The Compound and Friends - The Market's Going Down Like Free Beer

Episode Date: April 19, 2024

On episode 139 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Art Hogan and The Compound's own, Ben Carlson! They discuss geopolitics and the market, the outlook for energy stocks, the no landing scenario, the housing market, and much more! This episode is sponsored by Public. Visit https://public.com/ to learn more! Sign up for The Compound newsletter and never miss out: https://www.thecompoundnews.com/subscribe 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. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Options are not suitable for all investors and carry significant risk. Option investors can rapidly lose the value of their investment in a short period of time and incur permanent loss by expiration date. Certain complex options strategies carry additional risk. There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, among others, as compared with a single option trade. Prior to buying or selling an option, investors must read and understand the “Characteristics and Risks of Standardized Options”, also known as the options disclosure document (ODD) which can be found at: www.theocc.com/company-information/documents-and-archives/options-disclosure-document Supporting documentation for any claims will be furnished upon request. If you are enrolled in our Options Order Flow Rebate Program, The exact rebate will depend on the specifics of each transaction and will be previewed for you prior to submitting each trade. This rebate will be deducted from your cost to place the trade and will be reflected on your trade confirmation. Order flow rebates are not available for non-options transactions. To learn more, see our Fee Schedule, Order Flow Rebate FAQ, and Order Flow Rebate Program Terms & Conditions. Options can be risky and are not suitable for all investors. See the Characteristics and Risks of Standardized Options to learn more. All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Open to the Public Investing, Inc., member FINRA & SIPC. See public.com/#disclosures-main for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Is that a Daytona? Yeah. Oh, we should have one. Yours is yours. Hold on. Got one on? No. No?

All right. I don't know. I don't, I really don't know. I didn't, I don't have it new. Let me see. I didn't know I was a Daytona guy until I had one. No. I really love it.

And it's amazing how many people will look at it and say, I can't believe you have a Daytona. Right. How many have you had? But when did you, so when did you know you were one of the Daytona? So a buddy of mine is a pro golfer. Okay. They have a connection golfer. Okay.

And they have a connection with Rolex. He called me up and he had one. He goes, I can get two more, one's for you and one's for Scotty Cameron. Do you want the white face or the black face? I said the white face. He goes, good, because Scotty wants the black face. Okay.

And I didn't even tell my wife. We went, picked it up, paid for it. Okay. Back then it was. Four grand? An $8,000. Yeah,000 number. And my wife was like, what's wrong with you?

And then the market crashed afterwards. She was like, it's your fault, you bought a Rolex. You put the top in the market. Was it your first Rolex? First Rolex. And your last Rolex? Well, I put my name on a wait list for one. And they called me, and when they called me,

they were like, if you don't want it now. And it was the Batman. And I was like, yeah, and I was like, I don't know want it now. And it was the Batman. And I was like, yeah. And I was like, I don't know. Barry has it. Yeah, and I said, I'll take it. And then I put it, it's still in the box. And my son's probably gonna get it.

It's a good time, so it's got the stickers and all that. If you put it on, I'm selling everything. Now that I know the history. No, but speaking of. So there's an actual index for this. Rolex, right? Or the Daytona Rolex. Where, where, let me see.

I just Googled Rolex index and it shows. Rolled over a little bit. Yeah, it was a big pandemic thing. So putting the top, a New York City pension might put in the top, I hate to say it. There's a report from Reuters, they're exiting all hedge-funded investments,

and there's a quote, so they have $51 billion in assets in New York City employees retirement system. Quote, hedges have underperformed, costing us millions. Let them sell their summer homes and jets and return those fees to their investors. That sounds a little toppy. That could be. That's a nice little signal there. I wouldn't want to put that pressure.

I think it's more political than anything else. Letitia James, this is the one that thinks she's going to win the election for Biden by tying Trump up in court. I don't know that that's a market signal. I think that's just like a, I don't know. Well, is that anything really market signal these days? So much noise. Yeah, there really is a lot of noise. I would tell you though that we spent most of this year kind of hovering between 4 to 4.3% yield on a 10-year and $75 and $80 on oil. And two weeks ago, two and a half weeks ago, both of those broke out significantly, and the market rolled over significantly for really good reasons. There was no compelling

reason to stop this run we've had since the middle of October of last year. But now there is. Now there is, right? It's like we're not in the same place anymore. Yeah. Wait, what's the reason that you're buying more Rolexes? Not yet. Not yet. But I will let you know when I hit the bid on it. Are you excited to be on it?

When was the last time you were on the show? Do you remember? No, Art's never been on. Oh, Ben. Oh, who was I here with last time? I'm trying to remember. Oh wait, it was a good one. Bob Elliott?

Bob Elliott. Oh, oh yeah. That must have been a while ago. I feel like that was a while ago. Ben's for the listeners. Ben's looking fitter than ever. You guys both look fit too, because you're training for a run. Are you doing the JP Morgan?

I don't think I'm going to be here. Artie, are you running? I am not. I'm not. I've got shin splints, like you. There we go. There we go. A true fan, a true fan.

Have you ever run in the JP Morgan Corporate Challenge? I sure have, 12 years ago. For which firm were you at? I was at Jeffries at the time. Okay, did they field a large team of runners? They did, and I was the largest of them. You said it like, to the Chickens of Talons. Wait, wait, wait, when was the...

Right then. When was 12 years ago? I might have been in that one. When was 12 years ago? Math is hard. I was told there'd be no more. 2000 and this. Okay, you take 10 10 off and then you take two more off. Very, very, very, very nice.

All right, Ben's here, Art's here. I don't think shin splints is a real thing. No, it's made up. Art and I both suffer from... What is a shin splint? We have faulty shins, let's just say that. We have faulty shins. If you over-exert and try to run too fast,

you have massive pain. If you literally never run in your life, your shins are going to hurt. I started a couch, I did the couch at a 5K app. I'll be ready. I don't think it's a shin splint. I think you're just not in running shape yet, because you have to run.

I think Ben's right. I don't want to run. I think a shin splint is an actual thing that you don't have. How do you know you have that? The last time I ran, I developed a bit of a lower back issue, and then I sneezed and I blew up my back so I've got a new version for running.

Not a shin splint. Any other excuses before we start? I'm fat. I have asthma. I'm bald. I have asthma. My parents got divorced and I could keep going. Bald is a good thing. You've got aerodynamics. Yes. I was going to say you should roll with your head down. That'll work out great. Hey John, how are we looking?

Looking pretty good. How are you, Duncan? I think we're good. You should roll with your head down. That'll work out great. Hey John, how are we looking? Looking pretty good. How are you, Duncan? I think we're good. Okay, one second. Is that a faint, is that music in my ears? There we go. Yeah, start rapping.

Hey Ben, are there speed limits in Michigan yet? What? What's the speed limit on the highway in Michigan? I was having an argument with somebody. Some of them are 75. I think that's how I remember it. I thought I was saying 85. That's aggressive.

Pretty good, right? No wonder why insurance is up so much. It's your fault. Come down with three plots. All right. You know Duncan got a ticket from the Autobahn? Oh, boy. Yeah.

Come to friends. I didn't think it was possible. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of RIDHOLT's Wealth Management may maintain positions in the securities discussed in this podcast. Hi kids.

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Start paying less than $0 to trade options only at public.com. Paid for by public investing, options not suitable for all investors and carry significant risk. Full disclosures and podcast description, US members only. 139. Who's excited? Excited for the show today, Duncan? I am. Only. 139! Who's excited?

Excited for the show today, Duncan? I am. Fired up, Nicole is fired up. Rob's in the house, Daniel's here, John is here. Ladies and gentlemen, I want to call you a veteran, but I also want to call you a legend. But I don't want to start off like making you blush, but to me you're legendary because ever since I started in the business, I was aware of you. I was reading people quoting you in Barron's,

I was seeing you on TV. So for me, for the breadth, the length of my career, I consider you to be a legend. Is that okay? Can we start off on that footing? That's spectacular, but I have to tell you how that started, and it's kind of an embarrassing story. Okay, let's do the embarrassing story first. Wait, wait, let me give you an intro.

Ladies and gentlemen, Art Hogan is the chief market strategist at B Riley financial art was a floor broker for fidelity in the eighties and early nineties, head of institutional equity sales and trading for Dean Witter trader for Morgan Stanley, director of strategy and research at Jefferies and Lazard. Art has worked as a member of the board of governors of the Boston Stock Exchange and as a member of the board of directors of NASDAQ. Art Hogan, welcome to the compound and friends.

Thank you, Art. And Ben Carlson. Our listeners know and love you. All right. Tell us the story. How did I come to be aware of you as a young man starting in the industry? All right. So I was kind of working as the head of sales and training at Dean Witter.

So World Trade Center. If you can imagine that, CNBC had just started. And a fraternity buddy of mine had gotten a job at USA Today and he thought he was going to the sports page and they put him in business. So he calls me up, he's like, hey, you got a pretty big job, can you describe why the market's doing this today?

And back then I was probably 32 or something like that. So I said, yeah, more buyers than sellers, the usual gibberish. Greenspan's probably gonna say something tomorrow that'll calm things down, the usual. Tried and true. Gibberish. Yeah, you know, Greenspan's probably gonna say something tomorrow that'll calm things down, but it's a little volatile today. Something with the Vicks. Right, the Vicks didn't even exist back then.

So yeah, this was back when we had paper tickets. So anyway, that gets published in the USA Today. I was like, no one's ever gonna see that. Literally the next morning, CNBC calls me up and says, how can you be quoted in the USA today and we don't know you, would you come on TV? I was like, sure, when? I was thinking, you know, like in a month.

They're like, one o'clock. Yeah, because you're hot. And I've never been on TV. So I'm like, sure. So imagine a February day in New York where you put on your overcoat but you don't need it and then you walk from the World Trade Center in New York Stock Exchange

but instead of being down on the floor, they're up in those little closets that were up in the balcony. And they had these lights except it was 10 times hotter. And so now I'm sweating before I get there. I'm like the guy on network news that's doing the Saturday anchor job and I need like a beach towel.

So I finally calmed down a little bit. And then Maria is new to the job and she goes, oh, I'm going on first. I'm like, all right. So I finally calmed down a little bit and then Maria is new to the job and she goes, oh I'm going on first. I'm like alright so she has to mic up and to mic up you have to kind of get you know work the mic up and put it on your thing here and I was like... What? Are you afraid they were miking you? No she was unbuttoning her shirt and I could see her camisole and I'm Irish Catholic from Seven Kids I've never seen someone's camisole before. So then she goes, oh no.

