The Compound and Friends - Only Tesla and Toyota will Survive

Episode Date: September 8, 2023

On episode 108 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Nick Colas to discuss: Q2 earnings, Moore's law, interest rates, the future of the automotive market, Steve Cohen, and much more! Thanks to GraniteShares for sponsoring this episode. Visit Graniteshares.com to learn more about their single stock ETFs. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, 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

You ever see somebody on the street filming something with their iPhone? Sure. And just say, no one's going to watch that. Like, you ever say to yourself, like, what is the point of what this person is doing right now? I see it so often at Central Park, I go run in the park most days. Yeah. And exercise people, like doing TikTok videos. No one's watching any of it.

They probably don't care. They just want to film it and put it out there. Yeah. It's self-expression. Says, welcome back into the building just now. And there's a guy filming. There's a guy filming his wife. And in the background, you would think like they would be trying to get Brian Park or something.

There's like a construction van. And she's like standing in front of it. And he's trying to pan the phone. And she's like yelling in front of it and he's trying to pan the, the phone and she's like yelling at him like, no, no, no,

do it like that. And I almost blurted out, don't worry. No one's going to watch this shit. But I, I, I restrained myself. So I'm,

I'm growing as I'm growing as a person. What was that? Grin on your face. I'm growing as I didn't say it. I didn't say it. I'm saying I didn't say it. Last time Nick was on here was October. Yeah. Does that sound right?

October 2022. Where were we? Oh, it was The Bottom. It was The Bottom. Yeah. It was The Bottom. What was the name of that show? The name of the show.

Oh, wow. The name of the show, that episode was This is the Bottom. Michael says. Amazing. Was it really? No. I think it was was This is the Bottom. Michael says. Amazing. Was it really? I think it was a Hitchcock horror story. Yes.

Well, we got to get into how that played out because— It didn't feel like the bottom at the time. No. No. And it wasn't the bottom for tech. When did tech bottom? December 28th. Oh, is that right? Yeah.

So what started bottoming first? S&P. Huh. Energy? Energy?ing first? S&P. Huh. Energy? Energy been ripping all year, so it went into the year end. All right. All right, I got it. Also pre-studio renew.

Is that right? Yeah. We look much better now. So, Nick, how has 2023 been for you? Strictly through the prism of markets. Exciting, boring, surprising? Surprising in how quickly things calmed down. That was interesting.

Like from March, from the regional bank stuff? Yeah. Yeah. And also how quick the rotation was, how fast that blast off from year end for tax loss selling was for tech in Q1.

And then it just continued in Q2. And it, you know, it worked until July. Josh was busting my balls earlier in the year. I'm like, dude, I really think a lot of this

is positioning. People are super bearish and the news isn't getting worse. In fact, and then it just fed on itself. And now the market was right. It usually is. And then it just fed on itself. And now the market was right. It usually is. And news improved a lot. Earnings per share

actual in estimates were not nearly as bad as most everybody thought. That's true. I mean they kept going down until the end of Q1, numbers did. Then they just flatlined since. And that's comforting enough when you're 50 plus. But down, but also not as bad as people had feared.

And certainly not as bad as prices had discounted. I would like to submit that chat GPT may have saved the stock market. That's fair. I really think that earnings are actually horrible. And when I look at the blowups of this past quarter, mostly retailers, this is a horrible, I mean, I know the headline earnings aren't bad because we're being bailed out by Alphabet and

Nvidia. But it's not all bad. I mean, some of the retail stuff is bad. It's not all bad. It's almost all bad. Ah, Walmart's okay. Home Depot's okay. Right. Costco's good. So you could pick out a few very important stocks. It's definitely not all good. It is not all good. I also think tech cost cutting saved the market.

Yeah. You heard Walmart is lowering some salaries today? Jay Powell's got to be winking his eye to that one. No, because in the same day, GM just announced a 10% raise as their UAW negotiation. Walmart has more employees. But you know what's interesting? Since ChatGPT came out,

I think Google's outperforming Microsoft. Yeah. Right? That was like real talk. Like, oh my god, Google's barred as a disaster, and they're going to get smoked, and that was a good opportunity. Yeah, that ended up not being

a good narrative that OpenAI was going to have this whole AI thing to itself. So that ended up being false. But I think that's what bailed out the stock market. The NASDAQ would not be up 35 to 40%. 41%.

If not for this sudden surge in data center related spending and excitement. I think if you don't have that, you really don't have anything. Apple is really, really choppy from one quarter to the next with iPhone sales. Choppy as hell the last month.

And you saw they're trying to raise prices on the 15 on the pro end, which is not like desperate, but I saw a stat today that their average iPhone price is down year over year for the first time since 2017. People are just not spending $1,500

on a phone. The other thing is you run out of hands to put a phone into and it becomes a replacement cycle business like what the automakers used to. You would know more about that than me but is it starting to look that way? If the 15 is not a hit, they could be in trouble.

Because the revenue is already slowing. You have the service side revenue, which has a higher multiple to kind of hold things up. But yes, you know, the core hardware. And to your point about the autos, yes. I mean, the autos stopped being a middle-class purchase in the 80s.

And its prices just kept going up more and more. Yeah. But then it was just replacement because every family has two cars now. It's not going to go to three. Yeah. So there's a natural ceiling on iPhones. I don't know where it is.

Maybe we haven't hit it yet, but we have to be very close. And that's why you see Tim Cook talking about India all the time. But the thing about the iPhone, how often do you replace your phone? Every two to three years? Somebody in my family needs a new phone every year. So whoever is up for the replacement is getting it. So I'm probably every three or four years personally. Yeah, that comes down to scrap rates in the auto industry. How quickly you scrap out the replacement is getting it. So I'm probably every three or four years personally.

Yeah, that comes down to scrap rates in the auto industry. How quickly you scrap out the end of the cycle and then the replacement that comes on the front end to keep the society as mobile as it usually is. And what the average age is. The average age of a car is now like 12 years plus in this country. Historically, what has it been on average? It's been going straight up since the 1950s. Its durability got better.

The cars are better. They live longer. 100,000 mile car in the 70s was extremely rare. You had to have probably three engine rebuilds to get to 100,000 miles. Now you could get close to three conceivably on some cars. Sure. I think though that that's what the handset business

is starting to look like. And even at the high end, even with Apple. Like, people don't need the new phone every year. There was also speculation in the journal's article that I thought was interesting that what if Verizon and AT&T stopped subsidizing to the extent that they were? Sort of like the charter Disney thing. Like, that could be a huge risk that's definitely not priced into anything. No, it's absolutely true. I mean, that's why Apple's got to keep moving.

It's got to keep building out services and doing other things because the hardware side is very flat. Apple did two very smart things. They convinced everyone that the subscription was actually the way to pivot and not trying to sell a $1,200 phone. Which it was.

So smart. Right. Because that was when the phones were $600. So they've doubled in price. And all it feels like to you, the end user, is, oh, it's another $5. No, what it is, it's like taxes being rolled into your mortgage. Yeah. Imagine you have to pay whatever your taxes are once a year.

Yeah. Right? Just put them to my payment. I don't want to pay whatever your taxes are once a year. Yeah. Right? Just put them to my payment. I don't want to see it. Same thing. So they did that and then the second thing they did was

they told Wall Street we're not giving you iPhone sales each quarter anymore. So, because that became the number that everyone was focused on

and Apple saw that they were hitting a point where we're not going to be able to grow unit sales the way that we used to. Wait, are you sure they don't report it? No, they don't.

They do not tell you how many phones. Oh, they tell you revenue. Got it. They're giving you the segment revenue, which you can reverse engineer. But that, if you remember, in like 2016, 2017, every quarter, that was the number. But they're just worried about this. Apple's revenue has been down like year over year, three, two quarters in a row? Yeah.

And I think the street has them growing by 10% next year. So they should return to overall growth. No, you're right. The services is extremely high margins. It's funny when industries stop giving out data. Like when I started covering the autos in 91, we got 10 day sales. 10 day. 10 day. Every 10 days in a 91, we got 10-day sales. 10-day.

10-day. Every 10 days in a month, you would get what the sales update was, and then they would release monthly sales and quarterly production. And quarterly production schedules, you could do a model. And then they stopped doing 10-day sales.

And like a decade later, they stopped doing monthly sales. And now you get quarterly sales. And so, yeah, as things mature, companies realize like, okay, these numbers are no longer sexy. Let's take them off the sheet. Is it that yeah, as things mature, companies realize like, okay, these numbers are no longer sexy. Let's take them off the sheet. Is it that they're no longer sexy or is that, is it that they want to be judged on something different than that? And it's a legitimate,

like, like we were talking about Warren Buffett earlier this week. He basically said three years ago, stop paying attention to book value. He spent five decades giving you book, the growth of book value, he spent five decades giving you the growth of book value as the metric. And then all of a sudden, he did one of his letters. He spent half the letter talking about the accounting reasons why book value was no longer really relevant. And it had to do with, I think a lot of it had to do with the fact that when you have a position on your books that's down in value, you have to write it down. Then if it increases in value, you can't write it back up again. So something about the way book

value was being registered just was no longer reflective of the values of what Berkshire had in those terms. So that's an example of though, where I think it was kind of legitimate for them to say, things have changed. We no longer think this is the right thing to focus on. Apple basically didn't want to paint itself into a corner where it had to figure out

how to incrementally sell more phones every quarter to please Wall Street. So I thought it was the smart thing to do. Now we watch services revenue. But it's also, like, I think the iPads are, are like a $10 billion annual business and the AirPods are, I think, maybe more or thereabouts. It's like, and the watch is not a small business.

