The Compound and Friends - Tom Lee to the Rescue

Episode Date: March 7, 2025

On episode 181 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Tom Lee to discuss: how bull markets end, the trade war, odds of a recession, the case for a Bitcoin reserve, Tesla’s crash, Tom’s “Granny Shots” stock picks, and much more! This episode is sponsored by Cambria. Visit cambriafunds.com/351 to take the next step in innovative, tax-savvy investing today. Sign up for a free trial of Fundstrat at: http://fundstrat.com/tom Sign up for The Compound Newsletter and never miss out!: https://www.thecompoundnews.com/subscribe Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

So I had a realization today that Stephanie Link is the most powerful person on Wall Street. So we walk into the Rainbow Room, Mike, and Stephanie has what looks like the green room for our podcast, basically. Here's who's there. Karen Fenterman, Shannon Secocha, and Brynn are on stage with Stephanie. In the back, Dan Greenhouse, Dan Ives, Tom Lee, me, Jason Trenor, Jason Snipe. Who else was there? Who am I missing? Bill Baruch.

Bill Baruch. The CIBC, Belsky. Belsky's there. Oh, Alex Kantrowitz is there. I'm like, what is going on? Who was in the audience? There was no audience. It was just like everybody from CNBC.

Just kidding. It's like a hundred financial advisors that work at Hightower. And so I meet Stephanie's father, who I've met before. He's a financial advisor. He's at Morgan Stanley. So I said, this is unbelievable, I can't believe she threw this event. And he's like, well she does this every year.

I'm like, oh all right, I haven't been invited until now. I didn't know this was a regular thing. I think it was normally at the New York Palace. Okay. And then this year they moved it to the Rainbow Room. I was just very impressed. Stephanie asked people to do something, everybody says yes. And I'm an immediate yes.

Yes. I'm an early member of the Stephanie Ling fan club. So I thought that was pretty cool. That's a crazy view from up there, the Rainbow Room. It was. Actually the AI panel, because I sat through like most of the morning. Yeah. It was very, actually really useful.

Was Alex on that? Yeah, it was Alex, Dan Eyes and Bill Baruch. Yeah. But Alex was talking about some really crazy things happening with AI. He was saying like, voice is the big thing. Okay. The big application.

Okay. And then he was saying like dating is like the second big thing. Okay. The big application. Okay. And then he was saying like dating is like the second big application. And like- What, like dating apps? Proxies for dating, like people are interacting with their AI as if it's their significant other. One, he was saying that one company was talking about

how like some people are training themselves to be better dating counterparts by practicing AI. And so then they go on real dates. Okay. Oh, I heard that I was just at T3 for advisors and they were saying there's going to be a service that simulates a prospective client call. Yeah. That's pretty cool.

Yeah. And then Alex was saying that, I don't know if this is- Practice dates. That's weird. Yeah. I guess practice makes perfect yeah and he was saying like another thing was when they when chat GBT added the scarlet Johansson voice that's when they broke out of the funk of users they were like stuck at a hundred million users and

then as soon as like they introduced her voice is when like they doubled in a month he's serious yeah and they she got paid a lot of money for that oh is like they introduced her voice is when like they doubled in a month. Are you serious? Yeah. And they, she got paid a lot of money for that. Oh, actually, no, they simulated, they did a fake voice. I think she sued them. Oh, right. That's the story. Okay. Yeah. And then this other, so Alex was just giving actos. He said, then another guy trained an AI model.

I think it was like one of these where it, it trained the AI to do, handle interviews for him. And so then this AI has been doing interviews of like CEOs for him. Really? Using audio. So the AI is having the conversation and what does the guy do? He hits publish?

It's a clone. Like he's not even present for the interview. And then he's just reviewing it. And then he tells the CEOs that he just did it And the CEOs like oh, it's a lot more comfortable talking to this guy Wow So maybe we could do the show that way someday. I don't know could could read it I don't think an AI knows what I would say though Very predictable. No, I'm not. I'm extremely I'm extremely spontaneous. It would be a

I'm extremely, I'm extremely spontaneous. It would be a very scary. Well, I'm one of these people that just doesn't believe that AI interactions can truly replace human interactions. I know they can simulate an interaction really well, and I know it'll get better. But I do think that there are things that happen in the moment that you can't program in advance. Yeah. Yes. I've seen like AI fakes of them pretending to be me, like on WhatsApp. Yeah. Like me pitching a stock or whatever. Yeah. And I agree with you. Like it's like if someone didn't know me, they wouldn't, couldn't tell the difference.

But since I know me, I can tell it's not me. Right. So the question is what percentage of the population can tell it's not you? Cause you're not supposed to be fooled. Everyone else is supposed to be fooled. Yeah. And what do you guys do about those by the way? Well, uh, our team, including Alexa and Jill who are here, we do, we document it.

The link and everything. And we have it on a spreadsheet. We provide it to Instagram and Facebook. Um, and I know it's our attorneys are involved. Plus I know because they've mentioned CNBC, CNBC lawyers have been involved, but it's impossible to police. It's whack-a-mole because it's every day. It's all coming from Africa and Asia. And there's no like, these are not jurisdictions where they particularly care. Yeah. So it's hard to block it.

Yeah. And there's been an imposter account that's me, but they won't, because they have more followers than me, they won't take down that imposter account. I've had dozens of people impersonating me on Instagram, on WhatsApp, not as much on Facebook anymore. We reported this to the SEC, the FBI, like we put in tips, like here's a thing that's fake that's happening and we're just making you aware of it.

I have no idea if anything ever comes of that. And then finally we went to CNBC and they sort of had a direct line into Metta to tell them this is fake, this is fake. And I guess we shut enough of them down manually one by one that whoever was doing those kind of just gave up. But I doubt that's a long term solution. The platforms have to decide that they actually care or not. And I'm not

convinced the platforms really care. Yeah, because I think it is algorithmically determined who's fake and real. Like there's not someone that's like sitting at a computer. Who would have time to do that? Yeah. So that's just, I happen to know that even we have had some institutional investor clients that got They're a fun track client. So they know where our touchpoints only email and our app. Yeah, but they got duped To join a whatsapp group my cousin. Yeah, my wife's cousins Like I bought a couple of those stocks that you said to buy. Oh, yeah, and they get rug pulled, right?

So what are you talking about? He's got I don't know. I'm like DMing with your people. I'm like, no, you're not. I'm like, where? He's like on Instagram. I don't know. I was just scrolling and it was like you saying to join this thing. So I just assumed it was real. I assumed like you were getting paid from that. I'm like, why wouldn't you just ask me? Yeah. Like why wouldn't you just text me?

He's like, I just felt like it was you. I don't know. So. The fakes are going to get better. Yeah. They'll be able to answer personal questions that you think only you would know. Look, it gets to a point where it's like,

there's a limit to what you and I could even do. You could report it, you could document it, you could send links to regulators and say, hey, be aware, this is a thing that has nothing to do with us, but it's happening. But like, I think at the platform level, and it's mostly Metta, like Metta has to decide this is going to cost us a lot of money if we don't clean it up. And maybe they have, I don't know. I haven't heard about it in a while from me personally, thank God. So maybe, maybe they moved on to somebody else. But they're doing it with Ray Dalio, doing it with Bill Ackman. I assume those people have more lawyers than

I have. So I know we're not the only people lodging these complaints. And then on the New York Post, not to like fork too much, but do you know, I keep reading articles like, oh, someone's mom was in a relationship with Keanu Reeves and sent all their money. Yeah, yeah, yeah. So it's not... It's not just Wall Street scams. Yeah.

It's scams period. Yeah. Yeah. So my like, I got a text the other day. It was like, hey, I found you. I have your phone number in my address book and I'm not sure how we know each other. What's your name? You know? So I write back, f**k you. And they write back, no seriously I have your number in my address book. I said okay here's my bank account and I just

made up a fake number and here's my PIN. And then the response was, ha ha ha. That's it. So I don't know. Is that a phishing attempt or? So my go-to response to basically anything at this point is this is fake. And I don't know what other posture could you have in this day and age? I don't know about you, but are you also like afraid to answer the phone when it's another number that you don't know? I don't answer any phones. Yeah, because they say like they're trying to get you to say hello so they can sample your voice.

So you can pass, you know like how your bank, when you call them now, you pass the voice test, they're like, oh we verified you through your voice. So now they just have your hello. Oh, they're probably selling these voice files on the dark web along with... Yes. Along with like email addresses. Yeah, use different pitch.

Exactly. Yeah. Or use an accent. Sucks for them. I don't pick up the phone, so. It'd be very tough to get me on a phone call. But they could use this podcast if they really needed to. Tom, they're saying your hair looks incredible.

What about his hair? What? Oh, you have a fly away. Oh, I would know nothing about that. His hair looks lovely. Nailed it. Nailed it. It's, Nicole, talk that piece under his headphone. You can do it.

