Market Outlook: Joel Litman discusses the surprising resilience of the US stock market, noting that over 300 companies have doubled in stock price, challenging the predictions of a recession and bear market.
Investment Strategy: Litman emphasizes the importance of looking beyond traditional GAAP accounting, advocating for a focus on data-driven insights and uniform accounting to identify true investment opportunities.
Company Insights: Companies like Dollar General have strategically minimized supply chain risks by reducing reliance on Chinese imports, contrasting with companies like Walmart and Nike that still face challenges.
Tariff Impact: Contrary to popular belief, tariffs have not significantly burdened US consumers, as exporters often absorb a substantial portion of the costs, and recent tariffs have contributed to a US budget surplus.
Currency and Gold: Despite fears of de-dollarization, the US dollar remains strong globally, with increased demand for dollar-denominated debt. Gold is seen as a hedge against instability in other countries rather than US economic issues.
AI and Productivity: AI is driving significant productivity gains across industries, with companies widely adopting AI technologies to enhance operations, despite concerns about job displacement.
Investment Opportunities: Litman highlights growth and momentum strategies, particularly in sectors like AI and infrastructure, as key areas for potential investment gains.
Philosophical Insight: Litman concludes with a personal philosophy of focusing on love, joy, and peace, suggesting that these values can positively influence personal and professional life.
Transcript
[Music] Hello and welcome to the Stansbury Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and the Ferris Report, both published by Stanberry Research. And I'm Corey McLaclin, editor of the Stanberry Daily Digest. Today we talk with Joel Litman, the chief investment officer of Altimmetry. Joel is our good friend and our colleague. He is a very smart guy. He's got a headful of data and a headful of great ideas. So, let's talk with him. Let's talk with Joel Litman. Let's do it right now. >> Joel, welcome back to the show. Good to see you again as always. >> Hi Dan, how are you man? Hi Corey, thanks for having me. Hey Joel. >> So, nobody responded to my uh my email. They were saying, you know, this guy Joel Litman's going to be on the show. And I shot back and I thought it was very funny when I said Joel who? And no, nobody nobody responded. >> Oh, I thought that was a rhetorical question then. Okay, >> that's right. Joel, who? >> The one and only Joel Litman. >> I say I say that to I say that to myself often. Who am I again today? How are you guys? >> Good. How are How are you doing? >> Good. Are you you enjoying this amazing all-time high bull market that uh is defying all the 95 economists at the beginning of the year that said we're going to have a recession, the stock market's going to be a bare market and all the other, you know, prognosticators that got it so wrong. >> Got it so wrong as to uh mis misunderstanding the power of the US economy and the US stock market. uh even with all the changes that have been happening in the last you know eight months. >> Well, let's talk about those changes because they're obviously a lot more important than what anybody else thought. >> Yeah, sure. Well, you know, one of the things uh you know that there have been more than 300 companies that have doubled in stock price. So, the idea that they were saying, "Oh, it's only the MAG seven." Like, well, then that'd be seven companies that doubled. I don't know 300 companies have doubled in stock price right in the last 12 plus months. Um which is just amazing and and you know and I would say it's not a bubble. It's not for crazy reasons. It's for fundamentally good reasons. I think that's hard to see when people are using a gap accounting. You know that's our specialties that Wall Street gets it all wrong. Wall Street is beholden to EPS and GAP accounting. Nobody worth their salt would ever rely on on GAAP accounting or they're relying on traditional finance, traditional valuation methods, right? They're using their building their discounted cash flow models, but they're using a cost of capital that's completely right misses the the boat on where the true risk of a company is and where companies have such opportunity. Um, you know, that's our specialty. So, I I assume that's and that's our data. You know, Dan, you know, I like to say this. I we don't have opinions. I don't have opinions. I have data. If the data points us in a certain direction, we'll talk about it. If it points us in a different one, we'll say here's where the data is headed. And the data on a lot of stuff early this year, you know, when the market corrected was uh was no, this is a buying opportunity. It was a heck of a buying opportunity. That's proven right. >> It certainly has. Yeah. Um and like you say, surprised a lot of people. I I totally admit I'm one of them, but I'm always surprised, so that doesn't really mean much. I'm never not surprised. Uh well well you know I I Richard Dhouse who's like the father of this kind of market right growth and mo markets the father of momentum investing and I got to work with Dhouse a decent amount uh because I went to school in Chicago and I I graduated I taught in school in Chicago for a long time uh and Dhouse is a Chicago guy through and through and he's you know one of the greatest investors of the last 50 years I passed away about three four years ago um God rest his soul but uh you know he used to he used to say that uh I invest on surprise. I mean it's funny you say Dan that surprises but he said I want surprises. I want companies that surprise up that surprise to the upside that surprise on earnings surprise on revenue surprise on any store growth surprise on customer growth. And he said and and when you look at what's done so well and I I'm thinking of those 300 plus companies that have doubled in price, you find some really good surprises. And those surprises, you know, especially I'm talking about fundamental surprises, not just they beat on EPS or something, but where the company's just, you know, you know, outproduced, outsold than what anybody would have thought. That's uh surprises can be a really good thing and right now they seem to be. >> Yeah, I would think a lot of people are surprised by I don't think Dan's the only one. I I think a lot of people might be surprised that me too that 300 companies >> uh have doubled their stock price in the last >> Yeah, it's pretty what you're saying. >> It's pretty amazing. Um >> uh I think that's not even 12 months. I think since the bottom in April. >> Well, since the bottom of the bottom in April, that's easy to believe, >> you know. >> Yeah, that's easy. That is easier to believe. >> But it's not just April. since the bottom of April plus, you know, even just the last year and a half, think of how the strong the market is and just so many so many businesses that have >> right >> just done so well. Y >> so >> and been able to withstand you know whatever the tariffs the um you know that that's the thing that comes to mind for me uh immediately like what the big discussion was at the beginning of the year was how are these tariffs going to impact businesses and are they and so you're saying >> if you're Walmart >> yeah if you're Walmart and and used to be 80% of everything you sold came from China and they've been trying to willow that down it's still well over 50% % of Walmart. I mean, Walmart's still going to have a tough time. If you're Nike, you can't just move all your, you know, sneaker operations to another country, but there have been other companies that have been smart. I mean, Dollar General, you would think, are they in the same boat as Walmart? And you'd say, well, Dollar General, but Dollar General, I think less than 5% of goods sold in Dollar General come out of China. So there have been companies that have have foreseen this and uh and so you can say all right so they're not going to succumb to the tariff issues or supply chain issues in that way. Um Walmart and Nike are are still in trouble with that issue whereas uh someone like Dollar General where they'd say isn't that in the same boat and you'd be surprised to know that how little of what's inside a Dollar General store comes from China. And you know there's been a there's been a marked strategy there to do that and you're finding a lot of companies have done that to say I'm not going to have that supply chain risk from tariffs or from you know anything else you know unpleasantness that happens with uh with China that might cause supply chain issues you know if they invade Taiwan or something like that and so a lot of firms have been worried about that some haven't um and that's when you can start picking through and saying okay who has been on the right side of these macro things you the other thing about tariffs is that you know the the idea that everyone said tariffs are attacks on US consumers. That was already proven wrong. I mean even in uh uh even in 2018 2017 there were tariffs that put on and it was shown in electronics and apparel and other kinds of textiles. The exporter will absorb as much as 50 to 60% of the tariff. They'll just reduce their they actually reduce their profit to make sure they don't lose market share of the American consumer. Um, you saw that happen in a number of cases even in the 1930s with the ridiculous Smoot Holly tariffs which are done horribly. Nothing is I'll say as as strategic as they are now. I mean back then it was just let's just slap a tariff on everybody no matter what and crush everyone else's economies without any thought. And even then even then that's not what caused the Great Depression. That wasn't the responsible thing. I mean it it hurt GDP but >> but probably not by you know more than 2 3%. I mean, there was all kinds of other ridiculous policies that were placed that caused the 1930s. So, when you put that in context, you're like, "All right, so tariffs, particularly when done on countries that are tariffing us on countries where there's such a gigantic uh trade uh deficit. um they could be done in the way they've been doing and produce what we're seeing is a lot of additional revenue to the US government so that we can see what we saw last quart last month I think which is the US ran a surplus for the first time in I don't know how long since when since Clinton I mean a true surplus in terms of cash in versus cash spent and tariffs had a lot to do with that right that goes a long way of helping the US economy and the government over time >> and and we all certainly want to do that because we love them so much So, let's talk about um let's talk about all the things that uh sort of that that you say that that make people lose their minds because that's what's most fun. Um so, we've covered But what else about tariffs? Tariffs aren't, you know, they're not nearly as bad as anyone thinks. >> Um and and >> not really attacks on the consumer. What else? We were talking about gold before we hit the record button. I I like that topic because I know it drives people nuts. I come at it from the other way that drives people nuts, which is to tell them how strong the US dollar is and will remain for some time. And they hate that. >> Well, yeah. >> They hate that. >> Yeah. And yet it's true, >> right? The the world is dollarizing. It's not ddollarizing. And people like, well, how do how can you show that? I'm like, well, you know, I think Daniel D. Martino boot there she's she's shown that you know really good data on pre- pandemic maybe 8% of the world's goods settled in dollars of the world's trades now it's double that almost 15 16% >> um even the let me just say even the super alternative finance people the alti to the to the to the bone crypto right but when crypto says I want to spend my money what are 99.9% of crypto stable coins based on Well, it's not even just that, right? They're all based on dollars, but also when when they spend money, what do they do? Well, they go from dollars to crypto back to dollars. I mean, it's just sort of, you know, it's a hokey intermediate, >> which is wasn't the intention, you know, when it started, but that >> it ended up that way because you can't get around the dollar. Like, you can't escape it. And the and the thing about the dollar people don't understand is that it's not a it's certainly about what happens in the US economy, but it's about the demand for it and supply for it everywhere else. >> Right? There's there's I think last time I looked, Bank of International Settlements had it at like 12 or 13 trillion, some huge number like that, >> of US dollar denominated debt outside the country. That's demand for dollars, right? >> Yes. I just saw a tweet here u about foreign holdings of US treasuries in June >> uh jump 80 billion to a record 9.13 trillion. So >> all the talk about tariffs and people dumping bonds and and everything um >> evidently not happen when you have inflation under 2%. I mean, I know the BLS, the Bureau Labor Statistics, um, I mean, their methods are antiquated. They were bad. They're producing bad data in the 1930s. They're producing bad data today. Um, it's just their methods antiquated. When when you look at there's a number of great firms, you know, in the world of accounting and finance, whatever, right? Ultimatry is is, you know, the the top purveyor provider to institutions of of uniform accounting. And look at the financials. When you look at inflation, there's a firm called True Inflation, TRU inflation. >> Um, and not just them, there's a number of other independent groups and they're all at inflation below what the BLS says. So, when you have a dollar that's maintaining its its value with inflation at, you know, under 2% in all likelihood, that's what we're seeing. Um, I think that's Powell is recognizing that finally that the CPI number is just it's still way too high on relative to reality of people's actual spending and what they spend on and the productivity booms that we've seen from we're seeing from AI and all kinds of other places despite what MIT labs might say which created a a nice correction for some some AI companies and AI enabled companies but no we're seeing massive productivity from AI just not in the very very particular specific study that the MIT labs did when they when they said, "Oh, yeah, AI is not resulting in in productivity." But they looked at such a specific kind of project. I'm in agreement with the MIT study. I'm just saying that's not 95% of where people are getting their productivity. And so when you put all that together, inflation is down. Um, unemployment probably is worse than the BLS is providing. And so to the extent that the Fed, right, might have to cut rates, but they're cutting rates in a really low inflation period already. It's not like cutting rates is going to lead to a seven t percent inflation tail spin. You know, inflation's low enough that it can absorb uh some amount of interest rate cuts that should then help spur the economy and help in some areas that like unemployment that are probably a bit worse than the BLS is reporting reporting. >> Yeah. Well, it'll, you know, they they cut rates. We we've been thoroughly conditioned, you know, what to expect, right? It'll people will will say, "Well, you know, if I can no longer get 5%, which you