The Compound and Friends - Earning Man

Episode Date: September 13, 2024

On episode 157 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Jurrien Timmer to discuss: the Fed's first cut, the labor market, economic indicators, the fall of Carl Icahn, and much more! This episode is sponsored by Public. Discover how you can lock in a 6.8% yield until 2028 with a Bond Account at: https://public.com/compound Sign up for The Compound Newsletter and never miss out! https://www.thecompoundnews.com/subscribe Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this account are used to purchase 10 investment-grade and high-yield bonds. The [6.9%] yield is the average annualized yield to maturity (YTM) across all ten bonds in the Bond Account, before fees, as of [8/28/2024]. A bond’s yield is a function of its market price, which can fluctuate; therefore a bond’s YTM is “locked in” when the bond is purchased. Your yield at time of purchase may be different from the yield shown here. The “locked in” YTM is not guaranteed; you may receive less than the YTM of the bonds in the Bond Account if you sell any of the bonds before maturity, or if the issuer calls or defaults on the bond. Public Investing charges a markup on each bond trade. See our Fee Schedule.  Bond Accounts are not recommendations of individual bonds or default allocations. The bonds in the Bond Account have not been selected based on your needs or risk profile. You should evaluate each bond before investing in a Bond Account. The bonds in your Bond Account will not be rebalanced and allocations will not be updated, except for Corporate Actions. Fractional Bonds also carry additional risks including that they are only available on Public and cannot be transferred to other brokerages. Read more about the risks associated with fixed income and fractional bonds. See Bond Account Disclosures to learn more. 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

I'd always heard about Santa Barbara, never been, because I used to be a Lance Armstrong fan, and he would train for the Tour de France in Santa Barbara because of the mountains. What do you mean, used to be? What happened? Come around. How you doing? I actually still run into it once in a while, because the bike shop where I frequent, the guy who runs it was one of his trainers. But anyway, so that's kind of how it planted the seed.

So we just went and it's it's a pretty cool place. I have two bikes. I have a Trek Madone 9 2020 vintage and a S-Works Venge 2021 vintage great bikes East goes by West goes by The the bikes are too

Technically intricate to take apart and ship like it just it just kind of how many miles did you ride this summer? Did you, you did your challenge? Yeah. A couple of thousand miles. Couple thousand. Yes. I did a couple thousand steps at least. At least.

So, so Burning Man was a, this is your one year going. This was my sixth. It was amazing. It was a little mellower. Yeah. Like they, they were not selling enough tickets and in the summer and then they actually opened them. Like you can actually buy a ticket at the gate

which hasn't been the case in 10 years. Who runs it? The Burning Man organization. And so they ended up selling out more or less. What private equity? But it was like a mellower vibe. It was really nice. How many people? 70,000.

Holy shit. Yeah, but I'm like too old for the super frenetic ravey scene, like it's not me. So there were like more kids. It was a little different, but it was really nice. Was Dally out there this year microdosing? No, no. But he was there two years ago,

and Business Insider ran a whole story with a picture of me in my cabana suit. Are you in that picture? Grilling stuff, and Ray was in that article as well. My crew had such a, they cracked up. What's the biggest misconception about Burning Man? Like everyone thinks like it's just for drugs or. That it's sex and drugs and tech bros and sparkle ponies.

I mean it is. That's only mostly true. But is that a little bit? It is partially true. Yeah. But it is far more than that. Like I would have been a one and done if it was just like a party.

It's way too much work for a party Okay, you know like you got there to get there like the cost like the dry heat the dust all that stuff So what goes on? I'm not wait. Do you have like a crew that you go there with? Yeah, I run a camp It's called feed the artists. Okay. This is my swag Okay, we've got 90 people and we make like 6,000, 7,000 meals while we're there. So that's our gift. That's our art.

So we were founded to feed the artists. So I would say it's primarily for me, it's about art, music, community. It's about immediacy. Like your money's no good there. It's all gifting. It's kind of like a little utopian society. But then of course to attract people,

they have to have the big DJs, so Diplo is there, Rufus O'Sull did a set. And then you get the Coachella people, and nobody likes them. And then you got the Sparkle Ponies who are- Tell my audience- Who are shooting videos in front of artwork. Tell my audience who is mostly middle-aged, like normies, who don't know what a sparkle

pony is. Sparkle pony is a beautiful girl who is impossibly clean because you get immediately dusty with all of this outfit. Posting in front of art pieces for their Instagrams. OK, how do they pull that off? Showers. Shit, right. I'm Googling Sparkle Pony. I had no idea what that was.

You're a little bit of a Sparkle Pony, I feel like, sometimes. I like to think so. Yeah, I think most people would say that. I forgot that you were such a great chef. Your Instagram photos of your cooking is beautiful. So what's the most popular thing that you make when you're out there? So we have a bunch of chefs, all volunteers, all campers.

My night is always Indonesian rice dapho. So I make it for 250 people. Oh my God. But we had one, a couple who made a Korean brunch, like congee, and just off the charts. And we had someone making doll, someone made paella with like real langoustines, the whole thing. So people go nuts. It's kind of cool that the same people go back every year and you kind of build a little bit of a tribe.

Yeah, our camp's about two thirds veterans, one third are what we call virgins every year, which is nice because it creates the energy, but the veterans are, for us, are essential because we're a very infrastructure heavy camp. We got a full commercial kitchen and you need people who know how to. Now when you see one of these people out on the street,

like not at the event, do you guys have to pretend you don't know each other? It's like Fight Club. No. My best friends, they're all burners. Okay. You know, these are people I would never meet at Fidelity. When did it start?

In 1986, on Baker Beach in San Francisco, Larry Harvey, and they just had like this little pagan ritual and they burnt a man. And it's like the man, you know, it's like- Not a real person. They burnt an effigy. An effigy in effigy Yeah, yeah piece of wood and then a few years later this performance group called the cacophony society

Got involved and that's where I like all the costumes and the steampunk goggles. Yeah, that's where all of that comes from Okay, so that's how that became part of the thing. Yeah. Is there a flute playing? Is there what? Flute playing? There's everything. There's a Black Rock Symphony Orchestra. There's the Thunderdome. Two of my campers battled it out in the Thunderdome. It's like what you would think.

It's like people on bungees with foam bats, but it gets really primal. And the camp that runs it, they're all like these black metal, like gothy death, death people with these really tricked out Mad Max cars. So we had them over for dinner and they all roll in and it's like, wow, this is really cool. Did you, did you ever run into Elon there or see him? I have not seen him, but I know he is a burner. But my philosophy is if he shows up for dinner, he can wait in line while the people who take care of us

get to eat first. Oh, he's gonna tweet about you now. So, but there is some element now that the tech bros have gotten really interested. There is some element where they're setting up like super deluxe campsites for themselves, which is fine. They've tried to get rid of that.

Those go plug and play camps. So like 10 years ago, it got too big and you got the Silicon Valley money involved. And you know, it's like a love hate relationship because they fund some of the really cool sound and like laser. Like it's really groundbreaking stuff, right? They fund some of the really cool sound and laser. It's really groundbreaking stuff. And they have these huge sound camps, million dollar sound camps where the big DJs come

and that sells tickets. So it's like a necessary evil, but nobody... It's fine if you go there and you spend a million bucks on a camp, as long as you are abiding by the principles of burning men, which is to participate and contribute. You don't want to be like out there behind a velvet road. Like, nobody likes that. Right.

All right, well, listen, I think in the last 10 years, this has happened to every event where it starts to blow up on social media, and then it attracts corporate attention, it attracts the attention of very wealthy people. And it's just, it's just like the life cycle of a thing. We're putting on our own event next week called Future Proof. It will be nothing like Burning Man, but it will be very much like South by Southwest,

which is kind of like one of the inspirations for it. It's a fully outdoor, on the beach festival. We don't call it a conference. And every year it gets bigger. And it blows up on social media, and it's started at 1,700 people, then 2,400 last year. This year it'll be 4,000 plus.

