock that got eclipped that 50 time, we say, hey, you're in the kind of choppy water now. It may not be a sell signal, but it's not the time to put new money. On average, it was like six to nine months later, it really started like a 10 month through 30 month decline. So it's not like the moment it gets there, you panic, but it certainly gets into your red zone or however you want it.

I wonder if Einhorn would say the expensive stocks are way too expensive. And that's totally probably what he means, is stuff like that, where it went from 2% to 3% margin round numbers, it got massive multiple expansion, it's a great business, but to walk in today and say for the first time ever, like, geez, this Costco seems like a great investment. This is what I would say.

And I agree with him on that, for sure. Valuation matters, but only when a company f***s up. Well, yeah, downward revisions plus high multiple, you get the double whammy. Meta is until a company has a misstep or an executional failure or like Boeing or like some kind of crisis, CrowdStrike recently, that's when valuation matters. And until then, it really doesn't because asset managers are chasing the names that are already working.

Yeah. The other thing kind of per this sort of the market evolves and it changes is it used to be, you know, classic quant signal was I buy the cheapest quintile on PrestiCastle. How's that working out? The best performing now are more like the sixth and seventh most expensive, right? The only danger zone for us is in the top decile

and you'd be the forecasted sales there. I'd say when you get really extreme, in fact, I would argue, I guess I particularly don't like the deep value point, because the cheapest decile and the most expensive decile are bad. Staling? They're bad. The reason they're so cheap is the market's telling you

something's wrong. They're trash. Yeah. They're cheap for a reason. And the reason is they stink. And the ones that are super expensive, they just start to get riskier on your point. Like they're probably embedding really high forecasted gold.

That's a risk. you have a bigger risk of your double whammy of like lower numbers and a lower multiple on it so I don't mind a six-decile expensive stock that's doing okay like the markets told you that since what 2011 pretty steadily that's that's the go-zone not to put words in their mouth to the post yet but they would I think they would say it's like there's always been trash and the trash today is cheaper than the trash has ever been. Right, and I might point back to being, yeah, it's also worse.

Oh, it's trashier. Yeah. I don't know, is that true? Like, do they have more debt, or do they have lower margin? Like, what is the- Or maybe the market's smaller. I think more risk to their viability, more obsolescence risk.

More disruption risk, probably. Yeah, I would agree with that. And so I think it's like, you know, it's easy for me to say, you know, the newspaper industry is fairly cheap versus its history. Yeah, go to zero. Call centers don't feel like, wow, they seem like cheap. But you know what I mean?

Like, I'm exaggerating for a fact. But some of those businesses have real impairments. In the late 90s, we were selling steel stocks to people. They were the last ones left. There were selling steel stocks to people. They were the last ones left. There were five left. They all since went bankrupt. Bethlehem Steel had a $7 stock price

and everyone you spoke to had heard of it. So like, what if I told you you could buy Beth Steel at four times earnings? Okay, four on the way to two, on the way to one, on the way to nothing. I think some of the stocks that have rallied this year, like I'm still not sure they're not going bankrupt. I mean, AT&T had a nice big move.

General Motors has been a good stock. And are you sure like? Well, Spirit just went bankrupt. Right. Should I buy it here? GM went bankrupt 15 years. I mean, AT&T, I think they go bankrupt in my lifetime. I mean, I hope I live long enough.

Talk about debt. They have so much debt. Like at some point when you grow zero and you have that much debt, it can be a problem. So they can oscillate, but I don't know. So I'm just saying sometimes the optical valuation I think is more a problem than it is an attractive thing. I want to give you some props for what you said

the last time you were on the show. Oh no, oh no. Oh good, it's good. No, it's good. Our research associate, Sean Russo, combed through your comments and you absolutely nailed it. He combed the desert.

Michael, you want to run through these? Okay, Adam, this is you. I feel like karmically this is a bad idea. No, for real. Because everything I'm about to say is going to go to shit. No, no. This show, you're fucked. This is not going to work out. That's what I mean. This is the biggest short idea I've ever had is shorting me right now. But the last time was January 2024. So you're right on the money. You said, a bottoming economic activity gauge and loosening financial conditions are typically positive for risk taking.

Check. Dovishness means higher price to forward earnings ratios, particularly for growth stocks. Nailed it. If the economy slows but doesn't hit a recession and interest rates slowly continue their path toward a normal yield curve, we could see materially higher equities in 12 to 18 months. Nailed it. And finally, the bottom line, we think the risk-award for US equities is skewed to the positive for 2024. And that was not really consensus.

Well, I'll tell you what I'm worried about right now. Josh, I sure see this too. Very proud of you, by the way. All useful. I mean, that's 10 months ago. That's exactly the environment we ended up in. If you do what we do, you're going to be bullish, bearish, right, wrong.

You're going to live in all four quadrants. And I think you got to... Take the compliment, dude. I'm trying to fend off the short idea that I know I now am. But one thing I will say is, and you and I overindexed, we're talking to a word salad people who don't invest any money and kind of have, you know, revisionist history on what they said. But I will say there were a lot of these cross-essay types were pretty negative

on equities two years ago and one of things I'm worried about is they're universally bullish now like you know when you go on TV now it's like wow now or they've gotten there I would say from like a couple weeks before the election and now it's like I couldn't get somebody to say something bearish I'm like all right let's say we get in the 5,300 at the end of the year. Like, what happened? Like, let's say, you know, all people could say

as the dollar keeps strengthening, like, well, it has been strengthening. I mean, like, I'll give you an example. I don't, there's a lot of things I don't know, and one of them is what the Japanese carry trade actually was, okay? I searched every earnings call transcript from every US company back to 2011, you know, everyone the words Japanese carry trade had never been used in

consecutive. We laughed at that shit in real time on this show. I didn't know what it was. I'm like asking all my friends what the hell is this? Well, it's a jetpack. Okay, so I looked just before I came on the show. I was just looking, we're kind of close back up to where the dollar yen was. It's like really close to like July. And so at the dinner I had with the investors, I'm like, is anybody worried about thinking? And I was like, nah, that can't happen again.

