The Compound and Friends - Reasons to Remain Overweight

Episode Date: July 11, 2025

On episode 199 of The Compound and Friends, ⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠ are joined by Ryan Detrick and Sonu Varghese to discuss: how AI saved the market, mid-year market takeaways, Bitcoin's new highs, economic indicators, and much more! This episode is sponsored by Russell Investments and Apex Fintech Solutions Looking to get your portfolio into shape? Strengthen your core with ETFs from Russell Investments. Learn more at https://russellinvestments.com/ Learn more about Apex and what they have to offer by visiting: http://apexfintechsolutions.com/augmentedadvice Sign up for The Compound Newsletter and never miss out: ⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠ Instagram: ⁠⁠⁠⁠⁠instagram.com/thecompoundnews⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠twitter.com/thecompoundnews⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠ Russell investments disclosure: Fund objectives, risks, charges and expenses should be carefully considered before investing. A prospectus containing this and other important information can be obtained by calling 800-787-7354 or by visiting russellinvestments.com. Please read a prospectus carefully before investing. ETF investing involves risk. Principal loss is possible. Russell Investments Active ETFs are distributed by Foreside Fund Services, LLC. Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Josh, did you miss potting? I did. I missed our friendship. I feel like half of our conversations are on the air. For everybody here. I wonder what's going on with Mike. I hope we have a podcast episode scheduled soon. So, alright, boys, this is truly a treat. I'm so excited that you're here.

You're staying in New York for how long? Go home tomorrow. I got here yesterday. You got here yesterday? Okay. What were the rounds? What'd you do? I did CNBC this morning. It's six o'clock, which was fun. Is that pre-squawk? What is that? No, it was pre-squawk. It was a squawk. It was a Joe. Okay. Oh, yeah. Right there. Were you super bearish? No. I don't know what I was. I wasn't super bearish though. You know, it's R.A. guys. Did some Yahoo yesterday. Hang tight. John's not here, but somebody's got to make this thing work. All right, guys, Nicole's birthday this week.

So I don't know if you brought any gifts or anything like that. All right, so you did Squawk. What else? Did some Yahoo Finance yesterday as well. And then we've got the StockTwits CMT summer social as soon as this is over. So what about you? You want TV? No it's just him. You get him ready for it though. I said so do what should I say? Where's the stock twits event? I wish I could go. It's down by the New York Stock Exchange somewhere on Stone Street. If J

Woods is organizing it it's not going to be very far from the exchange. No, it's not. And it's at a sports bar down there. Shout out to StockTwitch. Shout out to the MTA. All right, so listen, I'm super excited about this. The last time we talked officially was October. Came to Omaha.

Had a great time there. And you guys are. Can I have your bit for a second, Josh? You had steak twice in one day when you went to Omaha. Oh, three times. So three times. I was trying to look at who's three. Yeah, you did.

He's smiling, look at him. I had three meetings at three different steak houses all in the same day and I ate at all three of them. One of them was just supposed to be a drink, but I'm like, but like I'm having a drink, so let's do like a filet. All right, Omaha's cool that way. You guys have a lot of great restaurants. But what I wanted to say was it was really awesome being on your show and now the tables have turned.

We have you on our show. So now we get to ask the questions and you guys get to show us how smart you are. Carson's pretty big in Omaha. Like one out of every three people I met worked at Carson at this event. It was an FPA event or whatever. So what's it like being when you're there? I know you guys. Do you live in?

I'm in Chicago. You're in Chicago. So when you guys are there, you're there in town. What's it like being like? We're the Carson people. That's more like a stake. More stakes? More stakes. We're the Carson people. That's supposed to say steak. More steaks. More steaks. But it's nice to be around everyone. Because we work remotely.

So it's nice to be around the profile. Is there a giant building? It's like a giant building. I didn't get to go visit in person. I was supposed to, but I just couldn't. So I'll come next time I come, I'll come visit. Yeah. Carson's a big RAA. 42 billion. We're in about 41 or 42 states, depending we're signing some people like as we speak how many advisors?

Approximately 500 500 have you spoke to all them? Geez, so new price. Maybe about 350 years though. There are a lot of new ones But it's true, but it's two firms. So half my understanding the way it was explained to me by a Carson person half the building is Carson platform, which are like advisors that have their own doing business as RIA, but then they use Carson for support and tech and compliance and research. And then the other half are people that are actually Carson reps at the Carson corporate RIA. Yes? Yeah, that's Carson Wealth, Carson Group.

Technically, we have Carson Wealth. Carson Group. Okay. Alright. Very cool. Alright, so let's get underway. Guys, how we looking? You good? Hit me. Good. Alright. Here we go.

What's up, guys? We're happy to be here. Episode 199. Oh my God. Whoa, whoa, whoa. Oh my god. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is brought to you by Russell Investments. In today's markets, you can't afford to have a portfolio stuck on autopilot. Set it and forget it. Won't cut it.

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terms. It's a modern on-ramp to tailored advice using your brand, your personal touch, backed by Apex Innovation. Learn more at apexfintexsolutions.com slash augmented advice. ["The Compound and Friends Theme"] Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their

own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to one of the best investing podcasts in the world. Not quite the only great investing podcast in the world. One of the best.

You lost your fastball. You went to Italy, you lost your fastball. No, we're in the presence of podcast greatness. That's true. So I pulled it back a little bit. All right. Ladies and gentlemen, we are very fortunate to have two special guests here in the studio. We've met Ryan Dietrich before, returning champion to the show. Ryan is the chief market strategist at Carson Group, an advisory firm with more than $42 billion in assets.

Prior to Carson, Ryan spent, that's the point, it is my move, Ryan spent more than a decade at Schaeffer's Investment Research and six years at LPL Financial. Ryan also hosts a top investing podcast, Facts vs. Feelings, alongside Carson Group colleague Sono Vargays. Welcome to the show. Thank you. February 24, last time I was here, and lots of discuss. Yes, for sure.

For sure. Sonu, you're a VP and global macro strategist for Carson. 20 years experience before joining Carson, partner and director of research at Convex Capital Management, where you co-manage portfolios, advise clients, and lead the research team. Welcome to the show. Thank you. Can we talk about the shirts for a minute? Yes.

All right. So you have Michael Batnick on a Hawaiian shirt, and Ryan, you have Downtown Josh Brown. Do you just have those lying around or? Always. I just said to him about a month ago, we need to do something for your show. And I know you guys like your Hawaiian shirts,

and one thing led to another. And like I said, we're staying at a hotel about three, four blocks away. And I had two people stop me. They thought I was Josh Brown. I said, no, I'm not Josh Brown. I don't wear my own shirt. But no, it's a... I mean, listen, we're huge fans of you guys.

This is a huge honor. Everything you've done in this industry. And means a lot and it's just a... I worry we're going to run out of time in a hurry with the four of us, but it's going to be fun. Whatever we talk about. Whatever we talk about. We're going to make it work and you guys have one of the best shows obviously. Should go without saying and I think there's probably a ton of overlap.

A lot of our listeners probably listen to you guys. A lot of your listeners probably listen to us. So this will be a lot... enjoyable for the audience, hopefully. And look, it's a great time to have to have this conversation, kind of high level conversation economy markets because I can't remember a weirder situation than the one that we're in right now. But I don't even I don't even want to set the stage and give you my take because I really want to focus on, people have heard enough from me, I want to focus on what you guys think is

happening right now. We're halfway through the year. The S&P is having a just below average but still pretty good year. Tech is on fire once again. The tariff thing never went away but also didn't seem to become a huge issue. Earnings are growing. The economy seems okay. Fed isn't doing anything, and this is just kind of like a status quo.

The same stasis we've been in for a long time. What do you think is happening? I think the market's got momentum and despite all the noise of tariffs and Fed policy, we can talk about all that, but you know, there's no sign of a recession yet. I think that's the reality. That's always good for profit growth. Yeah, what's good is that you said that a year ago and six months ago and you've been right.

