Reasons to Remain Overweight

24:13So that did well. And that's why we say, OK, you need to have some exposure to supply shocks, things like this as well. One of the other things that the market has going for it is you saw an insane amount of rotation in the second quarter. So the MAG7 are still below their highs. Bespoke has this great table showing that investors are selling winners and buying losers so far in July. So, so far in July, the 20 worst stocks in the first half of the year are the best performing, followed by the 50 worst, followed by the 100 worst. And it looks the exact opposite when you're talking about the 20 best stocks.

24:50They're being sold the 50 best, the 100 best. This is just rebalancing, right? ETFs. I don't, I mean, I don't know, but I don't think the ETFs are rebalancing into the junk. Yeah, they are. What are you talking about? They're rules-based. To rebalance out of quality growth and into bullshit? No, it's not. Well, it depends on the ETF. All right, here's another chart. Second quarter rebounds saw low quality being king. So these are a lot of Goldman Sachs baskets. So the meme stock basket was up 44%. They're not rebalancing into memes. Quantum computing was at 68%. So you're seeing this massive rotation inside the market, which is, Ralph Alcampora said it was the lifeblood of a bull market.

25:27Yep. You know, look at ARK, right? We had Kathy on Facts vs. Feelings on April 23rd. And the comments that we got, people weren't real happy with her. You almost have to turn them off. Well, I mean, not towards he and I, but towards the guest. And I said, damn, I said, oh my goodness. ARK's about to go bonkers. It's up 51 % since she joined the podcast. The negativity toward Kathy. They were so mad at the stuff that was lagging. And now you look at what's happened since those lows, and it's just been like the beach ball, the ball under the water. You let go, and it goes. But you're right. The lifeblood of bull market is rotation, and we're seeing it.

26:00I'll tell you, Bitcoin's at an all-time high. It's like I think the second we're doing this. We're not really going to get too into Bitcoin. I'll just say this. Is anyone even talking about it? I was on CNBC. I did a couple of media things. Everyone's talking about NVIDIA,$4 trillion. That's a real popular thing. I get it. But nobody's talking about Bitcoin. I mean, we all remember 2021 when it was going crazy. And you had day trader Dave, you know, banging his hammer. I remember he looked out his window and he saw a deer. So he bought deer, the stock, and it went up. Like, that was crazy times.

26:29You talk about sentiment now. It did work. I mean, but like sentiment now, there's some optimism maybe. But we know the hedge funds missed it. Do you get bothered when you see like the lowest quality stocks and the Cathie Wood stuff? Like when you see that take over market leadership, which I don't think it is, by the way. But fine, like let's say it's starting to do better. When you guys look at markets, do you say, all right, this is a sign that we might want to get more cautious? Or do you just like look through it? I'd look through it, I guess. When I see industrials, financials also along at the party.

27:02So I'm that way. That's kind of where I am. I could accept that there's a lot of stupid shit going on. We're at all time highs. It depends on how long it goes on for too, right? But then I'm looking, I'm like, oh, wait a minute. Boeing is rallying. And for Boeing to rally, you need like three acts of God, basically. But so I'm the same way as you. Like I can acknowledge like, all right, there's really dumb stuff happening all around us. But also the fundamental underpinning is not all junk. There's like a lot of quality rallies. I want to hit rewind on something we said a little bit ago. But when we came into this year, what did we know?

27:37Well, we had back-to-back 20 % years. We knew this. The first quarter after 20 % years, usually not that great. The first quarter in a post-election year is like one of the weakest quarters in a four-year presidential cycle. Oh, by the way, the last 20 years, the first quarter has been the worst. We were on record saying there could be a 12 % to 15 % peak to trough correction sometime during this year prior to the first half. I'm on record saying that every year, by the way. Well, you're right. I mean, I hear you there. But, you know, so we said that and then it happens, right? And everyone freaks out and we get why, the emotions of everything.

28:08But it's just incredible how it happened again and everyone got all bared up. and now you realize the economy is not as bad as they said and things aren't as bad. Are you surprised, though, at the strength of the rebound? You have to be. I mean, you guys shared, you guys talked about it on Anal Spirits, quickest ever from down 15 to back. But at the same time, you know, look at credit markets. I mean, in April, one of the reasons I was fairly optimistic, I said junk bonds would be getting crushed if this monster under the bed. I was saying that all of April. Thank you. I was listening to you. But like, people kind of ignored it.

28:36They said, oh, look at this, look at that. It's like, no, high yield bonds or high yield spreads are hanging in there. Trust me, they spiked because we're in a darn near bear market. But those were those little clues. And like you said, Josh, and then Taco, whatever you want to call it, it happened on April 9th, and then it was off to the races. You know what a really good tell in hindsight, which I certainly didn't pick up on at the time. But now that I look at it and I say like, oh, people should have been talking more about this. Like foreign country stocks, they called his bluff better than the – so the U.S.

29:07stock market had a conniption. It sold off 19.5%. Granted, the comeback's been amazing. But like overseas, stocks were rallying. They were fucking laughing. Like foreign investors, they got the whole game really easily. And we didn't. So I'm going to set this up and turn it to Sony. So we manage about$5 billion. You hear us talking like we manage real money along with talking about these things. We've been overweight the US for two years, heavily overweight the US. People didn't like it, but it's worked. And we're at the start of this year. I've been heavily overweight for two years too. Yeah, you're right.

