Tom Lee to the Rescue

28:15Okay. It's cumulative, you're saying. Yeah. It's kind of the same thing like when these economic surveys are done. Sometimes they're done like by – finished by Wednesday or Friday. And then so you actually get some weird differences because of what's happened in those three, four days. Okay. So go ahead. Finish with that. But I remember in a pirate podcast, we talked about how people's timeframes have changed. Yeah. Maybe because like maybe the world's more short-term focused. But, you know, with instant liquidity, I think that's why people can go from bull to bear because they can act with a push button now.

28:49Yeah. Instead of calling their broker and getting talked out of it, they just… They could put on a hedge with one ETF. They don't have to figure out an options trade. They don't, right? They can instantly decide, you know what? I don't like the looks of this. I'm adding, you know, double negative SPY ETF for like 10 % hedge against my portfolio. Yeah, and institutional world is the same way. So Tom, last thing on some of the trade stuff before we get into the markets, which is what you love to talk about and so do we. All right, so three charts and then we'll move on. Mexico, China, and Canada are our three largest trade partners.

29:26Daniel, chart two, please. The three of them, again, Mexico, China, and Canada, by far the top three, they make up $1.3 trillion worth of imports. That's 42 % of all total. Next chart, please, Daniel. 42 % of all imports are from those three. And I was really surprised to see Joseph Politano had a great chart that showed imports spiked in January amid tariff years. So the fact that consumers are adjusting their behavior so quickly to tariffs, you can only imagine how quickly markets are going to react to potential tariffs. And we're seeing that already. Does this chart surprise you? I don't think that's consumers.

30:05I think that's producers pulling an inventory as quickly as they can to get ahead of the tariffs. Start piling. Okay. Yeah. You're right. That's what I think. It says consumers and businesses rush to buy goods. You're right. Yeah, I'm sure. I think that's mostly business. Here's where it hits home. Like just like a weird example, but this is from my actual life. Where are we doing the outside of our home and we're doing real cedar shingles? I live in a world of aluminum siding and I can't stand it anymore. So the product's coming from Canada. We priced it out. Our builder is like, this is like literally the best version of cedar shingles.

30:43This is where we're going to get it from. This is what it costs. Okay. I don't know if we ordered it or not. and I don't think my contractor is like watching the State of the Union or anything. So I actually don't know now what this project is going to cost. And this is to wrap around the entire house. Like that's going to make a material difference. Had I really thought a lot about it, I might've called him up and said, place the order. So now I'm not saying I'm not going to do it because I still have to go home and live with my wife at night. So we're still going to go forward, probably no matter what it costs.

31:15But I know there's going to be a difference. I don't think there's a carve out for shingles. So like, that's an example, but we're consumers. I think that spike that Michael just showed, I think that's people getting ahead of this, knowing they have to buy stuff and just buying it. Yeah, that's, it's going to be a PPI. Yeah. You know, category. Okay. Do you think that of all the opportunities being created by this trade stuff, that the obvious, the obvious thing to do is to let everything sell off and then look for the companies that are probably going to be least impacted by tariffs over the next quarter, and maybe that's a trade idea?

31:53Or has that been so picked over by AIs and portfolio managers that there's probably nothing there? What would you guess? If someone's going defensive now, they have to be betting not just that it's two months of tariffs, but that this is a new regime. Okay. Because exactly what you said, it would have already been discounted because the bond market would have has been picking this up. And then the stock market is reacting, I think, shockingly badly, but it already gave us the ripple hints in February. So let me push back against it a little bit. The S &P is down 6.5 % off its highs. The Nasdaq is down almost 10%.

32:34The VIX is... 25. I mean, this is like a sell-off for ants. Yeah, it's an orderly... Right? This feels pretty normal and pretty— I mean, the average stock bespoke tweeted, the average stock is down 30%. So there are plenty of— From what? From an all-time high? Yeah. So there's plenty of stocks that are getting absolutely mauled. I know the S &P doesn't tell the entire story, but I don't know. It feels like a little bit early to be like, that's it. We're done. We're good. Yeah. Although if— You know, the chart you showed about imports, it kind of highlights that we've already front-loaded the tariff war because it's China, Mexico, Canada.

33:11And then everybody else is like smaller fry. Right. Do you think that there's a universe where there's a one-off deal with Mexico, then there's a one-off deal with Canada, the China thing stays on, and the market just kind of reacts to, all right, this is the new, this is the way the year is going to go? Or you think that the tariffs are just like, we're doing it now, then they all come off and we just stop this en masse? Yeah. Like, what do you think is more likely? Yeah. I mean, I know China's tweet or comment today is what sort of made the futures weak in the morning. Yeah. Which was what? We're ready to go to war?

33:52Yeah, we're going to dig in on this. Yeah. But I think, as you know, the problem is in China isn't in the same position as it was in 2018. So it's not as if they can fight a long economic battle here, especially because of all the things they're trying to accomplish in China itself. So I think, of course, a lot of that is gamesmanship. And the intention is, if I was trying to, I would say that because I'd want the S &P to fall more. Because if the S &P falls enough, then the White House put comes back. So it's, you know, I mean, the stock market is kind of caught in the crosshairs right now. I assume you don't see a bear market coming, like a full-fledged 20 percenter.

34:29Like, it's possible because it's been a couple years. but this would have to be because there has to be a layered shock on top of this. Like, for instance, if somehow the Fed decides that the economy's weakening, but they choose to fight inflation and let a recession happen. So in other words, the idea is, well, we've been wanting a recession to kill inflation. Like, let's just let it happen. Then, of course, we're going to have a big drawdown. But that would really require a Fed that decided the employment mandate wasn't important because, you know, a recession, we just, like, once a recession starts, there's no such thing as, like, we can engineer a mild recession.

35:10I mean, it's like, you could have a severe recession because you just don't know. You did too much damage, and now things, like, it starts to feed on itself. Yeah. We're doing fiscal austerity at the federal level at the same time we're going to do this trade war. So that's, maybe that fits into that category of the shock that you're talking about. And if prices go up on top of all this and we've got stagflation, then yeah, sure, we'll have a 20 % bear market for sure. Yeah. So, I mean, you can see why people want to maybe start to be nervous and price it in. In 18, by the end of February, the stock market was down, I think, 17%.

