The Compound and Friends - The Battle to Remain Bullish

Episode Date: September 9, 2022

On episode 61 of The Compound and Friends, Brian Belski joins Michael Batnick and Downtown Josh Brown to discuss the earnings outlook, multiple compression, the labor market, odds of a recession, the next rate hike, permabears, and much more! This episode is presented by https://liftoffinvest.com. Liftoff® is an automated investment advisory service powered by Betterment, and is a wholly owned entity of Ritholtz Wealth Management LLC. Ritholtz Wealth Management is a Registered Investment Advisor who receives fees from clients who invest in their Liftoff proprietary portfolios, which are not necessarily discussed in the commentary. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com 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/disclosures/ Inclusion of advertisements by podcast sponsors 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: https://abnormalreturns.us5.list-manage.com/track/click?u=f8843b0fc6f0ed7d35e67dcf5&id=33b07916d1&e=4e0f612ef0. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

I heard, I heard. Brian, where are you based out of? That's a great question. So you're not taking any reservations for October? So, I have an office here, and I have an office in New York, but I'm... Wait, this is New York? Yeah. Oh, you've...

No, I'm sorry, Toronto. Got it. And then, I was BMO, one of BMO's very first virtual employees. So should I call back a week from now? Meaning, when I came to bmo 10 years ago they coded me as a virtual employee because i lived in minnesota because at the time i was married and had kids and shit like that and wanted to not move the kids again so i live in florida my my u.s residence is florida oh wow naples so i bought a place in naples right at the top

right february but i got i got my interest rate right after Putin invaded. Okay. So I'm not a fixed income guy. I did the same thing. I just top ticked the Florida real estate market. Top ticked the real estate market, but I got a great, I got a sub three 30-year fix. So I have a little bit of a worse situation.

I bought in November and it's new construction. So I'm not getting a mortgage until 2024. So I don't know. So I gutted my place. You'll be cutting by then. I gutted my place and it's ready October 1st. So you're almost in. You're good then.

Yeah. You're good then. And if this recession I think is coming hits, you'll refi lower. Yep. That's the goal. We want to stay upbeat. Where were you when you heard Queen Elizabeth II died?

I got a text from my assistant who has an in at Reuters and said she died at 10 a.m. our time, 3 p.m., so they're not releasing it because not everyone's there yet. Because she might be a vampire. She might be a fucking vampire. Right. They want to see if it's like actually. Well, I think they were waiting for Harry to get there because he was driving.

Okay. So my understanding is that now Prince Charles will be the king and Camilla Parker Bowles will be the queen consort. And then he doesn't want the gig. Yeah, so he's going to abdicate, right? He's going to abdicate to Prince William, the non-wacky one. But he's going to be king for like a minute, just like the dude in the 20s. Well, yes. So here's the thing, though.

Prince William is the one whose wife looks like a Disney princess. Yeah. They have three kids. They they're gonna be the new royal family right of westeros of westeros that's right he will ascend to the the seventh i don't know monarchy uh i don't either i know enough i know enough to sound like an idiot um the other brother the other brother was never in the line of succession. No. Which is why him being like, we don't want any on the royal family. Yeah, I wouldn't either.

Well, William's kid, William and Kate's kids got higher standing than he does. That's right. And then, right. So that's the line of succession. It has nothing to do with the brother. Right. So like in medieval times, if you were the second brother,

you went to the military. And if you were the third brother, you were a priest. Because there was no future, you know, in the nobility, you went to the military. And if you were the third brother, you were a priest. Because there was no future, you know, in the nobility for you of any standard. And if you were the third brother, you were a technician. The fourth brother would be the technician. Were you a point-and-figure technician?

Yeah, the worst kind. Elliot Wave. Yeah, a little Dorsey Wright. Put my mic on! Put my mic on! All right. We're back. I think we're going to be ready to go. Color check me. Color check me.

All right. Anyway, sad news. She seemed—I met the queen. I didn't meet her. I shouldn't say that. I looked at—they call it looking at the queen when you see her. Yeah. I was in Grand Cayman in

1993. What's that shitty beer they have there? In the Caymans? That's not Red Stripe? No. That's Jamaica. No, it's in a silver can. I don't know. I wasn't even of age. 93, I was 16, I want to say. You were drinking

beer. Yeah, I probably was. So they they're like, the whole island is? You were drinking beer. Yeah, I probably was. So they're like, the whole island is in an uproar. And I'm like, what's going on? Why is everyone going crazy? They're like, the queen just landed. The queen of what? The queen of England just arrived

and Graham came in. So the entirety of the island went to this like field to like just witness her walk from something to another thing. And she did, like, the queen wave. And, like, I was standing on the top of a fence to try to see this. I really didn't understand, like, what the big deal was. But people were openly weeping.

And not even English people. This is in the Caymans. Well, I'm supposed to be in London a week from today. Okay. That could get all – Yeah, I don't know. I don't know. Depends upon how many days she lies in wait.

In state. In state, I'm sorry. Yeah, she ain't waiting anymore. But then I think it's – I don't know how many days it is, but I'm probably not going to be seeing clients next Friday in London. That would be my guess. No, that's right. It's going to be like a national – what the hell is that? No, they're not.

Concert or something? All right. Was Queen Elizabeth actually in The Naked Gun Toe or is that not her? It was an actress. It was not actually – I wasn't sure if it was a cameo or not. No, Leslie Nielsen did not fling the Queen of England across a banquet table. That was Enrique Palazzo.

Yeah. Yeah. Yeah, where the hell was Enrique Palazzo now?. Yeah. Yeah, where the hell was Enrique Palazzo now? All right. Anyway, sad news. Yeah, they'll be in a state of mourning, the whole country, probably for six years. Yeah, and you're working for a Canadian bank for 10 years. I know more about Canada and the UK than I ever thought I would, but I would want to.

How much time do you spend up there? In a normal world, probably 60-40. And the reason is 60% there, 40% here. And in terms of being up there, because the majority of the money that we run is in Canada. So we run about $6 billion in Canada and $2 billion in the United States. But we're building that up in the U.S. So it's important from a fiduciary side of things.

And plus, BMO hired me 10 years ago to kind of bring the U.S. and Canadian strategy together. I didn't know shit about Canadian strategy, right? So I had to go out and do all of that stuff. Oh, it's gold mines and oil pipelines. That's all you need to know. Go meet the Enbridge CEO. That's right.

What are you worried about? I call the Canadian banking system the heads of the five families, right? It's a cartel. Well, they really are powerful in wealth management from what I know a lot of Canadian advisors. And they really like – that's where all the money is. They don't have like a thriving RIA ecosystem. No, no, no.

They don't. But they're cowboys. The brokers are cowboys. They're still building portfolios. They're still doing stuff. Rep SPM. Oh, yeah they're cowboys. The brokers are cowboys there. They're still building portfolios. They're still doing stuff. Rep as PM. Oh, yeah. Yeah, yeah.

When I was at Merrill, they're all P-big brokers. They're all kind of trying to build their own portfolios and stuff, but they're trying to get to the managed money side of things. Of course. So that just makes more sense for them. But the thing that I tell people about the Canadian banks that's really interesting is that we are cowboys here in the United States.

We think of things like for 12 months. It's not working them out. They think like 25 years. They like take a 25-year look at things. Like when TD bought Cowan, right? So every once in a while, you have to have a war. So that's what the mafia,

if you ever watched Godfather, you're not going to have a war, right? So the way I look at the heads of the five families in Canada, you have Nice Blue, Evil Blue, Greeny, Ola, and CIBC. CIBC is the contrarian bank, do whatever they're not doing. Ola is Scotiabank because they put all their cards in Latin America. TD's Greeny because they're not doing. Ola is Scotiabank because they put all their cards in Latin America.

TD is Greeny because they're green, but they're the consumer bank in the United States. Yes. Right? Yes. RBC is the wealth management bank

in the United States. And BMO is the commercial bank. So they're all, you know, cartels stay in your lane, babies stay in your lane. Now with TD going into Cowan, it's interesting, but TD's capital market

slash institutional business. With TD, it's like, it's interesting, but TD's capital market slash institutional business. Wait, TD, like Toronto Dominion Bank, bought Cowan & Company? Bought Cowan & Company. I didn't know that. I didn't know that at all. Is that recently? Yeah, a couple weeks ago. Oh, that just happened.

Yeah. How did I not hear that? Okay. Cowan is like solid second tier in America, would you say? Yeah, you know, I've been doing this for my 33rd year and things have changed so much. We used to call them the regional. Yeah, yeah, yeah. Regionals. But they've got a great franchise on the tech and healthcare side. But we'll have to see what that means for the capital market side of things. But clearly, the banks in in Canada where their growth is centered on the U.S.,

that's where you want to be, right? I mean, the majority of Canadians hate when I f***ing say this, hate it. But their GDP is tied to the U.S. It's not about energy and gold and banks. It's about the consumer. And there's some awesome consumer companies in Canada. But their GDP is so correlated and their performance is correlated

to the US. Again, they hate that because they kind of want to be Europe-lite and they're socialists up there. But at the end of the day, there's a lot of really great companies. And so part of us being bullish is just this whole view on liking North America and Canada as part of it. So Canadian investors also have a very heavy country, home country bias the way that most countries do. But in the case of Canada, if you have that home country bias, you really do end up with a portfolio that's heavily weighted toward banks,

oil, gold. All right. Let's make the show, make the show. All right. Compounded friends episode. 61. What? 61. 61 right. Compounded Friends, episode... 61.

