The Compound and Friends - Disregarding Tariff Terror With Nick and Jessica, Palantir Explodes, Amazon and Alphabet Report Earnings

Episode Date: February 5, 2025

On this TCAF Tuesday, Josh Brown is joined by Nick Colas and Jessica Rabe, co-founders of DataTrek Research to discuss the Trump Tariffs, disruptive innovation, DeepSeek AI and the healthcare sector, and more. Then at 37:30, hear an all-new episode of What Are Your Thoughts with Josh Brown and Michael Batnick! This episode is sponsored by KraneShares and Rocket Money!  To learn more about KraneShares, visit: https://kraneshares.com/kweb-suite/ Cancel your unwanted subscriptions today by visiting: http://rocketmoney.com/compound   Sign up for The Compound Newsletter and never miss out! Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to the compound and friends tonight's show is brought to you by crane shares creator of the defined outcome buffer strategies kpro and KBUF most people know about crane shares Chinese internet flagship ETF k-web We talk about it all the time not everybody wants all the downside that comes with earning the upside of Chinese technology. So one way people are getting access but covering some of their downside or all of their downside is through these buffer funds.

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Go to rocketmoney.com slash compound. That's rocketmoney.com slash compound. Okay, on tonight's show, Nick and Jessica are back. We talk about the Tariff Reality Show. Nick and Jessica didn't seem to worry about it. We're gonna find out why. Also, an all new edition of What Are Your Thoughts? starring Michael Batnick and me.

It's still earnings season. We had Alphabet Report tonight, which we got into. Uber is in the morning. Then we've got, who else? Amazon is on Thursday. Palantir crushed their numbers earlier this week as well. There really was a lot to talk about on the earnings front and we love to do it. So stick around. I'll send you to the show right now. right now. relied upon for any investment decisions. Clients of RIDHOLF Wealth Management may maintain positions in the securities discussed in this podcast.

Ladies and gentlemen, welcome back to What Did We Learn? I feel like we're learning every time we do this. I am so excited for my regular check-in with Datatrek on the Compound's YouTube channel. I'm here with my friends, Nick Kolis and Jessica Rabe. Nick and Jessica are the co-founders of Datatrek Research, the authors of Datatrek's morning briefing, which goes out daily to over 1,000 institutional and retail clients. They are also two of the smartest people I know. Nick and Jessica have their own YouTube channel, which you could find a link to in the description below

I didn't know we were gonna have to talk about tariffs as recently as last week but this is the world that we live in and that's really all that anyone is talking about this morning and Let's talk about tariffs. Should I panic now or later today? Like what would what would be the right schedule for flinging myself out a window B if you were me? Oh, just close the window. Enjoy the view.

It's going to be fine. You sure? Okay. Yes. All right. All right. I was all lathered up. I want to introduce the topic very quickly with the TLDR version and you guys are watching, listening to this for the first time Monday afternoon.

So of course, many things could have changed between now and then. But Trump announced 25% tariffs over the weekend on Canada and Mexico. He said they're effective Tuesday, unless those two countries, our two of our biggest trading partners do something about fentanyl and illegal migration across the border. Then he made some economic arguments to justify trade, things like trade deficits that have always bothered him. No one really knows the end game here because this isn't rooted in any specific policy goals

per se. I think what these countries need to do is play along. And he's always just like tariffs is the important thing to keep in mind here. He liked them in the 1980s when Japan was ascendant. He liked them in the last term when he was complaining about NAFTA and China. He likes them now. He will never completely take the threat of a trade war off the table. This is just going to be part of the ambient noise of the market over the next four years.

We all kind of have to get used to it. Guys, I want to just throw up a quick chart of the reactions as of this morning. You can see we immediately sold off before the market opened. Ever since then, markets have been steadily recovering showing you here S&P, Dow, Nasdaq, basically barely down. The Dow looks like it wants to go flat on the day. And then the last thing I'll just pop up here. We got word from Donald Trump that he's already talking with Claudia Scheinbaum of Mexico.

I have to read a little bit more about why they have an old Jewish lady from the Upper West Side as their president. But Claudia Scheinbaum had a very friendly conversation wherein she agreed to supply 10,000 Mexican soldiers on the border separating Mexico and the US, therefore tariffs off as we achieve a deal. So obviously the market's like that. Chardoff, I mean, guys, it's the same reality show from the last term. I don't know why we're treating it as though it's something different than what we've already lived through.

What are your thoughts? Yeah, that's totally fair. I mean, this is not a surprise in the typical sense of the word in terms of what happens to Wall Street. We've known what Trump's policies were from the first term. We knew from the whole election cycle last year. So none of this feels like any kind of great surprise. Timing is always going to be a little bit of a surprise and okay, doing it on a Friday, the last day of the month, maybe not the best idea, but still we're here and markets are dealing with it as they always do.

I'll just toss out one piece of kind of trivia. Since 1990, when the VIX first was launched, of the 100 lowest VIX closes, 80 were in Trump's first term. So for all the reputation that he has about roiling markets, the track record is something entirely different. Yeah. I think that's probably because it's hard to keep shocking people over and over with potential negative outcomes that never actually happen.

Now they did actually do the tariffs last time and there were obvious negative consequences, both in terms of GDP, but then also like specific sectors. But to your point, that still didn't equate to being a more volatile than usual period of time. Over the entirety of the presidency, there were volatile days, would probably be the way I would phrase it. There were volatile days, but the VIX was very often below 20. And the only two noticeable vol spikes during Trump's first term were both rate related.

They were in Q1 and Q4 of 2018 as two year rates began to climb because the Fed was talking about hawkish neutral rates and again in Q4 when markets really melted down. But we can't really point to either one of those being Trump's fault. I want to show you a couple of charts by chart kid Matt from my shop about what people would be worried about if we thought tariffs were about to seriously not only be announced but implemented and then stay in place.

This would be the core PCE inflation outlook. This is data coming from Russell Investments. They're showing you basically the flat blue line is the baseline for the inflation outlook with no tariffs. Then there's a baseline with tariffs and then a high-end tariff scenario where these countries do not negotiate and we keep ratcheting up and the rhetoric turns into actual policy. And you could see that that high-end tariff scenario leads to a spike sometime around the end of 2025 into like the 3.6% core PCE, which of course headline would be even higher.

The next chart is the effects on real GDP. You could see a pretty big drawdown if the tariffs as promised become the baseline and are implemented. The high-end tariff, obviously significantly worse. And then the next chart, this is just the tariff rate on US goods, the average tariff rate on US goods, imports for consumption. So you can kind of see that dotted line on the right. That's the proposed 20%. And right now, of course, we're somewhere just over 2% we've settled out at. So it's a really big difference if this stuff actually happens, but the if part guys is, you know, the big if.

So any feedback from clients over the weekend or any questions that you weren't expecting to get when you saw these headlines start to cross? Not really. I mean, the issue we were addressing all last week speaks to the charts that you just put up, which is what effective tariffs have an inflation and therefore Fed monetary policy. And it's been interesting over the last couple of Powell press conferences that this very arcane document called the Teal Book, which is a briefing document

the Fed staff puts together for the Fed governors ahead of meetings to help them decide a monetary policy. Back in 2018, they did a whole study on that inflation chart. And the numbers are pretty similar to what you put up there. Tariffs actually spike inflation. It was a huge topic in 2018, they did a whole study on that inflation chart. And the numbers are pretty similar to what you put up there. Tariffs actually spike inflation. It was a huge topic in 2018, huge topic now. And the recommendation to the Fed was not to raise rates, because it was a one-time inflation shock.

And raising rates would just cause a recession. And seeing through them would eventually see inflation come back down to normal. So in terms of the interplay between what we're seeing here and what the Fed's been talking about, which is a big issue for our clients, so far the color has been, they're more likely to see through it

than they are to act on it and try to dampen inflation due to a one-time effectively a shock. Jessica, what are your thoughts on the topic? I'll just speak to my cohort. So anyone from 30, anyone 35 and younger, don't worry about what one president over the span of one month does with three countries. This is just a blip in the radar relative to our investment horizon.

So just stay the course, stay through the volatility, look for some productive entry points if there are any and we'll speak, think Nick's going to speak to that a little bit with the VIX later. But yeah, just stay the course and find a productive entry point and just look past this. Nick, you guys have a framework where the question to really ask yourself is, is this negative catalyst going to materially change? First of all, is this really a negative catalyst if it happens?