35:51And it happened really fast, just like this time. And people at that time were saying it's orderly. And they were right. It was. We bounced all the way back to the prior high. but then we got stuck there. The tariff thing was like sort of cooling off, but then we had another problem. I think we just kind of had this air pocket where corporate earnings weren't great. Yeah. Had a manufacturing recession for sure. And then by Christmas Eve, we were in another 20 % drawdown. And the thing that pulled us out of it was Powell's about face. I think he gave a speech on Christmas Eve and he said, just kidding about the nowhere near normal thing.

36:29and then in the first quarter of 19, we were already cutting. We were already, so there was some of that going on and so having like those two, call it almost 20 % corrections inside of one year, that's pretty rare, but we did. We lived through it. Yeah, and that was a first-term president that didn't have necessarily the administration he wanted to have with him because remember there was so much turmoil and it was a newly minted Fed chair. So today, we have an experienced administration and a very experienced Fed. Okay. So would the Fed even want to dabble with a bear market that could trigger recession?

37:09I'm going to just say even if there's partisan issues involved, right, because you've seen – I do think there's a partisan element to maybe some of the Fed talk. This would be – it would really blemish the history of the Fed. It would blemish the legacy of the Fed. You mentioned Treasury Secretary Besant. Have you met him? Have you ever spoken with him? No, I have not. Okay. What's your impression of the things he's saying about – he's saying we're more focused on bringing down the yield of the 10-year, which like obviously the Fed – what the Fed does, they're trying to enact policy that will affect overnight rates, which there's a limit to what that will do to intermediate-term rates and long-term rates.

37:55but it's like, that's what the Fed does. Besant talking explicitly about lowering the 10-year, how does that strike you? We haven't really heard, Janet Yellen didn't do that kind of thing or didn't talk about that kind of thing. How did that kind of talk strike you? What's your impression? Well, I mean, from a couple hats, I can see where it makes sense. Like if I looked at it from the economy and what would heal the economy and someone said, would higher stock prices heal it or would getting mortgage rates down matter more, and you've talked about this, that's really important because that is going to help housing, cost of money, and it really benefits a big swath of consumers.

38:35And we already know there's a lot of stress because of the high cost of installment debt, et cetera. Here's my stupid question. Hypothetically, this works in the 10-year treasury falls. Mortgage rates come down meaningfully. Doesn't that just raise home prices or what am I missing? What does that heal? so people are paying a higher price for their home? It'll lower their monthly payment. It'll make payments affordable again. Yeah, it unlocks liquidity. Because I think there is - That part I agree with. Yeah. If people can move again, I think it's good. But prices are not going to - Home prices are not going to come down.

39:08Prices won't fall. Right. Yeah. I mean, home prices are doing weird things anyways. Like the Northeast, they're still going up, but there's a huge surplus in Florida. So the real discovered price is much lower because no one's transacting. I mean, in a way, home prices could fall because you'd actually start to see real trades happen. And so maybe home prices - There'd still be so much more demand than supply, even if supply gets unlocked. Chartkin, Matt, made a chart that I could just, I smelled it was a timely special. And of course, all credit to you, this is a timely special. It's the VIX one-month contract above the four-month, which in recent memory has marked a bottom.

39:46Daniel, let's just chart 6B, please. Too early to say? What do we think? Wait, wait, can you explain this? Tom, why don't you narrate this? Yes. So, it's going to take a minute or two. The VIX— We got time. Yeah. We got time. Most of us think of the VIX as a spot index. Like, oh, this is—it's measuring the expected volatility over the next 90 days. So, that's what the spot VIX is. But it's actually a financial product. And people trade VIX contracts, but nobody trades spot VIX. They trade the one-month VIX, two months, nine months. I think there's even 24-month VIX. Right. The normal VIX futures curve is upward sloping, which they call…

40:29Either contangular or backwardation. And I always get the terms mixed up. It's like starboard and port. I'll get it wrong. So it's upward sloping. Okay. Because there's time value. Like, oh, future VIX should be higher because you've got time value money. When the VIX does the opposite, so the one-month contract is higher than the four-month… Meaning a 20 VIX four months from now, but a 25 VIX today. Yeah. So that's intuitive. That's backwardation. Yeah. So that inversion is what the bottom histogram chart shows. So when it's like pointing up, that means the one month is higher than the four months.

41:07What does that mean to you though? How do you interpret that? That's a short-term bottom? Well, it means, yeah. So what the markets have now priced in is that the volatility has an expiration date. Oh, okay. Got it, right. Because now you know it's going to be within the next three months. So now you can see through to the worst. You can see past the worst of the near-term volatility. Yeah. And that could be a signal that it's time to buy stocks. Yeah. So if you have a timeframe beyond that contract, then you're like, oh, well, volatility is going to be lower in four months. And we all know if vol is down, risk goes up.

41:38So four months from now, volatility is down, risk is on. So this chart goes back to January of 23 and correctly points out these were inflection point moments, where the market got too negative and this VIX contract flipped itself to where all the volatility was supposed to be short-term and then the longer-term volatility was cooling off. Yeah. And those were great moments to buy stocks. Yeah. What is this telling you today? I think that this is like, we're sequencing a picture that panic is approaching. Okay. But the panic is, of course, that the spot VIX needs to now spike to a level because people are seeking instant protection, right?

42:21So 30, 40 VIX, that hasn't happened yet. But if that's happened and this has already happened, then it's already like you have the hair trigger pull. So for your clients, and I'm sure the answer is it depends, would you be likely to advise them to seek opportunities on the way down or to sort of wait for a clear, definable hammer sort of bottom? Well, if someone was really good tactically timing, then nobody wants to buy on the way down. But I've never been able to say on this precise date, you'll have enough liquidity to buy at the low. Because what usually happens is the low is established, the market's rallying, but it's already retraced 50 % of the decline.

