The Compound and Friends - End of an Empire (EP.188)

Episode Date: April 18, 2025

On episode 188 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Warren Pies of 3Fourteen Research to discuss: what earnings typically look like after stock market corrections, Trump's next trade war moves, money leaving the USA, recession indicators, and much more! This episode is sponsored by Apex Fintech Solutions. Learn more at: http://apexfintechsolutions.com/augmentedadvice Sign up for The Compound Newsletter and never miss out: thecompoundnews.com/subscribe Instagram: instagram.com/thecompoundnews Twitter: twitter.com/thecompoundnews LinkedIn: linkedin.com/company/the-compound-media/ TikTok: tiktok.com/@thecompoundnews 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

This episode is sponsored by Apex Fintech Solutions. The time to compete for next-gen clients is now, like now now. Transforming your business for the future might seem like something you can push off, but by the time it is a problem, it may be too late. Sure, you could sit this one out and your business will be fine tomorrow, but meanwhile, you are letting some new Fintech win a generation of loyal customers around you. Augmented advice from Apex gives you the power to be what the next generation wants. On your terms, it's not a robo. It's a modern on-ramp to tailor advice using your brand,

your personal touch, and Apex efficiency. Learn more at apexfintechsolutions.com slash augmented advice. 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. Ladies and gentlemen, welcome to episode 188 of The Compound and Friends. This is a special edition. We are taping remotely

because Michael Batnick looked around at the ruined landscape around us, the post-apocalyptic landscape, and just said, guys, I don't give a shit, we need to get a show up. And we made a short list of who we wanted to hear from this week. Number one on the list said yes, literally the first person we thought of, the first person we wanted to talk to, Warren Pies. Warren, tell everybody about the research firm that you run. Give us a little self intro for those who haven't heard you on the show yet.

Yeah. Thank you. I appreciate it. What a time to be with you guys. I'm a founder, chief strategist at 314 research. 314 is a institutional kind of global macro research. Not kind of. Yeah, not kind of. Not kind of, definitely. Dude, you're the guy. So the last time we had you on the show, were you with Fernando last time?

I was with Fernando in New York, yeah. I mean, you guys, I think among all of the macro people that we talked to, I think you guys were the most cautious, the most concerned about where we were headed. And it may have been like slightly premature, but a lot of the things that you guys were concerned about have started to go wrong. And I think that's one of the, in addition to the fact that we like you, that's one of the reasons we want to talk to you first.

You're kind of nailing it right now. Well, I appreciate that. Yeah. You know, we had a more or less bullish outlook for the year, but we did think that there would be a 10% correction around this point around Q1, Q2. Obviously it's gotten more, it's gotten worse than we expected. We de-risked our equity holdings on February 3rd, actually, just for the record. And that was the day after the first Canada, Mexico, Trump tariff

announcement. And so that was kind of the path we've traveled. Obviously you look back in 2020 hindsight, you wish you would have de-risked even more. But yeah, it's kind of going, as much as this environment could be going according to plan, it's going according to plan. Warrin, the reason why I love your stuff so much is the way that you marry the economy and the stock market. And the stock market is not the economy has had a bit of a resurgence. The last couple of weeks with Joe Weisenthal leading the charge and saying, actually, you know what? That's kind of bullshit. The stock market is sort of the economy or the stock market is not completely disconnected from the economy as much as people think it is. And what you do, which is so brilliant is, and we're going to get into a lot of this today, in your work,

you show what's going on in the economy, what's strengthening, what's deteriorating. And more importantly, how does that impact the stock market? What does that mean on a go-forward basis? And the fact that you're able to bring one to the other is phenomenal because most economists do not know the stock market nearly as well as you do. Yeah. Well, I appreciate that. Man, you guys are really building me up here. Much appreciated.

I mean, if you're going to be top down, which is like my background, my background, I started in the energy and cyclical areas of the stock market, then you better have a view on demand, you better have a view on the, better review on the economy, and everything flows from that. So you have the bottoms up folks and they're great. They're looking at the company specific fundamentals and we try and go all the way down as close as we can to those fundamentals, but it always starts from the top and then moves down. That's philosophically how we approach markets. Now, Warren, one thing we haven't mentioned yet, you're also very kind to animals. I don't know.

All right, we took it too far. I'm sure we're giving you that build up because we mean it. All right. I want to let's let's let's get into what we want to talk about today. So from my perspective, we're now beyond talking about whether or not there's going to be a recession this year. And I know that's still an open question. Of course, we don't know. A lot of the earnings that we're getting from companies, a lot of the guidance is cautious,

but then like the actual earnings themselves from Q1, just not recessionary. So like it's that's still out there on the horizon. But like, we're already now talking about like, is this the end of American exceptionalism? Like, it's like a different conversation over the last couple of days. And I think that's probably driven more by what's happening with the dollar, the bond market, some of the stats showing capital leaving the country, foreigners taking their money out of US assets.

That's like beyond the recessionary question. But like when I saw the way the market gave up yesterday and just fell apart into the close, Dow down 700, NASDAQ had a negative 4% day, the Nvidia stuff with China, it was just like, yeah, man, this is what recessionary bear markets look like. They try to hold up and then sometime around 11, 12 o'clock, we're off the highs. And then by 3 o'clock, people are just throwing in the towel. That's what I've been through a lot of those recessionary bear markets. That's what they feel like. What are your thoughts about just the degree of despondency and how long the surveys are

indicating high levels of bearishness? Yeah, I think that you framed it perfectly. This has gone from a cyclical sort of concern, which was when we called for that 10% correction was really what we were looking at is how the cyclical would play out. We've gone to an existential concern, you know, is the, the, the, we're writing a report today for our clients and the title is the end of the empire, you know, when we're hanging a question mark. So you're part of it. You're part of this. I mean, this is, uh, this is kind of where,

like this is kind of where we are though. The, this is where the media is taking the discussion. Like it's the end of a. It's the end of an empire. I don't want to sugarcoat it. This is one of the things we talk about in the report that's going out to our clients is you look back at that S&P 500 long-term chart and you see those big dips. You see the dips in 2018. You saw the COVID dip in 2020. You look at the dip and see some big dips in 2011 and 2010, and then of course the GFC.

And you imagine yourself having the courage to buy those dips. But honestly, when you play out history and you go back and just put yourself in that mindset, many of those crises were existential in nature. It takes a lot of risk and some faith. You don't just get people puking out of positions down 20% on the index if there's not some truth to what's going on in the background. And so we are in a weird time. I think we are in a concerning time.

