A Fire Alarm For Interest Rates (EP. 466)

11:02Ben Carlson:If it just makes Wi-Fi better on planes, that's good enough for me. That's all I want. Yeah, okay.

11:06Michael Batnick:All right, so maritime terminals, which are shipping vessels, oil rigs, they pay between$250 ,000 and$5 ,000 a month and have no alternative. Aviation is even richer. A commercial aircraft terminal runs$12 ,500 to$25 ,000 per month. These customers anchored Starlink's early ARPU. Consumer residential is where the growth is now. It is the lowest paying tier and outside North America, increasingly price sensitive. Add satellite to mobile users via carrier partnerships at a fraction of direct subscription revenue. And the mix explains the slide from$99 to$66 in three years. Maritime and aviation grow slowly and pay well.

11:49Michael Batnick:Consumer grows fast and pays less each year. Thank you, person on the internet, O'Malik, for looking past just the headlines and giving us the actual story.

12:00Ben Carlson:So I guess my grand reputation would be like, could this also be an Airbnb story where the valuation at IPO is so high, the stock just doesn't do a lot for a while. I'm sure there's going to be a massive pop on day one. I'm sure. But if you're shorting this, you're probably not going to be happy. But if you're going super duper long, maybe you're not happy either. What if that's the hedge there? Like Airbnb stock has just gone nowhere since it went public because everyone says the valuation is way too high. Yeah.

12:24Michael Batnick:So same thing with Snowflake. If you go public at a hundred times price to sales ratio, and if you are buying and holding the stock for three years, of course, I can't see the future, but probability, historic probability says that's probably not an awesome idea. might, does it not 100%, might SpaceX be the one that delivers world-changing results? Yeah. But I think most people, most people don't give a shit about three years from now. They care about the next three weeks. You don't think people do

12:58Ben Carlson:terminal value DCF calculations on this? Right, right. So how long until, how long until all his companies are under one umbrella though? That's the end game here, right? Well, they are. Everything except for Tesla. That's what I mean. It's going to be all together. Tesla's going to merge with these companies. It's going to be one company. That's the end game, right? So SpaceX owns XAI, which is Grok.

13:20Michael Batnick:And they are, I think, trying to buy Cursor, which is not an Elon Musk company for the record. But how, oh, Twitter, X.com. How long before Tesla gets absorbed? Who knows? But here's here.

13:33Ben Carlson:I've never called it X.com, just so you know. Okay.

13:35Michael Batnick:It's Twitter to me forever. Here is where a lot of the scrutiny falls. It's with the NASDAQ 100 rejiggering the rules for a fast entry. So previously, a company needed to be, I think the term they used was seasoned, whatever that means. I don't think that it was like an X number of days or anything like that. I think it was three to six months. They're going to get into the index in 15 days. And this unlies the thing that people are excited about. Because, and credit to NASDAQ. So yes, they changed the rules for fast inclusion, which people are like, oh, this is bullshit, passive, exit, retail, liquidity.

14:15Michael Batnick:Okay. But they also protected investors because what they did was, so SpaceX is not going to be selling or issuing a lot of new stock. Right, it's low flow. To the public. It is going, so a lot of it is not going to be publicly traded. Elon Musk's portion, for example, is not going to be publicly traded, okay? Or not going to be available. He controls it. So what NASDAQ did was they said, we've been burned once before with a similar IPO where it was a lot of insider shares being held. We're not going to give you the benefit of the doubt of your full$1.75 trillion valuation. What we're going to do is we're going to do a modified market cap, which is not unusual.

14:56Michael Batnick:We're going to allow you to have three times your float inside of the index. And that's it. We're capping it there. So if they float, I'm making this up. If they float$30 billion worth of stock, then the index will hold$90 billion. The market cap in the index will be$90 billion. Right.

15:14Ben Carlson:It's not going to be the full value. Right.

15:16Michael Batnick:I think the actual numbers are closer to$150 billion. Because there's going to be a lot of people going,

15:21Ben Carlson:oh, the bag holders here are the index fund people. There's going to be a lot of that.

15:25Michael Batnick:So there will be a lot of stock that has to be bought inside of the indexes. That is true. So if the NASDAQ 100 were looking at like 4 % to 5%, I mean, obviously it's a range. So that's a lot of buying. And with a float that small, the number of buyers is a, if you can't see me, I'm holding up my arms, a gigantic circle of buyers, pool of buyers that want the stock. And the pool of supply is much smaller. So the valuation does not matter in the short term. But could you imagine if it goes up to 2.9 trillion because of the way they financially engineered this, people are going to lose their minds.

16:01Ben Carlson:Yes. There's also like weird cliff divesting,

16:07Michael Batnick:unlocking up of the shares where insiders can sell. But insiders are not selling at the open. This is, they are diluting the shareholders. What's interesting is that they're giving a disproportionate amount to retail investors. Numbers are still being finalized, but anyway, it certainly captured everybody's attention as you would expect to do. It's a big deal.

16:30Ben Carlson:And maybe this will be the first level of thinking again. Like this really will be it, right? I'm waiting for that to happen. Could be. I don't know. All right. Kai Wu, who was on the Compound and Friends with us a couple weeks ago, writes these long, what will you call them? White papers? Is that fair enough to say? Mm-hmm. I pulled a little, he had an AI disruption paper, and he talked about modes and value traps. I just wanted to pull out one thing here that I thought was interesting, just to show how hard stock picking is. So he shows the biggest disruptors of all time. He showed how Netflix disrupted Blockbuster, Amazon disrupted Borders, Amazon disrupted RadioShack as well.

17:02Ben Carlson:And then Google disrupted McClatchy, which I didn't get McClatchy. Is that encyclopedias? Is that what you did? Yeah.

17:09Michael Batnick:Was that Encyclopedia Britannica, the owners? I can't remember. It's in the paper.

17:12Ben Carlson:He's got a great chart here showing the returns of each. And they're both going in opposite directions, right? Where these other ones are just fall off a cliff. But he also shows the stock prices of these disrupted companies. So Blockbuster, Borders, RadioShack, and McClatchy. And it's funny because as the stock price is dropping, the revenue per share is either holding still or going up still as these things are getting disrupted.

