The Compound and Friends - They don't usually ring a bell at the top, but...

Episode Date: February 14, 2024

On this TCAF Tuesday, Join Josh Brown and Michael Batnick for another episode of What Are Your Thoughts and see what they have to say about the biggest topics in investing and finance! On this episode they discuss: CPI, an update on earnings, Nvidia, Amazon stock, mystery charts, and more! (Keep listening at the end for a special bonus outtake.) Thanks to KraneShares for sponsoring this episode. KraneShares just launched two defined outcome ETFs off KWEB. Learn more by Visiting: https://kraneshares.com/kraneshares-launches-defined-outcome-etfs-tickers-kpro-kbuf-for-china-internet-exposure-on-the-new-york-stock-exchange/ Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to the compound and friends. I am your host, downtown Josh Brown. Michael Batnick is with me tonight on the show. We are talking about what happened to all the bankruptcies and what happened to the banking issues that we were so worried about a year ago and a lot of things that seem like they were going to be really bad and then just kind of went away. We're going to look at YouTube's pay TV subsidiary, which apparently is on fire. We've got some stuff about buybacks, which is a topic we haven't talked about for a while. Buybacks are going to be a bigger part of the investing story this year after taking last year off, let's say. A little bit of an update on earnings season, some stuff on the CPI report and how the bond market reacted, and a lot of silliness that's been going on, especially in growth companies, NASDAQ stocks over the last couple of weeks. I feel as though some sort of a fever pitch has been hit or struck.

I'm not sure how that turn of phrase goes, but we've hit some sort of a fever pitch. It's probably the way I would put it and not in a great way. And I want to be as circumspect as possible here at a moment like this, because A, I recognize it could get even sillier and B, it's possible to say short term, there's way too much enthusiasm, but that doesn't necessarily mean a crash has to be the result. So I'm trying to be as even-keeled as I can, but Michael and I get into that stuff.

I think you're going to love the show, sponsored tonight by CraneShares and their new Defined Outcome ETFs, which we'll talk more about in a second. I'm going to send you right over. John Duncan, if you please escort our guests into what are your thoughts? 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. Are we even doing a show? Is this the metaverse? Where are we? On behalf of my technical team, which is terrible, I apologize to all of you. Oh, my God. No, I'm just kidding.

I think we had a YouTube issue, not a technical issue on our end. Something misfired. We apologize to you guys. I know we kept you waiting for eight minutes. There's a thing called irony, and I don't know if I'm actually using the right word here. No, you are. But as we got, as Duncan came in and said,

guys, we have a problem. Josh was delivering a beautiful soliloquy about all of the incredible work that everybody in our team, our production team behind the scenes is doing. And then Duncan comes in,

guys, it was absolutely chef's kiss. We have it recorded. We'll put it on the audio tonight. I would also say I'll never do that again. I think it's almost like a jinx. You know, Shakespearean actors don't use the term Hamlet when they're performing Hamlet. They call it the Scottish play. I'm a thespian.

Of course I am. So I'm not shouting at technical people before we do a live stream ever again. Never. Okay. We have so much to do tonight. It's an exciting week in the market, but I want to make sure we let you know what's going on with our sponsors, the folks at Craneshares. Michael? So Craneshares just launched two defined outcome ETFs. I have a feeling that defined outcome ETFs are going to be the next big category. And when I say next, I mean, they kind of already are. Innovators had a ton of success launching this category. And what we mean with these defined outcomes are, when you're investing in the market, you know there's risk, right? You're like, all right, I've got this wide range of outcomes in a given year. The S&P does this.

But now using basically like liquid structure notes, you're able to say, okay, I don't want all the smoke of whatever it is in this case, China. Like I don't want all the downside. And in exchange, I'm willing to cap my upside. I don't need all the upside. I don't want all the downside. So now you could do it. Crane shows is offering it. And I'm pretty sure that it's going to be a big theme in 2024 and beyond. So you can get a defined outcome for China internet exposure, but what happens? They're capping your upside and your downside. So there's trade-offs. Yeah. Well, of course. You have protection on the downside. And in exchange for that, you're capping your upside.

So if this is up 50%, you're not getting that, for example. Are you wearing the villain from Bloodsport on your shirt? What's this guy's name? Chung-Li? Yeah. Yeah. Hell yeah. Okay.

All right. Is that like deliberate because of uh the the nasdaq bloodbath or it's the lunar new year actually say say what you have to say say what you have to say about the nasdaq no we have other stuff to do first okay uh you're actually you're actually going first tonight handsome we had a cpi report tell us about it coming Coming in hot, coming in hot. Yeah. Not so hot though. A little hot. So we got, we got 0.4% month over month. And I think 0.3% was what was expected and the market reacted. That's core. I have headline, I've headline plus 0.3 month over month plus 3.4 year over year. 2.9 was expected. Core, which takes out energy, up 0.4, which is a 4.8% annual run rate. So it's warm.

The market, particularly the bond market, reacted, I guess you could say violently. I don't think that's too strong of a word, right? Like this is a big move. So these are some of the numbers. This is the bad, because it wasn't all bad. Food at home, these are month over month, 0.4%. Food away from home, 0.5%. Major appliances.

I just bought a refrigerator. Damn it. Bad timing. Up 3.7%. Men's app I just bought a refrigerator. Damn it. Bad timing. Up 3.7%. Men's apparel. Again, these are all month over month. Men's apparel, 4.9%. Jewelry, 6.7%. Hotels. Now, there's definitely some seasonality weirdness in here. 5.2%. Hospital services, this is a big one, 1.6%. The good news, used cars and trucks continues to go down, down 3.7%. Neil Dutta, here's Neil Dutta. He said, starting with the good news, the disinflation process in core goods is gaining steam. Core commodities fell 0.3% in January, the eighth consecutive monthly decline. That's objectively good news.

