The Compound and Friends - Downside Surprises With Callie Cox, Buffett’s New Letter, Bitcoin Crashes

Episode Date: February 26, 2025

On this TCAF Tuesday, Josh Brown is joined by Callie Cox to discuss the recent "growth scare" that's been bothering the stock market this month. Then at 35:21, hear an all-new episode of What Are Your Thoughts with Josh Brown and Michael Batnick! Happy Birthday Josh!! This episode is sponsored by Betterment! Visit: http://Betterment.com/advisors to learn more!   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

Ladies and gentlemen, welcome to the compound and friends. My name is downtown Josh Brown. I will be your host. We have a jam pack show today, but first I'd like to thank our sponsor Betterment. Betterment has advisor solutions that help you scale your practice, whether you're just getting started or you're already a large firm and you're looking to do more for more clients. Grow your RIA your

way with Betterment Advisor Solutions. Check out betterment.com slash advisors to learn more. Okay. First things first, let me just say thank you to everyone who came out to see us in Naples. We had an incredible live version of the compound and friends with our friend, Brian Belsky. I don't know how many people were there, but it was a packed house. We ran out of tickets to sell and we did it at the Alamo Drafthouse, which is this really cool chain of movie theaters. The one in Naples is in the Mercado area, which I had never been to.

Just like this really cool area filled with restaurants and bars and obviously the Alamo Draft House. And then we hit up this wild place after called the Blue Martini, which I was warned about before I walked in, but nothing could truly prepare me for the Floridian debauchery that greeted us there. But anyway, it was just totally awesome to meet you guys. And I think I got to talk to everyone that came. We took tons of pictures, signed some books, and it's just amazing to hear all of your stories, why you started listening to the show, why you still listen to the show, what you get from the show, what your favorite things are that we

do. It just, we tear up. I have to be very honest with you. So if you came out to that live event or you've been to any of our others or you're planning to in the future, let me just now say you are awesome and we love you guys. All right, tonight's show is cool. We've got Callie Cox.

She's the chief strategist at Ritholtz Wealth Management. Callie is growing increasingly concerned with the rate at which the economic data is surprising to the downside. If you remember 2024, one of the big stories of the year was that, at least in the second half, the economic data was continually surprising us to the upside, which I think fueled one of the best rallies I've ever been a part of. And unfortunately, we're going in the wrong direction right now. We're also going to get into some of the federal layoffs and the inflation stuff that's happening. And there's a ton of nutritional content in that conversation. Immediately following Callie and I, it's What Are

Your Thoughts with Michael Batnick and myself? We're going to look at global equity opportunities. We're going to look at the recent Bitcoin crash and try to figure out what's behind it. We get into some stuff from the Berkshire Hathaway annual report, which Warren Buffett put out over the weekend and a whole lot more. So please stick around. Duncan, John and Daniel will send you directly into the show now. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management.

This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Hey guys, it's your boy Josh Brown, and I am here with Callie Cox. For those who don't know, Callie is the chief strategist at Ritholtz Wealth Management. And Callie is becoming concerned, as am I, about the slowing of economic growth and some of the downside surprises we've been seeing in a whole variety of the market data, economic data that all of us follow here at the firm. And I wanted to just get into it and kind of give people a sense of what's really happening,

separate some of the noise from the actual signal. Callie, how are things? Josh, hey, wish I could come on the show on better terms. And I want to be clear, I'm concerned, but it's like a nervous concerned. It's not like a doom spiral concerned. Well, yeah, I think, cause I obviously read all of your commentary and I think one of

the things that comes through is this doesn't have to mean it's the end or it's a new down cycle, but we also can't ignore it when you've got this confluence of things, all sort of, I don't want to say screaming, but all sort of, they're all asserting themselves at the same time. And clearly it feels like there's been some sort of a turn, but turns can go the other way too. So let's start the conversation with that appropriate caveat. Yeah.

And I think that's good. I think it's right to level set here because there are so many shades of gray when you're talking about the economic outlook and how you're invested and your timeframe and all those things that you're so smart to put out there. So right now we're sitting in a shade of gray, but it's not a black and white discussion. So happy to add the context. Let's start here. One of the things that none of us wants to see is economic growth slowing, but in the presence of stubbornly high inflation.

I think maybe let's start with inflation first because the narrative going into this year is that it was time for the Fed to take a victory lap, even though we weren't at 2% per se. If you did X this and X that, you can say we're at 2%. But then there had always been some areas lurking where the inflation was remaining stubbornly high. Now, we're starting to see a situation where the economic data is slowing faster than inflation, which of course would be the dreaded stagflation. People are now saying slogflation, but let's start with the inflation piece of the puzzle. Yeah. So I love that you brought up stagflation because I'm starting to see that again, and that's

like a curse word in my mind. You have to be in some dire straits if you're saying stagflation, but where we are with inflation is that the last mile is obviously the hardest. You can see in CPI, PCE, which is what the Fed watches, that inflation is just below or around 3%, which is not the 9% that we saw in 2022, if you're worried about inflation crisis number two. But it is higher than that 2% target that the Fed is moving for. And the 2% that we saw in the 2010s, I mean, everybody talks about normal and how normal was pre-COVID. I mean, that was normal for us for a decade. So the Fed is trying to get there. It's openly committed to reaching 2% inflation.

That's its public target. And Powell has been pretty straight with us. He wants to get there. And the fact that we're stalling around 3% isn't enough for him. But Josh, I'll have one thing. So there's a lot being talked about with inflation right now. And I think you have to sort out speculation from trauma and pain from the data. Because I just told you about the data. But the worries around inflation and the threat around inflation

is just, it feels so much greater because we just came out of an inflation crisis and because we have a lot of policy talk around different tariffs and different tax cuts that could ultimately raise inflation. Well, there's like a recency bias going, there's like a recency thing going on or an availability bias where because we've just experienced some of the highest inflation of our lifetime, now anywhere we see even an inkling of it, there's kind of like this reflex where it's like, oh my God, we're going back to 8% inflation. So I understand that.

It's very similar to like stock market attitudes about a correction. Once you've just come out of one, it's impossible not to see the seeds of the next one everywhere you look. So I totally got that. But then the political headlines, like even if you're not paying attention to economic data, all you hear about now is tariffs and what the effect of tougher immigration policies might be. Both of those things are obviously inherently inflationary. And I think that for that reason, people are interpreting the economic data as it comes in

as glass half empty, just because it's like, look at the backdrop. Yeah, definitely. And I'll add egg prices to that. I mean, it sounds so silly, but everywhere you look, it's egg prices are up 20% year over year. You know, I went shopping and there were only like natural farm raised eggs that cost $11 a dozen on the shelf. That kind of rhetoric, especially in daily life, does inflame those worries around inflation. And look, we are in a period where some prices are rising quickly, but is it this broad based increase in prices that we saw in 2022, the

kind that the Fed needs to choke out? Not necessarily. We're not even close to there, even though it feels that way. We saw a Gallup poll and a Umich poll, both of which indicating that the bias of just people being surveyed is that they actually think inflation is going up. How much of that do you think is directly related to avian flu curtailing the supply of eggs and just the psychological impact of your breakfast

being more expensive? Like is that what's influencing those surveys do you think for the most part? I love that detail for a headline, makes for a sexy headline. You know, the survey is, and you're right, inflation expectations have jumped in the past month, according to Youmich.

I don't watch Youmich. I actually watch Consumer Confidence, how nerdy of me. I have preferences in Consumer Confidence gauges. I watch the conference board, excuse me. But I think it goes back to what we were saying just a minute ago. There is this worry around inflation. And to a certain extent, it is self-fulfilling, Josh.

I mean, Powell will say it over and over again. Inflation, the real danger around it is when people start expecting inflation and they start pulling their spending forward and then you get inflation off the back of that. It's a snowball effect and we definitely don't want to see that happening. This is when people say inflation expectations are quote, well anchored. They're talking about, they're talking about, right. They're talking about like how the expectation itself could turn into a self-fulfilling prophecy if people react based on those expectations.

Right. And you're seeing them in the bond market too. One thing we look at in the fixed income market is this metric called breakeven rates. And it's basically the rate that you can earn on a tips product, treasury of inflation protected securities versus what you could earn on just a nominal treasury. And the reason why that shows you inflation expectations is because inflation is baked into the principle of tips. So if you subtract the two rates, you essentially get expectations around inflation.

