The Compound and Friends - The Fed’s Gonna Cut

Episode Date: November 17, 2023

On episode 118 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Kevin Simpson to discuss: covered call strategies, the Fed, Warren Buffett's latest moves, and much more! This episode is sponsored by Kraneshares. To learn more about the KraneShares Global Luxury Index ETF, visit: https://kraneshares.com/klxy/?adsource=wealthcast Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Uh, this- this week was opposite week. They- they rallied Target and they sold off Walmart. What is this? What's the matter? What is what? What is this? Unequal? You know, I knew- I knew something was going-

It's a stand-up desk. For short people. I knew something was going- no, this is not where- I didn't do that. This is not where- somebody's- You want another one? No, I could- Can you fix it?

You know what? I'm, uh, I'm flexible. It's brute force. You just push down that side. I can work with a tilted screen. There we go. She's trying to gas me. That's all. All right.

Nicole, I saw this and I thought of you. What is this? This is Gen Z can't stop using slang at work. Ten terms that annoy their colleagues the most. Oh, is delulu a thing? Chris told me about delulu today. Did you teach him that? Yeah, probably.

Josh is very delusional. First thing is... Delusional. The first one is goat. Goat. Like, greatest of all time. Way overused by... Gen Z loves this goat shit.

All right, sleigh. Sleigh. You use that. That's you, Nick. That's me. Okay. I hate sauce. Sauce.

Alex uses that. My kids say... Sauce. Yeah, Alex says sauce. It gives me, like, douche bumps. So sauce is suspicious. That hate sauce. Sauce. Alex uses that. My kids say it. Sauce. Yeah, Alex says sauce. It gives me like douche bumps. So sauce is suspicious. That's sauce. We said, like my generation, we always said sketchy or shady.

Shady. Shady was big for us. We said shady. I read this article. I didn't know any of the terms. All right. FR, for real? So I see this on Slack a lot.

For real, for real. FR, FR? Yeah. Okay. I've never seen that. All right. Vibing. I use this. Like vibes. Like what's the vibes? Yeah. Okay. I've never seen that. All right. Vibing. I use this.

Like vibes. Like what's the vibes? I say that. Flex, I also say. Form of bragging or gloating. Glow up. Chris said this the other day. Where is he?

Is he here? He's somewhere. So Chris came in. Chris tried to tell us that shaving his bald head was a glow up. Shut up. You were sitting right there. That's a glow up. I wasn't listening. Is that a glow up? For him. Because he had thinning hair and then when he

shaved his head, it was a glow up. Yeah. Sure. Alright, bet. I hate this. Bet. Like, instead of saying yes, like somebody says like, do you want to go to Starbucks? Bet. Please don't say that to me ever I want to annoy me the most All right period Gen Z has become the very thing they swore to destroy

They two are the culprits of the one-word sentence ending interjection period Okay Basic like somebody that's like has a lack of individuality. They missed a few good ones. Yeah. Is there a word for the way that they have their hair? Like with the spaghetti on their head in front of their eyes? What is that called? Bangs?

Daniel, how old are you? What is that haircut called? Like the broccoli hair. Right? And Owen has that. Like both your kids have that. No, every kid under 18 has it. It looks so weird. But then there are 17

year olds who have it in the workforce. All the kids in my town have it. What is it? I don't pay attention. How did that happen? You want to laugh? No. Broccoli hair, Nicole. Do you know what that is? It's like shade sides.

And then it goes in their eyes Yes, it's a reverse mullet so you know what my My son's hairdresser calls it this bullshit. Yeah, so if you have her curly hair you can kind of pull out here This is what we're talking about Curly hair, you can kind of pull out. Here. Some people can pull it off. This is what we're talking about. Duncan, can I pull off the broccoli hair? So the guy said it's called the f*** boy haircut. Which I... Yes.

I said, so that's what you're doing to my son? You're giving him that? Is that what you're doing? All right. We love Gen Z. We're just kidding. Just me, though. Yes.

Let's shut that window. We're dealing with some trickery, because now we've got- the sun goes down. Shari got stung by a bee just now. Look at her face. Oh no. She's walking obviously? Yeah. Oh my god. Look with the coffee from Dairy Barn.

Oh no. I got stung by a hornet like on my hand a couple years ago. It hurt a lot more than I remember. How do you know it was a hornet? Was it wearing turquoise? Michael Beck. Who's that? Barry. Oh.

Yo. How literally did you get that photo of the front? Barry sent, texted me a picture of the front of my house. How did you do this? This is great.

This is a great TV. Ah. Alright. What's going on in front of your house? It's holiday season. Ah. All right. What's going on in front of your house? It's holiday season. All right. I'm about...

I wish you paid a dividend. I'd buy stock in it right now. What book is it? Okay. All right. Fascinating. Fascinating. All right.

I'll call you later. That's quite fascinating, Barry. No. Yes, I am. Check one, two. Check one, two. Check one, two. Did you say love you to get off the phone with him? Yeah.

You don't say that to me. I'm just saying. All right. How are we looking, everybody? It's a very important man we have here. Let's not keep him waiting. Yeah, please. Put my mic on!

I was in this room at a previous iteration, a very early iteration of your podcast. Is that right? Yeah, you and Barry were interviewing. Jeff saw it. I didn't even know what a podcast was. Oh, and you came for that? Yeah, because we were doing something.

I don't know where. Where was it? Here, here, here. I remember having Jeff here. Yeah, I was busy, but I was just sitting over there playing with my phone. This is like 2017 or something, 2018, like very, very early. Huh.

So. It had to have been 17. Yeah, yeah. Oh, that's so funny. How's Jeff doing? He writes on Mondays only. Okay. That's all he does is just write one column.

He's just such a sweetheart of a guy. I really liked him. Where did he work? He was at Raymond's. Raymond James. For like 100 years. And then he came to our firm for a few years and he started a newsletter called Sought Strategy. Yeah.

He's a great – I remember reading it back in the day. Great mentor. He was one of the first mainstream strategists to incorporate a lot of technical analysis and then combine it with macro and fundamental. I feel like a lot of them do it now, but he was doing that a long time ago, right? His dad taught him Dow Theory. Okay. Oh, that's interesting.

Yeah. So he still follows his dad's version of Dow Theory. Okay. All right. Oh, we got the color block. Hey, Nicole, what episode is this? You don't know? All right.

Don't watch it. Duncan, we got to add No More Mr. Nice Guy to the button, right? Did you hear it? Ben's No More Mr. Nice Guy. Yeah, we can do that. Very confident. Very confident. We're never done No More Mr. Nice Guy to the button, right? Did you hear it? Ben's No More Mr. Nice Guy. Yeah, we can do that. Very confident. Very confident. We're never done No More Mr. Nice Guy.

What episode are we doing? 118. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their 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 episode of The Compound and Friends is brought to you by Craneshare.

The global luxury market is projected to reach $570 to $615 billion by 2030. Unbelievable. Well, it's more than double its size in 2020. So KLXY gives you access to global luxury brands such as LVMH, Hermes, Ferrari, Pernod Ricard. I doubt I'm getting that right, Hermes, Ferrari, Pernod Ricard. I doubt I'm getting that right, but hey, that one too. Be sure to check out the talker book that Ben and I did a couple of weeks ago

with Brendan Ahern on the global luxury market. 118, ladies and gentlemen, 118. Big show today. We have a very special guest. I'm so excited about this. Kevin Simpson is the founder and chief investment officer of Capital Wealth Planning, a $9 billion asset manager based in Naples, Florida. Welcome to the show, Kevin.

Good to see you. Capital Wealth Planning's enhanced dividend income portfolio SMA strategy is five-star rated by Morningstar. Is that like Michelin stars? It's pretty close to as important, right? Yeah, it's really, it's a big deal. Okay, so let's not jeopardize them today. So it's a dividend growth portfolio with a tactical covered call writing component.

