The Compound and Friends - The Year Everyone Got Wrong

Episode Date: August 18, 2023

On episode 106 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Eric Balchunas and Jeremy Schwartz to discuss: the magnificent seven, the bond market, defined outcome ETFs, inflation, the spot bitcoin ETF saga, and much more! Thanks to Kraneshares for sponsoring this episode. Register for the China Internet Triple Feature webinar at: https://kraneshares.com/webinars/china_internet_triple_feature_kweb_cweb_klip/ Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Dude, what's going on with you? Not much, man. You already making excuses? You're not coming to Future Proof? Well, Katie Greifeld's on vacation. Show business must go on. All the weeks that she could have picked. I don't know. Tell them to pick Future Proof.

Where is she going? Anywhere good? I don't know. You're gonna find out it's like Jersey Shore or something. So wait, the show must go on? What happens if you both are out? What? Big battery. What do they do? We've never both been out.

But this is... Matt Miller can... Matt Miller's also there. So we can get Shonali to fill in sometimes. So do that. So you can't get them to broadcast from Future Proof? Yeah, you can't broadcast from Future Proof. Yeah, why aren't they broadcasting from Future Proof?

I think it's because it's the CNBC broadcasting. So what? No. Bloomberg's just as good. I think that usually is an issue. Come on. I don't know. I got to talk to Barry.

Barry, talk to the producers. Oh, well, there's your first problem. What do you talk about? The weather? No. How aerodynamic the new 787 is? Do you have a hat that's not white? There's no way that was a productive conversation.

Listen, Eric. Oh, we got two Philly guys in here. You're out of your f***ing mind. What? You. Why? If you think that... Listen, I understand as a sports fan

that you're annoyed with Joel Embiid's metabolism or whatever you want to call it. His fitness. Metabolism? I don't know if I said metabolism. His heart. His want to call it. His fitness. Metabolism? I don't know if I said metabolism. His heart. His heart. His conditioning.

His conditioning. That's what I was looking for. Stop body shaming Joel Embiid. He is not the problem. He was the MVP last year. He's one of the best five players in the NBA. I get your frustration with game seven. Yeah.

But, come on, man. It's deeper than that. It's culture. He's the problem? The culture is the problem. So he's part of why you get to the playoffs, no doubt. Is that the goal? Year after year, we get to the second round, and he just peters out.

If you watch the tape, he's lagging up and down the court. He's not really running. And this is the first year I'll agree. This is the first year that he was actually in reasonable shape, at least for the regular season. Yeah. He wore down in the playoffs, but he's not that bad. And then I would go ask him.

It started from the tip-off, though, of the last game. You could see they had no heart in the last game. Yeah. You guys are going to miss him when he's gone. When Embiid shows, a lot of times you can tell in like two seconds, you're like, oh my God, this is like lazy Embiid. We're screwed. And it always comes up at the worst times.

I would say about the Vikings, Kirk Cousins is going to turn into Kirk Cousins at the worst possible time. And Bede has a little of that gene where he's really good regular season. That's a good point. Listen, I'm only partially busting your chops because I agree.

If I was a Sixers fan, I'd be annoyed too. But you're going to miss him when he's gone. If he leaves. Here's your problem, though. Look what he's witnessed. They probably every year have to promise him, no, we're not going to squander your prime. We're going to do the right move.

It's always a trick. And he also had Doc Rivers. No offense. It's always a trick. And then the whole— No offense to Doc, but how many— I mean, he's not the best playoff coach. The underlying ethos of the organization is let's lose so badly that we almost have to win.

It's not a culture of let's win. It's a culture of let's skillfully lose. Well, it was. And pick up— That was the process. Okay, but that's what he came of let's win. It's a culture of let's skillfully lose. Well, it was. That was the process. Okay, but that's what he came into the organization witnessing. Who got us rid of Butler? I mean, Butler's heart is where— Who was that?

Butler couldn't stand it. Wait, was that Elton Brand? The GM that moved out? Tobias Harris over me? Yeah, no. Come on. When that happened, I was irate on Twitter. Oh, was it Colangelo?

You can go back and look at my old tweets. Who was that? Who chose? Who was the GM? Was it Colangelo or Elton Brand? Sam, what's his name? No, Prosty was gone. He was gone?

It was more complicated than that. I think they also had to, it was like Simmons was in the equation. And they had, the front office just thought Simmons was going to be the guy and Butler came in and Simmons, but I think there was an issue because Butler on a team text once said like, hey, Ben, you're going to have to do this and that. And Ben went and cried to Bruce Brown, the coach, about, oh, what's he doing talking to me like this?

And in the end, we know that Butler is the alpha male of that team and should have been. And Embiid loved Butler. They played well off because Butler – They would have won together. Yeah, because Butler is the guy who – You're telling me they moved Butler to invest in Ben Simmons?

Hinky was a process guy, not Preston. One quick thing on that year when we had Butler, we went right to the final shot with Kawhi and the Raptors. That was tough. But they went on and won it. In a way, we were that close to being the best team. No.

Well, no. Because we lost in game seven. No, because the Raptors would not have beat the Warriors if Durant's Achilles didn't blow up. His Achilles would have blown up against us. I'm just saying, all else equal. Wait, the Raptors had a series against Philadelphia? No, they played the Warriors when Durant's ankle blew up.

No, no, no. To get there, though. Oh, yeah. To get out of the East. The three-pointer in the corner. Yeah, Van— Right. The shot. And Van Vliet was hitting, like pointer in the corner when Kawhi went Right. The shot.

And Van Vliet was hitting like threes over your That's that guy. That guy is like a paper cut. Every time Van Vliet hits a three. He's big game. But in that series there were times when

Butler would get up in Embiid's grill. And nobody does that now. Oh. PJ Tucker. LOL. He kind of did that one game. but are we doing are we really doing this for real what it's bad for youtube the sunglasses duncan did you explain this to him

or not i i did oh this is he's with me now i'm asking you nicely i'm not making you do it i can't make you do it you're a grown man it's it's bad for the team this is about the culture of this organization when people see a ben organization. When people see a- I'm Ben Simmons. When people see a YouTube thumbnail- You're the Ben Simmons of riddles. And one of the participants- He doesn't respect data.

Is wearing sunglasses. You don't respect data. Hang on. You don't respect data. One of those people is wearing sunglasses. The assumption is these guys are joking around. Or I don't want to watch this because I can't see the person's eyes. You don't respect data.

What do you mean I don't want to watch this because I can't see the person's eyes. You don't respect data. What do you mean I don't respect data? Three out of the five best performing clips on YouTube had me in thumbnails with sunglasses. What happened to the other two? They were lower. Listen, it's a fail. You got to lose the glasses. Trust me. No, no, but I'm going to do it.

All right, I'll put mine on. Thank you. I appreciate it. Guys, what do you think? For the culture. For the culture of this organization. Growing it out. Growing it out.

Do you have any more? Are you? I don't hate it. No. Like a year ago, I did culture. For the culture of this organization. Growing it out. Growing it out. Do you have any more hair? Are you? I don't hate it. No. Like a year ago, I did this. And Robin goes, are you growing your hair out? No, she air-quoted you.

No, I have to shave. It's too much. At least give it a go. Let's see what it looks like. Oh, my God! All right, try it. I'm so pathetic. I have nothing going on.

Just go full Larry David. I can't. Too young. All right, so you're not coming. We're going to talk about you, though, while we're there. In spirit. He'll be there on Twitter. Not bad of you.

There's a bunch of Bloomberg people going on, I think. Who's going? You have Joe and Tracy doing the podcast. Love them. They're actually better than you in many ways. Who's going? You have Joe and Tracy doing the podcast. Love them. They're actually better than you in many ways. Who else? Big hair.

Who else? Tom Keen? No, no, no. Somebody from news is going, I think. Okay. There's going to be breaking news.

And you might have an index person going? Index person? I think so the last time you were on was April 2022 that was a long time ago the last what

you were on here in April 2022 I was at what you were on here oh on here yeah you were on the show on here

save us click that thing April 2022 alright I was here before once again I think I was here

that's when your book came out. No, but you had me when I was mid-writing it, and then you had me back when it came out. Hey, John, what episode is this? Josh, Come On and Friends, episode 106. How are we doing? How are we doing? Welcome to The Compound and Friends.

All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's show is brought to you by Craneshare. Craneshare will be hosting a webinar on August 30th, the China Internet Triple Feature. Ten years ago, Craneshare launched the Craneshare's CSI China Internet ETF.

The ticker for that is KWeb. To offer investors exposure to China's dynamic and growing internet sector, join Craneshare CIO Brendan Ahern, their COO Jonathan Shallon, and special guest Edward Agulinski, who is the managing director and head of distribution and alternative direction as they discuss potential China catalysts in the internet sector and their market update. To learn more, visit the link in the show notes. Again, that's August 30th. Let's go. Let's go. This is going to be an amazing show. You ready for this?

Wait. Put the hat forward. All right. Hey, everybody. Welcome to The Compound and Friends, episode 106. I'm your host, downtown Josh Brown, here as always with my co-host, Michael Batnick. Hello, hello.

We got a full house here today. John's here. Duncan's here. Nicole's here. Rob is here. Rob, your guest is here. Can we's here. Duncan's here. Nicole's here. Rob is here. Rob, your guest is here. Can we say her name? Can we give her a shout out?

Sure. We can? Yeah. What's that? Jillian. No, no, no. I know, but can we? Okay.

Rob's daughter Jillian is here. How old are you? Okay. We use explicit language on the show. It's okay? All right. Nicole's 20. Not very explicit.

Four. No, Nicole's used to it. Nicole's used to it. All right. Welcome to the show, everybody. We have two very special guests, fan favorites on The Compound. They've been here before. They always crush it. They always have so many interesting things to share with us all. I've been looking forward to this show for a long time. Let's start with, let's start in alphabetical order. Eric Balchunas is a senior ETF analyst for Bloomberg. He is the author of the Institutional ETF Toolbox. He wrote a book called The Bogle Effect more recently.

How'd that do? Better than the first book. All right. Pretty good. That's progress. Healthy. All right. But you probably know him as the co-host of Trillions, which is one of my favorite investing

podcasts, and ETF IQ. You've probably seen him on Bloomberg Television. Eric, welcome back to the show. So good to see you again. Great to be here. Awesome, man. And Jeremy Schwartz is here. Jeremy is the CIO of WisdomTree and leads the investment strategy team in index construction.

of Wisdom Tree and leads the investment strategy team in index construction. Jeremy was Professor Jeremy Siegel's research assistant and co-authored the sixth edition of legendary book, Stocks for the Long Run. That was nice. During the intro, no less. Stocks for the Long Run. I can't edit it out when it's during the intro. Jeremy, welcome to the show. Josh, thanks for having me.