And those expectations are moving up as well. It's not just a single survey thing, right? You Mitch can be a little partisan, but we're also seeing that in the fixed income markets. So I think that does add to how worried the Fed is and why they've been a little more cautious about making any kind of move this year. There are just a lot of conflicting signals and Powell would rather not step on a rake. So, Callie, you said the stubbornness of inflation and the threat of another price-fueled crisis may not be the biggest risk to the economy right now.

Instead of being worried about prices, you should be worried about job loss. And that is what you term a classic growth scare. Tell us why. Right. So this is what makes this moment so interesting to me. Everybody's worried about inflation, but the weaknesses and the potential weaknesses that are bubbling up are happening in the job market. And of course, if you think about the economy, the job market is so crucial to consider. Consumer spending is 70% of the US economy. People are making money, they're spending money. We're the best in the world at spending money, but when people start losing their income, then you start to have problems. Right now, the job market looks okay,

but there are definitely cracks. There are a lot of people who are long-term unemployed, not being able to find jobs, especially in specific sectors. You hear a lot about the white collar recession, then that's exactly what I'm talking about. A lot of the hiring we've seen has been in government, which we'll talk about, has been in education and health services. These more stable, always on type sectors

that are a little less cyclical and serve as a bit of a cushion, but certainly aren't the type of sectors you want to be leading hiring. So, I say all that and the thing that I think really piqued my interest was the layoffs that we saw in the federal government. Just the sheer size of them that people are throwing around could be a warning sign for the next few months of job market data. I'm not sure the market can swallow that, especially because expectations are around

a good economy and potential runaway inflation. They're kind of on the other side of the boat. Yeah. Going into this year, there were pretty high expectations for GDP. That's coming off of two years where people didn't think much for the prospects of economic growth. Economic growth surprised in both of the past two years. This year, the economists on Wall Street didn't want to be fooled again, so they had baked

in some pretty decent GDP growth, and that's where the disappointment might happen. We spoke with Bob at Unlimited Funds about this concept, and he had this great chart where he just said, like, here's the number one thing you need to know about the markets this year. It was exactly that. In 23, expectations were low, surprise to the upside. Then 24, once again, expectations weren't so low, but we still surprised the upside. This year, expectations were, I don't want to say crazy high, but higher than the two

prior years. And all of a sudden now, we're staring down the barrel of federal job loss, possibly contractor job loss, government contractors, or I think you told us it's millions of people work at companies that are federal contractors. Okay. So talk us through the economic data itself slowing. And it's not terribly severe, but we are surprising on a regular basis now to the downside. We are.

So John, can you throw up the chart on the 10-year yield in the city US economic surprise index? That's a mouthful. So if you look at this chart, you can see two lines here. You can see the 10-year yield, which is the proxy for economic expectations, that classic rule of thumb that everybody watches in the fixed income market. But the darker line is the city US- We're about 4% and change on the blue line.

Yeah, we're about four, four right now, which is actually quite high compared to the last decade. And the darker line you see is basically economic expectations or how economic data is coming in relative to Wall Street's consensus, relative to what economists expect. And that line moving down shows that our expectations are a little bit high and economic data is slowing at least relative to what we're expecting. So nothing to worry about. I mean, as you can see in 2020,

that line took a nosedive and for very good reason, but it's not moving in the direction that people are expecting. And I'm not sure it gets much better, at least over the next few months. So in the summer of 2024, I think was the last growth scare we had. So this is indexed to zero. So this is the Citi US Economic Surprise Index. And when it breaks below zero, I guess the right way to explain it to people is this

is when the balance of surprises are negative and not positive. So one of the more interesting things that happened last year, we had a kind of a summer swoon and dipped into like negative 50 on the scale. And some of the data started surprising to the downside and people started talking about here's the growth scare. That's why the Fed has to cut faster. And then all of a sudden, back half of the year, all of the surprises started to come into the upside.

And we had a resurgence in the city economic surprise index. So now, for the first time since, I guess, last fall, we're hovering around that zero line again. Right. And it looks like that resurgence is over hovering around that zero line again. Right. And it looks like that resurgence is over. And that's the problem. We had that second win that came through the US economy, which I think surprised a lot of people, by the way.

I, of course, saw the data and I was like, one month does not make a trend. Two months makes a trend, but like interest rates are high. And I think we were four months into strong hiring and I didn't throw in the towel, but I was like, okay, I guess we're doing this. Uh, but I think, you know, the kind of conditions we're seeing, right. And the slowing that we see in different parts of the economy, I kind of just, I describe it as, you know, pillars of the economy, right? There are risks to every single pillar.

We're talking about consumer spending, business spending, housing, government spending, and trade. There are emerging risks for all of those, and that's not a good spot to be in when data is not. All at once. Right. So there are multiple versions of job loss pertaining to the Department of Government Efficiency

and what Elon Musk is doing. Some of this stuff takes the form of a hiring freeze where you just have kind of… Remember, it's 3 million government employees. At any given time, there are thousands of people retiring. Not filling those positions, it looks more like attrition, but for the purposes of our discussion, it has the feel of job loss, even though it's not per se. Then you have outright job loss in the form of people being offered a buyout. One of our advisors has a client who has accepted that buyout, for example, but just people

saying, wait a minute, let me get this straight. I'll get paid until September and I always wanted to do this other thing and why wouldn't I just take this opportunity to do it? There might be a silver lining for some people individually, but for the most part, for people in government, this is a very scary period of time that they're going through. And there is a sense that like, if I don't take the buyout, what happens if I get laid off anyway?

So I think there have been 70,000 people have accepted the buyout was the last data I saw. Okay. Yeah, that's about right. Yeah. Okay. And then you've got this whole other category. These are probationary employees. So these are people that either they're relatively new to government work and they haven't vested

as the long term, but they haven't fully become full-time long-term employees. And I think there were 200,000 terminations of those employees. And I'm guessing a lot of people will be hired back for those roles, but they have to be handpicked for some reason by the administration. That's why that was necessary. I don't fully understand the logic behind it, but I think what that all adds up to, Callie, is a lot of scary headlines and a lot of confusion. And we haven't seen any of this stuff show up yet and manifest itself in the data, but

that's what's about to happen. And we don't fully understand what that will look like when the numbers themselves come out this March. Right. And that's part of the danger too. Nobody can really get a handle on how big the layoffs were. Buyouts I think the number is 75,000. That's reported by the administration.

We could see attrition outside. We have seen attrition outside of the buyouts and layoffs. And the federal government at least isn't hiring right now. There's really no money flowing through it. So put that all together and I think you have the making of a pretty significant crack in the job market. And we're just not sure to what degree or how big it is. I do have a chart to put some numbers around this

because I think scale is important. Perfect. So the title here, this could be the case if we see all probationary workers laid off and if we see the 75,000 workers bought out. I'm actually going to throw out the buyout workers here. It is still the largest layoff in history if we saw 200,000 probationary workers laid off.

But the green line you see here is that 200 or 220,000 layoff around added to that 75,000 roles that possibly took a buyout. But this is a show of scale, Josh. US companies. So it's 300,000 federal government layoffs nominally, and that's a lot, but you're showing us proportionately what that looks like relative to like all private sector hiring, for example.

Do I have that right? Yeah. And where it's coming from, Josh. So I know you can't really see this, but there is a green section on those columns that you're looking at right now. It's at the very bottom and it's barely noticeable. That's because we don't normally see huge federal government layoffs. And add that into the average of 1.7 million

in layoffs or job losses every month for public and private sector companies, and you could have a problem. These are big layoffs. These are big changes to the workforce. And it's not just the layoff part, Josh. It's the influx of people heading back into the job market and trying to find a job in an environment where it's not very easy to find

a job. Potential counterpoint. Isn't that impulse though of federal workers now coming into the private sector potentially disinflationary because now you've got a larger available pool of workers who can fill roles that companies have had a hard time filling and would be willing to accept the current level of wages versus holding out for a raise. So yes, in theory. Or holding out for a higher salary, I should say.

Right. And I think a lot of people are forgetting that. If you're freaking out about runaway inflation, but you're also freaking out about layoffs, there are some trade-offs that may work in your favor here. And I just want to be clear, I don't want anybody losing their jobs. That's not the trade-off that I want. But if you're trying to consider the pros and cons of the economic outlook at the moment, you have to think about that.

