The Compound and Friends - Why the Knockout Punch Never Comes With Brian Levitt

Episode Date: June 12, 2026

On episode 246 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Brian Levitt, Global Market Strategist at Invesco⁠⁠⁠⁠⁠⁠⁠⁠⁠ to discuss: whether the AI trade has become too crowded, why earnings growth still supports the market, and what investors should actually watch for signs of trouble. They also discuss small caps, rate expectations, consumer strength, the SpaceX IPO, and whether comparisons to the dot-com bubble are useful or overdone. This episode is sponsored by Fidelity Investments and ClearBridge Investments. Visit www.Fidelity.com/TraderPlus to learn more about Fidelity Investments and the all-new Fidelity Trader+, Fidelity’s most powerful trading platform yet. Rising geopolitical tensions, continued market uncertainty, stocks backed by can offer more predictable cash flows as volatility increases. Visit https://www.clearbridge.com/ to learn more. Sign up for The Compound Newsletter and never miss out: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Fidelity Disclosure: Fidelity Investments and The Compound are not affiliated. Views, opinions, products, services, and strategies discussed are not endorsed or promoted by Fidelity Investments. Fidelity Brokerage Services LLC, Member NYSE, SIPC. Learn more about your ad choices. Visit megaphone.fm/adchoices

I yelled at the guy at the bakery today downstairs. Here? Yeah. I'm in there every week on Thursday. I have no time for lunch. So I get a stupid blueberry muffin and a black coffee to wake up. They ring me up. They have no blueberry muffins.

Okay, fine. What do you have? Lemon poppy. Of course you do. Who wants lemon poppy? Who would buy that? Fine. I don't care.

I get upstairs. I realize the coffee is ice cold. Undri-drinkably cold. I see a microwave it. I email that. I never do this. I email the guy. I'm like,

yes he does. No, I don't. Here's a situation. No, I don't. I just let it go. I'll just never go back. I'll never go back. But I'm like,

what do you want to do here? You know what I mean? Like, well, I'm in there every week. Are you emailing? The owner. I found the owner,

I found the owner's email. Dude, you're sick. I was telling him, I was telling Josh, I was speaking an hour ago about how I'm trying to be nicer. Lemon popy muffin. Can you imagine?

And just in life, just generally speaking, you know, like just give people from grace and not assume the worst always. It feels good to be nice. Trying to be nice and Josh's going the other way. So the gloves are off. But Brian, it's hard because last night, for example, I was at the Knicks game. So jealous, by the way.

Well, I left, this is my redemption. I left game one of the Cavs series when we were down 22. No, you didn't. I did. Okay. I did. And last night, and listen, I think that people are trying to be nice. They're trying to, like, be in on the action.

It's fun. Like, oh, Michael's on the game. game. I know he's a big Knicks fan. Are you at the game? But like I had a few people text me, like acquaintances. Are you at the game? This is when we were down 25. You're at the game. Yes. Yikes. Yikes. Dude. Right. Like, why would you do that? I don't feel bad enough already. Why would you say that to me? Right. So anyway, I appreciate all. What do you think they think they think the reaction is going to be? I don't know. I think what- I think anyone wants that text? No, I don't think, I don't think that they're thinking that, oh, like, maybe, like, Michael is a genuinely diehard.

He's probably not having a great time right now. And or the people that are texting you, like, during the game are probably not thinking, like, maybe just let him enjoy the game. His phone is probably blowing up. So I do, it's nice. Like, people are trying to be nice. So I do appreciate that. They're trying to connect with somebody at the game. So I'm trying to not be, like, you know, be nice.

But I really appreciate all the people that didn't text me. Right. Right. That just, like, let me big. Yeah, don't contact me. I'm miserable. Anyway, so last night was, it was like. my wedding night. Best night. In the sense that it was, no, let me, let me, let me go on. So nothing

happened? It was, it was just a euphoric blur that I woke up and I was like, what the, like, so I need to, I need to record the game. I recorded the game. I'm going to watch it when I get home tonight, the fourth quarter, because it happened so fast that in the moment, I just completely, it was an out about experience. Of course, of course. I was just doing math the whole night, right? Like, how much are we down? How much, how do we get there? So here's what happened. I heard well, Don't say this this morning. In terms of like, because literally how did that happen? Right?

They were up 29 points. How did they blow the league? They hit eight field goals. Here's the second half. That's how it happened. No, here's how it happened. Specifically, they took 12 threes in the second half with more than 10 seconds on the shot clock, which is coaching malpractice.

Right. And you're up 20 points. You cannot take threes with 10 plus seconds of the shot clock. And they made one of those shots. One of those shots. And they, um, the Aaron Fox went for the layout with 11th. I mean, that's just, it's, it's, yeah, it's malpractice. Bonar of the decade.

But what's weird is that they're not a poorly coached team. Like, the spurs are not up until, up until what we saw last night. Right. I wouldn't say that they're expertly coached. But that's, that's like a very weird series of things that most teams would never do. I think they were trying to step on the throat. They went. They went for it.

Right. They went for it. They weren't resting Wembe. Just step on the throat. Let's get this done and get on to game five. And they missed a lot of open shots. They did. Well, they were lights out.

in the first half. They were. They played every minute of the game except for one minute. One, they rested them one minute. Right. And you could tell by the end. They were,

they were missing open shots. So they were good looks. But the other thing is, and I didn't watch the game, rewatch the game yet. I think they only called one timeout in the fourth. Which is crazy. Like, how do you not stop the bleeding?

You've got to stop the momentum. Like immediately. Immediately. Immediately. We hit another three, timeout. Josh Hart's three at the top of the key to put it down 15, I think.

Timeout. And they did it once. It was, it was inexplicable. Anyway, so Nick's fans are psychos. I was telling Brian. So I got my tickets to OKC and San Antonio a month ago, just in case. And so they ran out of direct flights. Now it's like the one or two stops to San Antonio.

You go through Orlando, Atlanta, whatever. Then that gets sold out. Then people are flying into Austin. Jonathan Boyard texted me this morning. He's going to Houston. I said, why are you going to Houston? It's a three-hour drive. Go to Austin.

He's like, dude, there's no flights to Austin. Yeah. I would imagine that. arena would be 30% Knicks fans. Mike was saying higher. Well, I said, no, last night. Oh, last night I saw that 40% of the sales on tick pick or 30% was 37% were from New Yorkers. Excuse me on what?

Tick pick. So I was at one of the Philly games. I would say 40% Nix conservatively. Like my entire section was Nix. People that live in Philadelphia that are originally from New York. People that came from New York. People that came from other places that are Nix fans to Philadelphia. San Antonio is further than Philadelphia.

I honestly don't even think it's going to matter. It's not going to matter. And if you think Knicks fans or New Yorkers were insufferable before this, just wait. Now, do they sell Timothy Shalame front row seats? Probably not. I don't know.

They put him back a row, right? Who are the San Antonio celebrities? Like, I didn't even know who the fuck would be in that front row. This guy. Honestly, like, I'm trying to... Jay R. Ewing? No, Davy Crockett.

Davey Crockett. Like literally the Alpsons. The Alamo? Yeah. Last night, there was, I saw. Oh, Tim Duncan. There you go. No, he sits up top with pop.

