The Compound and Friends - Things People Say in a Bull Market

Episode Date: August 12, 2025

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Ladies and gentlemen, welcome to The Compound and Friends. Tonight's show is sponsored by FM Investments. More on FM in just a moment. Tonight, we're going to get right down to business. We're going into an all-new edition of What Are Your Thoughts? It's Michael Batnik and myself. And we're going to talk about things people say in bull markets. Pretty apropos, given that the S&P is knocking on $6,400.

That's a new record high and all the usual suspects traded higher today, including some areas. of the market that have really been held back waiting for rate cuts. And we'll talk about why that's the case right now. We're also going to look at earnings. We'll do some inflation data. We'll have a make-the-case. We'll have a mystery chart and all the stuff you guys love. Without any further ado, I send you into the show right now. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.

Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Well, if you're hearing that sound, our theme song, you already know, it's 5 o'clock. It's time for an all-new edition on a Tuesday, 5 o'clock on a Tuesday, of what are your thoughts? Those of you tuning in for the first time, my name is downtown Josh Brown. My co-host is here, as always, and his name is Mr. Michael Batnik. Michael, say hello. Hello, everybody. All right.

The chat is pumping. I don't know if you've been taking a look, but we've got all the pounders are here. I got someone named Mike Gloomberg saying Batnik's biggest fan here. We'd love to see it. I think I'm Battenick's biggest fan, to be honest with you, Mike. I have to tell you the truth. And then he says, Queens College represent.

All right. That is true. I'm an alumni. Yeah. Let's say. Craig in the House said, actually blocked my calendar so I could join the live version for once. Craig, we appreciate that, bro. Ledge says, who's ready to get pounded? I know I am. For those of you wondering about

my location, those of you watching in the live, I am in a college apartment across the street from University of Miami, where I have spent the last eight hours setting my kid up for her sophomore year. So that's what's going on with me. We're going to talk about all of the biggest topics on the street and the markets today. First, I want to shout out our sponsor. Tonight's show is sponsored by FM Investments with bond yield so attractive today. Many investors have rediscovered fixed income investing. That's right, Josh, but there's a catch. Those regular, I'll tell you, those regular income distributions, they pull money out of your portfolio. They make it harder to stay fully invested and slowed down the magic of compounding.

So here's the good news. FM investments just launched two new ETFs designed to solve the fixed income distribution problem. Powered by NASDAQ Index Innovation, the FM Compounder ETFs are designed to help investors grow their fixed income holdings and compound their capital gains without taking interest distributions that have to be reinvested after paying income taxes. CPAG, the FM Compounder, U.S. aggregate bond ETF, and CPAG, the FM Compounder, U.S. aggregate bond ETF and CPHY, the FM Compounder, high-yield ETF, help investors take control of both the

timing and the character of the income that their fixed income investments generate. To learn more about FM Compounder series in their additional ETF fees of products, check out the link in the show notes. All right. I love how they named it, Compounder. It's just pretty good. It's almost like a match made in heaven. Also want to remind everybody, August is portfolio review month at Whitholz Wealth Management.

Certified financial planners are standing by to take a look at your situation. review your portfolio and maybe shed some light on how your allocation may or may not fit your long-term goals. Go to writholdswealth.com to get in touch. Okay. So we're basically done with earnings season other than the biggest most important company still waiting to report, but we are 90% through. We've had 452 S&P 500 companies report so far. The blended earnings. So this is where we take the actual already reported for the S&P 500 grew at, we take the actual, we add the estimates of who's left, but there's not much left, grew at 10.5% year over year.

That is 770 basis points above estimates at the beginning of the season. Wow. 81.2% beat rate, which is better than the five-year average of 77%. And now if you just look at the actuals, so take it. out the estimates, 452 companies reported grew 8.1% year over a year. Eight of 11, this is all thanks to chart kid Matt of Exhibit A.

Eight of 11 sectors posed the year over your increase in blended profits. The highest growth rates you can probably guess. Com services, tech, and financials. The lowest for energy materials and staples, you probably could have guessed that too. 11 out of 11 sectors, Mike, have beaten beginning of season growth. estimates. So of the sectors that have beat estimates, the average beat rate is 6.7.

These are, I'll do chart kit match big takeaways. And I know you have some, some images for us. The analysts were looking for a 2.8% year-over-year increase in profits this quarter, which would have been pretty weak relative to recent prior quarters. Now it's looking more like 10.5% again. So it's a huge surprise. And according to Matt, that's the largest beat rate in all of the data we have access to back to 2013 outside of the weird COVID-19 period. So it's not just a good earnings season. On most metrics, it's a way better earnings season than most of us would have, obviously, than the consensus expected. But it's a great earning season, it turns out.

Yeah, here we go. Look at this. So why are stocks rallying? look no further. I mean, literally, figuratively, metaphorically, look no further. This is it. This is it. I like that. I like in this visual how we're pulling out the pandemic because it was so bizarre. And like how does anyone estimate earnings during a government mandated shutdown? It's kind of stupid. Yeah. So I do like that. But then like just look at the last, look at the progression of the last four quarters. I am. Like, of course stocks are at record.

highs if that's the progression. So I think the big takeaway here is we are hearing about headwinds, quote unquote, from CFOs and CEOs related to tariffs, but the companies that are struggling the most with them just aren't that consequential. And even the companies that are struggling with them are still finding ways to beat. So either the tariffs have worked their way into the estimates to the degree where companies could just leap over them, or they weren't that big of a factor to begin with? And I don't know. What do you think is the, what do you think is the answer to that puzzle? I think we're still working through it. It's too early to tell. It really is. Keep hearing that, though. Like, so when? So next quarter? Yeah. I mean, things keep getting,

the cans keep getting kicked. We really haven't seen exactly where it's going to settle out. But this is, stop ringing. talking about as Ben today, we talk all about like the K-shaped economy, particularly through the lens of the consumer. It really is in the stock market more than any place else, or as much as it's in the real economy. There are obviously winners that we can't and won't stop talking about. And there's a lot of losers. And companies that are lowering guidance or are missing are getting demolished. So Bespoke tweeted, stocks that have lowered guidance this earning season have average a one-day drop of 10%. That's the worst performance we've seen for stocks lowering

guidance since at least 2001. And there's not like a few of them. There's a lot of them. So, yes, the index is at an all-time high. Why are they, put that back up. Why are they lowering guidance? Would you say it's like 90% of the company's lowering guidance? It's in some way related to tariffs.

