The Compound and Friends - This Is a Hitchcock Horror

Episode Date: October 7, 2022

On episode 65 of The Compound and Friends, Nick Colas joins Michael Batnick and Downtown Josh Brown to discuss market volatility, thinking like an algo, the dollar, Tesla, sustaining vs disruptive innovation, the next big thing, and much more! Thanks to our friends at Kraneshares for sponsoring this episode. To learn more about KraneShares' suite of China-focused and climate themed ETFs, visit: kraneshares.com/?adsource=wealthcast Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com 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/disclosures/ Inclusion of advertisements by podcast sponsors 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: https://abnormalreturns.us5.list-manage.com/track/click?u=f8843b0fc6f0ed7d35e67dcf5&id=33b07916d1&e=4e0f612ef0. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Nick, are you a movie fan? Uh, I, no, I haven't seen a movie in probably 20 years. Got it. Really? Yeah. I don't do movies, I don't do sports. So you do markets? I do markets. I do markets, I do a bit of... So what else keeps you busy? Reading?

Reading. I remember you recommended a 1400 page book. Yeah, the, um, the Silk Road. I think Josh, I know he bought it. I know he bought it and I saw his Instagram where he said he was reading it. I know he tried it. And he said he was reading it on vacation. I know he tried it.

I don't know if he finished it. I just finished Brad DeLonge's book. I'm going to talk about that. What is that? Slouching Towards Utopia. Brad is a triple Harvard, Berkeley econ professor. Gets a lot of play for being a, you know. A dummy.

Yeah, exactly. A kind of left of center and i just finished it actually last night because a lot of it actually feeds into josh's weekend piece that was good that was like okay it's very much the same thing it's what is the social construct around the allocation of capital is it just like things are too good? No, it's like Brad's construct is, okay, you've had this amazing growth in productivity and wealth creation the last 140 years, 1870 to 2010. That's like what Gordon did. Yeah. And society argues about where those returns go. Capital wants its return because it's putting the money at risk to make it all happen.

But the population, even those who don't own capital, have a say in the whole thing as well. And that was a tension I saw in Josh's comments was, you know, we did a major reset on societal expectations last year. Yeah. And how much of that's going to stick. Yeah. and how much that's going to stick. Yeah. Like actually, one of the things I wrote last week for clients was Powell wants us to go back to 2019.

No one else has an interest in that. It's before and after pandemic. It changed everything. Yeah. We'll see if it really changed things, but the tension is now between a Fed chair who wants a certain outcome and a society that says, I'm not going to go back to working at Applebee's 60 hours a week. Period. It's not going to happen.

So how do you square that? The Fed has the force power to win. But how long a process will that be? Kashkari made a few comments that he said we are seeing almost no evidence that inflation has peaked. made a few comments that he said we are seeing almost no evidence that inflation has peaked and he also said i anticipate cracks in u.s financial markets but the bar for a change in fed policy in response is very high yeah so they are obviously hyper aware of public perception and hoping for a pivot or a softening and they're not giving it no and and you know second like why do we have so many Fed speakers?

And a big part of it is because this is going to be very painful. And the Fed has to appear like a quasi-democratic institution where you have many voices of people who look different all saying the same thing in order to sort of try to convince society that, like, no, we are all in agreement on this. This isn't just an old white dude in Jay Powell. Speaking of old white dudes, are you surprised that Biden has said very little in the way of the Fed? No, I'm not. I'm not. This is not, you know, Nixon and, you know. There was an article in the journal years ago,

maybe the Times, I can't remember, about how LBJ, I forget who his chairperson was, he threw a book against the wall. And said, like, our boys are dying in Vietnam and you're raising interest rates. Yeah. And that was a fair comment. Right?

That was a fair comment. And that's kind of what led to the inflation in the early 70s. I suspect, and I don't take my opinion on this seriously because I don't know anything, but I suspect that Powell must be thinking that we've already done 80% of the damage. We're so close to achieving our target, not of 2%, but of turning, of the data turning. Like, to pivot now and risk it all going backwards of financial conditions easing would be a huge mistake.

What's up, Nick? What's up? Good to see you, man. How you doing? I'm sorry, I'm limping. How are you doing? I got a bulging disc. Yeah, I got a rash, man. No, it's so bad, I can't evenging disc. Yeah, I got a rash, man. No, it's so bad I can't even describe it.

John, you got it. Of course. Thank you so much for doing this. Absolutely. Thank you for having me. So the last time Nick was with us, 68, almost 69,000 views. How nice is that? Dude, he's a star.

One of the biggest. He's a star. All right, let me get a water. So what do you think about my theory? I think that's true, but I don't think he thinks we're 80% of the way done. I think, let me get a water. So what do you think about my theory? I think that's true, but I don't think he thinks we're 80% of the way done. I think he legitimately does not know because we're just not seeing it. The Joltz openings was literally the first little crack in this. But you ever look at Cleveland Fed inflation?

I just put the Atlanta Fed wage tracker in here. That's a good one. But Cleveland Fed has an inflation now cast, like GDP now in Atlanta. No break in inflation. And if Wallet doesn't break below 80, we're That's a good one. But Cleveland Fed has an inflation now cast like GDP now in Atlanta. No break in inflation. And if oil doesn't break below 80, we're not going to get one. I just don't understand because, again,

I don't know much, but seeing all of the container shipping stuff dropping, lumber, gasoline, all the commodities dropping. So what, and rent and home starting to roll. Is it wages?

That's the stickiest part, right? It is wages. And it's wages for job stairs. I don't know if you have the job stairs and job levers in the wage tracker, but that's pretty instructive. So I think the job levers are at 8% wage growth and the job stairs are like 5% wage growth. I mean, so the wages are the thing. Because cars are coming back down all of the stuff that We hoped was transitory

Now it's enough you could say something that's 14 months of transitory whatever but that all that stuff is coming down It is it's just not showing up in the data. Yeah, the aggregate data because the inflation is so widespread and Look at you know, look at the trend line for OER or for rents. It's still straight up. The comps are still pretty easy. Ugly close today. I think we're close today. So far.

All right. Nick, what's going on, man? How was your summer? It was busy. Why? Because it was all work. So Nick doesn't watch sports or movies he does markets that's right did you read the silk road by the way yeah you did that was your recommendation right i loved

it yeah i can't believe how much i liked it why why was it so good because we all grew up learning history country by country and from a european Right. And what it did was say, no, look at history along literally a geographic longitudinal line. Yeah. From Spain to China, that's where the action is. Just go east or west. And it was just such a mind-blowing reinterpretation. And it really stitches history together in a much more vibrant way. What was so fascinating to me about the book, two things. The Mongol stuff was really amazing. And then the thing about how Lisbon became like the capital of the world for a little while. Yeah. And how the money pouring out of Latin America in the form of gold ended up making its way to China and India.

They built the Taj Mahal. That was the single best soundbite. They built the Taj Mahal. That was the single best soundbite. They built the Taj Mahal in the 1600s. Thank you for the TLDR. Well, this kind of is historical. Is that the money shot? I hope I'm not spoiling anything. Come on, man.

Spoiler alert. It's only been, what, 700 years? No, but the Taj Mahal doesn't get built if not for all of the wealth that the Spanish and Portuguese plundered from Latin America. When was the Taj Mahal built? 1600. Because that money finds its way into Europe and then the Europeans

can't stop buying luxury stuff from the East. Barking bags. So it's like, it's a real, I mean, it's just an amazing book. Thank you for that.

Thank you for that. It took me a long time to read it. It's a big book. It's a big book. And I alternate between two or three books at a time. I don't know why I do that. Do you do that? No.

One at a time. One at a time. Why? I'm not smart enough to do two. All right. So I find that if I do a chapter from two different books. Let's talk about those at Square. Because he's definitely not smart enough to do two.

If you're not. If you're not, I'm not. But I'm doing it. Smart or not, I'm still doing it. Put my mic on. John, we're working. We're in good shape. Sound board's working?

All right. Oh, what was that sound effect that Duncan revealed without telling us? Oh, it's not working right now. What is it? We don't have access to it. What was it? I don't know. John, how am I on the mic, okay?

You're sounding good. And it's you saying 0% chance, Michael. Oh. But we don't have 0% chance, Michael. Oh. But we don't have it? Oh, man. Oh, man. Did you use that last week? No.

What were you saying 0% chance to? I don't know. I guess it's a thing I say. Okay. Oh, yeah. You have a few. I'm very confident in my assertions. No, you say 0% chance.

You say coup de grace. You love saying that. And I misuse it, but it works. Oh, you say take this with a grain of sand, which I always – but now you're doing it on purpose, right? Mostly. It's a grain of salt. Yeah. There's no grain of salt.

It's like 80% joke because I do still get it busted in my brain for whatever reason. Got it. All right, Nick, we need the headphones on. All right. So – Wait. So the last time that Nick was on, it was March 24th. Okay.

The S&P was higher than it is today. That's for sure. Oh, yeah. You know what? I should have listened to that in preparation for today's show, but my bad. I did not. The S&P was at 4,400. Oh, I remember.

We were looking at a chart of Apple. Slow that point down. Let's take that down a notch. We were looking at a chart of Apple, and it was right here. It had gone, like, for whatever reason, it had just gone. Here we go. It was that stretch. It had just gone up like one

percent for 13 days or something it's not for whatever reason we got the file buffett it was buffett i remember yeah there was a really really good reason it turned out all right so six months from now the s we'll have you back and the s&p will be at 2400 all right that high oh boy all right john are you nervous at all this is, it's not your first time controlling the show. Oh, no, not at all. You've done it a bunch. Okay, you feeling good? Feeling great.

How are you guys feeling? This is like John's ninth rodeo. Feeling good. Nicole, how are you feeling? I'm feeling bad. She embarrassed me on TikTok today. Robin sent me a screenshot. She goes, what is this?

Good. All right. Thanks, Nicole. Friends, episode six. Yes, Do it. Welcome to The Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only

and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's episode is brought to you by our friends at Craneshares. Craneshares is probably best known for the work they do in China. They've got some thematic ETFs. One of the things that they've done that is actually working this year, which has spent probably the past decade in the doghouse, the asset class known as managed futures, which is a strategy that has the ability to go long and short, not just stocks or bonds, but commodities and currencies.