And a lot of people said there were plenty of signs of recession and maybe there still are, but your larger point is it's not happening yet. Right, which doesn't mean the economy is growing at 3%. When we came into this year, I think't mean the economy is growing at 3%. When we came into this year, I think that was the expectation for a lot of people. Oh, the economy is growing at 3%.

We were in the camp that, wait, 2023, 2024, the economy grew near 3%. That's not going to continue. Maybe closer to 1.5%, 2% or so. But that's not recessionary. Yeah, is it good enough? I think it's more than good enough for profits, especially when you talk about large cap tech.

What do you think the economy's growing at right now? About one and a half percent. Okay. And is that above expectations? Weren't people saying flat growth this year? Or is it below? I don't even know where the consensus was. Well, remember GDP Now?

Yeah. The Atlanta Fed Tracker. Holy mackerel, did that get bearish in a hurry. Yeah, and now it's bullish. Now it's at two and a half, something like that. But some of the surprises are now to the downside, is the thing that you'll hear people say recently. And I don't follow it closely enough to have a strong opinion on whether or not it is or it isn't. But do you agree with that take, that some of the downside surprises are becoming increasingly noteworthy? It's slowing, that's why. If you just look at aggregate income growth, right, which is a product

of payroll growth, which is non-farm payrolls, wage growth and hours, hours are soft, wage growth is slowing, payroll growth is slowing. So aggregate income growth is growing around 3% or so. So think of that as nominal GDP growth. Okay. Yeah. But so you say all the time time like the consumer is the economy. 70% of the economy is consumer spending.

But for the stock market, which is being led by the AI megatrend, which is being powered by Amazon's balance sheet and Microsoft's balance sheet, maybe consumer income is less relevant to power the stock market today. Is that fair? I think to an extent, yes, but ultimately, you know, the economy is where profits come from at an aggregate level, right? But then, you know, with the big hyperscalers,

you have capex spending and one business is, or even one person's spending is another business's revenue and profits, right? So that's, I think, what's happening. So we're gonna do this a little bit later, but I can't, kind of can't not say that we really need to retire this phrase the consumer because it's descriptive of literally no one. We really have this two speed K shaped economy, whatever you want to call it.

You have one consumer that effectively is driven completely by what the stock market just did in the last week. And you have another consumer that right now is showing all signs of throwing in the towel. And we can talk more about like what those signs are. But the bottom, I think 20% of households by income have now completely stopped traveling. Like they're not even they're not even on the radar anymore. That same bottom 20% are making huge switches in their discretionary spending at retail stores. It's showing up in credit card data.

It's showing up in... So like, is that the consumer? Or is the consumer like Jeff Bezos' nephew who's got, you know, just for fun, 300,000 shares of Amazon and every passing hour his net worth increases by 17 million dollars. Like who's the consumer? Well for the purposes of this discussion, the stock market discussion is the latter, obviously. Right.

So that's one of the hardest things I think. When I said this is one of the weirdest times ever, I really think there's a huge portion of the American public that is struggling, but none of that struggle is reflected at all in the stock market. It doesn't seem to matter to earnings, doesn't seem to matter to valuations, doesn't at all seem to matter to the money that's being spent on AI and defense tech

and all these other things. And so it's like, well, yeah, the consumer is the most important thing in the economy, but who's the consumer? What is the consumer? You got thoughts on this? Yeah, I'll take a little different angle on it. You know, three months ago today was the lows, right? 63 trading days ago was the lows in April. I was so bearish.

Yeah, well, yeah. And what was everybody telling us? I mean, recession, recession, recession. So like Sonu just said, the economy is growing, you know, a little below trend, but it's not a recession. That's why I think we've had this huge comeback. And I just looked, you know, so today we're going to be up 25% in three months. Only five other times in history have we gained 25% in a three-month period. You're ready for these. Off the lows in 75, off the lows in 82, off the lows in 2009, off the lows in 2020, and then in early 1999 in there. One year later, higher every time, 22% average. Every single time. Differences time.

Double digits. Yeah, difference this time. I know 99 was at the end. I get it. That's just for the people who like to point that out. But Josh, it's something we kick around on our team all the time, because the consumer's pretty solid, but like you said, it's the upper incomes that are moving it. But as stewards of assets, our job is to understand, are we going through what's being priced in what's not you bring up good points but at the same time it's why we've been over at equities we still think people are still buying stuff that move the economy so it's a tough discussion so sunu just said like one person's spending is another person's income for me the question is that bottom two deciles that we talked about who have completely walked off the the game board at this point,

and they're just paying their bills and trying to survive. By the way, these are the people that just nominated an almost full-on communist as the mayoral candidate for the Democratic Party in New York City. So that group of people, how much bigger can that cohort grow to where their lack of spending starts to actually impact the income of the Fortune 500, the S&P 500? No.

No? At no point in time will they ever matter? To certain companies and sectors and industries probably. But not to the overall market. But Sevita had this data point, I think it was her, the bottom 20% of spenders account for like 15 basis points of consumption for the S&P 500 or Fortune 500 companies. Again, not talking about in real life. In the stock market, purely, these people matter.

For the stock market, they do not. Even generally, I think if you just look at overall aggregate consumption, a lot of it comes from the upper, let's say quintiles, right? 40 to 100 or even 60 to 100 in terms of income. Yeah, so that's not new. That's not new. That's always that way. Like the distribution might accordion in and out, but just generally speaking, here's what's new. A situation where the lower income household is still struggling with inflation, now going on four years, while everyone else,

especially people who have big assets in the stock market or own private businesses or whatever, the valuations for their assets grow to the point where they don't even feel inflation anymore and they're probably causing it. All right, let's talk about the stock market. Okay. So there's this incredible chart.

I'm sure you guys have seen it. Do you know who's this duality research? Not sure, but they share some good stuff. Okay, so this is pure eye candy. So for people that are listening, here's what we're looking at. They have a chart of the S&P 500, and at the bottom, at the bottom in April,

they show the relative performance on a different axis, the relative performance of each sector compared to the S&P 500 since the bottom. And what we're showing is what's happening is exactly what you want to see in a bull market bounce. So what's lagging dramatically? The most defensive names. Healthcare, nobody wants. Staples names health care nobody wants staples and utilities nobody wants What is leading us higher since the bottom and if you were updated today publics even better in terms of technology? Communication services and where I said it probably looks even better industrials and financials are on fire So if you tune out everything and you are merely looking inside the market under the hood and you didn't know anything about the economy or tax or inflation or the Fed or anything, you would say this is about as technically healthy as the bull market could possibly be.

The sectors that you want leading are doing just that. I'll chime in. I mean, a couple hours to CMT thing. We're going to talk about that because what's leading are the cyclical areas and we get the worries and concerns that everybody knows. When you see industrials, financial financials communication services and tech making new weekly all-time highs last week that's the markets way of saying maybe the second half of this year is gonna be okay maybe the economy's gonna do a

little bit better than we think and you know the one thing and then the markets not wrong you're wrong yeah we've all are not the hard way this is one thing though this is AI. Those leading sectors. Industrial and banks are AI? Industrial are 100% rallying on AI. Banks? Like Caterpillar. Caterpillar is a great example of this.

All the defense stocks. Everything is the AI tailwind for spending. They have to physically move earth to build the facilities that they're building. But the financials, that's not AI. Yeah, it is. The return of IPOs, the return of M&A, booming bond markets, booming stock markets, wealth management, blah, blah, blah. It all comes back to the AI theme. It is single-handedly powering this current bull market. The wave. Look, every bull market is powered by an innovation wave. Like, none of, we're not breaking new ground saying that.

Whether it's electricity or automobiles or the telephone, it's always something. You're right, okay. Here's another great one. This is from Sentiment Trader, Ryan. I know you love this stuff. Oh yeah. So the S&P 500, after the percentage

of cyclical sub-industry groups, with a positive one-year return that cycled from less than 20% to greater than 80%. So this is another way of saying there's wide bread thrusts. If you look at the green arrows and you look at forward returns, like by definition this happens at bottoms. From oversold bearish to overbought bullish, on a 12-month forward basis, this is the good

stuff. So I'll just say this. I thought last week's podcast was the best ever. Was there something different about it? I forget. Yes, I was. No, no, you had Gio Gio on, Gio Fami. And Gio points out this is why breath rest. You guys have talked about it all over the place. And that's what it is, where you have these short-term, extremely oversold to short-term, extremely overbought.

