Celebrating #200 With Art Hogan (FvF Ep. 200)

Celebrating 200 episodes, Ryan Detrick, Chief Market Strategist at Carson Group, and Sonu Varghese, Chief Macro Strategist at Carson Group, take Facts vs Feelings on the road to Boston for a live show, joined by special guest Art Hogan, Chief Market Strategist at B. Riley Wealth.

Art opens by explaining his opinion on why the market keeps climbing despite bubble fears and Fed uncertainty: Second-quarter earnings growth came in far above expectations, broadening out across all 11 S&P 500 sectors rather than staying concentrated in mega-cap tech. That broadening, he argues, is why the equal-weight S&P 500 and the Russell 2000 are outpacing the market-cap-weighted index this year.

The conversation moves to the Fed, where new Chair Kevin Warsh's terser, less transparent communication style rattled markets around his last two meetings. Sonu and Art debate whether AI should be viewed as an inflationary force, adding "workers" to the economy rather than acting as the historically disinflationary technology wave investors expect. They also dig into hyperscaler CapEx, rising CDS spreads on tech debt, and why Art thinks the field of dominant AI players will eventually narrow.

Art also makes the case against comparing today's AI buildout to the dot-com bubble, citing real business models versus the 2,600 companies that went public between 1995 and 2000. Carson's Barry Gilbert, VP, Asset Allocation Strategist, joins to discuss how to actually invest in AI through a barbell approach, and the episode wraps with reflections on 200 episodes, gratitude for the team behind the podcast, and a toast with Art.

Key Takeaways

• Q2 2026 S&P 500 earnings growth beat expectations dramatically, with estimates that started around 13% rising above 23%, driving multiple compression from 23x to 19x forward earnings even as prices rose.
• For the first time in five quarters, all 11 S&P 500 sectors are showing significant earnings growth, with eight of 11 posting profit margin growth, explaining why the equal-weight index and Russell 2000 are outperforming the cap-weighted S&P 500.
• Fed Chair Kevin Warsh's less transparent communication style, including terse statements and non-committal press conferences, has unsettled markets around his last two meetings despite no actual policy surprises.
• NVIDIA is trading at a valuation multiple lower than the broader market despite 65-70% margins, reflecting investor uncertainty about whether AI mega-cap spending is near a cyclical peak.
• Small caps have returned roughly 21-22% year-to-date, with leadership shifting from unprofitable, speculative names early in the year to more profitable small caps as the market broadens out.
• Credit default swap spreads on hyperscaler debt are rising as investors reassess these companies from "capital-light, free-cash-flow-positive" to "capital-heavy, free-cash-flow-negative," with the market pricing in that only a handful of AI players will ultimately survive.

Jump to:

0:00 — Live From Boston for 200

2:43 — Art Hogan Joins the Bar Talk

3:06 — Earnings Growth Explains the Rally

6:10 — Market Breadth and Nvidia Valuations

9:02 — Pencils Down Origins and Rituals

10:08 — Fed Communication and Inflation Anxiety

13:40 — AI Spending Versus Productivity Payoff

16:57 — Small Caps Benefit from Broadening

19:50 — Hyperscalers Debt and Credit Skepticism

23:41 — Timeless Advisor Advice Plus Bubble Myths

27:31 — Why Profit Margins Keep Rising

30:20 — How to Invest in AI Diversified

35:52 — Contrarian Ideas International and Software

39:39 — Gratitude Growth and a Carson Invite

43:15 — Final Toast with Art Hogan

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_03 0:02

Welcome to the Facts versus Feelings Podcast. I'm your host, Ryan Dietrich, and I'm joined by my co-host, Sony Vargeese. Cutting through the noise each week with Ryan Dietrich, Chief Market Strategist, and Sonovarge, Chief Macro Strategist, taking out the boring and helping investors focus on what really matters. And we are live, episode 200 of Carson's Facts versus Feelings. Make some noise, Boston. We are here. We're in town for our third quarter summit with our incredible Carson partners. Joined by Son of Argues as always. We have special guests. He's in the title, so you know who it is, Mr. Art Hogan. We're going to hand this mic to him in a second. It's been an honor to do this for 200 weeks in a row, in theory, Sonu. We might have taken a week or two off, but not really. It's a true honor to do this. Let's pass the mic to Sonu. Sono, what's something that you've learned 200 weeks ago about me that you didn't know?

SPEAKER_01 1:08

That's a surprise question. Yeah. Well, I'm trying to think. What do I know about you? That you actually like salad much more than I do. You know, I know it's a bit of a lame one, but yeah, like because I don't eat salad. And the one time you ordered for me, I was like, hey, dude, why are you ordering this stuff at leaves for me? But you actually like it. And uh I do. You know, yeah. So that's not what I would have taken you for, but no, it's been a blast hanging out with you all for what, four years now since we've been working together. You've been doing the podcast since September of 2022, I think. You've probably taken three weeks off in between. But here we are over the last year. I don't think we've taken any weeks off. So yeah, it's been fun, Matt. Thank you.

SPEAKER_03 1:55

So again, this is being picked up right now. Let me get the mic here. Okay. We we have one mic, we're passing it around, but we are so excited to be joined by a legend in our industry, uh friend, mentor, just all around great guy. Now he owes us after saying all these things. Art Hogan. Tell me your title. I'll read it in the mic. What's your title? Because we like titles around here. Chief Market Strategist at B Riley Wealth. Chief Market Strategist at B. Riley Wealth. Mr. Art Hogan. Make some noise, Boston.

