Pitch Summary:
Grown Rogue has developed a significant cost advantage in producing indoor craft cannabis flower, operating at more than a 50% cost advantage relative to larger U.S. cannabis operators. This allows the company to be profitable in markets like Oregon and Michigan, and to achieve outsized returns in constrained supply markets like New Jersey. The company is expanding its facilities in New Jersey and Minnesota, and is exploring opportunities to take over distressed assets from competitors who cannot compete. These strategies position Grown Rogue for strong growth and profitability.

BSD Analysis:
The cannabis industry is experiencing distress due to oversupply and capital scarcity, but Grown Rogue’s cost efficiency allows it to capitalize on these conditions. By potentially acquiring and revitalizing defunct facilities, Grown Rogue can quickly and cost-effectively expand its production capacity. This approach not only accelerates growth but also enhances capital efficiency, offering higher returns on invested capital. The company’s clear growth strategy and cost leadership position it well for future success, particularly as the industry consolidates and stabilizes.

Description:
Warren Pies, founder of 3Fourteen Research, lays out his thesis for a “Goldilocks” first half of 2026, characterized by growth …

Transcript:
earnings inflecting higher, deficit inflecting higher, growth inflecting higher, rates are still going to come down this year, and you’re having a productivity boom because of AI starting to take place in the background. So, this is a very equity positive environment. We’ve had some froth taken out of the software space, but here we are. I mean, at the moment, we’re, you know, within spitting distance of a new all-time high in the S&P 500. I would point out that every single one of these instances where we’ve come up to a high and then pulled back, the pullback is higher than the previous pullback since that November selloff that we had, that little November dip. >> Warren Pies, founder of 314 Research, it is so wonderful to welcome you back to the show. Great to see you again, Warren. Really appreciate you taking the time. >> Yeah, absolutely. It’s good to be back. >> It’s great to have you back and it’s been a while. The last conversation we had was back in August and I feel like a lot has happened in that time and here we are into February of 2026. So Warren um since it’s been a while and it’s been kind of a crazy time in markets of late. Can we just start big picture um the macro view the framework in which you were looking at the world today and as you know Warren on this show you can take all the time you need to set the table when it comes to that big picture macro view. Yeah, I this morning I was like, “Okay, I’m I’m going to be speaking with Julia again. What did I say back in August?” And just try to kind of pick up the conversation for anyone who was paying attention to the last time I was on the show. And so, like, if you’re go back and listen to that or just to give you a quick synopsis is our view back then was that we’re in this secular debasement regime. And it’s become obviously much more popular to say that. uh our view is that a little more nuance that this is a mindset shift amongst investors and so and it’s a secular mindset shift meaning that it’s occurring over a period of years. We think that the debasement mindset really that regime took place with the pandemic and the fiscal response to the pandemic and so that’s the operating in the background at a very high level. And then we also said back then our view was that despite that secular debasement regime a regime where maybe bonds are going to underperform and uh inflation will be elevated versus what it’s been over this previous what we called the deflation regime which took place from the GFC to pan the pandemic. We thought we were in a period of cyclical disinflation. So the three big vectors of inflation, shelter inflation, oil, energy uh in labor market were all disinflating. And so our view is that you had this debasement regime going on in the background but cyclical disinflation which had us favoring fixed income as no first off let me back off. It’s it’s a a positive environment for equities in general. That’s the basic takeaway. And so the question from a portfolio construction standpoint is if you’re going to be overweight equities, how do you want to what’s the ideal portfolio broad big picture hedge? And our view was that growth was the risk last year. So you wanted to stay with a healthy bond allocation and now we are we transitioned around the end of last year where we were saying okay in 2026 that ideal portfolio is is going to transition to an overweight and commodities and commodity related businesses uh to pair with your overweight equity position and that’s that transition is taking place I it’s been happening probably even more rapidly than we expected but that’s Uh that’s the transition we’re looking for. The first part of the year we expect to be a Goldilocks environment where inflation is still tamed from those factors we talked about last time. Those three factors are still holding inflation down. Um but we do see an economic reaceleration with the fiscal expansion due to the one big beautiful bill and uh in lower rates as well. And so that to me is that’s out there and you’re starting to see those um in the desire of the administration to to quote unquote run it hot into midterms. So you’re starting to see that out there percolating and I think that you still have this Goldilocks regime for the first half of the year. Now that’s the big picture. That’s our takeaway for the macro. But then you have all these intervening factors that we have to analyze at any given point in time. You have the new Fed share. you have this disruptive AI technology exploding onto the scene and destroying industries like overnight basically it feels like um and you have tensions geopolitical tensions the Iranian uh situation you have trade tensions ongoing with China and things like that and so to me the question is this is a delicate balance this goldilocks that we defined and the question in my mind is will any of these these issues um the massive capex build the software disruption the new Fed chair all these things these potential things are they big enough to knock us out of that delicate balance that’s going to define in our view the first half of the year so that’s where our research has been digging in is like okay we have this delicate balance we have this goldilocks thesis now all the live bullets start flying can that thesis survive this and that’s where we’re at right now >> what a Great frame up. So Goldilocks um is the view for the first half here, but as you kind of point out, there are some forces at play or risks. How are you starting to assess those? Maybe we can like dive in because you mentioned like AI for example and impacting industries and a lot of folks are talking about like the SAS magdon or I don’t know what you you call it, but um maybe like how are you thinking about the various forces? What do you make of that one that we’ve seen in markets of late? >> Yeah. Uh well, we see it as like I I would say there are four risks. Last week we wrote about four risks to this delicate balance. Um number one is and they’re all the first two are related. We would just say like AI, let’s just put AI as the the the the broad uh label, but the two specific issues stemming from AI is this massive buildout from the hyperscalers. the capex ramping up to I think it’s going to be about 670 close to 700 billion from the hyperscalers in 2026 capex. So that’s almost like it’s approaching 2 and a.5% of GDP. That’s a massive number. And the other side of that coin is that the hyperscalers, MAG 7 in particular, have been buy net buyers of stock in recent years and a big support to buybacks, which is really an important um marginal source of demand for equities. is something we pointed out last year is that in the April selloff, Liberation Day selloff, retail set the lows, but then buybacks really spiked in that that weakness window and then that’s what set the bottom and then you forced these systematics vault control CTAs uh back into the pool which is why we had one of these record lockout rallies from the bottom last year where we just never had a pullback until November. we had that 5% pullback and so the question is is will those will that capex boom cause buybacks to dry up which will then remove that support from the market can the bull market survive that that’s the first AI issue we see the second AI issue is this disruption the creative disruption this creative destruction um shumper style that is taking place in the first uh big industry And at crosshairs is the software as a ser software at SAS companies in particular. Um those were the darlings of the the previous bull market and you’re now like the barriers to entry are potentially leveled at this point in time. That’s the the concern. That’s what’s getting priced. Um we’re in the process of pricing that. And that I think concern is even broader than just SAS though. It’s uh what companies have modes that can survive this um new technology as as AI starts to really uh improve and exponentially improve and start getting um taking share in different industries and sectors. So that’s the second risk in the AI world. So we see those two. Um what I would say is I think that we neither of them at this point in time have us in a place where we would say the the equity bull market is at risk. You know that’s the bottom line is like are you still bullish all that stuff that’s happening? Yeah, we’re still bullish. I think you have to have a healthy respect for the amount of of change that’s taking place. Uh but I would say on the buyback point uh we have uh we I think the the total market buybacks have increased by $300 billion over the last two years. Uh last year MAG7 it’s a big buyback source like I said but it’s it’s been 22% it was 22% of all buybacks last year and it did actually drop just a touch from 24 to 25 and the market clearly did just fine so you know and I think non-mag 7 buybacks increased off the top of my head if I remember it was 160 or 170 billion last year so when I do the numbers I think that mag seven buyback tax could very well be down 80 billion this year um which is meaningful and there’s this shifting in this where performance could shift too because of this um that’s happening but that 80 billion I think will be made up by the rest of the market so I don’t see that’s my first big point is I don’t see buybacks falling off a cliff this year I could see like if there down the line maybe that’s if we continue do this capex boom and it roll it spreads into other industries and etc. then yeah that that could happen but I don’t see it happening this year. I don’t think I think it’s a little bit of a narrative that’s taken on too much waiting and is getting discounted in people’s minds too much. So that um those are the numbers there. The other thing I would add on the buybacks is you start studying uh years where buyback volume or buyback numbers uh re change and negatively fall off from one year to the next. In those years where buybacks decrease, the market since the GFC has been higher by uh double digits every year. And so it’s not a death blow to see some moderation of buybacks is the the historical evidence there. So that would be like my my big picture takeaway on that risk and then on software and we can get into this more with your other questions but again I don’t see it I see it pretty contained. I think this rotation is actually healthy for the market. I think it tells me that there isn’t some broad bubble that’s forming. uh software went from 12 and a half percent of S&P 500 market cap to 9% since the release of uh cloud code version 2 back on September 29th. And that’s a that’s a meaningful derating. You’ve never seen in the history of uh the S&P 500 a situation where an industry this large more than 8% of S&P 500 market cap has declined by more than 25% in 3 months and the market has remained at within 3% of all-time highs. I think that’s um actually really impressive that the market was able to rotate that much and uh and do some some resetting of uh of the froth in the process. So it’s actually healthy to me. >> That’s a really interesting point that you just made. It’s um as you point out it’s like a rotation and because it’s been able to I guess sustain despite that rotation but maybe the market’s healthier than people actually were thinking or talking about. >> Yeah. I mean so when I look at the when you see fear out there and the other thing we looked at was so you know software it’s gone it was overvalued. You know, the truth is like it was this the software S&P 500 software industry was trading at 15 times revenues, 15 times sales. Um we’ve basically knocked it down to 10 times sales. And if you do like a basic regression of um margins to price to sales, this is this entire move has really just corrected overvaluation. So the good news is that we’ve corrected overvaluation and on this basis when you compare the margins and topline uh multiples for this software industry we’re we’re kind of norm we’re back to a normal valuation we’ve we’ve killed the froth. The bad news is if we’re really calling the terminal value into question of these businesses, if we’re really saying that um this is an existential crisis to the software industry, then I don’t know that a normal quote unquote valuation is enough and you might need more and you might see margins start to deteriorate. So we modeled that out too. We looked at if margins so right now the industry is like at 30% fat margins twice that of the S&P 500. If if we went down to S&P 500 level margins roughly 15% just cut them in half. How does that impact