And then if it is, how negative? Is this going to materially change the course of the markets? And you kind of go through a playbook for these negative market catalysts. Do you want to, we could put the, I think we could put these rules on screen. Do you wanna walk us through this idea? Yes, this is, I mean, not to be too dogmatic, but we look at every market shock kind of the same way. And we run through a checklist of questions

to determine how much we should worry about it. So it's basically four items. The first is, does the negative catalyst have a material effect on the economy? Does it increase the risk of recession? The biggest thing that happens usually is you get an oil price shock. And this happened in 73, 79, 1990, a couple of other times. Prices double in a year.

That affects consumer and business confidence. We get a recession. You can also get fears of a recession from aggressive Fed policy back in like back in 2022. So, does it, question number one, does it increase the risk of recession? And I would argue that so far from what we've seen, the answer is no. These tariffs are an annoyance to markets, but they don't really put the economy on a tipping point into a recession. Things can change, but I seriously doubt Trump wants to see a recession in his second term in

office. So he's going to be careful on this point, as erratic as he might sound. The second is- Let me break in for a second, chart off for one moment. We are though talking about the auto industry and oil. So having tariffs on Canadian oil and gas products that are above and beyond the other tariffs and then having Canada recognize that that may actually be an opportunity to retaliate against us. I'm not saying this could in and of itself cause an oil shock, but directionally, it's not great. And then on the southern border, a lot of auto manufacturing revolves around back and forth commerce between the US and Mexico.

And of course, autos and auto manufacturing is a highly economically sensitive sector with tons of employees and lots of economic activity that can be affected like throwing a stone into a pond. We don't necessarily know where those ripples stop. So the answer to your first question is, does it materially increase the risk of recession? I sort of feel like you would say, well, tell me for how long it goes on

and how extreme it gets before I can really answer that. Yeah, so on your two points, on the first, oil prices have to double before you get a recession. The history is super clear on that. And we not talking about a doubling up of oil prices on the second point The last time the the US auto sector a sector very near and dear to my heart having covered it now for 30 odd years Is that the last time an auto shutdown had an effect on the US economy was I think September? 1998 there was a 54 day strike at GM and GDP got clipped by 0.3%.

0.3 percentage points. So yeah, automakers important to the economy, but you know, even less so now than in 98. And even in 98, a very long full blown, no production strike at GM only hit GDP by 0.3. So not as important as it used to be. And while the headlines are there, maybe not as important as people say. Okay, chart back on. Rule two. Rule two, does it affect financial stability?

Does the negative shock affect financial stability? And the examples here are the 97 Asia crisis, the 98 LTCM crisis, 2008 obviously, 2011 Greek debt crisis. And I would say no one's arguing that tariffs are going to create any kind of instability in the financial system. So no on that point. The third point is how do policymakers respond to the catalysts? In this case, policymakers are the catalyst. So that's the one area where it is a negative catalyst with no clear address.

You're not going to get a countervailing effect from other policymakers. So there's the risk. And then finally, how do US markets respond? And we look at the VIX, Jessica mentioned this. There are three levels to watch. 19.5 is the long-term average. We just ticked over that this morning and fell right back down.

27.3, 35.1 and 42.9. So rounding to 27, 35 and 43. Those are one to three standard deviations above the mean. The more severe the VIX, the more severe the response, the higher the VIX goes, the more likely you'll get a policymaker response. And this goes back to literally the start of the VIX in 1990. When that volatility gets that high policymakers act, they always do. So I think hitting 20 on the VIX this morning is not a signal that the administration has to back off immediately. It's probably a sign that the administration has to back off immediately.

It's probably a sign that they're okay, that they've communicated these policies accurately and the market's not all that surprised. Going back to our prior, what did we learn? The only thing that affects stock prices is surprise. Should we be surprised by what happened? Probably not. He ran on this. He ran on it and he's delivering on what he said he would do.

Yeah. The surprise is that he's actually doing it and he's delivering on what he said he would do. Yeah, the surprise is that he's actually doing it and he still hasn't actually done it by the way I should point out. The surprise is that he's starting within the first two weeks of his administration, but the surprise is not that he likes tariffs. I mean, that's fairly clear. I thought, look, there's a lot for us to talk about the reaction and Bitcoin is like a whole other tangent we could go on. It turns out Bitcoin is basically in the magnificent eight. It's the eighth holding and people are starting to learn something that we've all been saying for a little

while. The non-correlation goes away right when you would want it. But that's a whole other topic. All right. I want to talk about the DeepSe seek stuff because you guys do write a lot about innovation and you write a lot about the reason why in the United States economy, the upside surprises are the thing that have driven markets and those upside surprises frequently emanate from innovation sectors of our economy. I haven't spoken with either of you about the events of last week with the surprise from China that there may be a large language model that cost under $10 million to build, which maybe isn't true, but what was your reaction and what do

you think is relevant to investors now? Yeah, so I mean, we've got actually a couple of slides, because I think this concept of disruptive innovation is super important, but it gets so badly abused in the common use that I think it just deserves a quick reset. And so people, you know, viewers can pause and just what read these slides, I'm going to blow through them pretty quickly, but there's more details in them. Clayton Christensen, who was a Harvard Business School professor, coined the term disruptive innovation. And he said it's a very specific thing. It starts with a small company with very limited resources

entering a market with a low cost product that targets underserved consumers and uses a new technology to give them an edge. The incumbents, people already in the business, recede from the low end since it's very unprofitable anyway. They don't really care. They can make better money, better returns on capital by moving up the value chain and not really focusing on the low end, which they don't really like to serve. So that would seem to be a win for them. But the problem is over time, that disruptive company moves up the value chain, starts adding products, starts adding features, starts adding services, and that product gets better and

better and better. And the incumbents continue to seed that ground and move over, move even further up the value chain. And eventually they disappear because the incumbents taken to seed that ground and move over, move even further up the value chain. And eventually they disappear because the incumbents taken over the entire market and the whole process starts over again. A couple of examples from that on the next slide. And these are just go back just to show you that this is not just technology. This is not just Moore's law.

This goes back 100 years plus. Sears Roebuck killed the general stores in the first half of the 20th century because rail finally connected the country and allowed for shopping and shipping a wide variety of products marketed by catalogs and it killed the general stores in this country. The Japanese automakers versus Detroit, same story. In post-war Japan, they didn't have a lot of resources. They did figure out a new way to build cars and trucks and they did it with continuous improvement and building affordable small cars.

The minute the oil shock happened, first in 1970 and more in 73, 74, they walked in and took the low end of the market in the US and then improved their products over time and gradually killed the big three. That happened over 30 years. And then finally, we know Amazon. Amazon's the one that finally disrupted Sears Roebuck doing the internet to sell books and then everything else. Books were an underserved market and everything else came along afterwards.

So this paradigm of starting at the low end and moving up, this is the paradigm of disruptive innovation. That's how it works. And the final chart just shows you DeepSeq versus USAI and particularly JCPT and it ChaiChiPT. And it fits this role to a T. Deepseek is the disruptor. It's a cheaper offering, good enough product,

potentially compromised with Chinese ownership and in-country hosting, but still good enough for a lot of users around the world. ChaiChiPT is the incumbent, super well-funded, relationship with Microsoft, the power base right now. AI is a fast growing global market. So in theory, there's room for both Chinese and USAI, but the risks to USAI is that deep seats keep setting better,

which it will, and other China-based disruptors enter the market as well, which is super likely. And there's a lot of parallels to the US auto industry, honestly. And again, this is my touch point to thinking about disruption, because you have insular management who thinks they can do no wrong, Their temptation to retreat to the high end of the profitable upper segment

of the market with Microsoft is very likely. And you end up in a situation where OpenAI is GM and DeepSeek is the Japanese auto companies. And that paradigm fits extremely well. So guys, this stuff is like two years old and we already have incumbents being displaced. Yes. The minute you raise a hundred billion dollars, you are by definition the incumbent. And then people can chip away at you.

So that's the paradigm we think about. It's a super important topic. I mean, this is- Yeah, look, I think we have like, even in the last few years, we have like really obvious examples and one of the things that this disruptors always have in common. They don't shy away from the fight because they're the David and they're up against the Goliath.

