The Compound and Friends - Wall Street Reacts to Trump vs Biden, Nike Blows Up, Summer Storms Are Coming

Episode Date: July 2, 2024

On this TCAF Tuesday, hear an all-new episode of What Are Your Thoughts with Josh Brown and Michael Batnick! They discuss the blow up in Nike, BlackRock's new acquisition, Trump vs Biden, US stocks > EU stocks, and much more! Thanks to Rocket Money for sponsoring this episode! Visit: http://rocketmoney.com/compound and cancel your unwanted subscriptions today!  The Compound x Tropical Bros: https://tropicalbros.com/products/super-stretch-the-compound-hawaiian-shirt Sign up for The Compound newsletter and never miss out: https://www.thecompoundnews.com/subscribe Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: 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

Ladies and gentlemen, welcome to the Compound and Friends. It's Tuesday night, July 2nd. Tonight's show is an all new edition of What Are Your Thoughts? Starring me and Michael Batnick. We look at the blow up in Nike, Black Rock's new acquisition, the fallout from last Thursday's disastrous presidential debate. And so much more. Tonight's show is brought to us by Rocket Money.

We'll talk more about that in a moment. I wanted to let you guys know there will be no compound and friends this Friday. It's July 4th week. We decided to take the week off, but an action-packed show on tap for you right away. I'll send you over to John and Duncan right now. Thank you guys for listening. Have a safe, happy, and healthy holiday. Talk soon. wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of RIDHOLT's wealth management may maintain positions in the securities discussed in this podcast. All right, ladies and gentlemen, a special early edition, July 4th week edition of What Are Your Thoughts?

My name is Downtown Josh Brown. For those who have not watched the show, my co-host, Michael Batnik. Michael, say hello to everyone. Hello, everybody. Hello, everybody. Hello, hello. All right, we got some people here for the early live. Lurkin Caro is here, Roger's here, Cliff, Drew, Giancarlo, all the regulars, Jeff Asola, Chris Hayes.

Welcome, guys. Thank you so much for, Magnus is here. Very cool, Nicole's in the chat, Georgie Dee is here. All the whole crew. Very cool. Nicole's in the chat. Georgie D is here. All the whole crew. Pretty exciting. Jay Luther, I see you. All right. Hey guys, we have a sponsor tonight

and we'd like to tell you a little bit about how Rocket Money can improve your life. Michael, tell us about Rocket Money. I'll tell ya. I canceled my second subscription for the New York Times that I've been paying for, I don't know how long. I'm not quite sure why. You know what I got in my inbox from them this weekend?

They resubscribed. Yeah, they resubscribed me. Now I got my monthly spending report and I'd say it's quite strong. Okay. So you're doing all the things. Rocket Money Guys is a personal finance app that finds and cancels unwanted subscriptions. It also monitors your spending. It helps lower your bills so that you can grow your savings. Over 5 million people use Rocket Money. It saved them a total of $500 million

in subscriptions. Members can save up to $740 per year when they use all the apps features. Stop wasting money. Use Rocket Money. Rocket Money.com slash compound to get in the game and fix your situation. I never pay for a subscription you don't want. What do you got, fan? It's hot in here. It's hot in here.

Yeah, it might be the headband. Could be. Could be. All right, Yeah, it might be the it might be the the headband. Could be. Could be. All right, guys, we have a lot to do tonight. I just want to before we even get into this, did you see the agenda for future proof? You see everything we announced today? I didn't see the announcement, of course, so you judge that's lit. This is the most ridiculous list of speakers I've seen. Mike Gitlin from Capital Capital Group John Rogers from Ariel

kids ease Joe Weisenthal and Tracy Like who is gun lock Joe Duran Peter Maluk Scott Wapner who's not going to this? Everyone's going Barry Ritholtz Morgan House was 50s 50 50. So if Morgan, if you're watching this, come on. Oh, man. Anyway, go to futureproof HQ.com if you want to see what we're talking about. It's out. It's an outrageous list of speakers for this September out in California. Jay Powell spoke in Portugal today and he said he's encouraged by cooler inflation, but always, but he reinforced that the central

bank will need to see more evidence before cutting rates. The last two inflation readings in April and May, quote, do suggest that we are getting back on a disinflationary path, end quote. So that's good. I'm sticking with July. I know at this point, if he's saying we need more evidence, it's becoming unlikely, but I don't care. I'm sticking with it. Oh, you think he's going in July? Well, I've been saying that, so I think I have to live with it, right?

I don't know if I'm sticking with it, but September seems, that's what the market is thinking. So July, yeah, that's not happening. What sort of data do we have between now and then? Another PC? You get June employment. Will they release it on the 5th? I think the market's open the day after July 4th. So I think we'll get it this week. He did say something to the effect of that. They're afraid of being too early. I know that's what they're weighing, but- I think I'm going to be wrong, but I'm sticking with it. I'm sticking with the call. They think the greater risk is cutting too soon and having inflation reaccelerate versus being restrictive for too long and tipping the economy into recession. I don't agree with that.