SPEAKER_05 2:19

Let's hear it.

SPEAKER_03 2:21

And and and we are at the Central Wharf Co. They uh great setup. Our friends at Wisdom Tree are sponsoring this. Give a hand to Wisdom Tree, by the way, everybody. Yeah, Derek of Wisdom Tree, thank you so much. Then our producer Podpony flew in from um um where it's been a long couple days. Omaha. Well, all I know is they're here. Podpony's here from Omaha helping us uh do this. But Armin, hand you the mic, talk for a little bit about what you do all day, how you help people, and then whatever first question is, you just kind of start talking, Art.

SPEAKER_04 2:48

Thank you very much, and thank you guys so much for having me. I just got to tell you a funny backstory. When these guys invited me to do a podcast with them the first time, we did it uh remotely, and that was a lot of fun. But then they said, Hey, we're doing one in Boston. Would you like to come in and do it? I was like, Yeah, that sounds like fun. I was like, Oh, it's gonna be at a bar. I was like, that sounds even more fun. So I can't wait. I I will tell you that our rules, the three of us, are very similar. We we serve as financial advisors and we try to make sense out of the market and try to separate the noise from the news. And and I would say the three biggest questions that we've got, and I'm sure you guys have too, is are we in a bubble? Yep. Um the second would be what is going on with inflation and is it ever going to stop? And the third would be, why does the market keep going up despite all of that? And I think that the the one thing that I lean on, and I know you guys do too, and your reports every Friday about the earnings are amazing, right? So just to give you a backdrop of what that means, what really matters to the stock market isn't where you know the Russia's at war with Ukraine, we're with the war with Iran, the Japanese yen needed intervention. What really matters is how's corporate market doing? And for the second quarter, it has been nothing short of spectacular and not just better, but better by a lot. And usually we come into a quarter where expectations have been drawn down. It's like, oh, you know what? We maybe we'll make 13% because that's what we thought at the beginning of the quarter, at the beginning of the year, for the second quarter. That estimate went up to 23% earnings growth and is exceeding that. So to me, I think trying to keep people focused on what really matters in equity valuations, it's it's not the macro. It's not the, hey, this is just like 1987 or 1929 or what the PERMA bears want to say. It's about what are valuations looking like? And just to give you a hint on that, the SP 500 was trading at a multiple of 23 times, a P multiple of 23 times until they started reporting earnings, and now it's trading at a 19 multiple, which just means it's not multiple expansion, it's earnings growth.

SPEAKER_01 4:53

I want to I was going to ask the bubble question, and we'll come back to that, but this may be tied to that because you mentioned valuations, right? Profit growth has been going gangbusters 47% year over year, you know, in Q2 so far. And you think usually valuation would go up when profits are going up. They're correlated, right? People get more optimistic when companies are making profits. You get more optimistic about future growth. They say, you know what, I'm willing to pay even more for a dollar's worth of future earnings. Valuation goes up. This is kind of bizarre to me over the last three years. Profits have been going crazy, positive, but valuations have kind of gone nowhere. We were, I think, probably 21, 22x for on average, somewhere between 21 and 23x for the SP 500 over the last what four years, since 2022, since the bottom, right? We came back, we normalized. Why do you think but because I think a valuation is sort of like sentiment because it is kind of like how much are you willing to pay for future earnings today? And if you're positive, you want to pay more, you're okay paying more. If you're pessimistic, you don't, right? But it seems like everyone's down in the dumps.

SPEAKER_04 6:07

That's such a great point. And I the the one thing that I would say to address that is that for the first time, and you know this, for the first time in five quarters, all 11 of the SP 500 sectors are showing significant earnings growth, and eight of them are showing profit margin growth. Yes, right. So it's a broader market that is driving that earnings picture, and we're just not used to seeing that in such a broad way. So set a different way. The equal weight, SP 500 versus the market cap weight, is outperforming not just the market cap weight, but it's also outperforming the Russell 2000, which is having a blockbuster year. So what does that mean? It means that earnings growth is spread out in places we're not used to seeing it. Places like the financials that had a great uh uh reporting season, industrials, industrials, healthcare is starting to pick up. And I think that what investors have to get comfortable with is it's not just about technology and communication services, or that's where the Mag 7 live. It's about a lot of things going well. And that's the surprise news, I think, from this artificial intelligence revolution, right? So the the most amazing thing to me, just to to make a sharper point on on your on your question, is NVIDIA that's re-invented itself multiple times. Remember, it started out as a uh uh it was gonna be it was gonna help people that wanted to mine cryptocurrencies, then it was a gaming play, and then all of a sudden it has the best GPUs on the planet and continues to to be the best seller of all that is trading at a multiple that's lower than the market multiple right now. Incredible 65, 70% earnings growth, 65 to 70 percent margins in a trading or about 80 or 90. Yeah, exactly. So it's it's it's it's a function of saying, are we at a cyclical peak for the the biggest of the names? And if we are, that may well be okay. The Philadelphia semiconductor index went through a 30% decline over the course of the last two months, and it's still up 70% on a year-to-day basis. And if you look at the multiples of some of the players there, the real CPU players like Micron, they're still trading at almost single-digit multiples. So I think that the whole multiple uh expansion story that we were used to over the course of the last three years needs to get used to the fact that we're broadening out and there's other sectors that are participating.