They use the Goliath's own weight against it. And so and so like Amazon disrupting disrupting Sears,, Sears had the weight of all these retail locations and Amazon was able to use that against them. We don't have those retail locations. We can go way below your cost and pass that cost along. We're seeing that with Robinhood right now in the brokerage market. The move upstream, Robinhood made an acquisition in the RIA custody space just before the end of the year. They start out as a toy and everyone laughs and says, oh, look, it's Robinhood, LOL. Now they

want to be in the wealth business. It didn't take long. So, we see examples of that sort of thing all the time. Is the takeaway though for investors, what if all of this investment being made on the part of Microsoft and others turns out to have been, I don't want to say wasted investment, but not as profitable in the future as we once thought it would be. Now that you've got these players at the low end that are effectively piggybacking it. I think. Sorry, Jessica. Jessica, please go ahead. Yeah, go ahead.

Those are some costs. The market is focused on the future. I think what's more important is that January showed the market understands that cheap AI is not an existential threat to US big tech and that it might actually help. For example, we have a table of the breakdown of big tech's contribution to S&P returns over the last two years in January 2025. Just three quick points here. First, as you can see in the table, Big Tech was awash in January in terms of its contribution to the S&P. So although of course, a video

is a drag, Meta, Google, and Amazon more than offset its effect. And second fact, even after all the news about DeepSeek, Amazon made a new record high on Tuesday, and Google and Meta did on Friday. The third point here is this is a benefit of index investing. If sentiment around Nvidia continues to worsen, it'll have less and less of an impact on the S&P. At the same time, other names that will benefit will play a larger role in the index. Now, US big tech companies like Meta and Google can spend less on building out AI infrastructure

and more on creating useful tools that they can monetize to their large global customer base. From an investor standpoint, cheap AI means a lot more capital to return to shareholders through stock buybacks or dividends. So, Meta, for example, spent $28 billion on AI in 2023, $39 billion in 2024, and it plans to spend between $60 and $65 billion on AI this year. Everyone's probably seen those headlines. Even though Mark Zuckerberg said DeepSeek won't change these spending plans, the company is certainly going to have to consider adapting if cheap AI proves useful and monetizable.

Our bottom line here is we need cheap, ubiquitous AI to create killer apps that make Gen.AI a useful daily tool for people as opposed to just a cool technology. We really think that's what's been missing since ChachiBT debuted in late 2022. Yeah. Let's put this dispersion chart. So this is dispersion and Mag7 year to date returns. Now, of course, some of these companies have reported earnings and some haven't. So that's some of the price action that we're seeing here. But some of it is in the response that we just described to the launch of really cheap AI, really like productive low-cost AI. Meta is the best performing name as of the end of last week in the Mag-7.

Nvidia is the worst. Who has the most to lose as these technologies become more widely available and you need less compute? Who has the most to gain? Meta among these companies has the large language model that was already open source and was not seen as going to be a huge source of profits on a standalone basis. I think, Jessica, that's really the salient point here is that it's not good or bad. It's good for some, potentially bad for others. This follows most waves of disruption in that it's not immediately clear that these companies should be trading up and down together once we see that dispersion. Why wouldn't it remain dispersed? That was a big takeaway for me.

Then I guess I would ask you guys, is this a Sputnik moment? Or as you phrased it, is it just another Marlboro Friday? What do you mean by that? And, you know, how are you feeling a week later now that we're more worried about tariffs than we are about DeepSeek for a change? The new cycle is whipping around, that's for sure. I mean, the difference between the Sputnik moment and Marlboro Friday, the Sputnik moment was, you know, when the Russians launched Sputnik, the US

freaked out because they thought they were way ahead in the missile race, which was basically the intercontinental ballistic missile race. The Russians showed that wasn't the case. And it really, you know, created NASA and it created a lot of focus in the US on getting better at technology. So it was healthy, but it was a shock. It led to the moon landing, like within the decade. Yeah. So, you know, it's, it, it, it helped.

It helped propel innovation and hopefully does the same thing here. Um, Marlboro Friday was this thing in the 1990s where all of a sudden one day, I think it was in 1993, Philip Morris cut the price of Marlboro cigarettes by 20% in a day because they were losing market share to generics and the stock was down 26%, they just got crushed. It was one of the more dramatic moves of the entire 1990s of a big super cap stock with massive competitive advantage. And people were writing about the death

of consumer packaged goods for the next two years that no CPG company can hold price, brands don't matter. But here's the thing Marlboro basically- Bad call. Bad call because CPG continues to be powerful and Philip Morris doubled over the next three years from that puke. So I tend to think of this more as a Marlboro Friday moment, uh, with some of the comments that Jessica made about disruptive innovation

affecting companies differently. Some of it may be some clear winners, but this isn't, um, you know, the death of a theme the way people thought it was about Murburke Friday. Okay. Another corollary that I thought of when people used to say is high oil, is it good for emerging markets or not? And you would say, well, the bricks, two of them are oil exporters, two of them are importers. What do you mean is it good? Great for Brazil, I guess. Not so great for India. Yeah. Awesome for India. Yeah. Okay.

Awesome for Russia. Right. So there's too much nuance for the algorithms that will buy and sell on a headline like AI giants disrupted by China. There's way too much nuance for that easy of an answer to ever give you a durable edge as an investor. Because then there's the second order effects, the third order effects. I think that's a really good reminder.

Guys, I want to get to this thing Jessica was talking about. If tech goes out of favor, growth oriented investors should show incremental interest in healthcare. Funny you should say that. I just pulled the trigger on a pharma stock that is technically breaking out 15 minutes ago. So good, good, good timing. I look at the stocks that are working. I have a bias toward the 52 week high list, not the 52 week low list. I'm seeing more healthcare on there than I have in a while. Last year was a terrible year for the healthcare sector relative. Talk

to me about what you're what you're looking at here. Sure. Yeah. We wanted to end on something actionable. With concerns over US large cap techs high multiples and now this Chinese AI competition, we think US large cap healthcare should outperform because growth oriented investors will look at it as an attractive option versus big tech. Healthcare is actually the best performing sector last month in January. It was up 6.8%

versus a gain of 2.7% for the S&P and actually a loss of 0.7% for tech. Of course, there's a government policy uncertainty with this trade, but I'll just quickly lay out the bullcase here for what is rather a contrarian call, because as you said, it had a horrible year last year. If you could just please put up the first chart. This shows the one-year trailing relative price returns for large cap healthcare using the XLV ETF versus the S&P from 2000 to the present. using the XLV ETF versus the S&P from 2000 to the present. So when the blue line's above the X axis, that means XLV has outperformed the S&P by the amount shown on the Y axis and vice versa. So it's been a while. Yeah. I just have three quick points here. So healthcare on average has performed in line with the S&P over any given one year holding period. In fact, it's slightly outperformed

by 0.3 percentage points. And the standard deviation around that mean it's 10 points. So you can see on the chart there, we noted the three standard deviation downside level, 29.9 points with a dotted black line. Now, second, health care has only come close to three standard deviations of downside performance twice over this period.

The first was, as you can see in the chart, was on April 6, 2021, when XOV had underperformed the S&P by 29.1 percentage points over the prior year. That was due to tough comps from the start of the pandemic when the group was on fire. Uh, over the next year, large cap healthcare did go on to outperform the S and P by 12.1 percentage points. And then the second was actually earlier last month on January 6th with XOV underperforming by 27.6 points. Since then healthcare is outperforming S and P by 5.6%. Uh, or sorry, healthcare is since then healthcare is up 5.6% versus S&P is up just 1.1%.

And third point here is these two instances are mathematically similar. They do come against different backdrops. So of course in 2021, healthcare stocks were copying against pandemic air strength when people are looking for reopening trades. Now healthcare has been lagging since the start of the current bull market. So since the S&P is low in October 2022, XOV is only up 21% versus index gain of 69%. Now as for the- That's a Huge performance disparity.

Yeah. So we're looking for even for this, right. Even for any other sector versus tech, this is as big as it gets, right? Yeah. So it's pretty, pretty big disparity. And even on top of that, so we're thinking of, okay, so what's going to be the catalysts that might spur investor interest in healthcare, other than just that deep underperformance as you just pointed out? And two thoughts here. The first is that healthcare saw, only saw 3.9% earnings growth in 2024 on 8.3% revenue growth.

So of course, negative operating leverage is a major reason stocks or sectors underperform even without the policy overhang that came into play after the November US general election. However, over the next two years, Wall Street analysts are actually looking for positive operating leverage. So revenue growth in 2025 of 7% should translate into 21% earnings growth. And for 2026, 6% revenue growth is expected to create 10% earnings growth.

