The Compound and Friends - The Bottoming Process

Episode Date: October 3, 2023

Join Downtown Josh Brown and Michael Batnick for an all-new episode of What Are Your Thoughts and see what they have to say about the biggest topics in investing and finance! On this show they discuss: rising rates, the utilities crash, what Twitter/X is worth, consumer spending, and much more! Thanks to Birddogs for sponsoring this episode! Visit https://www.birddogs.com/THOUGHTS for a free white-tech dad hat with every purchase! Watch this episode on YouTube: https://youtube.com/live/BOQqmuuuOwE Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to the Compound and Friends. It is Tuesday night. I wanted to mention something that I thought was really well done. Cliff Asness of AQR did a piece in the Wall Street Journal talking about why he is not going to waste his time seeing the dumb money. And I think he just like looked at that period of time as this complete aberration. And I totally understand that he's a quant and he's trying to make intelligent investment decisions backed by data and information and not feelings and innuendo. So I'm not surprised that

he's like not into the whole thing, but he corrects. A lot of people talk about this concept of the wisdom of crowds. So if you have like 5 million meme traders, doesn't it mean that the stocks are being priced? It's a huge crowd pricing the stock. Therefore, there should be some wisdom in their pricing it. And it doesn't quite work that way. And this is Cliff delineating between the two things, a mob and the wisdom of crowds.

This is Cliff, quote, we often correctly marvel at the wisdom of crowds, but this phenomenon is based on the crowd's members being reasonably independent of one another. Think about how effective polling the audience is on who wants to be a millionaire. It works only because members of the crowd don't talk among themselves. If they were to launch into fiery speeches, weighing the multiple choice answers, you'd

likely get a much different and worse result. Crowds of independent thinkers are often very wise, even if each individual isn't. Crowds that share information and come to a shared conclusion are often, though not always, dangerous mobs. In the meme stock craze, as in our politics and elsewhere, the internet seems to be a perfectly designed vehicle for turning a crowd of independent thinkers into an angry mob. Very well said, Cliff. That is the difference.

If everyone is doing monologues and threads on Twitter and firing each other up on Reddit, that is no longer a wisdom of crowd situation. That's a mob of people who all think the same thing and most likely want to do the same thing. In the case of meme stocks, it's buy until they moon. One other thing that I think is important to bring out, this doesn't make it into the movie. I wouldn't call them villains, but the antagonists of Roaring Kitty and the meme stock traders have never been richer than they are right now. And that's not a coincidence or an unrelated thing that happened directly proportionate to how stupid the trading activity was. They were on the other side of some of the worst and least profitable activity the world has ever seen.

And I just want to quote this. This is Business Insider, but you can read accounts of this anywhere you'd like. Citadel boss Ken Griffin made $4.1 billion in 2022 as all those meme stock trades went up in smoke, that is the most money made by any hedge fund manager in history. So Ken Griffin was number one on the institutional investor list. The Citadel's flagship fund, which is not all engaged in market making or meme stock trading, but I'm just making the point. The Citadel flagship fund went up 38.1% in 2022, while the rest of the stock market absolutely was destroyed. The top 25 hedge fund managers on the list made $21.5 billion last year

collectively. That is the third highest total for the top 25 hedge fund managers in the history of this ranking. But Ken Griffin taking home $4.1 billion is really incredible. So if you think that Roaring Kitty and the meme stock traders took on Wall Street or whatever, then you really don't understand how it works. You're talking about millions and millions and millions of trades with smarter money on the other side of most of them, not all of them, and market-making activity that was some of the most profitable market-making activity of all time. And that is not to say that Gabe Plotkin's life is as good as it was. Maybe they knocked him out of the game. His punishment is he now owns an NBA franchise instead of running Melvin Capital. So if you consider that his comeuppance, I guess you could

do that. But overall, the really important thing about just the whole phenomenon, now that we're making movies about it and lionizing some of the figures involved, is that Wall Street is just fine. They made an absolute fortune on all this activity. That's number one. And number two, just because you have a really large group of people doesn't mean that's the wisdom of crowds. If those people are all egging each other on to take non-economic views of securities, for example, and do things for reasons other than traditional finance, it could last for a month. It could last for three months or six months, but it is not going to be a particularly profitable activity the longer you try to pursue it for. And I think those are the two biggest takeaways from my

perspective, at least. All right, we have a great show tonight. What are your thoughts with Michael Batnick? We get into a lot of cool stuff. The consumer is still spending with reckless abandon. Bond yields are headed higher. Stock prices are headed lower. Utilities have been absolutely thrashed. REITs are getting crushed. We talk about a hypothetical barbell portfolio versus traditional diversification. Michael brings a couple of mystery charts. It's a lot of fun. Stick around. Hope you enjoy it. And we will talk to you soon. Welcome to the compound and friends, all opinions expressed by Josh Brown, Michael Batnick,

and their classmates are solely their own opinions and do not reflect the opinion of Redholz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. All right, gangsters. Tuesday night. Who's in the house tonight? Let's see.

Mike Waller is here. Michael Batnick's here, of course. Joe Monroe. Jeff Osala. Rachel's here. Dave Wilson. Drew Hickman is here. Who else?

Got the whole crew out tonight. Rooster, Chris Hayes. Tom Whalen is here. Talking shit about Michael to start the show off. That's good. We like that energy. Bring that energy. I don't know.

Talking shit. I don't know. I don't know. Surely, right? You haven't even said anything yet. Yeah, let me cook. Tough crowd tonight. Tough crowd. All right, we have a sponsor. Michael, right? You haven't even said anything yet. Yeah, let me cook. Tough crowd tonight. Tough crowd.

All right. We have a sponsor. Michael, tell us about Bird Dogs. It's dog season. You know, I actually, Barry texted me this morning a picture of a storefront. He's like, Madison and 54th. Do you know that? Bird Dogs is a storefront. Oh, really?

Yeah. Oh, what was he doing on Madison and 54th? Probably going to Bloomberg. Brunching? Oh, really? Yeah. Oh, what was he doing on Madison 54th? Probably going to Bloomberg. Brunching? Oh, Bloomberg, right. So, you know, it's that time of the season where you've got to wear long and long, or maybe long and shorts. Longs and

shorts. Pants and shirts. But you want to be comfortable, too. Boom! Stretch khakis. Josh, should I rock those? Let me see. What are these? Oh, I like the Jeff Pesos one. Is that the color or the style or both? I think I have the Pesos. You have those?

Phil Gates. Those are pretty nice. What's your favorite color of the bird dogs that you have? I've got the khakis and I've got the blacks. I'm not really a khaki guy, but I feel sort of out of place wearing khakis. I feel like the blacks would be your go-to because you have a lot of black sweatshirts,

a lot of black hats. I feel like that would be. All right, so how do people find out more about bird dogs? What are we saying? It's very simple. Birddogs.com slash thoughts. Birddogs.com slash thoughts. And I'm told the consumer is still spending. So if that's the case, get yourself a pair of dogs. Yeah. Buy some bird dogs. All right.