I'm like, okay, you guys are supposed to like manage risk for like hedge funds. It can happen again, but we could all ignore it. Yeah, like we did last time. Everyone ignored it because it recovered so fast they didn't even know what to do. But like. So I hear you that everyone's bullish.

I don't know what it is, I'm just saying. Yeah. But why wouldn't everyone be bullish? Maybe that's in and of itself is bearish, but why would you expect anything different? That's six weeks left. You have positive, favorable activity on tax policy and deregulation ahead.

Still have interest rates coming down, although maybe they shouldn't, which we're gonna get to in a minute. So let, I hear you, what you're basically saying was what's the bear case? And we could go, I think we know the bull case all over the place, and I think there's a, I think the bull case has a higher probably than the bear at the current moments

Oh, but what worries me is just Okay, what's been a tried and tested formula the last three or four years when Morgan Stanley Goldman Sachs and JP Morgan to the year At how it looks which is like this week or next week and they're universally bearish the market rips Okay, they're not they might not be this year. They come out bullish this year. That's such a great point. I mean, what's left? Yeah, yeah. Okay, and I'm a little bit worried that these guys, I made the sausage when it was like, I see how it works, right?

Like, it's the most painful process, right? There's like a three week thing. There's 20 chefs in the kitchen. A conclave. It's so brutal. But everyone's on one side of the boat. Right, and I'm just worried now that like, it's hard to come in and... The bear cases, there's no wall of worry.

Well, here it is. That's exactly right. So, Cali, our chief strategist, made this chart from the conference board and it asks, do you think stock prices will be higher? I think it's one year later. And the percentage of Americans that think that is... We should polymarket this thing, man. What's going on? It's basically at an all-time high. So to your point, yeah, the bulk case is f**king obvious. We all know the bulk cases...

Hold on. 50% of Americans think stock prices will move higher. And two years ago, it was like 25%. So, yeah, I think... Right, because their trailing price momentum affects their mood. So the point is that there's no wall of water right now. And that in and of itself is dangerous. I think the biggest risks that people see that are like the macro types are Strengthening dollar maybe a hot jobs report December 6 being the next data point FED pumps the brakes. I mean that's we got see all right, so we got CPI this week. Yeah

Came in in line October was point two percent month over month, 2.5% year over year. The estimate was 2.6 so it was actually a little bit cooler. The lowest year over year CPI reading in three and a half years. Core came in slightly above expectations, no big deal. Shelter was still up, that's still annoying. And then PPI was today. And here, let me share this with you. This is Bank of America.

Core PCE likely to print at 0.3% month over month. Again, given today's PPI report and yesterday's CPI data, we expect core PCE is what the Fed cares about. We expect core PCE inflation to increase by 0.3% month over month. The year over year rate should rise to 2.8 from 2.7% due in part to base effects. That might be a problem. Rising PCE, rising core PCE. This is not what I'm telling people to position for. You have two more of these reports.

You're asking, let's brainstorm what the bear case could be besides the obvious, which is you want to do the opposite if everyone's OK. Which I think we all, you have to admit, it resonates a little with all of us. Right, OK. So right now, the investors I talk to who are very kind of in this, I would say, hyper political mode

for the short term, there's a very benign interpretation to what policy is going to look like. Everyone I know is like, well, we we Trump may mention a lot of terrorists, but in reality, there'll be deals and it won't create a lot of volatility and companies won't have to adjust how their government relations are with Mexico or China, because there's going to be some some deal that's going to be fine. Like everyone. Don't listen to everything he says is is the consensus. That's the consensus. And that's in the price, or at least

directionally in the price. So if you get something breaks in a negative way in the first six months of next year, the interpretation could change. If all of a sudden the corporate's like, you know what? I'm moving 2,500 employees from Monterey back to Memphis because I just can't trust. Or Trump does something with Canada

because he wants to poke the policy. Again, I'm trying to be politically neutral, but you could see some weird, they're our biggest trading partner in dollars with Loon. Like something could happen, and right now people are willing to, I'd say innocent till proven guilty as a general. Adam, to your point,

it wouldn't even have to impact earnings. The sentiment shift alone, where people are like, oh wait, actually maybe he is crazy. With multiples here. Yeah, that's right. And if you just say, OK, yeah, it's a risk. Because if you were running a big company, and you saw weird absenteeism in the US, and none in one

of your foreign, you might have on the margin moved employ the US and none in one of your foreign. You might have on the margin moved employees. You're trying to get your margins up. Now you're just a little bit concerned about having stable relationships with Mexico or China. So I'm in that camp of saying, yeah, I think they probably both want to have this thing work out and be smooth enough. It's fine.

And they might work a deal out. But everyone thinks it's going to be benign. That's one risk. The second would just be the economy causes them to pump the brakes on accommodation. Like the Fed stops. They pause. I mean, that could be bad.

