The Compound and Friends - Nick Colas and Jessica Rabe on what we've learned this month, Nvidia earnings, the Wawa story

Episode Date: February 20, 2024

On this TCAF Tuesday, Josh Brown is joined by Nick Colas and Jessica Rabe of DataTrek Research to take a look at the big takeaways from earnings season, the recent high correlation between stocks and long-term Treasury bonds, and the Super Micro Computer phenomenon currently influencing the small cap stock index! Then, Josh joins Michael Batnick for a brand new episode of What Are Your Thoughts where they discuss: Nvidia, if stocks cause inflation, earnings season, Wawa, the Fed, and much more! Thanks to Public for sponsoring this episode. Go to https://public.com/ and activate options trading by March 31st to lock in your lifetime rebate. See disclosure below for more details. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews Options are not suitable for all investors and carry significant risk. Certain complex options strategies carry additional risk. Options can be risky and are not suitable for all investors. See the Characteristics and Risks of Standardized Options to learn more. For each options transaction, Public Investing shares 50% of their order flow revenue as a rebate to help reduce your trading costs. This rebate will be displayed as a negative number in the “Additional Fees” column of your Trade Confirmation Statement and will be immediately reflected in the total dollars paid or received for the transaction. Order flow rebates are only issued for options trades and not for transactions involving other assets, including equities. For more information, refer to the Fee Schedule. All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Open to the Public Investing, Inc., member FINRA & SIPC. See public.com/#disclosures-main for more information. 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. It is Tuesday and tonight's show is sponsored by Public.com and the Public app. Public is doing something really interesting. They launched options trading and this is an industry first. They are sharing 50% of their options revenue directly with you. So if you're trading options somewhere, you might as well consider moving that activity over to public. They will earn fees on that and they will split that 50-50 with you. So you're going to know exactly how much public makes from your options trades because you're getting half

of it. It's a more transparent approach to options with no fees and you get something back on every single trade. Who doesn't love that? Go to public.com and activate options trading by March 31st in order to lock in your lifetime rebate. This has been paid for by the public investing app. Must activate options account by March 31st for revenue share. Options are not suitable for all investors and carry significant risk. Full disclosures in podcast description, US members only. Okay, on tonight's show, my friends Nick Colas and Jessica Rabe of Data Trek Research stopped by and they tell us all about some of the stuff they've learned so far this year. One of the big lessons is large caps can handle rising rates. They're doing it yet again. Rates are higher this year. And so far, the S&P 500 has not backed off. And I have a feeling earnings have a lot to do with that. We will absolutely get into it. We also look at the near record high correlations

we're seeing between long dated treasury bonds and the S&PP 500, also the NASDAQ 100. And this is pretty rare that long-dated treasury bonds and stocks are this correlated. And we're going to find out a little bit about what's going on and what we can expect going forward as that trend persists. We also talk about some career stuff with Jessica. For some of the younger listeners, I think you guys are absolutely going to love it. And then as if that weren't enough, it's an all new edition of what are your thoughts? It's Michael Batnick live from vacation and me. And boy, did we have a big show tonight in video reporting earnings.

We preview that. We took a look at how desperately this market is in need of a pullback, at least in our opinion. Some of the S&P 500 year-end target lifts that we're seeing this week and so much more. So it's Nick, Jessica, Michael, myself. It's an action-packed show. Thank you guys so much for listening. I'll send you there right now. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Redholz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Redholz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may

maintain positions in the securities discussed in this podcast. Hello, everybody. I'm here with my friends, Nick Kolas and Jessica Rabe. They are the co-founders of Datatrack, one of the most respected research firms on Wall Street. And today we're trying something new. We're calling it What Did We Learn? We're going to be checking in with Jessica and Nick on a regular basis and see what we can learn about what's happening with stocks, bonds, the economy, the markets, all of the things that we normally talk about on this channel.

Nick and Jessica, thanks so much for coming by. I appreciate it. Thank you. Thank you very much for having us. I know you guys weren't terribly busy today because it is President's Day. So I'm always surprised when I wake up in the morning and it's President's Day and the market's closed. Columbus Day, it's open. Did you know that?

Yes. So that one I had to remind myself too. Oh, wait. It's not actually a holiday. So I get confused. We're about the, I don't know, is it safe to say we're still midpoint of Q1, maybe a few days past? I think, I feel like earnings season has gone pretty well. Obviously, all of the asset classes that we follow

have been doing pretty well and a lot of follow through from the rally that ended last year. But I wanted to start off with some of the things that we've learned since we've gotten halfway through Q1. And the first thing is interest rates have risen since the end of 2023. What do you guys see going on here specifically in in shorter-term yields? Yeah, yeah. I mean, if you think about what we've learned so far in 2024, it's that large-cap stocks can work even if yields go up. That's sort of been the central talking point of the first half of the first quarter.

And like you said, yields have gone up. You know, twos are up 39 basis points. Tens are up 42 basis points. Kind of a big move, you know, resetting a little bit from last year. Fed funds futures are expecting three or four cuts this year

instead of six or five, which they were expecting at the beginning of the year. So you've had the entire yield curve kind of reset modestly higher in terms of yield and yet stocks have worked out okay. Corporate bond markets

still pretty strong. You know, investment grade spread are less than 100 basis points, which only happens when the economy is good, when we've never had a recession 12 months after IG spreads are this low. So another positive point. All kind of says, you know, the economy's OK.

Yields reset a little bit higher. Large cap stocks have worked their way up. Small caps are kind of flat. And it says we've got a lot of confidence in the US economy. Things are going pretty well. And it's going better than the rest of the world, frankly. And the dollar is stronger versus every major currency developed and emerging except for the Indian rupee. US large caps are outperforming IFA and EM. It's a very kind of narrow move higher for global equities. It's US large caps and pretty much everything else is a little bit worse off. So it's basically the bottom line is, hey, we've had a good first half of the

first quarter. The economy is OK. Corporate earnings are OK. And we're off to the races. Do you guys feel like the story at the end of 2023, the narrative that everyone involved in the market told themselves was 2024 is going to be the year that we get all these rate cuts. Those cuts have come off the table. Stocks have levitated regardless. And we have a new story, which is stocks don't mind higher rates. Yeah, that's a very good summary of what we've had so far in the year. I'd say the wrinkle is going to be the 10-year going over 425.

And if it flirts back with 450, then we're going to test that thesis pretty hard. Because if you go back the last two to three years, S&P 10-year yields, they're kind of lockstep. One breaks through 425. The other one goes down. Rates stabilize. Stocks go up. So I kind of think we're going to have another version of that again this year.

stocks go up. So I kind of think we're going to have another version of that again this year. You guys were saying the combination of higher rates, stronger dollar, US equity outperformance is consistent with a mid-cycle playbook or your mid-cycle playbook. Talk a little bit about this mid-cycle situation that we find ourselves in. How long can these periods persist? What should we be watching for so that the mid-cycle doesn't turn into late-cycle before we've made any kind of mental adjustments? Yes. So yeah, mid-cycle basically is everything that's not early cycle, which is recession and the economy falling out of bed and stocks going down. And late-cycle, which is occasionally that period where you know things are going to get ugly, but they haven't quite gotten ugly yet. Everything else is mid-cycle. And those

periods can go on for years and years. So 1995 to 99, 03 to 07, 2012, call it to 2019, they go on for years. And during those periods, a couple of things usually happen. to 2019, they go on for years. And during those periods, a couple of things usually happen. The first is large caps outperform small caps. And large caps, US large caps outperform rest of world. Check. Rates kind of bang around wherever they're going to be. And occasionally, you're going to worry about a recession. And check. We're getting some of that. The dollar tends to be strong. So we're getting that. We're literally checking every single box in the mid-cycle playbook. And that's the period that we're in. And like we alluded to, it can go on for a long, long time. So despite all the stuff that's different about the post-pandemic recovery, you're saying the big things tend to align

pretty well with what we normally say in a mid-cycle. Yeah. If you look at sectors that work, mid-cycle sectors that work, tech, healthcare, and financials. Exactly the three up-performing sectors this year. So we're literally hitting every part of the playbook extremely hard. Jessica, how much do you worry about things being too good or too easy for investors? Because this is a big thing that's on my mind right now. Uh, like what, like, when do we cross over from saying, Hey, the market's pretty good to don't worry, the market's bulletproof.