I saw, and I was one of them, there was a lot of people crying. Like, it was, even this morning. This morning, my wife is like, you're crying again. Again. It's just, it was, it's a lot. It's a lot to process. Well, it's like his wedding night. Yeah.

You cried on your wedding night, too. I've been told. I did. All right. Round of applause for Michael Baddick. His dreams are coming true right before our eyes. I'm a Knicks fan, but Michael is a Knicks fan. You're like almost you are a Nick.

It's at that level. All right. Mr. Cole, get a good one of me this week. Wait, wait, wait, come back. Come back, come back. Let's do, let's be... That was a failed intro. I don't think we've had that before.

Let's be deliberate. Let's be deliberate. I was a coaching malpractice. All right. Come on. I want to get a good picture. Because I'm always looking to the side, everyone always says. You still are.

Yeah. You're getting like these. profile shots have made, like these Alfred Hitchcock-esque profile shots. I'm much better head on. Let's go. All right. Let's do the show. John, click it up.

Let's go. All right. The compounding friends. Episode 2.46. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. This message is brought to you by Fidelity Investments.

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Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Redholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. 246. Go New York. Go New York. Go. You guys, we have a brand new guest with us this week. First-time listeners, first-time viewers. My name is downtown Josh Brown. My call host is always, Mr. Michael Batnik. Hello, hello.

The whole compound team is here. John's here. Nicole's here. Duncan's here. And we are blessed. We have Brian Levin in the house. Brian is the chief global market strategist and head of strategy and insights at Invesco. Welcome to the show, Brian.

My pleasure. Thank you for having me. Hell yeah. Brian joined Invesco when the firm combined with Oppenheimer Funds in 2019. He started at Oppenheimer Funds in Fixed Income Product Management. in the year 2000 and then moved to the macro and investment strategy group

in 2005. He also attended in person the 1970 Knicks finals. Is that what you told me before? I think my father. Dude, it's a pleasure to have you. It's my pleasure to be here. Thank you.

It occurred to me. I don't, like, Investco is such a huge brand in our business. Everybody knows the cues. The cues. Of course. But like, just in a nutshell, what is the Invesco superpower? Like, what do you guys, besides just the cues, what do you think you guys stand for?

And what do you think is the thing that sets you apart in the asset management world? Well, we offer a significant array of great products. We're one of the largest ETF shops in the industry, private market business, active fundamental equity, a large fixed income business with a big municipal bond shop. So we offer products that serve our clients. I mean, if you're looking for it, we likely have it. Okay. And you have been there since almost the beginning. Like, what's the origin of the firm prior to its current incarnation?

So I was with Oppenheimer funds. I was with Oppenheimer funds for almost 20 years. And we were acquired by Invesco in 2019. And if Invesco is, there's some pretty big names that are now part of Invesco, whether that was AIM, whether that was Van Kemp. camp in, you know, some names that investors know for, you know, a variety, for a long amount of time is under the Invesco umbrella. I think I can reveal this without getting anyone in trouble at this point.

Certainly the statute of limitations has run out. The funny thing about Oppenheimer funds from my own personal experience, and you probably know this, is that there was a brokerage firm totally unrelated. Correct. Oppenheimer and company. Yes. Okay, good guys. But I knew a lot of Oppenheimer brokers who would pitch Oppenheimer.

Oppenheimer funds and give the client the impression, like that. Oh, that's funny. These are our funds. So we had a difference. So you remember when Meredith Whitney made the big call on the banks, she was Oppenheimer and company. That's when it was like C-IBC Oppenheimer or whatever. And people would call us looking for Meredith Whitney.

Right. And we would say, well, she doesn't work here. She doesn't work here. Yeah, can you believe it there's two different Oppenheimer companies on Wall Street? Right. Okay. All right. It was confused.

If one of them were to change their name, which one would have been? which was the real one. The funds was the real one, right? Totally the real one. All right. The right way to invest. Shout to Oppenheimer. Just, just, uh,

blessed memory. Yeah, just, well, you are Oppenheimer, but the other one's still here. All right. Let's start with this. The most crowded trade in the market. Michael, take it away. So, um, you know, I just want to say people see me typing

on my computer sometimes while Josh is talking. What is he doing? Is he texts? No, I'm doing work. He's in a next group on Reddit. So I was just looking at apropos, of nothing that we're about to speak to. But one of your, one of the sweets of ETS that I love to look at are the equal-ated ones,

not just RSP, but like all of the other ones. So I was taking a screenshot. I asked Claude how much, how much money is in these funds total? And it says about $7.5 billion. I don't know if that's higher or lower than I would have thought. Like the equal weight technology, the, the staples. Because we look at RSPS all of the time. All of the time because X, Y is a hugely flawed product, I think.

Yeah. And you want to get a sense breadth of the market, right? you're following it, how is it performing relative to the market cap? I'm watching it all the time also. Yeah, so anyway, we're fans of that. Okay, so not that this is news to anybody, but this is so obviously the AI or nothing bull market, and I don't just mean the stocks and their prices.

If you look at the actual earnings, so this is from Jim Paulson, try down please, John. The S&P 500 new era sectors trailing 12-month EPS, and we could understand, you know, we all know what's in there, versus the old sector trailering month EPS. And this goes back to 2022. So he said many investors suggest the bull is doing fine because S&P 500 earnings continue to rise.

While this is true, earnings for most companies are actually below where they were at the start of this bull market. So I would ask you, I think probably the interpretation is that this is bearish because it's only one area doing all of the heavy lifting. What if the red line, forget about catches up, but what if that gets a lift from all of the air?

productivity. Right. And I think it's starting to happen. If you actually look at the first quarter of this year, you had earnings across most sectors posting very strong gains. So it was seven of the 11 sectors posting double-digit earnings growth, nine of 11 positive earnings growth, or maybe even 10 of 11 positive earnings growth. So it is broadening out. The interesting thing, for the second year in a row, we really were at a point where we expected the markets to broaden out. And it was starting to work, two years in a row, a policy decision disrupted it. So you've seen other parts of the market. You've seen small cap earnings start to pick up and the markets have responded. But yeah, I mean, it's an environment where the world is adjusting to a very substantial structural

change that I think even goes beyond what investors had anticipated in the beginning of the year with regards to the AI build. The S&P is up 11 percent year to date. The Mag 7 are negative on the year as a group, if you equate them. Very strange. And then I read 40%. I didn't double check it. I showed up 40% of S&P stocks are negative on the year. So to Michael's point, there's extreme concentration happening in this AI

CapEx story. And it does touch a lot of sectors. Think about it. Like utilities are in there. Materials are in there. Like, uh, industrials are in there. there. So it's not just tech, but it's one story. Like, if you find, if you find a stock that's up 20% on the year, if it's not a biotech that just got approval for something,

it's probably AI related. And I think that's the, when we say like the most crowded trade, well, why is everyone crowding in there? It's literally where the earnings growth is. And it's where the revenue growth is. And why wouldn't they want to own those stocks? So that's the story to May of the first half of this year. Do you take issue with any of that? I don't, although I would say there's really been two stories that have unfolded since the beginning of the year. You had the first one, and if we look at our leading economic indicators, the global economy moving into an expansion while the Federal Reserve is going to lower interest rates. So that's quite bullish, and that suggests broader market participation. If you think of the first few months of the year,

we had a nice feel of that. You had a pretty decent environment going on. The war in Iran's stopped it. March. Yeah, the beginning of March, similar to the way Liberation Day stopped it in 2025. So when I say two years in a row, we made a policy decision that disrupted. What are other parts of the market needed? Like, if you're going to be in a slow growth world, everyone's going to keep bidding up growth where they can find it. If you can get in an environment where you have fiscal stimulus, Fed cutting interest rates, global economy picking up, that's when more companies can participate. So we stalled it here, you know, for certainly parts of the S&P 500. But I wouldn't underestimate small caps doing well this year, emerging markets, of course, emerging markets.

