What Tom Lee's Worried About in 2026

26:21However, there is good news. You know, the rule of first five days, which is on the right side, on the tailwind side. Yeah. It came in positive. Okay. Which is a good thing. But the first five days were up. Positive. Yes. Okay. But we just completed some additional work. And Matt Sermonero probably has like similar stats. But if the first week is positive and then the first month is positive, the probability of an up year jumps to like 92%. Is that right? Yeah. I didn't know. I knew that was a thing. I didn't realize it was that extreme. Some of that data sounds random, but like 92 % is so strong.

26:54And it's 75 years. So N of 75 is still a lot to look at. Which years fell into the 8 %? Just out of curiosity, did you bother to look? I haven't looked at it yet. That's in the weeds, but that would be interesting to say what threw it off. It could be like 9-11 or something. Yeah. Like it could be like an obvious thing. What if it's like 08 in 2000 and, you know, 74 or something? Okay. So you have a bunch of headwinds here. And for the people listening that aren't seeing the slide, I just I think it's worth sharing a couple of things. We got to the valuations are higher, obviously, because stocks have gone up.

27:28Low grade consumer stress in subprime and auto loans. We have been able to look through this, not on the individual company level. Those the stocks that cater to the lower income consumer have absolutely felt the pain of what's happening there. But for the most part, like Apple stock does not care about that. You know, like the big stocks that matter are looking right through it. Do you think that that could be the source of the next correction? Is that there just becomes an overwhelming amount of evidence that there's too much struggle at the low end? Or do you think that that's a low probability thing to worry about?

28:06I mean, it's probably one of those things where it's a social question because, you know, it is a burden. for consumers, like all this inflation. Yeah. And then it can create problems for government leaders. And so it can swing elections. Yes. But mathematically, the consumer, the lower 50 % isn't as impactful to GDP as the upper half. Right. And I think that's why the market hasn't paid attention to that. That hasn't been a stock market story. That's been a political story. Yeah. But then it can become like a, that's why we've capped in government, credit card rates. At the way things are going, he's going to lose the house.

28:46And if he does, it'll be 80 % because of the affordability crisis that the polls say is squarely being blamed on him. I'm not saying you should agree with that or not agree with it. I'm just saying that is what the polls are saying. And then maybe 20 % immigration enforcement chaos. But like, to your point, that may not be a market story today, but a blue wave in the house would absolutely become a market story because part of the bull case right now is all the deregulation, which will obviously grind to a halt once they have to actually start voting on things. Yeah. So that's why it makes sense.

29:24Like capping healthcare rates, trying to get oil down credit card fees, capping, like those are things that would help a lot of folks. Well, also not to be the bearer of good news, and I'm not suggesting that the lower end consumer is on fire at all, but if a lot of those loans that are bad loans in the subprime auto market happened than 2022. We're on the other side of that now. And if things were that bad, Ally Financial, which is the biggest lender to these consumers, the stock wouldn't be within, I don't know, 3 % of a 52-week high. Yeah. And that's forward-looking. Like, come on. This is the truth.

29:58You have New York Stock Exchange margin debt at an all-time high. Michael and I would look at that, and we're not as smart as you, and we would just say, yes, that's usually what you see when the stock market's at an all-time high margin debt, just because it's a function of the overall size of the stock market capitalization. Are you by adding that into your headwinds? Are you implying that there could be something more to that? Yeah, there is a little signal. So and we're we will probably start writing about it. Oh, here's margin debt. So 1.214. Is that 1.2 trillion? Yeah. As of November 2025.

30:35And that obviously is a record high. And for context, in July of 2023, it was$710 billion. So it's almost a full double in two and a half years. Yeah. Okay. What's the signal there? What we found was if you look at the year-over-year change, it's actually positive for stocks until the percentage gain exceeds 38%. The percentage gain of the margin debt itself. Yeah. We're there. Yeah. Actually, it's at 36 right now. So it's almost there. Okay. Because what it means is like most of the gain is now being fueled by the consumption of leverage to drive the gains. So in that top decile in the last 30 years, the forward returns go from 70 % positivity to like 40%.

31:20So we're almost at the point where it might be a headwind. So can I show you a chart from your protege, chart goat, Matt? So I do like what you showed, which is like the amount of money coming in and the year over year change. So what I had Matt do was show me margin debt as a percentage of Russell 3000 market cap. And it's pretty low, but it's accelerating like in a meaningful way. Check this out. Right? So historically low or like nothing to be too concerned with, but look at that rate. Look at that change. It's expressed as a percentage. So it's 1.8%. Yeah. So normalized for the overall market cap, but it's accelerating pretty violently.

31:55Yeah. And that reflects a cohort of people because a lot of people don't use margin debt. But, and, you know, I don't think the Robinhood community uses margin debt. They're probably buying more zero-day trading options. Oh, I would say they're doing both. Okay, or maybe both. I would guess both. Yeah, so when we think of it as a percentage market cap, it's not necessarily representing, like, how the cohort is trading. So there's a cohort that's really employing this debt that they're exhausting. So the 38 % threshold, what happens then? Well, so forward returns turn negative. So that's what the whole stock market.