So great to have you. Wait, wait. I want to say one thing. Say whatever you want. It's your show. Can we start with the future-proof thing, which Eric is not coming to, but he will next year. He promised. Jeremy will be there.

So I don't know if we're allowed to reveal how many people are coming. Well, I guess we're about to. No, let's not do it. I don't want to do it. Just in case. Peer pressure Eric here. Can we do? Okay. Matt just said, numbers are good. We can be transparent. I don't want to do it. Just in case. Peer pressure Eric here. Can we do it? Okay.

Matt just said, numbers are good. We can be transparent. Matt just texted me. All right. So we've got like 2,400 people registered. What's up? For the event.

And we closed registration, I think two days ago. And inboxes blew up with people that are like trying to get last minute tickets. So we are extending it. You go to advisor circle, futureproof.advisorcircle.com. But it's not going to be open forever.

Plus the events in like a couple of weeks. I don't know why we're extending it. Like 2,400 is a lot of people. And I also thought we were pretty explicit with the date, but I have been promoting this thing like relentlessly for 10 months. So if you want to come, you could still come, but come,

come. We do want, I'm just kidding. We do want our late registries, but you want to come, you could still come. All right, come. No, we do want, I'm just kidding. We do want our late registries, but you have to wear a special hat and everyone will know that you snoozed and you almost lost. It was a very unique conference. Unique and Sunday night is a kickoff

or Sunday's a kickoff and Sunday night, New York Giants, Dallas Cowboys. We have no hotel rooms left though. So you will be sharing a room with Michael Batnick. So that's going to be part of late registration. All right. I want to let you cook here for a minute. You did a really good blog post.

Oh, thank you. Guys, we're going to go through some of Michael's charts to start things off. Because I think if you ask me in the future, what was 2023 like in the markets or the economy, I'm going to say this is the year everyone was wrong. Not over yet, but yes. Not over yet, but so far.

Michael did a post called Spectacularly Wrong. John, do we have this loaded up? All right. So coming into the year, this has been the theme of the year. Coming into the year, 60% of economists surveyed by the Wall Street Journal were expecting a recession. 60% of economists surveyed by the Wall Street Journal were expecting a recession. You know what the AI, American Association of Individual Investors, super bearish. Asset managers, hedge fund managers, CFOs, recessions on every conference call, super bearish.

Google searches. Everything. Yeah. Everything. Hard landing, everything. It was not good. And then we got just an incredible growth. Wait, go back. Just an incredible, you know, that chart's stale. So my bad, that chart shouldn't be in there.

Okay. But so the Atlanta Fed does this thing, GDP Now, which we spoke about last week with Bob Elliott. It's completely subjective. There are macro inputs. There's no human interference whatsoever. The model is only as good as the inputs, but point being that it's objective. They're now forecasting 5.8% real GDP growth for the third quarter. If I told you- That's nuts, by the way. That there was going to be 500 basis points of rate hikes,

and not only would the economy swallow it and not slow down, but it would re-accelerate and that the stock market would be higher a year and a half later from the time they started that historic interest rate hike. And oh, by the way, that home prices would be up. You wouldn't believe any of those things. You would say, dude, what are you, what are you, you're, you know what mind? And here we are. And here we are. So this is good timing because we're going to transition to, well, uh-oh, that was the first half of the year.

Are we, are we getting some 2022 deja vu? But before we get there, just your guys' thoughts on the impossible happening. From a macro perspective, you know, it's interesting. I tried to get Professor Siegel to debate Warren Mosler on our show, and Siegel wouldn't have any of it. But Mosler's been one of these guys who say, you raise interest rates, and it's actually stimulative for the market because all of a sudden you get all these income coming into people's pockets.

And hey, we all refinance our houses at lower rates. When was he saying that from? This was earlier this year. Okay. But we all refinance our houses at lower rates. And so people- Where was he saying that from? This was earlier this year. Okay. But he's been saying it for a long time. These are the standard MMT kind of arguments that- It's crazy that in the context of people having a lot of cash,

actually higher rates could be stimulus. It is. And I mean, that's partly why the consumer is so on fire. Well, it makes no sense. What caused the inflation that's partly why the consumer is so on fire. It makes no sense. What caused the inflation is also pushing off the recession, which is all of the stimulus. So there's a few things on that GDP now that you talked about, the 5.8% from right now.

Last year was one of the most disastrous numbers for productivity in terms of we hired all these workers, but they wasn't showing up in sort of GDP growth we hired all these workers, but they, they wasn't showing up in sort of GDP growth, like very subpar GDP growth. This year, you're not hiring as many and you're seeing actually very good GDP growth. And you, that was our hope coming into this year that we could actually have declining employment and productivity would offset it. But you actually haven't seen the declining employment. You have, you haven't really seen the pain of those higher rates. I was going to ask you, can you remember a time

where 60% of economists were predicting a recession? I mean, ever? People are usually too bullish. You and I are roughly the same age. I don't think I've ever seen that. Yeah.

Okay. But it wasn't just that they were wrong. The economy is- The degree to which they were. It's re-accelerating. I don't know. What do you think about what's gone on this year?

I mean is it – do we throw everything out that we look at to try to understand what's about to happen? Well, I mean I think a lot of this revolves around the Fed, at least in the markets. I think if the perception is the Fed's almost done or done, that's what sort of gave the markets a lot of lift. And then you see now that good numbers come in, the market goes back down. So we're in that good news, bad news thing as usual, because once again, like the Fed is God and we all just have to revolve around it. So bad news will be good news. Good news will be bad news. And so I was shocked that the Q's and spy and stuff are up so much. I mean, the Q's in particular is up 36% and SPY is up 15%.

You're only supposed to get about 9% a year. So I think any little thing— But you very rarely get 9%. Right. Well, over time, you average it. Yeah, yeah. That's what I expect as an investor. That's right.

I'll take up, down, but just give me 9% a year. You got negative 30 in the NASDAQ last year and plus 36% this year, which explains how we're not even back to where we began this whole thing. But yeah, I mean, they took it away and they gave almost all of it back. This is why I'm glad I'm a buy and hold passive investor. Because it just doesn't matter to me. I mean, I'm in it anyway. But if you're trying to trade around this, you probably have to take Xanax because everything is probably the opposite of what you thought. I know a lot of the market calls from the sell side were off drastically. It's just very difficult to figure all this stuff out. And if the market's going to play off of the news cycle and good news

is bad and bad is good, you know, until I guess the Fed just stops doing what they do, we're going to be in this situation for a while. So right now, I think the word is, and Jeremy studies this way more than I do, but maybe we're not done. Maybe because the economy is so good, inflation isn't over. And so that's what's causing the sell-off. It's all about expectations. John, if you don't mind, grab this inflation expectations chart. One of the reasons that stocks have done so well this year is because inflation has come down. And now the problem is the market, as we said, like you can have all the news and you might not necessarily know what's going to happen with prices because it's not just the news. It's embedded expectations that you only find out after you get the news, right?

So now you've got, this is a global fund manager survey from Bank of America, you've got, this is a global fund manager survey from Bank of America, the net of respondents that are expecting a higher global CPI. And it's basically zero. It's negative 100, meaning like none of them are expecting inflation to come in higher. That's the opposite of 2022, right? Where everybody was expecting inflation to ramp up. So now everybody's expecting inflation to continue to cool off. But when you're getting the economy re-accelerating and 30-year yields and real yields are responding to that, now we're in this weird situation where, holy shit, the economy's too good. The Fed has to go more,

and that's not good for asset prices. And yields are going to compress valuations. And here we are again. Well, that was my point on productivity, that if the economy is doing well because people are very productive, they don't need to get overly concerned about that being inflationary.

It's real wages being offset by productivity growth is not the real concern for the Fed. So that if it really is just a rebound from last year being disastrous, we heard all these people, what the hell are they doing? Working from home, playing on their phones to now they're actually showing up.

And now we people think AI is going to take it to a whole nother level. That's the whole question for the markets. Is it justified? Like another boost in productivity or another boost in layoffs? What is AI? Will it make people more productive? Right.

And we have too much constraints in the labor force. You've sort of seen a structural downshift in the amount of people working, COVID accelerating some of that, the aging population. Let me tell you how people use AI today in practice in the workplace. They assign the AI to chatbot. They assign it to write something. The thing writes something. They read through three paragraphs.

Oh, it's pretty good. And then they take it and they put it in a Google search box. And then Google turns up all the instances that the chatbot got wrong. And then they delete it and they actually do their f***ing work. So that's how AI is being currently used in the workplace. So that's not forever. I don't think we're in a place where all of a sudden we're going to get this AI dividend in the form of increased worker productivity just because the tools are not that impressive. And it happens pretty slowly.

This stuff is very gradual. But AI became the news cycle for after that three-minute earnings. Is this video tonight? Next week. But that is the risk for the market. The market sort of got this real acceleration. Last year, it was traded on the rates, and rates were bad for tech. This year, it got that AI story.

All the big tech stocks, yeah. But you see the ARK stocks are getting destroyed right now. So are we about – is the second half of 23 going to look like 22? You want to say who felt the pain of the bond market? I think the only place I've really seen the evidence of the pain of these much higher rates is the startup firms who needed to raise capital, who are money-losing companies. Not profitable tech. Yes.

Well, it's another part of the market. Well, but that even beat the cues in the first half of this year. What, the ARK stocks did? Yeah, ARK's up like 65%. No, no, I just think if the Fed is chill, people want high growth stocks. They want to really dream big, go into the future.

That's a growth environment. When the Fed gets hawkish, everything goes back to value and sort of fundamentals. But I think the calendar plays tricks on us. If you do like year to date, how did the holdings in ARK do? So the reason why they all went up 100% is because they were all down 80% in 2022. So the starting point was there's nobody left to do tax loss harvesting by selling those stocks. Well, I'm only saying that they did go up though, as opposed to, well, if rates are still, they're still high. It's not like they went down this year. Well, what, why would ARK then go up

at all? Because those stocks that, well, first of all, I think she went down so much. First of all, I think she got more, I think she got more conservative. Which is why I think it's going to come down now because they went up too much. But I think that that portfolio itself went larger cap and less unprofitable companies than it had been in 2021. So, you know, remember, it's not an index. When we're talking about quote-unquote ARK stocks, active portfolio, she's buying and selling. She might have just picked better stocks. Yeah. You know, the thing about ARK that's interesting is it is, you know, some of these names in here, Tesla, Roku, Coinbase, Zoom, Block.

