The Compound and Friends - What's Really Going On At Goldman Sachs?

Episode Date: July 25, 2023

On this TCAF Tuesday, Willam Cohan joins Downtown Josh Brown to discuss what's going on at Goldman Sachs. Then, at the 34:40 mark, join Josh and Michael for an all-new episode of What Are Your Thoughts and see what they have to say about the biggest topics in investing and finance! On this episode they discuss: the earnings recession, the Dow's win streak, expensive stocks, the movie business, diverging sentiment, and more! Thanks to Kraneshares for sponsoring this episode. For more information on KLIP, visit: https://www.kraneshares.com/klip/ and be sure to check out Ben and Michael's recent Talk Your Book with Kraneshares COO discussing the KLIP strategy: https://kraneshares.com/talk-your-book-internet-stocks-with-income/ Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com 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. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to The Compounding Friends. We're putting this episode out on Tuesday night, July 25th. We've got a really great show for you here. First things first, we're going to talk with Bill Kohan. If the name sounds familiar, Bill is one of the best investigative journalists, opinion writers, and just all-around guy who knows what's going on in terms of Wall Street. And as I talk about later, he is one of the people who excels at covering the business of business. If his name sounds familiar, you've probably seen his columns at Vanity Fair over the years. He's also the author of several best-selling

books. House of Cards is perhaps one of the most well-known. He wrote The Last Tycoons, which is about Lazard Frere. Money and Power was his book about how Goldman Sachs came to rule the world. He wrote The Price of Silence about the Duke Lacrosse affair. And most recently, Power Failure, which is the story of the rise and fall of General Electric. is the story of the rise and fall of General Electric. So we have Bill on to talk about the most recent quarterly report and rumors and innuendo involving Goldman Sachs. And there's talk of a power struggle. There are a lot of really unhappy people at Goldman Sachs, long-time partners. They don't like the profitability dropping at the firm because, of course, that affects their bonuses and distributions. But they especially don't like to see a crosstown rival in Morgan Stanley seemingly on the rise and beating Goldman on a lot of their best sports,

their best events, if you will. So Bill knows what's happening. We talk with him. And then following that, our regularly scheduled What Are Your Thoughts segment. It's Michael Batnick. It's me. We talk about the earnings recession. We get into the economy. We look at some individual stocks that are interesting. There's a mystery chart. We always have a lot of fun. So stick around for that as well. Thanks so much for listening. Without any further delay, quick disclaimer, and we'll get right to Bill Cohen. Talk to you soon. Okay. Hi, everyone. It's Josh Brown. We are here with William Cohan. You're Cohan or Cohen? I'm never

100% sure. Either one works. I'm calling you. I'm calling you. I'm calling you Bill no matter what. But perfect. Thank you. We're here. We're here with Bill. And I've been really looking forward to this. I'm a huge fan of Bill's journalism and his writing. And let me give you guys a quick bio. Bill is a American writer who previously worked as an investigative reporter for the Raleigh Times. He's worked on Wall Street for 17 years as a mergers and acquisitions banker. He spent six years at Lazard in New York, then Merrill Lynch. He later became managing director at JPMorgan Chase. But he is perhaps best known as the New York Times bestselling

author of multiple books about Wall Street, Goldman Sachs, the fall of GE. He is, in my view, one of the sharpest commentators on what's going on in the street. And I wanted to have Bill on to talk a little bit about Goldman Sachs, because I think this summer, it's probably the most interesting story on Wall Street. It's a company that reported earnings, not great earnings on, was it Thursday or Friday of last week? I think it was Thursday. It's all running together. Okay. So Goldman reported a quarter that you would call a kitchen sink quarter where they basically said, okay, here's the stuff that is not working out well. We telegraphed this way in advance. We're getting out of these businesses, but here's the red ink.

And it almost feels like it's a refresh for the company. But I wanted to get your take on whether or not the rally in the stock since they reported this quote unquote terrible quarter means that Wall Street is willing to give them the benefit of the doubt that the worst is now behind us. Yeah, I think, Josh, first, thank you for having me. It's great to be here. I think, you know, if Goldman doesn't know how to telegraph, you know, its tough quarter to investors, then nobody does. So I think they did a very good job of that. And they kind of, as I say, sort of like a kitchen sink quarter, threw everything in that they could think of that was within reason and that was negative. You sort of add back those

one-time charges. And it wasn't all that different than Morgan Stanley obviously has a much bigger wealth management, asset management business than Goldman Sachs. Goldman Sachs is much more geared heavily towards investment banking, very tough environment in investment banking and trading right now. up you know 14 and a half billion dollars of net income uh in the second quarter you know on track for like an absurd kind of 15 billion dollar year uh you know and you can see how that happens because they've got you know whatever two or three trillion dollars of deposits they pay nothing on that money, literally zero or 0.1 basis point or two basis points. So literally, they're getting it for free. And then they can lend it out at big spreads, and it just all drops to the bottom line. Goldman doesn't have that, obviously. Morgan Stanley has a little bit more of that than Goldman, but not like B of A and JP Morgan do. So you can just see in this environment where interest rates are high and deal volume is low, they're just crushing it.

Yeah, I think JP Morgan is probably not a great comp for Goldman, even though in name only, they're both considered banks. Morgan Stanley is the better. I want to start out by saying, I don't even think things are going badly at Goldman Sachs right now. I think what Solomon is going through, the question of whether or not David Solomon will remain CEO through this period,

what he's going through is no different than what the leadership at every company goes through when profit distributions shrink from one calendar year to the next. Because the overall profitability of the entity is ultimately how the partners, it's a public company now, but the stakeholders get paid. And nobody likes to see their pay go down from one year to the next. I think it's louder at Goldman Sachs than it would be at most companies because of just historically how much money has been made there.

And I think that he's just got a similar challenge to a lot of other CEOs, but maybe it's augmented by the fact that it's Goldman Sachs. They're not supposed to have a down year. fact that it's Goldman Sachs. They're not supposed to have a down year. And then what makes it harder is the Morgan Stanley comp, because Morgan Stanley is on fire in many ways where Goldman is not. Do you see it that way or not necessarily? Sure. I think everything you said makes sense. I mean, I think it's, look, it's not uh fair uh well life probably isn't fair but i mean you know it's not fair to david solomon uh you know given given the year that they had in 2021 which was just like a blowout lights out yeah uh you know you know when i was at lazard you know people used to be given lots of second chances.

So if they had one good year and not so great the next year, then Michel David-Weill would carry them one year to the next. Goldman, they really should do the same thing. They should combine 21 and 22 and take the average or whatever and say, did I make a lot of money in those two years? And the answer will probably be yes. So should I stop complaining? Yes. I should stop complaining because I still get paid more doing this than anything else I can do where I don't put my own capital at risk. And, you know, they criticize David. You know, by the way, you know, David has made some decisions about, you know, how to deal with the media that I don't agree with, although he was smart enough to bring in Tony Fratto to try to rectify things. But he himself is not really available, which I think is a mistake.

But he gets criticized for his DJing, his taking the private jets to play golf, to go in the Bahamas. That stuff is stupid to me, but the pettiness of people that maybe are unhappy with their bonus, I could see why they would trot that out as part of the issue. It's not really part of the issue. No, no. I think they probably don't love his style. Maybe he's a little more autocratic than they would like. But the stock, as you said, has performed well. They are in a sort of a box strategically.

They are highly dependent on investment banking and the deal business and a good trading environment in a way that even Morgan Stanley is not, as you said. I mean, Morgan Stanley, under James Gorman, did a brilliant diversity move into wealth management and asset management by buying Smith Barney. And Goldman didn't do that. They're really not allowed to do much by the Federal Reserve. I mean, there are plenty of strategic things they could do. They've never been very good at their own strategic deals.

You know, Green Sky just being the latest example of one that they did that didn't work out. So I don't know why that is that Coleman can't do deals for its own account nearly as well as it can advise other companies. Well, can I ask you about that? Sure. A lot of this consumer banking stuff that is now being – you're seeing losses. You're seeing this stuff being closed down, wound down. A lot of this stuff was not David Solomon. It was Lloyd Blankfein's tenure. And maybe David Solomon was

behind the scenes working with Blankfein on it. But he seems to be taking a lot of the blame for things that were in motion before October 2018 when he became the CEO. Do you agree with that? Yeah. I mean, I do agree that Lloyd, I think, could have diversified the bank during his tenure, especially after the financial crisis and sort of take a page from James Gorman's book. But he didn't do that because I think he thought it was a cyclical matter, not a structural matter. It turned out to be structural, not cyclical. So Goldman kind of missed that boat. Yes, and Lloyd also did start Marcus. But David really went sort of whole hog on it and then talked about, like in my first,

I wrote early on a Vanity Fair profile of David soon after he became CEO. And he was talking about Goldman getting into the cash management business and consumer banking business and doing that sort of in a big time way. And I would say, yeah, they still have Marcus. Yeah. Yeah.

