The Compound and Friends - What Tom Lee's Worried About in 2026

Episode Date: January 30, 2026

On episode 227 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠���⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Fundstrat's Tom Lee to discuss: market headwinds in 2026, why Tom is still bullish, the precious metals rally, the crypto bear market, Tesla's big bet on robots, and much more! This episode is sponsored by Franklin Templeton.  Learn more at https://franklintempleton.com/muniETFs 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 Franklin Templeton Disclosure: Before investing, carefully consider a fund's investment objectives, risks, charges and expenses. You can find this and other information in each prospectus, or summary prospectus, if available, at https://franklintempleton.com. Please read it carefully. All investments involve risk, including possible loss of principal. An investor may be subject to the federal Alternative Minimum Tax, and state and local taxes may apply.  Franklin Distributors, LLC. Member FINRA/SIPC. 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

You like this weather? You're a skier, right? I was a skier, but I had two ACL surgeries. So I'm only skiing from my mind. It's an imaginary skiing now. Yeah, virtual. I'm too old to have another injury. Somebody asked me recently if I wanted to go skiing.

I don't know how to ski. It's too late. I'm going to die. No, it's not too late. No, my body. I'm going to tear something too. If you like rollerblade or ice skate. No, your instinct is right.

I was at dinner with Rob Sieghan in Florida, like 10 days ago and he was telling us like stories of his ski injuries like this guy he has beaten the shit out of himself Yeah he's got like titanium All over his body

He's kind of bionic He has like a couple fake knees He's almost an optimist I told him Like an optimist robot He was he was saying he was a mogul skier I'm like what I know what a mogul is What does that mean? He's like just bumps the whole way down

Oh who the fuck would do that That sounds like the worst part of skiing Skiing attracts some really extreme rich takers. So he goes, Oh, J.B, I love it. I love the moguls.

I ski, the mogul. You know, he's, isn't he from Pittsburgh? Where's that accent from? I don't know. Yeah,

he did. He grew up in, like, Pennsylvania. But that accent is not from Pennsylvania. That's not a Pennsylvania accent. He's like,

J.B., you know I love the moguls. Yeah, it's like, it's a little bit like, it's like, maybe he watched, like Fat Albert growing up,

you know? What is this? What? My laptop's a No, no, no, no, no, I know that. I mean, you're... So that's what's going on? No, no, no, the actual color of your icons.

Oh, that's dope. I've never seen that. Yeah. Stick around, kid. I like it. I learned some shit. Stick around. Keep your eyes open.

You never know how I'm going to surprise you. I hit the, uh, speaking of Apple. Uh, whatever. I hit the emoji button or like the emoji to, like, create yourself. Mm-hmm. And Apple's AI created me, but like, I have, like, lots of hair. Like, it looks nothing. I'm a bald guy.

Like, how is that... You must have bought the premium package. Yeah. Right? I guess. All right, here's the picture of me. There's zero percent chance. Yeah, I want to see it.

I mean... Oh, it's so cute. It's the... It looks like your son, dude. That looks like your kid. Let me say it. What in the world? He said that's good.

But you're like in a bubble. They put you in like a... However, we spoke in an event yesterday. Hard to believe it's yesterday. And they made those... Funco doll. What are those called? Oh, Funkos.

Funcos. So they made dolls of us, me and Michael. And mine had a full head of blonde hair. Mine is bald. And Michael's was like literally baby Stewie from family guy. That is reminiscent of you. AI is going to take all of our jobs? Come on.

Not the illishable. Come on. But that's like a meta-a-i. Remember how they have the meta-world or whatever? Oh, my two out on the board? Metaverse. Yeah. Okay.

All right. All right. All right. All right. All right. All right. Let's do some pods. We have a full house.

I'm a little bit nervous. Big audience. Did I get to meet everybody? Well, hi guys. We have an Alexa and Emily. Are you guys all fun strat? Wait, from what is it called? Will you hire my daughter?

She's a PR major at University of Miami. She needs an internship. Yeah. Josh, do you know Ron Insana? Yeah, of course. Emily and Sana. No. Really?

I love your dad. How's he doing? Okay. All right. He's one of my faves. So say hi for me. Say hi for me. All right.

All right. All right. All right. All right. We're about business right now. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor.

Today's show is sponsored by Franklin Templeton. Let's talk munis because for many investors, taxes are a big part of the return story. And municipal bonds. generally provide interest that's exempt from federal and in some cases state income taxes. That's right, Michael. But the muni market isn't simple and index strategies can fall short. One solution, active management. Enter Franklin Templeton. They're one of the largest muni bond managers in the market and offer more active municipal bond ETFs than any other manager, including national muni ETFs and seven active single state ETFs.

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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 Riddholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to the world's greatest investing podcast, compound and friends. My name is downtown Josh Brown.

First-time listeners. Last-time listeners, whatever it is. I'm here with my co-host, Michael Batnik. Michael say hi. Hello, hello. You guys, we have the goat in the house today. Every time I see this on the calendar, Tom Lee is coming to town.

I get so excited. You know how excited I get, right? Okay. All right. Tom is a co-founder, CIO, and head of research at FundStrat Global Advisors. Previously, Tom was the chief equity strategist at JPMorgan.

He is best known for his data-driven, often bullish market outlook, and for being an early high-profile advocate for Bitcoin, Ethereum, and other digital assets. Tom, what more could I say? It's a pretty good, pretty succinct bio, right? Yeah, thank you. All right. Are you bullish still? Yes.

I heard you at the start of the year kind of being like, yeah, we'll probably get a correction in the first quarter. Do you say that? Well, we just think 2026 will look like last year. So our base cases, we are strong in the first part of the year. Okay. But then we have a drawdown that feels like a bear market. Okay. But we'll rally strongly. And I think at least a 10% gain, maybe more now. So we had that, how deep was the drawdown last April, last March? It was 20%. It was a bare market.

Okay. And that did not start from an all-time high or not really? I forget. Yeah, it did. It did. So it was rare. But maybe that's why it recovered so fast, because it wasn't based on anything other than words. That's right. If you have a decline and it's not leading to an economic downturn, those declines are usually V-shaped and symmetrical. Okay. Do you think that this one, this year, that, I mean, we have one every year. You think this one might have the potential to be based on an economic? economic decline or probably not? If I was guessing, because it's like I'm just guessing in the future. We're all guessing. Yeah, yeah.

We're guessing. Educated guesses. That's what we're doing. Yeah. Educated guess is that it can be a policy shock like something coming from the White House or the market testing the new Fed. Okay. Or both.

But that is probably like last year then. So it's a market decline because people take risk off the table, but it's not really an economic downturn. So we end up recovering really quickly. We got two policy shocks in the last five days. We got the health insurance shock and the credit card shock, 10% cap on interest rates for credit cards. I didn't even get a chance to see what he said about the insurance companies.

I just assume it's not going to matter and never really happened. But what was that about? Do you remember? It was like two days ago. Yeah. It's the reimbursement rates for Medicare and Medicaid. and it was people were expecting it to be six to up to 9%. Right.

And it's only 0.9%. It's actually consumer, those are consumer friendly shocks. Yeah, that doesn't sound like the type of thing that would derail the economy. It just sucks if you own you and age. Yeah,

so if your health insurance, it's bad. Okay. Can I interject and say one thing? So on this show, and on every show, we talk about what's happening with opinions about what's going to happen

in the future. That's what we do, right? I was listening to, you know the book by William Goldman, Adventures in Screen Trade. There's a line that's always quoted from that book, nobody knows anything. Like, that is, so William Goldman wrote

a Princess Bride. He was a screenwriter and a novelist. And during the book, he was talking, he said it's 1982. And literally the whole point of the book is nobody knows anything. People that are making movies don't know how the audience is going to react. Like, nobody knows anything is the whole point of the book. He said, I know we have nine months left in the year,

but there is no doubt in my mind that ET will win best picture. It was 1982. He goes, I don't care. Steven Spielberg, E.T. is going to win. Gandhi won. So all of the stuff that we're talking about in the future, we're all doing the best we can. Yeah. That's right.

