Why 70% of Americans Have Now Lost Faith in the Economy | WAYT?
Summary
International Markets: The podcast highlights the outperformance of non-US equities, particularly in developed Europe and emerging markets, suggesting a need to rethink US-focused diversification strategies.
Junk Rally: A significant rally in low-quality stocks, described as the biggest outside of a crisis recovery, has made it difficult for active managers to outperform, though the rally is believed to be nearing its end.
Google's Legal Win: Google shares surged after a federal judge ruled against severe penalties in an antitrust case, alleviating investor concerns about potential divestitures.
Broad Market Rally: The discussion underscores a broad-based market rally, with a significant number of stocks across various sectors trading above their moving averages, indicating a healthy bull market.
Consumer Sentiment: Despite a strong market, consumer sentiment remains low, with many Americans pessimistic about improving their standard of living, influenced by inflation and economic uncertainty.
Regional Banks: Regional banks are poised to benefit from potential interest rate cuts, which could boost mortgage and refinance activity, crucial for their business growth.
Investment Sentiment: The podcast discusses the skepticism and pessimism prevalent among investors, despite positive market indicators, suggesting a potential wall of worry that could support further market gains.
Transcript
[Music] All right. Good afternoon, gangsters, gangster. Good to see everybody in the chat. Want to uh introduce the show properly. My name is Downtown Josh Brown. Here with my co-host as always, Michael Batnik. Say hello to the folks. >> Hello. Hello folks. For those of you who are tuning in for the first time, and I know we had an influx of uh new followers, new subscribers, let me set this up on what are your thoughts. Michael and I go through the biggest stories happening in the markets, in the economy this week, and uh we don't really talk as often as you guys might think, uh all day long, every day. So, I want to hear Michael's thoughts. I assume he wants to hear mine. Um, we have a live audience here on YouTube in the uh in the live chat for the taping. Want to say hello to some folks. Um, let's see who we got here. I got Jay One Time in the chat. Ladies and gentlemen, Jay Luther is back. Jason Chen is back. He said, "Why Google jump after hours?" Jason, very simple. We're going to get into it in a few minutes. We're going to have all the information that you need. Um, who else? 4:00 a.m. Pizza. Are you ready to get pounded? I woke up ready, my friend. Drew Hickman is here. Brian Grill is back. Cliff is here. Magnus Roger. All the regulars are back. And uh some new faces, too. Good to see you guys. Tonight's show is brought to you by MSCI. Michael, new sponsor alert. >> Yeah, you look surprised. >> I am very exciting. Love MC Msei. Um why don't you take us through this? >> All right. Many of us have a little home country bias. We tend to invest close to home. Actually, we're talking about that later in the show. But you may have noticed right now some of the strongest growth stories are unfolding far from Wall Street. Markets outside the US have been gaining ground. In fact, a look at MSCI indexes show that certain international markets from developed Europe to fast growing emerging economies have been outperforming the US this year. That's right, outperforming. Non- US equities outpace US equities by one of the widest margins in years. It's a reminder that opportunity isn't always in your own backyard. Wealth managers can see these trends emerge through MSCI's XUS indexes. Is it time to rethink our US focus diversification strategy? >> Visit MSCI.com. >> All right. Shout out to the good folks at MSCI. Uh, I want to uh I want to just start with this idea of a junk rally because I sort of think it's coming to an end already, but Adam Parker, our friend Adam Parker at Trivariat did a really good piece of research over the weekend and the gist of it was I'm paraphrasing him, but like if you're frustrated that uh that you're trailing the market since uh since April, but all year, you're not alone because very few institutions own the types of stocks that are in the lead performance-wise. It's this really weird uh period of time where since the Liberation Day low, yes, we've had rallies in the S&P. Yes, we've had rallies in the NASDAQ and in the mega caps, but this rally that's taking place in lowquality stocks is one for the ages. It is, according to Adam, the biggest junk stock rally ever outside of the recovery from a crisis. And I want to just walk you guys through what Adam had to say. And Michael, I'd love to hear uh what your thoughts are along the way. Basically, Trevariat tags stocks at the end of each month and puts them into one of four quality buckets: high, mid, low, and then junk. And the factors that are determining which bucket they are classifying stocks into things like the level like the price um the volatility of ROE the distance to default the free cash flow generation the amount of short interest turnover of the share base. These are the types of signals that would tell you whether or not a stock is high quality or junk. Um he makes the point that outperformance from active management has been pretty impossible this year because of the very lowest quality stocks in both the growth bucket and the value bucket running away uh uh with the football. So negative cash flow companies, we've talked about the uh EV tall companies like Joby uh as a for instance. He's talking about uh low operating margin, highly indebted companies like the meme stocks, heavily shorted stocks. Um there are no Michael, you'd agree with this. There are no active managers at least that we know of that advertise their style as we buy the biggest pieces of [ __ ] >> and hold them forever. >> Yeah. And we overweight money losing companies systematically. Nobody would ever run an ad saying that that's the way they uh that's the way they allocate which is why institutions are so under represented um in this area of the market. So Adam makes a couple of points here. The first is don't get too upset because over the extremely long term quality does beat junk. Let's put up the first chart. So, believe it or not, that big heavy black line in the lead, and this goes back 25 years to 1999, is uh high quality value followed by high quality growth. Junk quality value. It's very confusing. Um, but suffice to say, junk quality growth is literally the worst of all of the buckets that you could find yourself in. And, um, just not just not this past couple of months. Um this is uh here's a here's a table showing these are some of the historic junk rallies and the first thing that should jump out at you in those top years. Um they all they all seem to coincide with major bottoms for the stock market or major turning points at least. So you see co in there, you see um uh March of 2009. uh there's a bunch around uh COVID and then the question uh becomes you know is this the kind of thing that you should try to chase or should you just let it happen without you and and stick to you know if you're a a quality investor are you better off just sticking to that Michael what are your thoughts >> uh are you nobody no do not chase junk rallies come on >> but what if I need performance what if I need to outperform >> well active managers not chasing the junk. But you all right, you said a lot. I just want to address one thing. >> Yeah. >> I'm in my comp tables at Y charts and I'm looking at you mentioned like, oh, the junk rally makes it hard for managers to outperform, but actually I haven't done this exercise in a while. I'm looking at the S&P 500 members with their year-to- date return. And I'm sorting from high to low and I'm looking and this the top of this list, Josh, looks nothing like years past in a good way. So we've got Palunteer leading the charge. Then Pneumont, we've got Seagate Next, GE, Vernova, Western Digital, CVS Health, GE Aerospace, NRG Energy, Helmet, Royal Caribbean, Amphanol, Tapestry. Uh I'm scrolling I'm scrolling and what I what I don't see here. >> There might be a few junk names in there, but not a lot. >> But here's what I don't see. But these but these junk names are not in the S&P. Not almost by definition, but a lot of these ones aren't. What I don't see I'm scrolling. I'm scrolling. I'm scrolling. Not even in the top I would have to not even in the top 75 or any of the Mag 7 names. >> So this is the year out of the last five years where if you were ever going to outperform, >> Nvidia is up 29%. But that's like way down the list. >> I think I'm conflating time timets. It's really about um the rally off the April lows. >> Yeah, >> that's I think that's like the real standout where it's like, wait, I don't understand. All these stocks just doubled. these are the worst stocks in the market and it happened anyway. >> All right. So, so two more thoughts. Number one, just because we just experienced a very strong junk rally does not invalidate the total rally because what you also saw alongside that was exactly what you wanted to see with a healthy bull market. Financials, technology, the leaders delete and we're gonna get to the next topic, but I had chart create uh since the bottom to the top the most shorted stocks. So, this is from Goldman. This is Goldman's most shorted index. And if you go back to 2010, the only other time you saw a piece of [ __ ] rally like this, and listen, the most shorted stocks, no offense, these are not good companies, okay? >> No, these are by definition, there's these are all problematic. >> They're all dogs. The most doesn't mean they can't have sick rallies as you just as we just witnessed, but yet outside of 2021, we've never seen anything like this before. So, yeah, it's been a junky junk rally alongside a broadening healthy rally. Yeah, it's uh it's been wild. So, um let's go to the next chart. So, just like I'm you can see the whole time frame here, but just pay attention from the April lows and what you see is junk quality growth. Um just launching I mean far outpacing everything in the market which again over the long term this is the worst bucket. >> I got to say these names. >> That's why it's so that's why it's so jarring. Um usually this works in reverse for investors. So uh let's go next. This is the cumulative performance positive versus negative free cash flow stocks um through I guess I guess through the end of July. The black is positive free cash flow. It crushes negative free cash flow over time. >> Don't don't earn businesses that are losing money. Very controversial. >> U but again here's the short term. Adam says next chart. But again, consistent with margins and quality, buying companies that burn cash has been better than buying those that generate cash off the market lows. And you can see it as as clear as day here. Negative free cash flow uh is foreign far and away over the last year uh in the lead mostly because of what happened in the last few months. Um last thing from Adam, he thinks it's over or almost over. So this is how he concludes. Our judgment is that the junk rally we have been in is close to ending. Either the market retreats on a tariff induced growth scare and junk relatively lags or the highquality businesses catch a bid and relatively catch up as their fundamentals remain intact. We think either way it's hard to see a sustained continuation of the junk rally beyond something akin to a short-term rally fueled by a September interest rate cut. I sort of think he's right just because I'm seeing so many highquality companies get racing right back to their to their old highs and starting to take the steering wheel. I think the junk rally was fun for the summer, but I think people get serious again in the fall. What are your thoughts? >> Yeah, I I really want to know what's what names are we talking about here >> in his junk basket? >> Yeah. I Well, I'm gonna I'm gonna go out on a limb and I'm going to guess it's a lot of like sound hounds and like speculative AI, maybe like gene editing. Um, probably the EV talls that I mentioned, some robotic stuff. It's again, it's not uh Oh, they're talking about open in the chat. Yeah, of course. Open's going to be in the in the junk bucket. >> I didn't realize Joby just had a monster retracement. >> Yeah. Yeah. So, Adam thinks it's coming to an end. I I wouldn't be shocked by that. >> No, me either. >> So, all right, you're up. >> Um, okay. So, I want to talk Oh, let's do Google real quick. So, this happened about 30 minutes ago. Uh, from CNBC, a federal judge ruled Tuesday that Google can keep its Chrome browser, but will be barred from exclusive contracts and must share search data. Shares were popped uh se uh 6% in extended trading. US District Judge Amit Meta ruled against the most severe consequences that were proposed by the US Department of Justice, including selling off its Chrome browser. Uh, okay. The stock is up 6%. I'm very surprised that that was so much of an overhang on the stock. I really didn't think anybody took that seriously. Apparently did. But I want to make a point. Um, and obviously do this next week. We have time to get to it today or in two weeks actually. We're going to be future proof. So, I sold Google near the lows uh at 160 maybe whatever when whenever that was. I remember it's funny. I almost never have CNBC on during the day. I had it on I believe you were on the show but I can't remember exactly and we were I said this to you a couple months ago that I didn't really buy the chat GBT overhang. I thought that Gemini was doing really good things and I thought that Google's user base was so entrenched that I just didn't buy the story which is why I bought Google in the severe draw down. Uh and then I held it for I don't know maybe two weeks and we had the news. I forget who was on the show with you guys but they had a piece of data that quantitatively showed how much users they were bleeding compared to Jeff GBT. The stock was down 7%. I was down a little bit maybe even or down a couple percent. I said, "You know what? Eh, I don't need to wrestle with this. I don't need to get married to the stock. I just got in two weeks ago. Let me just bail." That was at 160 about 40%. I go, "Put the chart on, please." So, I was right. And then I got scared. It happens. Uh, holy [ __ ] Want to run this been this thing has been on. Look at the past I didn't realize this. This is news to me. Look at the past three years. John, next chart, please. That Did you realize, Josh, that Meta was kicking the [ __ ] out of Google to this extent? >> Yes. And that's Google is the is and was at that time that you sold it the lowest multiple of the MAG seven stocks way lower than Meta, Microsoft, Apple and cheap. You know, a lot of people said, well, it's cheap for a reason. They have this existential crisis that um people are skipping Google search and going right for the answer on ChatGpt. >> That narrative was obviously wrong. >> I don't know if it's going to be wrong long term. >> Well, no, it No, it was wrong. Uh, I think maybe not forever, but for now