And in a year where not much in the way of traditional asset classes are working, i.e. stocks and bonds, managed futures actually are having a better year. So it's been a while, but apparently they're back. If you want to learn more about CraneShares and their managed futures strategy and everything else that they have going on, you can go ahead and visit craneshareswithak.com. Thank you, Nicole.

All right. John Grayson is controlling the show today. Duncan is – where is he? Disney. Disney. Okay. How many days is he in Disney for? I feel like it's been a while.

He comes back Sunday. Duncan comes back Sunday. Can I have a coaster? We can fade out. So Duncan's away. John is controlling the show. Nicole is here. We have one of the most popular guests in the history of this show on with us today.

I've been looking forward to this all week. I always learn so much. Nick Colas is in the house, ladies and gentlemen. Nick's here. Mike's getting his drink situation set up. All right. I wrote this. We wrote this intro for you. Can I read it? Yes. Okay. Nick is the co-founder of DataTrek, an investment research platform catering to hedge funds, RIAs, family offices, and asset managers. Prior to DataTrek, Nick was a senior equity auto analyst at First Boston. Are we doing that now? We're calling it First Boston again?

We may be. Okay, we're going to get there. You were an analyst and a portfolio manager at SAC Capital, reporting directly to Steve Cohen, and a chief market strategist at Multiple Asset Managers. Welcome back to the show, Nick. We're so happy to have you. Are you excited to be here? Very excited. A little nervous. Why are you nervous? It's a high bar from last time. I thought you were going to say inflation.

It is a high bar from last time, but you always crush everything that you do. And our audience really got so much out of the last time you were here. I was telling Nick before you came here that probably the most feedback I've heard, not just from views, but directly from, you know, people like texting, like, yo, that guy, that guy knows what he's talking about. Um, well now you're back and there's so much more to talk about. And I think we have to start this week with the tremendous two day, um, 5% rally we had in the S and P, which I am informed has only happened 11 other times below. Am I, I'm cutting, I'm stepping on you.

All right. So here we go. Here we go. So we're looking at a chart that I made and I wanted to look at all the times going back to 1970. Not to brag. Where the, there we go. Where the S&P 500 was in a bear market and we had a 5% rally over a two-day period, which

occurred earlier in the week. And just eyeballing this, you can see very clearly that it occurs around the lows, but definitely, definitely not an all clear indicator by any stretch of the imagination. And then I was thrilled to see somebody actually quantify the data that we were looking at. So this guy on Twitter, Jonathan, what is Jonathan's last name? Harrier, showed that the S&P 500 is on track for a 2.5% gain for the second day in a row. Oh, look at this.

Apparently, this has happened only 11 other times when below the 200-day moving average, which is basically what I was saying in a bear market. And what he showed was, Josh, stop. Just stop. I got this. Stop what? I know you're about to interrupt. I have nothing to say. I don't even know. I'm trying to understand.

I'm trying to walk the audience through. So again, what Jonathan looked at was back-to-back 2.5% gains when the S&P 500 was below the 200-day moving average. So it's happened 11 times going back to 1950. And what it shows very conclusively, as my chart showed, is that there is further downside to go. And the way that he quantified this is beautiful. On average, you get another 16% downside for 52 more days. Wow. Wow. However, if you look out over a year, on average, you have a 19% return. What does that compare to a regular one-year period? Whatever.

Well, you know what one-year periods are what? I don't know. Rolling one-year periods are eight or nine percent. Something along those lines. So again, this happens near or around the bottom, but on average, it is not the bottom. Not even close. So I think what we're saying here is that if you buy while the market is down a year later,

you're rewarded, and that this signal should not be looked at as, hey, look, we bottomed. Correct. I mean— Half as near bottoms, not at bottoms. Wouldn't you have guessed that this would be the case? Yes.

I mean, the way I look at it is we use the VIX a lot. Yeah. And if you go back to the end of the O2 bear market or 09 or 2020, those lows, the real low, always above 40. The VIX is always above 40. Always. We haven't gotten there this time. We haven't gotten there this year. Are you surprised that we haven't seen a VIX print north of 40 given all the stuff that's going on this year?

No, not really. Why? We were talking about this before. Do it, Nick. Do it. But do it for me. The way I think about the VIX is kind of like there's two kinds of horror movies. There's a Hitchcock kind of horror movie where you're nervous for an hour and a half because the tension just stays high. Then there's like a teenage slasher movie

where you just have like, yeah, you jump and scream. And this is a Hitchcock movie. This isn't a teenage slasher movie. We are going to be on edge, have been on edge now for a long time. So the VIX doesn't go up. Cause there's not a lot of new surprises, but there will be a jump.

So we're anxious, but not shocked. Right. And at some point, like in psycho, you figure out that, you know, the mom is dead.

Yeah. And that's the shock. And that's the end of the movie. So it's like a creeping kind of like, um, it's like a creeping kind of darkness hanging over us. Yeah. And not like every scene like,

oh my God, he's behind the curtain. Right. Well, by definition, we won't know what causes the fix to spike, but want to have some fun and throw out a guess? Oh, golly. Yeah, it's pretty straightforward. It could be geopolitical,

but I think more than anything, it's just people always give up. And they give up because they just see the Fed keep going and going and going, and they don't know what's next. I guess the obvious would be an inflation print. Yeah, bro. The obvious is, like, this is going to air tomorrow. The obvious is— We get jobs numbers tomorrow.

If that damn jobs number comes in— Hot. —stronger than expected, I could picture the Dow down 1,000 points with that shop. I don't know if that's enough to get the VIX to 44 or 45. No, but it would get the VIX to 36, and that's two standard deviations. Yeah, and that's pretty close. It would only take one more negative headline on top of that to do the trick. We've had a 136-plus VIX close.

It was in March. It was 36.5. Haven't seen it since. You know what you told us earlier this year that turned out to have been very useful? You said you want to be a buyer of VIX north of 30 for those snapback rallies and anytime under 20, find something to sell. Like that's where you're lightening up. And anybody that listened to that and I started to actually take action based on that in my own portfolio, it's actually been a pretty – I hate rules of thumb because I think they can't really work if everybody believes in them. But that's one of those ones that actually has worked really well this year.

And it just happened again last week. That's right. It's a VIX 34 print. And it didn't matter how you felt. That was the moment to find something and buy it. It's very clear that investors want to see some beta economic news. This morning, we had initial jobless claims a little bit

higher than expected, and the S&P rallied on that. It's since rolled over. But is it that simple? We just need the data to soften a little bit. More than a little. It's got to start coming down, and it's so frustrating because it hasn't really. Inflation really hasn't started to come down. The labor market's still been smoking hot.

The openings number was the first kind of little break in the narrative that we got a couple of days ago. But even that's kind of squishy because those numbers get revised. So we haven't had that notion like, yes, labor market's rolling over. We can assume inflation will as well. So I said this on TV today, and I'll repeat it. I don't even know what we're rooting for here anymore. So we're this on TV today and I'll, I'll repeat it. I don't even know what we're rooting for here anymore. So we're going to get like bank earnings now coming. That'll, that'll be first and then we'll get retail and then eventually tech. What do I want? What do, if I want to be constructive on the market now, which I would love to, I'm not, but I would love

to be, do I want to see companies miss earnings and guide lower? And would that even produce a good reaction? But isn't that evidence of softening if that happens? So it's a pretzel for me. I can't really understand it. If JP Morgan and Goldman Sachs come out and miss numbers and cut numbers, which I think is very high likelihood, do stocks go up because we're softening? Or do stocks go down because that's bad news i don't

even know i mean think about the valuations on the sp right now we are not let's stay on banks though 1.1 times book value for all of them so didn't banks tell us last quarter that jp morgan took like 600 i don't million dollars or sort of six billion for loan uh loan reserves or something like they're doing that and they've also all given guidance on capital markets business is zero. There's no business. There's no issues. There's nothing. So they've already said that.

Everyone knows that. So that's what I'm trying to understand. If you wanted the market to bounce, what would you want to hear from the first week? It's not earnings. It's inflation. What do you want to hear from the banks? I mean, as far as to make the market bounce, what you want to hear are good numbers. You do?

Yes, you do. Because ultimately, if it's holding this whole market together, this market should be 500 points lower on the S&P right now. Really? By all standard historical math. The thing holding this market at a 17, 18, 19 PE? Buybacks and earnings. Yes. Yeah, I agree with you.

Because earnings have not softened. No. We had a record quarter for S&P earnings in Q2. So, but Nick, think about how crazy this is. You're saying, I'm not saying you're crazy, but you're saying we want the economic data to soften a lot, but earnings to hold up? Yeah.

How the hell is that possible? It's not. Okay. So, okay. I'm glad we established that. If we get through Q3 and earnings are near record highs, can we turn bullish? No. Okay. This is you, the math behind S&P 500 price targets. Let's start with what we know. I'm not going to read the whole thing, but the S&P 500 earned 220 to share in the last

four quarters. This is likely the peak for the cycle. I think we all agree on that. Yeah, it's not controversial. Earnings typically decline by 25% in a recession. I think that's an average though, right? Okay. S&P traded for 15 to 19 times from 2014 to 2019.

The bottom of the range is low for investor confidence. The top is high investor confidence. Where are we now? That's trailing earnings? That's trailing. So which say? 18? So let's get a – yeah.

Let's – I mean the point of the math was, okay, we know where we have been. We know what a typical recession does. So therefore, we know what the earnings are going to be. So let's say earnings are down 20%, typical recession. Throw some multiples on there. 15 to 19 times earnings gets you to S&P 2640 to S&P 3344. 2640 at the low end. That's disastrous.

We're 3750 right now. Okay. And that would be the high end. And the high end is 3344. That assumes that people have a lot of confidence that that earnings number is the bottom. Okay. So if we were to trade 15 times a 20% earnings decline to $176 a share, that's bad. That would put the S&P a thousand points below where it is. Correct. Okay. But would we be doing that on trailing earnings? By the way, that's 30%. That's 30% lower from here on the S&P. Yeah. So here's the way. I was a cyclical analyst for a decade. I covered companies that earn $10

one day, one year, and $2 next year. And you have to think about, OK, what's a reasonable investor going to pay for trough earnings? Because that would be the trough level of earnings, right? But multiples would be high at trough earnings. Yes and no. They don't always work that way. So if you go back to 2002, and this is the whole point about volatility. So what volatility does is it grinds away for over years, is it reduces the earnings multiple on forward earnings because investors are less and less confident that you're going to get there. Earnings turned in 2001.

