Welcome to the Chip Crash (FvF Ep. 198)

In this episode of Facts vs Feelings, Ryan Detrick, Chief Market Strategist at Carson Group, and Sonu Varghese, Chief Macro Strategist at Carson Group, dig into Apple reclaiming its title as the world's largest company by market cap after sitting out the AI spending race, while hyperscalers like Google, Amazon, and Microsoft pour ever-larger sums into CapEx. They break down record Q2 blended earnings growth of 38% year-over-year, the outsized role investment gains in private holdings like SpaceX and Anthropic played in Google's headline profit beat, and
why core net income tells a different story. 

The conversation shifts to the "chip crash" playing out in South Korea, where the KOSPI has fallen more than 30% from its June 22 peak amid margin calls and central bank rate hikes, and what that says about crowded momentum trades and the explosion of leveraged ETF products tied to tech and semis. Ryan and Sonu also cover the rotation into low volatility, financials, and healthcare, why flows into tech remain historically stretched even after the pullback, and preview this week's Fed decision amid unusually high rate-hike odds. They close with a
personal update on Ryan's eye surgery, a shoutout to guest and TrendLabs Founder JC Parets' record-breaking episode, and details on the live 200th episode show in Boston.

[Key Takeaways]

• Apple overtook NVIDIA as the world's largest company by market cap (~$4.9 trillion) after largely sitting out heavy AI CapEx spending, while free cash flow for semiconductor companies surpassed hyperscaler free cash flow for the first time this quarter.
• Q2 blended S&P 500 earnings growth hit 38% year-over-year, the best pace since Q3 2021, driven largely by tech (+65%), energy (+128%), and communication services (+112%); excluding Google, growth drops to 26%.
• A large share of Google's reported profit surge came from investment gains in private holdings (SpaceX, Anthropic) rather than core operations, a pattern also inflating net income at Amazon, NVIDIA, and Microsoft.
• South Korea's KOSPI fell roughly 33% from its June 22nd peak (before a further 10% one-day drop) as margin calls and a Bank of Korea rate hike hit heavily levered chip and momentum trades.
• Momentum's one-year excess return over the S&P 500 pulled back from the 96th to the 75th percentile relative to the last 40 years, while low volatility stocks are up 8% and financials up 11% since the market's June 2nd peak.
• Fed rate-hike odds this week sit near their highest pre-meeting level in recent memory, with the committee reportedly divided as inflation, a resilient labor market, and AI/Middle East-driven cost pressures complicate the outlook.

Jump to:

0:00 - Welcome And Quick Setup

0:31 - Apple Reclaims Top Market Cap

5:16 - AI Capex Arms Race Reality Check

8:35 - Record Margins And Earnings Surge

16:44 - South Korea Sparks Chip Crash

23:49 - Ryan’s Eye Patch Surgery Story

29:58 - Why Tech Flows Look Crowded

35:28 - Leveraged Products And Margin Call Risk

42:40 - Rotation Into Low Vol And Defensives

46:57 - Contrarian Thinking Versus Momentum

54:41 - Interstellar Detour And Time Talk

57:19 - Fed Uncertainty And Rate Hike Odds

1:02:16 - Live Boston Show And Final Thanks

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

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Welcome And Quick Setup

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, Sonovarke. Cutting through the noise with Ryan Dieter, Chief Market Strategic, and Sonovarke, Chief Macro Strategist, taking out the board and helping investors focus on what really matters. And

Apple Reclaims Top Market Cap

SPEAKER_00 0:31

we're back. Sonu, we have a new leader in the clubhouse. The largest company in the world, according to Market Cap, is once again, it's like an old friend. Apple has overtaken NVIDIA. Um, were you anxiously waiting that like you were the results of the soccer games last couple months? Somehow.

SPEAKER_01 0:50

You know what's interesting about Apple is the one company that said, you know what? We are gonna sit back and watch all of you play in this AI space.

SPEAKER_00 0:59

Exactly.

SPEAKER_01 1:00

You know, so there's something to be said of maybe it's they made a mistake, but it's worked out for the time being in their favor, it looks like they were late to the AI game and they never were able to catch up. And now it's like, yeah, you know what? That's okay. You guys figure this out, and maybe we come on the back end and eat you all up. I don't know.

SPEAKER_00 1:21

Well, that's kind of what I thought was a good starting point. So, Pod Pony, we can put this chart up. It's the one I sent uh that again shows Apple overtook NVIDIA for the first time in about 10 months. I believe it's like uh 4.9 trillion, so not quite to 5 trillion. I believe NVIDIA made it to 5 trillion, though. Um, and I think it's a neat starting point because there's a lot to talk about with earnings, and earnings have been great, but all the hyperscalers seem to be going lower. Tesla had one of its worst days ever. I like to call it Google, no offense. I'm I'm old school. Google had some great earnings, but their stock was down a lot. Um, yet let's just talk about Apple because I think you know it's the one that most listeners probably own one way or another, somewhere. You look at it, I think it's like three of the Mag 7 stocks are in a bear market. Most of them are down on the year. And then there's Apple, the one that was left for dead this time a year ago, because they just didn't want to spend a bunch of money on AI. And we'll talk about how to. Well, they don't know how to. I mean, looking back, yeah, whatever. Uh, and you've got a lot of good charts and stuff to talk about with the Google earnings. So we'll kind of save that for a second. But it is fascinating, and now Apple's the one that is truly leading and and and by far the strongest. I mean, what what do you think is the reason for that? Is it as simple as they didn't spend hundreds of billions of dollars like everybody else?

SPEAKER_01 2:31

I think so. Yeah, I mean for now, for now, because the two things one is, and we've talked about this when we talk about alphabet or Google. Let's you know what? For the purpose of the show, we're always going to call it Google. There we go. I don't want to stop his feelings first. Yes. I don't want to have to say Google or Alphabet, AlphaMet, Google. No, screw that. All right. So by the way, we're gonna mention all these names, not a recommendation to buy any of this stuff, right? So with that out of the way, I think look, two things. One is uh all these companies are spending even more money than they told us, not just at the start of the year, even more money than they told us in Q1, post-Q1 earnings, right? You take uh Google, at the start of the year, they said we're gonna spend $115 billion in 2026, CapEx. Right. After Q1 earnings, you're not shared the chart and now middle app look. They increase that to 185 billion. Come Q2 earnings. Now, of course, you know, the rate of growth is increased, it's not increasing as much, but still they say, oh, now we're going to spend about 200 billion, somewhere between 195 and 205 billion. Next year, they haven't told us how much they're going to spend in 2027, but it's going to be around 250, 260 billion. So in two years, they're going to spend, let's say, about 450 billion dollars on CapEx so far. My guess is that continues to go up, right? That's one and a half percent of GDP. That's like a little stimulus package by itself, right? And now Apple, coming back to that, has just stayed out of this entire game because they're like, you know, I think it started off that they were late into it. Right. Right. I'm not an Apple analyst or anything like that. And the other thing is I think there are questions being asked about one, can this pace of CapEx spending continue? Two, is it even worth it? Right. I think that's why you're seeing some of these hyperscalers struggle. Now, I am in the camp. I think we safe to say we are in the camp that look, I think this capex spending continues. You shared Larry Page's code. What is that?

SPEAKER_00 4:34

Well, you well, you know, it's funny. I was actually looking to read it exactly because I um do a lot on X, right? And it went truly, truly, and I shared it maybe three months ago, knowing it was popular then.

SPEAKER_01 4:46

It was in our outlook, it's it was enough.

SPEAKER_00 4:50

Where exactly is I do boy, I do must do a lot of tweets apparently. I'm I'm looking for I want to make sure I read it correctly. Here's the thing. I know I have it somewhere too. Okay, I'm willing to go bankrupt rather than lose this race. That's the Google co-founder, Larry Page, on the AI race. Um, and he said that approximately, I guess it was two years ago, uh when they weren't spending you know anywhere near this, and then it's just exploded. Do you have any charts we can put up on the screen that kind of show what we're talking

AI Capex Arms Race Reality Check

SPEAKER_00 5:16

about? Can you send any? Which one do you want to share?

SPEAKER_01 5:19

On that, uh and let's put this chart showing free cash flow for hyperscalers versus semis. I think that captures it.

SPEAKER_00 5:26

Oh, that's the chart of the year, I think. Honest to goodness. They've got a chart of the year.