the S&P 500? Well, if if this all were able to occur in isolation, which much of this move has occurred in isolation, which is kind of surprising, you’d see S&P 500 margins fall by 70 basis points out to 2027. So, your estimated margins right now are 15.8% for the S&P 500. if software derated it or was it was cut in half, you would see that go down 70 basis points. Um, and the bottom line read through on that and why we don’t feel so um nervous about this is that uh that in our mind would take like the way we do fair value, maybe 5% off the S&P’s fair value. So again, that’s a the assumption there is that this is is contained to to software. The assumption is also that um everything else is held constant. These are very unsophisticated kind of assumptions. But we do it just to make points to ourselves like what’s the actual what’s what is the scope of the damage. The reality is if we are living in a world where software is going to be fully disrupted then you’re living in a world where hardware semis needs to be bid in my opinion because compute is is uh is going to be the thing that uh everyone is is scrambling for and that’s kind of what the capex numbers point at. So it doesn’t make a lot of sense to derate software as aggressively as I just did in that example and not rerate in some way hardware. um or the other areas that could become bottlenecks to this massive new industrial revolution that we’re going through. And so when I say all that to say, look, we put the buybacks in context, 80 billion, okay, that’s 80 billion, that’s out of what we could probably be getting 1.2 trillion of buybacks in total for S&P 500 this year. So, which is growth over last year. Not not a death blow to the bull market. We say the software’s gone to fair value. If it’s cut in half from here, you’re looking at a 70 basis point reduction for S&P 500 margins. Again, not a death blow, maybe 5% off fair value. And the other side of that that we’re not factoring in yet is what’s the upside for hardware. So, this is our way of using data to try to take some of the scary narratives that are out there and start coming to terms with them and say, okay, is this really threatening your big big picture bull market view? We’re not there. >> Hey everyone, I hope you are enjoying this interview. if you can take a quick moment and hit that subscribe button. We are on a mission to hit our next goal of 100,000 subscribers and your support could really help us get there. Thank you so much and enjoy the rest of the interview. Yeah, you’re debunking a lot of those narratives and um you pointed out since the global financial crisis, there have been seven years with buyback contractions um but the S&P has returned double digits in each of those years. Um, let me ask you about just like the markets in general. Like we’ve seen um gosh, last week was a wild a wild week, but now we’ve seen the Dow at a record high. Um, we’ve just seen markets like touching new highs and records. >> Does it does it surprise you at all or pretty much expected? >> I mean, the when you get this kind of dis the other thing we’ve seen is like there’s this is there’s massive dispersion. It’s another way you’re saying is massive dispersion in the market. And so we we started digging deep into like, okay, what are these dispersion events? When do they usually occur? What does it look like? What is this? What’s this one like in the um this was a top six uh when you look at like 21day dispersion of returns under the surface of the S&P 500. Like this last period we just went through was was in the top six all time uh going back the S&P 500’s history. And so extreme dispersion under the surface there difference in in uh returns across the 500 stocks in the S&P 500. Uh what we find is those usually that dispersion happens during periods of during corrections or selloffs or you know when there’s a lot of volatility in the index. And uh and this one’s different because it’s one of those those those cases, one of those six cases where we we got this kind of dispersion while we were within a few% of the all-time highs. And this is actually again you look 6 months out in these cases. There’s not a lot of them, but each one is positive 6 months out. And not not just market returns. It’s two or three times market returns usually. So the message I take away from that is this is a way there’s two ways you can correct sentiment. We’re always trying to correct sentiment in the market. This is a way of correcting sentiment other than a total collapse of the index. It’s a aggressive rotation with dispersion close to all-time highs. I think the macro is really supportive of the markets. I mean we talked about that back in August and really nothing has changed. It’s a slowmoving story. Like I like I said, I we’re running 6ish% deficits as a percentage of GDP uh in the face of uh what is turning out to be a an industrial revolution sized capex spending spree. So 6% deficits, 2.5% capex this year from the mag 7. Um when you put all that together, I think the economic backdrop for growth looks good. You look at what earnings have done, earnings continue to track higher than we see over their seasonal averages. So Q4 stuck out ex like is extremely bullish to us because it divorced from its there’s a there’s a triedand-true seasonal pattern. At the end of calendar Q3, you start seeing the Q4 estimates roll over. That didn’t happen this year. They went higher and then we were rolled into Q1 now and they’re going higher. So what that is is telling us is that these companies there’s a very upbeat message coming through these companies on the calls and going through the guidance analyst guidance and so earnings inflecting higher deficit inflecting higher growth inlecting higher inflation should be fine. I think that the Fed is a whole thing we can talk about but I think rates are still going to come down this year. Um and you’re having a productivity boom because of AI starting to take place in the background. So this is a very equity positive environment. We’ve had some froth taken out of the software space, but here we are. I mean, at the moment, we’re, you know, within spitting distance of a new all-time high in the S&P 500. And I would point out that every single one of these instances where we’ve come up to a high and then pulled back, the pullback is higher than the previous pullback since that November sell-off that we had, that little November dip. >> And that should be expected. I take it. >> That’s positive. I mean, it’s positive when you when you when you see higher lows and the things we’re looking for things that >> you know, the the so the the the last low I think was um 6896 6796 on the S&P 500 and we we managed even in this last sell-off here where there was like where the this the Bitcoin selloff was starting to accelerate. The software stuff was starting to accelerate. We stayed above that. We closed above that. The other number to watch is the December low. So the December low was 6721. You don’t really want to see the market break the December low in the first two months of the year. It’s kind of like a it would be a bad omen for trend. But we keep holding in there. And at the same time, our objective sentiment indicators, we have a sentiment composite. We look at things like ETF inverse ETF volume. Inverse ETF volume spiked up to 43% which is really consistently what we’ve seen in these corrections. these like say anything from 5 to 8% that you would expect to see >> and and it shows us that retail is getting sort of scared in the background. They’re starting to play try to play on the short side. So to me, like I said, there are two ways to correct sentiment. You can have a selloff and outright sell off an index or you can have rotation that shows up as this dispersion. And I think we’re in that second case because it’s showing up in our sentiment indicators. >> Fascinating. Okay. Um I know sentiment’s important. I know it’s something you look at. Can you just kind of set the stage for sentiment because I has it been more pessimistic of late? You were just referencing like the retail getting a little bit scared. What what’s going on as relates to sentiment? >> Uh yeah, I’ve I think it was uh it’s I’ve never seen with some of the the calls I’ve had. Uh there’s so many different ways you can track sentiment and measure it and positioning goes along with sentiment, you know, and uh some there are many respected especially banks that have this um insight into how big pools of money that they custody are able to see. Um they they have they they have indicators. They might be better than ours. I don’t know. I get to test them and and figure it out. But we have our own proprietary set of indicators. Um and like I said that we have a model a sentiment model. It’s been in the at the moment it’s showing mild pessimism and it’s uh it spiked up after that November selloff. It never got to in our view it never got to extreme optimism which is a sell and it’s moved down to I’d say just call it mild pessimism. It’s not where you would expect us to be. Uh if we were going to have like a 20% bare market or something like that, you need to go lower. Like I think we’re at like 39 is our reading. We scale at 0 to 100. 39. Anything below 40, we consider pessimism. Um back in liberation day last year, it got down to the teens. So that gives you an idea of where we could go if this thing were to accelerate. But we’re not in some place where I think that this sentiment is just fine for the middle of a bull market as far as where we’ve corrected to. And that’s corroborated by this by inverse ETF volume, which I do think is one of the better um indicators that are out there right now. You have like the AI, you have put call stuff, you have um margin uh balances and things like that. But I think that the the inverse ETF volume is great because we’ve seen this proliferation of leveraged and inverse ETFs. This is where retail this is how retail accesses when they want to be short or long or use margin. Basically, they’re dealing with leveraged ETFs and inverse ETFs. And uh so what we do is we combine just what we call the speculative universe. So the inverse ETFs and leveraged long ETFs and then we look okay what percentage of that volume is going on the short side into the inverse ETFs and that number it usually during this bull market just to give people an idea it bounces around between like 20% at tops uh to 40% during pullbacks and then when there’s something really nasty like liberation day we go up to 50%. We got up to 43% during this last uh situation. The last week that we were in actually a couple days ago is the high on inverse ETF volume. So to me that goes along with our sentiment indicator. I don’t think that that sentiment is uh is uh is optimistic. I think it’s on the pessimistic side. It’s not the most washed out you’d ever see. Um but but it’s more washed out than you would expect given the fact again that the index is less than 1% from an all-time high. So what it tells you is you got to look at what’s happening under the surface to understand how much there’s been a lot of pain. There’s been pain in crypto, there’s pain in software, there’s pain in these high-f flyier stocks and that’s showing up in these these uh sentiment gauges. But at the same time, the rotation has allowed the index to stay towards highs. I look at that, you look at the history, look at all these other things that we we boiled down and I think it’s a positive >> setup. Could be wrong. I mean, it could be like the beginning of something awful and hopefully we would catch that soon enough and pivot. But I, you know, you have to take risks in this business. You have to, you know, weigh the evidence. And to me, uh, you get paid to, to get out, step out there when people are worried about terminal values and existential risks and things like that. like those are times to step in and our indicators say it’s not a bad time to to stay long stocks. >> So interesting. Um and I love learning about the various indicators and it’s like um it’s so that one is it a bit contrarian then like if the the sentiment is a bit more negative it’s actually maybe more of a buy sign because you’re talking about retail inverse ETFs and >> I should have said that. Yeah. >> No, it’s so interesting Warren. I really like this. Yeah. >> Sentiment is always inverse. So like >> like the other things we look at like V target funds. So that’s like these are funds that dial up positions when volatility is low and then they sell when volatility spikes because they’re targeting a certain overall portfolio. V. We also look at CTAs. These are trend followers. They’re um your classic trend followers and you can track their positioning. We track their positioning and then basically triangulate where they’re doing in different assets. And our view is that these are the kind of big buckets retail buybacks uh CTAs uh vault target. If you can figure out this picture of all these places, these these buckets, then you can get a pretty good idea of where I think the baseline market is. And our view is that like back in liberation day, these things all pointed to a screaming buy because once we set that bottom, the buybacks came in, retail came in, and then these other guys were forced in. We’re not in that position, but we haven’t had a 20% draw down. We’ve had a one person draw down, but what we have done, it’s a little bit like, >> you know, changing the tires on a car while you’re still going down the highway. We’ve kind of done a lot of repair work on the on the sentiment side while we’re still in this uh pretty healthy trend environment. Um, and so yes, sentiment’s always inverse. So if you hear pessimism, that’s good. And if you hear short retails using inverse ETFs, that’s good. Um, that’s what you want. >> So interesting. Okay. And um the bottom line here is