He's real. Exactly. They still, they still have Marcus, but they basically have realized the rest of it is kind of like a money losing operation. I want to run through some charts with you. Just like very quickly, Morgan Stanley is up 135% since David Solomon took over at Goldman Sachs.

Goldman's up 78%. And as I mentioned, that's not bad. They've outperformed the XLF, the entire banking sector, which is up about 42% in that time. And they've beaten the S&P, which is up 69%. I would also point out, just in terms of market cap, in October 2018, Goldman Sachs had an $84 billion market cap. Now it's 120. Of course, James Gorman grew Morgan Stanley in the same period of time from 80 to 160,

effectively doubled the size of the company. And that's where maybe some of the envy comes in. And it's a little bit of a tougher comp. On revenue growth, again, back to October 2018, Morgan Stanley is a 7% average quarterly revenue growth year over year. And Goldman's actually 10. So to your point, if you want to just look at 2022, OK, fine. Maybe one firm weathered it better than another.

But you kind of almost have to take the period as a whole because it was the upside and the downside of a capital markets boom. The last thing I want to do on this, Morgan Stanley versus Goldman Sachs on earnings growth, again, back to October 2018. So Morgan Stanley's growing earnings, 25% on average, quarterly year over year, which is great, but Goldman Sachs is 31. So there's more that we could go through. But I think that the message is you may not love the share price. And obviously, there's a big now valuation disparity between the two. And Morgan Stanley's got a higher multiple.

I just think people like the strategy that Morgan Stanley pursued. They bought E-Trade, which gives them access to lots of unadvised potential wealth management clients. I think they've made a couple of acquisitions that just make more sense to feed the wealth management machine. And Goldman hasn't done as much of that. They went in a different direction with credit cards, et cetera. It just hasn't worked out as well. And that's where that valuation disparity comes from. Do you see it as just being as simple as that? Pretty much. And I think that the valuation discrepancy kind of grinds on the old OG partners at Goldman and who have substantial sway at the firm still. And, you know, remember it sort of when Goldman was totally king of the hill.

So, yeah, I think with Morgan Stanley as sort of the direct comp, now you've got, you know, James Gorman, and James Gorman just pulling off, you know, execution trifecta, strategic trifecta, and Goldman sort of left in the dust a little bit. You know, and it's even where, I mean, you correctly peg it to David's arrival. But I mean, if you think back to how close Morgan Stanley came to bankruptcy during the financial crisis, and, you know, there was a push to have them merge with J.P. Morgan and, you know, There was a push to have them merge with J.P. Morgan and, you know, reunite the two sides of the Morgan house again.

That was resisted mightily by John Mack and ended up with an investment from, you know, the Japanese bank Mitsubishi. And that sort of, I mean, that talked about one of the greatest investments of all time came from the Japanese and Morgan Stanley at that time. And, you know, since then, Morgan Stanley, you know, has been on a tear. And, you know, I think Goldman is much more dependent on the various cycles of the, you know, capital markets. Look, when the capital markets are in their favor, like 2021, when the deal business is booming and interest rates are close to zero. I mean, Goldman is like, you can't touch the place. But it's sort of the exact opposite macroeconomic environment right now. And they're kind of struggling. And- You got what? So you have in 2021, you had 0% interest rates and you had an IPO every 15 minutes.

Now you have almost no IPOs, very little M&A. You have an anti M&A FTC under Biden. So you have like a very small amount of deal making, no underwriting calendar and interest rates are high, meaning it's expensive to attract deposits. So it's almost like the worst Goldman environment you could envision. It's not going to last forever. And that's just what it is right now. In fact, the IPO pipeline is actually filling again because the market has been an unexpected little tear here in the last few months. So I think people are starting to fill the IPO pipeline

again. You know, there are people who are suggesting that the MA market is going to rebound. And look, these things are cyclical and it's been a while. It's been more abundant. I mean, I kind of laughed to myself at the beginning of the year, a number of, you know, media outlets and analysts thought that this would be a big rebound year after last year. And I just did not see it at all. And that's sort of definitely, it has not been a great investment banking year. But I think, you know, given the market rebound, which I think really surprised a lot of people and the fact that we have not gone into the much anticipated recession. Although, you know, I went on CNN a couple weeks ago and talked about the economy being better than people expected. And I got beat up mercilessly. People don't want you to say that.

Yeah. People don't want to hear that. They don't like it. I don't know why. They don't like it. I don't know. And I said, you know, people are grouchy. You know, people are just generally grouchy.

And then I got beat up for that, too. Bill, don't say it's good. Just say it's better than expected. Don't say it's good. Yeah, right. Okay. But the truth is, it's better than expected, and it's good. It's good.

It could have been a lot worse. and it's good. It's good. It could have been a lot worse. Well, now they're using the Goldilocks term, which I implore people to not say out loud. It's tempting fate when you start saying this is Goldilocks. But now that we're hearing that,

I want to ask you about Goldman's efforts in wealth. If you listen to any bank CEO, any Wall Street bank CEO, any investment bank CEO, and you ask, where is your growth going to come from? Every single one of them will say wealth management. It's almost like asking tech companies, where's your growth going to come from? They all say AI. It's almost knee jerk. Okay, great. So everyone is going to grow their wealth management business? I don't know. Okay, great. So everyone is going to grow their wealth management business? I don't know. Goldman has always been strong in wealth. And for the people listening to this who do not fully understand what they're doing there, ACO is an incredible business. They basically go to Fortune 500 companies and they are there standing by to deal with the executives, the wealthiest people in America, anything they need from an investing standpoint.

And that's a powerhouse business. But they bought United Capital, which was one of the largest RIAs in America. And they bought it in 2019 and they had to integrate it during the pandemic. And just to give you some sense of what they acquired, they paid 750 million in cash. They got 220 financial advisors managing 25 billion in assets, about 22,000 clients.

But these are not Goldman Sachs-esque people, the advisors. Not in a bad way. They're not Goldman people. They're RIAs, which are independent and probably didn't show up with a Wharton MBA. And I have to imagine the culture, the integration of one culture with another probably was not made easier

by the fact that everything was remote, everything was during a pandemic. But that's the kind of wealth management acquisition that they've been making. They're also trying to get into custody now, which is not a Goldman-y kind of business. It's very nuts and bolts, very mechanical, low margin, no glamour. So I do think that that strategy question, even if the IPO calendar bounces back and Goldman has a good second half in underwriting, I still think they're going to have that discount to Morgan Stanley because I think people from the outside looking at the wealth management strategy are not going to be convinced that they're, quote unquote, doing it right. What are your thoughts on that? Goldman Sachs has the greatest brand name on Wall Street, one of the greatest brands

in the world. And their inability to get their wealth in asset management business where it should be blows my mind. I don't, I don't understand. Like I said, they've never been good except for Jay Aaron, uh, which was back in what, 1980, uh, or so they've never been particularly good at doing M&A deals for their own account. Great advisor for other people, but for their own account, it's like one botched deal after the next, one write-off after the next. I don't really understand it. They should have a superior wealth management business.

They should have a superior asset management business. They're constantly changing heads of that business and trying to rejigger it and refigure it. And I don't understand it. And it's not just David Solomon who hasn't been able to get it right. They haven't been able to get it right for a long time. And, you know, I don't necessarily, you know, I think that's something that everybody says because, of course, you know,

Morgan Stanley has done, you know, such a great job of that, as we said. But, you know, I don't necessarily see that. I mean, you know, I think they just need, you know, I think they're really at a disadvantage because they just aren't a depository institution. They are regulated like a depository institution because they're a bank holding company. And of course, the Federal Reserve is their regulator. But they just don't have the advantage that depository institutions have at the moment anyway for a low cost of capital. I mean, you know, Marcus pays four and a quarter, 425 basis points on a, you know,

so-called savings account. You can get your money at any time. J.B. Morgan pays two basis points. So I mean, that's a sizable difference in the cost of capital. So should they have taken a swipe at one of the larger regionals in February, March, when those stocks were trading an average of 20% to 30% lower because of that temporary blip at SVB? Would that have been a better? In other words, you can't halfway be a bank. So if you're going to be regulated as a bank and you want the benefit of a lower cost of funding and you enjoy the FDIC protection on assets, et cetera, why not just actually

double down and be a bigger bank? Or would that not have gone over well with shareholders? I don't really know what I think the reaction would have been. Well, I mean, I've been thinking for years, and this is something that John Corzine once contemplated, as I wrote in my book, and ended up costing him his job. I think it's even more true now than ever. They should have bought, merged, or combined with Bank of New York Mellon because that gets them huge wealth and asset management business. It gets them Pershing, which is a great business,

and it gets them a depository institution in Bank of New York, and it doesn't bring them any investment banking conflict so i mean i can't imagine frankly a better fit but they either you know and by the way the current ceo bank of new york uh mellon is a former goldman partner so i'm sure he would want to do the deal i get the sense that he would want to do that deal and it would be a great combination and it would be a great combination. And it would create a great powerhouse. And it would be a great thing. I think if if if one of, you know, two things have to happen. One, of course, the Fed would have to allow them to do it. And the Fed has been just like it's been it's been it's been, you know, 15 years now since the Fed

has allowed any of these big banks do anything. And I'm sure, you know, Elizabeth Warren would go bonkers if they tried it. But, you know, I think Goldman needs to do it. And number two is, so number one is they have to get the Fed to go along. And I suspect the Fed, you know, it's about time for the Fed to relent. And then number two is they have to learn how to integrate an acquisition. And of course, that would be the largest acquisition they've ever done. Can they get an acquisition integration right? I mean, maybe they can borrow Jamie Dimon for six months or something. I don't know, but they need to be able to figure that out. – Without that, they're kind of at a loss. I don't think people understand how deeply ingrained Bank of New York Mellon is to like the pipes of the financial system. You talk about systemically important. They might be like DL, the most systemically important. Those are the pipes that were first put together by Alexander Hamilton. That's right.

