Deal or No Deal (FvF Ep. 189)

In Episode 189 of Facts vs Feelings, Ryan Detrick, Chief Market Strategist at Carson Group, and Sonu Varghese, Chief Macro Strategist at Carson Group, break down the disconnect between how people feel about the economy and what the hard data is actually showing. They connect the dots between oil prices, inflation expectations, Treasury yields, and why markets may not be reacting to geopolitical headlines the way many investors expect.

It’s a real-time look at the K-shaped economy: tighter budgets at the bottom, resilient spending at the top.

Ryan and Sonu walk through stretched momentum after an eight-week rally, sector rotation beneath the surface, and another massive earnings season. They also explain why private AI investments are quietly becoming a meaningful contributor to public company profits, something many investors still aren’t fully accounting for.

Key Takeaways:

• Oil prices, Treasury yields, and inflation expectations remain tightly connected even when markets appear calm.
• Consumer behavior is splitting across income levels, reinforcing the idea of a K-shaped economy.
• Soft data like sentiment surveys continues diverging from hard data like earnings and employment.
• Earnings, buyback activity, and AI exposure are reshaping market leadership.
• Market momentum remains strong, but sector leadership underneath the surface keeps rotating.
• Bond markets may be the biggest force shaping Fed expectations and investor behavior going

Jump to:

3:06 — Strait Tensions and Oil Prices

6:41 — The All-Electric Ferrari Debate

8:39 — Consumer Strain Signals

13:15 — Consumer Sentiment Hits Record Lows

21:37 — Home Water Leaks and Insurance Headaches

25:18 — Sector Breadth and Market Leadership

33:15 — Momentum Crowding and the Win Streak

37:41 —Earnings and Buybacks

45:01 — Private AI Valuations Inside Public Earnings

48:13 —Health Data and AI Coaching

50:44 — Chicago Live Show Details

54:00 — Grading Powell and New Fed Risks

1:05:12 — Fed Hike Odds and Week Ahead

Connect with Ryan:

• LinkedIn: https://www.linkedin.com/in/ryandetrick/

• X: https://x.com/RyanDetrick

Connect with Sonu:

• LinkedIn: https://www.linkedin.com/in/sonu-varghese-phd/

• X: https://x.com/sonusvarghese?lang=en

Questions about the show? We’d love to hear from you! factsvsfeelings@carsongroup.com

Transcript

Copy Transcript Copied

SPEAKER_00 0:02

Welcome to the Facts versus Feelings Podcast. I'm your host, Ryan Dieter, and I'm joined by my co-host, Tony Varke. Coming through the noise, Ryan Dieter, Chief Market Strategist, and Tony Varke, Chief Macro Strategist, taking out the board and helping investors focus on what really matters. Deal or no deal? That's the question. Maybe we have a deal, maybe we don't. Who knows, Sonu? By the time people listen to this. I know. Nobody knows. Welcome to episode 189 of Facts versus Feelings, Ryan and Sonu, as always. There's a lot of personal stuff to talk about. We'll get there in a second what you're dealing with because I had something happen last week too that are about the same. We won't go there yet, though. Hopefully everyone had a nice long three-day weekend. Memorial Day weekend. Again, thank you to everyone that keeps us safe. And obviously, everyone is given the ultimate sacrifice so we can uh do what we do every day. It's um it's it's greatly, greatly appreciated. What did you guys do anything special for Memorial Day weekend, Sonny? Anything happen?

SPEAKER_01 1:09

Yeah, hey, I I grilled us you know some steak, so that was good. We saw the Mandalorian and Grobu. My uh kids and I. My wife was like, no, I'm not doing that.

SPEAKER_00 1:20

Yeah, yeah. What about you? Well, we um we're in the middle of graduation season, so it's graduation party season, maybe what I should call it. We went to my wife and I went to you know, several uh my daughter on I think let's see, it must have been like party hopping. Must have been Sunday. Must have been Sunday. She went to 11. She went to 11 different graduation parties. But that's you know, what's that time, right? So we we're doing a lot of that. And our graduation party with for my daughter is coming up soon enough. Uh then you go to these other parties, look around, it's like, oh, it's just so much last minute work and stress and uh it's coming up for you, right?

SPEAKER_01 1:56

Oh, it's coming up. That's what I said, and you'll come to Chicago so that you don't have to organize.

SPEAKER_00 2:00

Don't say anything, don't say anything. Yeah, literally our it's on a Friday, and I'm in Chicago, like what is it, like Wednesday, Tuesday night, Wednesday, Thursday. My wife was thrilled when I told her. Yeah, I I I said, you know, she kills me. You need to know. So if I'm not in Chicago, and I had to let her know eventually. And she didn't kill me, but she might be. Yes. You know what, have a party at my funeral. That's that's okay.

SPEAKER_01 2:24

Oh, for sure.

SPEAKER_00 2:25

Yeah, but um, anyway, so yeah, we'll we'll see. It's a good weekend, yeah.

SPEAKER_01 2:29

I I did spend some time by uh favorite team in the Premier League, won the Premier League title, Arsenal. So that was fun. I actually got my wife to sit and watch you know part of the game and the trophy presentations. It's 22 years, so it's it's it's a blast. And this weekend they're playing the Champions League final, so fingers crossed for that. So season of football or soccer, I should say soccer for uh with the World Cup coming and all of that.

SPEAKER_00 2:57

We have a lot of listeners all over the world, so um there you go. I think we're in over 100 countries, something like that. So, you know, it's uh yeah, we can call it we can call football, I guess. All right, so deal or no deal. Let's just get this out of the way because by the time people listen to it, maybe none of this is happening. Uh, oil's down five percent, give or take. By the way, we're recording this on Tuesday um after or sorry, Tuesday morning, Tuesday morning. Futures are higher. We're looking at like new highs across the board, which is great. And oil's down five percent. What's the latest you think on the straight opening up here?

SPEAKER_01 3:25

I don't think anyone has any idea. I don't think the either party has any idea. Like by either party, I mean the Iranians nor the US. I mean the good news is they're talking more. I was going to say they're not shooting, but apparently this morning or yesterday there were some shooting, so I was like, oh, but it seems like that's very contained, right? It's within the strait, a few things, you know, skirmishes, let's call it skirmishes rather than out and out war. But I'm going to look at it glass half full. It's positive. We're getting all this news. The fact that they're saying we're close to a deal, all of that, that's positive, right? It's better than shooting. I mean, you know, as long as you know we're going back to full-scale war here. And the fact that oil's down a bit, you know, tells you something. I mean, WTI is out down to about $94 a barrel, Brent is down to about 97 thereabouts. Last week it was about 100. Uh so our friend Jeff Kilberg had a good note, I think yesterday, uh, yesterday or so on CNDC, talking about how, you know, and I think I I'm in agreement with him that if oil goes back to $80 a barrel, that's kind of like all clear. We're not there yet, right? Which tells you this is still in flux. And I think, you know, what will happen is the ceasefire just gets extended for 30 more days and 60 more days. The strait remains closed, but we'll see, right? Uh but the cost of the war is clear at this point. Look, pre-before the war, what do we have? We had negotiations, right? You can argue whether it was, you know, how far down the line they were or not, but we had negotiations. The strait is open, oil is at 60, the tenure yield is around 4%, markets are pricing in two plus rate cuts in 2026. Where are we right now? We have negotiations. Iran is clearly just like Trump is out of the deal, I think Iran's out of the stall. Iran's clearly stalling. It took, I think, two or three years to, you know, uh negotiate the JCPOA agreement between President Obama's administration and Iranians back in 2015-2016. I mean, I don't think we have two years here. Goodness. Right now, the strait is closed, it's clearly under Iranian control. Oil is at $90, $95 a barrel, the tenure yield is around $450. Market's no longer pricing in cuts and maybe even a hike. Set aside stocks. We'll talk about stocks. But I think that's the cost is clear, right? Oil's up, tenure yields are up, you're not getting rate cuts.

SPEAKER_00 5:54

Well, we're putting us putting it like that. Um, so you know, I saw the tweet coming around, and I think you shared it too. They said, you know, the deal's really about 95% done. All they're working on now is opening the strait and getting the uh uranium. That's all we have to work on now. That's the last. That's it.

SPEAKER_01 6:12

Sorry, I mean we're at the end.

SPEAKER_00 6:14

We're right at the end. The two, the two, the tweet up.

SPEAKER_01 6:16

Maybe, maybe, maybe, you know, yeah, it's like 95% of the deal is up, but the last five percent, yeah. We need to go need to negotiate on the nuclear stuff and reopening the strait. Okay.

SPEAKER_00 6:26

That's uh yeah, what's what's the rest of the stuff they're working on? I thought those two things that matter. Um, all right. Well, so we're watching it closely. Obviously, there's uh a lot going on, so we'll maybe just kind of move forward here. Um I have a question for you. Go ahead, go ahead.

