The Compound and Friends - What Did the Fed Actually Say?

Episode Date: October 31, 2025

On episode 215 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Stephanie Roth, Chief Economist at Wolfe Research, to discuss: the economy, tech earnings, the Fed, the wealth effect, AI and the labor market, and much more! This episode is sponsored by Betterment Advisor Solutions. Grow your RIA, your way by visiting: https://Betterment.com/advisors Sign up for The Compound Newsletter and never miss out: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠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/⁠⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

Stephanie, our partner, Chris, is in who we love dearly. I should preface us with that. Okay. Nicole, come there. He's in Mexico this week. Oh, that sounds amazing. It does, right? Yes.

He's texting me and Josh pictures every day. Come on. It's like the most absurd thing. Do you do that? Who does that? No, I just send people pictures with my kids, but who don't ask, but that's fine. But on vacation every day, can you imagine? I'll have the email, right?

picture of my desk. I'm like, dude. Great. Thank you. Thank you. That's amazing. So, so, so, so sprinkles makes me do this whole thing. And then she's like, oh, you missed it. The 30% is over. I'm like, well, I'm hitting I'm smashing the, so I'm smashing the buy button regardless. I don't know the care to tell you the so that you can proxivity to the mic. So if you go too far away, you're like, oh, I got it back. She said there's another, there's another sale right before Thanksgiving. Of course there is. Oh, here we go. Probably the black reddit.

All right. What do you think? Is that like two? Is it Smurphy? No, I like that. Hello. Hi. Okay.

Sorry, guys. That's cute. All right. So the chill sweatshirts and sweatpants are the lightest weight, which is what I need when I'm on the airplane, right? The scholar is like almost pajama-y. Yeah, it looks at. And then the accolade sweat pant and crew neck. So do you know that he thinks this is cute for the audience who can't even see or listen to what he's talking about?

We're working on something. We're sidebarring. Sorry. Ordering clothes? Yeah. Yeah. 30% off sale at ALO that I missed by a day, and I just bought all this shit anyway. It's called ALO?

I thought it was called ALO. Yeah, I don't think I'm going to look like that guy, though. I don't know. It's a good question. I don't. It's Allow. It's AGO. And will not own any ALO.

Or ALO. It's not ALO. You just said ALO. I know. But that doesn't make it right. Two wrongs don't make a right. If I need my... What are those clothes called?

Casual clothes? What are they called? What else? Athleteasure. That's the what I was looking for. I'm a traditionalist. It's aloe. It means hello.

In what language? And it's way better. It's way better than Lulu. It's not even close. Is it better than Viori? Viori. I don't like the... I said it that bad.

Vowari? Yeah. You don't want to do it. View? You said Vue. Vuey. Okay. I don't even know what that is.

It's Italian. Oh. You know what I'm athleisure? Surely you do. I mean, I know the idea, yeah. She likes the idea of it. All right. John, how are we looking, sir? You're getting close. All right. I can't comment on individual companies. You don't have to. Okay. You can listen. Are you a lot? Are you a call listener or what? Are you a transcript reader?

How do you ingest the data? How do you ingest, like, what you need to know from the earnings reports? I listen to the other smart people at Wolf because they follow the companies. Good idea. Yeah, a transcript reader otherwise. Right. What, do you ever, do you ever, like, have something in your research where you actually want to double check it with the equities people? Oh, all the time.

Yeah. All the time. I would imagine, right? Because they're like, they're really good. And they're in the weeds. And they're in the weeds. They know everything they're talking to the companies. As soon as there's something out on the companies, they're talking to them.

That's the benefit of being at a shop that's covering the gamut of things is that you have other people to talk to. Oh, for example. So this morning or last night actually, Chipotle said, oh, young people have no money. They're not buying or stuff more. You could go to your analysts and say, hey. Is that really the case? Are the other, are their competitors saying the same thing? Or does their food just suck and nobody wants it anymore?

Exactly. Right? Yes. That must come in handy. Super helpful. Right. And they cover every single sector in space. Right.

If you're just doing economics or macro or whatever and you're by yourself, you kind of like are going by other things that you read to try to figure out what's going on. Yeah, you're kind of on an island. Right. We've got a great policy analyst, too. So all the stuff coming out of Washington I can talk to him about. Which is like more important at different times than anything else. 100%. Because it could change everything.

Exactly. Okay. And like the big banks don't really. do the policy thing quite as often. Why do you think they want to stay out of that? Probably. They don't want to have commentary on that? Yeah.

So we're independent. It doesn't really matter. Okay. Is your policy guy in D.C.? No, he sits here in New York. He's in New York. He used to be in D.C., but now he's here. Oh, my God.

This weather is so bad. I'm going out later. What are you doing? I have a small umbrella. I'm going to be down bed. Where are you going? Uh, dinner. No, but far?

Not close. You can buy like an umbrella for $40 somewhere. Yeah. That's always a good option for you. You vulture All right I always knew you were a pirate, Duncan Hey, Jeffrey, the giraffe

We good? She doesn't even know what that reference means Yeah, I do, Toys R Us. You're old enough to know what Toys R Us is? I don't know I thought I'm a friend That's like 2.15.

Woo! Whoa, whoa, whoa, stop the clock. Here's a word from our sponsor. Today's show is brought to you by our sponsors at Betterment Advisor Solutions, if you happen to be thinking there's got to be a better way to grow my RAA,

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with Betterment Advisors Solutions. Learn more at betterment.com slash advisors. Investing evolves risk. Performance is not guaranteed. Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnik, and their castmates are solely their own opinions and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Play my theme music. I'm going to drop a few bars. I'm going to show, I'm going to show, I'm going to show off my flow to Stephanie. Is that

cool? All right. Do it. All right. Ladies and gentlemen, welcome to the best investing podcast in the world. We're so excited to have all of you here with us this week. I got to tell you guys the numbers that we're doing on YouTube, on Spotify, on iTunes. We know we all are all to you, and we love you for it, and we appreciate it. We have a giraffe in the room. You have to watch it on Spotify or YouTube to see what I'm talking about. We're having a very Gen Z Halloween day here at the compound. And we have a special guest on the show. Ladies and gentlemen, Stephanie Roth

is the chief economist at Wolf Research, an equity and macro research firm covering roughly 800 stocks. Prior to joining Stephanie was a senior economist for global wealth management at J.P. Morgan Private Bank

and she specializes in macro strategy. Stephanie's so great to have you here. Great to have, be here. You ready to rock? Yeah. All right, where's your costume? Did you not get the email? You didn't see it?