Did they not listen to our podcast with Jeremy Siegel? I'm not an economist, but neither is Drape Howell. Yeah. Are they not listening to Dr. Jeremy Siegel because I thought Siegel very eloquently made the case for why they're already waited too long. Oh my God. I just saw your name. Oh my God. Sorry. All right. Nike blew up at the end of last week. This was for me. So earning the actual real earning season starts like soon, like in a week or so. So I guess Nike is the latest of the high profile reporters, right?

They're not the earliest. They're the last. The worst trading day in Nike history on Friday. So let me just read some shit. Nike posted dismal fiscal 2025 guidance that sent shockwaves through Wall Street, leading at least six investment banks to downgrade the stock. Analysts at Morgan Stanley and Stiefel called Nike's management, including CEO John Donahoe, into question, said they're losing their once

ironclad credibility. They basically, they said sales for the current quarter will be down 10%. That's much worse than the 3.2% drop that was expected. Slowest annual sales gain in 14 years. Then they said 2025 would be down mid single digits when they were supposed to be up. The stock fell 20%. It was the worst day since Nike came public in December 1980. They wiped out $28 billion in market cap in one day, bringing it under 114 billion. This stock is now more than I think more than cut in half from its pandemic era high. What do you thought? What are your thoughts? Like what was your reaction when

you first saw that? All right. So fiscal year revenue only grew 1% disaster. What's so funny? No, I'm saying. Are you in the chat? It's a wrap. Are you in the chat? No, should I be? Am I missing something? Okay. Fiscal year revenue. I saw a smirk.

I saw a twinkle in the eye. Fiscal year revenue for 2024 grew 1%. What the f*** is going on? The smirk is because I want you to say my screen name, but I don't actually really want you to. All right, go ahead. No, for the listeners, I'm talking to Stocktilla. Very clever.

So yeah, they reduced guidance for next year and they said it's going to take several quarters. It was a disaster. Here's a quote, direct quote from the CEO. This sounds just like corporate gobbledygook has PR written all over it. This is not a real, nobody talks like this. We're sharpening our focus on sport, accelerating our pace and scaling of newness and innovation, driving bigger, bolder storytelling and elevating the entire marketplace to fuel brand distinction and being the path of the consumer. Yeah, they're screwed. Word salad. What the hell does that mean?

Storytelling. Tell me the story of how you're going to grow earnings in 2025. That's the only story. So the brand is not what it was. I mean, it deserves to be trading where it is. RG Alright, this guy Donoho took over as chief executive a couple of years ago. The stock is now negative from where he became the CEO. And the calls are getting very loud that he's got to go. He's not the guy. I think given the carnage that we've seen here, that's a reasonable position. It's not the guy. I think given the carnage that we've seen here, that's a reasonable position. It's like, look, maybe it's time for somebody else to have a turn. Since he took over, the stock is down more than 25%. The S&P 500 obviously has done really well, but even the XRT, which is the retail ETF, is up 66% in the same time that Nike is down 25%. So it's like, you can't just blame the economy or blame retail or blame the consumer because

none of those things are the reality. So I have a take. I think everything that could go wrong for Nike this year just went wrong. And it is the opposite reflection in the mirror from 2021. In 2021, Nike had the world by the balls. Basically they said, we're going direct to consumer. We don't need these retailers the way that we used to. And we make double the profit when we sell ourselves on Nike.com or the Nike app than we make when we go through Footlocker.

They said there's like 40 retailers they're going to stick with like Dix and Footlocker, but everyone else got cut out. I think they were real super arrogant. They became reliant on $200 Air Jordans and LeBrons as though like nobody would ever run out of money to keep buying sneakers that cost that much. They let bots take over on drops. So they would like drop a new sneaker and then you couldn't get it immediately because they let all these resellers basically run the show, which turned off customers. And then they kind of ignored On and Hoka, which are two of the hottest brands on the

planet. And those two brands made a lot of inroads with like running clubs and the kind of grassroots fans that Nike used to have. The reps for Hoka are haunting all these running club hangouts in Portland. And that's like Nike's home turf. And so it's just like arrogance and turning off their best consumers and telling their retailers they don't need them. And just this whole stew of just really bad decision making that happened to have coincided

with a moment where consumers are choosing experiences and travel over goods. Self-inflicted. And they got caught up in like every, like the whole thing was a storm. Year to date, Nike is down 30%. Adidas is up 13%. Nike is down 30%. Adidas is up 13%. Adidas is up 13%. Hold on that chart. Hold on. This is Nike year to date. No bounce really whatsoever. I mean, this is yeah, no bounce. Not yet. Adidas is up 13% and OnCloud is up 38%. And if Hoco were a publicly traded stock, it would be higher. It would be much higher.

Put up the one year total return. So this is negative 30%. And the rest of the stock market, I would say, has been basically straight up. Yeah, it's bad. Let's pull up drawdown since inception. So okay, stocks in a 57% drawdown, which stocks in a 57% drawdown, which anyway you slice it, that is really bad. Look, historically, the worst drawdown since inception looks like 1984, right before the Jordans really went crazy. And then right after 2000, after the dot com bubble. And then since then, this is worse than the GFC in terms of drawdown. This is as bad as Nike has ever gotten. You're buying?

