The Compound and Friends - The Contrarian

Episode Date: December 6, 2024

On episode 168 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Peter Boockvar, CIO at Bleakley Financial Group, to discuss: the future of Bitcoin, Art Cashin's legacy, contrarian investing, the case for platinum, Chinese stocks, the most beaten down stocks in the market, and much more! This episode is sponsored by Astoria Portfolio Advisors! To learn more about ROE, visit: http://AstoriaAdvisorsETFs.com/ROE/ Take the TCAF audience survey! Sign up for The Compound Newsletter and never miss out! Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Did a halftime report today from the exchange. I watched you. And Scaramucci came on. Yeah, I saw that. He's loving life now, finally. Know what, man? I give him a lot of credit. He puts himself through like a lot of booms and busts. Yeah. Like he's like always in a fight.

Who are you talking about? Scaramucci. And we had Anthony on halftime today with a his new Bitcoin book He and he's a humble guy from When I say humble guy, yeah elaborate He acknowledges his mistakes. He acknowledges when he gets beaten up. He's got a self deprecating humor Yeah, all right that perspective so I don't know that I don't think humble is the right way to put it

Yeah, but I do think I Do think he's more honest? About yeah, everything that goes wrong it misses mistakes. Yeah, actually that's a really that's a really good. That's a really good point Um, I put him in my new book. Yeah, like not it's not about him I talk about something that happened at the salt conference. Um, all good, like good things, but then he's also in a chapter about the crypto mania during the pandemic. And, um, just like there was this moment where there were like eight people who completely dominated the conversation because of how online they

were. Right. He's in that group. Yeah, he definitely threw himself in there. It's him, Cathie Wood, Dave Portnoy, Pompliano is in there, Musk is in there.

Sailor? Sailor not yet. Trying to think, oh, Kevin O'Leary, Mark Cuban. So you remember that moment? It was more than a moment. It was like 18 months where-

When FTX was on the rise. Right, so every day the market would open and it was SPACs and crypto and rockets and that like- Or 21. Right, and there was just like these people that built these huge audiences. That was your type of market. Yeah, you love that.

Yeah. Anyway, I was off Twitter at that time, but people were sending me links every day. And I don't mean people like that work in the business. Right. Like just random? Like friends of mine who sell insurance or fix cars, they would send me these clips of these people

that I know in real life and they'd be like, Yes, what do you think? Is this right? Or should I know in real life and they'd be like, is this right or should I do this? And I would just be like, oh. Yeah. Because I took myself away from all that to not be exposed to it, but it was so big. And it was telling about the sentiment when they're doing that.

Twitter was just such a center of the universe in that moment because it was nowhere else for people to talk. John, can you grab that clip? So I had similar experience in 99 when I had college friends that were not in the business asking me if they should be buying some micro. It's the same thing. It was just like, it was exactly like that.

Yeah, yeah, of course. Peter, you're like this, speaking of sentiment, I was talking to a friend of mine this morning. He's like, so what are you doing with Bitcoin? I'm like, I have my my cell orders on the way up and he's like, why would you do that? I was like because I want to sell on the way up. I have enough big I don't need more like you mean as opposed to Never sell right goes up. It's just become bigger and bigger my portfolio. I already have too much He's like, but I feel like it can't go down. I'm like do now you make me want to sell everything I feel like it can't go down. long as... Should I sell everything right now?

Like right this second? Even the bulls say it can go down and they want it to. Because they want to buy more. I've also heard from three people in the last two days that are just waiting for a pullback. To buy more? No, just to get in. I feel like there's so many people... None of this is actionable, who the fuck knows,

but there's a lot of people that are like, oh, I'll buy it on the next dip. So I was telling Mike, Sailor obviously is now on TV every day. And the discussion- Well, so he's in New York this week, and he wrote the forward to Anthony's book. Oh, so that's why he's getting a lot of this.

So two nights ago, Barry was at the Anthony's book party, which of course, Hunt and Fish. All the the crypto people were there like Tom Lee was there all the Wallstreet meets crypto crowd like the people that are I don't know what Barry is doing there actually All the people that are in straddle both worlds were there So I think that's why sailors done been doing a lot of TV appearances for that explains and also all the converts that he's selling. His argument has shifted from the real benefits of why Bitcoin was created and why you own it to it's going up and I'm buying more and it's going up and I'm buying more

and it's going up because I'm buying more. Now it's all a price thing. But wait a minute, he pitched Microsoft Treasury. Yeah, I heard that, to keep it as a reserve. And they might actually do it. And somebody sent me a link to their sub stack that wrote it up. He wrote like thousands of words on Microsoft actually is going to do this. And just focusing on the fundamental benefits of owning it.

No, it's like what does it cost Microsoft? What does Microsoft have in its corporate treasury now? $200 billion? Yeah, something. So what does it cost them to say treasury now? $200 billion? Yeah, something. So what does it cost them to say, we bought 10 billion worth of Bitcoin. Right. First of all, they would be making the price of their Bitcoin double in saying that. Second of all, let's say it gets cut in half. Oh no.

Who cares? Who gives a shit? We're Microsoft. So if they announce that, what happens to the price of Bitcoin? I think $150, my opinion. Yeah, it's... Because here's what, here's... You should be buying Mickey Man on Baseball. Apple made a Bitcoin announcement.

Apple said, we are partnering with Coinbase. I think Coinbase made the announcement. Apple Pay and Coinbase are going to work together so that now all of these people, there are 50 million people in United States alone that own crypto They have greatly appreciated crypto They want to be able to use it to pay for things makes perfect sense Well, I wouldn't do it until they got the tax bill

Well capital gain that they realize when they sell it But if Apple if Apple so Apple is considered the gold seal of approval in privacy and safety and security amongst the American public. Yeah, trust. Trust. If they are now putting out press releases and productizing Bitcoin solutions, what would be holding Microsoft back? And remember, the number one thing that matters in 2024, going into 25, is if you're perceived as being cool.

Jensen Wein wears the leather jacket, you have to be cool. It doesn't, Mark Zuckerberg is so swaggy at this point. Yeah, he's got the necklace. It's like out of control, You relax the Jufro. Yep. So they all want to look cool. So when you think about all of these things, what would hold Microsoft back?

I can't think of one. Yeah, I agree. Lack of interest is the only one. Yeah, I agree. Now if Sailor can convince Satya by $5 billion worth of Bitcoin, who cares, just do it, just do it, just do it. Right. You're gonna have every treasurer in the Fortune 500 is gonna have to explain to their board

why they're not. Think about, like, that's how this world works. Right. It's a copycat world. And the higher you are, the more risk you have in not doing something. Like imagine if it works. Yeah, and that's what he's created is, you're an idiot if you don't buy it, essentially. Right, so Saylor is like willing this into existence now among very high level people.

But I did listen to you guys, your pod this week with Bianco when he did listen to you guys, your, your, your pod this week with Bianco, when he talked about, you know, that with $13 million price target and what that would mean relative to the every other asset market has to crash. Yeah. I mean, that was, those were great stats. Yeah. Uh, I don't have a price, but I don't know. But if I did, I don't think it would be 13 million. But you also right point When you said well if you can create Bitcoin, can't you just create another that's not a good point though. Yes It is the best point How is that a good point because if something goes if something goes to the point where it costs 13 million by one of them

Somebody else will invent a substitute for it. That's good enough for the price of $13. That's a horrible argument. You don't have to spend $13 million for Bitcoin. You could buy $4 worth. Why is it a horrible argument? Because the higher the price goes, the more the story gets validated. You can't just create something. Well, what do you think Bitcoin did? What was Bitcoin competing with?

Oh, really? They just created it. Dumbass. Yes, that's what I mean. Okay, so what's the second Bitcoin? I didn't say there was one. No, you could just create one. Oh yeah, so do it, smart guy. But they just created it to begin with. It's not naturally occurring. I mean, but that's such a weak argument because you can say it in perpetuity about a lot of things. But in a lot of things, there is a new version that gets created.

Bitcoin is the ultimate narrative asset. And you can't just create a story. This thing has been going on for years and you can't just snap your fingers and create something else. Sorry, there are companies that have been around for 150 years that go bankrupt. That's not a great argument. Okay, but I'm not saying that Bitcoin is going to be the king in 150 years. So that's also a bad argument.

I'm saying today, it's the king and you can't just snap your fingers and create another thing. But that's just fundamentally untrue. It happens all the time in every industry. You absolutely can fundamentally create a new thing. But it's such a strongman argument. Why? Because how could that be disproven? You can't disprove it because this is the way the world works. It cannot be disproven. The only way...

So if Bitcoin goes to a million dollars, somebody's just going to create Bitcoin too? No. And succeed? No, Solana might succeed. And people might use it for the same reasons. And people might just say, Coke and Pepsi. I mean, this is so obvious to me. And technology allows you to create something at a very low cost.