SPEAKER_01 5:32

Everyone's got a version of the Sembalist has a version of this, Bank of America has a version of this. Now we do too, you know, thanks to Bloomberg. So, what the chart shows is that after, and this chart we've uh tracked it from the end of 2022, which is sort of when ChatGPT came out. The orange line shows free cash flow for hyperscalers Meta, Amazon, Google, Microsoft, and Oracle. The big hyperscalers. Heard of them.

SPEAKER_00 5:59

Yeah, heard of them. Okay.

SPEAKER_01 6:00

Free cash flow was just two years ago, we were talking about these amazing companies. They're still amazing companies, they got a ton of cash flow. Since then, over the last year and a half, maybe two years, over the last two years, that line has just started collapsing. Free cash flow is in a free fall. Right. Playing words there. But where is this money going? And we've always talked about one person spending or one company spending is another person's revenue, profit, profit margin expansion, right? So where's it all going? It's going to the semis. So on that same chart, you have the blue line if you're watching on YouTube, which is the free cash flows for semiconductor stocks, NVIDIA, micron, broadcom, applied materials. It's going up, it's almost going vertical over the last few quarters. Now there are estimates too, but Ryan, this quarter, the lines crossed. So free cash flow for the semis is now larger than free cash flows for the hyperscalers, right? For the first time. I mean, it's going in that direction. It was very predictable, but it just happened in this quarter. You mentioned Larry Page saying I'm willing to go bankrupt rather than lose this race. Andy Jassy, a few months ago, head of Amazon, he said, I'm coding. We are not going to be conservative in how we play this. We're investing to be the meaningful leader. And our future business, operating income, and free cash flow will be much larger because of it. Maybe, but for now, I think we take their word that they're going to spend like it's going out of fashion.

SPEAKER_00 7:26

Wow. Well, there's so much to unpack there. Um, you know, it's just amazing. And we're going to talk about earnings and different things. I mean, there are other companies that are doing really well. I mean, I was in Minnesota a couple weeks ago. Shout out to Jeremy Wilner and the team. And yeah, I joke every July I go, and the next week 3M has earnings, and 3M always goes up with strong earnings. So listen, is 3M leveraging AI? Sure. Everybody is. But at the same time, you unpeel it, unpeel the uh onion, so to speak, and there's so many other positive. I mean, a couple weeks ago, I guess just last week, we were with JC. I want to talk about the JC episode in a second. Um, but we talked about the extremely strong earnings we saw from financials to kick things off. Yes, they're leveraging AI just, but I guess Goldman was down a lot uh yesterday or two days ago. So maybe that's an echo AI play. So everything's an AI play. You've talked before about listen, everything in a way is, but it's hard for me to think that community banks, regional banks, all these things. The Fed is an AI play, right? Even the Fed is. I mean, and honest to goodness, you're not listening to Ryan and Sono, this is all AI right now, too. No, I'm just kidding. It's still the real, it's still the real ones. Uh, but the reality is there's still a lot of positives to taking place, but you have this big, big kind of cherry on top, which is AI, and these hyperscalers, they are struggling. Anything else you want to talk about on Google before we jump around? Actually, let's talk about earnings.

Record Margins And Earnings Surge

SPEAKER_01 8:35

You shared a chart. Let's show earnings. Uh this is earnings growth, and uh, I think Connor Ryan shared this chart showing earnings growth. Actually, I showed the profit margins one because it's more interesting. So we can put that up.

SPEAKER_00 8:47

We can put the profit margins up and talk about earnings at the same time, right?

SPEAKER_01 8:50

Yeah, and so it actually gets to you know almost the same point. So earnings in the second quarter. So what they call you know about 30, 35 percent of the index, SP 500 index, as uh reported so far. So the majority is going to be, you know, over this week, next rest of the next week, things like that, right? But still, what they call blended earnings is how fact set calls it. So these are earnings growth for a second quarter for companies that have reported and that have not yet reported, so these are estimates. Blended earnings growth is up 38% year over year. 38%. Yeah, okay. And Q1 was 29%. 29% is great. We even better that. This is the best since the third quarter of 2021. That was coming out of COVID stimulus payments. Sales are up, but then sales are not up as much as profit growth. Remember, profit growth is two pieces, right? Sales growth, margin expansion. Profit growth is 38, sales growth is something like 10, 11, 12. I don't know what that figure is, but that means margin expansion is really high. We have record profit margins, right? It goes back to what we were talking about. Inflationary growth is also good for profit growth and margin expansion. Three sectors driving this, Ryan. Tech up 65% year over year. By the way, this is not a small sector or something like that. Energy, yes, it's a small sector, it's up 128% year over year. You're like, okay, that's because the Iran war, things like that. Com services. Now, this is important because it gets to Alphabet or Google, up 112% year over year, right? If Alphabet was excluded, if Alphabet's earnings are excluded, now I'm always in the cap that you shouldn't, but let's say if you take it out, the earnings growth number for the SP 500 will drop from 38% to 26%. Still great, by the way, right? And now why isn't the you know Alphabet fell 7%? Why wasn't the market, you know, happy with it?

SPEAKER_00 10:44

Let me let me jump in just real quick. I know where you're going with this. I want to add a little more color behind this. Um, alphabet slash Google. It's gonna be hard. And so we just officially said we have to call it Google. I'm seriously calling Alphabet now. Now I'm throwing now. We're throwing ourselves off live on live on our own podcast. Uh expected to earn $2.88 a share. That number came in at $9.11 a share. Earnings up 294% year over year. And I believe where you're going with this, Sonu. It turns out, yeah, they sold a lot of stuff, made a lot of money, but they owned a lot of other stuff like SpaceX and Anthropic and other companies that the securities they owned on their balance sheet, they said, you know what? Turns out that's worth approximately, you might have it six dollars and something. I have that I have that. $6.26, I think, is really six six dollars and twenty-six, six dollars and twenty-six cents out of that 9-11 came from that. So if you strip that out, it was still a decent quarter. But I think people are realizing, well, if those stocks go up that much, maybe they can go down, maybe it's not, maybe maybe they're spending too much. There's a lot to it, but that is a historic beat when you look at the size of that company. I guess I'll put it that way. Now, where'd you want to take this conversation?

SPEAKER_01 11:52

Yeah, let's put the chart up alphabet profits. I should have said Google profits. So Google, and and we put this is a chart we put in our media outlook too. A lot of private, you know, people talk about, oh, we need to go into privates, right? Because it's not available in publics, uh public companies. But guess what? Private company valuations, or the I should say, the increase in valuations for things like SpaceX pre-IPO, anthropic, open AI, that's all showing up on public company balance sheets, right? That's driving profits higher too. It's driving net income higher. So in the first quarter, Google earned $63 billion profit, net income, right? But $37 billion of that was gains in their securities portfolio, which is basically what we start private investments, anthropic, space acts, things like that, right? That's about 59% of net income came from all this other stuff, valuation increases for private investments. It was 52% for Amazon, 27% for Nvidia, 26% for Microsoft. Fast forward to Q2. Last week, Alphabet or Google, oh, excuse me.

SPEAKER_00 12:56

We should have never done it.

SPEAKER_01 12:57

You should put a dollar in a jar every time I say alphabet now, right? Anyway, Google earned 112 billion dollars, right? 112 billion. Right? A year ago, Q2 of 2025, they earned less than 30 billion. So this year they've got 112 billion. But out of that, 98 billion, 88, 98 billion was from investment gains in the securities portfolio. Core net income was 14 billion. A year ago, core net income was 26 billion.

SPEAKER_02 13:29

Right.

SPEAKER_01 13:30

What are they doing? They're spending, they're spending money like it's going out of fashion, as I said, right? But that's that's essentially what drove a lot of the investment, uh, a lot of the profit growth. It's also what drove profit growth for the overall index. But that's going back to your point about companies like 3M, that doesn't mean other companies are not doing well. It just means I think a lot of investors, including us, by the way, so we've been in the cab for over a year now, are finding an excuse to say, you know what, maybe we should diversify our portfolios. Yep.

SPEAKER_02 14:03

Mm-hmm.