29:42For a while. You're just on vacation. You're allowed to be. But I mean, what do we think about the International Senate? No, look, coming into this year, like I said, we'll peddle to the metal on equity, overweight, and U.S. equities. And then, you know, we were thinking about, look, one tailwind international stocks have had is the dollar going down. Yeah. Right? Especially for just U.S. dollar-based investors. And we were like, okay, if there's – and you think about why does the dollar go up or down generally? I mean, not over the next day or two. it's expectations, relative expectations of growth.

30:12Coming into the year, people are expecting 3 % growth in the US, maybe 0 % growth in Europe. That's changed now. Especially even before Liberation Day in March, you're talking about German fiscal spending, things like that. That's sort of like, okay, maybe something is changing here. Let's move to a neutral weight, US versus international. That's what we did back in February and March. And we saw expectations for the US Oh, so you guys trimmed US and added to international in February. March 3rd, we did some pretty big trades. And we did that before all the trouble started. Okay. So you guys aren't likely, you're likely, as you should, to look through a lot of the silliness.

30:48Because at an all-time high, there's always tons of silliness. Not easy to point that out. What about something like this? This week, we saw Bank of America and Goldman both hit the S &P with upgrades after downgrades earlier in the year. Does that say, all right, maybe we're due for a little bit of a pause? Or is that too cute? You don't think about that sort of stuff. I mean, it kind of reflects momentum, right? The market's going up. Everyone's moving up targets. Market goes down. Everyone's moving down targets. But sentiment, going back to something Ryan just said, the sentiment doesn't seem very overextended.

31:17It's not. You can't react to the strategists in real time because all they're doing is marking their own calls to where the market just went. David Kostin at Goldman, this is the big news today, raised his year NS &P 500 target to 6 ,600, which would be 6 % from the latest closing level. That's where we are. Lifted his three-month and 12-month price targets to 6 ,400 and 6 ,900, nice, respectively. Previous 2025 target was 6 ,100, which he set in mid-May during the trade war. So like most of the strategists on the street had to lower their targets in April when it looked like we were gonna have a man-made self-induced recession.

31:57And then when that came off the table, it was only a matter of time before they had to chase the market higher. My comment to the listeners and the viewers is definitely do not try to align what you're doing in your account with year-end price targets. Well, so Kostin also said, while narrow breadth often signals the risk of larger than average drawdowns, like we just talked about, I'm not sure where this narrow breadth argument's coming from because I'm simply not seeing that one. Here's how I would describe the sentiment. And sentiment is very hard to describe as one sentiment because who are you talking about?

32:31Maybe a rally of disbelief. So for example, this is from the Daily Chartbook, which I get a lot of my stuff from. Shout out to them. The estimated short interest. Is that estimated? Short interest for the top 10 stocks, for the top 10%, most shorted stocks is rising. It's up until the right. There is a lot of fighting the tape and these are probably the junkie names and this is probably fueling - So you're saying, do we know, like if we had to guess what's in here? I'm making this up Peloton and a lot of those sort of - The small growth, mid-cap growth names. But also maybe like the Modernas and the - Sure, yeah, and Modernas rallying hard.

33:08Yeah, the Zooms. Right, I don't think that this is further fueling fire to the fact that this is exactly what you want to see in terms of bull market, both technically and on the sentiment side. I'm not seeing a lot of excess just in terms of like enthusiasm, everybody in, don't worry about risk. There's still a dose of disbelief. I travel the country all the time, and do this and talk to financial advisors and their clients. Then you do Q &A. I've never in the last several, well, this year, been asked, hey, it's really good out there. How high is this going to go? You're always asking what's wrong with it.

33:40Yeah, it's such a great point. What's bad out there? Look how bad this is. And I get it. When does it end? You know, but at the same time, like the short interest is one example. And we kind of hinted at it. Like hedge funds, from what I see and hear, they've been fighting this thing up the whole time. And this is maybe another way of showing that. They just keep increasing their shorts. We know they were net sellers throughout the course of the spring. It's really retail that jumped in with buy orders in size before any other category of professional. So that's notable. All right. You guys have your own proprietary leading economic indicator index, I guess, would be the way to put it.

34:17You have your own. So what does that mean? you looked at the way it's typically done and you changed the components or the basket of things that you look at for your own indicator. This was about 12 years ago when they created this. This is my previous shop. They looked at the conference board's LEI and we were like, wait, this doesn't quite capture what the US economy is. What was wrong with it? It was mostly geared towards the industrial manufacturing sector rather than consumption. Which is shrinking. Yeah. And this was 2013, right? And at that time, we were like, And then every now and then they change the indicators and they, you know, do whatever it is they do.

34:52So you're like, we need to create our own. And we said we want something that, and it's mostly for a sanity check, right? I am not a believer in like indicator macro. Like there is a silver bullet indicator. And I certainly don't think our LEI is a silver bullet. It's magazine covers. I'll save you some time. Especially the economist. Yeah. So, but yeah, no, we created something that hopefully captures the U.S. economy. Because every day we get different indicators. Today we get claims, you get ISM, PMIs, and then you're going from one to another. Like, oh, this is bad. That's good. This is really bad.

35:25Oh, that's the worst game. The media plays the game because the news comes out and they have to cover it. Right. So it's like, oh, markets are red because let's find an indicator that was worse than expected. The yield curve is inverted, all of that, right? So what was that, April 1st, two years ago? April Fool's Day at 22 is when the yield curve inverted. I've called that the greatest April Fool's joke of all time. So we put together the index just for the sanity check. Like, okay, let's put, you know, what we think are, it's not a data mining exercise. We could do that, but 200 indicators together.

