Signs the Bottom Is In, Yardeni Sees Resolution, Buying Winners, New QQQ’s

13:20Michael Batnick:Investors are in one of the biggest rushes to cash in history. Macro Charts is looking at the flows into money markets and cash-like ETFs over a three-month rolling period. Usually coincides with market bottoms.

13:33Downtown Josh Brown:But this could get way more extreme. You could see two more weeks of this. Sure. Yeah, of course. Yep. I don't know if this is a timing tool, but I like it as a - You're in the zone. A confirmation that there is enough panic. It just might not be the most.

13:48Michael Batnick:You're in the zone. Yeah. Chart Kid made me a chart. I asked him, hey, what stocks bounced the hardest since the low? And we're looking at the percentage of stocks in the S &P that are up 5 % since the local bottom. Ooh. And this is good. Hold on.

14:08Downtown Josh Brown:This is by sector. So the number is the percentage of stocks in that sector that are up 5%. 53 % of tech stocks are up 5 % since the bottom.

14:21Michael Batnick:Interestingly, you know what's really not getting much love at all? ServiceNow sitting at the bottom. Salesforce right there.

14:30Downtown Josh Brown:Yeah, not all tech stocks.

14:32Michael Batnick:Workday. I mean, Apple's down 4 % today. That's a pretty big 4.5 % today. That's a pretty big move. Not sure what the story is. I didn't see the news.

14:40Downtown Josh Brown:Can I ask you, the low was 330 last day of March?

14:47Michael Batnick:Yeah. Yeah.

14:49Downtown Josh Brown:And April 1st was last Wednesday, starts the beginning of a new quarter. And this quarter was the worst quarter for stocks since 2022. So is it possible? We think it's the bottom, but all it is is a rebalance out of fixed income into stocks. Yes. Because the move in the first quarter lower in stocks was so extreme that all these wealth management firms and institutions did a rebalance. And that's what we got to start off the first week of April and nothing more than that.

15:26Michael Batnick:I know you're a big story guy. Like, oh, it was the rebalance. I don't quite buy that. I'm a big story guy. You are. That's my ass. You're a big story guy. But I definitely buy the fact that could this just be a dead cat balance because stocks don't go in a –

15:40Downtown Josh Brown:Coinciding with a Q2 rebalance.

15:44Michael Batnick:Stocks don't go down in a straight line.

15:46Downtown Josh Brown:Yeah. We'll see. So let me ask you a question. If you're the CIO at a$200 billion RIA and you run the – there's an internal TAMP and you run the asset allocation model for 300 financial advisors.

16:03Michael Batnick:Dude, you're talking around the errors. What, you buy a billion or two billion dollars worth of stocks?

16:07Downtown Josh Brown:But it's emblematic of what everyone's doing. So if you just come out of, let's say it's March 30th, it's the last day of the worst quarter for US stocks in four years, isn't your instinct, let's rebalance now and capture that negative and make the most of that drop in equity prices? So if a lot of people were thinking the same way,

16:33Michael Batnick:Dude, a 60-40 portfolio is down 5%.

16:37Downtown Josh Brown:It's not down enough. It's not extremely. 5%. Yeah. It's not down enough to feel like everybody all of a sudden decided to rebalance that once.

16:44Michael Batnick:But I do buy, I don't buy the rebalance part of it, but I buy the end of month, end of quarter type of let's take a look at what's happening. And stocks are down straight, right? Yeah, I totally buy that. So this could very easily, despite me saying that I think this was the bottom, I don't know. What's my confidence level there? 59%. I mean, I'm not like pounding the table.

17:04Downtown Josh Brown:Okay. Related. Do you think a majority of investors understand how dividends work?

17:13Michael Batnick:Before you get there, 59 is a very soft level. I do believe it's, I'm going to say 69 % chance that that was the bottom. 59 is very, that's very wishy-washy.

17:22Downtown Josh Brown:60 % chance that we saw the bottom 40 % chance that we didn't?

17:25Michael Batnick:I would say like if I'm a betting man and you know I am, like minus 130. Yeah, I think that was the bottom.

17:31Downtown Josh Brown:I'm going to give it a 40 % chance.

17:36Michael Batnick:So hold on. Let's define this. You think that we retest the lows over the... I'm saying like in the next like 10 trading days.

17:44Downtown Josh Brown:My strategy is more about being right on camera than doing anything with my own money for this particular subject. So let's just put that out there. Okay. If we don't bottom, if there's a wrong... Oh, let's say there's a full-scale invasion of Iran tonight, and we start blowing up meaningful shit, possibly creating like a starvation, like it's really bad, okay? Then I can come back on in two days, whenever the next time we're together, and I could say, well, I told you there was only a 40 % chance that it was the bottom, and I look pretty smart. If it is the bottom, none of us will even remember this conversation, but if we do, and say, yeah, I said there's a pretty strong chance it was the bottom.

18:30Downtown Josh Brown:I said 40%. That is how you do it. You're a pro. You're talking to a professional market commentator, arguably the best in the nation. You know why I'm not good? Because I'm actually like a human being. You're committing. You're like committing.

18:44Michael Batnick:You're talking about 59 % like a crazy person. No, because I'm not afraid of being wrong. It happens. You, on the other hand, you've got a very soft show.

18:55Downtown Josh Brown:I'm not afraid of being wrong either because I can't be wrong in the way that I phrase things. So I'm definitely not afraid of being wrong. Do you think a large portion of the investing population understands the mechanics of how a dividend is paid? Which population? Just the general, all right, start with the general everybody. No, of course not. All investors.

19:15Michael Batnick:No, of course not.

19:16Downtown Josh Brown:You think it's like half and half?

19:18Michael Batnick:Which part of the dividend story are we talking about?