SPEAKER_03 8:23

Only at a Facts versus Feelings live podcast do you get this? What do we drink on? What's this IPA? What's it called? It's called Fiddlehead. Fiddlehead. It's actually anybody else have the fiddlehead out there, Boston? Yeah. How about the milkshakes? And we have milkshakes. Yeah. Who had a milkshake? Who raised your hand? So, Jeremy, how was that milkshake? Jeremy, come here. Get up here. You know we're gonna get you up here. Jeremy Wilner is one of our advisors. He's probably listened to literally all 200 of them.

SPEAKER_00 8:45

Thanks for putting me out there.

SPEAKER_03 8:47

He loves when I do this. He loves it, yeah.

SPEAKER_00 8:49

I love doing this. I've uh wondering how every week on Friday I see your little post about pencils down. How did that start?

SPEAKER_04 9:00

That is such a great question. So that actually started during the pandemic when we all had to work from home. That is an excellent question. Thank you. So uh by interns, he means the two dogs that I live with that actually share my office space. And I I I called them interns, and every Friday I got to a point in working from home that I said, we need to have something that's happier than what's going on in our lives right now. So I would take my setup, put a beer and my two dogs next to my computer monitors, and say, All right, that's it, 410, pencil sound beer's up. And then I would find a different beer every week. Fiddlehead's one of my favorites. It's from my hometown in Vermont. And uh the interns were interns for two years, and then my wife and daughter said, It's time to review and promote. So now they're analyst and they're still working really hard. They're really sad that they weren't able to make it. But that's how it started. I wanted to find something to bring us together and feel good on a Friday afternoon, and that's that's exactly how that all started.

SPEAKER_03 9:56

So let's talk about the F word, the Fed. I know you've got a lot of thoughts. We can weave in inflation if you want, the Fed inflation a week ago today. By the way, what day today is August 5th, right? So we're recording this August 5th. We're aware most people, most people probably don't hear this for about a week. So we'll talk big picture, broad stuff. But how do we know the world right now? We're hitting all-time highs. But a week ago, Art, the market sold off pretty darn hard. And then the Fed said something, or maybe didn't say something, to be honest. What's your take on the Fed and why did the market sell off? Literally the first two times he opened his mouth. He's had two meetings, Warshazz, and the market got killed both times. Now it came back after people slept a little bit, maybe had a fiddlehead or something and felt a little better about the world. Um, what's your take on inflation and the Fed, Art?

SPEAKER_04 10:35

That's a great question. And I I will tell you this the new chair of the Fed is feeling his way through a lot of things that he would like to see changed. And one of those is less transparency and less communication. Now, I would argue that some of that is probably pretty valuable. We can go through any period of time in between meetings where there's a Fed speaker, and unless you have a program, you don't know if what they're saying is different than the last time they talked. And what do I mean by that? It's like, oh, this Fed president said we need to raise rates. It's like, oh, he said that the last three meetings. So that makes it difficult for the market to actually react in an intuitive fashion. I think that Kevin Wars coming in and saying that he definitely wants to get back to the 2% uh inflation target, but didn't do anything at this meeting. And he had three Fed presidents that said we probably should. Let's get the ball rolling if we're concerned about that. Um, disrupted the market. And in the in the sort of terse, shorter Fed statement and the glib kind of answers that he gave at the press conference, it felt as though he was talking about fighting inflation but not doing anything about it. And I think that's where the the market got disturbed. One of the things that I found to be the most shocking in its complexity of talking out of both sides of your mouth was the he talked about how at the point in time of his first meeting, 42 days before his last meeting, well, the the treasury market's okay with what we're doing right now with inflation. And then yields were going down at that time. And then yields were going higher. It's like, well, the treasury market's doing our job for us. And that's not a place we've been in for quite some time. I just talking about transparency of the Fed, there was no transparency when I started in the business. Paul Volker would hold a meeting, raise rates, and we wouldn't find out about it until the next day when Manny Haney and Chase Bank raised their prime rate. So there was no transcript, there was no press conference. So gradually, through Greenspan and Bernanke and Yellen and Jay Powell, we increased transparency. And I think that transparency helps market participants to at least have a view into what would make you move rates. And I think that's where the market got the most disturbed. It's like this is a new paradigm for us.

SPEAKER_01 12:50

I want to broaden that the especially the inflation discussion. I mean, set aside, you know, Walsh sounded pretty dumb. He sounded like he was looking for several reasons to be dovish, including let's just wait for the committees. Let's see what they say. And maybe somebody asked him what sort of was, you know, several things are worrying me. And I've said enough. But one thing was, oh, we the PCE inflation target that that they like to look at, that may not be the only one come January. May or may not be, who knows, right? But for him to put that out there seemed a little, you know, to obfuscate the issue even more. But to that end, I'm I want to think about inflation a little bit more. And this is something I've been sort of noodling. And I was talking to our colleague Barry about this the other day. And usually we think about technology waves, innovation, as disinflationary. And I'm looking at obviously that's not happening right now. You look at the the price personal consumption expenditures index for computer software, that's up 45% here today, chip price is going up, demand is far outrunning supply and all of that. At some point, maybe that changes and we get you know disinflation, but for now that's not the case. But I'm thinking about are we thinking about AI wrong in the sense that it's AI is not a tool. If you think about AI as another person helping us out, like I use cloud right now, it's almost like having a junior analyst working for for you, right? Now, if you think about if I introduce hundred thousand new software engineers into the economy with more innovation, that kind of makes the pie grow larger, more you know, push upward pressure on wage growth, right? All of that, because you know, now you have a larger pie, more people are sharing in all of that. And I wonder if interest rates should actually be higher because of that. Because if you are getting a more innovative economy, more workers, all of that, shouldn't interest rates be going up or stay elevated, right? I'm just thinking about this. I don't know the answers to that. Curious what you think.