And that's that flesh out, right? If everyone's thinking alike, somebody isn't thinking. General Patent, I love that one. And that's what we've seen. And we've's thinking you like somebody isn't thinking general patent. I love that one. And that's what we've seen. And we've seen that, you know, Michael, every major bottom, you know, we continue to see that and it's just one migrants market psychology. You really like that data point about, um, all of the periods of time in history where we've had this kind of a thrust and a race to new highs. It's the most reliable bottom signal.

I can just chime in here. April 9th, right? We gained nine 9.5% of the SP 500. 98% of all the volume was higher that day. So I got data back to 1980 from Bloomberg. That's like a top five day. All those days were the bottom. That was it. And then I said, you know, what we really want to see

is what we were talking about over Carson. Want to see another strong day sometime soon. April 21st, we saw another day with like 95% of all stocks up. I actually remember that. Yeah, and when you have-to-back super duper strong days like that within two weeks of each other the lows are in. We were on record, at least I was, maybe Sony was, but I was on record. The lows are in. Like this is it. Like unless something really bad happens the lows are in and then we had the best May since 1990, one of the best Junes of all time and now here we are making new highs maybe today by the time we're done talking, I think that's just how the street plays out.

I want to ask you guys, there is a universe in which Trump does not resend the tariffs or push the deadline out or whatever he did. I know it's some combination of the two. There's a universe where he says, you know what, I don't really care about the stock market that much this time. I'm a second term president.

It is what it is. I have bigger problems to fix and the stock market that much this time. I'm a second term president. It is what it is. I have bigger problems to fix and the stock market will take care of itself. And we are at this point, we'll have already implemented those original hundred and forty five percent, hundred and ten percent taxes on penguins. I don't even know the details like escape me now, but like there is a universe where he sticks to his guns because Lutnik loses a few fights in front of him and Navarro wins. You know, you know what I mean?

Like he likes to watch them battle it out and then he says I'm going with you. So there's a universe where Navarro wins and doesn't get put into a capsule and shot into the Sun. So more black eyes and the White House wins. Maybe Navarro around more over the last two days. But you're not getting that first bread thrust, is my point, on April 9th. You're definitely not getting the one on the 21st.

In that universe, we're still on a 20% bear market, and maybe worse, because those tariffs, had they been implemented in those amounts, would have absolutely thrown the housing market off a cliff, would have absolutely forced the Fed by now to probably be hiking, would have taken the US auto industry and cracked it in half, like as implemented. So the bearishness around those tariffs wasn't totally crazy. Things just didn't play out that way.

You had to take the position that Trump's not really gonna do this, which. I think he reversed them, right? Temporarily. But I'm talking, picture a world where he didn't. Like, things would look much different today than how they turned out. I think the market's bet, maybe, is that it's not going to happen.

Oh, definitely. Like, that is the bet, right? I would say definitely. But I think ultimately, where the impact is, and we talked about that is the better, right? I would say definitely. Right. But I think ultimately where the impact is, and we talked about this all the time, the biggest impact of the tariffs is really, it keeps pushing the Fed further and further away from a rate cut.

Okay. That's the biggest takeaway from all this. That's not good for the housing market. We talked about the duality of consumers. I think there's a duality across who owns homes at a 3. a half percent mortgage rate effective mortgage rate Versus those that don't have a home. So Trump two days ago tweeted 50 percent tariffs on copper And then today I demand the Fed cut interest rates. These two things are a little bit incompatible with each other

Are you guys still monitoring the tariff front or at this point is it not really a big factor in what you're telling clients? You kind of have to, right? With the tariff thing, I mean, you know, just talking about portfolios as well, one thing we've talked about over the last couple of years really is that you need to diversify diversifiers as well. So beyond bonds, do things like manage futures.

And we saw the impact of that two days ago and he said 50% tariffs on copper, copper jumped and all these managed futures you know the funds whatever they are all of them have a big position in copper too so that did well and that's why we say okay you need to have some exposure to supply shocks things like this as well. One of the other things that the market has going for it is you saw an insane amount of rotation in the second quarter. So the MAG-7 are still below their highs. Bespoke has this great table showing that investors are selling winners and buying losers so far in July. So so far in July, the 20 worst

stocks in the first half of the year are the best performing, followed by the 50 worst, followed by the 100 worst. And it looks the exact opposite when you're talking about the 20 best stocks, they're being sold, the 50 best, the 100 best. This is just rebalancing, right? ETFs. I don't, I mean, I don't know,

but I don't think the ETFs are rebalancing into the junk. Yeah, they are. What are you talking about? They're rules-based. To rebalance out of quality growth and into bullshit? No it's not. Well it depends on the age. Stop.

Alright here's another chart. Second quarter rebounds saw low quality being king. So these are a lot of Goldman Sachs baskets. So the meme stock basket was up 44%. They're not rebalancing into memes. Quantum computing was up 68%. So you're seeing this massive rotation inside the market, which is, Ralph Alcampora said it was the lifeblood of the bull market.

You know, look at ARK. We had Cathy on Facts vs. Feelings on April 23rd, and the comments that we got, people weren't real happy. You almost have to turn them off. Well, not towards he and I, but towards the guest. And I said, damn, I said, oh my goodness. ARK's about to go bonkers. It's up 51% since you joined the class. The negativity towards ATHEE, they were so mad at the stuff that was lagging. And now you look at what's happened since

those lows and it's just been like the beach ball, the ball under the water, you let go and it goes. But you're right, the lifeblood of the bull market is rotation and we're seeing it. I'll tell you, you know, Bitcoin's at an all time high is like, I think the second we're doing this. We're not really allowed to get too into Bitcoin. I'll just say this. Is anyone even talking about it? Is it, I was on CNBC, you know, I did a couple of media things.

Everyone's talking about Nvidia, four trillion. That's a real popular thing, I get it. But nobody's talking about Bitcoin. I mean, we all remember 2021 when it was going crazy and you had day trader Dave, you know, banging his hammer. I remember he looked out his window and he saw a deer. So he bought deer the stock and it went up. Like that was crazy times.

You talk about Cinnamet now. It did work. But like Cinnamet now, there's some optimism maybe. But we know the hedge funds missed it. Do you get bothered when you see like the lowest quality stocks and the Cathie Wood stuff? Like when you see that takeover market leadership, which I don't think it is by the way, but fine.

Like let's say it's starting to do better. When you guys look at markets, do you say, all right, this is a sign that we might want to get more cautious or do you just like look through it? I'd look through it I guess. When I see industrials, financials also along with the party. So I'm that way. That's kind of where I am.

It's like, all right, I could accept that there's a lot of stupid shit going on. We're at all time highs, of course there's stupid shit. It depends on how long it goes on for too, right? But then I'm looking, I'm like, oh, wait a minute, Boeing is rallying. And for Boeing to rally, you need like three acts of God, basically. But so I'm the same way as you. Like I can acknowledge, like, all right, there's really dumb stuff happening all around us,

but also the fundamental underpinning is not all junk. There's like a lot of quality rallies. I want to rewind on something we said a little bit ago, but when we came into this year, what did we know? Well, we had back-to-back 20% years. We knew this. The first quarter after 20% years, usually not that great. The first quarter in a post-election year is like one of the weakest quarters

in a four-year presidential cycle. Oh, by the way, the last 20 years, the first quarter has been the worst. We were on record saying there could be a 12 to 15% peak to trough correction sometime during this year, prior to the first half. I'm on record saying that every year, by the way. Well, you're right.

I mean, I hear you there. So we said that, and then it happens, right? And everyone freaks out, and we get why, the hear you there, but you know, we can't, you know, so we said that and then it happens, right? And everyone freaks out and we get why, the emotions of everything, but it's just incredible how it happened again and everyone got all bared up and now you realize the economy is not as bad as they said and things aren't as bad.