That's possible. He's not renegotiating NAFTA this time. That was the, in 2018, in addition to all the China stuff, it was about redoing the trade policies of the Clinton era with Canada and Mexico. I don't hear him say shit about Mexico this time. That's just not part of his repertoire. I think what people think,

I'm just trying to reflect what I think institutional investors I talk to think is there'll be some sort of like golf round in Palm Beach with G and Trump yeah, I'm chocolate cake that trouble says the best chocolate cake and then there'll be some sort of agreement like look I'm gonna say some crazy stuff about tariffs to flex. You're gonna absorb it. It's fine You're gonna buy a trillion of treasuries across the curve And then I'm not beautiful wonderful treasuries the best treasuries and then I'm not beautiful, wonderful treasuries, the best treasuries. And then I'm not going to charge terraces on almost anything. Give me like two random products you don't care about

that I can take our 50% tariff on. That I could say when I give speeches. And then I'll say we're tariffing you because I'm the man. And then we're good, right? Look at how cynical we all are. But that's what the consensus issues are. I don't even know enough.

I'm just telling you, that's what people think is going to happen. And so we're not going to have bond vigilante stuff. We're not going to have the most volatile outcome. So I think the risks to the market could just be that there's currently optimism and a benign interpretation about regulation, about rates, about the smoothness.

And history would dictate that we're going to have one or two months on that road. I mean, you know. The only thing he cares about more than his golf score is the stock market. That's the score in... And that's why I think one of the five reasons the bull market still has our probability in the bear. I agree, but I'm just saying we well know we're not going straight up every year for the next four years. Let me show you this chart.

Let me show you this chart from... I don't know where this came from. To the likelihood of Fed cuts. I think the chart kid Matt did this on top of the BLS. So 82% chance of a cut in December, up from 59% chance of a cut in December prior to the last CPI release. So we know the Fed goes off PCE and they might have already decided what they're going to do anyway.

Is there a chance that they surprise the market and don't cut in December? You know, that WIRP function, which me and everyone else look at pretty regularly, the world history probabilities, it just moves so much. Of all the things on planet Earth that need to be polymarketed, that's probably the number one up there. Because you go from like eight to four over a month or two, and I think people believe we're not halfway done cutting this cycle, how about that? Okay, and so if we pause,

I think the market will go lower on that news. I do too. Definitely. I don't, because I think that introduces new uncertainty. Like wait, are we done? Right, right. If people think we're three into eight or three. You know, we've done three 25 units, you know 325 units into 825 units if that's where people's heads are and we're not quite halfway done. They can remain

It's early to fight the Fed. But if people think we're more than halfway done all of a sudden Is a bit of a multiple. What gets sold off the hardest if they don't cut in December? Regional banks. Yeah, they're going to kill those stocks. Small value. Because they're like dreaming. I think they're almost already discounting too much,

because they don't even do M&A and transactions. And some of the other. Yeah, so it's a little bit, they're already. You said this earlier, but another potential risk is the strong dollar doesn't hurt stocks right now now It should be directionally negative for large cap companies It was, it used to be. It should be the words that I look for in the transcripts are constant currency So when everything's perfect IBM everyone report these are my earnings as soon as currency starts hurting them They say well here's my earnings, but a constant currency they were good, right?

Like see you know when it's negative when and if you think about it, like, when's the last earnings call you read, and you're like, oh, they're reporting in constant currency. You haven't seen it because it's not hurting them. Who sells a multinational stock on a currency earnings miss? Nobody, right? Like, nobody's serious. It's smarter than to do it, you know, for sure, to report it that way when it hurts them, right?

But directionally, in terms of like the earnings revisions for those companies, Pharma, to report it that way when it hurts them. But directionally, in terms of the earnings revisions for those companies, Pharma, Staple, Select Tech, where they have disproportionate cost versus revenue in Europe in particular, that's the issue. No, I'm saying from the investment standpoint. It's like, oh, why did you sell Microsoft? Currency. Oh, currency?

Nobody is trying to get an equity-focused guy, no. But it could cause flows out, and it could make earnings revisions relatively hard, more challenging for the big versus the small, could fuel that small. Let's go, all right, let's go into your research. John, put this table up. This is 97 years of monthly returns to the S&P 500.

Yeah. What are you telling us here? Well, this was kind of the same thing we're all saying, like the market's going up, right? So this looks at all the years where the market was up a lot in January 1st to, oh, this was the exhibit before that. So we looked at all the years the market was up a lot, January 1st to October 31st, and then we kind of said

what typically happens in those years in November and December. And the market's up 20%. It usually does well. I didn't, this is the exhibit before that just shows the November and December returns. Let me quote you. Yeah, usually the market goes up. It's like a really high percentage of the time.

So we have the, John put that next chart up. So we actually have this one too. Thanks, good work in the truck. Thank you, yeah. So these are the years it was up 20 or more in that left column Then you see the November and December return so usually get another 5% plus which not a lot of negative Yeah, well not a ton negative right all right, so this is very easily explainable. This is just people You know what's best for their career 1943 was the last time you were down over those two months when you were up 20

In the first time I'll never forget. I'll never forget all right over those two months when you were up 20 in the first 10. I'll never forget it. I'll never forget it. Alright, 16 times in the last 96 years, if the S&P is up 20% plus through October of any given year, the market averages 5.5%. Only 3 out of 16 times was the market down over the last two months when it was this strong. Right, 1936, 1938, and 1943.

And there was stuff going on back then. And there was some shit going on. Okay, you very provocatively titled a recent research report, sell the inauguration, question mark. So is this like the new schtick, like buy the election, sell the inauguration? Well, it just felt like- It makes sense to me.