SPEAKER_04 14:56

Yeah, I think that's that's one of the core questions about this artificial intelligence revolution. Will the CapEx spend that's driving up input cost on the front end of this be overtaken at some point in time by the productivity increases that we have? And if you look back at every industrial revolution, the upfront spend took years to get back in that productivity, whether it was railroads, uh telephones, yeah, electricity, all of it. So it takes a while, and we're not at that inflection point yet. That's the problem. So, and the real problem with that is what's being driven up right now is CPUs and GPUs, and CPUs, more importantly, do everything else that we do. So you'll remember during the pandemic again, when supply chains were shut down, you couldn't buy a car because they couldn't get the chips to put in it. And the only way you can get a car is if you didn't want electric windows, or you know, they have just to so when you think about what goes into everything, you know the price of your new Apple device is going to be more expensive when they roll out the 18 as an offshoot of all the money that's being spent on compute. But I think when we flip the switch and say to ourselves, enough people are now using this in their business at the enterprise level and certainly at the consumer level to a certain extent, there will be a point in time where that spend gets rationalized. We're just nowhere close to that right now. So therefore, we should expect an embedded inflationary upward pressure because of input cost and memory being the largest of those, that's going to be with us for a longer period of time. And if that's true, I don't know that monetary policy can do much about that. Like if they if they raised by 50 basis points over the course of this year, is that going to slow down the demand for memory? Probably not. We just heard from all the hyperscalers. They told us what they're spending. So would that monetary policy be effective in that in that case? Because it only will slow down demand for everything else, the other goods and services that are too expensive at a higher interest rate.

SPEAKER_03 16:48

Well, good stuff there. You know, one thing, Art, last November, you and I um got to do a panel together in beautiful Bahamas. It was great. Um, one of the things you said, and I think I made a joke about it, you said you still like small caps. Oh, come on, they never work. Um, congrats to you because you've been saying that in this year, ballpark year to date, what's SP of 13? What's what are small caps? 22?

SPEAKER_01 17:07

21, 22%.

SPEAKER_03 17:09

So obviously the small caps done great. I mean, they've really helped the portfolio and they've done really well. Do you still like small caps in a portfolio? When you think about, again, from an advisor point of view, 6040 portfolio, how much would you say to allocate to small caps relative to large, maybe even mid caps there? But again, how much do you still like small caps?

SPEAKER_04 17:27

Yes, small caps are one of the toughest things to defend almost always. Um, and even tougher when we went through a phase where if you looked at the Russell 2000, which is 2,000 of the small cap companies, and the ones that were outperforming in the beginning of the year were the ones that didn't have any profits. And the reason they were outperforming was because they're the most speculative, and everyone was excited about things like quantum computing and drone stocks and all the upstart rockets, etc. But what flipped after the first quarter was that the most profitable of the small caps are actually catching a bid. And I think that's a healthier place to be. And I think it's analogous to the bid that's in the market. It's this it's the same thing when you think about, hey, you know, we spent the first quarter of this year with technology being for sale, and the market didn't really go down that much. Well, well, how could that possibly happen? It was because we saw a broadening out. And I think the small caps are a recipient of that broadening out, and I think that's why they're finally performing well. Um, they need a couple things. They need above-mean um economic growth, and we're probably going to be closer to 2% than we are to 1% GDP growth this year, I suspect. Um, they need steady interest rates, and and we certainly haven't had that, but it, you know, we certainly haven't exploded to the upside. But they also need investors to be looking for something other, and that something other has certainly found its home in both the equal weight SP 500 and the Russell 2000.

SPEAKER_03 19:03

One more, we're going to take a curveball, but you know this is coming. Your Patriots had a pretty good year last year. You are Mr. Boston on the Red Sox or so so, but I think the Patriots are looking good, right? Um, how your Patriots look? All right, a couple things there.

SPEAKER_04 19:18

I just want to pull back. Just hold on one gosh darn second. Did you just say the Patriots, I mean the Red Sox are just okay?

SPEAKER_05 19:24

All right.

SPEAKER_04 19:25

Well, I don't know. You can look at the TV right now and you can see how they're doing today, and they've been on an amazing win streak. And I think that that there's a chance because the division we're in is very weak that there's gonna be plenty of wild card spots for us.

SPEAKER_01 19:37

Says MLB best 29-5 since June 25th on TV. All right, thank you very much. Yeah.

SPEAKER_04 19:46

The Patriots, on the other hand, spent enough money in the offseason to get receivers for our quarterback who's nothing short of spectacular, and I think we're gonna have a uh a significantly better year than we did last year, so I'm very excited for both, but I'm focusing on baseball right now.

unknown 19:59

Okay.

