The Compound and Friends - Stocks Took the Stairs Down and the Elevator Up

Episode Date: April 10, 2026

On episode 237 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ is joined by Sam Ro and Steve Sosnick to discuss: winners and losers in the current market, the international trade, earnings season preview, rate cut expectations, Disney layoffs, and much more! This episode is sponsored by VanEck and Janus Henderson Investors. To learn more, visit https://www.vaneck.com/RAAXCompound/overview/  Learn more at https://www.janushenderson.com/ 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 VanEck Disclosure: Investing involves substantial risk and high volatility, including possible loss of principal. Call 1-800-826-2333 or visit http://vaneck.com/ to read and consider the prospectus, containing the investment objective, risks, and fees of the fund, carefully before investing. 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

Sam is here, everybody. Sam, all right. So, Sam. Hey, man, how's it going to see you? I haven't seen you since. What do we think about a new blood sport? I mean, I'm not paying for it, so yeah, the answer is yes. I'm willing to try it out.

But what do you mean? I don't know. New cast, full reboot, or one of these AI things that... No, I think it's like, I don't know. Honestly, I tried to try to try to... to look this morning in preparation for talking to on what they're doing. Yeah. And there's not much.

Not much. Yeah. It's always like, it's the kind of thing that you really want to do well. Like, when's the last time, like, a sequel or a reboot has done well outside of, like, Top Gun 2? Yeah, I don't know. Like a full, oh, the new He-Man looks horrendous. Yeah. My God, that's an 80s movie.

You know what I'm actually kind of interested in? Have you seen, like, the trailers or the T-Man? for the new Street Fighter movie? There's a new Street Fighter movie? No. There's a new Street Fighter movie coming out. And it looks like it's pretty clear that they're not trying to take themselves too seriously, which I think is always the right move when it comes to stuff like this.

Speaking of Van Damme, he was in the Street Fighter movie. That was a shit. Oh, yeah, you're right. Yeah, yeah, that was terrible. But yeah, that was another movie where they tried to make it serious. It's like an actual action movie with like him doing this stuff. But it's like, he's our cartoon character. So, Steve, speaking of not that, you've been working for pedophie for a long time.

It's a little over 30 years. I feel like he is maybe underappreciated. Like, I bet you our average listener or viewer doesn't know who Thomas Petterfee is. I bet you the average, a lot of people don't. I mean, you know, even I still get like, you know, where do you work? I tell them, like, interactive what? Interactive who? Yeah.

So it's just we've always kind of flown under the radar. And, yeah, as multi-billionaires go, I think he flies under the radar to a large extent. So you know the industry know him. People outside the industry, he's not a household name. So interactive brokers is how would you describe the company? Well, we are now as we're strictly customer facing. Our bones are as market makers and proprietary traders. We were the largest options market-making firm.

We exited that business just before COVID hit and changed the. industry a bit. We sold the market making division to two sigma, the hedge fund. I stayed because at that point, I had, even though I was still actively market making, I had become a public, you know, a talking head, for lack of a better word. So I stayed behind, which ended up being okay because the two sigma sale did not work out so well for that market, for the market making group. But, you know, right now, we're just, it's really all about how to bring as many markets and opportunities to investors. And I would say our investor base, you know, we're thought, you know, we're thought of as a retail brokerage firm, but I think we're a bit...

I think of you as more like hedge fund institutional. That's the way we want to be thought of. You know, I would say we have a lot of individual customers that my, I don't know if you ever met my friend Henry Schwartz at the Sibo. He once came up with the term pro tail to describe a lot of individual investors who are very sophisticated and highly engaged. I think that that, that, applies, that's not an official term we use. Duncan uses interactive, right? All right. But yeah, so that's, so it's, you know, he's an intense guy.

I mean, I've been, I don't know, in the early days, in the early days, you know, I sat here and he sat there. And I told him much later on that I had, one of the reasons, one of my little tricks was I had a picture frame with the family in it, but it was like, the picture was like this big and the mirror was like this big. And I'm like, you know, but after all these years, I could tell you that's how I knew you were coming. And he's like, oh, yeah, he goes, oh, he always wondered that. So, you know, so, but he was an intense guy.

I mean, you know, was? Yes, he's still very engaged. I don't see him very much. He's really based, he's not in Connecticut, very often, if at all. He's really based out of Florida and wherever, wherever else he chooses to be. But, you know, I can get calls or emails from him at all hours of the day and night knowing he's just his finger. on the pulse. What does he lead on you for? Bullshit detection, for lack of a better word? Can I say that?

Yeah, absolutely. Okay, I thought so. Yep. Yeah. So, I mean, like, you know, I've got a call from him not that long ago, you know, with one of his friends who's in a serious similar tax bracket, you know, saying, you know, we're trying to mull through these employment numbers. Does this make sense to you? Got it. That kind of thing. All right. Speaking of the, you know, trying to. That phone's on, boys. All right. Speaking of what, Sam. tracking your boss who might be behind you. Back when I was at Business Insider, and I reported to Joe Eisenthal for five years,

the office had no carpet, right? So it's just like hard, I don't know, whatever the hard stone flooring was. And every once in all, you hear the elevators open, and then you don't really hear anything. But whenever you knew when Joe showed up, because when the elevators would open, you can hear cowboy boots coming down the hall.

You could definitely tell that the demeanor of the office would change slightly. Like, I was fine with it. Like, we got along really well and we worked really well. But I'll never forget, like, there was always those times, whether it's like, you know, super early in the morning or like him coming back from lunch, the doors would open and you hear the cowboy boots coming down the hall. Amazing.

All right, John, let's get it started. Let's start it up this time. Compound and Friends, episode two. My mic off. Whoa, whoa, whoa, stop the clock. Here's a word from our sponsor. This podcast is brought to you by Vanek. The assets built in the future aren't all in tech.

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including gold, commodities, natural resource equities, and infrastructure, adjusting as macro conditions evolve. If you're looking to add inflation protection and real world diversification to a portfolio, RAC is worth a serious look. Learn more at VANAC.com slash R-A-A-X compound. That's vandak.com slash R-A-A-X compound. Today's show is sponsored by Janice Henderson Investors, where we're We believe working together is the way to work better.

Like combining your portfolio plans and our in-depth strategy, your valued assets and our valuable insights, your mission, and our vision. Always working in perfect harmony to find the right investment opportunities. Janice Henderson investors investing in a brighter future together. Visit Janice Henderson.com. Welcome to The Compound and Friends. All opinions expressed by Josh Brown,

Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. All right. Very, very excited for this one. You too. We are joined today. First-time guest, long-time industry veteran, Steve Sosnik. Steve is the chief strategist at Interactive Brokers. He has held numerous roles in the organization since joining Timber Hill, Interactive's predecessor in 1995.

As Equity Risk Manager and an option market maker, prior to joining our interactive brokers, Steve held senior trading roles at Morgan Stanley, Lehman Brothers and Solomon. Steve, welcome to the show. Thank you so much. It's so great to be here. Thanks for having me. And Sam Ra, we all know Sam.