And even if you think those numbers are a reach, if you could please put up the next chart. Yeah, so while those estimates might be reach healthcare trades for only 17.8 times 2025 earnings estimates, so that's far below the S&P's 22 times and tech's 28 times. The only cheaper sectors are financials at 17.3 times and energy at 14.3 times. So the bottom line here is we agree with you, Josh. We just picked a stock, but we do think the sector is a good trade. If large cap tech continues to be out of favor, healthcare should continue to outperform,

we think, from interest from growth-oriented investors. It's dramatically oversold and it has a history, albeit limited, of bouncing back when it's this deeply discounted. We saw some of that already in January. This is the third cheapest sector on forward PE, selling at a below market multiple. It is currently coming out of an historic level of underperformance relative to tech and the overall market. Is that fair to say? Higher than average dividends versus the other 10 sectors.

Higher than average profitability excluding biotechs, I would guess. Give or take, right? And somewhat defensive characteristics historically, the healthcare sector, not all the names in the sector, of course, are defensive, but more defensive than anything in the tech sector, I think we could probably argue. All right, do you think we could get into a scenario where like negative days for tech,

you could almost like close your eyes and bet you're gonna see green on the screen in these stocks or is it not quite that black and white? What would you guess? You tend to see growth, like I said, you tend to see growth-oriented investors, yeah, swap into healthcare from tech. Okay, I like it. And there's, I don't know, Yeah, swap into healthcare from tech. Okay.

I like it. And there's, I don't know, hundreds and hundreds of stocks in this sector, depending on how low you're willing to go down in cap size. But there are no shortage of companies that you could take a look at if you are under invested in healthcare, super actionable. Thank you for that. Yeah. And in January, the only down sector was tech

and the best performing sector is healthcare. Like what else do you need to know? I would say let's keep this our secret, but we are on YouTube. So the secret is out. Nick, Jessica, thank you guys so much for joining us. I want to remind everyone if you want to learn more from Nick and Jessica, they have their very own YouTube channel. It's youtube.com slash at Nick Colas and Jessica Rabe. And of course you can subscribe to their research at datatrechresearch.com. Thanks guys. We'll check in with you soon.

Thank you so much. Hello. Hello. How I sound? Good? Yeah, we're good. We're here. What's up guys? It's Tuesday. It's 5.30. And you know what that means. It's an all new edition of What's Up Guys. It's Tuesday.

It's Tuesday. It's Tuesday. It's Tuesday. It's Tuesday. It's Tuesday. It's Tuesday. It's Tuesday. It's Tuesday.

It's Tuesday. It's Tuesday. It's Tuesday. It's Tuesday. It's Tuesday. It's Tuesday. It's guys? It's Tuesday. It's 530 and You know what that means. It's an all-new edition of what are your thoughts? My name is downtown Josh Brown I am here as always with my co-host Michael Batnick Michael say hi. What is up ladies and gentlemen? We have a full chat. I'm told let's see who's here Cliff Magnus Chris

chat I'm told. Let's see who's here. Cliff Magnus, Chris, Sean is here, Jerry. Everybody got here nice and early too, which I love. John Carlo, Random Trends, Todd Dennis. Have had some names that maybe are new to the proceedings. Should I pull a couple? Michelle, yeah, absolutely. All right. Greg Jones. Hello. How are you? Rachel's here. Jelzap is here. We got, uh, we got, I mean, Jack Rosenfield, everybody's in the house. Georgie, we see you. Um, y'all say hello to, uh, Nicole. Nicole is monitoring the chat.

Uh, if anyone gets out of line, she's authorized. You know, what's crazy about YouTube and it's different than every other platform. And I low key love it as a creator There's a feature Not block and not mute hide user from Channel oh so they've been what that means they don't even know and they're just walking shit but they're talking shit for a thousand years and if nobody is seeing it and

That I mean that to me, that's like very, that's my spirit animal of features on a social media. I love that idea of just like enforced apathy. We don't even care. You could say whatever you want. No one's gonna say it. Nobody cares. So, all right, guys, we have a sponsor.

Michael's gonna tell you all about, and we have a lot to cover tonight. So Buckle in. It's going to be an amazing show. Who's sponsoring the show tonight? It's Crane shares. We've spoken a lot over the last year about an explosion in different thematic ETFs. And one of the big categories are the Buffett ETFs with downside protection. This is not quite face blower category.

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Chinese stocks rallied today when President Xi announced China's counter tariffs against us. He's in on the game. It's all a big game. They're meaning to get long these names and I just have it. But they're still trying to look at it. They've been working. The buffered approach is smart for people that they want exposure and they're willing to give up some of the upside because they

don't want as much potential downside. And this is America. We invent things to solve problems. That's a problem people have. Is there a specific Queen shares thing they're supposed to go to or Queen shares.com? Tell them, you know, Michael Batnick. All right. So this week was the Tariff reality show.

We all knew it was coming. It had been widely promised throughout the course of the election. And here we are. And it got off to a pretty exciting start on Friday. Trump shared via Twitter, as most presidents historically have, that there would be 25% across the board tariffs on Canada and Mexico until they got serious

about helping us combat the flow of venereal into the country and illegal immigrants. And there was like a little extra something on Canadian energy. And then there was a China tariff because, you know, when you go see Trump, you want to hear the hits. You know what I mean? If he just did Canada, Mexico, people are like, all right, but you're going to do China, right? He closed with China also tariffs on China. And then, uh, she is like, Mexico, people are like, all right, but you're going to do China, right? He closed with China, also tariffs on China. And then she is like, oh, okay, cool.

Here's my tariffs. And then, or maybe just prior to that, there were negotiations already. So it's like, oh, actually, I'm talking to the Prime Minister of Canada. I'm talking to the president of Mexico. We're going to figure this out. And there's a 30-day pause. Dude. So it was like the stock market laughed like it should have. I'm talking to the president of Mexico. We're gonna figure this out and there's a 30-day pause So it was like the stock market laughed like it like it should have we need to bring we need to bring avocado

Manufacturing back to the United States. I have said this for a long time I want to so I want to like give you a little bit of a rant on On my take on the tariffs and and this is not to dismiss any of the analysts or strategists or economists who have spent the last three days writing about this. I understand it's almost obligatory. I have to tell you, I have personally spent zero time writing, speaking, or thinking about tariffs. Like literally zero. The degree to which I don't give a f**k

must be measured by heretofore uninvented quantum computer driven innovation. Like the technology, the instrumentation has not been devised to measure the degree of my complete and utter apathy for the entire topic. Maybe if I were importing strawberries, I would feel differently, but as an investor, I just am so out on this.

30 days will go by, we'll do it again. I won't even notice. And one of the reasons why is because I understand where all of this is coming from. It's here, let's put this image up. This is Donald Trump in 1987. Let me tell you a quick story. Donald Trump bid on a piano that was featured in the movie Casablanca and he lost. And the winning bid came from a Japanese trading company buying

it on behalf of a Japanese person and that really pissed Donald Trump off. So he went on TV with Diane Sawyer and he screamed about Japan the same way he does today chart off about China. This is a quote. I believe very strongly in tariffs. Guys, listen to me, this is 36 years ago. I believe very strongly in tariffs, said the Manhattan real estate developer. Then he starts criticizing Japan, West Germany, that was a thing back then, literally West Germany, Saudi Arabia, South Korea for their trade practices, quote, America is being ripped off.

We're a debtor nation and we have to tax, we have to tariff, we have to protect this country. It's not about anything. It's the way that he holds the news cycle in the palm of his hand. It's the way that he likes to open up negotiations. We all learned this. It's like way that he likes to open up negotiations. We all learned this. It's like we get it. Throw a punch, have the meeting, then come out with your arm around the person.

Look, we get along. I saved us from the tariffs. How stupid do you honestly have to be to publish a piece with the percentage probability of a US recession like I saw from some of the banks. Are you serious? So that's kind of like the root of my apathy. This is something this man has been talking about for 40 years. There's no rhyme or reason to it. It's just he's fixated on it.

He loves it. It's never going away. We talk about tariffs next year. We still have to invest guys. So what I don't am it too much. What are your thoughts? I losing my losing it a little bit about this or am I exactly well? I unfortunately was glued to my phone on Sunday night, like waiting for the futures open because I was of the opinion. I did believe that come Monday, this is going to be rolled back and it was going to just all be attacked.