Not only am I not buying, I'm selling. Shorting? No, no, no. So I own the stock. It was, thank God, my second smallest position, but I sold it at the open. Now it's your smallest? Yeah, no. No, no, no. I sold it at the open whatever day it was, Thursday. I have a 60% loss in the stock.

Listen, it happens. I think you did the right thing. Well, listen. I think you did the right thing. On the one hand, do I want to buy a global iconic name brand company that's in one of its deepest drawdowns ever? Yeah, sounds enticing. On the other hand, it's not cheap and they're getting steamrolled.

So it's still trading at 24 times forward earnings. So it's not like the stock is cheap and they're not growing and it's going to be a long turnaround story. So you don't need to buy it now. Is it going to be higher in a couple of years? I don't know. I don't care. It's my second smallest position. I'm not mad at this thing.

Took a loss and I'm out. You know, they're not even like saying like, oh, the Paris Olympics with USA basketball is gonna help. Like, they're not even giving people any hope right now. You know what they said? That this is gonna turn around anytime soon. They said Jason Tatum and Luca, both Jordan Brand guys were in the finals for the first time ever.

Yeah, okay. And? Yeah, first of all, nobody watched it. I don't think Luca is a great shoe salesman and I don't think Tatum is either. I don't have advice for the company. They know what their own problems are. They seem like problems that are going to take a while, to your point. Yeah. The problems are only just surfacing. So this is probably going to be a rocky road

for the next couple of quarters. Is there a bigger story here about consumer appetite or not really? Okay. So the bigger story is, Sean, do we have the chart of all the retail names that have been getting pummeled? There's a really interesting thing happening with a lot of these retail-facing consumer stocks. So Walgreens getting smushed, Starbucks we've spoken about, Gap, Nike, Lulu, Cold, Burberry, Estee Lauder, a lot of these companies are getting destroyed. I think what happens, a lot of these are idiosyncratic stories, but a lot of them are tied to the

bigger story, which is COVID turned the world upside down and inside out. These companies were able to cruise off the back of just raising prices and cruising, whatever, whatever. And the consumer's preferences are shifting and these companies are just getting smoked. And so they're all doing it. It's all the same story. So, right. So they have an idiosyncratic turnaround now, but they have to do that in the context of a consumer spending slowdown. Really hard. It's like double. It's like a double. It's like a double whammy. It's not. It's not easy to do that in the best of times.

Yeah. So what are the odds that Nike is able to execute on this turnaround story over the next, I don't know, two to three years? I don't know. Plus 270. I don't know. It's not going to be easy. I think they're going to throw the, I think they're, two to three years. I don't know, plus 270. I don't know, it's not gonna be easy. I think they're gonna throw the guy out this summer when less people are paying attention. That said. They'll let the smoke clear. All that said, gaps do get filled.

So put a pin in that. All right. That's a big ass gap too. It's a big ass gap. Yeah, it's down 20% of the day. That's a big ass gap. All right, despite all of the talk about the Magnificent 7 and Nvidia carrying the market, which is

happening, there's something interesting happening with the rest of the market that I think is not getting enough attention. Blake Miller tweeted, the current 8% share of S&P 500 index constituents returning 30% or more through June is roughly in line, actually, that's my words, not his, with the 10% historical average since 1990. So chart on, please. Again, this chart is showing the percentage of S&P 500 constituents that are up 30% in the year.

And while the 8% here probably represent a much smaller percentage of the overall pie versus historically average, the rest of the market's doing okay. And actually, you know what? I'll pause here. Josh, thoughts? This is the number, this is the percentage of the S&P where the stocks are up at least 30% year to date. So you're saying, yes, the leadership is narrow, but that's not the same thing as saying there

aren't a lot of stocks doing well because there are. There are. Yeah. No, I find that. Just glancing at my own portfolio, I don't have all these stocks that aren't doing well. I just have a few that are doing incredibly well. That would be very different than if we were saying the number of stocks up 30% this year is 5%. It would be different.

It's not that bad. It's not that bad for most stocks. Why do you think most people don't know that? Just because it's hard to, unless you see the data, it's hard to conceptualize it. Well, no, because it is also true that the average stock or the median stock or whatever is getting smoked by the index. So John, go to this chart of Nvidia versus the rest of the market. So the S&P 500 through the end of June was up 14.5%.

Hell of a run. Nvidia is responsible for around a third of that performance. So 4.4% out of the 14.5% is Nvidia. But look at the other 495. Yeah. Like it's not bad. Yeah. It's not bad.

It's 5.7% for the first half of the year, it ain't bad. It's just not 14.5. They're contributing. They're just not contributing as much. Yeah. Yeah. Well, I don't know if that, look, I don't know that we necessarily need them to,

because we've been through this before, where it's like, oh my God, the leadership is so narrow Yeah. Well, I don't know if that look, I don't know that we necessarily need them to because we've been through this before, where it's like, oh, my God, the leadership is so narrow and the market's just like, who gives a shit? Like the stocks that matter. Look, look at Tesla. Tesla is up 22% in the last week. Like it's big. It matters. Yeah. It's in the S&P 500. It's a big weighting. So I'd rather Tesla doing that and there'd be 20 stocks that aren't as important as Tesla. So yeah, the leadership is narrow. It's not that narrow, number one, to the point where everything else is down.