We all love Sam Sam. Sam, is the founder and editor of Ticker, an award-winning sub-stack newsletter delivering market news, data, and insights. Tail it for long-term investors. Stocks usually go up, Sam? That's right. That's right. Prior to launching ticker, Sam Serb does managing editor at Yahoo Finance and deputy editor

of Markets at Business Insider, where he led coverage of global markets and the economy. All right. All right, exciting show today. Steve, in your seat, what was your take on the markets' reaction or lack thereof to what would have normally thought to be maybe a black swan type of event. Am I overstating things? You close the straight of Hormuz? That's like a, that's a down 10% day. You hit upon my theme for like the last month was as managed, you know, managing risk, which I did for a long time. And, you know, we, we were the, at that point,

the largest options market making firm on the street. And it was crucial to make sure we didn't. The model worked great. We just had to make. make sure we didn't blow up. And so my job was to think of black swans. And the Strait of Hormuz, I'm not being creative here, that was always the blackest of black swans. And the paradigm that we always used was oil going about 150 to 200 a barrel, immediate 10% correction in the S&P 500,

big flight to quality in short-term fixed income and the dollar. And flash forward to what we ended up having, yeah, we got up to maybe 100, 100, 110, 115. Where did the VIX top out of 35? 35 or something like that? Yeah, VIX would have been 45, 50, something like that on the modeling. What happens here is, and it's no coincidence, we're taping this exactly one year to the day from the Face Ripper post-Liberation Day rally.

And that sticks in everybody's mind. Retail is, you know, individual investors are powered a lot by FOMO. Institutional investors literally have career risk, without fomo. They need to have fomol because you always have to be afraid of missing your benchmark. And so what we had was this reaction where we're always looking to, okay, this will get fixed. And I think also remembering how most of the geopolitical events have resolved themselves extraordinarily quickly, whether you want to call it taco, whether you want to call it the Trump put, whatever,

I'll let others put the label on that. But this is what happened. And so I ran some numbers this morning, you know, probably a little bit before we start, we started the midday rally. We're taking this Thursday afternoon was oil was up about 45% in the last month. It's very easy from February 27th. So there's a nice delineating point. Oil was up about 47%.

Two in 10-year yields call it up about 35 basis points on average over that period of time. Rate cut expectations evaporating. And yet stocks were down essentially like 1%. So it's telling you that there's this residual optimism there. And as a result, that's why we never had the reaction that I think a lot of market veterans were looking for and expecting. And a lot of the headlines that we've been hearing are somewhat familiar, right? Middle East, that's familiar.

Iran, we've heard it before in recent history. Straight of Hormuz, by the way, I mean, I don't recall people talking about it before like 10 years ago, but every couple of months since like 10 years ago, the straight of Harmuz comes up, and now everyone's an expert in oil choke points. Not that it's not serious, but we're now familiar with it, and we know that it's something

that's going to be in the headlines every once in a while. Even the disruption of a waterway is not new. I mean, this is almost completely apples and oranges, but the Suez Canal, I don't know, we remember a couple years ago, was shut down for a while, and people were freaking out because, you know, the supply chain is going to be collapsing on itself,

Now, I think something that might be, you know, perhaps misprice is the fact that all this stuff is happening at the same time, right? You know, Middle East tensions, straight-up hard moves being shut down and then all these other things. But to your point, yeah, there's a FOMO. And we've learned that, you know, there's all kinds of instances in recent history that felt like it was the end of the world, but it's like there's probably going to be something positive on the other side of this. It's an interesting backdrop because investors did freak out.

John, chart on, please. We're looking at a chart from Bloomberg intelligence showing the daily turnover in the S&P, or SPI specifically, has breached $60 billion. Now, the numbers are bigger, but nevertheless, a point remains. A record number of times in 2006. So it's not as if traders weren't really anxious and turning over their portfolio a lot. Josh and I were talking about a chart somebody made about the rush to cash was at like levels that you only see in a panic.

And yet the market just didn't seem to care. And I've been pretty consistent on this, not patting myself on the back. I'm patting the market on the back here. That to me, this idea that the market was going to persistently so underpriced an outlier event just seemed like that was a very low probability event. Now, in the first couple of days after the event, you said, okay, like, trapped or we're going to go way lower. But we're now two, three, four weeks removed.

And the market was still holding firm. What more would have had to happen for the market to be surprised? I'm not sure if it's actually the right framing to say that the market, you know, didn't do a whole lot worse. Like, I know that the max drawdown in the S&P 500 has been something like 9%. But when you put that against the fact that the earning story has actually been improving during this period, even after this information has been digested in, and you look at the P.E. Forward P.E. ratio correction, which is, which is like something like 18 or 19%.

If you didn't have that improving earnings story, you're basically in a bare market. So I think relative to the fact that there's an improving fundamental backdrop, at least from an analyst's forecast perspective, the 9% drawdown is actually much more significant. It belies how bad. Well, the forward PE drawdown was way worse. The forward PE drawdown was way worse. And the 9% drawdown in the S&P belies the fact that it's almost like you're falling down an escalator that's going up, right?

Like, you're in the same place, but you're getting banged up a whole bunch of times because the stairs are going up. So to continue with the escalator, this was a very weird outcome where the market took the stairs down and the elevator back up. And it's usually the exact opposite. That's why I brought up the experience of a year ago. Since COVID, you've got a new generation of investors. And honestly, they pretty much only know that markets,

markets rebound quickly from shocks. Okay, someone the other day, you know, I sort of was screaming at the TV because I forgot where I saw it exactly and I'm not going to call the guy out. But it was like, this is reminds. Josh Brown. No, it was not Josh Brown. I would have called him out. But it was, you know, this reminds me of the post-COVID environment.

I'm like, yes, except for the massive interest rate cuts. And the 30% crash. Yeah, and the fiscal stimulus. And the 11 million people that died. Yeah. So, come on. But realistically, you know, the lesson that was learned post-COVID was, was market goes up and dips, every dip should be bought.

There was maybe, you know, call it a six-month period in 2022 where it didn't work out for a while. But since then, every dip has been a buying opportunity. Geopolitics have been buying opportunities because most of these things have worked themselves out very quickly, right? You know, the Venezuela, oh, Venezuela, we'll go into Venezuela. We'll rip out the president. That's, you know, I don't mean to minimize this, by the way, but that's, but from a market

point of view, stock. The stock market, I'll actually argue, has become increasingly bad at factoring in geopolitics, because stocks are moving on, stocks move on stories, stocks move on rhetoric. We all get involved in the narrative. Whereas when I look to, when there's a crisis, I look to see what are royal traders doing because it's pure supply and demand. What are bond traders doing? Because they're pretty, if you're a government bond trader, you're pretty much laser-focused

on inflation expectations. If you're a stock trader, you can always come up with a good story. Well, to Sam's point, I'm not criticizing your point. Earnings are good. So we'll be okay. But let me throw this out to you.

I think Sam's earlier point about the earnings, the estimates keep coming up is really important, keep going up. But investors didn't buy the dip because retail has not rushed into the fire this time. Yes, the market rebounded, but it was a lot of selling. Like people were bearish,

and we built a wall of war, and we climbed over it. And now, is this a market clearing event? Like, I think it is. I mean, are we going to go back to war next week? Well, maybe if they charged. If, you know, let's, first of all, let me challenge you a little bit because our customers who are not necessarily,

I would argue that they're a bit more battle tested than a lot of other firms, we actually did see a lot of dip buying until, I guess, last Thursday, and then they actually started to lighten up a little bit into the, into the upward move. You know, buy low, sell high. Where did you see it? So I saw a chart recently, I think, I can't remember who posted, maybe sure, I have no idea, where it was people were selling stocks but buying ETFs.