The consumer is still spending and actually I have one more quick announcement. We have a lot to cover tonight, but I wanted to mention, I threw this out last week. We are coming to Charlotte, North Carolina. We are doing a live taping of The Compound and Friends. We have some very special guests lined up or in the process of being lined up. And I'm announcing the venue tonight. The venue is the

NASCAR Hall of Fame! Is that you? Nice. So we'll be at the NASCAR Hall of Fame. Sorry, enough. Let me get my shit off So we'll be at the NASCAR Hall of Fame. Sorry, enough. Let me get my shit off. We'll be at the NASCAR Hall of Fame for an all-live, all-new taping of What Are Your Thoughts?

All live. Slash The Compound and Friends. We're going to have a lot of fun that night. And spots are limited. Only 100 spots. So we have not yet put out the information of where you can register. Send us an email, the compound show, ask the compound show at gmail.com. And you will be among the first to hear about how you can attend live taping in Charlotte. All right. First things first,

you're up. You're, uh, you have topic one tonight, Mike. What's first things first. You have something to say or is it my turn? You're up. You're up. You have topic one tonight, Mike. What's first things first? You have something to say or is it my turn? No, you're up. All right. You're up. You're damn right. First thing is first. Try it on, please. So we did this last week. Disgusting. It's worse. We did it again. Not a particularly pretty day on Wall Street. The Dow fell, whatever it fell. The Nasdaq fell, whatever it fell. A lot of red. The utilities bounced. Even the telecoms, Verizon and AT&T. And the oil majors bounced.

Exxon, Chevron, Conoco, Green. That's how you know it's bad or good, we'll say. All right. We're going to talk about- It's gone too far. What else is selling? Everything. So this is selling? Everything.

So this is the new math. Every time the 10-year treasury yield goes up 2%, the Dow loses a trillion dollars in market cap. Like, this is what we're doing. It's too far. You know what? I think it's actually a good thing. The VIX got over 20 today for the first time since. And then back off a little bit. Since May.

It's been too long. It's been too quiet. The VIX got over 20 today for the first time since May. It's been too long. It's been too quiet. And the old saying is that stocks climb a wall of worry. And sometimes you need a little worry. Without worry, there's no wall. I think we bottom in October. I think we bottom in October.

Well, I said on Animal Spirits today, I'm bullish for the rest of the year. Well, it hasn't been published yet, so I haven't heard that. But I think we're in this bottoming process and it's going to be driven by turnaround yields. You can't say we're in a bottoming process. No, this month. I'm saying in this month. This month. No, we've been in a bottoming process for six weeks. No, no, no.

Yes, we have. No, it's not, son. How can you say it's a bottoming process when we're still clearly going lower? There hasn't been any such thing. There's been no hammer. How can you say it's a bottoming process when we're still clearly going lower? There hasn't been any such thing. There's been no hammer. There's been no higher low. There's been nothing. This is not a bottoming process.

We're going down. Dude, we didn't take out the spring lows. Erroneous. This is not a bottoming process. What do you mean erroneous? Did we take out the spring lows? This is not a bottoming process. Stocks are going lower.

You're moving the goalposts. Stocks are not bottoming. I'm saying it's processing. the spring lows this is not a bottom are we making are we making are we making lower you're moving the goalposts stocks are not bottoming i'm saying they'll bottom when they stop going down it's a bottom we agree on that they will bottom when they stop going lower and not a minute before don't bully me it's a bottoming process is all i'm saying if we take out uh spring lows you would not be able to say it's a bottoming process. You would have to say, oh, we haven't hit bottom yet. I think we bottom in October and we're in the midst of a process by which we do so. I really don't think that that's... Why is it so controversial? Dude, a bottoming process is not... You can't just make it up and say this is a process. It is a process.

We're at multi-week. Bottoms are a process. Bottoms are a process. They will be a process. All right. Bottoms are an event. Stop filibustering. Let's get to it. So rising rates, we've been talking about them for a long time. Why aren't they hurting the consumer more? Why aren't they hurting corporations more? What's taking so long? Well, they're hurting now, by the way. Oh my God. Interest rates are going absolutely vertical. The 10-year result- I mean, this is crazy. It's bad. It's bad. It's bad. Oh, by the way, remember the insolvency on regional banks' balance sheets?

What do you think they look like now? Not better. How many billions of dollars in unrealized losses are mortgage holders sitting on? Who's buying those bonds? Oh my goody lord. I read last week Bank of America, probably one of the two most important banks, I don't know, in the world, is sitting on like a hundred billion plus in upside down. I think it's just mortgages. Can't just be mortgages, right? It's a lot of mortgages. Oh yes, it can. Of course it

can. Whatever. So I don't want to alarm people. It's a $3 trillion overall portfolio. And with the banks, they have a held for sale or a held till maturity portfolio. The held to maturity portfolio, the mark to market losses or like the paper losses are just reported differently than in the portfolio where they're holding securities that they might sell at any time. So if they label something as being held to maturity, they get a little bit more leeway. But still, so they could say, oh, we're holding these mortgages until forever. We're holding- 2046.

There's 17 years left on this mortgage. We have no intention of selling it. Therefore, you're welcome to count the drawdown in the bond price as a loss, but it's not actually going to be a loss. So they can say that and they do say that. But the bigger that number grows, the more hilarious I guess it's going to be to just have these massive health and maturity portfolio losses. Anyway, regional banks look like junk again, like just absolute junk. I guess it's going to be to just have these massive health and maturity portfolio losses. Anyway, regional banks look like junk again. Like just absolutely junk. Yeah. I mean, that goes without saying.

But I think there's a distinction there that's worth understanding. Agreed. OK. So there was an article in the journal. So again, getting back to the topic at hand, why aren't interest rates hurting the bigger stocks? We spoke about this a million times, how they locked in rates. They gorged on rates in 2021. Well, it is hurting some companies. So from the journal, Petco took

out a $1.7 billion loan two years ago at an interest rate of around 3.5%. Now it pays almost 9%. So the interest cost them 5% of free cash flow when they took this out. Now it's a quarter. free cash flow when they took this out. Now it's a quarter. Try it on, please. So Petco is in red. Haynes Brands is facing a similar situation. I mean, not good. This is not good. Now, there is some stuff that they could do. They could refinance the debt. They could pay it. No, I'm sorry. They can't refinance it. They could pay it down and they have some flexibility there. But this is any way you slice it. This is not great. Getting back to the- Wait, wait. When you see this, does this to you, does this explain why the Russell 2000, which is the area of the market where they need to borrow the most and the most frequently and on the worst terms?