you’re overweight equities. Um are you actively buying equities at these levels? Are you waiting for like are you spotting opportunities? Is like what I don’t know what you can even share there, but just kind of curious when you say overweight equities, is that like actively buying or kind of holding what you have? >> Well, we’ve been overweight since we upgraded equities back. We’ve been in and out benchmarking overweight for off and on. We we upgraded like back on it was that Thursday where we took it. We had set the lows back in November. I don’t remember that was like the November 21st or 20th or something like that. And we’ve been overweight since then. We were overweight for up until a couple months before that too. And that’s just been our basic uh back and forth. And we don’t see a reason to downgrade stocks. We’re not going to go we’re overweight. We’re not going to go max overweight or something like that. We don’t it’s not if we if let’s say our sentiment indicators went even showed even more pessimism our positioning indicators got washed out and the macro look good then maybe we consider that but that’s not the kind of setup we see it’s more of like a don’t panic sell here we don’t need to res reduce our risk that’s not where we’re at in the cycle and our view we still believe the first half of this year is going to be strong we still believe that the economy is inflecting higher and we still believe that the overall the macro data is going to be very supportive earnings macro are going to be good. And then the question is, will any of these sort of gray swan events, will the new capex numbers, will the software disruption, will any of that disrupt it, any of that stop our the bullish outlook? And it it just doesn’t at this point in time. Um, we also have the new Fed chair and what’s gone on in precious metals and those things are also potential risks that we could talk about, but the net is we’re still overweight. I want to talk about commodities. Um, I take it precious metals are probably in that universe as well. And I I have to give you props, too, because you talked about gold on our August episode. Um, and we’ve certainly seen quite the run in the precious metal. Um, just one thing you wrote in a recent note. Um, you talked about coming into the year, we argued that quote commodities will surpass bonds as the best portfolio diversifier to own alongside equities. Earlier price action suggests that the movement is here. I really like this line. When disruption is the risk, own that which cannot be disrupted. Can we hear your thesis on the commodity on commodities more broadly? >> Yeah. Well, the as a hedge to the equity portfolio, I think it has two benefits. I think number one, uh when you have a Goldilocks regime, which we’re in, you’re always oscillating between overheating and overcooling in the economy. And like I said, I thought last year was an over cooling worry where you had like it made sense to be long uh bonds against your stocks and that worked out. I mean, generally yields fell uh last year uh and and so that was a good hedge. And commodities, we liked gold, we like precious metals. Our big concern last year was oil was going to be stuck and that’s how it played out. Um this year, I think we’ve been looking, we expected oil to bottom in Q1. That’s obviously a little tricky and uh we think that the risk to the bull market is going to flip to overheating and we’re going to have to see how the Fed and markets digest the potential for an overheating economy as we get into what what I think would be more like back half of the year type of concern. So that’s the first reason to own commodities is that if you’re starting to overheat in a late cycle environment, commodities are classic outperformers and we go through the different commodities that are needed for um this data center capex buildout. You’re going to need a lot of metals, industrial metals, precious metals feed off that debasement theme. And oil, I think, is starting to finally come through a very fundamentally rough patch. And so to me, the stars start to align for commodities there. And then the the other reason would be what is your risk to equities? Another risk is this disruption risk. And if if you think about disruption, that’s what’s going on software stocks. And so I think everyone is going through this process of okay, what is it in my portfolio that can’t be disrupted? And it’s generally these things that if you drop them on your foot hurt and that’s the that’s the commodity play. I think that that fits that non undisruptible bucket very well. Um, and I mean I’ve been watching where quality we have a very strong quality bias in our in some of our models and we watched the quality factor just get really beaten up over the last 18 months. And there’s a part of me that wonders quality is synonymous with a moat maybe asset light kind of business. Not a lot of this commodity exposure in a quality business. And you’ve seen those those stocks get beaten up for 18 months. And you have to wonder how much of this AI disruption story has been going on for a little bit of time now. And maybe uh you’re starting to see moes across the board, not just in software question. Uh then then I think you’re going to have more of a piling into these areas where there’s uh it’s harder to disrupt and that leads you to commodities. So those are two big things. I think we’re going to overheat later this year and commodities are hard to disrupt. If you’re gonna if AI is going to go exponential, you need to own hardware in commodities in non-disruptible, undisruptible, whatever the word would be >> industries. >> Such an interesting framework to put it. Do any of the other um kind of typical narratives, if you will. Do those play into wanting to own commodities like inflation, for example. Um I guess we can bring up dollar weakness, like debasement trade. those are those still applicable or is it is there something like even more like bigger here that’s like not as discussed like you said that I thought that disruption um angle was really interesting I hadn’t heard others talk about that >> well one thing I think is that a lot of time so number one yes there’s the debasement is re like I debasement is real disruption is a real threat but I do think in the short to even intermediate term these days, the market runs on memes a little bit. >> Oh, that’s a good way of putting it. Yeah, >> the long run is going to be truth and wherever the the truth of all these situations is, but in the short to intermediate term, you got to find a meme that explains the world you’re in and then flow start tracking that meme. And uh I know that sounds a little bit like cute, but that I do think there’s truth to that. And so I think it makes sense to kind of package the price action you’re seeing into some narrative. Everyone’s doing it. Um and and then to say like does that narrative make sense? Does it pass the smell test? You know, and so you know the debasement thing it I do think it works. I mean we’re running we went through that last time. I won’t belabor the point but like I think that’s a tailwind to the precious metals. You know that’s why we got the I think you started getting the first moves from central banks and then money started falling and you get speculators piling on at the end and these moves that you never can guess where they stop. That’s something we’ve said the whole time is you get into a gold bull market, you never know where it’s going to stop. It goes higher than you think. It lasts longer than you think. And so you just got to ride and rebalance. That goes to your point like you’re be overweight or rebying. Well, you need to be rebalancing aggressively in these volatile markets. So if you have a target and you fall off that target, you need to be buying things that fell off your target to get back to that that target weight and then selling things that go blow way past your target to get down to that target weight. And so um gold and silver to a certain silver is kind of a small market but precious metals yes to basement’s a tailwind. I think the data center buildout is a tailwind to industrial metals. It’s a tailwind in fact and it’s going to be a tailwind in meme too. I think people are going to start buying those things because they’ll say like we need these industrial metals. We natural gas we’re seeing some people start to filter into that market even though that is a widow maker market. Um, and oil is it hasn’t moved. So, there’s there’s perceived value there from speculators. I think there’s been a little bit too much speculative uh action in oil here in the short term, but it still makes it fits the bill. Like there if you’re worried about getting disrupted, we don’t know how AI is going to turn out turn turn out. You need to go to the base level and the base level are made up of these commodities really >> and so yes, there’s I think these are all tailwinds to that same story. Overheating is the cyclical tailwind. Debasement is the precious metals tailwind. The AI industrial revolution buildout and disruption is a secular tailwind for industrial metals and to a certain extent energy as well. >> Yeah. All right. Let’s talk about the Federal Reserve because I feel like you pointed to this out in your note. There’s been so much happening since the announcement of the appointment of um Kevin Walsh as the next um Fed chair. reading your note, I tell you you weren’t that stoked on the pick or or of I guess the universe of candidates here. Can we start with maybe more of your assessment of the pick? Like how are you thinking of about it from an investor perspective? >> Yeah, for investors like everybody has their political views and whatever and um all this stuff is so hard to disentangle, but from an investor’s perspective, I think Kevin Morris was the worst pick. Um, and I don’t think I think he was the worst pick from uh a merit perspective, too. And those things all kind of blend together. And so his his track record has been is poor. He he has a bad track record. He, you know, he was too hawkish going into and coming out of the GFC. um he really is always hawkish until the last couple years where Trump came into office and he’s kind of been asking for the job, wanting to get the job and some you can like twist yourself into an intellectual pretzel trying to excuse why he did this but it’s all for we all know why he’s trying to get the job and it is what it is and so he he got it but I don’t think um his track record isn’t very good and so I think that we know he’s got the he got the job not from track record but from because is a loyalist, is perceived as a loyalist to Trump. That hurts independence. And when you when you hurt Fed independence, you see term premium expand. You see, you would expect to see yield curve uh steepen, which is synonymous with term premium in my view. And that’s exactly what we’ve seen since they he was nominated. um he’s gonna have a hard time if the goal is to lower rates by the maximal amount, he’s going to have a hard time convincing the rest of the committee to cut rates because of this track record that he has, because of their skepticism of him, and because he’s constantly criticized the Fed for not being for being too data dependent, using too uh much forward guidance. He’s just always critical of the Fed. Look, like everyone has it see like the most universal thing is to be like pissed off at the Federal Reserve and criticize them. I think it’s like the most easy punching bag for everyone from all over the political spectrum to to to criticize the Fed. Um, and so I get it like there there’s like it’s very popular. like what I’m saying right now is kind of not popular, but um he he’s critical, but the thing he doesn’t do when he criticizes is really offer a solution. Like how what are you going to replace data dependence with not data? What is the alternative to data? You need to be able to speak the language of the other committee members if you want to convince them to cut rates. And he doesn’t seem to want to do that. He’s got he’s just way more about like he’s a grade a critic in my view, but he doesn’t really solve problems. Um, yeah. Go ahead. >> I was going to say is one of the problems he’s going to face like being able to build consensus like that matters. Like you said, speak the language. >> Yeah. I don’t think he’s going to build consensus very effectively. That’s that’s exactly right. Um I I think he like I said, he’s just been critical. He doesn’t have anything to offer except he’s he likes to talk about shrinking the balance sheet. But when you really dig into shrinking the balance sheet, I my personal feeling is it’s just something he says to sound smart. It’s something he can say when he’s trying to get the job. he wants to be perceived as hawkish and critical of the Fed, but at the same time, you know, talk up how much he wants to cut rates. So, what he what can you do there is you say, well, if we shrink the balance sheet, then we could cut rates a lot more. And I don’t think there’s a doesn’t make a lot of sense to me. Like, what’s the reason for shrinking? We did shrink the balance sheet by two and a half trillion over the last uh few years. And I don’t really know that it did a whole lot. and uh and you know there that we’ve gotten it to the place where we can given regulatory environment and banking environment that we have and if we go farther we risk a banking crisis and for what and so you know in order for him to really shrink the balance sheet in a meaningful way it would require regulatory changes that I haven’t heard him contemplate and so to me that’s just something he says it’s not going to change like I don’t think that the balance sheet policy is really going to change when he gets into office at least not any or into the position at least not anytime