He doesn't mind. Yeah. It's one piece. Okay. Just one. Do that. Perfect. Do it mom style.

Are we ready? I miss those days. Let's go. Let's get it started. All right. Three claps. Come on, guys. Friends, episode 181.

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loss of principal. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

All right. What a show we have. Ladies and gentlemen, this might be the most important show we do all year. Not to have too much of a buildup, but I'll tell you, when this sell off over the tariff started last week I'm like there's like certain people that I just need to hear from in this moment and Michael's like good news look who the guest is for next week and I said oh man it's the goat. Ladies and gentlemen we are highly blessed today uh we have one of the compound all stars in the house, somebody whom I know

you want to listen to and learn from, especially at a time like this. Tom Lee is the CIO and portfolio manager at Fundstrat Capital and co-founder head of research at Fundstrat. Fundstrat provides evidence-based research to institutional investors, wealth advisors, pension funds, family offices, and high net worth individuals. We love the high net worth individuals on this show. We always have. Not those asset lifetimes. No. Before co-founding Fundstrad, Tom was the chief equity strategist at JP Morgan from 1999 to 2014. Tom Lee, welcome back to the show.

Thank you for being here. How are you feeling today? Uh, well, I'm breathing calmly. Okay. But watching the market get, in big chunks, get chopped. Yeah. On disappointing headlines. Let's start here.

Uh, tariffs became, finally. So a lot of people said, like, it's start here. Tariffs became finally, so a lot of people said like it's just talk wait until something actually happens. I think the market did like we were pretty the market was pretty calm up until the middle of February and then all hell broke loose and it's been cascading lower and now the tariffs are like on officially and we're getting exactly the reaction that anyone could have predicted. So I don't think the calls to like remain calm prior to this were bad calls necessarily but this is one of those things where it's like yeah two plus two equals four tariffs on stocks are going lower and that's exactly how it's playing out.

You see it that way? I do. You know, something I was thinking about this week and it's been kind of hard for me to put into writing is I think this is actually a lot like Brexit. It's a mags it. Yeah. Because it's sort of like the new administration is trying to recast relationships, which was traditionally like sort of free trade, you know, status. And if I look at Brexit, by the way, the UK stock market did fine. Like one of the biggest buying opportunities in the last 10 years, the summer of 2016. Yeah.

And it didn't upend the economy. You know, you didn't have an inflation problem or a growth problem. It was sort of like, you know, UK got through it. And I'm, you know, I'm, I'm confident that that's where we are four or five months from now. Okay. Trump said this last night on TV, because Josh and I were saying like, what is he trying to accomplish? Last night, he said, tariffs are about making America rich again and making America great again. And it's happening and it will happen rather quickly. There'll be a little disturbance,

but we're okay with that. It won't be much. Today he said, I'm not looking at the stock market at all. Totally not looking at the 200 moving average. Yeah, yeah. Do you think that he expected this much of a stock market uproar? Or do you think he didn't think that much about it

and just said, I don't really care about that? I think that they thought one of the collateral hits to this would be the stock market. Because if they were like wargaming this and they said, okay, we're gonna put these threats on and we want our other countries to take it seriously, they would want the stock market to decline. Because of the Dow and the S&P were rallying, they'd be like, no one's taking it seriously.

So I think they need the market to do this. But they don't want to cause a stock market induced recession or a stall speed in the economy. And so I think that these indicators like yields falling probably they wanted, but then they don't really want consumer confidence to fall. They don't want negative jobs report because all of a sudden this risks a recession and you know recession dynamic is really dangerous. I mean, I think there's no Inflation interpretation in the stock market. It's interpreting. This is it's really gonna hit growth We have a trillion dollar

Some would say negative, but I don't think of it that way but fine. We have a trillion dollar Trade deficit with China if we lose five trillion dollars in equity market cap And we assume a fifth of the stock market is held by foreigners, so we eat 80% of that $5 trillion drawdown, did we win? What was the prize that we won? Yeah, I mean, that's a Pyrrhic victory, right? I'm not sure. In other words, how do you...

Okay, number one, we're still going to have a trillion dollar trade imbalance with China by the time this is over. That probably isn't going to budge much. The Canadian trade imbalance, trade deficit is $155 billion US, not that much money. Five trillion coming out of the S&P. I just don't understand where the victory is. Well, I mean, on the one hand hand if I, and I'm not sure if it's still the same thesis, but originally the premise was fentanyl and tighter borders and

if that's the benchmark then this is easier to see the end to this trade war. But if the trade, the tariff idea is to recast the economic structure to create like the VAT and then eliminate personal income taxes, then it's going to be very messy. So walk me through that. The idea is this is the route by which we have other people paying us taxes in the form of tariffs. And then the give back to the US consumer is we can eliminate income tax. But we're paying the taxes. Is my understanding of this wrong? The importers are paying the taxes.

It's us. Yes. I mean, in theory, it is us to the extent it's passed through. Which it is. Of course. Because at the point of entry at the ship, it's really the person who purchased it, which is generally a commercial that did it. And then what percent is able to be passed as a higher price.

All of it. Why do you think tech stocks are getting hit so hard? You wouldn't, if you made a list of the economically sensitive sectors of the market, and then you weighted that list by how much or how little they require the passage of goods to cross borders. I understand the Nvidia angle, I guess, but just generally speaking, I'm watching Netflix. Netflix is down 8% today. Right. I'm watching Netflix lose a fifth of its market cap slowly and then quickly. I don't understand.

Yeah. I mean, I can see two things happening. One is people are betting on a consumer that's weaker. I mean, that's why even Fed Fund pricing of more cuts is moving up. Yeah. But the second is tech companies are global companies and they're going to be the retaliatory victims. Like that's the easy person to do sanctions against is Google, Apple. They're doing business in Canada. They're doing business in Mexico. Yeah, in Europe and China.

Some in China, some not at all. Yeah, like it's Singapore, but you don't know where it goes from there. Do you see the biggest risk to the market as the fact that we're trading at high multiples if we're trading at 26 times forward if we're trading at 26 times forward, and we're not actually earning whatever consensus is, 260, whatever it is, and we actually earn 245, then the multiple is even higher than it already appears. Is that the big risk here?

If the trajectory of earnings is impaired, that's different than if you're delaying, you're taking a two-quarter hit because of the tariff uncertainty and stocks might go down on both but one's a huge buying opportunity right because if you're just talking like a two-quarter blip on earnings but then everything goes back to normal after that then we've created a huge buying opportunity. Is that your assumption that this is that that's gonna be the way this ends up going?

I'm almost positive because we've been comparing Trump 1.0 to Trump 2.0. And the two markets that have really diverged compared to Trump 1.0 is Germany and China, because they've both been outperforming. Yeah. If this tariff war was going to create a long-term economic weakness, like China and Europe can't even rally. Trump hasn't done any tariffs against Europe for the time being. I just assume he hasn't gotten around to it, but that's coming next. That might change that dynamic, but you're right.

Like so far, people are buying European equities. Yeah. Because no one can be like, oh, well, us is going to have a recession so I'll buy Germany. No. It doesn't work that way. I agree. So the tax foundation is saying, we estimate the average tariff rate on all imports would rise from its baseline level of 2.5% in 2024 to 13.8% if the tariffs President Trump has proposed were imposed. The average tariff rate on all imports on Trump's proposed tariffs would be the highest since 1939. Dan, you throw this chart up.

So this is a hell of a wild spike. You know if this math plays out and I don't want to do- Where's 2018 on here? That little blip. Oh I see. Okay, so so if we were to repeat that that's where that's where the level would be Oh, I mean this looks like it's like shooting up past way past now. We haven't gotten to 2025 on this. No, this is this is real time. Oh, that's what they're showing. That's what oh, wait a minute But you're right the scale

Yeah, because you'd think like That's what they're showing. That's what... Oh, wait a minute. But you're right. The scale... Yeah, because you'd think like 220 has to be... Oh, I see. Yeah, you're right, Michael. So anyway, they're saying that the 25% tariffs on Canada and Mexico would reduce long run GDP by 0.2%, reduce hours worked by 223,000 full-time equivalent jobs, and would ultimately cost $1,072 per household. I would bet way more than that.

I read a couple of things about just the auto situation alone. And I know now there's a carve out for autos because the whole thing's a farce. But just for argument's sake, raising the average price of an SUV by $8,000 or $9,000, which is what the net effect would be, given how frequently these things have to cross both the Canadian and the Mexican border. It just seems like, well, if you got elected because people were really pissed off about high prices,

which I know is not the whole story, but it was a pretty big part of the story, how does this answer that problem that people had? It seems like it's just going to exacerbate it. Yeah, I mean, for that reason, it obviously doesn't make sense that these tariffs are the permanent structure for Canada and the US, which are natural partners and Canada and, you know,

I don't want to necessarily quote everything, but at the panel today at the Hightower Conference, Day of the Stars, Brian Belsky was talking about Canada and him being a Canadian or knowing Canadians, he was saying- Don't ever call him a Canadian. He's one of ours. Yeah, that's right. Belsky's from Minnesota.