And sponsorships have gone from 150 companies to 300 companies, of course. So the challenge now is, okay, let's say 5,000 or 5,500 or 6,000 people show up next year. Can you still maintain what made it cool in the first place? It's not always easy to do. I mean, we're going to try, but I'm saying like that's every event that's done that. Coachella has gone through that. They now hold it on two weekends to accommodate the amount of people that's done that. Coachella has gone through that. They now hold it on two weekends

to accommodate the amount of people that wanna come. Lala has to do the same thing. So I feel like it's, you adapt. You adapt and people get used to it. It's a growth pain and it's a sign of success, right? But it has to be managed. You completely unplug when you're there? You check the market at all?

I did not check the market once. I tried to keep my inbox completely empty. Did that stress you out? No, it was wonderful. And actually, and it's funny because when I came back and I see like, I read The Economist and I talked to my colleagues, it sounds like the market was like collapsing.

And I started looking at my charts last weekend. I was like, looks the same from when I left. When did you go? A minute from mid August. I was. Okay, so you were here for the Yen Yen explosion. Yes, yeah, that was just before, yes. Put your thing on, let me put something for you guys.

But my second thing is I don't care what other people think. Everybody cares what other people think. Everybody cares what other people think. But they have to be fair. So for me, it was my second year in the league. I had to sit down with Dr. J. I said, Doc, I'm getting some, some of the stuff I'm saying. I'm getting some blowback. Right.

So we sit down. He says, son, what are you asking me? I said, man, I want everybody to like me. He looks at me, he says, oh yeah, you're just wasting your time. Trying to, it doesn't matter what you say. Everybody's not going to like you. You're gonna have to make a decision

whether you're just gonna be a straight shooter. And they still gonna hate you half the time anyway. But you can't play volleyball with your opinions. You can't be trying to say something to please this group and get over here and say something about this group. And I said, so if I just be straight honest, he says, that's the best way to be, but you're gonna get blow back on that anyway.

So Bill, that's when I made up my mind. I'm like, hey, you know what? I cannot make all these people happy. Yeah. Half of them gonna hate me and half of them gonna like me or whatever. And I said, I'm gonna just tell the truth and let the chips fall where they may.

Think what Josh is trying to say. That of course is JD Vance. Who is, so. What is the meaning of this? Sir Charles, what do you think about that concept? Cause I think that the people that are the best at what you do in this business are not starting off with here's the house view and then let me come up with a whole bunch of

charts that support it. I think the people that are the best in this business at what you do are the people who say look this is what I think and it may not be what everybody wants me to say whether they're long, they're short, they're value, they're growth, but this is what it is. Sometimes I'll be really popular and sometimes I'll annoy people, but in the fullness of time, I think even the people that don't like everything that you say ultimately come around and say, you know what, I disagreed with that guy about the bear market the bull market whatever but

Right or wrong. He's legit. He says what he thinks and he backs it up and even when he's wrong There's a there's a reason for why he's saying what he says. What do you think about that approach? I Totally agree and I think it's the law of compounding right we always talk about compounding in the investment sense, but careers and relationships and just personal ethics, compounding applies there. So if you just do the next right thing as often as possible, regardless of what people think of it, over time the compounding is gonna work for you.

And in a way I think of it as being- Career compounding. Career compounding and credibility compounding. And I think of myself, if you think of yourself as the protagonist in your story, then you don't really have to please anyone. You're just telling your story. And my story is my work, my personal situation, but work-wise, I'm just trying to do objective, thorough research. I let history be my guide.

And hopefully I'm more right than wrong, but even if I don't have the easy answer, and people do want easy answers and they yell at you when you don't provide them, I'm not here. You know, there are no easy answers, and yell at you when you don't provide them. There are no easy answers and I'm not here to give one. And so if I can just show a balanced approach to what makes the markets tick, what the narrative of the market is, what investors should understand amidst this sea of noise that's out there, then they will make better informed decisions and then hopefully everybody wins.

Well, amen to that. Good answer. And we love you for that. And I know your fan base on social media amongst fidelity clients, everybody appreciates it. So thank you. You want to start the show? All right, let's start the show.

You guys, hope you understand this is an important man we have here. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their cast mates are solely their own opinions and do not reflect the opinion of Red Holes Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.

Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. If you want to earn a 6.8% yield for the next four years or more, you should check out the bond account at public.com. Wait, is this a new way to invest in a diversified portfolio of bonds and receive monthly interest payments? You're darn right it is. What's the best part? If you act now, you can potentially lock in a 6.8% yield until 2028.

So I don't have to worry about the Fed's upcoming rate cuts, Josh? Well, you can worry about other things, but you won't have to worry about that. How long does it take to get started? Minutes? Seconds? Depending on how fast you type. But you have to act fast if you want to take advantage of some of the highest bond yields in years.

It's the new bond account only at public.com forward slash compound. Ladies and gentlemen, welcome to the best investment podcast in the world. My name is downtown Josh Brown, first time listeners. We appreciate you here with me today as always, Mr. Michael Batnick. Hello, hello. Michael, super excited to be here. John's in the house. Rob is here.

Nicole Duncan's in the house. How's everybody feeling? Good? Yes? All right. Very special guest today. Urian Timmer is the Director of Global Macro for Fidelity Investments. Urian has more than 35 years of experience in the investment world and has spent nearly 30 years at Fidelity. That's a big deal. First joining Fidelity is a technical research analyst

in 1995. Can we take this picture that you took and put it up on the screen? We were talking about Burning Man in the cold. You took this? Yep. Looks like a painting. That is the view from our camp.

Okay. So we are on Playa beachfront, and that's the view. That's the deep Playa. One dog's going this way, one dog's going that way, you got the guy in the middle saying, what do you want from me? Who's in the picture? Do you know? Those might be my kids actually. I take my kids to Burning Man. Okay. So what does that, what's that effect where the ground and the sky seem to almost

merge with each other? So that's dust. So Playa dust is extremely fine alkaline. It's not sand. It gets everywhere. It's in my lungs right now. And when the wind picks up a little bit and it's dry out, it will kick up just like that. And in a real way, goggles make more sense then than people think. Goggles and N95. or we have these cool buffs from our camp, like what they use on the show, Survivor. But we have our logo on it. And so you really need to have those out there, because they can kick up any time.

So it's not just like steampunk for the look, but like actually you're covering your mouth, nose, your eyes for a reason. Yes. OK. It looks like Star Wars characters when you see it. So all right, very cool. We're going to get a rate cut next week. What do you think it looks like Star Wars characters when you see it. So all right, very cool We're gonna get a rate cut next week. What do you think? Are you excited about this?

Yeah, I mean the Fed is it's it's due 25 vips I think is now the going rate. Do you think they're late? I Don't think they're super late. But when you look at for instance various iterations of the Taylor rule think they're super late, but when you look at, for instance, various iterations of the Taylor Rule, clearly there is room and all those iterations have been coming down for some time. I think the Fed has been trying to be patient in not repeating the errors of the past, you know, 60s, 70s, and just making sure that the inflation numbers are locking in at close to the rates

that they want to see. So I don't think there is a clear and present danger that if they don't cut right away or they don't cut more than 25 that the world's going to end. But I think it's clearly a relief that the economy is looking for the housing market, all the left behind stocks, they need it. And we need to get them before a recession hits. And so the margin of error for the soft landing obviously gets smaller and smaller

the longer you wait at very restrictive levels. But at five and three eights and core PC at 2.6, the Fed is significantly restrictive and they have plenty of room to cut. I'm guessing most of the questions that you're getting from people, not while you were out at Burning Man, but just in general this summer, have been about the labor market. Whether or not it's deteriorating too quickly, whether or not the Fed missed its moment. What do you tell people when they tell you the SOM rule has been triggered or they say

all the hires are now part time and all the layoffs are full time? Like what's your overall take on the labor market? So if the pendulum can stop swinging here, then the Fed will have achieved the perfect landing, right? So if you look at the Joltz data, and you look at what we call the labor vacancy rate, if you will, the demand for jobs relative to the supply, during the pandemic, as we all know, it went to extraordinary levels, very tight labor market, people were dropping out of the labor force.

