The Compound and Friends - Twelve Rules for Riding a Bubble With Jeff deGraaf, Micron and Sandisk (Finally) Pull Back, Housing Stocks Crash

Episode Date: May 12, 2026

Join ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ for another episode of What Are Your Thoughts and see what they have to say about: housing stocks, AI, 12 rules for bubble riding, $100 billion stocks and more! Plus, a very special Jeff deGraaf appearance! This episode is sponsored by Betterment Advisor Solutions and Janus Henderson Investors. Learn more at https://www.betterment.com/advisors Find out more at https://www.janushenderson.com/ Sign up for ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Compound Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and never miss out! Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠ Janus Henderson Disclosure: Past performance is no guarantee of future results.  Investing involves risk, including the possible loss of principal and fluctuation of value. Janus Henderson® and any other trademarks used herein are trademarks of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc. Learn more about your ad choices. Visit megaphone.fm/adchoices

I'm telling you right now there's greatness in the air. This is going to be one of those shows. How do you feel? I smell it. Breaks. The Knicks and four team is resting up for the next round, whoever we're going to play. I'm starting to maybe Cleveland. What about you?

Nope. Nope. I am nothing. I think so. Nope. All right. Ladies and gentlemen, welcome to an all new edition of what are your thoughts. If it's Tuesday night and it's 5 p.m. in the east, that means it's time to, uh, It's time to crush some tickers.

And we have a lot to go over tonight. I'm super excited to have the live chat with us here. I want to say a couple of hellos. I see C. Paul Breezy in the chat. What up Tuesday afternoon, Pounders. I like that. Georgie's here. Who else is here?

Michael's 2502. Taking care of business loco is here. I mean, all the Pounders are. I'm just scrolling through. Everybody's here. Everybody's here pretty much. Everybody that we need for the live. Appreciate you guys.

Random trends checking in from Portugal. That is flames. I appreciate that. Good see you. Sam Smith says Cleveland in six against y'all. Yeah, I doubt it. I don't think so. All right.

The whole gang is here. Guys, thank you so much for joining us in the live chat. We have a sponsor tonight. We're going to talk about betterment. Michael, take it away. That's right, Josh. Every RIA knows attention. You don't want to turn people away.

You don't want to require higher minimums. And you want to help clients who are just getting started because that's where the long-term relationship begins. But here's the truth. Those simple accounts? Not so simple. They take a lot of work, account opening, trading, rebalancing. And before long, your staff and back office are underwater

and trying to stay afloat. That's why established RAs are turning to Betterment Advisor Solutions. It's the platform built for segmenting your book and streamlining those smaller and simpler accounts. The onboarding experience is automated and paperless. The portfolio management is streamlined and tax efficient. The client experience is consistent and exceptional. Explore what segmentation can do for your firm today.

Lower your operational lift, but keep your standard of service high, all with Betterment, advisor solutions. Your biggest regret will be not doing it sooner. Learn more at Betterment.com slash advisors. Thank you to Betterment. We appreciate it. In today's market uncertainty and revolving credit conditions, the $15 trillion securitized market may provide investors with diversifying income opportunities.

As a leading provider in active securitized ETFs, Janice Henderson seeks to demystify a complex, yet growing part of the market, offering a range of diversifying exposures across income, duration, and credit quality. Whether investors are seeking high-quality, AAA-rated CLOs for lower volatility exposure, higher income diversified across various securitized sectors or perhaps agency MBS exposure as part of their core, Janice Henderson seeks to offer a variety of securitized solutions. Janice Henderson investors investing in a brighter future together. Learn more at Janice Henderson.com slash securitized markets.

Past performance is no guarantee of future results. Investing involves risk, including the point. possible loss of principle and fluctuation of value. I think the market environment may have changed or maybe in the process of, I do. What do you think? What do you think about? Oh, well, who could it be? Let's get the door.

Neil DeGraff. Oh, my God. Joe. Ian, Neil DeGraff Tyson. Neil DeGraph, Duda. Let's go. Ladies and gentlemen, the legendary, legendary technician, Jeff DeGraph of Renaissance Maca, A.K.A. Renmac in the house. I'm just watching the reaction in the live chat,

Jeff. People are going wild for this. People are very excited. Had I not known better, I thought that was an introduction to Mr. Rogers. That sounded exactly like what I would expect. Like Mr. McFarlane at the door or whatever his name was, yeah. Anyway, you want to, you want to laugh? We tested, we tested Duncan and I probably 10 different doorbells before we settled on that one. It's classic. It's a classic. for sure. It's like a 1970s, almost like a sitcom doorbell. Anyway, thanks for stopping by. It's so funny that you stop by because we were about to discuss your incredible call that you made over the weekend and do a couple of your charts. It's just this amazing coincidental thing. I can't believe you here.

Yeah, but I love it. But I love it. All right. I thought what you said over the weekend was the right reminder for active traders, for investors, just to kind of set the table for what typically happens after these types of parabolic spikes, like what we're seeing with Korean stocks, U.S. semiconductors, specifically memory stocks. And I want to pop up your chart, have you explain it, because you say the Kaspi has entered bubble zone. And of course, this is going up due to to the insatiable demand for memory and memory chip makers are a really big part of the Korean stock market. Yeah, I mean, they're between Samsung and SK-Hinix,

it's 43%, right? So if you compare that to where it was, say, in 2000, it was closer to 18 or 20%, so about half, actually less than half of where it is today. We've got a very simple rule, Josh, and it's one that we developed. And I will just say, you know, for your listeners, and for you guys too.