time soon because it’s just reality. It’s not I just think he’s running up against reality. And so we’ll see. Maybe I’m proven wrong and we’ll we’ll take it from there. But when I step back from all that, the net of it is that there’s more there’s less Fed independence. There’s higher term premiums and higher long-end rates because of that. Less of a proclivity to push through rate cuts if we get to a a um a controversial place in the cycle where there’s some disagreement. he’s not going to be the guy to sell the rest of the committee and build a consensus. And if we had a real crisis, his aversion, publicly stated aversion to expanding the balance sheet means we’re not going to have QE. So when I look at all that stuff, the net net for investors is the Fed put goes lower. The Fed put being like that hypothetical place where if the market falls to this level, then the Fed gets involved. They cut rates, they expand their balance sheet, they do whatever they need to to stop the bleeding and stop systemic risk. He’s been I think that shift lower under a Kevin Worsh Fed. Maybe you’re happy with that. Some people will be happy with that. But I’m saying from investors, if you want to be long assets, that’s a um that’s that’s a not a great uh phase change. >> Investors are going to want that Fed put even though people some people are going to criticize like why do we have the Fed put or whatever. From an investor perspective only, they’re going to want that Fed put in the end. >> Yeah. From an investor perspective. And you can make the case that you there’s there’s fine debates to be had about like what are what were the societal level um benefits and weaknesses to different Fed policies. Sure. But like from the regime we’ve been in is one where the Fed intervenes and saves the market and there’s going to be strong disagreement on whether that should be or shouldn’t be. But I think Wars change pushes that Fed put a a little bit lower. I still think he’s a lot of talk in what he says and when the rubber meets the road he’ll he’ll do whatever he has to but um there could be more waffling before we get to that place. >> Do you think um the appointment of war is that one of the kind of risks against the bull market narrative right now or does it bode well for the narrative? >> It’s a risk against it. So all these things we’ve been talking about they all net out as bearish. >> Okay. >> It’s about whether these things can >> derail. they strong enough to derail those the big time fundamental factors, economic reaceleration, earnings reaceleration, a Fed that’s cutting um stronger fiscal deficit, big capex boom. >> Can we derail that >> that core? And I don’t think it can, but it’s all net bearish. Like don’t get me wrong, the buyback dry up, the stock, the the the disruption being um forced on the rest of the big violent rotation we’ve seen in software and what’s happened there? That’s also a potential net negative and worsh is definitely a net negative for the market. >> And is it because he will he won’t have the ability to do the rate cuts that Trump wants? Like what what is and be >> number one? Yeah. Number one, when he cuts rates, they won’t transmit to the long as much because I think he’s hurting I think he’s hurt his the Fed independence. So to me, like in a normal cut cycle, when you cut 25 basis points, history says this is just a historic average. Mhm. >> The historic average is that the 2-year yield falls by 17 basis points and the 10-year yield falls by uh 10 basis points and you get a seven basis point steepening between the twos and the 10ens for every 25 basis points of Fed cuts. That’s your historic rule of thumb that I would say. And with a W Fed, his 25 basis point cut will not transmit as much to the 10-year where it matters for the economy. What about with PAL when we’ve seen cuts because haven’t we haven’t we also seen like the 10-year backup as well? Is it a more recent development? Is I don’t help me understand like where does why has it been behaving the way it’s been behaving? And I take it that’s probably not normal. >> Yeah, that’s something that we talked about a little bit in August and like so the real time where the 10ear backed up when the the Fed started cutting was back in September of 2024 and through to the end of 2024. That’s because the yield curve was extremely inverted. Okay? So, when the yield curve is inverted like this, all those rules that I just laid out kind of go out the window because that’s a yield curve that reflects >> it’s a recessionary yield curve because doesn’t make sense for the the Fed funds rate to be um whatever it was 200 basis points above the 10-year back in September of 2024. It doesn’t make sense for that. So when they started cutting there and they cut aggressively, they cut 50 basis points and then you saw the economic numbers come in stronger than we thought because there was a recession priced into the bond market at that point. That’s what it was. Got it. >> The recession pricing had to come out and so a lot of people I know you’ve talked to a few on your show um like Jim Biano and I’ve had public kind of respectful public debates with him back and forth. Um he saw that as evidence of a Fed mistake and I saw that as just an unwind of a recessionary yield curve. >> Interesting. >> We’re not at that place right now. The yield curve is 70 70 plus basis points. Two tins is totally is normally upward sloping. And so >> um at this point in time all those rules of thumb I laid out they should they should transmit >> you should at 25 basis points it should transmit somewhat to the long end to the tenure. But if the tenure doesn’t believe that Worsh doesn’t if the tenure thinks Worsh is it represents a less independent Fed it could you you could probably see some uh I think what you’d see is less movement out of the 10ear. So like that you cut 25 basis points and maybe the tenure just stays right where it’s at would be my prediction. >> And I know the 10ear is like critically important for so many different areas of the market as well. Um what would be some of the broader implications of that? Um well I mean housing is the housing and anything interest rates that’s the been the real crux of the pain for the consumer and everything. So like I think that’s what you know you see Trump talking about housing >> related um antirust fights right now and things like that because we’re going on an election season and everyone knows like what’s the source of the pain? The source of the pain is that housing is unaffordable in this country. A new car costs $50,000 now. And interest rates combined with those headline prices. It doesn’t work with incomes for most of the the country. And so you’re seeing increasing pain and feeling of being left out. That’s why you see everyone talking about the K-shaped economy and the the bottom half of the K is growing in size and growing in frustration. There’s a political snapback coming from that that lower half of the K. No doubt. That’s also part of like the debasement world. You’re seeing these asset prices float up even and your income’s not keeping up with it and you end up seeing consumer behaviors change. We’ve seen the savings rate fall, continue to make new lows. We’ve seen more gambling. We just had the Super Bowl last night. >> Oh my gosh. Every commercial. Yeah. >> Right. And so, and you see, like we talked about last time, coming off the bottom in Liberation Day, the weird thing about that selloff is retail at the bottom. Very abnormal. They were buying the dip. They’ve been conditioned to buy the dip. and it’s part of these things are all related in my opinion and the changes that we’ve seen in the economy over the last 5 years. And so, >> um, yeah, that’s that’s what the if we don’t get the tenure down, that angst around the housing market and those interest rate sensitive areas of the of the economy, that’s going to remain. And so that’s why when I when when Trump picked worsh, I was on TV saying, I tweeted about it like this is not going to accomplish your goals. This is actually counterproductive. you would have been better off picking a Fed uh chair like Waller who the market thinks is indep is is independent and will remain independent and call balls and strikes in the economy they sees because that would actually compress term premium and flatten the yield curve and cause cuts at the short end to transmit into the long end more. Um but he you know he went the other way. He value loyalty >> uh over over what I would say is merit. >> You just kind of referenced Warren the broader economic picture like the Kshaped economy. We actually haven’t really talked about the economy in this episode. Um but we have like the the market remains in a bull market. There are some risks Goldilocks for now. Doesn’t look like any are going to de derail any of that. But um how do you kind of think about the broader economic picture and how this does any of this like play into that impact that? Does the econ does the economic picture matter here? How are you thinking about the economy? >> Yeah, I think the economy is I think the labor market is softening. I think that the inflation will stay kind of muted here in the fir front part of the year and uh but at the same time you’re going to have a fiscal impulse from the tax refunds and there is some of the the one big beautiful bill and these capex numbers you’re seeing too because we have bonus depreciation so that pulls forward spending at the same time these consumers are going to get a better tax uh refund season and that’s going to come through as a higher fiscal deficit. So, uh, you see all that and at the same time, um, there is a little bit of inventory restocking that has to take place because of the tariff lumpiness. And so, uh, I think there’s there’s basically, uh, and the big the big thing out there is AI is a true shot in the arm for productivity. So, productivity numbers were ex really high um, in Q3. Uh, if you trust the numbers, we saw, we went back and looked at it. It was the only the second quarter we’ve ever seen where um the unemployment rate was up by more than 20 basis points and uh and GDP grew by uh I think it was 1.8% Q over Q. Don’t quote me on that. I think that was the numbers that we saw as a combination. Only other time we saw that combo of growth plus unemployment rate going up was back in 1992. Q2 1992 coming off the back of that 1991 recession. So it was this jobless recovery, >> but what we’re going through right now is so it’s very uh abnormal. There’s a little bit of this savings because like I said, the savings rate is very low. So you have these people with the wealth effect spending down their savings, powering the economy that shows up as productivity. You could argue that’s not real productivity, but I think the other component is real and that is the AI that is the AI um productivity boost and you’re seeing that in the numbers now finally. Uh you’re seeing it show up as a hesitancy to hire. So the economy is in a really interesting dynamic spot. I think we’re going to grow. We’re going to be it’s going to be almost impossible to have a recession this year because of fiscal deficits in the capex boom that we’re getting. But at the same time, the labor market’s going to be weak on the weak side. I don’t see a hiring boom because who’s going to hire in front of this kind of generational technology um that’s coming. And so I think it nets out as a high productivity environment where we probably accelerate some of these feelings of the K-shaped economy where the for the people who are on left out it’s probably going to the the uh the nervousness might intensify the skittishness and and angst will intensify. But for the economy, for earnings, the S&P 500, the the places that um aren’t going to be totally disrupted by AI like we talked about, they’re I would see them accelerating and see their fundamentals accelerating and u and doing quite well this year. So, it’s going to be a weird that nets out to a positive economy, but there’s going to be some pockets of >> It sounds like it’s going to be a weird year. Yeah. >> Yeah. I think that’s >> a lot of pockets of Warren. I have to say this has been awesome having you back on. I really enjoyed your appearance back in August. I enjoyed this one as well. I know the audience is going to love um having you back. All right, before I let you go here, um let folks know where they can find you and support your work at 314 Research and any parting thoughts, anything that you’d like to leave this audience to think about. The floor is all yours. >> Um yeah, 314 research. It’s the number three spellout14ress research.com if you’re interested in um checking out our research. It’s generally an institutional research product. The thing I would leave our room with or that we’re excited about is um I know it’s the age of AI is kind of the dominating theme of our conversation, but we have a our AI research assistant. We call it Caliban that um my partner Fernando and I have just >> started selling to our clients as an add-on. is now forced to get it as a client, but it’s an add-on. And so, if you’re interested in just like we’re going to be selling it to the general public, you can look at I’ll look up Caliban C a l i ban um and sign up there for when we release it to the general public if you’re interested in basically being able to um expand your research capabilities. And it’s um I could go on and on about it, but the best way to see it’s very very impressive tool. The best way to to see it is to just check out our the 314 Twitter page, X page, and uh check out the demos. >> Love it. Warren Pies, founder of 314 Research, thank you so much for being so generous with your time, all of your knowledge, your wisdom, helping us all learn and get better. Really appreciate you taking the time today, Warren. They grab me.