I mean these are pretty well-known companies. I mean – and she's had a lot of these for a while. Some – like Coinbase has been a weighting that's gone up. Tesla has been there the whole time. But it's interesting. One of the reasons ARK has been able to survive an 80% drawdown – and we write about this all the time. There's many reasons. But one is people can depend on her so they can trade it so if you think the fed's going to go dovish maybe buy some arc because it's going to go up the most because

that's high baited it's high baited dovish fed she's right she's going to do her but she's active but she stays in her lane right she's like a beta to like high high growth if like if the cues are like neptune she's like pluto right she's like one step further than the cues in growthiness. She's not going to, you're not going to see that lane. She doesn't leave that lane. Yeah, exactly. The opposite end of the spectrum that, that higher rates are hurting is, is, is our dividend stocks. So bespoke tweeted this through August 11th. So about a week old, the 101 non-dividend payers in the S and P non-dividend payers in the S&P, non-dividend payers, are up 20% year to date. The 100 highest yielders in the index are down an average of 3.5%. Now, maybe that's circular, right? They're the highest yielding because they're down. But still, point being, you don't

need to reach for Pepsi's 3.2% yield or whatever it is when you could get 5.5% in six-month bills. It's interesting. That's what you would think is the story. But you also think when people start thinking, last year, the growth self was driven by, hey, these higher rates are going to pressure the furthest out multiples. You want low-duration stocks. So if you want low-duration bonds, you want low-duration stocks.

High-duration stocks are the lowest duration. And low durations worked, right? And so you have more of the cash flows today than the much further out cash flows. But that also was trading on, at the first part of the year, fears of the recession. Now, when you have slower growth, it hurts people who have very low multiples because the earnings today will get hurt, but nobody's earnings fear. 30 times earnings or far out earnings don't matter if you have a recession right now. So the recession fears hurt some of the value. A lot of it was energy stocks also, which were in a pain to start the year, but doing better recently. I think one of the most interesting things that happened this year is that housing stocks like REITs had a horrific year.

They're just hammered. And the sentiment around that sector is crushed. Utilities too. This makes perfect sense. If you can earn more money in a six-month T-bill or a three-year bond, why would you be in a utility equity? And they didn't start the year off cheap. But what didn't get hurt is the housing market and new homes. So the existing home sales were frozen to some extent. That's a mortgage rate story more than anything else. Not to some extent, totally frozen. Totally frozen. But new home buildings on fire. And actually, New York Times this week

wanted to get you guys' take on this. The right thing to do this year, in hindsight, of course, is to completely ignore mortgage rates and focus on supply. And if you did that, you got it right. And these are some of the best performing stocks in the whole market. Why Wall Street is gung-ho in the housing market. This is today. Andrew R. Sorkin wrote this with a couple of other reporters. But basically, you can't have a recession with new home building and new home sales on fire. Those two things do not happen at the same time, along with a very tight labor market. That was really the best story of this year. And almost everyone, myself included, missed it. I mean, you think about the cost of a house

up 40% prior to the pandemic and mortgage rates so that the cost of a new buyer is up three times. Like your mortgage cost is ridiculous. But I remember you've had Tom Leon a number of times. I remember talking to him a few years ago saying there's this huge demographic tailwind for housing for the next decade. Like, that this is a structural shortage of housing and that it's going to be positive. Now, you would have thought higher rates were going to impact this in some ways, but it hasn't. This is the Times. It's bank rate data. The average rate for a new 30-year mortgage is 7.31% this week. That is a doubling from the Fed's first

rate hike in March 22. A typical homebuyer's monthly mortgage payout just topped $2,600 last week. And then that's a debt level that's dividing Wall Street. So about half the people think that's going to lead to ruin. And another half just are looking at how tight the market is. And I guess we'll find out, but that's a big change. You got Buffett buying three builders. You saw he, on his latest 13F, he added three more. He bought D.R. Horton and Lenar. So these companies were in such a position of strength that they were subsidizing a lot of the mortgages for the buyers.

Well, I don't know if it's, if we're at the tipping point or if it's just because the market is down. Homebuilders are getting destroyed today. They're down like 4.5%. It's probably their first or second worst day in a year. Like maybe there is a tipping point where it's like, all right, I mean, at some point. 7.25 is probably that tipping point.

Maybe that's it. We'll know in, I mean, at some point- 7.25 is probably that tipping point. Maybe that's it. Like, we'll know in hindsight, oh, that was the magic number. So in 2022, which was the nightmare scenario for most passive investors who are relying on their bonds to buffer the downside. Well, LOL, the downside in bonds dragged down stocks, right? Higher rates dragged down stocks. And the nightmare scenario is, are we about to go into that again? And what I would say is, well, first of all, the S&P was up 80% year to date. We are barely in a

5% drawdown. Relax, right? Breathe. And the second part is you have a lot more cushion in your bonds today than you did a year ago. When rates went from zero to five, there was no safety net, right? There was no 5% yield to catch up for the 10% decline in price or whatever it was. So with the duration of, of, of the ag around, I don't know what Jeremy was like six or five, six, five and a six, six and a half. So, so if we, so if rates rise a percent across the board, then this thing will decline six percent, whatever the duration is that that'll be the decline in price for 1% move in rates. But you've got that, you've got the 5 plus percent income.

So if you're like worrying about that nightmare scenario repeating itself, not saying that rates can't go higher and it can't get bad, but at least you've got the income now. Last year, you didn't have that. You didn't have it. You just had the losses.

You just had the losses. Yeah, that's a good point. To start 2021, your yield on the 10-year bond was 1.5. And duration was what? At start 2021, your yield on the 10-year bond was 1.5. And the ratio was what? At 9. 9?

9 on a 10-year bond. And so at 1.5, 100 basis point move was a 7% loss. From where you are today, 100 basis point move in the 10 years, only a 3% loss. I'm not sure we're going to go from 4.4 to 5.4. Of course, you can. That would just be uninverted yield curve. But if you went from, you still have a positive return. If rates went up another 50 basis points

back to start 2021, you'd have been down 2.5%. You go up 50 basis points now in the 10-year and still have a positive return. Now, your benchmark in that is cash, which could give you 5.5 if you didn't take any duration risk. So, but-

It's a much different environment. Eric, we're seeing huge flows into bond ETFs. What are some of the nuances there that maybe beyond the headlines headlines people don't understand? One of our big themes is what you're talking about. We call it the FOMO drought. It lasted up until about Memorial Day. So for five months of this year—

Wait, explain that. Unpack that for us. The FOMO drought, right? So basically, if you can get 5% in a money market fund, people were like, oh, I'll just take that. And so the stock market— Oh, you don't care if the stock market runs away with that. Yes. It used to be TINA, right? There is no alternative to equities. My manager, Gina Martin-Adams, has TARA. There is a reasonable alternative now. So stocks now

have to compete with this other stuff, right? You like that? I do. Okay. TARA is the new TINA. TARA, T-A-R-A? Yeah. That's my daughter's name. I love it. Okay, there you go. Okay, go on.

So people were like, oh, I'll just take my 5% and money market funds grew by half a trillion. I mean, we were shocked. This is actually mutual funds have outflowed ETFs because of that, which is weird, right? Wait, wait, hold on, slow down. What do you mean? Mutual, if you conclude money market mutual funds,

they've taken in more than ETFs in total. Money market funds are a big deal. That never happens. ETFs have more inflows than mutual funds are a big deal. And that never happens. ETFs have more inflows than mutual funds every year for the last 15 years. Yes. Yeah, we wrote a note saying,

you know, mutual funds aren't dead yet. Mutual funds are back as long as it's a money market. Basically, everything else is bleeding. By the way, ETFs are still better. Our floating rate treasury is now a $17 billion fund. I know, but there's so many people

like that $1 NAV. I think it's overrated, but there's a lot of institutions who want that $1 NAV. Anyway, so people are stuck with the – they want the 5% in the cash. Can we double-click on that? I appreciate you saying this. I'm in a fight with Sprinkles for six months now. I bought SHY.

We have a joint account sitting at Fidelity. I bought SHY. She's like, you should have been in NVIDIA. Immediately, it's down 2.5%. and it's real money. So it looks worse than two and a half percent. And I'm trying to explain to her as bonds in SHY mature, it will buy new bonds with that money that will be yielding higher. That sounds like a great conversation. She's like, okay, asshole. But I bought the highest paying money market fund, and it never loses money.

It's a dollar every day. She's like, I thought you knew something. She said, I thought you had this inside thing that you knew. Well, Shy does have a little duration, though. I mean, Shy is, I think, two years. SHV is— Well, it's supposed to be one to three. Yeah.

But she just bought the default Fidelity institutional. So now she's like, do you— What are you even— She had a carry trade on you, too. She's getting higher yields with the inverted curve. She didn't lose any money. I mean, I can't even argue because I'm trying to explain the roll-off and the reinvest. But it doesn't matter.

Every day, that piece of shit SHY ticks down another penny. And every day, her money market fund is just a dollar. Like a nuclear bomb could hit the side of the building that money market is managed in, and it'll be a dollar. And I have to explain SHY to her literally every day. She's probably paying a higher fee, though. At least there's that. Ooh.

I didn't think about that. Money market mutual funds are not cheap. Like Fidelity charges like 35, 50 basis points. I mean, Vanguard's is like 10. Pause the show. I got a phone call to make. Do you have it on a – Do you have it on a dividend reinvestment too?

Are you buying more shares? Honestly, I have a gun in my mouth right now. I can't even – You would not believe the amount of times I've had to try to explain the same thing, and I sound worse every time I do it. All right, keep going. The money market – and we wrote about the money market mutual funds this year and like got, my readership is down heavily

because like no one wants to, it's so boring. Yeah. So, cause my man, we were talking about why my readership dropped off. I published more. It's because we're already got money market mutual funds and rates. Don't wear sunglasses and stop talking about money market funds. So, but anyway, the short-term treasury ETFs like Shai and SAV, they did well too. Not as well as money marketing. They took in a lot of money. Yeah. So that whole area took in a ton of money. And so equities start rallying and they're up 10%, 12%, and there's no money going into them.

So we were like, it's weird. It's like a FOMO drought. Even the Bitcoin miner stocks, they're up like 100%. No one cares. Because you can get the money here now when the stocks go up to 20, 30. The call options volume exploded. Wait, Eric, did you see an uptick in flows as the stock market rallied harder? Yes, around May.

Okay. People finally couldn't take it. They're like 5% is good, but you know what's better? 20. 15%. Yeah. So stocks had to work harder for the money and they probably will for the foreseeable future. So, which is probably good. You know, for a, it was just like there was nothing else to do.

It's great. It's amazing. Except if August turns out – except if July 31st turns out to be the top of the year, just in time for everyone to start buying SPY and QQQ again in June and July. And there is a contingent of investors who think the system is rigged against them. So in equities, the new move now is to buy mid-caps or equal weight. Why? Because people think the Super 7

have way dominated the stock market. And so they are worried that that's long in the tooth. Ah, that's interesting. That's true. Because, listen to stats. You're seeing flows into mid-cap? Yeah, mid-cap and equal weighted have way outperformed in flows

because people want exposure to equities, but they don't want that mid-cap to dominate. Listen to this stat. You guys love this. The Super 7 stocks or the Magnificent 7, whatever you want to call them, they make up 25% of the S&P 500, but they've accounted for 75% of its return year to date.