And that, of course, was part of the inflation narrative, not the only one, but part of it. And so we had a 3%... So there was 3% more job demand than job supply. That is down to zero now. So that pendulum has corrected to a level of balance. But when you look at the unemployment rate over time, right, the pendulum never stops right in the middle. pendulum has corrected to a level of balance. But when you look at the unemployment rate over time, the pendulum never stops right

in the middle. Well, that's the problem. Once it does what it just did, it tends to keep going. And so clearly, the narrative has switched from battling inflation to now the other half of the mandate for the Fed, which is the labor side. My understanding from talking to my economics colleagues at Fidelity is that a lot of the increase in the unemployment rate triggering the SOM rule is really a new supply of labor coming into the market

and not demand drying up. I mean, it's- That's what she said. She said the same. She said, look at labor force participation rate growth, and you'll understand that it's not as cut and dry as it normally would be. It's not as cut and dry. And so there are no mass layoffs.

I mean, there are some layoffs. So I don't think the signal of the Psalm rule or even the signal of the yield curve are quite what they have been historically, and especially of the yield curve, and we can talk about that, about all the mitigating circumstances. By and large, the consumer is still in pretty good shape. The consumer is employed, has a decent amount of income. The excess savings are gone for four fifths of the labor market. But by and large, the consumer's in pretty good shape.

There's not a lot of debt, right? The debt bubble burst in 08 and it's been coming down ever since. So as long as- Household debt. Household debt, sorry. So as long as you don't have mass layoffs or significant layoffs,

we can kind of ride along this sort of soft landing path and maybe this late cycle was really more of a mid cycle kind of setback and now we're back into mid cycle. Maybe it's wishful thinking, but I think the Fed has some basis for concluding that that's where we are. Just one follow up. The Fed has a target of 2% inflation. Do you think they have or do they have a stated or unstated unemployment rate target?

Well, the natural rate of unemployment is, I think, 4%. So that is kind of like the natural rate of interest. It's the rate at which the economy is in balance. So according to the Fed, we're kind of at full employment. We're above 4%. Well, slightly, 4.2. But we're not significantly above. It's not like we're at 5 or 6.

So I don't think the Fed is alarmed by 4.2. But obviously, it's been going up. But it's been going up from very low levels. The economy has been growing beyond capacity, which the Fed doesn't want to see because that's when inflation happens. And that's why this whole productivity AI story, which I'm sure we'll talk about, is important because if the speed limit for the economy can be raised either through labor force growth, which of course the Western world is not seeing, or through productivity growth, then you have a faster speed limit at which the economy can grow

without creating inflation. Without inflation. So the question now is we get a week from yesterday, the Fed will make the decision on 25 or 50. And that's the thing that the market has its eye on. Before we get to that, though, I want to talk about the Fed shifting their attention to the labor market. And the journal had a great article today.

Tim Moreos wrote about potentially opening the door for 50 basis point rate cut. Maybe that's why the market is rallying. Maybe not. Who knows? But they showed a chart showing the path leading up to the first rate cut. And most of the time, we do this with either GDP

or the stock market. This time, they did it with payroll growth, which I thought was really interesting. So right now, payroll growth is moderating as it has with every previous rate cut. That's the reason why they cut. And then the path of forward payrolls is really dependent on it's a binary outcome.

We either go into a recession like we did in the dot com bubble in the GFC or we don't and like 2019 to 95 and the beat rolls on. Yeah. So I have a similar chart showing the S&P 500 and the market generally likes rate cuts except for 01 and 07, of course. And those were perfect storms. Those were super bear markets.

I think the Fed will go 25. Not that I know, but I think the CPI report yesterday kind of locks in at 25. I don't think something- Why, because the CPI didn't come in ice cold or anything like that. I think the Fed would rather do too little, too slowly, than go too much and then have to take it back. What's the risk of doing too much?

Credibility. So the Fed, so not to go back in time, but in 1966, we had a very similar period today, right? Strong economy, emphasis on full employment, we had entitlement programs coming in. The fiscal side was very loose, so there was a lot of fiscal expansion deficits every year. This is Lyndon Johnson stuff and the Great Society and all that. And the Fed was way too loose because nobody was thinking about real rates.

That was not even a policy thing. And so the Fed was loose, the fiscal side was loose, the economy wobbled, the market wobbled, and the Fed immediately pivoted, because still of the scars from the depression, et cetera. And it turns out they missed it, and then inflation really became entrenched and they had to tighten. And obviously the Arthur Burns era of the Fed

is one that remains probably the biggest blemish on its record. And we're currently in an era of the Fed is one that remains, you know, probably the biggest blemish on its record. And we're in a currently in an era of fiscal expansion. And I think the Fed, this is just my own theory, but I think the Fed is cautious not to ease too much too soon, because that fiscal expansion creates, you know, a lot of a lot of control that but they have to be aware that it exists. They can't control that, but they have to be aware that it exists. They can't control it. And so they have, yeah, it's one variable that they have to account for.

And if you think about the Treasury and how they manage their debt, in a way, the Treasury is doing kind of fiscal QE, right? How Janet Yellen was switching from T bills or from T notes to T bills. That has an effect on reserves and reverse repos and liquidity. And so I think the Fed has that in mind, that if you're going to run a very loose fiscal house, maybe you require a tighter monetary policy. So I think 25, maybe at every meeting a couple of rate cuts this year. But when you say credibility, do you mean that they can't go 50 because they're saying

that everything is really fine and 50 might signal that actually everything's not fine? cuts this year. But when you say credibility, do you mean that they can't go 50 because they're saying that everything is really fine and 50 might signal that actually everything is not fine? Or do you mean that if they go 50 and there's some sort of a policy error, then they lose their credibility? Which do you mean? Yes, I mean the latter. And also, if they've been on record for months and months saying, you know, we're going to do this gradually.

I mean, rumor, the market was thinking they were going to cut seven times in January, and they walked the market back on that. So if all of a sudden they go 50, and then like a series of 50s, it's like they're saying, well, yeah, we were totally wrong, and then the market wonders what they know. What do you think the stock market's reaction would be to 50? Like the knee jerk, the day of? It could cause some significant rotation. And that's another big story we can talk about because I've looked a lot at that.

Stocks to cash or sometimes the stocks to others? Mag seven to others. And the mag seven are so big that when you have that rotation, which we saw in July after the first dovish CPI report, you know, the market's going, the market goes down when you see that because those mag sevens are so big. And I think that's one of the kind of ironic possible outcomes for the next six months or so that more stocks go up than down.

The average stock is just fine. But the headline index, the way we think of it, we saw a few days this year, we saw a few days this year with a red tape and 80% of issues green on the day. I'd take that. I definitely saw that. I'd take that. I think small accounts would be up 6%.