What do they need? What does small caps need? What is the rest of the markets? What has to? We're going to talk about some, you wrote about bear market narratives. And we're going to touch on that later. So I don't want to step on that. But what do we need to see in the second half, the resumption of what you just pointed out?

We had this broadening trade two years in a row. something weird happened in this spring out of nowhere, stopped it dead in its tracks. Right. And we went back to a AI. It went to slow growth. What do we need to reverse that so that we're not looking at 40% of the market negative on the year? Like what has to happen?

Oil prices peaking, which I believe they have. Interest rates peaking, which I believe they have. Inflation expectations peaking. And a federal reserve that can get back on its easing stance. So a lot of that has to do with the straight-of-remoose. and what's going on with Iran and can we get past that? So the good news from a market perspective is the market's moving on. If we think about each of those things peaking, but you need the real economy to get support

from that. So the market is believing we're going to get to a better place when you think of oil, inflation expectations, rates coming down. But the broad macro backdrop is weak as a result and the fed's on hold as a result. So there's two interesting things happening at once. I'd love to get both of you guys what you think. The oil price spike from the Iran War, it's like it really threw a monkey wrench into everything

because it did two things. The first is obviously it screwed up the broadening trade. Correct. And it took like a whole chunk of the market down. And these were stocks that were starting, we were starting to see the 52-week high list expand. Yes. And that totally went into reverse.

So it did do that. And then simultaneously, it raised inflation expectations. Even though oil is one input, it kind of brought like CPI back into the focus again. Correct. It knocked the Fed rhetoric on its on its heels. And so like the whole housing component of the stock market and throw it out. Like it's, forget it. Financials, you're going to flatten the yield curve.

Financials got kneecapped. Real estate up until recently, there's some weird reasons why. insurance, like all of these different categories of stocks, and their huge categories of stocks got blown up by this oil price spike. And so I feel like if that goes into reverse, that goes into reverse, it would make sense to see people say, okay, great, it's game back on. It's happening right now. Look at this chart.

So this is Russell 2000 divided by the S&P 500, and this thing is. Looks like it's cooking. It looks like a major, major breakout is coming. Correct. And that's the peak in oil prices. That's the peak in inflation expectation. I mean, the reality is you get a CPI report a few days ago. And investors worry because it's, what, 4% or so. I mean, where did we think it was? We knew that's where it was going. I've never been concerned about the headline number. I'm far more concerned about what the bond market is telling us about inflation. And coming into the year, you had a five-year break-even, probably around 215. I like that. I can sleep very well at night with a two. year with a 215 break even. You move to 265 or so. That starts to get a little bit worrisome. We're back at 250. And so the bond market's telling you you have price stability, which means you're not going to get rate hikes. But we don't have wage growth as a component of the inflation.

No. That's not what's happening. That's not what's happening. You have a price shock. That was the problem we had four years ago. We don't have that today. We have the price shock. Right. Okay. Right. And if you think about when the problem became more, critical five years ago or in 2022 was when the five-year break-even broke above five percent. Yeah. That's, I mean, I'm sorry, three percent. That's the five-year goes above three percent. That's the problem.

You have to start tightening interest rates. We know when you tighten interest rates, bankers tighten lending standards, credit spreads, blow out. That's how end of cycles happen. That's not what this is. If we were to end the year today and somebody would say, use one word to describe, what worked in the markets in 2026. What word would you use?

A-I. What would you use? Memory? Growth? Momentum. Yeah. Yeah. Which brings us to chart two.

It's synonymous. All of the momentum is AI, but go on. It's synonymous. Right. It's. It is. It is. It's all AI.

So this is from, there's a guy called the Daily Chartbook. That's not his name, but he happens to write a research piece called the Daily Chartbook. And every day he puts, It's at 30 or so great charts. And this is one of them.

So we're looking at the momentum crowding score. I don't know how Barclays is exactly calculating this, but whatever. It's at the 90th percentile. And so on Friday, we got a very quick unwind of this. By the way, the unwind has now rewinded without that. Like DRAM, the ETF is up 12% today. So chart kid, we have a chart kid. He's an artist.

Chart three. He made a chart. I said, hey, you know what? I think this is a great way to visualize what just happened. On Friday, he'll become a chart man. On Friday through Wednesday, the stocks, I said, take a look at the stocks that were the furthest distance above their 200-day moving average and plot that against what happened over the last four-day period.

And it's a very clear story. The stocks that were the most extended, so on the Y-axis, you see how far they are away from their 200-day moving average. So Micron was 150% away from its, above its 200-day moving average. Yeah, people were a little bit drunk and they needed to sober up, and they got a little bit of a slap on the wrist. So I thought that the sell-off last week was long overdue, very much needed. I don't think that I, I mean, I definitely didn't think that we would bounce in two days.

I thought it may be last a week, two weeks? But we needed it. May I? Yeah, go ahead. Cook. Okay. Not everything is AI. This is Casey's general store, which is an outlier because I had an amazing earnings report.

No AI, literally selling pizza in gas stations in the Midwest. Okay. So not everything. But no, no, but that is the exception. Like you said, look at all of the bubbles. Those have one thing in common. WDC, Dell, Intel, STX, AMD. But let's make it, let's make an important point to investors.

I mean, investors are always asking me when I think volatility is coming or when I think a drawdown is coming. Yeah, could you give us the heads up on that too? Well, it's almost. Josh, isn't it always the result of policy uncertainty? I mean, isn't that when it always comes back in? So you, what happened on Friday? I mean, I guess we're going to, you know, we don't have a deal with Iran. All right.

So there's some policy uncertainty there, but we've been doing that for weeks now. But we got 175,000 non-farm payroll number, which, by the way, gets revised 57,000 in either direction. So the last thing I want to do is freak out about a payroll number. But all of a sudden, the market wants to raise expectations of one or two fed rate hikes. So you start to get some of that uncertainty into the market and you get, you know, you get a sell off. I mean, it's not the earning side. about that, right? Earnings have been great. So you adjust the discount rate at some point, you're going to have some volatility in these markets. But I'm still in the camp, and I've said it

already. I just, I don't believe that we're in a persistent inflation environment. And I don't believe the Fed's raising interest rates. I think what you raise is such an important point, because if, not that we get a choice, but if you, if you were to get a choice, what is going to be the source of the market volatility? Door A. Indoor A. Indus. video just pre-announced to the downside. Okay. And the other door. Door B is Donald Trump versus Iran goes in a weird direction.