Really? Yeah. James Seifert pulled that up. I got even props for that, but that's why people are like rotating now into equal weight and mid caps because they want the equity exposure, but they don't want the super seven to dominate because how much more can they go up? Yeah. Uh, so Elizabeth Banks was right. She was just early. Remember that? That is a deep reference. I like that. Yes. I mean,

there's 10 people listening to this that are like, yeah, it's rich for them. 2019. No, it was earlier than that.

How about I just tell you exactly? By the way, Apple's underperforming S&P over the last year. October 2019. No way. I'm telling you. Yeah.

You go back to 20-year history. No way. It was early. We were at Fusion. Michael. I'm telling you. Yeah. CNN. You go back to 20-year history. No way. It was early. We were at Fusion. Michael. I know. The equal weight is – hey, man, you can't – don't knock on that.

But I will say it is very much like a mid-cap. That's when she started. Pretty similarly. Is that Phil? No. No, it is. Sorry. Whatever.

Sorry, guys. Paul LaMonica. One of the things on – it's interesting. Usually, you talk about performance chasing. People like to chase performance, and this is the year where equal weighting is lagging because of that sort of large cap bias, the Magnuson 7. But I think the multiple story, when you think about where is the market expensive, you're at sort of 21 times forward earnings on the S&P cap weighted. expensive. You're at 21 times forward earnings on the S&P cap-weighted. The equal weight, by

just going from weight to equal, from cap to equal, you lose four points on multiples because you're going away from those highest multiple stocks. It's a 16 multiple? I've showed it's a little bit below 17 on a forward basis. Okay, so much better deal.

They're just not going to perform because they're going against Apple and Amazon and Microsoft. I will say, I know you guys have models, but I talk to the BlackRock model people sometimes, and they do try to get ahead of this stuff. And so when they trade, and we can see it in the flows, usually a gigantic flow, they went into IJH. For what?

Like their ETF model portfolios? Yeah, because they use their own ETFs. And when they move, because I think their model's like $100 billion, the flow is like, boom. It's like off the charts. So what are they doing? They're doing smaller cap or mid cap? Mid cap. But you know what's interesting? That's their big trade for the second half. Within fixed income ETFs, the largest net flows, and Eric, I think this is your chart, you break it down in terms of where the fund was at the beginning of the year versus where it is today, 56% of the total assets that are in TLT, which is $27 billion,

and that's almost as long a duration fixed income products you could have other than the zeros, 56% of the money in the fund came in in 2023, and that thing's getting smoked. Yeah. And that's an astounding number, 56%, considering it's got over 10. How big it is? Yes. 56% in a small fund, no biggie. But this one, it's really big. I mean, and then we got, yeah. I mean, a lot of treasury ETFs punched way above their weight, especially on the short and ultra short side. Again, because, you know, why not? You get a lot of yield for very little risk. So floating rate too. iShares is a floating rate product. Jeremy, you know, why not? You get a lot of yield for very little risk. So floating rate too. iShares is a floating rate product. Jeremy, you guys have a floating rate product.

Floating rate is basically all credit risk. I mean, to see us on this list, first of all… Oh, look, there you are. Look at the top 10. Look at the top 10, man. Look at the top 10. I love floating rates right there. Wait, you guys got $4.4 billion into the floating rate fund?

This is floating rate… How much was in that two years ago? This is floating rate treasuries. So there's no credit risk. People didn't even know it existed. We were able to launch this the day the treasury first started issuing this in 2014.

So it's less than 10 years old. It's the shortest duration treasury in the market because the rates reset every week. So the duration is one week. There's two ETFs that do it. It's us and BlackRock. And we both launched the same day. Same day, same fee.

We had $2 billion in this a few years ago. Did you have Elizabeth Banks or they did? We have $17 billion today. $17.5 billion. By the way, you added $4.4 billion in flows this year. It's a $13 billion up. But mechanically, what does it do? Buying treasuries. We added $4.4 billion in flows this year. Yeah. It's a $13 billion. To start there.

But mechanically, what does it do? Buying treasuries. We have basically, I mean, it's four treasury bonds in our portfolio. These are specific types of treasury bonds that float? The rates reset every week tied to the weekly T-bill auction. Did you even know this? No, I just hadn't heard of this. Where is your f***ing wholesaler?

We don't know. We don't even know the success. You guys open to wholesaler calls? Who covers us? You should have bought that instead of SHY. We could have gone to Koi. And then we could have bought, wait, Eric, what were you about to say? You're about to drop it back. I was just going to give Jeremy a compliment because we've studied wisdom tree. And when you have a monster hit, like the currency hedging thing that kind of like comes and goes, it's sometimes hard to recover from that, but they've done a really good job of

lining themselves up for a future that isn't just based on currency hedge. Like they've, they really hustle. A lot of hustle points with this company. If you had to compare Whismetree to a band from the 90s. Ooh. I did this once. I actually compared ETF to bands. Yeah, I did. It has to be a band with longevity, right?

I think I used Radiohead for them because they sort of invented smart beta they're like in the lab a lot their stuff is very like even their currency hedged

it wasn't just hedged they look for exporting companies like there's always a little something extra in the indexes are they not British yes

oh my god extremely yeah no but none of their albums sound like the previous album except maybe Kid A and Amnesiac

but like other than that there's a that, there's a huge disparity. Each album is like its own era almost. Yeah. Currency hedging is nothing like that. That's right. That's like – that's Kid A. Currency hedging was like Pablo Honey.

All right. So congrats to Wisdom Tree. Can we tell you the other big thing that happened this week was the 10-year hit a 15-year high today, actually. The 30 won't stop. I feel – no, agreed. I feel like the 10-year, though, has a lot of meaning for the stock market. And you can go back to different eras in time where that was like the only thing the stock market was looking at, up or down. It was the lowest – it was the belly of the curve

for most of this year. It had the lowest yield. So it was yielding much less than overnight money and much less than 30-year money. And now it seems to be in a race to catch up. I think what's interesting is where's the sentiment on this?

Which is the more contrarian trade to be long bonds or short bonds? I don't know. Great question. Hold on. We were talking about this last week. JC was telling me commercial speculators have never been more short, meaning more bullish on rates increasing. Hedge fund managers are in the same boat, whereas asset managers are buying long bonds.

But you saw that in his flows. It was a Bloomberg chart. On his flows, you saw the top flows. It was long treasuries, long duration bonds, even more than the floating duration bonds. But he saw that in his flows. If you, on his flows, you saw the top flows was long treasuries, long duration bonds, even more than the floating duration bonds. So it's interesting. Where is the sentiment on this issue? Um, where's the 10 year yield right now? Is it four, four spots? It's four, four, three, but I'm more interested in the 30 because that is like, that to me says like has more implications for how people are thinking about inflation in the economy and higher for longer so our team you know eric mentioned model portfolios our team has

been using the buzzword we'd rather be late to the duration party so we've been underweight duration in all of our model portfolios we had closed the gap but we haven't gone overweight there's been brag there's been some people for the listeners who don't speak bond, average duration in a portfolio or a fund is like when is the – how long dated are the bonds if you look at the whole portfolio? So give people an example of what you mean by being short of duration and being willing to let the party happen before you join it. So like the 10-year bond will have something like a 7 to 8 duration, which means for every 1% move in its rates, that's how much you're – the easy math is a 1% move times the 8% duration gives you like an 8% decline. It's a little bit different than that because you have the yield to offset that you're collecting. But the – so you could be – you think about targeting duration at the very short end of the curve with like the floating rate treasury that has no duration.

Because you're worried about a big move upward in rates. That's why you would shorten your duration. Now, what's weird is usually you get paid to take duration risk. Usually the higher the maturity, 10 years out, you get paid more interest than the short, the note,

so that no interest rate risk. With an inverted yield curve, that gets flipped on its head. Yeah, so you could get more income without taking risk. Now, you're not going to go up if there's a recession and yields fall. You're not going to get any capital gains. But people are happy with the short, just collecting the coupons, collecting the income.

What would cause you to change that posture? I had been saying, as you got above 2% real, which is the tip yield. Which is where we are. We're very close to that. I was saying, when you get to 2%… Real meaning nominal inflation versus... See, the 4-3

bond has basically a real rate, the tips yield, plus this break-even inflation. It's a little bit over 2% inflation. Hold on, just unpack that. So part of the income, part of the rate on a bond is inflation.

Because you can buy these tips bonds, which get an adjustment for the inflation every year, the difference between the tips bond and the nominal bond gives you the break-even inflation. The implied real rate. And depending on your views on the break-even inflation, if you think inflation would be much higher, let's say it's 2.3, which is around what it is today. If you think the next 10 years, inflation would be 3%, you should buy the tips because you're going to get better off. You're going to get an adjustment every year from the inflation adjustment. And so depending on your view on what is inflation versus what's priced in the market. Okay, Jeremy, if you think like most people in the market think that we could have interest

rates around here for the next year, but the next move is lower and inflation will stay somewhat in where it is. But this is what's rocking the market because the chart that we just showed for the fund manager survey expecting higher inflation, it's zero. Everyone is expecting that inflation already peaked. Okay. But real yields are telling you maybe a different story. Well, there's also the survey data. There's the real data and actual data. But I don't feel like it's my alt data because I do have an alt inflation metric than the Fed is watching.

But most people just think that the actual inflation rate from the CPI is going to come down. I think there's a lot of good reasons why that's true. There's a positioning story here too. I want to share this from Peter Bruckvar. He points out it's not just

the US Treasury 10-year where yields are breaking out. It's all over the world.S. Treasury 10-year where yields are breaking out. It's all over the world. And, Jeremy, you could speak to this as a global asset manager. This is Peter. Quote, to highlight again, he likes to repeat himself, the bond sell-off is global and continued overnight in Japan, Australia, South Korea, New Zealand, to name a few. Australia, South Korea, New Zealand, to name a few. Then with yields up across the European region and the US 10-year yield is breaking above

the previous recent high last October, now sits at the highest level since October 07. As of yesterday, bank rate has the national average 30-year mortgage at 7.58%. Everyone got complacent thinking the rate rise move was coming to an end with central bank rate increases near its apex, but forgetting that the sovereign bond unwind also includes the longer end of the curve. And now that the Bank of Japan has joined the tightening party, they have become the last missing piece.

