The Compound and Friends - The Day Inflation Broke

Episode Date: November 11, 2022

On episode 70 of The Compound and Friends, Warren Pies joins Michael Batnick and Downtown Josh Brown to discuss the latest in markets, inflation, the effects of seasonality, what could be next, and much more! This episode is sponsored by Masterworks. Learn more about Masterworks at: https://www.masterworks.com/compound. This podcast is for informational purposes only and should not be relied upon for investment decisions. To learn more about the risks of investing in Masterworks, see https://www.masterworks.com/about/disclaimer. 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/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Yeah, because I f***ed up my back sneezing. Yeah. So I don't want to like hurt my back. Are you being serious about the sneezing? Dead serious. Okay. So the guy goes, what are you trying to get out of this? So I said, I don't want to hurt.

I just want to be able to sneeze. I don't want to hurt my back sneezing. Like babes and I don't want to hurt my back sneezing. So I'm doing like the ball flex on the bench and I'm lifting 30 pounds. I'm like, wait, does this mean that I could only bench 60 pounds? Because that's pretty embarrassing. I'm like embarrassed for myself. No, that's not what I mean. So he said, no, it this mean that I could only bench 60 pounds? Because that's pretty embarrassing. I'm like embarrassed for myself. No, that's not what I mean.

So he said no, it's not exactly one for one. It's the tension that's in addition to the weight that's coming from that. Oh, I gotta get my hat. I can't do this naked. You could definitely lift more than that. All right. How was your trip in?

It was actually really good. LaGuardia, first time I've been back to New York since. The new LaGuardia is sick. For sure. I was, like, kind of dreading going back. And then, actually, it's pretty nice. But last time I was here was, like, March 6, 2020. Are you kidding?

No, for a Real Vision interview. And you had five seconds to leave the city. Exactly. I think it was, was like the last plane out before everything kind of locked down it was in this shit went down like march 4 13th or something yeah it was start so i so the thing is is that was my my old job i was basically the head of commodities over ndr so back then i was still with ned davis research and so they had come called me in to talk about like my outlook for oil.

And, you know, obviously, like that's when everything the shit hit the fan. And I said on that in that interview, I was like, I think everyone needs to keep an eye on COVID. This is serious. You know, demand out of China getting hit is going to be like it's just a week later. Everybody had their eye on like three days later. And they said I came back for like a follow up three days later because everyone was like that. That was that stale now. And my line was, they're like, how low do you think oil can go in this COVID scenario?

I said, I think there's strong support at zero. Yeah. And that was my line. And you were wrong. Exactly. That's the thing. There wasn't strong support at zero. It was like negative 30.

Nicole, my daughter told me I dress like Adam Sandler. No, you don't. That's what Sandler. No, you don't. That's what she said. No, you don't. I was like, what do you mean? No, when I saw that photo of you at the food,

at the food drive thing. That was a lazy outfit. That wasn't Adam Sandler. But he wears, he wears shorts. No, that's how that conversation came up. With sweatshorts?

I go, Howard, can I post this picture of you? You look great. Because she has final approval. Yeah. She said, yeah, but I'm more worried about you? You look great. Because she has final approval. Yeah. She said, yeah, but I'm more worried about you. You dress like an Adam Sandler.

She's the cutest. So I, oh, I'm like, why? She's like, well, dude, you'll wear like a button down shirt and like lacrosse shorts and a sideways hat. You don't do that. And you're like 58 years old. I'm like, I'm none of those things that you're saying. You don't wear button down shirts with shorts. I might. No, you don't. Not like like, I'm none of those things that you're saying. You don't wear button-down shirts with shorts. I might.

No, you don't. Not like publicly, but... Oh, by the way, here's a pro tip that is actually useful. So, I can't get that f***ing beep, beep, beep

the messaging to stop. Yeah, make it stop. I, I, so... And you know it sprinkles every time. So, I know how to do it. Watch, watch, watch. Up here.

Oh. Focus. Hit focus and hit do not disturb and that'll silence your mentions. For one hour. How great is that? Yeah, it, watch. Up here. Oh. Focus. Hit focus and hit do not disturb. And that'll silence your mentions. For one hour. How great is that? Yeah, it's great because it doesn't stop. It doesn't stop.

And then I get the ping. And the ping, does the ping go to everyone's ear? Well, it's loud. So, yeah. Oh, I'm sorry. Put my mic on! That's the, all right. Put the handsome lens on, please.

So, how rare are 4% up days? I have this on my spreadsheet. I just forgot to do the, they don't happen that often. Is the S&P up for, or just the Dow? It's up more. It's up even more? I don't think Dow's up. S&P is 4.8.

Wow. We might hit the five spot. Oh, wow. Look at this. Look at how we're running into the close. So do you remember we were talking to Pisani and Kyla? Yeah. The title of the show is Good News is Bad News.

Yeah. And we were saying how poetic would it be if the stock market bottoms on the worst core CPI headline in 40 years? And is that so far what it looks like happened? Well, that was the bottom. Huh. Doesn't mean that that's the bottom, but that certainly was. Close enough. That was a bottom.

Close enough. That was a bottom. Close enough. That was a bottom. And this is great news because stocks are rallying not in hopes of a Fed pivot, but like actually maybe the Fed could like chill out because the data is doing what they wanted to do, which is nice, right? It's not like desperation pivot where things are breaking. They need to pivot. You see this moving in the two-year?

Yes. All over it. I the two-year? Yes. All over it. Trying to get this Bloomberg. All over. Dollars collapsing. What do you need? Are you on? Actually, I wasn't able to get on the internet.

Do you get the connection working? Is it all lowercase or uppercase? Lowercase. Oh, okay. No space. The password is Sam Bankman Freed. NVIDIA's up 13%. Amazon's up 11%.

Facebook's up 10%, not to brag. Sell everything. Shopify's up 17%. Your home builder's up 9% this morning. Oh, Renar, 12%. What's ARK doing? Oh, look at this. Look at this move.

Josh is using Yahoo Finance. I am. 12.5%. I don't have time for anything else. 12.5%. I don't know if I told you, I bought Zillow after a day after earnings or two days after earnings.

And? You happy? So far, so good. Look at you. And your meta's up today. Yeah. I didn't think that was going to be possible. All right.

Are we ready? Welcome to The Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's show is brought to you by Masterworks.

Masterworks. Most people, myself included, do not have the wherewithal, the financial means to buy a Pablo Picasso painting. Right?

I don't have $6 million just lying around for a Picasso painting. Barry could probably buy one. But I do have money to invest in a fractional piece of Picasso.

So that's what Masterworks does. You could invest in shares of a piece of art just like you would in the stock market. If you are interested in learning more, please see masterworks.com slash animal.

And of course, nothing in this podcast should be construed as a solicitation of an offer to buy or hold an interest in any investment product. To learn more about the risks of investing in Masterworks, see masterworks.com. John, I'm crazy loud, but I like it. I want to leave it alone.

Duncan doesn't hurt my ears. All right, everybody. Welcome back to the biggest investing podcast in the world. My name is Downtown Josh Brown. As always, I'm joined by my co-host, Michael Batnick. Michael, say hello to everyone. That intro is making me feel very like Garth Algar. I don't like it.

Well, you could do the intro next time. You want to do it next week? Maybe I'm joined as always by Josh Brown. How do you like that? Do it. Well, I didn't say my sidekick. I said my co-host. Okay. Right?

I don't know what you said. Nicole's in the house. John's in the house. Duncan is out sick. And we're sending him. He's on the mend. Love you, Duncan. He's on the mend.

We love him. We're sending him best wishes. John Pressure's on. I know you're going to be wearing a lot of hats right now, but I feel like we're going to be fine. We're going to be just fine. John's like an airline pilot a little bit. Like, just his demeanor. I've never seen him get rattled before, right?

I've never seen you be like, shit, right? Never. It's time to take the show into 30,000 feet. My guy. You got this. All right. We're joined today by Warren Pies. I wanted to go with peas.

No, no. No, I know it's not that, but I just wanted to see how you'd react. Warren is a co-founder and strategist at 314 Research, an investment research platform that provides, we wrote this, so that provides weekly insights, asset allocation frameworks, risk management, and more. Prior to founding 314 Research, Warren led Ned Davis Research's energy and commodity strategy and has worked as a practicing attorney specializing in regulatory approvals. Warren Pies, welcome to the show.

Excited to be here. A lot of people are excited that you could be here. What a day. Oh my gosh. Wait, I got something to say about Warren. So I was not familiar with your work, but you sent over some of your charts. And as I'm going through them, I said to Josh, if Warren could talk like 10% as good as like he presents his charts, it's going to be an amazing show. Yeah, no, it's definitely going to be an amazing show. Your charts are incredible. So we're super excited to get to them. Yeah. Can we start with Ned Davis research? Sure. Okay. Where do you want to start? Well, that is one of the most storied, I feel like respected research firms, I guess on the street, but they're not really based on Wall Street, but like in the industry, let's say, right?

Yeah. Okay. How did you get started there? Wow. A lot of dumb luck, honestly. I was an attorney and I was practicing in the Sarasota area and really didn't like it. It wasn't my thing. I was kind of just trying to understand the stock market.