Like you would take door B every single time. Correct. Nobody wants door A. And the good news is we don't have door A right now. We don't. Or if there's a door C, I would think it would be some hint of stagflation, which I always think is silly. This is not stagflation.

This isn't stag or flation. You know, sounds like Linda Richmond on Saturday Live. discuss, discuss and talk amongst yourselves. But yeah, it's not stag or inflation. But that's, I mean, I probably talk about inflation break-evens too much right now. But every cycle, there's something new I'm laser-focused on, right? We all are in, no-weight, interbank lending spreads, 2020 vaccination rates. To me, that's the story right now with oil where it is.

As long as we have price stability, this cycle's going to keep on going. Are investors taking too much risk? No, I don't think investors are taking too much risk. I know it's hard to lump everybody to get. You don't think so? No, and I... Which investors is the question. Yeah, I mean...

All right, let's start. I don't think professionals are taking too much risk right now. I don't. Let's start with that. Yeah, I don't think so. And I think individual investors are still very concerned about this. I hear, you know, at least anecdotally, or if you look at the Bulls minus Bears indices, I mean, you've people who, you know, get quite bearish very quickly when these types of events

come around. So I don't think we're over exposed to equities. Actually, if you break down U.S. households, equities, fixed, cash, you're pretty much in line with, you know, you're pretty reasonable in terms of what percentage you have in each. Let's do the margin debt chart. So this is friend of the show Liz Thomas, huge fan of Liz's. I don't agree with the conclusion, though, that she's said, I remain bullish, but not with my head buried in the sand. Margin debt looks high. At the moment, investors don't seem afraid of heights.

She's showing, she's doing it right. She's not showing... She's not doing the dollar amount of margin debt, which drives me crazy. She's doing it right. A percentage of money supply, M2. I would just say, like, of course margin debt would be at a high with the market at a high. Correct. It always is.

Correct. Wait a minute. Hold on. There's two things here. Because she did adjust, right? But she's adjusting by the wrong thing. Okay. So, but here's, I think there's another thing that's driving this that people don't talk about.

We do. It's rich people using margin debt to borrow. Like, so there's so much of that. there's so much of advisors driving that where it's not the indicator that it used to be. It's not people taking excess risk. It's people borrowing against highly appreciated portfolios to put it to work back into the real economy. Right. I agree with that completely.

And what people look at charts like these, they have to recognize that basically what you're signaling here is not a timing tool, right? You're suggesting that if this unravels at some point, there could be some vulnerabilities here. but you certainly shouldn't use this as a timing tool because to your point, you should expect it to be higher, given where the market starts. The market pulls back 10% and stays down. No V. Just 10% pull back and then three months in a drawdown. That margin balance comes down. Correct. Naturally. It's not a nuclear bomb going off. People just get less bullish and stop taking as much risk. That's the challenge. I think that when I speak to investors, I get the sense that people think something terrible is. lurking. The reality is they've been thinking something's terrible, been lurking forever, right? And so, you know, try and I always try to make sure that they're putting events into

the proper context, right? If you, you know, the war in Iran starts, I mean, that's going to be the big moment. People are afraid. If you look at almost every time you have one of these geopolitical risks, markets positive 12 months later. Almost every time you have a 20% spike in oil prices, the market's higher 12 months later. And so, you know, investors, I think there's just, too much of a news flow. There's just so many concerns and so many scare pieces out there where if they took a step back and they said earnings are good, credit spreads are tight, inflation expectations are contained, the dollar hasn't rallied to, you know, unnecessary levels. There's not a lot in here that would suggest we're in a danger zone. So you're doing this

as long as I am. You and I roughly the same age. Yeah. I'm a little bit smarter than you. And I'm a little bit older than you. Fair. No, no, no, but like, you and I know this, but the average investor doesn't, and it's not their fault. I think you and I are now older than the average investor. Close, yeah. Ish. The average investor is looking for a knockout punch. Correct.

In the headlines. They think a news event is going to happen, and it's going to punch the market in the face and knock us into a bare market. Yeah, you're right. What they don't understand is that knockout punch comes at the bottom. So a great example is Lehman Brothers. We're already in a 25 or 30% drawdown by the time Lehman goes under. They went under because of the bear market. Right.

They didn't go under and then that necessitates us having a bare market. Right. Right. Okay. But they think like such and such thing, terrible thing is going to happen, which is then going to put us in a bare market. but the reality is we are much more susceptible to a real knockout punch once we're already in a bear market.

And that happens, the knockout punch comes as a consequence of the terrible environment that we have already found ourselves in for quite some time. Correct, and usually. But they don't, they don't understand it. They think it's like, they almost think it's like Looney Tunes where like a fucking Anvil, like somebody drops a piano on Wiley Coyote

and then a lump grows out of his head. They think it's like this cause and effect. It's not cause and effect. It's what environment are you in? The environment we're in right now, why would you be looking for a knockout punch? There's no debt problems, no credit issues. There's not private credit issues.

There's lack of investor interest in the rent. That is not 2008. It's just human nature. No, that I totally get because we've been wired that way to look for signs that there's dangerous. protect the nest. I mean, like, DRM is, I'm looking at, it's up 13% right now. But to finish my point, to finish my point, we're 18 years since the last actual

recession. I'm throwing COVID out. Yeah, throw COVID out. Okay. We're 18 years from the last recession. So for 18 years, people are looking for this knockout punch that's going to put us in a bare market and recession. What have you spent that time not doing that?

Right. Like, you know, imagine. And you and I, we had to, all of us, we had to respond to the, European debt crisis. We had to respond to Brexit. Every single thing that happened along the way, we had to make sure that we were holding hands and guiding people through these environments. You even saw it last week. I'm reading through my social feed and people are talking about, oh, the 30 or above 5 percent, this is the U.S. debt problem that we've been worrying about. That's the trigger. That's it. Yeah, we're going to collapse on our debt or, oh,

inflation's here and valuations have to adjust meaningfully. And it's just not, it's just not, a reality. You're, you're, you're, you're not, the cadence, the cadence will be this.

The top will look like this. There'll be great news. And stocks won't react well to it. And then we'll all shake it off. And we'll put out all these, uh, tweets about here's some context. And then the market will rally back to a high,

but not the old high. And we won't think much of it. It's just the ebb and flow of markets. And then like six months will go by since we've had a new high. Mm-hmm. And people will start getting a little bit less, less enthusiastic because I don't understand. I keep putting money in, but it's not going up.

Right. And then, so that is sort of how it happens. And then if that goes on long enough, we're in a 10% drawdown, which then becomes 12 or 10. And then you start to see the city economic surprise index roll over and all the surprises start coming in worse, negative. And then the knockout punch comes. We will already, we will already be in a bad situation.

right now, I mean, you want to play this game? Today's the top. No, wait, wait, wait. I didn't mean today. Tomorrow's the top. You want to do that? You can do that. And people are saying, you know, this isn't grounded in fundamentals.