The problem is the iPad has no replacement cycle. Right. You buy one and it's good for 10 years. It's almost too good. They're still selling a lot. A lot, a lot. I think sales are down a lot. I think they sold a ton during the pandemic.

And all of those purchases don't need to be repeated for, you know, seven, eight, nine years. Six Colors is the website that has really, really good Apple data. I think iPad last quarter was down 20% from the prior year. Yeah, I buy it. Or something like that. You know what has to be replaced every three months? It's the AirPod because it pops out of your ear

and it falls down a subway grid. I think I've bought 11 of them. Did you ever buy just a right or just a left? Did you ever have to do that? That should be a subscription. I did that. Honestly, I would pay, how much do I, I mean, I legitimately probably pay $600 a year on AirPods.

I mean, AppleCare, yeah, the replacement. For AirPods? If you have AppleCare, do they replace it for free? Am I a schmohawk? It's not for free, but it's less than buying it outright. Don't answer that, Rob. iPad, yeah, you're right, down 20%, down 13%. But still, the numbers are pretty staggering. Less than buying an outright. Don't answer that, Rob. iPad. Yeah, you're right.

Down 20%, down 13%. But still, the numbers are pretty staggering. Like, that's iPad revenue. Still pretty monstrous. It's a big business not growing. I got the AirPod Pro just now. And it comes with four different sizes to put as, like, the thing that goes into your ear. And you could choose. And none of them work. It doesn't work on me either. That's why I use the old one. It comes with four different sizes to put as like the thing that goes into your ear. And you could choose.

And none of them work. It doesn't work on me either. That's why I use the old one. I might go to an ear, nose, and throat doctor and just be like, I think there's something wrong with my ears. Apple provided four sizes and none of them fit my ear. I don't love the noise canceling in ear is bizarre. Oh, I like it.

I like the bows over the head canceling. No, no, no. I want, I want. See, this is why idiots in the US are dying more from pedestrian accidents than any other country. It's, well, it's also, actually, you would know, but it's the size of the car because we're not the only idiots

that walk and talk on our phone. The cars have gotten a lot bigger. In Europe, they've got like toy cars. Yes. But that's like preferable. It should be an instant fatality. I agree. You don't want to be in traction. You don't want to have a broken bigger. In Europe, they've got, like, toy cars. Yes. But that's, like, preferable. It should be an instant fatality. I agree. You don't want to be in traction. You don't want to have a broken hip. You'd rather be dead.

You don't want to almost die. Yeah, just do it. Do it. So, alright. Are you ready for the call? Coming in with three clips. Put my mic on! Say it louder, Nicole. What show is this? We can't hear you.

What is it? 108. 108. 108. 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 may maintain positions in the securities discussed in this podcast. Today's show is brought to you by Granite Shares. John, do you love or hate? Do you love or

hate stocks like Tesla or NVIDIA? Do you love or hate? Oh, I love them, Mike. Well, either way, Granite Shares range of short and leveraged single stock ETFs now gives investors a way to magnify returns on both the long and short side of popular stocks like

Tesla, like NVIDIA, Meta, Coinbase. We spoke about a lot of these companies on the show today. To learn more about leveraged single stock ETFs and the names available, visit graniteshares.com. All right. Ladies and gentlemen, welcome to the Compounding Friends, episode 108. Thank you so much for joining us this week. We have a fan favorite returning guest. Always the best shows, quite frankly, in my opinion. Nick Colas is here. Nick is the co-founder of Datatrack, an investment research platform catering to hedge funds, RIAs, family offices, and asset managers.

Prior to Datatrack, Nick was a senior equity auto analyst at First Boston and a portfolio manager at SAC Capital, reporting directly to Steve Cohen. Welcome to the show, Nick. Thank you. Good to see you. We got to talk about Jessica real quick for the record, and we'll repeat this. I know we just talked about this. Your co-research – how do you refer to her?

Co-founder. Co-founder. Okay, what do you, how do you refer to her? Co-founder. Co-founder. Okay, but she's like your research partner. Yeah. Okay. Your research partner is extremely brave. She is, all right, so we're friends on Instagram now.

So she sent me this video that the rapper Redman posted. And apparently she and Redman like to jump out of airplanes together. Yes, they do. On a regular basis. Yes. Okay. First of all. And they have a parachute. It's not a suicide pact.

Redman is playing my event this coming week, Future Proof. Yeah. And I'm going to definitely bring this up to him that I know his – is it a jumping partner? How do we – I don't know what the name is. Okay. Maybe it is a suicide pact. All right.

Is it a jumping partner? How do we? I don't know what the name is. Okay. Maybe it is a suicide. All right. Anyway. So Jessica shared this video where she's hanging from the skids of a helicopter with Redman,

as one does. And he posted this to his social media. It looks like she's trying to get her foot over it for some reason. What does she want to do? Dangle? Yeah. So she wants to hang upside down. Yeah.

Okay. What are you doing to her? No, I'm just kidding. I don't understand. But so anyway, she's like trying, so this is in, in the sky.

Are they over in New Jersey? Yep. They're not over the water. No. Oh my God. Okay. So this is, I don't know how many miles up in the sky,

but they're in a helicopter and she's trying to swing her foot over the skids and she accidentally drops off. And I know the camera doesn't pan, but in my mind's eye, it looks like it pans to Redman and he starts laughing and then he lets himself go and drops off. I know he's laughing because he knows that she knows what to do as she's hurtling from, from almost outer space toward the ground. But that really looks terrifying to me, and she is a very brave person. So did you know that she had this wild side to her when you guys first started working together? Yeah, no.

She has a motorcycle. She skydives. She's that person. Almost like a death wish. Not quite. Let's hope not. No, I'm just kidding. That's pretty cool, though.

Yeah. Now, has she tried to get you to go up on an airplane and drop out of the sky? No. Okay. Well, she knows better. She knows you're not doing that. No, I'm not. Okay.

Why? I don't want to. You have fear of heights? No. All right. I don't either. I have a fear of falling from heights. Like, I could stand on the roof of a building, have a cocktail, I'm fine.

I don't like the idea of free falling. I think that's fair. That's a contrarian thought right there. Speaking of falling, let's start with a Q2 earnings recap. I wanted to go here first, Nick, because as Michael mentioned, you had been on the show last October

when earnings estimates were rapidly being cut, I think. And stocks were definitely feeling the effect of that. And when you're early in a earnings revision down cycle, you have no idea where the bottom's going to be. That's right. Boy, it was more scary because not only were earnings estimates falling, but it's not like valuations were low, right? So you had potential room for multiple compression and down earnings, which is pretty scary. And you're coming off an extremely high base, like an unusually high base for margins, for quarterly S&P EPS. Like you're thinking, okay, that was unsustainable. I get that.

But where's the bottom for margins? Because usually margins go zero to 10%. And we were at 13. So midpoint of a normalized range, six to eight. And you get to 10 and you think, well, the next step is nine. So we had earnings lower in Q1, earnings lower in Q2. Is it quite an earnings recession, would you say? Is it two quarters of down earnings? Is that an earnings? Yeah.

Okay. And then this quarter, Q2, 2023, a lot of people are saying this is the trough earnings. And maybe mathematically that's the way it turns out. To me, it doesn't feel that way for a variety of reasons. But here's the data. This is John Butters from FactSet. And then I know you've responded to this already in your research, but I want to get your take on it. you've responded to this already in your research, but I want to get your take on it.

For Q2 2023, 79% of S&P 500 companies have reported a positive earnings per share surprise, 64% surprised on revenue to the upside. Earnings decline, the blended year-over-year earnings decline for the S&P is negative 4.1. That's the second quarter. We'll mark the third straight quarter of earnings declines reported by the index. Is that it? Is that the worst we're going to see? On a sequential basis, yes. So next quarter will be better than Q2 on an absolute basis. So when you say sequential, you mean versus this quarter that we just finished?

The way I've been looking at it is earnings have been coming down every quarter for the last six quarters. This is the trough quarter. It's why the market saw that six months ago. Markets discount six months ahead. We troughed six months ago. Okay, March, April. Yeah. Okay.

So did we recover too much, though? Did we recover too much, though? Has there been too big of a bounce in the market given, yeah, maybe we're troughing in earnings, but it's not exactly as though anyone thinks earnings are about to skyrocket to the upside? Yeah, I mean, look at how dispersed the returns have been among the sectors in the S&P. You've had tremendous performance in three, right? All the big tech sectors. Everything else is kind of languished. And that's exactly how the earnings revisions are shaped up.

So earnings revisions are now holding kind of flat and have been since March. But all the upside revisions are in tech, consumer discretionary, comm services. That's good. That is good because it's just the big tech names. One of the biggest names in the index. Yes, and so those revisions are going up.

If you look at the revisions for the last two Yes, and so those revisions are going up. If you look at the revisions for the last two months for this quarter, everything else is down. Let's talk about the revisions. The estimated earnings decline for Q2 2023 was negative 7% as of the end of June. Eight sectors are reporting or have reported higher earnings as of now due to positive earnings per share surprises or positive revisions. And then on guidance, 73 S&P 500 companies have issued negative earnings per share guidance. 42 have issued positive.

But that's the key. The negative to positive surprise bottomed a while ago. It did. This year has been really a margin story year. And companies that have gotten their margin stories better, tech mostly, have worked. But I think most of corporate America is still struggling with how do you deal with- So do I. I feel that way too. So we had the year of efficiency from the mega cap tech.

What's next? The rest of the team's got to follow on. Everybody else has to do the same thing. And that's why you're seeing companies figure out, okay, we've got to hire less. We have to improve productivity because they haven't done it yet. Have you noticed, just as a market observer,

that not every stock is moving in the same direction, specifically not every stock in every sector or even industry? So I made this chart. I want to get your take on it. Actually, Nick Maggioli made this chart for me, but I asked him to make it, so I get a little bit of credit.