The stat that we pulled out for our clients, which I think really brings all this together in kind of a historic way, is that what we saw from the week of basically April 4th to April 11th was a 40 basis point rise in the US 10-year alongside a 3% decline in the US dollar index. We've only seen that happen 12 days going back since 2000. So in quarter century, we've had 12 days where we've seen that period of a 10-day period where this has happened, or 40 basis point rise in the 10-year and a 3% decline in the dollar index. And when you start peeling the layers back, it gets even more concerning. So most of those days, you see the

S&P 500 higher because what happens historically? Going through 2009 at the bottom, going through 2011, we've seen some of these days, historically, why are bonds being sold and the dollar also being sold? Well, those are the two global safe havens. So when they're being sold, usually what's happening is the S&P 500 is rallying big. And that's what we would usually see. But this time we saw the S&P 500 down alongside the dollar being down and alongside bonds being down. So this gets concerning. Then you look one step further. We did see a few days like that during the global financial crisis back in September

right after Lehman bankruptcy. We saw just pure panic in the markets and what happened. Yeah. So this is the one thing that I thought the mainstream media got right. Because I was watching like regular news at seven or eight o'clock on the cable networks. And I was watching a little bit of all of them just to like see what the vibes were. And the one thing that a lot of the guests brought up who were not market commentators, like this part they grasped, it's really weird to have the stock market crash and the money

not flying into dollars. That's supposed to be the risk off rally and maybe sometimes bonds, sometimes not. But to have the dollar selling off with stock selling off and with the bond sell off, the money is clearly leaving the country. There's no fourth place. Gold's not big enough. Yeah, and I mean, in the thing that we did is we saw gold was rallying. This happens like in the GFC,

but when you price gold in these other currencies, if you price gold in Japanese yen or in the Euro, or in the, you can see that actually gold, those currencies were flat in gold terms or gold was flat in those currency terms over this period. So what does that tell you? It tells you ultimately, it wasn't China selling bonds. It wasn't a deleveraging in the basis trade, which is what everybody and Scott Bessett

was trying to pin it on. This was real money selling US assets and moving back home specifically to Europe and Japan in this last bout. And I mean, it's just the first whiff of that. Michael, can we detour into that basis trade concept and why it was like such a laughable scapegoat? Well, I don't know if it was laughable or not, but I think that- It's not big enough. I would punt to Warren.

He could probably explain it better than I could It's it's a different. It's a differential between on the run treasuries and existing treasuries You and hedge funds are levering up and trying to capture some sort of Arbitrage trade there and that got unwound in a hurry. Am I oversimplifying it? Selling they're selling the Treasury bond futures and they're buying the bonds and they're trying to capture a very tiny spread and they're going 50 to 100 to one because it is an arbitrage. It's a tiny arbitrage, but it's in a market that's not accustomed to having these like earthquakes, not accustomed to seeing a 40 basis point run intraday in a 10 year treasury. But it's not trillions of dollars doing that trade. It might be a lot of leverage, but-

Warren, let me ask you this. Of course, we can answer this two years, three years from now. Do you think that people are overreacting or do you think this is the end of the empire? I think you have to stay cool in these situations. And there's a lot of inertia in the system, in the system that we have. And so I don't think it's the end of the empire. I mean, if it's the end of the empire, then, you know, the S&P is entering a secular bear market and, you know, it's going to suck extremely hard for the next, you know, 10 years.

So it doesn't have to be the end of the empire though for this to be a concern. One of the things that's taken place is that there was this long held idea that US assets would always trade at a premium relative to their counterparts overseas. And now not only are they no longer seen as being deserving of that premium multiple, actually, in some cases, they're more deserving of a higher risk premium. It's almost like we went in December of 2024 saying the dominant investing theme around the world is US exceptionalism to now, wait a minute, what if US assets need a higher risk premium attached to them because of how erratic the political situation is and the trade situation is.

So I don't know if that necessarily has to be an end of an empire, but it definitely could be the end of a secular investing mega trend that a lot of people have staked their careers on continuing. Yeah. I mean, I think it's... Look, if we were to kill off the foreign flow, I mean, I think there's some of this that's inevitable. The benchmarks have become more US dominated.

If you look at how Acquie has divided and mirror market cap is so huge. And so I think that this first bout was honestly like a small reallocation and pulling back, but I don't think it was like the whatever you want to like the reallocation, like the real pulling out. This is just like a shot across the bow, but it would get pretty nasty because if you look at households or overweight equities, and it's in pension funds are way overweight equities. You look at pension funds split between debt and equity, they're like 75% equity. So I'm not really worried as much about who's going to buy our bonds. I'm more worried about if

this flow reverses, who would buy our equities in this worst case scenario, which is not my base, but that's the scary part. So I'm glad you both said that. To me, this feels like, on a much grander scale, New York is dead forever back in COVID, where yes, there were serious challenges as a result of COVID. And I'm not trying to sweep this under the rug as normal or encouraging, because it's none of the above,

but it also feels a bit like hysteria, like the end of the empire, nobody will buy shares of Apple anymore or Apple products. I think that we are more likely to look back on this as a deserved overreaction, as an inflection point, like a before and after watershed type of moment. If that's true, then this is going to, I don't know where it bottoms, but if and when it does bottom, this is going to be an incredible bull know where it bottoms, but if and when it does bottom, this is gonna be an incredible bull market

coming out of when that sentiment wears off. You just don't know if that moment where we all realize we're over dramatizing this is 20% lower. Totally agree. Warren, make your final point then I wanna get some charts. Right, no, I was just gonna say,

I totally agree with what you're saying. I know everybody gets like the tariff thing has been so charged. I think if Trump would have come out, let's just play like a thought experiment, if Trump would have just come out and said, hey, I want to raise a little bit of money, other countries have some tariffs, doing a 10% global tariff. That's basically my starting point. That's what my default is. If you want to talk about it, we'll talk about it. But hey, that's where we're at. But instead, and I think global markets actually would have rallied because we had discounted

the tariff news. It was already out there in the ether. Goldman had some surveys about what your expectations were going into liberation day and all that. I think the market would have digested that and we would be beyond it. What's going on now, it's how they did it. It's the, it's just the chaos in competency and chaos and how they rolled it out. The inconsistency, three different people saying three different things inside of one day. Right.