And I don't think we're there sentiment wise. Um, but like, that's, that seems to me to be the thing that maybe we should be watching for. Yeah. seems to me to be the thing that maybe we should be watching for. Yeah, one of the biggest things we hear that people are worried about is our tech stocks overvalued. But a couple of simple metrics that we look at, one is just simply the two-year rolling returns in the NASDAQ composite. So the average two-year NASDAQ return back over the last 50 years is 26%. Over the last two years, it's only up 14%. So as much as the NASDAQ rallied last year and is continuing that rally this year,

it's really just trying to play some catch-up and getting back to the longer-run mean. And another thing we look at is just the year-over-year return in the NASDAQ. look at is just the year over year return in the NASDAQ. So what we look at for here is a double is a bubble. So whenever the NASDAQ doubles in a year, it's usually a reliable predictor of a bubble. So go back to say February 2000, the NASDAQ doubled in a year right around the peak for the dot-com bubble. Or even in the last speculative tech bubble, the NASDAQ was up 80% year over year in March 2021. So between 80% to a double, we get concerned. Right now, the NASDAQ is only up 34% year over year. An impressive gain, but nowhere near certifiable bubble status. So you wouldn't measure that off any specific low. You would just say a year sounds like the right cadence where if things double, it's probably way too much.

We do. But even if you want to measure it, the NASDAQ versus its low at the end of 2022, it's still only up 54%, nowhere near the 80, 200%. I'm not saying we can't get there. That can certainly happen. We're just not there yet. So if it doubles, it's a bubble. You know how I know that's probably true? Doubles a bubble.

Because it rhymes. And I only follow investment maxims that rhyme, like sell in May. These are the ones that I believe most in. All right. I want to ask you about stock bond correlations. And this is another thing that's really on the minds of everyone working in wealth management. And there's two consequences here of whether or not this is going to continue from where I sit. I talked to RIAs, financial advisors, and many of them have built these portfolios for clients on the premise that when your equities get into trouble, your bonds are going to bail

you out. You'll have excess liquidity in bonds, no problem. You'll be able to sell, buy more stocks, and we'll do that systematically, or we'll do that on a calendar basis, or whatever the case may be. That didn't work very well in 2022. The end result of that in 23 and continuing to 24, we have this explosion in interest in alternatives. So it seems as though financial advisors don't want to have to answer the same questions they had to answer in 2022 about stock bond correlation and stock bond portfolios being, quote unquote, effective. So that's one of the major consequences of that period, I think. And then the second one is really as people create portfolios prospectively or show them to clients, they're probably going to have to get a little bit more in-depth on when stocks and bonds correlate and why and how long those periods can go on for.

So I'm really glad I have the chance to talk to you about some of the stuff that you found looking at US stocks and long-dated treasury price correlations. Let's start with your chart. What are we looking at here? Sure. Yeah. So I'll just give a few brief background points. So this is definitely a grimy topic, but very important. Certainly one of the key things we've learned this year is that the price correlation between stocks and long dated treasuries can be the highest it's been at any point in the last 20 years. So as for what correlations are and why they matter, correlation is just a statistical measure of how closely two variables track one another. So a correlation of negative one means they move in opposite directions. A correlation of plus one, they move together. And a zero correlation, they move

independently of one another. Now, stocks and bonds are usually inversely correlated, so they move in opposite directions. And that's great for owners of stocks and bonds because it gives you, or it's supposed to, it traditionally has given you diversification in your portfolio. However, if you bring up the chart you just mentioned, you can see that if you look at the price correlation between the S&P 500 and TLT, the plus 20-year bond ETF, the average 100-day correlation over the last 20 years is negative 0.3. Right now, as you can see to the right of the chart, the correlation between TLT and S&P 500 over the last 100 days is 0.3. That's over two standard deviations above the average. So extremely correlated, meaning on a day-to-day basis, for the most part,

they're starting to move in lockstep with each other. Exactly. So it makes investing harder, right? Because on any given day, either it looks like everything's working or everything is not working and everything looks bad. The values of people's accounts are swinging more so than they would if one of them were offsetting the other. accounts are swinging more so than they would if one of them were offsetting the other. Yeah. As much as stocks usually go up when they go down, bonds have tended to go up. That's not the case right now. And so as much as stock market volatility is low, if you own stocks and bonds in a portfolio, you're probably seeing higher than normal bond volatility. I mean, bond stock volatility in your portfolio.

Right. You point out that it's no different if you were to look at the triple Qs, which is the NASDAQ instead of the S&P. I mean, obviously this makes sense because the overlap, the largest stocks in the S&P are also the largest stocks in the NASDAQ. Yeah, actually, so for the NASDAQ, the 100-day correlation between, if you look at the NASDAQ 100, the Qs versus TLT, right now it's positive 0.2 versus the average over the last 20 years is usually negative 0.25. So it's still high. However, it's not as high as the S&P 500. They're a little bit less sensitive to rates.

You wouldn't think so because you think tech stocks, high valuations, but a little bit less sensitive actually to long rates in the S&P because the S&P has higher weightings to cyclicals like financials and industrials. I guess that story makes sense also because the companies that comprise the NASDAQ are the least likely to require any kind of borrowing or credit extension. I think that's a big – all right. So you guys have a theory as to what's causing this or why you think we're seeing it? Yeah, absolutely. It's certainly that the stock and bond market are trying to figure out where interest rates are going to be. It's not the 2010s anymore where the Fed's in control of the entire yield curve. The market's setting long-term rates, but not really sure where they should go. Equity markets know that and know how important that is to discounting stock prices. And so correlations are high.

As for when this will resolve itself, we still think we're about a year out because we really need more clarity on when inflation is going to get back down to the 2% target. Recent strong economic data shows it's unclear if the Fed's going to be able to achieve that anytime soon. shows it's unclear if the Fed's going to be able to achieve that anytime soon. Do you think this results in portfolio managers who are multi-asset just utilizing more cash than historically they would have and staying away from duration, staying away from any treasury bond that's more than a 10-year treasury? Or is there maybe a trade to be made betting that this level of correlation is probably unlikely to persist for that much longer? Like what, which side of that would you,

would you weigh, would you fall down on? Yeah. Excellent. Excellent points and questions. So I would say that we're this, we're definitely in an anomalous period right now where this is not the paradigm. So we'll certainly look back and say this was a very unusual period of super high correlations related to history. I think we're not saying to totally ditch long rates altogether, like long-dated treasuries altogether, like TLT. If you go back to as much as they didn't together like tlt if you go back to as much as they didn't work in 2022 if you go back to 2020 in the event of a of a true crisis it did

work out as a really good hedge to keep people in the game including nick and myself so you know should there be an economic shock later this year or geopolitical shock. At the end of the day, the dollar and long dated treasuries are still safe haven assets. I want to talk about small caps. There's some weird stuff going on in the Russell 2000 year to date. It sort of feels like the meme stock craze with AMC and GameStop whipping the Russell 2000 around, which happened in early 2021. In hindsight, that should have been a sign that that would be unsustainable. And of course, it turned out to have been. This time, we have different stocks, but a similar phenomenon. You guys took a look at Supermicro Computer and its effect on...