SPEAKER_01 6:42

Uh, very serious question. Did you see the new Ferrari designed by Johnny Ive? I believe I think it was Johnny Ive, the Apple guy. No, it's terrible. I guess I'm not buying a Ferrari now.

SPEAKER_02 6:53

It's awful.

SPEAKER_01 6:54

It's we can we can find a picture. It's an all-electric Ferrari, and goodness, it just looks it looks terrible. I I mean, no offense to anyone who owns a Nissan leaf. I saw a picture of a Nissan leaf. Same color, like I think it's some bluish color. And the picture of the new Ferrari is like, oh my god.

SPEAKER_00 7:13

You know, like you know how families sometimes have um code words, like like if you're if you're like with kids, like with my daughter, she if she says something, if she's at a party and like she wants to be picked up, she'll say something like, you know, they're serving barbecue, or whatever, whatever. Whatever the code word is. So my code word is I bought a car called a leaf. If I ever say that. You know, someone's you know I'm like I'm being held by gunpoint somewhere, is all I'm saying.

SPEAKER_01 7:38

That's that's it's like me eating a salad, not quite. Exactly.

SPEAKER_00 7:41

That's true. Yeah, I say Sona, how are you doing? Well, I'm eating a salad. Oh my god, someone's got Sona, we gotta find him. He's being kidnapped or something. Something's wrong. Right, Ryan's driving something called a leaf. Oh my goodness.

SPEAKER_01 7:53

Um or the new Ferrari, the the all-electric Ferrari. I I'm curious how much demand there is. I mean, you know, yeah. I I wonder if it's one of those things where you know somebody obviously has that kind of money, it'll be like, you know what? I need to be seen as somebody who owns an all-electric Ferrari. Forget the fact that it looks terrible. I mean, I I think you know the the critical reaction. I mean, well, forget critical. The overall reaction seems to be like this looks as awful as I think it does.

SPEAKER_00 8:41

But anyway. I um I got I guess need to look at it now. I'm sure hopefully by now we probably threw a picture of it up on YouTube so we can uh everyone can let us own the comments.

SPEAKER_01 8:50

No opinion on race.

SPEAKER_00 8:51

Yeah, let us know. Um let us know there. You know, let maybe let's kind of bounce around. I mean, let's kind of bounce around here. There's a lot of stuff we do want to talk about. Two things, or well, I guess one thing, but they're kind of combo from last week that took my got my attention, right? Walmart, Walmart discount, right? People go there when they're maybe pinching pennies a little bit. Uh Walmart had okay earnings, but they kind of got it a little bit lower for the next quarter. Stock was hit like 7%. This their CEO came out and said something along the lines of listen, you know, there's there's some there's some stress here with consumers. Now, the flip side to that, Ralph Loren, which is high-end shirts, right? And clothes and all that, that came out like the same day, I think both Thursday. They're up 14%. Their, I believe it was their CFO said, Hey, we're not seeing any stress with our customers. And again, this is the K-shaped economy. I've heard some people call it the E-shaped economy, it's all the different shapes we want to call it at this point. I don't even know. I I don't know. A middle finger. I I don't even know what it is. I don't I don't know. I just saw someone calling it an E. But anyway, whatever you want to call it, I think that sums up kind of what we're dealing with, right? High-end stuff, hey, not slowing down Ferraris. Maybe people still buy these really, you know, unique. I'll just call it unique, unique looking Ferraris. Um, but the bottom end and one more, I actually was on um I joked CMBC if like 10 hours ago, but I was on CBC about five hours ago for the morning show with uh or morning call with Morgan Brennan. And um Peter Bookvar pointed out, and I saw this stat, I think in Barons, but he pointed it out. This was the first time since 2022. Walmart keeps track of everything, right? I mean, that's what they've done. They're almost an AI play. We've talked about this. Walmart's almost like an AI play anymore.

SPEAKER_01 10:17

Don't say AI because that would be a whole other thing.

SPEAKER_00 10:19

Yeah, well, you're right. Yeah, it's all different letters. Yeah, yeah. But they pointed out, they being Walmart, said that they look at how people get gas, right? Walmart has gas uh a lot of places. And for the first time since 2022, people are buying on average less than 10 gallons every time they fill up. So people are not filling the tank all the way up. They're stopping, right? They're stopping because, well, what do you know? I mean, I filled up my tank well over 100 bucks the last couple times. I've never seen that before, but we're all in the same boat there. So Walmart pointed that stat at Nick stat out, and it kind of shook people up. What's your take on what I just said with the K-shaped economy, the top, the bottom? I mean, I know there's so many angles on this. We have talked about it a lot the last couple years, but I thought those two stood out, Walmart and Ralph Laurent. What do you think?

SPEAKER_01 10:58

I think part of it it gets to, especially the last thing you said about gas prices, right? You're filling only 10 gallons, right? Let's say before this crisis, you were spill it filling up 20 gallons at, you know, I don't know, three dollars about that's not 60. And now it's like 450 thereabouts. Okay. And you're just filling 10 or let's say 12. And your idea is, you know what? I want to spend the same amount of money. I don't want to spend more than 60, 70 bucks on this stuff. It doesn't matter how many gallons I get. Now I'm going obviously going to get fewer gallons because gas prices have gone up a lot. It's gone up from nationwide average 280 to about 450 or so. That's a big increase, right? And this gets to the fact that in nominal terms, spending is still strong. Because everyone's still spending that 60, 70 dollars. And that gets to the fact that if we were in a let's say environment where there was a recession, people are losing jobs, I bet you'd see that the 60-70 probably goes down to 40 or 30 or something like that. Okay, right? Whereas now they can still afford, quote unquote, afford 60 or 70 dollars to fill up the tank, but they're getting less for it, they're getting less volume, you're getting less real growth, but you're still getting the same amount of nominal GDP growth, right? You're still getting the same amount of money flowing through the economy, it's buying less stuff because of inflation. But on the other side of that is we've talked about inflationary growth, it's good for profits, it's got good for revenues. Look at gas station sales. It's uh talked about retail sales last week, it was up like 99% annually over the last three months. I'm not saying gas stations are gouging and things like that. I don't want to get into that, but they're making money. That's the other side of people continuing to fill up $70 a tank refill, right? So I that's the way I'm thinking about it, if it makes sense.

SPEAKER_00 12:49

Well, we've talked about it a lot. I mean, the reality is on the aggregate, the economy's in pretty good shape. I don't think the stock market be doing what it's doing right now if the aggregate economy wasn't pretty solid. The labor market, we've talked about that. We're gonna talk about some more today. There are a lot of positive, but there are there are negatives, there are cracks out there. I mean, no doubt about it. Um, yeah, but then you look at like how many foreclosures there were last quarter, relative to the quarter before, bankruptcies last quarter, quarter before, they actually went down, right? I mean, you you look again at like overall credit card debt. Credit card debt went down last quarter for the first now, not a lot. I mean, listen, it was like 1.27 trillion, the 1.26 trillion, something like that. Close enough for government work. But the reality is it did go down, and you look at like corporate balance sheets and things. There are there are still more positive negatives, is our view, but we are aware of some of the stresses that are that are happening out there. And and let's kind of take this. I know some of the charts you sent were on consumer confidence. Consumer confidence, yeah. Let's go that route because I mean what if it feels like uh deja vu all over again, Yogi Berra, because we once again had this time, I think I believe it was May, May consumer confidence from University of Michigan, a new low. We said this a month ago, but it even went lower, broke the previous all-time lows in 2022. Last time we saw a big oil spike, also. So consumer confidence is as low as there have been. Yet, literally, the second we're doing this, the Dow, the SP 500, small caps are all hitting all-time highs, um, right now with consumer confidence, the lowest has ever been. You want to talk about consumer confidence or wherever else you want to take that, Sonu?

SPEAKER_01 14:08

Yeah, let's do that. In fact, I actually there's a real puzzle here. You just said it. Look, if I'm spending $70 to refill my tank, but I'm getting only 10 gallons, whereas previously I was getting 15, that sucks. I'd be upset. If somebody asked me, calls me and asked me, like, are things going well? I was like, hell no.

SPEAKER_00 14:28

Did you see the new Ferrari? Things are so bad I have to buy a car called a leaf. That's how bad it is out there. It looks the same.

unknown 14:37

No.