And from a Wall Street perspective, you want to feel like your policymakers have a basic grasp of economics and to take and to tell any country, including extremely poor countries, that if you have a trade deficit with you, then you're ripping us off. It's a very economically illiterate thing to say. And that scares everyone. That's what scares people on an existential level is when you see real chaos and incompetence and you're like, wait, is he playing 40 chess? I hope he's playing 40 chess because if he's not, we're all up the creek. We had an Overton window about these things that was pretty much intact since the post

World War II era, which is that like Europe is our ally. United Kingdom is our very special ally, other foreign countries where they speak English, we would all sort of harmonize our laws and rules of the road, Australia, the whole United Kingdom. Like it was just kind of like this stasis. And that's what's been interrupted, combined with like all kinds of corruption. And it just, you know, it's just a weird, it's a weird feeling people have. And it's not pro or anti Trump necessarily, although that that's playing into it. Look, Katy Perry just caught the last train out of town. She's she just left for Mars like people are pulling capital like

Katie's in space it just it feels very unsettled all right listen we've got certainly event we've got 31 charts to get to and they are of the highest quality that means we've got about 90 seconds per chart so let's keep moving all right all right so the first chart we're going to talk about Warren not a great quarter guys in fact it was a bad quarter. And you've got this beautiful chart that shows what happens between Q2 and Q4 for all years compared with what happens after a negative year. And it's not great. Yeah. These are negative Q1 returns. So these are the purple, these are purple years where you have a negative first quarter. I don't want to, like you said, I won't go on and on about all these charts,

but the bottom line is like we look at seasonality and there are some seasonality gets overdone in a lot of ways, but I think that the January effect so on so so quote unquote is a real thing. We see it on this chart. So this is looking at Q2 through Q4 on the average performance of years where you start out with a negative Q1, that's the blue line, and the purple line is every other year. We have a positive Q1 in what happens for the rest of the year. So the momentum or the lack of momentum carries forward to the rest of the year. I mean, we saw this last year. It was a big factor for us getting so bullish at the end of 2023, was we saw, okay, what's going to happen is nobody's bullish, the strategists aren't bullish, and we'll talk about that.

The consensus is not bullish. So when we get into 2024, the market's probably going to run away and force everybody to chase. And we had the chase dynamic in 2024. Now we're seeing kind of the opposite of that. We come into 2025, everybody's bullish, and then we fall apart in Q1. It has this sort of negative impact where now there is no chasing.

It's about controlling and when do you sell and your trapped lungs and things like that. Can I say something? Not that I don't like the reason for why we're selling off. Okay, so I just want to start out with that. But if you gave me the preference for 2025 to be another up 20 plus percent year versus down 10 to 15%, I would have chosen the latter because I think it's much more dangerous in which you get a scenario where it's literally up 25, up 26, up 22. That sets you up for something much more nefarious. That's not the right word.

Much more dangerous, I think, just in terms of the stock market itself than what we're dealing with right now. I like the reset. I don't like why it's happening, but I like the reset. Yeah, I think you're right. I mean, you'll never like the reason it's happening. True. Yeah, I think that's in the middle of it. It sucks always. So these next two charts surprised me. Wait, can we go back? I know we have a lot to get to, but that last chart.

So just like, it looks really stark to me. So if you have a negative Q1, the amalgam of all of those years, that's that blue line along the bottom. It's not a crash. It's not great. It's just not great. It's a down market.

How many years are going into this calculator? How many years did we have a negative Q1 in the sample that you're using? If you go back, I can't remember. I think it was maybe 27 years, but it's all these purple lines here. It's a bunch. It's not for the thing you can say about it is that it's the, we have another chart where we overlaid the dispersion of all the outcomes and you can see it on that chart for that Q2, Q4 period. And the dispersion is massive when you have a negative Q1. So it's just, you open up a lot of downside that you don't have in those positive Q1.

I think it just resets that proclivity to chase returns. Like it, like it takes that off the table and people are a little bit more sober about what they're allocating and why. That's what I really think it does. Obviously, it's usually accompanied by a reason for that sell-off. It rarely happens in a vacuum. So in this case, we know the reason. But I think it changes the mindset of portfolio managers to think more about survival and less about missing the upside. That's got all kinds of knock-on effects that are still to be seen. Warrin, so the question on investors' minds is, all right, we did it.

We had a 10% correction. Now what? You've got two charts showing, well, it depends. Are we going to a recession or are we not? And for me, the takeaway here is, and I know you've got a chart, we don't have it here, where it shows the average, like what happens when there's not a recession,

what happens when there is. And that tells a much different story than when you actually bust under the hood and look at each case, because when you do, chart three, John, please, to me, this looks sort of like a spaghetti. Like it looks more or less random. I know the data doesn't tell that story, but walk us through what I'm blabbering about. Yeah, this is just every... So some of these charts, we ran them

for our Q2 chart book and things have moved so fast. So at that point in time, we were down 10% and we were studying really these cases where you're down 10%, what happens next. Obviously we're closer down 20% at the bottom here really these cases where you're down 10%, what happens next? Obviously we're closer to down 20% at the bottom here, so we have some charts on bear markets, but this is you're down 10% and you don't have a recession, what happens next? And a lot of our stuff focuses on downside. So what we're looking at here is like what's the median downside going forward? Down 10%, what happens next?

No recession. Median downside is about 5.5%. Average downside, max drawdown over the next year is 7.3%, which you can see in the chart here. Yeah. And like you said, there's some bad cases. I mean, you can look into, you can draw like a mental line across that 100 level and see there is what? Two cases that ended up had a next year negative returns, but the vast majority are positive somewhere in that up in the upside is where you really have, you know,

there's a lot of room to move higher. This is the recessionary cases. It looks totally different. The average is basically flat. More than half of these are negative market returns when it is a recession. Yeah. And they're real negative. You get some, you're down 10%, now you're down another 15, 20%.

That's what the average shows. Like, hey, and this was our conclusion back when we were down 10% is that, and once we moved, if we're going to discount a recession, we're going to have to get to somewhere below 4,800 on the S&P 500 to start to really price that recession in based on history. What's that really negative? What's that really negative green line at the bottom of this recessionary bear market? Looks like it.

Is it looks like it's probably 2008. Warren, what's interesting here is like there's definitely the skew is to the downside, no doubt about it. Like the average median forward drawdown tells the story pretty cleanly. I was surprised at how many positive results there were. What is this, a year later? Yeah. Well, you think about, we have some really short bear markets even with recession.

So 1990 was a short bear market. Obviously, COVID was a short bear market. And then I think that's a little bit about how do policymakers respond. Yeah. How does the Fed respond? How do policymakers respond? That's one of the reasons why I think it's really too early. We may have... We'll have more charts on this too, but applying it to the current case, our view is that you're probably getting at least a retest of what we already put down because I don't see policymakers swooping in and making this like a V-shaped bottom. So we're 9% higher than where we bottomed before tariff pause. And I think that probably,

I would guess, most people expect at least a retest if not to cut right through it. One of the things that worries me, two things. Number one, valuation. It's a consensus warrior. We're not exactly cheap. Number two, and worrisome are analyst estimates for companies going forward. So Mike Succardi, I saw him tweet this morning. We've got 48 companies so far, mostly financials. So take this with a grain of salt. 48 companies have reported Q1 results so far. 71% beat rate, 7.5% blended growth rate. That's on the high end. That surprised me. You've got a killer chart showing what happens around earnings per share that become corrections, recessions are with that, and this is stark as hell. So what are we looking at?