The market didn't turn until 2002 because multiples kept compressing. So what you want to see, ideally, is kind of a short, sharp shock, The market didn't turn until 2002 because multiples kept compressing. So what you want to see, ideally, is kind of a short, sharp shock, big trough in earnings, and then you will get a high multiple. But if we grind like this for two more years, you won't. So if we have like every quarter, they knock 5% off their earnings estimates, that could take a long time before we get. So you're saying like if you want to be constructive, you almost should be rooting for a washout? Yeah. But we've seen earnings contract all year.

So, J.P. Morgan does this with the guy to the markets. Earnings growth appear, multiple growth. So, earnings are up 5.8% year-to-date. Multiple growth is down 24%, leading to a down 20%-ish. So, multiples have squished, which makes sense given the uncertainty, given interest rates. They squished from so high, though, that they're still not low enough. Yeah, that's the problem. Right. Right.

They squished from 24 times earnings. So, stocks were expensive. Interest rates were enough. Yeah, that's the problem. Right. They squish from 24 times earnings. So stocks were expensive. Interest rates were low. Now the opposite is true, right? Like there is an alternative to stocks with a six-month yielding 4%. We haven't even spoken about that yet. And that's the most novel thing about this period of time. If you go back in time, like the last two, three crises, you couldn't get 4% on your money for two years.

So I was going to ask you about that. you couldn't get 4% on your money for two years. So I was going to ask you about that. You seem to be ascribing a VIX-driven multiple compression because people just either get apathetic or become too fearful to pay a higher multiple for earnings. But isn't the real villain a 4% three-month T-bill? Isn't that the real spoiler here? What am I trying to get seven for and risking 20% haircut in a stock when I know I can get four? There's a piece of it,

definitely. The four doesn't help, but the four is not permanent once we get to the washout and move on. Okay. Well, when we get to the washout, why? You think the Fed is already backpedaling by then? For sure. I mean, if you want to think about what's the most positive thing about this market, right, is that this is entirely a man-made process, right? This is the function of a committee of people saying inflation is too high. We're going to raise interest rates, slow the economy down, reduce earnings, right? A man-made problem can have a man-made solution. And they're telling us they're doing it. Yeah.

So why do you think we haven't seen the washout yet? Is it people hoping that they're going to pivot? It's for the same reason that corporations aren't really firing people yet. It's because the current environment is still okay enough that we get high earnings. How do you really have a washout? Think back to like 1990. My first cycle was 1990. Iraq invades Kuwait and just things go to hell.

And all of a sudden everybody is like, okay, new geopolitical setup and earnings compress. But it was over very quickly. Right. This is not that. This is not that. And the VIX is not as high as I would have guessed it was. It's not as high as I would have guessed it was. If you just gave me like two weeks' worth of the – you know, the last two weeks' worth of headlines, I would have guessed VIX would be regularly hitting 40 intraday like multiple times.

But it just will not do that. No, you need a shock. So like, okay, think about October 2002, that low date, October 9th. Yeah. Why was that the low? When? October 9th, 2002. October 9th, 2002? Yeah. Why was that the low? When? October 9th, 2002. October 9th, 2002? Yeah, why was that the low for the 2000-2002 cycle?

Is it regulation? Invaded Iraq, pretending that they were responsible for 9-11? You're almost there. It was the day before Congress gave approval for military action in Iraq. Okay. So that's what cleared the air, when everybody's like, okay, now we get where we're going. It's not a good place.

Why couldn't the midterms do that? What's on stake? What's the surprise in the midterms? The surprise is I suppose the Democrats keep control. What? We think they are? No. No, I know.

But that's – I guess I'm trying to think of a big, bad event that people are concerned about. Unfortunately, none of the current ones have a deadline. Like Brexit had a deadline. Trump election had a deadline. So these were big, bad uncertainties that we were worried about throughout 2016. It was a shitty year for stocks. You got certainty over Brexit in the summer. The market rallied.

Nobody understood it. I understood it. It's because people were tired of the uncertainty. Then Trump won. Wall Street told you that would be a negative event for the market. We never looked back. So I'm just trying to think of something that's like got this binary moment. And I don't know.

Maybe it's the jobs number tomorrow or technically today if you listen to this. Maybe it's the next CPI point. I don't know. How about the dichotomy between investors that are very anxious with their bonds down 16% and their stocks down 20 plus? But the, and I'm making this up, but is the average American anxious? The average American has money,

they're employed, they're spending. It's very odd. Yes, the average American is so far still in okay shape. The retail sales data kind of shows that. The retail sales data kind of shows that. The labor market data kind of shows that. One thing about bonds and stocks, and I'm going to do this now, but if you look at the correlation of S&P to TLT, just look at that 50-day price correlation.

It's wild. Okay. So it was 0.24 as of yesterday. We just did this math for clients last night. So what's it now? 0.9? No, it's not. It's 0.24.

But 0.24 is more than two standard deviations above the mean. They're supposed to be completely uncorrelated. The mean is negative 0.33. We're more than two sigmas off that mean to the upside right now. It is very, very rare to see this level of near-term correlation. One of these things is going to work in the next 50 days. Bonds or stocks? Yeah. Okay. But it does seem like interest rates up, stocks down. Or bonds down, stocks down. It does, but that would mean the correlations stay high. So let's do this VIX thing.

The average VIX- Actually, hold on. One last thing, one last thing. Please. So I looked at this recently. How often are stocks and bonds both in a downtrend? And it's very rare. So I just did some very rudimentary stuff.

How often, and I looked at the five-year, the five-year note and the S&P 500. How many consecutive months were both of them below their 10-month moving average? And this is the sixth month or September was the sixth month that happened.

Six months happened in 1974 and in 1931. So assuming October is the seventh month, that would be the longest stretch on record. Yep. Which is a pretty safe assumption at this point. It does feel that way, but then what reverts?

Well, how long could it stay that way? Well, money's going to cash. Yeah. Right, but theoretically, people need to earn a return on something. Cash. They're selling bonds or selling stocks. I guess you're getting enough on cash. So we saw extreme buying in short-term bonds, which makes a lot of sense.

Why wouldn't you hide that in short-term bonds right now? All right. So I want to do this VIX thing. So you're saying the average close since 1990 is 20. I didn't know that. That's the average close? Really? Yeah.

So I guess it's been so long that we've had a suppressed VIX. It was 11 for like two years. If you look at the long-term VIX chart, it's been so long that we've had a suppressed VIX. It was 11 for like two years. If you look at a long-term VIX chart, it's a series of smiles. Crisis, down. So 20 is actually a very rare observation. It doesn't sine wave around 20. It goes to 40 and to 10, and then 40 and 10. Okay, so what are you saying here?

What's your takeaway here? As far as how to think about this market, I mean, the rule that we talked about in March still applies. You want to try to nibble away at things on the long side when we're breaking above 30 on the VIX. 36 is ideal. And then as we break down below 24, you saw them down again. And 20 is a long way away from here. 20 is a long way. But you know, if you're an investor, not a trader, you don't want to get overly cute with it. So you're not going to wait for 36 because you might not get it on every sell-off. You've only gotten it once this year, and it's been a false positive investment signal.

You've trended lower from all those VIX high. Why is 44 a level to watch? It's three standard deviations. But does that mean something to market participants, or it's just a scientific observation? Think like an algo for a minute. Okay. If you're an algo, you're running basically 100-day analyses on how the stock or the index that you're looking at has traded.

And I can tell you that every algo pretty much has the VIX wired into it. Okay. It's hugely important. Yeah. So the algos, whether it be a VWAP algo or another kind of algo, is going to use that as a key. And I've seen it over and over again intraday. You get to 32, 33.5 in that range.

The algos seem to say, okay, that's the low. Let's buy a little bit. So that's where the selling pressure comes off? Yeah. Okay. Yeah, I mean I'm not observing this as technically as other people are. But just an eye test, I could see the intensity of selling start to come out of certain big, important stocks, like index stocks, when we get to above 32,

33. I might be imagining it, but I feel like I'm seeing that. So do you think that at 44, a lot of these algos switch, though, where they say, oh, actually, this is the big one. And then they're not buying stocks. They're actually about to press shorts. And then it goes to 60. And that's a grind on our sort of market structure in this country. But I mean, it does require a lot of different algos to have some sort of collective adverse view. Here's the problem. Who the hell is buying at VIX 44? Like-

Buffett. at VIX 44. Like, there's not enough big money that's initiating large positions. That's exactly when everybody shuts off. That's the problem with market structure now. Is that what you're saying? Yeah. Hasn't it always been that way, though? It was less so.

We had specialists that were like, and you had much lower volumes. Yeah. It was possible for a specialist to equalize a market towards the close of a day. Not intraday, but at the close, yes. Well, you know who equalizes the market at VIX 60? The Fed.

Yeah. And that's sort of an interesting question. Like, okay, Brady talks about it. Well, there's no specialists. There's Jerome Powell. These guys are giving tours of the floor of the New York Stock Exchange. I know one guy who was a specialist. He works in the gift shop now.

We don't have that. I really do. I'm not even kidding. So to me, I don't know how you fix that. How do you force somebody to take a lot of risk and an elevated VIX if you know most of the market will be on the other side? You can't make somebody do that as a business model. And that's why you make a low. That's how lows happen.

People give up and there's no bid. To your point about the Fed put, I've always thought the Fed put is not a level. The Fed put is the fix. Okay. Go on. Say more. Say more. So everybody thinks the Fed put is S&P at 3,000.

Like, oh, okay, they'll step in when it breaks there. No. I used to think it was the 200-day moving average. Right. I decided this year it's not. My ultimate mental model is the S&P. The VIX is the Fed put. The Fed fears volatility.

The Fed will protect against volatility. If a market grinds its way down to 2,000, just to pick a ridiculously low number, they do not care. What they care about is systematic failures created by volatility. Well, if this is man-made, as you say, and it is, then whatever crisis they end up triggering, like let's assume it's not geopolitical. Let's assume something with the plumbing fails. They f***ing own that. Like it's no one else. There's no one to point to.

Well, Kashkari today said, so he said two things. He said a few things. He said, we are seeing- He needs to, by the way, he's the number one guy that needs to stop talking. He won't stop. He said, I anticipate said a few things. He said, we are seeing almost- He needs to, by the way, he's the number one guy that needs to stop talking. He won't stop. He said, I anticipate cracks in US financial markets, but the bar for a change in Fed policy and response is very high.