35:55No, this just has about 25 indicators that captures the US. What's the goal? To capture a more real snapshot of the state of the economy at a given moment. Exactly. Because you can't wait for GDP data. It's on a big lag. And by then, nobody cares. No, exactly. Like the famous assemblies chart, which shows that, you know, the market bottoms before GDP. First of all, you don't even get GDP. That's much later. And then it gets revised. Right, right. So that's not useful for investing. Okay. So what are you doing with your LEI? And what is it telling us about the state of the country? It tells us whether the average indicator, so let's say a representative of the economy, is that growing on trend, above trend, or below trend.

36:39And right now it's telling us the economy, economic growth is growing below trend, but not recessionary. Okay. And we do actually, we have 30 of these for 30 different countries. Well, 29. We stopped doing Russia a few years back. But we have 29 of these. And each of them are tailored towards those respective economies. In the US, it's more about consumption. In China, more about investment. Germany, South Korea, it's more about export. Oh, so you create a different basket and weight things differently depending on the country. Yes. So what is the US? Same store sales at McDonald's? Like what are the things that are going into your It's more aggregate It's more aggregate indicators that we have a history for So it's got things like retail sales, food services, auto sales, housing starts, building permits Yeah, standard indicators Like I said, it's a sanity check Put everything together What's the picture?

37:28So if you saw this really roll, what would you guys do? We would start getting cautious And this goes back to the fact even back in 2022 And everyone was calling for a recession well even 2023 for that matter we didn't see a recession at the time we weren't you know we were overweight equities and we were like i don't think there's a recession coming which is not to say it'd be correct but the odds are in favor of no recession so this i don't know what you mean by rollover i guess it would have to cross below what's it what is this what is the z score a z score is you know how far above or below trend is the average indicator growing so what would you have now materially changed and we are tipping into recession.

38:09Just to put a number on, negative 0.5, negative 0.6. So we're obviously not there. No, nowhere close to that. And you could have a false alarm if you dip into that. It's not a guaranteed recession. It's just, I guess you backtested it and usually it's pretty bad. Right. And what you're essentially seeing is sort of a backtest anyway, right? Like we weren't doing this in 2001 or 2006. So I'll chime in here. So in early 2023, we wrote our outlook. The second line of our outlook said we don't see a recession and we could hit new highs this year. Now, we didn't hit new highs in 23, but rallied a lot.

38:42And a lot of this is the work Sonu did, which went contrary to just about everybody else, saying the economy is better than you think here. And literally today, we just released our mid-year outlook. And we talk about a lot of these concepts. And the reality is, I'll just give Sonu a pat on the back. I mean, there's Neil and Sonu and a few others that really look at this economic data differently than so many other people. They don't just look at, oh, my goodness, manufacturing ISM sub 45, yield curve's inverted. The end is here because it has to be because every time it's done that the last six times.

39:09But you actually peel back that onion like he does. I don't even know what's in this thing. I just listen to him. Hey, how's it look, Sonu? And he tells me. I look at other stuff. But the reality is it's worked. It still looks OK. I love that you're giving him his flowers, by the way. When did you realize that the old way of thinking about the economy with all the gobbledygook that Ryan mentioned is no longer the playbook? It was originally when we were thinking about how do we want to model the economy and, you know, do it from the perspective, I need to manage real money, right? Think about markets, right?

39:36And what's the connection between markets and the economy? Profits, right? So when you think about the aggregate economy, you arrange, you know, like you take a sectoral balance approach, right? You got households, businesses, the government too. You know, back in 22, 23, the other part of it was there was a lot of government spending coming down the line, right? The IRA and CHIPS Act, Bipartisan Infrastructure Act, the American Recovery Act, that hadn't finished putting all its funds out. So all of that is happening. And we thought, wait a minute, that's good for corporate profits. So the idea was, how do we capture a snapshot of the economy that can sort of tell us what's happening to aggregate profit growth?

40:17Do you stock prices at all? Yes. How important are they? They're quite important. But in this, I tell you, it's about 5 % of the index. So I'm a wealth effect truther. I mean, he does all the equity part anyway, right? So you would have gotten a false signal had you just gone by the performance of the stock market in 22. Yeah. You would have been all over the recession call, and I kind of was. Like late 22, I don't predict the economy, but if I had to guess, I would have said recession for 23. Yeah. Thank God we didn't have one. And the odds were higher. Even if you go back and look at the chart, it was inching towards negative 0.4.

40:55I'm looking at it right now. It was as close as it gets without crossing fully over. And at that time I was saying, you know, the odds of a recession about 35 % or, you know, it's higher. But again, here's the thing that's not, that nobody can know. If you're just looking at your leading economic indicator, without a doubt, three months later at that trend, you're in recession. None of us can know that ChatGPT was just released. And it has the potential to unleash what looks like it's going to be$5 trillion worth of spending inside of 24 months. Nobody could possibly know that. So it's like more fiscal stimulus.

41:29It's better than fiscal stimulus because it's almost entirely driven by the private sector and did not require interest rate cuts. the entirety of the AI boom so far is happening with higher than normal interest rates. It's wild. With restrictive policy in place. Yeah. And look, you could not have said that in 99. The Fed had a huge emergency rate cut in 98, the summer of 98. And I know that fueled the next 500 IPOs because I was there. You don't have that this time. So I know Sonia's going to jump on that. Hold that for one second. So this is kind of how we work together. So he's got what we're showing on the screen.