SPEAKER_01 20:00

I I love the answer about the small caps coming back to that. But I'm switching to back to large caps, mega caps, coming to the hyperscalers, all of them are telling us they're going to spend even more money than they told us they're going to spend a quarter ago, two quarters ago, three quarters ago. And one thing that's happening is that the bond market is actually saying, No, that's fine, guys, but we are going to charge you more. And these are well used to be, I guess, cash flow rich, free cash flow rich companies had no problem raising money and spending. Now, you know, we've all seen the charts where the free cash flow of the hyperscalers are going south pretty quickly, and the free cash flow of the semis and the chip companies are going north like very quickly. It's almost you know two sides of the same coin. But talk about the bond market. I'm curious what you think because CDS spreads, these are credit default swaps, which insure the debt of these companies, just for everyone listening, the price of that insurance is starting to go up a lot. And I would argue it's still not a lot. I mean, I find it hard to believe that these companies love our default. But the fact that the insurance cost of insuring their debt is going up, that's interesting. That's telling you something about the market, some skepticism in there.

SPEAKER_04 21:17

That's such an important point. And and I think that three things to think about on that front, right? So you've got the fact that we enjoyed the past 20 years looking at these hyperscalers as capital light, free cash flow positive, large moats, right? And all of that was true for everyone that you want to mention, whether they're public or private. And now we have to look at them as saying capital heavy, spending a lot of money, no more, and free cash flow negative in certain extents. So what the market is trying to do right now is saying there's not going to be seven large language models that make it to the end of this race. There's probably going to be three. It's going to be like a horse race. It's going to be win placer show. And everyone wants to buy the whole basket right now, unless and until they get to a place where a company has got circular financing for things and and making great promises and talking about what they're going to be bringing in. But all of that's being done by debt, and that is getting to the point where it's not sustainable. Now. We saw during the earnings reporting season where it didn't take much for an Amazon to say, oh, by the way, Amazon Web Services, look at our numbers. We're starting to see the return on invested capital. Anyone that's using artificial intelligence in the small and medium business size is using us. That's our cloud revenue. So they can point to that, and that's a positive. Microsoft had a good response, but they were suffering from the artificial intelligence going to destroy all software companies and they bounce back to where they should be. I just don't know at some point in time where a company like Meta might say, we have no idea how we're going to make money with this, and it doesn't fit into our business model, but we are in the race, so we have to keep going. So there's going to be an Oracle that drops out or a Meta that drops out at some point in time, and we'll be down to a handful of three or four. It's seven. Exactly. And then we'll be able to say, all right, now I see that you're closer to the return on invested capital than you were when you started three years ago, and some of this spending makes sense, but that's where the pushback is, and that's why you've seen the hyperscalers do nothing basically this year. And you've seen the because they're the they're the takers and the makers do so well because they're selling the picks and shovels to the gold mine, gold miners.

SPEAKER_03 23:28

I love the quote, I'm gonna paraphrase it by Bezos. He's like, everybody always asks me what's gonna change in 10 years. And he's like, I'm trying to figure out what's not going to change in 10 years. If you can find that magic elixir, you're gonna be pretty successful. Art, I'm gonna hope I say this correctly without offending you. You've been in the industry a couple years, right? A couple years. We'll just say a couple years. You've seen some things. What is a piece of advice that you could give maybe a young investor, a new financial advisor, just something that hasn't changed, that still matters, whether it be to impact, create wealth, to create trust, um, just to kind of help your career uh that that you've learned that maybe most people aren't aware of. Hopefully you can think of something there in a second or two.

SPEAKER_04 24:12

I think that's a great question. And it's a nice way of saying you're old. Yeah. Well, I know. I know. Oh, that veteran, Larry Hogan, who's like, he's got gray hair. Yeah. No, they uh the three things I would tell you is that the role of financial advisor has transitioned from being, you know, a great stock picker to actually trying to be the hand holder and keep you in your long-term investment plan when things get shaky, right? And I think that's the most important role that you play. You you you have to be able to say, hey, Howard Marks just said the market's going down like free beer. And it's like, oh, guess what? He said that for the last five years. Right. Or, you know, what's his name, Burry just came out and said we're gonna have an 87, 1987 like crash. It's like, oh yeah, this is the third time he said that in the last two years. Just give the advice to be a you know, sort of the voice of reason in the separating that noise from the news. That's not news. When perma bearish say bearish things, they've they've done it frequently. The second thing is, and I can't say this with enough emphasis. Use your phone. Like it's great that you're texting, it's great that you're sending emails. Pick up your phone. There is nothing better to remove any ambiguity in the communications you're trying to deliver than hearing your voice. And there's nothing better than hearing from somebody on the phone to say, hey, you know, here's what we're doing, here's what we're thinking about doing. Let's think about making a change or the direction, or I think you're actually in a very good place. And is there anything that you're concerned about that I can help you with? The phone usage by people that are younger than us, let's just categorize that that way, has gone down precipitously, and I think that's a big mistake. And I think that, you know, thinking that, oh, I texted him or I sent him an email or I'm hoping to hear back, just pick up the phone. And the third thing I would say is um people are trying to conflate with what's going on right now with artificial intelligence, the dot-com bubble. And I'm just gonna give you a couple of stats because unfortunately I was around when that happened. So between 1995 and 2000, at the peak of the dot-com bubble, there were 2,600 companies that went public. 2,600. Wow. Wow. We might have 100 come public this year. That's that's a massive amount of companies coming public. Of those 2600, there are less than 30% that still exist. So when you get into a frenzy like we did in a dot-com timeframe, there are companies that come out like Pets.com and they have a Super Bowl ad and and not a real business model. What's happening now is companies that are involved in artificial intelligence are actually companies. They don't have to put dot com at the end of their name. They're doing things that are going to be great. And hopefully, so I think the other thing to think about too is the multiples that uh both the SP and NASDAQ got to back at the peak of the dot-com bubble were about, I don't know, call it five times what we're trading at now? Like the NAS, the next what's NASDAQ uh comp trading at? 32 times? Yeah. SP's trading at 19 times forward. The SP was trading at 75 or 80 times at the peak of the bubble. So there was, yeah. So when people try to scare you out of what you're doing because this is just another bubble, just remember we're in a completely different time. All the companies that are involved with this have an idea as to how artificial intelligence is going to help their business.