it was wrong. >> The news that you were rattled by was they asked Johnny IV at a conference a question about this exact ruling like how big of a deal it would be and he made this off-handed remark about how like Google searches are not even like some something to the effect of like Google search Google searches are like falling off uh iPhone usage. I forget the exact way that you phrase it. >> Um, a lot of people got nervous about it. I took a profit in this thing close to 200. >> Um, obviously at this point I wish I hadn't. Uh, but I felt vindicated when it fell and uh, Jimmy Leventhal was sticking to his guns. He's on Google. He wrote out the downturn. I assume he's still in it. Uh, but this was the thing that people were most afraid of. They had this anti-competitive or allegedly anti-competitive deal with uh Apple where Google paid Apple $50 billion in order to be the default search engine and default browser in the iOS devices. >> I thought it was 20, but either way, it's a lot of money. >> Um, no, it was like 50, dude. I think it was 50. Uh, over multiple years, but like companies like Duck D.Go go were arguing like this is complete [ __ ] Like it's not a fair it's not a fair playing field if if Google is always the default. People thought that the judge was going to push for a remedy um because Google lost wherein Google was forced to sell the Chrome browser and that's not what happened here. So the worst case scenario is off the table and that's enough for for a big rally here in the stock. I'm not convinced that there's not going to be cannibalization. >> I do Google searches still. I get the Gemini summary. It's good. >> It's perfect for me. >> I don't click [ __ ] >> I know that's costing them somehow. I just I don't think I don't think it's big enough where we're like actually seeing the result of that. But like give it a few quarters. I still think that's the biggest risk for Google is a behavior change for for 20 years. People never even thought twice. Anything they were wondering about the answer to, they just went straight to Google. >> People still use Yahoo. Like behaviors are entrenched. That's tough. >> I don't know pe I don't know those people. I believe that you're right. Um because I still come across AOL email addresses, but we're what we're talking about is like billions of people, not a handful of people. >> John, throw that last chart up. Just this just blew my face. Uh Google divided by Meta. I didn't realize the extent >> to which Meta had kicked their ass. Isn't this wild? >> Yeah. And by the way, uh, Meta thinks that their AI efforts are are going to be a competitive threat to Alphabet. Like they all do. >> Yeah. >> Um, so I I'm not convinced I'm not convinced we've seen the worst of of this story, but the the judge the judge thing like the remedy thing, this is a clear uh upside catalyst obviously, which is why the stock is up so much in the >> stock up so much. Okay. All right. So, the topic that I had before the Google breaking news, which is now up 8%, is that um I don't know if you know this, but I've confirmed we're in a bull market. >> Holy cow. >> Yeah. No, it's it's true. So, all right. This chart I've never seen anything like this before. And it might take you a minute to process it and it might take me a minute to explain it. Turn on please. So, what we're looking at, this is from Ned Davis Research, and it is so good. So we are looking on the y- ais at the percent of stocks above various moving averages okay within different areas of the market. So large cap growth is orange uh next is midcap growth etc. And on the x-axis is the moving average days. So focus your eye on the top left quadrant. Okay Josh. So, what this is showing you is that basically all of 95% of small cap value stocks are above their 10day moving average. >> I believe that. >> Okay. And then the dash line all the way at the end, that's the that's the 200 day. The dash line all the way at the end to the right, you see that? The vertical dash line, >> that's the 200 day. So, small cap growth has the lowest percentage of stocks above their 200 day moving average. It looks like it's about 55. uh large cap growth. It looks like it's 78% give or take. Anyway, this is a beautiful chart and everything's above the moving averages. It is a broad rally. >> Yeah, it's interesting. Wait, what's what's the um what's the gray? >> That's small cap growth. >> Small growth. So, even after that whole spiel we went through about junk stocks leading the market, like it's it's it's still I guess it these stocks had such a far distance to travel to get back to their 200 day that they're still the lowest percent of uh you know of all the groupings to have like a lot of stocks in their category up there. >> Yeah. >> So, it's it's crazy. I guess that's a function of how how far below all-time highs those stocks started out. Yeah, they got railroaded. All right, so we spoke earlier in the show just a second ago when I was naming all of the top performing stocks. These are like not the names that people think that I would think are leading the market this year. So, Duality Research, they should be on your radar if you're not. If they're not, check out this beauty of a chart. They're showing the average number of daily advancers by calendar year. And 250, that horizontal line, that's break even, right? There's 500 stocks in the index. 264 stocks on average are advancing on a daily basis in 2025. That's the highest level since 2021. This is a broad rally. And the things that are rallying, Josh, before I move on, have any comment here? >> Um, no, but it's notable that this is a better quality rally than last year or the year before on this metric. >> Yes. So, I've been saying that in bull markets, chart off for a second, in bull markets, especially ones that have lasted as long as this and and as sharp from the bottom, of course, you're going to see nonsense, right? Like that just especially in 2025, that you will never not see nonsense ever again with Reddit and the and the the message boards that will never not exist. The way that people galvanize together to for stocks higher, they will never not happen. But you're also don't let that distract you from the quality nature of this rally. Next chart. Is this bullish, Josh? This is the equal weighted version of consumer discretionary names divided by consumer staple names decade multi a multi-deade high. >> Yeah. Just the the my only comment would be look at the end of 2021 how fast that went away into like the high of the year for 2022 for for the the whole stock market was January 1st and they just relentlessly took it away. So, it's a it's a great representation of what's happening now. I don't think we should hang our hats on it as though there's any permanence to it. >> 100%. >> They could rip it away so f They could rip it away so fast. >> 100%. I am saying today >> we are clearly clearly cleanable market and you're 100% right. As quickly as we got here, it could be ripped away. Uh this other chart also from Duality Research shows the same thing. >> What the [ __ ] is a risk sniffer? That sounds perverted. >> It's the What? >> So, it's showing it's showing the same thing that I just did in the light green line, which is discretionary divided by stables, but they're also showing you that credit spreads are showing you the same thing. So, this is high yield spreads inverted. It's basically just showing that bonds that credit markets are confirming the strength. That's all that's showing you. >> I like when the bond markets don't look the polar opposite of a stock market rally. So, >> so we got that going for us, which is nice. >> High beta. >> You risk sniffing. You risk sniffing son of a [ __ ] >> That's all day, baby. uh high beta divided by low val also at multi-year highs. And you know what's interesting, Josh? I know we're going to talk about this in the next topic. Um the wide chasm between the labor market slowdown, how people are feeling, and how consumer stocks are behaving. XRT is working in a big way. Of course, it's not every retailer. Um, Target, for example, is getting destroyed compared to Walmart and Costco. Uh, anyway, this is really not >> Well, I don't I don't know how the XRT is weighted. I haven't looked at it in a while. I'm guessing Walmart is is pretty big. It's equal weighted. >> Yeah. >> Oh, really? >> Yeah. Since so for me for me I would just prefer I always would prefer to look at consumer discretionary as a sector rather than specifically the retailers because it's so messy like we just we don't we don't necessarily have an economy where most things are purchased as a retail good anymore like services are so much more important and I just feel like discretionary folds in travel and leisure and I just I like I like better than looking specifically at the retail. >> Okay, fine. So, look at look at RSPD, which I just showed you at an all-time high. And if you divide it by the staples at an alltime high, the reason why we use RSPD as opposed to XLY, XLY is like 40% Amazon and Tesla. So, that's that's useless now as a signal. Yes. Um, >> all right. Regional banks, uh, and the bank index from JC, >> new six months highs, new year-to- date highs, not bullish, not bearish, excuse me. >> Yep. We're going to talk about, uh, regional banks later in the show. I was talking about them on TV today. I think it's a big story. >> All right, almost done. >> The rally is global in nature. This is from Callum Thomas. The black line is the Msei Aquex XUS and the red line is the percent of countries above their 200 day moving average. And it's about as high as it ever gets. And interestingly, Josh, and maybe maybe the sentiment survey is just completely trash and has no meaning. Could be. Uh there's still more bears and bulls at least according to the AI sentiment survey whether like recently >> you could throw this out >> but but but the reason why I think it's interesting in this case even though there's areas of euphoria we mentioned the junk rally there there's still a lot of skepticism in the rally there's still a lot of people that sold it are pissed off and missed it that are that are bearish uh so maybe this is still a wall of worry yet >> it is and I'm going to agree with you on that cuz I don't I don't hear anybody that's like giddy and euphoric. There's a little bit of euphoria about AI, but I think it's more in the private markets just the willingness to fund things and write huge checks and pay huge valuations. Um, in the in the stock market, we have these one-day IPO pops and then these stocks get absolutely slaughtered for the next two weeks. That's not euphoric behavior. euphoric behavior is like a company comes public, triples on the open day, and then triples again two weeks later. And we really don't have that. Um, and so I just I don't see the euphoria. I see way more skepticism, way more pessimism, and I'm just talking anecdotally. I don't I don't have the data to back it up other than what you're showing me here. But that actually squares with what it feels like to actually talk to people. >> I agree with you, agreeing with me, and I like it. It means that there are still disbelievers, which is what you want. lengthens the It lengthens the cycle. If people stay pessimistic as the market advances, those are future buyers. Lengthens the cycle. >> I was about to say something inappropriate. I'm not going to. Um, however, we are coming to a seasonally weak period of the year. Take it for what it's worth, but September September sucks. Trout on, please. September is the only month or the second I guess February. It doesn't really count. It's flat. September is the only month with a legit negative return since 1950. And if you look at presidential years, the first year of a presidential cycle, it's even worse. Uh, >> great time to buy. >> Yeah, maybe >> if you're if you're if you're an asset accumulator, you should look at that chart and you should say, how could I raise my my accumulations in the in the late summer, early fall? Now, I don't think it'll really make a big difference in the long run, but you definitely shouldn't look at that and say, "Oh, now would be a great time to get out." Unless you're like literally getting out forever, which I don't think is our audience on YouTube. I think the pounders were in accumulation mode, and you should get excited by a month that on average is is uh is negative. Um, this is the big story at the Wall Street Journal and I wanted to I wanted to get into it because I think it's at the heart of some of the pessimism in the stock market and I think it's at the heart of the pessimism on social media. Um, just generally speaking, we really do have like a little bit of a a a pessimism crisis on our hands and uh I'd love to hear what you think. The Wall Street Journal did a survey uh at the University of Chicago um in the middle of July. 1527 adults. Respondents completed the survey online except for 42 who were interviewed by phone. Um let's put up this graphic. This is the the title. Americans lose faith that hard work leads to economic gains. Um, and I didn't I I don't remember what the story is with these two guys, but here's here's uh here's the salient point from the piece. Um, the share of people who say they have a good chance of improving their standard of living fell to 25%. That is a record low in surveys dating back to 1987. More than 3/4 of people said they lack confidence that life for the next generation will be better than their own. 70% of people said they believe the American dream that if you work hard you will get ahead no longer holds true or never did. That's the highest level of pessimism in 15 years of surveys. There minor differences like Republicans were less pessimistic than Democrats. Um that's because Republicans hold the White House. That's how it always is. Um, an index that combined six poll questions found that 55% of Republicans and 90% of Democrats held a negative view of prospects for themselves and their children. 