The average stock correlation with the S&P 500 is, now this ebbs and flows, but it's pretty damn low. And it's been going low for the better part of the last year. That is some of the most important analysis nobody does. Thank you. Go on. Correlations are what- I've always said that about you.

I really have. Correlations are what define a healthy bull market. When correlations are low, volatility is low. And correlations are low because investors aren't worried about the next foot to fall in a crisis. Oh, they're more focused on the individual positives and negatives of companies than they are on macro crises. So this is bullish. Investors are being discerning. It's extremely bullish. It's why the VIX is below 15 or 15, 16.

It has been for a while. It has been for a while. The VIX had 220-plus closes. It has been for a while. It has been for a while. The VIX had 220 plus closes since March. It's a joke. So volatility is down because when everything zigs and zags differently, volatility declines. Market volatility declines. And that only happens in bull markets. Period.

So back to earnings. Analysts are raising quarterly earnings per share estimates for the first time since Q3 of 2021. And your comment on that, can I tell this quick story that you tell? You said you used to know a senior institutional buy-side analyst who had a very pointed message on his voicemail. Quote, if you are a sell-side analyst calling about an earnings per share estimate revision for one of your companies, please only leave a message if your change is $1 or greater. Tell us what you mean by that and the fact that the revisions are not quite what we think they are if we just read the headline. Yeah, I mean, the bottom line is only big revisions move stock prices. That's sort of the bottom line is only big revisions move stock prices. That's sort of the bottom line. If you're going to tweak your numbers by a nickel or a dime as a company for a company you cover, that's okay.

But it's not noteworthy. It's noteworthy when you go from $2 a share for the quarter to $1 a share for the quarter. Yes. And, you know, people have gotten a little bit excited that numbers are grinding away a little bit higher. By pennies. By literally pennies on S&P earnings of $50 a share. Okay. So, you know, let's put it in context. They're not going down. That's great. But they're not moving literally pennies on S&P earnings of 50 bucks a share. Okay. So, you know, let's put it in context. They're not going down. That's great. But they're not moving up enough to get us excited. You said it's worth noting that all the upside to Q3 estimates comes from

just three sectors. So let's look at those sectors, though. That's where all the market cap is. Yep. So if you said to me, all of the estimates being raised are in utilities and real estate, I would say, okay, that's not bullish. But in this case, consumer discretionary plus 6.4%, communication services plus 5.3%, and tech plus 3.8%. And now energy is seeing a little bit of an upside revision. That's kind of where I want them. I mean it would be nice if industrials were there too, but we don't need them. This is where all the market cap is. These are the stocks that move the needle for all of us.

Yes. For the 500, yes. I mean, the issue is going to be, okay, if you're a Russell investor. I'm not. And you shouldn't be. Yeah. No. But that doesn't tell us that.

Life is not long enough. If we're an EFA or EM investor, it doesn't tell us that. Life is not long enough. If we're an EFA or EM investor, it doesn't help. It's a modest positive, but it's not quite like stop the presses, earnings estimates are going up. What's more important to you, revisions or guidance?

Revisions. Why? Because having done the sell-side job for a long time, the guidance is rarely a surprise. Rare the guidance is rarely, really a surprise. Rarely a surprise. Rarely a surprise. NVIDIA. Yes, and then it's a—that's a dollar a share move.

John, let's pop Nick's chart up. S&P 500, calendar year 2023 versus calendar year 2024. Bottom-up earnings per share, one-year estimates. What are you showing us here? These are the numbers for this year and next year. Next year is the top line. And the two takeaways are we really haven't seen any change in earnings estimates for the last six months. For 24 or for?

For 23 and 24. Those are the dotted lines. So both of them are going sideways is what it's showing, Josh. Yeah. So it's a stalemate. But they stopped going down. Those are the dotted lines. So both of them are going sideways is what it's showing, Josh. Yeah. Yeah. So it's a stalemate. But they stopped going down. They definitely stopped going down. But again, the market figured this out end of last year, first quarter this year.

Now the question is, okay, if these numbers are stable, if cash flows are stable, what moves the market? Macro stuff? Interest rates. Yeah. You're discounting these numbers by a certain discount rate. That's why the market's so fixated on the 10-year. We might not have anything happen in interest rates, though, either. Like, if we're getting toward the tail end and we're un-inverting or steepening a little bit,

like, we might just, that just might be a stalemate also. It might be. Something has to break, but. My worry, worry, thought is that you get another move higher in real rates. Inflation expectations are coming down, call it 2.1%, 2.2% on 10-year tips. However, real rates are back to 2%. Okay. And the old cap on real rates pre-financial crisis was like 2.7%.

And it can get as high as 3%. So even if you see inflation expectations... What happens when it gets that cap? Why is that a cap? The data is not good enough to go back pre kind of 2004, because that's when tips started getting out there. Okay. But the question is, if real rates have to go to three, then the 10-year goes to five. Real rate is the interest rate minus the rate of inflation. Correct. So when you get toward three, something historically happens that slows that down. Yes.

And the question is, okay, the Fed's raised rates 500 plus basis points. Yep. GDP now for Q3, and you mentioned this in, I think, the show last week, GDP now is running over 5.5% for the current quarter. It's amazing. It almost can't keep up. And that tells you, and that's the market. I've never seen more attention on GDP now than right now, right?

I've heard that thing for like 10 years, and it's usually like a sideshow. Now it's like, what are we doing? I think it's just people are just so shocked that the Fed has thrown the kitchen sink at the market and the economy, and it's not really budging. I mean, certain areas are certainly being hit hard, obviously.

Mortgages are, you know, there are no mortgages. But the fact that the economy has withstood all this, it's remarkable. It is absolutely remarkable. We came into it with such a head of steam. Remember Powell, like 18 months ago, was saying, I think the economy can take higher rates. Yeah. And everybody was like, no, they can't. Well, it had been 15 years since we've tried. So. Yeah. And now we have very high real rates, very high nominal rates, and the economy still chugs along. So it begs the question, what is the right neutral rate of interest that the Fed should target for the next 5-10 years? Okay. And the market's having to reassess that because if you can grow 5% in a quarter, and let's say it's even 3%, if you can go 3% in a quarter this late

in the cycle with that many rate increases, maybe the right Fed policy is a neutral rate that's 3% to 4%. And then what do you do? How do you discount those cash flows? And that's where the market struggles. Nick, I always say, if you were to be given a single variable about the future, you still wouldn't know how the stock market would do. But there's one variable that's really, really important for the stock market, and that's inflation. So I made this chart showing the S&P 500 returns when inflation is higher than it was a year ago versus when it's lower than a year ago. And the big difference here is there's just a lot more negative years when inflation is running higher than it was a year previously. The average return is 12% here when inflation is lower than it was a year ago, down to 6% here.

It has a massive impact on the S&P 500. It absolutely does because it affects rate policy. It affects interest rates. And back to the question. And it also can't be priced in. Nobody knows what inflation is going to be in a year from now. Yeah. But the thing is, we know inflation is probably going to be lower unless oil goes to 150. And the question still is, do you have enough of an offset from inflation going down to support, to keep rates low while real rates are still higher? Nick, one of the things that happened on social media over the last couple of weeks that I think is worth bringing out is Larry Summers did this really horrific chart that everybody yelled at

him over, but he kind of like fit the inflation re-acceleration of the 70s. He kind of like fit that over a chart of inflation now, implying like, I don't know what he's implying, that all of a sudden we're going to get another inflation spike because it happened once before. It was, of course, a crudely drawn chart. And I don't care about that part. I think one of the things that maybe gets lost is the 70s inflation was really unique. And the current experience is more akin to post-World War II inflation. And to just look at like, oh, inflation has been difficult for stocks historically. Well, which kind?

And not always in the same way. So like we had inflation throughout the 1950s, late 40s, 50s. We had one recession in there maybe in 52 or in 57. But like you were dealing with inflation that was specifically caused by an event, the war, and then the normalization of that. And it was not a bad time for the economy, and it definitely wasn't a bad time for the stock market. That's right. So if this post-inflation period looks like that period, we should stop talking about the 70s entirely. There's no six-day war. There's no rise of the Ayatollah.

Oil shock. None of that stuff is in the picture right now. Yeah, it's funny. Larry should know better. No, I know he knows better. Here's the reason why. Let him cook. He wrote a paper about how the inflation of the late 70s was caused by high – back in the 70s, shelter inflation was measured in part through mortgage rates.

So as mortgage rates went up, that was in the CPI. That's why you got the 15% peak in CPI in 1980 because mortgage rates were part of the equation. OER came in in 83 because that was really a bad way to do it. Larry wrote a whole paper about how to compare current inflation to then. He forgot. He picks his spots. Yeah. And look, I mean, he's a smart guy, obviously, but you can't compare the 70s inflation to now because interest rates are not part of the CPI now. That's interesting. The equation was different. It was profound. Mortgage rates were 10% of CPI in the 1970s. Yeah.

So if you think about the pandemic and all the stimulus and all of the supply shocks as being more akin to the World War II and its aftermath, I know it's obviously not the same thing. But if you just think about those drivers, that it would make sense that that would be a better analog. And if you follow that analog, inflation does die down without their quote, needing to be a recession. I love this chart from Bespoke. It shows, if we're talking about inflation being behind us, it's consumer packaged goods for the most part. Conagra Bands, Campbell Soup, General Mills, Kraft Heinz, Kellogg, and Hershey. And all of these stocks are more or less crashing.

Maybe the market is saying that all the hikes that they pass along to consumers, it's over. I don't know what the leverage on those companies is, but I imagine it's pretty high. So they also have a balance sheet problem. Got it. Okay, right. But the inflation part of it? Yes. Yeah, for sure.

