The Compound and Friends - Price-Chasing Donkey

Episode Date: February 28, 2025

On episode 180 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Jim Lebenthal, Chief Equity Strategist and Partner at Cerity Partners to discuss: Nvidia earnings reaction, Apple's investments in American, tariffs and reshoring, Jim's favorite stocks, and much more! This episode is sponsored by Betterment. Grow your RIA your way: https://www.betterment.com/advisors 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/ 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

Jimmy, tell me about your time in the Navy. Seven years. It was great. Actually Rob reads a lot of like espionage thrillers and military novels. He likes this stuff. I'll tell you the truth. Not a day goes by I don't think about it and it was the best time of my life. Seven years? Seven years. What years were those? 90 to 97. So right out of college.

You were a Cold Warrior. Right at the tail end. Right at the end. The Cold War ended and in fact that informed my decision to get out because I'm not sharing too much information here, but when you got to 1995, this was Yeltsin talking to Clinton and they would meet in Reykjavik and Yeltsin would go... Glass Nosed. Well, past that. So Yeltsin would go like, you got submarines banging into my submarines in the Barents Sea, what the f*** are you doing? Excuse my language. No, it's okay. You have no idea what we're about to unleash in here. A lot. What the f*** are you doing? Excuse my language. No, it's okay.

You have no idea what that's unleashing here. But because of that, like the standoff distances when you were doing Cold War ops, it was getting to like 50 miles. So I was out there doing Cold War stuff and I'm like, well, why are we so far away from land? Yeah. And it was just a very clear indication that the Cold War was over. Great.

You know, go USA. We won. What was the Austin Powers thing? Go Communists. Where were you? Like what part of the world? Norfolk, Virginia. It's classified. No, no, no. When you were on a sub, like you were in the North Atlantic or the Arctic? Did you see DownParis go? Yeah, was it just like that? So wait a minute. So you were on a nuclear sub. How many, how many sailors are on the sub? 130 people. Okay.

Longest we went out for was 10 weeks submerged. Okay. Which, look, I know it sounds crazy, but when we're 24, you do things that are crazy. The craziest thing is you have 24 year olds right now driving nuclear submarines. I mean, the captain's asleep in the stateroom, it's two in the morning, it's a bunch of 24 year olds and 19 year olds driving nuclear submarines. Oh my god How do you end up on a sub and not like an aircraft carrier for example, what makes that decision? That's what I volunteered for you wanted to do that. Yes

Why because aircraft carriers you are a hundred percent of the time in the engine room below the waterline on a submarine 130 guys isn't enough to actually really be that specialized. You've got 14 officers and you're doing everything. You're doing the engine room, your torpedo room, you're actually driving the ship. A nuclear engineer on an aircraft carrier is never gonna drive the ship. You're just gonna be-

They just sit in one room the whole time. And it's below the water line and it kinda sucks. You guys have like, it's not like a shore leave and like, right, you're just under. Well, exactly. And with submarines, the idea is stealth. So you come out of Norfolk, Virginia, you transit eight hours and get past the continental shelf.

You submerge and you don't get seen again. That's the whole idea is like if a satellite goes over Norfolk, Virginia at 9 AM, they see there's six submarines at the pier. They come back for the next pass, they see there's five submarines and they don't know where that sixth submarine went. And that's the whole point of the submarine is it can't be detected. By the way, this is timely,

Russ and Pete's Gene Hackman, Prince of Tide. I know, that was a good movie. I actually saw that movie of all things with my commanding officer in 1994. In the submarine. I actually know we were in, I think, Kings Bay, Georgia. Is that Denzel also? It was Denzel, but it was the most uncomfortable two hours two hours this mutiny movie and I'm sitting next to my captain

I'm like, hey, she's what's better. I'm gonna talk about how are we gonna debrief this? There's a bunch of great submarine movies. It's like its own subgenre Well, what did they like get it right October classic. Yeah. Well, did they get it right? Um, the- Crimson Tide, they got it, they nailed it? Well, I wasn't on ballistic missile submarines.

Totally different thing, but pretty much they've got fail safes for what happens if you get a- if you get a garbled message, which was the crux of that movie, I don't think you shoot on that. You've- I mean, again, I wasn't a ballistic missile submarine, but the premise is something that has certainly been thought through. So yours was more like a leisure submarine? Yes. Okay.

Now what's this ballistic missile? What's the other? What's the kind that you're on? Fast attack submarines. The goal of which is to go into the Soviets backyard and keep track of everything they're doing with their Navy. So that, you know, you remember Hunt for Red October, the USS Houston, that was a fast attack submarine, same class that I was on.

The idea is to get behind their ballistic missile submarines this was Cold War doctrine so that if it ever went hot the first thing we would do is put torpedoes on ballistic missile submarines before they had a chance to launch you think Josh could have made it in the submarine absolutely not in some ways yes one hour I, what are the amenities? I don't know. The Lido deck does not exist. I could get on the Four Seasons ballistic submarine. You would have been very welcome. You would have been very welcome. Some people that we, you know, hang out with on the show would not have been very welcome.

We're not going to name names. You would have been very welcome. I don't think you would have been... A lot of Jews on these submarines generally or not? You were the only one. Josh, can we play this clip before we get started? It's 40 seconds. It's a good one. Because I like you. The answer is of course yes. Alright, bear with me.

This is Kevin Hassett, economic advisor to the president, author of the famed DAO 36,000. Not wrong, but early. Volume up. Hold on, volume up. On these potential checks that you might send out from Doge, is there a concern as you're thinking through this that they could be inflationary? Oh, absolutely not. Because imagine if we don't spend government money and we give it back to people, then the, you know, if they spend it all, then you're even.

But they're probably going to save a lot of it, in which case you're reducing inflation. And also when the government spends a lot, that's what creates inflation. We learned that from Joe Biden. And so if we reduce government spending, then that reduces inflation. And if you give people money, then they're gonna save a bunch of it.

And when they save it, that also reduces demand and reduces inflation. The smile on his face is what sells it for me. He looks like he's about, he looks like he's trying to sell a monorail to Springfield. That's a great reference So he's the guy that wrote Dow 36,000

97 in 99 as the Dow was breaking 11,000 after which of course it went straight to 6,000 and he eventually was right We could be did do 36,000 give the man his flowers. Um And he eventually was right. We did do 36,000. Give the man his flowers. He's also a George W. Bush retread, I think. He's been hanging around different Republican presidents for a long time.

That's a great explanation for how Doge stimulus might work. Disinflationary, because people will save it. All right, are we ready to go? Let's go. All right. Let's pod. Nicole's rocking the sweatshirt today.

Come on, friends. Episode 180. And now, a word from our sponsors at Betterment. Imagining a better future is the first step. Investing in that future with Betterment Advisor Solutions is the next. Whether you're launching your own practice, looking to streamline client onboarding, or just searching for efficient ways to scale your firm, Betterment is here to help. They automate to make tax optimization simpler. They provide support to make administrative

tasks easier. At Betterment, they are building innovative technology all for anyone who's ever said, I think I can do better. So grow your RIA your way with Betterment Advisor Solutions. Learn more at betterment.com slash advisors. Investing involves risk performance, not guaranteed. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz 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. Episode 180. Jim is like, what's going on? Dude, I can't believe it took us this long to have you on the show. I'm delighted to be here. Thank you.

You descend from Wall Street royalty, which we're going to talk about later in the show. We are. We're going to give the Labanthhal family their flowers. Let me give you the official introduction. Jim Leventhal is the chief equity strategist and partner at Serity Partners. He has over 25 years of experience managing investment portfolios and is a regular contributor on CNBC to literally the best show on CNBC, primarily the Halftime Report. Prior to joining Southerly Partners, Jim served as the Chief Executive Officer and Chief Investment Officer of Labanthal Ascent Management, was a financial advisor for Goldman Sachs and

a partner of the investment firm, Levy Harkins. Jim Labanthold, welcome to the compound of friends. Josh, I am truly delighted to be here. I was going to say, can we get these applause tracks for the halftime? Maybe laugh tracks. All right. First things first, we're so excited to have you. And I have to tell you, of all the people that I appear on TV with, I think you're one of the longest lasting cast mates

on Halftime. You've been with us, I don't know, since... I think it's 12 years. 12 years. Okay. It's hard to believe. So I'm slightly senior to you, and I remember your first appearance. It was...

You remember your first appearance? Well, my first appearance was actually on the 5pm show. That one I remember. And I think I was on that with you too. Okay, so I was called on to pitch a stock and it was Caterpillar, I don't know why I remember it. This was the late summer of 2013. Okay.

I pitched the stock, you, whoever else was on the show, asked me some questions, fairly innocuous, what's R&D gonna be in the third quarter, whatever. And then- You had that wrong, by the way. I'm sure I did. If I recall correctly, okay. But then, for whatever reason, I went away and said,

all right, that's that, and the next day I got invited back and it happened again and again. This is kind of a funny story. Can you give me a little runway on this? I want it, I want it. That's what you're here for. Okay, but I don't know the time length, so I'll watch your eyes anyway.