SPEAKER_01 27:25

I I was thinking about another Bezos quote, which is uh, and this gets to a broader, very broad question. And his quote was, I'm trying to paraphrase, maybe I paraphrase it, which is your margin is my opportunity. Margins have been going up. Does that mean capitalism is not working the way it should be? And there's not enough competition.

SPEAKER_04 27:48

That's a great question. And I think that um one of the reasons margins are growing up is the the complexity of the product that are driving those margins are higher. Now, if you take a step back and listen to any like market historian that'll be saying, I can't believe you think 23 times trailing is an appropriate multiple for the SP 500 when the 50-year average is 17 times or 15 times, and margins are the difference, right? So if you look at the SP 500 and say, well, what percentage back in the 90s of the SP 500 actually had margins that were greater than 20%? It was de minimis. Yeah. Now 40% of the SP 500s has margins that are closer to 40%.

SPEAKER_01 28:27

I mean the largest company, assuming it's NVIDIA to the largest company in the world, assuming it's NVIDIA today, 80% margins or so, that that's crazy. And I'm like, surely that has to go away. And I'm not in the camp, I have never been historically in the camp that margins have to mean revert or anything like that. But to see margins continue going up at the rate they've been going up and at the level they are at, for really large companies, I'm like, wow, maybe size does matter now.

SPEAKER_04 28:57

Right. Yeah, and it's also the complexity. Does size matter or that's not a question I've ever had to worry about. Show that on a podcast. Right, exactly. Um, so the I would say it's the complexity of the product that are gartering the largest of the margins, right? So whether it's you know healthcare companies that have the latest blockbuster drug or it's you know technology companies like NVIDIA developing something, um, but even Apple, right? So, you know, Apple's got significant margins, but not earth shattering because they've got another competitor, they just are better at it. So to me, I think it's more of a complexity of product and how much more technology is involved than just you know utilities and staples and things of that nature where margin actually matters. So, you know, I I wouldn't want to be a grocery store right now, but I I certainly you know think that if NVIDIA was going to lose or give up, seed some of its margin to AMD, that would have already happened. Now it's there's enough for both because in October we discovered we needed it five times more CPUs in the data center than GPUs. So I think there's enough to go around. Yeah, at some point in time that'll peak, and it's it's gonna peak when large language model developers are done spending, and then we'll move on to the next thing. And by then we'll have uh robots on uh on the moon building out data centers.

SPEAKER_03 30:10

So again, this is episode 200 live from Boston. Let's hear it, Boston. We still out there? Yeah. It's crazy how time flies. We have about 15 minutes or so. So I want to make sure we bring up our friend, colleague Barry Gilbert. Come on up, Barry.

SPEAKER_02 30:24

You were talking a little bit about investing in AI. We get the question a lot, you know, in this kind of market, how do you actually invest in AI? And if you had a client come to you and say, How do I invest in AI? How how would you answer that question?

SPEAKER_04 30:38

That's a great question. And what we've developed in-house is a basket of 41 AI-related stocks. And we have um 10 of them on a focus list. So there's the natural players that you would think of, um, and like an NVIDIA, which I think is the cheapest stock on our list, but there's also companies like Eaton, which is an industrial and doing a great job and part of that build-out caterpillar tractor. So we've expanded beyond the hyperscalers versus the semiconductors um argument because there's a broader application of this artificial intelligence revolution that's going to be inclusive of a lot more things, right? So I think that's one way to approach it. And you can certainly put that basket together pretty easily. We certainly did. But it's it's everyone knows the hyperscalers, and they were the darlings of the ball for the first three years. It's been four years since Chat GPT rolled out. And now it's okay, who's who are the actual beneficiaries away from the folks that are making chips and and that are spending all this money? And I think there's a lot of things that include power companies and and uh industrials, etc. So I think that's the way to approach it. We also have a barbell approach where we like three sectors that are less correlated to artificial intelligence and technology in general. So we have a barbell approach with that, and financials, healthcare, and industrial sit on the one side of that barbell, and then we keep a market weight of the of the artificial intelligence darlings that are in our 40 uh company basket. And the best way to do that to automate the fact that you're not leaning too far in either direction is to rebalance every quarter. So I think it's a great way to say, yes, I am, you know, are you diversified?