17:35Michael Batnick:And that - Oh, McClatchy has newspapers. Okay. It says right there on the chart. Okay.

17:38Ben Carlson:Yeah, that's wild. And that's what's going to make this stuff so hard about the software companies is like, you look at the results right now and you go, these companies are fine. They are reporting great earnings. And then they, this could happen. That's what's going to make this so hard. And that's why stock picking is difficult. Yeah.

17:54Michael Batnick:Cause the market is, the market is obviously pricing in, um, the market is saying the terminal value is, is Radio Shack.

18:02Ben Carlson:Yeah. So we, so every time I see Radio Shack, I think that I had a friend in elementary school and I think we were watching the movie coming to America, something like that in New York. And there was a Radio Shack on a corner, right? So on each side, each corner, there's a Radio Shack sign, right? Radio Shack on one side, Radio Shack on the other. And they show it overhead. And my friend goes, totally serious. That's really weird. Why are there two Radio Shacks in the same corner? because each sign, you know, didn't get it. Anyway. I don't get it. It was a store on the corner. So each corner had its own sign.

18:34Michael Batnick:Got it, got it, got it, got it.

18:35Ben Carlson:All right. Last week, I talked about interest rate concerns, okay? John Arnold, very smart, one of the best, maybe the best energy investor of all time. He's on Patrick O'Shaughnessy's podcast recently. Very smart guy. He said a fire alarm is going off and everyone is ignoring it. And he shows the long-term bond yields. I think this is a Bloomberg chart of United Kingdom, France, United States, Japan, and all these long-term bonds, 30-year bonds are going vertical, right? We talk about this a lot. People are very concerned with this. All right, I want to talk about that worry, that five alarm fire with this email we got.

19:06Ben Carlson:Hi, Ben. I've noticed that the yield curve is no longer inverted. I haven't heard anyone talking about this. It has been observed that recessions occur not when the yield curve inverts, but when it uninverts. Looks like that hasn't happened this time. Harvey's recessionary indicator has experienced its first exception. What are your thoughts? And this is what I want to point out. When the yield curve was inverted, short-term yields were higher than long-term yields. People were screaming, this is going to be a recession because this indicator has always done that. You and I said, wait a minute, this is just the Fed jacking up short-term rates.

19:34Ben Carlson:It doesn't have to be that. We were kind of saying, let's pump the brakes on that a little bit. Now, what we've seen is a normalization. Short-term yields have come down. Long-term yields have gone back up. That's a normal yield curve. This is normalization. This is not a reason to freak out people. Okay? I'm throwing cold water on this all day long. This is a normal state of affairs. Long-term yields should be higher than short-term yields when you're accounting for risk because there's way more risk in a long-term bond than a short-term bond in terms of volatility and interest rate changes and inflation.

20:06Ben Carlson:And maybe, just maybe, the bond market is saying, I think we're in a higher growth in an inflationary environment. Listen to this from Warren Pies, another fellow TCAP person. S &P 500 forward sale of growth is projected at 18 % over the next 24 months. Historically, this corresponds to 12.4 % nominal GDP growth, 6 % annualized, something to consider as yields in the Fed look for new equilibrium. So he's saying, we're probably going to have higher economic growth. And what if the bond market is just telling us, you know what? That period, the last 15 years were not normal for interest rates. We're trying to normalize here for higher growth and higher inflation than we had in 2010s.

20:44Ben Carlson:Thoughts?

20:47Michael Batnick:That makes more sense to me than the alarm situation. Yeah, totally. I also think it's weird that everyone is ignoring it. I know it's just a tweet and he doesn't mean it literally, but I feel like a lot of people are doing the opposite. I think there's actually an overwhelming amount of worry relative to the potential outcomes about rising rates. What I would say, though, is the part of the worry that I think is valid is it's not the spread between short-term and long-term, which are healthy and normal. It's the speed at which these lines are all accelerating. Like, I think people are worried, like, what if this doesn't slow down?

21:24Michael Batnick:It doesn't, nothing has to happen, okay? Because I was about to say it has to slow down. It doesn't. If the long end keeps going up and we're at, I don't know where the line is, 6%, 7%, I'm going to start to get nervous. Like, I would very much like for this to slow down.

21:41Ben Carlson:Yeah. We're not going to get there. That's not going to happen. I don't think so either. Time stamp, double stamp, triple stamp, not going to happen. We'd have to be way higher growth. So the thing is, here's the problem. Here's the psychology behind this, though. You can't triple stamp a double stamp. Come on. Here's the psychology behind this, though. Everything is happening faster. So when we have these moves, that's what freaks everyone out because people are not used to it. When inflation went from zero to nine, it freaked everyone out because it happened fast. When oil went from$50 a barrel to negative$37 a barrel, everyone freaked out.

22:10Ben Carlson:When mortgage rates went from three to eight. This is just the markets now. People are going to have to get used to things happening faster. And just because they happen fast doesn't mean something is breaking. This is just how markets work now. You might be right. Okay. All right. Here's the positive side. I think there's pros and cons to rising rates because obviously rising rates are not good for every, like borrowing, mortgage rates are back near 7%. I don't think that's a good thing. Okay. Here's the positive behind this. Exhibit a chart of the week from last week. Bond yields are historically linked with higher forward returns.

22:43Ben Carlson:So we're looking at the 10-year starting yield. We've talked about this before versus the forward annualized return. And guess what? The starting yield is a pretty good predictor of future returns for bonds. So you're getting probably 5 % now in high quality bonds. That's great.

22:56Michael Batnick:You're right. That's pretty good. That is the other side of the coin. And it's a really shiny side of the coin. Hey, we give a ton of love to Chartkin Matt for making and designing these charts as he has earned every ounce of praise. That kid is incredible. So is Eric, founding CTO, architect of exhibit A. So I just wanted to give Eric some love. He's the guy behind the guy. He built the architecture that allows Matt to paint. So he's the, he made the canvas and Matt is the painter.