This is too far too fast. Wrong. Totally wrong. Right? I mean, that's what I'm hearing. Too far too fast since 2009. 2009, exactly. Because they hyper focus on, they look at Micron.

And they say the stock's up 10x in the last year and a half. This is a bubble. It doesn't make sense. Right. And they look at that and they don't look at the earnings growth. But I think the longer this goes on without a real recession, I think the more emboldened or confident people get that it has to end badly at some point. Like, it's been too long.

But it's just, that's the Minsky moment where people become so complacent that that becomes the risk. The lack of, the lack of fear itself becomes the biggest risk in the market. Let's think about what's happened this year. So you come into this year, people are talking about an AI bubble, right? That was probably the biggest question we got last year. And I think a lot of that was more on the demand. Are people actually going to use this?

Are we going to engage with chatbots? Are businesses going to make use of this? X percentage of businesses say they have no idea what to do with this, to the market having to catch up in a five-month period to the fact that artificial intelligence is going to be ubiquitous. It's going to be in everything that we do in perpetuity. It's not going to be us engaging with a chatbot occasionally. It's going to be persistent engagement with artificial intelligence.

And that's a level of growth and a shift in the economy that the market had to really get its head around. And the market wasn't there in the beginning of the year. And you look at what the earnings have been. The valuations haven't increased because they've come down. They've come down because the market. The stocks respond to the earnings. What a concept. So one area of Josh asks, like, are investors too bullish or are they taking too much risk?

I think there's probably a cohort of, not probably, there is a cohort of retail investors that have been, I hate to say lulled to complacency. It sounds so condescending. Somebody that's made a thousand percent in AMD is hearing me say that they've been lulled into complacency. It's like, hey, asshole, I'm up a thousand percent. What are you talking about? It sounds rude.

So I don't mean it that way. Yeah, exactly, exactly. So I don't mean it that way. But retail investors, this is from Vanda Research, biggest single stock selling, this was last week, since November 2020, $27 million led by semiconductor names such as Micron and Sandisk. So eventually they were taking too much risk. And okay, so they sold a little bit.

But they've done extraordinarily well. They have. They have selling stocks to the point that we made in the earlier chart. They're selling stocks that have doubled or more. Yeah, it was too crowded. Here to date. Yeah. All right.

Savita Subramanian Bank of America. Equity Quant Strategy Group. Time to take profits. This is, I think, the biggest research piece of the week. I want to share some of what she said and get your reaction to it. And we hate her. so you could say whatever they want. No, we do not.

The S&PY-100 is up 11% year-to-date. Multiple's compressed to 21 from 22 times at the start of the year. And earnings revision that Trump returns, especially in energy and tech, the two best performing sectors. But financials, health care, and discretionary have seen losses year-to-date despite positive revisions.

She doesn't like that setup, where expectations are ratcheted up, but multiples are not reacting positively. And she has a point because that's sort of one of her bare market signposts. She's got like these 10 things that are red flags and seven of them have now triggered. 70% of her bear market, which is the average that they've observed at prior market peaks. So the comparison that she's harping on is February of 2000, which for you and I, very ominous.

Very ominous. We know what went on then. Last thing from her before I get your reaction. So she is saying high PE stocks led low PE stocks by a wide margin, which is a sign of excessive speculation. That's one of her triggers. Another trigger, lofty long-term growth expectations, bleaching levels consistent with equities being more vulnerable to disappointment. So that's that last point I made. The sell side indicator hasn't been treated.

triggered yet. That's where the strategists get all bowled up, but that has gotten worse because they're chasing the market, quite frankly, with their targets. But she's talking about this dispersion tech versus everything else and then inside of tech, like AI tech versus software or every other. And that is reminiscent of the peak of the market in February 2000. There's obviously a lot of differences here. And she knows that. And we know that. But I'd just love to get your take on this idea of time to take profits just based on how eerie some of the similarities are. I guess the question would be if it's time to take markets, at time to take profits, what are we doing with the profits?

And is that going to cash and sitting this out for a while? No. Or is that she's calling for a value rotation? Yeah. So it's about a diversification story and a rotation. Take profits and tech. Take profits and tech, move into other cyclical parts of the market or move into non-U.S. dollar assets.

Yeah, look, that was our view two years in a row. And that view got disrupted two years in a row. So what would what would you need for that? Well, you have good starting valuations, but you need catalysts for it. Usually the catalysts come from Fed easing. So the rate differentials come down between the U.S. and the rest of the world. Lower rates helps more higher indebted parts of the market. So you can get there. And I think that we will get there. I do think that we will get there. I do think that we will. get back. If you think about the second half of 2025, things broadened out a bit again once we got past Liberation Day. Oh, yeah. We had international stock rally in 25. It was awesome. I think we can, I think we can get back to that place. But yeah, we're going to need to see some type of reasonable outcome out of the straight or it's going to be difficult for more cyclical parts of the market to do well. I show you some charts. So this is this is what she's talking about. The spread between the top and bottom performers inside of tech looks exactly like the dot-com bubble. If you were a tech stock in the year 2000 and not building the internet or mobile phones,

nobody had any interest whatsoever. We had a similar phenomenon this year. A lot of tech stocks not up, but just that one theme. Do these quickly. Chart seven. And the dispersion was a result of outsized gains from the top performers. and that also happened in February of 2000 right at the peak of the tech bubble.

It was just this runaway group of stocks like you remember Cisco and Intel Microsoft. Okay. Chart 8, we'll do these together. These are the red flags. So the spread between the best and worst S&P 500 performers is near COVID levels. Not a great situation.

Hopefully it's being fixed. We're in the process of that being fixed right now. And then the widest dispersion within Infotech. So you can you can kind of mentally understand that that's similarity, just mark like the concentration of winners within one sector, even to the exclusion of other companies in that sector. This is not like when energy rallies and they all go up. Right. This is like, I don't know, 800 publicly traded tech stocks at this point and 300 of them are up huge. That's the scenario.

So that doesn't have to fix itself with a crash. No, it does not. It could fix itself the other way, which is what you're arguing for. Which is with the broadening of the market. Now, what you had in 2000, you had a rate tightening cycle, right? I mean, that's how these things end. These things end with higher rates on the economy that rolls over. The positive coming into this year was stimulus, not just in the U.S. with the one big, beautiful bill.

It would have insurance cuts. Yeah. And insurance cuts, right. We were going to lower the funds rate to $3. So that's the big difference between 99, 2000, and today. And I think that's why you get to sell off on Friday. Is this the beginning of the rate tightening cycle that ultimately ends it? Because you're not going to get a narrowing of that dispersion if you're not in an easier policy environment.

I want to get your take on the consumer in the economy because there's been so much thrown at us starting in 2022 with inflation. and then interest rates and a commercial real estate crash, which was going to take the economy down. It didn't. Now we're dealing with a frozen housing market, which is kind of a big part of the economy. We dealt with tariffs.