42:06But remember the end of that bear market? Yeah, exactly. That October 22 low, right? I'm the global macro strategist, right? Yeah. About a 25 % bear market ended in the middle of October 22. Your average non-recessionary bear market is 24.5%. So we're in that range where you can have a bear market without a recession. As everybody knows, when you have a recession, it's about 35 % bear market. That Friday, we had that CPI. I think it was CPI Tuesday or Wednesday. It was high, right? Remember inflation. The market gapped down like 2 % at the open. By the close on that day, I think it was October 12th or 14th, one or the other, closed up 2%.

42:41So you had a 5 % swing intraday. And that's the stuff I look at and I'm like, oh my goodness. Like I shared it literally that day. So that's how lows happened. Literally, that's how lows happened. That was the low. That was the low. We didn't know it at the time. It was October 12th or 14th. October 12th. We were on the show that day. Remember we drove into the city? We were in the car when the inflation number came out. It was inflation CPI. We were on the show that day with Passani and Kyla. It felt like the end of the world that morning. Oh, you know what we were talking about that week? The VIX had this insane move.

43:13And then it completely reversed itself. And I think that was the conversation. And Passani was like kind of schooling everyone like, you guys don't understand, the VIX is about the next 30 days. It's not about six months from now. It's literally people pricing in the risk that they think is going to happen tomorrow. And then when tomorrow comes, it unwinds. that's why the risk mean reverts or oscillates or whatever. So I do remember that period of time. I just think we got really lucky at the end of 22. We did. And into 23. If we didn't get ChachiBT, I think there would have been a recession eventually because we say there wasn't a recession, but there was a lot of parts of the economy specifically with the stock market.

43:51Silicon Valley, 100 % recession. There was a website that updated real-time layoffs. Real estate still in a recession. So there were areas of the economy, not overall, that absolutely got f***ed up by higher interest rates. Commercial real estate still. You still argue like over the last six months, the tech sector has lost about 10 ,000 jobs. There's no more software jobs being added. So, but not because of the economy, because of innovation. And it's a little bit of a, like in other words, Microsoft didn't just say 9 ,000 layoffs because times are hard or because profits are hurting. They said it because they can.

44:25And they went on a hiring spree. If you look at the numbers back in 2021. They all did. They overhired. They overhired, and now I think they're still recovering from that. I think that's right. I wanted to – hang on a sec. You want to talk about Vegas? Well, yeah. I want to talk about things that are not traditional indicators but kind of force you to pay attention. I wanted to ask you guys your thoughts. When we talk about the consumer, what's the most important behavior of the consumer to be thinking about or keeping an eye on? because I think it's travel. And then as a subsector of travel, I think it's gambling.

45:04So what do you think about that? Travel, full service meals, restaurants. Okay. And that's been actually flat. For me, it's casino. For me, it's Vegas. I feel like Vegas is like the throbbing tip of the whole like, is that the right? Throbbing tip. Probably the wrong way of phrasing it. I don't know, Josh. I think it's like the, I think it's like where the real nerve center of like appetite, consumer appetite to do shit. And you mean like gambling as an entertainment, not as opposed to a professional? Like specifically, let's bro, let's go to Vegas. I feel like that only is in good times. It is the most dispensable of potential trips you could take.

45:45Also corporate spending in Vegas. Obviously that's the first thing to go. I guess we're not going to do the Vegas junket this year because we just missed earnings last quarter. Like for me, that's a big one to watch. They are, here's why I bring this up, guys. We're going to talk about inflation. Vegas is basically committing suicide by, suicide by price. So this is, I've read 20 of the same article in the last week. This is the dailymail.com. Las Vegas high prices putting off potential tourists, new visit, according to new visitor figures. Tourist numbers have fallen every month this year with 6.5 % fewer visitors than in 2024.

46:30International arrivals at Harry Reid Airport down 8.7 % in May versus May of 2024. A visitor recently shared her shock after she was charged$26 for a bottle of Fiji water. A British magician was left outraged. How dare you? $74 for two drinks at the Sphere. The buffet at Bellagio is like$175. It's always been this way. Nonsensical. No, it's worse than ever and notably, and it's stopping people from going. Stocks are on fire. Some of this is international tourists. A lot of it is. They're not coming anymore. I mean, if you just look at tourism from abroad, which actually shows up as a service export, that's going down.

47:15Travel and tourism from abroad. What do you think of this as an indicator to just look at the way people are? Because when you go to Vegas, when you do that, you're really spending on things that nobody on earth needs. That's like the, to me, that's the pinnacle of like the consumer is doing great. So the first - Vegas is not doing great right now. Yeah, the first week of April went out west, which is obviously a fun family trip with the Bryce Canyon and Zion National Park. Way better trip than Las Vegas. Well, we went to Vegas for a couple of days too. I'm worried about my 14-year-old, by the way.

47:46The way his eyes lit up in Vegas, like they threw like 100 bucks on a couple parlays and they lost, of course, on the last game. I said, well, that's gambling. That's why we don't do it. But I didn't think it was as crowded as I remember because I was in Vegas the year before for a work thing with Carson. And I was looking around thinking, huh, this is interesting. It's like spring break. And Vegas truly didn't feel as crowded. And then some of the softening Sonu talks about. But I guess that's the key thing. Is it recessionary or is it softening? And like Mike, you just said, the stocks are doing pretty good all of a sudden.

48:14But over the past year, they haven't done as well. In a recession, they're giving away their rooms just to get you to... And they're not doing that now. You're right. Can I show you some charts? Yeah, let's do it. All right. This is a one-year price performance of Caesars. You wouldn't buy this chart. You would buy this for what? For a capital loss? You want to harvest? It looks like it might be. In a month or two? It doesn't look terrible. I'm with you. Next. Ryan, how do you feel? A little messy. Yeah. Okay. Here's MGM. Another horrible downtrend. Very obvious downtrend. They continue to sell lower highs.

