The Compound and Friends
00:28:00 · Alex Altmann, Josh Brown
[00:28:00] S1: Yeah. And then there's... Now on top of that, you've got the levered... You've got the the the cool overriding ETFs. You've got kind of the very deliberate vol selling products that are further suppressing or or supplying gamma and vega, not to use these Greek terms, but, like, you know, supplying volatility to the market as well on top of that. But, you know, to answer the original question, you know, retail are kind of all in on stocks. Part of it's involuntary because they've kind of lost faith in the home the home ownership slice. And, also, just the fractional nature of stocks is very appealing to younger individuals. Right? I don't need to cough up. You know, if your median home price in The US... I don't know the number of Tomahed, but I'm guessing it's between 3 and $400,000. You know, you don't have to cough up $60,000, $50,000 for a deposit. I can go and buy a share of Nvidia or a share of the s m... Of Spy or whatever and just forget about it. It unfortunately does create vulnerabilities in our economy. You know? And people ask me all the time, and I know we're getting bit tangential here, but, like, what keeps you awake at night? Is it, like, levered ETFs, or is it Iran, or is it AI? I'm like, no. It's retail. It's... Retail is the scary one in the sense that because we've got such a financialized economy. Right? Like, you... Even last year during the tariffs when the S and P fell 20%, there was a visible drop in consumption Yeah. Over the subsequent two months. [00:29:22] S0: Negative wealth effect. It's huge.
00:29:22 · Josh Brown, Alex Altmann, Michael Batnick
[00:29:22] S0: Negative wealth effect. It's huge. [00:29:24] S1: And because it's real time, unlike .com where [00:29:26] S2: you But that also scared people. There's massive uncertainty in terms of what the economy was going to do. I don't think it [00:29:30] S1: was just the stock market falling. You're right. It wasn't just the stock market falling, but the average individual really had no concept about what the implication of tariffs was gonna be in that moment. Right? [00:29:39] S2: They were scared. [00:29:40] S1: I think they were scared. And... But more importantly, in 2000, when we had even a... It wasn't comparable today, but it was reasonably comparable in terms of the amount of equity ownership in households, you have to wait either for a monthly or quarterly brokerage report. Right? Most people do it or the... They were looking [00:29:56] S0: alerts into your hands [00:29:57] S2: 27 times a day. [00:29:58] S1: Are seeing your real time wealth adjustment. Right? And that's very powerful on both the way up and the way down. You know, I kind of had this running joke that the stock market is the economy now. The the old adage was stock market is not the economy. No. It is the economy now. [00:30:12] S0: I agree with that. [00:30:12] S2: Right? [00:30:13] S0: I say it all the time, and people get pissed off about it, but I really think it's more than ever [00:30:16] S2: I agree.
00:30:16 · Michael Batnick, Josh Brown, Alex Altmann
[00:30:16] S2: I agree. [00:30:17] S0: The centricity of of the stock market. It used to be like an avatar, loosely speaking, for how companies are doing. And then people would say, alright, but what does IBM and Coca Cola have to do with Main Street? Like, now I think it's basically we've built retirement around the stock market. Everybody's all in. Every household with a high income also has a large four zero one k. Now we've tied compensations to the stock market. You think about all the young up and coming millionaire households, they all work for companies that are about to go public, just went public, have stock prices. Like, this is it. If... You can't have a prolonged two year bear market without a recession. It's impossible because everybody's wealth effect and everyone's mentality is based on how much money their accounts are worth. And so I totally agree with you. [00:31:14] S1: Yeah. And the messed up thing is is that I I would challenge any economist on the planet no matter how good they are, and there are some phenomenal economists that I work with at Barclays. But I don't think any of them actually have a cell in their econometric model that measures S and P. Yeah. Right? So they're they're monitoring everything. [00:31:29] S0: Does? The Fed does. [00:31:30] S1: Well, the Fed have their FCI process.