There's a little bit of balance that's going to happen here. But it's not necessarily a given. Of course, there could be some skill mismatches there. The companies that are hiring might not be the right fit for the roles that were laid off in the public sector. Another thing I want to think about is the fact that wage growth has been coming down for a while, yet we still see inflation stuck around 3%. And I think that's important. Powell himself

will tell you, has said every time he's spoken publicly that the job market isn't quite the source of inflationary growth at the moment, which I don't fully believe, but who am I to argue with Jay Powell? But that's something else to consider. You don't automatically see wages cool off if you see that pool grow. In a vacuum, you do, but it's not guaranteed. You say in a way, some weakness is comforting. Inflation crises feed on overheated spending and general euphoria. Job cuts could tame prices, albeit in the worst way possible. Even though the mood is jubilant in some parts, so you cite CEO confidence, we've seen everyday investor sentiment turn pessimistic over the past month.

I guess the silver lining of disappointing economic data and softness in the job market is the Fed becomes less concerned and potentially lowers interest rates, which possibly restarts the upbeat sentiment after all. If you ask me what's better for the overall picture, it's kind of hard. I don't know that I would say, oh, I wish all the tariff talk would stop and Elon Musk would stop firing people. I don't necessarily know that that's the best outcome for the investors this year who are focused on higher returns.

It's still kind of a tough call, which you would prefer. Yeah. And I think what you want to see here is a bit of... You want to see expectations coming down. I was trying to find a clever way to say it. There's really not a clever way to say it. People need to set their expectations appropriately. And we're kind of seeing that happen.

I mean, at the end of last year, beginning of this year, I would have said that sentiment was jubilant, a little euphoric, probably way too high for where we were in the economy. But John, if you want to throw up the AAII chart, got something interesting to show you. So the AAII Investor Survey is a survey that happens every single week. It's done among everyday investors, non-Wall Street investors. And this blue line that you're seeing right here is the amount of pessimistic investors, pessimistic over the next six months about

the stock market versus the number of optimistic investors. And that's coming down. It's come down a lot over the past few months, Josh. And this is just one sentiment indicator. The bulls have declined precipitously. Do I have that right? Yeah, the bulls have shied away. Sentiment has come. It's cooled off a little bit.

We're getting back to reality here. And that's a good thing, right? That's a good thing if we're expecting what's a little bit more in line with reality and with the economic conditions we're living in right now, then we're not surprised if something goes wrong. I think this is complicated though. For every sentiment gauge that's coming down, you have one that's still quite high. CEO confidence, really good example of that.

Going back to the economy and what you would rather have here, of course you don't want job loss, but I think where we're at is a point where we want the Fed to feel like it's confident stepping out and adjusting policy to where we need at is a point where we want the Fed to feel like it's confident stepping out and adjusting policy to where we need to go. And I'm just not quite sure we're there. There's a lot flying around and the Fed is being influenced by policy. Yeah, the Fed has to be above what they would consider to be the neutral rate of rates in order to appear to be tight and to actually be tight because we've still got this lingering inflation.

It's not as though they've seen job loss fall off a cliff. It's not as though they've seen confidence fall off a cliff. If they say that they're data dependent, they almost need to see more of a sign of that in order to tell them to get off of this tight rate and get back down to a neutral rate of interest. So they're above. They know it and they're saying they are. I think most people would argue with good reason. Some people would say, nope, they're going to be late once again. They're going to start doing bigger rate cuts once the die is cast and it's too late and

they're going to be playing from behind once again. That would be like the criticism of, for example, staying pat last time there was an FOMC. Yeah, and it's totally fair. The Fed has been late many times before. I don't think people talk about this enough, but when interest rates are high and have been high for years, the economy is extra vulnerable to shocks. Any kind of shock you can think about. Oil prices moving up quickly, a geopolitical shock, a policy shock, which I'd argue we're already seeing here.

So we can talk numbers all day, but how the economy absorbs those numbers depends on almost how loose policy is and how confident business owners and consumers feel moving into the future. That's just not the case right now, which worries me a little bit more. You have a description of what a growth scare looks like, but then some encouraging ideas

for what you would tell people for us to get through it. I want to start with the description. You say that investors are not prepared for a growth scare right now. Many are low on idle cash. This includes global portfolio managers. We learned from the Merrill Lynch survey last week. We spoke with Belsky about it, who used to work at Merrill. You're in this weird situation where everyone's bullish, just gauging the amount of cash that

they say they're holding in their portfolios, but everyone also agrees that stocks are overvalued, which you very rarely see those two things be as big of a mismatch as they are right now. But you point to, in growth scares, people tend to sell shares indiscriminately. The volatile mix of high expectations and portfolio imbalances could lead to an abrupt shock. But I want to get to what you would tell people is the right posture if we know that this is a… Look, with all the uncertainty of trade and mass layoffs from the federal government and

the economic data surprising to the downside and elevated stock multiples and low amounts of cash across portfolios everywhere. It really sounds like a nasty combination of conditions. We're still only a few percentage points off the record high for the S&P. I think we made a new record high last Tuesday. It's not as though we have fully priced in all of those negative factors. But you have a stat going back to 1950 about the sell-offs that could result from this. And I just think people should hear that.

Yeah. So I want to be crystal clear as we wrap up this conversation. I am nervous, not concerned, not freaking out. There are a lot of degrees here. There's nothing in Wall Street world that's black and white. But it is a point where it's smart to think about portfolio balance. Think about taking gains in sectors that have done well. Tech is the obvious one there. Because when you see that indiscriminate selling, if we were to get a bad headline around the job market, around policy,

then it probably hit tech and growth stocks the hardest. Historically, that's what we've seen, right? Live by the gun, die by the gun. If you're concentrated in the 20 or 30 stocks that have the biggest gains on the year, you are definitely going to feel the brunt of the growth scare much harder than the typical investor would. Yeah, you're on the roller coaster, for better or worse. So that's okay. You can hold a little bit of that. You can take risks, but just understand that as market environments change, you need to be really agile with your positions. I mean, the other thing is, of course, there are long-term treasuries. Treasuries are the classic inflation head, excuse me,

economic hedge, classic economic hedge when the economy turns south. The one thing I think you have to be careful of here is that there's a lot of policy expectations priced into the 10-year treasury, for example. Maybe think a little bit shorter there if you want something that'll head you against true economic turmoil, true economic weakness. But I think that that's a nuanced opinion. As long as you're holding some kind of treasuries or you feel comfortable with the cash and fixed income you're holding, then you're probably fine. The other thing is, it's a great time as it is any time to set a crash plan.

The stat that you were talking about, the S&P hit some bumps. You hit setbacks when you're taking risk. The S&P has declined 5% or more, 91 times since 1950. That puts you at about once every 10 months. So once every 10 months. 5% or more, we've had 91 instances of a 5% sell off from the high. Correct, yeah.

Yeah, okay. And those 5% sell offs, they sound small when I'm talking about them, but they don't feel small when they happen. No, because they happen and they're accompanied by news. So of course, not only do they not feel small, they also don't feel like they're an end in and of themselves and they're finished. Yeah, they never feel like how they seem on paper.

But this is empowering. It's good that you know this because you can prepare for it. You can understand that many of these sell-offs are quick storms. I think less than a third of them or about a third of them last less than a month. And you can basically prepare for them. You can put out a crash plan and say, you know, if stocks decline 5 percent, if my portfolio declines 5 percent, then maybe I stay put. If my portfolio declines 10 percent, I'm still not worried,

but maybe it's time to deploy some cash. If my portfolio falls 20%, then maybe we take a little bit more extreme action. Probably not selling completely out, but maybe converting to a Roth, for example, or tax lost harvesting, for example. So you have a lot of agency here. Now, of course, if you're 100% stocks, you have no agency and your only crash plan is, I will panic. It's sell.

That's your agency. That's your plan because it's your only plan left. If you have a diversified portfolio, the negative is in 2024, you had to listen to all your friends talk about how much money they were making in software stocks and cybersecurity stock. But if you went into this year in a diversified portfolio, first of all, good news. You probably made an all-time high in valuation as recently as last week. And second of all, if this growth scare turns into something more, you will have options. And that is, I think, in a time like this is the only time that you really appreciate that. And I think people will.