Yes, so what we've seen over the last couple of months, I think is really interesting. But you know, 80% of stocks are in uptrends, but those mag seven, and you know, we go back to the dot com era, the original nifty fifty, when the concentration gets that big, it can do some damage to the overall tape. So it's certainly a time for active management as far as I'm concerned. But just coming back to the Fed for a moment, the Fed has to kind of abide by its playbook

unless things really go off the rails and they're not really going off the rails. The dude abides. I was saying, be careful what you wish for with regard to the bank stocks. The financials have been very important to the overall market rally this year. I think they're still the second

or third best performing area of the market. And they are now getting downgraded like almost every day by different analysts who are worried about what lower rates will mean for bank earnings. Is that something that you think will impact the market negatively if it continues or will we still say on balance rate cuts are good? I think rate cuts are good as long as they're not out of necessity, but they're out of luxury. Like a green span, a green span like rate cut in 1995

where he just concluded, okay, the battle is won. And I can give back some of these rate hikes because a neutral rate, if the neutral rate is X, and I think that's one thing that I think people sometimes miss. They think of policy as static. We're at 5 and 3 8s, inflation is 2 and 1 half 3. A neutral rate is probably 100 basis points above inflation, so neutral rate is 3 and 1 half.

You know, R star plus inflation, 3 and 1 half. You don't need a Fed at 5 and 3 8s, right? That's not warranted, right? Maybe you need it. So the Fed has room and it's a moving target in that sense. But in terms of the financials, it depends on whether you're looking at the mega cap financials or the smaller regionals,

but the average deposit rate in the US is half a percent. So yeah. So the cost of funding for the large banks is one-tenth of the Fed funds rate they took it all they took it all their yield curve was never inverted and I think that's one of the mitigating factors but if we get four rate cuts the pie that they're taking all of goes from 500 something basis points to 400 something basis points and that's not as profitable like that's that's the risk something basis points. And that's not as profitable.

Like that's the risk on the banks, right? It's not as profitable if the backend, if you have like a bulls, a bull flattener, and they're charging X percent over the long rate, then yes, their NIM will go down, but it's still, their funding is almost zero. For the mega caps, not for the smaller regionals who have to compete with money markets. And here's a counterpoint.

So yes, maybe they make less money from interest. However, maybe some of the overhang of the banks was that we would go into a recession and that the consumer would get stretched and maybe in a rate cutting cycle, we're in the clear, we have a soft landing and they get re-rated higher because that risk has dissipated.

Yes, I think that's correct. we have a soft landing, and they get re-rated higher because that risk has dissipated. Yes, I think that's correct. So in a soft landing environment where the yield curve becomes positive again. The multiple should go up. The multiple should go up, and it should be good for financials and other interest rate sensitives as well. And if you look at it, there's an index

called the SP500 Low Vol High Divid, S&P 5LVHD. We've got that. And that chart is a thing of beauty. Yeah, right there. Sure is, talk to it, Yuri. What are we looking at here? So you got a dividend yield of 4.4%. You're back at the highs, a massive base there.

So that's the- What's in this? Staples. It's staples, banks, anything with a dividend. Is this an index or is it? It's an index. Is there an ETF attached to it or not yet? There probably is, yes.

Okay, so the S&P 500 low vol high div, and this is something that you look at? I look at this as being the other side of the market, right? So you got the Mag-7, so I look at S&P cap weighted versus equal weighted. I look at this as kind of the other side of the trade, right? Because one question we're always asking ourselves at Fidelity and elsewhere is, you know, do you rotate out of the winners? Do you go international?

Do you go value? Do you go down cap? And this is a good proxy for the everything else trade, if you will. So you think that there's a world where money rotates out of mag seven and these stocks catch a bid, but they look like they're already rallying. What am I? They're already rallying, but they were left behind

for several years. And again, you think about the fundamentals, right? S&P equal weighted index trading at 18 multiple. Cap weight is at 23 times. Earnings are rising, earnings growth is accelerating higher. Cost of capital is now coming down. Barring a recession, what's a better backdrop than that? Reasonable valuation, rising earnings, and falling rates.

We've got a lot of these charts later in the doc, but just getting back to the yield curve in the Fed, we un-inverted, we dis-inverted. Are you in, doc, but just getting back to the yield curve in the Fed, we uninverted, we disinverted. Are you in, John, chart one, please, are you in the now is the time to get worried camp with the un-inversion or do you think that's a lot of bunk? Boy, that, it's a tough one because if you look at the S&P 500 following peak inversion, right?

So when the yield curve goes from the most inverted point to becoming less inverted. So not necessarily un-inverted, but less. When was the most inverted point? That was, Right here. Yeah, that one. So that was May of last year.

Eurian, for the listener, can you describe what we're looking at? This is a chart of peak inversion. What are we showing? So this is a stock market indexed to the peak inversion point, which in this case was May of 23. Oh, these are all prior episodes of un-inversions. Yes. From the peak. Yes. So that's a really scary looking chart. That's not great, Urien.

Can you show us a different chart? So for the listener, what this is showing is from the point where we're max inverted, what does the stock market do as the un-inversion begins? And then it looks like we've got these prior episodes that are universally negative for stocks. 1969, 73, 81, 59, 80, 2000, 2006. Whoa, whoa, whoa. It's different this time. November 81, 59, 80, 2000, 2006.

Whoa, whoa, whoa. It's different this time. No, but so the point of the chart is that the market has never held up so long, so far, after a peak inversion. A peak inversion. That's really fascinating. So it's either different this time or they were mitigating circumstances which have caused the effect to be delayed.

And as I mentioned, the banks is a major mitigating effect, right? I mean, historically they would have been getting crunched. And they weren't this time. So the bank's yield curve looks nothing like this, right? So I think that's a major mitigating circumstance. The other one, of course, was people and corporations terming out their debt in 2020. If you, if you're sitting on a two and a half percent mortgage.

Oh, right. How many of these were preceded by 15 years of zero percentage rates? None. Well, it's decided it's different this time. So there are many mitigating circumstances that could either diminish the effect or delay it or cancel it out. And again, we never want to say it's different this time. I do. But there are many parts of this that. Plus, we're about to make America great again. I'm like, I don't know if you heard.

I don't know if you know that. All right, but this is a great chart. So what do people, when you sit down with institutional investors or portfolio managers, what do they ask you as a follow-up to this? Or what are the comments that you get when you're like, hey, look how different this situation is than all the past situations so far?

Or do most people say, you'll say, or not? I don't know. So for colleagues, the question is more about, okay, what does that mean for my positioning? Do I want to be overweight at equities? Or do I want to be in more pro-risk sectors, et cetera. For the end investor, and I just heard a stat that one in five Americans has an account at Fidelity, which

is pretty amazing. I'm one of them. Pretty amazing. For them, it's, OK, how do I navigate this? So the end investors, they have a tendency to, OK, I don't like what that looks like. Let me just sell everything and ask questions later. You cannot compound if you're not in the market.

And that's a major problem. So what I say is, make sure your portfolio is as bulletproof as you can. And of course, bonds historically have been an anchor in that. But in 2022 and 23, they did not provide- Could you run that chart though with bond market returns from the same inversion point? I have to, I could, yes. For the bond market, generally yields are falling and also for the first rate cut, generally yields fall as well.

Meaning prices are going up. Prices are going up. So I think people would love to have that counterpoint. Like look, we've not had great outcomes after previous peak inversions for stocks, but here's the other side of a 60-40 portfolio. Here's what it's done. Yeah. And it's encouraging that in the last few months, bonds have started doing what they're supposed to do.

Yeah. And even a year ago, was it a year ago, a year and a half ago when we had the regional banking little mini crisis, again, bonds did what they were supposed to do. So we've gone from a period where there was no reason to own any bonds because they were not diversified, they were not negatively diversified and they had

a negative real yield to now they have a positive real yield and they're actually doing what they're supposed to and So bonds have kind of re-earned their seat at the table. And so that's one message For investors is to just you know, don't be out over your skis in terms of risk The market is in a correction 40% of the time It only goes up 60 70 percent of the time 40% of the time. It only goes up 60, 70% of the time, but you compound at 10, 11% if you wait it out.