SPEAKER_00 14:04

Yeah. Well, no, right. Well said one more thing as I'm just looking at the scribbles I wrote to myself about Google's earnings. Uh, cloud was up 82%. The revenue for cloud is up 82% year over year. That's even more than it was the year before. So there's a lot of positives out there, but just truly amazing. And that's and that comes down. I mean, look, we talked about this a couple weeks ago, right? When we did our mid-year outlook, stuff, you know, we're still still riding the wave, but when you look at a lot of those semiconductors, up 200, 300%. I think sand disk, not a recommendation, was even up even more at the middle of the year. Uh, you mentioned, I believe it was June 22nd, uh, South Korea stock market up 116% year to date. Taiwan, not that far apart. The time we're doing this, Taiwan. I'm sorry, um, uh South Korea was literally down more than 10% on the day. Yet Europe was up across the board. Um, I don't know what time is it here? Uh yeah, about five hours ago. About five hours ago, I was sitting in this very chair with Dom Chu on CNBC. And I said, you know, two months ago, if you'd have said South Korea's down 10%, I think you probably would have assumed things would be a lot worse. Yet Europe opened green across the board. U.S. futures are kind of flat. Now, listen, I know it's a long way to go. We're gonna talk about the Fed and all this stuff, but you were almost kind of getting used to that, I guess. So, do I guess maybe it's a positive? I mean, I don't know. I mean, because again, yes, oh, by the way, episode 198, what do we call this again? Um, welcome to the chip crash. Welcome to the chip crash. Well, I guess we should talk about chips, and South Korea is the best place to start. It kind of moves into that momentum chips, all that stuff. Uh, but I'll just put it like this and turn it over to you. Most of those big leaders were up two to three hundred percent the first half of the year. I mean, honestly, if you're bullish like we are, you probably don't want those to be up another two to three hundred percent. Yeah, you might maybe flats fine, but you want rotation into other areas, and honest to goodness, that's what we are seeing. I got a lot of technical stuff want to talk about, but let's keep going with this uh conversation about chips. So where do you want to take it?

SPEAKER_01 15:57

Uh, just two, I'll I'll mention two stocks here. One is Lamb Research. At the end of June, Lamb Research year to date was up 154%.

SPEAKER_00 16:07

Oh, that's nothing. That's that's nothing. Yeah, some are up a lot more nets.

SPEAKER_01 16:10

But today, yeah, it's up as of right now, it's up 53%. So you can imagine the drop, right? Intel, speaking of, you know, like a government state-owned enterprise or a state-owned enterprise. Some of it, some of it is it was up 278% at the end of June. That's what I'm talking about. All right, okay. Now you're getting there, right? Yeah, we're getting there. Right now it's up only a lowly 128%. Uh so it's government up 278%, down to 128%, which brings us to South Korea, which is where all the action is.

South Korea Sparks Chip Crash

SPEAKER_01 16:44

So South Korea, it was, you know, it like it's basically two companies, SK Heinex, Samsung. Exactly. So, right, you know, Samsung, as of June 22nd, June 22nd was the top. And June 22nd was actually the top, even for our momentum indices that we track.

SPEAKER_00 17:01

Which I will just let me sorry, my friend Chris Campbell, shout out to Chris. He's pointed this out many times. You look at like the lunar eclipse and the summer solstice and all that stuff. I forgot, I meant it, but we mixed them up. You know what I'm getting at? Like the longest day of the year, shortest day of the year. That's right around the longest day of the year. I know maybe it's not precise, but I'm telling you. Okay, and we just said June 22nd. Now, Haina, who knows? Maybe because they're a day before us or a day behind us, it might have been the exact day. I don't know. But shout out to Chris. And when you just said that, I just thought of that. Chris has said many times he's seen this in his career. Now, no, it's not perfect. No, we we don't, we, Carson Group does not invest based on the lunar system, right? But I'm telling you, you just said that, and to think that that might be, you know, the very significant peak right around the summer solstice. I'm just gonna say uh uh Chris is a smart guy, and I'm not, I don't think that's total coincidence. I'll just say that. So go ahead.

SPEAKER_01 17:48

No, uh, we'll put this chart of the Cosby index up, and this is before the 10% drop yesterday. So when I put this chart, so this is how fast things are moving before the 10% drop in one day.

unknown 17:59

Yeah.

SPEAKER_01 17:59

Wow before that, before the 10% drop, you know, from June 22nd up until July 27th, right? We record in July 28th, up on July 27th, the Cosby is down 33%.

unknown 18:12

Wow.

SPEAKER_01 18:12

It's like safe to be say a comfortable bear market, but it's still up over the year, on the year, year to date, 45%. Now it's dropped 10% since then, but it's probably like up 35%, something like that, yeah. And year to date, right? So Taiwan's still up, and it just goes to show that look, there's still overall momentum there, but boy, has it come crashing down. I mean, safe to say the cost we index is in a crash, right?

SPEAKER_00 18:57

Yes, and then you you layer that on. You know, we've seen some data, and I'll just mention a few things like the AAI sentiment poll. Bowls are down 15 in one week. That's like the largest drop in one week from bowls we've seen in like five years, maybe six years, in 2021. Um, and there's other ways to look at kind of how retail is feeling. You know, a lot of retail crowd, this is the way it works. It's unfortunate, but hopefully they listen to our podcast. We pointed a lot of these things out. Retail got really excited with the SpaceX IPO, rightfully so. Incredible company, just the stuff they're going to do is just amazing. Yet we noted then that you look at the major IPOs, last 15 years, the great majority of them, Sony, have about a 50% ballpark peak to trough correction within the first 18 months. So that's ballpark what's happened with SpaceX. It's literally hitting new lows. And again, I think it's a great company, maybe longer term it does well, all that stuff. But this isn't a surprise, right? To see these certain these certain names coming back to Earth, if you will. Um, and with the SpaceX IPO just really getting everyone fired up and excited, then you look the other side and we're gonna talk about this stuff, low of all, boring old utilities, boring old real estate. I mean, there are some things that are really doing well. And literally, like I told Dom this morning on CNBC, I said, you know, yeah, we talked about chips, as everybody wants to talk about. If it leads, it bleeds, right? Or if it bleeds, it leads. That's that's what we want to say. Um, but that's why you have a diversified portfolio because some of these boring things are actually hanging in there and keeping helping you sleep at night. A guy like you wakes up the middle of the night to see what South Korea is doing. Did you see it this morning? Can you could you go back to sleep? Are you so excited when you saw down 10%, Sunu? I don't know. Yeah, I don't know. Uh right now it's between that, at least I'm not looking at the Fed.

SPEAKER_01 20:32

But I don't know which one makes me I don't know which one makes me more depressed. But let's momentum, actually, momentum is not doing, you know, long momentum, I should say. So when people talk about momentum, there's the momentum factor, which is long momentum minus short momentum. You're long the stocks with the best momentum, however you define it, and short the stocks with the worst momentum. And that's been you know crushed over the last few weeks. But you know, for our portfolios, we use long momentum by itself. And long momentum, when we came into this month at the end of last month, you know, it looked at excess returns for the SP 500 momentum index over the SP 500. That wasn't the 96th percentile relative to the last 40 years. Is that one-year basis? Yeah, one year basis. One right, one year and the three-year excess return, SP 500 momentum over SP 500, wasn't the hundredth percentile, right? Right? You know, it's not something in the hundredth. We talked about that.

SPEAKER_00 21:26

I remember making a joke about the hundredth percentile. Like I remember making a joke about that about three weeks ago.

SPEAKER_01 21:30

Yeah, so take the pullback a bit, and you know, the SP 500 momentum index has pulled back, you know, it's still up about 21% year over year. Uh no, year to date, I should say. Year to date. Not bad. But the SP 500 is up nine percent, so it's still a good, you know, uh strong return. But now, looking back over the last one year, SP 500 momentum index is up 25%, the SP 500 is up 17. That's a difference of eight percentage points doing the math. Percentile rank is 75th. That's not too bad, just on a one year basis, looking at relative to the last 40 years. But the last three years, it's still pretty stretched. It's now not in the hundredth percentile, it's just in the 99th percentile.

SPEAKER_00 22:12

I was gonna laugh. That tells you how how extreme that was because they pulled back a decent amount, and shout out to everybody. Warren Pies. Warren Pies is on CNBC, literally start of the month. Said, yeah, July is usually strong, but watch out. Momentum the last five years has honestly been crushed in July. Pick a reason. I don't know. And here enough, sure enough, that's that's kind of played out again. Go ahead. So we'll put that chart up.

SPEAKER_01 22:29

Momentum, excess returns, what I was talking about. So, you know, one year returns relative to history, it pulled back from the 96th percentile to 75th percentile. Three-year excess returns over the SP 500 pulled down from the 100th percentile to the 99th percentile. All this to say, yes, there's a momentum crash happening, but it's still so stretched to do.

SPEAKER_00 22:51

I mean, well, you put a best moment the momentum ETFs, and again, not a recommendation, and there's lots of them, but you know, ballpark up 21% still. I mean, like for the year. Like, yeah, hey, uh, you know, definitely.

SPEAKER_01 23:01

Who knows what happens today?