So what the hell is a camisole? I don't know. It's like a lady's undergarment. You of all people don't know what that is? So anyway, long story short, she goes, oh no, they're doing you next. So reverses the process and gives me the mic. You took your shirt off immediately?

Well no, but now I'm sweating even more. So then I just push my hair back. They go on, they ask me some questions, I answer them. I walk away, they'll never call me again. That was the worst thing I've ever done in my entire life. I come back, the whole trading yesterday was up, they're clapping, and they were like, they put a lot of product in your hair, didn't they?

I was like, nope. This is soaking wet. Pure flop sweat. And then after that, they just kept calling, you keep saying yes. What year is this? This is probably 94, 95. Okay, so there's no internet.

Right. If you go on TV, millions of people see this, and everyone you've ever met sees it. Right. And they call you on a landline phone, and leave you an answering machine message, hey, I saw you on TV. Gets even better than that.

So I said this was the penultimate moment, thinking I was using that correctly, and an English teacher of mine from the eighth grade wrote me a letter, found my address, sent it to me, and said, a penultimate would be the second best. I think you meant ultimate. That's right. And I was like, you have this much time?

And she was like, oh, not like good job on TV, or we never thought you'd make anything out of yourself. It was much more of the you used to wrong. So now Dean Witter looks at you and says, oh, we could use this guy. Yeah. And then Dean Witter merges with Morgan Stanley, which is kind of weird. Dean Witter bought Morgan Stanley and everyone sort of forgot that. Right. And I wake up in the morning, so the head of the bond desk is living in the same apartment with me down in Battery Park City. And we're like crossing the street,

and he goes, can you believe this news? I was like, yeah, how is Michael Jackson gonna come up with that money? He just got like fined for something. So I'm reading the Times, because the Wall Street Journal's on my desk. He's got the Wall Street Journal, he's like, we just bought Morgan Stanley.

I was like, oh, that's probably more important to me. I should probably find out what you're talking about. So wait, so when Dean Witter bought Morgan Stanley, which name remained? What did Morgan Stanley, I was like, oh, that's probably more important to me. I probably should find out what you're talking about. Wait, so when Dean Witter called Morgan Stanley, which name remained? What did they call it? Well, we know which name remained. They called it Morgan Stanley Dean Witter for about a cup of coffee.

And then it got dropped, right? Then it got dropped, yeah. That's like Solomon Smith Barney. Right. And it's like, yeah. So Art, what was the role of a chief strategist back then versus what is it like today? Well, basically, it was very much of the being able to answer questions about what's moving

things around and also with that skill set, be able to sort of drive branding for the firm that you're at. So it's like, you know, if there's somebody out there from Kenner for Sterile, if there's somebody out there doing this for, you know, Morgan Stanley or Golden With Sex, we want to have somebody out there doing that for us because it was just starting to be much more of a PR as well as you know speaking at conferences going on the road talking to different financials The message of the firm what's different about our outlook from someone else's right and that drives business and The awareness it's it's a huge deal. Yeah, are the questions questions from clients or guys on the desk?

Or both? For the most part, it's coming from both. And you can tell which is coming from which. The angrier the question was, coming from a sales guy, you know it's coming from a client. So it's very much of the, you would never speak like that to me, but obviously you're talking to somebody at a hedge fund. Somebody that's yelling at you.

Right, exactly. That's yelling at you, so explain what went wrong here. So in those early days, who's the biggest strategist on Wall Street? Is it Abby Joseph Cohen? For sure, 100%. Ralph Acompora's still out there. Yeah, 100%, yeah. And that one, I would say those are the two largest

that everybody knew. And that was Goldman and Prudential. Yeah, and they did completely different roles. So Abby was just the S&P firefighter. Like if you asked her about NASDAQ, she was like, I don't really follow that. Right. Right, at the time. But she always had an outlook.

And while they were going public, there was an assumption that she was being so bullish because they were going public, which is wrong. She hadn't changed her tune for five years. Ralph Acompora was really the sort of starting of all the technical analysis. And he was the godfather of the- The media loved Ralph because he would give you like targets and like to the decimal point.

He would be really specific and they loved that. Also he used Mercurial. He could be bullish on Monday, bearish on Friday and they really loved that. So Ralph was a star. Have the targets always been there for you or is that a newish thing in the last couple decades? They've always been there for me, but people pay more attention to it now

because they can hold your feet to the fire and say, okay, this is, how do you get to this? Give me an explanation, et cetera. But when I was at Morgan Stanley, it was Barton Biggs and Byron Ween. Oh yeah. And are they both passed now? Byron Ween just passed.

Yeah. Byron Ween recently. Yeah. Okay. And every Monday we'd have a meeting where I'd sit next to those two guys and we'd talked to the whole firm and it was in an auditorium. And you saw them in their, you saw them in their prime-ish. Yeah. And throwing me into there to talk about what's going on in the world compared to these two guys, like literally, thank God I had a jacket on because

I would have sweat stains down to my belt loops. Yeah. And like no one would know how nervous I was. And these guys were just like, you know, jovial. They could do, you know, with their hands tied behind their back, what they were talking about. And these guys were just like, you know, Joe Veale, they could do, you know, with their hands tied behind their back what they were talking about, and everyone loved them, but they never agreed with each other, which I thought was terrific. It's good to have dissenting opinions. Do you have, looking back on your story career,

do you have like a moment that is most fondly like, I can't believe I nailed that, or I got it so wrong, or I was embarrassed, or made people laugh, or whatever? Like, is there anything that stands out to you? Yeah, three things. So here's the first. I'm on with Maria at some point in time. I hate to bring it up twice,

but apropos of nothing, she said, do you own any gold? What year is this? This is probably 97, 98-ish. And there's only two ways to answer a gold question. Gold is almost zero dollars per ounce at that time. People don't know this. Was it $40 an ounce? Something like that. But it was also about the same, you get a dozen eggs for about an ounce of gold. But you could also never make anybody

happy if you talk about gold because they either love it or they hate it. So it's just binary. So to get out of that trap, and it meant nothing, but to get out of that trap I said, just my wedding ring. Ha ha ha, and I got done with the interview. So I get back to my desk, my wife's working at Fidelity Time, and it's like my phone's ringing, I pick it up. She goes, it's platinum and you're an idiot. I was like, oh.

Oh. That's how fast. Right, and then I was probably a little cavalier about talking to reporters in the beginning, not knowing that, you know, people. Don't worry, I work with Barry. I know. They might read what you have just been quoted as.

So somebody called me and I forgot what it was like, Investors Business Daily. And I was like, oh, all right, who's gonna read this? So, big mistake. So like, what's going on today? I was like, the market's going down like free beer. Well, they take that line and print it, that's the headline of the story,

and then the rest of the things that I said. So I get a, I literally get a written letter from a guy in Australia that said, that was the cheekiest thing I've ever heard, mate. We're putting in the book of great quotes. And then there's like some, you know, he's got some website, he puts all these quotes in and it still sits there today.

The market's going down like cheap beer. Like free beer. Like free beer. We're going to use that. That might be the name of today's podcast. That's right. I said on TV, I got yelled at the other day. I said, uh, some out, maybe Nvidia, like it was rallying.

Said Nvidia is running like a scalded monkey. They're like, you got a trouble for that. What in the world? They're like, is there's a little bit of like a shades of animal abuse to that for running like a scalded monkey. Can you not say that? I think it's a little bit of like a shades of animal abuse to that. Oh yeah. Running like a scalded monkey. Can you not say that? I think it's a pretty common term. I can't believe that was frowned upon in that institution.

So you know me, I probably said it two more times after. Yeah. Alright, what was the third moment? You know, we talked about the scalded monkey and I forget, so I'll come back to it. Scalded monkey. Okay, geopolitics. We're going to do this again. Yeah.

So how many times have you seen this throughout your career? It's earnings, it's interest rates, it's the normal stuff, and then something terrible happens. We seem to have a lot of that in the last couple of years, but so be it. This is, I think this is something that's been well established. Geopolitics are not a great thing to focus on if you're even not even a long-term investor even a short-term investor now right my question to you is do you feel as those stocks recover faster than ever from geopolitical issues

something that might have taken us six months to get over now take six minutes like the Gulf War I don't know the Gulf War, in the early 90s. I don't think any of this stuff holds the market's attention for more than a half an hour. Well, first and foremost. Do you feel the same way? Going back 30 years, there's always been five things that you're really concerned about.

The names of them change, right? So now it's easy. We can say, okay, Russia invaded Ukraine, we've got Israel and Iran, and we're worried about China and Taiwan. That's enough in any given year. Well, those same three things, you just change the names of the countries

and say, okay, what's happening? To your point, the reaction function has got to be faster. You feel like it's faster. Do you agree with that? Everything's faster, right? All the cycles happen faster. Okay. But we don't even have time.

So the attack on Israel was Saturday. Right. I think futures were higher Monday. So did we panic on Sunday night? Right. Normally, from my opinion, like five years ago, that would have been like a week. Right.

It would have been oil price spike and it would have been like a week. But it's also the awareness, right? 24 hour news cycle, you know, okay, everyone's informed as to how little damage was done, how successful we were at shooting down 320 missiles and drones and no damage was done, you know, one person got hurt, et cetera.

That's true, your imagination could have run wild in the past, and now it doesn't need to. Right. Well, the other thing is, we talk about 24-7 trading being an inevitability, better for worse. Crypto assets dumped immediately on the news, and I suspect that SPY, if it was 24-7 trading, would have done the same thing.

And we had 36 hours or whatever it was to digest and assess and... Crypto has not V-shaped higher though, and stocks... Neither stocks. Yeah. Are you... The biggest surprise to me at all this is that there's simultaneous wars going on in commodity important countries.

And oil has essentially gone nowhere for like 15 years. Right. How is this possible? Because we are a bigger producer and now... Is it just because the US is producing so much? Yeah. Right. That's all. And we're oversupplied.

We're largely oversupplied. The only bid that you can put in oil right now is a fear of disruption of supply. And that's a refiner story or a LNG story. 100%. Right. And so you have that fear, is like, if this escalates and they take out oil production from Iran, who's

gone from 2 and 1 half million barrels a day to 3.2 million barrels a day. So that could be a problem. But if you go back to the Russia Ukraine thing when we spiked from $72 to $105 on WTI, it came back down in two weeks because we didn't lose that supply. We put sanctions on it. It just went to China and India. So we used to do all these pieces on our blogs and you know brokerage firms been doing this for 25-30 years, about how over the long term, none of these geopolitical crises have really had

a lasting impact on the market. You don't even have to do it long term though. So now you can say six hours, four days, whatever. Let's put this chart up. John, the first chart, ignore geopolitics. Michael, what are we looking at here? So, all right, take a look at the screen. We showed what happens one year after various geopolitical events. The Reagan shooting, 9-11, the Iraq-Await invasion, Brexit, Cuban Missile Crisis, etc.

