The Compound and Friends - Google Pops, Belief in the American Dream Drops, Regional Bank Stocks Rally Ahead of Rate Cuts

Episode Date: September 2, 2025

On this TCAF Tuesday, hear an all-new episode of What Are Your Thoughts with ⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠! This episode is sponsored by MSCI and Rocket Money. To learn more about MSCI, visit https://info.msci.com/chrt-i4w-pdcst Cancel your unwanted subscriptions and reach your financial goals faster with Rocket Money. Go to https://rocketmoney.com/compound today.    Sign up for ⁠⁠⁠⁠⁠The Compound Newsletter⁠⁠⁠⁠⁠ and never miss out! Instagram: ⁠⁠⁠⁠⁠https://instagram.com/thecompoundnews⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠https://twitter.com/thecompoundnews⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠https://www.linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠https://www.tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠ MSCI Disclosure: MSCI is a leading provider of critical decision support tools and services for the global investment community. With over 50 years of expertise in research, data and technology, we power better investment decisions by enabling clients to understand and analyze key drivers of risk and return and confidently build more effective portfolios. We create industry-leading research-enhanced solutions that clients use to gain insight into and improve transparency across the investment process. To learn more, please visithttp://www.msci.com/ The process for submitting a formal index complaint can be found on the index regulation page of MSCI’s website at: www.msci.com/index-regulation. Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to the compound and friends. Tonight's show is brought to you by MSCI. More on MSCI in just a moment. Tonight's show is also brought to you by Rocket Money. With prices going up on just about everything lately, dealing with money can be stressful, trying to manage subscriptions, track spending and cut costs can feel overwhelming.

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Go to rocketmoney.com slash compound today. That's rocketmoney.com slash compound. All right. We have a huge show. It's what are your thoughts with Michael Batnik and myself? There was some after-hour news breaking on Google. This alphabet literally launched on news that they will not have to sell or spin off the Chrome browser. If you recall last summer, that ruling went against them.

And that was a worst case scenario. Worst case scenario appears to be off the table. We take a look at the rally that we've seen in junk stocks this summer. We take a look at some of the superlatives from the overall market rally. And we look into why we are seeing record levels of pessimism people are expressing to surveys about their own financial situations. also some ideas for investing as rates fall and some recent rallies in stocks that we haven't talked about in a long time.

So I think you're going to love the show. I'm so glad that you're here. I'll send you over now. Welcome to The Compoundin Friends. All opinions expressed by Josh Brown, Michael Batnik, and their castmates are solely their own opinions and do not reflect the opinion of Redholz wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.

Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. All right. Good afternoon, gangsters, gangsterets. Good to see everybody in the chat. I want to introduce the show properly. My name is downtown Josh Brown, here with my co-host as always. Michael Batnik, say hello to the folks. Hello, hello, folks. For those of you who are tuning in for the first time, and I know we had an influx of new followers, new subscribers. Let me set this up. On what are your thoughts, Michael and I go through the biggest stories happening in the markets. in the economy this week. And we don't really talk

as often as you guys might think all day long, every day. So I want to hear Michael's thoughts. I assume he wants to hear mine. We have a live audience here on YouTube in the live chat for the taping. I want to say hello to some folks. Let's see who we got here.

I got Jay one time in the chat, ladies and gentlemen. Jay Luther is back. Jason Chen is back. He said, why Google Jump After Hours? Jason. Very simple. We're going to get into it in a few minutes.

We're going to have all the information that you need. Who else? 4 a.m. pizza. Are you ready to get pounded? I woke up ready, my friend. Drew Hickman is here. Brian Grill is back. Cliff is here.

Magnus, Roger. All the regulars are back. And some new faces, too. Good to see you guys. Tonight show is brought to you by MSCI, Michael, new sponsor alert. Yeah, you look surprised. I am. Very exciting. Love MSCI. Why don't you take us through this? All right. Many of us have a little home country bias. We tend to invest close to home. Actually, we're talking about it later in the show. But you may have noticed right now,

some of the strongest growth stories are unfolding far from Wall Street. Markets outside the U.S. have been gaining ground. In fact, a look at MSCI indexes show that sort of international markets from developed Europe to fast-growing emerging economies have been outperforming the U.S. That's right. Outperforming nine U.S. equities outpaced U.S. equities by one of the widest margins in years. It's a reminder that opportunity isn't always in your own backyard. Wealth managers can see these trends emerge through MSCI's X U.S. Indexes. Is it time to rethink our U.S. focused diversification strategy? Visit mscii.com slash indexes.

All right. Shout out to the good folks in MSCI. I want to, I want to just start with this. idea of a junk rally because I sort of think it's coming to an end already. But Adam Parker, our friend Adam Parker at Trivariate did a really good piece of research over the weekend. And the gist of it was, I'm paraphrasing him, but like, if you're frustrated that you're trailing the market since April, but all year, you're not alone because very few institutions own the types of stocks that are in the lead performance-wise. It's this really weird period of time where since the liberation day low, yes, we've had rallies in the S&P. Yes, we've had rallies in the NASDAQ and in the

mega-caps. But this rally that's taking place in low-quality stocks is one for the ages. It is, according to Adam, the biggest junk stock rally ever outside of the recovery from a crisis. And I want to just walk you guys through what Adam had to say, and Michael, I'd love to hear what your thoughts are along the way. Basically, Traveriat tags stocks at the end of each month and puts them into one of four quality buckets, high, mid, low, and then junk. And the factors that are determining which bucket they are classifying stocks into, things like the level, like the price, the volatility of ROE, the distance to default, the free cash flow, the free cash generation, the amount of short interest, turnover of the share base. These are the types of

signals that would tell you whether or not a stock is high quality or junk. He makes the point that outperformance from active management has been pretty impossible this year because of the very lowest quality stocks in both the growth bucket and the value bucket running away with the football. So negative cash flow companies, we've talked about the EV-Tal companies like Joby, as a for instance. He's talking about low operating margin, highly indebted companies like the meme stocks, heavily shorted stocks. There are no, Michael, you'd agree with this.