43:05You don't know it's the low until a week later. The longer it goes, the lower it goes without them pulling the trigger, the more likely they're going to not pull the trigger because if we go lower, it gets scarier. Yeah, it gets to become a buyer strike. Right, exactly. I don't, I mean, I might sound naive. I think a 35 VIX over tariffs, I think you just close your eyes and buy the index. Is that like naive to think that that's just going to work so easily? Yeah, I agree. Because I think we do have to be mindful. There are three puts out there. There's the Fed put. Okay. And the Fed doesn't want a 35 VIX.

43:36The White House put, the 35 VIX also risks financial instability and things going haywire. 35 VIX would normally be accompanied by like spreads blowing out in the bond market. We're not seeing that yet. Yeah, and there could be somebody, some like financial bodies floating up. You know what I mean? Like it might kill somebody. What's the third put? White House put. It's a sovereign wealth put. Oh, sovereign wealth put. Tell us about that. Because we already saw progress. They named a Morgan Stanley banker to be the head of the sovereign wealth fund. Grimes. Yes. You know that guy? I do not know him.

44:09Okay. but let's say it's a$7 trillion sovereign wealth fund. This is an American sovereign wealth fund. Where does the$7 trillion come from? I think that that's a floated around number. But it's like, what is it? It's Fort Knox? Just here, you trade this? I'm trying to understand where the money for that comes from. Oh, well, I think it would probably be the issuance of a debt security. So it's a funded - So more debt. Yes. Okay. Oh my God. It sounds somewhat abnormal to be running 7 % deficit and then build a sovereign wealth fund that's also funded by more than that. Who's managing it? Yeah.

44:46His name is Grimes. Michael? David? I don't know. Quentin? Quentin Grimes. But remember, there could be – remember the Treasury during GFC had the TALF and all these like multipliers? Yeah, those were basically sovereign wealth funds. So what if it's$7.5 trillion plus private is another, you know, BlackRock's another$30 trillion of it. Then this is like, you can buy the entire stock market. But what are they doing with it? Buying our bags, duh. They're buying stocks? Is that the purpose? Or are they investing in startups? I mean, Panama Canal, you know, they buy Greenland. Panama Canal. Oh. All right.

45:24Right. You mean like you could buy a lot. All right. Let me just understand this. You could buy a large chunk of the world. The number that's floating around is$7 trillion. dollars. There's a banker from Morgan Stanley who has a$7 trillion bank account effectively where he uses that and buys the Panama Canal. Well, to advance American interest. It sounds bullish. All right. Got it. I guess I mean, you could take Nvidia in-house, right? Absolutely. Let's do it. Take it private for sure. But just thinking out loud, like Saudi Arabia, Qatar, these places need sovereign Malaysia. They need sovereign wealth funds.

46:00Yeah, they're gushing cash. Right. It's a one industry country and they want to develop real estate and they want to build their own middle classes and they want to make investments that diversify the economy so that they don't all have Dutch disease. They don't all have like this resource curse. Okay. Makes perfect sense. They'll all be really big LPs in the American sovereign wealth fund. So they'll get to invest in our sovereign wealth fund. As a sidecar, side pocket. I'm kind of theorizing, but you know what I mean? Yeah, something tells me there's going to be a Trump hotel and casino in every country in the world is going to be the net result of this.

46:35All right. So that's a put. The White House put, you said, is not really a thing or at least not yet, but it will be? Yeah, I think it will because if the economy slips into a recession, you can't have doge, tariffs, and fiscal austerity. So it unwinds literally everything. This is the sixth day in a row. This is from Dietrich. It's the sixth day in a row on Thursday that the market is going to be up or down 1%. Sixth day in a row. It hasn't happened since November 2020. And you're starting to see some signs of early panic. Next chart, please, Daniel. This is from JP Morgan via Jessica Menton.

47:12In the first hour of trading, now this was yesterday, in the first hour of trading, the so-called retail investors yanked$1.2 billion out of the U.S. equity market, the largest pullback during that time period since JP Morgan's data began a decade ago. That's meaningful. So in other words, yesterday at the open, people said, get me the f*** out. They dumped stocks. Additionally, this is from Ned Davis. Their daily trading sentiment composite is down to 20, which I don't know what's in here exactly, but that's extreme pessimism. So it's this weird sort of dynamic where we're not that off the highs, but the news is so newsy and noisy that people are freaked out.

47:54Can I add one more thing to that? We just hit, I don't know if it's an all-time record, but we just hit a fairly high level of people tapping their 401ks early. And that seems like it's of a piece with people yanking money out of the equity market. Say that one more time. We hit a level. I think Meb shared this. I'm not sure exactly what the number represents, but it's an extreme in people tapping their 401k. Well, that's not good. Either borrowing against it or outright making early withdrawals. That's not good. I'll look into it. That's more economic than the stock market, but we also had the put-call ratio spike yesterday.

48:32Yeah. So there's fear. I don't know if it's a bottom fear, but a trade, but it's - And I'm sure the depth of market, like this market is super thin. Now, if someone sells, you're going to just see comets falling out of the sky. Like on specific stocks. But do you think that sentiment shift and the stuff that Michael just showed you with like outflows, do you think that that stuff is at all connected with not just tariffs but like people working for the federal government? People work at companies that are contractors for the federal government? So not just public sector employees but private sector employees whose companies' fortunes are tied to how much money the federal government spends.

49:12Because we talk to people in the D.C. area. there's like legitimate concern in not just in DC, but like anywhere that people do business with the government, that that revenue is not going to show up. So do you think that a component of this is not just about tariffs, but it's about people actually worrying about their survival? Yeah, like there's a real soft patch coming. Well, 70 ,000 buyouts of federal employees and talk about laying off, they're going to lay off 7 ,000 people from the Social Security Administration They're laying off IRS agents. That's nationwide. That's not just in DC. So I think there's some component of people pulling money out because literally they don't know if they're going to have to live off of it.

49:54And that's why I like real estate listings where there is a lot of federal employment, whether it's Arizona or Arlington, Virginia. So that's not tariffs. That's this fiscal austerity. That's a whole other thing. Consumer spending got crushed in savings. Not skyrocketed, but savings was up big times. People are bracing for impact. Yes. Now, that's a... I might actually say if the federal government is reducing its spending and it does create this collateral damage, that's actually good for the economy because we know that that has crowded out private sector spending, right? The government crowds out the private sector.