3% in January, the eighth consecutive monthly decline. That's objectively good news. At least one reason core services ex-housing was strong was medical core services, which exploded 0.7% month over month, the fastest one-month increase since September 2022. I'm not sure what's going on there. And the TLDR from Neil Dutta is, I can see why markets may push out the timing of the first cut, which it did. But I think there are reasons to expect inflation to return to its easing trend in the months ahead. Go back to first principles. Wage growth is easing as productivity has picked up and keeping unit labor costs in check and longer term inflation expectations are easing. So it's one print, but it was definitely a little bit spicy. Yeah.

And there are a lot of reasons why it's still spicy because wage growth, while it is decelerating, is still growthy. And so this whole idea that the consumer is tapped out or they're out of saved up cash to spend, fine, but they're making more money and they continue to make more money. And that's been another engine that's kept consumer spending going, but it's not linear in a stair-step pattern forever, up, up, up, up, up. And so I happen to agree with this idea

that you may not like every print or you might get these like minor interruptions of the easing along the way, but not every time is that a re-acceleration and then zoom, we're going back to 8% inflation. The real concern is how long it lingers above 3%. That's really like, like right now, because if it lingers above 3% for six more months, the fed will keep conditions tight and more and more things will break. So that's really the issue here.

And unfortunately, you keep getting data points like these, that's where we're going to go. Hey, guess what? And they've told you. They've told you they're going. Not only that, if we get a few more readings like this, and listen, this might just be a blip, right? Next month, we might be talking about

that there were seasonal reasons and other reasons why this was more noise than signal. However, but let's just play it out and just say that if we do get another reading or two like this, what if there's talk about not pause, not cut, but additional rate hikes? Yeah. Well, that's the thing that I think is probably the number one risk to the market outside of unknowable geopolitical stuff is the Fed actually having to do more. I feel like the bar is really high on that.

And we're not going to get there. I mean, who knows? Just my guess. But if you ask me what's worse for the market, a 50 basis point emergency cut out of nowhere that rattles everyone, that's probably not great. A 25 basis point rate hike out of the blue is maybe the worst case scenario for this year. Whether or not the Fed does six or three cuts is not risky to me. That's not the risk. How many or how soon is not the risk. It's an unexpected, either a double cut or a hike that would be the thing that really throws a wrench into the market. There's no reason to think that either of those things are about to happen. I'm just putting it out there that that would be the thing.

So high business. What is the – what happened to the odds? I'm seeing 92% chance of no cut in March and an 8% chance of 25 basis points. So a month ago, it was 19%. So let me go, I'm going out to May because March is certainly off the table. May, wow. A month ago, there was a 0% implied probability, which by the way, shut off please. When we're talking about these implied probabilities, they're wrong all of the time, right? All of the time. In fact, a month ago, there was a 0% implied probability based on where bets were made on

Fed funds futures. There was a 0% implied probability that rates were going to stay where they are today in May, a month ago, 0.0, literally. Now it's 65%. So certainly take these with a grain of salt, but it does tell you where the market anticipates rates to be. Even if it's not accurate, it's still useful. It's a betting market. They're looking at pricing in the treasury market and they're inferring, this is what participants are expecting based on where those bets are clustering. So getting to the market, we got a little bit of a VIX spike. Closed at 15.8.

Certainly, still, it's a small spike. But it's a spike nevertheless. We haven't had one in a while. This is funny from Sean Graylish. What do you like better, implied probabilities or defined outcomes? I'm a fan of everything. Listen, I love it all. All right.

So high beta stocks, just looking at ARK as a proxy, got killed today, down 5.6%. The Russell 2000, which is uber sensitive to interest rates, took it on the chin, down 4%. I mean, the S&P 500 is so gosh dang strong. We haven't had a 2% pullback in like 75 days. And on a day like this where inflation comes in hot, where yields went screaming higher, the best the bears could do is a 1.4% sell-off. I really like the action today.

Super healthy. Because I saw non-technology stocks take in the flows coming out of NASDAQ. At least that's how it appeared to me. Who really knows? But I saw like individual stories get credit, like Home Depot and Lowe's. There was some upgrade activity there. And I kind of like how those stocks held up in the maelstrom. I just, this is my kind of tape. I hate it when it's two sectors going up 2% a week and nothing else, everything else just kind of like kicking rocks and everyone talking about the same five stocks. I'm not into that. This is my shit right now. I like it.

I love it. The market is so far above the 200 day. And listen, it's one day. Can we drop another 1.4% tomorrow? Yeah, absolutely. I'm just saying, given how extended we are, given how quiet it is, given how quickly people run out the door and look for a reason to turn bearish, down 1.4%, that's it. That's it. Also worth pointing out, stocks re-correlated with bonds on this particular move. And again, I know it's one day. It's one day, yeah. But that tells you why they're going down. It's not a secret. Bond market volatility spooks the shit out of the S&P. And especially the long-duration growth names. We all know it.

And it's not every day. It's not all the time. But when it comes back, it's dead in your face. Like, it's not a mystery what's driving people's behavior right now. Josh, it's a top end. I think the NASDAQ, I would say there's a better than 50% chance that the NASDAQ has topped for the year. I would say I am 100% certain that the NASDAQ has, 99% certain that the NASDAQ has topped for the quarter. I think we have a lot of digestion to do

in the NASDAQ 100. It's not a sell signal. I don't know anything extra special than anyone else knows. I'm giving you my take. I think what we saw with some of the stories in the last week or two, and I know these are anecdotes, but I'm combining the anecdotes with data. There is no reason on earth that Nvidia needs to trade $40 billion worth of stock on a daily basis. It's just none. It's its own casino. It's an algorithm casino. What they're doing is eating up the lunch of all the retailers who are consistently

trying to call a top in this stock with options trades or whatever is going on. And then the algorithms are feasting on it. It's like a ridiculous maelstrom of activity that serves absolutely no economic purpose. And I know there's always that one stock that's like that. And it's been Tesla before, and it's been Apple before. I get it. But what's going on with NVIDIA, just like trying to watch the tape and make any sense out of this, you literally cannot. By the way, it was flat today.