So he said, we might break shit, but we've got to really break something important for us to reverse. You know what he said that's crazy also? He said, there's no evidence that prices are coming down or something like that. He said that today. Yeah, we are seeing almost- What was the quote? He said, we are seeing's no evidence that prices are coming down or something like that. He said that today. Yeah, we are seeing almost –

What was the quote? He said we are seeing almost no evidence that inflation has peaked. Nick agrees. Am I putting words in your mouth? Broadly speaking, yeah, I agree. No evidence? Not enough to matter. Shipping rates, gas prices?

Lumber, commodities? I haven't shipped a container in a long time. Yeah, true. So you're a person. All right, but this is part of the inflation story was supply chain stuff that's not as bad now. The New York Fed keeps a supply chain monitor. It just actually came out today, the latest numbers. I never miss it.

No, I'm just kidding. I know you don't. I never miss it. I get excited when I get that email. Okay, so what did it say? It shows continued declines in supply chain pressure. So that's awesome. That's the piece of it.

The New York Fed did a very in-depth review of what created this inflation problem, and it was not supply chain. Supply chain was like a third. Organic aggregate demand was two-thirds of the problem. Yeah, the consumer is buck wild. But hang on, but this is the thing, because everybody, not everybody, most people thought it was a supply chain issue when it was really demand the whole time. Why couldn't it have been both? It was. It was. It was it was really demand the whole time. Well, I couldn't have been both.

It was. It was. It was one third, two third. Yeah. That sounds reasonable. We know for a fact that it was both. Look at, all you had to do is look at used cars and know that that's a demand story and a supply chain story because they normally would meet that demand.

Yeah. Right. So, who am I? Full stack economics did a chart on this showing consumer spending today versus 19. And we are so far above where we were as evidence that it's not,

it was not just supply. John, throw up this wage tracker. So this is the thing. I think this has to be the thing that they're worried about. Wage growth tracker from the Atlanta Fed, I believe this is from,

is just not going the wrong way. It's going straight up. That's a wild, that's a wild move right here. Well, I'll tell you. And if you actually, if somebody pulls this up, if you click on job stayer and job switcher, the job switcher is a 9% number. It's vertical.

Yeah. Yeah. So the best way to get a raise is to switch jobs. And the job stayer is at five. So everybody's getting those wage increases. Because if you're staying, you're getting more to stay. And if you're switching, you get a lot more to switch. So what slows us down other than a recession?

Nothing. Is that part of the problem though is that people are not letting go of their employees at the rate that they normally would in a slowdown like this? Because we all have this like recency bias and everyone remembers last year what a pain in the ass it was to try to find people. So you're saying to yourself, all right, definitely a recession but maybe a shallow one. It's not 2008. So I'm not going to let go as many people as I normally would because I'll never be able to hire them back. And that is what keeps that wage number persistently high. Yes. That's a big part of the story, right? Exactly. It's warehousing talent. Right. So it would be very difficult

to really want to get rid of people so long as profits and revenue are where they are. Right. You don't want to go through that again. If you connect the dots, okay, what do you need to see in order to get Powell's desired outcome of lower wage inflation? Lower corporate profits. Because a company's not going to lay people off until their profits are pressured. Why would they? Nick, can we have lower profits, higher

unemployment, lower job growth without a recession? History says absolutely not. So they're not going to preemptively be like, I think things are going to get bad. Let's lay people off. Yeah. It's not going to be until things are bad.

So, okay. But what's also making this very hard is the Nasdaq is over 30% off its high. So investors are struggling with like how much bad news have we priced in? And that's obviously the unknown. That is the unknown, yeah. Let's talk about the dollar as a – dollar level as a trading signal. And you wrote about this, and we have some notes from you. Let me start you off.

The dollar peaked on exactly the same day as stocks troughed in both March of 2009 and March of 2020. The dollar has been on a tear since the end of Q1 against everything, euro, yen, pound, yuan, I'll throw in Bitcoin. Higher interest rates are one reason, but so is macro fear. So this is interesting to me because this is the thing the Fed can't do anything about. The dollar is going to continue to be attractive so long as this lunatic is fighting in Ukraine and so long as we don't seem to be getting along well with China. Like it's not like the dollar has to go up every day, but like tell me the story where the dollar falls,

especially versus the euro. It's really hard to imagine it, right? It is. And if you look at the dollar back to even before financial crisis and just do like a 2005 to now chart, it's just a straight shot up. You have peaks around the lows for risk assets. And then it comes down for about a year and that goes right back up.

Is that just a story of the comps? Because it's not as though like we're kicking ass on the budget side. It's very well put. It's the leper with the most fingers. That's like really what's going on basically, right? Basically, yes. Okay. What about positioning?

Could that do it? Sorry. Larry Summers had this great quote. And it wasn't really about the dollar, but I think it fits it pretty well. It's like, okay, where are you going to put your money? Europe's a museum. Japan's a nursing home. China's a jail.

Yeah. Where else are you going? Yeah. Other than that, though, all those places seem attractive. No, but like even January 6th, like it did nothing. In any other country, I could imagine the sovereign bonds falling apart, the currency dropping. It did absolutely nothing. I don't even think the stock market went down that day.

I could be wrong, but it certainly wasn't a stock market crash. No, the market went down a lot that day. It did it, though? I think so. What's a lot? 100 Dow points? I don't remember there being a big sell-off as a stock market crash. No, the market went down a lot that day. It did it though? I think so. What's a lot? 100 Dow points? I don't remember there being a big sell-off as a result of that. So I don't know.

I don't know what could cause that dollar unwinds. But it seems like it's a necessary ingredient to stop the stock market from falling. Yeah, that feels fair. I mean in my darker moments, I think the reason the dollar works so well is mostly because politics don't matter to this economy. It's crazy, but it's true. The system is relatively well put together at other levels. And those work. Did stocks rally on January 6th? 2020. That should be like every financial advisor should have that chart, right? That should be standard material. It's bullish, yeah. It's super bullish

when that happens. Gold fell apart. I remember that vividly. Gold fell apart on that day. Which absolutely is the opposite of what any normal person would have guessed. Yeah. Okay, so I can't come up with the dollar on wine story. What about positioning? Could that be it? Alright, so there is a dollar on wine story.

Putin says, I'm done. And they turn on the pipelines. It's in a recovery. It's in a global recovery. Whenever we get there, like there was a JP Morgan chart going around a couple weeks ago that showed that non-U.S. stocks should have a long period of outperformance starting next year. I've been hearing that every year. Right. And we have a structural point of view at Datatrack like long U.S. large caps.

That's kind of the whole story. Like forget EM, forget IFA. But when you get maybe three or four years of dollar weakness from a sustained global economic recovery, maybe you do get IFA and EM to outperform S&P for a year or two. Are you surprised at all that they're not outperforming this year given the demand for raw materials and commodities? In local currencies, though. In local currencies, they're not outperforming this year given the demand for raw materials and commodities? I mean they're doing – And local currencies though. And local currencies are doing pretty well. Yeah.

Like UK is beating S&P local currency. Right. So – It's a dollar story. So it's back to the dollar. Yeah. What's the good news? Give it to us.

The S&P 500 usually moves by less than 1% in any given day. Right. Go on. So the good news is if you look at volatility through a different lens and look at like 1% day moves or 2% or 3% day moves, we are getting a lot of, say, 3% day moves. We don't usually get. Sorry, this is percent of days down 1%. That's the worst other than 2008 and 2002. In 2022, we've had more down 1% days.

One out of four days. And 1% is significant. 1% is a one standard deviation move. The S&P typically moves 0.03% on average back to 1950 every day. It just grinds its way a little bit higher every day. That's what it should do. We've had so many 1%, 2%, 3% data zero. This is back to the whole Hitchcock analogy.

We are just on tenterhooks every single day. Yeah. And eventually, that gets to the right price. So, but at the rate it's going, it could take a while. But one of the things that was said over the last couple of years is markets move faster these days. They price things in much quicker. This seems like a slow grind. It really does.

Again, because we just don't know when we hit the part of the S-curve where monetary policy really hits the economy. I don't think the bond market has moved slowly this year. That's true. I think the bond market went right to where it was supposed to go. It felt like an overnight thing. It's happened for two reasons, though.

This is kind of the weird thing. You had a move up through about what May because of inflation expectations. Yeah. But they're down a ton since May. And lately, it's been real rates. And you got five and 10 year real rates at like 1.3, 1.5% right now. We haven't seen these levels since 2005. Yeah. So it's been a sort of twofold move. And the question is, where does the Fed get happy with real rates? Where does it want them to go? Well, if they think inflation finishes the year averaging, what, 4.5%? What are they promising us? For next year? Yeah, yeah. Yeah, 4 point something. Right. So then doesn't that just say 5% is the number? Or is it not that simple? It depends on what you're... All right. So inflation expectations

are going to go back to 2, right? Because right now for the five and ten-year tips, they're 2.2, 2.4. Yeah. So what do you want to add in for real? One and a half? Yeah. One and a half is heavy. Yeah. Well, I also don't think the 2% inflation target is going to make it.

So I think it's a made-up number to begin with. There's no historical evidence for why 2% is right. number to begin with. There's no historical evidence for why 2% is right. I actually, I asked an economist, you know, why 2%, the funniest answer I got, he said, well, 1% just seems too slow and 3% is scary. So it's two. Like if that's the math, if that's the science of how they got a 2 percent inflation target, unless you know better, then maybe 3 percent is the new target at some point. They can't say it yet, but they start hinting at it like, OK, we're comfortable with three right now. I don't know. Could you picture a scenario where the goalposts have to move to make this all end normally? Yeah, I can absolutely picture it.

The problem policymakers try to think about is Japan went to disinflation, deflation, and never came out of it. Yeah. So two is just enough that if you miss, because a typical recession sees inflation fall by one and a half percent. So if you're at two, you're still above. You don't tip over into deflation. Into deflation.

That's the magic behind two. Okay. What if fund funds rate need to be for inflation to come back to 2%? No one knows. Yes. That is the honest truth. What's your guess? Five.

You think five? Huh. If you want to do it quickly. Well, I think people would like to do it quickly conceptually, but they don't want to actually live with the consequences. And that's why they don't get to five. Where are they now? Three, three and a quarter?