48:47Here's Wynn. this one's this one looks good um they're in the process of building what's going to be the next hot dude when looks great yeah they're building something crazy it's the buffet better when looks great no they're building a new brand new resort like the first one that's opened in a long time and um people are excited about it yeah uh also but there's like chinese exposure mixed in here right and it's really hard to disentangle vegas from china here's here's another uh lvs las vegas sands. This is China. This is not Las Vegas, even though it's for Las Vegas sands. So I would argue that there was absolutely softness.

49:23There's no doubt about it. Vegas and excess cash and money to burn, that should end it. And high prices crushing people that would normally be playing. That's absolutely true. And even at an aggregate level, you just talk about the, yes, it is aggregate, but you look at wage growth, right? Wage growth three years ago was growing about five, 6%. Now it's come down to 3%. And people act differently as a result. Yeah, I totally agree with you. But we heard from Delta this morning, which had a lot of softness in the first quarter, a lot of foreign travelers pulling back. Okay. And Delta stocks got destroyed.

49:56Delta got crushed. Well, today it's having one of its best days over the last five years. It's up 13%. They reported a record quarterly revenue for the second quarter. Record. It's a big day for Delta. They said they're high margin businesses doing well, which I imagine is business class. This is my point though. This is how we open the show. When we talk about a K-shaped economy, you basically, so in the back of the plane, they can't sell seats. In the front of the plane, they're putting in golden toilets. That's the economy right now. That's absolutely right. United just built first class suites.

50:32So now when you're in first class, you have a door. Like open the door to come talk to me. Otherwise, get out. This is my private suite on a United flight. You know what's weird? Emirates and Singapore have had that for a long time. It's kind of curious that we're only just getting that. Dude, we looked at the price to fly Emirates to Italy. Oh, from here? 2x the price of a first-class flight on an American airplane. Was it 9 grand? It would have been 10 or 11 grand. Do you have to go to the Middle East and then back up to Italy for that? No, the flight direct to Europe. Those are the sickest planes ever with all the amenity.

51:06anything you could ever want, which is kind of wasted on me because I would rather just do drugs and fall asleep. Okay. So this is the story of the economy and you're not seeing it in the stock market because we're at all-time highs. But it's two consumers is my point. You're seeing it in surveys and you're seeing it in elections. People are pissed off. And there are prices that are going up. I mean, overall aggregate inflation, you can talk about the issues with how official shelter and all that is measured. But you look at electricity and gas prices, something I've been tracking recently, electricity, gas prices, utilities, basically, it's up 6 % year over year.

51:40Oh, wow. 14 and a half percent last three months annualized. So you talk about wallets, especially when wage growth is going lower from 6 % to 3%. A lot of people may not even get wage increases, but your utility bills are rising at like a 10 % annualized rate. Did car insurance cool off? Remember how pissed off people rightly were about that? It's cooled off. I mean, but I think it's still, you know, it's still high. Well, let me tell you this. I got a notification before we started the show that my jet ski insurance went down a decent amount. There you go. That's because of how good you are as a rider.

52:11Yeah, exactly. No, but that's notable. They've been watching my social media. Prices dropped like fairly dramatically for me and I didn't do anything. Let's talk about household balance sheets. All right. We have a chart for this. That's the throbbing tip. It sure is. What's the – did I say – I don't feel like I said throbbing. Stop. Let's just leave it alone. Okay. What's the message of this? In aggregate, household balance sheets are in good shape. And for two reasons, home prices have gone up, especially over the last five, six years, and stock prices have gone up. But that gets to, okay, who owns the stuff, right?

52:45At the upper income quintiles. So you said in aggregate. In aggregate, yes. Because that's the point. That's the thing, right? Okay. And the other side of it is that debt, this is as a percentage of disposable income. That's relatively low compared to where we were. even in 2019. And remember, 2019 was the end of a big deleveraging cycle. So that's actually a good spot to compare it to. Why are you pulling these other periods of time? Just to look at what the top of the cycle is, right? Just to compare it. So can you walk us through this? As of Q1 2025, you're showing the asset layer of the household, which is above the 0 % line, things that are assets.

53:26So real estate would be their houses. Yep. Consumer durables. Are they cars? Cars. Okay. Corporate equities. Stocks. Stocks. Debt securities would be treasuries, muni bonds. Yep. And then I guess cash and business ownership. Yep. And that's at a record high. Yep. That's 833 % of disposable income. Again, this is actually - Is that good? That sounds really good. Before, well, compared to before the pandemic, 2019 Q4, it was 769%. Nice. Okay. So liabilities are, what is the minus 93 % signify? It's just 93. It's just negative liability being negative. So 93 % of disposable income is, you know, mortgage debt is mostly that and then consumer credit.

54:11I'll put it like this. So you got that negative 93. That's as a percent of disposable income. Everybody here is 37. We walk by the debt clock, by the way, just randomly. It's wherever it is, block or two away. And you hear all that and 1.2 trillion in credit card debt and another couple trillion here, couple trillion there. But as a percent of denominator blindness, we've all talked about, you guys talk about all the time, denominator blindness. That's the numerator. You got to look at the denominator, right? Which is what? The size of the economy? No. Size of the asset? Or just equity and the asset.