SPEAKER_03 32:15

Yes, I am. So you're speaking our language. Bear, I want to ask you a question. I want your answer because you're I I mean, whatever your title is, your title is. I say, you know, we manage billions of dollars at Carson Group for our advisors and our clients. Your job is to be the guy who understands what's going on in those models. And just because you think you're bullish, you're bearish, I mean, you do incredible work leveraging all the technologies out there to understand what we say is what's going in those models. And that's easier said than done. But Art said a word that I um I like. We use it with advisors. Barbell. Yeah, you got momentum on one side, low ball over here, small over here, large overheel. Here, when you hear barbell, how are we doing that in our models? And you're aware we can't give specifics, but listen, we can we can talk broad. How do we do that for our Carson advisors? I hear the word barbell. What do you think of?

SPEAKER_02 32:58

Yeah, it's a that's a great question. I think of a lot. Uh momentum and low volatility is one of the ways of doing it. But Art, I think you hit on something. Artificial intelligence, it it transcends all of our usual categories for investing. You can't say it belongs to a particular sector, you can't say it's growth, you can't say it's value, you can't say it's US, you can't say it's UN uh EM, you can't say it's developed markets. Uh so part of what barbelling is all about is realizing that really the best way to invest in artificial intelligence, broadly, I mean I I think the stock selection is is is great, but very broadly, is just to be invested in equities. Because we don't know where it's gonna happen using the traditional categories unless you're a true bottom-up investor, uh, in which case you can look at spots, but you really, like you said, you want to be diversified, you're not gonna be able to figure it out. So get beyond, if you're thinking about artificial intelligence, all the traditional ways that you think about it. It is not a growth play, it's not a small cap play, it's not a large cap play, it's an equity play. Um and yes, we have barbells, but part of the purpose of our barbells is uh is not to lean into growth or value because those aren't the answers right now. It's not to lead into low volatility uh or well lately momentum has been a pretty good answer, but it's not always going to be the answer. Um, but it's to really think about what the what the stock market's gonna do broadly, and that's what you've been talking about with aggregate earnings, with overall margins, things, things like that. So that's a little bit about how I'm reading barbell, it's just getting beyond the traditional categories and trying to think of different things that uh that work well together.

SPEAKER_01 34:36

So coming back to that barbell and thinking about like our job as active managers, people managing money, trying to generate excess returns or alpha, you're always looking for what's not priced, what's mispriced. What are people and you're no, you don't want to be contrarian for be contrarian sake. I mean, you know, sometimes you want to ride with momentum, which means riding with a herd, right? To take advantage of like AI, for example. But I keep thinking maybe one of the most contrarian trades out there now, maybe it's a longer-term contrarian trade, not for the immediate next three months or six months, even maybe not even one year. One is low volatility, low volcans, I mean, however you define that. And the other is maybe international developed markets. I'm curious, I mean, you know, you don't have to agree with that or not. I'm curious what you think right now is really mispriced while everyone's focusing on AI and all of that.

SPEAKER_04 35:31

Yeah, that's such a great point. And it it's interesting that international developed markets can still perform as well as they do and have as little exposure to technology. Um, and and to the extent that it one of the biggest drivers there is you have to make a prediction about what you think the US dollar is going to do. Right. So, and that's been a big driver. So by that I mean if you look at the the the DXY or however you measured the dollar, it's on the boil. And that's difficult in that environment not to think you want more international exposure. Um, that said, I would also offer up that um the SP 500 does 40% of its revenues internationally. So you, you know, by its nature, you have more exposure there as well. But if I were to be taking a contrarian view, I would rather see in a world where I think commodity pricing continues to work its way higher, I'd rather be in developing um in so much as if the dollar is going to come off the boil and a lot of the developing international countries have a lot of dollar-denominated debt, and I think the dollar does come off the boil when we don't raise rates this year. It's a convoluted answer to your question. Um, but I would say developed internationals had a great two-year run. Yes. And in the in the face of a you know, a dollar index that also has had a great two-year run, I think of commodity pricing that are largely priced in dollars, if you see that come off the boil, I think you see a lot of commodity price developing international companies. Now, the other thing I'd want to point out, and one of the things that we highlighted at the end of the first quarter was the gap between, and this is completely coming out of the field on you, but the gap between software and hardware. Or state it a different way. Right. The IGV was for sale hard, right? It was it was terrible. And that was artificial. We can call it the Leopold trade. Long chips, short software. And everything it related to software is gonna go out of business because we're all gonna we're all gonna uh vibe code our you know, our Outlook product for our enterprise. Well, at the end of the day, we discovered we're likely not gonna do that. There's certainly some application software companies that do get replaced by artificial intelligence. Microsoft's not one of them. And and to the extent that it's embedded in 99% of the Fortune 500, and we don't want to unembed that and do something in-house. I think that gap between the IGV, which I think is the software ETF, and the and the SOX was 85% at its peak to trough. It's never been that wide. So that was one of the that was one of the things that we highlighted at that point in time. So this has to mean revert. It has, and it's and it's come from both sides. We've seen a bid in software, and we've seen obviously a downdraft in this in the semi-space.