A lot of it, a lot of the ones that are getting killed are office adjacent, CAVA this afternoon, sweet green. Okay. A lot of it is AI shit, trade desk. being one of them. I know that's also like an Amazon story, just the ad buildout platform. There's this one company, Chegg, which is an education platform. In China. They had a $15 billion market cap. It's now $100 million. Yeah. Google search is wreaking havoc. The switch to Gemini is killing a lot of companies.

So there's all sorts of reasons, but those are the two big ones. Yeah. You know what? It's a really good point. I've been reading about companies that are struggling with this like AI changeover where and trade desk is one of those. So trade desk has it on both ends. Number one, Amazon is coming to their market. And the CEO is like, no, actually, we think Amazon's going to be a great partner. Yeah. LOL dude. I saw that. Yeah. Amazon has lots of great partnership. Sure. But then the other thing that's happening is like a lot of the, a lot of the behavior of how consumers even encounter adds to your point, like it's It's just, it's shifting now that we are going, you know, utilizing Gemini results rather than scrolling lower on the page to actual blue links.

And of course, all the searches that aren't happening at Google to begin with and are starting on chat GPT, which is now the way that I'm operating. So one more thing on earnings, we've got, if you, if you listen to what the companies are saying, they have no reason to not tell the truth for the most part. They are trying to give guidance that is reasonable. If they don't, investors won't trust them. Their stocks will get killed. So they tell you what it is. And all of the financial companies from SOFI, all the way up to MasterCard and American Express, an ally and everyone in between, they're all saying the same thing. They're not seeing a slowdown.

They're just not. We see it in the headlines and from the publications, everybody stress, anxiety everywhere. people are still spending, obviously to varying degrees, as it always is the case, but we're going to hear from retailers this week, or maybe next week. We've got Walmart and Target. We haven't heard from them yet. And then, of course, we've got the big one. We've got Nvidia, which, by the way, when I said 90% of earnings season is in, I didn't, I wasn't thinking about the fact that we still have, forget about Nvidia. Not hearing from Target and Walmart means earning season is nowhere new. Yeah, we got the big retailers. Maybe that's why you made a, a f*** up face

at me. You're right, though. I'm wrong. I'm wrong. You're right. So there are there are a lot of cross currents, a lot of narratives, and a lot of them are valid. Like a lot of people are saying a lot of different things, and it's hard to get to the bottom of what's happening. Okay. Three percent screaming hot rally for Russell today. I think I know why. CPI came in. Some people are saying on target. Some people are saying tamer than expected. We have some insight from Cali Cox at Redholz's wealth. Let's do the headline and then I'll just, I'll relay her comments, and then I want to get

your reaction. The Consumer Price Index rose in an annual rate of 2.7% for July. The consensus estimate was 2.8%. So that's always good. CPI rose 0.2% in July compared with June, the month over month, and that was inline. Goods and services inflation rose year over year for a second straight month. Services inflation is inching higher. Goods inflation is screaming higher.

Again, this is coming from Cali. Cali says goods inflation heat is concentrated in tariff-affected products like household furnishings, apparel, and newer used vehicles. I think we knew that that would be the case. services inflation, which is 60% of CPI, is stalling from heavier than expected increases in most items outside of rent. I think she means stalling from falling faster. She says, sure, inflation could complicate decisions in this moment, but the chances of a

price-led crisis pale in the face of job market woes. And let's put up, let's put this chart up. So the dotted line is core CPI, the yellow is core goods taking out food and energy. The blue line is core services. I don't know. What strikes you as interesting in this chart? For me, the obvious one is the yellow line. But what do you think?

Yeah, I mean, the yellow line, that's where your eyeballs go. But then also, core services may be bottoming out and hopefully it's not hanging too much higher. It looks like it wants to turn up, but who the hell knows? You can see a lot of. A lot of head fakes in the history. And this goes back, this chart's going back 10 years. You can see that there have been head fakes all the time. It's, I don't know if it's very noisy compared to other economic data points, but I know it's at least noise adjacent.

Yeah. All right. Let's put this next one up. Here's core inflation. And look, I think when you look at the center shelter, this was one of these, quote, unquote, the stickier parts of inflation. that we were most concerned with for the entirety of the 2021, 2021, 2022, 2023 period. But you can see that's like a staircase down.

And I don't know if it's bottomed, but I'm just saying it's significantly better. But yeah, but the rate of change doesn't even matter anymore. It's the damage has been done. It's so much damage. Okay. Core goods on the right looks concerning. I mean, I don't think you have to predict like a spike. The blue line, right?

Right? The blue line you're talking about? Yeah, it's tariffs. Yeah. Of course. Okay. And then the green is, I don't know how to read that. That one, that one's sort of sloppy. I wanted to ask you, okay, so you have July CPI.

We're 90% through earning season. And I understand we don't have the two biggest retailers and we don't have in video, which is a lot of market cap. But like, given the fact that we just did a 10.5% growth quarter, what is the bear case for stocks right now? And you can't answer valuation because that's not a catalyst. Valuation will matter if something bad happens. But like what's the something bad?

What do you think it is right now if you had to name like the big obvious bear case? All right. The big obvious bear case is there's a bubble in hyper and hyperscaler cap expending. But nobody doesn't know that. Okay. Like we heard. There are people that think it's not a bubble. There are people that...

No, you asked me with the obvious bear case, and that's it. Now, we heard from all of the Mag 7, except for NVIDIA, Nvidia's not going to surprise. I'd be very surprised just based on what everybody else said. Like, we know what they're spending. We already saw it. Why do you think in Vittia's rallying? We heard from their biggest customers.