I'm saving it for tomorrow. You would never. I know. They would kill you. Okay. All right. It's tech earnings week. And I know you don't cover these companies specifically, but I do feel that you would

probably agree from a macroeconomic standpoint, a lot is riding on current trends in tech spending to continue. What's your take on what we're getting from these companies? Because from my perspective, it seems like we're getting confirmation of exactly what we needed to hear. Yeah. the spending is strong. It's going to continue to be strong. We get a lot of questions. Is this bubble? Is this going to end anytime soon? And our sense is absolutely no. It's a fairly small

share of GDP at this point, even though it's been growing quickly. So our sense is that it's just going to keep going for quite some time. And we don't even know the full effect of AI on this economy. So companies are going to keep spending until we see who the winners and losers are. Okay. I think that's where I land. Like, I know that it will at some point, maybe not blow up. but it will slow, just not yet. I think everybody agrees. That's like consensus. And I think consensus is right, that these companies are telling you that they are going to

continue to spend. Now, maybe there's a quarter or two out there where shareholders say, nope, we're not going to let you do that anymore. And we'll find that when it happens. But and also, so we're in the whatever inning, relatively early in this spendout. That doesn't really tell you anything about where the stocks are or what they're going to, how they're going to perform. Because obviously, in Viti at $5 trillion, it's looking.

forward many, many, many quarters out in the future. Yeah, I think that's right. And the trend is that this is going to be a game changer for the economy. Productivity is likely to pick up pretty significantly. Do you buy that? I do. I don't think it's impacting productivity today. The usage in terms of productive AI is not really playing out yet, but I think it will.

So you're an econ person, you're a data person. Where do you think the data is going to, where do you think those numbers are going to reveal themselves on the productivity side. So we're seeing it so far. Productivity and within the tech space is picked up, a little bit within professional services. But outside of that, there's no clear correlation between chat GPT usage, for example, and productivity by industry.

You are seeing it in those other two sectors. So my expectation is over the next couple of years, this is what we're going to be watching because it's likely to pick up pretty substantially as you see usage picks up. But right now, the levels in terms of, say, chat GPT usage by industry is fairly low for the bulk of the economy. You would expect it to show up in tech first. These are the people selling it. So, of course, they're using it the most aggressively and finding use cases for it internally. That they then, it's the same, that was the same pattern with the cloud. Like, you have these companies providing cloud services to themselves before they turned them

into for-profit businesses. They took, you know, AWS, they turned it inside out and said, okay, we're using this. Who else wants to use it? So it makes perfect sense to me. Let's start with this chart, Mike, unless you have somewhere else that you might begin. Meta, Microsoft, and Google revenue. So it's still very healthy, top line across the board. Meta's up 26% year over year.

Microsoft up 18%. Google up 16% to its first 100 billion dollar quarter, which is kind of, it almost said, it felt wrong coming out of my mouth. I was like, wait, is that right? It is right. Microsoft Cloud, the run the revenue run rate. So it's $49 billion for the quarter.

It's up to a $196 billion run rate. Alex Morris tweeted this. And this part is hard to believe. They've grown 20% in every quarter for the past decade. It looks fake. It looks fake. How is this happening? Yeah.

Now the question on the call, on every call. And I think meta is the one that is like bearing the brunt of this because their expenses are as as great as their top line growth is, it is slowing, their free cash flow is slowing, and their expenses are ramping. And today, anyway, it's one day, but investors are like, yeah, we'll take 10% back of your market cap because it's a bit much. Did you listen to the medical? I did. I listened to all them today. So the big takeaway that I had was, uh, CapEx is going to sell expenses are going to accelerate significantly next year, like not just the number, but the rate of growth. So here's the Quote, yeah. So they said, so every analyst and every call is asking the exact same question,

right? Like the spend, the revenue, where's going to show up? Where's this land? And they said, it has become clear that out is meta, that our compute needs have continued to expand meaningfully, including versus our expectations last quarter. We are still working through our capacity plans, but we expect to invest aggressively to meet these needs, both by building our own infrastructure and contracting with third-party cloud providers. We anticipate this will provide further upward pressure on our CAP-X, cap-X dollar growth will be notably larger in 26 and 25. And they all said basically the same thing that it's going to be a lot higher.

So meta this year, they gave their numbers. It was 100 and, where is this? 70 to 72 billion is their CAP-X for 2025. Yeah, right? Is that right? That was expected. Let me see. Anyway, the number is big.

Lots of money. here alphabet 91 to 93 billion my bad 116 billion that's where it was uh the number i just said was they're expected coming into the year it's 116 billion so whatever what i just say 86 it's 116 that's what they're going to do for the year right um and you got that across the board basically and uh that's so to my earlier question Stephanie that's what i kind of felt like the market needed to hear is yes we're still spending at the same rate and actually we're going to spend more next year. And they got that. And I know we're not seeing the productivity gains yet widespread, but we're definitely seeing like industrial activity, utility use. That's the real economy,

feeling the effect of the AI build, even in advance of whatever productivity boom we may or may not get. It's got to be a really big factor. It's like a ripple effect from all this capex spending. Yeah. So our sense is it's roughly about a quarter of the GDP growth is is driven by all of this CAP-X spend so far. Of course, that may slow down eventually once it transitions from companies doing the big KEPX to companies integrating the AI, and then it's a different type of story. So we're transitioning from the hard investment construction portion of this to then being a sort of productivity boom because...

It's like a handoff. Exactly. It's a handoff to companies using the AI and then becoming a lot more productive. Of course, the challenge for the economy will be a rebalancing. in the labor market because there will be a lot of people whose jobs will change as a result. Right. So can people upskill fast enough to remain useful? The answer is usually not. And then what are all these people do now that they are considered to be idle capacity? Right. And right now you're seeing...

But is that like a one-year thing or like a 10-year thing? Because I think it's a 10-year thing. Yeah, I think it's a 10-year thing. Okay. The start of it right now is within young workers who have graduated college recently, specifically looking for jobs in the tech sector. It's the youth unemployment specifically for white-collar workers. Those people are having some trouble finding jobs. Developers, programmers. Exactly.

How does that get better? People that learn to code are now, it's the irony. If you can do HVAC or landscaping, you're probably very busy. If you learn to code, maybe you're very busy, but maybe you can't find a job. Yeah, I think that's exactly it. And how does that get better? it's a couple of things. One, they'll find more use cases

for these types of skills eventually and or people will go to school for different things. When you were entering school four years ago, the dynamic was a lot different and it made a lot more sense to study a lot of these things. Now, students looking to sort of pick their major

might look for something slightly different. What are your analysts say in terms of the CAPEX spend? These things depreciate very quickly as my understanding. Like a lot of the spend, it is not a one-time thing. It's a constant upkeep.