23:27Ben Carlson:So here's the potential. So let's say you're right that we do have a sustained rise in rates. So I looked at this, like what happens if we get a sustained rise in rates? And this is the 10 year going back to 1950. And I looked at the total return for the S &P over that timeframe versus the drawdown. And now the total return actually is pretty comforting. Like most of the time stocks are up in these rising rate cycles. This is every time the 10 year had a sustained rise. And what is this?

23:51Michael Batnick:Oh, one more. Okay. Got it. Got it. Got it.

23:53Ben Carlson:Okay. Yep. And that also shows the drawdown and there was, there was a correction in every single one of these of 10 % except for one time. And that was 1994. And so every time this happened and some of these are pretty big.

24:04Michael Batnick:Yeah. It's just supposed to make me feel better. This looks really bad. Um, but the thing is we're not in a sustained.

24:10Ben Carlson:It's like,

24:10Michael Batnick:there's nothing to worry about except for the 40 % declines in stock prices.

24:14Ben Carlson:short-term hiccup. But the thing is, is this really, didn't we already have the sustained rise in rates? Yeah. I feel like now we've been range-bound forever. Right? So the thing is, is this another, do you have a sustained rise in rates? Like you said, we have to see 6 % or 7 % for that to be another cycle up. We already had the one cycle up. Okay. Yeah, you're right. So I think we already had it in 2025. This is another thing. From Goldman Sachs, median annual S &P 500 total return based on nominal 10-year treasury yield. And they break it down by 0 % to 2%, 2 % to 3%, 3 % to 4%, all these different ranges.

24:43Ben Carlson:is just 1 % all the way up to 8+. And there's no discerning. There's nothing to learn here.

24:48Michael Batnick:Well, yeah, when you present the data this way. I don't love this chart. Because I do think that the direction and the speed of the 10-year matters a lot. I agree with you. Just knowing what bucket you fall into doesn't tell you anything. But I really do think there's something to the speed. I know we can't do technical analysis

25:06Ben Carlson:on interest rate charts. Is that the thing? Like, we can't do that, right?

25:09Michael Batnick:Well, no, you can. It's applied demand.

25:11Ben Carlson:If we could, I want to see, like every time we've hit 5%, that's been a higher range essentially and they've come right back down. People freak out, then we come down. It's happened like five times. I just want to see a sustained breakout above 5 % before I start to worry. Deal?

25:24Michael Batnick:You know, yes. You know the meme where it's the musician who looks at Jennifer Aniston? Is that Iggy Pop? I can't remember. Yes. Is that who that is? Okay. So it's like the five you're on the way up

25:36Ben Carlson:is him

25:37Michael Batnick:and the five you're on, five percent of the way down is her. Right.

25:40Ben Carlson:Yes.

25:41Michael Batnick:So it matters where you're coming and where you're going from.

25:43Ben Carlson:So last week we talked about, I just want to talk about oil prices real quick. Because in this whole geopolitical situation, because oil is back to now to like$96 a barrel. I think the high was actually when you and I were at that dinner in Miami for Future Proof. I remember people, everyone around the dinner table was like a game of telephone was talking about oil prices spiking super duper high. They got to like$120 a barrel. They're up like 20 % after hours or whatever. Remember that? I think that was the high. I remember very well. So I think this is another game of really smart people. Because you listen to all the oil analysts, and they're like,$200 a barrel.

26:19Ben Carlson:It has to. It has to. There's no situation that doesn't happen. And then it just didn't happen.

26:26Michael Batnick:Did the market get it right from jump? Kind of. From the jump? Because I've told this story a couple of months ago when it happened. But we were at dinner, and me and Dan Ives were looking on our phones. And I said to him, Bitcoin's flat, S &P's down like a buck ten or something like that. The market didn't really react the way that we thought it would. And it continued to underreact. We were like, this doesn't make sense. This doesn't make sense. And eventually we were like, okay, this doesn't make sense. But the market was right immediately. Not overreacting. It's wild. Yes.

26:58Ben Carlson:The good lesson is always like the market is usually smarter than smart people, which is hard to wrap your head around. Yeah. Usually is the caveat there.

27:06Michael Batnick:We've done this rap a thousand times, but it is usually the facts. okay um i did an awesome this is like uh random but as we get into investor behavior which is actually shockingly blank this week this has been one of the most popular uh what's that big fat text called topics jeez louise my brain you know something about this microphone breaks the brain investor behavior is one of our most popular most most most packed jam-packed categories of the show and nothing in here.

27:39Ben Carlson:The Wall Street Journal's got to get a profile interviewing traders, what they're thinking about right now. That's what they got to do.

27:44Michael Batnick:Anyway, in here, I put Brent Sullivan, who has a great sub stack on a lot of the mechanics of tax treatment for custom indexing and particularly long short strategies, which are becoming a bigger and bigger part of the advisor toolkit. On Talking Wealth, him and I had a great conversation. So if you're an advisor, and you want to check that out, I cannot recommend the show. There was a big piece in the Wall Street Journal

28:09Ben Carlson:on that last week. Bloomberg had a thing on tax-less harvesting a couple months ago. This is something that -

28:15Michael Batnick:I'm surprised it took so long.

28:16Ben Carlson:Yeah, it's getting big in the wealth management space, and it's going to be something you're going to be hearing about more and more as we talk about it. Okay, let's talk about broken sentiment. So, University of Michigan Consumer Sentiment Index. At all-time lows since this index started in 1950, the lowest this has ever been. Yeah, it's kind of stupid, huh? Okay. We've been talking about this for a while. I feel like maybe we're a broken record here. The Atlantic had this piece. The vibe session is over. The perma session is here. Why Americans are so unhappy by Annie Lowry. Now, she's trying to get to the bottom of this.

28:50Ben Carlson:Why is sentiment so low? There's no way you could objectively look at this. Someone on Twitter last week is a young person. I couldn't tell if they were engagement farming or what, but they said, was 2008 really worse than this economy? And again, that's probably rage baiting and engagement baiting. But I think there are some young people who truly think this is a terrible, terrible economy. And they have yet to see what an actual bad economy is. So here's a quote from this article. People have stopped believing that the economy can be good and have lost the willingness to admit that they are doing well.