90% of Democrats. Really? Really? Okay. Um, and let's put this chart up. The question asked is people like me have a good chance of improving our standard of living. Look at the disagree 70 over 70%. Agree is just over 25%. And you can see this going back to 1990. It's pretty bad. >> So the the disagree part is is down, but it's not dramatic. The agree part that's that's the that's the holy [ __ ] what just happened, >> right? People will not agree with that statement >> to a huge degree. All right, next one. >> Next one. This is same uh same article. actual versus predicted consumer sentiment. This is crazy. >> What happened in 2020? It's like something happened. I can't put my finger. >> Yeah. What? I wonder what that could have been. It's So, for me, this is like 80% inflation. What do you think? >> All right. There's there's I have a couple of reasons why this is happening. >> Um, number one, I think surveys are broken and I think that it's not a crisis of pessimism. I think it's partly manufactured. Now, there are reasons for this. There are absolutely reasons for this, but when I say surveys are broken, Ben and I did a rant on this last year where I can't remember who who who did the survey, and I'd love to see the questions that they were asking, but there was data, air quotes, that were showing that people thought this economy was worse than the bottom during the GFC. >> Some of the things that people were answering were so far off the reservation that I just said, that's it. I'm done. I'm done with service forever. It tells you nothing. It it does tell you something. Tells you nothing on something. So don't take it literal but take it seriously. All right. Co broke everything. It broke the economy. It broke how a lot of people live and it led to obviously a surge in inflation of which the cumulative effects we are still dealing with every day. The prices have not gone down. And that is that is the number one thing. Okay. That's the number one thing. Number two, all that we hear is that there's a crisis and that people are pissed off. We we hear it every day from the news. We hear it from the politicians. All that they talk about both sides are the world's going to hell. You can't succeed anymore. The other party, that's all the messages. It's not about uplifting. It's just about blame. This country's going to hell. That's all that you hear. And then number three, the stock market. And I would say especially the crypto market being fueled by the internet and social media has really shown the spotlight on if you are not in the asset accumulating class like our viewers are it feels very much like you're getting left behind which is true. >> So I think it's a combination of all of those things. We're never going back. It will never not look like this. Like for the rest of time it will never not look like this. >> I think Facebook and Twitter are a huge part of the problem. 100%. And this just >> just for fun, spend 15 minutes if if you have an old Facebook account, log back into it. Um I had to do that the other day to to go into this ticket group to get tickets for something. So I went back into Facebook. This I mean it's probably like May or something that I'm talking about. Uh but this is after years of not not only not posting, just like forgetting how forgetting that it even existed. It's like um baby picture, baby picture, baby picture, Israel, Palestine. Baby picture, baby picture, Israel, Palestine. It's just like that. Uh just the dumbest people you know are the loudest on Facebook. And then the second dumbest people you know are in there disagreeing with them in their mentions. Okay. >> Twitter is >> I mean it's just migrants raping people. Like that's the whole that's the whole thing is like racist posts about this race rapes more people than that race. Um and Europe is falling and I'm like what the [ __ ] is this site? >> I used to be very active there. I don't even understand. People are so unhappy because of what the algorithm is motivated to show them that they assume their quality of life has to go down. So, social media, >> they just assume it >> it's so bad. And obviously the algorithm, it is designed to keep you on your phone and nothing keeps people on their phone like out like being outraged and being fed bad news, not good news. That keeps you on your phone. >> It's so sick. I couldn't I couldn't even do like five minutes. >> But I also sick. >> I also and I'm not there are obviously issues in this country, in this world, legitimately why people are upset, but I kind of reject it. I just don't believe it. I think that there is such a disconnect between the online internet and the way that people answer surveys versus the way that people are actually in their regular life. I don't believe that people are as upset as these surveys are suggesting. I just dismiss it out of hand. >> Oh, I think they are, but they don't have the facts. >> I don't believe it. >> I think they're upset for other re I think they're upset for other reasons and they're answering a survey almost like they're venting. I don't think they know what unemployment rate is. I really don't think they have any idea. I don't think they know anything quite frankly. I think they're pissed off because of what the algorithms are feeding them and what their bills look like. Um what their credit card bills look like and how much everything costs and they can't they just they can't picture it getting better because quite frankly right now they're right it's not it's not getting better. Prices are not ever going to come down. They might go up slower, but if prices like actually go down on a net basis year-over-year, we have a way bigger problem. >> I just I just don't believe that people are as unhappy as these polls are suggesting. Okay, >> let me share this with you. This is also Wall Street Journal. Um middle class vibe has shifted from secure to squeezed. The middle class, generally considered to be households making roughly 53,000 to $161,000 a year, is playing an outsized role in that waning optimism. After months of tracking high income earners increasing confidence about the economy, households making between 50 and 100,000 made an abrupt about face in June. They now more closely resemble lowincome earners glooier views. So, in other words, let's put the chart up. Okay, I don't know why they insist on doing three shades of blue. It's sort of ridiculous, but this is meaningful. Look at the people with incomes above 100,000 or what I refer to as stock market Americans. It's up and to the right. Um, now look at this middle bucket. 50,000 to $100,000. Um, this just collapsed over the summer. And I don't know, maybe it's the the tariff stuff just started to >> so noisy. Why are we day trading the consu consumer sentiment? I guess >> and then and then obviously income people 50,000 and under uh never h have just had a horrendous post pandemic um experience because of high prices. But like uh I just think it's I think it's something to be watched by investors that that middle class 50 to 100,000 sentiment is now collapsing because yes stock market Americans are doing great because they own Costco and Walmart and and Apple and all these stocks are at or near highs. But the spending by this middle class cohort is the reason why those stocks have held up so well. And that spending is not guaranteed if that line gets worse to the downside. What do you think? >> I don't know, man. I just think it's really noisy. Like what happened? What happened in the last 60 days to make that collapse? >> Tariffs >> in the last 60 days people are feeling tariffs. >> Well, tariffs happened 120 days ago and 60 days ago the pricing um resulting from those tariffs started to get worse. >> I I don't I don't like spending a lot of time on things that I think like negativity I think is manufactured. I really do. >> Uh, not saying anything, but it's also impactful if it persists, >> if people, >> it's impactful. It's impactful for political reasons, which might be the most important of them all because if people vote based on how they feel, but for the stock market, for what we spend time on the show talking about, I don't think it's particularly that important. >> I really think that interest rates have to go have to come down uh in order to fix it and that it is fixable. I think um I just think the rate that people are paying for mortgages, the rate they're paying on their debt. Look, you can't fix the cost of everything in people's lives. We were talking to um Yan Vanek about electricity costs for the lower class. It's a huge line item in their household budgets. Like, I don't know that you can really fix that. I don't think policy fixes that. It's just an unfortunate fact of life. deliberately maintaining interest rates as though we're a 5% GDP economy, I think is absolutely absurd, especially when you look at the squeeze that people are feeling. Um, so I I understand we're trying to guard against, you know, uh, rising unemployment versus the trade-off and not having inflation. I really don't think inflation is the risk here. I think people are crying, uncle, and they're venting to these surveys because no one else will [ __ ] listen to them. And I don't think it just goes away on its own. And you could cut interest rates by 25 basis points. You're probably not changing the reality for most people, which we'll talk about later in the show. Um, but like man, anything that we can do to ease the pressure on this group of people, I think uh would help for some of that pessimism to dissipate. right now it might be at it at its fever pitch and um I think rates are playing a role in that. So >> um okay, a nice segue perhaps to >> now say something super bullish. >> Um Roger Loenstein wrote an article yesterday. How and why US capitalism is unlike any other. And >> I didn't read this yet. This is important. He wrote, "Early corporations were hardly models of transparency, but the quintessential openness of American society saw later expression in the American invention of corporate disclosure. Congress abolished debtor's prison prisons in 1833. Liberal bankruptcy laws also removed uh a shackle from wouldbe borrowers as the freedom to fail is also the freedom to succeed. Capital flowed more copiously than in any other country. Today, our legal systems highly developed protections of the sanctity of contracts is a uniquely American asset. I never really thought of it that way, but I saw a video over the weekend of Bezos being interviewed. I can't remember by who, um, where he spoke about US exceptionalism in risktaking. And particularly what makes us different than almost any other country, I shouldn't say almost any, any other country is our willingness for these venture capitalists in particular and their investors to sure, let's throw $50 million at a seed company with a 5% chance of success. like that sort of >> or wearing failure as a badge of honor is another thing that's uniquely I don't even want to say American I want to say Californian >> when the fire stick fail or the whatever yeah the whatever the tablet that Bezos built that was a huge flop. >> Yeah. >> He wore it as a not as a badge of honor but I remember him writing about it and went like viral at the time because people were just like this is how you [ __ ] do it. >> Yeah. So, but one of one of the things back to what we were talking about before, like one of the things that's kind of a fly in the ointment here is that basically to the person who's not part of this game, the person who's not part of like venture capital, Wall Street, they don't have assets. The way they look at it is every time rich people get a little bit uncomfortable, as my friend Garrett Baldwin put it in his uh in his new blog, um there's some sort of like rescue immediately like, "Oh, FDIC limit. Don't worry about that. We got you." Like we'll take care of you. Great financial crisis. No, no, no, no. Don't be silly. We'll do cash infusions for all you guys. Um, Silicon Valley Bank, like that whole episode was like a just a recent example, but there have been so many over the years where like rich people really as a group don't get uncomfortable for too long before the Treasury, the Fed, Congress, everybody's riding to the rescue. And that's what I think middle income people look at and they're just like, "So, let me get this straight. I have the freedom to fail, but if I have billions of dollars on the line, no one's going to let me fail because I'm too important to somebody politically to actually ever take that kind of pain. And that's that's how you get a situation where every crisis leads to the people who are already rich being even richer and the people who are locked out of the system just taking the consequences on their own. And that's what I think that's what's at the heart of a lot of the problems that look I I have an active account on Blue Sky. Not everyone on Blue Sky is a socialist. Not everyone on Blue Sky hates capitalism, but like a lot of them do. And no matter what you say, like post something about the economy, jobs numbers, surprise to the upside, they'll be like, "All right, but hurry up and get to cash because this whole thing, they were about to tank this thing to make people rich again." like they they literally look at like market corrections as organized in order to help the people who already owned all the assets. Um you talk about the Fed cutting rates, they sort of see it as like, yeah, of course they're going to cut rates because someone's going to tell them they have to. Um and and they don't see it as like, oh, they're going to cut rates to help regular people. So people hate the Fed. They hate I mean it and it seems I had thought it would get better given that we're in a 4% unemployment economy. It honestly it only seems to be getting worse. Um it it only seems to be getting worse and I I don't know what changes it but again I think the rate cuts are like the the route toward um maybe making the pressure on people be less. So we'll see. I mean we'll see if it plays out that way. >> All right. All right. I thought this was an interesting chart uh from Goldman. Over 40% of equity holdings by European funds are in the US versus just 15% in 2009. This is wild, huh? >> They're buying our stocks. Is that Is that the answer? That's what's going on. >> Yeah. >> Percentage of total equity holdings. Yeah. I mean, what choice do they have? They don't have they don't they don't have their own version of our NASDAQ 100. They really they really don't. They have a few. So I I totally I totally get it. >> Um all right. This is uh sort of kind of related, maybe a non-cit, but I just thought this was mind-blowing. >> Uh somebody tweeted, throw this out. No matter what happens today, 70 million working Americans will still be buying Nvidia every month whether they realize it or not. They calculated the amount of money coming into these names on a daily, weekly, and monthly basis. And on a daily basis, $95 million is going into Nvidia, $83 million into Microsoft, $75 million into Apple. Just just a mindbending, face blowing amount of money. >> Yeah. So, this is something I explained to people, I don't know, 13 years ago now. Um, I think this is one of the unsung heroes of what has now become the second best bull market ever. um from the from the lows in the great financial crisis, just the sheer number of people who don't even look. They just have portion of their paycheck diverted into uh large cap stocks and they almost never change it. They almost never pull money out of it. Even in retirement, they're rolling these things into IRA and continuing to accumulate as though nothing changed. And uh this was the thing that people one of the big things that people didn't see coming like how is it possible that we would have low volatility high returns um trillion dollar companies this is one of the enabling factors think the 401k is $9 trillion what's it going to be in 5 years what's it going to be in 10 years 20 trillion could be more >> so that is volatility mitigation on steroids nothing the Fed does with QE or whatever, whatever. Nothing the Fed does can compare to the um mllifying effect of every two weeks 70 million people willingly allowing their part of their paycheck to buy these stocks. They buy them up, they buy them down, they buy them flat, they buy them in