Yeah, you hit the nail on the head there. Give yourself options and don't make friends with people who brag about stocks and nothing else. Callie, you are the very best. Let's tell people where they can go to subscribe and get your regular notes, your optimistic Callie, which is all one word. It's optimist, I, C-A-L-L-I-E dot com.

Optimistic Cali is your regular letter. And if anyone's paying any attention to the financial media, you are literally everywhere. Fox, CNBC, Bloomberg, Yahoo Finance. You do such a great job. Thank you so much for joining us today. Yeah, thanks for having me. This is my favorite place to come to, so I'm honored. All right.

We'll talk to you soon, Callie. All right. Hey we're live tonight. It's Tuesday. It's 5 p.m. East Coast time. The chat is rolling. I see Michael. I can't even tell you how many people I see here.

I do want to clear the air about something though. Okay. Um, Scott asked if I'm turning 50 today. No, it turns out. If Josh is turning 50, everyone would know. Or when Josh turns 50, you'll know. Uh, 48 born February 25th, 1977. Uh, so not So not quite there yet. Can I say something about your birthday? So I've been working with you since you were 35 or 36.

Is that true? And every single year I've heard I'm this years old. Dude, I don't do that shit anymore. I'm 37 years old. I'm 42. I'm 45 every year since I've known you. And now you could say I don't do that shit anymore. I'm 37 years old. I'm 42. I'm 45 every year since I've known you. And now you could say I don't do that shit. I'm 47. Yeah. 48 actually. You told me like Danny Glover, like I'm getting too old for this shit. Every year since I've

known you. I don't say it anymore. Since, since you're 36. I don't say it anymore. Oh bullshit. I'll tell you the next time you say it. But it's been a minute, right? I don't pull that shit. It has, it has. You know what? Because you're getting wise. You're getting wise. No, I'm saving it. Wait till I turn 50. I'm not doing anything. Um, you, Michael said one of the funniest things I've ever heard today. One of our coworkers fainted on an airplane over the weekend and uh, and my, yeah, it's hilarious. And Mike, Mike was on the plane and he said, the second thought that crossed his mind.

That was between us. The second thought that crossed his mind. All right, leave it alone, but I was laughing about it in the car. All right, so let me say hello to a few folks and then we'll shout out the sponsor. Magnus Ofsted is going off in the chat tonight. We'd love to see it.

Bringing a lot of energy into the chat. Thank you, John Carlos here, James Dell. Who else? Roger's around. Matthew Stevig, I see you. What's up, man? Georgie Dee. It's not the same without you, Georgie. You know this. Benjamin's here. David Carr is here. We just got a Bob Rice, Michael Skyrose. Everyone's here. Cliff. So we have a new sponsor tonight and we're going to we're going to do this one. Justice Michael. Yeah. And now a word from our sponsor betterment imagining a better future.

Josh, that's the first step. I tried to invest in that future with Betterment Advisor Solutions is the next step. Okay. Whether you're launching your own... I thought you were going to go... We were going to go two by two. Go! Keep going. All right. Whether you're launching your own practice, looking to streamline client onboarding, or just searching for efficient ways to scale your firm, Betterment is here to help. They automate to make tax optimization simpler. They provide support to make administrative tasks easier. At Betterment, they are building innovative technology for anyone who's ever said, I think I can do better.

So grow your RIA your way with Betterment Advisor Solutions. Learn more at betterment.com slash advisors. Investing involves risks, performance not guaranteed. Let's get to the show. Thanks Betterment.com slash advisors investing involves risks performance not guaranteed. Let's get to the show. Thanks betterment. All right. I want to talk about Tony Pasquale's note from over the weekend. For those who don't know Tony, he is the Goldman Sachs global head of hedge fund coverage.

So he does these incredible market notes. and this is what he was talking about over the weekend, which I thought was interesting. So we have put up the first chart and I'll narrate this. This is Tony. A big picture chart. This plots trailing earnings growth of the United States versus various cuts of rest of world in local currency. I think this clearly demonstrates why US equities have

outperformed so much in the COVID era. Now, the debate turns on whether that immense gap is set to converge or not. That's the nature of the bet for folks who have been sliding their capital away from the US of late, which is a real phenomenon that we are seeing and we've been talking about in recent weeks. That green line, basically, trailing earnings growth of the US, it's in its own world, like quite literally in its own world because you can see those other three lines, which is the World Ex US, non-US developed, which you can read that as Europe, Japan, and then emerging markets.

They're all sort of converging at that same trailing earnings growth rate. And then the second chart that brings it all home, Tony says, I think this also nicely frames another element of the US versus the rest of the world debate that's playing out in real time. Based on the relationship between price earnings ratio and expected earnings growth, market behavior has largely been very rational. If you want to argue that China and EM have been undervalued, I concede and would agree with you,

but again, I don't think that's more important than the relative earnings question. So these dots for the most part fall nicely along this line. And basically what you're seeing is where the consensus forward PE falls, meaning the highest valuation stocks, and if you're listening to this, you can picture the Nasdaq 100 being all the way toward the highest growth rate and the highest PE ratio. The S&P 500,

The S&P 500, right on that same line, 20 times forward with about a 15% projected growth rate. And then you see Japan, Europe, UK, lower valuations, lower growth. China is way below the line. Maybe it should, given its earnings growth rate, maybe it should be a higher multiple. And then from my perspective, and this is what I want to ask you, I feel like, one more second chart back on, I feel like the real opportunity here is US small and mid cap. So if you're not interested in international stocks, if we're using the S&P 500 as a baseline, the S&P mid cap 400 and the S&P small cap 600 maybe should not be the same multiple

as the S&P, but the earnings growth rate is effectively the same. So it probably should not be a discount to the degree that we're seeing here on forward PE. Is that the same takeaway that you get when you look at this chart, Michael? So I have two takeaways, Josh. Thank you for asking. Can we show the first chart, please?

Okay. So it's almost like as if price follows fundamentals. And the second chart is showing the same thing. The markets, we're not dumb. The market is discounting all of our collective wisdom and obviously sometimes the crowd goes mad but this shit jives. The things that are growing the fastest is what investors are paying up for the mostest.

There's a rhyme and reason. Yeah, and so the question is, will there be a convergence? Has it gotten too far? And it's very early in the year, but so far international stocks, international developers are up almost 9% while the S&P is up just 1.5%. That's a combination of a weakening dollar, but maybe investor profits are changing or maybe it's just noise.

It's not it's 90 days. I think it's AI, but in reverse. Okay, so you're right. So clearly there is a shrink in the armor in the AI trade, but all of this shit that we're about to talk about today, it's all boot until Wednesday afternoon. Tesla just told us that European sales were cut in half. Yep, I just had that chart up, down 45%. That's not good. They went from 18,000 to 9,000 cars registered in the,

is that a month? That's not good. Is that the month? That's a really, I don't think that's a blip. I think that's a sign of worse to come in that particular region. And it's understandable given the visibility and the disdain the Trump administration seems to have toward a lot of countries in Europe. And they feel it. And they don't want to be involved with his brand right now.

Maybe it's not permanent, but I don't think it's over. Was there anything else that Tony said in the note that was worth mentioning? Yeah, there's so much. He's panoramic, so I just wanted to pull that one thing out because look, the longer that outperformance persists, the more people will become interested in it because that's just the nature of this thing of ours. And I wouldn't be surprised if we get into the second quarter and that trend persists, you start hearing much more table pounding

on developed international style. Some strategists maybe. I think for the average investor, it would take like legitimately like more than a year, maybe even three. Institutions are driving this. Retail is not buying Japanese stocks. Can we talk about the market sell off or laugh there off actually? So this is a chart.