The ETF market doesn't function without Boney. Nothing functions well. What if Pershing... Pershing's, I think, one of the crown jewels within Bank of New York. It's the third largest custody platform for family offices, RIAs. It's massive, but it's now subscale because they let Schwab buy TD Ameritrade. And of course, Fidelity has gotten much bigger. So now you have the combined Schwab TD, you have Fidelity, and all of a sudden, Pershing has become subscale as a result. What if that piece of Bank of New York Mellon could be sold to Goldman? It might be more palatable to regulators as opposed to them buying the whole bank or merging with the whole bank. Could you foresee that as something that is possible at some point over the next year

or two? I mean, I would think that if Bank of New York, Mellon, for whatever reason, put that business up for sale, that Goldman would be a logical buyer of it. But I do think Goldman also needs the other pieces. They need the depository institution and they also could really,

I mean, Mellon, you know, which is a great name in wealth management uh would be you know great i mean kind of it's got it all for goldman at this point without any concern about duplicating uh you know in the investment banking uh positions which is always a major headache i mean when i was at the old jp morgan before Chase merger, there were rumors in the summer of 2000 that Goldman and JPMorgan were going to merge. And all of us were just sitting there thinking, well, we're all going to lose our jobs because we're not going to displace- It's too much overlap.

Too much overlap. It would have been a bloodbath. This is not that. This is more complimentary, you're saying. Right. And I think the market would love it. It's not investment advice, but I think the market would love it. And I think the Fed has to, at some point, say, look, we've got to do something to make Goldman a better competitor here. I wanted to finish by asking you how you think this will play out. You ended your piece today saying, quote, my bet is that David Solomon will figure it out and soon, because if I've learned anything about Goldman Sachs over the years, it's that it usually finds a way of having just the leader it needs at the time it needs him. And yes, it's always been him, alas. But if it doesn't

have the right person already, it figures that out too. So he's under the gun. He's got to figure this out between now and the second half of the year. All he really has to do is offset this 58% drop in profits from last quarter with something that appears to be going in the right direction. He doesn't have to solve all of their problems. But you seem to think that this is going to go in the direction that it needs to go. Yeah, I think not only do I sense that from their second quarter earnings, the sort of kitchen sink, throw it all in and get it behind us strategy. But I get a sense from the people I talk to in the Ren Goldman

that there's a lot of noise and needless sort of unrest bubbling up and I think probably got out of hand and look that that that if david can you know assuage the old the old guard the og crowd uh if he can get the earnings numbers looking a little better you're right doesn't have to solve it i think he's going to get help from the macro environment in the market uh i think he'll he'll be okay but i i don't think he's going to have the longest tenure ever, Coleman Sachs. I think he won't get, I think he'll probably survive. There won't be any kind of coup situation, but I wouldn't be surprised to see John Waldron taking over sooner than David Wood may have once linked.

Yeah. I think, I think it's nice if you could name your successor and you can pick the, choose the time of your own retirement. Uh, even if it's earlier than you originally would have hoped, it's still a, that's, that's a better ending than asked to step down. Yeah. I'm with you. Uh, before we go, let's tell people about puck and how they can subscribe and what you guys are doing there. I'm really enjoying all of the writers that you have. You're basically covering, the way I think about Puck is there's like three major power centers

in American life. There's DC, there's Hollywood, and there's Wall Street. And you guys seem to have organized around those spheres of influence. Do I somewhat have that right? Okay. I think you have that right. Yes. With a twist of fashion thrown into. Yes. And you are unapologetically, I don't want to say coastal elite, but you are talking to this audience that not only loves these businesses, but they love the business of the business. And that's the way I've always thought of you and your stuff. You write, I think you're the preeminent writer about the business of business.

And that is the perspective that you guys seem to be covering these areas. Can you talk a little bit about the idea behind Puck and what it's becoming as you guys build it out? Well, first of all, thank you for that, Josh. I mean, we started almost two years ago, more than two years ago now. And I think the idea, one of the main ideas was that we would have these verticals and that the writers who we attracted would get equity in the business. And that was very important to us as well. And so I left Vanity Fair so I could get equity and buck in it,

hoping that it'll work out well. And we're going to keep doing what you've described and hopefully become more of an important you know business and media enterprise so are you having fun are you enjoying it absolutely it's great all right yes i love it and i love my colleagues they're great so i'm a subscriber and if you guys are interested in checking out Puck, there's a variety of ways that you can subscribe. The podcast is free for everyone, which is how I discovered a lot of the content and said, okay, I want to be a subscriber to this. The podcast is called The Powers That Be. Right?

Do I have that right? Yes. Okay. And how often is that going out? Is that a couple of times a week? Yes. I think that's right. Yeah. With different people participating. Different people, of course. All right. And articles every day.

Yeah, you guys are killing it. My guest today is William Cohan. Thank you guys so much for watching, for listening. Check out Puck if you're looking to go deeper in everything from politics to fashion to film and streaming services and Netflix and Goldman Sachs and all of the biggest stories about business. And I think you guys will enjoy it a lot. Thank you so much for your time today, Bill. Really appreciate it. And for people who want to follow you elsewhere, are you on social media these days? Are you doing LinkedIn or threads or Twitter? I used to be called that thing called Twitter.

Now it's called active something. Yes, I'm there. That's my only place. Okay. And I have a website. All right. Thanks so much, Bill. We'll talk to you soon. Yes, yes.

We're back. Look at the background Michael Batnick has. Looking like you didn't want to make the bed. I'm just saying. What do you mean? That's made. Oh, somebody's head was on the pillow so it looks unmade

you're right alright listen up guys listen up gangsters this is gonna be a big show we have a lot to do tonight Michael Batnick is here my name is downtown Josh Brown

I'm here as well John is away Nicole is playing the part of Duncan behind the scenes and Duncan is playing the part of John if that scenes. And Duncan is playing the part of John, if that makes any sense.

We got tons of charts, all kinds of good stuff to reveal as we go. I want to say a quick hello to the Pounders who are in attendance for the live Cliff Peebles. Sean is here. Roger. John David Ricker is here. Rachel is here. Who else is in the house today? MD, David Walsh, Jay Luther, Rob Passarella running around.

Guys, we really appreciate you coming for the live. Thank you so much. Let's give a shout out to the sponsor. Tonight's show is sponsored by CraneShares. And a couple of things I want to tell you. They've got a product called Clip with a K, K-L-I-P. If you're familiar with Craneshare's Chinese internet ETF, which is very popular, K-Web, what this does is it sells calls, writes covered calls against those positions so that you can take an income. And you might be

asking yourself, well, why would I want a covered call strategy on something as volatile as Chinese internet stocks? To which my response would be exactly. The more volatile the underlying security, the more potential premium there is when you're selling calls. There's not a lot of potential premium for somebody selling calls against, for example, utility stocks. So these stocks move. Therefore, that income can be passed along to you. Of course, there's risk. I would tell you to see craneshares.com slash KLIP to learn more about how this product works, including the risks involved.

And if you want to hear Crane Shares talk about the strategy with Michael and Ben, there's a great recent Talk Your Book episode of Animal Spir spirits. Michael, that is how an ad read is done. Just for your own, for your own. Okay. All right. All right. Let's get into the show. So we're on a really big win streak for the Dow. I think does today make it 12 straight days? 11 plus one, that's 12. Okay. All right. So today is 12 straight positive closes for the Dow. Are we popping that chart?

Look at this. So it's not exactly a straight line, but pretty damn close. You know what we're back to, Josh? Remember Dow 36,000? Yeah. It's amazing. How'd that happen? So, all right, let me read this.