Are you surprised though at the strength of the rebound? Well, you have to be. I mean, you guys share, you guys talked about it on Anal Spirits, quickest ever from down 15 to back, but at the same time, you time, look at credit markets. I mean, in April, one of the reasons I was fairly optimistic, I said junk bonds would be getting crushed if this monster under the bed.

Me too. I was saying that all of April. Thank you. I was listening to you. But then people kind of ignored it. They said, oh, look at this, look at that. It's like, no, high-yield bonds or high-yield spreads are hanging in there. Trust me, they spiked because we're in a darn near bear market. But those were those little clues.

And like you said, Josh, and then talk about whatever you want to call it. It happened on April 9th. And then it was off to the races. You know what a really good tell in hindsight, which I certainly didn't pick up on at the time. But now that I look at it and I say like, oh, people should have been talking more about this. Like foreign country stocks, they called his bluff better than the, so the US stock market had a conniption. It sold off 19 and a half percent.

Granted, the comeback's been amazing. But like overseas, stocks were rallying. They were fucking laughing. Like foreign investors, they got the whole game really easily and we didn't. So. I'm going to set this up and turn it to really easily. And we didn't. So. I'm going to set this up and turn it to Sonu. So we manage about $5 billion.

You hear us talking like we manage real money along with talking about these things. We've been overweight the US for two years. Heavily overweight the US. People didn't like it but it's worked. And we're at the start of this year. I've been heavily overweight for two years too. Yeah, you're right. That's cool.

Ever for a while. You're just on vacation. You're allowed to be. But I mean, what do we think about the International Senate? No, coming into this year, like I said, we are pedal to the metal on equity, overweight and US equities. And then, we were thinking about, look, one tailwind international stocks have had

is the dollar going down. Especially for US dollar based investors. And we're like, okay if there's if And you think about why does the dollar go up or down generally? I mean not over the next day or two its expectations relative expectations of growth coming into the year You know people are expecting 3% growth in the US maybe 0% growth in Europe. That's changed now Especially even before liberation day in March. You're talking about German fiscal spending things like that. I totally like okay Maybe something is changing here

Let's move to a neutral weight us versus international. That's what we did You know back in February in March and we saw you know expectations So you guys trimmed us and added to international even while being you know overweight March 3rd We did some pretty big trades, and we did that so before all the trouble started and okay So you guys aren't like that you're you're likely as you should to look through a lot of the silliness. Because in all time high there's always tons of silliness. Not easy to point that out. What about something like this? This week we saw Bank of America and Goldman both hit the S&P with upgrades after downgrades earlier in the year. Does that say, alright maybe we're due for a little bit of a pause or is that too cute?

You don't think about that sort of stuff. It kind of reflects momentum, right? The market's going up, everyone's moving up targets, market goes down, everyone's moving down targets. But sentiment, going back to something Ryan just said, the sentiment doesn't seem very overextended. It's not. You can't react to the strategists in real time

because all they're doing is marking their own calls to where the market just went. David Costin at Goldman, this is the big news today, raised his year NS and P500 target to 6600, which would be 6% from the latest closing level. That's where we are. Lifted his three-month and 12-month price targets to 6400 and 6900, nice respectively. Previous 2025 target was 6100, which he set in mid May during the trade war. So like most of the strategists on the street had to lower their targets in April when it looked like we were going to have a manmade self induced recession. And then when that came off the table, it was only a matter of time before

they had to chase the market higher. Definitely Definitely, my comment to the listeners and the viewers is, definitely do not try to align what you're doing in your account with your end price targets. Well, so, Kostin also said, with while narrow breadth often signals the risk of larger than average drawdowns. Like, we just talked about it. I'm not sure where this narrow breadth argument is coming from, because I'm simply not seeing that one. Here's how I would describe the sentiment.

And sentiment is very hard to describe as one sentiment, because who are you talking about? Maybe a rally of disbelief. So for example, this is from the Daily Chartbook, which I get a lot of my stuff from. Shout out to them. The estimated short interest. Is that estimated?

Short interest for the top 10 stocks, for the top 10% most shorted stocks is rising. It's up and to the right. There is a lot of fighting to tape and these are probably the junkie names and this is probably fueling. So say if we had to guess what's in here. I'm making this a Peloton and a lot of those sort of.

The small growth, mid cap growth names. But also maybe like the Modernas and the... Sure, yeah. Moderna's rallying hard. Yeah, the Zooms. Right, I don't think that this is further fueling fire to the fact that this is exactly what you want to see in terms of bull market, both technically and on the sentiment side. I'm not seeing a lot of excess just in terms of like enthusiasm, everybody in, don't worry about risk. There's still a dose of disbelief

I travel the country all the time do this and talk to financial advisors and our clients then you do QA I've never in the last several this year been asked. Hey, it's really good out there. How high is this gonna go? You're always that one's wrong. Yeah, it's such a good what's what's bad out there. Look how bad this is and I get it What does it hurt? You know But at the same time like the short interest is one example and we kind of hinted at it like hedge funds from what I've seen That's such a great point. What's bad out there? Look how bad this is. And I get it. When does it end? You know, but at the same time, like the short interest is one example and we kind of hinted at it.

Like hedge funds, from what I see and hear, they've been fighting this thing up the whole time. And this is maybe another way of showing that. They just keep increasing their shorts. We know they were net sellers throughout the course of the spring. Right. Like they didn't, it's really retail that jumped in with buy orders in size. Congratulations. Before any other category of professional.

So that's notable. All right. You guys have your own proprietary leading economic indicator. Index, I guess, would be the way to put it. You have your own. So what does that mean? You looked at the way it's typically done and you changed the components or the basket of things that you look at for your own indicator. This is about 12 years ago when they created this. This is about a previous shop.

We looked at the conference board's LEI and we were like, wait, this doesn't quite capture what the US economy is. What was wrong with it? It was mostly geared towards the industrial manufacturing sector rather than consumption. Which is shrinking. Yeah. And this was 2013. And at that time we were like, and then every now and then they change the indicators

and they do whatever it is they do. So we're like, we need to create our own. And we said we want something that, and it's mostly for a sanity check. I'm not a believer in like indicator macro. Like there is a silver bullet indicator and I certainly don't think RLEI't think our le high is a magazine covers. I'll save you some time Especially the economist yeah, yeah, so but yeah No, we created something that hopefully captures the US economy and because every day we get different indicators today We get claims you get is and PMIs and then you like going from one to another like oh, this is bad

That's good. This is really that's the worst game that the media plays the game because the news comes out and they they're like have to cover it. Right. So it's like oh markets are red because let's find an indicator that was worse than expected. The yield curve is inverted all of that. What was that April 1st two years ago? April Fool's Day 22 is when the yield curve inverted. I've called that the greatest April Fool's joke of all time. Yeah. So we put together the index just to the sanity check.

I'm like, OK, let's put what we think are sort of data mining exercise. We could do that, but 200 indicators together. No, this just has about 25 indicators that capture the US. What's the goal? To capture a more real snapshot of the state of the economy at a given moment. Exactly.

Because you can't wait for GDP data, it's on a big lag, and by then nobody cares. No, exactly, like the famous Semblist chart, which shows that the market bottoms before GDP. First of all, you don't even get GDP, it's much later, and then it gets revised. Right, right, so that's not useful for investing. Okay, so what are you doing with your LEI?

And what is it telling us about the state of the country? It tells us whether the average indicator, so let's say representative of the economy, is that growing on trend, above trend, or below trend. And right now it's telling us the economy, economic growth is growing below trend, but not recessionary. And we do actually, we have 30 of these for 30 different countries around, well 29.

We stopped doing Russia a few years back. But we have 29 of these and each of them are tailored towards those respective economies. In the US it's more about consumption, in China more about investment, Germany, South Korea it's more about experience. Oh, so you create a different basket and weight things differently depending on the country. Yes. So what is the US? Same store sales at McDonald's? Like what are the things that are going into your concert tickets?