You know, I've been in this business for 36 years. I've stolen math from, you know, communication science. I've stolen it from, you know, astrophysicist and escape velocity. There's a lot of different formulas that we've tried to use to measure when something is up so much that it's actually not good and you want to be a seller. And it's incredibly hard to find. Usually up is good and you just kind of have to grin and bear it until it tells you differently The one thing that we did find though particularly when it comes to indices

So it's something that's diversified it can't it doesn't apply to a single stock But something that's diversified is if you double the value of that index Over a two-year period or less you're usually in a pretty good definition for a bubble now Let's be very careful on what that means it doesn't mean that you know we identify a bubble today and and it's down tomorrow. But it just tells you that you're an environment that generally produces these v-tops and, you know, something that we call kind of the hypoxia of the market. So if you, you know, recall hypoxia is when you get into certain altitudes and you don't have enough oxygen to kind of function properly. And I think that's kind of what we're getting into.

That's great. I've never heard that term before, but I love it. So there's actually four, there's four physiological distinctions of hypoxia. The first one's indifference, and that doesn't really make any difference. That's between about zero, you know, uh, mean sea level and 10,000 feet. Between, um, 10 and 15,000 feet, it's called, uh, compensatory, comp, compensatory. Compensatory. Thank you. Um, and you start to get fatigue, a little bit of impaired judgment. And then from 15,000 to 20,000 feet, it's called disturbance. That's where you get dizzy. And you actually get this euphoria. And you've probably heard it from, you know, people that climb Mount Everest, right? They kind of get into this euphoric state.

And I think that's what we have to be careful. Is that like the mile high clubs also? I think that's a little different. Jeff, are you a fellow climber? I am not a climber, but I am a pilot, so I do understand the, you know, the impact. I'm presuming the climber is in reference to you, not Josh, but we're definitely not climbers.

But with the index advancing, with the index doubling, like you mentioned earlier that SK and Samsung are approaching half the index. Doesn't that, I'm not trying to defend the price action because it is what it is, but does that change at all? Has there ever been an index this concentrated that's done what this has done? Well, that's a good question. I don't know if that's the case, but we also do it for sectors. So we'll use it for like the socks. And the socks got to that level about two weeks ago now.

So the socks doubled within a two-year period of time. And I'll tell you what, when we look at that, that's happened five times, you know, in basically the socks's history. and you know, you basically don't want to be there six, 12 months out. It's something that you're going to have a drawdown that's pretty painful. And, you know, let me be very clear. When you look at the news flow, when you look at the headlines, nothing is screaming at the top that you want to be a seller. In fact, it's just the opposite, right?

That's kind of why you get that vacuum that just sucks people in. So I think you're getting into that rarefied air here, and that's just what we're very careful of. And this doubling, you know, one, it's simple, doubling in two years. And anybody can remember that. But it also went back and you flagged the peaks in the Hong Kong, Hangsang in the 90s. You did it in China. You did it in the NASDAQ.

The NASDAQ was early. The NASDAQ was early by about two years. But it's been a very good kind of reference point of just saying, hey, I'm in a different kind of environment here. And with that, I have to make sure that I'm not just whistling past the graveyard or, you know, maybe more importantly, I'm not out on the risk spectrum a lot more than I should be. just because I think, you know, quote unquote, this time is different. So, Jeff, I want to make it clear what you're saying. You are not anti-stocks going up or markets rallying. And you are not a knee-jerk.

All right, it made a new high. Therefore, it must be a sell. You're saying that specifically, a 2X inside a two years for an entire sector or an entire index. That's where people are no longer actually. rationally. And if there is an exception, it's going to be such an exceptional exception that you can stay long. You don't have to sell. I mean, you're not telling people go short it, but just mind your position size. And that can keep you in the game if you need to stay in the game. And a lot of people, if they're competing with the averages, especially if they're emerging

market, growth investors, they have to stay in this game. Yeah, 100%. Yeah, 100%. That is absolutely right. The signal is not for shorting, it's for sizing. I think that's the best way to think about it. And, you know, if you're using volatility to help size, well, you want to make sure that you recalibrate that, right? Because the volatility of these names are going up. So you're carrying a lot more risk than what you're thinking you are if you haven't recalibrated for the current volatility. And so the real message is that you don't usually have these kind of domes. top formations, right? So most of the time you're going to have plenty of time to get out of a name or an index because you're going to have these kind of doming top formations When you have the bubbles the risk is that you have a V you have an Eiffel Tower You're straight up and you're straight down and look even Isaac Newton you know if you go back and look at the South Sea bubble back in the 1720s Isaac Newton bought into the South Sea company back in December of I think it was 1719 officially He sold out with about a three X game

in February of 1720. So about a three-month holding period. He thought he was a genius, and I think we can all admit that he probably was a genius. But even he, about six, eight weeks later, got sucked in, took all his winnings from the first round,

put him back into the South Sea Company, and they actually sold shares in the Bank of England to buy more shares of the South Sea Company, which popped within about three weeks of him putting it back in. So when he died about 10 years later, a pretty substantial portion of his, estate was still locked in the South Sea Company. So, you know, even he was, was, you know, a casualty of bubbles.

They made up a fake, they made up a fake quote that he never actually said. Something like, it's a go on. I can calculate the trajectory of heavenly bodies, but something, something, I don't know how to mean the madness of men. I doubt he ever said anything like that. Nobody who loses, nobody who loses to that degree then comes up with. like a quote that lasts 500 years. Right.

It's too good to be true. Even for Isaac Newton. I want to do some bubble stuff with you. So you put this out as part of your note. I think people should take a screenshot of the screen right now and they should save this forever. When would have been the first time that I ever saw you put this out? It's got to be a long time ago, right?

