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Welcome to Animal Spirits with Michael and Ben. Last week, we finally had an exciting week in the stock market. It has been relatively boring. I forgot what the data point was, but there was like 80 days between 1% corrections, which is abnormal. Longest streak since X. And last week a match was lit. And I was thinking about this on it was Tuesday night. So Tuesday morning, we got the high inflation report for consumer prices and the market decided to use that as an excuse finally to do some selling. And it was pretty bad. It was a pretty bad day in the stock market and I'm at home. I don't know if I was lying in bed wherever I was, but Robin's talking about some nonsense. Something that is well not nonsense to her in fairness. But isn't it my point is this. Isn't it funny when there is a pretty serious day in the stock market and nobody cares?
Civilians you're talking about that don't pay attention to this stuff.
Yeah. Yeah. What a luxury. And they're probably better off for it in some ways. Some ways they're not because it is this is the most exciting game in town. It is
No, no, no, hold on. To be clear, 100 million% better off because here we are worrying, hemming and hawing at this. I mean we do this all the time. This is part of the job. Part of the job is to worry.
It is kind of funny though that you say something happened to the stock market. It was literally a 2% drawdown. Now I know that under the surface it was a lot worse. We're going to get into that, but it was there was a 2% fall in the stock.
If that's literally if that's if that's the the if that's the stance you're going to take, we're going to fight. This is going to be a fighting episode.
I'm not everything doesn't matter, Ben. You know, this is a show for entertainment purposes. This is a show where we talk about the stock market. If nothing matters, why do people listen?
All right, listen. We're here to talk about it. Tell me if this matters. I will talk. I will do my part. Go ahead, Ben.
All right, so from the same publication, these headlines are two weeks apart, maybe even 10 days. Two weeks ago, we talked about this story in the New York Times. High interest rates aren't slowing the AI boom. That's a problem for the Fed. That was two weeks ago. Last week, same publication, different headline. Weak links start to show in AI borrowing.
Are you trying to tell me that the stock market is open every day and things change week to week?
I think Holy I think it's hilarious how quickly this narrative changed. It was it just felt like it flipped immediately to hey there's nothing the Fed can do. And we credit to us at the time we said come on that's ridiculous. You can't say that. You can't say that the debt market is not because obviously I think what we've learned is that the bond market kind of controls everything. The like do the whole James Carville quote about how he wanted to be reincarnated as the bond market has been used ad nauseam. It's right. So, here's
But we were surprised though in the prior three episodes, we were surprised that the ten-year was going up and up and up and the market seemed to not care until Tuesday. And it wasn't I don't think it was random. It was we had a hot inflation print and everybody sort of thought even though the bond market didn't, right? Because ironically yields came down as people said, "Holy this is actually getting kind of serious. The inflation is not going away. It's not just fuel prices and we might be closer to the end of this business cycle and rates came down very hard
on a hot inflation print, which is interesting.
So I mentioned this to you and Josh in October of 2022 when inflation was really hot and the stock market was down 20-some percent. There was a really bad inflation print and people go, "Oh, no, it's not coming down."
And the stock market crashed 2% pre-market. By the end of the day, it was up 2%. That was literally the bottom. The market bottomed on bad inflation news.
That same thing is going to happen in the bond market. I don't know if last week was it, but that's what's going to happen is we're going to get a bad inflation print. People are going to go, "Oh, see this is it." And the bad news is all going to be priced into the bond market. That's going to happen.
It is. That is a good point. And it's very funny how that works. We were waiting for the breadth in the stock market was terrible and yet the index was at a high and interest rates were going up every day and what was going to break it and we needed bad news to put in a bottom.
So or a top in rates and a bottom in stocks potentially.
So a few weeks ago you showed me the picture you have of Drago and Rocky and I mentioned I showed Rocky 4 to my kids finally which is it's funny. I think I saw Rocky 4 before I saw the other ones. So, going from Rocky 4 to Rocky 1 was actually very hard to do.
Impossible. Rocky one is quite slow.
It's very slow until the very end. But the great part of the movie that makes the hair on your arm stand up is when he gets him in the corner and he says he's cut. Like it's like he is actually a man. I cut him. His hair goes down from up to down and Rocky's like, "Okay, I can do that." Right. It's one of the best parts of the movie.
Is CoreWeave the cut part of the AI trade like oh my gosh we cut AI because it's always hard to find these like canary in the coal mine but in the subprime mortgage crisis there was this small mortgage company I can't remember the exact name it was American Finance Mortgage or American Mortgage something and a lot of people point to that and pointed at the time that like this little mortgage company going under was that was the thing that really got the ball rolling and this was the canary in the coal mine for the subprime everything else going wrong. So my question to you is, is CoreWeave, a $38 billion company, enough to be a canary in the coal mine for the potential problems with AI?
Oh yeah. Oh yeah. I think the size of the company is irrelevant. So for people that don't know exactly like what is this Core company that people keep talking about, it is one of these they're called a neo cloud computing company. Now I've been on record neo- anything. I don't know what it means. neo-economic neo this post-neo I don't I just those are for the intellectuals I don't understand it but what CoreWeave and the companies like it essentially do is they don't build the data centers per se there's like the private financing company meta whatever and they fill these data centers with chips from Nvidia. They lease them out to the hyperscalers, whoever else is buying all of this. And then there's also a software layer in between. Okay. And of course, CoreWeave is heavily
pretty good. Actually, I'll give you credit for that. That sounded like you halfway knew what you're talking about.