already can't get, you know, you're at four and a half or whatever in T bills, >> um, you know, I'm going to have to go up the up the risk trail a little bit." And, you know, that's not a terrible thing, I would guess, in a lot of cases. Um, I mean, if if earnings are growing at seven, eight, nine% and that's uniform earnings, not just GAP accounting, right? BS earnings that Wall Street reports, but if what we're measuring is uniform earnings on a real basis, on a real uniform adjusted calculated the same way over 50 years, right? Um you end up with a PE multiple that's not that bad, but with earnings growing at 7, eight, nine plus percent. Um that spells upside for the stock market, not downside. Right. >> Right. Not downside. No recession. >> Yeah. predicting recessions is a is a it's just a horrendously bad business. It really is. You know, any anybody who's honest will say it can't be done and and and doesn't need to be done, shouldn't be done. >> Predicting recessions is just it's it's a mug scheme. It's ridiculous >> I think. I mean so recession is one thing and then is the stock market going to bare market another even chat GPT will tell you if you say in the last 200 years chat GPT you know if you're using GPT5 right or Grock um and you say has there ever been a bare market that lasted more than a year that was not preceded by a corporate credit crisis and the answer is it's never happened as in ever never happened. All right. That that even the tech bubble of 2000 where the bubble burst in 99 corporate credit seized. It seized up dis the the the debt capital markets groups at banks were dead. The desks were empty in terms of trades being done. Nobody was able to issue debt for the life of them. Companies were having trouble refinancing. even 2000 the quoteunquote tech bubble was still a corporate creditd driven bare market you know one of the reasons in March April May June of 2020 even in my LinkedIn I I was at that point I'm like I'm just going to tell everybody because no one's listening anyway and we were like buy the S&P buy the S&P buy the S&P um and and so when people ask me I'm like I look at my LinkedIn it wasn't like we were going back and forth on the subject and the reason was is that throughout um the the horrible pandemic lockdowns Corporate credit, at least for public listed companies, stayed unbelievably strong. The banks stayed open. The public debt markets stayed open. And as long as corporate credits open, you don't have an extended bare market. I'm not saying there wasn't a bare market, but 2020 finished up, the S&P finished up 11%. For the year, despite what a roller coaster it was. And that was one of the reasons we had such conviction in March, April, May. I think I published in Forbes in June or July saying this is not just a bare market rally that's going to tank. This is fundamental solid business, you know, performance and uh and every reason to be uh to be buying in. >> Yeah, we did we did the same thing right now. >> Yeah, it was it was obviously incredible moment to buy. >> And Dan, the measures are stronger now, right? Yes, there's some issues in consumer credit, consumer autos, office real estate. There's pockets but you just stay away from those pockets. I mean you can stay away from the pockets where there are corporate credit issues. Whereas across the board all other sectors than those few pockets you see uh spreads are really tight meaning companies can issue debt and refinance debt at really really inexpensive prices. Um if interest rates come down that makes it even cheaper. That means there's more room for the companies to spend money on growth and uh instead of spending money on just debt service. And that is all very very positive for uh the US economy in general but really for public listed stocks all cap micro cap all the way up to large cap. >> It's funny because a lot of people will look at that same spread and say see it's just so tight. It's so tight. It never gets this tight or something. You know it's it's the opposite. It's sort of like the you know S&P 500 trading at you know record price to sales or whatever. It's never been this high. It's never been this tight, you know, and they don't see it as a >> as a positive, you know. It's a It's a negative. >> Yeah. It's It's I >> We're wired to be negative, aren't we? Yeah. I mean, at some point, yes, we watch it because we're saying at some point if those CDS spreads widen significantly, but they're so good, meaning financing is so cheap and easy for companies, public listed companies anyway, um that uh that even if the spread widened 100 basis points, you'd still say it's still really cheap. Though at the end of the day, it still means companies are spending less. That it's not enough for it to move 100 basis points. You'd have to have it. You'd have to have to move a lot. And for that reason, it says we'll have a lot of a lot of there'll be a canary in the coal mine long enough advance to tell us, okay, it's times are tough. And it ain't right now. It isn't. It isn't. >> Unless you're out of work, of course, and times are tough. >> Well, that's that's the issue is that that's another reason for Powell to say, "I'm concerned about unemployment." And I think this is where the BLS has been wrong on the CPI on the up, meaning inflation has truly been better than the CPI keeps reporting. But unemployment, when you look at a lot of other independent organizations, unemployment is truly probably worse than the BLS is reporting. And if the Fed's mandate is the dual mandate of unemployment and inflation, then of course Paul has to finally, right, succumb to this and succumb to the data and say, forget what Trump is saying in the administration. The data is saying you don't have an inflation problem and you might have an unemployment problem. So what do you do? You you ease, right? You ease a little bit. You bring down interest rates, which is what the market's expecting to happen. And we think that's what Powell's going to do. If he's if he does right by the country, he will. >> Maybe even uh what by the may possibly I'm not sure what our schedule looks like, but maybe by the time people are hearing this, that will have happened. >> Yeah. I yeah I don't know what today is whoever's listening but if we're in September um you know we're looking for a quarter and then another quarter you know I he may surprise with 50 but he's been so inflation concerned over tariffs despite the data saying otherwise and assuming tariffs lead to inflation which we've shown don't they they say well all right if if exporters eat 50% of tariffs what about the other 50%. I said, 'Well, the other 50% is offset by one of the biggest income tax cuts, right? Cutting uh tax on tips is probably a $15 billion spur, right, to people having more money to spend. Um cutting on social security is over a hundred billion. Cutting on overtime is probably$85 billion. You're talking about $300 billion, right? two to300 billion dollars of additional money being in the hands of consumers, right, to say I can offset the uh ill effects of those things. On top of that, you truly have oil and gas coming down in price with the US having some of the cheaper electricity bills in the world. I mean, especially compared to Europe, right? Not as cheap as China, which is willing to burn coal all day long and pollute the air as much as they want, right? So, they've been building coal plants like crazy. So, electricity in China is cheaper. But amongst nations that care something about climate and aren't burning coal like crazy, um the US has got cheaper electricity because we have, you know, virtually, I don't want to say unlimited, but untapped potential of natural gas that the US can put on. And when you think of that and the cost of electricity and the cost of all the things that are dependent on fuel coming down in price, coming down in price, that easily easily is enough to offset whatever inflation that could come through, the tariffs coming through. And so when you put those puzzle pieces together, you could walk away going. >> I have to I have to squawk up here. >> I would say pipe up, but I mean a squawk. It's always been dumb to talk about tariffs causing inflation. Inflation is a monetary phenomenon. And and tariffs is not a are not a monetary phenomenon. I never knew what anybody if if you say it's going to make the price go up because they're going to pass the cost along to the consumer. We know to some extent that happens. You know, it just does. Now, if it's offset elsewhere, great. >> Yes. >> But but that's not inflation. All price going up is not always inflation. And it's it's wrong to just conflate it or to think that you're using some type of shortorthhand to describe the situation because inflation is a very specific phenomenon. It's not CPI going up. >> It's not any of those things. the it's about the supply of money and credit >> there >> Dan I'm with you know one of my one of my favorite newsletters >> um you know from back in the 70s 80s that I read when I was uh when I was really just a teenager um but then as a young adult was Howard Ruff and Howard Ruff are you f and he used to say explaining inflation as rising prices is like explaining a hurricane as falling trees >> right it's yes it happens and and I think one of the things that we've we've tried to do you with our research is separate between is it increasing prices or is it currency devaluation >> right >> right and trying to get out of just saying inflation and say let's talk about are there prices rising that's something is there currency devaluation and that gets to Howard Ruff's comment that it's currency devaluation that we want to look at and and it looks like the US dollar does not have the currency devaluation which is part of the reason why the world is turning to the dollar and is dollarizing more and more I mean when if you want a reason to buy gold the reason to buy Gold is not the US's problems. It's the problem in you know the next 20 countries in the world. And that would be a reason to buy gold. >> Right? If you're in Russia and you are getting paid in rubles, I would turn that into gold in a second. If I was paid in renman B in China or if I had real estate, I could get rid of my real estate. I would turn that real estate into gold in a second. If you're in Poland, the Polish government's like, if we end up a wartime economy, right, the our currency is going to become worth a lot less. um whe and in fact all the countries that are not on the euro even and even the ones that are on the euro would say maybe I should be buying gold if if things are going to go really south with Russia Ukraine and and the stuff in the Middle East. So if things really get bad right those are all the reasons to buy gold. So people like oh you're not a gold bug. I'm like actually I think gold's going to do very well but not because of the US's uh having concerns but because the rest of the world does. And when you can only produce one and a half to two% of gold a year and on the margin you have all these giant populations saying I don't like my currency. Some turn to the dollar, some turn to crypto, and quite a few turn to gold. And so it's a very bullish call on gold. I'm not I'm not against gold. I just still think the S&P um 1500 plus the dividends reinvested is still a on par, you know, on balance a better place than pure gold. That said, if you're investing in gold stocks or gold equities and those companies produce a profit, they can pay you a dividend. Different story, right? I spoke at the rule symposium uh in July. Rick Rule invites me there all the time, I think, to >> to to rouse people up. >> Yeah, I know. That's right. >> And yet, I was saying I the title of my presentation was Goldilocks for gold and stocks, >> right? Um because you could have a situation now where where for US stocks you could have things going well and still have a bullish reason for gold at the same time. They don't have to be you know against each other the way people often think. >> Yep. It's it's often assumed that it's a seessaw with gold on one side and dollars on the other and it's not. >> Yeah. I think the fundamentals right now are are bullish for both. >> Yeah. This the fundamentals for the dollar are hard to shake. They're hard to change. Um it's too massive. There's too much demand outside the US as we've been saying. Anyway, um okay. So, we we've ticked people off with tariffs and we've ticked them off with gold maybe. Hopefully, although you you couched it a little bit, you're you know, being bullish on gold and I don't know. >> Yeah, that was pretty bullish. >> They're not going to be too too angry at you. >> Um >> yeah, I I wasn't thrown out of the conference the way I might have been in other games. Well, let's get you thrown out of here. What What What else you got? What do you got that's like uh you know, throw him out of here. I mean, bullish on the S&P. >> Yeah. >> Bullish on gold. >> You know, there I I think there's an emotional fear. You know, the It used to be they always talked about the fear of missing out, right? FOMO. >> Um I think there's a fear of getting in. when you when people are looking at the market and at all-time highs and then they see 300 companies double right in in just a few months right so there's breadth it's not just the mag seven or something um I think people are just worried about getting in I think it's a mistake and I think that you can get into the stock the US equities and you can get in selectively you can avoid the known problem areas which are obvious real estate is still in a horrible depression I think autos are in trouble. I mean, I think there's some big areas to to be worried about, right? Any banks that are dependent on office on office real estate, and there are a lot that still are, I' I'd still be very concerned about. Um, I'd be worried about uh you know, we still have to see what happens with Trump on on drug pricing and pharmaceuticals. So, if you're if your drugs are the ones if your company's drugs are the ones that are going to get hit with the price control, um that is going to limit profits. It's going to limit dividends and capital gains. So there are known areas to worry about, but there's a lot of other areas um like the AI I'll say enablers um where you know it is gang busters for corporate America. I I haven't talked to and I do spend a lot of time with with uh management teams as well as investors. I haven't talked to a management team yet that hasn't said they're embracing AI at every single level of the firm. Every level of the firm is embracing AI, right? uh and and to think that AI, you know, 94 to 2000 the NASDAQ did something like 600%. Um and most of that was post 96 97. I think today is sort of like 96 97. We've got another three four years of an AI early innings still uh bull run and we're seeing it. We look at the uniform earnings of companies. It's really difficult to see this with gap numbers. That's where people, you know, for good reason will say, well, I don't like dirties of these companies. I don't like what's happening. But the problem is gap accounting punishes the innovators. It punishes R&D spent to this day. You know, other countries, a company spends on investment, invested in research and development, it doesn't get expensed. It gets capitalized. But when US companies invest, it gets expensed as a cash flow from operations. >> It's ridiculous. On what planet