Yeah, it just felt like, and I guess that we're dancing around a little bit between us is like, we have that icky feeling that a lot's getting discounted quickly Relative reality there's a lot of optimism, but we also feel like it's FOMO. It works every time. I still can dream And so I I wrote that on Sunday. Yeah, is it gonna be a cell the inauguration? I had this dinner Tuesday night during the appetizer I was like, maybe it's January 1st and And then during dessert, I was like, maybe it's the money after Thanksgiving.

You know, like I was like, you know, because as I heard, like, everybody, everyone was so bullish, I was like, whoa. You know what I mean? Because, you know, I think we all remember that first couple trading days of 23, you know, people forget now, but Nvidia and Meta were awful stocks at 22. They were down 50%, 60%.

And the correct move, if you were God, was cover December 30th and long max on 10. So I think a lot of people are worried that it could be like a bit of a nasty rotation early next year and they're just sort of hoping that it lasts. And then I start thinking, well, if I'm aspirationally average PM, and I think that now, maybe it happens two or three weeks before. And I just, you know, I'm just trying to, it's all game theory at this point, but I am a little worried.

So you might revise this idea when you see the Goldman Sachs and the Morgan Stanley? They're all boy 25. I don't see how I can justify being bullish for the first half of next year or at least I will be If there's a 20 variable problem, I'll wait that sentiment variable more heavily. Yeah, cuz they're that that that Wisdom of the crowds has been like wrong. The worst thing, the best thing, what's the best thing? Your contrarian bowl in your right. And that's like Nirvana.

That's the, right. So that's like the, right, that's the Belsky moment. That's the best. You're the only bowl. That's the best, contrarian bowl in your right. The worst is, you know, obviously you're, you know, out of consensus, bear, and you're wrong. So you could survive consensus, bare, wrong, fine,

no problem, everybody else was a bear too. Right. That you could survive. If you're a contrarian bear and you're wrong, it's super duper duper good. Well, they fired the two guys this year. They fired Mike Wilson, lost his job. He still works among the Stanley,

but he's not the guy anymore. And Kalanovic. Oh, I thought Wilson's still the US equity strategist, right? Oh, you mean just from the investment committee? He changed his role. It looks like a demotion I don't I don't think that's a demotion, but I don't know everyone else does oh and And Kalanovic. I'm a big Wilson fan You know the funny and caught up is true I'm surprised cuz cuz cuz Jamie Dimon was kind of bearish on equities the whole time So usually if you're you know in sync with your CEO you get a little bit of a funny

This is the funniest part Jamie Diamond is out there saying batten down the hatches Yes, doc for years the guy that works for him is saying the same thing and that guy got fired right and and meantime they're building like a Flesh-colored middle finger size building on Park Avenue. That's you know about about 100 stories. It's a death star, that thing. It's incredible. I mean, the thing is, you know, I guess my view is that I actually was more surprised of the three firms that Costin

said equities were bad for 10 years and was like a 3% return for the next 10 years. Because, you know, I think if you're really doing the job and be provocative, you should be bearish once in a while. Like, you have to have a framework that things should trip in. you you should be bearish and you should be bullish and you should Be right and wrong and and you don't want to be a permable or a perma bear I think if you have a framework and you're intellectually honest and you've all And I think that's fine to be negative for six or twelve months

But to say for the next ten years to your giant private wealth network of rich people stuff You don't like equities like that'sities. Like that's a rough call to have confidence. But you don't understand what the game is now. The game is to sell private market assets. Now do you understand that better? But I take the other side of that. Like I think there's like 10 reasons why, like the real bulk case is we're on the precipice

in the next four to six quarters of seeing companies get better predictive analytics, implement AI, and margins are going higher. Now, you're missing it. The sales guys want to sell private credit and private equity. I get that.

But you guys know well from what you do. It's hard. OK, I'll give you a story. You don't want to say it. I'll give you a story. I used to go to cities. I do six institutional meetings. I used to hit the top 50 advisors in every city

when I was at Morgan Stanley, 10 years ago. And I'll never forget this. It was in Chicago. Big Chicago Bears looking fan. And all these guys in the room are pretty successful guys, so they wouldn't be invited. So this guy's obviously got a great book of business. He's a hitter. And in those days, got a great book of business. He's a header.

And in those days, I think they still force you to rank your equity regions. And I always liked the US or whatever. And I remember the emerging market guys, like, listen, we got to rank EM first, this, that. And I'm like, look, I don't know, OK. So we come up with a document that's EM, then US, then whatever.

I don't remember, Europe, Japan, whatever. And so the EM guys out there, I'm by myself in Chicago. And this guy is pulling out the papers, and he's like, so you guys in New York, you guys like EM equities, huh? And I'm like, well, you know, I'm the US guy, but that's the house call, okay? And so he's just, he's got the document,

and he's like, so. He looks like DECA. Yeah, yeah, he's like, to bears, you know? And he's like, so you want me to do what? You want me to sell, you know, Costco and Google, and you want me to buy what? You want me to sell Costco and Google and you want me to buy what? An Indonesian telecom and South African, and he's like crushing me in front of the whole crowd.

And so what did I realize? And I think about this guy pretty often. When EM beats the US by 30% a year for four years in a row, then maybe he'll buy some. That's right. There is zero chance that that guy will. His clients aren't saying, why aren't I going to own EM. Exactly. That would take a three year rally. Right.

To get that to happen. Massive. I agree with you on that. And so it's like they got to sell the product and there's guys who want all. But like people own US equities. It's big. It's liquid. They're trying to figure out to get in there. I think. Do you agree with that? Like, what are you apologizing more for? Being long the US stock market in a bear market? Or being overweight international in a wing to US bull?