It's more aggregate indicators that we have a history for. So it's got things like retail sales, food services, auto sales, housing starts, building permits. Yeah, standard indicators. Like I said, it's a sanity check. Put everything together. What's the picture? So if you saw this really roll, what would you guys do? We would start getting cautious. And this goes back to the fact even back in 2022, and everyone was calling for a recession. Well, even 2023 for that matter. We didn't see a recession at that time. We weren't, you know, we were overweight equities.

And we were like, I don't think there's a recession coming, which is not to say it'd be correct, but the odds are in favor of no recession. So this, I don't know what you mean by rollover. I guess it would have to cross below. What is the Z-score? Z-score is, you know, how far above or below trend is the average indicator growing. So what would you need to see for you to say, to Michael's point, all right, things have now materially changed and we are tipping into recession? Just to put a number around.

Yeah, put a number around. Negative 0.5, negative 0.6. Once we get down there, we're nowhere close to that. So we're obviously not there. No, nowhere close to that. And you could have a false alarm if you dip into that. It's not a guaranteed recession, it's just, I guess you back tested it and usually it's pretty bad. Right. And what you're essentially seeing is sort of a back test anyway, right? Like we weren't doing this in 2001 or 2006 for that matter.

So I'll chime in here. So in early 2023, we wrote our outlook. The second line of our outlook said we don't see a recession and we could hit new highs this year. Now we didn't hit new highs in 23, but rallied a lot. And a lot of us, the work Sony did, which went contrary to just about everybody else, saying the economy is better than you think here. And literally today, we just released our mid-year outlook. And we talk about a lot of these concepts. And the reality is, I'll just give Sony a pat on the back.

I mean, there's Neil and Sony and a few others that really look at this economic data differently than so many other people. They don't just look at, oh my goodness, manufacturing ISM sub 45, yield curves inverted, the end is here because it has to be because every time it's done that the last six times and but you actually peel back that onion like he does. I don't even know what's in this thing. I just let's do it. Hey, how's it look, Sonu? And he tells me, I look at other stuff. But the reality is it's worked. It still looks okay. I love that you're giving him his flowers by the way. When did you realize that the old way of thinking about the economy with all the

gobbledygook that Ryan mentioned is no longer the playbook? It was originally when we were thinking about how do we want to model the economy and you know do it from the perspective I need to manage real money right? Think about markets right? And what's the connection between markets and the economy profits right? So when you think about the aggregate economy you arrange you know like you take a sectoral balance approach. You got households, businesses, the government too. Back in 22, 23, the other part of it was there was a lot of government spending coming down

the line. The IRA and CHIPS Act, Bipartisan Infrastructure Act, the American Recovery Act, that hadn't finished putting all its funds out. So all of that is happening and we thought, wait a minute, that's good for corporate profits, right? So the idea was how do we capture, you know, a snapshot of the economy that can sort of tell us what's happening to aggregate profit growth.

Do you use stock prices at all? Yes, it's in there. How important are they? They're quite important, but in this, I tell you, it's about 5% of the index. So, I'm a wealth effect truther. I mean, he does all the equity part anyway, right? So, you would have gotten a false signal had you just gone by the performance of the stock

market in 2022. Yeah. You would have been all over the recession call, and I kind of was. Like late 2022, I'm not a, I don't predict the economy, but if I had to guess, I would have said recession for 23. Thank God we didn't have one. And the odds were higher, even if you go back and look at the chart, it was inching towards negative 0.4. I'm looking at it right now. It was as close as it gets without crossing fully over. And at that time I was saying, you know, the odds of a recession about 35% or, you know, it's higher.

But again, here's the thing that's not that nobody can know. If you're just looking at your leading economic indicator, without a doubt, three months later at that trend, you're in recession. None of us can know that CHAT GPT was just released. And it has the potential to unleash what looks like it's going to be 5 trillion worth of spending inside of 24 months. Nobody could possibly know that. So it's like more fiscal stimulus.

It's better than fiscal stimulus because it's almost entirely driven by the private sector and did not require interest rate cuts. The entirety of the AI boom so far is happening with higher than normal interest rates with restrictive policy in place. And look, you could not have said that in 99. The Fed had a huge emergency weight cut in 98, the summer of 98. And I know that fueled the next 500 IPOs because I was there. You don't have that this time. So I know Sonu's going to jump on that.

Hold that for one second. So this is kind of how we work together. So he's got what we're showing on the screen. But remember the end of that bear market. Who's the bad cop? Yeah, exactly. That October 22 low, right? I'm the global magnet strategist, right? Yeah. About a 25% bear market ended in the middle of October 22.

Your average non-recessionary bear market is 24.5%. So we're in that range where you can have a bear market without a recession. As everybody knows, when you have a recession, it's about 35 a half percent. So we're in that range where you can have a bear market without a recession. As everybody knows, when you have a recession, it's about 35% bear market. That Friday, we had that CPI, I think it was CPI Tuesday or Wednesday, Wednesday. It was high, right? Remember inflation.

Market gapped down like 2% at the open. By the close on that day, I think it was October 12th or 14th, one of the other, closed up 2%. So you had a 5% swing intraday. And that's the stuff I look at. And I'm like, oh my goodness, like I shared it literally that day. So that's how lows happen. Literally, that's how lows happen. That was the low.

That was the low. We didn't know at the time. It was October... October 12th or 14th. So we were on the show that day. Remember we drove into the city? We were in the car when the inflation number came out. It was inflation CPI. We were on the show that day with Passan and Kyla the end of the world it fell like the end of the world Oh, you know what?

that week the VIX had this insane move and Then it completely reversed itself And I think that was the Congress and persona was like kind of schooling everyone like you guys don't understand the VIX is about the next 30 days It's not about six months from now It's literally people pricing in the risk that they think is gonna happen tomorrow And then when tomorrow comes it unwinds

That's why the risk me mean reverts or oscillates or whatever so I do remember that period of time. I just think We got really lucky at the end of 22 we did and into 23 if we didn't get chat you BT I think there would have been a recession eventually. Because we say there wasn't a recession, but there was a lot of parts of the economy specifically with the stock market. I think Silicon Valley had a recession. Silicon Valley, 100% recession.

There was a website that updated real-time layoffs. Real estate, still in a recession. So there were areas of the economy, not overall, that absolutely got f***ed up by higher interest rates. Commercial real estate still. You still argue, like over the last six months, the tech sector has lost about 10,000 jobs.

There's no more software jobs being added. So, yeah. But not because of the economy, because of innovation, and it's a little bit of a... Like in other words, Microsoft didn't just say 9,000 layoffs because times are hard, or because profits are hurting. They said it because they can. And they went on a hiring spree if you look at the numbers back in 2021.

They over hired. They over hired and now I think they're still recovering from that. I think that's right. I wanted to... Hang on a sec. You want to talk about Vegas? Well, yeah. I want to talk about things that are not traditional indicators, but kind of

force you to pay attention. I wanted to ask you guys your thoughts when we talk about the consumer. What's the most important behavior of the consumer to be thinking about or keeping an eye on? Because I think it's travel and then as a subsector of travel, I think it's gambling. So what do you think about that? Travel, full service meals, restaurants. And that's been actually flat once you've done...

For me it's casino. For me it's Vegas. I feel like Vegas is like the throbbing tip of the whole like... Is that the right... Throbbing tip. Probably the wrong way of phrasing it. I don't know, Josh. I think it's like the... I think it's like we're the real nerve center of like appetite.

Consumer appetite. I like nerve center better. To do shit. And you mean like gambling as an entertainment as opposed to a professional. Like specifically, let's bro, let's go to Vegas. I feel like that only is in good times. It is the most dispensable of potential trips you could take. Also, corporate spending in Vegas. Obviously, that's the first thing to go. I guess we're not going to do

the Vegas junket this year because we just missed earnings last quarter. Like for me, that's a big one to watch. They are, here's why I bring this up guys we're going to talk about inflation. Vegas is basically committing suicide by suicide by price. So this is I've read 20 of the same article in the last week. This is the Daily Mail.com. Las Vegas high prices putting off potential tourists new visit according to new visitor figures. Tourist numbers have fallen every month this year with 6.5% fewer visitors than in 2024. International arrivals at Harry Reid Airport down 8.7% in May versus May of 2024. A visitor recently shared her shock after she was charged $26 for a bottle of Fiji water. A British magician was left outraged. How dare you? $74 for two bottle of Fiji water. A British magician was left outraged. How dare you.