And sure, sometimes market goes down. I mean, the Yom Kippur war was obviously in the midst of a secular bear market in 73- 74. But the median return is 13%. Now, you could play games with numbers. So if you look at the average, it's down to 5%. However, if you back out the Yom Kippur War, and I know this is doing a lot of mental gymnastics here, but the Yom Kippur War was down like 50% a year later. Take that out and the average return is 8%.

So it's about average. In other words, geopolitical events, obviously important and and tragic and all that sort of stuff just through the lens of the market It's not something that investors should pay attention So who picks this list because the more of these we add the more the result will look like just regular marks Well, that's my craziest one for me. What do you think that's the doubted the day after Kennedy was assassinated went up our cash I told that story. 5%. Yeah, I quoted you on that this week actually.

It's crazy. Yeah. I wanted to talk more about oil with you Art. So I threw this into the conversation because I thought it was really interesting. We had a hot inflation print this month, there's a concern that one of the things that's the least under the feds control is the impact of crude oil prices. That's just like there's nothing they can do about that. And actually if you remember 2008, one of the weirdest things that happened is I think

crude almost hit $200 a barrel. It didn't last long, right? Okay? There is an impact if oil gets out of control on CPI Which would undo a lot of what the feds been able to do even if it's just in the headline, right? This is Bank of America research The reason so we're not there So the point of this chart is to say we're not there yet where there's a huge impact on CPI with oil prices, but we could get there.

Quote, the recent increase in oil prices have led to questions about the impact of oil on inflation. While higher oil prices do put upward pressure on inflation, the increase to date should have little effect on core CPI, all else equal. There are both direct and indirect effects from higher oil prices. The direct effect can be simply thought of how higher gasoline prices affect headline inflation. So energy is 6.7% of headline CPI. So we really haven't had enough happen for that to meaningfully take CPI from, let's say, 3.5 to 4.5. We're just not there yet, but we're also not that far away. for that to meaningfully take CPI from let's say three and a half to four and a half.

We're just not there yet, but we're also not that far away. That's going to change everything if that happens. Yes and no. Please. Everything you say is correct about that, except for the fact that gasoline prices take up way more of our mind share than they do of our wallet share.

So think about how much more productive you are, or we are, in using energy. Whether it's- People used to spend more on their budget energy in like the 70s than they do now. 100%. Right? Actually almost 100%, more than 100%.

So it used to be 12 and a half percent of your outlays in the 70s all the way into the early 80s. Right. Now it's between four and five. Okay. Total. So when you think about, but it's the number one thing, if you're at the bagel store If you're getting a cup of coffee people tell you how much they paid for gas and how that's crazy

Well, so the indirect effect while it may not percentage wise be a big part of CPI It's a huge part of inflation expectations. So when you hear Jay Powell say Expectations are well anchored. Well, they won't be at a hundred dollar crude I think. But what about the offset of, if in fact you're paying more for energy overall, you pay less for everything else, and that's disinflationary for the other goods

that you don't buy? Why does that happen? Oh, got it. Because you don't have the money to do it, right? So when you balance out your budget, say, okay, now I know. So that's an indirect effect that's positive. Well, it's positive towards inflation. It's not positive for you. people don't feel positive about it,

but it'll make the data better. It offsets what you're gonna spend money on. That's a really good point. Oh, interesting. That's a really good point. I hadn't thought about that. I can't afford to go to Taylor Swift because gasolades are $4.

Right. Right, or I'm not spending this much on a hotel room, and if everyone says that, then the hotel room price comes down, and that will show up in CPI. Right. So it was really looking good for a while for the soft landing camp. If everyone says that, then the hotel room price comes down and that will show up in CPI. Right. So it was really looking good for a while for the soft landing camp.

It was really looking good. And then damn it, we just couldn't slow down. Can't stop, won't stop spending. John, throw this chart up please. So Bank of America does a global fund manager survey and they ask what is the most likely outcome for the global economy in the next 12 months? And again, the case for the soft landing, I mean, it was just going up and up and up.

It peaked in January at 71% respondents said that. And now, what's coming up the rear big time is the no landing scenario. That was down to like 6% in December, and now it's up 6x to 36%. Art, what are your views on what happens to the economy over the next 12 month through this lens? What's no landing versus soft landing?

Yeah, that's what I was going to say. Let's start with that. Well, if you describe that, no landing basically means the economy keeps chugging along and inflation takes much longer to get closer to the Fed's target. I guess it's not good. Correct. No landing is not good. It's not a positive because you're going to be living in a 4.5% funds rate.

Well, that's the thing. To me, the no landing means higher for longer. Right. You mean it's not good positive because you're going to be living in a four and a half to four and a half percent funds rate. Well, that's that's the thing to me. The no landing means higher for longer. Right. You mean it's not good for the markets. That's good for most people. The economy stays strong. But it might be because of earnings continue to outpace inflation. One and a half percent inflation is good for most people.

If it comes to six percent nominal GDP, right? I suppose. Would you rather have that would you rather like, one to two percent inflation? See Josh, this is what I'm dealing with every week on Animal Sparrows. I'm asking the question. No, it's a fair question. So think about, in December we thought-

I don't know the answer actually, now that I think about it. In December we thought there was gonna be six or seven rate cuts. Okay. Flash forward two months, and we thought there was gonna be three. What did the market do?

It went significantly higher, up 12% at the end of the first quarter. Cause it was for the right reason. For the right reasons. So the right reasons would be that. Well, because earnings growth was better than inflation was bad. Correct.

And GDP was better in the third and fourth quarter and looks to be better in the first quarter of this year. So investors were willing to forego rate cuts for better earnings. Right. What's the pivot? When does that change? That's the big question.

We're in earnings season. Right. But if in fact we thought there was going to be, you know, consensus was one and a half percent growth in the first quarter and it looks like it's closer to three, do you think earnings is going to disappoint? No. So, but is that no landing or is that's no landing it sounds like? It's no landing, but maybe it's a longer runway.

Where are you? Are you soft landing? I'm in between soft landing and no landing only because the Fed doesn't that's a Boston hedge right there Yeah, exactly the Fed doesn't think they're gonna get to their target outlook until 26 like they haven't penciled in 2% port PCI until 2026 I mean but therefore their track record of forecasting is... Yeah, so is ours, right? It's real thorough hilarious. Right. They thought they were gonna do three and a half percent at the most in terms of rate hikes at the

beginning of the cycle. They got the five and a half. Remember, no, we're not considering 50 basis point rate hikes, and then they did four seventy five basis point rate hikes. No one would have thought the economy could handle five percent rates this high for this long. I didn't. I didn't either. Or 7% mortgage rates. Right. That's right. And we're going to talk more about why we even think that's possible right now, actually. So I asked this question. I was on TV with Jeffrey Gunlock,

and it was right after a Fed meeting. So I do like Wednesdays on Closing Bell. So Jeff was great. He's explaining to Scott what he thinks the Fed is saying, blah, blah, blah. And then they made the huge mistake of letting me into the conversation. Like Scott turned to me, he's like, Josh. I'm like, hey Jeff, what if, what if actually high rates are causing people at the top end of the income spectrum to spend more than they otherwise would

because of the wealth effect from all the yield. Just literally a geyser of cash in their bank accounts and their money market funds. He did not like that. He just looked at me like you were an idiot. His head almost popped off. Like why is this guy in the same segment as me? Shout to Jeff, by the way.

I love Jeff. Okay, but so more people are saying this though now. Now I'm not an economist, I'm a guy that has theories like everybody else, so I don't mean to make it sound like I absolutely know this is happening. Many people are saying it. I can't be taught, many people are saying this. I can't be talked out of it right now. So Bloomberg did a piece. What if, this is them did a piece, what if, this is them, not me, what if Fed rate hikes

are actually sparking US economic boom? So, it's the same thing as what I was saying. You've got people that are in money market funds earning five and a half percent, why wouldn't they be spending like crazy? And they are. Okay. And think about where the bolus of all that is.

It's sitting with baby boomers that have most of that money, right? They don't have a mortgage and if they do, it's below five or four or 3% on what they have left. Everything's worth more and to a certain extent, they don't, 5% without risk? Why would they like it then? 5% no risk versus average annual returns of seven percent in stocks.

Who the hell would pick seven? Here's my counter to you. Well, one last thing. My father-in-law put this idea in my head months ago. He said I was around in the early 80s and I knew rich people. My father is an accountant. So he worked for rich people in the 80s and he said if you had no mortgage in the early 80s, there was nothing better.

You were being paid double digits risk-free in a bank, forget about treasuries, in a bank account. You were being paid like there's no tomorrow and if you had no borrowed money out there, you felt like the king of Siam. Yep. Okay. And they threw a test run too. So why would this be materially different? I understand it's not 18% interest rates today. It's five. Right. I understand all these things But why wouldn't there be some flavor of that?

And think about what the early to mid 80s was like it was a Worship of luxury and wealth, right and I don't think that's coincidental everything that guy just said is bullshit Talk me out of it. So I want you know, I don't I don't think that's bullshit. All right. Talk me out of it. So, no, no, no, I don't think that's bullshit. But here's what I would ask. Do you really think that somebody with a lot of money is spending more or less because of what they're earning in their money market account? Yes.

I disagree with that. So here's the counter. Dario Perkins at TS Lombard wrote about that this week. He answered this question. He says, the marginal propensity to consume of borrowers is three to five times higher than that of savers, which is why they're debtors in the first place.

So he's saying, like, people saving that money doesn't necessarily mean they're spending more. Maybe people are spending more because they feel like, hey, my house is up, my stocks are up, but it's not necessarily the high interest rates. I understand if you give people money who are in debt and, like, really need it, they'll spend it faster. If you give a rich person money,

they're going to park it in a treasury bond fund. And that's not the argument. That's not the argument. The argument is, is there a wealth effect from 5% interest risk-free? And my argument is, of course there is. Just look at the section of the economy that caters to the top 10% of households.

It is true that the rich people continue to spend money regardless of inflation. It's berserk. They don't care. It's berserk. Think about the recency bias of what they're used to getting. That's my point. 15 years, it's zero.

