The Compound and Friends - The Game Has Changed

Episode Date: December 2, 2022

On episode 72 of The Compound and Friends, Jeff deGraaf joins Michael Batnick and Downtown Josh Brown to discuss trend following, valuation techniques, the dollar's impact on the S&P, the cooling housing market, stocks vs bonds, the yield curve, and much more! Get your ticket to The Compound x On The Tape present: Fan Appreciation Night at the Nasdaq MarketSite! All money raised goes directly to No Kid Hungry, a nonprofit on a mission to end childhood hunger. Today's podcast is sponsored by Composer. Visit https://www.composer.trade/opus to learn more, and see important disclosures at https://www.composer.trade/brochure. 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

It's the real thing. Uh, give me one second. Alright, we're okay. Jeff, where are you based out of? Temperature or whatever? Uh, I live in Connecticut and now I'm based out of Connecticut. Okay. So, we were in Union Square.

We were just right down the... Well, we still have our office, but we never go in. You ever coming back? No. No. Yeah, no reason. Alright, I need you guys' opinion on something that's been bothering me all week. Do it.

So, this is a financial influencer problem so there's these guys uh earn your leisure michael knows who they are they're like insanely popular and influential amongst like the new generation of investors who've come along. So they're like millions of followers on YouTube, on Instagram, and I've become friendly with them. They had this massive event at Madison Square Garden. You know about this. They had this massive event at Madison Square Garden last weekend.

It was on Sunday night. Like the Hulu Theater, which is like thousands of seats, they sold it out. They had like Floyd Mayweatherather and jadicus and like all these celebrities so i was supposed to be on stage for 30 minutes with this guy peter tuchman you know the guy that looks like einstein on the new york stock exchange floor you know that dude he's like the most photographed okay right so i'm like sort of friendly with Peter, or at least I think I am. Yeah, no, it's not good, man. So Rashad from Earn Your Leisure asked me to be part of the thing,

and I was so excited to do it because I love those guys. And then he's like, you're going to be on stage with Peter Tuchman, who I also – I'm friendly with him. So I don't really know what we're going to talk about because he's a trader. I'm a financial advisor, but whatever. We'll make it work. We'll give the crowd like 30 minutes of good content. And I'm going to bring my wife, my daughter, I'm all excited for this. So then Tuckman texts me, goes, yo, there's a call. And I don't know

if you could be on it or not, but we're going to talk about what we're going to do at the event, like the pre-conference, you know, the normal. So I can't make it. So I'm like, I trust you. Just figure out what they're looking for from us. And then you and I will, we'll do it. I get a call that night from Rashad. He's like, and I'm like in the middle of five different things. He goes, Hey, uh, Peter doesn't think that you guys should be on stage together.

So he's going to do 15 minutes and then you're going to do 15 minutes. And I was just like, okay, I guess. And then like three days went by and it didn't sit well with me. I texted Peter. I'm like, why would you do that? Like behind my back, like, why would you? So I text Rashad and Peter. I'm like, you know what?

Peter really should take the 30 minutes and, you know, I hope everything goes well. I can't commit to showing up on a Sunday night in Manhattan to do 15 minutes on stage. I just can't do it. So that was – I never heard back from anyone. It looks like the event was a huge success, which I'm happy about. But, like, I'm, like, pissed off at this guy, Tuckman. Like, I'm not, like, mad at him, like, I'm going to kill you. But, like, doesn't that – so here's my question.

Is that really f***ed up what he did? Nicole's nodding. Is there any – Take a stand. I like that. Is there any motivation? Like what's the motivation behind this thing? The motivation for him to take the – to break the clueless up?

Because it wasn't like he wanted the whole 30 minutes, right? No. So he didn't jettison you because you wanted the whole 30. He wasn't being like sleazy, like, let me try to take the 30. He wasn't doing that. But he kind of like, without me having a say in it, cut my time down to, all right, you're going to go out on stage for 15 minutes. But he also cut his time down, right?

He cut himself 15 minutes. Yeah, but he cut me out of the picture. Maybe he was intimidated? No, he's not intimidated by me. We had him on your podcast a long time ago. I like the guy. It's weird. Not anymore.

Why didn't he respond to your text? I don't know. Did Rashad respond? No. So now I'm thinking, I'm the asshole. Oh, you're definitely the asshole. What did you do? I'm the asshole that got invited to go on stage at MSG,

and I was too much of a big shot to go on for 15 minutes. Now that's how I'm starting to feel. So I don't know. Well, they probably thought that- By the way, Nicole has my back unequivocally. Well, I don't because I'm nodding my head. Maybe they thought that you were big-timing them. I would not.

No. No, with that statement, I won't- I can't big-time them. They sold out MSG. I understand. My point is by you saying I'm not going to Manhattan for 15 minutes, maybe they felt that you were ungrateful. That could be.

No, but 15 minutes, that's like less than an opening act gets. You know what I mean? That's a very short period of time to go through all the trouble for. I went to their event in Atlanta, and I was on stage for an hour with two other people. It was amazing. And I was on stage with a traitor. And so it was the same

kind of setup. Like, we do different things but let's talk. And it worked. So it could have worked in New York obviously. I think the most reasonable explanation is they thought that you were mad. So then I'm like, shit, did all these people unfollow me? Like, are they mad at me? Unfollow you where? Mastodon? they thought that you were mad. So then I'm like, So it's maybe just a miscommunication. Shit, did all these people unfollow me?

Like, are they mad at me? Unfollow you where? Mastodon? Yeah, on Mastodon. Did I get unfollowed on Hinge? I don't know. So now the longer that, like I don't hear from anybody.

How long ago was this? Like this week. This is this past Sunday. So it's still salvageable. I feel like a dick now. All right. I don't know. I don't know if I, I don't know if I did anything wrong.

Are we ready to go? I don't think you did anything wrong. I, for one, I am a little surprised that you're telling the story on the air. Can I move this over? I don't know if I'm right or wrong or not. Why wouldn't I?

I don't know. We're going to hear from the audience. You know what, Duncan? Delete this whole thing. Don't delete this. It's okay. I'm a grown-up. I like that Nicole unequiv're going to hear from the audience. You know what, Duncan? Delete this whole thing. Don't delete this. It's okay. I'm a grown-up. I like that Nicole unequivocally has my back, though.

That's the key takeaway for me. So if we learn nothing else today, we learn that. Jeff, your charts are going to be up on this screen when we go through them. Lovely. Thank you. Jeff, you're a CMT now? I am a CMT, yes. I'm also a CFA.

Oh, yeah? Which one do you use more? Actually, I'm a CFA charterholder, to be specific. Jeff, can I show you two charts that I just want to buy or sell? Obviously, it's not a recommendation, but just curious. And a price target. Do you like how this looks?

I'd like to know better what the industry is, but it definitely is improving, yeah. That's a good looking chart. That's an inverse head and shoulders. Stop. Stop.

This? It needs to break out, but yes. That's arc. One more. Yes. All right, so,

it was, dude, there's f***ing clicking in my ear. What is this? Static. Static from what? Me? Is it my sweatshirt? My hoodie? What is this made out of? It's nice material, right? What is this? It's static. Static from what? Me? Is it my sweatshirt? My hoodie? What is this made out of?

It's nice material, right? What is that, felt? So these charts, Jeff and Aud, ow! Is anybody else getting the clicking in their ear? No, you've got, it's because you've got, yeah. It's Peloton? It's like you're in a, you know, you've got your flannel pajamas on in a

wool blanket. Yeah, you'd lose the jacket. I was showing you Peloton, Zillow, and Shopify. Yeah, so at this time of year, right? You get the reversion trade. That is seasonal. The junk trade. But they've been basing. The tax.

They've been basing. Tax law selling comes back, and you get this. Why do the junk stocks rally after Thanksgiving? I.O. Zillow, by the way. I.O. Zillow. Just FD, as they say. But why is that? They do, though, right?

Yeah, because most of the mutual funds are out, right? They don't want to show them on the boats. The tax law selling is done. Yeah, so all the pressure from selling is over, and they sort of levitate as asset allocators come back. And wherever they go, they have to throw that percentage to the— I was doing this trade in 2005. We were buying Focus Media and other assorted Chinese advertising stocks. This has always worked.

Like right after Thanksgiving, you could buy the worst shit. It is. I was just at a lunch and we were talking about the same way. It is exactly like sitting at the blackjack table and saying, you know what? I have an 18. What are you going to do with an 18? You're going to stay, right? You're not going to win every time, but you're going to win 75% of the time.

Yeah. That's exactly it. The problem is you have to play it every hand, the same way, every time, and do it every year. In order to get the benefit of the probability, you have to persevere. You can't believe this year's different or this year's not different. It's like, just go

in and do it. I should have bought that Zillow with you when you bought it. Where'd you buy it? Remember I told you Peloton and you told me it's going to zero? It is going to zero. But that was like 80% ago. No. I hate you. Did it's going to zero? It is going to zero. But that was like 80% ago. No. I hate you. Did it double?

Almost. It's still going to zero. Well, I'm not trying to get mad at these names. All right. How are we doing? Ready to go? Okay. So that static was my hoodie, huh?

Yeah. Don't wear that again. All right. What episode is this, John? 70? 72. 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. Josh, do we have some exciting news to share? Oh my God, I'm so excited. Here's what we're doing. Friday, December 16th at 5.30 p.m., myself and Josh are collaborating with the On The Tape podcast. It's Dan Nathan, Guy Adami, and Danny Moose.