Yeah, this is again, going back to the vertical line is you're down 10% on the market. And then we again, going back to these recession versus non-recession and how much of a difference you see in downside and recessionary versus non-recessionary cases. So we're trying to figure out, okay, what's some of these real-time indicators that'll tell us are we tracking with the recession case or non-recession and forward EPS is a really good tell. Obviously, the blue line is the recessionary cases, how EPS evolves around these recession corrections, and the purple line is the recessionary cases, how EPS evolves around these recession corrections, and the purple line is non-recession. So if we were tracking a non-recessionary case, which is

where we were at until like a couple of weeks ago, a few weeks ago maybe, maybe two, we were tracking right online with this non-recessionary case. No forward earnings weren't getting dented at all, but we've started to hook lower. And so it's concerning. We have basically a three-pronged approach to trying to delineate. Are we going to have one of these recessionary cases or non-recessionary? I think our number one is we're going to talk about this, but some of our econ cyclical indicators, what's happening in the housing market that we think leads overall in employment. And we're seeing some things there that are concerning, but that's a slow moving set of data that we could be late. So I think we need to watch

credit spreads and how forward EPS evolves. And then third, which we don't have a chart on here, but we have one in our services, how the market is treating firms that beat earnings versus firms that miss earnings. But that might not even matter this time because it's going to be all about guidance. Nobody cares what happened in the last 90 days. That's true. But I think that that shows up. So it tells us there's a character change in what's priced in too.

So if you beat earnings, we'll probably have to parse the guidance in some way. But I still think that what we saw early this year helped us to downgrade equities. In addition to the tariff thing, we highlighted a bunch of stuff. And one of them was, all last year, companies that missed earnings, you'd see them sell off for a couple of weeks, and they'd be back to pre-earnings level within three, four weeks of their earnings announcement. And then stocks that companies that beat earnings were flying every time. And so coming through Q4 earnings season, we saw that totally change where you beat earnings, you barely saw a bump in your stock, you missed earnings, you got brutally punished.

And so I do think it's important to see how the market's reacting to those earnings with a little bit of caveat that yeah, the guidance is going to be important, but look, none of us know what's happening. So it's going to be, I think you're going to look for signs from the market and signs for that path of forward EPS and credit spreads. Where's the red line coming from? That's just bottoms up consensus estimates for- Yeah, that's analyst estimates next 12 months, next 12 months. And so what do you- All right. So what do you do about situations like, for example, I think United Airlines gave two different forecasts.

They said, here's our recession guidance. Here's our non-recession guidance. What do you do if a hundred S&P companies look at that and say, that's a great idea? Then what's the actual phone? Well, it's still, that's going to be a problem for the analysts that we roll up, you know, because we're taking their estimates. They still have to choose, right? Yeah.

They have to pick one. They'll have to come up with it. I think that's where you want to blend a few things together though in this situation. Like we also are, we have a whole framework for judging our credit spreads getting out of control too. I think if you start seeing the debt market, right now the debt market's tracking the non-recessionary case,

even though we've seen spreads blow out, it's tracking along the path that we would expect if we're just having equity weakness and a little bit of a widening commensurate with that. So you wanna see those things confirmed and then obviously the data that you watched too. Warren, I think it's what's interesting about this current episode in the market,

much like COVID is the speed of the decline in 2022. It was more of a gradual sell off. There were sharp, sharp bounces and sell offs in between, but we just had another really swift decline. And how do you think about that within the framework of how much damage has been done, how much we've erased of the rally? So you've got this killer chart showing that we just took back 242 days in the market. In other words, the last 242 days, so going back to almost a year ago, has been removed,

erased. How does that compare with historical bear markets? Yeah, this is another way for us to track the pain. So we have a huge table that we watch, that we're publishing for clients, that how's this bear market tracking with all the other historic bear markets? And this reset, how much you reset is important, I think, for investor psychology. It's like, okay, this is just where we were half a year ago, a year ago. Right now, like you said, 242 days, these are market days. So we're almost back to where we were one full calendar year ago. That's shallow for your typical bear market. So it tells me that, you know,

a lot of people are hoping for this bottom to hold and for us to have kind of a more, you just would go ahead a big move, rapid move down, we have a rapid move up. But when we say, where's the stimulus coming from? Listen to Powell yesterday, probably not coming from the Fed anytime soon. Trump, you know, maybe you could look at a tweet

from Trump and stimulus, but I have a feeling that's gonna fade as we move forward in this. So I think it's going to be a more protracted bottoming process, and that would also help this reset. So if you think we go forward three or four months and we shop around here, that reset's going to naturally expand. The average bear market is about 400 days to reset. If we were to get back into like a historic norm, you

would see this go back about a year and a half. 400 days into what? Reclaiming the prior high or hitting the ultimate low. So what it is, this is a unique metric. So we're, the market goes down and then you look back and say, okay, where was the last time, how far back in history were we, when we last saw this level? Oh, we need to day race 400 days worth. So we need to get into 2023 levels of the S and P to hit the average historical bear market. But an important, really important distinction is that we were up 20% back to back. So if you're talking about percent, like if you adjust for percentage gains prior, you know what I mean? Because if you're, if you have a sideways percent, like if you adjust for percentage gains prior, you know what I mean?

Because if you have a sideways market, like the market rolls sideways over, it would take a lot longer to take those days back versus up 20% and only took 240 days to wipe that out. Yeah. I mean, and it's not like you have to have that, but we've never seen a recessionary. If you have a recession, you're definitely going back that far. And non-recessionary, there's only been a few cases that have had this kind of a short reset. So 1998 is the shortest. If you think about that 1998 long-term

capital management crisis, market collapses. We only erased like six months again, 120 something days of gains that time. And then I believe 2011 and 2010, those post GFC short sell offs. We were like around 200 days that we erased. But outside of that, every other bear market has been much longer than this. Neither of those two cases you just mentioned coincided with recession. 1998, the economy was hot as hell. It was event driven. It was currency and Asian and a hedge fund blow up and it just had nothing to do with the average person, working person's experience in the economy.

It was completely market driven. And then that 2010, 2011, that was an echo bear market. That was just PTSD from 08. Some shit was going wrong in Europe. And then we had a debt ceiling fight in Congress and they acted like it was a double dip recession, but it wasn't in the data. This is not that. This is starting to tip over into something cyclical.