Fair. Yeah, the comps are going to be tougher. They can't just say we're putting through an 8% price increase on Ritz crackers. You can't do that every year. So revenue growth is going to be hard to come by. Yep. Okay. I want to talk about tech.

So you wrote this thing about the second half of the chessboard, and you're talking about, I guess, exponential growth. Tell us about this analogy that you're using and why you wanted to write about that over the last week. Yeah. So there's an old story that technologists use, and it's kind of a fable about the origin of chess in India in the 1200s, 1300s. And the story goes that the minister that invented chess goes to his local ruler and says, I have this new game. King loves it. Says, what kind of reward do you want? I love this game. You can have all the gold in my treasury or whatever you want.

He wanted the IP, the king. Okay, got it. And so the minister says, no, all I want is this. And he points to the chessboard and says, I want you to put one grain of wheat on the first square, two on the second, four on the third, eight and so forth, double every time. And whatever grain there is on the chessboard at the third, eight and so forth. Double every time. And whatever grain there is on the chessboard at the end, that's my reward.

The king thinks he's getting off easy. He calls his treasure, starts doling it out. And the first half of the chessboard is pretty much okay. It's like 279 tons of wheat in the first half of the chessboard. The problem is in the second half of the chessboard. Because you've doubled so much and you keep doubling, the numbers in the second half of the chessboard get mammoth. There's more grain on the 32nd square than there is in the second half of the chessboard because you've doubled so much and you keep doubling. The numbers in the second half of the chessboard get mammoth. There's more grain on the 32nd square than there is in the whole first half.

By the end of it, you've got like 1,500 times the amount of wheat production in the world today. So either the king – one story goes the king rewards the minister for being so clever, gives him a better job. The other one is he has a guy kill on the spot because he's sassing the king. That's not good. And the analogy to tech is Gordon Moore wrote Moore's Law in 1965 with a couple of already turns of improvement in the semi-cycle. Moore's Law is that the speed of the chip doubles every what? It's the power per dollar doubles every two years. Or the size. It'll shrink by half every two years. So the two of those things Or the size. It'll shrink by half every two years. Yeah, yeah. So the two of those things together, we now have had 32 turns of Moore's Law since 1960. So we're literally at the 33rd square of the chessboard.

Okay, where things start to get wild. Where things start to get wild because you've already permeated, in this case, society with so much technology. And now AI comes along. And my thinking was, we don't need another consistently doubling of Moore's Law to keep working. AI already starts with this massive platform.

And we're in the second half of the chessboard with AI as the driver, not just the hardware and cost per computing. Yeah, great analogy. Love it. Okay, what are the implications for investors? The implications come down to thinking about what stocks work.

And it's as much as we all like to sort of talk about how expensive tech is and what these multiples look like, there is a rationale behind them. There's a reason why those stocks have worked so well for so long. They have worked the first half of the chessboard so effectively. The second half, it's not going to change. And I hear so many times, okay, whether it be value investing reverting to some kind of long-term mean, or eventually things have to stop. Moore's Law has to end. And the point is, it doesn't. Because we have this now huge base, and every next double, even if the doubles only happen every five years instead of every two years, it's still a huge amount of change. Look at this chart from Goldman.

two years, it's still a huge amount of change. Look at this chart from Goldman. So this is world technology compared to the world TMT and the world XTMT. And technology is just in another universe. Yeah. That's the world. That's the- That's world technology. This is earnings per share, by the way. Yeah. So I pulled- Not even price, earnings per share. So I pulled a couple of numbers from this chart. So in MSCI world, the top five names, global stocks, everything, Apple, Microsoft, Alphabet, Amazon, NVIDIA. They are 14% of the market cap of all stocks in the world.

Yeah. And that's why. So there is now an emerging way of thinking about this where we're not talking about the chip level anymore. Now we're saying one unit of compute is actually a full data center. Seriously. Like the data center is the computer. That's the realm that we're going into, and it increasingly feels like we are.

I think that upends a lot of what we used to think about when we traditionally tried to value companies in this ecosystem because there aren't going to be 50 companies running their own data centers. They're just too expensive. So we have reached a point where only a few companies are going to be able to actually compete in this world. They're going to largely have this to themselves. So if the unit is no longer the chip or the computer or even the server, the unit is actually the full data center. And that's how we're starting to think about this. I think a lot of people are going to have to get more comfortable with technology companies that trade 30, 40 times earnings and could conceivably grow 20% plus for a decade to come.

Unless all of a sudden we all just decide we're not interested in making progress anymore and everything is good how it is right now. Let's just stop. That's the only thing that can stop where I think this is all going. So I don't know how that factors into Moore's Law, but I do know that when I listen to technologists on podcasts, this is now the way they're talking. The GPU doesn't matter. The data center filled with GPUs is the difference maker and is the thing that's going to drive spending and CapEx and R&D. And that's like a whole new – that's a whole new ballgame.

The same exact thing happened with mainframes in the 70s and 80s. Remember Ross Perot, EDS? That was the entire EDS pitch. Let us literally buy your data center from you and then we'll run it. And this is just the next level. Forget about having to have a computer,

a PC or an office computer. We'll handle everything in the cloud. Yeah, right. The power of any one individual computer is not terribly important. It's where the work is being done. And that's why I think Snowflake is a stock that we're all going to be forced to pay attention to for the next 10 years. Obviously, NVIDIA. And then you look at some of the field programmable gate arrays. So

you look at like a lattice semiconductor, that stocks going crazy out of nowhere, people discovering that and they're saying, Wait a minute. Now we're at a point where people that want to do AI, you actually can't prefab the chip for these companies, you have to just give them a chip that they can program in the field, like literally program it to the specs of whatever they're building. That's a whole new world. So I feel like we might be still relatively early in semiconductor stocks, in the types of networking companies that are supporting these data centers. Here's pushback, but not pushback. So the NASDAQ 100, I know a lot of that is outside of these chip names,

but the NASDAQ 100 has compounded at 19% a year since 2013. It's a lot of wealth creation. The counterpoint to what I just said is that NVIDIA is trading, according to Goldman, at 26 times estimated 24-month forward earnings, so two years from now. For a company that's growing like this and defining what could be the biggest game-changing

technology that the world has ever seen, that doesn't sound that rich. It doesn't. It doesn't. I mean, growth investing is not so much about valuation as it is about momentum. And that's why momentum and growth together are the two most powerful factors in investing. And yeah, I mean, valuation matters to some degree, always. But ultimately, it's where are you going to some degree always, but ultimately- Not in the short term. Where are you going to be? No, you're right. Cape, you know, Schiller PEs predict zero five-year

returns. NVIDIA did something hilarious in their last earnings report. Besides smashing the cover off the ball, they announced a buyback. Did you see that? No. They announced, I think it was a $15 billion buyback. This is a $1.2 trillion market cap. It was like the cherry on top. It was almost as if to signal that they have unlimited cash flows as far as the eye can see. And so, yeah, maybe our stock is undervalued and we reserve the right to buy back if we want to.

But the board authorized a buyback. So I thought that was one of the funnier things that I've seen in a long time. So I can't imagine them executing on it unless the share price goes through the ringer. Can we talk about Tesla? Yeah. Okay. What has the year been like as a Tesla shareholder? It seems like it's been somewhat frustrating.

And we all know that the whole Twitter thing has been somewhat of a distraction, although it hasn't really affected Tesla's ability to deliver. But the stock price is kind of all over the place. It is. Okay, what's your take on what's happening there? Because that is now a very important stock

to the indexes as well. Yeah, so I think of Tesla in kind of a duality with Apple. And there are two different types of companies. Apple is a sustaining innovator, like we were talking about. They constantly improve new products by a little. And this is the Clayton Christensen model of disruption. He calls those sustaining innovators. They just keep trying to move up the value chain, charge a little bit more, create new things, but they don't create new new. Tesla is the paragon of new new. And you know it from the valuation. Like revolution, not evolution.

Yes, exactly. And Tesla's valuation is like $800 billion. So let's just say that we only know that two car companies will survive over the next 20 years. Toyota and Tesla. Seriously? We all know that? Yeah. Is that why Ford and GM sell at five times earnings? Yes. Actually, I did a video on this,

and I got a call from somebody I had known for a while but then lost touch with, who's now a senior guy at Stellantis. Okay. This is Chrysler and- Yeah. Was he like, Nick, can you stop? No. He said, why is my stock traded for a 3PE? And I said, because the market- You ain't Elon Musk, son. Because the market thinks you're going to be dead in 10 years. Yeah. That's the sum total. Same with Ford. Same with GM.

Yeah. That's why you have those—I mean, look, when I covered the group, it was 10 to 12 times earnings. Yeah. Now it's five. But you're saying you think that's right. You think the market is right. I think the market's more right than wrong. So the thing about those two comps is Toyota trades for, call it, 200.

250, 300300 market cap. Outselling Tesla in units by a lot. And Tesla trades for $800. So there's a gap of $500. So why does the market give Tesla a $500 billion premium to the best car company in the world? Tweets. Tweets? No, brand, though. Because they think they're going to be around. Yeah. Andets. Tweets. No, brand though. Because they think

they're going to be around. Yeah. And because of autonomous driving. Okay. And none of the other companies are going to adopt the same technology that Tesla does?

Look at what happened with charging, right? Tesla developed a charging system. They won. They won that war. And they won that war. They beat the government.

Right? I think the federal government wanted a certain standard. Yeah. And now it's going to be Tesla's instead. Right. So imagine that as a little I think the federal government wanted a certain standard, and now it's going to be Tesla's instead. Right. So imagine that as a little tiny slice of a story and then put AV technology on top of it. Same kind of thing.