29:20Ben Carlson:That pessimism might be harder to fix than an actual downturn. And she goes through like, why is this? Housing costs and inflation and higher cost of living and all the stuff that you and I have been talking about forever. But this boils down to one thing, and it's the internet. This is just… No, no, no, no. and inflation. We've had inflation in the past and it's the 70s inflation. My God, I did a whole chapter in my book.

29:43Michael Batnick:Yeah, but the 70s inflation destroyed the country too.

29:46Ben Carlson:And it's worse sentiment now than it was back then. Yeah, I mean. The inflation we've had this decade is nothing compared to that.

29:53Michael Batnick:Nothing. To just say it's the internet is come on, that's not just the internet.

29:56Ben Carlson:Okay, it's the internet and it's COVID and then sprinkle a little inflation on top of that. But that's, it almost didn't matter what it was. I think everything is just amplified these days. And we had no chance. Humanity had stood no chance against social media. None. We had no chance.

30:12Michael Batnick:Whether you want to blame COVID or inflation, this line broke permanently after that. So the internet wasn't created in 2020.

30:20Ben Carlson:My point is, if bad stuff that happened in the past would have happened in the social media era, that's what would have amplified it. It didn't matter what it was. It was something bad always does happen. Social media made everyone's sentiment worse. And now sentiment is a broken reading for all of history. It's never coming back. Not that it's not going to spike in the future, but as a reliable indicator of how people are actually feeling about the economy, it's useless. You can't use it anymore.

30:46Michael Batnick:Well, but for the stock market, for sure. And for real life too. But it does have political, like this, this is a direct line to the political.

30:54Ben Carlson:It's political politics is the thing that it matters for. And that's why we're going to have, people are like, are politics just going to go back to normal eventually? Like, will we not have this like craziness of the extremes? No, I think it's going to get weirder. Could you say that even though it being lower than it was in the bottom in 80 and the bottom in 2008, even though that's stupid, right?

31:15Michael Batnick:Because this metric is objectively broken, even the way that they collect this survey. We've been over this a hundred times. I still think it's directionally it's right. Like people, the mood of the country is not awesome. At the macro level, at the micro level, things are fine. And not for everybody. Believe me, I'm not suggesting that they are. But I think like the average person feels way better about their situation. And this is always true than how the country is doing. That's not like a, that's not like an insight that I just made.

31:39Ben Carlson:And my point is because we are just inundated with negativity at all times, that whole thing of the country is going to hell is never going to change. That's always going to be something now.

31:48Michael Batnick:Yeah. And also people like us just give this, this sort of stuff too much, too much oxygen. Potentially. But it's obvious. It's, it's a thing obviously. Right. Um, all right. Right. U.S. household ownership of corporate stocks and mutual funds now totals$58 trillion, which far exceeds real estate assets, totally$48 trillion. And this is part of the, this is like part of, you know, one of the key ingredients of the pie of discontent is all this wealth is in people's faces. And if you don't have a piece of it, it feels really shitty.

32:21Ben Carlson:I also think that what we experienced in the 2020s with simultaneous booms in housing prices and stock prices, we're never going to have that again. Okay? So people are going to look at that if they miss the boat and go, oh my gosh. Here's the thing though. Two-thirds of the country owns stocks. Two-thirds of the country owns homes. Most people have financial assets. I know it's skewed. I know it's skewed.

32:47Michael Batnick:You're right. It is funny. A lot of the people that are like yelling at each other about how bad things are have benefited. And they're yelling about how bad it is for people that don't have part of it. It's like this weird, it's weird virtue signaling all over, all over the internet. All right. Jeff Bezos calls for zero income taxes on bottom half of earners. I didn't, I didn't read this or listen to the interview. Did you?

33:07Ben Carlson:I listened to a CNBC interview. Yes.

33:09Michael Batnick:Okay. What did you, all right. So somebody tweeted.

33:14Ben Carlson:We're running wild with this one.

33:16Michael Batnick:Okay. Somebody said, it's great that Jeff Bezos thinks this way because too many people who don't make money because too many people who don't make money think that giving money to the government will solve a lot of their problems. They think these government programs are the answer. And it's clearly not. I would agree with that. Jeff Bezos quote tweeted and said, thank you. The important part is zeroing out taxes on the bottom half. Best way to put money in someone's pocket is to not take it out in the first place. Bottom half is only 3 % of total tax revenue, but it's very meaningful to that person.

33:46Michael Batnick:Zero it out. My thoughts on this are, this is a very, very complicated topic. And there's obviously very strong feelings from coming from every angle here. I think that it's a really potentially scary thing and slippery slope to divide the country like that between a thing about how bad the class warfare will get. If we, if the country allows a certain portion of the population, and I'm not talking about people giving this as my I could give a shit about that. But if it's like the us versus them and you really create like a caste system of haves and haves, not like formally. Now, yeah, I think it would be phenomenal like in a vacuum to not have people pay taxes that don't contribute a damn thing.

34:29Michael Batnick:Like in a vacuum in an ideal world, yes. Who says no to that? Who says no? What type of monster says no to that? But I think it has real big societal ramifications that people much more thoughtful about this topic need to spend a long time thinking about.

34:46Ben Carlson:Yes. That's the college behind. And you go, well, I'm in the 51st percentile and I'm having to pay now. I moved out of the bottom. Now I'm paying. If you're close. True. Yeah, yeah, yeah, yeah. So you're right. It's.

34:58Michael Batnick:There's got to be, there's got to be, there's got to be a better system.

35:01Ben Carlson:It's never going to happen though because we just keep, everyone keeps saying taxes have to go higher and all they do is keep going lower. They keep finding different ways to take taxes away from people. So I think we're just going to keep testing how many taxes, tax rates we can take down lower and see what happens. That seems to be my only -

35:15Michael Batnick:All right, well, yeah. This is a true rabbit hole that I care not to go down. You know what? Speaking of that, when people say I went down a rabbit hole, no, you didn't. You spent 20 minutes on Claude.