SPEAKER_00 23:02

Or those stocks you mentioned earlier, a lot of the chip stocks that were up three, four hundred percent, they're still up a couple hundred percent, but they're literally cut in half. And most, not most, I shouldn't say most, but a lot of retail investors are outright panicked because this that's where I was going with this. I'll hit rewind for what was five minutes ago. This is what happens, right? People get all excited, they start to catch the winners, they start to invest in the winners, they start to buy them, maybe near the end of their trend, and then things crash. And I've seen this throughout the 27 years I've done this. It's unfortunate, but again, that's why working with a financial advisor. If you need a good one, we have a lot with car over here at Carson Group, so they can help you uh there, or just you know, listen to the smart podcast, listen to the people, because again, we're our own worst enemies. I do this for a living, so this for a living. When things are up a whole bunch, you do get excited. Oh, this is great, this is great. And then July happens like it has to momentum and chip stocks in South Korea. And that's just the way this works. Um, what's the old saying? Escalator up, elevator down. You know, so this is like an elevator that's broken, that's just crashing down, I think, in this particular case. What else do you want to talk about, Sonic?

SPEAKER_01 24:02

Should we go to the Todd Soan charts, which directly get into exactly sentiment and all that? Well, who's this? What's his name? Who is this? Todd who? I never heard of. I never heard of it. Todd Sohn, yes. Our good friend Todd Sohn from Statigas.

Ryan’s Eye Patch Surgery Story

SPEAKER_01 24:13

I had the pleasure of having dinner with him and a bunch of other people. This was last week. And Todd always has fantastic charts. We'll have them on at some point to come and give us a little lowdown.

SPEAKER_00 24:23

And apparently it has the same eye disease I do. I'll give an update to my eye surgery very soon. But Todd and I are connected in a way I didn't even know. We like markets, we like charts, and we have the same eye disease. So go go figure. Um about that.

SPEAKER_01 24:35

Why don't where's your patch, dude? I was telling Barry, or you know, I guess technically a boss co-worker, a co-portfolio manager. So it's like I'm disappointed that Ryan had like a transparent patch or something. Like, this is one chance to walk around like a pirate and he didn't take it. Well, you know, I've got this one.

SPEAKER_00 24:51

This is the one I was using for a while. I should have put I should have put it on. So this is there. How's it? Oh, there you go. I'll just kind of hold it up just for a second here. Um, YouTube, if you see, I've got like an eye patch. Yeah, so a week what is today's. By the way, one second. That should be on the thumbnail, by the way. So we'll take a picture of it. Oh, there you'll redo that. We'll redo that. Um, I've had a lot of comments on social media about pirates. Let's just leave it there. Uh, so uh today's Wednesday, right? So no, no, Tuesday. We're recording on Tuesday. You listeners will get this on Wednesday. So I went over to Dr. Price over in Indianapolis. I live in Cincinnati, so call it two and a half hours away. He's a specialist. I have a specific eye disease, uh, keratoconus. Long story short, you've heard of astigmatism. Well, I have astigmatism on steroids. My left eye is shaped like a football that's deflated. That's the easiest way to put it. So I cannot see very well out of my left eye. My right eye, I wear special contacts. That's terrible. I guess you get it that way. I guess you just get used to it. I don't know. But my right eye is not as bad. I wear something called scleral lenses. Now, the white part of your eye, that's called the scleral part. These lenses are big, huge contacts that I put on a plunger and literally stick them in my eye, and I have to use like a plunger to take them out. I know it sounds kind of weird and gross, but it's just what I use. I can see 2020 in my right eye, so thank God for that. My left eye's like 2030. It's never been that great. It just seems like it's getting worse, Sonu. Um, so I've been looking into different specialists, and there's a there's a handful of specialists, a guy out in Beverly Hills is a real good one in New Jersey. Um, and then Dr. Price, who literally wrote the book on a lot of this stuff. And I had what's called a um CTAC, C T A K. It's uh a partial cornea transplant. It just was approved in 2024. Dr. Price is probably done more than anyone in the United States. Long story short, um, a cadaver. So my eye is from someone else. So thank you uh to that person who gave a gift. Yes, dead, I guess. Yeah, exactly. Yeah, someone who passed away. Um it's it's weird because when I did it all, they gave me a thing. I can I I will do this. I will do it. I can write the family a thank you note to tell them, you know, hey, you're you know, your your significant other gave me the uh gift, hopefully to see better. Now I'm not there yet, I haven't done it yet. But that's that's kind of weird. It's kind of real when you get that piece of paper when you're done and you're all kind of drugged up and they give you this, like, oh, wait a minute. Um, so anyway, so I did two different surgeries. The first one they called the laser. It's literally where you do the LASIK. And my wife could literally watch through the screen on there, and they they they give you this little ball you squeeze, you know, just for nerves, I guess, uh stress ball. And they just do a laser and they like indent a special grid in my eye. That's what they did on Tuesday. Then on Wednesday is the actual surgery. Now that grid they indented in my eye matches perfectly with the partial cornea that they implant in my eye on Wednesday. They did the surgery and they like I, you know, I don't do surgeries very often, but they give you, I was in Twilight. They gave me the I hate needles. I've thought of this before. They gave me the needle, but I was in Twilight. So literally, this guy is just going to town on my eye. I can feel it, I can hear him, but I'm like in a different world. I don't know. That's that's the beauty of it. I was not asleep. I was like, oh man, just put me asleep. But is it worse than like a root canal? Or I I'm gonna say no. It's really weird. So no, I didn't feel anything. Then it was done. I kind of came to, and I don't have a contact in my left eye. I can't wear contact with my left eye for like six weeks. I gotta let it heal um to form. So the long story short, hopefully that deflated football in my left eye is gonna be more of a rounded um eye, and then I can use scleral lenses again, but hopefully to see significantly better. We'll know more. We'll know more. But I know I've put that out on social media. A lot of people know Dr. Price. A lot of people actually have keratoconus, which is there's different levels of it. My left eye is pretty darn bad. Um, but hopefully, all of that um will help me see better. Uh, you know, and now I have to be real careful with the left eye. I can't get hit. You and I can't, you and I are in Boston in a couple weeks. We'll talk about that. We can't get in a bar fight. If I get in a bar fight, Son to make sure they punch my right eye, not my left eye. I got a real problem if we get in a bar fight and the left eye gets hit. If that's a bar fight, I'm running. That's what I'm exactly. Yeah, we're not we're not meant to do that. Um anyway. So, yeah, so that's that. I had a lot of people reach out, so thanks. Um, and shout out to Dr. Price. I actually have to go back to Indianapolis on Thursday for the one week kind of um, I guess, how you doing type of deal. And then hopefully I don't have to go back anymore because it is kind of a long drive. So all right, I don't I went on a little tangent there, but I was important. So that's Todd so Todd actually has the same eyes as I do. Hopefully not as bad as I do, but if he does, uh maybe Dr. Price. Although he said he has a really good doctor in New York City, which totally, totally makes sense. But um, where'd you guys eat? Let's talk about food. Where'd you guys eat with Todd last week? What'd you do?

SPEAKER_01 29:16

We were at Joe's uh seafood out in downtown River North, Rivernaut. Technically, it's not downtown in the loop here in Chicago, but deflate gate takes a whole new meaning now.

SPEAKER_00 29:27

My left eye, my left eye is not a Patriots fan, I'll tell you that.

SPEAKER_01 29:33

I have only one question related to this, and then we can move on. Well, yeah, yeah, sure, sure. So the doctor, Dr. Price is Indiana University, are you with he?

SPEAKER_00 29:41

Well, I'm not sure where he went to school, to be honest. I mean, I'm not sure.

SPEAKER_01 29:44

No, I meant the medical center. Is it IU medical center?

SPEAKER_00 29:46

Oh, it's no, it's north of Indianapolis. Okay, it's north of Indianapolis. Up in the um kind of Carmel, the Carmel area.

SPEAKER_01 29:52

But my only question for you, my only question for you is if he was in Michigan, would you have gone?

SPEAKER_00 29:57

Oof, that'd be tough. I don't know. That's you know my feelings there. I'll just leave it there. I don't let spend moments.

SPEAKER_01 30:02

Yeah, let's go to charts.

SPEAKER_00 30:04

Let's there's a lot of good doctors out there. I'll just leave it that way. Second opinion. I'm the second opinions matter.

SPEAKER_01 30:13

Sorry, I had to ask, but you know, all right. Let's let's go to the flows. You mentioned sentiment, right? And how look, goodness, tech is so crowded. I

Why Tech Flows Look Crowded

SPEAKER_01 30:22

mean, safe to say it is crowded, right? And Todd gave us like 150 million charts, and hopefully he won't mind me sharing a few of them. So one chart that caught my well, several caught my eye, was equity flows, right?