There are no active managers, at least that we know of, that advertise their style as we buy the biggest pieces of shit. And hold them forever. Yeah. And we overweight money losing companies systematically. Nobody would ever run an ad saying that that's the way they allocate, which is why institutions are so underrepresented in this area of the market. So Adam makes a couple of points here. The first is don't get too upset because over the extremely long term, quality does beat junk.

Let's put up the first chart. So believe it or not, that big heavy black line in the lead, and this goes back, 20,000. years to 1999 is a high quality value followed by high quality growth junk quality value it's very confusing um but suffice to say junk quality growth is literally the worst of all of the buckets that you could find yourself in and um just not just not this past couple of months um this is uh here's a here's a table showing these are some of the historic junk rallies. And the first thing that should jump out at you in those top years, um, they all, they all seem to coincide with major bottoms for the stock market or major turning points at

least. So you see COVID in there. You see, um, uh, March of 2009. Uh, there's a bunch around COVID. And then the question, uh, becomes, you know, is this the kind of thing that you should try to chase? Or should you just let it happen without you? And, and, and, you know, and stick to, you know, if you're a quality investor, are you better off just sticking to that? Michael, what do your thoughts? Are you, no, no, do not chase junk rallies. Come on.

But what if I need performance? What if I need to outperform? Well, active managers are not chasing the junk, but you, yeah, you said a lot. I just want to address one thing. Yeah. I'm in my comp tables at Y charts and I'm looking at, you mentioned like, oh, the junk rally makes it hard for managers to outperform. But actually, I haven't done this exercise in a while.

I'm looking at the S&P 500 members with their year or date return. And I'm sorting from high to low. And I'm looking, and the top of this list, Josh, looks nothing like years pass in a good way. So we've got Pallantor leading the charge, then Newmont. We've got Seagate next, GEVernova, Western Digital, CVS Health, GE Aerospace, NRG, Energy, Howmet, World Caribbean. Amphanol tapestry. I'm scrolling.

I'm scrolling on what I don't see here. There might be a few junk names in there, but not a lot. But here's what I don't see. But these junk names are not in the S&P, not almost by definition, but a lot of these ones aren't. What I don't see, I'm scrolling, I'm scrolling, I'm scrolling. Not even in the top I would have to, not even in the top 75 or any of the Mac7 names. So this is the year out of the last five years where if you were ever going to outperform,

Nvidia's of 29%, but that's like way down the list. I think I'm conflating timetables. It's really about the rally off the April lows. Yeah. I think that's like the real standout where it's like, wait, I understand. All these stocks just doubled. These are the worst stocks in the market. And it happened anyway.

All right. So two more thoughts. Number one, just because we just experienced a very strong junk rally does not invalidate the total rally because what you also saw alongside that was exactly what you wanted to see with a healthy bull market, financials, technology, the leaders did lead, and we're going to get to the next topic. But I had Chart Kid create since the bottom, to the top, the most shorted stocks. So this is from Goldman. This is Goldman's most shorted index. And if you go back to 2010, the only other time you saw a piece of shit rally

like this. And listen, the most shorted stocks, no offense. These are not good companies, okay? No, these are by definition. There's, these are all. all problematic. They're all dogs. The most doesn't mean they can't have sick rallies as we just, as we just witnessed. But yet, outside of 2021, we've never seen anything like this before. So yeah, it's been a junk rally alongside a broadening healthy rally. Yeah, it's, it's been wild.

So let's go to the next chart. So just like, you can see the whole time frame here, but just pay attention from the April lows. And what you see is junk quality growth, just. launching. I mean, far outpacing everything in the market, which again, over the long term, this is the worst bucket. I got to see these names. That's why it's so, that's why it's so jarring. Usually this works in reverse for investors. So let's go next. This is the cumulative performance positive versus negative free cash flow stocks through, I guess through the end of July. The black is

positive free cash flow. It crushes negative free cash flow over time. Don't earn businesses that are losing money. Very controversial. But again, here's the short term. Adam says, next chart, but again, consistent with margins and quality, buying companies that burn cash has been better than buying those that generate cash off the market lows. And you can see it as clear as day here. Negative free cash flow is far in away over the last year. in the lead, mostly because of what happened in the last few months. Last thing from Adam, he thinks it's over or almost over. So this is how he concludes.

Our judgment is that the junk rally we have been in as close to ending, either the market retreats on a tariff-induced growth scare and junk relatively lags, or the high-quality businesses catch a bid and relatively catch up as their fundamentals remain intact. We think either way, it's hard to see a sustained continuation of the junk rally beyond something akin to a short-term rally fueled by a September interest rate cut. I sort of think he's right just because I'm seeing so many high-quality companies get racing right back to their old highs and starting to take the steering wheel. I think the junk rally was fun for the summer, but I think people get serious again in the fall. What are your thoughts? Yeah, I really want to know what's what names.

are we talking about here in his junk basket yeah i well i'm gonna i'm gonna go out on a limb and i'm gonna guess it's a lot of like sound hounds and like speculative AI maybe like gene editing um probably the evy talls that i mentioned some robotic stuff it's again it's not uh oh they're talking about open in the chat yeah of course open's gonna be in the in the junk bucket joe i didn't realize jobby just had a Monster retracement. Yeah. Yeah. So Adam thinks it's coming to an end.

I wouldn't be shocked by that. Not me either. So, all right. You're up. Okay. So I want to talk. Oh, let's do Google real quick. So this happened about 30 minutes ago from CNBC.

A federal judge ruled Tuesday that Google can keep its Chrome browser but will be barred from exclusive contracts and a share search data. Shares were popped 6% in extended trading. U.S. district judge, Amit Mehta, ruled against the most severe consequences that were proposed by the U.S. Department of Justice, including selling off its Chrome browser. Okay, the stock is up 6%. I'm very surprised that that was so much of an overhang on the stock. I really didn't think anybody took that seriously.

Apparently did, but I want to make a point. And I was going to do this next week. He wouldn't have time to get to it today. In two weeks, actually, we're going to be a future proof. So I sold Google near the lows at 160. maybe, whatever that was. I remember, it's funny, I almost never have CNBC on during the day.