What are we doing? We are doing a live podcast from the NASDAQ market site in Times Square. The tickets are $100. All of the proceeds are going to No Kid Hungry. The tickets are going to go fast. Press pause, Hit the link. It's in the show notes. Where is the link? It's in the description right now. They can see it on the app.

It's right there, right, Nicole? Alright, so we're raising money for No Kid Hungry. 100 of you will get to come live at the Nasdaq Market site December 16th. What time are we doing this? 5.30. 5.30 p.m. There will be drinks. There will be food. There will be merriment.

It's all happening. Make sure you do that, and we'll see you there. Today's show is brought to you by Composer. For those unfamiliar with this new, cool, and exciting tool, picture this. Portfolio Visualizer meets Fidelity? Here's what I'm trying to say. Visualizer meets Fidelity? Here's what I'm trying to say. If you have ever back-tested a strategy,

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For more information, go to composer.trade slash brochure. Episode 72. When did we start this? June of 2021.

All right. Ladies and gentlemen, the compounding friends, Jeff DeGraff is here. I'm so excited about this show. Jeff, we wrote you an intro. Can I read it to you? Please.

Okay. Jeff is the chairman and head of technical research at Renaissance Macro Research, an institutional buy-side macro research firm. Sell-side. Right? Sell-side. Where does that go? We're sell-side.

Sell-side. Who did this? Duncan, you're fired. Jeff is a frequent contributor to CNBC and is a member of the Institutional Investors Hall of Fame. Jeff DeGraff, welcome to the show. Thanks for having me. Thank you for doing this.

My pleasure. You've been sell side of- Jeff is a favorite of a fan favorite. Like, isn't JC obsessed with Jeff? I just told him that. Like, whenever I ask JC who's the man, Jeff DeGraff is the man. I've been hearing that for years. Why do you think people, uh, feel so fervently about you being the guy? Bro, he's got the dopest charts. That's what JC, bro. Have you seen his charts? Oh man. I, I, well, you know,

there's a lot of reasons I should ask my mother. Um, but, uh, you know, I's a lot of reasons. I should ask my mother. But, you know, I think one of the things that we've done well in our process and career is just be very consistent, right? And we think about things, you know, almost monotonically. I mean, you have to be creative in this business for sure, but there are certain boundaries within which you have to work. And we've always been big believers in credit, well before credit was even a thing. We've been big believers in sentiment and trend. And I think one of the things that's built our credibility over time is that we test everything. So we don't just throw it out there, we test it. It was a big reason for starting my own firm was building a database, writing the software, having this ability to really go through and make sure that the spaghetti stuck on the wall when there were ideas out there. And then owning that as IP. And then absolutely owning that, right?

Because if you do it for somebody else, it's gone. When did you start the company? Pi Day, 2011. OK. The math guys loved that company? Pi Day, 2011. Okay. That was, the math guys love that. That was just a coincidence. So you're 12 years in and prior Lehman. Prior to that, ISI for four years, Lehman for about 10, and then Merrill Lynch before that.

Okay. So you've always been on the sell side. I've always been on the sell side. Okay. And for Michael, what does monotonically mean? Incrementally higher or incrementally lower. Correct. Come on, man.

Okay. I thought you were doing Wu-Tang. I thought you were saying I bomb atomically. Socrates philosophy. What? Don't take me doing that. Okay. So listen, this is like an amazing, not a coincidence, but like it's a very momentous time for us to have you here.

of coincidence, but it's a very momentous time for us to have you here because this week, I think technically, or maybe you'll tell me I'm wrong about this, I think technically a lot of things might have potentially changed from the primary trends that we've all been living through this year. Notably, at least for somebody that's not a technician, the S&P retaking its 200-day moving average to the upside. We have not been above its 200-day moving average to the upside. We have not been above the 200-day moving average since like 10 minutes in April, basically, but almost the whole year we've been below, 22 days out of 100-something or 200-something days.

Is that meaningful? Should we get excited about it? Or should we just say, this is just one more data point and it's not its own story and this is uh how many days the s&p 500 is spent below its 200 day uh so longest longest streak of under the 200 since the gfc right yeah which we could say it's since quantitative easing and balance sheet manipulation right look uh trend following is without question for anyone who wants to have a simplistic technique that makes money and controls risk, trend following is it. You know, this idea of buying over sold conditions, selling over bought conditions, it's an illusion of

control. Makes you feel good, makes you feel like you're, you know, in the action. But if you want to make money consistently, keep your blood pressure down, control your risks, trend following is important. Versus like pattern matching or fractals or – I mean almost name anything. But what about intuition? With the exception of intuition. Trend following with a dose of intuition. Right.

This time I'm not going to listen. All right. going to listen. All right. So what you're talking about is the 200-day moving average, which is a way to smooth the noise of the day-to-day of the markets, right? I'll give you an interesting stat. When we looked at individual names back to 1957 and used a very simple technique, the 50-day moving average versus the 200-day moving average. So if the 50-day is above the 200-day moving average, that's an uptrend. If it's below, it's a downtrend. Very simple. If you look at that and you measure the alpha, right? So we're trying to measure what the risk-adjusted returns for individual equities are in these two states.

You find that in an uptrend, stocks on an annualized basis produce about 104 basis points of alpha. Not bad. I mean, you're not going to get on the cover of Forbes. If what? If you're buying it? If the trend is up, right? So today, the 50 days above the 200 day, tomorrow, I own the name, and you just keep doing that. Golden cross, death cross. Yeah, exactly. So you're not going to get on the cover of Forbes. But look, it's hard to generate alpha generally, but the uptrends generate more alpha. or Forbes. But look, it's hard to generate alpha generally, but the uptrends generate more alpha.

When the 50-day is below the 200-day, it's actually negative 75 basis points. So if you start looking at that spread of 180 basis points of alpha, that's real. That's real over a period of time. So as a very simplistic measure, you can just say, I'm only going to own stocks in uptrends. I can change the weight based on my fundamental values or however else I think about the world. But just by making that simple distinction, it really puts the odds in your favor. So the idea that the market's above the 200-day, it's one trend-following technique. It's a little noisy, so we don't use it. It's part of a process, but it's not the main part of the process. Well, you want to know the slope, which is still negative. Slope is still negative.

You want to know, like, is this for a day or a week or a month? Like, the duration of time it's been in an uptrend is meaningful, right? It is, yep. And then you also want to know thrust, right? So thrust is what we call escape velocity. How powerful is this move? And there's different ways to measure that. A few of the ways that we look escape velocity, right? How powerful is this move? And there's different ways to measure that. A few of the ways that we look at it, what percentage of issues are above their own 20-day

moving average, so very short term, you know, just a month basically worth of trading. What percentage of issues are making 20-day highs in any given day? The 10-day breadth, so if we measure breadth over a 10-day period, what does that look like? And I'll tell you, and this is a true story, last night, you know, I had to leave early. I'll tell you, and this is a true story. Last night, you know, I had to leave early. I came back and, you know, obviously the market was strong and it closed on a firm note. And I started going through our internal work and I called my team together. I'm like, we got to double check this data because this doesn't look right to me. We had 17% of the names making 20 day highs. We had 72% of names above their 20-day moving average. These are very low numbers for a market that was that strong and making a 20-day high.

And what we found was that really when we went, this is on the Russell 3000, when we went through it, it was a bunch of mega cap names. It was names like you just pointed to, which are these beaten down names that had rallied back, didn't really make 20-day highs, had big consequential impacts on the market, NVIDIA, some of the FANG names, et cetera, but didn't change anything. The rally's in a downturn. Exactly, it was a rally in a downturn.

Is this fool's gold? So we did not get the escape velocity that we looked for in those indications. Now, that might still happen, but I would not point to yesterday and say, thank God this is finally it. Isn't one of the reasons why those secondary measures of thrust are so important is that if you're just going by above below, you're going to churn up any of the alpha that might exist. Like you would get so many false buy and sell signals. And when you're doing that with real capital and not just in a spreadsheet, like you could chew up an account.

You absolutely can. So position sizing is important. The other part too, is it's just psychological. Like I can give you a trading system that is right. Uh, only about 23% of the time. Right. But it sounds like you, but when I do, when I hit, Jeff, I'm so glad you said that our, our late friend, John Borman used to say, if if you want to buy a stock to go up, buy one that's already going up. But behaviorally, it's counterintuitive. It goes against all of our instincts. We want to buy bargains. People would rather buy a stock at a 52-week low than a 52-week high,

even though we know empirically that is a bad strategy. Absolutely. But it's very difficult to buy a stock because you said, oh, I can't pay 100. It was 80 three months ago. But that's how difficult to buy a stock because you said, oh, I can't pay a hundred. It was 83 months ago, but that's how many things in there. There's like the, just the idea that just generally it's better to buy things cheaper than there's like the, uh, the anchoring bias, what price I last saw it at, or when the last time I owned it, what, what it was, there's so much shit in there that is just not processed. This is cable. I didn't know this is cable.

Oh, you can say whatever you want. But buying- Like we're not going to- I know there's a big difference between buying stocks that are cheap fundamentally versus if a stock is 52-week low, it might still be expensive. But when you're buying stocks that are in downtrends, if you're expecting that to turn around in three months- You're lucky not good if that happens.