It's almost Canada. Yes, that's right. I'm from Michigan, but I'm like far enough away. He was saying that some Canadians think that this is like, part of this is to pressure a change and accelerate the change in leadership in Canada. And then they just recast a new deal. Okay.

If this lasts for two quarters and by the summer, it's like fading away. Maybe it's a little bit 2018-h, but the thing about 2018 is what's different about 2018 versus this year, they were raising rates. The fed was raising rates during this tariff madness. In part, I think in response to the tariffs, they thought they had to, um, this time around at least that's one thing that we're not contending with. We have a fed that's quote unquote on hold, but probably with a bias to cutting.

I saw that the rate cut odds, we talked about this on stage today, shot up for four cuts this year. Now a third, a 30% probability of four cuts. Even if you got two cuts, I'm not saying that offsets the tariffs, but it's a different backdrop than 18, where Powell was saying things like, we are nowhere near neutral, meaning we're going to keep hiking.

Of course we know they didn't end up doing that, but at least we don't have a Fed that's making statements like that right now. Oh yeah, because the Fed's already comfortable that they've got a big margin of cushion where rates are Uh, they're already running tight, right? And now they're assessing how much damage it's doing to the economy before tariffs and This is the thing like we know A lot of the supports have been rolling off at the start of this year. That's why consumption's down

And then tomorrow's the jobs report but already it's fore foreboding, like the challenger job cuts ADP. You know, if we get a 50,000 jobs report tomorrow, there is not really, there's a huge question on this dual mandate because full employment, I mean, we're, you know, we're risking, you know, a real collapse in the employment market. Does the market rally or get killed on that sort of print?

I think it gets killed. What a bad jobs report. Like that bad. Yeah, I think there's a panic, but then that's the there's a rally. Because I think the Fed put us back and then I think the Trump put has to come back. The Fed wants to cut. So this does enable the Fed to cut. It's just not the circumstances under which it wanted to cut. I don't think the Fed wanted to Fed to cut. It's just not the circumstances under which it wanted to cut. I don't think the Fed wanted to have to cut.

I think the Fed liked the position it was in, where it was like, we will if we need to. Man, maybe we'll do one. Maybe we'll skip a month. That's where they were. They can't be there still. Now they actually might have to react. Yeah, I mean, in a way, the bond market,

I mean, I'm sure people interpret, I think is arguing the Fed is late to cut. Yeah, I mean, in a way, the bond market, I mean, I'm sure people interpret, I think is arguing the Fed is late to cut. Okay, why? Because of what the 10 year is done or? Yeah, where the 10 year is with the implied, like even the odds of a May cut. I didn't see it today, but I bet you it's well over 50% now. A cut in May? Yeah.

Oh, I would bet it is. Yeah. So that that's a Fed that's actually kind of being now judged to be behind the curve and so if they're cutting it's gonna be a welcome Really pressure valve release because the markets pressuring the Fed to do something right? market people love to look at a AI I and Act contrary into that last week one of the things we were talking about on the show was how fast the bears shot up to an almost record level, like higher than they were during the pandemic

in that survey. I think the bearish, the percentage of bearish respondents hit 55, which is an unheard of number. And then when you consider the fact that at that time, the S&P was only 3% off a record high, it was really weird to see how fast sentiment turned negative in hindsight a week later, that bearishness was not a great contrarian signal. The bears had it right. What do you think about that? I know you follow AII. Yeah. That stuff. I

follow it. And I think from the right timeframe for us is like six months Because like because then it captures because the survey is done over a period of time And so it doesn't always capture what the market did that week anyways, okay? But I'm cumulative you're saying yeah, it's kind of the same thing like when the these Economic surveys are done. Sometimes they're done like by, finished by Wednesday or Friday. And then so it, you actually get some weird differences because of what's happened in those three, four days. Okay. So, go ahead, finish with that.

Oh, but I remember in a prior podcast, we talked about how people's timeframes have changed. Yeah. Maybe because like maybe the world's more short-term focused. But you know, with instant liquidity, I think that's why people can go from bull to bear because they can act with a push button now. Instead of calling their broker and getting talked out of it, they just. They could put on a hedge with one ETF.

They don't have to figure out an options trade. They don't have, right? Like they can instantly decide, you know what, I don't like the looks of this. I'm adding, you know, double negative SPY ETF for like 10% hedge against my portfolio. Yeah, and an institutional world is the same way. Yeah. So Tom, last thing on some of the trade stuff before we get into the markets,

which is what you love to talk about in SotoE. Alright, so three charts and then we'll move on. Mexico, China, and Canada are our three largest trade partners. Daniel, chart two, please. The three of them, again, Mexico, China, and Canada, by far, the top three, they make up $1.3 trillion worth of imports. That's 42% of all total. Next chart, please, Daniel. 42% of all imports are from those three.

And I was really surprised to see Joseph Polatano had a great chart that showed imports spiked in January amid tariff fears. So the fact that consumers are adjusting their behavior so quickly to tariffs, you can only imagine how quickly markets are going to react to potential tariffs. And we're seeing that already.

Does this chart surprise you? I don't think that's consumers. I think that's producers pulling an inventory as quickly as they can to get ahead of the tariffs. Stockpiling. Okay. You're right. It says consumers and businesses rush to buy goods. You're right.

Yeah, I'm sure. I think that's mostly business. Here's where it hits home. Just like a weird example, but this is from my actual life. Where are we doing the outside of our home? and we're doing real cedar shingles. Um, I live in a, I live in a world of, uh, aluminum siding and I can't, I can't stand that anymore. So the products coming from Canada, we priced it out.

Our builder is like, this is the, this is like literally the best version of cedar shingles. This is where we're going to get it from. This is what it costs. Okay. I don't know're going to get it from. This is what it costs. Okay. I don't know if we ordered it or not. And I don't think my, my, um, contractor is like watching the state of the union or anything, so I actually don't know now what this project's going to

cost and this is to wrap around the entire house, like that's going to make a material difference. Had I really thought a lot about it, I might have called them up and said, place the order. So now I'm not saying I'm not going to do it, because I still have to go home and live with my wife at night. So we're still going to go forward, probably no matter what it costs. But I know there's going to be a difference.

I don't think there's a carve out for shingles. So that's an example. But we're consumers. I think that spike that Michael just showed, I think that's people getting ahead of this, knowing they have to buy stuff and just buying it. Yeah, it's gonna be a PPI category. Okay, do you think that of all the opportunities

being created by this trade stuff, that the obvious thing to do is to let everything sell off and then look for the companies that are probably going to be least impacted by tariffs over the next quarter. And maybe that's a trade idea. Or has that been so picked over by AIs and portfolio managers that there's probably nothing there? What would you guess? If someone's going defensive now, they have to be betting not just that it's two months

of tariffs, but that this is a new regime. OK. Because exactly what you said, it would have already been discounted, because the bond market has been picking this up. And then the stock market is reacting, I think, shockingly badly. But it already gave us the ripple hints in February.

So let me push back against that a little bit. The S&P is down 6.5% off its highs. The Nasdaq is down almost 10%. The VIX is... 25%. I mean, this is like a sell-off for ants. Yeah, it's an orderly... Right? This feels pretty normal and pretty...

I mean, the average stock bespoke Twitter. The average stock is down 30%. So there are plenty of... From what? From all time high? Yeah. So there's plenty of stocks that are getting absolutely mauled. I know the S&P doesn't tell the entire story, but... I don't know. It feels like a little bit early to be like,

that's it. We're done. We're good. Yeah. Although if, you know, the chart you showed about imports, it kind of highlights that we've already front-loaded the tariff war because it's China Mexico Canada, and then everybody else is like Smaller fry right do you think that there's a universe where? There's a one-off deal with Mexico Then there's a one-off deal Canada, the China thing stays on. And the market just kind of reacts to all right, this is the new, this is, this is the

way the year is going to go. Or you think that the tariffs are just like, we're doing it now. Then they all come off and we just stop this on mass. Like, what do you think is more likely? I mean, I know China's tweet or comment today is what sort of made the futures weak in the morning. Yeah. But.

