Is It Too Good? AI Capex Explodes Higher, Pre-Revenue Stock Boom, Will Falling Mortgage Rates Save Us With Telis Demos (WSJ)

27:52And so you have seen a widening, but, you know, it's not to like such a level that I would say that on a long-term time horizon, that those two charts, like all of a sudden, you see mortgages going like this and treasuries going like this for a long time. But it does. And so I think that there is the potential for some of that spread to continue tightening. And just take, again, it's not going to drive mortgage rates from 6 % to 2%, but it will you know, maybe, you know, shave, you know, some fractional point off of that. And, you know, listen, every, you know, we all know as homebuyers or whatever, you know, every eighth of a point matters, right?

28:37That's money in someone's pockets. I think the bigger story, and you guys did a feature on this. I don't think it was part of Hurt on the Street, but there are millions of households where for every 50 basis points in the 30-year mortgage rate, like it's like a new tranche of households, it would make sense for them to refinance. And I think the journal stated it as rates would have to be 75 basis points or more below the new mortgage rate in order for the financial incentive to kick in and a household to say, okay, now is where it makes sense to refinance. So having millions of new households all of a sudden be in a position to refi is also, So it's not just about moving houses.

29:23It's about unlocking liquidity. Yeah. Though I will say, I will say where mortgage traders kind of like make their money, like right, the difference between somebody who's good at that and not or whatever is like really being able to kind of have a view on that prepayment rate, right? Because there are things that affect that, you know, like, for example, like if people maybe you could refinance, you have an incentive to refinance, but maybe something's happened to you that like, you know, your credit's not so good anymore, right? Or, you know, you can't pay the upfront costs, right? Because there's some out of pocket that you pay.

29:59So I think people taking a view on the prepayment speed, right? And by the way, other things I've read before, and again, this is outside of my expertise, but like, you know, what people in that market talk about is like, you know, okay, a lot of the market is, you know, what's the prepayment speed of a first-time homebuyer versus somebody who's not, right? I think, you know, sometimes people think the first time homebuyers prepay at a lower speed, right? Like they're less likely to refinance, you know, within the next couple of years. The younger, lower income, right? It might be a lot of reasons.

30:29Some of it is, some of it too is like, you know, also like, is there an anchoring effect, right? Where like people remember 3 % mortgages. It wasn't that long ago. Everybody's somebody, you know, their neighbor, the person who sits next to them at work, they've got 3%. And so they feel like, oh, should I really be excited about five? Like even if there's like a meaningful incentive, you're kind of like, hmm, five sounds good. A four sounds really good. So I think one thing, too, that investors in that market are thinking about is, like, what is that prepayment speed going to be? And anyway, just to let people a little bit of inside baseball there, like, that's part of what people think about.

31:04Yeah, one interesting thing that you were talking about is that sometimes the rates don't behave the way that you think they will. And we got a really great example of that last September. So the Fed surprised the market. They did a 50 basis point cut rather than a 25. Then they waited a year to cut again, but that's another conversation. But they do this 50 basis point rate cut, and then what happens? And this is you. the Fed surprised markets by lowering its benchmark rate by half a percent at the September meeting. Over the next two months, the 10-year treasury yield rose by about a half a percentage point, and average mortgage rates jumped about three-quarters of a point.

31:46So the bond yields didn't cooperate with what the Fed was doing with overnight rates, and the mortgage markets certainly didn't cooperate. And so that's a thing that happens. And so even if the Fed does deliver two more cuts this year or one more cut or whatever it is, to your point, we don't know for sure that there is some sort of definitive read through to how the rate of the mortgage market will behave. Yeah, I mean, there's so much that goes into whether or not, you know, people are buying or selling at that longer kind of the belly or whatever you want to call it of the treasury curve, right in those fives and tens, which is again, where kind of mortgages are sort of, you know, you know, to some extent priced off of like, you know, that that depends on people's views on on a million different things.

32:35Right. The economy, you know, politics, et cetera. Right. So so, you know, the Fed cutting now, as a matter of fact, you could even see a scenario where like if the Fed cuts like super aggressively, that that that that, you know, spooks people in some different way. Right. About like, you know, the the the direction of the Fed overall and is the economy going to go overheat? What do they know that we don't know? Yeah. And so then you see people kind of like, what do you call it? Like a bear steepener, right? Where people are like, oh, this isn't good. I need to sell. So I don't know. Maybe I mixed up those terms.

33:12But what the 10-year treasury does is only somewhat related to what the Fed does in its next meeting. I want to get to one more thing before we let you go. you've been talking about JP Morgan and its ambitions in the credit card market. And I thought this was a really great piece you did. So you say that they are already number one in card spending and they want to be even more dominant in this business. Last week, we found out there's new pricing on the American Express Platinum card. Also a lot of new features that are going to come along with that. But on the JP Morgan Chase side, it's about the Sapphire Reserve and they've been making a bunch of acquisitions, acquisitions that steer people toward more ways to spend money on trips, on restaurants.

34:01What do you see happening in this market and why do you think it's so important to JP Morgan right now? I think what struck me and what got me interested in that was just seeing how, you know, here's like America's biggest bank by most, if not all measures. Yeah. And, you know, and here they are, like, really kind of, you know, investing heavily in a business that I think people think of as like, oh, it's got its upright, like credit cards, like, oh, there could be loss, the consumer losses there, right? It's really competitive, etc. et cetera. And, you know, and then I think, you know, you just started to see it like we see it in our lives, right?

34:40Like the, the, you know, we read about like the relaunch of like, you know, of, of, you know, the Sapphire card and it's, you know, fee and, and, and the value add. And American express does, does that too. And Citi has a kind of premium travel card capital one is. And so it's like the, what I wanted to just sort of write about was just like, this is, this is a big business and it's really important for even a bank as gigantic as Jake Morgan Chase, just because it's, I mean, the credit card business can be a really, you know, good business. Like not only does it itself, you know, make money, right?

35:14And that's partly through the interchange fees that banks collect when you swipe your card, that kind of merchant fees we sometimes call them, you know. Now, some of that gets essentially like rebated back to people in the form of rewards. But, you know, it's still, but still, that's a lot of money kind of moving through the banks and, and, and, and they have partners, right? All the companies that, that, that participate in those rewards, like they want to be in on that, right? They want to be, they want to have that customer loyalty, you know? So, so, and the bigger you are, you're doing it, you're doing it somewhere else.

35:47So they want you to do it with them. You pointed out, um, JP Morgan chase credit card sales volumes, just so people have an understanding of like the raw numbers involved. And this is excluding corporate cards. This is just people using things like the Sapphire Reserve and some lesser cards. But that number pre-pandemic is just below$200 billion. And as of the latest reading, it looks like you guys have that number now, just shy of $350 billion. So that is one of the fastest growing businesses within banking, period, full stop. And you could understand why if you're a consumer facing, it's like you have to win there.

36:31And they certainly appear to be trying to win it all. What do you think? Yeah. And if you think about it too, it's a feeder into all kinds of other banking businesses. If you've got someone's credit card, you can obviously maybe might have a checking account too or have a shot at that. You can pitch them a mortgage. And then, you know, like I said, you've got the merchants, you know, in there too, right? Like you've got people who want to make deals with you, who want to do business with you, because you, you know, you essentially are this funnel of money and where you point people, you know, can be very meaningful to, to, to merchant, right?

37:13Like, you know, you know, like I think one one thing I've learned is that is it, you know, when you're listening to the earnings call of like, you know, American Express, you've also got to be listening to the Delta earnings call. Right. Because those two have been, you know, they have they have a major business together. Right. And so like and and so I think I think people just really need to appreciate like how just just the the the the amount of money and just like the nexus of kind of like business that happens, you know, with credit cards. Right. It's not just like this, like, you know, thing in your pocket.