What kind of law do you practice in Sarasota? Is that like beach law? Yeah, beach law. I'm guessing a lot of wills? A lot of, yeah. Yes, a lot of old people. No, I actually was doing

regulatory approvals for the phosphate mining industry. Okay. Oh, yeah, I did that. All right. So how do you take that and transition to net data? There is absolutely zero

overlap in skills. So I had to start from the absolute bottom. So I knew a guy who, through my law practice, I met a guy who knew a guy who was running the commodity team at NDR. And I basically, I got, and this is John LaForge. He's now at Wells Fargo doing head of real assets over there at the Wells Fargo Investment Institute. Still friends, play fantasy football with him. Awesome guy. He's crazy. And honestly, nobody would have given me a shot other than him at NDR. NDR is very straight laced, but John saw, he was like, I don't know what he saw in me, but he saw something. So he hired me and I started at the bottom. It was kind

of frustrating. What year is this? This was 2011. I was 30. So, Oh, you're a real career switcher. You can do the math. Yeah. Yeah. Yeah. Young family and stuff like that. And so it was stressful and I had to basically learn how to code. And like, I remember for instance, they test your coding abilities. I had zero coding abilities. They test your coding abilities before you get there. And I, I had, was that a retina scan? How did they do that? It was an LPAT, something called the LPAT, Language Programming Aptitude Test or something. This is in 2011? It was like 2010 when I started this interview process. They were testing your ability to code for everyone or just for the role that you were

trying to get? Anyone who started there. I mean, in order to do real analysis, you need to be able to code. You need to be able to manipulate numbers and stuff like that. So that's like part of the – it's important. And they told me that. Then John told me that when we were at lunch. And John's like, look, he had run a hedge fund before that and stuff like that. So he was a little bit more gut feel versus quant. But he told me, you're going to have to be able to do this.

And so I went to – I probably shouldn't say this too much, but it's not a big deal. I'm gone now. But I went to the company who produced the test and pretended to be another consultant and said, I would like to see this, this test you use to screen coding folks. And then they gave me the test. So I was able to like get the answers beforehand. And that's how I was able to kind of slip by the coding side of that. you you had to justify the means you got to do what you got to do it yep that's right yep and that's how i got into ndr but yeah that's that's it was a weird way but what happened when they were like all right show us what you can do yeah start i mean it was tough i had to learn i mean it was like there was no faking and i had to learn the great thing about

ndr especially back then it's a totally different place now but back then i mean ned's retired a lot of the the best people are gone now but back then they would train you you know and like there was a guy rico i shout out to rico and the custom research department and you would sit down with him and he would give you these custom uh these these little practice procs so you would start out like coding a little chart of the s&p 500 and you'd add a moving average and then you would do this. And the next thing you know, you're building models and backtesting things. And it frees you. It frees you from going from being someone who just reads blogs and reads real research to someone who can do their own stuff. Right. And that was the moment. And for me, I had such an interest in the markets.

Right. And that was the moment. And for me, I had such an interest in the markets. For me, that was the moment when I was able to really get out there and take my mind and my creativity and actually test what I was interested in. So I just tested everything and I was I became well known. Fast forward a little bit. I was I did the the first piece of content on master limited partnerships. I took over the energy sector first and it was a lot of work and the um it was picked up by barons ultimately i did the the round table on mlps back in 2013 and that was kind of like from there i started getting more strategy work and was known more for oil stuff and that was my shtick and it still is to this day is like i would go against competitive competitors who were you know we they would say, oh, we attend every OPEC meeting, this, that, and the other thing.

And it's like everything is experience. And for me, I was a young guy. All I had was data and models. And that is still, it's really the heart of what we are at 314 Research still. We've transported that over. It's really just about quant. It's objective, you know, seeing the world as it is not how we want it to be yeah and not forming a bias you know and even doing the work and then having an opinion

versus having an opinion and trying to figure out how to prove that it's right yeah i mean so many people and like we can get into the inflation stuff which was the story of the day but so many people do that in this industry where they have a political bias and then they work backwards to support it and that's just life and if you can get beyond that then you're already way ahead of the game what's 314 314 research that's our research i'm sorry i'm sorry what does it stand for what's the idea what's the genesis it was the number three 314 and then 14 spelled kind of math plus plus my last, are you joking? Okay. There you go. No, I got that. Cause his last name is pies. Uh, yeah, I feel like an idiot. I mean,

cut that part out. And then it's three 14. Uh, that's a big difference between you and I though. Like I don't do my own re I don't do my own quantitative research. I wouldn't know how to begin. I'm a very good synthesizer of other people's ideas. And then maybe hopefully once a year or twice a year, I can say something that builds on it and makes the research more valuable for people than it otherwise would be. But Michael does all his own, you know, and that's a really big difference between his style and my style. But that's a very important skill to have if you're doing research. A lot of research that comes into my inbox is all written. And you just say, all right, this is an opinion piece, which there's nothing wrong with that. But that's not the same as the kind of work that you are doing.

Yeah, precisely. I mean, there's a role for all kinds. Sure. You need to have a strategist, a big picture thinker. But I think it really helped me. And that's really where I spend most of my time these days. But I mean I can kind of see things in charts and models because I built so many charts and models over my career now. I can kind of see things and I can see, OK, there's a weak point there.

That's really just a chart crime or that model is doing this. I know that. Everything that guy just said is bullshit. You probably know it. I mean you know how it is. It's like there is a lot. I know that. Everything that guy just said is bullshit. You probably know it. I mean, you know how it is. It's like there is a lot of bullshit out there. Is most of the work that you do at, just generally, is most of the work that people do at Ned Davis custom ordered from like a hedge fund or a client?

Or are you guys doing something that you think is important and then pushing that out? And whoever wants it, wants it. We had a strategy team and a custom research team. And so I worked on the strategy team team you train up in the custom team and so i did a little bit of the custom stuff for like hedge funds and stuff like that but you have to be a more talented coder like i was good enough yeah but like the you know the guys in crs like the partner i work with fernando genius he was at crS. We met each other at NDR. He's out in San Francisco.

And then he moved on from NDR, got a master's degree in machine learning. He was doing data science out in Silicon Valley. And so people like that are – but he was the best in CRS. And so people like that do CRS. People like me do more of the strategy stuff. And that's what I'm fit to do. And then there's the secondary component to it, but it's really not secondary. It's maybe thought of as secondary, but the visual presentation is as important as the insights that you're generating from the numbers.

And you look at the guys from Bespoke, who I think like a lot of young researchers coming up trying to be entrepreneurial would look at what they're doing or what they have done over the last 10 or so years. And it's like, oh, the shit has to look good. It has to make an impact the minute somebody glances at it. And you know, their charts are their charts. Like when you see the blue fade to green or whatever their color scheme is, like, you know, it's from bespoke. The branding of it is important. I think when you think about like what are we all doing with this information, not everybody is trading on it immediately. A lot of people are using it to just have a better understanding of what's happening.

For that more casual user, there's got to be a visual effect that comes along with the data. Yeah, I mean, so I want to give away all our secrets or whatever. By the time you're done here, there will be nothing left. So you're going to pump it all out of me. But But I mean, by the time you're done here, there will be nothing. So you're going to pump it all out of me.

But, you know, that's something that I think was Ed Hyman. I mean, he built a ISI. I mean, like, you know, it really built ISI was the markups on the charts, you know. And I remember John, again, the guy who hired me into the business. He said to me, and I'm an attorney, so I like to write. We start our reports out with all these quotes and, you know, all this stuff. Yeah, I love the way you do that. Okay. Well, I appreciate that. And I like it, but not everyone likes it. And a lot of our clients don't have time for it. So the point is you better be able to get at least 70%.

Hit page down. Right, exactly. It hits 70%, get 70% of the story just from looking at the charts and the markups. And I think that's what like Ed Hyman learned and that's why he became uh really successful okay so when did you start 314 when did you first uh when did you like uh first go out on your own and found this thing september 2020 is uh when it started you know so many people have that same story yeah i mean during the pandemic origin story especially the uh especially you went with an energy background yeah and so i mean energy was left for dead. You know, that's what happened with NDR. It was like we don't want to have a dedicated commodity team anymore.

Right. You know, let's just back up. Like this wasn't Ned's call. Like Ned and I were good friends and like worked out. We had a gym on site and we worked out there all the time. I work out also. I see that. I mean, you're both very, very –

No, we don't have a gym on site that's the problem you know it's just a just a bow flex machine in the office that's right that's right anyway so but but ned had was retiring his right hand guy so they were bought out by like a private equity company and stuff like that so we but i took it as an opportunity i was you know 39 years old so what do you so you met you married you married? Uh, and divorced. Okay. So you didn't have to like clear that decision with anyone. You could just say, I'm doing this. I'm a free agent. Yeah. That's the beauty of being a free agent. So that makes a big difference. That's like one of those things where it's like, I know I could do this and I really don't have

anyone to convince. I just have to kind of go for it. Yeah. I mean, I had a lot of things that lined up for me. We had been, uh, involved in. We had been involved in a self-storage, a couple of self-storage properties that we fixed up through the real estate boom and then sold off. And that helped with some of the, you know, cushion, some of the blow. And I could have gone a couple of different directions, but like, I just love this stuff. I've always wanted to do it my own way. And this was the opportunity, the timing lined up. So who are most of your clients right now? Institutions. I mean, we have some individuals, high net worth individuals also, but it's mainly institutions, hedge funds, uh, large asset managers. Um, you know, you guys

had Jeremy Schwartz on and he brought some of my charts with him. Yeah. Jeremy was one of my first clients and just really cool guy. And people like that, I just really was – they supported us right at the very beginning. And that was a hard time starting a business. And you don't – it felt a little bit like throwing a party and wondering if anyone will show up. Yeah. And so – but Jeremy showed up in Wisdom Tree and people like that kept showing up. And we started realizing we have something here. Dude, if you're doing good work, people will find it.