15 years, it's zero, and now it's 5%. So the order of magnitude, it's not the early 80s when it was 13 and 15%, but the order of magnitude is significantly larger. When you listen to corporate conference calls, companies in the luxury sector, we just heard from LVMH, their customer is the customer I'm talking about. They don't have credit card debt, they're not on mortgage, so for them, this is just free money being shot at them via like a cannon, like a t-shirt cannon.

It's like, oh, the month just went by, here's another million dollars on your $50 million fortune. The baby boomers threaded the needle perfectly on this. Yes. Here's a stock market bull market for 15 years, here's a 3% mortgage or pay off your house, and oh, by the way, right when you're retiring, here's 5%.

Yeah. Perfect timing. So I think what we're saying, if the Fed, right when you're retiring, here's 5%. Yeah. Perfect timing. So I think what we're saying, if the Fed wants to slow down this economy, they're going to have to cut rates immediately. Is that crazy? And then housing takes off. No, I'm just kidding.

I don't think that'll help either. No. That'll help either. Why haven't we seen more of a negative impact from 500 basis points in interest rate hikes? I think the biggest thing to me is that we had so many years of low interest rates that everyone got the joke and said if I have a mortgage,

I'm going to continue to refi it down. Look, that's the chart. So John, throw this chart on the screen. We're looking at the US effective rate of interest on mortgage debt outstanding, which is under 4%, versus the prevailing, the current mortgage rate, and the gap is hilarious Seven yes, and everyone learned from that from the housing crisis that they're not gonna have a variable

They're not gonna have you know a 50 on arm They're not gonna do any of that so everyone sort of got this 30 year fixed and they're sitting pretty in it The problem with that is you can't get any of this other house, right? So you're not gonna to have any mobility until we have a five handle on a 30 year fix. Yeah, and at that point, people have so much equity built up, they're going to pull that equity out and that's when there's going to be a housing activity.

Either a HELOCs or I can trade up finally. I can trade up finally. Look at this, we've never seen this before. Or trade down, baby boomers want a smaller footprint. This gap is just, all right, so to Michael's point, the existing mortgage is the red line. Yeah. Yeah, okay It's on it's under four percent That's like a weighted average of all outstanding more versus between seven and eight percent for a new mortgage

So all these people that have locked in Ben what are the numbers on how many people have mortgages in this country is it? Well, forty percent of all of them have been paid off essentially So yeah, sixty percent of homeowners have a mortgage and like eighty percent of them are under essentially. So yeah, 60% of homeowners have a mortgage. And like 80% of them are under 400%. You know what's so funny? If they really wanted to, if they really wanted to do what they say they want to do, which is help the first-time buyers or the people that are locked out of the housing market because of high down payment, and if they really wanted to do something about it, they would take this effective current mortgage rate average,

which is let's say 3.9, and they would just say, okay, first time home buyer, we'll give you that mortgage. You would see housing activity, I think, in the bottom two thirds of the housing market overnight. Well, so Ben and I have been talking about this in the past that if the Fed wants to do that, they could start buying mortgage bonds again. That might sound crazy, but here's a chart from Bob Elliott.

I did not throw this in the dock, but it was timely. He says, the agency market is shifting away from the Fed and banks and toward direct and indirect household purchases who likely require increasingly better yields in order to get incremental demand. So that's what happened. That's why not only our interest rates higher, but the spread is way higher. The spread between mortgage rates and treasuries is wider too. Correct. So it's like a double whammy. So at some point in time, you would think there's

gonna be some mean reversion there, right? So what's the, we're at 7% for a 30 year fix right now? Yeah, 7 1 1 2 almost. So it hit 7 1 1 2 today. And the norm, right? The 25 year average between the 10 year and that is what, 125 basis points? Yeah, that's bad.

So we're significantly above that. So at some point in time, but the only year and that is what, 125 basis points? Yeah, that's bad. So we're significantly above that. So at some point in time, but the only way for that to happen is that someone steps up and says, okay, I'm selling it, I don't care about the mortgage that I'm getting, right? And the only way to get that, again, it feels like it's recency bias. If you see seven and a half,

and that goes to six and a quarter, that explodes. People are going to attack on it. Every Wednesday you're going to see, oh, mortgage apps just exploded, what happened? Well, six and a quarter sounds a lot better than seven and a half And I think you start to see that but just need some mean reversion between that spread between the 30 years So the tenure here's the bad news though for the people that are like if only mortgage rates were lower I could get into the housing market and buy my first home

What do you think prices are gonna do if mortgage rates fall back? I mean no supply again, right right. It's not gonna be easier. But one of the things, if you look at new home builders, the new trend, and I think this is something that's been coming for a long time, size. Yeah. Like, do we really need to make 2800 square feet the average starter home?

So that's gone down over the last two years. They make smaller houses again. Which makes sense, right? Do you really need 3000 square feet as your first home? It's incredible how the average size of a home has metastasized over 20 years. It's like, and it just became standard. So if you saw a new build construction,

they were not building 2,000 square foot homes because it was hard to market that. Every house with a mudroom now. Yeah, so many mudrooms. Well, you're famously anti the starter house. So maybe you're part of the problem. I think what people need to do is extend how long they're going to be in their house for. If they're worried about it.

Don't live in a house for 3-5 years. Make it 7-10 years minimum. Skip the starter. Try to get into the bigger home. Easier said than done. Or find something that you're going to be willing to stick in. Because the frictions of trading up for a house are so large. Yeah, I never did it. I'm still, I'm in the same house since 08.

So call the crib, same number, same hood. It's all good. Let's do earnings. Yeah. What's your, what's your, what's your, what's the house outlook at B Riley right now? And how has it changed since the end of the I assume you put out your target December Yeah, has it changed at all? No, but it was pretty aggressive. I thought so that the

S&P 524 earnings estimate consensus was 243 $243 for the S&P. Yeah, and I'm at 253. Why am I at that a I think We're always too conservative. 75% of companies beat, they usually beat by this much. You just have to do the simple math and you can draw a line to something close to that. Yeah, extra 10 bucks a share is just Nvidia. Right, exactly, right?

Or energy, have you seen the energy companies first quarter like estimate increases? Massive, and they're still only what, 3%, 3.5% of the S&P 500? That's going to change, that's going to be a a double. I think over the course of the next two years worst performing sector last year you want to be you want to be overweight energy because The earnings estimates are gonna go up more than other sectors more than other sectors And we just found out a week and a half ago at the major conference that they have that they're the average cost per barrel

Is like $35 and 75 cents Wow, versus what on the market, 80? Yeah, so think about that, right? It's like, are they making money at 80 bucks or 70 bucks? And are they being rewarded for that? Are their multiples demanding and they're not at all? Like every, all of the majors trading at 12, 13 times, throwing off handsome dividends, all the North American E&P companies trading at 11 and 10

times because nobody wants to touch energy. I added to energy stocks myself the other day and my research associate, Sean Russo, and I keep a list of the best stocks in the market. And we're looking at technicals, but we're also looking at like, you know, they have to be profitable companies. There's a whole bunch of hurdles to make this list. The list size is not finite. If there's zero stocks, there's zero stocks.

It just is what it is. The only stocks left on that list after this week are energy. Is that right? Yeah. I think there's maybe a couple of defense stocks, and then everything else got knocked out. And again, it's a combination of various technicals. But the technicals are aligning with the story

that you're telling. It's crazy to me that semiconductors are 9% of the S&P and energy stocks are 3% because that ain't what the economy looks like. Semiconductors are really important. Do you think owning energy stocks is a better hedge against higher inflation than even the commodities themselves? I do because it's easier to invest in it. So owning the commodities themselves, you don't have to be in the futures markets.

You've got the roll costs and all the things that are encompassed in that. A lot easier to either pick one of the ETFs that represents how you want to express that opinion or to pick the three of your favorite names. And either way, I think it's a winning bet. But to your point, yes, I think it's a better inflation hedge because that's exactly what's happening in energy right now. I think the newer generation of investors think that stocks have to go down for energy stocks to shine because that was the experience in 2022. But you and I remember environments where the market not only didn't have to move in

the other direction, but oil stocks were the leaders. You remember like 05, 06? This coal was a leading sector. Right, absolutely incredible. And think about how the multiples were back then too. They were trading above a market multiple. 16 times earnings for drillers. For drillers, exactly.

You would never see that now. Okay. Well they went through that whole cycle where we had negative prices on crude, and all these guys had to get religion about being shareholder friendly, returning, running profitable businesses but they've all done that so you know we're at a point now where you look at I think

it's laughable how cheap the sector is and I think it continues to do well what's the message of what we heard from the large banks last week and yesterday I would say in general that if I think the fact that JP Morgan went down 6% only means JP Morgan was one of the top 10 stocks in the SB 500 before they reported. Price for perfection, and they said we didn't make as much net interest income as we thought we did, but if you look at the rest of the report, spectacular.

Top line, bottom line, checked all the boxes, and they gave conservative guidance on net interest income, which a lot of people have baked in with higher rates. So I want to ask you about that. The stock's down 20 points from what it reported. I'm a points guy. Yeah.

Stock's down. Are you a points guy? I am, yeah. All right. I'm never attacking eighths and quarters if you want. You new guys don't understand. Stock's down 20 sticks from where they reported, right? All they did was leave that interest margin guidance alone.

They didn't cut it, they just didn't raise it. They're saying like 89, 90 billion in income and people wanted them to say 93. Okay, so you whacked 10% off the share price for that. Okay, fine. Why didn't they give more aggressive guidance given where rates have moved since the last time they reported.

My theory is they think they might have to actually pay depositors on that. Right. Michael says no. What do you think? We don't know yet. Yeah, that's a good point. I mean, their deposits are so sticky and they have the most, right? And they also had taken all the regional banks that didn't do well.

So you think they don't have to worry about deposits yet? Pricing? No. So I'm so mad that I deleted this quote from the doc earlier today, because I just didn't think we would get to it. On bankmakers' earnings calls, I think these numbers are right,

they said that like 68% of their deposits have been there for the last 10 years. Like money just doesn't move. And if you haven't moved yet, the banks are not all of a sudden like, oh shit, we already did that. If you were going to leave for a money market fund, you probably already did it.

And if you didn't do it, you're probably not going to do it. Game theory. Let's say one of the banks decides they're feeling frothy. They're not going to, you don't think these people talk? What if Jane Fraser says, oh Bank of America, JP Morgan, Wells Fargo are paying zero, we're paying 1%. How much money, I understand it's more expensive, but do they get money in motion by doing that

or do you think no? I don't know the answer. We've already seen in a frictionless world that these people aren't moving their money. So are they going to move it? You know what I mean? But I don't know. If somebody gets aggressive, maybe.

