Congress Trades During Tariff Announcement, Oil Market Reaction to Israel vs Iran, OpenAI vs MSFT

0:00Ladies and gentlemen, welcome to the compound and friends. This show is sponsored by our friends at Grayscale. Don't know where to begin in crypto? Start with Grayscale. More on Grayscale in just a moment. Tonight's show is an all new edition of what are your thoughts? It's myself. It's Michael Batnick. We're going to start out with the recent events in the Middle East and the market impact as a result of this weekend's conflagration. We'll look at oil prices, energy stock prices, and everything you need to know about how the markets are digesting the most recent round of attacks, bombings, etc.

0:38Then we're going to go into congressional stock trading. Look, if you're like most Americans, you absolutely love and support this. I think we can all agree there's absolutely nothing wrong with the people who sit in Congress and legislate and debate laws and make laws and make policy also benefiting from that very activity that taxpayers are paying them to do with their brokerage accounts. Like what could possibly be more American than that? I don't know. So we fully support it. And we've got some new data on how politicians were trading the events of Liberation Day. We're going to look at market-wide sentiment.

1:23We're going to do a whole thing on NVIDIA, OpenAI, Microsoft. You're going to have a lot of fun. So without any further ado, I'll send you right into the show. Guys, make it happen.

1:39Welcome 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 Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

2:19All right, gangsters. It's time for an all new edition of What Are Your Thoughts? I am your host, Mr. Downtown Josh Brown. With me as always, my co-host, Michael Batnick. Michael, say hello to the people. What's up, people? Josh, how are you? It's good to see you. I'm doing okay, dude. I'm honestly having one of the best weeks of my life. I have to be very honest with you. I'm just happy. I love it. If you're happy, I'm happy. Thank you. I really think this Florida thing has legs for me. I think this is where I belong. All I do when I'm down here is like eat healthy because my wife only eats healthy like i'm eating more vegetables on a daily basis than probably ever in new york um walking like walking all day long and uh yeah you look slender do lifting weights walking in the pool and working and like that's it like that i don't There's no commuting.

3:21There's no schlepping. The weather is incredible. Everyone I meet is like, I used to work in finance. I'm like a celebrity here. Everyone's into financial shit. It's amazing. I really don't want to leave. It was nice knowing you. I know. I have a flight in two hours, and I'm seriously considering missing it. Okay. Today's show is brought to you by, brought to everyone by, our friends at Grayscale. Curious about investing in crypto and not sure where to start? Start with Grayscale. Grayscale is the world's largest crypto native asset manager and has been in crypto since 2013. That's a long time when you consider how early we still are in crypto adoption.

4:04Grayscale also offers the widest selection of crypto investment products in the US, over 30 different funds for investors to choose from. That's plenty of choice for both first-time crypto investors or crypto experts. You may not be considering crypto for your portfolio today, But whenever you're ready, Grayscale can be your guide. When you think crypto, invest Grayscale. Investing involves risk, including loss of principle. For more information, visit Grayscale.com. All right, Grayscale.com. Thank you so much, guys. Hey, if there's any such thing as a guaranteed buy signal for stocks, it's probably when the guys who sell options trading newsletters start going on TV talking about the straight of Hormuz.

4:47I'm just going to tell you straight up like anytime it gets to that point where like the traders are like talking about any kind of geopolitics. But when they go to this, did you know that the Strait of Hormuz is responsible for 30 percent of all of the oil the world uses each day? Like it's it's this thing where you ever meet somebody who just read a book and then every conversation is like about that book. Remember when Chris read, or I should say, listened to the audio book of Robert Moses? Oh, three years. Oh, my God. It was like four years of, oh, that's just like this time when Robert Moses.

5:27Dude, those were the dark ages. Those were some of the worst years of my life. So this is, and he didn't even read it. He listened to it. Shout out to Chris, but oh, my God. Don't tell me about a book you've listened to. All right, so wait a minute. So this is one of those things, like in the last couple of days, he's got, and I know these guys. These are guys that like I used to work on the Chicago Board of Trade or whatever. And I was like a pit guy. And then I transitioned to like trading my prop account. And now I sell a newsletter. Okay, no disrespect. That's cool. Why the f*** are you talking about the straight of Hormuz with a straight face on TV?