And this was as of today, US stocks closed higher with the Dow posting its longest win streak in over six years, according to Dow Jones market data. So the last time the Dow has done this was February 27th of 2017. And that in market commentator time is forever ago. So here's my question. Is this just pure FOMO at this point, or is there something else going on? Michael, what are your thoughts? With the Dow? Is the Dow pure FOMO?

Yeah. I don't think so. I think the Dow, it's a weird construction. Now, we haven't gotten into the Dow versus S&P top, but let's just break it down for a second. So we've got the top five stocks are 30% of the Dow. And it's not top five by market cap. It's a little bit funky. You know the biggest stock in the Dow by weighting, Josh? Whatever has the highest stock prices at Boeing?

It's United Healthcare. Okay. UNH. Why? Is that like a $300 or $400 stock? Dude, it's- That's how it works. H. Why? Because that like a three or $400 stock. Dude, that's how it works. It's 500 bucks. It's, it's almost, it's almost 10%. So think about that. United health is a bigger weight in the Dow than Apple is in the S and P. So, so yeah, we're going to talk, I'm sorry. We're going to talk more about Dow construction, but I wanted to ask you while you're still on that topic. Dow construction, but I wanted to ask you while you're still on that topic. I know that that leads to a disparity between the Dow and the S&P that can persist for a while, but as you have written and many others have written, eventually the Dow and the S&P, despite that weird price weighted construction, they do end up sort of in the same place given enough time. Yeah. So if you look at like the difference in returns over a rolling 12 month period,

they could be, they could get pretty stretched, but if you zoom out like 20 years, yeah. I mean, they end up in the same, in the same spot. So getting back to the construction, the second biggest stock, Josh is Goldman Sachs. Yeah. Which that's a,5%. So Microsoft is 6.5%. But then 4 and 5, it's Home Depot, McDonald's, and it's Caterpillar. Amgen is the eighth biggest stock because, okay, why not? So when you say, is this FOMO? No. Who's FOMOing into Amgen? What it is, what it is, is this. It is the rest of the market catching up to the tech giants, which we had spent a lot of time talking about. That's exactly what's happening right now.

Right. So companies that are not necessarily technology, but they're very influential based on how the Dow industrials are calculated, like UNH is a really great example, having a catch-up trade and just obviously not repeating the gains that we've seen in Apple and Microsoft, but directionally going where those stocks have already gone. That's what you think is going on here. Okay.

This might be obvious to you and I that an overwhelming amount of strength is not a bad thing, right? Like, how could that be bad, right? I guess people would naively say, oh, well, that means a crash is coming. No, it doesn't. No, it doesn't. Strength begets strength. Bespoke said that there was five previous times over the last 70 years where the Dow

was up for 11 straight days. Now it's 12. That happened only four times. Let's put that chart up while Michael's talking about it. But the previous five times, the Dow was up three and six months later, every single time. Again, it's only five other occurrences, but- I'm sorry. Say that again. This is the last 70 years. This is Dow Jones streaks of daily gains that have lasted this long. And the five previous times that you had this, the Dow was up three and six months later.

Now, it doesn't tell you anything about a year later, obviously, or two or three. But in the short term, strength is a good thing. Momentum is real. People start to chase. Is this a large sample size because it's seven decades worth of data or is it a small sample size because these types of streaks are pretty rare and there haven't been more than five of them?

Listen, that's a great question. I'm not a statistician, but I would say yes. You've framed it perfectly. It's a large sample size with a small N. All right, so we have data. 70 years, doesn't happen that often. We had US home prices today rose for the fourth straight month, which again, also miraculous. Again, K. Schiller Home Price Index. This is an index created by looking at the 20 largest metropolitan housing markets in the

country. U.S. home prices rose for the fourth straight month in May, which was not supposed to be happening given what they've done with mortgage rates, but it is up 0.7% month over month, still down 1.7% year over year, but whatever, sequentially, month to month to month, that number is now rising. We have an FOMC meeting tomorrow, 99% chance of a 25 basis point hike.

Wait, Josh, can we put a pin in this? I just want to say one more thing on the Dow thing, and then I want to return to what you just said. Duncan, I'll call you John. Duncan, would you mind throwing up the chart, the next chart from Bespoke of the number of the names? Okay, perfect. So this is as of yesterday.

So UnitedHealth was up seven straight days. Again, that's the biggest stock by weight. You've got IBM, Goldman, Chevron, Walgreens, Procter, Walmart. Josh, are these the names that people FOMO into? So to answer your question, again, reiterating, no. This rally is, chart off please, this rally is as broad-based as broad-based gets. You've got small caps ripping. You've got the equal weight catching up. You have 87% of the S&P above its 50-day, 80% above its 200-day. You'd be hard-pressed outside of Snap, which just miraculously falls 18% of retirement reports earnings. There's not a lot

of shitty stocks out there. I mean, that's not true. Snap is now lower than where it was the day it came public. That is a piece of shit. Like nothing I've ever seen. It's worse than remember when Twitter was publicly traded, how bad that was. And I have this, I have this, this shareholder scars to prove it. Snap is worse. So let's, let's, let's return to what you were saying about the FOMC. This to me, I have no way of measuring this, but this feels like the least hyped Fed meeting of the last two years. Does this feel like it's almost an afterthought? Okay. So that's where I was going. Yes.

99% chance of a quarter basis point, 1% chance of 50. They were talking about pausing like a month ago. I don't get it. The data is coming in softer. What changed? Pausing like a month ago. What changed? I don't get it. The data's coming in softer. What changed? Pausing. Well, the only thing that's changing is the stock market and the labor market's staying tight.

The stock market's going up. And now the housing market's rising. Well, I guess financial conditions have eased quite a bit. But Thursday, and I'm sure the Fed has this data already, initial jobless claims. That's not like a big one on a week-to-week basis, but whatever. You're going to get it. And then- Well, that was creepy higher and then fell sharply again. So the labor market is still ludicrously tight. Yeah. And then Friday, PCE inflation, which is what the Fed says is its preferred methodology of measuring inflation more so than CPI.

And I'll assume that by the time Tuesday, Wednesday rolls around and they're debating, they know what that number is too. So I mean, in other words, the data is coming out after the Fed moves. And maybe if they do something weird that we didn't expect, maybe we'll then see it in that data later in the week. But at that point, it's moot and who cares? I think Semblist is going to end up being right. The thing he told us two weeks ago,

I asked him if we're no longer freaking out about inflation, where is the puck going to go? And he said corporate profits. And I think that's going to be right. So, and I wouldn't argue with him even if I thought it wasn't. First of all, we just heard from Google and Microsoft and Visa, and there's just, everyone's beating all over the place. And we're going to get to earnings later. Unless margins severely deteriorate, I have a hard time that being the thing that captures

the public's attention. Put a pin in that because we're going to do earnings in a second. So many pins. So many pins. I know. This is Bloomberg. Fewer than 20 months after it began, the bear market that engulfed the S&P 500 is a mere 260 points away from being completely erased. Hold on. I see it, but I don't believe it. Up 27% from its October trough. The S&P is now about 5% away from reclaiming its old high of 4796.56 reached in January 2022. If the index completes a round trip by September, it will make a full recovery twice as fast as the average of the previous 12 cycles. This is just gangster shit that's going on. The previous 12 bear to bull cycles.

In other words, the last 12 times stocks fell into a bull market, there's an average period of time that it takes to recover. This recovery could be double as fast. It's nuts. Let me give you some more data. Let me give you some more data. I'm glad you asked. Here's what I got.

Ben and I were talking about this today on Animal Spirits. What Ben did was he broke – he separated their market. Don't try to make me jealous. I'll jump on that show anytime I want. I'm giving you more data. You're not invited. He separated bear markets into ones that had a recession and ones that did not. And believe it or not, and hard to believe this bear market,

at least, well, that's not at least. It's not yet. This bear market was not accompanied by a recession. Sorry, it's over. We might get one, but this ship sailed. This bear market did not include a recession. And the average recovery time for bear markets without a recession is 290 days. No, I'm sorry, 210 days. And this went out 290 days into it. So it's actually a little bit longer, considering that this is a bear market without a recession. I would like to issue a Dow Theory alert.

Alert? I wish I had like a horn. Go. I know, we need graphics. Alert, alert. All right. Let's just do a quick primer on what Dow Theory alert. Alert. I wish I had like a horn. Go. I know. We need graphics. Alert, alert. All right. Let's just do a quick primer on what Dow Theory is.

You sound like Josh Allen there. Alert, alert. Go ahead. I'm dumbing it down a little bit. I'm giving you a very general. Charles Dow invented Dow Theory. He's also the founder of the Wall Street Journal and Dow Jones. Nice little teaser for TCAF this week. He was blogging in 1896 about the stock market

and coming up with indexes and ways to track what's going on. Is that B-high for Substack? Yeah. The theory is that if two stock market averages both make new highs at the same time, then they are confirming each other. And therefore, the rally should have more staying power than if there's a negative divergence,

meaning only one of them makes a new high. The other doesn't. And the general economic basis behind that idea is that it's great if manufacturers are making all these goods. But you also want to see the trains and ships that move those goods showing good profits and good stock prices also to confirm that the move is real. And that makes sense to me, even if it doesn't always work out. I'll quote right here. It's also one of the first theories that sought to codify a methodology for prognosticating where

the market might be headed in the intermediate future. For more than a century, it's been a staple in the repertoire of technical strategists, blah, blah, blah. Let's put this chart. Josh, can I? Go ahead. Here we go. Yeah, it's a great chart.

