The Compound and Friends - Cut Your Losses, Size up Your Winners

Episode Date: December 20, 2024

On episode 170 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Nick Colas, Co-Founder of DataTrek Research to discuss: the market's reaction to the latest Fed cut, if international stocks are worth the risk, the outlook for 2025, the latest in Tesla, the wisdom of Steve Cohen, and much more! This episode is sponsored by Global X and Public. To learn more about Global X’s entire suite of ETFs from covered calls, fixed income, emerging markets, and more, visit: https://www.globalxetfs.com/ Lock in a 6% or higher yield with a Public Bond Account. Learn more at: https://public.com/compound Take the TCAF audience survey! 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

So Nick, you're the guest, you consume no content, right? You're not a movie guy. Wait, you're a big reader? Or you're just a markets guy? Book reader. Yeah, yeah. Remember? Oh yeah, you gave Josh an 800 page book that he read.

And I read it. Yeah. That was fantastic. You have another 800 page on you? Josh's backyard, I see that book, I'm like, holy shit. Yeah. I read The Silk Roads. Yeah.

Silk Road. Silk Roads, yeah. What a book. Unfortunately, his follow-ons, which I've also read, not as good. You know that happens a lot. The Sapiens guy fell off after the first one. I read his latest one on AI. He has an AI book?

Of course he does. With a pigeon on the cover. That I haven't seen. Are you reading books about AI? I just picked up the FT's Book of the year by one of the reporters. It's about AI. Let's see how it goes. Okay. I read an AI book this summer. Every other sentence he's saying,

this could change, but... Yeah, so what's the point of reading an AI book? Right. Like, that's the problem. It's moving so fast. By the time this guy got his book into print, he was already apologizing for how out of date it would be by the time you read it. And I bought it the first week it came out. It's a famous, what's the futurist? Do you know who that is?

Like Kurzweil. Yeah, Ray Kurzweil. Like an amazing, amazing, like visionary person. But even he had to admit throughout the course of the book, it's like, here's the all the historical stuff, how we got here. Now everything I'm about to say might be out of date by the time you read it. Are you integrating AI? Maybe it shouldn't be a book.

At all into your life? The way I use AI, I use it every day. And the way I do it is I will type in, you know, a topic I'm thinking about. And then I read the answer. And that's what I know is the baseline. That's what everybody knows. Oh, interesting. If I can add to the conversation then great and if I can't then I'm for the next topic. So what kind of query would you put in for example?

It could be anything I was doing it with our you know our topics today. Yeah. Like the question of rising amount spent on debt servicing and inflation. So people might scoff at that approach to research like oh, chat, GPT. The truth is the people who win on Jeopardy study children's books. Did you know that?

No. The strategy, if you're going to be on Jeopardy, the strategy is not read the most sophisticated books about all these topics, because you can't. The strategy is read the simplest version because if you get a question on a given topic, it's probably going to be something very basic. On Jeopardy, it's the breadth of knowledge, not the depth.

So the people who go on the show, they'll read a children's book on all the US presidents. And whatever they retain, it's probably good enough. It's not like they're going on a show that's going to dial in on chemistry, but if you know like 10 terms in chemistry, maybe one of them comes up on the show and that's all you needed to know. Are you smarter than fifth grade or was harder than Jeopardy? I don't know if that's true. I never watched that. I couldn't say.

No, but so starting something on ChatGPT, and someone's like, well, anyone could do it. Okay, but anyone's not going to do it. I'm the one doing it. And the point is you have to add to what you see. Like there's white space and there's unknown things within the Chachitpity answer, and that's your value add. Have you caught something being wrong?

Oh, many times. I do all the time and it pisses me off. And actually correct it. I will tell Chachitpity, no that's incorrect, and I see a little memory updating, memory updating, thanks very much. What, what, what one do do you which one do you use? Judge CPT you do why it's one I started with so I pay the whatever 20 bucks a month for the upgraded service and off We go. What do you get as a result of the upgrade unlimited? Yeah, I'm following questions

Okay, so Nick you're you're you guys you and Jessica are doing research out the ass What's the last thing that you guys produce it and Jessica are doing research out the ass. What's the last thing that you guys produced that you were like, it's pretty cool. I didn't know that. That surprised you. The relative returns of US equities versus rest of world and the fact is we were talking about that every single US sector's outperform rest of world over the last one, three, five, 10 years, except for like energy over 10 and real estate over five.

But so people throwing in the towel, especially overseas investors, like that doesn't get you a little bit excited? It doesn't get me all that worried because US equities are now 66% of global equities. I don't know of a lot of people that are overseas that are 67 to 70% US equities. They still have a very modest but noticeable home country

bias. And so there are still only 50% US equities. So they're still nominally underweight. So there's still room to go. What are the most severe home country bias countries? I was always told Japan. Japan, yes. Canada was for a long time, a really long time.

And it had huge effects on Canadian stock valuations. like Canadian tobacco, British American tobacco had a huge multiple and Philip Morris was trading very cheap in the US because Canada's natural resources and they overweighted the non natural resource stock and give it a bigger valuation. So Canada's one, Japan's a huge one. I'd say Europe, 10 years ago, 30 years ago, when I was marketing in Europe for CSFB, you couldn't pry German investors away from the German market. Wow. I bet that's not true now.

No. Canada, because they've had so few tech stocks, the ones that they do have, have blown up into massive bubbles. Nortel was a really great example from the start of my career. Nortel was the hottest stock in the world for a minute and Canadian, Cisco, blah, blah, blah. Then they had another bubble in Blackberry, like a little mini that valuation on Blackberry, I think early in the game was Tesla-esque Shopify. So like, if you have a home country bias in Canada and you want to have tech exposure, you usually have a

choice between like three different stocks. It's not like you have 500 stocks to choose from. So I think that kind of contributes to it. Yeah, I think I'm part of it, and about the overseas investor is the dollar has just rallied and rallied and rallied now for 20 odd years. And people are tired of trying to call a top on the dollar. Dollar is ripping it.

Is it going to be a wrecking ball in 2025? That's one of my fears, is that you get a sudden flush in the euro, and you get some kind of disconnect. When did the dollar f*** us up? Was it 22? 21, 22? What produces the sudden flush in the euro?

Something political? I mean, the political stuff's unraveling right now. Germany, France, the UK's obviously got the pound but the situation is not much better. No, I think it's just more of a slow grind where you get, you know, euro parity to the dollar or 99 cents and you know how it is, stocks and markets don't crash from overbought, they crash from oversold. I lost track.

Are the hard right nationalist movements winning again or losing again? Where are like where are those elections falling out these days? Well, we got elections coming up next year, I think in the year after. But I think the more the point is they are now able to, there are large enough parts of parliaments to say I don't want this government anymore. You know, we can the government and say, okay, call elections. They do that too much. I feel like don't you? It's a parliamentary system so it's always gonna have that inherent... Like they'll just like like all right snap

election it's like I dare you to vote against what is the rhyme and reason behind all of those snap elections? That's a tough one I mean it's so different from our system here it's it's it's hard to understand. We would be we would be bewildered by that level of activity. Having governments collapse on a regular basis. I don't think we can handle it. No, I think Americans are very comfortable loading every two years and that's a great pattern.

Yeah, we need the continuity. Off years for your mayor, for your governor, and otherwise just do your job. We can't have overnight referendums on policy because we need the continuity to do what we do here. Yeah. Okay. Do the European individual investors care about stocks yet

or not really? They really do. They do now. They care about US stocks. Okay, but they care about stock portfolios. Because they didn't forever. They're getting there, right? But you know, it's still,

when we have like high net worth meetings in Europe, they usually want to talk about one to 10 stocks. You can guess which one of the top ones are. CVS. Yeah, CVS, exactly right. No, it's Tesla was obviously a huge name, has been a huge name. We will have two-hour conversations

with a super high net worth person about Tesla. Yeah. Well, there's a big asset manager in, I think they're Scottish, the Bailey Gifford. They were a top five shareholder in Tesla the whole way up. They were so early to it. They owned a ton of it. They took a huge risk in their allocation and it paid off. So they get, like they get it. It's just, I'm curious about that and it paid off. So they get it. I'm curious about that because it doesn't seem like they have as much buy-in into the stock market systematically amongst households. If you have money in Europe, it's probably land.

It's not equity. It's not a founder culture per se, although they do now have some homegrown growth companies and tech companies. I've heard that the founder of LVMH is seen as a villain in a lot of Europe. They don't celebrate him the way that they would if he had done that here. So it feels like there's a cultural reason why they don't own stocks to the extent that we do. Well, here's a great counter to that.