What? 61. 61. How did we do that? Welcome to the Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our 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. Duncan, this week, my little guy, what was it, last week? Logan turned three years old. He got some checks, and I deposited them into his Liftoff account. You know, and you know what? I also sprinkled a little bit on top.

I'm his dad, right? I got him a birthday present. You didn't take a cut. I did not. Ooh. Not only did I not take a cut, I even sprinkled in some on top, on top of my regular scheduled monthly payments.

He'll thank me later. So if you want to invest alongside Logan, alongside Kobe, alongside myself, go to liftoffinvest.com. You can get access to one of our certified financial planners. If you've got questions, investment, planning, anything of the sort, we got you covered. LiftoffInvest.com. Is everyone excited to be here? Isn't there a Roger Maris thing we should be talking about? Number 61. That's coming, isn't it? This could be, yeah, this could be the new record.

The new record for podcasts here. Next week, though, I think we'll break the record at 62. We'll see what happens. Hey, Belsky's here. Brian, let me give you an official introduction. I'm so excited that you're here. We planned this a long time ago, and I knew it was going to be a great show, and the timing really couldn't be better. So Brian is the chief investment strategist and leader of the investment strategy group for BMO.

Brian has more than 30 years, 33 years, I've recently learned. I'm hearing in my ear. 30 years of experience in the investment industry, previously holding senior roles at Oppenheimer, Merrill Lynch, Piper Jaffray, among others. Other than BMO, what was your favorite firm to work

at, or what was the best culture? Merrill Lynch, for sure. That's where you really became known, I feel like, right? Your stuff for Merrill. Well, it was actually Piper. Oh, it was Piper. Because of Marc Haines at CNBC and I'd love to tell you the story. Tell it. Tell it now. Tell it now. We love Marc Haines. Oh my gosh, this man. So if you remember what happened, 9-11, the markets opened up that following Monday, right? Never forget. And if you remember what happened, 9-11, the markets opened up that following Monday, right? Never forget. And if you remember- So wait, so it closed on a Tuesday. 9-11 was a Tuesday.

Was a Tuesday. They spent the whole week somehow getting that shit ready and were able to open it Monday. And that was like a moral victory like none other at that time. I mean, it was such a, talk about perspective. I mean, let's go back. I was supposed to be in the Tower, Tower 2 that day. My travel schedule changed. And I actually, last minute, and I was still signed out to be in New York City. And back in the days, you didn't have all this stuff, right?

All the electronics. So I was in Milwaukee and thankfully I had a car or a truck actually. And I drove back to Minneapolis where Piper Jeffrey was. I show up on this all hands on deck meeting on Wednesday, tried to find what the hell's going on. Right. Tried to figure this out. And I walk in and people looked at me like I was like, ghost, like you're supposed to be in New York. They couldn't get you. Oh, they thought you were gone. Yeah. Yeah. So anyway, so the following Monday, you remember President Bush came out and said, we're going to patriotic buying, support the stock market. Do you remember that kind of stuff?

Yeah, it didn't work. Didn't work, right? So because, but the market opened up and I had just been talking to a few hedge funds and like sell, sell, sell, like get out, right? And I get on CNBC. Canadian. No, I'm an American for the record record i was born and raised in minnesota i do have the accent you know uh but um so i get on cnbc and martha mccallum was on cnbc at the time and she did the show right after opening bell or

some yeah something right after right after squawk box and she's like, Brian, I was on camera at Piper, Brian, how come the market's going down? Who's selling? And I said, Martha, I said, even if I knew, I wouldn't tell you. Yeah, it was David Rosenberg. No, it was actually a couple of hedge funds that are no longer around. But anyway, so Hanes saw that and he said, I want to get this Belsky kid on. So the next day, even back then, you couldn't be on CNBC two days in a row. So next day I'm on Squawk Box, same thing. And he's grilling me. And at the end of the interview, Mark Haynes, yeah, it was amazing. It was so cool. And so I'm on with Haynes and toward the end of the interview, he goes, I really liked this Belsky kid. We should get him on more.

Okay. The next month I'm starting to co-host Squawk Box. Look at you. How old were you? I was 12. You know, I can't, I can't, I can't get on Squawk Box now. I can't cross over. Neither can I. Yeah. I'm a halftime report guy. That's it. I know there, there's a story behind that. But anyway, um, so I was shit 35. I was 35. Okay. Yeah, 35. And so every- What were you saying? Like that, like what is there to really, this has nothing to do with investment strategy. It had nothing to do with strategy.

I'm like, you know, we were in a period there. Remember, we were kind of double dip recession. It was- We were in a shitty bear market already. We were in a shitty bear market. A year in. And he was like giving me shit because I was an underweight on tech. And like, how can be a piper and be an underweight tech?

And I'm like, come on, man. I mean, I don't get paid by investment banking. I mean, I'm told to tell people what to do, not what they want to hear. And it was not popular. And I'm telling people, talking about dividend growth and all the same stuff I've been talking about for a long, long time. And he really, really liked that I was just direct and no bullshit. Because that's what he was like. Yeah, he was great, man.

And every month from there, so from September 2001 to then he left the show in 2005, I was still kind of in the schedule on co-hosting Squawk Box. And actually, I was co-hosting Squawk Box the day that Bear Stearns went away. Oh, boy. So I've just been blessed and fortunate. You know that was St. Patrick's Day?

Do you remember that? So not a lot of people realize that. They went on there on March 17th of 08. Okay, do you remember the weekend before that, though? I sure do. It was an ice storm in Philly and I was at Delaware funds and we got trapped there. And the guy that ran Delaware funds was an Irish guy. So he's got a keg on.

It's the first time and only time in my career that I had half a buzz on when we were doing an institutional meeting cause we're drinking beer. And so I was living in Ridgewood, New Jersey at the time. And the SUV driver said, we got to leave now. And we went to the Philly train station and couldn't get on a train, so he said, I'm driving you back. Let's get a 12-pack of beer and a pizza. Sounds great. And I drank beer and ate pizza on the way back to Ridgewood.

But anyway, CNBC and Mark Haynes, such an amazing man and great to me for all those years. And then I was one of his first guests on Squawk on the Street, and he was just amazing. Right, then they created Squawk on the Street, Squawk SVU, all the Squawks. Squawk Alley is another one now. Yeah. Okay. Yeah, Mark was the man.

And if you go to the New York Stock Exchange to this day— There's still a picture. Stock Exchange to this day, the stairwell to get up to the catwalk where they do your makeup and mic you up, there's a photo of Mark framed and a plaque under it. And I hope that's there for the next 200 years. Well, listen, we're really excited to have you today. And I said the timing is perfect. So from my perspective, 20-something years doing this, I can't ever remember a time where I personally felt it was so flip a coin between like recession bear market or nope, you know what? It's fine. We're going to, we're about to lift right out of this. I really don't have a strong view of which way it could go. I could be so easily convinced in either direction. And most

of the people that we talk to are absolutely convinced this is on the verge of getting much worse. You are the opposite. You are steadfastly bullish. So I'm so excited to give our audience the other side of the coin. And I know you do so with a lot of data and a lot of experience. So thank you so much for coming in. No, thank you. We really appreciate it. Thank you. Your new note is called,

Make No Mistake, It Has Been a Battle to Remain Bullish, or The Battle to Remain Bullish. What's the story behind? What prompted you to write the note, other than you knew you were coming here? It's all about the podcast, right? I do this for this. I mean, come on. I figured, but— Let's be clear. No, It's all about the podcast, right? I did this for this. I mean, come on. I figured, but—

Let's be clear. No, it's entitled Hold the Line. And I wanted to talk about the battle to remain bullish, and I thought about kind of pop culture. A lot of times when I do public speaking, I kind of warned your producer before, I'm kind of half Deadpool, half Jesus Christ, because I'll throw out—

Good mix. Exactly. Good mix. Two kind of cool dudes. I'll throw out some pop culture and swear a little bit, but then I'll also talk about scripture. But I'm on vacation like the majority of the Western world. I'm in my second, kind of the second half of the vacation.

I'm getting emails from institutional clients because my job is, my principal job, aside from managing money, and I hope we get a chance to talk about that, is to talk to institutional investors around the world. And these people are emailing me like, Belsky, you were wrong. Why did you, why were you saying this? You know, June, July rally was a sucker rally, blah, blah, blah. And I'm like, okay, I can't handle it anymore. I got to write something. So I took out my- You got inspired.

