What Did the Fed Actually Say?

24:17Is that the one the market disliked, the stock market disliked the most? Yes. Probably lost 30, 40 basis points on the S &P immediately. Exactly. That's exactly what he said. Okay, why? Why are we still begging for rate cuts with stocks at all-time highs? Are we crazy? I mean, the market always loves lower rates. This is disappointing versus what was in the price. The market was pricing a nearly 100 % chance of a December cut. Powell completely poured cold water on that. We had been calling for the market to be, or the Fed to at least be less convinced that they're going to do a cut in December.

24:50there's the labor market appears to be largely fine the economy's pretty steady there's not a great reason to be cutting at this point just given where they are today and where the economy one reason well make america great again real estate don't you love america oh wait hold on so so why why was that statement so consequential only because it forced everybody to change their expectations for december that's exactly right it was just a complete repricing of the december cut which now is less likely to be significantly less likely to be the case. Now it's all else equal. If the economy is exactly today as it is for the December meeting, the Fed's not going to cut is effectively what they told you.

25:29And then you have to question, well, are they going to even cut beyond that? Are they going to be in some sort of extended pause at 4 %? Are they only going to cut maybe two more times as opposed to the market thinking it would be several more times beyond that? Okay. The mortgage-related stocks that we follow all got crushed. All housing. Like fast. Anything housing-related, fast. So that's you see that it really was in the price that you were getting this December. OK, and now it's in doubt, but you might still get it anyway. He didn't say we're not cutting. He just said we're data dependent.

25:58So maybe we will. Maybe we won't. Yes, around and find out. Well, we're data dependent. But if there's no data, the assumption was given the shutdown, if there's no data, the assumption was the Fed would cut anyway. But now he told you maybe not. Now, if there's no data or if we're kind of still in this data fog, which, by the way, the data is going to be really questionable between now and then, that you should assume that the Fed will probably not be cutting. And there's significant divide among Fed members about what they should do from here. Oh, this is so Callie pointed this out. Our chief strategist, Callie Cox, pointed out she can't think of another time where there were two dissents, which itself is rare, but two dissents in opposite directions.

26:37You had one person say it should have been a 50 basis point cut. You know, another person saying it should have been no cut. Can you think of another example of that? Or does that strike you as like really emblematic of the confusion right now about what the right course forward for the Fed is? Yes and no. I mean, Myron's the only one who you would have, we would have known. We knew he was going to dissent for a 50 cut. And that's political. That's right. His master wants that. And that's. Exactly. So no one else who is more independent and credible is looking for a 50 basis cut at this point.

27:08Why not 100? Just go for it, right? When is the term over? Myron? No, I'm sorry, Powell. Powell's term's over in May. May. Okay, all right. Or whenever I decide. All right, wait. So, all right, so it's not that strange because you know where that's coming from. Right, so the real debate, right. So the real debate was, do we not cut or do we go ahead a couple more times? It's really the debate in the room. Myron is kind of out on his own. What's the case for not cutting? Just as simple as CPI is 3 % and not 2 %? Yeah, and inflation is potentially heading a little bit higher. On top of that, you have an economy that's doing okay.

27:43Okay, so unnecessary cut. Yeah, and valuations are high. Why not just wait and see? There's not as much harm in waiting now as it was months ago. Well, here's the doves would tell you recent college graduate unemployment at six and a half percent is really significantly higher than four percent and possibly a harbinger for a worsening labor market. You'll tell us if you agree with that or not, if the data says that that's true, but that's a thing. The other thing is people with debt balances, obviously a rate cut helps them. And those are the people right now that need the help. And maybe that doesn't justify lowering rates across the whole economy just to help borrowers.

28:24But like the politicians who are getting elected right now, including in New York City, are the people who are making promises that they'll ease people's debt burden. So there's obviously a real issue out there. So that would be like the Dove's case as to why, yes, one more cut at the end of the year. Does that move you or not really? Maybe let's go to chart 13. So not necessarily. I mean, the debt picture actually looks pretty good. Tell us what we're looking at. For the listener that's not watching, what are we looking at? We're looking at a chart of household debt relative to disposable income.