But I didn't know for sure. And so as far as the banks are concerned, this is their job. You know that they can't like they can't not publish stuff. But the more important thing from the point of view, forget about the news and the noise and the rhetoric, from the point of view of the investor, because there are real world implications here. Like this could really f*** people's lives up like big time. So I'm not talking about that for a second.

Just from the point of view of the investor who's watching and listening to us right now, yesterday you were talking with Nick and Jessica, and Nick Koulis made a really good point. For all of the noise that we're gonna be dealing with during the presidency, and there's gonna be a lot of it, we also experienced this in his first administration. And guess what? This was my point.

80, I think this was a stat, correct me if I'm wrong, 80 of the 100 lowest closes ever for the volatility index for the VIX happened during his administration. And I think the market has gotten wise to his rhetoric and is looking past all of the noise because at the end of the day, this is for better or worse, probably, well, whatever, this is a negotiating tactic. Sorry, there are no presidents that start off their first week in office doing something

to deliberately cause a global recession. In no way would any president think that that's like the way to get started. So he could talk about tariffs, he can use them to ensure cooperation at the border. I don't hate it. Like he got people's attention. It's somewhat effective. I don't, I'm not for fentanyl. I'm not for illegal immigration. Like I'm not pro those things. The actual idea of tariffs though, again, the negotiating thing, yeah, fine, we got some stuff done, but the actual idea of tariffs and what they do for global economy, it's

a negative sum game. It is economically destructive. You are levying a tax on the companies importing these goods that is passed directly to the consumer. Like it disincentivizes trade. It's horrible. There's this cottage industry of people now who are like bending their brains into pretzels to try to write tariff supportive economic commentary. Like, no, no, no, actually Trump is right. And some of the shit I've come across is like, oh, but it's so much worse without tariffs

if we let like, like, look how bad NAFTA was for the middle class. And it's not to say that any country should just do whatever they want. And we should be the only country that plays by the rules. And without a doubt, there are countries that have taken advantage of free trade with the rest of the world and have not played by the rules. And without a doubt, there are countries that have taken advantage of free trade with the rest of the world and have not played by the rules.

So no one is saying that Trump's 100% wrong. I think the bigger picture is like, the last time the tariff stuff was about China, which is probably where the focus should have been. Now, Americans get a benefit from trading with China and having a trade deficit in the form of all the shit they buy at Walmart. But that's a whole other topic. I think what's jarring this time is he went right after two countries that are geopolitically our best allies. And biggest trade partners. And that's where it's different. Canada is

partners. And that's where it's different. Canada is $400-something billion a year in trade and Mexico is closer to $500 billion. And that's different than having this global showdown with China. I want to end this topic, though, with what Nick talked about yesterday, because I thought this is a really great framework. We have this, um, data track playbook for negative market catalysts and, uh, Josh, you're the questions to add. And if you missed the video, if you missed the video with Nick, it's, um, it, it's available on YouTube. Does it materially increase the risk of recession? Does it materially threaten financial stability? How do policymakers respond to the catalyst?

So remember, for every action is a reaction. And lastly, how does the US stock market respond? So Nick points out, chart off, Nick points out we really didn't get a crazy VIX spike. It was at 20, it was nothing. Policymakers, well, we are the policymakers in this case. I guess the Fed would be the relevant policymaker. What do they do in response? Does it materially threaten financial stability?

I doubt it. And does it increase the risk of recession? I could go either way on this. I'm not a trained economist. I just feel like a very large part of our economy maybe would suffer as a result of tariffs, but I don't think it's quite the same as a trade war taking place in the 1970s. So I looked right through it already. I'll keep looking through it. And that's kind of my framework for how to survive the tariff reality show. You want to take over here?

Yeah. Let's keep it moving. I mean, yes, I agree. At a bare minimum, it's going to coerce noise, but there's no investing philosophy that could be implemented based on the swing. So let's leave it at that. Okay, let's talk about earnings. The news cycle has been so noisy that between DeepSeq and between the proposed tariff, the

threat of tariffs, we stopped talking about earnings and earnings season, which ultimately is what's going to drive markets in the long term, have been off to a good start. So ChartKid shows that the path of earnings growth, the estimated earnings growth has been revised higher for sales as well. So good news there as far as earnings season so far, we've got about 50% of the market cap has reported a little bit more after today. Profits are up 10% year over year, 250 basis points above estimates at the beginning of

the season. So off to a good start. Can we put the first chart back up? Strong Q4 earning. I mean, look at this. Look at this revision. It's like, I mean, dude, not everyone is beating, but pretty much everyone is beating. And let's run through some of these stats. Chart off. 50% of the S&P 500's market cap has reported, and that's as of this morning. So I think if you add an alphabet after the close, it's more.

10% year over year earnings growth for the quarter is outstanding. That's number one. Number two, S&P 500 profits up 10% year over year, but being 250 basis points above estimates from where we started just this season, I think is pretty bullish. And then almost 80% of S&P 500 companies beating earnings, 79% in the five year average is 77%. So we are ahead of where most people would have supposed we would be on a lot of metrics. And now even revenue is growing. One of the problems at the start of this rally is that earnings were growing, but revenue had been slowing down and People were like all these companies are gonna run out of levers to pull

Well now we've got revenue growth continuing into yet another quarter 8 out of 11 sectors a year-over-year increase in profits also pretty pretty pretty outstanding and the energy thing like you could almost disregard it because there's so much commodity noise in those companies quarterly numbers that's so far outside of their control. It's almost like it's almost not even worth paying attention to the percentage of energy companies beating because they have they can't forecast

Natural gas and oil prices no matter what they do. So I thought I thought outside of that seeing pretty much every sector Flat to up is pretty important. We talk Palantir for a sec. Sure this is Among the stocks that I most hate myself for not having paid close enough attention to since it came public. Why do you think it is that we just never really, or a lot of people just never really paid any attention to this thing until last year? Because we never touch it in terms of our actual lives. It's not Apple.

It's not a consumer name. It's not a search lives. It's not Apple. It's not a consumer name. It's not a search engine. It's not a social media thing. It's so far outside our daily lives. And I know it's been a hugely popular retail stock and credit to all of the retail, it sounds derogatory, credit to everybody that's been on the ride because it's been a hell of a ride and this is the type of name that professional investors hate so Why do they just win again? So this was one of this is one of those names like let's put up the let's put up the uh Let's put up the chart the charts tell the story of why?

Air quote professionals hit it Okay, so Where you see a gray dot is earnings. And you can see, like every other technology stock that came public during the pandemic, which Palantir did, I think they did a direct listing. So nobody on Wall Street. Let's do a chart off for one second. Strike one. You do a direct listing. What that means is you launch a ticker symbol and shares become traded on the exchange, but you didn't sell any stock in that transaction to the public like a traditional IPO.

You listed existing shares that your employees and your investors owned in the private market. Strike one, because nobody got paid or the investment banking fees are tiny compared to what would happen if you were to sell a billion dollars worth of stock. So right off the bat, the analysts don't like you because their investment banks they work at have no interest in you You have not paid you have not you have not paid your dues so to speak on Wall Street So they're not tripping all over themselves to cover the stock upgrade the stock take you around to institutions all the bullshit They don't do all they don't they don't give you the VIP treatments. That's number one It's very shareholder friendly though

That's number one. It's very shareholder friendly though. It's very employee friendly as well. And it's a good sign that nobody wants to sell a big chunk of stock and that you're already well capitalized. They're not the only ones that have done that type of deal in this era. I think Spotify did that too. Strike two is you came public in 2020. So you look like a spack.

So people that don't know the story, idiots like me, they're just like, look at the chart. Oh, I see it went from $5 to $40 and then it collapsed to $20. I don't buy shit like that. So that's my attitude before I know anything about it. So that's strike two, the timing of the IPO. People are just in 2022, by the time you've been around for two years of public company, people have no interest. So that you could see this thing

flatlining in the teens. And then strike four, to your point, Michael, they don't make a phone. They don't have a consumer social media thing. We don't watch video on their platform. They are doing hardcore AI work for Fortune 500 companies and the government and the military. For all of those reasons, if you're just a dilettante and you're not like really focused on identifying companies like this. You missed it. One thing they had in their favor is Alex Karp is just an incredible persona. He's doing his conference call today.