We'll talk about Tesla on the show. I had my handyman in the house the other day, and he was asking me... You have a European handyman? What would you do with $50,000? And I'm like, what are you looking for? He said, income. So I said, all right, well, the 10-year,

the risk for rate is yielding 4.2%, so anything above that is going to take some risk. He's like, 4.2%. I'm like, well, you can own like corporate bonds you get like five or six. He's like, it's five or six. He goes, what about Tesla? Yeah, yeah.

You were having a different conversation than you thought you were. All right, Nicole, we ready? So we like risk. Three claps. Three claps coming in. Whoa, whoa, whoa, stop the clock. Here's a word from our sponsor.

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member FINRA and SIPC. As of 9-26-24, the average annualized yield to worse across the bond account is greater than 6%. Yield to worse is not guaranteed, not an investment recommendation. All investing involves risk. Visit public.com slash disclosures slash bond dash account for more info.

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. Well done, Nicole. Episode number 170. Hard to believe sometimes we've done this many, right? We're just going to start it. All right. John is here, Nicole is here, Daniel is here, Rob is here.

Duncan is in North Carolina. Am I right? All right. Shout out to Duncan. Guys, I'm very excited to tell you who our guest is today. Nick Kolis is the co-founder of Datatrek, an investment research platform catering to hedge funds, RIAs, family offices, and asset managers. Prior to Datatrek, Nick was a senior equity auto analyst at First Boston and portfolio

manager at SAC Capital, reporting directly to Steve Cohen. Nick is back for the, how many times? Third, fourth? Do you know? Three. Could you chat GPT that? Yeah. All right.

Wait, he was on a year ago. He was also on with me on the Tuesday night show. Nick is one of our favorite people. You're a fan favorite. Every time you come on the network, the views explode on YouTube. We love talking to you. Thank you so much for coming back. Thank you.

Really appreciate it. What do you want to talk about today? All right, so let's start where we have to start. We had a little Fed Freak out this week. Let's put up this first chart. I want to show you how some of the stocks reacted immediately following. So you actually caught a bid in defensive and these healthcare stocks have been getting killed recently for obvious reasons. But the

top five names, Jabil Circuits on there, it must be something company specific, Cigna, United Health, Centene, and CVS, they're all in the same business. They all got bought. What got sold? CrowdStrike down 7%. Texas Pacific Land down 7.5. BXP down 7.6.

Tesla down 8.3. Paycom Software down 10. The Russell got hammered. I also noticed the home builders, which were already in a downtrend, Russell got hammered. I also noticed the Home Builders, which were already in a downtrend, got severely hammered. It felt orderly to me, even though it was the second worst day of the year. What was your impression?

It felt orderly until about halfway through the press conference, and then it just began to go. Yeah. And the NASDAQ too. Yeah, and the close was sloppy. Okay. Like in the extreme.

And one of the ways I think about how the trading cadence goes through a day is how much retail is paying attention. And I use Google Trends for that. And just to look at Google Trends, how many people are searching for the terms Dow Jones and stock market over the course of the day? They give you that in real time? Yeah.

Okay, that's great. And so usually the retail is interested in the stock market at eight o'clock in the morning, seven to eight o'clock a.m. Eastern time. They'll get the market, put in their trades. It's a classic retail opens the market. What was unusual about yesterday was that the interest in the market spiked into the close.

And wait, and your assertion is that people are starting out their journey to see what's going on in the market with a Google search of Dow Jones? It is the proxy for interest in the market. Would you have guessed that? The biggest search term? I would guess people putting ticker symbols into Google, because I do that.

You can, but this is just all encompassing, okay, what's the market doing? Okay. And so rather than look up every one of your symbols, you just say, hey, you know, Dow Jones, let me just see how... How aberrant were the amount of searches for stock stock market toward the end of the day very aberrant Yesterday versus any other time forex forex. Okay. So what's your interpretation of that? So is that a washout is that good it to me says people got really worried and I think look I mean think about where

We are in the year. You got Christmas, you know presents to buy you've had a tremendous year You have huge gains. You see the market imploding. You don't know what's going to happen the next day. So you take some off the table. And you also have desks on Wall Street aren't taking a lot of risk going into the end of the year. So it's not like there was a buffer stock of capital to absorb the selling.

Here's what I said on TV today. Tell me if you think this sounds smart. I said there's two types of stocks that got sold yesterday. The first were the rate sensitive. So anything related to the housing market and anything small cap. And the more indebted those small cap names were, like you could probably guess those were the stocks because they have refinancing risk. They have debt, they need to roll it. Okay. so that's that bucket. The second bucket though, were the stocks that were up the most?

And I look at those as the easiest to sell. If you're on a trading desk and you have to lighten up because whatever, for whatever reason, too much risk, somebody does a value at risk calculation, they say we're heavy, we got, okay, fine. What are you selling? You sell the thing that you don't have to explain to anyone that you sold it

So Tesla up on an 150% on the year easy sale Crowdstrikes had a huge run So those names on the top of the list not because they care about Jay Powell But because if somebody has to sell you don't have to apologize to anyone for selling a stock that's up 100% Just like it's like look. It's up 100%, I took some off. That's a really easy sell. And as a result, that's why I think the tape looked the way it did yesterday. What do you think about that?

I think that's fair. But man, it was an outsized move. I mean, that close was bad. I guess we'll talk about the VIX at some point. The VIX spiked in a way we haven't seen the VIX spike in a long time. You know what's crazy? There was a rate cut. Lost in all that. Let's put up these target rate probabilities. So now we're saying you're not getting a January cut. I don't think anybody expects it. Less than 9% probability. And I guess the 91% say no cut at all.

Okay, so that's what caused this? Is there more to it? Is there? No, because look at where these odds were a week ago. It's the move. The move in the odds? No. It seems small.

Exactly. Okay. So this was known. Well, we had a huge move. Biggest yield jump, this from Bloomberg. Bloomberg biggest yield jump on FOMC day Since 2013 on the 10 year Massive massive move in the 10 year. Yeah, so yesterday was a full scale reset in expectations You had in the stock market you had 483

Stocks were down on the day most since December You had 70% of stocks making new new one month low yesterday, the biggest spike since 2022. Can we put that one up? And I don't know, I would never pronounce that the selling is over, because literally, who knows. What chart is that? Seven and ten. Seven and ten.

Or eight and ten. Eight and ten. So that's the number of stocks that were down on the day. 483 stocks. So pretty's the number of stocks that were down in the day. 483 stocks. So pretty close to all of them. So we did that on August 5th during the Japanese thing. So that was the bottom. Alright.

So that's not very common. 70% of stocks. Next chart, Daniel, please. And so, again, we're only, the S&P is only 4% from its highs. I know other areas of the market are down a lot more. The Russell is down more. Homebuilders is down more. Homebuilders down more. But prior to this, so in the dock, I had a section, everybody's bullish.

And prior to yesterday, everybody was bullish, offensively so. And so I view this reintroduction of risk as a necessary, a good thing. I don't like seeing stocks fall 3% in a day. But in order for stocks to go up, they need to climb a wall of worry. And prior to yesterday, there was no worry Do you think the uh? Do you think these the the sentiment surveys are gonna shift much based on what happened yesterday next week? No, I don't think so either no maybe they'll be tempered a little bit But because what they were really learned yesterday, well, what do you think we learned?

I think we learned that Jay Powell was first of all really pissed at his committee For the dot plots and being so far off on their inflation expectations for the end of the year in September. And it was visibly like he used some very strong language about how far off that how much the dot plot had to move, not the dot plot, but all the things in the SEP had to move. I think he was upset that he had to go out and explain a summary of economic projections that makes no sense. Where you're expecting better economic growth, lower unemployment,

higher inflation, and you're still cutting rates. Okay. So you're saying, but he didn't want to cut rates? He said it was a very close call relative to the last three. Doesn't he really make the call though in real life? It's not like they listen... It's not like he has to listen's not like they he has to listen to them They listen to him. I think that he may have also been a little bit angry at himself for locking in a hundred basis points Okay for the year and then having to go through it. Well the market felt that though that anger that you're yes that frustration He lost control

These that's like what Twitter was saying like sentiment seemed like it was it was a sloppy press conference He said during the press conference most forecasters have been calling for a slowdown in growth for a very long time and it keeps not happening. I wonder if he was talking about himself. Yes. Look, I think he was always trying to say that he could raise rates and not kill the economy. He really wants to beat Paul Volcker.

He wants to create a soft landing and less inflation without causing a recession like Volcker did in 81. And so far he's done it. But he knows he's got one more year at least to go. And next year is going to be a harder call because inflation is not coming down to 2% anytime soon. Okay. Why isn't it? So we finally have the shelter component moving in the right direction. What's high? Food prices? Food prices are volatile, but no, I mean shelter inflation is coming down, but not as quickly as the Fed hoped for. That was the problem all this time, the main problem.