It seems to be like there's some palpable fear on the interwebs these days, not necessarily driven by the market, although in some areas of the market, but this seems to be the week that everybody's like, hey, wait a minute, things are pretty risky. I want to remind everybody two things. The long-term uptrend is still well intact. But also, I don't want to dismiss the fact that there is some nasty shit happening under the surface. And as always, the S&P 500, even in the equal equal weight doesn't tell the whole story. So chart kid goat made an incredible chart showing that the biggest winners have now

turned into the biggest loser. So what we're looking at here, let me walk you through this. We're showing the top 50 performance for the SP 500 in the 30 days leading up to the peak just last week. On the other axis we're showing that the biggest winners are now the biggest losers from 219 to today. So for people that are listening, SM Super Micro, which actually is up a lot in the after hours,

but Super Micro was up almost 100% in the 30 days leading up to the peak. Palantir was up almost 60% leading up to the peak. And now these stocks are essentially in freefall. Dude, this chart is so good. I know. I mean, chart kid Matt is just outrageous. This is so good because it like illustrates like not what goes up must come down, but like I think the principle at work here is live by the gun, die by the gun. Like you're not going to be, you're not going to ride a Palantir

up 400% in four months and then have it gradually come down. That's just that, you don't get that, no offense. Like if that's your expectation, that that's how those rallies end? How? No. How? I forget who it was. One of the strategists had a note out midday today that it's a retail flush. They're not seeing institutional selling.

And when you look at the tickers, that's sort of jibes. These are Robinhood stocks. Dude, Palantir is all retail holders. There's been $3 billion worth of insider sales at Palantir. Zero insider buys. They know what's up. This is a retail-driven stock. Next chart. We're showing Palantir down 30% in just a week. Tesla is down 37% from its highs, no longer a trillion-dollar stock. And AMD- Is that right? The market cap's under a trillion? Yeah, dude. trillion dollar stock. And AMD. Is that right? The market cap's under a trillion?

Yeah, dude. Broadcom, too. AMD, remember that stock? It's got to get cut in half. Yeah, terrible. That's one of the worst. I mean, a lot of people did that substitution trade. I missed the video, so I'll buy AMD.

Yeah, yeah. I did. I tried. Thank God I got out. You know what I forgot to put up here? The most bullish chart in the world was the discretionary equal weight divided by staples. And you have to equate them because if you don't, it's all Amazon and Tesla. Staples are ripping.

So not only is there- So funny that you say that. Why? I wanted to do that for one of my topics tonight. Do you have any charts with you And I can talk through it. I wanted to do the other stuff that I'm doing so I don't have any charts, but go ahead. All right. So if there's anything just in terms of technicals, because the market,

you know, the index looks intact, but if there's anything under the surface to worry about, it's the fact that staples are catching a serious bid and like the boring staples, the boring shit, the stuff that you don't want to see rallying and you're saying discretionary sell off. So again, the bull market is intact. The bulls deserve the benefit of the doubt. Forget everything until Wednesday, but there are some holes you could poke in the market.

And again, it's all good. We're up 27% in 2023, 27% in 2024. Like if we go sideways, God forbid down a little bit, I don't like to see anybody lose money, but you need a wall of worry and we haven't had one in kind of a while. Yeah, I think the worry is there and I think the wall of worry has Nvidia stamped right on the front of it. And we're not going to do a whole thing on Nvidia tonight because it'll be, they're going to report tomorrow and it'll be stale by the time some people listen

to this. But we will react to it at the end of the week on the Compound of Friends. But I was looking at my best stocks in the market list that I keep with Sean and Philip Morris International is the hottest stock in America right now. The ticker is PM. This is not Altria, that's MO. This is Philip Morris International. This thing just literally hockey sticked. It was 100 bucks a year ago. It's 157. And if you know this

stock, it does not move that way. Still has a three and a half percent yield. RSI off the charts, like 85. This is straight up tobacco. There's no AI here. Like this is like literally so it's all about staples. But then Coke hit my list and I have a bunch of other names in that vein. So it's a retail flush in the retail stocks and if you have a name that doubled last year there's a very high likelihood that it's in a 20% drawdown right now. That doesn't mean there's something wrong with the company or get rid of it or you need to react But like live by the gun die by the gun

it has always and ever been that way and that will never change as long as As long as we're all doing this so by one last thing before we move on I want to point out again This is all moot because if Nvidia shits the bed on Wednesday Then you know we're gonna be in trouble for a little bit, but the mag seven right now are in 11% beautiful imagery. What did I say? Shits the bed. We talk like that now. We talk like that. There's like seven women watching this right now.

So the mag seven, they're, they're getting hit. They're in an 11% drawdown. And the S and P is only in a 3% drawdown. So this idea that the market can't rally without the tech stocks is just not true, has not been true. But again, this might look like ass on Wednesday afternoon. So we'll see. Okay. Moving on. Berkshire Hathaway over the weekend. Berkshire Hathaway. All right, set us up.

So Sean actually made this chart for me. I said, Hey, you know what? Give me a chart. Make me a chart. How long? I feel like Berkshire, Lauren's letters have been getting shorter and shorter. And you know what? I love it because I don't need to read 45 of his pages. We've read a zillion of them already. So he, uh, he said all that he has to say chart on please. Look at this. So the average shareholder length since 1977 is 21 pages and I feel like Warren's like, you know what? I'm good. I said it all. I've said enough. So I want to talk about, I want to talk about. He's 94. Yeah, it's enough. Warren Buffett is not buying green bananas right now. Do you understand? So if you, if you need 36

pages of commentary from this man, get it from somewhere else. So three things that I want to talk about briefly. Warren says, during the 2019 to 23 period, I have used the word mistake or error 16 times my letters to you. Many other huge companies have never used these words over that span. All right, whatever. So I don't need to keep reading. In my book- Read it.

It's good. Read it. Amazon should acknowledge made some brutally candid observations in a 2021 letter elsewhere. It has generally been happy talking pictures. So I, in my book, Big Mistakes, I went through all of his letters and I counted how many times he used the word mistake. And Warren is the only one, sure there are others,

but he said it a lot. I don't know what the count was when I wrote my book, but it was like hundreds of times. We're all imperfect. And he's, you know? Yeah. He had a couple of great lines in this one. I mean, the old man still got it, I got to tell you. One of the things he said that I've never heard him say before, but I'm sure he has, he's quoting someone else that he's learned a lot from. And wait, what was the, I want to just, I want to get the exact line. I don't want to paraphrase it. He said, he said, I forget who imparted this wisdom to him, but it was, I can't find the actual,

compliment by name, criticized- Praise by name, criticized by category. Praise by name, criticized by category, meaning when he wants to say something nice, which he wrote this beautiful encomium to somebody that he bought a business from many years ago who just passed away in this. When he wants to say something nice, he will use the people's names. Sometimes it's people that work for him.

Sometimes it's people he's done business with and he will praise them by name. When he has something caustic to say about let's say investment bankers, which he does that a lot, or politicians. He never uses people's names in a negative way. He'll talk about the category of people.

And I really like that. I think I try to do that. No, you don't. No, you don't. Thank you. You don't. In fact, I do because I internalize that. I really do.

I remember we were with Ed Borgato. I can't remember where we were, but he, he's the one that I heard that line for the first time, obviously, you know, um, referencing Warren saying it, but I, I, it's a big Berkshire scholar, but for real, I really internalize that because I don't like to throw stones at people. Like, so I think it's a great way to, I like to throw stones at people by name. No, not necessarily. No, no, no, you don't, but you're people by name? No, not necessarily. Like blow people up.

No, no, no, you don't. But you're not shy by naming names. Okay, well, cause I'm, you know, cause I'm not afraid like you are. So there's that, there's also that. Okay, here's another line. Mistakes fade away, winners can forever blossom. And I know you love this because we were talking about this recently, how all of the winners, all the compounders take care of all the pieces of shit.

Yeah. And I think about you and I and our business that we've built over the last 11 years and some of the things we've done wrong. And you have a bunch of things, I have a bunch of things. More than 11 years, by the way, but keep going. Fine. Our partners have a bunch of things that they got wrong. Like those things go away. 11 years by the way, but keep going. is cutting losses sooner and not dwelling on them and letting winners run. And I think I do do that.