37:46You know, it's it's it's a huge business. And even for somebody of the scale and stature, JPMorgan Chase, and also just that, like, you know, it shows, too, like how Chase, you know, given its size, can really be, you know, a fierce competitor in here where they can deploy so many resources to making their cards, you know, attractive to users. Like, that's a tough competitor, too. so you um so to that end and i'm a i'm a personally i'm a shareholder in jp morgan chase just full disclosure but you point out how jp morgan has the ability to make investments here that pretty much nobody else does and that ultimately becomes an advantage they just don't have people asking them about how they're spending their capital and how they're investing to the same degree that other banks might and this is this is to quote you the market has a high degree of trust and how jp Morgan spends its money.

38:40Unlike many lenders who can afford to be patient with the profitability of investments. You talk about the return on tangible common equity, 21 % in Q2, well above its through cycle target of 17. It's the highest among the big six US mega banks. And they kind of are in this place where they can make investments and allow more time for them to pay off than many other banks that want to issue credit cards. And as a result, they can win more customer business through those incentives. And the bigger they get, the more benefits of scale that come later as sort of like a longer tailed benefit to the company itself and its shareholders.

39:23It's a pretty unique circumstance that they're in. Yeah. I mean, they just, they have a profitability cushion, you know, just given how high their, you know, return on tangible common equity is, which is kind of a benchmark, I think, that a lot of investors and the banks themselves use to kind of look at their kind of core profitability. That is like, how well does their capital turn into profit? And so, you know, so they can just, I mean, you know, it's like classic, right? It's like they could put a loss leader out into the market that sort of like just either grabs them share or not. And, you know, and, and, you know, uh, uh, uh, so, you know, so just, just thinking about them as, as, as, as a competitor is tough and, you know, and, and that's not to say that other banks don't have like compelling credit cards out there.

40:09Right. Like, um, but, um, you know, it's just like, I, I, it just seems like, and just talking to analysts, you know, this, this is a view that came up. It's like, there's, you know, when, when, when they're, you know, sort of saying, okay, we're, we're going to invest in, in, in, in, you know, in our card business, the market's kind of like, oh, really? Like, how much are you going to spend? How long are you going to do that for? Like, what's the, you know, whereas with, sometimes it just, it feels like just looking at the way, you know, JP Morgan trades, it's like, oh, great. Oh, wow. They're investing more.

40:37Yeah, you got this. We trust you. That's a good sign, right? And I mean, JP Morgan's not the only business that has that, but it's like, that's a good place to be. And it may be, you know, kind of unique in banking. So now we'll see, right? I mean, cards are not a riskless business. You know, if there's a huge recession, you know, you know, borrowers are can be exposed. Now, you know, again, Chase, and this is true of most of the big banks, you know, they try and play in the more kind of like prime, super prime part of the market. So they're not lending to people that they think are at big risk.

41:11But, you know, you know, credit risk is credit risk. Uh, and, um, you know, and, and then, and then also, you know, again, you know, playing, playing the, the, the rewards kind of race running in that race with everyone else is expensive. You know, you've got to be offering people, you know, they're, they're raising the fee, but they're also giving more, you know, kind of benefits, right. Like more credits and, and, and other, you know, you know, the, the point totals and stuff. So, you know, so so it's not like, you know, you you you have to to to be able to see through all that and to say, OK, we still think that we're going to be, you know, that this is a profitable business today and will be in the future.

41:51Right. Like if you just buy market share, we know that's not necessarily like a road to success. So, you know, so it's not you know, we'll we'll we'll see if these things pay off as as as anticipated. But but yeah, cards are just and I think right now is a really interesting time. Like I said, you know, people probably seen the marketing for all the different, you know, kind of card brands that they know that, you know, you know, I still never I still never got the call. Yeah, I never got the call with US Open tickets from from Amex Platinum. I don't understand who's somebody's getting that call.

42:25It's not me. So, all right. You got to spend more. You got to spend money to make money. Tell us this has been so much fun. Thank you so much for joining me. I want to let people know where they can follow your writing and your reporting. You are at Heard on the Street, WSJ. And then the podcast, tell people how they find the podcast. What's it called? It's called WSJ's Take on the Week. It comes out on Sundays. We focus on markets, business, finance, trying to look at what people are talking about in the markets and what's coming up. So, so it's a, it's a good, it's, you know, listen to it on Sunday mornings to, to kick off your week.

43:04It's a good Sunday morning. Listen, all right. Tell us the other man. Thank you so much for joining us. We appreciate it. Thanks guys for watching and for listening. We'll talk to you soon.

43:31Ladies and gentlemen, it's What Are Your Thoughts? Good evening. Shalom. Shalom. Happy New Year, Josh. Somebody in the chat, Gary, wants to know, is Michael going to be dressed up again or in a Knicks shirt? Wrong on both guesses. What is that? Is that Seattle? This is like 70s supersonics. Yeah, man. Rest in peace in peace. All right. And this was accidental, but we each have the... Oh, yeah. We each have the compound trucker hat on. I love them both. Honestly, I love them both. Yeah. I've been alternating Siegelman Stable and one of our two compound truckers. Guys, if you don't have one yet, idontshop.com.

44:12I really don't. In my opinion, the illest trucker cap in the game. You want to get these while supplies last. Let me say hello to some people in the chat. Chris Brown is here. Evan Beauchamp. Matt Wycheck. Let's go. I agree. Biff Griebels. I see you. Who else is here? Georgie Cam. Dave Alva is in the chat. Blake is here talking about the risk sniffer. You're damn right. We're going to sniff out some risk tonight. What was the origin of that sniffing? I can't remember. I don't know, but it was hilarious. There was a chart that was called that, and I just couldn't stop laughing about it. Walter Benvin says, Josh, pounding it down here in Boca.

44:49Pound it hard, Walter. Pound it hard. That's weird. All right. We have a sponsor. Betterment Advisor Solutions. Today's show is brought to you by our sponsors at Betterment Advisor Solutions. If you happen to be thinking there's got to be a better way to grow my RIA, you're not alone. With Betterment Advisor Solutions, we do the heavy lifting so you can focus on what matters most of your clients. From improved service that makes asset transition smoother to fast paper-free onboarding that delights clients on day one. We've built a digital-first platform designed to streamline your operations and make life easier.

45:26Now, if you're thinking, wow, they take the paper out of paperwork, then you'd be right. Grow your RIA your way with Betterment Advisor Solutions. Learn more at betterment.com slash advisors. Investing involves risk. Performance not guaranteed. All right. Shout out to Betterment. We like those guys. Okay. Okay, the market is, so this would have been a better, this would have been a better lead-in for us if the market had stayed green today. The market is, what were you about to say? The market is. Like, I guess like the market has been screaming. We took a little bit of a break today. And like, from my perspective, thankfully, because I don't like those seven straight day up, you know, moments, because you know what they normally lead to.

46:16So we took a little bit of a breather. But there are now, this is, all right. So the question is, is it too good? And man, I remember reading a Jim Cramer column in 1998 on thestreet.com. And I'm pretty sure it was called, is it too good? Like this is a perennial problem for investors in bull markets. There are these moments where you just feel like, no, this is too good. like it's it can't stay like this for long yeah and that's a part and it won't and it's a perfectly natural feeling to have and um jim was saying there was a time in the internet boom in the late 90s and he i remember him writing a column about he he used to get his breakfast when he came into manhattan from summit new jersey where he used to live he used to come through the holland tunnel and there was a diner on the other side of the holland tunnel and the griddle was like a thousand degrees.