19:21Downtown Josh Brown:All right, you call your dad. He's been investing his whole adult life. You ask him to explain No He owns 100 shares of Johnson & Johnson It pays a 3 % annual dividend I'm making this up Or he has Let me put it differently He has$100 ,000 in J &J And it pays him$3 ,000 In annual dividends Could he explain What happens to the share price As that money is paid out

19:50Michael Batnick:No he couldn't explain anything He understands X dividend

19:52Downtown Josh Brown:No come on I'm going to say I'm going to give you actual polling but I'm going to say it's like 9 out of 10 people can't. Yeah. You think you'd agree with that? Yeah. They understand that it's money that hits their brokerage account because they see it when they log in and it gives them their account activity. If you're talking about people like my dad

20:12Michael Batnick:10 out of 10 don't know. How would my dad or anybody like my dad know dividend treatment?

20:17Downtown Josh Brown:Yeah. I just think it's interesting because dividends are such a huge component to the return. Well, less than before, but still important to the returns that people get in their retirement accounts. But they honestly don't even, they have no idea how it works. They can tell you how bank account interest is paid. And I think they think a dividend is similar, but it's not. You know that? You agree with that? Yeah. Like most people could explain to you, oh yeah, the bank uses my money. They invest it. Oh, look at this guy. Look at this little guy. Why are you giving me money? What's the money for?

20:57Michael Batnick:He thinks the bottom's in.

20:58Downtown Josh Brown:He wants to invest.

20:59Michael Batnick:He bought a toy from Walmart yesterday and said he's got to pay for it. So thank you for that$7. I'll invest it for you. All right, go. All right, love you.

21:07Downtown Josh Brown:What a good boy. All right, let's get into this. Meb Faber, on screen, I'll read it. This explains a lot. We did a survey on how dividends work and received thousands of responses. The question is, which of the following best describes how dividends work for a stock investor? Answer one, a stock yields 5%, the stock is trading at 100 and pays a$5 cash dividend. After distribution, the investor now has a stock worth 95 and a$5 cash dividend. Or answer two, a stock yields 5%, the stock is trading at$100, pays a$5 cash dividend. After distribution, the investor now has a stock worth$100 and a$5 cash dividend.

21:48Downtown Josh Brown:Now, obviously, if you are watching the show, you probably know, chart off, you probably know the answer is A1. The stock price adjusts for that payout. And that's why we think of dividends as part of the total return for the stock. He is saying the audience mostly gets it. 90 % of pros understand how dividends work and 80 % of individuals. I don't think so.

22:17Michael Batnick:He's at Meb's audience. Meb's audience mostly gets it. Right.

22:20Downtown Josh Brown:So this is where I'm going.

22:21Michael Batnick:Yeah.

22:22Downtown Josh Brown:Meb's audience are the smartest, nerdiest, most sophisticated individual investors that exist. Correct. Because that's why they're in his audience. Yeah. He does not put on a red nose and do a tap dancing routine like a clown.

22:37Michael Batnick:He's not doing 40 % chances.

22:40Downtown Josh Brown:Yeah. He's not like my audience. No, no. So he says, however, for the broad-based audience, so this is outside of him. 60 % of pros understand how dividends work. Only 25 % of individuals understand how dividends work.

22:58Michael Batnick:No chance is at 25%.

22:59Downtown Josh Brown:I think it's less, right?

23:00Michael Batnick:Yeah.

23:01Downtown Josh Brown:But still, isn't it interesting? Even if he's right, 75 % of individuals think that dividends are just free money that a company pays out like it's a bonus or an allowance.

23:11Michael Batnick:Yeah, then why wouldn't a company pay out 100 % dividend yield?

23:15Downtown Josh Brown:Because they think it's like a checking account where the bank drops$5 on you because it's interest. They don't -

23:23Michael Batnick:Well, think about it this way. Think about it this way. Because that's what they equate it to. Think about it this way. If a business has$100 ,000 in its checking account and it sends$10 ,000 back to its owners, how much money is left in the business?

23:35Downtown Josh Brown:Well, that's how you're supposed to think about it as a shareholder. Right. But they think about it like a bank account. It's a brokerage account. It's a bank account. I got income. I got income. I thought that was interesting. All right. Somewhat related, even less related than that last thing. And then we'll move on. BlackRock launching its own NASDAQ 100 ETF. I saw Balchunas thinks they'll price it at 12 basis points. First, let me just show you, this is BlackRock's chart, five years, just level setting here what's going on. Now let me show you Invesco. BlackRock shareholders have not done materially better than Invesco shareholders since the pandemic.

24:19Downtown Josh Brown:Are you surprised by that? Say that one more time. BlackRock's shareholders, common stock, have not done, they've done better over the last five years than the Invesco shareholders, but have they blown them out of the water? I'm not sure. Like the stock, BlackRock's peak was in 2021. It broke out again in 25.

24:43Michael Batnick:Wait, why are we asking this? I can't check it.

24:46Downtown Josh Brown:What do you mean we can't check it? I'm showing it to you. No, you're not. Dude, that's a number. Is that a joke? I'm not giving you the percentage return. I'm giving you what the ride has been like.

24:59Michael Batnick:You're joking, right?

25:01Downtown Josh Brown:Well, I'm basically showing you.

25:02Michael Batnick:You're saying people don't understand how dividends work. You don't even understand how stock price work. You're showing me a number. Well, why can't I just show you the price action?

25:09Downtown Josh Brown:Why do I have to show you the percentage return? You could run that in two seconds. You could run that in two seconds if you needed to. But suffice it to say, BlackRock shareholders have done better than Invesco's. But I'm making the point that even the dominant ETF franchise, it hasn't exactly been a smooth ride in the last couple of years. without getting into a head to head comparison because that part is not as interesting to me just the ride itself but here's the point QQQ is an incredibly successful product one of the most successful ETFs in the entire industry it's$376 billion in assets under management this is an Invesco product 45 % of the Qs is institutional assets, and then 55 % is retail investors or traders.

26:09Downtown Josh Brown:It's a 20 % expense ratio. I saw Balchunis speculate - 20 basis points. 20 basis points. Excuse me. Balchunis speculated it's going to be the competitor, which will be IQQ from the BlackRock iShares franchise, could be 12 basis points. So here's my question to you, how much of that$376 billion is actually at risk if BlackRock's competing product is a 40 % discount to the granddaddy triple Q product?