There's literally no length of time. Okay, but I don't know the time length, so I'll watch your eyes anyway. There's literally no length of time. Okay, so for the next several weeks, I would get called on to the 5 p.m. show, Fast Money, halftime report, and I had no idea what was going on. They'd called me up, remember Lydia? Yep. She'd say, come on, so all right.

Ooh, that's a deep poll. Shout out to Lydia. And then all of a sudden, I was getting these month ahead schedules. I was like, all right, I'll just go with it. Yeah. It got to a point, I was still doing, I've talked to you about this. I was still doing some other channels which shall not be named,

you know, the Lord Voldemort of channels. Yeah. And I was on a five o'clock appearance and Lydia called me up the next day and said, we can't have that. We can't have you appearing on our show and, you know, and on the dregs. So they made me a contributor. Give me the contract. And then that was it.

And the rest, as they say, is history. You having fun still? I am having fun. You are. I am having fun. I can tell that you're having fun these days. I also remember, because I remember my own, we all have like these rough patches where it's like,

I don't know if I could do this anymore. But then you come through to the other side and it's like, this is the best, there is no better gig in financial media, I would say. I completely agree. I'll even admit there are some days, you know, in the last year where I'm like, oh man, that just really stunk. You know, but our friend, mutual friend, Michael Farr said something to me about three years ago when I was whatever, pitching about something that happened on the air. And he just really shut me down in a good way. He said, Labanthal, there are thousands of people who would crawl over broken glass through where you are.

And it just, you know, that thank you, Michael, that is just always in my head. It's true. Gratitude is the right way to be. I, yeah, certainly there are things we can be upset about, but it is very wise philosophically to be grateful for everything. Well, I could tell that you're having a good time. And by the way, you've been mostly right on the big picture. And a lot of people don't realize how hard it was to be bullish. Not just in 2020 when we had that recovery,

everyone enjoyed that. That was a lot of fun. You stayed bullish through 2022 and you never gave up. And then in 23, there was like a bank panic and a hundred percent chance of a recession. You would not give in on that no recession call. And then of course, by the end of 23, it became fashionable, but like, no,

but you really stuck to your guns and you were mocked a little bit, ridiculed sometimes when the market was down big. And I always admired that you were able to do that. Side note, which is important, you are a wonderful friend to me, and I appreciate it. Just, you know, some, no, seriously, sometimes you you rip me, I know it's in good jest, but at the end of the day, I know that if if I'm hurting, you're going to come to my rescue. And I really appreciate that.

I know it's true. This is true. But back just, I just want to say one thing that I think you and Michael will probably agree with, is that going into 2023, there were people coming on the air routinely and saying things like, our economic model shows a 100% chance of a recession. That was like the Bloomberg consensus of economists

was 100% chance of recession. Ridiculous. Not the call, but the 100% chance of recession. Ridiculous. Not the call, but the 100% probability. Jim Grant, who I think is a friend of mine as well, when I was coming out of the Navy, I spoke with him and he impressed upon me in a very memorable way the ability to predict the future. He asked me how long, showed me a chart of the S&P 500 going up through the 90s.

He said, how long do you think this will last and how certain on you? I said something stupid, like I know it'll last another two months. He raised his eyebrows at me and said, really? And that's all he had to say. I think the reason why, wait, why? Because of how certain you were on the timing? Because of certainty.

So when people tell you, I'm pretty sure you guys agree with this. When people say, I am 100% certain of something that's gonna happen in the future. I know this is gonna guys agree with this. When people say, I am 100% certain of something that's going to happen in the future. I know this is going to happen in the future. It's almost a tell to go the other way. Yeah, well when everybody agrees too, is like, that's an even better tell.

This is why, in my opinion, we avoided the recession. Because everybody knew it was coming, air quotes, and they prepared ahead of time. I think corporate America especially said, all right, the game has changed. Dara was the earliest to this at Uber and said we have to do things differently because we're being judged differently. And that's that's S&P America, but even mainstream America. Everybody braced for impact and therefore we avoided the impact. I think you're exactly right, particularly as you were speaking,

I was thinking about the degree to which corporate America bonded out the debt side, the liability side of its balance sheet. Yeah, that too. At incredibly low rates. Yeah, that too. I think you're right, and honestly, that actually wasn't my thesis.

That just happened. I was just looking at all these news flows of hundreds of billions, hundreds of billions of dollars of capex being reshored and Something that I've said a lot and I said this to you a second ago Mike Right now you got to separate politics out from policies The politics is emotion and it will get you going in every direction Yeah, least likely is the direction you want to go policies at that time were such time were such that people were, you know, Taiwan sent me those Arizona

semi plants. That was announced in 2020. I mean, that was well before the CHIPS Act. This was going on and I was looking at that and I was saying, these hundreds of billions of dollars are going to come home to roost. That's what I thought was going to be. We're going to do a whole bunch on the reshoring theme, which is another thing that I think you were early to, but I want to start with Nvidia.

So the reaction today in the stock was really interesting. We're recording this like three o'clock on Thursday. So it's pretty gross. Of course, things can change. This is one of the best earnings reports by any company ever in the history of earnings reports just on its surface. But this is also a stock that's gone up 5x in the last three years and it's become really hard for them to produce upside shocks. It's

almost like they've run out of superlatives. So you have a gap operating income for the quarter of 77% year over year, which is amazing until you consider that the comp is like 150. So like that's the situation Nvidia is in. Net income up 80%, earnings per share up 82%, data center revenue up only 93%, 16% sequentially over just the last quarter. So these numbers are huge in terms of like growth rates, CAGRs, et cetera, but it's Nvidia. Everybody already owns it. Second largest company in the world.

You know, shock me again to the upside. And it's really hard for them to do. That's my read on the post earnings reaction today. The stock is down about 6% on the day to day. After opening up 3%, that is fugly. Yeah, what are your thoughts on the post earnings reaction here? So, you know Josh I tend to hue I tend to pay attention to valuation and I'm looking at the stock from evaluation point of view

Versus its growth rate of earnings per share Which I feel pretty confident about for the next year at least and I'm saying this is kind of a bargain at this price Maybe you're right that nobody is left to buy it, but I actually think there are a few people. I feel like, you know, on our show, I feel like there are times that people come on and they're like, oh, I don't own it. I'm like, okay, well now's your chance. The people who bought AMD can sell that and buy this.

Yeah, well, and you know, just to be kind, some people probably bought Broadcom and are feeling like, okay, well now's my chance to switch out. But Jim, you're right, like, if you're a growth at a reasonable price investor, this is reasonable. It's very reasonable. I mean, the PEG ratio is like 0.7.

PEG ratio, I don't know if you guys know it, but PEG ratio, price to earnings over the growth rate of earnings. It's a way of saying, at least for a guy like me, is 28, 29 times earnings, is that expensive or cheap? And I will tell you, if you've got a PEG ratio below one, for a company of this quality, it's phenomenal. Right, what's the earnings growth estimate for full year 25?

Is it like 60% or something? I think it's 50%, but. So it's 29 times earnings, but the growth rate is 50%. Like, why wouldn't the stock be a buy here? So you like to make up reasons for why stocks are selling off. So why do you think investors are. I thought I just for why stocks are selling off. So what do you think? Why do you think investors are... I thought I just spent 10 minutes articulating that.

Can we do it again? Why do you think... Yeah, yeah. Should I do it through interpretive dance this time? I wasn't impressed. I wasn't impressed. Okay. I think... I need more bullshit. I think a stock like this needs upside shock to continue to go up, and you didn't get it.

So what are they buying? What are they buying today? Because they come out of every video, where are they going? They're buying Starbucks. Obviously obvious. Josh is a big, they're selling this and buying that guy. No I am because I believe that the money does go somewhere. I don't think people sit with cash in a portfolio for more than 15 minutes. That's my personal view on the investing public. Non-institution is a little bit different. The investing public, they take a profit in something and then what? They f**king slam the laptop shut? He doesn't get that when the stock is down

six percent the money just disappears. He thinks it all comes out. Of course it does and it goes somewhere else. Yeah, okay. People sell a stock at 128 and buy another stock at 54. Embarrassing. Why? Where does the money go? Look, I... The fabled, like, money heaven? I completely agree you should separate the buy and the sell, but as I'm listening to you, all I'm thinking about are these zero time to expiry options and people... I mean, I know I'm going a little tangential at best... You're a big zero DTE guy. Yeah, you feel me.

That's really your world that you would have. But, I mean, that is the ultimate roll of the dice. And it's just a matter of time until the, you know, snake eyes appears and they wipe out the craps table. I do think that Nvidia has this kind of circus next door. That's an options slash leverage DTF circus. And it's kind of like its own casino that's like built alongside the hotel Nvidia right? And there's a lot of activity that happens intraday with the stock that has of course

zero to do with anyone's fundamental outlook for the company. Nobody engaging that behavior is looking at PEG ratio. And if you're along in a name like this, you kind of have to just accept like a lot of the things that are going to take place on your screen have absolutely no bearing on what you're doing in the stock. And I've come to terms with that a very long time ago. And I don't know what's happening today.

