A

Foreign. Okay. Ladies and gentlemen, welcome to what are your thoughts? One of the flagship programs here on the Compound network. Super excited to have you guys here for the live chat with me as always, my co host, Michael Batnik. Michael, say hello to the folks.

B

How are we doing, everybody? Hope you enjoyed your fourth of July.

A

Yeah, I. You know what? This is a good one. I like when it's on a Saturday. The chat is going wild right now, Mike. Did you know that?

B

Always absolutely.

A

Nancy Rogers Curry says Halo had a great day. How about that? Yeah, we're gonna get into that today. See Paul Breezy is talking reckless in the chat. Listen to this. Listen to this comment. Apropos of nothing. As long as my daughter beats teen pregnancy, then I will not have to worry about any Trump account setups. Dude. What? Steve Starkey. Hello From Nashville.

C

We.

A

We need a palate cleanser after that end of that one world. All right, all the gangsters are here. Good see you guys. Thanks for. Thanks for joining us. We appreciate it. Sven says hey from Germany. What's up, Sven? Millennial stacker says does Josh Stallone Joby. He does. He's long. All right, we have a sponsor tonight. Let's get into this Public. If you're actively involved in your portfolio, you probably catch yourself rep the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge on public. You can create AI agents that handle all of that stuff on your behalf. Just describe what you wanted to do in plain English. Like if the Vix hits 25, buy a put option on the S&P 500.

B

I'd buy a call option.

A

Yeah, I know. We think differently. Don't worry.

B

You do.

A

You approve the workflow and your agent handles the rest, monitoring the market, watching for your conditions and executing your strategies exactly as defined. Public is the world's first agent brokerage and investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.comwat to get started. That's public.comwat paid for by Public Investing. Full disclosures and podcast description. All right, we're back. Weird day in the market today. It looked like it was going to be a tech sell off and then it sort of turned into an everything sell off. I don't know. What. What was your. What was your reaction to the way we went out? Pretty. Pretty disheartening.

B

Oh, really?

A

I thought so.

B

Micron and the rest of the basket. Close to the highs of the day. I thought that was pretty positive.

A

So all right, so you did. You got a little bounce there.

B

No, a pretty big bounce. Yeah.

A

Okay.

B

I thought it was a constructive day overall.

A

Okay.

B

For a down day.

A

I saw a bunch of stocks fading into the close that weren't really part of the sell off this morning. Did we have an intraday rot? An intraday rotation, I guess.

B

What close on the lows. Name names. You didn't say. Caught you.

A

I caught you. For real.

B

All right.

A

One of the stocks we're going to talk about tonight actually went out on the lows. Get into Apple. So.

B

So wait, hold on. Who. Who do we talk to before Belsky, who was on the pod two weeks ago with us

A

the week before Belsky? Yeah, I feel like. Was it Jerome Powell?

B

So we were on. We were. The reason why I asked you is because we were on with talking about Apple after the magazine.

A

Nicole says. Right. Ryan, Dietrich and Sanu.

B

Oh, okay.

A

That's there, by the way, in the chat. Nicole's birthday today.

C

Yeah.

B

24 years old.

A

A little shout out.

B

Happy birthday, Nicole.

A

For. For Ms. Nicole.

B

So we were all with Ryan and Sonu. I don't know how long they call her. She's older than 24, but not by much. We were on with Ryan and Sonu. And this was the day where Apple said that they were going to raise prices because memory was getting so expensive.

A

Yeah.

B

And obviously they're going to take some of it to the bottom line. Right. Don't tell anybody. And I was really surprised by the market's reaction. The market was down 6% and I thought, huh, wow, that's a really strong reaction for something like this. I would have assumed that it's. That demand is inelastic. Who cares? It can raise the prices to infinity and the demand will still be there. Well, it looks like the market came around to that view.

A

Spoiler alert. That is actually how it's going to play out.

B

Yeah, I guess.

A

Right. First of all, the way they charge people for the phone, almost nobody is buying it at the purchase price.

B

Right.

A

In cash. It's always something. It's a deal, It's a deal, it's whatever. So that's. That's one. And then more importantly, we don't know that what they're guessing will be the price of memory will still be the price of memory. And we don't know whether or not new supplies may come online because Tim Cook is actively. Excuse me, Apple. I should say, because Tim Cook is going out in September. Apple is actively lobbying the US Government to enable Chinese suppliers of memory to come into the Apple ecosystem. And I don't know that that would materially change the uptick in prices but it certainly would change the narrative around how tight supply is. And so I think, I think it's the jury's still out on what that's going to mean. Hold on.

B

Before you get to your thing, just one more comment here please. 4 or 5 years ago when we had Lumberflation, remember that lumber was like all we spoke about. I remember one of the homebuilders, I said which one? Because I don't really quite remember. They raised their prices quite a bit as a result of lumber going up 4x and then when lumber came all the way down, they were asked about on one of their calls and they said we took it to margin and Apple's going to do the exact same thing.

A

Absolutely. And that's been the trend. So. All right, let me, let me see the technical chart for first things first. So pullback a little bit today. It, it made the high that you see on this chart on I think June 8th and we're about a month since then, you see this sort of false break below the 50 day recovers almost immediately in a vertical fashion. These are the charts that I personally live for. I like to see the way these stocks, not the stocks, let's not anthropomorphize the ticker symbol. I like to see the way the buyers respond to bad news and how quickly they come in and with what volition. They say I don't think so. And that is exactly what you can see on this chart. Notably did not violate the 200 day moving average on that pullback at all. And now you're seeing, I think a stock where people ran out of reasons to sell it and just the rapidity with which the buyers came in to accumulate is extremely notable. I'm showing you five year price here just to paint the picture. This is an uptrend that started at the end of 2022 like a lot of the uptrends in technology stocks. But this is the only one that looks this good versus the rest of the mag. Seven stocks.