I had it on. I believe you were on the show, but I can't remember exactly. And we were, I said this to you a couple months ago that I didn't really buy the chat, GBT overhang. I thought that Gem and I was doing really good things,

and I thought that Google's user base was so entrenched that I just didn't buy the story, which is why I bought Google in the severe drawdown. And then I held it for, I don't know, maybe two weeks, and we had the news. I forget who was on the show with you guys, but they had a piece of data that quantitatively showed how much users they were bleeding compared to JAP, GBT.

The stock was down 7%. I was down a little bit, maybe even or down a couple percent. I said, you know what? I don't need to wrestle with this. I don't need to get mad at the stock. I just got in two weeks ago. Let me just bail. That was at 160, about 40 percent ago.

Put the chart on, please. So I was right, and then I got scared. It happens. holy shit, one of this thing I've been on. Look at the past. I didn't realize this. This is news to me.

Look at the past three years. John, next chart, please. Did you realize, Josh, that meta was kicking the shit out of Google to this extent?

Yes. And that's Google is, is and was at that time that you sold it, the lowest multiple of the MAG 7 stocks, way lower than meta, Microsoft, Apple.

And cheap, you know, a lot of people said, well, it's cheap for a reason. They have this existential crisis that people are skipping Google search and going right for the answer on chat GPT. That narrative was obviously wrong. I don't know if it's going to be wrong long term. Well, no, no, it was wrong.

Maybe not forever, but for now it was wrong. The news that you were rattled by was they asked Johnny Ive at a conference a question about this exact ruling, like how big of a deal it would be. and he made this offhanded remark about how like Google searches are not even like something to the effect of like Google searches or like falling off iPhone usage. I forget the exact way that you phrased it. A lot of people got nervous about it. I took a profit in this thing close to 200. Obviously at this point, I wish I hadn't.

But I felt vindicated when it fell. And Jimmy Laventhal was sticking to his guns. He's on Google. He wrote out the downturn. I assume he's still in it. But this was the thing that people were most afraid of. They had this anti-competitive or allegedly anti-competitive deal with Apple where Google paid Apple $50 billion in order to be the default search engine and default browser in the iOS devices. I thought it was 20, but either way, it's a lot of money.

No, it was like 50, dude. I think it was 50 over multiple years. But, like, companies like duck, duck go were arguing, like, this is complete bullshit. Like, it's not a fair, it's not a fair playing field if Google is always the default. People thought that the judge was going to push for a remedy because Google lost, wherein Google was forced to sell the Chrome browser. And that's not what happened here. So the worst case scenario is off the table.

And that's enough for a big rally here in the stock. I'm not convinced that there's not going to be cannibalization. I do Google searches still. I get the Gemini summary. It's good. It's perfect for me. I don't click shit. I know that's costing them somehow.

I just, I don't think, I don't think it's big enough where we're like actually seeing the result of that. But like, give it a few quarters. I still think that's the biggest risk for Google is a behavior change. for for 20 years people never even thought twice anything they were wondering about the answer to they just went straight to Google people still use Yahoo like behaviors are entrenched that's tough I don't know people I don't know those people I believe that you're right because they still come across AOL email addresses but what we're talking about is like billions of people not a handful of people John throw that in the last chart up just this just blew my face

Google divided by meta I didn't realize the extent to which meta had kicked their ass Isn't this wild? Yeah. And by the way, meta thinks that their AI efforts are going to be a competitive threat to Alphabet, like they all do. Yeah. So I'm not convinced. I'm not convinced we've seen the worst of this story.

But the judge, the judge thing, like the remedy thing, this is a clear upside catalyst, obviously, which is why the stock is up so much in the after hours. The stock is up so much. Okay. All right. So the topic that I had before the Google breaking news, which is now 8%, is that I don't know if you know this, but I've confirmed we're in a bull market. How can you tell?

Yeah, no, it's true. So this chart, I've never seen anything like this before, and it might take you a minute to process it, and it might take me a minute to explain it. Try now, please. So what we're looking at, this is from Ned Davis research, and it is so good. So we are looking on the y-axis at the percent of stuff. stocks above various moving averages, okay, within different areas of the market. So large cap growth is orange, nexus, mid-cap growth, et cetera.

And on the X-axis is the moving average days. So focus your eye on the top left quadrant, okay, Josh? So what this is showing you is that basically all of 95% of small-cap value stocks are above their 10-day moving average. I believe that. okay and then the dashed line all the way at the end that's the that's the 200 day the dashed line all the way at the end to the right you see that the vertical dash line yeah that's a 200 day so small cap growth has the lowest percentage of stocks above their 200 day moving average it looks like it's

about 55 uh large cap growth it looks like it's 78% give or take anyway this is a beautiful chart and everything's above the moving averages it is a broad rally yeah it's interesting wait What's the, um, what's the gray? That's small cap growth. Small growth. So even after that whole spiel we went through about junk stocks leading the market, like it's, it's, it's still, I guess it, these stocks had such a far distance to travel to get back to their 200 day, that they're still the lowest percent of, you know,

of all the groupings to have like a lot of stocks in their category up there. Yeah. So it's crazy. guess that's a function of how far below all-time highs those stocks started out. Yeah, they got railroaded. All right, so we spoke earlier in the show just a second ago when I was naming all the top-performing stocks. These are like not the names that people that I would think are leading the market this

year. So duality research, they should be on their radar if you're not, if they're not, check out this beauty of a chart. They're showing the average number of daily advances by calendar. And 250, that horizontal line, that's break-even, right? There's 500 stocks in the index. 264 stocks on average are advancing on a daily basis in 2025. That's the highest level since 2021.

This is a broad rally. And the things that are rallying, Judge, before I move on, have any comment here? No, but it's notable that this is a better equality rally than last year or the year before on this metric. Yes. So I've been saying that in bold markets chart off for a second, in bold markets, especially ones that have lasted as long as this and as sharp from the bottom, of course you're going to see nonsense, right?