32:28Yeah. Yeah. I mean, that would be the case for the why there could be a drawdown to kind of reset everything. Yeah. So. So if you get that drawdown and a lot of that margin debt comes out of the system and we normalize at a lower level, most people, yourself, myself included, would say, okay, great. We had the cleanse. Like you sort of need cleanses on the way toward higher prices. I don't even know that we would look at that as a headwind or negative. Yeah. So for investors, drawdowns are good because everyone has more ability to allocate at lower prices. But wouldn't you say, like always, John, chart seven, please, the correction is happening under the surface.

33:03So Oracle, as I mentioned, cut in half. This is the Mac 7. Microsoft's in a bear market. Tesla's 14. Apple's down 10. Like there's opportunities, whatever. Like things are happening. Yeah. And the market's broadening out. Like it doesn't, does the market not need Mac 7 for the next like hire? Yeah. I mean, for me, if I'm an investor, I mean, and I didn't own Microsoft, I mean, they can buy it 22 % cheaper. Right. You could buy it at a lower valuation than at any time over the last two years. And all that premium from OpenAI, that's all gone. You could almost argue that's part of what's hurting the stock.

33:35I want to ask you about the software correction generally, not just Microsoft. So I think the IGV is in a 25 % drawdown right now. And I don't know when the last time we've seen that, probably 22. Every one of those names looks like shit. from Workday to ServiceNow, Salesforce.com, like one after the other. Even the cybersecurity software names are down big. Look at this, bear market. So this is the application software sub-industry. So you have, and here's why I'm bringing this up. I think you're thinking about AI as a bull. You just told us it's wreaking havoc on the stock market right now. The AI theme, if anything, is erasing market cap, not adding it, at least in software stocks.

34:21Now, I understand people are taking that money and buying utilities, and God bless them. But like, are we so sure that AI is a tailwind and not a headwind for investors? Well, sometimes it's easier to see the losers and not the winners. Okay, I agree with that. Yeah, so software, I think, is now being chosen as a loser because now AI can write code and replace a lot of subscription services. and I don't know if you've seen the charts recently about tech employment but it's actually declined. It's like one of the few industries where there's fewer people. Remember they said to everyone, learn to code?

34:55Yeah. Not great advice. Learn art history, it turns out. Might be better advice. Do you think the market is right to kill software like this? Usually, it's a signal. You know what I mean? Because you know it's washed out when you have bad news and it doesn't go down but if you have bad news and it's going down How about good news? And it's going to, so ServiceNow had great earnings. Stock is mauled and it was already getting destroyed. Okay. So that's also a bad sign. It's very bearish. If you go down on good news, it's a bad sign. I would argue the reaction of Microsoft relative to what they actually announced is a really bad sign because there was like nothing negative there.

35:34It was like slightly higher expenses, slightly lower Azure growth. It was 38%. It was 38 % was their guide in Azure, down from 39%. And the market's like, all right, we'll take$400 billion, please. Thank you very much. So that's like not a—I know it's anecdotal, but that's not good when one of the largest stocks in the market reports a quote-unquote regular quarter, and they act like it's the end of the world. I take that as like a negative sign, obviously. Yeah. And, you know, I mean, I learned when I was an economist, like, there's like a three-quarter where like if a stock misses, you know, you kind of can't touch it for three quarters or two or three quarters, so.

36:15Okay. But it's still an opportunity for a long-term investor. Can we say that two things are true? The reaction of Microsoft today is not bullish. Obviously, it's 12%. It didn't say anything terribly bad. The street is worried about its open AI exposure, to which I would say good. I love that there's no bubble, that investors are actively rejecting the AI bubble. Again, for the third time now, Oracle, cut in half. Microsoft, bear market. Can't have a bubble if the biggest stocks are cut in half. So just in terms of building a wall of worry, I, as a long-term investor, love that people are being cautious and discerning about risk.

36:51Yeah. And later this year, many of these will actually become listed. So now you don't have to guess what it's worth or what its impact would be. I mean, part of it is OpenAI is like a mysterious, like privately held, but now it'll be public. And then now it looks like SpaceX plus XAI will be public this year. Right. So you'll remove some of the mystery and the people that want to affect trades on what they think those stocks are worth will be able to do that all day long. Correct. Aren't large IPOs like, I don't know if historically is the right word, isn't there something a little bit like, too much supply?

37:27Yeah. Is it a top signal? Yeah, of course. I mean, it's going to suck up demand, right? Because it's a big amount of supply coming. Yeah. So I'll never forget, I learned this lesson when Blackstone came public in 07. They were like the quintessential play on booming real estate. And they were like very heavily involved in emerging markets, mostly China. Like they were like in all of the quote unquote hot areas. And this is before we were talking about liquid alts and, you know, the revolution. This was just about like this style of investing is the best style of investing. And I think they bought equity office properties from Sam Zell at the top of the real estate market.

38:07I think if I remember correctly, that IPO was like a meteor or like an asteroid hitting the surface of the earth. Yeah. So when BX came public, first it wasn't a corporation, it was a partnership, which meant if you were stupid enough to buy the stock for your clients, which I was, you got to tell them, you just lost half your money and you have a K1. Like that's your, that's your, that's tell your account you have another K1. That's your gift at the end of this. But I've always looked at those giant IPOs that Michael's talking about, and I think OpenAI qualifies. And SpaceX. Not as the beginning of something, but as the end of something.