B

Could you leave this on for a sec? Yeah, the chart looks good. Now this has been a really tough ride.

A

Yes.

B

Look at 2022. We all know that was every stock, right? Opened at the highs of the year, closed at the lows of the year. I mean literally 2022.

A

The F, the, the, the 52. We ranges the highs and lows within each 52 week period on a rolling basis extremely treacherous.

B

And then 2023 was a great year because it opened at the lows, closed really well. 24 was pretty good, but look how tough 25 was. I mean, I know it wasn't the only stock that looked like that during Liberation Day.

A

I've been pounding the table on this stock since the year began as the one that's really gonna show us something this year. And it doesn't seem that brave now, but in the 200s, the talk about Apple was they missed AI, they misfired on the product launch and basically they're screwed.

B

They weren't growing. I was definitely not bullish on Apple. They hadn't grown their top line in

A

four years because they hadn't had a product cyc until the phone came out last year. And the phone was a hit. And that should have changed everyone's minds, but not yet. Not everyone has changed their minds yet. Let's put up earnings per share. Consensus has Apple earnings per share up 17.4% year over year in 2026 and then another 9.8% gain in 27, which I'm going to tell you right now, I think gets revised higher. This was the comeback year for the Apple growth story because of the new phone that came out late last year. They didn't need to have the best AI native product. They just needed to be able to communicate that that was coming. And you had a lot of people who were long overdue to upgrade their phone and they decided to last time.

B

Do you believe it's coming, the AI upgrades? Because.

A

Oh, I know it is.

B

What do you think is going to happen?

A

I'm going to tell you in a minute. Here's annual revenue. Obviously on the current revenue base you're not going to see as dramatic and improvement. But I have to tell you, if they can do 15% year over year growth this year and then another 8.8% next year, which is now the new consensus. We're not talking about Apple anymore as a non growth story. I mean those are, these are double digit growth rates on a massive revenue base.

B

So look at, look at, look at the last blue, the five blue bars. Obviously this doesn't tell the whole story, not even close because they're buying back a ton of stock. So the earnings per share has been going up and the revenue might have not been growing, but the economics of the business have been dramatically improving on the top line because a bottom line, excuse me, because the shift of where the money is coming from with services leading the charge, that's the high margin area.

A

Yes, 100% and that's the number that everyone cared about. It's about the services. About the services. Nope. Now it's about the phone and the services. And the phone is the hot story with Apple for Apple once again. And this is really important, so I want to walk you through. My take here is I think Apple can get to 400. That is the equivalent. Where to close today, 311.

B

So it's a 25% gain.

A

This is me telling you a $31 stock can go to 40. Happens every day. I think Apple's going to do it and I think it's breaking out right now. Not today, but just generally speaking. And I want to lay out the case for why I think this is the mega cap to watch in the second half of the year. So again, hit an all time record high at 317 on June 8. Stock is up about 15, 16% year to date, which is even with the Nasdaq, although better than the other mega cap stocks which so far this year have been net negative and detracting from the index. Your market cap is 4.6 trillion, which sounds like a lot until you realize we're in the age of trillion dollar market caps and it's no longer all that novel. The next big catalyst Here is the third quarter print, which will be on July 30th. So in less than a month we're going to hear whether or not that iPhone momentum has carried through into the spring and summer. The fundamental setup is this. The last time they reported revenue hit 1, 11.2 billion for the quarter, which was a 17% jump over the same quarter last year. The second quarter of the year earnings hit 201 versus a $95 expected iPhone revenue, which again, that's the story. $57 billion. Thanks to iPhone 17 being a hit, services simultaneously hit an all time high 31 billion. So you got 57 billion coming from the iPhone. We're not talking about all the other hardware, just the iPhone product and services breaking a record. Greater China, which had been an anchor holding this stock down, actually rebounded and surprised to the upside. 20 and a half billion. And I think that'll continue because of a new deal with Alibaba, which we'll get to the guidance they gave for this quarter, 14 to 17% growth. The street was saying 9. So they materially raised guidance for this quarter, which explains why the stock is above 300 already over the next four quarters. Now the question is margin. No one's worried about revenue anymore because they gave great guidance. So now it's margin. It's what's gross margin on the hardware. Is it going to go materially lower than high 30s? Is it going to be above 40? They're worried about memory chips. So we're going to see, we're going to see what the reality is there. But there I think they'll raise prices enough to offset it. What are we talking about offsetting? DRAM and NAND costs are up 98% in a single quarter.

B

Wow.

A

This is like very, very difficult. Tim Cook talked about it last week. He called it 100 year flood and price increases being unavoidable. The estimates that are out there is that the iPhone 18 Pro which they'll come out with in Q4 could be $200 more than the 17 Pro. I get it. People are like up in arms. I just don't think that's going to stop somebody from upgrading their phone. I just don't. I'm sorry. Now here's what's really exciting. Forget about the July 30 print. September is a double event. The new CEO takes over on September 1. John Ternus. People are very excited about him becoming the CEO. This is a product guy, a hardware guy through and through. His first keynote is probably going to be to launch the foldable. The Apple foldable. It's. They're either going to call it the iPhone ultra or the iPhone fold, depending on which rumors you believe. It's going to be like a book. Fold it in half. Five and a half inch outer display, 7.8 inch inner display. Under five millimeter stick.

B

I folded.

