00:00When you say late cycle volatility, that makes me think we're nearing the end of possibly a bubble.
00:07Is that how you see it as well?
00:08Yeah, the question is the late cycle can last four or five years or it can last like in 2021 for one year.
00:15And so I think I would argue that all this skepticism about this big technological revolution we're having is good news
00:24because it's keeping the valuation, it's keeping the bubble down in these stocks.
00:29Now, off the low of April, what I saw was the best thing to invest in were not the hyperscalers,
00:36it was the money losing tech stocks.
00:38That did the best until about three weeks ago and that's kind of started to deflate.
00:43So I would argue that this, as I said before, this level skepticism, it's good news.
00:49It's keeping too much, you know, it's keeping the valuation down.
00:53There's like a good meme about this as someone with a bloodied up shirt and like the strategist is saying,
00:57no, the correction's good for you.
00:58You're feeling pain, but it's a healthy thing.
01:00That's true.
01:01Because think about it.
01:02In 2021, the bubble grew so quickly, so fast that when it burst and those SPAC meme stocks came down a lot,
01:11it really hurt the market a lot.
01:13So I'd rather keep it down.
01:15So we have seen four of the MAG7 stocks underperform the S&P 500 this year,
01:20which I had to double check that when I saw it in Dan Curtis's note this morning.
01:24Do you buy those stocks?
01:26Well, the stocks have underperformed, but the earnings haven't.
01:29They've all beaten, right?
01:30So that means the valuations have come down.
01:33So if you liked them at the beginning of the year, you must really like them now because the valuation's lower, right?
01:36But I go back to, if you listen to third quarter earnings report, what I heard these companies say is we can't keep up with demand.
01:44We can't keep up with demand.
01:46This is very different than the year 2000 when, you know, the demand for routers was slowing
01:52and the telecom companies were saying we've lit, you know, we've got a lot of dark fiber we're not going to turn on, right?
01:58This is a very different environment.
01:59I think it's early cycle in the AI.
02:02It doesn't mean it's an early cycle for investors.
02:06The market bottomed in 2022.
02:08We're fourth year of a bull market.
02:10It's late cycle.
02:11Andrew, one of the things I do know that you are worried about that you've been writing about is the dynamics that are going to start early next year.
02:17When you have a Fed embarking on their cutting cycle, at the same time,
02:21we're going to get checks handed out and tax refunds from the one beautiful bill or tariff refunds, what have you.
02:28Stimmies.
02:29Stimmies for everybody.
02:30Remember 2021.
02:31The Oprah economy, you get a check, you get a check.
02:34What is your concern about how that could play out?
02:36Too much liquidity.
02:38Didn't we learn that in 2021?
02:41Everyone got liquidity.
02:42What did they do?
02:42They traded stocks.
02:43And so it inflated the bubble.
02:46And so I think if the Fed were actually to go slowly, I think one of the reasons why you've seen some of the deflation and some of this bubble come down in some of these very speculative stocks is the chance the Fed may not cut in December.
03:00I'm not a Fed expert.
03:01But I would argue that's good.
03:03That keeps it, you know, keeps the, you know, kind of the speculation down.
03:06What do you like that's divorced from the whole AI trade?
03:10I mean, we're talking today about retail earnings because they're concerning.
03:13So I imagine that it's not that.
03:15That ain't that.
03:15But is there, you know, health care, I realize, for example, there's an AI play there, but it's a separate thing.
03:23And a lot of people are very bullish health care.
03:24I'm not.
03:25No.
03:26I'm not because I think it's very hard.
03:29You have to get two things right that are really hard.
03:31One, you got to get the drug right.
03:32And then you have to get what happens in politically in Washington, D.C. about pricing right.
03:37And I think that's very, very hard.
03:39Someone that's been in this business a long time.
03:41I would say if you listen to banks, like the banks all had great numbers.
03:44Follow the numbers.
03:45The banks blew out.
03:46Why?
03:47More capital to invest.
03:49I think that's the other really big opportunity.
03:53Could that be correlated well?
03:55Maybe.
03:55But, you know, to me, the big banks in the loosing of capital, I think that's a great other story.
04:02That's happening outside the U.S. also.
04:04I don't want to.
04:05I'm going to ask this question.
04:06I don't mean to say that big banks are now an AI trade.
04:09But there is this feeling where there's a great story in the Bloomberg today that big banks are writing a lot of these AI checks for financing just because they're sheer size.
04:16They're allowed to do it.
04:17But it's funny because Matt asked, OK, what besides AI do you like?
04:19Is there not a concern that just so much is correlated right now that it's like utilities is AI infrastructure is?
04:26100%.
04:26But it's even hard to answer Matt's question because so many things are connected.
04:30I have a very simple way you're going to find that out.
04:32Go back and look how your stock did the day Deep Sea came out.
04:37Because the day Deep Sea came out, some of those utilities, you know, that were not sectorally in the technology area, they went down a lot.
04:47And some of those industrials went down a lot.
04:50So it's a great way to measure what truly your correlation.
04:54But I think you've nailed it.
04:55I think that's a big risk.
04:57Everyone thinks they're sectorally diversified and they're not so much because they're really playing the AI trade.
05:03And I think emotionally investors go, well, I missed the well-known trade.
05:09So now I'm going to find something tangential.
05:11But what we learn in Deep Sea is they're all correlated.
05:14Also, this, I mean, it is a great story by Hannah Levitt and co. on the banks talking about how much they stepped up with to underwrite the acquisition of Skechers, $8 billion.
05:25Warner Brothers Discovery, that split, $17.5 billion.
05:27Electric Arts, $20 billion, a check from J.P. Morgan alone for $20 billion.
05:32None of those are really AI.
05:34No, it's true.
05:34Right?
05:34So it's a play on the real economy.
05:37And trading also.
05:38Capital has been freed up for more trading.
05:41And I think some of these big banks made better profits in trading.
05:45So there's more capital freed up because of deregulation, right?
05:50More liquidity in the system.
05:51And that's going to play out at least for the rest of this administration's term.
05:56Correct.
05:56And these stocks trade at 30% discounts to the S&P.
06:01So how else do you play that?
06:02I mean, the money flooding in.
06:04Because it's not great news for inflation, right?
06:07Correct.
06:07Yeah.
06:08It goes back to the original.
06:09That's absolutely right.
06:10But I think it's the money center.
06:12I'm concerned the alternative.
06:13If you watch the alternative stocks, you know.
06:16You mean the alts?
06:17Like private equity, private credit?
06:19That index is not doing well.
06:21Really poorly.
06:21So is that a credit problem?
06:23Or is that a, you know, there's going to be more competition in your world?
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