That volatility and that drawdown risk is the price of admission for earning those good returns. You were on with us March 31st of 2023, and that was the height of the Silicon Valley bank mini panic. And the 10 year was three spot 48%, it's three spot six five today. The S&P was 4,100 and it's up about 37% from this level. I would not have guessed that. One last thing, nothing to do with what we're talking about.

You were bullish on Bitcoin, which is up 106% from that show. So well done. Well done, sir. All right, so here's the silver lining. We were just talking about the bad shit that happens when it un-inverts. You have a chart showing that history shows

that easing cycles, which we're about to enter, are more often bullish than bearish for equities, aside of course from 2000 and 2007. So this looks a lot better. I like this more. Yeah, and so what we see here, obviously, dot com, GFC were major outliers and hopefully we don't see them anytime again.

But that was, those were, especially the GFC was obviously a recession. The two in the bottom right quadrant, yeah. A recession plus financial crisis. So even if we get a recession in 2025, that doesn't mean we have like a financial crisis like recession, right? I mean, I think people generally, they get triggered, they hear recession and they go back to 08.

There are many garden variety recessions throughout time that, yeah, market goes down 20%, but you know, the recession lasts nine months and then you again, and it's not the end of the world. That's such an important point. I think people are still shell shocked. They are. From, oh, and you think, okay, a recession means the world's gonna end, and we're gonna have 15% unemployment.

Yeah. So, but what often happens as well, for instance, especially in the 70s, you would have a bear market because the Fed was raising rates 73, 74. And then inflation finally, at least for a little while tamed, the Fed started easing, we had a recession, but then the market rallied

because the market was going down because of valuation compression, not because of earnings, and earnings get masked by inflation. And so oftentimes when the Fed finally starts to ease, the worst is already behind you. And then the market responds, right? And then all like the junkie, you know, penny stocks go to the moon because then you have,

they've already taken the earnings hit and now rates are falling. And so that's why more often than not, the market actually responds well. Yeah, I want to ask you about that because while we're on that topic if the Fed is fighting inflation because Literally oil is being withheld from a foreign From a foreign government That's a very different type. It still sucks. Obviously, that's a different type of inflation

Then oh no American workers being paid too much. Like, if you have an inflation fight, you'd rather have this one than that one. So that's like just one very like just quick aside. But I think the, John, can we put that chart back up? The message of your chart though is these are all easing cycles. I don't know how many you have up there, 20? You have a positive outcome for the S&P 500 after all but two. Like to varying degrees, some of these are flat markets, but some of these are runaway bull markets.

So what do you do in this situation? You say, okay, un-inversions are not great, but easing cycles are. This un-inversion cycle is about to coincide with, or this un-inversion is proceeding the first of what we think are several rate cuts. So like if you're like a, if you're a weight of the evidence person, which one of these things is more important to you? I'll bet on the easing cycle. There's only been a handful of inverted yield curves.

They are notoriously difficult to pin down in terms of the length of time and the magnitude. There are mitigating circumstances as we mentioned, but the easing cycle, we've seen many of them. And it's interesting that the Fed is easing as earnings growth is accelerating. Which is fairly rare. Very rare, right?

I mean, you think, go back to the Joltz data, that excess labor demand has been wound down or drawn down while a new earnings cycle has begun. I mean, how often do you see that? And again, I think it's sort of the beta versus the alpha. So I think it's very plausible that the market doesn't make a lot of headway here for a while because of this rotation.

Because S&P cap weighted is expensive, 23 times earnings. So I think the rest of the market has a chance to catch up and they're not expensive, earnings are growing, cost of capital is coming down, yield curve is going to become steep again or positively slope, which is generally good for the market. And so I think that's where the opportunity is. And it's just a question of like, how much does the S&P 500 or NASDAQ or Dow go up in

an environment where this highly concentrated market becomes less constant If you're right the asset management firms on the street should love this so it's a scenario where the the largest stocks that dominate the index or bleeding market cap and investors are buying everything else and all of a sudden active management should have a high proportion of Winning strategies between now and the end of the year at least. I feel like that would be very bullish for like the street itself.

Agreed. And I think we're in far better position now than we were 24 years ago during the tech bubble, because people make the analogy as I do about market concentration. Back then we called them the Janus 20. I don't know if you remember that. Yes, I remember that very well. Now it's the Mag-7. But back then, the market was so concentrated

that the index was going up while most stocks were going down. Just imagine how difficult it is mathematically for that to happen, right? That last year ending in 2000, like 75% of the stocks were going down, but the S&P was like up 20%. That drives people crazy.

Now, the S&P cap weighted is up a lot more than the equal weighted, but the equal weighted is up, and 80% of stocks are in uptrends. That's a far bigger, better situation, and it suggests to me that this rotation does not have to produce the same effects as we saw 25 years ago. Yurin, it sounds like you're generally pretty positive

on the economy. What's not to be positive about? Things aren't terrible, they're not great, but they're generally pretty okay. Bespoke had a tweet saying that if a recession looms, high yields bonds don't see it, and they're showing spreads of high yield bonds over treasuries, and they're tight,

indicating that things are generally okay. So I'd be curious to hear from you. What market signals, like bond market, stock market, forget about the economic indicators, what market signals would bond market, stock market, forget about the economic indicators, what market signals would you look to, maybe this is it, maybe it's something else, to trigger, yeah, maybe it's time to pay attention that there's some downside risk to the economy.

I think certainly credit spreads way up there. We like to say that the bond geeks are smarter than the stock jockeys because they look at balance sheets rather than income statements. And certainly there is no signal from the corporate bond market. I just spoke to my high yield analysts yesterday. You're not really getting paid to own them

because if spreads do widen, you kind of lose a couple of years of spread. But there's no sign of distress. There's no sign of distress. There's no sign of distress. Defaults are low. The maturity wall is pretty far out. So it's not like, and they all have to refinance while yields are high. And when we've seen sort of volatility events in the stock market, you look at what happens

to credit spreads. And the last few that we saw, including the one just a month ago, had no signal from the credit markets and that is one of the most important things to look at. That's really interesting. So stocks got crazy, VIX hit 60 something, but you're saying we didn't really see that echoed in corporate bonds. It was a technical event. And coming back to the Fed's 50 and at what point does it look like they're panicking.

If there was a real sign that things were going off the rails and the fed had to respond for that reason, you would see it in credit spreads or CDS spreads and things like that. Okay, I might be able to change your mind on this. What if there is distress, it's just not enough to hit the data, but it's like canary in the coal mine stuff. Go on.

Uh, burger fi just filed for chapter 11. I don't know if this is upsetting for anyone. Who? No, are we familiar with burger fi? No. Based in Delray beach, Florida. No, Duncan, you definitely. I've seen it at an airport before.

All right. Um, I mentioned this, I mentioned this on the YouTube channel two nights ago. Um, big lots, which which is a clearance retailer, Chapter 11, Lumber Liquidators, Chapter 7. Oh no, shitty companies are getting killed by other competitors. These are not good companies, but I'm just making the point. We did go like a five year stretch of time almost,

or a four year stretch of time. Where there was so much money out there, nobody went bankrupt. That's now, and I'm not saying that's good either, but like Michael asked about market signals, I guess I'm asking you about anecdotal or newspaper headline signals. Have you seen anything at all that made you say, hey, people are not really paying attention to this, but should, or not yet? I think we've had maybe a series of rolling mini recessions

like the PMIs have been sub 50 for a couple of years now. Yeah. But again, I would look at big layoff announcements and of course we had some in the tech sector a while ago last year, of course the Silicon Valley bank that kind of upended the private equity market, that took the cash out as the Fed was raising rates. I would say if there is a pocket of weakness out there that I think is really concerning,

it's actually China. And again, that doesn't necessarily directly affect us here in the US. We're a relatively closed economy, actually, when you think about GDP. But the stuff in China is pretty... Manufacturing the headlines out of China are bad. Yeah, and the real estate, the amount of, you know, like they expanded on debt, right? I mean, kind of what Japan did back in the 80s.