So there's a positioning thing happening here too where it's not just inflation bets. Yeah. It's this unwind that's happening in sovereign bonds everywhere. It's funny. We had Siegel say, does Japan even matter anymore when they change their yield curve control policy? But they have a trillion dollars of treasuries in Japan. And they're sellers when they're changing their policy. And so their 10-year creeped a little bit higher, but they've still been buying bonds. So they're doing it very, very slowly. They still have negative rates at the short end. So to me, one of the reasons why we were late

to that duration party, not adding to long bonds in our model portfolios, was what could cause US rates to go higher was if Japan's yields went from 50 or below to 100 and higher, that could be one of those forces that drags US yields higher because Japan owns a lot of treasuries.

Okay. And so to me, I was waiting to see more of that yield curve control. They still have a long, they still have a lot to do. But just the fact that they're even doing it is interesting or not necessarily? It's, they're the last central bank to do it. Bank of Japan. Yes. I mean, because they still have negative rates.

They did start having some inflation finally after decades of no inflation. Isn't it funny how quickly the narratives change? Hold on. You said they're the last to raise rates. They're still on negative yields. Yeah. Well, isn't Turkey though? Turkey actually lowered rates, right?

Well, EM has been cutting rates. Chile lowered their rates 100 basis points the other day. So Turkey was the best performing ETF last year because all the central banks were raising rates generally. Turkey, they were cutting them and it just jacked up the market. It was like an outlier country. It was weird. I don't know. It still looks good. TUR? Yeah. It's just, I mean, who owns that? It's just a very like, it was just interesting that I was like, what's Turkey doing at the top of the list? So there was a chart for – I can't remember who made this. The number of soft landing mentions on quarterly calls, right?

So it was – in 22, it was all recession. Now it's all soft landing. And the narrative – AI too. The narrative can change very, very quickly from no landing to an economy that's re-accelerating to if we get a stock market correction here, watch how quickly people turn bearish and the recession calls are back. I want to highlight this thing that you shared with us, Jeremy, that you and Siegel have been talking about. Tell us what this San Francisco Fed official shelter work tells you and why this is something we should be paying attention to. It comes back to that, both the housing data we were talking about earlier, as well as, you know, this idea that inflation is coming down.

John, you could pop these. We've been showing a metric of inflation that all it does simply, you know, part of core CPI, 40% is shelter inflation. The official data from the BLS shows 7.8% shelter inflation. The official data from the BLS shows 7.8% shelter inflation is the official numbers, which is what's biasing the official numbers higher. If you use a different measure of shelter inflation

using something like the Case-Shiller real-time data, Zillow rent data, so you can get much more real-time than the way the BLS surveys it. Our number is like less than 1%. If you just do that simple substitution of plugging in a more real-time shelter to CPI, there's literally no inflation. I buy ARK right now.

The headline is zero now. You think we could be in negative inflation? According to the San Francisco Fed is highlighting where shelter can go middle next year. Tell us what we're looking at here. So these are my calculations on the left of what is headline inflation, which is the top chart. You know, the official numbers were like low threes. My number was zero and a half percent

is headline inflation if you substitute real-time housing. Core inflation instead of four seven, which is the official BLS numbers you see, my number is one and a half. And then sort of Schwab did a very similar piece showing just what the blue bars is housing. This is Schwab here.

And the yellow is everything else. So almost at this point, at barring an oil price spike, at this point, virtually all of the inflation is shelter. And more recent shelter numbers away from the BLS are telling us that we're basically,

there's no inflation. So Jeremy, surely the economists inside of the Federal Reserve are able to understand what's going on here. This is not news to them. Well, some of my friends were joking, nobody cares about your data. And none of the Fed cares about it.

They're focused on this other stuff. Now Powell did start saying they're looking at core services, ex-shelter. You heard that coming in a lot. But the San Francisco Fed published something with a lot of similar numbers. They use the Kay Schiller, they use the at core services, ex-shelter. You heard that coming in a lot. But the San Francisco Fed published something with a lot of similar numbers. They used the Kay Schiller. They used the Zillow. They used all these different real-time housing.

And they show that the official shelter inflation is likely to get negative next year. Well, so the market is pricing in that they're done, right, at this point? Can I say that? Well, but no, that isn't the sell-off now. They might not be done. Because the economy is so strong, might not be done. Right.

Because the economy is so strong, they have room to operate more, whereas it's not they're not going to break anything. That's what the good numbers show. But I think isn't there also just this guy has a job and inflation is like the biggest thing he doesn't want. So and we just got it down. Yes. Isn't there also this like, let's just wait five, six months so it stays down

and then we'll even talk about- They're going to keep going until they break something and see how badly do things break. I mean, dude, there is no sign of moderating inflation in the labor market. So the shelter thing is nice,

but like the thing that's tangible in everyone's face outside of their shelter cost is just like the people in their lives and people are spending and costs are high. And let me share this anecdote with you. This is NBC News. A small city in southeastern Minnesota

could be left without a police department after the entire force recently resigned. The Goodhue Police Department resigned because of issues with the city's pay. The city, which is in the county of the same name, has a population of just over 1,000. So all the cops in the town just like – they had a contract negotiation and they just left. And you dig deeper. It's like, well, they're getting $22 an hour to put their lives on the line.

Like this is where the inflation stuff moves from being a data point to being something that's like super relevant in people's lives. And you could wave charts in their face all you want.

If they lose the police in their town, this is one very small example. But if they even hear this story, it's like they don't think

inflation's over. Yeah. Like, you know, so I understand like, I don't think inflation's over. Yeah. Like, you know, so I understand, like, I understand that like shelter's a big component of it. The bond market's saying, kiss my ass with that shelter thing. We're the bond market is saying this is not over yet. Well, not really, but GDP now too. And you know, it's, it's tricky. So for, for, for December, so they've got September, November, December.

Those are the next three meetings. For December, so right now we're at 525 to 550. The probability of 550 to 575, so meaning one more from here, is 31% today, and it was only 21% a month ago. So as we are getting the continued strong news

in the economy, the bond market is repricing and maybe expecting one more. One more hike. Maybe. I think what the 10-year is saying is not about the next hike. The 10-year is saying we're not going anywhere for a while. Right. And to me, that's a bigger challenge to stocks.

And if stocks were flat this year, I don't know if that would matter as much, but they're up a lot. And when stocks are up a lot, people are going to look for any little thing to freak them out and they're going to take profits because it does feel like it's overextended. I don't know. It just doesn't seem like the market

deserves 15% in the S&P and the Q's up 36%. I don't know. If we finish the year, to your point, if we finish the year here, which is S&P plus 15, NASDAQ up 38. Dude, I think—

Everyone's good. How about 10 and 15 would be good? I would have taken a flat year coming into this with all this historic tightening. The fact that we got that in the first half of the year was a gift. So we've seen some profit taking, whatever. Some jitters is my technical term. The VIX is only at 17. I mean, this is nothing.

Here's a question for you. S&P up 15% right now. If I gave you an option to lock in... Close the market and come back in January? No, no. Done. I'll give you 7% in the S&P, locked in now, or you take your chances. What would you do?

7? 7. I'd take 7. I'm risk averse. So you think 15 will go back down to below? I want to spin the wheel, Jack. This is a great segue. I'd love to get your guys' take on I'm risk averse. So you think 15 will go back down to below? I want to spin the wheel, Jack. No, wait. This is a great segue. I'd love to get your guys' take on the buffer ETFs, the TGL. All right.

So, yeah, we're going to do rise of active ETF. Let's start with that. I think it's a great product because— How come you didn't come up with that? Listen, don't say that on Twitter. People attack that thing. I'm not on Twitter. Could you fill me in?

Why is this controversial that people want a predefined upside and downside? I had the guy on the show and all the smart people on Twitter were like – Oh, you softballed him? They were just like, this isn't – this is not right. You could get the same thing from cash basically. No, you can't. So listen, listen. Can we just explain this to the listeners?

the same thing from cash, basically. No, you can't. So listen, listen. Can we just explain to the listeners? There is a product that offers 16% over the next two years, gross of fees, I think the fees are 75 basis points, so 14 and change, whatever it is.

And if the market goes down, you're not exposed to the downside. So you get up to 14, right? If the market's up seven- It's a cap. It's a cap. So if the market is up more than the cap, if the market's up 30% over the next two years, you're not going to get up to 14, right? If the market's up seven- It's a cap. It's a cap. So if the market is up more than the cap, if the market's up 30% in the next two years,

you're not going to get more than 14, you know, 16 minus whatever the fees are. But if the market's down 10, you're not exposed to the downside. The fact that you can choose what risk you actually want to take with stocks and bonds, you're dialing the risk tolerance,

but there's a wide range of outcomes still. With this, you know exactly what you're getting. Well, here's what I'd say. What is the risk though? Is it counterparty risk? No, the risk is, well, no. The risk is that the market's up 40% and you don't get the upside of it.

That's it? That's the whole risk? What else is the risk? No, no, let me describe a few of the things. We do have a few plays in the space as you would expect that we would. Talk your book. So the buffer strategies,

you collect income and they protect you from a first certain amount of a loss. But that's not what this is. First 10% loss buffer strategies, you collect income and they protect you from a first certain amount of a loss. But that's not what this is. First 10% loss. No, you're talking about T-jewel. I'm talking about T-jewel. That's 100% downside protected

and you get up to 16% over two years. So that's 8% a year. How are they able to, how are they able to find options? It's a structured note inside of an ETF.

Right, but Jeremy was about to describe an actual structured note. That's different. Could you describe this one? So what would you say, I guess if you could want to play devil's advocate, why not do this in your opinion?

We have something similar. We have something that says the maximum you would lose would be 15% because we're buying call spreads. And what's the upside? We don't have a cap, actually, because we're long these call spreads that rebalance monthly. And so you're buying a 15% in-the-money call.

And because of that, your premium can only go to zero. So essentially, you have $85 of cash, 15% of option premium in the fund. So that option premium could go to zero, but you have all the upside. So we are not capping the upside in that way, which is an interesting way to do it.

Here's the problem I think Twitter has with this. Hold on. The one that caught everybody's attention, though, was that it was the 100% downside capped. Because it was marketed that way. That's the problem. 100% protected. That's what it is. It sort of went viral.

I would like to get your take on that one as just the person who makes funds. And be very negative and aggressive. I haven't studied exactly how they're promoting it. I have a concept of how they're promoting it. It's something very similar in the annuity space, fixed index annuities,

which basically will have a portfolio of bonds to buy a long index option and give you variable upside participation in the market bonds to buy a long index option and give you variable upside participation in the market because they're long an index option and they can only lose the premium of the thing. And they market that as substitutes for bonds because, again, you can't go down to zero.

So it's been well done in annuity space for years. I mean, it's one of the biggest spaces. The thing is, if the market was 50%, it's not that this thing won't fluctuate between now and its maturity date. It will. There could be interim downside. Can it trade at a big discount to its NAV?