$74 for two drinks at the Sphere. The buffet at Bellagio was like $175. It's always been this way. Nonsense. No, it's worse than ever and notably, and it's stopping people from going. Stocks are on fire. Some of this is international tourists. A lot of it is.

They're not coming anymore. I mean if you just look at you know tourism from abroad, which actually shows up as a service export that's going down. Travel and tourism from abroad. What do you think of this as like an indicator to just look at the way people are, because when you go to Vegas, when you do that, you're really spending on things that nobody on earth needs. That's like the, to me, that's the pinnacle of like, the consumer is doing great.

Vegas is not doing great right now. Yeah, the first week of April went out west, which is obviously a fun family trip with the Bryce Canyon and Zion National Park. Way better trip than Las Vegas. Well, we went to Vegas for a couple of days, too. I'm worried about my 14-year-old, by the way. The way his eyes lit up in Vegas.

Like, they were like, threw like $100 on a couple parlays, and they lost, of course, on the last game. I said, well, that's gambling. That's why we don't do it. But I didn't think it was as crowded as I remember, because I was in Vegas a year before for a work thing with Carson. And I was looking around thinking, huh, this is interesting.

It's like spring break. And Vegas truly didn't feel as crowded and then some of the softening Sonu talks about and, but I guess that's the key thing. Is it, is it recessionary or is it softening? And then like Mike, you just said the stocks are doing pretty good all of a sudden, but over the past year they haven't done as well.

And a recession they're giving away their rooms just to get you to. And they're not doing that now, you're right. Can I show you some charts? Yeah, let's do it. All right, this is a one year price performance of Caesars. You wouldn't buy this chart. You would buy this for what?

For a capital loss? You want to harvest? It looks like it might about. In a month or two? Doesn't look terrible. I'm with you. Next. Ryan, how do you feel? A little messy.

Yeah, not much there. Okay, here's MGM. Another horrible downtrend, very obvious downtrend. They continue to sell lower highs. Here's Wynn. This one looks good. They're in the process of building what's going to be the next hot. Dude, Wynn looks great. Yeah, they're building something crazy. Is the buffet better?

Wynn looks great. No, they're building a new, brand new resort, like the first one that's opened in a long time and people are excited about it. Also, but there's like Chinese exposure mixed in here. Right. It's really hard to disentangle Vegas from China. Here's another LVS Las Vegas Sands. This is China. This is not Las Vegas.

That's not a bad chart. Even though it's called Las Vegas Sands. So I would argue that there was absolutely softness. There's no doubt about it. Vegas and excess cash and money to burn, that should end it. And high prices flushing the people that would normally be playing. That's absolutely true. And even at an aggregate level, you just talked about the, yes it is aggregate, but you look at wage growth, right?

Wage growth three years ago was growing about five, six percent. Now it's come down to three percent. And people act differently as a result. I totally agree with you. But we heard from Delta this morning, which had a lot of softness in the first quarter, a lot of foreign travelers perling back, and Delta stocks got destroyed,

Delta got crushed. Well today it's having one of its best days over the last five years. It's up 13%. They reported a record quarterly revenue for the second quarter. Record. It's a big day for Delta. It's a big day. High margin businesses do. Which I imagine is business class. This is my point though. This is how we open the show. When we talk about a K-shaped economy, you basically...

So in the back of the plane they can't sell seats. In the front of the plane, they're putting in golden toilets. That's the economy right now. United just built first class suites. So now when you're in first class, you have a door. Like open the door to come talk to me, otherwise get out. This is my private suite on a United flight. You know what's weird? Emirates and Singapore have had that for a long time. It's kind of curious that we're only just getting that.

Dude, we looked at the price to fly Emirates to Italy. Oh, from here? 2X the price of a first class flight. Was it 9 grand? It would have been 10 or 11 grand. Do you have to go to the Middle East and then back up to Italy for that? No, the flight direct to Europe. Those are the sickest planes ever with all the amenity,

anything you could ever want, which is kind of wasted on me because I would rather just do drugs and fall asleep. OK, so this is the story of the economy. And you're not seeing it in the stock market because we're at all-time highs. But it's to consumers, is my point. You're seeing it in surveys, and you're seeing it in elections.

People are pissed off. And there are prices that are going up. I mean, overall aggregate inflation, you know, you can talk about the issues with how official shelter and all that is, you know, measured. But you look at electricity and gas prices, something I've been tracking recently, electricity gas prices, utilities, basically, it's up 6% year over year. Oh, wow. 14.5% last three months annualized.

So you talk about wallets, especially on weight growth is going lower from six percent to three percent A lot of people may not even get wage increases But your utility bills are rising at like a ten percent annualized rate Did car insurance cool off remember how pissed off people rightly were about that? It's cooled off I mean, but I think it's still you know, it's it's still high. Let me tell you this I got a note if I got a notification before we started the show that my jet ski insurance went down a decent amount. That's because of how good you are as a rider.

Yeah, exactly. No, but that's notable. You've been watching my social media. Prices dropped fairly dramatically for me, and I didn't do anything. Let's talk about household balance sheets. All right, we have a chart for this. That's the throbbing tip.

It sure is. What's the, did I say, I don't think, I feel like I said throbbing. Stop, let's just charge for this. That's the throbbing tip. It sure is. What's the did I say? I don't see that they feel like I said stop. Let's just let's just leave it alone. Okay What's the message of this in? Aggregate household balance sheets are in good shape and for two reasons home prices have gone up especially over the last five six years and Stock prices have gone up that but that gets to, okay, who owns the stuff? Right? At the upper income quintiles.

So you said in aggregate. In aggregate. Yes. Because that's the point. That's the thing, right? Okay. And the other side of it is that debt, you know, as a percentage, this is as a percentage of disposable income,

that's relatively low compared to where we were even in 2019. And remember, 2019 was the end of a big deleveraging cycle. So that's actually a good spot to compare it to. Why are you pulling these other periods of time? Just to look at what the top of the cycle is. Just to compare it. So can you walk us through this? As of Q1 2025, you're showing the asset layer of the household, which is above the 0% line.

Things that are assets. The asset layer of the household, which is above the 0% line, things that are assets. So real estate would be their houses, consumer durables, with cars, cars, corporate equities, stocks, stocks, debt securities, it'd be treasuries, mutie bonds. And then I guess cash and business ownership. And that's at a record high. Yep. That's 833% of disposable income. Again, this is accurate.

Is that good? That sounds really good. Before, well, compared to before the pandemic, 2019 Q4, it was 769%. Nice. Okay, so liabilities are, what does the minus 93% signify? It's just 93, it's just liability being negative.

So 93% of disposable income is, you know, mortgage debt is mostly that, and then consumer credit. I'll put it like this, so you got that negative 93. That's as a percent of disposable income. Everybody here is 37 trillion. We walk by the debt clock, by the way, just randomly. It's wherever, a block or two away. You hear all that, 1.2 trillion in credit card debt,

and another couple trillion here, couple trillion there. But as a of the denominator blindness, we all talked about, you guys talk about all the time, the denominator blindness, that's the numerator. You got to look at the denominator. Which is what? The size of the economy? No. Size of the asset. Or just equity and the asset. In this case, disposable income.

Disposable income in this case, but people are worth a lot more and we get it, this conversation we've been having for the past 45 minutes,'s not perfect but this is why the stock market's hitting all-time highs this is this is why at the start of 23 Sunday was sharing this chart saying listen if we had a recession in 23 it might not be as bad as they're telling us because of this because people were still worth a decent amount of money um all things considered especially but relative to 25 years ago at the end of 1999 because again yeah we've got more debt overall because every three months when that Fed data comes out and it's a new record of credit card debt, media go crazy, but they just seem to ignore

all the wealth that was created more so along the way. That's how it works. That's the spending that fuels the wealth creation. The problem is it's not balanced amongst everyone. And they're not going to Vegas. Let's do these charts, rising home prices and stock prices boosting households. So what we just talked about.