And if Jeremy likes your stuff, then it's good. Yeah. Because he's not wasting his time with anything other than like essential things. So that's great. All right. Congratulations. So yes, agreed. Let's get into some of the stuff.

So I was saying before, like how often is the market up 4%? Well, I got it right here. So since we started talking, the market is- Warren, while he says what he- No, just shut up. I'm done. I want you to fact check him. Stop, stop.

Yeah, yeah, yeah. All right. What do you got? Let's go. So since 1950, there have been 54, including today, up 4% days. It's actually 53. Up 54 days.

That's 0.3% of all days. But the S&P 500 right now is up 5% as we speak. I don't know if it'll close there, but that's only happened 22 times, 0.12%. So the point is there's been 18,342 trading days since 1950. 54 times the market was up 4%. Only 22 was up 5%. And today might be number 23.

So what is moving the market today? We found out S&P is up 5.1% right now. So CPI, lower than expected. What was underneath the hook? I didn't get a chance to look at the numbers yet. Yeah. I mean, I have not, we break the CPI down every month when it comes out and we publish today, but I can, I have a decent idea. So, you know, what we've seen is that basically, you know, we shelter, which has been the big driver and everybody's talking about it. Yeah. That's about a third, right. And then 40% of core. And so that's a big in the thing is, and we did a lot of work on this is like, that's going to continue higher. And if you have, our view has been, so if you give us like one,

what is your conviction call over the next year? One conviction call, CPI is going to decelerate rapidly over the next year, no matter what the Fed does from here. And that's, and there's a part of me that thinks that statement is just how much of a degree. That's a controversial statement. That statement holds true

even if we don't have a recession. I think we're going lower for technical factors is really what it's all about. And so, you know, and if we get a recession or softening in demand, then obviously that's going to, you know, put even more pressure on CPI. So that's our big base case. It's just a matter of how you get there. And that dictates how you want to structure a portfolio. But under the hood today, I mean, shelter's going higher. There's nothing stopping that. So you got to throw that out. But cars and energy have been turning from a huge boost to CPI

early in the year to it's starting to fade. This is something we saw coming. And then what you're starting to see on top of that is this services. And this is what we've been looking at as services X shelter services, X shelter came in flat month over month and year over year, it fell by or not. It went from 8.2% to like 7.6 or 5% or something like that. Right. And that to me, that's the key part that the feds really looking at is this services X shelter. Um, and so, yeah, that's what, what are the biggest components of services? Services is really shelter. You know, shelters in the service, but it's all rent stuff. But you take the rent out, then you're looking at health care.

And health care was, for technical reasons, basically got derated today. Because you basically look at health insurance specifically, but health care came in low. And that's because of a lot of technical factors. But they basically go back to the insurers and ask them, how much earnings did you retain last year? And, you know, basically that works with a lag. So they do it once a year and it always happens around October of the end of the year. And then that persists for a year. And you can the people who watch the CPI and break it down, they know that this is going to be a drag on CPI for the next year. So that's a big, big factor.

And that's in the mix. But, I mean, there's just like a lot of stuff. It's services. It's the service economy. Why does the Fed watch services ex-shelter so closely? I mean I think they're trying to map a piece of that CPI onto the labor economy. And so they want to see, you know, and that's what we were starting to really look at that jolts stuff, which you guys saw. So our big thesis, just to back up for a second, is we think there are two

big factors that are pushing and pulling market participants right now. Number one, you have improving data, like I said, that's our conviction call. Improving meaning softening. Softening inflation data. And that's going to provide the downside support, the support for the market. And then what's going to put the ceiling on the market in our view is earnings. Yes, you have deteriorating earnings versus improving data. And that's the fight that's going to, and I think the way that expresses itself is in this trading range we're in. So I think we're in a range bound market for a little bit. All right. So let's get into some of the stuff. So we had 7.7% today, markets of 5%. If you dropped an alien down from outer space or yourself from three years ago and said, hey, there's going to

be a CPI print of 7.7% of the market is going to be at 5%, you would say, what the is going on? The only question is, well, what was the last CPI? Exactly. And that's it. So what's going on? The only question is, well, what was the last CVI? Exactly. And that's it. So what's going on right now, the market is ripping. We have this chart from Jim Bianco showing that inside the market today, the Goldman Sachs most shorted index is up 9.3%. So all of the trash, all of the ARK names, the Pelotons of the world, the Shopify's, like anything that people were short.

ARK is up almost 13% on the day. Is blowing it out. To illustrate that. Is blowing it out. So I've got these ARK names. I think I spoke about this earlier, but Shopify up 17, Peloton up 15, Teladoc up 15. This is it.

And so people, the shorts are getting cleared out. What's the Venn diagram look like of the Goldman Sachs most shorted index? One to one. And the ARK portfolio. It's the same thing. It's gotta be, right? It's the same thing. We're pretty damn. And the ARK portfolio. It's the same thing. It's got to be, right? It's the same thing.

We're pretty damn close. At least it was. It was the same thing. So I think this idea, listen, maybe the historical data doesn't bear this out, but these technology are high duration stocks. That's it. That's it.

Oh, for sure. I mean, and this is something, having a line of sight on the energy sector for all the way back to 2019, like I saw this coming before even COVID was like the energy sector transitioned for the first time ever in the highest yielding sector in like April of 2019. So this is way before COVID ever happened. And so what had happened is that this was clearly investors saying, we want our money back faster. Energy became the short duration place. So when you had COVID hit and near-term

economic activity got smashed and rates fell, that's why you saw all these long duration, big tech, no earnings type companies skyrocket and energy is in the dumps. And we've just had a reversal of that as rates have risen and economic activity has ramped. But energy has more going for it this year than just the fact that it's short duration and the dividends you can count on. You've got electricity supply issues all over the world, geopolitics. You also had just the buildup of an industry

that hasn't invested in itself in a long time for good reason, obviously. But there were a lot of factors that helped that short duration story. You would agree? For sure, yeah. I mean, this has been an area we've been pounding the table on all year.

What do you tell people who are interested, they're underweight energy or don't really know the space and they're looking at, I think the sector's up 65% this year? Yeah. What do you tell people typically happens after a year

in which energy outperforms everything? Or is history not a good guide? Like, do you start, like, do you start buying

ConocoPhillips and Chevron now or do you chill out? You know, my feeling is, so there are two ways to answer that question. Number one is- Answer it the right way,

though. Well, okay, here's the, the guy in the street says, do I buy or sell energy right now? And I'm like, I don't know. I mean, probably buy it, but I'm not not very excited about it at this level. And then you have a more sophisticated answer. And that's, I have a portfolio. And I need to add something to it. I have stocks and bonds. Now I'm excited. And I think you should add energy

and be overweight energy in a balanced portfolio, because it's doing things that nothing else in the market is doing. So it's not a yes or no energy. It's how much energy in relation to everything else that you're invested in. Correct. I think that's really to me – and that's kind of the quant way of looking at it is what is this thing doing in your portfolio? Is it just giving you beta to a commodity that's crazy volatile and that could be down because the Russia-Ukraine crisis cools off? If that's all you're getting, then it's not so interesting. But if it's doing something that's diversifying all the other things like nothing else in your portfolio, then that's a great investment.

And energy this year, for the first time ever, any sector was trading negative to every other sector on a pairwise basis and bonds. Never seen that. Inversely correlated to every other sector in the market. Everything and bonds. So we've had times where a few years ago, utilities was negatively correlated to every other sector, but it was still positively correlated to bonds. Energy negatively correlated to everything. You just can't find a diversifying asset in this world. Somebody was telling me that the Bitcoin versus gold thing is the wrong way to think.

They're saying oil is doing what gold is supposed to do. Bitcoin's not doing it. The real thing that's giving you that diversification and that commodity is oil. And what's really even more interesting about that is that's happening against the backdrop of a US dollar that, until today, I think has been going up like every week. Yeah, absolutely. I think that – well, I think this cycle – the dollar being strong hurts foreign oil demand. So it does have an impact on oil.

I do think this cycle that there's going to be more of a positive correlation between dollar and oil just because when the dollar moves, it's going to – just like we saw today. What did the dollar move off of? The thought that the Fed may pivot. And so if the Fed is going to pivot, then you can't – the Fed is not going to pivot when oil is at $130 a barrel or $150 a barrel. And so there's a good chance that you're going to see this co-movement between the dollar and oil. And so, yeah, it's a weird cycle in that way. So today was like historic for that. The two-year treasury yield is on pace for its biggest one-day decline since September 2008. Dollar-yen set for biggest one-day decline since 2016. This was an important day in the markets. This will show up in the chart. If you

look at bonds or the dollar, this will show up in charts for a long time. For sure. I mean, and there's always those stats if you miss the best whatever days in the market. That's just the whole exact reason why you don't get shaken out of positions. It's like these are the days you need in order to make your goals. Right. So when you – where do you want to go next? Do you want to do this thing about the reversals?