26:45Michael Batnick:It's a great question. So also I saw that state is now getting into the game. So a little bit of background here. I'll answer your question. I do wonder if there's like a lot of behind the scenes relationships going on here that we don't know about? There's got to be. Because there's no reason why Invesco is the only one to own the NASDAQ 100 or tech stocks. I'm using AirQuartz. Did they have a license?

27:06Downtown Josh Brown:Did they have a license that went out?

27:08Michael Batnick:So the NASDAQ 100, the Qs are what? 18 basis points? I asked chat, I said, how much money does Invesco actually net on QQQ? Because there's a lot of interesting stuff going on in here. So this is an old UIT structure. Remember, this has been reported on many times. Okay. So here's from Claude, the punchline. Invesco built the third largest ETF in the world with$400 billion in AUM for 26 years, pocketed almost nothing from it, all because of how the original 1999 UIT licensing deal was structured. The NASDAQ got paid$500 million a year to let them use the index. BNY got$109 million to be the trustee.

27:45Michael Batnick:And Invesco sponsored the whole thing essentially as a loss leader that drove brand recognition and bought flows into their other products. Now they finally monetized it, but they had to cut the – okay. So there's all sorts of – they have to spend a certain amount of marketing. It's a whole convoluted thing. So to answer your question, how much is at risk here? So there's two parts of this.

28:05Downtown Josh Brown:I have a different question now. Yeah. So something must have happened where a time limit ran out. Maybe there was some exclusivity on the NASDAQ 100 for an ETF that is now no longer exclusive or maybe it's about to run out. Maybe. Because to your point, why is there so much motion right now? Yeah. Yeah, maybe. I probably should have looked into that.

28:27Michael Batnick:That's okay. So is BlackRock licensing the NASDAQ 100 or is it creating just a competitor that's going to be its own index?

28:35Downtown Josh Brown:You can't use the term NASDAQ. First of all, I think they have to be and I don't think they would bother doing Qs, two Qs in the ticker. I don't see BlackRock as trying to do something like semi-deceptive. I feel like they would just pay the freight.

28:52Michael Batnick:All right. So there's an obvious black and white answer that you and I don't know about right now. But let me answer your question is, are the Qs at risk? So number one, no, because think about the embedded gains in here. Intaxable accounts anyway. If you own the Qs, you're up a lot of money. So nobody's going to be selling the Qs.

29:06Downtown Josh Brown:Not everyone.

29:07Michael Batnick:Okay. Nobody's going to be selling the Qs because they pay 18 basis points of buying the IQQ to pay 12. Now, however, new money and big money and non-taxable big money, Why would you not save six basis points in fees? So has the moat been penetrated?

29:26Downtown Josh Brown:It could be eight basis points.

29:27Michael Batnick:Has the moat been penetrated? Yes, most definitely.

29:30Downtown Josh Brown:Wait, I'll do you one better. What about for taxable? What about for tax loss harvesting, the ability to... Are you able to swap between triple Q and IQQQ if they... Yeah. And IQQ if they're both mimicking the same index.

29:49Michael Batnick:This is not tax advice. But think about all the institutional non-taxable dollars. Why wouldn't they save six basis points if there's no tax impact? Yeah.

29:58Downtown Josh Brown:We saw something similar. IEMG, is that where you're going? I was going to say IEMG instead of EEM. So IEMG took the crown. And it's f***ing huge now.

30:08Michael Batnick:Yeah.

30:09Downtown Josh Brown:And that's a shitty asset class. But for about 12 years, EEM was the first thing people thought of when you said emerging markets. It was like the default. It was like Q-tips, right? Like if you said emerging markets, people thought EEM. And then IEMG came along with a lower basis point. And it's bigger. Is it now bigger than EEM?

30:33Michael Batnick:It's$136 billion to$25 billion. But the punchline here is that this was self-cannibalization. Those are both iShares products.

30:40Downtown Josh Brown:Yes, they wanted to capture more of the institutional. Because here's the thing with basis point fees. If you're trading, you want the liquidity of triple Q right now. You don't care about the annual basis point fee. You ain't going to be in it for an annual period of time. You're not paying it. So you – and think of all the derivative products that are built on top of triple Q. all the 2x long, 2x short, inverse, all the options trading that takes place based on triple Q. It's like an extremely important part of the solar system that is the stock market. So for that reason, I think the moat is somewhat defensible.

31:24Downtown Josh Brown:So here's the question. Where are the assets? Which half of the QQQ ownership is more susceptible? The institutional half or the retail half?

31:34Michael Batnick:It depends which institutional half. The trading half, no. They're staying with the Qs.

31:39Downtown Josh Brown:Because of the liquidity. The hedge funds will stay with trading Qs.

31:43Michael Batnick:At least at first.

31:44Downtown Josh Brown:I think that's right. Because they want the daily liquidity more than anything else. Is that why? Yeah. They need to move in and out of it in size. Okay. And they're hedging it. They can use futures to hedge it. Like it's valuable to them for more than just the – they don't care about the basis points.

32:04Michael Batnick:I don't know enough about market structure to understand the differences in liquidity depth because it's underlying to the end of the day. But whatever. Over my skis there. But this is interesting. So I'm sure there's a pattern that expired or something. It's got to be something with NASDAQ.

32:17Downtown Josh Brown:You have two great guests to talk about this with coming up on the Compound and Friends this week. So we'll leave it there and you could pick it back up. All right. Let's do topic two. Okay.

32:30Michael Batnick:Oh, my God. All right. This is an interesting market, as we keep saying. An interesting market, a weird market. Rob Anderson from Ned Davis Research. The benefit from buying winners and the drag from buying losers has rarely been greater. The magnitude of return dispersion for the S &P 500 stocks is more than five standard deviations above the long-term average. Only higher and following the dot-time crash, the GFC, and the COVID reopening. And what's so interesting is that this is happening in a period of heightened volatility, but correlations have not gone to one, not even close. Not even close.