And they will not clean house. So everything gets kind of papered over and over and it languishes. And so that's one source of weakness, but it's not like a crisis that is about to hit us. It would have to come from layoffs because that's the only thing that I can see that would upend a consumer that is employed, that is, his wages are keeping up with inflation, and there's not a lot of household debt. I mean, that's kind of the same story as with the market, right?

Earnings are rising, valuations are reasonable, and rates are coming down. It's a pretty good background. Are you in the camp that consumer-related financial economic data should be twice the weight in the way you think as manufacturing? Yes. Okay. I think so too. I think that was the key to the last 10 years is to not go crazy every time the ISM number is disappointed, but to really focus on like credit card spending. Yeah. Manufacturers are about like 10% of the economy or something. And shrinking. But for people that have been around for 40 years, that's like their go-to thing to try

to understand. That's the lens through which they view the economy, rightly or wrongly. I mean, obviously wrongly. So we've been speaking a lot, how could you not, about the concentration and Todd Sonas Strategis has a great chart showing annual S&P 500 contributions of the 10 largest weights during positive performance years. And number one was 2007, but number two, three, and four was 2023, 2024, and 2020.

Then skip one, and then 2021. So four of the top six years of concentration have been in the 2020s. It's really incredible when you think about what's been happening here. And investors are paying attention. Tech is getting all the flows. Another chart from Todd showing cumulative sector ETF flows

since the Fed pause. And it's basically tech and then everything else is outflows. So the tech sector has had inflows and all non-tech sector ETFs combined have had outflows. People want one thing, investors want one thing, and one thing only, and it's tech stocks. I agree. Concentration can persist for a long time. We've had periods in the 50s, 60s, leading up to the nifty 50 of the 70s where the handful

of top companies were 60, 70% of the market. So it can persist, but the risk is that when the rotation happens, when these stocks become so big, the market is not left unscathed. And so I have a chart. I don't think it's in here because I showed it a few weeks ago. But if you do a scatter plot, so if you do a scatter plot of the mega caps

versus the rest of the market, the correlations is one, right? I mean, obviously, Martin's stock is one. They are the market. But if you look at the relative performance of mega caps to the absolute performance of the S&P, and the mega caps are down, the market is basically always down. And that's what I was saying earlier that, you know, it's sort of a careful what you wish for, right? We all want this bullish broadening, and the market is relatively broad.

And so if it's a kind of a zero something where the big stocks are being rotated out of in favor of everything else, the index is not going to be able to go up in that. But isn't that okay? I mean, we've had a lot of gains over the last couple of years. It's okay, right? And the S&P cap weight is up, I think, 18%, equal weight is up 5%, or it's 15 and 8, I

think. And so the hurdle is so high, right? If you're like some average stock and you're trying to outperform the index, you have to outperform it by so many hundreds of basis points because the spread is so big. So to me, it's almost inevitable that the spread is going to narrow. And the question is, does it narrow because the rest accelerates higher or some combination of the two mean reverting against each other?

And so again, it's a market of stocks as opposed to a stock market. The top 10, how big are they in the index? I know Apple and Nvidia Microsoft's like 30. It's 40%. Okay. So you have a chart showing that the top 10 stocks continue to churn. The bottom 490 remain in an uptrend. So the bottom 490, I mean, if they can get their act together and they're acting pretty

good, that's still 60% of the market. I mean, they could carry us higher. They look fine. It's just that for the typical investor who's looking at SPX or Dow Jones or NASDAQ, they're not going to see any progress. But if they're in a diversified portfolio and actively managed portfolio.

Where they have small and mid caps. Most people are. I don't think most investors are all in on the S&P. But I think it's an optics, right? And it's the same question of the market outperforming the economy or the economy outperforming the market. So it's just the alpha versus the beta. And as the Mag-7 goes, so does everything else, including non-US stocks.

So I guess that's July, the black line peaks. July 10th, yes. So the black line peaks. July 10th, yes. So the black line is the top 10 stocks? Yep. Okay. So that looks blow-offy and that's AI related and maybe that coincided with an Nvidia report or something. I can't remember anymore, but like we have gone long stretches where the performance

of the top 10, I mean, we've gone years, and it could stay this way, but get less pronounced. And I think that on balance would be bullish. I think so too. It's healthy. And again, as I said earlier, the S&P equal weighted trades at an 18 multiple earnings are growing 9.5% this year. They're expected to grow 14% next year.

We'll see if that happens. And the cost of capital is coming down and the yield curve pretty soon is going to be positive. It's a bullish backdrop. The point is that- By the way, the bottom 490, guess what they're doing right now? When they're not buying that stock,

they're buying AI tools to continue to grow their profits if it works. That's what they're investing in right now, which hopefully leads to higher earnings. If you know, if they're right. And greater productivity, which is the only hope we have to really keep up or grow out of the debt that the US has, right?

You need either, you either devalue or you inflate or you grow or you have austerity, which of course no one's going to do. But and so either you grow your labor force or you grow yourity, which of course no one's going to do. But, and so either you grow your labor force or you grow your productivity or both. And so productivity is the great hope. And right now we're in that mode where every company has to do the CapEx

or they're going to be left behind. And so it's a race right now. Urien, I saw a chart again, this is also from Todd, that blew my face off my butt and I'd like to get your reaction to it. He's showing the S&P 500 weight of both consumer discretionary stocks and staples within the S&P.

And it's at a multi-decade low. And he said, given how important the consumer is to the US economy, we find it surprising that the sum of discretionary and staples weight is at a 35-year low. I would agree, this is, what do you make of this? It's the same chart as the utility sector. Consumers consuming different things though.

It's, so utility. What do you mean, Amazon's the biggest weight in there? Amazon's not a consumer staple. No, it's discretionary. Oh, this is discretionary, sorry. It's discretionary and staples. That is low, yes. Yeah, I'm sorry, I thought it was only staples.

This is investor, sorry, this is investor preference. They don't want to own Hershey. They want to own Nvidia. Like, that's all this is, right? Like, how else would stocks get undervalued waiting in the index? Not like the committee is pulling them out. This is just market cap.

You know, I'm saying it's, I'm surprised by this. That discretionary and staples are at a 35-year low. Considering how important- I'm surprised discretionary is. Staples, I'm not surprised. Utilities, not because they tend to underperform over time because they're defensives, right? Yeah, you're right.

De facto, Procter & Gamble and Coca-Cola, they should shrink. Because they don't grow as fast as the overall market. It's the other piece, the Amazon piece, the Tesla piece. What were you saying that utilities looks identical to this? Yeah, so their relative trend, trends lower over time just because they're a low beta defensive sector. And then so the way you look at opportunities is you look at the deviation from that trend line, which if you ran that from upper left to lower right, you can see that even on that basis, utilities

are stretched. Now, utilities have a thing going for them right now with data centers and power and AI and stuff. But generally speaking, you know, they're bond proxies and they only do well in bear markets. So the amount of capex you mentioned a second ago that Microsoft and Amazon and all the other hyperscalers are spending on these data centers, it's difficult to imagine that slowing down.

Now, the skeptic could say, well, yeah, Jackass, it's all priced in. Why do you think these companies are, why do you think Nvidia is a $3 trillion company? What's your take on this whole situation? So the CapEx race is surreal. Companies have to participate or they're going to be left behind. And obviously, it's a crowded trade. They always become crowded. I mean, that's how the markets work.