We know what's going to happen. So outside of the usual, your evaluation is not a catalyst. We've been having this discussion for eight years already at this point, maybe longer than that. I think the... This is a lame answer. But real risk, like actual risk is what you never see coming, right? So whatever we're discussing, for the most part, inflation, tariffs, this,

that the market discounts it like that. So I don't know what's out there on the horizon that's going to surprise us, but it's probably not going to be what we're all talking about every day. One of the things that took place in this earning season, and maybe I'm just over indexing, or maybe it's the recency effect. But like, I really do feel like we have more, quote, unquote, name brand, bellwether companies that are really struggling right now on a scale. Like some are like in really bad shape. Well, last week we did UPS. That was an obvious one.

Yeah, it's a secular decline, whatever. No, I understand. But if you would have said like five years ago, UPS is making 50-week lows, I would say that's got really bad readthrough for the economy. I don't think anyone's really saying that now. I don't know. I know Intel's been rallying for a couple of days on the heels of the CEO meeting with Trump and the semi-tariffs being made. being made public, what they're going to be.

Like, I understand that. But the stock is still at multi-year lows. We talked about you and I talked about Chipotle. Like, these are not insubstantial companies that I do think are meaningful. I guess just nobody really cares so long as the AI CapEx spend continues and the consumer doesn't tap out. I don't know. It just feels like a really weird time.

So if you say what's the bear case versus like what is the less bullish case, those are different things. Companies, a lot of companies, a lot of bellwether companies, not bellwether for the S&P 500 by market cap, but bellwether for the economy. A lot of them struggling all at once, I think would be part of my bear case. But I agree with you. The big one is one of the hyperscalers pulls back and then it's like Wiley Coyote off, off the cliff and finally looks down. Yeah. I agree with you. That's, that's it. If you're bearish, that's what you think is going to happen or want to have happened. In the short term, we do have a bear case coming up later in the show.

Everybody is, I don't know, everybody. People are bullish. There is obviously a feeling of euphoria in the air. You need the wall of wire to climb, which we already did it with the earnings. But you're still seeing. So Schwab publishes their S tax report, which we have later in the show. And that's an $11 trillion asset manager. It's the biggest in the world, their second biggest.

And those people, those, those, those, that cohort of investors is still kind of nervous, which makes me think, like, uh, maybe, what is that cohort of investors? Like boom, like boomers mostly? I would say over 40. That, like that cohort is not, you know, I think there's a K-shaped investor, investor base as well. You have the younger people that are flocking to the crypto treasury companies, to the meme stocks, to the high flies of the world. And then you have the people that are over 40 that are like, this doesn't make sense. And they're not all jazzed up. So the live chat is lit up right now with Kava stuff. I know that was a popular momentum trade.

Kava is doing what Sweet Green already did. That's an office story. So the story there, and I think Chipotle in part, the story, not to the same extent, but like, Kava's are located in Midtown locations where young men and women wear buttoned down shirts and blouses, occasionally vests, and eat a $17 bowl of shit that they pre-order on the app. And walk there and pick it up. It's pretty good. Yeah, I know. Everyone says that.

I have no comment. But like these are, these companies are significantly, um, these companies are significantly in need of five day a week. Like, that's what they were built for. And they're never going to get it again. They don't have it now. Um, but sweet green already, I mean, that stock looks like, uh, looks like a, like somebody shot it in the head.

Um, now Kava, I guess will look. somewhat similar. Those are not economic bellwethers. Like, those are, to me, we should not look at, we should not look at that and say, uh-oh, the consumer's in trouble because DoorDash, which we're going to talk about later in the show, is saying the opposite, you know, best tea in the chat, safe to say Josh's short salads in size. All right.

I want to read you something about Barry Bannister. Do you know him? I don't. we invited him on the show. He blew us off. He's good, though. Barry is like a chief strategist or chief economist for Stiefel. And...

Is he British? No, not British. But he's warning in a note this morning. So let me read this. This is, I guess, it's probably CNBC.com, I'm quoting. Barry Bannister wrote in a Monday note that an economic slowdown could be in the cards. That in turn can mean bad. news for stocks. As, quote, as markets charge to all-time highs with very extended valuations,

we are left to wonder what can break up the party like its 1999 atmosphere. The lesson of history is that it's usually a sudden economic slowdown, which is what we forecast for the second half of 2025. Bannister said to expect stagflation, which is marked by high inflation and unemployment as well as stagnant economic growth. This type of environment is already slowing areas of consumer spending, though the artificial intelligence CAPEX build out and tariff pre-buying have helped mask problems. They say they're uncomfortable with the S&P being more than 30% off its intraday low on April 7th as the economy slows to a crawl. Quote, valuation doesn't matter until it does. True.

1929, 1999, 2021. But then here's the problem. I'm with them on all of that. Totally with them. Not that I think they're going to be right. I just agree with the premise. Yeah, it's all sensible. Okay. Here's the problem. Their downside target is 14% from the recent high.

Oh. So who cares? 5,500. 6,400, BFD. And that would be a 6.5% year-to-date decrease from where we started. So that's one. It's low relative to all of their competitors. But like, come on.

But this is worse. This is the last question. quote. I'm going to read. Quote, hopium is a powerful drug, but we abstain by recommending investors overweight defensive value, which is Staples Healthcare Utilities Quality. He lost you at Hopium. In front of a sudden, likely Q3, 2025, a few months in advance of the late 2025 GDP, S&P 500 correction.

If you say the word hopium, I'm taking 20% off your score as a strategist. Yeah. What is that shit? It's just a childish that is. It's people from the 80s say that. It's a portmanteau of hope and opium as if everyone who's long is on drugs. Yeah, everyone's dumb. But wait a minute.

It's not hope you. Come on, Barry. We're just talking about the earnings are at all-time highs, earnings expectations are at all-time highs, beats are at all-time highs. Now, it's hopium that by paying 22 times for the S&P or 30 times for the Mag 7 on average. It's hopium that, like, there's still upside. or that we haven't fully priced in AI. I understand the premise, and I'm not even saying that they'll be wrong with that call.

But when you start talking like you're on Twitter, or like you're subscribing to too many Maldon contributors, that's when I get off. But I think we would agree. People are obviously pricing in a lot here. They just are. Yes, but with good reason. Pro business president.

Pro business president, pro business Congress, tax cut extension, rates coming down, AI Cappex cycle, probably not in the ninth thing. There was a reason. It's not opium. Did you participate next topic? Did you give John two topics or no? Two things for that people say in the bull market? I didn't give anything to John.