I got inspired. I took out my iPhone machine and on the notes thing, and I cranked out this report. And then Tuesday, we kind of edited it and put some cool charts and people that work for me- See, if you were a blogger, you would have just smashed publish and then tweeted it. No, I can't do that. Yeah, yeah. No, I know. No, it's better this way. So you had some time to think about what you wrote and you still believed it. Good luck with the career Belsky working for a bank. That's right. The compliance. But I really thought that people, it really kind of came back to my core thought, Josh, that people really lack perspective and, um, that August is August never matter.

So I was, I heard you, by the way, I heard you on CNBC yesterday. I was away, but I was watching. And I heard you make that point, and that was really intriguing to me. Maybe it doesn't matter in that it's not a pivotal month, right? But it matters if people are making a lot of money or losing a lot of money. It definitely matters to sentiment. Or do I have that wrong? Sentiment in terms of feeling for for kind of setting up the fall. But we looked at it from an analytical perspective.

And we said, OK, so if you look at August historically and you you correlate that to your end performance, the performance, the relationship is spurious. Not to bore anybody with respect to math. What's the R-squared on that bad boy? I don't know. I don't know. Don't worry about it. Now you're going too deep. Michael, crank it out.

But it does matter for September and October. And the whole part that I was coming at is that people are giving me shit on my vacation because the market's rolling over in August. Nobody was working. The cat's away, the mice will play. Every year. I remember I was at Merrill and we got this in August

of 2007. They said, cancel your vacations because the shit's hitting the fan. Really? It happens every August. Now you know August doesn't really matter on Wall Street. No. The CEO of Goldman Sachs spends the month DJing in the Hamptons. That's how you know it doesn't really matter. So I used this pop culture thing in the report.

Early in the report, I talked about hold the line with respect to Saving Private Ryan and Hacksaw Ridge and The Patriot. Have you ever seen those movies? And Braveheart. Braveheart. Yeah. That's a big one. Hold the line. Hold the line.

Where's the line? 3400. I'd say 3780. Okay. 32. No, anyway. 12, 13 volt, whatever it takes. Anyway, so I use this pop culture reference from 1993,

the album from Connie Crowe's August and Everything After. So it really happens about everything after. And this year more than ever, and here's why it's this year more than ever, I still believe that we're in the early stages of transitioning back to normalcy. What the hell does that mean? It means that we've all heard in financial markets, those that work for big banks got to be in the office three days a week.

That's going to turn into four and that's going to turn into five. We're getting back into living again. That's really, really good for everybody in terms of the economy, for cities. We're going out to lunch. We're spending money. Yeah.

Exactly. But more this year than ever, keep in mind that September and October, because the inflation data is coming out, because of the Fed, we already know all that, right?

But what we're missing is that this is conference season. We have not had a proper conference season since 2019, Investor Conference. Whether that's the J.P. Morgan Conference in San Francisco or the Code Conference.

They've been bullshit virtual. Nobody actually pays attention. Yeah, we're not engaged. Everyone's excited. We're together. We're humans. We need to be together. So it's the stage to get back into what's real.

And I think what I think is going to end up happening is as we start to feel like things are getting real again, we're going to understand is we're going to get it. It's not the end of the world. We're actually in a pretty good market here. We got great companies. The market did its job by doing its correction. You don't have to apply the rule of thumb that now earnings have to go down 20% and unemployment has to double. We talk about that in the report. I think it's not going to happen. This is you. Quote, we simply believe that most investors are not, all caps, are not positioned for, all caps, any good news and are, all caps, ignoring the – did my daughter teach you how to write? Ignoring the signposts that we believe have been developing and which will lead to an end of the year melt up in stock prices.

To use one last war analogy, time for investors to get out of the foxholes and bunkers. What's done is done. Stop lingering in the smoke and pillage behind you. Hold the line and move forward. Shit, I hope you're right. I would love a year end melt up. Like, I really would. And I think, though,

the problem for people is that there hasn't been enough damage on the earnings side. We had communication services 27% de-weighting in multiple. Tech, 25%. Financials, 20%. Oil and gas, 22%.

We've had the multiple compression everywhere except utilities., like every sector. The earnings estimates have not come down almost at all. In fact, there should be up 11% this year. So I think from most people's perspective, the reason why they're remaining bearish or they're not as bullish as you think they should be. They just feel like, of course, that's coming next. And you're arguing that it doesn't have to. It doesn't have to because I think one of my biggest problems, what I've been fighting for the majority of my 33-year career is that I think people have become too formulaic, too academic, too by the book. We're so afraid to be wrong. We don't want to be right. I'm going

to use an old reference because I'm an old guy. Remember Lotus 1, 2, 3 in the backslash when you're building spreadsheets? Really going deep here on this. But your life doesn't have to add up to double underline. I think investing is like life and life is like investing. And so I think the more formal like we are, ultimately when shit goes sideways, we said, oh, the formula told me to buy it. So that's why. We've forgotten how to pick stocks. But on the earning side, what I think is really interesting and important, I think that there's been a secular, not structural, but secular trend on companies sandbagging, on companies under-promising and over-delivering. And I think it was out of result of the tech wreck.

This is where the perspective comes. If you look at the late 1990s and 2000 and then the buy the dip craze that started 2001, analysts were rock stars. Whatever the analyst said, that's the number, right? And they lost all credibility after that. And then quantitative analysts really took over in terms of screening. I'm going to prove what the numbers are because I'm going to look at all consensus numbers. We've forgotten how to pick stocks. We've forgotten how to look at stories.

And so I think that's really put a psyche on the market not to believe in any of the earnings. Someone asked me a really great question. Well, I mean, you can see though, it's the gamesmanship. It's like beat by a penny or beat by two cents, your stock goes up. Beat by one cent, your stock is flat. Hit the number or below, your stock goes down. That's not the company's fault. That's not the analyst's fault. That's just what the market has decided. That's the game they're going to play.

And then we had whisper numbers in the 90s, which were stupid. Because then the whisper number became more important than the real number. The whisper number was made up by a website. It didn't even really exist. So it's kind of like that is the game. It's not – I agree with you. It's stupid, but it's like that's the game that's being played. So that brings up a great point for right now, right?

So second quarter, companies were rewarded in terms of the rally for not being as bad as they already thought. Yes. Right? So are we going to have the same thing in the third quarter? Right? No one's talking about this. We'll see. And numbers actually have gone up.

Like, if you look at the growth rate for current year earnings for 2022, they're up 5% since the beginning of the year. Can I do Steve Weiss? It's all energy. I know, but it's true. But it's true. It is true, but look at energy's contribution to earnings growth. If we can have a really big number, you can be like a really big dude,

but you're not really contributing anything. You know what I'm saying? Because you're really small, actually. And so, why are you laughing? That's the story of his life. But tech, think about tech, right? I mean, tech's still the juggernaut. And I think tech is still very well positioned in terms of the big tech names.

And like Apple came out yesterday, just something phenomenal. I mean, phenomenal. It's just amazing what they did in terms of no raising prices. That's leadership, right? But anyway, I think people are going to continue to buy tech and buy the US market just because of the stability of earnings and the high standard deviation of earnings everywhere else. We have low standard deviation of earnings here.

I mean, just look at what the currencies have done in Europe and look at Europe as an asset has lost a thousand basis points of world GDP the last decade. Why the hell would you want to be invested in Europe? Why would you want to be in China given that lost decade of performance there? I think it's fortress America. I do.

Now, it doesn't mean we're not going to have problems. It doesn't mean that we're still trying to figure out what the hell the number is. But think about the analogy on earnings, right? So stocks went up because earnings weren't as bad. So now let's start talking about inflation. What if we start printing numbers that aren't 8%? Yeah, it could happen. It could happen. It could happen. And then people are like, go, go, go. Because going back to why the hell I

was writing this report on my vacation is my clients are underperforming. Institutions are underperforming because they sat on their hands in June, July, because they didn't believe it because of what you said earlier. We're waiting for the next shoe to drop. We're waiting for earnings to drop. So they're waiting. So the FOMO trade hasn. They're waiting. The FOMO trade hasn't even started yet. The FOMO trade hasn't even started. It's a 17% rally from the bottom of the market in mid-June until the top in mid-August. Now we fell into a pause.

You argue it's because a lot of people are on vacation and who gives a shit. Now it's September, whatever. We really aren't giving much of that rally back. We kind of seem to be stabilizing. Why aren't things deteriorating? I think people are getting frustrated that the numbers aren't getting softer. So I'm going to come up with another one.

You're totally right. But it's true. Why aren't things worse? Why won't it melt down already so I can buy? I'm going to butcher the quote, man. Kevin Spacey in Usual Suspects talks about, and he copied the quote from somebody else, but the devil's greatest trick is to make everybody believe that he wasn't real. Everybody's convinced, man.

The world's coming to an end. What if it doesn't? Right? Yeah. That's the case. You wrote about this. You said we're 16 months into this thing. Why isn't the data softening?