Dude, it went green in the middle of the morning for like for no reason. Oh, I guess it liked the CPI report that every other large cap growth. It's because it's an options-driven algorithm hedge fund junkie casino. And when you start to see that become so obviously the story of the day every day and everyone has an opinion on NVIDIA and people that don't even know how to pronounce it, podcasters who manage no money and have been calling the top in NVIDIA for 3000 percentage points. Every day is going to be their lucky day where they get it right. The whole thing has just become such a freak show. And that doesn't happen at bottoms or in middles. That only happens at

at least short-term tops. I know we don't get to choose. I would love for the NASA 100 to go sideways. It's too much. It's just, if you look at the chart, I have to like take it in because it's just gone vertical. NVIDIA, for example, if you zoom out on NVIDIA, the price is 720 bucks. Honestly, this thing could go down to $520 and nobody, oh, this is cool. This is fun. I'll just keep it rolling. NVIDIA could go down to $500 on the chart and long-term it wouldn't even make one shred of a difference. Yeah. And I think there's like a childishness to the focus on NVIDIA.

And I understand where it's coming from. Like people have made tons and tons and tons of money in this stock. And the higher they've paid for it, the more quickly they've been rewarded. It's almost weird. Like if you bought it in the middle of 2023, you did pretty well. But if you bought it like a month ago, you did even better. It's like crazy, the rate of change here. So I totally understand it. And on some days, it feels like, well, what else would people talk about? Well, I'll give you some what else's. Here are some, look, the premise of this is they don't ring a bell at the top, but sometimes they sort of do. Sometimes they sort of do. Like each one of these

things taken on their own, I would not say like, oh, call the top because I don't do that. But it's a tapestry of shit going on. Here's Jeff Bezos selling $2 billion of Amazon stock. And this stock has rallied, but it has not meaningfully taken out the old high. So all this stock has done really is gain back some of what it lost in 2022. And Bezos drops a 12 million share sell block. Apropos of nothing. I think we all know he's not paying bills with this. He's not paying for a daughter's wedding.

He wants to peel off a billion or two bucks or peel off 2 billion. Good. Just saying one more thing. What else? The next one, the next one is the thing. I mean, this is, this is what, look, what the hell even is this? I'm trying to think, I'm trying to think like, what was the reason for saying this out loud? John, Sam Altman seeks trillions of dollars to reshape business of chips and AI. Five to seven trill.

What? He said this in, in the United Arab Emirates, which I guess if you're going to ask for $7 trillion, that's where you should do it. He wants, what is he saying? He's in talks with investors, including the UAE, to raise funds that would boost the world's chip building capacity, expand its ability to power AI, and cost several trillion dollars between five and seven trillion dollars. For what? For literally what?

Even Jensen Wang, without saying it the way I'm about to say it, was like, what the f**k is this kid talking about? The reason why you could maybe think that $5 trillion to $7 trillion would be necessary to rebuild all of the world's data centers in order to handle AI is because the chip technology we have today isn't where it will be in five years or in 10 years. Everything gets cheaper, not more expensive. So computing power. So even Jensen Wang is like, no, no, no, no, no. We don't need the energy of three more suns to run the amount of data centers that Sam Altman's talking about. For context.

The hyperbole is just crazy. For context. So he's talking about $5 to $7 trillion. That's the headline. Total US, this is from the journal, total US corporate debt issuance last year was 1.44 trillion. Yeah. So let me ask you this.

The cloud should cost more than it costs to run the United States. So this guy is going into the UAE shark tank and he's looking for $5 trillion for 25% of his company. Right. This is interesting. I'll take a valuation equal to the entire US stock market, please. Same article, Wall Street Journal. Global sales of chips were 527 billion last year and are expected to rise to 1 trillion annually by 2030. Global sales of semi-manufacturing equipment last year were 100 billion. All right, so it's a huge ecosystem.

It's a $630 billion ecosystem, we think going to over a trillion six years from now. That's a pretty good CAGR. That doesn't sound like somebody needs to invest $7 trillion right now, especially considering how useless all this shit is. And that's a later conversation we can have. To take the temperature of the market,

Nope, It's Lily tweeted, arm up another 30% and over 100% in the past week. NVIDIA surpassing Amazon in market cap, super microcomputer up 200% year to date. Definitely things you don't see at the parabolic move at the end of a bubble. Yeah. Well done, Lily. Totally agree. This arm thing requires a couple of minutes of, of our attention because not only do you not, not only does something like this normally happen at a top, it just doesn't normally happen even at a top. Like this is one of the most outrageous things. So my understanding, and you've probably read more about it than I have, is that this move in ARM, where effectively it went up 100% in two days around options time. Do I have that right? Unbelievable.

I haven't been paying attention to this. Okay. Is entirely options related. demand for people to get long this stock in any way they could. That options activity alone explains the move. Here, let me read this. This is Bloomberg. Arm holdings soared again on Monday, extending a three-day rally that has driven its value up almost 100% after a blockbuster earnings report last week showed AI spending is bolstering sales. The chip designer shares rose 29% on Monday to close at a record on volume that was more than 10 times the average over the last three months. The advance pushed past the stock's gains to more than 90% in the three trading

sessions since they reported on February 7th. All right. So that's a 70 RSI. Nvidia is an 83 RSI. Super micro computer is a 94 RSI. I don't think I've ever seen a 94 RSI. Have you? I don't know. I mean, that sounds crazy. So somebody had to buy the top yesterday. So the arm holdings closed down 27% from its high yesterday. Einhorn was on Barry's podcast this weekend talking about like broken markets. And I think some of it is hyperbole, but there's no doubt that some of this shit is just totally obscene and broken. Well, I would say this. I have seen things that are obscene and broken. And eventually if they're unsustainable, then by definition, they, they don't get sustained. Like they, they heal themselves usually by a lot of