50:27So that's actually a positive that this is being redistributed in that way, the spending. Yeah, but it's ugly in the short term. Yeah, because it creates distortions. Well, arguably you're going to see one in the next employment report or the one after that. Yeah. because it's thousands of people. Like it's not a small number. Yeah, jobless claims in Washington, D.C. have quadrupled. Yeah. Okay. So there's a component to this that's beyond just tariffs. It's uncertainty about employment. Yes. And that's what's creeping in. And that could feed on itself. And by the way, that's why it's hard to say, how could this be inflationary?

51:00Because if people say wages create the second wave of inflation, but we have a softer job. I don't think it's inflationary at all. And I disagree. There might be some commodities where there's a dislocation and it's short-term inflationary, but I don't think government austerity is inflationary. Yeah. I just – I don't see it that way. That's right. Okay. And I don't know if you guys track trueflation, which I've kind of found is actually pretty decent. Okay. That's now at 1.4 % year over year. That's what they think is the current rate of inflation. Yeah, using like 2 million consumer items. And then they map it to the BLS category.

51:37One more thing on economic data then, since you brought that up. One of the charts that went around this week, including me spreading it, but like a lot of people were sharing that GDP Now chart. And I know there's some funkiness about the turnover from January to February with some of the data. Let's not take this as an actual forecast, but that's a pretty extreme drop. We went from a 2.8 % GDP Now reading from the Atlanta Fed to negative four. Outside of the pandemic, can you recall a drop-off of that magnitude? Even if there are all these nuanced reasons for why it's data-related and not, or it's a quirk of how they collect the data, it still seems extreme.

52:19Yeah, it's big. I mean, it does paint a picture that economic momentum has slowed. Or the brakes have slammed on, it looks like to me. That's right. At a time when we know even businesses are saying that they've gotten cautious because they don't know what to do with tariffs. So that's why if you look at the markets, they're pricing in a growth slowdown from tariffs, not inflation. And so the Fed, I think the White House wants the Fed to kind of get off neutral. And I think it's increasing, looking like the Fed is behind actually. So if they really want the 10-year treasury to fall, the yields, keep going.

52:58Yeah. Because that yield is not pricing in inflation anymore. Now it's pricing in a recession. Yeah. Or starting to. That's right. And the only difference is nobody wants to even get within, you know, 10 yards a touchdown of stall speed. Because it's just too easy to slip into a recession. Okay. Can we do this one, Mag7? Or what do you have queued up? Tom, what are your thoughts on the Mag7? Some are getting hit harder than others. But, I mean, Tesla's getting destroyed. So this is, for the people listening, Mag7 performance year to date. The only green one is Meta, up 8%. It was up a lot more.

53:40Microsoft, negative 6. Apple, negative 6. Alphabet, negative 8. Amazon, negative 8. NVIDIA, negative 17. I think it's more now. Well, if you anchor them to their highs, it's obviously significantly worse than this. Tesla, negative 35, which is a really big deal. What's your take on some of the damage here in these companies? None of which are manufacturing autos other than Tesla. Yeah. I mean, if anyone had owned these before 2024, then they're still sitting on huge gains. Okay. So, you know, it's really any new buyers of these are down, but that's really, you know, that'd be like shame on you because you bought it near the top.

54:20You bought the highs. Yeah. Okay. But I mean, like I look at this and I'd say, you know what? I think Tesla and NVIDIA, they've been hit the hardest. Do I think that their future trajectory is worse? I actually think that they still look like great companies. And it's not like, in Tesla's case, it's not like their competitive position has worsened. It's probably strengthening. Tesla's competitive position relative to other EV companies. Yeah, and their leadership in, let's say that there's, like, if you ask a technologist, what's the next big thing? It's going to say robots. Tesla's, you know, country mile ahead of a lot of people on robots.

54:56So it's not like being down 35 % has changed your competitive position. If you had to make a guess, if an announcement came out tonight, Elon stepping away from the government, like, I've done everything that I set out to do. I'm going to leave my team in place. I'm going to go back to focusing on Tesla. Does Tesla stock go up or down on that news? Well, here's why. Wait, let me tell you why I'm asking you the question. the stock had a massive rally when trump won the election and elon was at the inauguration and it was there was just this assumption that like him having that proximity to the white house was going to be amazing for tesla that narrative shifted in the last 10 days to elon is either distracted or destroying the standing of tesla in the eyes of half the country and most of the world So I'm curious what you think.

55:53And I'm not saying I predict that's going to happen. But if that happens, he says, I'm all set. We did everything and I'm good. I'm coming back to Tesla. Does the stock rally because he's not distracted anymore? Or does it sell off because he's not in Trump's good graces? What do you think would be the reaction? I'm going to just imagine why this is happening. Okay. So let's say he steps aside because Doge found the$2 trillion or a trillion. So he's like - We did it. Yeah, we unleashed the algorithm. And so he's going back to Tesla. Right. I could picture this, by the way. Now he can profit from his time in the government.

56:30Okay. He couldn't profit while he was here to help Tesla. Now he goes back to Tesla. Tesla becomes like the official vehicle for like everything the government does. Yeah. Tesla probably goes. 20%. Yeah. I mean, it's in a huge drawdown. So it wouldn't be that much of a surprise if it did that. Yeah. What do you think? Yeah, I agree. I think it would rally pretty hard. Hey, we should have started the show with this, but is the bull market over? Yeah, by the way. Yeah. Is the bull market over? No. You don't think so? You know, the bull market, I would be surprised if it's over. So I shouldn't say no like I know because I don't know.

57:10I'm sorry. But I'd say the probabilities are very remote because if you look at all bull market top, major tops, before a 40 % drawdown, since 1900, all of them could have been predicted with a 40-year lead time based on births and integration deaths. So that demography thing is still in force no matter what they do to try to mess it up. Yeah, that's right. Because if you cut the population by just 20-year intervals and you mark the peak of each cohort, it marked the 1927, 29 top, the 74 top, the 99 top, 2018 top. And the next major top shouldn't be until 2030. So you're not talking about the cyclical bull.