We do. And I think what you're trying to say, Josh, is what we do in life echoes an eternity. Yeah, I've always, I've always believed it. Is that from Gladiator? Yes. Last one. This really surprised me. In 2024, Berkshire did better than I expected, though 53% of our 189 operating businesses

reported decline in earnings. That was a huh for me. But it didn't matter because the most important business there is property and casualty insurance. I had a very good year. Leading with GEICO, he shouts out Todd Combs for helping to reshape Geico internally. But also it was just a great year for PNC outside of the wildfires. You really didn't have a ton of natural, and I don't mean to say it like that, like that wasn't enough. But Warren Buffett says, you know, think of wildfires when you think of major

disasters, but they didn't have a catastrophic loss or a series of catastrophic losses at Berkshire, and they also don't pay up for reinsurance. They have reinsurance subsidiaries themselves. And so as a result, it was a great year for P&C underwriting. Premiums went up along with inflation, some would say much faster than inflation, which means revenue and therefore earnings growth. So it was a great year for the core business at Berkshire. Think the railroad did great, think the utility did great,

but like that's really what matters. Those 189 businesses that he's talking about, some of them are like, we make saltwater taffy. Like seriously, Brooks running shoes, like that could go to zero tomorrow and the stock price wouldn't budge. So that's really the main point there. Before we get to the cash pile, which is always a big topic every time he reports, look at

this gangster chart from Alex Morris, Berkshire Hathaway ownership, percentage ownership of American Express. That's the Amex buyback effect. Yes. Yeah, we're saying here. Yes. How many, how many reasons have there been to trim, to sell, to take winners? But this MFer, he gets it, okay?

He does what I can. He lets the winners forever blossom. Yeah, I am very Buffett-esque in this respect. So for the people listening, chart back on, we're showing you from 2010, Berkshire Hathaway had 12.6% of all of the outstanding stock of American Express. In 2024, that number is more like 21%.

And I do not think they were out in the open market buying it because it was already a very large position proportionally. So what ends up happening is as American Express buys back shares each year and shrinks its float, but Berkshire Hathaway maintains its position, they end up going from 12% to over 20% of the company's shares outstanding and therefore its earnings. And that's a super powerful concept that I think people can learn from. It's glacial. Like you don't, he did that with Apple too. Like you don't see that happening day to day. There's no data point in your brokerage account telling you how your percentage of a company is growing.

Although maybe that would be a great idea for a FinTech to come up with that. But it's happening and it's meaningful after 15 years go by. So Josh, let me ask you something. Does Warren know something that we don't? That's a great question. Why is Warren Buffett stockpiling cash?

Yeah. What's the dollar amount now? Okay, so. We'll get to the proportion and the percentage, but what is the actual dollar now? The dollar amount is 305 billion in cash and treasuries. Now the market cap of this company has gone up 50% over the last year, one of the best

years ever for Berkshire Hathaway common stock. So right off the bat, has the cash position gone up faster than the overall market cap of the entity? That I don't know, but that's not the metric. I almost had chart Kim Matt do that. I said, don not do that. I said, don't do that. We've got Lucas Lazano on the case. And what Lucas did was he made a chart that compares the total cash and bonds to the float and the ratio between there. That's what you

want to pay attention to. The market cap obviously is a good adjuster, but the real adjuster is the float. What are the liabilities or potential liabilities? So here we go. So it's really been close to one to one this whole time. So, so any asshole that shows the total cash of bonds piling up without any context, forget about them forever. They're dead to you. Okay. You have to show it.

Mainstream media does that because you'll click, you'll click on it. We know it's a joke and now our listeners do too. Um, but it is true. It is true that in the most recent quarter, the coverage, the cash bonds to float shot up dramatically. This guy Lucas has some really great takes on this. He's basically saying that Apple and Bank of America are the two ones. Apple at one point was $175 billion equity position, which was 50% of the portfolio, along with Bank of America,

which had amassed a $41 billion portion. So why is he hoarding all this cash? Lucas gives a few reasons, but two that I wanted to point out. He said at the last annual shareholder meeting, Buffett himself, because he was asked this question, Buffett himself alluded to the elephant of the room when a question was asked about

why he sold someone's taken Apple. And he said, Uncle Sam. So there's a chart of the room when a question was asked about why he sold someone's taken Apple and he said Uncle Sam. So there's a chart of the federal corporate tax rate declining over time. And Warren Buffett is probably thinking that that's not going to go much lower. So he said that Buffett ripped the bandit off now to potentially avoid a larger tax bill down the road. Point number one, point number two, and really this point number three coming. Oh, selling the stock as a corporation, the money that you could own gains could go up.

That's weird to do that in year one of the Trump administration. But he's been saying that. He said that last time. Yeah. So he also says, and I think this is spot on. I can't emphasize this enough. He said, I think he has started to see the horizon on his time making decisions. And this enormous cash pile is his parting gift to his heir apparent Greg Able, who will take over as CEO when Buffett punches out for the final time. I really believe that. What if both of those two things are true, but then also stocks are expensive?

There's a third thing. So I think that's part of it. But the real thing is what he would need to buy that's required to move the needle at that size, it's a small, small list. So I think stocks being expensive is part of that. But I think it's all three of those things. Look, he's liquidating shares in the banks. They went up so much. Liquidating Apple, it went up so much. Liquidating Apple, it went up so much. And everything that he's selling is selling at maybe a 50 to 100% price earnings premium,

a multiple premium to where it was when he bought it. This is the definition of buy low, sell high. And he is really excited about some of his other investments. They're just not here. The five Japanese trading houses that he bought, he's made, I think, an average of 50% on those investments. He got into that in the letter over the weekend also. They're incredibly run companies. Their stocks have been going up along with the Nikkei.

And so he is excited about, and he thinks they're going higher. He is excited about stocks, just not US large caps right now. So all of those things could be true, but also he thinks stocks are expensive. I want to tack back though. Mr. Drock, Inc. in the chat is saying how much of their insurance liability has grown. This is a really key thing. As the insurance company gets bigger, its future liabilities grow along with that.

You have premium growth, you also have liability growth. And he gets into that in the letter about how he's got pessimists running his insurance companies, not optimists. And companies that are in the insurance business and they make all kinds of hay when they're selling new policies, they're bringing in all this money, they better be really honest about what could happen as a result of that. So I think the insurance liability is growing is another part of the story.

I do want to quote Michael Gouvaris who I thought this was a really good chart. Let's do this one, the highlighted one, John. This is equity securities as a percentage of total assets. All right. So what you can see here or if you can't see it, in 2005, 24% of Berkshire Hathaway's total assets were in stocks. That's like American Express, Coca-Cola, yada yada yada. That number has been all over the place, but it seems to have normalized at about 24% over

time since then, 20 years ago. That's where we are today. Michael says, much is being made about the sizeable increase in cash position and subsequent decline in equitable securities, which I get. But if you look at it as a percentage of total assets, it looks maybe like a reversion to the mean. Equity securities as a percent of total assets fell from 33% to 24%, but the 20-year average is 25%.

So there is some element of just like maybe the securities portfolio as a percentage of total assets was way higher than normal for an extended period of time. And now it seems to have settled out at a baseline. What do you think about this chart? It's noisy, but I think it paints the picture that we're talking about, which is, yeah, I'm sure Buffett does think that stocks are expensive. I mean, obviously he doesn't think

they're cheap, but I really do believe what Lucas said that I think he's trying to leave Abel like in a bulletproof position. Now, that being said, if next year stocks are 40% cheaper, I have no doubt that he'll fire the gun. I don't understand why he doesn't just acquire Uber. It just, honestly, it's like mind boggling. This is a perfect Berkshire Hathaway business. It's dominant, has dominant market share, obviously not the only player. Dominant market share, it's a toll collecting machine,

huge cash flows, not an outrageous valuation relative to the projected earnings growth. And honestly, he's bought railroads, like he understands the value of owning a transportation network. They have a freight business too. I just, I can't understand why he won't just acquire Uber. And why won't he buy IMAX too? That's how movies are how we transport our emotions.

How do you get in touch with this? Do you have to, I have to write him like an old timey letter on a typewriter? He wants pencil. He wants it in pencil. Pencil, no typewriter. God's sake, will you just buy Uber and make Dara CEO for life and just let's do this right? Okay, that's it. I have nothing else. The Fed is talking about the effect of AI, but not in the way that you might think. And I thought these comments were really interesting and I wanted you to react to them. This is a speech last week from one of the policy setting governors, Jefferson. For now, I do not think artificial intelligence is changing the way policymakers communicate,

but research shows it has affected how quickly information about policy is incorporated into asset prices. Further research is needed, he said, to determine whether the faster speed is allowing monetary policy to get transmitted faster through the economy or as some worry that it quote may provide an incentive for investors to value speed over accuracy and may reduce the long-run informativeness of asset prices which could hurt the transmission of monetary policy. In any event, Jefferson said research makes it clear that it's not just investors but also households that pay attention and respond to monetary policy pronouncements. Policymakers he said should communicate as clearly as possible.