people losing a lot of money. Like, like I have like concrete examples from my career and they all happened at or near, not at exact tops, but at or around tops, the level of enthusiasm required to get a company the size of Arm to double in three days on 10 times normal volume. You just cannot get that in anything other than at least a short-term top. I was pitching shares of 3Com. they were about to spin off PalmPilot as an IPO. If you were a shareholder of 3Com, you got one share of PalmPilot. They were going to take 10% of it to an IPO, distribute the other 90%. Do you follow me so far? Palm, by the time the mania was finished, they thought PalmPilot was the iPhone like 10 years before the iPhone. By the time the Mania was finished, Palm got itself public and had a larger market cap with only 10% of the float trading than its parent company, 3Com, which owned 90% of it. How is

that possible? It's not possible. And that did not end. That did not end. That ends with Palm at a billion dollar valuation on its way to nothing. And I have stories like that collected. They're all at tops. Can we just say one thing just to pump the brakes a little bit? We're not giving advice, but certainly if you're an accumulator index funds, we're not sounding the alarm bell. But if you're thinking about taking leverage out to buy NVIDIA tomorrow, maybe pump the brakes. Well, so I'm not calling that a crash. I'm saying

I think the top for the NASDAQ 100 for the quarter is in. And if this were the top of the year, I would not be at all shocked. I really wouldn't. I just think people need to check themselves. That's not about me checking people. I don't do that. I don't give a shit what anyone does. I'm speaking for myself. My last three or four trades that I've done have been sells. And I'm not trying to pounce on a semiconductor stock here.

So maybe I'm a contrary indicator. You want to fade me? Go buy AMD. I don't know. I think what you're trying to say is curb your enthusiasm. Like just, can we all relax? I'm very excited about AI, okay? I'm in the club.

I've been talking about this shit before most of you were born. Let's just calm down though. That's all I'm saying. All right, let's talk about earnings. So Brandon Gomez tweeted, we're halfway through earnings. Here's where we stand. Current earnings growth is up 8.1%. We're on pace for the strongest earnings growth of 2023. EPS beats are overshadowing

lots of revenue misses. What are your thoughts so far on where we stand? So the reactions haven't been that terrible, like anecdotally, like the big stocks, especially. I know people weren't thrilled with like Alphabet dumped the night that it reported. But outside of that, I feel like the big companies that really matter to the indices have held up. Nick Colas took a look at Q4 earnings season, and he had a different take than I did. He calls it a C plus. And I'll tell you what he's looking at and why he arrived at that conclusion. And this is as of, I think,

yesterday. So he might've missed a few reports today, but the big ones are all in. 67% have reported Q4 numbers. 75% have beaten earnings expectations. That's better than the 74% that's average. It's a touch lower than the one in five-year averages at 77%. Okay, fine. In the aggregate, earnings are 3.8% ahead of expectations. This is well below the one, five, and 10-year averages, which are 5.7, 8.5, and 6.7. 65% of companies have beat on revenue.

Slightly better than the 10-year average below the one in five. Reported revenues have come in 1.2% ahead. That's basically the same as the 10-year average, but well below the one in five-year averages. He's saying generously he'd give it a C minus. While it's performing in line in revenue and earnings, this is Nick speaking, the amount of the beats is lackluster. In scholastic terms, companies are getting enough right answers to pass, but their grasp of the subject matter is tenuous. That's why star pupils like Meta and Arm stand out so much from the rest of the pack. stand out so much from the rest of the pack. He's got a silver lining. The good news is that expectations for the quarter that we're in are barely higher than the quarter we've just gotten the report. So the bar is not being materially raised. And maybe that'll help us as we get into next season's reporting period. But yeah, I mean, look, it's nice that earnings are not contracting, Um, but yeah, I mean, look, it's nice that earnings are not contracting, but they, they're not roaring higher by, by any means stocks are, and we should just like be aware of that. That's like disconnect.

What do you think? Um, yeah, I mean, so Microsoft and Google both traded down pretty bigly after earnings, but they've, they've recovered a lot of it. The equal weight index has gone sideways for the past couple of weeks. So that's not bad. I mean, stocks are trading decently after earnings. Obviously, there's been some stinkers. Unfortunately, I own a few of those stinkers, but it's been a mixed bag. Yeah. One thing that we haven't talked about in a long time on the show, because it really hasn't been relevant since rates went up, but buybacks. And they're sort of making a comeback. I think one of the things that

happened in 2022 was a lot of people got spooked. A lot of CFOs were staring down a very likely in their minds recession, and a lot of capital allocation decision making probably got more conservative. And then there was the whole layoff thing and we haven't had the recession cash balances have built up margins have held up and companies are not doing tons of m&a so like what do you do you do bigger buybacks again uh bloomberg says s&p 500 firms are expected to repurchase 885 billion dollars in stock this year which would be up 10% from 23, but down 4% from 2022. And most of those 22 vintage buyouts were decided in 21. Keep that in mind. I don't blame any of these companies for operating this way. It would have seemed

idiotic at best to be rebuying stock aggressively in 2022, even though the shares were getting more attractive, given that we all thought a recession was coming in 2023. It just goes to the inevitable nature of how pro-cyclical buybacks are, unfortunately. They halt them when they should be pursuing them, in hindsight. And when the markets are rebound, they're at all-time highs. They start buying back. But don't you think it's responsible to halt them if you think business conditions are about to rapidly deteriorate? Totally. And it's also a really bad look to

accelerate buybacks when you're doing layoffs. So yeah. I agree with that too. So there's a chart from Goldman Sachs that just shows how dynamic capitalism in the United States is, particularly at the company level. So this is a little bit confusing, but let me just walk you through it. We're looking at a chart from Goldman that shows the year-over-year growth in the S&P 500 for their cash, and it's showing CapEx, and then R&D, and then dividends, and then buyback. So let's start with CapEx. So in the fourth quarter of 2022, companies were aggressively spending money in this fashion. And then you see the baton shifting to R&D. And then you see dividends coming down and it's shifting to buybacks. Look how coordinated it looks. Yeah. The dynamism with which these companies operate

is nothing short of astounding. It really is. So I'm going to tell you, put that chart back up. It's like 10 firms giving all the advice to these corporate treasurers. So Goldman Sachs is telling them what to do, right? They have consultants telling them, oh, you know what's hot right now? Everybody's buzzing about CapEx. And then the ball moves. And it's like, you know, what people really want after a year like last year is higher dividends. This is like political campaigning almost. Like, Chardoff, they're getting the message from their consultants and their consultants have their ear to the street and they're talking to hedge funds and institutional and pension managers.