Pitch Summary:
Chaoju Eye Care is positioned as a leader in the ophthalmology sector in Northern China, with a focus on high-demand services like refractive surgery and cataract operations. The company benefits from favorable demographics and a defensive, recurring business model. Its market valuation is attractive, trading at the value of its cash on the balance sheet. The company is actively buying back shares and offers a 7% dividend yield, indicating strong shareholder returns. Planned investments in new clinics and the ability to generate significant normalized profits make it a compelling investment.

BSD Analysis:
Chaoju Eye Care’s strategic focus on expanding its clinic network and maintaining high operational margins positions it well in the growing Chinese healthcare market. The company’s ability to navigate the current consumption crisis in China and maintain profitability underscores its resilience. The ongoing share buyback program and attractive dividend yield highlight management’s commitment to enhancing shareholder value. The planned investment in a new surgical clinic signals confidence in future growth prospects. The company’s valuation, at just 7 times earnings, presents a deep value opportunity in the healthcare sector.

Pitch Summary:
Semapa has recently sold its cement subsidiary to Cementos Molins for a price significantly higher than expected, unlocking substantial value for shareholders. The transaction is expected to crystallize 800-900 million euros in cash, enhancing the company’s financial position. The valuation of Semapa could reach 40-47 euros per share, driven by the strong performance of its paper subsidiary, Navigator. The company is seen as a good investment opportunity due to its attractive valuation and potential for further strategic moves, such as an acquisition of Navigator or reinvestment in new businesses.

BSD Analysis:
The sale of the cement business provides Semapa with significant liquidity, which could be used for strategic acquisitions or shareholder returns. The potential for an extraordinary dividend in 2026 adds to the investment appeal. The market may be underestimating the value of Navigator, which remains a strong performer within the group. The possibility of a takeover bid for Navigator by Semapa could further enhance shareholder value. The company’s strategic flexibility and cash-rich position make it a compelling investment in the industrial sector.

Description:
In this episode of The Wrap, Chris Whalen argues that the AI narrative is stalling and we’re witnessing a sustained rotation from …