Which was what? We're ready to go to war? Yeah, we're gonna dig in on this. Yeah. But I think, you know, as you know, the problem is in China isn't in the same position as it was in 2018. So it's not as if they can fight a long economic battle here,

especially because of all the things they're trying to accomplish in China itself. So I think, of course, a lot of that is gamesmanship. And the intention is, if I was China, I would say that because I'd want the S&P to fall more because if the S&P falls enough, then the White House put comes back. So it's, you know, I mean, the stock market is kind of caught in the crosshairs. I assume you don't see a bear market coming like a full-fledged 20 percenter like it's possible because it's been a couple years, but This would have to be because

there has to be a layered shock on top of this like Like for instance if somehow the Fed decides that the economy is weakening but they choose to fight inflation and let a recession happen. So in other words the idea is, well we've been wanting a recession to kill inflation, like let's just let it happen. Then of course we're gonna have a big drawdown. But that would really require a Fed that decided the employment mandate wasn't important because you know a recession we just like once a recession starts there's no such things like we can engineer a mild recession I mean it's like you could have a severe recession because you just don't

know you did too much damage and now things like it's by it starts to feed on itself yeah well um we're doing what we're doing. Fiscal austerity at the federal level. At the same time, we're going to do this trade war. So that's maybe that fits into that category of the shock that you're talking about. Prices and if prices go up on top of all this and we've got we've got stagflation, then yeah, sure. We'll have a 20% bear market for sure. Yeah. So, I mean, you can see why people want to maybe start to be nervous and price it in.

In 18, by the end of February, the stock market was down, I think, 17%. And it happened really fast, just like this time. And people at that time were saying it's orderly. And they were right, it was. We bounced all the way back to the prior high, but then we got stuck there. The tariff thing was like sort of cooling off, but then we had another problem. I think we just kind of had this air pocket where corporate earnings weren't great. Had a manufacturing recession for sure. And then by Christmas Eve, we were in another 20% drawdown. And the thing that pulled us out of it was Powell's about face. I think he gave a speech on Christmas Eve and he said, just kidding about the no way into a normal thing.

And then in the first quarter of 19, we were already cutting. So there was some of that going on. And so having like those two, call it almost 20% corrections inside of one year, that's pretty rare. But we did, we lived through it. Yeah, and that was a first term president that didn't have necessarily the administration he wanted to have with him, because remember there was so much turmoil,

and it was a newly minted Fed chair. So today we have an experienced administration and a very experienced Fed. So, you know, so like would the Fed even want to dabble with a bear market that could trigger recession? Like I'm gonna just say even if there's partisan issues involved, right, because you've seen, I do think there's a partisan element to maybe some of the Fed talk. This would be, it would really blemish the history of the Fed.

It would blemish the legacy of the Fed. You mentioned Treasury Secretary Besant. Have you met him? Have you ever spoken with him? No, I have not. Okay, what's your impression of the things he's saying about, where he's saying we're more focused on bringing down the yield of the 10 year, which like obviously the Fed,

what the Fed does, they're trying to enact a policy that will affect overnight rates, which, you know, there's a limit to what that will do to intermediate term rates and long term rates, but it's like, that's what the Fed does. Besant talking explicitly about lowering the 10 year. How does that strike you? We haven't really heard Janet Yellen didn't do that kind of thing or didn't talk about that kind of thing.

What, how did that kind of talk strike you? What's your impression? Well, I mean, from a couple of hats, I can see what it makes sense. Like if I looked at it from the economy and what would heal the economy and someone said, would higher stock prices heal it or would getting mortgage rates down matter more? And you know, you've talked about this, like, that's really important because that is going to help housing cost of money. And it really benefits a big swath of consumers.

And we already know there's a lot of stress because of the high cost of installment debt, etc. Here's my stupid question. Hypothetically, this works in the 10-year treasury falls. Mortgage rates come down like meaningfully. Doesn't that just raise home prices or what am I missing? Like how does that really, what does that heal so people are paying a higher price for their home? It'll lower their monthly payment. It'll make payments affordable again. Yeah, it unlocks liquidity because I think there is...

That part I agree with. Yeah. If people can move again, I think it's good. But prices are not going to... Home prices are not going to come down. Prices won't fall. Right. Yeah. I mean, home prices are doing weird things anyways. Like the Northeast, they're still going up,

but like there's a huge surplus in Florida. So the real discovered price is much lower because no one's transacting. I mean, in a way, home prices could fall because you'd actually start to see real trades happen. And so maybe home prices actually step down. There would still be so much more demand than supply, even if supply gets unlocked. Chartkin, Matt, made a chart that I could just, I smelled it was a timely special.

And of course, all credit to you, this is a timely special. It's the VIX one-month contract above the four-month, which in recent memory has marked a bottom Daniel is a chart 6b, please Too early to say what do we think? Wait? Wait? Can you explain explain this Tom? Why don't you in that narrate this? Yes so It's gonna take a minute or two the VIX. We got time Yeah, we got time most of us think of the VIX as a spot index like oh This is it's measuring the expected volatility over the next 90 days, so that's what the spot fix is

But it's actually a financial product and people trade VIX contracts, but nobody trades spot VIX They trade the one month fix Two months nine months. I think there's even 24 month fix right the normal VIX futures curve is upward sloping, which they call... Either contango or backwardation. Yeah, like, and you know, like I always get the terms mixed up. It's like starboard and port.

I'll get it wrong. So it's upward sloping. Okay. Because there's time value. Like, oh, future VIX should be higher because you got time value money. When the VIX does the opposite, so the one month contract is higher than the four month. Meaning a 20 VIX four months from now, but a 25 VIX today. Yeah.

So that's intuitive. That's backwardation. Yeah. So that inversion is what the bottom histogram chart shows. So when it's like pointing up, that means the one month is higher than the four month. What does that mean to you though? How do you interpret that? That's a short-term bottom? Well, it means, yeah.

So what the markets have now priced in is that the volatility has an expiration date. Oh, okay. Right? Because now you know it's going to be within the next three months. You can see past the worst of the newer term volatility. And that could be a signal that it's time to buy stocks. So if you have a timeframe beyond that contract, then you're like, oh, well, volatility is going to be lower in four months.

And we all know if volatility is down, risk goes up. So four months from now, volatility is down, risk is on. So this chart goes back to January of 23 and correctly points out these were inflection point moments where the market got too negative and this VIX contract flipped itself to where all the volatility was supposed to be short term and then the longer term volatility was cooling off. Yeah. And those were great moments to buy stocks.

Yeah. What is this telling you today? I think that this is like we're sequencing a picture that panic is approaching. But the panic is of course that the spot fix needs to now spike to level because people are seeking instant protection. So 30-40 V, that hasn't happened yet. But if that's happened and this has already happened, then it's already like you have the hair trigger pulled. So for your clients, and I'm sure the answer is it depends,

would you be likely to advise them to seek opportunities on the way down or to sort of wait for a clear, definable hammer sort of bottom? Well, if someone is really good tactically timing, then nobody wants to buy on the way down. But I've never been able to say, on this precise date, you'll have enough liquidity to buy at the low. Because what usually happens is the low is established,

the market's rallying, but it's already retraced 50% of the decline. You don't know it's the low until a week later. The longer it goes, the markets rallying, but it's already retraced 50% of the decline. You don't know it's the low until a week later. The longer it goes, the lower it goes without them pulling the trigger, the more likely they're going to not pull the trigger because if we go lower, it gets scarier. Yeah, it gets to become a buyer strike. Right.

You think I don't, I mean, I might sound naive. I think a 35 VIX over tariffs, I think you just close your eyes and buy the index. Is that like naive to think that that's just gonna work so easily? Yeah, I agree. Cause I think we do have to be mindful. There are three puts out there. There's the Fed put.

Okay. And the Fed doesn't want a 35 VIX. The White House put, 35 VIX also risks financial instability and things going haywire. 35 VIX would normally be accompanied by like spreads blowing out in the bond market. We're not seeing that yet.

Yeah, and there could be somebody, some like financial bodies floating up. You know what I mean? Like it might kill somebody. What's the third put? White House put. It's the sovereign wealth put. Oh sovereign wealth put. Tell us about that.

Because we already saw progress. They named Morgan Stanley Banker to be the head of the sovereign wealth fund. Rimes. Yes. You know that guy? I do not know him. Okay. But let's say it's a seven trillion dollar sovereign wealth fund.

This is an American sovereign wealth fund. Where does the seven trillion dollars come from? I think that that's a floated around number. But it's like what is it? It's Fort Knox? Just here, you trade this? I'm trying to understand where the money for that comes from. Oh, well, I think it would probably be the issuance of a debt security.

So it's a funded sovereign. So more debt? Yes. Okay. Oh my God. It sounds somewhat abnormal to be running a 7% deficit and then build a sovereign wealth fund that's also funded by more than.

Who's managing it? Yeah. His name is Grimes. Michael? David? I don't know. Yeah. Quentin?

Quentin Grimes. But remember there could be, remember the treasury during GFC had the TALF and all these like multipliers. Yeah, those were basically sovereign wealth funds. So what if it's 7.5 trillion sovereign wealth funds. Yeah, so what if it's seven and a half trillion plus private is another, you know, BlackRock's another 30 trillion of it, then this is like, you can buy the entire stock market.