Pretty novel. There's not a lot of those out there, right? There's more and more every day, but not- Covered call stretches are so hot right now. No, but covered calls coupled with dividend growth, I find that interesting. Thank you. Yeah. I guess when there's so many that come out now today, in any covered call capacity, it helps all of us in the industry. When I started, there were like three. So there's increased just overall awareness of this as a strategy?

Yeah, as an asset class, absolutely. Okay. This is an SMA? We have an SMA. We also run it in an ETF clone. The symbol is D-I-V-O. It's the Amplify version of the SMA in an ETF wrapper. Okay.

And we run an international version of it that we started about a year ago. It's iDevo. And I have Tim Seymour, who you probably know pretty well as an international consultant on the iDevo product. Oh, that's smart. Yeah, Tim spent a lot of time overseas and he knows foreign markets pretty well. Better than me.

Yeah, definitely better than me. All right, shout out to Tim. Congratulations. So you also have a podcast and it's called Covered Calls. Great, great name. How long have you been have a podcast and it's called Covered Calls. Great, great name. How long have you been doing the podcast? We started about two years ago.

It is not nearly this operation. Okay. It's fun, just one-on-one conversations, mostly with people from CNBC. All right. Very cool. We're going to link to all that stuff in the show notes. I wanted to start this week with – it's amazing. show notes. I wanted to start this week with, it's amazing, we're starting to get the first of the 2024 strategist pieces, which is always like a fun time of year. And I don't like knee-jerk hate

on these things. I don't invest based on them. I don't think anyone really does. You can't. No, but it's just good to like get a sense of like what people are thinking and why. So I find this stuff to be interesting. I used to make fun of it. Now I'm like, all right, let me see what they're, let me see what the vibes are. So I don't know. Do you look at this stuff or not really? I make a point of trying to look at certain people

and avoid others. Okay. But I think it's interesting. And when you have a rising interest rate environment, like we had going off as a zero interest rate base and throwing 550 basis points of yield, it's really hard to make money in equities. So if you look back at 2022 forecasts or 2023 forecasts, I doubt there were

many people that said, well, for the whole duration of this two-year period, there's going to be seven stocks that go up. So I take every strategy call with a grain of salt. Okay. Yeah. I mean, we had more than seven stocks going up, but the seven stocks that did happen to go up were the ones that had to, and they did. It's much more broad than seven names, but it seems fun to just say the magnificent seven. I agree. I don't know what the acronym is for the cool 23. All right. This is UBS. The Federal Reserve will cut interest rates by 275 basis points next year, nearly four times more than what markets are pricing in, according to strategists at UBS. A continued decline in inflation will enable the central bank to start easing policy as soon as March, with rates likely to be cut in large increments, typical of an easing cycle.

So they're thinking like 50 and 75 basis point cuts. This is not consensus. I was told that we were going to be higher for longer. Very, very many times. Nobody wants to listen. So clearly we're going to have rate cuts in March, according to this, which is great because then the stock market can go up. I think that the thesis that I have is like almost the complete opposite of this. And when you talk about higher for longer, it makes sense because how many times has Chairman Powell come out and said it's higher for longer? Pretty much every time.

The CPI number the other day was really, I thought, a catalyst, whether it was going to be good or bad. It didn't disappoint. We saw a big market for the upside, but it didn't do anything in terms of the forecasts of Fed funds rate on CME Group's survey. You take that with a grain of salt, too. Right after the FOMC meeting, they thought that Chairman Powell was really dovish. And he came out and said, no, I'm not.

No, I'm not. And we had the CPI report yesterday. It just took us back to where we were. So the idea of rate hikes in March, to me, seems almost ludicrous if you think that we're still 100% off of where the Fed wants to get inflation. 9% to 4% is really cool, and it's awesome. off of where the Fed wants to get inflation. 9% to 4% is really cool, and it's awesome.

But going from 4% to 2% by March, to me, that just seems almost impossible. So this is a London-based strategist for UBS. The New York-based will probably have a different call, and then you could just average the two. But they're doing it not because they see a recession, but because they see just a super-duper soft landing, like the softest landing of all time, Charmin soft. This particular piece talks about a global decrease in yields,

which I thought was even more fascinating. Because I think if you have the best economy in the US, there's going to be more problems in Europe. And what they're saying is there's not going to be a recession anywhere on the planet. The strategists expect the benchmark federal funds rate to fall to between 2.5% and 2.75% by the end of 2024 and see the terminal rate at 1.25% by early 2025 based on an expectation the U.S. economy will slide into recession. I mean, I guess historically it's not that – if we do slide into recession, then 1.25% sounds reasonable. So it's a big if. If we do slide into recession, then 1.25% sounds reasonable. So it's a big if.

Well, it's a 50-50 probably whether you get the recession or not, and all that thesis would play out, but it just wouldn't happen in that timeframe. I think you just have to push six or nine months into the future to kind of get this to come to fruition, even if there's a recession. I don't think they come to the rescue right away. Well, like the stock market, they take the stairs up and the elevator down, right? Like they cut a lot quicker than they raise. Yes. There's not a lot of gradual cutting because you're cutting in response to something that you think you really need to react to. And that's why this thesis of talking about it being a recession makes sense that there

would be a rapid cut. I just think that the timeframe is incredibly premature. So if we could play this out where we get a recession and corresponding rate cuts, I know I'm asking the impossible. What happens to the stock market? Obviously it goes up. Did you not learn anything? What stock market have you been watching? All right, go ahead.

No, it goes down before it goes up. Well, it depends on the magnitude of the recession because if you have a short, but first of all, we won't know if it's a recession until afterwards. The bigger the recession, the quicker they cut rates. It's a good recession.

It's a benign recession. This is my call. So – but the problem with a benign recession or a severe recession is we don't know until after the fact. So when the National Bureau of Economic Research comes out and tells us we were in one, then by then we can all kind of exhale and then the stock market probably would go up. But I think that any economic contraction hurts earnings. It also hurts multiples. And what we get excited about, why the stock market is so reactive to anything having to do with interest rates and Fed cuts is like, well, if you have lower interest rates, then you can have multiples that are higher,

and you have higher margins, higher profits, and it's all good. But nothing's linear. And that's the problem. Any little data point, we think, all right, rate cuts tomorrow. And looking at the Fed dot plot, and you can laugh if you want, because I would, they have one cut for 2024. That's what they have priced at. But that's so high frequency. It changes every month. And it's never right.

Well, they had one rate hike in 2022. Exactly. So that's why I said you can laugh at that comment. But I think that higher for longer is serious only because the Fed doesn't want to make the mistake of raising them too quickly prematurely. So you think they'll tolerate like four and a half, five, pushing almost 5% unemployment before they start cutting? I don't know how I feel. I'm not sure.

I doubt it would get to five. Keep in mind, it's an election year. There's going to be some pressure. Well, it's a non-political body. Oh, sure. Okay. Market bets for Federal Reserve policy easing next year. We have this chart.

Daniel, are you doing the charts yet? Yeah. There we go. All right, let's see. Well done. This is your first chart. Guys, nobody get upset. John is in Brazil on vacation.

Nobody get upset. All right, so this is 75 basis points worth of rate cuts by December 2024 is what traders are currently pricing in, which, of course, is also subject to a lot of volatility. But this is where the market is today. Three rate cuts or three 25-base point rate cuts at least by next year. So you think this is close or far off? I'd probably say one or two, but I wouldn't be surprised if there was zero. Josh, I mean, there doesn't have to be a rate cut.

They might even just be ceremonial just to signal that things are normalized. And that could just be one rate cut in November of next year, literally a year away. But the question is the size. Small. The first one shouldn't be small. I don't think that they're going to have that elevator on the way down right away. Gundlach said something similar. Gundlach's like, they're not going to cut 50. They're going to cut 250. Yeah, but he thinks

it's going to start in March. Or June or something. Why is everyone saying March? Is that just like- Because we don't want to wait for anything. We've waited two years. Let's get on with it. But the problem is you can't, not with the wage growth, not with the inflation the way it is. And they're not going to make the same mistakes that Volcker did in 70s or 80s. And even in 95, I mean, I was in the business. I don't remember it being like a super soft landing, but they were just tweaking. They cut them a little bit.