00:31:30 · Alex Altmann, Josh Brown, Michael Batnick
[00:31:30] S1: Well, the Fed have their FCI process. [00:31:33] S0: Is looking at the the ten month moving average. Looking at the stock market. I'm I'm... Think they know when they've overstepped. I watched that play out in 2018. It was the most obvious thing in the world. It come out it come out early December. We're nowhere near Neutral. Neutral. And then on Christmas Eve of all times of year, we're in a 21% statistical bear market, like just past that 20% threshold. That's... Doesn't really mean anything. But in the media, bear market, they reversed themselves on Christmas Eve. [00:32:06] S1: Yeah. I remember. [00:32:07] S0: And a month later, not only are we perfectly near neutral, actually, we're gonna start cutting rates again. Yeah. It's literally what happened. How could it not be the the ten month moving average or the or the two hundred day or whatever? [00:32:20] S1: You know what's amazing about that period in 2018? Yeah. It was also a midterm year. Yeah. Was and it was also a new Fed chair. [00:32:25] S2: And Mnuchin was very chatty. Remember that he came out out of nowhere and said, don't worry, everybody. There's ample liquidity. Everybody was like, what the fuck? [00:32:33] S0: In the great in the great financial crisis, ten years before, there was one Bloomberg terminal at the Fed in Washington. Yeah. There's one person in there looking at the markets. You wanna bet there's a thousand now?
00:32:33 · Josh Brown, Alex Altmann, Michael Batnick
[00:32:33] S0: In the great in the great financial crisis, ten years before, there was one Bloomberg terminal at the Fed in Washington. Yeah. There's one person in there looking at the markets. You wanna bet there's a thousand now? [00:32:46] S1: Oh, no. But I I know that the... Both the treasury department have Bloomberg terminals because they ping they ping me. Yeah. And then so so does the New York Fed [00:32:54] S0: as well. Hedge fund manager running it. So I'm just saying, like, everything is the stock market. [00:32:58] S1: Yeah. Can I [00:32:59] S2: show you the stock market chart? I wanna get your thoughts on this. So this has been an interesting year for a million different reasons. And even though there is the relentless bid, AI has caused a lot of on off days. Same with software, same with energy. There are a lot of days where the stock market does X and the average stock goes the other way. So there's this weird negative beta effect. SocGen has a great chart, chart 15 Daniel, that shows they say there are 124,750 possible pairs of companies within the S and P. And at present, 40% are negatively correlated. So they show the average stock correlation within the S and P 500, and they compare that today. So the the red line is the average, and the black line is today. Mhmm. 40 of days, we've seen stocks going different directions in the overall index. It is a very funky time within the stock market. [00:33:56] S0: Yeah. It's a lot less... Like, 2017, every stock went up together. There was no volatility. Zero.
00:33:56 · Josh Brown, Michael Batnick, Alex Altmann
[00:33:56] S0: Yeah. It's a lot less... Like, 2017, every stock went up together. There was no volatility. Zero. [00:34:03] S2: Matter of fact, today's a perfect example. So the last couple of weeks, we've talking about the same thing. Breath sucks. Breath sucks. Breath sucks. And we've been saying, alright. But that's a feature of a bull market. You want the biggest stocks doing the heavy lifting. Usually, when breadth is leading, not usually, the average stock does better in a bear market. Just think about two thousand is a perfect example of this right after the dot com bubble bust. So today, you have the equal weight up 98 basis points. The S and P is down 53. Mhmm. And it seems to be that this is happening more with more and more and more frequency. [00:34:33] S0: Mhmm. [00:34:33] S2: So there's a bad, max seven report, Google today, for example, and the rest of the market catches a bit. [00:34:38] S1: Yep. And you're you're asking [00:34:41] S2: Just just... We're just talking. [00:34:43] S1: We're just talking. Okay. So I can actually give you... There's a there's a pretty good answer for why this is happening. [00:34:49] S2: Oh, yeah. I think it's a mystery. [00:34:50] S1: Oh, I I... I'm curious. [00:34:51] S0: I don't know the answer. What's what's the what's the reason?