The straight of Hormuzzi's closed. We have higher oil prices. And yet the labor market seems to be accelerating, at least in the last three months, we've been okay. What is it going to take to slow us down? Well, household net workers, right now is about $175 trillion. That's an all-time high. And if you look at households,

their liabilities to their net worth is historically low. Dwarfed. Yeah. So the fundamentals of U.S. households are far better than people think. You remember a few years ago when we were coming out of COVID? They were talking about credit card delinquencies and $6,000 balances and all. Turns out that was all just Taylor Swift tickets. So it wasn't a problem. No, that was all inflation-related. So the household's in good shape. We know we have a K-shaped economy, right? Because a lot of the household net worth gains have accrued to the top part of the K. When you have spending that persists at the top income quintile or the second income quintile, you know, the economy is going to be just fine. It's when those quintiles really tighten their belt that you

go into something more like a recession. If the bottom income quintile is slow, not to be flipping about it, but that's more of a slow. lowdown in activity. So what we're having here, $4.50 nationally on gasoline hurts. People in L.A. hate when I say that because what do you mean? But it doesn't hurt the stock market. But it doesn't hurt the stock market because, you know, this is not a very, this isn't an economy that's overly energy intensive. Well, take L.A. Take L.A. Take L.A. Take Malibu, Calabasas, whatever, like whatever Tony area within L.A.

yeah, of course, the gas price is stupid, but not one of them is changing their lifestyle based on it. And those are the consumers that show up in the S&P 500's earnings. Yeah. The bottom 20%, a lot of their spending, frankly, is government subsidized spending anyway. And the earnings impact of that, it's de minimis. I'm not saying that's good or it's bad.

I'm just making the reality of it. We invest in the world that we exist in. It's horrible to have 20% of U.S. households living paycheck to paycheck and have like high gas prices stop them from being able to take their kids back to school shopping. It sucks. Yeah. But it's also the reality that the S&P is unfazed by that. Right. And that's when it becomes more calls about industry or sector or more specific names and discretionary gets hurt when you see gasoline prices go to where they are. But in terms of the broad market the way that we're structured, it's not a very, you know, a near-term spike in gasoline

prices is not going to deliver that. If you had one indicator, like if you were to just say, this is the only indicator I'm paying attention to, so as a call on when the top of that K is in trouble, Michael and I have been talking about hotel stocks. And some people would say like airline stocks, but maybe less pure because they have that gasoline problem, a jet fuel cost problem. Yeah. So hotel stocks. Hotel stocks seem like a great one. Perfect, right?

Perfect one. And I'm a sister who works at Hilton. All-time highs, all those stocks. Yeah, doing quite well. So let me ask you this. There's obviously a couple of different takes you could have on this. We know that this economy and the consumer is heavily levered to the stock market. Obviously, speak about the borrowing and the margin debt chart that I showed earlier.

So at the peak in the tech bubble, John Chart 11, please, the household equity allocation to stocks and mutual funds as a percentage of GDP was 116%. was 116%. And today it's 191%. So it's significantly larger today the amount of money that we have in stocks relative to the overall size of the economy. So you could say, uh-oh, if the stock market comes down,

the economy's going to come down with it. And I don't mean like the stock market cutting half. Stock market gets cut in half because the economy's doing terribly, right? Okay. But I think that you can make the case that, all right, so a 191%

if this pulls back to 170%, as I'm talking about the wealth effect. This pulls back to a lot of, 170% does the consumer stop spending money? Like where, where, where, where where where where where this line have to go? Right. How bad does this have to get? So the stock market falls falls 30% and stays there. Like what would have to happen to the stock market to change the uppercase spending habits? Because that is what's driving the stock market. I don't know it's like sort of a circular conversation. It's a circular conversation. It doesn't have to end just because

you're in the the circular momentum of it. It ends under similar conditions, which is there's too much leverage and excess in the economy. It's too much inflation. It's too much inflation. the Fed kills it. So at some point, we'll get there. Right. It's just at some point, you will have an environment. Well, this will become too excessive. Not necessarily where our stock market ownership is, but you'll have an overheating economy and this will roll over. And if it's a minor recession, you'll be down 20, 25 percent. It'll take a couple of years to get back to where you were. if it's a more significant recession, if you're way over levered and you're coming at it from a very vulnerable position, you know, you could see it, markets come down 40, 50%, percent, and it takes 10

years to get back to where you are. It really depends on the starting point. And, you know, Josh had mentioned earlier, it's not a particularly over levered economy. We talked about the household being in good shape. Businesses are generally in good shape. Last I checked net interest payments of businesses are historically well below where they were going into COVID. So I look for it as a, not just because that number is elevated, where are the vulnerabilities? And it does not appear to be nearly as vulnerable as I think some people suspect it might be. On the economic side, I would agree with you. But on the stock market supply

side, so you wrote a piece about narratives following the stock market self. And that's almost always the case, right? Like, the stock market falls and we're looking for reasons as to why it did what it did. And I'm 99% with you. I think in this particular recent sell-off, I think the narratives were pretty clean and actually shouldn't be swept under the rug. Okay. So, for example, broad comes revenue miss. Yeah, whatever. I mean, Micron had a massive beat in March. Stock sold off 30%. And then it rallied 300%. Right. Right. So, like, there's a lot of short-term noise in here. Yeah. But the, I think the strong job numbers and the re-rating of expectations for rate hikes, I think is real. Um, I think the, um, I think the, um, I think the, um,

real in terms of it's having a real impact on psychology. It's having a real impact. And it's, it's in the, it's in the market. Like, people are expecting the Fed to raise rates. They just are. And I think that matters. I think the SpaceX IPO, we're going to talk about that in a second, certainly noteworthy, with others coming down the pike.

Is it a pike or pipe? It's either. Oh, is it? I think it is. Yeah. Yeah, it could be either. I think it could be either. Okay.

But also. If you're in England, it's the pipe. And a year in flavor. But, but coinciding with the. insane crowding into the momentum factor and also the Google equity issuance. And it was there was chatter of, wait, are more companies going to issue equity? Like, I think the stories are legitimate. I thought that was a pretty big story with the Google equity issuance.

Pretty much a non-event. But it's a narrative change. Berkshire Hathaway comes in and invest in it. I mean, that's not usually what you would expect from a, you know, a long-term value investor. If this was a significant challenge where they take like 10% of it. So, yeah, I actually thought, I looked at it. the Google event as a pretty promising event from, you know, from that perspective. Promising on the bullish side.

Yeah, promising on the bullish side. I mean, you have a, I mean, the market was able to digest that without incident. You had a Berkshire Hathaway stepping in wanting to own it. That's like the second deal he's ever done since taking over. Yeah. Greg Abel. Like he did an acquisition and he did that within one week. Mm-hmm.

And it's a financing deal. He's not, Burkshire's not building data centers. So it's financial. Yeah. On the SpaceX thing, Josh and I were joking the other day, I think Morgan Stanley said that their revenue could reach $3 trillion by, I think it was 2040 or something. Like, these are the type of things that if you look back, and I'm not suggesting that this is the top. But that's the quote. That's like the thing that you're like, wait a minute.

How are we so stupid? Right. Like it's, they said $3 trillion in revenue in 2040 and we were just like, okay. Okay. So the other question is how much, how much liquidity is really available from investors' pockets to finance all of this? happening. Demand for space is from bounds. Demand for SpaceX is $75 billion stock has reached $250 billion making it 3.3 times oversubscribed. So it appears like we're going to swallow. It's a fake number. What, what, go ahead? The oversubscribed shit is fake.