Like that just, especially in 2025, that you will never not see nonsense ever again with Reddit and the message boards that will never not exist, the way that people galvanized together to force ox higher. They will never not happen. But you're all, don't let them distract you from the quality nature of this rally. Next chart. Is this bullet trash? This is the equal weighted version.

of consumer discretionary names divided by consumer staple names. Multi-decade high. Yeah, my only comment would be look at the end of 2021, how fast that went away. Like the high of the year for 2022 for the whole stock market

was January 1st. And they just relentlessly took it away. So it's a great representation of what's happening now. I don't think we should, should hang our hats on it as though there's any permanence to it. 100%. They can rip it away so fast.

They could rip it away so fast. 100%. I'm saying today, we are clearly, clearly cleanable market. And you're 100% right. As quickly as we got here, it could be ripped away. This other chart, also from duality research, shows the same thing. What the fuck is a risk sniffer? That sounds perverted.

It's the, it's showing the same thing that I just did in the light green line, which is discretionary divided by stables, but they're also showing you that credit spreads are showing you the same thing. So this is high yield spreads inverted. It's basically just showing that bonds, that credit markets are confirming the strength. That's all that show you. I like when the bond markets don't look the polar opposite of a stock market rally. It's good. So we've got that going for us, which is nice. High beta. You risk sniff it. You risk sniffing, son of a bitch. That's all day, baby. High beta divided by low valve. Also at multi-year high. And you know what's interesting, Josh?

I know we're going to talk about this in the next topic. The wide chasm between the labor market slowdown, how people are feeling, and how consumer stocks are behaving. XRT is working in a big way. Of course, it's not every retailer. Target, for example, is getting destroyed compared to Walmart and Costco. Uh, anyway, this is really not, yeah, I don't, I don't know how the XRT is weighted. I haven't looked at it in a while.

I'm guessing Walmart is, is pretty big. It's equal weighted. Yeah. Oh, really? Yeah. So for me, for me, I would just prefer, I always would prefer to look at consumer discretionary as a sector, rather than specifically the retailers, because it's so messy. Like, we just, we don't, we don't necessarily have an economy.

me where most things are purchased as a retail good anymore. Like, services are so much more important. And I just feel like discretionary folds in travel and leisure. And I just, I like, I like it better than looking specifically at the retail. Okay, fine. So look at RSPD, which I just showed you at an all time high. And if you divide it by the staples at a lot of time high, the reason why we use RSPD as opposed to XLY, XLY is like 40% Amazon and Tesla.

So that's, that's useless now as a signal. Yes. All right, regional banks and the bank index from J.C. New six-month highs, new year-to-date highs, not bullish, not bearish, excuse me. Yep. We're going to talk about our regional banks later in the show. I was talking about them on TV today. I think it's a big story.

All right, almost done. The rally is global in nature. This is from Callum Thomas. The black line is the MSCI AQUI XUS. And the red line is the percent of countries above their 200-day moving average. And it's about as high as it ever gets. And interestingly, Josh, and maybe the sentiment survey is just completely trash and has no meaning. Could be. There's still more bears and bowls, at least according to the AI sentiment survey. Whether, like recently, you could throw this out.

But the reason why I think it's interesting in this case, even though there's areas of euphoria, we mentioned the junk rally. There's still a lot of skepticism in the rally. There's still a lot of people that are pissed off and missed it, that are bearish. So maybe this is still a wallet war yet. It is. And I'm going to agree with you on that because I don't hear anybody that's like giddy and euphoric. There's a little bit of euphoria about AI, but I think it's more in the private markets,

just the willingness to fund things and write huge checks and pay huge value. in the in the stock market we have these one day IPO pops and then these stocks get absolutely slaughtered for the next two weeks that's not euphoric behavior euphoric behavior is like a company comes public triples on the open day and then triples again two weeks later and we really don't have that um and so i just i don't see the euphoria i see way more skepticism way more pessimism and i'm just talking anecdotally i don't i don't have the date of the back it up other than what you're showing me here. But that actually squares with what it feels like to actually talk to people.

But I agree with you, agreeing with me, and I like it. It means that there are still disbelievers, which is what you want to see. It lengthens the cycle. If people stay pessimistic as the market advances, those are future buyers. This cycle. I was about to say something inappropriate. I'm not going to. However, we are coming to a seasonally week period of the year, take it for what's worth.

But September sucks. Chart on, please. September is the only month or the second, I guess February, it doesn't really count. It's flat. September is the only month with a legit, negative return since 1950. And if you look at presidential years, the first year of presidential cycle, it's even worse. Wait time to buy. Yeah, maybe. If you're an asset accumulator, you should look at that chart and you should say, how could I raise my accumulations in the late summer, early fall? Now, I don't think it will really make a big difference in the long run, but you definitely shouldn't look at that and say, oh, now it would be a great time to get out unless you're like literally getting out forever, which I don't think is our audience on YouTube.

I think the pounders are in accumulation mode and you should get excited by a month that on average is, is negative. This is the big story at the Wall Street Journal and I wanted to get into it because I think it's at the heart of some of the pessimism in the stock market. And I think it's at the heart of the pessimism on social media. Just generally speaking, we really do have like a little bit of a pessimism crisis on our hands. And I'd love to hear what you think. The Wall Street Journal did a survey at the University of Chicago in the middle of July, 1527 adults.

Respondents completed the survey online except for 42 who were interviewed by phone. Let's put up this graphic. This is the title. Americans lose faith that hard work leads to economic gains. And I don't remember what the story is with these two guys. But here's the salient point from the piece. The share of people who say they have a good chance of improving their standard of living fell to 25%.

That is a record low in surveys dating back to 1987. More than three quarters of people said they left. black confidence that life for the next generation will be better than their own. 70% of people said they believe the American dream that if you work hard, you will get ahead no longer holds true or never did. That's the highest level of pessimism in 15 years of surveys. There are minor differences like Republicans were less pessimistic than Democrats. That's because Republicans hold the White House.