47:17And he would watch the guy crack two eggs on the griddle for him. And it's like, you have to know the perfect moment to pull those eggs up. Because if you leave them on for 30 seconds too long, they're just burnt to a crisp and unedible. And he was like comparing that to the NASDAQ, which, you know, it ended up being true. It was just too hot. Like, is it too hot to put more money to work into this market atmosphere? So for starters, Mike, would love to hear your thoughts on the environment itself. All right. So much to say. I guess I'll start here. We're not screaming higher. We're steadily grinding higher.

47:52And there's a big difference. The S &P 500 hasn't closed 3 % below its all-time high since the beginning or since the end of April. Isn't that wild? It's driving people absolutely crazy. We've got May. So if you... The sammies are screaming. Yeah, no, no, no. We'll get there. Okay. If you got out of the market after Liberation Day, as the market was screaming lower, as it was falling through the floor, we got that V-shaped recovery, and you're like, all right, there'll be some sort of... Maybe it won't retest the whole thing, but maybe it'll give me a better entry. Nope. No better entry. No better entry.

48:35Not even close. Not even close. So there are pockets of screaming euphoria. There are pockets of nothingness. But I would describe this market as, I guess, frustrating if you're looking for a better entry. Other than that, it's been beautiful. No pullbacks, no screaming higher. No, it's unforgiving. It's unforgiving for people that insist on buying dips. It's just unforgiving. It is not giving you a chance to put money to work if like, I can't buy at an all-time high. Well, I don't know what to tell you. All right, well, so let's talk about what's going on like front screen first and then we'll get to other areas in the market.

49:16What's front page stuff? Well, I wanted to say this. Sean and I keep this best stocks in the market list, which we'll talk about later in the show. We have some charts to show you guys. But we're constantly looking for where the strength is. And the size of the list will undulate based on how good the market is. And sometimes a lot of names get wiped out all at once like they did this spring. And then when it rebuilds, the longer a rally like this grinds higher, the larger the list can grow. We have 209 names on the best stocks in the market list. and our universe is the Russell 1000. It's a lot.

49:57Profitable companies, the Russell 1000. So it's not really a thousand, but like 200 of, let's say hypothetically, I don't know how many companies in the Russell 1000 you think are profitable, 900-ish? A lot. Probably, I don't know. Regardless, there are a lot of best stocks in the market right now. And there's no story to tell. When I peruse the list, I look at it by sector. I look at it by market cap size. I look at it by value versus growth. Any way you want to slice and dice it, it almost doesn't matter. You got stocks working from every corner of the investment, I don't know, stockosphere.

50:35It's like, it's just agnostic. If you're a stock, you're probably going up right now. And I don't think in and of itself, there's a lot of meaning there, but I just think it's important for people to understand there are a lot of stocks that are doing well. one other thing I got a text from a very famous man yesterday you know my phone is filled with texts from famous people this is a really famous person and I can't say who but I can read the text Mike you can probably figure it out but don't guess it out loud okay

51:13bear with me one sorry oh here it is okay so i hit him i'm like yo uber hit 100 we did it like joking around because i've been yelling i've been yelling at this guy don't sell uber 70 80 90 great job so he says uh i haven't sold any either can this market continue everything i have is to the moon can it continue and then i don't answer because i'm busy and then the next text is fine what are your best three for the rest of the year. Is this a client of ours? No, not a client of ours. Like in other words, I probably gave it 30 minutes without answering just because I couldn't. It's like, all right, fine.

51:59So it goes from everything is to the moon. Can it continue? 30 minutes go by, no answer. All right, what are your next three favorite stocks? This is everyone right now, I feel like. Because even if you walk away, even if you take some stuff off, and I have personally a little bit, it's like you're still looking for all the other stuff that's going up. It's really, really hard to not participate right now. And don't you feel like that's everybody?

52:30Yes, yes, yes. If you own stocks, you're making money. I do want to point out that there are a lot of stocks that are sucking wind right now. Like there's two things are true. There are more stocks working right now concurrently than there have been in a long time, but there are also pockets of weakness, particularly those that are getting crushed by AI. The trade desk is a great example, but there's a lot of them. I don't feel like there's a lot of them. I feel like there are a few notable ones. I don't know. That's kind of the camp that I'm in. There are a few notable companies that are, as you described, I think there's way more stocks that just look up and to the right right now.

53:14I don't know. I mean, unless you have five more examples of that, because that's an obvious one. I agree with you. Do you have five more of those? I can't think of any.

53:25Are we frozen? My internet is sucking wind. Let me close some shit out. All right. Close some tabs because we're a little bit live here.

53:38four eyes you bastards you pieces of shit are you in your new house i can't get it right it's unbelievable are you in your new house are you paying up for the business uh class wi-fi dude i'm paying for the quantum the quantum internet how's it going horrendous worse than the stocks is it really that bad no you're okay now Okay. We're back? Yeah, we're back. Okay.

54:07The question was, why does your internet suck so much? I agree with you. The trade desk and some of these AI casualties are notable. I just don't think there are as many as you think there are. I think there are only a few. And you just happen to know what they are off the top of your head. All right. We'll see about that. So look at this. For example, I'm going to go look at stocks that are 15 % or more below their 52 % in the S &P 500. Okay. Hit me. There's a lot, dude. Hit me. Hang on a sec. Index. Index. Not any. All right. It's not working right now. Let's just keep talking. What else do you got?

54:46Great. Okay. One thing that's concerning is that there isn't a bear case. and our friend Adam Parker points out that the lack of a bear case is the bear case and I sort of get where he's coming from and I think I agree with him. Those are usually not the best times to put new money to work when you can't think of a reason not to and there's nothing holding anyone back and I sort of feel like that's where we are so I just want to go into his piece for a second because I thought it was really good. he talks about a dinner he's with seven cross asset whatever geniuses um adam doesn't waste time with people who aren't a minimum of 180 iq um and they're all laughing like what's the bear case maybe if jamie diamond gets bullish like there's almost like nothing to to point to and then um so here's what he said even more than not being able to address a believable bear case it's challenging to even know what to monitor to get increasingly bearish.

55:55Investors largely know that the paradigm has shifted with regard to using valuation as a primary or even secondary rationale for security selection. As for financial conditions, which would be another thing people would be watching, they probably tightened concurrent with a market pullback, not in anticipation of one. So in other words, that's not going to help you. That's going to be a stock market driven thing. monitoring comments from B of A about credit card spending and consumer conditions, tracking the card delinquencies, looking at employment data from LinkedIn, card data at MasterCard and Visa.

56:30These are all reasonable approaches to assessing the consumer, but they don't enable you to pre-position for a downturn without alleviating the fear of missing out on further upside. So he's saying it's like the only two choices are you either have to admit you will be down when everyone else is down, or you have to not participate at all on the way up. And those are two really shitty choices, but we know everyone's going to make the first one. And as far as all this consumer data is concerned, the consumer, he says, the consumer has been solid, but slightly eroding all year. Meanwhile, the market has just absolutely ripped.

57:08The erosion didn't matter. So he comes up with, we're not going to read through all these. He potential bear cases. And can you guess them without looking? What do you think they are? If you had to guess, what are the three bear cases that Adam would have come up with? Not valuation. Okay, fine. Agree. Well, he's smart. So I think that Adam would also not say hyperscaler slowing down their spend because that's not going to happen. They're all in. That's not a real bear case. Bear case one. Oh, really? But he doesn't believe it. But that's not a bear case because Zuckerberg said yesterday, I'd rather go bankrupt than underspend.