Well, they also, there was no, there was no notification. They would move rates and you would find out two weeks later. It's awesome. Now we have press conference. Like they, like they just won the NCAA championship every month. I mean, there's something to it. I have friends that are just Fed watchers that like pay more attention to that than they do the NCAA.

They just text me all day long when it's Fed Day. But we also weren't coming off a zero interest rate base in 95. And certainly not in the 70s or 80s. I'm forecasting for December a December to remember. I'm making the Lexus. 24, 25, oh, three. The NASDAQ 100 is less than 5% away from an all-time high. Do you think that the market is already pricing in Fed cuts?

Yeah, absolutely. You do? Oh, wow. 100%. Because look at what happened with the CPI number. I mean, that didn't change. All right. So let's hear – I want to hear what you thought about the CPI number and the reaction.

Did we overreact? It was an amazing day for stocks. One of the best days for certain areas of the market. All the most rate-sensitive stuff led. Small caps led. Yeah, like 5% or something. All the lagging shit that nobody wanted to look at all year. Not that they came back to their highs, but they just got off their lows meaningfully.

And we seem to be holding that so far. What's your take on that reaction? Well, 0.1. It used to be a rounding error. That was zero. Now, all of a sudden, it was this heroic – Oh, the print itself? Yeah. Okay. So I don't think it's that big a deal. But the good news is what's great about it is that it

didn't show that we were back into an inflationary period because you didn't want to see a big jump up. You just need the trend to come down. Even if it's not linear, you just don't want people to think, oh, no, inflation's coming back. Now the Fed has to raise rates. Retail sales were just okay. We didn't get a screaming hot retail number. The going back, I'll part member of Larry Summers' chart crime

from a few months ago that everybody went nuts about. He overlaid today's CPI with the 1970s and said, well, just wait. It's, it's, remember that? Yeah. It's not, it's not 1970s. I don't think he tweeted yesterday. All right. So you, you don't think we reacted too much to it. You just thought it was like just an okay report and a lot of stocks just like got a lifeline. The whole two years since they've been raising rates is still just consisting within this range-bound environment, whether it's 41.50 or 45.50. Anywhere in there, you can make a case that stocks are fairly valued because to me, it's a pretty easy construct. How much does the company make and what multiple do we put on it? And how much will they make next year?

And as we're learning today, Cisco and Walmart, two of the positions that I own, are not anticipating making as much next year as I had hoped. But the good thing about a lot of these stocks that haven't moved is that they've got inherent multiple compression because we're not buying them. We don't care at all. There's no bid and they're still increasing their earnings. Is that a good thing? Eventually, it will be.

If you're a long-term investor, it's great, but you have to wait for it to matter. You have to have a long-term horizon, lots of patience. And if you run a strategy like I do, and you're sitting there two years where we were down one and a half last year, we're up one and a half this year, we've made nothing for two years, which I'm proud of. I think it's great because I think the average stocks are probably down like 6% outside of the really hot names over that two-year period. But the idea of rate cuts in combination possibly with a soft landing, yeah, it's awesome for me because then all these stocks increase for three reasons, the multiple, the earnings, and really just maturing into the—

The second coiled spring. Exactly. If somebody told you two years ago that the Fed was going to drop 500-plus basis points of rate hikes and that you were going to be flat or the market was going to digest it fairly well, would you have taken that? Oh, yeah, 100%. Yeah. But we live in a Gregorian calendar. So as brilliant as I was last year, this is 2023, and I don't have any of these great high flyers in a dividend portfolio. Did we buy too much cash as an investor class?

5.6 trillion record into money market funds this year. I love what you put in the doc. Shit, did we all buy too much cash? Did we all buy too much? So judging by this week, if we're going to start getting a string of benign CPI reports, in my imagination, we're going to continue to see yield curve, I don't know, normalization. All right. So then all of a sudden, you have overnight rates are not going to hold up here for much longer. And if you didn't lock in the higher, longer-term rate, you're losing that opportunity.

So does this money go back into stocks, I guess, is the question. At much higher levels. At higher levels. Yeah, much higher. We're not going to get out of the money market until things get better in the stock market. Why would we? We're getting 5% in the money market. We don't realize that that's the first to go down. Before we know it, it'll be 3%. It'll be 3%, yeah. And you have inflation, which is anywhere between 2% or 3% that you've got to factor into that real return. But even if you're getting 1%, that's still way better than zero that we were getting for 14 years. So it feels really good. But the problem is we won't get back into the markets until it's better.

But I think there's a three to six. You say we, like colloquially. Like we, the investor class. Left to our own devices, any of us. Well, but think about how slow money was to move. Rates went from 1% to 2% to 3%. They really didn't. The money markets didn't really start to hoover up assets

until really March when SVB happened. And by then, rates were already 4%. It's going to be the same thing in reverse. Rates are going to be 5. You sure about that? I am sure about that. Okay. I don't know.

I don't know. I don't know. Maybe. None of us have seen anything like this before. I don't think that money is going. I think that it was slow to come in. It's going to be slow to move out. Can I show you some charts? What do you think about that? I agree't know. I don't know. I don't know. Maybe. None of us have seen anything like this before. I don't think that money is going – I think that it was slow to come in. It's going to be slow to move out. Can I show you some charts? What do you think about that?

I agree with that. Okay. And I don't – and I think that's a mistake. Of course. Lock in the three to seven year. Go into the stock market now. This is total money market fund assets. And as you can – and this goes back to 2007.

And as you can – and this goes back to 2007. So as you can see, there are twice as many dollars in money market funds assets than there were after 2009 when the stock market bottomed. Because remember, that's the last great chase into money market funds on the heels of the great financial crisis. And I was a retail broker then. Every phone call inbound was sell whatever I have, just leave it in cash. We'll talk about it later. And of course, we didn't talk about it later. But if you divide that, if you divide money market funds by the size of the S&P 500. It's smaller.

It's much smaller. Okay. Institutional investor cash allocation. This is not as extreme. I wonder why that is. So you can see that there's a lot of cash being held by institutions, not as much as there was in the immediate aftermath of the pandemic, and nowhere near as much as there was during the heart of the financial crisis in 08.

It looks like— Well, that post.com era. Correct. Hang on a second. This is still ludicrously high. It's 23%. 22% institutional investor cash allocation. Is this for real?

Well, State Tree said it, and it's in the Wall Street Journal. I didn't make it up. It's high. It's good. This is fuel for the fire. No, but like, excuse me. Looking at this chart, it's almost always high. This is crazy.

Well, I don't know what institutions these are. What do you think the average here? Just eyeballing this. It looks like it's at least in the teens, maybe in the 20s. This is crazy. Well, I don't know what institutions these are. What do you think the average here, just eyeballing this, it looks like it's at least in the teens, maybe in the 20s? 14, 15. But institutional investors, it's not a retirement portfolio for one person. They have ongoing liabilities they have to fund. That's what makes them institutions.

So it's not always a market call. All right, so then maybe this chart is not relevant. I would be more curious to see the fund manager survey. What does that look like? Next chart, please. That's not this. That would have been awesome if it was. I was about to be very impressed. Cumulative returns from July 1981 through September 2023. This is also the Wall Street Journal and Vanguard data. And what they're telling you is, hey, asshole, you probably feel great that you're in the Vanguard Fenro Money Market Fund right this minute. But here's what happens over the long term. S&P 500 returns, even the Bloomberg aggregate, US aggregate bond index, Barclays.

Like, let me read this. The Vanguard Fund has returned an average of 3.9% a year. That's a cumulative 402% through the end of September. Nominal. Nominal. That's over 40 years, guys. The S&P rose 8.6% a year, which is 3,200% over the same period. Even the aggregate bond did 6.8% annually or 1,500% in total.