No, but it's designed to go in. Why can't it? Like the way Grayscale does or a closed-end bond fund does. Because a market maker would get Grayscale. They would go back and forth. No, but listen. The reason why Twitter doesn't like it is because this is a product that could potentially be used, I guess, in a nefarious way if an advisor is misrepresenting the truth, which I don't know why you would. The thing that I like about it is it's so transparent.

So, yeah, there's tradeoffs. If the market's up 25 or 40, you're capped out. So the argument that you're seeing the most against this is the way it might be used by a practitioner, not the product itself. And or there are better ways to hedge your risk, which maybe there are. But no, so what they're saying, if you buy a short-term treasury, you're locking in, say, 5% this year

and 5% next year. That's 10%. This thing's only giving you a little more than that. So that part resonates a little bit. So it's like, well, for an only additional 4%. That's today. That might not be the case in two years. That's what I said.

That's today. Well, what if Fed funds are 3%? Wait, wait, wait. Hold on. So what ETF exists that it's always a great time to buy it? Exactly. What are we, children? And also, nobody's saying this should be 100% of your portfolio.

But conceptually, I like knowing what the outcome is. I would pay for that. We call them nervous boomers. They have a lot of money and they're nervous. They made a ton of money. But conceptually, I like knowing what the outcome is. I would pay for that. We call them nervous boomers. They have a lot of money and they're nervous. They made a ton of money. I could see this really appealing to them. I'm sorry.

This is going to raise a trillion dollars. How does anyone not understand? Wait, listen. When I spoke to Bruce Bond— You have to have never talked to an investor before. You can sell ice to Eskimos, too. Ben and I spoke to Bruce Bond in 20, I think— Great name. I think 18.

It is a great name. When he explained to us the buffer category, we were super bullish on this gathering assets because people love predictability. Why do you think annuities are trillions of dollars? And I think this is a better version of those annuities. Some of those annuities are pretty nefarious. So I think he's giving-

This is liquid. Yeah. Well, just start with that. It's not an insurance contract. And ETFs that do a lot of legwork for you, I think, serve a purpose. This is going out and doing all the pain of getting you the options. It's doing a lot of work. Any guess?

Can somebody else do this themselves? Yeah. Sure. Do you want to? You've got to open a separate account to do options. Right. You're going to live to 78 years old. How many of the minutes in your life do you want to spend doing this?

What sort of execution are you getting your options at TD Ameritrade? This is much better for that. They actually make the market makers compete with each other to get the best possible to get that 16% locked in. At least that's what he said in the podcast. Why aren't we recreating this as an SMA internally? What? That's not what we would do.

No, I understand. But why isn't it what we do? I'm just thinking out loud. This seems— I'm not saying it's the perfect product for everyone. I'm saying it really does have a good use. It's a lot of work. Actually, when we launched our fund, GTR, this target range, this global target range,

it was with an advisor called Valmark Advisors, who's a $7 billion advisor, who was doing an SMA for some of this stuff. He said, it's way too much work. The ETF is way better. Well, also the buffers move every day. So I know we're talking about buffers versus T-drill. They're different products. But you, in my opinion, you have to actually manage them.

If you're close to the cap, why are you still in the product? Let me tell you a story. Well, the year is 2002. Hoop is stank, rules the airwaves. So I'm not even, I wish I was making this up. We were listening to Stained. Kind of tail end of Limp Bizkit. It was not a great movie.

Papa Roach. It was not like a great moment. A copy of a copy of a copy. Is Creed coming back? Did I see a headline? Alright, let's not get derailed here. That cerebral performance comes to my feed like once every four months. I don't know why. The Nasdaq had just blown up 90%. Everyone agreed that Cisco, Intel, Microsoft were great companies.

Nobody wanted the risk of owning them. Along comes, I think it was Payne Weber pre-UBS, and they do principal protected notes on the internet giants. And it was those stocks I just mentioned. It was the biggest stocks in the NASDAQ in a unit investment trust, capped upside, no downside. You cannot, and this is all investors want to hear in that moment. It's O2.

Everyone has just been blown to smithereens. So here I am selling this shit. People are like calling, they'll like put me on hold. Like, wait, let me just call my uncle. He would love this. Like literally that's how this is selling. And we're selling these units. Now what I didn't fully appreciate at the time. Proud of those units. No, I wasn't in the end. Eight years later, it came back to haunt me. Cause I kept like an idiot. I did the retail brokerage business wrong.

I kept the clients. You're not supposed to do that. So eight years later into a 10-year contract, people are like, how come I'm not making any money? I'm like, what do you mean? And then look at it. It's like you're getting your income. It's like income. Dude, all those stocks have like gone up 300% off because the cap was 1.5% a month.

I've like gone up 300% off the, because the cap was one and a half percent a month. And as you know, following the markets, there are months where the NASDAQ does nothing and then months where it goes up 18%. By getting capped on a monthly basis, that is why those products were a loss. You'd have been better off taking the risk of owning the stocks.

Now, there's a happy ending. I did get paid my selling concession and I used that money to buy an engagement ring Now, this is a happy ending. I did get paid my selling concession. And I used that money to buy an engagement ring. And I got married a year later. So this does end well for someone. No, but I never sold a unit investment trust ever again. But more importantly, I never sold guaranteed downside products ever again.

So now this thing comes along. And I'm trying to figure out, OK, great. It sounds really good okay great it sounds really good how does it you're capping the upside i mean that's the trade that's but 14 is not a cap in my mind well it's over two years that's fine the average return for stocks is like seven percent i agree that's why it's a good product okay so we're also all agreeing that also i should just be selling this i feel as though asset managers have more problems with this than advisors who work with the actual end client who have these emotions. So quant people on Twitter who are 10,000 times smarter than all of us can unpack this and say there are better ways to do it. Why would you pay for this? It's like, dude, we're talking to regular people.

That's right. And regular people love guarantees. They love certainty. People are risk averse. Imagine being so caught up in quant bullshit that you don't understand that. Like, at a fundamental level, the end investor would rather have parameters

than no parameters. Like, how do you not know that? Do you know people in your life? You don't need to know clients to not understand that. Anyway, this is going to be a gigantic category. This show is sponsored by what's the ticker symbol? No, it's not. T-Jewel?

T-Jewel. But it's a $25 billion category already, and it's going to be a lot bigger. Yeah, I agree. Active ETFs beyond this. By the way, that was not even the deck. We were not supposed to talk about that. I'm glad we spent a half an hour on it.

Active ETFs in general seem to be back, though. People are excited about it. Not just ARK, but just people seem to be. I love this chart. This is one of our top five charts of the year. So can you tell us what's in this? Yeah, so this is. This is $30 billion.

No, no, no. 30% of flows. Of all the flows that go into ETFs, this is the percent that Active grabs. Trusted question. So Active is taking in about 30% of all. But what was it 10 years ago? Zero? Zero. Of all the flows that go into ETFs, this is the percent that Active grabs. Can I ask a question? So Active is taking in about 30% of all the- But what was it 10 years ago? Zero? Zero.

Like 1%. So Active ETFs just went from 0% of annual flows to 30. However, how much of this is dimensional funds? Conversions is not even in this number. This is percent of flows. We don't count conversions as flows. Please tell us. I will.

I'll tell you. So not dimensional funds. No, well, dimensional's in there, but they only converted a small portion of their total. We don't count conversions as flows. This is only flows. Here's what happened. I'll explain it. They're not active. Well, they are technically active. They are, they deviate, but they have discretion. These active funds, what they did was they finally got lower cost like smart beta did. Smart beta didn't sell for a while until they got cheap, you know, like the fundamentally weighted and you know this and like the value and the growth. Smart beta is a $1.4 trillion category now. Active was always like 60, 70. These managers would come over on their terms and not the ETF

industry's terms. It wasn't until DFA, Avantis, Capital Group, and mainly JP Morgan had the guts to get you- Capital Group is American funds? Yes. Okay. I'm sorry, not to pick nits, but like DFA and Avantis,

I know they're considered active. I know. So I get dinged on this on Twitter for a lot, but I'm like- They're smart beta shops. Yeah, but they're technically active.

They have discretion. Some of those options funds are in that category too. They are. But again, they're kind of small compared to some of these other numbers. Like JP Morgan's JEPI crushed ARK's records in terms of inflows.

So they're not quite conversions, but they aren't definitely not cannibalization. Oh, they are cannibalization. They are. DFA's inflows are like offset from their mutual funds. Capital Group – But guess which one they will issue a press release about. Right, sure. Well, because, yeah, the thing is, like, I lost my train of thought, but I will say that the one stat that you have to know is active ETFs that charge 40 basis points or lower make up 25% of the total products.

But they take in 95% of the flows. John, the blue chart? No different from index products. Exactly. So Vanguard didn't even get popular until it got below 40 and 20. ESG didn't get popular until it got below 20. I love this one. Smart beta didn't get popular. Can I quote, let me quote Eric. Describe this for the listener. I'm going to quote Eric. Another wild chart in this note is the sheer number of ETFs in the hot sauce lane. I love it. And I get it. What's the hot sauce lane? Wait, hold on. Who get it. What's the hot sauce lane?

Wait, hold on. This is Eric. Highly volatile stuff that's fun and gets your adrenaline going. Who wants to fight in the core wars against Vanguard,

BlackRock, and Schwab? This is why we say the bigger passive gets, the more creative new ETF launches will become. What are we looking at? What are the charts showing? Basically,

the vast majority of products, if you divide them by expense ratio buckets, are 60 basis points or more. New products. Nobody's launching a new S&P fund. No, these are total products. Oh, interesting. But nobody's launching a new S&P 500 fund.

Not really. Occasionally you get one. I am. I'm weighting it by the CEO's last name. You see this chart. If I go to zero to 10, they have 59% of the assets. So previous chart, John, you've got that as well. So this is ETFs

that charge under 10 basis points or under, now make up 59% of assets. Yeah. The bottom line is though, look at the hot sauce bucket over there.

They only have 5% of the assets, but they make 23% of the revenue. Because they're charging the most. Yeah. So that's why if you-

What's hot? Hot sauce is what? I love the hot sauce. But what is that? Okay, here's- 90-60. Is that like Roundhill? Like video games?

Yeah, video games. Thematic, ARK. Well, I'll put anything Bitcoin-related would be in there. Triple leverage. By the way, TQQ and SQQ are like a $20 billion franchise. Just those two tickers. Any thoughts on Nope? Oh, Nope.

I had a soft spot for Nope because Nope came in like with just two double middle fingers. Like F everything going on. And he just shorted everything. He shorted so much. Who is he? It's a guy named George Noble who used to work at Fidelity. And I didn't really interact with him much, but he pissed a lot of people off. He also – he trashed crypto.