If I get you in a brick and then it blows up down 20, I'd probably pull my money from you 100%. You know about it. I'm just saying, you know what I mean. Another sign that things are going pretty well. We have six sectors through November 13th that are up more than 25% of the year. And it's never been better than that. You've never, chart on John, please. You've never had a year through November where more than six sectors were up 25% of the year.

So we're firing on all cylinders. There's not a lot of wall of water to climb. Ben Johnson notes via, this is from State Street Global, 2024 is a record-breaking year for ETF flows. $912 billion of net flows year to date. That's higher than the $909 billion record set in 2021. So yeah, everybody's in the pool. Look at these numbers. Post-election ETFs have attracted $58 billion. Animal spirits.

Yeah. That's literally, oh the election's over, press the buy button. Like a million people doing that all at once. But interestingly, you also have U.S. money market funds for the first time ever, crossing $7 trillion. Yeah, I saw that today too, yeah. You have any views on that? Um, on the money market? I'm not surprised. In fact, I, I, one of my

predictions was that money market funds were going to remain sticky. So one of my five freak out moments in my life was when I found out UBS money market accounts were backed by auction rate securities in 2008 and it caused me to buy some physical gold. How did you find that out? You looked or somebody pointed to you? I read it. I just read it and I was like, I could get like a 92% quote of my cash tomorrow from you.

And it was like whatever custodian, it was weird. So, I mean, sometimes I just worry like, what backs that and where is it? And if people, if there's like a run on- What backs the seven trillion in money markets? People freak out, like it could make you nervous. I mean, sometimes I just worry like what backs that and where is it and if people, if there's like a run on. What backs the seven trillion in money markets? Yeah, if people freak out, like it could make you nervous. I mean, I guess.

Well, it's backed primarily by Tether and auto industry commercial paper. What are you worried about? I'm not, I guess it's a barbell, right? You kind of say, I have some profits, I'll lock some in and you know, and what rate are you getting on that? No, I didn't see what the rate was. Is it four?

Yeah. I guess, but are you surprised that, given the strength of the market, that money is still not coming out. It's going in. Money is still going in cash. No, I think the trailing price momentum is the biggest indicator of the flows, right?

I mean, you saw that with the confidence. It never comes, but it never comes out. It only, the amount going into it lessens. But the money is making more money. So if you own a money market fund, Nominally, for sure. I'm in one of Fidelity's best institutional class money market funds.

As it spits out its monthly income to me, it buys more of the funds. Josh discovers compound interest. No, I'm just saying, no. It's dividend reinvestment, but it's not dividends. That's why the money never leaves, because it keeps buying more of itself.

You see? I understand. I like the S&P has some, I mean, I don't believe anybody should have a tremendous amount of money in a money market account, I think, unless you're actively trading and you're good at, I think when you deploy capital, you wanna, I think when you deploy capital you

you want to The problem with letting like I discovered this many years ago was on The future responsibility I was to the employees of Alliance Bernstein I worked at Bernstein it was on the 401k board and it was right after 2008 and what what out What the data showed was 95% of employees never changed their allocation from the day they start working I believe that. And so if you're super embarrassed and get hired in 2008, you're like, oh, I want 100% cash, right? And then if you worked there 20 years, you absolutely screw yourself with.

So the debate we had was like, should we even allow an allocation above like 10%? Like if they want to max out, it's 10, but they got to be in equities or bonds or something. Because otherwise, and these are professional investment professionals, and still 95% don't you? So I don't love the money market thing, but I could see as a rate at set four, if you have to have 20 or 30 million bucks and you just beta ton in Nvidia, you might barbell it a little bit.

There's more to it than that. If it's investment professionals, they already have all the market upside and all the market west. Right, so that's what I'm saying, they're barbell. You know, like hedging it with something more conservative. Hedging it with a real life.

Yeah, yeah. This is the worst, this is the dumbest shit I've ever seen. If anybody says what's the dumbest chart you've ever seen, I'll show them this. John, if you please. I'm sure we produce some that. No, this is not from Trivariant. Okay, this is Consumer Sentiment Index by Party Affiliation. This is the five-day moving average from October 1st through November 11th.

What happened then? Just kidding. I mean this is genuine. When you do a sentiment poll of small business optimism or University of Michigan. Polymarket. Polymarket. Polymarket. Alright. What I'm saying like this is what you're getting. You're not getting people's assessment

of how things are going financially. You're getting their mood swing based on what they saw on Fox News or MSNBC. I have such a heartwarming thing on this. I was at the Duke NCC football game in Raleigh last Saturday. My daughter's a Duke student. And it's a very military-centric state.

And with Veterans Day, they kind of rolled out some vets and the crowd was going crazy. They pulled out a hundred yard long flag and had all these soldiers shaking. Everybody loves that. And here's like the amazing moment. They roll out these two guys who were World War II veterans. They were 98 and a hundred.

And the crowd just chanted USA on both sides. Yeah, we love that shit. It was amazing. I mean, that, so, interview that crowd. But, Josh, but it matters though. The reason why this matters is because- Totally, these survey polls are trailing sentiment. But, but, but this influences people's behavior.

If they feel better, they'll spend more. They'll be more optimistic. They'll invest. It matters. Let me tell you the ingredients to this. Morning Consult- For advertising, I guess. It matters.

Morning Consult asks people about their current about current economic conditions are they good or are they bad that's literally how they ask it and their expectations for the future will things get better or will things get worse so head against the election Republican consumer sentiment was at 83 any number under a hundred indicates negativity. A week after the post-Trump victory, it's at 107.5. Democrat sentiment going into election day was 116. Now it's at 100.

