The Compound and Friends - Get out of Cash

Episode Date: June 14, 2024

On episode 146 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Alicia Levine, Head of Investment Strategy & Equities at BNY Wealth, to discuss: the FOMC meeting, inflation, rising valuations, the biggest risk to the market, GameStop, and much more! This episode is sponsored by Public. Make your savings work harder and earn an industry-leading 5.1% APY with a high-yield cash account on Public. Visit https://public.com/ to learn more! Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. 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/ A High-Yield Cash Account is a secondary brokerage account with Public Investing, member FINRA/SIPC. Funds from this account are automatically deposited into partner banks where they earn a variable interest and are eligible for FDIC insurance. Neither Public Investing nor any of its affiliates is a bank. Learn more at public.com/disclosures/high-yield-account Learn more about your ad choices. Visit megaphone.fm/adchoices

Alicia, do you typically watch Fed professors? I do. You do? I do, but I didn't today because we walked over. We're opposites. This is like an experiment for me, not watching it. I usually read the notes or see the tweets. I don't usually listen to the professor.

Yeah. No, I see the tweets and I see the marketing. I got it. And then somebody will say, the Fed, Jay Powell just said blah. Yeah, no, I saw the tenure. I know. I got it. Jill, I feel pressure. I'm like nervous, you're watching.

Do you want me to get away? I'm just kidding. I'm just kidding. Because I'm about to sit on your lap. I'm gonna take your lap off. So am I putting this on? Yes. Okay. So the reason why is just so that you hear yourself.

So when you get back, we say come forward. Right. Right. If you prefer, it's not mandatory. But no, if everybody's wearing. Jill, do you wear? Yeah. Yes.

Hello. Hello. Jill, prep me for media. It's official. When I first did, I did a Yahoo finance and I sent it to her, I'm like, critique please. Yeah, it's more real. Oh wait, you know what I can tell you? Alicia, do you play croquet?

I do not play croquet. Where did these balls come from? Did you order these? These are... Oh, they're fake. No, they're not fake. These are vintage croquet balls. What do you mean fake?

Why would I get fake croquet balls? Where'd they come from? They came from people that have been playing croquet. OK, well, that doesn't answer the question. Jill, you'll like this. I'm cleaning out Bubby's house. She passed away in 96. I'm sorry.

That's OK, thank you. She had a great life. And there's a box that says memorabilia. And apparently, my wife's family, they don't throw anything out. They're hoarders. I don't know what that is. And there's boxes box that says memorabilia. And apparently my wife's family, they don't throw anything out. They're hoarders. I don't know what that is. And there's boxes of empty envelopes.

Like there's cards, but just envelopes that have never been stuffed or anything. I did find the Man on the Moon newspaper from 1969. Really? Intact, fully, and a parking ticket, a parking pass from Disneyland for $3. I don't know what year. I don't know. Guessing 70s, 60s, who knows?

Definitely the 60s. The 60s? Not this year. It was old and intact. And I've got another box to go to, I'm excited. A lot of old stuff. All right, so we have the FOMC meeting, we turned it off.

Before we do anything, are these like big days for you in general or as a strategist, do you get excited about this though? I still get excited about this, particularly now because we're already at the Fed's target for unemployment and growth looks like it's slowing and yet they're not going to cut three times this year. Like that was all telegraphed. So they have to do something to explain why they're not cutting.

So either they're raising growth or they're raising inflation. But they have, right, they can't leave it on address. They can't leave it on address because it's not coherent. So it's a puzzle, right? You're sitting there like, what could they do to not freak out the market? And what they did is they raised inflation just a little bit. But otherwise, you can't explain it because either they're raising the unemployment rate over 4%, which is where

they were for the end of the year, then it looks like stagflation. They can't do that. I feel like the hysteria though around the Fed meetings has ratcheted down in the last few months. And like you and I are both in the media a lot and we interact with people that want quotes and I just I feel like this was way more high-pitched maybe around January, February. And now people are just like, yeah, no, no, no change, no rate cut. It's like people are over it. Is that the sense you get? I think that's right.

You know, Josh, because the Fed pivoted in December. And then there was like that macro excitement. The Fed pivoted. The market's pricing in seven cuts. Nobody believed it. So that's why I think it was heightened because we were kind of living in the pivot. We're going with the wave. You know, the wave. We're going down. We're going down. Thank God the market's rallying.

Now we kind of know where we are, which is inflation is kind of sticky on the way down Yeah, they're but you know sticky And and you know feds just not gonna make any moves because they just can't they can't project the data Yeah, more than a month or two you can see it. They can't do it. Nobody can do it There's also there's no suspense like in this media. This is a 99% chance that they're doing nothing So we know it then we know they're doing nothing And then they talk right they talk going into the meetings except for the last two weeks Like in this meeting, there's a 99% chance that they're doing nothing. So we know they're doing nothing. We know they're doing nothing. And then they talk.

They talk going into the meetings, except for the last two weeks. They talk too much. I think we have to start the show. But before we do, I wanted to... I thought this was insane. Did you hear the story this week about a woman who is inheriting a million dollar IRA from a guy she dated and broke up with in 1989.

That's love. Did you hear this? I read that. No, it's not love. It's lawsuits. I read that. All right. Let me set this up.

Jeffrey Rawlinson and Margaret, this is the Wall Street Journal, Shostet, I think, dated in the 1980s. Now almost 40 years after they broke up, she stands to inherit his $1 million retirement account. The reason she might get the money is that in 1987, Rollison listed the showstet on a handwritten form as the sole beneficiary of his workplace retirement account. He never changed it and he died in 2015. The guy's brothers are now suing her and the employer, which is Proctor and Gamble, to make sure that this woman that he basically dated 40 years ago doesn't inherit a million

bucks. This is a really nice reminder for people that haven't updated their beneficiaries. Now might be a good time to think about what retirement accounts you have floating out there and whether or not you've even looked at them and you know, like, God forbid, where they might end up. Have you updated your beneficiaries recently? I did because I read that article. Did you literally do that immediately? No, I looked at everything because-

Okay, did you spell BATNIC right? Your advisor always tells you to do that. But I still have a handwritten, I did it immediately after reading that. We have clients being onboarded and our advisors, it's like one of our items that we obviously review. But still, you find people with six figures, seven figures, that just don't have their shit together.

Accounts they forgot about. Accounts they forgot about. I mean, not every onboarded client, that just don't have their shit together. Not every onboarded client, but there are clients to come to us that have 12 accounts. For everyone listening, please revisit your beneficiary situation so that your ex-girlfriend from the 1980s doesn't end up with your assets. I think that's a good wake-up call.

And then you lose all the money in the lawsuit. It could go on for years. It's going to cost you. The lawyers listening to this are saying, no, no, no, don't worry about it. We'll deal with it after. All right, are we ready to go? We're looking good? Duncan's still twisting the knobs in on the last light. Yes?

Alright. Hey John, what show is this? This is the Tromp Tromp and the Tramp. Tramp Tromp and Tramp. Tramp Tromp and Tramp. 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 Ridholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any

investment decisions. Clients of Ridholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's show is brought to you by Public. Make your savings work harder and earn an industry leading 5.1% APY with a high-yield cash account on Public. There are zero fees, no subscription required, no minimum balance requirements, and no maximum balance limits. You have unlimited transfers and withdrawals, and it's one of the highest rates in the market, higher than Robinhood and SoFi and Markus and Wealthfront and Betterment, etc.

If you want to start earning 5.1% APY on your cash, check out Public.com. This is a paid endorsement for public investing, 5.1% APY as of cash. Check out public.com. This is a paid endorsement for public investing 5.1% APY as of March 26th, 2024 and is subject to change. Full disclosures on terms and conditions can be found in the podcast description. Ladies and gentlemen, we have a special guest in the house today. I'm so excited for this episode. It's a momentous time. Markets are rallying. Alicia's dancing. We have royalty in the audience today. excited for this episode. It's a momentous time. Markets are rallying. Alicia's dancing.

We have royalty in the audience today. Not just you, Rob. Jill Schlesinger is sitting in. We're gonna do an endurance test. We're gonna see if she can make it through the whole show without grabbing the mic away from one of us. All right, ladies and gentlemen, Alicia Levine is the head of investment strategy and equities at

BNY Wealth. Alicia joined BNY in 2016. Prior to BNY, Alicia spent time at Angelo Gordon & Co. and Bentley Capital Management. Alicia, welcome to the show. Thank you. It's great to be here. You're a first timer. I am.

Here's how this works. I'm going to go through a 45-minute PowerPoint and then you're going to react. That's my job. You don't do that. All right. So we have the Fed Press Conference today and you are a chief strategist. So of course you're sitting here in my conference room. I appreciate that.

I didn't know when I scheduled it, but you're rolling with it and we love that. Even worse, I didn't realize it either. So I'm falling down on the job apparently. We won't tell anyone. Nobody's going to hear we love that. Even worse, I didn't realize it either. Okay. So I'm falling down on the job apparently. We won't tell anyone. Nobody's going to hear you say that. Tell us about BNY Wealth. Tell us about the firm and your post there and what you do. So look, we have a great wealth management business.