So here's price. That looks like a blow-off top to me without making any price predictions. Just on the surface, this is a stock that goes from $300 in the middle of January to $1,000 two weeks later and round trips back down part of the way to about 800. So I don't know if the next 200 points are higher or lower, but that sort of parabolic Empire State Building formation historically is not the kind of thing that I'd ever want to be caught long in.

But what do you think is happening here? Yeah, it's the right stock to focus on because the Russell's up 30 bps on the year, 30 basis points. And SMCI is the entire 30 basis points and then some. It's up 182% year to date. It's got an average weighting this year of 1%. It's almost two points of Russell performance all on its own. So that's, yeah, you're right. It's a little microcosm of what we had back in the spec bubble. And it's funny, small caps, actually sort of that insight relates to like a bigger insight about the small cap space, because it only works in two parts of the cycle. It works early in the cycle when a bunch of really beaten down, but kind of high weighting names,

all of a sudden rip. They go from say 10 to a hundred in a year. There are cyclicals, there are banks, there's things that get really beaten down at the bottom, and they rip. That's why small caps are so good early in the cycle, because they're like a hyper supercharged play on that recovery. The other time small caps work is when you get a spec bubble. And it's too early to say we're getting one now, but we only have a couple of names doing this. SMCI is the most egregious example. If we have 10 SMCI's because speculative phase continues this year, then you're going to see kind of a repeat of 21.

You're going to see that same kind of move. That's the only two reasons to own small caps. One, at the bottom of a cycle. And two, if you want to play a spec trade, you know, but don't want to buy an individual name, small caps will work then. And SMCI, year to date, definitely fits the, what have we learned this year?

We've learned that there can be spec trades again, and we're having one. So what's interesting about SMCI is that the day it hit 1,000, that actually happened in concert with a research report from Bank of America, I think initiating coverage on the stock or upgrading it. And I think their target was a thousand.

So they got instant gratification on the call. But there's like a real fundamental story there. It's not Reddit and like a conspiracy of, you know, younger traders who like have decided they want to fight the shorts or anything like that. There is a fundamental story behind SMCI. I'm not saying it would justify what the stock has done, but maybe that's an important distinction from 2021 to now. It's not quite a meme stock. I'll tell you, I went out to dinner on Friday night with my wife in Midtown Manhattan

at a very old-school French restaurant. And I know the staff there. They know what I do. And the maitre d' comes over at the end of the dinner and says, what do you think about SMCI? Yeah. So it's crossed over. It's a stock that people are talking about that are far away from Wall Street. Okay. So I think the market cap was $50 billion at the peak. So obviously, at that level, it doesn't belong in the russell 2000 the russell does i think they do an annual reconstitution and i think it's in may do i have that right yes okay so this could persist

for a while before they make a decision on the stock yes and that is the irony of the small cap space generally because anything that's truly excellent in the russell 2 gets bumped to the russell 1 and you got to replay it replay the whole game over again it's not like the s p 500 where you kind of hold it forever right cycles out they graduate which is maybe a flaw within a small cap and mid cap indices relative to the s p like the s p can keep a stock like apple forever uh the s p can be 15 two stocks and no one complains. You know, it's funny. My brother, when he finished college, he went out to Hollywood and he wanted to be an agent.

But he wasn't coming out of Yale, so he wasn't at William Morris. He was at one of the second or third tier agencies. And the guy who he got the job with told him, the worst thing that can happen is we succeed for our clients. So my brother said, well, wait, I don't understand. I'm running all over town trying to get my clients auditions and meetings with directors and commercial spots. He said, yeah, I know. And if you succeed, it's the worst thing that could happen because then they fire you and they go to CAA or William Morris. So like when you're representing second tier talent, trying to get them bumped up to the A-list or even the B-list, the worst thing that could happen for your own career is you actually succeed

in helping them with their career. Now, of course, it's kind of a joke. I don't think they really meant it, but you have a small cap like SMCI undergoes this massive secular tailwind and everyone starts to recognize it. The problem is for the Russell 2000, it's like, oh, that was one of our superstar stocks. Now it's gone. We got to replace it with a company that makes pet food

or whatever else goes into the index. So- Yeah, the only benefit, it's an. We got to replace it with a company that makes pet food or whatever else goes into the index. Yeah, it's the only benefit. It's in every process. And there's always enough going on that something is going to work at the right part of the cycle. That's right. I wanted to ask, you said the Russell ends up looking like a VC portfolio and only a few huge winners deliver the marginal return. Is that an all-market environment? Is that a constant?

Or is that during bull markets? That is the one constant in capital markets. And I think the one constant we can rely on. And the Besson Binder paper that we've talked about in the past, where they look at 64,000 stocks from 1990 to 2020, and look at what makes for their total return in aggregate market value, U.S. and global. And it's basically 2% of stocks drive 100% of the value creation over a long time frame. 55% of stocks don't even make T-bill returns. On any given three-year

period, only 30% of stocks outperform. Any way you cut it, it's really a handful of names that end up making long-term returns possible. And it's much more apparent in the US. The US has far better long-term returns than the rest of the world because we have just a better ecosystem from everything from finding the right people, finding the right talent, getting to the right schools, giving them capital, getting to start companies, and then having the right infrastructure around them to provide long-term growth. It's why Facebook exists. It's why Apple exists.

It's why everything we talk about is megatech exists and continues to grow. But yeah, the whole world's a VC portfolio. It's a lot of stuff that doesn't really work great, and a handful of names that are just awesome. So I just buy the 2% that drive all the returns. It's very easy. I don't know what the problem is. I don't waste my time with the others.

So you guys have a YouTube channel, and it's Nick Colas and Jessica Rave is the name of the channel. And I watch your stuff, of course, and we're going to link to your YouTube channel in the show notes. But the YouTube audience is younger than the audience that you guys typically speak to, I suppose, when you're talking to hedge funds or institutional investors. It's certainly younger than the traditional wealth management audience. And Jessica, you wanted to throw something in about careers for younger people here. So take it away. Yeah, it's actually something that you've been saying, Josh, for years, that investing in tech stocks is a career hedge for millennials.

And it's so true. And it's certainly one thing we learned over the last couple of years and continue to learn that disruptive technology like Gen AI is making having a sustainable career harder than ever. For people over the age of 50, it's not as big of a deal because they're through a lot of their career already. But for people like myself in their 20s, it's hugely important because we're going to be dealing with this for the decades to come. And so we certainly believe investing in tech stocks is important as a career hedge, but also just a suitable long-term investment in general for anyone because any disruption that comes, those big tech stocks, they're going to

figure out a way to monetize it. I think that's a really interesting point. I don't think that anyone would go so far as to say, own the NASDAQ instead of the S&P 500. But certainly if you're younger and you could tolerate bigger swings and more volatility that you might get in the NASDAQ, it's probably a worthwhile thing to tolerate because to your point, we don't know what the career landscape is going to look like in the United States in 10 years or all over the world, but it's a pretty safe bet. There are companies that are going to figure it out and make a lot of money and they're going to be NASDAQ companies for the most part. Yeah. And tech has been consistently the one area of the stock market that's been undervalued

and that outperforms as a result. All right. Well, I really appreciate you guys coming by. This has been a lot of fun. We're going to tell people to check out datatrackresearch.com if you're interested in learning more about all of the amazing research that Nick and Jessica put out.