I think it's a really important distinction that you raise. I want people to really understand what that means. Yeah, I totally agree with you. And plus think about 98. Greenspan jumped in and cut big twice, like in succession. Off off off calendar. Yeah, I mean, it was just popped in in the middle of the summer and was like, Oh, hey, everyone, here's a huge weight cut. Don't worry about Thailand. This is exactly the point that I'm making is like, if you expect that 4892 level to

hold in this to be one of the shortest bear markets on record, then you're betting on no recession. Like you said, it's not spilling into the real economy and you're kind of betting on policymakers, the Fed in particular, coming in and saving the day. And I think that all the signs are pointing to them being in reactive mode versus proactive mode. Well, they just told you yesterday, they're not riding to the rescue.

I think part of the reason the market threw in the towel at the end of the day is Powell spoke for an hour, they televised the whole thing on TV. And it was basically like the tariffs are really making it hard for us to do what we would need to do. Was the takeaway. Warren, we've used this chart. I think we were using it in 2022. You've got this wonderful chart showing the difference between EPS and strategist expectations. And they weren't budging. And finally, they capitulated towards the bottom. and now we're sort of at the mirror image

of that where coming into 2025, they were in line and then they made this huge leap as did the market in terms of what we were expecting, animal spirits, the IPO market, all sorts of deregulation. What are we looking at here? What's the interpretation? The Trump bump. Exactly. Yeah. This is the median strategist forecast, Wall Street strategist forecast. That's the blue

line and then S&P 500. And so the difference in the spread as it converted into percentage is below. And so you can see the average difference over time is about 5.8%. So you can think of it as this. The strategists on Wall Street, they like to stay about 6% above the spot S&P on their year ahead outlook on their forecasts. So what we found, and we converted this to a trading strategy even, is when strategists are below the S&P or below, I think it's actually even below 5% close to the S&P with their targets, you want to be along the S&P 500, market outperforms. We saw this, you can see on this chart all throughout 2023, market above strategists, 2024 markets above the strategists, they can never catch them. And then finally, at the end

of last year, strategists move way up with their targets. And they're like, okay, they capitulate to the bullish side. Same thing happened in 2021. The chart doesn't go back there. But 2021 strategists were behind the eight ball. They're below they were below the S&P spot level. And at the end of the year, they pushed their targets way up and then 2022 falls apart. Put the chart back up. This is hilarious. I mean, that's a, so it goes from it being an escalator to an elevator. I actually remember the moment it happened. It was a twofold move. First, they had to fire all the bearish strategists. They fired Kalanovic and they fired Mike Wilson at Goldman and Morgan Stanley, the two biggest investment banks on Wall Street. They both had guys that had been too negative for two years

and they got rid of them. That's how you get this elevator move. They just put balls in the seat. Dude, no, it's funny. Strategists take the elevator up and the escalator down. It's like the opposite of the market. All right. So I want to talk about some investor behavior. Warren, you do great work on this. Balchunas tweeted last week, the biggest ever, last week was the biggest ever for leveraged ETFs more than double the norm. We're talking about flows. The crazy rallies, even if they are the Decat variety are like chum in the water for the degens more and bold than ever to buy the dip and sell the rip. What Eric doesn't have in here though, which you break down beautifully, is it's not just levered long.

So you've got a chart that shows the volume of the inverse ETF compared with like the overall what's going on. And you say that 50% inverse ETF volume marked the bottom in 2023. Where are we today and how does this compare with historic norms? And I know we don't have a ton of history on lever ETFs, but.

Yeah, we have this out back type back type, I think 2011 or so, so maybe 15 years of data almost. But yeah, so this is looking at percentage of inverse ETF volume as a percentage of the total what we call speculative, which is inverse plus levered long, so 2X, 3X ETFs. Our theory here is that you're seeing a lot of the speculation on margin trading that people used to track back in the old days move into this section of the ETF market. And it's been one of the best sentiment predictors, or I'd say sentiment and positioning reflections that we've found in the market. And so like you said, 50% was like kind of that line in the sand for us that we wanted to see. That's where we saw the market bottom out when it corrected by 10%, 12% in 2023. So you need to at least get to 50%. We got up to 53% during this

last sell off. 60% is like the perfect, I know there's not a lot of history, but when you get up to 60% on this indicator, the forward one-year returns have always been positive historically. Again, about 15 years of data, so take it with a grain of salt. But what stands out on that chart to me is in 2022 during the bear market, we were above 50% basically in the entire ride. Yeah. Yeah. I mean, it can stay up there. I mean, it can get up there and stay up there. Uh, so, you know, this is one of the reasons like what we've sat, I don't think this, I don't think this works because I don't think it's primarily retail. So, but like having a lot of exposure to inverse ETFs might enable a hedge fund to be even longer in their long book

because they have this as a hedge. So I don't know if that this is definitely a signal of like such intense bearishness the way you would expect it to be. I don't, I just, I'm thinking about the way these are actually used in practice and I don't think this is a replacement for put to call. I, I, I don't know. We don't have, Warren, have you ever looked at the top holders of these inverse ETFs? I'd be curious. Is it hedge funds? Probably. I would, I don't know who's the top. No, I haven't looked

at the top holders. I mean, what I do is I basically just test it, you know, like, well, does it work over time as a, as a way of, so here's the, here's the problem with that overlay market cap, that data from 2012, 2013, like, I just don't think it would hold the candle to now. I think they're more widely in use now. The dollar amounts are bigger and it's more professionals and less punters. And I think having that inverse ETF exposure on might be enabling more risk taking to the long side than we think, which would thereby negate this being a really powerful contrarian signal. Eventually it'll end up being a contrarian signal.

But to Michael's point, in 2022, that was like a layup trade. The market was falling almost every month. The NASDAQ was falling almost every month. It was like a great way to hedge a long equity strategy. I think it's just too early to know how effective this is. The strategist one I like better, I guess is the way I would put it. That's all fair. That's why we look at a number of different things.

I would say, this is like, again, we've sounded pretty bearish, I'd say, through the first part of the conversation. And I think the most bullish thing from my perspective is sentiment. I think sentiment is washed out. I know the strategists are behind APOL, but we're already seeing some of those start to come down. I do trust this. Like I said, if you gave me one sentiment indicator in this market, I would push back. I don't think when I talk to hedge funds, I just think they're levering up a

short book and using their own leverage versus playing in stuff that has the time decay on it, like an inverse ETF or a leveraged ETF. Oh, to be longer term short, like to have a real hedge. Yeah. If you're really just like, yeah, if you're, okay. I mean, and so to me, I still think at the margin where all these prices are set and if, if there's anything, this number is going to get depressed because over the last year, the thing I worry about that's with this indicator, cause I worry about like everything we look at, the thing I worry about is we had all these single stock leveraged ETFs come out and that's where like all the volume has been. So I worried that this is actually understating the bearishness that's in the market right now because there's so much leverage long volume in the MicroStrategy and the Nvidia

single stock ETFs that came out over the last year. And so, yeah, I think that Cinnamon is pretty depressed. We look at some other things too that I think Michael showed, but that to me is the best. We've got two components to a market bottom. You need to get washed out sentiment and positioning. I think we have that. We need technical confirmation, which goes to your point about 2022. It's like, yeah, it was too early to buy in 2022 just because you saw depressed sentiment. You need to have technical confirmation too. And so that's the second part of the equation. And we haven't had that yet.