And there's estimates that there's going to be $2 trillion in annual spend at some point. That can power GDP for a long time, if that's the case. Yeah, so Jensen put out those forecasts a couple weeks ago saying that it would be $3 to $4 trillion by the end of the decade. Of that, it's called 60% in the U.S. That is a lot of spending. I don't know if we'll necessarily get quite that high, but if you're anywhere close, that's nearly 5% of GDP, which is massive. So you said right now you think a quarter of economic. growth is directly KAPX or KAPX plus the ancillary that comes along with it?

Directly the KAPX tied to AI. So if economic growth is 2% a year, let's say, you think like 50, a half of 1% of that is coming from this story? Yeah, probably a little bit less, but very close. Okay. Is there another example of anything like this that you could think of in like economic history? Yeah, so we look back to see one, so we look for Jensen's forecasts. If you end up with something like that, your cumulative $7.2 trillion of U.S. spend, the only thing we could find is the China super cycle historically.

That was $14 trillion in today's dollars. The dot com was about a trillion. So nothing else compares outside of the China story. Okay. So this is one of the big ones. This is one of the big ones. And the market is getting the memo, Daniel Chart 11. So over the last five sessions, semi-stocks, semiconductors, and semi-equipment,

added a trillion dollars in market cap, which is... How long? Five days. It sounds incorrect. It's bigger than the entire material sector by, I don't know, $100 billion. I mean, in five days. Now, nobody disputes or doubts. I mean, obviously, the market is telling you that this is everything we think it's going to be and more.

But some of the numbers are getting really difficult to wrap your arms around. A trillion dollars in five days. And most of that, it's like in five stocks. And so it's not even like it's in a hundred stocks. Micron and AMD and I'm guessing Broadcom. Yep. Yeah, Nvidia, of course. Yeah, wild, wild times.

It's wild. But I don't think it will be, I don't think we'll be in bubble territory for a while until it becomes, one, clear who are the winners and losers are. Two, until companies start to spend in terms of debt. A lot of it's coming from cash flow right now. Once it becomes debt finance, that's where it becomes a lot more risky for the economy. So, started. Early innings.

We're in the early innings of actually cash flows won't be enough because if we don't spend now, we're going to get locked out of the game. We need to make the bet. Yeah, but that narrative is being blown up, blown to Smith the reins because it is true that debt is now entered the conversation, right, what Oracle is doing. But Microsoft chart four, like their free cash flow. They're free cash flow all time high. Google killing it.

Now, META's free cash flow is rolling over, chart eight. Charter A please. So meta's trailing 12 months. This is from Alex Morris. Yes, it is, it is rolling. And we know, like, they're, they're spending a lot more expenses are growing faster than revenue. And the market is, the stock's getting hit as a result. But this idea, there is, but this idea that they're going free cash flow negative

or anything even, like, remotely close, like, that's just not true. Not even close. But we do have massive debt deals now to cover the infrastructure build. And everyone's in the game. Like every major firm on Wall Street, all the private credit and private equity firms, all the market makers, all the asset managers. Michael and I were talking about a deal earlier this week where they're building two different facilities, one in Texas, one in Wisconsin for Oracle. And just like the whole list of names of firms that are getting in on financing this thing. so let's say it's early innings and it's not quite a full-blown debt bubble yet but if that's

directionally like where it seems obvious we're headed why is that the danger to the economy like aside from the obvious that eventually the debt becomes unsustainable does it have to go there eventually or it could stop short of that it doesn't have to but that's where it becomes more vulnerable because if you get disappointed and then you have all this debt then it becomes a bit more of an issue. If it's funded by cash flow, then it's an issue for those companies, but it doesn't have broader implications. Does it have to get their no? Generally speaking, when you have these types of investment trends, it usually does. Companies, like you said before, companies spend to keep up, and their investments are maybe not ones that they necessarily

should be doing for their businesses, and they might be spending sort of in way, in the wrong direction. It might be some sort of malinvestment because that generally happens. They're saying that they're going to over, like Zuckerberg keeps saying if we overspend by, a few hundred billions, so be it. Like Zuckerberg said last night on the call, we are spending for the quote, optimistic, most optimistic case for AI. And then he said, if we overshoot it,

meaning between now and whenever superintelligence actually arrives, which is their stated goal, I don't know what it means, but fine. He said if we overspend, we could just use that compute elsewhere in our core business. like it's not going to go to waste. And I think like, if you're a sell-side analyst on the call listening to that, you're probably like, oh, yeah, that makes sense.

Because it's not like this is a startup company. They have a massive core business that probably does need more compute one way or the other. Reels is at a $50 billion revenue run rate. Right. Like one piece of one product of a broader ecosystem of products. Google said last night that they have 13 different businesses that are doing a billion dollars in revenue. Microsoft, LinkedIn keeps growing 10% a quarter, by the way.

Do you see that every quarter? I think I'm helping to drive the LinkedIn growth numbers. Alphabet CapX is now at $100 billion run rate. So, like, they're all probably going to have to get to $100 billion, just as like, that'll be the industry standard or more. And to your point, there's still plenty of cash flow to support that. I don't know. Is that infinite, though?

Does that just mean keep going? It would be really something if there is no, like, reckoning at some point, whether it's five years from that. If we don't get the complete crazy overspend, would that be surprising or not necessarily? Yeah, I'd be surprised if we didn't get there, but you never know. But these things, companies tend to pile in. And I think the issue is more on the smaller companies that get involved in the investments here. It's going to become a bigger problem for them because they're spending in areas that they maybe didn't

need to be. Okay. We haven't really gotten to that point yet. Privately held companies that haven't come public yet. Yeah, or like just smaller public companies that are putting money that they don't really have. That's why it becomes more of an interesting story when it becomes debt finance, because then it's companies maybe can't really back it up with cash flows. Right. If the ROI doesn't arrive and we all know, we all understand like it might not tomorrow, then what do you do? Okay, but also Microsoft's free cash flow. Up 34. No, we're fine with Microsoft. No, it's up 34%. Yeah, yeah.

All right, let's, so let's talk about, let's talk, oh, I wanted to shout out Dan Ives. Michael, did you know he hit a billion dollars in assets in his AI ETF? Unbelievable. In five months. Would you have predicted that? Nope. All due respect. I was rooting for it.

No. I don't think I would have predicted it. That's pretty crazy. Shout to, shout to Dan. It's the AI. It's the AI. It's the AI. It's the AI.

All right. What did the Fed actually say this week, Stephanie? I sort of get it, but I don't get it. Why did yield, I'll ask you follow-ups. What do you think was the point of Powell's statement and the answers to the reporter's questions? I mean, the one statement, if you listen to one statement, all you needed to hear was a December rate cut is far from a foregone conclusion. That was by far the important thing that he said. Is that the one the market disliked, the stock market disliked the most?