It is like a sink. That's a brag. That's a brag. But we manage about $300 billion for our clients. Oh, is that all? That's it. And I'm responsible for all the asset allocation across all the asset classes.

So I build model portfolios depending on what our clients want for their, what their goals are. Keep me rich, make me rich. I can't stand the drawdown. You have Michael's job. Right. So, okay. And depending what they do, we build portfolios around all the asset classes for

that. Speak to clients all day, speak to our field all day. It's great. And sometimes I see you on CNBC, which is awesome. Yes. And I speak to my friend, Jules Schlesinger, as well. Who are the clients? So the clients are typically family offices, high net worth individuals, but we also have

endowments and foundations as well. And we have a trust business. So, you know, it's kind of a sort of a typical what you think of as a wealth business. What I think makes us different is that we really have bespoke service. So we're with people. We pay attention to every size account, right?

And we have great teams, and they're embedded in the communities. And then what I often do is I fly in. You say the advisors, the teams of like the client facing. And we have banking, lending, mortgages. How much does a client have to have before you'll fly in? What's the level? For flying it?

Well, there's a room. There's a room number. I can tell you on the individual side, it's $10 million, but there's a room number. But I'll say this, if I'm very close with the market president, I'm flying in, and then we ultimately close new accounts when I'm there, so it's great.

That's amazing. Yeah, it's great. And I love it. As you know, in this business, you have to love people. So I love talking, like my friend Jill, and I love people, so it's kind of a great, it's a great mix of what I do. I love it every day.

So I allocate a couple of meetings a week for advisors bringing on new clients. And at this point, the client is already here, but they're kind of brand new. And not every advisor or every client wants to do that with me, and it's not like a whole big to do. But if I have 15 minutes, 30 minutes, I love doing it because it's a reminder that there's a face. Right. It's not an account number. It's not just another

name in an Excel file. Like this is a family. So I love having those opportunities and it seems like you do as well. I love it too. And a lot of times, you know, our clients have liquidity events for having businesses in the real economy. So I go and like I look at economic data all day long, they'll tell me about what's going on with employment. They'll tell me what's going on with wages and hiring and their particular business. Yeah, it's a two way conversation.

It's a two way conversation. And you remember, and it's great. So not everybody comes in as a master of the universe, here's my money, and I know better than you. A lot of them come in like having plumbing businesses or electrical businesses and they have liquidity events and they need help And so I like to say we're in the problem-solving business Like what's the what's the problem you're trying to solve for and we can figure that out as a team

So I know you're in the data business and you look at all of the data which we're gonna talk about today But anecdotally when you're talking to your clients, what would you say the mood of your client is are people happy? Are they apprehensive? Are they anxious? So they're happy because performance has been great. And we've been overweight US large cap. So they're very happy. But I'd say overall there's concern about the deficit.

There's concern about just the mood of the country. So there's concern out there, but that's not stopping anybody from investing. And one of the things that we do is get people over that hump, right? Because if you look back over time, it's never paid to be out of markets. And if you miss the five best days in the last 25 years,

you've actually underperformed the market by about 4% on an annualized basis. We show this chart all the time. You can't leave the market because you're scared. That's why I only invest on the five best days. I wait, I like to wait for those. Like this morning. Like this morning. All right.

So when you talk to people and they mention something like the deficit. Right. Or politics or immigration or, you know, and there's always stuff and it's not, I don't mean to say it dismissively as though these things don't matter. What I'm trying to do is what Michael's done such a great job on his blog over the years. I don't know if you've ever seen his chart, Reasons to Sell. It's like legendary in wealth management. We'll

send it over to you. You get a kick out of it. Michael's been keeping it updated. But it's basically the S&P 500, and then all of the things each year that are like a valid reason on the surface. Always. And it's, his list is, at this point, it's just epic. And it's hilarious because some of the things you look at, you're like, wait, the Yuan repricing in September 2014, believe it or not,

that caused a 6% market correction in like a day. Right, and you had people selling on it. And 100% people sold. So when you get a question from somebody like, you know, Alicia, aren't you worried about the deficit? You don't have Michael's chart handy, but like what's your toolkit to make people feel better? So I have similar charts.

I have similar charts. Ours are a little bit better, but say more. Yours, I'm sure they're better. But look, I mean, I have the chart that goes back to 1945. The average drawdown in any year in markets is 12%. And that includes the years you're down 32% and 35% in major recessions or COVID. Also includes the up years.

It includes the up years as well. And by the way, six out of seven years are up years. Is it six out of seven? Six out of seven. We say three out of four, is it six out of seven? It's six out of seven. Six out of seven are up years. And if you invested, anytime the market was down 20%,

you just said, okay, it's down 20%, I'm going to invest today. Your forward 12 month return is 18%, and your forward three year it returns like 35%. Wow. Yeah, so, you know, it pays to be contrarian and you use fear as a way to push yourself back in the market. It's not so easy.

You know it's not easy. Like we all want to run for the hills. Like, you know, Silicon Valley bank, everybody wants to go to cash. Our job was to keep people out of, you know, out of the money market funds, out of T-bills and get, keep them invested, and that turned out to be the greatest decision.

The flip side of that reasons to sell chart is, like, reasons to buy. And I thought about making a chart reasons to buy, and it was, like, impossible to fill it up because progress is slow and it's gradual, whereas, unfortunately, bad news, it's like an event. And so people only remember... It's exogenous. It's exogenous, which is why it's so brutal on the way down headlines right like good news is not in the headlines right unfortunately

Oh, well look you could say that AI is that's a headline and that was a step function I would also I would also say like Inflation cut in half be a reason to buy which we've just experienced right Michael's right. All right. So this is reasons to sell. And for those of you guys listening, you could find it on Michael's site or with a Google search. I mean, look at some of these things. Taper tantrum in 2013.

What the hell were we thinking? Shouldn't weights not be zero? Shouldn't the Fed stop buying assets on an emergency basis? Look at Ebola. The Ebola virus, yeah. Who remembers Ebola? I remember that. That caused a big sell off.

I don't know about you, I sold everything on that. Ah. So, but, all right, so here's the real question though. Some things actually do tip over. Right. Because we could have had, sorry to interrupt, we could have had reasons to sell that extended to 2005. Could have.

And then in 2006, when those two hedge funds at Bear Stearns blew up, there was stock market volatility and it turns out it was well founded. Right, it was well founded. Yeah, but how do you know? How do you know the difference or do you not have to know? What's your philosophy on that?

So I think the time to sell, okay, the real time to sell is when the- Is May, we know. Never, never, because you missed to sell is when... It's May, we know. Never. Never, because you missed the five best days in June. But you know, funny. And when fundamentals deteriorate, right? So if we're at 2% growth and we've got still 4% unemployment, by the way, I don't really

believe the number, you know, then you use downturns to add more. So you know, you buy use downturns to add more. So you, you know, you buy the downturns. It will collapse if there is a credit event or if there's a financial event. And let's just go back to Silicon Valley Bank in March of last year. Had all the hallmarks. The hallmarks of what would have actually caused

a fairly nasty recession. Systemic, everything. Systemic financial bank run. Yeah. hallmarks of what would have actually caused a fairly nasty recession. Systemic, everything. Systemic financial bank run affects everything in the economy. And yet what happens, that was where the recession should have been, and that's where the market could have really come down. And by the way, on March 9th of last year, the S&T was up 50 basis points. So the market was sniffing out the inversion

of the yield curve and what that meant for banks. Like the market was sniffing out that something was coming. But what happened? Hand over fist, you know, the Fed comes in, supports the banking system, creates these lending facilities, and then Janet Yellen says, okay, FDIC, nobody's gonna lose their money in the banks.

So when you're- They wait the magic wand. They wait the's going to lose their money in the banks. So when you're- They wait the magic wand. They wait the magic wand. They said there's no limit. So when your fiscal authorities and your monetary authorities have no stomach for the recession, you buy. And what we've learned,

and what we've learned is that when the Fed puts their thumb on the scale, you buy hand over fist. And that was the right move. So both things happened. There was no act of Congress. They just decided unilaterally that the FDIC, which is basically an insurance fund funded by the banks, no longer has any upward limit and they had no choice. Because had they not done that or had somebody politically said, hey, you can't do that,

that's it. The dominoes keep going. Right. There's no other way. You would have had bank runs and all those small regional sides. Every regional. By the way, those balance sheets are not so terrific. I mean, you've seen the losses because tenure is so high.