Another way of looking at the same idea. Over time, and I think this gets to something you were talking about. What is this up to? What is the 215%? Yeah, equities, right? Equity of stocks as an asset, as a percentage of disposable income is 250%.

Home prices as a percentage of disposable income, again, in aggregate, 215%. But this gets to what could damage Hussle balance sheets. And then you look at this, well, if home prices come down, or if stock prices come down, I think that's why, I think the stock market is really tied to the economy right now,

through this balance sheet picture. I've been screaming this. Well, Josh always talks about this. You know what that line is? That line represents asset-backed loans. Right? These people don't need to sell their securities to buy anything. They'll just borrow against it at a very low interest rate.

Because then you don't have to pay the taxes or capital gains either. Right. That's the story. A lot of the way we used to think about the economy was from a time where you had to sell something to buy something else. Not anymore. We have an entire generation of people who have done securities based loans and they've had their cake and eaten it too. They've kept their portfolio intact and they've

bought the vacation home utilizing very low interest loans that are being backed by a combination of Apple and Nvidia and US Treasury bonds. Yeah thank you Jensen Wang. I will buy a second house I'm far against my portfolio. This gets back to also what you were talking about like, you know, the more of Navarro that we see if things start going down, it can go down only so much. He was on CNBC on Monday morning. He's been coming out. Not gonna be a good day. The market was down a percent. Right.

Give me a break. Send him back to the dark side of the moon. Daniel, can you please put up chart 15? Let's do forward earnings. I want to make sure we get to all this stuff because you guys have awesome charts. send him back to the dark side of the moon. Daniel, can you please put up chart 15? Let's do forward earnings. I wanna make sure we get to all this stuff cause you guys have awesome charts. This is remarkable.

Tell us what's going on here. Well, this is like the name suggests, forward earnings on the S&P 500 12 months out. $281 a share, all time record. Who could have imagined? Who could have imagined that, honestly? Nobody was three months ago. What is this?

This is the consensus, Wall Street expectation for S&P 500 earnings in the next 12 months? Yeah. Alright, so trading just on the 24 times forward. It's not cheap, but why should it be? Tell people where that number was two years ago. Where was it? Two years ago, and June of 20, 230. 230?

Yeah. Okay. This is incredible. It is. Can we all agree it's AI? It is. And in 2026, expect to be at 13%. That's about where we were at the start of the year. But like all kidding aside, this is not coming from pharmaceuticals, home builders. It's all AI.

It's all AI. All of it. So great. No complaints, but I'm just saying. Let's all acknowledge what's going on here. Okay. The neat one is the next chart too, profit margins. Literally last week, profit margins just hit a new high this cycle. Which all we hear is profit margins have one way to go and that's down. For three years now, we've been hearing that. And I call this the dual tailwind to a bull market. When you have these two things going up, stocks are going to follow. Keep it real

simple. And multiples will expand. So profit margins now 13.7%. The highest in the cycle. So people are looking at the valuation. It's like, yeah, no, the market's not cheap. But guess what? Companies have never made as much money as they're making right now. Made like took home.

Operating leverage, right? As sales go up, they're expanding margins. If we're in the middle of an AI revolution or the early stages or who knows where we are Why would you expect multiples to be cheap? Right a bubble chart Do you still hear this is a bubble you hear this from a lot of people? I don't know not as much but frothy I guess and this is something Sonu just updated recently. Yeah Breaking down you can break down S&P 500 returns or anything really into, you know, how much is coming from multiple growth, how much is coming from EPS growth and dividends.

And then you break down EPS or earnings growth into sales and margin growth. And over the last, well, since the end of 2019, last five and a half years, the equity market's up 112% total, out of which 49, close to 50% has come from sales growth, which is just the economy growing. But 20% at this point has come from sales growth, which is just the economy growing. But 20% has points has come from margin expansion. Right, how much from multiple expansion? 26 percentage points. So a quarter of the rally can be explained

by people just paying up for stocks. Another quarter can be explained by profit margins growing. And then what was the remainder? And then sales growth and dividends too. Dividends about 17 percentage points. So is that a healthy mix? Yeah, I then what was the remainder and then sales growth and dividends to dividends about 17 percentage points, right? So is that a healthy mix? Yeah What do you think?

What would you want it to be no mark nope No multiple expansion why and the this the comparison is relative to 2019 So we are talking about oh, this is the bottom of a recession anything like that If you go back to 2009 and plot it, yes, you will see multiple expansion because multiples are like eight or nine or 10 or something like that. But this is from 2019 and it's been a story of profitability. So, all right, Trump tweeted something from the multiverse today. There are so many twists and turns within this one truth social post. It's almost incredible.

Like you would have to you would I don't know how to get on this level where any of this makes sense. Honestly, let me just read it. Tech stocks, industrial stocks and NASDAQ hit all time record highs. Crypto through the roof. Nvidia is up 47 percent since Trump tariffs. USA is taking in hundreds of billions of dollars in tariffs, country is now back, a great credit, Fed should rapidly lower rate to reflect this strength, USA should be at the top of the list, no inflation.

Get on his level. So in other words, Nvidia is up 47%, the country has never been doing better. Hurry up and cut rates. Reflect the strength. That's actually... Reflect the strength. Reflect the strength. That actually reveals a lot.

He thinks of the US as, even the treasury market, as a credit product. Sonu, reflect the strength. Just reflect the strength. Yeah, so the better the economy is doing, the better stocks are doing, the better home prices are doing is like... The lower interest rates should be. No, lower interest rates. I say one really positive thing about stuff like this.

I think the market just doesn't care anymore. It really has to be something big. Like a press conference or something. His tweets really can't change people's mind about what they're doing on any given day. It really has to rise to the level of like, all right, here's new policy and I'm about to sign it into law. Then you get the market's attention. And I actually like that because the alternative is like every day,

why is my portfolio down 4%, oh, he tweeted, whatever. So I kind of like that it's just at this point, it's a punchline right at the beginning and nobody really reacts to it. I think that's where we are Vicks is sub 20. I think so. I mean, it's unbelievable on the mat It's he did move markets the last couple of days are like the Brazilian market and the copper You know, so he's still got some of that.. All right. We want to hit any more of these? It's up to these guys. I'm full.

Guys, what else in here did we not get to? We can just jump ahead. Just remember one of the stock stuff, where the one is called the sweet spot. Yeah, let's do that. So this year, we're about 5%, 6% at the middle of the year. So it's kind of one of those times. OK, let's take a look at that.

You know, there have been years, the worst second halves of years usually are after the worst first halves, 2000, 2001, 2002, 20, or 2008, and then 2022. second halves of years usually are after the worst first halves 2000 2001 2002 20 or 2008 and then 2022 and then there's 87 which are up a lot and you come back and 76 is up a lot and you come back and somewhere in the early 80s up a lot and come back so this is kind of right there the average first half is up about four and a half percent this one again five or six so I look at all the times up between five and ten percent at the middle of the year. What happens next?

And well, as you can see on the screen, I'll tell the listeners. SAP is up 13 out of 15 times the rest of the year with above average return. So that's, you know, I call them these what it is what it is type of studies. Just we're in the sweet spot is what I call it. The next chart is when you're higher May and June. May and June usually aren't that great. We know they were higher this year, substantially higher. Again, what happens next? The final six months up 15 out of 16 times

was an average return, I believe it's right around, yeah, eight, almost 9%, almost double the average second half of a year. So you just stack those two little nuggets, and I get it, people, I do these on social media, and so it's a sample size of this sample size that that's fine I understand. But when you stack all these like for example on the May and June one how many instances of 16 or 16 or 16. My joke is well there are more I do it's not five but I'm just saying when I when you stack all these different studies that I look at and share and so looks at and shares it is said for a while the stock market wants to go higher I I have a CMT behind my name, charter market technician, disciple of John Murphy.

