One Trillion Dollars (FvF Ep. 199)

In this episode of Facts vs Feelings, Ryan Detrick, Chief Market Strategist at Carson Group, and Sonu Varghese, Chief Macro Strategist at Carson Group, open with a cautionary tale from the AI-focused hedge fund Situation Awareness, whose founder went from up over 400% year-to-date to a 67% collapse in July, a stark reminder that concentration, leverage, and liquidity can undo even the best fundamental research.

At the Fed's latest meeting, Chair Walsh's refusal to offer guidance sent long-term yields soaring instead of calming markets, with the 30-year hitting its highest level since 2007. Sonu explains why nominal GDP growth running near 6-8% (even as real growth stays soft) points to a genuinely inflationary growth environment, and why the bond market, not stocks, may be the real test of the new Fed chair's credibility. 

Microsoft, Amazon, Meta, Google, and Oracle are now projected to spend over a trillion dollars in 2027 alone, close to 3% of GDP, with Microsoft and Amazon rewarded for showing results while Meta and Oracle get punished for spending without proof of ROI. They close with a look at GDP internals showing AI investment now accounts for over 40% of real GDP growth, banks breaking out to new highs as a bullish signal, a weakening dollar, and seasonal risks heading into August and September.

[Key Takeaways]

• Situation Awareness, an AI-focused hedge fund, went from up over 400% year-to-date to down 67% in July after a concentrated, leveraged bet unwound, forcing a distressed sale of stock holdings to Citadel.
• Fed Chair Walsh's press conference offered little forward guidance, and long-term yields spiked in response, with the 30-year Treasury hitting its highest level since 2007 and 30-year mortgage rates climbing from 5.9% to 6.7% over the last five Fed meetings despite no rate changes.
• Nominal GDP growth has averaged 5.8% over the last six quarters (7.9% in Q2 alone), well above the 2010-2019 trend of 4%, supporting the view that this is an inflationary growth environment even as real GDP growth lags at 1.9%.
• The five largest hyperscalers (Microsoft, Google, Amazon, Meta, Oracle) are now projected to spend over $1 trillion in CapEx in 2027 alone, up from earlier 2026 outlook estimates of $600 billion, with markets rewarding companies showing revenue results (Microsoft, Amazon) and punishing those that aren't (Meta, Oracle).
• AI-related hardware and software investment accounted for roughly 42% of real GDP growth over the last six quarters and now represents about 5% of GDP, surpassing the peak proportion seen during the dot-com boom.
• Bank stocks (KBE) are breaking out to new highs after a base dating back to 2007, a signal Ryan argues is historically a positive one for the broader bull market, even as seasonally weak August and September approach in a midterm year.

Jump to:

0:00 - Welcome And Quick Banter

1:25 - Live Boston Show Announcement

3:24 - AI Hedge Fund Blowup Lessons

9:39 - Fed Meeting And Market Whiplash

16:47 - Nominal Growth And Sticky Inflation

28:37 - Hyperscalers March Toward One Trillion

32:34 - Earnings Reactions From Big Tech

43:45 - GDP Under The Hood And AI Share

48:56 - Markets Sideways Seasonality And Banks

53:33 - Dollar Drop International Angle And Wrap

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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SPEAKER_01 0:02

Welcome to the Facts versus Feelings Podcast. I'm your host, Ryan Dieter, and I'm joined by my co-host, Sony Varke. Cutting through the noise, we have Ryan Dieter, our chief market strategist, and Sonovarky, our chief macro strategist. Taking out the boring and helping investors focus on what really matters. Alright, Sonu. We're live. I'm gonna try this. One trillion dollars. One trillion. Is that how that how you do it? That how you do it? I think so. I think so. I think so. I should have watched that again. Um, there's a lot of spending going on with the AI hyperscalers. That's a little joke we're doing. They're spending a trillion dollars, apparently, 2027. Uh that uh data just all came out. But welcome to episode 199 of Carson's Facts versus Feelings. So do this will come out. Let's see. I hate teams. You didn't hear that beep, did you? You didn't hear that? No, I didn't. I didn't I did. I've got teams on Do Not Disturb, which you think is like no dings. I just had a huge ding go off in my ear. This reminds me, I think I got one too, but it didn't.

SPEAKER_02 1:12

I it yeah, it didn't ding for me. Well, you know, but it was my boss, it was Barry Gilbert. So you know.

SPEAKER_01 1:18

I'm not I'm not in trouble, am I? I don't think so. Okay, talking about me anyway. Um, where was I going with this? Oh, so we'll just announce this quickly. We mentioned it last week. So if you are listening to this Wednesday morning when episode 189 comes out, and you happen to live in Boston, we're doing episode 200 live from Boston with Art Hogan. Um, it's at what's what's it called, the Central Wharf Co. right there in downtown Boston from three o'clock to five o'clock Boston time. If you get this Wednesday morning, we'd be honored and delighted if you could come join us. All right, Sona, with that out of the way, it arts the man. We've we talked about it last week. Hopefully, you can make it. It should be a lot of fun. So we want to talk about AI spending, we want to talk about earnings, the market, the Fed, all this stuff. Just a little disclosure, and then I'll go to you, Sony. We are recording this a little bit early. It is Friday morning, so a lot of you might not listen to this, or people listen to this for many market days. So we're hoping things are kind of calm and nothing goes crazy. So we'll just fill you in as we see the world on Friday because we last day of July. The last day, July 31st. Um, we are in Sona and I are in Boston next week, along with many of our uh uh Carson advisors and many uh maybe our and friends. What do we call them? They're not stakeholders anymore. Internal office, I forget. We keep changing it.

SPEAKER_02 2:34

You know, our friends at Carson.

SPEAKER_01 2:36

Carson. Our friends at Carson. Well, friends at Carson. Uh people to work, people to work at Carson. Um we keep changing all the names, we can never keep straight. Um, but the reality is we're gonna be there for a big event, uh, our third quarter um Excel, which would be a lot of fun. And that's why we're recording this a little bit early this week. All right, Sony. So let's get to it. You want to start with the F-word, the Fed? You want to get that out of display?

SPEAKER_02 2:58

I was gonna suffer that, but I think you've been kind of out of it this week with eye surgery, and was it last? Yeah, you'd be kind of out of it. I don't know. I mean, I'm always out of it.

SPEAKER_01 3:06

It's all blurry, but it's all blurry. It's it's a relative it's relative how out of it I am.

SPEAKER_02 3:12

So you know what shocked me, I just asked you a question. Like, have you heard of situational awareness before this? And you're like, wait, you you know, Ryan's a bit out of the loop, so maybe you should start there. Okay, okay. Situational awareness, the hedge fund, you know, by this name. You the name itself is amazing. I mean, no offense. Leopold Ashton Brenner, that's the guy. He's a tech bro. I mean, safe to say tech bro. I think he's like you know, young guy. Yeah, he's uh he started this hedge fund betting on AI stocks. He wrote this essay some time back saying you know, AI is the greatest thing, all of that, but just it just goes to show you can already do all the research, you can have all the like quote unquote fundamentals, but if you don't manage your portfolio, you can get killed. He was up year today 439% by the end of June. Okay. So you can imagine how concentrated his chip stocks, all of that. Yes, down 67% in July, wiped out, and finally he sold all his stock holdings, and I'm guessing, you know, that wasn't you know at a good price for as far as he was concerned, to Ken Griffin at Citadel. Ken Griffin came in and bought the bulk of his stock holdings and probably at a really you know cheap price. Yeah, he sold about three and a half billion, but it just goes to, you know, I I mean, look, in our business, it's tough managing money. You and I know that. And you never want to, you know, dare I say, you make fun of anyone for losses and anything like that. It can happen, right? We're all in the business of taking risk, but you have to manage it. Right? It's one thing to get, you know, your quote-unquote fundamentals right and things like that. And that's partly why I think, you know, uh, I think a lot of fundamental people sort of uh look down upon, if that's the phrase for it, on technical analysis. But I think technical analysis help you sort of manage risk in some form, right? Just follow the price. The price, like JC Peretz would say, price is the truth. Yes, right, and you have to manage portfolios. And the three big things that get you, I mean, I think it's a clown run who said that liquidity, concentration, leverage. You can do one of them if you have two of them, yeah, you kind of get into trouble with three of them. He said you're whistling past the graveyard.