I have it in my head. I don't know. I was supposed to give it to John. Okay. All right. I'll go first then. All right. I have a feeling we, so I picked two things.

Oh, Mike. I'm so sorry. What? we had we had other stuff we had other stuff to do here though all right let me just do this really quickly and then we'll move on i'm sure this is very important go ahead all right um we mentioned the trade desk and i said we get to it that's why i just want to get to this put this up they cited ad spending limited due to tariffs and macro uncertainty um they're still growing like 19 percent, but the multiple here was so high.

I want people to understand even high growth companies, if they start blaming tariffs for a downshift in their growth expectation, it slides out. Like, this literally could happen to any company. And there's other stuff going on with trade desk, but like, I don't know. I feel like that's a key stock because of how embedded they are in the advertising market. here's Lily. So we know what's going on here. Tons of competition for the drugs and probably sky high expectations.

And RFK. But dude, do you know how much in dollars this company is lost in market cap? It's hundreds of billions of dollars. Yeah. And this was a bellwether stock too for the healthcare sector. I think it's the biggest farmer stock by market cap. Shopify went the other way. It's an earnings reaction.

Anyway, I asked Sean, like, what were some of the more notable earnings reactions in the companies that we talk about? And these were them. I just wanted to show that part. All right. You know what? You go first. When do you start? So the topic is this.

I asked Josh to bring two things that people say in a bull market to convince themselves that it's, uh, whatever. I was about to give away a thing that I was about to say. But what do you go? Why don't you go? You start first. All right. So these are both Livermore. These are the things that these are the quotes that people trot out. And it's so funny because I can find diametrically opposed Livermore quotes that say the exact opposite for when people are talking about selling and getting out of bull markets. But here are the ones that they trot out. This is one of my favorite actually. these are my two favorite quote after spending many years in wall street by the way back then

they sent in wall street which is very british um and after making and losing millions of dollars i want to tell you this it was never my thinking that made the big money for me it was always my sitting got that my sitting tight have you heard that one before during a bull market and he definitely said that in a bull market obviously oh for sure he did not say that in 1931 no way he said He probably said that in like, in like 27 or 28. All right. Here's the other one, also Livermore. Quote, men who can be both right and sit tight are uncommon.

I found it one of the hardest things to learn. So this is to me the most emblematic when people start quoting the Jesse Livermore index fund quotes, sit tight, do nothing, buy and hold. that's really when and I'm I don't know anecdotally because I'm not not really on social media that much and there's no blogs anymore are people using this stuff or no so you took you took the assignment more literally but those are but those are two very good ones so what I meant was are people trotty at livermore quotes I don't think so I don't think so not yet you quote livermore in a bull market I mean in a bear market I feel like no people this is what I see people do when when we're like in the eighth inning of a bull market to just like tell each other like sit time

All right. So, John, I brought some, I gave myself to John. John, what did I do? There we go. All right. We're still so early. Is this AI? There's AI. Okay. All right. I was going to say these guys don't exist. This, oh, they do. This is very much something that you hear people say in the bull market. And I brought an actual IRL example. So the transcript pulled out a quote from Jassie. last week. I say this frequently, but remember that 85 to 90% of a worldwide IT spend is still on premises versus in the cloud. In the next 10 to 15 years, that equation is going to flip further accelerated by company's excitement for leveraging AI. So to that end, you could see, you could.

Is that true? That's pretty wild, right? Holy shit. You know how bullish that makes me? So here's the thing, though. Here's the thing about the two things that I'm bringing for things that people say in a bull market that sound like bullshit after the fact. They're not always wrong.

they're not always wrong i agree bitcoin's a really great example i was about to say bitcoin people were saying like two years ago we're still early and you're like at 60 000 and it turns out we are and it turns out we are people were saying that at 17 000 and then it but then it fell to 4,000 on on its way to 120 so like yeah people say it's still early they might be right they also might look stupid in the short term correct for saying it which is why you have to sit on your hands or whatever Llemore said. All right. Next one.

Oh. Okay. Jesus Christ. People say it's different this time. Wait, give the listeners the quote. So I have Sir John Templeton saying the former dangerous words in investing are, quote, it's different this time.

However, it really was different this time. John, throw my tweet up, please. This is from 2017. This is a long time ago. This is thousands of S&P. Oh, this is such a killer. I remember this. This is so because, so you're saying the 12 most dangerous words in investing are, quote, the four most dangerous words in investing are, it's different this time.

So what I meant by that was people, there are a lot of really, really intelligent investors who are experts of an earlier world. And they think that history has to rhyme. They remember the dot-com bubble bursting. They remember all the lessons of previous bear markets. But that was 2017. And this time was so different because the driving forces of this bull market are unlike any leadership group that we have ever seen previously. So, John, if you would, what did I, I pulled some stuff from Balchunis.

All right. So Balchunis did this thing this week where he showed that the MagS, seven companies have made like 890 acquisitions or whatever it was. There it is, 846. So some notable acquisitions. These are just the ones that the regulators said yes to. So like I think people forget that Amazon owns Whole Foods and it owns MGM and Google owns YouTube and Microsoft owns Activision and LinkedIn and and Meta owns Instagram.

I mean, obviously we know that and on and on. And then we've got one more. So he breaks down that each Mag 7 stock is in multiple themes, whether it's sports, AI, or Frontier Technology, Metaverse, autonomous vehicles. You know what's not even on here? Media. Like, media. Apple is now a media company.

Amazon is a media company. And so Eric said this is like- So we said this so long ago, too. Yeah, dude, this is like the mag. We call it the Mag 7. There's like 800 companies in here. And so chart off, for people that were astutely observing every, everybody doesn't understand, you're looking at the wrong metrics, you don't understand the

story, we had expanding profit margins, we have never seen anything like this before. It absolutely was different this time. I have a sizzling hot take on this top. We've been saying this for so long that you're acting like these are companies in this monoline business, like they sell oil or they make light bulbs to try to compare these companies to companies in the past. Yeah, come on. They don't respect horizontal boundaries.