How come earnings don't suck when you have inflation? Would you like me to answer my opinion? Yeah, let's go. So it's because the prices of everything have gone up. So we're looking at like nominal earnings growth. That's really not good in reality. Time out. I have data.

So Savita did this thing from Bank of America. Who I used to sit next to for years. A couple of weeks ago. So she did this second quarter sales growth. Nominal, it's up 15%. X energy, it's only up nine and a half percent. So nominal numbers are still pretty good. Yeah. Because companies have gotten away with price hikes across the board. Consumers are paying them. But that explains why earnings are going up, but consumer sentiment sucks. Yes. Like that's the answer. But also, but these prices are not going to come back down.

So if inflation does melt away, then these numbers are real. So here's another reality check again, a Minnesota kid, uh, just common sense. I I'm going, I'm on in the midst of a 10 day trip. I'm going to Tel Aviv tomorrow night and I'm going to Paris. I'm going to London. Hopefully depends upon what happens, um, with some of the current news. But,. But I had to go buy a new bag, right? Because all I have is a backpack and a roller bag. I needed like a duffel bag. For the paparazzi. Well, exactly.

And I couldn't believe how many people are shopping on Monday. Oh, yeah. I couldn't believe it. Yeah. And I looked around and said, do you really think these people are going to stop shopping? Are you going to stop? All of a sudden, stop. I think consumer sentiment's bad because the media's scaring the shit out of everybody. And I looked around and said, do you really think these people are going to stop shopping? Are you going to stop?

All of a sudden, stop. No. I think consumer sentiment is bad because the media is carrying the shit out of everybody. And gasoline. Yeah, and gasoline. But two things on that. Which consumer is going to stop shopping? The consumer in the bottom quartile of the income or wealth distribution is clearly plagued by high inflation.

And we know this from Target and Walmart. Like we know that there's trade downs. They're buying the store brand more than they're buying the premium. Like that we know. But everyone else is really not stopping. And the guy from Canada Goose, they make like $600 winter jackets, was on CNBC. He's like, there's no slowdown. We're going to have a great Christmas.

Lululemon, like all systems go. And then you look at Gap in a full meltdown. So it's like people choose which one of those they want to pay attention to if it aligns with their story. Correct. The same thing with- And you see that all the time. All the time.

It's like yesterday on CNBC, you start throwing this company down 24%. You're internalizing it. You're personalizing it. That's why you got to look the time. All the time. It's like yesterday on CBC. You start throwing, this company down 24%. You're internalizing it. You're personalizing it. That's why you got to look at everything. All 500 companies in the S&P 500. But added data doesn't work. No, it doesn't.

Right. It doesn't. And the reason why they're personalizing, and it goes back to the whole human nature thing in terms of investing, is that they're so afraid to be wrong and they don't want to be right. So they default to being fearful until they can't be fearful anymore. And then they proceed on with, I got to perform. Is that investing, Josh? And the answer is no, it's not investing. Yeah, it's posturing. Well, it's one of the most poisonous things you could do to yourself in this game is to wear a uniform, to say, no, I'm on the bull team or no, I'm on the bear team. Because then every new piece of information that comes out,

you're looking at it through the prism of what team you told everybody you play for. Now, if you're somebody that can be a bear one minute, a bull the next minute, that's great. I don't think most people are that nimble or should be because that's a treadmill. So I don't really know what the right answer is, but I think when people have adopted a market view from then on, once they've said it out loud, no matter what comes next, it's like, well— Well, especially in public. Well, I was already right, so here's what I think about this data point, right? But Brian, so to that point, you've been publicly bullish. What can get you to turn bearish?

Well, that's a good question. What if the queen died? Headlines. Sorry. I'm so – all of our English listeners, I don't think it's funny. Would you have to see earnings start to deteriorate? Yeah. On a short-term basis, I'd have to see this – these inflation numbers stick longer than I thought.

I would have to see earnings really get crushed. Unemployment? Yeah, unemployment. But here's the thing. If you would have to see the inflation numbers stick longer than you thought, what happens to stocks between now and then? Like in other words, if you say, if we're still in an eight handle on inflation by December, I would say we're in big trouble. Okay. But what happens to stocks between now and then while you're making up your mind? That's like the thing, right? Yeah, exactly.

So the other thing too is that it's a great question and I'm going to answer it. Sometimes when you're on TV all the time, you kind of don't answer questions and you're good at it. Anyway. I answer the question that I ask myself. I have not been in a period in the, I don't remember a period in this market

for really since early 2000s where everybody was bullish. We haven't been in a period where everybody's bullish. Even 2019, people were not bullish. You still had a couple people out there that were really negative. I want everybody to be bullish. When that's going to happen, I'm out. I think, so let me kind of go- As measured by investor's intelligence? No, all that stuff is bullshit. Investors, I mean, I worked at Merrill Lynch for a long time. Say more, I like it. Go on.

It's all bull. You know how you judge people's sentiment? You sit across the table from them and you judge by the kind of questions they ask. I think the worst thing that's happened in the pandemic is we haven't been able to be around our clients and know when they're lying to us. Because people don't fill out sentiments. Who cares?

Surveys, who cares? But so where I'm going with this is, I came out in 2010 saying, we're in a 20 to 25 year bull market. And I'm not being stubborn. I just still believe that. In 2008, actually, I was still at Merrill Lynch and I said, 2009, we're going to be up double digits.

And then 2009, I moved to Oppenheimer because of the merger at Merrill. Moved on. And I said, we're in a bull market. Then I transitioned to a secular bull market. And through all of this, we've been chastised. Use whatever thing you want to say. Climbing the wall of worry, blah, blah, blah, most hated bull market. You can have cyclical bear markets, which we've had two of them already in this big secular bull. But I think at the end of this, at the very end of this bull market, so let's say eight to 10 years from now, we're going to be back into global synchronized growth. We're going to be back into a commodity super cycle. We're going to be back into,

there's going to be a hot new product or a hot new market that's not China or something different that we don't know what it is. Maybe it's Malaysia. Maybe it's Zimbabwe came up with some cool drug. Maybe we're going to build a pipeline to Europe. I mean, it's going to be something crazy. We're going to be able to Star Trek and beam ourselves- Robotics, AI. Yeah, something. And everyone's going to be drinking the Kool-Aid, baby. And I'm going to be able to Star Trek and beam ourselves to- Robotics, AI. Yeah, something. And everyone's going to be drinking the Kool-Aid, baby. And I'm going to be buying my cabin in Wisconsin, drinking a bottle of Chopin with a bottle of shitty Minnesota beer, smoking cigarettes. I've never smoked a cigarette in my life, and I'm going

to be laughing at everybody. I'm going to put everything in fixed income because they're going to tell me, Josh, the magic word, it's different this time. It's different this time. You don't think we heard any it's different this time last year? In 2021, they weren't saying that? It's different this time for the bulls? The market structure has permanently changed because of retail enthusiasm for stocks and Bitcoin and crypto and SPACs. And that felt like a euphoric moment to me. I don't know.

I call that the four horsemen of the apocalypse. Okay, which is what? So, Cathie Woodstocks, lover. Okay. Long time former client. Yeah. Okay, Cathie Woodstocks. Yeah, nothing personal.

Nothing personal. Just a strategy. Just a strategy. Yeah. The meme stocks. The SPACs. Crypto. And my favorite, crypto.

Right. Right? Yeah. So, the market did a good job taking those out. And then they took out the high multiples. And then they took out the high growth. Then they took out the generals. And then when they took out energy, right, was it May, June?

Yeah. That's when I felt with some accordance that, okay, this is the bottom. And energy 100% down on multiple compression only. Nothing fundamentally changed at all. Nothing fundamentally changed. Only got better. And so is it different this time? So why do you have to go back and say,

everybody was saying capitulation. Do you need capitulation? No, you don't. I don't think so. No, you don't need capitulation in a market like this. And I have always not said it's different this time. But what I will say this is that we, investors or society, have to give ourselves a break.

What we've been through the last couple of years is it's unbelievable. Yeah. It's unbelievable. But stocks have done well though. Well, it's because of the free money. I'm so with you on this, this concept in game of Thrones.

We're, we're a reek. We are. Do you watch game of Thrones? Nobody in this room ever watches. No idea what I'm talking about. I watch House of the Dragon. All right. So literally there's a character in the show. No idea what I'm talking about. I watched House of the Dragon. So literally,

there's a character in the show who's a prince, Theon, and he ends up, I don't know what the scientific term is, but they like remove his manhood. And then they put him in a cage

and raise him like a dog. And they beat the shit out of him every day. They cut off his Johnson? They literally, like literally, it's one of the most brutal things that happened the whole 10 seasons.