The yields are so high. But it's even more than that. It's not like the regionals were paying more in yield to attract assets relative to the money centers. They were all paying nothing together. So what would be the argument to keep your money there? You know, people borrowed there, they were local. There was often the only place they could get a loan. And as you know, commercial real estate,

80% of it is sitting on those banks with $250 billion or fewer assets. So what are you telling people on the Friday before the Sunday night? Was that the cadence? It was Friday. Yes. So Silicon Valley Bank went under Friday and then by Sunday night there had to be a solution. Okay so that was an insane kick save though. Such a bad weekend. So but what are you telling people on that

Friday? Because it's extremely valid for somebody to call BNY, their advisor, and be like I don't know what you guys are seeing, but I'm seeing the next 2008. What are you saying to people? So the first thing we say is that we have a AAA rate of balance sheet. You do, personally, okay. No, Bank of New York.

Bank of New York, Mellon, wealth management, we are the safe pair of hands. And so that's what we were saying, like your money is safe. You guys are the bedrock of the financial system in a lot of ways. Correct. So we don't take risks that other banks may take as part of their business models. So, you know, clients assets are separated.

And so they're just are we're triple A rated. It's it's we're OK. So that's essentially was our conversation because we did get conversations about it and was a way to distinguish actually why we're different from the other banks. The market really is rigged to go high over the long term but I'm not like not in a manipulation way in the sense that earnings drive the market and Corporate America is really really terrific at driving earnings higher come hell or high water And yeah, they slip up and I know this sounds super toppy but over the long term like they go higher

And by the way, the end at the S&P takes out the losers. So they add the winners, they take out the losers that are not growing anymore, their earnings have been declining, they don't quite fit. And they put in faster growing companies. Out with the old and with the new. Exactly. If you believe in American ingenuity and innovation,

that's it. And you can, in a way, set it and forget it. You really can't. It's just if you know, and you can in a way set it and forget it. You really can't. It's, you know, it's just if you believe in what this system is and how the companies that we have produce cash and earnings and margins, where are you going to go? Like why would I do a tactical trade elsewhere to try to get that 300 basis points of alpha the one year and probably trade it wrong? I mean, that's the issue. You would only do that if you had sold yourself

to a client as that, like pretending that that's your value proposition, that I'm like this global macro expert and I'm going to know when the yen is crashing. And like, I don't think anyone in wealth management does that these days. I think that's a phenomenon from 2010 2011 2012 it was like this people were enamored with macro gurus

right and people were trying to be their own George Soros and they were looking at things like the Baltic dry index and Following currencies and nobody's doing that private credit has entered the room Well, that's it that's sucking the air out of the room But look we're fully diversified even within like all the sub class sub asset classes of equities as well It's just we're overweight the US for that reason You know if you want the earnings and the more reason for the for the earnings for the margin Because the fundamentals like in the end you have to go back to where the fundamentals are strongest and when we invest when I make Acid allocation decisions. I have to look out 12 to 18 months. So I sit here today, where am I going to go overweight? Where am

I going to go underweight? Where am I going to? Yeah, I want exposure to that. Maybe there's inflation in the room, whatever. But we have that. We're allocated across. We think there's a great secondary cycle coming. We think there's a great distress cycle coming. All that. We have all that. But overall, the conversation for that nervous client who sees the deficit or the politics or the mood of the country. Yeah. Have you looked elsewhere? Yeah. Have you looked elsewhere? Hello, Mexico. Right.

Right? Okay. So hypothetically, if you're overweight US equities now, what would be the kind of thing that you would need to see to say you want to go equal weight or underweight? Is it you'll know it when you see it or are there some sort of like predetermined guidelines? So I look I think look the other central banks are cutting first I think the feds not going to be that far behind and by the way It doesn't look like the ECB can cut more than once it turns out So cutting central banks cutting at better growth. If you look at developed Europe

It just can't grow, you know, it just can't grow So sometimes, you know markets can rally when the data are better than expected Even if it's not great and so if you get one of those years where emerging markets look better, you know, China's growing They're actually meeting that five percent growth target Then I would allocate out and I'd put some in Europe and put some in emerging markets. But to the extent that it's just sitting there and you can't get any rate of change, like it's the rate of change story.

If you get the rate of change positive, then you would allocate out. Okay. My friend Lynette Lopez wrote a piece for Business Insider this week talking about the new carry trade. Hypothetically, if Europe is cutting and central banks around the world cut faster than we do, it'll make sense to borrow money in those countries and put it to work here and capture that spread. Unfortunately, that pushes US asset prices higher and makes the Fed's job even more difficult.

And I don't know that it destabilizes the global economy, but it definitely adds a new wrinkle. Do you think we're going to see that kind of carry trade become fashionable globally? Do you think that that's something that we should be thinking about systemically? So we could think about it. I mean, it definitely came up with Europe because it looked like at one point Europe was going to cut three times. And then we've had some economists telling us, look, you know, the euro could go to parity with the dollar by the summer. And then you would get that carry trade.

I don't think that's going to happen. I don't think they can cut more than once. Their inflation is higher. And ultimately, you know, what's interesting here is that Powell has continuously stressed that they're not really concerned about market conditions like Wherever the S&P forward 12 month multiple is that's not what the Fed is talking about So if it goes to 22 or 23, which would be extreme in any sense, you know, historically not their job It's not their job and they're not their job

So if they keep rates higher and everybody wants to buy us assets with cheaper currency, that's it I'll say this, you know, Europe's gonna give itself an inflation problem if it does do that. So my guess is in the end we're like, like we're like the big gorilla in the room. And if we're not cutting it's gonna be very hard for other developed markets to cut much more than once or twice. They can't be that big differential. They can import inflation. What did the Fed say today? We're reacting to this live guys, so it's we're not gonna do a whole... It can't be that big differential. They can import inflation. What did the Fed say today?

We're reacting to this live, guys, so we're not going to do a whole... Before we get to what exactly they said, Alicia, I'm curious, throw this on the screen, John, the statement. So this gets put up immediately, where they show the statement from today and how it changed month over month. And not a whole lot, there's some red lines,

things that were taken out, but other than that, they're not changing very much in terms of their tone. What do you think about just watching the Fed that closely? That there's literally side by side comparisons between what they said this month and the last time they spoke? Like you're not sitting with a red pen doing this? I'm not doing that. I'm not doing that. I'm listening to what they're saying about inflation, because I think that's the key variable to all of this All right, so in the end the markets pricing in you know, a soft landing or no landing with disinflation

So anything that changes that is gonna hurt the market. So you still have growth fine. You still have disinflation Okay, then, you know, they're still gonna cut once this year It's a story's intact the pivot remains remains. But he won't say it. Like, the inflation continues to come down. So just here's some data. Used cars and trucks are down 9.3% of the last 12 months, which is great. Airline fares are down 3.6%.

That was a big issue. Obviously, that was going higher a lot. Motor insurance, up 20% the last 12 months. And look at this chart. So this is showing 28 straight months of gains. And this really pisses everybody off. For the first time in 28 months, all the way back to December 21, it finally fell. So hopefully this will ease.

But I make the point to say that- Michael wants the Fed to start issuing insurance for drivers. But he won't even come close to saying that we're close to getting the job done. They can't. Why? Because they don't know what next month's data are. They don't know. The models have been really difficult,

and they can't project. We thought we were on this great glide path. We had inflation down six months. We ended the year at 3% inflation next thing you know at 3.5 percent headline inflation three months later They don't know it won't die. It won't die Jason and Friday the 13th 15 movies and counting And by the way, like every time you know look to the extent that like let's talk about oil for a second The other key variable if oil stays at 70 WTI work. It's okay variable. If oil stays at 70 WTI, it's okay. It's when you get that geopolitical risk in the oil price at 100, then that goes higher for every single category because oil goes into everything. So we're better on energy prices, and that'll affect all of it. But the Fed can't control energy prices. So gas was down 3.6% month over month. I'm point taken. They don't know what the future holds. However, John, throw this chart from wisdom tree.

So our friend Jeremy Schwartz shows alternative readings of CPI. Okay. So what they're showing is, let's look at the top one. So the top one shows headline CPI with BLS shelter. And a lot of that, 36% of that is shelter. I think two thirds of that is owner's equivalent rent. And the other one is just straight up rent.

And the rent one is lagged big time. So if you use real time shelter, in other words, what are people paying for rent today for new rents? It's under 2%. We're there already. But we've been saying this for a year. So what are... You can see it's been straight down for a year. You've been saying this for a year. So what are, they know this. You've been saying what for a year? That the OER is a really wacky way of measuring rentals

and it's not accurate, anybody looks at Zillow or whatever rental, but it hasn't really translated into lower shelter costs. Yeah. Like, I mean, it's a bad way of measuring it. It's too high a weight in CPI compared to PCE, which is what they think. They're calling old people who answer landline phones, and they're saying, how much could you rent the spare room in your attic for?

Do you know that 65% of Americans believe in vampires? This is who we're f***ing asking for what rents are. So that's the homeowner side, and clearly that's nonsense. But also the rent side, they're using rents from 12 This is what's going on right now. That's the homeowner side and clearly that's nonsense. But also the rent side, they're using rents from 12 months ago or 11 months ago. If you use real-time rent, we're under 2% and they must know that. So effectively, we're there. So, alright, shelter inflation. They're saying, according to their metrics, it's 5.45%.