38:42Where does the money come from? It's hundreds of billions of dollars, potentially. Well, yeah, but this might be different. Okay, and let me explain why. SpaceX, when it goes public, is actually a huge wealth creation event for many of the people who invested in SpaceX. I know some people who are seed in it, 50 ,000. And I think their stake's worth 150 million. That's insane. Oh, my God. Because the company's worth one and a half trillion. So, like— Sounds inflationary. Well, I think that's the equivalent, like, of a massive tax refund for the U.S. economy. Well, they have to wait six months. They're locked up.

39:20They can't sell on the IPO date. Yes, but they might be able to get margin or they can— We're going so much higher. So you're saying that these people that get liquid from SpaceX shares, they're going to put it right back into the market and take out us blocks. Yeah, so think of it as like the alternative world who has had no return. Suddenly, all these venture funds that are 99 % of the fund's value is SpaceX. Waiting for exits. Has a huge distribution. Oh, I like that. So all that money going into the economy again. So you're saying I should have Michael start cold calling the SpaceX seed investors.

39:55Yes. Yeah, Ritholtz should actually do a pilgrimage to all the… We have very cheap credit. Yeah. Very cheap. All right. We did the January barometer. We did the FINRA margin cap. Where do you want to go next? Strategy? Let's do the broadening. John, chart 12, please. So, it's Thursday. It's 340. And Microsoft got killed today, down 12%. What's XLK doing? Maybe that's not the bad. XLK is down 2%, but that's a bad weighting. The NASDAQ 100 is down 96 basis points, okay? 96 basis points for the NASDAQ 100. And the RSP, equal weight S &P, is down two basis points on the day, flat. And this broadening trend that we're looking at, so this is a trend from Yuri and Timmer showing the equal weight versus the cap weight.

40:41And he showed that there was a clear narrowing earlier, late last year. And now it's broadening. So the S &P cap weight has turned sideways and you're seeing a breakout in the 493. I love it. I think this, now listen, If the Mag7 were really rolling over, I would say, all right, well, that's not good, right? Because they are the leaders. But the fact that they're going sideways and consolidating, Microsoft notwithstanding, I think this is as bullish as you could possibly be. Is that part of your bull case for this year is that we'll have like the next hundred stocks up making a play for new highs?

41:15Yeah. And I think this is confirming, broadening is confirming a bull market. it's very good for institutional stock picking because they can't own that much MAG-7. Right. And institutions can, of course, employ their own form of leverage through prime brokerage. So it means that you could actually have new dip buying coming from institutions. I think this would be really good news. Your clients must love it. What are they asking you and saying about this? Well, yeah, I think they are breathing a sigh of relief that it's not just the MAG-7 anymore. Yeah. Yeah, and so people are seeing, especially the long-short folks, seeing good opportunities.

41:55A lot of them are doing non-US. Yeah, I think that if someone's global, I think I understand now why they are looking at global. Because there's now, as someone pointed out, there's going to be two countries that are winners in AI, like the US and China. Do we know that? Yeah, I mean, I think China's AI works really well. And, you know, China has done a good job on EVs. And then I learned recently they're actually pretty big on healthcare and biotech innovation. Like I think they are exporting more licenses than any other country. So like a lot of European drugs are actually licensed from Chinese labs.

42:34So then it means the supply chain, like the countries adjacent to China could be doing better. So it's good for stock picking. I mean, so there's more stories out there. I think the international story is so interesting because last year they did not have earnings growth, but those markets went up 20 and 30 percent because it was like a mindset shift. And I think a lot of the leadership in those countries and the people that run the stock exchanges, et cetera, some of them it was just like jawboning, but some of them actually like passed rules, like forcing companies to increase shareholder value.

43:12I think they all sort of looked at the United States recovery from the pandemic and said, like, what are they doing that we're not doing? And I think all at once, they kind of got the memo, oh, their capital markets are on fire. And look at all the benefits, like the domino effect. When stock prices are rising, you get increased consumer demand for everything under the sun. You get executive confidence. You get more investment. it's just so, it seems so obvious. Even if you're a socialist country, you should root for your corporate champions to get bigger, not penalize them and find new ways to sue them.

43:52And I think that's the switch that flipped. And that led to that re-rating last year. And then this year, to your point, now you're gonna get the earnings growth in these countries that explains the re-rating of last year. And that's a pretty great like follow-through story. And I think that's why you're seeing people allocating, going out of their way to allocate more to international large caps. My best guess is that's not like a six-month phenomenon. That feels multi-year to me. And I don't think it's late in those markets at all. What do you think? Yeah, I think the more I look at it, the more I think what you said makes sense.

44:28Because then on top of that, there's dollar could be kind of weakening. That could only help. Yeah. So then it could be a long, there could be a long tail to that story. The more I look at it, the less I think it's just a one-year thing. Okay. I like that idea. I want to go to your strategy again. So what to own? Stocks that benefit from a stronger 2026. John, do you have this? All right. Energy, basic materials. Is there more to say on energy? Well, part of it is – so energy and basic materials were our top sector picks this year. Yeah. But I didn't anticipate precious metals to do so well or the metals, but it was really because they had underperformed so long.