And he gets to a point where he's just so used to being beaten up and horrific things happening to him that when they come to rescue him, he fights back. He's like, no, I want to stay here. This is what I am now. Like this is what I deserve. And they're like, well, okay. They went back to the boats. I think – speaking of my my generation like we start off with the dot-com crash we watch our parents bankrupt themselves basically yeah right after worldcom

enron 9-11 then we have like a four-year bull market boom housing crisis two s&P cut in halves in the span of seven years. It's almost like we don't deserve to just have a secular. So when this secular bull market started in 2013, it was really hard for people to feel good about it. Yeah, because think about what you just said. In the 2000s, the market strength and equities had nothing to do with U.S. stocks. It's nothing. It was all about emerging markets and decoupling and all that bullshit, right? But it was really, whether or not you believe me, it was 2009, 10, or 2013, whatever. Well, I'm going by taking out the previous cycles.

So, by the way, $17,000 on the Dow in 2000, right? And then again in 2007. So when you broke that and the S&P broke its old high, like that's how, we don't date the start of a secular bull market from the bear market low. So 09, yes, we had a rally off

of 09. I agree with you, but here's where we're counting point. A bear market starts at the top. What do you mean? A bear market doesn't start. You measure a bear market from the top. So, ipso facto, you should measure a bull market from the bottom. Yeah, but we don't. But we do.

No, secular, secular. We say 1982 to 2000 is a secular bull market. We don't start it in 74. You know what I'm saying? Does that make sense to you? Yep. Okay. Like when do we say the post-World War II bull market started?

Not in 1933, 1945. So that's what I'm saying. So 2013, you take out the prior cycles high and keep going. I look at that and I say, this feels like a new secular bull market, but I'm afraid to say it out loud. I have a blog post about it. I don't want to be the asshole that jinxes it for everyone by saying new secular bull market, but that's what it was, like in hindsight. I could be your Doug. Can we talk about this? So Josh and I were speaking the other day

that all of the negative return from the market this year is from multiple compression, because earnings are still up. So multiples are squished 20%, and we were saying how much do earnings fall generally speaking in a recession? And a day later, I read your post. Brian wrote, median peak to trough decline in S&P 500,

LTM, what's that, last 12 months? EPS during a recession is 18%. We haven't seen any real downtick this year as the number is over 5%. So what's going on here? Normally, it's 18% decline. Here, there we go. Josh, look at that.

18% decline in earnings. But we're not in a recession. I understand that. So why would you expect to see that? Bingo. Yeah. What's up? That's what I'm talking about.

So that means just do the math. Now we need a 23% pullback to just kind of get back into the median, whatever. It's not going to happen. It's not going to happen. Can you think of another multiple compression period like this that didn't coincide or lead up to a recession? You can't, right? No, but I keep going back to like 1990. And you know what's really funny?

You should get an economist on here and ask them what kind of recession we're in. You do that every week. So there's three types, the three Cs of recessions, right? So the consumer recession, credit recession, CapEx recession, right?

So which one is it going to be? CapEx. You think it's, we don't have any CapEx. How can we have a recession? Right? They'll say consumer, because they'll default to the consumer. Also, enterprise spending is the new CapEx.

Brian, what if the reason why things haven't softened is because there was so much pent-up demand from people waiting to get out, and everybody was going to travel, and everybody had stimulus money, and we're now working our way through it? Yeah, The U S consumer never bet against the U S consumer, right? We're just in it. That goes back to the statement I said before, are we going to stop spending money all of a sudden? Nope. Nope. I mean, it's like crack, right? Um, or it's like

when you have one Skittle, you can't just have one Skittle. You're going to have like 45 of them, right? So, um, I think it's going to be stronger than everybody thinks. I think the earnings are probably going to go down. My earnings number is too high. Shocker, right? For what, 23? 22. I don't do a 23 until November.

What's your 22 number? 245. And you're going to go, holy shit, you're nuts. Where's the rest of the street at, like 210? 220, something like that, 225. Right now, and we have the chart in the report, I think numbers are at 227, and they're trending 227, I'm sorry,

down from 230. Whoop-a-dee-doo. Yeah. Right? What's going on? Yeah. Well, people are bearish. You said like nobody's positioned for this.

Sentiment trader. I don't know if you ever Yeah. Well, people are bearish. You said like nobody's positioned for this. Sentiment trader. I don't know if you ever read his stuff, but this is a chart. Can you put this one up? Yeah. This is a chart of institutional net speculative option premium. And this almost looks fake. That's f***ing crazy. Last week's panic hedging was three times more extreme than in 2008.

What the? Because there's more people trading options now than then. People are so bared up. Do you agree with that? Like 100%. It's just because there's more people trading options now than then. People are so bared up. Do you agree with that? 100%. It's just an options circus going on. Nobody's mentally, or I don't know about financially,

nobody's mentally positioned for a year-end melt-up. Nope. Because look at the corollary from late 21 when nobody was long enough. I mean, it looks like a mirror image.

It's a spike higher and then a spike lower. It's, I think and then a spike lower. I think it's retail options trading. I don't, right? No, no, no. That's too big. That's too big.

Look at that money. Look at that money. That can't be retail. No way. It also says institutional trader. Yeah, the last two or three years, there's been a proliferation of multi-asset strategies and building out that product across every major money manager and every major brokerage firm in the US.

So that's what that is. Has to be, has to be. So what are they doing? Like the market breaks a moving average and they just start like selling calls or buying puts? It's all, you know, rage against the machine. You could also say that the market's acting a little bit better. John, throw up this next chart, please.

So we had a pretty nice rally off the lows from June to the middle of August. When we bottomed out in June, 40% of the market of the S&P 500 made a new 52-week low. So almost one in two stocks. On the recent pullback, now granted, we were like 6% or 7% higher, but almost no stocks made a new 52-week low. Like 5% of S&P 500 stocks made a 52-week low. That's really interesting. So the internals on this last dip lower were much better.

Much better. Right. So many people don't know this, but I started my career at William O'Neill & Company, an investor's company. Oh, no way. Really? Yeah. Okay. And so I had the amazing

opportunity to have this great mentor, William O'Neill, but then because he's Bill O'Neill, a lot of cool people have come by, like Charles Schwab and Peter Lynch and Warren Buffett. I had exposure to these guys. I'm like a 23 or 24-year-old punk. And I look at this chart as a former chartist. I started my official sell-side career after that at a place called Dane Bosworth as a technical analyst. And that looks to me like the semblance of a cup with a handle chart. Just like if you take a look at what happened in 2020, April, and then we had the cup, the handle, and then broke out.

That's a huge breakout. And then it looks like this pullback here, again, April, May, June, is a bit of a cup. And now the handle's a little bit more extended, but it looks like a cup on the handle. It's like a saucer. Yeah, which I learned that you have the saucer and you have the handle, right? That's really bullish from right here. People laugh at pattern analysis, but the cup and handle, the psychology behind why that makes sense to me is so intuitive. You get this dip and then it falls off, but it falls off much less so and then resumes and gets back to where it originally fell off from.

And the people that didn't buy the dip are now scrambling as prices make new highs. That seems like a very intuitive, psychological thing that investors do to themselves all the time. So that's why I think some kind of pattern analysis makes sense. I hope this resolves that way. No, I think so. And it also kind of follows through with the theme of our report, Hold the Line. I was not thinking about technical analysis when I wrote this, but I mean clearly you want to know if you're – an old technical term, you don't want to be catching a falling anvil, right? Right.

And that's what 2020 was, the falling anvil. I mean that was probably one of the best capitulations I've seen in my career. So if we get into third quarter earnings like two weeks in, so if we get two weeks in, we will have heard from the large banks and I think a couple of retailers. You'll see some tech too. Okay. So if we get through that portion of earnings season and there's just not this apparent deterioration or meltdown,

that could start the performance chase into new highs. I feel like I'd be ready to call it in Q3 if earnings don't soften. They're not going to. Correct. What do you think about that? I think that's true,

but I still think people are so stuck on inflation. That number's got to start coming down. That's got to be part of the equation. That's got to be part of it. Okay. That's got to be part of it. Can we talk about the case for...

So the case for a soft landing? Is this Hatsias? So Jan Hatsias spoke to the journal, and he made a few key points. He just said basically, forget history. History is not a guide for the current environment, so just throw all of this out the window. He said inflation expectations and break-evens are coming down. A cooling labor market should manifest itself as lower vacancies

and wage growth and not necessarily higher unemployment. So I want to look at a chart that you put in your report, Brian, showing that for every recession, unemployment was never below 5.5%. But normally, it's way above that. Right now, we just got – what are the recent numbers? Are we still under four? Oh, you're showing where the unemployment rate at recession end is? Yeah. So tell us what you're telling us here.

I'm telling you. Tell us what you're telling us. Show me. Show me what you're showing. It's going to be really difficult. Let's just keep the math simple. It's going to be really difficult to get's just keep the math simple. It's going to be really difficult to get to that 5.5% from here.

Is that because there's so many job openings or what exactly? Well, people are, well, there's job openings, there's non-job seekers, there's the underemployed. And I mean, let's call it what it is. 2021 is a good year for financial services, right?

I mean, but 2022 is a different year. And we're spending money. We're going out with clients. It's not going to be as good a year. So those wages are going to come down a little bit. But then the bottom end is going to come up. So I don't really see this whole notion of massive wage issues. But to get above 5%, we need to see almost a percent.