That's how it always is. An index that combined six poll questions found that 55% of Republicans and 90% of Democrats held a negative view of prospects for themselves and their children. 90% of Democrats. Really? Really? Okay. And let's put this chart up. The question asked is, people like me have a good chance of improving our standard of living.

look at the disagree over 70 percent agree is just over 25 percent and you can see this going back to 1990 it's pretty bad so the disagree part is is down but it's not dramatic the agree part that's that's the that's the holy shit what just happened right people will not agree with that statement to a huge degree all right next one next one this is same same article versus predicted consumer sentiment. This is crazy. What happened in 2020? It's like something happened.

I kept up my finger on. Yeah. I wonder what that could have been. So for me, this is like 80% inflation. What do you think? All right. I have a couple of reasons why this is happening. Number one, I think surveys are broken.

And I think that it's not a crisis of pessimism. I think it's partly manufactured. Now, there are reasons for this. There are absolutely reasons for this. service are broken, Ben and I did a rant on this last year where I can't remember who did the survey, and I'd love to see the questions that they were asking. But there was data, air quotes, that were showing that people thought this economy was worse than the bottom during the GFC.

Some of the things that people were answering were so far off the reservation that I just said, that's it, I'm done, I'm done with surveys forever, it tells you nothing. It does tell you something, tells you nothing and something. So don't take it literal, but take it seriously. All right, COVID broke everything. it broke the economy, it broke how a lot of people live, and it led to, obviously, a surge in inflation of which the cumulative effects we are still dealing with every day. The prices have not gone down, and that is the number one thing, okay?

That's the number one thing. Number two, all that we hear is that there's a crisis and that people are pissed off. We hear it every day from the news. we hear it from the politicians all that they talk about both sides are the world's going to hell you can't succeed anymore the other party that's all the messages it's not about uplifting it's just about blame this country's going to hell but that's all that you hear and then number three the stock market and i would say especially the crypto market being fueled by the internet and social media has really shown the spotlight on if you are not in the

the asset accumulating class, like our viewers are, it feels very much like you're getting left behind, which is true. So I think it's a combination of all of those things. We're never going back, it will never not look like this. Like for the rest of time, it will never not look like this. I think Facebook and Twitter are a huge part of the problem. 100%. And just for fun, spend 15 minutes if you have an old Facebook account.

log back into it. I had to do that the other day to go into this ticket group to get tickets for something. So I went back into Facebook. I mean, it's probably like May or something that I'm talking about. But this is after years of not only not posting, just like forgetting that it even existed. It's like baby picture, baby picture, baby picture, Israel, Palestine. Baby picture, baby picture, Israel, Palestine. It's just like that.

Just the dumbest people you know are the loudest on Facebook. And then the second dumbest people you know are in their disagreeing with them in their mentions. Okay. Twitter is, I mean, it's just migrants raping people. Like, that's the whole, that's the whole thing is like racist posts about this race rapes more people than that race. And Europe is falling. And I'm like, what the fuck is this site? Social media.

be very active there i don't even understand people are so unhappy because of what the algorithm is motivated to show them that they assume their quality of life has to go down so social media they just assume it's so bad and obviously the algorithm it is designed to keep you on your phone and nothing keeps people on their phone like out like being outraged and being fed bad news not goodness that keeps you on your phone it's so sick i couldn't i couldn't even do like five minutes but i also I also, and I'm not, there are obviously issues in this country, in this world, legitimately why people are upset, but I kind of reject it. I just don't believe it.

I think that there is such a disconnect between the online internet and the way that people answer surveys versus the way that people are actually in their regular life. I don't believe that people are as upset as these surveys are suggesting. I just dismiss it out of hand. Oh, I think they are, but they don't have the facts. I don't believe it. I think they're upset for all. I think they're upset for other reasons, and they're answering a survey, almost like they're

venting. I don't think they know what unemployment rate is. I really don't think they have any idea. I don't think they know anything, quite frankly. I think they're pissed off because of what the algorithms are feeding them and what their bills look like, what their credit card bills look like, and how much everything costs. And they can't, they just, they can't picture it getting better because quite frankly, right now, they're right.

It's not. It's not getting better. prices are not ever going to come down. They might go up slower. But if prices, like, actually go down on a net basis year over year, we have a way bigger problem. I just don't believe that people are as unhappy as these polls are suggesting. All right.

Let me share this with you. This is also Wall Street Journal. Middle class vibe has shifted from secure to squeezed. The middle class generally considered to be households making roughly $53,000 to $161,000 a year. is playing an outsized role in that waning optimism. After months of tracking high-income earners increasing confidence about the economy, households making between 50 and 100,000

made an abrupt about-face in June. They now more closely resemble low-income earners' gloomier views. So, in other words, let's put this chart up. Okay, I don't know why they insist on doing three shades of blue. It's sort of ridiculous, but this is meaningful. look at the people with incomes above $100,000,

or what I refer to as stock market Americans, it's up and to the right. Now look at this middle bucket, $50,000 to $100,000. This just collapsed over the summer. And I don't know, maybe it's the tariff stuff. This is so noisy. Why are we day trading the consumer sentiment? All right.

And then obviously income people, 50,000 and under never, have just had a horrendous post-pandemic experience because of high prices. But like, I just think it's, I think it's something to be watched by investors that that middle class, 50 to 100,000 sentiment is now collapsing because, yes, stock market Americans are doing great because they own Costco and Walmart and Apple and all these stocks are at or near highs. but the spending by this middle class cohort is the reason why those stocks have held up so well. And that spending is not guaranteed if that line gets worse than the downside.

What do you think? I don't know, man. I just think it's really noisy. Like what happened in the last 60 days to make that collapse? Tariffs. In the last 60 days? People are feeling tariffs. Tariffs happened 120 days ago.