Yeah. We've, yeah, I mean, probably, I mean, I had to be in the 2000s when we were talking about it the first time. Okay. What bubbles are and are not? And I want to go through these for the people that are listening and you can react to them along the way, okay? Sure. Bubbles don't ring a bell at the top. It's a yellow flag, not a sell ticket.

Shorting a bubble is an expensive mistake. Base rates favor trend, something we say all the time. asymmetry is brutal, and evaluation thesis without tape is premature. Let's stop there. Okay. Right, because in the 1997 example, stocks were overvalued, and then they ran for another three years and became even more overvalued. So if all you have is a valuation metric, you better keep an eye on the trend. And I think that's a really key one for people.

Well, when we do the work, Josh, and we're always looking for what we call terminal wealth, right? The most amount of money you could have out of a situation, you know, without perfect foresight and calling the top, right? The right way to do it is you actually sell on the way down. Now, the problem with that is that that means that you're going to run up your account to say a million dollars, but on the way down, you know, you might only be left with $800,000. And you're saying to yourself, son of a gun, you know, I left $200,000. I left $200,000 on the table. Right. But the reality is if you tried to sell it on the way up, you probably only have $500, right?

So the terminal wealth is better selling on the way down. It's the mental anguish that people can't take. And they say, and they kick themselves like, oh, I should have kota-woda. But that's an illusion. That peak is an illusion to try to get that last dollar. Right. If you anchor to it and you decide I'm sticking around until I see it again, that's not a professional anymore.

No, right? Now, right? Now, okay. Signal is for sizing, not shorting. What does that mean? Correct. It just means like, you know, don't look at this as a bubble.

Now I'm going to get short. It's bubble. Let me readjust my position sizes and make sure I'm not carrying too much risk in this particular index or this particular sector. You say something here that Michael and I probably don't know what you mean.

Time is a bear's best friend. What do you mean by that? So I always learned it the op. We've learned it the opposite. Which is true, right? And, you know, in 99% of the instances, the time is the bull's best friend. In a bubble, though, what you end up with is short-term asymmetry where it can run and go against you.

But as you start getting out six, 12 months, the probabilities really start to shift that you're going to have a major drawdown. So that's in that case, you're, you know, if I were to play it just by the numbers, I'd say, okay, bubble signal, set my watch, give me six months, and now I'm going to look to be shorting it. That's, you know, I mean, that doesn't work every time, obviously. But if I was to use that just as kind of a cadence of how we think about it, you're not, you're not better off shorting it when you get the signal. You're not better off being short three months from now, but you are six months from now

starting to get into a pattern where that unsustainability, and that's why it's important with the bubble, it's that unsustainable rise that you're now kind of on the back end of. And that's where it becomes. I want to do these last three. Let's go. Reduce gross as conditions deteriorate. The win is in the derisking sequence, not calling the top. And then the bottom line, ride, derisk, exit on break, don't fade early.

So all three of these are sort of saying the same thing. But they are like three separate expressions of that same idea. Yeah. I mean, a lot of times you have to tell people something the same thing. five different times before they get it. Yeah. That's it. Okay.

Do you think something's changed with the way the semis and the memory stocks acted today? You know, I wasn't glued to the screen as much as I'd like to be, but I did note, I mean, if you looked at Korea as an example, it had an outside reversal day to day, which is pretty interesting. It opened up and opened above the previous days high and then closed below the previous days low. So that's a pretty uncomfortable candle. Those are not good on the way down. Right, right. So, you know, after a parabolic move, that's kind of like a, you know, the real Rodney Dangerfield, you know, no respect here. So, yeah, I mean, I felt like there was something in that.

I'm not a big candle guy. It's just, you know, one day is going to mark the peak. But certainly those are the types of little indications, those grains of sand that I look for. But, Jeff, on the other side, you had micron down as much as 9% today, I think, and it closed down four. Like, they couldn't even stick the landing, the bears on one day. Same thing with SMH. like a really attractive looking candle on the long side. I think you're in a good spot with that, though.

When you look at, it doesn't have to, you know, it doesn't have to be a bearish candle and stay there. But if you start getting into the point where we've got bulls and bears slugging it out together, now you're getting into that distribution, right? And look, a lot of managers are going to need the liquidity on the upside, right, to trim those positions. They can't do it on the downside because they're just going to, you know, be pro-cyclical and push into that weakness.

You're going to have a lot of professionals that are doing that trimming that we're talking about because they know that you get while the liquidity is good and the liquidity is good on the way up more than so on the way down. Jeff, really appreciate you coming by, even though it was unexpected. We're huge fans of your work. I wanted to let people know you guys are on YouTube at Ren Mac, and I wanted to put this QR code up. Guys, if you want to follow more of Jeff's commentary and follow the RenMack channel, this is the easiest way for you to do it. And I think Ms. Nicole will drop a link in the live chat as well. Thank you so much for coming by.

We're huge fans. Thank you. Thanks, guys. It was good to see you. All right, Jeff. We'll talk to you soon. That guy is awesome. So Jeff was talking about indexes and sectors doubling over two-year period as like a yellow

flag or at least time to maybe pay attention and take some size down. micron doubled in the last month on April 12th not in two years it closed at 420 on April 12 that ran up to 800 we didn't get into this with Jeff because he's obviously a technician and not a fundamentalist guy but I think it's really important to point that the buying is rational and I'm not saying whatever like I'm not saying that prices aren't going to go down in fact I'm pretty damn sure that Michael will go down at some point we spoke last week I think we both agreed 75 to 80% chance of a 40% decline at some point in the next 12 months yeah it's common I don't know when, but anyhow, fundamentals, chart on. So Daniel von Allen tweeted probably the craziest chart of the markets right now. And I would agree with him. So for people that are listening, what we're looking at is the 12-month forward EPS for MSCI Korea, as Jeff mentioned, it's two of the biggest semi-related companies in the world, or AI-related companies in the world.