It explains that underperformance. It's as clear as a bell. That's it. You don't need to be a detective. Like that's the chart I was- If someone is like, oh, small caps are diverging. Yeah, dickhead. Look at the interest rates they're paying versus two years ago. Why wouldn't they diverge negatively?

What do you think is going on out there? So higher-rated companies on the other hand, Gunjan tweeted, earnings growth has outpaced debt buildup for higher rated companies. Pretty remarkable. The median total debt to EBITDA ratio for companies rated investment grade fell in the second quarter. Fell. That's crazy. higher. So the higher rated companies that are issuing a lot of debt, they're still better off than they were because of how much their cash flows have been able to grow. But what companies are those? That's like S&P 50? Yeah, it's the mega ones. It's the mega ones. I know we've

mentioned this chart several times now, but it really is remarkable. The net interest expense. So how much are they paying in interest versus how much interest are they earning? For non-financial companies, it's going lower. It's amazing. Yeah, the cash is earning more than the debt is costing them. And you have to assume that can't go on forever. But I think for certain companies

with certain cash flow characteristics, it maybe can. I mean, where does the Fed have to take weights to for – you know what I mean? Because they have pushed out their maturity so far for so long and they've – like you think about a company like Apple. They have been professionally managing this cash balance for over a decade now, like thinking a lot about it, hedging, et cetera. So it could go on for longer than we think. Does Apple have more cash than debt? Like literally? Yes.

Ryan Dietrich tweeted, triple B spreads are at their lowest level this year. That is simply shocking if all you followed was the headlines. What is it saying? Likely there isn't a major monster under the bed and this is normal seasonal weakness after one of the best starts to a year ever. So this chart was from last week and I went to look today. Surely this must be blowing out a little bit. Nope. No, it's not. It's 1.54%. Still very little stress in the credit markets. 4%. Still very little stress in the credit markets.

It's incredible to me that you're only seeing 150 basis points in yield over effectively risk-free money in that part of the market. I'm trying to think of who the buyers are besides blind asset allocation. There are just people that they have corporate bonds as a sleeve and they're buying them no matter what the fundamentals are. I suppose that's a large enough part of the market that it's meaningful, but who at the margin is making the active decision that what they really want right now is sub-investment grade corporate credit? Dude, it's a great question. It's a great question. On the one hand- Is it someone who was short and is covering?

I can't- No, no. On the one hand, it's hard to be blasé about all the risks out there. And there are a lot of them. On the other hand, okay, I know the risks. You know the risks. Everyone listening knows the risks. No, I guess. And so I would point to the credit markets who-

But you're not getting paid a risk premium commensurate with what you would typically want at this stage in the cycle. No shit. That's the point. Do you think the market is that dumb that if there was something really bad? And I'm not saying the market is clairvoyant and always right. But there's not a lot of stress here. So the headlines are scary.

The price action in stocks in certain areas in particular looks awful. But maybe this is, not maybe, this is probably on the tail end, hopefully of seasonal weakness, which we'll talk about in a second. And also interest rates going vertical is not helping things. Like it's just not. All right. So the last four Septembers had all been bad, negative 4%, negative 5%, negative 9%. And then I don't know what it was this year, negative six, something like that. Yeah. Negative 5.5 or something. So I don't know why September sucks. It just does.

It's by far and away the worst month going back 100 years, 20 years, 30 years. However you slice it. I could explain when you're ready. Okay, go ahead, genius. No, I want you to finish your thought. This is interesting to me. All right, so show us what happens after these last four Septembers or last week. last four Septembers or last week? So the last three fourth quarters following week September was very strong. Whether or not this time happens, the same thing happens, we will see. Please tell

me why the markets are weak in September. Do you know what the strongest month is for the markets? Because it's going to answer the riddle. Do you know? January. December. No, it's a good guess. I might've guessed January had I not been in possession of the actualdle. Do you know? January. December. No, it's a good guess. I might have guessed January had I not been in possession of the actual data. That is very condescending. That is very condescending. No, it's not. It's not meant that way. The best month of the year. All right. Let me tell you how bad September is. It is the only month going back 94 years that has a higher than 50% chance being negative the only the only it's that bad the best month is april and i just want you to think about like like human nature and

actually all animal kind all flora and fauna i want to no, no, no. It has to do, I'm giving you like science and then you could like, you could be like, yeah, whatever. But science, Cliff Astin has never said this. Stop clearing your throat and say something. Okay. What I'm going to say is this. April is when finally, after we get through the long winter and the darkness and the shortened amount of daylight and the cold and the misery

and being trapped in a house. April is like the first moment you start feeling good about like where we are in the calendar. And I think that that engenders the right type of animal spirits and people just start to feel more optimistic again. They start making plans for the summer, spending a little bit more time outside, a little bit less afraid of risk. You're describing the Northeast. Yes, I agree. Okay. Well, the Northeast is Boston, New York. Historically, that's where the money is, is Chicago. Okay. September is literally the opposite. The days are getting short. Yes, it is. Yes, it is. Great. Days are good. The kid, nope. The kids start school. The kids start school. The sun is out.

Less hours. I reject your science. If it was a weather thing, then February would be the worst month of the year. I have seasonal disaffected disorder. I'm speaking to you from experience. I am less bullish every September. Not just on stocks, but on life. Just like, I don't want to do anything.

I don't want to take any risk. February is the most depressing month of the year. That's when to do anything. I don't want to take any risk. February is the most depressing month of the year. That's when hospital visits spike. I don't know if that's true. I hope it's not true. But February is the worst month of the year. So just stop it. I have a disease, Mike. I literally have a disease. It's seasonal

affective disorder. You are wasting the viewer's time. Thank you for that. All right. What were we saying? Let's keep it moving. Where were we? I don't know. Oh, we were just going through seasonal stuff. Let's do it.

We just did. We have a chart. Annual performance of iShares Core U.S. Aggregate Bond ETF. Let's post this up. Could be the first time ever. Three negative down years. And even if you go back to, you know, 1874.

Oh shit, look at this. Pretty wild. Losing money in the Barclays Ag three years in a row. Man, that's probably going to be the buying opportunity of all time in some area of the curve. I'm not sure where,

the five year maybe? I don't know. Like, how do you, if you, if you think this is it, this is as bad as it gets, where do you go crazy as like a bond market? Uh,

like as a trade, what do you do? Well, I think the, you know, like the, the, what's that mean with the barbell?

You've got like the Jedi and then the Dumbo and then the person in the middle. I think maybe, maybe the answer would be the most duration is where you get your most bang for your buck, but I don't think that's true. No, I don't either. Because it could be the belly of the curve.