Probably lost 30, 40 basis points on the S&P immediately. Exactly. That's exactly what he said. Okay, why? Why are we still begging for rate cuts with stocks at all-time highs? Are we crazy? I mean, the market always loves lower rates. This is disappointing versus what was in the price.

The market was pricing a nearly 100% chance of a December cut. Powell completely poured cold water on that. We had been calling for the market to be, or the Fed to at least be less convinced that they're going to do a cut in December. The labor market appears to be largely fine. The economy is pretty steady. There's not a great reason to be cutting at this point, just given where they are today and where the economy is. I'll give you one reason.

Well. Make America great again. Oh, real estate. Why don't you love America? Oh, wait, hold on. So, so why was that statement so consequential only because it forced everybody to change their expectations for December? That's exactly right. It was just a complete repricing of the December cut, which now is less likely to be, so it's

definitely less likely to be the case. Now it's all else equal. If the economy is exactly today as it is for the December meeting, the Fed's not going to cut, is effectively what they told you. And then you have to question, well, are they going to even cut beyond that? Are they going to be in some sort of extended pause at 4 percent? Are they only going to cut maybe two more times as opposed to the market thinking it would be several more times beyond that? Okay. The mortgage-related stocks that we follow all got crushed. All housing. Like fast. Anything housing related fast. So you see that it really was in the price. that you were getting this December.

Okay. And now it's in doubt, but you might still get it anyway. He didn't say we're not cutting. He just said we're data dependent. So maybe we will, maybe we won't. Yes and no. Well, we're data dependent. But if there's no data, the assumption was, given the shutdown, if there's no data,

the assumption was the Fed would cut anyway. But now he told you, maybe not. Now if there's no data or if we're kind of still in this data fog, which, by the way, the data is going to be really questionable between now and then, that you should assume that the Fed will probably not be cutting, and there's significant divide among Fed members, but what they should do from here. Oh, this is, so Callie pointed this out, our chief strategist, Callie Cox, pointed out, she can't think of another time where there were two dissents, which itself is rare,

but two dissents in opposite directions. Yet one person say it should have been a 50 basis point cut, yet another person saying it should have been no cut. Can you think of another example of that, or does that strike you as like really emblematic of the confusion right now about what the right. course forward for the Fed is? Yes and no. I mean,

Myron's the only one who you would have, we would have known. We knew he was going to dissent for a 50 cut. And that's political. That's, nobody else.

His master wants that and that's... Exactly. So, no one else who is more independent and credible is looking for a 50 basis cut at this point. One out of a hundred. Just go for it, right?

When does this term over? Myron? No, I'm sorry, Powell. Powell's term's over in May. May. Okay. All right. Or whenever I decide.

All right, so it's not that strange because you know where that's coming from. Right. So the real debate was, do we not cut or do we go ahead a couple more times? It's really the debate in the room. Myron is kind of out on his own. What's the case for not cutting? Just as simple as CPI is 3% and not 2%.

Yeah. And inflation is potentially heading a little bit higher. On top of that, you have an economy that's doing okay. Okay. So unnecessary cut. Yeah, and valuations are high. Why not just wait and see? There's not as much harm in waiting now as it was months ago.

Well, here's the doves would tell you, recent college graduate unemployment at 6.5% is really significantly higher than 4% and possibly a harbinger for a worsening labor market. You'll tell us if you agree with that or not, if the data says that that's true. But that's a thing. The other thing is people with debt balances, obviously a rate cut helps them. and those are the people right now that need to help. And maybe that doesn't justify lowering rates across the whole economy just to help borrowers. But like the politicians who are getting elected right now, including in New York City,

are the people who are making promises that they'll ease people's debt burden. So there's obviously a real issue out there. So that would be like the Doves case as to why, yes, one more cut at the end of the year. Does that move you or not really? Maybe let's go to chart 13. So not necessarily. I mean, the debt picture actually looks pretty good. Tell us what we're looking at.

For the listener that's not watching, what are we looking at? We're looking at a chart of household debt relative to disposable income. So it's an income rate, a debt ratio chart. And you're seeing it steadily move lower, which tells you that, in fact, the consumer is healthier today than it was a year ago and two years before that. On this measure, we look pretty good. But which consumer? Yeah, which consumer? The broad consumer.

So there is a story. about the lowest end consumer that is showing cracks and getting the K-shaped, the K-shaped economy. And that's true. Can I say one thing not to be insensitive to the lower end consumer? But are they not, by definition, always under a level of distress? I mean, if you're talking about the bottom 10%, when are they, when are they not under duress? There was six months in 2021 where they did better than everyone because money was put into their bank accounts, and that's pretty much it.

Yeah, I mean, it's fair. And we can't conduct policy aimed at just this lower end consumer. You know, you have to think about the broad picture here. And you're seeing this low-end consumer, which is under stress. But it doesn't appear to be getting that much worse than it's been. I actually don't even think that that should be the purview of monetary policy. Like the woke Fed era should be way over. I understand why we have to do something.

I think that's Congress and maybe the states. I don't feel like we can accomplish that with overnight interest rates. Yeah, I think that's right. And we don't really want to incentivize too much borrowing at the lower end. And by the way, there's going to be a decent amount of stimulus headed for the low-end consumer come tax season. They're going to get some pretty large refund checks for no tax on overtime and no tax on tips. Okay. Oh, that comes in refunds?

This is going to come in refunds for this cohort. So according to what you showed us then, like, yes, there is a vocal group of consumers. who are under duress right now because of high prices in the economy, but the overall picture does not support just continuous rate cuts from these levels. There's no evidence that that's what's needed. Well, if you listen to the banks on their earnings and not just American Express, but the banks that serve Main Street, ally, Capital One, Bank of America, they're all saying the same thing, that things are pretty good.

And they're not blowing smoke. They have like reserves and chargeoffs and, like, actual data. And you're not seeing any stress there. You're just not. I mean, there's pockets, obviously, everywhere. And auto subprime, for sure. There was a lot of sloppy behavior in 2021 and 2022 that is now coming home to Roost. But by and large, based on that, to both your points, maybe supportive of no rate cuts.

Yeah, that's exactly right. The picture looks pretty decent outside of subprime auto and a couple of things that, you're right, are generally poor and aren't looking that much worse than where they've, where they've been. So, and the backdrop is one where the economy is actually likely head up from here. We have a lot of tailwinds when you think to 2026. So if you were Powell, you would not be in any rush to do the next one. But what about the housing market? Because clearly that is in desperate need of lower rates because we have seen lower rates and you're not seeing much of a pickup in activity like at all. Yeah, I think that's fair. Housing market has been struggling. We might

see a bit of a pickup from here. Mortgage rates have come down quite a bit. They have done a couple more cuts, you know, recently, so that could help spur activity a bit. But I'm surprised. Mortgage rates have come down quite a bit, and you're not really seeing much activity. Yeah, I think, I think it happens with a lag. It tends to be about three months where you, where the lag comes from rates to the broad economy. So I actually expect we'll start to see that.