SPEAKER_01 14:39

Anyway, the University of Michigan Consumer Sentiment Index. There's two of these, right? The other University of Michigan Index, and we had the conference board. Personally, I prefer looking at the conference board. I'll get into why I think the public political aspect that gets into the University of Michigan's index, but it goes back a long way. So it's useful, right? And now over the last few years, they moved to an all-online survey. I think that's skewed things, but still, we still have it. It's a long survey, it's got a lot of pedigree there from the University of Michigan, too, even though Ryan, you know, we won't talk more about that. But look, as you said, it fell another three and a half points to 44.8 in May. We can put this chart up showing what was it, the University of Michigan Consumer Confidence, uh, Connor. 48.2 is the reading, uh, was the expectation. It's at 44.8. That's a new all-time low. It's below where it was during that inflation surge in 2022. It's below COVID levels, below the financial crisis, below the dot-com crash levels. And yeah, sentiment just sucks. Now you think, as I said, this index, I think there's a reason. We use consumer confidence in our own LEI, our proprietary LEI index, but we use the conference board index. We don't use the University of Michigan, and that's because I've always, you know, been skeptical about how it's colored by politics. You get sharply differing opinions from Democrats, Republicans, depending on who's president. You can see the spread, you know, if you look at the data. We can look at the University of Michigan consumer confidence by party chart, Connor. You can put that up. And you know, the spread between Republicans and Democrats in the Bardo bottom panel there, and it switches back and forth. You know, Democrats are much more optimistic during the Biden administration. And then once the presidential election in 2024 got done, it just completely switched. I think there is signal in the line for independence. On the chart, it's a purple line, but that also Ryan hit a new record low of 40.6 in May. Right. Now you think, okay, maybe is that because independence means they seek, you know, by mistake or whatever it is, they're sampling Democrats. I don't think that's the case because otherwise, soon after the presidential election, you would have seen the consumer confidence index for independence fall a lot, right? Like it did for Democrats. That didn't happen. It was flat, it was okay. But now it's been coming down for, you know, quite a bit, quite about a year now, ever since Liberation Day. You look at the current conditions index for independence. I have a chart on this as well, Connor, the University of Michigan current sentiment for independence. That dived last July. It's at a record low. And look, this index actually plunged after COVID and it never recovered. That's in sharp contrast to what happened after the financial crisis. The index collapsed, but by 2015, it had fully recovered. Now it took six years, but it fully recovered. We're six years removed from COVID, nowhere close to recovering. We're going the wrong way, right? And this actually also, like I said, I don't think I think there's some signal in here, but it gets back to what we are talking about. You know, inflation sucks. You look at inflation expectations, inflation expectations. I have a chart on this too. University of Michigan consumer inflation expectations, Connor. One year ahead, inflation expectations, that's at 4.8%. Five years ahead, that's at 3.9%. These are well above what we saw pre-pandemic, right? And even for independence, that's been going up. And even for Republicans, actually, after the presidential election, this was interesting. Last thing for me, Ryan. Republicans expected 0% inflation over the following year. Well set aside what that what that would mean for the economy. Zero percent. But that's up to one and a half percent now. So that's actually a big increase. You're going from zero percent to one and a half percent, and one and a half percent by itself, that's not too bad. But the fact that you move from zero percent to one and a half percent Republicans tells you everyone in the economy here, every household, doesn't matter, Republicans, Democrats, independents, everyone's seeing an inflation problem.

SPEAKER_00 18:48

Well, no, no doubt about it. And you you've not, you and I have talked about this before, but sometimes low consumer confidence is almost as simple as high oil prices, high energy prices, because again, that's what people feel when they when they're spending their money and they see that and they go to the gas station, and that's that's what it is. Now, yes, there's clearly some politics involved in this. And we've talked for probably three years now about the difference between soft data and hard data. Yes, we pay attention to soft data. I think one of the reasons a lot of those other, oh, you know, leading economic indicators and things got themselves in trouble three years ago saying there will be a recession was they focus way too much on the soft data, which was soft, but the hard data, which I know we definitely focus on a lot as well, in fact, probably more so. Um, it is facts versus feelings, right? So we look to use the facts. Hard data matters uh a lot, and that's why we've avoided a recession and continue to likely avoid a recession. Um let's see. One last thing.

SPEAKER_01 19:42

Uh the soft data, like even in our index, we use mostly hard data, but we have some soft data. Like the PMI is a soft data, right? We don't want to completely throw it out. You and I have talked about our issues with the PMI over the last several years. But I the soft data does tell you, you know, almost counterintuitive, like I said, you know, consumers are complaining about inflation. We do have an inflation problem. The fact that consumers are now I I would take with a greater salt their expectations for you know five years ahead inflation. Is it going to be 3.9%? I don't think so. I think maybe slightly less, but it's the movement, right? It's gone up, it's a rate of change. I think that's what matters. And I think what that tells you is there's inflation in the economy. Now we have several other indicators telling us that, but this sort of corroborates that, right? Even independence, forget Republicans and Democrats for a moment, even independence are telling us there's an inflation problem.

SPEAKER_00 20:36

No, no, well said there. You know, that's one pocket of cinnamon. Uh we've mentioned many times that AAI cinnamon poll Sonu uh just last week, even though new all-time highs are right there. Dow's back above 50,000, you know, the closing of all-time highs as well. Uh, we had the most bears since the last week of March when everything was really, really kind of uh you know uncomfortable for a lot of investors. And then you look at the NAAIM National Um Association of American Investment Management.

SPEAKER_01 21:06

Yes, American Investment Management. Active, active investment. Not America. Like every time every time. Every time.

SPEAKER_00 21:14

I thought I was gonna get it right, and I still butchered it. We'll just call it name. Um, but that is virtually gone down, or it's gone down a lot the last two weeks as well. So there's pockets of optimism, yes. Again, just on CNBC this morning, I was on with Amy Wu and she was talking about how there's been a lot of call activity, a lot of call options. So the options market's a little more optimistic, potentially. I will say it wasn't that long ago. I mean, we've we're on an eight-week win streak, we'll talk about all this stuff. But eight weeks ago, we were talking about literally some of the largest hedging in the history of the world, the market we've ever seen. And that was one of the reasons we said, listen, if we get any good news at all, it's not like, like you said, the straits still closed. You said eight weeks ago that we're gonna be up eight weeks in a row up 17.3 percent during that eight-week rally. I was oh uh the straits opened up and it hasn't. So just something to think about there. Uh now, one way you and I are trying to help the um economy potentially. We'll talk about water. I'll talk about water for a minute here. So I'll go first because I think it was Thursday. I was downstairs, but uh I'm in my basement working, and I and we had a guy come over to clean for the um party. He was up outside and he was pressure washing, right? So he hooked his hose up to um one of the outside faucets that. Have that we haven't taken note, we haven't used this outside faucet since probably last fall. All right, so it's the first time we've used it. Hooked it up. He's out there doing his thing. Emily like heard something, and she looked downstairs and heard all this water like gushing downstairs. Uh-oh. Now take note, I'm downstairs. I used to listen to a podcast or something.

SPEAKER_02 22:38

Who knows what I was doing?

SPEAKER_00 22:39

I don't know. I don't know what I was doing. But we had a the the back part of our basement just flooding with just tons of water because somehow over the winter the pipe cracked on the inside of the house. So he's using it, it's working on the outside. And we said, and now luckily we told us.

SPEAKER_01 22:55

So you're in the basement, right? So you didn't hear water on your table on the other side. The other side, okay.

SPEAKER_00 23:01

But I kind of heard water, but I knew he was doing something. I just thought it was like a shower running. You hear the water. I don't know.

SPEAKER_01 23:06

You thought, oh, this is like meditation. I have some nice water guthing.

SPEAKER_00 23:10

Exactly, exactly. I was just relaxing a little bit. Um, so that was a big mess. That was pretty frightening, but luckily it all turned out okay. My father-in-law came and fixed it. He's very handy and fixed all that. And but I we were thinking, like, man, if we weren't home, and he did that for like two to three hours, he's also pressure washing the entire outside area. Our entire basement would have been flooded, which would not have been good. I got a lot of stuff like where I'm sitting right now, all my computer stuff, all the stuff we're in the basement, right? So that would have been um that would have been a bad deal. But then right before you and I were doing this, we record, you said you had to do some docusign stuff because you have a leak too. What's going on in your house?

SPEAKER_01 23:42

Dude, that's like yesterday. I was we were all getting ready to take a bike ride out to the beach here, go go out to the lake, and suddenly I I walk past my like my office on the ground floor, we don't basement, thankfully. We have yeah, my and right next to it is a guest room. You've been here. This is a guest room with an attached bathroom, and I hear like water coming down. I was like, wait, get those those darn kids, they left the tap open. It's always a kid's right. That's my first thought is to blame the kids. Sure. And I walk into the bathroom. That's usually my second thought as well. Yes, and it was like rain, it's just coming down. I was like, oh my god, like there's no way to stop it. There's no switch. Well, I did shut the water off in the house. I shut the water off. This thing's coming down, get buckets. My wife is a little more, let's say, she has a little more presence of mind with the stuff, she's a little more calm in this. I almost drowned in my basement, I had no idea. So, yes, it's it's a good thing my wife noticed it. No, thank God for our wife. But yeah, so she she got the bucket, she got towels. Uh the floor, luckily, it did come into the guest room, but there was some standing water on the bathroom floor. Anyway, I have to deal with this now. Got a restoration person coming to look at it. The side docu sign. I have to fight with Geico, my insurance company, Liberty Mutual. They uh they're the uh, you know, they have the policy. So, yeah, a lot of phone calls between yesterday and more to come today. Um I'm signing documents and all sorts of things. Hopefully, look, Warren Buffett has a lot of cash, so maybe he can spare some of the cash to fix my yes.