Is that what happens in dips? Somebody told me that one time. Traders stopped buying the little stocks. They start buying baskets. To some extent. I mean, the most active stocks remained Micron and Vidia. You know, they bought a lot of micron on the way down. But Micron.

Great buy. Yeah. Well, yes, depending when. If you started buying it day one, if you bought it last week, yes. But the most bought stock over the last week was VOO, well, it's an ETF. And to me, that's very critical because VOO is spy for investors. Spy was the most active options in our firm by far were spot. VOL, it's the Vanguard $5,500.

VARDS. That's the buy and hold, not the buy and trade. Exactly. Because the liquidity is not great. The option liquidity is essentially nil. But the fees are by far the lowest. So investors tend to park their money in VOO or active traders who want a sort of a basic market exposure from the long side. They park in VO.

So we did see a lot of customers moving in there. Yeah, they continued to buy dips in the usual favorites. They've been, you know, they bought Tesla as it sell sold off. They've been steadfastly buying Microsoft, despite it not doing much. But to me, the big standout was VOL. So let me ask you, I mean, you're uniquely seen. situated to answer this question. How much does buying, like, money, new money coming in, impact the names directionally? Because you said Microsoft was a favorite. Well, guess what? The stock

has no bid. It just goes lower every day. You know, the point being that, you know, if you're, if you're trying to move, you know, if you're managing multi-billions, it doesn't matter, you know, that you're- That's a trillion, a couple trillion-dollar stock. Exactly. So the, so individuals are, to them, a source of liquidity. If you're, you know, if you're making a secular move out of Microsoft. The individuals, the individuals can keep it propped up for certain extent. They're not going to do it. It's something like Tesla, which may be a bit more retail driven.

Yeah, they're going to do it. And as we mentioned in Micron, the first wave down, institutions were selling, individuals were buying. It didn't help very much. Finally, the institutions needed to stop selling for a while for that to work. Did buyers in Microsoft is like the meme with like the Cheeto in front of the door lock? All right, right. It's going to break.

Let's do some charts. So we had a surge in new four-week highs, which is not bearish, in my opinion. Highest level since July 2025, not bad. I'm a fan of this type of stuff. The next chart comes from, who is this from? I want to give proper credit. Valky on Twitter posted. All right.

So what happens when the NASDAQ 100 gaps up 3%. And he said, Let me quote this person. Basically, it's 100% of the time. All right, 12 times. This has happened 12 times since 2011. Three months forward, 100% win rate. Worst case, plus 3.4%.

Average return of 22.4%. Big gaps usually mark turning points in major bottoms. Now, 12 times is not 174, but it's not zero either. Well, 80% of the time it works all the time. Bigg out. But, I mean, it's hard to argue with math. like that. But, you know, again, if this, we're still in a very fluid geopolitical situation. You know, right now there's still, there's still missiles flying. We still don't know where the

Persian Gulf is. But to that point, in each of the examples on the chart, which are basically almost all since 2020, with the exception of the flash crash, which was a unique event, you know, this, this, I think, points to the post-COVID mentality. And also actually, But that flash crash crash, that was the Chinese devaluation. No, that was like a freakish, like it was basically like some bit of fat finger. No, no, no, because you're right. The real flash crash was 2010. I think this is mislabeled.

Okay. This is 2015. Oh, August. That was the Yuan devaluation. Okay, got it. Yeah. And also, by the way, notice that 20, the first, the next like five or six are all that immediate post-COVID recovery year.

Not a huge sample size. Yeah. So I can't argue with 100%, but it's tricky. Here's a better one. Here's a better one. Trudge 4. This is a sentiment trader. Historically, when the percentage of NASDAQ 100 components trading above their 10-day moving

average rockets from under 10% to over 70% in just five days, the index boasts in 80%. There's 80% of 100% of the time. 80% win rate over a one-year time frame. Now, you know what? Well, who cares? 75% of the time stocks are up one year later. Yeah. All right, whatever. Maybe not some meaningful. All right. One of the really interesting substories in the market, and of course, all we're talking about is, you know, the market in general and oil prices. But inside the market, there's a really interesting story going on. The shift out of the shift, the bloodbath and software stocks continues. It can't even get a baby, it got a baby bounce. It couldn't even hold a baby bounce. And the unstoppable tidal wave of money going to.

to semis and hardware. Warren Pies tweeted, as the Iran war has ebden flowed, GPU availability for B200s has collapsed to zero. H-100s are close behind. Whatever happens with this war, the AI complex is likely to lead any true sustainable market, unsurprising to see SMH less than 1% from all-time highs. And it's this really interesting dynamic

where you've got, of course, this AI story and the sensationalable demand for the chips. And so not surprisingly, to Warren's point, the semi-stocks are going wild, but the software names that are being wildly disrupted. Microsoft has included. Microsoft is the biggest holder in IGV. I don't know that Microsoft is being disrupted by AI,

but I think it's maybe the closest proxy for what open AI would trade if it were public. So the three-month correlation between the semis and software has collapsed to its lowest level in a decade from Sherwood. Thoughts? Yeah, I mean, I think, I mean, obviously everyone is freaked out with software because they think AI is going to replace all that. I guess we just don't need software anymore,

which is actually kind of a ridiculous statement. Like, you know, you can't run a computer without software. So I think it's a matter of trying to, not necessarily a floor, but people need to have sort of like a vision for some future where, like, there is a start. point where software makes sense as a business. But, you know, for for the time being, it just seems like it's the story is overwhelmingly about how AI tools is going to disrupt this business. You know, to some extent, right, one of the beauty parts of AI is it's a disruptive technology.

Well, who gets disrupted first? That's the, that's the focus. And you also in the software sector wrap up a couple of nasty elements there because a lot of a lot of the software boom was financed with private credit. There I said it. You know, also this, the latest story with this anthropic mythos that I'm starting, that I've been reading about for the last couple of days, which is the secret anthropic software that they couldn't release because they're, because apparently it found thousands of bugs and all kinds of published software.

So they only released it to, uh, to trusted firms has to make you wonder, well, what if somebody else figures this out and isn't and doesn't just, you know, offer it to these other firms. So there's, there's, this is where the focus of fear has come from. To the, to the, to the charts point, you know, yeah, there's, there's a shortage of, there's a shortage of available chips right now. I'm, I'm, I'm not going to pretend to be global helium expert. Oh, I am.

Okay, good. Because I had no idea, I had no idea that, that, you know, liquid helium was so crucial or that it all came from the Persian Gulf. But it's not going to make the chip shortage go away anytime soon. Wasn't the T-1000 made of liquid helium? Maybe. I don't know, but I think I don't know exactly what I guess you need it though to, you know, to make top quality chips. But so if you're missing, you know, silicon's everywhere. Go to the beach. You have silicon. But if you, but if, but none of us know what's going on with with software and disruption. Nobody really does. Everybody's guessing. But I think it was Warren actually who, who who said, there's never been a sector or in this group group or whatever. That was more than 8% which your software was. That was in a 30% drawdown. And yet the market. It's like 3% on it from all time high. So this was a couple months ago.