SPEAKER_01 5:31

Um, so so much to unpack there. You know, just the psychology of kind of bubbles, right? How just excited people get at the peak, and you do such irrational things. I mean, we've talked before, June 22nd was when the Cosby, and the Cosby was some wild moves, we'll talk about it, uh, was up over 116%, I believe, for the year. And then it had a 44% just outright crash. And then literally on Friday time we're doing this is up 17% for its greatest one-day rally ever, but it was still down 2% on the week. I mean, we had to talk about, you know, are you not entertained? Uh, you know, the gladiator there. You know, also you you remind me, I used this before, but it's a it's a classic Charlie Munger. He's like, you know, the three ways to get yourself in trouble liquor, leverage, and ladies, you know, the three L's. And and I do, I mean, to hear up 400 something percent. Clearly, he was using some leverage in a big, big way. And as someone who learned this the hard way when I got into the market uh in the late 90s, I was on margin. I was buying every networking stock they'd say. And again, I can probably mention these, they don't even exist anymore, like Sycabore Networks, Junifer Networks, Sienna. A lot of you might remember some of those names, blasts from the past. They'd mention it, they just go up. I'm buying them, I'm having a great time, and then boom, yeah, what happened happened. Everything went down. I learned very quickly the hard way, but we all learn that leverage works both ways. And I guess uh what's his name? What's his name one more time? Leopold. Oh, okay. Sorry.

SPEAKER_02 6:59

Yeah, Leopold Ashen. Ashin, Ashen Brenner, he was he's came from Silicon Valley, he's he's getting married this weekend or something. This weekend he's getting married. Oh my goodness. Oh my god, yeah, like wow. Wow, and and in this investor letter, he's like, quote unquote, we let you down this month, right? Again, I don't, you know, I'm not making fun of him, but it's a lesson for all of us. I mean, not just for him, but lesson for all of us. You have to manage the you have to manage risk. And and look, we use leverage in our portfolios, by the way, to be clear, but we're not using leverage to double down on the same bet. We are using leverage to diversify. You and I have talked about how we want to diversify diversifiers. Yes, we are overweight equities and we underweight bonds, but we don't want to throw bonds out of the portfolio. Now we add in things like manage futures, gold, all of it, right? And we're like, okay, but how do you make space in the portfolio? You still want equities. You don't want to kind of have our lunch and eat it too. Have a cake and eat it too, I suppose. Chop the cake preferably. Oh, yeah. But how do we do that with leverage? But we're not using leverage to, like I said, to make the same bet. We're using it to diversify the portfolio. So I don't think leverage is a bad thing, but you have to use it carefully. And that concentration, oh my god, I mean, concentration would keep me up at night if there's one thing that would keep me up at night.

SPEAKER_01 8:16

Well, Sunu, getting married is so stressful. Like I can only imagine virtually blowing up a fund right before you get married. Uh how many years that would age uh anybody? But anyway, it is what it is. And listen, history is littered with bees type of examples. Um, and sure enough, it happened once again. Speaking of history, I'll just share one chart.

SPEAKER_02 8:39

I thought this is you've you've done a version of this before. Okay. Uh, is this from our friends at Be Spoke? They showed the Nasdaq composite, the percentage change in the 10 years after Netscape was released. So this is back in the 90s, versus ChatGPT's release, right? So we can share this corner. This is the B Spoke Nasdaq composite in the 90s versus 2020s. And guess where we are? We are right at that point. They have a gray bar there, where in the late 1998, long-term capital management blew up. We're literally right there. That's what you know, with this thing as well. So yeah, I thought it was fun. So Shutton rhymes, right? Like you say.

SPEAKER_01 9:20

Oh, yeah, they've been sharing our chart for a while. I've I've got my own version of it as well. And it's just incredible at how if you look on the YouTube channel, well, there's still a lot more to come if listen, we don't invest just because two lines match each other, but it's it's quite an interesting story when you look at uh when you look at that. Um, so there's a lot I want to talk about. I guess let's just let's just do the Fed though. You know, let's get that out of the way. Yeah. So the Fed meeting was on Wednesday. You've done a lot of cool research on it. I mean, the reality is the stock market didn't like it. I don't think it's because of what he said, I think it's because of what he didn't say. He didn't say anything up there, and so you'll talk about that in a second. SP was down one and a half percent, the Dow was down over 1100 points, one of its largest point losses ever. Now, listen, on a percentage basis, still big down there, not minimizing it. Um, you know, but then you come in, or no, I'm not gonna, one more thing. Yields just soared. The short end didn't, but the long end did. The third year hit the highest number, I think what over 520, the highest in 19 years. So the bond market's kind of speaking here. But then the next day, stocks really came back because of earnings, which we'll talk about soon. So what did war oh, one more for me, Sona. Then believe me, you're the you're the fellow expert. I wouldn't you you should go you because I I have a lot of you're gonna I'm gonna actually go up the time. I'm gonna go do some laundry and I'm gonna go uh maybe make my bed or something. I'll come back and you might be done right now. It's still going on. You might say, Sona, you're done, you're done. One more for me. I thought this was interesting, we'll just say. So this was his second meeting in charge of the Fed. And we were down one and a half percent SP right across the board. I kind of forgot this because it was six weeks ago and everybody gets busy. The stock market was down over one percent his first meeting, too. So his first two meetings, I don't I maybe need to look into this, but down one percent his first two meetings. I I don't know. So when either he talks or he doesn't talk, market doesn't seem to like it, but then you do snap back. All right, Sony, get on your high horse. What did he say? Did he say what he should have said? And where do you agree or disagree?

SPEAKER_02 11:14

He said a lot. He said a lot, but he didn't say much of anything, right? And for someone, we've done that for 199 episodes. And he's still here, right? And he's gonna be around for a while too. Look, for somebody who's like, I I just want to get out of the way, I would just want to let markets do what they do, which is well and good, right? We all want that. We don't want somebody, you know, outside trying to say, you know, like this should happen or that should happen in the market, you know, uh acts based on that. So except for the fact that the Fed is not really like a ref. The Fed is not on the sidelines, you know, calling plays and things. I think he made a comment like that, bro. What did he say, right? He he he said that, right? Yeah, he he said something to the extent that, you know, like we want to stay on the sidelines, right? The thing is, first of all, the Fed is not the sidelines. And I will come to that when I talk about treasury rates, because if you think about treasuries, right? Treasuries what what are treasuries price? Short-term treasuries price, you know, what they think the future short-term policy rate will be. That is literally what the Fed is going to do. So the Fed is literally always in the ball game. You don't, you're not on the sidelines. Sorry. You're just not. Yeah, but and and long-term rates are essentially also pricing in things like inflation and you know, uncertainty over the term premium and things like that. I won't get into the definition of all that. But it's all at the end of the day, what rates are pricing at is how is the Fed going to react to inflation? How is the Fed going to react to strong employment numbers or weak employment numbers? That's essentially what you know, how treasuries are priced. That is key. That is fundamental to treasury pricing. And Walsh is saying, so it's almost like, oh, I'm going to sit on the sidelines, but no, no, no, the game goes on, right? And what's interesting for somebody who's saying that, you know, I want to, you know, sit back, I don't want to impact markets. What did the markets do when he was talking? There's half an hour between this when the statement came out. They didn't raise rates, they kept rates on changed. And you and I have talked about that's what I expected all along. I mean, there was a lot of uncertainty related to that. 33% odds were hike. I think the whisper numbers number or whisper expectation amongst a lot of people you and I track and follow, people we respect, was like, yeah, maybe there's a hike. Speaking of which, you know, Citadel came out and said, We think they're going to hike because that would give Walsh credibility. Well, they didn't hire.