is R&D cost of goods sold? It's an investment, but it doesn't show up under the investment section of the statement of cash flows. So, a company could be in pumping in R&D like crazy because they know we're going to take this market. We're a leader in our space. And we see this. That's the companies we like to buy, right? The leaders in a in a growing sector is as Dhouse said, a really good house in a great neighborhood, right? So, if we can find those names, the problem is the uniform accounting uh the gap accounting will tell us something wrong. The uniform accounting will say, "Oh, no, no, no. Cash from operations is strong. they're just investing like crazy. That's very different from cash from operations being low because of R&D, right? And when you see clearly on that, um, you can get away from this fear of getting in and and say we could be selective. Uh, you know, we published we're publishing a bunch of research on this. We're announcing it uh in midseptember. I think I think September 17th we're going to release this research. But it's 30 40 years of research uh on the type of stocks that that even in market highs continue to hit new market highs and really take off in these kinds of markets. And it's it's it's fantastic research. It's it's uh it's on the way Dhouse right the way Cliff Asnes at AQR has built his hundred billion dollar firm. um cliff as who was who studied directly under Eugene FMA under the efficient market and his goal was all right now when is the market not efficient so that I know where to buy and where do I make money is FMA said it's not perfectly efficient we're looking for those imperfections and uh that research study we're publishing um on in September is a it's a big deal it's good and it backs up why so many of these investors have done well when the value people particularly at times like this are like I you know they're pulling their hair out and you're like well there's still value. You just have to value is still is a stock cheaper than it should be. It's not just does it trade at a 12p. >> Right? There are there are a few of those around, but they're harder to find than ever. Um I'm glad we're talking about AI because that's another thing where I think we could potentially really make people angry um by by and it's good I'm just I'm joking of course, but it's good to upset people's uh expectations and tell them something different than what they want to hear. And with AI, the thing the drum beat um the constant drum beat actually is it's going to put a lot of people out of work. Now from you know um automatic loom equipment to um to the internet this has never been the case. It's always all new technologies that are transforming the printing press, whatever you want to call it, you know, uh early in early in the wealth of nations, I think, um or I know Adam Smith mentions pin making machines. All of these things, they make people more productive and and when when a technology is really transformative like this, it just spawns new industries. you know, the the internet has created new industries >> and so it makes us more productive. It spawns new industries thinking that oh, you know, it's going to wipe out corporate America. Well, there are probably a lot of middle manager types who need to lose their jobs, AI or not, right? So, um you know, I I I think it's silly to talk about it that way as this sort of unemployment apocalypse since, you know, so far that just hasn't happened in history. Well, Americans, you know, have been very good, you know, since, you know, going back a couple hundred years in being able to change, right? Being able to adapt, being able to innovate. And that means also changing jobs. I mean, at one point we were what, 65% of people in the US were agriculture. Today it's two, three. I it's but it's very, very, very low. Well, it's not like the other 58% just remained unemployed for the rest of their lives, right? it's people moved over, >> right? Um, and you move over into jobs that are increasingly more tech or techreated or tech support or tech maintenance. Um, and uh, you know, it's it's our employees said to us um said to us a couple years ago, they said, "Hey, we're hearing this. Are are you especially in a knowledge industry, we're manipulating numbers? We're manipulating data." And they said, "Can't AI take our jobs?" And I and I said, "Here's what we guarantee. We guar I said I don't think AI can replace our people but someone using AI will replace your job or some research firm using AI will replace alimemetry if we don't and that is the case right but uh no I don't I I I'm with you on I don't think you see some massive massive there's no unemployment by any stretch of the imagination >> um but there does have to be change as there has been like if you were an expert in farming before you had to learn how to build houses if you were an expert in building houses and you know right now that's still a decent industry but maybe not building offices >> right we don't >> you have to change and move and adapt and Americans are great at that >> books about you know um the great buggy maker crisis of the early 20th century right the buggy whip crisis and oh my god it was it was mass chaos you know the buggy makers and the buggy they all went out of business >> we don't read about that and as you point out you know with agriculture Sure that you know 98% of the country is not doing anything. It just doesn't happen. >> And you know it's like a lot of things in life not there. What you don't notice and what you don't see >> um is is what's important. >> Yeah. Dan the way I'm thinking about this is like AI is coming >> towards us, right? But like we we just have to adjust to it. And I feel like that's what people and companies it sounds like across the board are are doing. Otherwise, you're just going to be left behind. And you might humans made it, right? Aliens didn't make it. I think humans did, >> right? >> Yeah. I mean, >> replace humans. I mean, totally, right? Like what's the point? Like if it did everything for everybody like it wouldn't work like like what like it just it just wouldn't. And so you need to I mean we're creating this thing. I mean, maybe it gets to the point where in like sci-fi, you know, this thing's coming to get put me in jail, but uh I think we'll hopefully put controls on that. >> Yeah. Yeah. I think we're we're a long way from 2001 of Space Odyssey. >> Well, we're And the real thing though is that we're we're we'll never see the singularity. You know, the singularity was was never going to happen. We're we're never going to see the machines take the machines aren't going to be superior to humans. Humans are always going to be more human than the machine. And humans are want other humans. You know the demand is for from human beings is more humanity. It's not more devices. Right. >> So >> right I I I mean Dan I we are we're the same page on that philosophically and I I'll even say spiritually right. I believe that I'm into that. So it's so when people talk about you know the singularity or or you know AI like the mass employment apocalypse view of AI or even you know the the other thing they talk about um you know Elon Musk and various folks have have expressed concern is you know AI um kind of uh taking taking over um just being a threat to us physically I guess as Corey just mentioned. actually, you know, it's like the uh the machines in the Arnold Schwarzenegger movie, right? Skynet, right? The AI becomes Skynet. >> Yeah. >> Again, like I don't you you don't like humans have a say is all I'm humans have a say. >> Yes. >> And I can still pull the trigger and we can still, you know, pull the plug and all this stuff, you know, it just doesn't make any sense. if not to mention if AI is still based on you know the internet searching what what is out there what has been published what's out there um it's still dependent on that data set for coming up with it conclusions and that's why to this day if you go to chatpt >> right or or groxy whatever you like >> any and you say I'm a 75y old man I have a pension that covers all my expenses I have $10 million dollar in the bank that I don't intend to spend. How should I allocate it? And the answer is patently wrong every single time. Patently wrong. It is. I can't even begin to tell you. And if you say you're 25 years old, but I have a couple of kids and they're in school and I got to have private tuition and you ask for your asset allocation, it's wrong again. I mean, it's so wrong. It's like detrimental to a person's financial, you know, >> wherewithal at such material levels. And I'm like, if it can't get that right, if it can't get that right, it's not going to simply say, "Okay, here's your here's your stock you should buy tomorrow." And everyone just stops using investment research. You know, I just it's it's a silly kind of idea. Um I we're always doing it because I'm always like at the point that AI can do a better job than we can on corporate analysis. All right, then I got to rethink my business. So far, it's not even close. It's not even the same ballpark. effect is patently wrong whenever we ask things as simple as basic how much percent in stocks, how much bonds, how much cash, how much gold >> and it gives you the wackiest numbers and it seems to depend on the day of the week. It seems to depend on the phrasing of your question even though you use the same data and depends on which database AI is pulling from you get these crazy answers right that it says oh that worse than that I agree it's but it's worse than that because to some extent how I ought to allocate is is an opinion and it's kind of a personal thing you could even say but it doesn't know facts and it's like um 100% confident 100% ignorant you know it'll tell you. I was looking for I was looking for the book which um is called Time Enough for Love by Robert Heinline. And I asked one I forget which one it was. I asked one of them if you know where did where and when did Robert Heinline say specialization is for insects. And then it said well he never actually said it blah blah blah. And then the next one I asked, which was Gemini, said, "Oh, that's in the book Time Enough for Love, published in 1973, and it's part of this speech." And I was like, "Yep, that's it." And the other one just >> it was 100% confident and didn't know. And that happens repeatedly. I've had I've sat here and had conversations like that with Gemini as well where, you know, I I'm looking for I was looking for mentions of Louis Bashel. I was talking about the birth of modern finance or something and and and I was like, "You told me that this was in this book, but it's not there." Or vice versa. I can't remember. But but I told I I I bitched, you know, Gemini out for telling me the wrong thing and said, "Oh, I'm sorry. You're absolutely correct. I was wrong about that." And I wanted to say, "Yeah, and you were totally confident that you were right." >> And and and you know, Dan, I'm I'm totally with you. And I I'll use this speech function and I'll I'll you know and people will hear me in the office and they're like, "Who's Joel talking to?" I'm like, "Uh, he's arguing with Chat GPT again." >> They literally said they're like, "He's having an argument with Chad GPT." I'm like, "No, that actually is incorrect. I can show you the research that says what you just told me is 100% wrong." >> Oh, sorry. Let me check again. You know, I mean, exactly what you're saying, Dan. So I mean this is one of the things is that that that when it comes to something as complicated as investing and the art and science of it and stock picking >> um you know it's not going to be able to be all the be all answer and the be all end all answer and you need you know now that said do I use AI at this point you know our firm is you know over a hundred people and I could not tell you how many different AI tools are being used Two and a half years ago, everyone's using chatpt or some coding, you know, uh, AI or whatever. Now, it's like every team has their own 12 agents. Um, some of them custom made that I'm like, I have I I couldn't possibly even take an inventory of everything because they're like, "Oh, yeah, that's what we were using six weeks ago, but the new graphic design software is so much better and it's free." And I'm like, "Oh, I thought we were paying for that." They're like, "Well, we were, but we're going to cancel because the free one is actually much better and does better whatever." just even for simple design I'm like wow right it's it's it's amazing so the tools are incredibly valuable >> but to give you the be answer and say how should I invest my money what stock should I buy all I get is a bunch of nonsense every time every time >> y >> and >> yeah you reminded me of something uh Eugene FMA was talking to us about like do you have >> great interview by the way great interview >> FMA I I I yeah >> yeah I was not expecting to talked to a Nobel winner uh you know um >> this this month. But um the >> what he said what what we kept asking him about different things and he kept saying well do you have better information than than the market or somebody else does and what we're talking about with AI is you might actually have worse information is it's pulling from the wrong things >> and not tailoring it to what you're what would really work for you anyway. It's uh >> yes what will what will provide you know alpha what stocks will create alpha and it just it's now a firm using lots and lots and lots of agents that are used and then amalgamated it and then you still have an investment committee that we have that's still the trigger still pulled manually right fundamental shop like ours you know that still works and I think the AI is unbelievably productive when you use it for a very specific place that you could double check the data quickly whatever else and then leave that up to your mosaic of the reason you you buy a stock. FMA Eugene FMA obviously famous for the you know efficient market there theory but even on your on your wonderful interview I really thought it was a great interview I'm not just saying that you know he said well you know do you have the information for when the market is he said it's it doesn't all work perfectly and so when you make money is when it doesn't work perfectly one of the areas that confounded him that one of his top students Cliff Aznes at AQR um wrote his dissertation on and dissertation was for FMA his his uh is a PhD doctorate at Chicago and Cliff Assus as you know is is AQR Capital over a hundred billion dollars and he said the importance of momentum as a factor meaning looking at the 300 doubles right looking at the stocks that are going up over the last 12 months looking at whatever and saying okay what are the characteristics about them that have created this momentum and if we can identify that then you can go in and and honestly Dan I think there's a lot more really interesting issues out there right now. When you look at that from that perspective, when you're looking for where is there imperfect information, where are the things that the market's not getting right? And one of them is when the market tells you earnings are negative of a company when they're really positive or earnings are shrinking when they're spending more in R&D when in fact earnings are growing, they just happen to be investing a lot more in R&D. I mean, that's a a really simple one of of