But I'm looking at the screen today. And Palantir is down 8% on the day. It was down like 8% yesterday, I think. Michael Barry tweeted something about them being disrupted. Palo Alto's down 5%. Crash strike is down 8%. These are cybersecurity names. Are they getting vibe coded out of existence?

I don't know. That may be anthropic. Yeah. Seems to be an overreaction. But what do I know? Service now down 8%. I mean, these names bounce for like, they stabilize for a minute.

And now who knows where the floor is. So yesterday, I had Chart Kid make me something. I said, hey, this feels weird where the S&P is up almost 1%, and software is down like 3%. Chart on please, 6A John. So yesterday had never happened. Whoa. All right. So on one axis, we've got the IGV and on the other, we've got the S&P.

And you've never had a day where the S&P was up as much as it was with. software down. In fact, it's never been down at all. You've never had the S&P up 1% with software down. And software was down 93 basis points. And today, it's even worse. The chart today, it's quite literally, I mean, it's off the charts almost. Here we get, look at that. Sam, look at those 20% periods, right? Yeah. Look at this. Yeah. So the two-day change. Wow. The S&P is up 3.1%. And IGV is down 5.2%. Now, we all might say, say that this is an overreaction, and maybe it is and maybe it isn't. And obviously, there's more than an element of truth here. I'm sure Salesforce is going to be under pressure. But it is this

really weird dynamic. I don't have the chart here. But Matt made this earlier. The estimates for these software names, it's still at all-time highs. And guess what? The companies are reporting all-time highs. Adobe just reported it in the last couple of weeks in all-time high. And the stock market is saying, I don't care. I'm not looking out over the next quarter. You could two-quarters, It's three quarters. Because we think your terminal value is a fraction of what it is today. So the question that I have for you guys is, how many quarters do you think we would need to see of more alt-time highs for the fears to be like, all right, maybe it was overblown? At least a couple more, I think. Yeah.

And I think, well, first of all, I noticed it's very well-labeled chart that it starts since 2001. So it's like you're talking about a software era. So it's like, of course, you're going to have this correlation where software and the S&P is going to have this tight correlation. But like if we're talking about a new era, a future era where it's like maybe software, I mean, doesn't go away but becomes a little less relevant in the context of how the global economy works, then yeah, maybe you start to see these sort of things that begin to look like outliers that might actually become a trend in the future.

But that's not to say that this stuff won't correct again. But I think you bring up a really good point, though, about how. these companies have record high earnings, and maybe even for the rest of the year, they're going to have extremely high earnings and earnings growth. This is actually not about software, but it reminds me of what we're talking about with like the other Mag 7 names, the hyperscalers that are investing all this money in these data centers and all this stuff. And while today they're minting insane amounts of earnings and insane amounts of earnings growth, the valuations on a lot of the Mag 7 names have been, you know, shrinking for months. And that's not because of earnings at their earning today and this year. It's because of what people are worried about, you know, in five or ten years from now, when all these investments come back in the form of depreciation expenses and stuff that starts to

collapse, you know, the profitability of these companies. So it's possible that, I mean, you know, this is just the stock thing, right? It's not about, you know, what happened last quarter or what's going to happen this year. But it's like, that's just telling us. that this is what, you know, maybe the investor or the trader or whatever is, is imagining a world four or five years from now where, you know, this company is not generating this earnings growth or earnings is much smaller than what it is today. Although today for the first time in a while, we've rewarded a company for spending money with meta having a nice day to day because they're committing to spending, what was it, $21 billion. With Corweave? With Corweave. So for a while there,

they were getting, you know, they were all getting put in the penalty box, which I think, is an interesting tell on the psychology. So the psychology in the software sector, to your point, remains in the toilet. The, um, but I think in terms of AI spend, you know, bottom line is people, there's a lot of people who really want these max seven stocks to go up. We kind of have to have them go up as, you know, I, you know, Barry Ridholt's term coined the term closet indexer and whether you're didn't. Didn't he? No way. I thought he did. No way. I was going to give him credit. I'm in his I'm in your guy's offices. I always credited him with that.

All right, we'll find a different citation. But for a closet indexer, one of the things I tell people is, you know, oh, how do I get exposure to AI? I'm like, put your money in an S&P 500 mutual fund. You've got 40% of your exposure in AI and AI-related stuff. The trick is not being exposed to it if you don't want to be. And so I think that to me is an interesting question. To your point, Sam, I don't know that the people buying meta today are thinking four to five

years out. I think some of the institutional managers who are not buying Meta today and have not been buying it to the same extent are thinking that way. So other public proxies for the AI trade, like nobody wants someone on Oracle. He's basically at a new low. If this announcement happened a year ago that Meadow was going to be investing $21 billion into court, I don't know the details of the story, but who cares? The stock will be up 19%. Absolutely. It's up three and a half percent and, you know, off the highs. I get, that's, are you kidding me? Three and a half percent.

Better than zero or better than down three and a half percent, which I think has been the trend. The more, you know, when you, to Oracle's point, you know, people said, wait, you're spending all this money for what? And I think so, you know, a plus sign is better than a minus sign, I guess. But does it, does it make sense? Throw the next chart on. So it's hardware than is the next software.

We're looking at a try to invest in P500 software, which, you know, obviously has gotten crushed. And look at the hardware. So I took Apple out of this out of this. It's Dell, Hewlett-Packard, both segments, NetApp, Super Micro, Sandisk, Western Didge. And I know this is a chart-heavy show, so I understand people, not everybody's watching. But these names are going absolutely vertical. So wouldn't you think that if there's so much fear, forget about the stocks that are getting disrupted by AI,

forget about like the software names, but the hyperskeletters that are so pot committed, where everybody thinks that their margins are going to come under pressure and their free cash flowers going to contract because how could it not? Surely then at some point they're going to pull back and there will be less demand for the hardware. Does this chart make sense to you? In the short term, yes, because if we're all freaking out, think about the logic here.

If you're freaking out because all these companies are borrowing bucket loads of money to be able to buy, to be able to fill these data centers, what do they fill? And you'd be like, okay, maybe I don't want to buy the companies that, you know, that are flipping from cash flow generating machines to roughly cash flow neutral companies. What are they spending all their money on? Well, you just had them all in the chart.

So maybe that's where I should be going. Has it gotten extreme? That's a whole other story. Investing in the picks and shovels versus the 49ers going out there. So this is the picks and shovels market. Sorry, two more charts. Then we'll segue.

Software to the SEP 500. So relative crash, obviously, not, Pretty that bounced lasted for about a cup of coffee. And on the other side, semis, new relative highs. And then Microsoft, I would think the poster trial for public companies of the AI trade, new lows back to March 2020. It's really hard to believe with how much success Microsoft, the business has had, the cloud, like all of the success and all of the growth.

And you could have just bought the S&P five years ago, six years ago, and been the same place. Well, to your point, though, I think a lot of the rise was because of the Open AI buzz. And now Open AI is kind of a tarnished name relative to Anthropic to a certain extent. I think that's not completely reflective of it. I think markets get in momentum trends and, you know, as I mentioned, narratives are important. The narrative on Microsoft kind of stinks now. But I think that goes a long way to explaining some of the outperformance.