You also need patience because a lot of these sentiment washout VIX spikes that we're looking at don't necessarily work over the next 30 or 60 days. But if you zoom out a year later, it gets much better. And I would say the point you just made about the bearish tone to this conversation is the tone that's being had around every market conversation across the world. And it's the reason why the max seven are down 28%. It's not as if like the market knows, right? So is all of it fully discounted?

Obviously, that's to debate, but the market is not exactly optimistic at the current environment. All right, next chart. This is, I'm not even, what are we looking at here? Warren, chart 12, please, John. If you're a fund and like we model these funds out, it's a common way. Again, this is why we look at it multiple different ways. So I would take that ETF stuff and say that's kind of a retail sentiment and positioning gauge.

This is more of an institutional positioning gauge. We also do the same thing for CTA strategies, which I don't think I put that chart in here. So we have a number of ways. Look at this. Vault targeting here is if you're running a strategy and you're trying to target a certain, in this case, we're looking at 10% trailing volatility for your overall portfolio, what level of equity exposure, and we blend this on a few different lookbacks, what level of equity exposure do you want to be running to hit your 10% volatility target. And this is a very common way to run institutional portfolios.

So when we model this out, we're down to 20% equity exposure because equities have been so volatile. If you're a vol targeting fund, you've had to de-risk. So there's been a lot of de-risking just due to the extreme volatility that we've seen in markets over the last three weeks. So what we also do is we turn this into a strategy and say, okay, when do you buy? Again, this goes to like Josh's point, you want to look at, you don't just want to get low, you want to get low and then wait for some reversal, wait for volatility to start kind of calming down and then you see this number creep up. And so that was the other chart you had up there.

So this chart, if you pair it with the previous one, we're highlighting the very rare times, only seven times where we've seen volatility targeted funds with a 10% target get down below 25% equity exposure. And then that exposure starts to rise back above 30. All right. Now that's a good signal. So in general, it comes at market lows. And the six month return from this signal firing

is over 13% historically. The only thing seven, it's very rare, but yeah, I mean, this goes back to 1980. And I think this way of managing risk has really proliferated. These are funds that wanna be much longer when volatility is low and much less long when volatility is high.

And it's like a self preservation mechanism. So you're looking for these moments where they've all gone risk off to like the highest degree possible. And then at that moment, it's like, okay, they have de-risked completely. There's nobody on the other side of the boat. I like that. If you look at it and say, the first one is like, so we had strategists, that's more sentiment.

Then you have retail and the ETFs, you can believe it or not, but like somebody is long those inverse ETFs and we're looking at that as saying, okay, bearish positioning. You can then say institutional vol targetters, they've totally de-risked because of this. And then we could go to CTAs,

which we don't have the chart in here, but CTAs have also flipped net short. So it creates the type of environment you see at bottom. So everybody's kind of bearish. All right. So we're about a third of the way through the charts and two thirds of the way through the show. So let's keep it moving.

Go fast. All right. We already spoke about this chart 13. Chart 13 shows a divergence between the dollar and interest rates, but I want to look at the next chart, which shows, so you're asking like, is this the end of American exceptionalism, capital moving away from the United States, but it's really important for some context here. So Warren, talk us through the foreign holdings of both treasuries and US equities. Yeah, this is what we were talking about the beginning of the program is like this has

been a, you know, this is the other side of the current account deficit, the trade deficit that the US has run. So we buy goods and foreign countries buy our paper and they invest that in our markets ultimately, you know, and that's what we're seeing here. So foreign holdings, and this is the total value, foreign holdings of US stocks, the blue line, has exploded post-COVID. So up like $7 trillion, I think we have six on this chart, but it's really $7 trillion since COVID. It's almost a double in foreign holdings of US equities. And that's a huge number.

It's like $16 trillion of foreign holdings of US equities, about $9 trillion of foreign holdings of US equities. And that's a huge number. It's like $16 trillion of foreign holdings of US equities, about $9 trillion of foreign holdings of US treasuries. And there's not on this chart, you see corporates and stuff. So foreign holders of US assets is like $30 trillion at present. And most of that's in the equity market. So if we were to actually kill the trade deficit with all these countries, like implied by Trump's poster board on liberation day, the flow from these governments into our capital markets would shut off. So that's our biggest export. It's our stock market. Essentially, yeah. You can think of it that way. It is the exorbitant privilege, I suppose, of being the world's global reserve currency is part of it.

Josh, this economist thing. John, chart 17, please. This is Carl Kintunia posting something that is, I mean, just absolutely perfect. One of our one of our recurring guests, J.C. Peretz loves these economist covers. So on the left side, you can see six months ago, literally, the economist cover was the envy of the world and it was a hundred dollar bill rolled up. Is that cocaine in the book? What is going on with that?

Oh, it's a rocket. Okay. It was unclear. But it looked like a rolled up hundred dollar bill with somebody in mid-snort. But I guess it's a rocket ship taking off. And it was just like the most bullish you've ever seen them be on the dollar. And then six months later today how a dollar crisis would unfold and it's Edvard Munch the artists Painting the scream and it's basically an upside-down money bag with a dollar bill on it instead of the head of the person screaming Who I'm told is actually a self-portrait of the of the artist but anyway Quite a different six months makes thoughts, other than the economist effectively

being a European noise machine as a publication, any other, anything to add to that? I think it's a perfect summation of sentiment, like we're saying. I mean, it's, you can, there's the old phrase, like you can only bet on the end of the world once and get it right, you know? So I mean, it's, as investors, I think it's best for us

to really adhere to technicals and sentiment right now and not get caught into the narrative. All right. So the good news is the economy is also rolling over. So let's do some of your economic stuff. John, chart 20, please. Yeah. I mean, we can go through these fast.

This is just before all the tariff stuff, the underlying economy, our view is that rates have been restrictive and restricting cyclical areas of the economy. And so you've seen that. Payrolls have started to weaken and now ex-healthcare, this is payroll growth, ex-government and healthcare jobs. We've got a lot of news about this and it's down to basically flat. And that's kind of what you see around recessions. Same with the percentage of jobs, percentage of industries growing jobs on a year over year basis. It's fallen to recessionary levels. And this was there before the tariff crisis. You can keep rolling if you want.