Right. Usually they make new lows. Right. Right. Well, and that's a really important point because what we find is that we're, you know, fundamentally, I'm a CFA charter holder. Fundamentally, I have a value. Personally, I have just a philosophical value bias. Probably, you know, it's my Dutch heritage, whatever. We'll see. But what we find is that cheap stocks going down are not a good place to be. And again, very simply, we don't have to get sophisticated with these different algos. We can just use the 50-day versus the 200-day. If you buy cheap stocks in an uptrend, it's a far better proposition than thinking that somehow you found the magic and it's going to turn.

Now, granted, there are special situations. There are hard book values, and they come along. There's no doubt about it. But consistently, to have that process, you absolutely should be buying cheap stocks only in uptrends and not trends for the year. What about buying expensive stocks in downtrends? Yeah, we'd like to do that.

The trade of this year, obviously, anything related to energy, these were cheap stocks and downtrends last year. Sometime this year, they crossed over to becoming cheap stocks in uptrends, but a lot of money had already been made before they became a cheap stock going up. Or do I have that wrong? a cheap stock going up or do I have that wrong? So in our work, I'm just thinking back, they changed right around the election. The relative performance of energy changed around the election. And I remember very distinctly having a conversation with the clients who were saying, well, you know, the Biden administration is absolutely going to crush energy and this isn't going to work. And I'm like, you got it.

That shit never works. I'm like, you got to take a step back. On both sides, it never works. Yeah. It has nothing to it never works. Exactly. Yeah, it has nothing to do with Biden. It has to do with the politics just doesn't play into it. Also, it's backwards. If you get somebody in office that wants to de-incentivize drilling, what do you think is going to happen to prices?

Right, to those who can drill. Right. Yeah. Okay. Exactly. So anyway. So not only does that not work, even if it did work, it would work in the opposite direction. So an interesting stat.

We go through every industry group and we look at what the best valuation technique is for that industry group. Now, I can tell you that for the market as a whole, free cash flow to enterprise value is a pretty good measure. But it doesn't apply to banks. It doesn't apply to utilities. There's a lot of industries that it doesn't apply to. It doesn't apply to utilities. There's a lot of industries that it doesn't apply to. So we go through and look at, OK, if I had 50 years of data and said, in hindsight, what's the best one to measure? We do that for every industry group.

Without question, without fail, for energy, it's free cash flow to enterprise value. So it's pretty traditional. We had to rescale our charts back two years ago because they were so cheap. Wow. So we had to rescale the charts and then we see that and that we see the trend transition relatively. And I'm like, yeah, what else can you, can you ask for? What I find so interesting is that you're even talking about things like enterprise value to free cashflow. Like, like, like that, that,

that that's even something that goes into your, your mix because so many technicians we talk to are pure technicians and they would argue, yeah, I'm sure that stuff is important but the market is already aware of it. Well, I mean look. I am more in line with that than not but I'm also an opportunist and I don't care what makes me money as long as it's legal. I'm going to use that to my advantage, right? And so what we find historically, again, just from the data, is that if I can find good relative values that then have building momentum, it's a no-brainer. It doesn't have to be black or white. When the fundamentals and technicals line up, you know you're getting something.

But you're talking to hedge funds who will not place a trade on technicals alone. They need to understand why the stock is working. So you're able to deliver that to them. That's important. And we are. But I would also say what we try to do as well is when they give us their portfolios, I don't want to know. I don't want to know if they're short. I want to be very, very unbiased and say, Hey, this is a name that we'd own. This is a name that we would short. And, you know, and I'll, I'll, I'll get into, they're not arguments, but they'll, they'll try to convince me as to why that should. I'm like, I'm just looking at the day. Like, there's nothing for me. I can't change. I hear what you're saying, but I can't change the chart. I hear what you're saying, but I can't change the chart.

I can't change the chart. So until your story is recognized, it doesn't matter. It just doesn't matter. This year has been, I would guess, the biggest spread between the Dow and the S&P since 01 or 02. Just not looking at the data off the top of my head. But for the last two months, it was the strongest- John, we have this. The strongest two-month return for the Dow. And I'm not using rolling 30-day. I'm using actual monthly calendars. This is rolling two-month returns

for the Dow Jones Industrial Average. Was up 20%. So October and November were up 20% for the Dow, which is the strongest two-month return since 1938. And John, if you zoom in to the next chart, we've got it a little bit zoomed in. So yeah, pretty good. Yeah. Look at that. Definitely. The Dow is- It's a little bit zoomed in. So, yeah, pretty good.

Yeah. Look at that. Definitely. The Dow is... It's a little quirky of an index. It's down 3.5%. Yeah, yeah, yeah. Of course. Well, it goes to the other...

It's price-weighted. Are you a Dow truther? I don't even know what that is. Like S&P is the market. Stop talking about the Dow. Yeah, pretty much. Me and you have this fight. It is the market.

The S&P, of course, is the market. However, I mean... The Dow is the people's index. Essentially, I mean – Wait, in 1932. All right, but I'm a traditional guy. No, listen. I get all the arguments against looking at the Dow

because a $400 stock is going to matter more than $100. I get all that. But the S&P and the Dow over like 20-year periods end up in the same place. Yeah, no. The path might be different, but the returns aren't that different. But as a representation, the question is, is it truly representative? Although when the people say, what did the market do today?

They do ask for the Dow. Thank you. But you agree with that? Well, of course. Yeah. Of course. Imagine telling somebody, oh, what did the S&P do? It went up 15 handles.

Yeah. What? Yeah. What did the Dow do? Yeah. I don't know. The people that shunned him on Sunday, I think they still look at the S&P do? It went up 15 handles? Yeah. What? Yeah. What did Dow do? I don't know. The people that shunned him on Sunday, I think they still look at the S&P. Listen. Peter Tuchman is a huge S&P guy.

Tuchman knows what he's talking about, but most people haven't spent their career trading and don't really know. All right. But do you think there's – so is there a signal in the separation between the Dow and the S&P or the Dow and the NASDAQ? Is there something worth like remarking upon there? Well, the Dow and the NASDAQ – That's growth versus value. I honestly don't know. I have never looked at it.

No, that's it. We know that 25% of the S&P is fang. And so it's a value growth thing. But we'll see if it lasts, right? So that's the transition through time. And that's one of the things that I think is underappreciated in this business is just the constituency of what the S&P looked like in, say, 1982, where it was roughly 25% of the market was energy. And today it's tech. And so people look at PEs for the market back in 1982 and say, well, it was so cheap.

It's a different world. It's a completely different world. It's a completely different capitalization structure. You've got two guys and a dog starting a software company with no book value in a garage. And you're trying to compare that to Exxon. By the way, Apple still has like 30% gross margins or some ridiculous number. Yeah, exactly. Exxon got kicked out of the Dow at the bottom or close to the bottom. Chevron's the only energy company in the Dow. I think that's right.

I think that happened to Westinghouse too, though, but it still is a bottom. So the big picture though, from your perspective, is that we have not done enough to the upside. There's not enough of a thrust to really feel like the primary trend has changed. But it's worth keeping an eye on. Where we've been for the last three months, we've got what we call our market cycle clock that looks at a bunch of different indications, which is essentially distilling it down to growth versus inflation. And what's amazing, and people don't believe it, but inflation and growth have been in the bottom third of this metric that we use, which goes back over the last 70 years. They've been in the bottom third for about the last two months, right? So they're like, how in the heck can inflation be done? Yeah, I just turned my head.

Right, right. We use PPI as one of the indications. And the reason that we do that is because the simplicity actually is a feature, not a bug. The simplicity of PPI is I call you and say, as the ISM, I call you and say, hey, your input costs, are they high or lower about the same that they were last month? And you tell me, I'm like, okay, it's a diffusion index. And if it's above 50, they're a little bit more And if it's above 50, they're a little bit more. If it's below 50, they're a little bit less.

Well, you know, that seems like it's sort of, you know, ridiculously simple, but you don't have year over year problems that are presented from COVID. You don't have the change in the index that you get from CPI. And then we decide, you know, magically that we're going to exclude food and energy and all these other things are just like hindsight bias related. Seasonal. Yeah, this is just pure data related. Seasonal. Yeah. This is just pure data.

Up or down. Yep. Pure data. And here it is. So PPI is rolling over. And it's in the bottom third. Not only is it rolling over, it's in the bottom third of all the data back 70 years, right? This is an extraordinarily bullish zone for equities.

So what do you make of the dollar having a really rough period, which is obviously a tailwind, and interest rates coming down as well? So the dollar is nothing more than a reflection of the stringent financial conditions that we had over the summer. It's interest rate differentials relative to Europe, Japan. I mean, that's what the dollar is. There's four things that represent the dollar. There's interest rate differentials, growth differentials, purchasing power parity, and what's called the international Fisher effect. You go back and look at them, all you need to know is the interest rate differentials, purchasing power parity, and what's called the international Fisher effect. You go back and look at them, all you need to know is the interest rate differentials. The other three account for maybe 2% of them each. So you're absolutely right. So we started hiking first,

and we hiked faster. And our expectations were continuation. And expectations. And that's the story of the dollar strength of 2022. Right. So the S&P over the last six months has been most sensitive to three things, and I'll give them to you in order. Triple B spreads, right? So as they go up, S&P goes down. The dollar, as that goes up, the S&P goes down. And then nominal interest rates, which is basically the five-year you can use as a good proxy. As that goes up, the S&P goes down.

All those things have reversed in the last, what, month? This is the S&P on top and the dollar on the bottom, and they're mirror images. It's not always like this, but this year it is. So what's interesting is people will always ask, well, what's the dollar's impact on the S&P? And that's a reasonable question. But if you go back and look, it absolutely is backwards, right? The dollar is a reflection of financial conditions. And so when we go back and look at attribution, today it's about 10%. So it's actually extraordinarily high. 10% today, that's extraordinarily high. It's usually right around 1% to 2%.