And also, again, remember, the premise here was, Microsoft and Friends were just, they didn't know what to do with their cash. Now they have to go to the well to borrow money, which means they've got higher, it changes this business model that was always this like perfect storm of, you know, of, you know, amazing margins and, you know, basically no fixed costs. I'm afraid of what's going to happen when opening I comes public. So they just raised $120 billion in the private market. largest capital raise ever in the history of public markets was $25 billion.

And they just took 120 in private markets at an $830 billion valuation. I didn't, I mean, who know, right, okay, the market is, it's fluid and the market environment changes. But I think that if opening I were public today, the stock would be going down every day. I agree. And I think this is one of the, to me, an existential risk that I think we need to focus on. It's hard to value. I don't really, you know, but you've got SpaceX coming public, which is going to be the largest IPO ever.

And if retail, if it's as big as threatened and 30% goes to retail, retail's got to come up with $25 billion. And then it's going to go in the index, at least in QQQs in the MDX, 15 days later before it's even seasoned. And so, you know, that's a huge one. And then you've got anthropic potentially going public, open AI potentially going public. Is there enough money to support all this? That's the open question. I don't know. I don't know, you know, $22 billion, they're certainly going to have to sell something.

If you're an index, if you're in Vesco, you're certainly going to have to sell 99, parts of 99 other stocks to be able to afford, to buy, to put SpaceX in your, in your account. I think this is a, you know, it'll be a grinding of the gears, but I do think this is a, you know, this is a risk that people have to look at. One of the beauty parts of investing in the market, and Sam, you've had a, you know, you've, I think hit on this for years,

is that the supply demand for stocks has been pretty good, right? Because you've had... More buyers and sellers. Well, but besides more buyers and sellers, you've had a lot of private companies, you know, buyout firms taking out a lot of companies, reducing the supply of stock, and buybacks, which you can argue whether they're reducing the supply of stock

or just, you know, keeping the treadmill running to buy back the stuff they're issuing to people, the supply demand calculus has been very favorable. This will change it. Sam, can the market digest two trillion dollar IPOs? I guess we're about to find out. But, yeah, to your point, yeah, for years, all we've been hearing about is the, you know, the number of publicly traded company shrinking. And, you know, there's not enough stuff to buy out there.

So that may be driving up the premiums everyone's paying for the stocks. that are out there. But I don't know. Like, I don't want to be that guy. I don't want to be that guy. But it's like, you know, I remember the last time, you know, an extremely buzzy private company with, you know, executives and founders that are on the cover of, you know, magazines and speaking at every event. Was it Baba? No, it kind of reminds me of when Blackstone went public, like in 2007 or something.

Cut us, Mike. Again, listen, listen. like apples and oranges and whatever, but it's like there's something about an IPO that's coming that has all these people so excited about getting a part of it that it's like... It does feel like a tidal wave that's like 500 miles away. Yeah, because everyone's going to buy it on day one.

And it's like, all right, so who do you have left to trade this thing? It's people who are trying to cash out. Yeah. All right, I saw a chart from JP Morgan's Guide to the Markets that blew my face off. Chart 11, please, John. We're looking at consensus estimates for 2026 earnings. per share growth. And everybody is basically, you know, sort of neck and neck. There's one huge

outline and it's EM. And I talk to myself, what the hell is going on with EM? Conscessant earnings are up 35% year over year. And, you know, the spoiler, it's not much of a spoiler at all. It's it's semiconductors. So I had our trusted friend Claude, make me a chart of what's going on inside of IEMG. Oh, this is Claude. This is Claude. Oh, this was Claude. Very nice. Yeah. So, yeah, no mystery here. 21% of the portfolio is semiconductors. You've got TSM, biggest manufacturer in the world at 11% of the portfolio. Samsung is 5%.

S.K. Heinex is three. 32% of E.M is tech. And remember when EM, I know you guys do, it was like an energy proxy. It was like the brick trade. And while the index has reinvented itself. Well, because, you know, yes, to your part, it was always, it was resources because essentially emerging market meant underdeveloped. I've never been to Taiwan.

My kids have been there. I've been to Seoul. My kids have been all over Korea, actually. It is not an underdeveloped country by any means. You could argue that things are much more advanced in many ways than they are here, except the capital markets are not fully open to the same way, so they get classified as emerging. You know, Samsung is not exactly the scrappy, you know, new economy company

that we're trying to figure out what they do. Right. I think last year, international stocks outperform the S&P by the widest margin in a long time. Now, listen, you zoom out long enough, it looks like a blip because the U.S. stocks have outperformed for so long. But I want to ask you guys, like, are international stocks, does this trade have legs? Because there is much less exposure in international markets. John Chart 14, please. Much less exposure to things like software and much more exposure to some of the things that are working.

And just technically, this looks pretty damn good. If this were to roll over and break out, it would be a weird, it would be a funky chart. This certainly looks like a bottom. And it looks like a continuation pattern that this is going to take out new recent highs. It looks like this trade is going to continue. I think it's absolutely something worth watching for a reason that I think kind of flies under the radar. And it's that a lot of these countries are actually starting to push through. reforms and efforts and policies that are focused on enhancing shareholder value.

I think China, Korea, and Japan, they all have policies that have been rolling out for the last couple of years where it's like, you know, it's not good enough for your companies to be making money. I mean, listen, companies everywhere, including across Korea and Japan and Taiwan, like everybody makes money. The question is, you know, why isn't it? the stock price go, why aren't the stocks going up further? It's because the earnings growth isn't there. So it's like, you know, how do you get people to change their attitudes? Because it's like,

you know, you can go to work, you can run a company, you can employ tons of people and never have layoffs if, you know, you're making a billion dollars every year and that's it. But if you have no earnings growth, the stock price isn't going to go up. So I don't know the details of how these reforms work, but I think it's something to be very excited about as a person who's exploring international markets. Because if the story of earnings growth starts to turn around regardless of if it's in Asia or Europe or whatever, then yeah, then you suddenly have an interesting stock market. Well, you know why? Because there's been so many people of the last couple of years, like, listen, I don't want to be overly reliant on the max seven hyper-scalers, but where else are you going to

go? International? No, that's not working. well, now it's working. Well, there's your point. Exactly. I think, you know, first of all, in a secular sense, there are two things that have been helping international investing as a whole. Number one is, you know, I think we've had a, we've at least started to recognize maybe value is not to be tossed away at,

at the expense of growth. So we have seen a rotation from growth to value. It's not exactly a gold rush here, but that move has been occurring. Well, if you're looking for value and you're, and well, there's a lot of value in Europe to Sam's point. These companies make a lot of money. They don't grow very fast, but they're stable. I think also at the same time, I never was a big believer in the sell America trade,

but I do think that a lot of international investors are saying, you know, maybe how about we keep a little more money at home rather than just buying these same stocks in the U.S. And so I think those two combine to give a bit more of a basis trade, a value basis, I should say, to international investing. I started it doing my first job was international equity arbitrage at Solomon Brothers, which meant I was up all night and things of that nature. It was a little unsustainable as a lifestyle. But, you know, there's always been great companies around the world. Now, I'll actually argue it's never been easier to invest in these great companies around the world. Self-interested plug. We offer access to, I forgot how many markets now, 50 or something like that.