It's just a guess. The future is uncertain. I agree. It's true. What do you do to stack the odds, though, in your favor if you have to, if you have to have a view and you have to make a call or people are relying on you to, all right, we get it. It's unknowable. But, like, still, what do you think? how do you stack the odds in your favor

to be right more often than you're wrong? And you're the right person for being asked this question of because you are right more often than you're wrong. Well, yeah, thank you. Which means I've been guessing. I think we say that every time you come on, you are due for a coach street.

That's why he has an entourage here. If you were wrong about the bull market the last three years, be nobody on this bench hanging out with you. You know how that's how Wall Street works. Well, I'd come in my McDonald's uniform. Tom, can I tell you? I just spoke to a young man.

Right, I didn't even get an answer to my question. No, hold on. More flowers. I spoke to a young man last month. And he mentioned how Tom is always bullish. I said, listen, you don't get it. You're a senior in college. It's easy to be bullish now.

But there was a time, young man, not so long ago when it was not cool to be a bull, where everybody was bearish. And anybody that had the nerve to make the bullish case was ridiculed. And you have not been bullish since 2022. Like, you've been right the whole way. And I think that's a part of a big part of why you have commanded a legion of followers is because every time the market dipped, most people came out and said it's going to get worse. And you were like one of the lone voices who consistently has said, it's probably going to get

better. So you're right. Thank you. So how do you do everything you can so that when you are making a call, it's got a reasonable shot at being right? Yeah. This is not a great analogy, but I'll explain it. And then I'll explain how we do it.

But let's say you're in your house, but the lights are off completely. But you're feeling your way around. And then like, so you feel like something fuzzy and then you figure out it's your living room. Or if you hit your foot on a corner and then you know you're in the kitchen. Right. That's what I think trying to navigate markets are like because we don't really know where we are at any moment. But like then you try to find what gives you situational awareness. And we do that by doing a lot of cross-market analysis.

So we take a lot of cues from volatility or what credit markets are doing or commodities. And that informs us of like what the state of the equity market is. But a lot of our work also is trying to look at with this current snapshot of all that, where does it place us? You know, does it put it back into 1950 or 70 or is this, you know, Hong Kong? and so we're trying to place ourselves. That seems to be really important to you, the point in the cycle that we're at. You seem to pay a lot of attention to that. Is that something that you learned from someone else,

or is that something that you just figured out over time? Hey, this is like the real signal. This is what really matters. You know, I don't remember where I heard it, but I remember hearing a few things in my early years. One was, you know, don't fight the Fed. And I think that's important. Another is...

Is that, Marty's Weig? Who is Don't Fight the Fed? Ronald Reagan. Yeah, it was probably Ronald Reagan. Okay, go on. Yeah. Or it could be Uncle Martin. You remember that movie with Martin Short?

He says, don't fight City Hall. Right. Okay. But the second is demographics or destiny. I don't remember where I heard. I could have heard it in college. But when I did wireless, that was a lot of the work I did when I was a cellular analyst. It was really building cellular penetration models based on what I call vintaging, like tracking what

young people did. And then we figured when they become adults, they're going to control everything. Right. Okay. So based on those two things and you're feeling around in the dark, where are we? Like, how would you describe the position that we're in now? Because most people would say, what goes up and must come down. It's been too good for too long.

Valuations are stretched. Blah, blah, blah, blah, blah. You know all the whole litany of things. So what would you answer that given that you're using those two ideas as a backdrop? Yeah, well, a couple things that are observable. One is earnings growth is picking up this year, not just in the U.S. but globally. Yeah. That's not usually late cycle.

Okay. And market breadth has improved a lot. Okay. You know, like this year, someone said it's like a rolling risk appetite cycle, but a lot of things are going up that means the market's broadening. Actually, it's also broadening outside the U.S. Yeah. And then the third thing is there's arguably reasons to be optimistic incrementally, like whether it's AI or blockchain.

I think especially coming out of Davos, you know, when I didn't go to Davos, but I was following a lot of the reports and the panels. It's clear to me traditional financial institutions are starting to build on blockchain as a productivity driver. That's a big story in the U.S. especially. Fidelity just announced their stable coin. It's huge. Yeah, that's right. And today the SEC and CFTC had a joint announcement. They want to make sure the U.S. is the crypto capital of the world.

Yeah. And then there's onshoreing happening kind of everywhere and defense. So there's things that are driving global spending. Materials rallies tend to be late cycle. And I would argue the biggest bull market right now in the United States at least. Maybe this is true in other places overseas is energy stocks, gold miners. The base metals are rallying and all those relationships. companies. I talked about a steel stock today as part of best stocks in the market.

Like, when was the last time a steel stock was one of the best stocks in the market? And yet, here we are. There are multiple. So, like, how do you square those two ideas? Or do you not agree that metals and oil rallying are late cycle? Do you think that's more mid-cycle? I mean, one, the precious metals move is probably the trade, right? Like, silver and gold are, like, if I was just an average investor, that that trade has been working like every day and for weeks on end. So it makes sense people are investing and it's, they're astounding. And I talked to Tom DeMarc today about that. You know, he does think there's still room for that to extend.

He doesn't think it's exhausted yet. No, he thinks gold can get to 8,900. Oh, my God. This is the best. Nobody's ready for that. This is the best month since 2008. Yeah. Unbelievable.

I'm pretty sure at 8,900, the story. the Fed's balance sheet like dramatically improves, or the U.S. Treasury, because we own so much gold. But the thing is, who is left to buy it at 8,900? Who's the next buyer? Like, at that point, wouldn't, I guess what I'm asking is to get to 8900, you would assume every central bank that's got the wherewithal to buy has at that point already bought? Or do I not understand how it works? it might be ass allocation because I had a brief conversation with Joyce Chang from J.P. Morgan. Yeah. Hang on. Let me just pick up all these names you're dropping. So, got it. I'm kidding. I'm teasing. Go ahead.

Oh, well, yeah, she was saying if you just do high net worth one, half a percent allocation. Right. Incrementally into gold, it's now you're at 9,000. Wow. So it's, it's just small amounts money moving into precious metals that could get us there. Okay. Is gold similar to the stock market where we should expect V-shaped recoveries there because the primary trend is so powerful?

Or could you envision a scenario where like a 15% drop in gold and a 25% drop in silver puts an end to the rally that we've been in? Like what would be your instinct if you saw a correction in these trades? And by the way, if both those two things happen, they would both still be in intermediate and long-term uptrends. But how would you look at an event like that? I mean, today's kind of a snapshot, right?

Today there was a big intradade decline in gold, and now it's like down 1%. And silver had a huge intradate decline, and it's like barely down. The buyers just came flooding in. Yeah. Okay. And then someone's telling me,

I'm not a commodity expert, but now I'm like learning a lot on the fly. But like the physical market's even tighter. So the prices are actually higher in the physical than in these financial markets. Okay. And I'm going to quote Tom DeMarc. He says this looks more like 7980. So then it might be a topping process.

Okay. I mean, it's sort of parabolic. No, it is parabolic. It is. Silver definitely is. I guess what I would ask is, can you think of a historical example where gold and silver were doing this? and the stock market was rallying right alongside of them. It seems like it's rare.

Like the bull market for stocks didn't start in the early 80s until after gold and silver were destroyed. This is a little bit different. This looks more like an everything rally. Yeah. I mean, someone pointed out, and I think it's correct that, and again, we're not really sure exactly why, but if someone said this is everything but the dollar,

then maybe it makes sense. Yeah, okay. Got two charts for you on this. first comes from our friend Todd. So on, we are looking at precious metal ETF's daily trading volume. That's a great graphic from Todd. He does great well.