Which is noise, right? I mean, it's complete noise. When people get all worked up about the dollar trade, I'm like, seriously? We're dealing about 2% of what we're doing? But this year, it's incredible the degree to which S&P futures will move lower when the dollar rips. Well, because this is a different year. It's a different environment. But because it's a reflection of those financial conditions, right?

So it's, you know, you sort of have to ask, is this, is it the dollar or is it the dollar representing what the financial conditions are? I think the dollar is what the S&P sees in the mirror. So I think the stocks that are driving the dollar or just general sentiment. What probability would you place on the dollar having topped for the cycle in September? I'd say close to 70%. Yeah. And one of the interesting things,

so we monitor the CFTC positioning within the futures market, right? And again, this is one of those things where- You're a perfect guy. Sorry to cut you off. You're a perfect man to answer this question. Who are these commercial hedgers? Like seriously.

It's Fortune 500 companies that have real costs in the real economy. That's who they are? That's the best mystery? For the S&P or for what? It depends on what you're talking about. We're looking at gold miners. Is that what you're asking? So remember Brian Baskin was here and we're talking about these commercial hedgers?

Dude, Colgate Palmolive. You know how much chemicals and raw materials they have to buy to make everything that they make? They would hire a firm to do hedging for them in Chicago. I know you're a chemist. Take it easy. No, right? But right? Like that's what we're talking about.

Yeah. Oil companies. Kellogg's for cornflakes, right? Airlines for jet fuel. Yeah, yeah, yeah. For the S&P, it's pension funds. It can be mutual funds. It can be trading desks, right?

They're taking on – they're expanding their book and their balance sheet and they want to offset that. So there's some of that. But is there signal in these numbers? Well, sometimes there are. Sometimes there's not, right? So with the dollar, what's interesting is most people would say, well, whatever the commercial hedgers are doing, I want to do, right? That's the quote-unquote smart money. Let's make sure that we're following the commercial hedgers.

That doesn't always prove to be true. And in fact, with the dollar, what's interesting is when commercial hedgers become excessively net long the dollar, right? So in other words, they're hedging against a dollar rising. It's almost a perfect point to be selling because they finally got in their act together where they're saying, you know what, whether it's the CFO, the treasurer, or whatever, they're saying, we don't want this representing us poorly in the earnings the next quarter or the next two quarters. Let's put on the heads now. So they're like the dumb money?

So they essentially end up being, for the dollar, just for the dollar, they end up being the dumb money. So you actually want to fade the commercials in that instance, where as something like what we're seeing in, say, NDX futures, they're actually long, and they've been getting long. And for the first time in this bear market, they got long about a week, maybe two weeks ago now. Who would be the commercial hedgers of the NASDAQ 100? It could be pension funds that know that they're going to get allocations, that they don't have enough cash positions.

So they're using futures to offset that and shore themselves up. It could be mutual funds that have seen outflows and they want to offset that. It could be, you know, there's anybody who's trafficking in the underlying and uncomfortable with their, in this case, short position or underweight position in equities or in domestic futures would be using that. Well, the dollar is dropping like a stone again today. How important is monitoring

what the commercial hedgers are doing? Like, in other words, is that a strong enough signal if it's at an extreme that it would overturn something that you're seeing in price? Or do they very rarely contradict each other? So this gets into something that we talk about a lot, which is we look at the markets in two distinct buckets. The first one, I'll try to keep this simple. The first one is what we call potential energy. You're a chemist, so you know potential energy, right? Sitting there, it's just waiting to be unlocked, right? So that's sentiment, that's valuation. It's something that it's inert right now, but it has the potential to be very, very powerful.

And then we look at what we call kinetic energy, or what physicists call kinetic energy. And that would be something like momentum trend, that hot spark that can then use that fuel to push the market higher, right? So one without the other, it's just not that interesting. Both together, very, very powerful. So when we look at something like sentiment, when we look at valuation,

we look at it exactly in the same light where we say, look, the potential energy. And one of the reasons why we've been more optimistic over the last three months, frankly, tactically bullish, not long-term bullish, but tactically bullish, is because the sentiment positioning was offsides. The seasonality, we said, this is just the time of year that this stuff happens. The market cycle clock was saying that people are offsides in terms of their thinking about what's likely to happen to policy. And so what you can end up happening, or what ends up happening, is you just fill that void, right? People are off-sides. And it's not that

anything necessarily changes, but just it's not as bad as what people were expecting. And you just go back to trend. It's like an unwind. Exactly. So you just go back to trend, which is what you're talking about, going back to the 200-day moving average. And without that thrust, without the percentage of issues over the 20-day, the 20-day highs, all those things we talked about, it's really hard for us to then say, OK, well, this is a new bull market. This is just sort of filling that void that existed that nobody could see the ledger day. It's more neutral than it is breakaway or breakout. Okay.

Right. So we spent a lot of time talking about equities. Let's talk about credit a little bit. There was a huge outflow from LQD, which is the iShares investment grade ETF. And when I saw this headline, I thought to myself, huh, 10% of the fund leaving in one day has to be like a model. That's a big RIA who got a better deal from stage strength and BlackRock. This has to be a model portfolio shift. There's literally- It's a basis point trade.

There's no other explanation. And then later in the week, sure enough, the Journal did a piece showing all of the fund flows coming into high-yield ETFs. This literally was like three days later. I was like, huh, nailed it. But as we look at, Jeff, as you look at- Oh, so you're saying that's somebody saying, get me out of LQD, get me into JNK? Maybe it was just taxables harvesting.

Who knows what it could be? But this chart shows flows coming in. So the LQD was probably just a model portfolio change. As we think about investment grade spreads, where do you think we are in this cycle? Is it weird that there's been not so much stress on credit? Or like, what do we make of all that? The thing is all the jump bonds are energy companies.

They've never made more money. I'm looking at, next chart, please. John, this is investment-grade spreads. Yeah. I mean it's – Where's the spike? I think it's in the top 80th percentile. I think if you look at all that data, I think we're in that top 80th percentile.

So it's not the 90th. It's not the 100th, right? So there's 20% more to go. Yeah. So it's elevated, but we're also not in recession, right? So I think that's sort of where you are. Look, I don't think we're going back to 2008, 2009. We just don't have that same underlying dynamic.

And one thing that's interesting about this business is people love to fight the last war, right? So the last thing that's on their mind is like, oh, my God, this is the housing crisis or whatever. I'm like, oh, my God, this is the housing crisis or whatever. I'm like, probably not because policymakers put in these gates and everything else that sort of helps prevent that. What's interesting, though, is those gates generally help to build some other problem or dislocation in the market that you have to be ready for. I never know what it is. You just have to be on guard for it. Yeah, right. But if you're worried about banks and mortgages, you're thinking about the wrong thing.

Correct. Right. Because we did that already. Yeah. Capital ratios, everything else is – Right. It's not going to be the thing that everyone is looking at because they remember 10 years ago. Right.

Okay. The old saying that the shot that gets you is the one you don't see coming. Well, that's why it gets you for a reason, right? So it's always – But even if you look – It's trickier. Even if you look outside of junk bond – like you just look at like credit defaults. There's like no sign of anything.

Very little. Very little. There's some intrabank stress between European banks, and there's some funkiness going on with that. But even that's calmed down here recently. We talked about Credit Suisse just now before the show. Michael and I did like a whole segment on it on YouTube the other night. I can't get excited about it. I feel like I don't know if the equity is worth anything or not.

Like I feel like it doesn't matter. It's not as systemic as it sounds like it is. Like it's not the Swiss government and they're probably not going to let it completely fail anyway. And they'll just keep diluting shareholders and then they'll do a reverse split and it'll be a $30 stock like they did with Citi and life will go on. Like if that's the big risk that is Deutsche Bank and Credit Suisse, I can't get excited about that.

At a perpetual ROE of six. Yeah. Right, yeah. No, I just feel like they'll just like keep paying fines and they'll reverse split the stock and who cares. So I don't see any sign of like that credit blow up and that's what they want you to think. No, but like nobody can really come up with a story where there's some sort of like imminent credit crisis. It's the hole in the balance sheet, right?

That was the big thing. It's like how big is the hole in the balance sheet that do we not know, right? Right. And then you have the counterparty. how big is the hole in the balance sheet that do we not know, right? Right. And then you have the counterparty. So the counterparty stuff becomes an issue because of, you know,

I don't trust you. And now because of him, you don't trust me. He doesn't trust Peter Tuchman. Right. We're going to FTX. Jeff, you have this interesting observation about the relative attractiveness of fixed income versus stocks. Earlier in the year at one point, like stocks, the S&P and the ag were both down 15% year to date.

And you're saying that bonds are actually relatively more attractive even after the decline than stocks are. Right. So one of the ways that we look at the world, we talked about the free cash flow to enterprise value, right? And we do it for individual companies

within the index. So when we go back and compare where our valuation indicator is in 1982, it's exactly the same calculation and on an apples to apples basis as it is today, right? So we can actually compare through time. What we found was that the best valuation normalizer, right? Some people use GDP or you can use all these. But the best valuation normalizer is not the treasuries because that's the cost that the government, the risk-free rate essentially other than interest rate risk can borrow at. What we found is that the best proxy is BBB government bond yields, right? Not the spreads but the yields.

is BBB government bond yields, right? Not the spreads, but the yields. And what we find today is that because we've had the bear market in bonds, we've had a bear market in equities, that's a pretty unusual occurrence over the last 40 years. And so usually what's happening is you get a bear market in equities

that raises your free cash flow yield. The Fed cuts rates, so you get a bond rally that lowers yields, and that differential starts to widen, and there's a value proposition for equities, right? So bonds rally, equities look cheap, and sooner or later, that gets some traction. Today, we've had just the opposite, or actually uniqueness, in that the bond market has sold off, the yields of those bonds are high. More attractive.