28:58So it's an income rate, a debt ratio chart. And you're seeing it steadily move lower, which tells you that, in fact, the consumer is healthier today than it was a year ago and two years before that. On this measure, we look pretty good. But which consumer? Yeah, which consumer? The broad consumer. So there is a story about the lowest end consumer that is showing cracks and getting— The K-shaped. The K-shaped economy. And that's true. Can I say one thing? Not to be insensitive to the lower end consumer, but are they not by definition always under a level of distress? I mean, if you're talking about the bottom 10%, when are they not under duress?

29:33Six months in 2021 where they did better than everyone because money was put into their bank accounts. And that's pretty much it. Yeah. Yeah, but it's fair. And we can't conduct policy aimed at just this lower end consumer. You have to think about the broad picture here. And you're seeing this low end consumer, which is under stress, but it doesn't appear to be getting that much worse than it's been. I actually don't even think that that should be the purview of monetary policy. Like the woke Fed era should be way over. I understand. I understand why we have to do something. I think that's Congress and maybe the states.

30:10I don't feel like we can accomplish that with overnight interest rates. Yeah, I think that's right. And we don't really want to incentivize too much borrowing at the lower end. And by the way, there's going to be a decent amount of stimulus headed for the low-end consumer come tax season. They're going to get some pretty large refund checks for no tax on overtime and no tax on tips. Okay. Oh, that comes in refunds? This is going to come in refunds for this cohort. So according to what you showed us then, like, yes, there is a vocal group of consumers who are under duress right now because of high prices in the economy.

30:44But the overall picture does not support just continuous rate cuts from these levels. There's no evidence that that's what's needed. Well, if you listen to the banks on their earnings, and not just American Express, but the banks that serve Main Street, Ally, Capital One, Bank of America, they're all saying the same thing, that things are pretty good. And they're not blowing smoke. They have like reserves and charge-offs and like actual data. And you're not seeing any stress there. You're just not. I mean, there's pockets obviously everywhere. And auto subprime for sure. There was a lot of sloppy behavior in 2021 and 2022 that is now coming home to roost.

31:20But by and large, based on that, to both your points, maybe supportive of no rate cuts. Yeah, that's exactly right. The picture looks pretty decent outside of subprime auto and a couple of things that, you're right, are generally poor and aren't looking that much worse than where they've been. And the backdrop is one where the economy is actually likely to head up from here. We have a lot of tailwinds when you think to 2026. So if you were Powell, you would not be in any rush to do the next one. But what about the housing market? Because clearly that is in desperate need of lower rates because we have seen lower rates and you're not seeing much of a pickup in activity like at all.

31:59Yeah, I think that's fair. The housing market has been struggling. We might see a bit of a pickup from here. Mortgage rates have come down quite a bit. They have done a couple more cuts, you know, recently. So that could help spur activity a bit. But I'm surprised. Mortgage rates have come down quite a bit and you're not really seeing much activity. Yeah, I think it happens with a lag. Like it tends to be about three months where you, where, where the lag comes from rates to the broad economy. So I actually expect we'll start to see that. Uptake in refi applications though. That did happen. Yeah.

32:26This summer. Exactly. So I think we'll see it play out. That happens fast. But you make a good point. It doesn't happen overnight. Like people don't just, oh, lower mortgages, I bought a house. Right. And I think one underappreciated part about the housing market earlier this year was not just about mortgage rates and affordability being bad, but also economic uncertainty. If you were sitting here earlier in the year and you were planning on buying a house, yet you thought there was going to be a recession at some point in H2. Trade war driven recession, which is what the news would have told you.

32:54Exactly. Most people thought there was going to be a recession caused by the administration because of trade war. So at that point, if you expect a recession, you would expect lower prices and lower rates in, say, six months time. So it made sense to just wait. Our friend Warren Pies looks at, I think, some sort of housing construction. I don't know if it's new units or something like that. Construction employment. Okay, is that what it is? And so that has been very sensitive and very closely aligned with the business cycle. When that rolls, we usually get a recession. I don't think you're seeing that right now.

33:21Is that because this is just such a bizarre environment of everybody buying houses and then rates? And is it just, can we not rely on that anymore? Yeah, I think the economy is a bit different. It's a little bit less cyclical than it used to be. There's so many other secular drivers, things like AI. And then on top of that, there are some construction related jobs that are tied to this AI story. So there's a bit of a sort of mix shift from that perspective. And then on top of that, the consumer is not really that interest rate sensitive anymore. If you were not, if you're not in the housing market looking for a new house, then you're not really that sensitive to the rate of interest rates.