They were crowded in the late 90s. Our sense is that AI, it's still relatively early. Are you using it at all in your daily life? I do not. I resist using it in my reports because I want every word that people read that they know that those are my words. I like that. And so it's kind of a matter of principle for me.

But that doesn't mean that it's not a tool. And actually we're doing a lot of LLM stuff at Fidelity because we have a lot of data. Yeah, I meant more like the research and a lot of stuff. And so they are actually training an LLM model on my reports to see, okay, like what questions, like we know the answers because we have- We're trying to replicate you.

Yeah, just in case. We have 10 years or 20 years of history, but it's all training, right? I mean, garbage in, garbage out. So you have to ask the right questions. So they're training our models on my work, but I am not, every word that I utter is my word. I did see you as a hologram though.

I was in the fidelity offices. That was pretty cool. That was really cool. You're even giving a presentation where he powered in from a spaceship. Where were you? I was in Chicago. I couldn't be in two places in one time.

So they filmed me as a holograph and I was standing in a box on stage. It was places in one time, so they filmed me as a holograph, and I was standing in a box on stage, it was really cool. They had a meeting at the White House today, all the top AI people, and they had like, Jensen Wang, Sam Altman from OpenAI, the guy from Anthropic was there, Microsoft's president was there,

Ruth Porat from Google, who will probably be the next CEO there. CNBC caught Nvidia's Jensen Wang as he was walking out of the White House. And he turns to the camera and says, we're at the beginning of a new industrial revolution. This industry is going to be producing intelligence and what it takes is energy. So we've got to make sure that everybody understands the needs coming, the opportunities of it, the challenges of it, and doing it in the most efficient and scalable way we can. There's probably going to have to be public-private collaboration in this area because the rate

of growth is really quite high. And this is before the Blackwell chip hits. But they're not at the White House just like doing a photo op. They're asking for more energy infrastructure. Is the utility rally this year in the midst of a bull market a signal that maybe something's changing for those stocks or you don't think so? Yeah, no, I do. And so you have the old kind of bond proxy utilities and then you have these more energy infrastructure utilities

and that has been a very hot market. So everyone knows that what's working of course is the chips, the boxes, the infrastructure, the data. We don't know who's going to be the killer app on the software side. Maybe that company doesn't even exist yet. But you raise an interesting point with this meeting that I do think we're in an era, an emerging era of more industrial policy, maybe private-public collaboration. Part of it is the on-shoring of supply chains with China and COVID, but also the AI story

and just having independent supply chains. The commodity prices don't reflect the level of demand that everyone is talking about. And that's the China story. And so that is a drag. But I think commodities are a really good play. And that's one of the left behind sectors as well. So those stocks fall into that low vol high dividend, some of them. Yes.

Are you surprised by crude oil under 70? Are you surprised by natural gas never getting a bid ever, regardless of how much talk there is about the energy usage of AI? And just generally, we're in a good economy all over the world. What do you think is behind the weakness in commodity prices and is that maybe an unexpected thing that might turn around this year? It's certainly been, I mean, it's never disappointing that commodity prices are down because it means there's less inflation.

Yeah, lower gas prices. But I'm surprised that they haven't done better because when you think about the MAG-7 versus small caps or value, commodities versus stocks is kind of the same idea, US versus non-US stocks also. So I expected commodities as well as emerging markets to do better. But I think China is a major drag on that whole story. Yeah. It's got to be that because it's a consumption problem in China. So there was a, shifting gears a little bit, there was an article in the journal today that JP Morgan will now cap junior investment bankers hours at 80 hours a week and I took

out my calculator, I said 80 divided by five, that's 16 hours a day. I'm like, wait, what in the world? How is this capping it up? They were doing 100. So listen, so they have a protected window. This is actually Morgan. They have a protected window from 6 p.m. Friday to noon on Saturday, which is hilarious. Where nobody could ask them to do anything.

So the window where they have time to themselves, where nobody can bother them is Friday at six to noon on Saturday. So they say a sample 80 hour work week, shame on me for thinking that they only work five days a week, that was dumb. A sample 80 hour work week can entail six days working from 8.30 a.m. to 10 p.m. with short breaks

or how about 11 hours a day for seven straight days? I mean, this is no way to live. But you know people who have gone through that and they all make a million dollars a year. So there's a reason. There's a reason people put themselves through that. Yeah, when you're younger and you're in investment banking or in legal, I mean, it's just you got to put in the hours. I'm glad I'm not in that situation anymore.

So there are enough kids coming out of elite universities all over the world who are more than happy to do that work. They don't do it until they're 35. Oh, there's a pot of gold at the end of the rainbow. Correct. It's finite, yeah. So now, what they don't want is the kids dropping dead at their desks. Which happened. That's sort of problematic.

So they have to find a balance. Maybe 80 hours is more reasonable than all hours. I mean, they said people were putting in 120 hours a week. Yeah, I mean, but you can only do that for so long. Listen, money is great, but I mean, if you're killing yourself and you have no time to spend it, what is the point? What is the point?

I want to talk about Carl Icahn. This is the most shocking story of 2024. It's sort of under discussed, right? Under discussed. Two years ago, there was an HBO documentary about Carl Icahn. He was literally at the top of the world. And HBO does not do documentaries on anyone other than Warren Buffett and Carl Icahn.

They don't cover finance. But his story was interesting enough and he had been successful enough that they wanted to do something on him. It's been nothing but a shit show ever since for this poor guy. I say poor guy, I'm joking. He's 88 years old and he just lost 20 billion dollars this year. Think about this. Like 88. I bring it up because our friend Bill Cohen, friend of the show, he writes for Puck. He got him on the phone this week and I wanted to... So let me just give people a background and then I'll tell you what Carl said. Basically, this is a combination of

poorly performing assets, like not making great investments, public investments or private. He owns Pep Boys and Amco, which are like auto repair. He owns them wholly. He owns a sausage casing company. He owns the old AT&T office building in Atlanta, which has no tenants anymore. It's an empty building. So he's paying a huge dividend to attract new buyers to the stock. And a major short seller comes along last year and says, Hey, that seems unsustainable, digs in and discovers the fact that ICON is hugely leveraged with margin loans and he's using that stock for collateral. The short seller points it out, the whole thing, the bottom drops out, the stock falls

80%. So as of 2015, this is Bill Cohen, back in 2015, he was worth 24 billion. These days it's closer to 5 billion, maybe less. And it remains under considerable strain. The stock has fallen 51% this year, down 84% over the last five years. Carl owns 85% of the company's stock. For a renowned investor, that's not a great fact pattern. The S&P at the same time is up 81%. So he gets Carl on the phone, this is what he said. There's one word, hubris. This is Carl talking. People are destroyed by it.

I think it was hubris with me. It wasn't enough that I had a great paradigm that we did and I was very good at it, which was go to a company, work with them, talk them into getting me on the board, sometimes do a proxy fight, sometimes be feared. I had beautifully worked it out, and then I decided that I could really figure out what the market was going to do, which is sort of crazy. And I realize now that's the dumbest thing you could do.

Wow. See, he's not admitting that it's a Ponzi scheme. He still thinks that the short selling reports are lies. It's not a Ponzi scheme. But he's coming around to the fact that... That was stupid. That was stupid. Why do you have margin loans personally at 88 years old? What are we trying to do here?

Credit to him. So... Well, the bigger lesson is humility, right? I mean, you got to keep humility. No matter how successful you are or smart you are. I always try to keep that, and I think that's a very good life lesson, and I learned that from my father who was 96. He's got Carl beat by eight years. Well, here's the ironic thing about what you're saying.