All right. Whoa, Josh, you have those? Wait, you have those sound effects on your computer? I don't. That was Nicole or Duncan. I'm issuing an alert. I am formally issuing an alert that this is a confirmation Dow theory signal.

What do you want to do? What do you want to do? What do you want to do? Can I give you a third leg to that stool? A wise man named Josh Brown once said that the Dow semiconductors, which does not exist, but semiconductors are the new transports. And I think that was a really brilliant insight. Chart off, please.

And those are confirming the shit out of this as well. So there you go. Yeah. And I was going to say, well, he was wrong because this is the real doubt theory. And also he was fat and fat. Josh is no longer, uh, calling the shots. All right. Stephen Suttmeyer wrote about doubt theory today. He is also noting he's not a big doubt theory guy, but he's a technician. So he's got to mention it. Uh, so he doesn't get 5 million questions about it. And he basically said Dow Theory confirms rally breakouts for the INDU and the TRAN, the TRAN, which we don't really use that term anymore.

But that's the symbol for the index. Deliver bullish confirmation. We highlighted green shoots for Dow Theory in late April. deliver bullish confirmation. We highlighted green shoots for Dow Theory in late April. Dow Industrials and Dow Transports confirmed the tactical US equity market rally from March, affirmed the prior bull market, primary bull market from late 2022 on last week's year-to-date and 52-week highs for both indices. So it probably doesn't matter that much, but it is better that they're going up at the same time if you want to believe there's more to come. That's as simple as I would make it. What do

you think about that? It's good. It's not a bad thing even if you don't believe in it. I don't really think it matters. I mean, there's been so many negative divergences where the transports were not confirming. Over the last 10 years, I just feel like it's been a million times. But yeah, no, listen, stocks are in a bull market. Funny you say, I just Googled that. There were people saying in November, don't believe in the rally because the transports aren't confirming.

Of 2015 and probably again in 2016 and probably back even to 2013. All right, but it's good. It's not a bad thing. And you know what else is confirming? Fundamentals. I mean, it's all working. And eventually it won't, but let's enjoy it while it is. This whole conversation is so topsy. Let mean, it's all working. And eventually it won't.

But let's enjoy it while it is. This whole conversation is so toppy. Let's enjoy it while it is. All right, move on. Stop. So toppy. Stock market's going up. We're not going to stop with a few comments.

So complacent. So complacent. Actually, the VIX, no, all kidding aside, I saw an article today that options to protect the downside have never been cheaper, which is very unusual considering how well the stock market is doing and how overvalued puts usually are because people will overpay for downside protection. And now you can get them on the cheap. Okay. All right. All right. Let's move on.

Let's move on. All right. We're talking about, uh, there was an earnings recession, I guess. That was, um, Julian, I won't try and pronounce his last name, but he's a great follower said we are currently in the largest earnings recession outside of an economic recession. Very interesting. And we had Sam row, uh, on TCAF last week, talking about this, that this is backwards looking. There was an earnings recession, but obviously the stock market is forward looking and it's been getting it right, considering that we're getting beats and raises from GM, from General Electric, from 3M. I know

that we got beats in the after hours from Visa, Google, and Microsoft. So the market is forward-looking. Let's pause on that. Alphabet, as we're taping, is up 8%. This morning, General Motors beat on earnings, beat on revenue, and raised guidance. That's the trifecta. That's not a f***ing AI stock, okay? General Electric hit a five-year high, beat on earnings, beat on

revenue, raised its outlook. These are not FOMO stocks or companies that are only tangentially related to the economy. They're catching up. Josh, I wanted to ask you this. I was thinking about General Electric

this morning, seeing all the news. Is General Electric – this is probably not right. It's a gigantic stock that was removed from the Dow. It's got $130 billion market cap. That's not gigantic anymore. But it was – it's formerly a gigantic stock. I'm going to guess it's bigger than half the companies in the Dow. A third of the companies. By market cap?

It's bigger than Intel, let's say. Is Intel still in the Dow? I don't want to open my mouth and embarrass myself. I probably should have done this before. But hey, I'm on vacation, so give me a break. It's probably bigger than the consumer packaged like whatever the food companies are. It's as big as Amgen.

It's twice as big as 3M. Yeah. The thing is that, the thing is that it's a shadow of its former self. No, I know. I know. I know. It's, they've gotten out of a lot of the businesses that they used to be in. So it's not that important to the economy, but it is heavily involved in the real economy.

It's energy, it's healthcare, it's jet engines. It's a, it's a player. So it's, it's so energy it's health care it's jet engines it's a it's a player so it's it's worth noting uh gm's you know gm same kind of thing it's it's not that dominant anymore like as it was in the 1970s and 80s but it's still still gm here's uh here's tony here's tony dwyer our friend tony he's not convinced. And the last time we spoke with him, he did not think the October lows would be the lows. And I think he somewhat softened that bearishness. But he's saying- Legendary bald.

Yeah. No, we love Tony. And we'll talk to him again soon. But Tony put out a note this weekend and he basically said, don't fight the tape is winning for now. We continue to believe the combination of higher rates and our leading recession indicators will not be different this time. Although the significant lead time before recession is helping lift risk assets with

a particular rotation into underperformers like the Russell 2000, Russell 1000 value and financials. In the battle of don't fight the Fed and don't fight the tape, the tape is clearly winning. Last thing, thus far, and this speaks to the earnings point that you're making, the entire move in the S&P has been driven by valuation expansion on the expectations that lower inflation should allow for lower rates, which has yet to materialize. And he notes the bottom of consensus S&P operating earnings per share has come down over the last six months from 229 to 217. His estimate was 210. At this time last year, the 2023 S&P consensus estimate was $250 a share.

So this is what makes the bears crazy, by the way. I get it. So a year ago, we thought S&P companies would earn $250. Now it looks like they'll earn $217 and stocks are the same price. I get it. Blow your brains out if you're fighting that. I don't know what you would say. It's hard. By the way, uh, we were talking about this again on animal spirits. People are mad at Mike Wilson and I get it, but, and it just one thing on price targets.

It's not as if Mike Wilson does price targets and there's no research behind it, right? Like he, the, the, the, the media throws out the price targets and he's, he's bearish, but he's not just making, he's just guessing. Like these aren't educated decisions. People need to shut up. Everyone has to be right all the time. Like what kind of children, like every, he has to be right all the time or he's worthless. Like, is that where we are?

He's putting out thoughtful, detailed research to his institutional clients. But I just want to say I credit to him. He, he capitulated for lack of a better word. He said, we're wrong. And you never, you never see that. Like you never see a strategist and Josh last week, I was like, dude, if I was him, I wouldn't do it. I wouldn't, I wouldn't say I was wrong. I would, I wouldn't wait. Like, I love, I love that. I love that. He, listen, if you want to take your W's in public, you got to take your L's in public too.

I get a lot of credit when I guess a stupid stock right. So I got crunched in toast, pun intended, last week. Like I added to the stock and then the next day they like removed some, you know, some charge they were putting on customers. Had no way of knowing they would do that. The stock immediately 15% vaporized. It's bouncing back, but so what? It just looks so stupid.

Whatever credit that I get for getting stuff right in a bull market, wow, I'm a genius. I have to also say, hey, I'm an idiot. Look what I did. Mike Wilson's job is 50 times harder than anyone else's. Think about, he has to not just predict the economies, the central bank actions, fiscal policy, corporate earnings, every sector all over the world, how things might be affected, geopolitics, regular politics, the tides, the moon and the stars, and then come up with how all of those things might affect Apple and Microsoft's share price.

I mean, it's insanity. So I think this idea that, oh, he capitulated. Yeah, maybe he did. Look how hard that job is. What do you want the guy to do? No, he didn't. Credit to him. He said he was wrong.

I'm with you. Now I like him. Now I like him. so here's what i'm praying doesn't happen i'm praying this market doesn't sell off 10 right now that'll be rough that'll be rough he might be selling he might be selling a newsletter this time next year if that happens stop all right all right um uh bank bank of america on earnings this is via mike sic right, we've got, this is a bit data now, but we had 89 companies, 25% of the market cap. The proportion of beats is pretty much in line. You've got 67%

beating on EPS, 51% on sales, which is basically in line. We skipped the chart. Oh, I'm actually, I'm in the docs. Can we go back one chart, please? Back one more. One more?