Three, three and a quarter. Yeah, three to three and a quarter. So if they took us to five next meeting, we'll fall off. I mean, that's just too big a shock. I mean, the Fed would like to – remember, the Fed put us on volatility. The Fed doesn't want a 44 VIX. And they will just grind to – Yeah, they're not trying to surprise. The Fed doesn't want a 44 VIX. And they will just grind it. They're not trying to surprise us.

Right. They're not going to try to surprise us. I don't want to take back five because it's the right answer, but we're never going to get to five because the Fed is just going to keep going until they see signs it's working. So if we're not getting to five, to use a Joshism, do you buy the snot out of the bonds or not yet? Not yet. You got to see the whites of the bond's eyes, I think is the way you'd put it. I want to do this chart.

Speaking about the zero coupon bond ETF is cut in half. So that's fun. I want to do this S&P 1965 to 1985 chart. So what are we, Nick, what are we looking at here? This is so gross. This is the S&P 500 from 1965 to 85. The line, the dark line across is the 100 level. The S&P first crossed 100 in June 1968. Okay, that was the first time it ever got to 100. Okay, cool. It fell to 71 in July 1970

during that recession, which is really where inflation started to pick up aggressively as well. It got back to 120 in Jan 73. So like, okay, up 20% over a couple of years. We're going to be okay. And went right back down, was down to 62 at the lows in October 74. And I just paused for one sec. In January 73, you probably, look at that chart. That's a breakout. You probably thought you were in the clear.

Yeah. And you would have been in the clear were it not for the war. The Six-Day War, right? Yeah. Yeah. And you would have been in the clear were it not for the war. The Six-Day War, right? Yeah. Yeah. So, and that, so the U.S. gets behind Israel,

Israel's fighting five countries at once, and then that creates, is that the first oil embargo? It was. Saudi Western oil embargo October 73. Okay,

so that was geopolitical that spilled over into an economic story. Oil went from a buck a barrel in 1970 to four bucks a barrel in 1974. That's like, right, it's catastrophic. Wait, what did it a barrel in 1970 to four bucks a barrel in 1974.

Right. It's catastrophic. Wait, what did it go from? One to four. A dollar to four dollars. It went from free to not free. Yeah. And not just the price, but the scarcity too.

Scarcity was more of a 79 issue. So the gas lines were late in the 70s. Yeah, and that was the runner evolution. Okay. But that was catastrophic. Yes. So to go on with this chart, you break 168. You have two drops of 35%, 40%-ish in 70 and 74. Brutal.

You grind your way back, and you don't really break out until September, October, November 1982. I mean this chart has been making the rounds. I've seen it like five different places. And this is the horror story. Well, Druckenmiller said in 10 years, he thinks the Dow's going to be flat in here. But just this period, though, from 73, that failed breakout for the S&P,

into like, let's say, 79, that's six of the worst years in American history. The Bronx is burning. It's a decade of inflation. It's six of the worst years in American history. The Bronx is burning. It's a decade of inflation. It's literally buildings on fire. The city goes bankrupt, right? Gerald Ford tells the mayor, you know, screw off. Like what else was going? It was like just all bad news all the time, right? It was just heavy duty inflation. A lot of water gates. Water gates in there. Double digit mortgage rates.

Yep. duty inflation, a lot of water gates in there as well. Double digit mortgage rates. Yep. Right. So it's not just a tough economy, but it's just a tough period of life for everyone. Maybe this doesn't matter, but you know what else is not on this chart? Giant tech stocks. What do you mean?

There weren't any. I think aerospace were the tech stocks of the day, right? A little aerospace, a little Xerox. Yeah, yeah, yeah. Nifty 50. So I understand that you've always had innovative companies, but I hate to say it's different this time, but the margins and the growth and the size of these companies,

it is different. We didn't have companies in this period of time that were secular growers in the way that Apple is. So is Apple recession-proof? They caught a body from Bank of America last week. Nothing's recession-proof. No way. Period. Ever. You could have recession-resistant.

You can't have recession-proof. Actually, I'll throw one out. We don't know. Maybe we'll find out. What about a company like Netflix? When do people start saying, you know what? I can't pay for my Netflix anymore. They lost 2 million subscribers last quarter. Yeah, but mostly in Russia.

Yeah, this was – remember, this was a thing back during the housing crisis. People would pay their cable bill but not their mortgage for a lot of sort of obvious reasons. But that was the most important thing. Like if you're stuck at home because you have no money and the bank is knocking on your door, at least you want to have a movie to watch. So there are some things that are recession resistant. I remember in the 2001, 2002 recession, Starbucks was invincible. It was a recent IPO, and the stock just worked.

What was? Starbucks. And the theory was it's an affordable luxury. It's like, all right, your life sucks, but you can have your special coffee time. You are not buying the new iPhone if we get a real recession. You're just going to wait. Yeah, you're right.

So the message behind that chart – John, can you throw that back up? So that's a 16-year-ish period of not necessarily straight down but no forward progress for the S&P. A lot of our financial system is based on the premise that this is not going to happen again, that we're not going to, like the way wealth management works, the way insurance works, the way almost everything works is biased toward

at some point the market breaks out and starts making new highs. I try to think about like that secular bear market, what it would be like now or what it would be like if we were to live through a period like that again. It's really hard to imagine. I know it's possible,

but it just seems like there's too much of a bias in the way we built our economy that we almost can't let that happen. Stock-based comp? Yeah, well, stock-based comp, 401ks. Like you look at this period in the 70s, there's no contributions coming into 401ks because it doesn't exist. You can't see a flat market for five years? This is pension.

Josh, five years? Well, let's go back. Oh, I think you could. I just think it would be, like, way worse. 15 is tough to forsee. But why did this happen? The Jews. I don't know.

You tell me. Inflation. Inflation. Oil. Okay. Oil goes from $1 a barrel to $40 a barrel from 1970 to 1979. One to 40. In an economy that was very energy intensive.

Yeah. It created a ton of inflation. Volcker comes in, says, okay, not on my watch, raises rates, watches the money supply, forces inflation lower, creates a massive recession, breaks the back of inflation. That gives oil producers enough time to catch up and produce and keep that oil price low. Oil didn't get back to 40 until 2004. Yeah. Wow. Yeah.

So that's what happened. So what's the analog now? In the Clinton years, gas was like $1.50 at the pump and oil was like $20. Mm-hmm. Okay. So yeah. What is the analog? Oh, you want us to guess?

Yeah. Well, I would love your opinion. Oh. So I don't know. I don't think we're having 10 years of inflation. No, no, no. What's the analog?

So oil was the problem then. Right. I don't know. Is it the dollar? Labor market. The labor market? Ooh. Right. That's the analog. This was high dollar? Labor market. The labor market? Ooh. Right.

That's the analog. This was high inflation. The analog now, Powell tells us this every time he gets in front of a microphone. The analog now is labor markets. In other words, we have oil production under control now to the point where, I mean, we can't control the price, but we certainly can produce more. Well, oil is not going up 40x. Yeah, yeah, yeah. Okay.

Labor demand is going to go up 40x? What are the robots for then? No. I mean, that's a whole separate issue like around self-driving cars. But the issue that we're fighting now, this is important because of two things. First, it lasted a long-ass time. Yeah. And it crushed valuations, right?

Shiller PE got down to seven. Oh. Okay. The average is 16. Shiller PE in 1982 was 7. So don't you think the Fed, now that they can control everything, is hyper aware of this and is saying, listen, inflation is the ultimate boogeyman. If we have to have a recession to take our medicines, so be it.

We're going to crush this. Yes, that is. And you want them to do it quickly. And they want to do it quickly. And they're doing it. Yes. They're doing it. It's happening.

It's just, you know, we wish it would end, but it can't end yet. Not yet. Not yet. I remember reading a Peter Lynch quote about that 79, 80 period of time where the PE is eight times earnings for the market. He was talking about people that worked on Wall Street or I guess in Boston, wherever he was, that worked in stocks were like, maybe I'll be a hunter. They were trying to think of what else they could do because that's how dark it was working in equities. One of the most popular books in the 70s was a series called Foxfire.

It was basically survivalist wilderness outdoor stuff. Yeah, because that was the mood. That was the mood. I mean, that's what I grew up in. I grew up in New York in the 70s. I was having this conversation with somebody about teenager, teenage movie. We were talking about teenage slasher films. Do you remember Fast Times at Ridgemont High?

Sure. Okay. So that's before my time, but like eventually, you know, eventually watched it. But every kid in that movie had a job. I didn't really know that many kids. I knew kids that had jobs. movie had a job. I didn't really know that many kids. I knew kids that had jobs. I had a job. But the whole movie is about these kids working.

If you really think about it, like two of them work at the movie theater. They all work in the mall. The only one that didn't have a job was selling tickets, scalping tickets. But that was like a moment where things were so hard, early 80s, that in a family, a husband, a wife, two or three teenage kids, everybody's working. It's not quite like that right now, but that's what things look like when you're living through a secular bear market for that long. Yeah, look, my first job ever that I got for myself was a substitute doorman and janitor in a building on 106 Riverside the summer before I went to college. So that was the summer of 82. And I was super grateful for that job, and it paid really well,

and it paid for all my essential expenses for my first year in college. There was no 18-year-old. That's never coming back. There are not 18-year-old. There are not American teenagers doing jobs like that right now. Yeah, maybe not. I'm sure there are some, but I did it, and I was very grateful for it. Yeah.

Okay. But that worst case scenario would be this goes on for a really long time. But I'm definitely not in that camp. Are you? I can't imagine that eventually the job market wouldn't crack and finish the Fed's job for it after a year of this shit. I just can't picture it. I mean, this is where we get into, like, intellectual discipline and what do you have to see to either confirm or deny. And for the moment, I'm just open-minded about what is going to happen. Like, I don't know, let's talk about Stevie for a second.