So your money market return is great right now. It is not going to be competitive with stocks and bonds over 40 years. You know, I wanted to ask you, how's your battle with Shari going about your SHY? I look smarter this week. But no, see, she doesn't know what the money market rate is because in a Fidelity account, it doesn't say it next to the holding. So she still thinks she's getting five and a half percent. I'm going to let her think that. I'm going to let her think that. I'm going to let her think that. I will eventually explain this properly.

All right, so last week, it was CPI Day. We had an incredible day. It was Tuesday. That's this week, right? What happened on Tuesday? I don't know. It was Tuesday. It was Tuesday?

Okay. So on Tuesday, basically every stock was up. Yes. Right? Like I think 92% of the S&P 500 was up. So, this is Bank of America. The New York Stock Exchange, they showed what happens following

a day when 90% of the issues were up. And there's 86 prior observations. And they go down every day after? No, it's bullish. The rest of your life could be a drop. As JC would say, an overwhelming amount of demand for stocks is not bearish. So they show the average return 10, 20, 30, 65 days later.

And the average return is not necessarily the important part. Although 30 days later, it's 3% average, 5.3% 65 days later. The important thing is that it's higher 75% of the time, 30 days later, and 81% of the time, 65 days later. That is a, I don't know how often stocks are positive on a 30-day basis. I'm going to guess it's, I don't know, 60%. 51, 51, 49. No, no, no. Because it's 50, 50 on a daily basis. So let's just say it's 60%, whatever. Point is, this is bullish. When there is an overwhelming amount of demand for stocks, that historically is bullish on a go-forward basis. What are your thoughts?

I'm a long-term investor. I invest by company or company, but I think it's super cool to look at this stuff. There we go. I would have thought every day it would be down after the big surges. But if you think about the psychology, because momentum can carry a market. That's exactly right. If we get a year-end rally, it's going to be more sentiment and momentum and positioning. You talk all the time about window dressing.

You want these portfolio managers to show, look what we have. I did that today and people got upset. Well, it's so stupid because look at their performance. It doesn't matter what you have at the end of the year. The concept is the dumbest thing ever. No, not window dressing, but chasing is real. It's chasing. A hundred percent.

Yeah. So. Yeah, window dressing is super dumb. It's like, yes, I was down 10%, but look, on the last day of the quarter, I put on a 5% percent. But at least I chased NVIDIA. At least last day of the quarter, I put on a 5% position. But at least I chased NVIDIA. At least I tried. The year's not over.

I could still do it. But if it doesn't pay a dividend, I can't own it. My dad called the other day. He's like, why don't you have NVIDIA? My dad lives in the Poconos. It does pay dividends. How about that? They just instituted it.

I saw it. It was like a rounding. Well, he's trying to get to your fund it's not going to make it into your fund for 10 years but it's i wish phenomenal i wish it was a little bit more we could i i um i think it's a great company but so the point is my dad doesn't have the internet he doesn't i don't know and certainly doesn't know what nvidia is uh as far as i can tell but hey how come we don't have that yeah how come we don't have that stock that everyone on tv has been talking about every day for a year?

I've never heard of it. All right. Let's talk earnings. Yes, let's. Earnings season is – had a little something for everyone. I think for the Bulls, obviously, we had a higher beat rate than normal, which we seem to always have. I don't know how that works exactly. But for the Bears, there were some pretty high-profile disappointments or –

Forecasts. Yeah. As I say, good earnings and poor forecasts, which led to post-earning sell-offs. What do you think is going on here? Well, we know that we lower the bar every earnings season so we can beat it, so we can have these 80%, 90% beat numbers. Shh. Don't. Which is always great.

We don't reveal that. Top and bottom line. Yeah, yeah. So we were talking earlier about Cisco and Walmart, two stocks that I have painfully today. They both crushed at top line. They crushed at bottom line. Everything was great on the quarter.

But who cares what they did last quarter? What matters is what are they doing next? You look at the sales down, the profit margins down. They're talking about the consumer tightening their belt a little bit. What I care about is what the CEOs are saying is coming next. And in both of those scenarios, it lends itself maybe into that recession camp, possibly, but it hurts the stocks. So our earnings season, I think, was good. It was a pleasant surprise. It was better than feared, but it didn't do anything for the, unless you crushed it and then you had great forecasts, you still couldn't catch it.

I saw like Home Depot had good earnings. Guidance wasn't great. They hit the stock, like not unmercifully. No, the stock went up quite a bit because they, so their earnings were okay. On big ticket items, I was saying.

Like that's the recession signal to me is when like the longer people are putting off those bigger purchases. And the larger renovations, the more expensive home rentals is down. But we also did that. Yeah. But maybe if interest rates come down a little bit, it could tap into a HELOC. Maybe they're not going to move because you've got a 3% mortgage rate. But if you get a 6% HELOC, then you can start doing home renovations. Oh, if interest rates come down, big ticket items are going to explode.

Yeah, there's a lot of people waiting. And everybody bought refrigerators and appliances during the pandemic. Right, I was going to say, you already did that. So there's a great chart from Barclays showing after 12 months of middling results, the third quarter finally delivered a quarter of above average earnings quality. So the chart on the screen shows that the third quarter saw a major improvement in our earnings quality indicator with earnings surprise and three-month revisions into the print coming in above long-term average.

What does this mean? The three-month revision is a little bit less bad from the first quarter to the fourth quarter, a little bit less bad from the second quarter to the first quarter, and a lot less bad from the most recent quarter to the prior quarter. A lot less bad. So you're saying the revisions are coming in less bad or more of them are positive than negative? Correct.

Okay. What's earnings quality in this context? All they're looking at is guidance? I don't know what's in the quality bucket. All right. But year-over-year growth has been negative. Well, you have to start somewhere. It's been negative for three straight quarters.

We just spoke about the earnings recession is over. Like positive, pretty positive earnings growth this year, this quarter. So for the full second quarter, like the S&P average earnings were down 6%. It's a negative year-over-year, 6%. We were all celebrating because it was better than feared. Right, it was supposed to be down nine or something. Yeah, so it was awesome. Yeah, yeah, yeah. It's great. Aristocrats, like a little asterisk, most of the average aristocrats

were up 10% year over year in the second quarter. Their stocks don't go up. Nobody buys them, but they had profitable quarters. So we'll see what happens this quarter kind of on a comparative basis. But what I think a kind of on a comparative basis. But what I think a lot of people are getting excited about is the prospects of actual earnings growth now heading into 2024. The further we get away from the pandemic, the easier it is because you've got poorer numbers to reflect against. Just like they lowered the numbers. Negative earnings in the first half of this year. Those are great comps for the first half of 2024.

It's rare. You don't see that a lot. So now we're getting earners growth and margin expansion. So according to Fax, the net profit margin for the S&P is on track to come in at 12.1% for Q3, up from 11.6% in the previous quarter. That's not nothing. No, it's awesome. What are these other earnings charts?

This is from Belsky. We're looking at the aggregate EPS surprise and on a quarterly basis, that's 7.6%. That's the average surprise is 7.6% better than expected. Relative to what they were expecting. That sounds pretty great. The pre-pandemic 10-year average is 6%.

So pretty darn good. And then the percentage of- Hold on. In the fourth quarter, it was 1%. Nobody was beating. Right. So it's pretty good. And then the percentage of- Hold on. In the fourth quarter, it was 1%. Nobody was beating. Right. So it's pretty good. Okay.

And then the percentage of companies that are beating is also higher than the last 10 years. It looks like average is, I don't know, 70% or so. And we're around- Now it's 80. It's 80 plus percent. Sorry. Pretty good.

Let's hit 100. And then I'll feel safe to sell my money market fund and get back at the stocks when everyone's beating. What's the guidance trend chart? Oh, this one. Oh, how good is this?

All right. So remember how bad the fourth quarter was? Yes. Like everybody was guiding lower. And so they were guiding lower. Analysts were lowering their estimates. And of course, lower the bar, get over the bar, raise the bar. Guiding lower. And so they were guiding lower. Analysts were lowering their estimates.