I can name 20 that the research is showing. But when you look for that kind of anomaly, there's a lot more really interesting issues. Even with the stock market at all-time highs right now, when you're focused on this growth and momentum kind of um strategy the way uh the way Asnus did, who is who is FMA's maybe one of the five most successful students of FMA along with Dimensional and Booth and and others. Yeah. >> One of his billionaire students to put it simply >> of several >> of several. Amazing. >> Yeah. I I I enjoy Cliff um on Twitter a lot and I think I've asked him to be on the show once or twice and he's not interested. Um but maybe I'll ask him again. Who knows? You never know. >> Um love. >> Well, you've had FMA now. So, if you reach out and say, "We had Eugene. Um it was a great interview. Our you know, our giant, you know, audience loved it. Would you like to come on and and build off of it?" >> That might be interesting. Now the Eugene. >> Yeah, that might get us some some other ones, right? >> Yeah, >> that's a good thought. >> Yeah. >> Yeah, I'm not above that. That I'll I'll do anything to get him here. Yeah. >> Yeah. >> Seconded. Yeah, let's do it. >> Because F I think FMA enjoyed it. He seemed to enjoy your your interview. It wasn't just a I'm being honest. >> I hope so. I think he enjoys he I I didn't I don't know if I asked him this, but he seems to be really interested in talking with people and getting on podcasts and just, >> you know, expounding ideas and things. Um, but I I we admitted I admitted I'll speak only for myself and not for Corey in the takeaway session after the interview that it was it was probably the hardest interview I think I've ever done. I just um I wasn't ready for him to be so concise >> so many times. >> He really he didn't feel the need to expound >> a lot more than than than many others. You know, it's >> Yeah, that that simple well must they did they have in when you ask them about why all these money managers underperform the market. It's like well if they're trying to beat the market and they don't have information that's unique, >> then of course they would have. >> Like and that was it. And you're and I remember Dan you you're listening to that and saying yeah if you don't have information I mean that that's I mean my entire business is built in do we have information the rest of the world doesn't have and if we don't then we have no business having an opinion right don't I don't want to hear someone's opinion on some company and they start telling me the same thing I can hear on CNBC or on you know in in Bloomberg or whatever. I'm like, "No, no. I want to hear data that you've uncovered or dug up sometimes through primary research." Yeah. >> Right. Sometimes through primary research where sometimes did you get on the phone and call 20 dealerships >> and all 20 dealerships told you something that was totally different >> from what Wall Street's saying from the research. I mean that once in a while picking up the phone or getting out and doing channel checks, you know, can get you some insights that are that lead to when the market is not perfectly efficient, which is when you make money. >> Scuttlebug. So, it's No, it's great. >> Yeah, >> it's great. >> Yeah. Yeah. And Dan, I I'm I'm with you on the uh on your your takeaway point as well. I mean, Eugene was he's 85 86 years old. I mean, you gota Well, we'll keep that in mind here. So, he was, you know, he also doesn't need to expound, you know, he's short to the point. He knows what he knows. And that's >> Yeah. And he's, as we noted at the time, just >> hopefully I can do a podcast when I'm 86. very um you know his his uh integrity his sort of intellectual integrity was on full display because he refused to let you kind of bait him into saying something about the future. I don't know. I don't know the future, you know. >> He just wouldn't do it. >> Yeah. >> So, >> and he's he's famous for not letting students ever use the word bubble in his class. in his class he's famous for saying don't use the word bubble >> don't use the word but you could say expectations were built in that were very high >> and if they meet those expectations then it wasn't a bubble and if they don't meet the expectations then it falls but it's not falling because it was a bubble it's because the information at the time told you that stocks were going to continue having 12% earnings growth and when they didn't they fell I mean is that that's a discipline I think that I've been trying to teach internally is also you know with our look when you have all these analysts up and coming right I'm not doing I can't do everything right and uh and we have some great investment analysts and teaching them early on right don't say bubble what is the embedded expectations and that's something you learn from FMA that I think is through and through in our firm and and the way we we invest um and the way anyone should invest is to always think don't think it's just oh the market's overpriced no think what is priced into the market >> now let's have a debate over that but simply saying it's an all-time high the market's overpriced that's right at least say something that has some data behind it and then we can debate the data. >> That was the core of the Extreme Value newsletter that Mike Barrett and I have been doing that I've been doing since 2002 >> and Mike's been doing for 15 years now. So, >> um it's comparing because you can't do the other thing. I tried to do the other thing for a while and I was like you can't you can't do discounted cash flow. You just can't do it because you'd have to know the cash flows within you know some reasonable probability and you don't. However, you can plug them in to equal the current price and then tell me, well, >> yes, >> you know what? What does that look like? You know, do are things that bad? Are things that good? Are things somewhere in between? You can do that. And that's price implied expectation. >> Well, that's that's the way to do it. >> And that's what our alttimeter does. So, our alttimeter for 6,000 US stocks for every single company, right? We don't say buy. We don't say sell. We're not like Wall Street with some overpriced underpriced on every company. On every single company, we simply say at this price, here's what the cash flow stream, the ROAs, the profitability of this firm has to look like to justify today's price. Now, you decide. I mean, what I like to say is is if you're good as a research provider, right, not just a stock picker, we're just providing because a lot of our clients, you know, just rely on our database. Um, we're setting the line. We're really good bookies. We're saying, look, everybody knows this company's going to do well, but how well does it have to do to justify its current price? And that's what we're modeling out graphically, right? And for I think it's more 6,500 companies now that we're covering. >> Um, and uh because yeah, that that philosophy of embed expectations is so I don't want to sound so I mean I keep bringing it back to the way we do our research, but man, I I live and breathe I live and breathe research. So what can I say? Hey man, at some point in life you just got to say this is who I am and this is what I do and what you do is pretty cool. So, you know, of course you're g That's why we have you here, Joel. We have you here to talk about that, >> you know. >> Sorry, Joel. Joel, who who >> Yeah, I'm looking forward to this uh to this research coming out. It's uh sounds exciting. It sounds like a it should be appealing to a lot of people, you know, because we hear about, >> you know, the hyperscalers and how much money they're putting into >> AI spending and and all of that. And um >> sounds like you're you're getting into that subject a bit deeper. Uh so >> yeah I mean it's interesting when you when you look at the hyperscalers a lot of what's so the statement of cash flow says here's capital expenditure >> that capital expenditure is a fraction of the actual investment that the hyperscalers are making it's a fraction meaning the amount that they're actually putting is under reportported for instance R&D is not included in capex uh if they are leasing warehouses and leasing land and leasing um supercomputers that's not included included under capex. That's not a capital expenditure under GAP accounting. We're like, of course it is. They just added, you know, 500, you know, hectares of potential solar power, whatever land or whatever to the thing or whatever they're they're buying into or all these data warehouses they're leasing and and actual physical warehouses they're leasing and that's not included. None of that's included under capital expenditure under GAP accounting, right? It's a complete miss. So we have this hyperscalers chart that that we show and and when you see it the growth is far more than people are saying which means it'll be pulling energy at a much much higher level than than I think people are saying that uh people think like there's this energy magic that'll just happen and the energy will appear that that the US economy needs and uh no we're one of our big calls is no you're going to see electric power producers being able to start pricing at a premium um and it's one of the areas that uh We think you're going to see growth with stocks that may look a little bit all right, you know, 24 25 times earnings and we're like we may look a year from now those companies are trading at 35 times earnings on earnings growth that's you know 20% higher. Um those are the kinds of really interesting ideas that that pop up in these kinds of markets um that you can find fundamentally and and Corey is you know thanks for tuning in when we when we do our when we release that research uh in >> I'll be watching >> I think I think September >> September 17 what do you call the what do you call this is this your AI report or what is it >> uh growth and mo >> growth and momentum growth and momentum because it's it's not just AI I mean um US supply chain infrastructure with all these businesses that are having to get built. I mean, if someone puts up an a new industrial plant because they're going to start making widgets, right, in the United States because they want to avoid the tariffs and they're not going to make it overseas, you need an entire infrastructure to support that business. It's not like they just put up a company and whatever. You need everything to support it. That means more roads, more bridges, um better bridges, better roads, um and and and all the other cabling and telecom infrastructure that is going to have to go in to support this unbelievable renaissance that uh we're seeing that that we're in the early innings of. Um so when you think of that, there's all kinds of growth in places to be looking at. Um growth and momentum and uh and that's a that's a big piece of that uh that research we're showing on in just a few days. I guess >> the Gromo report. It sounds like [Laughter] >> Growth and Mo. I our clients, our institutional clients will say growth and mo. So, I'll stick with the way our our our clients talk. >> All right. So, we'll look for that on the 17th. Um, and is there like a presentation with it or something that folks can sort of uh are you are you just going to publish this or is it going to be a presentation like a video presentation with it or anything? Oh, I'm we're gonna I actually um because there's a veteran in the space, Whitney Tilson, Whitney and I are gonna actually uh have a nice discussion about it. Um I won't even say debate because I think he's lining up where where our research is showing, but uh we're going to discuss it on that uh on that uh program. >> Okay. >> No, it's a it'll be a big event. >> It'll be a big event. >> Good. Yeah. >> All right. We'll have to get folks a link to to sign up so they can watch it, >> I think. >> Yes, sir. I'll get you that. >> Do that. All right. Of course. >> So, we've hit it's it's time for our final question. Same question for every guest, no matter what the topic, even if it's a non-financial topic. >> I love it. >> Same question. And uh you've answered it before, but I'll I'll restate the question just so in case you don't remember. Um and if you if you've already said it, by all means, feel free to repeat it. The question is simple. It's for our listener. If you could leave them with one takeaway, with one thought today, Joel, what would you like it to be? >> That's Dan. You know, it's an easy one and any anyone that reads my work sees it every day. >> Um, uh, >> love, joy, and peace every moment. >> And you just pick one, >> right? I don't know you can do all three, but there's some days that I'm just like, I am so blindsided with things that happen and frustrated and I don't know what to do except to say, I'm just going to find some peace in it. And just radical acceptance. This must be the way it is. And there are other times where I'm working on something and I couldn't be more loving and caring about that situation, whatever it is, where I'm just like so into it. And other days where something just happens that is such a nice surprise, you just experience pure joy. And all I'm thinking is and all I'd say is uh the more we focus on that love, joy and peace, the more we create our future in a way that uh whatever our future is, future of finance, future of accounting, future of our families, our relationships, the more love, joy and peace we exude, the more our lives become loving, joyful and peaceful by default. Well, what else are we on this planet for other than to experience that? >> Great answer. And I know I want our listeners to know I can always rely on Joel for a philosophical answer and a good spiritual philosophical answer. And I knew I was going to get one. You know, >> not disappointed. Yes. >> Love, joy, and peace. Love it. I'm I might write that down and just hang it on my desk here. >> So, thanks for that, Joel. And thanks for being here, man. >> Cool. Dan Corey, great to be on. Thanks. And uh um I just great what you're doing, too. I I mean I you heard me say it many times, but you've been getting some great guests, great conversations. I mean really really I love I love your show. >> So thanks for having me on being a part of it. Really? >> Thank you. >> Folks, on Wednesday, September 17th, Joel will unveil the biggest investment breakthrough in the history of his firm. It helps you to isolate potential 100% winners with startling accuracy and is directly linked to the hundreds of stocks that have doubled in just the last 6 months alone. More importantly for you, it could help you see potential gains of 500%, 800%, even a,000% by this time next year. Although all the top 10 global investing houses follow Joel's work, his breakthrough market discovery is reserved for those who tune in live on September 17th. That's this Wednesday. Best of all, you can beta test this new breakthrough right now, free of charge, and punch in your existing holdings to see whether they're destined to double or nose dive. I strongly recommend you try it for yourself immediately. Head to www.2025breakout.com. Again, that's www.2025breakout.com where you can get all the details directly from Joel's team. I consider this mustsee for all investor hour listeners. One last time, that's www.2025breakout.com. Don't miss it. Opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stanbury Research, its parent company or affiliates.