This went from 200 bucks to about 800. In a month. So the forward EPS quadrupled. chart off what would you expect the stocks to be doing would you not expect them to be doing what they're doing the earnings per share quadruble it would be weirder if they weren't parabolic because the earnings outlook just literally went up fourfold that would be the weird thing it would be weirder if you didn't have a wild reaction to the upside and you had it yeah so um well i think that's look sometimes these speculative manias come out of nowhere and are based on nothing

this is not that. This is something different. This is fully rational. You had an insane change to the fundamental outlook for some very large, important companies to that index. And the stock prices, you have, I would argue, 99% of the people trading these stocks over the last month have never traded these stocks before in their entire lives.

So it breaks anything you thought you know about, like the long-term average multiple to earnings for these stuff. Like throw all of that out. It's an entirely new world. It's almost like their IPOs. And the eyes are the people who are trading them. Yeah.

All right. So the semi-mini crash this morning, the memory mini crash this morning, it was really much to do about nothing so far. Let's put up Micron. These are not candlesticks. These are just J.C. would kill us. These are just five charts.

I've got candlesticks later. All right. Go fast. Well, all I would tell you is, wake me up at 600. What do you think about that statement? Meaning what? Like, like down to 600 is nothing? I think a lot of people that missed, I think a lot of people that missed these stocks would

love for this to have been the top. And maybe it is a local top. But let's not act like, let's not act like their shareholder base in these names is not totally fine so far. I mean, it's. Keep going. Go through some more charts. Sandisk.

I mean, it was 250 in January. It ran to 1,500. It was 1,000, three weeks ago. It could go back to 1,000. And the long-term odd trend would still be ridiculously intact. Agreed. Western digital. Nothing.

There's nothing here. It could be the start of something. Yes. You definitely want to make that bet. No, let's skip the heat map. Just show the Van Excemi-ETF. And so well off the low, as I was mentioning to Jeff. Next is Micron.

Those are candles? No, daily, dude. Daily, daily. So it was down 9% at the lows. Buyers came right back in and throw up this graphic. So I forget who I stole this. No, no, no, the bubble chart. So what we're looking at here is this is from chart flow, FLEAU.

And look at the red dots. So this is intraday on the S&P today by sector. Okay. So you can see the red, the red dots on the bottom. That's Micron. All right. And this is intraday. So it was down all the way down to 9%.

And what you're going to see is them coming back. Were they moving or did I ingest peyote? One more time. One more time. Look at the red. Why are they doing this? This is intraday. It's from 930 or 4.

Why are they undulating like that? It's almost sexual. I don't like this. Stop. It's from 9.34 to 4. So look at this. Look at the bounce off the lows. Look at that micron.

It feels like a horse race. It was down over 9%. It was down 4. Give me a break. The buyer stepped in. So yeah, listen, this could be down 10%. tomorrow. I don't know if this was the top or not.

Which buyers stepped in? Some buyers did. Not people that are up 1,000% already. Some buyers did. This has got to be people that missed it and are like, this is my chance. Some buyers did. Short sellers covering? I don't know, dude.

Last week we were talking about what happens to stocks that beat versus stocks that miss. We tracked it every quarter. And is this a bubble? Isn't it a bubble? earnings season doesn't say so. So to date, this is from John Butters at FACS. To date, the market is rewarding positive earnings surprises reported by the S&P for the first quarter, slightly more than average. So just barely. Next topic. Next chart, please, John. On the other hand, the market is punishing negative earning surprises reported by the S&P much more than average.

So the average price change is 1% basically in line. The average price decline when they lose. is like double the average. It's like down five versus down 2.9 on average. I'm so glad you brought this up because this is literally the way that I'm personally experiencing this market. I have companies that chart off companies that had outstanding quarters like Amazon and Uber and they sort of went up, right? But then I have companies that didn't even miss or maybe missed a little or whatever

or gave like a bullish outlook, but it wasn't as. bullish as expected and went down 20%, 30%, I'm, I've been murdered this quarter bubble. I've been murdered this quarter in two names, Shakeshack and Toast, and they both reported one day apart from each other. If you actually look at what these companies had to say, their outlooks for this year went up. Shakeshack actually raised their store count growth estimate for full year.

They had a surprise, they had a surprise law. because beef and paper costs and the stock felt, I'm going to see 40. It was 20%. 40% all in. Like, it's, I think it's like 38% over four days or something insane like that. But there's a lot of stocks like that. Um, toast is down. Toast fell 14% after reporting.

Then four percent. Then another 4%. Because why not? They literally had nothing but bullish. bullish things to say. But if you miss one metric whisper number, it's like, so Kramer said this, Kramer said this morning, I forget who he was talking about, but he was saying we love the stocks. We love too much. And we hate the stocks. We hate way too much. Like, like that was his comment. And I think that's like anecdotally for me. I think that's sort of right.

There's a lot of reasons. Dude, not anecdotally. What do we say in the chat? about momentum having the best what period over the last 30 years, like the second best X day return period. Yeah. The winners are winning and everything. All right, so here it is. The S&P 500 momentum has a live history back to November 2014 and a back test extended back to 1972.

Across both live and hypothetical history, the index has never closed a six weeks performance as large as the current 30.5%. Never, never, ever, ever. So it's not anecdotal. It's literally in the data. Yeah. So if you're in that group of stocks that has the AI CapEx wind at your back and you have momentum,

like the stocks have momentum, they're being way overly loved with the exception, obviously, today of the memory chips, which looks like so far it was a one-day event. But it's, it's a. And then other stocks, like, dude, you can't say even one iota of negativity on one of these calls or caution, they will rip your stock, 20% of the market cap ripped out overnight. Retail stocks are getting killed. I mean, within there is restaurants and home builders. Look what they did to Netflix.