To get above five percent unemployment. Unemployment, yeah. We need to see massive job losses. I'm trying to think, like, where would those even, they're not coming from hospitality, clearly. They're not coming from, maybe is technology the source of, is that what everyone's worried about when Netflix

does a layoff? You can hear Apple, Microsoft slowing their hiring. Right. It's like, where would those job losses even come from? They'll just go somewhere else in tech. Absent a crisis. Right. They'll just go somewhere else in tech.

Yeah. But you're right in the hospitality side. I mean, they still don't have enough workers there. Maybe never will. Maybe never will. Right. But going back to the premise of we're going back to work, right? Yeah.

So from three to five days eventually, and this is going to be a process in the next couple of years, that's going to force people to get off their couches and stop playing Call of Duty and trying to trade stocks. And that phase is over, I believe. You don't think that a lot of companies have just adopted a permanent hybrid or work-from-home policy, especially gigantic companies like in technology. Like if companies like Alphabet that, I don't know, what do they have, 100,000 employees or something? They're not telling people to come back in. Goldman Sachs is. But like there are some big employers that are just,

they're good with how it is. The banks are. But now you're talking about human nature and these companies are covering their ass because they don't want to get sued. You're telling me I have to be in the office five days a week? I have anxiety about the vid and the cron and everything else. I got to wear a mask.

So that's going to take a while to unwind. I think that shit has to end immediately. But it has to end. But it's's going to take a while to unwind. I think that shit has to end immediately. It has to end. But it's not going to. I don't think it's going to happen. I don't think five days a week is going to be a thing ever again. Yeah, I really don't. I don't. Look how well we handled zero days in.

So why go back to five? I mean, I'm all for it if companies want to do it. I don't know about you guys, but I'm massively efficient working at home. Way more efficient. Yeah, I'm all for it if companies want to do it. I don't know about you guys, but I'm massively efficient working at home. Yeah. Way more efficient. Yeah. I'm inefficient both places.

So it doesn't really help me one way or the other. All right. But do you agree with this take though? History is not a good guide to the present. There's just too much unprecedented shit going on. We turned the economy off for a year. And then we hit it with $10 trillion.

What precedence is there for this? You tried to get me to say it's different this time? No, I didn't. It is! It's unprecedented. This is why we have to cut ourselves some slack here. I say it's different every time. We've never seen this before, man. Think about how strong we were

as a country, number one, but also as a human race and how hard we pivoted, man, to do what we needed to do in terms of keeping our society open and our business open as well. It was amazing. So no, I do think it's unprecedented. And that's why I think more and more that I think it's going to be a couple more months before people start to figure out. And it's probably going to be earnings, but more than anything, maybe a dip in inflation to say, we're not going to the end of the world. Instances of inflation above 5% back to 1946, zero examples of that inflation being cured by anything other than a recession. Every single time the recession has cured it. Soft landings. Here, this is the journal. The main obstacle to a soft landing is the historical

record. In the three soft landings since World War II, 1965, 1984, 1994, the Fed wasn't trying to push inflation down. It was trying to keep it from going higher. At times like the present, when inflation was too high and the Fed set out to push it lower, a recession always occurred. Hatsia says that's too small a sample size and it's mostly the 70s and 80s. What do you say to that? It is mostly the 70s, 80s. I remember I was an analyst in 1994 and I saw what was going on there. And then when the Fed made the pivot in 95, that really started the nifty 50. Yeah, crazy rally. Crazy, it was nuts.

Yeah. And then tech. But tech really didn't come on until 96, 97. Really, 97 is when it really got going hot. The internet IPOs were all in 97. Yeah. Yeah. So I think the 70s and 80s probably are better,

but at the end of the day, if you take a look at, I mean, it's so dangerous not to say it's different this time. You take a look at the con, the construct of earnings in our, in our country and the market are much different now than they were in the seventies and eighties, much different. And if you go back into the forties or the thirties, right, people forget that our country's economy in the 1930s was primarily agricultural. The notion of the Dust Bowl was because we had this period of higher temperatures and the farmers lost all their money and plus there was no money to go around to feed people. The fields dried up. That was a Dust Bowl because the majority of our business in the United

States was agricultural. Still was. It wasn't until World War II that we became massive industrial and then we became obviously the great consumer nation in the 40s and 50s. Michael and I have been fighting that battle on the blogs for like a decade, like the Cape Ratio shit. What the fuck are you comparing us to? Like you're comparing us to a steel mill economy. That's the multiple that you think the modern US economy should have is we have to bottom it at eight times 10 years worth of earnings. It's like almost absurd. But that's still out there. That's still a thing. Like we haven't washed out enough on one year, on 10 year.

I don't know. So between 16 and 18, that's where we are now. That's enough? Yeah, I think so. We've been through enough. I think we've been through enough between 16 and 18, that's where we are now. That's enough? Yeah, I think so. We've been through enough. I think we've been through enough. 16 and 18 PE, trailing 12 months. It's like enough.

I think we've been through enough. And then just going back to what I said before in terms of where's the money going to come from? Well, it's going to come from some FOMO, but I think it also is going to come from non-US investors coming back here. Okay, I like that idea. Like who?

The Europeans will have no money, if you listen to recent news reports. They will spend all of their money on electricity. They still have to invest, right? They're still investing. The Chinese are buying Canadian real estate as a safe deposit box. They're buying Western Canadian real estate.

But the cool thing about Canadians and being up there now for 10 years in terms of covering that market is the best contrarian market ever. Because in just this last couple of months, they've had the biggest outflows in Canada since 2017. And then after that, 2018, 2019, great years for the Canadian market. Everybody in Canada is scared shitless about the banks. And so what are the banks doing?

Now they're starting to become more conservative again. That's when you buy the banks in Canada because they're excellent stewards of capital in Canada, amazing managers in terms of cashflow and dividends. And so I think Canada is coming along for the ride, but unfortunately they have some other issues in terms of politics and things like that up there. But there's so many great- We don't have those here. We have no issues politics here. But I think money's coming back.

I think money's coming back. Are the things that are falling now enough to take inflation down to where the Fed will feel comfortable not doing 75 basis points every time? We have this freight cost chart. So the cost to ship a 40-foot container from China to the U.S. West Coast now stands around $5,400 a box, down 60% from January. Crude oil is down a lot from its high. Gasoline is down a lot from its high. Housing is coming down, which might present another challenge. But it looks like inflation has peaked. That's been our call.

And from the housing perspective though we still need massive supply so prices are probably going to go lower as we add more supply but how psychologically important is the housing market to consumer spending to the stock market overall that you have this housing affordability index

the year over year change it's the worst we've seen going back to 1972 could you make that chart smaller oh here we go sorry sorry about that brian he showed you a postage stamp on my contact so what is this uh national associate association of realtors housing affordability index it's a year-over-year change. Well, if prices have fallen six months in a row, this will get more affordable.

Given that the 30-year mortgages went from 3.3% up to 6%, and the median house went from whatever, 240 to 370 or whatever it is, yeah, housing got a lot less affordable. And doesn't that have a big impact on consumer psychology spending, all that sort of stuff? It does, but look at like, remember 2008, where people are just handing their keys over and they'd rather hand their key over to their mortgage and still go to Costco to buy 10 cases of Diamant and do in some water. Right. So the consumer still, we're weird.

Tired about to do. Of course. Why would you drink Diamant? That's not a great comp, I guess. Next Tuesday, the 13th, we're going to get the next CPI print. This feels like the market event of the year. The debate over 50 versus 75 is over. It's 75. Yeah, Nick Timorese printed it yesterday before the bell, so that's it. The new Woj.

He's the Woj of the financial sector. Right. So, so, uh, 75 basis points, then we're going to get, then we're going to get a, uh, then we're gonna get an unemployment number and then the Fed's going to have its meeting or, or we got the jobless claims. We'll get the, we'll get the inflation and then the Fed will have its meeting. Brian, what do you think we do from there? Wait, hang on. What do you think about, sorry, I don't know why I just hang on. Gotta love it. What do you think about this idea that at some point, if we're not there yet, fixed income will be a viable alternative for equities? Like at what yield do people say, you know what? I don't really want to pay 15 times 60. I don't really want the stock. I'll just take some bonds. I love to answer that question with, think of the person that bought a 10-year treasury

at 10 basis points in March of 2020. That's crazy. How are they feeling? Yeah. What's that real rate of return? Might as well abort an ARC. Negative 15. Exactly.

I mean, think about this. People give me shit for talking about a secular bull market and inequities. We've had a 40-year bull market in bonds. How come people aren't talking about that? The unwind of the 40-year bull market is happening before our very eyes. I think you can have tactical trades in fixed income. Now, whether or not that's at 4% when you start buying it again, because then you'll see some appreciation.