And of course, lower the bar, get over the bar, raise the bar. And so now we're at that part of the cycle. The percentage of positive outlooks relative to overall outlooks is around 40% going back to 2000. This is from Brian Belsky at BMO Capital. And for the most recent quarter, it was roughly, I don't know, 45%. Yeah. So we're above average in terms of the number of positive outlooks. More important than just the number today, look at the washout. We already did it. The S&P 500, we spoke about this last week, they already braced for impact. They already did the cost cutting. They did what they had to do to prepare for a recession that never came. And a lot of that explains not just the seven stocks that drove the rally, but a lot of

that is the reason why stocks are doing what they did this year. Well, because we were going to have a recession in 2023. And we didn't. And we're going to have rate cuts at the end of 2023. Yeah, but I also think big revisions in tech companies, very, very hard to have foreseen a year ago. Like when we were in the fourth quarter of last year, there was not one technology company that had anything upbeat to say. The venture guys were on Twitter crying. Cloud growth was slowing.

Everybody was firing employees. Meta was in this like massive reset. Like it looked like Meta was completely going down the tubes. And didn't YouTube have a few, have a bad quarter? Everyone. So, but the point,

but so the point is like one of the big things that bailed out the market this year. Like if you ask me, what's the story of 2023 for investors, what are the takeaways? You had really big technology companies and consumer discretionary communications that kind of saved the stock market. Oh yeah.

Like they're really big. They're really important in the indices. And they were able to somehow grow earnings while cutting costs. This is like almost like very difficult, like flat revenue growth, cut costs, grow earnings. It's pretty remarkable. It was like Coca-Cola that came out where they had lower, a little bit of shrinkage. Yeah. You have a little bit lower margins to increase your sales and increase your overall revenues. Yeah. So that was kind of miraculous. I don't think a lot of people would have guessed

that we would. Coca-Cola didn't go up 200% though, like NVIDIA. No. Maybe it's not the same. We're about to show a chart of the Magnificent Seven versus the rest of big tech and the S&P, but it's not just big tech. 80 stocks in the S&P. But it's not just big tech. 80 stocks in the S&P are up more than 20% this year. That's awesome. 80. All different sectors, too. Now, there's a ton of stocks in the S&P that got the shit kicked out of them.

But it's not just seven stocks that are doing all the work. Well, I think that's the important thing of a broadening out of the market. It's got to start somewhere. So where you had such a narrow single digit, now you're close to 100. It's what we need to see, what I certainly would like to see based in my world. But it makes for a healthier bull market, not just a little isolated piece. But do you think that your world, your world of these dividend payers, those are income generating assets that are used for people that are looking for income. And when cash is giving what it is, and when bonds are giving what they are, clearly people that are looking for income. And when cash is

giving what it is and when bonds are giving what they are, clearly those stocks become relatively less attractive. Maybe not the businesses, but the stocks. They do, 100%. Because if you can get that 5.5% in the money market, what do you want 3% from me for in dividends? But the reason is that our dividend growth over a five-year period is about a 10% increase on the dividends. And that's your hedge against inflation. But you can't see that on a chart. Yeah. And right. And it's a total return situation too. Yeah. Put up this chart from Barclays, Daniel. It's fiscal year 2024. This is showing earnings revisions since the start of earnings season. Michael, we talked about this on Tuesday, right?

It's such a great chart. It's a great chart. So the dark blue line is big tech. Turquoise is rest of S&P, and then green is the rest of tech. So even within technology, there's something really special about these stocks, and they were a big part of why the market

looks like it's going to finish positive this year. Did Apple revise them? I don't know if they revised up. I think they might have affirmed. Yeah, I think. Yeah. But that stock's hitting 190 right now. I would sell it.

Well. I'm gone. You're selling it back to them if you sell it or to Warren Buffett. I know. I know. Let's do this earnings recovery chart. I love this thing. let's do this earnings recovery chart.

I love this thing. So is this surprising to you? When you see this, when you see this set up like this, Kevin, is this surprising to you? This is basically earnings typically recover stronger than they fall. So this is the story of why invest in stocks

even when earnings are falling. This is capitalism. This is capitalism. This is corporate America, baby. We're really good at this. Like you have earnings fall off in a recession or a bear market or both, but when they come back,

they come back much stronger. And this is a count of how many quarters along the bottom. So first of all, it's every time. Except for that one time. We weren't alive then. I was looking for 2007, 08, and 2020. They all make me feel good. Yeah. So I think that that's like the why stocks versus I could just buy money

markets. I would never not be in stocks, no matter what happens. Even over this past two-year period. Can you preach a little why? Again, you have the erosion of capital based on inflation. Because even if we get inflation back to 2%, like the Fed wants, and you're in a 3% money market, it's just a 1% return. You don't have any opportunity for total return. You don't have any opportunity for increasing cash flow. And to Josh's point, if you think of dividend-paying stocks or dividend growths more specifically, if they're good companies that make money and continue to have profitable businesses,

their share price will grow. And then you've got a distribution on a larger corpus. It's just impossible unless you have so much money where it doesn't matter that to not be in stocks and to be in money market, it never works. It never works. I think what you're saying is number go up. Like, I think that's like, right? Like that's in the end, you might have to wait a little while, but. I mean, if we think about the stock market as a collection of businesses,

which is what the stock market is, especially individual stocks, as a hedge against inflation, I mean, I saw like Pepsi, for example, where the number of items that they were selling was, you know, up half a percent or whatever, but the total volume or, of, of, of, or the total revenue was up 11 and a half percent or whatever the numbers are. They're able to push it through to consumers. That's the whole deal.

That's what inflation is. So I think if you've owned Pepsi for the past 10 years, I'm not a hundred percent on this, but it's probably like a 9% annualized total return when you factor in the dividend. Yeah. Cause we looked at earlier, it was 8.6% on the S&P since 1981. Since 1926, it's 10.2%. And I think the most important statistic in there that we never really talk about is that of that return. So if you go back to 1926, almost 100 years, 10.2% return on the S&P 500 is awesome. 39% of that return is dividends and distributions reinvested. That's why you're in stocks. And since the 87 crash, which is awesome. 39% of that return is dividends and distributions reinvested. That's why you're in stocks. And since the 87 crash, which is more our contemporary time

period, it's 50%. And that's S&P data. You can look at it anywhere. It's not... The traders aren't getting that. The investors... No, it's the investor. That's how you have true wealth creation. And I don't have stress. I mean, I'm complaining about some earnings today. But Kevin, what if you're just looking to have fun?

I don't have any fun. I'm an old man. Can we talk small caps? Is this an important part of what you do or not at all? Anything that I say about small caps will be me making it up or talking just like your retail clients. We'll skip that. Small caps are cheap. Does that tempt you at all as an investor? I think there's an opportunity there. So it won't be for me because I don't style drift. I have this very unique defined lane that I live in. But anytime, even with the chart that you were showing before, when you have things that are relatively out of favor for that long, there's probably opportunity there. Because the problem with small caps is that they oftentimes have to be dependent upon capital markets. So when you have zero interest rates, it's super great to be private companies and small

cap. Although it didn't help them much relative to FANG stocks. No. Like we had zero interest rates for a long time and small caps lagged. So it didn't work on the way up this last time. I'm speaking as a retail investor. So if you tell me that, I believe you. So can we show the chart of the S&P 500 multiple versus the equal weight multiple?