Netflix traded 108 to 80 on an amazing quarter. Spotify. All right. So, should, I don't know who I grabbed this from. I don't know which bank this is. So forgive me. But there's a research report. AI token costs are eating internet profits a lot.

So the guy, the author wrote, my title is a tad bombastic, but it's worth noting that several internet companies this quarter explicitly called out rising LLM token costs as part of their expense outlook. I have a very sneaking suspicion. We are going to hear a lot more about rising AI costs as the year wears on. So I say all this because, I bring that up because the demand for the picks and shovels, the AI trade, and the demand for the shares is fully warranted. It just is. Look at this next chart. Global semiconductor sales in Taiwan export orders are both seeing horrid growth rates.

What would you expect the stock price to do in this example? So Anthropics CEO said, I hope that 80 times growth doesn't continue because that's just crazy and it's too hard to handle. I'm hoping for some more normal numbers. I pull this from the transcript. Then Jensen said, the second big idea is that in order for AI to go through understanding, reasoning, planning, using tools to take action, the amount of computation necessary compared to generative AI is like a thousand times more. So I understand that people are probably like sort of sick of this, whatever, just the talk into this. But it is justified.

People have not completely lost their minds. I have already solved this problem. you go on to the LLM and you prompt it, find a way to use less memory. Find a way to use less compute. Who? You tell the AI to figure it out. Figure it out.

Why are we using so much compute to employ you? Find a way to give me the stupid answers to what I'm asking you. Like when was James Madison's birthday? Find a way to do it with less compute. I don't know. I feel like it's going to, it's got, there's got to be a solution. You're not doing that. No, I'm me.

It's not going to be me. There's got to be a solution. It just can't be like high cost of compute and the levels of demand that exist. And it just goes on and on and on forever. The models have to get more efficient. I think what they're saying is the lower, the lowering costs are accelerating demand. We're able to do more of it. And we're just running out faster.

Like demand continues to outstrip supply. I've got four more things I want to go through. This is from Consensus Guru, as he posted the sales growth for Micron and Sandus, 22% for Micron, 283% for Sandysk. And yet, if you look at the and the EPS growth, forget about it. It's a joke, 582 and 1728. So he's breaking down Micron Sandus, Seagate, and Western Didge. And look at the PE ratio for these memory names. Micron is nine times 26 earnings, seven times 27 earnings.

Sandus is 11 times and eight times. This is like not that far out. And you say to yourself, huh, maybe these stocks are cheap. No. They always traded. They always traded those. I'm not done. Not done.

I'm trying to educate. So why are these stocks so air quote cheap? Why are they only trading at eight times earnings? Well, the reason why is because these are the absolute most cyclical names on the planet. And investors aren't dumb. not going to get fooled for the 11th time. So I had Claude do some work for me. Look at the operating margins for these four names.

And look at Microns swinging all over the place. All over the place. Plus 40, negative 60. Next chart shows the revenue growth the year for year. Investors aren't dumb. So names like this, especially at this size, they deserve a discount. So do not look at the PE and get a twist that these stocks are cheap. But what is crazy is because they are.

statistically cheap, and I'm using air quotes again, Micron is now the largest stock in the Russell 1000 value index. Chart on. Oh, that's the best. Shout to Todd Sown. Isn't that wild, Josh? Yeah, that is the best. I love it.

I'm a value investor allocating to Micron because on my screen, it's the cheapest stock in the market. So it's not the screen's fault. That's just what it does. So Todd says it's a fairly consistent list over the last 20 years. Exxon, GE, J. J.B. Morgan, Berks, you're like legit value stocks, and now we've got Micron. So Micron has gone. I had ChartKit do this. This is true I can. I love it. I asked ChartKit to map Micron's

path in the S&P in terms of its ranking over the last 20, 15 years, whatever it is. And for the last five or 10 years, five years, it's averaged the 89th spot in the index. A year ago, in April, it fell to 127. It skyrocketed. at it at the open today. It was the 10th largest holding in the S&P freaking 500. It's amazing. It's amazing. It's bigger than every company you've ever heard of with the exception of nine others.

Bravo. I mean, was it bigger than JPMorgan at 10? J and J. It's got to be right there. Like Bravo to X. On the micron. All of it,

all of it. Like every blue chip stock. Does that sound right to you? That doesn't sound right to me. That sounds like one of these things doesn't belong. When you say sounds right, does it make sense to me today? Yes. Do I think it will be like this in a year from now?

Probably not. I can't imagine it. I don't think so. I don't think so. We'll say. I literally can't imagine it. But today for the moment that we're in, it makes sense. All right.

So keeping on this theme, I want to point to a piece at the Wall Street Journal, contemplating AI as an industrial bubble. And just we've been living in this reality for the last three years where more capex is better. And what they're pointing out in this piece is that historically, that's just not true. More cap-ex spending is bearish, not bullish. For like for obvious reasons, it's less profit for shareholders. And oftentimes, if you think people are sloppy with buybacks,

or with M&A, you should see the history of KAPX bubbles, how bad corporate managers historically have been allocating resources. And the reason why is because it's hard. You're trying, especially in tech, you're trying to predict the future in real time and put the right amount of money behind projects that you have no idea what the ROI is going to be in advance. So I want to just share a couple of quotes here. You know, one of the reasons why tech has done so well over the last 15 years of

or so is that we've always looked at them as high profit margin, low assets, like not capital intensive, not heavily industrialized. They were like these kind of software information technology businesses. And as a result, we gave them systematically higher multiples than many other areas of the market and deserved because they earned a ton of money from whatever their revenue was, more of that became earnings than for most, if not all other sectors. Okay. This is the journal.