6:02What are you geopolitical expert now? Well, if you think about how economically sensitive the straight of Hormuz. I said, not the straight of Hormuz. Now what are we going to do? The minute that starts, it doesn't even matter what you buy. Just pick five stocks, buy them. Four of them will be higher within 48 hours. That is an automatic for me. Generally a good rule, but not when the fix is at 20. The straight of Hormuz? Are you mad? There's nothing going on in the markets. There's no volatility based off this event. It's just, can we, so I have like, I have CNBC on in my place and I'm like, not like watching, it's just on because it's always on.

6:52And, but every host of every show brings up the Strait of Hormuz. Is that like in the, is that in the rule books? So the minute Israel defends itself against any kind of action, you know, any kind of action by Iran, it's like, well, we have to mention the Strait of Hormuz. during every hour just to remind people that that's the biggest risk. Is it the biggest risk? I don't know. Let me ask you a question. Am I in the minority? Here's what's on my TV. All day. Every day. Let me see. Nothing. Yeah. That's weird. I think it might be weird. There's never anything on. I mean - You just raw dog the day?

7:28All day. I never have TV on. Like once in a while - You don't want a ticker like just if there's breaking news or anything? I don't know. I think I'm probably in the minority. I never have the TV on. Oh, one thing though, I turned off all my breaking news alerts on all my apps. Like nothing, nothing is breaking in my life anymore. Maybe that's why I need there be something on the screen. Here's what I have on my other screen all day, every day, never leaves the screen is the stock tickers. So if there's anything going on, I'll turn the TV on if I have to. Okay. I think it's just background. I think it's just background for me to just glance up.

8:06Yeah, I think it's normal to have the TV on. I think it's normal to have it on, yeah. Yeah, it's very strange that you can get through a whole day that way. You might try it. Impressed, strange, but impressive. What's your take on the way the oil market, I was going to say reacted? I'm so happy you would ask. But I said failed to react is what I would say. As a former energy analyst, no, literally, I know nothing. I know nothing. So I was talking, here's what I know, nothing. But I was talking about this with Ben today, just how it's interesting how little reaction there was in the market, even in the crude market.

8:41And there was obviously, was it Sunday night? Crude futures were up 8%, not nothing. Two days later, gave it all back. And the production, import, export dynamics of our country today versus the past look radically different. So, yeah, it used to be a lot more impactful. The energy companies were not 3 % of the S &P 500. They were 12 % and 13 % back when we were very dependent on foreign imports of oil. And in the market view, it is not a giant story compared to what it used to be. That's the point. I was going to say, I actually was going to say 20 years ago, if this were 2005 and Iran had fired hundreds of missiles into Israel and then Israel retaliated to the extent that it did.

9:31and they now effectively control the skies above Tehran, which is a really interesting story that I know nothing about. I'm just going to tell you, you would have seen a massive reaction in the S &P 500, and you would have seen names like Exxon, Chevron, and all of the other follow-on energy stocks up 10%, 12%, 15%. There'd be no doubt about it. And I don't know if that speaks to the massive increases in domestic oil and gas production here in the United States, to your point, or if the public, the markets at large have just contented themselves with this idea that oil price volatility is just a perennial, like this happens, something happens every year that either disrupts or potentially disrupts the supply of crude around the world.

10:23And it never seems to be the thing that wrecks S &P earnings. And therefore, these market-wide reactions are just going to be short-lived. Let's do a chart. Yeah, go ahead. It's a three-year WTI crude price. Nothing. Like literally nothing. That little squiggle at the very end, that little spike. I mean, again, compared to 20 years ago, even 10 years ago, it's almost as though nothing happened at all. Yeah. Now, of course, Iranian oil is not particularly important to anyone other than China. There are sanctions. There are reasons why. But it's still part of the global supply. And if you're buying oil from Iran, you need to buy it from somebody else if for whatever reason that gets disrupted.