If you use real-time housing metrics, just on alone it's one point three percent that is a gigantic gap and effectively we are under their two percent target right if you use that if you use that if you use that they can't change the goalposts they can't change the goalposts when they have market would flip when they haven't reached the target they can't change the goalpost before they reach it but we're basically there this is today although progress on taming inflation stalled during the first quarter, Powell said Wednesday that no one on the FOMC

has rate increases penciled into their base case economic forecast at the moment. Okay, that's good. Crisis averted. Crisis averted. All right, quote, we've always been pointing to cuts at a certain point, not to eliminate the possibility of hikes,

but no one has that as their base case. Okay, so this is the one thing that he can't reintroduce into the lexicon? No, that's it. That's where your downdraft comes. My opinion is, so long as he doesn't do that, the market is not going to sell off on interest rates. It's just been too long that we've been steady at this level.

And we all know that the next move is a cut, so God forbid growth starts disappointing, which let me know. Right. The medicine's coming. So that's why I feel that stocks are in such a sweet spot right now, because it's like flip a coin. Either things are great and they don't need to cut,

or things are not so great and they start cutting. What's not to like? Look, they pivoted in December, which I actually thought was weird, like what are you doing? Like why are you doing this? It was a Christmas present, but look, they pivoted, Powell pivoted in December,

and he has not pivoted from the pivot. Whether it's seven cuts, like the market was pricing in, or three, or one, it's still a a pivot and that's what the market is pricing in it's just not pricing in a hike that of course would be the disaster higher inflation and I so the market is respond to the data because now the market is pricing a two-cut so he could say what he wants it's not super super relevant but here's here's no doubt it who knows a lot more about the stuff than I do he's great he's great here's what he said here's what I know about

inflation first inflation tends to be a lagging indicator because monetary policy is thought to quell inflation with a lag. Today's software inflation data represents yesterday's monetary policy. Second, core service inflation tends to be sticky. If it is soft, it will tend to stay soft because these are prices set with the consumer inflation expectations in mind. And this is the key point. Putting this together, the Fed is passively and needlessly tightening policy by doing

nothing. It does not take a rocket scientist to figure out what needs to be done. It is time to begin recalibrating monetary policy. Neil Dutta is so dovish. It's like a Prince video. By the way, he was totally correct on the economy this year. He was out there loud and strong and he was great. And he's been saying it. If we're looking at yesterday's data, which we are by this inflation reading,

why does the Fed funds rate need to be this far ahead of inflation for this long? Why stay restrictive? Because I think there's a credibility problem. Like, look, in the end, you know, Pal was talking about transitory inflation went to 9%. Right, so credibility has been sort of shut a little bit. You want a credibility problem? How about some more banks blowing up? How about some private equity funds blowing up? Well, I think they know that some banks can blow up,

and I think they think the US economy can handle it. There'll be M&A in the small and medium-sized sector, and they have to worry about inflation. They can't go back. You know the story. They've all studied the 1970s and the Arthur Burns Fed, who started cutting when inflation came down from 12% to 6% and they wound up with, you know, right back. Right back.

So they're not, they're just not going to do it. But the risks just seem asymmetric to me. So I think this is an inflation first Fed. I hear what you're saying, like by the no landing could lead to a recession because they don't cut. Right. I get that. But I think they're, I think they don't cut. I get that. But I think their inflation first.

Now, now, if unemployment gets to 4.3 or 4.4, then they've got Congress on them. Rand, then they've got another problem. Do you believe politically there's like a no-go zone for any kind of action right in front of the election? Is that a real thing or do we just all make that up in the media and then run with it? I think they would like to think they're apolitical and so they'll do everything not to do that to signal that they're apolitical. Which is inherently political.

Correct. Because Biden is the current boss. So I think that like there's a real effort not to look political. You know what's an interesting what if? I mean we're maybe all going to find out Trump's big thing during his presidency was why aren't they cutting rates more which is very Nixonian Like I need lower interest. He didn't turns out he didn't need lower rates. That's why now They're saying that the first day the fed see me fed watch tool the the royal they they're saying that the first rate cut is Gonna be in September and politically that's gonna be super interesting Well, I my point was if Trump took over today

He would probably be yelling for rate cuts unless that led to Looser economic conditions financial conditions and all of a sudden inflation ticking up, right? It would be funny to watch Trump scream for rate hikes Inflation now, yeah, I don't think it's... Get rid of this inflation now. Yeah, yeah. Take care of it.

Well, because I bring that up, and this was one of the things that we want to get to today. What we've learned, this is my big takeaway from the last two years. One, Billie Eilish is super talented. So when she first arrived on the scene, I was just like, what is this now? Like what? She's whispering into a microphone. What are we doing? She's incredible.

But two, Americans hate inflation more than they hate unemployment. There's nothing Americans hate more, I think, right now than inflation, economically, than inflation because it's the only explanation for the sour mood of the consumer coupled with record high stock prices, buoyant home prices, full employment, wage growth. But they're, they're, they might not be miserable. They're saying they're miserable. They're saying they're miserable.

So let's just say, did you learn this lesson too? I, I, well, I knew this already. I knew this already. What customer are you? And actually we had talked about inflation not being linear on the way down. Well, I will not say how old I am, but I do remember another inflation... About of inflation. Inflation kills presidencies. Oh, yeah.

That's what it does. Because it's seen as like somehow cosmically unfair. We'll be wrong. So no fault of my own. Well, Ford, Carter, they... I mean, they had no shot. They had no shot. Destroyed, but in part because of the Arthur Burns Fed But the thing is that wages if you go back over four years The absolute level of price increases is about 22% on CPI wages have not kept up with that

It's about 15 or 16 percent. So households are talking about the absolute price. Oh my God, the eggs are $8. Well, if they're $8, and three years ago they were $3. Okay. Next month they're $8 again. That's 0% inflation, because we all talk about it as rate of change. But they're not back to three. But they're not back to three. And in a way, we're all talking past each other.

Households are saying the absolute level is too high. Food prices in four years up 27% okay if you didn't get a 27% Raise Since the Beginning of 2020 you're Falling Behind yeah and that's why People are Cranky It's true that in the last Year and A half Wait you know Wages have Kept up with the Rate of Inflation But what happened when Inflation went to 9% I mean that Just Took out a lot of Households Purchasing Power and Someone's to Bl. It's policy. Someone's to blame. Well, of course, someone's going to be to blame. But that's the thing. I think it's just, you know, the economists and Wall Street and the

Fed, we all talk about it as a rate of change. Yay, zero, we had 0% inflation today. Isn't that great? Zero month over none. The prices are up 22% over four years. Let me read this to you. This is Harvard University economist Stephanie Stan Shiva. You know her. No, you guys don't hang out. No, okay Harvard, okay They they did a study to on to see how much people dislike inflation they found for example people on average view a one percentage point increase in the inflation rate as For example, people on average view a one percentage point increase in the inflation rate as twice as bad as a one percentage point increase in the unemployment rate. Survey respondents' reasons for disliking inflation weren't just based on worries about

rising prices eating into their buying power, but by a view that inflation is mentally taxing, dealing with a straightened budget exacts a psychological toll as well as a financial one. Stan Cheva says it's also an issue of complexity. Even if you didn't think tight budget standards, inflation still requires you to rethink all the time to re-budget things and it's basically a big cognitive load. Right. If you're month-to-month, this never leaves your month. It's every single purchase you make throughout the course. I'm sorry, that's nonsense. People obviously hate inflation. She went to Harvard!

Professor! Did they ask people who are unemployed what are they like? What are you like more, having a job or having higher prices? I understand people hate inflation, but that's, come on. Do you want the methodology or can we move? I don't care about the methodology. I think the other thing is inflation hasn't been around for 40 years. Wait, I'm sorry. I feel compelled. Would you rather your bills go up 8% or would you rather lose your job?

That's not what they're asking. They're asking unemployment not you the Society. Fine. Okay. Do you care if someone else's loses their job? Maybe you feel a little bit bad Do you care if your if your groceries are up You definitely care. That's what they ask people. Got it. So that's all I'm saying. And the other thing is like it's everywhere. Like I had somebody say to me, he's a portfolio manager, he does fine in life, life is good. He said to me the other day, every day I have a money thing

where I'm shocked at what I have to pay, what I owe, you know, whatever it is. He's like, I'm feeling it every day. What is going on out there for people who are purchasing phone? Oh, this is such a great point. It's a disaster. Right, don't you like every day? Every day. Like something with the backyard, something with.

Yeah, I can't believe they came up with $10,000. Yeah. Like the minimum price for doing anything in your home basically is up 10 times, right? It used to be maybe a couple thousand now you're like what happens and that's across the economy. And so it's with food It's with eggs. It's with bread and it's also with universal and it affects everyone and I saw somebody post No, no one on Facebook can ever believe whatever age their kid just turned It's like it's like one of those things right and it doesn't I have one of those right now No one on Facebook can ever believe whatever age their kid just turned.