I'm not saying it'll supplant Bitcoin. I'm saying if there are two of them, then the first one will probably not have as much of a premium as it would if it were the only one. And so there's an incentive built in for people to find a new way to do what Bitcoin does, but with a different vehicle. Of course there is. All you have to do is look at the history of every... Of Bitcoin.

No, every invention that's ever existed, every corporation. Somebody eventually comes along and says, that's awesome, here's our version. But Bitcoin is a narrative. So I was telling Mike before, a 1968 Mickey Mantle, you can't make it anymore. It's finite in nature. It's unique.

You can tokenize that. Someone can own five to 10% of a particular card. You can trade a 24 hours, seven days a week on some exchange. And it's- Can you get laser eyes? But I'm saying, what's the difference between owning that and that card?

But it doesn't matter. It's belief. It's belief. It's millions of people believing. I have a different take though. The Mickey Mantle card is finite. They can never go back in time and remake what they did. Okay, but here's the thing. If that's sitting on the table by itself and it's the only option, assume it has the maximum

leverage, the seller, like this is all there is. But if I put that on a table and I say here's Ken Griffey Jr. rookie card also, here's Michael Jordan rookie card, here's Patrick Mahomes rookie card, rookie card also. Here's Michael Jordan rookie card. Here's Patrick Mahomes rookie card. Now all of a sudden it's like, oh, you know what? I would have paid a hundred, whatever, thousand dollars to own it, but actually I would pay $20,000 to own that instead.

There was MTV and then there was VH1. Well, that's my point is all of those can compete against Bitcoin. There was MySpace and then there was Facebook. This is not complex stuff. But all those things can compete with Bitcoin. Microsoft can say, I'm going to own a lot of unique assets that can't be printed.

Not just one. Not just one. I can have a treasury of all the best football player cards or baseball player cards. But what Bitcoin has done, it's created a halo and an affinity of tens of millions of people. We all agree, it's its own story. And you can't just replicate that.

You can't replicate it. You can't replicate it. You can't replicate it. You can come up with an alternative to it. It's two different conversations. But it's not like there's not altcoins trying. I mean there's thousands of them. I agree. And the odds of none of them ever succeeding are low.

I'm not saying none ever. I'm saying like today. Today there is no other Bitcoin. We're not arguing about that. What you're saying though is that the success of Bitcoin can become so extreme and no one else will come along and say, here's a new finite asset. I'm saying Bitcoin success has created a very wide mode that is hard to penetrate. 100% agree.

Just the network effect. And now we know you're right about that. Because of the price. Look at the valuation. There's nothing, there's no close second. Historically, how likely is that to persist forever? That's the thing. It's extremely unlikely.

That's something that's 15 years old. I mean, for me, Bitcoin right now, if it was created to be similar to gold, it should trade like gold. Which it wasn't, by the way. Well, theoretically you can say, okay, the central banks can't print it, there's a limited quantity, it could be a store of value.

I mean, there are similar characteristics that backed Bitcoin relative to the bull case for gold. Oh my God, that's a different one, my bad. The Satoshi white paper said nothing about this should be a 1% sleeve in people's asset allocation at Fidelity. Peter, did you hear Jerome Powell say that Bitcoin is digital gold yesterday?

Yeah, and it's just a speculative instrument like as a gold around for 5,000 years And it's just some speculative thing what he actually said was it doesn't compete with the dollar it competes with gold Yeah, I think he's right. Yeah, that's what he said. It hasn't really traded I mean it's traded more like the Nasdaq than it has With gold odds of gold flipping Bitcoin in terms of market cap in the next 10 years. Oh, I think that's going to happen in the next 6 months. I mean, at this rate. No, no, no. It's like a...

Isn't gold like 17 trillion versus a trillion? It's not going to happen in 6 months. No, I think it's more like 10 to... Well, now it's probably 13, 14 trillion with the recent rally in gold. So gold market cap is... No, no, no. I'm talking about the ETF. Oh, we're having different conversations. No, gold market cap is 17 trillion.

I'm not talking about ETF assets. I'm saying like gold miners and ETFs versus Bitcoin ETFs and Bitcoin public trading companies. That's guaranteed to happen. It might happen already. That might already be done. I think that happens in the next few months. I'm saying if Bitcoin is a trillion dollars,

is that where it is, give or take, maybe more? Yeah, I think it's probably more now. More now? The odds of it passing gold, gold has a 17x head start over the next call, 20 years. I mean- Make it up. Well, if central bankers start buying Bitcoin, then sooner rather than later.

If central bankers who own most of the gold are not gonna use use it as reserve and Bitcoin remains just some speculative thing, I don't see it happening. I think it has to be accepted, not just BlackRock's ETF. It needs to be accepted in the world of gold, which is central banks, which owns a lot of the gold that's out there. Well, a good starting place would be if company corporations like Microsoft decide this is something for strategic, not because we're speculating on price, but for strategic reasons, we want to have a portion of our, they're not called reserves on a corporate balance

sheet, but for cash equivalents, right. We want to diversify away from all sovereign currencies and have a currency that's native to the internet. Then we, they would not, to Michael's point, there is no other digital asset in contention. It would only be Bitcoin or not Bitcoin. Self-fidelity. People are pitching gold, digital gold,

in the sense that if I store gold and you have a bank account denominated in gold, you can trade digitally your ownership in a gold bar, for example. Now that's not taking off, but Microsoft can do that as well. You know what I thought we would see more of? I thought the strongest argument for tokenization

are big illiquid assets that are very widely held that people wish they had more liquidity So buildings and that are scarce. Yeah, so I thought like alright, so let me give you let me give you a really good example Before you do that example, so fidelity a theory. I'm sorry fidelity black rock and bitwise their Bitcoin ETFs are already equal to GLD Yeah, I'm not so this is wild. I mean I made a prediction about something that already happened So I made a prediction about something that already happened. So I was right. The Empire State Realty Trust, ESRT. Tokenized! Time out.

It's a $10 stock. It's a market cap of $1.8 billion. Thought exercise. They announced tomorrow we are exchanging shares for tokens and anyone who wants can tokenize own a piece of the Empire State Building. Tell me that market cap doesn't go to 4 billion for no reason. Yeah, and trade it 24 hours a day, 7 days a week. Okay, so now you have all this real estate Manhattan. Nobody has liquidity on most of it. Unless it's owned by a REIT, it's like some Jewish family owns the building and it never changes hands. The grandfather bought it and it'll... What if

10% of that building could be freely traded in tokenized form? It's not a corporation, it's just ownership in this building. That's how you unlock all this real estate. Why is nobody doing this? But doesn't that dilute to my Mickey Mantle point? Does that dilute the value of Bitcoin? Well, so for me it does. Same with me. Okay. Nobody seems to agree with us.

Michael definitely doesn't. They don't want your shitty Empire State Building. They want Bitcoin. Yeah, but it's the point of owning something that is unique, where you can't recreate it and there's limited... I mean, it's still the same... Alright, let's start the show. Agree to disagree.

Three clocks. Compound and friends. Oh, I get goosebumps when we do this part. Have a seat. One, sixty, eight. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor.

Today's show is brought to you by Astoria, my former hometown. Astoria Portfolio Advisors. Astoria Advisors is an outsourced CIO firm managing roughly two billion dollars in assets They also offer a unique ETF for investors looking to diversify away from the mag-7 and play a broader market rotation. The ticker is Roe that's the Astoria us equal weight quality Kings They invest in 100 of the highest quality large and mid cap us stocks equally waiting its constituents We spoke about our we today not in the context of this ETF, but return on equity. So, like the ticker, for more information on ROE and Astoria Advisors,

you can visit AstoriaAdvisorETFs.com slash ROE. That's AstoriaAdvisorsETFs.com slash ROE. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their cast mates are solely their own opinions and do not reflect the opinion of Red Holtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholt's Wealth Management may maintain positions in the securities discussed in this podcast. That's right, ladies and gentlemen, we're back. We have a very special show for you today. We have a returning champion making his third appearance on the compound and friends. Every time he comes we have so much fun and we always learn a lot.

And for me, just me speaking personally, Michael doesn't have to agree with this. Peter is one of the people that I have learned the most from about how the macro economy works, how markets and macro are interrelated, what to pay attention to, what to throw away. This is my guy. Wait, can I say, hold on, it's true. In Slack over the last, we've had Slack for a long time, early adopters, credit to us. He drops you from bookFar all the time. Obsessed. Obsessed.

As the kids say, obsessed. Peter is the CIO at Bleakly Financial Group, an RIA with over $10 billion in AUM. Peter also manages a global macro and income strategy for clients. Peter, welcome to the show. Thank you so much for coming back. It's great to be here.