Forget about the fact they've built these vertical monopolies in many cases. Like, they also don't respect the borders from one industry to another. Amazon wants to get into prescription drugs. What the fuck are you going to do about it? You can sue them. You can lobby against them. But in the end, they're going to get there. How about telling somebody 10 years ago that Amazon was going to show the Christmas NFL game?

It would be like, wait, on what, how? Yeah. Yeah. Right. On a fire phone, they would have left. Right. So these companies don't respect boundaries. They really don't care. They go wherever they want to go, where everything they think the consumer wants them to be. They'll make an acquisition or they'll build from scratch. They have the cash flow to enable a lot of experimentation. And it doesn't always work. But when it does, your whole valuation model, throw it in the garbage because you're missing the fact that they're eating into another multi-trillion dollar tam. And and taking no prisoners as they do it. And we have been saying this, you and I, for a really long time about why it is different. And for the people that, nope, it's not different. But my sizzling hot take is that what are the people that have missed out over the last 15 years

or were pounding the table underweight or U.S. stocks will have low returns? What are they alive in common? They're all from fixed income. They don't know shit. Not one of them listens to conference calls with Jeff Bezos or Sundar Pichai or they're not stock guys. They're all bond guys talking global macro doing global macro slides. Or value investors, all value.

They're value investors. But from the people that I'm sub-tweeting right now and thinking of specifically, they're fixed income guys. They don't know what these companies do. I'm sure they know the rating on their paper. but like they're not like thinking about the way the way that they were shifting into the cloud and now the way that they're building an AI. They don't care about that.

They're bond people whose job it is to argue against stock allocations so that they can get more into fixed income. And for me, those are the people that have missed the moment. When I say moment, I think what's going back to like 2010 or 2011 at this point. But they're fixed income. come, guys. It's really that simple if you ask me. All right. So let's move on to the next topic, which ironically is things that people say in a bull market close to the top. So why don't you please continue the thread, Josh? Wait, what do you mean? Things that people say. Like you're about to, you're about to say like small caps don't matter ever. They're dead forever. Well, yeah, they are dead

forever. Yeah. Well, I understand that they can rally. But like, do you think there's going to be a 10-year period where small-caps outperform large-caps? Yes. Then you have to think that it's because of the value effect, and you have to think we're going to have a lost decade. There's no other possible way that that could take place. Well, that's not true because anything can happen. It is true.

No, no, no. That is the only explanation? Show me a 10-year period of small-cap outperformance that didn't include a lost decade for large caps. It only ever happens coming out of a massive stock market bubble. where the large caps are just destroyed for two or three years, and small cap value catches a bid. But, like, think about it.

I'm talking about a 10-year period of outperformance. You're telling me a collection of small-cap companies over 10 years is going to outperform, like, cloud computing mega-caps, maybe, but only if it's a lost decade. Well, I didn't say that they're going to. I said they can, and I think that at some point they probably will. I think you get like six to eight week rallies for small caps relative to large caps and then it reverses. Okay.

So go ahead. I mean, this is, look, this is my recency bias talking. But I'm just telling you over the last 25 years, the only example of a sustained period of small cap outperformance coincided with the bursting of the dot-com bubble combined with the financial crisis. So really unique, we should not study the decade, 2000. 2009, like it contains any kind of information for us about small cap outperformance in the future. Yeah, I agree with that. All right. Look, I think today was a great day for people that have this kind of small cap overweight or lean in their portfolios. And I'm looking at you dimensional fund people. I think it's great. I think it's healthy. We want to see these stocks rally.

Garrett Baldwin wrote about this over the weekend. I don't think he was not saying the Russell couldn't have a big day rallying, but I just thought it was interesting. Up until today, we don't know what the flows will be this year. Garrett says, turn your attention to where the money isn't crowding. It is not flowing to the Russell 2000. Small caps have seen an $80 billion exodus this year.

That's the biggest exit of all time. I didn't know that. the Russell's momentum has turned negative and is signaling further pressure on the horizon. Well, not today, but okay, we get it. Look at this chart. This could be the greatest contrarian signal ever to get overweight small caps. What do you think? So I was, small caps would be might make the case today.

And then I saw this topic and I saw the rally tonight. I thought that was too cute. But I'm still going to make the case. I'm still going to make the case. I think that they are a screaming buy if we are going to get recuts, which is what the market is pricing in, which is why I think you're seeing, the move that you're seeing today. So why have they lost $80 billion in fund flows this year, negative $80 billion? So Garrett's answer is, in a world of infinite money printing and mega cap dominance, who needs small companies? You could buy in video or microwave, microwave, Microsoft, and ride the AI wave.

Why mess around with a regional bank in Ohio? So I do think that's the mentality out there. I think people say at the top or in the bull market. Yeah. Why buy any of the 30 plus energy producers on the Russell trading for less than their book value? The money is flowing where the Federal Reserve liquidity goes. Big tech, big pharma, big everything. Small caps represent the real economy, but in our financialized casino,

um the real economy is so 2019 so he's making the case for why um you know small caps if you're a serious investor would be bought here it sounds like that's the case that he's making and uh well wait maybe maybe inadvertently or is he being sarcastic i can't tell what do you mean he he's like he's like sarcastically talking about the people who who pulled out 80 billion dollars from small caps oh so oh so he's saying this ironically yeah he's with you he's on your side of this. Oh, okay, okay, okay. I could have thought if it was earnest or not. Now, he's also pointing out insider buying is drying up. And I thought this one was interesting, too. We did this last week. Yeah, so Garrett pays close attention to this stuff. Put this chart up.

I think it's a Bloomberg chart. Only 151 S&P 500 companies had insider buying last month. That is the lowest rate since 2018. The insiders know these markets are costly. Corporate executives are dumping stock like it's radioactive waste, when insiders won't even touch their stocks at current prices. That's your canary and call mine. All right, so I have a little bit of a different take from Garrett on this. I wonder if you agree with me or with him. I don't think that they think their shares are waste.

What I actually think is, like, this is endemic to any, like, prolonged bull market. People have massive, massive gains in their. corporate stock, you know, stock-based compensation. Yeah, no shit. This chart tells you nothing. Stocks are up 30% in 10 weeks. Why would they be buying here? What?