You guys are five days a week. Is that right? Okay. No excuses. Sunday night through Thursday night. Sunday night through Thursday night. Tons of research, tons of insights on all the stuff that we care so much about and we focus on.

And, of course, make sure you check out Nick and Jessica's YouTube channel. And how frequently are you guys putting out videos there? We're going once a week now that the New Year's kind of full scope. Okay. All right. What's it like keeping that pace? You guys got it? You can handle it? Oh, yeah. Yeah? All right. All right. Well, I love watching. I love watching your stuff

because I read it. But then having you explain it to me, I think it sinks in better. Or maybe there are some elements of it that are more conversational and less specific to the data. And so I get a lot out of what you guys are doing on the channel as well. All right, that's it from us. Thanks so much for listening, guys. Check out datatrackresearch.com. Thanks to Nick and Jessica. We will talk to you soon. All right, all right.

Back again. It's Tuesday night, 5 o'clock East Coast. You know what that means. It's time for an all-new round of What Are Your Thoughts? I'm your host, downtown Josh Brown. I'm here, as always, with my co-host, Michael Batnick. Michael, say hello to the folks. Hello, hello, folks.

All right. Very exciting. And let's tell everyone where you are. You're on vacation. You're on vacation. Look at you. Look at me. Look at you and look at me.

No, but where are you? Where are you? Literally. I don't even know where you are. I know it's winning. I know it's winning. I am in- I know you're in Florida, but I don't know where.

I'm in the Lauderdale area. Okay. Very nice. You know how it got its name? Fort Lauderdale? Yeah. No. Same.

I was thinking you might. I thought you had something for me. Did you go to Matarano's yet for dinner? No. You know what that is's yet for dinner? No. You know what that is? Where is that? No. If you have a night and you can go, try to get in.

It's in Fort Lauderdale. You know what I realized? It's a celebrity chef, Steven Matarano, and when he's done cooking, he DJs. He has turntables in his kitchen. And the place goes from a restaurant to a nightclub. I went there with Chanos, actually, back in the day. it's a lot of fun dude i'm telling you i woke up this morning and i said i should be coming home today five nights is too much uh we don't go away five nights my wife too much we do we do three or four yeah four is the four with kids it's not a it's not a vacation

in real life uh no but you know what you you it's's good. It's nice to get a break. Here we are doing YouTube, so look at that. We have a sponsor tonight. I want to talk about Public. Public has just launched options trading. You might have heard about that. You maybe have seen them on TV

talking about it, or maybe you heard it from us. In an industry first, Public is sharing 50% of its options revenue directly with you, the customer. So if you trade options on public, they will give you back some money. And that way you could see exactly what the options trade is profiting them because they take half, you take half. So this is a first. I've never heard of a brokerage firm doing something like this. Have you? No.

You know what? Options are the biggest moneymaker on Wall Street. I remember back in my day when I would buy options. Like immediately I press buy and boom, I'm down 14%. Yeah. You know what I mean? You just get railroaded. I guess it depends on how you're trading and what you're doing with options.

Oh, all junk. All same-day expiration. No, I was doing weeklies. I don't know how to do that. I was doing weeklies. So I love it. Public is shining some light on this. Like you said, 50% of their options revenue they're sharing with you.

I love it. We have to read this. This has been paid for by Public Investing. You must activate your options account by March 31st for a revenue share. Options not suitable for all investors and carry significant risk. Full disclosures in podcast description. U.S. members only. All right.

Everyone's like on pins and needles waiting for this NVIDIA earnings call. And with good reason. This is like the best performing stock of the last 10 years. It's the fourth or fifth largest market cap in, I think the world. This is a quarter where they're going to be doing 240% more revenue than the same time last year. And earnings are going from a billion to 10 billion, No big deal. So there's a lot of anticipation in the air. Dan, I've said somewhere you could, you will be able to hear a pin drop on every trading floor on wall street as a NVIDIA reports its numbers.

That might be a little bit of an exaggeration, but I feel like not much, not much, not much. Right. Are you, are you like personally or emotionally invested and excited in the outcome of this? I don't own any semiconductor stocks right now, but I'm deaf. I mean, it's still the Superbowl. I'm going to watch. It's so exciting. I'm going to watch. I think, uh, listen, obviously anything is possible, but I don't know. I just feel like it's going to get dumber. Oh, it's definitely going to get dumber. I feel like, I don't know, 900. So 695 today. Why not 900? Why not something outrageously stupid? Oh, for the price? Yeah. Just outrageously stupid. All right. Here's a question for you. Is there any amount they could beat by that people are going to be like, wow? No. Do you know what the stock

did the last two times they reported the next day? I know two times ago it was up 30%. Do you know what it did the last two times? The last time, the last time it opened up 10% and closed on the lows, right? Something like that. The last time they reported it closed up 2%. The time before that it closed down. But wait, but wait, but wait, but wait, but last time. Oh, really? Oh, so a couple of times ago. Fine. It was May of 23 was when they reported that explosive quarter and guided up for the rest of the year. The stock had a 25% move in that one day and it was already a massive stock. So that was incredible. But what would they have to say in order for that to be repeated? So that's the thing. It's really hard to envision them shocking with guidance, right?

Hold on. John, chart on. Put this bitch up on screen. So I mean, this is, first of all, look at 2023 just in its totality. That is one of the most ridiculous things ever. I say ridiculous in a good way, like in the hip hop sense, like it was bad, but good. And then what it did to start this year was so stupid that it had to retrace some of that before it even reported earnings. So for five of the last six weeks since the year started, the stock just went parabolic. And every time- I'm sorry, I'm sorry.

Josh, today is not a retracement. It was down 4%. It's like a joke. No, on Friday, it's a stock sold off. It's two straight days down into the numbers. Not far. I think it's okay. The thing with the stock is that the expectations are really high

because of the other fang or the other magnificent seven names and they're not unrelated those are their customers amazon microsoft uh meta are and alphabet are their four biggest customers i think so we shared that chart a few we shared a table a few weeks ago. Yeah. So these are all tied together. Oh, here we go. Nvidia's last four earnings reactions, February of 2023 up 14%, May of 23 up 24%, August of 23 up 3%, and November of 23 down two percent okay that's the official disregard everything i just said um this is from bespoke uh the stock has reported an earnings triple play which is beat earnings beat sales and raise guidance on four q4 earnings reports in a row and seven of the last eight dating back to 2016 yeah Yeah, this is Q4 shit. This is like a hot quarter for them normally.

I think historically it's been because video games, but whatever, like this is a hot quarter for them. Well, how about this? I feel like the outcome is binary. There's no, not no way. I'd be very surprised. I'd be much more surprised if it closes up or down only 2% tomorrow.

All right, so I'll take the other side of that. I think there is so much money betting. I think the implied volatility here is 11%. Is that right? I think that sounds about right. What is it? So these are the most active, these are the most active and the top, the top seven options contracts for the most active are all calls obviously dude that's hilarious 1300 and they expire they expire this week the 1300 sure why not why not uh i hate that phrase yo i don't really say that um let me ask you this i was thinking about this people were saying that like wait wait wait can we wait, can we put up this quote, put up this graphic from quarter that shows the expectations. Look at this revenue, 20 billion versus 6 billion, uh, cashflow 12.6 versus negative EBIT 13.4 versus two, two earnings per share $464 versus 88 cents. Yeah. Nice little run. Nice little run.