Like, when I work for Steve, everybody would ask him, Steve Cohen, everybody would ask him, like, hey, what's your view on the market? And he would legitimately always say, I do not know. That is not what I get paid to do. I watch the tape. I see what's going on. I have smart people tell me what they hear from their industries. And then I formulate a view based on my time horizon. And he is agnostic about whether it be massively short or massively long any given day. Total intellectual flexibility. And I'm trying as hard as possible to embrace that same ethos with our work right now. Because the short answer is, you don't know. But if we do know that the wealth effect has become a huge part of our economy, and it drives, we also know the consumer is 70%

of the economy. And we know that the consumer is very much driven to do things or not do things based on the value of their house, or what they perceive the value of their houses, and how their retirement portfolio is doing. And people in a year like 2021, feel incredibly wealthy. And in some way, they were relative to history, with all of the government programs, etc. And they spent like it. And next year, they are not going to be spending like it because their home is now finally dropping in value and their stock portfolio is down between a quarter and a half. So doesn't that plant the seed for the Fed getting what it wants, a consumer-driven recession

because things are just not as good as they were and people pull back. Like how could employment in that situation remain as tight as it is? No, you're right. I can't picture – how could it possibly? But what's the rate of change? How fast does it happen? Because a bunch of negative 2 percent comps isn't going to make anybody happy. OK.

And where's oil? So KPMG CEO survey this week I think gives us an answer in terms of the rate of change. So I assume you saw this, right? Yeah. We'll quote this for the audience. Global CEO survey. They asked 1,300 CEOs at the world's largest businesses. So this isn't small business.

This is the big one. About their strategies and outlook. The results reflected, quote, more than eight out of 10 global CEOs anticipated recession over the next 12 months. More than half expecting it to be mild and short. 14% of senior executives identify a recession as being the most pressing concern up from 2022, from early 2022. 76% have already taken precautionary steps. I don't know what that means. With, quote, with continued economic turmoil,

there are signs the Great Resignation Committee cooling down. 39% of CEOs have implemented a hiring freeze. 46% considering downsizing their workforce over the next six months. So they're optimistic over three years, but they want to fire people in the next six months. So are they lying? Are they not going to do it? Or do they think they might do it, but they're not sure yet? Like, how do you interpret that?

It's very hard because, I mean, CEOs— It's feelings, right? It's feelings, and it's tell me what you're doing. Yeah. So what's tomorrow's jobs number? So they're taking precautionary steps. What is that? I don't even know what that really means.

One of the things we do at DataTrack in addition to the newsletter is we are kind of outsourced economists to a couple of public companies. Okay. And so we have regular calls with their staff to tell them what we're seeing. And as much as the staffs are concerned, right, this is middle to senior management, these firms aren't firing people. Right. So everybody's talking about maybe starting to at some point in the future. Which goes back to the question of when do earnings go down? Because when earnings go down, you do get the layoffs. Right. But it's a little bit of a lag. Yeah. Okay. I want to talk about Credit Suisse.

So you were there when it was first Boston and then Credit Suisse bought it? Yeah. Okay. They crept into an Albi purchase over about a decade. All right. So this weekend, Credit Suisse and Deutsche Bank were all over Twitter. There were rumors going around,

or maybe they're not rumors. I don't really know. But the Lehman stuff, and the Lehman stuff, it's always, I have a joke, it's the Lehman stuff, and the Lehman stuff, it's always – I have a joke. It's always Lehman o'clock somewhere. But in this case, these were stocks that were down already, right? 85 percent? 90 percent?

Yeah, but European financials are down 30 percent. Credit Suisse is down 80. So what if those are just really shitty banks and it's not like a global financial crisis 2.0? Yeah, that's kind of, they are absolutely horrible investments. I mean, European banks. The equities of these companies. And they have been so bad

that every time there's really kind of a shaky part of the market, every perma bear comes out with the European Stocks Bank Index. It says, oh my God, it's back to 09 lows. EUFN is the ETF, right? But EUFN is in dollars. So you get the euro effect. This is like the local currency stuff in the euros. It says, oh my god, it's back to 09 lows. EUFN is in dollars, so you get the euro effect. This is like the local currency stuff in the euros.

It's a little bit better, but the point is it's not falling apart. So as much as all those rumors were around, all you had to do was go look at EUFN or the Stocks Bank 600, and you'll see, okay, yes, it's just a bunch of crappy companies. The big one I saw was Lehman had $600 billion in assets or something when it failed or in liability.

I think most of the people talking about this stuff didn't even know what they were talking about. And that if you look at Credit Suisse and Deutsche combined, they're like 3x that. But they seem to be mixing up assets under management with liabilities, with cash on hand. Like people didn't seem to be that informed at all. But that kind of talk spreads quickly to the point where the chairman had to come out and be like, no, we're okay. Like it's not great, but we're restructuring already and this is not a real issue. I guess my question to you is, a non-issue could become an issue if enough people believe in it.

That's the only way that financials are different than any other stock. Meaning, if I spread a rumor about Ford Motor Company being in trouble, that's not going to stop consumers from buying Fords, right? If I spread a rumor about Lehman being in trouble and I'm convincing enough that everybody believes it, they could stop doing business with Lehman. So that is the only sector,

maybe insurance, that could be undone by financial rumors. You can't really do that, I don't think, with any other type of company. I could be wrong, but- No, it's true because it's not really the customer side. It's the lending side. When people stop lending to you as a services company, then you are actually done. Well, I guess actually the retailers like, like JCPenney, there were bankruptcy rumors and everybody could see the stock with their own two eyes. So, but you had, you had suppliers not willing to give them inventory.

Yeah. So I guess it could, it could happen elsewhere. But with the banks, it's 100% confidence. You either will accept them as your counterparty or you won't. That's why those kind of rumors are pretty dangerous. But you're not concerned

specifically about... The prices tell me not to be concerned. And also, Germany will not allow anything to happen to Deutsche Bank. Probably not. And I don't know the status of Credit Suisse. Also, Germany will not allow anything to happen at Deutsche Bank. Probably not. Okay. And I don't know the status of Credit Suisse. It's not as entrenched or it is?

It's pretty entrenched in Swiss culture, absolutely. In Swiss culture. But is the government very involved in how they manage themselves or not at all? No, no. Okay. Nick, can we talk about, you have this idea of sustainable disruption or sustainable innovation versus disruptive innovation. Yeah. So everybody watches Tesla and Apple, right?

Those are the two big tech companies, what I call tentpole companies. They're the big valuations or big market caps that kind of explain or at least excuse valuations in the rest of the space. But they're very different companies. And this goes back to like Clinton Christensen was this Harvard professor who wrote disruptive innovation. Yeah. He says there's two kinds of innovation. One is sustaining innovation, which is take a great product and make it better. That's Apple. And then there's disruptive innovation, which is create something brand new and get people to buy it and then spool up a whole business around it. And that's Tesla. Yeah. Disruptive innovation is a lot more valuable than sustaining innovation. That's

why Tesla's multiple is twice Apple's. But to me, watching those two stocks, that's why we watch them. Because one is the ultimate sustaining innovation. One is the ultimate at-scale disruptive innovation. And the question is, okay, which one are you going to bet on for Q4? Okay, why? Why is that the question? Because if we're still going to have a lot of volatility, I remember Apple was falling apart.

Yes. And everybody's saying, okay, that's the beginning of the end. Is it really? Or is it was falling apart. Yes. And everybody's saying, okay, that's the beginning of the end. Is it really? Or is it Tesla falling apart? Huh. Well, I think Apple. Tesla looks like shit right now. Apple is more widely held. It is.

And I think the holders don't think they own something that's like Tesla. And they're right to the degree that that business is already self-sustaining and highly profitable. And all you're doing is adding more stuff to that business model to make it even more profitable. Apple's goal is to get more dollars per customer. Right. Tesla's goal is to get more people to buy cars. Okay. So different in terms of the dynamic.

You already have a customer base in Apple. You don't have one in Tesla. Right. Also, Tesla's not going to pay a dividend, and it's not going to announce $100 billion stock buyback. Apple does both of those things. So, okay. Which one's going to grow earnings 50%?

50? 5-0? Not Apple. Not Apple. I think Tesla certainly could. You think it will? I mean, 18 months, two years. I was going to say, over what period of time? It's got a locked-in growth rate for a bunch of years because of the regulatory aspect of the business.

Wait, you said something interesting last time about Tesla. You actually said it was, I don't want to put words in your mouth. What did you say? Did you say it was fairly valued? Or the bears were wrong? The bears were wrong. I mean, yeah. Well, we know.

We know now. Yeah, I mean, look, it was always about, okay, why is this thing so highly valued? It's highly valued because it's a business. It's the only car company that spends zero dollars on internal combustion engines. Aside from Rivian and the smaller names. How do you value a company that

doesn't have to waste a billion dollars plus on building a new internal combustion engine design that will be obsolete in 10 years and forever? Oh, so it's what they don't have to spend money on that makes it valuable. Reinvestment rates drive valuations a lot more than people, I think, generally realize. Where a company puts its CapEx is the most important driver of valuations.

So GM and Ford are still selling internal combustion engines. They say they're going to be done selling them at some point. We don't know if that's true or if that's a moving target. But your point is like it doesn't matter. They're still every year putting a lot of money into that that Tesla does not have. And you were an auto itemist for a moving target. But your point is like, it doesn't matter. They're still every year putting a lot of money into that, that Tesla does not have. And you were an auto item list for a long time. A decade, and for Steve, yeah.

But doesn't Tesla balance that out by also investing in things that may never come to market? So to that point, Josh, there was a headline today from Bloomberg. Even after $100 billion, self-driving cars are going nowhere. Nick, what's going on here? Yeah, AVs are still a long way off because it is a freakishly hard challenge to get a car to drive itself.

Do you believe in any of the existing projects? I think they'll all eventually get somewhere. You know, it's working in Phoenix. It's working in nice, sunny areas with kind of limited traffic. It can work in some liberated areas. It's working in China. Baidu's got a pretty good product. Right.

Does it work in New York City? Yeah. No, definitely not. What if we just don't need them everywhere? What if we need them in some places and not in others? Well, this goes back to what is the ultimate purpose of innovation at a societal level? And it comes down to productivity gains. The stuff that you create as a

technology industry has to improve productivity. And AVs are probably going to be the biggest step forward in labor force productivity that we have in the next 50 years. So they need to get here. Right. And not just get here, but be commercialized effectively. Yeah. Because otherwise it'll flame out.

If you think about what's the next big thing, what's the next new, new thing? I think it's solar. I think it's right in front of our faces. Solar helps. I think it's like green energy is, it's like so boring at this point. Nobody's excited about it. But the inroads that it's making are pretty big, right? It is, but here's the problem. If you look at electricity, electricity starts

as a science, as a technology in the 1880s. Productivity gains don't start until the 1910s and 20s because you have to literally tear down all the old factories that had centralized power units based on steam with all those pulleys running around the ceiling and make an electric factory that could have decentralized power sources around electric motors.