Yeah. That did happen this summer. Exactly. So I think we'll see it play out. That happens fast. But you make a good point. It doesn't happen overnight. Like people don't just, oh, lower mortgage rates, I bought a house.

Right. And I think one underappreciated part about the housing. market earlier this year was not just about mortgage rates and affordability being bad, but also economic uncertainty. If you were sitting here earlier in the year and you were planning on buying house, yet you thought there was going to be a recession at some point in H2. Trade war-driven recession, which is what the news would have told you. Exactly.

Most people thought there was going to be a recession caused by the administration because of trade war. So at that point, if you expect a recession, you would expect lower prices and lower rates in, say, six months time. So it made sense to just wait. Our friend Warren Pyes looks at, I think, some sort of housing construction. I don't know if it's new units or something like that. Construction employment.

Okay, is that what it is? And so that has been very sensitive and very closely aligned with the business cycle. When that rolls, we usually get a recession. I don't think you're seeing that right now. Is that because this is just such a bizarre environment of everybody buying houses and then rates? And is it just, can we not rely on that anymore? Yeah, I think the economy is a bit different. It's a little bit less cyclical than it used to be.

There's so many other secular drivers, things like AI. And then on top of that, there are some construction-related jobs that are tied to this AI story. So there's a bit of a sort of mix shift from that perspective. And then on top of that, the consumer is not really that interest rate sensitive anymore. If you were not in the housing market looking for a new house, then you're not really that sensitive to the rate of interest rates. So that's been one reason why the consumer has been spending so well despite rates being elevated. equity net worth has been perhaps one additional reason. I want to double click on that because like this is the hell that I like to die on every week.

I'm a wealth effect truther. I think it's the number one most important factor in the economy bar none. It decides employment. It decides whether or not people get wage increases. I think it decides capex spending projects. Nothing will halt AI capex and it tracks faster than a stock price that falls 30% after an earnings disappointment. Nothing. And so as a result, I really think we underpriced the ability of the stock market to influence things that happen in the real economy.

More Americans than ever are in 401Ks. I understand housing is a bigger asset for the middle class, blah, blah, blah. I get all that. The people that work for people, though, those people, they care about their stock options in the companies they work for. I just, I think it's a huge driver. to that point, Sean and I on my research team, we write this column for CNBC Pro every week, best stocks in the market, and we're always looking for charts that invalidate things that we believed or things other people believed. We love that more than anything. We did a spotlight on Ford

and GM today. Ford and GM made 52 week highs this week. Yeah, what's the story there? The story there is the wealth effect is what sends people to the dealership to buy a new F-150, not trade war bullshit. These companies have handled this tariff war handled this tariff situation so well, not because they're in control of the prices of the supplies they buy, but because the demand never let up. The demand never let up because everyone's stock portfolio is at a record high. So GM is selling, GM's in a better situation than Ford. They're selling more higher margin SUVs. Ford has a lot more execution risk and it's not as good of a stock. They don't do buybacks, they do dividends, blah, blah, blah. But the big picture is

both of them are at 52 week highs. If I told you in March, next month, Trump is going to restart the trade war and auto parts and finished automobiles are going to be like the epicenter of the trade battle with all these countries. You would not have said, oh, I get it. Therefore, buy Ford and GM. They're up more than Tesla this year. People don't even understand that. And so my point is, that's the power of the stock market wealth effect. People are not doing that because of the value of their house. And they're not doing that because they're getting wage increases because we know they're not. They're doing that because they feel rich.

What do you think about that idea? I think that's entirely right. So a fun stat. You see? Can we cut that clip for TikTok? Okay, same. I haven't said anything. It doesn't matter.

I just want that to land on you that she said that's exactly right. Nicole, exactly right. See the insecurity just oozing? All right, but I want to hear you say more about how right I am about this. So I'm generally a skeptic of the wealth effect. I generally... Get out. Say that one more time.

Shows over. But, but... Send her back. So, okay, generally... Say why you are. Say why you are skeptic. So generally, there's academic studies that will tell you it's a couple cents for every dollar of equity net worth that will support the economy.

This time, it's been a really big increase. So equity net worth has gone up by about $6 trillion this year. That's it. That matters. Which boosts growth of, call it 40 basis points if you apply historical estimates. And historical estimates are understating it because this time the equity exposure is a lot broader than it typically is. So, for example. Because of retirement accounts and stock option compensation.

And the whole like Robin Hood thing. So younger people are involved in equities, which they didn't used to be. So for example. 35 million new accounts in the last. three years. Yeah. You know, so interesting, Amex, if you look at their earnest call, all of the growth, not all the growth, the biggest growth is coming from Gen Z and millennials. The biggest growth, the biggest spending growth. They're spending more than boomers are, which is kind of wild when you think about like, you think Amex is like an old

premium stock. No, it's not. It's growth on the young end. And they own crypto and they own tech stocks in much higher proportion than the rest of the population. And they have made more money from this boom in stocks in some cases than their parents. Yeah. So millennials, so currently roughly age 35, own about 23% of their equity, of their net worth as inequities. Boomers, when they were at the same age, had only 6% of their net worth inequities. That just tells you the broadening and why it's impacting younger people, which it typically isn't the case. So in conclusion, it sounds like you would agree with me. We're underpricing the wealth effect because we're thinking about a historical paradigm that's no longer in force. Now it's a different world.

It's a stock market world. Yeah, I think that's right. Well, you started making the point that a lot of the people that are not exposed to interest rates, people that already haven't paid off mortgage, well, guess what? Those people are also retired. So they're also not exposed to the labor market. And so you could see some really weird activity with a softening labor market and consumer spending not really slowing that much because they're responsible for such a large

portion of the spending. It's just a very interesting time that we live in. Yeah, it's an odd environment. And I think it matters realistically. As long as layoffs don't pick up, people will continue spending. So that's it. That's it. That's all that matters.

I agree with you. I agree with you. So to that end, let's do your next chart. Chart 12. This is concern about the AI labor market disruption. So this gets right to the heart of that question. So what are we looking at in this chart and why is this important? Yeah, this is one of my favorite charts of all time.

So here we show that about 60% of people who are working today are employed. in jobs that didn't exist in 1940. It just tells you how dynamic the economy is. And even though a lot of jobs will get displaced as a result of AI, and there might be disruption in the near term, people will have to go to school for different things. Eventually, the economy will be in a better place. I think we all agree on that.