No, let's not. you want to go next? Do you want to do this thing about the reversals? No, that's not, let's skip that. Let's just get into Warren's charts because we could spend four hours on these. So maybe we'll just start here. Nate, you were looking at a chart of the S&P 500 and the trailing 12 month earnings drawdowns. So we're looking at year over year growth of earnings. And you're basically saying in one of the pieces that you put out that bad things start to happen. And we have more charts – we have more of your charts. Bad things start to happen when earnings go to zero year over year. Correct. And so – Zero percent growth year over year.

So Nate had – I don't know why I call you Nate. Who's Nate? I don't know. Who the hell is Nate? Nate Dogg? He was part of me and Warren. No, we were thinking like Ned Davis because we did – No, maybe it was Nate and Warren.

Like maybe it was Nate Dogg. Oh, shit. Oh, shit. All right. Could that be Snoop? But you had this crazy stat that 10 out of the 11 times that earnings growth went negative year over year, they went down 10% year over year. Correct. Yeah, 11 out of 16 times.

11 out of 16. 16 times we've seen trailing earnings hit that zero mark. And then they accelerate almost immediately to negative 10%. So you go – so like what are we at on trailing 12 months right now? It's like 206 bucks a share. And so we go forward. If you don't, if you go, if your growth falls flat, and I think at the end of the year, we're going to be at 222. So like, then you look at 2023 estimates, which are somewhere in the 230s right now.

And falling. Right. And those estimates get down to 222. Then you're talking, we're in this neighborhood where we're starting to see flatline earnings growth. And when that happens, you see an immediate acceleration down to at least 10%. You know why I think that is? I forget who we had on here. Maybe Nick Colas.

And we were talking about, like, companies are not going to preemptively do layoffs. They do layoffs after things have already gotten bad. What do they call it? Warehousing talent or something like that? Yeah. Well, like this idea that like companies are going to say, I think there's a recession next year. Therefore you're fired.

That's like not how it actually works. What actually happens is profits get, or in the form of earnings get crimped, which then means people, the shareholders are making less money. The executives who own shares are making less money. There's less profit to be distributed. And that's what generates the layoffs. And that's why when earnings go flat from one year to the next, you get that acceleration because then all of a sudden, oh, everyone agrees things are bad. But what's weird about this period

of time is, at least in technology, these companies are – other than meta, these companies are still kind of growing. But they're firing anyway. Like they are working off the excess of their own hiring before there's an actual profit recession or earnings recession. Yeah, no, I think there's certainly something to that. The other thing we found, which kind of, it all gets, when you're trying to parse it out in the data, the thing we found out of those 11 cases where earnings went from zero and then immediately down to at least 10% contraction, the recessions. Every time, yeah. Yeah, and then the other ones, the five that are remaining out of the 16 cases of hitting zero earnings,

four out of those five, no recession associated with them. So what's an example of that? Let me pull my chart up. I think it was 2010 maybe was one. But that was actually coming out in 2009. That's like a hangover from that period. Yeah. I might have the chart.

You might be able to put it up there. Which one is this? It's that bar chart, the horizontal bar chart. We'll come back to that because I think it I might have the chart. You might be able to put it up there. Which one is this? It's that bar chart, the horizontal bar chart. We'll come back to that because I think it's better in here somewhere. But let's talk about the evolution of S&P 500 estimates. So you did some really fascinating show with analyst estimates that I want to get to. But what are we saying here in this chart? Oh, sorry. It's not on the screen. John's a one-man show today. So we're looking at this, the evolution of S&P 500 estimates for next. There we go.

Yeah, so that's how the end of next year. So that's fiscal year 2023 estimates have evolved through the calendar year. And we're just plotting every calendar year. And so you can see how these estimates evolved through the years. And so we started the, obviously, you're looking at 2021. That's end 2022 estimates in the red line. Those were just constantly going higher throughout 2021. So future earnings were getting priced higher and higher and higher through 2021. And you can see that 2022 started

out pretty positive too. That's the blue line. And we've started contracting. But wait, Warren, were analysts drunk too in 2021, like the rest of us? Shouldn't they have been the sober ones in the room? Well, I mean, in 2021, they pretty much nailed it, right? I mean, we haven't missed earnings this year. So like 2022 earnings, we haven't really missed too bad. This isn't right. And they do seem to be taking their estimates down. But wait, hang on. This is important. So these numbers are indexed to 100. Yes.

2021 was the highest pace of what? Estimates? was the highest pace of what? Estimates? Of how estimates, the end of the 2022 estimate grew over the year. So starting in January 2021 to the end of 2021, the estimates for next year grew by like 20% almost. Yeah.

And you could see why you had stock market bubble, you had a housing bubble, you had all these things working really well simultaneously. You got a vaccine in the spring. And then you had travel explode and you had like- Stimulus all over the place. Stimulus everywhere. You could understand.

So is your take that Wall Street is still too slow at taking down expectations, or do you think they're at the right pace for 2023? I don't think they're too far off. I mean, I guess we're in 230. I think you need to mark it down probably another—we're at $210 a share. If we have no recession—so to me, it feels weird. It feels really binary. It feels like if we have a recession, earnings could be 200. And if we don't, it could be 230.

And that's such a huge gap. I don't know what that is percentage-wise, but- Lizanne- Almost 15%, right? Yeah. Lizanne Saunders tweeted today, the drop in the S&P 500 blended forward 12-month EPS, not yet anywhere close to recessionary. It's at 230. If you look at like forward EPS drawdowns, I mean, it's nowhere.

No, I mean, that's the whole point is like fiscal year 2023 earnings growth is estimated to be 6.8%. And we break it down by sector. I mean, the analysts have consumer discretionary at 28% growth next year. And consumer discretionary is contracting already this year. And so you could go through there and see, like, there's some stuff that doesn't make sense. Margins are supposed to hit a new all-time high next year when you go through the earnings, right? Margins are at, like, 10%. How could that possibly happen?

I don't think it's going to happen. I think that when you – Again, back to what you said. I'll try not to have a bias, right? And when you – Again, back to what you said. I'll try not to have a bias, right? So if the data says that that's possible, I guess I'll – Josh, you have very strong ideas.

Because it really seems impossible to me. Like what is the story that – I know we're talking about data versus story, but honestly. What if Powell's the goat? What if he pulls off the soft landing? Even if, that doesn't mean it costs materially less to run your business. And that's what margins are. Margins aren't all to my eyes. I understand,

but I also think now what you're hearing from companies directly is that they look at what Disney did. Disney blew up this week. And the reason why is they reached a point where they couldn't charge any more money. That can't affect one company. That has to affect a company the size of Disney. That has to be something that becomes more widespread. That's all I'm saying. Getting back to Warren's thing about analyst estimates, let's throw up this next chart, John, please. This is amazing. So you're

showing the actual future 12-month EPS shifted by 12 months and the analyst estimates. And if I'm looking at this right, are we saying that analysts are following earnings or what exactly is going on here? Yeah, analysts are late marking their earnings down and they're late marking their earnings up coming out of a recession. Which is not necessarily their fault. How would it be any other way? Where do you think they're late marking their earnings up coming out of a recession. Which is not necessarily their fault. How would it be any other way? Where do you think they're getting the guidance from? They're getting it from the companies themselves. The companies and then the thing you start to realize when we talk about those cases

where earnings decelerate from zero to 10 really quick. To negative 10. To negative 10. The way you stop that decline is through monetary stimulus. So the Fed always, we have another chart in there. It's like we're looking at Fed funds rate around those times where we go to 0% on earnings. It's recessions. Yeah, Fed funds rate is starting to come down.

I mean it's that typical business cycle. So you're starting to get counter-cyclical policy. That's what sets the bottom. And analysts are slow. They're slow at the turn. They're always – what is the old – it's better to fail with consensus. I mean like that's what the whole – Better to fail conventionally than succeed – or then – I don't know.

Could we have – Career risk. Rates not go – like could we have a situation where the Fed doesn't have to cut rates because things aren't blowing up, where the mortgages get back down to six, a reasonable number that people could afford houses and there's more activity, and we just glide on and there is a soft landing? I think... That's the 90s. Yeah, I think mortgages have to come down a decent amount.

To make that... To the fives? I think you... So we're at... I think they fell to 6.7 today. Really? Today was a crazy f***ing drop. Yeah. Hang on, I think they fell to 6.7 today. Really? Today was a crazy fucking drop. Yeah.

Hang on. I have the number right here. Well, the thing we did the work on, what is the real cost? The average over time, the real cost of housing, mortgage plus house payment, your total house payment. And we're at like $2,800 in real terms right now. And if you go back to the 90s, the top was always like $2,400 to $2,200. And you really don't go above that. There's really not a way in real terms for the consumer to stomach anything more than that for a sustained period.

So the average 30-year fell to 6.67% today, which is a massive decrease, like massive. They said September contract signings were down 29% year over year from September 21, which is a really big freeze in the housing market. And then they said at prevailing mortgage rates, the average new home bought this year or the average mortgage this year equates to like $1,100 a month, which in Wall Street terms, you'd be like, all right, yeah, that makes sense. But that's a really big difference from last year. Where are you on estimates for next year? 210. OK.