This has to get you excited, Kevin. It depresses me because I'm more like the equally weighted. You look more like the equally weighted. But the S&P is trading at 18 times expected earnings for next year. But the equal weighted version is just trading at 14 times, which is probably appropriate given where interest rates are. Nevertheless, does this excite you or whatever? It does because if you think of me like the tortoise versus if you think of me, like the tortoise versus the hare, or just that chart

versus the tortoise versus the hare, over time, you tend to get to the same place. There is a true revision to the mean, as long as you've got quality companies that aren't just non-profitable businesses. And if you can get there with lower volatility, that's how we try to satisfy our clients. But I like seeing a 14. I don't even think the 18 is scary when you talk about the weight that's involved with those mega tech stocks. That's even too cheap. So if you have interest rates come down, that number can go to 20. So it's never a question of me versus these growth stocks. You have to own them. You have to pair me up with those growth names because people will always pay up for growth, especially in this world where technology is so important, AI is so important. It's not like the dot-coms.

It's not a scam. It's not some fake thing. It's not meme stocks. These are game-changing businesses. And I think that it's going to be so exciting to watch and see what they do. And I'll bet a bunch of them, even though they may be up 100%, 200%, they're probably undervalued based on what they're going to do over the next three years. Are any of the names, like is Microsoft in your portfolio?

We do own Microsoft, thank goodness. We've owned it for 11 years. We've never sold it. We trim it because we've got position sizing. I do own Apple and I am going to get it called away. So when I said I'm selling it, it's getting called. I have no choice. But this will be the ninth time in 11 years that I've been out of Apple in its entirety. So I'm going to have zero Apple. Can we talk portfolio construction on enhanced dividend income portfolio? So that's your flagship, right? Yeah, that's like 90% of our assets are in there. And it's 25 to 30 stocks.

Well, hold on. The universe is what? The S&P? Primarily the S&P 100. S&P 100. I do own CME, which is outside of it. So you are skewing large relative to even the S&P. Yeah, I want the biggest, best of breed, just cash on cash.

Because if you go through periods of economic depression, I just want them to like pay. Okay. So each holding is roughly 4%? It's going to be anywhere between two to five. Five is the maximum. Okay. And that's how far will you let that drift? Is that a-

Seven to 8% will trim it back. It won't get to eight. So with Microsoft- Is that opportunistic or is that on a calendar? It's just real time It won't get to eight. Okay. So with Microsoft this year- Is that opportunistic or is that on a calendar? It's just real time. Oh, in real time. Yeah. Okay.

So we don't do anything else. So we don't worry about where it's a quarterly rebalancing or an annual rebalancing. It's just everything is daily, pretty much daily. How many of those 25 to 30 names will you have covered calls sold against at any one time? Historically, it's been 30 to 60%. But the VIX, and you talk about this every day. I mean, the VIX has just been so muted. So what does that mean?

There's no juice for you? Not enough. Not enough. Especially when the – what I would – The VAR is already premium. It's not there. Yeah, and even less on these S&P 100 names. Yeah.

So the good thing about covered call writing is when you get excess vol, like 08, we crushed it. 2020, we crushed it because the VIX went up into the 80s. Usually, there's an inverse relationship. Historically, there had been an inverse relationship between volatility and market performance. 2022 was the exception that proved the rule. We were down 20%, 30%. And low vol. And the VIX never did anything because there was no surprise.

We had Bob Pisani on, and we were talking about that. Like, where is the VIX? And he had a really good explanation about the time window that the VIX measures. 30 days? Yeah. So when you're at a 25 VIX, the market is looking for something really extraordinary, not only to happen in the future, but like now. In 30 days.

Right. really extraordinary, not only to happen in the future, but like now. In 30 days. Right. And that, I mean, you really need to have substantial stress to get a VIX materially higher than 25. Exactly. So think about those two occasions where it went. And 2000 was good, too, because we had a dot-com bubble.

But that wasn't quite as extreme in terms of call writing. Maybe it was. But you weren't expecting a financial crisis in 08 and no one was hedged against it. So the institutions didn't have their portfolios hedged. Do you think everyone's hedged against everything now? Yeah. I think that's why the VIX is so muted. A smart money knows that when you go from zero to 500 basis points of interest rates, things aren't going to go up. So I don't think they were leveraged or putting their neck out to try to make a whole lot of money. And he didn't get caught off guard. Therefore, they're

less sensitive to volatility because they're just not as heavily exposed. I think so. Because you didn't plan for a pandemic. Positioning. Everything's positioning. Wait, so I wanted to ask you, so how far out of the money are you going on covered? So you're not getting the same juice that you used to, but you're still getting a nice benefit from the covered call. You're protecting your downside. You're bringing in income currently. Yeah. I believe in very short-term covered call writing, some 30 days or less. Why? Out of the money. I tend to think I invest in good companies that go up and I have more control to keep the position with a shorter option.

So you don't want to get called away if you could help it? Almost never want it to get called away. That's interesting. You'd rather roll the option and keep going? 90% of the time I would. Okay. Now, when I was taught this business, it was over 30 years ago, and they would be like, the mentors and the people that taught me the business would define everything on option premium. How much premium can you generate? Okay.

And everything had to be a round lot. Everything that had to have a round lot. Everything that had to have a covered call written against it. And that's how it would define success. It had nothing to do with total return. And I would be like, well, the client doesn't give a shit about the option premium. And then you're turning equities into bonds. Yeah, they start with this. Exactly. And they want this. Right. It's alchemy. You can have a convertible bond with less downside risk in the equity market. But they would just tell me to shut up and go away. And then I would say, well, look, if we're so smart, if we're so good at trading options,

I mean, couldn't just between us, is every single environment, every single day, a great time to write a covered call on every stock in every sector? No. Of course not. But they're like, again, just shut up and go away. Yeah. So I thought, and then plus all their good stocks would get called away. They'd be left with this shit.

And they were just bad money managers. And they were stubborn. But that's how they were trained to do it. And that's how I was trained to do it. And I thought, well, that's idiotic. So why not just make the portfolio the main piece of the puzzle? The dividends are far more important than the option premiums. And use it when there's volatility.

And we'll get covered calls on six, 10 names. That's it. So more opportunistic. Like, oh, look at the premium there. Let's take it now. Assuming that certain things happen. Can you be opportunistic in the ETF or you don't have that flexibility?

I run the ETF exactly the same way as I run the strategy. We don't think of it differently. So today as an example, so Cisco and Walmart, I assume there's going to be long-term holdings for you. They both have like a mini blow up after earnings, but fundamentally there's nothing wrong with these stocks. Is today the day that you're out there looking for that premium to sell or? So I probably won't do any, we won't sell today because they're down. Yeah. But the vol spikes.

Well, that's what I mean. So it's neat to look at. So every day we look at every position. We go 30 days out, 5% up. Okay. What's the call premium? And if you can get 2% or 3% annualized, which isn't much, then we'll think about it. If it's less than 2.5% or 3%, which has been the case more times than it hasn't because there's been low VIX that we just don't write a call. Are your shareholders judging you on the income generated or they're smart enough to look at

total return? Like what do you think? Our advisors we work with are incredibly smart. Obviously, they're smart for total return. Their clients- Because I wanted to ask you the breakdown in tax treatment between the income that you're generating on covered calls versus equity dividend because they're treated differently. Exactly. So the dividends are usually qualified. Yes. So that's kind of on the good side. Yes.

Because we write short-term options, 30 days or less. They're all ordinary income, the highest possible tax. So you're not doing real estate investment trust distributions. No. You're doing equity dividend. That's why they're qualified. Right. I don't have any REITs.

Got it. But the option premiums, I mean, those are the highest tax bracket. Yes. And we're doing 30-day calls. But when I look at it, I say, well, our dividends are 2% to 3%. It's qualified. Yeah. Our option premiums are really only 2%, 3%, maybe 4%.

So blend it. It's the same. You blend it. It's the same. I don't think that's compliant. No, I understand. In my brain, that's how I think about it. The net impact tax-wise to the client comes out in the wash.

In years like 2017, 19, 20, 13 even, we were up over 20% those years. I had more turnover than a buy and hold manager because I had things called away. And there's not many losses. But it's not happy or nobody's mad at you for being up only 22%. Well, I have an uncle that gets pissed if he has to pay anything. The idea of making money and paying taxes is sacrilege. You'd lose money any day of the week before you had to do that. But high net worth, I mean, the advisors and the clients.