So the whole crypto world hated him. And he just was like – So he trashed crypto and shorted everything. Yeah. It was a test to see if twitter spaces can launch an etf but so this etf by the way went so we would look into it and it's like he'd go short tesla short arc where this top holding is tesla then he'd do short queues where tesla's the top holding and then he'd go long inverse triple leverage queues wait what long inverse triple

in other words he's long positions were short. Like the enemy of your enemy is your friend. I just turned around in a circle. In other words, we started to tease it out and we're like, he's just shorted Tesla

18 different ways. I'm just glad we have that and not the Bitcoin ETF. Like, I'm glad we have time for that. And that's my segue. This is the last thing I'm going to go deep on, but I really wanted to hear

what you guys, what your thoughts were. I was told that this is the last thing i'm going to go deep on but i really wanted to hear what you guys uh what your thoughts were i was told that this was the week that we would get a ruling why do people think that no so i i said that this week tuesday or friday coming from you well no no it's coming there's a lot of lawyers who are okay so basically when you have a uh when you the first um when the hearing happens it's usually 160 days to the decision. Which would be this week. Which would be last week. We're now past that. And only about 6% of the cases in the last two years in March took longer than 160 days.

Is this the having? No. This is for lawyers I guess. The having? So I'm just saying I think a decision is probably going to come out soon. Otherwise, we're in complete total outlier land. And so it could come in September. That's what this whole thing is based on?

They'll drag this out as long as they want. No, because they also – a lot of the way the legal – the judges work, they have interns during the summer, and they want to get it all cleaned up and out of there by August. So when the new cases come in September, that's why there's very little cases decided in September, October. August is the biggest month for decisions to be handed down. Will it be as satisfying as the XRP lawsuit settlement, which is these are both securities and not? Have a nice summer, everyone. Well, listen, we have our legal analyst has grayscale a 70 percent chance of winning this case. That's wild. Who's your legal analyst? Grayscale a 70% chance of winning this case. That's wild.

Who's your legal analyst? Elliot Stein. Judge Judy. No, these guys, like they hang. They know what they're talking about. Okay. Let's just fill people in what this is about. Yeah, what's happening?

So Grayscale is suing for the right to convert GBTC, which trades at a 35% discount to its NAV right now, to become an ETF. And presumably, if they win, then they could convert immediately and everyone else who has a filed ETF that's reasonable could become an ETF. There's a lot of unknowns there.

But for the most part, yes. Grayscale basically is, to make a long story short, they say, how could you possibly approve a Bitcoin futures ETF? And leverage. And leverage, yeah. Now that- It's arbitrary to not approve this at this point.

There's a leveraged one. That's just general case they're making. But let's say they win. The SEC has, I think, 45 days to respond. They could also, you know, Grayscale's trying to convert. That's why there's a thesis running around that the reason BlackRock filed, this is a thesis, by the way, is that BlackRock is there in case the SEC loses so that the SEC can stick it to Grayscale, approve BlackRock first and leave Bitcoin with the adults in the room.

They don't want, for some reason, there's something about their dealings with DCG and or Grayscale. No, it's because GBTC was at the epicenter of all this blowups, and they don't want to bail them out with a conversion. Because it would save them. It would save them. Like, a lot of lawsuits would be payable at that point.

Like, it would really save them if they were able to do this. I don't know. I mean, Jeremy has one of these ETFs filed, but our thesis... Were you thinking the same thing? Well, we think they're going to approve many at once. Well, Jeremy has one of these ETFs filed, but our thesis— Were you thinking the same thing? Well, we think they're going to approve many at once.

Well, why pick one? It makes no sense. Yeah. It would only be fair because, as you know, whoever they pick— Actually, before we go to you, I want to ask you about this little wrinkle. There's like a little bit of a kerfuffle about whether or not Coinbase is a valid third party in this ecosystem that would be like acceptable to the regulators to say something. Explain that to me. I would say they're the most acceptable at this point, whether they are – As what though? What do these serve as in the parlance of these filings? In the filings, this is an exchange that would enter into a surveillance sharing agreement with NASDAQ, meaning that let's say NASDAQ thought something shady was going on.

Coinbase would have to give them information on the person and just be open with them. Is the shadiness the whole point of everything? So they're operating as the exchange here, not the custodian. Correct. Okay. But there's a lot of other details. I won't get into them,

but I do think that the SEC's opinion of Coinbase probably plays into this. But really, I think the ultimate thing is the politics. I mean if the SEC loses to Grayscale, that's another loss they're going to take. And whether it becomes politically untenable to just keep denying these ETFs is probably more important. So wait a minute. I don't know if Jeremy has any thoughts on that. Let's tug on that really quickly though. He has an ETF filed.

This has become Republicans want it, Democrats don't. Yeah, but some Democrats are defecting. To wanting it? Do they happen to represent Wyoming? No, they're just defecting more to becoming okay with crypto, wanting to have it brought into the traditional finance world. Because I think they want to raise money from the all-in podcast. They're usually younger.

Yeah, no, but they want Chamath money. You're not getting it if you're anti-Bitcoin. If your starting point is, we don't want this, that cuts off probably they want Chamath money. You're not getting it if you're anti-Bitcoin. If your starting point is we don't want this, that cuts off like probably a third of the money. Yeah. Where the f*** are you going? All right. Tell us about why you filed yours, the timing,

and why you think you have a shot or if you think you have a shot. We've been in the market since 2019 in Europe. So we have a physical product already in Europe. It's been there for a while. How many people have died as a result of that? No. Everyone so far okay? Everybody's been okay.

Well, ask him how many people have died of his inverse triple leverage energy ETF though. Okay, that's another story. They let you do anything in Europe. So wait a minute. So in Europe, it runs smoothly? Runs smoothly, physically backed. Who did you have to get it approved by? Is it FSA? Is it custom at Buckingham Palace?

You do have each exchange at a different rate. Each exchange allows different cryptos. Does it drive on the other side of the road? You've got baskets. You've got single products. Okay. We have a whole suite there in Europe. But who's the regulator?

Is it EU? You're dealing with all… A lot of it's exchanges. Exchanges. Okay. And each market is… Each country, you know, it's exchange, a lot of it's exchanges. Exchanges, okay. And each market is, each country is different. So it's not one uniform. Has it caught on in popularity? Have people, Europeans, it's a Bitcoin?

We have a few hundred million in our product family. I wouldn't say it's wildfire, but it's something. I think the, it's an interesting one on making this close in without speculating on the case and how it works. I mean, we talk about investors' best interests, and they're trying to provide this protection, and they're focused on these nuances like, is there manipulation in the markets? But they're forcing these discounts in these closed-end funds if they actually really do want to convert to an ETF. It is in investors' interest to convert to an ETF. And just from

the structure perspective, we think that is the best structure. You know, I think it's hard to speculate in all these different legal issues. I think I'm probably taking the over on how long these things get approved in my short view. Do you agree with Eric that if they approve one, they probably approve 12? I would think they do. Okay.

And then it's a market of ideas. And then investors will decide. Then it becomes a marketing orgy. A marketing frenzy. But I mean you could choose which one you like the best. Elizabeth Bank, is this going to put Elizabeth Banks to shame? Because they're going to have 10 issuers out the same day with this fund that does the same thing.

So it's going to put so much pressure on marketing. But you know what's sad? These are all going to be 25 basis point products before a year is up. Well, some will have to go that cheap, but they're all going to try to be- That's your best interest. Yeah.

I agree, but I'm saying all of this fighting and lawsuits and court appearances- I guess over or under $100 billion in one year. Bitcoin and ETH. I say over. Under. Under. Here's why you can't be right.

No, no, no. You can't be right. Gold ETFs only have $100 billion, and they've been around for like 20 years. Let me say why you— I'd say 25 because— What do you think happens to the price of Bitcoin? You know, there's so many other variables.

Because I'm on these crypto podcasts all the time, and they just want the numbers to go up. They're like, we'll go up, we'll go up. And I'm like, look, all I know is that advisors have $30 trillion in assets, and most of them trust the ETF structure. So this is just creating a bridge. But they're not going to rush over. They might, some might never use crypto. Some might do 1%, but like 1% of 30 trillion is a couple hundred billion. But if 1% put 1% in, you know what I mean? It would still be 20 billion or something. Yeah, it's a large number.

That said, I think institutions will trade it. I think the one that gets traded the most will get used by the trading crowd as well. And you have options on it, and it gets cheap. So over time, this is the best deal. This is why we've been for the ETF the whole time. People are using microstrategy to get exposure. They're using GBTC. They're using FTX. It's a mess.

ETF would be the safest, best bet. So I feel as though, yes, you could analyze the ETF on its own with blinders, but you need to open up and go, the other options are really worse. We should get this out quick. That's how I would be thinking. Before we get out of here, Jeremy, could you just, I just want you to explain what you did. You did some, some really nice analysis on valuations, I guess, specifically NVIDIA in mind, but NVIDIA reports earnings next week. It's the last big one. But what, what happens historically when you buy expensive stocks? So this was, this became the most expensive stock of the S&P 500 from a price-to-sales perspective.

So the highest multiple, the definition of what everybody's focused on on the AI story. And I was trying to say, how much can they grow into these multiples before they become, you know, is it too high of odds of growing into it? And what we found was there's about 100 stocks

that reach that highest multiple status in the S&P. And over the next 12 months, they've actually done okay. They've actually been able to outperform. But over the longer run, after that 12 months, it tends to be a real hard hurdle to rate. And so then we started looking at, for companies that got into different price-to-sales buckets, it was 40 times trailing and 20 times 25 forward. So let's just say we believe the analysts are right they're gonna get this 25 times forward so we grant them that

then you got to about 230 companies that hit that level over the last 60 plus years and you say what are the odds that you can find a winning stock over a certain time period uh over the next year it's around 20 that they'll be able to win but it drops to like 90 fail over any certain time period. Over the next year, it's around 20% that they'll be able to win, but it drops to like 90% fail over any long time period. So it becomes very tough to find these valuations. Cisco is like the classic 2000 stock that was at the very similar multiple. It got to right around 40 times sales.

And it grew like 20% a year, and it still got killed. So for 23 years, it's grown 10% a year, which is three times the rate of the S&P. So the bulls were right about the story, but wrong about the price. For 20 years. Lost money. Sales.

Sales grew 10% a year, three times the S&P for two decades. Incredible. And still down. You're still down. So this is why NVIDIA is 40 times sales. This is UBS. Demand will dictate NVIDIA's long-term AI revenue opportunity,

but supply should be the primary determinant for its data center revenue, at least through calendar 24. Quote, NVIDIA is quite literally serving as a kingmaker as a huge wave of capital and new financing vehicles are chasing new AI software and specialized cloud infrastructure models, while enterprises are still very early in a struggle to access

enough capacity to build out AI at scale. Currently, NVIDIA holds 6% of the worldwide data center sector, valued at approximately $250 billion. sector valued at approximately $250 billion. Analysts expect Nvidia's share of that market to quadruple by the end of 2023. Crazy. So that is why a stock gets this overvalued. And also supply, there's no AI stocks.