So 210. Let's just assume that rates stay at whatever, 4% to 5%, which if you just slap 15 multiple on it, that's 31.50. Obviously, that's a huge range, right? Like 16 is 3,360. 17 is 3,570. Who knows what multiple we're going to trade at? Yeah. I think that's a huge range, right? Like 16 is 3,360. 17 is 3,570. Who knows what multiple we're going to trade out. Yeah, I think that's where we're at.

It's like somewhere around 3,800 is fair value on this market. Fair value. And the other thing- What do you mean by fair value? I mean, what we do is we take an interest rate and basically pick the multiple based off of interest rates. And we can take- We've done this off of forward, trailing, and CAPE ratio.

Throw the CAPE ratio out for a minute. Forward and trailing. I think about 3,800 is fair value. That's what we found. Now the market doesn't bottom typically until you get a 15 or 20% discount to fair value using rates and multiples. Did we get there? No, we never got there. So we got to the lowest 3,500. Now we're at 3,940. Yeah. The market doesn't bottom and average anything. The pendulum always swings too far. Yeah, that's exactly. You can always, you can, if you go through all the cases,

there are some where we could say, okay, this looks like some case in the 90s, but for the most part, you need to mark that discount. So barring any exogenous event that we can't predict, if, and I mean, that's a big bar, but if we're just looking at what we think rates will be next year, like the range, and we think about what a typical multiple for

a bottoming stock market might be, and maybe mild recession or maybe just flat to very little growth. But I think you've got to throw all that stuff out of where markets typically bottom on multiples. Why? Well, first of all markets typically bottom on multiples. Why? Well, first of all, this is so extraordinary, the situation that we're living through. I totally agree. So I don't think that you can look to history. And I also do think that like the cash cows

that are the giant tech names, like just fundamentally change what the multiple should be. I don't think that Apple should ever trade at an eight times earnings multiple or that the overall market should. Well, eight is extreme. Fine, but 10. Yeah. I just the overall market should. Well, eight is, eight is extreme. Fine, but 10. Yeah.

I just, I don't, I mean, no, Facebook's traded at 10 times earnings. That kind of makes sense. But for the market to get there, things would have to get, and it could. I was going to say, the thing about those tech giants though

is part of their, part of their ability to keep making money is that aura of invincibility and companies don't even step up to challenge. Like nobody's seriously challenging Apple in most of its businesses. But like if and when Apple ever trades at a 10 multiple, that's precisely the time you don't want to own it.

Like, because that means that there's something seriously wrong happening and things have dramatically changed. And that's what makes investing so hard. I mean, just, you know, like think about what it would take for that stock to trade at a sub, you know, market multiple. They would have to get into the metaverse. And to your point, exactly, just start incinerating money. To your point, though, the reason that multiples are as high as they are,

when we went back, because this is like something we had looked at and we're like, look, if multiples revert back to some historic norm, I mean, you slap a normal multiple on the next year's sales estimates and you're at $175, $80 a share. And then you start doing the multiples on it. And all of a sudden you get into these really bearish, this really bearish place. The reason multiples are high is because tech and communication services, those two sectors, those are the only two sectors who have grown margins over the last 10 years. They account for 100% of the market's margin expansion. That's interesting. You have a great chart on that. Yeah. And when you look at the downturns of previous margin expansions, so go to 2000 tech bubble, again, it was tech in the

financial sector that grew margins, only two sectors leading into that. And then we saw margins collapse during the deflation of the tech bubble. And those, it was tech that did all the work. It wasn't the whole market that lost their margins there. And same with 2008. That was the financial sector story and a little bit of energy. Those two sectors pumped margins up and it was obviously financial sector just saw their margins go. But aren't margins on Google and Apple and Microsoft just extraordinarily high relative to history? And what can make those margins come down to historic norms?

It's hard to say it. Your regulation, maybe? Yeah, I mean, this is crazy. So we're looking at the percent of index margin decline by sector. This is during the DATCOM bubble. It was 100% tech. Is that right, Warren? Yep.

More than 100%? Yep. So when you see financials negative 5%, that means they had a positive contribution to margins overall? Correct. Financials was – That's really interesting too. Well, you got to think about like we had the handoff from the tech bubble into the financial crisis really. It started really then if you look at the margin chart.

But financial margins really started creeping up at that point. And then they kept expanding all the way into 2007, 2008. Well, I think we kind of know what would be behind tech and communications margins collapsing. They're just – it doesn't seem highly likely that that's going to happen quickly. But- No, I don't know. I don't know what happens. How does Apple's margins collapse?

And I'm not being facetious. Like, I don't know. Well, if they have, if they have, Apple's a tough case, but if they have trouble politically in China, that's a really big, that's a really big issue. If they have trouble getting semiconductors out of Taiwan because something geopolitical happens, that's a really tough... Yeah, if they have to start manufacturing their own shit, for sure. The two most important,

strategically important companies on Earth, one is Foxconn. Apple can't live without Foxconn. If you actually look at their business, if Foxconn were to say, hey, we're closed for a week, Apple's quarter is blown. Not that I am predicting that.

The second most important company is Taiwan Semi. The entirety of the NASDAQ cannot function if Taiwan Semi has an issue. Both of those companies are in a geopolitical hotbed of issues. That would be how that happens.

In terms of the rest of those giant companies, it's all advertising. Google's business is 97% advertising. I don't know if anybody noticed, but Disney and Netflix are about to launch two competing platforms for ad dollars that arguably have the ability to reach as many people as Google.

Oh, Galloway has this great chart. He did a post last week looking at the percent of global spend on advertising. It's pretty constant throughout history. It's like 1.3%. And it's just who has the pie? Who's eating to the pie? Because the number doesn't really change. Right.

There's no reason why you would expect most companies to all of a sudden triple their ad budgets all at once. Or cut it by 80. So obviously there's cyclicality there. They'll dial it up or down, but that's generally the number. But that's where the earnings are coming from, right, for the fan group. It's cloud computing and it's advertising. It's really not that much more complicated. Yeah, exactly. And I mean, if you're going to get bearish on margins, the big takeaway I had is if you're going to get bearish on margins for the S&P 500,

then you got to get bearish on big tech margins. Which I think people, I mean... Didn't we just do that? I think people really are. Maybe. I mean,

that's the big argument is these companies haven't been stress tested through a full cycle. Right. So I guess the question going forward, and just to see like, so Amazon got cut in half.

I don't know if Google got cut in half. Did Google fall 45%? Close enough. Microsoft fell 30 plus, like Apple didn't really, but we're doing it now. Facebook's down 70 plus, Netflix as well. Let's talk about, so let's just assume that this one print at 7.7 is hopefully the beginning of a trend of numbers starting to come down. And so we could stop obsessing over the CPI and then start to worry about, oh shit, why are prices coming down? And maybe it's because there is a little bit of demand destruction. And then obviously that's earnings. So what is the transition going to look like from talking about, worrying about inflation to earnings? What's that push and pull going to be? I think it, hang on, John, can you throw that up? Yeah. Explain, explain like for the people that aren't seeing the chart, explain what you're showing here.

Sure. Yeah. And so this is kind of our, we did a little series called, we call it the quiet battle and it's just the quiet battle and under the surface of the market, in our view, like we said, or like I said, is earnings versus inflation data. And I think it expresses itself as a trading range. So we've basically carved out this range. Let's call it $3,600 to $4,000 in the market. And we're going to trade up to that $4,000 on the strength of this new inflation data. And I think we get up to $4,000 or so, and people look around and they say, what's the valuation?

What's the upside to buying? They say, okay, I'm not worried about inflation anymore, but why am I paying 23 times earnings? By the way, it's $39.50. We're basically there. Exactly. That's what I mean. Today, we took the elevator to the top. It's not even a process anymore.

The Russell's up 6%. NASDAQ's up 7%. I mean, ARK's up 14%. Even the gap just takes the whole trade away right? you had to be you had to see this in the data you had to basically have enough guts in your call on CPI to be in the market

which is why my macro alerts followers are sending me love letters today because I put that out yesterday not to brag but then the downside is the earnings outlook deteriorating and that's that push and pull that you're describing. Yeah. So you get to 4,000, call it whatever.

It could be 4,100, 4,200, wherever you topped out. But you get there and then you have to start reckoning with like, am I getting the value to put money to work here? And so new money dries up. I think this expresses itself as a range. So this range, 3,600 to 4,100, let's say. as a range. So this range, 3,600 to 4,100, let's say, if that's the range that we had to live in as the Fed winds up its normalization and we start getting earnings reports, let's say we get Q4 earnings in February, right? Okay. So if we have to live in that range, I feel like most investors would take that deal after this year. Yeah. What it tells me is, especially when you get to the top of this range, that bonds are a

much better deal. You know, bonds are a great deal right now. I mean, you have real rates across the curve. You have potentially a softening economic backdrop. You know, if you say what I say at the beginning of this is that we have rapid deceleration, the CPI coming. You put all this stuff together. Now we have gridlock in Congress.