SPEAKER_00 25:19

Wow, that's that's crazy that we both had water issues in like within seven hours of each other. Oh my goodness. Yeah, so um, let's see here. Wanna talk about earnings season a little bit? Want to wrap that up? I mean, you had some stuff on NVIDIA there. You want to go that round?

SPEAKER_01 25:32

Yeah, let's let's do that. I was gonna talk about breadth. We'll come back to that.

SPEAKER_00 25:35

Well, let's go to breadth. We can do breath. Maybe that's more of a market discussion. So let's talk about breath because I know we've got the chart and you shared it, but I'll steal your thunder. You look at the 11 sectors, yeah, six of them are beating the SP 500 on the year. Put that up. We can put that up, Connor. And it's like, you know, energy, technology, materials, uh, industrial, so some of those cyclical areas. Now, the one that got me so new, and I guess I do this for a living, so I should have known. I was really surprised to see real estate on there because you know, in an old world, real estate bonds kind of trade the same. Listen, this isn't precise, but higher yields, higher rates. You wouldn't think. So, my take there is well, maybe the economy's better. I I don't know. Um, what was your take on real estate outperforming the SP so far this year?

SPEAKER_01 26:16

I mean, I'm always trying to make a story out of you know the performance I see. Now it's in hindsight, there's hindsight bias, obviously. So it's like after the fact, I'm trying to fit a narrative to it, but you need that in some form, right? And I just can't make sense of this. In some ways, look, the SP 500 is up about 9.7% year to date. Okay. We're talking recording this on the 26th of May. I mean, uh right now the SP five as SP is up another 80 basis points, 0.8%. So it's up over 10 year to date, including dividends and all the right pretty much new all-time high. But you look at the sectors, like you said, six sectors outperforming, five sectors underperforming. So it's exactly like half and half. Now, at the very top, you have energy up 34%, tech is up 26%. Together, tech and energy account for 41% of the index. And then I look at, you know, okay, what else is outperforming? Okay, set aside industrials and materials for a moment. Real estate and staples, I'm like, wait a minute, that kind of doesn't make sense exactly for the reason he said. I don't think we are in a risk-off environment. Certainly not. I mean, the index is at new highs, so that's puzzling. And then real estate, to your point, bond yields have gone up. We're at 450, you know, for the 10 year, we are at 510 thereabouts for the 30 years. Like, wait a minute, why is real estate? So I think there's weird things happening underneath the hood of like what's in that real estate basket, REITs or something. It could be so things like data centers, right? Or maybe malls are converting to data centers. I I I'm not sure. I'm going to dig into that, and then you look at the other end, four large sectors, and these aren't small sectors, flat or negative year to date. Financials down almost five percent, healthcare down about three percent, healthcare. Okay, it's not quite a cyclical area, and maybe not quite growth, maybe it could be defensive. But then you look at calm services, pseudo tech, that's down almost two percent, consumer discretionary is flat. Together, these four sectors make up 40% of the index. So you have 40% doing amazingly well, tech and energy, you have 40% doing pretty, let's say less, you know, 10% delta to the SP 500 at least. And that's weird. I'm like, wait a minute. And I think that gets to it's an AI story at the end of the day. And I I was looking at the style box as well. Look at you know, large cap growth, large value, small value, mid-value, mid-growth, small growth. And you look there, everything's in the green, it looks okay. Small value is leading, which is that's good. It's not too far ahead of small caps. Small caps are 16, something like that. Large growth, interestingly, is the second worst performer. Mid growth is the worst, and large growth. We know why it's struggling. Microsoft is down 13 for the year, meta's down about 8%, Tesla is down 5%. So I'm not too surprised. Large growth and even the Mag 7 is kind of lagging, right? But even within small caps, Ryan, I was I went digging into this. The SP 600 index, it's different from the Russell 2000, but it's also up about 14.5%. The Russell 2000 is up 16, so kind of this almost the same thing. Look at small cap tech, it's up 47%. Small cap energy up 47%, small cap materials 22% positive. That's on top. Now the bottom, you have real consumer discretionary. It's kind of flat. Small cap healthcare, which tends to be cyclical, small cap healthcare. It's not quite like a big large cap healthcare. That's up just one and a half percent. Consumer staples, small caps, about six percent or so. So you see this very big divergence, one side of the market, and maybe the economy, maybe it's K-shape, right? Or E. Maybe it's E. That's where the middle E is your industrials, real estate staples, and then the big E, well, the big part of the K is tech, energy, materials, and the other side is consumer discretionary, comp services, things like financials. If we had an economy that was humming along, let's say two and a half, right, is on trend, real growth. I think financials would be doing much better. Right? Maybe consumer discretionary would be doing better. I I thought I saw a chart this morning about equal weight consumer discretionary sort of breaking down. I was like, huh, that's interesting. But then you look at small cap tech, it's flying, it's probably up 50% year to date, right? So that's my take on like I think breadth is still good because there is a lot of stuff rising, but there is this big divergence. We could talk about momentum too, but yeah, you go ahead.

SPEAKER_00 30:42

There's a yeah, there's a lot to unpack there. Um, you know, the reality is from just your average investor, like Sona and I get paid to kind of figure this stuff out or try to figure it out, I should say, like which sector is this and that. The average investor, who cares? Just keep a diversified portfolio. I don't mean to see so glue, but maybe I do. Just you know, have a diversified portfolio, own a lot of this stuff, and you know what? I wouldn't be shocked. Uh tech is, I'm sorry, wrong one. Financials is the worst sector year to date right now. Uh, you know, I don't think it's going to be there at the end of the year. I think that we'll have the cyclical world will still lead your your financial, I'm sorry, your your industrials, your materials, your energy, your tech. And then you got the laggard down there. I I think there's some positive things. Uh, Frank Capillarios on CMBC the other day talking about he's seeing some potential positives when you kind of peel back that onion on financials. So, you know, hey, financials have been very poorly this year. Okay, so what? You know what? The year's not over. Maybe that comes back. Maybe tech just doesn't go up every single day, but that baton gets passed from one big leader to the other and as a diversified portfolio. Well, you can live with that. Now, a couple other comments here. Uh, on Friday, we closed an all-time high on the S P 500 equal weight, right? And the SP 500 index, so market cap weight, is hitting an all-time high right now, also. So we use 10 that we call like a bearish divergence. When one of them hits a new high and the other doesn't. Well, that's not the case at all, right? The Dow is above 50,000 and the Dow struggled. But then last week, we all of a sudden turned all ultra bullish on quantum computing because the government said, hey, you 12 companies are gonna give you $2 billion. IBM had its best week in 20. I mean, we were talking about IBM, not we, but the collective world. So, oh, IBM, they've lost their step, they've lost this. Okay, IBM had its best week in 24 years last week, soaring, helping the Dow come back, because that's one of the Dow components in there. Um, so you know, it's just like every week you turn around and there's something else that takes the baton. So it wasn't pure AI, it was quantum computing this time last week that really soared. Really, the news came out on Thursday, but those stocks bounced a little before that. So maybe somebody knew something. But the reality, again, is hey, the government is still giving a lot of money to these companies, and the market seems to like that. So those are some things, again, but when you have a new high on equal weight and the market cap weight on the SP 500, to me, that's a positive thing. You know, I know some groups are leading, some groups are lagging. You know, last year, Sona, only like three groups outperformed the SP for the entire year. We've got six right now. So you could argue there's more breath now than we had a year ago. I mean, so you know, we've heard this argument. I mean, listen, you and I've done this for a while. Only seven stocks going up. I don't hear that as much when we push back against that. It's those seven stocks going up more. Yes, they account for a bigger percentage of the 10% gain in the SP 500, but to say that no other stocks are going up, it simply isn't true. And and we've pushed back against that a lot. And it's called facts versus feelings for a reason. So we tend to do that. What do you want to focus on? Anything else there? You ready to jump to something else?

SPEAKER_01 33:23

I'll just bring up momentum. I mean, this gets to when we started the year, we said you want to ride the wave, but avoid a wipeout. That's why you want that diversification which you just mentioned, right? And and to your point, in a way, I I kind of don't care about breath.