33:58So that's been one reason why the consumer has been spending so well, despite rates being elevated. Equity net worth has been perhaps one additional reason. I want to double click on that because like, this is the hill that I like to die on every week. I'm a wealth effect truther. I think it's the number one most important factor in the economy, bar none. It decides employment. It decides whether or not people get wage increases. I think it decides CapEx spending projects. Nothing will halt AI CapEx in its tracks faster than a stock price that falls 30 % after an earnings disappointment. Nothing.

34:32And so as a result, I really think we underprice the ability of the stock market to influence things that happen in the real economy. More Americans than ever are in 401ks. I understand housing is a bigger asset for the middle class, blah, blah, blah. I get all that. The people that work for people though, those people, they care about their stock options in the companies they work for. I just, I think it's a huge driver. To that point, Sean and I on my research team, we write this column for CNBC Pro every week, best stocks in the market. and we're always looking for charts that invalidate things that we believed or things other people believed.

35:14We love that more than anything. We did a spotlight on Ford and GM today. Ford and GM made 52-week highs this week. Yeah, what's the story there? The story there is the wealth effect is what sends people to the dealership to buy a new F-150, not trade war bullshit. These companies have handled this tariff war, handled this tariff situation so well not because they're in control of the prices of the supplies they buy, but because the demand never let up. The demand never let up because everyone's stock portfolio is at a record high. So GM is selling, GM's in a better situation than Ford. They're selling more higher margin SUVs.

35:55Ford has a lot more execution risk and it's not as good of a stock. They don't do buybacks, they do dividends, blah, blah, blah. But the big picture is both of them are at 52-week highs. If I told you in March, next month, Trump is going to restart the trade war and auto parts and finished automobiles going to be like the epicenter of the trade battle with all these countries, you would not have said, oh, I get it. Therefore, buy Ford and GM. They're up more than Tesla this year. People don't even understand that. And so my point is, that's the power of the stock market wealth effect. People are not doing that because of the value of their house.

36:34and they're not doing that because they're getting wage increases because we know they're not. They're doing that because they feel rich. What do you think about that idea? I think that's entirely right. So a fun stat. See, can we cut that clip for TikTok? Okay, same. I haven't said anything. It doesn't matter. I just want that to land on you that she said that's exactly right. Nicole, exactly right. Do you see the insecurity just oozing? All right, but I want to hear you say more about how right I am about this. So I'm generally a skeptic of the wealth effect. I generally. Get out. Say that one more time, Stephanie.

37:09Show's over. But, but. Send her back. So, okay. Generally. Say why you are. Say why you were a skeptic. So generally, there's academic studies that will tell you it's a couple cents for every dollar of equity net worth that will support the economy. This time, it's been a really big increase. So net worth, equity net worth has gone up by about$6 trillion this year. That's it. That matters. Which boosts growth of, call it 40 basis points if you apply historical estimates. And historical estimates are understating it because this time the equity exposure is a lot broader than it typically is. So, for example.

37:46Because of retirement accounts and stock option compensation. And the whole like Robinhood thing. So younger people are involved in equities, which they didn't used to be. So, for example. 35 million new accounts in the last three years. Yeah. You know what's so interesting? Amex, if you look at their earnest call, all of the growth, not all the growth, the biggest growth is coming from Gen Z and millennials. The biggest growth, the biggest spending growth, they're spending more than boomers are, which is kind of wild when you think about like, you think Amex is like an old premium stock? No, it's not.

38:14It's growth on the young end. And they own crypto and they own tech stocks in much higher proportion than the rest of the population. And they have made more money from this boom in stocks in some cases than their parents. Yeah. So millennials, So currently roughly age 35 own about 23 % of their equity of their net worth is in equities. Boomers, when they were at the same age, had only 6 % of their net worth in equities. That just tells you the broadening and why it's impacting younger people, which it typically isn't the case. So in conclusion, sounds like you would agree with me. We're under pricing the wealth effect because we're thinking about a historical paradigm that's no longer in force.