high volatility, they buy them in low volatility. It's uh it's a V dampener for the ages. um which which I think I I spoke about pretty early and now it's funny to see it kind of becoming conventional wisdom. Um Nick Muli sort of uh flipped bearish on his blog this week. I wanted to hear what you thought about it. He's got some anecdotal stuff about Chimath and the new spa and he's looking at um do we have this chart? S&P 500 price to sales over time. I don't love these. This is one of those uh this line looks like that line or or or this point in time looks like that point in time. But he does have a point. Nick says, as you can see, the price to sales ratio of the S&P 500 hit an all-time high of 3.41 during the peak of the dot bubble in December 99. It hit another relative high of 2.98 in December of 2021 and it's at 3.2 today. It it is it is this point. It is this point in time where people are paying up on a price to sales ratio. We might blow through this like it never happened, but I totally understand why he's looking at this like maybe people are a little bit too uh excited or maybe the market's a little bit overvalued. What do you think? >> Is there anything different about the composition of the market today versus the do bubble? >> Yes, but price to sales is price to sales. It's different companies. >> Okay. >> No, I'm just saying. I'm just saying it is. >> All right. And I'm just saying nonsense. What about What about the fundamentals? What about the margins? What about the leverage? What about the moes? >> You can't you can't have Come on. >> Yeah. I No, I think that is the thing that's different. Um I don't think he would dispute that. I think what's different is the recurring revenue nature of the companies that are really large in the index versus in 99 um these were not recurring revenue companies. These were companies that had to sell a million computers every month or they would miss earnings. >> And also obviously I love Nick. Um Chimath launching another spec. Okay, how about 500 IPOs a day each going up 2,000%. >> Like come on. >> We're not we're not quite there. um he's not he's not shorting the market. So Nick is basically saying like um it's very rare for him to get cautious or or a little bit bearish. >> He went to he went to 20% uh treasuries. >> Yeah. >> So um listen, this is not a cheap market obviously. Okay. I'm not I'm not here to say that this is a that this is a bargain by any stretch of the imagination. >> It's notable because this is the this is the um this is the just shut up and buy guy. >> Yeah. Yeah. And guess what? If he gets a sell off, I know what he'll be doing. >> Yeah. >> He will just shut up and he will keep going. >> He will shut up and just keep buying. >> So the thing about the thing about expensive markets is obviously they can persist. But if and when there is an event, and there will be an event obviously because there always is, something will happen that we could not have foreseen, whether it's another SVB or more tariffs or whatever, doesn't matter what it is. When you have stocks that are trading this high, all right, a stock, and let's just use the index as an example, a stock that's trading at 12 to 14 times earnings, if it misses by a penny, it can go down 3%. If a stock is trading at 150 times sales and it misses by a penny, it could fall 30%. >> Execution has to be perfect, >> right? So, we're not there's not a lot of not a lot of wiggle room here. Not a lot of margin for safety. We got to keep growing and if we don't, yeah, there'll be a sell-off obviously. >> Uh, last chart from Nick. >> Total market cap of US stocks with a price to sales ratio above 20. >> I have a big time actually for this one. So in N In Nvidian Pal >> because you you gotta admit you got to admit it's something, >> bro. >> I know you have an explanation for why it's not the same. >> Okay, let let me >> go. >> So put that chart back on. This looks like six trillion and change. >> Correct. >> Okay. 4.5 of it is Palanteer Nvidia. >> Get that chart off my screen. >> Great explanation. >> Thank you. >> And but still, but still. >> No, no, no, no. But still, that's it. >> Jayl is in the chat. Jay Luther's in the chat saying Batnik is risk sniffing. >> Always sniffing. >> But you but but you haven't but you haven't caught you haven't caught any risk yet with all that sniffing. Just not not quite not in these charts at least. >> Clear as a whistle, Josh. >> All right, let's do make the case. Um I've been whining and crying about rate cuts for an hour. So, um, if we get them, and we've talked about some of the ways that we think, uh, will benefit. We talked about Rocket a couple weeks ago, uh, adnauseium. So, we're not going to go there. The regional bank charts are indeed looking really exciting. Um, I asked Sean to post a few of these and, uh, I wrote up regional banks for CNBC Pro. We talked about it on TV today. Um, let's put up PNC. Inverse head and shoulders. Um, inverse head and shoulders, one of the most reliable reversal patterns that technicians follow. Nothing's foolproof. Nothing's guaranteed, but you like to see these. And, uh, when you emerge from an inverse head and shoulders, you should be into a new leg of a of a bull. You should be in a new bull market, I should say. >> Can I say one thing? Um, please. So the neckline breakout was like 180 and you got the retest right at the right at the 200 day. I think JC would say this is like textbook. >> It not only is it textbook, you have a golden cross here and and and look how well behaved this stock was when it retested both the 50 and the 200 at the same time. >> She's going higher. >> It's going and and not crazy overbought yet to 72 RSI. Um the other thing about inverse head and shoulders is you want to see them accompanied by rising volume. Guess what? Um so PNC looks phenomenal. I think this is uh one of the largest of the regional banks. Maybe not the biggest but among the biggest. Here's fifth. Same chart. Same chart. Not as far along. Little bit further from the uh December high uh from from last year. But you know this is this this one's a little bit more tame. But I I would tell you this is what you want to see happening. Uh very simple reg uh chart off regional banks are more sensitive to increased mortgage and mortgage refinance activity than the major money center banks. They need it more. It's a bigger part of their business. They don't do more revenue in mortgages than the bigger banks. The revenue that they do is more meaningful to them. But it's not just revenue. It's activity. It's foot traffic back into the branches phone calls. >> They need lower rates. >> Now, do they give something up in net interest margin? Yes, because when rates come down, you do see a compression of the spread between where they borrow money and where they lend it out at. But the increased activity that you get when rates fall more than makes up for that slight net interest margin compression. So, this is a huge catalyst for these stocks getting some relief on overnight rates which then feed all along the chain until they get to um you know uh uh business loans and and mortgages and and all that good stuff. So, >> wait hold on. So, two two things on that. Obviously, uh regional banks are more exposed to the community main street than Wall Street banks or the money center banks are. But also, look at the look at the how steep the curve is. If rates come down, that might actually be good for them because they're borrowing at a lower overnight rate and they're still lending out longer. Like they're they're going to be they're going to do just great. >> It's very good for them. That's exactly right. Put this chart up, guys. First one, this is the number of homeowners who might benefit from refinancing by interest rate level. Great chart at the journal. Um, as you can see, the further you get to the left, which is 7 and a half% rates on the x- axis, the less people would want to refinance there. And then the lower you get on the x- axis, you get to 5 and a half%. All of a sudden, you got five, six, seven million people. So, the way they figure this out is they say, uh, here, let me read this. Um, homeowners with high mortgage rates are starting to get excited. Chart off. The average 30-year fixed rate mortgage dropped to a 10-month low of 6.56% according to Freddy Mack. The rate has inched down for nine of the past 12 weeks, tracking expectations that the Fed will cut its own rates next month. More than two million homeowners could now save money. That's the average 30-year fixed rate on the screen. More than 2 million homeowners would save money if they refinanced today, which is up from 1.7 million at the end of July. And if rates get to 6%, 6 million people would reduce their rate by at least 75 percentage points. You sniffing? Yeah. That's not risky smelling, my friend. That's opportunity. Um anyway, the Mortgage Bankers Association has an index that tracks refinance applications. It was up 19% from a year ago um during the week ended August 22nd. So, this market is working. rates are coming down in the mortgage market and people 20% jump in refinance uh applications or what you would refer to as refinance applications. This market is working as it should. Um >> let me ask a question Josh. When you refinance, do you refi? >> I don't refinance. I refinance. >> Do you refi or do you refer? >> I refinance. I don't know. >> Do you refi? >> I don't abbreviate it. >> Okay. >> It's a sacred act. Uh, and and I think it's crude to be talking about refinancing. >> Okay. >> It's not a It's not a It's not a Toyota. I refinance the house. >> Sure you do. >> Anyway, I love regional banks. >> You're lucky I'm not saying refinance cuz that's where it's going next. Um, here's the KRE. This is the regional bank uh ETF versus the XLF, which is like City, JP Morgan, blah blah blah. Look at this outperformance off the April low. 35% versus 23%. And by the way, all those XLF names look great. They're all at record highs. >> Um here's the Regional Bank ETF with its moving averages. Golden Cross um stair a step higher. Not quite above last year's high, but certainly look like they want a challenge. Here's Truist TFC. This is a big one. What do you think? Triple Top or Goodbye. >> Goodbye. >> That's what I think. Here's This is the one I talked about on TV today. >> Here's Huntington Bank. Look at this. Will the beast um triple top or she's going? >> Nope. >> What do you think? >> See you. >> Yeah. I got this chart on TV. Are you proud of me? >> I love it. Oh, really? >> Uh >> this is a DTJB joint. Let me show you another uh here's the inverse head and shoulders in Huntington Bank HBO. >> Now, this was a little pornographic. This one they would not put on TV. I didn't mean it to be that way. >> My god, I didn't I didn't I didn't draw it to be Don't All don't Nobody screen grab this. I don't need this wiener and balls. We all say it. >> I didn't mean to do it that way. >> Josh, come on. >> Um All right. Anyway, so that's my uh make the case. What What do you think? bullish. >> Yeah, I love it. Okay. >> Okay. >> Um All right. I've got a mystery chart. In fact, I've got several. >> Well, maybe I'll maybe I'll sniff it out. Let's see what happens. >> John, if you please. Okay. Would you buy this? >> Yes. >> I thought you might say that. >> Well, is this ETH priced in Bitcoin or some annoying [ __ ] >> No, it's uh I think I have one more chart. John, >> I bought it. What did I buy? >> This is you bought the Russell 2000 divided by the S&P 500. >> Okay, so no hints. Just you full reveal. >> Oh, >> you asked. >> What else you got? >> You asked. All right, John. What other charts did I bring? All right, so this this is surprising. I cherrypicked a little bit. This is going back to last the second week of last July. Is that surprising? >> The second week of last July sign is there is there significance to that? >> Yes. I wanted I wanted the numbers to line up. That's the significance. But the point is >> Are these stocks? >> No. No. This is it. It's the same thing. It's the same thing. The reveal is over. Josh, isn't this surprising? Over a year of uh same performance. >> I would not have guessed that over the last year the Russell uh had kept pace with the S&P. >> Me neither. >> I mean, you cherrypicked it, but so what? >> But so what? It's over a year. It's over a year. Uh I think I have two more. Uh all right. This was interesting from Yard Denny. He's showing uh operating per share earnings on a forward basis. I mean the large cap lol. Why are stocks going high? I wonder why. But look at the blue and the green. The midcap and the small caps turning up. Not nothing. >> Yes. >> Not nothing. >> Uh John, do I have anything else? I thought I maybe one more. Oh, yeah. Uh all right. So, this is from Todd Zone and the there's a lot of noise here. The only one I want you to pay attention to is the bottom chart, which is the one-year rolling flows for small caps, and we're two standard deviations below the average. I mean, nobody wants these stocks. >> It's crazy, right? >> I like the setup. >> So, this I couldn't I can't follow you into this. I get why you like the setup, though. This is your type of That is your type of setup. You like that those things where like nobody will say anything good about them. I uh I bought I bought Western Union and I listened to the conference call. They're they know about stable coins. They're not a slip of the wheel. >> Um we're taking some [ __ ] in the chat. Um >> [ __ ] in the chat. >> Brian Shatzer says, "Ah, yes. Technical analysts, astrology for middle-aged white men. Tell me more about your cup and handle." So, we're just studying what buyers and sellers are actually doing. I think that's less astrological than say guessing what an earnings multiple might be on a company's earnings. That to me seems way more bullshitty than actually studying the price itself. But okay, I'm with you, man. Um, no, we don't all have to. We don't have to all agree on that. Um, I'm supposed to tell everybody that the new trucker hats have arrived at the compound shop. Guys, do we have Don't these look awesome? >> Love it. Can't wait to >> Nicole said I have one of each sitting on my desk. >> I'm gonna pick one to bring to uh future proof next week. >> Which one do you think I'd look better in? The blue or the >> I'm rocking the white. So, you rock the blue. >> The white one. >> Okay. I mean, these are these are pretty sick. >> Great. Love them. >> Um I think we're going to sell these out to be honest. If you if you if you guys want to see the hats for yourself, idonshop.com. We've never done anything like these trucker hats before and uh they are absolute fire. Um so go ahead and check those out. Guys, I want to mention tomorrow's Wednesday, all new animal spirits, Michael and Ben. Um and then we'll do uh Ask the Compound later in the week, Duncan and Ben. And then uh Mike and I will be back with two guests and an incredibly informative show, The Compound and Friends on Friday. So uh keep it locked. We love you. Thanks for uh liking and subscribing and we'll talk to you soon. [Music]
Why 70% of Americans Have Now Lost Faith in the Economy | WAYT?