SPEAKER_00 33:39

Well, yeah, I mean in 2023, you only get up with tech. Well, if you own a decent amount of tech, you did okay. I mean, you know, yeah.

SPEAKER_01 33:47

Now, with all humility, I will say you and I are in the business when you manage a tactical portfolio. We are in the business of market timing. We don't care about breadth. I mean that I'm saying that very glibly. That's because we want we just want the stuff we own to go up, right? Obviously. Now, one way we played that is momentum. Now, I'm going to use the SP 500 momentum index. That's our preferred go-to momentum index rather than MSEI momentum, which is like MTum that ETF, that's everyone's favorite momentum index. I don't like that. We don't have to get into why. I've never liked that. For reference, year to date, the SP 500 momentum index is up 22%. Last three years, it's up 172%. Wow. The SP 500 is up 85% last three years. This year it's up, you know, 10% or so. MTum or the MSEI Momentum Index is up about 21%. So matching the S P 500 momentum index year to date, but last three years, 124%. Yes, it's outperformed the SP 500, but the SP 500 momentum was up 172%, Ryan. So that's about almost 50 percentage point outperformed. That's right. So I looked at the SP 500 momentum and I looked at the difference between the excess return between that and the SP 500 over rolling 12-month periods, rolling one-year periods, going back 40 years, and rolling three-year periods, again, going back 40 years. And right now, over the last year, momentum's up 38%. The SP 500's up about 26%. This is through May 22nd. Excess return of about 11 percentage points. That is the 83rd percentile. It's fairly high. It's not 50th or 60th or anything like that. You expect momentum to generally outperform any year, but now you know we're up there. It doesn't look too extreme, even though it's on the higher side. Now you look at the last three years, annualized, momentum's up 40%. The SP 500 is up 21%. This is annualized over the last three years. That's an excess return of about 18-19%. That is the 99th percentile. We can put this chart up momentum versus SP 500 performance on a three-year basis, the excess return 99th percentile. It could go further, right? This is where riding that wave means it could go further, 99th to 100 percentile, it goes up even more. You continue to be the 900 percentile, but usually a pullback beckons, and and and this is where last week, without giving too much away, we pull back a little bit. Um, because you know, momentum is getting a little stretched here, and this gets to the fact of riding that wave but avoiding a wipeout, right?

SPEAKER_00 36:27

No, exactly. Yeah, we manage billions of dollars, and um you know momentum's worked a lot, but you know, maybe you know, maybe maybe bring the cash register just a little bit, just a little bit there. Um, and that's what we did. Now, speaking about momentum, just in general with the market, um, Connor, we can put this one up. The SP 500 is up eight weeks in a row, up 17.3 percent during this eight-week win streak. For a second there on Friday, it looked like we were going to top the all-time record, which was 17.4% in an eight-week win streak back in 1997. A little late sell-off, that's okay. Um, so second strongest eight-week win streak ever. Back in 97, we gained like 22% the next year. Okay, sample size of one, I get it. So I found uh six other times, Sona, we had an eight-week win streak up at least 12%. So really big returns. Strong performance going forward, but the thing I think that matters to me and to us and listeners out there is a year later, never lower, and you're talking up like 18% average with even a higher median return. So that blast of strength that we are in is still a bullish signal to continue to ride the wave. That listen, we could have some a little wipeout here or there. I mean, a 5% pullback at any second for any reason would be perfectly normal. Honest to goodness, maybe a tad healthy after the run we've had. But these bigger picture things we've been laying out for a while now are still alive and well. Um, speaking of which, you want to talk a little bit about earnings now with NVIDIA? You want to go that way? Yeah, let's let's do.

SPEAKER_01 37:48

I mean, NVIDIA sort of blew once again earnings off the water, out of the water out, you know. I think that's fair to say.

SPEAKER_00 37:56

It just blew the water away. I don't know. Yeah, blew the water away.

SPEAKER_01 37:59

Whatever.

SPEAKER_00 38:00

We can use it at our house with all the water issues we're having. We could have maybe I'll set the stage. Let me let me set the stage, and I'll turn it to you. So so after NVIDIA, the third quarter earnings for the SP, sorry, first quarter, first quarter earnings of 28.7%. Members expected 13.1% this time, about five or six weeks ago. Uh, that's the best number we've seen since late 2021. Um, um, what else do I have here? Mag 7, up over 63% earnings growth. Now, here's the other thing. You talk about the um, you know, a broad market. Well, listen, the 493 is still up about 17%, all right? So the 493 is still making about 17% year of your earnings growth. That's pretty impressive uh when you break it down. Micron is accounting for 12.2% of the overall earnings growth, by far the largest. They came in with this a huge, huge number. Uh, Meta, Facebook's about 10%. So you know, there's always a couple big companies account for a lot of the earnings, but that's important to note. 84% of companies have beat on earnings, 81% of companies beat on revenue, both well above the last five and 10-year uh numbers. I don't think I have too much more there. Um, yeah, I mean, so so let's talk about NVIDIA though. I know you had a couple charts, or at least one chart, just how strong and it doesn't stop. It just doesn't stop, does it?

SPEAKER_01 39:07

I mean, they're in the business of printing money at this point. That's it. But when we talk about the chip story, when we talk about AI demand, especially demand running far ahead of supply, which by the way is why prices are going up. But who's benefiting? Well, it's Micron, it's NVIDIA's of the world. It's investors as well. And you know, if you invest in the SP 500, you have seven percent NVIDIA, right? If you own the total US stock market, similar thing, right? So Q1 revenue, this is incredible. I mean new record of 81.6 billion in that quarter. Expectations are about 78.9 billion, right? That's up 20 from Q4. It's up 85 a year ago. A year ago, we thought Nvidia revenue was amazing.

SPEAKER_00 39:54

Yes, we did.

SPEAKER_01 39:55

It was 44.1 billion last quarter, the most recent quarter, 81.6, 85% higher than that. Two years ago. Again, two years ago, Nvidia's beating records and things like that. Revenue was quote unquote only 26 billion. Three years ago. It's great, three years is not a long time, right? It was a seven billion. Wow. And today it's 81.6 billion. And over you know, the same thing with profits. You can put this profits chart up, uh, corner. Q1 profits was up 58.3 billion. That's 36% above last quarter's number. It's 211% above a year ago. A year ago it was 18.8 billion, close to 19 billion. Today it's 58.3 billion. Right? Over the past year, the full, like not just one quarter, trailing 12 months, Nvidia generated 160 billion dollars in profits. Wow. The prior year was 77 billion, two years ago, 43 billion, three years ago it was five billion. We've got three years ago it was five billion. Today we are at 160 billion. That is just sorry, bad shit and say apologize for the language, but I just said to say it.

SPEAKER_00 41:12

How to say it.

SPEAKER_01 41:13

What are they doing in the money? I mean, obviously they're investing in all sorts of stuff, but they did make a couple, so the earnings reaction or the stocks reaction uh post-market after market closes is interesting because market isn't like, yeah, we wanted more. Like, okay, whatever. We wanted more. And the it so it was an underwhelming market reaction. I think since earnings the uh last Wednesday for Nvidia, Nvidia stock was down about over two percent. The SP500 is positive, one and a half percent plus. So, but the stock was down, I think close to two, three percent soon after earnings, something like that. But then it went back to flat because they it announced a buyback. They announced a buyback of 80 billion. I was talking to Blake Anderson on our team who manages you know a growth strategy, amongst other strategies, and he was saying that's one of the largest ever in terms of raw dollar values of buybacks. 80 billion dollars and buying that stock. I mean, that's one way to boost the stock price. And by the way, they're issuing a quarterly dividend, they've increased that from one cent to 25 cents to 25. Given the market gap, that is a massive dividend, right? Even though it's a yeah, it's 25 cents, it's still a large amount. So yeah, NVIDIA blew it out of the water.