Transcript:
This is kind of a manic momentum-driven market, Julia, but it’s really extraordinary how extended some of the gains got last year and now people are running out. You see this with crypto, too. Crypto is suffering because the AI narrative has broken down. I guess emotions and intuitions on the part of managers are driving the selling in all of these sectors. Hey everyone, welcome back to this week’s episode of the rap. Chris, great to see you as always. Really appreciate you. >> Good morning, Julia. >> Good morning. Loving doing this with you every single week. Um, >> I want to start with markets again. uh just because you wrote in this week’s edition of the rap that the AI narrative is stalling and large cap tech just had its worst week since November. So question for you is is this just a healthy correction or is it the beginning beginning of something bigger? Well, I think it’s bigger because of last year, Julia. You know, last year was a year of magical aspiration, crypto, uh we had banks running at doubledigit rates of return. Uh and then of course tech led the way. The top tech firms were the majority gainers in last year’s market and now they’re giving back uh much of those gains. What’s fascinating uh that we mentioned in the blog is that some of the large cap banks have retreated dramatically. Uh if you look at the top 100 or so banks that we uh follow closely and publish every quarter, uh JP Morgan’s now 87th in terms of market returns. That bank was at the top 6 months ago. So what’s happened I think is that you have a lot of equity managers going risk off and they’re taking money out of sectors that are now considered to be essentially down on their luck and they’re going into safer consumer and and other sectors that have income and that are going to be less vulnerable if we continue to see more selling. >> Wow. Yeah. So, um I think you probably got it in there, but what are you watching to determine that this becomes a sustained rotation then? >> Oh, I think it is. I think people are rotating into quote unquote safer stocks simply because they have to. Uh when you see, you know, for example, I have a position in AMD. I followed that company for a long time. They make low power chips for a lot of applications. That stock’s now down at the 52- week low. Uh I have been slowly buying more because I do like the company but everything tech is being painted with the roller and I think now that you know the supernormal returns we saw last year are turning into losses. Uh one of the more interesting things we talked about in the blog is our fintech portfolio. There’s only three stocks that are still up in that whole group and it’s an interesting group of credit shops. people like Apollo and and Aries and the rest of them, but they’ve all sold off dramatically, and that’s because they were up so much last year. This is kind of a manic momentum driven market. Julia, you and I have seen this before, but it’s really extraordinary how extended some of the gains got last year and now people are running out. You see this with crypto, too. Crypto is suffering because the AI narrative has broken down. Um it’s not to say that there’s a you know a really cement kind of connection between the two but clearly the same sort of you know I I guess emotions and intuitions on the part of managers are driving the selling in all of these sectors. >> Chris, you are someone I know as a bit of a financial historian. That’s why I love reading your works. Um you said something interesting there. This is the way you describe this market is a manic momentumdriven market. Have we seen anything like this? And are we headed for the big breakdown? We’re not there yet. No, I think since 2008 because we’ve had so much central bank intervention and open market activity driving markets, people kind of got used to things going up and they didn’t have to worry about a lot of downside risk. Whenever you have that, you tend to have people get a little bit overextended and particularly the whole AI narrative, which still makes no sense if you try and figure out how are we going to make money on many of these investments. Um, I think that’s really what is has started to to trouble people. You know, I noticed that Anthropic has just risen uh raised money on a ridiculous value valuation. you know, are people going to continue to support transactions like this? I don’t know. I really don’t. I I think this year is going to be a much more difficult year for most of the sectors we follow. And I particularly think financials, I’m not encouraging anybody to go long financials at this point simply because there’s a big question mark about interest rates. And there’s also I think a a tendency of people to take gains that they had from last year if if they were able to take them. Uh because honestly the bank started selling off in September October >> and that selling has continued right through to today >> and you know you know you as um a bank analyst like banking that sector is a that’s bread and butter for you like you know that sector and uh I want to go back to something you said at the top about JP Morgan. Um JP Morgan now ranks 87th in your group. Um >> that tells us >> just in terms of >> 200 day moving average. >> But that’s interesting though because like yeah JP Morgan, right? What does that tell you? Um if folks won’t I take is that does that mean folks won’t I mean when I think of JP Morgan that’s the that’s the cream of the crop. That is like >> the bank. So what does that tell you? >> They have huge advantages over other banks. say are much more efficient than other banks and they’re still trading at two and a half times book I don’t want you to shed any tears for Jamie Diamond okay uh but they have given back a lot of ground and when you look at our rankings today just based on total market returns the top 25 are nothing but smaller names the small caps rule right now uh the only bank in the top 50 that you you know would recognize as a large cap is city >> so think about that all the rest of those have kind of given ground. The smaller banks have taken up some of the ground and managers clearly are not as comfortable holding those positions as they were 6 months ago. >> Yeah. I guess my question is what does that tell you if the managers won’t own like arguably the best run bank in America? We’re not >> I think it’s partly concerned that credit is finally going to become an issue this year after years where it didn’t show up. Remember, we’ve been talking about this for 2 years. No recession in 24, no real peak in terms of losses on the consumer side. So I I think people are a little more cautious this year than last. Last was a year of exuberance, a year of crypto, a year of, you know, the President Trump uh narrative dominating the news really. This year, not so much. I think there’s a lot of people who have moved offshore into different markets. There’s been a big rotation into foreign markets really since last year and I think a lot of people are looking for safety now instead of uh easy gains because they’re not sure that those gains are still there. Julia. >> Yeah. All right, let’s touch a couple third rails here. Um cuz we’re going to get some spicy comments and I love it. All right, we have to talk about crypto because you mentioned crypto and the link between crypto, the crypto trade and AI. What is that link? Well, it’s it’s aspirational. In other words, the the thing that drove crypto in the triple digits in terms of the the dollar value of things like Bitcoin uh and that drove some of these tech stocks up are really the same sorts of narratives. They don’t particularly worry about whether or not there’s a firm base underneath these investments. They certainly don’t worry about profitability when we talk about AI. Uh, and I think that those concerns are starting to come to the four because, you know, for example, uh, Google uh, has just put down a hundred-year debt to try and finance their AI ambitions. If that’s what we have to do to finance these things, I really wonder if they’re ever going to make money. You know what I’m saying? Uh when Elon Musk said that he had to put his AI engine up in space in order to power it with solar power, what he’s telling you is that there’s big political opposition to all of the data centers that people want to build around the country because if they result in higher electricity costs for consumers, it’s not going to happen. Congress is already going to hold hearings on this. And in other nations around the world, you see similar concerns, which is that people think that electricity is kind of a free good that they can use to develop new products, but it’s not. Uh, one of the interesting things I saw, there was a piece on Substack last week talking about how long it takes to make changes in the electric grid to actually connect up to some of these data centers. Takes years. You you don’t just snap your fingers and say, “Give me enough power to run my data center.” uh it takes a long time and a lot of capital investment. So I think we’re we’re looking at some of these narratives and we’re asking questions and the more people focus on the fundamentals on cost on potential profitability I think the more people are going to kind of be cautious about the AI trade going forward. >> Um you wrote that Bitcoin and other speculative vehicles are being routed in a way not seen since before co. So, I guess the question for you is >> on Bitcoin specifically, you’ve been predicting this unwind. Um, let me see. Where are we today? Where are we today? Let’s see. I think we Oh, 67,000 right now. Okay. Um, well below the highs that we’ve seen. What’s the endgame? Like what do you do you think this goes to zero? Like what where do you see this thing ultimately headed? >> I I think it could go lower because the market for Bitcoin is so weak. In other words, you don’t have a really welltraded long short market around the spot market for Bitcoin. So when someone wants to sell, it causes the whole complex to drop. And that I think has flushed out a lot of the public companies that were involved with Bitcoin. You know, obviously people have been watching Micro Strategies, but when you when you use dollar debt to finance a speculative position in any cryptocurrency, you’re essentially asking for trouble. Uh if you’re playing with cash, that’s another matter. But I think the whole weakness in the crypto trade because let’s say we’re at half of where we were versus the peak. Uh and I think that tells you that there’s not a lot of staying power in this market. if any number of players decide they want to exit. That to me is a speculative market and I think people are realizing that. >> So you’re skeptical of both the AI narrative and also the crypto crypto narrative. Um maybe more >> well they’re driven by Wall Street hype. You know the way this works. People come up with an idea and they go out and sell it. That’s the uh the great strength of America. It’s all about sales. >> Well, let me ask you this. Um, what do you think is the next legitimate growth story then for the US economy? What do you think that is? >> That’s a very good question because you know the AI tech narrative has been driving the bus for a long time, well over a decade. You go back to 2008 really tech has been kind of the the default narrative for a lot of the investment world regardless of whether it was software, hardware, combination thereof. The fact that people have taken so many hickeys on software stocks, for example, Julia, I think is fascinating. So to me, I think it’s safety right now. People are looking for income. Income means that the asset is going to be less volatile. You know, we’ve written about this a lot in the blog recently. Uh Bill Py has been out buying mortgage back securities to try to lower interest rates. Well, the interest rates on your typical Treasury bond today, the 10 years are in a four and a half, four and 58 kind of coupon, but that’s pretty stable. If you look at the uh debt that was issued during COVID that has twos and 1% coupons, they’re very volatile. And that’s I think the real story here. So, people are looking for income generating assets simply because they know they’re going to be safer in the short term. Mhm. Um, you’ve also talked about um, private equity. We talked a about it a lot here on this show. What about just the percentage of private equity deals in the last, you know, several years I have been in the tech space even? Um, >> it’s a big number. It’s like a quarter. >> Yeah. And then the question for me then is um, what happens to like all that trapped capital then? Well, it tries to get out one way and another, but you know, if you can’t IPO the companies in the private equity world, then the manager has to sit with it and the investors have to sit with it unless they can sell the company. Uh the lack of liquidity in the private markets, whether you’re talking about credit or private equity, was always the big negative. And a lot of the sponsors said, “Oh, well, you know, private markets are better than public markets.” Now, public markets are always better because you have a crowd of people looking at the asset and they are determining what the value is. When you have private markets, you basically have to take the word of the manager for the private equity deal on what the company’s worth. I don’t think that’s a very stable and and sustainable model. So, I think private equity, frankly, is going to get smaller over the next couple of years. There’s still money flowing in, don’t get me wrong, but a lot of managers have losing positions that they’re going to have to sit with and work out, and that’s going to be a very interesting process to watch. >> Hey guys, thank you so much for watching this video. If you can just take a quick moment and hit that subscribe button, we are trying to hit our next goal of 100,000 subscribers. Really appreciate you. And back to the video. Okay. Um, let’s shift topics. Um, all right. But you have to go to another area that’s bread and butter for you, which is the mortgage market and housing. Because you wrote also in the wrap around Fanny and Freddy, >> reporting earnings profitable, but where’s that growth coming from? That’s the issue. >> It’s coming mostly from people refinancing existing mortgages. you’re not seeing growth in purchase mortgages, which is what President Trump and members of his administration have been trying to encourage this whole uh issue of affordability. I think the reality, Julia, is that, you know, home prices are still a big obstacle for people. And even if we lower interest rates, what’s happened initially at least is that people take that lower rate and they go out and refinance the mortgage on an existing home. I think to get real action in the mortgage market in terms of purchases, you’d have to get mortgage rates down another point. Now, that’s not unreasonable because we’re still up. You know, if you think of where mortgages were during CO, which was, you know, down in the 3s, I have a 3% mortgage on our house here in New York. Um, that is a long way to go. But what’s interesting is the demographics of this. I was talking to one of the smarter modelers in the industry yesterday. When you get up to larger mortgages above half a million dollars, regardless of the market you’re in, they don’t move. These homes are not selling even as rates come down. So, in order to get those people incentivized to sell their house and make that house available to another family, you’re going to really have to get interest rates down a lot. and we’re going to write about what uh what uh Scott Bessant and Kevin Worsh need to do to make this happen next week. >> Okay. Well, maybe you can give us a little bit of a sneak peek like what need what do they need to do to like make that purchase activity return? >> Well, partly you’re going to have to let home prices correct a little bit and it’s going to happen anyway. Policy makers can’t prevent that. It’s a long-term trend. I still think we’re going to have a home price correction probably 2728 time frame. But also, I think you’re going to have to restructure the market. The Fed needs to get out of their investment in mortgage back securities, which is still about $2 trillion. And I think they could work with the Treasury and with Bill Py at the FHFA, the regulator for Fanny and Freddy, to make some of this happen because, you know, it’s kind of counterintuitive. People scratch their head when I say this, but it’s the low coupon securities out there that keep interest rates up. You would think, well, hey, that coup, you know, that loan has a very low coupon. Yeah, but the problem is it’s a dead weight in the market. It doesn’t trade. And the homes that were financed with that asset aren’t going to trade. They’re going to just sit there. So, until we unlock, this is what we call the shutin effect in housing, until we unlock some of those homes and get them back into the market, it’s going to be very hard for people to find a house. >> So, I guess who needs to work together? You said Besset. Is it Besset and Worsh