SPEAKER_00 30:37

And he compared Actually, in your case, I don't know if it caught your eyes, z. In my case, it's just eye yeah. I only have one eye that works right now. So you're gonna be doing these jokes, bro. I know, I gotta shut up. I gotta stop talking about it. And go ahead, yeah.

SPEAKER_01 30:49

So we have like daily cumulative equity flows over the last several years, 2021, 23, 24, 25. Compare all the years, calendar years 2017 through 2026. And we're sharing this on YouTube right now. This is equity flows, it's a m huge 2026. That's the chart corner. 2026 is way above everybody else. Now, every year you expect it to be above. Why? Because you know, if the market's going up, market cap is going up, you would expect flows to be greater, nominal GDP is going up, you know. We live in a nominal world, so yes, of course, flows should be higher one year to the next, unless you have a big bear market or something like that. Right. 2026 just exceeds all of that, it's just going parabolic, safe to say. And this is through the first half of the year. And where is it all going? It's going into tech. So let's put this chart up tech equity flows, even over the last three months, let's say three and a half months, since then March 30th low, tech has seen this is just the tech sectors, this is the cumulative sector ETF flow since March 30th. That's the chart we're showing right now. Tech has seen 5.2 billion dollars. Now it's not a lot of money, but every other sector is more or less just flat. You know, some are even negative, right? And then you pull that horizon back to sector flows since chat GPT, you know, we'll put this chart up, Connor. Flows into tech, right? This is just the tech sector, $101 billion. And in 2026, you can see the line, it just goes completely parabolic, right? The next best sector is about industrials, it's about 40 billion or so. We've talked about how industrials, part of industrials also sort of masquerading as tech adjacent plays. Energy, healthcare, and staples are all negative, right? Energy seen negative 13 billion, like basically outflows of 13 billion dollars since the chat GPT release back in November of 2022. Again, it goes to the point that one, I think general sentiment amongst consumers, retail, let's say, has been that yeah, it's okay, the stock market, you know, it doesn't feel like 90 dot, I'll put it that way. But then you look at the flows, flows are going bananas, especially this year, and it's all going into one place, it's going into tech. And then it gets back to what you were just talking about. If sentiment suddenly reverses, well, not a huge surprise because everyone's in one side of the market.

SPEAKER_00 33:16

Yeah, I saw a note from our friend Tom Lee of Fundstrat. He's calling this like a 1997 moment. If you remember back in the history books or read, uh, there was a vicious bear market in 97. Their stocks are up a lot. I remember I thought of this in June of 97. There was one day where the SP 500 fell 6.1% for the year, still getting close to 30%. You know, so again, you have these rippers on the way up and on the way down.

SPEAKER_01 33:36

Was that the year of no the Russian ruble crisis in 1998?

SPEAKER_00 33:40

That was, I think it's just like the Thai bot crisis or the Asian uh crisis in 97, and then 98 was a Russian ruble, and long-term capital management went under, and the Fed came in and uh the Alan Greenspan came in and did some cuts. But both both those years, I mean, 97-98 are great years for stock investors if you just look, but at the same time, there were some really, really scary moments uh in the middle um of those years. Uh, what else did Todd have to say?

SPEAKER_01 34:04

What else did remember last week we shared the chart of uh levered ET ETP exchange trader products, right? And that was actually Todd's chart that JC had shared. We talked about how there are over 700 levered exchange trader products now with about 200 billion in AUM. It was 200 products in 2024 with about 50 billion dollars in AUM. So we've seen a big increase, but 200 billion, back going back to what JC was talking about, and I agree, the equity market is 70, 75 trillion, right? That's the market cap 200 billion is like nothing compared to that.

SPEAKER_00 34:39

I believe you called it a rounding error.

SPEAKER_01 34:41

Yeah, it's a rounding, it kind of, right? But but then the thing is, so I uh I was talking to Todd about this, and he pointed me, hey, I have a chart for that.

SPEAKER_00 34:49

He has a chart for everything, of course he does, yeah.

SPEAKER_01 34:51

So what he talks about is all of that, all these levered exchange traded products, they're concentrated in a few areas. No surprise which areas, and we'll share this chart. This is levered funds tracking guess what technology stuff.

SPEAKER_00 35:05

We might have to pay Sashika some money to share this many charts. Thank you, Todd. We'll take you in advance. Yeah, but it's tis better to ask for forgiveness than permission on this particular podcast. We'll have Todd here and he can share it. Todd doesn't care.

SPEAKER_01 35:18

Todd's our boy, yeah. Yeah, yeah. But it's concentrated. NASDAQ, SEBI's, SP 500, obviously, but that's you know, big hyperscalerslash ships play by itself, micron, tech sector, etf, tesla, sandis, can video. So it's when you compare the 200 billion, it's not over the denominator, it's not 75 trillion. It's smaller than that, it's still significantly large, but it's concentrated. And that gets to even we were talking about South Korea. What's happening in South Korea is I mean, you never want to say a crash is because of fundamental reasons, because you know you can't use fundamentals

Leveraged Products And Margin Call Risk

SPEAKER_01 35:52

for timing anyway. But in South Korea, it was actually because of margin calls and regulators saying, you know, like we are increasing margin requirements. You can't just go lever yourself up to Kingdom Come. And but when they do that, you get the crash, as we've seen in South Korea. And that's where I think we are with uh some of these levered products, even in the US market.

SPEAKER_00 36:15

I think this happened two weeks ago. It was one of the quieter, at least for we live, what uh things that happened from another central bank. The Bank of Korea, like two weeks ago, hiked interest rates. That was widely expected. It was not a surprise, but still I'm looking at this zona that's kind of the epicenter, right? For the AI memory, I don't call it bubble, bull market, whatever you call it. Um, and yet they're hiking interest rates. Now we are going to talk about the Fed. We'll we'll get there. We'll get there. Um, but it's interesting that they're hiking and now all of a sudden they're really imploding. I mean, they wanted to put the brakes on this a little bit, and it's a difficult game. I mean, you know, with the with the what how has Bert put it? Bert, our CEO, Bert White. Um, the Fed doesn't use a has a scalpel, they use a hammer or a hammer. They use a hammer. Yeah, I think it's something like that, but it's it's difficult. The tools that the Fed has or central banks have is difficult. Um, yeah, they got this is a hammer though, shout out to Bert. Um, what do you think about that? But you have a hammer, it's only a tool, everything kind of looks like a nail and it's go bang at every yes, just like the small cap guys always bullish or the emerging market gals always bullish, emerging. Yes, it's you know, everything's everything's a nail when you have a hammer.

SPEAKER_01 37:16

Yeah, you and I were joking at the top of this episode, maybe you know, 15, 20 minutes, 25 minutes ago, about you know, we I was kind of joking that oh, even the Fed is an AI play now. But in South Korea, the central bank just responded to the fact that a lot of South Korea's growth, growth is really strong, but that's driven by AI, and they decided, you know what, that's too strong. We need to pull things back, as you said. Yeah, that's why they raise interest rates. So even the Fed or the central bank and South Korea, and I think the Fed too, to an extent, they're not responding to oil prices because oil prices go up and down. We can talk about that. Yeah, no, there are other, you know, inflation bottlenecks, especially on chip. Chip prices have gone up, and yeah, they're responding to that.

SPEAKER_00 37:56

Well, one of the it's a nice media uh kind of a tidbit. So I've used this a lot thanks to your data, but you know, you look at the last five quarters, U.S. real GDP, ballpark 2%, ballpark 0.9% of that. So 45% of that 90 basis points has come from AI CapEx spending, right? So that's a lot in the US. Do you know by chance if 45% of the US GDP has been from AI, what South Korea might be the last five quarters? Sounds like I mean, is that out there? I mean, do we know? It's it's more, right? It's probably more 90%. Yeah, that's what I was thinking.