All right, whatever. Duncan, throw up one of these charts. Let's talk on it. Because the one that I'm talking about is not that important. Well, let's just give the people the highlights if he doesn't know which one to put up. All right. So again, we're pretty much in line, but the point that I want

to make, there's two points that I want to make. You have one month guidance ratio, meaning companies that are guiding either higher or lower. And that's really critical to what moves the stock. It's not just what did they do last quarter? It's what are they saying on a go forward basis? So the one month guidance is 1.6X, meaning 1.6X more guiding higher versus lower, which is, if you were to chart this, it's breaking out. Like that is going, there we go. This chart is going in the right direction. And that's important because stocks are trading

as much on guidance as they are on the actual numbers. Like there's no- More, more, more. actual numbers. Like they, there's no, there's no debt. Yeah. And so, and in some cases more, that's right. Uh, Josh, last week we were, I said to you, wait, can I ask you a question about that though? Sure. Is there ever a scenario where the early reporters are guiding up and then that reverses like halfway through earnings season and all of a sudden it goes the other way. It's got to be uncommon. No, I doubt it. I mean, it's unlikely. Maybe it has.

It's unlikely. Okay. The next chart is the one that's important to me. Last week, we were talking about, I'm curious to see the numbers if they justify the recent rally, but I'm even more curious to see the reaction to the numbers, right? Like that's the thing that I was really looking forward to. And here from Bank of America. So earnings beats. Wait, what is a perverse earnings reaction?

That's where the stock moves in the opposite direction of the beat or the miss? Earnings beats are underperforming earnings misses. This has never happened before since 2000. So what's really interesting about this, this is sort of like the catch-up trade that we're seeing. A lot of the companies where expectations were low, but not as bad as people had been priced in, those companies are actually doing well after missing, where companies that are beating on both, which maybe had a 20, 30% run into earnings, those are the companies that are,

crunch is the wrong word, but they're actually underperforming beats, which has never happened in 20 years. That is weird. That is perverse. I blame the perverts. No, that is strange. And that can't persist. Like, that's a blip.

You're not going to have it. No, no, no. That's unusual. That will correct itself by next quarter. Maybe by the end of this quarter. So we're rewarding companies more that miss, maybe because they're doing the hard work of taking the losses and the charges, like what Goldman just did. Maybe that's part of that phenomenon. Well, that, and I'm just going to guess that the stocks just got beat up too much. And guess what?

We're in a bull market. And so there you go. This, this country's going to hell. One more thing on one more thing on Mike Wilson. We son of a bitch. We have finally arrived at the place where inflation coming down is actually a bad thing. And I knew we would get, I, you heard, you heard me. I knew we would get here eventually. Let me quote this. This Mike Wilson's guy's an idiot. I've been telling you. After years of investors worrying about high inflation, Morgan Stanley's Mike Wilson argued on Monday that disinflation may become a new headwind in financial markets. Well, 2023 has been a story of higher valuations than we expected amid falling inflation and cost cutting. However, disinflation is now eating into sales growth,

which means investor focus is likely to shift toward top line growers rather than just companies exhibiting cost efficiencies. Maybe. So now I have to worry about that inflation came down too fast? Yeah, come on. I don't know. That's tough.

How about we just don't and we all go to the zoo? And I get you a balloon and and and we feed the the panda bear yeah now again credit for that all right all right let's move on let's move all right nvidia is a guy talking about a two trillion dollar target i thought i thought it was notable this is not the kind of thing that you hear at bottoms uh bottom bottoms like all right or can i say you know what actually i don't like those tropes hashtag things you don't see at the bottom yeah we're in a bull market we're in the middle or in the middle or in the middle or in the middle uh mizuho uh nvidia shares jumped higher after analysts at mizzou boosted their price target on the tech group citing the potential for its new focus on ai wow ai uh to generate that's not priced to generate 300 billion in new revenue analyst vj rakesh said the total market for ai chips or gpus could grow

tenfold over the next five years to more than 400 billion with nvidia commanding a 75 market share that's crazy if it does then the stock makes sense here that's right um i don't know like we have a few multi trillion dollar companies what do we have two microsoft and apple that's it apple is google back there amazon's probably i don't think it's a trillion no trillion amazon's got to be a trillion no no a trillion it's not two trillion they're, a trillion? Amazon's got to be a trillion, no? No, a trillion. It's not two trillion. A trillion, yeah, yeah. They're saying two trillion on NVIDIA.

It's not even one trillion yet, is it? So what, wait, did you just say $400 billion? They're doing, they're doing 30 billion in revenue, give or take? No, no, no. They're saying, listen to me now. They're saying the total market for AI chips could grow tenfold over the next five years to more than $400 billion, with Nvidia having 75% of that market, which would be $300 billion. So it's a 10x from here, yeah.

I mean, if they do that, the stock's not going to stay where it is. It's going up. No. Dude, the stock will be dirt cheap in hindsight. If that happens, his target was raised by $130 a share to, uh, wait, $625 by 2027. It's not even like that crazy. It's crazy. It's crazy. When you realize that the stock was a hundred dollars last year, but it's not that, it's crazy when you realize that the stock was $100 last year, but it's not that crazy from here. This is, do you have, can we segue into my next topic, which is very much a continuation

of this topic? All right. We were speaking, I think last week, about some of the expensive tech stocks. I think I mentioned Cisco and how, you know, Cisco grew revenue 22% a year from 2000 to 2019, whatever the number was, but the stock still got crunched. Why? Because the market was pricing in 30% growth and it didn't do it. So this incredible chart, I've never seen it this way, but I'm so glad that Kai Wu broke

it down for us. Kai Wu, he's been on the company for us. I love that guy. He did an incredible post on artificial intelligence and go read this tonight. So what we're looking at is the dot-com darlings. This is from 2000 to 2019. So fundamental growth just measured by sales was up 1,030%. I think, what was it? 22% a year? What are the stocks in this universe? I'm sorry. Their sales, I'll tell you, we'll get there in a sec. So over the next two decade, their sales compounded at 12% a year. That's an 11-fold increase. But, chart back on please,

Duncan. But the multiple expansion, the price to sales ratio for these names started at around 40 and it fell to, I don't know, one, two, three, whatever it is. 10. around 40 and it fell to, I don't know, one, two, three, whatever it is. So you see the total return, you know, there was a 90% drawdown and it took 20 years to have basically T-bill returns with a gigantically deep drawdown. So Josh, you asked what companies are here? Duncan, if you will, next chart, please. So here we go. This is like looking at my high school yearbook. These are all my old friends. I think Kai Wu's research is like, I don't want to disrespect anybody and say he's number one,

but man, he's in my top three. Like it's just so digestible. He should be bigger. He should be like more well-known. Yeah, his shit's incredible. Let's get him back on the show. Chart back on, please. All right, so again,

what we're looking at is the price-to-sales ratio. So, you know, look, these are all nosebleeds. And NVIDIA is 40 times. If they grow, whatever. I think Kai said it's trading at 25 times expected sales next year. But the problem is, all right, chart off. Let me tell you something. Hold on, just let me finish my thought, and we'll go back.

I'll give the mic to you back in a sec. The problem with companies trading at 40 times sales is if Nvidia doesn't get to 300 billion or 200 billion, wherever the number is, this stock is just pricing in all of it. So they better deliver. Otherwise, the stock's going to get smoked. So this is, I knew you were going to go there

and it's possible. But one thing I want to correct you on, put that chart back on. A lot of these companies were barely profitable, or it took a really long time to get profitable, or they were only sporadically profitable like CMGI. CMGI is a really important example. This was not an operating company. It was a holding company. They would incubate assets. And so they would only book revenue or profits when they sold a company. Think about it as a publicly traded venture fund. You cannot compare that to a company that's making

and selling semiconductors. So not all of these. It's a great point. Okay. And obviously, that's one random example. The other thing I would say, Cabron, is that I had a pitch. I had a pitch written on EMC. Chart off. Duncan, I got to see this ass while he's talking. You would have regrown your hair and lost it again by the time I was off the phone with you. I would have closed you so hard.

$50,000 worth of EMC. First trade. Opening trade. We were clearing through Oppenheimer and I wish I were joking, Bear Stearns. Those were our clearing firms. And the only hesitancy when I got through with my EMC pitch, the guy would be like, Josh, I really want to do it, but I just, I've never heard of you. I've never heard of your firm. I need to just think it over. And I would say, okay, I can appreciate you've never heard of me. I understand that. I'm not big on publicity,

but I assume you've heard of Bear Stearns. Well, that is the institution that's going to be custodying your funds. That's where we're opening our accounts to. And that's where you're going to send a check to. Nothing is being done in my name or even the name of my firm. I trust you're comfortable with Bear Stearns, correct? He'd say, yes. I'd say, okay, great. Should we title this as a joint account or would you like to set this up individually or perhaps for your corporation? And it was always joint because these guys didn't want to fight with their wives. So they would say, what do you mean I can't open an account with Josh? You're on the account too. We're going to split the profits, honey. So EMC was a great pitch. This was a profitable business is my point. A lot of those

names on there, I don't think we're like steadily profitable operating companies. Let me give you a counterpoint. Let me give you a counterpoint. Those profitless companies, at least the story was what happens when they do become profitable. There's so much room for growth. Nvidia is already doing gigantic numbers. Michael, take a thousand shares of EMC. Just give me the next 60 to 90 days to prove the value of my information. I'm telling you, I'm not going to let you down.