So this is something that you and I have talked about, like how quickly these economic reports are factored into asset prices. And the fact that it happens in one second probably diminishes the value of looking at any of these signals past 10 minutes from now. And we used to look at these as signals for like the next three months. Throw it out, forget it. Because now with AI being used all over trading desks, et cetera. Everything is instant. Powell has spoken about this, but how is this AI? This sounds more like internet.

It is AI. This sounds more social media related. How is this AI? Because he's saying that I guess, I don't know. He's saying it's AI. I don't know. Maybe's saying it's, he's saying it's AI. I don't know. Maybe AI is faster than like social media. Like, like maybe like social media was moving the signals quickly, but now AI is doing it instantly.

Okay. I don't know about all that, but, but like I said, Powell has said like the market does a really good job reacting to what we're trying to do. Yeah. Um, I like that they're aware of it. All right. So speaking of real AI, Josh, the robots are coming. There's a company called

Figure AI. Have you heard about this company? I feel like I've heard of it, but I don't know anything about it. So they raised their Series A in March 2023. They raised $70 million. Not even one year later, they raised $675 million at a $2.6 billion valuation.

And just one year later today, they're out raising 1.5 billion at a $40 billion valuation. Donkey, can we throw this video on for a sec? We don't want to watch the whole thing. But do we not have the video? That's OK. We have a screen. I'll give a screenshot of the idea. These two robots are about to make out with each other.

Yeah. So it gets really, really steamy. But the point is the I think it's the found who goes on screen and he puts down like a tray of there's an apple, there's a Snickers barn, there's a box of tissues or something like this. And he tells him, hey, figure out where these go. And they open the fridge, they put the fruit on the counter. Like, this is out of sight for-

I'll take the under on robots in the home. I don't know, man, fine, whatever. But the point is like, a lot of this is happening. I think a lot of people are really unaware. Like, whether we're one year away or three years or 15. You're infinity away, it's not going to happen and I'll explain to you why. Step one is robots in the warehouse already exist. Most of them do not look humanoid.

A lot of the warehouse robots, it's like an arm with a camera and a monitor on its head and the whole thing is just one arm but it's picking and packing in an Amazon building near you. And it's a robot for all intents and purposes. It's not like a star Wars robot, but it's a robot. That's, that's old news. Wait, I don't want to get hung up on. I don't want to get hung up on human, humanoids robots in the house. I'm just saying robots. Okay. That's what his thing is about. So let me, let me go through my progression here. What's coming next is robots in the hospital. We have a crisis on our hands.

We still have 69 billion, 69 million boomers just in America. Japan is effectively an old age home. China's got tons of old people. Not's not enough young people willing or able to take care of. And so I think healthcare humanoid robots are probably next after factory humanoid robots. But the pace of this, you'll see one and it'll be like a news story, but like when are you going to see a million robots in hospitals carrying people around and pushing them on stretchers? A very long time, doing surgery even longer. We know it's coming.

The speed will put you to sleep until one day you wake up and they're all around you. So that's robots in the military is what's right after that. Humanoid robots in the military, in my opinion, puts an end to planet earth. So we won't get to the robots in the home because robots with guns are gonna just put us all out of our misery. So I'll take the under on a robot peeling a banana in my house.

I don't think that's something I need to think too much about. We'll see. That's where I am. Okay, next topic. That's where I am. Okay, Bitcoin is crashing and I am told by a little bird that you were a size buyer this afternoon on the Bitcoin exchange. Did you call a broker on the exchange or how do you?

I bought a little Bitcoin, a little soul. Listen, it's crashing. It's down 20, it's crashing. It's down 20%. It's crashing, Michael. It's going down. It's the speed. It's not the depth.

Bitcoin was up 3% this year through February 19th, and then Momentum stocks started selling off. And as I've told you, Bitcoin is the eighth mag seven stock. I don't know if you agree with that or not, but that's my idea. But listen, it's above the 20 moving average I'm sorry. That's not a crash. Sorry. Okay, Bitcoin is 18% below its all-time highs, which is a crash It is the largest drawdown since the Japanese great blow up last one is down 18% is that crashing? Come on No

Alright, fine. So what's a crash 30? That's a crash? 30? I don't think you can get down 30% honestly. I feel like they're going to rush in and buy. I think you made a good purchase today. But here's Bloomberg on crypto ETFs, which I found interesting. eighth Mag 7 stock. The iShares Bitcoin Trust ETF, the largest spot Bitcoin fund, shed $158 million on Monday in a rare outflow while investors pulled nearly $250 million from the Fidelity Wise Origin Bitcoin fund. That's their ETF. That's the third largest withdrawal

among all ETFs, including stocks. More than $956 million has exited from US listed spot Bitcoin ETFs in the month of February, the worst month on record for the category. Granted, we have 13 months. That's a lot of money. Bullish bets on crypto have seen hefty liquidations over the last two days, $815 million out and then $860 million out the next day, according to Coinglass. Perpetual futures, which is how offshore investors buy these ETFs, have also seen leveraged long positions drop.

These stocks are acting like we talked about the retail puke 15 minutes ago with all of the Robinhood stocks. And these, to me, these stock, these ETFs are doing what Tesla is doing. Why does this persist the leverage with Bitcoin? Who are these maniacs just getting- It's never enough. It's never enough.

Oh, this asset can go up 20% a month. What if I needed to go up 60% a month? It's stupefying. I don't get it. I think it's brain damage. Now, here's what's really interesting to me. This is happening in the midst of things that were supposed to have been positive catalysts for Bitcoin. And maybe that's why people were so levered up right now. Michael Saylor finally got to pitch his Bitcoin reserve idea to the SEC, which he did on Friday. And then over the weekend, he can you imagine, and then over the weekend, he spoke at CPAC. I should say we're putting

Michael Saylor on stage at Future Proof Citywide in Miami next month. I think that's going to be the biggest crowd of the of the whole week. I'll be there, dude. Everyone's going to want to hear what he has to say and watch him say it live. Anyway, Sailor went to CPAC, which is the conservative, I guess, like the Lollapalooza for far right wing people. And he said the US should stock up on 20% of Bitcoin's total supply. Quote, the dollar would strengthen, the nation would be enriched, and if you own 4 to 6 million Bitcoin, you are going to pay off the national debt. Somebody should tell them that somebody has to buy those Bitcoin, but fine.

Yeah, well, you're going to sell it and crash it all? I don't understand. Whatever. Okay. Ever the BTC maximalist, sailor rejected notions of including cryptocurrencies other than Bitcoin in a US strategic reserve. The US is currently stands at $36 trillion, could be as high as $116 trillion by 2049. Remember, I told you, won't matter, the robots will kill us all before. If the US purchased just $1 million Bitcoin at $100,000 with a compound annual growth rate of 25%, which is 10% lower than its last five-year average, the US Bitcoin reserve

would be worth an astonishing 21 trillion by 2049. So, the idea is that the Bitcoin stockpile will grow faster than the rate of the national debt and problem solved. This was not a bullish catalyst. They came in on Monday and they liquidated Bitcoin just like they're doing with other momentum stocks. Last thing, there were three state bills in individual states about creating a strategic Bitcoin reserve for that state,

Montana, North Dakota, and Wyoming. One of those states is where Senator Cynthia Loomis, she is like the Bitcoin person in Congress. All three were downvoted in the last month. So Texas is the big one that that vote is coming up. And in my opinion, from what I've read, it seems likely that they will do it because Texas is adventurous like that. Here's what the Montana representative who voted against it said. Stephen Kelly, this just smacks of speculation.

So like, not everybody in these red states is on board with like the Elon crypto revolution. And I think those were supposed to be positive catalysts for Bitcoin and they didn't, they failed to materialize Here's Michael Saylor. We have a picture of him Considering a second job to acquire more Bitcoin and he put himself in a Bitcoin McDonald's. I like this guy I don't give a shit. I don't have to buy his fund. I just This guy's nuts on camera He tweeted this.