35:23Ben Carlson:True.

35:25Michael Batnick:Right? Now. Like, there's some people that genuinely go down rabbit holes, but I'm going to say 90 % of people are full of shit. Rabbit holes are easier now. Speaking of Claude, this is f***ing unbelievable. So Ben got an email from a famous author and in Tower Inbox, I'm like, this is so weird. who writes this way? Like it was just, there was a line in there that was, I'm not even sure. It was like, I thought it was like too cheesy to be AI. But Ben's like, this is obviously AI. I'll write back whatever. So Ben responded and the person responded with what was clearly an AI response. And I said to myself, like you gotta be f***ing, excuse me for the F-bombs.

36:01Ben Carlson:You gotta be kidding me. This is a very well-known person who sold millions of copies of books. And the thing is, this is how you behave. I'm about to use the F-bomb again. You freaking weirdo. You think this is normal behavior? So I -

36:14Michael Batnick:Are you a human being?

36:15Ben Carlson:So since my book was released, I probably get two or three AI emails a day from like people who want to promote the book. And I can tell because they stole the summary from Amazon and it like re-summarizes the book to me. Hey, you did a good job explaining this. And then it says, would you like to join our PR department and help promote your book? And I get two or three of them a day. And I can't tell you how quickly I delete an email that I know is written by AI. And I can't believe that successful people, I get it. You want to be more proficient and productive and have an AI agent help you. But it is so cringe when I see an AI email from someone.

36:50Ben Carlson:I can't, I immediately delete it. It's unbelievable. I hope that's just something that happens in the future with people where they go, no, we're not going to give you the light of day for this. Like you can sign off using AI somehow, like yes or no, this worked. But like an actual personal email to someone using AI is no way. Sorry.

37:07Michael Batnick:It's unbelievable. Um, so Google had a big demonstration of their new capabilities. It's called spark. And it's basically like the AI assistant that's, that's, that's coming. So Ben Thompson wrote a lot about this. And, uh, a friend of mine actually was texting me yesterday. He's like, dude, it's here. Like everything that we've been like waiting for to like the really like holy effing crap moment. Like that's what this is. I haven't used it yet. So I'm excited to take it for a drive. But this is what crypto was supposed to be.

37:42Ben Carlson:Right. Where it was like, and I don't mean the promise of a different future per se.

37:47Michael Batnick:I mean, specifically like, oh, you won't even know that you're using crypto. It's just going to be in the background. All the companies are going to start to use it. This is what Google is now going to be pushing. And a lot of these hyperscalers are just going to be integrating AI more and more. So before you get to the AI stuff. Without us even knowing it. And what's so funny? What are you laughing at?

38:09Ben Carlson:Oh, no.

38:09Michael Batnick:We have Duncan. Duncan was trying to guess who the author was.

38:15Ben Carlson:So did crypto like miss its moment is what I want to ask. Because there was a story last week about Mark Cuban's like, I sold my Bitcoin. Like, I'm done with this. Like, do you think that AI has just sucked all the oxygen out of the room and crypto had its moment to like really get a consumer use case? And all you people say stable coins and maybe that will be integrated with AI. But crypto never had its thing. It's like, oh my gosh, this is the thing. Yeah. And it never happened. Did it miss its moment?

38:39Michael Batnick:It's easy to say yes. I don't know enough about what's happening in the crypto economy to say like, yes, it's dead forever. But the short answer is yes. Shai Belor tweeted, Robinhood's crypto COO is stepping down. That's a big signal as their crypto revenue growth slows. This is a gut punch or at least a jab. SEC delays plan allowance for crypto versions of US stocks. So is crypto dead and buried forever? You know, I'm not going to say that. I have no idea. I wouldn't say that, but it's, it missed it.

39:06Ben Carlson:Like AI has the.

39:07Michael Batnick:The thing is, AI is sucking up all of the talent in the world. That's what I'm, that's what I'm thinking.

39:13Ben Carlson:Remember before it was like, everyone's going to work in crypto. Now all those people have to go to AI.

39:17Michael Batnick:And that's what drives innovation. It's the talent that builds it. Right. And who is going into crypto now? Like nobody. If you were going to, if you're of that mind and of that spirit, you're going where the next thing is. And it's clearly not crypto.

39:32Ben Carlson:Right. That's what I'm thinking. Who knows? So Benedict Evans has his, I think he does it every six months. He updates his presentation. And this one, of course, was on AI. This was interesting. We talked about this last week. He said everyone is already using this as the title of the presentation. He says OpenAI reports 900 million plus weekly users, but only 5 % of them are paying, which is kind of nuts.

39:55Michael Batnick:So getting back to the crypto stuff, we were so early was the rallying cry. And it's very easy with the AI stuff that we're talking about nonstop. This is a bubble. It's got to be a bubble. Look at the numbers. These are unsustainable. The spending, blah, blah, blah, blah, blah. But, and also the reality is getting back to like the earlier conversation of headline talk versus people that actually do the work and contextualize where we are. We are in top of the first inning as hard as I just believe. Now, the stocks might be in a bubble, right? It might be that we discounted everything. Okay, fine.

40:35Michael Batnick:I don't know. We'll find out. But in terms of AI adoption, we really are so early. Yeah.

40:42Ben Carlson:And the use case is obvious once you start using it. So you talked about the Bezos interview on CNBC. One thing he said, he said, I'm taking the other side of the labor disruption. He said he thinks AI is going to make people so much more productive. The productivity is going to go through the roof. People are going to have more money. He said, AI is going to lead to deflation and labor shortages. He said we're going to have more desire for things in the future because of AI. And it's going to create more businesses and more jobs than ever. He's taking the positive spin on AI, which is actually kind of refreshing to hear.

41:11Ben Carlson:Someone last week commented to us and said, I'm sick of all the AI doom from you guys. And I think we've been pretty fair about it all. Doom? But, yeah, I know. But Bezos says, no, no, no, no. It's going to lead to job shortages because people are going to be more productive and richer.