are going to have to work on this together? Like what is >> Yes. >> Okay, >> that’s right. Well, you know, Kevin Worsh has said many times that he wants to see the Fed’s balance sheet smaller. >> How do you do that? >> You call the Treasury and say, “Hey, I’m going to swap you my mortgage backs for some Treasury bonds.” That immediately gets the Fed where they need to be, which is their whole portfolio should only have Treasury securities in it. They should never have bought those mortgages. Then you could restructure that whole block of assets, work with Fanny May and Freddy Mack to get it done and bury some of that duration, those low coupon securities in the insurance sector. They would love it by the way. >> You you restructure them into different uh tres of uh of bonds and the insurance guys would love it and you would never see them again. They don’t trade once they get done. So I think that’s the solution. We have to restructure the treasury market and also the mortgage back securities market to kind of undo what was done during co you know Janet Yellen Jerome Powell they all thought they were being helpful but they weren’t and the things that they did during that period they did too much number one and they also created a big obstacle for getting rates down in in the medium to long term. >> They did too much but okay let me ask you this about the Fed. Um, should the Fed engage in fiscal issues? I take it they probably do, right? But like is there a way to do it appropriately or how what is the dynamic? Like what is the dynamic? >> I think that’s going to happen. I think Kevin Worsh is going to job on the Congress about working on the budget deficit. We haven’t had a Fed chairman in a long time that was willing to talk about that in public really back before Ben Bernani. So to me that’s I expect that from Worsh because he’s a very good conservative and he understands that this is part of his job. Uh Jerome Powell has refused to talk about fiscal issues unless people put him on the spot during a press conference. >> I take it that’s been a disappointment then >> I think so. The Fed chairman is the banker to the Treasury. It’s his job to talk about fiscal issues. He has to because ultimately the number one job of the Fed is keeping the Treasury market open. The only way we do that is if we try and get Congress to do their job. And I know that may seem fanciful, but it’s going to happen. >> Well, let me ask you just another hypothetical. Um, let’s say Worsh does that and he’s jawbone in Congress on fiscal issues. Would President Trump be happy about that? >> Uh, I think so. I think so, cuz ultimately that’s the conservative agenda. Trump is more of a populist than a conservative, but he still needs to leave uh at the end of his four-year term with things better than they were when he came in. And I think having Kevin Walsh at the Fed is going to change the behavior of the central bank and it will change the narrative that the central bank has as far as the public and the Congress goes and that to me is a positive. >> Okay. So Wars has talked about wanting to shrink the balance sheet. >> Yep. >> What happens if he changes his mind on that? >> Well, he’s got to be creative. That’s one of the reasons we’ve been writing about this issue. I think any Fed chairman when they walk into that big room and they sit at the big table, Julia, the first thing they have to worry about is making sure that the Treasury has access to the markets. Anything else is secondary. So when you talk about job creation, when you talk about inflation, that’s great. But ultimately his first job, the one that’s not been articulated in the law, is to keep the Treasury able to issue debt and fund the operations that they need to fund. >> Is that like the It’s like the mandate, but it’s like not the spoken mandate. >> It is the It is the real mandate. >> The real mandate. Yeah. >> Yes. >> Um probably the most important one, too. Okay. Well, that’s what 2020 was all about. When the Fed came in in March of 2020 and bought a couple trillion dollars worth of securities, they weren’t there responding to COVID. They were responding to the fact that the Treasury market had stopped and investors had run out of the room. So, they had to restart things. That’s what that was all about. >> Yeah. Um, you’ve been critical of the MBS on the balance sheet. >> Yes. >> What What should Worsh do with it again? like what what would be the mo what would be the move and what would be the impact on the market? >> I think they should swap it to the Treasury and take Treasury debt and then uh Scott Besson should call up Bill Py and say, “Hey, we need to issue some collateralized mortgage obligations and bury those securities, those low coupon securities in the uh balance sheets of insurance companies who and they would love it. By the way, you know, there’s still such a der of paper out there, Julia. There’s a remarkable demand for all sorts of assets coming out of the insurance sector. There was a fascinating piece in Bloomberg last week about how the insurance sector was eating the world because they have such an appetite for assets that they just cannot find enough. So, let’s go make some assets for them and make them happy. >> Oh, meaning they’re looking for places to allocate then. They’re just looking for yield. Is that >> No, they’re looking for investment assets to fund the obligations that they’re taking. >> Oh, okay. Okay, >> got it. >> That’s right. So, let’s say you have an annuity for your retirement. They need to go invest in something to generate income for you. >> Fascinating. >> And they are scouring the earth. It is fascinating how aggressive some of these insurance companies have been in a number of different markets. >> Okay. Are they having trouble finding opportunities or they just like need Yes. Okay. >> Yes. Cuz they compete with everyone else. They compete with banks. They compete with sovereign wealth funds and private equity funds. The competition for assets is intense and it’s largely driven by inflation. Okay? >> Every time the Fed has done a big operation in the markets, what happens? The banking sector gets bigger. >> When the banking sector gets bigger, they have to go out and buy more assets. >> The same effect is seen with insurance companies. >> Does that just kind of just give an underlying continuous bid then? >> Yes. That’s the funny thing that the the desire on the part of all of these institutions to find investment assets is one of the reasons the markets don’t trade off dramatically. When they go down five or 10%, people come in and buy it. >> Okay, that’s interesting because just going back to the top when you you kind of described this as like what was it a momentum? Oh, what was the mania? It was a momentum. Let me see what I wrote down. It was a good way of describing the market. >> A manic momentum driven market. a manic momentum driven market. Is that why we haven’t seen like a typical crash cycle like if it go okay >> yes >> fascinating >> that’s the thing and you and you have people have learned this and they have kind of incorporated it in their market strategy. So when the markets do trade off 5 or 10% people come in and start buying it. Now at tech, these assets had gone up so much last year that there’s a lot of air underneath and that’s why they’ve sold off so dramatically. But are we going to see this continue? No. I think at some point uh there’s going to be enough buying to stabilize many of these names and they’re going to go back up. >> Mhm. >> But this is all about inflation, Julia. That’s what this is really about. >> Which again, that’s the area that’s another area of expertise for you. And you wrote the second edition of inflated. Um okay. So just when I was hearing >> inflation is the national pastime of America. >> I love that line from you. >> You know the the fiat currency is the greatest invention ever, right? >> And we see a product of that, you know, everywhere when we have these convers you see the product of inflation um throughout our lives. Okay. So going back just big picture with markets, you were talking about this kind of um people looking for safety. Consumer staples was one area we’ve talked about. um when you look across your portfolio and you’re someone again you track banks, >> mortgages, fintexs, metals even we’ve talked a lot about metals. Um >> what’s kind of the theme like if you had to sum it up what’s the common thread the theme for you that what’s the trade for 2026? I guess >> I think initially people are going to look for safety and income and then they’re going to have to selectively figure out when they go back into sectors like banks. Banks have traded awful a lot. Is there a case to be made to go out and buy JP Morgan at 2 and a half times book? I think there is because that bank is so much more efficient than everybody else. There’s other names in the group too that deserve interest. Uh I think it’s interesting that one of the stocks we’ve talked about with our readers and with with your viewers is Annalie. Mhm. >> Analy is a big REIT that invests in mortgage back securities that are guaranteed by the US government and they generate, you know, low to mid- teens returns uh in terms of yield. That stock’s doing very well. And as I’ve told your uh your viewers, it’s not a stock I own for capital appreciation. It’s a stock I own for income and I’ve owned it for a long time. So I think you want to look for opportunities that give you income immediately and also some stability. But you know as I say that I’m 65 70% in stocks and I’m not going to change that. I’m still long gold. Uh I haven’t really changed any of my silver positions even though they traded off dramatically. They’re all still up. >> The the ETFs I own for silver exposure are still up 40 50%. even after they’ve sold off so dramatically. So there’s a manic kind of very highly volatile quality to this market today and I think it’s difficult for people to get a sense for what they want to do because they are dealing with a lot of volatility. >> Yeah. Um you stay calm during those the volatile times too. Um >> well >> let me ask you about a maybe it’s a bit more of a wonkier topic but you write about it and we’ve talked about it on the show. You’ve been educating us on what’s going on at Pennymack and it sounds like they made another mistake in your view. What did they do this time? >> Well, they bought a company called Senlar, which is an old thrift that got to be one of the largest subservices in the mortgage business. I think the transaction was a mistake because a lot of Senlar’s business is going to go out the door. Um, they were a company that didn’t compete with their customers. They didn’t try and get the borrowers in their portfolio to refinance. They didn’t do a lot of things that other firms naturally do as part of their operations. So now that it’s being sold to Pennymac, if I own the servicing that Senlar has been taken care of for me, do I want Penny to to run it? No. I’m probably going to move it to another firm that is a little less threatening in terms of what we call recapture in the mortgage industry. And I’m a little concerned about this whole transaction. I had always assumed I followed Semlar for 20 years. Uh going back to when they were uh really, you know, a much smaller company. At one point they were over a trillion dollars in subservicing. Uh City had sold their mortgage portfolio to them uh for servicing. But I think recently, you know, they’ve been suffering from a lot of negatives. And I always assumed that business was not salailable, Julia. So when I saw Pennymia announce this acquisition, I I kind of rocked back in my chair and most of the people I know in the industry have a very similar view to mine. >> Um I guess like the question here is if you’re a shareholder, what would be your question to management on this one? Well, look, when when pennymax sold off after that disastrous earnings release they had a couple weeks ago, I initially said, “Look, this stock is cheap. It’s a great company. They’re one of the leaders in the market.” But then they announced this purchase of Senlar, which I think they could lose money on to be frank. Uh, and I got I’m just a go. I really don’t know what to make of it because it doesn’t make a lot of sense. The industry right now has volumes that are kind of mediocre and so everybody’s out there competing very aggressively for loans. That’s the kind of market we’re seeing. One of the interesting things we mentioned in the blog is that the market uh for big mortgages that you can’t finance from fanny May and Freddy Mack. They’re just too large. the jumbo market it’s called or what we call a nonQM non-qualified mortgage uh has been booming because all these firms have excess capacity. So they’re throwing their loan officers into that market. That’s an interesting market but it’s got a lot of liquidity problems. If suddenly people wake up in the morning and they don’t like the risk that market can disappear in a heartbeat. So I think that you know there’s a lot of risk in the mortgage sector as I mentioned on our call yesterday for our view uh readers and I’m a little bit cautious on mortgage stocks right now. We still have to hear from Rocket. We still have to hear from United Wholesale Mortgage the end of this month. And I think everybody in the industry is kind of holding their breath on that one. They want to see what those two companies report. All right, we have um one viewer um we have one viewer who has a question this week and folks send your questions in. Um viewer Ryan would like to know last month Apollo Global’s commercial mortgage rate ticker ARI announced a landmark deal to sell its entire $9 billion loan book at 99.7% of par and might just liquidate the REIT entirely. Do you have any thoughts about this transaction? Does this suggest that in 2026 the only way to win in mortgage lending is to stop doing it entirely? >> No. I think what you see there, and it’s a good question, by the way, um Apollo sold that mortgage portfolio, commercial mortgages to an affiliate called Athen. Athen’s a publicly traded insurance company that has served as a balance sheet for Apollo. They have put all sorts of assets in there and I think the driver here is that commercial mortgages are still having a hard time Julia. So by putting it inside of insurance company which is book value remember they don’t mark to market their assets. Insurers always run their assets at book value. I it it’s a way for them to kind of mask some of the volatility that’s flowing through the commercial mortgage sector right now. And as you said they may wind up the rate and just get rid of it. So putting it inside an insurance company is uh a relatively attractive trade. Is it good for the insurance company? We’ll see. You know, the insurance sector has been buying a lot of private credit, private equity assets like this, commercial mortgages, and it raises some questions and concerns, I think, for the future because ultimately insurance companies need to be liquid. They need to have assets that are high quality. And when you start putting things like commercial mortgages inside, you know, you kind of wonder how it’s going to do over time. >> All right, Chris, um this has been another fun episode of the rap. Before I let you go, um let folks know where they can find you and support your work and subscribe to the institutional risk analyst because I I got to go to your quarterly call which was a lot of fun to see you in action. That was really cool this week. And um the viewers also wanted to know what you’re looking at as we head into next week. Um the floor is all yours. >> Well, thank you, Julia. Uh I published the institutional risk analyst. We just put up our gold and silver portfolio for our readers. Uh we’ve been assembling this group of about three dozen different stocks, ETFs, uh simply because people kept asking, “How do I get exposure to metals?” And this is kind of our way of putting out a little research list for everybody to do some homework on. Some of them are in the US, some of them are offshore, many of them are in Europe, interestingly enough, and some of them have performed just remarkably. But the one thing I would say is that gold and silver is a sector nobody’s invested in for over a decade. Some of these stocks are very small and some of them have increased two and 300% versus last year. So, I think you’re going to see volatility there, but you’re also going to see a lot of opportunity. Uh, I’m active on X and LinkedIn under RC Whan, and I, uh, you know, love to get questions from people. We usually put our answers up on X because it’s easy for people to find them. And, uh, I love having these conversations with you, Julia. Thank you. >> I do too. Chris Whan, chairman of Whan Global Advisors, author of The Institutional Risk Analyst, the very best independent analyst that you will find on Wall Street, friend of the show. Really appreciate you and I look forward to seeing you again next week and I hope you have a wonderful weekend. >> Thank you, Julia. Thank you so much.