38:55Now it's different world. It's a stock market world. Yeah, I think that's right. Well, you also made the, you started making the point that a lot of the people that are not exposed to interest rates, people that already have a paid off mortgage, well, guess what? Those people are also retired. So they're also not exposed to the labor market. And so you could see some really weird activity with a softening labor market and consumer spending not really slowing that much because they're responsible for such a large portion of the spending. It's just a very interesting time that we live in. Yeah, it's an odd environment.

39:24And I think it matters realistically, as long as layoffs don't pick up, people will continue spending. So that's it. That's it. That's all that matters. I agree with you. I agree with you. So to that end, let's do your next chart. Chart 12. This is concern about the AI labor market disruption. So this gets right to the heart of that question. So what are we looking at in this chart and why is this important? Yeah, this is one of my favorite charts of all time. So here we show that about 60 % of people who are working today are employed in jobs that didn't exist in 1940. It just tells you how dynamic the economy is.

40:01And even though a lot of jobs will get displaced as a result of AI and there might be disruption in the near term, people will have to go to school for different things. Eventually, the economy will be in a better place. I think we all agree on that. The thing that is the troublesome side of it, and I'm not a tech doomer by any stretch of the imagination. I think we all agree that the future is very bright. It always is. But in between now and then, when you do have this displaced group of people and growing and voting, you get some really funky election results. And it can impact. It impacts policy.

40:33And it impacts society. Maybe more than it impacts the overall aggregate economy. And it definitely, these people having trouble finding jobs, not only will it not impact the stock market, you could have an environment, in fact, I would say this is probably better odds than not, of record margins with rising unemployment. Yeah, it would be an interesting backdrop if it plays out that way. And it might to some extent. It would be great for margins. But what tends to happen is, as margins get better, companies want to grow and they expand and they do CapEx and that will spur other types of job opportunities.

41:04So, yeah, I think that's a risk. And we might see various industries displaced at various times. There was this sort of the tech-related recession somewhat after the COVID pandemic where tech companies did a lot of layoffs. Well, absolutely, there was. 22. Exactly. So you might see different industries have problems at different times. But this is unlikely to be a recessionary type of layoff cycle. It'll be probably a little bit different than that. The media has coined this term, low hire, low fire. Do you think they largely have it right? Like companies are not shedding millions of jobs by any means, but they're just not hiring as fast as they used to.

41:39And it's almost like on the surface, if you net those two things out, it looks like a stasis. And the stasis won't last forever, but could it go on for five years? Yeah, totally could, right? Yeah, and I think the low-fire environment is right. And it's been that way for quite some time so far. And by the way, the labor supply issue kind of supports that because both supply and demand has come down roughly in line. Supply has come down because less immigration and demand has come down because companies are waiting to see how much efficiency they might get out of all this AI stuff they're buying.

42:14Yeah, that's exactly right. And as long as the bulk of the people remain employed because layoffs don't pick up, their wages are growing at nearly 4 % a year and they'll just continue to spend. What would you be watching if you wanted to use the labor market as your way of understanding when we're about to go through a change? Because we've had people come on here. Michael mentioned construction workers being like a really great early signal. We've also had people come on and say initial claims if it hits 240 ,000 in any given week. That's the trigger. like we've heard like lots of different theories about like how the labor market might be useful as forward looking.

42:54I understand it's backward looking, but like what are the things that, is it the SOM rule? Is it like, what would you use if you were trying to get a little bit of an edge on the economic trend? I think what we've learned is having any one particular rule could get you into trouble. So SOM rule was kind of triggered before and it ended up being sort of fine. Oh, well. Credits, the inverse credit thing didn't work out this time either. Yeah, exactly. And there was a problem with Texas fraud in terms of claims. So those spiked for no reason. So I think you do genuinely need to look at a broad array of indicators.

43:29Like when clients ask you, like, how will I know something's changing? What do you tell them? So I would say I'm looking at claims. I'm looking at the Warren data to get a sense of, and the Warren data comes from the Warren Act. And basically, if larger companies are doing big layoffs, they have to announce it in advance. That's all right. That's a rule. Yes. So you can't have it. Even though the press would pick up on it anyway, that's not enough. The company has to disclose a certain level of layoff. Correct. They have to disclose the layoff in advance. And that gets that that gets disclosing it because the stock price goes up as soon as they announce it.