It's all about the market. What's the market telling us? Are we listening? And to me, the action we're seeing is saying we are in a bull market and it's still going to go higher. So the reason why these things are worth paying attention to, like when the market's up May, June, it's not voodoo. Because what we're saying, by saying that that has meaning, and that you found these 16 other

episodes of that, we're saying that like human behavior is the constant here. And for whatever reason, if the market has a really powerful summer, it probably does lend itself to people chasing in the next six months of the year. Of course it does. Right, but that's our point is that buying begets even more buying. It's FOMO. This is come on people. Yeah, so it's a lot of career risk, it's a lot of people that are behind, they have to catch up, or people won't give them money for next year. There's a lot of that going on.

So that's what you're saying when you look at this data. Maybe one more. I know we're getting to the end. Year three of the bull market. I sent that chart and you guys talk about this. I talk about, but year threes of bull markets are usually choppy. Usually frustrating. Down a couple more. Usually choppy, usually frustrating, but usually the bull market doesn't end. I found five, well not I found, there are five bull markets last 50 years that made it this far The average before the bull market was over was eight. The shortest was five years So once I call it's like a cruise ship once a bull market gets moving like a cruise ship They're hard to stop. They're really hard to turn around

Yeah, maybe a hundred year pandemic might some crazy stuff for tariffs going but the reality is year three is that catch-your-breath moment? Like it's so did I talk about this a lot lot on facts versus feelings our podcast with our Carson advisors expect some choppiness expect some trouble during year three we had it I think it's in the rearview mirror now and now I think we're past that indigestion period in years four and five tend to be strong and these are just things we look at when you stack it all together with new highs on advanced decline lines and credit markets still hanging in there those are the two things I follow and people say what do you look at I say advanced decline lines and the credit markets if hanging in there, those are the two things I follow. And people say, what do you look at? I say, advanced to client lines and the credit markets.

If those two are worrisome, yes, so earlier, you know, with his LEI, if I see credit spreads breaking above where they were in 2022 and I see advanced to client lines breaking down, then that's when I'm thinking, okay, this is going to get a lot worse. We're not seeing these things. We're not seeing it at all, Josh. And then the other stuff we just said, suggest again to be overweight equities, have a little international exposure, have some be overweight equities have a little international exposure have some EM We do have a little bit of gold and to get into that but just in case bad stuff happens We still think you know, this is a great time for diversified portfolio going forward ladies and gentlemen Ryan Dietrich Sunil Varghese. Thank you guys

Thank you guys are awesome. This is fun Probably a few more f-bombs on our show than your show, but I think, hey, I think you guys are two of the best to do it. So we're big fans of yours. We didn't have shirts made up. I was away. Otherwise, I would have gotten to it. But thank you guys so much for being on the show.

We end the show these days by asking people what they're most looking forward to. And it could be anything. It could be personal, professional, you tell me. Let's start with you. What they're most looking forward to. And it could be anything. Be personal, professional, you tell me. Let's start with you. What are you most looking forward to? Not talking about tariffs. Come on. No, actually I have a trip with the family out to the same kind of same neck of the woods.

Where you got it? Bryce Canyons. I say Vegas. Arches. Fly back to Chicago from Vegas. So, you know, maybe catch a show or circus. I have eight year old twins. They've never been there.

Bryce Canyon, you ride horses through that canyon. I think I did that as a kid. I did bikes. You can ride bikes, horses, yeah. E-bikes. E-bikes. All right. Dude, that's amazing. Congratulations. What about you? I love doing this market stuff with him all day, but from a personal point of view, both my boys play football. And once you get to July, it gets serious. My one son is a freshman and they had a pretty good high school.

So I'm looking forward to watching my boys play some sports specifically. How big are they? Football. Sure. You're a big dude. I'm big. I hope I hope they both grow more. I mean, my my let's see my freshmen's about five, eight, five, nine.

And my seventh grader, he needs to grow a little bit. So okay, what position they play? my freshman's about five, eight, five, nine. My seventh grader, he needs to grow a little bit. So, we'll look at that. Okay, what position do they play? Let's see, my sophomore is a safety, and then the seventh grader is wide receiver slash cornerback. How do they get those positions? Is that where the coach says you would be great here, or did they gravitate toward that,

and want to do that? Both of them gravitated toward it, I would say. Okay. He loves me, he loves safety. You played ball in high school? Well, I played golf and basketball in high school, so not football. Okay. Why are you afraid to get in hit? Yeah I just I was afraid I Got a problem with my head already. You didn't want to go to the black Sabbath tribute show Ozzy's

I watched that let's talk about for a second. I was sick. I wasn't there but Stephen Tyler truly stole that show I mean who would have thought that the way Stephen Tyler came out there and did his thing and ever that was awesome As an old-school metalhead, you know, black Sabbath started it all for me in 97 at Oz Fest I know there's amphitheater when Ozzy didn't show up. They literally tore the place down and burn it up You can Google it and find I said, oh, I like. And I've been into that music ever since. And you know, Ozzy's one of the best in Black Sabbath. Did you and I go to the... Did you and I see ACDC with Axl Rose? Want to answer this one?

I was there. I don't know if you were there because you left really early. Oh, Josh Laffey. He left early. Yes, you did. You left early, Josh. Yes, you did. Because Tommy got us backstage.

Chris Jericho's walking around. No, not Axl Rose. Tommy knows everybody. I was there for the show. Joe got us downstairs under the garden. Yeah, under the garden. Yeah, under the garden. That's what's not backstage.

It's a different show. You're talking about Motley Crowe. No, no, it was Axl Rose singing for ACDC. I was at that entire show. I remember the encore. Okay, then you left before we went in the back. No, of course. I don't wait to go back.

I'm a celebrity myself. I don't do backstage. You think I do fucking meet and greets? Are you kidding me? All right, I was at that show with you though. No, we're going to blast. That was 2016. 2016 is when that stage. Did I do f**king meet and greets? Are you kidding me? All right, I was at that show with you though. We had a blast. That was 2016. 2016 is when that was.

I tell people about that. First of all, people have to Google it. They don't believe me that it happened. Axel sang ACDC. They're like, what do you mean Axel rose in ACDC? I'm like, we saw that. We were there. I'm like, I was there.

You could trust me, it happened. And people will still Google it. Charlie was there too. I don't know, a bunch of us were there. Who else did you think sounded good at the Ozzy thing? Oh, jeez. I was super impressed by all these guys. Just Ozzy on a throne.

The guy can barely stand up singing Crazy Train. I mean, that is, I thought it was cool. And Bill Ward, the drummer, 78 years old. 70 years old. He's out there doing the drumming with the shirt off and everything. It was just really, really cool. I liked how much buy-in they got.

Everybody was there. Yes, everyone. I thought that was super cool. Metallica did another show for that. They were right before. Metallica came out to show props. I thought that was cool. All right. My thing I'm looking forward to is getting back on East Coast time.

I was up at 2 in the morning today for the day. I'm still going. I'm still going. So I'll be asleep in an hour. All right, guys, this has been amazing. We appreciate you so much. Let's tell people where they can follow your continued insights and research. What's the best way to follow Sunu and Ryan? Yeah, easiest is facts versus feelings or podcasts.

All right. That's easy. And at Ryan Dietrich, Twitter. Okay. A lot of people follow us. At Sunu as work easier all right well I then Carson group comm slash research is our blog okay very good that's ridholtz wealth dot hey I want to thank you I want to close by thanking one person I want to thank obviously the whole crew

but Michael Batnick really held me down. I was away for seven days. This kid did 12 podcasts by himself. He had 500 guests on Tuesday night. He had his own Black Sabbath farewell tour. It was pretty epic. So thank you my friend. I appreciate it. You're never going to get a chance to do that again because you were too good and I got a little nervous. All right. That's it from us guys. Thanks for watching. thanks for listening. Shout to the boys for joining us and we'll see you next time. Have a great weekend.