So the overall sentiment is now in positive territory for the first time since June 2021, largely because of the swing in Republican, people that say that they are Republicans to the survey. That's data. But why do you think this is dumb? I know it's silly, but why do you think it's dumb? Because people are dumb. They're not even answering the question.

They're answering a question that's relate and possibly related to the economy. I've never back tested, but I don't believe there's any like predictive value in terms of subsequent one week or one month returns from changes in the consumer sentiment anyway. No way. Oh, so this is my point. It's kind of garbage in garbage out. You could take these consumer sentiment, not investor polls, consumer sentiment polls. Like, how do you like the economy?

Well, if that son of a bitch Biden would just get out of the way. Like, that's how people are answering that question. You could just throw all that shit out I don't need to hold this before but my favorite line ever on this many years ago And as I burn seen they had like a canned Political debate in front of all the clients and it was Bill Bennett the book of virtues guy and it was I remember that Al Franken I think he was just becoming a center from the comedian transition. Yeah. And Franken gets up there, and he's sort of waxing on poetically about how great the economy was

during the Bill Clinton administration, and he's got his whole dog and pony show. And so he goes for like five minutes, economy's great, everything's awesome, Clinton's great. And then Bill Bennett goes, he doesn't like, he kind of, obviously they planned this, but he goes, so I wake up every day on the beach. I walk my dog at sunrise, we watch the sunrise together.

I just don't give my dog credit for it. And it was just so perfect, like these cycles, like the most important thing for the economy is the Fed, right, it's not the president. Like there's a lot of other things that matter, and we try to like blame or take credit for stuff. You think the Fed's more important than the companies, than the economy, the consumer?

The two things I think I've learned in the last 25 years that matter for stocks are changes to perception about rates and changes to perception about growth. And the Fed can influence that a lot. And it's not the reality of the growth or the reality of the growth. It's the changes to the perception about it. And so you can look at FF 1224 GP or Fed Fund futures

12 months from now and 24. And that kind of can be statistically, significant associated with the multiples, right? So think about 2021. You got worried you're going to hike multiples for growth stocks got killed. Like so there's a period where that's all that matters and you can do all your fundamental work in a biotech stock you want in 2021, but it's getting killed because the growth, you know, the perception about growth. Absent all the strategists turning bullish at the end of this year for next year, what would you need to see to turn bearish? Earnings falling. Yeah, I'd have to think the margins for the median company

are going to go down. And that would either come from there's a very statistically significant strong relationship between changes in CPI and changes in margins. So if we start seeing CPI go up a lot of small cap companies can't handle that. Their input costs go up, logistics go up, wages, you know, this is what makes it so hard your job and everybody's trying to figure this shit out is that if margins start to come down the stocks will get killed and then it's like alright

well is this just like a dip and they're gonna like stabilize and or maybe even accelerate or uh-oh is it gonna get worse? That's why the easy thing to do is you buy the ones that are high quality that high High-margin low volatility, you know I think part of the job of the analyst isn't just figure out what the margins are It's what introduces volatility into the pnl The reason why levered companies go down a lot is because when you get bad things the pnl, you know, they're earning Allow me to yeah, allow me to that's a a great segue so here's what could go wrong immigration and if they actually follow through on this idea of some more wage pressure yes so here's

the New York Times the piece is called Trump's immigration plans could bring an economic toll new newly appointed borders are Tom Homan said, the administration would start with the immigrants who have committed crimes. Okay, I think most people would agree. Good idea, get them out of here. Okay, there are not nearly enough of those to amount to removals on a mass scale, however.

We're gonna run out of criminal immigrants. So then they're gonna look at 11 million undocumented immigrants. That sounds like a lot of people, right? I'm assuming many of whom are in the labor force. Quote, if you are in this country illegally in six months, pack your bags because you're going home, Mr. Vance said, then the numbers could rise by another 2.7 million.

These are people who are here on temporary humanitarian protection, which could be revoked. So all in, it's 13.3 million people living in the United States in some version of illegal status. And if you ask me, what's the thing that could really make people nervous about the earnings outlook is if they're serious about what I just read to you. Which who knows. I think there's a not a direct impact from that for the biggest couple hundred US equities. I mean, as far as I'm aware, there weren't a ton of illegal immigrants working at the

biggest 50 or 100 companies. No, but this is how you get inflation back. Right. It's more that downstream, if wage inflation goes up for small businesses, then they're more impaired to spend, their confidence goes down, etc. So I think that argument would be more of a large versus small cap argument. Because I doubt Metta's earnings trajectory will be massively altered by that. Here's an estimate. The Peterson Institute for International Economics estimates that the maximum case supporting

8.3 million immigrants would push prices 9.1% higher by 2028, supporting only 1.3 million migrants would raise prices 1.5%. I think most people could live with the less bad scenario. I don't think they would notice. I mean, prices are going up 2 and a half percent anyway Yeah, so I I don't I think there's kernels of truth that are greatly exaggerated to that extreme So it's not a thing that you think is gonna be a market impact story I think wage inflation will matter for some businesses, but I think the potential and dream for labor productivity is so high right now You know I took this course this summer

AI for for health care at It was an online course. And I learned a ton. I'm like the new Virgil Annal, who thinks everything's awesome. But I started seeing, and we've all interacted in some form with the health care system. And I don't think I've ever left and been like, wow. This is like a Picasso, how this whole system works.