But the point being, it's really easy to access international investments. And I think if you're starting to think from a value point of view, if you're starting to think from a geographical diversification point of view, because a lot, you know, are we the cleanest dirty shirt in the drawer, so to speak, anymore? It's not clear that that's the case. And so if there's other. dirty shirts in the hamper, maybe we pick a different one. You know, the drawer is not that dirty.

Yeah. We are about to enter an earnings season and estimates are on their way up. Are they not, Sam? They're on their way up. Isn't that crazy? It's like every week we get an update, you know, from facts set and the places that survey this stuff. And it's like even through last Friday, and we're going to find out tomorrow that earnings

have been revised up for the last every week, even since the beginning of this war, Like, it's crazy. But that's what the analysts have figured out, and this is what's being communicated by the companies to, you know, shareholders and all this kind of stuff. Yeah, they're, I mean, they're all acknowledging the fact that, you know, things like higher energy prices is going to eat, you know, it's a headwin, and it's going to show up, you know, in their books, you know,

when they report, not just in Q1. I mean, that's another thing that's interesting. Like, they have a full quarter of experiencing this, and that's going to be reported in a couple weeks. but they're going to start telling us about how this stuff affects them in Q2, Q3, and Q4. And all the indications so far is that, you know, it's not that bad. And in some cases, it's, you know, we're actually doing better than we were at the beginning of the year. Sam, you brought a few charts from Deutsche Bank showing the percentage of stocks beating earnings estimates and the aggregate size of the earnings speeds.

Anything interesting in here? No. I mean, I almost hate this. I have to repeat this. I have to repeat this. I repeat this every quarter because it's like, you know, you turn on the TV. You know, no judgment to anybody because the nature of the storytelling is slightly different. But this whole matter of, you know, a company beat earnings expectations.

It's like that. You don't get any information from that because historically, you know, more than half of the S&P 500 is always going to beat expectations. And, you know, on average, it's like 70 to 80 percent of companies will beat 80. percent, right? Yeah, no, finish. And then the other thing, too, and this is hilarious, it's usually with a by a margin of about 5 percent. And that actually, you know, if you extend that all the way back to like the 80s, that's also the case because one of our friends, Nick Colis at Datatrek, you know, writes about this every once in a while. He says, you know, at one point, he was considered one of the most accurate analysts on Wall Street. And he's like, this was the way

he did it. And he's written about this. The way he did it was he waited. until like earnings season rolled around. And then he just saw what the consensus estimate was and he added 5% to it. Which, it's funny you said. My father was an industry analyst for his career. And he, first, you know, one of the, a certain large company

that was known for beating estimates. It's a household name. No, based in Arkansas. Based in Arkansas. Oh, okay, that one. And, you know, what would happen would be, he'd get a phone call. you know, you're at 50 cents.

I think you're a little high. I think you're going to have 50 cents. I'm looking at your numbers. It's 50. You really need to go down to 48, 49. And so everyone on the street, because they didn't want to be shut out, would go to 48, 49.

Guess what the number would be? 50. And so, you know, yeah, so this isn't Jack Welch pushing, pulling, you know, pennies out of the couch cushion, which eventually couldn't happen anymore. And so to me,

I look at our inning season with two things in mind. Number one, beating your published estimate is a necessary but not a sufficient condition for a rally. You have to do it because everybody else does it. And number two, part of a CFO's skill set at this point is managing the street as much as it is managing your bottom line. And so the fact would be that, again, you know, I keep saying it, you know, 75% of the time it works all the time. But if if 73% and as much as recently as 80% of confidence, companies beat, that's not, there's, there's, to your point, Sam, there's not a lot of information

context. Everybody's looking toward guidance at this point. Right. Rather than, and I think also, right? It's always, because, because, because to Sam's point, you're not, you're not learning anything. Right. The other thing I'd also, another thing that was taught early in the, early in the game was watch

free cash flow because a company can fudge its earnings to a certain extent. You could always, you know, to time it differently, call it non-recurring. You can't fudge cash flow. You know what? You did the CFA stuff. Those formulas suck. There was like six different ways to value free cash flow, free cash flow. And a lot of publicly available sources of data don't publish free cash flow.

It's not like a line item statement. Some companies report it. Most do not. And so I was always like, well, how do I find the free cash flow? Guess what? Now you can. Now chat, Claude, anybody can give you the free cash flow in two seconds. Yep.

Yeah. Yeah, it's great. One last thing I will say, though, in terms of... Oh, I'm this chart that is boring. Yeah, the chart that's terrible. You connect this and you connect the expectation, you connect the beat rate, whatever, with what's already been established in terms of, you know,

the Q&S. Now, admittedly, this is backwards looking. But again, you know, this is also factoring, you know, at least one month's worth of, you know, Iran, war of uncertainty and energy costs. Even though energy is going to come on a lag for most people, the fact that we haven't had a whole lot of negative pre-announcements, in fact, we've had some positive pre-announcements, suggests that, again, this is going to hold up again, which is actually something to be encouraged about considering this also includes one month of war. As a long-term options trader, I'm going to take the, I'm going to say that in some ways that scares me. The reason being when you don't have pre, when you don't have earnings warnings, when you, whenever you, whenever you, you,

Everybody's excited going into earnings. The bar has gotten raised pretty high. So you have to jump over a higher hurdle. That's a number two, the thing that specifically about this one, and I have to be careful how I say it, because it, but despite all the tragedy that's going on in the Persian Gulf, if you're a CFO, this is the greatest excuse ever, right? You know, you don't have, they were probably like talking about,

well, wait, the first six months were snowy. We could talk about weather. this blows it away. You know, where's your guidance going to be? I don't know. I have no clarity because of the situation in the Middle East. I wonder how many times we're going to hear that, and the question will be, is the market charitable to that or not?

But I think you're going to, and you did raise this point, but the cynic, the risk manager in me, has to say, like, you know, is this going to be, is this going to be a legitimate explanation, or is this an excuse? By the way, this is the second chance the CFOs and execs have because they could have done this last year in the wake of all this tariff uncertainty, right?

Trade policy uncertainty and cost uncertainty and our moving around, our vendors and all this stuff. And it's very easy to slip in, you know, laying off the department that was obsolete or whatever and fold that and bury that in your expenses. So it's like if you didn't do that already last year, it's like this is your second chance. And if they don't do it,

that it's probably a reflection that the business are in incredible shape. You make a really good point. If everybody is bullish, then if the bar is higher, it's going to be harder to move the stock prices. Yeah, beating expectations is now expected. But the good news is that even though the analyst estimates are high, I would be seeing a much different tune if the stock market, and forget about the indexes, right? Let's just talk about the individual names. If the breadth of the market prior to like today, but just was. oh, listen, we're priced for perfection

because 90% of stocks are above their 200J moving average. Like there's no, the bar is too high. That's not the case. There are a lot of names that have been beat into absolute shit. And even if they only beat by a penny, you could see a re-rating way higher very quickly. There's no question that a lot, that in some cases the bar is set, you know,

like for a little, you know, kid to hop over it. And, you know, software company, I don't know that the market's ready to do that. but for them, it's not going to be as hard for them to leap over this bar. For a lot of these other companies, where the market's pricing in all good news, you know, it just gets a bit trickier. Yeah, yeah, exactly, exactly. Like, it's especially what the software names,

but I think another good example of this recently was like the Delta earnings, right? It's like going into the war, I mean, I remember coming back from Future Proof, right? And I was on a plane watching CNBC, and you see all these charts of the airline sinking because of war tensions and oil prices rising because their entire cost structure is jet fuel prices, which have been skyrocketing. And the next thing you know, they have a decent earnings announcement. The stock's up 12%. Didn't hurt. Didn't hurt that it was coinciding with a rip-roaring day anyway. But yes, to your point, the market was already predisposed to take that well.