54:37Disposable income. Disposable income in this case. But people are worth a lot more. And we get it. The conversation we've been having for the past 45 minutes, it's not perfect. But this is why the stock market's hitting all-time highs. This is why at the start of 23, Sony was sharing this chart saying, listen, if we had a recession in 23, it might not be as bad as they're telling us because of this, because people were still worth a decent amount of money, all things considered, especially relative to 25 years ago at the end of 1999. Because again, yeah, we've got more debt overall because every three months when that Fed data comes out and it's a new record of credit card debt, media go crazy, but they just seem to ignore all the wealth that was created more so along the way.

55:15That's the spending that fuels the wealth creation. The problem is it's not balanced amongst everyone. And they're not going to Vegas. Let's do these charts. Rising home prices and stock prices boosting households. That's what we just talked about. Another way of looking at the same idea. Over time. And I think this gets to something you were talking about. What is the 215 %? Yeah, equities, right? Equity stocks as an asset as a percentage of disposable income is 250%. Home prices as a percentage of disposable income, again, an aggregate, 215%. But this gets to, you know, What could damage household balance sheets?

55:50And then you look at this. Well, if home prices come down or if stock prices come down, I think that's why, I think the stock market is really tight to the economy right now through this balance sheet picture. I've been screaming this. Well, Josh always talks about this. You know what that line is? That line represents asset-backed loans, right? These people don't need to sell their securities to buy anything. They'll just borrow against it at a very low interest rate. Because then you don't have to pay the tax and capital gains either. Right, that's the story. A lot of the way we used to think about the economy was from a time where you had to sell something to buy something else.

56:20Not anymore. We have an entire generation of people who have done securities-based loans, and they've had their cake and eaten it too. They've kept their portfolio intact, and they've bought the vacation home utilizing very low - NVIDIA. Very low-interest loans that are being backed by a combination of Apple, NVIDIA, and U.S. Treasury bonds. Yeah, thank you, Jensen Wang. I will buy a second house. I'm far against my portfolio. This gets back to also what you were talking about. Like, you know, the more of Navarro that we see, if things start going down, it can go down only so much, right? He was on CNBC on Monday morning.

56:55He's been coming out. Not going to be a good day. The market was down a percent. Give me a break. Send him back to the dark side of the moon. Daniel, can you please put up chart 15? Let's do forward earnings. I want to make sure we get to all this stuff because you guys have awesome charts. This is remarkable. Tell us what's going on here. Well, this is like the name suggests, forward earnings on the S &P 500 12 months out. $281 a share, all-time record. Who could have imagined? Who could have imagined that? Honestly, nobody was three months ago. What is this? This is the consensus, Wall Street expectation for S &P 500 earnings in the next 12 months?

57:29Yeah, exactly. Oh, it's a trading just under 24 times forward. It's not cheap, but why should have been? Tell people where that number was two years ago. Two years ago in June of 2030. 240? 230? 230, yeah. Okay. This is incredible. It is. Can we all agree it's AI? It is. And in 2026, expected to be up 13%. That's about where we were at the start of the year. But all kidding aside, this is not coming from pharmaceuticals, home builders. It's all AI. It's all AI. All of it. So great. No complaints. But I'm just saying, let's all acknowledge what's going on here. Okay. The neat one's the next chart, too.

58:02Profit margins. Literally last week, profit margins just hit a new high this cycle. It's also forward-looking. All we hear is profit margins have one way to go, and that's down. For three years now, we've been hearing that. And I call this the dual tailwind to a bull market. When you have these two things going up, stocks are going to follow. Keep it real simple. And multiple to expand. So profit margins now 13.7%. The highest cycle. Right. So people are looking at the valuation. It's like, yeah, no, the market's not cheap. But guess what? Companies have never made as much money as they're making right now.

58:36Made like took home. Yeah, operating leverage, right? As sales go up, they're expanding margins. If we're in the middle of an AI revolution or the early stages or who knows where we are, why would you expect multiples to be cheap? Right. Bubble chart. Do you still hear this is a bubble? You hear this from a lot of people? I don't. No, not as much, but frothy, I guess. And this is something Sonu just updated to you recently. Yeah, breaking down, you can break down S &P 500 returns or anything, really, into how much is coming from multiple growth, which is coming from EPS growth and dividends. And then you break down EPS or earnings growth into sales and margin growth.

59:12And over the last, well, since the end of 2019, last five and a half years, the equity market's up 112 % total, out of which 49, close to 50 % has come from sales growth, which is just the economy growing. But 20 % points has come from margin expansion. Right. How much from multiple expansion? 26 percentage points. So a quarter of the rally can be explained by people just paying up for stocks. Another quarter can be explained by profit margins growing. And then what was the remainder? And then sales growth and dividends too. Dividends about 17 percentage points, right? So is that a healthy mix?

59:47Yeah, I would say so. What do you think? Very healthy. Absolutely. What would you want it to be? No multiple expansion? Why? And the comparison is relative to 2019. So we are talking about, oh, this is the bottom of a recession and a thing like that. If you go back to 2009 and plot it, yes, you will see multiple expansion because multiples are like eight or nine or 10 or something like that. Right. But this is from 2019. And, you know, it's been a story of profitability. So, all right. Trump tweeted something from the multiverse today. There are so many twists and turns within this one. Yes. Truth Social post.

1:00:24It's almost it's almost incredible. Like you would have to you would I don't know how to get on this level where any of this makes sense. Honestly, let me just read it. tech stocks, industrial stocks, and NASDAQ hit all-time record highs. Crypto through the roof. NVIDIA is up 47 % since Trump tariffs. USA is taking in hundreds of billions of dollars in tariffs. Country is now back. A great credit. Fed should rapidly lower rate to reflect this strength. USA should be at the top of the list. No inflation. Get on his level. So in other words, NVIDIA is up 47%. The country has never been doing better.