11:14One of the things that the non-market news sources are talking about is that Israel is very deliberately not going after export terminals, not bombing the types of assets that would ordinarily cause the type of price spike that we're talking about. So that seems like a big part of the story. Yeah, it might be in cooperation with the United States. It might be a conversation between Trump and Netanyahu. Look, you can mostly do what you want, but don't cause massive inflation as a result of whatever you're doing. So that's probably part of it. Next chart is I own this ETF. This is just my shorthand for domestic US-based producer exploration and production companies, oil and gas companies.

12:00ConocoPhillips is like a third of this ETF, by the way, COP. but IEO is effectively flat over three years. It's done effectively nothing. This is my oil price. This is my oil spike hedge. This is like a permanent part of my portfolio where if something really drastically spikes the price of oil to the point where the whole market sells off, this is like the way that I'm hedging that risk. And it acts like a hedge. It's up 5.5 % in total return over three years. Are you taking the hedge off? It's effectively down. Do you take the hedge off when it works? Never. Never take the hedge off and actually add to it as the rest of my portfolio grows so that it's still an oil shock hedge commensurate with what the size of my overall portfolio is.

12:53The problem is I'm always in that buyer if I'm trying to keep it somewhat constant as a hedge because look at these stocks versus like anything I own that's software as a service or AI related. It's like a joke. But you don't know if you're going to need it until you need it. Here's the XLE. I own Chevron, which is the second largest component of this, but I don't own the CTF. The XLE is the S &P 500 energy sector spider. We don't use the term spider anymore. I say spider. You do? You okay, spider? No, it's just the ETF spider. I thought you said you did own XLE spider. No, no, no, no. You said you were long.

13:40No, I didn't say I was long, you son of a bitch. Come here, you son of a prick. I was talking about long. Dance the drink over to me. All right. Shout out to spider. XLE up 8 % in total return over three years. Horrendous. Wow, impressive. You'd be outperforming this with a checking account. I don't know what – do you actually need World War III for these stocks to go up? So energy is the cheapest sector in the S &P 500 now. Significantly cheaper than utilities, which are supposed to be the cheapest sector. There's just nothing happening here. and I don't know what it takes for this to be a leading sector.

14:19It doesn't look like it's going to happen this year. We've got multiple wars going on that concern oil and gas supplies globally and nobody gives a shit. Nobody's worried about scarcity. And I think the market-wide story is also interesting. Put this chart up.

14:38NASDAQ, S &P, Dow. Are you surprised at how quickly we completely erased the threat of World War III? Looks like it took about 12 hours. I am. Given the nature of the V-ship recovery that we just experienced, you would think that the bears could take a little bit back. And you can make the argument that the momentum has stalled over the past week or so, right? Like we are maybe forming a short-term top here. But the fact that they can't even punch through, they can't even make like a lower high, it's kind of – it is interesting. It's also – it's a fluid situation, Josh. Market's not done. We'll see what happens over the next couple of days.

15:15Gold fell. The US dollar rose. VIX fell 8 % yesterday. VIX fell 8 % yesterday. NASDAQ higher than where it was before this started. S &P rallying. I don't even know what the market is reacting to at this point. Like what is – the market is rallying on what, honestly? A deteriorating economy? Yeah, I'll tell you what it's not reacting to. geopolitics. It's just, it's not, it's not, it's not responding to a slower economy. Like we got retail sales this morning. Not great. It's not responding to that. It's not responding to a deteriorating labor market. I don't know what it's responding to other than AI.

15:55I just. So the fed meeting is tomorrow. That would normally be like one of the things over the course of the summer that the market reacts to. They're not cutting. They're not cutting. The market doesn't think they're cutting. Um, somebody was saying today, Steve Leesman was saying today on Halftime Report, the Fed's posture now is they're watching inflation, they're watching unemployment, and whichever one gets worse first is the one they'll worry about. So that's the posture of the Fed this summer is on a chaise lounge. Tim O 'Reilly just wrote a similar article. Obviously, he's the unofficial mouthpiece for the Fed in terms of the media.