Thank you so much for having me. Can I play a clip? Yes, let's do it. Let's drop the energy down real low, real quick. I have been blessed in all my life in Wall Street to see that, to learn things, to learn that to be good at this. You've got to be a detective. You've got to be able to put together things that don't fit. I mean, there were comments here about we're flooded with financial news

now, TV and whatever. And you will see a lot of people just need to fill up time and they will say things that sound reasonable on the face of it. The Dow was up 30 points today because non-farm payrolls were better than expected. Well, the Dow didn't start to rally till 230 and the non-farm payrolls came out at 830. That didn't fit. So to be a good broker, to be a good trader, you've got to learn to, okay, if that's the reason, what would the bond market be doing? Well, it's not doing that, okay?

What would the dollar be doing? Well, it's not doing that. So that's not what's going on. This is a truly great man, Art Cashin, who we lost a couple of days ago. Art passed away at 83 years old. For anyone that's tuned into CNBC at any point over the last 25 years, they've definitely seen Art on screen either giving commentary or standing in front of a thousand traders singing Wait Till The Sun Shines Nelly on New Year's Eve Day. Art was the director of floor operations for UBS.

UBS had acquired Payne Webber. He'd been there for a couple of decades. But Art had been on the floor of the New York Stock Exchange since 1959. I refer to him as a national treasure. I'll never forget the first conversation I had with him. I haven't really shared this anywhere, but he walked up to me coming off set for something I was doing for CNBC and he said, you're the real thing. Don't listen to these people. I've seen everybody come and go. You're the real thing. And I don't even know if he meant it, honestly. He did, he didn't throw those lines out.

I know he didn't bullshit people and that's why everyone loved him. But him saying that to me, and I was probably 34, 35, and I really hadn't made any money on Wall Street yet, and I really hadn't built a firm yet or accomplished anything, but I think he was a fan of my commentary is the way he meant it. That was I didn't need anything else like that was it.

If that guy thinks I'm the real thing even if you only half thinks it, fuck it, fuck everybody. I am and God knows how many people he had done that for over the last 60 years on the street so God bless Art Kashin. And I'm so glad you're here today. So I know you had a true friendship with him. Yes, and I will say again. What's the worst thing you ever saw him do?

The worst. No, he didn't throw out lines like that unless he meant it. I mean, he saw your passion, he saw your knowledge, he saw your conviction. And he didn't like the people that your conviction and you know he didn't like the people that hemmed and hawed. He was a detective, he always was looking under the hood. He wanted someone who had an opinion and I think he

respected that when he saw it. And you know Wall Street is... How did you meet him? So I probably met him at just one of the dinners maybe Josh Frankel had or somebody, you know, 15, 20 years ago, and we started to swap our stuff. And I wrote every day and he wrote every day. And then we started- Cashin's comments. Cashin's comments.

And then we just started a, you know, a report and email back and forth. And he would ask questions and we would chat about things. And then, you know, the more I hung out with them, you know, the closer we got. And he was a phenomenal storyteller. The best. And he was just he was a not a pretentious guy I mean Wall Street's filled with these arrogant pretentious know-it-alls and he just wasn't that. He came to work trying to do the best he could trying to figure out what was

going on in markets and try to help his customers. And that was it. And he didn't bring any attitude to what he did. And he was just always a pleasure to hang out with. Because I can just sit here listening to him talk the whole time. So never a two and 20 guy, never an investment banker, he never like remade himself. Art's been doing the same thing longer than anyone I can think of on the street. He would have done it for free. He would have done it, right. He would have remade himself. Art's been doing the same thing longer than anyone I can think of on the street.

He would've done it for free. Right, he would've done it forever, and he would've done it for free. The first time you met him was at the Big Picture Conference. Yeah, I remember that. It was like your first day working with us. It was 2012, and I was overwhelmed. I couldn't believe the company that I was with.

Yeah. I mean, he was like a rock star. So Art told this great story, and this is one of my favorite stories of his, of anyone's on Wall Street, about why markets work and why you should take risk. He tells this story, I'm sure you've heard it a million times, but for the audience, Art loves to tell this story.

He started in 59, so I guess sometime around 1960, 1961, we're in the Cuban Missile Crisis era. And one of his first days on the floor, the market's selling off and he's running around like as a brand new, I guess he was a trader at first, or he was a runner. Okay. He's running around trying to get sell orders off. He's trying to sell stock. And one of the senior guys grabs him by the back of the collar and says, young man, where are you off to in such a hurry? He said, I'm trying to sell.

The rumor is the missiles are in the air. And the guy says to him, well, you got to buy when the missiles are in the air. And he's mystified. What do you mean? It's missiles are in the air. And he's mystified. What do you mean? It's the end of the world. And the guy very calmly explains to him, almost none of the time are the missiles actually in the air. And anyone who sold on that is going to be sorry.

The buyers make money. And if they are in the air, we ain't going to be around to give a shit. Exactly. Who's going to clear the trades if it's a true story? Right. If you're wrong, if you buy and you're wrong, but the missiles are flying, don't worry about it. Okay. But that's so elemental to what we all do for a living. Like, you know, obviously most trades aren't made under that level of duress.

But that was a really instructive story for him this first month or two in the business. And every time he tells it, a new generation of people understand a bit more about how to do this. And I don't know, he's got hundreds of amazing stories like that. He really does. And I know you were gonna talk about another one with- I want you to talk about it.

JFK, which he loved to tell. He was Ascamo Brothers with JFK, Marilyn Monroe. Right. Is that the story? Or is it a different one? This is a little bitK, Marilyn Monroe. Right. Is that the story? Or is it a different one? This is a little bit different, but it's close. So he was shot 1230 local time, so it was 130 Eastern. And all of a sudden on the floor,

there's commotion out of the Merrill Post and all these cell orders are coming through the Merrill booth down there and everyone's wondering, what does Merrill know? What are they seeing? And it turns through the Merrill booth down there and everyone's wondering, what does Merrill know? What are they seeing? And it turns out that Merrill, since they were big back then relative to everybody else, had an office in Dallas.

Right, there's no Twitter and there's no Bloomberg and nobody knows what happened in Dallas. Nobody knew. This was that there was minutes before the news was disseminated and a bunch of people in the Dallas office went to the parade, they wanted to see the president. And they were on one of the streets and shots fired,

and they all ran back to the office. And that's why they were the first ones to put in their cell orders. Okay. I mean, it's like a throwback to another time where somebody's messenger pigeon was faster than someone else's. Yeah, exactly right. It's like a throwback to another time where like somebody's messenger pigeon was faster than someone else's.

Yeah, exactly right. It's crazy. And that's how news was sent around back then. Anyway, we want to, we just want to take a few moments to pay tribute to someone who's, Michael said this the other day, I think this is an important point also. He has universal approval. Like Art Kassian, have you ever heard anyone say anything other than how much respect

and admiration they had for him? Never. There's nobody else on Wall Street that talked to 100 guys and they were all like, yeah, that's great. Yeah, even Warren Buffett has people that talk shit about him. I think he said this when he was done talking with Barry.

What was the line that he said about ice cubes need marinating or something? Well, that's his famous line. Well, yeah, so he had the Friends of Fermentation. That was the group that hung out at Bobby Vance after the market closed, and they were going to marinate ice cubes. That's right.

So the Friends of Fermentation was not an official club, meaning one of the coolest things about art, he would be on that barstool right on the corner directly across the entryway from the New York Stock Exchange at Bobby Vans, which I think opened in 07 and then just closed. Did they reopen it? It closed.

It's gonna be something else. I don't know if it's reopened, but they recently closed it, yeah. There's a Serafina now across the street, so if you like pizza. Tough place to have a steakhouse in the post-pandemic world because nobody works there anymore. Right.

And actually, I want to say this other thing. I think the pandemic was really tough on Art because that was the place that he went every day. That was his family. That was his family. And he had lost close family members in the years preceding that. But I think having that place to be and work and help people and actually be a part of what was going on each day.

His friendships, his social life, his family. Yeah. So shutting down the exchange for however long it was shut down for absolutely sucked. 9-11 was a moment where art was really important symbolically. Seeing him back on TV from the floor of the exchange was way more important to people than seeing Dick Grasso. Right, because it was... It's like Mark Haynes was important and Art Cashin was important. Art was like the mayor of the stock exchange.

Yeah. And yeah, he was the go-to of how is this institution, how is the American financial and capital market system and American economy going to make it through? And he was a soothing voice during that time and explaining how life will go on, how ever horrific what we just experienced. Yeah, so I think for most people seeing him on screen,

it's just like, all right, things are getting back to normal. Yeah. All right, shout out getting back to normal. Yeah. All right, shout out to Shub. And he spoke in plain talk. There was no complicated stuff. He was able to speak to anybody, whether you were in the market or not, everybody was able to understand what he was saying.

I love that. Let's do some complicated talk. Uh, rest in peace, Art Kashin, and our thoughts are with Art's family members, and Judy, and everyone else who had had him in their life, in their professional career. Alright, let's start here. So, Peter, I feel like you have a bit of a contrarian bent to you. I feel like right now we're living in a moment where a lot of things are consensus, right?