What do you say? Okay. Great, great. Next. Say in. I say next you, I'm not going to let you down. What do you say? Great, great. Say in. I say next chart, please. All right. We spoke about this last week about the nature of valuations and how they've been rising

over time. So this is from the journal. The S&P 500 is trading at 27 times earnings. That's the same level as in July 2020. However, back then, low interest rates made the valuations look more sensible, says Doug Ramsey, the CIO at the Luthold Group. Today, the 10-year treasury offers more than two and a half times the S&P 500 dividend yield. They're telling me in the chat that I didn't close you. They did not close me. Rob wants me to sell him a pen. I'm going off the rails. But anyway, listen, valuations are the same place that they were in July, 2020

interest rates were at zero. And now they're a lot, lot higher. This shit is hard. So I have sympathy for people that got it wrong. They were too negative. Who saw this coming? Not me. I think you have to throw stuff out. Like the longer you're in the industry and, you know, obviously loothold is legendary and Doug Ramsey's been there, you know obviously lewd hold is legendary and doug ramsey's been there you know been around for a million years no i think you have to throw stuff out though like you have to take this like like we talked about throwing out cape ratio 10 12 years ago and that was obviously controversial i don't think it's controversial anymore um even bob schiller is not doing that shtick when he's commenting publicly.

There's a lot of stuff that I think is going to get thrown out if this market doesn't sell off this year. I honestly believe there's going to be a lot of stuff. For example, the importance of mortgage rates to the economy. Well, guess what? We might overcorrect. So in other words, well, we jacked up interest rates from zero to 500 basis points and that didn't cause a recession. So maybe interest rates are, maybe the economy is less sensitive to interest rates than we previously thought. No.

On the way down, things were weird. On the way up, things were weird. COVID, this is all weird. It's all weird. We said that we told Jack the other day, like, don't learn anything this year. Don't even pay attention because there's no good lessons here. All right.

Let's talk about movies. I'm really excited that movies are back. And let's just throw this chart up of AMC real quick. I originally, when I saw this stock go up 32% a day, I thought it had something to do with Barbie and Oppenheimer being smash hits at the box office. It turns out a judge blocked them from being able to dilute their shareholders

with the stupid ape shares. So that's what was happening there. Chart off. This was a really important weekend, though, for the entertainment business and a lot of the companies we follow and just pop culture. And, you know, one of the things that a lot of the companies we follow, um, and just pop culture. And, you know, one of the things that's wrong with America is we don't have a shared, uh, pop culture anymore. Everything's been so splintered and fragmented. We're not listening to the same music. We're not seeing the same TV shows or the same movies. This was like, watch the same sports leagues. That's about it. Even that's been severely fragmented. There are more. It's just more choice and more options.

Anyway, I think what happened this weekend, though, proves that the Top Gun phenomenon from last year was not a one-off. And let me just quote. I don't know if this is variety or maybe not. Barbenheimer is what they're calling this double dose of big movies. Barbie and Christopher Nolan's Oppenheimer. Here are some numbers. Barbie did 155 million in North American theaters,

4,243 locations. That was bigger than Super Mario Brothers, which was a very big deal. And what's crazy is that Oppenheimer in the same weekend did an 80 and a half million in 3,600 theaters. And that's just the US and Canada guys. So that's not worldwide. The numbers are even bigger, but why that's notable is it's the first time that one movie opened at a hundred million and another movie opened at 80 million in the same weekend. and another movie opened at $80 million in the same weekend.

And it's probably going to turn out to be the fourth biggest box office weekend of all time. It's a combined $300 million industry-wide. So I think that that's, like, on balance, that's, like, really good. And I actually saw Barbie yesterday. How was it? I think it was really good. Like, I wouldn't send you to it because i think that you'll probably be like all right i didn't need to see this on the big screen but i took spring i took sprinkles and did she like it fun fact when she was a a little girl

that was her nickname barbie she looked like she looked like barbie to the other kids um you got to understand she was blonde she She grew up on Long Island. All the other girls are Italian and Jewish. They all have black hair, curly. She looked like a Barbie to them. So that was her nickname. Anyway, she loved it. I liked it too.

I thought the messaging was a little heavy handed about the patriarchy, but they did it very tongue in cheek. And I thought they straddled the line between like you know having a message but then also letting people have fun when you say that gretta gerwig she i mean she did it she's a director she's a real director she's not like she's not somebody that you hire to make a video game movie or a toy i'm nervous right i'm nervous yeah she's a real director i'm nervous that i'm not gonna like like oppenheimer well i'm taking you on thursday hun so you're taking me i'm going with you i'm taking i know but Oppenheimer. Well, I'm taking you on Thursday, hon. So you're taking me.

I'm going with you. I'm taking you. I know, but I got the tickets and I'm taking you. No, you're taking me. All right. Do you want, or you have some thoughts? Last thing on this. Women obviously drove the Barbie opening.

Women were 65% of the audience, but that's, and that's not surprising. This is 40% of the ticket buyers were under 25 years old. So for the people that were saying like movies are dead and no, you, if you make it an event and you buy the licensing from Mattel, no, but if you make it something, it can be something. It's not dead. In an alternate universe, when they didn't spend

$100 million in marketing, like marketing works. They marketed the shit out of this movie and it drove people's asses. The strategy was Barbie summer. Like they literally wanted to dominate the entire summer leading into this. And they did. I went to, I Googled, I Googled Barbie and like pink, like balloons filled the

screen or something. It was like, it's everywhere. The, the key to the campaign working though is Margot Robbie is like she physically and, and like in the outfits, like just her appearing somewhere in a Barbie outfit that little girls were playing with in 1989, like recreating those classic outfits and then her showing up in them at a premiere. It's impossible for that not to go viral on social. And they did it everywhere in Europe,

like in London, in like in London, in South of France, in LA, in New York. They just, it was so perfectly orchestrated that every day was Barbie day. So the studios are going to tap into nostalgia, but unfortunately, unfortunately, um, I think that the, the, the media companies are still in such shitty positions with legacy linear TV and streaming. Look at Warner Brothers. I might buy that stock. So Warner Brothers' stock is not working despite this. Paramount sucks.

Actually, interestingly, Comcast, which owns Universal, which was Oppenheimer's, is at a 52-week high. Netflix is doing great, despite the recent drawdown. But Warner Brothers, Disney, Paramount, these stocks are just not working. Chart off, please. So I don't know that this is going to mark some sort of cultural turning point, and they're going to do more things like this. What they are going to do is they're already doing another Zelda. Another Zelda. They're doing to do more things like this. What they are going to do is they're already doing another Zelda. Another Zelda. They're doing Zelda because Mario

was so successful. So they're going to tap into this. But the problem, Josh, is if you look at the top 10 23 World War Box Office, Super Mario Brothers,

Guardians of the Galaxy 3, which is like the 30th Marvel movie, Fast 10, Spider-Man Across the Spider-Verse was the ninth installment. I saw that one too, and I loved it.

Little Mermaid, Ant-Man, Transformers, John Wick 4, Mission Impossible 15, and Elemental. The problem is these companies are not in a position to take financial risks and do either new IP. So it's just tough. I wish that there was more of this. So we're getting Killers of the Flower Moon later in the year, which I hope is going to be great. And I hope I'm wrong. I would love to see more of this. I just don't agree with the premise. It was always this way. Go back and look at the top 10. Go back and look at the top 10 movies of a lot of years. And maybe it's not all 10 of them are superheroes. It wasn't always this way

dude it was not always this way it was not always this way it was not always sequels some of the movies that you remember being from a certain year that you're like nostalgic for like oh my god that movie is so amazing it holds up i watch it every year when it comes on they were box office bombs like you and i just went back revisitedowski. Nobody fucking saw that movie in 1998. Literally nobody. I'm just making the point that you can, you still- What point are you making?

I've seen real movies in the movie theater over the last couple of years since the end of COVID that would never crack the top 10, but I think were successful. I saw The House of Gucci. I think the movie financially worked. It's just not,

it's not Ant-Man 2. But like there is room for those films. They're just not going to be in the top ten. Everyone has to stop expecting that. The spectacle ten-pole movies are going to be spectacle ten-poles. Are or aren't? Because Indiana Jones was a flop. I think movies –

They don't all work. They don't all work. They don't all work. Dude, look at those names on that list. Those were all shit movies for the most part. Are you saying Fast and the Furious is not cinema? Dude, I would love for movies to come back. And when I say movies, I mean real movies, not the 18th installment.