16:35And he said the same thing. They're not doing anything. Okay, so stocks have fully discounted the opening stages of World War III, which I guess is bullish. Bank of America Global Fund Manager Survey is now – the sentiment is now back to pre-Liberation Day. Let me read this to you. It's a Wall Street Journal. Investor's mood has rebounded back to the more bullish levels seen just before Liberation Day tariff salvo. Remember what that was like back then? February and March. Not great. right um no right before everything was like all systems go yeah the bank's global fund manager survey found that fears of a global trade war and tariff induced recession were receding the proportion of surveyed investors expecting weaker global growth fell to a net 46 percent you know where it was in april wild 82 yeah unbelievable myself and i'm in that 82 investors Investors are now holding less cash today than they were in April and are underweight the dollar, the highest level since 2005.

17:39A majority of respondents say international stocks will be the top performing asset over the next five years. Less than 25 % say that US stocks will keep dominating returns. So the contrarian trade amongst global fund managers is MAG7 slash S &P 500. That's interesting. the consensus is international stocks will be better over the next five years. What do you think? I've never been more confused by sentiment and how to read and register what the investor is doing because there is no the investor. The investor at Schwab is different than the investor at Robinhood, is different than the Global Fund Manager Survey.

18:23I was talking about this with Ben today. Schwab has a proprietary indicator called Stacks, where they are measuring the mood of the, quantitatively, the mood of the investor. And they are looking at flows, actual dollars. What are people doing? And the investor at Schwab, for the last four months, information technology has been the largest net sell sector. So go explain that one. I just don't know how to explain the investor these days because which investor are you talking about? So that's the retail investor at Schwab or is that the advisor? It's the retail investor at Schwab. NVIDIA was the single largest net sale that they made in the month of April.

18:59Or was it May? In the month of May. The only way to explain that. But it had been. But it had been. It wasn't just that they loaded up at the bottom and then let go. I was going to say the only way to explain that is it's just people selling what they have gains in. So they could reallocate and buy something else. It's more than that. It's four months in a row. So they were selling into the puke. whereas other investors were running into the building. Sentiment survey stuff is more noisy than ever. Yeah. You know what? I think that's actually the best take. If you read a data point about like quote unquote what the investor is doing and it's coming from any one particular platform.

19:43Yes. It doesn't always equate to like what they're doing across the board. You could credibly make any argument for what the investor is doing. It's like in Civil War. Well, what type of American are you? Like that's how I feel. Like what type of investor? What type of survey did you respond to? Right. When did you respond? What date did you respond? What was the market doing on the day you responded? What's the average demographic? It's so noisy. Unless you're talking about extremes that all line up, like they did in the sell-off. They really did. Everybody was bearish. What's the median age?

20:14What's the median age? Not what's the median age individual investor at Schwab. What's the median age individual investor who would respond to a survey? Yeah. 68? So for the Schwab thing, it was proprietary insights into behavior, not sentiment stuff. So that I value. Don't tell me how you feel. Literally show me what you're doing. Because if you're bearish in buying, I don't care. Yeah. You know who's been super active lately? Congressional stock traders. I don't like this. That's a great segue, Josh. So the Wall Street Journal wrote an article. Throw this up. This is disgusting. For people that are listening, it's the trades reported by House lawmakers or their families.

20:56And a spike in April. Go figure. Here's the journal. From April 2nd, when Trump launched the sweeping tariffs to April 8th, the day before they paused many of them, more than a dozen House lawmakers and their family members made more than 700 stock trades, according to a Wall Street Journal analysis of disclosure filings. Let me ask you this. I have somebody that I know who works at a bank, somebody I know that works at a hedge fund, and one of them is only allowed to buy ETFs. They have to hold it for a minimum of a year. And I think it's the same thing at the bank as well. How come the restrictions on banks, on bank employees are so tight, but these people literally controlling policy are allowed to f***ing trade on inside information?

21:37Who thinks this is a good idea? I love it. Stop, stop. I've come full circle on this issue. I think it's terrific. All right. Let's hear it. Let me ask you a question. Do you know what the salary is that they pay these people? So pay them more. Nah. Let them earn it out. I like it. I think it's great. I really think it's great. Listen, this has been going on since time immemorial. End it. The Roman Senate was doing that. Do you know the richest man - Dude, I have no time for market for history right now. You give a history lesson every episode. I'll give you a quick one. This is important. The richest man in Rome.