SPEAKER_01 13:49

And who who bought all those assets we talked about at the beginning when we started? Citadel. I don't know. Get that get that uh Citadel hat out, Sonny.

SPEAKER_02 13:57

Yes, exactly. So, but so there's half an hour between when the statement comes out, the Fed statement comes out, and the press conference. And markets is kind of okay. We, you know, this is fine.

SPEAKER_01 14:07

Oh, we came back, we were down a lot, and then we were green for a second. Yeah, right. There you go. For us, the SP 500 was green, right? One of the biggest reversals in a long time, but we didn't finish there.

SPEAKER_02 14:17

And then he started talking, and the bond market collapsed, the equity market collapsed, the 30-year bond yield was up over 520, the highest in what closer since 2007, the highest number 20 in 19 years. Today it's at 526. The 10-year yield, today it's at 473. The bond market doesn't buy whatever he's selling. I mean, he wants to think he's not selling anything, but you know, the the overall point being he's still having an impact, even though he thinks he's not, he thinks by not saying much, he's not having an impact. No, no, no. There's a lot of impact there, right? And we're getting uncertainty about the next meeting as well. Now markets are like, oh, there's a 62% probability of a rate hike in September. That's as close to coin toss odds. Yeah. Right? So we are heading into the next meeting with almost as much uncertainty as this one. And that means we're going to continue talking about the Fed, whether Fort wants to or not.

SPEAKER_01 15:17

Um, so I'll go I'll jump in, just some comments that I scroll to myself in the statement, right? So remember, he cut a ton of words out of the previous statement, one of the shortest statements ever. All they did this time is they changed the word reaffirmed to is continuing. So they did very little changes to, well, I guess you could say they changed the date on the statement. Other than that, that was about the extent of it. This is five meetings in a row now with no change. So the Fed's been, but um, over that time frame, the 30-year mortgage uh back in February, that was five meetings ago, has gone from 5.9% to 6.7%, even though the Fed hasn't done anything. So again, that's the market's telling us something there. Um, what else do I? I have one other thing. Oh, there were three dissents Logan, uh Hammock, and Kashkari. That was the most dissent since I guess 2016. He calls it a good old-fashioned family fight, is kind of what he's calling it. Uh, any take on three uh three dissents versus I guess it was nine, right? Because he didn't vote or he didn't give an opinion, right? So just three versus nine. No, he he he probably voted, and I think he voted for uh you know keeping rates on he didn't give a dot on the dot plot. Is that what it was? Yeah, okay, exactly. So that was last month in June. Okay, exactly. Okay, okay, okay, go ahead. So three dissents, what do we think of that?

SPEAKER_02 16:45

No, I I I'm actually surprised there were only three. Okay. But you know, I'm but for the most part, again, it's not entirely unexpected.

SPEAKER_01 16:53

I thought wait, wait till Thanksgiving. That's when the good family fight starts. Yeah, we're a couple more meetings. Good family fights are coming.

SPEAKER_02 17:00

Yeah, so now let me rope in you know the data into this, right? So, one thing the Fed has saying, even in the statement, and there was no changes, basically they're saying they sound really optimistic about the economy. And by this, I don't mean to say that I'm not optimistic about the economy, but I just see it a different way. Yep, they're saying the economy is expanding because of strong productivity growth and capital investment, and job gains are keeping up with the force with the workforce, right? Which means the labor market's doing fine in their view. And I kind of agree with that, except we'll talk about GDP growth. Real GDP growth over the last six quarters clocked in around one and a half percent. Wow. Okay. That's not great. Now, in Q2 is partly because of you know net exports and inventories and things like that, right? So, but still, over six quarters, those impacts should be sort of negated. It goes up, it goes down. So you average it over six quarters, quarters. Yeah, we're at 1.5%. The 2010 to 2019 trend is 2.4% in 2023, 2024, real GDP growth is 2.9%, right? That is telling you that we're not, you know, for whatever reason right now, we're not in a strong productivity growth environment. If you have strong productivity growth, you'll have strong real output. You're not seeing that, right? Now, if you assume we have zero labor force growth, maybe productivity growth is about two percent. Okay, that's better than the one and a half percent trend from 2005 to 2022. But the labor force is, you know, not the labor force, the labor market is getting better. There are more hours worked. Where's productivity? It's real output divided by hours worked. If the denominator is going up, which is what's happening right now because the labor market's getting better, the numerator is okay. Yeah, productivity growth is probably around one and a half percent. Again, that's okay, but that's what we saw in the 2010s and the late 2000s, right? Meanwhile, nominal GDP, Ryan. Uh we can show this chart. Oh, you can put this chart up. Nominal GDP growth, Q2 was 7.9%. Wow. 7.9. This is the largest economy in the world at an annualized price. It grew at 7.9%, right? And over the last six quarters, it's 5.8%. That's well above the 2010-2019 trend of 4%. Even in 2023, 2024, real growth is about 3%, inflation's coming down, nominal GDP growth is 5.6%. We are above that now, right? And this gets to, you know, I wrote about this in a blog, Carsonggroup.com slash research earlier this week. If nominal spending is high and consumption is clocking in around six, seven percent over the last quarter as well, and on top of that, you have all this AI investment. Yeah, and inflation's a problem. Inflation's a problem. But I think Walsh, he made several comments, and I think he's looking for reasons not to hike. For one thing, he was like, you know, you and I have talked about AI-related inflation. Oh, yeah. Yeah, we can put this chart up showing the PCE price index, personal consumption expenditures index for computer software and accessories. So I'm gonna open the inflation data here, too. It's up 45% over the last six months. 45%. It's wiped out six years' worth of deflation. Prices for computer software and accessories is back to where it was in early 2019. Right now, Warsaw saying that's not a big deal. Eventually prices will go down, we'll get more supply. For now, I don't buy that. We are not seeing that in the data either. And then he's saying, oh, the increase in interest rates, increase in 10-year yields, 30-year yields, that's because of economic strength, right? Rather than expectations that the oh, the Fed's going to hike because inflation's high. Obviously, I just talked about real GDP growth that's coming in at one of you know, 1.9% of the last six quarters. That's not an environment where you'd expect the nominal 10-year yield to be going up. And then he's saying, oh, maybe higher market rates does the Fed's job for them. Now, this is where it started to kind of go off the rails, I think. Think about it this day. I'll, you know, uh you could tell me what you think. His view is that you know, 10-year yields have gone up, 30-year yields have gone up. That's tightening. It's not his job. On the face of it, that's okay. But then why are 10-year yields going up? Because the Feds, I think, prepared to run things hot with nominal GDP around 6-7%. That means inflation's hot, right? By that same logic, you could say maybe the Fed should have cut rates, they should have been more dovish so that they could get more hawkish in the long run. That that's basically the logic. Let's let's you know, let's run the economy hard so that the market thinks, okay, if you run the economy hard, inflation's going to be hard. And at some point they're going to have to hike. So, because of that, long term yields go up, as you mentioned, mortgage rates go up. That's tightening. So the whole thing doesn't make sense.

SPEAKER_01 22:14

I um I don't know. Let's I hopefully we can put this. Up right now, but the meme of Zach Gallican Zach Gallicanaphas, I think I said I say his name right, with all the numbers, yeah, whatever all the numbers and all the symbols going around. That's kind of what I think of everything you just said. I'm not even sure where to take this. Um, no, you don't have to take it back. I think that's why the market that's yeah, that's why the market reacted the way it did. It is just a lot of confusion. Um, and it's also just him getting used to. I mean, he said it's not like he really did anything he didn't say he was gonna do. He said, Hey, I'm not gonna say a lot, I'm not gonna really give you much guidance. And that's exactly what it was. Now, you know, the fascinating thing I think about it, Sonya, we've talked about this a lot in intermediaries. I looked came out a month ago. We talked about this. New Fed shares tend to be tested by the market. Now, normally we think that means tested by the stock market, maybe a sell-off. And you've we've seen that throughout history a little bit, but it it sure feels to me like the bond market is where the test is going to come from. Because when you say to anybody, the 30-year yields, the highest it's been since 2007, people just hear that year and they're going to have a certain reaction. Or, hey, are you looking to get in the house? What do you think of mortgage rates right now? The highest this year, at least the highest in a year, something like that. Um, you know, those are the things that impact regular people. They don't really care what's going on with the Fed or the this or the that. Really don't. Regular people really don't, but they know that longer-term yields are still going a lot higher. And apparently, every time this guy talks or doesn't say something, they're going higher. And that's where this really comes back to matter. Now, I know you mentioned mortgage rates. Yeah. Right? How's the housing market doing?