They've been offered that 1% somewhere else already. Right? Okay. In a frictionless fashion. So you think. All right, so you agree with Michael. You think the cash sorting phase is over? It's like changing your dentist.

It's too much work. Yeah, no, I wait for my dentist to retire. That's it. That's what I changed. I agree with you. Who post the dentist? You think it's too much work though to move from Wells Fargo to Bank of America,

but it's not too much work to wire money from Wells Fargo to Fidelity for a money market. Totally. It's funny that it's like that, but it is like that. But it's true. Yeah. You know why? Because I've been with Chase for, since I opened the bank

account, I'm not leaving. It's auto deposit. All your bills are tied to it. I have a 20- year history with that bank. Right. All right, so you're not concerned by the reaction in the banks to what you feel was like decent earnings, decent guidance.

If you just, they went up a lot. No, and it, you know, which is interesting. They always lead with the banks and we're supposed to make some sort of judgment about what the earnings season is going to look like. And it never works. It never works. Okay.

So I always look at that and say, yeah, that's like the- What's the first stock that reports that you think does give you some inkling is it MasterCard that's a hard bo it used to be alcoa used to be first I'll call you alphabetically I've ever found me had a great tweet he used to say that alcoa is the Iowa caucus of earnings it was so true I don't think it matters until Nvidia reports when you think about it like this. All right, I love this conversation. What turned the market around

the last time we were going through it? Nvidia last spring ended the banking crisis. Literally knocked it off the front page. By itself. And what happened to their multiple? Their forward multiple. Went down. Earnings guidance went up.

Right, it's insane. So do you, like, am I going to sit around and say, I hope Walmart and Costco do okay, so that'll give me a good reading on the consumer when I just got retail sales for the last two months and much better than I expected? So let me make you nervous now. Okay. ASML, Lithography, one of the most important chip companies in the semi-ecosystem. They just gave downbeat guidance and said orders are not materializing at the rate that they thought they would. Lower end user demand, end customer demand.

Taiwan Semi, same story. Conservative guidance today. What do we make of that then? If you think Nvidia is really important, is Nvidia going to buck that trend? Alright, so I don't think Taiwan was quite as negative as that. Ben is going to do some hedging while you explain I would say right now that as Sml was a lot more negative and a lot less important than Taiwan semi And I think Taiwan semi was a lot less negative and I agree if you listen to the conference call they said

We are making chips for everybody including Nvidia. So anybody that matters whether it's Qualcomm or you know, the rest of the of the Ecosystem where they've won game in town now where that might change at some point in time So anybody that matters whether it's Qualcomm or you know the rest of the of the ecosystem Where they've won game in town now where that might change at some point in time Five years down the road or Taiwan semi is not the lead manufacturing and somebody can do it But it's not happening right now And do you think demands going down in the near term if they didn't give great guidance is all I'm saying So I don't I don't know if that really has an impact on Nvidia But nine percent of the s&p So maybe we should be you would have felt better if they said

Things have never been stronger, right? Which is what they said last quarter you could ignore I think to a certain extent having both of them say it the same week. Yeah, it's kind of a wake-up call Yeah for sure. Well, they whacked it in Intel and a bunch of those stuff. I am DS down 27% from my yeah Yeah, it's a lot. Yeah. Well, how much was it up going into the dry? Quite a bit. Yeah.

Let's take a look at this earnings growth. This is a good chart. So this is from FactSet. S&P 500, those companies that get less than half of their revenue in the US, is that less than S&P? They're growing 5.9% year-over-year in the first quarter. That's the green.

All S&P 500 companies are growing 0.9%. So if you get less than half of your revenue in the US, you're up 5.9%. If you get more than half of your revenue in the US, then you're down 1.8%. Wait, what's the reason for this? I'm very confused. Why is that happening? Especially with a stronger dollar.

Positioning? No, honestly. Currency? I don't know. This is large versus small, isn't it? Isn't that what this boils down to? The bigger companies do business all over the world? Yes, that makes sense.

Okay, so Corfax said, tell them I solved it. What else do we want to do? Oh, sectors. So when you give people the outlook going forward, how important is like sector calls or overweights underweights to you? Every sort of quarter, we look at this and say, how should we set up a barbell approach?

And by the barbell approach for us, we look at it and say, okay, here are the three sectors we think are going to outperform this year, but certainly in the short run. So what are you, what are you basing that on? Basically, valuation, like how on demanding multiples are, and what how the macro should drive what's happening right now. So here's an example, healthcare, beginning of the year, looking at healthcare. We're through the whole entire pandemic. If you weren't a therapeutic or a vaccine for COVID, nobody wanted to do anything with you. Across the entire healthcare platform.

Last year and a half, last 18 months, if you don't have a GLP-1, weight loss, diabetes drug. And everything else is really trading at an unchallenged multiple, especially when you sort of look at these phase two, phase three biotech companies, you know that the big pharma needs to gobble us up and they're all cheap, right? One of the worst performing sectors this year.

So you look at that, you can make a multiple argument, but you can certainly make a fundamental argument. It's like, okay, we're going to be over GLP-1 drugs if we're going to start to look at, you know, besides Lillian, Nova Norris, what hasn't worked? And I think that happens, and it certainly happens when M&A starts to pick up. Okay, so you'll take a sector like that, that's one side of the bar of L, what's the other side?

The other side, I think you have to balance with large cap growth stocks that are gonna be dominant, thematically dominant, and hopefully they have predominantly reasonable valuations that you can describe. So you look at a Microsoft, obviously you can say, okay, I'm fine with it. Nvidia, multiple keeps coming down

every time they open their mouth. You can sort of live with that. Things get cheaper when Facebook goes down or when Alphabet goes down and say, okay, we can add that to the list because it's certainly not challenging anymore. Sort of looking at Apple right now as a place that should probably be on the list and take something out.

Michael and I were talking about Apple this week. What do we conclude? We asked, is Apple in trouble? I mean, they are in trouble. The stock is not cheap and they're not growing. So that's not a great place to be. And technically it looks like shit. Right.

So there's dealt with some problems. This is a very important stock. I think I know Microsoft is larger by market cap, but Apple is to me more important to the investor psychology, I think. What do we do with this? Do you remember when Apple invented the laptop? Oh, that's right, they didn't.

Remember when they invented the cell phone? Oh, they didn't. They've never invented anything. They've been a fast follower. Remember when Apple told us what they're doing with artificial intelligence? Oh, they haven't. Are they going to in June?

Absolutely, they're gonna partner with somebody. So the worldwide, sorry, it's US-Maple. It's a June worldwide developer conference. They're gonna tell us something exciting. We're gonna get freaked out. They better. AI Siri has the ability to stop the stock from falling, I think.

Yeah, for sure. And if you say, okay, this is who we partnered with. This is how powerful this will be. And oh, by the way, it's gonna be on your next phone. So you need to get it, right? Because there hasn't been an upgrade. The biggest drag for them is it's like Nike, right? Sales in China are terrible.

China's GDP report, if we believe it, is much stronger than the first quarter than it was in the fourth quarter. So perhaps that demand picks back up. Do you worry about concentration of the largest stocks and the historical analogs to nifty 50 or like whatever like you to people ask you questions like does it make sense to you that 23% of the S&P is seven companies and Is that toppy there's never been a year where it hasn't been we just change the names every year

So if you go back to 1974, do you have that chart? We do John's throw exhibit 29 up there, please So if you go back to 1974, I would argue you can go back to 1900 if you'd like and say, okay, you know what, the railroads are way too much of the Dow Jones Industrial Leverage. Well, because they were. They were the fastest growing, largest companies in America. It's always going to be the case. And then if you go back to 1974, it's going to be something like a General Motors or an Exxon or, and then you work your way through, it's GE for a lot of years.

So you always have leaders. You always have leaders. It's just the names change. Microsoft was in and then they were out, now they're back in. This isn't more extreme though than a lot of those examples? I don't think it's ever been more extreme. Or I don't think it's ever been less extreme. Less extreme. Less extreme, I'm sorry.

Yeah, so to the extent that you should look at it. What is this chart saying? All right, well so this is from Ned Davis, my favorite tweeted that. And what we're looking at is the S&P 500 versus the S&P 500 excluding the top 10 market cap stocks. And historically, I guess really until, I don't know, 2015 where the leaders just keep leading,

if you had bought the S&P 490 and just avoided the 10 largest stocks you actually outperformed and Clearly this has not been the case since whenever fang came into existence 2015 or so but historically Avoiding the top 10 stocks has been a pretty profitable strategy Wait, it looks like red is trailing the whole way up. Am I missing something? That's exactly the point. Oh, that's the point? That's the S&P 500. The blue line is the S&P 490.

Okay, oh. So historically, there is a lot more recycling in the top 10, and to me, this is the biggest theme question, conundrum thing for the next decade, because we've lived through a 10 year period where it's been Apple, it's been Microsoft, and it's been Google and Amazon,

and they keep winning. What is going to knock down, I mean, we don't need to get to this one, who the hell knows, but this is your point earlier, that this is the chart showing the biggest stock in the S&P 500. And what are we looking at? Yeah, so well look at the fact that did you ever think General Motors was the biggest stock in the market?

It is crazy. Look at that. Well, I wouldn't have guessed that it took that it was for 30 years What is that? Well the crazy the crazy thing about this chart is we're looking at the percentage of net income and Holy moly General Motors used to account for 10% of the all the earnings. Hold on. This is the earnings of net income, and holy moly, General Motors used to account for 10% of all the earnings. This is the earnings of the S&P, by the companies that comprise the most of the S&P earnings. And look at General Electric. And then Microsoft comes in, it goes out,

comes back in, ExxonMobil. So it's, and if you back that up, you're just gonna have different names. That's the thing the biggest ones eventually fall and then other winners take their place. But it's not happening right now. So the question that I get all the time is can the market hold up if the largest technology stocks fall? And it sounds like you would say the answer to the question is okay but something else will rise. So over the last year Apple's basically flat the

markets up 23%. The market cap is coming down. but something else will rise. So over the last year, Apple's basically flat, the market's up 23%. Right, the market cap coming out of, people were worried about that. And it's happening a little bit with the biggest stock and the market's doing fine. Well, all the market cap coming out of Apple went right into Nvidia. So.

But is that the, like, Nvidia wasn't in the top 10, recently, it was like 2021. So that's the new one coming up. Precisely. There's always going to be larger that's the new one coming up. Precisely. There's always going to be larger stocks. I agree with you there. And if it's not the stocks that we have today, new stocks will rise to take their place.