There was a quote from, I think, the United CEO, CFO. who said something like that we're already projecting $10 billion in higher fuel costs for the rest of the year. And for some perspective, our best year ever for some sort of metric of free cash flow was $5 billion. Yeah. So just to show the scale of this. But it does come back to earnings. And we're going to see what we're going to say. All right.

In the time we have left, we want to talk about the cues. We want to do some stuff on rate cuts, option stuff. When do we want to go next? You throw it out and we'll, how about we do a little bit of a lightning round? Lightning round. All right. Well done, Sam.

Let's do, let's do a minute or two on each. All right. The cues. This is like maybe a sort of a boring story, but it's kind of interesting because the cues have had a stranglehold over the NASDAQ 100 in VESCO for a long time. And are there, maybe there's deals I don't know about. Why has this been the case?

It's 18 basis points. not exactly a low-feet product. Now, there's, the cues are structured as a UIT. There's all sorts of interesting deals where a lot of it goes to NASDAQ, and it's like a loss leader for Invesco, whatever. But you've got, you've got, I shares filed for one, and now State Street.

What is the deal here? I'm not sure on the legal specifics. I mean, I do think there was probably some exclusivity, SPX style, whereas SPX is only on CBO, et cetera. I don't know the details there. as far as I'm concerned as a, you know, as a user, as a brokerage firm, bring on the competition. We talked earlier about spy versus VO and, you know, of course, there's IVV.

Why shouldn't there be more than one, why shouldn't there be more than one QQQ? I think that's the simple way to think about it. Yeah. Competition is good. And every day there's like, you know, 100 bullshit ETFs at our launch. Why not, why not, you know, try to take a chunk of something that's actually successful? Yeah. And especially, I mean, the main thing.

thing being that if you can put it out there with a lower expense ratio than the current market product, then it's like it's a no-brainer. I'm guessing that Investco was paying NASCAR for exclusivity. I don't know why I have to guess. I could probably, this publicly available information. We'll check, check. Yeah. All right, dude, where's my rate cuts?

This is, to me, is one of the crucial points when it comes to think about where the stock market is. Okay, well, we came into this crisis. That was literally, by the way, dude, where's my rate cuts was actually literally something I wrote in our IBKR campus.com, by the way. And what I did was basically I went back and said, you know, I was looking at the Fed Fund's futures. And we were, before the shooting started, end of February, we were pricing in, we Fed Fund's futures, we're pricing in two rate cuts plus call it, I think, 40% or 50% of a third rate cut.

As of yesterday, we're pricing in a 25% chance of one cut. So we've taken, call it 60 basis points off the table in terms of rate cut. I was like, is this unique to the U.S. or is it not? It turns out the rest of the world is doing the same. The U.K. actually flipped from like 50 basis points of cuts to 50 basis points of hikes. The Royal Bank of Australia is a little lower because they raised rates already once. Bank of Japan's in its own little world. But when the Eurozone is similar, Bank of Canada is similar.

So again, this is why when I went back to the point earlier about stocks being essentially unchanged over this period, all things being equal, if I told you, we were. were taking 60 basis points of rate cuts off the table, you'd think there'd be some negative impact in stocks. But no, you know, that tells you the power of positive psychology. Isn't this? And my, and the only, I'll add a counterfactual to that. I think it's possible. I think another way to think of that, too, is if we weren't, if the rate high, if the rate cut odds weren't falling, then, you know, maybe stock prices are actually higher. Maybe valuations are higher. Yes. Oh, that's fair. Okay. So given all of this, let's assume.

that nobody could see the future, that this market clearing event has happened. Let's just assume that there's no further escalation, okay? So all of the headwinds of higher crude oil, higher interest rates, maybe rate hikes, nobody actually thought rate hikes were coming, but the market was pricing that it. A higher dollar, all of those higher inputs, all of those headwinds easing, everybody back in the ship. And oh, not to mention that seasonally, this is a very bad year. in terms of midterm election years.

And it is a very bad time of the year. This is tax season. This is, and Warren, my friend Warren Pye's friend of the show, has done great work, showing quantitatively. This is a drain on liquidity. Like literally this week, it's not great. And yet, we are, we are the market close higher today near the highs of the day. We are in, okay, everybody back in the boat.

And as dire as it felt over the last couple of weeks, as much as we had this sense of anxiety and, uh-oh, like the market's going to take another leg lower, it never happened and the bulls can come back. And absent another catalyst to send us lower, with strong earnings, they probably will be back. I don't, you know, I don't know that they ever left. But, you know, there's always something out there. And again, we've raised a few of them. Oh, they left.

The sentiment got pretty bearish. The sentiment did get bearish. But what happened, but again, the drawdown wasn't very big. And, you know, again, we've got the, you mentioned the midterm elections. which can be rocky. New Fed chairs have an interesting way of getting tested when they take off. They do. Right? I mean, that's a coincidence.

I don't know about that. I mean, well, the Greenspan one. Greenspan literally, the market crashed like six weeks after he took office. But Bernanke, the global financial crisis happened not long after he took office. Yellen got to kind of skate through. And Powell, I forgot what it was for Powell, but Powell had something big happened shortly after. But so there's sort of a history.

of Fed chairs getting a real world test. And again, we talked about the supply demand dynamic, potentially getting upended. That's the one. So those are the things that I want to keep an eye on. It's very early in the year. Like, let's not rule out the possibility that we get like 14%, 18% of max drawdown. Never can. Yeah.

And listen, by the way, that's expected, right? And even in those years, most of I thought 75% of time, it's literally something about a percent of time. Even with those max drawdowns, you end the year higher. All right, options. What happened on Wednesday, Steve? Well, what happened on Wednesday was going into this number, I look, you know, on Tuesday, I put out a piece, basically, you know, market's hoping for Taco Tuesday or something like that. But literally, I looked at the S&P 500 and said, wait a minute, the normally, and I'm doing this, and I know a lot of you are listening and not watching. John, 24.

Yeah. No, Steve, visually, do it with their hands. Okay. So normally the skew on the S&P 500 is negative. but this is a probability chart. Wait, what does this mean? Nobody knows what you're talking about. Okay, yeah, thank you.