If the curve starts to... I'm doing things with my hands that the listener can't see. But if it flattens out or goes some sort of direction, what is this, a butterfly curve? I don't know. Yeah if it flattens out or goes some sort of direction, what is this, a butterfly curve? I don't know. I don't know.

Yeah, it's a butterfly curve. Put up the small cap chart, John. This makes perfect sense to me. Small caps falling faster than their larger counterparts. The Russell 2000 went flat on year at some point late September. Tiny bounce. I bet it's right back there. This has less to do with economic sensitivity and growth prospects. It's just that. It's just interest rates. That's all this is. And maybe a little bit of industry exposure,

maybe a little bit. There's just no tech companies in this Russell that are meaningful versus probably a little aspect of that. All right. Put up emerging markets. Well, this looks like ass. I mean, the dollar is a wrecking ball. Yeah. So emerging markets are negative 5% since April of 2023.

The S&P is still hanging in there up high single digits. What else we got? What's the next one? Youth of the Sun. Yep. Dividend versus treasury yields. It's crazy to me. So what we're showing is the S&P 500's dividend yield is fairly consistent around 1.7%, 1.8%. There have been spikes in the past that mostly coincide with falling stock prices. The most notable example in recent history would be the COVID panic.

Most dividends were not cut, but stock prices fell through the floor temporarily. And then we're showing you the difference between the S&P 500 dividend yield and the 10-year treasury yield. And it is at the lowest level today that it's been at since 2007. So just a huge spread between the treasury and the dividend. So what that's showing you is that bonds are attractive compared to stocks. And yet, the S&P 500 is up 13% or 11% year to date, even after this pullback. But of course, that's being driven by the big seven. I had Nick Majuli make this chart.

Wait, hold on. One more comment on that. There are only 30 stocks. This is from the journal. There are only 30 stocks in the S&P 500 that are currently yielding more than a six-month T-bill. So even for hardcore dividend investors, this environment presents like a little bit of like a mental challenge. At the end of 2021, before rates started to rise, there were 379 S&P 500 companies that paid a higher dividend yield than the six month T-bill. So it's a really

big difference now. I'm not saying everyone's going to sell all their dividend stocks. It just makes it a hard, to me, makes it a harder choice. Do you know what the 10-year yield averaged in the 90s? Yeah, like six and change, I think, right? It was 5.2%. And it was one of the best decades ever for the stock market. Now, of course, interest rates didn't go from zero to five, right? So it's not apples to apples. What was I saying? Oh, so the S&P is up 10% of the year. The NASDAQ is up 25 or 30 or whatever the hell it is, despite this. But I had Nick Medjooli run these numbers for me. Go back to when the Fed started raising rates. So I did this last week.

Have you brought it down by market cap? And it was the big stocks that are outperforming. That chart looks the same, but even more stark. If you break it down by price to sales ratio, or I think forward PE shows the same thing. If you break it down, the wealth is 1,000 by decile. So each decile has 100 names in them. What was the median return for the most expensive decile all the way through to the least expensive? The most expensive decile, the median stock is

down 18%. And the cheapest stocks are up like 2% or 3%. So even though rising rates hasn't impacted the index, it has absolutely wrecked a lot of companies inside of the index. Which it's supposed to, right? Yeah, yeah. That's exactly the stocks that you would expect to get hurt the most are the longest duration assets in the portfolio, no different than- And the most expensive. The most expensive, right.

So their cash flows are far out into the future and you're paying a lot for them now. That's where you're giving up the most if you're riding through an environment like this. That actually is exactly what you would have guessed probably, right? Let's talk about utilities, which by the way, I bought utilities. I still own them. I think I'm down like 11%. I just sold out of one down 22%.

It's one of the worst stocks I'm in this year. I sold this New Era Energy. Man, did I get pancaked in this. Utilities, it's 2008 for utility stock investors. I don't think I'm overstating that. 47% of the names in the XLU, which is the S&P 500 utility index, are making 52-week lows. It hit 60% last week. That's a higher reading than at any time during 2022 when the stock market itself was actually crashing. The only time there's been a larger percentage of 52-week lows in the XLU going back to 1999 were the following years, all bad years, 2001, 2002, 08, 09, and 2020. Outside of those years, you cannot find this level of negative underperformance for the utilities. They are just

being absolutely pancaked. The current yield for the whole index is 3.77%. The lowest yield on the curve right now in terms of bonds is the 10-year, which is 4.78%, which means if you owned utilities predominantly for the dividend, you have never had an easier choice to make in your life. You can lock in 10 years, 4.78%, zero volatility, excuse me, zero risk of a permanent loss provided you could deal with whatever volatility and significantly less volatility than you would get holding even the most conservative publicly traded utility equities. That is a really shitty situation for this sector. And maybe it's about to lead to really big opportunities. But I have to tell you, I was looking at the VNQ today. That's Vanguard REIT index.

That was crashing through a 52-week low also. It is just really, really tough out there for income investors utilizing equities to get their income. Do you have anything you want to say on this? What are your thoughts? I have lots to say. John, let's start with my chart, net debt issuance. There's a few reasons- Sorry. One last thing. The median year to date utility drawdown median is negative 18%. That's incredible versus an S&P that's up 10. That is really a notable negative divergence. All right. I'm sorry. Go ahead. All right. So chart off, please. Real quick. Thank you, John. So let me set this up. I've got a bunch of charts coming. So not only are utilities competing for investors' attention with the income, because that's what they are. They're income-producing assets.

Why do this? You Italian now? Because I'm about – this is on the one hand. Did you say the income? This is on the one hand. That's a meme. And bond interest rates on the other hand. Oh!

Okay. Oh, okay. So not only is that happening, but also utility companies are huge issuers of debt, or said differently, huge borrowers. So they're getting double railroaded. Okay. With that said, let's run through some charts, John. So this is net debt issuance of Russell 1000 companies or Russell 1000 utility companies, excuse me. And it's just, you know, it's a lot. It's a lot, a lot. Next chart, please. Hold on. Can you go back? This is the net debt issuance of all of the utilities in the Russell 1000. And it's, I'm sorry, is this $80 billion a month? No, it's, I think it's, uh, it's just rolling. I think it's trailing 12. Okay. Got it. Trailing 12. Okay. It's a bit, I mean, whatever. It's a big number.