57:54What was the year? 2038. All right. I feel bad enough. But you're not talking about the cyclical bull market then. You're talking about like the 09 run up until now. Yeah. So a major, like the kind that could unwind the entire bull market. All right. So we have more than a decade. I feel better now. So we're okay. There's also some seasonal stuff going on that I think you'll find interesting, Tom. This is from All Star Charts. I think this is Grant's work. Year one of a bull market, obviously, up and to the right. Year two of a bull market, by definition, up and to the right. Year three tends to be pretty disgusting.

58:26Which is where we are now. Yeah. Yeah, this is, I've seen this chart. And I'd say I don't necessarily have problems with how this is constructed. That being said, no? I thought you were about to fillet it. Oh, yeah, but I can say— It's an amalgam of many bull markets. But the one thing I'd say is that there's wide distributions in year three. So there's actually plenty of 20 % years. Okay. So it's not like—because this chart makes it look like you're only going to be 5 % and you hover. It doesn't show all of the distributions. Yeah, so this is a—because as wide the distributions are, But year three also reflects bull markets and then you have a huge decline.

59:07True. Very unscientific. Year one, we had an underwhelming start to the bull market. And some would argue it was only seven stocks going up. And that's partly true. Year two, we far, that's last year, far outperformed what the average bull market. And then this year, and again, I understand. But still, like we're kind of really perfectly tracking what the history has been. Being chopped to shit. Yeah, he must be doing like non-calendar because like 35%, he has 35 % in year two. They're not calendar people. Hey, you have a chart that shows, so this is now year three, as we're talking about, year three of a bull market.

59:46We had 20 % two years ago. We had 20 % last year. And you have a chart, much better than this All-Star Charts chart. You have a chart showing that the second half after a back-to-back 20 % year tends to be pretty lousy. Yes. What are we looking at here? This is all years that had two consecutive 20 % years preceding it. So that's like that first vertical line says year zero. And then we're just saying, what does that 12 months later look like? And as you can see, you might be okay in the first half, but the second half is usually tougher. Sorry, is that 1880? I saw that too. Yeah. Is that like Yellowstone?

1:00:23Tom was digging deep. Okay. So this is not - We were like still shooting pistols. We're not following that. We're not tracking. So this is not wildly out of character for what typically happens after you've had a big run in stocks. Yes. The reason why I believe in this stuff is because it's just human behavior. Like the variables in all these years are different. Tax rates are different. Inflation regimes are different. Republican president, Democrat president. Like all that stuff is interchangeable. But the mood, the component of this that's not is how people trade. Yeah, because it's eventually— It's fear and greed.

1:01:02We know good news gets priced in, and it's hard to determine. But then you know after a certain amount of time, people might get complacent or whatever you'd call it. Okay. What's this one? Are we doing this? Yeah, we could skip that one. Tom, you were bullish earlier. I don't know if you still are about small caps. And I think one of the reasons why we have your chart is that the S &P is driven largely by tech stocks. But the Russell 2000 has much more exposure to rate-sensitive industries. So is the thinking that if the economy weakens and rates go down, that the Russell would maybe go down less in the market?

1:01:35Or do you think that it would outperform in a bull market? What's your thinking here? I don't think if there's a recession, small caps outperform. So like on that downside, I don't think it's protected. But if we look at the composition here, I actually am surprised it's done so poorly. Because, for instance, health care is the best performing sector year to date. and you can see healthcare is a bigger weight in small caps. Financials have done well year to date. It's a bigger weight in small caps. Industrials have outperformed year to date and it's a bigger weight. You have less exposure to tech.

1:02:10So what's weighing the small caps down this year? I think it's the push button because - Just people saying sell small caps. It's higher beta. Yeah, so they're derating. They got cheaper. Okay. Oh wow, small caps are down 15 % in a 50 % draw then. I didn't realize that. Yeah. So it's not like someone's doing relative value. They're selling the ETF. They're selling IWM. They're selling IWM. It's like the first thing people sell. Yeah. It's like, oh, you're worried about the economy? Get that shit out of here. We're not going to need that. We'll buy it back later. Yeah. But as you know, what's working this year is like financials, industrials, healthcare.

1:02:41That's like a huge, that's already more than half of the Russell. So it should be a good index, but it's, and I think the individual stocks have been, but as an index, it's been, hasn't worked. All right. One fly in the ointment on the inflation side is if the Fed thinks they have to about face. This, like to me, if you ask me what's the biggest risk that people aren't as worried about now as maybe they should be, it's if the Fed says they're not tight enough. And the only thing in my mind that could drive that is not commodity prices from tariffs. I think it's like the labor shortage and the immigration story feeding into that.

1:03:19So I want to ask you, do you think this is inflationary? This is CBS News this week. The number of migrants crossing the U.S. southern border illegally in Trump's first full month in office plunged to a level not seen in at least 25 years. This is CBS News. Look at this. Border Patrol recorded 8 ,450 apprehensions of migrants who crossed into the country unlawfully. On some days during a record spike in illegal crossings under Biden, they had 8 ,000 apprehensions in a single day. So what was happening in one day under Biden is a full month under Trump. And of course, this is by design. This is what he promised the voters.

1:04:02This is what voters want. and he's actually carrying this out. But the point is, as we all know, some of the best areas in the economy in terms of their contribution to growth have been helped by migration, illegal and legal, leisure and hospitality, everything that feeds through to travel, the airlines business, hotels business. Like, unfortunately or unfortunately, migration is like what feeds that beast. And if we don't go into a recession, I could see a scenario where we start worrying about hoarding of employees again and people just not being able to get enough workers. And that was part of the inflationary spiral of the 2020 to 2023 era.

1:04:52Yeah. Do you worry about that? Do you think that's inflationary? I actually just have two counter perspectives. Okay. So first, I think it's definitely positive evidence that properly integrated my immigration works because that's Texas, right? Yeah. You know, they welcome immigrants. But the difference is that I think a lot of the border crossings have not led to productive employment. Because as you know, the employment rate of the migrant, the crossings is actually really low. Yeah. And so they're actually more of an institutional population. So the ratio, like if you look at hospitals or prisons, where someone's under care, one job is created to take care of like 10 institutionalized people.