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[Music] All right. Good afternoon, gangsters, gangster. Good to see everybody in the chat. Want to uh introduce the show properly. My name is Downtown Josh Brown. Here with my co-host as always, Michael Batnik. Say hello to the folks. >> Hello. Hello folks. For those of you who are tuning in for the first time, and I know we had an influx of uh new followers, new subscribers, let me set this up on what are your thoughts. Michael and I go through the biggest stories happening in the markets, in the economy this week, and uh we don't really talk as often as you guys might think, uh all day long, every day. So, I want to hear Michael's thoughts. I assume he wants to hear mine. Um, we have a live audience here on YouTube in the uh in the live chat for the taping. Want to say hello to some folks. Um, let's see who we got here. I got Jay One Time in the chat. Ladies and gentlemen, Jay Luther is back. Jason Chen is back. He said, "Why Google jump after hours?" Jason, very simple. We're going to get into it in a few minutes. We're going to have all the information that you need. Um, who else? 4:00 a.m. Pizza. Are you ready to get pounded? I woke up ready, my friend. Drew Hickman is here. Brian Grill is back. Cliff is here. Magnus Roger. All the regulars are back. And uh some new faces, too. Good to see you guys. Tonight's show is brought to you by MSCI. Michael, new sponsor alert. >> Yeah, you look surprised. >> I am very exciting. Love MC Msei. Um why don't you take us through this? >> All right. Many of us have a little home country bias. We tend to invest close to home. Actually, we're talking about that later in the show. But you may have noticed right now some of the strongest growth stories are unfolding far from Wall Street. Markets outside the US have been gaining ground. In fact, a look at MSCI indexes show that certain international markets from developed Europe to fast growing emerging economies have been outperforming the US this year. That's right, outperforming. Non- US equities outpace US equities by one of the widest margins in years. It's a reminder that opportunity isn't always in your own backyard. Wealth managers can see these trends emerge through MSCI's XUS indexes. Is it time to rethink our US focus diversification strategy? >> Visit MSCI.com. >> All right. Shout out to the good folks at MSCI. Uh, I want to uh I want to just start with this idea of a junk rally because I sort of think it's coming to an end already, but Adam Parker, our friend Adam Parker at Trivariat did a really good piece of research over the weekend and the gist of it was I'm paraphrasing him, but like if you're frustrated that uh that you're trailing the market since uh since April, but all year, you're not alone because very few institutions own the types of stocks that are in the lead performance-wise. It's this really weird uh period of time where since the Liberation Day low, yes, we've had rallies in the S&P. Yes, we've had rallies in the NASDAQ and in the mega caps, but this rally that's taking place in lowquality stocks is one for the ages. It is, according to Adam, the biggest junk stock rally ever outside of the recovery from a crisis. And I want to just walk you guys through what Adam had to say. And Michael, I'd love to hear uh what your thoughts are along the way. Basically, Trevariat tags stocks at the end of each month and puts them into one of four quality buckets: high, mid, low, and then junk. And the factors that are determining which bucket they are classifying stocks into things like the level like the price um the volatility of ROE the distance to default the free cash flow generation the amount of short interest turnover of the share base. These are the types of signals that would tell you whether or not a stock is high quality or junk. Um he makes the point that outperformance from active management has been pretty impossible this year because of the very lowest quality stocks in both the growth bucket and the value bucket running away uh uh with the football. So negative cash flow companies, we've talked about the uh EV tall companies like Joby uh as a for instance. He's talking about uh low operating margin, highly indebted companies like the meme stocks, heavily shorted stocks. Um there are no Michael, you'd agree with this. There are no active managers at least that we know of that advertise their style as we buy the biggest pieces of [ __ ] >> and hold them forever. >> Yeah. And we overweight money losing companies systematically. Nobody would ever run an ad saying that that's the way they uh that's the way they allocate which is why institutions are so under represented um in this area of the market. So Adam makes a couple of points here. The first is don't get too upset because over the extremely long term quality does beat junk. Let's put up the first chart. So, believe it or not, that big heavy black line in the lead, and this goes back 25 years to 1999, is uh high quality value followed by high quality growth. Junk quality value. It's very confusing. Um, but suffice to say, junk quality growth is literally the worst of all of the buckets that you could find yourself in. And, um, just not just not this past couple of months. Um this is uh here's a here's a table showing these are some of the historic junk rallies and the first thing that should jump out at you in those top years. Um they all they all seem to coincide with major bottoms for the stock market or major turning points at least. So you see co in there, you see um uh March of 2009. uh there's a bunch around uh COVID and then the question uh becomes you know is this the kind of thing that you should try to chase or should you just let it happen without you and and stick to you know if you're a a quality investor are you better off just sticking to that Michael what are your thoughts >> uh are you nobody no do not chase junk rallies come on >> but what if I need performance what if I need to outperform >> well active managers not chasing the junk. But you all right, you said a lot. I just want to address one thing. >> Yeah. >> I'm in my comp tables at Y charts and I'm looking at you mentioned like, oh, the junk rally makes it hard for managers to outperform, but actually I haven't done this exercise in a while. I'm looking at the S&P 500 members with their year-to- date return. And I'm sorting from high to low and I'm looking and this the top of this list, Josh, looks nothing like years past in a good way. So we've got Palunteer leading the charge. Then Pneumont, we've got Seagate Next, GE, Vernova, Western Digital, CVS Health, GE Aerospace, NRG Energy, Helmet, Royal Caribbean, Amphanol, Tapestry. Uh I'm scrolling I'm scrolling and what I what I don't see here. >> There might be a few junk names in there, but not a lot. >> But here's what I don't see. But these but these junk names are not in the S&P. Not almost by definition, but a lot of these ones aren't. What I don't see I'm scrolling. I'm scrolling. I'm scrolling. Not even in the top I would have to not even in the top 75 or any of the Mag 7 names. >> So this is the year out of the last five years where if you were ever going to outperform, >> Nvidia is up 29%. But that's like way down the list. >> I think I'm conflating time timets. It's really about um the rally off the April lows. >> Yeah, >> that's I think that's like the real standout where it's like, wait, I don't understand. All these stocks just doubled. these are the worst stocks in the market and it happened anyway. >> All right. So, so two more thoughts. Number one, just because we just experienced a very strong junk rally does not invalidate the total rally because what you also saw alongside that was exactly what you wanted to see with a healthy bull market. Financials, technology, the leaders delete and we're gonna get to the next topic, but I had chart create uh since the bottom to the top the most shorted stocks. So, this is from Goldman. This is Goldman's most shorted index. And if you go back to 2010, the only other time you saw a piece of [ __ ] rally like this, and listen, the most shorted stocks, no offense, these are not good companies, okay? >> No, these are by definition, there's these are all problematic. >> They're all dogs. The most doesn't mean they can't have sick rallies as you just as we just witnessed, but yet outside of 2021, we've never seen anything like this before. So, yeah, it's been a junky junk rally alongside a broadening healthy rally. Yeah, it's uh it's been wild. So, um let's go to the next chart. So, just like I'm you can see the whole time frame here, but just pay attention from the April lows and what you see is junk quality growth. Um just launching I mean far outpacing everything in the market which again over the long term this is the worst bucket. >> I got to say these names. >> That's why it's so that's why it's so jarring. Um usually this works in reverse for investors. So uh let's go next. This is the cumulative performance positive versus negative free cash flow stocks um through I guess I guess through the end of July. The black is positive free cash flow. It crushes negative free cash flow over time. >> Don't don't earn businesses that are losing money. Very controversial. >> U but again here's the short term. Adam says next chart. But again, consistent with margins and quality, buying companies that burn cash has been better than buying those that generate cash off the market lows. And you can see it as as clear as day here. Negative free cash flow uh is foreign far and away over the last year uh in the lead mostly because of what happened in the last few months. Um last thing from Adam, he thinks it's over or almost over. So this is how he concludes. Our judgment is that the junk rally we have been in is close to ending. Either the market retreats on a tariff induced growth scare and junk relatively lags or the highquality businesses catch a bid and relatively catch up as their fundamentals remain intact. We think either way it's hard to see a sustained continuation of the junk rally beyond something akin to a short-term rally fueled by a September interest rate cut. I sort of think he's right just because I'm seeing so many highquality companies get racing right back to their to their old highs and starting to take the steering wheel. I think the junk rally was fun for the summer, but I think people get serious again in the fall. What are your thoughts? >> Yeah, I I really want to know what's what names are we talking about here >> in his junk basket? >> Yeah. I Well, I'm gonna I'm gonna go out on a limb and I'm going to guess it's a lot of like sound hounds and like speculative AI, maybe like gene editing. Um, probably the EV talls that I mentioned, some robotic stuff. It's again, it's not uh Oh, they're talking about open in the chat. Yeah, of course. Open's going to be in the in the junk bucket. >> I didn't realize Joby just had a monster retracement. >> Yeah. Yeah. So, Adam thinks it's coming to an end. I I wouldn't be shocked by that. >> No, me either. >> So, all right, you're up. >> Um, okay. So, I want to talk Oh, let's do Google real quick. So, this happened about 30 minutes ago. Uh, from CNBC, a federal judge ruled Tuesday that Google can keep its Chrome browser, but will be barred from exclusive contracts and must share search data. Shares were popped uh se uh 6% in extended trading. US District Judge Amit Meta ruled against the most severe consequences that were proposed by the US Department of Justice, including selling off its Chrome browser. Uh, okay. The stock is up 6%. I'm very surprised that that was so much of an overhang on the stock. I really didn't think anybody took that seriously. Apparently did. But I want to make a point. Um, and obviously do this next week. We have time to get to it today or in two weeks actually. We're going to be future proof. So, I sold Google near the lows uh at 160 maybe whatever when whenever that was. I remember it's funny. I almost never have CNBC on during the day. I had it on I believe you were on the show but I can't remember exactly and we were I said this to you a couple months ago that I didn't really buy the chat GBT overhang. I thought that Gemini was doing really good things and I thought that Google's user base was so entrenched that I just didn't buy the story which is why I bought Google in the severe draw down. Uh and then I held it for I don't know maybe two weeks and we had the news. I forget who was on the show with you guys but they had a piece of data that quantitatively showed how much users they were bleeding compared to Jeff GBT. The stock was down 7%. I was down a little bit maybe even or down a couple percent. I said, "You know what? Eh, I don't need to wrestle with this. I don't need to get married to the stock. I just got in two weeks ago. Let me just bail." That was at 160 about 40%. I go, "Put the chart on, please." So, I was right. And then I got scared. It happens. Uh, holy [ __ ] Want to run this been this thing has been on. Look at the past I didn't realize this. This is news to me. Look at the past three years. John, next chart, please. That Did you realize, Josh, that Meta was kicking the [ __ ] out of Google to this extent? >> Yes. And that's Google is the is and was at that time that you sold it the lowest multiple of the MAG seven stocks way lower than Meta, Microsoft, Apple and cheap. You know, a lot of people said, well, it's cheap for a reason. They have this existential crisis that um people are skipping Google search and going right for the answer on ChatGpt. >> That narrative was obviously wrong. >> I don't know if it's going to be wrong long term. >> Well, no, it No, it was wrong. Uh, I think maybe not forever, but for now it was wrong. >> The news that you were rattled by was they asked Johnny IV at a conference a question about this exact ruling like how big of a deal it would be and he made this off-handed remark about how like Google searches are not even like some something to the effect of like Google search Google searches are like falling off uh iPhone usage. I forget the exact way that you phrase it. >> Um, a lot of people got nervous about it. I took a profit in this thing close to 200. >> Um, obviously at this point I wish I hadn't. Uh, but I felt vindicated when it fell and uh, Jimmy Leventhal was sticking to his guns. He's on Google. He wrote out the downturn. I assume he's still in it. Uh, but this was the thing that people were most afraid of. They had this anti-competitive or allegedly anti-competitive deal with uh Apple where Google paid Apple $50 billion in order to be the default search engine and default browser in the iOS devices. >> I thought it was 20, but either way, it's a lot of money. >> Um, no, it was like 50, dude. I think it was 