Metal mania. This, you know, this, the previous spikes got like maybe up to 20 billion, and we're now at $64 billion. So people are going absolutely mental about this. And then our friend Warren Pyes has a chart showing gold secular bull markets. And the first bowl, he poses, which is the real crazy one, 1971 to 1980. Then we had the second one.

He marks that from 1999 to 2011. That's the purple one. And today, the green one, 2018 to 2026. So shorter and sharper than the last one. Yeah. Okay. Yeah.

By the way, if you do like Wall Street bets, top most talked about stocks, it's SLV and GLD. Unbelievable. I'm not surprised by that. No, no. Unbelievable where we are.

Yeah. So Tom, One of the things, one of the narratives going into 2025 that has cooled off dramatically is bubble, bubble and everything, especially the AI bubble. You don't hear much about that anymore. Oracle is in a 51% drawdown, like 51% got cut in half. Microsoft is down 12% today. And then just the broader market, you have a great chart. John, chart for it, please, showing that we've had six black swans.

Black swans might be extreme but whatever six like events in the market since once has to go back to 20 what year is that? 19. Yeah, the end of 2019. Okay, and the PE has gone sideways. What are these events? Where's the bubble?

COVID shutdown. The supply chain. Inflation. Fastest fed hikes in history. Tariffs. USA bombs Iran. Yeah, there's been some shit. So some stuff has happened. And I don't know, what's the message of the chart?

What are you showing people when you show valuation alongside of those events? If this was a company and we threw six events that should wipe out the earnings power of that company, but the company grew earnings, we would consider it super resilient and re-rate it to a higher multiple. That's a great point. You'd be willing to pay more for that asset for the earnings of that asset. Yeah, because it's indestructible. And so today when people say the markets, expensive. I kind of think we just threw six black swans at it and it's still the same.

Do you think the stock market's indestructible? I know, not forever, but like, is that how you feel? It is acting more indestructible than many people appreciate. For sure. Somebody, because people don't tell me they think it's indestructible. No, because who would say that out loud? It sounds crazy. Yeah. Somebody said to me that they can't understand, they're not like professional investor, but they have money in the market. I can't understand how it feels like the country, like the social fabric of the country is being torn apart. And the stock market keeps going up. And my response was like, yeah, because people have more faith in Tim Cook than they have in Congress.

What you're saying is not only not incongruous, it actually explains people have more faith in the earnings power of American companies than they have faith in any of our elected officials. And that's why they'd rather have their money in stocks than in a lot of other types of things that they could be doing. Yeah. I think there's a lot of truth to that. What do you think? I agree. I remembered about 10 years ago coming across a survey where it was millennials who were much younger back then have more trust in tech companies than the government. So they're willing to share more information with the tech industry than the government.

Yeah, good bet. All right. Let's get into Tom's outlook. Well, one of the dynamics that I love about the market today. is that the market is separating the we from the chaff. And the winners and the losers are diverging. So in 20, whatever, over the years, tech has been one trade, right? Like they've all gone up together.

They've all gone down together. And now, not just now, over the last six months, John, chart five, please. You see the big tech correlation breaking down in a big way or chart in the next one, John, please. So we're looking at it, the rolling six months and it's crashing. So, like, today is a great example. Next one, John. You have Microsoft down 12, meta up 10. These names generally, obviously, move in the same direction.

We've literally never seen a day like today. And it's funny because they both reported yesterday. Same story, CapEx. Maybe the market is spooked that Microsoft's 45% of their outstanding orders are tethered to open AI. It's like, that's a big question mark. But their spending is up 66%. Metas has doubled from year over year.

but meta is showing monetization in reels and the market is speaking. Yeah. I mean, I hear people parsing the reasons why they're afraid of Microsoft, right? Whether it's the value of the future revenue book or whether it's because AI can redo Excel and teams and a lot of the products. I think maybe it just shows you people are still trying to figure out how AI is progressing. Because now they're just deciding that Microsoft's a loser in the AI. race somehow, but I would probably guess it's misplaced. I mean, I think Microsoft's been written off in the past, you know, in the pre-2000 era. People thought it was just a software company,

and it came running back. Lost $400 billion in assets today. Now, that money can come right back in tomorrow, so it's not, it's not like saying like a fund lost $400 billion in assets, but can we just pause for a second and think about that number? That is the market cap loss of Microsoft in one day. It's pretty remarkable, right? I think it's $1,000 per American citizen, right? It must be, right? Yeah, because there's 330 million people. It's pretty remarkable. I want to get into your, I want to get into your outlook. John, I can't see what slide. I think it's the first one. So walk us through what you're telling people they should expect in 2026? I think it's a lot like 2025. Fundamental stories better. But,

But one difference is instead of a hawkish Fed, we have a Fed that eventually the market will realize is dovish because we have a new Fed share and they're also not inclined to hike anymore. Yeah. So that's a positive. But the negatives are there are some signs of stress in the economy now because of high rates, whether it's consumer or private credit. And we know valuations are more expensive because we have three years of gains behind us back to back. Right. And I think that this is the year where we've seen more policy shocks coming. I think the White House is being more aggressive.

I don't know if it's because they want to get things done before the midterm. I would imagine that's part of it. Yeah. And so that makes it harder for people to hold things with conviction. Okay. So I think all of that means the market can look like last year, which we have a big drawdown. However, there is good news. You know, the rule of first five days, which is on the right side, on the tailwind side,

It came in positive. Okay. Which is a good thing. The first five days were up. Positive, yes. Okay. But we just completed some additional work. And Matt Sermonero probably has like similar stats.

But if the first week is positive and then the first month is positive, the probability of an up year jumps to like 92%. Is that right? Yeah. I didn't know. I knew that was a thing. I didn't realize it was that extreme. Some of that data sounds random, but like 92% is so strong. And it's 75 years.

So N of 75 is still a lot to look at. Yeah. Which years fell into the 8%? Just out of curiosity, did you bother to look? I haven't looked at it yet. That's in the weeds, but that would be interesting to say, what threw it off? It could be like 9-11 or something. Yeah.

Like, it could be like an obvious thing. What if it's like 08 in 2000, you know, 74 or something? Okay. So you have a bunch of headwinds here. And for the people listening that aren't seeing the slide, I just, I think it's worth sharing a couple of things. we got to the valuations are higher, obviously, because stocks have gone up. Low-grade consumer stress in subprime and auto loans. We have been able to look through this.

Not on the individual company level, the stocks that cater to the lower-income consumer have absolutely felt the pain of what's happening there. But for the most part, like Apple stock does not care about that. You know, like the big stocks that matter are looking right through it. Do you think that that could be the source of the next correction is that it just becomes an overwhelming amount of evidence that there's too much struggle at the low end? Or do you think that that's a low probability thing to worry about? I mean, it's probably one of those things where it's a social question because, you know, it is a burden for consumers, like all this inflation. Yeah.

And then it can create problems for government leaders. And so it can swing elections. Yes. But mathematically, the consumer, the lower 50% isn't as impactful to GDP as the upper half. And I think that's why the market hasn't paid attention to that. That hasn't been a stock market story. That's been a political story. Yeah.

But then it can become like a – that's why we've capping government credit card rates, etc. At the way things are going, he's going to lose the house. And if he does, it'll be 80% because of the affordability crisis that the polls say is squarely being blamed on him. I'm not saying you should agree with that or not agree with it. I'm just saying that is what the polls are saying and then maybe 20% immigration enforcement chaos. But like, to your point,

that may not be a market story today, but a blue wave in the house would absolutely become a market story because part of the bulk case right now is all the deregulation, which will obviously grind to a halt once they have to actually start voting. on things.