So do you remember Cerebus went public in the middle of May? Mm-hmm. I'm on TV next to people who are saying it's 20 times oversubscribed. Well, what the fuck did that mean? It went down 100 points over the next three weeks. Like that, you could just make up a number and say a a reporter and they will go on the air and say the SpaceX deal is 12x over subscribe. First of all, where do you get that number from? Oh, an investment banker told me. Like, nobody like actually knows what the demand is because indications of interest. The event.

So you call up a retail investor in this case, 30% retail. Say, if we could get you, if we can get you 100 shares of SpaceX at $135 a share, do you want it? Yes. You don't know if they're going to pay for it. Nobody, if it goes up, they'll pay for it. If it goes down, they're not going to pay for it. And therefore, I don't care how oversubscribes.

I did the indication of interests myself. I was a branch manager. I promise you it's bullshit. But on my scale, these were tiny deals who'd raise $8 million for a company. At this scale, I would bet the bullshit factor is 10x because everybody wants stock. Everybody wants to be the lead placement person on the syndicate of stock. Like, people are just calling in orders that are completely fictional to make sure that the real orders are covered. And that's the other aspect of this.

If you have legitimate demand for 2 million shares of SpaceX at an investment firm, 2 million, you put in for 10 million. Because all you're hearing about is how oversubscribed it is. So if I want the two, I better say I want 10. If I say I want two, I might get one. So retail. Will retail investors be left holding the SpaceX bag? They don't think it's a bag. They, they, they, they, I didn't ask you, will they be, will they hold Elon's bag?

What does that mean? Are they, are they exit liquidity? Is the, is the IPO going to fall apart? Dude, I know retail people who are being offered stock that are able to sell a minute later. Nobody's telling them they have to hold it. All right. Will, will this fall 50% like a lot of other big IPOs in the first three months? I think a lot of that is, so my personal opinion is a lot of that is pending, what are the market

conditions? will this hold up in a correction? Definitely not. Okay, let's assume, let's just assume a normal market advice. I know I'm asking to make a prediction. Will this thing fall 40%? Because it is hyped. Like, I, my dad asked me.

Okay. I think it will open, I think it will open 30 to 40% above the offering price. That's my, that's my opinion. I do not think it'll hold that gain. And I don't think it'll build on that gain. They're coming to market. I think the price is 130. So you expect it to open whatever, 170, 180.

Okay. The price is 135. Do you know why? Because Elon told the banks the price is $1.35. So what? So what? A real IPO, a traditional, I shouldn't say real, this will be very real. A traditional IPO, it's a process.

It's a roadshow. There's feedback from institutional investors, not retail investors, but like people managing $80 billion, $200 billion. Tell the underwriters, we wouldn't pay $20, but we would. probably be very comfortable paying 16. And then all of that gets factored in. And then, of course, it's all made up because... Elon is...

Elon is a different... So he said 135, so that's the price. And everyone's just like, yeah, that sounds right. Let me pay 20% above that. That's what's about to happen. I think they'll get the pop. I can't imagine they're not getting it. Your real question is, does it hold the pop?

No, my question is, all right, so you said it pops in 135 to 170, whatever. Will it be at 90 at some point in the next six months? I think you'll get another crap. at it at 135. I think the bigger question is, is this just an idiosyncratic event happening in the market or is what are what we discussing here something, you know, larger than that? Well, there's two more than that. Right. Is this something larger than that that investors need to be worried about? I'm not ready to get there in my opinion that this is something. Oh, like, is it so much money to be raised that it's going to take a bite out of the rest of the stock market?

They're going to take a bite out of the rest of the stock market or it's indicative of a market top. And if you actually look at the IPO activity, yeah, we've got a couple of high profile ones coming to market, but this is not the level of IPO activity that you would normally deem to be speculative. The size of the big three are quite large, but it's not as if we've got speculative levels of IPO activity in these markets. These will be heavily, all three of these will be heavily involved in the big ETFs. And that's the thing that people are talking about. That's what people are worried about. And you see these headlines. that the AI bubbles coming for your retirement account, right?

That's nonsense. That's nonsense. That's journalists. And that's what I want... Investment people are not saying that. Yeah, and that's what I wanted to make sure that we were covering here. As we debate this, is it just something idiosyncratic that we're going to be watching? It's going to be a stock story that we're going to be watching.

All right, wait. So $2 trillion, this is market caps, not dollars being raised. But just hypothetically, for index construction purposes, $2 trillion for SpaceX, a trillion for anthropic, a trillion for open AI. It's $4 trillion. I mean, that's meaningful amount of market cap that is going to require some space in the queues, eventually in the S&P. Eventually. Like, right.

But wait, but they are being adjusted for the float, dramatically adjusted for the float. Well, they would have to be. Otherwise, it would make no sense. SpaceX will not be a $1.8 trillion position in the NASDAQ 100. Correct. Thank God. It won't be free float base. It won't have the proportion of a $1.8 trillion.

What does Elon own? 40%. So take that out. Take that out. Right. Okay. So you're not worried about that. I'm not worried about it. You don't think that's a real headwind for the market. I don't. How about the converse of that, which is these IPOs or at least SpaceX comes, goes off without a hitch? Everybody's happy. Is that a bullish catalyst?

Yes. Well, what are the bears going to say if these IPOs don't crash the market? What's the next? The bears want this to be an asteroid. It has to be for them. Right. They do. So what if it's not? Is that, what does that do? Does that galvanize the investing public that all is well?

This big bad thing that everyone's told you to worry about is over. And look at the risk appetites, very healthy. I think it does. I think it does. I like that. And I think it helps the financials. So, okay, well, it's definitely going to help the, uh, maybe not the spread financials, but the fee financials.

By the way, to your point, I know you guys have a relationship with NASDAQ, like, NASDAQ stock is not doing awesome. you would think that if there's like a super frothy elevated excessive IPO market that NASDAQ would be, and I know you can't comment on the stock, but like it's whatever, it's going sideways. There's no frothier. No. Okay. So not a wealth destruction event.

No, not a wealth destruction event. The largest IPO in history will not be. Didn't they talk this way about Alibaba 12 years ago? Yes, they did. They said it's too big for the New York Stock Exchange. Yeah. I think we did this with Saudi Aramco too. Yeah, I remember 2014 being an okay year.

in stocks, 2015 too. Hold on. Let me just say, if this is a top, you are going to act like it was so obvious. Isn't that what we do? Yeah. It's so obvious. No, I'm really not.

But I won't be completely shocked. I don't, so I don't, here's the question. Are the bears saying it's a top because it's going to cause a top by virtue of sucking all this capital away from other, or the bear is saying it's a top because it's a sign of excessive enthusiasm.

Or are they saying both things? I've heard both. I've heard both, but I think it is that sign of excessive enthusiasm. You know, like your parents tell you when somebody gives you two reasons for something, both are not true?

Yeah. Like, that's how you know. Like, I call Michael and I say, hey, you want to go hit golf balls of the driving wheel. She's like, I'm not feeling well. And also, my wife needs me to help her. So neither is true.