So you have Apple being sustaining, Tesla being disruptive, and I always chart, like, how's Tesla doing over 50 days versus Apple? And the peak for Tesla relative to Apple was end of July, right at the peak of the S&P. Wait, is there a world where GM and Ford write down their investments in their own self-driving and just adopt FSD from Tesla? If they can't develop it, sure.

Well, I mean, it's conceivable. Absolutely. Okay, so that is why those stocks are being so severely discounted is that there's at this this point, survival risk. How does that square with GM having to negotiate with the union every two or three years? I mean, because Tesla doesn't have to do that.

So is it just innovation, or is it just like, look at all the natural advantages this newer company has versus the incumbents? It's got to be a part of it, right? It's definitely a part of it. I used to go to Solidarity House in Detroit, UAW headquarters, when I was an auto analyst. And it's a different world there.

And that's the world that GM and Ford and Chrysler have to interface with. Still? Still. Forever? I think there's going to be a strike. They also have to deal with the dealerships, which is a whole other can of worms

that Tesla's not dealing with. Look, if you do a classic Porter analysis of the car companies, they have pressure from every single part of the Porter square. Suppliers, customers, dealers, substitutes, competitors. Well, now Elon's putting more pressure on them. So I'd be curious to hear your take on the rapid price cuts. The Model S started the year at $105,000.

Now it's down to $75,000. I mean, dramatic, dramatic price cuts on the S and the X. Is this genius or is this because there's a lack of demand? In other words, is Elon crowning out potential competitors? He is because a piece of that $250,000 of Toyota valuation in Tesla comes down to staying alive. You have to be relevant. You have to continue to hold your market share.

Because if the next phase of the game is autonomous, you have to be there at the end of EVs to get to autonomous. So he has to maintain and grow market share. So this does not signal desperation, lack of demand. This signals he's playing from a position of strength. He is. Look, the auto industry globally is one of the most horribly structured industries I have ever seen.

Because literally everything that can go wrong with an industry goes wrong. Mostly overcapacity. I mean, the global auto industry has capacity for 40% more cars than there is demand. Is that right? Yeah. Okay.

And partly they're a victim of their own success. They've made the car, as we were talking about before, they've made it so that the cars last longer. Yes. So your scrappage rates go down and so your placement rates go down. Right. John, can we chart on, please, to the next point?

This is from Drew Dixon, who is a value investor. He likes to talk about Tesla. Okay, he said, in these now-famous charts comparing Tesla's fundamentals and market cap to other automakers, I have excluded BYD for long enough. Well, I don't even know. What's BYD?

The Chinese battery electric car maker. The Buffett stock. Well, he sold it, right? I think Berkshire sold out of it. So we're looking at automaker market caps in one chart, and Tesla is now, market cap-wise, as large as Toyota, BYD, Porsche, Mercedes, BMW, Volkswagen, Honda, Ferrari, Stellantis, and GM. The next chart is revenue.

And I don't know, is that in trillions? What is that? 1.7, whatever it was. Whatever it is. All of these companies are like, I don't know, 10X of Tesla, and they're the same market cap. Yep. Dead, alive.

That simple. Yeah. Can I ask you a question? Wait, hold on, hold on. When you say dead, like literally? Yeah, that's what I want. Like bankruptcy dead, or just like more abundant businesses that never grow? Yeah, melting ice cube or out of business?

When the economies of the world are okay, they can survive. It's the next two recessions that will kill them. Why? Because demand goes down for autos roughly 30% to 40% in a recession. And that's when you lose the ability to have free cash flow and reinvest. And if you're having to reinvest for EVs, you lose all that cash flow. So you slowly slip away.

Nick, a normal industry would consolidate given this picture and given these multiples. Not that it would necessarily save them because we've seen that with the airlines. We've seen that with steel companies. But these companies seem to be very fiercely their own brand, their own world. It doesn't seem like any of them would really have that. I'm just going down the list.

Stellantis is a bunch of mergers. So put that one aside. Nobody's buying Ferrari. Ferrari, by the way, the stock is fine. I almost would argue it's a luxury good. It doesn't even belong in this. Okay. Ferrari, by the way, the stock is fine. I almost would argue it's a luxury good. It is. It doesn't even belong in this. Yeah.

Okay. Honda, Volkswagen, BMW, Mercedes, Porsche. These are, I don't know, 75 to 100-year-old brands. They're not doing deals with each other to survive. They don't look at the situation they're in as a survival situation. Yeah. Is that just because it's too early for them to even be able to understand what's happening to them? I think they all feel they need to try.

They had to try. And particularly like Ford. Ford is still family controlled. And the family wants to have that brand. Look, GM had the wisdom to sell their European operations years ago. Ford still runs Ford of Europe because the family doesn't want to let go of the franchise in Europe. So there is a lot of tension there. The Japanese companies don't come here

and acquire US automakers. They just sell autos. That's all they need to do. You're not going to have that kind of cross-border thing to the extent that you would expect in this industry environment. And to your point, culture is a huge point. One of the last things I did at First Boston

was we were the advisor to Chrysler when they sold to Daimler. And that was one of the worst mergers of all time. I remember. Was that in 98? Yeah. I remember that. One of the worst mergers of all time.

And the cultural differences between the two businesses were profound. It's like Lee Iacocca, Chrysler. Yeah, Bob Eaton was the chairman at the time, but he'd taken over from Lee. But it was like Lee's culture that he had built. It was Lutz's culture, really. Hard driving, car guy, do the right thing, advertise, market the hell out of everything versus Daimler, which is we make the best cars in the world. And that just never worked. And it was so obvious from day one and it never got better. Nick, traditional value investors look at that chart that Drew just threw up and they can't understand in what world this

makes sense. You obviously have a background in automotive, so you understand where this is. Do you think that most auto analysts would agree with you or would they agree with the value investors or is it somewhere in between? I think they would want to agree with the value investors because the stocks are cheap and there is a pathway, which I think you outlined, where the world can reassemble itself so that some of these companies can survive and create shareholder value. But because of those limitations, you talked about cultural, technological, the chances are very unlikely. I want to ask you, I remember five years ago, the knock on Tesla was that you don't understand how hard it is to manufacture cars at scale.

They've never done it. This is the PayPal guy. He's never built shit at scale. He has no idea how to do it. And that's why GM and Ford are going to be the winners of the electric revolution because they might be late to the game, but they know how to make a ton of cars and sell a lot of cars. That narrative during the pandemic went out the window. Elon out-executed, like say whatever you want about him and his tweeting, or I don't care about any of that stuff. He did figure out how to be a really good car manufacturer. And he did that better than the incumbent automakers figured

out how to be as revolutionary as he is. In other words, he did a very hard thing that nobody thought he could do. And for me, that's when the narrative on Tesla changed on a dime. It's what a lot of the shorts weren't counting on. He started shipping a lot of cars. I remember he did an interview with Kara Swisher after he had spent like three months sleeping in the manufacturing facility. And maybe some of that was played up, you know, for, but the guy figured out how to make and sell a lot of cars. And so once he was able to do that, then the incumbents advantage of for decades, we've been producing millions of cars, that was gone. So then what was their advantage? I feel like that was the moment where the writing was on the wall.

You're right. And yes, you're right. The challenge, like you go through an auto plant and just like the paint booth, a paint booth is a billion dollars of CapEx. Like there's no room for error. You have to get that right. What's a paint booth? The paint booth is where a raw set of a raw car in steel goes through and gets painted. And it's an incredibly complex process. And it's because of emissions and regulations, it's also a very expensive process. And getting it right, you can notice like Tesla doesn't have that many colors

in their portfolio. There's a reason for that. It's a very complex process. Oh, interesting. So even just that, and you're right, to produce at scale is tremendously hard. Yeah. And he did it. They didn't think he would be able to teach himself to lead the firm to be able to do it.

I didn't think he could do it. Most people didn't. Okay. That's what the hardcore car guys got mostly wrong, that somebody could come out of nowhere and actually produce enough cars to sustain the business. Yeah. Nobody said that he couldn't design a great car. But it was obvious that he could.

And that you deliver enough. That's right. Yeah. Okay, so that was the big change. Remember, for a time, they were making cars in tents. Yes. Right? Whatever it took.

Like a massive tent. Yeah. And it worked out all right. That's pretty crazy. It's amazing. It's pretty incredible. Yeah. Let's talk about,

so while we're on the subject of non-U.S. equities, you've written about Europe and China. What's your take, just broadly speaking? Michael and I were looking at emerging market bond ETFs just for fun. It's quite a reaction. So in any given year, there's one or two countries that have a really good stock market rally. Like Japan is this year, let's say. Turkey last year. Turkey last year. There's always like that one glimmer of hope that like, oh, actually people can make money. But just generally speaking, as an asset class, international stocks, emerging market stocks developed, like however you want to

slice and dice, it has just not been a lot of fun for the last 12 to 14 years. And there's really no sign of that changing anytime soon. And everyone at any time can go on TV and say, look how cheap Europe is. It has no meaning whatsoever to what's going to happen with prices. Because of course, valuation is not a great timing tool. But beyond just cheaper prices, is there still a case for people to be as internationally diversified as the industry has talked about? Look, there's two reasons to diversify away from the US, theoretically. One is Trump. The other is Biden. I'm with you. I feel you. Correlations are one. Okay. Right?

So if the correlations are low, then it might make sense to diversify portfolio because you get closer to the official frontier. You take less risk at the same return. Unfortunately, when things go south globally, all the correlations go to one. Right. So then what did you get? Right. So you don't get it there. Other argument would be better returns.