Right? More attractive as equities have sold off. And they actually, the yields of equities haven't kept up with the bonds. So when we look at it, we're actually looking at it saying, today, dollar for dollar, I've got more attractive offers in the bond market than I do in the equity market. You know how many equities are disqualified if the one year is going to be 5% yield? You know how much of the stock market you just throw in the garbage? Well, that's where we are. I mean, that's where we are.

And I think that's going to be a big problem as we go forward, right? Like, the one thing, I'm not convinced that rates are going to 10% or something crazy. But I am convinced that we've broken the bull market in bonds that was in place for my entire career. You would say that that ended last year? I would say that ended last year. Now, I would not say that downtrend immediately turns to uptrend, but generally downtrends go into a basing period, and then you can start the uptrend. Wouldn't it make sense if that ended last year, like poetically, like we had negative,

we had 10 trillion dollars worth of negative yielding debt after the pandemic. And that was the bottom. Yeah, sure. That was the end of a 40 year. It had to end at negative. It was such a powerful. Just like energy with negative crude, right?

I mean, can you imagine the idea? I know the story doesn't have to be good, but that's a really good story for why a 40-year bond bull market would end. It ended with negative bond yields. Well, and I would add to that, it almost ended with hubris too, right? We can do whatever we want because we've controlled this for so long and we've got the bond market in our back pocket and we don't have anything to worry about. We invented $9 trillion between fiscal stimulus with money we didn't have

and newly printed dollars into the system. So that would also line up really well with that having been the end. We learned that actually when nobody has to go to work and everyone has cash, it's not a great idea. So this is you, right? Yields and oil? Yes, that's him.

All right. Let's go into this. This is really interesting to me. John, can you throw up this U.S. 10-year yield? There it is. I want to read what you wrote and then have you react to it. Yields and oil are two of the most consistent counter-cyclical indicators historically, i.e. higher yields and higher oil sow the seeds to lower yields and lower oil. Here we measure the three-year rolling sharp ratio,

which normalizes returns for volatility on yields. That's the inverse of bond prices. You'll note that we're in the top two and a half percent historically, which is usually the point at which the rubber meets the proverbial road and the tipping point of financial conditions, thus lower yields. So tell me why that's relevant to asset allocators or investors. What's the message behind that? Well, there's a couple. One is that the returns have been so bad in the bond market and they're matching things that we saw back in the mid-aughts and then taking that back a little further close to the 1980s. And usually those returns are just unsustainable, both on the good side and the bad side. So you're never as smart as you think you are and you're probably not as dumb as you think you are, though that one might be debatable.

It's the worst year for treasuries since 1788. Yeah. So- I can't persist. Well, and part of what's the magic of the bond market, right, is that when you put yields out there at 7%, well, guess what happens? Buyers. They're just, well, there's buyers, but those that are borrowing are done. I can't, this capital project doesn't make any sense at 7%. So you don't borrow. And so all of a sudden, that sows the seeds for lower rates to start to attract that back. That just happened with mortgages.

Absolutely. I mean, mortgages are very simple, and housing is very simple. And it's actually a very good proxy and a nice sort of 101 economic tutorial about how that works. It just froze the market. Because guess what happens? Can't afford to move. And prices are more inelastic. Case-Shiller home prices are now off a cliff. And activity is at like half-century lows.

Yeah, home sales are collapsing, obviously. Like that. It took eight months of rising rates. Although, interestingly— Because the prices won't change, right? So if. It took eight months of rising rates. Although, interestingly— Because the prices won't change, right? So if you adjusted the prices— The home prices. Right.

If you adjusted prices so that my payment looks the same— That's glacial. Absolutely. That process where homeowners say, I guess I'll sell 20% lower than last year. Yeah, okay. Don't f***ing play. No, no. Yeah, yeah.

So mortgage rates came in a little bit. They're at like 6.5. I do wonder how quickly the activity picks back up if we get down to 6 or so. Well, so our economist, Neil Dutta, has a great chart on this. And it actually picked up pretty meaningfully in terms of applications. In the last week? Just with that 50 basis point. I think it was the last three weeks.

It had come down. I could see refis being slower, but like home sales picking back back up because like nobody's refining 6.5%. If you didn't do it in the last three years, you're not doing it. So the refi market might be dead for like years. Yeah. But I could see home sales reacting relatively quickly because people still have to live somewhere. I hope you like your house is really what that comes down to. Well, that goes without saying.

You're there. Let me continue with this. Well, what did you want to say about oil there? Because that's the same kind of thing, right? If returns in the oil market are low, ultimately that will lead to less drilling, which has to lead to higher prices. There are two very, for the market, for equities, right? That's what we focus on. There are two very consistent counter-cyclical inputs. Rates, mostly short rates, not even long rates, mostly short rates in oil. And those two things, you can build a very accurate GDP model using those two inputs. And we can make it more sophisticated and we'll get a little bit more incremental information out of it. But honestly,

by the time you distill it back down to what are these two inputs really telling us, those two things will give you- What's more important, the level or the direction? That's a good question. We have what we call our yield impact model. And believe it or not, and we tested this- I'm going to say direction. No, it's 50-50. Interesting. It's split. What I thought was most interesting is that the market for equities, the market couldn't care less about what the level of rates are anything further back than three years ago. So if you're going to tell me, oh, rates were whatever in 2016, market doesn't

care. Market has moved on. They care about the level today versus what the higher low was over the last three years. and anything longer than that It's irrelevant. I did this very simple analysis looking at I think it was I came over as inflationary interest rates but if If inflation was lower than it was a year ago That was massively positive for stocks and if it was high like it was a bit way bigger spread regardless of where what level? Just the fact that it was lower the rolling 12-month return This is probably wrong, but it's directionally right, was like 11%

when inflation was lower than the year before and like 3% when it was higher, something like that. The market cares about better or worse, not good or bad. And that is lost on so many people. Do you feel the same way when you look at price charts and people talking about, oh, this was resistance back in 2004? Totally. Bullshit, right?

Thank you. That's your argument. Thank you. Now, you. Bullshit, right? Thank you. That's your argument. Thank you. Now, you can use volume, right? How is that memory 20 years ago? There's no buyers. It's the same people. But what if a stock hits the same level five times in a 20-year period? That's different.

That can't be coincidence either. Well, I mean, it depends on – I agree with that, but it depends on are we talking about five years as of 2000 to know, 2000 to 2010? Yeah, yeah, yeah. Or are we talking about five years starting in 2010 all the way up to today? That's more interesting. Because a lot of people are looking at, I remember this distinctly. A lot of people in like 17 or 18 were looking at the NASDAQ breaking above your 2000 highs.

Josh, it's so funny to say that. That's what I got. Come on. This is not, there's no, I say that. That's what I got. Come on. This is not – there's no – I understand that price stopped here. There's no memory here. These people are washed out. They're dead. Price did stop, though.

It did. Okay, fine. But keep in mind, those companies, I think – Different stocks. Yeah, as I say, I think it's only like 30%. Well, that's a whole other thing. Cisco, Microsoft, and Intel, whatever. There's a few, but –

People are charting ARK. Her portfolio has one stock in common. Yeah, she could be a utility fund tomorrow. Two years ago, it was 20% Tesla. Now it's 6% Tesla. It's settled. What are we looking at? Right.

Let's do this drawdown from SPX and Treasury over the last 60 years. And then the combined 60-40. That's a 60-40 portfolio. Yeah, why would anybody put gray on blue? That's so dumb. So you're saying here, bonds usually insulate portfolio returns. Today, they've exacerbated the drawdown.

Yes, thank you for that. We know. We're an RIA, we know. Worse for risk parity, which actually levers bond positions. Yeah, not only did bonds not help, they caused the downside. They made it worse.

Right, right. So what should we take away from this? And this was the point of that valuation argument I was making towards bonds before, right? Where this created a drawdown that was not insulated by the bond market. And the drawdown actually has made bonds relatively more attractive to stocks, right? Still. Still. When would that change?

Yields come down? Yeah, yields come down, or the equity markets come down a lot more. Because the 10-year has already fallen off a cliff. What's that, 3.7? It's 3.5. 3.5. Wow. 3.58 or something like that.

So that's getting less attractive by the day. Yeah, so that's helping, right? Okay. But if you're to keep things static, you gotta be careful because you're using two different inputs that can, that can move here. But it's somewhere around 3,500, just below 3,500 that it starts looking interesting for equities around these levels for, for we're, we're talking specifically for corporates, right? So that's, we're more interested in investment grade corporates, right? So we're more interested in investment-grade corporates than treasury. Now, you said that corporate credit is more attractive from a valuation perspective than

corporate equities, than stocks. That's the next chart. For 2023. All right, let's get into that. John, you have that? This is you. What's interesting about this bear market and unique to the last 40 years of bear markets is the lack of value proposition offered by equities. We just did this. No, but I want to see it. I want to see it. This is the chart itself. So when you're above that green line, right, that means you're in the 90th percentile of

that differential, which means that the free cash flow for equities is in the 90th percentile versus the spread versus- Meaning stocks are attractive. Yes, stocks are attractive. We're in the bottom 10th percentile. And what you'll note is not today specifically, but where we are most recently is we're actually below where we were

at the beginning of 2021. How could that be? Because the bonds have gotten shellacked. So purely on that basis, we're less attractive now than we were- From a valuation perspective. That's wild. I don't think most people are considering that.