44:03Are you surprised that claims didn't break out over the summer? Because we were talking about it then. and I'm pretty sure people said like, once this starts to move, it generally doesn't slow down or stop moving. Well, it did. We were like, there was a week or two where we were like, oh, it's claims. What was the Texas fraud? What was that? So that happened a couple of weeks ago. Texas claims jumped. I quickly looked at the Warren data for Texas to see was did any big companies do a big layoff? That wasn't the case. So our immediate conclusion, which we had published was, no, there's something funky going on.

44:34I don't know what. And then we later learned that there was actually some fraud happening within the Texas claims. And Texas came out and said that this was an issue. Why would somebody do that? Isn't that weird? I guess they're trying to get unemployment claims money. Oh, it's unemployment fraud. Yeah, exactly. Unemployment fraud. So somebody did that on a large enough scale that it showed up in the data? Yes. My word. 20 ,000, I believe. What's a Lisa Abramowitz chart? So thank you for that great setup, Josh. Are you surprised that, So the way that the Fed measures inflation, shelter inflation, it's this weird thing, onus equivalent rent, where basically they ask people, well, how much do you think you can rent your house for?

45:15And it was a big talking point at the time. It's such a bizarre way of doing things. I don't know how much I could rent my house for. And yet, I bring this up to say, it looks like it was kind of right. I mean, it's the lowest - What do you mean by that? Why does it look like it was right? It's at the lowest level since 2021. And this is probably a decent representation of where shelter inflation really actually is. What do you think? So one correction on the way they measure it. So there's two ways that they go about collecting the data. First, they actually measure how does this particular sample of houses compare to rents about six months ago.

45:51And then— This is in CPI, you're saying? This is in CPI as well as PCE, which is the Fed's preferred measure. Okay. They are not using that question, what do you think you could rent your house for? in the actual calculation of rents, they only use that in terms of the weights. How do they weight it up? What do you mean by that? Do they weigh your house? How much could you sell your house, rent your house for by the pound? More like how important is New York houses relative to Chicago, how they like aggregate everything up. Okay. But they don't actually ask you how much do you think you could rent your house in and that's used to calculate the inflation.

46:27What does this represent? What is on a scribble of rent then? It represents a measure of actual rent inflation, but it's the aggregate houses out there as opposed to new rents. Why don't they just go to like the 10 largest multifamily apartment building landlords and get the actual data? What are we f***ing around for with owners of equivalent rent? That is what they do. They do that. It's just not only the big ones that they're going to capture as much as they can to be representative, capture everything, but they are measuring actual the prices of rents compared to where they were six months ago.

46:58I had a guy sitting in your seat on Monday. He owns, he's the biggest multifamily landlord in the Pacific Northwest and or Mountain West, they call it. So he's in Salt Lake, he's in Denver, he's in Seattle. And I asked him like off camera, but about that question, like what's the rent situation? He's like, it's fine. It's always the same. He's like, there's no trend. It's just like apartments open up, people come in and rent them. He's like, I wish there was some signal in there that I could use for my business. But like on a week to week basis, there's nothing. On a year to year basis, you know, property developers use that like as a signal of where to invest and where to build more.

47:44But like week, month after month, CPI, who knows? Like, who knows what that really means? Yeah, and the data are pretty volatile. And most recently there was a big deceleration in this one. I think what we're seeing though is that rent inflation is coming down, which we all knew what was happening. because the CPI data is very lagged. It's very slow moving. Unlike sort of a potentially better measure is some of the private measures of rents that are advertised in the market. Yeah. Because CPI measures average rents for everybody in the US. Over what? I know it's over a 12, is it a 12 month lag?

48:17It's been longer. The expectation was it would be a 12 month lag, but that's why people have been talking about OER is coming down and they've been having the same conversation for 18 months and it hasn't happened yet. In a material way, it started. Beta is what you're talking about? Yeah, exactly. Zillow has good measure. Zillow, okay. These are helpful to gauge what's happening more real time because these are apartments that are being listed as opposed to the average of all apartments out there. So this has been a big source of the cooling of inflation to the extent that it is cooling. But then there's obviously the cost pressures or maybe even lack thereof that we've seen from tariffs.