We just don't know what they are. We don't know what they are. Let's talk tax season. So in the Bank of America earnings call, they said, as we look forward to Q2, we expect some modest impact of lower deposits in wealth management as clients make their seasonal income tax payments.

This is another harebrained theory that I have. People pull money out of the market in April, March and April to pay their taxes. The effect is amplified after a great year for stocks. So 2022, the market was horrendous in March and April. Think about how much money people had in cap gains from 21. And they waited for the year to roll over before they sold and they didn't pull the money out. So we don't really know. We don't actually know. I think there is some seasonality after a great year for stocks.

Put the chart up of the average path of the S&P. I found this one, I think this is from Goldman. It shows this is the average S&P since 1985. I'm not an idiot if I believe in this, right? It's just, it's funny though. People get mad though when I say this. Yeah. Why do we, why do people, people know this is coming. Why does this happen?

I agree, it's crazy. It shouldn't exist. It shouldn't exist. It should be arbed out. Yes. I was just gonna say the exact same thing. If it was real. If the four of us could figure this out, someone else has already arbed out. Yes. I was just gonna say the exact same thing. If it was real. If the four of us could figure this out,

someone else has already figured it out. I agree and yet. But it persists. But it persists, yeah. So listen, the Santa Claus effect persists. 100%. Right. You can't deny it, we see it.

We see it plain as day. So that's a thing that shouldn't exist. January effect shouldn't exist. So I think in the end, we're still human. Now this is like a reason. It's like not that crazy. If you want to get rid of this, the IRS says, okay, we're going to cut America

up into quadrants. If you're quadrant one, you're taxes are owed on April 15th. If you're quadrant two, it's October 15th. This is just staggering like spring break. Right. So Warren Paz did some great work on this. He said, John, throw this up, in today's chart of the week, we measure annual, and this is Warren Paz with 314 Research.

We measure annual cumulative individual income and employment taxes not withheld. We guess that most of our clients are all too aware that this is tax season. He says from April 10th to May 10th, individual tax payments to the treasury may exceed, this is a big number, $300 billion. This would surpass the $278 billion drain during the 2022 tax season. Last time that happened, the market fell more than 10%. So the chart on the screen is the cumulative U.S. Treasury deposits, individual income, and employment taxes not withheld.

And this is basically, there's people paying their taxes. And these are real numbers. It's a lot, it's a lot of money. So again, the last time this happened was on the heels of 21. So the numbers are getting bigger. The gains in the stock market are getting bigger in a year like this.

I don't know. So we talked geopolitics as like the reason for the stock market falling. What if people are selling because they need the money to pay their taxes? Well that's exactly right. This is not a giant leap. Like okay, I need to sell some of my portfolio that's up 28% of the last year to pay some pay the taxes. Well, that's exactly right. This is not a giant leap. Like, okay, I need to sell some of my portfolio

that's up 28% of the last year to pay some of my taxes. Right, crypto is up 100% in a year. Why is Bitcoin down? Well, because people, they have a ton of gains they need to cover. And what would happen if both these things happened at the same time? If we had the brand new geopolitical event.

Yeah. Yields on the 10-year blew up and are heading towards 5%. Armageddon. Nvidia misses. Nvidia misses. If that happens, stocks will be going down like free beer. Crude is flirting with $90 and people have to pay their taxes. So I think you can bunch all these things together and say, I think everyone's got a hand in this.

Let's do this cash stuff. This is interesting to me. OK. Oh. Money market funds. It is in the doc. I didn't delete it. Yeah. Look at you. OK. There it is on average 68% of our deposit balances have been with us for more than 10 years That's a Bank of America. So wild. It's kind of wild people do not move money out of the banks

You just you just described to us why yeah, but we didn't make for 20 years Yeah, you have direct deposit don't want to change all my all my bill pay and it's a panic for one percent Ben just Ben just went to Italy There are there are wealthy families in Europe that have had this same bank for 500 years. You know that? No, that's incredible. And not nobility, like regular people. Just that this is the one we use?

This is the bank that my great-great-great-great-great-great-grandfather was at. But Italy has like three banks though, right? Well, they have banks though that are hundreds of years old. And many vampires. And the Netherlands also. Amsterdam has banks that are older than America. So Bank of America's finance chief said, this is a tweet from Sonali Basak, we are all struck by the sheer amount of cash

on the sidelines at this point. Let's put this up. And it keeps going higher. So there's $2.4 trillion in retail money market funds and another $3.7 trillion, that's 6.1 total in institutional money market funds and the line of demarcation there is institutional, that means over a million dollars in deposits.

I was pretty right about this coming into 2024. So 6.1 trillion in money market right now. So I was relatively confident that the money was going to stay in money market funds because it's slow to come out of a checking account and it's slow to come out of money market funds. Once you move it, you're staying. And even if the market's up 20% this year, the money's still going to be there. But guys, real quick though, on this chart, in 07,

the amount of money in money market funds was like $1.25 trillion. And now it's $6.1 trillion. No, no, no. You're looking at the bull. I'm adding the two. I'm adding the two. I'm looking at the Navy and the light blue. So less than $1.5 trillion to to 6.1 trillion since 07.

But it begs the question on our last topic, why does 300 billion have to come out of the stock market if there's 6.1 trillion in money markets? Well because people aren't selling their money market funds. It's too juicy. The yields are too juicy. You want to walk away from that. Well the Fed not cutting means money's going to stay here longer because their rates aren't going to fall. Exactly.

Oh, here. Relative to pre-pandemic, which is Q4 2019, average deposits in money more. No, no, no. Oh, bank deposits? Next chart, please, John. So I pulled this out from Bank of America's report. Look at the top right. So we're looking at consumer banking.

Look at Q4 2019 and look where we are today. So it's, what is the number? 35%. 35% on average since 2019. It is amazing. Remember people were saying like all the excess savings are being burned off? Right. It doesn't look like it.

Not only they're not being burned off, they're generating more cash. And these aren't like interest bearing accounts, right? Some of them are. I mean, yeah, 40 basis points if you're lucky. It's not much. It's not a money market. These are just, these are just, this is checking accounts, savings accounts.

I actually heard from some people, we talked about this and they emailed and said, listen, the pandemic COVID really scared me. I'm holding more cash now in my checking. I don't care. It's like a backstop. Also, the money supply has exploded. Right.

So that hasn't normalized. I think that the money market funds, the money there is going to stay there for the foreseeable future. And here's what I don't think gets it out. I don't think a roaring stock market gets it out. I don't even think lower interest rates get it out. I think significantly lower rates.

And I'm talking like 3%. Maybe then people start to look for other options for their cash because it's comfy, it's fine, you're earning money on it. It's not going to chase. This is cash. People aren't chasing with their cash. So this cash on the sidelines doesn't really make any sense to you? This is one of the things I despise. Cash on the sidelines? There's a lot of cash on the sidelines.

A lot of people hate that. Why do you despise it? Because there's always cash on the sidelines. A lot of people hate that. Why do you despise it? Because there's always cash in the sidelines. It doesn't mean it's going to be attracted into the market. There are people that say, well, how can you have a 21 multiple on the market and think cash in the sidelines is going to move for that? The argument to that would be 15 years ago, a 15 or 16 or 17 multiple would be full valuation. Now close to 40% of the SB 500 has gross margins north of 65%. That wasn't true 15 years ago.

Thank you. So the multiple has to go higher. There we are. So I think that's the point. So what about, here's why I hate cash on the sidelines as a reason to be bullish. If you bring that cash from the sidelines to the market and you use it to buy stocks, somebody has to be selling you those stocks. So what just happened? Somebody has to sell you the equivalent amount

of stock that you bought. There's never more buyers than sellers? Never. However, if, and this is theoretical, it won't happen, but if there was a wave of $100 billion that wanted to get into the market, then there would be more willing buyers than willing sellers and the prices would go up.

That's fair. Absolutely fair. Will we see some of this money come out in the next bear market and say, all right, now it's more attractive. Now I'm going in with some Mike L's. LOL, Ben. What? Well, I don't know.

They cut rates back to 0% then maybe not for long. If that happens, then I would say our work here is done. What? If in the next bear market, you get a hundred billion dollars. Did Ben just ask, will we have a bear market in the next bear market? No, no, no. He said in the next bear market,

will money come out of money market funds and flush the rest out of the market. Okay. That is wishful thinking. Maybe I do like cash on the sidelines. What do we do with bonds here? Do we buy, can we invest in bonds here? We buy bonds?

Yes. It's almost 5% across, I mean, two years, 5%. Five years and 10 years getting close. It seems pretty darn attractive. Do you guys have any 60, 40 portfolios for the last 10 years? Yeah. Yeah, of course. How'd that work out?

Pretty great. Pretty great. Yeah, for everyone involved. For everyone involved. Yeah, some years you wish you were 100-0. It sounds like a leading question. No, it's not a leading question at all. Is that a good idea? It's like, is that balanced, like in general?

If, you know, a client comes in, I've got $5 million and I'm 50 years old. Yeah. We're going to set you up at a 60-40. Well today, it's a better deal than it was two years ago. Correct. Yeah. Not only the conversation goes quite like that, but where are you getting at? I'm getting at, I think, to say, Well today, it's a better deal than it was two years ago. Correct. Yeah.

The conversation goes quite like that, but where are you getting at? I'm getting at, I think, to say what do you think about bonds, I think it's always a prudent balance in your portfolio because typically, not two years ago, but typically, when one asset class is doing better, the other one might not be and it gives you some ballast. We went through a year where both sides of that did terribly, but that was the first time we've seen that in 25 years. So to the extent that if you're not gonna have

any allocation of bonds, then you're not really saving for the future, you're actually gambling. I think that the upside on interest rates, downside on bond prices, it's like, I don't know where the floor ceiling is on prices and rates, but it feels like it's like, is a 10-year-old gonna go to 6%? Probably not.

Oh man, uh-oh. I don't disagree with that. Think about it like this. So you've done a lot of great work on what happens when it goes to 5%. Because then you have to make a hard decision. And I agree with that. You agree with what I said?

It's kind of like a trigger, right? It's the pivot, right? It's like, oh, okay. But we went to 5% in October, and we did have a sell-off. And as a nascent allocator, you have to look at that and say, what am I doing here? It's 5%.