Pitch Summary:
Danaos Corp (DAC) is expected to generate earnings close to its current market cap over the next three years. Despite the reputation of Greek shipping companies for poor shareholder value, DAC’s CEO holds a significant 40% stake, aligning management’s interests with shareholders. The company has pursued value-accretive stock buybacks and consistently raised dividends, indicating a commitment to returning capital to shareholders.

BSD Analysis:
The container shipping industry has experienced volatility, but DAC’s strong earnings potential and shareholder-friendly actions set it apart. The CEO’s substantial ownership stake suggests a long-term commitment to enhancing shareholder value. DAC’s disciplined capital allocation strategy, including buybacks and dividends, provides a buffer against industry cyclicality. As global trade stabilizes, DAC’s earnings visibility and capital return policies could lead to a re-rating of the stock.

Pitch Summary:
NextNav (NN) is poised for significant upside as it owns valuable spectrum in the 900 MHz band, which is expected to be repurposed for broadband following FCC approval. This approval would enable the company to monetize its spectrum, potentially valuing it at around $40 per share based on a precedent transaction metric. Despite recent non-fundamental selling pressure from private equity funds, the underlying value of NN’s spectrum assets remains intact.

BSD Analysis:
The telecommunications industry is increasingly reliant on spectrum assets, and NextNav’s holdings in the 900 MHz band position it well for future growth. The anticipated FCC approval is a critical catalyst that could unlock substantial value for shareholders. The recent selling pressure appears to be driven by liquidity needs of private equity holders rather than any deterioration in business fundamentals. Investors should consider the strategic importance of NN’s spectrum and the potential for partnerships or acquisitions as the broadband market expands.

Pitch Summary:
QEP has seen a material improvement in profitability following the divestiture of underperforming international businesses under new CEO leadership since 2023. The company’s capital allocation strategy has been excellent, focusing on debt repayment, special dividends, and stock repurchases. Despite these positive changes, the market has not yet recognized the company’s transformation, with QEPC trading at around 5x 2025 EBIT, significantly below peers.

BSD Analysis:
The strategic divestitures have streamlined QEP’s operations, allowing the company to focus on its core competencies in flooring tools. The new management’s focus on capital efficiency and shareholder returns through dividends and buybacks is likely to enhance investor confidence. As the market begins to appreciate the company’s improved financial metrics and strategic direction, there is potential for a re-rating. The current valuation presents an attractive entry point for investors seeking exposure to a turnaround story in the manufacturing sector.

Pitch Summary:
Sage Therapeutics (SAGE) has received a $7.22/share bid from Biogen, its main drug partner and 10% shareholder. Despite recent drug development setbacks, the company is undergoing a strategic review, and shareholder pressure could lead to a sale. SAGE’s large net cash position and the value of its main drug to Biogen suggest potential for a higher bid.

BSD Analysis:
SAGE’s strategic review indicates management’s openness to exploring all options to maximize shareholder value, including a potential sale. Biogen’s existing stake and partnership with SAGE provide a strong incentive to acquire the company, especially given the strategic importance of SAGE’s drug pipeline. The company’s robust cash position offers a financial cushion, reducing downside risk. Investors should consider the potential for a bidding war or alternative strategic partnerships that could unlock further value.