But what are they doing with it? Buying our bags, duh. They're buying stocks? Is that the purpose? Well. Or are they investing in startups or? I mean, Panama Canal, you know, they buy Greenland. Panama Canal, oh.

All right, so. Right, you know what I mean, like, you could buy a lot. All right, right. So. Right. You mean like you could buy a lot. All right. Let me just understand this. You could buy a large chunk of the world. The number that's floating around is $7 trillion. There is a banker from Morgan Stanley who has a $7 trillion bank account effectively,

where he uses that and buys the Panama Canal. Well, to advance American interest. It sounds bullish. All right, got it. I mean, you could take Nvidia in-house, right? Absolutely, let's do it. Take it private, for sure. But just thinking out loud, like Saudi Arabia, Qatar,

these places need sovereign, Malaysia, they need sovereign wealth funds. Yeah, they're gushing cash. Right, it's a one industry country and they want to develop real estate and they want to build their own middle classes and they want to make investments that diversify the economy so that they don't all have Dutch disease.

They don't all have like this resource curse. Okay, makes perfect sense. They'll all be really big LPs in the American sovereign wealth fund. So they'll get to invest in our sovereign wealth fund. As a sidecar, side pop. I'm kind of theorizing, but you know what I mean? Something tells me there's going to be a Trump hotel and casino in every country in the world is going to be the net result of this.

All right. So that's a put. The White House put you said is not really a thing or at least not yet, but it will be. Yeah, I think it will, because if the economy slips into a recession, you can't have doge, tariffs, and fiscal austerity. So it unwinds literally everything. This is the sixth day in a row.

This is from Dietrich. It's the sixth day in a row on Thursday that the market is going to be up or down 1%. Sixth day in a row. It hasn't happened since November 2020. And you're starting to see some signs of early panic. Chart, next chart please Daniel. This is from JPMorgan via Jessica Menton. In the first hour of trading, now this was on, this was yesterday. In the first hour of trading, the so-called retail investors yanked $1.2 billion out of the US

equity market, the largest pullback during that time period since JP Morgan's data began a decade ago. That's meaningful. So in other words, yesterday at the open, people said, get me the f**k out. They dumped stocks. Additionally, this is from Ned Davis. Their daily trading sentiment composite is down to 20, which I don't know what's in here exactly,

but that's extreme pessimism. So it's this weird sort of dynamic where we're not that off the highs, but the news is so newsy and noisy that people are freaked out. And maybe for good reason. Can I add one more thing to that? We just hit, I don't know if it's an all time record,

but we just hit a fairly high level of people tapping their 401ks early. And that seems like it's of a piece with people yanking money out of the equity market. Wait, say that one more time. We hit a level, I think Meb shared this. I'm not sure exactly what the number represents, but it's an extreme in people tapping their 401k.

Well, that's not good. Either borrowing against it or outright making early withdrawals. That's not good. Either borrowing against it or outright making early withdrawals. That's not good. I'll look into it. That's more economic than stock market, but we also had the put call ratio spike yesterday. Yeah.

So there's fear. I don't know if it's a bottom fear, but a trade. And I'm sure the depth of market, like this market is super thin. Now if someone sells, you're going to just see comets falling out of the sky. But do you think that sentiment shift and the stuff that Michael just showed you with outflows, do you think that that stuff is at all connected with not just tariffs but people working for the federal government, people work at companies that are contractors for the federal government. So not

just public sector employees but private sector employees whose company's fortunes are tied to how much money the federal government spends. Because we talk to people in DC area, there's like legitimate concern in not just in DC, but like anywhere that people do business with the government, that that revenue is not going to show up. So do you think that a component of this is not just about tariffs, but it's about people actually worrying about their survival?

Yeah, like there's a real soft patch coming. Well, because 70,000 buyouts of federal employees and talk about laying off, they're going to lay off 7,000 people from the Social Security Administration, they're laying off IRS agents. That's nationwide. That's not just in D.C. So I think there's some component of people pulling money out because literally they don't know if they're going to have to live off of it.

And that's why I like real estate listings where there is a lot of federal employment, whether it's Arizona or Arlington, Virginia. So that's not tariffs. That's this fiscal austerity. Well last month's consumer spending got crushed on savings. not skyrocketed, but savings was up big time. So people are bracing for impact. Yes. Now, that's a... I might actually say if the federal government is reducing its spending and it does create this collateral damage, that's actually good for the economy because we know that that

has crowded out private sector spending, right? The government crowds out the private sector. So that's actually a positive that this is being redistributed in that way, the spending. Yeah, but it's ugly in the short term. Yeah, because it creates distortions. Well, you're gonna, you arguably you're gonna see one in the next employment report or the one after that. Yeah. Because it's thousands of people, like it's not a small number. Yeah, jobless claims in Washington DC have quadrupled. Yeah.

So, okay. So there's a component to this that's beyond just tariffs. It's uncertainty about employment. Yes. And that's what's creeping in. And that's, that could feed on itself. And by the way, that's why there's, it's hard to say how could this be inflationary?

Because if people say wages create the second wave of inflation, but we have a softer job. I don't think it's inflationary at all and I disagree. There might be some commodities where there's a dislocation and it's short-term inflationary but I don't think government austerity is inflationary. Yeah. I just I don't see it that way. That's right. Okay. And yeah I don't know if you guys track trueflation which I've kind of found is actually pretty decent. Okay. That's now at 1.4% year-over-year. That's what. Okay. And yeah, I don't know if you guys track true inflation, which I've kind of found is actually pretty decent. Okay.

That's now at 1.4% year over year. That's what they think is the current rate of inflation. Yeah, using like 2 million consumer items and then they map it to the BLS category. One more thing on economic data then, since you brought that up. One of the charts that went around this week, including me spreading it. But like a lot of people were sharing that GDP Now chart. And I know there's some funkiness about the turnover from January to February with some of the data.

Let's not take this as an actual forecast, but that's a pretty extreme drop. We went from a 2.8% GDP now reading from the Atlanta Fed to negative four. Yeah. Outside of the pandemic, can you recall a drop off that magnitude? Even if there are all these nuanced reasons for why it's data related and not, or it's a quirk of how they collect the data, it still seems extreme. Yeah, it's big. I mean, it does paint a picture that economic momentum has slowed So or the brakes have slammed on it's yeah like to me

That's right at a time when we know even businesses are saying that they've they've gotten cautious Because they don't know what to do with with tariffs. So That's why if you look at the markets they're pricing in a growth slowdown from tariffs not inflation and yeah And so the Fed I think the White House wants the Fed to kind of get off neutral. And I think it's increasing, looking like the Fed is behind actually. So if they really want the 10 year treasury to fall,

the yields keep going. Because that yield is not pricing in inflation anymore. Now it's pricing in recession. Or starting to. That's right. And the only difference is nobody wants to even get within 10 yards of touchdown of stall speed because it's just too easy to slip into a recession.

Okay, can we do this one, mag seven? Or what do you have queued up? Tom, what are your thoughts on Mag 7? Some are getting hit harder than others, but I mean, Tesla's getting destroyed. So this is for the people listening, Mag 7 performance year to date, the only green one is Meta, up 8%, it was up a lot more.

Microsoft negative six, Apple negative six, Alphabet negative eight, Amazon negative eight, Nvidia negative 17. I think it's more now. Well, if you anchor them to their highs, it's obviously, you know, significantly worse than this. Tesla negative 35, which is a really big deal. What's your take on some of the damage here in these companies? None of which are manufacturing autos other than Tesla. Yeah. I mean, if anyone had owned these before 2024, then they're still sitting on huge gains.

So you know, it's really any new buyers of these are down, but that's really, you know, that'd be like shame on you because you bought it. You bought the highs. Yeah. But I mean, like I look at this and I'd say, you know what? I think Tesla and Nvidia, they've been hit the hardest. Do I think that their future trajectory is worse? I actually think that they still look like great companies and it's not like in Tesla's

case, it's not like their competitive position has worsened. It's probably strengthening. Tesla's competitive position relative to other EV companies. Yeah. And their leadership in let's say that there's like, if you ask a techno technologist, what's the next big thing is going to say robots. Tesla's, you know, country model ahead of a lot of people on robots. So it's not like being down 35% has changed her competitive position. If you, if you had to make a guess, if an announcement came out tonight,

Elon stepping away from the government, like I've done everything that I set out to do, I'm going to leave my team in place. I'm going to go back to focusing on Tesla. Does Tesla stock go up or down on that news? Well, here's my way. Let me ask, let me tell you why I'm asking you the question. Well, here's my way. Let me ask.