And these things come back around. So I think the, I think the puck is going back to, Hey, you know, nobody ever gets fired for doing a buyback, right? Like, like what should we do? Should we do M and a? No. There's a communist at the FTC still for another year. Let's not open that can of worms. What about dividends? Ah, we raised a dividend last year. What about our R&D? We're already doing all these outlays for AI. How about buyback? Yeah, hit the buyback button. And it becomes a meme.

Well, they're also very aware of what Wall Street wants. And last year, dividends were not hot. Like dividend payers got destroyed last year relative to the rest of the market. And another example of how incredibly well-run these companies are, next chart, corporate transcript mentions of operational efficiency. Next chart, corporate transcript mentions of operational efficiency. And yeah, the trend of this has been up until the right, but like really look at the most recent quarter. It's just exploding.

These companies are giving Wall Street exactly what it wants. It's so perfect. Like operational efficiency became- That's the word du jour. It became the meta, like it became the meta Cretec core and everyone else takes it up. It's almost like a battle chant. It's, it's amazing. Um, back to Bloomberg

us companies have announced 150, $105 billion in plan. Sherry purchases in the first seven days of February, surpassing the full month tally in January. It's the strongest start to a February ever for announced buybacks and the second best start to a year after 2023. So I suppose if we don't have some sort of systemic freak out in the banking sector or commercial real estate, and everybody in the S&P feels fairly confident, you're going to see buybacks play a bigger role in the market than they did last year. And they do have a stabilizing effect. And I'm going to tell you one other thing, and somebody might disagree with me, and there's no way to know for sure until the year ends. I know that tech companies do the biggest buybacks in dollar terms. Obviously,

Apple doing $100 billion programs is not going to be matched by anyone else. But proportional to the market caps, I actually think a buyback theme favors non-NASDAQ giants. I think it's more impactful when you see FedEx and American Express buying back stock than it is at this point when Microsoft buys back stock. How much of the market cap will Microsoft and Apple buy? We have companies in the S&P that could comfortably buy 1% or 2% in 12 months. Airbnb, after the close, just announced that they authorized a $5 billion share repurchase program. Oh, that's interesting. Is that their first?

I think so. I bet you it is. I think so. Anyway, so tech will be a big part of that $885 billion, obviously, in dollar terms. The question is, which stocks are most benefited by a recovery and buyback activity? And it might not be the companies doing the biggest dollar amount

because some of that will be a function of the market cap. So something to keep our eyes open for. I want to say one more thing on buybacks. Larry Cunningham, who is, how do I describe him? He's like the Dean of Board of Directors slash shareholder. Did he write The Warren Buffett way, which book did he write? He's written a lot on Buffett. Uh, he actually has a new article in, um, the, uh, museum of American finance on Charlie Munger, but he wrote a dear shareholder. No, that was a, that was a Jeff Graham.

shareholder no we didn't no that was uh that was a jeff graham so he so he wrote the other one some something about board uh boards of directors i don't know look it up anyway he's smart uh he wrote the uh whatever keep going all right uh that was jeff graham wrote dear shoulder he wrote he wrote beyond berkshire beyond buffett oh. Oh, okay. Yeah. Yeah. Yeah. All right. Anyway, uh, Larry Cunningham mentions on his blog, which is a, a good one. It's called across the board and he's, he's at a firm called mayor Brown, which I suppose is a consulting firm for boards of directors. Uh, but he talks about this thing where the SEC last May tried to put a new rule in place that would compel management of publicly traded companies to justify why they're doing a buyback, which seems weird because the justification is we have an excess of retained earnings and we want to return it to shareholders in a tax-friendly way and shrink our float and grow our value. It seems pretty obvious.

But of course, there is a part of the investing public or the commenting public that thinks buybacks inherently lead to inequality in society and bad outcomes for certain workers. And so they did this thing. And then there was a court ruling in October and the court established that the SEC failed to follow required procedures in adopting the rule. And the SEC said in December, well, then I guess as 2024 takes effect, we'll just go back to the old rule because we don't have time to fix what you're saying is wrong. So that was interesting. And I'm going to quote Cunningham. He said, the SEC therefore announced that applicable requirements revert to those in effect before

its rulemaking effort, meaning companies do not have to explain their buybacks. The episode not only ends the SEC's efforts on the share buyback front, but bodes ill for their other rulemaking efforts, including its climate disclosure rule proposal. On the buyback front, state law lets corporations repurchase their shares, and leading investors say buybacks can be rational and shareholder-friendly. Proponents of the stakeholder model of corporate governance, which, by the way, is in retreat everywhere, criticize buybacks as harmful to workers or social equality. So the Fifth Circuit Court of Appeals vacated the rule because they say the agency didn't implement the rule correctly.