It would be pretty stupid for them to be buying. It would make no sense. Right. And they were getting issued stock every year. Yeah. So that chart is not alarm. That chart is exactly what you would think. So I would, right, I would not expect to see a huge wave of insider buying after a three-year,

almost straight-up bull market. You saw the, the CEO. The CEO of Hymns just dumped the largest position of his personal portfolio in the history of that company. Is that still a meme stock? Is that still doing its weird shit? I don't have it on my screen. Yeah, stocks have gone straight up since April. Yeah, they should be selling.

All right, let's look at this, large cap versus small cap. What's going on here? It's a time shift. So on the left is a long-term view, and the right is zoomed in. okay so on the left so on the left you can see this really i guess it's it's so it's relative all right so the trick is we're using the small cap 600 you hear not the russell 2000 so dude the small cap 600 outperformed from 06 all the way to 2019 right so the reason why i sort of call bullshit i think you have to use the russell the small cap 600 gets

rid of all the unprofitable companies. But that's the nature of small caps. Some of them are profitable for three years, unprofitable for two, then profitable again. I think it's like a little bit bullshity to only use the small cap 600. And they do diverge.

They're not the same trade. There's a lot of overlap. But the Russell 2000 to me is the true approximation of what small cap America looks like. And I do not think that it looks as good as small cap 600. Yeah, I agree. I agree. Yeah. I don't like that. I don't blame anybody for doing it. I understand it. I just, I'm a purist in that way.

Let's look at the sector exposure breakdown. What jumps out to you here? So we're looking at the percentage of market cap by sector comparing large cap, mid cap, small cap. Well, I mean, the obvious one is technology stocks, 33% for large cap. 15% for small cap. And this is a, it is a value growth story. That's all it is. Yeah. So that's what jumped out to me.

Both the mid cap and the small cap are 73% value stocks. The large cap universe is 50.50. That's one of the only things you have to know. That's it. That's it. If you can't memorize the sector breakdown, that's okay. You don't have to. If you just need to know one big thing, and this could change over time, of course.

but the one big thing you have to know is that small and mid is a de facto bet on unless you're active stock picking if you're just allocating on a size basis you're making a value versus growth bet period hold on I have to do some hedging trades what are you what are you hedging no I'm kidding but I literally am selling some stuff it's too much ready all right we could skip the next chart let's go to efficiencies I missed I missed one thing I missed one thing um So I mentioned earlier, listen, it's a weird market. It really is. So I mentioned this on the show a couple of weeks ago that over at Schwab investors were dumping Nvidia like there's no tomorrow. So every month they released their report on what their investors are doing. And they said, invidia set new highs in July. And this time, Schwab clients heavily bought shares of the AI giant after issuing it in May and June. So in May and June, it was the biggest net seller. And in July, they finally bought it. But even despite flocking into NVIDIA, Schwab clients made Infotech the biggest net sell sector on a dollar basis for Josh the sixth month in a row. The six month in a row.

So they said the heaviest net buying. That doesn't matter. With Nvidia exiting the net cell leadership in July, another mega cap took its place and was by far the stock's most heavily net sold by Schwab clients. Which stock do you think that is? Apple. Bingo. Yeah. I mean, these are, because I don't, because I don't think individual investors have strong

opinions on the others. That's it. You're right. You ever mean an individual investor who like has a strong opinion on Microsoft? No. They just own it. No, no. So, so even though there was a lot of craziness with crypto and the treasury companies and

the meme stocks and the all-time highs and this and then that, there's still a wall of worry in that Schwab clients, which, let's be honest, a lot of people are really not buying it. Yeah. It's very bizarre. What could it count for that? So when you say, like, everyone's do, everyone is this? No, they're really not.

No, they're really not. Robert investors are very different than Schwab investors. There's a lot of people out there. It's interesting. All right, go to, let's do the sufficiency. So Chartkin Matt has a blog, and it's called chartkinmat.com. There you go. and he threw up some charts this week that I think are...

I love how you named him and he loves it and it's like his whole persona. It's amazing. That's very cute. This kid is the best. So I want to talk about some efficiencies that he highlighted. So $642,000. That's the average revenue generated per employee in the S&P 500. How much?

$6402,000 per employee. So it takes 1.555 employees. for S&P 500 companies to generate a million dollars in revenue today. 1.55 employees. In 1991, so for, adjusted for inflation, in 1991, it took 2.46 employees to make a million dollars. So they're making a million dollars, again, real. Less people than ever.

With almost one full less employee than they were, how many years ago is that? A lot. Yeah. So it is different this time, it turns out. It is. All right. So, Trude on. So Matt's got revenue.

per employee for different sectors in 1991 versus today. And, I mean, look at communication services. Look at health care. This is some wild shit. Look at real estate. Oh, my God. Yeah. I mean, that's the biggest to me.

Just at a glance, utilities and real estate and health care. Oh, my God, health care. So the next one plots it. Plots the difference. And Josh, you're right. It's health care. I mean, unbelievable. So health care has the most growth in revenue per employee since 1991.

I guess not surprising. Although maybe I would have picked tech, but healthcare, I guess, makes sense too. No, tech is the sector that's enabling all of this. But ironically, they are in the back of the pack. And the reason why is their employees cost so much money, right? Wouldn't that, isn't that? Or I guess we're just talking about bodies. I don't know.

And then there's weird stuff, like Amazon has a million factory workers. They're not quite tech workers, and that's a discretionary name anyway. It's not even in tech. So I wouldn't even focus on the middle of the distribution. On the left, that's amazing. I think part of this is just the story of how much bigger healthcare has become as an industry and how much money we spend on healthcare, we like the whole world. It's just skyrocketed.

So I think that's part of it. It's not just efficiency. It's like certain sectors have just grown so large in terms of what they cost, what the products and services cost. Healthcare is, health care is like, just enormous for the government, for, for individual people, just an amount of spending probably explains most of that growth. It does. And then lastly, employee growth in this, 500.

So it was 16.6 million in 1991. We're at 20.5 million today. And this doesn't look great. I got to be honest. Is that all U.S.? Or is it global employees? No, no. But, but, uh, but look, like, I don't think this gets to 30 million that quickly.

Why not? Where else can go work? Don't you want to work for UPS? Yeah. No, dude, it's good. Look, it's gone sideways for two, three years. Yeah, but you know what, dude? There's a few exceptions where there were massive corporate layoffs.