Do you think he made it? No, AR. AR made it. Alright, last thing. I know I keep saying that. I asked Sean to show us the premium in micro... Or we're calling it strategy. The premium in strategy over its NAV. And I don't know where this chart comes from.

I'll assume it's good. So what you can see here is that the premium above the NAV is just absolutely collapsing. Do I have the? Oh, here are some Bitcoin charts that we made. That's a crash. That's almost 50%. That's a crash. And that makes sense because now there's 75 companies that are acting as Bitcoin treasuries. So why would that premium be as high

as it was? Here's six months Bitcoin. Here's five years Bitcoin. Put that drop at the context, it's nothing. At 91,000, this is still a huge winner. And then let me show you six months here strategy that hurts that looks like close to 500 down to 250. That's almost 50. So that's in a 50% drawdown right now so if this past November and December you were suicidal that you missed it well now it's cut in half yeah let's do this next chart. This is the 2X long and the 2X short micro strategy. I love these because you could lose both ways. So I stole this from economic, our friend Jake on Twitter.

This is just astonishing. So since October 20th, for those who are listening, micro strategy's gone nowhere, it's down 2%. But the 2X long is down 42% and the 2X short is down 71%. So that's- Stop doing this. Okay, fine dude. No, not you.

The people who are doing... Put that chart back up. This is an IQ test. Do you want to pass or do you want to fail? And I know people don't hold these long term or they know they're not supposed to. But just stop doing this. Put the next chart up that illustrates this. To your point, MicroStrategy is in purple.

It's flat. The 2X long is negative 42% and the 2X short is negative 70%. What are you doing? What is the point of this game? Now in sympathy with Bitcoin, here are your Bitcoin proxies in the publicly traded US stock market. Here is Robinhood. This retail flush we're talking about, this is both the facilitator of the retail flush

and one of the stocks caught up. It is in a 30% drawdown since Valentine's Day. Next one is Coinbase. This is a, I mean, look, it was a huge winner on the way up since the election. Gave it all back. This stock is 212, back to where it was when Trump was elected. Coinbase does not look good. Robinhood still looks very viable, but Coinbase does not look good.

Robinhood, bless their heart, they have other businesses that they're in and maybe they aren't as susceptible to a drawdown in crypto assets as Coinbase is would be the way I would explain it. But anyway, I think the point that I want people to take away and I want to hear if you have one too, these things are going to happen where you're going to miss these unbelievable rallies and you're going to be so despondent. The worst thing you could do in most cases is like compound that error by being exit liquidity for somebody who did catch the rally and taking them out at the top.

And sometimes it's not the top and it keeps going of course, but like if you can restrain yourself from just that one negative behavior, it's so meaningful to your long-term returns. Yeah. Okay. I am going to make the case. It's time to tighten up. Clean up the garbage.

Get rid of the junk. That's what I did. I had a couple losing my portfolio, whacked them. I would also say that if you are a person, and are lots of them that have been holding cash or too much bonds and for good reason, right? 5% is juicy and you've been annoyed that you missed the rally in 24 or some of it. If we do get a real correction and if Nvidia is a shit show and if you have the opportunity to buy at lower prices, make sure you get ready to deploy money.

So okay, I also want to show, this is my SEP IRA. This is definitely, definitely, definitely not investment advice, but I cleaned it up. I've got no junk in here, so chart on. This is my current allocation. Got some blue chippers. What is this, two, four, six, eight, 11 holdings. And I added-

Hi, Michael. What's that? I'm proud of you. Thank you. I added to a few of them today. One of the ones that I added to was Blackstone. Try it on. So Blackstone is in a really healthy long-term uptrend.

This is the dominant alternative asset manager that is in a secular uptrend. And buyers have stepped in in the past, the 200 day they did again today. We have a longer view. This is the 40 week moving average, again, the 200 day. So this was resistance back in 23s. You saw it bumped up and failed a longer view. This is the 40 week moving average, again the 200 day. So this was resistance back in 23s. You saw it bumped up and failed a few times and it turned into support.

And God willing- I love this chart. I love this chart. Thank you. Hopefully it's doing that today. So I had to flex on it. Look at that false breakdown. The wick of that candle went through it and then it bounced a little, right?

So 20% haircut in a dominant name, I like it. I'm in, I added. I got stopped out of Home Depot and they had an awesome, see this is a really great example. So I was using a moving average trailing the stock. I got stopped out of 401, it fell immediately to 360. Genius. And then it had like a great earnings reaction.

A great earnings reaction. I'm going to take that report. Not a great earnings report. Yeah, it had a great earnings reaction today. One of the few green stocks on the screen and it absolutely ripped, but it still didn't get back to where I was stopped out. And like it's almost like, look, I like the stock, but I have to let it set back up again. I bought it for a breakout.

The breakout failed. My stop worked, I regretted it the minute I sold it of course, but I took the decision out of my hands. I sold it at a logical place, I limited my risk substantially and then I didn't take that ride down to 360. And then I see it ripping today and it's like, it's not even back to where I was stopped out and that and that you know that's like a very isn't that like one of the most gratifying feelings when you know when you know you made a good sale. It's great.

It's great for me. That's like one of the that's one of the best you know what I think I think having a process even if it's imperfect because of course they all are imperfect nothing's perfect but like I think a lot of people get stuck with a loser and they're just like, they get paralyzed. Yeah. They're afraid to sell. Starbucks you own, I own that stock. I said on TV today, it's the best chart.

It's on my best stocks in the market list. It's the best chart right now. I don't know why, honestly, I kind of want to sell it, but I don't want to like sell it too early, but I don't know why it's doing this. There's an impending catalyst where they're going to sell a gigantic stake in Starbucks China to a Chinese operator. China is one of the biggest problems with Starbucks declining sales six quarters in a row or something like that.

There better be a cat impending catalyst because this is discounted a lot of good news. I think there's a lot of trust in nickels. Yeah, a lot. Like they had a horrible quarter this last quarter. Yeah, not good. But I think that's right. And the stocks still rallied. I think the kitchen sink the quarter and they cleared the runway for and the stocks been

wrapped. You're right. The fundamentals had not turned at all. The only thing that's turned is the sentiment and it's turned hard and maybe too soon. All right, birthday boy. We don't know. Give me a mystery chart On screen, please. Okay Say no more at the top of the show about I don't think we use the term defensive as we said staples

This is a staple to me, but it's not in the staples index. I just consider it a staple. I really like the technical setup here. And I think there's a breakout coming in this name. It's food related. That's why I consider it to be a staple. It's food. Oh, is this Shake Shack? No, listen to me.

It's not. I'm saying it's like, it's, like, in my opinion, this has defensive characteristics. Okay, so it's food related, oh, I know what it is. Is this McDonald's, it's discretionary, but it should be a staple. Bang! Thank you. Yeah.

Look at you. Thank you. I wanted you to get it. Thank you, that was good. You know what, this should be a staple. Come on, if this isn't a staple, yeah, it looks great. I sold the cycle. You see it, you see this consolidation period going back to October.

I love it. It's all time. I was coming. I think it's going to I think it's going to break through. I don't know what the catalyst is there. I just know that when people get concerned about the economy, they know that this company will be fine. It's always fine.

It looks great. So I like I like what's happening there. They've supposedly and I don't follow the fundamentals in this as closely as I should to be commenting on it, but supposedly they have done a really good job managing the egg crisis with the breakfast stuff and the egg McMuffin and they're getting prices down and they're hyper focused on not destroying the consumer any further. If they can pull that off and they can sell that story, the consumers will continue to come and I think the stock will work.

That's a narrative following price. Kudos to you. All right, guys, this has just been an amazing show. We monitor the comments. You guys are hilarious. We love all your comments. Thank you so much for those of you who came to the live. Special thanks to the crew, Duncan, Daniel, John, they're behind the scenes.

We do this, Nicole, Rob, Graham, everybody who works on the show, Sean and Matt crushed it with the data and the charts. We appreciate you guys. That's it from us tonight. And remember, tomorrow's Wednesday, all new edition of Animal Spirits with Michael and Ben. And we'll see you guys at the end of the week with

a brand new The Compound of Friends. Keep it locked. See you soon. Whether you're just getting started as an investor or you're managing a multi-million dollar portfolio, Ridholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit ritholzwealth.com. Don't forget to check us out at youtube.com

slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.