It's a guy Greg Fisher being quoted from Quint Capital. We know from this 100 years of data that CAPEX is bad. The lesson has implications for the hottest stocks on the market right now. The MAG 7 became magnificent because they made huge returns on relatively modest capital expenditures. If Ford came out with a great car design or bowling with a superb airliner, they needed to invest in factories to keep up with demand.

Once Microsoft released Windows or Apple devised its Google search algorithm or meta-created Facebook, the cost of every additional user was tiny. Even Nvidia, which sells physical objects, outsources the actual manufacturing. That was then. This is now.

We have this chart. This shows the assets of these companies at the end of each quarter, and nobody would mistake these for asset light companies anymore. These are AI industrials, would be the way I would phrase it now. The light blue is showing Q1, 26, and the dark blue is showing the corresponding quarter from five years ago. And what you can see here is that the capital assets that these companies are carrying on their balance sheets are in every case twice as high. Apple is not on this list,

which is its own story. So these are basically the hyperscalers plus meta, which thinks it's a hyperscaler. Jeff Bezos was calling AI an industrial bubble. Not in a bearish way. He said the winners will win big and society will benefit, LOL, but the overall return on all the money being spent today probably won't be great. What do you think about this idea? And do you think, oh, and then they did one more chart, low asset firms versus high asset firms. So they're showing the tech bubble from 96 to 2003. And what they're showing is the firms with high assets, actually, the stock prices fell way more than the companies that kept their KAPX low and were considered low asset firms. What do you think of this concept of an of an AI industrial bubble? And is this the

kind of thing that ultimately a lot of people might start thinking, which could shift the psychology and the stocks that are actually working? It is an AI industrial bubble. I don't think, but in the same way that the fiber optic buildout in the tech bubble was the, it was, it's the same thing. Well, that didn't end well. But, but, but it's that unstead. steroids because the amount of money that we're spending is levels of magnitude bigger than that was. And we are doing that in anticipation, in anticipation of a completely different world, which the internet didn't turn out to be.

So I don't think there's anything controversial in this idea that more spending is worse than less spending because the spending is guaranteed that returns are not. However, I do think we need to be open-minded to the idea that perhaps data from the last hundred years is not set in stone and permanent forever. Adam Parker did a piece last week that I have opened up, that I haven't had time to read yet. I'll do it. Maybe we'll do this next week. Adam has a post a research report.

Ten investment mantras that have changed since 2020. sometimes things change and they change forever. Now, this idea of asset light being better, it sounds like it's a permanent type of thing that's not like a sick thing. But I'm open to the idea that maybe it is different this time. If you think the profits of all of this AI activity are going to accrue to the platforms,

to the platforms themselves, then you have to own the platform. And if you want to own the platform, that requires millions of machines being plugged in in data centers all over the world. And that's what these companies are investing in. Now, that might turn out not to be true. It may turn out the platforms are not where the profitability of this accrues. It may not be about servers and GPUs and electricity.

The profits may ultimately accrue to a software level that we can't yet imagine. We don't think they're going to accrue at the LLM level completely, but there's a world in which all of these data centers and all this profitability gets driven down into a commoditized state and the software layer becomes the most valuable part of AI. And if you believe that, you're probably calling people trying to get shares of open AI and anthropic before they come public. But we just, we don't know for sure,

is it the platforms, is it the models, Is it something else a services business that we aren't sure about? Is it the transference and warehousing of data in the snowflake realm? Like we can't know who's going to have the most profitable slice of the pie. All we know is if you don't go for it right now, you remove yourself from being in the running. And that's what none of the hyperscalers are willing to do, including meta. Let me ask you this. over the next 10 years,

how confident are you that the mega cap tech, unless you use all of them and throw in the LLMs in there, how confident do you that those names, including the ones that are now asset heavy,

are going to underperform, say, the S&P 490? Wait, how confident am I that which are going to offer? Do you feel super strongly one way or the other that the mega cap tech, all of these asset heavy names

are going to outperform or underperform? Do you feel super strongly that over, because I really don't. No, because I don't think anyone can say for sure. Verizon and AT&T and T-Mobile ended up being the only three mobile providers with any scale in the United States, right? If you look at their stock prices over the last 15, 20 years, for all the money that they've invested in their network, 2G, 3G, 5G, all the shit, all the infrastructure, all the

cell towers that have been built, all the billions of money. miles of cables that have been run, all of, like, all of that infrastructure and all of that expense into building out what is effectively a completely wireless map. The whole, like, there's no, there's really almost nowhere on the map without service that matters at this point. What are the shareholders have to show for it? So they made the bet. They made the bet.

25 years ago, I was here. They made the bet. They said, we need to have the best grid. We have to have, like, literally the whole map covered. we need to invest all this money, billions and billions of dollars every year in infrastructure in order to cover the whole map. And they did it and the fucking stock prices are horrendous. Now, you can argue that they did too many side quests.

They bought Yahoo. They bought AOL. One of them started buying cable companies. Another one bought Dish Network. You could argue that they made bad investments. I would just say the bigger picture is they only only. wireless. They own it. And for what? To what end? Who did that help? Like what shareholder was rewarded for that race? So it's really hard for me to say that an industrial cap-x bubble like what we're

going through an AI automatically equates to there even being any winners. There is a firm in Chicago, a prop trading firm, one of the most prominent commodities trading firms in the world. currently having discussions about trading compute as though it's oil or electricity, trading units of compute, allowing companies to make forward investments or hedge some of their capex spending just in case compute prices fall, whatever the case may be. That sounds like it's going to be an important innovation in financial markets that could ultimately bring down the cost of compute. if that happens, then I'm not worried about the profitability of all this investment, right?