And so it sounds like a technicality, but Larry Cunningham is saying it's probably dead for now. And I think the whole stakeholder thing is on the run. I think people are kind of done with, people in power are not afraid to say that they don't agree with this stuff anymore. And a lot of things are going back to the way that they were. And this is one example. So if companies don't have to justify buyback activity

this year, that probably bodes well for continued buybacks. I think you'd agree like on the surface. Yeah. He wrote the essays of Warren Buffett too. Remember that book? Yeah. Yeah. He's like the guy. He's the guy. All right. Last week we had Sembliss on TCAF and we were talking about, he likes to poke at the Armageddonists. had Sembliss on TCAF and we were talking about, he likes to poke at the Armageddonists. And I want to share a chart as just on this topic. So I remember last year, this was making the rounds. I'm talking about US bankruptcy filings by month. And at one point around the SVB regional bank blow up,

US Bank for OPC filings by month was definitely trending in the wrong direction. If you take out 2020, this was like at the highest level in really a number of years. And now that this chart has reversed course and come all the way back down, and credit to Carlos Quint Cantania for sharing this, but nobody wants to talk about this.

Like nobody wants to talk about the fact that this wave of bankruptcies that was predicted never materialized? Correct. Why would you? We just sweep it under the rug. Another prediction of whom never came true. Can I say one thing though?

This is a very, very short-term history. And there's never, like we almost outlawed bankruptcy during the pandemic and we flooded the system so that there wouldn't be. This is not like what a typical economic slowdown would lead to. I think you'd get many, many, many more bankruptcy filings like when this thing finally ends. And I feel like it could

change really fast. I'm not sure why we think that this has to be gradual, I guess is what I'm trying to say. I'm only making the point that people share bad news. And then when the bad news dissipates, it's- Yeah, well, of course. Oh, that emergency I told you about didn't happen. Yeah, nevermind. You mentioned something about banks. I forget who shared this chart. This is from Morgan Stanley. Look at this. Large cap banks have their highest excess capital levels on record. Well, they have to. Over $180 billion of excess capital. We should point out that they have to if they're going to remain in accords with Basel II and all of the new rules here that came about in the last 15 years after the GFC.

Most of this is not, most of this, some of this, I should say, is not voluntary. And so it's expected. But I agree. It's still like, it's good news. Like if a blow up is coming, this is not, I don't think, this is not where you want to look for its origin, right? You probably want to look elsewhere if there's going to be some kind of major issue. Because these look, put that back up.

Like what would you want this to look like if not this? And I don't even know all these tickers. Some of these tickers, like Northern Trust, State Street, the smaller ones. Yeah. Bank of New York. This is what you would want this to look like, isn't it? This brings me comfort. It's heartening.

That's heartening. Does it give you heart? It gives me tons of heart from Succession this heartens me Wamsgans is saying that to Logan at the end he's like don't worry I'll take care of you

did you see the meme of Kyle Shanahan sitting up against an equipment box juxtaposed with Kendall sitting down and shit that dude's young that dude's younger than me against like an equipment box juxtaposed with Kendall sitting down and and shit hugging him. That dude's young. That dude's younger than me.

Shanahan, is he? What is he, 45? I also think Andy Reid f***ed up a bunch early on in playoff games and stuff. Like he'll be, he'll be all right.

He's got time to, he doesn't have, listen, he doesn't have Patrick Mahomes. Andy Reid had the same reputation in Philadelphia all these years. All these years, he couldn't get over theomes. Andy Reid had the same reputation in Philadelphia all these years. He couldn't get over the hump. It happens.

Yeah, right. That's my point. It's a little bit of a race, but it's also a little bit of a marathon. I think at a certain level. YouTube is bigger than Netflix by one important metric. This really stood out to me. Uh, I just, we'll, we'll go through this quickly. Neil Moen is like the CEO of YouTube internally at, uh, alphabet.

And he does an annual thing where he, he almost like did like the state of YouTube. And I think he does this every year. Um, but he said that according to Nielsen, Nielsen does a streaming report in the United States. YouTube beat Netflix in TV streaming 11 out of 12 months in 2023. I think YouTube TV is $73 a month. Do I have that right?

I don't know. I don't pay for it. Okay. YouTube. But YouTube TV does not have a ton of subscribers. Well, I'm going to tell you how many actually. I don't know. I don't pay for it. Okay. YouTube. But YouTube TV does not have a ton of subscribers. Well, I'm going to tell you how many actually. This is their live TV service.

Yeah, yeah. Okay. 8 million subscribers. That's nothing. Yeah. YouTube subscriber growth. So the video platform's premium and music streaming services. So you could subscribe to music via YouTube, right? What does premium give you? Just, just no commercials. You could download the videos

and watch them offline. You get a bunch of stuff. You can edit your own clips of them. So here, the video platforms, premium and music streaming services surpassed 100 million subs in the quarter ended December. That's a big deal. YouTube is now the main driver of subscription growth for all of Alphabet, according to Sundar Pichai. Moen also emphasized in the letter, the stark divide is gone between content from creators and content from the major studios. And we know that's true.

Like MrBeast stuff looks like it's on a par with anything Amazon Prime is making. And the proof of that is Amazon Prime, I think just gave him a hundred million dollars to do stuff for them. So the creators on YouTube look less amateurish with every passing year. And here, YouTube is a leader in revenue sharing with creators. Yeah, this has numbers wild. Top creators on a platform such as MrBeast, who has 225 million subscribers,

recently vocalized his hesitancy to upload videos to competing platforms due to low pay. So YouTube is winning over the creators. They paid out $70 billion to artists and media companies last year, over the last three years. That's the highest of any social media platform. Instagram is not paying like that. $70 billion over the last three years.

So YouTube has the most generous ad or revenue share with their creators. They pay out 45%. Yes. And of course, most of that money is going to the top accounts. It's not divided equally. That's the Pareto principle. Get used to it. So if you're uploading videos for 300 people to watch and they pay you a dollar, don't be upset. That's not what they're trying to incentivize. They're trying to incentivize mid-sized creators to become large and large to become global. And it's happening.