Like, look at 2006, 2007. But this, this chart is only going. going in one direction. This is the rich get richer. This is the law of large numbers. This is the relative. You talk about these mega cap companies taking over all these industries. How do you think they're doing that?

More people, they're putting other companies out of their way and people that work in that industry go work for them or they're acquiring. Yeah, but they're doing more with the same. Yeah. But this, but this is about, yeah, I get, I don't know. I think it, I think it's destined for 30 and higher. I mean, yeah, at some point. At some point.

All right. I think this Wall Street Journal piece about all the guys launching these AI hedge funds, this is bubbly to me. Not like, oh, no, it's going to, it's going to be this crash, but like, this is what happens. So now you have this, like, new category of people, of person that has really successfully, been picking stocks in this AI CAP-X build-out, which let's be honest, it hasn't been that hard to do.

But fine, they did it. Like, right? So did a lot of other people. But now it's like, yeah, and also I have a fund and look at my year-to-date performance in like arguably one of the craziest tapes ever for AI technology.

And pay me two and 20 and I'm going to keep picking the winners of the AI CAPX. So I saw so much of this in the dot com era i saw so much of this during the brick emerging market bull market i saw so much i've like i've seen this so many times and i just want to quote a little bit from the piece and no judgment um here's the subhead billions here's the header billions photo new hedge funds focused on AI related bets a 23 year old former open AI researcher quickly amassed

more than $1.5 billion for, quote, brain trust on AI. So now you have guys that are saying, like, well, we're based in San Francisco, so we're at the epicenter of this, and we know more than the people in New York. That'll be a popular thing to say. Now you have people that are like, I worked in AI, so I'll be better at spotting the winners than a hedge fund manager in Connecticut. There probably is truth to that. the downside to that though is they're too close they know way too much about the technology

and way too little about like what stocks look like through a full cycle and they're so bullish on AI that they're launching an AI strategy what would what would it take to get them to come out or to sell or to bet against in fact one guy in the article is saying he's betting against companies that are going to be the hedge is betting against companies that are going to be displaced by AI. So it's not only an all in bed on AI theme, which, I mean, just by the, by the semiconductor, uh, ETF and call it a day, if that's what you want to do, but now it's like, not only we're betting on AI, we're betting on the AI disrupted, uh, to the downside.

So this is like, I don't know, don't you feel like this is toward the end when this stuff starts to happen? I do. I mean, how could you not? I mean, listen. Listen, this is a cop out. This shit is really hard to predict, right? At the one hand, on the one hand, we are at the vanguard of a truly, truly technological revolution.

And these things. Yeah, with $300 billion startups. Yeah. Well, there's, and that's the other hand. How much do we think is left? Right. No, dude. Preach.

I mean, yes. Can I just read this quote? So one of the guys started a fund called situational awareness. Great name. Here's a quote. Quote, we're going to have way more situational awareness, get it, than any of the people who manage money in New York. True.

Ash and Brenner told a podcast for last year, quote, we're definitely going to do great on investing. Can you even say that? No, I mean, come on. We're definitely going to do great on investing. Put that on the cover of the offering memorandum. That's crazy. This kid, though, is up 47% after fees. the first half of the year.

So it's not going to look like that when the NASDAQ has a correction. I think, like, I think we all agree. I'm sure he would agree. So this is just like, all right, what's the biggest bull market in the world? Awesome. I'm going all in on that. I hope it runs 10 years. I really do.

I don't think it will, but I hope it does. And then they talk about some of the, this. All right, last thing. Then they talk about some of the established hedge fund guys like Steve Cohen, who just tasked one of his portfolio managers to start an AI-focused hedge fund. So the fund is called Turion after AI theorist Alan Turing, as in the Turing test. They raised like $2 billion for this. So he took one of his PMs and set him aside to start a new AI-focused fund.

Here's the thing, guys, after like a three-month bare market, Cohen will be completely out of these stocks. He's not sitting through a negative 40% drawdown in AI-related stocks if and when it happens. So it's easy to get in, not as easy to get out. I don't know. I think this is like seventh or eighth inning stuff. Really? Yeah.

So I think that- Not before a crash, but before I'll crash. but before a huge correction. Okay. It certainly feels like a top should be coming pretty soon. Whether it's the top, I mean, obviously impossible to say. I would not speculate like that because who the fuck knows. But let's do this.

Send him a trader. The NASSEC 100 just did something it's never done before, not in a good way. For the first time since inception, the index closed at a record high with less than 48% of its members trading above their 50-day moving average. Over the past 40 years, an average of 76% were above their 50 day when the index reached a high. So this is telling us what we very much already know, that the leadership is narrowing. But as we've said throughout the years, short off, please, every time there's been a divergence

like this, you've seen the equal weight catch up, and hopefully this time is no different. But I think we need a slap on the wrist. People are feeling themselves. The VIX is below 14. There is definitely a little bit of throw a wrist to the wayside. We could just slap on the wrist. Look, seasonally, we're getting into September, October. Like, if there's going to be a catchdown correction in tech, because, like, you look

at the health care sector, like, if the rest of the market looked like that. Yeah. So all of a sudden, do the 100 names in the healthcare sector of the Russell 1,000 catch up to AI stocks. I mean, not catch up to AI. But Josh, do you also know that the longer this goes into the calendar year, the more people are like, all right, I guess I got a chase. Yeah.

I think we saw it. You know how everything happens faster? I think that's what happened this summer. I hope we got a pull back. People need to sober up. All right. You're up last. All right.

This is a company in a stock that I don't know if this is the thing I've been most wrong on because there's a long list to choose from, but sort of. this surprise to the dickens out of me. Same. Me too. I was never bullish on this. Okay. DoorDash is a hundred billion dollar stock. Try on, please. My God. So it like five, it five Xed since 2023 and not because of not because of any other reason than they're delivering. They just reported a record quarter, 25% growth, orders, spending, like everything's working. Chart, next chart, please. You got the revenue. I mean, mean just demolishing free cash flow credit to them i i just i just figured that every time

chart off please every time i use door dash i want to punch myself in the dick i'm just like this it's so expensive how we're but you're so lazy and you're paying it and that's why that chart looks like what it looks like so can you can can can things be bad when door dash's chart is doing that no and actually there's a counter cyclicality to the door dashes and the and the uh Uber Eats of the world, which is that if, if and when the economy finds itself on tough footing, more people need to drive for them. So in an autonomous era, maybe, I would point out Uber started in 2008. It was like perfect timing.