SPEAKER_00 23:50

Yeah.

SPEAKER_01 23:50

I mean, you know, and now this is where it comes full circle as we're portfolio managers, and hopefully a lot of what you just said, Sony, kind of is something a lot of people have heard before, but we've said the Fed's probably gonna run it hot. We've said this is an inflationary growth environment. We've said you should be underweight bonds, overweight stocks, own some commodities, own maybe a little bit of cash, own not that we don't own bonds because we do, but own some diversifiers, diversify your diversifiers because the old 60-40 world just is not the place you want to be anymore. You need to have some other stuff in that 40% bucket. And that's what we've had. And literally, well, just finish it with this like 20-year treasury, you know, the long-term TLT ETF, not a recommendation. I mean, that hit like new lows again, not a shock because longer-term yields are going higher. Um, so this has just been, you know, one of the things that people talk a lot about, I get this all the time when I present, all the debt we have, all the debt we have, where's the when we're gonna pay the piper? We're gonna pay the piper. We're paying it in the bond market. I mean it right here. Yeah, we're paying it right now in the bond market. I know the stock market's doing just fine, but I mean, in the bond market, if you own longer-term treasuries, things like that, it has not been a good environment for several, several years. And maybe that's where paying it. But again, maybe, maybe that's just how it is. I mean, that's not our job to say what's right or wrong. Yeah, we are stewards of assets. We have a fiduciary obligation to do the very best thing we can for our advisors and their clients. And that when we manage over billion billions and billions of dollars, um, that's what we've been saying for a while. So to me, yields breaking out. I guess I'm not shocked as we said they're gonna run it hot. I don't know when they're gonna hike, I don't know when they're gonna cut, but I do know what the message of the market is. And it still says, you know what? You probably still want to be underweight bonds here. Um, is one big takeaway. So, do we wrap up? Do we beat this dead horse enough about the Fed? Or what do you want to say now?

SPEAKER_02 25:27

We can connect it too. Uh, I want to talk a little bit about the PC inflation numbers too. We'll wrap everything together. Yep. But speaking of our outlook, we've literally had a section in both the full-year outlook, 2026 outlook, and the mid-year outlook, saying they're going to run it hot. We are in a period of inflationary growth, as you said. And this is where, you know, you've shown the chart of you know, average length of bull markets. We're getting to with the four-year mark, right?

SPEAKER_01 25:53

We're going to start a fifth-year mark in a well, technically it'll be four October 12th. That only counts if you hit a new high after that. But yeah, we're circling in on it, um, which we expect to, but hey, you know, we could be wrong. Well, I have to hit a new high since uh June 2nd, unless that changes by the time people listen to this.

SPEAKER_02 26:07

And that seems long, but bull markets don't die of old age. They have to get killed. And this is this is my worry is the Fed just lets things run hot. And this is what we wrote about in our Outlook too, both Outlooks, full year and mid-year. Eventually, this the Fed was going to start, we're gonna have to play catch up and they kill the bull market instead of easing into you know, trying to combat inflation, right? And and even going back to the AI side, right? Yes, I I think this is the big difference between the 90s and what's happening now. In the 90s, we saw deflation. We had a tech boom, we saw deflation. Part of it is because of globalization, right? Suddenly, you know, we'd signed NAFTA, China came into the WTO, we got cheap goods from abroad, the price of durable goods, TVs, computers, all that is going down. And we've reversed that. If anything, globalization is sort of reversing right now. We don't have that tailwind. On top of that, if you think about AI, it's not your normal technology, right? In a way, it's like if you think about the most optimistic take for AI, I'm curious what you think. It's like it's like adding another worker to the economy or having another assistant or a secretary or an analyst or whatever it is. So adding more labor, and you know, the pessimistic view is that oh, everyone's, you know, the the it's it's called the labor market lump fallacy. Yeah, the falla, you know, uh so the idea is the pie is fixed. That means it can only, you know, if you have more people sharing it, everyone gets a smaller piece. But that's not true in reality. When we have more innovation, right? When you have more workers, GDP growth expands, the economy becomes larger, the amount of work increases. So in a strong economy, you get growth in wages as well. But when you think of that in the context of AI, that means the cost of AI also goes up. That gets to the point about this being an inflationary growth environment. So I I hopefully that makes sense. I mean, that's just something I'm thinking about.

SPEAKER_01 28:13

I mean, it makes sense, but at the same time, it doesn't. But I'm not saying that's bad. Like there's so much to think about, there's so much to wrap your head around. I mean, these are things that we don't have the answers for. Nobody has the answers for. Even Dan Ives, who lives and breathes this stuff. Dan's, trust me, very smart. He didn't have the answer for this stuff. I mean, it is there are some things we're thinking about, but I mean, my take is not any different about AI. I think it's incredible. I don't think it's gonna make people lose jobs. Yes, some people lose jobs. I made the joke two years ago. If you're an umpire, I'd be worried. Yeah, I mean, we're seeing what's happening with baseball. We don't need umpires. I mean, AI is they're calling balls and strikes now. Um, but there's gonna be so many other things that come on the other side of it. But listen, um, which which is one of it is the hyperscalers are spending a lot of money. Is this a good segue now to get into that? Or what do you want to do? Wanna do that? So again, let's do it. One one trillion dollars. There we go. See, so there you go. So this is uh we've got a just an incredible chart you've updated. We'll we'll break it down to company and company, but you want to share that chart right now, Sonu? Just the amazing chart.

SPEAKER_02 29:06

Yeah, uh, Connor, we could put this chart of tech hyperscalers CapEx spending, right? And I update this after earnings season. This was in our 2026 full-year outlet. This was also in our mid-year output. So it should look familiar to long-term, look long time listeners and readers. So when we did a 2026 Outlook, so we were writing the Outlook back in what was it, November, right? Brian? So almost a year ago at this point, which is crazy. But yes, Q4 earnings are just done. You know, in 2025, these companies spend the five big hyperscalers, Microsoft, Google, because we're going to say Google now, not Alphabet, and sorry, Amazon, Meta, and Oracle. They were they spent about $400 billion in CapEx in 2025. And I said, Oh, we're going to bump that up by $100 billion in 2026, $115 billion, and close to $600 billion in 2027. The average is about 1.7% of GDP, which is by the way, a big number.

SPEAKER_00 30:02

Yeah.

SPEAKER_02 30:02

Then we got to first quarter earnings. By April, they said, no, no, no, we're going to spend even more than that, right? $740 billion in 2026 was the estimate. $890 billion in 2027. That's about two and a half percent of GDP. Okay. And this is like I've said this before, and this is a $31 trillion economy. This is it's massive.

SPEAKER_01 30:28

We just say these numbers like ah, $800 billion, 900 billion. But these are some real big numbers.