Nope. And they should be because every dollar can be allocated anywhere. Absolutely. If you're making a rational decision and you're looking at this historically, you're saying, my dollar return, if I'm a steward of capital, this dollar's return should be going to this asset, not that asset. So said differently, it almost never makes sense to downshift a portfolio after a bear market. In other words, to go from 70, 30 down to 60, 40, because you got out over your skis, you're scared or whatever. Now it does. This is the first time in 40 years that we've seen that make sense. Yeah. Very loud. That's very interesting. Let's do this Vanguard thing.

We want to set this up. Well, yeah. I also want to talk about the yield curve. We'll put a pin in the yield curve, but the two-year is falling too, but it's 4-2-3. And the 10-year is, what did we say, 3-5? Not falling this fast. Unbelievable. We'll get back to that.

We'll get back to that. But that's the market, the bond market saying whatever additional rate hikes the Fed thinks it's going to do are going to be given back very quickly. Sir, we're putting a pin in that. All right, fine.

We will come back to that. Fine. Before we get back- I like when you take control of the show every once in a while. Before we take the pin out, we're going to talk about just Vanguard real quick. Had this paper. That's called press release.

I'm not sure why. A blog post. I don't know what you call this. Vanguard investor post. It was TikTok. Anxiety and cash needs on the rise. And they have one chart in here that is very interesting. They're looking at, I guess,

Vanguard households. Buy or sell. So what we're looking at here is households' needs for cash is especially evident in all-time highs for hardship and withdrawal. So they break it down like people taking money out of their account. This is 401k participants who are taking money out. So this is a noisy chart, but what you need to know is this.

As I say, I always try to make charts simple. It is incredibly noisy. If I swallow my tongue over here, somebody help me out. It is incredibly noisy. But the thing to focus on is the orange line, which is hardship withdrawals, which is at as high a level as they started taking it. What is a hardship withdrawal?

You have to actually give a reason for why you're taking the money out and should not pay a tax on it. Is that the... You have to meet a certain standard for an actual hardship. You have to pay a penalty, an income tax on this. So I don't know. You can't do a hardship withdrawal and wire it to Coinbase. Like, you have to have a reason.

Don't you get 60 days and then you have to change that law? You have to put it back. But you have to put it back. You're borrowing money from yourself basically. Right. But if you put it back in 60 days, I thought you used to be able to do that tax-free. So you could speculate. But the IRA rules and the 401K rules might not be the same. Right.

This is 401K. This is 401K. Okay. That was where that rule applied. So this is five. They surveyed 2,000 Vanguard investors on their outlook for the stock market. That's different. But whatever.

Again, it's noisy. But the point is this. People are tapping their 401k. This is not a good thing. This is supposed to be your retirement money. We know that credit card usage is up 15% in the third quarter versus last year. usage is up 15% in the third quarter versus last year. And we got data today about the cash that's in bank accounts. And all of those things are trending lower, which arguably is great because people will go back to work. Is that the way to think about that? Well, I'd think about it as the

Fed sees it and says, hey, we've got a potential problem on our hands, right? So that's it. We've done enough and here we can start to... But you want people to feel like they need to be working and not feel like I'm going to sit home and you need the labor force participation to take up. From an equity market perspective, I look at that and say, okay, well, if people are taking hardship withdrawals,

it means they've already liquidated whatever cash or assets they've had that they can access to whatever it is, make credit card payments or whatever. So again, those weak hands or the marginal buyer has probably, for the most part, taken themselves out of position to be a seller going forward, which is good news. John, put that up one more time. What was the hardship in 08 or 09? I don't know. I don't think it went back that far.

Oh, we don't have – it doesn't go back that far? Of all the noise on that chart, the one thing I noticed was – Oh, it's right in front of me. It does go back that far. But everything is noisy because, for example, Ben Kassman tweeted today, the continued strength of real consumer spending is pretty remarkable, accelerating over the past few months as inflation has eased. I don't have this chart up there, but Jeff,

take a look at this. Inflation-adjusted consumer spending looks to be accelerating again. So you could easily paint a very bleak picture of the consumer or that they're getting to the end of their rope, all the XX savings. Honestly, they're just like buying airline tickets, it seems. And then you could show and listen to a lot of

companies. Have you flown recently? I try not to, yes. Holy shit. I know. I've never seen anything like it. Any flight, any destination. Where did I? I was just on a plane.

Oh, when I went to Vegas, it was insane. There's people laying in the aisles. That is kind of what you get. No, no, no. Just in the airport. You're going to Vegas. Oh, I see. Just in the airport.

Just in the airport. Got it. But no, it looks like one of those scenes where there's's like somebody on a bus like in Latin America and there's like a chicken and like it's like every single flight is full. Livestock. Beyond, yeah. Right. Beyond people fighting over the overhead compartments like fistfights. All right.

Let's take the pin out and talk about the yield curve. So Bullard said the other day expected disinflation is the party driving yield curve inversion. So it is not necessarily sending a recessionary signal. I would love to hear your take on the yield curve. It's one of the most reliable indicators. The last nine times it inverted, a recession followed. What's going on here? Well, I mean, it has changed, right? When I got in the business back in the late 1980s, the statistical significance of the 10-year to the 2-year was meaningful. You know, T-STAT of 3, all this stuff. Well, he uses – Campbell Harvey is like 3-month, 10-year, but same – directionally, same thing. So, interestingly, right?

Yeah. Since the 90s, this has been, the efficacy has been trending down, right? And it's actually today, it's meaningless. Like today, the yield curve has no impact statistically on the returns of the equity market, which I still find hard to believe. Do you think because the economy is less sensitive to it or because everybody knows about it? No, because the absolute level of rates are so low. Well, I think there's part of that, but, think about what's happened in the last 20 years, right? We've introduced this thing called forward guidance and expectations from the Fed. So the two-year now

reflects what those expectations are. If you go back and we look at what's had the most stable statistical significance over that period of time, it's actually the 10-year to the Fed funds. So not what the Fed's saying, but what the Fed's doing. And if you look at that spread, that one still has efficacy, right? So what we're seeing is that the market is pricing out what the Fed's saying they think they're going to be doing. And what that really gets back to is- But that's inverted too now. Well, they both are inverted. The last one inverted like within the last month. So the last – Two weeks ago.

Yeah, two weeks ago. So what that really gets back to in our view is that the Fed – and I am not a Fed hater. I mean I know people are out there and they've got a hard job. There's no doubt about it. What I do think one of the mistakes that they make is they're overconfident in their ability to predict the future. I mean anybody who thinks they're good at predicting the future is going to be overconfident. Very confident in my assertion. Sorry, that's Ben Carlson who is a Fed apologist, I should point out.

They are very – they're overconfident in their ability to predict the future. And they're underappreciative of the power that they have to impact the economy, right? So they sit here and say, we think things are going to be somewhere in six months and the stuff that we've done you know we have to let it catch up whatever they have no idea what they're what they've you know what they've done back here and how that's going to impact so they've got a massive wake behind that they don't say dude in september of last year they saw no rate hikes this year or one yeah it's like completely ridiculous to go by their guidance. It's not that they're dumb.

It's that just things are really tough to predict. It's hard to predict the future. No doubt about it. No matter how many econometrics you have, et cetera. So here's that T-STAT, the bottom pane, right? So this is the tens versus twos. So the T-STAT is essentially a statistical tool that you see if there's a significant relationship between two variables, right? In this case, it's the S&P and the two-year

to 10-year. As that red line basically dips below two in the bottom pane, it says that you're losing the efficacy of this predicting the S&P. Right now, not only are we below zero, which is negative, so the sign's flipped, right? So what used to be good is now bad, right? And so I still think that there's something here, but we have transitioned because, you know. With the forward-guided start Bernanke, right? Yeah.

Post-crisis. Really, they started talking about implementing it in 2004. This is dotd-Plotz. Yeah, when he became the softer, gentler Fed chair. But the press conferences started doing the financial crisis under him. Yes. And Janet continued it, and now it's just like a thing. They never did this shit before.

No. I mean, when I got in the business, there used to be a whole cottage industry of people that would go through and look at – this is before that. This is Volcker, where they go through and say, we can only tell what the Fed did six weeks ago by going through the balance sheet and analyzing. Oh, that's interesting. What the, I mean, so not only did they not give you forward guidance, they didn't even tell you what they did.