It's the only like gigantic- In addition to there being not enough chips, there's not enough stocks. 100%. That's the only like real big pure play. So it should trade at 40 times sales. Or if it doesn't trade at 40, 45 times sales, then what would? Like what?

So that's- Well, there'll be competition, I think, over time. There won't be the only AI chip company. Yeah, no doubt. I'm just saying short term. There's risks, obviously. Oh, of course.

There's literally no way around that. But just real quick on this, and I know you have a lot of international funds. We debate this on the team all the time. Like all these Super 7, they're just so, like their valuations are so high. But like, it just seems like these companies, you know, these handful, like dozen US companies

that are run by these incredible innovators just gives the US such an edge that you just, you don't find that special sauce elsewhere. And every time people go international because of the numbers, they get burned, comes back to the US and these amazingly innovative companies like Nvidia. So yes, I get that, but I also, it doesn't, that doesn't make me want to put my money in like Europe. I think every country has an Nvidia in, uh in in you do yeah i do in france it's lvmh in uh in the netherlands it's asml operating at that level though no but like do

i mean you must you you must agree with some aspect of what i mean unfortunately they don't have seven yeah so it's you're you're not wrong yeah but I'm saying, if only, but there is a MercadoLibre in, was that Brazil or? In Latam, for sure, Latam. Latam. Like, I feel like every country does have one. One. It doesn't have seven. And seven's even an us, you could actually go beyond that.

You could make the case for even going beyond the seven to other companies. But Jeremy, to invest in these other countries, do you need to believe that they will develop their own magnificent seven? Or is that not really what your expectations should be? Based on the last two decades, you would say yes, but tech doesn't always win. And so I'd say if anything, maybe I'm too value-rooted, but

Japan is trading like a tech soccer team. And by the way, this whole thing with the Q's, Morningstar found this great study, has beaten every single growth manager for the past 15 years. Can't believe it. Like it's number one.

Yeah. And so we've actually tried to find any fund that has beaten the Q's over any time period and it's really hard. But the ones that do it do crazy things. Like the Barron Fund

has 40% weighted at Tesla. But if you're a natural CFA trained person and you're looking at this, you're naturally going to sell these Super 7, buy these other ones. And I think a natural CFA-trained person and you're looking at this, you're naturally going to sell these Super 7, buy these other ones. And I think that the CFA brain has been like blown up a little bit because it's like it should work. But the cues just keep on powering. You would have done that in 2013 too.

Because guess what? Apple just kept creating these deca-billion-dollar categories. How could you have foreseen that? The fundamentals delivered. It wasn't the value. The fundamentals. When I said 90% of those companies that reached high multiples fail, there were, if you say people wanted to know who are the winners, so I'm doing a piece on the winners. Two of the big winners from

the last two decades were Amazon and Microsoft. So Amazon was only 12 times sales in 2000. So half of where NVIDIA is today, but its sales grew 30% a year for two decades. You know, and Microsoft was— A CFA should not be sitting there and foreseeing that because companies don't do that. No, I agree. It's Michael Jordan arriving. My point is that it's become even harder for Active

when you have something like the Qs that you can buy for pretty cheap. It's just so hard to beat an index like that. How are you going to beat that? Because it's like, oh, it's hard enough to beat Spy. Now you've got to beat that? I agree. Did you guys have fun on the show today?

It was awesome. Yeah? That was a good warm-up. So usually we just like to get the butterflies out a little bit. Duncan's gonna hit record in a few minutes. Do you guys wanna use the bathroom or anything? I've got plenty of time. Good? Alright. We loved having you here. You guys are two of the

fan favorites. Two of our favorites. So thank you so much for coming. Jeremy just wanted to give you a high-five. Oh, sorry. Sorry. You better be rooting for his ETF to get approved. of our favorites. So thank you so much for coming. Jeremy just wants to give you a high five. Oh, sorry, sorry, sorry. You better be rooting for his ETF to get approved. All right. So guys,

we always finish the show with favorites. And for a lot of the audience, this is their favorite part. And I want to start with Michael because he has something very provocative written in his place. Do you have a new prescription pill addiction? So, you know what's so interesting about Netflix

is that they don't, as far as I can see, they don't really advertise their hit shows. You just see what's on the top 10 list. You're like, oh, I'll watch that. So I saw what's on their top 10 list. It's a show, number one is called, no, now number two, Depth vs. Hurt is number one. Number two, it's a show. Number one is called, no, now number two. Debt vs. Hurt is number one.

Number two, it's a show called Painkiller. So I said, oh, I'll check it out. Matthew Broderick plays Richard Sackler and it's about Oxy. Wasn't there already a thing on? They did one with the guy who played,

the guy who played, the guy from, who was Ace Rothstein in Boardwalk. Yeah, why do we keep making more content about the Sackler family? Oh, Michael Keaton was in it. I didn't watch it one. They'll keep making shows

about them until they're good guys? You know what I like about the show? It's fun, it moves, and it's only six episodes, and it's very depressing. Okay.

All right. Not bad. It's all peed in fun. What are you watching? Hold on. I'm not done. I'm not done. Anybody watch Manziel Doc?

Not yet. Yeah, I want to. It was quick. Did you win the Super Bowl? Don't spoil it. He did not win the Super Bowl. It was good. It was good.

I'm watching Hard Knocks with The Nugget came home from camp. I saved the first two episodes for him. I love Aaron. I love Aaron at this point. He's so likable in the show. I bet the under. Nine and a half. I don't care if the Jets win anything.

I just, like, he root for them, you know? I feel like the more time you spend with any of these guys, it's hard not to. Every time you watch Hard Knocks, you're like, I like those guys. It's going to be a great experiment, Aaron Rodgers and the Jets. I don't know. Have you watched any Hard Knocks?

Back in the day, I haven't watched this season. They seem to, the other players on the team seem to like worship this guy. And he seems to be like really enjoying himself. So, I mean, anyone would. 9-8 record. What do you think? Oh, I mean, anyone would. Nine and eight record. What do you think? Oh, I don't know.

I hope so. They're watching him pull grass out of the ground and throw it up in the air. And it's like they're watching Edison invent the light bulb. Oh, that's good. What do you guys got? I actually don't watch a lot of TV, surprise, surprise. But I actually saw a few episodes of Painkiller

last few nights and it was interesting. The show that I got into, well, not into that much, but I've seen a few of the episodes of Hijack on Apple TV. That's fun. It's fun. Which has been good.

What are you up to this summer? Are you reading? I brought a podcast. How's that? Life of the Record. Ooh. So this podcast just came out. Yeah, it's like,

I used to love Behind the Music, but I really like the creative stuff. So they go just came out. Yeah, it's like I used to love Behind the Music. I really like the creative stuff. So they go into these very specific albums like the first Violent Femmes record or Arrested Development. First who record? Violent Femmes. Let's not spend time on this. I want to hear from you. Pixies, Postal Service.

Yeah. Like kind of more on the indie alt rock. You know the Violent Flemmes? Violent Femmes. Yes. They sing Blister in the sun. You definitely know that song. Go ahead.

Anyway, it's... It's not for Michael, but if anybody is out there and is really into music... It's for me. Do you listen to Song Exploder? Have you ever heard that? Ooh.

Song Exploder is they take the best songs ever made. Yeah. And they get the person who performed it or wrote it or whatever. And they tell the whole story behind that one song. And how they recorded it and what the lyrics mean. And it's like a new song every week. Same thing.

But that's the whole album. This is the whole album. Okay. What's the best Pixies record? And there's only one right answer. Doolittle. Okay, fine. All right. what's your favorite

violent flims song violent oh man it's too it's too good uh all right i like it i wanted to show you guys something that i thought was hilarious there's this engineer who works for uh cash app i think soren iverson i would imagine he he's Scandinavian. I should have like pulled these out. So you can't, I don't know if you could really see it on this, but follow him on Instagram. He takes popular apps and makes the most absurd fixes to them, but they actually make, like if people would do it with the app and I'll just give you a couple of examples. Wait, scroll back. do it with the app. And I'll just give you a couple of examples.

Wait, scroll back. Oh, leave this one up. See the movie theater one? Yeah. Okay. So the Meg, right? Meg 2. So he said Fandango option to block seats around you when buying movie tickets.

Oh, this guy's a genius. Wait, go back. This guy's a genius. How much would you pay to block seats? Are you kidding me? Go to sobriety check. Based on Apple Pay data, it looks like you've had a few drinks. Take a quick sobriety test

to continue using Google Maps. You should not be going anywhere when you're in this condition. Let's do... I love this guy. They're all... I think that's him, actually. Let's do this chat GPT one

in the middle. Let's see. Option to view someone else's chat GPT history. So it's like Todd wrote, my girlfriend is mad at me. Can you help me write a response from the perspective of a loving boyfriend? Chat GPT says,

of course, here's a response you can consider. I'm truly sorry if I did anything to upset you. I value our relationship. Let's talk about what's bothering you so we can work through it. I love you and want to make things right. Todd writes, can you shorten it? So he just does like these brilliant, like these simple app fixes. And everyone should follow Soren Iverson.

It's almost like every day. It's almost every day at this point. Can I add one to this? Yeah, please. What would you do? Why don't they put the Rotten Tomatoes score right on Netflix, right on Amazon, and then you can search and filter by it. Oh, you can't filter.

You can't filter. I want to filter. I want like, because I want to do drama. I want to do over 85 critic, you know, over 75 audience. No, it's the opposite. You want like- For drama, I like the critics high. Oh, do you?

Oh. For comedy, I want the audience high. For comedy, you want the high popcorn? What does the popcorn mean? You know what Grandma's Boy got? It's either popcorn or like the rotten tomato. So I think if you're below 50, you get the tomato. Grandma's Boy got a 15 from the critics and an 85 from the audience. I'd watch.

That's probably good. Oh, it's great. You know what's on Grandma's Boy? It's like a pothead classic. So for comedy and action, you don't want the critical favorites. They're a little too up their own butt sometimes. But I think they're good at like art house movies, dramas. I like their views on those.

Okay. All right. Well, we're going to leave it there. And we're going to thank Eric and Jeremy for joining us. You guys were amazing as always. Hope you guys are having a great summer. Awesome. Great job this week, John.

Great job, Duncan, Nicole, Rob, Sean. We know you're out there. Thank you for everything. Hey, guys, if you love the show, make sure to leave us a like or a rating or review. Any podcast platform would be appreciated,

and we will see you next week. All right, take us out. That was a good show. Good. Thank you for sharing. Good work. Good job, man. Next time you guys come out, I'm going to have warm hair.