So Warren, this is the chart that I saw and I said, this freaking guy, you and Fernando, chart 22 please, John, marrying the economy with the stock market. For the listener, what are we looking at here? This is that same chart on the bottom clip. It's the percentage of industries with year over year job gains. And we basically said, okay, when that falls below 60%, you get out of the market historically. And then just as a rule, test it. You get back. Once you go below 40% and then back above it, it would be a recessionary levels obviously.

What percentage of industries right now have payroll growth? So only 57% of all industries in this study have job growth, which means that the other 43% of industries either have no growth or are actively laying people off. They're contracting. Yeah. But the composition has to matter to you, Warren, right? Like is it construction jobs? Is it? Okay. We look at that. We look at that too, but this is more of just like zoom out macro picture. What's the breadth going on? What, you know, it is like, there's a, there is a narrative out there that is like government, healthcare, education has been the backbone of the job growth we've seen. And I think there's some truth to

that. There's truth to that, that the cyclical areas of the economy have suffered. Trey Lockerbie So we've got this chart next, but before we show that, hold on, John, that previous chart, Warren, and John, you can leave this off screen. That is like the ultimate, the stock market is not the economy buster. Like it jives pretty good. Right. There's one coming up later. That's even better, which is the percentage of household wealth in stocks. John, chart 23, please. This is the decomposition of job cuts. Warren concerning. Very concerning. I mean, I think it's, um, look, when you pile all, one of these things is probably fine, but when you pile everything on together, that we're going to look at, I think that the risk of recession is like at least a coin flip right

now. I think the good thing you can say about the economy is we're still running a massive fiscal deficit, which is we've never seen the economy enter a recession with a deficit this large. We're going to test that theory. But at the other side, you have rates that are restricting cyclical areas. You have this tariff stuff. You now have a wealth shock we're going to talk about. have rates that are restricting cyclical areas, you have this tariff stuff, you now have a wealth shock we're going to talk about.

And what you're seeing here is you're starting to see government layoffs via Doge and things like that. This is Challenger layoff announcements. And we had a big spike across both private and government in February, but now in March, we've seen really government layoffs really spike. That's the gray bar. You can see it's very rare. We haven't seen that any government layoffs really, so to speak, of going back over these

last few years. The supply side economists and the Milton Friedman wing of the Republican Party would tell you these government job losses, they're non-productive jobs. Number one, they're dead in consumption. They're not production. Number one. And number two, they would say they're actually crowding out hiring in the private sector. So I guess we're going to test that too. I sort of agree with that doctrine. My base case is that I have a sympathy for that, but it's on a very cyclical level, those people also spend money into the economy.

So if you cut a bunch of government jobs, it's going to be felt in the data. All right, let's go to this next one. This is important to me. You talked about this the last time you were on, like as construction jobs go, so goes the economy more so than any other industry group. And you believe that that's a better signal for what's about to happen in the economy than workers and other segments. Yeah, this is our source of truth, our economic source of truth.

And we always look for leading indicators and you have to have like a, I think a way you view the economy and our view is that these cyclical areas and specifically housing construction jobs lead the rest of the economy. You can see it in the chart, shaded recessions, you start seeing drawdowns in these payrolls, layoffs in residential construction employment and about six months before every modern recession, take COVID out of it, but you get about an eight to 10% drawdown in these payrolls every time. And we're looking for a similar kind of signal this time.

I don't have it yet. To be clear. No, I mean, we see a lot of problems like our work. We focus on the housing market because we kind of work backwards to this, but we're still at cycle highs on residential construction payrolls. But our view is that, you know but our view is that the work is

just not there to support this level of employment indefinitely. Warren, over the last two years, we've known that- Sorry, Michael. DR Horton reported this morning. Stock is actually rallying, but it was not a good report. And I think it speaks to your point, Warren. There's just not enough business to support the current level of employment in that segment of the market.

I don't know how important residential housing is in the scheme of all construction jobs. You probably do, but I think that's kind of, it's half. So the home builders, which were the darling of the 23 and 24 as the existing home market was frozen, it was all about new construction. So DR Horton bouncing a little bit after being almost cut in half is not, I guess, terribly surprising.

So it was all about new construction, new construction. These homes were getting sold immediately. And the problem now is you have this great chart showing DR Horton's completed home that are unsold over six months is spiking to what looks to me like alarming levels. Yeah. Josh's point is a good one. We watched DR Horton, specifically his largest builder in the country, and we really like to watch what they're doing because they're a bellwether for industry trends. And so they've seen their inventory spike, their completed home inventories.

This is their stale inventory that's been sitting on the market for more than six months. I think my analysts ran this chart for me this morning and updated with the numbers from today's earnings report, and it came down very slightly. So DR Horton is what they're doing is they're slowing down on starts to try to normalize their inventory because they don't like seeing inventories up here because their inventories across the board completed home inventories have spiked. So when you get a slowdown, you get a slowdown and starts from DR Horton and you're going to see that they're, like I said, a bellwether, they lead this industry. You're going to see that flow into the other smaller builders, mid-tier builders.

And I think it spreads out to the economy. The other piece of data we got this morning was home housing starts, single family housing starts, which is where that drives the vast majority of the employment we just looked at. Single family housing starts hit their second lowest level in the last two years in March of this year. So again, this is before all the tariff, wealth shock, stuff like that, that we're going to talk about. Let's do this credit card delinquencies one quickly. Yeah, this is basic message. We're seeing credit card delinquencies rise.

We talked about this last time I was on the show. It was one of the things that had us a little bit nervous about the underlying economy. And it's gotten worse. It's getting worse. It's not getting better. I know it's surging, but off extremely low levels, is it really just so far still normalizing or is this like a legitimate surge? I think it's a legitimate surge.

Yeah. Especially when you start breaking down lower tier versus higher tier. And that goes again to the wealth shock is like we've had the upper strata really carrying this economy and you're seeing the pain already in the lower strata and I think that's part of the the angst that's out there that got trump in office and things like that so no it's real it's just it's still concentrated in the lower strata let's hit this deficit the economy has never entered a recession with deficits this high just give people the numberit as a percent of GDP

at the start of a recession. This is like completely uncharted territory. Yeah, this is a seven, we're running about a 7% deficit as a percentage of GDP. And I haven't seen, we track the deficit on a daily basis from fiscal flows. And we have not seen, despite kind of the rhetoric and the Doge rhetoric, we haven't seen a decline in the deficit. In fact, it's kind of increased through the first part of this year, which you would expect as the overall GDP and economy increases too. But the bottom line is this is a very supportive factor for the economy. And this is like, you know, at an annual pace of 6% or 7% a year, we're creating new money

that's just getting spit out into the bank accounts of savers and into the economy. It's very difficult to have a recession. This is what the fiscal spending of the last few years should have taught us all. It's very difficult to have a recession when this dynamic is in place. So despite all the cyclical factors. You fired the bullets already. Normally, you would do deficit spending to ease the pain of a recession. Now what? And the big concern, I think, is if we do go into a recession, never had one at this high of a deficit, what happens to the deficit in the middle of a recession? Because they always blow out in recession tax receipts fall. So what happens there and what happens interest rates? I mean, that's kind of another scary side of all that. You want to finish with this Wealth Shock chart, Michael?