SPEAKER_02 30:33

Yeah, and and now O'S second core earnings, all the hype hyperscalers, except Oracle, I think, have reported. There are a bunch of them reported this week, including Amazon, Microsoft, uh, you know, Apple too, but Apple's not in this chart. Guess what? The numbers are going up. 2026 is from 740 billion. That estimate of CapEx spending has gone up to 775 billion. For 2027, it's gone from 890 billion to 1 trillion dollars. That's close to 3% of GDP. 3% of GDP in two years, you add it up, right? And that's per year, right? You add it up. These five companies are going to spend cumulatively close to five around over five percent of GDP. Over five percent of GDP of the largest economy in the world on CapEx. And remember, and this is why we I I mean, I both of us, I'm sure, in the cap of the AI wave will continue because all the spending is going to accrue to the revenue and profits of other companies. And you know, for now it's going to be the chip companies. So, yes, chip companies are having a hard time. There's a lot of volatility. I think that's partly because of leverage. And of course, you know, when the tide goes out, you see who's swimming naked, so to speak, and the this week it turns out to be the Leopold guy. But uh another Warren Buffett quote there. Yes. So, but I if this continues, I mean, there's no downcase here for the moment. I hate to sound Uber bullish or anything like that. And this is where you have to be careful of how you construct portfolios. We just, yes, we think the AI wave will continue, but you want to diversify even with inequities, right? You and I have talked about that in the past. But this wave of spending is just incredible.

SPEAKER_01 32:24

No, it is. I mean, it it truly is. Um, so that's the chart. I mean, I I, you know, that's one of the charts of the year. I guess we shared last week the hyperscale, which is all the same discussion. The hyperscale was free cash flow just tanking, but the free cash flow of semiconductor stocks just soaring. Because, again, as you've said many times, one company's spending is another company's revenue and profit margins. And there you go. Um, want to break down like by the company's kind of. I mean, this is the interesting stuff. Maybe I'll start. I'll start. Call me old-fashioned. Call me old-fashioned. I kind of uh, you know, by by nature, I like to be a little bullish, a little optimistic. Um, so we'll talk about Microsoft. Again, no recommendations on these stocks. These are just kind of factual things. That stock was up 16%. So new, um, I guess it'd be yesterday, so that's Thursday, because we're recording on Friday. $450 billion in one day, the greatest one-day gain ever. Now, the second we're doing this. I saw Apple's actually down $450 billion, which might be one of the largest one-day drops of all time. What's the last company now? I mean, every day it seems to the face. Yeah, it's true. It's not Apple anymore, I would assume. I would assume it's not Apple anymore. Um, Microsoft revenue they beat, all this stuff they beat. Um, but the thing that got me was the CapEx. They said they're only going to spend $41 billion, expected $42 billion. So they said, okay, they're not spending, you know, that they didn't beat there, which maybe the market liked because um Azure, is how you pronounce it? Azure. Azure Azure Azure, up 43%. That is their um what's a cloud, web cloud, um, expected to be up 40%, full-year revenue up a hundred billion dollars. And again, the cat and the stock was extremely rewarding. Now, just for fun, when I hear Azure Azure, I can't pronounce anything. Azure, I'm like, that sounds like a demon from like a movie, you know, like like so. I asked AI, because who would not use some famous demons in movies, and these names sound there's Pazuzu from The Exorcist, Valik from uh Conjuring and Conjuring 2, Bagul, Bagul from Sinister, um Gozer, remember him from Ghost from Ghostbusters, and then we have Azure. Now that's not a demon, but that name kind of just sounds to me like a demon from a movie. Anyway, hopefully that was a little fun. Um, so what do I have anything else on Microsoft? That's really what I have. Now, one more for me, and then I'd love you to come in. Then you have Meta on the other side. Their stock was down like nine percent. A huge, a huge drop on Thursday. They missed on revenue. Um, they said they're gonna keep spending. Free cash flow was down to 784 uh million. It was it was um oh gee, do I have the numbers? Uh it was 8.6 billion before. So their free cash flow is just tanking. Um, and they also said, listen, just kind of trust us. We know what we're doing. They're not really showing the results right now. What I'm getting at is Microsoft showing the results right now, Amazon's showing results right now, Apple's having some trouble. We get into them in a second, but and meta's just the one that kind of is spending a lot of money but not showing results. So I think it kind of makes sense in this market. If you're gonna spend a bunch of money and you're gonna drop your free cash flow, well, you better show it on the other side that this stuff is working. And I think that's why Meta was punished, but Microsoft was rewarded. Sony, you want to talk about those two or anything else along those lines? Or if you're not in the game at all, you know, it's maybe you're gonna wonder, and that's Apple. That's Apple. Interesting. Except for today, when it's downright. I was gonna say we the week ago, we're we're bragging about how great Apple is. Now they're literally on one of the worst days ever at the time we're doing this.

SPEAKER_02 35:39

Yeah, it's crazy in a sense that these are the largest companies in the world, that they're going up, down six, seven, eight, nine percent. Yeah, it shouldn't be doing that, and that's hundreds of billions of dollars, by the way. Yeah, and then no, uh, you know, we could look at some individual company capex estimates. I mean, uh Microsoft, you mentioned about 41, 42 billion, that was more the quarter, but overall, last year they spent 83 billion. Big picture in 2026, latest estimate, they're gonna spend 160 billion dollars. That's a 93 increase. Alphabet is seeing 120 increase all the way to 200 billion. Last year they spent 91 billion, Meta about 96 increase. Last year they spent about 70 billion dollars. This year the estimate is about 137 billion. Oracle is a big one, 116 increase. 2025, they spent about 35 billion. This year they expected to spend about 77 billion, like and their stocks down the most out of everybody. I mean, they're down the most out of everybody, and you could argue Google's also sort of struggling in there. I mean, yeah, but I I think it goes back to you mentioned investors want to see that is this working, is it worth it? I mean, one question is is this going to continue? I think we have our answer to that. Yes, it is going to continue. Because as we talked about last podcast, I mean, when you have Larry Page saying, I'm willing to go bankrupt, right? It's rather than fall behind. I think they're all they all had their own moats, I think, before this, and now they're all in this dog-eat dog struggle, you know, within the same space.

SPEAKER_01 37:18

Oh, great, great point. So I I love the psychology behind this stuff. We can talk about numbers all day, and honest to goodness, I'll forget the numbers next week. You guys will get the numbers next week. Here's what I think is fascinating about Meta, which again had one of its largest drops in its 13 or well, 2014, and it's like 12 or 13 year, you know, as a publicly traded company, just on Thursday. So that stock was down 11 days in a row. Or no, it was 10, going it was down 10 days in a row, going into earnings. Okay. So it was extremely oversold going into earnings, and then they dropped another 9%. Um, and the previous longest losing streak, again, with like 12 or 13 years of data, the publicly traded company, was seven days. So they had the longest losing streak ever. So if you were to, you know, like the casino, red, black, red, black, is the reason they do the red, black, and the reason they share it, because the odds are the odds. But if you see red a bunch of times, you think to yourself, oh, has to be black. Well, someone would have done it with with uh Meta being down nine days in a row, or I'm sorry, 10 days in a row. Yeah, then they had just a bloodbath that next day. And I will summarize it like this. So I've done this a long time. We've talked about these concepts. Crashes rarely ever happen near an all-time high, nearly never happen above a 200-day moving average. I'm not saying you can't have one stock here or there that has something crazy happen because it does. But for the most part, this is just a really good reminder that bad things happen in oversold markets. Bad things happen under the 200-day moving average. So to me, to see what happened with Meta just now is not a shock. Well, I mean, I guess it's a shock it was down that much. Listen, but still, not surprising that it had a terrible day when it was oversold, um, which is kind of what you tend to see. So, yeah. I yeah, I think this got my son calling me. He's in South, South Carolina. Let me you you talk for a little bit. Let me text him. I'm not gonna buy some chips now. Uh he's supposed to have a basketball practice somebody. Of course, I'm sure he doesn't know where to go. He never knows what's going on. So let me let me just text him here. Go ahead, sorry.