A

I know you're going to get it. It's also built on their own silicon. This is the A20 Pro chip that's made by Taiwan semi but designed by Apple. So if that is a $2,000 to 2499 like a $2,500 phone, it'll be the most expensive phone ever. But the thing is they're going to sell it out because supply is brutally constrained. So the latest survey that was out there is that the most they would be able to make is 7 to 8 million units of this phone and probably only shipping half a million to a million units in Q3 when it launches. So this is not a situation where they're going to do this massive launch and people can be talking about, oh, the phone is sitting on the shelves in the stores. I think that there is enough demand. People that just want this thing or want to try it. I think they'll be able to say it's a sellout product. This year. How many units is half a million to a million? They sold 20 to 22 million iPhone 8. They were going to sell 20 to 22 million iPhone 18 Pros and Pro Max's in the same quarter. So this is a tiny sliver of the phones they'll be able to produce. I want to say one couple more things and get your reaction. The other half of the story is Siri. So don't Siri. In June they unveiled the AI overhaul which is built on Apple's own foundational models working with Google and Gemini. And it's going to be a two phase rollout on screen context features are already out, you've seen them full conversational Siri which is multi turn dialogue. Ask it a question, it answers, ask it a follow up as part of the same conversation.

B

You still can't do talk to text.

A

It's going and most important, the thing that I've been most bullish on, cross app task execution. Tell your bank to pay a bill on another app and have that happen. This is where we're going and I think it comes out at the end of this year and if it works, the entire conversation around Apple where they started out saying they're behind an AI is going to switch to this conversation. Wait a minute. Apple has 2.5 billion active devices to distribute AI on and what will happen is, is that may or you know, it's me. What will happen is I think Apple's gonna pursue this. Bring your own LLM model where they'll say you want to use Claude, great. You want to use OpenAI Chat GPT awesome. We don't care. Siri will layer on top of those and you choose which one you want to use. The only thing that matters here to the Apple shareholder is that Apple is the tollbooth. They're going to get paid coming and going regardless of which AI the consumer wants to use. And that is the checkmate. That is the trap that Apple has sprung on all of these companies that are spending hundreds of billions in capex. It ain't gonna matter to Apple. They're gonna get paid no matter what. Let me pause there. And what are your thoughts?

B

My first thought is I've reminded myself never to do math on this on a, on a live podcast because 3 to 400 is not 25%.

A

What is it? 31%?

B

Close. 33.

A

33%.

B

I don't know. I honestly don't even know what moves the stock anymore because there's so many different storylines. I think it, I think the only thing that can materially move it is whatever they do on the AI side, because the hardware is great. They're not getting a higher multiple because of the new phones. It's got to be a contract with one of the frontier models.

A

No, they'll have contracts with all the frontier models.

B

Fine.

A

It's irrelevant. Apple is turning. Apple is turning the LLM business into clients.

B

That's what I just said. So if they. If they have 30. If they have 20 and 30 billion dollars deals from these companies that can move the needle, a new flip phone, which I'm very excited about, is not going to do it. And I am. I am skeptical that they're all of a sudden going to unleash a Siri that works. So I would love to be wrong because it's a shitty product.

A

Well, it already does work. It's just not agentic. And now it will be. That's. That's what's come. That's what's coming. But it works. Currently, it's one of the most used chatbots in the world, if not the most used. It just is not interoperable with all of the apps in the App Store. That is what's changing, and that is game changing for the consumer who right now does not have that. I don't care how much you love Claude. Claude's ability to work with other apps on your phone is zero. It doesn't. Having a Gentix Siri quarterbacking all of the agentic stuff with all of your apps and forcing that as a condition for apps to be in the iOS app store that they must be interoperable with Siri. This is the Checkmate.

B

So I would love this. Let's say that you have a credit card and you get a new credit card and you have to set up to your bank account to start to pay it. If you could say, hey, Siri, set up my connect, my Capital One account, my new Capital One card with my JP Morgan bank account. That's awesome.

A

Yeah. Dan ives has a $400 target. This is back in May when the stock was in the 290s. And the way he framed it is it's a sum of the part story. So he took his target from 350 to 400 two months ago. And basically his thesis is this. The core bet is a $15 billion annual revenue opportunity in AI services. Not from Apple building its own frontier model, but from monetizing everyone else's and distributing it across again. 2.5 billion iOS users.

B

Yeah.

A

Nobody can make an unrun around it. I've said services could add 75, AI monetization plus services could add 75 to $100 per share of value, which is the math that gets you to 400. He thinks 20% of the world's population will eventually access AI through an Apple device. So it's, it's the installed base and the ability for Apple to collect fees from every product. Let the consumer choose. IOS27 is, is central to the idea because that's where users can set a preferred AI model as the system default for Apple intelligence, just like we all set a search default and most people default to Google. And so that is how Apple basically takes over the consumer AI story. Not by building the best LLM, not by spending a trillion dollars on data centers, but by positioning itself between the consumer who trusts Apple and everyone else who's going to make software and frontier models. And that, to me, that's the story. That's what I'm bullish about. It's not a cheap stock, quite frankly. It almost never is.

B

Well, they say it trades at 33 times forward estimates. 26. I mean, that's for a stock that's not growing a lot.

A

But maybe the thing is it is growing a lot. It's 15% revenue growth last quarter, 17% earnings growth. It is growing a lot.

B

Fair enough.

A

And growing faster than any other company its size that's not named Nvidia, quite frankly. You think, you think about what it takes to grow at this size. No one but Nvidia is doing that. So that's, that's my bull case on Apple. I own full disclosure. In case you couldn't tell. I own the stock. Most of you guys own the stock too. Whether you own it, we all own this, or it's in your index.

B

We're all, we're all very long Apple. All right, let's talk about, let's talk about the, the mini. I unwind. Let's start here. So Yardenius, a chart that shows, and we've spoken a lot about this shows the forward profit margin for semiconductors. And it shows the forward P. And one is going up to the right and the other is not. And you would, you would think that investors would reward the margin expansion with multiple expansion, but they're not. They're just not. So Ed says the bubble this time might be an analyst's expectations for the forward profit margin of the S and P semiconductor industry. The aggregate forward profit margin rose to a record 50% last week. Investors certainly have their doubts given that they are paying a forward PE of only 18.4 currently. And I love the doubts. I think this is keeping a bubble in check. I think this is keeping the market from really getting ahead of itself in a way that would make me and other investors uncomfortable. I love all this. So there was a bit of an unwind today, not just today, over the last couple of sessions. Western Digital is in A. Well, SanDisk is in a 30% drawdown. Western Digital is in a 20% drawdown.