33:10Michael Batnick:Last week, we were talking about how 75 % of the decline has come from the MAG-7 this year. So I asked ChartKid, hey, if 75 % of the market decline has come from the MAG-7, what's on the other end of the barbell? What's holding the market up? So he made me two pretty charts. John, let's go to the cap loss first, the red bars. So$2 trillion has come out of the MAG-7. Josh, where did this$2 trillion go?

33:36Downtown Josh Brown:Oh, my God. It went into the best stocks in the market, of course. Of course. It went into the most stocks. It literally did. I'm not even joking. It went into Exxon and Chevron, and it went into pharmaceutical stocks, biotechs. It went into the shit that's going up. That's what people are doing.

33:52Michael Batnick:Josh, you sitting down right now?

33:53Downtown Josh Brown:Yeah.

33:54Michael Batnick:Hold on to your face. Previous chart. Look how pretty this is. so Matt charted he did a bubble chart showing the MAG7 stocks they're waiting at the start of the year how much they've ripped out of the S &P 500 year to date and then he looked at the other 492 so the MAG7 plus broadcom I guess is this but look at the other 492 isn't this nuts

34:18Downtown Josh Brown:wait their contribution to year to date return so they are they're holding the market up Yes, Josh.

34:26Michael Batnick:And there was this talk for years, chart off. For years, people were like, and thank God we were batting this away. Not saying that we could have foreseen this. I definitely wouldn't have predicted this. The market is so concentrated. When the leaders go, the rest of the market is to go with it.

34:38Downtown Josh Brown:And the opposite has happened. It's amazing. We said no every time. We said bullshit.

34:44Michael Batnick:We said 40 % chance.

34:45Downtown Josh Brown:40 % minimum. No, but the big thing was like, these stocks are too big to not take the market down. And that was fair. Yeah. True until the other stocks are the beneficiaries of the outflows from the stock. And I know you hate this, that I'm a where does the money go guy, but I think I've been vindicated today and you can, you could extend it up, not an apology, but like, wow, maybe you're onto something. Maybe people don't just go to cash in their account. They actually buy new stocks. I mean, just give me this much that it could be true.

35:25Michael Batnick:I'll give you this much. Let me take the other this much. If the market gaps down 1.5 % at the open, where did the money go?

35:33Downtown Josh Brown:Temporarily into a money market only to come back into the next wave of leadership stocks. Right.

35:39Michael Batnick:Yeah, that's how it works. All right. So -

35:41Downtown Josh Brown:Well, I've only ever seen that. I've never seen anything other than that.

35:44Michael Batnick:Furthermore, I asked Matt for a chart. All right. So what literally is holding the market up? Next chart, please. So this is some great stuff in here. So naturally, it's ExxonMobil adding 30 basis points or 29 to be precise to the S &P. And then it's Walmart. And dude, this blew my face right off my body. Micron.

36:04Downtown Josh Brown:Yeah.

36:04Michael Batnick:Micron has added - So do you know how big Micron is? It's so much bigger than I thought.

36:09Downtown Josh Brown:Is it like 250?

36:10Michael Batnick:Okay. That's what I said this morning. I said it was a$200 billion stock. Yeah, it used to be in October. Now it's 430. Get the f*** out of here.

36:17Downtown Josh Brown:Really?

36:18Michael Batnick:MyCron is a$430 billion stock.

36:20Downtown Josh Brown:Put it in the Dow so I can call the top. Wait, can you put that chart back up? I love this.

36:25Michael Batnick:So look at the other names.

36:25Downtown Josh Brown:Keep going. For people listening, not watching, these are the top 20 contributors to this year's S &P 500 return, which is not a good return, but these are the stocks holding the market up to Michael's point. After MyCron, you have Chevron, J &J, Applied Materials, Sandisk, Caterpillar, Costco, Intel, GE, Vernova, Lamb Research, Corning, Conoco, Phillips, or now Conoco, Western Digital, KLA, Merck, Seagate, Vertiv, Lockheed. All Halo, like very obviously Halo. None of them are, you can chart off, there's no ambiguity. Every one of these companies, physical infrastructure, These are not asset-like businesses.

37:11Downtown Josh Brown:They don't sell software or information. They're not in the data game. These are, right? Like these are the definition of heavy assets and low obsolescence. Many of those companies have been in business for 100 years. Many, many, many on that list. Ben did, to this point, Ben did a really great post called Bottom Fishing. I guess this was last Thursday. and he was just talking about like the nature of the stocks that are down and how like like and how much they're down and i think you and i said one of the weirdest parts about the current environment is the the types of stocks that are down this year are the stocks that are popular with retail all stocks that people are individual people are less likely to own the types of stocks that we just talked about.

38:02Downtown Josh Brown:Dude, look at Tesla.

38:05Michael Batnick:Tesla is getting whacked hard.

38:08Downtown Josh Brown:Look at this. Yeah. Here are the beatings. Adobe, Salesforce, CoreWeave, Apollo, Blackstone, KKR, Ally Financial, Capital One, Visa down 20%. MasterCard, American Express down 22%. Robinhood down 54%. Coinbase down 60%. Block down 80%. Nike down 75%. Walt Disney down... Do you know, Michael, that Walt Disney is in a 50%, 5-0 % drawdown? Target down 55%. Josh, when did... Meta, 27%, Microsoft, Netflix. These are the stocks people own. They're all down. When did Palantir peak? I'm going to say November.

38:54Michael Batnick:Nailed it. Freaking November, dude. In retail world, that's a long time ago.

38:58Downtown Josh Brown:It's forever. You can't do it. If you bought a stock because it was going up and it stopped going up five months ago, you can't be in it.

39:06Michael Batnick:All right. So absent the war, assuming that the current market still existed, absent the war, okay, if the market was looking like this, this is a story that is not getting any attention really. Throw up this value versus growth chart. So the spread between the total index, the Russell 3, value versus growth, value has outperformed growth in the first quarter by the widest margin since 2001, dude.

39:33Downtown Josh Brown:Let's light this candle.

39:35Michael Batnick:Nobody's talking about it.