Then it went to three and three quarters, and the market rallied. To me, it's not so much the level. So we spent all over the first quarter between four and 4.3% yield on the ten year. That was it And then in two weeks we exploded to four point seven. Okay. It's the move I think that freaks people out and speed the speed the pace the velocity. Yeah I agree with that, you know, it's not four point seven versus four point three and reality. It's that it's

When that comes down if we stay between four and a half to four point seven never touch five I think things kind kind of fine. So Ben's done a lot of stuff on this over the years. Didn't you do something where, I think you established the fact that the average 10-year yield over 50 years is 5%? It sounds like it's between 4 and 5%, yeah. We're pretty close to average on a lot of rates.

So we're high relative to 10 years ago, but we're average relative to all time. But to your point, the speed of the move and the recency bias makes these rates look so much more attractive because for 15 years we stared at 2% yields. This is probably not like a right analogy or comparison. Analysis is the wrong way, right comparison.

But if I wanted to buy bonds, maybe for a trade here, right? And I was more short-term oriented and not asset allocation type mindset. I'd rather buy an equity if I think that rates are going to come back, like a home builder. I was talking about this with Josh the other day, like Home Depot, for example. Like Home Depot's getting killed over the last couple of weeks.

If there is some relief in rates. If you want to bet that rates are going to fall, don't buy the bond, buy the stock that's rate sensitive. I'd rather buy a rate sensitive stock. Right. What do you think about that? It's like a REIT, a home builder. A home builder or a home diva at that point. Yeah, absolutely.

Why don't you put on your big boy pants and buy the TLT? I'm saying I'd rather buy Home Depot. ZROC. By the way, I'm stalking it, I'm eyeballing it. Which one, TLT? Long bonds, yeah. You don't have the guts. I don't either.

So the TLT is still even with with income From the highs still down 44% total turn. Yeah. Wow. It's a widow maker. Wow. It's incredible Right. Hey larger widow maker is natural gas. Well, yes Joe wise and Thor's questions. What do you think about these things? You're talking about central bank digital currency. So you think a lot about this stuff? I think about it as little as I possibly can except for the fact that I know you have 4,000 households and we probably have a similar number. We've got 453 financial

advisors and someone's gonna ask a question because they clicked on an article that tried to scare them into something and they seem to have the same thing. What's scary about a central bank digital currency surveillance of how we spend? The government's going to know everything I do. As if they don't now? That's kind of the point, isn't it? Yeah. It's like, do you vote?

Do you have a driver's license? Do you have an iPhone? Right. I'm pretty sure everyone knows everything. But it became such a theme in the sort of scare tactic world that Jay Powell had to address it. He had to address, no, we are not working on surveillable money.

That's what we're doing. We're talking to banks, we're not talking about you. We don't care about you. I might be watching the wrong news, because I never hear paranoia about this. Well, we get it from, so it goes like this. You're a broker in Tulsa, Oklahoma. Watching Infowars.

Somebody, one of your clients. Name lining Alex Jones. Who's got four million dollars, reads this article, asks you and you're like, oh I'll go ask Art. And then I have to sort of hold your hand for a little bit and say okay that's not happening and then the next day it's gonna be something else. Imagine the broker like comes into your office with this shit you're like, do you understand I worked at Morgan Stanley Dean Witter? What the f*** are you asking me about? Alright, so you have to have an answer for this because people are freaked out about money in general.

Money in general, and there's always concerns. But, and I think you guys do great work on this. There's the myths or the scare tactics versus what really important. I thought Joe did a good list of things we should be talking about to a certain extent because they're in the current zeitgeist. But I just thought I'd be curious what you hear

for the most bizarre questions. I think the Federal Reserve is going to lose its apolitical status within our lifetime. I just don't think that any institution where the appointees are coming directly from the White House will be able to withstand the pressure of both. It's not just the Trump thing. I just think eventually we're no longer going to think about this as an independent body.

We're gonna think about this as an extension of the White House the same way we do the Treasury. You think that's a controversial take? Powell might be the last truly independent. Truly apolitical. What do you think about? Biden kept them. We've gone through phases of this though in the past, right? Arthur Burns, you know, in the seventies, Johnson going in and saying, you just peed on my carpet.

How can you do this? So all sorts of things have happened over the history of that organization. The hope is that there's so bad, there's 19 governors and presidents now, that it can be distributed enough that... But it's a chairman's board in the end. The other governors, they might dissent,

but there's no brawls that I'm aware of at least. I don't think there's... I think there's a lot of consensus building. Here's what I would offer up about the Federal Reserve. You may not be incorrect about this. I think that there's a potential for that. What I would love to do is have... You know the 10-day quiet period they have before their meeting? You may not be incorrect about this. I think that there's a potential for that. What I would love to do is have, you know the 10 day quiet period

they have before their meeting? Yeah, it should be 363 days. I would like to spread that out. Oh my God, you and I, you and I. I've been saying this, it's enough. Right, and unless you have a program in front of you and say, oh, Kashkari's hawkish, so if he said something hawkish,

he didn't really say anything. It's the dog bites man, but the market doesn't do that. It's like the algos just haven't figured that out yet. And it's just ridiculous. Well, it's 12 of them. You have non-voting members going in front of a podium and weighing in and stocks move. It's like, wait, how are you writing these algorithms? The crayon?

Yeah, to the extent that forward guidance was probably important to us during the financial crisis. I think they really want to say, hey, take it easy important to us during the financial crisis. I think they really want to say, hey, take it easy, we've got your back here, everything's fine. But since then, when we sort of normalize the economy, there's no reason for forward guidance, and I think J-PAL feels the same way.

Do you remember Fed decisions where there was no press conference, like it was an NBA championship game? Yeah, 100%. Do you remember those days? Probably 07, 06, 07. Then they used to have a press conference after every other one,

and then they made a press conference after everyone. So when Paul Volcker changed the Fed funds rate, the only way you found out was the next day, Chase and Manny Hanny raised their prime rate. You said, oh, the Fed must have raised rates. Oh yeah, look, that's up by 150 basis points. Well, do you think we'll eventually become numb to it though? They talk so much now about everything.

Yeah. And hasn't it been kind of, I mean, doesn't it seem like the Fed doesn't matter as much as we all thought from this whole ordeal? They're still very important. Part of this might be me, because I'm very much caught up in the financial media ecosystem, and most people aren't.

So maybe it's not as irritating to most people as it is to me. I just cannot believe how much the Fed monopolizes the media's attention and maybe a little bit the market's attention, but maybe I think it's a bigger effect than it really is. Is the Fed gaslighting investors into thinking they're more important than they are?

Yes, no, they'll put three different speakers out in the course of a week saying three different things. It's insane. It's a cacophony. To your point, they're taking up too much oxygen at the end of the day to our original point that doesn't matter because they have no idea what they're doing.

They can't tell you two meetings from now what they're going to be doing. And they tell you they don't know what they're saying. All right, Fed says, we're going to be data dependent. Okay, our first question comes from Bloomberg. All right, you say you're gonna be data dependent, but what are you gonna do in six months? Right.

Well, in six months we'll have more data and then we will be data dependent and we'll do what we do. They literally set the rates and they can't predict what they're gonna do with rates in six months. That's right. 100%. That's right. And I would argue that the Fed Fund's futures can't predict what they're gonna do either

outside of the next meeting. Look at the magnitude of the moves in the futures market. It just tells you how erratic. Right. All right. So go ahead, finish your thought. I wanted to ask, where does the CBDC enter into the picture with this stuff?

Or central? I'm sorry. We have no time for this. Who cares? OK. Me too. So let me just say what does matter. What matters are earnings.

And we just heard from Netflix, I'm a shareholder, they added, this is from Lucas Shaw, they added more than nine million customers last quarter, another massive beat, and now has 270 million subscribers and more than 500 million total users, it generated a record profit of $2.3 billion. And the stock in the after hours is down a little bit, which is an interesting reaction.

You know what, It's fine. Netflix is up 28% this year. It's up 90% over the last year. So if I had my choice and I don't get to choose what happens with the stock market, I would say like not having a 10% gap up to a beat when you're already up 90% over the last year is probably a healthy thing for the market.

Like if we could digest and go sideways and digest, like that's a good thing. 100%. And I would argue that coming into this week, we had that sort of pop and drop every single day. I think that's more bullish than if we just came out of this week and it said everything's fine,

nothing else is gonna happen in the Middle East, there's no more geopolitical tensions and the market just decided to rip. I think that's the worst case scenario. But to your point, Netflix clearly won this game. Remember three years ago, everybody told you what streaming was gonna look like? And Netflix said, oh really?

And you can't share passwords anymore. It was like, okay. That simple a move. They're finding ways to make money that they didn't have a color. So they were left for dead. They were down 75% or something. Killed it.

In the spring of 22, That stock was 100 something dollars. No, the stock is falling down 6%. I wonder what they said. But either way, it's fine. Stocks can't go up forever and ever and ever. They need a period to cool off. Stock is selling off on the news that Ripley is in black and white and not color. How much is Netflix up since the last time they reported?

A ton. They reported so much. They reported the first week of February. The last time they reported, the stock was at 500. They had a ridiculous gap. So the stock's up a gazillion percent. It's okay. Yeah.

I agree with that. What's that? Who would do that in points? Josh is a points guy. So in points terms, it's quite a... So when you pull up Netflix, speaking of... Speaking of Netflix being the winner, they compare it here on this line to Paramount.

Paramount Global stock is down eight years in a row. Including this year. It's one of the worst concoctions ever. Eight years in a row. How's that even possible? You know what's so funny? The FTC and Justice Department are working so hard to prevent mergers. They should allow more of them.

It's destroying these companies. Warner Brothers and Paramount are two highly merged entities. They're like five companies smashed into one. These stocks are going to zero. They should be encouraging mergers. If you're worried about market power concentration, the only one that didn't do a merger was Netflix. They could also say to bring inflation down.

I don't have to pay for so many streamers anymore. One of us too, the stock is just, that merger would be like tying two stones together to see if they'll float, right? Hey, I want to finish with perma bears. So you're not a perma bull, but over time the market's gone up and you've been bullish for the most part

and I think you do a really nice job at weaving in the possibility of there being risks. And that's your job. That's my job. This is what we do. I think I'm a rational optimist. I think that, and I don't say that in an offhanded way, I think that in general over time we get better at fixing problems and being creative.

So I think so too. I think the system gets, 2008 is the rare occurrence. It's not the everyday. Okay. The question I wanted to ask you is, do we have anything that we can learn from let's say we're not gonna listen to what they say The market is going to do but do we have anything that we can learn from people that are Persistently negative all the time so any value and anything that they have to say and if so What would those things be from your perspective from From my perspective, and I listen to everybody's argument.