50. Uh, over multiple years, but like companies like Duck D.Go go were arguing like this is complete [ __ ] Like it's not a fair it's not a fair playing field if if Google is always the default. People thought that the judge was going to push for a remedy um because Google lost wherein Google was forced to sell the Chrome browser and that's not what happened here. So the worst case scenario is off the table and that's enough for for a big rally here in the stock. I'm not convinced that there's not going to be cannibalization. >> I do Google searches still. I get the Gemini summary. It's good. >> It's perfect for me. >> I don't click [ __ ] >> I know that's costing them somehow. I just I don't think I don't think it's big enough where we're like actually seeing the result of that. But like give it a few quarters. I still think that's the biggest risk for Google is a behavior change for for 20 years. People never even thought twice. Anything they were wondering about the answer to, they just went straight to Google. >> People still use Yahoo. Like behaviors are entrenched. That's tough. >> I don't know pe I don't know those people. I believe that you're right. Um because I still come across AOL email addresses, but we're what we're talking about is like billions of people, not a handful of people. >> John, throw that last chart up. Just this just blew my face. Uh Google divided by Meta. I didn't realize the extent >> to which Meta had kicked their ass. Isn't this wild? >> Yeah. And by the way, uh, Meta thinks that their AI efforts are are going to be a competitive threat to Alphabet. Like they all do. >> Yeah. >> Um, so I I'm not convinced I'm not convinced we've seen the worst of of this story, but the the judge the judge thing like the remedy thing, this is a clear uh upside catalyst obviously, which is why the stock is up so much in the >> stock up so much. Okay. All right. So, the topic that I had before the Google breaking news, which is now up 8%, is that um I don't know if you know this, but I've confirmed we're in a bull market. >> Holy cow. >> Yeah. No, it's it's true. So, all right. This chart I've never seen anything like this before. And it might take you a minute to process it and it might take me a minute to explain it. Turn on please. So, what we're looking at, this is from Ned Davis Research, and it is so good. So we are looking on the y- ais at the percent of stocks above various moving averages okay within different areas of the market. So large cap growth is orange uh next is midcap growth etc. And on the x-axis is the moving average days. So focus your eye on the top left quadrant. Okay Josh. So, what this is showing you is that basically all of 95% of small cap value stocks are above their 10day moving average. >> I believe that. >> Okay. And then the dash line all the way at the end, that's the that's the 200 day. The dash line all the way at the end to the right, you see that? The vertical dash line, >> that's the 200 day. So, small cap growth has the lowest percentage of stocks above their 200 day moving average. It looks like it's about 55. uh large cap growth. It looks like it's 78% give or take. Anyway, this is a beautiful chart and everything's above the moving averages. It is a broad rally. >> Yeah, it's interesting. Wait, what's what's the um what's the gray? >> That's small cap growth. >> Small growth. So, even after that whole spiel we went through about junk stocks leading the market, like it's it's it's still I guess it these stocks had such a far distance to travel to get back to their 200 day that they're still the lowest percent of uh you know of all the groupings to have like a lot of stocks in their category up there. >> Yeah. >> So, it's it's crazy. I guess that's a function of how how far below all-time highs those stocks started out. Yeah, they got railroaded. All right, so we spoke earlier in the show just a second ago when I was naming all of the top performing stocks. These are like not the names that people think that I would think are leading the market this year. So, Duality Research, they should be on your radar if you're not. If they're not, check out this beauty of a chart. They're showing the average number of daily advancers by calendar year. And 250, that horizontal line, that's break even, right? There's 500 stocks in the index. 264 stocks on average are advancing on a daily basis in 2025. That's the highest level since 2021. This is a broad rally. And the things that are rallying, Josh, before I move on, have any comment here? >> Um, no, but it's notable that this is a better quality rally than last year or the year before on this metric. >> Yes. So, I've been saying that in bull markets, chart off for a second, in bull markets, especially ones that have lasted as long as this and and as sharp from the bottom, of course, you're going to see nonsense, right? Like that just especially in 2025, that you will never not see nonsense ever again with Reddit and the and the the message boards that will never not exist. The way that people galvanize together to for stocks higher, they will never not happen. But you're also don't let that distract you from the quality nature of this rally. Next chart. Is this bullish, Josh? This is the equal weighted version of consumer discretionary names divided by consumer staple names decade multi a multi-deade high. >> Yeah. Just the the my only comment would be look at the end of 2021 how fast that went away into like the high of the year for 2022 for for the the whole stock market was January 1st and they just relentlessly took it away. So, it's a it's a great representation of what's happening now. I don't think we should hang our hats on it as though there's any permanence to it. >> 100%. >> They could rip it away so f They could rip it away so fast. >> 100%. I am saying today >> we are clearly clearly cleanable market and you're 100% right. As quickly as we got here, it could be ripped away. Uh this other chart also from Duality Research shows the same thing. >> What the [ __ ] is a risk sniffer? That sounds perverted. >> It's the What? >> So, it's showing it's showing the same thing that I just did in the light green line, which is discretionary divided by stables, but they're also showing you that credit spreads are showing you the same thing. So, this is high yield spreads inverted. It's basically just showing that bonds that credit markets are confirming the strength. That's all that's showing you. >> I like when the bond markets don't look the polar opposite of a stock market rally. So, >> so we got that going for us, which is nice. >> High beta. >> You risk sniffing. You risk sniffing son of a [ __ ] >> That's all day, baby. uh high beta divided by low val also at multi-year highs. And you know what's interesting, Josh? I know we're going to talk about this in the next topic. Um the wide chasm between the labor market slowdown, how people are feeling, and how consumer stocks are behaving. XRT is working in a big way. Of course, it's not every retailer. Um, Target, for example, is getting destroyed compared to Walmart and Costco. Uh, anyway, this is really not >> Well, I don't I don't know how the XRT is weighted. I haven't looked at it in a while. I'm guessing Walmart is is pretty big. It's equal weighted. >> Yeah. >> Oh, really? >> Yeah. Since so for me for me I would just prefer I always would prefer to look at consumer discretionary as a sector rather than specifically the retailers because it's so messy like we just we don't we don't necessarily have an economy where most things are purchased as a retail good anymore like services are so much more important and I just feel like discretionary folds in travel and leisure and I just I like I like better than looking specifically at the retail. >> Okay, fine. So, look at look at RSPD, which I just showed you at an all-time high. And if you divide it by the staples at an alltime high, the reason why we use RSPD as opposed to XLY, XLY is like 40% Amazon and Tesla. So, that's that's useless now as a signal. Yes. Um, >> all right. Regional banks, uh, and the bank index from JC, >> new six months highs, new year-to- date highs, not bullish, not bearish, excuse me. >> Yep. We're going to talk about, uh, regional banks later in the show. I was talking about them on TV today. I think it's a big story. >> All right, almost done. >> The rally is global in nature. This is from Callum Thomas. The black line is the Msei Aquex XUS and the red line is the percent of countries above their 200 day moving average. And it's about as high as it ever gets. And interestingly, Josh, and maybe maybe the sentiment survey is just completely trash and has no meaning. Could be. Uh there's still more bears and bulls at least according to the AI sentiment survey whether like recently >> you could throw this out >> but but but the reason why I think it's interesting in this case even though there's areas of euphoria we mentioned the junk rally there there's still a lot of skepticism in the rally there's still a lot of people that sold it are pissed off and missed it that are that are bearish uh so maybe this is still a wall of worry yet >> it is and I'm going to agree with you on that cuz I don't I don't hear anybody that's like giddy and euphoric. There's a little bit of euphoria about AI, but I think it's more in the private markets just the willingness to fund things and write huge checks and pay huge valuations. Um, in the in the stock market, we have these one-day IPO pops and then these stocks get absolutely slaughtered for the next two weeks. That's not euphoric behavior. euphoric behavior is like a company comes public, triples on the open day, and then triples again two weeks later. And we really don't have that. Um, and so I just I don't see the euphoria. I see way more skepticism, way more pessimism, and I'm just talking anecdotally. I don't I don't have the data to back it up other than what you're showing me here. But that actually squares with what it feels like to actually talk to people. >> I agree with you, agreeing with me, and I like it. It means that there are still disbelievers, which is what you want. lengthens the It lengthens the cycle. If people stay pessimistic as the market advances, those are future buyers. Lengthens the cycle. >> I was about to say something inappropriate. I'm not going to. Um, however, we are coming to a seasonally weak period of the year. Take it for what it's worth, but September September sucks. Trout on, please. September is the only month or the second I guess February. It doesn't really count. It's flat. September is the only month with a legit negative return since 1950. And if you look at presidential years, the first year of a presidential cycle, it's even worse. Uh, >> great time to buy. >> Yeah, maybe >> if you're if you're if you're an asset accumulator, you should look at that chart and you should say, how could I raise my my accumulations in the in the late summer, early fall? Now, I don't think it'll really make a big difference in the long run, but you definitely shouldn't look at that and say, "Oh, now would be a great time to get out." Unless you're like literally getting out forever, which I don't think is our audience on YouTube. I think the pounders were in accumulation mode, and you should get excited by a month that on average is is uh is negative. Um, this is the big story at the Wall Street Journal and I wanted to I wanted to get into it because I think it's at the heart of some of the pessimism in the stock market and I think it's at the heart of the pessimism on social media. Um, just generally speaking, we really do have like a little bit of a a a pessimism crisis on our hands and uh I'd love to hear what you think. The Wall Street Journal did a survey uh at the University of Chicago um in the middle of July. 1527 adults. Respondents completed the survey online except for 42 who were interviewed by phone. Um let's put up this graphic. This is the the title. Americans lose faith that hard work leads to economic gains. Um, and I didn't I I don't remember what the story is with these two guys, but here's here's uh here's the salient point from the piece. Um, the share of people who say they have a good chance of improving their standard of living fell to 25%. That is a record low in surveys dating back to 1987. More than 3/4 of people said they lack confidence that life for the next generation will be better than their own. 70% of people said they believe the American dream that if you work hard you will get ahead no longer holds true or never did. That's the highest level of pessimism in 15 years of surveys. There minor differences like Republicans were less pessimistic than Democrats. Um that's because Republicans hold the White House. That's how it always is. Um, an index that combined six poll questions found that 55% of Republicans and 90% of Democrats held a negative view of prospects for themselves and their children. 90% of Democrats. Really? Really? Okay. Um, and let's put this chart up. The question asked is people like me have a good chance of improving our standard of living. Look at the disagree 70 over 70%. Agree is just over 25%. And you can see this going back to 1990. It's pretty bad. >> So the the disagree part is is down, but it's not dramatic. The agree part that's that's the that's the holy [ __ ] what just happened, >> right? People will not agree with that statement >> to a huge degree. All right, next one. >> Next one. This is same uh same article. actual versus predicted consumer sentiment. This is crazy. >> What happened in 2020? It's like something happened. I can't put my finger. >> Yeah. What? I wonder what that could have been. It's So, for me, this is like 80% inflation. What do you think? >> All right. There's there's I have a couple of reasons why this is happening. >> Um, number one, I think surveys are broken and I think that it's not a crisis of pessimism. I think it's partly manufactured. Now, there are reasons for this. There are absolutely reasons for this, but when I say surveys are broken, Ben and I did a rant on this last year where I can't remember who who who did the survey, and I'd love to see the questions that they were asking, but there was data, air quotes, that were showing that people thought this economy was worse than the bottom during the GFC. >> Some of the things that people were answering were so far off the reservation that I just said, that's it. I'm done. I'm done with service forever. It tells you nothing. It it does tell you something. Tells you nothing on something. So don't take it literal but take it seriously. All right. Co broke everything. It broke the economy. It broke how a lot of people live and it led to obviously a surge in inflation of which the cumulative effects we are still dealing with every day. The prices have not gone down. And that is that is the number one thing. Okay. That's the number one thing. Number two, all that we hear is that there's a crisis and that people are pissed off. We we hear it every day from the news. We hear it from the politicians. All that they talk about both sides are the world's going to hell. You can't succeed anymore. The other party, that's all the messages. It's not about uplifting. It's just about blame. This country's going to hell. That's all that you hear. And then number three, the stock market. And I would say especially the crypto market being fueled by the internet and social media has really shown the spotlight on if you are not in the asset accumulating class like our viewers are it feels very much like you're getting left behind which is true. >> So I think it's a combination of all of those things. We're never going back. It will never not look like this. Like for the rest of time it will never not look like this. >> I think Facebook and Twitter are a huge part of the problem. 