Yeah. So that's why it makes sense, like capping health care rates, trying to get oil down, credit card fees, capping. Like, those are things that would help a lot of folks. Well, also not to be the bear of good news. And I'm not suggesting that the lower end consumer is on fire at all. But if a lot of those loans that are bad loans in the subprime auto market, happened in 2022.

We're on the other side of that now. And if things were that bad, ally financial, which is the biggest lender to these consumers, the stock wouldn't be within, I don't know, 3% of a 52 week high. Yeah. And that's forward looking. Like, come on. Like, this is the truth.

You have margin, New York Stock Exchange margin debt at an all-time high. Michael and I would look at that and we're not as smart as you. And we would just say, yes, that's usually what you see when the stock market's at an all-time high. Margin debt. Just because it's a function of the overall size of the stock market capitalization, are you, by adding that into your headwinds, Are you implying that there could be something more to that? Yeah, there is a little signal. So, and we'll probably start writing about it.

Oh, here. This is margin debt. So 1.214. Is that $1.2 trillion? Yeah. As of November 2025, and that obviously is a record high. And for context, in July of 2023, it was $710 billion. So it's almost a full double in two and a half years.

Yeah. Okay. What's the signal there? What we found was if you look at the year of year change, it's actually positive for stocks until the percentage gain exceeds 38%. The percentage gain of the margin debt itself. Yeah. We're there.

Yeah. Actually, it's at 36 right now. So it's almost there. Okay. Because what it means is like most of the gain is now being fueled by the consumption of leverage to drive the gains. So in that top decals in the last 30 years, the forward returns go from 70% positivity to like 40%. So we're almost at the point where it might be a headwind.

So can I show you a chart from your protege, chart go out, Matt? So I do like what you showed, which is like the amount of money coming in and the year over year change. So what I had Matt do was show me, show me margin debt as a percentage of Russell 3000 market cap. And it's pretty low, but it's accelerating like in a meaningful way. Check this out. Right. So historically low or like nothing to be too concerned with, but look at that rate. Look at that change. rest as a percentage, so it's 1.8%. Yeah, so normalized for the overall market cap, but it's accelerating pretty violently. Yeah, and that reflects a cohort of people because a lot of people don't use margin debt.

But, and, you know, I don't think the Robin Hood community uses margin debt. They're probably buying more zero-day trading options. Oh, I would say they're doing both. Okay, or maybe both. I would guess both. Yeah, so when we think of it as a percentage of market cap, it's not necessarily representing like how the cohort is trading. So there's a cohort that's really employing this debt that they're exhausting.

So the 38% threshold, what happens then? Well, so forward returns turn negative. So that's what would be... For the whole stock market. Yeah. I mean, that would be the case for the why there could be a drawdown to kind of reset everything. Yeah. So if you get that drawdown and a lot of that margin debt comes out of the system and we

normalize at a lower level, most people, yourself, myself included, would say, okay, great, we had the cleanse. Like, you sort of need cleanses on the way toward higher prices. I don't even know that we would look at that as a headwind or negative. Yeah, so for investors, drawdowns are good because everyone has a more ability

to allocate at lower prices. But what did you say, like always, John, chart seven, please, the correction is happening under the surface. So, Oracle, as I mentioned, cut in half. This is the Mac 7. Microsoft's in a bare market,

Tesla's 14, Apple's down 10. Like, there's opportunities, whatever. like things are happening. Yeah. And the market's broadening out. Like, does the market not need Mac 7 for the next like higher? Yeah. I mean, for me, if I'm an investor, I mean, and I didn't own Microsoft, I mean, they can buy it 22% cheaper.

Right. You could buy it at a lower valuation than at any time over the last two years. And all that premium from OpenAI, that's all gone. You could almost argue that's part of what's hurting the stock. I want to ask you about the software correction generally, not just Microsoft. So I think the IGV is in a. 25% drawdown right now. And I don't know when the last time we've seen that, probably 22.

Every one of those names looks like shit. From Workday to ServiceNow, Salesforce.com, like, one after the other. Even the cybersecurity software names are down big. Look at this, bare market. So this is the application software sub-industry. So you have, and here's why I'm bringing this up. I think you're thinking about AI as a bull you just told us. it's wreaking havoc on the stock market right now.

It's not the AI theme, if anything, is erasing market cap, not adding it, at least in software stocks. Now, I understand people are taking that money and buying utilities and God bless them, but like, are we so sure that AI is a tailwind and not a headwind for investors? Well, sometimes it's easier to see the losers and not the winners. Okay. I agree with that. Yeah, so software, I think, is now being chosen.

as a loser because now AI can write code and replace a lot of subscription services. And I don't know if you've seen the charts recently about tech employment, but it's actually declined. It's like one of the few industries where there's fewer people. Remember they said to everyone learn to code? Yeah. Not great advice. Learn art history, it turns out. Might be better advice. Do you think the market is right to kill software like this?

Usually it's a signal. You know what I mean? because you know it's washed out when you have bad news and it doesn't go down. But if you have bad news and it's going down, that means... How about good news and it's going to... So Service Now had great earnings. Stock is mauled and it was already getting destroyed. Okay, so that's also a bad sign.

It's very bearish. If you go down on good news, it's a bad sign. I would argue the reaction in Microsoft relative to what they actually announced is a really bad sign because there was like nothing negative there. It was like slightly higher expenses, slightly lower Azure growth. It was like, 38%. It was their guide in Azure down from 39%. And the market's like, all right, we'll take $400 billion, please.

Thank you very much. So that's like not a, I know it's anecdotal, but that's not good when one of the largest stocks in the market reports a quote-unquote regular quarter. And they act like it's the end of the world. I take that as like a negative sign. Obviously. Yeah. And, you know, I mean, I learned when I was an economic analyst, like there's like a three-quarter where, like, if a stock misses, you know, you kind of can't touch it for three quarters,

or two or three-quarters. So. Okay. But it's still an opportunity for a long-term investor. Can we say that two things are true? The reaction of Microsoft today is not bullish. Obviously, it's a size 10%. It didn't say anything terribly bad.

The street is worried about its open AI exposure, to which I would say good. I love that there's no bubble. that investors are actively rejecting the AI bubble. Again, for the third time now, Oracle, cut in half, Microsoft, bare market. Can't have a bubble of the biggest stocks to cut in half. So just in terms of building a wall of worry, I, as a long-term investor, love that people are being cautious and discerning about risk. Yeah.

And later this year, you know, many of these will actually become listed. So now you don't have to guess what it's worth or what its impact would be. I mean, part of it is open AI is like a mysterious, like, privately held, but now it'll be public. And then now it looks like SpaceX plus XAI will be public this year. Right. So you'll, remove some of the mystery and the people that want to affect trades on what they think those stocks are worth, we'll be able to do that all day long. Correct. Our large IPO is like, I don't know if historically is the right word, isn't there something a little bit like, too much supply? Yeah. Yeah. Is it a top signal? Yeah. I mean, it's going to suck up demand,

right? Because it's a big amount of supply coming. Yeah. So, I'll never forget. I learned this lesson when Blackstone came public in 07. They were like the quintessential play on booming real estate. And they were like very heavily involved in emerging markets, mostly China. Like they were like in all of the quote unquote hot areas. And this is before we were talking about liquid alts and, you know, the revolution. This was just about like this style of investing is the best style of investing.

And I think they bought equity office properties from. Sam Zell at the top of the real estate market. I think, if I remember correctly, that IPO was like a meteor or like an asteroid hitting the surface of the earth. Yeah. So when BX came public, first, it wasn't a corporation. It was a partnership, which meant if you were stupid enough to buy the stock for your clients, which I was, you got to tell them, you just lost half your money and you have a K-1.