So let me ask you this, Josh. Do you think that if, not if, NVIDIA is the leader for now in AI, undisputable, who knows where it's going to be five years, but for today, it's the leader in AI. AI is undergoing a super cycle. Do you think it's completely outlandish for it to be worth more than Google today? Yes. And I own both stocks. And I would not short NVIDIA by alphabet as my way to express that view. I think NVIDIA is way overdone. I would not argue alphabet's undervalued either.

So I think NVIDIA is just way overdone. And that's why two weeks ago, I took some off the table. And that's why I've been very vocally saying, I think we're putting in a NASDAQ top for probably the first half. I really feel that. So if AI grows into what is being priced into the stock, and if it does everything that people are expecting and hoping, do you think it would be ridiculous for NVIDIA to be larger than Google in three or five years? Not necessarily, except that, and Rich Bernstein kind of took us a little bit to school on this last week,

it's still going to be a cyclical company. We might not be late in the cycle, so it might not matter right now, but in the end, it's a company selling semiconductors and it's going to be cyclical. And for that reason, it will lose multiple. People just will not pay 40 times earnings for a cyclical forever. And they can't keep up the growth rate that they can't keep up this growth rate from between now and five years from now. So they could still be growing in five years, but just not at the rate they are. Of course not. And Jensen Wang is not promotional. He's promotional about the products.

He does these incredible demos, and he's really excited about AI, and he makes no secret of how bullish he is. But he's not trying to pump the stock price higher. of how bullish he is, but he's not like trying to pump the stock price higher. And when Sam Altman was doing tweets about $7 trillion build out raises, he was like, look, that's just because of what it costs now for compute, but the chips will get more efficient and there'll be cheaper. Like he's saying that. get more efficient and they'll be cheaper. Like he's saying that.

So, so I don't view him as like this Pied Piper figure who's like walking us all off the cliff. I don't think that's what's going on. He's really, really excited about the products they're building. It just doesn't, it just doesn't necessarily translate into a stock price that only goes in one direction forever. And that's the hard part. The stock is up 225% or so over the last year. Revenue is up 240%.

Deserved. Earnings are up 430%. So yeah, deserved. However, I do think that we are at the point of the game. We're at the period of the game where hype has taken over. And these buyers and sellers, they're not discounting fibers. They're discounting who's going to buy it from me at a higher price tomorrow.

Baird raised their target price on this thing today. It takes a, that's balls. The analyst comments, quote per hour, Asia field trip demand for Nvidia's AI solutions remains unabated with momentum from enterprise customers now rapidly building. Blah,

blah, blah, blah, blah, blah. Yeah. Let me ask you this. This is my last hypothetical question. All right. Who would have more egg on their face come Friday morning?

People that were short the stock or vocal bears, and this thing goes up 20% or the bulls who, who over to say they're welcome. And this thing drops 25% of the day. Like who would, in hindsight, who would look more foolish? The bears, I think. For staying negative. Yeah.

Like what, in a world where there are 30,000 stocks all over the globe that you can- So many pieces of shit. So many pieces of shit. Why, why would you, it's not that the price can't drop. I'm not like a permable, but like, why would you pick a fight with the toughest guy in the prison yard? Just, you know why? That's a great, that's a great analogy.

Cause it's ego. That's it. You want to be the person that made money shorting. I mean, yeah, I just, I like, I, I never understood that mentality. Like, wow, that's the greatest company ever. I think it's overpriced. That's your, that's what you want to do? I mean, I'm not a short seller, so I don't know if that's smart or stupid.

From the outside looking in, that would probably not be the type of short seller that I would want to be. I would be looking for garbage. And I don't think, like, even the bears are saying, although actually there are some people out there saying that Nvidia is round tripping and they are funding companies that then turn around to buy Nvidia equipment. That's like a, that's like a big conspiracy theory on Twitter. Do you mean double dipping? What do you mean round tripping? No, no, no, no, no. Vendor financing. This is one of the things that got GE Capital in trouble, where a company starts paying for its own product by lending their customers money.

Well, they are investing in some of their customers. Correct. And so that is a thing that does raise alarms with short sellers who have a long memory. And there is a history of companies cooking their books via setting up a company and then selling a product. That was the short premise on Valiant, and it turned out to be right. They were setting up dummy pharmacies and stuffing the channel with product and reporting that as revenue. Is that bad? This is frowned upon in most – I don't think that the short, the people that are shorting Nvidia, I don't think they believe that story.

I think they just believe it's overhyped and it is, it is overhyped, but, but doesn't necessarily mean you're going to get rewarded with this, with a, with a 30% sell-off. You know what I mean? So it's, it's, it's tough. Did you see the article dan mccrum did at uh ft let me quote this it's called this is very provocative nvidia is nuts when's the crash this is like a this is like a segment that they they're recurring yep before the ai fever breaks fuel bet against nvidia's market value rising further as stock market investors swoon at thoughts of the bot overlord future. Terrible lead. Terrible first sentence.

He's a better writer than that. That's lazy. Bots have nothing to do with this. This week, Nvidia's market cap passed 1.8 trillion, leapfrogging Alphabet, whose net income was greater than Nvidia's 2023 revenues. That's where if you mirror, that stuff doesn't matter. Wall Street focuses on next year. I don't know. It's a whole bunch of stuff about how expensive the stock was. Yeah, agree. Well, they quoted an analyst who's like,

listen, even in the most optimistic scenario, this thing is, the margins have been all over the place. It's not going to sustain 55% margins. And the analyst comes to a much lower share price, which might be right. So Toby Clothier has pulled a dusty discounted cash flow model from a drawer and plugged it in NVIDIA's numbers. To get a 740 share price requires the company maintain a monopolist-like operating profit margin of 55% for the next decade, while also growing sales tenfold from $60 billion to $600 billion.

The thing is, you could have written this article three years ago and had no idea. NVIDIA was expensive two years ago, three years ago, four years ago, five years ago. You could have written this article and had no idea that 2023 was going to be the start of this AI revolution. So you and I right now might be talking a lot of late night dorm room bullshit and not even understanding what 2024 is going to be the start of this AI revolution. So you and I right now might be talking a lot of late night dorm room bullshit and not even understanding like what 2024 is going to be like. So I allow for that. I don't think it's a strong possibility

that we're underestimating this company at this point, but I allow for it. It is possible. Okay, let's move on. Mark Dow tweeted, the market's gone from pricing in 165 basis. Prediction, bro. Prediction.

What happens tomorrow night? Do they beat? And what is this? Or do they beat? Are they on target? Or do they miss? And what does the stock do in those scenarios? I'll show you mine if you show me yours.

I don't know. Up 15%. I just think whenever you think things can't get dumber, yes, they can. Stock price up 15% after the earnings? Yeah. Okay. I'm going to say they beat the stock price at first, knee jerk, way higher. And then by the next morning,

it's like flattish. And then we have, then we have analysts like basically forced to, can they raise targets again? And that's, that's, I think, I don't think anyone's going to get killed in the stock,

but that's, that would be my best guess. I think they'll crush. Yeah. I like the stock might be the stock might stock might be – there might not be enough people to come in and buy it. It does seem unlikely. My 15% prediction, notwithstanding.