41:26Michael Batnick:Very plausible.

41:28Ben Carlson:I hope so.

41:30Michael Batnick:All right, Ben. I bought a stock. This is definitely not financial advice. People like when Josh and I talk about stocks and what are your thoughts. So as much as I would -

41:40Ben Carlson:Does anyone ever say this is financial advice? Has anyone ever said that before?

41:45Michael Batnick:Oh, this guy. As much as part of me would like to never pick stocks again because it's stupid and it's a waste of time and I don't make money and blah, blah, blah, blah, blah. I love it. Keeps me young, Ben. and it's great for the content. All right, so whatever. I'm picking stocks again. What'd you buy? So I bought Florin Decor. Florin Decor is a, looks like an incredibly beautiful, perfectly, perfect downtrend. The stock sucks. Florin Decor, do they have one by you? There's like, I think there's like 500 stores in the country.

42:21Ben Carlson:I mean, it sounds like a place my mom shops at.

42:23Michael Batnick:Okay. So it's, they do flooring, obviously, and other home improvement stuff, okay? So they compete directly with Home Depot and Lowe. As a matter of fact, I think they sell more flooring. So how is this even on my radar? So Alex Morris, who I follow, wonderful writer, sub-stacker. He's been on this beat for a long time, and I followed him right into this stock.

42:46Ben Carlson:Stock is in a 65 % drawdown.

42:48Michael Batnick:So he gave me financial advice. So if this doesn't work out, that's on him, not me. So anyway, you know how we were talking about like how fast things change? And part of the lessons, at least from recent history, is that stocks just don't let you in. Like when the story changes, like look at Intel or any of these, like it's like, wait, what just happened? Why is the stock up 40 %? Oh, I can't buy it now. That's how it works. Okay. So I am very confident that at some point in time, there will be a changing of the housing cycle and I don't want to miss it. Okay. so this is the stock that I'm betting on.

43:26Michael Batnick:And will I sell it in three months when I get bored and I don't make money? Yeah, probably.

43:28Ben Carlson:So this is your way to bet on the home renovation boom? Yeah. People not moving?

43:33Michael Batnick:Yeah. So anyhow, that's a long setup, but I thought this was interesting. So the Wall Street Journal has a piece showing the age of America's homes. And most of the homes are 55 years or older. A lot of the houses in my town, I'm sure in every town, when they sell, there is a lot of work that needs to be done. And Florian Decor and all these other housing stocks are in an absolute ice age. This is a great depression. This is a great recession for these housing stocks. The news cannot possibly be any worse unless it just goes on longer than even the market is suggesting, which obviously is happening, right?

44:12Michael Batnick:Like who knows? All right. So I saw a chart from Torsten Slack, who we mention all the time, and it says higher rates, more renovations. Locked-in mortgage rates are keeping homeowners in place and driving a surge in renovation spending. See chart below. Ha, ha, ha, ha. See chart below.

44:35Ben Carlson:This chart is bunk. I actually thought about this. So wait, let me see if I can guess. Go ahead. So the reason this is bunk, because it's renovations as a percentage of construction spending. is it because construction spending is falling? Is that why? Yeah, the denominator. Right. Nailed it.

44:49Michael Batnick:Okay, that's what I thought. So Claude decoded this for me. And if you look at improvements, now this is a little bit data, but it's growing like 2 % a year. It's barely growing. It's barely growing. And if you look at the comps of all these companies, Floor & Decor, Mohawk, Sherwin Lowe's, Home Depot, Williams-Sonoma, restoration. They're all saying the same thing. We know the housing market is an absolute shit show, okay? It is terrible. Whirlpool that sells dishwashers, whatever, annihilated. There is nothing happening. There is nothing happening. So, locked in mortgage rates are keeping homeowners in place and dropping a surge of renovation spending?

45:35Michael Batnick:Yeah, I suppose if you're looking at a denominator as a percentage.

45:38Ben Carlson:Okay, so what's your thesis here then? You're trying to get ahead of this? Yeah. Okay. Yeah, that's it. So I think this is actually like not like a one or two year trend. I think this is like a 15 or 20 year trend because Redfin has the data that shows like two thirds of all baby boomers have lived in their homes for 15 years or longer and something like 40 % have lived in their house for 20 years or more. A lot of those houses are going to need a ton of renovation to meet the standards of young people who grew up on HGTV. Okay? I think that's going to be a big, huge thing for baby boomers who just said, you know what?

46:10Ben Carlson:I don't need to renovate. I'm fine with it. We did a renovation 20 years ago. We don't need to renovate again. And young people who come in to buy those houses are going to go, nope, we need to gut this, new this, new countertops, new flooring, updated bedroom, open up for entertaining, all that stuff. That's going to be a 20-year trend. But is it just dribs and drabs, or is it like this, you know, that's the thing?

46:31Michael Batnick:Well, higher rates are killing housing, obviously. So I hope you're right, Ben. I hope rates come down. Floor and decor. All right. Your bottom vision. How about this? I was listening to Matt Bellany, and he had a podcast on vertical streaming because everybody holds their phone like this. And even though it's a minor inconvenience to do this, it's an inconvenience, right? This is the natural. So Netflix is getting in on it. Like all these companies are spending big bucks to compete because also like Reels and TikTok, this is how people watch it. They said this on the pod. I had Claude confirm and make a chart.

47:17Michael Batnick:Reels alone, Meta's Reels is doing more revenue. Now they just, this is a new product. Reels is doing more revenue than Netflix. Jeez,

47:31Ben Carlson:just Reels. This is why the concentration argument about the big tech companies falls flat for me. you always talk about the business lines of Apple. Apple does more revenue in AirPods. And, you know, you always talk about that. Like if you break down inside these companies for Instagram and you said just Reels and then YouTube for Google and YouTube TV and all these things like those are individual businesses of themselves. This is, that's pretty crazy. The funny thing is, is that's obviously not a good way to watch something vertically. It's way better to watch it horizontally, but people don't care.