48:49Are you surprised that we haven't seen more in the way of tariff-related price increases? So you've seen, it's definitely showed up to some extent. It's been goods price inflation is running about 2 % year over year. Typically it runs zero to minus one. So you've seen it. It's just hasn't been as large as many expected. And I think there's a couple of reasons as to why it's been smaller than anticipated. One has been companies have just been slow to pass it through. They're taking a little bit on margin. Exporters have taken some of the hit too. And then I think the way people think about the sort of the percentage they were expecting for an item, they're not necessarily calculating it exactly the right way.

49:33So when you think about, say, a sneaker import, so you might import it. The company pays$50 at import and$100 in the store. Well, your tariff rate is tied to the$50 that you imported. So it gets watered down when you're talking about the end item. By the time it gets sold to the end consumer. Exactly. You wouldn't know the difference. As a percentage of the final price, it's a lot smaller than the tariff rate. One of the things we heard was that sneakflation would be the way companies would pull this off, live with the tariffs, where there might be like a very high price attached to one particular item.

50:08But if you're Target, you could spread that high price out across 5 ,000 items and it almost becomes like you can't see it anymore because it's a penny on 5 ,000 items rather than$500 on a lawnmower. Yeah, I think there's some of that. So they've gotten away with some of that too. Yeah, and companies have been passing it through in items that they know the consumer is a lot less sensitive. So their higher price items, for example, they know the wealthier people might not really care if their sneakers are$10 more expensive, but that's a much bigger deal for their lower price product. Do portfolio managers at what you're sitting at Wolf, do portfolio managers want to talk to you about tariffs anymore or not really?

50:46Not really. They want to talk about AI. A year ago though, that's probably what they wanted to talk about. That's all we talked about. Six months ago. And companies aren't talking about it. Isn't that so funny how that happens? Totally. These things go in waves. I mean, tariffs have still been important. We're seeing inflation running at about 3%. Inflation should otherwise be in the low twos. So this is having an impact. It's just not, it's more of an issue for the Fed than it is for the end consumer broadly. It's like on a low boil. Also, the consumer doesn't really know who to blame anymore.

51:14Like the consumers like don't really want to hold Trump accountable for it. But Biden's been gone for so long that there's no point in like yelling about Biden anymore. Like people don't even know like who to hold accountable for this. They're just getting used to it. Yeah. And I mean, there still might be some more pass-through involved. So that's something to keep an eye on. We'll still see goods prices continue to rise. Our sense is when we aggregate it all up, we're about 50 % of the way through of the tariff pass-through. So there's still more to come, but it's happening slowly. Okay. That's a good segue to, you wrote AI bubble.

51:46Nope. The real danger is in tight credit spreads. Let me quote you, okay? Do people do this often? To your face? I'm going to quote you to you. This is not her. This is not me. Oh, who wrote this? Allison Schrager. Oh, this is Allison's article in Bloomberg. Okay. Can you respond to this idea of credit spreads being a potential threat, maybe to the market or to the economy or both? I mean, I think they're tight for a reason. The economy is doing pretty well. I don't expect this to— It's not always the greatest time to invest when credit spreads are this tight because people have become complacent in an environment where they're just not putting much emphasis into price and risk.

52:29That's the general idea with this, right? Yes. Yeah. I mean, I don't know if I would emphasize that too much. I think it's telling you that the economy is fairly healthy and there's sort of little signs of stress. So from that perspective, I would say it's actually an okay environment to invest. And it tells you that the economy is fairly healthy. And there were a couple of negative credit events that popped up somewhat recently. And I view those as idiosyncratic. And the backdrop is actually pretty good. So, no, that's not something that I would really worry about. When do idiosyncratic one-offs become a bigger story to you?

53:00So, I think every three days we're hearing about a new one. That's the rate. And they're small relative to the size of the credit market. But, like, how many do we need to hear them out before we decide, okay, this is a problem? They've been concentrated in two main areas. One is companies that had poor business models and were tied to fraud. That I would discount most days of the week. and then tied to the auto sector and sort of frothy activity that happened a couple years ago is now becoming an issue. Okay. So far, the sort of the broader announcements have been part of those two categories as it starts to, as or if it starts to branch out into something else, then it becomes more noticeable.

53:39I would agree with you. The auto stuff specifically, that was activity that took place years ago that we knew was crazy town. And now it's coming home to roost. If this starts showing up in sectors completely unrelated that are more concurrent in nature. It's like stuff that's reflecting stress today. Then it's time to, okay, reassess and say what the hell is going on. Totally agree. Let's, John, can we do 15? This is your past investment boom that you referenced before. Past investment booms as a percentage of nominal GDP versus the current AI. And for the listener, the AI, I don't know how you're categorizing the AI spend, but like it's 1.3 % in 2025.