A

Micron losses are real.

B

Yeah. Micron 22%. Seagate 24%.

A

If you bought the, if you bought these stocks after Micron reported its unbelievable quarter, it was great. Like an amazing earnings report. If, if you were a buyer of these stocks, you're, you're down double digits.

B

Yeah.

A

In all of them.

B

Let's see this chart on from chart kid. So we're looking at names that are at least 10% from their 52 week highs and also 20% above their 200 day moving average. So SanDisk, for example, this stock is in a 30% drawdown. As I mentioned, it's still 130% above its 200 day moving average.

A

Crazy. These stocks, even with the pullback, that's

B

how they're up, were so unbelievably extended. Maybe today was the bottom, maybe it wasn't, I have no idea. But what sparked this was. And again today's sell off because these names have been chopping around going low for the last 10 sessions or so. But today was on the back of Samsung. So Samsung reported that their profits surged 19 fold. 19 fold.

A

Yeah.

B

An increase that still wasn't enough for investors. That's according to.

A

Stock fell. And the stock fell 6%.

B

Stock was down as much as 10% at one point. Closed down 7%. Operating profit of around $58 billion. That would top the previous quarter's record of $37 billion. Again I said this right, 19 fold compared to a year earlier. Just unbelievable.

A

They can't do it. They can't do it again. Everybody understands this.

B

Look at this.

A

They can't do this. A year from now when we're lapping this quarter, they're not going to have earnings up 19 fold again when we're reporting this same quarter a year from now they may be in great shape and have an amazing business, but the growth rate mathematically has to slow down because all of this gain that they're reporting is in, they're raising prices. What are they going to quadruple prices again? Like, it's just, it's, it's impossible for these companies now, I think to please their shareholder base given where expectations have gone.

B

So David Morrison again. David Morrison, an analyst at Trade Nation said, as is often the case, it can be better to travel than to arrive. So the unfortunate reality is that stocks usually top on good News. So for the memory names, is this a top or the top?

A

Let's do these, let's do these Samsung charts real quick. I want to see them.

B

We just did this. If you're paying attention.

A

I'm with you, babe. This is right. So I'm trying to see what the increase is. So sequential increase from Q1 to Q2. Look how bananas that is.

B

Nuts.

A

Like from Q4 to Q1 and then Q1 to Q2. This is a double. And then a double again.

B

Throw the next chart up.

A

This is the problem. You can't do it.

B

All right, so if I were forced to guess, and I will do, I will, I will guess because that's what we're doing, I would say despite what I just said about stocks topping on good news, I think it's going to take a little bit more than this to break the backs of buyers. I think there's a lot of debt buyers ready to come in. What if I don't, if the next wave fizzles out? But I'm not ready to say that this was the ultimate top.

A

Yeah. What if the problem here is the nature of the buyers. What if only 50%, let's say of the shareholder base were fundamentally driven investors and the other 50% were people buying 2x ETFs who really don't. They don't care that much. They're not married to these stories. And if the stocks stop going up, they don't come in and buy the dip because they're buying the next stock that's going up.

B

Glad you mentioned that. So I think there's definitely, there's a lot of truth in there. So David Tepper killed it last quarter. He was buying all these names. I would imagine that he, that he's a lot lighter in these names now than he was six months ago. And you're right. Who is he selling to? I have no idea. Is it the double levered ETF buyers?

A

He's selling it to Korean Day Traders and, and people buying 2x ETFs like, like, like that's, that's the bot, that's the buyer. But they're not, those people are not buying right now.

B

Two more charts. All right. I, I think this is great news. Dean Christians has a chart that shows that over half of tech stocks are in a bear market. Not awesome if you bought the top. But, but Grant Hawkridge has a chart that shows the S&P 500 advanced decline line. So the fact that you are getting a pretty decent pullback in the largest sector and yet the advanced decline line, the rest of the market is broadening out. I think that we've been saying this for years. The rotation inside of this bull market continues to impress and you got to give investors the benefit of the doubt. It's pretty amazing.

A

Can we go back to the scattered plot that Matt did AI sell? Yeah. The only other thing that I would add to this, that I would add to this topic is I guess I would ask you a question. At what percentage above the 200 day moving average would you never buy a stock? Like, would you buy, would you ever buy a stock that's over 100% above its 200 day moving average?

B

No.

A

So I was on TV the day after Micron reported. So on the reaction day, and I'm not naming names, one of the people sitting on the desk was enthusiastically buying Micron right at the high. We didn't know it was at the high at the time. So some of this is Monday more. But the only comment I made was I'm not going to tell you that's not the greatest earnings recorder greatest earnings report I've ever read because it probably is. Right. Like I'm going to say that. I'm just going to say historically, I don't believe investors are typically rewarded when they buy a stock that's 200% above its 200 day moving average.

B

Yeah, I'm sure I don't.

A

This is a, this is a fresh position. This is not somebody adding. I just, I don't think that that's the way to start a position in an, in a portfolio. What. But where is the line, is it 50% above the 200 day. What do you, what are your thoughts?

B

I don't know. I'm sure that there are quant back tests that would say, hey listen, actually, actually buying stocks that are 50% above their 200 day moving average is an awesome strategy.

A

Well, if you do it on the exit. If you not, not in the absence of an exit.

B

If you do it systematically over time and you have an exit strategy, that might be an awesome strategy.

A

I don't think the quants would say that. I bet you they wouldn't.