22:10Crassus. No, no, no. No, it's important. He had his own fire department and people would run and give him tips like, yo, there's a fire just broke out in like the slave quarter or whatever. Like a fire just broke out at this merchant's store. His fire department would like race over there to the scene and he would arrive with them and he would say to the guy that owns the building, all right, this is how much it's going to cost you to – for me to put out the fire. The guy would be like, I'm not paying you that. All right, no problem. You'll pay it to me in five minutes. Five minutes goes by. The guy's like, all right, fine.

22:45I'll pay you. He goes, oh, I'm sorry. The price just went up. This is what it is. Okay. Okay. Okay. You think these people are Girl Scouts? Listen, also in the Coliseum back in Rome, circa whenever, they had gladiators fighting sharks with laser beams attached. I don't give a shit. This is ridiculous. I'm just telling you it's never going to change. It will change. People in a position of power. It'll change. When? I don't know. It will never change. People in a position of power will exploit that power. StockTwits tweeted, in January, Nancy Pelosi, with a hot tip to Quiver Quant, Nancy Pelosi bought up 10 call options.

23:22It's now up 133 % since the trade. Why the f*** is Nancy... Forgive me for the F-bombs. Why is Nancy Pelosi allowed to buy call options? Wait, what is 10? She's buying tickers I've never heard of? What's that you're breaking up? I don't know what time is. No, come on. You have no idea what that stock is? It's not a stock. Listen, there's a lot of stocks. I'm going to follow all of them. Please. I need to know. Tempest AI? What the hell is this? Okay. So see, like, why? Why are we accepting this? Why is she buying call options? And maybe it's her advisor, Winkwick, doing it. I don't give a shit.

24:00Why is this allowed? It's great. I love it. No, it's horrendous. Oh, it's so – is there anything more American than that? Come on. Listen. Listen. All I'm saying is, don't we want a society where everyone strives to be a multi, multi, multi-millionaire? No, I know you're sticking it up. This is not good for us. It's a clown show. And this has nothing to do with the current administration. It's always been this way. It's just enough already. Tempest AI is an American health technology company founded in 2015 by Eric Lefkowski in Chicago, Illinois. All right, listen. Is the Illinois part necessary?

24:35All right, let's move on. What's Johnson doing in Europe? up seeing the coliseum here's how i want to frame this is nvidia still the most important stock in the market uh yeah right now i think so great yeah what it goes through these periods of time where people just forget about it the stock is up 50 from its april low or something something like the stock has just like recovered literally everything that it lost bought the low uh what's I bought the law. All right. So Jensen Wang made a run through Europe. He is a rock star in Europe. And my take is he is being seen very differently versus previous waves of US technology.

25:26All right. So the Europeans have always treated people like Mark Zuckerberg with a ton of suspicion. They've sued him. They've tried to get Facebook ejected from their countries. They've created new laws just to screw with different things that Meta owns like WhatsApp, et cetera. Jensen is not getting that treatment. He's sitting with Macron, the president of France, at technology conferences. He's being very well received in UK, Prime Minister Keir Starmer. um he's got like he's got like rock star energy in london and paris everywhere he goes and he's really bright he's pitching this thing called sovereign ai which i think is going to be like a new investing trend as we see some of these defense tech companies like and are all start to come public and we start to see more and more of what palantir is selling all over the world So what's sovereign AI?

26:26Sovereign AI is this idea that every country should not only own its own data, but utilize it to bring about a safer security situation, a more equitable society. Just like, look, these countries are collecting enormous data sets, bigger than most individual companies. if companies are making this investment into utilizing their data to bring about higher profits, better outcomes for stakeholders, better work-life balance for employees? Why would individual companies be doing that and countries not? Also, if you believe this is the AI age and everyone's going to be empowered with all these tools, shouldn't the government?

27:10Like shouldn't the government utilize what exists out there to do a better job at being the government of a country? And then lastly, like as a way to preserve the culture, each country should have its own culture. And the AI should reflect that country's culture. The whole world shouldn't just be operating on these homogenized data sets. So that's the pitch that Jensen Wang has been making as he attends all these events all summer. He was at this thing called the Viva Tech Conference in Paris. Here's what he said. We believe that in order to compete, in order to build a more meaningful ecosystem, Europe needs to come together and build capacity that is joint.