54:25The railroad boom went to five and a half percent of GDP. The dot-com went to four and a quarter. The housing boom in 05 hit three and a half. So is the message here like it's not a bubble or is the message here like it will be? We just haven't gotten quite to where it would have to be to become a bubble. Maybe for investors, it doesn't matter either way because it tells you that for the next at least 12 months, this is not a bubble and it's not an issue. It could become a bubble, could become an issue, but I think we're a long way away from that. We haven't gotten there yet. We haven't gotten there yet.

55:00AI spend and we're calculating as above trend spending in areas like data center, computer equipment. We kind of aggregate it all up. That's where we get to about 1.3 % of GDP, kind of roughly$450 to$500 billion, which is a substantial part of GDP, but nothing like historical bubbles of the past. All right, so when you get calls, is it a bubble? Your answer is no. Maybe someday. Yeah, totally. Okay, do people feel better after you tell them that? Sometimes. Sometimes, okay. People seem to want it to be a bubble. Have you noticed that? Yes. Okay, in the investment world. What do you think that's about?

55:37They missed out? I think it's either missing out, feeling concerned about the valuations or perhaps wanting to invest but are worried that they're going to be wrong and it's going to prove to be a bubble in two months time. That's the worst. That's the worst of all worlds is you ignore it for five years. And then at the very end, because your clients are leaving, you're like, all right, whatever. And you just start throwing money at it and then it's over. Yes. And then you lost twice. And you're just you're that's that's the got to be that's got to be the worst thing you could possibly do. I almost feel like you might even be better off just sticking to your guns and letting it, letting it blow up.

56:17I think a lot of the people that are still asking that question are probably in that camp. I would. That's what I would do. 100%. Yeah. I think I would triple down. Oh, at$5 trillion, I'm getting interested in NVIDIA. No, if you were talking shit about NVIDIA. No one has my attention. At like$300 pre-split and it's run all the way up, split, run all the way back. Just stay quiet. Just maybe don't talk about it at all. Yeah. Do you want to do this China thing? That's up to you. Take it or leave it. Take us through it. All right. So our friend Michael Semblis wrote a post recently where he showed - Wait, did you work with Semblis when you were at J.P.

56:49Morgan? We worked like side by side. Okay. We worked together. We talked to him once in a while. Okay. He's probably listening. Hope so. He's a fan of the show. Hey, Mike. All right. So here's a chart showing a few Chinese industries depend on exports to U.S. And he's looking at consumer electronics and electrical equipment and basic chemicals and on and down the line. And a lot of it they produce and they consume domestically. So he looks at US export revenues to China, and it doesn't show up anywhere really to maybe a little bit of consumer electronics. I guess that's the iPhone. So Chartkin Matt looked at the average tech stock and the exposure, I'm sorry, the average sector exposure to China.

57:28And in tech, so the S &P is 4.2 % revenue exposure to China. 4.2 % of S &P sales go to China. That's what Matt's saying. Okay. But 10.6 % of tech stocks. And then he broke it down by individual company. Tesla, we know how important China is to them. 21 % of the revenue. Apple, it's 16 % of the revenue. NVIDIA, 13%. They buy a lot of the shit, our shit, of the most important companies in the world. Our most important companies. So all of this negotiating rhetoric, whatever, like they have leverage on us. So there was a chart that we used to run that looked at the exports that we send to various countries across the world, and then how important their exports are to the U.S.

58:16And China was the only country that showed roughly equal leverage to the U.S. Everybody else showed U.S. had a ton of - Equal versus us. Like our balance of trade versus their balance of trade. Yeah. So exactly. That's exactly right. And that tells us that perhaps maybe Trump underestimated the ability for China to sort of weather this as well. And the fact that we would be caused a lot of pain just as much as they would be. And they play the long game. So they have the ability to sort of wait a lot longer than we do. They don't have the political reality of people not getting elected as a result of trade imbalances, whereas politicians here in the US do.