And then non-housing services is also a problem. So it's just not coming down as fast. Look, the economy is growing, what, 3% in the fourth quarter? It's run the better part of 3% the last two quarters. Can we really get inflation to come down quickly with the economy still growing so quickly? It seems unlikely. But there's less pressure in the wage market. There is less pressure on the wage market. But services are still expensive. One of the big things is that now we're saying two cuts are the expectation versus three. Does that actually matter in real life or does it

only matter in the media? Like in business, is anyone going to do anything differently not having that third cut in 2025? No. Okay. No, I don't think so. And that's why I'm not so worried that the sentiment surveys are going to change next week. So your views on 2025 are unchanged by what happened yesterday? Yes. I think it's also worth pointing out most of these situations where the Fed quote unquote disappointed the markets in not giving more stimulus because things are okay. Those have always been viable sell-offs. This is not a situation where growth is disappointing or like the Fed is like in some sort of an

emergency state. They're taking their time and they're saying, we might not have to do as much. I understand that there's profit taking and stocks got bid up and, you know, it was an excuse to sell. Beyond that, I can't see what the problem is. Why do people want more medicine if the patient doesn't require it?

Yeah, that's fair. Yeah. So I always look at those as being viable. What is this chart? I didn't throw these in. We could skip that one. What are your thoughts on, we were talking about this before the show,

of some of the relative under-performance to be polite in names like energy and materials and healthcare. I mean, outright, if you divide these sectors by the S&P, it looks like a full-blown or close to a crash. Yeah, industrials too. Industrials too. Does that bother you or is that just not that important because it's such a small percentage of the market?

It does bother me because you want to see some of the cyclical groups work. work financials been working and that's great But I would love to see industrials follow along look I think what's going on in the rest of world with economic growth being very very slow I think it's challenging for large multinational industrial companies material companies and for commodity prices Can we put up Dan? Can we do chart nine this bothers me? I? Don't love that. This is a New York Stock Exchange advanced decline. Most of my spiel this year has been look at the advanced decline. Like, like in

other words, if you don't like the rally in the S&P, this can't be the reason because you have tons of participation and that participation grew throughout the course of the year. I mean, this could be a blip or worse. I don't love that. Do you care? Does this raise a red flag for you or not really? Not really. Why, because it could reverse so quickly? Yes.

Okay. For that end, yeah, if you look at this chart, just look at how it ebbs and flows. This looks cliffy. It does look cliffy. Is that through yesterday? Yeah. Yeah. Well, there you go. There's your cliff. Okay. You brought a chart of the VIX. It's weird to get a VIX spike to the degree

that we got yesterday. I forget my percentage. Hold on, Mike. I'm sorry. I want to do chart 11 before we do the VIX. This is 14-day RSI for the S&P 500. I don't love this one either. I like that you can now say it's overP 500. I don't love this one either. I like that you can now say it's oversold, which you haven't been able to say.

But it's not oversold. Not yet, but close. Closest we've been since, I don't know, I'm trying to, I guess since the August event. I mean it's- There you go, yeah. I don't love it. Again, it's one thing, it's one read that could easily reverse. I love it.... There you go. I don't love it. Again, it's one thing.

It's one read that could easily reverse. I love it. You do like it. I mean, I'm not saying I like it for tomorrow, but you need this fear. You need the VIX spikes. But I think what I don't like is I don't like that a lot of stocks are really rolling over. And I don't love that you have a VIX spike with the S&P merely 4% off the highs. And I understand that it's cap weighted and a lot of different areas of the market look

a lot different. But what's your interpretation? I mean, VIX spikes should be bought. Let's put Nick's VIX chart up. So this is the VIX back to the lows in October 22. And close yesterday, 27.6 is the big black dotted line. And you can see that we've only been at this same level twice since the rally started. This was when the rally started,

the last day of the VIX being above 27.6, one month later, S&P was up 3.5%. And the last day of the VIX spike, August 7th of this year, S&P is up 5.2% one month later. Okay. 27.6 is also coincidentally exactly one standard deviation from the long-term mean. How do you look at that in terms of like,

what you're trying to do in terms of positioning or how you're thinking about what it means for the market going forward? This tells me we had a very, I mean an almost similar to the August fear spike and we very quickly got back to levels literally at the bottom of the, right before this rally started two years ago and we're there again today. I have two rules for taking risks. Number one, always hit a 16 when the dealer show up with a face card.

And number two, you buy a VIX bike. Yeah. Now, the exception to that, 2022. Yeah. If you're in a bear market, no, toxic. Right, we're not in a bear market. We're not. So we're not.

Is this, is the VIX more sensitive now that people trade options more aggressively than they used to or more people trade options? Does that affect the way the VIX price is in risk or is it always the same? I've looked at it six ways from Sunday using the historical data back to 1990. It doesn't seem to have any effect on the fix.

All right, so this is one of those things that's still valid. The way it's collected, the way it's read. Okay. So let's rewind prior to yesterday's debacle at the FOMC. Everybody was all the way bulled up. Everybody. And I'm sure you-

Even the bearers became bulls. I'm sure you see this in the people that you you're talking to the sentiment readings and all that sort of stuff so all right chart 13 Daniel please the percentage of conference board respondents expecting that stocks will rise in the next 12 months hit well beyond so this trades in a range right usually as high as 45 as low as 20 when people are really bared up and it never gets nearly as high as 56%. So this is a clear and unusual breakout. Torsten Slock showed a chart, I guess a survey

that Robert Shiller does at the Yale School of Management. And it's the percentage of investors who think there's a less than 10% probability of a crash within the next six months. Isn't that a weird way to ask a phrase or question? It's a weird way to ask a question. But this got as high as 45% ish, which is, again, off the charts.

So I think this was a slap on the wrist to investors. I think people were a little bit off sides. And to me, the reintroduction of risk in a riskless environment is a good thing on balance. Yeah, that's very fair. Investors are all bowled up. Put that one back up. So this has nothing to do with stocks. This is Trump.

That's both. No, it's like, it's, well, they might, there might be reflexivity between the two things. I'm buying stocks cause Trump got elected, but also stocks are up a lot. Chart 16 is Trump. This is people getting more optimistic about their financial situation. So they ask the percentage of households. This is pure Trump.

This is Trump. So this is a Trump spike. Now, Nick, do you think surveys and sentiment like this filters into the real economy? Because I kind of think it does. Yeah, I mean, classical literature says it does. Consumer confidence is a very visible part of how much people want to spend. So it absolutely does. I saw a tweet that I thought was Chef's case.

I don't know whose quote this is, maybe you do. Somebody tweeted, Palantir at 10 to 20 times from here, maybe a low ball, if you could think in terms of decades instead of months. And then Pythia R, I don't know who this person is, but they quote tweeted it and they said, time horizons compressed to zero at the bottom and expand to infinity at the top. Yeah It seems like we're close to infinity than zero people change the way they think entirely to justify

Buying more of something after it's already gone up 300% Yeah, and at the bottom they do the opposite Yeah, it's like well think about where the company will be earning in 2029 and you talk about that obviously in a euphoric environment. Yeah either you're a deep circle analyst and you cover airlines and you're covering 29 earnings which is fair or you're doing this which is not fair. You would agree that we're in an elevated sentiment moment and it's not it's not 1999 but it's also not a regular time either Yes, absolutely. You're right. It's not anything close to 99 at all. It feels more like 97 but okay, so it's good. So I got two years left

Before I have to go That's the math doesn't why does it feel 97? You're saying in terms of the numbers themselves or just anecdotally? Because in 97, and keep in mind, we had a bear market in 22, so the clock just started recently. In 97, we had seven years of a bull market. The 1990 was only down 3% on the S&P

and we've been up every year since then. Even in 94 when the Fed increased rates, we were up. And in 97, I was like, okay, we kind of feel a little bit invincible here. And tech's beginning to work and Things feel very solid. They don't feel crazy. They just feel very solid. Yeah in the Netscape IPO That kicks off the dot-com era. Yeah I think the hottest stock in the market might have been Nokia, which is a European tech stock

But it's why it's related to wireless. Yeah with cell phones. cell phones yeah that's what I got series 7 license in 97 that's my first exposure to the market I didn't know what was going on and then you had two crises at 97 currency crisis in Russia and Asia yeah and they have 98 LTCM that's my earliest memory we I worked at a brokerage firm where we made markets in the electronic contract manufacturers flex Tronics JBL circuits Circuits, when it was NASDAQ, Smart Modular, Celestica, SCI. These were companies based in Thailand, but trading on the NASDAQ and they were pure tech. They were like, if Dell Computer places more orders next month, this stock will beat earnings. That was the pitch.