39:37Downtown Josh Brown:Well, you want to know why nobody's talking about it?

39:39Michael Batnick:Yeah, it's the war. Go ahead. No, because what you said earlier.

39:43Downtown Josh Brown:Rebalancing? No. Fool me once. Can't get fooled again. Yeah. How many times have we seen this? Yeah. Wait, put the chart back up. Can you see any consecutive quarters where it continues?

40:00Michael Batnick:Yeah.

40:01Downtown Josh Brown:For what, once? Yeah. But look how many more consecutive quarters there are. The other one. These runs in growth stocks. Yeah. So how many of these value sucker rallies are people going to lose their money from where they just say, oh, I'm not doing that shit again. You're not going to trick me again into buying the 10 PE stocks. That's why.

40:26Michael Batnick:Yeah, and I think this has legs. I really do.

40:29Downtown Josh Brown:So wait a minute. So you think we could go again, Q2, value-add performance? Yeah.

40:35Michael Batnick:Now, I don't think it's necessarily the same where it's like value up, growth down. Maybe it is, but yeah, I think this could continue.

40:45Downtown Josh Brown:Okay, what's this last one? I also think, you know what?

40:48Michael Batnick:You know what's interesting also, Josh? A lot of the reason why the market isn't working, just at a high level, is the transition from asset light to asset heavy and the pressure that's coming for cash flows and margins. But it's funny because – and this makes total sense. These companies are being penalized. They're spending too much money. The beneficiaries, the semiconductors, these stocks are still working bigly.

41:13Downtown Josh Brown:Yeah, and semiconductors are part of the AI trade, but they're physical. Right. They're halo.

41:19Michael Batnick:So the AI trade is not just one trade. That's correct. It's the spenders versus the spendees. The recipients. The recipients. Yes. All right, next topic.

41:29Downtown Josh Brown:Jamie Dimon's annual letter to shareholders. We've talked about this. Is this the new Berkshire Hathaway Warren Buffett letter? I think it is. I think so.

41:38Michael Batnick:It's 48 pages. I don't know if I have time for this.

41:41Downtown Josh Brown:There's a lot of charts, though. It's not like 48 pages of reading.

41:45Michael Batnick:Is the tone – did he say anything that he doesn't always say?

41:50Downtown Josh Brown:Well, I guess what I'm asking is his stature. He's not a pure investor. He's a CEO. But you're the CEO of a bank. You are making asset allocation decisions by default. Is his stature and his longevity and his place in running the biggest bank in the world – it's a 227-year-old bank. Yeah. Has he earned that level of investor attention? No. Or will there never be another Warren Buffett for reasons that have nothing to do with Jamie Dimon or any shortcomings that J.P. Morgan may have?

42:28Michael Batnick:Yeah. There are tens, hundreds of thousands of people that read the Warren Buffett letter every year. Nobody's reading this. Millions. I would say millions around the world.

42:37Downtown Josh Brown:They've translated into Asian languages.

42:39Michael Batnick:Yeah, I would say by comparison

42:41Downtown Josh Brown:Nobody is reading Jamie Dimon's Could it ever, if he stays there for another 10 years Could it get to that point? No If JP Morgan held an annual shareholder day In an auditorium somewhere in Manhattan Would people from all over the world come to see him on stage? No Right, I don't think so either No chance But for me Yeah, no, it's great, it's good stuff For me as a shareholder, this sort of is at that level now I think it's this It's Larry Fink BlackRock Because these things have like Major impact on my business I need to understand what these guys are saying Because I'm in the financial services world But to your point Somebody working in Silicon Valley Probably doesn't give a shit what Jamie Dimon has to say No Or not everybody there I should say Okay so I agree with you That being said This is one hell of a publication and not just because I'm a shareholder.

43:37Downtown Josh Brown:I get a lot out of looking through it. Here's the first chart I wanted to show you. The yellow line is the earnings per... I mean, I'm squinting myself. The yellow line is the earnings per share.

43:54Downtown Josh Brown:I think the most important thing here, though, is that blue dotted line running across. That's the return on tangible common equity. So the way to think about this is It's not really a measure of profitability Like an earnings per share or a net income number It's a measure of the efficiency With which they convert dollars To profitability So what tangible common equity does Is it strips out What this measure does is it strips out Goodwill from accounting related stuff where they make an acquisition and they record a certain amount of goodwill, blah, blah, blah. This just takes the hardcore, Chardoff, this just takes the hardcore activities of the bank itself, the lending, the net interest margin, the capital raise.

44:46Downtown Josh Brown:How's the business doing? The investment banking. I mean, the point is the business is unbelievable. 2025, another year of ROTCE at 20%. And then just for fun, I wanted to look back at their competitors. Wells Fargo is like 14%. So not as efficient. Bank of America, 15. Citi is like seven or eight. But there's all sorts of asterisks with that because they've been restructuring for 48 years. Let's put up this next chart. Just stock total return analysis. They're going back to this date, not to cherry pick. I think they're just trying to show you the year 2000. But then that 2004 to 2025 is relevant.

45:38Downtown Josh Brown:That's when Bank One merger took place, which brought Jamie Dimon into JPMorgan Chase. So he was running Bank One. And I think there's a guy named Harrison was the CEO at JPMorgan Chase. And this is how Dimon effectively got bought out but took over the parent, right? Look at these returns It's insane It's completely insane right

46:02Michael Batnick:Look at 1, 5 and 10 For the bank Versus the financials index Yeah I mean it's insane 23 versus 15 for 5 years 20 versus 13 over 10 year period Are you kidding me Right

46:17Downtown Josh Brown:So Diamond is not one of these people Who like loves the sight of himself on camera and can't wait to run his mouth and just talk and talk and talk with very little to back it up. There's a lot of people working in finance, especially in the investment side. People run a bond fund that's returned 1 % a year. They have f***ing opinions on everything under the sun, political technology. This is a guy that literally delivers for shareholders on every time frame. And yeah, he's opinionated He has opinions about what's best for America What's best for New York City Should people work from the office Like he has opinions But let's look at what he's actually accomplished Before we dismiss it as He's another billionaire running his mouth No, no, no, no, no This guy is delivering for millions of people around the world Shareholders, employees, customers Tangible book and average stock price per share I mean it speaks for itself If you're listening and not watching I'm not sure how to describe this But it is extraordinarily up and to the right This is the assets So they call this Assets entrusted to us by our clients Look at this Evolution From 2005 to 2025 The dark blue Is basically client assets.