All right. Mark Dow tweeted, the market's gone from pricing at 165 basis points of cuts to 80 basis points of cuts, and equities have been dancing around all-time highs, feeling pretty vindicating. Hope this is a teachable moment for those who need to explain every market move in terms of the Fed. Mark's been on this beat for a long time. And I think his point is that not that the Fed is not important, because of course they are supremely important, but people spend so much time focusing on their every move. And those people that do that tend to be on one side of the trade. And historically, at least in the recent history, it's not been the right side.

that tend to be on one side of the trade. And historically, at least in the recent history, it's not been the right side. Well, there are people whose whole careers is talking shit about everything the Fed says and does. There are people who get speaking gigs and write books because every single day they're on the Bloomberg terminal, trashing the Fed to reporters. And then when they run out of reporters to give quotes to, they're on Twitter rehashing. But it's a cottage industry. And there's a segment of the population that's got a built-in distrust of anything, federal government or centralized or any kind of banking authority or any kind of regulator. So they eat that shit up. So I don't think that there's any honest attempt to get the market right on the part of the people that we're talking about. I think the gig is exactly what you see them doing. And the stock market is almost a sideshow to the main event, which is, here's why the Fed is about

to fuck this up. And I know better than Central Bank. So that's, I mean, from what I've seen, it's almost irrelevant what the outcome is for investors because they're not investors. You know, that's a good point. I think the market is secondary to the focus on the Fed. Like, of course, there's a very hard slant towards, you know, things are not going to end well and they're not doing this right. But they're giving the audience exactly what they want, which is just a continued distrust of central bankers. Listen, the stock market went up, what it got last year, 30%.

Not one of these people who in the first half of the year were screeching about whatever the Fed was missing with the banks, blah, blah, blah. Not one of them was like, oh, wow, soft landing. Cool. It's always, you'll see. So it doesn't really matter. And if the market fell, they'd say, I told you so. So it really, it's not an investing conversation.

They're the two old guys in the balcony on The Muppet Show. And you know what I mean? Nobody knows what they're doing. Only me and my five asshole friends who write newsletters. Only we know what I mean? Nobody knows what they're doing. Only me and my, and my five asshole friends who write newsletters, only we know what's going on. The rest of you are sheep and your worst days are ahead. And that it almost is irrelevant with the stock market does. It's very, it's very tedious. It's I've been watching this for 15 years. None of these people make any money. All right. I'm going to get into it. I'm thinking about pivoting, pivoting to the Fed business. Seems lucrative. You'll run out of material in

a week because everything that could be said has been said. I think earnings took the focus off of how many cuts. Earnings were good enough that people stopped feeling like a March cut was a necessity. And of course, the threat of inflation reheating is another reason why nobody's like, quick, cut rates. It doesn't feel as though anyone thinks that that should happen right now. That's a big change from where we all were in December. Consensus was in December. In December, it was like, well, they better start cutting. Look how fast inflation is falling. Nobody's really saying that.

I talked about this with Nick and Jessica yesterday here on YouTube. That's really the main, as I asked, like, what have we learned this year? Nick said, the big takeaway is large caps were never really dependent on rate cuts. Maybe you could say Russell 2000 stocks were, but that was not baked into the S&P. We all thought it was. It turns out it wasn't because we're having these rate cuts removed

one by one from the calendar this year by a combination of strong earnings and a lack of inflation falling further. And these stocks are still levitating. So I thought that was really interesting. Jess Menten at Bloomberg wrote some stuff about Goldman's raised target on the S&P 500. So this was David Koston put this out on Friday afternoon. Monday, the market was closed.

So we're talking about it today. put this out on Friday afternoon. Monday, the market was closed, so we're talking about it today. David Kosta now sees the S&P 500 rising to 5,200 by the end of this year, raising his forecast by 2% from 5,100. The new target implies a

3.9% jump from Friday's close, which is nothing special. Wow. Really, really going out on a limb there. Why even bother? Honestly. Why bother? Dude, you up, you up your price target by 2%. How about just don't do that. Goldman's $5,200 price target for the S and P is now among the highest on wall street, joining the ranks of Tom Lee and John Stoltzfus at Oppenheimer who both hold a similar year in outlook. They raised their earnings.

That's why, Mike. Goldman said they went from 241 to 256 in 2025. So they raised their 2025 earnings outlook. That is their final answer. They will not revise it again. Deutsche Bank went street high. I think this is this guy, Binky. I don't know him.

I've never met him. I think that's a nickname. Not Deutsche. He's UBS. So UBS went to 5,400. But Deutsche Bank also raised their target. So it's happening. Not really.

No, it's not. Yeah, they're all lifting. Yeah, 2% higher than where the market is, or 3% or 4%. Has there ever been a scenario where the market's up 30% and then analysts are expecting a 3% gain for the next year? Yeah, they were all last year. They were all way under.

All their targets were too low last year. No, but the previous year wasn't a great year. 2022 sucked. Right. That's why. That's how that happens. What do you mean? I forgot what you're asking.

Has there ever been a year where what? Who cares? Like, it's just, it's unusual for the market to do so well and analysts still to be so pessimistic on the whole. Oh, that I agree with. They're still trailing, but they're going to keep lifting their targets until they're not trailing anymore. Oh, every two weeks. Yeah.

That'll be the end. This is interesting from Axios. We've talked about the wealth effect from the stock market and whether or not that's partially behind the inflation. So I'm firmly in the camp that it is. I think you know that by now. I think high stock markets lead to increased consumer activity at the high end, which ends up raising the prices for just about everything. And I will never back off that view. But how do you explain 2013 through 2019?

Ripping stock market and no inflation. How do you explain 2013 through 2019? Ripping stock market and no inflation. I don't know if that was such a ripping stock market. I think- It was 14% a year. Yeah, but after 10 years of no progress. You know what I mean? This is different.

This is different. This is new high, new high, new high, new high. This is not that. So all-time highs in the stock market are inflationary because people feel better in spending more. It's not just all-time highs. It's all-time assets. It's all-time retirement assets.

It's all-time stock market assets. It's not just new highs. It's the market caps of these stocks and the trillions of dollars that people have. They're just not going to stop spending. I think this is circular logic. People don't spend their net worth. They don't see their 401k as higher than they spend more. The market is high because they're doing well because the economy is doing well.

And they're employed. Yeah, it's tautological, but still. Here's Axios. For months, wholesale price jumps have been outright benign, a sign that milder price increases were in the pipeline for consumers. But that changed in January as producer prices came in hot. One surprising reason, the gangbusters stock market. OK, buckle up.

Here we go. OK. Ready? It's worth noting that inflation data can be pushed up or down by categories that whipsaw for reasons that signal little about inflation's path. There's a portfolio management component within the calculations. I think it's in PPI, right? Where they're literally looking at like investment management fees. Okay?

Yeah. That category alone rose 5% in January, the biggest monthly jump since 2021. It's one key reason why the PPI looked so hot. And that's basically because the stock market has surged and investment managers are charging more money. It's the same percentage, but on a higher dollar amount. So that shows up in the inflation reading. That's got to be such a tiny slice of the pie. No, they say it was the piece that made the difference, dude. All right, here. That component

alone could bump up the core PCE index, which excludes food and energy by almost 0.1% according to Inflation Insight. So PPI rose 0.3% in January, the largest increase since last fall. The jump can be traced to a big increase in prices on the services side of the economy, portfolio management, and hospital outpatient care. Those were the two hospital outpatient care. Those were the two things that moved the needle. So yes, there's, there's a little bit hotter inflation and yes, the stock market is sort of indirectly causing it. So I don't know. I feel like the market looks past that. Like, I don't think the market is worried about inflation because asset managers are making more money so far. Yeah. let's just not let it get out of control that's all it's all deal um okay next we're going to uh oh we are we really are this is a tire trove i'm sorry but we really really are truly due for a pullback it's been like a long time cue the next 10 uh rep i agree i'm in

this camp chart on this is from is from Sentiment Trader. The number of consecutive days since a 2% pullback, and this is stale at this point. I think it's like a week or two old. We're now in the top 25 streaks of all time. And when I say we're due for a pullback, I'm not saying anything other than maybe something benign, but it's just not normal. Really and truly, it's not normal for stocks to be this calm. Next chart, please, John. This is just a closer zoom in on the S&P 500. This goes back to the end of last year.