In 98, those stocks went from like $50 a share to $3 a share because of the Asian. But like that was my, and then so the Fed takes weights, did they go to zero? They go to 1%? No. Where did they go? Where did Greenspan?

In 98? Yeah, 98. Because they're dealing with long-term capital management, multiple currency crises, and then this Asian contagion thing, and they drop rates overnight, not at a scheduled meeting. Like a random day in July or August. And then they organized the bailout, and then it was off to the races again. I don't even want to pull up effective Fed funds on Fred.

I guess my point is, we had plenty of fear in the markets in 97, 98. So they didn't- People felt good, but there was still enough fear to have those episodes. I don't think they caught until Enron. So they caught- And that was 02. No, Enron's way later.

So January 2001, or December 2000, when they started taking rates down, and it got as low as 1% in 2003. No, no, no, what's up in the summer of 98? Oh, the summer of 98? There's an emergency wait cut. Five, it went from five to four and a half. No, no, no. What's up in the summer of 98? Oh, the summer of 98. There's an emergency weight cut. It went from five to four and a half. Yeah.

Or not even. That's it? That's all they did? That's all they did. It felt bigger at the time. What do I know? So, Nick, I feel like people are talking about this current bull market as if 2022

wasn't like just the other day. It's like very far in the rear view mirror. And I'm not exactly sure why or if that is relevant. But I feel like people have been talking like we've been in a bull market for the last 10 years. I guess we have for the most of the time. But 22 is pretty savage. And you had two bear markets, 2020 and 2022.

Yeah, but 20 was still up, 18% I think. Ended up on the year, but we were in a peak to trough decline of 24, 27. But in terms of just point to point, how did you compound the last five years? It's been super solid. So why are they forgetting about 22? That's a great question, I don't really know.

But you're right. I mean, Metta was down 70 plus percent. Yeah. In other words, you're saying, why isn't that good enough for people? You just had the bear market. Yeah, we need a reckoning, we need to pay for people? Like you just had the bear market. Why didn't you level it? Yeah, like we need a reckoning. We need to pay for our sins.

We just did. I think because valuations are so high, people are looking at it and saying that 22 didn't really happen because usually a bear market only slowly unwinds on valuations. We have the 2008 bear market. We got the valuations at 10.

So we got multiple expansion this year. We had earnings growth, high single digits. It seems unlikely to me that we're gonna get more no corrections the whole year It seems very unlikely we're gonna get more multiple expansion next year. Yes, we could anything's possible How do you think about the earnings environment heading 25? I think earnings are fine up another eight nine ten percent. It's gonna be solid Confidence around the earnings will be very high and That kind of leads you to believe multiple expansion does continue. Which is crazy to say.

Why will it continue? Just because there'll be earnings growth so people will keep paying up for it? Yeah, because you're never really paying for that quarter's earnings. You're paying for the hope about one year out earnings. So as you post up decent comps, particularly in the back half of next year, people get very enthusiastic about 2026 and 27 and 28. That's right. They start saying, well, next year,

you're getting another 8% in earnings growth. They say, oh, okay, that makes sense, I'll buy. So if you could have one piece of data from one year from today to determine how next year went, what would you be looking for? Tenure. Tenure yield. So the tenure had this huge move this week.

I think it'd be interesting to hear from you where you think the danger zone is for stock prices. Are we there already? Four spot, five seven? Four seven five? Where does it become an encumbrance for stocks? And also, how do we get to 5%? Is that because economic growth is booming? Would that be bad for stocks? And also, how do we get to 5% of that? Because economic growth is booming.

Would that be bad for stocks? No, it wouldn't. But I think 5% is the answer. We touched on 5% both on the 2s and 10s, and markets got wobbly. So if you knew that the 10 years would be at 5 in December, would you be bullish or bearish, knowing nothing else? I would just know how much risk to be in.

Look, if the 10 year ends next year at three, you know something went wrong. But is that good for stocks? No. Probably not. Not in year one, it's not. Yeah. Yeah, as much as you don't want to see 5% on the 10 year, you definitely don't want to see three and a half.

Yeah. Because that means people are really worried. Yeah. That's a huge bit for bonds. Something bad happened. That's interesting. bit for bonds. Something bad happened. Oh, that's interesting. So, what if it's so bad, it's good. Very good.

Let's do these US equity allocations. You and I talked about this on Monday. What do you see when you look at this? I see rational behavior. I have to be honest with you. And I'm a home country bias guy. So I own internet. I own all this shit.

I don't even look at it. What's the point? So I'm one of these people. And Jack Bogle was too. So Vanguard manages ostensibly, I don't know, trillion dollars in foreign stocks till his dying breath. He said, you don't need them. So, and that was very off message for Vanguard. But he said it anyway, which is why we love Jack.

But when I look at this, I don't know, I know the value guys get mad, Meb Faber will throw something at me, but I just, I see rational behavior. So, what do you think? I looked at these charts for a long time when we were looking at the doc. I don't really know how to use this data

because you have periods of extremes that were perfectly fine to be long, US stocks, and then some where it wasn't. Okay. Seems more random to me. What about the cash portion of this? So the chart that we're looking at is, this is the fund manager survey,

the global fund manager survey from Bank of America, and we're looking at people that are overweight cash a percentage and it's you know So this is the bottom chart. Yeah, okay, so Jan 02 great time to be long Akko 9 great time to be long Feb 11, you know You have to eat a little volatility in the summer but good time to be long. So cool This is the net percentage of response to the survey that say they're overweight cash. Yeah. Meaning a lot of people are now

underweight cash. Is that the takeaway? And these levels look pretty good to be long. So I feel like the the amount of people throwing in the towel on international stocks have reached a fever pitch and we

own international stocks for clients. So I can never get there in terms of just put all your eggs in the US basket even though it's the best basket. The question, the unknowable question is like, is our valuation sufficiently attractive and who the hell knows?

We've been having this conversation for a long time now. Yes. That's not the question. The question is, is there a scenario that you can imagine where international stocks do great and US stocks are doing poorly simultaneously. There's lots of things that happen that I can't imagine. No, but that's the I'm saying that's the real question.

It's hard to picture. That's the question. What would have to happen for US stocks? And I don't mean for a month. What would have to happen for 2025? The S&P down 15% and the rest of the world stocks higher. So the answer is I don't know. Right, but you agree with me that that's the only question worth asking? I do, but the disparity in valuations gives you potentially some sort of margin. You don't need to be that right. There doesn't need to be a monster catalyst.

Now I'm not suggesting the gaps are going to close or anything like that, but I don't know. I don't know what the answer is. I don't know what the answer is. I don't know what the catalyst is. The answer might be international stocks are a tactical position and US stocks are strategic. That's only been the history and that's the way we explain it to clients. There are times to be long Europe, times to be long China, and that's perfectly fine. Clip a coupon over a year.

They'll have their moment. Awesome. In answer to your question, I can imagine one environment where what you outlined happens and that is that inflation comes back very hot next year because the economy is doing extremely well. So that favors value circuits. The Fed is forced to raise rates, not just leave them stable, but raise rates.

At the same time, Europe is so weak that they have to cut. And so investors say, I'd rather be in the spot where the central bank is trying to support the economy than where the central bank is trying to hurt the economy or at least slow it down. Is it inflation right now and for the last couple of years a global phenomenon though? It's separated for the last 12 months. It should continue to come down in Europe because Germany's been in a recession for two years. France is getting there quickly. Germany's got to cut massive workforce for the auto industry and other sectors.

So you're going to get a recession in Europe next year. If it's a very deep one, ECB cuts rates a lot. And maybe you get investors who say, I'll take a shot on Europe, I'll take a shot on VW at one time. Brazil, they're crushing the currency. All time lows. All time lows this week. Lula is not seen as being serious about a lot of things, but in particular the inflation

fight. You got lawmakers watering down budget cuts. I don't know if it's the right move or the wrong move. I'm just saying the markets don't like what's happening there. They have massive inflation. They're at 14. a half percent interest rates still. So it's, again, and I'm not saying Brazil's an important stock market per se,

but it's one of the bricks, and people are allocating overseas. They end up owning Brazil. Yeah, I think it's- I feel like this is a global thing, though. I think it's 3% of EM. Yeah, it's not that important. It's small.

I mean, for EA, the big decisions are, do I want to be long in Europe? For us, the answer is no. Do I want to be long EM, which basically is China and Taiwan and India and the answer Maybe China if they can get it together Otherwise, no, okay. So by default you're back to the Japan is not the same story as Europe to you. No, that's its own thing Yes, this is still bullish It is hard to be bullish on Japan. It had a great run. Yeah, but it's really that story fell apart So I'm waiting for why did it fall apart? Why did it fall apart because that crack in August?