And I just think there's so many businesses, McKesson or Sancora, or the, McKesson's a 350 billion revenue company, it's a drug distributor, pass for 1% margin. If they can get better at predictive analytics, they should know where every, the major drugs need to be in every county in the world, they should get better at,

if their margins go to 1.8 from 1.1 on the 350 billion, you want to bet that's a good stock? Adam, my dermatologist, they hand me a clipboard with a pen tied to the clipboard. When somebody is physically writing something down, it's already terrible. They give these examples in this class, and this is so basic and dumb,

so I just want you to hear my dumb example and then multiply it by like a million to what can happen. There was a hospital system in Boston that had 250 surgeons, okay? Surgeons for some reason, this resonated with me just from my own interactions, film interactions, they do surgeries on Tuesday that like the big surgeries and the three days of recovery in the hospital and they do like the minor ones on Thursdays. So the guy who runs the hospital is like, you know, the only thing I

care about is having like ICU bed capacity and like I basically don't have any on Wednesdays so if something bad happens, like I'm kind of screwed. So a quant guy came in and is like, oh, if I move nine of the 250 surgeon schedules, we have the exact same available capacity Sunday through Saturday. Does that sound better to you? Like it sounds so stupid.

That doesn't even require AI. Right, I'm just saying like just basics, okay? So now the AI stuff is like breast-caster imaging and avoiding prophylactic unnecessary double mastectomy It's wild. There's gonna be a box I think in 10 or 15 years in every single new home in your room That's gonna be like a wearable multiplied by a million with electromagnetic waves. It's gonna be like hey batnik You've been sleeping poorly. Have you done this or you've been you know, taking your it's been taking your time. So you want to short that health care technology complex

and the ability to be more effective. And what's interesting is the sentiment right now, it's almost like Republican bad for health care, Democrat bad for health care. It's like tails and heads both lose. And I just feel like that's weird, because Oracle's showing you there's a little bit of this Cerner deal that's

starting to happen two or three years later. There's some you think intellectually tech and healthcare aren't gonna get so I'm like a little bit I get that the grizzled healthcare guys like yeah, I've heard that and I've lost money on every one of those stocks But I just I'm like kind of excited about the potential all I think it's gonna take for the market to rip higher is gonna be a real company Walmart would be amazing, but McKesson saying hey hey, you know what? In the past, I would have hired like two or 3,000 people to do this, and I got it done hiring zero.

And then you're going to say, whoa. That's such a great point. Like, we're going to have an earnings season at some point this year where companies are actually going to talk about the victories from implementing all the AI in 2023. They're going to be like, look how much better our results are now that we're doing X, Y, and Z.

Yeah, like Jensen, there was big doubts about the hyperscaler return on investment. People look at the Microsoft CapEx number, and they're like, good god. And I get that. The biggest 10 US equities are spending, I think, the highest level of total capital spending dollars in the last 25 years.

So people are worried about the investment. And so you get like NVIDIA down $10 or whatever. And then Jensen, the CEO of NVIDIA, flies to New York and Boston. And he says, calm down. Go to my website. Click on the health care button. Chill.

And the stock goes up. So I think there's just a positive skew toward getting a good proof case on this earnings productivity and labor productivity much higher than Microsoft coming in and being like, are bad. We're shaving by six p a quarter. It doesn't work. That will happen eventually.

Well, they'll plateau it and let others pick it up. But in the next six or eight quarters, can you imagine if Walmart is like, we grew our revenue 4% and we hired zero. Like, if you think their margins are going up one whole percent, the stock will trade at like 40 times four. And if you think it's good for Walmart, think what it means for Nvidia.

That's a good video. Which is already at 140. Sorry, I miss what you said. Did you have fun on the show today? I love being with you guys. We always have so much fun. Thank you so much for coming by. We always close the show with favorites,

and I'd love to hear what you're into these days. What are you reading, what are you watching? What do you think the audience would benefit from knowing about? I'm worried that, because you've asked me that every time, and I didn't prepare for that, because I don't really watch TV. Where'd you go for dinner with your hedge fund friends?

I don't watch TV, because during the pandemic, I watched a couple of shows, the heist one, Money Heist, and in the end, they all turned to soap operas, and I lost sleep, I was tired, I learned nothing, and I was like mad that I deployed the time poorly. And so I've kind of given up, and so I'm like the worst person to ask about TV. I'm a big live sports nut.

Mike and I were talking about the NBA when I walked in. So I think like a good business model for me is going with my children to live sporting events. Like they don't feel the pressure of having to talk to me the whole time because of the entertainment in front of us. So I'm a big, big sports fan. It's the NBA Cup right now. Are you excited about the NBA Cup?

I'm from Boston, so hopefully that doesn't annoy some of your listeners. I'm a huge Celtics fan my whole life. Larry Brader, Robert Parrish, Kevin McHale, the whole thing. And big Celtics fan, we are the current champs. I have a little bit of a Celtics looking tie on. So you guys don't need the cup because you're going to win the whole thing. We lost to Atlanta and I thought, I was pretty proud of my response to one of my Knicks fan buddies who was teasing me about losing. I pulled out the old, nobody who's won the par three tournament has ever won the Masters. Like we do the NBA championship.

We don't do the mid-season cup. We saw after the game, we saw Iverson at the casino. He was hanging with his buddies at the casino. How come we didn't walk up to him? That's the real AI. Yeah, exactly. The dealer said, do not talk to him. He will curse at you.

I've thought 20 times now, like why an AI company hasn't hired him as their spokesman. Like that just seems the easiest marketing call of all time. Just have AI be your guy. Ooh, I don't hate that idea. Nobody did yet? Can we monetize that? I haven't seen him.