100%. And this just >> just for fun, spend 15 minutes if if you have an old Facebook account, log back into it. Um I had to do that the other day to to go into this ticket group to get tickets for something. So I went back into Facebook. This I mean it's probably like May or something that I'm talking about. Uh but this is after years of not not only not posting, just like forgetting how forgetting that it even existed. It's like um baby picture, baby picture, baby picture, Israel, Palestine. Baby picture, baby picture, Israel, Palestine. It's just like that. Uh just the dumbest people you know are the loudest on Facebook. And then the second dumbest people you know are in there disagreeing with them in their mentions. Okay. >> Twitter is >> I mean it's just migrants raping people. Like that's the whole that's the whole thing is like racist posts about this race rapes more people than that race. Um and Europe is falling and I'm like what the [ __ ] is this site? >> I used to be very active there. I don't even understand. People are so unhappy because of what the algorithm is motivated to show them that they assume their quality of life has to go down. So, social media, >> they just assume it >> it's so bad. And obviously the algorithm, it is designed to keep you on your phone and nothing keeps people on their phone like out like being outraged and being fed bad news, not good news. That keeps you on your phone. >> It's so sick. I couldn't I couldn't even do like five minutes. >> But I also sick. >> I also and I'm not there are obviously issues in this country, in this world, legitimately why people are upset, but I kind of reject it. I just don't believe it. I think that there is such a disconnect between the online internet and the way that people answer surveys versus the way that people are actually in their regular life. I don't believe that people are as upset as these surveys are suggesting. I just dismiss it out of hand. >> Oh, I think they are, but they don't have the facts. >> I don't believe it. >> I think they're upset for other re I think they're upset for other reasons and they're answering a survey almost like they're venting. I don't think they know what unemployment rate is. I really don't think they have any idea. I don't think they know anything quite frankly. I think they're pissed off because of what the algorithms are feeding them and what their bills look like. Um what their credit card bills look like and how much everything costs and they can't they just they can't picture it getting better because quite frankly right now they're right it's not it's not getting better. Prices are not ever going to come down. They might go up slower, but if prices like actually go down on a net basis year-over-year, we have a way bigger problem. >> I just I just don't believe that people are as unhappy as these polls are suggesting. Okay, >> let me share this with you. This is also Wall Street Journal. Um middle class vibe has shifted from secure to squeezed. The middle class, generally considered to be households making roughly 53,000 to $161,000 a year, is playing an outsized role in that waning optimism. After months of tracking high income earners increasing confidence about the economy, households making between 50 and 100,000 made an abrupt about face in June. They now more closely resemble lowincome earners glooier views. So, in other words, let's put the chart up. Okay, I don't know why they insist on doing three shades of blue. It's sort of ridiculous, but this is meaningful. Look at the people with incomes above 100,000 or what I refer to as stock market Americans. It's up and to the right. Um, now look at this middle bucket. 50,000 to $100,000. Um, this just collapsed over the summer. And I don't know, maybe it's the the tariff stuff just started to >> so noisy. Why are we day trading the consu consumer sentiment? I guess >> and then and then obviously income people 50,000 and under uh never h have just had a horrendous post pandemic um experience because of high prices. But like uh I just think it's I think it's something to be watched by investors that that middle class 50 to 100,000 sentiment is now collapsing because yes stock market Americans are doing great because they own Costco and Walmart and and Apple and all these stocks are at or near highs. But the spending by this middle class cohort is the reason why those stocks have held up so well. And that spending is not guaranteed if that line gets worse to the downside. What do you think? >> I don't know, man. I just think it's really noisy. Like what happened? What happened in the last 60 days to make that collapse? >> Tariffs >> in the last 60 days people are feeling tariffs. >> Well, tariffs happened 120 days ago and 60 days ago the pricing um resulting from those tariffs started to get worse. >> I I don't I don't like spending a lot of time on things that I think like negativity I think is manufactured. I really do. >> Uh, not saying anything, but it's also impactful if it persists, >> if people, >> it's impactful. It's impactful for political reasons, which might be the most important of them all because if people vote based on how they feel, but for the stock market, for what we spend time on the show talking about, I don't think it's particularly that important. >> I really think that interest rates have to go have to come down uh in order to fix it and that it is fixable. I think um I just think the rate that people are paying for mortgages, the rate they're paying on their debt. Look, you can't fix the cost of everything in people's lives. We were talking to um Yan Vanek about electricity costs for the lower class. It's a huge line item in their household budgets. Like, I don't know that you can really fix that. I don't think policy fixes that. It's just an unfortunate fact of life. deliberately maintaining interest rates as though we're a 5% GDP economy, I think is absolutely absurd, especially when you look at the squeeze that people are feeling. Um, so I I understand we're trying to guard against, you know, uh, rising unemployment versus the trade-off and not having inflation. I really don't think inflation is the risk here. I think people are crying, uncle, and they're venting to these surveys because no one else will [ __ ] listen to them. And I don't think it just goes away on its own. And you could cut interest rates by 25 basis points. You're probably not changing the reality for most people, which we'll talk about later in the show. Um, but like man, anything that we can do to ease the pressure on this group of people, I think uh would help for some of that pessimism to dissipate. right now it might be at it at its fever pitch and um I think rates are playing a role in that. So >> um okay, a nice segue perhaps to >> now say something super bullish. >> Um Roger Loenstein wrote an article yesterday. How and why US capitalism is unlike any other. And >> I didn't read this yet. This is important. He wrote, "Early corporations were hardly models of transparency, but the quintessential openness of American society saw later expression in the American invention of corporate disclosure. Congress abolished debtor's prison prisons in 1833. Liberal bankruptcy laws also removed uh a shackle from wouldbe borrowers as the freedom to fail is also the freedom to succeed. Capital flowed more copiously than in any other country. Today, our legal systems highly developed protections of the sanctity of contracts is a uniquely American asset. I never really thought of it that way, but I saw a video over the weekend of Bezos being interviewed. I can't remember by who, um, where he spoke about US exceptionalism in risktaking. And particularly what makes us different than almost any other country, I shouldn't say almost any, any other country is our willingness for these venture capitalists in particular and their investors to sure, let's throw $50 million at a seed company with a 5% chance of success. like that sort of >> or wearing failure as a badge of honor is another thing that's uniquely I don't even want to say American I want to say Californian >> when the fire stick fail or the whatever yeah the whatever the tablet that Bezos built that was a huge flop. >> Yeah. >> He wore it as a not as a badge of honor but I remember him writing about it and went like viral at the time because people were just like this is how you [ __ ] do it. >> Yeah. So, but one of one of the things back to what we were talking about before, like one of the things that's kind of a fly in the ointment here is that basically to the person who's not part of this game, the person who's not part of like venture capital, Wall Street, they don't have assets. The way they look at it is every time rich people get a little bit uncomfortable, as my friend Garrett Baldwin put it in his uh in his new blog, um there's some sort of like rescue immediately like, "Oh, FDIC limit. Don't worry about that. We got you." Like we'll take care of you. Great financial crisis. No, no, no, no. Don't be silly. We'll do cash infusions for all you guys. Um, Silicon Valley Bank, like that whole episode was like a just a recent example, but there have been so many over the years where like rich people really as a group don't get uncomfortable for too long before the Treasury, the Fed, Congress, everybody's riding to the rescue. And that's what I think middle income people look at and they're just like, "So, let me get this straight. I have the freedom to fail, but if I have billions of dollars on the line, no one's going to let me fail because I'm too important to somebody politically to actually ever take that kind of pain. And that's that's how you get a situation where every crisis leads to the people who are already rich being even richer and the people who are locked out of the system just taking the consequences on their own. And that's what I think that's what's at the heart of a lot of the problems that look I I have an active account on Blue Sky. Not everyone on Blue Sky is a socialist. Not everyone on Blue Sky hates capitalism, but like a lot of them do. And no matter what you say, like post something about the economy, jobs numbers, surprise to the upside, they'll be like, "All right, but hurry up and get to cash because this whole thing, they were about to tank this thing to make people rich again." like they they literally look at like market corrections as organized in order to help the people who already owned all the assets. Um you talk about the Fed cutting rates, they sort of see it as like, yeah, of course they're going to cut rates because someone's going to tell them they have to. Um and and they don't see it as like, oh, they're going to cut rates to help regular people. So people hate the Fed. They hate I mean it and it seems I had thought it would get better given that we're in a 4% unemployment economy. It honestly it only seems to be getting worse. Um it it only seems to be getting worse and I I don't know what changes it but again I think the rate cuts are like the the route toward um maybe making the pressure on people be less. So we'll see. I mean we'll see if it plays out that way. >> All right. All right. I thought this was an interesting chart uh from Goldman. Over 40% of equity holdings by European funds are in the US versus just 15% in 2009. This is wild, huh? >> They're buying our stocks. Is that Is that the answer? That's what's going on. >> Yeah. >> Percentage of total equity holdings. Yeah. I mean, what choice do they have? They don't have they don't they don't have their own version of our NASDAQ 100. They really they really don't. They have a few. So I I totally I totally get it. >> Um all right. This is uh sort of kind of related, maybe a non-cit, but I just thought this was mind-blowing. >> Uh somebody tweeted, throw this out. No matter what happens today, 70 million working Americans will still be buying Nvidia every month whether they realize it or not. They calculated the amount of money coming into these names on a daily, weekly, and monthly basis. And on a daily basis, $95 million is going into Nvidia, $83 million into Microsoft, $75 million into Apple. Just just a mindbending, face blowing amount of money. >> Yeah. So, this is something I explained to people, I don't know, 13 years ago now. Um, I think this is one of the unsung heroes of what has now become the second best bull market ever. um from the from the lows in the great financial crisis, just the sheer number of people who don't even look. They just have portion of their paycheck diverted into uh large cap stocks and they almost never change it. They almost never pull money out of it. Even in retirement, they're rolling these things into IRA and continuing to accumulate as though nothing changed. And uh this was the thing that people one of the big things that people didn't see coming like how is it possible that we would have low volatility high returns um trillion dollar companies this is one of the enabling factors think the 401k is $9 trillion what's it going to be in 5 years what's it going to be in 10 years 20 trillion could be more >> so that is volatility mitigation on steroids nothing the Fed does with QE or whatever, whatever. Nothing the Fed does can compare to the um mllifying effect of every two weeks 70 million people willingly allowing their part of their paycheck to buy these stocks. They buy them up, they buy them down, they buy them flat, they buy them in high volatility, they buy them in low volatility. It's uh it's a V dampener for the ages. um which which I think I I spoke about pretty early and now it's funny to see it kind of becoming conventional wisdom. Um Nick Muli sort of uh flipped bearish on his blog this week. I wanted to hear what you thought