B

I have no idea. Well, but is, I'm guessing is 200% too much? I think 50% is probably fine.

A

Okay. A triple in price above a 200 day moving average is probably not an ideal entry for a new position. No, I don't think that's my comment. Of course I'm on the record. I'm on the record. If there's a quant that wants to show me a back test that says I'm wrong, I want to see it. I want to learn. Teach me, teach me. All right. Sentiment versus stocks. I posted this at LinkedIn, on LinkedIn 1/2 of what we're going to say and it sort of blew up. So I think it's at a thousand comments and it's not my chart, it's Dr. David Kelly. J.P. morgan included this in his guide to markets where, which I never miss. And what you're looking at here, the s and P500 in red at basically an all time high and consumer sentiment basically at an all time low and going lower all the time.

B

The blue line is fake.

A

This goes back. Well, it's the real data. You don't have to agree with what people are saying, but that's consumer sentiment. And this is a 10 year chart. So this back to 2014, it's just, it's just pretty, it's just pretty incredible that this is the way sentiment works now. And by works I mean doesn't work. And so let's look at the next chart. This is Dr. David Kelly showing us Consumer Sentiment Index and the subsequent 12 month returns for the S&P 500. And historically, before the modern era, it's been a pretty good idea to buy the lows in sentiment, in consumer sentiment and those have often coincided with recession. But you've had great returns coming out of those things. Now it completely, you could throw this, you could throw this out because there's no way it's going to work or there's no way it's going to work to the same extent because the stock market and consumer sentiment are almost completely divorced from each other.

B

Throw the previous chart back up. All right. Something happened to the blue line. I can't put my finger on it. Oh yeah, Covid so. And then inflation and everything else. So I'm not dismissing like it's not totally, totally, totally unconnected from everything. But that blue line will never recover. It will never, you will never.

A

Permanent low sentiment.

B

Correct. In the, in, in today's day and age of the modern social media age, the way that we consume information, the way that you answer these questions, the people that are answering these questions, that blue line will never recover.

A

I'd like to solve the Puzzle. Here's why it'll never recover. And you're right. And here's what changed. It's not Covid itself. It's two things that happened in that era that I think have just permanently destroyed consumer sentiment. Three things. One, you're right, is inflation, which, despite the fact that we're closer to 2% than 6%, doesn't matter.

B

It's cumulative inflation.

A

It's cumulative, and people are still mad, and they will never not be mad. And it'll take an entirely new generation to come of age to sort of forget about it. Okay, so that's thing one, thing two is Elon took over Twitter and Instagram launched algorithmically driven reels. So let me just unpack those two things, because I think they're super important. Instagram, we'll do that first. Instagram used to be a place where you would log in to see your friends on vacation, your neighbor's dog, and people doing funny stuff. And you knew who the people were and you laughed along with them. In August of 2020, facing a, quite frankly, an existential threat from TikTok, Mark Zuckerberg pivoted Instagram and reels in particular to being algorithmically driven. And for the first time ever, they began to shove other content into your feedback. And everyone just got used to it. And ultimately, that's that content started out with people dancing because it was fighting off TikTok. And then ultimately it ends up where it always ends up. Burning flags, politics, teen takeovers, racist content, Charlie Kirk clips of people arguing about Gaza, protests, buildings on fire, department stores being robbed. You name catalytic converters being stolen out of people's driveways. That is what Instagram basically turned into. And it's not because they wanted that to happen. People spend more time on that content, they're more engaged, and the algorithm is programmed to show them more of what keeps them engaged. And nothing keeps people engaged on Instagram like sex and violence, because we're human. And so the algorithm is just holding up a mirror to what we all are and what we all are. Chimpanzees who are incensed by the things that we see rattle the cages, and that brings in more advertising dollars. So that's Instagram, and this is a product. I don't know. 3 billion people use it. Okay, so that's part of the consumer sentiment plunge. Things were better when we were just looking at pictures of birthday parties.

B

Can I say one more thing on this? Yeah. So I was. I saw a tweet over the weekend that really bummed me out a friend of mine tweeted something that they never would have otherwise, but ostensibly they're getting paid by the Elon bucks. And that's just what Twitter is now. And that's what.

A

So that's where I'm going now.

B

And it was just like, it was such a bummer.

A

So that's where I'm going next. So not long after Zuckerberg turned wheels into. Into TikTok, Elon Musk took over Twitter, renamed it X, took off most, if not all of the constraints about what kind of content could be seen and read there. I know there's a lot of free speech people in our audience, and they appreciate that, and that's fine. I'm not saying it's all bad, but any sort of constraints about what people should be saying in civil society or what we should allow anonymous people to do on the Internet, it's all gone. And now the entirety of Twitter is basically one raging debate about which race is more prone to raping women and which religion should the country be based on and which people don't belong in this country, and what's happening to Europe and immigration, and it's just pitch black. And this is, you know, one of the top four most widely used social platforms. So now you basically have the situation where Instagram, which used to be for friends and family, is driving us crazy. There's no respite from that. When you go on Twitter, it's even worse. And people are going to be mad for the rest of their lives about how much more expensive things are today than they were in 2019.

B

Yeah. Anyway, how are you feeling?

A

Well, I'm fine. I actually have never been doing. Look at my hair right now. So if you want to judge how I me, Josh Brown, first of all, I now go by Joshua, and this is my new hairstyle, and I've turned over a new leaf and everything's okay.

B

For me anyway, the consumer sentiment line is bullshit because people are not.

A

So put that chart last time. We're gonna move on from this. Just give me the sentiment. So this is. This is the mood versus the prices.

B

But it's not even the mood. It's the fake mood. It's the social media mood. People in real life are not like.

A

This is the point that we're making.