1:05:41So we've actually created wage inflation because the migrants— Oh, that's interesting. Because you have to house them because you didn't construct facilities. You had to rent hotels. And you had to hire workers to actually manage all these people. And then you hire workers to deal with migrants who are not coming into the country and getting jobs. Yeah. And then you have to give them EBT cards. So it's actually all inflationary. Yeah. Italy shut their reduced their border crossings and had the same profile of not high, highly employed crossings and their economy is doing better. OK. And actually, they haven't.

1:06:16It's not led to inflation. It's actually led to actually improved growth. Okay, so this is not something that we need to worry about, stoking inflation, having less migration. I don't know how it's going to be implemented, but if ISIS just is not—they can't boot 20 million people, but if they're targeting criminal gangs and stuff, I think it's actually going to be positive social fabric. Well, I do too, and this is what the people voted for this time around. This was like a really big issue. Yeah, and for someone who thinks Trump doesn't like migrants or immigrants, all of his properties employ many people on— Shh, don't say that.

1:06:52So I think he knows— The mic's around. Yeah. All right. And he's a builder, so he's aware. Yeah, very well aware. Okay. Poly market, probability of a U.S. recession hits 38%. What do you do with this stuff? It was highly predictive of the U.S. presidential election. Do we throw it out when they try their hand at economics and not politics? Can someone pull up the dollar amounts for contracts for that? It's like$18. No, I don't know. But we know it's mostly overseas, the people who are doing these bets. But I don't know what the dollar amount is. Because if it's not involving millions, someone is just making fun bets.

1:07:30Can you find out like how much money is betting on recession? Yeah, usually on the website, it'll show you the total contract volume. What is this? Outstanding. I'm looking now. Keep going. Give me a minute. I'm not on this thing a lot. Okay. That's why like, you know, the elections, it was hundreds. Like there was actually a billion of open contracts. It was big money. So you knew it was real money. Okay, let's say this is a lot of money. What would your thoughts be about like the meaning in something like this? Let's say that gets to 50. Yeah. The White House is playing with fire and Fed's playing with fire.

1:08:02Okay. So you think people should be paying attention to this? If this is liquid, the Fed better be watching this. All right. I'm going to tell you right now before Michael finds the number, and we may not find it. I'm going to tell you, I doubt it's anywhere near as much money as was betting on the election. I just don't think people randomly are like, let me place a bet on US recession. I do think everybody wanted to place a bet on the presidential election. That's right. So let's assume this is not as liquid. And this looks so choppy. It looks like one trade swings this thing. These are not large bets.

1:08:33They're not, right? No. Yeah, I wouldn't bet that it is. Almost all of them are under 10 grand. What do you think about probability markets in general? I think it's You like fascinated by them? It's an experiment and I think it's super useful Okay, I agree I'm not sure how, but I could see it becoming Part of the toolkit of people that follow markets And the economy Okay We did the Let's talk about granny shots So you launched an ETF I told you not to do it But I only told you not to do it because I'm so protective of you What I said was is, oh shit, now he's going to have a quote unquote public track record that people are going to harass him about when the market goes down.

1:09:17But you didn't care. You're not afraid of what people think. And you plowed through and the thing was received pretty well. Dude, almost a billion dollars in assets and you kind of just launched it. That's incredible. It's amazing. Thank you. All right. So for people that haven't heard your previous appearances here and are unaware of the concept here. These are stocks that you think are like layups, basically. And granny shot like shooting a free throw underhanded like Rick Barry. Yeah, and you want to own it. You're not trading them. Yeah. So we're trying to find essentially what's equivalent of like, you know, like your idea of permanent stocks.

1:09:57But we do rotate it. But the reason we sort of have this idea is we have themes that span multiple decades. You know, cybersecurity, millennials, AI, Fed cycles. Okay, so your idea is that these are stocks that are enduring. The story behind them is bigger than the stock itself. Yeah, they're linked to generational ideas. Okay, I love that idea. But we only add a stock that appears in more than one theme. So you want to say like, hey, these are the stocks most linked to cybersecurity, but let's say that's 50 stocks. But then we want to say, is it linked to any of the other six themes? So it has to be appearing at least two themes because then we figured there's two legs to support why the stock will always work.

1:10:40So if one story goes away, it's still on there for a reason. Yeah, it's anchored. Does that mean that you wouldn't own a stock like CrowdStrike, which is purely in one theme? Well, CrowdStrike is actually a granny shop. AI and cybersecurity. Yes, that's right. You're good, Josh. Yeah. All right, so I have a million questions. How many holdings? There's 35 stocks. Is that static? It will always be 35? It's not a predetermined number, but it has always ended up averaging around 35. How close are you trying to get the initial position weighting to the other weightings? Are we trying to equal weight or not?

1:11:16Yes, it's quarterly rebalanced to equal weight. Okay. And it would have done better, as you would know, if we never rebalanced, because NVIDIA has been part of the granny shots list since 2019. But that's what you're telling people, I'm rebalanced. In hindsight, would you have done a semi-annual rather than a quarterly? Because you're going to throttle the best stocks, but you're also going to reduce volatility. So it's a, it's kind of a double-edged sword by rebalancing that frequently. Yeah. And it ends up being under a hundred percent annual turnover. Okay. So it's not like we're turning over the portfolio and the ETF has the tax efficiency because no No one's having to sit through capital gains through the rebalances.

1:11:57So that's advantageous. Okay. So it's 35 names right now. They're roughly equal weighted. And then during the course of the quarter, they're going to move around, of course. Yeah. So like, for example, your top 10 names, Progressive, Apple, Abbott, Garmin, S &P Global, Bank of New York Mellon, Costco, Palo Alto, Microsoft, Netflix. So you have MAG7 names in here, which makes sense. They probably addressed five themes. How does Progressive Corporation become the largest current weighting in the index? Part of that is just performance since the rebalance for Progressive. Insurance stocks are doing really well.

1:12:39Yeah. And Progressive is actually linked to a seasonal theme. So it is linked to the PMI. Like the power of Christmas? No, the PMI. So we look at like what is correlated to PMIs for this period. So that's like what we call a seasonal rotation. But Progressive is a millennial stock because – and when you look at who – like millennials will account for like 72 % of all the growth in financial services spending. Wow. So companies that are innovative are going to do really well because millennials essentially buy their – it's like a growth industry within financial services. Okay, so progressive is, of all the insurers, that's the one that best represents that theme.