Yeah. And so, I mean, there's no fiscal stimulus coming. So as long as I can get a 3% plus yield or close to 4% yield on a bond, even if yields pull back further, that's still a better deal versus the market, unless we're at the bottom of that range, you're saying? That's how I like it. Yeah. And I mean and i mean that's interesting when you factor interest rates into your valuation work you're gonna and we we did put money so we've been bearish through the beginning of the year and we said strategically stay out of the market just kind of like our own trading kind of you know whatever and then on

june 16th at the when we hit like 36 50 we said put about a quarter of your money back into the market and that's where we're at we haven't put any more money to work. We haven't had the conviction to do that yet. But if you get the backup, and part of the reason is we had rates rising as we hit those lows. So if rates can kind of start to fall as you come back down to those lows and the focus is on earnings, you do, I think, set the ground for better valuation in that lower end of the range. And so that's how you end up here. But we're hearing things from companies that are like, again, it's been mixed messages all year. Obviously, the housing sector is a recession. Tech is acting like it's a depression. Elon put

it on a note today and he says the economic picture ahead is dire. Well, yeah, for Twitter, the economic picture is dire. But is that really representative of the economy? No, I don't think so. I mean, that's the other thing. I know you all have talked about it on the podcast and it's something we've been pounding the table on all the way back to last year is just the money is sitting in people's checkable deposits chart, that excess savings everyone's talking about. We haven't ever seen a fiscal stimulus like we saw coming out of this, and I think it's like a new social experiment,

and you have to kind of take that into account when you start getting all these extremely bearish conclusions on the economy. I mean, I think housing is frozen because of the affordability thing we're talking about. And that's a big part of the economy. But consumer spending, I mean, it's going to be a tough nut to crack because everybody's saying- Tough to get that to come. How do you get people to stop spending?

You fire them and even then you're not sure. Well, one way you do it is you make the two-year go up to almost 5% and you tell people, hey, do you want to just lock in at two years for you get a 5% real rate on that? You think consumers behave in response to that? I mean,

the top end, I think you do. Yeah, the top 1% probably know what interest rates are. But they spend what they spend. I don't think

their spending will change. So the top 1% might be tempted to slow down their spending, but it probably won't be because of where rates are. I think interest rates in stock market are secondary to employment. If you have a job, you're good. Yeah.

Well, I mean, and so you have to crack the labor market somewhat. Yeah. I mean, you need to slow the entire economy down. But I do think there's, again, opportunity cost for once in the last modern history. Which is great. You can actually get, you know, there's a real opportunity cost for once in our, in the last modern history, which is great and actually get, you know, there's a real place to park money. I agree.

That's such a, that's such a huge development and it happened quick. Well, I, my, what my advisors were telling me the other day, I would, this is like,

our job is finally like not really different, like not impossible in terms of like forward returns, getting plans to actually work. Yeah. Getting four plus percent on bonds makes the financial plans a lot healthier than when the 10-year is at 60 basis points. Obviously. Let's go to this S&P drawdowns versus earnings per share drawdowns. What are we seeing here, Warren? Which chart is this here?

Oh, my bad. Wrong chart, John. We're looking at your chart, Warren, of S&P 500 returns versus EPS drawdowns. And the only time that we've experienced something like this before, again, we're plotting the S&P 500 year-over-year change versus earnings per share drawdowns, which they're not drawing down. They're basically close to optimum highs. The only other time was 1974. Yeah. I got this idea actually from one of your charts. Oh, yeah. It was like the drawdown versus unemployment. I think that was an awesome chart. Thank you. So you're saying we have never had an S and P drawdown. This is a minus 25%. With earnings not pulling back. With earnings, with earnings, uh, not drawing down at all.

Right. That's, that's the point. But maybe we're just getting faster and we're already pricing in next year's earnings drawdown. Could that be the reason? I think it's possible. But the fact is that, you know, when we did that in the 70s a lot, because I think it's when inflation enters the picture, you actually see this weird behavior where stock returns and earnings for a little while back in the 70s and stuff, they moved counter to each other. And so you could have that. But I think that the most simple explanation is that we were just really overvalued. And so we've had multiple compression. This is all of multiple compression.

The 70s earnings were fine because the price of everything kept going up. So in nominal terms, companies were making more money. Yeah. It's just that it wasn't good for the consumer. The difference here, though, is that you look at that far left dot. In 1974, the big bottom in 74, September 74, the PE multiple, they were down 40%. EPS hadn't drawn down, though. So EPS not in a drawdown, but the stock market is down 40%.

But PE ratio is about eight times. And that was 100% the effect of interest rates going up. I'm sorry, did earnings eventually collapse? They did. That case, and this was how the 70s and 80s turns out. We have another chart. I didn't send it to you, but it's looking at returns versus earnings. And pre-2000, really, you saw them move against each other. So the market would lead earnings down, and then the earnings would collapse, but the market would have less downside. And that was the pattern in the 70s and 80s.

So we obviously don't know why stocks are falling. Is it in response that stocks are looking ahead to lower earnings, probably a combination of that? Or is it just working off all of the excess of stocks being valued at whatever multiple when interest rates were 0%? And now they're just readjusting to a normal multiple. I think they were really overvalued and coming into the year. I mean, it was outside of the tech bubble, we're the most overvalued we could be. And it was a result of interest rates. I mean, if you run those little linear regressions, you see it in the data. And so, yeah, I see this. We have a 65% multiple compression from the

beginning of 2021. I think you multiple compression from the beginning of 2021. I think you go back to the beginning of 2021, even when we were having a good year last year, it was still a multiple compression because earnings were growing and stuff like that. So we've had multiples compress this whole time. And so I look at this as, I think the multiple compression phase of this rally of this sell-off is over. And now it's all about, goes back to our conversation. Risk to earnings. Earnings, exactly. So you're talking about a flashing red light for consumer discretionary earnings,

and you have a chart here about how that actually leads the S&P. Can you talk a little bit about how investors should think about that? Because so many of the indicators we talk about are lagging indicators. And this is one of those ones that gives you a little bit of a peek around the corner. Yeah. And so this, we look at- This is it, right? Yeah, it's great. This is a great chart. I really love this. We like to look at just what's going on in the sector level. And obviously,

it's a consumer-driven economy. And so this goes back to what we were talking about. And so typically, what you see is the consumer sector earnings, they lead down the broad market earnings. And we are now – there are a few sectors that have negative earnings and consumer sector is negative. Now, the counterpoint to that is that we had a lot of stocks like Amazon that were over-earning during the pandemic. So earnings have come down and this is just – It's normalized versus collapse. How much of this is Amazon? A big part of it. It's big. Amazon's what, 14% of consumer discretionary? It sounds right to me- It's normalized versus collapse. Yeah. How much of this is Amazon? A big part of it.

It's big. Amazon's what? 14% of consumer discretionary? It sounds right to me. It's bigger? Yeah. It could be bigger. Well, at least in XLY, Amazon and Tesla were like 40 something percent, I think.

Oh, that's right. Tesla is in consumer discretionary. Were they 49? There was an absurd number. But either way, but what else is in here? Home Depot, stuff like that? McDonald's? Yes.

Home builders are also in there. Target is a big one in this. I think the hotel chains. It all comes down to consumer spending, but then it all comes back to labor. I don't think people's home prices matter as much as we maybe thought. If you have a job,

you're spending money. The one thing I would say about that, though, is another chart. I think I gave it to you all. I don't know if it's in there or not. But it's household net worth versus PCE. I did not include that. If you lag household net worth by two quarters, it actually lines up with PCE. So it's basically this wealth effect.

It takes a couple quarters to flow into the economy. And so, yeah, we've seen stock prices come down. We've seen bond prices come down. We've seen house prices come down. We've seen bond prices come down. We've seen house prices come down. But we still haven't seen that full effect, that negative wealth effect that comes through into the consumer. Yeah, no, I buy that. But the other thing we haven't seen is $2.5 trillion in stimulus or whatever it is, right? Honestly, it's like if you add up the Fed and the Treasury, it's like $9 trillion.

So people's balance sheets have never been better. Corporations' balance sheets have never been better. Corporations' balance sheets have never been better. And I think there was a study recently that like one-fourth of the stimulus has been spent. And I'm sure it's closer to half now. But people are still OK. I totally agree. I think the one – I've never been an economic doomer in this cycle. Like my big pushback on everybody has been like let's's look at the, let's look at what the, this, the reverberations of the stimulus are. But I also

think that the transmission mechanism in this cycle for the Fed, it's all going to go through financial conditions and financial conditions is the fancy way of saying stock prices. What we've done is we looked at stock prices, credit spreads, stock prices, lead credit spreads, they lead high yield spreads, which then lead investment grade spreads. So you start knocking. If stock prices go up, if you start- So is it a day like today counterproductive? I mean, they sent out a mester to give a speech and she's basically like-

Chill out. She's like, sell, sell, sell. No, I mean, literally, she's like, we're not going to stop. But here's the thing. Usually falling home prices, falling asset prices bleed, bleeds into the real economy. And I'm just saying, what if it doesn't this time? I, yeah, I mean, it would be, I guess, I know, I know it would be, it would be, it would be, it absolutely is. But my, my, my point is you could see stock

prices decline. And if that doesn't get you fired, you're going to continue to spend, even if your home price goes down, even if your 401k comes down. I know it sounds ridiculous. And I'm not pounding the table. I'm just saying it's possible. This is from John Ehrlichman. Recent layoffs, like in the last couple of weeks. Seagate, 8%.

When I say 8%, understand these are companies with thousands and thousands of employees. DocuSign, 9%. Shopify, 10%. Yeah, we know. Twilio, Meta, Redfin, Lyft, Stripe, Patreon, Coinbase, Opendoor, Flipboard, Intel, Snap. Counterpoint. I know, I know. Sam tweeted that tech is 2% of the labor force.