Like price targets, dollar, US exceptionalism, we're all for the most part on the same page. As we get ready to turn over a new page into a new year, what's on your mind for a potential contrarian trade in 2025? So to your point, you know, I like to look at the 52 week low list when I try to find stock ideas. You and I are polar opposites. Yeah. And I say that because I'm not good at buying high, selling higher.

It's not my skill set. I'm not a good trader. I'm a better long-term investor. And where I can find like a long-term story and just sit and hold and block a lot of the noise, I'm not good short-term trader. So I try to find things that are bombed out, but trying to not get caught in a value trap.

Like board apes. And board apes. But looking for something that could be a good story. Okay. So contrarian idea that I've recently bought. Okay. So Bitcoin, gold, the metals, these rare assets. I recently bought platinum. So it doesn't sound very exciting, but when you look at platinum is historically always traded above gold. Gold's now 2,600, platinum's about 950.

And the reason platinum was bombed out is because everyone thought that EVs were going to take over the world. Therefore, you did not need an internal combustion engine. You didn't need a catalytic converter on that car, which limits the emissions. And who would buy platinum or palladium if we all went to exhaust-free cars?

Are those two things exchangeable or no? Platinum and palladium So I know they're not the same they somewhat are but at 80% of the usage of palladium goes into a car only 40% of platinum goes into a car platinum has more uses in electronics jewelry wedding rings, whatever So that's why I like platinum better less exposure to autos But we're realizing that in the VHS Betamax war, hybrids are winning out. And hybrids are still going to use palladium.

And in fact, some of them are using more, I'm sorry, platinum, more platinum than the internal combustion engine because of the heat to cold, cold to heat type engine that is part of that. And platinum is also going to some of these batteries. So here's something that's bombed out. I know it doesn't sound very contrarian, like sexy wise, but I said this this year, I thought China was going to outperform the US.

I going into 2024, I said the Hang Seng is going to outperform the S&P. And for a short window, after China announced those steps, we were there. You're doubling down? So what interests me about China, and I'm a bleeding heart libertarian, so from the government perspective, the authoritarian nature, the crackdown on entrepreneurs, it's everything I am against, but-

Strong buy. The entrepreneurial spirit in China happens in spite of that. You know, the Alibaba's, the Ten Cents have been created in spite of that. And to me, a very exciting economic growth story, and I said this last time I was on in March, is this growing middle class in all of Asia, where half the world's population lives. I'm talking about four out of the eight billion people live there.

And to me, as they get wealthier, where half the world's population lives. I'm talking about four out of the eight billion people live there. Wow. And to me, as they get wealthier, as they go from the lower to the middle class, they wanna live life like we do. They wanna go out for dinner and they wanna travel and they wanna buy your amazed bags and they wanna do things that we do here. So that's what I want to play into.

And when we know the US markets, because particularly big cap tech, has sucked all the oxygen and money out of the rest of the world. 70% of global equity market cap is now US. Right, with about 25% of global GDP. How about 10% of the population? Right.

Or less? Less. Yeah. So when the switch is moved or it's a mean reversion, the pendulum swings in the other direction, it's not shifting to Europe. Europe has got its own trouble. It's, I think, in a shift to Asia. And I'm not saying play it through China,

but you can play it through any business. You can play it through American companies that sell into China. Sure. Estee Lauder's business has been hurt by the slowdown in China travel and spend. So they're American stocks, you can buy the play into that, but anything that can benefit,

because the sentiment towards China and that entire region, just people just don't care. Now, India's been exciting, India's market's done very well, so I shouldn't paint that with a broad brush. India markets done well. Japan has done well. Japan has done very well. Argentina's been on fire. Argentina's been tremendous with Malay. So I do think that there are opportunities outside the US. Now the question is, okay, well are people just gonna wake up one day and say, hey I want to buy a stock in Asia? Something has to happen. Something has to

happen. And you know And you always think about, well, what would disrupt the US markets just generally? And to me, the two things, if they were to happen, I'm not saying that they are, is if there's another wave of turbulence in the treasury market, and it's not just the US treasury market, it would be JGBs, it would be European bonds.

Is it because the BOJ is going to hike rates or foreigners revolt for whatever reason on US Treasuries and the 10 year yield goes to five, five and a half, the German boon yield goes up? Because I look at people talk about where's the excess in markets now? Where's the bubble that would sort of deflate that would cause us to fall back? And to me, I always go back to when we had $18 trillion of negative yielding bonds, that was the biggest financial bubble in the history of bubbles in terms of dollars.

Because the world converted an asset, that being a bond, into a liability, because you had to pay interest by owning that bond. It was insane. And the question is, is the bond bear market over? Was it just like a couple years? 22 was a bad year for those people owning long duration, and that's it, and we're fine, the Fed's cutting rates,

rates are going to go down across the yield curve. Well, we saw the Fed's cut 75 basis points, and loan rates didn't fall. So that's one thing I'm watching. Whether it happens or not, I don't know. But that would be the risk. What's the platinum trade? So Aberdeen has an ETF that you can own.

Is it on the metal or it owns producers? It's owning the metal. The problem with the actual companies is that platinum is made in three countries, Russia, South Africa, and Zimbabwe. So you can buy Amplats, that's Anglo-American platinum, which I own personally, not for clients, the platinum ETF we own for clients. So I own that personally, but most of their production is in South Africa, but you never

know what you're going gonna get with South Africa But it's it's a way to play it if you want to do it at the company level What's the contrarian play for people that want to have exposure to a sentiment shift about China? You want to buy us so a high percentage of sales there that yes, okay? The Chinese Internet stocks yes, you can buy one of the ETFs. I like the casino stocks. The interesting thing about the Chinese economy, where everyone's so down on the Chinese consumer, the Macau numbers are basically back to 2019 levels.

You're talking about six licenses, so there's really no new, they're competing with each other. It can be promotional at times, but there's unique asset and the Macau government is making a big push to make them the Vegas of Asia and not just tap into that mainland consumer, but tap into that entire region of potential gamblers and a lot of Asians, particularly in China, they love to gamble. And so I think that's exciting. AIA Group is another one. That was the Asian Insurance Company division

that was spun out of AIG when AIG went through their bankruptcy in 08. It was the Hank Greenberg's Asian business that had grew over decades when he was there. So it's one of the largest life insurance companies in Asia. Well, you're growing wealth in China or India or Malaysia or whatever. Well, you need life insurance for your family

So to me that's another way of sort of playing that have you always been a contrarian minded investor or Did you adopt that as you're investing philosophy somewhere along the way? I just tried to find things that was sort of off the radar that would eventually come on to the radar. Yeah. You know, because if it's off the radar forever, you're going to be stuck in a stock that does nothing. I'll give you the biggest contrarian play there is for 2025. You can't find anybody who wants anything to do with this. Probably why it's going to work. I'm not putting

this trade on because I don't do this. International clean energy. Name one person who wants anything to do with, in the Trump age, wind, solar. You look at these stocks, one's a bigger piece of shit than the next. Here's a ticker, you could just follow this like an index. BlackRock has a product, iClean. Oh boy. All right, dude.

That has a lot of international companies within that. It's US and international, largest holding is for solar. What's the... And phase energy was the stock that I pitched back in the day. That worked out really well. Listen to me. iShares global clean energy ETF. I was looking at this the other day.

What is some of the names? Because you know why? Not because I'm looking for investment opportunities. I'm looking for like, what the hell isn't going up This is literally the absolute worst thing. Yeah, not this ETF particular the theme first solar Iberdrola, which is Spanish Spanish. Yeah, okay and phases in there trying to pick out names that people know Like they have things like China Yangtze power I didn't know any that's 4% of the fund that doesn't even have a ticker symbol because you can't trade it

or stead next tracker Equatorial Sun one and plug power we know those so the point is these stocks all of them Look exactly the same you feel strong Peter, so I mean that's interesting to look at hold on Because we know there's still a lot of money being poured into it. What do you think the five-year? Cumulative total returns are well. I'd say it's definitely down at this negative 44% Go find anything and the closest one to it QCLN is first trust nasdaq clean that's all edge. Yeah green energy down 45%

The global X wind energy ETF is down 52% The first trust global wind ETF is down 52%. The First Trust Global Wind Energy is down 23%. I'm giving you guys five year numbers. Well, this is also an investment lesson on the downside is when the government gets involved in your business and they want to be your quote unquote partner through tax incentives or whatever,

you have to be careful because if your business can't make money without those tax incentives, at some point your business just can't make it. And so it all sounds sexy for a while when the government was so involved and now reality strikes. I want to show you two charts, Peter, on China that you were talking about China.

The first one is showing the, you know how we say the market is not the economy. China's the poster child for that. So we've got Chinese GDP. This is from JP Morgan. Chinese GDP versus China earnings and the stock market in China. And we know GDP is doing great, but the value has not equipped the shareholders. Here's one more great one. This is Chinese equities. This is also from JP Morgan. Morgan says Chinese equities are pulling away from EMX China. So what we're looking at is the correlation. It's a 15 year so it's pretty zoomed out of the emerging markets versus the S&P which is rolling over. Emerging markets X China versus S&P also going down.