And 60 days ago, the pricing resulting from. from those tariffs started to get worse. I don't like spending a lot of time on things that I think, like negativity I think is manufactured. I really do. Not saying anything's fine. But it's also impactful if it persists. It's impactful for political reasons, which might be the most important of them all,

because of people vote based on how they feel. But for the stock market, for what we spend time on the show talking about, I don't think it's particularly that important. I really think that interest rates have to go have to, have to come down in order to fix it and that it is fixable. I think, I just think the rate that people are paying for mortgages, the rate they're paying on their debt. Look, you can't fix the cost of everything in people's lives. We were talking to Jan Vanek about electricity costs for the lower class. It's a huge line item in their household budgets. Like, I don't know that you can

really fix that. I don't think policy fixes that. It's just an unfortunate fact of life. deliberately maintaining interest rates as though we're a 5% GDP economy, I think is absolutely absurd, especially when you look at the squeeze that people are feeling. So I understand we're trying to guard against, you know, rising unemployment versus the tradeoff and not having inflation. I really don't think inflation is the risk here. I think people are crying, uncle, and they're venting to these surveys because no one else will fucking listen to them. And I don't think it just goes away on its own. And you can cut

interest rates by 25 basis points. You're probably not changing the reality for most people, which we'll talk about later in the show. But like, man, anything that we can do to ease the pressure on this group of people, I think would help for some of that pessimism to dissipate. Right now, it might be at its fever pitch. And I think rates are playing a role in that. Yeah. Okay. A nice segue way, perhaps to... Now say something super bullish.

Roger Lowenstein wrote an article yesterday. How and why U.S. capitalism is unlike any other. And... I didn't read this yet. This is important. He wrote, early corporations were hardly models of transparency. But the quintessential openness of American society saw later expression in the American invention of corporate disclosure.

Congress abolished debtors prisons in 1833. Liberal bankruptcy laws also removed a shackle from would-be borrowers. As the freedom to fail is also the freedom to succeed, capital flowed more copiously than in any other country. Today, our legal systems highly developed protections of the sanctity of contracts is a uniquely American asset. I never really thought of it that way, but I saw a video over the weekend of Bezos being interviewed, I can't remember by who, where he spoke about U.S. exceptionalism in risk-taking

and particularly what makes us different than almost any other country, I shouldn't say almost any, any other country, is our willingness for these venture capitalists in particular and their investors to, sure, let's throw $50 million at a seed company with a 5% chance of success. Like that's sort of- Or wearing failure as a badge of honor is another thing that's uniquely, I don't even want to say American, I want to say Californian. When the fire stick failed or whatever, yeah, whatever the tablet that Bezos built, that was a huge flop. Yeah.

He wore it as, not as a badge of honor, but I remember him writing about it and went like viral at the time because people were just like, this is how. you fucking do it. Yeah. So, but one of the things back to what we were talking about before, like one of the things that's kind of a fly in the ointment here is that basically to the person who's not part of this game, the person who's not part of like venture capital, Wall Street, they don't have assets.

The way they look at it is every time rich people get a little bit uncomfortable, as my friend Garrett Baldwin put it in his new blog. there's some sort of like rescue immediately like oh fdic limit don't worry about that we got you like we'll take care of you great financial crisis no no no don't be silly we'll do cash infusions for all you guys um silicon valley bank like that whole episode was like just a recent example but there have been so many over the years where like rich people really as a group don't get uncomfortable for too long before the trash. Treasury, the Fed, Congress, everybody's riding to the rescue.

And that's what I think middle income people look at, and they're just like, so let me get this straight. I have the freedom to fail. But if I have billions of dollars on the line, no one's going to let me fail because I'm too important to somebody politically to actually ever take that kind of pain. And that's how you get a situation where every crisis leads to the people who are already rich being even richer, and the people who are locked out of the system, just taking the consequences on their own. And that's what I think that's what's at the heart of a lot of the problems that,

look, I have an active account on blue sky. Not everyone on blue sky is a socialist, not everyone on blue sky hates capitalism, but like a lot of them do. And no matter what you say, like post something about the economy, jobs number surprise to the upside, I'd be like, all right, but hurry up and get to cash because this whole thing, they were about to tank this thing to make people rich again. Like they literally look at like market corrections as organized in order to help the people who already owned all the assets. You talk about the Fed cutting rates.

They sort of see it as like, yeah, of course they're going to cut rates because someone's going to tell them they have to. And they don't see it as like, oh, they're going to cut rates to help regular people. so people hate the Fed, they hate, I mean, and it seems, I had thought it would get better given that we're in a 4% unemployment economy. It, Michael, honestly, it only seems to be getting worse. It only seems to be getting worse. And I don't know what changes it, but again, I think the rate cuts are like the, the route

toward maybe making the pressure on people be less. So we'll see, I mean, we'll see if it plays out that way. All right. I thought this is an interesting chart from Goldman. Over 40% of equity holdings by European funds are in the U.S. versus just 15% to 2009. This is wild, huh? They're buying our stocks.

Is that the answer? That's what's going on? Yeah. Percentage of total equity holdings. Yeah. I mean, what choice do they have? They don't have their own version of our NASDAQ 100. they really they really don't they have a few so i i totally i totally get it um all right

this is uh sort of kind of related maybe a non-second but i just thought this is mind-blowing uh somebody tweeted throw this up no matter what happens today 70 million working americans will still be buying invidia every month whether they realize it or not and they calculated the amount of money coming into these names on a daily weekly monthly basis and on a daily basis, $95 million is going into Nvidia, $83 million into Microsoft, $75 million into Apple, just a mind-bending, face-blowing amount of money. Yeah. So this is something I explained to people, I don't know, 13 years ago now.

I think this is one of the unsung heroes of what has now become the second best bull market ever from the lows in the great financial crisis. just the sheer number of people who don't even look, they just have a portion of their paycheck diverted into large-cap stocks, and they almost never change it. They almost never pull money out of it. Even in retirement,

they're rolling these things into IRAs and continuing to accumulate as though nothing changed. And this was the thing that people, one of the big things that people didn't see coming. Like, how is it possible that we would have low volatility, high returns, trillion-dollar companies, this is one of the enabling factors. I think the 401k is $9 trillion. What's it going to be in five years?