Well, you deal with wealth management guys and gals. They know what they're talking about. They know what to place. They're talking to educated people. We only work through financial advisors. And more than half of our business is non-qualified. Okay. Which I think even still surprises me.

Why? Because in a covered call strategy, in a qualified account, you don't even have to worry about the tax implications. In an IRA, nobody cares what the taxes are because they're not paying it. So in the old days, we were almost always plugged into IRAs. That's my point. This is more suitable probably for that. If all things were equal, I would agree with that. But so many people just –

They don't have that. They don't have it in the IRA and they need money and they need rising income. So we're not tax-efficient by any means, but we are tax-aware. And the advisors we work with can do tax-loss harvesting with us all year round. We don't have to wait until the very last day of the year to do tax lost harvesting. You're an SMA. Yeah. Until this year, I never had a loss. So I mean, I don't know that it mattered. But the difference between that and the ETF wrapper is that you can figure the tax consequences out during the year and you can be advantageous. Yeah. I think ETFs in general have some kind of smoke and

mirror tax efficiency. Again, probably not the compliant way to say it, but a better way could be that exchange-traded funds were designed to be somewhat more tax-efficient than a mutual fund. You ever have an advisor call you and say, listen, I like your strategy, but f***ing get rid of the Cisco. Not just Cisco specifically.

Probably today. If I turn my phone on, it's probably 100. But just any specific stock? It used to happen with Nike all the time. Nike? Yeah, why do you own this? Oh, because they're woke? Yeah, it was with Nike when we got it. We just bought Cisco.

This is a new position. I think we have like 2%. But of course, we bought it right before today. We did the same thing with Caterpillar. But it was a 1% position. We're just kind of initiating things. It takes us a long time to get into it. I think I'll have to sit down and really dig into the Cisco position,

but I'm probably not going to bail on it. Jim Liebenthal texted me last night. He's like, oh, this happens all the time with Cisco. I should buy more. I said, you didn't even read the report. But it's just he's on it forever. Shout to Jimmy. Hey, I want to ask you about Warren Buffett.

You a fan? Acolyte, fan? Detractor? I'm not a detractor. I come from the same school of thought from Benjamin Graham. So everything that I do

is Graham-esque, I think. Like it's grounded in valuation. Yeah. And even my portfolio construction size is from the intelligent investor, a 30 position. Because everyone's like,

why do you only have 30 stocks? I'm like, well, that's Ben Graham said, that's good. The ideal position. He's smarter than me. You know, more than Ben Graham. That's what I said. Start fights and alleys and people are like, who the hell's Ben Graham? Yeah. But, um, so I, so I, I like Warren Buffett. I, I, you on Berkshire, I don't, but I'm a fan of Warren Buffett. We got a 13, 13 F from, uh, Berkshire Hathaway last night. So they sold off the rest of their General Motors. I looked that stock up today. I haven't been following it.

Yuck. That is some piece of shit. That stock is now at 2014 prices. Wow. They've actually grown earnings since then. Are you kidding? Yeah, like Mary Barra. I don't know what Mary Barra has like a hold over like the board.

They must think she's like just this amazing person. This is truly disgusting. This is one of the worst charts. Well, they signed a nice contract. I'm sure that. What? With the UAW? I was just kidding.

Yeah. Well, that ain't going to help anybody. All right. Anyway, what else did he do? Oh, he has a mystery stock. What does that mean? Okay. I'll explain.

This is Barron's. Berkshire disclosed in its recent 10Q that its holdings in financial stocks went up by 1.2 billion in the quarter and no additions to its existing financial stocks were disclosed in the new 13F, meaning they didn't buy more of the financials that they already held.

So there's a new billion dollar position. Do we think it's so far? It's Coinbase. It's Coinbase. Is Robinhood still in that category? It's Robinhood. All right. Berkshire occasionally requests confidentiality when Berkshire accumulates stocks

and doesn't want to tip off the markets because they're not done. Berkshire did so in late 2020 when they were accumulating Chevron and Verizon. All right, real talk. My guess is Goldman. Ooh, that's actually a really good guess. He loves those durable brands, and everybody hates Goldman right now. And it's been down a lot.

Ooh, I like that. What do you think? Does he still have the positions that he bought in 2009? Remember, he had a lot of- No, no. He's been all out of that stuff for a long time. Bank of America, he's been out of that stuff. Well, then it's only just a guess.

It's either JP Morgan or Goldman. I think those are good guesses. I like it. It's notable that Buffett is requesting confidentiality on what is a small holding, probably around a billion dollars, against a total equity portfolio of $350 billion. Well, maybe it is Robinhood.

Maybe it's Robinhood after all. Did you see Bethany McLean wrote an article, RIP Goldman Sachs? I didn't read it yet. Who she write that for, Business Insider? Yeah. Is she writing for BI now? Okay.

What else did they do? They bought shares in the Braves. They think that's Todd and Ted, and maybe they didn't buy it, but it was some kind of a spinoff from Liberty. And then they have a position now in SiriusXM. Have you looked at that stock lately? What's the ticker? Holy shit. S-I-R-I?

That's what it used to be. Yeah. It's now a $19 billion market cap. There's like an arbitrage thing going on here with a... The stock doesn't move. There's a John Malone tracking stock that trades at a discount and this thing trades at a premium to the... I don't know. I don't get it. It's all bizarre.

Sounds fugazer. What else? It's a wazoo. It's a woozy. Oh, here's the point. Here's what I want to ask you, Kevin. So Berkshire sold $7 billion worth of stock in Q3 and only bought $1.7 billion. So they are a net seller last quarter and in the first nine months of the year.

last quarter and in the first nine months of the year. They're a net seller of $23 billion worth of stock. In the first nine months of 2022, by comparison, they were a net buyer of $49 billion. So this is a big sea change in their equity ownership relative to their own portfolio. They have $157 billion in cash. Are they like sitting in money market funds like everyone else?

I was going to ask you, are they buying back their own shares? Well, a tiny amount, $1.1 billion, nothing. Because that would have been my guess. Tiny, tiny, $1.1 billion. The stock's at an all-time high. But they're like not that different from everyone else. They're sitting in money markets.

They're collecting 5% on $157 billion. Like why take risk? It's Berkshire Hathaway, baby. I don't know what that percentage is in his overall portfolio. $157 billion versus $350 billion in stocks. So it's like a third of the portfolio. That goes back to the institutional chart where they had 30% in cash. Yeah, yeah.

Well, maybe he's seeing a recession coming in 2024. Maybe he has an% in cash. Yeah. Well, maybe he's seeing, maybe he's seeing a recession coming in 2024. Maybe he has an acquisition in mind. Yeah. One, one last ride. One, one. It's better to make 5% cash when you have that much versus 1%. Yeah. I would, I would agree. Do you have fun on the show today? It was awesome. I can't thank you guys enough. All right. We're so glad you came. Yeah. I don't know if that's true, but I'll bring it next time with a little more energy. I want to hit you with one more thing, though, while you're here. I got a serious problem with this. Joe Biden went to California to meet with Emperor Xi Jinping.

And first he called him a dictator at a press conference, which is really smart. And first he called him a dictator at a press conference, which is really smart. His advisor winced at that remark. Wait, what did he say? He called him a dictator. How so? Like in what context? Well, he wasn't like, look at this f***ing dictator.

But like he literally said the word dictator from the podium. Wasn't that a long time? Wasn't that like several weeks ago? No, it was yesterday. He did it again? He did it again. He's a gaffe machine. That's why this guy's not fit to be the president. He doesn't even know how to trick everyone else into like not knowing what he thinks.

I could have faked it through the small caps. They had a dinner for tech execs who are basically like reliant and terrified of China at the same time. Like Elon Musk, Tim Cook. They all need China to make and sell things. But like they also can't lean too heavily into the Chinese relationship because the optics here wouldn't be great. That's a tough situation. But here's what I wanted to ask you. What's your thoughts on pandas? Are they really going to take the pandas back? No, no, no. They're offering to give us new pandas. And I'm like, get the f***ing pandas out of here.