But the majority of returns that people have received from fixed income is because of performance, not because of yield. It's a fallacy. It's a complete fallacy in terms of the whole balance portfolio thing. So is there a magic number? I don't know. Maybe it is 4%. I don't know what it is. But again, as part of this whole transition back to normalcy, I think that we're going to return to normalized returns, normalized earnings growth, normalized fixed income or 10-year treasury, somewhere between 3% and 4%. Maybe it's 4% or 5%. I don't know what it is, but it's going to be some sort of a tight range.

So what the Fed does here in near term, I think you're either on something or onto something. Both. Thank you. You like my joke. I think next week's a seminal week. Yeah. So if we have a 75 point, well, so here's the point I wanted to ask you about. So yesterday before the bell, Tim Oreas publishes. He says the Fed is leaning towards 75. So it's a done deal. Stock market – Dow goes up 450 points.

NASDAQ outperforms. NASDAQ goes up 2%. What does that tell you about how the market will probably now handle a good inflation? What's a good inflation print? Seven, nine, eight, oh, I don't know. Just give me some derivative in the other direction. Just give me any direction down. Even a lack of acceleration, is that good enough?

Correct. Okay. All right. So how does this market react to a seven-handle inflation print for the month of August? What if it's 8.5? What if it picks up again? That would be very bad. I mean, based on how they calculated, it definitely could.

It could. Likelihood is low, very low. But then maybe that's the low. Okay. I mean, you think we revisit the June low? No, not that low. Okay. No, – I mean you think we revisit the June low? No. Not that low. Okay.

No. Not fire and ice. So in either case, barring like an alien invasion, this is the inflation print you buy? Correct. Okay. And then we get the 75 basis point. They've already done two of those. So you get the third. And now we're all going to debate 50 or 25 at the next meeting, right?

Or do they go into January or do they end it this year? Like whatever that debate is. And then the other thing that's lingering out there is the increasing pace of quantitative tightening. Do you not care? It's hard to get you excited about that one. No, I can't get excited. Okay, why? They should be doing it.

Yeah. Well, they should have been doing it nine months ago. Correct. When housing was up 40% over two years, that would be the time to... We were very critical of the Fed in 2021, just like we were critical of the Fed in 2012,

13, and 14. Stop this. Enough's enough. But, let's go back to enough. Yeah. And, but, let's go back to it. Strategists invest and economists are late. So the economists were late. They were completely wrong

in their forecast. The Fed was late. Why? Because they're a bunch of economists and they're looking backward. So we talked a lot about unemployment. Dude, can I ask you about that?

They have 400 PhDs in that f***ing building and they were buying mortgage bonds six months ago. What is going on there? What was the thinking behind 0% interest rate policy with the stock market at record highs, home prices at record highs, and unemployment on its way to zero? How could it get any better than that? What do you think they were thinking, I guess, is what I'd be curious to hear.

I don't even want to pretend to even imagine how an economist thinks. I just don't get it. I've never gotten it, and I've taken a lot of shit for it over the years by giving economists crap, and I'm probably going to get to after this. But it just falls back on my thing about academic. We're so afraid to be – do you remember the bullshit in February, March of 2020? It's going to be the Great Depression. GDP is going to go down. I'm part of that.

40%. I'm like, this is egregious. But no, I don't, the answer to your question, I don't know. Now, you asked me about when I should be bearish, right? Shoulda, coulda, woulda, when that shit was going on, I should have pulled the plug. I should have actually pulled the plug. Pulled the plug and said, this is going to be a rough patch for the next year when we're seeing that silliness. I probably should have. But the problem with that is, because I also run money, when you sit across the table from someone and you say, sell, they're not coming back. They are not coming back. That's why we say underweight. Yes.

Yeah. You talked about utilities. That's a really great point. You can't tell somebody the game over. They won't come back. It's not investment advice anyway. It's childish. It's not.

The people that are doing that on social media, whatever, don't manage any money. They manage newsletter subscriptions. Right. Or strategies that come out and say, sell. They've never sat across the table from a client. No, they've laughed out of the room. Yeah. And I've lost money for clients, and it's excessively humbling.

And you have to kind of go through that. And this has been a humbling year for me to be bullish, but at the end of the day, I have my convictions, and I believe what I believe. And oh, by the way, every time I'm on Halftime Report, right? Don't take this up with me. No, no, no, no. I don't know the thing.

No. And they grill me. And they grill me. I actually get AUM. It's part of the show, dude. I get AUM. And I talked to Wapner about it. I said, thank you.

And he goes, why? He goes, I love it when you grill me because people give me more money. Of course, because it forces your conviction to come out. And people watching television respond to people with conviction. And Wapner is the best. I think he's the best host. I mean I've seen for 20 years every host on every financial show other than Rukeyser, different era. I really think Wapner is the best because –

I was on Rukeyser. Were you? Yes. What were you, 14 years old? Again, I was 12 years old. Were you a page? I was scared shitless. What did you say to Rukeyser? Were you? Yes. What were you, 14 years old? Again, I was 12 years old. Were you a page? I was scared shitless. What did you say to Rukeyser?

I was December. Buy him. No, actually, it was December of 2020, and I had just went to an underweight in tech, and he was giving me shit. And Rubini was on. Wait, when was this? December of 2020. Louis Rukeyser?

He's not with us. No, 2000, 2002. Oh, okay. All right. Sorry. I had a senior moment there. You might have imagined this episode, Brian. Who's the guy?

Laszlo Barini was on. Oh, yeah. Like, Belsky, why are you so bearish? The market's going up. I was like, no, it's not. Yeah. And I was so scared backstage. I was like shaking.

I remember that. Friday night in Owings Mills, Maryland. Is that where they taped it? Yeah. Yeah. None of this Skype shit either. No, none of the Skype shit. You had to go there.

I remember. So you were saying Scott's the best, but what were you saying? Well, I was making the point that Scott will force the conviction out of a guest so that they actually say something meaningful for the audience. He does that really well But Haynes did too. Haynes did too. Haynes did it too. That's right.

Haynes did it too. Shout to the judge. Yep. All right. So if you feel like just to kind of button this up and then we'll move on. Yeah. But so you agree with me. Whatever comes out next Tuesday, the 13th, that's really going to be meaningful for psychology, for positioning.

Like people are going to have to say, do I really want to stick with this recession shit now, or this, this bearish point of view, or do I want to rethink that? So I said earlier about, it's all about inflation, right? But do you know, do you know what's going to come out? Well, you know, earnings still might suck. You're still going to see that you're, that's going to be the narrative. It also might still be true. Of the bearish narcissists that they create. They're nihilists. You're in for it.

You're in for it. Did you have fun today on the show? I did. It was amazing. You know, I wanted to be sooner when I got the invite, but, you know, God's got a plan, and this is all part of me being here. The timing is awesome. The timing is amazing. and this is all part of me being here.

Timing is awesome. Timing is amazing. So, all right. So I think your research is great and I think you have a really great way of delivering it. Absolutely love it. I know you don't write publicly because you write research for the bank, but is there a place that you have ever considered

doing something a little bit more publicly like a Substack or LinkedIn? Do you have any interest at all in putting stuff out for everyone else or not really? It's a great question. We do because of... You've thought about it, right? Yeah, of course. You're a good writer. Thank you.

We do publish... We do put up... We're allowed to put up two media links every week on LinkedIn. All right. Well, listen, it's better than none. So we're putting yours up. So thank you very much. Awesome.

So no, we're humbled to be here. But no, listen, when you write for so long, and I have a great opportunity to travel around the world and talk to people, if you have conviction in how you present, you should be able to write. And if you're able to write, you should be able to present that. Period. I remember when I was interviewing for a big sell-side job in 2002 here in New York, and they told me, you come work for us, you'll never write again. I said, guess what? I'm not taking the job. Yeah. How do you know what you think if you're not forced to commit it to paper? I feel like that's an integral part of investing is being able to communicate why you feel a certain way. Absolutely. And I think, you know, I've used the word humble a

couple of times and, you know, I've been humbled several times in my career. I've lost my job three times and it's, it's amazingly, I knew, I didn't know the first time I knew that I knew number two and number three that were coming, but, um, it's amazingly humbled. And I think this job is the coolest job in the world. Coolest job in the world. And it makes me- Why? Because everything changes every day. I love managing chaos. I love it. And I love fixing things. I'm a truth seeker. I love to figure stuff out. And I've done that my entire life. And it's served me well to have this job. And you don't, I would never want to be, I've been offered to be like an industry analyst early in my career. I'm like, why would I just want to cover 20 stocks where I can cover the entire market? And so that's

what I based my entire career on. But more than anything, I love being right, baby. I love being right. I hope you are right. I love being right. But I love also seeing people's faces on when I make them money or explain stocks. I mean, I don't think, I come from a different generation of strategists. I don't think strategists nowadays know how to tell stories. They don't know how to tell stories and themes on why you buy things. And that's why we- Because they get mocked for it. Because quant is sexy now. But the bears are sexy. They're so eloquent and they can have all these great charts

and this analysis. And bears are smart, but bulls make you money. By the way, they're usually British and Canadian, the Parma bears. And I found that as well. So I saw Rosenberg, David Rosenberg, my very good friend and former colleague

at Merrill. And I was having a beer with a broker. When did you guys work at Merrill? You worked, was Rich... Rich was my boss. Okay.