The Pros Have Misread the Market
Summary
Transcript
[Music] Hello and welcome to the Stansbury Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and the Ferris Report, both published by Stanberry Research. And I'm Corey McLaclin, editor of the Stanberry Daily Digest. Today we talk with Joel Litman, the chief investment officer of Altimmetry. Joel is our good friend and our colleague. He is a very smart guy. He's got a headful of data and a headful of great ideas. So, let's talk with him. Let's talk with Joel Litman. Let's do it right now. >> Joel, welcome back to the show. Good to see you again as always. >> Hi Dan, how are you man? Hi Corey, thanks for having me. Hey Joel. >> So, nobody responded to my uh my email. They were saying, you know, this guy Joel Litman's going to be on the show. And I shot back and I thought it was very funny when I said Joel who? And no, nobody nobody responded. >> Oh, I thought that was a rhetorical question then. Okay, >> that's right. Joel, who? >> The one and only Joel Litman. >> I say I say that to I say that to myself often. Who am I again today? How are you guys? >> Good. How are How are you doing? >> Good. Are you you enjoying this amazing all-time high bull market that uh is defying all the 95 economists at the beginning of the year that said we're going to have a recession, the stock market's going to be a bare market and all the other, you know, prognosticators that got it so wrong. >> Got it so wrong as to uh mis misunderstanding the power of the US economy and the US stock market. uh even with all the changes that have been happening in the last you know eight months. >> Well, let's talk about those changes because they're obviously a lot more important than what anybody else thought. >> Yeah, sure. Well, you know, one of the things uh you know that there have been more than 300 companies that have doubled in stock price. So, the idea that they were saying, "Oh, it's only the MAG seven." Like, well, then that'd be seven companies that doubled. I don't know 300 companies have doubled in stock price right in the last 12 plus months. Um which is just amazing and and you know and I would say it's not a bubble. It's not for crazy reasons. It's for fundamentally good reasons. I think that's hard to see when people are using a gap accounting. You know that's our specialties that Wall Street gets it all wrong. Wall Street is beholden to EPS and GAP accounting. Nobody worth their salt would ever rely on on GAAP accounting or they're relying on traditional finance, traditional valuation methods, right? They're using their building their discounted cash flow models, but they're using a cost of capital that's completely right misses the the boat on where the true risk of a company is and where companies have such opportunity. Um, you know, that's our specialty. So, I I assume that's and that's our data. You know, Dan, you know, I like to say this. I we don't have opinions. I don't have opinions. I have data. If the data points us in a certain direction, we'll talk about it. If it points us in a different one, we'll say here's where the data is headed. And the data on a lot of stuff early this year, you know, when the market corrected was uh was no, this is a buying opportunity. It was a heck of a buying opportunity. That's proven right. >> It certainly has. Yeah. Um and like you say, surprised a lot of people. I I totally admit I'm one of them, but I'm always surprised, so that doesn't really mean much. I'm never not surprised. Uh well well you know I I Richard Dhouse who's like the father of this kind of market right growth and mo markets the father of momentum investing and I got to work with Dhouse a decent amount uh because I went to school in Chicago and I I graduated I taught in school in Chicago for a long time uh and Dhouse is a Chicago guy through and through and he's you know one of the greatest investors of the last 50 years I passed away about three four years ago um God rest his soul but uh you know he used to he used to say that uh I invest on surprise. I mean it's funny you say Dan that surprises but he said I want surprises. I want companies that surprise up that surprise to the upside that surprise on earnings surprise on revenue surprise on any store growth surprise on customer growth. And he said and and when you look at what's done so well and I I'm thinking of those 300 plus companies that have doubled in price, you find some really good surprises. And those surprises, you know, especially I'm talking about fundamental surprises, not just they beat on EPS or something, but where the company's just, you know, you know, outproduced, outsold than what anybody would have thought. That's uh surprises can be a really good thing and right now they seem to be. >> Yeah, I would think a lot of people are surprised by I don't think Dan's the only one. I I think a lot of people might be surprised that me too that 300 companies >> uh have doubled their stock price in the last >> Yeah, it's pretty what you're saying. >> It's pretty amazing. Um >> uh I think that's not even 12 months. I think since the bottom in April. >> Well, since the bottom of the bottom in April, that's easy to believe, >> you know. >> Yeah, that's easy. That is easier to believe. >> But it's not just April. since the bottom of April plus, you know, even just the last year and a half, think of how the strong the market is and just so many so many businesses that have >> right >> just done so well. Y >> so >> and been able to withstand you know whatever the tariffs the um you know that that's the thing that comes to mind for me uh immediately like what the big discussion was at the beginning of the year was how are these tariffs going to impact businesses and are they and so you're saying >> if you're Walmart >> yeah if you're Walmart and and used to be 80% of everything you sold came from China and they've been trying to willow that down it's still well over 50% % of Walmart. I mean, Walmart's still going to have a tough time. If you're Nike, you can't just move all your, you know, sneaker operations to another country, but there have been other companies that have been smart. I mean, Dollar General, you would think, are they in the same boat as Walmart? And you'd say, well, Dollar General, but Dollar General, I think less than 5% of goods sold in Dollar General come out of China. So there have been companies that have have foreseen this and uh and so you can say all right so they're not going to succumb to the tariff issues or supply chain issues in that way. Um Walmart and Nike are are still in trouble with that issue whereas uh someone like Dollar General where they'd say isn't that in the same boat and you'd be surprised to know that how little of what's inside a Dollar General store comes from China. And you know there's been a there's been a marked strategy there to do that and you're finding a lot of companies have done that to say I'm not going to have that supply chain risk from tariffs or from you know anything else you know unpleasantness that happens with uh with China that might cause supply chain issues you know if they invade Taiwan or something like that and so a lot of firms have been worried about that some haven't um and that's when you can start picking through and saying okay who has been on the right side of these macro things you the other thing about tariffs is that you know the the idea that everyone said tariffs are attacks on US consumers. That was already proven wrong. I mean even in uh uh even in 2018 2017 there were tariffs that put on and it was shown in electronics and apparel and other kinds of textiles. The exporter will absorb as much as 50 to 60% of the tariff. They'll just reduce their they actually reduce their profit to make sure they don't lose market share of the American consumer. Um, you saw that happen in a number of cases even in the 1930s with the ridiculous Smoot Holly tariffs which are done horribly. Nothing is I'll say as as strategic as they are now. I mean back then it was just let's just slap a tariff on everybody no matter what and crush everyone else's economies without any thought. And even then even then that's not what caused the Great Depression. That wasn't the responsible thing. I mean it it hurt GDP but >> but probably not by you know more than 2 3%. I mean, there was all kinds of other ridiculous policies that were placed that caused the 1930s. So, when you put that in context, you're like, "All right, so tariffs, particularly when done on countries that are tariffing us on countries where there's such a gigantic uh trade uh deficit. um they could be done in the way they've been doing and produce what we're seeing is a lot of additional revenue to the US government so that we can see what we saw last quart last month I think which is the US ran a surplus for the first time in I don't know how long since when since Clinton I mean a true surplus in terms of cash in versus cash spent and tariffs had a lot to do with that right that goes a long way of helping the US economy and the government over time >> and and we all certainly want to do that because we love them so much So, let's talk about um let's talk about all the things that uh sort of that that you say that that make people lose their minds because that's what's most fun. Um so, we've covered But what else about tariffs? Tariffs aren't, you know, they're not nearly as bad as anyone thinks. >> Um and and >> not really attacks on the consumer. What else? We were talking about gold before we hit the record button. I I like that topic because I know it drives people nuts. I come at it from the other way that drives people nuts, which is to tell them how strong the US dollar is and will remain for some time. And they hate that. >> Well, yeah. >> They hate that. >> Yeah. And yet it's true, >> right? The the world is dollarizing. It's not ddollarizing. And people like, well, how do how can you show that? I'm like, well, you know, I think Daniel D. Martino boot there she's she's shown that you know really good data on pre- pandemic maybe 8% of the world's goods settled in dollars of the world's trades now it's double that almost 15 16% >> um even the let me just say even the super alternative finance people the alti to the to the to the bone crypto right but when crypto says I want to spend my money what are 99.9% of crypto stable coins based on Well, it's not even just that, right? They're all based on dollars, but also when when they spend money, what do they do? Well, they go from dollars to crypto back to dollars. I mean, it's just sort of, you know, it's a hokey intermediate, >> which is wasn't the intention, you know, when it started, but that >> it ended up that way because you can't get around the dollar. Like, you can't escape it. And the and the thing about the dollar people don't understand is that it's not a it's certainly about what happens in the US economy, but it's about the demand for it and supply for it everywhere else. >> Right? There's there's I think last time I looked, Bank of International Settlements had it at like 12 or 13 trillion, some huge number like that, >> of US dollar denominated debt outside the country. That's demand for dollars, right? >> Yes. I just saw a tweet here u about foreign holdings of US treasuries in June >> uh jump 80 billion to a record 9.13 trillion. So >> all the talk about tariffs and people dumping bonds and and everything um >> evidently not happen when you have inflation under 2%. I mean, I know the BLS, the Bureau Labor Statistics, um, I mean, their methods are antiquated. They were bad. They're producing bad data in the 1930s. They're producing bad data today. Um, it's just their methods antiquated. When when you look at there's a number of great firms, you know, in the world of accounting and finance, whatever, right? Ultimatry is is, you know, the the top purveyor provider to institutions of of uniform accounting. And look at the financials. When you look at inflation, there's a firm called True Inflation, TRU inflation. >> Um, and not just them, there's a number of other independent groups and they're all at inflation below what the BLS says. So, when you have a dollar that's maintaining its its value with inflation at, you know, under 2% in all likelihood, that's what we're seeing. Um, I think that's Powell is recognizing that finally that the CPI number is just it's still way too high on relative to reality of people's actual spending and what they spend on and the productivity booms that we've seen from we're seeing from AI and all kinds of other places despite what MIT labs might say which created a a nice correction for some some AI companies and AI enabled companies but no we're seeing massive productivity from AI just not in the very very particular specific study that the MIT labs did when they when they said, "Oh, yeah, AI is not resulting in in productivity." But they looked at such a specific kind of project. I'm in agreement with the MIT study. I'm just saying that's not 95% of where people are getting their productivity. And so when you put all that together, inflation is down. Um, unemployment probably is worse than the BLS is providing. And so to the extent that the Fed, right, might have to cut rates, but they're cutting rates in a really low inflation period already. It's not like cutting rates is going to lead to a seven t percent inflation tail spin. You know, inflation's low enough that it can absorb uh some amount of interest rate cuts that should then help spur the economy and help in some areas that like unemployment that are probably a bit worse than the BLS is reporting reporting. >> Yeah. Well, it'll, you know, they they cut rates. We we've been thoroughly conditioned, you know, what to expect, right? It'll people will will say, "Well, you know, if I can no longer get 5%, which you already can't get, you know, you're at four and a half or whatever in T bills, >> um, you know, I'm going to have to go up the up the risk trail a little bit." And, you know, that's not a terrible thing, I would guess, in a lot of cases. Um, I mean, if if earnings are growing at seven, eight, nine% and that's uniform earnings, not just GAP accounting, right? BS earnings that Wall Street reports, but if what we're measuring is uniform earnings on a real basis, on a real uniform adjusted calculated the same way over 50 years, right? Um you end up with a PE multiple that's not that bad, but with earnings growing at 7, eight, nine plus percent. Um that spells upside for the stock market, not downside. Right. >> Right. Not downside. No recession. >> Yeah. predicting recessions is a is a it's just a horrendously bad business. It really is. You know, any anybody who's honest will say it can't be done and and and doesn't need to be done, shouldn't be done. >> Predicting recessions is just it's it's a mug scheme. It's ridiculous >> I think. I mean so recession is one thing and then is the stock market going to bare market another even chat GPT will tell you if you say in the last 200 years chat GPT