SPEAKER_01 38:26

It's all exports. They they've historically been levered to exports, right? So we talk about China being an export-oriented, you know, country. Actually, China was exported export-oriented in the mid-2000s, and over the last two, three years, because they're just shipping uh cars out everywhere, right? Except the US. Everywhere else they're shipping cars cars, and they've basically killed the German car industry. So, but in the middle of the 2010s, China was not really about exports. But two three countries that have been about exports that rely on exports have historically been South Korea, Taiwan, and Germany. Yeah, right. They their export much larger than China, by the way. South Korea, I think 50% of GDP is you know comes from exports. And now with the AI thing, uh you know, I I don't have the exact numbers, but it's I'm pretty sure it's somewhere between 75 to 90 percent of recent growth has come from the chip sector. And then it makes sense why the central bank is hiking rates because it's going, it's too hot. It's literally too hot, right? And then all these people cannot get enough of levered products, and then you come back here and this is I I won't I won't share this chart because you know Todd's gonna sue me or something, but he showed me a list of you know, like upcoming ETF launches. Yeah, yes, yes, yes. There are about 75 to 100 more ETFs, there's several much more just over the next month or something that's coming on board. These are called thematic ETFs. Guess what the theme is? It's AI, compute, semis, space. It's all concentrated in one area, but it also tells you there's a demand for this stuff on the US retail side, right? Yep. By the way, by the end of the year, you're probably going to see another 300, 400, 500 more levered exchange trader products. That's all coming out before the end of the year. So tech and AI everywhere. There's leverage also right now. Leverage is fine if used carefully. If not, it can get you into trouble.

SPEAKER_00 40:28

Well, we did I'll give a shout out. Uh you had JC Pretz on last week, and it was just an incredible discussion. We talked about this and a lot of other things. JC is opinionated, he's funny, he's smart, he's uh opinionated, which is great for a podcast. Uh, we had literally the most views ever. We've done 197 of these previously. Today's 198. Um, that was the most you views ever on YouTube, which was really cool. And the total downloads has been explosive. And we've seen a huge number of comments on YouTube, by the way. In this particular one, feel free and give us a comment, give us a like, give us a follow. Good reviews, bad reviews, can't lead the witness. We just like the interaction. The algos like the interaction. But seriously, uh a big thank you to JC for joining us last week and what was um definitely one of our better podcasts ever. And it shows when you look at how many people, I mean, we've we crushed the previous record in terms of YouTube view. So the algos love JC. And one more. Um, I sent this pod pony. Let's see, I guess it's yeah, wow, next week. Next week uh on the 5th. Uh, we will be show this video or show this image right now, but live facts versus feelings, episode 200. Uh, we're gonna record episode 200 live um from Boston. And the name of the place is what? The Central Wharf Company, or it's called Central Wharf Co. I guess. Wednesday, August 5th, between 3 to 5 p.m. Boston time. Uh, we'll do a live Facts vs. Feelings. Our friends over at Wisdom Tree or help sponsor this. So come get a drink or two, hang out with Ryan and Sonu, and our very special guest, Mr. Boston himself, the goat Art Hogan. Art's the man. I've done a lot of things with Art over the years. I look up to him. He's a mentor, he's a friend. And I just think of Boston, I think of Art Hogan. I mean, he lives and breathes Boston. So Art is going to join us next Wednesday, August 3rd, live from three to five at the Central Wharf Co. Uh, talk to me about Art and episode 200, so then we'll get more into some stuff about the Fed probably.

SPEAKER_01 42:15

I mean, he's somebody we could talk big picture and also get down into some of the details, right? We can talk about the Fed, we can talk about chips, we can talk about all of it.

SPEAKER_00 42:25

And he knows where all the bodies are buried when it comes to media. I love talking about media. He's got some media stories from 20, 30 years ago that I just eat up. So we're gonna get into all that stuff, but go ahead. Fun stuff.

SPEAKER_01 42:33

No, and especially right now, because for somebody, I mean, not to date art, I mean, but you know, age before beauty, it's all uh uh art's, you know, a handsome looking guy, I should say it now does not anything to say about how he looks, but yeah, no, he's been around, right? And this is where I think a time like this experience matters because we're seeing a bit of a rotation, we could talk about that, right? The question is look, I think it's a problem. I've been in the camp that if there is a sustained rotation,

Rotation Into Low Vol And Defensives

SPEAKER_01 43:05

that's a problem because that means the AI wave is dead, it's crashed, and then if that stuff is crashing, it's not going down slowly or anything like that. It's crashing, right? I mean, you know, it could go sideways. So I think what we are seeing now is a little bit of consolidation, trying to get all these levered players in South Korea out a little bit, but then you know, going back to the fundamentals, going back to what Larry Page is saying, going back to what Andy Jassy said, we are going to continue spending. And that means the profits from that spending are going to continue accruing to these you know chip companies. So that's going to continue. So I don't see where for the time being that this whole thing is ending, and it gets to let's put this chart up, right? This here's another way to look at you know the rotation and think about this. Uh, this is uh let's see, SP 500 versus Mags versus SMH, which is the semiconductor ETF from Van Eck, our friends at Van Eck, and the SP 500 X AI. And the Mag and Mags is the Mag 7 ETF. Yes, that's a Mags. Yes, Mag 7 ETF. So the last time the SP 500 hit an all time high was June 2nd, so about 8. Weeks ago. Since then, the SP 500 is down about 2.5%. Chips obviously have gone up. They went up a lot and crashed. Right? You put this chart up. Yeah, it's I think the yellow line of the chart. The uh semiconductor ETF from Bannek is down 13%. The Mags ETF, it was kind of recovering. When we talked this time last week, it was kind of recovering, but then after alphabet earnings, Tesla, all of that, it got junked again. The Mags ETF since June 2nd is down 9%. Then you look at everything else. The SP 500 X AI enablers is a Goldman Sachs index. That is up six percent. Wow. That's up six percent. And then you know, you talk about uh there's a the SP 500 low volatility index, right? Since June 2nd, that's up eight percent. It's outperforming the SP 500 by almost 11 percentage points. Wow. Think about that. We'll you put that chart up, we have SP 500 versus low volatility as well. And even in our mid-year outlook, our fully outlook, we've talked about that barbell. Yes, we want to ride the wave, but protect yourself.

SPEAKER_00 45:26

Well, yes, when you work at financial advisors, like we do here at Carson Group, over I think it's almost 61,000 families served, nearly 600 advisors in approximately 44 states around the United States. Every Friday we get an email and oh good, we've got more because people want to join up with us. So if you're looking, uh definitely reach out, Carson Group.com. We'd love to talk to you about um how we can help you uh continue to grow and help your clients. Um but the reaction I just lost my train of thought. I did a little uh promo for Carson there and I forgot what I was gonna say. I what I knew I had one more thing about art. I wanted to bring this full circle. I mean, I've done stuff with art for a long time. Last November, I was with Art at a live conference, and you know, we we always have a lot of fun together. And he was up there talking about why you want to own small caps in 2026. And I joked on this. Art knows never work. Now it was a joke. We're on stage. But I mean, like that, oh, I now I know what I was gonna say. See, this is what happens. I talk long enough. I remember what I was gonna say the previous time, but shout out to art, guys like Brian Belski. We've had Belsky on before, he was saying, listen, you want to own some of this other stuff because this stuff over here is not always gonna lead, which is where I'm coming with the advisors we work with. We like stories, right? We're storytellers. We have a podcast, we're storytellers. Yes, we're portfolio managers and a lot of other things. But a barbelled approach of having some growth over here, some value over here, or some momentum over here and low vol over here. Yeah, three months ago, nobody wanted to own low vol. Like you just said, it's up, what, six percent since the market peaked? And how's all that? 8%, 8%.

SPEAKER_01 46:48

SP5 and low volatility index is up just incredible.

SPEAKER_00 46:51

Now, when we manage portfolios, you don't like to give too much away because you know, hey, listen, Joey Carson will give it all away. But we've talked about this before that you still, even in this world of a lot of waves and a lot of momentum, still riding the wave, what we called our outlook a couple weeks ago, meteor outlook, you know, low vol still made sense in a portfolio to help you sleep at night. And again, I think that's why you want to do that. Where do we want to take this conversation, Sonny?