What's going to be in 10 years? 20 trillion? Could be more? So that is volatility mitigation on steroids. Nothing the Fed does with QE or whatever, whatever. Nothing the Fed does can compare to the, um, mollifying, effect of every two weeks 70 million people willingly allowing their part of their paycheck to buy these stocks. They buy them up, they buy them down, they buy them flat, they buy them in high

volatility, they buy them in low volatility. It's a vall dampener for the ages, which I think I spoke about pretty early. And now it's funny to see it kind of becoming conventional wisdom. Nick McJulie sort of flipped bearish on his blog this week. I wanted to hear what you thought about it. He's got some anecdotal stuff about Chamath and the new SPAC. And he's looking at, do we have this chart? S&P 500 price to sales over time. I don't love these. This is one of those. This line looks like that line or this point in time looks like that point in time. But he does of a point. Nick says, as you can see, the price to sales ratio of the S&P 500 hit an all-time high of 3.41 during the peak of the dot-com bubble in December 99. It hit another relative high of

2.98 in December of 2021, and it's at 3.2 today. It is this point in time where people are paying up on a price to sales ratio. We might blow through this. like it never happened, but I totally understand why he's looking at this, like maybe people a little bit too excited or maybe the market's a little bit overvalued. What do you think? Is there anything different about the composition of the market today versus the dot-com bubble? Yes, but price to sales is price to sales. It's different companies.

No, I'm saying. I'm just saying it is. All right. And I'm just saying nonsense. What about the fundamentals? What about the margins? What about the leverage? What about the moats?

You can't have, you can't just look at a, come on. Yeah. No, I think that is the thing that's different. I don't think he would dispute that. I think what's different is the recurring revenue nature of the companies that are really large in the index versus in 99. These were not recurring revenue companies. These were companies that had to sell a million computers every month that they would miss earnings. And also, obviously, I love Nick.

Um, Chimoth launching another spec. Okay. How about 500 IPOs a day each going up 2,000 percent? Like, come on. We're not, we're not quite there. Um, he's not, he's not shorting the market. So Nick is basically saying like, um, it's very rare for him to get cautious or, or a little bit barish.

He went to 20%, uh, treasuries. Yeah. So, um, listen, this is not a cheap market. Obviously, okay. I'm not here to say that this is a, that this is a bargain. By any stretch of the imagination. It's notable because this is the, this is the, um, this is the, um, this is the just shut up and buy guy.

Yeah. And guess what? That's, if he gets a sell off, I know what he'll be doing. Yeah. He will just shut up and he'll be lying. He will shut up and just keep buying. So the thing about, the thing about expensive markets is obviously they can persist. But if and when there is an event and there will be an event, obviously, because there

always is, something will. happen that we could not have foreseen, whether it's another SVB or more tariffs or whatever, it doesn't matter what it is. When you have stocks that are trading this high, all right, a stock, and let's just use the index as an example, a stock that's trading at 12 to 14 times earnings, if it misses by a penny, it can go down 3%. If a stock is trading at 150 times sales and it misses by a penny, it could fall 30%. Execution has to be perfect. Right. So there's not a lot Not a lot of wiggle room here. Not a lot of margin for safety.

We ought to keep growing. If we don't, yeah, there'll be a sell-off, obviously. Last chart from Nick. Total market cap of U.S. stocks with a price-to-sales ratio above 20. I have a big time, actually, for this one. So, Invidian Palant. Because you got to admit, you got to admit, it's something. Bro.

I know you have an explanation for why it's not the same. Okay. All right. So put that chart back on. This looks like $6 trillion and change. correct okay four point five of it is palatarian video get that chart off my screen great explanation thank you and but still but still no no no no no but still that's it jay luther's in the chat j luther's in the chat saying batnik is risk sniffing always sniffing but you but you haven't but you

haven't caught you haven't caught any risk yet with all that sniffing just not not quite Not in these charts, at least. Clear as a whistle, Josh. All right. Let's do make the case. I've been whining and crying about rate cuts for an hour. So if we get them, and we've talked about some of the ways that we think will benefit. We talked about rocket a couple weeks ago ad nauseum.

So we're not going to go there. The regional bank charts are indeed looking really exciting. I asked Sean to post a few of these. and I wrote up regional banks for CNBC Pro. We talked about it on TV today. Let's put a PNC, inverse head and shoulders. Inverse head and shoulders is one of the most reliable reversal patterns that technicians follow. Nothing's foolproof, nothing's guaranteed, but you like to see these.

And when you emerge from an inverse head and shoulders, you should be into a new leg of a bull market. You should be in a new bull market, I should say. Can I say one thing? So the neckline breakout was like 180, and you got the retest right at the right at the 200 day. I think J.C. would say this is like textbook. It not only is a textbook, you have a golden cross here. And look how well behaved this stock was when it retested both the 50 and the 200 at the same time. She's going higher.

And not crazy overbought yet. It's a 72 RSI. The other thing about inverse head and shoulders is you want to see them accompanied, by rising volume. Guess what? So PNC looks phenomenal. I think this is one of the largest of the regional banks. Maybe not the biggest, but among the biggest.

Here's fifth third. Same chart. Same chart, not as far along, a little bit further from the December high from last year. But, you know, this one's a little bit more tame. But I would tell you this is what you want to see happening. Very simple. Chart off. Regional banks are more sensitive to increased mortgage and mortgage refinance activity than the major money center banks. They need it more. It's a bigger part of their business.

They don't do more revenue in mortgages than the bigger banks. The revenue that they do is more meaningful to them, but it's not just revenue. It's activity. It's foot traffic back into the branches. It's phone calls. They need lower rates. Now, do they give? Do they give? something up in net interest margin? Yes, because when rates come down, you do see a compression of the spread between where they borrow money and where they lend it out at. But the increased activity that you get when rates fall more than makes up for that slight net interest margin compression. So this is a huge catalyst for these stocks, getting some relief on overnight rates, which then feed all along the chain until they get to, you know, business loans and mortgages

and all that good stuff. So wait, hold on. So two things on that. Obviously, regional banks are more exposed to the community, Main Street, than Wall Street banks, so their money center banks are. But also, look at how steep the curve is. If rates come down, that might actually be good for them because they're borrowing at a lower overnight rate and they're still lending out longer.