I understand, but these are the highest earning people in the economy. There's a tech recession, for sure. Big time. For sure. But these are the, when Meta says we're laying off 13%, 11% of employees, these people make a million dollars a year. Like, if you throw in like, total comp,

like, these are not, these are the consumers, there's not a lot of them, but if you were to stack a typical consumer, a few of those on top of each other, then these numbers are understating the amount of layoffs that are on the way. Counterpoint, stocks are ripping into the close. I know that. S&Ps of 5.5%. Holy shit. down the wealth effect, make it harder to borrow money, make it harder to finance future growth,

and just generally caution people. But my point is, can you undo all of that with a 10% rally in the stock market? I think you can undo a lot of it because they're looking at financial conditions. So here's my thing, and this is why I go back to the range. I mean, maybe I'm just going to sound like a broken record here, but I don't think you can get out of this range until you kind of like see the whites of the, of, and disinflation's eyes. 7% is not the whites. Correct. It's not here. We're start with, this is the right move down the path, but this, this thing's going to fade out. But let me ask you this other thing. So let's say we get a 10% rally in the queue is, 15%, God forbid.

They're loosening the financial conditions. Stop. No, but are all of the wheels that have been put in motion over the past two weeks, does MetaSafe actually come back? No. No, you're right. These companies are still going to lay off despite what their stock price is doing. And that's the funny part about 2023 earnings. Despite what their stock price is doing. And that's the funny part about 2023 earnings. Because what if companies have gotten too cautious, lay off too many people, revenues stay high, then all of a sudden they start over-earning again.

No, I'm just saying, like, that's literally a thing that does happen when you come out of recessions. Yep. Like, think about 2003. You had two brutal years for the economy plus 9-11. Just throw that right in the middle. And then in 03, you had this huge stock market rally, but it wasn't a fake multiple-driven rally. You had very lean companies that got their growth back and had lower expenses. Like that is kind of like what happens, right? Yeah. And I mean, and you're kind of, both y'all are kind of describing a soft landing.

I mean, like what you're starting to do is- So complacent. Mike is more complacent than I am. Well, no, I think that that's great because almost everyone scoffs at you. I'm just asking. You said that's great for you. That's great. It's great that you think that. I love that for you.

No, I'm just talking out loud. I don't really feel strongly. I'm just asking questions. Who the hell knows? No, I actually think that the probability of a soft landing is a lot higher than the average investor thinks. What do you think is the probability? 40%. Oh, wow. I'll take 40.

Yeah. I think it's like, you know, it's on the table. That's the kind of hope that's going to, you know, fuel, you know, that last buyer at the top of that range for a little bit, you know. Yeah. Do you, seasonality, get into top of that range for a little bit you know yeah um do you seasonality get into your work at all a little bit i'm a little skeptical you're not like a like you're not looking at technicals or we look at technicals you do i mean we don't it depends on like we use whatever we need to in the toolbox so like we do but it's quant technical so like if we have we'll look at something and see does this work like for instance we think if you look at the s&p 500 we're going to we say 4 000 is the top of the range if you

look at like the top the the top of the range in mid-august we had a vix of like 19.5 right like 20 i don't know where we're at this moment but it's like 23 it's collapsed 22 23 okay so i think what you see is and if you look at you line the VIX up with your tops and bottoms during this like. It works perfectly. Yeah, I think you get back to like a 19 on the VIX or so. And that's going to be, you know, your place where you're like, okay, if you're trying to be cute, then take some chips off the table. Josh is really cute. Yeah.

I'm still trying to be. Hold on. So this is the best day. If we close up 5.5%, which it looks like we're about to, this is the best day since a long time. I'm sorry. Since 2020. Sorry. Sorry.

But there's – go back to the – The best day since 2020. My bad. My bad. There's been like 13 days better than this since 1950. That's it. Yeah. It's very rare and it's always an event or the end of an event that would cause this.

You have 20, 08, 09, and an 02, and that's it. John, put this all-star charts thing up on the seasonals. So this does show up in the data. It's not completely silly. I don't know, Mike. What do we want to say about this? So I'm not super seasonally. You don't like seasonals.

I'm pretty skeptical, but listen. Why are you skeptical? Maybe it's the same reason I am. I think that it's just too easy. And especially when you're like, no, no, no. It's when it doesn't confirm that it really matters. I don't know. It just sounds kind of like... You sounded like JC just now saying that. I'm sorry. I love

JC, but that sounds kind of bullshitty to me. It works if it works, but if it doesn't work, then you really got to pay attention, whatever, whatever. But the fact of the matter is this is a, this is a nice chart. This is the S and P 500 four year presidential election cycle. We've had multiple guests on the show. Talk, uh, Joe Terranova did a really good job. Yeah, no, this, this, this, I will, I will give some credence to, so we are in the moment. It says buy stocks here. We are in the moment where if you buy stocks here. We are in the moment where if you believe

in the validity of the presidential cycle. Once you get past midterm elections, things start to pop off. Historically, the end of the second year is where you want to be a buyer.

And actually, I think State Street did this chart, and I'm sure, Warren, you've done this a million times. I don't think there's ever been a one-year negative return after midterm elections.

Never. There hasn't. Not even a two-quarter. So how can I not buy into that? But the average gain, though, is not so much more pronounced than the average 12-month gain. I think that's the thing. I always see you make that point. That's a great point.

Is it true? It's true, right? Absolutely. That's the way to look at it because you can always say, oh, it's up like 10% and the year after. It's like, well, that's like- Yeah, of course it is. There's no statistical statistics.

But stocks are up 75% of the time over a 12 like well that's yeah of course it is there's no statistical yeah yeah but stocks are up 75% of the time over a 12 month rolling period so we have 18 this is 100% it's 100% of the time that matters

let's do this next one John so this is this is from Warren this is from Warren and we by the way markets closed S&P up 5.5%

I mean what a day Russell up 6 people are going to be listening to this on Sunday ARC up 15 so I'm just saying like they know by now by the time they hear this they'll listen six. People are going to be listening to this on Sunday. Ark up 15. So? I'm just saying, like, they know by now, by the time they hear this, they'll listen to it. Are you going to do the f***ing traffic and weather next?

Like, we got, we got. No, because you gave us an update at 3.58. I'm excited. You don't also need one at 4.01. I'm excited. All right. So. All right.

Sorry, Warren, continue. I mean, just as soon as I said the seasonality, we already— He's so excited look at that no listen listen no I'm going to Vegas tomorrow you never

you never smile like this did you just book the ticket after the no and I was saying to Ben I was saying to Ben today this sounds really stupid but listen

I'm a human being I feel much better about going with the market up like this oh I totally do that if the SP was down 8% today like it would kind of suck you feel like a degenerate going like with the market at a three month low flying to Vegas what am I doing with my life so I'm bringing Oh, I totally agree with that. If the SBA was down 8% today, it would kind of suck. You feel like a degenerate.

Like with the market at a three-month low flying to Vegas. What am I doing with my life? So I'm bringing – I'll probably bring an extra $1,000 just because of this rally. You hear that? Just to stimulate the economy. Michael's coming and the market is ripping. Mike, you going all in on black or red? Whatever you want. You don't do that.

No, I play blackjack. I play blackjack with you. Where do we play? I don't know that no I play blackjack I play blackjack with you where do we play I don't know I play oh uh the casino in Milwaukee

next to where the Bucks play remember we went with Tony yeah yeah yeah uh I lasted five minutes no I love so what I like to do is I like to lose

three hands in a row and then go all in and then lose that and then drink Bud Lights until you know whoever I'm with is done. Sounds about right.

That's how I gamble. All right. So what are we saying in this? S&P 500 performance during midterm election years. Yeah. We did that already. Well, this is just we break out a special section. This was from our year ahead outlook because our point was like midterm election years are rough,

but they're really rough when the Fed's hiking rates. And the most interesting part, and again, like you have to think with a grain of salt because there's only so many cases. We can only slice and dice the election cycle so many ways. You get only so many ends in the study. But when rates are – when the Fed's hiking rates, you don't get that post-midterm rally. Now, obviously, the chart is going to look different after today. rates, you don't get that post-midterm rally. Now, obviously, the chart's going to look different after today, but I would argue that the whole reason we rally after midterms, if there is a phenomenon, so it's because of the uncertainty that's been removed. We didn't see that yesterday.

This is a totally different thing. We still have the uncertainty right now about the Senate. Exactly. There's a bunch of- We're still counting votes. I think people know that it's going to be gridlocked, though, which is ultimately what matters, I think, and there wasn't too big of a shift. But, yeah, so I just think that today's rally, yeah, I mean, I guess they could pile on. It's like, oh, it's seasonal. We got to get involved. But, you know, ultimately, it's not, you know.

Seasonals is not what's making people hit the buy button. No, it's the data we're talking about. Let's do this fear chart from Lizanne. John, you have this? Yep. Okay. Equity puts call ratio spiked yesterday. It was yesterday. To the highest since March 2008,

the magnitude surpassed the March 2020 spike by an hour degree. So this is everybody putting on protection ahead of the CPI print, which makes perfect sense. If that's the reason the market is so up this year that is the thing that you would be buying protection from so is there a lot of unwind in the tape today as a result of this i mean we spoke about the top you're more

afraid you're more afraid of cpi than than coronavirus i mean that's that's i mean yes think about this think i mean right now i'm actually more afraid of CPI than coronavirus. But, but I'm saying in that moment, this is very, very notable. Yeah. I mean, I think, and everybody's been trained to like every, every, and I, and we've, you know, we've caught some, we've caught some flack over it. It's like, we've, we've basically been saying, we think that the CPI is peaked and it's set to come down. They were calling you team transitory? Yeah, you know, whatever you want to throw at us.