Like, that's your, that's your, that's tell your account, you have another K-1. That's your gift at the end of this. But I've always looked at those giant IPOs that Michael's talking about, and I think Open AI qualifies. And SpaceX. Not as the beginning of something, but as the end of something. Where does the money come from? It's hundreds of billions of dollars, potentially. Well, yeah, but this might be different.

Okay. And let me explain why. Like, SpaceX, when it goes public, is actually a huge wealth creation event for many of the people who invested in SpaceX. I know some people who are seed in it, 50,000, and I think their stakes worth $150 million. That's insane. Because the company's worth $1.5 trillion. Sounds inflationary.

Well, I think that's the equivalent, like, of a massive tax refund for the U.S. economy. Well, they have to wait six months. They're locked up. They can't sell on the IPO date. Yes, but they might be able to get margin or they can use duress. We're going so much higher. So you're saying that these people that get,

liquid from SpaceX shares, they're going to put it right back into the market and take out us blocks on it. Yeah, so think of it as like the alternative world who has had no return, suddenly all these venture funds that are 99% of the funds value is SpaceX. Waiting for exits. Has a huge distribution. So all that money going into the economy again. So you're saying I should have Michael start cold calling the SpaceX seed investors. Yes. Okay. Yeah, Ritholds should actually, you know, do a pilgrimage to all the... We have very cheap credit.

Yeah. Very cheap. All right, we did the January barometer. We did the FINRA margin cap. Where do you want to go next? Let's do the... Let's do the broadening. John, charge 12, please.

So, it's Thursday. It's 340, and Microsoft got killed today, down 12%. What's XLK doing? Maybe that's not the bad. XLK is down 2%, but that's a bad waiting.

The NASDAQ 100 is down 96 basis points, okay? 96 basis points for the NASAC 100, and the RSP equal weight S&P is down two basis points on the day, flat. And this broadening trend that we're looking at, so this is a truck from Uri and Timmer showing the equal weight versus the cap weight, and he showed that there was a clear narrowing earlier late last year, and now it's broadening.

So the S&P cap weight has turned sideways, and you're seeing a breakout in the 493. I love it. I think this, now listen, if the Mag 7 were really rolling over, I would say, all right, well, that's not good, right? Because they are the leaders. But the fact that they're going sideways

and consolidating Microsoft notwithstanding, I think this is as bullish as you could possibly be. Is that part of your bull case for this year is that we'll have like the next hundred stocks up making a play for new highs? Yeah, and I think this is confirming, a broadening is confirming a bull market. It's very good for institutional stocks.

stock picking because they can't own that much MAG 7. Right. And institutions can, of course, employ their own former leverage through prime brokerage. So it means that you could actually have new dip buying coming from institutions. I think this would be really good news. Your clients must love it. What are they asking you and saying about this? Well, yeah, I think they are breathing a sigh of relief that's not just the MAG 7 anymore.

Finally. Yeah. And so people are seeing, especially the long short folks, seeing good opportunities. A lot of them are doing non-U.S., yeah, I think that if someone's global, I think I understand now why they are looking at global. Like, because there's now, as someone point out, there's going to be two countries that are winners in AI, like the U.S. and China. Do we know that? Yeah. I mean, I think China's AI works really well.

And, you know, China has done a good job on EVs. And then I learned recently they're actually pretty big on. healthcare and biotech innovation. Like, I think they are exporting more licenses than any other country. So, like, a lot of European drugs are actually licensed from Chinese labs. So then it means the supply chain, like the countries adjacent to China could be doing better. So it's good for stock picking. I mean, so there's more stories out there.

I think the international story is so interesting because last year they did not have earnings growth, but those markets went up 20 and 30 percent because it was like a mind- it was like a mindset shift. And I think a lot of the leadership in those countries and the people that run the stock exchanges, et cetera, some of them, it was just like jawboning, but some of them actually passed rules, like forcing companies to increase shareholder value.

I think they all sort of looked at the United States recovery from the pandemic and said, like, what are they doing that we're not doing? And I think all at once, they kind of got the memo. oh, their capital markets are on fire. And look at all the benefits, like the domino effect. When stock prices are rising, you get increased consumer demand for everything under the sun. You get like, you get executive confidence. You get more investment.

It's just so, it seems so obvious. Even if you're a socialist country, you should root for your corporate champions to get bigger, not penalize them and find new ways to sue them. And I think that's the switch that flipped. And that led to that re-rating last year. And then this year, to your point, now you're going to get the earnings growth in these countries that explains the re-rating of last year. And that's a pretty great, like, follow-through story. And I think that's why you're seeing people allocating, going out of their way to allocate more to international large caps.

My best guess is that's not like a six-month phenomenon. That feels multi-year to me. And I don't think it's late in those months. markets at all. What do you think? Yeah. I think the more I look at it, the more I think what you said makes sense because then on top of that, there's dollar could be kind of weakening. That could only help. Yeah. So then it could be a long, there could be a long tail to that story. The more I look at it, like the less, I think it's just a one-year thing. Okay. I like that idea. I want to go to your, to your strategy again. So what to own? Stocks that benefit from a,

Stronger 2026. John, do you have this? All right. Energy basic materials. Is there more to say on energy? Well, part of it is, so energy and basic materials were our top sector picks this year. Yeah. But I didn't anticipate precious metals to do so well or the metals. But it was really because they had underperformed so long. The level of underperformance the last three years was something you only seen one other time in the last 75 years. on precious metals. Yeah, so I think it might, well, I think it, I don't know where the slide is, but there's like what we have is, Z scored, how much standard deviations of underperformance.

Yeah. And it was at the same level you were at the, at the 2000. So you'd have to say the same thing about energy then. Yes. Energy has like done nothing for five years. Correct. So it was energy and basic materials. And that's why we made it our top sector pick this year.

Yeah. I think it's going to be right on that one. And those charts all look outstanding to me. Yeah. Like they're being, these stocks are under accumulation. I don't see any way. way around it. Yeah.

I have a question for you guys. Why do we say basic materials? Why don't we just... Because they're not precious. There's precious and there's base metal. But why not just materials? I mean, I never say basic materials, but I know it's what the sector is called.

It's kind of weird. Wait, what do you mean? Basic materials. Yeah, that's the Gix one... Yeah, oh, it's just how they classify all those... Yeah, I'm saying, like, where'd basic come from? I don't know. Maybe we'll never know.

Yeah, you know why? I think they were thinking of as a manufacturing person. Like, these are the basic... materials and then there's the interim goods, yeah, and like industrial, it goes into the industrials. But you're right, you know. The more you know. That was like a, that's like an agrarian concept or something, right?

Yeah. You have Bitcoin and Ethereum, not surprisingly, as what to own. Tom, what the hell is going on? Bitcoin is crashing today. Can you tell us, can you tell us a little bit about the crypto market over the last three or four months? Because it was a very, it was like a, it was like a, it was. was on fire and like the story made sense like, all right, you have pro crypto administration

of the White House. Now the SEC is on board. Now, like everything fell into place. And you had people on both sides of the aisle in Congress falling all over each other to collect money from the crypto lobby. And it just looked like, all right, finally, it's a regulated market. It's accepted. Products are rolling out.

People are using it. Inflows are hitting the funds. and then it like hit a wall. And I don't like have theories or whatever. We had J.C. Peretz on last week, two weeks ago. He's just like, oh, this is easy. They started trading options on Bitcoin. That was the top, which I guess was someday in October.

I don't know. What's your story for why it's been so directionless over the last few months? Yeah, crypto was doing well until October. So do you buy that story, the option story? A few things happened in October. Okay. So crypto was actually up like 36%. And then from October to the end of the year, it actually had a, in some cases, like a 40% drawdown.