47:47Downtown Josh Brown:And it's just remarkable how large this bank has gotten. And everybody can see these charts if you go to JP Morgan's website and look for the letter. But we're talking about like a$40 trillion bank.

48:01Michael Batnick:Here's the assets under custody,$41 trillion. It's all part of the same story. JP Morgan has been the biggest beneficiary of one of the greatest booms in the history of capitalism in terms of all of these people with$30 million,$100 million. JP Morgan has won that race.

48:22Downtown Josh Brown:But I also want to say, it's not just, they didn't just win by winning. They won by not stumbling and then picking up the pieces from those who did. They were able to, I think they bought Washington Mutual, Bear Stearns and one other bomb in the financial crisis. They picked up First Republic, incredible franchise. They picked that up for almost nothing. Once again, that was only three years ago. Like they have along the way as other players have blown up, JP Morgan with the fortress balance sheet, the relentless focus on risk management, the willingness to say no to a business that they don't think is worth the risk.

49:13Downtown Josh Brown:It's not just about how great they are at winning. It's how great they are at not losing.

49:17Michael Batnick:That's so Buffett-esque. Could he have done this at Citi?

49:21Downtown Josh Brown:No, I don't think so.

49:22Michael Batnick:Maybe that's too tall a task, but at a different bank?

49:25Downtown Josh Brown:I don't think so, and I also don't think he could have grown Bank One into what J.P. Morgan is. There is something magical about a bank that's been around for over 200 years and is so endemic to not just the banking system, but like the pipes of how everything works. And it's just so important, not just in America, but around the world. So I think he needed to be in the seat at this company to have become Jamie Dimon. It's a great question. We could skip over everything. I just want to do one more of these. Give me the Fortress balance sheet chart. This is the most important to me. So I'm in this stock for, I don't know, it could be decades by now.

50:09Downtown Josh Brown:I mean, I was buying this when they were selling it off on the London Whale. I don't know if you remember that. You might have been in elementary school. 2010, I was? I don't know, whatever that was. But this is the answer. People are like, oh, such and such firm just downgraded shares of J.P. Morgan from a buy to a neutral. And then somebody asked me like, oh, what do you do about this if you're an investor? If you're an investor, you laugh hysterically Oh, okay Oh, it's an equal weight, not an overweight Okay, that's great I'll be sure to remember that the next time I'm on fucking Jeopardy Thanks for sharing So, I don't sell Because the Fortress balance sheet is the point The stock's not going to go up every year Guess what, I don't need it to Dividends we invested, too Real balls to the wall with that.

51:03Michael Batnick:All right. Let's quickly do on the opposite end of the spectrum. Let's do OpenAI. I don't know if this has been - Not a Fortress balance sheet. I don't know if this has been underreported. That maybe sounds ridiculous, but also I think it kind of has based on the scale. They just completed a deal to raise$122 billion from investors at an$852 billion valuation. Did you know that?

51:24Downtown Josh Brown:Yes, but only because I read the same article you read. It's a lot of money.

51:30Michael Batnick:You know what it is? It's the war. The war is just sucking up all the oxygen because otherwise this would be all we're talking about.

51:37Downtown Josh Brown:Massive.

51:37Michael Batnick:So they raised, Amazon agreed to invest$50 billion. There's contingencies there. SoftBank and NVIDIA each put in$30 billion. Sure, why not? Oh,$35 billion of Amazon's contingent on opening AI going public or reaching the technological milestone.

51:50Downtown Josh Brown:Yes, the contingent is like, is there actually stock for sale because they're going public? Okay, so Claude made this chart for me.

51:57Michael Batnick:I said, like, how big is OpenAI's race compared to the biggest races in the history of IPOs?

52:07Michael Batnick:So there's nothing even close. The biggest one prior to this was Sadio Aramco raised$25 billion. Alibaba raised$25 billion. You know what this is like?

52:16Downtown Josh Brown:Show me Michael Jackson's record sales compared to the rest of the Jackson 5. Pretty much. It's the most insane thing.

52:23Michael Batnick:So they just raised$122 billion.

52:27Downtown Josh Brown:Yeah. Okay. From some very important strategic partners too, which should be pointed out.

52:33Michael Batnick:Not ding-a-lings. Yeah. Biggest corporations, biggest investors. So in the interest of time, we'll skip over some of this. There was an article in the journal, but what I want to talk about is some of the decisions that they're making. Before that, though, so Anthropic put out an announcement last night, Google Broadcom Partnership. They said demand from Claude. So this is Anthropic. Demand from Claude customers has accelerated in 2026. Our run rate revenue has now surpassed$30 billion, up from approximately$9 billion at the end of 2025. When we announced our Series G fundraising in February, we shared that over 500 business customers were spending over a million dollars on an annualized basis.

53:19Michael Batnick:Today, that number exceeds 1 ,000, doubling in less than two months. Now, the way that Claude or Anthropics calculating their revenue is a little bit weird. They're booking the cloud revenue and then booking that as a cost of goods sold, which seems like double counting in a bizarre way. But whatever. If it's not$30 billion, it's$22 billion.

53:38Downtown Josh Brown:Because these are Amazon cloud customers that are accessing Claude via that relationship.

53:44Michael Batnick:Yeah, so it's a bit bizarre their accounting methodology. But whatever. It's so much money so fast for comparison. So let's just say that, all right, $30 billion annualized revenue run rate. And let's say it's probably going to be 40. I don't know where it stops or slows down. Charles Schwab did$27 billion in the last 12 months in revenue. McDonald's, that McDonald's, did$27 billion in revenue in the last 12 months. And they have barely, it's hard to say they've barely just begun. But I don't know what any of these companies are in. It still seems very, very early.