So do I. I think the best way to react to that is it reinforces what it is that they're missing. Right? So I think some of the biggest value investors are saying this is crazy and value stocks are going to do better, but they haven't for the last 10 years, but this time they're going to and here is why. And then you can say to yourself, well, maybe there's a reason for that. So small caps. Here's a great example. Yeah. small caps, here's a great example.

Yeah. Small caps, which I would love to see do better. Every year they do. Yeah, and they have been forever, right? And they started, actually they sniffed a bid in the first quarter. They were looking good. You know why?

Took that away in two days. Yields were coming down. And we had sustainable economic growth. They need both of those things, right? They're rate sensitive, but you also need good GDP growth. And then you still have a good GDP growth, and then rates go up 30 basis points in two weeks, and you're like, all right, see you guys later.

And then trading at 13 times. Yeah. And not even the Russell, too. Look at the S&P 600. So the valuation guys will always pitch small caps. They never work. Yeah, and it's hard. I mean, how many people in the world want it?

It's Lucy in the football, though. It's always, this is the moment small caps will shine. Oh, shit, maybe it's hard. I mean, how many people have been on it? It's Lucy in the football though. It's always this is the moment small caps will shine. Oh shit, maybe it's not. Yeah, but if you look at the yield on a 10-year and if it doesn't touch five, then it works its way back down to three and three quarters over the next 18 months. Yeah.

GDP just north of 2% over that period of time. So you look at the people that are consistently wrong with things like that, and then what do you say to yourself? I say to myself, how did they get it wrong? You know, what was it that they're that they were pointing at saying? Well this time I mean it and you know and everybody got it wrong at 23 everybody There was nobody that wasn't calling for a recession. It was just like okay This is you know, yeah every time that leading in economic indicators have been negative. It's a bit of precursor Well, here's the problem with that and And I was like, I get it.

I get why you say that, because it's almost a perfect, not a perfect, but almost a perfect recession indicator. It's all about manufacturing. Manufacturing went through a recession. So you got it right, but it was sector specific, right? We went through, manufacturing was in contraction for 18 months.

So you were right, and most of the LEI is manufacturing. What you got wrong was consumption patterns shifted from goods to services. We over-index services once we can get out and about. That's coming down, manufacturing's coming back up, and that was a false indicator. Well, also, Nvidia saved everything. Right, and Nvidia. And Nvidia. Exactly. Hey, did you have fun on the show today?

Oh, this was spectacular. And I didn't spit the water out of my mouth, which was great. And Michael kept trying to get me to do that. So this has been the first half. We're going to take a quick intermission. We always end the show, as you know, with favorites. And I'd love for you to tell the audience something that you're into these days. You're reading, you're watching, you're following.

You think they should hear more about. I got to tell you this, and this is probably going to be a little out of left field, but Metallica did a cover of Elton John's Funeral for Friends two weeks ago. And I never saw it until I was looking at something on NPR and it popped up. Okay.

Michael's a big Metallica guy. It is the most amazing cover of that song you'll ever see. And all these guys are old, and Elton John's receiving an award, and you could tell how moved he was. I watched it, I'd repeat three times, had my son come look at it, and he was like, oh, you like that song.

I was like, I like these guys. And I was like, there's the guy who invented it. So it was just one of those things where you're just like, sometimes a song just moves you, and it was both the song and the video. And I'm just like, oh, you just have to take a look at that. Dude, people don't understand Metallica is one of the greatest cover bands of all time. They did a record. I think it was called garage days

Yeah, so they did 14 covers of their favorite songs They did Tuesday's Gone by Leonard Skinner turn the page Bob Seeger was a huge radio hit 98 They've done incredible cover versions of a lot of songs. I think they're underrated from that. I want to hit you with one more then in the same vein. Zach Brown Band put out a record recently. They do a big cover song at all their live shows. So they collected them all and made an album out of it. Always that, right?

And they did Baba O'Reilly. They did a lot of fan favorites. Anyway, one of the better covers they do, they're in Boston, they bring Steven Tyler on stage, and they do Sweet Emotion. Anyway, it's an amazing live record. It takes place like 2016, 2017, 2018. They were at Fenway Park when they did that.

Yeah, yeah, yeah. All right, so we're going to check out Funeral for a Friend by Metallica. Great favorite. Ben, what have you brought us today? I got a book. What are those? Get out of here.

Nerd. I'm looking at the classics. I watched the Steve Martin doc on Apple, which is fantastic. It's about his whole stand-up career. And then going from stand-up into... The first half is about stand-up, then the second half is about going into movies. And his book, Born Standing Up, is one of my all-time favorite books.

So good. It's just really good. His outlook on life and how he sees everything, I love, love, love Steve Barth. No, it's a great scene in that book. He's sitting at the bar, and the guys who would eventually form the Eagles are Linda Ronstadt's backup band.

Right. So he meets these guys and they're like, we're going to break away from Linda and launch our own band. And Steve Martin says, what are you going to call it? And he goes, Eagles. So Steve Martin's like, the Eagles? He goes, no, man, just Eagles, Don Henley, just Eagles. And Steve Martin thought that that was so important that he had a whole section of his book about.

I thought that book was incredible. So I second that. Michael. That's hilarious. Eagles. That wouldn't have worked. Just Eagles. Yeah, that wouldn't have worked.

One other funny thing he says is he was literally the top stand up in the game in like the late 70s, early 80s. And he said this is like the loss aversion thing for investors. He saw like one empty seat at a show and's it I'm done time to get out was that was the moment I can't handle it there's one empty seat yeah I do not want to get to the place where there's hundreds of empty seats so I'm out I've never seen a stand-up have you he's he has he literally hasn't done stand-up since now he walked away it's clips with like him with the fake arrow through his

head he's just goofy, but people love that. It's very goofy. Speaking of stand-ups, Neil Brighton has a new special. He was Dave Chappelle's writing partner on Netflix. Excellent. I don't watch it yet. Was it good? Yeah, this is so good.

I like that guy. There's a lot of comedians that you watch. I know that's funny. And there's a few comedians that like make you laugh. Right. And he makes me laugh. So I would recommend that. That's on Netflix.

All right. Civil War was A24's first ever film to be number one at the domestic box office. And it's- It's number one right now? It was. Friday, Saturday, and Sunday. And the highest grossing opening weekend ever

for an A24 movie. I, this really was a, it was a war movie. I don't want to give anything away. I know there's been like leaks and stuff about what it's, what happened, but it was, it really was gripping. What are you laughing at? Say what you got to say. Duncan said you're recycling takes from Animal Spirits because you already talked about this movie. Well, I did, but I didn't give the box office stuff.

I love this. I didn't give the box office stuff. Also, this is way too highly rated of a movie for you. It's got 7.6 on IMDB. It's way too good. Yeah, it's too high quality of a film. So, Arts, Bill 7.6 on IMDB. It's way too good. You can't. Yeah, it's too high quality of a film. So Arts, Bill Arts told me that he saw it. He said it was gripping. And I said, hey, that's the exact adjective

that I used to you to describe it. Yeah. Right? Michael normally likes horror movies, but they have to be one star. That's right. No. He likes sequels to prequels of horror movies.

No, I like, I'm liking like the 5.7 to 6.3 range. That's like my sweet spot. Alright, listen, I'm going to give you a TV show that's going to blow your mind. You have to commit to me that you'll watch one episode. And if you watch one episode, you will not be able to stop watching it. It's Amazon Prime, it just came out, it's called Fallout.

Based on a video game, don't laugh though. Jon was telling me about this yesterday. Because The Last of Us, the best new HBO show in years, also based on a video game. Don't laugh though. John was telling me about this yesterday. Because The Last of Us, the best new HBO show in years, also based on a video game. Anyway, forget the video game, it's irrelevant. It's this world where in the late 50s, early 60s, what do you think, 1962? What would you?

Those 50s, yeah. Okay, it's like just at the turnover. But that Cuban Missile Crisis era, right? Okay. So I'm not going to give anything away other than to tell you, imagine if the missile crisis actually turned into full blown nuclear war. Say no more. Walton Goggins is one of the leads.

I love that guy. Watch anything that he's in. They just do such an unbelievable job painting this world that takes place 200 years after 1960 when the world comes to an end. All the people who survive end up in bunkers underground. It's like the 1950s never ended, right? But 200 years have gone by. So they invent new technology, but it's based on what they had in the 50s.

All the music is Dean Martin, Frank Sinatra, Johnny Cash, because those are the only records that they managed to salvage. And then it goes on from there, but it's one of the most gripping opening sequences of a show. The first six minutes where they show what happened, you cannot look away.

And then it just gets even wilder from there. I'm telling you guys, I think this is going to be a huge hit. Maybe Amazon Prime's first true bonafide gigantic TV show. So highly recommend. Hope everybody gets a chance to watch it. That's incredible. So all right. That's it for us this week.

We want to thank our two special guests, Ben Carlson. Thank you so much. Where are you performing? Eddie Giggs, you want to plug? I'll be at LaGuardia, 880 tonight, waiting for my flight. Listen, you gave a speech at a soccer stadium in Italy. So you're a big deal now. You're kind of a big deal, right?

I know how to wave. Yeah, yeah. Ben had two sets of translators with him on stage in Italy. Incredible. All right, Art Hogan. Thank you. Art, where do we find out more of your thoughts?

Do you have like a blog or do you have an email distribution list? What do people do if they want to learn more? Yeah, so I've got... LinkedIn? Yeah, I'm on LinkedIn often. I'm on Twitter all the time. OK, so I've got a Twitter handle in there. What's your Twitter handle in there.

What's your Twitter handle? It's Arthur Hogan with three I's. Are you Arthur Hogan the third? Yeah, I am. My son's Arthur Hogan the fourth, and my wife, the second he was born, was like, yes, we can name him after you. But Arthur's kind of a weird name,

so we're gonna call him by his middle name. What's the middle name? Rush. All right, attaboy. Love that. All right, Art, you're a long time coming. We've been huge fans of yours forever. I've been waiting for this show. I'm so glad we finally made it happen. Thank you so much. Thank you for all that you do. We appreciate it. Hey,

everybody. Thanks for listening. Make sure to leave us a rating and review. They go a long way. We appreciate you and we'll see you soon. All right, take us out. Thanks Art. All right, you feel warmed up? You want to get into it for real now? I couldn't look at you for a week. Why? Because I knew you were going to do something to make me spit out my waters.

So last week on the Turd Ferguson, I spit on my keyboard at home watching.