Just very, very serene. Very serene. Didn't we have the biggest one day sell-off of the year so far last Tuesday? It was a 1% die. I think it was worse when that PPI number came out that we were just referencing, right? Yeah, but I don't think it was that. I can't remember what market day that day.

That's not like a pullback. That's just a bad day. No, literally, literally, we haven't closed more than 2% off the highs. VIX is creeping up, though. It's not 12 anymore. Ah, please. It's 14. All right.

But it's not 12. It's 14. All right. All right. So if NVIDIA gives investors an opportunity to sell, they will do so. OK. Do you know what Wawa is? Do you have any experience with this?

Big fan. I suspect you hate it because you know i love snob no i love it you love it yeah i'm this i never would have guessed that well i never remember remember i lived in maryland for a couple years right yeah and uh this was like what you and we had 7-eleven but you weren't eating at 7-eleven and this place was open till 2 AM. So after a night of drinking, you needed a sandwich and this is where you went. And there were no other options and it worked great. It's the best. Um, it's, it's really good, right? We don't have these on Long Island yet. No, I don't know why. So I, my only experience, my only real experience with Wawa, I went to one in Maryland is, is when I back from Atlantic City. On the way home, I get a couple of sandwiches.

Yep. So, all right. I'm a fan. Some are better than others. I don't love the rest stop ones because they tend to be very high trafficked and the sandwich artists are just not on their game. But in general, I am all for what I'm about to tell you. They are now in the process of expanding into all 50 states. And what I love about the story is it is 100% employee-owned, to my knowledge.

So it's the founding family has more than half. And I think almost all of the rest of the stock is employees. 40%. Yeah. I love this story. It's a top 10 plan in the United States. and I think almost all of the rest of the stock is employees. 40%? Yeah, I love this story. It's a top 10 plan in the United States. Yeah, all right, so let me set this up. I think this was at Bloomberg, and it's a story about private wealth,

but I love that this is just still possible. It's 1,000 locations, 18.5 billion in annual sales. They're going to open 280 stores in the next 10 years. They say they're moving into Florida, Alabama, Tennessee, Georgia, North Carolina, Ohio, Indiana, Kentucky, the most aggressive growth, according to the CEO in the chain's history. So it's a big mid Atlantic thing. Anybody, you know, that's from like Jersey, Pennsylvania, Maryland, Delaware, they know all about Wawa. And now the rest of the country is going to get one.

And I love that. But this is the key thing. They introduced an employee stock ownership plan in 1992. And it has grown to become one of the 10 largest in the United States. Employees own 38% of Wawa. What else was I going to tell you? So they open 100 stores a year. And I guess you can't really do that

if you don't have employees that know what the store is supposed to look like. So you're like sending managers into these new territories. They have to find a location and they have to like hire staff and they have to report back to headquarters, like what supplies they need. You really have to have employees who get what you are and what it's supposed to look like in order to expand and not lose what makes it special.

Cause it's not franchisees. It's like Starbucks is company owned stores. And I think that's like so critical. And that's probably why they've maintained the quality for so long. So it's a really cool story. 18 billion in sales is more than News Corp and Best Buy. Is that right? Yeah. And Zoom, Zoom video as well. It's a lot of money. Right? Yeah. And Zoom. Zoom video as well.

It's a lot of money. It's a lot of sandwiches. Anyway, I love that that's possible. And I think you and I should always be looking at companies like that where they're making the opportunity available to employees to buy in and be shareholders and expanding with a healthy percentage of the company owned by the founders and the employees. Like I really think that that's the model. And I love that. I love that this is happening for them.

So it's a great store. Okay, you're up last. I love it as well. All right, this is timely. Last week, the mystery chart, I think it was it Capital One versus Discover or was it American Express versus Discover? We were doing like American Express versus Discover and we were saying, yeah, mystery chart. I think it was it was it Capital One versus Discover or was it American Express versus Discover? We were doing like

American Express versus Discover and we were saying yeah mystery chart we were saying like one of these charts is lying. Turns out neither neither of them were.

So the most okay so so Capital One in an all stock deal is buying Discover Financial Services. Capital One is a bank

and a credit card issuer. Discover is like the network they don't have the network issuers like Visa and MasterCard. They don't have any physical locations. The most predictable thing imaginable after the statement came from Senator Elizabeth Warren, the merger of Capital One and Discover threatens our financial stability. Oh, go away. Reduces competition and would increase fees and credit costs for American families. This Wall Street deal is dangerous and will harm working people. Regulators must block it immediately.

Yeah, that's not, the first part of that statement is just not even close to accurate. Do you even think she, do you think she's just on autopilot at this point? Or do you think she actually like sat down and thought about it? Without knowing anything about her or politics really at all, I would, this has to be an autopilot. I mean, of course, it's every time. You know what the problem is? All of the sting. She was very powerful 10 years ago, and she had everyone's attention. And she really was putting, it seemed, a lot of thought and energy into doing things in the financial sector that would benefit everyone. Here's the problem with what she's doing with this. Obvious to pretty much everybody on the

planet. Discover is an also-ran. It's totally irrelevant. It's not big enough to keep up with the rate of investment that's going to be necessary for the future of financial services. It just, it's not. And it's always been a misfit. It was part of Sears. I think it was part of Morgan Stanley at one point or Dean Witter. It's just, it's never made any sense or meant anything to anyone as a standalone brand. Now, Capital One, which issues most of its cards through MasterCard and Visa, now they actually will have a homegrown card that they could arguably have lower costs and push more people into. And it might actually benefit the consumer. It's precisely backwards. It's backwards.

It's backwards. And I never understood. They were trying to block the merger with T-Mobile. Who did they buy? Sprint. Right. It made a real third option. Before that, it was AT&T or Verizon or go f*** yourself.

And then all of a sudden, T-Mobile got scale because of the Sprint deal, and they could effectively compete. And that's a win for consumers. So I don't understand. And this is not a Wall Street deal. None of these companies are on Wall Street at all. Not that like she ever had me, but she lost me when she was attacking grocery stores for price gouging without considering that, I don't know, grocery stores have margins that nobody on earth would want. Do you think she has a constituency where people are like, yeah? I don't think so. I think she did during Occupy Wall Street, like in that three to five-year stretch when

everyone hated Goldman Sachs. That's so long ago. I don't know who the audience is for these types of automatically block it. I don't know who it is. Anyway, this is a big deal. It's a big deal. It's the biggest deal since Chevron bought Hess. And they're going to be able to perhaps compete more effectively with Visa and MasterCard.