But the most interesting thing here is EMX China versus China and that has crashed. And the story used to be that China drives all of the activity in emerging markets, both economically and also on the stock side. And that has- Bellwether. Yeah, that story has dramatically changed over the last couple of years.

That's an interesting point. Chinese equities were not always as big within the EM indices as they became. Very politically, they lobbied MSCI, they thought they should be bigger. They wanted to get foreign flows into Chinese stocks. And the market caps were deservingly big. They were big. And then they did the Shanghai Connect

where they enabled mainland investors to invest in Hong Kong and vice versa. Then we had that moment where they had like a stock market bubble on command was interesting. What year was that? Back in 2015 I think it was. And then this summer, late summer, early fall, they had this moment where they came out with all these reforms and David Tepper got all balled up.

Nothing works. You're not constantly for sale. Right. There was no follow through. China's, their two biggest problems, outside of the politics, of course. So I'm talking economically, is the distress in the residential real estate market,

and the excessive debt at their local government level. Where I've seen estimates they have set $2 trillion, or $10 trillion, or whatever it is at the local government level. And the country is focusing on addressing both of them the housing market has been in distress for now multiple years. Why? Of the the dramatic overbuilding the over leverage But so when you say under stress prices are on prices and the developers countless developers that have gone bankrupt Which is actually interesting because here's the so-called communist country but they didn't bail out the developers. They said you took

on too much debt you're gonna go bankrupt. Whereas here back in 08 you know we were bailing out banks left and right. So they sort of... Which was the right approach? Looks like the bailout was the right approach. I know you're a libertarian but like quite frankly our recovery versus theirs? Well the issue that I had with the 08 bailouts were how selective it was. Washington Mutual, they were let to go. Lehman was let to go, but when we bailed out these others, it was like randomly who was saved who was not.

Well, Bear Stearns famously got... But the bondholders should not have been bailed out, which they were. The equity holders got crushed, but the bondholders were made whole in all these situations. So it was how they did it. To your point, Bear Stearns famously got punished for not stepping in during 97, right? They didn't come to the table and the Fed said, all right, we're going to let you go on there.

Isn't that what happened? Yeah, there was an attitude towards Bear Stearns going into that for sure. So I do think that China is addressing this overhang of residential real estate. In fact, from the existing home market, you have the new home market, you have the existing. The existing is actually doing better because people don't trust a builder building something new. They'd rather just buy something existing. Oh, that's interesting.

So they don't know if the project will get finished. Exactly. So the existing home market's doing better and you're seeing a lift in the number of sales. I think if you see home prices in China stop going down from a wealth perspective, since Chinese people have a lot of wealth tied up in their real estate holdings, that can stabilize consumer spending

and all these consumer needs. I'm only interested in playing the Chinese consumer. Yeah. That's it. Because the next 10 years, China's middle class is going to go from 300 million people to 600 million people. And I just want to tap into that, nothing else. So if home prices can stop going down, China's stocks can finally potentially work.

So here's a push and pull between international stocks, which we're going to get into, and US stocks. JP Morgan has this great chart showing that it says China offers a more attractive cyclical starting point in terms of valuation. But we forecast a lower return on equity indicating a lower quality market. So we see US large cap return on equity. Obviously at the top, these are the best companies with 19.5% nexus Taiwan and all the way at the bottom is Hong Kong and China. So the question is like... Wait, what is this? Return on equity forecast.

Yeah, so let's just say that this is, whether it's like 100% accurate, it's a forecast, but still, these are directionally correct. So the question is, are the valuations, the discrepancies that we've been highlighting for literally the last 10 years, are they finally at a point in time where investors have, you can't even say a margin of safety in China,

but like is it worth it? Is it cheap enough? Why is the ROE so low in Korea, China and Hong Kong? A couple things. Well, in China and Hong Kong, those indices include a lot of state-owned businesses, where the returns on equity are probably under 5%. Because they're being used as political tools to... Yeah, the profitability is not necessarily the main concern.

Whereas, you know, Alibaba and Tencent and those others, there are always... I wish I had this ex-state-owned. Because interestingly enough in China, about 80 to 85% of the employment in China are for private companies. People think it's just the state-run economy. China's economy is mostly run by private companies. Now with Korea, they have the whole conglomerate issue that lowers the ROE. They're inefficient businesses.

Exactly. The interesting thing on Japan is that nine and a half used to be mid single digits. And that's creeping up. So Josh has talked a lot about Japan sort of adopting some of our business policies. Why hasn't the rest of the world done this? Is it a cultural thing?

Is it a, like? Well, South Korea's actually beginning to. Where Japan said, anybody who wants to list on, I think it was either the Topics or the Nikkei, said you need to raise your book value above one, or else we're kicking you off our exchange. Price to book value. Not only do you have to raise it?

You have to submit a plan and we're gonna put it on the website of the Nikkei This is how this company is going to increase shareholder value and the companies that did it Saw an immediate lift in their share price, right? This is real shit. Yeah, they shamed companies into acting after not caring for a while. And now South Korea's trying it, but they still have some issues with how they tax inheritance and capital gains and whatever,

and the shy bowl conglomerate thing. But Peter, I do think it's cultural, and I listened to Jeff Bezos on stage last night with Andrew Ossorkin, and Jeff was saying saying Americans are crazy. This is a country where you can raise 50 million dollars in seed capital and you can tell the person giving you the money there's a 70% chance this is not gonna work because that's how he built Amazon. And you'll still raise it. He sat across the

table from people and say this probably doesn't work. And they still gave him the money. That shit does not happen in Europe. I don't think it happens in most of developed Asia. There will never be a country like us. So that American exceptionalism thing, and here's how I bring this up to you. The reason Andrew Ross Sorkin asked Bezos that question is because that theme was the undercurrent

of the entire Days Worth of Programming a Deal book because this week started out with yet another Financial Times column by somebody saying, we're giving American companies way too much credit with these multiples and we're giving the rest of the world too little credit, and this American exceptionalism thing has been overdone. I've read that so many times. So that's why I was asking him that question. But I'm just saying, where else could we do the things

that we do other than here? Nowhere else. But keep in mind though, Amazon, Microsoft, all our great businesses rely on the rest of the world for business. They need a vibrant customer outside the US. They need a healthier Europe. So while we're sucking in all the investment dollars, some of these tech companies,

more than half their business is outside the US. Coca-Cola's business, what, 85% is outside the US. So yeah, we're the best country, exceptionalism will always be here, we'll always have a high, I laugh when someone says, oh, the US market's more expensive than everybody else. It's always going to be more expensive than everybody else. It's just a matter of what that spread is going to be.

And we know, we've been doing this long enough, to be a successful investor internationally is, sometimes all you need is the P.E. multiple going from 12 to 15. Yeah, but there's gotta be a catalyst for that. It's not just gonna happen for no reason. Right, so here's my other concern with the U.S. market that maybe is a catalyst, and I don't know.

So with these Trump, and I'm gonna tie this all together, with the expiring Trump tax cuts, it's from a budgeting perspective, he needs to find $4.6 trillion of offsets over 10 years. So call it $460 billion a year. As part of the budget rules, if you're going to extend or try to make permanent the tax cuts, you have to have pay force. So he's got to find these pay force to offset it, to meet the budgeting rules, to get it passed.

To get the extension at a minimum. Exactly. So the question is, where do you get these pay force? Now I hope that, you know, the whole doge thing helps to save money and maybe we can use that for some of the pay force. My worry is, is that- Don't put a lot of faith in that. No, my worry is that if Trump uses tariffs

to so-called raise money to use as pay-fors to extend the income tax cuts, because there are multiple ways for you to use tariffs. He can be strategic in saying, well, I'm going to punish China tech and their military and I'm going to keep certain things from them or if they want to buy it, it's going to cost them a lot more. Or I'm going to try to protect US industry, like steel and aluminum, because we need a steel aluminum industry, even though you end up hurting all those that

you try. We tried that. It didn't go well. It didn't work or it's that oh you tax our steel We tax your your grain and then it's we end up spending money in subsidies to make people whole it doesn't right and all The users of steel cost them they they shed more jobs than steel companies created because of their higher cost of materials and then the third thing is We want to encourage companies to reshore here That's another use of tariffs. The fourth one, which I'm worried about, is for these pay-fors, is they just slap tariffs on just because they need to raise tax dollars

to sort of make the math work. And if it's just a scattershot tariff thing on China, on Europe, whatever, just because they need to bring in revenue to pay for the extension of the tax cuts, that's a situation where I think the market is not prepared for. Right now the market's saying,

oh, he's just using it as threats. That's the new consensus. The new consensus is he's talking. And he's not gonna follow through. But, you know, Peter Navarro just got rehired. And the guy who replaced Lighthizer, Jameson Greer, Was his deputy, no? Yeah, is basically Lighthizer, Jameson Greer,

is basically Lighthizer 2.0. So I think these tariffs are coming. I'm just waiting to see how it's sort of laid out and is it going to be strategic or we need to raise money. We already know the answer is not going to be strategic. He said last week, he said, if Mexico doesn't close its border to the immigrant trains coming up from South America, if they don't close its border, 100% tariffs. That has nothing to do with the economy.