Why can't we have the pandas that we have here? So here's the problem. They're on lease. They're on 50-year leases, these pandas. And then you have to give them back. Wait, how long do the pandas live? I'm going to share some information with you. I lived in Washington, D.C., and we had pandas at the National Museum.

But why do we want—or here's the question. Why do we have to have these pandas? Because they're adorable. But what do they do? They just eat. You should give them raccoons. Like here is the North American tree raccoon. All right, listen to this.

I had it with this. China could send new pandas to the United States, calling them envoys of friendship, envoys, between the Chinese and American people. In the latest gesture. Quote, this is Xi, I learned that the San Diego Zoo and the Californians

very much look forward to welcoming pandas back. We are ready to continue our cooperation and send back pandas. We don't want the pandas. It's enough already. Nobody really cares that much about them.

Go f*** yourself, San Diego. Right? And by the way, send them pandas. We don't want the pandas. It's enough already. Nobody really cares that much about them. Go f*** yourself, San Diego. Right? And by the way, send them to Vegas. Let's see what happens to the pandas. What are you talking about? San Diego. Make the panda work for it. Send the pandas to Detroit is what I'm saying. Duncan, where should the pandas be sent?

I think they should be out in the wild. You have the diet of a panda. Do I have that right? Of course. Mostly bamboo? Okay. Yeah. All right.

I saw a thing on the internet the other day where there was a panda in a bucket with a zookeeper. It was really cute. They're very funny creatures. I feel like kids would enjoy pandas. Can't we just grow a panda in a test tube or something? I like koalas more. Same. We'll take unlimited koalas.

That's fine. We have good relationships with those. Earlier this month, three last remaining pandas at the smithsonian national zoo um it's a pair of pandas and their cub were sent back to china marking the end of more than 50 years of chinese pandas at the smithsonian so that's when this all started in the 70s right so apparently we're leasing pandas from china i live there i went to see the pandas from China. I live there. I went to see the pandas. I didn't know that was the case. I really enjoyed them. Yeah. All right. Where are you now? You're on the West coast of Florida. I live in Naples. Okay. You've seen a

lot of New Yorkers and finance people coming down there. Is that what's going on? To Florida in general, but more of the East coast than the West coast. The hedge funds are all on the East coast, but every money management firm has representation on the West Coast as well. It's a little bit more laid back. It's more like Midwesterners originally than New Yorkers. There's 95 goes to the East Coast and 75 goes to the West Coast. I'm going to Tampa for Christmas break, taking my wife and kids. I can't get a reservation at Burns Steakhouse. I don't know anybody. Do you know people there? Well, I don't usually leave a three-mile radius. Okay.

But I'm sure I know someone that does know someone. Where should I go in Tampa? You should go to Burns. Any suggestions? I should go to Burns. And you need to take your wife to the dessert room upstairs. And I DM them from Instagram where I'm a celebrity. Right, you are. I mean, I can't believe it.

They didn't even respond. I'm surprised it's not being caught. I'm small potatoes in Tampa. All right. We had a blast with you. We end every show with favorites and we just want to share with the audience, anything that you're listening to, reading, watching, uh, that you think people should hear about. Michael, you want to go first? No, I want to go last. You want to go last? Okay.

So I just finished the Elon Musk biography by Walter Isaacson. I thought it was unbelievable. I didn't know much about Tesla or SpaceX or Elon Musk, for that matter, until I read the book. And I thought it was an incredible story of whatever you think of it. Did you come away from it liking him? I think there's professional admiration for someone that works that hard and has the drive that he does. So I think it's hard to dislike him as a business person. Yeah. The book made him very likable. I think in real life, there's some, outside of the book, there's some questionable decisions on social media, but it seemed like there was a lot of positives in his story. You know what's the irony of Musk? The less you're on Twitter, which he owns, the more you're probably okay with him. Do you agree with that?

Yeah. If you're unaware of what his social media feed looks like, you're probably pretty… You're like, oh, the car guy. You're in awe of what he's built. Yeah. I would agree with that. So that's all I knew was that he built Tesla, and I thought that was neat. Then I read the story about how he built Tesla and SpaceX and these other companies, and I thought that was really excellent.

And I thought that was really excellent. I mean, he also did as good. I mean, reading the Steve Jobs book left me with the same kind of like just you get that insider view. There's no commentary on who he is as a person. But I think everyone should read the book. And then I'm also reading a book about Jack Reacher. I don't know if you guys know who Jack Reacher is. Ben Carlson loves Jack Reacher.

He watched the show on Amazon. There's a second one coming out on December 15th. How many Jack Reacher books have there been? There's like a lot of them, right? I think this is the 28th book. Okay. Do you have to start at 21 or you could just grab a recent one? This is 28 and I've read like the first 20 probably three times. Oh, wow.

I just keep it on my thing as like a fiction, like a fun thing. So I do the same thing but with Bernard Cornwell. I've read all of his books and there's like 50 of them at this point. But I keep going. I probably read one every year. It's the same thing. And there's a whole bunch of authors like that that I really like. And the show I was watching is called Gen V because you started today's show with Gen V.

Yeah, we watched The Boys. I didn't watch this yet. Did you watch this? No, how is it? If you like The Boys, you'll love it. And you would would think that oh it's spin-off can't be as good as the boys it's as good as the boys what who's who's the spinner characters that are high school kids that are infected with the with the v okay who are aspiring to become superheroes at a superhero school it's like a drug or it's like a disease it's like a drug that yeah it take, right? Yeah, it's a drug. Okay. Yeah. I think that your parents would give you

this drug at birth and then you would inherit some kind of power. Yeah. But it's a very dark show, which I know you guys do. I was going to say, is it as sick and twisted as The Voice? Yeah, yeah, yeah. Okay. I love that show. I'm with you on that. A couple of new records came out in the last week. Big hip hop guy? I I'm not a big hip-hop guy, but I like all music. Can I make one hip-hop suggestion to you? Yes, and I'll listen to it. Meek Mill and Rick Ross, who are two of the best contemporary

rappers and have been for the last 10 years, they have an album they put out together. It's an independent, like no big record company or whatever. They're going to probably have hundreds of millions of downloads. It's called Too Good To Be True. It's two of the best rappers alive right now collaborating. All their favorite beat makers came down and recorded this with them.

They threw it out there. It's amazing. I'm a Sixers fan, so I'm familiar with it. Okay. So you know Meek Mill. Okay. Chris Stapleton? Oh, yeah. Country fan? No it. Okay. Chris Stapleton? Country fan? No, but I love Chris Stapleton. Same. I'm not a big country fan, but Chris Stapleton's awesome. I've seen him live. The new record is called Higher. Did you listen to it yet? When did it come out? Yes. Friday? No, but I'll

get it tomorrow. Four days? Three days? Yeah, yeah. Absolutely worth tracking down and making sure you have it. Michael, what do you got for us? I got nothing. I'm sorry. I'm on a bear market. You did a great job today. Thank you. Hey, guys. Make sure... Hey, everybody.

Make sure you are leaving us ratings and reviews. We appreciate those on whatever podcast platform slash YouTube. And make sure you tell everyone how much you love the show. Very important for the algorithms. We want to let everyone know where they can follow Kevin Simpson. Kevin, what's the best place for people to get more of your insights?

I'm on LinkedIn. Okay, same. And I'm on Twitter, at Covered Calls. At Covered Calls. Are you very active on either of those? No. No. A little bit active?

Somewhat active? Not really, but I have some people that put stuff up on. Atta boy. All right. All right. All right. We had a great time with you today. Thank you so much for coming by. Thanks for listening, everybody.

We will see you next week. Oh, it got hot in here. I don't think I can do the jacket. No. No joke today? What? No joke today? No joke today?

No joke today? No joke today? What? No joke today? No joke today? No joke today? No joke today? No joke today?