58:56Not yet, but allegedly at some point it might matter. We'll hear from Apple this afternoon. but the amount of revenue that they got from China has been a big overhang on the stock. It peaked a couple of quarters ago. Now, I think everyone's expecting the iPhone 17 to have gangbusting numbers and they better. Otherwise, the stock's going to give a lot back. So I hope that comes true. But yeah, China's a huge buyer. A lot of our stuff. Do you see that as... Do you see this meeting with Xi this week as being terribly consequential for the year-end? S &P, like whether or not we have like a rally into year end or not?

59:35Or do you think that's not really the bigger story? It paves the way for the rally. And we thought the rally was probably going to happen anyway. It seems like a lot of investors are trying to catch up to a year where maybe they were underperforming. That's what I think. A lot of clients that I speak with kind of communicate that. So I think this just paves the way for we're kicking the can down the road and also sort of a recognition that we can't really heat up the tensions again, that perhaps the appreciation that they have just as much leverage as we do. So we have a truce. We don't have a trade deal.

1:00:06We have a trade truce. That's the last thing I read. Good enough, right? Good enough. And fentanyl tariffs came down. So there is a sort of win from that perspective for companies. You wouldn't believe what I'm paying for fentanyl these days. It's crazy. So thank God for that. Stephanie, did you have fun on the show today? This was great. Thanks for having me. All right. We loved having you here. And you're nearby. You're in the neighborhood. Yeah. All right. Will you come back? I would love to. What are you doing tomorrow? We always... Amazon, blow out numbers. Finally. It's about time. Finally, the stock's making me look bad.

1:00:37Stock's up 8%, but it might be flat in 10 minutes. Give it a minute. Hush your mouth. That stock's making me look dumber than any other stock I own. Me too. Let's go. We always end the show by asking people what they are looking forward to. I already jumped the shark. I already told... That's not the right term. I already did a spoiler to you, but to the audience, tonight's a Fort Charles tonight's a Fort Charles prime rib night you feeling me on that? yes you're not a big prime rib eater are you? not really you don't strike me as not really I'm going to do unspeakable things in this place tonight sounds great oh shit Duncan's going to Duncan would faint if you saw the table the french dip the cheeseburger then they first bring out the prime rib I've seen your social media the cheeseburger is the salad okay wait till you see what I do on Instagram to you tonight.

1:01:26You should unfollow me for tonight and then follow me tomorrow. All right. Anyway, what are you looking forward to? What do you got on the horizon? Like in life? I don't care. Yeah. Professionally, personally, anything you want to reveal, anyone you want to get back at, like whatever. I mean, tomorrow's Halloween. My two kids are going to be a big witch and a little witch and we'll go trick-or-treating and I can't wait for that. Big witch and little witch. Okay. How old are they? Three and a half and one and a half. So cute. So cute. So you're carrying one or both. Yeah, both. Definitely both.

1:01:58I remember those days. You know what the move is? You got to get the wagon. Oh, yeah, the wagon. The problem is they pull each other's hair in the wagon. So you still have to hold one and pull the wagon. Are you letting them eat any of the candy or it's just... Oh, they can eat whatever they want. I don't care. Yeah. It's Halloween. All right. All right. Very cool. What about you? You have Halloween coming up. I do, but I'm looking forward to Chris coming home so he would stop sending us those pictures. Oh, Chris's vacation pictures? Yeah. They're actually pretty good pictures, though. Not bad.

1:02:25Chris is in Cabo. The pics look pretty good. Normally, he's the worst vacation photographer you've ever seen. You know, he went to Paris and his son was like 12 years old. He's taking pictures of the Mona Lisa, but he puts his son in front of it. So it's like a picture of his kid close up, like right into his eyeballs. And then behind him, you could vaguely tell that the Mona Lisa is behind. And he'll text him and be like, look, the Mona Lisa. shout to Chris Chris we only tease the ones we love alright that's it for the show this week guys thank you so much for listening we really appreciate it huge shout out to John Duncan Daniel Nicole Rob Chart Kid Matt Sean everybody on the crew Keith Daniel who did I leave out Rob I'm terrible at this alright guys thanks for listening so much we appreciate it and we'll talk to you soon we're out All right, is that good?

1:03:26Want to do it one more time and then we got it? Yeah, let's do it one more time. We got it? Yeah, that was great. You're a good support. Thank you. Thank you for having me. Thank you. Thank you. Thank you. Thank you.