That's literally, I'm going to use tariffs as punishment against other countries who don't abide by my foreign policy. That is not economic tariffs. That's not, has nothing to do with job creation. Well, that's what I'm afraid of here. But nobody thinks he's really, but the point I'm getting to is nobody actually thinks that any of that's going to happen.

Well, the market doesn't. Right, the market thinks that it's just threats. But if the House Ways and Means Committee says, you know, Donald, we need a lot of revenue or spending cuts to offset this, he may use the tariffs as a fundraising thing Yeah, and if it's a fundraising thing, it's gonna be Not well thought out and that's what I'm worried about And if we start if we if with China China still loans what 900 billion dollars treasuries was that a bigger problem for us?

Owners of US stocks or owners of international stocks or probably both. I think it could be both. I think it could be disruptive to the treasury market in terms of inflationary worries even though you know people tell me oh yeah it's just the one step up level in price therefore it's not inflationary. Tavis to me muck up. It's like mud thrown into the gears of business. This is the orange swan for 25. Like if he really wants to do this. That's like the way you said it, orange swan, yes. So hopefully it doesn't happen, but that's if I'm looking at what the risks are from

trying to watch what can hit me behind, that's one of the things that if they use it for just a fundraising thing, and I think it's a piggy bank, there's a lot of risks there because we're not prepared for that can the US app performance continue forever I want to show you a chart John chart three, please So we've got the one three five ten fifteen twenty year annualized performance spread between the US and Different geographies emerging markets international developed, etc. Oh This is the degree to which these markets are underperforming The S&P 500 correct on an annual basis

So the only one that's not negative is there's a there's a little three-year period where Japan stocks from the point of a US-based Investor has outperformed Ken this Ken this is wild indefinitely Well, keep in mind in the one year a lot of that outperformance is the S&P multiple that has obviously gone up a lot. So earnings are up, what, seven, 8%, estimated this year, nine, but we're up 25, so there's been obviously multiple help there. Getting back to my previous point,

a lot of these big US companies need a healthy global economy. We have customers all throughout the world that they need to be healthy enough to buy our products. And so you need all of us to be sort of- Here's the flaw in that logic. United States consumer needs the stock market and the single family home market to hold up price wise-

100%. In order to spend. These stock markets don't fucking matter to the people who live in these countries. No, I agree. I'm talking about economically, they need to have the income to buy our stuff. But so that they already have it. So in these economies, they consume goods from US companies.

US companies earn the profits of that. Stock prices go up. It doesn't work the other way. It's not like all of the consumption of these overseas country, these overseas markets, whether their economy is good or bad, the stock prices don't really matter. They don't really reflect it.

Well, here's some instances where it has. You take Estee Lauder, full disclosure, we own it. EL. EL. Yeah. This is a stock that, you take Estee Lauder, at full disclosure, we own it. EL. EL. This is a stock that's gone from $370, now it's about 75 to 80. It's fallen, it fell 80% from high to low. And a lot of their trouble, yes, self-inflicted, but they did a lot of business in China,

they did a lot of business in Asia, they were very reliant on travel and the duty-free shops. The Chinese consumer spent $250 billion a year in 2019 in international travel. Whether it was going to Fifth Avenue or going to Champs-Elysees or going to Oxford Road, Oxford Street in London, they spent a lot of money. Well, the Chinese consumer pulling in was a major hit to Estee Lauder's earnings. LVMH too. LVMH also. LVMH also.

Yeah, everybody felt it. Right. So there is a reliance that, and that's why Q4 earnings, when we hear them in January, February, it can be really interesting to hear what a lot of these multinationals have to say about their European business, also with the strong dollar against the euro. That will be really interesting to hear what they have to say, because we still need, you know, for these multinationals, that growth. And even I also look at it domestically. So, you know, one of the things that was so interesting about markets

was obviously the outperformance of big versus small. And people would just say, well, that's because, you know, big companies are great. They have great balance sheets and so on, which, of course, that's that's the case. But who are the customers? Who's the customers of Microsoft? There's a lot of these small businesses that start a business that use the cloud service and every seat they hide, they get Microsoft 365. They can't go off the cliff and have large caps keep going up.

Yeah. I mean, we all drink, we all breathe the same economic air and you can't have such a huge differential. The great thing about the market though, and I wonder if this is the relationship, is that in July, the market finally woke up and said, you know what, there's another 493 stocks out there in the S&P. There's another 2,000 stocks in the Russell. It's not just seven names.

And I wonder, because I look at Microsoft and Google, I felt like heading into the second quarter, so July, when they reported, was up until that point, anything related to AI went up. Whether you were a spender on AI or you were a receiver of that spend, like Nvidia. I felt like the second quarter, the market started to ask questions, well, you guys are spending 15 to 20 billion dollars a quarter When is that gonna when am I gonna see an earnings benefit from that? And if anything because you're capitalizing these costs your depreciation expense for the next 20 years is gonna be very elevated And I felt that those were fair questions to ask of Microsoft and Google and Amazon and Meta even though Amazon and Meta

You know their outside business has been doing so well that they were able to mitigate it. But that's when the market started to say, you know what, there are other stocks out there. Yeah. You're going to love this from Chart Kid. The second half return of the S&P 500, 11.8%. The average stock of the S&P 500, 13.7%.

This hasn't happened in a while. It's really. And that started mid-July, third week in July, when Big Cap Tech reported earnings. And so I think that that's a positive, but it's a realization of- Nicholas made the same point that you're making, and a lot of people are saying,

if the question is, well, if large cap companies are so great, small cap companies can never catch up performance wise. Well, no, they almost have to because the only justification for the amount of money corporations are now investing in AI is that it's going to boost their earnings. So the next leg of the AI trade might be anyone but the AI companies. It might be all the companies that are now saying to Wall Street, in 2023 and 24, we bought all these subscriptions and licenses

and data center, whatever. So what, look at our productivity? And now, look how much more money we make, because we actually are, Benioff made the case, I don't know, did you hear any of the Salesforce stuff? Yeah, I read, I mean, I couldn't get through his like seven pages of his beginning, but I did go through his comments on Agent Force and... Well, you only need to hear one thing. He said he launched this brand new concept. It's

not really brand new, but it's introducing digital labor. Right, the Agent Force. that's introducing digital labor. Okay. Right, the agent force. This is a big agent force. It's a big deal. If the- What is this? Digital labor is, we're not replacing your employees.

Your employees are no longer doing the menial stuff that nobody cares who does it. That's what Salesforce's version of AI is. It's let's take your existing employees and automate 50% of their tasks. So I wonder if we're gonna see that in the financial. Well, it's let's take your existing employees and automate 50% of their tasks. So I wonder if we're gonna see that in the financial. Well, that's my point. That's how small caps work. Next year is one after another. They beat on earnings, they surprise to the upside. And why?

Margin expansion? It's the users of this technology. It makes their business better and more efficient. So that's viable. Because when you think about now the companies, the medas, the Microsorts that are building the models, well those models are going to be commoditized. Yeah. And are they going to see the benefit? I mean, I'm hearing-

Well now there are six of them. Right, it's all going to be the same thing. It's all a commoditized product. It's going to be the users of the technology that are going to be able to monetize and benefit the most from it. Not necessarily the sellers of that. Can we do a little AI deviation?

Because this was a really big week for AI in general. Did you pay any attention to the AWS stuff? Any of the headlines coming out of that? Yeah, I did see it. The vibranium chip? They did two things very effectively this week. In addition to Jeff Bezos talking to Andrew Ossorkin. The day before was AWS

reinvent. Right. Okay. They did two things that I think should get everyone's attention and this is Jassy not Bezos. Number one, they launched their own foundational LLM called Nova. There'll be five levels. There's like a starter level which is just you know text only then, then it goes all the way up. Nobody thought they were going to have their own foundational LLM because when ChatGPT originally came out, internally at Amazon, they looked at what their own chat was and they said, oh, this is clearly inferior. We're way behind.

So if you remember, they said, okay, our strategy is called Bedrock and it's a BYO LLM. So if you want to use chat GPT great bring it into the AWS environment and you could okay They just completely reverse that they launched Nova is their own foundational model Which the implications of this are all these companies that have invested all this money building LLMs, their customers are already sitting at AWS. Right. Okay.