Let me tell you why I'm asking you the question. The stock had a massive rally when Trump won the election and Elon was at the inauguration and it was, there was just this assumption that like him having that proximity to the white house was going to be amazing for Tesla. That narrative shifted in the last 10 days to Elon is either distracted or destroying the standing of Tesla in the eyes of half the country and most of the world. So I'm curious what you think. And I'm not saying I predict that's going to happen. But if that happens, he says, I'm all set. We did everything and I'm good. I'm coming back to Tesla. Does the stock rally because he's not distracted

anymore or does it sell off because he's not in Trump's good graces? What do you think would be the reaction? I'm gonna just imagine why this is happening. Okay. So let's say he steps aside because Doge found the two trillion or a trillion so he's like we did it yeah we unleashed the algorithm and so it's and so he's going back to Tesla. Right. I could picture this by the way. Now he can profit from his time in the government. Okay. He couldn't profit while he was here to help Tesla. Now he goes back to Tesla.

Tesla becomes like the official vehicle for like everything the government does. Yeah. Tesla probably goes. 20%. Yeah. I mean, it's, it's in a huge drawdown. So it wouldn't be that much of a surprise if it did that. Yeah.

What do you think? Yeah, I agree. I think it would rally pretty hard. Hey, we should have started the show with this, but is the bull market over? Yeah, by the way, is the bull market over? No. You don't think so? You know, the bull market, it would be surprised if it's over.

So I shouldn't say no, like I know, cause I don't know. Um, I'm sorry. So I'll, but I'd say the probabilities are very remote because, um, if you look at all bull market top major tops before 40% drawdown since 1900, all of them could have been predicted with a 40-year lead time based on births and integration deaths. That demography thing is still in force no matter what they do to try to mess it up. Yeah, that's right. Because if you cut the population by just 20-year intervals and you mark the peak of each cohort it marked the 1927 29 top the 74

top the 99 top 2018 top and the next major top shouldn't be till 2038 all right I feel better but you're not talking at the cyclical bull market then you're talking about like the oh nine run up into yeah so a major a major, like the kind that can unwind the entire bull market. Alright, so we have more than a decade. I feel better now. So we're okay. There's also some seasonal stuff going on that I think you'll find interesting, Tom. This is from All-Star Charts. I think this is Grant's work. Year one of a bull market, obviously, up and to the right.

Year two of a bull market, by definition, up and to the right. Year three tends to be pretty disgusting. Which is where we are now. Yeah. Yeah, this is, I've seen this chart and I'd say I don't necessarily have problems with how this is constructed. That being said, no?

I thought you were about to fillet it. Oh yeah, but I can say- It's an amalgam of many bull markets. But the one thing I'd say is that there's wide distributions in year three. So there's actually plenty of 20% years. Okay. So it's not like, because this chart makes it look like you're only going to be 5% and you hover like an EHE. It doesn't show all of the distributions.

Yeah, so this is a, because as wide the distributions are, year three also reflects bull markets ending and you have a huge decline. True. Very unscientific. Year one we had an underwhelming start to the bull market and some would argue it was only seven stocks going up. And some of, that's partly true. Year two we far, that's last year, far outperformed what the average bull market and then this year and again

I understand but still like we're kind of really perfectly tracking what the history has been being chopped to shit Yeah, he must be doing like non-calendar because like 35% He has 35% a year to they're not counted people. Hey, you have a chart that that shows So this is now your three as we're talking about, year three of a bull market. We had 20% two years ago, we had 20% last year, and you have a chart, much better than this All-Star charts chart,

you have a chart showing that the second half after a back-to-back 20% year tends to be pretty lousy. What are we looking at here? This is all years that had two consecutive 20% years. Proceeding it. That first vertical line says year zero. And then we're just saying, what does that 12 months later look like?

And as you can see, you might be okay in the first half, but the second half's usually tougher. Sorry, is that 1880? I saw that too. Is that like Yellowstone? Tom was digging deep. Okay. So, so this is not... We were like still shooting pistols.

We're not following that. We're not tracking. So this is not wildly out of character for what typically happens after you've had a big run in stocks. Yes. The reason why I believe in this stuff is because it's just human behavior. Like, the variables in all these years are different. Tax rates are different. Inflation regimes are different. Republican president, Democrat president.

Like all of that stuff is interchangeable. But the mood, the component of this that's not is how people trade. Yeah, because it's eventually... It's fear and greed. We know good news gets priced in and it's hard to turn. But then you know after a certain amount of time people might get complacent or whatever you call it. But eventually, we know good news gets priced in and it's hard to turn. But then you know after a certain amount of time people might get complacent or whatever you call it. Okay. What's this one? Are we doing this?

Yeah, we could skip that one. Tom, you were bullish earlier, I don't know if you still are, about small caps. And I think one of the reasons why we have your chart is that the S&P is driven largely by tech stocks. But the Ross 2000 has much more exposure to rate sensitive industries. So is the thinking that if the economy weakens and rates go down, that the Russell would maybe go down less in the market? Or do you think that it would outperform in the bull market?

What's your thinking here? I don't think if there's a recession, small caps outperform. So like on that downside, I don't think it's protected. But if we look at the composition here, I actually am surprised it's done so poorly because for instance, healthcare's the best performing sector year to date and you can see healthcare's

a bigger weight in small caps. Financials have done well year to date, it's a bigger weight in small caps. Industrials have outperformed year to date. It's a bigger weight in small caps. Industrials have outperformed year to date, and it's a bigger weight. You have less exposure to tech. So what's weighing the small caps down this year? I think it's the push button because there's-

Just people saying sell small caps. It's higher baby. Yeah, so they're derating. They got cheaper. Okay. Oh wow, small caps are down 15% in a 50% draw then. I didn't realize that. Yeah, so that it's not like someone's doing relative value.

They're selling the ETF. They're selling IWM. It's like the first thing people sell. It's like, oh, you're worried about the economy? Get that shit out of here. We're not going to need that. We'll buy it back later. Yeah, but as you know, what's working this year

is like financials, industrials, health care. That's like a huge, that's already more than half of the Russell. So it should be a good index. And I think the individual stocks have been, but as an index, it hasn't worked. All right. One fly in the ointment on the inflation side is if the Fed thinks they have to about face. This, like to me, if you ask me what's the biggest risk that people aren't as worried

about now as maybe they should be. It's if the Fed says they're not tight enough. And the only thing in my mind that could drive that is not commodity prices from tariffs. I think it's like the labor shortage and the immigration story feeding into that. So I want to ask you, do you think this is inflationary? This is CBS News this week. The number of migrants crossing the US southern border illegally in Trump's first full month in office plunged to a level not seen in at least 25 years.

This is CBS News. Look at this. Border Patrol recorded 8,450 apprehensions of migrants who crossed into the country unlawfully on some days during a record spike in illegal crossings under Biden, they had 8,000 apprehensions in a single day. So what was happening in one day under Biden is a full month under Trump. And of course, this is by design. This is what he promised the voters.

This is what voters want. And he's actually carrying this out. But the point is, as we all know, some of the best areas in the economy in terms of their contribution to growth have been helped by migration, illegal and legal, leisure and hospitality, everything that feeds through to travel, the airlines business, hotels business. Like unfortunately or unfortunately, migration is like what feeds that beast. And if we don't go into a recession, I could see a scenario where we start worrying about

hoarding of employees again and people just not being able to get enough workers and that was part of the inflationary spiral of the 2020 to 2023 era. Yeah. Do you worry about that? Do you think that's inflationary? I actually just have two counter perspectives. Okay. So first I think it's definitely positive evidence that properly integrated my immigration works because that's Texas, right? Yeah. You know, they welcome immigrants. But the difference is that I think a lot of the border crossings have not led to productive

employment, because as you know, the employment rate of the migrant, the crossings is actually really low. Yeah. And so they're actually more of an institutional population. So the ratio, like if you look at hospitals or prisons, you know, someone's under care, it's one, like one job is created to take care of like 10 institutionalized people. Yeah. So we've actually created wage inflation because the migrants-

Oh, that's interesting. Because you have to house them, because you didn't construct facilities, you had to rent hotels. And you had to hire workers to actually manage all these people. And then you hire workers to deal with migrants who are not coming into the country

and getting jobs. Yeah, and then you have to give them EBT cards. So it's actually all inflationary. Italy shut their, reduced their border crossings and it had the same profile of not highly employed crossings and their economy is doing better. Okay. And actually they haven't, it's not led to inflation,

it's actually led to actually improved growth. Okay, so this is not something that we need to worry about stoking inflation, having less migration. I don't know how it's going to be implemented, but if you're, if ISIS just is not, they can't boot 20 million people, but if they're targeting criminal gangs and stuff, I think it's actually going to be positive social fabric. Well, I do too. And this is what we, this is what the people voted for this time around.

This was like a really big issue. Yeah. And, and you know, for someone who thinks Trump doesn't like migrants or immigrants, you know, all of his properties employ many people on. Shh, don't say that. So I think he knows. The mics are on.