It never recovered it. I don't think the sentiment around that story is as strong. They had a 1987 I feel like nobody's nobody's talking about it, but like they had the equivalent of a 1987 in the Japanese stock market Yeah, but you know in terms of industry, what are you buying with MSCI Japan? Buffett found some stuff. I don't know those companies that well, but. I think he found a great way to basically have a zero cost of carry.

Like he sold yen denominated bonds and bought the equities. Right, which pay a dividend. So Nick, you threw in the State Street monthly institutional investor risk appetite index, and I'll pull some from there. They said long-term investors going to 2025 with their biggest overweight in equities in 16 and a half years.

Not only is the overweight in equities high historically, it is also concentrated across regions we track. The US is the only zone investors are currently overweight and it is a sizable holding. So this, I'm not saying consensus has to be wrong, but this is surely consensus. Yes. We were joking around about nobody rings a bell at the top and then Donald Trump rang the opening bell of trade last Thursday. What's your take? Too cute? Maybe.

Okay. Pot potentially meaningful. So one thing that we haven't seen to ring a bell, literally, are the IPOs. Yeah, IPOs are nowhere near where they were. Back in 98, 99, and 21, and 20. So that is one area where you can say we're nowhere near frothy high levels. Got $30 billion worth of IPOs.

It's not that much. No, because what's the number? Year to date? You said 106 through Q3. 106 through Q3 and in the multiple hundreds. I guess the difference now is that there's so much liquidity in the private market that it's hard. These are not apples to apples comparisons.

It might be some of that, but I think people ultimately always want the exits. Yeah, sure. But the IPO windows has been closed, so. Shut. One of the things Adam Parker has been saying is that this coming year could be the year of spin-offs. And I've already heard about a couple that are in the works.

Warner Brothers Discovery, which is a big enterprise value, not a big market cap, because it's mostly debt. They're gonna separate the linear TV networks from the streaming and studio. So streaming and studio will be the growth piece. The linear networks will be a well-managed melting iceberg with probably a good dividend.

That's the way to think about it, right? Yeah. CNBC. Yeah. Well, that's another one where Comcast wants to take all those piece, uh, linear networks and spin them off. Um, so maybe we don't get an IPO boom, but maybe we get a lot of corporate restructurings and a lot of M and A. And with a, with a, I think a more favorable, uh,

FTC situation, if that ends up taking the place of IPOs in this cycle, it seems structurally bullish for the stock market. The market loves spin-offs and M&A is like a lot of catalysts all over the market. So I would take that instead of the IPO boom that we haven't gotten. I'd be okay with that. Yeah, but I think, I mean, you usually get both. When things get truly frothy, it's not just you know, retail investors, day trading stocks, it's CEOs, it's investment bankers making big deal like making big deals. And one thing I was thinking about is like, what's the emblematic deal of a cycle? So like in the 80s, it was RGR Nabisco, and dot com bubble was Netscape and AOL Time Warner, you know, in 07, it was the Texas utility that KKR bought that went bust.

Oh, I was going to say Sam Zell selling equity office properties to BlackRock or Blackstone at the top. That was a big one too for the real estate. He got out of real estate literally at the top and he's the king of real estate. And the 2010 cycle, I don't know, I didn't really feel like it had an emblematic deal.

Alibaba was the deal. Yeah. Was that a deal didn't really feel like it had an emblematic deal. Alibaba was a big deal. Yeah. Was that a deal though? No, no, no. It was just an IPO. But it was a big deal at the time. The 2010s meaning 2010 to 2020. What was the... The emblematic deal.

I don't think we had one either. Yeah. What was the 2000s one? You're recommending your... Oh, the 2000s one was when Madonna brought Britney Spears and Christina Aguilera on stage at the VMAs and they had a three-way kiss. That to me was the big emblematic of that decade. All right, so we don't have that.

Can you say we're in a mania or a bubble without new supply coming on in the form of IPOs? Not really. No. No, you're looking at the wrong places. It's Fartcoin. What if you say you substitute IPOs for private equity deals? Can you get there then? But you can probably get there with crypto. Okay, so that's a good point. That's $4 trillion of market value. Think of that as one big IPO that went public this year and everybody bought into it. Yeah. BlackRock bought into it, everybody's in.

So does that get you to the place where you could say, we're getting toward the end and here's my signal of that or? The way I think about the end, I mean, we have so few examples from modern history, but the biggest end was 2000, right? So what happened in March 2000 and what happened in April and what happened in May? And it was fundamentally the Fed raising rates beyond the 94 highs. And that's when the market said,

oh, they actually are really serious. That's what broke the market in 2000. And it was kind of one nutshell. Because you couldn't get those underwritings done anymore. Yeah. The IPO's started to break. And you had a flash, almost bear market in NASDAQ. And things tried to recover and money rotated

into cyclicals and the S&P was not bad in 2000. But that ended up being the breaking point. Where were you? SAC. You were? Yeah. So the only thing I remember from March of 2000 was Abby Joseph Cohen comes out and says,

we are a, the United States is a global supertanker that cannot be stopped and blah, blah, blah. And then the next day, Bill Gates said, I wouldn't buy my own stock here, it's too expensive. And then like, and then the micro strategy accounting scandal. And those three things all happened in one week and I think that was the top. And then those, their customers disappeared, right? All those companies, all those young companies went bust and it's just, not to say that we can't have a better market obviously, but the environment is so fundamentally different today.

Yeah, but the question is always, okay fine, we're at very frothy levels, let's just agree with that. What's the trigger? Right. An Nvidia earnings miss? Yeah, that could do it. February 26th.

No, I'm not saying that's what I think's going to happen. I'm long the stock, but could that do it? Could that be a trigger? Definitely. Nvidia comes out and says you know what we thought 50% growth, but it's looking more like 30 That's a minus 10% on the NASDAQ that day right? Yeah, that's fair. Okay. Does it kill the bull market? Could or it could rotate it could rotate the bull market something else. So look what I brought come the last month Yeah, Nick. What do you make of the fact that value stocks have now been down? Daniel, try it on please.

Value stocks have been down, I guess we're going on 13 days in a row now. Well, far in excess of anything that we'd seen in the data from 1995 to today. Is this, does this mean anything? Is this noise? What are your thoughts? This sector is great. It's not leadership. It lags the bull market. And on a a down day it's the worst of the worst.

What's the advertisement if you're pitching value stocks now? What's the tagline in the commercial? It's got to work someday. That's all you got, right? Okay. What do you make of this? It's pretty remarkable to me. It is remarkable.

I mean, I think about it more in the context of how do stock markets work? And ultimately, stock markets value future cash flows, right? That's what we all know. And the question becomes, is it as easy to forecast future cash flows in all industries and in all styles? And the answer is no, it is much harder to do in growth. So there's this paper, we've talked about it before,

but Henrik Bessenbinder binder long-term shareholder returns evidence from 64,000 stocks Fantastic paper and it shows that over the last 30 years 1990 to 2020 Only 2% of stocks 2.4 percent of all US equities created all the value in US equities crazy 1.4 percent of global equities created all the value in global equities and what are the top 10 names we everyone knows them by now I will repeat them yeah Apple Microsoft Amazon alphabet 10 cent Tesla Walmart Facebook Samsung and Johnson & Johnson alone are worth 14 percent of all the shareholder wealth creation from 1990 to 2020. That's wild. Yeah.

Okay. So all growth stocks, right? Why is that? Because it's really hard to forecast growth in tech or in very high quality systematic management. So they kept surprising people? Yes. That's the answer.

That's the answer. So where do you get surprised? Like we have this question in business school all the time being asked by interviews, in one word, what drives stock prices? Upside or downside surprises? Surprises? Earnings. Yeah, surprise was the only acceptable answer.

Not earnings. No, surprise. Because it could be an earnings surprise. It could be a management surprise. It could be a market share surprise. But surprise. What is not known today that happens tomorrow drive stock prices Where are there surprises in value stocks? Are we surprised JP Morgan mostly negative?

Right or at the very least they do what they're supposed to do JP Morgan great company good stock No, not I'll never be surprised not a lot of surprise, but that's okay So if you think about why does growth outperform value now versus like pre 2008, value had a great run. Value worked. But as things began to get more technologically advanced, as Moore's law kept turning and turning and turning, and innovation kept happening, it became very hard to forecast tech and very easy to forecast by relatively anything in value. That's my explanation. Because techs were a tech the tech names were able to continue to innovate at such a high rate that every quarter there was a surprise yes and over every three years you get a brand new product brand new company in

some cases yeah that right um put back Daniel put back 18. You know what this looks like to me? Redemption. This is like money coming out of value manager. Like, just people like, alright, this is the 12th year in a row you've been telling me this story, I'm done. This looks capitulated to me. And just people redeeming the value managers. People forget a lot of the reasons why different stocks are sold.