The thing that is the troublesome side of it, and I'm not a tech dumber by any stretch of the imagination, I think we all agree that the future is very bright. It always is. But in between now and then, When you do have this displaced group of people and growing and voting, you get some really funky election results and it can impact, it impacts policy and it impacts society, maybe more than it impacts like the overall aggregate economy.

And it definitely, these people having trouble finding jobs, not only will it not impact the stock market, you can have an environment. In fact, I would say this is probably better odds than not of record margins with rising unemployment. Yeah, it would be an interesting backdrop if it plays out that way. And it might to some extent. It would be great for margins. But what tends to happen is as margins get better, companies want to grow and they expand and they do KEPX and that will spur other types of job opportunities. So yeah, I think that's a risk. And we might see various industries displaced at various times. There was this sort of the tech related recession somewhat after the COVID

pandemic where tech companies had a lot of layoffs. Well, absolutely there was. 22. Exactly. So you might see different industries have problems at different time, but this is unlikely to be a recessionary type of layoff cycle. It'll be probably a little bit different than that. The media has coined this term, low hire, low fire. Do you think they largely have it right? Like, companies are not shedding millions of jobs by any means, but they're just not hiring as fast as they used to. And it's almost like on the surface, if you net those two things out, it looks like a stasis. And the stasis won't last forever, but could it go on for five years? Yeah, totally could, right?

Yeah, and I think the low-fire, low-hire environment is right. And it's been that way for quite some time so far. And by the way, the labor supply issue kind of supports that because both supply and demand has come down roughly in line. Supply has come down because less immigration and demand has come down because companies are waiting to see how much efficiency they might get out of all this AI stuff they're buying. Yeah, that's exactly right.

And as long as the bulk of the people remain employed because layoffs don't pick up. Their wages are growing at nearly 4% a year, and they'll just continue to spend. What would you be watching if you wanted to use the labor market as your way of understanding when we're about to go through a change? Because we've had people come on here.

Michael mentioned construction workers being like a really great early signal. We've also had people come on and say initial claims, if it hits $240,000 in any given week, that's the trigger. Like, we've, we've heard, like, lots of different theories about, like, how the labor market might be useful as forward-looking. I understand it's backward-looking. But, like, what are the things that, is it the SOM rule?

Is it like, what would you use if you were trying to get a little bit of an edge on the economic trend? I think what we've learned is having any one particular rule could get you into trouble. So SOM rule was kind of triggered before, and it ended up being sort of fine. Oh, wow. Credits, the inverse credit thing didn't work out this time either. Yeah, exactly. And there was a problem with Texas fraud in terms of claims, so those spiked for no reason.

So I think you do genuinely need to look at a broad array of indicators. Like when clients ask you, like, how will I know something's changing? What do you tell them? So I would say I'm looking at claims. I'm looking at the Warren data to get a sense of, and the Warren data comes from the Warren Act. And basically, if larger companies are doing big layoffs, they have to announce it in advance.

That's, all right, that's a rule. Yes. So you can't have a, even though the press would pick up on it anyway, that's not enough. The company has to disclose a certain level of layoff. Correct. They have to disclose the layoff in advance, and that gets, that gets public. I feel like disclosing it because the stock price goes up as soon as they announce it. I used surprise that claims didn't break out over the summer because we were talking about it then.

And I'm pretty sure people said, like, once this starts to move, it generally doesn't slow down or stop Well, it did. We were, like, there was a week or two where we were like, oh, it's claims. It's claims. What was the Texas fraud? What was that? So that happened a couple weeks ago. Texas claims jumped.

I quickly looked at the worn data for Texas to see was, did any companies, big companies do a big layoff? That wasn't the case. So our immediate conclusion, which we had published was, no, this is, there's something funky going on, I don't know what. And then we later learned that there was actually some fraud happening within the Texas claims. And Texas came out and said that this was an issue.

Why would somebody do that? Isn't that weird? I guess it's trying to get... Oh, it's unemployment fraud. Yeah, exactly. Unemployment fraud. So somebody did that on a large enough scale that it showed up in the data?

Yes. My word. 20,000, I believe. What's Elisa Abramowitz chart? So, thank you for that great setup, Josh. Are you surprised that... So this, the way that the Fed measures inflation, shelter inflation,

it's this weird thing, owners equivalent rent. where basically they ask people, well, how much you think you can rent your house for? And it was a big talking point at the time. Like, it's such a bizarre way of doing things. Like, how would, I don't know how much I could rent my house for. And yet, I bring this up to say, it looks like it was kind of right. I mean, what do you mean by that? Why does it look like it was right?

It's at the lowest level since 2021. And this is probably a decent representation of where shelter inflation really actually is. What do you think? So one correction on the, the way they measure it. So there's two ways that they go back. the data. First, they actually measure how does this particular sample of houses compared to rents about six months ago. And then... This is in CPI, you're saying?

This is in CPI as well as PCE, which is the Fed's preferred measure. Okay. They are not using that question, what do you think you could rent your house for in the actual calculation of rents? They only use that in terms of the weights. How do they weight it up? What do you mean? Yeah. So they have to... Do they weigh your house? How much could you sell your house for by the pound? More like how important is New York houses relative to Chicago, how they like aggregate everything up.

Okay. But they don't actually ask you how much do you think you could rent your house in and that's used to calculate the inflation. What does this represent? What does it represent? What does it mean it's a measure of actual rent inflation, but it's the aggregate houses out there as opposed to new rents? Why don't they just go to like the 10 largest multifamily apartment building, landlords and get the actual data. What are we fucking around for with owners of equivalent rent?

That is what they do. They do that. It's just not only the big ones that they're going to capture as much as they can to be representative, capture everything, but they are measuring actual the prices of rents compared to where they were six months ago. I had a guy sitting in your seat on Monday. He owns, he's the biggest multifamily landlord in the Pacific Northwest, or Mountain West, they call it.

So he's in Salt Lake. He's in Denver. he's in Seattle. And I asked him like off camera but about that question like what's the rent situation? He's like it's fine.

It's always the same. He's like there's no trend. It's just like apartments open up. People come in and rent them. He's like I wish there was some signal in there that I could use for my business. But like on a week to week basis, there's nothing.

On a year to year basis, you know, property developers use that like as a signal of where to invest and where to build more. But like week, month after month, CPI, who knows? Like, who knows what that really means? Yeah, and the data are pretty volatile. And most recently, there was a big deceleration in this one. I think what we're seeing, though, is that rent inflation is coming down,

which we all knew what was happening because the CPR, CPI data is very lagged. It's very slow moving. Unlike sort of a potentially better measure is some of the private measures of rents that are advertised in the market. Yeah. Because CPI measures average rents for everybody in the U.S. I know it's over a 12, is it a 12-month lag?