And number two, which stocks would you want to be doing well? So it is narrow, but you're right. Which stocks would you want to be doing well? I saw a stat before we started recording. I think over a rolling six month period, the fewest stocks have been in the S&P 500 since like 1986 or some crazy shit. So it really is historically narrow, but the rest of the market is doing okay, just not as amazing as the tech stocks. That's it. So I want to get to this thing from Cali, on Apropos, we've had the calmest month for stocks in five years. June.

I like it. June 2024, there were no down 0.5% days. Wow. Like ridiculously placid. And of course, we know the reason why. The biggest stocks that matter the most, their share prices are fairly tranquil to up. And that's where that happens. But Callie points out, don't get too comfortable.

On average, going back 50 years between the months of June and August, you get about seven down 1% days, which means half the time you get even more. So she's calling them summer storms. I like that framing. They're not market top. They're not tornadoes. They're storms. So if we make it through the summer and we don't have a down 1% day, it would be the

first time since 1979. Chart Kid did something to illustrate this. I really love this. Let's put this up. So this is the number, not the percentage, the number of 1% drops in the S&P during the summer months by year. He takes it back to 1970. And again, the average is seven. Last summer we had three of them. In 2022 we had 13, which tracks. But you can see like even in the last 10 years, you've had one, two, five. So they're coming.

I'm pretty confident. I mean, of course we could be wrong. I just don't think if the average is seven, we're going to end up with zero. I agree. The VIX is at 12th. It's been, I mean, it's extraordinarily low. By the way, this is with Nvidia in a more than 10% drawdown from its high. We still haven't had any kind of market volatility.

This is not super profound, but the stocks aren't going to fall for no reason. There has to be something that knocks them off their current course. Well guess what? You got bank earnings in a week. Right? Like it's all starting back up again. So I don't know if bank earnings in and of itself are going to be negative or going to be able to produce enough negative sentiment to knock the S&P down 1% anymore. I guess it remains to be seen. Out of the 10 biggest stocks, are we going to say all 10 of them are going to come through earnings season unscathed? I'm not going to say that. I'm not going to say that.

So I think we're going to see something. I don't need to see a 10% correction, but to not expect a few down 1% days would be ahistorical. How do you pronounce this company that BlackRock bought? I'm going back and forth. I don't watch enough TV, I guess, because I don't know how people say it. It's prequin. But there's no you. There's no you. I know. I don't know. That's what I say. Is it prequin? No, it's prequin. But why would it be prequin? If it's P-R-E-Q-I-N. So what do you think it is? Prekin? I think that's what I think it is. Oh, I don't know. Is anybody,

is anybody in the chat? No. Prechin? Who said that? Nicole? That's the one thing I think it isn't. No, it's not prechin. Terrible name. This guy, this guy just became richer than Larry Fink. The guy it's a, it's a Brit. All right, let me read this. BlackRock's expansion into private markets is set to make Prekin founder Mark O'Hare richer than his new boss, Larry Fink. The world's largest money manager is snapping up Prekin. Guys, if I'm saying this wrong, I'm so sorry.

Prekin? I'm seeing Prekin in the chat? Oh, yeah. It says Prekin, yeah. All right. The world's largest money manager is snapping up Prekin in a 2.55 billion pound or $3.2 billion all cash acquisition. O'Hare owns 80% through his holding company,

meaning that after taxes, he will net roughly $2 billion. Fink, BlackRock's own founder, has a net worth, poor guy, only $1.7 billion. His firm had $10.5 trillion in client assets. Okay, so what they're going to do is take this data and effectively index the private markets, which as we all know, are worth more than anything on earth because nothing's better than private investments, apparently. And BlackRock, who do you think they were bidding against? I guess like Blooming Star, Backset, Bloomberg, S&P Dow Jones. MSCI, probably all.

Whatever, they won the bid and now they're gonna be like the they're gonna be like the standard in Indexing private investments which have become increasingly more popular more important. Everybody loves them. I love it I think it's a great purchase for them. Yeah, well, it's smart. They should own this they should own this space they have Prekin is a provider of private capital data with information on 190,000 funds, 60,000 fund managers, and 30,000 private market investors. Prekin is expected to generate 240 million of revenue this year. In 2022, they lost 33 million on revenue of 134 million.

This business is accelerating revenue and that's just a function of the popularity of private market assets in general and funds. BlackRock intends to offer it as a standalone service while also using it with the asset manager's Aladdin proprietary software to, quote, create a preeminent markets, technology, and data provider. Private markets are the fastest growing segment of asset management expected to reach $40 trillion by the end of the decade. That's what's up.

Do you have any theories on why private markets are doing what they're doing right now? I do, but I want to hear if you do. Well, your theory is spot on. It's not really a theory. I think it's a fact. So preach, cook. I was going to say private markets are basically the new active management. And this is no disrespect to private markets.

I'm just making the point that all the marketing to get advisors and investors excited about private funds and private assets boils down to a very simple truth. It's the asset management industry's best chance to replace the revenues from actively managed stock funds that never came back and never will. Can I just say, there's just one- Please. A little bit of nuance in here.