Which may be. And unfortunately, like if you look back at the last 10 years of returns, like you said, it's not even a little bit of a gap. I think S&P has compounded. No, it's crazy. It looks like two different sports. It is. And it sort of goes back to that thing we talked about one or two shows ago, which is, you know, Larry Summers' line about Europe's a museum, Japan's a nursing home, China's a jail. Yeah.

And the logical thing is what is America? Yeah. America's a business. A freak show. Oh. China's a jail. Yeah. And the logical thing is, what is America? Yeah. America's a business. Freak show. Oh, what did you say? A business. Okay. America's a business, for better or worse.

Yeah. And worse. Yeah. And that business knows how to allocate capital. And the other parts of the world simply do not. Okay. They don't know how to do it in a sustainable way, which is why those return differentials exist. to how to do it in a sustainable way,

which is why those return differentials exist. So if you want to make a call by EM, then okay, tell me about the Chinese government relaxing regulation on big tech there. Yeah. Because that's the whole story. China is a third or 40% of EM. Yeah. Or if you want to go to Europe,

okay, tell me about how Europe's going to develop the next 10 great tech companies. It's not going to happen there. It is not going to happen there. Even Arm didn't list in the UK. And Arm is a giant British tech company that's pretty much as boring as Qualcomm, which is also a stock that hasn't done anything in 10 years.

So that shouldn't be the answer from Europe. They have ASML. Yep. Which is- That's the one good one. That's the one good one. Where's that? In Amsterdam?

Yeah. Okay. All right. So the problem is not Europe or China or emerging markets. The problem is the companies themselves are not all that compelling. And for every LVMH, there are probably a thousand European companies where the stocks have done nothing in 10 years. But you could say everybody knows this.

And you could also say that everybody's known this for the last five years. Yes, and the question is, back to the second half of the chessboard, if we really are in the 33rd and 34th square, then the gap between US and rest of the world is just going to grow. It's going to grow.

That's my point. It's not all of, unless all of a sudden there's going to be some tech renaissance where Berlin starts churning out startups, like that's, absent something like that taking place, I don't understand what's going to change the current dynamic. Of course, nobody does. It could be as simple as, and sure, there probably ought to be a catalyst for this, but it could be just investor preference. And who knows what would cause that to change?

I don't know. Yeah, I actually pulled the top five European tech names. I don't know. Yeah. I actually pulled the top five European tech names. Okay. ASML, SAP, SC Micro,

Infineon. Pornhub. Sorry, what's the last one? And Capgemini. Okay. They are 4.7% of MSCI Europe. I mean, it's embarrassing. Apple is 7% of the S&P.

Yeah. Isn't Apple bigger than the market cap of Europe? Or bigger than the UK and Germany, maybe? Bigger than Germany. That's what it was. Certainly, if Apple's weighting in global was 4.4. No, no, no. It's the FTSE. It's the UK.

Was it the FTSE? Might also be bigger than Germany at this point, but yeah. I mean, it's 3 trillion. It's also bigger than China. What do you mean? It's bigger than the market cap? Apple's allocation in MSCI global is bigger than China's. Oh, they don't like that.

I don't know if we're... Are you at all worried about what the Chinese officials are doing to Apple? Yeah. I mean, they buy a lot of iPhones. They do. It'll be interesting to see how that plays out. That was surprising. And I wondered what it also means for Tesla. And Apple also, I think it's down 8% in the last two days.

Yeah. They do a lot of things, though, as a signal for other people to pay attention to. It could be much ado about nothing and just... Apple's closing the highs of the days. Forget about it. It's fine. It's only down 2% today. We're going to edit this out. But now we know why it slid after July 31st.

Someone had that call. What do you mean? Apple hit that high on July 34th and it rolled over hard in the first half of August. I think everybody was looking at it like, what is going on? Somebody knew that there was something coming, you're saying. Yeah. Somebody always knows. One more thing, just getting back to

expectations and, of course, nobody knows the future. If NVIDIA did not deliver on the monstrous guidance and revise higher and guide higher, stock would have been down 30%. Yeah. It was flat on the dayous guidance and revise higher and guide higher, the stock would have been down 30%. Yeah. It was flat on the day.

Morgan Stanley had an upgrade, what, two weeks before the quarter? And everybody assumed they had the call. And everybody ran ahead into the quarter. And that's why the day of the quarter, it didn't really do anything. So yes, absolutely. The expectations were off the charts. Let's keep moving. Let's do some of these technology charts, or just specifically one.

I wanted to see the adoption speed of technologies. That's nuts. Because this plays into everything that we're talking about. It's a whole kit and caboodle. So what you're showing here— I don't know. No, no, no, not this one. John, it's—

Hang on, just real quick on this one. So this is sector fund flows. And to my point about, yeah, everybody's excited about tech. We're showing cumulative global sector fund flows. And basically, everything's either flat to negative. And tech, for reasons that have just been discussed for the last hour, are off the charts. And this is globally. Global.

Money has to go somewhere. John, the adoption speed of technologies. Here we are. Money has to go somewhere. John, the adoption speed of technologies. Here we are. So this is a share of U.S. households using specific technologies from 1860 to 2019. Yo, it took 60 years for people to get excited about a flush toilet?

It's not excited about it. It's the use. I know. Is that what this is? Yeah, go ahead. Okay. So we're starting with running water, and then we end up in automobiles, electric power, washing machine, dryer. But on the right side of this chart— Hang on. Sorry, but just before we move on, the radio is pretty steep.

Radio is the most impressive line on this chart because it happened in the Great Depression. It was the 20s and the 30s, right? 30s. And it went from a hobby in 1920 to mass market in 24. I actually collect old wireless age magazines. And the covers in 1920 were a bunch of geeks sitting around, you know, playing with vacuum tubes. And by 24, Christmas 24, it was a guy bringing home his radio

for the family to enjoy. It was the television set of the time. Yeah. I mean, radio adaption almost looks like the cell phone. Wasn't RCA like Apple? Yes. Okay, so RCA was the Apple of the 20s and 30s. And it was forced.

It was a forced spinoff in 32. From who? From GE. Oh, it was part of GE. Yeah. Okay. So that was like that tech adoption curve was really, really steep. But what you're showing here is how much more rapidly stuff since 1990

is being adopted. And cell phone, microwave, computer, smartphone, landline, tablet. No, it's actually interesting. The only, as far as I could see, the only line that has crashed is the landline. Not surprisingly.

I don't know the one. Oh, there's nothing else in here that's really fallen off? No, everybody still uses the microwave. Hey, what happened with vacuum cleaners in the 1930s? That's the depression. Yeah. Electrification. The washing machine too was a luxury. People couldn't afford it. Okay. So this feeds into the message of tech remaining dominant just because you can launch a new technology. I wonder where we would see chatbots or large language models on this chart at some point. Another version of this chart is how quickly companies got to a billion dollars in revenue.

I don't know if that's bite-dent, but very, very quickly. And again, sort of second half of the chessboard kind of vibe to that. Moore's law is like, since 1960, you can see how Moore's law affects everything. I have this chart a little bit further down, but just last thing on the valuation, if it's enough already.

But US tech compared to everything else, listen, has it earned this valuation? Absolutely. Every freaking bit of it. What is it showing? It's showing the current valuation versus the median versus the high end and the low end, and the US

tech is exactly what you think it is. All the way in the high end, as it deserves to be. So Nick, I want to get into some Steve-isms. And you had listed a bunch of things that you heard Steve Cohen say at the old SAC that have stuck with you over the years. And anytime you tell these stories, I'm like glued to your email.

I just think this stuff is like, there are lessons in this for everyone. And it's really interesting because he is like one of the greatest investors of all time. But he does not sit for 90-minute interviews and like really explain a lot to the outside world. So people that have worked there and people that have gotten to know him are our conduit to the things that he's learned and the things that he shared. So with that, let's start with math is not an edge. Yeah, this was something. So if somebody ever pitched Steven an idea like this thing trades for a 10 multiple, it's really cheap, you know, we should buy it. He would, you know, basically say, if you can calculate it on your HP-12C, it is not an edge.

That number is not an edge. Now, you tell me about a catalyst, something coming up that will change the market's perception, then that's important. But math alone isn't an edge. And I thought of that when we were looking at this chart. Like, okay, tech trades for 25 times earnings.

And? Who doesn't know that? Right, exactly. Yeah. If it were that simple, then there'd be nothing to do. We would just all use the same formula and buy the same stocks at the same time. Right.

Now, if I told you, okay, GM's a five multiple, but I know for a fact they're going to spin off the cruise division, that's a call. Right. Because then you're breaking up and creating a different story. And then the stock's worth buying. But on a five multiple alone, no. Okay. the stock's worth buying. But on a five multiple alone, no.

Okay. So if the extent of somebody's analysis is math or a number that can be very easily found out by everyone else because it's public data, that's a waste of time. Yep. Or somebody's just saying something that everyone already knows. Can I just ask a question? Is there something to the time horizon of this? Like, if you're buying a cheap stock because it's going to get re-rated in the next 30 days, well, good luck.

You have to have a story for that. But if you have a longer time frame, is there any credence behind something like that? I think of it like it's fractals, timer fractals. And everything kind of, whether the story you're telling is a week away or 10 years away, you still have to have a story. And if it's okay, this isn't going to get re-rated because of industry consolidation, or there's a roll-up going on, or the industry mechanics will get better. Like I covered the tire industry in the 90s, another miserable industry.

And the story was everything was getting consolidated, and so multiples should go up. And they never did because the dynamics of the industry never changed, even with three players instead of 10. So you really have to tell a story, a very precise story, over a week, a month, a year, 10 years. Did you cover Callahan Auto Parts? No. That's a Commie Boy reference right there. Tell us about, quote, there's always a reason.