It's been longer. The expectation was it would be a 12-month lag, but that's why people have been talking about OER is coming down and they've been having the same conversation for 18 months, and it hasn't happened yet. In a material way, it started. The apartments.com data is what you're talking about? Yeah, exactly.

Zillow has good measure. Zillow. Okay. These are helpful to gauge what's happening more real time because these are apartments that are being listed as opposed to the average of all apartments out there. So this has been a big, source of the cooling of inflation to the extent that it is cooling. But then there's obviously the cost pressures, or maybe even lack thereof that we've seen from tariffs. Are you surprised

that we haven't seen more in the way of tariff-related price increases? So you've seen, it's definitely showed up to some extent. It's been goods price inflation is running about 2% year over year. Typically, it runs zero to minus one. So you've seen it. It just hasn't been as large as many expected. And I think there's a couple of reasons as to why it's been smaller than anticipated. One has been, companies have just been slow to pass it through. They're taking a little bit on margin. Exporters have taken some of the hit too. Yeah. And then I think the way people think about the sort of the percentage they were expecting for an item, they're not necessarily calculating it exactly the right way. So when you think about, say, example, a sneaker import. So you

might import it. The company pays $50 at import and $100 in the store. Well, your tariff rate is tied to the $50 that you imported. So it gets water down when you're talking about the end item. By the time it gets sold to the end consumer. Exactly. You wouldn't know the difference. As a percentage of the final price, it's a lot smaller than the tariff rate. One of the things we heard was that sneakflation would be the way companies would pull this off, live with the tariffs, where there might be like a very high attached to one particular item, but if your target, you could spread that high price out across 5,000 items, and it almost becomes like, you can't see it anymore because it's a penny on 5,000 items rather than $500 on a lawnmower.

Yeah, I think there's some of that. They've gotten away with some of that, too. Yeah, and companies have been passing it through in items that they know the consumers are a lot less sensitive. So they're higher price items, for example. They know the wealthier people might not really care if their sneakers are $10. more expensive, but that's a much bigger deal for their lower price product. Do portfolio managers, you're sitting at Wolf, do portfolio managers want to talk to

you about tariffs anymore or not really? Not really. They want to talk about AI. A year ago, though, that's probably what they wanted to talk about. That's all we talked about it. Six months ago. And companies aren't talking about it. Isn't that so funny how that happens?

Totally. These things go in waves. I mean, tariffs have still been important. We're seeing inflation running at about 3%. Inflation should otherwise be in the low twos. So this is having an impact. It's just not. It's more of an issue for the first.

Fed than it is for the end consumer broadly. It's like on a low boil. Also, the consumer doesn't really know who to blame anymore. Like, the consumers, like, don't really want to hold Trump accountable for it. But Biden's been gone for so long that there's no point in, like, yelling about Biden anymore. Like, people don't even know, like, who to hold accountable for this. They're just getting used to it. Yeah.

And, I mean, there still might be some more pass-through involved. So that's something to keep an eye on. We'll still see goods prices continue to rise. Our sense is when we aggregate it all up, we're about 50s. 50% of the way through of the tariff pass there. So there's still more to come. But it's happening slowly. Okay.

That's a good segue way to, you wrote AI bubble. Nope. The real danger is in tight credit spreads. Let me quote you, okay? Do people do this often? To your face? I'm going to quote you to you. This is not her.

This is not me. Who wrote this? Alison Schrager. Oh, this is Allison's article in Bloomberg. Okay. Can you respond to this idea of credit spreads being a potential threat? maybe to the market or to the economy or both? I mean, I think they're tight for a reason.

The economy's doing pretty well. I don't expect this to... It's not always the greatest time to invest when credit spreads are this tight because people have become complacent in an environment where they're just not putting much emphasis into price and risk. That's the general idea with this, right?

Yes. Yeah. I mean, I don't know if I would emphasize that too much. I think it's telling you that the economy is fairly healthy, and there's sort of little signs of stress. So from that perspective, I would say it's actually an okay environment to invest, and it tells you that the economy is fairly healthy. And there were a couple of negative credit events that popped up somewhat recently. And I view those as idiosyncratic, and the backdrop is actually pretty good. So, no, that's not something that I would really worry about.

When do idiosyncratic one-offs become a bigger story to you? So I think every three days we're hearing about a new one. That's the rate. And they're small, relative to the size of the credit market. But, like, how many do we need to hear them out before we decide, okay, this is a problem? They've been concentrated in two main areas. One is companies that had poor business models and were tied to fraud. That I would discount most days of the week.

And then tied to the auto sector and sort of frothy activity that happened a couple years ago is now becoming an issue. Okay. So far, the sort of the broader announcements have been part of those two categories. It starts to, as in, or if it starts to branch out into something else, then it becomes more noticeable. I would agree with it. The auto stuff specifically, that was activity that took place years ago that we knew was crazy town. And now it's coming home to Roost.

If this starts showing up in sectors completely unrelated that are more concurrent to nature, it's like stuff that's reflecting stress today, then it's time to, okay, reassess and say what the hell is going on. Totally agree. Let's, John, can we do 15? this is your past investment boom that you referenced before past investment booms

as a percentage of nominal GDP versus the current AI and for the listener the AI I don't know how you're categorizing the AI spend but like it's 1.3% in 2025 the railroad boom went to 5.5%

of GDP the dot com went to 4 and a quarter the housing boom in 05 hit three and a half. So is the message here like it's not it's not a bubble or is the message here like it will be? We just haven't gotten quite to where it would have to be to become a bubble. Maybe for investors, it doesn't matter either way because it tells you that for the next at least 12 months, this is not a bubble and it's not an issue. It could become a bubble, could become an issue, but I think we're a long way away from that. We haven't gotten there yet.

AI spend, and we're calculating as above-trend spending in areas like data center, computer equipment, we kind of aggregate it all up. That's where we get to about 1.3% of GDP, kind of roughly $450 to $500 billion, which is a substantial part of GDP, but nothing like historical bubbles of the past. So when you get calls, is it a bubble, your answer is no. Maybe someday. Yeah, totally. Okay.

Do people feel better after you tell them that? Sometimes. Sometimes. Sometimes. Okay. People seem to want it to be a bubble. Have you noticed that? Yes. Okay.

In the investment world. What do you think that's about? They missed out? I think it's either missing out, feeling concerned about the valuations, or perhaps wanting to invest but are worried that they're going to be wrong and it's going to prove to be a bubble in two months time. That's the worst. That's the worst of all worlds is you ignore it for five years and then at the very end because

your clients are leaving. you're like, all right, whatever. And you just start throwing money at it, and then it's over. Yes. And then you lost twice and you're just, you're, that's, that's the got to be, that's got to be the worst thing you could possibly do. I almost feel like you might even be better off just sticking to your guns and letting it blow up.