I don't think it's going to be necessarily, although actually this is happening. It's not just the traditional active shops that we think of yesteryear that are getting into the game below they are. I think it's more so that private markets are saturated with their sovereign wealth funds and their pension funds and their downwards. They're already at 30%. They're not going higher. They squeezed all the juice out of those clients. They need exit. They need exit liquidity. They squeezed all the juice out of those clients. They need exit liquidity. No, what they need is for the wealth manager to get off zero. And that's what this is all about. Well, they're doing it because active, and I'm going to get to that in a second. In 2022, a trillion dollars came out of actively managed mutual funds. I think the number was $950 billion. And $300 billion of that went into

passive and index products. And I wouldn't be surprised if a really big chunk went into private markets. Asset management firms have finally found something that people are willing to pay more than 20 basis points for. So BlackRock is the king with Vanguard of index products. Okay. We get that. It's not the greatest business ever. It's not that profitable. This shit is super now advisors love this stuff too, because when they sit with a client and the client doesn't own any private markets, it's a great conversation.

And it makes them look more sophisticated in the eyes of their clients. And it enables them to offer something exclusive that the client can't get on Schwab.com. And institutions love this shit because it's sticky, it's annoying, you can't get out of it. It's illiquid. It's illiquid. It's expensive. It keeps people busy making spreadsheets and charts and quarterly updates. There's no daily marks. Right. It's all good.

You don't have to answer for it. Like, oh, why is it trailing Apple and Microsoft for the 15th consecutive year? It checks a lot of boxes. Right. It changes the conversation. So I'm not against private markets, but what I would say is it's not any easier to select a top performing fund or strategy in the private markets than it is to select an active manager in liquid markets who's going to outperform. Can we stop pretending it's some elixir that's going to solve for outperformance, underperform? It's just as hard. It's hard. Yeah. And I think most of what's being sold

to people right now will be a disappointment because it's just this idea that most things are shit. So most active management is shit. Most private funds are going to be shit. I think when an advisor sits down with an active manager and they hear their story, whether it's qualitative or quantitative or combination, we speak the language. We know what we're listening to and we hear it. With a lot of this private stuff, we don't even speak that. It's not in our dictionary. We don't know what they're talking about.

So how do you really evaluate? How does an advisor evaluate one infrastructure platform or this private credit versus that? They pay BlackRock via pre-kin. That's how they do it. And I'm going to tell you one last thing. If we're saying this is now being democratized, well, then what that really means is it's going to become increasingly correlated to the liquid markets. How could it not be?

There's no way private market assets will be as uncorrelated as they used to be if it's all the same buyers and sellers and we've democratized it to the point where it's millions of people. They will buy and sell this stuff to the extent that they can for the same reasons that they're buying and selling public market bonds and stocks. It was never not correlated. Well, it's not correlated in that they report their marks on a different schedule. So we saw that with BeeWeed where they'd be like, oh no, we're still at all-time highs. And then a quarter later like, oh no, wait a minute, we're not.

Equity is equity, right? Like businesses or businesses, doesn't matter if it's private or public. Yeah. So I know there are a lot of advisors who are pivoting to becoming these private market and alternatives mavens. And this is the story that they're telling their clients for why they should give them money and not Vanguard. And I understand the business reasons behind why an advisor would want to lean in to private markets.

I totally get all that. My point is, it's not that that makes it bad or good. It's just like your expectations should not be that you're going to see returns like Bain Capital in 1980 to 2020. It's just it's just not the way this is going to go now. So all right, you're up. Last thing not to beat this dead horse. I also think a lot of people are like, listen, okay, if you tell me that it's going to only that it might or might not outperform,

if I could keep up with the S&P, but I don't have to see the markets on a daily basis, I don't see the 25% drawdown, I'll pay for that. So Cliff Asness just rolled over hearing you say that. Okay, but it's the truth. Yeah, I never bought into that argument that it's like- What do you mean? Oh, it's less volatile because they don't market. No, we know it's not less volatile, but lie to me.

Yeah, but I don't think financial advisors think that way. I think retail might. I'm saying clients might think that way. Sophisticated clients might be like, listen, I know WinkWink. I know it's not less volatile. I understand that. But if I don't see the 30% drawdown, cool. Okay, enough of that. Okay, you're up. Let's talk about... Oh, we spoke about this briefly with the Jeremy's. Drew Dixon has a great post on

what's going on with the US versus Europe. So I've used the stats a lot. I went back to 1970, but Drew goes back to 1980 and showing that from 1980 over that 30 year period to 2009, US stocks and European stocks, identical returns. Okay. We know what's happened since. The S&P 500 over the subsequent 15 year period just beat the absolute shit out of Europe. 550% versus 175%. Drew breaks it down simply.