It's like one of those things. And it doesn't- I have one of those right now. This cuts across though, income levels, geographies, race, religion, gender. All of us are like, why does it cost this much? Anytime someone's quoting, and thank God, most of these things go to my wife and not to me.

I don't hear about most of them. But when I do, I'm like, wait, what did it these things go to my wife and not to me. I don't hear about most of them, but when I do I'm like, wait, what did it cost? Have you gone out to dinner lately? It's insane. Seven nights a week. Yeah, so right, so there you go. All your disposable income is going to the restaurant. Yeah, yeah, I agree.

Let's talk, just getting back to like rates and what's going on there. So you're advising a lot of people with a lot of their dollars. And cash has been an incredible place for the first time in my entire career. We're actually getting income on our fixed income, which is nice. But we know that that's not going to be there forever. And a lot of money is beginning to position for the prospect of lower rates.

So Lisa Bromwick's tweeted from Bloomberg, the flow of cash into bonds is accelerating as the rate cutting cycle gets underway. Global bonds received a 24th consecutive week of inflows and the second strongest since July. Rational? Totally rational. We've been telling... What? Lengthen duration or allocating to bonds instead of cash? Get out of cash.

Okay. We've been like, our big message at the beginning of the year was get out of cash. Because we don't know when the Fed's going to cut, but when it does, your 5% money market fund's not going to look so good because it's not going to be 5%. So you want to be early, then late. You want to be early because ultimately rates are going to move lower. Get out of cash, but don't get out of fixed income. Like, get out of cash and go to something with a longer maturity.

Right. I mean, people were sitting in cash because they were nervous about a recession, which never came. So that turned out to be a 30% opportunity cost. But Alicia, there's another reason. Because not only was cash great because it's not moving, but it's yielding. If you just look at the yields, it's yielding on an annualized basis more than going out further. And I think a lot of people probably made the mistake of saying, hmm, 5% or 4.6%. Right. And they're not the same thing. Right. But overnightight that can change. And that's the thing, it can really shift overnight.

When you start to refinance that T-bill after the Fed cuts once or twice, it's not gonna look so good. So people are getting ahead of it now. So that's rational, but it's not just going into fixed income, it's also just overall allocations. Like, I think there's been, look, there's $6.4 trillion in money market accounts.

That's an, I suppose that some of that is a reflection of a risk off behavior after last year, fear of recession, inflation, Fed hiking cycle and all that. I would suppose some of that does come back in. Although, as you know, if you ever looked at one of those charts, it never really drops very much. Can I pitch on my theory? Go ahead. About that high rates on cash. Inflationary? I mean I'm I'm now saying this since November. Josh was early to that. And people are like people are like feeling the flavor like

they're like Rick Reader is talking about this. Like Rick Reader took your line. I think he might have arrived at it independently but maybe he copied me. People were scoffing at the notion that wealthy people, not even just wealthy people, everyone, when they see their bank accounts bulging with income, they feel an increased confidence to go out there and buy stuff. And I have to tell you, I wrote a post about this earlier this week.

Somebody who's been around for a long time told me about the early 80s, and he was an accountant. I have to tell you, I wrote a post about this earlier this week. Somebody who's been around for a long time told me about the early 80s. He was an accountant. He had wealth, you know, wealthy clients. They loved 18% fed funds rate. What's not to love? They didn't have mortgages. Who gives a shit?

There were no such thing as credit cards. So if you're just seeing buckets of money poured into your account each month, why wouldn't you love high interest rates? And I drew this parallel. We had this like blooming, not just wealth, but wealth crossing over into pop culture. Lifestyles of the Rich and Famous aired in 1984. I don't think it's an accident. They probably started planning the show in 83. In 1982 was when Fed funds were...

1980 they peaked, but like in 1982 you had fed funds at like 15%. So I think that there is like a boom for wealthy people as a result of high rates. It's not only not squelching inflation, it might be feeding it. So I think that's- Is it crazy? It's not crazy. You deal with billionaire families. So I hear what's crazy. It's not crazy. You deal with billionaire families.

So I hear what you're saying. For me. She's trying to be an uncle child. No, I'm trying. Tell them how you really feel. It's bullshit. I don't think it's bullshit. Because it's the same reason we've had no recession.

It's the same reason that there's no credit cycle. Right. Because households have turned out their debt with 3% mortgages fixed rate and they're getting 5% on the cash, and they're making the spread. So households are relatively immune to the credit cycle here.

If they own financial assets, if they own a home. Correct, not all households. Not all households. But that's also true for large cap America, because what happened in 2020 and 2021 with rates for zero. Refinance. Every company and their grandmother, refinance debt at very low fixed rates,

which by the way, don't come due until 2030. Again, higher cash levels, making 5% on the cash, paying out a 3.5 or 4%, making the spread and hiring people. That's one of my favorite charts of the year. That's the best chart. That's the explanation for why we've had no recession. So whether it's about keeping inflation high.

Why didn't this tightening cycle lead to a recession? Why is there no credit cycle? That's why. So the chart I'm mentioning is net interest expense for corporate America went down at a hiking cycle. And net worth of consumer households is up $45 trillion in four years, about 40%, and their net interest cost remained at 9.8% in four years. American households' net worth.

Up 45%. Up 5.1 trillion just in the first quarter. Right. That's why there's no credit cycle. They're all allocating to distressed funds that are looking for signs of distress. And direct lending. Direct lending. Direct lending. But that's it.

I mean, households are, you know, the net worth of the households is up 40-45%. And their interest cost is flat. This is one of those examples where if you told most people, myself included, in 2021, here's what the Fed's about to do. They're going to do 25, 25, 25, 50, 50, 75, 75, 75. You'd be like, oh my God. I'm hiding under the bed. I'm going under the bed, right?

Right, because we have this recency bias in our lived experience post GFC is interest rate hikes terrifying, interest rate cuts great. And that's not actually the real world. That was just a very specific period of time. It was a 15 year interlude where risk assets did really, really well. So as we stand today, the consumer is healthy, the economy is healthy, the job market's healthy,

the Fed is on pause, like things are. You sound so complacent. Yeah, no I am. Things sound really good. So let's talk about like what- Like the scary stuff. So what do you think is the biggest risk to the market? Is it just something as simple as like, listen, we don't know what the risk is because that's

what risk is. That's what we don't see coming. Or is there something that does worry you that you think about today? So that's actually very wise because the biggest risks to the market are these exogenous shocks which are not priced in So right now the markets pricing in you know, 2% growth and a cutting cycle So anything that threatens that view either on the growth side or on the cuttings? I would do it so higher inflation higher oil prices leading to higher inflation or the Fed having to pivot to a hike

All that would be very difficult for the market. I think slower growth would do it also. Because you can't sustain these margins and earnings. What do you tell people who say they don't want to buy stocks at 20 times earnings? So you say, well, first of all, it's a different cycle because the top seven stocks are trading at like 35 times. They're also double the margin and double the earnings power. So their multiples are higher and they're dragging the S&P with it. That's what I say. Not all of our clients want to be in stocks anyway. They just have a different risk profile.

But that's what I would say. In the end, 21 times forward earnings, is it compelling? It's not particularly compelling. The top three stocks are 20% of the S&P. That feels a little frothy. But on the other hand, that's where the innovation is also. And in the end, the market's stupid in that way. It just reflects where the growth and margins are.

So this is a theme that we've been talking about for years now, that companies in the S&P 500, especially the Giants, deserve a premium multiple because they're doing things that have never, ever been done before. And this chart from UBS is great confirmation of what we've been talking about. It's showing free cash flow as a percentage of sales, and they show what we've been saying.

I mean, look at this. So of course your multiple's going to go higher. Why would this be 10 times earnings? It can't. This is miraculous. It's just miraculous. And by the way, if you plot free cash flow against multiple and you go back over 20 years, it explains all the...

Yeah, they try. It wasn't zero rates. It was free cash flow. Let's double click on that. Say that again. Explain what you mean by that. Because the average multiple is higher than it was 20 and 30 years ago. Okay.

But so is the free cash flow. So if you plotted against each other, you just see it. It's, you know, they're... Going back how long? Going back 40 years. What are you plotting? The free cash flow, the S&P 500, and the the free cash flow the S&P 500 and the PE multiple? When you say it's so forward earnings, so when you say it's explanatory meaning like if

Free cash flow is is growing people are more comfortable paying up for stocks or forced to pay up for stocks Frankly, correct and by the way in a high work on the other way that works on the way down to works on the way down growing, people are more comfortable paying up for stocks or forced to pay up for stocks frankly. Correct. And by the way, in a high- So it works on the way down too. It works on the way down also. But what it also means is in a high rate world, these companies have moats. So free cash flow, they can do capex and they don't have to borrow.

So they're both offense and defense at the same time. You know what else? I mean, I sound really Pollyanna-ish, but it's true. You know what else? They're less likely to be disrupted by venture-backed startups who are not able to raise money at the same rate that they were when rates were zero. Which to me, strengthens the moat. Maybe that puts alligators into the moat.