B

Yeah, People are not like this because

A

the reality is we have chart off. In the last five years, as this consumer sentiment has been plunging, we have been creating more millionaire households, penta millionaire households and Deca millionaire households than ever in the history of the country 401k balances are at record highs. IRA balances too. Unemployment is still at or close to all time lows. Not for everyone, but in general. And this is the consumer sentiment. So for me it's people making themselves crazy on social media with the shit that they're consuming and the prices not reverting back to what they remember from a few years ago. And nothing the stock market does is going to change any of that. No, you're right and seen.

B

Well done. Okay, let's just do this real quick. Oh, value had an incredible first half. Oh yeah. Really depends which value. If micron was 24% of your value index, it had a great first half. So throw this trot on. This is iShares MSCI. So let's not forget about iShares. This is MSCI USA. Value factor ticker is VLUE. It is. It was up 42%. I made this chart yesterday, year to date. The Vanguard value, which is crisp data set, is up 16% year to date.

A

And the si, oh my God.

B

Was up 9%. So even today, Josh, the top one was down one chart off please. The MSCI value was down 1%. The other two are flat. Why? Let's look at the holdings. Next chart please. So the V, the MSCI one. 25% micron. Are you kidding me?

A

How often does that index rebalance?

B

I'm guessing it's an annual.

A

Every six months or annual.

B

I honestly, I don't know why. I guess you could just freaking Google it. I don't know what the answer is, but big differences. So it's not like the value factor is kicking ass. I mean it's doing just fine, but it's. And it's not just, it's not just the value stuff. The semiconductor, the AI stuff is making a couple of the indexes. Indexes go bananas. And you really used to not have to pay attention to this stuff. It was like, all right, I want to own em. Do I want iShares iemg? Do I want vwo? It's a little bit cheaper. Who gives a shit? They're both, they're both valid. They're both em.

A

It was semantics.

B

Yeah. So, so Vanguard, is it footsie? They don't classify Korea as a emerging market because.

A

Right, that was the big controversy.

B

So who cares?

A

Developed or emerging?

B

Right. Well now you, now you care. Look at this. So IEMG was up 35 year to date. VWL was up 21%. Both great returns, but that's a gigantic spread. Chart on please. 35 versus 21 so you used to really not have to think too, too hard.

A

And that's Korea. We would stop. That's Korea.

B

That's it. That's it. That's it.

A

So this has got to be the most extreme example of what you're talking about of all time. Right?

B

I mean the value 1 was pretty good too. But like I don't, I can't imagine this has ever happened to this degree.

A

Yeah, that's what I mean. Between the value thing, the emerging markets thing, this has got, I mean this is going to be in so many investment presentation decks going forward. Like advisors explaining like why they use iShares or why they use Vanguard or State street. Like because the index methodology could have such an outsized effect on like oh also if you're a value investor and you want to make the case for why people should, you know, invest in value oriented strategy, you already know which benchmark they're using.

B

Right.

A

In their, in their presentation.

B

Right.

A

Is the one that had 24 micron in it.

B

Right. Anyway, let's keep moving. We're going along.

A

That's wild. Okay, what do we have left though?

B

You. So you want to show a chart and I have a counter chart.

A

Here's a Goldman Sachs chart. This is very simple to me. Don't get used to this. The red line is the current bull market back to the end of 2022. So basically three and a half years of, I don't know, is this the greatest bull market of all time, like compressed into a three and a half year period? It's, it's, it's got to be up there with some of the great ones and what you're seeing here in shaded blue, top decile, top quartile, median return. But it's literally off the chart and you know that could end tomorrow and it wouldn't change the fact that what we have just gone through over the last three and a half years is, is one for the, for the record books. It may not be the all time record but it's pretty exceptional.

B

So it is hard. Stop. But and also this chart blew my face off. So we, we, we stole this chart from Bespoke credit to them. We ripped this off. Chart on please. So they showed the. Where does this bull market rank when you look at a rolling 1 year, 2 year, 5 year, 10 year, 20 year and 3 years isn't in here. That actually might be in the 95th percentage, Josh. I don't know but this made me feel a little bit better. The five year, the five year for example, five year returns is in the 60th percentile. 10 years, 77th. The 20 years. The 20 year deserves a humongous asterisk because the GFC is about to roll off and when that does, it's going to shoot way up. But these made me feel pretty good, I'm not gonna lie.

A

Yeah, well, so we're just using this three and a half year because it was like 2022 was a bear market year. So like in this bull market, that's where the, the three and a half. It's not that it's cherry picked, it's that we're trying to.

B

Yeah, it's where it started.

A

We're trying to contextualize this moment in time.

B

It's been an awesome market.

A

I think the bigger AI rally like that, that's what it is.

B

The bigger, the bigger point is wherever this goes, hopefully not a lot lower. We just experienced a hell of a run.

A

Yeah, right. No matter where you want to start it from, like it's, it's pretty epic. As an addendum to this, we know that a lot of the justification for what's gone on so far and what people hope will continue is earnings growth. We know that this is a one of a kind period for earnings growth thanks to this memory. You can call it a memory boom or a memory bubble, depending on how skeptical you are, but undeniable. And it's not just memory. Memory is the most extreme example of what happens when AI Capex demand takes over the whole economy. Adam Parker, Our friend Adam Parker at Trivariat says the market has not fallen during a two year double digit earnings expansion since 1994. It's actually only fallen five times over the last 100 years when the stock market was doing double digit on double digit earnings growth in consecutive years.

B

Wait, what is he saying here? I think I missed that.

A

All right, let me read it in his words, not my own. We looked back at 98 years of S&P 500 earnings growth and returns. And in particular we focused on the S&P 500 stock performance the first year when earnings grow double digits the current year and the next year. Okay, so the expectation for earnings growth is double digits for next year too. Are you following me?

B

Yes.