SPEAKER_03 38:25

Great conversations there. We kind of need to wrap things up fairly soon. Um sapp for a second here. So episode 200, Sonu. Yeah, this has been a blast. We have so much fun. Uh, all the listeners out there, we had our best month ever in July, like not even close. YouTube downloads downloads. We saw a huge surge in uh subscribers and all that stuff. And it's it's an honor to do this every week with you, Sonu. And we're so excited Ark could join us. And as a oh, there it is. Is that a 200 cake? We heard it's a cake with 200 on it coming out soon. Um, so I'm gonna I'm gonna list some names. You you yell it out, and I'll send it in the mic, but we've had a lot of producers that helped us over the years. Joey Gidry has been a big one. Uh Chelsea helped us a lot. Josh helped us. Obviously, Pod Pony's amazing now. Who else has helped us so? I mean, Broderick has come back. Broderick is going full circle. Thank you, Broderick. Who else we had? Um then we haven't now helped it. Connors helped. Um David, shout out to David. We've had a lot of people have a lot of people helping us. Obviously, the the marketing team at Carson as well, and the compliance team, all this stuff, and all the listeners out there, but it's um it's a lot of fun. I truly have a blast every month, I'm sorry, every week, talking for an hour with you, Sonu, and it's it's it's a true honor. But it isn't like we just did it ourselves. There's been a lot of people of Village has helped us, um, and I just hopefully I remember everybody has really helped us along the way. But Sona, a couple comments from you, and then maybe let's finish it up with art. Uh, just kind of on 200 episodes, what you want to go with?

SPEAKER_01 39:47

Yeah, I think like you said, look, we manage a lot of money, a lot of people do, but I think what makes us different is transparency. And this podcast, I think I'd like to think has served us well with that, you know, we are not behind a curtain. You're not like a wizard of ours pulling strings and saying, Oh, something happened in my portfolio. Can you tell me what it is? And you're like, no, we can't, it's a secret. No, we put it out there, right? If and for those of you are Carson advisors, clients who are invested in our portfolios, nothing we do is really going to be a surprise because we're talking about it week in and week out. Right? We're being very honest. I mean, it doesn't mean we get everything right, but you know, we want to be open and transparent about how we are thinking about the world, how we are thinking about investing in today's world, and how all of that translates to actual portfolio decisions. And, you know, so that you get to see literally how the sausage is made.

SPEAKER_03 40:42

Yeah, I'll I'll take it back and then R go to you in a second. Um one more time, Boston. Give it up for Wisdom Tree for putting this whole thing together. Yeah. This was this was a blast. Again, I mean, you know, we'll get a little well, markety, that's the word I'm gonna use. Uh there are so many financial advisors that ask us all the time, what's going on at Carson? What's going on every single Friday? We get an email from Scott Conner and our team that talks about someone else joining or something. If you're a financial advisor and you're looking around, maybe you need a new home. I say there's really two things. That's what I've come up with. I've been here four years now. I said, you know, at the end of the day, there's two things that Carson will help you do. Number one, we'll help you grow faster than industry average. Number two, you will have fun. You know, there's a lot more than that. But at the end of the day, you want to have fun, you'll make money, you want to help your clients grow faster than industry average. Those are the two things that Carson can do. So if you're a client, or sorry, you're an advisor, you're looking for a new home, Carson Group.com, reach out to me, reach out to Sona. We'd love to help. We can reach you out, connect you with the right people, but we're growing like crazy and we're looking for the right people. So we are we are here um for you if you're looking for a new home. With that, I do know I'm not gonna mention names, I'm getting back in trouble. Got some former people we worked with, coworkers, shout out to you guys. You know what I'm talking about. Give a hand to the we're not gonna say we don't get in trouble, but shout out to the former co-workers that are here. Thank you for joining us. All right, Art, bring us home. We have, well, as much as you want, but I'm looking at three minutes. Whatever, however, you want to end this, Art? Just something uplifting, something you've learned, how great this podcast is. It's by far your favorite. I know that. Um, but seriously, you are uh a friend. We look up to you, Art. I've learned so much from you, you might not even realize it. You've helped so many people, like guys like me that do the TV thing, just watch you on YouTube. Literally, I watch you on YouTube. Like, how does he present himself? How does he talk? How does he act? And now we're legit friends. Like I can reach out to you and we're friends, and I truly, honestly appreciate you joining us, Art. Bring us home on episode 200. One more time. Flat for us, 200. Art Hogan is gonna bring us home on episode 200.

SPEAKER_04 42:35

First and foremost, anytime you want to do a podcast with me, I'm gonna say yes, but I'm gonna say yes a lot faster when you have a Navarre in Boston. There you go. I think that's important. The second thing you forgot to mention in the 200 podcasts that you have done, and you shouted out to all the producers and the marketing and everyone. Don't forget how much time you're spending away from your families when you guys are together. And it's so happy to I'm so happy to have met your family, which is wonderful. I think that's important. Shout out to my wife and kids who are just show news, show news family's here.

SPEAKER_03 43:00

Give them a good clap. There we go. Yeah, yeah.

SPEAKER_04 43:03

And the last thing I would say is anytime you think about making a change to your portfolio because there's so much bad news out there, call these guys because most of that's noise. And at the end of the day, there's much more positive things happening both in the economy and the world right now than negative things. Love it.

SPEAKER_03 43:20

All right. With that, this is episode 200 of Carson's Facts versus Feelings in the books. We appreciate everybody. Let's hear one more time, Boston. We're signing off. Take care, everybody. Thank you very much. See you next week. Information provided on facts versus feelings with Son of Argeist and Ryan Dietrich are for general information only and are not intended to provide specific advice or recommendations for any individual. The statements and opinions of show guests may not be reflective of CWM LLC or its affiliates. Past performance is no guarantee of future results. All indices are unmanaged and may not be invested in directly. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what may be appropriate for you, consult with your attorney, accountant, financial, or tax advisor prior to investing. Guests on facts versus feelings are not affiliated with CWM L L C.