It's not a mystery. We know exactly what's happening here. Believe it or not, Josh, and listeners, the growth multiple premiums that the US stocks are trading at over Europe, it's wide, but it's not crazy. If you're just looking at PEs, US growth stocks are just getting a little bit of a bump versus European growth stocks. The real story is European value stocks are getting re-rated way lower. Whoa, whoa, whoa. Go back. Go back. Sorry. All right. So this is the Russell 1000 value price to earnings ratio for next year versus Europe. And at the end of 2019, European value stocks were trading at 11.7,

and then 11.4, 7.9, 8.3, 8.2. Holy moly. So they've gotten a massive rerating lower while the US has stayed in the 15 to 17 range. So the multiple of value stocks here versus there has exploded to 92%, a 92% premium. And oh, guess what? Most of Europe's indexes are value-oriented, not tech-oriented. And that's it. Yeah. I think there's a couple of stories for why that multiple, why is the US averaging 16 times and Europe is averaging eight? Number one is industry mix. We have higher margin, higher growth technology companies, and they don't. Wait, wait, wait. This is just within the value indexes.

So that table, that's only value. All right. So there's an underappreciated thing that we've talked about before, and we don't have to do a whole thing on this, but the mechanism of the 401k is something that is only starting to gain ground in Europe and it's country by country. So Germany has an ETF savings platform for its citizens but it's nascent, it's young. We have this thing where the highest earners in the country are automatically buying stocks every month, every two weeks via 401k. And Europe just doesn't. If you're rich in Europe, it's because your great-great-great-great-great-great-grandfather killed another night and took his land and had a farm and had surfs working on it.

And those are still the same rich people to this day, just like handed down through generations. Those people's wealth is concentrated in real estate. Those people, they don't have a Silicon Valley. So it's not that they don't have growth stocks. They do. They have Novo Nordisk. They have LVMH, et cetera. They're called granolas. They don't have as many, and they haven't made as many people as wealthy as the US stock market. And they don't have a middle class that is effectively forced to buy stocks every two weeks when they get paid to fund their own retirement.

These are some of the capital markets reforms that should take place all over the world as other countries look at our system and just realize, hey, that's better. The private sector growth and the capital formation that the United States has is just superior and we should emulate it. And it's better. The private sector growth and the capital formation that the United States has is just superior and we should emulate it. And it's happening. It's happening in Japan. I think it will ultimately happen in Europe. But that we're looking backwards.

What explains this disparity in value stocks from Europe to the United States? We're not talking about semiconductor shit. It's just plain and simple. They don't have the population buying stock as actively as we do. They don't have the same demand for their local equities as we have in the United States. And they should fix that. I think they should make the stock market and venture and all of these things much bigger parts of European society. So I don't know, maybe Marine Le Pen will try to do that when she takes over France. Okay. Wall Street pretty emphatically made a bet

on Friday and in the aftermath that Trump is going to win the election. So I wrote about this over the weekend. I think like people, there are Democrats on Wall Street, there are Republicans on Wall Street, there are libertarians, there are liberals, there's everything in between. We're all capitalists. Yeah. But I think in the end, like what Wall Street wants is the extension of the 2017 Tax Cuts and Jobs Act. Wall Street likes the corporate tax rate at 21 percent, does not want it to go to 28. Wall Street does not want a 25 percent minimum tax on billionaires. Wall Street does not want to start taxing

gains that haven't been taken yet. Wall Street does not want Biden wants to do a 4x increase on the X size tax on share buybacks. Wall Street certainly doesn't want that. And so what you saw on Friday immediately was what Ed Yordany is describing as a bear steepener. You had the two year rise by five basis points and the long end of the curve rise by significantly

more. And that is the street saying Trump's going to win. The tax cuts will be extended and not sunset at the end of 2025. We'll have a faster economy and we'll have a stronger market. To me, in a nutshell, that was the market's takeaway from that ridiculous debate. What are your thoughts? You're exactly right. John, we have this chart from Kevin Gordon, talking about the steepener. The five-day change in two-year, 10-year treasury yields was up 19.7 basis points

yesterday, the most aggressive move to the upside since last October. So I guess the question that I have for you is, Josh, why did this happen? What explains the steepening? I think exactly that. If the Tax Cuts and Jobs Act is extended, people will have more confidence in the growth rate of the economy persisting. And that's the bet. Let's put up the first chart from your Denny. This is just a 10-year Treasury bond yield. Look at the spike at the end. How else would you explain that? It's the market betting on faster growth in the out years.

We know at the short end, we're getting rate cuts at some point this year or next year, but this is the 10-year, and this is more about what the pace of the economy will be over the next presidential term. If you look at the predicted markets, which Jordany did, Trump's odds of winning the November election went from 52 a week ago to 57. Biden's fell from 48 to 31. And then there's a contract in there for Harris, for President Kamala. And that wasn't part of the equation as recently as a week ago. So that's, to me, that's really the story here. And it's dispassionate. It's not that people on Wall Street love Trump.

They don't want to be in photographs with him. They give to super PACs. They don't give him money directly. They want to be able to be like, I just like his policies. I'm not into that shit. But you can see that that's really what the market's expectations are. And that's what they want, quite frankly. And things could change. But right now, it looks like they're going to get it, which I think explains what we saw in the markets. Anything else to say on that? No, I think you nailed it. All right. Let's talk about small caps.

What happened to small caps, Michael? You tell me. They just suck. I mean, people to this day, I was on a halftime report today, People to this day, I was on a halftime report today, people are still using it as an indicator or like, why won't the small caps catch up or why won't there be a regime shift? The reason why is because the companies are not the companies people want to invest in. I really don't know how else to say it. The two hottest stocks in the Russell 2000 got removed on Friday. They took out MicroStrategy, which is a Bitcoin proxy. Good.