Whatever. It's a lot. It's a lot. Okay. So how does this manifest itself? Well, it's not great. I'm showing you the net interest income, or in this case, expense of three of the largest net interest income, or in this case, expense of three of the largest utilities. And I mean, look, this impacts the bottom line. Oh, just a tad, right? Oh, just a tad. Oh my God, what a shit show. Okay. So what does the earnings per share of the sector look like? It's not horrendous, but it's definitely not great. What I'm getting is that all the selling is absolutely warranted. Absolutely, absolutely warranted. Absolutely,

absolutely warranted. All right, let's look at the price to earnings ratio of utilities. This is the average for the last, since January- Yeah, it's like 17. I think it's 14 forward. It should be like 12 and 10 forward. Yeah, yeah, sure. I think. That's where it deserves to be, right? So the average since January 2015 is 21 times. Of course, it definitely does not deserve to be trading anyone near the average in the Zerp era. So where does this get you in terms of dividend yield after the sell-off? Next chart, please.

We're at 3.7%. So certainly higher than it's been over the last 10 years. Not good enough. Not good enough quite yet. over the last 10 years, but- Not good enough. Not good enough quite yet. And if you look at the XLU divided by the S&P, it's trading at an all-time low.

So the price of utilities has never been lower relative to the price of the S&P since the inception of the ETF back in 2000. Finally, if you look at the XLU minus SPY, the rolling one-year returns. It's not pretty. They've been trailing by negative 20-whatever-some-odd percent. So the black line is XLU minus SPY, and the red line is a distraction.

That's the S&P 500 year-over-year return. I know I probably should have just taken that off. But anyway, the point that I want to make, so I bought this a couple of weeks ago. Like I said, I'm down 11%. I didn't buy this for a trade. I had Nick Maggiuli. And I know that's what people say when they panic. But it did look like for selling.

Like massive, massive, massive volume came in. Matter of fact, XLU actually, LOL, finished up 1.2% on the day. There was definitely for selling intraday today, for sure. I feel like there was four selling yesterday. So I kind of thought about it. I was like, what am I doing here? Am I really trying to like – I'm down 10%. Why not just like take a small loss and leave?

You know what? I'm not leaving. You're not leaving? I watched the World for Wall Street. I'm not f***ing leaving. Well, the good news is you're in the index. Let me come with some data. I'll tell you the good news. So from Nick Maggiuli, when utilities underperform the S&P 500 by 20% year

over year, their return over the next year is much higher. The median return is 13%. The average return is 14% compared to 8.4% in all other periods. Okay. And this is, he said, more importantly, this is statistically significant even at the 1% level. So meaning this is highly unlikely to be a fluke. Now, there's good reason why utility is getting killed. If rates stay higher for longer, they probably won't rebound. This is unlike anything that we've seen over the last 20 years. So maybe I'm foolish.

Maybe this looks bad. So maybe I'm foolish. Maybe this looks bad. Whatever. I'm not betting the farm, but I'm in it. If you knew for a fact that the first rate cut was November, I don't think that that's good. But let's say you just knew. Somebody came back from the future and was like, yo, they're going to cut rates. I triple my position.

But I can't tell you what the market does. Would you buy the Qs or the XLU? You could only buy one and you could only be in it for a week after the event. And I said to you, guaranteed, it's a lock. One interest rate cut coming November. The market has no idea. Which do you buy? Utes. They'd be up 4% on the announcement.

You buy the utilities? They'd be up 4%. Is there a leveraged utilities ETF? Maybe that's the one you buy. Or maybe you buy the one that went down the most because that's very on brand for you. Which utility went down the most? Yeah. I'm in the index. So we'll see. But yeah, no, it looks, I mean, this is, this is pretty wild to see a swing like this. That's, that's crazy. And you know what? Berkshire Hathaway, a pretty sizable amount of its business, like its economic business, not its stock portfolio is, uh, their, their utility.

So listen, we're two days- They have not treated that stock like a utility. We're two days into the week. It is Tuesday. It's already done as much volume as basically any week, save for March 2020. So this is going to be the highest weekly volume in a long time. And I thought yesterday felt like for selling. Today felt like margin calls. You finish 1.1% up on the day. This is a bottom process.

John, put up the next era chart. I sold yesterday. The story here is they have they they have have a subsidiary publicly traded mlp they cut the distribution on the mlp got it and the market just like shot first and i mean they just this is a this is a full scale absolute panic and just so you understand this is the largest utility in the country. This is Florida power and light. Okay. This is not like it. This is not like a company generating two gigawatts in the middle of Oklahoma. Like this is literally Florida. So just getting back to the stuff that's, that's tied to interest rates. Yeah. look at PFF, preferred stocks, consumer staples, XLP. Mortgage REITs.

REITs, all that shit. Homebuilders, oh my god. Homebuilders just got wild today. Home Depot. That's a long time coming. Anything that's tied to interest rates, rightfully so, it's just panic selling, as it probably should be. OK.

Lower lows. So sentiment trader. This is a rarity. Try it on, please. What are we looking at here? All right. That is nine consecutive lower lows where the blue is highlighted. So start with that big red bar on the top left.

Lower lows for what? This is the S&P 500 making. This is daily? Listen, let me talk. So the blue oval, on the top left, you've got that big red bar. The next day was lower than the previous day's low. Same thing for the next day and the next day. And that happened for nine consecutive days.

That is rare. Next chart, please. So sentiment trader charted this out. How often do you have at least nine consecutive lower lows? I mean, it happens, but it happened in 2018. It happened in 2011. It happened in 2001. It didn't even happen in 09. I mean, this is pretty rare. It's relentless. What's interesting, we haven't gotten to the VIX spike, so it seems fairly orderly, which, uh, you know, so what, what happens next? There's not a huge, huge sample size, but interestingly,

since 1975, there's been one, two, three, four, five, six, seven events. And three months and six months later, it's been higher every time. And 12 months later, it's been higher every time with the exception of one time, 2001. Do you want to hear what I think? That's why I stopped talking. This is all part of the bottoming process. Put that blue chart back up. Every one of these occurrences of negative – of negative nine – of nine consecutive days of lower lows, every one of these has been representative of the bottoming process of which I speak.

So you've just illustrated why I opened the show with something that I think was really important. This is the bottoming process. This is what it looks like. This is what it feels like. Stop saying that. Every day the sellers come in and they're willing to sell at a lower number and then a lower number. But at a certain point during this process – That's the process?

Yes, that's the process. It's like how Philadelphia got Joel Embiid. Trust the process. All right. Do we want to do anything more on this? That is not the process. Let's talk about Twitter. Trust the process.

Is Twitter worth zero? No. What is it worth? It got bought for $50 billion. It got bought for $50 billion. What is it worth? What's Snap worth? All right.

It's worth $6 billion. I don't know. What do you think? Lindy Ocarino did this hilarious meeting that went viral on social media. I think people just want to dislike her anyway. She was pretty dislikable in the interview. Yeah. She like, I don't, I can't get a read on like what her whole deal is.