Like to me, it's, I don't know, outflows from a 2X leveraged ETF that collected $12 billion in the last few months. Maybe that's what's going on. I bet you they're finally selling NVDL, the double levered ETF. That makes a lot of sense. And that hits the common.

Of course, like of course it does. Yeah, here's a what if, and I think this is actually what may be occurring. Just the law of large numbers here. What if the stock from here to year end was up 10% or 15%? Yeah, it's actually down. That's my point is people are gonna feel lousy about it,

but you're still gonna be like well ahead of what the S&P long-term average is. Yeah. By the way, I mean, look, I have to give you credit on how early. You did. He'll take it. He'll take all that's in your contract. There was a funny time.

It wasn't funny at the time, but this was five years ago when I was Intel and defending Intel and it came out with some crappy report. And I was trying to defend it and you absolutely body slammed me on it. I'm sorry. No, it was okay. It was, look, it was right.

And eventually I got out of it. But I just. So I remember that. That was, yeah. I'm sure that was fun for you. Welcome to my world. One of the things that we talk about is like the idea that there used to be so much turnover in the top 10 stocks from the 70s to the 80s to the 90s to the aughts. It was always turnover.

There's always something else. And now the Mag 7 seems completely, the Mo mode seems to be impenetrable it's miles wide there's not gonna be a new entry and I think we forget that like Nvidia did it right Nvidia was nowhere like Nvidia they f***ing did it so they have still this chart on um chart goat Sean made a chart showing Nvidia's revenue by segment and this was a gaming company yes like straight up it was a gaming company so gaming is in green, so go back 10 years. If you were long in Nvidia, you were long because of console sales.

Like that was what drove the stock. And then it was crypto, and then of course crypto got destroyed in 22 and so did Nvidia, fell almost 80%. And holy shit, now it is an AI company and 88% of the revenue is from data centers. That was like effectively zero 10 years ago. Yeah, I mean, I think I'm looking at it, and I'm saying to myself, they captured lightning in a bottle, and it's been known to happen.

And that shift that you were just talking about, Michael, from gaming GPUs and finding out that, oh my goodness, I mean, forget the crypto just for a second, because it turns out to be immaterial, but finding that the gaming GPUs are exactly what artificial intelligence needs, that just like, okay, somebody's going to get lucky. Somebody at Intel, for example, should have like somebody high up at Intel sometime around this inflection point in 2016, 2017, there's no AI.

Okay. So 2016, 2017, maybe a tiny bit of crypto excitement in the stock, but there's clearly also something else happening there. I think it was virtual reality and augmented reality at that time, but somebody at Intel should have said, wait a minute, we're a CPU company in a world where all of a sudden, GPU sales are starting to take off. You don't have to be able to predict chat GPT, but like somebody high up at Intel should be thinking that way.

And of course, nobody can do this in real time. Why didn't you do something? No, no, no, I don't mean a shareholder. I mean like a CEO, God forbid, a CTO, because it would have forced them probably to either cannibalize some of their CPU business if they start talking up GPU or it would have forced them to like make a really big investment in something that they weren't good at.

And that's really hard for incumbents to do in every industry. Absolutely true. There are good lessons to be learned from the Intel story. And I don't want to now just be dunking on Intel because I've been out of it for a few years. There are literally good lessons for investors here. Number one, you're absolutely right. A good CEO, that's what you hire CEOs to do. You may or may not recall this, but the CEO at the time starts with a K. I'm going to

mess him up with Coach K. Krishnish. You also coach basketball for Duke. Exactly. Chris Anish. Sorry, folks. I'm gonna mess him up with the Duke. Yeah exactly. Chris Anish. Yeah. Sorry folks I'm forgotten. But he got kicked out. He had a me too moment. He had a me too moment and here's and it was from 10 years earlier. Now I'm not defending any of the behavior. Yes you are. No I'm really not. Do we have this on tape? But there was, yeah go ahead light me up. But it But it was clear that there was something else

that was kicking him out. The board wanted him out for some other reason. And it came to light after that, that there were significant operating problems getting down to then 10 nanometers, which was the leading edge for computer chip creation. Where are they at now, two, four? I think three or below.

But they just couldn't get it right. And the CEO was so focused on that he wasn't getting that done He certainly didn't have time for strategy one other thing just really take them out though the new guy said hey Here's the new strategic move. We're gonna make we're going into foundry. I mean we're gonna be the Taiwan semi of North America I mean, that's what they did. Yes, we're gonna make chips for everybody else. That was two CEOs later Okay, it was a terrible strategy. Because it's well known in the semiconductor industry, you guys certainly know this, that the customers really

don't trust Intel. Like there's really bad blood that Intel has set up within the ecosystem of semiconductors. So the idea that, oh yeah, Intel is going to produce your chips for you when these competitors don't trust them in the slightest bit. That was kind of a failed strategy. There's one other thing though, good takeaway from this.

Only the paranoid survive? Well, that's a good one. That was Andy Grove's biography. One of the founders of Intel. That's what it's called. I know Andy Grove, but I didn't know that. Oops, not paranoid enough. When a company starts going down,

the problem is that you can't get good talent to come in. You guys will probably remember, Mellanox was acquired by Nvidia. And there was a bidding war between Intel and Nvidia at the time. And Mellanox basically looked at the landscape and said, we want to go with the winner. And what they were like networking.

I forget exactly what they were. But that's how the market impacts the economy, or like the real economy, because it's the currency of these companies. And people know, hey, you're losing, you're winning, I'm just looking at the lines on the screen, I'm going to go there. Exactly right.

When you have momentum versus when you don't have momentum, there are so many follow on effects that come from that, such as a potential acquisition target not being interested in being bought by you. And the ripple effect of something like that can go on forever. So Cowan put out a note last week, channel checks indicate U.S. data center lease cancellations by Microsoft.

Microsoft refuted the note, but I think this is a really interesting moment in the market because the talks over the last 10 years have been the Mag 7 carrying the market, which has been not untrue. And now there are cracks, at least in the stock prices. The Mag 7 and Nvidia is weighing on the market. Market's now down over a percent.

But I think that this is a good thing for a few reasons. Number one, the reintroduction of risk is healthy and normal. And you're also seeing a lot of really healthy rotation. Financials are acting really well, healthcare are one of the leaders, REITs are doing okay. This broadening out in a, not at the highs, or close to the highs, I think is a really good thing.

And you must love it. I do love it. I mean, you know my positioning, which is while I own Nvidia, I don't own enough of it. You can't, and I'm significantly underweight the Mag-7 to begin with. But what I think is very, very interesting here is that if the three of us were looking at this a year ago,

we would have said for the broadening out to happen, what's probably going to happen is a washout, a market washout. Everything gets taken out and it's on the way up. Or this is what is presumed to be the cure of the concentration, Michael, that you were talking about earlier. What we're seeing now is despite, okay, the NASDAQ's off,

the momentum names have come off the last couple of okay, the NASDAQ's off, the Momentum names have come off the last couple of weeks, the market overall is kind of hanging in there. This is a rotation without a washout which is very very unusual and it's great, yes. Because you have names like Berkshire Hathaway which is a trillion dollar company, it's the size of a Max 7, they just reported 50 billion dollars in earnings for last year over the weekend. That breaking $500 today, it's not enough to fully offset Nvidia, but it doesn't hurt. And you have, there's not a lot of those, but then you've got this next tier down of,

I don't know, the $200 to $500 billion stocks. They're generally acting well, like in almost every sector that they're in, especially in finance. So like everybody else, I'm not oblivious to the apparent risks that are out there, right? Policy uncertainty, a slowing down maybe, of growth and all that sort of good stuff. But at the end of the day, this is still a consumer driven economy. People are still spending, people are still employed. And I think again, the reintroduction of risk, God forbid we get a pullback, right? Like a correction, 10%.

It's okay. Stocks can't go straight up and up forever. You need the wall of worry to climb. Yes. And you know, we may be in the middle innings of what happened last summer. And I think, you know, Josh, I know you've spoken about it on air and I've spoken about it on air. This hilariousness, if you remember, it was like a Wednesday, the Fed met, didn't cut

rates, okay? And then Friday, literally two days later it was like a Wednesday the Fed met, didn't cut rates, okay? And then Friday, literally two days later, you get a soft labor market report, and over the weekend, everybody's like, the Fed should cut rates, it should be an emergency rate cut. It was absolutely hilarious. But it is, to the point you just made, Mike, absolutely necessary to reintroduce risk. A little bit of a correction here, reset the animal spirit so that you can grow again. If you think about what happened in August, after that happened, you were off to the races. The growth scare, but then the confirmation from all the Mag-7 names that they're going

to continue to spend. We know that if their stock price is pancake, they could change their minds on a dime. But like they all on their earnings calls three weeks ago, two weeks ago, they all said, no, we're full speed ahead. And actually we're spending more than we said originally. The AI story is not over. Right. Put this Apple graph. So to that point, Apple came out and said what? Apples. So this was, this was kind of like a little Tim Cook special where he kind of

like tricked Trump into thinking that he's responsible for something that Apple already said they were going to do. But $500 billion in new spending committed over the next four years. In US. In USD. There's no way, by the way.