They didn't give you backward guidance. They didn't give you backward guidance. So it was, you know, it's a completely different world. So the market expectations are moving prices such that there is less and less value to looking at a yield curve because the yield curve is now anticipating rather than reacting to conditions. That is our premise, yes. OK. That's interesting. Because it has changed. One of the overly simplistic explanations of why an inverted yield curve might cause a recession is people talking about the

banks borrowing long, borrowing short, lending long. And why would they do that? Is that complete nonsense? Yeah, that's really changed in the last several years. Yeah. Which part? The borrowing short and long. Oh, that's my question. Their access to capital. Does the yield curve do something to the economy or does it just reflect something that the economy is doing to it? The yield curve generally reflects because people are very sensitive to short rates, right? Credit cards, auto loans. Mortgages. Yeah, mortgages to a lesser extent because you're usually locked in. But today, what I'm going to do is going to have some impact on that. So the inversion just tends to float around what that more stable, historically stable level is. The yield curve is actually a really good indication of what you want to do in fixed income,

right? When it's inverted, you actually want to extend duration. It tries to fool you into doing the wrong thing. Wait, why do you want to extend? Because if you think about it, if I'm at 4%, let's just use run numbers. I'm at 4% today in a two-year yield, right? And I'm at 3.5% on a 10-year yield. I'm thinking, what fool would buy a 10-year yield when I can get a 50 basis point pickup for two years? We had this conversation two hours ago. Please answer this. Well, the problem is, is that as you get out in two years, the likelihood is that 4% yield, you're not going to be rolling at two, or you're going to be rolling at one and a half. Oh, in the 10-year, you won't have to roll.

In the 10-year, you're sitting there saying, hey, guess what? Yeah, that's very counterintuitive. So in buying the 10, you're taking a lower yield today, but without the risk of having to roll it at even lower price sooner. Correct. You're actually in a position of strength as a bond market investor. That's interesting. By buying the long end of the curve when it's inverted. You want to buy the short end when it's steepening. The risk of rolling is a real risk. Correct. It's not even a risk.

It's a certainty that you're going to have this. This is like a freak show of a yield curve. I don't even know what that is. What is that? This is the yield curve, which is very unusual. Oh, I see what you're saying. So that's the 30-year out there, and it's, yeah, the belly of the curve is where you want to be right now. Let's do this

thing on buybacks. What is that, 7s or 10s or 15s? 5 to 10. 5 to 10. John, Urien Timmer's tweet, if you please. Share buybacks played a huge role in the market this year. Without them, the bear might have been meaner. I've been saying this,

but I never had the data to actually back it up. Buybacks are holding up at 6.8% of revenue, which are making new all-time highs. So far, so good, but we may have reached the peak for this cycle. There was a lot of firepower from all the refinancings and all the just high profit margins for years on end. And thank God, because large companies like Apple

were able to keep their share price relatively stable in a pretty unstable market environment. Do you think that that's been as big a factor as Timur seems to believe or overstated, understated? I mean, most of the work that we've done shows that the rates of the previous year drive the buybacks for the next year, right? Because you change your capital structure.

The rates of what? Interest rates. Right. So I go through and I either roll my debt or I issue new debt and I change the capital structure of my company. And I'm, you know, I'm rewarded doing that if I can get corporate debt at 3% or 4%. My cost of equity is 8% or 10%. I mean, that makes all I'm rewarded doing that. If I can get corporate debt at three or 4%,

my cost of equity is eight or 10%. I mean, that makes all the sense in the world, right? So that'll be interesting to see. Well, right. So if that's the case, then of course buybacks will be lower next year. Right. So it's, it's been a one-way street. So we don't really have the other side of that to test the hypothesis against, but that would be, that's where we're coming down on it is. So what will companies do instead? Is there an incentive to pay a higher dividend yield or will they just have less money to work with? There's a couple of things, right? Well, if you're making the money,

then you have to either reinvest in the business if you think it's a good return on invested capital or you return to shareholders. And so that's through buybacks or dividends. But if the dividend, or I'm sorry But if the buybacks are being financed with borrowed money, then it doesn't make any sense. Yeah. Then you increase your dividend yield. That's interesting. I don't know that the buyback ETFs or the shareholder yield ETFs have, I don't know that there's a difference in the way they calculate those for companies that

are doing buybacks financed by cheap debt versus companies that are doing buybacks financed by cheap debt versus companies that are doing buybacks out of cash flow. That might be a trading opportunity for next year, one versus the other. What I will say in my 30 plus years in the street is, man, are things trendy. It's amazing how trendy things are. So as in vogue as buybacks were, I could ease in how out of favor dividends were, I could easily see where that starts to shift again, just as whether it's to create more income, to make them more interesting. I mean, we don't look at it that way because we just look at the free cash flow, which is what you're left with anyway. But you could see some of these tricks being pulled out

of the hat just to make things more attractive. Let's do this one really quickly. Oil below the price before the invasion of Ukraine. And then, so I have a question for you. Energy stocks versus oil. This is a pretty stark dichotomy. Oil has basically round-tripped to where it was in January of 2022. Yeah.

As though nothing ever happened. Right. Quite a ride. But the stocks are staying higher. Yeah. So what is that? Because volumes are still good or? I think personally it's because valuations are so ridiculously cheap.

Still? Still. So this is scary to me though. You know what this reminds me of? Like when Wile E. Coyote runs off the cliff and doesn't realize there's nothing below his feet and then looks down. When you see oil prices down huge,

but energy equity's up, I almost feel like at some point the sell side's going to come out and start saying, hey guys, we might have to cut expectations for next year. But look at the forward curve. The forward curve is, you know, the forward curve of what? Of crude, right? So you go out and look at crude for priced in 2024, 2025, substantially lower than today, right? So the equities are driving themselves off of the

expectations for what the future is going to look like. Not today's price. Not today's price. So just because these are long-term, long-duration assets, right? Crude oil is up now 2% on the year. The XLE, which is energy stock ETF, is up 70%. Yeah, let's be clear. This part in the cycle, energy should not be doing well. But it's been holding up remarkably well. I would say history usually will follow the script, call it 60% of what you'd expect to happen happens. But it's that 20% that doesn't happen. I would say, you know, history usually will follow the script, call it 60% of, you know, what you'd expect to happen happens, but it's that 20% that doesn't happen. I know it's 40 differential, but the 20% that doesn't happen is really where you can make a lot of money. And one of the things this year that's been really the outlier is how well energy is held up

given the weakness of the cycle, because you would expect that energy would be at the tip of the spear of that. And it hasn't. What percentage of the S&P is energy now? It's about five. I was going to say it's about six, but it could be five. Back up to six? Five or six? But it's interesting that energy has been so strong despite crude and despite broader market weakness.

Absolutely. So energy is usually, if you're looking for the foil, right? If you say, I never want to hold cash, what sector can I own that's going to be a foil to the bear market, that's going to give me some type of relief in a bear market? Energy consistently is the best one. More than like gold miners or – Definitely more than gold, even more than healthcare because oftentimes the – now this is hindsight bias. But oftentimes the weakness is a function of some type of supply shock. So you get a supply shock, right? So

you get a supply shock in energy, it crushes consumers, it crushes jobs, you know, they have to either raise rates to fight the dollar so the crude looks cheaper, whatever the case may be, benefits energy hugely. Does it work in inverse? If you get bullish on the S&P, does that mean that you should be less bullish on energy or not necessarily? Historically, yes. There's really only been in the last 60 years three, maybe four periods where energy has like consistently given you good performance. And this would be the fourth. I remember like 04, 05, 06 was a big bull market for energy. I can't go up if energy is going up.

There's no way the market can go up if energy is going up. And really what that ended up being was China, right, which you had was this globalization where the rising tide was lifting all boats and it was lifting it faster than the input costs of energy were dragging things down. What is this? and it was lifting it faster than the input costs of energy were dragging things down. What is this? I was surprised. I had Nick take a look at the 12-month change between crude oil and energy stocks, and this is not that unusual to see energy stocks up bigly while crude is flat year over year.

This surprised me. What is this for the people that aren't looking at the chart? What is this saying? All right. I just said we're looking at the 12-month change in the price of XLE versus a 12-month change in crude oil. And it's a scatterplot. And I was expecting this to- And it's at the 0%. I was expecting the current dot to be like way out on an island by itself, and it's not at all. So this happens all the time where you'll get a change in crude oil

and energy stocks don't necessarily go in the same direction. Yeah. Well, look at that range too, right? If you draw just a vertical line, you're somewhere between up 70 and down- It's huge. Yeah, down 25, right? Right. So that- So I guess the price- Drive a bus through it. The price of crude tells you less about energy stocks than I would have thought, is the bottom line. Do you have the chart that I sent over? So this is the free cash flow yield versus enterprise value for energy.

So it never got cheaper? Never. That's why I had to rescale the chart. You can see it. Wow. And we're still up there. So these stocks are still undervalued and still technically look good. Yeah.

You would stay with this trade? Yeah. Okay. We've actually gone to equal weight right here just because of the cycle, but we think there's an opportunity as it comes in. So what's your overarching message to people about 2023? Not like price targets and stuff, but just like how different do you think next year might be from this year, or should we expect more of the same?

When people just ask you casually, what do you tell them? Well, I tell them the game. How casually? Super casually, like in the sauna. In the Turkish bath. What do you tell them? I was going to say cocktails, but I got cut off. Yeah, yeah.

I tell them the game has changed. And I tell them that the one thing that there are very few people that are left in this business have seen is an environment where we were not in this sort of persistent downtrend for yields, right, the bond bull market. So I think the great bond bull market is over. That doesn't make me a huge bear on bonds. As you can tell, I think there's some value there. But within that, I think it's the tailwind that we had is now going to be a quartering wind.

You don't think if the economic growth outlook falls apart midway through next year, we could be headed back to 1% interest rates? You really don't think so? I think we can get back to 2%. I don't think we're going to be able to get back to 1%. I think the low in yields has been hit. And you hit— Like generational low. I think generational low. Okay, like a lower.