In some cases, because they have to be sold because some customer pulled their money out. And that's what this looks like to me. And people just say, you know what, I'm going market cap weighted. I don't want to hear about factors ever again as long as I live. And maybe this gets worse.

Maybe this gets worse, I doubt it. I feel like this is a moment There's also an old joke. This was back 30 40 years in markets that Excel killed value investing Because it used to be Graham and Dodd you take out your pencil and you do all the hard work and you figure out a value Stock you make money the minute Excel came along that information arbitrage closed very fast Yeah, and you're fond of saying math is not an edge Yeah, assume everybody has the same numbers at their fingertips Which they do they didn't used to yeah, like Peter Lynch used to literally have somebody

Go down to the mailroom every day and pull all the annual reports that were coming in all the quarterly reports because they weren't On the tape so he would actually get them first and read them and that was an information edge in the early 80s Yeah, not anymore. Not anymore. Let's do 19 Michael, what are we looking at here? We're looking at the year over year change in returns for growth versus value and the difference between the two. And so it's not quite at extremes that we saw in 2020 in terms of the disparity in relative performance, but it's it's stark.

Nonetheless, over the last year, growth has outperformed value by 27%. How do you live through that if you're a professional and you're on the wrong side? Do you want to pull out my chart for this? Go ahead. Daniel, this is chart 21. So I did the same math, and we show this to clients a lot

because this is a very in-demand chart. So this shows the relative performance of growth versus value when the blue line's above the x-axis, growth's outperformed when it's below, value outperforms. This goes back to 2004. So you'll see that from 04 to 07, value consistently outperformed growth. I remember that period of time.

Yeah. Yeah. It was real. Before the iPhone. Yeah, I remember it. And then 2008 onward, the blue line is almost always above the x-axis, growth almost always outperforms and by an average since 2008 of five points a year and the periods of value outperformance are very rare and very fast So 2010 13 17 and that blasted counter trend their counters

They're like these moments that like take place. It could be 30 days or three months, but these moments that like take place it could be 30 days or three months but it doesn't give you time to say oh I actually want to allocate more heavily to value as a result of this it's too quick. Well we can't we don't live in a counterfactual universe but it's easy to imagine a world where Chad GBT did not come out to the scene in November 2022 and value stocks have been would have could have potentially outperformed growth stocks. Yeah it does feel that way. Okay, but chat CPT is the mother of all surprises though. Exactly.

Right. Yeah. I agree with that. We might've had a different reality, but it just didn't go that way. I mean chat CPT is interesting because, okay, look, we've had, Moore's law came up in 1964 to call it, so we've had 60 years of Moore's law. So we've had 30 doubles of computing power per dollar in the last 60 years.

And the magic of that is not just that pace, but it's you're working off such a high base now that in two years time, you're double an already high base. And that's why you get your GPT. It's because computing power is now entering this phase where it does even more because the base of computing power already is so high People people don't understand people don't even under

Myself included can't even comprehend what like in two years saying to saying to your television set saying to Apple TV Create me a movie. Here are my five favorite actors. I like Westerns. I want a happy ending and I want flashback scenes to be in black and white and I want there to be a cute dog. And that movie is 90 minutes. It appears before you. You are the director and the producer. I don't know how much Apple could charge people for that but we know it's coming and it's not that far away, and people can't even comprehend a technological advancement like that. Two years hence, let alone 10 years, what we'll be doing.

And again, that's growth. Those are growth stocks. The irony of the book, Only the Paranoid Survive, from Intel. Yeah. Great title. They did not survive. I mean, I guess technically they did, but barely.

Barely. Or paranoid enough. All right, so can we talk Tesla for a second? What's your year-end price target in 13 days? Daniel, or John, can we play the clip from Nick? This was the first time you came out, I believe, 2022? We have this? We only know that two car companies will

survive over the next 20 years, Toyota and Tesla. Seriously, We only know that two car companies will survive over the next 20 years. Toyota and Tesla. Seriously, we all know that? Yeah. Is that consensus? Is that why Ford and GM sell at five times earnings? Yes, I actually I did a video on this and I got a call from somebody I didn't know for a while, but then lost touch with who's now a senior guy at Stellantis.

Okay. This is Chrysler and... Yeah, was he like, Nick, can you stop? No, he said, why is my stock traded for a 3PE? And I said, because the market... You ain't Elon Musk, son! Because the market... Am I always this annoying?

Yeah, I am. That's the sum total, same with Ford, same with GM. That's why you have to, I mean, look, when I covered the group, it was 10 to 12 times earnings. Now it's five. All right, so... Remember look, when I covered the group, it was 10 to 12 times in earnings. Now it's five. All right. So, remember when I said I can't read anything I wrote 10 years ago? I also can't listen to myself talk from one year ago. When was that?

Dude, you're a different person. You're a grown up now. That's right. When was that? That was two years, that was 2022, I believe. So, that's controversial at the time. We have this chart showing over the last three months, and this is before yesterday, Tesla has added $791 billion in market cap, obviously the highest ever. It doubled basically since the election. So do you feel validated? Is this really, is this

more of a political move? You missed the second leg of the parlay. What's Toyota? How much market cap did Toyota add? Dollars or yen, I don't care. So where are you on Tesla these days? It's fine. You know, it's not a car company. It's a call on Elon Musk's ability to influence policy and get paid for it Okay. Yeah, and that's and that's fair. So that's morphed. It was originally it's a call on robotics and and At one time solar to people were excited about it changes the changes, the story changes, but the constant is Elon Musk. It's funny, I was thinking about this today.

Every car company at some point in its life realizes that it can't just be a car company. Who else has had this realization besides Tesla? So General Motors in the 80s went out and bought a company called EDS from Ross Perot. And made it a letter stock, it was a very novel thing at the time. And made a very good set of financial gains by called EDS from Ross Perot. And made it a letter stock. It was a very novel thing at the time. And made a very good set of financial gains by managing EDS.

Then went out and bought Hughes Electronics, the satellite maker, and started, and they had just started DirecTV. And those ended up being the only value drivers of GM in the 1990s. Ford went out and bought a bunch of financial services companies, like the Associates, which was a consumer finance company.

And so they've all tried to think about, okay, we know the auto industry is a crappy industry. What else can we do? And that's 50, 40 years ago. Yeah. Why did they stop doing that? They have pension obligations, no money. Yeah, they ran out of money, right? Yeah.

They just didn't have the cash flow to buy new businesses. So now every car company is basically just a car company, except for Tesla, which is anything you want it to be. Is it too late for GM to change their mind and go into other areas or would Wall Street punish the stock further? I don't know how much worse you can get than a 5PE. So in other words, what do they have to lose? If they have the free cash flow, they just threw in the towel on cruise.

So now they're saying they're not even going to be able to do autonomous or at least not robot taxi autonomous. Look, I think it always comes down to management's track record. If you have a track record of being good at your core business, the market will give you some credit for trying to expand. And back in the 90s, the car companies did still

have some credit for running a decent core business, Chrysler aside. Ford and GM made it through the 80 recession very well, and they had some credit with the streets to go out and issue equity or make acquisitions, right? Nobody really has that anymore. Nobody has that credibility. Did one of them just invest in Archer aviation? Did you read about that? No I think one of the car companies just invested in Archer aviation Which is flying cars. cars. Somebody did something.

If you were running those car companies or giving advice to the boards of directors or the CEOs, what would you tell them to do with their five P.E. stocks? You have to run as tight a ship as you possibly can and you have to find some partnerships. Honda and Nissan being the most recent example. What does that partnership entail? It is actually going to be an outright merger. Oh, they're gonna get together. Yeah, because Foxconn approached Nissan

about an equity stake and that got around and I think Honda and Nissan both have problems to solve and by creating some higher, better critical mass, maybe they have a shot. Both Japanese automakers. Yeah. Would Ford and GM even be allowed to have that conversation or the unions would probably stop it? As long as you gave, as long as you locked up the

current labor force for 10 years and said no layoffs, the union wouldn't care. The issue would be more what's the actual plan? Okay. Nick, your point about Tesla being a call option or whatever you want it to be, you wrote, one way to break down Tesla's valuation is to look at present value versus market expectations for future growth. Tesla makes about $4 a share discounted at 10% that's $40 present value or 8% of where it trades said differently 92% is future growth expectations. You said compare that to Nvidia which should make about $4.40 a share that's worth $44 or 32% of its current stock price. So there is a lot more hope and faith in Tesla.