They're selling high. I like it. And they took out SuperMicro, which is AI. These were the two best performers in the Russell Large Cap Index, and they pulled them out. And those will now be in the Russell 1000 Large Cap. And Jessica Rabe from Datatrek describes this as a structural disadvantage in the Russell 1000 large cap. And Jessica Rabe from Data Trek describes this as a structural disadvantage for the Russell 2000 index. The best stocks graduate. I don't

know how else to put it. But how is that a structural disadvantage? If the best stocks leave the index, didn't they add a large talent to that index on the way up? But they're now to keep winning. But they're now out of it. How fast are you finding another Supermicro? Doesn't mean that they're going to keep winning. But how fast will another Supermicro bubble up in the Russell too? A stock that could double and triple and quadruple. How many are there? There's a few things going on here. One,

these stocks are way more, there's a much larger percentage of the index that is unprofitable than it was, say, 30 years ago. Larry Svedra wrote a piece and it's like 40% of the Russell 2000 is now unprofitable, it's 10% a couple of decades ago. That's number one. Number two, there's not a lot of IPO activity and the ones that do IPO are gigantic. The Russell 2000, it's big. The average market cap of VB, Vanguard small cap, which is closer to the

$600, it's $6.8 billion. These are not small stocks. They're just not. Put up this table. So on the left is the new top 10 Russell 2000 names by weighting. So it's Innsmed, FTAI, Aviation, Abercrombie and Fitch. I don't know half these stocks. On the right is what it used to look like prior to the rebalance on Friday. You see Supermicro, MicroStrategy, Carvana, Abercrombie was in there still. So it's just like the best, I don't know, I don't like an index with a, and Supermicro was one and a half percent of the Russell. So it was definitely contributing. And then so Jessica did this really awesome breakdown at datatrek.com if anybody really wants to dive in, but this is her takeaway. The Russell 2000 is at a

structural disadvantage given that its winners eventually grow out of the index. The latest rebalance won't likely help its dramatic underperformance relative to the S&P. It's flat versus plus 15%. Whereas the S&P has largely rallied on investor sentiment regarding big tech and growth stocks this year, the Russell's performance tends to trade on interest rates and high yield spreads. The S&P is therefore benefiting from a structural growth story. The Russell 2000 just became even more of a cyclical play than it already was.

We therefore view small caps as a trade, but it works best coming out of recession. We are not at that point in the current cycle, remain bullish on US large cap equities for the long term. Yeah, I don't disagree with much of what she said. I would also just throw out that the equal weight index versus the S&P is also at a 16 year low. So it's not just the Russell 2000, it's mega cap and then there's really everything else. I agree. But again, in the S&P 500, nobody graduates. I got it.

You're in there forever. Yep. So if you believe in momentum, if you believe in growth, it's hard to now there is always that two month stretch every year where small caps go wild. And usually, you know, that's coming out of a recession or when the economy starts to speed up, people get excited about those stocks temporarily. But her point is, it's a trade. So I'm not saying don't do the trade. I'm saying if you're still sitting here 15 years later, waiting for that mean reversion, where small caps outperform large for a decade, it's a really tough wait. It's a really tough thing to sit through. So make the case. It's a really tough thing to sit through. So make the case story there.

I'm pitching Mercado Libre. So just for the viewers and listeners, I do not own the stock. I am not asking you to go buy it. None of what we say on the show is a solicitation. I am thinking about buying this one. And the more I think about it, the more obvious it is to me that this should be owned. If you're going to be in international stocks, I feel like you should be in the best ones. This thing is incredible. It's the Amazon of Latin America. Everything from e-commerce to internet to payments. Mercado Libre is just this gigantic pan Latin American online

marketplace. They have huge market share, very little competition. They're great at what they do. It's a brand name that is very well known all over the continent of South America and Central America. And let's put up this chart. This is the long-term chart back to 07. You can see that this thing went wild during the pandemic, just like eBay, just like Amazon. And then it had this horrific plunge. Shopify, very similar.

And it's come almost all the way back. And I feel like if it can get back up to 17, 1800, that's going to be the trigger for a really big breakout. And it's been a long time in the works. Total return since inception Mercado Libre versus Amazon. Put this up. Bet you know that shit. Both stocks are up a little bit more than 5,000% since Mercado Libre came around. So when I say

it's the Amazon of Latin America, I don't just mean the business model. This has just been a huge winner. Only an $80 billion market cap US. 70 times last year's earnings. That's it? Well, considering the growth, it makes more sense than you would think, but cheaper on forward earnings. It's the largest technology stock in Latin America. It's the third most valuable publicly traded company in Latin America. The only larger companies are both state-run oil, Mexico and Brazil. Let's put up the 12-month earnings versus the stock price. I love this because

it's an invitation to shut the f*** up for anyone that thinks this is just trading on AI hype or whatever. This is an earnings growth story, $29.84 tra trailing 12 months earnings on a $1,600 stock price. And you can see that that earnings growth is now inflecting higher. What else do we have? Oh, let me just show you this. There's a bigger story going on about Latin America. Argentina put this guy Javier Millet into office, and he is an insane libertarian. I don't mean insane like he's wrong. I just mean an insane libertarian. I don't mean insane like he's wrong.