It looks like a podcast. Well, he's very outspoken. I don't think I'm going to use air quotes professionals like that, but the real one, Josh, is the valuation. So let's run through this. So Palantir's growth, and listen, they've had explosive growth, like earnings wise. But a lot of the growth in terms of the stock price

has been driven by multiple expansion. So of the 504% gain over the last year, 4 fifths has more than that has come from multiple expansion. Chart two, look at the forward PE and the forward price of sales and maybe in a vacuum, they're like, yeah, it looks high, but check this out compared to Tesla back in the day. So chart kid made, um, overlaid Tesla's forward PE in 2014 and 2015, when it was like the craziest valuation. And of course we know how that ended.

It very much grew into its valuation. And then some, Palantir looks similar. So people just don't like, or people, people that went to got their MBA and spent time on Wall Street doing intrinsic value and discounted cash flows, they can't wrap their arms around story stocks. And it's just not for them.

And of course, there's resentment and stuff that they missed it. So anyway, it's been a hell of a ride and congrats to everybody that owned it. He's also the bet noire of like a whole coterie of professional short sellers. I kind of think he's the new Elon Musk. They're not shorting Tesla anymore, or at least I hope they're not. This guy had a stock price that went from 13 to 30, and I think he attracted a lot of negative attention from shorts. I think Cheno when he was still running the fund was betting against this thing.

I think part of it is he talks very hyperbol very hyperbolically in his, um, in his public pronouncements, Alex Carp, and he's like, uh, very animated and it's, it's a little Elon-esque. Uh, he's got the big James Althacher hair. Um, there's a lot of elements to this that you picture a cynical professional short seller, just like who, like, who is this jerk off? Yeah, he's a showman. And he's a showman. And you're right. They really don't like that. And that makes them want to dig in and do work on something. It's the same thing as Tesla. So the percent of shares outstanding that are sold short got as high as just under 8% and now it's down to 3%. So it's still relatively high compared to the average stock, but nothing like Tesla back in the day. Somebody in the chat is suggesting that Elon

might get jealous of all the attention Alex Karp is now getting. And Elon effectively is the king of America. That would be an interesting subplot if these guys were playing on the same side and they're all on this America first kind of bandwagon. And then there's not enough room for two of these guys to exist. Well, I don't know. Not knowing anything really about the story, but if there's access to an infinite runway of government spending with AOI, it makes sense. I'm not saying that it's not confident in the future path of the stock, but it makes sense why I would trade at these seemingly ridiculous valuations.

I like this guy and I saw him, Bill Larson is saying I saw him on Bill Maher and bought the stock the next day. I also saw that appearance and I should have bought it the next day, but I didn't. But he's got this, he's got this shtick where he's a progressive. He's not like a hard, he's not like one of these like, I'm like the new right wing guy. That's not his thing. But he's extremely pro-Israel and extremely pro-America. And I think he became really outspoken. Very anti-woke.

Very anti-woke because I think he thinks it threatens the country's ability to defend itself and he is very heavily focused on defense. So it's a really interesting, you can't put him in a box and be like, oh yeah, I know who this guy is. He's not a stereotypical anything. And he has a book coming out later in February, which I'm going to I'm going to I almost feel like the audio book is to move with this guy. But I'll check that out.

Anyway, I missed this and I apologize, chat. I'm sorry. I never I've had this on my list of best stocks in the market pretty much all year last year. I just never got around to I don't I don't buy names like I don't buy stocks like this. No disrespect. It's not what I don't know if I would or I would know, but I just well, you didn't. You didn't. So there you go. Escape me. Let's talk about Alphabet, Amazon and Uber. I own all three of these stocks.

What are you right? I mean, the whole world does. Yeah, true, true, true, true. Alphabet is out and it looks like it's selling off in the after hours. All right. Yes, it is. It was selling off in the after hours. All right. Yes it is. It was down 9% last time I checked. Okay.

Google search up 13% to 54 billion. YouTube ads up 14%. Google network looks like minus 4%. Google services total plus 10% to 84 billion. All right. The cloud business grew 30% to 12 billion, which I think was the number. Yeah, that was it.

That was the number that they had to do? Yeah. No, no, no, they missed. That was a miss, that was a miss. There's two reasons why the stock is selling off. First of all, so it did, what did YouTube do? 10 and a half billion? That's more than Netflix did last quarter.

That's just, let's just pause for a second. That's more than Netflix did. Wild. Interesting. So, these are the numbers. John, next chart please. I had ChartKit pull up Q4 2019. So total revenues doubled.

Again, this is from 2019. 46 billion then. What is it today? 96. YouTube was 4.7 billion. It's 10 and a half billion billion today. So basically every category across the board has doubled in the last five years, which is insane chart off considering that in 2019, Google is not a small company, right? Google was very much, remember like the law

of large numbers, these trees don't go to the sky. This tree has grown to the sky. It's wild. Some do. Some do. What really sent the stock is they see 2025 capex at $75 billion, LOL at DeepSeek being like, whatever, we're not spending money there. So check this out. Just let me just give a plug for quarter, a couple of where investor and I asked quarter, why is the stock down 7% in the after hours? And it gave five reasons. And number one, or I'm quarter, why is the stock down 7% in the after hours? It gave five reasons. Number one, or I'm sorry, the one that caught my eye was this $75 billion investment.

The way it might also raise concerns about increased spending and its impact on short-term profitability. Interestingly enough, consensus gurus who tweets all the results and everything like that said that Broadcom jumped 4% on Google's CapEx guide. So it's funny, Josh, you and I were talking to Dan Ives recently, like how much runway is the street going to give these companies on CapEx and turning that into revenue? It's early, it's one day, who knows where the stock will trade tomorrow, but so far the street does not seem to like this.

So they think the $75 billion guide for CapEx this year, 2025 head of expectations, big time. Yeah. Cause the expectations was. Okay. So they think that that spooked the market and investors sold on that news. Yeah. Yeah. Okay. It's that was, I love that. I love that quarter has this AI thing built into it. It's so sick. So it's like having an analyst sitting right in front of you. I mean, it's crazy. There are guys that do this for a living. They sit on the desk and any trader can ask them, hey, why is the stock moving?

And it's their job to figure that out. Like now I don't need to pay the kid in the vest. You know what I mean? Who needs healthcare and vacations. Now I just ask quarter. It's pretty dope. What's Amazon tomorrow? So Amazon is Thursday at the close, not tomorrow. Tomorrow, we'll talk about Uber in a second. Tomorrow's Uber and Uber reports in the morning because they do it from New York, not from California. And Dara likes to be on set with Andrew Ross Sorkin for Squawk Box. He basically does a sit down with the notorious ARS, Every Earnings Report, which is pretty

cool. Let's do the Amazon chart. Here's last five years price. The stock has been annualizing at 19% a year for the past five years, so let's do the Amazon chart. Here's last five years price. The stock has been annualizing at 19% a year for the past five years, but that's very misleading because look how vicious this drawdown was from late 21 into 23. Well, yeah, Josh, guess what?

And I sat through about all of it. Guess what, my friend? Amazon divided by the S&P is well below the peak in July 2020. So from July, Amazon is pretty significantly underperforming the overall market, which is borderline face blower stuff. Poppy, I was on this show last fall saying this is a $250 stock Masquerading as a hundred and seventy dollars stock. I said it like I don't know ten times now. It's 250 and I want 300 I don't know if I'm getting it near term, but like All right. Let's let's look at some of the expectations then we can move on a dollar 48 would be 48.5 percent growth year-over-year

Revenue is a ten point two percent number $1.48 would be 48.5% growth year over year. Revenue is a 10.2% number, 187 billion. Guys, a quarterly revenue, okay? Just so we're all on the same page here how big this company is. Analysts are looking for 19.3% growth in AWS. That's usually the number. That's the big number. Last four quarters, year over year operating income growth.

You ready for this? I'm ready. Plus 267%. Plus 221%. Plus 91%. Plus 56%. So coming out of the post pandemic tech crunch, they got their expenses in order. They fired a lot of the people they needed to fire from the pandemic era splurge. And they have been more efficient with last mile deliveries, which they now wholly own. They're delivering more packages than you. that now. They pulled back the they choked back the leash a little bit on expectations from like, oh, we're going to deliver things in an hour that 24 hours. And of course, that was good for that was good for reining in costs. So this is where we are with Amazon. I think part of the story here is gotta be anthropic and justifying the spending that they're doing on AI.