Oh, that's an interesting way to look at this. Than there is in Nvidia. So Nvidia, you're saying only 30% of the market cap is hopes and dreams? No, it's still 60. 30's current, like make that money forever, that's your value. The other 68 is future value.

For Tesla, it's 92. Where it gets wild is for the existing car companies. So GM's going to make 10 bucks a share, $100 current value, stock trades 50. What the hell? Ford, two bucks a share in earnings, $20 current value, stock trades 10. But that probably makes sense to you.

It does. Because in the end, they're just still car companies and they're not going to grow equity value. Right. There was a chart from Torsten Slak, and people are hemming and hawing about government's spending and interest expense. And I'm not pooping it.

The US spends $3 billion a day on interest expense. And I think most of that is probably held by us at this point. So this is a conversation that we've had many times on the show over the last year or two. Is this a source of inflation? Like there's so much money going from the left pocket to the right pocket.

How does this slow down our spending? Yeah, you're right. In theory, this is inflationary just because you're literally pumping money into the economy. Here's your coupon payment. Go spend it. Go do what you want. The thing is that it's mostly wealthier households,

which have a lower propensity to spend than the average household. So this is not only inflationary, but exacerbating inequality. Sure, yes. Well, let's assume the bottom 50% of households are not sitting on bond ETFs and money market funds. They're spending every dollar they make.

So they're excluded from that interest being paid by the government. So the government is paying wealthy people because they're wealthy and So not only is an inflationary and causing a lot of spending especially at the high end Well, it could be inflationary in the housing market because these people are giving their kids money If I put a down payment on house, there is some of that for sure. So the short answer is yes This is inflationary The question is how much and if it's the most important thing It doesn't seem like it's in the top the numbers not big much and if it's the most important thing.

It doesn't seem like it's in the top three. The number's not big enough for it to be the most important driver. Yeah, you're talking about what, let's see, where are we at? A trillion on a $23 trillion economy. But I think the bigger point is what Michael's saying, three billion dollars a day. So that's, let's say the top 30, 20% of households

being handed, maybe not directly because they own funds or whatever, but being given $3 billion a day more to spend money. So that's bigger than the fact that it's a trillion. It's the actual, the transfer. I remember that this debt goes everywhere. So the Chinese own it, the Japanese own it, the Europeans own it, so it's a fraction of the total.

But it is a lot of money, sure. So real rates are high. You brought a chart. What's your interpretation of where real rates are today? So I brought two charts. And talking about how much do deficits matter to the market. And the first chart was real yields, which is just nominal yields, what you see on the screen, minus inflation expectations.

And this is real yields going back to 2003. And real yields right now are right where they were from 2004 to 2007. That's quite a round trip. It is, it is. It's a dramatic round trip. Because the Fed's not buying bonds like it did from 2009 to 2022.

So real yields are now not depressed anymore. But they're no higher than they were in the early 2000s when the deficit or the debt was half of what it is now in terms of GDP It was 66 percent in the 2000s is a hundred and twenty percent now and the markets not make us making the US pay for that What why? Because it's ultimately still the risk-free rate. Okay, so the government is getting a lot of leeway here Yeah, so this is for are a lot of leeway here. Yeah. So this is for you the size of the deficit? No. Market says don't worry. When the

market says to worry, I'll worry. We're not there yet. The second chart is the dollar. The dollar has up 22-23% since 2005-06. How much of this is dollar strength versus euro weakness? How big is the euro in the basket? Is it 60? No, no, this is the trade weighted dollar basket, so I think it's 25. Okay, but so I'm saying like how much of this

is really the dollar going up versus? But the dollar's wrecking everything, like the Canadian. Yeah, the Canadian's one year low, Mexican dollar or Mexican peso, everything this year, particularly this quarter, has been a disaster in other currencies. So what's, I mean, I'm asking you to look into the future.

Take a guess, what's your surprise for 2025 that the market's not pressing in? If this breaks out, this looks like it's about to, I don't know if I'm looking at this right, but this looks like it's about to break out. No, you are. If it was a stock, you'd say it's breaking out. So that could be the number one risk for Q1.

If this continues and we break out to new highs, you're going to hear people talk about this. But Nick, is there anything else that you're thinking about that is completely off everybody's radar? No, I'm thinking about, you know, our narrative going into next year is the Fed's going to be maybe cutting rates once, the economy is very strong,

inflation will trickle its way lower and not force the Fed to increase rates. You're going to have some minor exogenous shocks like you did yesterday to jack the VIX for a couple of days and you haven't buying opportunity, but otherwise it's another fairly slow and steady year of 15%. That's a bullish backdrop. Yeah. Can I read you something?

In the wake of Juan Soto's stunning decision to leave the New York Yankees for the New York Mets, there were all sorts of theories as to what exactly compelled Soto to spurn his former team for their cross-town rival. Maybe it was simply the money. The Yankees' final offer came in at $760 million. Steve Cohen landed a deal that could max out north of $800 million, and he might have gone even higher if he had to, maybe Soto just wanted to put himself

in the best position to contend while the Yankees were coming off a World Series appearance, the Mets run to the NLCS, seemed to announce them as a sustainable contender. Or maybe it was something more personal. And then they talk about some of the cultural issues and Trump stuff and blah blah blah.

When you saw that news, Steve Cohen making the biggest deal ever for an athlete, what was your reaction? Did you say not surprised at all? Not at all. Okay. So he's not afraid to buy a new high. Okay, this is important because this is a new high. Yeah. This might be a generation, this might be a top for like sports figures in general. It's it. Anything in life comes down to what is your goal? You know Steve's goal. What?

In this case, he's a Mets fan before he's an owner. So it's win. Yeah. Okay. Not run the most profitable baseball franchise. No. Doesn't need to. Win. Okay. So when you saw that, you just said,

that's Steve. Yeah. Okay. I think most people did. Like most people on Wall Street were not at all surprised. He's a winner for a reason. He has very clear goals.

Extremely clear goals. But buying a new high doesn't guarantee that you're going to win. No. But missing, but not having the best players pretty much that you're gonna win. No, but missing but not having the best players pretty much guarantees you lose. Okay, so this is the best player possible for them to get at the moment and he went for it. Yeah. You think he would have gone much higher? Think he would he would he be the first person to do a billion dollars or he doesn't want to look like a fool either. They're gonna

be paying this guy 50 million dollars when he's 41 years old. That's not gonna look great then. If he gets a couple of pennants between now and then, it's a home run. One of the many great things about Steve, honestly, is that he doesn't honestly care very much what people think about him. Is that true?

Yeah. Okay. I mean, he is just the most- He seemed to not love the way they covered his first two seasons as owner of the team. No, and it's a new space for him, right? He's used to being master of the universe in our space. Yeah. This is a new space.

So it's some adoption period, some time to adapt to what's happening. But to me, his genius was always understanding what is his goal, how do you achieve the goal, writing a rule book to achieve that goal and that's what the old SAC was. It was a rule book for how to trade. Okay so this is his uh he's putting a stamp on Major League Baseball with this deal. You wanted to finish with some Steve Colonisms and we of course we eat that stuff up. Tell us tell us what you're thinking about.

I tell you, to me, I always come back to the same thing. And it was something that he told traders who were blowing up. And it was a very tough... Like Michael. It was a very, very tough time, right? Because the room was very small. It was like the size of your lobby. Really?

Yeah. And everybody was crammed in there. So you heard everything all day long. And we had these screens that told us how every team was doing, tick by tick, all through the day. And there was actually obviously a competition every day, like I want to be towards the top of that screen. We do that too, but with podcast downloads.

Okay, same thing. Yeah, yeah. So, you know, if, and on page two were the losers. So after you saw who was up on the day a lot, you'd look and see, okay, who's down. And there would occasionally be somebody down like a third of their capital. And that's obviously a day. Yeah. Okay. Not great. Not great. And it was always like, okay, what's Steve going to do? And he, honestly,

his reputation for yelling, he never yelled when I was in that room, uh, somebody who was down a lot, cause he knows what that feels like. He would just walk over and say, you're making this harder than it has to be. You understand what I'm telling you? I guess. Then he'd walk away, and the trader would always just clear the entire sheet,

sell everything, and start over from scratch. Lock in a huge loss. Yes. As opposed to trying to fight to fix the loss. Yes. That's in the past. Forget it, okay? You screwed up.

Meaning if you could start from zero, would you put that position back on? Exactly. The answer is almost always no. Exactly. Even though the price is down, you were wrong. You were wrong at 50,

you're probably still going to be wrong at 40. Yeah. Okay, so I mean, they have to listen, but people listened immediately? Yeah. Anybody ever push back on that? No. No way.