Yeah. One was a big de-leveraging. There was basically a pricing exploit that took place on one crypto exchange that led to a, what they call, an automatic de-leveraging. Then that cascaded across all the crypto exchange, and it was the biggest de-leverging event in the history. in the history of crypto, bigger than what happened with FTX after SB. So what happened? The people with leverage got unwound and they were forced out of longs and it kind of wrecked the trend. Correct.

And it was a pricing error, but it liquidated over 2 million accounts globally. I wiped out, I think, a third of all market makers, which are important for market. They're the equivalent of central banks. And it crippled a lot of crypto exchanges. So their balance sheets took a huge hit. Coinbase is in a 50%. drawdown. I think it's second 50% drawdown since coming public. And Coinbase is a big company. So if that stock looks like that, you can only imagine the privately held players in the ecosystem,

what that must have meant to them. Yeah. So Coinbase, let's say, is a fortress balance sheet. Then imagine those who have like okay balance sheets. Okay. Does that run its course? In 2022, it took about eight weeks, eight to 12 weeks before risk appetite could recover. So we're like kind of in that outside window. So Salon is hitting new lows today. So Bitcoin is down six, eth is down seven. It does not want to score. So it might be accelerating to the downside. Yeah.

But it's so weird with the, like, juxtapost to gold. Like, it was supposed to be supposed to be. Digital gold. Yeah. Well, there's other things happening. So, like, in Bitcoin, I think there is a turning of the holders because one of them is, you know, Bitcoin's like 14 years old. So like the crypto punk, the 20-year-old is like becoming a mature person.

And many of them made fortunes. So they've been selling their Bitcoin. Okay. And then, as you know, there's this quantum risk that is more Bitcoin-specific because quantum developments are accelerating. Yes. And about a third of Bitcoin wallets are not upgradable. So they're actually quantum vulnerable.

Okay. Can I say a dumb question? I don't know anything about this, obviously. If quantum computing was a thing and we could hack the Bitcoin. coin blockchain, why wouldn't they hack, I don't know, the central bank or everybody's Chase account? Like, why would they go after Bitcoin first? Yeah, so quantum operates more like an A6, like a brute force of a repetitive calculation. So it can break encryption.

So Bitcoin's encryption is what can be broken. You're right. So you can break a lot of encryption. But banks hopefully would be upgrading all their customer passwords, make, force you to do a new type of password. And that's how you avoid quantum vulnerability. The thing is, like a lot of Bitcoin wallets like Satoshi's haven't ever been upgraded. So the, and of course, Satoshi's wallet, how do you upgrade a wallet to make it so that the, the, the, the, the, the vulnerability to quantum computing will be protected against? You'd have to fork Bitcoin. I mean, but, or you

have to contact the guy and say, like, upgrade your wallet. If it's like a ledger wallet or whatever. So, but I'm saying if you upgrade your wallet, it you're safe, but the price might not be safe. Well, if you... You might be safe from losing your Bitcoin, but if there's a mass hacking event, or there's some way that, like Michael,

not an expert, but if a lot of nodes just go away because they're worried about that risk, or if somebody even comes, somebody influential comes out and says, I have information and I think, like, literally there's a quantum computer right

now in the process of hacking the the the the bitcoin blockchain like that you could upgrade your wallet but the price is going lower well one if someone developed a quantum hack yeah they wouldn't reveal it like a a nation state would just steal those one-third of the bitcoins until somebody starts to notice yeah um now ethereum for instance upgrades twice a year so it's quant they're already developing quantum resistance so like a lot of blockchains are going to be quantum resistant Okay. Just the way, like, Chase will upgrade all their encryption. Have you ever seen sentiment this bearish outside of FTX?

Like, people are just seemed totally done. And I know crypto is so weird that it can get its mojo back in two seconds for no reason. It could be up 15% tomorrow for all I know. But, man, it looks like it's on the mat. It is right on multi-month support. And it just looks pretty gnarly right now. Yeah. So one, actually, from a technical perspective,

crypto is, this is what Tom DeMarc actually is expected. So he's been hired as an advisor at Bitmine, and he actually told us Thursday was an important day, and it turns out today was an important day because we've had a big decline in crypto. But this is more akin to the end of the selling, not the beginning. So you don't think we're seeing another leg lower? Well, for instance, Ethereum might go to 2400, but it's a touch, and then that's the bottom. But that's going to coincide with precious metals peaking. I mean, remember, precious metals has sucked all the risk

appetite out of speculation out of crypto, right? A lot of it's come out of crypto into precious metal. It's like unthinkable six months ago. Nobody could have foreseen back to we said nobody knows anything. I've heard that I have heard that story that the people trading crypto have moved over to gold and silver because it's working, working better.

They're probably telling themselves that they're being conservative right now. But there's another story that I've also heard from crypto people, which is that if you thought Bitcoin was a store of value away from the dollar, now with the ready access to stable coins and the full acceptance in the banking world of stable coins and pending legislation that might even allow stable coins to earn interest, stable coin holders to own, what purpose does Bitcoin serve? Like if we were using Bitcoin to get money out of fiat currency or get it

out of the traditional financial system, well, now Bitcoin is fully a part of the traditional financial system. That's number one. And two, it f***n moves too much to be useful as a store of value. It's useful as a trading vehicle. Stable coins are amazing as a store of value because it's a dollar. And it's always a dollar. So did the advent and mass popularity of Circle and all of these stable coins now, Fidelity launched one this week, did that steal some of the use case away from Bitcoin? Have you heard that before? I know I'm not the first person that say that. I have.

But there is a really big story around blockchains, which is Wall Street dismissed blockchain and crypto as like just experiments. But now financial institutions are rebuilding settlement layers using blockchains. That's what standard charter said at do. The UBS CEOs says that in a few years, there's a convergence between digital assets and traditional finance because blockchains offer finality and a lot more security. And Larry Fink says he thinks that the entire financial system is going to operate on one common blockchain.

But why is that good for Bitcoin? Well, it's probably good for Ethereum. Okay. Because Ethereum is the- You wouldn't be talking to your book now, would you, Tom? I haven't written a book on that. He's so good at this. All right.

Go ahead. Go ahead, say more about Ethereum. So Ethereum's the useful blockchain that can actually help bring that sort of thing about. Because that's really where stable coins have been built. It's a, you know, you do smart contracts so you can lock information and prevent it from actually being altered. You know, you could put a million-page legal document on the Ethereum blockchain. If someone tries to change a period on that blockchain, the hash fails. Right.

So that's how you protect information. Right. It's a 100% up time. This is what Wall Street, as they think about the narrative around the future, is they're building their entire system on contracts like Ethereum, which is really bullish for Ethereum. What is the timeline when you say they're building their entire system? I would say 99.99% of the whole financial system now has nothing to do with blockchain at all in 10 years. Is that 50% or is it 5%? Like what would be the bull case on the financial rails of the?

Let's just leave banking out of it. Let's just do Wall Street, for example. So trading settlement, et cetera. How much of that is running on Ethereum rails? I might be able to give you a snapshot. Okay. So if we talk about stable coins, Tether has about 160 billion of U.S. dollars tokenized on their,

as a company. Yes. But it's mostly running on Ethereum. even though it's only 168 billion, which is less than 1% of M1, so it's not even like risk assets. It's not credit equity tokenization. They're going to make $20 billion this year. Actually, because of their balance sheet, they might be making like $24 billion. And that's just the interest on the treasuries that they own to back the dollar value of the coin.

And because they're over collateralized, they actually own like a now almost $30 billion with their gold or something. Oh, wow. Right. Okay. But they're, so let's say they make 20 billion, not 24, but somewhere between 20 and 24. They're at top five most profitable bank in the world. It's amazing. They make more money than Goldman or Morgan Stanley. That's amazing. And that's just a single, a monoline product with 300 employees.

Okay. Now everybody is coming for that profit margin, as you know. At JP Morgan Fidelity, everyone will have their own in-house. stable coin because why on earth would they allow something like this to continue? Yeah, what's better for the banks of a stable coin? I don't pay you anything. We just have to keep it all? Yeah. Correct.