45:13The level of underperformance last three years was something you've only seen one other time in the last 75 years. On precious metals. Yeah. So I think it might. Well, I think I don't know where the slide is, but there's like what we have a Z-score at Hummer Standard Deviations of Underperformance. Yeah. And it was at the same level you were at the 2000. So you'd have to say the same thing about energy then. Yes. Energy has like done nothing for five years. Correct. So it was energy and basic materials. And that's why we made it our top sector pick this year. Yeah. I think you're going to be right on that one.

45:45And those charts all look outstanding to me. Yeah. Like they're being, these stocks are under accumulation. I don't see any way around it. Yeah. I have a question for you guys. Why do we say basic materials? Why don't we just, it's. Because they're not precious. There's precious and there's base metal. But why not just materials? I mean, I never said basic materials, but I know that's what the sector is called. It's kind of weird. Wait, what do you mean? Basic materials. Yeah, that's the GIX, GIX one. Yeah, oh, right. Classification. How they classify all those. Yeah, I'm saying like, where'd basic come from?

46:14I don't know. Maybe we'll never know. Yeah, you know why? I think they were thinking of as a manufacturing process. Like, these are the basic materials and then there's the interim goods. And like industrial, it goes into the industrials. But you're right. The more you know. That was like a, that's like an agrarian concept or something, right? Yeah. You have Bitcoin and Ethereum, not surprisingly, as what to own. Tom, what the hell is going on? Bitcoin is crashing today. Can you tell us, can you tell us a little bit about the crypto market over the last three or four months? Because it was a very, it was like a, it was on fire.

46:52And like the story made sense. Like, all right, you have pro crypto administration in the White House. Now the SEC is on board. Now, like everybody, everything fell into place. And you had people on both sides of the aisle in Congress falling all over each other to collect money from the crypto lobby. And it just looked like, all right, finally, it's a regulated market. It's accepted. Products are rolling out. People are using it. Inflows are hitting the funds. And then it like hit a wall. And I don't like have theories or whatever. We had JC Peretz on last week, two weeks ago. He's just like, oh, this is easy.

47:30They started trading options on Bitcoin. That was the top, which I guess was someday in October. I don't know. What's your story for why it's been so directionless over the last few months? Yeah, crypto was doing well until October. So do you buy that story, the options story? A few things happened in October. Okay. So crypto was actually up like 36%. And then from October to the end of the year, it actually had, in some cases, like a 40 % drawdown. One was there was a big deleveraging. There was basically a pricing exploit that took place on one crypto exchange that led to what they call an automatic deleveraging.

48:13Then that cascaded across all the crypto exchange and it was the biggest deleveraging event in the history of crypto, bigger than what happened with FTX after SB. So what happened? The people with leverage got unwound and they were forced out of longs and it kind of wrecked the trend. Correct. And it was a pricing error, but it liquidated over 2 million accounts globally. It wiped out, I think, a third of all market makers, which are important for market. They're the equivalent of central banks. And it crippled a lot of crypto exchanges. So their balance sheets took a huge hit. Coinbase is in a 50 % drawdown.

48:49I think it's second 50 % drawdown since coming public. And Coinbase is a big company. So if that stock looks like that, you can only imagine the privately held players in the ecosystem, what that must have meant to them. Yeah, so Coinbase, let's say, is a fortress balance sheet. Then imagine those who have like okay balance sheets. Okay, does that run its course? In 2022, it took about eight weeks, eight to 12 weeks before risk appetite could recover. So we're like kind of in that outside window. Well, Solana's hitting new lows today. So Bitcoin is down six, ETH is down seven. It has not run its course.

49:23It might be accelerating to the downside. But it's so weird with the juxtaposed to gold. It was supposed to be, supposed to be. Digital gold. Yeah. Well, there's other things happening. So in Bitcoin, I think there is a turning of the holders because one of them is, Bitcoin's like 14 years old. So the crypto punk, the 20-year-old, is becoming a mature person. Right. And many of them made fortunes. Yeah. So they've been selling their Bitcoin. Okay. And then, as you know, there's this quantum risk that is more Bitcoin-specific because quantum developments are accelerating. Yes. And about a third of Bitcoin wallets are not upgradable.

50:07So they're actually quantum vulnerable. Okay. Can I ask you a dumb question? I don't know anything about this, obviously. If quantum computing was a thing and we could hack the Bitcoin blockchain, why wouldn't they hack, I don't know, the central bank or everybody's Chase account? Like, why would they go after Bitcoin first? Yeah, so quantum operates more like an ASIC, like a brute force of a repetitive calculation. So it can break encryption. So Bitcoin's encryption is what can be broken. You're right. So you can break a lot of encryption. But banks hopefully would be upgrading all their customer passwords, force you to do a new type of password.

50:48And that's how you avoid quantum vulnerability. The thing is, like a lot of Bitcoin wallets like Satoshi's haven't ever been upgraded. So the, and of course, Satoshi's wallet - How do you upgrade a wallet to make it so that the blockchain itself, that vulnerability to quantum computing will be protected against? You'd have to fork Bitcoin. I mean, but, or you have to contact the guy and say like, upgrade your wallet. If it's like a Ledger wallet or whatever. So, but I'm saying if you upgrade your wallet, you're safe, but the price might not be safe. well if you might be safe from losing your bitcoin but if there's a mass hacking event or there's some way that and i like michael not an expert but if a lot of nodes just go away because they're worried about that risk or if somebody even comes somebody influential comes out and says i have information and i think like literally there's a quantum computer right now in the process of hacking the Bitcoin blockchain like that, you could upgrade your wallet, but the price is going lower.