Yeah. And I think you— By the way, it was stupid down there, and it didn't lead to anything good for society. You made a very good point, which was negative real rates. I mean we've seen – and I can't believe people still argue this. But we saw the impact of negative real rates, which guess what that does? It makes every – Creates a circus.

Yeah, it makes every asset have some value, right? And you can't differentiate between what is real and what is not. You have to really keep your wits about you. And we're seeing that now with crypto and the downfall of crypto. We saw it with what we point at, concept capital. Yes or no, SBF, innocent? No. Can you imagine? This is the craziest shit you've ever seen. We're not going to spend 20 minutes on this. I'm just curious. You've never seen anything like this, right? No, but you can pick up a book and you can read plenty of stories.

We did a podcast actually back in 2021 with a professor from the University of Minnesota who was specialized in the South Sea bubble because I just said, let's talk about the South Sea bubble. There's so much in there. And there's so much in there. And there's so much in there. And, you know, the one, the one parallel that, that, that I draw is the South Sea Company, you know, created the South Sea bubble. That was in 1720. Yeah. Do you know what year the South Sea Company finally went defunct? Oh, I just, I heard about 1780. 1853. 133 years it stuck around. They kept that right. Did anybody, did anybody know what it was? Nobody cared. Who was the compliance officer there? Right.

The point is, like, you have to move on, right? You just have to move on. So whatever you thought, we talked about with the NASDAQ, right? The names that were populated in the NASDAQ in 2000 are completely different than the names that populated it today. So if I hear you right, you're bullish on Solana. No, but so the instruments change, the players change, the companies change. But like the two things that never change are fear and greed. They're like the constants.

And that's like, for me, that's like the big takeaway. You'll always see different versions, but there's two things that don't change. And there's regret. And I think one of the things that investors need to understand as we go forward, watch relative strength. Because relative strength will be a very good indication. You can just do it on a sector level. But it will be a very good indication of where the next leadership is. What, RSI? No, no.

Just performance versus the S&P. Right? What's my performance versus the S&P? If you want to get cute, you can adjust it for volatility. You don't need to do that. But, yeah. So, you know, what we're seeing right now, which nobody believed, and I was scratching my head back six months ago, industrials. Industrials are helping to lead this tape. Industrials were bottoming in June

and coming out of this ferociously in July and August as the dollar was strong, as rates were going up. It didn't make any sense, but it was telling you that there's something good happening with these industrials that probably has some staying power. Caterpillar looks kind of mean. Caterpillar, Deere, Cummins Engines. Dude, anything defense. Oh, Deere, wow. Anything defense, like anyone making missiles or those are all industrial stocks. So do you have fun on the show today? It was great. Thank you. Was it everything that you thought it would be? Absolutely and more. Dude, we were so excited to have you. I think our audience,

we have institutional people obviously follow the show, but just in general, our audience, I don't think has heard from you before in a lot of other places. This is a really special appearance for us. Thank you very much. If I could put in one, just plug.

Absolutely. Oh, we're going to do more than one plug. Well, you guys might want to try the Altoids before we start the show, not after. We'll do it throughout. Where could people learn more about your research product? What's the URL? How do they find your stuff?

Well, we are a bit of a Twitter junkie firm. So usually once a day I'm, I'm publishing something, Neil's publishing something, uh, little quips here and there. Um, so there's, there's Twitter, Ren Mac LLC, and then at Ren Mac LLC. Okay. We'll link to that. Ren Mac.com is, uh, it's our website. Who are your clients? Oh, it's 90% institutional. We've got some RAs. But it's mostly, call it 60%, 65% long only. Commercial hedgers?

35%. A lot of commercial hedgers. Commercial hedgers, yes. For sure. Absolutely. But we also have some large speculators as well. So we have both sides. So I think you do a great job.

And a lot of the stuff that you're explaining is very complex for the typical market follower. But I think you do a really good job at explaining it and then why it matters. Thank you. Right? These are not just lines on a chart. Here's why it matters. Yeah. Look, I mean this is a complex business.

But like anything else, if you can't keep it simple, it's worthless. And you have a great team. Thank you. My team is fantastic. We love them. Jeff DeGraff, ladies and gentlemen. All right, so here's what we do when we finish the podcast. We end with favorites.

Talk about Yellowstone. No, for real. I'm curious to hear your thoughts. I haven't watched one episode of this yet, and everyone is like yelling at me at this point, so I'm going to do it. Tell me about why Yellowstone is your favorite. Well, I would actually say 1883 is better than Yellowstone.

Is that a prequel series? I didn't see that either. That was the prequel series, yeah. That one's better. It's got Sam Elliott with a big bushy. I love that. Tom Hanks made a cameo. Yeah, yeah.

I mean, it's fantastic. It's better than Yellowstone. So I love, love the first three seasons. Last year I thought sucked, and this year I'm kind of disappointed again. Is there anything on Paramount Plus besides that that would justify just biting the bullet

and adding another streaming service to mine? Have you seen, I don't know, I think it is, but The Offer, The Making of The Godfather. That's another thing

people say is really good. That's a good one. Yeah. I'm going to do it. I'll add it up. What's the difference at this point? I'll give you my password.

I'm paying 700 different things $8 a month. It's starting to add up. Michael, did you bring a favorite this week? I did. I'm so excited for this. Go ahead. Peanut M&Ms.

I am all in on, there's a show called, what the fuck is the name of the show? Fleischman is in Trouble. I don't know why I always draw a blank on the name of the show. Fleischman is in Trouble. It's with Jesse Eisenberg and Claire Danes. It's a very, very, very New York show. Is that FX?

FX slash Hulu. Okay. They get divorced. He's a newly single guy in his early 40s discovering, you know, the scene. And it's great. Michael, that was one of your recommendations on Animal Experience.

Oh, double it down. F*** off, Duncan. I like that you did that. I like, bring that energy every week. Fact checker. That's very feisty. Fact checker. I love you.

Do you listen to – what podcast do you listen to? I'm not a big podcast guy. That's sad. I'm going to give you a good one. Acquired. Okay. It's a big – I mean it's a huge show. Okay.

Breaking news here. Acquired is a good podcast. No, of course. It's a huge podcast. Every week – I think it's every week. They take like a big company, big successful company usually, and just dive in deep and explain how the company became what it is. Nice. So you could picture them doing a lot of recently technology companies, et cetera.

They did Enron this week. They were basically like, how could we add something to the FTX conversation that would be meaningful? Let's do the Enron story, which is the thing that most people are comparing FTX conversation. Yeah. That would be meaningful. Let's do the Enron story, which is the thing that most people are comparing FTX to. Yeah. It's way more, I mean, it's an amazing story. I just thought they did such a good job telling the story of Enron.

For people who have heard Enron, Enron, Enron, but they don't really know what went on, it's a really entertaining episode. So shout out to the acquired. You listen to these guys, right? They did a huge one with FTX, which was excellent. Maybe this was their penance for doing an FTX episode. Probably didn't age great, but no, they do great work.

Two and a half hours on Enron, and it was an incredible story. So they did FTX well before the- They did. Sam was on their show, actually. Sam was on the show. Talking about it. This is probably a year or two ago. By the way, like-

He fooled everyone. Sam was – Dude, he had the naming rights for where the Miami Heat play. He had Super Bowl commercials. It's MLB. His tentacles were – Check. Check.

His tentacles were everywhere. Yes. All right. Also, so here's a dislike and I have to just get this off my chest. The Rings of Power is the worst show I've ever seen in my life. So disappointing. So disappointing. I love the movies, and Token probably changed my life.

I read The Hobbit when I was 11, and it was like somebody else's book, and I took it. Nobody told me read this, and I think that's probably the first like 700-page book I ever picked up. And it made me want to write my own stuff. And I'm like kind of a writer now. So like I'm not a hater of any of this stuff. That show is just – I mean you agree? Did you watch it? I haven't watched it.

It's f-ing unwatchable. I have met a few people that liked it. There's not one scene that's entertaining. I slogged through three episodes and said, no, you wait until the 10th. No. That's what people were saying about Andor. There are whole Reddits and whole pages all over the internet of like, why is this show so bad? And there's not even a consensus.

There are so many things that are bad about it. Things that don't get made in a normal, interested environment. That thing could probably cost a quarter billion dollars. How about this? How about this? Let me make you throw up they gave the token estate

just for the rights to make the show 250 million dollars I swear to god and then they took another 500 million dollars to actually make this thing

one season I swear I think it's is it 10 episodes so it cost a bit almost it's like a billion dollar show think it's 10 episodes. So it cost a bit, almost. It's like a billion-dollar show, and there's not a frame of it that's enjoyable. It was very bad. So I do blame the Fed for this.

It says season one cost $462 million. Fine. Round it up to $500, and then $250 for J.R.R. Tolkien's great, great, great grandchild. And that's – I mean – And comparing that to Game of Thrones or House of the Dragon, which at the same time was phenomenal. By the way, they did this with Amazon stock price like 100% higher than where it is now. I don't think they would have done this. I think they would have made maybe a miniseries.

All right. That's it. We're going to let you get out of here, Jeff. I know it's – Thanks so much. It's been a long time. We loved having you. Thank you so much.

Guys, follow Jeff. Follow Renaissance much. It's been a long time. We loved having you. Thank you so much. Guys, follow Jeff, follow Renaissance, wherever they're putting that stuff. Thanks for listening. We'll be back to you next week. Is that cool? Awesome, guys. That was the warm-up. Here we go. We just wanted to get you

a little closer. So we just wanted to get you to close. I knew we would.