So it's Rich Bernstein, you and Rosenberg all at Merrill at the same time? Correct. That's f***ing crazy. Oh, it was,

that's why you asked me earlier. What was my best... Tell me that era. 2005 to 2009. It's like three of the smartest people that have ever worked at Merrill. Oh, you guys were all's why you asked me earlier. What was my best? What era? Tell me that era. 2005 to 2009. It's like three of the smartest people that have ever worked at Merrill. And you guys were all there at the same time. It was amazing. And to be at the table with all these people.

And Savita was somewhere too? Savita sat next to me on one side, Marianne Bartels on the other. She was the technician. Now she's the strategist. Yeah, she was the technician. But the coolest thing about Merrill was you always had to be on. You didn't know what question was coming your way. And it was an amazing experience.

So a couple weeks ago, I was in Toronto having a beer with a broker. And I said, you know, watch this. Rosenberg's sitting over there. So I go over to Rosie from behind, and I give him a big bear hug. And I kiss him on the cheek, and I go, hey, Rosie, baby. He starts screaming, it's gotta be Belsky. We are so diametrically opposed. I was gonna say, you guys are like the,

he's like the bizarro version of you or you're the bizarro version of him, like you're complete opposite. But there's mutual respect because I would never be able to spew out macro data like this man. The man is prolific and he would never be able to talk about why,

the thematic reason why I want to own Apple or Netflix or why I like the big banks versus the real. He can't do that and he respects that and he lets me do my thing.

Right. So that must have been quite a time and Rich was the boss. Rich was the chief investment strategist. I did US and sectors. Savita was quant.

It was an amazing time. I'm a big fan of Rich's stuff. I get his stuff once a month. It's like always very refreshing. He's still at it. He's still doing what he does. time. I'm a big fan of Rich's stuff. I get his stuff once a month. It's always very refreshing. He's still at it. He's still doing what he does. It's easy, too, because you have that passion. You love your job.

He's done a good job morphing into the money management thing. He's had such a following in the retail side, as I did as well. Rich really allowed me to do what I did. You know what I noticed? I'm glad you said that. Like when you bump into former Merrill people, they still worship the strategist that was there when they were there because that was the story they told to their client every month. Well, they would say, well, let me tell you what Belsky is saying. And like they continue on and follow that person's work no matter what bank they end up going to. Do you find that?

Very much so. I was there four years and I'm still Brian from Merrill. Yeah. And people still remember me from Merrill Lynch. But that's cool because – It's super cool. Because Mother Merrill is always going to be – even though they killed the brand, which I still will never understand to this day. But that's still a little bit of a badge of honor on the retail financial advisor

side. I worked at Merrill. I got 15 emails from Merrill Lynch brokers. Yeah. They remember you. Yeah. From, from just, and they have your back to this day. Of course they do. Yeah. Just don't f**k up your earnings estimates. Well, listen, I, you held your, you held your own and you always do. And certainly on this show as well, this is the part where we're going to do favorites and then we're going to let you get out of here and go to Tel Aviv or whatever you're doing. Michael, you're up first. Our friend Kai Wu, who's been on the show before, did a post. What did he call it? He called it Liquid Venture Capital, where he reconstructed a venture capital portfolio using publicly traded companies. And he did a killer job. I'm just going through this one chart.

Wait, what does that mean? I'll show you. Okay. Is the chart going to be like a stamp size again? Look at this. So the red line is Cambridge Associates US Venture Capital Index. And the green line is what he was able to replicate

using publicly traded stocks. Pretty wild, right? Yeah, how? Using patent data and market cap and earnings growth and all that sort of stuff. But the thing that I thought was so interesting in this post is the following. Of the 1,495 U.S. venture deals in the first half of the year, only 4.9% have been a down round. Look at that.

No down rounds yet in venture capital. How is that possible? They're just not doing it. Or they're not reporting it? No, no, no. They're like, here, just take this money and we'll put out a press release later. These are of the rounds that have been reported. Only 4.9 have been down, which is a historic low.

Wow. So- I would have thought that would be so much worse by now. Not yet. It's coming. It's got to be coming. There's no SPACs to take these things. Unless it's a secular bull market.

Anyway, read that piece from Kai. It was excellent. Sparkline Capital. What do you got for favorites? Book, movie, TV show, piece of research, podcast. What are you into these days? Everybody always asks me what my favorite investment book is. Yeah, that's what we want.

Has nothing to do with investing. Okay, great. It's called The Art of Contrary Thinking. It was written by Humphrey Neal. And it talks about thinking differently. And I based my entire career on that. When was it written? I think in the 1920s or 30s.

Still relevant? Yes. More relevant than ever. More relevant than ever. That's why I love to pick on consensus. If everybody says this color bottle's blue and they believe it, it's actually really green. Isn't the consensus sometimes right? Or is it like, it's good to be contrary all the time? Does that always serve your interests? So great question. It's always right to be contrarian if you have the analysis to back it up. Okay. If you don't, then it's wrong.

Okay. You know, like being, focusing only on the Cape Shiller. Yeah, no, that's wrong. Okay. You know, like, focusing only on the Cape Shiller? Yeah, no, not me. That's contrarian. It won't catch me doing that. Oh, by the way, it's wrong, though. Right? You can be contrarian and believe that, or you can be like Sock Jen,

who's always bearish. You see Grantham, Super Bubble, and Barron's puts it on the cover. They love it. Barron's, I think, calls him and says, please just say some crazy shit. Please. Every time that happens.

We don't have a feature story this week. Every time that happens. How many people send it to you? Three, four hundred. But you can't dislike Grantham because he's so eloquent. We need him. And we need him.

I need him. Okay. He completes me. What if he's right? No, I'm just kidding. All right. I want to talk about the Howard Stern show

came back from summer break and his dad died this summer. And he spent the whole show. And like for Stern listeners, Michael's like a Howard Stern super fan. He's been mocking his dad and his dad's voice and his mom for, I don't know, 40 years on the radio. on the radio but he like really spent like two hours or so like picking apart not in a good way like dissecting his relationship with his dad and they were not like really close but they were really close and uh this whole story where his dad had a glass eye his entire life and never talked about it once like never once complained about it never referenced it nobody around him would ever reference it it was just like one of those things that people from that generation um

stubbornly lived with and you would never hear a word about it and i just thought that whole anecdote was insane um but i just thought like the way that was handled on the air like howard stern being very serious and i thought it, it was like beautiful kind of. So I almost called my dad after I didn't, but anyway, if you have the XM serious app and you're, you're a subscriber, you could find that episode.

It's from Tuesday of this week. It was Tuesday show. All right. That's all I have. What are we doing at the end of this today? Anything? It's future proof is four days away. Are you, Are you like-

Duncan, you've been awfully quiet. We'll be doing a live show. Well, what are we doing though? We're doing live Compound and Friends show? And Animal Spirits. And Animal Spirits. Wait. Is our show with Cheryl going to be up on Friday?

That's the plan. Yeah. That's the plan. So it's not live. But Animal Spirits, you are doing live. No, no, no. We are doing it live. No, I mean, so it's not live but Animal Spirits you are doing live no no no we are doing it live no I mean

so it's live like like an album is live okay you know what I mean but you can't actually do a live podcast you have to actually hit publish on it

once it's recorded right we're saying the same thing yeah yeah live to tape we're doing it live in front of an audience live to tape

we're doing it live in front of an audience live to tape do you have a guest for Animal Spirits or it's just you and Ben it's just me and Ben okay so you're doing it live in front of an audience. We're doing it live in front of an audience. Do you have a guest for Animal Spirits or it's just you and Ben? It's just me and Ben. Okay, so you're doing that what day?

Tuesday? I believe it's Tuesday. When are we doing the Compound and Friends? Also Tuesday? Later in the day, yeah. Michael's doing eight podcasts on Tuesday. Anyway. Michael got me a Tropical Bros shirt.

I saw. We're going to have a great time at Future Proof. For those of you that are going, congratulations. You're going to be at the biggest wealth management event of all time. And can't wait to see you there. If you're not going, no FOMO. We'll be recording all our shows. We have great guests.

We're going to have a lot of fun and you guys will get to watch it on YouTube, listen on the podcast. So look for that. Thank you so much to Brian Belsky. This was so much fun. We could have done hours with you, dude. Like, we've got to have you come back. I would love it.

What are you doing tomorrow? Too soon? Too soon. Can we – no, but all kidding aside, can we have you back in December so we can see how accurate you were? Or if not, what might have gone wrong? We could do that. I would love it. We would love to have

you back then. Hold the feet to the fire. All right. Nicole we'll email you eventually. We'll set that up. All right.

You're the man. You did a great job today. I appreciate it. We appreciate it. Compounding friends. We'll see you guys next week.

Thanks for listening. So that was a good warm up.