you know if you're using GPT5 right or Grock um and you say has there ever been a bare market that lasted more than a year that was not preceded by a corporate credit crisis and the answer is it's never happened as in ever never happened. All right. That that even the tech bubble of 2000 where the bubble burst in 99 corporate credit seized. It seized up dis the the the debt capital markets groups at banks were dead. The desks were empty in terms of trades being done. Nobody was able to issue debt for the life of them. Companies were having trouble refinancing. even 2000 the quoteunquote tech bubble was still a corporate creditd driven bare market you know one of the reasons in March April May June of 2020 even in my LinkedIn I I was at that point I'm like I'm just going to tell everybody because no one's listening anyway and we were like buy the S&P buy the S&P buy the S&P um and and so when people ask me I'm like I look at my LinkedIn it wasn't like we were going back and forth on the subject and the reason was is that throughout um the the horrible pandemic lockdowns Corporate credit, at least for public listed companies, stayed unbelievably strong. The banks stayed open. The public debt markets stayed open. And as long as corporate credits open, you don't have an extended bare market. I'm not saying there wasn't a bare market, but 2020 finished up, the S&P finished up 11%. For the year, despite what a roller coaster it was. And that was one of the reasons we had such conviction in March, April, May. I think I published in Forbes in June or July saying this is not just a bare market rally that's going to tank. This is fundamental solid business, you know, performance and uh and every reason to be uh to be buying in. >> Yeah, we did we did the same thing right now. >> Yeah, it was it was obviously incredible moment to buy. >> And Dan, the measures are stronger now, right? Yes, there's some issues in consumer credit, consumer autos, office real estate. There's pockets but you just stay away from those pockets. I mean you can stay away from the pockets where there are corporate credit issues. Whereas across the board all other sectors than those few pockets you see uh spreads are really tight meaning companies can issue debt and refinance debt at really really inexpensive prices. Um if interest rates come down that makes it even cheaper. That means there's more room for the companies to spend money on growth and uh instead of spending money on just debt service. And that is all very very positive for uh the US economy in general but really for public listed stocks all cap micro cap all the way up to large cap. >> It's funny because a lot of people will look at that same spread and say see it's just so tight. It's so tight. It never gets this tight or something. You know it's it's the opposite. It's sort of like the you know S&P 500 trading at you know record price to sales or whatever. It's never been this high. It's never been this tight, you know, and they don't see it as a >> as a positive, you know. It's a It's a negative. >> Yeah. It's It's I >> We're wired to be negative, aren't we? Yeah. I mean, at some point, yes, we watch it because we're saying at some point if those CDS spreads widen significantly, but they're so good, meaning financing is so cheap and easy for companies, public listed companies anyway, um that uh that even if the spread widened 100 basis points, you'd still say it's still really cheap. Though at the end of the day, it still means companies are spending less. That it's not enough for it to move 100 basis points. You'd have to have it. You'd have to have to move a lot. And for that reason, it says we'll have a lot of a lot of there'll be a canary in the coal mine long enough advance to tell us, okay, it's times are tough. And it ain't right now. It isn't. It isn't. >> Unless you're out of work, of course, and times are tough. >> Well, that's that's the issue is that that's another reason for Powell to say, "I'm concerned about unemployment." And I think this is where the BLS has been wrong on the CPI on the up, meaning inflation has truly been better than the CPI keeps reporting. But unemployment, when you look at a lot of other independent organizations, unemployment is truly probably worse than the BLS is reporting. And if the Fed's mandate is the dual mandate of unemployment and inflation, then of course Paul has to finally, right, succumb to this and succumb to the data and say, forget what Trump is saying in the administration. The data is saying you don't have an inflation problem and you might have an unemployment problem. So what do you do? You you ease, right? You ease a little bit. You bring down interest rates, which is what the market's expecting to happen. And we think that's what Powell's going to do. If he's if he does right by the country, he will. >> Maybe even uh what by the may possibly I'm not sure what our schedule looks like, but maybe by the time people are hearing this, that will have happened. >> Yeah. I yeah I don't know what today is whoever's listening but if we're in September um you know we're looking for a quarter and then another quarter you know I he may surprise with 50 but he's been so inflation concerned over tariffs despite the data saying otherwise and assuming tariffs lead to inflation which we've shown don't they they say well all right if if exporters eat 50% of tariffs what about the other 50%. I said, 'Well, the other 50% is offset by one of the biggest income tax cuts, right? Cutting uh tax on tips is probably a $15 billion spur, right, to people having more money to spend. Um cutting on social security is over a hundred billion. Cutting on overtime is probably$85 billion. You're talking about $300 billion, right? two to300 billion dollars of additional money being in the hands of consumers, right, to say I can offset the uh ill effects of those things. On top of that, you truly have oil and gas coming down in price with the US having some of the cheaper electricity bills in the world. I mean, especially compared to Europe, right? Not as cheap as China, which is willing to burn coal all day long and pollute the air as much as they want, right? So, they've been building coal plants like crazy. So, electricity in China is cheaper. But amongst nations that care something about climate and aren't burning coal like crazy, um the US has got cheaper electricity because we have, you know, virtually, I don't want to say unlimited, but untapped potential of natural gas that the US can put on. And when you think of that and the cost of electricity and the cost of all the things that are dependent on fuel coming down in price, coming down in price, that easily easily is enough to offset whatever inflation that could come through, the tariffs coming through. And so when you put those puzzle pieces together, you could walk away going. >> I have to I have to squawk up here. >> I would say pipe up, but I mean a squawk. It's always been dumb to talk about tariffs causing inflation. Inflation is a monetary phenomenon. And and tariffs is not a are not a monetary phenomenon. I never knew what anybody if if you say it's going to make the price go up because they're going to pass the cost along to the consumer. We know to some extent that happens. You know, it just does. Now, if it's offset elsewhere, great. >> Yes. >> But but that's not inflation. All price going up is not always inflation. And it's it's wrong to just conflate it or to think that you're using some type of shortorthhand to describe the situation because inflation is a very specific phenomenon. It's not CPI going up. >> It's not any of those things. the it's about the supply of money and credit >> there >> Dan I'm with you know one of my one of my favorite newsletters >> um you know from back in the 70s 80s that I read when I was uh when I was really just a teenager um but then as a young adult was Howard Ruff and Howard Ruff are you f and he used to say explaining inflation as rising prices is like explaining a hurricane as falling trees >> right it's yes it happens and and I think one of the things that we've we've tried to do you with our research is separate between is it increasing prices or is it currency devaluation >> right >> right and trying to get out of just saying inflation and say let's talk about are there prices rising that's something is there currency devaluation and that gets to Howard Ruff's comment that it's currency devaluation that we want to look at and and it looks like the US dollar does not have the currency devaluation which is part of the reason why the world is turning to the dollar and is dollarizing more and more I mean when if you want a reason to buy gold the reason to buy Gold is not the US's problems. It's the problem in you know the next 20 countries in the world. And that would be a reason to buy gold. >> Right? If you're in Russia and you are getting paid in rubles, I would turn that into gold in a second. If I was paid in renman B in China or if I had real estate, I could get rid of my real estate. I would turn that real estate into gold in a second. If you're in Poland, the Polish government's like, if we end up a wartime economy, right, the our currency is going to become worth a lot less. um whe and in fact all the countries that are not on the euro even and even the ones that are on the euro would say maybe I should be buying gold if if things are going to go really south with Russia Ukraine and and the stuff in the Middle East. So if things really get bad right those are all the reasons to buy gold. So people like oh you're not a gold bug. I'm like actually I think gold's going to do very well but not because of the US's uh having concerns but because the rest of the world does. And when you can only produce one and a half to two% of gold a year and on the margin you have all these giant populations saying I don't like my currency. Some turn to the dollar, some turn to crypto, and quite a few turn to gold. And so it's a very bullish call on gold. I'm not I'm not against gold. I just still think the S&P um 1500 plus the dividends reinvested is still a on par, you know, on balance a better place than pure gold. That said, if you're investing in gold stocks or gold equities and those companies produce a profit, they can pay you a dividend. Different story, right? I spoke at the rule symposium uh in July. Rick Rule invites me there all the time, I think, to >> to to rouse people up. >> Yeah, I know. That's right. >> And yet, I was saying I the title of my presentation was Goldilocks for gold and stocks, >> right? Um because you could have a situation now where where for US stocks you could have things going well and still have a bullish reason for gold at the same time. They don't have to be you know against each other the way people often think. >> Yep. It's it's often assumed that it's a seessaw with gold on one side and dollars on the other and it's not. >> Yeah. I think the fundamentals right now are are bullish for both. >> Yeah. This the fundamentals for the dollar are hard to shake. They're hard to change. Um it's too massive. There's too much demand outside the US as we've been saying. Anyway, um okay. So, we we've ticked people off with tariffs and we've ticked them off with gold maybe. Hopefully, although you you couched it a little bit, you're you know, being bullish on gold and I don't know. >> Yeah, that was pretty bullish. >> They're not going to be too too angry at you. >> Um >> yeah, I I wasn't thrown out of the conference the way I might have been in other games. Well, let's get you thrown out of here. What What What else you got? What do you got that's like uh you know, throw him out of here. I mean, bullish on the S&P. >> Yeah. >> Bullish on gold. >> You know, there I I think there's an emotional fear. You know, the It used to be they always talked about the fear of missing out, right? FOMO. >> Um I think there's a fear of getting in. when you when people are looking at the market and at all-time highs and then they see 300 companies double right in in just a few months right so there's breadth it's not just the mag seven or something um I think people are just worried about getting in I think it's a mistake and I think that you can get into the stock the US equities and you can get in selectively you can avoid the known problem areas which are obvious real estate is still in a horrible depression I think autos are in trouble. I mean, I think there's some big areas to to be worried about, right? Any banks that are dependent on office on office real estate, and there are a lot that still are, I' I'd still be very concerned about. Um, I'd be worried about uh you know, we still have to see what happens with Trump on on drug pricing and pharmaceuticals. So, if you're if your drugs are the ones if your company's drugs are the ones that are going to get hit with the price control, um that is going to limit profits. It's going to limit dividends and capital gains. So there are known areas to worry about, but there's a lot of other areas um like the AI I'll say enablers um where you know it is gang busters for corporate America. I I haven't talked to and I do spend a lot of time with with uh management teams as well as investors. I haven't talked to a management team yet that hasn't said they're embracing AI at every single level of the firm. Every level of the firm is embracing AI, right? uh and and to think that AI, you know, 94 to 2000 the NASDAQ did something like 600%. Um and most of that was post 96 97. I think today is sort of like 96 97. We've got another three four years of an AI early innings still uh bull run and we're seeing it. We look at the uniform earnings of companies. It's really difficult to see this with gap numbers. That's where people, you know, for good reason will say, well, I don't like dirties of these companies. I don't like what's happening. But the problem is gap accounting punishes the innovators. It punishes R&D spent to this day. You know, other countries, a company spends on investment, invested in research and development, it doesn't get expensed. It gets capitalized. But when US companies invest, it gets expensed as a cash flow from operations. >> It's ridiculous. On what planet is R&D cost of goods sold? It's an investment, but it doesn't show up under the investment section of the statement of cash flows. So, a company could be in pumping in R&D like crazy because they know we're going to take this market. We're a leader in our space. And we see this. That's the companies we like to buy, right? The leaders in a in a growing sector is as Dhouse said, a really good house in a great neighborhood, right? So, if we can find those names, the problem is the uniform accounting uh the gap accounting will tell us something wrong. The uniform accounting will say, "Oh, no, no, no. Cash from operations is strong. they're just investing like crazy. That's very different from cash from operations being low because of R&D, right? And when you see clearly on that, um, you can get away