Let's do it. Warren, we've been using the shit out of this. We've got the horse. Let's hear it from your mouth. Yeah. I updated this one for you guys. When you have US population households that are more overweight stocks today than they've ever been in history, I think 43% of US household net worth is held in the stock market at this point in time.

And then you bring that in conjunction with the bear market, basically 20% down, you get a massive decline in household net worth. And so that chart's not up to date. You see, that's only through March. We had a $4 trillion hit to household net worth. I think it's at the lows, I think we doubled that. So it was like an $8 trillion hit to household net worth. I think it's at the lows. I think we doubled that. So it was like an $8 trillion hit to household net worth. Two things on this. If you get a V-shape recovery, nobody's going to care. We'll go back to business

as usual. The airlines will report record bookings. It'll be like nothing ever happened. If you don't get a V-shape or it takes six months before this thing like finds its ultimate bottom, that's it. Like you can't tell me the stock market isn't the economy at this stage in American style capitalism. We have effectively based the entirety of the way society is organized around who owns what assets in the stock market. I just don't see a way around it. And I'm not saying that because I want it to be the case. I'm just, I know what drives spending decisions. What is my house worth?

How good does my 401k look? Okay, let's stop for dessert after dinner. Okay, let's buy, you know, let's splurge on like another shopping trip. I agree. The only thing that I would add to that is Josh is 100% right, but you don't have high levels of household net worth, high levels of stock market without a supportive economy. Right?

Yeah. I think they're intertwined. One is not always causal of the other. It's back and forth. It's ping pong. You know what I mean? It's like sometimes the economy pong. And you know what I mean? It's like sometimes the economy bails out the stock market. Sometimes the stock market bails out the economy. Would anyone argue with me?

No. That the stock market gains of 2023 bailed out the economy? No. I also think that- The AI thing saved everyone's bacon. It kept people spending. CFOs kept spending because their stock price was rising. 100%.

What's going to keep people spending, I think right now, if we could boil it down to one thing, and of course we can't, but it's all about the labor market. As long as people have their jobs, I don't care how scared they are, if people have their jobs, their spending habits might change on the margin,

in fact they probably will, but spending will be supported by people having jobs. You like that as the last word, Warren? Oh, I mean, I like this discussion supported by people having jobs. Preston Pysh Oh, I like this discussion. I'm just listening. I think I agree with you both. This is a huge factor and it hasn't always been like this. That's why we try and normalize it against GDP and adjust it for the holdings. And you can see that this is the fourth worst wealth shock in history, even though this is far from the fourth worst decline in stock prices we've seen. But as far as the household net worth is concerned in the United States, fourth worst as a percentage of GDP, not in aggregate dollar terms versus

the economy. That's real. It's the fourth worst we've ever seen. We normally end the show asking people what they're looking forward to. Rather than have everybody log off of this podcast and just want to eat a bullet, why don't we go around and say, what's the silver lining or what could go right? I'm going to start. I don't believe this four and a half, five percent, 10 year treasury yield. I think it's total bullshit.

I think it's market mechanic driven. Maybe it's foreign flows. Maybe it's a little bit emotional. I think inflation is absolutely coming down. And if you're really worried about the job market, you ain't going to have to worry about prices in the economy because demand is going to crater. And before that goes too far, I think the Fed will be forced to act, rates will come down, and that will ease some of the tightness in financial conditions. And I think that that's maybe the way that things might turn out okay.

Not saying, like you're saying a recession is a coin toss. That's what everyone pretty much thinks at this point, including me. Wall Street's like, we've raised our recession forecast probability from 32% to 41%. It's hilarious. It's a coin toss for everyone, but that's maybe the silver lining is the Fed is too tight. Trump might actually be right about that. And I think that rip higher in bond yields is a total head fake.

So that's what I think could go right. Michael, what do you think could, what's the silver lining or what could go right? Yeah, a lot of things. So the risks are well documented. We just spent an hour talking about them, but Josh, I think you're a hundred percent right about rates. I call bullshit also. I do think a deal is coming. I don't think this is going to go on for that much longer. And I do that once we have some sort of clarity, corporate America will adjust very quickly. I also think that we had the sentiment and the hysteria washout. I don't think we're going to see VIX at 60 again.

So I think there are a lot of things that can go right, and I hope that they do. Warren, would you like to leave us with a silver lining? Yeah, for sure. I'm all about, I'm a very sunny guy. Yeah, no, I'm with you. And I do think we're overweight bonds. I think yields are coming down, I think the 10 year's coming down, I think the Fed's going to cut for, if not more times this year. The underlying economy is not, this is not a four and a half percent Fed funds rate economy.

I think there's a really unpalatable negative feedback loop that will hit the White House and that ultimately, I don't think Trump's going to burn the entire country down because he'll spend all of his political capital. Whatever you think of the guy as a survivor, I just don't think he's going to totally shoot himself in the foot like that and just keep going with it. And finally, you know, sentiment is totally washed out. It is like we said, we are at a sentiment low. You need the technical confirmation. We're on the offensive though. I mean, I'm looking for a bottom to buy. I'm not looking to de-risk anymore down here.

And so yeah, I lean to the optimistic side at this point in time, actually. All right. I think that's a great place to leave it. I think we were pretty explicit about all the things that don't look great, but like here are some outs. And I think that's a very realistic assessment. Warren, you did not disappoint. You're one of our favorite guests.

I think this is your fourth appearance on the compound and friends. Hope to have you back soon. Thank you so much for your charts and your insight. Tell people where they can learn more about 314 Research and the work that you do. 314 Research, go to our website, number3then14research.com.

You can check me out on Twitter, check our ETFs out as well, which you can find on our website, the number three, then 14research.com. You can check me out on Twitter, check our ETFs out as well, which you can find on our website. So thank you for having me guys. I always love talking to you. You're the man. Thanks everyone for listening. We appreciate you. Like and subscribe and we'll see you soon. Have a great weekend. Thanks for watching!