SPEAKER_01 47:14

I mean, one thing is portfolio manager, we always trying to figure out okay, what's not priced in when you talk about the Fed, when we talk about momentum and things like

Contrarian Thinking Versus Momentum

SPEAKER_01 47:21

that. Momentum's historically sort of never priced in because people always underestimate how things, how much things can grow. True, how much people can spend, how much people can earn on the other side of that, the you know, the profit side, right? But low volatility, like yeah, actually, I'll take it this way a lot of traders, I think a lot of people in markets like to think of themselves as contrarian uh thinkers, right? And it works. I mean, you you kind of have to be kind a little bit contrarian to you know to make money, right? You want to go the other side of where the crowd is growing. Now, I would put myself, uh you can tell me where you stand on this. I'm more of a momentum person, I'm not a contrarian person by, you know, I'm like, I'll I'll go put my finger in the you know, in the wind, see which way the you know, wind is blowing the direction, go with that. That's why I like momentum, right? I I'm not a fundamentals guy, I've never been a stock picker or anything like that. I like the I look at the macro fundamentals, obviously. But it's in interest of, you know, even in the macro side, when I look at economic data, whether it's consumer spending, whether I look at durable goods orders, business investment, I'm kind of looking at momentum, right? But then like now, coming back to low volatility, I feel like so again, one more, I promise this will be the last one. Last Todd Zone chart. This is low volatility's the uh correlation with the SP 500. Historically, low volatility has about 80, 75, 80 correlation with the SP 500. Lately, over the last year, it's about 20 right, 15, 20. Wow. It's collapsed. I guess it's not a shock, but wow, yeah, okay. Flows have also collapsed, as you could probably imagine. Oh, flows is and I keep thinking, I wonder if this is the most contrarian trade right now that you can do. Now, the last two months has done well, but if you had it from the beginning of the year, yeah, you're still, you know, probably kicking yourself for having low ball. We've had it for a long time. Yeah, if you had it for the last two years, you're kicking yourself even more. But right now, I mean, you've got to be asking the question, right? Like, if you truly are a contrarian thinker, and maybe you guys could put comments, you know, you all guys angle, you can put comments in the, you know, on the YouTube page. You know, tell us what you think. But Ryan, I want to get your sense of you know, where you are on that scale of there's momentum, but there's also the contrarian thing.

SPEAKER_00 49:38

Yes. I mean, I traded options for 11 years. That's where I got a lot of my um analytical skills that we talk about here. And I've used this quote a lot, right? Um, if everybody's thinking alike, somebody's in thinking, General Patton. And I've seen that. And listen, if you listen to this podcast long enough, you've seen what we've what we've done, right? When everybody's like literally August 2024, we had the yen carry trade online for a couple days, and everybody's telling us everything's gonna fall apart. We were saying no. And it's because, again, I'm not we're not just contrarian to be contrarian, but when I have um stuff I look at that backs up, Sono, we lay on what you look at, the rest of our team, what we look at. And if we think we have a concrete reason to believe in what we believe in, yet when I send out a tweet or something, everybody laughs at us for saying it, I think to myself, okay, we're on to something. You have to do this for a long time. You have to have some thick skin, because believe me, we are wrong a lot. Um I think we're wrong less than most people, and hopefully that's why most people listen to this podcast, but still, we make mistakes. And I think it's just important um this to do that. And again, when you manage this, is so this is where this is so difficult and so hard. If I'm a short-term trader managing Ryan's money or Sony's, I might say one thing one day and next day, change my mind. When you manage real money, you just can't do that. So I think, you know, yes, we're looking for contrarian trades, but once that momentum starts to go, we're gonna ride that trend as long as you can. And I've said it before, this is now the eighth longest bull market since World War II. Looking at the previous seven, six of them made it to at least their 50 year. The average is like eight years. Yes, that's just one stat. There's other stuff. Podpony, feel free to put the last chart that I sent up that shows the SP 500 with the number of stocks above the tuner day moving average, is up to 70%. So seven out of 10 stocks are above their longer-term tuner day. That's like the highest we've seen in several months. The one I really want to focus on, though, Sonu, the 50-day moving average, 69% of all stocks in the SP 500 above the 50 day. What the world does that mean? That's the most since February. All right. So when those lines are moving higher, that historically is a sign that the underlying pinnings of this bull market are strong. Yes, momentum and tech, all the stuff we've just talked about the last 45 minutes, have been kind of putting a lid on things, but that's not a market that's about to fall apart, in my opinion. We gained 16% on the S P 500 Sonu in April and May, one of the greatest two-month rallies in the history of the stock market. Lost 1% in June, down about 1% the time we're recording this in July. Yeah, listen, we wish we'd be up in July and up in June. We want to go up, we manage money, we get it. But I don't think a market that's consolidated. Literally, look at the SP 500, where it was trading a month ago, where it was trading two months ago. It's the same place. It hasn't gone anywhere for a couple months to gain 16% in two months, and then this goes sideways with all these crazy stories and all these crazy headlines and the Fed. And we actually need to talk about the Fed price soon here and wrap this thing up. Um, the reality though is that's somewhere to go. Now, somewhere else to think about, real quick. Uh, we have a dead tree in the front yard, it's been there for a while, need to pay. I reach out to our tree company, Sonu, and they call to say, Hey, listen, we're booked through October. I'm like, October. Wait, are these trees falling down? Like, no, tomorrow. Like, I don't know. What's going on? I'm like, but it's like July. October feels like. So I don't know. If this whole podcast, Imagine Money ain't gonna work, Sonu, we're going in the tree business. It's Ryan and Sonu's uh facts versus feelings tree service, what we can call it. I don't know. We know nothing about cutting trees down, but we'll uh be on it's gotta be on YouTube, but apparently there's a market because guys, I I'm told October to cut down my tree. Um, one more thing, Sono. Well, you want to finish with the Fed? That's probably what we should finish with, right?

SPEAKER_01 53:05

Yeah, last thing, one more final thing on the rotation. You mentioned over the last two months, he has to be 500 more or less flat, slightly down maybe a two, two and a half percent. And we talked about low vol being up eight percent now. Low wall is one side you think about defenses, but it's not just that. You mentioned financials, that's why I want to bring it up. Financials since June 2nd through July 27th, so about eight weeks there. Financials are up about 11%. Wow, large cap financials. Healthcare, going back to what you were talking about, the NYC, right? Hitting all-time highs, healthcare is actually the best performing sector over the last eight weeks. It's up 12%, right? Now, energy, you think it would be in the mix because of the Middle East hostilities. We didn't even go there, but set that aside. Yeah, you know, that things could be you know very different tomorrow, the day this podcast comes out. But energy was up only about 1.4%. Because remember, the gains in energy started only over the last four weeks, but we're talking about a two-month period, about close to about eight years. The big picture, final thing here, on this maybe rotation, eight of 11 sectors are outperforming the SP 500 since June 2nd, since it's made its last all-time high. Interesting. The three sectors underperforming, usual suspects. It's basically a combination of Mag 7 and chips, technology down 12%, consumer discretion down five and a half percent, communication services down five percent over the last eight weeks, right? But that's the story. But the problem is those three sectors, Ryan, make up 55% of the SP 500. That's the problem, and that's where concentration can get you, but there you have a choice. And this gets to what you were talking about portfolio position. You don't have to be as concentrated as that. You can choose to actively move away from you, don't have to be 55% in AI and chips and mag 7 and all of that. You can be shorter than that. That's how we are thinking about it.

SPEAKER_00 54:53

No, good good good points there, and the lot to unpack. Uh, one more quick little story, and I like your opinion here, then we'll talk about the Fed and wrap uh episode 198 of Facts versus Feelings Up. Welcome to the chip crash.

Interstellar Detour And Time Talk

SPEAKER_00 55:05

Uh, my son Gus wanted to watch Interstellar because the Christopher Nolan movie Odyssey just came out and he's he's seen uh and I saw Interstellar. I'm gonna call it that movie. Oh, it's awesome. I'm gonna call it maybe five or six years ago, and then we watched it the other night. It is a long movie, it's three hours long, but it's it's awesome. I mean, like Christopher Nolan's incredible, all the great movies he's made. And uh the one joke that um one of the the old physicists, I forget his name, but the old physicist, he said, Listen, I'm a physicist, um, I'm not scared of death, I'm scared of time. I thought that's pretty funny. And then another one I'm gonna start using. Uh they asked Einstein, you know, when he uh in 1919, Einstein got divorced and he married his first cousin. This is true. You can look up Einstein married his first cousin, and they said, you know, why'd you marry your first cousin? He goes, Well, it's all relative. I I made the quote up, the quote's made up, but he did literally marry his first cousin. So I'll start using that with that. Everybody likes a good Einstein joke. I thought that was uh that was those are my two physicist jokes that I just came out with. But what um and I again, I guess I'll just say this. If you haven't seen Interstellar, which came out in 2014, fast forward about one minute because I'm gonna give away the big ending, but I hope you've seen it. So go fast forward about a minute. All right. So at the very end, you know, when he sees his daughter, she's about to die, he's the same age. It's just like so emotional. This is such a cool movie the way they spin it all. And I've I remembered it, but it's almost like a movie you need to see a couple times. I need to see so I mean, I could see it 10 times, it's still over my head. Trust me, I don't blur them holes, black holes. I don't get it all. But it's like at the end of the day, it's like love and your family. That's what really you can't change, and it's just really neat the way that came about. Are you gonna see the Odyssey? You excited about the Odyssey? Make a lot of money. I don't know. I want to.