from this fear of getting in and and say we could be selective. Uh, you know, we published we're publishing a bunch of research on this. We're announcing it uh in midseptember. I think I think September 17th we're going to release this research. But it's 30 40 years of research uh on the type of stocks that that even in market highs continue to hit new market highs and really take off in these kinds of markets. And it's it's it's fantastic research. It's it's uh it's on the way Dhouse right the way Cliff Asnes at AQR has built his hundred billion dollar firm. um cliff as who was who studied directly under Eugene FMA under the efficient market and his goal was all right now when is the market not efficient so that I know where to buy and where do I make money is FMA said it's not perfectly efficient we're looking for those imperfections and uh that research study we're publishing um on in September is a it's a big deal it's good and it backs up why so many of these investors have done well when the value people particularly at times like this are like I you know they're pulling their hair out and you're like well there's still value. You just have to value is still is a stock cheaper than it should be. It's not just does it trade at a 12p. >> Right? There are there are a few of those around, but they're harder to find than ever. Um I'm glad we're talking about AI because that's another thing where I think we could potentially really make people angry um by by and it's good I'm just I'm joking of course, but it's good to upset people's uh expectations and tell them something different than what they want to hear. And with AI, the thing the drum beat um the constant drum beat actually is it's going to put a lot of people out of work. Now from you know um automatic loom equipment to um to the internet this has never been the case. It's always all new technologies that are transforming the printing press, whatever you want to call it, you know, uh early in early in the wealth of nations, I think, um or I know Adam Smith mentions pin making machines. All of these things, they make people more productive and and when when a technology is really transformative like this, it just spawns new industries. you know, the the internet has created new industries >> and so it makes us more productive. It spawns new industries thinking that oh, you know, it's going to wipe out corporate America. Well, there are probably a lot of middle manager types who need to lose their jobs, AI or not, right? So, um you know, I I I think it's silly to talk about it that way as this sort of unemployment apocalypse since, you know, so far that just hasn't happened in history. Well, Americans, you know, have been very good, you know, since, you know, going back a couple hundred years in being able to change, right? Being able to adapt, being able to innovate. And that means also changing jobs. I mean, at one point we were what, 65% of people in the US were agriculture. Today it's two, three. I it's but it's very, very, very low. Well, it's not like the other 58% just remained unemployed for the rest of their lives, right? it's people moved over, >> right? Um, and you move over into jobs that are increasingly more tech or techreated or tech support or tech maintenance. Um, and uh, you know, it's it's our employees said to us um said to us a couple years ago, they said, "Hey, we're hearing this. Are are you especially in a knowledge industry, we're manipulating numbers? We're manipulating data." And they said, "Can't AI take our jobs?" And I and I said, "Here's what we guarantee. We guar I said I don't think AI can replace our people but someone using AI will replace your job or some research firm using AI will replace alimemetry if we don't and that is the case right but uh no I don't I I I'm with you on I don't think you see some massive massive there's no unemployment by any stretch of the imagination >> um but there does have to be change as there has been like if you were an expert in farming before you had to learn how to build houses if you were an expert in building houses and you know right now that's still a decent industry but maybe not building offices >> right we don't >> you have to change and move and adapt and Americans are great at that >> books about you know um the great buggy maker crisis of the early 20th century right the buggy whip crisis and oh my god it was it was mass chaos you know the buggy makers and the buggy they all went out of business >> we don't read about that and as you point out you know with agriculture Sure that you know 98% of the country is not doing anything. It just doesn't happen. >> And you know it's like a lot of things in life not there. What you don't notice and what you don't see >> um is is what's important. >> Yeah. Dan the way I'm thinking about this is like AI is coming >> towards us, right? But like we we just have to adjust to it. And I feel like that's what people and companies it sounds like across the board are are doing. Otherwise, you're just going to be left behind. And you might humans made it, right? Aliens didn't make it. I think humans did, >> right? >> Yeah. I mean, >> replace humans. I mean, totally, right? Like what's the point? Like if it did everything for everybody like it wouldn't work like like what like it just it just wouldn't. And so you need to I mean we're creating this thing. I mean, maybe it gets to the point where in like sci-fi, you know, this thing's coming to get put me in jail, but uh I think we'll hopefully put controls on that. >> Yeah. Yeah. I think we're we're a long way from 2001 of Space Odyssey. >> Well, we're And the real thing though is that we're we're we'll never see the singularity. You know, the singularity was was never going to happen. We're we're never going to see the machines take the machines aren't going to be superior to humans. Humans are always going to be more human than the machine. And humans are want other humans. You know the demand is for from human beings is more humanity. It's not more devices. Right. >> So >> right I I I mean Dan I we are we're the same page on that philosophically and I I'll even say spiritually right. I believe that I'm into that. So it's so when people talk about you know the singularity or or you know AI like the mass employment apocalypse view of AI or even you know the the other thing they talk about um you know Elon Musk and various folks have have expressed concern is you know AI um kind of uh taking taking over um just being a threat to us physically I guess as Corey just mentioned. actually, you know, it's like the uh the machines in the Arnold Schwarzenegger movie, right? Skynet, right? The AI becomes Skynet. >> Yeah. >> Again, like I don't you you don't like humans have a say is all I'm humans have a say. >> Yes. >> And I can still pull the trigger and we can still, you know, pull the plug and all this stuff, you know, it just doesn't make any sense. if not to mention if AI is still based on you know the internet searching what what is out there what has been published what's out there um it's still dependent on that data set for coming up with it conclusions and that's why to this day if you go to chatpt >> right or or groxy whatever you like >> any and you say I'm a 75y old man I have a pension that covers all my expenses I have $10 million dollar in the bank that I don't intend to spend. How should I allocate it? And the answer is patently wrong every single time. Patently wrong. It is. I can't even begin to tell you. And if you say you're 25 years old, but I have a couple of kids and they're in school and I got to have private tuition and you ask for your asset allocation, it's wrong again. I mean, it's so wrong. It's like detrimental to a person's financial, you know, >> wherewithal at such material levels. And I'm like, if it can't get that right, if it can't get that right, it's not going to simply say, "Okay, here's your here's your stock you should buy tomorrow." And everyone just stops using investment research. You know, I just it's it's a silly kind of idea. Um I we're always doing it because I'm always like at the point that AI can do a better job than we can on corporate analysis. All right, then I got to rethink my business. So far, it's not even close. It's not even the same ballpark. effect is patently wrong whenever we ask things as simple as basic how much percent in stocks, how much bonds, how much cash, how much gold >> and it gives you the wackiest numbers and it seems to depend on the day of the week. It seems to depend on the phrasing of your question even though you use the same data and depends on which database AI is pulling from you get these crazy answers right that it says oh that worse than that I agree it's but it's worse than that because to some extent how I ought to allocate is is an opinion and it's kind of a personal thing you could even say but it doesn't know facts and it's like um 100% confident 100% ignorant you know it'll tell you. I was looking for I was looking for the book which um is called Time Enough for Love by Robert Heinline. And I asked one I forget which one it was. I asked one of them if you know where did where and when did Robert Heinline say specialization is for insects. And then it said well he never actually said it blah blah blah. And then the next one I asked, which was Gemini, said, "Oh, that's in the book Time Enough for Love, published in 1973, and it's part of this speech." And I was like, "Yep, that's it." And the other one just >> it was 100% confident and didn't know. And that happens repeatedly. I've had I've sat here and had conversations like that with Gemini as well where, you know, I I'm looking for I was looking for mentions of Louis Bashel. I was talking about the birth of modern finance or something and and and I was like, "You told me that this was in this book, but it's not there." Or vice versa. I can't remember. But but I told I I I bitched, you know, Gemini out for telling me the wrong thing and said, "Oh, I'm sorry. You're absolutely correct. I was wrong about that." And I wanted to say, "Yeah, and you were totally confident that you were right." >> And and and you know, Dan, I'm I'm totally with you. And I I'll use this speech function and I'll I'll you know and people will hear me in the office and they're like, "Who's Joel talking to?" I'm like, "Uh, he's arguing with Chat GPT again." >> They literally said they're like, "He's having an argument with Chad GPT." I'm like, "No, that actually is incorrect. I can show you the research that says what you just told me is 100% wrong." >> Oh, sorry. Let me check again. You know, I mean, exactly what you're saying, Dan. So I mean this is one of the things is that that that when it comes to something as complicated as investing and the art and science of it and stock picking >> um you know it's not going to be able to be all the be all answer and the be all end all answer and you need you know now that said do I use AI at this point you know our firm is you know over a hundred people and I could not tell you how many different AI tools are being used Two and a half years ago, everyone's using chatpt or some coding, you know, uh, AI or whatever. Now, it's like every team has their own 12 agents. Um, some of them custom made that I'm like, I have I I couldn't possibly even take an inventory of everything because they're like, "Oh, yeah, that's what we were using six weeks ago, but the new graphic design software is so much better and it's free." And I'm like, "Oh, I thought we were paying for that." They're like, "Well, we were, but we're going to cancel because the free one is actually much better and does better whatever." just even for simple design I'm like wow right it's it's it's amazing so the tools are incredibly valuable >> but to give you the be answer and say how should I invest my money what stock should I buy all I get is a bunch of nonsense every time every time >> y >> and >> yeah you reminded me of something uh Eugene FMA was talking to us about like do you have >> great interview by the way great interview >> FMA I I I yeah >> yeah I was not expecting to talked to a Nobel winner uh you know um >> this this month. But um the >> what he said what what we kept asking him about different things and he kept saying well do you have better information than than the market or somebody else does and what we're talking about with AI is you might actually have worse information is it's pulling from the wrong things >> and not tailoring it to what you're what would really work for you anyway. It's uh >> yes what will what will provide you know alpha what stocks will create alpha and it just it's now a firm using lots and lots and lots of agents that are used and then amalgamated it and then you still have an investment committee that we have that's still the trigger still pulled manually right fundamental shop like ours you know that still works and I think the AI is unbelievably productive when you use it for a very specific place that you could double check the data quickly whatever else and then leave that up to your mosaic of the reason you you buy a stock. FMA Eugene FMA obviously famous for the you know efficient market there theory but even on your on your wonderful interview I really thought it was a great interview I'm not just saying that you know he said well you know do you have the information for when the market is he said it's it doesn't all work perfectly and so when you make money is when it doesn't work perfectly one of the areas that confounded him that one of his top students Cliff Aznes at AQR um wrote his dissertation on and dissertation was for FMA his his uh is a PhD doctorate at Chicago and Cliff Assus as you know is is AQR Capital over a hundred billion dollars and he said the importance of momentum as a factor meaning looking at the 300 doubles right looking at the stocks that are going up over the last 12 months looking at whatever and saying okay what are the characteristics about them that have created this momentum and if we can identify that then you can go in and and honestly Dan I think there's a lot more really interesting issues out there right now. When you look at that from that perspective, when you're looking for where is there imperfect information, where are the things that the market's not getting right? And one of them is when the market tells you earnings are negative of a company when they're really positive or earnings are shrinking when they're spending more in R&D when in fact earnings are growing, they just happen to be investing a lot more in R&D. I mean, that's a a really simple one of of I can name 20 that the research is showing. But when you look for that kind of anomaly, there's a lot more really interesting issues. Even with the stock market at all-time highs right now, when you're focused on this growth and momentum kind of um strategy the way uh the way Asnus did, who is who is FMA's maybe one of the five most successful students of FMA along with Dimensional and Booth and and