57:48I'd rather overspend a few hundred billion. That's not a real bear case. So what are the three? Allow me. Quote, many are arguing that hyperscaler capital spending could balloon further. Forget about a bear case. Some believe the return for the spending is incredibly high. This past week, one investor told us Microsoft gets its return back in one year. Another investor said the aggregate return on hyperscaler capital spending breaks even in three years, has an ROIC of 15 to 20 percent in year four and a 30 to 40 percent return in year five. This means reasonable people in the investment world, in addition to those at the companies, believe that for now even more capital spending could be justified.

58:33So he says no way. That's the wrong bear case. Correct. Case two, government deficits force interest rates to back up, which eventually hits the stock market. Quote, we are worried about this, but we don't know how to time when it will matter. And positioning for its inevitability would have destroyed returns nearly every year for two decades. So he throws that out. Bear case three. This one actually I think is the big one, my personal opinion. AI slash productivity boom hits white collar employment. Quote, recent data have indicated higher than normal unemployment from recent college graduates.

59:14The truth is we don't have a great answer for this other than every other technological innovation cycle that focused on productivity caused labor to be deployed in new and different areas. AI feels like it has the potential to be different. But for now, we think what's good for margins for the top 500 US equities will probably matter much more for US equity investing than long-term higher unemployment. That's what I was going to say. But my caveat is for now. Yeah, sure. All right, so the three bear cases that he laid out, they're not real bear cases. I think that's the point. He's like scratching and clawing for something and he can't find it.

59:57Okay. Well, all right. I just want to, so I got the list. Let me ask you, just circle back to when my computer froze. You said that the trade desk is just one example that's easy to pull from the top of the dome. Let me ask you this. So what do you think? Let's use 20%, okay? How many stocks in the S &P 500 do you think are 20 % or more below their 52-week high? 100. Okay. The number is 150. It's a lot. Higher than I thought. Almost one in three stocks. And if I expand that down to 15 % or more, it's 203. So not everything is up and to the right. If you're 15 % below, you see that on the chart.

1:00:41Oh, yeah, yeah, yeah. It's 203 stocks. So this is my point. The stock market is not screaming. The hyperscalers are screaming. The semis are screaming. The f***ing nonsense pre-revenue companies are screaming. I credit you if you're making money there. That's what's screaming. Everything else in the middle is sort of blah. There's a lot of blah. There's a lot of blah. I guess for me, the fact that it's industrials, tech, communications, and financials that are all at highs means so much more than just a raw count of how many S &P names. You're right. I don't give a shit about all those consumer staples and fucking drug companies that are 15 % off their highs.

1:01:24is A, I don't think anybody cares. B, I don't think they're the drivers of earnings growth for the S &P. Most of their market caps don't matter. And I think if they went to zero, nobody would even notice. I mean, that last part's not true. But the point that you made is the right one, that the stocks that you need to be making all-time highs are, and that's all that matters. You see that? Now. Is it too good? No, it's not too good. for the hyperscaler part of the market, for the AI story. So this happened, I don't know, last night. NVIDIA to invest up to$100 billion in open AI linking two artificial intelligence titans.

1:02:04You know what this is like? This is like that episode of Scooby-Doo where the Harlem Globetrotters show up or like Batman arrives. And it's like, whoa, what are they doing? Like what? Is that a 44-year-old reference? What year are we talking about? I'm 48. Yeah, no. In the early 80s, a thing that could have happened is you could have been watching Scooby-Doo, and then they're trying to solve a case, and f***ing Batman and Robin show up. And if you're seven years old when that happens, you have to run a lap around the block. They could do that? All right, but it finally happened. The only way this story would have gotten better is if NVIDIA is investing$100 billion into OpenAI and Dan Ives is delivering the cash in a tie-dye briefcase.

1:02:56Like, I don't even know what else could have made this story like a more exciting story. And the rally kind of faded immediately after, but there were some really great memes. and if you're like sensitive, now would be a good time to look away from the screen. Hold on, before the memes, I told, I called you, I spoke to you. Dan is the f***ing best. Excuse my language. I was at dinner with him the other night in a six-person booth and there's two people, so me and Dan are middling and the two people to the side of him are in very traditional navy blue suits and he is in the rainbow outfit. I love him.

1:03:34I love him so much. Let's get to the memes. All right. I guess this is like a Nintendo joke. Yo, I heard if you press up, up, down, down, left, right, left, right, BA in San Francisco, there's an infinite money glitch. So that's Contra. How do you get 30 free lives in a – Remember that. So speaking of 80s references. But like – Okay. So like OpenAI is going to spend$100 billion in the Oracle cloud. Oracle is going to take$100 billion by GPUs. NVIDIA will take that$100 billion and make an equity investment into open AI. And it's just round and round we go. These three companies are building the Stargate, whatever that is.

1:04:17It's going to be huge. Here's the next one. I like this one. This is a great meme format, underused. NVIDIA is investing how many billions into open AI to build 10 gigawatts of AI data centers? because you know the person in the picture has never thought of a gigawatt or an AI data center in her entire life or ever will. Here's another version of the merry-go-round. OpenAI buys capacity from OCI. That's the Oracle Cloud. Oracle stock goes up, buys more chips from NVIDIA. Then NVIDIA stock goes up. Then NVIDIA invests 100 billion in OpenAI. Then right back to OpenAI buys capacity from OCI. Look, there's like, it's not quite this neat.

1:05:02Oh, there's one more. Guys, get over it, all right? NVIDIA investing 100 billion into OpenAI in order for OpenAI to buy more NVIDIA chips. And I will not describe the picture. If you're listening, you'll just have to trust me. It's a funny meme. All right, so this is like a not unfounded concern because this is sort of the way the dot-com and telecom build out in the late 90s, early 2000s came to an end. You had a lot of companies that were doing these kind of like vendor-financed equipment sales where they would like literally give a potential customer money. The customer would take that money and buy equipment from them.

1:05:47They were like financing their own growth and they were doing it with routers, servers storage um they were doing it with fiber optic stuff and like it's sort of like represented the capex boom slamming into the wall yeah so this is exactly where we are speaking about this with ben this morning uh ben thompson wrote about this uh over the weekend that this oracle and he was quoting somebody else this oracle deal going negative free cash flow and making sure that uh uh there's now leverage involved because the hyperscalers it was all free cash flow and they don't give a shit we've self self self-financed yeah so out of cash flows so now you add the leverage you add the the debt involved and oh my god this is a free train and uh i don't know s &p 10 000 yeah core we've put it in the dow look we we had like we had this whole thing and um i know a lot of the time i go back to that bubble because honestly it was the greatest show on earth it was the most insane thing i ever witnessed but we really did have like companies like cisco and there were a lot of cisco's back then there was juniper and sycamore and sienna these were companies that were trying to sell as many routers and switches as they could into a telecom boom the telecoms were being financed by ipos and junk bond sales but this is how this is how this is the end right not not not like that was this is this sign of the end At some point in time, once we start getting debt involved because the free cash flow can't support it, this is how eventually it ends.

1:07:25And whether it ends four quarters from now or 20 quarters from now, eventually it's probably, uh-oh, somebody can't make do. But it's CoreWeave. Look, I missed the run-up in that stock, and I really don't care, and I'm missing the new run-up. I missed the original run-up in CoreWeave. When it came public, I was skeptical. It dropped. and then it ran from 35 to 183. And then it sort of had a slow motion collapse back to 87. And I don't know if that's because of like a shareholder lockup expiry. Okay, so a lot of people were able to sell. And then sometime around the first day or two of September, it just launched all over again, 87 back to 130.