Because I know the usage will be there. That's the one part we all know. No one's going to put anything back into Pandora's box. AI is not like, ah, we're bored with it. Okay. So we know the usage will be explosive. We don't know what the cost is of that usage, to your point. But we also don't know the profitability for the companies that are making the investment to build it.

we assume we assume the profitability will be there but how can we be sure so what if right so this is so you ask me am i sure one way or the other that the that the capital heavy companies now that are dominating the the data center biz will outperform or underperform the market no same can it how can anyone be yeah i hate to be so wishy-washy but like it's tough Well, how could you know? Right, right, right, right, right. Okay, let's move on to an area of the market that we spend very little time talking about because it's an absolute barren wasteland.

This is not a bubble. Could you imagine a world where housing activity returns? The fact that the economy has been as resilient as it is, the fact that the stock market and spending has been what it is, despite the fact that one of the actual largest parts of the economy is in a depression. That's a stretch. It's remarkable. So let's talk about the stocks of the housing stock apocalypse.

World Pool reporter last week, I meant to grab some of the quotes. Holy shit. But this is durable goods like dishwashers and shit like that. Down 81% in the last five years. And weights have actually come down since this. This is drawdown. It's in an 81% drawdown. Pool, which is actually pools, is literally down.

This is not a drawdown. It's down 55% over the last five years. Holy cow. Zillow just reported the stock was at 90 earlier last year or mid last year. It's now at 39. And they said in terms of what we're looking for in the back half of the year and how we thought about it, we're planning for the housing market to continue to be effectively flat. You're right.

Okay, whatever. We're expecting sales go out to, okay, not good, not good. Home Depot. multi-year lows and the stock just looks terrible terrible there was support no longer support and finally Linar was 185 in the oh my god in the summer of 2024 the stock is $85 this is just really ugly there is nothing there is nothing good happening nothing good happening in this group of stocks so to me this says this says a lot about the economy in the market that we're able to just like brush this off yeah and what's weird is

you would think, you would think that there's like some desperation to unload houses afoot. And there just isn't. Like there's no collapsing housing market anywhere in the country that's relevant. None of the 20 metropolitan areas have like a collapsing housing market. They have stagnant markets. But I think what that goes to show is these companies that are suppliers to the housing market, they need turnover. They need more buying and selling for Whirlpool. Existing home sales is just, there's, it's basically as low.

That's the problem. It's not the price of the houses. No, there's no activity. There's no activity. There's no activity. The shit show. So let's do this next one. All right.

Yesterday I asked ChartKit. I'm like, hey, you know, it'd be a cool idea. Let's, let's talk about, show me how many $100 billion market caps there are by sector. Like, I don't if you could do that. It's a, it's a big project because you have to, if you just look at the index today, half of the names weren't there in 2010. And if you go about 2005, like a third of the names weren't, or two thousand they weren't there.

All right. So Matt, Matt went inside the index. He unpacked it and he went year by year. And he showed that we have 115 stocks that are $100 billion or more. We had 20 in 2005. I don't know. A handful. Is this more than you would have guessed?

Is this more than you would have guessed they were right now? It's like if you just called somebody said how many companies are worth over a 100 billion in the S&P, would you have said 115 or higher or lower? I think I would have said 100. I probably would have got. I think I, so I'm so out of it. I would have said like between 50 and 75. Okay.

Well, I mean, listen, fair. It was between 15 and 75, not that long ago. So inside that 115, 31 of them are tech. And if you include comm services, it's another seven. So 38 or tech. And this is about what you would expect. No real surprises there. 19 financials.

But Matt was like, there was. zero financials in 2009. Next chart. None of them. There was no $100 billion financial stocks after the GFC. Right. Now we have Berkshire and Morgan Stanley and Goldman Sachs and JPMorgan. I'm just trying to guess like off the top of my head. I bet like CME is probably close. I know as a S&P is $103 billion. S&P is definitely $100 billion. I mean there's a lot of there are two material stocks that are $100 billion. Can you guess either? one? I can't.

Newmont's not a hundred billion. No way. No way. No, it has to be a chemicals company. Oh, Dow or DuPont. It's got to be one of those. All right. Lastly, Matt charted the rise of

the $100 billion for tech. This is sick. Wow. So, all right. So to recap, in 20, like I'm just trying to put this in context. In 2016, there were like six or seven stocks that were $100 billion in the tech sector.

And we all know what they are. And it's the same ones that are now. But the story is that there's 20 new ones or 25 new ones. And we know what those are. Those are lamb research and I don't know, applied materials, micron. I don't know, is Seagate or Western Digital? Are those now, it must be? Yeah.

Maybe Dell? Is Dell joined 100 billion dollar club? Oh, yeah. Western Didge is a buck 68. Dell has got to be. Dell is 154. Yeah, I mean. All right.

Time out from the chat. Sam Ebby says Josh, the Verizon and AT&T underperformance is a consequence of government regulation. The companies became regulated utilities with pricing needing approval. They did? Did I miss? I don't think that's the case. You might be, Sam, you might be saying like de facto.

They're having trouble raising prices. I think what actually happened is T-Mobile bought Sprint, got its shit together, and became a third competitor that was willing to out-advertise the other two on lower prices while simultaneously somehow building a network that was comparable, which crushed pricing for, I don't know, the last seven years. And I also think they did a lot of dumb stuff. All right. I'll make the case. Yeah. So we're going to make the case. What do we skip? Oh, we're going to skip that. Okay, got it. All right. So I have this as one of my best stocks in the market. I actually think it's setting up for a breakout. It's okay as an investment here. I wouldn't say like there's like urgency until, but I want to show you guys. Let's let's pop this chart up. So Goldman is making a lower high, but maybe it's not. So a pure technician would say call me at a thousand, right? You agree with that?