about it. He's got some anecdotal stuff about Chimath and the new spa and he's looking at um do we have this chart? S&P 500 price to sales over time. I don't love these. This is one of those uh this line looks like that line or or or this point in time looks like that point in time. But he does have a point. Nick says, as you can see, the price to sales ratio of the S&P 500 hit an all-time high of 3.41 during the peak of the dot bubble in December 99. It hit another relative high of 2.98 in December of 2021 and it's at 3.2 today. It it is it is this point. It is this point in time where people are paying up on a price to sales ratio. We might blow through this like it never happened, but I totally understand why he's looking at this like maybe people are a little bit too uh excited or maybe the market's a little bit overvalued. What do you think? >> Is there anything different about the composition of the market today versus the do bubble? >> Yes, but price to sales is price to sales. It's different companies. >> Okay. >> No, I'm just saying. I'm just saying it is. >> All right. And I'm just saying nonsense. What about What about the fundamentals? What about the margins? What about the leverage? What about the moes? >> You can't you can't have Come on. >> Yeah. I No, I think that is the thing that's different. Um I don't think he would dispute that. I think what's different is the recurring revenue nature of the companies that are really large in the index versus in 99 um these were not recurring revenue companies. These were companies that had to sell a million computers every month or they would miss earnings. >> And also obviously I love Nick. Um Chimath launching another spec. Okay, how about 500 IPOs a day each going up 2,000%. >> Like come on. >> We're not we're not quite there. um he's not he's not shorting the market. So Nick is basically saying like um it's very rare for him to get cautious or or a little bit bearish. >> He went to he went to 20% uh treasuries. >> Yeah. >> So um listen, this is not a cheap market obviously. Okay. I'm not I'm not here to say that this is a that this is a bargain by any stretch of the imagination. >> It's notable because this is the this is the um this is the just shut up and buy guy. >> Yeah. Yeah. And guess what? If he gets a sell off, I know what he'll be doing. >> Yeah. >> He will just shut up and he will keep going. >> He will shut up and just keep buying. >> So the thing about the thing about expensive markets is obviously they can persist. But if and when there is an event, and there will be an event obviously because there always is, something will happen that we could not have foreseen, whether it's another SVB or more tariffs or whatever, doesn't matter what it is. When you have stocks that are trading this high, all right, a stock, and let's just use the index as an example, a stock that's trading at 12 to 14 times earnings, if it misses by a penny, it can go down 3%. If a stock is trading at 150 times sales and it misses by a penny, it could fall 30%. >> Execution has to be perfect, >> right? So, we're not there's not a lot of not a lot of wiggle room here. Not a lot of margin for safety. We got to keep growing and if we don't, yeah, there'll be a sell-off obviously. >> Uh, last chart from Nick. >> Total market cap of US stocks with a price to sales ratio above 20. >> I have a big time actually for this one. So in N In Nvidian Pal >> because you you gotta admit you got to admit it's something, >> bro. >> I know you have an explanation for why it's not the same. >> Okay, let let me >> go. >> So put that chart back on. This looks like six trillion and change. >> Correct. >> Okay. 4.5 of it is Palanteer Nvidia. >> Get that chart off my screen. >> Great explanation. >> Thank you. >> And but still, but still. >> No, no, no, no. But still, that's it. >> Jayl is in the chat. Jay Luther's in the chat saying Batnik is risk sniffing. >> Always sniffing. >> But you but but you haven't but you haven't caught you haven't caught any risk yet with all that sniffing. Just not not quite not in these charts at least. >> Clear as a whistle, Josh. >> All right, let's do make the case. Um I've been whining and crying about rate cuts for an hour. So, um, if we get them, and we've talked about some of the ways that we think, uh, will benefit. We talked about Rocket a couple weeks ago, uh, adnauseium. So, we're not going to go there. The regional bank charts are indeed looking really exciting. Um, I asked Sean to post a few of these and, uh, I wrote up regional banks for CNBC Pro. We talked about it on TV today. Um, let's put up PNC. Inverse head and shoulders. Um, inverse head and shoulders, one of the most reliable reversal patterns that technicians follow. Nothing's foolproof. Nothing's guaranteed, but you like to see these. And, uh, when you emerge from an inverse head and shoulders, you should be into a new leg of a of a bull. You should be in a new bull market, I should say. >> Can I say one thing? Um, please. So the neckline breakout was like 180 and you got the retest right at the right at the 200 day. I think JC would say this is like textbook. >> It not only is it textbook, you have a golden cross here and and and look how well behaved this stock was when it retested both the 50 and the 200 at the same time. >> She's going higher. >> It's going and and not crazy overbought yet to 72 RSI. Um the other thing about inverse head and shoulders is you want to see them accompanied by rising volume. Guess what? Um so PNC looks phenomenal. I think this is uh one of the largest of the regional banks. Maybe not the biggest but among the biggest. Here's fifth. Same chart. Same chart. Not as far along. Little bit further from the uh December high uh from from last year. But you know this is this this one's a little bit more tame. But I I would tell you this is what you want to see happening. Uh very simple reg uh chart off regional banks are more sensitive to increased mortgage and mortgage refinance activity than the major money center banks. They need it more. It's a bigger part of their business. They don't do more revenue in mortgages than the bigger banks. The revenue that they do is more meaningful to them. But it's not just revenue. It's activity. It's foot traffic back into the branches phone calls. >> They need lower rates. >> Now, do they give something up in net interest margin? Yes, because when rates come down, you do see a compression of the spread between where they borrow money and where they lend it out at. But the increased activity that you get when rates fall more than makes up for that slight net interest margin compression. So, this is a huge catalyst for these stocks getting some relief on overnight rates which then feed all along the chain until they get to um you know uh uh business loans and and mortgages and and all that good stuff. So, >> wait hold on. So, two two things on that. Obviously, uh regional banks are more exposed to the community main street than Wall Street banks or the money center banks are. But also, look at the look at the how steep the curve is. If rates come down, that might actually be good for them because they're borrowing at a lower overnight rate and they're still lending out longer. Like they're they're going to be they're going to do just great. >> It's very good for them. That's exactly right. Put this chart up, guys. First one, this is the number of homeowners who might benefit from refinancing by interest rate level. Great chart at the journal. Um, as you can see, the further you get to the left, which is 7 and a half% rates on the x- axis, the less people would want to refinance there. And then the lower you get on the x- axis, you get to 5 and a half%. All of a sudden, you got five, six, seven million people. So, the way they figure this out is they say, uh, here, let me read this. Um, homeowners with high mortgage rates are starting to get excited. Chart off. The average 30-year fixed rate mortgage dropped to a 10-month low of 6.56% according to Freddy Mack. The rate has inched down for nine of the past 12 weeks, tracking expectations that the Fed will cut its own rates next month. More than two million homeowners could now save money. That's the average 30-year fixed rate on the screen. More than 2 million homeowners would save money if they refinanced today, which is up from 1.7 million at the end of July. And if rates get to 6%, 6 million people would reduce their rate by at least 75 percentage points. You sniffing? Yeah. That's not risky smelling, my friend. That's opportunity. Um anyway, the Mortgage Bankers Association has an index that tracks refinance applications. It was up 19% from a year ago um during the week ended August 22nd. So, this market is working. rates are coming down in the mortgage market and people 20% jump in refinance uh applications or what you would refer to as refinance applications. This market is working as it should. Um >> let me ask a question Josh. When you refinance, do you refi? >> I don't refinance. I refinance. >> Do you refi or do you refer? >> I refinance. I don't know. >> Do you refi? >> I don't abbreviate it. >> Okay. >> It's a sacred act. Uh, and and I think it's crude to be talking about refinancing. >> Okay. >> It's not a It's not a It's not a Toyota. I refinance the house. >> Sure you do. >> Anyway, I love regional banks. >> You're lucky I'm not saying refinance cuz that's where it's going next. Um, here's the KRE. This is the regional bank uh ETF versus the XLF, which is like City, JP Morgan, blah blah blah. Look at this outperformance off the April low. 35% versus 23%. And by the way, all those XLF names look great. They're all at record highs. >> Um here's the Regional Bank ETF with its moving averages. Golden Cross um stair a step higher. Not quite above last year's high, but certainly look like they want a challenge. Here's Truist TFC. This is a big one. What do you think? Triple Top or Goodbye. >> Goodbye. >> That's what I think. Here's This is the one I talked about on TV today. >> Here's Huntington Bank. Look at this. Will the beast um triple top or she's going? >> Nope. >> What do you think? >> See you. >> Yeah. I got this chart on TV. Are you proud of me? >> I love it. Oh, really? >> Uh >> this is a DTJB joint. Let me show you another uh here's the inverse head and shoulders in Huntington Bank HBO. >> Now, this was a little pornographic. This one they would not put on TV. I didn't mean it to be that way. >> My god, I didn't I didn't I didn't draw it to be Don't All don't Nobody screen grab this. I don't need this wiener and balls. We all say it. >> I didn't mean to do it that way. >> Josh, come on. >> Um All right. Anyway, so that's my uh make the case. What What do you think? bullish. >> Yeah, I love it. Okay. >> Okay. >> Um All right. I've got a mystery chart. In fact, I've got several. >> Well, maybe I'll maybe I'll sniff it out. Let's see what happens. >> John, if you please. Okay. Would you buy this? >> Yes. >> I thought you might say that. >> Well, is this ETH priced in Bitcoin or some annoying [ __ ] >> No, it's uh I think I have one more chart. John, >> I bought it. What did I buy? >> This is you bought the Russell 2000 divided by the S&P 500. >> Okay, so no hints. Just you full reveal. >> Oh, >> you asked. >> What else you got? >> You asked. All right, John. What other charts did I bring? All right, so this this is surprising. I cherrypicked a little bit. This is going back to last the second week of last July. Is that surprising? >> The second week of last July sign is there is there significance to that? >> Yes. I wanted I wanted the numbers to line up. That's the significance. But the point is >> Are these stocks? >> No. No. This is it. It's the same thing. It's the same thing. The reveal is over. Josh, isn't this surprising? Over a year of uh same performance. >> I would not have guessed that over the last year the Russell uh had kept pace with the S&P. >> Me neither. >> I mean, you cherrypicked it, but so what? >> But so what? It's over a year. It's over a year. Uh I think I have two more. Uh all right. This was interesting from Yard Denny. He's showing uh operating per share earnings on a forward basis. I mean the large cap lol. Why are stocks going high? I wonder why. But look at the blue and the green. The midcap and the small caps turning up. Not nothing. >> Yes. >> Not nothing. >> Uh John, do I have anything else? I thought I maybe one more. Oh, yeah. Uh all right. So, this is from Todd Zone and the there's a lot of noise here. The only one I want you to pay attention to is the bottom chart, which is the one-year rolling flows for small caps, and we're two standard deviations below the average. I mean, nobody wants these stocks. >> It's crazy, right? >> I like the setup. >> So, this I couldn't I can't follow you into this. I get why you like the setup, though. This is your type of That is your type of setup. You like that those things where like nobody will say anything good about them. I uh I bought I bought Western Union and I listened to the conference call. They're they know about stable coins. They're not a slip of the wheel. >> Um we're taking some [ __ ] in the chat. Um >> [ __ ] in the chat. >> Brian Shatzer says, "Ah, yes. Technical analysts, astrology for middle-aged white men. Tell me more about your cup and handle." So, we're just studying what buyers and sellers are actually doing. I think that's less astrological than say guessing what an earnings multiple might be on a company's earnings. That to me seems way more bullshitty than actually studying the price itself. But okay, I'm with you, man. Um, no, we don't all have to. We don't have to all agree on that. Um, I'm supposed to tell everybody that the new trucker hats have arrived at the compound shop. Guys, do we have Don't these look awesome? >> Love it. Can't wait to >> Nicole said I have one of each sitting on my desk. >> I'm gonna pick one to bring to uh future proof next week. >> Which one do you think I'd look better in? The blue or the >> I'm rocking the white. So, you rock the blue. >> The white one. >> Okay. I mean, these are these are pretty sick. >> Great. Love them. >> Um I think we're going to sell these out to be honest. If you if you if you guys want to see the hats for yourself, idonshop.com. We've never done anything like these trucker hats before and uh they are absolute fire. Um so go ahead and check those out. Guys, I want to mention tomorrow's Wednesday, all new animal spirits, Michael and Ben. Um and then we'll do uh Ask the Compound later in the week, Duncan and Ben. And then uh Mike and I will be back with two guests and an incredibly informative show, The Compound and Friends on Friday. So uh keep it locked. We love you. Thanks for uh liking and subscribing and we'll talk to you soon. [Music]