1:08:08That doesn't sound like a lot, but this is a large market cap company. It's$64 billion market cap. and it is just careening back and forth between double digits, triple digits, double digits. This is, for me, for me, ground zero in this whole thing. This is hugely debt financed. Yes, in the hottest business in the world, cloud computing. Another strike against it is it's in New Jersey. Another strike against it, it's in Livingston, New Jersey. And I know everyone that lives in Livingston, New Jersey. Um, I don't invest in companies based on long Island. I definitely don't invest in companies anywhere around that Livingston short Hills area.

1:08:51So it has a lot of strikes against it. And if, if that concept of like vendor financed purchasing hits the wall, that's where you're going to see it in that stock. People are going to get really scared of that thing. What are you, what are your thoughts? Yeah. I don't know enough about the core of specific part of it, but I would just say, Again, it's really important that this is the next phase in the market. So this is from Doug O 'Loughlin. This is really important. He said, okay, the implications are profound for Amazon, Microsoft, and Google. They can no longer treat AI infrastructure as a discretionary investment.

1:09:37They must defend their turf. What had been a disciplined cash flow funded race may now turn into a debt-fueled arms race. That's a vibe shift if I've ever seen one. Welcome to the next and newest phase of the capital cycle. I believe the Oracle quarter achieved something more elusive than just revenue. I believe Oracle has just sparked the elusive animal spirit to life. For me, Oracle is the quarter that we'll remember in history. I'm starting to think of the tariff tantrum. Anyway, he says like, this is it. Oracle is going negative free cash flow. Can you explain? Negative free cash flow. Wait, can you explain for everyone what was the significance of the Oracle?

1:10:10So this was the Oracle earnings report last week, which took place a month after earnings season. And the stock had its biggest move ever. It went up 40 % in a day, which in dollar terms is just an insane amount of money. What was it about what they said that caused that kind of a stock reaction? And why does that ignite this debt fuel to arms race when before all these companies were comfortable spending out of cash flow? and like what was it about what Oracle said that makes this guy feel that way? So one more quote and I'll tell you that. He said, compare the spending of the big three with that of Oracle.

1:10:51Oracle is going to go negative free cash flow to win and it's likely that incumbents will respond. I believe it's time for technology incumbents to start spending a lot more and most already indicated that they will. But when what? Hold on. On Thursday, Mark Zuckerberg was on a podcast and he said, if we overspend by a few hundred billion dollars, that is much less dangerous. He goes, it'll be unfortunate, but that will be much less dangerous than falling behind. So the contract that we learned about in the Oracle call, was that a$400 billion contract? I think$300 billion contract with OpenAI.

1:11:31It was like$50 billion annually. And I can't remember the details, but OpenAI is only doing$10 billion worth of revenue. And they're committed to like 50 a year for the next six years. Whatever the number is, there is not enough free cash flow to justify it and enter a private credit and public credit. Blackstone is going to get involved. All of these giant pools of capital are going to get involved. And if this does not translate into gobs and gobs and gobs of cash flow, and maybe it will. Maybe it very well may will. But this will be the time where we look back on and say, okay, that was it.

1:12:06That was like the beginning of the end. And who knows when the end can be? The end can be$15 ,000 on the S &P. Who knows? But I guess I'm trying to figure out where is the cash flow that gets generated from going negative cash flow to make these CapEx investments. Is it coming back in the form of subscriptions to OpenAI,$20 a month from a billion people? because then I sort of get it. Is it more like an enterprise customer spend and all of these companies are now going to take whatever spending they were doing and migrate it into the AI and leave behind legacy spending that they used to do? Yes, yes.

1:12:43It's all of these things. I think it's the 493 that are not doing anything, that are basically at zero. Totally rebuilding their entire stack. In the chat, Air Max Elitist says, a trillion dollar spend for a new search engine doesn't seem financially responsible. So I know he's being sarcastic, but I do feel a lot of people are like, I don't understand. It's just a software I could talk to differently than I talk to Google. And that's where all this carrying on is. I understand that sentiment too, but don't be so naive. Like think about - I think he's being a smart ass. No, no, no. I am saying this is what people think.

1:13:22Think about what happened when we got the iPhone 7. I'm sorry, the iPhone 7. Think about when we got the iPhone. What year was that? 07? When did we get the first iPhone? Yeah. Could you - 07, but nobody bought one until iPhone 3, which was 2010. You never in a million years could have predicted everything that was to come. The GPS unlock, the Uber, the App Store, the Spotify, the Netflix. Maybe not Netflix. You could never ever have guessed what's coming. So don't act like this is the final version and that it's done and that Mark Zuckerberg is an idiot and you're smarter than him um just don't don't don't be that guy i said that on tv today about jensen wang and like frank so frank holland was guest hosting i don't think scott would have asked this question um shout to frank but he's like asking me joe terranova and jim labenthal like is nvidia making a mistake committing to spending 100 billion and i'm like Like, dude, are you kidding me?

1:14:25Like, like, in other words, like, can you imagine the audacity it would take for somebody sitting their ass on the New York Stock Exchange in a suit, critiquing what Jensen Wang thinks is the right investment to be making in AI? Good for you. Give me like, like, come on. Like, what are we doing here? Now, we could critique like the shareholder reaction. and of course there's like room to discuss like whether or not the stock reacted well to it i would argue it did not i think if if that announcement came six months ago nvidia would have gone right to 220 and nvidia did not it reversed um i i think i think it had a i think it had a weak day today that could change because my uh yeah it was down three percent today that could change because micron just had great earnings after the bell but nvidia had this huge pop on that news and then gave it up all right markets markets open tomorrow too uh all right but but this is this anyway the point is i know we're going long here the oracle quarter and what's happening now because i feel like we've been saying the same shit every week for the last i don't know six months this was an inflection point so all right wait before we so before we move off of this the question is what do you do so my opinion and then i want to hear yours you do not buy any more AI unless you're willing to trim some of your other AI.

1:15:50I don't, in other words, for this for me, I'm not telling other people what to do. I will not commit more dollars into the AI theme unless I'm taking profits from something that's already gone up a ton. I don't want to keep pushing the chips out. What is the AI theme specifically? Well, I guess at this point, it's probably half the NASDAQ 100. It's all the utilities and the natural gas transmission companies that are related to the build out. It's the industrials that are digging up ground and assembling all of these new data centers. It's a really big theme. And I guess from my perspective, I'm glad I'm in it.

1:16:29It's done really well. A lot of stocks have gone up a lot of points or percentages for you. And that's great. I'm not looking for my 12th AI stock. and if I find one that I really want to be in, I think my argument would be, okay, but the money's got to come from somewhere. I am not going negative equity to win the AI race as a common stockholder. I'm not willing to play it the way that Oracle is willing to play it. What do you think is the answer here? Man. Shut up and buy. I don't know. No, this is the fun part. I don't know. This is like what we're doing here talking about. I don't know what the answer is for everybody, But another answer is focus less on valuations and price targets and all that old school shit.

1:17:17And maybe just focus more on your own position size. Hang on. I mean, I hate this entire conversation because specifically it's like, are we talking about your brokerage account? No, I'm going to you. I'm going to say, the listener, it's like we're talking about like if you have a fund trading account, right? This is not like your – this is not financial advice for your retirement account or anything. if you have a stock trading account self-directed or you work with a broker and you've got 25 stocks in your portfolio should you be looking for a 26 stock and your whole portfolio is like Micron, Broadcom, NVIDIA AMD right now no of course not that's how I feel and if you come across something that you feel like alright this is going to be the next phase of the AI trade that's fine maybe lose maybe lose a little bit of Microsoft then Yeah.