A

So this would be year one. Adam says only five times and not since 1994 has the market acted poorly when the current and next year had such strong earnings growth. So I think what he's saying is you can fade a bull market, but you don't want to fade a bull market. When we're in year one of a two year stretch of double digit annual earnings growth. Because the market has never acted poorly over the last 30 years when that's your setup. And only five times in 100 years has the market acted poorly while earnings were growing to that extent. Does that make sense to you?

B

It does make sense to me. And the chart that we showed last week, I can't remember what show it was where all of these different industry and sectors and market cap groups, all of the ones that you want to see leading the market higher, from transports to semis to small caps, industrials, financials. What are you bearish about?

A

Yeah, yeah, what do you want? Now the last piece of the puzzle is how involved are leveraged ETFs. Leveraged ETFs in this outsized rally that we're describing. And I have to be honest and say very that doesn't contradict the fact that this is an earnings growth driven bull market. It doesn't mean the bulls did you know we didn't make money?

B

No, they are. We said last week it's half a trillion dollars of notional exposure to these companies.

A

So here's a lot of money. Here's Todd selling chart from Strategus. He has a huge report on these leveraged exchange traded products.

B

There it is. Yeah.

A

Okay. US listed leveraged ETPs are pushing 700 funds across. $200 billion in assets under management and AUM alone in AUM and 500 billion in notional exposure. Man, this is, he says this is an important change in market structure and their growing usage reflects this. And I have one more from him. What are we doing with all these leveraged funds? Mostly we're buying tech.

B

Yeah.

A

So what you can see here on the left, these are the most popular products by AUM, QQQ, semis, single semiconductor stock ETFs, Tesla and the S&P 500.

B

Well, I think you're seeing this. I think you're seeing the tail wag the dog when you look at all of these memory names and all these semi names. Because for the last 10 sessions Micron and Sandisk and all the names we kept mentioning, they've been up 10%. Down 8%, up 7%, down 5%.

A

Those whipsaws are this.

B

Yeah, 100%.

A

That's exactly right. And interestingly there are 400 levered single stock ETFs. The levered single stock ETFs alone are $40 billion. And then the last point here, it's a 13 to 1 ratio of leverage long versus inverse. So almost not. You might have people come along and say, well, maybe it's hedging activity.

B

No, it's not speculation.

A

It's pure crack cocaine.

B

It's good.

A

None of that. None of this is hedging. None of it. Thirteen to one. None of it. All right, last thing. Let's do Halo for the second half. Would you like to congratulate me on having identified the trading theme of the year so early in the year and just seen the legs of this theme and people continuing to talk about it here in July. Are there any words of congratulation that you would like to express here?

B

Your hair looks amazing.

A

It does. But like, seriously, trade of the year.

B

Keep going.

A

Trade of the year. There's a Market Watch story. I'm going to quote from it. It's Barbara Kohlmeier. She's terrific. I like her even better now than I did yesterday. Earlier this year, when artificial intelligence disruption worries started to run high, Josh Brown, CEO of Ritholtz, declared that the halo trade, heavy assets, low obsolescence, would be the most important one of the year. Well, Goldman Sachs strategists agree. They say pairing capital intensive stocks with a short position in capital light companies such as software and services has delivered a 20% year to date gain even after a small initial sell off in stocks exposed to manufacturing and global trade amid the Mideast conflict. So the heavy assets companies came back really fast. Goldman says halo trade is not out of fuel.

B

What is the heavy asset stock in your mind, like for people that could really.

A

J.B. hunt, Delta, Any utility.

B

Delta's a good one.

A

Most consumer packaged goods products, all of the.

B

So things that can't be disrupted.

A

Yeah. And where it gets confusing is a lot of AI stocks are also halo. Like if you're the company that's providing electrification. Yeah. G. Vernova is a great example. It's turbines.

B

Right.

A

But it's. So it's Halo, but it's also feeding into AI. That's the pinnacle. That is the bet.

B

That's the Dell diagram.

A

Yeah, that's Dell. Like those are the best Halo stocks. Micron is Halo memory. Like. Like very obviously fabricators of. Of semiconductors companies with wafer production capacity. Anyway, is a whole long story there. I just wanted to show.

B

Read all of it. Read every single word, please.

A

I won't put up this. Capital intensive versus capital light. This is Goldman's chart, not mine.

B

That's very good.

A

Trade of the year.

B

Yeah.

A

What. What more can I say, quite frankly, I don't know.

B

But we'll find out next week.

A

Yeah, because I will say more.

B

Okay. I'm gonna make. You know what? I, I had a, I had a journey on my. Make the case today, Josh. Originally you were going to be long

A

something and now you're short.

B

I was going to do mags. I was gonna do the Mag 7. I feel like they got, they're getting pretty disrespected. What do you think about that?

A

I think they're separating. As they should. I like Apple. I like Apple the best. I like Amazon second best. Alphabet is more complicated because now they are selling stock and I know Amazon just did a debt financing, maybe they'll sell stock too, but not yet. And believe it or not, I like Tesla. I think it's, it's 400, I think goes 500 and I think they're talking about SpaceX buying it by, by year end. Like I, I, I think there's a lot happening at Tesla on the robot side and I'm pretty interested in that.

B

So anyway, I thought to myself, I'm not doing Max. It's so lame. We want this Mag 7 stuff. So then I said, you know, I'm gonna give my boy Chart Kit some love. So Chart Kit has been pounding the table on hst, which is Host Hotels and Resorts. Stock looks very good. I did some digging.

A

Hey.

B

What? Tell me about the stock. Host Hotels and Resorts is the REIT that owns the land, that partners with the Marriott hotels. For the most part, yeah. And some Hyatt properties. And I said, well, why would I? I mean this seems like a worse business than just owning the equity, right? Like own, like Marriott is a much better business than being the toll collector.