51:52Well, one, if someone developed a quantum hack, they wouldn't reveal it. Like a nation state would just steal those one third of the Bitcoins. Until somebody starts to notice. Yeah. Now, Ethereum, for instance, upgrades twice a year. So they're already developing quantum resistance. So like a lot of blockchains are going to be quantum resistant. Okay. Just the way Chase will upgrade all their encryption. Have you ever seen sentiment this bearish outside of FTX? People just seem totally done. And I know crypto is so weird that it can get its mojo back in two seconds for no reason. Could be up 15 % tomorrow for all I know.

52:31But man, it looks like it's on the mat. It is right at multi-month support. And it just looks pretty gnarly right now. Yeah. So one, actually, from a technical perspective, crypto is, this is what Tom DeMarc actually is expected. So he's been hired as an advisor at Bitmine, and he actually told us Thursday was an important day. And it turns out today was an important day because we've had a big decline in crypto. But this is more akin to the end of the selling, not the beginning. So you don't think we're seeing another leg lower? Well, for instance, Ethereum might go to$2 ,400, but it's a touch, and then that's the bottom.

53:12But that's going to coincide with precious metals peaking. I mean, remember, precious metals has sucked all the risk appetite out of speculation, out of crypto, right? A lot of it's come out of crypto into precious metals. It's like unthinkable six months ago. Nobody could have foreseen back to, we said nobody knows anything. I have heard that story that the people trading crypto have moved over to gold and silver because it's working, working better. They're probably telling themselves that they're being conservative right now. But there's another story that I've also heard from crypto people, which is that if you thought Bitcoin was a store of value away from the dollar, now with the ready access to stablecoins and the full acceptance in the banking world of stablecoins and pending legislation that might even allow stablecoins to earn interest, stablecoin holders to earn, what purpose does Bitcoin serve?

54:05like if we were using bitcoin to get money out of fiat currency or get it out of the traditional financial system well now bitcoin is fully a part of the traditional financial system that's number one and two it moves too much to be useful as a store of value it's useful as a trading vehicle stable coins are amazing as a store of value because it's a dollar and it's always a dollar so did the advent and mass popularity of circle and and all of these stable coins now fidelity launched one uh this week did that steal some of the use case away from bitcoin well there's have you heard that before i know i'm not the first person to say that i have okay but there is a really big story um around blockchains which is wall street dismissed blockchain and crypto as like just experiments.

55:00But now financial institutions are rebuilding settlement layers using blockchains. That's what Standard Charter said at Davos. The UBS CEO says that in a few years, there's a convergence between digital assets and traditional finance. Because blockchains offer finality and a lot more security. And Larry Fink says he thinks that the entire financial system, it's going to operate on one common blockchain. But why is that good for Bitcoin? Well, it's probably good for Ethereum. Okay. Because Ethereum is - You wouldn't be talking your book now, would you, Tom? I haven't written a book on that. You're so good at this.

55:39All right, go ahead. Go ahead. Say more about Ethereum. So Ethereum's the useful blockchain that can actually help bring that sort of thing about. Because that's really where stable coins have been built. You do smart contracts, so you can lock information and prevent it from actually being altered. You know, you could put a million-page legal document on the Ethereum blockchain. If someone tries to change a period on that blockchain, the hash fails. Right. So that's how you protect information. Right. It's 100 % uptime. This is what Wall Street, as they think about the narrative around the future, is they're building their entire system on contracts like Ethereum, which is really bullish for Ethereum.

56:19What is the timeline when you say they're building their entire system? I would say 99.99 % of the whole financial system now has nothing to do with blockchain at all. In 10 years, is it 50 % or is it 5 %? Like what would be the bull case on the financial rails of let's just leave banking out of it. Let's just do Wall Street, for example. So trading settlement, et cetera. How much of that is running on Ethereum rails? Well, I might be able to give you a snapshot. Okay, I love that. Okay, so if we talk about stablecoins, Tether has about$160 billion of US dollars tokenized on their, Tether is a company.

57:05Yes. But it's mostly running on Ethereum. Even though it's only$168 billion, which is less than 1 % of M1, so it's not even like risk assets, it's not credit equity tokenization, they're going to make$20 billion this year. Actually, because of their balance sheet, they might be making like$24 billion. And that's just the interest on the treasuries that they own to back the dollar value of the coin. And because they're over-collateralized, they actually own like now almost$30 billion worth of gold or something. Oh, wow. Right. Okay. But they're, so let's say they make$20 billion, not$24, but somewhere between$20 and$24.

57:45They're a top five most profitable bank in the world. Wow. That's amazing. They make more money than Goldman or Morgan Stanley. That's amazing. And that's just a single, a monoline product with 300 employees. Okay. Now everybody is coming for that profit margin, as you know. JP Morgan, Fidelity, everyone will have their own in-house stablecoin because why on earth would they allow something like this to continue? Yeah, what's better for the banks than a stablecoin? I don't have to pay you anything. We just have to keep it all? Yeah. Correct. Okay, and that's one product. So now you can build stock trading, which, you know, Vlad and others want to tokenize stocks.