1:18:06Maybe lose a little bit of meta. Okay. So it is a very interesting market. We have on the one hand, and like the market, the participants, there's so many different storylines and areas of the market. You have the American Association of Individual Investors that we've spoken a lot about not participating in the euphoria. You have Charles Schwab's quantitative. Literally, what are the clients doing? This is not a - This is my quant. Quantitative. This is not a survey. What are the clients doing? They're not very bullish. At all, the last five months, it's been sort of flat. Then you have, of course, you have this one corner of the market.

1:18:49I opened up my Twitter and I saw Buko Capital, who is one of the best accounts on the platform, in my opinion, tweet, and he nailed it. My feed is just retail investors posting screenshots of literal millions and gains from unprofitable and even zero revenue businesses. And then some fundamental investors slowly going insane. Yeah. Screaming into the void. When have you seen that before? I saw - 2021. You know, the original, somebody tweeted this. I can't remember. It was so good. This is like 2016 about people just screaming, professional investors screaming into the void. This is 2021. Okay.

1:19:24So the people that are, now forget Schwab and the AI. talk about young people that are into trading the Robinhood, like the retail investor. When you think about them, they're on fire. They're absolutely on fire. So Goldman Sachs has a basket. So try it on, please. This is from Sherwood, Luke Hawa. Luke said a Goldman Sachs basket of stocks widely held by the retail community is going straight up into the right. Poised for a record 10th straight day of gains. It's up to that bar. The bar is the number of days. Consecutive days. It's up 13 % over a 10-day period. Now, Lizanne Saunders, and I'll stop talking in one sec, Josh.

1:20:05Lizanne Saunders tweeted, the meme stocks are up 73 % on the year. And credit to us, we created a DGENDAO. Unfortunately, it's not investable. Should have bought it. And short off for a sec, John. I just want to set this up. So we first unveiled this in December 2024. and we were like, listen, if this is the top, we'll own it. Our bad, sorry if this is like negative juju, bad vibes. People were mad at us. Okay. The DGEN DAO is up 67 % year to date. And interestingly, a lot of the names that I would think are in the meme index, a lot of those things are not in here. So we have, look at that, up 67%.

1:20:47Holy shit. It got even more impressive than that. It almost tripled off the lows. So here's the thing. You have hyperscalers going berserk, the AI trade, and then you have all of these not even unprofitable names, although yes, they are unprofitable. In some cases, you have pre-revenue companies. So Josh, you know what's going on with Oclo, the nuclear company? The mini nuclear reactor company that Sam Altman is invested in. So this company - Honestly, it looks like they just invented GLP-1s. So the stock is going straight up. It's up 1 ,500 % of the last year. It's a$20 billion market cap. No revenue.

1:21:30Yep. Why would you need revenue? No revenue. No anticipated revenue next year. Maybe in year 27, they speak a lot on the call about the administration and data centers and nuclear energy. And listen, investors aren't stupid, okay? It is going up for a reason. And not only are the people that are buying it not stupid. Now, maybe some of the people that are buying it today are stupid. But credit to them. If they made money, making money is not stupid. but I don't put some merchants in investors. In fact, making money is the opposite of stupid. However, I got a text from my brother-in-law who is an artist, okay?

1:22:02He's an artist, he's a musician. He doesn't ask about the stock market and when he does, I pay attention. So he said, my dad made some adjustments to my portfolio. This is on Saturday. Recently, he asked me to pass along a question for you. He purchased shares of Oclo, a startup worker on nuclear reactors to power AI. Made some adjustments to my portfolio. Since then, the stock has got up about 20 % of my account. He's curious if you have any perspective on Oclo specifically or more broadly on the rebirth of the nuclear industry. So I said, oh boy, oh well. I was just looking at this. So I said, I haven't done any work here, but I'm just showing him a few tweets.

1:22:35Somebody tweeted, I shared this with him. Here's a tweet from a sad value investor. My boy who thinks that Oclo is almost the same size as NVIDIA because the share prices are similar is up 200 % this year. All right, let me read that again. My boy who thinks that Oculus is almost the same size as Nvidia because they have the same share price. His account is up 200 % this year. You know how frustrating these moments are for people that know anything? The more you know, the worse you're doing right now. So to Bucco's point. So here's what I said. This is a speculative mania. It's a$20 billion market cap.

1:23:08I have zero insight into the fundamental hope driving these moves, but it's wild shit. Doesn't mean it has to stop going up tomorrow. But yeah, ride the wave, but don't miss more than you could lose. I hate talking about this type of stuff I'm not educated on, but this type of vertical move higher usually ends very poorly. So again, if you just have a few bucks in this name, then by all means, who cares? You have a million dollar portfolio. Maybe you could just take$10 ,000 and buy VIX call options December or January strike and just wait for some f***ing s*** to happen. And that's like, if you want to buy insurance because your portfolio is so much and you have so many of these names and you can't believe how much they're up.

1:23:49If you want to peel 10 grand, 1 % out of a million dollar portfolio. 1 %? Do it. Yeah. Oh, I'm sorry. You're 100 % right. Yeah, yeah, yeah. Take 1 % of a million dollar portfolio. Buy VIX 25 calls. Don't even look at the premium. Forget whatever it is. It doesn't matter because if we get one of these swift 10 % ass kickings because of how insane things are right now, you're going to be thrilled that you did that. It's not financial advice from me to you. I'm speaking rhetorically. I don't know you. I don't know anything about you personally. So Tyrone just texted us a text that he got this morning.

1:24:31Good day. How do you feel about Oclo? Like everybody knows. Everybody's in. It's the new Palance. Sure. All right. So I've said this now several times. Put up the DGN DAO real quick. We don't have this one, do we? So none of these things are f***. We don't have Ionic in here or I-O-N-Q, whatever it is. We don't have the quantum computing. What's Ionic? That's the quantum computing? And Q-U-B-T. What do we have in here that needs to be... We don't have Rigatoni. Get DraftKings out of here. We don't have Rigatoni? We don't have Rigatoni. DraftKings might as well be Apple at this point. Get that out of here.

1:25:06We need to... Oh, dude, I just realized you're not a Sopranos guy. Like one of the best ever. Oh, my bad. One of the best ever Anthony Jr. lines. My bad. What was the one? It's like a fight at a family dinner. No, no, no. It's like a family fight at the dinner. And he goes, he's like eight years old. He goes, what? So no f***ing Ziti now? All right. What's Riggatoni? Riggetti computing? Riggetti. I want to end with this. It's really hard not to see this nonsense, all of these unprofitable and in some cases, pre-revenue names going up 20 % a day with a $20 million on market cap. It's really hard to see that happening and not want to take all your money out of the market.

1:25:48However, this is the world that we live in. This type of activity is not going away ever. Get used to it. This is the game now. Don't let it distract you from the fundamentals and the reality that this is a legitimate bull market and this nonsense is just going to happen when there's risk appetite, you're going to see this type of moves. Get used to it. Last point, throw up this chart. I asked Sean to make me a chart. Great work, Sean. Chart off, please, actually. Let me set this up. I said, Sean, how many plus 1 % days have we've seen in the equal weight since July? I just picked a random date.

1:26:26And he made this chart. Look back, please. Chart on. So we've had seven 1 % days for the equal weight index since July 1st. That's 59 days. So Sean zoomed out and made a 59-day window and looked at the - Very normal. And this is normal. This ain't nothing. This is nothing. So when you say we're screaming higher, it's a speculative mania. Yeah, in some places, but this is nothing. I mean, we're going to like now mass produce mini nuclear reactors, like igloo cooler sized nuclear reactors. Dude, they're going to be in your ear. Can I have one in my backyard? Look, I know we're joking. All of the CapEx spending, the trillions of dollars in CapEx spending for data centers, it's worthless if you can't power the facilities.