Right? Well, yeah. Some spikes on top of the drawbridge. It's like, oh, wait a minute. Now you have companies that don't need to borrow. You got a good economy. These companies could still do CapEx. And they're funding the next wave of innovation.

Right. And frankly, now they're the investors. They're spending a third of a trillion dollars this year on investing in AI, which by the way is more than the government is spending on building the chip factories. I'm just going to say the government's going to spend about $150. So, over double. You look at the CapEx. And by the way, it's government's going to spend about $1.50. So, over double. And by the way, it's not killing the margins

because they have so much free cash flow. All right, so here's something that's an interesting dynamic that's happening in the market that's not terrific. Let's just put it that way. So in Q2, this one bespoke, the six mega cap stocks with a trillion dollars were up an average of 11.5%. The remaining 4.90 were down an average of 3%. So nothing catastrophic, but that's not necessarily what you want to see.

Here's another really good one from Jason Geffer, this guy, sentiment trader. So he says, the S&P 500 is on track for a new high. This was yesterday. Even though more NYSE issues are hitting 52-week lows than highs, not great. More NYSE issues are hitting 52 week lows than highs, not great. More NYSE issues are declining than advancing, and more NYSE volume is flowing into losers than winners. And he said over the past 60 years, this hasn't happened very often.

Really the only time where it clustered was at or close to previous top. Bubbles, bubbles, 1999. Can I give you my take on this? And then I want to hear yours,. Bubbles. Bubbles. 1999. Can I give you my take on this and then I want to hear yours, Alicia? We have had these, they call them divergences in the internals. We've had them over and over and over again. And Sentiment Trader does the chart and Bespoke does the chart and everyone does the chart and then you know what ends up happening.

Maybe not this time, we'll see. But almost every time, the rest of the market catches up. It's just, it's over and over again. How many times do we need to see this before we stop jumping at every divergence like squirrels? Like, it's just these divergences have resolved to the upside, not the downside. Six out of seven years years the market's up.

So there's a lot of reasons to look at this and say, well that doesn't look great, until you realize the leaders are the leaders, and the laggards, or the rest of the stocks, historically in the last 15 years, what's happened is the resolution has not been to the downside, it's been to the upside. So I feel like maybe this is the time it doesn't happen. I'll give you another one.

The Fed, New York Fed does a survey of, they ask people, do you think stock prices are gonna be higher or lower a year from now? And the mean probability that prices will be higher one year from now is at the highest since May 2021. So frothy sentiments. Little bit. Yeah, yeah. Little bit. Yeah, and listen.

And that was the old high. What would you expect people to say right now? I mean honestly, do you think that people would be bearish with the stock market on the all-time high? Like of course they're going to be bullish. Hold on. 40.5% of people are saying that they think the market will be higher a year from now, which is tying the level of 2021 right before the wheels fell off.

All right, I don't love that. Here's a note from JP Morgan. I believe in sentiment stuff. I believe in sentiment stuff. I don't love this. Here's a note from JP Morgan. I believe in sentiment stuff. I believe in sentiment stuff. I don't love this. Here's a note from JP Morgan. Clients are worried about missing upside, not downside.

That's an equity sales trade at JP Morgan. My clients are tripping safety and adding to momentum longs. And that works until it stops working. It works until it doesn't, right. So I agree with you on sentiment. I mean, it's a pretty fairly good indicator, but it's not perfect and it's really bad with timing. So we had terrible, you know, terrible AAII readings,

the most bearish ever. It lasted for nine months, the market didn't go up. Very bad with timing, but how often are clients asking you why they don't own more NVIDIA these days? Dude, we have to- A lot. No, don't, don't. No, but we- A lot. A lot.

But we have to, I know we're not supposed to talk about NVIDIA. I can't talk about NVIDIA. Okay. We'll just call it stock X Okay, that's fine Don't talk about Nvidia the hypothetical it's doc. Okay. Okay. We have to talk about this because there is a hypothetical It's doc right now. It's not hypothetical. It is the it's doc There always is one right but right now they're really the biggest or second stock. There always is one. But right now there really is one. And it's the biggest or second, third.

Now I imagine you're running large cap equity. You have exposure to it. You have no choice. Is it 7% of the S&P now? It's almost. Okay. And you- It's one of the top three that makes up 21% of the- it's actually 21% of the S&P. And you're overweight US large caps. You might have more exposure than, than most strategists. Does it worry you in general,

not Nvidia specifically, than most strategists. Is that a sentiment shift that gets your attention? So it does in the sense that excesses on sentiment ultimately get resolved to The downside. The downside. And so, you know, in the case of stock X, you know, to the extent that we're beating earnings estimates and that's great

But we all seen a story like this and how many other stocks in our lifetimes where the growth didn't quite Or the forward guidance wasn't quite what are the ones that we don't remember historically that were like the it stuff Do you remember lucent technology? I remember lucent Well, how about a well, so okay, okay, slightly before my time it existed when I was around, but it was already boring because there were 500 new dot coms after AOL. Netscape like right before my time. Right, right.

But I remember the- It was from that period. It was from that dot com period. Same era. Nokia. Like know what? Like no one knows what it is. I think it was the biggest market cap in the world

for a minute, for like five minutes. And the phone was this big. It was a candy bar shaped. That's one to merit. Yeah. How's this for a sentiment check? So at the beginning of 2024, there is an ETF where you get double the daily exposure

to the upside of Nvidia. And on January of this year, it had $223 million in it. Now it has over three billion. Playing it like Buffett. Look, the market will give the peoples what they want. Those are all value investors. That is our system. The market will give the peoples what they want.

Everybody thought, you know, felt left, they missed out. Look, we know extremes of sentiment, but to the upside, to the downside, get resolved in the other direction. But it's a terrible timing mechanism. Yeah, because it's getting more extreme. Extremes could get more extreme. Extremes can get more extremes.

And I'll say this, I don't think the AI story is extreme. Like, look at the productivity numbers, 2.9% in the last quarter. Like, when's the last time we had something like that? So we've got real productivity happening in the economy, and I, it's part of this revolution that's happening in technology and AI. So we're believers in it. We think it's real.

We think you're getting earnings higher. I mean, you can have to go through a catback cycle, yes, but ultimately we think it's reasonable. The story just started. Look at, look at this chart from Apple. So this is, we made this earlier during the day, but over the think it's a story to start and look at look at this chart from Apple So this is we made this earlier earlier during the day But it over the last two days including today, it's up 12.6 because everybody gave it up for dead. How crazy? It's a third biggest change that it was so you know, I'm sorry I watched you on CNBC all the time and everybody was talking it's over. They can't sell the phone

I think you're gonna buy it. China's not letting their people buy it. But the multiple did not reflect that pessimism. True. It never got cheap. I wish it did. It never got as cheap as it had been, but people were giving up on it. The whole community was... The sentiment around it was like, this is never going to grow again.

But the valuation never really reflected that pessimism because people are smart. And they said, although I'm not excited about Apple, I ain't selling this until I see what the AI shit is. Well these companies are too innovative. They're not going to sit there and let their business be taken away. It was the right thing to stick with it. None of them.

None of them. I mean, I can name other companies, except I'm not allowed to name companies. But you know which ones they are, where there was a hiccup, or it was embarrassing, or there was a public release of something, and the stock sells off 10 or 15%. And the next thing you know, ones they are, where there was a hiccup or it was embarrassing or there was a public release of something and the stock sells off 10 or 15% and the next thing you know it's right back

because they're not going to let the business go. Yeah, I think that's right. Can we do a little bit of housing stuff? Yeah, a little bit. All right. That's a little confounding. All right. I thought this was interesting. Amazon.com, that's still the official corporate name.

Isn't that funny? Yeah. Amazon committed $1.4 billion to its housing equity fund, extending a push to back affordable housing in Seattle, Nashville, and Washington metro areas. That's where they're building their facilities. Not in Queens, New York, where I'm from. No, tried.

Tried. Tried. Tried. Really a mistake. What's her name? Didn't want to play ball. All right. The funds will be used to create 14,000 affordable units in those locales. That doesn't sound like a lot.

Brings Amazon's total housing pledge to 3.6 billion. In 2021, the company earmarked two billion for low interest loans and grants. So Amazon obviously has like a perennial chronic PR battle that they have to fight because of their dominance. They have to be doing proactive things like this. And arguably, if they're building HQs in these areas and hiring thousands of people, it's a good look. Why aren't there more solutions to the housing crisis?

Is it just that it's just so expensive to build housing that the win that you would get from a PR standpoint isn't enough to justify it? What do you think needs to happen? First you need the free cash flow. Not every company can do what Amazon does because it's one of those companies that just sits on the hill with the moat and the But the home builders aren't building the way they should and they could do it. It's expensive It's just it's really expensive and in the end the end product is you know The 25 year old the 25 to 40 we missed sort of two generations of how homebuyers right?