58:26Not using ETH, though. Right? Well, they'll use an L2. Yeah. They might try to use other chains. There's other chains, and some banks are using these privacy chains. I'm not going to try to throw shade, but some have had exploits. Some have had famous exploits in other countries. Okay. But I'm not like— Get me in time. I don't want to be suicidal. You think if they are tokenizing assets, you think if they're smart, they either build it on ETH in an existing L2 or they come up with a new protocol. But like that's the right world to build that. Yeah. So let's say Wall Street tries to do their own blockchain because they want to control the narrative.

59:09Then there's going to be a new JP Morgan that is like Tether that will be built on the public chains. because Tether is built on public chains and it's better than, you know, J.P. Morgan has 300 ,000 employees. Tether is 300 and they make almost as much money as J.P. Morgan. It's crazy. Tom, I got to ask you about digital treasuries. This was all the rage. You entered the game, I don't know, eight months ago. You can correct me if I'm wrong. And this was the way that people got exposure to crypto with leverage. If Bitcoin was up 2%, strategy was up a lot more than that. Strategy is now in a 70 % drawdown.

59:44Bitminer is having similar pain given that nobody wants to own the underlying. Let's assume that there is a bottom coming soon for these strategies, for these assets. Why get exposure through a digital treasury company as opposed to just owning the underlying? So digital asset treasuries, really only two have been successful. I mean, empirically, like since October, only two have actually been able to buy more crypto. MicroStrategy and Bitmine. Both have bought more than$2 billion. It's a scale business. It's not a cottage industry. There shouldn't be 50 of these. Yes. Now, Bitmine is still, because the Ethereum, which is what it holds, generates revenue.

1:00:31Bitmine's got about a billion dollars of cash, and it's staking rewards from its Ethereum is going to be almost$400 million. this year. Okay. And they're earning$40 million from their cash holdings. Okay. So it's a very profitable company. Is it trading at a discount to the other line or not anymore? No, it's trading a slight premium. Okay. But just that, let's say you treat it as net income. It's like the 780th most profitable company in America today. Have you looked at like, have you looked at the correlation between, let's say the price of ETH and the price of Bitmine and come up with a rhyme a reason for like, like, in other words, if somebody said what percentage of the decline in strategy or in bitmine is due to the price moving of the underlying, I'm sure it's a moving target, but it's got to be like almost all of it.

1:01:24Right. That's right. And there's two betas. There's, there's decline beta. Cause he's asking if those assets, not the stocks, if the coins stop coining to the downside and start coining up is the, like, why would you buy the treasury version? You're going to make more money buying the treasury because see the, the treasury has this, has a beta to the decline because the price of the underlying is falling. But when the price recovers, then you're unlocking the ability of the treasury to raise more money quickly. Okay. And, and BitMine has what we call moonshots, you know, made a, an investment in beast industries.

1:02:02He's one of the largest shareholders in Beast now, which is – Do you like him personally? Do you guys get on well? Our corporate values are really aligned. Okay. Because he's highly ethical. Okay. Kindness matters. He's a genius. He is the biggest – Like, obviously. I know I'm not saying anything. Yeah, there will never be another Mr. Beast in maybe ever, right? I mean someone with a billion followers. He was early and amazing at what he did. Yeah. Okay. So you're making investments like that that are not directly correlated to the price of ETH, but you'll probably always trade alongside the price.

1:02:35Yeah, but that is how you create on-ramps to Ethereum. Because, you know, Mr. Beast's audience is – he's the biggest single person for Gen Alpha, Gen Z, and a lot of millennials. Those are the next wave of financial consumers. Right. Right. So, you know, Beast Financial is going to obviously be a really successful endeavor. What is he doing? Well, they'll disclose. They've disclosed Beast Financial, but I don't want to share their plans. Last question. I know a lot of our audience doesn't care about crypto, so apologies for those listeners. Where's the money coming from for you guys to continue to buy ETH when the market keeps going so much lower?

1:03:21It's institutional buyers. So Morgan Stanley, Arc Asset, Fidelity, they're large holders of Bitmine. What percentage of all the ETH do you now hold? I know the goal was, was it 5 %? Yeah. Currently it's 3.52%. So you're almost there. If you include the cash that's not been deployed, it's close to four. So about 70 % of the way there. Have you guys given public guidance when you think you'll hit that goal? And if and when you do, are you upping that goal? Or would you then say, okay, mission accomplished. We are the war chest of ETH. We haven't given guidance, but it's probably sometime this year.

1:04:01One thing to keep in mind, at 5%, it's close to$500 million a year in net income. Wow. And if Ethereum recovers to its ratio to Bitcoin, to its historical all-time high, That's around 12 ,000 ETH. It's close to$2 billion a year in net income. So it's— That ain't nothing. Yeah. All right, stock market. Look at this candle for the close. Look at that bullish candle for SPY. Wow. Holy shit. Is it a hammer? I mean, dude. I sort of like it. Near an all-time high. They can't even take it down for one day. It's a bull market. I don't know what else to tell you. You have Mark Newton in-house? We do. Okay.