No, when the best trader, who's also your boss, is telling you how to do it, and this is something that you were told from day one. But why wouldn't he just say sell? Why did he have to do a riddle for people? I don't know. You think that was part of the training? I think it was more him saying, I hired you for a reason.

Yeah. Right? You're a winner. Start trading like a winner. Okay. And that was effective. Yeah. Okay. So he's going to do that with Juan Soto when he tears his ACL or? I guess we'll find that. Okay. What else? Math is not an edge I have here. Math is not an edge. That's just when I think about whenever I see these PE charts, like, come on.

Okay, everybody has a calculator. Yeah, respect the charts, momentum. Yeah, you know, I never heard him say it, but I believe it strongly. You never, you never sell a new high or buy a new low. Never sell a new high or buy a new low. Yeah, that makes sense to me. I would do either of those things.

Yeah. That's a very arrogant posture to take. Yeah. That you know it's the all time high. Now you might say, I don't think it's the all time high. I think it's enough for me. That's not quite the same thing. Oh, you can shave off.

You can sell some. Yeah. But do you short a new high? No, never. No, never short a new high is like a pretty pretty I think that's a pretty good way of life And never buy new low like I have had so many friends kill their careers buying new lows Yeah, I had a buddy who bought a huge stock a stake in Enron on the way down and this was a brilliant guy and a CPA and

A PhD and it killed him. And you say, learn to look at long-term charts and an ostensibly day trading shop. What does that mean? It means that, and this again, took me years to appreciate, but whenever I learned to look at the long-term chart to say, okay, is this fundamentally a good story?

Because I was coming from the autos, which are fundamentally a horrible set of stories. And I didn't really know how to this fundamentally a good story? Because I was coming from the autos, which are fundamentally a horrible set of stories. And I didn't really know how to look at a good story. And so by looking at the chart, I could sort of begin to break myself from the psychology that everything's just a trade. Like there are things that are working and that will continue to work.

Because I had come at it from the view of like, everything's okay, a weak trade. But there are some things that do work that you can be kind of tactically long for years. You said someone always knows what's going on in the stock was something that Steve believed. Yeah. The stock was moving, somebody knew something. But and then you talk about respecting the technicals, but Steve always wanted a fundamental

information edge. I don't think you could go to him and say, look, how great this chart looks. Well, what do you know about the company? Nothing. So it had to be like a combination of the two. It was, he was a big DeMarc fan. Okay. And I don't know if he still is or not, but I think that the technical is definitely informed the way he looked at the market day to day, particularly going into the close. But you had to know what the company was. It was more at a macro level, at the market level. Okay. At the individual level, yes, as an analyst, you had to know what the company was it was more to macro level at the market level, okay at the individual level Yes as an analyst you had to go pitch a fundamental story and to explain here is what the markets missing

Here is what I know. Here's why I know it So like we had a very good trade short GM when it was doing on one of these financial deals with GM Hughes And it was a very straightforward thing, but it wasn't about fundamentals It was the fundamentals of the company are awful and the stock's trading at 20 PE because of a catalyst the catalyst is over on this day let's get short. This is my favorite one is this yours? Cut losses early, size up winners and let them run. I think that's what everyone should do. I don't always do it but I'm just saying if you could only like have one thing to live by.

So I've never I don't think I've ever taken a big loss on a stock I'm just saying if you could only like have one thing to live by. So I've never I've I don't think I've ever taken a big loss on a stock. I'm very good at cutting my losses. You do that. Yeah, but I have a very hard time letting my winners run. I think the best in Binnenpaper really f**ked me up. I know too much about how many how many stocks are not worth owning for the long term. So I I cannot get more than a double out of a stock. Like I bottom ticked Facebook only time in my history I've ever done that.

And I sold it for a double, it's probably up three X since I sold it, but that's fine with me. I can't get a 300% gain on a stock. Just not of my nature. But you could trail a stock with a stop loss and take that decision out of your hands. Yeah, not my style.

I'm decisive. What can I tell you? What's a good example of size up winners and let them run? Did you see him do anything like that? Probably in some biotech stocks or? It actually comes from, so when you went to SAC, you had to talk to his shrink once a week, a guy named Ari Keeyev, who wrote a bunch of books

about his time at SAC and telling stories about how the traders would trade. And it was very painful, because you had to go in and basically go through every trade you did the prior week. And the question was always the same, if you had to go in and basically go through every trade you did the prior week. And the question was always the same. If you lost, why didn't you cut? And if you were making, why didn't you add?

Did anybody have good answers to that or was it just an exercise? It was just an exercise to get you ingrained in thinking that way. Okay. You bought the stock for a catalyst and the catalyst worked. Wait, if you lost money, why didn't you cut the position?

But the answer is you're afraid. And if you made money, why didn't you add the position? But the answer is you're afraid. And if you made money, why didn't you add to it as a winner? Because you're afraid of locking in a loss that you're going to get back to even. And you took profits because you're afraid that the profits are going to disappear. You're afraid on both sides.

Right, and fear is a horrible trading motivator. Maybe the worst. Worst than grid. Yeah. So people go through that every week or just people that are in trouble? You know, you weren't that, for the first week, for the first year every week. That sounds horrible.

It wasn't fun. We should implement that. I actually don't hate it. Nick, did you have fun on the show today? It was great. We're going to ask you a new question this time. We started doing this. I want to know what is the thing that you are most looking forward to? And that's a very general way to put it. Could be today, could be next year, could be something in your personal life, something

professionally. But like, what do you have in the calendar in your mind coming up that you're excited about? I am so excited about proving the Bears wrong again in 25. Oh my God, look at you. John, best guest ever? Best guest ever, would you say? Oh yeah.

All right. Say more. Name them. No, I'm just kidding. All right. I love it. Michael, what are you most looking forward to? I'm taking my kids or my dad and my stepmother taking our kids this weekend to see Al Pham

the Philharmonic, which I'm excited about that. What do they do? They show the movie and the orchestra plays the soundtrack? I've never been to one of those, have you? I have not. People love that. I'm really jacked up. Where are they doing that?

I don't know, probably Lincoln Square. Phil Harmonic is probably Lincoln Square. They have a new Geffen Hall, it's fantastic. Oh yeah? It's amazing. Did we do the whole hall? It's so much better than before. Really?

Yeah, it's beautiful. I gotta get over there. And there's a new performance space, PAC, which I think is Ron Perlman built it, or is sponsoring it. It looks like a black cube standing on nothing, but it has a foundation. It's in Manhattan.

I just saw a picture of it. I didn't know what it was, but they're doing shows there too. I'm gonna see the Bob Dylan movie on Christmas when it comes out, I think. I know you're not a picture of it, I didn't know what it was. But they're doing shows there too. I'm going to see the Bob Dylan movie on Christmas when it comes out I think. I know you're not a big movie guy, but it looks like it has all the ingredients to be a good film.

Did you see the Scorsese Dylan? Like a Rolling Stone? What was that called again? Was it like a Rolling Stone? I saw the Rolling Stone doc that he did. No, a complete unknown is this movie. What's the Scorsese Dillon movie? I'm looking right now.

It's like four parts, right? It was long. Yeah. This is not it. I'm not sure. It was something like He's Not There, or it had some weird name to it. So anyway, I'm going to go see it. I can't imagine.

It's James Mangold, who has made some of the best movies of the recent era. And Chalamet is like the hottest actor in Hollywood. So hot. Stocks close on the lows. That's good. Yeah, so forget all this Bob Dylan bullshit. All right.

We're going to wrap up from here. Guys, thank you so much for listening to the show this week. Our special thanks to our friend Nick Kolis. I want to let you know where you can find more information And as you can tell Nick is an absolute information machine LinkedIn Nick Colas is on LinkedIn DatatrekResearch.com is the home base if somebody wants to subscribe and become a customer

That's the fastest way to get your stuff delivered each day become a customer. That's the fastest way to get your stuff delivered each day. You guys have an awesome YouTube channel. You shared with me today that you are up to 8,000 subscribers from a standing start, which is really good in year one. How do people find the YouTube channel? Yeah, just look for Datatrek Research

and it'll pop right up. Just put in the search box, Datatrek Research. All right, you guys follow Nick on LinkedIn, follow DatatrekMB is the Twitter handle, go to datatrekresearch.com and make sure if you're a YouTube person, you are watching Nick and Jessica on the Datatrek channel. Great job this week, Daniel, Nicole, John,

Sean, ChartKid Matt, Rob, Graham, everyone else that I forgot, Duncan, anyone else I may have forgotten, you guys rocked it for the fans, we appreciate you. That's it from us, we'll see you soon. I'ma tell you how to get yourself crazy