1:01:06Hurry up and cut rates. Yeah, reflect the strength. That's actually... Reflect the strength. Reflect the strength. That actually reveals a lot. He thinks of the U.S. as, even the treasury market, as a credit product. So new. Reflect the strength. Just reflect the strength. Yeah, so the better the economy is doing, the better stocks are doing, the better home prices are doing, is like... The lower interest rates should be. Lower interest rates. Can I say one really positive thing about stuff like this? I think the market just doesn't care anymore. It really has to be something big, like a press conference or something.

1:01:39His tweets really can't change people's mind about what they're doing on any given day. It really has to rise to the level of like, all right, here's new policy and I'm about to sign it into law. Then you get the market's attention. And I actually like that because the alternative is like every day, why is my portfolio down 4 %? oh, he tweeted, whatever. So I kind of like that. It's just at this point, it's a punchline right at the beginning and nobody really reacts to it. I think that's where we are. The VIX is sub 20. I think so. Dude, VIX is at 15. It's unbelievable. It's on the mat. He did move markets the last couple of days.

1:02:18The Brazilian markets and the copper. So he's still got some of that power. We want to hit any more of these? It's up to these guys. Guys, what else in here did we not get to? Let's jump ahead. Just remember one of the stock stuff. We're the one that's called the sweet spot. Yeah, let's do that. So, you know, this year we're up about 5%, 6 % at the middle of the year. So it's kind of one of those times. Okay, let's take a look at that. You know, there have been years. The worst second halves of years usually are after the worst first halves. 2000, 2001, 2002, 20, or 2008, and then 2022. And then there's 87, which are up a lot and you come back.

1:02:50And 76 is up a lot and you come back. And somewhere in the early 80s, up a lot and come back. So this is kind of right there. The average first half is up about 4.5%. This one, again, 5 or 6. So I look at all the times you're up between 5 % and 10 % at the middle of the year. What happens next? And, well, as you can see on the screen, I'll tell the listeners, S &P is up 13 out of 15 times the rest of the year with above average return. So that's, you know, I call them these what it is, what it is type of studies. Just we're in the sweet spot is what I call it. The next chart is when you're higher May and June.

1:03:23May and June usually aren't that great. We know they were higher this year, substantially higher. Again, what happens next? The final six months up 15 out of 16 times. It was an average return. I believe it's right around, yeah, almost 9%. Almost double the average second half of a year. So you just stack those two little nuggets. And I get it. People, I do these on social media. And so, oh, it's a sample size of this, sample size of that. That's fine. I understand. But when you stack all these. Like, for example, on the May and June one, how many instances of that do you have? Well, 16. There's 16.

1:03:52There's 16 of them. By joke as well, if there were more, I'd use them. It's not five. It's not five. But I'm just saying, when you stack all these different studies that I look at and share and Soda looks at and shares, it is said for a while the stock market wants to go higher. I have a CMT behind my name, charter market technician, disciple of John Murphy. It's all about the market. What's the market telling us? Are we listening? And to me, the action we're seeing is saying we are in a bull market and it's still going to go higher. So the reason why these things are worth paying attention to, like when the market's up May, June, it's not voodoo.

1:04:26Because what we're saying by saying that that has meaning and that you found these 16 other episodes of that, we're saying that like human behavior is the constant here. And for whatever reason, if the market has a really powerful summer, it probably does lend itself to people chasing in the next six months of the year. Of course it does. Right. But that's our point is that buying begets even more buying. It's FOMO. This is – come on, people. Yeah. So it's a lot of career risk. It's a lot of people that are behind. They have to catch up or people won't give them money for next year. There's a lot of that going on.

1:05:01So that's what you're saying when you look at this data. Maybe one more. I know we're getting near the end. Year three of the bull market. I sent that chart. And you guys talk about this. I talk about it. But year three of bull markets are usually choppy. Let me see. Where is that? Usually frustrating. Down a couple more. Usually choppy, usually frustrating, but usually the bull market doesn't end. I found five. Well, not I found. There are five bull markets last 50 years that made it this far. The average before the bull market was over was eight. The shortest was five years. So once I call it, it's like a cruise ship.

1:05:31Once a bull market gets moving like a cruise ship, they're hard to stop. They're really hard to turn around. Yeah, maybe a hundred year pandemic, maybe some crazy stuff for tariffs. But the reality is year three is that catch your breath moment. Like Sona and I talk about this a lot on Facts vs. Feelings, our podcast with our Carson advisors, expect some choppiness, expect some trouble during year three. We had it. I think it's in the rearview mirror now. And now I think we're past that indigestion period and years four and five tend to be strong. And these are just things we look at when you stack it all together with new highs and advanced decline lines and credit markets still hanging in there.

1:06:02Those are the two things I follow. And people say, what do you look at? I say advanced decline lines and the credit markets. If those two are worrisome, you asked Sonu earlier with his LEI, if I see credit spreads breaking above where they were in 2022 and I see advanced decline lines breaking down, then that's when I'm thinking, OK, this is going to get a lot worse. We're not seeing these things. We're not seeing it at all, Josh. And the other stuff we just said suggests, again, to be overweight equities, have a little international exposure, have some EM. We do have a little bit of gold. I'm going to get into that.