1:04:39So what is he telling you on the technicals right now? He likes stocks in the interim, in the near term. Okay. He's also in the same camp that we'll have something that feels pretty bad sometime in the middle of this year. Hold on. What's pretty bad? Because there's always a correction. Like you said earlier, you think bear market, you think we're going to get a 20? Yeah, it could be 20, but from a higher level. Right. So let's say we're 7 ,300. I mean, that could be 1 ,400 points, right? So then 5 ,900 could be the low. I mean, that would be painful. I want to do one more with you and not specific to the stock, but when people ask me, all right, AI, everybody gets it.

1:05:19Going to be huge. Companies are spending trillions of dollars. We all understand that. Like, what's the next leg to the bull market? My answer has been robots. I've been pretty clearly bullish on robots for 10 years now. Tesla last night told the street they're going to stop making Model X. They're going to stop making Model S. I think the models that really matter there now is like the Model 3 and the Y. That's like what they're really going to focus on. And then the Cyber Cab. But then the decision to stop making those cars is to focus full-on autonomy, which is a fancy way of saying robotics.

1:05:58And he's talking about the humanoid robot being for sale to normal people by 2027. Now, we know he's usually five to 10 years early on his projections, but that's like part of the charm, I guess. But that's pretty, A, that's pretty notable that they're dropping two of their four top-selling cars just to make robots and to make automated vehicles. What are your thoughts on that as a signal? And do you think the robot thing is going to be the next phase of the bull market the way that I do? robots uh could be huge not necessarily humanoid robot but just the idea that autonomy is enough correct to be a new bull market that we're not even in yet yeah because robots are force multipliers like it makes every human a superhuman or unemployed but sure yeah an unemployed superhuman yeah if robots pay taxes then you still come out ahead right right because you might start taxing the robot makers at least will pay the taxes yeah okay you know or the DoorDash robot pays taxes.

1:07:01But you don't have this in your themes. Is it too early? We do have a labor shortage as one of our investment themes. Because they will use robots to supplant or to fill the hole. Yes. There is a structural shortage of prime age workers that is going to be lasting for the next 10 years. So there's a use case for robots. But I agree with you. That is a really big unlock that in the real world, you have agentic robots moving around. That's very productive. It could create a lot of GDP, but remember, it could generate so much tax revenue that the U.S. government doesn't have to tax people anymore.

1:07:39You might not even have to work. Come on. So that's what— No more taxes? Yeah. I think we could stop paying taxes because the robots are the ones that are taxed. And then what? How do we fund— People may not even work then because there's so much surplus generated by the robots. Robots pay taxes. Yeah. You tax their activity. It's micro-taxing. That's what you—but you would need a blockchain. You are living in the future, my friend. I love it. You're not at all in any way pessimistic about— We'll be the animals. We'll be the people. The robots visit us in the zoo. We're just like sitting— You're not in any way pessimistic about the combination of AI and robotics, So physical AI, like the number one occupation for men in the United States, like job title is driver.

1:08:30This is not about the future. This is right this second. Like I understand it's the greater good and it'll be cheaper, better for consumers, like the cost per mile. I'm, I'm, I'm, I'm all in, but I am worried about like the in-between once everybody gets used to that. And that could be, I don't know. Couldn't that be decades? that what we're seeing in the software stocks right now, like you're not at all pessimistic that like, we might need a pretty vicious economic down cycle to get to that other side because a lot of people are going to get laid off all at once. I think the US is going to come out certainly as a winner and China.

1:09:11So I think I'm like every American today is going to benefit from the surplus generated by robots. You do? Yeah. But I give you an example. Like in 1935, before the advent of Flash Frozen, okay, 30 % of Americans worked on a farm. And food spoilage on the supply chain meant you produce a lot of food, but it's spoiled. And so they were frozen. It couldn't go far. It couldn't get that far. And most grocery aisles were fresh. Yeah. Within 20 years, Flash Frozen allowed food to go from 20 % of the wallet to five. And it went and took farming employment from 30 % to 5%. So if you were an economist in 1935 and said, in the next 20 years, 90 % of all farming jobs are going to disappear because of this technology.

1:10:05That would have sounded scary. Yeah, people said like, oh, it's another depression. But instead it was led to a boom. There's a great Steinbeck novel, East of Eden. Love that book. And they're farmers. And then toward the end of the book, they get into flash frozen. And actually refrigerated train cars, I think, is a big plot point there. Yeah. Because it takes place in that era that you're describing. Made me think of it. Yeah. So that's like robots because that's 25 % of the entire workforce. So you're not worried about these adjustments between now and then and people wandering around for five years before they feel the benefit of the surplus.

1:10:38Because right now, Tom, a lot of the benefit of all these things seems to be going to the top 50 % of households. The bottom 50 don't have equity. And I just, I feel like that's the same thing, but on steroids. But maybe I'm too, maybe I'm too pessimistic about it. I mean, social policy, yeah, has to change. Okay. You know, hopefully people become productive with their extra leisure time. I mean, maybe everybody will have leisure time. I don't think that's a good thing. I think people got to do something. What are you going to do? Watch Judge Judy all day? I think people want to be needed. Yeah, we don't want people watching TV, right?