I think a lot of the people that are still asking that question are probably in that camp. I would. That's what I would do, I think. Yeah, I think I would triple down at this point. Oh, at $5 trillion, I think I'm getting interested in Nvidia. No, if you were talking shit about Nvidia. Now it has my attention. At like $300 pre-split, and it's run all the way up, split, run all the way back.

Just stay quiet. Just maybe don't talk about it at all. Do you want to do this China thing? That's up to you. Take it or leave it. Take us through it. All right. So our friend Michael Samblis wrote a post recently where he showed...

Wait, did you work with Sambalist when you were at J.P. Morgan? We worked like side by side. Okay. We talked to him once in a while. Okay. He's probably listening. I hope so. He's a fan of the show.

Hey, Mike. So here's a chart showing a few. Chinese industries depend on exports to U.S. And he's looking at consumer electronics and electrical equipment and basic chemicals and on and down the line. And a lot of it, they produce and they consume domestically. So he looks at U.S. export revenues to China. And it doesn't show up anywhere, really, to maybe a little bit of consumer electronics.

I guess that's the iPhone. So Chartkin Matt looked at the average tech stock and the exposure. I'm sorry, the average sector exposure to China. And in tech, so the S&P is 4.2% revenue exposure to China. 4.2% of S&P sales go to China. That's what Matt's saying. Okay. But 10.6% of tech stocks.

And then he broke it down by individual company. Tesla, we know how important China is to them. 21% of the revenue. Apple, it's 16% of the revenue. Invidia, 13%. They buy a lot of the shit, our shit, of the most important companies in the world. our most important companies. So all of this negotiating rhetoric, whatever, like, they have leverage on us.

So there was a chart that we used to run that looked at the exports that we send to various countries across the world and then how important their exports are to the U.S. And China was the only country that showed roughly equal leverage to the U.S. Everybody else showed U.S. had a ton of... Equal versus us. Like our balance of trade. trade versus their balance. Yeah, so, so exactly.

That's exactly right. And that tells us that perhaps maybe Trump underestimated the ability for China to sort of weather this as well. And the fact that we would be caused a lot of pain just as much as they would be. And they have, they play the long game. So they have the ability to sort of wait a lot longer than we do. They don't have the political reality of people not getting elected as a result of trade imbalances, whereas politicians here in the U.S. do.

Exactly. Not yet, but allegedly at some point it might matter. Well, hear from Apple this afternoon, but there, the amount of revenue that they got from China has been a big overhang on the stock. So it's, it peaked a couple of quarters, quarters ago. Now, I think everyone's expecting the iPhone 17 to have gangbuster numbers and they better. Otherwise, the stock's going to give a lot back. So I hope that comes true.

But, yeah, China is a huge, huge buyer, a lot of our stuff. Do you see that as, do you see this, like, this meeting with she this week as being, like, terribly consequential for the year-end S&P, like, whether or not we have, like, a rally into year-end or not? Or do you think that's not really the bigger story? It paves away for the rally. And we thought the rally was probably going to happen anyway. It seems like a lot of investors are trying to catch up to a year where maybe they were underperforming. That's what I think. A lot of clients that I speak with kind of communicate that.

So I think this just paves away for, we're kicking the can down. the road, and also sort of a recognition that we can't really heat up the tensions again, that perhaps the appreciation that they have just as much leverage as we do. So we have a truce, we don't have a trade deal, we have a trade truce. That's the last thing I read. Good enough, right? Good enough. And fentanyl tariffs came down. So there is a sort of win from that perspective for companies. You wouldn't believe what I'm paying for fentany these days. It's crazy. So thank God for that. Stephanie, did you have fun on the show today? This is great. Thanks for having me.

All right. We loved having you here. And you're nearby. I sure am. Yeah. All right. Will you come back? I would love to.

What are you doing tomorrow? We always, we always. Oh, wow. Amazon blow out numbers. Finally. It's about time. Finally, the stocks making me look bad. Stocks up 8%.

But it might be flat in 10 minutes. Give it a minute. Hush your mouth. That stocks making me look dumber than any other stock I own. Let's go. We always end the show by asking people what they are looking forward to. I already jumped the shock. I already told.

that's not the right term. I already did a spoiler to you, but to the audience, tonight's of four Charles. Tonight's of four Charles prime rib night. You're feeling me on that? Yes? You're not a big prime rib eater, are you?

Not really. Yes. Not really. I'm going to do unspeakable things in this place tonight. Oh shit. Duncan's going to, Duncan would faint.

If you saw the table, the French dip, the cheeseburger, then they first bring out the prime rib. I've seen your, social media. The cheeseburger is the salad. Okay?

Wait until you see what I do on Instagram to you tonight. You should unfollow me for tonight and then we follow me tomorrow. All right. Anyway, what are you looking forward to? What are you got on the horizon? Like in life? I don't care. Yeah.

Professionally, personally. Anything you want to reveal anyone you want to get back at? Like, whatever. This is your moment. Tomorrow's Halloween. My two kids are going to be a big witch and a little witch and we'll go trick-or-treating and I can't wait for that. Big witch and little witch. Okay.

How old are they? Three and a half and one and a half. So cute. So you're carrying one or both. Yeah, both. Definitely both. I remember those days. You know what the move is?

You got to get the wagon. Oh, yeah. The wagon. The problem is they pull each other's hair in the wagon. So you still have to pull one, hold one and pull the wagon. Are you letting them eat any of the candy or it's just... Oh, they can eat whatever they want. I don't care.

Yeah. It's Halloween. All right. All right. Very cool. What about you? You have Halloween coming up? I do.

But I'm looking forward to Chris coming home so he would stop sending us those pictures. Oh, Chris's vacation pictures. Yeah. They're actually pretty good pictures, though. Not bad. Chris is in Cabo. The picks look pretty good. Normally, he's the worst vacation photographer you've ever seen.

You know, he went to Paris, and his son was like 12 years old. He's taking pictures of the Mona Lisa, but he puts his son in front of it. So it's like a picture of his kid close up, like right into his eyeballs. And then behind him, you could vaguely tell that the Mona Lisa's behind. And he'll text, he'd be like, look, the Mona Lisa. Shout to Chris. Chris, we only tease the ones we love. All right, that's it for the show this week.

Guys, thank you so much for listening. We really appreciate it. Huge shout out to John Duncan, Daniel Nicole, Rob, Chart Kid, Matt, Sean, everybody on the crew, Keith, Daniel. Who did I leave out? Rob, I'm terrible at this. All right, guys, thanks for listening so much. We appreciate it. We'll talk to you soon.

We're out. All right. Is that good? You want to do one more time? So we got us? Yeah. Let's do one more thing. We got it.

Yeah, that was great. You're a good support. Thank you. Thank you for having me.