That's a fake number. Well, no. They say that they want to make, what they say they're going to make in the United States, Apple. Do you remember? I don't remember. Something like AI server, blah, blah, blah. Two point nine million jobs currently supported.

Twenty thousand new Apple hires in the next four years in the US. Twenty four US factories producing silicon for Apple products. They make their own chips now. Tim Cook said, quote, We are bullish on the future of American innovation, proud to build on our longstanding US investments with this $500 billion commitment, doubling our advanced manufacturing fund to build in Texas. This is sort of yada yada. Hit Gene Monster.

This is the upshot. So Gene Monster says the company is avoiding tariffs and channeling those savings, air quote savings into US investments. I estimate that the US accounts for about 35% of overall sales. That means the US will generate about $147 billion in revenue this year with roughly 120 of it coming from product revenue segment at risk of tariffs. So had Apple not increased its US investments and thus been subject to a 20% tariff, which would have negatively impacted sales amongst by 20%, it implies Apple will save $23 billion a year by avoiding the tariff.

So in other words, the bottom line is that tariff avoidance effectively pays for 60% of the $39 billion incremental US investment announced today. That makes perfect sense to me. I'm going to take this just one level up about something we've been talking about is, you know, is this a growth scare in the markets overall? And when I look at what we just had up there about Apple, what I see are the hires. And I think to myself that at best, at worst, this is a growth scare right now. You cannot have a recession unless you have layoffs.

You don't have layoffs because profits are growing. You mentioned, Mike, 70% or maybe that's what you said, consumption led economy is 70%. You need to have people employed for the economy to grow. Yeah, there's a little wobbliness in the weekly jobless claims this week, big whoop. We have companies like Apple, as we just put up there, desiring to employ people in the United States. Yes, there are legitimate concerns about,

hey, the federal workforce is gonna get reduced. Guess what? There's going to be a lot of demand for jobs, not just from Apple, but also from the fact that Baby Boomers are retiring. So, you know, this is, I don't see the crisis. We were talking earlier about 2022. There were times that I felt like,

what am I on, laughing gas here? Like, what's wrong with me? And I keep evaluating. Am I seeing things through two rose-colored of glasses? I just don't see the layoffs. A lot of corporate America that thought they might have been susceptible to higher rates in 2022 and 2023, they got religion fast. They're already active.

They already right-sized. And if they don't see a recession, because that's why would they, they're not going to lay off people only to bring them back in three quarters. Not while profits are growing. Profits are growing meaningfully. 16%, fourth quarter, year over year. You lay off people when your profits are declining. When your profits are growing as a corporation, you want to lean into it.

And that could happen, it's just not right now. What do you mean lay off? I'm saying the economy could slow, corporate growth could stall, it's just we're not seeing that right now. We're not seeing it right now. But there's also some theater involved here. So Martin Pierce in the information

talks about this $500 billion dollar Apple spend. This is Martin. That sounds like a big deal until you read further down in the announcement and realize it's simply describing the money Apple spends in the normal course of business. Apple's announcement was essentially a promise that it will continue to operate in the US over the next four years. The 500 billion... So it's like Apple puts these grand statements about investment plans every few years. In 2018, the headline number was 350 billion. In 2021, it was 430 billion. So the size is getting bigger, and the company routinely spends far less

than any other tech companies on CapEx, I guess proportionally is what he's saying. But like part of this is just how Tim Cook has to manage the political situation because the reality is China is a super important market for Apple. It's also Foxconn and super important manufacturing hub. So he has to make these grand pronouncements. It's almost like this is his job. Yeah, I think they're all doing it.

I mean, I think the inauguration was a key sign. That certainly didn't happen in the first Trump administration. These guys were not there at the inauguration. They know how the game's played. And at the end of the day, what is their job? Their job is to maximize profits. That's it.

So, Jimmy, people are scared right now. And I think a lot of this is due to politics. But it's also due to the fact that some of their favorite stocks are falling. Nvidia, a lot of the Max 7, is under pressure. And we've got this incredible dynamic in the market where you look at AAII bear sentiment, and these are the same investors that have been appalled forever.

These are typically, I would say probably boomers because who answers polls these days. And right now we were in a 3% drawdown before today and 61% of respondents were bearish, which is a dynamic we've never seen. You've never seen this many bears this close to the highs. Check this out. So for context, people that are listening, you had higher readings in bears over 60% in 2022 and 2008 for context. In March 2020, during the pandemic, the crash, in a 22% drawdown, only 52% of people were bearish. So this is a weird dynamic that we're seeing today. So let me give the throwaway line first.

I think all three of us are looking at that and just salivating, right? I mean, we're just drooling at what that means. Except for only down 3% from the high. Except for the momentum names and NASDAQ, et cetera. That's the epicenter of what's going on. Well, Jim, just a little bit more meat that I'll throw back to you.

Bespoke tweeted, if the NASDAQ 100 closes below 2106, et cetera, today, it will be the fastest 5% decline from an all-time high since September 2020 So there is some funky shit happening, but it's nothing. Yeah Look you and I talk about this on the air a lot and I think you actually said this today I was listening to you. I tend to be more valuation oriented. You're you you don't I don't think I'm talking out of school No, it's astrology He's a price-checking donkey. No, you... just so I don't sound like a jerk here,

you were having a long treatise about relative strength indicators. Totally get it. And that's core to you. Valuation is kind of like not that important. Jimmy's like, all that bullshit is well and good, but... Valuation's really important if I'm considering taking one of these companies private. But since I'm not, it's like number four on my list. I got it. But these things, these three things on the list. These Palantir's and Applovin's of the world. And you know, this is not where I play and I'm watching and I'm like, Hey, this is kind of interesting. I kind of know how it's going

to end. We all know how it's going to end. It's going to end in a washout and it's actually not the end. It will come down to some reasonable evaluation. These are real companies. Palantir, definitely a real company. This is like the future of defense spending is Palantir. But now all of a sudden price matters. And so you've got to have this reset. And it's healthy in the long run.

I'm not making fun of anybody. I hope I don't come across as that way. But when we talk about zero time to expiry options, that is at least in part what drove these things to such highs, is just people rolling the dice. That's not what I do. I'm going to dare to say, Josh, Mike, that's not what you do.

Oh, I do it all day long. It's antithetical to investing. Jimmy, I say that a pullback only looks healthy in other people's stocks. Well, but like how important to you is sentiment overall in the way that you think about like the forward opportunity? Do you, like would it stop you? Would it stop you from adding the next stock

to your portfolio or adding more exposure to equity? If there was like a sky-high bullish sentiment. Do you give a shit? I don't. No. And here's where people are bullish in the bull market. Yeah, I don't care about that stuff. To a fault. Okay. I really mean it. To a fault. What I do every day is I wake up in the morning and I say, where is it? Where is there a dollar's worth of value selling for 50 cents? And I know it's out there and I love looking for it.

Come on. You can, Mike, but here's the rub. But you have to buy the worst fucking stocks on the planet, but you will find it. You don't have to buy the worst stocks on the planet, but you have to be patient. And you know this, right? There's times that I'm just sitting there like, man, this sucks.

Josh is beating me up. Steve's beating me up. Oh, no, you could go out further. You could say, this is not selling at 50 cents on the dollar today, but based on the earnings, I think, in three years, this is 50 cents. Exactly. Yeah, but sometimes you think you're buying a dollar for 50 cents, and you're buying 50 cents for $3.

You're 100% right, which is another way of saying whatever your investment philosophy is, you're going to make mistakes. I make mistakes. I was on the air Yeah, I'll do it again today, but then I want to retire it You know as remarking two days ago on JC penny and paramount just absolute disasters And at the time I thought I was getting Mike 50 cents, you know dollars worth of value at 50 cents. Nobody bats a thousand But if you do it long enough you kind of what, more than anything is you test your thesis every day. Am I right?

Am I wrong? What am I missing? What's the market missing? And if you get a comfort level with that, you can stick in there through thick and thin. But there's times that like, you would probably stage an intervention like Jimmy, look at the RSI, like I'm going to lift your hand

off of the buy button. Now that we need to spend too much time on Paramount. When he said, every day I wake up and I look to buy a $1.50 set, it reminded me of the meme where somebody texted somebody like, I thought I saw you last night at whatever, and the response was, was I creating shareholder value? And the person goes, no, and he goes, then it wasn't me. I would have thought that Paramount,

I know there's been obviously news surrounding the stock, but I would have thought just like with the Taylor Sheridan phenomenon that the stock would have been doing well. Maybe that's like too simple. No, because the problem with it, and I lost money in Warner Brothers' discoveries. Like the streamer's working. The problem with both of these names is the debt level.