SPEAKER_00 42:28

So a couple things here. Um, I believe on the week, NVIDIA was down four and a half percent. Okay, so if you would have said this the largest component, the SP 500, 7% was down four and a half percent. So, ooh, was the market down last week? No, not not at all. Like it's almost like we didn't lose a beat, you know, with even with NVIDIA kind of weak. A lot of that was IBM having a huge week. Now, IBM's not nearly as large as NVIDIA, but hey, it made up for it because it had a huge week. So that's just kind of a you talk about that market breadth. Well, listen, that that okay, NVIDIA took a little pause. It's still an incredible fundamental story, but the market did fine. Also, um, where I had it in front of you, they're gross margins, 75% versus 71% a year ago. So, all those crazy numbers you just mentioned, margins might be the craziest one. They're yeah, higher than they were a year ago. I don't even know how to wrap my head around that, but listen, that's just what that's just what it is. Um, I know. Like you said, additional 80 billion stock buyback, and they up the dividend big time from a penny to 25 cents. Those are some of the only other comments that I had. I'm trying to look if I have anything else. Data centers up 92%. I mean, listen, we get it. That's that's where most of the stuff comes from for revenue. I'm asking most of the revenue comes with Davis data centers, but that's not slowing down. Um, just amazing. Just just just truly amazing. And uh really it's earnings season in general. You know, I guess it started maybe six weeks ago, give or take approximately, and um well, end of March, I guess, really, whatever that is. But just you know, expected 13.1% came in double that, more than double that. And revenue, and even I talked about it last week, but revenue is up over 11% for the SP 500, which is really good. Take out tech. We just talked about some of these crazy numbers with these tech companies. It's still up nine percent, even you take out tech. That's revenue still up. So that's pretty good. I mean, there's always going to be leaders, there's always gonna be laggards as investors. I mean, I love on social media when people are like, I point out, you know, I make my little comments, I'm like, ah, congrats to the Dow, you know, since 1896, it's hit its highest level. Congrats to the, you know, the people that ignore all the fear mongering. And people are like, Yeah, it's easy when. You kick out the losers. I'm like, well, of course. Why would you if you have a sports team, do you just keep the bad ones? Of course you're gonna kick out the losers and add the new leaders. And yeah, the believe me, the Dow's not perfect. The Dow Jones is not perfect with you know picking some, they've done some pretty famous ones. You pick somebody and kick someone out. I mean, kicking Exxon out, you know, in 2020 was a pretty extreme example of okay, maybe it's time to buy energy, and you look how energy's done the last six years, but that's all right. I mean, listen, they do a good job. Everybody makes mistakes, but the reality is there's still there's still a lot of positives out there. And as investors, keep a diversified portfolio, don't get too cute on what's really doing well, what's really doing poorly, just kind of own a little bit everything because that baton will get passed around. And hey, if they kick out the worst, so be it. Just ride the wave longer term and you'll do pretty good. Um, anything else on that, Sony? You want to move forward?

SPEAKER_01 45:05

Uh, one thing that was one last thing on earnings. So, as you mentioned, the average earnings surprise. Basically, you said it was expected 11%, it came in 27%, you know, final growth, right? Year over year growth, earnings growth. So 16% points of surprise, which is crazy. That is massive. One interesting source of the surprise in Q1 earnings was basically how valuations for AI firms, private AI firms, yeah, anthropics and open AIs of the world, how that's showing up on the income statement for the hyperscalers and NVIDIA, right? So, how it shows up, where it shows up on the statement is in something called non-marketable securities. Right? So a lot of them have excess cash, they invest in bonds, some of them invest in equities, public equities, but they also have non-marketable securities, which is private investments, like into Anthropic and OpenAI. Now, NVIDIA and firms like that don't exactly tell you where they invested, but we have a good sign of that. We have a good sense of that. The big picture is that a significant chunk of earnings growth came from increasing valuation for these private AI firms. For Alphabet and Amazon, it was over 50% of gap earnings. Is this something to keep in mind? You know, when you think about, oh, you know, I'm not having I don't get access to private firms because I can't invest in that because only you know a bunch of folks in Silicon Valley are invested in those. No, no, no. It's actually showing up on the public side, right? For Alphabet, Alphabet made profits of $63 billion last quarter. 36, 37 billion of that, 59%, came from revaluation because anthropic's value, open AI's value went up. Amazon, they made 30 billion last quarter, half of that, 52% of that, 15.6 billion, came from revaluation. Nvidia, like I said, we just talked about 58.2 billion was net income. 16 billion of that came from revaluation. Their investments in open AI and anthropic and things like that. 27% over a quarter. Same thing with Microsoft. Over a quarter of the net income they gained in Q1 came from revaluation of the investment in things like open AI. So just something, you know, interesting that's going on. It gets to that circularity. Right. You know, this whole thing of AI with valuations.

SPEAKER_00 47:26

Thinking of those those charts, maybe a year ago that were really popular about the circularity, like you said, uh, everybody's investing in everybody, everybody's connecting. And you worried to yourself a year ago, this was a legit worry. Well, if one of these hit a snag, then everyone, you know, oh, what's Barry Rithel say about the great financial crisis? Everyone ate from the same buffet. The food made everybody sick all at the same time because everybody ate from the same buffet. So everybody's eat from the same buffet in terms of the circularity, but then it well hasn't mattered yet, I guess, is what we're gonna say. And it still looks like there's a lot of uh waves there.

SPEAKER_01 47:54

I mean, it's all well uh Connor, we can put this chart up where while you know we're talking about private valuations for bank of capital earnings. Hey, this is where it gets back to what we talked about ride that wave, but boy, be careful about avoiding that wipeout. You don't want to be overextended.

SPEAKER_00 48:10

Yeah, well, like we just did with some little momentum. Hey, you made a lot of money, momentum. Um that's okay. You know, that's that's great. I mean, maybe maybe be be cognizant of that and uh make a good decision. So I will uh go to side rant for a second here. So here's my on YouTube, there's my Google Pixel 4 watch. I bought this Pixel 4 watch maybe two or three months ago, give or take. I am a Google guy, I'm not an Apple guy, we'll just leave it there. And um, people give me funny looks when I say that, but whatever. So, so this I didn't know any of this, but this is neat. So Google bought Fitbit. Most people have probably heard of Fitbit, keeps track of steps and stuff like that. So this had a Fitbit built in. I'm doing that stuff, trying to you know move a little bit more and keep track of the sleep patterns and all, which by the way, I didn't sleep very well last night because I had early CNBC, so I'm all messed up. But what I'm getting at, they bought Fitbit. Two two or three days ago, Fitbit became something called Google Health. There is no more Fitbit. It is now called Google Health. And they sent me all this information. And yesterday I spent like two hours just having a lot of fun with this. I could input all of my stuff from my doc, you know, like my chart, right? I use different hospitals, like all these different MyCarts, all these different hospitals use last 10 years. I gave Google Health permission to go in there at like three or four of them, and all of a sudden, within 15 minutes, the they call it the Google Coach, AI coach. I use a coach now who's with my Google Health. I know it's all weird stuff. Anyway, and it said, Ryan, the last 15 years, you did this, this, this, this. It knows everything about me. It says you saw a doctor in January 6th of 2018, and this happened, and your cholesterol was this, this all this, and you could ask a question as how's my cholesterol doing, which has been going the right way. I'm losing some weight, all this stuff. Like it all, it knows all this stuff. It's amazing. It's like literally, because the problem is I like a lot of people, I have a couple different doctors, they're different networks, and they're you get blood work over here, my cholesterol was this over here, but it was this over there. But you can't make the two talk to each other. Well, now with this Google Health thing, you can have it all talk to each other. It's literally your doctor, it's the craziest thing. I'm like, when should I do this? I'm asking it questions, it knows exactly what this do, and it's just wild. It is just wild. So again, I don't know. Give I give a little thumbs up, not for the stock, but um what Google did with this Google Health thing, it's just it is wild when you do it. Now, maybe Apple has this stuff too. I don't know. But um now everything's connected, everything's connected in my, I mean, it tells me, it gives you the sleep score, and it said you slept terrible last night because I did, because I had to get up early, and you have to get up early, you just don't sleep well. And you know, it said this now. I said, Well, I'm planning on taking about an hour nap. You know, you tell I told it that because I need to get a little recharge. Okay, you tell it last night. I'm going to take a nap. It said you had a terrible night of sleep, you should do this, this, and this. Give me suggestions, drink a lot of water, do the stuff. I said, Well, I'm actually planning on taking. I said you should take an hour nap this afternoon to recharge. And it just is it's it's the craziest thing. It it wow anyway. It was it's pretty neat. So so that's my little yeah, that's my little rampage.

SPEAKER_01 50:44

I like these old Apple probably. I don't know.

SPEAKER_00 50:46

You know, maybe well, yeah, you know. Now, one other thing. We are coming to Chicago next week. And um, this isn't like official official, but I'm pretty sure it's close enough. We're gonna announce it. Um, we'll follow us on social media if anything changes at all. But Sonu on the uh what day is it? She was what what day is it? Next Wednesday, right? Let's make sure we say it right. Okay, so Wednesday, June. We're coming to Sonu's neighborhood. What are we doing, Sonu?

SPEAKER_01 51:13

We are getting we're chilling uh around 4:30 in the evening through six o'clock thereabouts. We will be doing a live facts versus feelings episode in Wrigleyville at Swift Town. It's right opposite Wrigley Field, literally opposite the Marquee, and it's on the other, you know, one side is the Marquee and all of that, the entrance to Wrigley Field, the other side is the one and only Cubby Ware, so we're right opposite that. So come and say hello. You know, a shout out to Kenny. I I met Kenny on my kids' uh playground. Kenny listens to the podcast all the time. I won't mention what firm he's in. We don't want to offend people, you know, you don't get him in trouble or anything like that. But uh, but hey, if you all, if somebody's in the neighborhood, come and say hello. If you're you know not too far from the neighborhood either. 4 30, 6 p.m., June 3rd, uh, we'll be there.