Have you? That seems so obvious. Why is an open AI, like as an open AI, have Alan I... Are you like, can we get a kickback on this idea? I'm trying to think if that reference would be lost on half the audience. Right, right, because everyone less than 35 doesn't know who he is. Even though he was just like,

he was just like such a worth paying for guy, right? I sort of like it. What do you got for us? Did you finish The Penguin yet? No, do you want to spoil it? No, I won't, but just The Penguin is one of those shows that I think people rightfully just wait until how a show ends before they think about it.

I don't even know what the show is. It doesn't matter. But the show is fantastic. Worth watching to the end. It's Colin Fowl in like head to toe, fat suit and makeup. He's unrecognizable. You would never know it's him. Right.

So he played this role as a minor role in the new Batman movie. And Warner Brothers made it an HBO show, like a spin-off from the movie. And it's like one of the few bonafide hit shows of the year. Because we just don't have that many great TV shows. Here's a book you should read. I read it a few months ago.

I think about it a lot. It's called Factfulness. I love that book. You know that book? Yeah. It's out several years ago. The guy died. But it's very positive. So if you notice, I gave you the USA chant. Like, I'm in a positive mode about humankind. I really am.

And this fact of the most thing, it basically asks questions about society. And you always think the earth is way worse than it is. Like, how many people can eat? And you're like, is it 50, 40? And you just always pick. They give this 13 question quiz. Hans Rosling?

Yeah, his Rosling, exactly. Well, you assume the answer is going to be worse. And it turns out. They ask you 13 questions. You're a smart guy. You know what's going on. You're going to get like four of the 13 right. Now, like, Scoot you, you'll get five right.

Because you always just think, oh, it's terrible. Things are worse than they really are. I don't know who said this quote, but somebody said two things are always true. The world is always getting better, and people always think the world is getting worse. And that's kind of the summary that's mostly in books. And so I've been thinking about it,

because I do think sometimes in the day to day of thinking about the stock market, I underestimate the demographic certainties of what are happening. You know, like it's just, you know, so it's something to chew on. Yeah, good rock. Yeah.

You were dead right on Yellowstone. Seasons one through three are three of the best seasons of TV ever. Season four becomes really unwatchable. Has any show ever been good in season four? What's the guy's name? Sopranos. Okay, yeah.

Four through seven are better than one through three. What's the cowboy that they follow? Is it Jimmy? What's his name? That was back when I watched TV. I did watch The Wire and Sopranos. I did, you know. Those shows got better as they went on

because there was no internet. It was 9 o'clock, you had to, you're like, your wife yelled at you to get in front of the TV when it was starting. What's going on with this show, I could see the progression. Costner is losing interest with every passing season. So his scenes start to become fewer and far between. There was one scene where he was wearing the same clothes. He can't work remote. He wants to work remote. Well, he lost his wife over the show.

So, yeah, Costner's wife left him for the personal trainer. You won't believe how bad it gets. So, but you could see him in it less and less, and the show gets worse. I guess the thing I'm most excited about in the world of what I pay attention to is we got a 12 we got a 12 team INCA football tournament. That's new. Yeah. You know your Canes should be in there. Canes are one of the top right teams. Unfortunately and it's probably the last time I can say this for the rest of my life but I went to Michigan where the defending national champions. So we're five and five as I speak and it's looking bad for the next two games.

But I guess we can still hang out to that situation, if I never get a get in my life. As somebody who has a ton of friends that went to Michigan, you have a very Michigan energy. And I mean that in the- Slash asshole? Was there a slash asshole there? No, no, my wife went there.

My wife went there. So back to slash asshole or forward slash asshole? Duncan, are you with me on that? It's a Michigan vibe. I mean, I went to Boston. I'm from Boston. I went to Michigan. For a lot of people, those are like the two worst things you could say.

I get it. Did you ever have this observation that people that went to Michigan are the most likely of any other college to wear Michigan clothes? Oh yeah, for sure. You would agree with that, right? The maze in the blue. I mean, you know, it's also the largest living alumni, so maybe it's just math. Like, you just run into more people.

Wait, is that true? How do you know that? I think you could, I think the Googler. Really? Yeah, it's been a big school for a long time, so people in their 60s and 70s, 80s, there's a lot of... So like when you see people wearing their college stuff, it's the most likely to be Michigan people.

I mean, probably not by like a massive percentage. No, just the staff, by the way. Listen, it's the leaders likely to be Michigan people. I mean, probably not by like a massive percentage. Don't disrespect, by the way. Listen. I mean, it's the leaders and the best. Yeah, that's right. It's in the fight zone. Guys, we want to thank Adam Parker of Trivariant Research for joining the show this week.

Adam, you are spectacular as always. Love being here. Tell people where they could follow you. So if you're interested in what we do, you can just email sales at trivariantresearch.carl. And you serve who? Who are your clients? Our clients are...

Americans, Michael. People who care about US stocks. And we are eventually going to do a newsletter for the masses, so I'll be back on at that time to tell folks about it. 100%. I love talking to you guys. Anytime I can help with anything, let me know. So we're trivariateresearch.com and info at.

Yup, LinkedIn. You can find us. We post content there. I try to go on once in a while with you on TV. I love being on TV, dude. You're very good at it. Let's do it. Let's do it again sometime.

Hey, I want to finish by letting you guys know we are hiring. If you're a video editor that can work locally with my all-star team here in New York City, we want to hear from you. We have work for you reach out at ask the compound show At gmail.com Duncan will personally respond We need help the team is growing the channel is thriving and we need talented people who want to be a part of it So if that's you HMU know what that means

Hit me up. Hit me up. Hit me up. All right. Hey guys, thanks so much for listening. Thanks for watching. We love you. We'll see you next time. I work so fast.

I mean, I mean. I mean. Thanks for watching!