I just mean like super libertarian. Hardcore. The polar opposite of all these socialist countries and they're watching to see if his experiment works. They just had their first quarterly budget surplus, I think in 15 years. He is slashing regulation, privatizing all of these government things that should be private businesses, cutting regulation. Let's put this up. Meli is a component of the Argentinian ETF. Global X has this thing that's the MSCI Argentina ETF, ARGT. So Melly is outperforming even a red hot country market,

which it's a part of. So it's just, you've got the tailwind of what's happening in Argentina, which is a really important economy in Latin America. And here's the share price over the last few years. in Latin America. And here's the share price over the last few years. You could see Mercado Libre is up 156% since just before the pandemic,

but Argentina is no slouch, it's up about 80%. So Argentina is the hottest international market of the year, this year, in terms of performance. And Melly is, I think, the biggest weighting, or one of the biggest weightings in the index. So, are you buying? It all checks out. I'm gonna wait for it to fill the gap down at 1,500.

No, I'm kidding. It looks good. Yeah, good pitch. If this thing gets to 1,800, do you get crazy bullish? Or do you say I missed it? That's a double top. 15 to 18? I mean, I don't know.

There's like a couple of tops here. No, it looks good. 15 to 18. I mean, I don't know, there's like a couple of tops here. No, it looks good. 15 to 18 is a $15 stock going to $18. Right. That wouldn't stop you from buying it there, would it? No. I think that's what I'm probably gonna do. I wanna see if it could really break out.

This thing got just annihilated in the growth slowdown. Holy moly. It traded like Amazon and Shopify. It fell two thirds. It's tough. It's volatile, but yeah, it's been a huge winner. Huge winner. Josh, did you know that Dan Ives and Dr. Kelly

are going to be at Future Proof? I'm so excited. What's Dan Ives going to wear? You know what would be really funny if he goes the other way? Hocus. And he does like a Navy blazer, white button down shirt and dark jeans.

Like he like goes fully in the other direction. I don't think he's going to. I think he's going to show up walking on stilts juggling fire. But it would be kind of cool if it would be a zag if he goes that way. All right. Let's do some mystery charts. The theme of these charts are gaps get filled. John, if you'd please. Wait, I have to guess multiple charts? Yeah, there's a theme. Okay, so this is another one of those iconic name brand companies that's been struggling

for years. Some of the wounds are certainly self-inflicted. Some are secular headwinds to the industry. There was a big gap a couple of months back in February and that gap got filled as gaps are want to do. Can I have an industry? Media. Ooh, media. And so much more. It's a media giant.

It's, oh, it's Disney. Yeah, Disney. Okay. All right. Got that. Okay. Another one for me. Yep.

I got two more quick ones. We're going to bang through some stuff. Somebody in the chat said, go back to Disney. That's an island reversal. Yes, actually it was. Oh yeah. Yeah. Pretty significant. Pretty significant one. Yeah. A good call. That was, that was your cell signal right there. Uh, good call. Okay. Next chart. Um, all right. You see that big fat gap in, I

guess that's January, perhaps February, 2024. It's a meaty gap. That is meaty. Uh, and you see even it's, it's quite, it's girthy. It got filled. This is, it's a Mag-7 stock. I'll just leave it there. It's Tesla. Yeah. Yeah. It did fill it.

It did fill it. Lastly, this is a potential gap filler. We'll see what happens in the next couple of weeks. Looks like it's trying. It's trying. But this was a big story because this was at the epicenter of software is dead. And I shouldn't be needing to say anything else. Salesforce.

Yeah. Wow. That's Salesforce? Huh. I'm not following it, but that's a pretty decent comeback so far. That was a monster loss. 210 back to 260? Monster decline. I know, but it didn't take long for them to buy. I wonder if they have a huge buyback in place. I bet you they do.

That's a Dow component too. It's a big one. Michael, fantastic mystery charts. I would like to point out. I just went three for three. But dude, it's not the charts. It's not the charts. It's the chart clue giver.

Yeah, it is. Okay. Well, great clues. Thank you. Hey everybody. Did you know that tomorrow is Wednesday, which means an all new edition of animal spirits starring Michael and Ben programming note. We will not be back this Friday with a new edition of the compound and friends. It's a holiday week. We're going to be with our wives and children and friends and family, but we will be back with you regular schedule next week.

So hang tight. We love you. Thank you guys. No fireworks. Please be safe out there. No drunk driving. Everybody make it back to next Tuesday night. Michael, what do you want to say? I'm going at seven 40 tonight. If you want to join me, that's also, so you're going to go see the movie. Seven 40. I might not be able to go. All right. Hey, guys, have a great night. Whether you're just getting started as an investor or you're managing a multimillion dollar portfolio, Ritholtz Wealth Management has the solution for you.

It all starts with building the right financial plan. To speak with a certified financial planner today, visit riddholtzwealth.com. Don't forget to check us out at youtube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.