Okay, and that's one product. So now you can build stock trading, which, you know, Vlad and others want to tokenize stocks. Nice to eat, though. Right? They, well, they'll use an L2. Yeah. They might try to use other chains. There's other chains and some banks are using these privacy chains.

I'm not going to try to throw shade, but some have had exploits. Some have had famous exploits in other countries. Okay. But I'm not like... Get me and Tom. I don't want to be suicided. You think if they are built, if they are tokenizing assets, you think if they're smart, they either build it on ETH in an existing L2 or they come up with a new protocol,

but like that's the right world to build that. Yeah. So let's say the Wall Street tries to do their own blockchain because they want to control the narrative, then there's going to be a new J.P. Morgan that is like Tether, that'll be built on the public chains. Because Tether's built on public chains. And it's better than, you know, J.B. Morgan has 3,000 employees. Tether is 300. And they make almost as much money as J.P. Morgan. It's crazy. Tom, I got to ask you about digital treasuries. This was all the rage. You entered the game, I don't know, eight months ago. You could correct me if I'm wrong. And this was the way that people got

exposure to crypto with leverage. If Bitcoin was up 2% strategy was up a lot more than that. Strategy is now in a 70% drawdown. Bitminer is having similar pain given that nobody wants to own the underlying. Let's assume that there is a bottom coming soon for these strategies, for these assets. Why get exposure through a digital treasury company as opposed to just owner the underlying. So digital asset treasuries really only two have been successful. I'm, I mean, empirically, like since October, only two have actually been able to buy more crypto, micro strategy and bitmine. Both have bought more than $2 billion. It's a scale business. Yes. It's not a cottage industry. There shouldn't be 50 of these. Yes. Okay. Now, Bitmine is still

because the, the Ethereum, which is what it holds, generates revenue. Bitmines got about a billion dollars of cash, and its staking rewards from its Ethereum is going to be almost $400 million this year. Okay. And they're earning $40 million from their cash holdings. Okay. So it's a very profitable company. Is it trading out a discount to the other line or not anymore? No, it's trading a slight premium.

Okay. But just that, let's say you treat it as net income. It's like the 708th most profitable company in America today. Have you looked at, like, have you looked at the correlation between, let's say, the price of ETH and the price of BitMine and come up with a rhyme or reason for, like, in other words, if somebody said what percentage of the decline in strategy or in BitMine is due to the price moving of the underlying? I'm sure it's a moving target, but it's got to be like almost all of it, right? That's right. And there's two betas. There's decline beta.

Because he's asking if those assets, not the stocks, if the coins stop coining to the downside and start coining up, is the, like, why would you buy the Treasury version? You're going to make more money buying the Treasury because, see, the Treasury has a beta to the decline because the price of the underlying is falling. But when the price recovers, then you're unlocking the ability of the Treasury to raise more money quickly. Okay. And Bitmine has what we call moonshots, you know, made an investment in Beast Industries, one of the largest shareholders in Beast now, which is... Do you like him personally? Do you guys get on well? Our corporate values are really aligned.

Okay. Because, you know, he's highly ethical. Kindness matters. He's a genius. He is the biggest... Like, obviously, I know I'm not saying. Yeah, there'll never be another Mr. Beast and maybe ever, right? I mean, someone with a billion followers.

He was early and amazing at what he did. Yeah. Okay. So you're making investments like that that are not directly correlated to the price of ETH, but you'll probably always trade alongside them. Yeah, but that is how you create onramps to Ethereum. Because, you know, Mr. B's audience is, you know, he's the biggest single person for Gen Alpha, Gen Z, and a lot of millennials.

Those are the next wave of financial consumers. Right. So, you know, Beast Financial is going to obviously be a really successful endeavor. What is he doing? Well, they'll disclose. They've disclosed Bees Financial. But I don't want to share their plans. Last question.

I know a lot of our audience doesn't care about crypto. So apologies for those listeners. Where is the money coming from for you guys to continue to buy ETH when the market keeps going so much lower? It's institutional buyers. So Morgan Stanley, Bark Asset, Fidelity, they're large holders of BitMine.

What percentage of all the ETH do you now hold? I know the goal was, was it 5%. Yeah. Currently, it's 3.52%. So you almost there. If you include the cash that's not been deployed, it's close to four.

So about 70% of the way there. Have you guys given public guidance when you think you'll hit that goal? And if and when you do, are you upping that goal? Or would you then say, okay, mission accomplished, we are the war chest of ETH?

We haven't given guidance, but it's probably some time this year. One thing to keep mind if at 5%, it's close to $500 million a year net income. Wow. And if Ethereum recovers to its ratio to Bitcoin, to its historical all-time high, that's around $12,000 ETH,

it's close to $2 billion a year in net income. So it's... It ain't nothing. Yeah. All right, stock market. Look at this candle for the clothes. Look at that bullish candle for SPI. Wow.

Holy shit. Is it a hammer? I mean, dude. I sort of like it. Near an all-time hide, they can't even take it down for one day. It's a bull market. I don't know what else tell you. You have Mark Newton in-house?

We do. Okay. So what is he telling you on the technicals right now? He likes stocks in the interim, in the near term. Okay. He's also in the same camp. that we'll have something that feels pretty bad sometime in the middle of this year. Well, no, what's pretty bad?

Because there's always a correction. Like you said earlier, you think bear market, you think we're getting at 20? Yeah, it could be 20, but from a higher level. Right. So let's say we're 7,300. I mean, that could be 1,400 points, right? So then 5,900 could be the low. I mean, that would be painful.

I want to do one more with you. And not specific to the stock, but when people ask me, all right, AI, everybody, gets it. Going to be huge. Companies are spending trillions of dollars. We all understand that. Like, what's the next leg to the bull market? My answer has been robots. I've been pretty clearly bullish on robots for 10 years now. Tesla last night told the street, they're going to stop making Model X. They're going to stop making Model S. I think the models that really matter there now is like the Model 3 and the Y. That's like what they're really going to focus on. And then the cyber cab. But then the decision to to stop making those cars is to focus full-on autonomy,

which is a fancy way of saying robotics. And he's talking about the humanoid robot being for sale to normal people by 2027. Now, we know he's usually five to 10 years early on his projections, but that's like part of the charm, I guess. But that's pretty, A, that's pretty notable that they're dropping two of their four top-selling cars just to make robots and to make automated vehicles. What are your thoughts on that as a signal? And do you think the robot thing is going to be the next phase of the bull market the way that I do? Robots could be huge, right? Not necessarily humanoid robot, but just the idea that autonomy is enough to be a new bull market that we're not even in yet. Yeah, because robots are forced multipliers. Like, it makes every human a super

Or... Or unemployed, but sure. Yeah. An unemployed superhuman. Yeah. If robots pay taxes, then you still come out ahead. Right. Right.

Because you might start taxing robot. The robot makers at least will pay the taxes. Yeah. Okay. You know, or the DoorDash robot pays taxes. But you don't have this in your themes. Is it too early? We do have a labor shortage as one of our investment themes.

Because they will use robots to supplant or to fill the hole. Yes. There is a structural shortage. of prime age workers that is going to be lasting for the next 10 years. So there's a use case for robots. But I agree with you. Like that is a really big unlock that in the real world, you have agentic robots moving around.

That's very productive. Like it could create a lot of GDP, but remember, it could generate so much tax revenue that the U.S. government doesn't have to tax people anymore. You might not even have to work. Come on. So that's, yeah. So that's what, that's what.

No more taxes? Yeah. I think we could stop paying taxes because the robots are the ones that are taxed. And then what? Wait. People may not even work then because there's so much surplus generated by the robots. Robots pay taxes. Yeah.