And until you have that wholesale change in the structure of industry, you didn't get the productivity gains from electricity. Yeah, but don't you view what's about to happen in Europe this winter as being a watershed moment for really getting serious about the grid. I mean they're going to be rationing electricity in five of the ten largest countries in the world. Yeah. So that's not the kind of thing that happens and then everyone just goes back to business as usual. That is true, but where's the productivity gain from that change? I guess there's a very big lag.

Yeah. Okay. So just to put a fine point on that, there's only two ways to grow GDP as a country. One, population growth. Two, productivity growth. That's it. It's a really short menu. And if you don't have productivity growth and you're not getting much population growth,

GDP goes nowhere. Okay. Okay. So are we in a position, if you're an investor in population growth, GDP goes nowhere. Okay. So are we in a position, if you're an investor in your 30s or 40s, and you have a long way to go, how should you feel about the state of where those variables are headed in the United States? It is basically a faith-based process right now.

Okay. Because there is nothing really out in the horizon right now that says, oh, that's the next absolutely big thing. This is not 2010 with smartphones or 2015 with global smartphones. Batteries. What about CRISPR? What about like healthcare? All helpful, but what is…

The thing thing. What is the thing? So you just have to trust in the fact that it's going to come up. NFTs, nothing? No? I don't know. Well, did anyone see the iPhone coming? I mean, by definition, we don't know. Oh, that's a great thing. So you just have to trust in the fact that it's going to come up. NFTs? Nothing? No? I don't know. Well, did anyone see the iPhone coming? I mean, by definition, we don't know.

Oh, that's a great thing. About once a year, I go back and watch the original Steve Jobs iPhone presentation. And then I go back and watch the original iPod presentation. And the iPod presentation is the interesting one because it's a half-full room of people who think he's an idiot. And you look at the iPod, and he literally was pitching his life. It's one of the best presentations in business you'll ever see because he goes through the numbers.

No one believes it. The numbers of what? Why the iPod is a better tool than the HP product and the Dell product that are being competitive. They had MP3 players also. Yes. So he goes through and explains the store and everything else. No one thinks, people think he's nuts.

Yeah. So that was really the beginning. So by the time we got to the iPhone, it was too late. People understood like, oh, this is the idea. There was more credibility, but there were also like some very notable skeptics. Yeah. And nobody would have thought – Everyone knew the iPhone was magic when they saw it.

No. I don't think so. No. No keyboard. Oh, that's right. It was research in motion. That's right. It was Research in Motion. That's right. That was the thing.

People said there is no way corporate is going to sign up and RAM is still going to have a business. But there's no app store. So you can't even imagine what the thing is going to be able to do because there's nothing built for it yet. And before GPS, you couldn't imagine Uber and Google Maps and all that sort of stuff, obviously. Exactly.

Okay, so you don't know what the next big thing is going to be. I'm keeping the faith. It has to come eventually. It has to come eventually. And it might take a while, but the one thing about it, this is a unique observation to American equities. This is not about Europe, not about EM.

It's about this country. This country does do innovation extremely well. We're too ambitious. We find the right couple of thousand people who might be able to make a difference. We shove them into the right school and we give them some money. Yeah. That's what we do. That's the magic formula. Yeah. Okay.

Like, not even doing it on purpose. It's just what happens. Now it's purposeful. It was not purposeful 30 years ago. It wasn't purposeful when Hewlett and Packard started Garage. Is it likely that this is going to come from the West Coast, that it's going to come from Silicon Valley, or not necessarily? It better.

Why? It couldn't come from anywhere else? It's hard to see. It's hard to see. Certainly, it needs to come from the U.S. We all laugh about TikTok, but it is important. That is the first breakthrough native Chinese product that hit big in the West.

Not only hit big, but it's hurting American companies that compete with it, which is also rare. That is new. That's new and not great. Is it new or is it similar to Japanese subcompacts coming here and making a really big impact and hurting their competitors here and then everyone just gets used to it. No, that's different because the Japanese subcompacts were the classic disruptive innovation. You start with a new technology that is good for your market, and then you export it.

The Japanese got very lucky with the oil shocks. That's what really turned that industry into something massive. TikTok is not unique technology. Okay, the algo was pretty good, but it's not that different. It just happened to hit a different audience of younger people that the U.S. companies don't really care about because they don't have any money. Right. All right, so we have to root for this next big thing. Will we know it when we see it, or it won't be obvious until later?

Why couldn't it be robots? Did you see the thing that Elon busted out? The Optimus robot? It's not impressive, but it's a humanoid robot, which makes it different than most of the other robots that we're seeing. It doesn't look like it was born to work in a factory.

No, but the factory stuff is what creates productivity growth. So what would be a use case for a robot, a humanoid robot? Let's say it's... Companionship? No, I don't know. I don't want one. I don't want one of those frigging things in my house. Look, let's say it's

just doing a bunch of manual tasks. No, the ports. lifting and operating... Robots operating other robots is the use case. More precision, no breaks, no unions. That's like to me, like automating an Amazon warehouse, but really automating it. Yeah, the trick is fine motor skills are very hard for robotics.

Right. That's the problem. If somebody, sorry, go ahead. They can't fold laundry. I've seen it. That is literally the use case. What industry would benefit the most? Hospitality.

Hospitality. Yeah. Right. Making beds. Then they can't do that. It's one of the things that they cannot do. It is super hard. The Roomba's pretty good. Doesn't exactly fold your clothes.

If we're here a year from today, or just fast forward a year, somebody gives you inflation employment, those two data points, do you think you have a handle on where risk assets are? Or would you need more? You need more. What else would you want to know?

Why are they there? The story? Just a couple of data points. Let's say you had wage growth and unemployment. Let's say wage growth is three, unemployment is seven. Okay. Tell me where the S&P is. Right.

Well, I know what the Fed is doing at 7% unemployment. I didn't give you wage growth. So you could have unemployment rise but wage growth sticky? Possibly. How? Under what scenario? Didn't you write about the correlation between wage growth and the – was it the unemployment rate? Yeah.

So you said that those two things move in lockstep? Almost one-to-one. So what would be the scenario where that would work? By the way, can you explain what you mean by almost one-to-one? Yeah, so if you get a 1% change, if you get a one-point change in unemployment, you should see a one-percentage-point decrease in wage growth. So if unemployment ticks up from 4% to 5%?

Usually wage growth goes down from 5% to 4%. Does it really work that way? Yeah. Like, there are examples of that from recent... Jessica did the math. We went back through every cycle. Did you know that? No, you know, in National Trash Roy,

Nicholas Cage goes, can it really be that simple? Can it really be that simple? Is it that simple? Let's put it this way. We should assume it is until it's proven not. Okay, so you can envision, though, a scenario where that breaks for some reason.

What if oil is at 150? Then what? Then the people who are still employed are going to want more money. Ah, and you would have a lot of unemployed people. Yeah. That would be a weird situation. Has that ever happened before? You go back to 79, 80.

Okay. At the beginning of the second oil shock. That is the hard thing about this environment is unemployment never went below 5 in the 70s. So Volcker was basically like, okay, I'm just going to autopilot. It's all those teenagers working in movie theaters. Volcker was just like,

I'm going to autopilot down to an M1 number. M1 growth number. And that's what he did. Nick, let's give a plug for Datatrack. What are you doing for your clients? We write a daily market newsletter. And basically, we do in sort of written form what we're doing here today,

which is let's talk about what really matters, what's the actual numbers behind it, where are the trends, and how to contextualize the information you're seeing on your screen or that you're reading the paper or whatever. You're putting that out five days a week? Yeah.

And I know you're working on it at night, I think? Okay. You're, like, very prolific. You're giving people a lot. Yeah, no, we do five days a week, no excuses, no vacations. Right. 2,500 words, three different sections. We do markets, data, and disruptions.

If we know that Nick is on vacation next year, how bad is he? Yeah, yeah, yeah. Do you get a lot of questions from clients that then turn into what you're going to end up writing about? Do you ever get inspired by your readers and what they want to know? Yes, once in a while. But honestly, our pathway is very much out to them. It's our job to tell them what we think. If they privilege us with their observations, that's awesome.

But that's really not the way it works. Do you ever, like, on a Wednesday afternoon, just be like, I'm just not, I'm not feeling it. I'm not in spot. I mean, you can't. No. So you have to have something.

He's always feeling it. You have to have something to say all the time. Look, our clients don't have the luxury of just turning it off. I know. Right. So then you can't. Money managers.

I mean, everybody from literally like big hedge funds to the CEOs of big public companies to, you know, retired retired dentist in Oregon. This is a better environment for you than like 2019. Like 2019, the VIX is 10. Stocks go up every day. The biggest drop in the S&P is 4% the whole year.

I'm sure you, I know you wrote great stuff because I was reading it, but I'm saying like you must have so much more to do and think about and say in an environment like this. Yes. And your readership is always going to be higher in a higher volatility environment. Everyone's readership. Yes. People feel like they can't miss anything right now.

But I'll tell you, the way I personally think about it for our business is people are losing money. Yeah. And so I need to work harder because I'm asking them for money. That's right. That's right. And they may not be making money right now. Right. No, they're not.

They're long stocks. They're not. They're long bonds. They're not. Right. That's kind of the whole menu. Yeah. Well, commodities, that's small.

Small. It's not big enough. Okay. So, right. So people are not making as much or they're losing and they're looking at the shit they're paying for. And I'm asking for money. Like, okay, I better – there's no day off. So you're crushing it though this year?

Yeah, we're doing fine. I mean, you've been right about a lot. You've been right about all the important stuff. And that's really what drives – in the end, that's what will drive people to say, I got to retain Datatrack versus some other thing that they're involved with. Since we started, we've had net 95% retention. That's incredible. Proof is in the pudding. The proof is in the pudding.

Congratulations. Can we do a clap for that? And it's you and Jessica. And are you guys going to expand the team? Are you going to bring in people that cover other stuff, or are you going to keep it what it is because it's you and Jessica. And are you guys going to expand the team? Are you going to bring in people that cover other stuff? Or are you going to keep it what it is because it's working? Keep it what it is because it's working because I believe in it. There's a temptation, though, right, to, like, want to expand it because it's hot, it's popular.