others. Yeah. >> One of his billionaire students to put it simply >> of several >> of several. Amazing. >> Yeah. I I I enjoy Cliff um on Twitter a lot and I think I've asked him to be on the show once or twice and he's not interested. Um but maybe I'll ask him again. Who knows? You never know. >> Um love. >> Well, you've had FMA now. So, if you reach out and say, "We had Eugene. Um it was a great interview. Our you know, our giant, you know, audience loved it. Would you like to come on and and build off of it?" >> That might be interesting. Now the Eugene. >> Yeah, that might get us some some other ones, right? >> Yeah, >> that's a good thought. >> Yeah. >> Yeah, I'm not above that. That I'll I'll do anything to get him here. Yeah. >> Yeah. >> Seconded. Yeah, let's do it. >> Because F I think FMA enjoyed it. He seemed to enjoy your your interview. It wasn't just a I'm being honest. >> I hope so. I think he enjoys he I I didn't I don't know if I asked him this, but he seems to be really interested in talking with people and getting on podcasts and just, >> you know, expounding ideas and things. Um, but I I we admitted I admitted I'll speak only for myself and not for Corey in the takeaway session after the interview that it was it was probably the hardest interview I think I've ever done. I just um I wasn't ready for him to be so concise >> so many times. >> He really he didn't feel the need to expound >> a lot more than than than many others. You know, it's >> Yeah, that that simple well must they did they have in when you ask them about why all these money managers underperform the market. It's like well if they're trying to beat the market and they don't have information that's unique, >> then of course they would have. >> Like and that was it. And you're and I remember Dan you you're listening to that and saying yeah if you don't have information I mean that that's I mean my entire business is built in do we have information the rest of the world doesn't have and if we don't then we have no business having an opinion right don't I don't want to hear someone's opinion on some company and they start telling me the same thing I can hear on CNBC or on you know in in Bloomberg or whatever. I'm like, "No, no. I want to hear data that you've uncovered or dug up sometimes through primary research." Yeah. >> Right. Sometimes through primary research where sometimes did you get on the phone and call 20 dealerships >> and all 20 dealerships told you something that was totally different >> from what Wall Street's saying from the research. I mean that once in a while picking up the phone or getting out and doing channel checks, you know, can get you some insights that are that lead to when the market is not perfectly efficient, which is when you make money. >> Scuttlebug. So, it's No, it's great. >> Yeah, >> it's great. >> Yeah. Yeah. And Dan, I I'm I'm with you on the uh on your your takeaway point as well. I mean, Eugene was he's 85 86 years old. I mean, you gota Well, we'll keep that in mind here. So, he was, you know, he also doesn't need to expound, you know, he's short to the point. He knows what he knows. And that's >> Yeah. And he's, as we noted at the time, just >> hopefully I can do a podcast when I'm 86. very um you know his his uh integrity his sort of intellectual integrity was on full display because he refused to let you kind of bait him into saying something about the future. I don't know. I don't know the future, you know. >> He just wouldn't do it. >> Yeah. >> So, >> and he's he's famous for not letting students ever use the word bubble in his class. in his class he's famous for saying don't use the word bubble >> don't use the word but you could say expectations were built in that were very high >> and if they meet those expectations then it wasn't a bubble and if they don't meet the expectations then it falls but it's not falling because it was a bubble it's because the information at the time told you that stocks were going to continue having 12% earnings growth and when they didn't they fell I mean is that that's a discipline I think that I've been trying to teach internally is also you know with our look when you have all these analysts up and coming right I'm not doing I can't do everything right and uh and we have some great investment analysts and teaching them early on right don't say bubble what is the embedded expectations and that's something you learn from FMA that I think is through and through in our firm and and the way we we invest um and the way anyone should invest is to always think don't think it's just oh the market's overpriced no think what is priced into the market >> now let's have a debate over that but simply saying it's an all-time high the market's overpriced that's right at least say something that has some data behind it and then we can debate the data. >> That was the core of the Extreme Value newsletter that Mike Barrett and I have been doing that I've been doing since 2002 >> and Mike's been doing for 15 years now. So, >> um it's comparing because you can't do the other thing. I tried to do the other thing for a while and I was like you can't you can't do discounted cash flow. You just can't do it because you'd have to know the cash flows within you know some reasonable probability and you don't. However, you can plug them in to equal the current price and then tell me, well, >> yes, >> you know what? What does that look like? You know, do are things that bad? Are things that good? Are things somewhere in between? You can do that. And that's price implied expectation. >> Well, that's that's the way to do it. >> And that's what our alttimeter does. So, our alttimeter for 6,000 US stocks for every single company, right? We don't say buy. We don't say sell. We're not like Wall Street with some overpriced underpriced on every company. On every single company, we simply say at this price, here's what the cash flow stream, the ROAs, the profitability of this firm has to look like to justify today's price. Now, you decide. I mean, what I like to say is is if you're good as a research provider, right, not just a stock picker, we're just providing because a lot of our clients, you know, just rely on our database. Um, we're setting the line. We're really good bookies. We're saying, look, everybody knows this company's going to do well, but how well does it have to do to justify its current price? And that's what we're modeling out graphically, right? And for I think it's more 6,500 companies now that we're covering. >> Um, and uh because yeah, that that philosophy of embed expectations is so I don't want to sound so I mean I keep bringing it back to the way we do our research, but man, I I live and breathe I live and breathe research. So what can I say? Hey man, at some point in life you just got to say this is who I am and this is what I do and what you do is pretty cool. So, you know, of course you're g That's why we have you here, Joel. We have you here to talk about that, >> you know. >> Sorry, Joel. Joel, who who >> Yeah, I'm looking forward to this uh to this research coming out. It's uh sounds exciting. It sounds like a it should be appealing to a lot of people, you know, because we hear about, >> you know, the hyperscalers and how much money they're putting into >> AI spending and and all of that. And um >> sounds like you're you're getting into that subject a bit deeper. Uh so >> yeah I mean it's interesting when you when you look at the hyperscalers a lot of what's so the statement of cash flow says here's capital expenditure >> that capital expenditure is a fraction of the actual investment that the hyperscalers are making it's a fraction meaning the amount that they're actually putting is under reportported for instance R&D is not included in capex uh if they are leasing warehouses and leasing land and leasing um supercomputers that's not included included under capex. That's not a capital expenditure under GAP accounting. We're like, of course it is. They just added, you know, 500, you know, hectares of potential solar power, whatever land or whatever to the thing or whatever they're they're buying into or all these data warehouses they're leasing and and actual physical warehouses they're leasing and that's not included. None of that's included under capital expenditure under GAP accounting, right? It's a complete miss. So we have this hyperscalers chart that that we show and and when you see it the growth is far more than people are saying which means it'll be pulling energy at a much much higher level than than I think people are saying that uh people think like there's this energy magic that'll just happen and the energy will appear that that the US economy needs and uh no we're one of our big calls is no you're going to see electric power producers being able to start pricing at a premium um and it's one of the areas that uh We think you're going to see growth with stocks that may look a little bit all right, you know, 24 25 times earnings and we're like we may look a year from now those companies are trading at 35 times earnings on earnings growth that's you know 20% higher. Um those are the kinds of really interesting ideas that that pop up in these kinds of markets um that you can find fundamentally and and Corey is you know thanks for tuning in when we when we do our when we release that research uh in >> I'll be watching >> I think I think September >> September 17 what do you call the what do you call this is this your AI report or what is it >> uh growth and mo >> growth and momentum growth and momentum because it's it's not just AI I mean um US supply chain infrastructure with all these businesses that are having to get built. I mean, if someone puts up an a new industrial plant because they're going to start making widgets, right, in the United States because they want to avoid the tariffs and they're not going to make it overseas, you need an entire infrastructure to support that business. It's not like they just put up a company and whatever. You need everything to support it. That means more roads, more bridges, um better bridges, better roads, um and and and all the other cabling and telecom infrastructure that is going to have to go in to support this unbelievable renaissance that uh we're seeing that that we're in the early innings of. Um so when you think of that, there's all kinds of growth in places to be looking at. Um growth and momentum and uh and that's a that's a big piece of that uh that research we're showing on in just a few days. I guess >> the Gromo report. It sounds like [Laughter] >> Growth and Mo. I our clients, our institutional clients will say growth and mo. So, I'll stick with the way our our our clients talk. >> All right. So, we'll look for that on the 17th. Um, and is there like a presentation with it or something that folks can sort of uh are you are you just going to publish this or is it going to be a presentation like a video presentation with it or anything? Oh, I'm we're gonna I actually um because there's a veteran in the space, Whitney Tilson, Whitney and I are gonna actually uh have a nice discussion about it. Um I won't even say debate because I think he's lining up where where our research is showing, but uh we're going to discuss it on that uh on that uh program. >> Okay. >> No, it's a it'll be a big event. >> It'll be a big event. >> Good. Yeah. >> All right. We'll have to get folks a link to to sign up so they can watch it, >> I think. >> Yes, sir. I'll get you that. >> Do that. All right. Of course. >> So, we've hit it's it's time for our final question. Same question for every guest, no matter what the topic, even if it's a non-financial topic. >> I love it. >> Same question. And uh you've answered it before, but I'll I'll restate the question just so in case you don't remember. Um and if you if you've already said it, by all means, feel free to repeat it. The question is simple. It's for our listener. If you could leave them with one takeaway, with one thought today, Joel, what would you like it to be? >> That's Dan. You know, it's an easy one and any anyone that reads my work sees it every day. >> Um, uh, >> love, joy, and peace every moment. >> And you just pick one, >> right? I don't know you can do all three, but there's some days that I'm just like, I am so blindsided with things that happen and frustrated and I don't know what to do except to say, I'm just going to find some peace in it. And just radical acceptance. This must be the way it is. And there are other times where I'm working on something and I couldn't be more loving and caring about that situation, whatever it is, where I'm just like so into it. And other days where something just happens that is such a nice surprise, you just experience pure joy. And all I'm thinking is and all I'd say is uh the more we focus on that love, joy and peace, the more we create our future in a way that uh whatever our future is, future of finance, future of accounting, future of our families, our relationships, the more love, joy and peace we exude, the more our lives become loving, joyful and peaceful by default. Well, what else are we on this planet for other than to experience that? >> Great answer. And I know I want our listeners to know I can always rely on Joel for a philosophical answer and a good spiritual philosophical answer. And I knew I was going to get one. You know, >> not disappointed. Yes. >> Love, joy, and peace. Love it. I'm I might write that down and just hang it on my desk here. >> So, thanks for that, Joel. And thanks for being here, man. >> Cool. Dan Corey, great to be on. Thanks. And uh um I just great what you're doing, too. I I mean I you heard me say it many times, but you've been getting some great guests, great conversations. I mean really really I love I love your show. >> So thanks for having me on being a part of it. Really? >> Thank you. >> Folks, on Wednesday, September 17th, Joel will unveil the biggest investment breakthrough in the history of his firm. It helps you to isolate potential 100% winners with startling accuracy and is directly linked to the hundreds of stocks that have doubled in just the last 6 months alone. More importantly for you, it could help you see potential gains of 500%, 800%, even a,000% by this time next year. Although all the top 10 global investing houses follow Joel's work, his breakthrough market discovery is reserved for those who tune in live on September 17th. That's this Wednesday. Best of all, you can beta test this new breakthrough right now, free of charge, and punch in your existing holdings to see whether they're destined to double or nose dive. I strongly recommend you try it for yourself immediately. Head to www.2025breakout.com. Again, that's www.2025breakout.com where you can get all the details directly from Joel's team. I consider this mustsee for all investor hour listeners. One last time, that's www.2025breakout.com. Don't miss it. Opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stanbury Research, its parent company or affiliates.