But one of the good things about DeepSeq and cheap AI is that Amazon's primary AI interface is called Bedrock. And it's a bring your own LLM sort of situation. DeepSeq is available on Bedrock and it's a bring your own LLM sort of situation. DeepSeek is available on Bedrock AI. Amazon made it very clear. Like we allow usage of the cheapest, most efficient LLM all the way up to the most expensive. It's all available on our platform. And that now looks like a very smart decision to have a buffet rather than here's our LLM.

You're forced to use it. So we'll see what happens. But I'm going in long. Let's do Uber. The stock is like flat year over year. It was ripping all through 2024 until Elon started with the cyber cab shit and then that was it. The stocks had multiple sell-offs related to the threat from Tesla. That's really the only thing investors care about on the conference call. Right now, you got a stock that is valued at 17 times forward earnings, growing cash flow by 50% year over year, revenue growth is on fire. But people are nervous that Waymo and Cyber Taxi are going to steal your thunder and there's

not going to be enough autonomous cabs to go. I don't fully understand why people think that, but I'm on the other side of the market from this one, Michael. You and me both. Listen to this. Gene Monster tweeted, Gene Monster is an analyst, tech analyst. He said on Waymo, Sundar says at a surf 4 million passengers now averaging more than 150,000 trips per week.

Wild stuff. It better be more than 150K per week because the 150k data was given three months ago on September earnings call. My guess is the weekly is closer to 175. But yeah, this competition, this is all the market cares about right now. Yeah. I think one of the negative things that happened last year was that GM gave up on Cruz. So cruise was, was the autonomous, uh, vehicle division of GM and they were going to have a taxi service and they had been piloting it in San Francisco. And this is more than 10 years. And unceremoniously they were like, actually, you know what? Forget it. We're not, we're not going to do it at all.

They just fired everybody and people sold off Uber because it's like, well do they have a dance partner? Like what are they literally going to do? Now, the Eats business, which is half the company, is not susceptible to autonomous driving. They're going to try to use robots, but like I don't think they have really a threat there and a lot of drivers do both. So I don't think this is black and

white as the people who are selling it on Tesla headlines think it is. And maybe the market's right and I'm wrong, but I think I'm right and I'm sticking to my guns here. We'll find out tomorrow how the quarter went at least. Okay. All right. I'm going to talk briefly about this. We don't spend a lot of time on this and this is, this will be the last time I'm going to talk briefly about this. We don't spend a lot of time on this. And this will be the last time I'm going to bring this topic up until there is actually regulation.

This will be the last time I speculate on this topic. But Jonathan Gray, the chief operating officer at Blackstone was talking about private assets in your 401k. He came up on the call. So here's what he said. Where we start is the way that defined contribution and retirement business has evolved and I do think it's created a bit of a sort of haves, have not environment.

So if you think about it, wealthy individuals are able to access our products through financial advisors and get the benefit of strong long-term returns and compounding. If you were an employee at a major corporate sort of pre 2005, you probably have the benefit of pension fund Where people are working hard every day to deliver these returns allocating to alternatives if you work at a state pension fund today

You are also getting that same benefit, but for the vast majority of private sector workers in the United States They are given a 401k plan where because of the litigation environment They basically focus on the lowest fees and it's not about long-term performance Actually, this is me speaking the case of in the case of funds. It really is lowest it's not about long-term performance. Actually, this is me speaking, in the case of funds, it really is. Lowest fees do have the long-term performance. But I think one of the things that I, I think this is inevitable, it's going to happen. One of the things that is probably most concerning to me about this aspect is how do they decide what gets in?

How does the average investor, I think most people at this point know either, okay, target date fund, maybe that's where these go, but again, who decides what goes in there? Most people are familiar with an S&P index. How in the world are we going to vet, allow, who gets onto these platforms? So I do think that the illiquid stuff, it does make sense in a retirement plan, but I think there's going to be a few bumps in the road. I think there's going to be a few bumps in the road. Do you know the thing that I'm most bullish about as it pertains to all of these products getting into traditional retirement vehicles? The stocks of the underlying companies? Well, that definitely. Those stocks look fantastic and they're working.

But I think the most bullish aspect of it for you and I is how much disappointment there's gonna be ten years down the road and just us Unwinding all this shit for people that come to us. Like why did my what wait a minute? I don't understand the stock market compounded at 8% 9% What what do I own and then we're gonna be like? at 8%, 9%, what do I own? And then we're going to be like, well, you own this weird infrastructure thing. And you have this piece of shit that's got like excessive fees and five different layers. And you have this thing that's like you own like foreign banks that are privately held.

Like we're going to have to explain to people why they underperformed because the person before us is just going to load them up with whoever bought them lunch. And I hate to sound that cynical because some of these things are going to be good. It's just so hard to know in advance. Very similar to actively managed funds, very similar to hedge funds. It's really, really hard to look at a menu of products and say, this is the right one. So my take would be if you're a financial advisor in this space, be judicious, know

who you're bringing this to. If you're going to include it in a 401k, double down on educating the population of workers who are going to have access to it and Don't oversell it because this is not going to be any easier than vetting Actively managed funds which we already have enough evidence for a lifetime to know that people can't do that anyway So it's it's it's not going to be easy. And then the last question is ask yourself, is the best strategy in private credit going to be available in a 40 act fund wrapper? Or is that still going to go to the richest, most powerful, most connected people the same as it always has?

So do you want to buy the eighth best version of something and pay huge fees for the purpose of pretending like you're a rich person. So like it's just, it's going to be, it sounds great until you like think through how is this really going to work? And I honestly think the biggest opportunity for most RIAs is going to be to fix messed up portfolios 10 years after the gold rush has come and gone. I don't know. What are your thoughts?

I'm a little bit less cynical about the whole thing, but you're a hundred percent right. That was pitch black. Yeah, it's going to be a little bit less disastrous than that because a lot of the 401k plans that we see today are pretty gnarly. But yeah, people just, people got to be careful and education, education is going to be key. All right, let's talk about it. So yeah, I think if people have the right expectations, it's better than if people are being pounded. You gotta put 20% of your money in private.

I guess I'm just, I'm coming at it from the angle of all else equal. If you are going to own these illiquid assets, probably better to do it in your retirement account than in something else. That's all I'm saying. Yeah, I agree with that. I think the good news is that the pricing will come down. Absolutely. One of the things that financial advisors on social media hate most about these types

of private and alt investments is the fee structure and the cost. And I think now that you have BlackRock competing with Blackstone, one thing I can guarantee is that the pricing is going to be better for the end investor. I don't know how much better, but that's it's definitely going to be trending in that in that direction. So maybe that's the silver lining of the gold rush. Okay, what do you got? This is me. This is you. Uh, sovereign wealth fund for the United States. Nope. Doesn't that just sound like third-worldy? Nope. We don't do that

here. Slush fund. It's to me, it sounds like a vehicle through which to bribe the government. Oh, you think? No shit. Or for the government to pay bribes. Uh, so historically sovereign wealth funds were for countries like Norway and United Arab Emirates whose primary, uh, economic, uh, production is coming from like one commodity. We have such a surplus that we need to do something with all of this money. Does that sound like us? No, and not just money.

We need to diversify the economy. So we need to take oil profits, redistribute them amongst the population in the case of Norway, and invest the surplus in anything but oil. So when you look at Norway has one of the most respected institutional pools of capital in the world. They're a huge investor.

They're buying Amazon and Apple. They're buying anything but energy because they're diversifying their future. You see this in the Middle East. Sovereign wealth funds are being used to develop cities, to develop real estate, to create job opportunities away from Petro. And this makes perfect sense. And this is how they should be used. I don't think we have those same issues here.

This seems like Howard Lotnick from Carter Fitzgerald, who is the economic advisor to Trump was like, hey, let's do like a fund. Oh my goodness. There's a rumor that Bill Ackman might be named the head of the sovereign wealth hedge fund. F**k that. Carl Icahn. I want Carl running the fund. So this is from Axios. Okay. So the potential for cronyism with the sovereign wealth fund is dizzying, and the record of current government efforts to direct investment should not give anyone confidence yet no shit that would be competently or fairly managed, wrote Dominic Pinot in

National Review yesterday. Here's another one. The United States has a ton of wealthy ads. The federal government is a poor steward of the chunk of it that it already controls. It should control less, not more. Don't these people want government out of... I thought these were Republicans. Why do we need more centralized investment by the federal government? No, no. Come on.