You had millions of people that needed work, part-time work, whatever. So like, it remains to be seen. The last quarter they reported, oh, you have one more. So I just wanted to sneak this in here. This is really apropos of nothing other than we spoke with a couple of weeks ago. Oh, Adam Parker. He told us that he was at an institutional investor conference, and I think it was somebody from Ron Mack who was on stage and or maybe at a dinner or whatever the case

may be. And they said, like, give us one thing. Like, what's like the indicator of indicators? And the guy said a low price per share. Yeah. Like, LOL. And it was like, no, no, actually, low price per share. So I saw this tweeted the other day by Julian Klimoschko and the Wall Street Journal reported

that the 10th of the market with the lowest share price at the start of July. Now, this is a short-term thing, but still, it's just kind of funny, had a median gain of 16% by July 23rd when the new meme stocks peaked, while the 10th with the highest price rose only 1.4%. The starting share price was by far the best predictor of performance. And obviously, chart off, obviously this works when it works and it doesn't work the time. But this will have, this will continue to have moments for the rest of our careers just based on the way that retail trades. Like this will have fits in stars. Yeah, it will. Retail loves, dude, I, I pitched, I pitched stock to retail investors for 11 years.

I promise you, there's nothing they like more than a $7 stock. Or a dollar stock that you tell, I think go to $3. You tell them it could go to $25. Yeah, yeah. There's nothing, there's nothing on earth you will get more if you start conversation hi michael it's josh brown i have a stock at seven that i think is worth 25 minimum over the next six months do me a favor grab a pen grab a piece of paper i want to tell you a little bit about it and then i'll talk to you about how we're going to make some money if you do that if you get a hundred people on the phone and do that 80 people will listen to you yeah and i and i know because now how about 100 000 people on the internet all at once well right you do that shit on twitter yeah you do that on reddit same thing same thing but now scaled

global boiler room yeah um which is which is my next endeavor all right uh why don't we jump to make the case and then we'll do the mystery chart and we'll get out of here because it's already uh we're already at time so really and truly i swear i was gonna just straight up do iwm because they're hated uh they've gotten nowhere for years and years and years and years and we all know rate cuts are coming. Like, we all know it. So pile in, pile in people, into rate sensitive stocks. So I'm talking small caps. I'm talking home builders and their services. Rocket companies. What did my rate, what did my rate sensitive bet do today? What did Rocket do? Oh, surprise, surprise of 7%. So Rocket is a stock that both you and I own. Um, I would, I wouldn't sell that.

I wouldn't sell that for anything right now. Well, I would. I mean, I'd sell it for 30. yeah no i guess i would sell it for 30 but i would you couldn't talk me into selling it right now at 18 how about this not gonna do it so as my handle says i'm not talking about your 401k because for me i don't care where the stock market goes i don't care how high to trades that is buy every two weeks forever and ever and ever and ever and ever and ever and ever and ever and ever and ever and ever okay yeah and if stocks fall 50% good i'll buy more i mean i don't really mean that but you know what i mean on the good part i will buy more um but if you're if you're in a brokerage account and you were fortunate enough to pick up some stocks in april and may

and you're like, you're really feeling yourself right now, like, oh, my God, just like sell. What's the next, well, yeah, what's the next stock? You don't need the next stock. You don't need a next stock. And in fact, you might need some less. So just sell a little bit of something, anything. Tomorrow, just sell a little bit of something. Lighten up.

All right. All right. But you're making the case for rate sensitive stocks simultaneously. Yeah, I don't hate it. Yeah, buy and sell. All right. Mystery chart. This is a media company.

It's one of the worst stocks in the market, the opposite of what I tend to talk about. I'm getting interested in it, though, as a falling knife. Okay. I'm showing you here. This is 40 years of garbage. One other clue, it's a family-run media company, which is possibly the worst kind. Yeah, I didn't know that's that, but it's Paramount? Look at you.

So. You're so good at this, dude. Well, yeah. So this used to be Viacom. It's now called Paramount Skydance, the merger, Larry Ellison's kid, boy. at it and put this whole new board in charge of it. It kicked out all these losers from CBS, and they paid a bribe to the Trump administration to get it to close.

They gave him a check for $16 million for interviewing Kamala Harris and editing the clips or whatever. But that's all in the past. Now, so, like, Barron's has a piece about, like, it's a clean slate. Like, don't worry about where the stock came from. Now you have all these hitters involved. Ellison's got literally limited. They're unlimited dollars.

There were hundreds of billions of dollars, the father and son. Why not? Why not Paramount? I looked at this stock a couple of weeks ago as a potential buy. They just paid $7 billion for the rights to all of UFC. UFC will not be broken up amongst five different networks like the NFL. It's a huge deal. All of it. All of it on Paramount.

No pay-per-view. It's a big deal. So now if you're a young man in this country, right? You're between the age of. of 16 and 35. What are the things you like on TV? You probably like these Taylor Sheridan

shows with the Cowboys and the hot girls. Love them. And you love UFC. This is Netflix for young men. I think they nailed it. They're getting this cultural shift right, like in the culture where like it's okay

to be like a young male who likes to punch people and appreciates good looking girls. Like that's like the whole culture shift now. They're investing directly into that. Ellison's friends with Trump. Like I just that CBS stuff that they

were doing with like the constant investigation, like they're going to stop that. I don't think that's helping them at all revenue wise. And they're going to double down on things like UFC. I like it. I like it. So I'm taking a look. It's not my type of thing. But anyway, good

job on the on the guests. All right guys, I want to close the show by saying thank you to everyone who joined us for the live. we appreciate it tomorrow's Wednesday all new edition of Animal Spirits we'll do Ask the Compound and we'll do an all new addition later this week of the compound

and friends and that'll be a surprise episode for some of you guys I'm looking forward to it all right that's it from us thanks for watching like and subscribe call to you soon I don't know.