Neither is true. You have plans with somebody else. Right, exactly. I'm sick of listening to sound of my voice, and I totally got that. I think it's a valuation store. I think that investors just, there's plenty of investors who would think of evaluations as a timing tool, think that, you know, if things are getting frothy, if the, if the Schiller P.E. is too elevated. If the margin levels, this all can't be true. And so there's the big bang moment coming.

And when it wasn't Silicon Valley Bank, then it was tariffs. When it wasn't tariffs, then it was the war in Iran. when it wasn't the war in Iran, now it's going to be SpaceX. And I love this so much. So there's like this thing where 17 of 20 indicators are flashing red. Well, if they've been flashing red for three years, maybe they're the wrong indicators. Maybe they're the wrong indicators. I mean, I try to keep it simple.

And, you know, like are credit spreads widening? No. No. So what are the things that matter? Credit spreads. They tell you what you need to know. So I look at leverage, inflation expectations, Fed policy, credit spreads, bank lending standards. That's my cycle analysis.

So I noticed that you don't have anything in there about chief strategist price targets. No, I don't have chief strategists. You also don't have anything in there about PE ratios. No, no, because PE ratios, where I would use a PE ratio is if I was making a five to 10 year return, maybe more like a 10 year return expectation, you would need to have some reversion to the mean on valuations over a 10 year period because there's a high, you know, correlation there. But there's nothing with, you know, one and three. Say your list again. Say your list again. All right, let's start with credit spreads.

Credit spreads, bank lending standards, the strength of the dollar, inflation expectations, leverage. What does the strength of the dollar tell you about the forward outlook for stocks? Well, it's interesting that the dollar has not rallied substantially. So if we think about, you know, in 2015, in a very weak growth, deflationary environment, the Fed was going to raise rates to the dollar a sword. That's not what this is. I mean, the dollar was likely to weaken this year until the war in Iran started. And so the dollars had a reprice basically from expecting an easing cycle to no cuts to maybe a rate hike.

So the dollar gets a bit of a bid there, but it's not skyrocketing. It's not going to levels that would make you think there's this huge flight to quality and that the cycle's rolling over. What do you think is the most underrated thing going on in the economy, or the markets or both, that should auger well. So we talked about all the bare stuff. Yeah. What are the things that not enough people are excited about?

Like for me, let me set this up. So we did a segment today on CNBC about one of the names on my best stocks in the market list. And we're about Travelers. Travelers is like not an exciting company. It's a couple of bucks away from an all-time high. Why? They're one of the first companies that's got tangible evidence that, their AI investments are.

So if you think about all the areas where AI should help companies, risk management and insurance underwriting should be the top of your list. This is like the most obvious thing in the world. We have algorithms. Let's let the AI loose on those algorithms and see if we can improve how much money we end up surrendering from bad underwriting. So they announced a 21% Euro. every year jump and underwriting profit.

And on the conference call, they told Wall Street, this is the fucking AI. That's what's going on. It's not a, it's not a magical thing. No. Okay. So if the rest of the market becomes littered with stories like that about stocks where nobody is associating them with the AI, but the AI customers start to surprise on earnings to the upside, A, you'll get.

you're broadening. B, it would be a really interesting juxtaposition versus the last three years where we all have been myopically obsessed with the 100 picks and shovels companies selling us AI. Wait, what if the real trade all along was investing in the most talented consumers of AI as they outdistanced their competitors in earnings growth thanks to those investments? Wouldn't that be such a cool story and great for investors. Oh, absolutely. So what are you? Absolutely. And we're so, you think that's likely. Yeah, I do think it's likely. I mean, I think it's already starting to happen in many ways. I mean, we're in the early innings of this. So you're right. We started with the chips and we moved to memory and the infrastructure build. But what about all the benefits? I mean, we're starting at

this from an environment where corporate profitability of the number of employees is historically high. and that's only going to get better in the coming years. And you think about sectors that have not done well, like financials or like healthcare, I mean, those are places of the market where you would expect to see substantial gains as a result of incorporating artificial intelligence into that business, particularly healthcare,

thinking about all of the challenges of life that we're going to unlock with new solutions. One of the problems, and we could end on this, one of the problems with the picks and shovels analogy is people forget that that analogy during the internet boom era, the first one, it was sardonic.

It was saying, because in the actual gold rush, the 1849 gold rush in San Francisco, there wasn't any gold. Like people ruined their lives chasing up into San Francisco to look for gold that was never there. Like a few people found,

gold. And it was, it was like, it was a catastrophe for the people. But like, the idea was like, well, at least the picks and shovels salespeople made money. Actually, the company that made the most money was Levi Strauss selling, selling denim workwear. But fine. We better hope this isn't picks and shovels. And this is a failed gold rush. I don't think it's going to make. We're using AI inside of our business right now, probably one percent of what will be using five. Five years from now. And I think, and we're, you know, considered, I guess, a small business. Mid-sized businesses and publicly traded large-sized businesses, it's not a gold rush.

They're literally improving their companies. So the Picks and Shovel's analogy is like, it's almost too smart-assie. This is like, this is real. So if we're going to have a continued bull market, I think it would be really cool if it were powered by ROI from all the spending that we're doing in 2026. I agree with you completely. And you think it's likely? I do think it's likely. Absolutely.

I don't see how this movement, this restructuring of the economy and this restructuring of how businesses are run. I don't see how that doesn't improve efficiencies. I don't see how that doesn't improve profitability and do it at a level where you're, I mean, you're going to be doing it in a way that's going to be likely lowering the costs of business. You said something early on about the ubiquity of AI. right now, for most people, their experience with AI is prompting and asking for something. It's like a search engine.

You're talking about waking up and seeing the results of what your AI did for you overnight. Yes. That's where we're... Yes. This is a very different mentality. Very different. And most people haven't gotten there yet. Well, and quite frankly, like I said, the market had a catch up to it this year.

I agree with you. The market wasn't ready for a gent day. Correct. The market was still thinking in prompting terms. Yeah. All right. Brian, you're the man. You have fun on the show today?

I had a great time. Thank you. What was your favorite part? Probably talking about the next. All right. Brian, we always try to end the show when we remember asking people what they're most looking forward to. What do you got? Personal, business, anything.

I'm looking forward to next week when my oldest daughter graduates high school. Look at you. Good you. Yeah. Hard to believe. Yeah. Did you find her an internship for her junior year of college yet? You have three years.

She wants to be Aaron Andrews, so I guess we're sort of in the media business. If you know anyone that can get her a sideline reporting job, let me know. All right, I try to figure that out. All right, guys, thank you so much for watching. Thank you for listening. I want to let you know you can follow Brian Levitt of Invesco on LinkedIn. Are you doing anything else on social or not really? I have a podcast.

Okay, tell us about it. Where do we find it? Greater Possibilities Podcast, anywhere you find podcasts. The Greater Possibilities Podcasts. podcast with Brian Levitt, anywhere fine podcasts are played. Make sure you check that out. Thank you so much for doing this. Great to see you. Great to see you. Great job everybody. See you next week. Thank you. Find me you feel like we got it. What is you? Spotify, it's Jay Shetty. Are you one of those

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