And then in the case of Paramount, the bullshit between Shari and the board and Mario Gabelli. But that's like mostly behind us, given the what is it an 80% right now? It's a fire. It doesn't matter. They're going to buy Skydance. No, no, no. It's still trading. Or it's buying Skydance. They're going to buy Skydance for stock.

Which is the dumbest thing. Like don't use that currency. You just said, and I agree, like the streaming's working. And they've got good content. But do you like the new people taking it over? I'm intrigued to see what they do. I'm obviously out of it, but I'm watching. And I'd like to see once that, don't, don't. I'll do an intervention there.

I actually, you know, on air, when you did the Warner Brothers, I was like twitching, like, oh please. But with Paramount, just let's see how much they dilute the share base to buy Skydance. That's what the thing is. And listen, we learn from our mistakes, right? Here's a critical mistake.

Everybody should know this. If you invest in a company with dual class shareholders, you don't have control. And Sherry Redstone will do things that have nothing to do with your interest as a class B shareholder. But you might not want it, you know, because you know what else is dual class? Meta. I hear you. Google.

Alphabet. And they're not shy about promoting the reason for why they're dual share class. Like, so here's what happened. Here's what really happened. They watched the situation at eBay when Carl Icahn got involved and demanded they spin off PayPal. And I think Andreessen was on the board and Carl went after Andreessen. And then they watched the same thing happen at Apple. They watched Carl Icahn beat up Tim Cook. Now in both cases, it worked out well for the shareholders, but it was really public and it was really acrimonious

and very shortly after that you started seeing these companies reorganize. And they said, look, here's the deal. We've rewritten the constitution and shareholders have no say in how we run this company. And if you don't like it, now is the time to sell. Because we think tech people should run tech companies, not hedge fund managers from West Palm.

Yeah, and look, you're absolutely right, there are exceptions to every rule, but I'm telling you, you've got to be careful with dual class shareholders, especially smaller companies. What about dilution? I'm sure you're not a fan of dilution. Well, what I'm a fan of, what we're all a fan of, is companies that generate free cash flow.

And return that free cash flow in the form of share buybacks. I love share buybacks. Even something like a stock I've had to be patient on, Citigroup, that we've talked about over the years, right? They've shrunk their share count by about 40%. Every year. But like real- And they didn't get credit for it until recently.

Exactly. 40% and they're buying these shares back below tangible book value, which is, apropos of what I was saying about I wake up in the morning when I'm looking for, they're buying a dollar's worth of value at like 70 cents on the dollar. What's her name, Jane Fraser?

Jane Fraser. So she's an Axeman. Like she came in and just started chopping things off and getting rid of them and funding a huge buyback. And it worked. Yeah. Well, it's working now for the last year, year and a half. She's been in the office, CEO for about four years.

I've never seen the absolute absence of a honeymoon. Okay, Wall Street, as soon as she came in, just sold the stock. And I get it because, you know, Chuck Prince, Vincreme Pandit, you know, whoever. Corbett. Michael Corbett, I think. And I'm not just, you know, Chuck Prince, Vink Rimpanded, you know, whoever. Corbett. Michael Corbett, I think. And I'm not like, I'm not just slamming these guys.

They did their best to manage what Sandy Weill put together. It frankly was unmanageable. So when Jane Fraser came in, the street just said, we don't believe anything you're gonna do. You know, we've seen it before, we've seen the announcements, but she did it. She said, it is unmanageable, so we're gonna start hiving things off.

We're gonna start with the international operations. Anything that's not core, we're gonna get rid of. Then when that was done, and there's still one step left to come, which is the BandimX IPO that'll happen maybe later this year, maybe early next year. It's only delayed because you gotta deal with the Mexican government, but okay,

pretty much done with international rights sizing. Then she went to the domestic businesses. If something, I mean, this is what the three of us would do if we're running a company, right? If something isn't earning the cost of capital, it's gone. You know who else is doing that now and not yet getting the credit? And maybe you'll be-

I'm listening. Maybe you'll be vindicated in this. GM doesn't stop selling shit off. Yeah, yeah, well. But this stock is, I want it to work. I do. No, I do. I know you want it to work more than I do

because you're alone right now. I'm not in, no, I'm actually out. Are you out? Yeah. The stock is a roller coaster. I mean, this stock just, it seems like it just, no matter what they do, it's almost magnetized to go back to $38 a share. And, but they're pursuing that playbook. Like they just got out of cruise, they're not gonna do autonomous.

The street doesn't want to see them do that apparently. Well, what the street is holding against them is the tariffs. Because these guys have an 8% overall net profit. But every year it's a different problem for them. Fair enough. Fair enough. I mean, I sold it in November when Trump first announced that he was gonna put the tariffs on, because the math is just that that wipes out profits. I don't need to go through it.

It just, it absolutely wipes out profits. I had to sell it on that news. I can't imagine that we let this company just get decimated by tariffs. Maybe I'm wrong, but in the meantime, they're looking like without tariffs, they look like they're gonna generate $11 a share in earnings. What are they selling for? 47?

It's a seven multiple. It's crazy. I don't know. I think it's like a five multiple. Five multiple. I mean, what? Because people think the profit's going to go away with tariffs. That's a dollar selling for a dollar. So when you're looking at these stocks, how do you make, how do you say like, okay, I'm going to buy Citi versus Wells Fargo Bank of America? Because it's not just, it's not just the quantitative numbers. This is selling for.8 times tangible book.

This is selling for 1.1. There's got to be some sort of story that gets you to buy Citi versus Wells or bank or something like that. A very important point is management. And that's with Jane Fraser. That's where I got big in the name. I mean, I owned a few banks at the time that she came on board, and then I really concentrated on Citigroup. By the way, side note, if you're going to be in any industry,

you have to own the best company in the industry. Oh, preach. I love this. In financials, you have to. I say this all the time. Now, so if I'm gonna own Citigroup, that has to be after I own JP Morgan. There can't be a, oh, I own Citigroup but not JP Morgan. Or you might be leaving money on the table by not buying the third best, but you're also probably leaving risk on the table too. You said this last night to John Ford. It's such a great point point people that went looking for value in an AMD got fucking smoked just by the winner Yeah, just the names down down Darling two years ago, it had a great run, but it's never the best in anything and

This is I want to get I want to get to the reshoring thing while we're on tariffs. Let's do it Okay, so this is something that you started talking about, I think around the time the infrastructure bill came out, or maybe even before that, but you had this notion that one of the biggest risks to like American prosperity became really obvious to us when we couldn't get chips for SUVs, yet parking lots filled with Chevy Tahosos waiting for a chip from God knows where to

be implanted into the truck. The longshoremen and all the stuff going on at the ports. And there's like 50 other examples. But like you pointed out, the corporate America is not just going to sit here and go back to just in time supply chains. That's like, that's a thing of the past. They're gonna have to find a way to do things closer to home, either friend shoring in Mexico or just find a way to be more efficient with manufacturing operations here in America. Are we in the third inning of that? The first inning, the seventh inning, and like, how

does that inform the way that you look for investment opportunities if you think that that's still going to be something that's in force? So the answer to the question comes down to something that I very strongly believe and I mentioned earlier, and it's something I've been saying to clients a lot recently. Focus on policies, not politics. Trump believes in this. Yes. Okay.

Not to be facetious, but this is not the first time he's been in office, right? So we had the indications from him of what he wanted to do. Then you had the pandemic, which showed up the liabilities. Okay. If you talk to like real economists, they're going to say the one thing that you should count on in economics is specialization of industries and geographies doesn doesn't matter, okay? It doesn't matter if that's what economists believe. The policies right now are designed to bring production back home. There's this new word that-

No matter what the cost. No matter what the cost. You're right. And there's this new word that I didn't know existed two months ago called autarky. I may be mispronouncing it. Autarky. It means doing everything yourself,

being a closed economy, getting everything- I think it's autoerotic asphyxiation. Is that the word? It's a it's not a good policy from an inflation you keep talking about that what if you edit that if you ask that out Alright dad It's going to be inflationary. Look, we're gonna run out of workers. Okay, you're gonna run out of you're gonna run out of freshwater We're building semiconductor plants in Arizona for crying out loud. You're to run out of workers. Okay, you're going to run out of, you're going to run out of fresh water. We're building semiconductor plants in Arizona for crying out loud. You're going to run out of fresh water.

Okay, but it is the direction we're going, regardless of whether you agree with it or not. Okay, so we can, we can fight about it. We can feel bad about it. And I'm not making light. I know people really are upset with what's going on in Washington, DC. Our job is to make money, no matter what the environment is, no matter what we feel about it, and you've got to focus

on policy. Elon is making 2 million Tesla's a year and more than half of them are being made here. We absolutely can make things here. We can, but we don't have that many workers. I'm not saying it's optimal always. Here's what I hope. I hope that the Mexico-Canada tariffs are a negotiating ploy. I think they are.