1:13:24How do you decide that? How much of this is quantitative versus somebody really looking qualitatively at these companies? It's both. So we have a quantitative process. It's called DQM. So it is actually, it's the quantitative expression of - Yeah, the Dairy Queen metrics. Sure. Yeah, of all the work I did at J.P. Morgan, we built a single quantitative model. And so that is what runs to improve the quality breakdown. And then we do have a technical view from Mark. Okay. And then we, of course, look at the company, make sure it actually fits the theme. So we do, it's a multi-step process. Are there knockout factors?

1:14:03Like if one of these companies says, oh shit, we have to restate three quarters worth of earnings. Yeah. Will you guys immediately get out of it so that there's like this quality? Yeah. Yeah, so in theory, Supermicro, in the research version of the granny shots, it used to exist in it, and it was a very big performer, but then as soon as you know there was auditing and compliance, it couldn't qualify. So you guys will get people out of those names immediately if there's some sort of factor that is just like, we can't be in this while that gets sorted out. Now, there was a drawdown with Supermicro, but it had already produced a lot of returns for the granny list.

1:14:40Okay. What kind of feedback are you getting from the investors? There's probably a lot of people that don't buy your research, but they're fans of yours because you appear and you make commentary. So now people feel like they can invest in some of your ideas. What kind of feedback do you get from those people? It's been very good feedback. Wait till the bear market. Yeah. Well, there is a lot of handholding that's required. As an ETF? Yes. And so what we do - What do you do? Webinars? I do a weekly video that is available to the public. But we have, I think, 35 ,000 people who signed up for the Granny Shots distribution list, which you can from the website, grannyshots.com.

1:15:22And we push out a weekly video so they know what's happening in the holdings. That's what you should use AI for. You should not be forced to do that. Weekly video is a lot. It is. But we found people say it really helps them understand what's happening with their money. So it helps them hold the fund. Yeah. That's a really critical thing. Yeah, so we're not hiding that there might be some, you know, Palantir hit or NVIDIA hit, but then in their minds, they know that how to contextualize that and it's not a mysterious. You know what else is useful about that? In the process of talking about the fund over time, people could get a better and better sense of how you think about the holdings themselves and the way that you invest.

1:16:07Yeah. Like not just the companies specifically, but like what would make you sell it? What would make, right? Or what would make you keep a stock? Yeah. So that takes time for people to really learn. Yeah. Like in the video we just released, we explained the whole idea of millennials and how much they're going to represent of like babies born and cars and why if you did a similar generational bet with the boomers, you vastly outperformed the market. So you want to find the stocks that are most tied to millennials right now. It's just the start of a product suite. Yes. Who'd you put this out there?

1:16:38Is this Tidal? Yes, we worked with Tidal. Okay, so is Tidal calling you like every day? Hey, Tom, your next billion dollar idea, please. Like, we're ready. What do you got? Yeah. Okay. And it's Tidal and many other providers have contacted us. International granny shots? I think international. Can I give you a great name for it? Abuelita, right? Spanish. Abuelita. You don't hate it. Small grannies. Small little grannies. Young grannies. Smith grannies. Granny aristocrats? Grandpa. Grandpa shots. Tom, we got to get - Congratulations, dude. We can't let you out of here without talking about crypto.

1:17:17You've got a chart in your deck that shows Bitcoin going to 5 million. Yeah, say the craziest thing you can about crypto so we can clip this for TikTok. How are we getting to 5 million? Now, that's - Yeah, and then all at once. Yeah. By the way, if you got to$5 million, because we have a tape, a grid to show it, it's that gold would be doubled in price. Daniel, previous start. Yeah. Gold would double in price. So this is if crypto reaches parity with gold in terms of market cap? Yes. Okay. It's not there already? No, it's only 10 % of the value of gold. Wait, what? How much gold is there in the world?

1:17:59There is$21 trillion of gold. How much crypto? Three? Bitcoin's two. Bitcoin by itself is two. Yeah. Okay. So if, if the amount of money millennials choose to put into digital gold rivals the current amount of gold, you know what the flaw in that logic is? If there's this huge predilection for Bitcoin versus gold on the part of millennials, then the valuation of gold will shrink. So is like, you might get parity, but that's because the amount of money in gold goes down. Yeah. You know, I thought about, And I got the numbers a little wrong. Let's say gold has to go to like$7 ,000. However, you know, I heard something interesting, and I didn't realize gold has outperformed the S &P six of the last seven years.

1:18:44Yeah. Quietly, too. Yeah. So gold isn't a bad asset class, but Bitcoin— So I think even if— It's not like millennials need to buy gold for gold to go up. You just need the boomers to hold it. You need central banks around the world to buy it and hold it, which they are. Yeah, that's right. Okay. Do you get involved in any of these conversations about Bitcoin reserve? Like, are you talking to people that are involved in this at all or not really? Well, there is. I'm not going to the White House this week. I'm not invited. But we do have conversations with Congress people. Okay. But, you know. Are they like, Tom, what do you think if we do this?

1:19:25They're like, can you pump my coin? Is it a good idea? Why would we have a Bitcoin strategic reserve? I think it makes a lot of sense. Why? Well, we already have one. We've confiscated Bitcoin. That's not all right, but why do you think it makes sense? Why should we buy more? If Bitcoin becomes the backbone of a new financial system, which it really is, like, you know, it's the king of the remittances. It's, you know, it is the immutable blockchain, and people have a lot of reasons that they trust it. In 14 years, no one's broken it, and there's no replacement.

1:20:00then if the US owns a million Bitcoin they'll be the largest holder of Bitcoin in the world but what are we doing with it? we're facilitating trade with it or we're just holding it? well if it's a strategic reserve with a strategic petroleum reserve they use it when there's like an oil shortage or there's a problem or there's a dislocation they will tap the reserve and then when prices calm down they'll add it back. What do we, how does the, to Michael's question, like how does a Bitcoin strategic reserve function? Would there be a shortage of Bitcoin? And we have to, like, toward that. These are good questions, but keep this in mind.