1:27:18And you literally cannot power the facilities with, and Michael Semblis explained this to us in many different ways on many different occasions. you absolutely cannot light all of these facilities with the current energy infrastructure. There's literally no chance that you'll be able to do it. It's not going to be wind. It's not going to be solar. You like you literally need something that's that's nuclear. Now, do we want to build like 10 more three mile islands in this country? I don't think there's the appetite for that. So the Oclo bull case and all the uranium stocks, like I totally get it.

1:27:59And we talked about this with Jan Van Eck. And they have an ETF that owns all this nuclear stuff or like, right, like all the miners. OK, so I totally understand the story that almost like you can't have the AI projections they're making, the usage projections. you can't have them if you don't accept the fact that there's going to be a heavy nuclear component. So fine. I get it. I still don't want the exposure to it because I'm not convinced it happens in a linear fashion, like in a straight line. And if I miss, if I miss, I miss. But I can envision a scenario where these stocks are all cut in half in the course of 20 days.

1:28:41And people are like, holy shit, what just happened? I'm looking at for Van X. When I was on, did he say this was their biggest one? Oh, NLR. Is that the one? NLR, nuclear. He said it was their biggest inflows this year. This thing has$3 billion in assets. Probably all in the last 12 months. So anyway, in conclusion, it is a fun and interesting and boring and psychotic insane market all at the same time. There's a lot of different things going on. Okay. Here's something interesting. We got an update to the OECD global growth outlook. And it turns out that a lot of our worst fears about tariffs really just are not showing up in the way that they were expected to show up, not really serving as that much friction.

1:29:35And, you know, we're hearing once more, well, you haven't felt them yet. eh alright so but definitely I will like at this point right it's a little bit it's a little bit like waiting for you know it's like waiting for Godot and I don't know do you know the reference so waiting for Godot is a famous play it's horrendous by 21st century standards unwatchable the point of the play is that nothing happens it's two characters having a two-hour conversation that just goes in circles while they're waiting for somebody to show up for some reason. Godot never shows up. Spoiler alert. It's a complete fucking waste of time.

1:30:20But I guess for people in the late 1800s, this was like the height of entertainment. Anyway, waiting for these tariffs. Sounds perfect. Yeah, no, it's amazing. Waiting for these tariffs to like show up, it's a little bit like waiting for Godot. We're just talking ourselves in circles. But let me quote a few things and then I want to hear what your thoughts are. The OECD now expects global growth of 3.2 % this year compared to the 2.9 % expansion it had forecast in June. Global growth was more resilient than anticipated in the first half of 2025, especially in emerging markets. The full effect of tariffs is yet to be felt.

1:31:00However, we are warning of significant risk to the economic outlook. That sounds like they put that in every report. That's a Grand Rapids hedge. Big time. You could just automatically include that. But what's notable is that they are now raising the global outlook and the U.S. outlook for GDP. The OECD now expects headline inflation to amount to 3.4 % across G20 countries, slightly lower than June's 3.6 % projection. So they are reducing the tariff shock inflationary pressures that they were worried about and raising the global economic growth. And I just – one last thing that I wanted to pull out.

1:31:49Let me see if I can find it. Oh, growth expectations for the U.S. alone went to 1.8 percent for 2025. The June estimate was 1.6 percent. All right, enough. All right. But so like that's the backdrop. So you talk about a lack of a bear case. This is not a situation where the global economy is teetering. We're getting rate cuts and they're raising growth expectations simultaneously. Think about that. I'm thinking. I'm thinking. I'm liking. I don't think that this is just a US phenomenon, although it's probably more pronounced here. This K-shaped economy that we live in, it is what it is. And obviously, like the fabric of our society part, let's not talk about that for a second.

1:32:32Just purely the economic ramifications, okay? Purely economic. The people with money have so much of it and are spending so much of it. And I don't know what stops that. There is - Stock market crash. Yeah. Nothing else. It's circular. It's circular logic, right? And as long as it keeps spending, the stock market will keep going up and up and up. And it's the meme that we were talking about earlier. But you made the most important point that it's not a U.S. only phenomenon. I follow a lot of celebrity DJs. And these are people that go around the world playing parties. And depending on the time of year it is, they're going to the same spots because that's like where this global elite class is gathering.

1:33:17And sometimes the top 1 % in the world, sometimes like the top 10%. So Ibiza is not all 1 % or global 1 %ers. It's just the place to be. but this is like a migrating party. It's the same people. They go around the world and it's one point in the year. They're in central pay and they're in Monaco. Then they're at the F1 race in Miami, the F1 race in Austin. Is it Monaco or Monaco? No, it's not. But like they're in St. Bart's at the end of the summer. It's like this, this thing, but like the amount of people who have the money to be at these things at this point is like what what i think has changed like imagine like these velvet rope opportunities to go to these places to see like marshmallow dj or something you can't get in right it doesn't matter how much money you have you can't get in because the sheer amount of people who have the money to do this has exploded and i think that that's really what's changed and it's not dead it's equity we've got equity and cash so you know i'm a wealth of that guy i know you ask me you ask me what changes this?

1:34:30I just think it's the stock market. You get another 2022 without a V-shaped recovery at the end. That's what changes this. Sure, yeah. You want to bet on that happening? No, dude, it ends when it ends. I don't know. That's it. One last thing on this. Powell spoke today in Rhode Island. Neil Dutter had an instant reaction We could put this up if we have it. In Powell's speech, two things stood out to me. First, the recent pace of job creation appears to be running below the break-even rate needed to hold the unemployment rate constant. Second, quote, the increased downside risks to employment have shifted the balance of risks to achieving our goals.

1:35:14So Neil is saying policy still be characterized as modestly restrictive. There's reason to expect Powell to be on board with rate cuts at each of the next two meetings. So like assume Powell's pivot toward being more Outwardly concerned with the Labor market versus inflation Another two rate cuts Last thing I'm seeing a lot of versions of this chart Going around Put this up Have you seen one of these yet? I have not I hate these charts But what's your point? That's why I'm pulling it out for you 2018 versus 2025 We had this really scary dip earlier in the year in 2018 when the tariff started. Then we had a big recovery in the S &P.

1:35:59And then in the fall, the wheels just completely fell off and the market crashed into Christmas. And a lot of people are taking that action and they're plotting this year. Now, obviously, there were more differences than similarities, but I wanted to just - This is criminal. I wanted you to get a little fired up with this because I've seen a few versions of it. This is criminal. Show me the percent change. That's horseshit. No, because that ruins it. The percent change actually is not that bad. Yes, it is. No, it's bad. How much was the April correction? 19%. Is that all it was? Yeah, I think the March correction in 2018 was 19%.

1:36:37Oh, really? Because I remember March was 19. It was only 19 this time around. All right, maybe I stand corrected. Either way, so what? Lines can only go two directions, okay? They can go up down a side. Three, up down a side, please. Oh, shut up. This is nonsense garbage. All right, next topic. So I want to go through this quickly because it's enough already. But Josh Schaefer tweeted this chart from Sevita Subramanian, and she said, since 2023, consensus has been overestimating earnings growth for the 493 while underestimating growth for the MAG-7. It's just remarkable. Like the dark blue lines, the forecast has continually come in lower than expectations.

1:37:18they've been underestimating and overestimating on the light blue line. It's just remarkable. Remarkable. Next chart, Todd Sohn. Semis. Holy shit. They're 15 % on the market now? Unbelievable. Broadcom is larger than meta? What in the world? Not for long. You know, the thing about market tracking changes in market cap or dollar amounts in market cap, man that overnight overnight yeah yeah you're right we've seen hundreds of billions come out of apple at the drop of a hat all right perfect segue next chart apple and nvidia now 14 14 of the s &p 500 wow the two stocks combined are 14 what is it what is the thing we used to talk about where like et and t and um and general electric this was 40 20 in the 1960s or 50s No, yeah.