SPEAKER_02 39:15

Yeah, I think this dynamic continues. Like I said, the spending is going to continue because each one feels like if they don't spend, they're gonna fall behind in this race. Apple just completely staying out of it. Yep. But that also means investors will continuously ask the question you know, is there any ROI in it? Show me the revenue, show me the profits from this stuff. Right? There's only so long you can go by, go and say, you know what, just trust us. Right? And now at the same time, the stock market's not just these few companies on the other side of it, this other side of the same coin, like we've talked about, is that spending accrues to profits for profit margin expansion for the chip companies. So, but it's going to be volatile. I think we just continue to see this volatility, Ryan. I mean, and again, goes to show pay attention to portfolio management here, right? I mean, I think you have to, you know, you kind of have to ride the wave, yeah.

SPEAKER_01 40:14

But goodness, be diversified. Well, I was about to say just be diversified because you just look at the bag seven, or just really some of the big you know, the other thing I thought it was interesting that Meta and Microsoft report on the same day, and Apple and Amazon report on the same day. So you got the two two M's and two A's. Listen, that's totally random. I totally get it, but I just thought that was somewhat interesting. Um, let me just so talk about Amazon for a second. Uh the so the stock, the second we're doing that, is up 14.99%. Literally one of the greatest days in their history, and they've got even longer history than a lot of the other ones. Um, their AWS revenue was up 37%, the $42 billion. Sonu, that was the best cloud growth in 18 quarters. So, yeah, they're spending a lot of money. I mean, what you probably saw it. What was um how much? What uh I'm how much is their CapEx? What's their CapEx? Oh, I've got 220 billion. 220 billion. Looks like they're spending 220 billion, at least with IC. Which they increased, but again, they're being rewarded because they are showing it's working on the other side with some of this stuff. Their overall revenue, 220, I'm sorry, 200 billion dollars of 20% year over year. They're negative free cash flow, though. Hey, they're negative, but again, they're being rewarded because now here's Apple. Apple uh beat across the board. Revenue, earnings, all this stuff. Um, their revenue was uh up to 109 billion, up 15 year over year. I didn't realize this thought is interesting. So out of the 109 billion, just take a wild guess. How much of its iPhone? Like how much of it? 109 billion, how much do you think is iPhone sounded? Just take a guess. I mean, it's a lot, but what do you think it'd be? About 70%? Yeah, it's well 54. So it's 54 billion. So whatever that number, that's right up. That's right down pretty much down the middle. So I thought that's interesting. So half of Apple is selling iPhones. Not a shock. Um, that was up 22%, but they disappointed on revenue. They talked about some currency stuff that you know is way above my head, but they had some issues, and they're being, I mean, they're down what 10% the time we're doing this? They're being pounded. So it's like if you're if you do well, you're rewarded. If you miss by a little bit, you are pounded, is probably the way to uh put it. The stock is down 9.3% the second we're doing this. So yeah.

SPEAKER_02 42:11

By the way, uh Amazon, and we brought this up last week. Remember, we talked about private market valuations, securities valuation gains in securities holdings accruing to net income. So Amazon's total up income was about uh what was about $80 billion. Okay, $27.5 billion was core operating income from the business and things like that. 53 billion was from revaluation of the securities they hold. Oh boy. Investments like anthropic and stuff like that. So it's it's all in there. And but you just have to be aware, goodness. I mean, I think maybe you should end by I'll I'll end this by saying know what you own and why you own it. I mean, I think that's it's all that's always it should always be true, but I think more so now because a lot of this stuff is correlated. You mentioned the Cosby index, the top was June 22nd. You know what else topped around that time? I think it was closer to June 30th. Caterpillar. Yes, yes, pull up a chart of the Cosby index and caterpillar. Same thing. Who would have thought? Like, you know, like nothing to do with each other, but they do. They're they're you know, they're riding the AI wave.

SPEAKER_01 43:27

So I will say again, everybody we're recording this Friday morning. The second doing look at a market watch. Uh, Apple heads for a $460 billion wipeout, stocks seeing worst post-earnings drop in 13 years. Yet the second we're doing this, SP's up 20 basis points. I mean, yeah, so it's like because again, it's the other side of that. So just amazing, amazing volatility of moves from literally some of the largest company, or the no, not literally, they are the largest companies in the world. Um, definitely want to talk about markets and stuff. Sono we done talking AI and the spending. You want to move forward, or what do you want to do here? I I mean, I have some GDP data, but we can talk about it. Well, let's do that. Let's let's let's let's wrap. Let's do GDP then. Because I know it looked like the headline said, ah, not too great, but if you peel back the onion, it was pretty strong. I know everybody Neil Dutta said that. And what what did you see when you peeled back the onion? Exactly.

SPEAKER_02 44:13

So one and a half percent second quarter growth, not great shakes. I mean last. Sixth quarters already talked about those about 1.9%. Again, that's below trend. But in the second quarter, same story, right? You have the volatile components, net exports, inventories are dragging. Part of it is a lot of these AI-related purchases, it's a lot of activity, but a lot of it is being imported. Yeah. That doesn't count to gross quote unquote domestic product, right? And that's why we're not seeing the results of all this activity in the headline real GDP growth. But that doesn't mean there's no activity. And one way to measure that is to take out these volatile companies. If you take our net exports inventories, take our government as well, it's called real private demand. That was 3.9% in the second quarter. Wow. The back of both consumption and business investment. We could put this chart up, uh, Connor. Real private final demand. Now the last six quarters.

SPEAKER_01 45:08

And one more time. Sorry, I was maybe doing too many things at once. What is real private demand? Well, what is that? What is what's really in there? The components that are in there?

SPEAKER_02 45:15

Household consumption, business investment, and resident investment, and residential investment.

SPEAKER_01 45:20

Okay, so just consumption and lots of consumption. I mean, the stuff that really matters. Like that's the stuff that, you know, because again, you can have currency changes, you can have the buttons, all the stuff that is more volatile. This is the stuff that you really want to see strong. And it was strong, right? That's what you're saying. Yeah, and this is after adjusting for inflation.

SPEAKER_02 45:37

So this is real private final demand, right? How much are consumers and businesses spend? Now, business spending, business consumption is labeled investment, right? So that's why we call it business investment and residential investment too. 3.9% in the second quarter, right? Over the last six quarters, you know, you always want to take an average of these things. It's running about two and a half percent. That's pretty good. Now, 2023-2024 is 3.2%. The 2010 to 2019 trend is about 3%. So it's slightly below trend, but that's not bad. The thing is, we're getting this massive, massive boost from AI. So let's put this chart up. I think, Connor, we have AI investment spending, equipment and software, real spending, that means inflation adjusted spending and information processing equipment. It's running at 27% annualized pace over the last six quarters. The 2010 to 2024 trend was six percent. We are like over 4x that the pace of growth. Not the actual number, the pace of growth. Software spending over the last six quarters, 14%. 2010 to 2024 trend was about nine percent, right? And the cut in terms of you know, we've shared this chart in our mid-year outlook, the contribution to GDP from IT equipment spending and software over the last six quarters, it's averaged about 82 basis points per quarter. During the tech boom, it averaged 70 basis points. 2001 to 2024, economy is kind of mech, it averaged about 27 basis points. Now you think about okay, 82 basis points average per quarter. Over the last six quarters, real GDP growth is about 1.9%. Connor, we can show this chart as well. It shows AI investment contribution to real GDP, you can put AI accounted for basically hardware and software spending accounted for about 42% of GDP growth. Okay. That's it.

SPEAKER_01 47:32

So it's a little less because we were talking, it was used to be 45%. So now it's 40%. So it's gone down a little bit.

SPEAKER_02 47:38

But then the fact that it's so large, by the way, this is just five percent of the economy, you know, these two categories. And also, what I'm not including here is data center construction. If I include that, it's probably going to be slightly more than that. But uh set that aside. That's in the construction spend and things like that. But yeah, right now, hardware, IT equipment spending, investment, and software investment, it's about five percent of the economy. Two years ago, it was four percent of the economy. Right now, it's above the peak of the dot-com boom, how much of a proportion of the economy the stuff is. Peak of the dot com boom, it was about four and a half percent of GDP. Right now it's five percent. I think one benchmark here may be the housing bubble. We can put this chart up, uh, Connor, tech investment proportion of GDP. Housing during the housing bubble, peak was about 2006 or so. Residential investment peaked around 6.7 percent of GDP. Right now, IT equipment software is about 5% of GDP at the rate it's going, it could get there within a year or a year and a half or so. That's incredible. And this is not a small economy, anything like that. Like I said, this is the largest economy in the world, it's $31 trillion. But this there's something massive happening. It's happening in markets, it's happening in the economy, macroeconomy as well.