48:04Ben Carlson:It's convenience. right

48:08Michael Batnick:it's not the best way to watch something know what I did for the first time we had a four day week weekend as did I'm guessing most or all of the country I don't know why we were off on Friday and the weather sucked the sun finally came out on Monday afternoon but it was a complete washout here I took the boys to see the mandalore mando and grogo I sat on the like seventh row of the IMAX theater.

48:37Ben Carlson:People liked the TV show, right? I remember I watched one episode. I'm like, I'm not going to watch Star Wars show. Sorry. I watched the first season.

48:41Michael Batnick:It was good. Yeah, I think people are into it. But sitting up front in IMAX wasn't as bad as I thought it was. It was an experience.

48:48Ben Carlson:You didn't have to hang your neck straight up?

48:49Michael Batnick:No, no. I was afraid of that. No, it was not bad. The movie was, the movie was, so it did good business. I think it did 160 million globally. Not terrible. And it was totally watchable. Kids loved it. Matt Bellany had a stat like, I think it was like 70 % of all tickets were sold before 5 p.m. It was like a heavy kids audience. Now, I don't watch Mando, so I don't know if this is an extension of the show. I'm guessing it is. It just was like, why? That's what I was going to say. Why do we need this? Yeah, the movie was fine. It was watchable. I didn't fall asleep. Actually, I did once. But it just didn't move the plot forward.

49:32Michael Batnick:This is the best they got. it's been seven years. Jon Favreau, it's been seven years since we've had a Star Wars movie and this was it? It was just like, it just felt like, like Marvel did the shit and got it out of the system. Like, it's over. We're not doing these movies anymore. But I guess we're still doing them. It was kind of depressing.

49:50Ben Carlson:Disney's going to squeeze the last bit of that toothpaste tube for as long as they can.

49:54Michael Batnick:Yes, they are, Ben. Nobody's buying dad books, Ben.

50:00Ben Carlson:What is that? Are dad books like World War II biographies?

50:04Michael Batnick:So Chernow's most recent biography of Mark Twain, which was published in Time for Father's Day, 2025, has sold 119 ,000 hardcover copies to date. Ulysses, which I read in 2017, sold 381 ,000. Speaking of dad books.

50:21Ben Carlson:So wait, they need to, it's because these biographies are too long. No one has time to read 900 pages on someone's third cousin. Sorry. Nobody. Too much.

50:32Michael Batnick:I always struggle I'm not a big gift giver I'm a bad gift giver I'm not a big gift giver but I love giving gifts I just don't know how to do it great as an anti-birthday guy

50:41Ben Carlson:I'm obviously not good at it

50:42Michael Batnick:okay so in a period of of being unlocked from this brick on Instagram speaking of dad books I bought my dad a book and this is reels right This is Reels monetization. I bought my dad a book where it's like, the first time you did this, the shit that I don't know that I would love to know when he's not here one day, hopefully far into the future, and he'll be able to fill it out and give it to me. I've heard about that. You interview your parents, essentially, right? Yeah, so it's like that, but it's just done for you. My dad just has to fill it out, so I'm excited.

51:19Ben Carlson:Yeah, a lot of the stuff you've literally never asked before.

51:21Michael Batnick:Yeah. And it's good for your kids, too. And things that are uncomfortable that you probably would regret not asking. not having asked before, you know, when it's too late.

51:30Ben Carlson:Yes. You know, I had an uncomfortable conversation with my dad about six months ago. And I said, give me all your stuff. My dad's going to be 80 next year. I said, give me all your stuff, everything. I need to know where your accounts are. I need to know your passwords. I need to know your insurance. I need to know mortgage stuff. I need everything. Put it in one place for me. If something happens to you, I need that. I'm, you know, I don't want to have to like go digging and looking for stuff. Did he do it? He did it. And he's an old school guy. He handed it to me handwritten. on a piece of paper.

51:59Not, not...

52:01Ben Carlson:I went home. Dear Ben. I keep giving my dad crap on the show. I went home last week and we're a big card playing family. We love playing cards. My kids love playing cards, so we're playing cards. We like listening to music and playing cards, having a beer. And my dad comes out with a sheet of paper with stuff written on it. And he says, Alexa, play Beatles, Hard Day's Night. He wrote out his playlist. And he's, after every song was over, he'd tell Alexa to play the next song. I said, Dad, can I show you how to create a playlist? he said no no I don't want to do I'm just gonna I have my place here I'm gonna all right so every

52:32Michael Batnick:song he'd have to tell Alexa what to play my uncle uh is cut from the same cloth he still uses and I think it's a joke at this point but like he would do it even if it wasn't a joke he uses week at a glance which is the physical calendar it's like a pocket-sized calendar

52:52Ben Carlson:Oh, yes. Right.

52:53Michael Batnick:It's always in his pocket. Right. That's how he – and he has an iPhone, but he literally uses weak at a glance. That's funny. And I know he used to print out his portfolio every single day. And, you know, some people are just stuck in their ways. There you go. That's right, Ben. All right. I wanted to ask you about this. So this article is not for me, but it's for you. The ice-cold civil war between Diet Coke and Coke Zero drinkers. so I'm not a huge diet coke drinker I try not to drink a ton of soda but I drink it more than I would you know I probably have three cans a month ish ebbs and flows sometimes I drink it sometimes I don't I've never had coke zero

53:34Ben Carlson:oh my gosh it's it's I used to be a diet coke diet pepsi drinker I go back and forth coke zero and pepsi zero are so much better than diet coke diet pepsi in what way the flavor it tastes It's close to the regular versions. It's so much better. I can't, it's hard to explain. So I can see why the growth is happening in those zero drinks. It tastes a lot better.

53:58Michael Batnick:So Diet Coke sales increased by just 1.3 % in the first nine months of 2025. Coke Zero grew by 4.8 % over the same time period.

54:07Ben Carlson:I'm a big zero guy. I love it. It's all I drink now. It's the zero stuff.