This is years and an option trader. When you plot the implied volatilities by strike for a given option, typically people are willing to pay more for below market options. Out of the money puts because that's insurance. Implied volatility. That is the plug-in, you know, the amount, basically the amount of premium that you're willing to pay for an option. So you're typically willing to pay for index options more for insurance.

insurance, downside options, then you are for upside. This is a, and then you can actually impute probabilities out of this. This was actually another, this was actually an idea that sprung out of Thomas pedophies had to come up with a graph like this. Oh, he invented the skew? No, Barry Reynolds invented the skew. Barry Reynolds invented the skew. It was actually traders in 1987 because they used to just price options all with the

same implied volatility. And then people realize, oh, wait a minute, you get, that's not, that's not a good move. If you could take a time machine trade back then. Skew arose in October of 87. But what this is, the, basically, from all the skews, you take the likely probability. On Tuesday, markets were pricing in a move to 6750. It's telling you people were bullish.

People were expecting a bullish outcome. Whether that was FOMO insurance or whether that was speculative, there was literally this bid under the market. And that's what I was pointing out on Tuesday was, The base case was, although in talking about it with people, it was kind of freaky on Tuesday. Because Tuesday was the day that Trump tweeted, will wipe out a civilization or whatever. And I was talking to Josh. And the point I was made was like, how dumb do you think the market has to be for it to be down 20 basis points right now or whatever it was?

You think the market is that wrong that there's going to be a global catastrophe that night? No, the market doesn't underreact to risk. Yeah. And the charts that I put, the charts that were that I've found, you know, whether you're into options skewer or not, but this chart telling you that the maximum probability priced in by SPX options was for a rally to 6750-ish or so. So everybody knew in hindsight, and of course, hindsight is 2020. But it wasn't hindsight. That was foresight because I took, I did this on Tuesday, not on Wednesday. Tushay. Tushay. Tushay.

Okay. And lastly, we're going on here. This is a bummer. But Disney, what's, they announced some layoffs? Well, they have a new CEO coming in. Yeah, new CEO coming in. I mean, okay, this is just sort of a speed run. An educational crash course in dealing with news headlines.

Yeah, so Wall Street Journal reported that the new CEO is going to cut about a thousand jobs, all right? If that's all you see, it's very easy to start. to extract all these macro stores. Oh, it's more layoffs. Is this AI? White collar, all these things. All right. So a couple of bullets.

One, Disney employees somewhere between like 150,000, 200,000 people. So it's like already it's sort of like one percentage or less of their workforce. And so companies lay off people all the time. And so if you're that big, like this could be a run-of-the-mill sort of churn in their office. Two, there was no mention of anything in terms of stuff like hiring freeze or headcount reduction. And if those things aren't paired with layoff announcements, then it's like, you know, they're going to have, they're going to replace all those people potentially. And I dropped this in the dock. I don't know if we caught this.

But if you actually go to the Disney LinkedIn page, there's 1,300 open roles. And again, this is not totally precise, but this is literally active job listings on the Walt Disney site. Maybe it's, in reality, it's a lot smaller than this, but the point is this is not zero, which means the net head count at Walt Disney is not going to be shrinking by 1,000. So this is just both the business and the macro story. And then, again, all that stuff can be echoed out, amplified out into how we think about macro narratives too. Even in a healthy economy, the U.S. employers are laying off somewhere between a million to a million and a half people per month. So it's like layoffs are going to happen regardless, even during

economic booms. And that million to a million and a half people a month that get laid off. And listen, it's awful. Like, again, there's no downplaying the human toll and the stress that it brings. But as, you know, people invest in the market and thinking about the economy, this is run of the mill in terms of from Stitswell perspective. And by the way, the one to one and a half million layoffs per month represents about 1% of the employed labor force. So, So when you hear or read, you know, stories about a company doing a ton of layoffs, yes, absolutely. It's something to pay attention to it.

If you're exposed to that stock and you care about that business and you have family who work there and all these things. But, you know, be wary about extracting some big macro narrative because it might actually just be run-of-the-mill economy working. All right. I won't do it. Lastly, the economy, it is weird because there is this continued disconnect. The economy is fine.

but we keep seeing corporate profits all over the place at an all-time high, maybe leading to confusion, further anxiety. Why is the stock market up? Why do I feel so bad? And the labor market is, it's not frozen, but there's not a lot of hiring. There's not a lot of firing. It's weird. It is kind of a no hire, no fire.

You know, I guess the key here is, you know, it's important for everybody to remember. The stock market is not the economy, nor is the, nor is the, nor. the economy of the stock market, but they're inextricably related. But in general, you know, today, again, we shrugged off the fact that GDP came out with a 0.5 revision today. So that's not exactly a rip-roaring economy right now, along with a 0.4% rise in PCE. That's, you know, stagflation very light. But, you know, but yet at the same time, and I think, Sam, you brought this up in the charts

that we saw was you described the chart better, but it was basically that net incomes are are starting to fall, but yet spending is continuing to stay stable. It's hard to imagine that goes on for too long without some pain. And I guess the point being there is when people wish, and I know we talked about rate cuts coming off the table, but when you wish for rate cuts, because the economy, you know, because the economy is slowing, don't do that because the Fed is usually late and you don't want a weaker economy. If you can cut rates because monetary conditions are solid, sure, that's virtuous.

us. But you should always be rooting for a stronger economy. Yeah. And in terms of closing that gap between stuff like the earnings growth story at the corporate level versus all the economic data that seems to be somewhat gloomy, you know, these are, this is sort of like, you know, this is calculus, right? You know, first, second derivative changes or whatever. Like, the bulk of the data when it comes to the economy is mostly about deceleration and flattening out in terms of growth or whatever. Like, we went from. creating tons of jobs to, you know, now we're sort of, you know, hovering that sort of break-even level. We had rip-roaring personal consumption expenditure growth, but it's like that's

starting to plateau off a little bit. Nothing is really falling off the cliff right now, which is, of course, dude. Not exactly, not yet. And to the point about like the no hiring, no-firing economy and layoffs being relatively low, that means people are still going to work and they're still getting their paychecks, which means that they can still afford, you know, the trip to Disney World and all these things. All right. Sam Rolf, people want, first of all, this is great. You guys had a good time?

I had a blast. Thank you. I hope to come back soon. This is a lot of fun. Absolutely, you will definitely come back. Sam, for people that want to file a ticker. Where do we find you? Yeah, just head to ticker.com.

That's tk-e-r. If you haven't signed up already, you know, I have a free newsletter that goes out. And if you reply to that, I'm happy to toss people in three months to see what they're missing. Hell yeah. Well, I never miss it. Steve, I want a dude, where's my car?

I want to get some of your shit. How do I find you? Interactive. IBKR Campus.com is kind of where our learning stuff is. There's the Traders Insight tab. You could search for me. I publish, I try to do something every day. It doesn't, life interferes.

Yeah, sure. But, you know, I try to put something out when I can. And our stuff is all free and accessible. Hopefully to get you on our site, stick around and open an account someday. And the platform, why do people choose interactive? Breath of product offering. Basically, you can buy futures, options, stocks, all from the same account, foreign currency, all in the same account.

You can access pretty much the entire tradable world from a single account. And we do it at a very low cost. And so to me, that's a pretty good value proposition. All right, gentlemen, awesome show. Thank you for coming on. Listeners, like, review, subscribe, rate all that good stuff. We will see you next time. All right, Jess.

Wow.