54:17Downtown Josh Brown:Seen through that prism, the sell-off in enterprise software makes sense. because these dollars to spend on this shit don't just materialize out of nowhere. They have to come from somewhere.

54:29Michael Batnick:This is coming from somewhere. So ChatGBT said its ad pilot program hit$100 million in annualized revenue after six weeks.

54:42Downtown Josh Brown:So that could be$200 million like the next month.

54:45Michael Batnick:All right. So the news this week, and there's been a lot of news. So there's a podcast called TBPN.

54:58Downtown Josh Brown:It's like a tech. I've seen a few episodes. They get great guests. It's like a tech podcast.

55:03Michael Batnick:It's a daily podcast where they cover tech. I only became aware. Now, listen, I'm not in the tech world, so whatever. But I only became aware of this podcast literally two or three weeks ago when they had Travis on, formerly of Uber. I listened to the first 15 minutes. I was like, wow, that's a big guess. Who are these guys? So I didn't look into it. And then I woke up to news yesterday than the day before that OpenAI is buying this company for about$100 million. And here's what Ben Thompson from Stratechery had to say about this purchase. A few necessary disclosures. First, I have appeared on TBPN a few different times, and I assume I will again.

55:42Michael Batnick:Second, more pertinently, I would, for the record, except low hundreds of millions of dollars for the Stratechery Plus Family Podcast. I would certainly want the money in cash, not OpenAI stock. Okay. Indeed, this deal makes that distinction all the more important because I honestly don't know what in the world OpenAI is doing here. This isn't a deal that is going to make or break OpenAI's fortune. The company just raised$122 billion. And it's not like TBPN is going to be using up scarce compute. Rather, it's simply a deal that makes no sense. And when you put it in such basic terms, it makes you consider how many things OpenAI has done over the last few years that make no sense.

56:20Michael Batnick:And here's the coup de grace. If Twitter is a clown car that fell into a gold mine, that's what Zuckerberg famously called Twitter, OpenAI might be the short bus at the end of the rainbow. There's supposed to be a pot of gold there, but it never quite seems to materialize. The colors are fading. And worst of all, there just isn't much evidence that anyone knows what they are doing or that there is any sort of overarching plan. So Sam Altman was just featured big time in the New Yorker. There's just so much smoke. There's so many weird things going on at OpenAI. A lot of turnover.

56:51Downtown Josh Brown:But we don't actually know what the dollar figure paid for this podcast is. We don't really know.

56:57Michael Batnick:Let's assume it's$100 million, 50-50 stock in cash.

57:00Downtown Josh Brown:Okay, fine. So they wrote a$50 million check. What is that? Like an AI engineer's salary for 12 months? Who gives a shit?

57:09Michael Batnick:But to Ben's point, why are they doing this?

57:10Downtown Josh Brown:Look, with their pay... Well, so I have a good answer for that. I don't know Ben personally. I'm a big fan of Stratechery, as most people are. He's a terrific writer. But whenever somebody gets bought out that's in roughly the same lane, there's always a little bit of professional jealousy. Of course. Or even if you look down on that show, if you're Ben and you're like, my content's better than theirs, they just happen to do a daily live stream, how long could they keep doing that for? Will the audience keep showing up for that? Once they're owned by OpenAI, is it just going to become a chat GPT cheerleader show?

57:48Downtown Josh Brown:Blah, blah, blah, blah, blah. What did they really buy? What if the two partners on screen, one of them hates the other one? Et cetera, et cetera, et cetera. Okay, but a lot of that boils down to like, why didn't they buy me out? Why did they buy us? That was my first reaction. Why did they buy the compound? What are your thoughts that would be perfect for Open AI? My life's ambition is to go work for Sam Altman. So now I'm going to tell you something. I don't watch that show. I've seen it. It's not for us. It's not for us. It filled a hole perfectly. We have CNBC. We're investors. We're traders.

58:23Downtown Josh Brown:we're professional financial advisors, asset managers, we have the daily go-to, all right, these people are speaking my language. And it's, you know where it is. It's all day. If you don't have cable, now you have the clips on YouTube. You're comfortable with it. You know the people, you know the voices, you know the structure, the format of the shows. It just works. Where do you get that? If you're in tech, it's all in podcast. You have to listen to those guys or you're a sit on Twitter all day, which sucks. It's the most soul-sucking, miserable, depressing environment that exists. Where do you actually get daily tech market commentary that's not Wall Street?

59:07Downtown Josh Brown:So it was a great idea they had. They made it look like CNBC.

59:11Michael Batnick:They have like techers? They have something at the bottom of the screen, yeah.

59:14Downtown Josh Brown:And they won. But if I were a competing tech creator, whether I had a podcast or a blog, I would be pissed. But the question is, what did OpenAI buy?

59:25Michael Batnick:Because these people, these guys were very, no, I know.

59:27Downtown Josh Brown:They bought a PR machine. They bought an outlet.

59:29Michael Batnick:But they're not going to do that. Like the whole point, I think. Oh, yeah, right.

59:33Downtown Josh Brown:You don't believe, I mean. Sam gets mad because the guy at New Yorker Magazine shreds his whole life, spends 11 months investigating him and makes him look like a scumbag. You don't think he wants to have his own PR outlet with a million people watching where he gets to tell his side? Sure. Everything is content now. Everything is media. There is no business. It's not a media business. Were they going to build their own? You can imagine the personalities there?

1:00:02Michael Batnick:But it's still weird because these guys ostensibly, see I said it, are still going to produce the same content that they do on a daily basis. They'll talk tech. What does this do for OpenAI?

1:00:11Downtown Josh Brown:I think Sam gets to jump in the seat. I think Sam gets to put friends of the company. Whatever.

1:00:19Michael Batnick:How about this? How about this? It doesn't even matter. The fact is this cements - It does matter and you're wrong. No, it doesn't. It does matter and you're wrong and I'll tell you why. Everybody had the same reaction is what are they doing?