What is this, on LinkedIn or Twitter? Twitter, mainly Twitter. And even clients. I've had clients and even I had a prospect the other day we were talking to and they said, well, I was listening to that podcast you're on a few months back and you were saying that this inflation was going to go away. And then you were like, listen, Steve Cohen. that this inflation was going to go away. And then you were like, listen, Steve Cohen.

Yeah, it was more of just like I – Well, you're selling research to very sophisticated people. So that's part of your job. But wait, let's just – you're not allowed to be wrong on anything? Of course I am. I mean, I tell them that. It's like this is – I think some people like – especially during a prospect call, if you're dealing with a hedge fund or something like that,

they want to just test you a little bit, see how you handle it. If you push you, how do you respond? And that's fine. I'm used to that. It's been a whole career. But you're selling research to sophisticated people. So that's part of the job is you have to be able to defend your – not defend, but you have to be able to like back up what you're saying with more than what you're putting on the page. Yeah, absolutely.

I mean that's like the whole – that's the name of the game. And we're going to be right what maybe hopefully for really good 55 percent of the time when we say something. If you're all-time. Right. That's an all-time career. 51, whatever it is. If you can just do it one time more than you're wrong, then you're doing okay I think. one time more than you're wrong, then you're doing okay, I think. The thing that I can't accept or we can't do is just not try our hardest and not really put like high quality work together and

have a thesis and think about it and think about contingencies and things like that. Agreed. Let's end with some job stuff. So you have a chart, the largest non-recessionary one-month drop in job openings. And you say, could work from home be inflating the data? Josh, you've been talking about this. Yeah, I agree with you. They're fake job openings. They don't really exist. That's how you lose a million job openings in a month. Yeah. And I think that the reason we looked at this is because Powell's saying there's the lack of balance in the job market. And so you have to really look at what Powell's saying. So I think when he says there's a lack of balance in the labor market, he's saying there's way more openings than seekers. And that's going back to this JOLTS report. So we spent a lot of time digging into the JOLTS report. And

two things, I mean, you've seen job openings skyrocket. I mean, look, by the way, this is the biggest job in JOLTS other than Corona March, right? Yeah. Like, this is not real. These aren't jobs then. No. And the two things we saw is if you look at construction job openings versus office jobs, office jobs have lapped construction jobs. And so what this tells me is that these jobs, they're not real openings. If you have a work from home, it's delimited. Let me tell you why you're right.

Let me tell you why you're right. We have open jobs right now. We're hiring, we're hiring for a client service associate right now, two ads, one of them specifically targeting Chicago. And then one of them just general, like we're looking for the most qualified person just nationwide. And you could do it remote. most qualified person just nationwide and you could do it remote. It's really one job, but it's two different job openings. So we're a tiny firm and compared to the entirety of the American economy, but this is now how companies are forced to hire. I would love to have somebody local, but the job doesn't necessitate that they be local. So if it's the right person at the right price and they're 3000,000 miles away,

I'll take that person. And so I think that that's a huge factor. So what was the stat? They were saying there's 5 million people looking for a job and 11 million open jobs. There's two open jobs for every job seeker. Fake news. Yeah, yeah, exactly. And then the really technical thing beyond the work-from-home change is if you look at the jolts, the survey response rate has gone from like – this was something we had to dig through white papers to find. The survey response rate has gone from like 60-something percent pre-COVID to 30 percent. What does that mean? So the way academics talk about it is that the responding companies are more healthy. So you're only getting – and then what happens is in the survey, when they're constructing the survey, they impute the survey response for the respondents to the non-respondents. And so you basically are filling that report with a whole bunch of – you're seeding it with the best, healthiest businesses, which again, it's pushing the openings higher.

Does the Fed understand this, what you're saying? I would guess they understand everything I do about macro data. But the fact that Powell said that – They have like 500 PhDs running around. They must understand that this Joltz thing is not real. Here's my theory on it. When I heard Powell say this, I actually said to myself, well, he has to be – he has to know what's up. And so I think that they're a political institution too.

I think he's responding to the political pressure. And this to me is a really sneaky thing about the Fed that's happened is we've seen political pressure on the Fed go towards kill inflation. And this is the first time we've ever seen this. Look at Donald Trump back in 2018. He was pissed that they were – that they weren't doing more QE. They were raising rates. Yeah, weren't doing more QE. Yeah, they do more QE. And so now we're going to see the political pressure reverse to –

Don't you dare do QE. And now it's going to be like, hey, stop. You're going to cause a recession. So the Fed responds to that political pressure. And just like researchers that have – or we talked about in the very beginning, like you have something you believe and then you fill it in with your pretextualize. The Fed could do the same thing. And so I don't believe that Powell is stupid about this stuff. I don't think so either.

But I agree with you. His public comments have to jibe with the loudest criticism he's hearing sometimes because that's how you survive. He's now the Fed president under – he's now the Fed chair under two different presidents, two different parties, and I feel like he wants to stay. And there might be a presidential change in two years, and I think he wants to stay for that too. Exactly. So he has to play the game. We all have to play it.

Did you have fun here today? I did. I had a lot of fun. Do you feel like if we—like, do you feel like loosened up if we start recording now? Are you good to go? Yeah, let's go. We do this thing where we close every show with favorites. So podcasts, TV shows, books, whatever you're into.

What do you think the audience should be checking out that you've been into lately? TV show, I think it's kind of a weird thing but a comedy. The rehearsal. The halftime report? You ever seen the rehearsal? Yeah, the halftime. The rehearsal. What is that?

That Nathan... Oh, I saw that. Did you see it? I saw it. Oh, I know what that is. There's one episode. Did you watch it? I never watched it

but I know what it is. There's one episode of the rehearsal that it's just like, I don't know. Which one? The first one? The very first one.

Yeah, so weird. Where he has like a guy that wants to tell his friends a secret. I don't know. I thought that. Did one? The very first one. He has like a guy that wants to tell his friends a secret. I don't know. I thought that. Did you like it? I did. I thought it was great. You saw the whole season? The whole season wasn't so good. I stopped watching that, but I liked the first episode. That stuck with me. I was like, this is a

really crazy thing. What's that dude's name? Nathan something. Nathan something. Fielder. He's had Nathan Fielder. Thank you, John. What do you got? Nothing. I've watched the Knicks lose a lot of games. something. He's had Nathan Fielder. Thank you, John. What do you got? Um, nothing. I,

I've watched the Knicks lose a lot of games. What did I do this week? I don't know. My favorite thing this week was the stock market rally today. And, uh, last week's show with Scott Kristoloff was amazing. And today,

and today's show was amazing. And, and, and obviously, um, uh, Carlton was, was great last week also,

but Scott in particular, like that, that, that time thing blew me, blew me away. Yeah. Blew me away. So, so, uh in particular, that time thing blew me away. Yeah, yeah. Blew me away. So Michael's favorite thing is our show.

I like that. I think that's – I should do that more often. I like that. You a hip-hop guy? Sort of. Sort of? Yeah. All right. New Drake 21 Savage record is excellent.

And I'm not really a Drake guy. This is somebody who sold his – I think he sold his music or his publishing rights for a billion dollars this year. Oh, man. And I have never heard a more angry person go – there's like 17 tracks or 16 tracks on the album. He's like for some reason really mad at everyone that didn't believe in him or whatever. for some reason, really mad at everyone that didn't believe in him or whatever. I was trying to picture sustaining that level of anger after a financial windfall like that. But somehow it's both – somehow it's really funny.

And I don't know. Good record for anybody looking for something new to list too. We're going to wrap up. Is there anything that we – Wait, wait, wait. What do you got? Where do people – how do people find your stuff, Warren? Oh, yeah, yeah. Oh, we didn't do that at the top? I don't you got? Where do people – how do people find your stuff, Warren? Oh, yeah, yeah. Oh, we didn't do that at the top?

I don't know. Good catch, dude. How do people find your stuff? You can find me at WarrenPies on Twitter. 314 on Twitter is at 3F underscore research. And then just if you're interested in your institutional high net worth individual, the number 314research.com is our website. We're going to link to, and we're going to link to all your stuff in the show notes too.

Yeah. Is Twitter the best place to follow you? Are you anywhere else? Twitter's where I'm most active, but I can go weeks without saying anything. So it's kind of one of those things where, you know, if you really want something, just reach out and we're really responsive. And you're open, you're open for business. You're taking on clients.

We are open for business. Yeah. That's awesome, man. I appreciate, and I really do appreciate you all just reaching out and giving us a shot to tell our story here. Well, your stuff is great. And we love the fact that we could have you in here and have an awesome conversation. We'll have you back. A hundred percent, man.

All right. Hey, shout to Warren. Great job today. First time appearance on the show. Certainly not the last time. Great job, John. Great job, Nicole. Duncan, feel better. Hey, guys, we will see you next week. Outro Music