You tax their activity. It's micro-taxing. That's what you, but you would need a blockchain. You are living in the future, my friend. I love it. You're not at all in any way pessimistic about... We'll be the animals. Like, we'll be the robots, visit us in the zoo.

We're just like sitting. You're not in any way pessimistic about the combination of AI and robotics. So physical AI. Like the number one occupation for men in the United States, like job title is driver. This is not about the future. This is right this second. Like, I understand it's the greater good and it'll be cheaper, better for consumers, like the cost per mile. I'm all in.

but I am worried about like the in-between once everybody gets used to that. And that could be, I don't know, couldn't that be decades? That's what we're seeing in the software stocks right now. Like, you're not at all pessimistic that like we might need a pretty vicious economic down cycle to get to that other side because a lot of people are going to get laid off all at once. I think the U.S. is going to come out certainly as a winner and China. Okay. So I think every American today is going to benefit from the surplus generated by robots.

You do? Yeah. But I give you an example. Like in 1935 before the advent of Flash Frozen, okay, 30% of Americans worked on a farm. Right. And food, you know, food spoilage on the supply chain meant you, like, you produced a lot of food, but like it spoiled. And so they were frozen. It couldn't go far.

It couldn't get that far. And most grocery aisles were like fresh. Yeah. within 20 years, Flash frozen allowed food to go from 20% of the wallet to five. And it went and took farming employment from 30% to 5%.

So if you were an economist in 1935 and said, in the next 20 years, 90% of all farming jobs are going to disappear because of this technology. That would have sounded scary. Yeah, people said like, oh, it's another depression. But instead it was led to a boom.

There's a great Steinbeck novel, East of Eden. Love that book. And they're farmers. And then toward the end of the book, they get into Flash Frozen. And actually refrigerated train cars, I think, is a big plot point there. Yeah. Because it takes place in that era that you're describing. Made me think of it.

Yeah. So that's like robots because that's 25% of the entire workforce. You're not worried about these adjustments between now and then and people wandering around for five years before they feel the benefit of the surplus. Because right now, Tom, a lot of the benefit of all these things seem to be. to be going to the top 50% of households, the bottom 50 don't have equity. And I just, I feel like that's the same thing but on steroids. But maybe I'm too, maybe I'm too pessimistic about it. I mean, social policy, yeah, has to change.

You know, hopefully people become productive with their extra leisure time. I mean, maybe everybody will have leisure time. I don't think that's a good thing. I think people got to do something. What are you going to do? Watch Judge Judy old day? I think people want to be needed. Yeah, we don't want people.

watching TV, right? We want people to aspire to something. Right. And so if the robots take that. So like Elon said, and I'm not sure if he was like joking around the way that he said it, but he said like he predicts mass civil unrest followed by mass prosperity. It's like, all right, well, can you like ballpark the timeframes of these things? Because maybe I'll go on vacation for a few years. So like that's the thing that I think about. And obviously like there's a lot of paranoia always about technological displacement. That's not new. But this time it just feels like really visceral.

Yeah. And we're at a time when the country's really divided too. You know? But, you know, we're seeing some good things. Like organized religion is making a comeback. And, you know, like I think guys like Jimmy Donaldson that kind of push kindness and virtue. Beast. That's a good thing.

Yeah, Mr. Beast. Like that's what I'd rather see people push than divisiveness. But, you know, I'm a bit of an optimist. missed on how this all shakes out. One thing we can all agree on, Granny's unite. What's going out with the Granny shots? How are we doing there? Yeah. Granny's good.

Last year, Granny outperformed the broader market by, I think, 700 basis points. Holy shit. And this year, it's outperforming by 150. What is the composition of that portfolio look like this year versus last year? Is it very different or not really? It is different. There is a tilt more towards industrial materials. Basic ones?

And some basic materials. Yeah, basic material. Okay. Total assets of the three, there's not three grannies. There's the original granny. And then there's the small mid-cap granny called Granny J, G-R-N-J. What is that? That's small-cap grannies?

Small mid-cap, yeah. Okay. What are the assets in the mothership granny? Is $4.4 billion in one year now? That's crazy, dude. And- Is that right? Did you break a record?

I believe... Year one? I don't always done that. I believe $3 billion it was the fastest for an independent equity, like for a non-eastern equity, like for a non-large house. Last time you were on, I think you were out a billion and we were like, come on, how? Like, in like three months. Yeah.

You doubted the power of the granny shot. I never doubted the granny. So the total of all three is like 4.8 now. That's amazing. And what's the way? What's the third one? Granny-I. Los Grannies?

No, Granny-Hod. International grannies? No, that's coming. Of course it is. I told you about it. We're going to give you a licensing fee. I gave you the whole suite. I laid it out for you.

I want equal weight grannies and I want it right this minute. Yeah. Wait, what's the third granny? It's income granny. So it's generating. Yeah. Great attention. You know, it would be great if you actually name them after the actual golden girls.

Like, just, I'm just, I'm just going forward here. That's funny. I think people would be into that. Yeah. So, all right. Tom, we love your optimism. And we need it. We had Jeremy Grantham sitting in that seat last week.

So we need a little pH balance. Yeah, a little. You ever meet him? I did a, I did a. a fireside chat with him once. Okay. What are your impressions of him? Well, he's very sage. Yes.

Very wise. Yes. He's really into... Sage is what they say. You're saying he's older? Yes. Yeah. And he's really into like extractive things like forestry and fishing and owning land. I mean, that's wise. Yeah.

Right. Because that's, those things have done well. But I didn't agree, and this was probably in 2012, I didn't agree with his dire. equity outlook. Yeah. Well, good call. One of the things that Grantham does not talk about, Michael and I were talking about it shortly after talking to him, he's probably given more money philanthropically to causes that he cares about than like anyone else, the two of us have ever met. Well, that's for sure. He's like one of like the one of the great philanthropists. And he's not like in the doc before the podcast. Like, hey, guys, bring up my, bring up all my philanthropy. So we didn't

get to it, and I actually feel like we should have. He's an amazing, amazing gentleman. So, and I'm glad to hear that you appreciate that as well. Where can we tell people to go if they want to subscribe to Funstrat, learn more about the grannies? Like, what are the best URLs to send people to? Okay. If they're interested in getting our research, which is almost daily videos and notes, it's FS Insight.com, like F, Fnsight.Sysit.com. Okay, what else? And if they want to learn about Granny Shots, the website is grannyshots.com. Okay. And we explain the process.

We have weekly videos there explaining our holdings and how we own the stocks. It's a very transparent product, including we talk about weekly performance, but or bad. Yeah. And of course, if they're interested in learning about BitMind, they can Google BitMind, I suppose. Awesome. I love what you're doing. And congratulations on all your success. And thanks for hanging out with us.

We love seeing you. And we'd love to have you back at some point this year. Yeah. All right. This is my, first of all, you guys have the best conference.

Oh, thank you. Looking forward to future proof in Miami. All right. Can't wait. Awesome. Wait, you're about saying

something else nice. Keep going. Yeah, no. Did you have one more nice thing that you want to say? Yes. I, okay,

you guys, you also have a great podcast because I like listening to your voices. Like, I don't have to watch you guys talk. I can just listen. We appreciate that.

Amazing. And we'll see you again soon. Ladies and gentlemen, Thank you so much for watching. Thank you for listening. Check out Fun Strut and Granny Shots. And remember, if you like the show and you want to tell people about it

and help the algorithm, throw a like on that. Maybe do even like a review is good, right, Duncan? Reviews help? We love that. Why do the reviews help? People don't understand this. It just gives people details

about why they might like the podcast. Right. That's all you got for me? I mean, it's important. Do it. You didn't have a monologue prepared about comments. All right. All right. We'll let you up the hug. All right, guys, we'll see you next week. Thanks so much.

You get it.