Like, they're going to be, they're going to do just great. it's very good for them. That's exactly right. Put this chart up, guys, first one. This is the number of homeowners who might benefit from refinancing by interest rate level. Great chart at the journal. As you can see, the further you get to the left, which is seven and a half percent rates on the X axis, the less people would want to refinance there. And then the lower you get on the X axis, you get to five and a half percent. All of a sudden, you got five, six, seven million people. So the way they, figure this out is they say, here, let me read this. Homeowners with high mortgage rates are starting to get excited chart off. The average 30-year fixed rate mortgage dropped to a 10-month low of 6.56 percent, according to Freddie Mac. The rate has inched down for nine of the past 12 weeks, tracking expectations that the Fed will cut its own rates next month. More than 2 million homeowners could now save money. That's the average 30-year fixed rate on the screen. More than 2 million homeowners would save money if they refinanced today, which is up from 1.7 million

at the end of July. And if rates get to 6%, 6 million people would reduce their rate by at least 0.75 percentage points. You sniffing? Yeah. That's not risky smelling, my friend. That's opportunity. Anyway, the Mortgage Bankers Association has an index that tracks refinance applications.

It was up 19% from a year ago during the week, end at August 22nd. So this market is working. Rates are coming down in the mortgage market and people, 20% jump in refinance applications or what you would refer to as refinance applications. This market is working as it should. Let me ask you a question, Josh. When you refinance, do you refi? I don't refinance.

I refinance. Do you refi or do you refa? I refinance. Do you re-fi? I don't abbreviate it. Okay. It's a sacred act, and I think it's crude to be talking about refinancing. Okay.

It's not a, it's not a Toyota. I refinance the house. I'm sure you do. Anyway, I love regional banks. You're lucky I'm not saying refinance, because that's where it's going next. Here's the KRA. This is the regional bank, uh, ETF. versus the XLF, which is like city, J.P. Morgan, blah, blah, blah.

Look at this outperformance off the April low, 35% versus 23%. And by the way, all those XLF names look great. They're all at record highs. Here's the regional bank ETF with its moving averages. Golden Cross, stair step higher, not quite above last year's high, but certainly look like they want to change. challenge. Here's Truist. TFC, this is a big one. What do you think? Triple top or goodbye? Goodbye. That's what I think. Here's, this is the one I talked about on TV today.

Here's Huntington Bank. Look at this, Will the Beast. Triple top or she's going. What do you think? See ya. Yeah. I got this chart on TV. Are you proud of me? I love it. Oh, really? this is a d tjb joint let me show you another here's the inverse head and shoulders in huntington bank hbs yeah now this was a little pornographic this one they would not put on tv i didn't mean it to be that way oh my god i didn't i didn't draw it to be don't all don't nobody screen grabbed this i don't need this adverse wiener and balls we all say it i didn't mean to do it that way gosh come on All right, anyway, so that's my, make the case. What do you think?

Bullish? Yeah, I love it. Okay. Okay. All right, I've got a mystery chart. In fact, I've got several. Well, maybe I'll sniff it out. Let's see what happens.

John, if you please. Okay. Would you buy this? Yes. I thought you might say that. Well, is this Eath priced in Bitcoin or some annoying shit? No. it's uh i think i have one more chart or john i bought it what did i buy this is you bought the rossil

two thousand divided by the s mp 500 okay so no hints just you full reveal oh you asked what else you got you asked all right john one of the charts that i break all right so this this is surprising i cherry picked a little bit this is going back to last the second week of last july is that surprising the second week of last july is there is there is there is there significance to that yes i wanted i wanted i wanted the numbers to line up that's the significance are these stocks no no this is it it's the same thing same thing oh got the reveal is over josh isn't this surprising over a year of uh same performance i would not have guessed that over the last year the russell had kept pace with the s&p me either i mean you cherry picked it but so what but so what it's

it's over a year it's i agree i think i have two weeks i think i have two more. All right. This was interesting from Yardinney. He's showing operating per share earnings on a forward basis. I mean, the large cap, LOL. Why are stocks going high? I wonder why. But look at the blue and the green. The mid cap of the small caps turning up. Not nothing. Yes. Not nothing. John, do I have anything else? I thought maybe one more. Oh, yeah. All right. So this is from Todd's own. And there's a lot of noise here. The only one I want you to pay attention to is the bottom chart, which is the one year rolling flows for small caps and were two standard deviations below the average. I mean, nobody wants these stocks. It's crazy, right? I like the

setup. So this I couldn't, I can't follow you into this. I get why you like the setup, though. This is your type of, that is your type of setup. You like those things where like nobody will say anything good about them. I bought Western Union. And I listened to the conference call. They know about stable coins. They're not at slip of the wheel. We're taking some shit in the chat. Shit in the chat. Brian Chatser says, ah, yes, technical analysts, astrology for middle-aged white men. Tell me more about your cup and handle. So we're just studying what buyers and sellers are actually doing. I think that's less astrological than, say, guessing what an

earnings multiple might be on a company's earnings. That to me seems way more bullshit than actually studying the price itself. But, okay, I'm with you, man. We don't all have to agree. We don't have to all agree on that. I'm supposed to tell everybody that the new trucker hats have arrived at the compound shop. Guys, do we have, don't these look awesome? Love it.

Can't wait to rock them. Nicole said I have one of each sitting on my desk. I'm going to pick one to bring to Future Proof next week. Which one do you think I'd look better in? The blue or the red. Well, I'm rocking the white, so you rock the blue. The white one. Okay. I mean, these are pretty sick.

Great. Love them. I think we're going to sell these out, to be honest. If you guys want to see the hats for yourself, iron shop.com. We've never done anything like these trucker hats before, and they are absolute fire. So go ahead and check those out. Guys, I want to mention tomorrow's Wednesday, all new animal spirits, Michael and Ben. And then we'll do Ask the Compound later in the week, Duncan and Ben. And then Mike and I will be back with two guests.

and an incredibly informative show, The Compound and Friends, on Friday. So keep it loft. We love you. Thanks for liking and subscribing. And we'll call to you soon.