SPEAKER_01 56:46

That's another movie you told me about recently that's on my list. It's uh geez. Oh well. You saw it with your boys. Oh gosh.

SPEAKER_00 56:53

Oh, Project Hail Mary. Yes, yes, that's a lot of things. And that's on Amazon Prime now. It's on Amazon Prime now. So if you have Amazon Prime, Project Hail Mary is out.

SPEAKER_01 57:00

Um I have all of them, so I'm paying more than cable. I have HBI.

SPEAKER_00 57:04

Yeah, I'm paying for all these subscriptions. Oh, me too, brother. Me too. Yeah. Uh and I also, you know, I did see Obsession. We don't need to make this all about movies. I mean, it made $400 million. It's a horror movie. I didn't get it. I don't understand why people like this so much. I'll just say maybe I'm a contrarian. I did not understand why obsession was so popular. I'll just leave that there if you like horror movies. But all right, so you cannot watch horror movies. I'd rather watch the beekeeper or something. There you go, me too. All right, so no, with all of that, you can tell we're getting bored. Or not bored, you can tell we're I'm dreading the next conversation. I'll do it. I'm just I'm drawing it out. I'm drawing it out. I don't want to talk about it. But let's try to finish this in five minutes because most people by the time they listen to this, the Fed decision will be out. I guess the base case is we don't think there'll be a cut. Maybe

Fed Uncertainty And Rate Hike Odds

SPEAKER_00 57:43

it'll be egg on our face and people here. What do you think about the Fed this week? Let's wrap up.

SPEAKER_01 57:46

Speaking of you, you'd spent mentioned intercellar and family, speaking of not so happy family, you know, is the Fed. Fed committee, see how I tried to say dad jokes come out, right? Here we go. But look, this there's a 38% probability of a rate hike this side this week. Okay. Tomorrow. It's the highest we've seen this close to a meeting. Before this, the highest uncertainty, you know, we've seen before, just before a Fed meeting, was September of 2024. And that was when the market didn't know are they going for a 25 basis point cut or a 50 basis point cut? They ended up doing a 50 basis point cut. Before that, the most uncertainty we had was during the SVB crisis in March of 2023, when you know there was a banking crisis. And so the question is, will the Fed even hike? Well, it turns out they did hike, right? Because they're worried about inflation. And it tells you that, you know, when inflation's on the mind, central bankers try to say, you know, we got to get control of this. The problem is right now the Fed members are really divided. I am not sure. I'm gonna say they don't hike, right? But it's marginal, especially with some hope of oil pulling back. You got a soft CPI PPI report in June. I certainly don't think the inflation problem has gone away. I think the labor market is doing more than fine. We just got initial claims at the lowest level since 1969, right? Right? The labor market is fine, but then you know, where is disinflation going to come from if the labor market is also stronger than it was a year ago? Right? And then we got AI bottlenecks, we got Middle East bottlenecks and fertilizers, things like that. That will feed into food prices, even if oil goes back down. But uh yeah, the Fed's divided. I think, but a bare majority of Fed members will probably vote to hope. But that's a problem because then everyone's gonna be talking about okay, are they going to hike 50 basis points in September? Unless, of course, the core inflation numbers come out really soft. I don't think it will be good get a situation. I think the Fed's stuck. If they don't hike now, like I said, there'll be a lot of speculation about a 50 basis point hike in September. I don't think we'll be talking about 25 basis points anymore. If the Fed hikes, then the question will be, oh wait, how much more? Because they're not gonna hike just once, they're gonna hike more than once. The question is how much more? So I think we are in this dynamic where, yeah, I think the Fed's stuck right now.

SPEAKER_00 1:00:11

Very interesting. I know you know 2022 was a similar situation where the feds are, oh, we're not gonna hike, and the next thing you know, a few weeks later, they're like hiking 50 basis points, you know. And then again, the um Jackson Hole's always in late August. I don't know the exact date, but there's always a bit, there's sometimes a big decision made there. So maybe they don't hike now, but you wait a little bit and Jackson Hole, there's some news, and then September. So we'll see. I mean, there's a there's a lot there. I know our friend Neil Dutta over at Renmack. I mean, he's saying they should just do it now. Rip rip the band-aid off now. He's like, You got some cover, he can you know go to President Trump, say, Hey, you know, they made me do it. You know, the committee made me do it. I don't know.

SPEAKER_01 1:00:43

You know, um by the way, there was a report. Yeah, I saw a report of Bloomberg saying I I'm gonna paraphrase, and this is who knows if it's true, but Bloomberg reported, so I'm gonna take it as fact that Trump said, Yeah, I know what you know, I I know what they want to do in playing what he knows what Walsh wants to do. Right. Maybe Walsh does have some cover, but yeah, I just I don't know. I could be totally wrong, but I don't we'll talk about this, you know, uh in our next episode. But look, Walsh wants messier meetings, which is fine if inflation is not a problem, but inflation's elevated, it's been elevated for five years. You can't just say, Oh, I want price stability, the Fed is for price stability, you got to tell us how. And you've talked about this. It's one thing if the Fed stays out of the way and we don't talk about the Fed. I know you don't like talking about the Fed. Oh, I do. I I I make my money talking about the Fed, otherwise I'd probably be out of job. But no, like I don't want to talk about the Fed this much. But if even if we are in a situation right now, because we don't have forward guidance, I would argue that we're going to talk about the Fed even more. Because we don't know what you know, what what is the reaction function? I'm not asking them to forecast where rates will be. Tell us how you're going to think about inflation going forward.

SPEAKER_00 1:01:56

So I guess this wins will be what his second press, his second meeting, right? So and it'll be Q ⁇ A and everything. I think what they need is more committees. Maybe they need more committees on the Fed. Everyone who works works and has worked at a company once or twice. Carson doesn't do this, honestly. But I've worked in a past life where let's have a bunch of committees and nothing gets done, and committees are just oh, they're miserable. So I don't know. And I hear the Fed has a bunch of committees. I know he got a bunch of big names and well-respected people, but I'm not sure if a bunch of committees is the way to go. But anyway. Especially when you have committees in the government. Well, that's the other way to put it. Committees with the government is uh is is not good. All right, so we've probably gone almost an hour. I don't know, whatever we've gone. Yeah, we've gone long enough, I think is the way to put it. Um listen, if you're in the Boston area, New England area, we'd be honored and delighted if you could join us uh next Wednesday,

Live Boston Show And Final Thanks

SPEAKER_00 1:02:40

August 5th. Um, you know, if you can make it, we already talked about when and where. So just uh try to make that. It should be a lot of fun. And I will say we might have 35 t-shirts, special episode 200 t-shirts. And the way they're doing it is the first 35 people in the door. There's no other way to do it. So if you're there, you probably will get a special uh facts versus feelings t-shirt that's only made once, and you have to be in Boston to get it. All right, so any last comments in 30 seconds? We need to wrap this thing up.

SPEAKER_01 1:03:08

No, we've gone on for a long time. And uh, thank you to any new listeners who came over to listen to what JC had to say. Hopefully you'll stick around and you know, we'll try and make us entertaining.

SPEAKER_00 1:03:20

Exactly. Obviously, compound and friends helped Josh and Mike and those guys that gave us a lot of momentum. We had momentum to begin with, but that got us a lot of momentum, and then JC just crushed it. And we've got a few more. Oh, big guests. Gee whiz. We have um Art Hogan coming from an episode 200. We got some other big names that we're we're flirting with uh going on the podcast. We know everyone likes when we have guests, but also like hearing when Sonu and I do our thing as well. So we're just uh honored and delighted that so many people continue to listen to this weekly podcast. You listen to it, we'll keep doing it. This was episode 198. Welcome to the chip crash. We'll see you everybody next week. It's just kind of weird to say, Sonu. Episode 199. That just feels weird to say.

SPEAKER_01 1:03:57

Oh, is it 199 now?

SPEAKER_00 1:03:59

Well, no, no. This is what we're gonna do. So next week. Next week will be 199. Um, and the art will be 200. So anyway, all right, everyone have a great week. Enjoy the kind of end of summer. I know some kids are going back to school soon. Kids are going, my daughter's going to college. We'll talk about that in some weeks coming up. Lots of stuff going on here in August as August is on the horizon. Um, with all that, let's keep the bull market going. See you by next week. Take care. Thank you. Goodbye. Information provided on facts versus feelings with some of our geeks 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 industries 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. Guess on facts versus feelings are not affiliated with CWM LLC.