What's the upside here? What is the upside to TikTok? The upside is the Trump family wants to control tech doc So let me skip let me skip ahead to let me skip ahead to where everyone else will eventually arrive the upside is Trump's got Larry Ellison online one and he's got Elon online too and he's got Kevin O'Leary scratching at the door like a dog and they all want like to buy TikTok and he's probably thinking like what if I buy it? Well how do we do that? I don't know can we just like buy it and what it's like like the country?

He's like me the country like a little bit of both. Let's do a sovereign wealth fund. I want to give people a little bit of a background on what these things really are. The first sovereign wealth fund was in Kuwait in 1953. And again, they have excess oil revenue and nowhere to put the money. So establish a fund that will make smart investments rather than under the mattress. In the 70s and 80s, Abu Dhabi came along. Singapore famously in 1981, there were now 176 sovereign wealth funds all over the world managing $11 trillion.

They have gone up 11 fold from barely $1 trillion as recently as two decades ago. This is like a hot thing right now. China has a big one, the second largest one, the CIC, China Investment Corporation's 1.3 trillion as of last year. They have another one that's 1.2 trillion called the SAFEIC. Abu Dhabi's is $828 billion. So these things are popular in, I don't want to use the term third world, it's derogatory, in the developing world. These are very popular.

And in the case of commodity wealth, they make a ton of sense. I'm not 100% sure what the goal is here, other than self aggrandizement, or maybe just like this is a moment in time where every stupid idea somebody brings up, it's like, yeah, let's go do that. And it seems like there's a lot of that in the air right now too. What if we do like a little 2 in 20 lower everybody's income tax? You know what I mean? Give me the money back. Let me invest it.

I'm pretty capable of investing it myself. I don't need the White House investing it. I don't really see. What do you do with the profits of it? Is that a tax distribution at the end of the year? What are we doing with the money, I guess? Maybe I can get talked into it. Buying the dip in Google? Yeah, we should speculate in stocks. All right, I'm going to make the case and then you have a mystery chart and then we're going to get out of here. I'm pitching Bristol Myers, which

I just bought myself. I bought it right around here. So it's relatively early. Nicholas and Jessica Rae pointed out last night that XLV is acting really well this year, the healthcare sector in general. Sean turned up the fact that it is the second best sector year to date, 6.55 percent, right behind communications up 6.59%. That's a good date. That's like, yeah, it really does. And it sat out the rally of 23 and 24 for the most part. What else I want to tell you?

Oh, so the XLV is outperforming every other sector and it's out for the S&P and it's outperforming the S&P. And Bristol Myers has, I think, an interesting setup. This chart doesn't make it look as good as if I showed you a one-year chart, but this thing is going to break out to a new 52-week high, I believe, if there's a good number tomorrow. I don't know that that will be the case, of course, but let's talk a little bit about it. Oh, they report Thursday, actually, pre-market.

For the last four reported quarters it beat on the top and bottom lines in all but one quarter and people are starting to focus now on the growth portfolio here and not as much on all the patent cliffs they have and the legacy drug portfolio. This company basically went head over heels into oncology and immunotherapy. And those are both growth markets for as far as the eye can see. And, uh, Bristol has some pretty good drugs. So it's 3% below it's 52 week high. RSI is 57.

It's, uh, it's above its 50 day by about 2% above the 200 day by about 18%, not at all extended. This is the chart I was looking for. Yeah, it looks excellent. And you can see, look at, so that level is like 60 to 62. If she clears this range on an upside earnings report, and it's not even overbought yet, like I feel like there's a lot of room here. So it's up 21% over the past year, one of the better performing names in the group. And we have a tenure.

Oh, we did the tenure already. Well, she reports on Thursday, Josh. The report is on Thursday. She does. She reports before the open. Okay. Wait, are you in or not? I'm in, I bought it.

I'm in, I'm in, I'm in. Yeah, no, I know nothing about the business, but I like the chart. What do I have to do to get you into the stock? I have no more money to deploy right at the moment. So there's nothing you could say. All right, well, I'm long. We'll see what happens. Not advice.

Not advice, everyone. All right, Josh, I'm going to make this really easy on you. Okay? Do your worst. Okay. Show me a stock. A stock or an ETF? This is a stock. Okay. Make this really easy on you. They've reported today. I'm very mad at myself. You said you're

mad for missing pounds here even though you shouldn't be because you wouldn't have bought it anyway. Not only should I have bought the stock, I did buy the stock. I said you're mad for missing pounds here, even though you shouldn't be, because you wouldn't have bought it anyway. Not only should I have bought the stock, I did buy the stock. I sold it. I sold it. Wait, I'm an idiot. I was bullish on. God, I suck.

You dumb idiot. You dumb idiot. What is this? Hold on. Hold on. Hold on. Hold on. It's up 290% over three years.

That's the timeframe? Yeah. Is this Z time frame? Yeah. Is this Zillow? Michael, you dumb idiot. No, it's not Zillow. All right. Is this? I'm going to cheat.

The chat is saying Reddit, but I'm in that. I know you're not in that. Spotify. It's Spotify. Yeah, man. I'm so annoyed. They just had their first, I think, profitable full year based on the report today. Is that right? We've got to try.

We've got to try. Look at this beast. John, do we have it? There we go. Look at this. Look at this. Just an explosive upside surprise in gross margins. Their premium business exploded.

They have no competition. They are the one of one and I'm really for the fourth time annoyed at myself for selling this. So I would like to share with the listeners and the viewers the way that we use Spotify. Duncan, can you pop in here? Let's see if we can get Duncan on screen. There he is. I don't think most people are even aware of this. Spotify is a very popular platform. Duncan, can you pop in here? Let's see if we can get Duncan on screen. There he is.

I don't think most people are even aware of this. Spotify owns a product called Megaphone. What are you? He's washing it down. Keep going. What are you, a cheeseburger? He'll be ready by the time we're done talking. What is that?

God only knows. Raffles. Okay. Spotify owns a business called Megaphone, which is now the premier way that podcasters put their shows out into the world. How does Megaphone, like what do we do with Megaphone to put our shows out? Megaphone is where we host. It's where we host our audio podcasts.

And so it's disseminated out to all the platforms. But it sends it to Apple and it sends it. Okay. And Apple doesn't have a tool like that or they do. No, everyone, everyone pretty much uses a third party. In the past, we use Wibson or a cast. There's a lot of different competitors there. But yeah, okay. And now Spotify has probably the best ad technology to though for podcasters, which is the most important thing. Yeah. And they're watching it for their videos now, just as of like today or yesterday.

Okay. And we are now including video with the audio pod on Spotify. So at 9am when you are, when you check out our, when you check out our when you check out our audio podcast and you use Spotify, you can watch us on Spotify now on the same app, which is pretty cool. Yep. And it's another thing that Apple doesn't. Yeah, Apple's behind on the video for sure. That's another thing that Apple doesn't have.

Exactly. Yeah. All right. You are you are this Michael anything else for Duncan or? have. Exactly. Yeah. All right. You are dislikable. Anything else for Duncan or? No, Duncan, you're the best. I want to thank the audience for sticking with us as Josh is having some buffering issues over in the town next door.

But we made it. We made it. We survived. Not so bad. We made it. We got a shadow band by Verizon. Guys, tomorrow is Wednesday. Not so bad. We made it. We got a shadow band by Verizon. Guys, tomorrow is Wednesday. That's OK. Tomorrow is Wednesday, which means another all new edition of

Animal Spirits with Michael and Ben. We will have an Ask the Compound this week and at the end of the week, we'll have a compound and friends. Hell yeah. Special guest, new guest to the show that we've never had before. You guys will, I think, really enjoy that. And a special treat for those of you who have subscribed to the Ownership Channel.

We are dropping something dope on the Ownership Channel by Ridholtz, which is on YouTube, YouTube exclusive. And I think that's gonna go up first in tomorrow morning. You're not gonna wanna miss that. So keep it locked. We love you. We'll talk to you soon. Whether you're just getting started as an investor or you're managing a multimillion

dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan to speak with a certified financial planner today. Visit Ritholzzwealth.com. Don't forget to check us out at youtube.com slash the compound rwm. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.