Whether it's fentanyl, whether it's the border, whether it's renegotiating the US-Mexico-Canada Act, let's hope that's the case. Because you really need that production capacity, resources, whether it's plants, whether it's people, whether it's raw materials, you need that from the North and from the South. We simply can't do the autarky that is being talked about here. We can't build tequila here.

Can I? Just not good tequila. Can I tell you the thing that I've learned over the years that the bears hate the most, but the bulls aren't even aware of it? I almost think I might be the only person that understands this sometimes, because no one else ever. Get on his level, people. Nobody else ever talks about this, but I bet you've thought about it.

There's this thing in the markets, and what's going to happen with tariffs is I think going to be perfectly emblematic of this. You ever see like a company come out and cut earnings guidance, and then the stock sells off and the new earnings got, let's say they were supposed to do a dollar 10 and they say, sorry, we're actually going to do a dollar.

And the stock, let's say goes from 50 to 40, so 20% correction. Where does the money go? Wait a minute. Stop. Starbucks. So, wait a minute. So follow me on this. The stock falls 20%.

They cut their earnings guidance from a dollar 10 to a dollar. Then they come out and report earnings and they do $1.04. The stock doesn't just go to 50, it goes to $70. And this is the thing that bears hate the most. Don't people understand yet how this is going to play out? The tariffs are going to royal the markets, freak everybody out. Everyone on Wall Street is going to have to rewrite their S&P earnings estimates, their price targets. And then Trump's going to save the day by canceling his own tariffs. And the market's not just going to go back to where it started selling off. It's going to go 20% higher.

This is the thing that the bear, I don't. I think you're right. I think you're right. I wish there were like a German word for this. Like one of those nine syllable German words. No, but you know what I mean? You're right. It's a great take.

This is the thing that routinely happens with individual stocks and with the overall market where a problem is created, everybody comes out with lower estimates and gets bearish. Starbucks is a great example. The problem goes away. And it's not like the bulls just get back what they lost. They get back that plus 30% and the bear is like, wait, I don't understand what just happened. This is obviously how the tariff thing will play out.

I just don't know if it takes a year or one bad poll. Like, I don't, you know what I mean? But like, this is going to be the ultimate bear killer. The people who are getting all buried up on tariffs this is gonna suck so much for them. This is gonna suck so much for them when the problem gets solved and and the the polls make everything back and then some. That's that's my take. Totally agree. Have you observed that before? Well yeah that exact scenario. That's all right. Have you observed that before? What? Well, yeah, that exact scenario. That's all right.

Have you observed this before? Yeah. No, he's talking about his genius at work, right? No, this concept, you've seen this before, right? In Trump 1.0. I remember one- Say more. So we all remember, like you woke up

and you looked at Twitter, and what was he tweeting today, right? It's like it was yesterday. And so one day, I'm in Constellation Brands it's a liquor beer company that owns Corona I think. It's been a long time. I think they own Modelo. They own Mexican beers. So he wakes up one day in like 2018 and he's pissed off at Mexico for I don't know what.

And he just tweets out whatever like 50% tariffs on Mexico. I wake up in the morning, I'm like looking in the future, so what's happening to Constellation Brands? It's getting pummeled, right? And then he takes it off and it goes back up. I mean, I don't remember if it went back past the highs. That stock was very difficult. People don't even understand,

there's gonna be a press conference where he says, I have saved America from tariffs. says I have saved America from tariffs. And the S&P is not just going to gain back what it lost. It's going to be euphoric. But that's what stocks do. They go up. They go up. I mean look, I have sold short stocks in my life.

It's a miserable business. You wake up in the morning, I don't know if either of you have ever done it, you wake up in the morning and you hope for bad things. I've bought puts on stocks to speculate. Okay. I've never made any money. I short Amazon in 2011, I got out of that business.

It's miserable. You wake up in the morning, On fundamentals. You're hoping for bad things to happen. Right. And you're always a fish swimming against the current. Always, right? I think there are people that do that for a living, and that's different.

I think for most people like you and I, it's not ever going to be our forte, because we don't have it within ourselves to be rooting for bad outcomes. Exactly. But if you zoom out long enough, people are motivated to make more money, and that drives capitalism, and it drives earnings,

and it drives the stock market higher over time. Yes. Yes, we grow. Yeah. We grow. We grow. This is going to take a minute to go through, to listen to, but I think it's really important for this conversation.

Bear with me. If it's a severed head, I'm going to be very upset. Where there's really a lot of uncertainty, and I have pretty strong views here. When you take, it's a brew of tariffs, I mean tariffs cannot be positive, okay? I mean it's a tax. And you can imagine tit for tat if the US does something, implements a tax on somebody, they're going, somebody else is going to, you know, perhaps raise the stakes and raise their tax back.

So taxes are never positive. On top of that, we have slowing immigration, which means the labor force will not grow as rapidly as previous, over the last, say, five years. as previous over the last, say, five years. And so, and in addition, now you have Doge, right? And wherever you lay on the Doge issue, I mean, that's austerity. And austerity, when that money's been coursing

through the economy over many years, and now potentially will be reduced or stopped in many ways, it's gotta be negative for the economy. So you have tariffs, you have, I mean, I could see a situation where growth could, we think growth is gonna slow to 1.5% from 2.5% in the second half, and yet unemployment is unemployment rate is actually going to go down, which, which because of.

All right. So that's Steve Cohen speaking at Miami this week at the FII priority conference, which I think is like how Saudi Arabia reintroduces itself to the world as a benign. Okay, great. Congratulations on all that. So what do you think though about that concept in the second half of this year, at least based on how things seem to be going now, you will have the austerity that comes from the doge layoffs and all the spending cutting, which I guess is good for the taxpayer,

but maybe not great for economic taxpayer, but maybe not great for economic data, at least not right away. You've got tariffs, which who the fuck knows what those will look like and for how long they'll be on. And then you've got slowing immigration, which we all know one of the principal forces acting on inflation is the lack of being able to find workers for various industries. All three of those things at the same time, probably not great, and even Treasury Secretary

Scott Besson is publicly saying there might be a little bit of pain for us to achieve our objectives. It's hard to stay bullish on economic growth and cyclical stories. And Steve Cohen doesn't do this often. He's not Druckenmiller who like every six months, it's not Ray Dalio where it's always 1937.

He does not do this very often. And he sounds pretty dour. And he's made a lot of money. So now the question is, are you smarter than Steve Cohen? I don't know. Better investor though? No. Okay, All right. No. All right. Certainly not a better trader. But I'll give you my thoughts. What do you

say to one and a half percent GDP down from an estimated two and a half to three? That's like, that would be a material difference in people, from people's expectations. There may be some short-term pain and I do think the tariffs are gonna be inflationary. Let's just start with what to me is obvious. You know, the promoters of the tariffs like to say, well, the exporting countries are going to pay for it and this, that, and the other thing. And it's the methodology of you say something loud enough

and repeat it off and maybe it'll be true, but it's not going to be true. So inflation plus austerity plus wage pressure. Here's my hot take. I actually like what I'm seeing in Washington DC. Okay. And I on the workforce reduction. Anybody who's watching this and is thinking that I'm an asshole and insensitive, I don't

want anybody to lose a job. That's not my point. I feel terrible about that. But I think in the intermediate future, not the distant future, it's very good for the country. One of the economic dogmas, at least that I think is dogma, is that private sector workers tend to be more efficient than public sector workers. I have a small window many decades ago into being in the federal workforce and I honestly believe that. I'm not denigrating federal workers but

I do think that they will be put to more productive uses elsewhere. It's gonna be painful right now. The best's face it. The best will stay. The best will stay. And the ones who don't want to be called out on not working that hard, this is their opportunity to get out of there? Yeah. And go find another job. Now, I'm not being stupid, or at least I'm not trying to be stupid.

A federal, like a Pentagon procurement officer is not going to immediately overnight become a semi truck driver. Like that's not, you know, there's going to be friction and there's going to be pain and I'm not minimizing that. But the good of the country is both getting these workers to where they're most productive and as we've been talking about, we're going to need workers for all the production we're bringing back to the United States. We're going to need workers.

The other thing, and this is a little bit esoteric, but give me just a little runway on this. It is the American government philosophy to not do anything until a crisis makes it unavoidable. Oh, yeah, I agree with that. Okay, so the fiscal position of the federal government is going to end in tears if we don't do anything about it. This is the first time I've ever seen a federal government action that is designed to get in front of a crisis. And by the way, the crisis, when the rest of the world says,

we have enough treasuries, thank you very much, it's gonna be brutal. I mean, 5% 10-year treasuries? No, think a lot higher. And that's gonna- Is it realistic though, to go from a 7% deficit to 3% inside of Trump's four years that he has with the clock already ticking?