We lost the people who are now 40 to 45 and we lost and we're losing the people 25 to 45. What do you mean by losing? Because after the global financial crisis, the economy grew so slow and wages were so sluggish that people weren't buying homes. Housing demand just took forever to come back. It took forever to come back. And then you've got this whole new generation that can't afford the 7% mortgage.

And so if your housing costs are expensive and you have to borrow to build and your construction loans are more expensive, and by the way, the banks don't want to even give you a construction loan anymore, and a lot of banks won't do it. You know, the guy who helped you before is now a small and regional sized bank

who simply won't do it, he can't build it. He can't build it. So either you're eating the cost of the mortgage to bring the housing prices down, to bring people in, or you have some cash from before Where you borrowed before and you have leftover, but I think it's this is where the credit contraction is a problem It's I think it's kind of keeping housing prices artificially high Because the markets kind of not clearing you have to man. There's no supply. There's no supply

So you have a supply shock you've got a lot of demand of not clearing. Yeah, the market's frozen. There's no supply. There's no supply. Right. So you have a supply shock, you've got a lot of demand. Let's say rates come, mortgages come down 1%. All of a sudden, there's, you know, you have it, they start building. What happens with home prices? They go up or do they go down? We don't know. We don't know.

Activity's gonna come back. I asked that question hypothetically. I don't know. Like, I actually, that's what, when you say can we talk housing, and I was like, eh, I'm actually confused about this. Yeah, we don't know. I don't know. I think the knee-jerk react would say prices higher, but that might not be the case.

It may not be the case, actually. I wrote about the positive impact of higher rates on cash and higher for longer. And I had some younger people, probably on LinkedIn, be like, why are you so excited about this? It's keeping me out of the housing market. And I'm not an asshole, but part of me wanted to be like, oh yeah?

What do you think happens when they cut mortgage rates from seven to five? You think it's more affordable then? Are you out of your mind? What do you think? It's not like new houses appear concurrent with mortgage rates coming down. I actually think housing affordability,

the line will finally go up or down. It'll get better when mortgage rates come down. Why? Because the monthly payment is going to go down. And more buyers are going to enter the market. More buyers are going to come in. No shit, of course, but there's no supply. There's no supply right now.

That's the problem. I agree, and the Fed can't print houses. But my point is demand will not change whether interest rates are 7% or 5%. Well, we're going to find out. Demand will change. Today, interest rates were 6.9% and like there's activity. Demand won't change, but when interest rates come down, supply will come on the market. So, prices might not go up.

That's why I'm really, I'm actually confused about the housing stuff because I just think it's all these different pieces of the market coming together, not least of which are the construction loans. You have plenty of wealthy boomer families under your purview. They're buying the houses for their kids. Cash. Yeah, but that's what's going on. And I'm not saying there's anything wrong with that.

I got help from my in-laws to buy my first house. It's a beautiful thing. Yeah, I didn't have a pot to piss in in 2008, thank God. But right now, this is another area where there's a bifurcation. People who come from families that have financial assets versus people who don't, and it becomes really difficult to buy something

if you're not getting any kind of assistance, and it's getting harder. But look, this has been the case really since quantitative easing in 2009. If you had financial assets, you were fine. Your home values went up, your asset prices went up, stock prices went straight up. Provided those financial assets weren't shares of AIG or Lehman Brothers. Correct.

Yeah. Right. Well, we're talking 2009. Let's start with that. Or under management with Bernie. And then savers got zero rates on their saving. And I think if you want to trace some of the strife in the country It's like that those who own financial assets and those who don't it's a very different experience If you're you know, if you got a 3% mortgage and getting 5% on your cash

And by the way, you just got 30% on the S&P over the last eight months We had Scott Galloway on the show recently and that the conversation was like invest or die Like you have got to find a way, whether it's earning equity through a job that you work at, or saving enough to- Totally. You have got to get into the investor economy. It used to be optional.

The way society now works, it's not optional. You'll never make wealth through your salary. It's only through investing. You've got to get to people early, early. 401K is step one. 401's only through investing. You've got to get to people early, early. So you need 401k is step one. 401k is step one. Do you work at a company where you can earn stock options? That's great too.

That's, you know, like there's a lot of ways in, but you have to pick ones. Altcoins? Yeah, altcoins, great. If you tell a 20 year old with a summer job and explain the Roth IRA, right, you just explain it to them and you just give them some charts and tell them, hey, this could be a million dollars

in whatever, 30 years. They don't think about retirement, but they hear the million dollars. And so there are ways to do this, which are a little bit painless if you just start early enough and get individuals used to risk. In the end, it's risk appetite.

Joe's on the edge of her seat. This is how it is. Joe's so excited. I wanted to ask you about, not, not the individual stock, GameStop, but just the environment right now. I hate that. I hate it. All right. I want to hear why. So this is a posted by my friend, Andy left on Twitter,

who has been shorting the GameStop, the meme mania. I don't know why he's doing this to himself. Why is he doing it? Everyone's going to see he's shorting it. Oh, no, no. He's already, he's been through the, he's been through the meme mania. I don't know why he's doing this to himself. Why is he doing it? Everyone's going to see he's shorting it. Oh no, no, he's already, he's been through the ring already. Citron is no longer short GMA. I thought this was really smart. Citron is no longer short GMA.

It's not because we believe in a turnaround for the company fundamentals will never happen, but with $4 billion in the bank, they have enough runway to appease their cult-like shareholders. True. Despite Wedbush setting an $11 target today, we respect the market's irrationality. Smart.

After all, Dogecoin remains a $20 billion entity. Cheap. While the increased share count might temper the mob mentality, he means like the secondary stock offerings, Citron will be watching from the sidelines for now. By the way, the Kiddie livestream was an insult to the capital markets. Would you like to start up the Hornet's Nest? No, I'm kidding. Why do you?

I hate it too. I hate it. I hate it because- Because it's not fundamentals. It's not- I hate it for a different reason. I hate it. I hate the panic. I hate the fact that so many people lost so much money over this. What about the people who made money?

But it's sort of taking the system that works on fundamentals and it's finding kind of the loopholes to just do things and manipulate. I just think it's terrible. And also it becomes the only conversation. And I think it means that rational people who want to earn a return in the market don't trust it. Don't trust it. Because if this craziness is going on here,

how can this be legal? How can this be going on? Why would I do that? Let me just buy game stuff. Let me give you a counterpoint. I spoke on stage at a bankruptcy conference last summer and one of the people on the panel was the lawyer working for Hertz Global who came up with a legal opinion

that actually, you know what? We should be allowed to sell stock during bankruptcy. Do you remember this? Yes. Okay, so Hertz is in- It was like a genius thing. They raised two billion dollars. It was a genius thing.

So Hertz is- And nobody could believe it. Hertz is in chapter 11. They're selling it for a It was a genius thing. So Hertz is in... Nobody could believe it. Hertz is in chapter 11 doing a f***ing shelf offering. The stock up 70%. Are you allowed to say that word? I say everything. The stock is ripping and they're selling shares to the open market and there are buyers and

they're about to. The SEC said, no, you're not going to do that. So that ended that. They eventually survived. And Hertz just joined the S&P 400. It's no longer a meme stock. It's like... It's a company.

It was saved. Because it could raise cash. It should have been bankrupt. But like it's... But my point is, for every reason there is to dislike meme-driven social media manias, AMC was saved. I love going to the movies. Literally saved.

GameStop, I don't care about that, but that was saved too. So I don't want to ban it. I guess what I'm trying to say is I don't want to ban it. A little bit of mania is cute But you're right people will absolutely get cleaned out and you don't want it to be that it's so crazy I'm never gonna put my money in the market look what's going on with that thing look It's great that AMC was saved GameStop hurts. I don't invest in any of that stuff by the way Now that they have cash we have to see if the business model works.

Or they could do any business model. But did the cash raise just prolong the game? Alicia, if I gave you $4 billion, you could come up with a way to make money, yes or no? I'd be very happy. Okay, I'm pretty sure the guy that runs GameStop, he could keep the video game retail running at a loss and do something really productive

Yeah, invest the cash. So, you know, that's the that's the positive That's the positive and I the negative is you have people that bought the stock at 65 or whatever The morning before they or the day before they dropped the secondary, right? I mean this this is its winners and losers markets So we're Lonnie's they learned their lesson and they move on it's winners and losers. Well, another silver lining is they learn their lesson. And they move on with their life. Nobody learns.

But if you remember, after the global financial crisis, there were people who had their retirement savings wiped out, down 50%, 60%. They never got back in the market for over a decade. We know. We talk to those people. And so it's terrible. And so you don't want that to happen. You don't want somebody to be so burned,

and I'm just keeping a bank account and getting 25 basis points. I'm not saying it's all good because it's certainly not but it's mostly younger people that are playing. Correct. Mostly. Mostly. Yeah, I agree with that. Just buy the Roth IRA. Did you have the best time on the show today?

I loved this show. Was that right? I loved this show. I love this show. So we're going to do a brief intermission. We're going to break to dinner. Or you're all good? You said everything you wanted to say? I'm all good. I'm so happy to be here.