Yeah, all right. And he's a builder, so he's aware. Yeah, very well aware. Okay, polymarket, probability of a US recession hits 38%. What do you do with this stuff? It was highly predictive of the US presidential election. Do we throw it out when they try their hand at economics and not politics?

Can someone pull up the dollar amounts for contracts for that? It's like $18. No, I don't know. But we know it's mostly overseas, the people who are doing these bets. But I don't know what the dollar amount is. Because if it's not involving millions, the people who are doing these bets. But I don't know what the dollar amount is. Because if it's not involving millions, someone is just making fun bets.

Can you find out how much money is betting on recession on the market? Yeah, usually on the website it'll show you the total contract volume. What is this? Outstanding. I'm looking at that. Keep going. Okay. I'm not on this thing a lot. Okay.

That's why the elections it was hundreds, there was actually a billion of open contracts. like, you know, the elections, it was hundreds, like there was actually a billion of open contracts. It was big money. So you knew it was real money. Okay. Let's say this is a lot of money. What, what, what would your thoughts be about like the, uh, the meaning in, in something like this?

Let's say that gets to 50. Yeah. The white house is playing with fire and feds playing with fire. Okay. So you think people should be paying attention to this? If this is liquid, the fed better be watching this. All right. I'm going to tell you right now,

before Michael finds the number and we may not find it, I'm going to tell you, I doubt it's anywhere near as much money as was betting on the election. I just don't think people randomly are like, let me place a bet on US recession. I do think everybody wanted to place a bet on the presidential election. That's right. So let's assume this is not as liquid.

And this looks so choppy. It looks like one trade swings this thing. These are not large bets. They're not, right? No. Yeah, I wouldn't bet that it is. Almost all of them are under 10 grand. What do you think about probability markets in general?

I think it's a... You like fascinated by them? It's an experiment and I think it's super useful. Okay, I agree. I'm not sure how, but I could see it becoming part of the toolkit of people that follow markets and the economy. Okay, we did the... We did that alright. Let's talk about Granny Shots. Yeah, so you launched an ETF. I told you not to do it, but I only told you not to do it because I'm so protective of you.

What I said was, oh shit, now he's going to have a quote unquote public track record that people are going to harass him about when the market goes down. But you didn't care. You're not afraid of what people think. No. And you plowed through

and the thing was received pretty well. Dude, almost a billion dollars in assets and you kind of just launched it. was received pretty well. People were into it. Almost a billion dollars in assets and you kind of just launched it. That's incredible. It's amazing. Thank you. All right. So let's, for people that haven't heard your previous appearances here

and are unaware of the concept here, these are stocks that you think are like layups basically. Granny shot like shooting a free throw underhanded like Rick Barry. Yeah. And you want to own it. You're not trading them. So we were trying to find essentially what's equivalent of like, you know, like your idea of permanent stocks. But we do rotate it.

But the reason we sort of have this idea is we have themes that like span multiple decades, you know, cyber security, millennials, AI, Fed cycles. Okay, so your idea is that these are stocks that are enduring. The story behind them is bigger than the stock itself. Yeah, they're linked to generational ideas. Okay, I love that idea. But we only add a stock that appears in more than one theme. So you want to say like,

hey, these are the stocks most linked to cybersecurity, but let's say that's 50 stocks, but then we want to say, is it linked to any of the other six themes? So it has to be appearing at least two themes because then we figured there's two legs to support why the stocks will always work. So if one story goes away,

there's still, it's on there for a reason. Yeah, it's anchored. Does that mean that you wouldn't own a stock like CrowdStrike, which is like purely in one theme? Well, CrowdStrike is actually a granny shot. AI and cybersecurity. Yes, that's right. You're good, Josh.

Yeah. All right, so I have a million questions. How many holdings? There's 35 stocks. Is that static? It will always be 35? It's not a predetermined number, but it has always ended up averaging around 35. How close are you trying to get the initial position weighting to the other weightings?

Are we trying to equal weight or not? Yes, it's quarterly rebalance to equal weight. Okay. And it would have done better, as you would know, if we never rebalanced, because NVIDIA has been part of the granny shots List since 2019, but that's what you're you're telling people. I'm really bad in hindsight Would you have done a semi-annual rather than a quarterly because you're gonna throttle the best stocks But you're also going to reduce volatility

So it's a it's kind of a double-edged sword by rebalancing that frequent Yeah, and it ends up being under 100% annual turnover. So it's not like we're turning over the portfolio and the ETF has the tax efficiency because no one's having to sit through capital gains through the rebalances. So that's advantageous. Okay, so it says it's 35 names right now,

they're roughly equal weighted and then during the course of the quarter, they're roughly equal weighted, and then during the course of the quarter, they're gonna move around, of course. So like, for example, your top 10 names, Progressive, Apple, Abbott, Garmin, S&P Global, Bank of New York, Mellon, Costco, Palo Alto, Microsoft, Netflix. So you have Mag-7 names in here, which makes sense.

They probably addressed five themes. Correct. How does Progressive Corporation become the largest current weighting in the index? Part of that is just performance since the rebalance. Ensuring stocks are doing really well. Yeah, and Progressive is actually linked to a seasonal theme. So it is linked to a seasonal theme.

So it is linked to the PMIs. Like the power of Christmas? No, the PMIs. So we look at like, what is correlated to PMIs for this period. So that's like what we call a seasonal rotation. But progressive is a millennial stock because, when you look at who, like millennials will account for like 72%

of all the growth in financial services spending. Wow. So like, so companies that are innovative are going to do really well because millennials essentially buy their, it's like a growth industry within financial services. Okay, so progressive is of all the insurers, that's the one that best represents that theme.

Correct. How do you decide that? How much of this is quantitative versus like somebody like really looking qualitatively at these companies? It's both. So we have a quantitative process. It's called DQM. So it is actually, it's the quantitative expression of-

Yeah, Dairy Queen Metrics. Sure. Yeah. Of all the work I did at JP Morgan. We built a single quantitative model. And so that is what runs to improve the quality breakdown. And then we do have a technical view from Mark. And then we of course look at the company, make sure it actually fits the theme.

So we do. It's a multi-step process. Are there knockout factors? Like if one of these companies says, oh shit, we have to restate three quarters worth of earnings. You guys immediately get out of it so that there's like this quality. Yeah. So in theory, super micro in the, in the research version of the granny shots that used to exist in it. And it was a very big performer, but then as soon as you know, there

was auditing and compliance, it, it couldn't qualify. So you guys will get people out of those names immediately if there's some sort of factor that is just like, we can't be in this while that gets sorted out. Now there was a drawdown with Supermicro, but it already produced a lot of returns for the granny. Okay. What kind of feedback are you getting from the investors? There's probably a lot of people that don't buy your research but they're fans of yours because of your

appear and you make commentary. So now people feel like they can like invest in some of your ideas. Yeah. What kind of feedback do you get from those people? It's been very good feedback. Wait till the bear market. Yeah. Well, there is a lot of hand holding that's required. As an ETF? Yes. And so what we do... What do you do? Webinars? I do a weekly video

that is available to the public but we have I think 35,000 people who sign up for the Granny Shots distribution list which you can from the website grannyshots.com and we push out a weekly video so they know what's happening to holdings. And that's what you should use AI for. You should not be forced to do that. Weekly videos a lot. It is, but we found people say it really helps them understand what's happening with their money.

It helps them hold the fund. Yeah. That's really critical. Yeah, so we're not hiding that there might be some, you know, Palantir hit or Nvidia hit, but then in their minds, they know that how to contextualize that and it's not a mysterious... You know what else is useful about that? In the process of talking about the fund, over time, people could get a better and better sense of how you think about the holdings

themselves and the way that you invest. Not just the companies specifically, but what would make you sell it? What would make you keep a stock? So that takes time for people to really learn. In the video we just released, we explained the whole idea of millennials and how much they're going to represent babies born in cars and why, if you did a similar generational bet with the boomers, you vastly outperformed the market.

So you wanna find the stocks that are most tied to millennials right now. It's just the start of a product suite? Who'd you put this out there? Is this Tidal? Yes, we worked with Tidal. Okay, so is Tidal calling you like every day, hey Tom, your next billion dollar idea, please.

Like we're ready, what do you got? Yeah, and it's Tidal and many other providers have contacted us with ideas. International granny shots? I think international sounds. Can I give you a great name for it? Abuelita, right? Spanish for little.

Abuelita. You don't hate it. Small grannies. Small little grannies. Young grann don't hate it. Small grannies. Small little grannies. Young grannies. Tom. Smith grannies.