1:06:27But just in case bad stuff happens, we still think this is a great time for a diversified portfolio going forward. Ladies and gentlemen, Ryan Dietrich, Sanu Vargas. Thank you guys Thank you You guys are awesome This is fun Oh yeah This is awesome Probably a few more F-bombs on our show than your show But I think Hey I think you guys are two of the best to do it So we're big fans of yours We didn't have shirts made up Next time I was away Otherwise I would have gotten to it But thank you guys so much for being on the show We end the show these days By asking people what they're most looking forward to And it could be anything It could be personal, professional you tell me.

1:07:07Let's start with you. What are you most looking forward to? Not talking about tariffs. Come on. No. Actually I have a trip with the family out to the same kind of same neck of the woods. Where are you going? Bryce Canyon. I say Vegas. Fly back to Chicago from Vegas. So maybe catch a show or circus. I have eight-year-old twins. They've never been there. Bryce Canyon. You ride horses through that canyon. I think I did that as a kid. I did bikes. You can ride bikes. Horses. E-bikes. E-bikes. All right. Dude, that's amazing. Congratulations. Congratulations. What about you? What are you looking forward to?

1:07:41I love doing this Marcus stuff with him all day, but from a personal point of view, both my boys play football. And once you get to July, it gets serious. My one son is a freshman, and they're at a pretty good high school. So I'm looking forward to watching my boys play some sports specifically. How big are they? You're a big dude. I hope they both grow more. I mean, let's see, my freshman's about 5 '8", 5 '9". My seventh grader, he needs to grow a little bit. Okay. What position did they play? Let's see. My sophomore is a safety, and then the seventh grader is wide receiver slash cornerback. How do they get those positions?

1:08:13Is that where the coach says you would be great here, or did they gravitate toward that and want to do that? Both of them gravitated toward it, I would say. Okay. He loves safety. He loves it. You played ball in high school? Well, I played golf and basketball in high school, so not football. Okay. Why are you afraid of getting hit? Yeah. Yeah, I just, you know, I was afraid I'd, you know, find my, got no problems with my hell already. You didn't want to go to the Black Sabbath tribute show, Ozzy's farewell show? When I watched that, let's talk about that for a second. I was sick. I wasn't there.

1:08:43But Steven Tyler truly stole that show. I mean, who would have thought that? The way Steven Tyler came out there and did his thing and everything, that was awesome. As an old school metalhead, you know, Black Sabbath started it all for me in 97 at OzFest. I know. At Falaris Amphitheater when Ozzy didn't show up. They literally tore the place down and burned it up. You can Google it and find it. I said, oh, I like that. And I've been into that music ever since. And, you know, Ozzy's one of the best in Black Sabbath. Did you and I go to the, did you and I see ACDC with Axl Rose? I don't, I don't, you want to answer this one?

1:09:11I was there. I don't know if you were there because you left really early. Oh, Josh left. He left early. Yes, you did. You left early, Josh. Yes, you did. Because Fami got us backstage. Chris Jericho's walking around. Axl Rose. Fami knows everybody. But I was there for the show. Joe got us downstairs under the garden. Yeah, under the garden. Josh, it's a different show. You're talking about Motley Crue? No, no. It was ACDC. It was Axl Rose singing for ACDC. I was at that entire show. I remember the encore. Okay. Then you left before we went in the backwood show. No, of course. I don't wait to go back.

1:09:38I'm a celebrity myself. I don't do backstage. Did I do f***ing meet and greets? Are you kidding me? All right. I was at that show with you, though. We had a blast. That was 2016. 2016 is when that was. I tell people about that. First of all, people have to Google it. They don't believe me that it happened. Yeah, Axl sang ACDC. What do you mean Axl Rose and ACDC? Oh, yeah. We saw that. We were there. I'm like, I was there. You could trust me. It happened. And people will still Google it. I think Charlie was there, too. I don't know. A bunch of us were there. Who else did you think sounded good at the Ozzy thing?

1:10:07Oh, jeez. I was super impressed by all these guys. Just Ozzy on a throne. The guy can barely stand up singing Crazy Train. I mean, that is, I thought it was cool. And Bill Ward, the drummer, 78 years old. 78 years old. He's out there doing the drumming with the shirt off and everything. It was just really, really nice. I liked how much buy-in they got. Everybody was there. Yes, everyone. I thought that was super cool. Like, me and Tara was there. Metallica didn't have a show for that. They opened, they were right before. Metallica came out to show props. I thought that was cool. All right. My thing I'm looking forward to is getting back on East Coast time.

1:10:40I was up at 2 in the morning today for the day. I'm still going. I'm still going. So I'll be asleep in an hour. All right, guys, this has been amazing. We appreciate you so much. Let's tell people where they can follow your continued insights and research. What's the best way to follow Sunu and Ryan? The easiest is Facts Versus Feelings or podcasts. All right. That's easy. And at Ryan Dietrich, Twitter. Okay. A lot of people follow us. Sunu S. Yeah. All right. Awesome. And then carsongroup.com slash research is our blog. Okay. Very good. That's ritholtzwealth.com. You guys are the best. Hey, I want to thank you.

1:11:17Maybe I should have said that. I want to close by thanking one person. and I want to thank obviously the whole crew but Michael Batnick really held me down. I was away for seven days. This kid did 12 podcasts by himself. He had 500 guests on Tuesday night. He had his own Black Sabbath farewell tour. It was pretty epic. So thank you, my friend. I appreciate it. Oh, thank you. You're never going to get a chance to do that again because you were too good and I got a little nervous. All right. That's it from us, guys. Thanks for watching. Thanks for listening. Shout out to the boys for joining us and we'll see you next time.

1:11:49Have a great weekend