1:11:13We want people to aspire to something. Right, and so if the robots take that. So like Elon said, and I'm not sure if he's like joking around the way that he said it, but he said like he predicts mass civil unrest followed by mass prosperity. It's like, all right, well, can you like ballpark the timeframes of these things? Because maybe I'll go on vacation for a few years. Yeah. So like that's the thing that I think about. And obviously like there's a lot of paranoia always about technological displacement. That's not new. But this time it just feels like really visceral. Yeah. And we're at a time when the country is really divided too, you know.

1:11:51But, you know, we're seeing some good things like organized religion is making a comeback. And, you know, like I think guys like Jimmy Donaldson that kind of push kindness and virtue. Beast. That's a good thing. Yeah, Mr. Beast. Like that's what I'd rather see people push than divisiveness. But I'm a bit of an optimist on how this all shakes out. Well, one thing we can all agree on, grannies unite. What's going on with the granny shots? How are we doing there? Yeah. Granny's good. Last year, granny outperformed the broader market by I think 700 basis points. Holy shit. And this year it's outperforming by 150.

1:12:24What does the composition of that portfolio look like this year versus last year? Is it very different or not really? It is different. There is a tilt more towards industrial materials. Basic ones? And some basic materials. Yeah, basic materials. Okay. Total assets of the three. There's now three grannies. There's the original granny. And then there's the small mid-cap granny called Granny J. G-R-N-J. What is that? That's small cap grannies? Small mid-cap, yeah. Okay. What are the assets in the mothership granny? It's$4.4 billion now. Come on. In one year. That's crazy, dude. Is that all right?

1:13:00Did you break a record? I believe. In year one? I believe over. I believe ticked$3 billion. It was the fastest for an independent equity. Like for a non-large house. Last time you were on, I think you were at a billion. And we were like, come on, how? Like in like three months. Yeah. You doubted the power of the granny shot. I never doubt the granny. So the total of all three is like 4.8. Yeah. That's amazing. And what's the way, what's the third one? Granny Eye. Los Grannies? No, Granny Eye. International Grannies? No, that's coming. Of course it is. But granny is income. We're going to give you a licensing fee.

1:13:32I gave you the whole suite. I laid it out for you. I want equal weight grannies and I want it right this minute. Wait, what's the third granny? It's income granny. So it's generating. Granny I. Yeah, granny I. Pay attention. You know, it'd be great if you actually named them after the actual Golden Girls. Like, I'm just going forward here. That's funny. I think people would be into that. Yeah. So, all right, Tom, we love your optimism and we need it. We had Jeremy Grantham sitting in that seat last week. So we need a little pH balance in the water. You ever meet him? I did a fireside chat with him once.

1:14:09Okay. What are your impressions of him? Well, he's very sage. Yes. Very wise. Yes. He's really into - Sage is what they say. You're saying he's older? Yes. Yeah. And he's really into like extractive things like forestry and fishing and owning land. I mean, that's wise, right? Because that's, those things have done well. But I didn't agree, and this was probably in 2012, I didn't agree with his dire equity outlook. Yeah. Well, good call. One of the things that Grantham does not talk about, Michael and I were talking about it shortly after talking to him. He's probably given more money philanthropically to causes that he cares about than like anyone else the two of us have ever met.

1:14:55Well, that's for sure. He's like one of like the, the, one of the great philanthropists and he's not like in the dock before the podcast. Like, Hey guys, bring up my, uh, bring up all my philanthropy. So we didn't get to it. And I actually feel like we should have, he's in a, he's an amazing, amazing gentleman. So, um, and I'm glad, I'm glad to hear that you appreciate that as well. Uh, where can we tell people to go if they want to subscribe to fun strat, learn more about the grannies? Like what are the best URLs to send people to? Okay. If they're interested in getting our research, which is almost daily videos and notes, it's fsinsight.com.

1:15:32Like F, like fun strut. fsinsight.com. Okay, what else? And if they want to learn about Granny Shots, the website is grannyshots.com. Okay. And we explain the process. We have weekly videos there explaining our holdings and how we own the stocks. It's a very transparent product, including we talk about weekly performance, good or bad. And of course, if they're interested in learning about BitMine, they can Google BitMine, I suppose. Awesome. I love what you're doing. And congratulations on all your success. And just thanks for hanging out with us. We love seeing you. And we'd love to have you back at some point this year.

1:16:10This is my—first of all, you guys have the best conference. Oh, thank you. Looking forward to Future Proof in Miami. All right. Yeah. Oh, yeah. Can't wait. Awesome. Wait, you're about to say something else nice. Keep going. Did you have one more nice thing that you want to say? Okay, you guys, you also have a great podcast because I like listening to your voices. Like I don't have to watch you guys talk. I can just listen. We appreciate that. And we'll see you again soon. Ladies and gentlemen, thank you so much for watching. Thank you for listening. Check out Funstrat and Granny Shots. And remember, if you like the show and you want to tell people about it and help the algorithm, throw a like on that.

1:16:46Maybe do even like a review is good. Right, Duncan? Reviews help? We love that. Why do the reviews help? People don't understand this. It just gives people details about why they might like the podcast. Right. That's all you got for me? I mean, it's important. Do it. You didn't have a monologue prepared about comments? All right. All right. We'll let you off the hook. All right, guys. We'll see you next week. Thanks so much.

1:17:11You did it. You did it. That's great.

1:17:19Thank you.