In the documentary, Carl stands in front of a painting he owns, which is Napoleon standing in front of his army. He should know better. At the battle that it represents the invasion of Russia, which ends Napoleon's career basically. And he specifically talks about why he has that painting, to remind him of not,

and then two years later, here we are. So he became so successful and so powerful, and he figured out how to clean up these companies. To his point, he just said he tried to, he thought that he could figure out what the market was going to do. I remember in 2015, because I wrote a post on this and I got some shit for it at the time,

Carl Icahn was on CNBC calling these junk bond ETFs a powder keg for explosion, and they're going to take down the entire market. Oh, danger ahead. He didn't know what he was talking about with regards to the ETFs, the structures, what was in them. And he just got too, you know, he got, he got, uh, overconfident.

He got overconfident. So. There's a universe where he's still an activist investor filing 13 D's, getting himself on boards and not. It wasn't enough though. It wasn't enough. So he's leveraging himself and he's buying oil refiners and things that are not working this year. And I don't know how this ends's leveraging himself and he's buying oil refiners and things that are not working this year and I don't know how this ends.

It looks like he's trapped. He's selling new shares of stock to raise enough capital to support a dividend. It's a death spiral. It keeps going lower. The dividend is 37% nominally. There's no way he could pay that. So I don't know how this ends, but I don't understand why more people aren't fascinated or talking about this

it's very rare to have one of the most famous investors of all time lose 20 billion dollars in a year and Effectively be checkmated by a short seller. I think it's a crazy situation The short seller this is why we need short sellers People that listened to the short seller and did their own research based on what he said Saved themselves a lot of aggravation. Is this stocks and it's the opposite of the game stuff thing, right? Right. It's the opposite. All right last one. This is for fun Homeowner who sold billionaire bunker Miami mansion for less than asking price Sue's realtor for not disclosing Jeff Bezos was the buyer.

This is the post. How great is this? So, all right. So, it's a $79 million mansion in Miami Beach. Here. Suing the realtor who handled the transaction because it concealed the fact that the buyer of the 2.8 acre estate was the Amazon founder, potentially costing him as much as 6 million. So this guy, Leo Chris, co-founder of a toy electronics company, filed suit against Douglas

Elliman saying, dude, you should have told me it was Jeff Bezos. I could have gotten more money. I don't know. You want to weigh in here, the people's court? What do you think? Come on. Come on now, Todd. Just dismiss.

The market clears off. Exactly. Wouldn't you be pissed though, if you sold a giant piece of real estate, and then you found out it was Jeff, and you could've just charged any amount, you could've just asked for any amount you wanted. But who says you could?

He's a smart businessman. Yeah, exactly. True, but if he wants something, I don't think the price. Look at this house, it's insane, right? I don't think the price. Look at this house. It's insane, right? I don't think the price is usually in the way. All right, that's all we have for today. I want to ask you, did you have fun on the show today, Urian?

Yes, it's my favorite show. Oh, wow. Thank you. And I always love coming here. Cut that clip. Urian Timber says it's his favorite show. You're one of our favorite guests. You're a fan favorite too.

Every time you come on, the feedback is off the charts. You can see the YouTube comments for yourself. People love the way that you do what you do, and they always come away learning something new or looking at things a different way, and that includes Michael and I. So thank you so much for coming on. We appreciate that.

We always end the show, as you know, with favorites. I'd love to hear if you've got any suggestions for the audience, anything that they should check out. Burning Man, okay. Some of them will. What else? Burning Man, Flaming Lips just released a special anniversary of Soft Bulletin, really cool vinyls with like blue and yellow in it, limited edition so.

Is that your favorite of their records? It is the favorite of their record. That and the Terror, which is a pretty dark record. Okay, I'm a Pink Robots guy personally. I saw that show three times last year. They did the Pink Robots tour. How's like Wayne's voice and stuff? Is he still doing his thing?

He's fine. Yeah, like it's not the best sounding band ever, I hate to say that. But man, do they put on a show and it's all done with love. Well, so I'm not surprised that you're into Flaming Lips because it reminds me a lot, the vibe reminds me a lot of The Burning Man, the imagery. So you like that kind of over the top spectacle kind of abstract thing. I'm a visual person and I like the kind of the multi-sensory stimulus, if you will.

But also they're so authentic that like they create that with genuine love for their audience and to me that's kind of what Burning Man is in its purest form. Did you see that radio head is back in the studio rehearsing? I can't wait. It's been eight years since we got a record. KDA and King of Limbs are my two favorite albums. Those are the top two?

Yeah. Okay, what do you make of the Oasis Mania? They had 10 million people trying to buy 500,000 tickets last week. That sounds like Burning Man 10 years ago. Yeah, that's pretty crazy though. That could be one of the biggest shows if they don't kill each other in England. Are they coming here or is it just one?

Not yet. They're doing 12 dates in the UK and Ireland or 15 dates. But they sold the tickets. It was Taylor Swift-esque, which is amazing because they haven't had a hit single in 20 years so I find that kind of cool actually yes all right here's my favorite I watched the VMAs last night a 47 year old man and I loved it and I wanted I wanted to watch five minutes of it and say this is garbage you see any of it you see any any clips? Okay. I didn't even know it was on. Nobody knew it was on. I saw MTV. I saw Taylor dancing or something, right?

So here's what they do in the VMAs. No matter what act is on stage, the camera cuts to Taylor. And if she's into it, that's like, they're trying to show the audience, look, Taylor likes this. Like almost like they do in football. They keep cutting to Taylor.

So she has like a front row seat and she's into all the stuff. Here's what's cool about the VMAs. Lenny Kravitz is 60 years old. He brought the fucking house down. Eminem is in his 50s. Kids were going more wild for Eminem than any other act that went on stage, which I think is a testament to the power of the streaming era, Spotify, the discovery.

Kids don't care necessarily if something's brand new, they just care if they like it. It was cool to see them on stage and then there's this whole new crop of stars that Sabrina Carpenter, Chappelle Rowan, these are 21 year old women that are becoming the next big thing but to have them share the stage with stars from our era, I thought the thing was really well done and most people don't even know how to find MTV. Every one of these performances is on YouTube as its own self-contained. So you don't have to like sit through a whole three hour thing.

You could just watch them. But shout to MTV. It's nice to see they're still doing something. It's like the only thing that they should be doing, in my opinion. You have a favorite for us? Yeah, I'm going to double down on a show I recommended,

or a movie I recommended a few weeks ago called Incoming, on Netflix. People are making fun of you for that. No, listen. Oh yeah? Oh yeah? I got three pieces of good feedback today. Go.

Who made fun of me? Sprinkles. I don't give a shit what she thinks about comedy, no offense. No, but she said, isn't that a movie for like 16 years? No, dude, did she watch it? Yeah, she watches all that shit. Did she love it? She was just like, it's like a teenage comedy.

Why is Michael watching teenagers? Don't laugh. That's what, that was her pick. All right, well when you put it that way, I don't have a great rebuttal. It's slightly, it's not weird that you put it that way, I don't have a great rebuttal. It's slightly... It's not weird that you watched it. It's weird that you're doubling down on it.

Like it's the f***ing Godfather 2. I mean, alright, alright, alright. Listen, it was a funny movie, okay? And I got feedback today from people that liked it. I'm doubling down. It's a funny movie. As Kamala Harris said two nights ago, we're not going back. We are moving forward. Duncan, great job on the show this week.

John, Rob, Graham, Nicole, Daniel, Sean, Chart Kid Matt, thank you guys for all that you do. I want to say an extra special thanks to the audience. Guys, thank you so much for all the ratings and reviews. We appreciate it. Keep it coming and we'll see you soon. Thanks again, Urien Timmer. You are x.com slash Timmer Fidelity

for those who want to follow you on Twitter. And you're active on LinkedIn a little bit. Yes. All right, special thanks to Urien for coming through. Fan favorite, you crushed it today as always. We appreciate you. All right, guys, we'll talk to you soon. Thanks again, we're out I'm the one who's gonna take you to the top.