Yeah, this is another one. I agree with this and I like this one, but I want to hear what you mean by it. Yeah, this was like if I had to narrow down what I learned working for Steve to one thing, it is that saying. If a stock is going up or down, a percent or more, and the market's flat, there's a reason that's happening. And if it's important to you, you should know that reason. But it's also a time allocation discussion, because you can't know the reason behind 100 stocks. You can know the reason behind maybe 20 stocks. So you've got to pick your spots with the time you spend to develop the information edge that you need to trade. So are you looking at things like relative strength?

You want to know how a company is doing relative to the market. If the market's flat and a stock is up a lot over a six-week period, whatever it is, that's meaningful information. That's huge. Like the Apple. Apple falls apart. Biggest stock in the world falls apart 10% in two weeks. Yeah.

You got to think, OK, what is going on? Well, the reason sometimes becomes apparent after the fact. And then sometimes it never becomes apparent. People in the market knew something. That news never quite got out. Or a stock makes a move, and then we look back at something that happened already, and we say, oh, that's why.

And it makes a lot of sense in hindsight. So this is a very frustrating game to play. This should not be played by people who are not doing this for a living. It is very hard. But you know what's funny? Another reason why it's so hard is you might look at a stock that has great relative strength and say, ah, I missed it. Where the answer is, no, no, no, no. It's strong for a reason. Buy it, you idiot. You said bond yields fit this bill where there's always a reason.

You said the markets are saying something. What are they saying? The markets are saying real interest rates are going to, for sure they're an important issue. And the market is scared that real rates can go to 3%. Okay. That's why no one's touching the 10-year. Okay. Because who knows? The one thing you know is that when I think,

like I showed clients a chart of the 10-year. I said, I didn't put up what it was. I just said it's a mystery chart. And then I said, if this were a stock, would you buy it? Yeah, absolutely. Absolutely. Right? You would buy that 10-year. If, if you look at a 50 year chart of yields, super bullish, you would say, wow, this thing's breaking. It's breaking out. It's breaking a

downtrend at least. It's broken a downtrend and it really does not want to go down. Yep. Well, that's the higher for longer. I mean, that's the consensus now. But how do we square the fact with technology being the most powerful deflationary force with higher interest rates? Yeah, that's a great point. That's a great point. I don't have a great answer for that. You're right. We'll have to have you back for that.

Don't make this game harder than it has to be. Yeah, this was something he would always tell people whose pad was blowing up on a given day. Because about once every two or three months, somebody would be having a terrible day. And Steve would kind of wander over on 10 o'clock after the open and kind of look at the guy's pad. By the way, how terrifying is that if you work there and he's wandering behind you? No, because at that point, you already think you're going to be fired.

Yeah, you've already had the conversation with your wife that we might not be in Turks and Caicos next month. Yeah, TCI's out. Yes. Okay. You know. All right. LBI's in.

Okay. So he would walk by and just sort of sit down. And this was one of the days where the room was absolutely quiet. They really wanted to hear what Steve was going to tell this person. And he would always say. I'm scared. I don't even work there. He would just look at them.

Yeah. And say, you're making this so much harder than it has to be. Yeah. Because that is invariably what gets a trader in trouble. Second and third and fourth order thinking, instead of sticking to the basic rules. If you put it in a position for a reason,

it doesn't work, get out. If it's not trading right, get out. If it's working, add. This is something Ari Kiev, the shrink that worked for Steve for many years and wrote several books about this, would always impress upon us. And the most important thing is you're listening to your intuition. If your intuition is saying something's wrong, listen to that. So if a stock's not working, just get rid of it.

Yeah. This is just trading. This is not investing. This is not investing. They were not there to invest. They were there to trade. Right. The goal was to make money every single day. And what Steve was trying to say is there are simple rules to avoid getting in trouble.

You might not make a ton, but the first goal is don't lose a ton. And invariably what he was saying is clean off this pad. Get everything off the sheet. Don't buy stocks and downtrends. Well, your example of don't make this game harder than it has to be, we just talked about it so we don't have to rehash it, but the U.S. has consistently outperformed the rest of the world for a long time. There are excellent reasons for that.

It will continue. Yeah. Until it doesn't, but like until – I'm a big fan of this way of thinking is like, yes, I understand it could flip. Let it flip, and then we'll have a different conversation. A lot of people are like, no, I'm going to keep putting the money on red until – this is my issue with the crypto shit. Like, yes, it might take over the world and displace the dollar. Let me know. I'll get really bullish.

And then you say, oh, well, you're going to miss out. Maybe. But I'm also going to miss out on all this other bullshit leading up to it. So I'm very much of that way of thinking when I can afford to be. Look, trading is getting 80% of the move. Yeah. The first 10, somebody else can have. The last 10, somebody else can have.

If you can capture 80% of the move, you're way ahead. To the EM thing, this is my soundbite on it. Gold has outperformed EM and China over the last 10 years. Yeah. If you can't outperform gold with equities, there's a problem. That's right. Here's a few more.

Oh, these are no longer Steve-isms, but we wanted to get to this stuff. You mentioned the VIX earlier in the show. It had its second lowest close of the year on Friday. What are your thoughts on the state of volatility in general? And what do you think that VIX squash down, that's never a prelude to anything good. No, I mean, the VIX squash down is because of the correlation stuff we discussed.

And that's okay. I'm not thinking you're going to go to a VIX 30 or VIX 40. But a VIX at 14, 15 says that's probably too low because the average over time is 20. Yeah, we're too complacent. Which is like 20 is the break line. Below is things are okay, and maybe they are. Above is things areent. Which is like 20 is the break line. Below is things are okay. Maybe they are. Okay. Above is things are not okay. And they're probably really

not okay. So I use the VIX in conjunction with things like high yield spreads, investment grade spreads, dollar moves versus the euro. But every single thing it looks like, and August performance as well, things are rolling over. Okay. And for the near term, we're going to be choppy. Yeah. I'm not optimistic. I'm not saying we're going to have a big crash. I'm just saying the next two months are going to be kind of tough. And then we probably get that nice year-end rally. Yeah. But if you look at like junk bonds versus TLT, for example,

maybe that's not the greatest denominator, but it's breaking out. If you just look at, if you didn't know anything that was happening, you looked at discretionary divided by staples or things like this that are traditionally risk-on, risk-off sentiment, you would say things look pretty good. Yeah. Not to oversimplify, but... Right.

So I'd say at a fundamental level, things are okay. Earnings are very high. We'll figure the initial rate out. Rates will settle out somewhere. So this is not a big call to action. You've got to sell everything. But it's to be rational about what happens in the next two months because everybody thinks the prices of assets say things are OK, even if people are worried. Are you surprised, because I am, that stocks are not getting re-rated to the extent that you would

expect with the risk-free rate, like overnight rate at 5 and 1 quarter? It is stunning. I can't believe it. It is stunning. And it comes down to, and I've had this sort of mental discussion with myself for about two weeks now. And it's, okay, interest rates are very important.

Fine. The technological stuff we talked about is hugely important. And are we overweighting the issue of interest rates and kind of underappreciating the technological side of things, the 33rd square on the chessboard? Well, to your point, in five years,

nobody's going to care what interest rates were today. What they're really going to care about is the next phase of tech and how it's changed our lives. So if you're an equity investor, you're already thinking that way. How far does the market look forward? What do you think? How do you think about that? Day-to-day, six months out. That's how I think

about it. And then again, I learned that from Steve as well. Think about the world in six months' time, and that's how stocks trade day-to-day-to-day. Nick, you have a YouTube channel that we want to tell the listeners about, and you did a video about gold and de-dollarization, which is a very popular topic

on Twitter. By the way, great content strategy. I highly recommend whatever is the kerfuffle on Twitter. That's a great subject matter for a video because that's what people are searching for on YouTube. So talk about keeping it simple and not making it harder than it has to be. That's a cheat code.

We'll watch the video, of course, but what did you have to say about that topic for people that are curious on your thoughts? Right. So gold demand, gold supply is roughly 4,700 tons a year. Of the gold demand side of the equation, roughly half is jewelry. A quarter is investment demand, bars and ETFs. And a quarter is now central banks. And that's much higher, double what it was pre-pandemic.

And it is central banks, Russia, China, Turkey, you know, you know the rest. They are buying gold because they want a dollar-based asset. Gold is still a dollar-based asset. You price it in dollars. Yes. But they don't want to buy treasuries, both because they don't want to support the U.S. Oh, look what we just did, though, with the Ukrainian conflict. We tried to unbank Russia. Yes, and they now recognize that that is a real risk to having dollar assets. So why isn't gold at – we just had the worst – we're still fighting inflation for now two years. And you have global central banks accumulating gold at the rate that you described. It's because the dollar is still so strong.

Why is the price of gold not $5,000? Is it just the dollar strength? It is some dollar strength, definitely. But it's also just these fundamentals move very slowly. Gold is still just a big, broad market. And it takes a big shove. And it takes a multi-year shove to get it to work. There's a feeling like gold is an inflation hedge. But that goes back to the 1980s. And the 1980s were very unique because Nixon took us off the gold standard in 71. And it was only until 74 before it allowed Americans to buy gold coins again.

And then we happened to have this huge bout of inflation, but it was only basically letting the genie out of the bottle in 71, and then in 74, that created that massive burst from $37 an ounce to $600, $700. Is another example of us over-indexing to the 1970s? I think I wrote that.

I've written that blog post several times about gold and the myth that it's an inflation hedge. I can't remember the timeframe. Maybe I'm a cherry picker. I'm sure I am. But there was a 15-year period where the cumulative inflation was like 120% and gold was flat.