Like, is she like a relationship person? And that's why she's so powerful in advertising because she like, doesn't seem that she speaks especially well in any setting on any topic so maybe she's like really good at making friends with like the ceo of colgate and then colgate will pull the trigger on buying all these commercials on tv shows i don't really understand the whole thing anyway supposedly she was like this really big deal ad salesperson in traditional media. And he recruited her and he's basically still the CEO, but she gets to get humiliated by, you know, moderators at conferences.

Julie Borson's a great, by the way. Yeah, no, she's a pro. Julie has been interviewing entertainment people out in LA for CNBC for years, and she knows how to do it. This is Bill Cohan at Puck. years and she knows how to do it. This is Bill Cohen at Puck. Basically, there's $13 billion worth of Twitter debt. It's mostly owned by big Wall Street firms like Morgan Stanley, for example. The value of this debt is wholly dependent on the likelihood that Elon Musk will be able to pay it back. But somehow, they're still making these $1.2 billion annual interest payments in the form

of quarterly interest payments, just like any other bond. That's pretty impressive that somehow they're able to pay that off. But it's Morgan Stanley, Bank of America, Barclays still in peril. They still own this debt. Bank of America, Barclays, still in peril. They still own this debt. Elon has made three interest payments on it, but there's nobody for them to sell it to.

And Cohan is saying it's probably only worth 50 cents on the dollar. If it's worth 50 cents on the dollar- What do you think it would be yielding? What would you need? What interest rate would you need to sell? No, that's not the question. It means the equity is worth nothing. I understand. If that's true.

But as a buyer of Twitter's debt, what sort of coupon would you need to see before you got interested? That's the thing. I think it has negative cash flow. So no interest rate. I would never want to buy the bonds of a company. She said, from an operating cash flow perspective, we are just about breakeven. Lying. Lying. Prove it. Billy Cohen said the Twitter deal is probably one of the worst in Wall Street history,

right up there with AOL, Time Warner deal, turn of the millennium. The thing is why you said it's Twitter worth zero. And Cohen said this. Hold on. He said that sucking sound you hear is the 31 billion of Twitter equity being reduced to zero and the $13 billion of Twitter debt is probably only worth $6.5 billion. In fact, Twitter itself may only be worth $6.5 billion these days. And Elon will be fine. He's got SpaceX. He's got – oh, Twitter could live forever it doesn't matter he could buy the debt back so he said as I've suggested for months now Elon himself could be the buyer of the Twitter bank debt at 50 cents on the dollar using his petty using his petty cash

he should do it actually if he did that and he should assuming he still wants his ball of strength to play with then he wouldn't have to worry about his creditors or their interest payments or anyone or anyone or anything else on Twitter X ever again I I think he might be right. What if Elon's like, you know what? Call you. I'm buying it back. Leave me alone. Well, then he doesn't have to answer to anyone. He doesn't have to report anything. But here's the thing. Why did these big banks agree to buy this debt in the first place? My opinion, it's to make sure that when Tesla does a secondary or when SpaceX files for an IPO, they're like the first at the trough. They're already down with Elon. They came to his aid when he needed to close the Twitter deal. Court ordered, need to close the Twitter deal.

So I feel like these banks were like, all right, we'll buy the stupid Twitter bonds. Who cares? When SpaceX goes public for $200 right, we'll buy the stupid Twitter bonds. Who cares? When SpaceX goes public for $200 billion, we're in the room. And that might be a smart calculation, to be honest. I'm sure that's a part of it. But also, there was $31 billion, or I think $31 billion in cash that they put up. So it's not like this was all leverage. No, I agree. Right? It was a lot of money down. The thing is, and she admitted to this, or she didn't admit to this, but they tried to get her to admit to this. The users are just melting away.

And you can keep making up new ways to count them. You can keep coming up, oh, no, actually, our intra-monthly blah, blah, blah. 96th place in downloads. Yeah, it's almost going to be out of the top 100 apps and you can't make up daily usage numbers that don't square with that. The two things can't exist simultaneously. I do agree with her that you can't, it's apples and oranges. It might not be the most downloaded or the place with the most users, but the users are still highly, highly engaged. It's where a lot of people spend most of their day.

It still is. So that point has always been true and it has never mattered. It's never made this a good company, never made it a good investment. Well, it's all through management. Never led to them earning anything in ads. It's always been true and it's never mattered. So

she could repeat it until she gets replaced. And then the next idiot can come in and they could repeat it. But in the end, there's just not that much money available for an app where 90% of the content is coming from 5% of the users. And those 5% are the absolute worst people on earth. There's no money for that. It's not a business. You know what kills this company, like for real, is putting a paywall, making everyone pay. I just think it's time. I just think it's time.

Like it's just entropy. It's just every month slowly less people giving a shit what goes on there until it becomes really noticeable. I don't think it's gotten there yet. People still like wake up and open Twitter app. I don't think it's gotten there yet. People still wake up and open Twitter app. I don't think it's going to happen. I think it's slow. I don't think it's a crash.

How do threads go disrupting Twitter? It's just where everyone is. Nobody has to disrupt Twitter for people to lose interest in it. First of all, it's not where everyone is. Everyone is on Instagram. TikTok are fine. Every celebrity. Celebrities drive.

They still do. Even if you're talking about a politics celebrity. Well, what drives national discourse? It's journalists. It is. They're writing the headlines. 30 years ago? Still.

They're reacting to what celebrities are doing. And celebrities are just not there okay they're not just the ugliest like the the most mean-spirited ones who are on there like literally bringing the ruckus like if you're about to be in a ufc fight in two months what you do is you go on twitter and like insult the other person like you don't do that on other apps and most people in the country aren't watching that and it's very tough i don't do that on other apps. And most people in the country aren't watching that. And it's very tough. I don't know what you do differently. I don't know how you fix it. It's just what it is now.

Yeah. It's a tough spot. It's a tough spot. All right. It's a new regime, obviously. Man, these bonds, these bonds. Chart on, please. The top is TLT. That's 20 or plus. It's in a 47% drawdown. That's including coupon payments. The zeros down 61%. I mean, this is just, it is what it is. It's a full on crash fest. Warren pies. Wow.

Just disgusting. Warren pies. I'm sorry, Mike. What is the bottom pane? This is the zeros ETF. So it's just the longest duration possible. It's in a 61% drawdown. Imagine you use this to replace like – imagine you use this in an asset allocation to replace.

What would you replace this? What would you use this in place of? Like if you were really daring, you would use this in place of the 20 plus year treasury ETF? I would think this is like you're taking an active view on where you think rates are going. I don't think it's like a bond substitute. I think it's like a trading vehicle.

I don't know. That's a total. How much money does this thing have? There is. Okay. I mean, yeah, that's not a lot of money in here. Not even a billion dollars. Not even a billion dollars. Not even a billion dollars.