So it's a big deal. Our friend Dan Dolev, friend of the show at Mizuho covers FinTech, put out a note as soon as the media started picking up reports that this was underway. And I'll share what Dan thinks. He was saying the merger could potentially pose some risks to Visa and MasterCard. You see Elizabeth Warren? You might like that. Capital One is the third largest issuer of Visa and MasterCard credit cards in the US. It accounts for 10% of US credit volumes. Capital One could seek to steer some card volumes to Discover's rails to potentially save on network fees. Capital One may also choose to broaden the use

of Discover's closed-loop debit network, where 98% of transactions earn unregulated debit interchange that averages 1.41% versus the 21 cents it currently earns on regulated debit. I don't fully understand all of that, but it sounds like there could potentially actually be cost savings, and this actually might be good for a certain segment of consumers. He also says that Capital One may leverage Discover as a standalone business, it was never going to get materially larger. Visa and MasterCard, if you look at the growth of those companies over the last 10 years, they have lapped Discover five and six times. So that's what this looks like to me. And let's hope it's a net positive for the whole ecosystem. And that's all I have to say about that. You want to do some make the case?

Make it. What do you got? All right. Did you see waste management recently? Have you looked at this chart? I think the largest shareholder is Bill Gates, actually. Huh. All right. This stock just went parabolic. This looks like they just invented a better Ozempic and they used AI to do it. Look at this thing. This is like one of the largest 25 companies in the XLI, the industrials. The industrials as a group, with a few exceptions, a few rails, are absolutely on fire. Uber is, I think, the second or third largest market cap in the industrials now, believe it or, all of those stocks are just vertical. This waste management thing just went vertical out of nowhere.

Probably earnings. I didn't bother to look. If you look at even the worst stocks in the group, like Boeing and FedEx, even those seem like they're bottoming. And then I came across this one, John Chardon. Do you know what this company is, Syntos Corp? I do not. Okay. Well, it's up 65,000% since over the last 40 years, making it one of the biggest winners in the history of the stock market. Syntas is the company that makes all of the uniforms.

Every janitor, nurse, sanitation worker, police officer, warehouse person, they all have this little tag that says Cintas. So this is basically a giant call option with no expiration on the growth of the United States economy. We need to break up that company. I don't like that. I don't like it. Big uniform is definitely monopoly. We're taking over.

Look at this chart. Next chart. Dude, that chart looks like the holy grail of investing. Right? If you just find Cintas, you're good forever. All right. This is the last five years, and I'm showing you the 50-day and 200-day. Ignore the 50-day.

This is weekly, by the way. Right. But I'm saying, all right, 50-period, 200-period. Same thing. Do not bother with the 50-period, 50-week. Just look at how flawless this uptrend is. And it goes through periods where it consolidates. It's not straight up like a rocket ship.

Look how well it weathered 2022. And we should have been watching this. Because if you had watched this chart in 2022 and not meta. That's employment, right? Yeah, dude. And not meta, you would have said the economy's fine. Look at the leading uniform maker yeah not just the united

states but maybe in north america maybe the world i don't know i love it uh last chart so this is cintas share price uh versus it's trailing 12-month earnings What do you want? What do you want? This is it. This is why you invest. This is what, because there are companies like this, that there's no AI. They just, there are companies like this that just,

they earn a profit. They earn a bigger profit next year and a bigger profit the next year. When they integrate, when they integrate AI into their, into their cloth material. Oh, my God. 100% when they weave AI into the polyester cleaning lady costume, whatever. It's going to be unstoppable.

But between now and then, it's still a pretty dope investing situation. So am I making the case? investing situation. So am I making the case? Well, if waste management is any sort of guide, there's no reason why this stock couldn't continue to move higher. So I don't think it's over. All right. You're up. You got a mystery. All right. I like it. Good pitch. Okay. Um, this is a company that, uh, maybe this is too good of a clue. It's like it's a store where the smell, you just walk in and you're like, oh, I know where I am. Wait. It's a retailer.

It's a retailer with a strong smell. It's a retailer with a strong smell. It's a strong smell, but a pleasant smell. Not to me. Not to you. Okay. I'm going to say Sephora. Close. Same idea.

I'll give you one more clue. I'll give you one more clue. This company apparently... Bed, bath, and body works. Relax. This company apparently reinvented the shit out of themselves because I went to the website today, and this does not look like the company that I remember back in the day. Okay. What is it? I lose. It is Abercrombie and Fitch.

Wait, what does it smell like? Teenagers? What are you talking about? Just an overwhelming monsoon of cologne. You smell it like three stores away. Okay. Yeah. Abercrombie is back in a big way. I see the credit card charges, my wife and daughter. So I know that. So they're like pivoting to like athleisure kind of yeah uh yeah and i also think like they're they're not specifically just selling things to people in their 20s okay i think they're they're i think they're doing like lulu and alo like they're they're after that market but you know what my shit is right now? And I'm going to be draped and head to toe of Viore. Viore is the most comfortable shit on earth.

Go to Miracle Mile with Robin. Listen, I actually am wearing a pair right now, but you know I'm a bird dog guy, so be careful. No, I feel you on that, but I'm saying when you want to take it up one notch, Viore is what's up. You know what I was thinking the material it's just it's just like it's it's just so like uh luxurious i luxuriate in my viory uh sweatsuits as i was thinking about so ben and i were talking about abercrombie today so i went to the one of the delis around here just to grab a bottle of i needed to hydrate because i'm under the weather i needed to hydrate because I'm under the weather. I needed to hydrate.

And I grabbed a vitamin water. And I was thinking, hey, what happened to these things? They used to be the hottest drink in the world. And I don't know the last time I saw one. You know what I mean? Yeah. Funny how that happens. Yeah.

Yeah, that was Mike Rapoli. And he does now – He sold it, right? He sold it to Coca-Cola. Yeah. Yeah, like 50 Cent was like on the cap table he got 50 cents he got 50 cent to do like marketing and he gave him stock and then he um and then he sold it to co i i saw ripoli in uh saratoga with cheryl he's friends with cheryl

they i think they own a horse together and his new thing is body armor which kobe was involved with and i don't think they sold body armor yet but his new thing is body armor, which Kobe was involved with. And I don't think they sold body armor yet, but it's like another sports drink. It's like, it's like another athletic kind of sports drink. I don't think I've ever had a body. He might've meshed that with, with Brady's thing.

Am I right? 12. Oh, it's possible. You know, we're going to be talking about the business of sports. Monday beast, dude, Josh and I talking about the business of sports on Monday. Paul Rapoli is a beast, dude.

Josh and I, a little teaser. On Monday, Josh and I are talking sports with one of my favorite athletes of all time. You're way underselling what we're doing, but I love it. I love it. Yeah, I'm keeping it modest. I like it. All right. Hey, everybody. Did you know tomorrow is Wednesday, which means all new Animal Spirits with Michael

and Ben. Dude, Ben carried me today. I was half. I know the feeling. Carry me. I'm just kidding. We hope Michael feels better, of course, and we know you'll bounce back. We're going to see you on Thursday.

Are you back in New York? We're going to see you Thursday? Yeah, tomorrow night. Tomorrow night. Rest up. Thursday's a big show. All new Compounded Friends at the end of this week. Thanks so see you Thursday? Yeah, tomorrow night. Tomorrow night. All right. Rest up. Thursday's a big show. All new Compound and Friends at the end of this week.

Thanks so much for watching and listening, guys. Thanks for the ratings and reviews. They go a long way. We love you. We'll talk to you soon. Whether you're just getting started as an investor

or you're managing a multi-million dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit ritholtzwealth.com. Don't forget to check us out at youtube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. Thanks for listening. are only offered to clients or prospective clients where Ritholtz Wealth Management and its representatives are properly licensed or exempt from licensure. Nothing on this podcast should be construed as and may not be used in connection with an offer to sell or solicitation of an offer to buy or hold an interest in any security or investment product. Past performance is no guarantee of future results. Investing involves risk and possible loss of principal capital. No advice may be rendered by Ritholtoltz wealth management unless a client service agreement is in place