SPEAKER_01 48:57

Yeah, and those are some concepts you've been talking about for a while. Um, but it's interesting when you you if all you saw was one and a half percent GDP growth, second quarter, that's what the headline that's number was, right? Yeah, so it's like ah, it doesn't sound that great, but then you look at feel back a little bit, it's maybe a little bit stronger. So that's uh that's one thing. So, you know, I I want to talk markets here. I mean, we'll probably go another 10 minutes or so. I mean, so it's looking like excluding a huge rally Friday afternoon. Um, we're probably gonna be down in July. Yes, July is the best month the last 20 years. July's been higher, like 13 or the last 14 years. It's had this incredible win streak. Less, I guess it's yeah, sorry, gonna be down a little bit. But I think it's important to remember we were up 16%. So the month of April and May. We lost 1% in June, and it's looking like we're gonna lose maybe less than 1% in July. So markets really have just kind of gone sideways for two months. Now listen, we manage money. A lot of people listen to this podcast by longer-term investors. We want the market to be up every day, every week, every month. That's just not how it works, right? Um, and a lot of people, at least on social media, are like kind of like, oh, I thought July was so great. It's like, well, you know, yeah, yeah, what wasn't, you know, wasn't the greatest month ever, but it wasn't terrible. I mean, listen, if you were all in momentum, you're all in AI, listen, we know we get it, we get it. But then, like, we can share this chart pod pony, and I know JC might have shared it when we had him on, but just the uh bank stock, it's the SP bank index, uh, KBE. So this is from our buddy JC Prettz. Um, which by the way, that by the time people hear this, I think we'll probably hit 6,000 views of that YouTube video with JC, which would have been two weeks ago now, episode 197. The previous most views we've ever had on YouTube was 4,000. So, I mean, we just obliterated the previous record. So, thank you to so many people who have watched that and shared that. And thanks again to JC. But we're shared on YouTube. Just bank stocks are making new highs. It's hard for me, Sonu, to think that bank stocks making new highs after, I mean, look, check out the chart. Literally, they've you could argue they've gone nowhere since 2007. I mean, that's a base, okay? That is a long base. And as JC pointed out, I'm going to remind everybody one more time. Banks were the big warning, uh, the Canary Nicole mine, as they say, in 2007. Banks peaked in like January, February of that year and really started to roll over. The market didn't peak until October 9th, 2007. And then everything fell apart the next two and a half years. But banks were the warning. I would argue again that banks are the warning again this time, Sonu. But this warning is actually a good one. It's warning this is still a bull market, that things are still solid. Yes, there's worries and concerns and AI and chip stocks and memory stocks in South Korea going crazy. But when banks are breaking out, that's saying to me this bull market's alive and well. Now, one more thing, Sona, I want you to jump in. It's a pod pony, we can put this one up. A worry for the bulls. Simply put, when June and July fall, it's pretty rare. And I'll tell you, Sony, some of the worst years ever. We've saw we've seen a negative June and July, 1974, 2001, 2002, 2008, 1990. Those all stand out as pretty bad years. Now, not all the years are terrible. And listen, again, this is I'm not saying we're bearish at all. Obviously, we're still bullish, but this has my attention. But I still think, yeah, after a 16% rally in two months, we gave a little bit back in these months. Um, not overly concerned, but just file that away. So no, one more for me than I will bring in. This pod pony, we can now share. Here come the worst two months. It is what it is. From a seasonal point of view, August and September are two of the weakest months of the year, um, especially in a midterm year. So listen, maybe get a little more volatility, maybe we do. Although I would argue, and a lot of people have said this already, and I Tom Lee said this, maybe we kind of stole forward some of the volatility, stole forward some of the uh the seasonal weakness you see in a midterm year with what we just saw in July, with a lot of these stocks down a lot. And I think that kind of makes sense. But at the same time, just be aware these next two months can be trouble. August, I don't know why, everybody, but August is the one month that random stuff happens that nobody saw coming. Two months ago, right now, on the last day of July, I promise you, nobody was talking about the yen carrier trade unwind. A couple days later, that first Sunday in August, though, we all became currency experts on the uh the on the uh yin carry trade unwind because Japan was down 15%. It's worst Ace 87, U.S. market's down three or four percent, global markets crashing, everything is going nuts. Then a couple days later, the market bottomed and continue the rally. I mean, but August has these weird out-of-the-blue events, it's a midterm year. Maybe we get another one. Um, just kind of be aware of that. Sony, what do you want to add to that? I've got a couple more charts I want to share, but want to bring in here.

SPEAKER_02 53:19

Yeah, I was gonna take a week of uh vacation after Boston. Hanging around Boston, basically. A little bit of cape card thrown there. Uh no, you mentioned financials.

SPEAKER_01 53:29

I'll won up, you know, I'm taking my five-year uh sabbatical next August. I'm doing it. I'm doing it. I've been here for five years. I'm gonna end just get it ready. Everybody, I can't, you know, I'm not saying sell everything, but just get ready. Next August is gonna be super volatile because I promise you, if I take my five-year, I get a couple weeks off for my five-year sabbatical, you know it's gonna go crazy. Anyway, go ahead and yeah, market down now, 12 months from now. Get ready. Yeah.

SPEAKER_02 53:51

You mentioned financials. What is the big basket? When you think of baskets like SP 500, NASDAQ, things like that, which has a lot of financials, developed markets, the MSCA EFA index. The SP 500, as you mentioned, is down one percent after.

SPEAKER_01 54:05

Never Netherlands is hit all-time highs the second we're doing this. Maybe they got some banks over there. I don't know whatever they have in Netherlands, but it's working. Yeah. The MSCA EFA index is up one and a half percent this month, July.

SPEAKER_02 54:16

Interesting, right? Interesting. Okay, yeah. Emerging markets are down six percent, by the way. So it, you know, all interest markets are not the same thing. And this also gets to the fact that there's a little bit of a boost from a weaker dollar, and this gets back to you know what happened after Warsh's press conference. Yields went up. Usually, when yields go up, that's good for the dollar. Because they're like, wait a minute, if I put money in the United States, I can get a higher yield on these bonds. That puts upward pressure on the currency. That didn't happen. The dollar spent fell over one, it was like down one 1.4, 1.6 percent, you know, from Tuesday, the day before the Fed meeting.

SPEAKER_01 54:57

So it felt that much just on Wednesday? It fell that much.

SPEAKER_02 55:00

Wednesday and Thursday.

SPEAKER_01 55:01

Oh, Wednesday and those. A little filled follow-through because obviously we didn't see any follow-through, at least with the market, sell off, bounce them. So we saw follow-through down. We can share this chart, uh, Connor.

SPEAKER_02 55:10

It's the dollar index versus the 10-year yield. But again, literally, somebody just emailed me before this thing, you know, there were a lot of people talking about currency diversification and things like that. You know what's the easiest way to diversify, you know, across currencies? Buy international stocks. Yes, it is. Right now, with developed market stocks, especially, and we are a little overweight on that side, developed markets, mostly because, yes, we want to ride the wave. EM is basically part of the AI wave. We don't want to double down on that, but you know, we have a lot of tech stuff, AI exposure in the United States. We have some EM too. But yeah, one way of diversifying across equities is to, you know, things like financials. You get a lot of that in developed markets, and you also get some currency diversification.