1:00:29Downtown Josh Brown:Because they don't know what I know. Oh, yeah. You know a lot more than Ben Thompson. When was OpenAI's worst moment in the last two years? We know. When Sam was on the podcast. When Sam was on a podcast that he doesn't control. Now, why was he on that show? Because he had things that he wanted. Silicon Valley and big tech and politicians and everyone paying attention. He needed a forum to say certain things and that was the forum that was available. Sorry, that was the forum that was available to him. Now that's no longer the case. If he owns his own media, he has his own way now of getting out the open AI message that he wants to get out.

1:01:15Downtown Josh Brown:I'm not saying he's going to turn the show into an infomercial. I'm saying if and when he has news to communicate. They're going public this year. Fine. That's what he's doing. Ask the question. What are they doing? That's what they're doing.

1:01:28Michael Batnick:Be that as it may, let's assume that he will hop on the show from time to time to promote the company. The knee-jerk reaction that everybody watching was, oh, my God, this makes no sense. What other bigger decisions are they making that also make no sense? I agree with you

1:01:45Downtown Josh Brown:That was the reaction My reaction is different My reaction is Oh look Another moron Just like Elon Musk Was a moron Who somehow has a company Worth a trillion dollars Before it even goes Look at this idiot What in the world Is he doing This moron Who has A trillion dollar business Okay

1:02:04Michael Batnick:You might be right

1:02:04Downtown Josh Brown:Who has partnerships With Nvidia Amazon Microsoft What's this R word Doing now

1:02:10Michael Batnick:You might be right That's my reaction I'm going to make the case for biotech stocks. Let's do it. Remember how shitty healthcare was acting all of last year? And then I don't know the story. I'm sure you do, but they're working. So first chart is XBI. This is the equal weighted version. The next chart is IBB. This is the cap weighted version. The IBB has already done a lot better.

1:02:33Downtown Josh Brown:This looks great.

1:02:34Michael Batnick:All right. But then I divided one by the other and I think I like the XBI more. This is XBI divided by IBB. Seems like there's room to run there. not that you have to pick one versus the other maybe you do both maybe do neither but xbi looks very good very very can i ask you can you put that last chart up

1:02:50Downtown Josh Brown:if you um no i guess i guess just give me the total return level on uh xbi if you wanted to handicap this by a fundamental to say that spike in 2021 was more speculative than this spike what fundamental would you would you use ebitda oh i don't even know how these things valued, honestly. Well, they're not valued on earnings because, but cashflow, I guess on the XBI, this would be less important. Maybe on the IBB, you might want to know some valuation metric, but it doesn't, maybe it's price to sales.

1:03:25Michael Batnick:I couldn't tell you the first thing.

1:03:26Downtown Josh Brown:But my point is like to feel good about buying it at the same level it peaked at in 21, you'd probably want to know one more metric about the fundamentals today versus then. And I think if you did a priced sales, which I'm sure you could do in two seconds, it's way cheaper today than it was in 2021.

1:03:47Michael Batnick:Fine. All of that aside, this thing is acting great technically. Yeah, I think you're going to be right on this. It's consolidating. 130 looks like the trigger on the upside. It looks really good.

1:03:56Downtown Josh Brown:We have a bunch of biotechs in our best stocks in the market list, Sean and I. And there are some really good charts in there. So I like the call. Let's do mystery chart, and then we'll bounce out of here.

1:04:07Michael Batnick:What do you got? All right.

1:04:11Downtown Josh Brown:I won't even give you a hint then.

1:04:16Michael Batnick:Are you joking? I'm joking.

1:04:18Downtown Josh Brown:All right. It's an individual stock and you are involved. Look at you. You're really good at this. How did you know?

1:04:27Michael Batnick:Because I look at Netflix's chart every day. I don't own it anymore, but I'm thinking about buying it again.

1:04:31Downtown Josh Brown:All right. Before we move on to the next chart, I'll put that back. What do you make of this?

1:04:37Michael Batnick:It's acting very well I think it's about to explode It's acting very well

1:04:40Downtown Josh Brown:I think 120 is the next resistance I think you make an easy 10, 11 points right now If and when it gets above 100 And stays there Is there anything stopping it from getting back to 120 Which is where it was trading before They announced the Warner Brothers deal That is no longer going to happen

1:04:57Michael Batnick:Speaking of fundamentals, this company is dripping Forget about the one-time cash infusion They just raised prices, nobody's going to blink Stock is acting lovely Relative strength Looks great

1:05:07Downtown Josh Brown:They have every live sporting event you want Including new ones that I didn't even know existed They're involved with every league You got another chart? Well let's do So So basically I'm just showing you The stock versus the earnings This trailing 12 months Fully diluted earnings per share This thing is a screecher to me So I own some I don't own enough of it I think I have one more This is the technical So JC would have yelled at me For asking you the technical read on the price chart Look at this So where does the stop go? Held the gap Say it for everyone who's watching 90 The most obvious in the world You risk 9 points to make 20 points Is this one of the biggest No brainers in the market right now?

1:05:57Downtown Josh Brown:It looks very good On a risk reward basis right? Let's wrap up Guys, thank you so much for watching. Thank you for listening. We love you. We appreciate you. And I want to let you know tomorrow is Wednesday, which means an all-new edition of my favorite show, Animal Spirits with Ben Carlson and Michael Batnick. Later on, we'll do Ask the Compound with Duncan and Ben. And then Michael will return with an all-new edition of The Compound and Friends on Friday. And he's got some great guests, and you're going to love the show. Thank you guys again. We'll talk to you soon.

1:06:42Michael Batnick:Ritholtz Wealth Management is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Ritholtz Wealth Management and its representatives are properly licensed or exempt from licensure. Nothing on this podcast should be construed as and may not be used in connection with an offer to sell or solicitation of an offer to buy or hold an interest in any security or investment product. Past performance is no guarantee of future results. Investing involves risk and possible loss of principal capital. No advice may be rendered by Ritholtz Wealth Management unless a client service agreement is in place.