54:12Michael Batnick:I'll try it. It's good. My interest has peaked. All right, retatratide. I don't know if I'm saying that right, but that's the new shit, the new hot shit from Eli Lilly. Phase three obesity trial just came out and the results are genuinely insane. 28.3 % body weight loss on 12 milligrams over 80 weeks. I don't know how much 12 milligrams is. 70 pounds on average. 70 pounds. Man, people are heavy. 45 % of patients had 30 % weight loss. This is bariatric surgery territory.

54:44Ben Carlson:Unreal. We've solved weight loss. What does this mean for the health of this country? We've literally, doctors should be handing this out to every patient who has a BMI over X or like the savings on heart disease. And it's unbelievable.

55:01Michael Batnick:So I just said, yeah, like, yeah, they should do it. I literally know nothing about medicine. I'm the last person that should be giving medical advice. I have, I am like a hypochondriac about death because my mom died young. I think about death a lot and I just think that I'm going to die young, which is not the greatest feeling in the world. So I did a blood test. There's a company called Function Health that I found through somebody's sub stack that I like. And I said, you know what? This is probably overdue for me. So I got like 96 different blood tests and I signed up for like the cancer, the pre-cancer screening, the heart stuff.

55:42Michael Batnick:and it's not cheap. It's like, it was like 14 or 1500 bucks. Um, certainly cheaper than, than, than dying. Or I, like there's no amount of money I wouldn't pay to know that, to know that I'm either whatever on the right track or not, or if I need to course correct. I hate giving blood, not a fan. It was 12 vials. Not fun. Do you get like squeamish about it? Not really. I just don't like it, but it was, it was, it was over fairly quickly. Anyhow. Um, so I got the results and my biological age, Ben, would you like to take a guess? 40? 30.8. Okay. My biological back age is 75. True. But 30.8 made me feel pretty good.

56:26Michael Batnick:There was four things that were on the upper range of borderline, like borderline out of range.

56:35Ben Carlson:And it was like diet stuff,

56:37Michael Batnick:stuff that you control. But I shouldn't expect the football just yet. In fact, I probably shouldn't even be mentioning this because I haven't gotten the results for like the pre-cancer stuff, which is the stuff that is especially like prevalent to my family.

56:48Ben Carlson:And do you have to do this like once a year now?

56:50Michael Batnick:That's a good question.

56:51Ben Carlson:That I don't know. Okay. So if you take your internal clock versus your hairline, average it out, you're right at where you should be. Right?

57:00Michael Batnick:That was a positive surprise. I feel pretty good about that. All right, recommendations. Ben, I took your advice and I listened to the Harrison Ford podcast, which speaking of genetics, His mother was Jewish. I had no idea. One of us. Great pod. You know what kind of annoys me? Not kind of, it annoys me. For whatever reason, on Spotify, there was no video for this. And it's not, there's some, are they on Netflix?

57:26Ben Carlson:Oh, maybe. I don't know. That's a good question. I don't know.

57:28Michael Batnick:I saw, I saw, there's, there's a video version on YouTube. Okay. So, what'd it do?

57:34Ben Carlson:It's great, right? So I, after listening to the podcast, I thought, you know what? I watched the first season of Shrinking. It was a show I liked, I didn't love. I need it as a background show. And I realized, maybe I already made this observation. Bill Lawrence is the Taylor Sheridan of comedies. So he's got Shrinking, Bad Monkey, Rooster, Ted Lasso. He did the Scrubs remake. And I watched all these shows.

57:55Michael Batnick:Which was Bad Monkey?

57:56Ben Carlson:The Vince Vaughn one. Oh, I didn't watch that. No, none of them are great. They're all good though.

58:02Michael Batnick:Yeah.

58:02Ben Carlson:Like there's no comedies anymore. So it's nice to just have, it's a background show. You don't have to like pay attention to every scene. So I put it in the background while I'm doing stuff at night. emails and catching up on stuff.

58:14Michael Batnick:It is a good background show. Oh, Obsession, which is a hardcore Michael movie. I haven't seen it yet. You might have heard about this. Ben, have you heard about this yet? No. It's one of those indie horror movies. It's on fire. Okay. I think it passed 100 million at the box office, or it's going to. Movies are... What, you have seen it?

58:35Ben Carlson:No, it's a trailer for it. I don't watch horror movies. You know that.

58:39Michael Batnick:I know you don't. Movies are having a moment. So much so that one of the stocks that I've owned for a long time in Michael years is IMAX. There was reports that IMAX might be getting some offers.

58:56Ben Carlson:We got a lot of congratulations. Are you going to sell it? Are you going to wait? I'm not selling it. Wait for the bidding war? Okay. I actually took your recommendation for a movie. My wife and I watched Remarkably Bright Creatures this weekend on Netflix. That's a Ben Carlson movie. It's so nice to have just a sweet movie. That's the best way I can describe it. It was sweet. It had like no ulterior motives, no like cynicism, just like a nice movie. Like, and it was kind of surprising because it was unique in a lot of ways. I feel like I got a little like, whoa, a little chucked up maybe. Sally Field still has it.

59:26Ben Carlson:Like I haven't seen her in something in forever. She's still got it. She was so good. And I love Bill Pullman's son. I love him. He was in Top Gun Maverick. He was in the show with Brie Larson on Apple. I think he's going to be a great character actor. He looks different in everything he does. Sally Field still has it. Yeah, it's just a nice movie. Just plus it. It's a nice movie. Didn't have any other agendas besides just being a nice, sweet movie. I really liked it. It was a pretty good one for Netflix. Really good for Netflix, yeah.

59:56Michael Batnick:All right, I believe that's it. Sun is Shining, that's good.

1:00:02Ben Carlson:Sky hasn't been falling for a while as far as the markets go. someone said that I'm like the dad when I say like whenever we do get a correction I'm gonna I'm gonna walk out like when after it rains and said ah we need that that's gonna be after a correction

1:00:15Michael Batnick:we just came out of a correction but I agree we do need one I'm with you Ben

1:00:19Ben Carlson:9 % is nothing alright animal spirits at the compound news.com personally and most personal responses see you next time