Okay, so the Great Warren Pies tweeted, from 1998 through 2021, treasuries rallied on 87 of the worst 100 days for the stock market. So that's the bottom pane. And the purple lines are all the worst days and how bonds did. Again, 87 of the 100 worst days when stocks were down, bonds were up. Pre-1998, however, bonds rallied only on 35 of the stock market's worst 100 days. only on 35 of the stock market's worst 100 days. We are back in a pre-98 regime. Yeah. So there once was a time prior, I guess 1998 was the LTCM rescue. It was probably like the most activist we had ever seen the Fed. And maybe that's like why that's the dividing line,

activist we had ever seen the Fed. And maybe that's like why that's the dividing line. Where where they basically the Fed, not only bailed out the stupid hedge fund, but basically, like we had to bail out the world, we did interest rate cuts in the summer of 98. I was very early in my career, because like currencies were melting down all over Asia. And eventually Russia completely devalued the ruble. But that's like a very activist Fed versus I think what the Fed had been prior. So maybe that's why it's that dividing line. But it is interesting that bonds on a day-to-day basis do not give you that same diversification benefit. It's the opposite. They're causing the equity weakness. Yeah. Right. Not only are they not protecting you- They're causing the weakness. This year, they're the cause of it. Yeah. And last year too. So, okay, next chart. This is also from Warren Pies.

So what he's showing is long-term government bond performance during Fed pauses. And the Fed has been on pause since, when was the last time? When did they pause? July, August? Who knows? Yeah. They paused in July and there was no August meeting. Okay. So it's been almost 50 days since. Or vice versa. Okay. And of course, this looks nothing like the other times where the Fed pauses. OK, you would think that they're done raising effectively if they're pausing. And so bonds front run the anticipated yield cut. And that's just not happening. This is screaming higher for longer.

It doesn't mean the bond market's going to be right. But that's, to me, what this is saying. I mean, if higher for longer looks and feels like it did this week, the ramifications for stocks are that we are not bottoming in October. If there's absolutely no giveback whatsoever and it's just a straight line higher in yields until, I don't know, 6% or something, we are, I think, going to keep saying we're not seeing this show up in the labor market. One of the things that I told you I was worried about like a year ago was that you would not see it.

And then one month it would just shock everyone. Not yet. But no one is saying that like there's any sign in the labor market of anything the Fed has done yet. And that is really crazy to me. And it's been going on for a really long time at this point. Man, I had a point. Man, it just escaped me. I bet it was a great one. Okay. What are we doing now? Oh, here's my point. I remembered. All right. I am never one to say that I am right and the

market is wrong. That is never my default position. I'm always All right. I am never one to say that I am right and the market is wrong. That is never my default position. I'm always in front of the market. That being said, I have a hard time figuring out this higher for longer thing. Why? Almost all of the inflation data, at least the inflation data that I look at, is saying one thing, that inflation peaked and it's still on its way down. Yes, some areas are sticking longer than we would have thought, but inflation seems to be going the right direction. So why are you just- The prices aren't going down.

Correct. They're just not going up as fast as they were, but they're not going down. That's inflation. I never said they were going down. I don't think anybody thought they were going down. The change in prices is not rising. OK, so inflation is going down. It's not as if the economy is still re-accelerating.

So why are long yields up as much as they are? I just don't understand. If anything, you would think that we're going to enter some economic weakness. And therefore, well, that'll take care of. Well, the macro guys are all saying that there's just no buyers. Like internationally, historically, you would have seen like Japan and China and all these like foreign pools of capital buying in. And they just either can't or don't want to.

That's like the new boogeyman coming from the macro guys. Like there is no buyer. Like that's why the yields are rising at this rate. That could very well be. Because like it's hard to explain why interest rates are doing what they're doing right now. It just is.

It's always hard though. Unless maybe it's just that simple. It's always hard. All right. I want to make sure we get to this. Americans are still spending like there's no tomorrow. This, like when I read this this morning, I just said to myself,

like this feels like the kind of thing that I should save and maybe put like a calendar thing for a year from today. And just like look back and see if this looks ridiculous in hindsight. I thought the talk show was dumb. No offense. Yeah, well, a lot of the people in it look really dumb. This is the Wall Street Journal.

Consumers should be spending less by now. Interest rates are up. Inflation remains high. Pandemic savings have shrunk, and the labor market is cooling. No, it's not. Yet, household spending, the primary driver of the nation's economic growth, remains robust. Americans spent 5.8% more in August than a year earlier, well outstripping less than 4% inflation. And the experience economy boomed this summer.

So they get into Delta. Ticketmaster sold 295 million event tickets in the first six months of the year. They get into a lot of personal stories about people who are just like doing whatever they feel like doing. And this is the bottom line. interview a guy at Wells Fargo. I guess he's a financial advisor. Quote, it's not a regret-filled spur-of-the-moment decision, says Michael Lirsch, who oversees a team of advisors as head of advice at Wells Fargo. It's the opposite of that, where I would regret not having done it. Are we going to look back at this article of people just like, I don't care, blah, blah, blah, I'm just spending? at this article of people just like, I don't care, blah, blah, blah. I'm just spending. Is this going to, is that going to look insane in six months? Like, are we going to be like, that's the silliest thing that, that happened? What do you think? I have to, I have to, yeah, maybe you might be right. Um, Ben and I were arguing about this today that like, what's going to stop people from spending a recession. If people lose their jobs,

they're not spending. Ben was making the point that like people don't just stop spending. Oh yeah. A recession will change that real quick. So now by the way, I said, this article was dumb. There was, there was one piece in this article about how people are doing stuff because they're afraid that climate change is going to destroy places. They want to visit that. That was the, Oh, where did the guy go? He went to Ibiza? Because he's working- Oh, Maui. Something. Oh, a $7,000 Alaskan cruise so his family could see the ice caps,

which have been melting at a rapid clip. That was just a very weird- That's not what I thought was gonna be the story. Now, I like the idea of people enjoying their lives and not hoarding cash for retirement. I think there should be a healthy balance between saving today. I mean, I'm sorry, between spending today and saving for tomorrow. That's not what this article was.

This article was talking about it. It found a few people that were just like, f**k it. Like, I don't know. I'm just, you know. Yeah, these are f**king people. This girl, Candice, this lady, Candice, quote, a 26-year-old management analyst in Charlotte says the company is trying to – the couple is trying to do the opposite. They want to enjoy their money while they're young even if it means working longer. And she said, quote, all the rules that exist around money and lifestyle are just things people made up.

So we're playing a different game. And honestly, I think we're having more fun. Let me just end this with exactly what you said, until a recession. I mean, that's what it's going to be, right? I just thought this article was dumb in the sense that, is this really representative of what the country, what people in the country are doing?

Or do they find a few people that are just being like irresponsible? I don't know. I don't know. what people in the country are doing? Or do they find a few people that are just being like irresponsible? Uh, I don't know. I don't know. They found, they definitely found people that would conform to what the narrative of the article was going.