AWS, if they can demonstrate that Nova hits all the same benchmark levels as Claude Sonnet or Chad GPT-4.0 or any of the others, there's no reason why a customer necessarily will prefer to use some other LLM unless they've already standardized on it. So that was, to me, a little bit of a wake-up call. Whatever valuation you're building into Meta and Microsoft because of the OpenAI partnership,

maybe rethink that. Yeah, and I guess that explains why Google and Microsoft are well off those July highs, where Amazon is at a record high. If you thought Gemini was just going to be run away with it, or if you thought OpenAI-Microsoft combo is going to run away with it, okay, Amazon is now playing at the foundational level.

Two, Tranium. The Tranium 2 chips are now competitive with H100s and Nvidia. Whatever valuation you're baking into Nvidia as having this level of market dominance for the next two years. Their mode's a bit smaller. Maybe rethink that.

They said Tranium 3.0 comes out next year, will be 30 to 40% more cost-effective than 2.0 and They brought on the head of AI and machine learning from Apple to promote tranium chips Apple says they're already using tranium for search and some of their services. So If you're long the video here, yeah, and you've had big gains these are real serious questions you've got to ask yourself. It's almost the game of chicken, because each quarter, you don't know when is that quarter where Nvidia says,

you know, because of the heightened competition, dot dot dot. It's here. It's coming and it's... And do you, as a shareholder, what do you do knowing that that is coming your way? But also, is Amazon being re-rated this week? Is it a GPU company now? John, put that chart up.

Look at this breakout on Amazon. But are these GPUs, are they going to be just using for themselves, or are they planning on actually selling it to others as well? Their customers will use them on AWS. Right. But that's... Right, so more localized models. But this is compute, they're building clusters

of 100,000 of these chips. This is compute that would otherwise be money spent with Nvidia is the point. Yeah. Now of course they'll all say, oh we're all partners and we love Nvidia, obvi. All competitors. But if they can do what Nvidia does cheaper

and the customer doesn't care, it's a different story. And it's an enormous amount of saving. This is the Amazon breakout this week. This is a re-rating of Amazon as now a serious, my opinion, provider of AI foundationally at the LLM level and technologically at the GPU level right? This is a different Market in 25 now that you've got competition for Nvidia

competition for open AI Coming from somebody coming from a company like Amazon that has all the customers already Sitting in their cloud yeah, and if you can overlay that against Microsoft You can see the clear differential in stocks over the last couple months. I thought that was a really interesting development, and it didn't get a ton of attention on Wall Street, but the stock price is definitely reacting.

Yeah, I was reading about it in the journal today, specifically, yeah. Josh, you were talking earlier about the benefits of AI for other companies potentially showing up. I believe it's pronounced A-oy. A-oy, so JP Morgan says, this is not with AI specifically, but they said, as the benefits of technology accrue to the wider economy, we believe

the concentration of large tech names in indices will naturally moderate. This is similar to the dilution of index concentration that happened in the 1950s and late 1970s, when important technologies ultimately boosted earnings across many industries, allowing other sectors to catch up to the trailblazers. I love that.

Where is that from? This is from JP Morgan's 2025 outlook. So maybe we've seen a dress rehearsal of the last couple months of that. Well, if the 493 are going to spend at the levels they're spending on CapEx and they're going to be handing over this much money to the cloud companies to do AI on their behalf, there has to be an ROI. Absolutely. I think it's, even Amazon acknowledged,

it'll take some time for a lot of their customers to sort of figure out how best to use these AI products, but it's still going to happen. Yeah. It's just, it's when they'll be able to realize it that shows up in their own numbers. One of the most crucial differences to me between the internet 1.0 and this.

Internet 1.0, it took a while, but once it finally started to work, it was a revenue growth story. This one might be a margin expansion story, not a revenue growth story. Some of the best use cases for AI that we're hearing now from Fortune 500 companies are more related to how much more efficient their operations are becoming and how much less they have to spend on employees.

That's not the same as, oh, we'll open an e-commerce store. Agreed. One of the most interesting lines from Microsoft's second quarter earnings release is Nadella said, at the end of the day, AI is just software. Yeah. It's what it is. But it makes software better, which makes companies more efficient. They get to do more relative to the previous version.

The new Apple iPhone is an improvement on the prior one. That's what technology has done since the history of the world. Do you think the AI bears are going to look ridiculous? Well, when you say AI bears, it depends. Because like I said, you have the spenders on AI. You have those that are receiving it, like Nvidia and the infrastructure people.

And then you're going to have the users of it via tools or in their own software that are going to benefit from it. So there's multiple... I think the most consensus bearish opinion on AI is that the revenue will not show up. Like in other words, all this spending is going to be a bust. Yeah.

Well, look at Copilot. Is that still possible to believe? Yeah, I think so. Yeah. Because if it's becoming commoditized and Mta is giving it away for free, why are you going to pay for Copilot if you can get it for free from Metta? They're giving away llama for free. They're not giving away the compute.

Right. You still have to pay the cloud provider. Right. They're still across there. Right. But in terms of substantiating all the spend, I don't know. And like I said, these companies with all the spend are locking in a higher expense rate through depreciation

that's going to flow through for the next 20 years plus. So as we wind on down the year, the market is up, what's the mark, is it a mark of almost 30%? Yeah, 30% year, unbelievable. John, chart time please. So this is, I don't know, the 15th best year. I'm just eyeballing it. What's interesting is that these types.

Wait, 15th best year. Hold on, let me just walk through this. These type of really strong years in the market typically happen when the prior year is negative. So you have a big snap back after a bear market. That's what we're looking at. Those are the blue lines. So we're looking at the best years from best to worst.

And the best, best, best ones happen after, you know, after 1929, for example. This is a top 10 year in a bull market. So the last year, we were up 20% last year, and we're up about 30% this year. It's pretty remarkable year. And if you consider the fact that, John, chart nine, please, the average S&P price target this is from a

Guy named David Cervantes the average SP 500 price target in 2023 for this year was what? 4,800 ish and we're we're 6,000 Yeah, well, I think with this is the hardest thing to do if you're gonna play this game But what game what game are we playing? The hardest thing to do if you're going to play this game What game are we playing? Throwing the dart on where the S&P will be in 12 months from now This is every firm and the average firm last year was at $4,800 By the way, Yardeni was by far the most bullish at $5,300, $5,400

And here we are at $6,100 and nobody had it It's like who knows what the right P multiple is Right? Because that's what it comes down to Is that the hardest part? Because it seems that way. I would have thought that, but then you look at this last earnings season that we just wrapped up, they were 500 basis points behind

where earnings actually ended at the beginning of this quarter. They were wrong on almost every sector. They were too low. So they not only have gotten the multiple wrong all year to your point. They also got the earnings wrong. Well, facts said, I like facts that during earnings season they come out with all of these stats like what percent beat EPS, what percent beat revenue, by what percent did they beat?

It's always 75. I always say like just like Joe Namath guaranteed the Super Bowl win, I will guarantee 75% will beat estimates. Revenue is usually like 60-ish percent. But they said the actual beat rate was someone in line with the five and 10-year average relative to estimates. Okay. But Peter's right, you can't predict, so even though the analysts were off this year because it was an exceptional with the AI story, you can't predict the so even though the analysts were off this year because it was an exceptional with the AI story,

you can't predict the investor's mood. And also with interest rates, who would have assumed with interest rates staying high that the P multiple would go up as much as it did? Nobody rational would say, wait a minute, we're gonna absorb 550 basis points worth of rate hikes and the externality of that absorption is going to be a

20% higher multiple on stocks right get the fuck out of here exactly For see again without without AI the multiple would be significantly lower Well, I definitely gave the stock market a second wind steroids for sure yeah steroids saved right because Just pull out the performance of Nvidia and tell me what the market did this year. It's like night and day. And if you want to throw Apple in there and a few other names, it's like the most, to me, it's the most pressing and urgent sales pitch for indexing. We don't know what's going to lead.

We just know we can't not be in it. So let's just take this one step further, getting back to Nvidia. Let's just say we're about to enter that quarter where they say, hey, you know, we had a little too much inventory. Equal weight without performed market cap weight. Let's hope that the baton can get passed to somebody else

as opposed to taking everything down. Well look at financials. They took the baton can get passed to somebody else as opposed to taking everything down. Well look at financials. Financials, or they're taking, they took the baton. Right, that was right, because the market discovered other things to buy because everything else had so dramatically underperformed that it was due for a catch up with only the catalyst being the question.

Well I don't know what will be, I don't know who gets the baton passed to them, but I would point out 40% rally in S&P financials this year probably not over probably going higher Better than tech so it's not as though there isn't another candidate out there Ready to take the baton health care earnings for banks are going up next year Okay, bank earnings right yes Health care you now have a trillion dollar you now have a trillion dollars in value in these GLP-1 manufacturers. They're probably going to be five of them.