SPEAKER_00 52:10

Yes, we will. And our friends at Wisdom Tree are gonna help sponsor that. So that's great. So that'll be uh it'll be an amazing time. We've always wanted to do this, and honestly, we're not 100% sure how it's gonna work. We're like, are two people gonna show up or 200? We really don't know. We really but we're Carson's in town for for a big event with all of our amazing uh advisors, and we're we're going to the Cubs game, the the rooftops later that evening. So maybe some more advisors can show show up. Maybe just fans in in the amazing Wendy City can show up. But uh definitely follow Sono and I on social media for more details there. But if you're in Chicago, uh 4:30 next Wednesday near the stadium, uh we should have a lot of fun. Uh Jeff Kilberg's supposed to join us as well. So Jeff's gonna fly in for that. He's down in Nashville. We're working on one other potential person. Trust us, you've heard him. You've heard of him, big big name. If we can get him to, we're gonna have a really fun time uh with a lot. And again, it's a lot, you know what, it's a live stream, right? It's a live stream. It's a live game. If you can't join us, we're gonna do a live stream. Just follow us on social, all the details coming out. All right, so let's kind of wrap it up here, maybe 10 minutes or so. Let's give some grades. You want to give some grades? It's the end of the year. It's the end of the year. People have exams. Oh, by the way, one more sorry. My son Sebastian, he's I don't know how to describe him, but this is the perfect way. He said, Oh, dad, I get to go to school late today because it's the last week and they have exams, this and that. Well, my wife took them because I was you know doing some other stuff, and he called in a panic, said, Oh my goodness, I did have this exam this morning. He didn't realize he had an exam. So for I mean, trust me, way. Like he's like, but nobody knew. I was like, how does nobody know? It was chorus, by the way. Now, luckily, the teacher's cool, everything worked out. He took the exam somehow or another. It's an exam. You can't have a pop exam. It's like the end of the year. I don't, it's just Sebastian sometimes misses things. Well, listen, his father was almost in the middle of a flood last week and had no idea. So maybe the apple doesn't, maybe I shouldn't be so hard on maybe the apple doesn't fall too far from the tree, but it worked. That was just a couple hours ago. But let's give some exams. We have a new Fed chairperson, which I'll kind of talk about some of that stuff, but let's go and rewind for a second. Jerome Powell, he um he's done. He made it 8.3 years, some good, some bad, some some wins, some losses. You you've done a lot of cool work on this. How do you do what grade do you give him? And what are you going to remember him by? Let's start there.

SPEAKER_01 54:22

I think he did as given the circumstances, he did as well as you know, maybe anyone could. It's easy to prejudge a B to Monday morning quarterbacking. But look, now I'll just start with the market. The SP 500 index total return from August 6, 2018, which is when he started, through May 22nd, last Friday, the day Walsh was sworn in at the White House. We can talk about that. That blue piece is interesting. Being sworn in at the White House was elsewhere. Anyway, the SP 500 total return over this close to what six years, right? A little under six years, 222, 15.2% annualized, like your my favorite chart that you put out shows no year is ever the average. Right. Anyway, we average 15.2% annualized total return over Powell's term. But this came about with two bear markets and two very near bear markets, right? 2018, December markets are down 19.8%. Then we had COVID, the bear market, 2022 bear market down 25%. And even last year, liberation hit negative 20%, but in the it felt like one intraday basis, we were down 20, right? We were so 18.9% close to close, right? Peak to trough. And there was another 20% drop in 2023, despite all that. So there's been a lot of volatility, all this to say, during Powell's time, yields were up. The 10-year yield averaged 2.9%, 30-year yields averaged 3.3%. But as you always say, you know, you put your what is it, head in the freezer, toes on you know, the frying pan and average.

SPEAKER_00 55:56

Well, you butchered it terribly, but that's all it's well, not uh not terribly, but it was pretty bad. We we definitely can work on that. And by the way, Sonu, uh, if you go from 2018 to 2026, that's eight years, not six. You said he's six years, so I'm just gonna go back. I'm just giving you a hard time. Giving you a hard time there. Um you can do all these incredible numbers, but then you screw up. Basic arithmetic. Exactly. Like it's like AI. AI can do these incredible things, and you ask it something real simple, and it's like it butchers it totally. So that's how it goes. Um, what'd you ask me to do? I I made fun of making fun of you.

SPEAKER_01 56:26

No, the ten year old I was talking about a ten-year-old. Oh no, we I was talking about the analogy being, you know, your head in the foot.

SPEAKER_00 56:31

Oh, there it is. Thank you. So uh there's a statistician, and he put his head in a bucket of ice, his feet in the oven. They said, Hey, how do you feel? He goes, you know, on average, I feel pretty good. So there's my there's my statistician joke. Yeah.

SPEAKER_01 56:44

But the tenure that hides what happened during the entire course of Powell's term. Tenure yields, you know, started off about close to 2% when he you know when he signed on as share, and we finished it, you know, over no, yeah, 280. Sorry, 280 is when he started off. He finished over 450 when he finished. But in between, it went all the way down to 2%. Remember, during the COVID lows, things like that went back up. And yeah, so over the full period of Chapow's chairmanship, the US aggregate bond index gained 16%. Remember, stocks are up 222%, bonds are up 16%. That's an annualized return of 1.8%. Cash beat bonds, right? Cash did 2.7% annualize. Neither beat inflation, and that gets to the grade, right? If you want to grade the Fed, just look at their mandate. How well did they do on their mandate? The dual mandate, low and stable inflation and maximum unemployment. I'll start with the good news. Unemployment rate averaged 4.6% during Powell's tenure. And that's despite you know, averaging 9% during those COVID months, March 2020 to December 2020, you know, unemployment spiked, came back. Despite that, the unemployment rate rate averaged 4.6%. That's historically low. Arguably, you have to say they succeeded on that front. But then inflation, and here I'll just use headline PC, averaged three percent. That's well above the Fed's target of two percent. Over these eight years, I mean headline PCE, which is what they target, they don't target core, right? Core is what they use for signal, but headline is what they target, average three percent. Arguably that's a fail. You didn't have low inflation, nor did you have stable inflation. Inflation went all the way down to one percent. No, it wasn't stable, it's unstable. GDP growth averaged a below trend 2.3% over eight years, right? That's 32 quarters. So I would say an A plus rating on the unemployment side, maybe an F mandate on the inflation mandate side of things, you average that to a C. But you know what? I will boost that a little bit more because I don't think inflation is entirely the Fed's fault. You had this COVID supply chain bottlenecks, you had Russia-Ukraine, the trade war, immigration stall, US-Iran war that's happening right now, or ceasefire, whatever it is. And not to mention the fact that the fiscal deficit averaged 7% of GDP during Powell's tenure. So if at all, I would I would put more blame on Congress than the White House, three White Houses, well, I guess two White Houses, technically, Trump and Biden. And I I think for large fiscal deficits are probably more responsible for the inflation, though they were probably responsible for the unemployment rate collapsing to the lowest level since the 1960s because you had so much of money coming to the economy. Remember 400,000 people getting jobs on average in 2021, 2022. But anyway, I think if you take all that into account, instead of Powell's grade being a C, I would boost it to a B or B plus, maybe if it certainly not an A, because I I think the inflation mandate is a fail. But here we are. That that's my grade for Powell. What do you say?

SPEAKER_00 59:58

Well, good stuff there. Yeah, I'd say B minus or so. I mean, I I I I still just kind of remember transitory, you know, transitory. That what was in the case. There are a lot of people that weren't so sure it was going to be transitory. Um, late 2021, it was a little wild. It was a little crazy, a lot of IPOs, a lot of specs, a lot of people trading, you know, those TikTok videos going crazy with people saying, Well, here I make money because I buy Bitcoin here and I just sell it and it goes up. And it's like, wait a minute, this doesn't make any sense. And then, of course, everything crashed. So he probably was a little behind the curve. He could have maybe hiked a little bit there. But listen, overall, like you said, he had a some tough, uh, tough go with it. Now, what fascinated me when I was looking at those numbers too, on an annualized basis, looking at the 16 different Fed chairpersons in history, at least using like the Dow, um, one of the strongest performances was during Volcker. Now, Volcker took over in 1978, right? The year you and I are born, you're the fire horse, or maybe it was it yeah, yeah, you're the fire horse, 78.

SPEAKER_01 1:00:49

78 to 78, 78, yes.