And what's so funny about Mr. Beast is he is the least famous looking famous person I've ever seen. He took a picture in the Super Bowl suite with Kim Kardashian. It fucking looks like she took a picture with a fan. picture with a fan. And meanwhile, if you talk to somebody under the age of 20, his face is like one of the most recognizable faces they know of. That's funny. I've never watched one of his videos, but I know he's gigantic. Gigantic. And like, I give him so much credit. It's not for me. That's not, I'm not the audience for, Hey, we're going to drive a bulldozer into a pit full of alligators and see who wins. Like, I don't give a shit about that. But to people under 20, he's as big a star as anyone, quite frankly, that you could think of. It's just interesting how stark that divide is.

The money divide is no longer there, though. Yeah. So top tier creators and media properties on YouTube are getting paid as though they're on Netflix. So anyway, give that a read from Neil Mullen at YouTube. tier creators and media properties on YouTube are getting paid as though they're on Netflix. So anyway, give that a read from Neil Mullen at YouTube. I thought that was really interesting. Okay. We're going to make the case and then do a mystery chart. All right, Josh. I'm done this time for real. The next time I do this, you could slap me in the face. And remember that time I said I was done? Did you panic sell China?

No, no, no, no, no. Not panic. No, no, no, no. I did sell it, but it wasn't a panic. All right. I'm going to make the case. I'm going to make the case why we should avoid losers. Okay.

All right. Buying individual securities, whether it's stocks or ETFs or whatever, it's hard enough. It's difficult. You're fighting not just against the market, but yourself, your own emotions, all this sort of stuff. Let's not make it any harder than it needs to be. But Michael, I was always taught to buy low and sell high. Well, that's horrendous advice. I will no longer be pursuing stocks and downtrends. longer. I will no longer be pursuing stocks and downtrends. I got lucky. I bought Facebook two years ago at the exact bottom. I bottom picked Verizon. I had a few winners and then I got

cocky. And I said, you know what? I'm going to keep going. I'm done. I'm done. So just very simply, let's go through some of these charts. And I sold all these. So I'm looking at the 200 moving average. It doesn't matter which moving average, just stocks that are clearly in defined downtrends. If you took this purple off the screen and you just looked at which way the moving average was going, that tells you all you need to know. So PayPal, gone, out of my life forever. Next one. I'm out of PayPal too. Okay. And Phase Energy. I wish you the best out of my life forever. Next.

Moderna. See you later. Thank you for the loss. That's the biggest piece of shit I've ever seen. Thank you for the loss. And then lastly, most recently, I know I made the case for, for FXI and no, I, no, I, I sold it for a 1% loss. I think I just, I don't want this aggravation.

I don't want this aggravation. Okay. Try it off. All that being said, you have to know what to break the rules. You have to know what to break the rules. So it's such a junkie. So if dude, I'm Jack Bogle in my IRA, I'm Jack Bogle. Do you take dogs like on a, on a, on a football Sunday? You like, Do you take underdogs? Do you take- If the price is right. If the price is right, if there's value.

Okay. So that's all things being equal. I actually, I'm going to write a post on this. I am Jack Bogle in my 401k. I don't f**k around. You are D-Gen Bogle. But I am done buying stocks and downtrends. Now, and I would just say this one thing. If you want to go bottom fishing, then this should be a stock that you wouldn't sell no matter what. In other words, let's say I buy

and I plan to hold FXI. If this thing falls 20%, I'm not doubling down, I'm out, right? If Moderna falls 40%, what do I know about that company? I'm out. My point is this. Hold on. My point is this. If it's a company that I really believe in long-term, Netflix, for example, or Zillow or Amazon or whatever, where it's a stock that, listen, you could honestly say to

yourself, if this thing falls 40%, I'm going to double my position. If you're not willing to do that, then you probably shouldn't be buying stocks that are crashing. So I'm just totally on the other side. I will never get bored of buying overreactions and then exalting as like the intellectual king of all I survey when the inevitable turnaround happens. But it just, you can't rely on it happening every time. Dude, how many, how many stocks are there that you would, that will give you a chance to buy when they're crashing? It doesn't happen that often. It happens, but not that often. I'm not saying it's a good investment strategy. I'm just saying, I love the feeling when I'm right.

So when I bought the panic in Netflix in May of 2022, it's one of my greatest trades ever. I did it from the back of a taxi boat, taking me, this is true story, taking me from the airport at St. Martin to my hotel in Anguilla. For whatever reason, I happened to glance at my phone that day, they had just disappointed on earnings. This stock was in a drawdown from like 400 to 150 or some insane number. And I just said, I don't give a shit if this stock goes to 90, I'm buying it right here. And of course I was early. Of course I was early, but I stayed and look at the turnaround. The stock's 500. You're proving my point. And by the way, I bought early, but I stayed. And look at the turnaround. The stock's 500.

Dude, you're proving my point. And by the way, I bought Netflix in November, 2022. You're proving my point. So Netflix could have gone down 40% more and you would not have panicked salt because it's Netflix. Yes.

You're proving my point. But it was in a huge downtrend. So I'm not proving your point. No, you are. I'm saying if there are companies that you believe in so fully that you're not going to get scared if they continue to fall. So the distinction you're drawing is great company in a really terrible situation or terrible company. Yeah. All right.

But what is meta in a 75% drawdown with Zuckerberg burning $10 billion a month on the Metaverse at the end of 2022? Is it a terrible company or is it still a great company at that point? I'm not sure. It's hard. It's hard. My point is this. If you don't have the conviction to buy more if you're down 20%, which you're probably

going to be, then you have no business buying stocks. Oh, so that's the thing that stops you from doing it to begin with. You go into it, you say, if this falls another 20% of my buying or selling, if the answer is I'm selling, then don't buy it. Then don't bother. Ooh, I like that.

Then don't bother. That one I can't argue with. Thank you. Can I do my mystery chart, Chung Lee? All right. Pop this up, John. Okay. Hang on one sec. All right. These are two companies that are competitors in the same industry. They're financial services businesses. I think there are four or five publicly traded companies, all basically do the same thing. And I found this divergence.