Like, that is economically ruinous. If you think you can if you think you can get through to the other side great I don't know I mean here's the ugly thing that you know is how do you really do that you kind of inflate the economy so that the percentage of GDP that you're looking at yeah it's a less yeah um so it sounds like you have nobody's gonna admit that right that's the quiet part out it sounds like you agree... Nobody's going to admit that, right? That's the quiet part out loud. It sounds like you agree with Steve Cohen, but you disagree with the outcome.

You're like, you're saying, you're saying you agree that this is not going to be great for economic growth, but that the pain will be worth it because these things are overdue and they should happen. Yes. OK. And I think it's common sense that there will be some... Will the market be able to see through it the way that you do?

I don't think it is right now. OK. I don't think it is right now. but let's do the numbers. You know, look, you know I like to live in numbers, right? Let's just say that 20 percent of the federal workforce gets let go. I think that's a big number. Maybe they'll do more, but that's 500,000 people. Yeah. We're creating jobs at a 175,000 a month clip. That, you know, that's three months right there. It's 0.3% of the working age population or the working population in the United States.

That's 160 million, which is going down as baby boomers retire. That's not me making stuff up. That's just like, it's a fact. Baby boomers are retired, the working population is going down. It sucks and I'm not making light of people who are losing jobs,

but they should be able to find other jobs. Well, the other part of this is they're getting they're getting paid through I don't know what month of September. I think they're there. If they tweet the right things. Right it's not like they're being like going being told to f*** off like you can't pay your mortgage tomorrow. Now I'm not I'm not minimizing it right. No no. But hopefully in the next in the next several months they'll be able to find work. And we'll find out. Do you see the article this week in the journal, 50% of consumer spending is coming from the top 10%

of wealthy households? Not being facetious. Isn't that always the case? I feel like my whole life I've been saying that. No, it was lower than that. They say it used to be 35% recently. So then with that being considered, and looking at this just through the lens

of the human impact aside, what matters to spending is that the rich keep spending. And what's going to cause them to stop spending? Is it the stock market? Is it 20% lower? What's the number? I think it's the stock market. Well, also the housing market too,

because the amount of wealth that's been built up in these houses. Is that what's fueling spending now though, given how frozen the housing market is? I think it's 401k balances. People just feel rich. I think it's all of the above. And obviously employee stock-based compensation. So when do people stop feeling rich? Is it, where's the S&P 500? Is it 5,000? I think it's not just how far it goes down, but how long it stays down. So I go back to last August. That was actually a correction. I think we actually got almost a 10% down from peak to trough, but it was over in literally two months.

So nobody had time to register. Your neurons didn't have time to register it. Between September of 2023 and September of 2024, so one year, the highest earners, the top 10%, increased their spending by 12%. Spending my working class and middle class households meanwhile dropped over the same period. And if you, this is data going back to 1989, that top 10% of spenders was more like 30%. And now it's over 50%. Like that's the, so it's like, is that sustainable? Not if you're a shareholder of Dollar General.

And again, like, sorry, I'm gonna do this again. Do you think about that though, when you're looking at stocks, like you kind of don't wanna be necessarily in the trades that cater to the lowest end consumer. I don't think so. And again, I'm just going to be insensitive again. There's never really been a time in my economic thesis

that I've said let's depend on the lowest coin tiles of consumption. Okay, sorry, I feel like an asshole, but I'm just going. No, we're talking about the stock market. By the way, that's a disgusting close. It accelerated Nvidia's losses down 8.5%. All right, let's see what happens tomorrow. Can we do some stocks?

Let's do it. All right. I want to hear about what you're buying these days and why and throw out some names. Yeah, it's like let's do final trades. Let's do final trades. Cisco systems. I really do like Cisco systems.

We all know it, right? Does Cisco look good? Let's take a look. It does. What's the story? I don't know anything about it. Stock is up trending. Looks really good. Combination of hardware and software. We all know it, right? Does this go looks good? Let's take a look. It does. What's happening? What's the story? I don't know anything about it. Stock is up trending.

Looks really good. Combination of hardware and software. Okay, so you know the hardware. It's the switches and routers and they've got partnerships within video, which keeps that business humming along. And it gets to use the letters A and I and it's earning releases.

So that makes things good. That helps. It also has been over many years growing its software business to diversify its business and the Splunk acquisition really boosts its Security business. Cyber. Yeah. Yeah, which obviously is a growth area But I think really what you're seeing in the stock as a as a stock market participant You're seeing a rerating of the multiple and there's a direct analog in my opinion to Oracle Which for many many years was just bebopping around at a mid-teens multiple.

It was about two years ago, Oracle Cloud Services, you know, they started catering to AI and the stock got rerated into the... Doubled. Yeah, but the multiple went up 50% and that's what contributed to it. You had earnings growth and a multiple rerating. What's the multiple on Cisco now? 16 and a half, 17. What should it be?

You should be market multiple? 21, 22. So if they just continue to execute, ultimately the multiple will go back to a market multiple. This stock is now making highs not seen since the year 2001. And nobody's talking about it except for you. Yeah. That's great. Reminds me of IBM in that way.

I love the comparison. I love the comparison. Yeah. And I love the fact that IBM is surging, because remember, there was like a 10, 12-year period. I think I was in and out of it three times, never made money, but it just didn't go anywhere. What happened at Cisco is like every company in the world,

it got beat up during the pandemic. It was out of sync in terms of its supply chain. First, that was clogged up. Then customers came in and said, because of the supply chain, we're going to overorder. What happens when you overorder? Eventually, the supply chain fixes itself. You've got high inventories and the order book went down.

So you had to go through that. And they came out of that about a year ago. Now when a stock has a series of bad earnings reports, it's in the penalty box. And you don't get out of the penalty box with one good earnings report. I think it was like the April quarter of last year, they had the first good earnings report, stock traded up in the after hours. Next day got pummeled and I was like, all right, we got to do this. But when you get that second good earnings report, third good earnings report.

It gets people's attention. Like, all right, maybe this isn't a fluke. So we did Citi, we'll skip that. Yeah. We talk about good management and sometimes I think like, what does that mean? Like why would you say that? So here's a company that had a melting ice cube.

Its main business was Humira, the anti-inflammatory, arthritis. They do Skyrizy also? So Humira came off patent and they had to replace it and they replaced it with these two drugs, Skyrizy and Rinvoke, which have been gangbusters a great song to? Nothing is everything like it's one of my favorites. I think I'm actually the one I like the best is I'm lowering my a1c That's my shit. Uh, who's what's which one is that? Does anyone know?

No it's like Fuck it'll come to me. Okay, Skywizzy is skin. Yeah, exactly. Axiom, Psoriasis, all that sort of stuff. But they've completely replaced Humira. They've completely replaced the revenue

and they keep getting these new indications for it. So they grew that business organically. They've made some really good acquisitions. Jardience, sorry. Jardians is lowering my A1C. Nobody knows what you're talking about. Where's Murph? With Jardians it's easy to see I'm lowering my A1C. You watch commercials?

Yeah, all right, go on. No, you have, okay. So those are the sort of things that we talk about when we talk about good management, those actions. Stock trades at around 16 times earnings, 3.2% dividend yield. So, you know, even if you have to wait, I don't think you do because it's got a nice run to it right now. That 3.2% keeps you warm in. Delta, this one's on my list of the best stocks in the market. DAL looks amazing. Why is this

going to this? This is up a lot though, Delta. Why is it gonna keep going? I hate using the term Goldilocks, but I think that's what you got here, right? For the best, the best carriers. So Delta and United? United, yes. American, it just has too much debt. Okay. Just too much debt.

Okay. But look, here's what you've got. You've got low fuel prices. We've seen where the fruit oil is, right? I know, I sold it. You've got... I know, I know what it looks like. It's down a little bit from the high. You can pick it back up.

Demand is hanging in there. People are still traveling. And it doesn't seem, until you get layoffs, they're gonna keep traveling. Now, look, this is not a stock you wanna own into a recession, but apropos of everything we're saying, I just don't see that happening anytime soon. So demand is good, fuel prices are low, contracts with their major unions have been done over

the last few years, so you don't have to worry about that. That's kind of as good as it gets. So here's a stock that looks reasonably like it will earn $7.50 this year, maybe $8.50 next year. They've actually been performing so well over the last few years that they've been de-levering their balance sheets. Why do airlines and similar companies get such crummy multiples? I mean, this is trading around seven, eight times multiples.

A lot of times it's because it's capital intensive and you've got to fund that with debt. And equity markets don't like that. They don't like being behind a ton of debt. So as you de-lever, as you knock down the debt on the balance sheet, they're generating about three, four billion of free cash flow a year against a debt load that's around in the high teens, right? It starts to come down where the equity holders look at this and say, well, wait a second, more of the earnings,

more of the free cash flow are coming to me, I should trade this at 10 times. So $75, $85 a share, unless you get a recession, I think that's where you're gonna see the stock by the end of the year. There was a time five years ago that Warren Buffett was the largest shareholder in all five major airlines. I think he was gonna be right and then the pandemic happened. Yeah. And he had to sell

because they all needed bailouts. They could not have stayed in business absent bailouts and the optics of at that time. He was the richest man in the world and he confirmed that here's the richest man in the world is the largest shareholder in five companies that are getting federal assistance. So he almost had to take the loss to save those companies and nobody gives him credit for having done that because I think if it weren't thus, he would have written it out. Like people are like, oh, Buffett got scared. He sold the airlines.