We end the show with favorites every week. OK. What's going on? Oh, she's all right. All right, you lost the bet. No, talk. It's actually been over an hour. OK, show us.

I want you to see this. Do we have a picture? Hold on, hold on. Ladies and gentlemen, Joe Schlesinger No, you didn't. You didn't. I'm gonna put a picture up here. Hold on. I hope it's not on the beach. Alicia, no, what year is that and what is the name of that blonde woman? I don't remember but she often didn't wear a top. We were in Nice. Yes, and I'm not gonna

save the year. Oh come on just say it. It was 1985 and the dollar was and there were 10 francs to the dollar. Yeah. And it we were in the south of France. Cocaine everywhere. No. No. No. We're clean. We're athletes. We're brains. We don't do that. Do you remember who that girl was? Yes. She was a pilot on the- A stewardess. A stewardess on the private Saudi airlines. Correct. And we hung out with that stewardess and the pilot and we went to these clubs.

Okay. And look at our curly hair. Can we talk about our curly hair? Don't we look happy? So happy. Is that a perm? No, it's just both of us had curly hair and didn't, you know, blow it dry.

And a lot of it We had a lot of dollars to be in a pension with air conditioning because we're Jewish girls Can I tell you something? I need this Netflix show Nicole is this give is this giving that like I would watch the shit out of this. All right, I'm done Jill Schlesinger ladies and gentlemen, I kind of miss our hair Like it's so much work now. Both of you have great hair now. Michael and I, we can't say the same thing.

Alright. Do you remember her name? I don't remember. Liz. Liz. Yes. Liz. Liz, if you're listening to the Compound and Friends, we connect with Alicia and Gell, they miss you. We're going to end with favorites.

What's something that you're into these days? Tell the audience what you like to read, watch, messy. We're going to end with favorites. What's something that you're into these days? Tell the audience what you like to read, watch, whatever. I'll tell you something that just came across my life, but it was very brief because I didn't stop streaming it. It was two nights. I watched Bridgerton, and as soon as I started it, I was like, I'm so happy. Like, it's so beautiful. I'm so happy.

It's like a love story with passion and forbidden love. And they had the most beautiful clothing and the most beautiful environment. And then it got me thinking, like, maybe we all should stop with, like, the COVID sweatpants thing. Because actually, when people try a little, it's very beautiful. So I just like... Go back to ball gowns, like in the olden days try a little, it's very beautiful. So I just like- Go back to ball gowns like in the olden days.

You know, but it was beautiful and I just, I was so happy watching it. Corsets. So happy. What were they wearing? What year does that take place? It took two hours to get dressed. Is it 1800s? I didn't watch the show.

I think before. What's a sonnet? Is that a thing? That's Shakespearean, uh, uh, poem. It's a poem. It's a poem. It sounded right. What do you mean?

I don't know. Oh, were they wearing sonnets? Yes, back then they all wore, look at, look at, Mike has one of those a week where it's just- There are some words I just don't know the meaning of, but they sound right-ish. All right, I'll take the loss on that one. Shout to Bridgerton, you listen to the All In podcast?

I do, I love the All In podcast. I heard they talk about Ukraine all the time What's going on there? You know what not I like those guys I never listen so I like those guys and the reason I listen to them is because they're all Silicon Valley dudes and For what I do. I kind of need to know what's going on Creatively in these companies and so they've come from these companies and they're talking about You know what Elon Musk is doing and what this one's doing, what that one's doing. And they do it in a language I can understand.

It's like an hour and 45 minutes, so on Saturday I go pop it in and I just listen to it. So I feel like rather than reading sell side research reports on all the large cap tech companies, just hear interesting creative things that are happening. So I like it. I mean they've built a massive audience.

It's accessible, it's really accessible. Yeah, people love it. I mean I'm not a massive audience. It's accessible. It's really accessible. Yeah, people love it. I mean I'm not a techie per se, but I can listen to it and learn something from it. And you listen to Peter Atiyah who... I love Peter Atiyah. Shout out to Peter. So he's like the health span guru. I love him.

I'm obsessed. Yeah. So what do you get from the show? You get like practical ideas for workouts or nutrition? So here's the thing. He always needs to be the smartest guy in the room, I'm just going to say. I met him once. So what do you get from the show? You get like practical ideas for workouts or nutrition? So here's the thing. He always needs to be the smartest guy in the room, I'm just going to say. I met him once. Like he just always has to tell every expert that he brings on that he knows more, but it's fine.

Because ultimately his insight is if you want to be healthy as you get older, you have to be really healthy now and you have to do certain things if you want to lift your great grandchild over your head when you're 90. And so that's actually pretty compelling. Like who do you want to be? Who do you want to be when you're 90? If he's so smart, does he know what the word sonnet means? I think he probably does. The guy's a genius. There's a real correlation between wealth and health in that respect. Like if you want to live a certain way, what do you need to do now in order for that to be possible? So you need to lift weights. So I lift weights. I lift weights three days a week.

Are they pink? They're not pink, they're heavy. You lift like real weights. They're heavy, and if I lift, people will yell at me. And then the other thing I learned from him is you don't have to be obsessed with cardio. Right, you can do like a turkey trot. You know, you just have to run so you can talk get your heart rate up

You don't have to do a turkey sub I'll do that All right, so all right. I I I've seen Peter actually on stage with Patrick O'Shaughnessy. Were you at that? Mm-hmm that was really good. It's really compelling. Yeah, really compelling. All right, very very cool. These are great These are great favorites. I'm gonna I'm gonna I'm gonna check out Peter show I probably should probably should have a long time ago. Michael. Also read the book.

Is it too late? All right, Michael, do you have a favorite for us? Sonnets? Not Sonnets. I listened to Joe and Tracy on the Odd Lots podcast. They had somebody on, two people on I think, talking about how companies figure out their pricing points. Oh, that's in my queue.

Okay. It was awesome. Highly, highly, highly recommend. Who were the people? I don't know. I don't know. I forget. But it's not random.

Like needless to say. And it's pretty sophisticated and sort of terrifying. And it was really good. Shout out to our friends Joe and Tracy. That's going to be AI also, by the way. Totally. Pricing is AI. Totally.

I thought you were going to say Odlots is going to be AI. No, but the pricing for everything's going to be AI. If it's not already. Right? If it's not already. Search? If it's not already. Search pricing. Yep. What rap album do you have this week?

Dude, what's wrong? I have a restaurant. So a lot of people, when they think about like Italian food in New York, they like assume like carbon is the best food. Cause they're idiots. They don't know anything. Um, one of the best pasta, just pure, like they have other things, but like if you just want.

Pure uncut pasta. If you want pure uncut raw pasta. If you want like the real, the real, real thing in New York, not like not go to Italy for it, it exists on 20th Street. Yep, it's called Res Dora. Have you heard of this? Jill? Where's Jill? We lost her? She left. Have you heard of this gel? Where's Joe? We lost her

She left we've been to read. Have you been to res Dora yet in Flatiron? You know Stefano Secchi, yeah, oh man what a home run this place is like if you so you're listening to Peter It's here. You're not going out to eat pasta after this Peter it's here freed me for my fan base. No, so There I'm just gonna tell you right now, everything's homemade, obviously. He's got a Michelin star. He won the Michelin star in 21 and in 22 and in 23, which is rare. In New York, they give them and take them. Yeah, yeah. It's the seventh best Italian restaurant in the world, according to the Italians.

He went to Italy. How did I not know this? He went to Italy and took seventh in the world for a New York restaurant. It's the cuisine of Emilia Romagna, which is very hearty and it's just an absolute knockout. What did you get? I have pictures, I'll show you what I got.

There's a dish called Grandma Walking Through the Woods. It's about his grandmother. I have to tell you, I was just absolutely floored, and that doesn't happen to me very often. So if you're coming to New York and you can't get a reservation at Carbone because of how annoying they are, consider looking elsewhere, think about this restaurant.

So, is that a good? Yeah. It's a good favorite. All right. All right, Duncan, do we have anything to do? I love it. I think we're good. You covered it all?

All right, Alicia, you said it all. You said so much. You were fantastic on the show. Thank you for having me. I'm so excited to be here. We definitely want- And Jill came, I'm so excited for that. This was really a treat. We definitely would love to have you back, but thank you so much for the time that you spent having me. I'm so excited to be here. We definitely want- And Jill came. I'm so excited for that. This was really a treat.

We definitely would love to have you back, but thank you so much for the time that you spent with us. I hope we didn't violate any of your compliance restrictions. I don't know. I'll find out. I'll say this. It's probably the first time I didn't listen to a fed presser and I feel very liberated. You didn't miss anything. Thank you.

You didn't miss anything. Thank you. All right, Alicia Levine, ladies and gentlemen. Guys, thank you so much for listening. We appreciate you. Leave the likes, leave the loves, and we'll talk to you soon. Is that good? You wanna do it again? Good? You think we got it?

Okay. Was it okay? It was okay. We had the best time. Thank you so much.