SPEAKER_00 1:00:51

Did he start 78? I think he did. I think he did. I think it was 78. 78. Um, and then he did what I call one of the greatest. It was August.

SPEAKER_01 1:00:57

It was August 6, 79. Look at I'm looking at your chart.

SPEAKER_00 1:01:01

Oh, looking. Okay, well, well, if it's my chart, it has to be right.

SPEAKER_01 1:01:05

August 6, 1979. Okay, my bad, my bad.

SPEAKER_00 1:01:08

That's got to be right then. Uh, but okay, so late 70s, we'll call it late 70s. And then the greatest handoff ever. You talk about sports and different handoffs and things. He handed things off August 11th, 1987 to Greenspan, a couple months before the crash. Um, but on an annualized basis, stocks did really well under him. And I think most of us, we know the 80 bull market, but we also know the early, late 70s, early 80s. Most of us think of it like a bad time for investing. Yeah, there was a bear market. I mean, there was a bad bear market in the 80s, uh, August of 82, and then the market bottomed and didn't take off until well, five years later, really, straight up for five years, and you had a stretch rubber band.

SPEAKER_01 1:01:42

The bear market is November 1980 to July 1982.

SPEAKER_00 1:01:46

Okay.

SPEAKER_01 1:01:47

And that's when Volcker was like, uh oh, inflation's a problem. I need to raise rates to 15, 20%. Crushed to everything. Market is down 24%, but then it rallied over the full period, let's say around Volcker, even just before he came to, you know, just after that period where he raised rates and dropped again. Five and a half years, then you had high inflation, 1978 to mid-1983, inflation surge, Volcker raised rates to about 15% plus. I'm looking at the numbers, the SP 500 price index gained 77% total return at that point. You know, during that time, dividends are much larger. True. 136% total return, 16.9% annualized. Even during that Volcker period, short, like after he took office, I just went with your numbers now. August 6, 1979, through the end of 1982, the SP 500 gained 62% total return. And this gets to like to your point, when you think about that period and think, oh, Volcker crushed the economy. He did crush the market for a little bit, but over the full period, when he had raging inflation, the Fed took rates up, brought it back down, inflation went back down, stocks did above average. That's the story. And that gets to where we are today, why we think an inflationary growth period is pretty good for stocks. So this shouldn't be a surprise. What you're seeing in the stock market doesn't mean we don't have inflation. People's everyone's complaining about inflation. That's what we talked about, consumer confidence and all that. But it's also good for stocks. Now, where I would see a little trouble in paradise when the music stops playing. Now we have this whole AI thing. AI, we talk about momentum, it could be a little stretched, so be careful avoiding the wipeout. If the Fed gets, if a Walsh Fed gets really hawkish, I think then we could have a little bit of trouble for a bit of time.

SPEAKER_00 1:03:36

But overall, I'm still positive. Well, but the um the tweets will be quite entertaining should that happen. Um, so we can maybe put up what might be the last chart of episode 189 of Facts versus Feelings, deal or no deal. It's stocks can have potential trouble with new Fed leadership. Uh, just something to think about here because we're hearing this a lot that early in a new Fed chair person, sometimes things get upset. The Apple cart gets upset. I mean, the the real realistic or more recent example is the Dow dropped 4.6% on PAL's first day back in February 2018. That's also when the trade war started. So it's totally random, but it is what it is. But as you can see on the on the YouTube channel here, you know, the max drawdown within the first three months, Sonu, going back in history, is like 12%. Now the median is what is the median? 7.9%, because that is skewed. In 1987, we had what was it, a over 33% drop within the first three weeks. Um, the two the double eugenes, Eugene Meyer and Eugene Black, and we're talking a hundred years ago pretty much, down 32% and down 20%. Uh, we had a 10% drop when Volcker started, right? When Volcker started a quick 10% drop, and then also when Bern started early 70s. But the last three Fed chairpersons, which are Bernanke, Yellen, and Powell, things were actually fairly calm, all things considered, the first three months. But after this big rally with yields doing what they're doing and the war still out there, maybe we have maybe you blame it on the new Fed chairperson, whatever you need an excuse to sell. But the market, just be open to that because we have seen in history sometimes markets test a new Fed chairperson, but uh we'll we'll see. You want to add anything there or wrap this up? What do you want to do?

SPEAKER_01 1:05:12

Last thing I'll just ask you, do you think the Fed hikes this year?

SPEAKER_00 1:05:15

No, I don't.

SPEAKER_01 1:05:16

No, I don't either. Yeah, I I think this is too much pressure on Wars to not hike from you know how he got the job and all that. Should he I hike? I think maybe. I maybe they shouldn't have cut rates last year, but that's a whole other thing, which is why we're bullish. I mean, we think policy is actually getting easier as long as they don't hike. And I I'm in your camp. I don't think they'll hike.

SPEAKER_00 1:05:36

Well, I think um, oh, as of Friday, the the Fed fund futures are pricing in a 25 basis point hike. That's 0.25%. I think as of this morning, it was like 0.17. So it went down a little bit with some of the news um over the weekend with with oil going a little bit lower. So we'll we'll see. Um, but I I think they're just on pause. I think they're just on pause, it's kind of what the camp um that I'm in. So what are you watching for this week? Anything big this week that listeners should be aware of? Deal or no deal. Yeah, that's about it. Yeah.

SPEAKER_01 1:06:05

No, uh I we have a lot of uh data coming in at the end of the month, second revision to GDP for Q1. I'm I'm more curious about nominal GDP than GDI will come out too. You get that? That's always like, you know, yeah, I know.

SPEAKER_00 1:06:20

That was so 2024.

SPEAKER_01 1:06:22

Everyone look at GDI. GDI. But part of GDI is also corporate profits. It's it's I I mean, we just finished earnings season, but corporate profits from a national accounting standpoint is interesting to look at because you know how much of that is coming from federal deficits, private sector pulling back on savings or consumers pulling back on savings, investment, things like that. So yeah. And then PC inflation, though we kind of know where that's going anyway.

SPEAKER_00 1:06:46

So yeah, I mean, just a quick crash course on that, like in 2024, GDI was like really underperforming GDP. Historically, they kind of trend together. Yeah. And I'm telling you, everybody, if you remember there, you might remember this. Everybody and their mother was saying because GDI is down here, GDP had to go down to catch up down. The exact opposite happened, as what Sonu said, and we were laying out GDI caught up to GDP. And anyway, that's that's that's that. That's what we do on facts versus feelings sometimes. Bust those myths that are really costing a lot of investors. But it's funny when I hear GDI, I just think of, whoa boy, that was that was such a bearish. It's just so let's talk about that next week.

SPEAKER_01 1:07:23

Yeah, all these things.

SPEAKER_00 1:07:24

These bear, but it's like they lived on that for a year, how GDI was going to be the end of the world, and they were dead wrong, and everyone just kind of gave them a pass and no one talks about it anymore. Well, I I saved some of the receipts. I remember some of the people that were doing it. But um, anyway, all right. Well, listen, I hopefully all the listeners enjoyed this. Uh, give us uh those likes, follows, please share this with your friends. Uh give reviews, positive, negative, whatever you want to do. We we just appreciate it. Um, you know, hopefully no one has major water issues, uh, because Sona and I have now broken the dam, so to speak, with water issues. So um so can you do you guys have is your water off right now then? Are you even letting use water in your house?

SPEAKER_01 1:08:00

It's it's on. It's okay. So that's the good news. Trying to figure out where the leak is from. I mean, that's kind of scary. So the air conditioning is off. I have a little suspicion, something I don't know. This whole thing, it just breaks my heart. I'm like, I just want to be a renter.

SPEAKER_00 1:08:18

I'm sorry. Yeah. We were joking about next week because we're all in Chicago for an event, and Sony's like, it's it's his your hometown. Like, should I get a room or not? Yeah, you should probably get a big suite now. She bring the whole family to the to the to the hotel room. I'll let Carson pay for it while you have to go somewhere. I didn't say that. I didn't say that. Anyway, um, all right. Well, listen, everybody, thanks, Sonic. Great stuff as always. Thanks to Podpony, our producer. Uh, we'll be back next week at like normal, but again, next Wednesday afternoon, as we've laid out at 4:30 Chicago time. We're gonna do a live stream right there in Wrigleyville. We'll share that a lot on social media, so definitely check that out as well. See everybody then. Thank you. Take care. Information provided on facts versus feelings with Sonovar Geese and Ryan Dietrich are for general information only and are not intended to provide specific advice or recommendations for any individual. The statements and opinions of show guests may not be reflective of CWM LLC or its affiliates. Past performance is no guarantee of future results. All indices are unmanaged and may not be invested in directly. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what may be appropriate for you, consult with your attorney, accountant, financial, or tax advisor prior to investing. Guests on facts versus feelings are not affiliated with CWM L L Cha