Yep. But you're saying that you do think de-dollarization is something that the global central banks, global governments are pursuing de-dollarization. Maybe not the countries we particularly are worried about at the moment, but they are pursuing this, and it's a real threat to the world order to some extent. Maybe not imminent, but – Whether it is or isn't, they're going to be buying gold to try to create that hedge.

Are you structurally bullish on gold? Yeah, that's the basic problem. Do you think it'll break out to a new nominal? I know inflation-adjusted high is way higher, but a new nominal high at some point? Look, I think it can do 5% to 7% a year for the next 5, 10 years. Oh, so you're not looking for some explosion in price.

No, no. You just think it can work. Yeah. Okay, that's reasonable. What's this Rolex story? Oh, the Rolex story is an interesting one. It's a little bit of a geeky watch world thing, but Rolex is a funny company

because it has sort of been the target of a disruptive set of technologies. First, the Japanese started creating automatic watches in the 60s. Seiko, Casio. Right, so Seiko started with the first automatic in 64, the year I was born. And that became the first competition.

So Rolex did what every disrupted company does. They start moving upscale. When a company gets disrupted, they naturally just pull back and start raising price and maintain their customer base. Then the quartz crisis came along in the 80s. Quartz watches became a thing. And Rolex began to raise price even more. And now we have the smartwatch phenomenon. Smartwatch is just the quartz crisis 2.0. And Rolex is funny because it is probably the best brand in the world. And it's owned by a not-for-profit agency. Is that true? Yeah, it's owned by the Hans Wildorf Foundation.

And it's Swiss. So the two things you know is the Swiss like to pass things on to the next generation. They're very long-term minded. And so Rolex is in a unique position having this massive, incredible brand. And yet they're being hounded by these disruptors over the last 50 years. And their response has been to go up and up in price. And that'll just continue because ultimately you're going to sell less watches. Rolex is still in huge demand, but the rest of the watch industry sells fewer watches every year.

The Swiss watch industry sells fewer watches every year than the year before. So that whole industry is retreating up the value chain, up in price. That's why the Audemars and the Panerai and all of these, these brands cost way more than Rolex watches. Yes. But there's no give back in price ever. It's only up. I also like to pass things down to the next generation.

My kids will be bald. So what do you think is going to happen here? Well, the fascinating thing is Rolex, after never owning distribution across its 100 plus year history, just bought Bukerer, which owns Tourneau here in the States, and is their biggest retailer. Rolex bought its own

distribution? Yes. Which is another classic disrupted move. If you're going to be disrupted by all these other technologies, you want to control the entire value chain. But Rolex is this fascinating, slow-moving company that does only things in very small margins and is very successful doing that. But now even they, because they're being disrupted,

are making this move. Yeah, and they're going to have to distribute through other retailers. Yes. And so now they're going to compete with their own customers effectively. Exactly. Okay, so that's a situation that you think is going to get worse.

You know, to me, it's just sort of an exemplar of what happens to a truly fantastic company that gets disrupted. And they all follow the same exact pattern. Like GM got disrupted by the Japanese cars in the 70s, and they ceded the entire car market to the Japanese because they didn't make any money selling cars. They said, we'll do SUVs now. They moved up. I got it. Exactly. So it's exactly the same paradigm over and over again. It doesn't just happen to companies

that we think are poorly managed like GM in the 80s. It happens to some of the best managed companies in the world. Maybe we need to watch for that in all these technology companies that we've been talking about. We need to watch for one of them doing something that looks like one of those classically- Apple, raising prices.

Yeah. Well, I mean, Apple, raising prices. Yeah. Well, I mean, they should raise prices. The phone's getting better. But I see a Rolex is a Rolex. The iPhone is substantially better than five models ago. Maybe not better than one model ago. So the price should be higher. And you need a phone.

You don't need a watch. Fair point. Fair point. Nick, did you have fun on the show today? It's awesome. We would keep need a watch. Fair point. Fair point. Nick, did you have fun on the show today? It's awesome. We would keep you here forever if we could. But we want to be respectful of your time. I wanted to do favorites with you.

I always take your favorites and follow through with them. Like you've recommended 700-page books. You're right. And I've gone and read them. So I'd love to start off with what you think the audience should hear about. So I just finished a book called The Price of Time. Oh, Edward Chasler. Yes.

I have it on my desk. So I would say the first half of that— Michael's holding down papers with it. It's been on my desk for eight months. You're right. I would say the first half of that book is absolutely must-read. It is one of the most interesting histories of how rates are set. The Price of Time.

It's all about interest rates. Like a history of how rates are set. The price of time. It's all about interest rates. It just puts so much of this conversation that we've had today into this very broad historical perspective. It's so well done. The back half of the book seems to be a collection of things of the last decade, which I think we all know better. But that first half is just huge value-add.

Did you ever read the Scylla book? The Richard Scylla book? Also the history of interest rates, but it's like it looks like two Bibles stacked on top of each other. Oh, I dig long books. I'll check it out. I tried to read it. I met him in person actually at a party recently, a much older gentleman. He's been around for a long time.

And I told him I loved your book even though I only read like the first few chapters. But he is a historian. He's not an economist in this book at least. And he's looking at interest rates in ancient Rome. And I don't know if there's any meaning to today, but when you read that history, you realize there has always been a natural rate at which people are willing to lend money and where there's demand to borrow it.

And then things happen exogenously, that changes the whole picture. You don't have to go far into that book. Like strippers buying multiple houses. By the way, The Price of Time is such a great title. Yes, it is. Such a great title. He wrote The Devil Take the Highmost, one of my favorites.

I didn't read that one either. All right, I'm going to get to that. This is The Price of Time by Edward Chancellor. Yes? Yes. Okay. Michael, do you have a favorite for us? So I went the other way. I watched Shane Gillis has a Netflix special.

The price of Michael's time is unlimited. Yeah, the price of my time has changed. And he's hilarious. Highly recommend if you're into comedy. That's on Netflix? It's on Netflix. Okay. Do you listen to The Acquired podcast?

Okay. I love them. I talk about them on the show all the time. It's these two guys. They're really bright. They do these three-hour deep dive dissections into some of the best companies in the world.

They've done Nike. They've done Louis Vuitton, Moet, Hennessy. They've done all the great companies. Did they do Rolex? No, I can't remember. Patrick O'Shaughnessy's podcast did Rolex.

Anyway, these guys are incredible. And what they do is they will read 10 books about these companies, and then they structure the conversation. They go back to the founding, the history, and they bring it up through the present. And these are most of the companies that still exist. Anyway, they did a two-part episode on NVIDIA that I think they put out 18 months ago. And in the interim, the entire world has changed for NVIDIA. This is pre-ChatGP. So they did this podcast on NVIDIA.

They went back to the founding of the company, and they did the whole thing. And then the world changed, So they had to revisit it. So this week they put out, I guess, NVIDIA part three, and it takes us from 18 months ago to now. And it really, for people that don't understand the revolution that we're all carrying on about, it really does an amazing job at looking at the history of like Elon Musk meeting Sam Altman, the founder of OpenAI, at the bar at the Rosewood Hotel on Sand Hill Road. And having this conversation where if we don't get all of the scientists in the room right now and come up with an alternative plan, Facebook and Google are going to own the future. They will literally own AI. And that fails.

They have all these technologists, and they try to get them to quit Google, quit Facebook. This is a true story. They try to get them to quit and come join this open AI foundation. And the scientists are like, are you kidding me? They're spraying me in the face with money. And I'm working with the top scientists around the world. Why would I leave? So they start with that idea of like, why did there need to be an open AI?

And then you get into Chachi PT. But all of this is to tell the Nvidia story of today. Why did this stock just have the most explosive earnings report, maybe of all time, and then have another one right after. This is the background that people need. So I highly recommend checking out the Acquired podcast this week. And it's going to answer a lot of your questions

about what's going on today. So I thought it was really good. And I definitely wanted to make sure you checked it out because I know you love history. Okay. All right. That's it for me this week. We had an amazing time with you, Nick.

We want to tell everybody where they can by the way you know what Sean said about I forwarded your emails to Sean this week

in preparation for the shows Sean works on our research team he goes oh my god Nick has the best shit

so hold on I swear to god I got another email from somebody else I'm glad you brought that up

that copy and paste something you sent and said, this f***ing guy is so f***ing smart. Word for word. Data Trek is like the best. The research that I enjoy reading the most. And I get everyone's stuff. So I wanted to make sure I said that publicly. How can people find you?

How can they subscribe and start hearing from you more often? Yep, datatrekreresearch.com. Sign up for a two-week free trial. You'll get it just like you're a client. Two-week free trial. So you're writing five days a week. Five days a week. Okay.

So people will get it from you at night it comes out, right? Yep. It comes out around 10 o'clock at night. Okay. So if you want Nick Colvis every day, and why wouldn't you, go to datatrechresearch.com. Sign up for the free trial. Shout out to Jessica, your research partner. She writes on there as well. Okay. I love it. I think you do great work.

So appreciate having you for the time that you've given us today. Thank you so much. Thank you. Duncan is not here. We want to wish Duncan get well soon guys. I also wanted to let you know, Michael and I will not be appearing on YouTube on Tuesday night because we'll be in California at Future Proof 2023. What do you think about that? That's all I get? Can we get you to California next year?

Absolutely. We put you on stage? Yeah. Okay. You can tell everybody GM and Ford are going to go out of business. The whole audience will be like, yeah, we know.

All right. All right. Thanks so much to Nick Colas. Thanks so much for listening, guys. Make sure you leave us a rating and review and we will talk to you soon. Thanks again.

That was so much fun. You really are the best. Oh, thank you. You really are the best. Thank you for having me. I'm sure you've thought long and hard about this. I love that you're doing YouTube. It's great.

It's fun. It is hard for me.