SPEAKER_01 55:59

Yeah, that's interesting about the dollar. I guess I missed that um because I saw yields up, and I guess I assume the dollar went on being sorry. Exactly. I listen, I only have one eye working. So if I miss something, you know why. Uh, you know, the update there, I saw my doctor, so I mentioned my surgery last week. Um, I saw my doctor in Indianapolis, the one-week follow up. They said everything looks good, no pun intended. The shape of my eye is good. I still can't put a contact or anything on it, so I'm kind of running around blind in my left eye, but it's okay. I see 2020 on my right. Your brain, it adapts, it adapts. Um, but on I go back the 21st to Indianapolis. It's a Friday, a couple of Friday. It's one month since my surgery, if all goes well, then I'm allowed to go to my special doctor here in Cincinnati and get a new scleral lens to heart content up in my eye. Now that I have a hopefully a circular eye, knock on wood, I'll be able to see a lot better with contact. So we're getting closer, son. We're inching closer. But back to the dollar. That's interesting because we've said before, and I'm a big proponent of this, or both big believer, maybe the word I should use. If the dollar's soaring, that means something's wrong. That's purely risk off. We mentioned this two years ago, right now. You pointed out. I thought one of the listen, I think a lot of stuff of what you say is smart. But I to this day, I think what you said during the yin carry trade unwind when the dollar went down those couple days. You should listen, if stuff's a thing. I was on sabbatical at the time, so maybe I should hey, you know, well, you you work well from a beach or wherever. Where were you? Where you were in the where were you? I was in Europe. I was in London. I think, yeah. Yeah, anyway, but you said the dollar went down. If it was a true catastrophe, dollar go up. I agreed with you. I agreed with you because I mean we all saw, well, remember this. I use this a lot when I present, but March of 2020, bonds were killed, gold was killed, and stocks were killed. Go look it up. Everything was crushed when COVID was really going out, and no one knew what was happening. Except the dollar. The US dollar soared, the cleanest shirt and dirty laundry. Again, bad stuff was happening, but the dollar soared. So I'm I keep it real simple. The dollar soars, I say, ooh, that's probably something bad. So the fact that dollar sold off, maybe that's one little positive under the surface that the market's not quite as worried, or at least you know, the overall equity markets maybe aren't going to be as bad as people tell us.

SPEAKER_02 57:59

Um, I think a stronger dollar, and that's one way, you know, stronger, higher yields impact earnings and things like that, negatively impact earnings, is you know, there's different ways valuation too. But what another, you know, uh angle dimension to that is through the dollar. A stronger dollar is not great for earnings from abroad for a lot of US multinationals, and a weaker deal dollar helps, right? So, but right now I think the weaker dollar, it was interesting because all this happened within the context of Walsh's comments. V things, remember, I said they think the economy is doing great, and you know, from a real GDP perspective, it's doing okay. I don't think it's doing great. Great would be 3% real GDP growth. We're nowhere close to that. We're closer to 2% rather than we're at 2%, it's slightly below 2% rather than 3%, right? So it's doing fine, but nominal GDP growth is hot, and that's where profits and revenues come from, right? I think that dollar is basically yes, yields are higher. Normally you'd see upward pressure on the dollar, as I said, because yields go up when you get better growth in the United States relative to everywhere else. Right now, US real growth is tepid, but nominal growth is hot. So investors are worried about inflation. They're like, wait a minute, if you put money into US bonds, if these guys are willing to let it run hot, all our returns are going to be wiped away by inflation. So we're not gonna buy those bonds. You need to pay us more, which means the yields have to keep going up. And that's the cycle we are in right now for the moment.

SPEAKER_01 59:36

Interesting. Um, well, it's amazing because when we start this, we say, ah, you know, we don't have a lot to talk about. We just recorded a couple days ago. We'll go 30 or 40 minutes. Yeah, we're at an hour. We we we we can fill up a lot of time. Um you excited about Boston? I guess I'll see you in Boston next week, right? That should be a blast. Yeah, it should be it's always fun to go ahead. You go ahead first and I'll go.

SPEAKER_02 59:55

No, no, I was gonna say, do you want to finish off? Because this episode comes out on August 5th. Yep. Right? August 5th morning. Wednesday, Wednesday. And August 5th afternoon is when we celebrate, right?

SPEAKER_01 1:00:10

With Art Hogan. Right. Right. Yeah, we started, we mentioned at the beginning, so that's why I wanted to mention it early because someone's listening to this podcast early on Wednesday, they know. But yeah, we'll be with Art Hogan. I and there's we can just say this amongst friends. Uh, I believe there's gonna be milkshakes. There will be in a cake that has a big 200 on it, are the rumors or friends of wisdom tree, are really taking care of us. So it should be a lot of fun at three o'clock. An alpha chocolate cake, too. They came with vanilla, and I was like, uh, it can be uh let's fix that. Let's fix that. Oh, I'm fit. Yeah, Central Wharf Co. should be should be uh kids may be there, by the way. So just cake and motion. So yeah, it's right. Um but you know, we have a lot of fun doing these podcasts, you know. I mean, I I would talk to Sunu anyway, and this is honestly kind of how we just talk, and it turns out we're being recorded the whole time, so we sometimes have to be careful how we what we say because you know, I shouldn't have said that. Um, but it's an honor to get to do these facts versus feelings, and we're just we have so much fun, and just thanks to all the different people who've helped us over the years. It's funny, like, shout out to Chelsea. She used to be a producer on this a long time ago. We mentioned something. She said, Oh, you got congrats. I said, What you probably were our producer were for like 50 of them, probably. So we've had a lot of help, a lot of help along the way. And now Podpony's helping us now as an amazing producer to continue to do this, just take it to the next level, make it better. But I do want to end with one more chart, Podpony, if I may. Getting close to the best part of the year, or but the best part of the cycle, sorry. Uh, what we're sharing there are the 16 quarters of a four-year presidential cycle. Just know that yes, this quarter ran is not all that great. Now, honestly, the second quarter of a midterm year is historically the worst one, but we gained 15%. So that's why, you know, it's it's not gospel, is uh is kind of how we put that. But still just be aware that the fourth quarter of a midterm year and the first two quarters of a pre-election year, which again are the quarters that are coming up real soon, are the three strongest quarters by a pretty wide margin historically on a four-year presidential cycle. Again, no, we don't blindly invest in that. But it's just really good to know um that I think it's important. And I, and again, we said it for a while now. We think there probably will be a couple good quarters coming up because we're still pretty bullish here. So, how do we want to wrap it up um this week? Uh, you know what?

SPEAKER_02 1:02:15

Thank you all for your support. This is episode 199. I'm pumped to do episode 200. It's been fun doing this with you, buddy.

SPEAKER_01 1:02:24

Oh no, it's a blast. Uh it it's uh it is fun. It is fun. And hopefully, when people listen to this on Wednesday, the market doesn't go too crazy in the three in a couple days, in a couple trading days. We didn't miss something big, but um, hopefully things go well. And if it doesn't, we're gonna be asking Art Hogan all about it at the very next episode 200 with Art Hogan. All right, everybody, have a great week. Enjoy summer. I know a lot of kids are getting ready to go back to school, or maybe going back to school. Different things are going on. Uh, life's gonna get busy in a hurry here for a lot of us, but um, that's how it goes. Yeah, it's been a good summer, and um, I mean, so you've you traveled every week, you've turned it into me. Like every week you're going somewhere. That was self-inflicted though, because of that soccer stuff.

SPEAKER_02 1:03:03

But yes, it was New York, Omaha, Boston. Well, Boston will be, you know, next week, but Kansas City, Dallas, yeah, it's been fantastic.

SPEAKER_01 1:03:13

Yeah, well, that's that's good. All right, listen, episode 189 is in the books. Be sure to join us next week for episode 200. Everybody, we really truly appreciate you uh listening to this every single week. Give us your likes, give us your follows, good reviews, bad reviews. We can't leave the witness, but the algorithms really like all that stuff. So if you want to help us, that would go a really long way. We truly appreciate that. See everybody next week, episode 200, Art Hogan, coming soon. Take care. 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 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. Guess on facts versus feelings are not affiliated with CWM or LLC.