1:20:38So oil's a strategic commodity. Clearly. Okay. Now, oil only has seven buyers, really. It's the refiners. Oil, like, that's produced everywhere, it's really just bought by refiners. Who then turn it into something useful. Yeah, to distillates and gasoline. Okay. But there's really only seven buyers. And so if you look at oil, the oil market that's bought for distillate, and then say, take the total trading volume of oil against that, what do you think the ratio is? I don't know, tiny, right? 400. For every dollar of oil that's bought in a pump, it's traded 400 times on speculation. Wow. Wow. So you need a strategic petroleum reserve because there's so much price speculation around it that you could be whipsawed if you didn't control some way to manage prices.

1:21:31Okay. So Bitcoin is the same. Yeah. So let's say Bitcoin— Tons of speculation around it. Let's say that it becomes 10 % of people's net worth and banks start to use it to secure information. Remember, the blockchain, you can just store one pixel of a 10 million page document, but the hash will detect if you changed one pixel. So that's why you're going to use the Bitcoin to secure information, right? Well, that's really valuable. But then wouldn't the U.S. want to be able to control this blockchain or exert some way to censor it somehow? Okay. And, you know, once banks start trading Bitcoin, like Citadel, it will probably be the most profitable product for Goldman and J.B.

1:22:14Martin. Because of how volatile it is. Bit-ass spreads are wider. Correct. And if oil is traded 400 times, Bitcoin might be 1 ,000 times. It's going to be a hugely traded commodity. Okay, so this is a productive thing, even though, to my earlier point, we have a budget deficit. We have tons of debt. This is a project that we should also undertake now because it might come in handy at some point in the future. Yeah, well, the US owns 200 ,000 Bitcoin, as long as it's not, those keys are safe. Okay. And so they, let's say they buy 800 ,000 more through the exchange stability fund, you know, so another 80 billion.

1:22:47If they do that, I think the price goes to a million too. I just don't know that they're going to do that. Yeah. But then if Bitcoin gets to 36 million, there's no national debt. Okay. In that fantasy, who do you sell the Bitcoin to to pay off the debt though? I've heard that before. Michael Saylor, hello. So Michael Saylor buys the Bitcoin from us and we use the proceeds to extinguish our debt. Well, it's not, you don't need to sell it because it's almost the same thing as like if NVIDIA is 3 trillion, it's not like someone would say, oh, well, you're going to liquidate all 3 trillion. So it's not worth 3 trillion.

1:23:22It's as long as the value is stored at that level. Okay. And you can still trade it. Then we could say it's an asset that offsets the debt that we have. We don't have to use it to pay down the debt. We could just say we're backing that debt with this asset. I'll guarantee you if Bitcoin got to$36 million, theoretically, the U.S. cost of debt would go to zero. They would have no—because they have zero net debt. What's going to happen on Friday? I think—okay, so the base case, I think it's a really bad jobs report, maybe$50 ,000. I think the market panics, but Powell's speaking at 1230, and you're going to see the May odds 100%.

1:24:05Because Powell's going to make it all better. He's going to calm people down. We're aware of the situation. Well, because this is like now with Atlanta, GDP now, negative, and then jobs, this is not like the Fed can sit there hawkishly. It's sort of funny to have a day where there's a jobs report that disappoints. The market's been selling off all week. It gets even worse on Friday. And Powell has to compete for airtime with Michael Saylor because the White House is filled with crypto people. It's going to be a wild day. Well, Tom, this has been awesome. I have one more thing to share with people.

1:24:48you have made available access to Fundstrat Research for our listeners for a 30-day free trial. And we want to tell people where they can do that. Can I tell people? Yes. Okay. All right. I'm supposed to read this. If you are an experienced, self-directed investor looking for trusted insights to grow your wealth, check out Tom Lee's Fundstrat Research. When you sign up, you'll get access to his daily insights, market alerts, live webinars, AI doppelganger, and stock lists. Exclusively for listeners of The Compound and Friends, Tom has provided a link for a 30-day free trial. Visit funstrat.com slash Tom.

1:25:26That's funstrat.com slash Tom. You can also find a link in the description below. That's very nice of you. It's very exciting. Yeah. Well, we love this show. Dude, thank you so much for being here. We're so happy to be able to spend time with you. We always close out the show by asking people what they're most looking forward to. I think for Michael, it's the crypto summit in DC. What are you looking forward to? I'm looking forward to Future Proof. Oh, man. City-wide. It is going to be the highlight of my spring and summer. Okay. What day are you on stage? Do you know? Monday. I should probably know that.

1:26:01Monday. Okay. Very cool. Good answer, Tom. I'm going to the Museum of American Finance's annual gala tonight. And do you know that organization? You familiar with them? Okay. They would love to have you there. they're honoring Peter Lynch tonight with like a Lifetime Achievement Award. So I think I'm going to get to hear him speak. That'd be amazing. Yeah. And that's like one of the goatiest goats who's ever goaded. Yeah. So I'm pretty pumped about that. You got something for us? Yeah. Did we talk about the show that we're going to see? Which one? Glenn Gary, Glenn Ross? Yeah. Very confident in my assertions.

1:26:37It's been. Yeah. You like plays? Go to shows? Yes. In fact, I think our firm is doing a field trip to watch that. You're going to go? Yeah. because it's like an iconic we're going we're going what's the date we're going 20s maybe we're going on it's not a lot of dates so we might be going on the same date it's like the day before the ETF Awards Center so I think it's like April 27th okay we're going in March okay very cool yeah we're going a little bit sooner than that but I'm so excited for that Bill Burr Odenkirk Karen Culkin it's a crazy cast when you think about it yeah alright very cool hey guys thank you so much for listening our special thanks to Tom Lee and huge thanks to the team.

1:27:16We did so much stuff this week. Daniel, Duncan, Rob, Graham, Keith, Sean, Charkid, Matt. Who else? Nicole. We got everybody? The list keeps getting bigger. Shout out to the team. You guys outdid yourselves this week as always. Hey, leave us a rating and review. We'll be back soon.

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