This is just price. I found this divergence to start off this year as being very interesting. And I think one of them has to be lying. The reality is that either one of them has to play catch up to the purple reality or the purple one has to come back down to earth where orange is. Oh, I love this. Yeah. So it's, I told you their finance. I told you their financial, financial in nature. And there's like only four or five of these that trade.

Are these, are these alts? Are these alt managers? No. Are these credit card companies? They are. Okay. Is it Visa? No. Are these credit card companies? They are. Okay. Is it Visa? No.

All right. Well, American Express? Which one? American Express is the top one. Okay. Do you want to solve the puzzle? And the bottom one- For the block.

Is, I don't know. It's not MasterCard because I own that. It doesn't look like that. I don't know. It's not MasterCard because I own that. It doesn't look like that. I don't know. Discover? Oh, my God. Woo! Seven and a half guesses and you got it.

I'm so proud of you. Okay. You're not mad now, see? Okay. We ended this on a good note. I don't know that. You used to get so mad. Well, because you used to give shitty clues.

I don't know that one of these companies have to be lying. They cater towards different customers. I know you think that, but I'm going to prove that wrong too. John have to be lying. They cater towards different customers. I know you think that, but I'm going to prove that wrong too. John, if you please. So this is drawdown from all-time high. Oh, interesting. Discover is in a 20% drawdown right now.

And it never, as you saw in the chart before, it never got back to that late 2021 sugar high. American Express is 1% off its all-time high. Okay, okay. But how about this? Does Discover give you access? Very different situations. Does Discover give you access to the Delta Lounge?

Yeah, I'm going to go ahead and tell you that on the surface, they do sort of represent two different economies. And I'm going to give you the difference. And I had Google Gemini produce this data. So if it's wrong, take it up with Sundar. Wait, can I, it'll be great. If you could tell me the average credit score of the Discover customer versus the Amox customer. Aha. Well, I cannot. I cannot. Well, let me tell you, there's two things I want to say about this. Chat GPT is worthless.

I asked this question six different ways. They refused to even pretend to answer. Chat, chat GPT has been like castrated by somebody like the internal AI police are just like shutting down any usefulness. If you ask it, anything that's to do with finance. Did Gemma help you? It was like, as of my latest data, January 2022, I still can't give you answers because A, B, C, D. By the time it was on its eighth excuse, I said, fuck you, close the browser. Gemini gave me an answer in half a second.

So just anecdotal, just pointing that out. And what they say is that generally, that out. And what they say is that generally you need a 700 plus credit card score to get an Amex. That doesn't mean that's the average and Discover obviously plus 630. But I'm going to tell you a couple of things here. So according to Gemini, the Discover user tends to be younger, median age 30 to 40 versus 40 to 50 for Amex. Okay, we all would have guessed that. Amex is considered to be median household incomes exceeding 100,000. Discover is more diverse income range. So not necessarily lower, just a wider spectrum and a median household income around $75,000.

American Express has a higher percentage of college grads and postgraduate degrees. Discover is less so, but not at the lowest rung. They do say though, this is the thing that you and I would probably get wrong. Most people would assume that Discover cardholders tend to keep a higher balance month over month over month. I was just going to say that. That's not true? It's not true because Discover's big marketing campaign over the last few years has been these cash back rewards. They're giving you the cash back for paying off your monthly balance in full.

So the way their rewards work is by keeping your balance at zero. So they've actually disincentivized. It's really Capital One, Visa, and MasterCard that want you to keep the balance longer. That's their business model. That's not Discover's model. So I thought that was really interesting because I would have been wrong about that. Anyway, to me, it seems as though one of these is lying. The original chart back on, please.

Well, I think it's- Amex is way stretched. I'm going to tell you that Amex is trading on this consumer free-for-all, and it's part and parcel with the NASDAQ blow-off top that I think we've just experienced, and I think that's the one that's lying. And Discover's not crashing. It's just not at all-time highs, and it doesn't look like an AI stock, and American Express does.

And that's my last word on that. We'll see what happens. I want to thank everyone for coming out and waiting. I know we were a few minutes late. Sometimes things are outside of our control. Shout out to YouTube for giving us the platform. We forgive you. Great job with recovery, Duncan.

And to all of my favorite compounders, thank you guys so much for joining us. Tomorrow is Wednesday. So you know what that means, everybody. It's an all new Animal Spirits, Michael and Ben. And then on Friday, we're back, compounding friends. We'll see you then. Thanks for listening. Thanks for watching. Peace out. Thanks for watching. Peace out. Whether you're just getting started as an investor or you're managing a multi-million dollar portfolio, Ritholtz Wealth Management has the solution for you.

It all starts with building the right financial plan. To speak with a certified financial planner today, visit ritholtzwealth.com. Don't forget to check us out at youtube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening. Ritholtz Wealth Management is a registered investment advisor. Advisory services are Thanks for listening. I also wanted to very quickly give a shout out to the team. We have been doing a ton of content over the last three weeks.

Duncan, John, Daniel, Nicole, Sean, everybody behind the scenes, guys, is crushing it for us. And I know you don't always get to see them or understand what role that they're playing. I promise you, most days, Michael and I have the easiest job here. So I wanted to give a shout out to the team. This weekend, we just had all kinds of breakthroughs in downloads of the audio pod. You guys went nuts for the Semblers show. Animal Spirits is on fire. Just means so much to us, and

I really wanted to recognize the people that are putting these shows together and making them something that's really enjoyable for you to listen to after Michael and I do our part. Hey, guys. Sorry to come in. Something's gone wrong. We're not actually live.

Everything looks right. Hold on one second. All right. I'm going to do that. I'm going to do that all over again. Amazing timing. Wait, wait. F***ing chef's kiss.

Wait, wait. Keep that on tape. Oh my God. I should have. Hopefully that was recorded.