Granny aristocrats. Grandpa. Grandpa shots. Tom we gotta get. Congratulations dude. We can't let you out of here without talking about crypto. You've got a chart in your deck that shows Bitcoin going to five million. Yeah say the craziest thing you can about crypto so we can clip this for TikTok. How are we getting to five million. Yeah, say the craziest thing you can about crypto

so we can clip this for TikTok. How are we getting to five million? Now that's- Slowly. Yeah. And then all at once. Yeah. By the way, if you got to five million

because we have a tape, a grid to show it, it's that gold would be doubled in price. Dan, the previous chart. Yeah. Gold would doubled in price. Dan, the previous start. Yeah. Gold would double in price. So this is if crypto reaches parity with gold in terms of market cap? Yes. Okay, it's not there already?

No, it's only 10% of the value of gold. Wait, what? How much gold is there in the world? There is $21 trillion of gold. How much crypto? Three? Bitcoin's two. Bitcoin by itself is two. Yeah.

Okay. So if the amount of money millennials choose to put into digital gold rivals the current amount of gold, you know what the flaw in that logic is? If there's this huge predilection for Bitcoin versus gold on the part of millennials, then the valuation of gold will shrink. So is like you might get parity, but that's because the amount of money in gold goes down. Yeah, you know, I thought about and I got the numbers a little wrong. Let's say, let's say gold has to go to like $7,000. However, you know, I heard something interesting and I

didn't realize gold has outperformed the S&P six of the last seven years. Yeah. So quietly too. Yeah. So gold isn't a bad asset class, but Bitcoin. So I think even if it's not like millennials need to buy gold for gold to go up, you just need the boomers to hold it. You need central banks around the world to buy it and hold it, which they are. That's right. Okay.

Do you get involved in any of these conversations about Bitcoin Reserve? Like, are you talking to people that are involved in this at all or not really? Well, there is. I am not going to the White House this week. I'm not invited. But we do have conversations with Congress people.

But you know. If they like, Tom, what do you think if we do this? Do you think it's a good idea? They're like, can you pump my coin? Is that a good idea? Why would we have a Bitcoin strategic reserve? I think it makes a lot of sense. Why?

Well, we already have one. We've confiscated Bitcoin. That's not right. But why do you think it makes sense? Why should we buy more? If Bitcoin becomes the backbone of a new financial system, which it really is like, you know, it's the king of the remittances It's a you know It is the immutable blockchain and it's people have a lot of reasons that they trust it and 14 years

No one's broken it and there's no replacement Then If the US owns a million Bitcoin, they'll be the largest holder of Bitcoin. But we're just holding, what are we doing with it? We're facilitating trade with it or we're just holding it? If it's a strategic reserve, with a petroleum, strategic petroleum reserve, they use it. When there's like an oil shortage or there's a problem or there's a dislocation, they will tap the reserve. And then when prices calm down, they'll add it back.

What do we, how does the, to Michael's question, like how does a Bitcoin strategic reserve function? Would there be a shortage of Bitcoin? And we have to, like, toward that. These are good questions, but keep this in mind. So oil's a strategic commodity. Clearly. Okay, now oil only has seven buyers, really.

It's the refiners. Oil, like, that's produced everywhere, it's really just bought by refiners. Who then turn it into something useful. Yeah, to distillates and gasoline. Okay. But there's really only seven buyers. And so if you look at oil, the oil market that's bought by, for distillate, and then say take the total trading volume

of oil against that what do you think the ratio is I don't know tiny right 400 for every dollar of oil that's bought it's traded 400 times on speculation Wow Wow okay so you need a strategic petroleum reserve because there's so much price speculation around it that you could be whipsawed if you didn't control some way to manage prices. Okay. So Bitcoin is the same. Yeah.

So let's say Bitcoin, let's say that it becomes 10% of people's net worth and banks start to use it to secure information. Remember the blockchain, you can just store one pixel of a 10 million page document, but the hash will detect if you changed one pixel. So that's why you're going to use the bitcoin to secure information, right? Well, that's really valuable. But then wouldn't the US want to be able to control this blockchain or exert some way to censor it somehow. Okay. And you know, once banks start trading Bitcoin,

like Citadel, it will probably be the most profitable product for Goldman and JVMAR. Because of how volatile it is, bid-ask spreads are wider. Correct, and if oil's traded 400 times, Bitcoin might be a thousand times. It's going to be a hugely traded commodity. Okay, so this is a productive thing,

even though, to my earlier point, we have a budget deficit, we have tons of debt. This is a project that we should also undertake now because it might come in handy at some point in the future. Yeah. Well, the US owns 200,000 Bitcoin as long as it's not those keys are safe. Okay. And so they say, but they buy 800,000 more through the exchange stability fund, you know, so another 80 billion. If they do that, I think the price goes to a million too. I just don't know if they're going to do that. Yeah. But then if Bitcoin gets to 36 million, there's no national debt.

Okay. In that fantasy, who do you sell the Bitcoin to to pay off the debt though? I've heard that before. Michael Saylor. Hello. So Michael Saylor buys the Bitcoin from us and we use the proceeds to extinguish our debt Well, it's not You don't need to sell it because it's almost the same thing as like if Nvidia is three trillion It's not like someone say oh, well, you're gonna liquidate all three trillion. So it's not worth three trillion It's as long as the value is stored at that level. Okay. And you can still trade it.

Then we could say it's an asset that offsets the debt that we have. We don't have to use it to pay down the debt. We can just say we're backing that debt with this asset. I'll guarantee you if Bitcoin got to 36 million, okay, theoretically, the US cost of debt would go to zero. Okay. They would have no, because they have zero net debt. What's going to happen on Friday? I think, okay, so the base case, I think it's a really bad jobs report, maybe 50,000.

I think the market panics, but Powell's speaking at 1230 and you're going to see the May odds 100%. Because Powell's going to make it all better. Like he's going to calm people down. Like we're aware of the situation. Well, because this is like now with Atlanta, you know, GDP now negative and then jobs. This is not like the Fed can sit there hawkishly it's sort of funny to have a day where there's a jobs report that disappoints the markets been selling off all week it gets even worse on Friday and Powell has to

compete for airtime with Michael Saylor because the White House is filled with crypto people yeah it's kind of it's gonna be it's gonna be a wild day well Tom this is a this has been awesome. I have one more thing to share with people. You have made available access to FunStrat Research for our listeners for a 30-day free trial and we want to tell people where they can do that. Can I tell people? Yes.

Okay. All right. I'm supposed to read this. If you are an experienced, self-directed investor looking for trusted insights to grow your wealth, check out Tom Lee's Fundstrat Research. When you sign up, you'll get access to his daily insights, market alerts, live webinars, AI doppelganger, and stock lists. Exclusively for listeners of The Compound and Friends.

Tom has provided a link for a 30-day free trial. Visit fundstrat.com slash tom trial. Visit funstrad.com slash Tom. That's funstrad.com slash Tom. You can also find a link in the description below. That's very nice of you. It's very exciting. Well, we love the show. Dude, thank you so much for being here. We are so happy to be able to spend time with you. We always close out the show by asking people what they're most looking forward to. I think for Michael, it's the crypto summit in by asking people what they're most looking forward to.

I think for Michael, it's the crypto summit in DC. What are you looking forward to? I'm looking forward to future proof. Oh man. Citywide. It is going to be the highlight of my spring and summer. Okay. What day are you on stage?

Do you know? Monday. I should probably know that, Monday. Okay, very cool. Good answer, Tom. I'm going to the Museum of American Finance's annual gala tonight. And do you know that organization? You familiar with them?

Okay. They would love to have you there. They're honoring Peter Lynch tonight with a lifetime achievement award. So I think I'm going to get to hear him speak. That'd be amazing. Yeah. And that's like one of the goatiest goats who's ever goated. So I'm pretty pumped about that. You got something for us?

Yeah, did we talk about the show that we're going to see? Which one? Glenn Gary, Glenn Ross? Yeah. Very confident in my assertion. That's bad. Yeah. You like plays?

Go to shows? Yes, in fact, I think our firm is doing a field trip to watch that. You're going to go? Yeah, because it's like an iconic. We're going, what's the date we're going? 20th? Maybe we're going on this, it's not a lot of dates.

So we might be going on the same date. It's like the day before the ETF Awards Center. So I think it's like April 27. Okay, we're going in March. Very cool. Yeah, we're going a little bit sooner than that. But I'm so excited for that. Bill Burr, Odenkirk, Karen Kolkin.

It's a crazy cast when you think about it. Yeah. Alright, very cool. Hey guys, thank you so much for listening. Our special thanks to Tom Lee and huge thanks to the team. We did so much stuff this week. Daniel, Duncan, Rob, Graham, Keith, Sean, CharKid, Matt, who else? Nicole, we got everybody?

The list keeps getting bigger. All right, shout out to the team. You guys outdid yourselves this week as always. And hey, leave us a rating and review. We'll be back soon. Hey! I'm just going to do that one more time.