No, dickhead, he saved them. He had to be, he had to get out of them in order for them to get bailed out. And they needed to be bailed out during the pandemic. That is really interesting. I agree with you. I hadn't thought about that at all. I think you're absolutely right.

That was my theory. And- He confirmed it at one of the meetings. It was the last, two years ago he confirmed it. Oh, what did he say? Did I miss that? He basically said that, yeah. Yeah, like he martyred himself

so that the airlines couldn't survive. Okay. And I thought that was, but I think he would have been right anyway because those stocks were doing well. So now they've resumed doing well and they don't act like the airlines used to act they act they're acting different right right differently What a dealt to do right that the other ones haven't done as well

There's a few things here, but I'm sure experience is really good the customer experience is really good They do things like fly their planes on time notwithstanding what happened with CrowdStrike was CrowdStrike Yeah, also the partnership with IMAX the lounge lounge just got hot. Like they're connecting with the consumer. I think, yes, Michael, but also what they've done and everybody's followed them is really segmenting the cabin. So that you go back 20 years ago. I don't want to sit with the riffraff. Well, go back 20 years ago, where did they make their money?

The front of the plane where business people were going to spend $4,000 to fly across country. And I don't know about your company, I know my company. That ain't going to fly, right they'll you can buy a regular ticket And if you Jimmy want to upgrade it, that's fine And I may choose to just go to economy plus get a little extra room comfort plus whatever That's where my waistband is going But I think that's one thing they did is segmenting the cabin.

They do really fly their planes on time and I got to tell you I'm in American Airlines you know that's where I fly the most because whatever 40 years ago I signed up with them on their frequent flyers and I've got almost a million but the number of times that they cancel or delay a flight is insane. Yeah. But I also think you I'm sorry, I forget, one of you just said, hey, the airlines are doing something differently. It goes back 15 years ago to the great financial crisis.

That's when they did all the things that the customers hate, but the shareholders loved, right? They stopped flying empty planes just to get, you know, get a route empire. And they started segmenting what they were spending on or what they were charging on, right? So that's- Charging for bags, extra bad.

Right. Do you remember 20 years ago, you didn't have to pay to actually check your bags? 30 years ago, you could smoke a butt on the plane. I remember all of it. I remember all of it. Did you have fun on the show today? Had a great time.

You guys are awesome. Thank you. I can't believe how long it took for us to get you on. It's me. It's not you. I knew one day. Some day over the rainbow. Dude, we had so much fun talking to you. We could do this for hours, but we won't. But I do want to tell you that, and this is from the heart, truthfully, I think you're one

of the best people on financial TV and I want to give you three reasons that I thought about as to why. You probably could guess what I'm going to say. Number one, I have never seen you run away from a situation where you were wrong or down in a stock or forced to change your mind. Not only do you show up in those moments and a lot of people don't, we know who they are. Not a, hang on, I'm being told we have a caller. Steve W. from Shorthills, New Jersey. You have something you want to ask Jim?

Yeah, Jim sucks. We lost, whoever Steve, we lost Steve. You don't run away, and you face the music, and I think I do too, I like to be- You absolutely do. I think I say, I'm an idiot, I missed the stock or I was wrong on this. But you do that and not a lot of people do that. And you take the punishment, which we just frankly we deserve sometimes.

So I admire you for that. That's number one. Number two, when people mess with you, you stick up for yourself, but you never make it personal. And that's sort of a lost art in 2025, especially when you throw in the internet and Twitter. Like people are horrendous to each other. People do not give each other an inch

when they're wrong about something. It's like you were wrong and now you should probably die. That's how people speak to each other. I've never seen you do that, okay? Number three, as I mentioned at the top of the show, you are descended from one of the great gentlemen in the history of Wall Street and I never got to meet him personally. Oh, you and he would have gotten along. You told me that a long time ago. You and he would have been such good friends. You would have been up until the week hours. Talk about your family and your dad and

maybe give us some wisdom that you learned from the great Mr. Labanthold. What was his first name? Jim. Jim Labanthold as well. Gentleman Jim Labanthold is what people said. He was a great man. He was a great man. And like you, just incredibly charismatic. Just incredibly charismatic. People want to be around you. They wanted to be around him. He was not a guy, like he actually wasn't like me. He wouldn't get into like Macaulay duration of the bond portfolio.

He had no interest in that. What he had interest in was what municipal bonds, which were his, his, his baby, that was the ad line, uh, what they built. So he loved the subways, the sewers, the bridges, the hospitals. I mean, he really had that civic-minded attitude. Labanthal & Co. was in its... A municipal bond brokerage. At its peak, like the name Immunity Bonds.

It was. Now, listen, God bless dad. He did something in the 70s, 80s, and 90s that you can't do today, which was he just bought advertising like crazy. It's too expensive to do it today. But he was like Ed Carvel and Frank Perdue. And they would just buy advertising like crazy, it's too expensive to do it today. But he was like Ed Carvel and Frank Perdue, and he would just buy advertising like crazy, which gave this image of being like a national powerhouse.

He was just a greater New York City bondhouse. But he was definitely. But everybody knew Labanthal and they thought of Muni Bonds. Yeah. I honestly have thought about this, like you and he, like I would want to just be around the table with the two of you until two in the morning

with a bottle of whiskey, because it would have been legendary. But I also, not just to repay the compliment, but I do want you to know something. You teach me every day, every time I interact with you. You teach me, no I'm serious, you teach me not just information, but how to carry myself.

I have learned from you stop taking myself so goddamn serious. That's right. That's right. It's like every day I'm with you. Well people really appreciate you for who you are and I do think that when people flip on the TV they see whatever the cast is gonna be for the show that day everyone has their favorite people everyone has people they can't stand listening to. I know I fall into, I polarize the audience a little bit. I understand that, it's perfectly fine.

But I have to tell you, when I get the email and it says who the cast is that day, and you're on the show, the first thing I say to myself is all right, we're going to have some fun today. So, all right? And I want to include Mike in the general fan fest. Michael could never do that show. No, listen, I have followed what you guys have done here at Ritholz over the 12 years that I've known you and it's absolutely fabulous. You have built a culture and it's hard to do. We're doing

it at Serity Partners too, but it's hard to grow and maintain a culture, maintain an esprit de corps where everybody knows what the mission is and we're all doing it together. And it comes from the top. And you guys have done that. You've said that, I watch what you do. Thank you very much, Jim, we appreciate it. And I want to tell people, Serity Partners, do you have like commentary that comes out

or how do people, is it the best thing that you just watch the show? Our thought leadership is up on the web. Okay. You know, we're a name that maybe you haven't heard that much if you're outside the industry, but we're about 120 billion in assets under me. A big firm. 1200 people.

Look, this is the space, this is the space the three of us are operating in, right? It's the registered investment advisory space. I remember coming out of business school, everybody was like, you got to go to Wall Street and be an investment research analyst, right? And then Henry Blodgett screwed that up. And then it was, now we're in the right part of the business right now.

And then it was, you got to be hedge fund and then you got to be private equity. RIA is the right place to be. And I, it's not a flash in the pan. I love it. Um, what's the thing you're most looking forward to in the future? Oh, the calming down of, I, this may be so naive, right? The calming down of what's going on with Washington DC D.C. It's about to get so much crazier. I know, but then it's gotta calm down, right? We all need a summer vacation.

Fair. Michael, what's the thing you're most looking forward to? I'm looking forward to warming up a little bit. I'm just done with winter. It's enough already, right? It's right about that time. It's enough. We're thawing out.

We're coming close. What are you looking forward to, Josh? I'm going to Fort Charles Prime Rib tonight, which is my favorite restaurant in New York. The best restaurant in the city. I think it's literally the best restaurant in the city. Yeah, it is. So I'm going with some of my oldest friends,

guys I used to coach baseball with when the boys were little, and we'll have a little mini reunion, and it's my birthday, so I'm 50-50 that they're going to pay the bill. Happy birthday. Thank you very, my birthday was two days ago. Thank you very much though, I appreciate it. All right, that's it for us this week.

I want to thank our special guest, Jim Labanthal, one of the best. And special thanks to the whole Compound crew. You guys did an outstanding job last week when we were away with the live show with Belsky, Daniel Duncan, Rob, Sean, Chart Kid, Matt, Nicole, Graham, Keith, and our special guest today, Travis.

Travis, welcome to the fold. All right, guys, that's it from us. Thank you so much for listening. We'll talk to you soon. That's it from us. Thank you so much for listening. We'll talk to you soon