But I think they're too risky and these companies are not financially positioned. Start back on real quick. I would buy Warner. I think I might buy Warner Brothers Discovery. I've been looking at it too. The only reason why is because I think if it doesn't work, it drops from like 12 to 8 or 9. If it works, it could triple.

That's a 30% chance. But nine. If it works, it could triple. That's a 30%. I just. But Mike, if it works, it could, if it, if, if they hit it like Netflix, think about how bearish people were about Netflix. No, but Netflix was always the leader. The Flash was a gigantic bomb. They can't make hits except for Barbie. It went from, that's yesterday's news.

James Gunn. Warner Brothers, dude, Warner Brothers is not a leader in anything. They're not a leader in anything. They f***ed up their most valuable property. James Gunn has stepped in to the DC Comics universe. Nobody saw The Flash. He's not, that's not his film. He's starting over with an all new cast.

He's the creator of Guardians of the Galaxy, one of the strangest but most successful things that Disney has done in the last 10 years. They gave him the reins. So we're getting DC reboots again? Do you hear yourself? They won't be out for two or three years, but when they come, all will be forgiven.

You'll forgive Wonder Woman 1984. I like that movie. I know it was bad, but all right, let's let's move on all right you got the last one what are we talking about here oh more of mike's hot uh movie hot takes make sure to listen to the last 10 minutes of every episode of animal spirits okay keep it moving uh all right this is interesting so we're looking at global institutions are bearish and US individuals are bullish. So you've got the net percentage of Bank of America

fund manager survey saying that they're overweight global equities versus- This is crazy. This is never, we've never seen this before. Why would you? Why would you? Why would big money- Stop, stop, wait, stop, stop.

Feel differently about the stock market than individual investors? So AAII, total stock allocation, meaning this is what individual investors are telling the survey their stock allocation is, and they're saying it's 65%? That's on the left. Yeah. Yep. Okay. And the Bank of America is a plus minus. It's how many people are overweight versus how many people are not. And that scales on the right. I don't know what we're seeing. I have no idea what this says. You know what? Sorry. I don't know what the Y-axis means either, but the point is

these don't diverge typically like this. I wanted to tell you, I wanted to tell you one thing, just, I don't know how they're doing this chart off. This is one thing I've learned over the years and you could take it to the bank. Whenever sentiment is bearish and stocks are rising, trust the stock market, not the commentary. The pundits will either not change their tune, but buy anyway, or will change their tune. It's very, very rare that the pundits who stay bearish are eventually vindicated by the stock market giving up. I just, I can count on one hand the amount of times I've seen extreme bearish sentiment

or rallying stock market, and all of a sudden the stock market just crashing and the pundits being right. I've been saying that for the last, not, I'm not doing my own thing for the last six months. I never see it. When everybody is bearish and the stock market's telling you something else, sorry, I believe the stock market.

One other thing, May of 2020, the biggest spread between stock performance and consumer confidence of all time. Chart on. This is a contemporaneous article, the Gulf of Sentiment. Stock investors are confident while consumers are not, opening up a huge gap in sentiment between. So this is not pros versus Joes. This is investors versus consumers.

Guess who was right? The stock market was right. The consumers caught up. The vibes were wrong, Lebowski. Yeah. You might have looked at this like a sell signal, and I'm sure everyone on Twitter did. It was the ultimate buy signal.

Sentiment caught up with stocks. Your time is over. Not vice versa. Bears lost. All right, make the case. Let's finish up here. Let's finish up. I'm making the case.

I don't own the stock. Although credit to me, I put this in the doc before it had good earnings. So 3M has been a company that is under not just stock, a company that is under a lot of pressure. So this is free cash flow on top and operating margin on the bottom. A lot of this, a lot. So they were huge winners of the PP&E stuff from the pandemic. Here's 3M's business. They've got four business units. They've got safety and industrial business. They've got transportation

and electronics, total healthcare, and I'm sorry, healthcare and consumer and business. So they're like basically a conglomerate. They're all over the place. They do like, they make scotch tape and post-it notes and a ton of healthcare equipment. I mean, they are an industrial conglomerate. That's what they are. And so the company, now they're on the other side of that. Obviously the pandemic is over and they're just not doing as well as they were in the pandemic. So the company, the stock got destroyed. Deepest drawdown that they were ever in. Wow. Look at this. I didn't know that. This stock's been around for a long time. A hundred years. A long time. And then,

so at least the deepest drawdown going back to 1970, I should say. I'm sure it had one bigger in the depression or whenever this company was started. But then the stock stopped dropping. So next chart, please. The stock stopped dropping. Changing character? And was basing. And I wish I bought it when I put this chart in the doc, but I didn't. Plenty of time.

Plenty of time. Here's what I want you to do. I want you to watch for a low volume retracement. Let's see if it can hold that breakout. Maybe it can. If it gets back there and retests on low volume, I want you to pull the trigger. But start small. Well, guess what?

Josh, thank you. The most successful trade I've had in the last two years was actually buying something with that exact situation. Netflix gapped up 15% or whatever it was. I missed it. Went into the gap, filled the gap, bought it at the gap low. And I'm told that you locked in a profit

on SL Green today from the beach. I sold SL Green from the beach. What a baller you are. What a baller you are. Did your wife look at you with newfound admiration? Like, tonight's going to be your night, Michael. Yeah. You're just crushing it. Yes yes she was very turned on by my you're having a good are you having a good trip i have to go to bahamar next uh next spring break uh what's not to like about this place no i've never

been i don't know i'm asking you're gonna have a great time okay uh mystery chart are you ready are you ready can i just say one thing hold. I feel like this mystery chart is very one-sided. I just give you softballs, and you give me like sliders. All right, watch this. Give me my mystery chart. Wait, wait. Where's the actual stock price chart? Oh, I have this as a price change.

So this is something that- What is this garbage? All right, go ahead. All right, I have this is something that garbage. All right, go ahead. I have this as something. I have this as something in percentage in percentage terms because it's in the news this week and it's the downside or it's the it's the silver lining to the talk about taking the Nasdaq 100 and lowering how much Apple, how much Microsoft, how much Alphabet, what are the stocks that might potentially benefit? So I want you to think about the smaller companies in the NASDAQ 100. They're still pretty big, but these were the stocks that were said to be beneficiaries of that rebalance. In other words, the money, the index fund managers have to pull the money out of Apple

and it has to go somewhere else in the NASDAQ 100. Try and guess. So this is a small stock in the NASDAQ 100? Small stock in the NASDAQ 100. It's a media company. It's a media company. And short interest, I'm showing you because a lot of people have been betting against it.

All right. So the chart on top, this is just a disastrous chart. Yeah, take this off. Shame on you. Take this one off. But the one on top was the price? Yeah, it was the percentage return and fall this week. Can I say that chart one more time?

This is a Shonda. Not this one. You know what? You know what? It's not working out. This is all I want you to look at, okay? You're not good at this, Josh. This stock doubled.

No, no, no. This stock doubled this week and then gave it all back. Wait, the stock doubled this week and I missed it? Yes. I don't know what it is. Okay, so I feel like

you should be aware. Oh, oh, oh, oh, oh. No, I don't know what it is. You really should know what it is. Okay, so I feel like you should be aware. Oh, oh, oh, oh, oh. No, I don't know what it is. You really should know what it is. It went up 100% this week. How do you not know what it is? It's on vacation. Oh, all right.

So you have an excuse. If you were not on vacation, you would have gotten this. Okay. 100% would have gotten this. I think 100%. I don't know. It's an entertainment company Want to take one more stab at it before we close

Before we close you out Snap No I don't know Come on dude you're a subscriber too You couldn't have given me like anything related to Howard Are you serious I mean I might as well just give you

If I said Howard I might as well have just given you the ticker, no? All right. Well, you could have given me something. All right. Anyway. Nice to play. This was a short squeeze earlier in the week. And it's not often that a NASDAQ 100 component doubles in a week, right?

No. And then it's probably even less rare that it gives the whole thing back. Oh, this chart. It's crazy, right? And then it's probably even less rare that it gives the whole thing back. I thought that was – It's crazy, right? If you were in New York, you would have known. You would have been all over it. All right. That's true.

Let's wrap up. Hey, guys. Did you know that tomorrow is Wednesday? And that means another all-new edition of Animal Spirits starring Michael and Ben. Special thanks to Craneshare's and their Clip ETF. For more information, visit Craneshare.com slash K-L-I-P. Thanks to everyone who came out live in the chat. We appreciate all of you.

We love your comments. You guys are always making us laugh and think and scratch our heads, and we appreciate it. All new Compound Friends end of the week. Fan favorite guests coming back. You guys will love that too. Have a great night. We'll talk to you soon. Whether you're just getting started as an investor

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