I don't know. I don't know. Whatever, whatever. Um, all right. Don't, don't get upset about it.

I'm not upset. We definitely might look back and be like, well, that was really dumb. I think, so that's what I think I'm going to, I put it, I said it for one year now, and we'll look back at it. OK, we're doing make the case, and then Michael has a mystery chart, and then we're out of here for the night.

I just want to do this really quickly. This is in defense of a barbell approach to building a portfolio versus diversification. And a lot of people use those two terms interchangeably. They're not the same thing. A barbell is give me like the riskiest and then the least risky in equal measure. Like that's what a barbell means. And it's almost like the one is really supposed to offset the other one at the extremes, and there's nothing in the middle. Diversification is like I own a little bit of everything and I rebalance. So here's a hypothetical look back at two portfolios.

And I did this with Portfolio Visualizer just for fun. Portfolio one is 50% Q's, 50% SHY, which is the one to three-year treasury bond ETF. Portfolio two is VTI, which is Vanguard total stock market. 60%, 40% BND, which is Vanguard total bond. So portfolio two is like classic diversification. Would you, chart off, would you agree with the premise? Like the difference in these two things? More or less, right?

I think you need a global diversification, but fine i'll go with you uh yeah need is is probably not probably not the point of this um let's let's put up the table real quick over the last this is 10 years so we're going back to 2013 and then it's through like the end of last week you did way but obviously i know in hindsight you did way better with the Qs and SHY as your offset. And this is just an annual rebalance, 27.9 versus 22.6. Next chart. This is what the annual returns look like. And what was interesting to me here, in the up years, portfolio one, especially this year. Obviously, I know this year is really notable. But for the most part, in the up years, you looked really good versus diversification.

Sorry, that's just not true. What do you mean? I didn't see you beat it every year. I just said you looked really good. 13, 14, 16, 19, 21. And I performed from the 23 and 2020 and 2017. Okay. But I'm saying you looked really good. Like you can't find a year. You can't find a year here where the black line for portfolio two is so much better than portfolio one that you would have like panic sold portfolio one.

You can't find that in an up or down market. You were even like a 22 where tech got hit harder. The Q's got hit the most. It's still, it's like negative 18 versus negative 16 for the diversified portfolio. Next, next this is just performance. You could see the,

like to your point, the gap really opens up wide this year. You could see, to your point, the gap really opens up wide this year. As wide as it's been because of NASDAQ outperformance, but it's been outperforming really back to 17. It has not crossed back over

below. Dude, I totally agree with you. If I could go back 10 years, I'd only buy the Qs. I totally agree. Last one. This is drawdowns. So in less of a drawdown currently, but even look historically at all the pullbacks. This is not historically. Well, sure it is. This is back to 2013. The blue line is portfolio one. So you had plenty of drawdowns. They were like mostly comparable to the drawdown that you would have had with a more diversified portfolio. And I did not expect that. I would have expected much more variation and bigger drawdowns for this portfolio. You just didn't get them. And it doesn't mean anything for the next 10 years. I'm just pointing out diversification isn't always the automatic right answer. Barbell

does roughly the same thing, but with a different profile. And you got to be careful what's in both sides of the barbell for it to work. One question. Barbell did roughly the same thing. It doesn't mean it will going forward. But I don't hate the idea of a barbell strategy. I think it's hard. Like anything else, it's hard to implement, hard to stick with. But yeah, good charts. Well, I've made the case. Okay. Mystery chart one. This is, we're looking at three years worth of performance. And how many stocks is this or ETFs? Well, it's 500 stocks on top. Oh, wait, I gave it away. But the bottom is an individual company.

And I don't think that you would have guessed that this company is underperforming the S&P 500 by 50% over the last three years. It's like the Magnificent Seven. That's all I'll say. Amazon. Bingo. I got it? You got it. Yeah, I own this piece of shit. Isn't that crazy? Give me the reveal.

Drum roll. It's underperformed by 50%. It's due. For what? I don't know. Probably more than the performance. Had a nice bounce this year. It's held on to most of the bounce so far this summer. I think Amazon's going to be fine.

And Amazon's in my permanent portfolio. It always has been. Yeah, nothing wrong. I'll live. I can live with it. All right. Hey, everybody. Whoa, whoa, whoa, whoa, whoa. Whoa, whoa, whoa. What live. I can, I can live with it. All right. Hey everybody. Whoa,

whoa, whoa, whoa, whoa, whoa, whoa, whoa. What do you got?

But there, but wait, there's more. I've got one more. I've got one more. John, if you please. Okay.

Uh, this is one very fine country compared with another country. I'm sorry. Compare with another continent. One country gets all the attention. We've got all the best stocks. There's nothing else in the world. Yeah, we're more expensive.

All right, it's Europe versus the S&P 500. That's quite a mystery chart. Hey, I think you solved the mystery, Scoob. But how about this? All we talk about is how Europe is not investable. This is very interesting. This is a very cherry-picked time frame. It's a year.

This is one year. I would not have guessed this, actually. This is interesting. Over the last year, VGK is up 26% and the S&P is up 19%. I would not have guessed that. And this is with a strong dollar in your face. So who knows? My point is like, oh, you probably didn't know that. That's all. I definitely didn't know that. What's the best stock market in the VGK? What country? Germany? It would have to be something big to be meaningful.

I don't know. I don't know. Okay. Good enough. Good enough. Hey, everybody. It's Tuesday, which means tomorrow morning, an all new episode. You know, when you say, I know your personal favorite. Thank you very much. When you say, when you say, Hey, everybody like that, you know, are you doing Howard? Cause Howard does it. Hey everybody. No, I don't listen to Howard. Hey, I listened to the talk your book you guys did this week, though. That guy's smart as heck. The trend following guy loved it.

Anyway, new animal spirits tomorrow morning. I will be listening. I hope you will be as well. That's Michael and Ben every Wednesday morning. New Ask the Compound on Thursday. And an all new episode of the Compound. And friends, at the end of this week, make sure you send an email to askthecompoundshow.com if you're interested in coming to the Charlotte Live event. Have a great

night, everybody. See you soon. Whether you're just getting started as an investor or you're managing a multimillion dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit ritholtzwealth.com. Don't forget to check us out at youtube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits.

Thanks for listening. where Ritholtz Wealth Management and its representatives are properly licensed or exempt from licensure. Nothing on this podcast should be construed as and may not be used in connection with an offer to sell or solicitation of an offer to buy or hold an interest in any security or an investment product. Past performance is no guarantee of future results. Investing involves risk and possible launch of principal capital. No advice may be rendered by Ritholtz Wealth Management unless a client service agreement is in place.