Like, they could be the new mag-7. Especially if Medicare starts to reimburse for it. 100%. And internationally, if these drugs catch on. So right now, about 20% of the population takes statins. There's only seven million people right now on GOP1s. Right. Yeah. Okay. So just saying, this is the thing. And if we're all on shots and pills for the next five years, that could be... I can't wait till Josh gets the shots and pills. Hey, Peter. They didn't work. I started taking

them three years ago. One more chart before we get out of here. John, chart 14, please. One thing that we haven't spoken about. One of the big stories coming into 2024 was what's going to happen with all the cash. Well, not to brag, but I was right. The cash shouldn't go anywhere. It's state and money market funds. So the question is what happens with all of this cash? So JP Morgan has a chart showing the cumulative fall in money market fund assets in previous rate cutting cycles. So in 2001, $470 billion came out, for example, and they're showing an estimate for 2025.

On the low end, $626 billion in money looking for a new home. And on the high end, $2 trillion, which sounds kind of crazy, but who knows? So is this going to, I mean, this is a big story too. So my issue with the sort of cash on the sidelines thing is for every dollar that goes into the stock market off the sidelines there's a seller

taking a dollar off the sidelines. Sure. So there's always dollars on the sidelines. Only when a company buys back a share and retires it does is there some money that literally comes off that stays off but the buying and selling there's dollars coming in and out. No, we know it's neutral, but what if there's more, a more aggressive imbalance? Well, that's the thing. It's the urgency of wanting to get in,

or wanting to get out that moves stocks up and down. Not the amount. It's not the amount. It's the velocity. Exactly, it's how barely do you want to own it, how barely do you want to sell it. Now, but a lot of the money in the money market, a lot of the money in money market funds

is just money out of savings and checking accounts. That's not necessarily fresh money for the stock market. So people say there's cash on the sidelines, but there's always cash on the sidelines. But the number does go up and down of the amount of money people leave sitting in a savings account or a money market fund or a checking account.

Relative to total assets, but a lot of that is because the fluctuations in the actual stock market relative to the static value of money that's in a bank account. The last two years in a row, this happened in January. The year started with an explosion of cash into ETFs. And it was almost like a starter gun. I think the same thing's about to happen. And that comes on top of the explosion into ETFs and it was almost like a starter gun. I think the same thing's about to happen. And that comes on top of the explosion

that's happened over the past month of money. Yeah. Piling into everything. I think January, there are just people that are like, there's no pullback. I don't know what to do. This is going to age very well. I don't know what else to do.

Just here's the money, Trump. Yeah, we know. Make the number go up. I'm going to swing this back to Art Cashin as we finish up. Oh, I like that. You know, Art knew that the psychology of the stock market is different than regular life. You know, Walmart became Walmart because of everyday low prices. And people showed up.

New York Stock Exchange, if it said everyday low prices, everyone would freak out and never go. Everyday high prices, everyone is storming the doors. And he was able to, to what the video you showed before is, talking about psychology, looking under the hood, and sort of turning around what people think is normal. Money's going to come in in January because the market's high. That's right.

But in the rest of their lives, they're searching for value and discounts. And the stock market's the only thing where they don't. Well, because they're not buying the stock, they're buying the return of the stock. And when stocks are high, the return looks more likely. Right. Is it? Sentiment follows price. It's an economic term for this. It's a Veblen good.

It's a... It's true. There are certain things that are worth more because they are worth more. Bitcoin. Bitcoin being a great example. Yep, perfect. All right.

Peter, we're so appreciative to have you in our orbit as part of our professional lives, as part of our personal lives. as part of our personal lives. We think the world of you. We're going to try something new to end the show this week. We used to do this thing called favorites, but now we're going to switch it up. And we are going to ask you

what you're most looking forward to. And you're not prepared for this. So, actually I'll let Michael go first, I'll give you a minute to think about it. It could be anything. Generally in life. In life, in markets, maybe there's an earnings call coming up for a stock you own,

maybe you're going to someone's wedding. So speaking of Asia, my wife and son, the three of us are going to Vietnam. Oh wow. In a couple weeks. Very cool. So I'm going to scope out. Why. We were originally going to go to Thailand, but just the scheduling and logistics,

we couldn't make it happen. And I like, you know, I always wanted to see Vietnam. Vietnam is this up and coming country. Wait, why would the scheduling not be able to work for Thailand, but it works for Vietnam? You know one of the reasons? You have much more sex there is in Thailand? My son needs to be back December 30th

to see fish at the garden. Well that's, I can understand that. So with flights and everything, and so. But what, is there a different time that you're going to Vietnam than you're going to? No, it was some of the flights on the way back, and some of the, you know, and how we had spaced out in different cities.

Where do you fly into for Vietnam? You fly from Newark to Dubai, a layover in Dubai, Dubai to Hanoi, and then Da Nang and then to Ho Chi Minh City and then Ho Chi Minh City to Singapore and back. These are all flights? Everything you're describing? Everything flights, yeah. How long does it take a day? So we're physically there seven nights and I think the travel will add a couple days to that. Wow. Who helped you plan this trip?

Because I feel like you have to do this right. Yeah, no. You need a travel agent to also figure out what you're going to do every day. It's not like flying to London and just wandering around the city. Yeah, yeah, yeah. I don't know where I'm going. So, you know, you need somebody there to take you around. That's a really cool trip. When are you going?

So, December 20th. Okay. So it'll be some of my due diligence on Asia, right? There's some- Boots on the ground. Factories moving to Vietnam from China, and- Oh, I definitely- See how the economy's doing. I definitely want to hear from you from Asia,

like what you're discovering and stuff. Yeah. Dude, that's awesome. Love it. And when are you going to Vietnam? What are you most excited for? Share with the group. I'm taking my family to the Bahamas in December. And my kids are going to...

The water park. Nobody goes to the water park anymore. Right, I heard the water park's great. My kids are going to love the water park. Yes, they will. They have the best lazy river I've ever been on in Bahamar. Ben was just talking about it. He's very bullish on lazy rivers.

I don't think I've ever been on a lazy river. Lazy river is cool when you have a drink in your hand. Yeah. And you don't want to do a water slide. But you want to be in motion. Alright so what's your thing? What do you say about that? I'm very curious. Oh I don't know. Just life in general.

I'm going to Mexico. Good. I had a couple of drug deals. I've been putting them off all year. I want to knock them out before Trump. Wait, I just say one more thing. I was prepared to give a book idea based on- Go ahead, hit us.

All right. What book are you looking forward to finishing reading? I've been reading Geddy Lee's autobiography. Come on. I'm a Rush fan. Yeah, no, me too. It's great. Okay, wait. Did you watch the Yacht Rock doc?

It's on DVR. Rush is not part of Yacht Rock. I'm not a big Yacht Rock fan. You know Barry loves Steely Dan. Steely Dan's good, but I'm not a big Yacht Rock. It's not a CD. It's a great documentary. It's fun. Is there any dirt on Pert in there? I'm a drummer. Same. I'm at the part where he just joined the band.

Because there's a big part of the book on his childhood. He's, his family survived the Holocaust, so he gets into a lot of that. So Neil just joined the band. Okay. I feel like I would read that. I would rather watch it, but there was a Rush documentary and it was pretty good.

Yeah, it was excellent. When was that, like five years ago? Yeah, something like that. Before Neil passed, I think. All right, the was excellent. When was that? Like five years ago? Yeah, something like that. Before Neil passed, I think. Alright, the thing about Yacht Rock that I really, really... Did you watch the documentary? Oh yeah.

Was it hilarious? It was amazing. Shout to Bill Simmons and everyone at HBO that made this thing. This is not my generation's music, but when SiriusXM created the Yacht Rock channel, it became a preset. And I couldn't figure out what it was that I liked about it, because it's like kind of dorky. But the precision of the musicianship

is the thing that the documentary really highlights. Basically these guys from Toto were session players. They made Thriller. Right. Oh, I didn't know that. They played on every record that I grew up listening to in the 80s. Behind the scenes.

Because they almost sounded like synthesizers. Like the way that they were able to play, and people use the term smooth to describe it, there were no rough edges. It's perfect. And there's very little digital tools back then. These were just the guys with the most solid chops and they got their deal.

So they highlighted all the famous singers of the era like Michael McDonald, et cetera. I always thought of a 40 year old virgin with the Michael McDonald thing. Well I'm definitely saying it because my wife is big into yacht rock so she's going to get me to watch it with her. It's a very cool documentary

and it's not just about the music, it's about the impact that this has had now that it got classified into this goofy kind of genre, but then it became like a cultural phenomenon and I thought it was cool to see these guys get their due. Alright, that's it from us this week. I want to say a huge thank you to Duncan, John, Daniel, Nicole, Rob, Graham, Sean, Shark Kid, Matt, everybody that works so hard on the content. We did some good shit this week, right? Duncan, what do you think?

Yeah, it's good. It's one of our better weeks? Yeah, I think so. I mean, they're all good. Well, we all agree with that, but we did some really good stuff. All right, guys, thanks so much for listening. We appreciate you.

Please leave a rating and review, and we will talk to you soon