1:38:14It was, man, in my head, I think it's like 17%. We're getting there. We're not too far away. It is, right. It's wild. It's there. All right. However, all time highs everywhere for the first time in a while. The Russell 3000 spent years on the water. So finally, we got the Dow, the S &P, the NASDAQ, and the Russell for the first time since 2021. All right. I've said this before. It's like there's so much data and information. It's really easy to paint any picture you want about the market. I mentioned earlier, and it's fine. There's nuance involved. It's not black or white. I mentioned earlier the euphoria in that segment of the retail market, which is, let's call it what it is.

1:38:55I'm not mad about it, but it is euphoria. And then other places in the market, it's like, you know, sort of yawn. So Urien at Fidelity, Urien Timmer, he's talking about lack of froth in the market. So Urien says another sign of froth in the market would be a surge in IPOs and M &A activity. So far, there are no signs of this. The chart below shows that IPOs and secondaries remain at average levels and far below the extremes experienced in the easy money liquidity bubble in 2021. Chart on, look at this. So the purple and blue lines at the bottom, that represents IPOs and secondaries and nothing compared to that period.

1:39:31I have a counterpoint to this. Would you like to hear it? Sure. Okay. We don't need new IPOs to have that froth. Agreed. We're dredging up the old IPOs that were broken. I agree. You're right. You're right. Open door. All the shit Eric Jackson's doing. I don't even know what those stocks are, but those were 2021 vintage IPOs. When you have a stock at$2 that runs to$10, there's no need for there to be a wave of new IPOs. I agree. Because we have the old ones. I'm in Joby and Archer Aviation. These are 2021 vintage bubble stocks. but they've made a lot of progress in their business over the last four years.

1:40:11But that's what's replacing all of that supply. But then we don't have a bubble in IPOs, but shit, we got CoreWeave this year and Circle. No, that's coming. You're right. We got a bunch. All right, so next chart shows M &A activity or lack thereof. It's almost fallen off a cliff. Not almost. It has fallen off a cliff. But Josh, to your point, you're right. US IPO activity picks up after Labor Day. September's strong start stands out for its recent years. That's Bloomberg. So we are getting more IPOs. But you're right. You're right. I think the context that you give around Urien's lack of IPOs is important.

1:40:43So there you have it. More of that. And then lastly, do you have anything else? Let's wrap up. The AI glasses. We got to do, you want to do, give me 30 seconds on the AI glasses. So Meta is really going for it. $800. It can show text messages, video calls, turn-by-turn direction and maps. They predict that Meta will sell over 100 ,000 units. Uh, and so a hundred thousand units by the end of the next year. All right. This might end up being my worst take and Nicole can save a copy of it. Um, I think these are for virgins and, uh, I don't, I don't think they're selling a hundred thousand and I don't think it's socially acceptable, at least not yet to walk into a room wearing, uh, glasses with cameras on the front of them.

1:41:32And now could that change with gen alpha? Like if they start. Yeah, I agree with you. I totally agree with you. It could. It could. For people in my demo, don't step to me with this shit on your face. Don't worry. I don't think anybody's going to. But I agree with you. Okay. All right. Let's just make the case. I wrote this up for CNBC Pro with Sean. We talked about that at the end of the show last week about these energy stocks. They were ripping again this week, man. I'm telling you, there's something percolating here. I don't own any of these. Okay. This is the worst corner of the market. I'm going to show you the best stocks.

1:42:06i have five and um we gave these letter grades let's roll through these valero um this is the best one this one like for some people that look at this and they'll be that guard i missed it and i get it disagree what do you mean i know but i understand it no i don't no i don't i reject that this thing has got side miss out this thing what side was for a year it's only starting to move okay another refiner marathon pull this up this one looks even better you buy this right yeah yeah um here's baker hughes this if this one takes out 50 i feel like it never works but it sometimes works if this one takes out 50 who's selling it okay who's selling it honestly yeah this is this is not a refiner this is oil field services and they have done a really good job managing don't give me fundamentals dude you don't know shit next chart thank you uh Phillips 66 is the other refiner.

1:43:04This is the one that hasn't broken out yet. It's the juiciest. It's juicy, right? Yeah, I like it. Because if you like the marathon chart, this is the marathon chart, but three weeks ago. You understand? Yeah. Okay. And there's an activist. I think Elliot is in this stock in size. So I thought that was an interesting one. I do own this one, Chevron. I'm finally green. I got murdered in this stock when I first bought it. Take a guess where I bought it. on this chart. I mean, that did look clean. I know. It was a failed breakout because of Liberation Day, but I averaged down and I survived. I don't trust it.

1:43:43So I think it's a good dividend stock right now, but I don't think this one's going to go. So I gave that one a C. Anyway, my make the case is time to start looking at energy stocks again. I know there have been a lot of false, there's been a lot of false promise in this space, but someday you're going to wish you did. Um, and that's, uh, and that's my story. You got a mystery chart for me? I do. Um, all right. So let's go. Let's start on John. All right. We're looking at a one year timeframe. Uh, uh, all right. I'll give away the orange line. It's an, I mean, the orange line is an index. It's the index.

1:44:18And the purple line is another index in a different area of the world that you'd be surprised that it's beating our index. Okay. This is Chinese internet is purple and the orange line is either the NASDAQ or the XLK. So the orange line is the S &P and purple line is not that. Let's zoom out a little bit. I did really good then. Let's zoom out a little bit. This is a tough mystery chart, but like - Can you give me something else? I will. This is five years, okay? So would you say that five years is not cherry picked? It's five years. Yeah. These are the same chart. It's five years. Almost perfectly identical.

1:44:56Not perfect, but almost. All right. The purple line is basically the opposite of what's in the next one. International European banks versus the XLF. All right. Close enough. It's international value. Isn't that wild? I'm really good at this. No, but no. It's a tough guess. But isn't that – I only just wanted to show you like – isn't that very shocking? Wait a minute. How was I supposed to guess the Fidelity Series International Value Fund? I told you. It's International Value Index. I told you it was a tough one. This is not guessable. Okay. My bad. I'll lay you up next time. I'll lay you up next time.

1:45:26This is not guessable. No, but you have to say it's an investing style. This is not guessable. Forget it. My bad. My bad. But isn't that wild? When do you see the shit I pull out for you next week? Penny stocks. Fucking bulletin board stocks. Isn't that surprising? International value has outperformed the S &P for five years? I would not have believed it if you didn't show me the chart. How? I think the foreign banks would probably be the key to that. But who knows? Maybe I have no idea what I'm talking about. They have a lot of miners and gold is up a lot. Maybe that helps. Sure. I don't know.

1:46:01Value. Biff Greville says, as a wealth manager, I should have memorized all mutual funds. All right. Guys, thank you so much for hanging with us today. We really appreciate it. We miss you when we're not here. Thanks to everybody who joined us in the chat. As Michael pointed out, it is a wet and wild market. obviously some things will end badly that doesn't mean the whole thing needs to end badly stay focused do what you think is best for your own long term investing and do not fall sway to the madness of the crowd tomorrow is an all new edition of Animal Spirits my favorite podcast starring Michael Badnick and Ben Carlson listen to the koala and subscribe as you can see on screen we'll do a new edition of Ask the Compound and then end of the week is an all new compound and friends.

1:46:54Keep it locked. We'll talk to you soon.