I'm so glad you said that, yeah. Okay. A pure technician would say, okay, I like the way it respected the 200 day twice in March and in early March and in late March. It had every opportunity to break down. That's that blue line, that rising 200 day. You see that the buyers came in exactly where they had to to keep this thing in a statistical uptrend.

It also had a recent gap, which is earnings related. and it's held that gap for the last couple of weeks. So it's sort of treading water. It has not broken out again. But part of me wants to say, I think this is almost like a market signal. If this thing takes out a thousand to the upside, isn't that indicative of the investor crowd saying another six months of bull market? Yes.

Like we're going to get the IPOs. We're going to get the sex. We're going to get the action. We're going to get capital formation and underwriting and trading and it's all happening. And if it fails to break a thousand, that has implications too that people might be thinking this is as good as it gets. I think Goldman is the ultimate capital markets mood ring. What are your thoughts?

I could not agree with you more. So what's it going to be? Break out or fail at that or fail at that winter high? Well, it certainly might fail. Obviously, that's a possibility. But all of the evidence suggests to me that this is a bull market. And so I think a thousand is more like than 800. But I would say, I don't know, 7030.

That we get a thousand before 800. Okay. So I'm looking at that 950 to 960 zone, which is sort of like the last top. Like for me, I want to see it break that level with conviction. But I want to see it go tomorrow. Like it is at the upper end of its recent couple week trading range. I want to see it go tomorrow. Yeah.

I also don't love chart back on. I also don't love how the last time it was in the mid-900s. Look what RSI was doing. It was like 70 plus. Yeah. And you're sort of getting a negative divergence here. You could barely get to 60 RSI with this stock within spitting a distance. of the old high.

So I don't like that either. But the case I'm making is not to buy the stock or not to buy the stock. The case I'm making is watch this stock for your signal that it's that it's, it's almost like the ground hog. Like it's party on for the next six months if this thing goes. I think it's a great call. The longer it takes to go, the more likely I think it is to fail. The stock was, this stock is up 70% over a year.

So taking a breath right now actually makes a lot of sense. Here's something else interesting. Over the last five years, 23% annualized returns. Goldman has actually done better than both Morgan Stanley and J.P. Morgan over the last five years. Remember when they were ready to throw out DJ Sally

like headfirst? They were like writing articles about him. People were pissed. Yeah, there was some old line guys that didn't get the size bonus they wanted and they looked at the way he was spending on fintech and they were just like, get this guy out of here.

I want my money. He was making bad decisions, and they fixed it. Can I tell you something? I gave a talk at Goldman Sachs today, not to brag. I crushed it. I spoke to their professional investor forum with Shanali as my moderator, and it was about the next generation of investors and the next generation of advisors.

And the whole audience was RIAs. And Char Kit Matt was there. Hell yeah. So I brought Charquit as my plus one. Hell, yeah. He was working the room like a pro. Anyway, that building is, that building is insane. All right, do your mystery chart, and then we'll get out of here.

All right. We've done this bit before, but it persists. Is that the hint? Yes. Okay. These two stocks, this is three, this is, no, yeah, this is three years. Zoom in. They freaking.

Those are the actual prices, 432 and 87? They just trade. almost exactly the same. And even today, so you could see, both of these stocks have been under pressure for the better part of the last year. And even today, they were both up two or three percent or four percent. I don't know. But like it seems like they're trading in lockstep.

And I mean, it's fair. They are not competitors, although they trade off the same fundamentals, basically. Okay. We've shown this before. So the only reason I have this is because I own the bottom one. Right. And I actually think it's hammering out a higher low. Hope so.

But some people in the chat got this. Finance Cobra said Spotify and Netflix. Great job. They're fans. M.D. Chaz said Suncoast video and Blockbuster. Close. Levi Maitland got it right. Rabler got it right.

We have very smart live chatters. Thanks to the pounders for showing up. I just want to say one last time on Netflix. It closed the gap. So if it can't find any. Stock is fine. If it can't find buyers. here, I'm not particularly concerned that there's a lot lower prices, but we'll say.

You know what? I actually think it's defensive. And I actually think as money comes out of some of the momentum stocks, this is the type of name that could catch a bid because people might not be excited about it, but they're not worried about it. Guess what? If this thing pukes, pukes and like rolls over into the 70s, I'll buy more. I don't care.

I'm staying with it. Well, let's, for my sake, let's hope it doesn't. All right, guys, thank you so much for watching the show. We appreciate you. Thank you for stopping by. Please make sure hit the like button, leave a rating, leave a review. Tell Michael how handsome he looks in his next year. Tell me you like my suit.

Whatever. Engage. Tomorrow's Wednesday, all new animal spirits of Michael and Ben. We have a new Ask the Compound coming this week. And on a very special episode of the compound and friends, Ben Carlson will be joining us live in studio. He's in New York from Michigan for this. big party we're throwing tomorrow night, and we will have Ben in the studio with us, plus

another special guest. So lots of stuff coming your way. Keep it locked on the compound. We love you. We'll talk to you soon. Ridholt's wealth management is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Ridthold's wealth management and its representatives are properly licensed or exempt from licensure. Nothing on this podcast should be construed as and may not be used in connection with an offer to sell or solicitation of an offer to to buy or hold an interest in any security or investment product. Past performance is no guarantee of future results.

Investing involves risk and possible loss of principal capital. No advice may be rendered by Ridholt's wealth management unless a client service agreement is in place.