No? No. I'll tell you a story. Maybe this is apocryphal. I don't know. But I've heard it from multiple places. When Steve started his hedge fund, he traded one stock for the first year and only one stock. And I think it was IBM.

Okay. And he wanted to perfect the process. And so he just went to an office somewhere in Midtown and he traded one stock for one year. Learned every analyst's point of view, studied the company, read the financials, talked to the management, talked to the specialist. Really? Yeah. Is he long and short? And he would trade it when he thought he could make money at it.

Wow. And so he probably knew it better than anyone on earth because he probably got so laser-focused on it that you couldn't tell him anything about it. I mean, he's got a huge intellect and a huge intellectual curiosity, and he focused it all on one thing. Okay. So you're telling us that to say that you're laser focused on what you're doing and not looking to expand horizontally and start putting other people's voices in the thing. Because that's what everyone else does, right? It reminds me of when I started trading. I meant to buy calls on Zynga, but by accident I hit the wrong button and bought puts.

Very similar to how Stevie did it. Laser focused like Steve. I've always said that you're very Steve Cohen-esque. That's something I've always said about you. Did you have fun on the show today? It was awesome. Thank you so much. Remember, we do favorites at the end of the show. So I hope you brought something as good as what you brought us last time

because I read the book and I was blown away by it. I just finished Brad DeLong's Slouching Towards Utopia. What is it called? DeLong? Brad DeLong's Slouching Towards Utopia. What is it called? DeLong? Brad DeLong. He's like a triple Harvard Berkeley econ professor. Oh, yeah, yeah, yeah. I know who he is.

So he just finished and wrote a book and published it called Slouching Towards Utopia. Okay. That's a good title. Yeah. I thought it was a little Joan Didion-esque myself. Yeah, yeah. I thought that too. Yeah.

Okay. Who's Joan? That's somebody I feel like I should know. Do you know? Duncan would know. No, I don't. No, I thought that too. Yeah. Okay. Who's Joan? That's somebody I feel like I should know. Do you know? Duncan would know. No, I don't. No, I'm just kidding. I know you don't know.

Who's Joan Didion? Joan Didion was fantastic American writer. She just died, right? She just died. Yeah, yeah, yeah. And she wrote a book called Slouching Towards Bethlehem. So this is a parody of that or an homage? I don't know why you call it that.

Okay. But basically, it's an economic history of the last 140 years. I don't know why you call it that. But basically, it's an economic history of the last 140 years. And he creates a very solid construct to understand how economic development works. And then the competing forces, whether it be capital or labor, basically, that basically try to leverage their power to gain the productivity growth and the economic growth created by all the technology of the last 140 years. It's a very long book. I'm not entirely sure it's super worth it, but the basic theme is solid. So the theme is what exactly?

The theme is the last 140 years I've seen tremendous productivity growth because of all the technology. Okay. And there are two competing forces. One is the market, who says, I'm giving you capital to create this technology. I want a return. And the other one is broad society, even if they don't own capital, feels they have a right to access some of those returns.

And I thought about this book because of your piece over the weekend. Oh, really? Which was very much, I think, in the same mold. Okay. Because your piece, just to – maybe you should recap it instead of me. Am I doing it? Well, the very simple premise was we ran an experiment, not on purpose. was we ran an experiment, not on purpose,

but when the pandemic hit, we said, what if we could prevent Great Depression Part 2 by just making sure everyone could pay their bills? The only way you could freeze the economy is if you made it so that everybody was liquid enough to pay their bills and not starve. So we did it. And I think it's the first time ever that they were doing direct payments, at least

in the size they were doing it, and indiscriminately spraying money at everybody, business owners, regular workers, like you name it, there was a program for it. But you were trying to say capitalism can't handle universal prosperity. I was saying the American dream doesn't work if we all get to enjoy it at the same time. There have to be people that are still striving for it or the whole shit breaks down, which I had never really had to think about before. And it's not a happy ending to the post, but that's kind of what I saw happen. What was your take on that? It's sort of – Pedestrian. What was your take on that? You know, it's sort of—

Pedestrian. No, I was going to say— Lazy. I was going to say irrefutable. Would you say Joan Didion-esque? No, no. Irrefutable meaning— Sam Kinison-esque.

Wait, that's a really big compliment, I think. That's a really big compliment. Irrefutable? And you said, yeah, that's basically what happened? That is basically what happened. And to me, it's like tied up in this tension. Okay, Powell and the Fed want to get the labor force back to 2019. And this labor force absolutely does not want to go back to 2019.

No, why would they? And I think that's what really resonated in your piece with me was that is it. That's exactly it. No one wants to go back to 2019 except for the Fed. The door is shut on 2019. Oh, no. I'll tell you other people that want to go back to 2019. Jamie Dim No one wants to go back to 2019. The door is shut on – no, I'll tell you other people that want to go back to 2019. Jamie Dimon would love to go back to 2019.

DJ Solly. We know Trump would. Like there are some powerful people who are really unhappy that it's not going to go back that way. And I have some of those tendencies. I have some boomer energy about like why aren't my employees like in front of me every time I walk in the door? So I get it. But yeah, we can't because there's been like this reveal. It's like, oh, wait a minute, there is an option where I actually could just pay my bills and not have to be struggling as much as I am, or I have the flex time I want or whatever.

How do we pretend that we didn't see that? So I think it's a really big challenge societally. I think it is the issue. It's the, right? It is the issue for the next three years. And that's why I make the analogy to the oil crisis in 73 and 79. Okay. Step function change in a social reality. Okay.

That you can't unwind. So I got to- you can't unwind. So I got to – We can't go out like this. We need some happiness. Well – I think this is a happy conversation. I got a lot of feedback on it from like surprising places and like I won't use people's names but like some – I can't believe Roger Federer liked your piece.

Yeah, he loved it. That's crazy. He flipped out for it. Sarah Jessica Parker. No. So people – but nobody said – nobody really seemed to disagree. But a lot of people did point out, and I think they have a point. I was – it's a little bit – it's a little much.

It's a little faux populist like, well, what are you going to do about it kind of thing. I don't think there's anything anybody could do about it. I just think it's what it is. That's right. So I wasn't rabble rousing. I don't have any answers. No, let's say the sky is blue. Have a nice day. That's what it is. I really appreciate you reading it.

Thank you. I really appreciate that. Do you have a favorite for us? Typical Joan Didion fan. I show a jackass for. Alright, give it to us. What do you got? No, I really don't. I mean, I saw. All right, give it to us. What do you got? No, I really don't. I mean, I saw the movie Smile, which was phenomenal.

Time out. Michael went to the movies to see the new Avatar. Oh, yeah, yeah, yeah. We spoke about this last week. Sorry, I have no choice. But it was not the new Avatar. It was a remake.

It was a re-release. I'm sorry. They put the 2010 Avatar back in the movie theater. Suddenly, I'm driving with my friend. He goes, you want to see Avatar? I said, holy shit, it's out already. I would have imagined that I would have seen advertising, $100 million budget advertising.

But okay, yeah, I was super excited. And on the way there, I said, you know, I deliberately stayed away from reviews. I don't want to, no taint. I just want to go with a clean slate. He goes, the reviews from 2009? And that was the moment that you found out that you were on your way to see a movie from 13 years ago yeah did not see that movie pretty great yeah pretty pretty great um all right my favorite uh you i know you're not a big pop culture guy uh you were a saturday night

live guy of course so david spade and dana carvey have a podcast together and they interview mostly like their old castmates, but they had Lauren Michaels on and Lauren Michaels has been producing the show for 47 years. It's crazy. And he's going to stick around for at least 50 years. And he was very good podcast guest. They did it in two parts, but just talking about one of the things about that show that sets it apart, aside from obviously the length of time it's been running and having one person running it the whole time, is how little it's changed. And I kind of like things that don't change. So, of course, it changes with the times and the cast changes.

Who was your favorite castmate ever? Probably Sandler just because of how old I was. For me, it's Will Ferrell. Like, by a lot. Yeah, I could see that. Every sketch I do. And he was in all of them. He was in every sketch.

Anyway, it's like one of those institutions that I just, I like the fact that it's still live. It's still 90 minutes. It's still on Saturday nights. It's still in New York. Like there's just so much about it that has been able to withstand. And one of the things that was saying is like- It is dead though.

So you think that, but here's what you don't know. The fact that every part of it is now on YouTube has made it an international sensation. I think they get 2 billion views a month on YouTube was the number. There are very few things that get 2 billion views, but SNL content is that big. Well,

it's dead for me. I don't watch it. So I, I don't think I've, I don't think there's an episode since 1990 that I haven't seen. How about that? That's crazy. That's crazy,

right? I'm pretty, I'm pretty sure that I've seen every single episode from when I started watching it. So that's how you're so smart. That's, that's, and that's,

and that's how I got to where I am today. Anyway, uh, David Spade is amazing. Dana Carvey is amazing. And Lorne Michaels is a treasure. Garth Algar, shout. If you're an SNL guy, just look into that.

That's all I have for favorites. I think we did a pretty good job with favorites this week. Wouldn't you agree? Yeah. All right. So we're going to take like a five-minute break and then do another hour. Are you good? You good to hang out?

Nick Colas, everyone. Thank you. It's not an accident why you're a fan favorite. I think the breadth of topics that you can speak really intelligently on is like – I mean I guess what do you think of yourself? I guess what do you think of yourself? No, I guess what I'm trying to say is when we do the show, we have a lot of guests that are great guests, but they know one thing really well. You seem to really be like a constant learner and you seem to be really well versed in a lot of things. So I just wanted to say thank you.

Thank you. And thanks for all the research that you do and for coming on. We really appreciate it. Thanks so much. Awesome. Thank you so much, Nick. Thanks to John. Great job this week. Nothing broke. We got really appreciate it. Thanks so much. Awesome. Thank you so much, Nick. Thanks to John. Great job this week. Nothing broke. We got our charts up. You crushed it, man.

John did a soft landing. I wasn't worried about it. Well done, John. Thanks, Nicole, and thanks to all of you guys, and we will be back next week. We also have an all-new What Are Your Thoughts on Tuesday night. New Animal Spirits next week. We're back to our regular schedule. All the holidays are over, right?

Yeah. Good to go. All right. We will see you guys soon. Thanks for listening. Take us out. All right. Was that fun?

Yeah, it was. It was. Did you like it? No, no. It was amazing. The show was big on me. I mean, if I should have. I thought. This is the show.