A

Marriott, Marriott doesn't own shit. They're in the points business.

B

Right. It's a royalty business, a much better business.

A

It's a marketing company.

B

The stock trades at a 20 time multiple. This trades at 12. The stock has destroyed it. And then I said, all right, you know what? I kind of like this thread. Let me pull in a little bit more. I do like hotels, but I want to stay at the upper end of the cave for this. So where did that land me, Josh? I'm gonna make the case for Hyatt.

A

Let's do it.

B

So according to a Moody's report from sometime, I think in 2025, the top 10% of earners drive nearly half of all US consumer spending. People are trying to debunk it. I don't care if it's a third or a half, it's a lot. Okay.

A

Directionally It's a lot.

B

It's a lot. Highest share since the Data began in 1989, up from 36% three decades ago. However, they are measuring it. Okay, so Hyatt, interestingly, spent the last decade rebuilding itself into servicing, really, the top end of the cave. They're going all in. So their luxury rooms are now 47% of their portfolio, up from regions. Hyatt regency up from 32% in 2017. And they now own the world's largest portfolio of luxury branded resort rooms with a 17% global share. Marriott said that their revenue, their luxury rooms grew 6% for the revenue per available room in the most recent quarter. The rest of the inventory was flat. And Hyatt basically said the same thing. I think they grew 8%. And the rest of the inventory is flat. And the stock looks. Looks good. It's working. I mean, all these hotels are working, but Tron. So this is similar to Delta. Similar customer, similar consumer. And I don't know if it's stretched here, but whatever. I think the stock is going higher.

A

It's also global, which is increasingly important, and I think it's more skewed toward vacation as opposed to business travel. Whereas Marriott is maybe a little bit more balanced. I like it.

B

So they're.

A

I think you'll be right on this.

B

Their luxury run rate room is 400 bucks compared to 100 for the standard room. Said people are buying the 400 version.

A

100, 100%. And, you know, a lot of companies get in trouble where they try to cater to every consumer. And the companies that figure this out earlier are the ones that become the leaders. Delta being a great example. United now following Delta's lead. United wants to make the whole stock first class.

B

Stock looks awesome.

A

Yeah, like United. United is like, trying to go, like, make this, like, on the border of the whole cabin is first class. And we don't need to worry about economy tickets anymore. And that's. I hate to say that that's like a social commentary about where we are in this economy, but what else do you want me to say? Like, this is what it is. This is why Spirit Airlines goes bankrupt, while at the same time, there's a line of 900 people waiting to get into the Amex Lounge right. At whatever airport you go to. Like, this is what it is. So I like it. I think it's great.

B

Call.

A

Let's do mystery chart and we'll get out of here. Again, I had Hillstone reservations, and it's very important to me. All right, These are indexes they're not ETFs.

B

Is this Yardeni?

A

It's a Yardeni chart. Very good. But that wasn't what you had to guess. And this is something that would probably matter to people like jc. So I want you to tell me what investing concept is being illustrated here and name the two lines.

B

The broadening. Is it the mid caps and the small caps?

A

I'm sorry, that's incorrect.

B

That's a shame.

A

Would you like to take another shot at it?

B

Are these, these are not sectors indexes. Okay. The All Country World Index.

A

No, I'm sorry. Would you like to take a third and final guess?

B

Nope. I'm out.

A

And I did not mean to stump you. But this was a good one, right?

B

Yes. I love it.

A

Okay, the reveal please.

B

Oh, I love it.

A

Love it. Right?

B

Yeah. This is bullish. Super bullish.

A

So we're not going to do a whole 20 minute thing because we're. We're at 6 o' clock already on Dow theory. But Charlie, Dow originally created the Dow Jones index. Actually the first Dow Jones index I think was 1396. Yeah, I think it was 13 stocks and all but two were trains. Like they were all railroads. And then there were two other non

B

railroads, Union Pacific and the like. Right.

A

So ultimately he ended up redoing the Dow Jones Industrial Average, took the railroads out and put them in their own index which then became the Dow Transportation, became the Dow Transportation Index. And Dow theory is basically this idea that if you want confirmation that the Dow Jones Industrial Average making new highs is supported by the real economy, then you would also want to see the transportation average moving up into the right and ratifying that high in the industrial.

B

Josh, you, you astutely debunked this in 2015 when you said semis of the new transports or 2017. I don't know what year that was. Whatever. It's a long time ago.

A

Yes, but it doesn't matter. I still do think that it's important. It's nice to have the I wouldn't sell to have.

B

It's not a need to have.

A

I wouldn't sell the market if the transports didn't look good. They happen to look exceptionally good right now.

B

Great.

A

Right alongside the Dow Jones Industrial Average.

B

We'll take it.

A

And I am a fan. Okay. I like it. All right, that's it for us tonight, guys. Thank you so much for joining us in the live. We really appreciate it. It's great to see everybody. We miss you when we're not here. Tomorrow is Wednesday, which means an all new edition of Animal Spirits with Michael and Ben. We'll have an Ask the Compound this week and we will finish strong with an all new episode of the Compound. And friends also want to point out for financial advisors who are in our general audience, we do a specific show for the advice industry. It's called Talking Wealth. It's got its own YouTube channel and its own podcast feed. Look for an all new edition of the Talking wealth show on Thursday. It'll be live on Spotify, Apple Podcasts, and of course right here on YouTube. That's it from us. Thank you so much. We'll talk to you soon. Foreign.

C

Wealth Management is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Ritholtz Wealth Management and its representatives are properly licensed or exempt from licensure. Nothing on this podcast should be construed as and may not be used in connection with an offer to sell or solicitation of an offer to buy or hold an interest in any security or investment product. Past performance is no guarantee of future results. Investing involves risk and possible loss of principal capital. No advice may be rendered by Ritholtz Wealth Management unless a client service agreement is in place.