40%. CoreWeave is heavily intertwined with Nvidia. Nvidia is an owner of them. They benefit. They are at the center of the alleged circular financing. So the problem this is a company that just went public too. This is not like this is a relatively new company. So if you've never heard of them it's okay.
So and the problem last week especially is that there is a lot of borrowing going on to finance the purchases of these chips that are in the tens of billions of dollars. That's how much money they're spending. And there's all sorts of different debt combination of public, private, secured, unsecured, see blah blah blah blah blah and the rates are going vertical and the bond prices are crashing and investors say hm uh oh. So is that enough to be the canary in the coal mine?
Absolutely. Now is it going to is this the end of the story? I mean literally who knows
right? So the big thing was Bloomberg had this chart that their bond because the prices were crashing on the bonds their yields went up to 15%. Which is obviously a very high number. Now, so if I'm both sides of this, the other side of this would be, well, they're a pimple on the butt of Nvidia. Couldn't Jensen Huang wave this company away and say, "We're going to, we got you. Don't worry.
Right. That's the So, that's the one thing. But I do think if I'm looking at this another way, not canary in the coal mine, is it possible that the market is going to save us from a blowoff top bubble again? Like the fact that these companies now have debt as part of them, the bond market is the ultimate judge here. You can't
I'm so glad you said that, Ben.
Right. Can't the bond market put another like ceiling on this stuff to make it not get so crazy? If the bond market is going to be the thing that says, "No, no, no. Sorry. We're not going nuts here." To me, I think this is actually good news that the bond market is now involved. Because if it's just private transactions in the equity markets and stuff like that, stuff can go wild. But if it's the No.
Are you saying that the cost of capital matters that when people are not being priced for risk assets like in a ZERP environment that in that behavior can get really really really really sloppy and that when there is a governor on investor appetite for risk that the markets are functioning in a more healthy manner. I think that's what you're saying. If I'm reading between the lines, Ben, I think that's what you're saying.
Do you think that CoreWeave, if it had happened in a ZERP environment, would have still priced much lower than what they are today? That their bond yields would probably be still pretty high even in a ZERP environment.
No. Okay. So, final answer to the question that you raised last week. ZERP is
you brought it back around.
ZERP is far worse in general for everything than a normal cost of capital.
Okay. But you have to you have to answer.
You have to define though. I'm saying for households it was way better. Maybe for the markets higher rates.
Stop it. I will not allow this. I will not allow the goal.
There's a difference between corporations and household balance sheets.
You're saying I was talking about consumers.
No, you weren't. Stop. Yes, I was. I talked about borrowing. Daniel Duncan, replay my thing. I said last week I was talking about borrowing
All right. How about that? All right. Interesting interesting aftermath of the CoreWeave rout, which is just this just happens every single time. Of course, investors took the opportunity when they see a popular stock falling 70%. I don't know how much the stock fell. By God, they're buying.
It's down. It's down 60%. The funny thing is if you look at the Core chart, it is down 60% from the highs, but that high was reached immediately after the IPO. Like it went crazy. This thing IPOed at 40. And again, this is it's like a year it went to 180. So it went from 40 to 180 immediately. But if you look at the chart from the last year, it's really it's kind of all over the place. It's not nearly as bad as some of the other charts out there actually.
Okay. So, so anyway, so Sherwood has this chart that shows the 5-day net purchases as a percentage of the max. Meaning like investors have never bought this much shares over a 5-day period as they did last week.
This is not just a Core like they did this with Dick's. Remember when Dick's got killed? Anytime there is a stock that falls 20% of the day, 40% of five days, people are just on it like a fly on
I don't think people in the market have totally reckoned with the fact that risk appetite in this decade is completely different than it was last decade. We the pandemic flipped a switch in people's brains and like the appetite for risk is totally different. And it's funny because Maggie Mahar has this book called Bull. It's one of the great financial market history books that no one ever talks about. It's about the 1980 to 2000 bull market. And she talks about how after the dot-com bubble crashed. It burst and crashed and the NASDAQ fell 80%. Investors didn't go away. They kept buying through the it wasn't really until the GFC that people were really turned off to the stock market. And I think even if we get a crash this time, that's what's going to happen. People are going to continue to buy all the way down. It's not like people I don't think a crash if we get one is going to turn people away.
I don't think that you can turn that risk appetite off immediately. And I also have another idea on the crash thing. So everyone has tried to put this AI thing into context of history, right? And the railway bubble is the example everyone keeps going back to. Listen, we got this infrastructure. It was wonderful. We still had to have a crash. What people don't know is that there were probably three different booms and busts in the railways in the 1800s. It wasn't just one time. And I think everyone right now thinks this is going to be one time. We're going to have one big boom and one big bust and that's it. I think it's more likely we have a I think we have several booms and several busts as far as AI goes. And you're not going to get that one huge blowoff top or crash that brings the system down. I think it's going to be more we're going to get a boom and a mini bust and a mini boom and a mini. I think that's how this is going to play out.
I agree with you and I would argue that we've had three. We had DeepSeek which was very fast. We had situational awareness over the summer and this is our third episode of AI plus. And I totally agree with your point that investors, it's going to take a lot more than this for risk appetite to change because it's been years of muscle memory of take risk, get rewarded. Take risk, get rewarded. Obviously, there are plenty of counter examples, but in general, and when things get crushed, I go in and buy because I'm going to be rewarded later on.
All right. Listen to this. Schwab reported last week they attracted $190 billion in net new assets up 38% over last year. You know, we talk about how much money how the amount of money that is in the market is having a massive impact on the market and every other risk asset. Right.
Clients are actively and intentionally conducting their day-to-day financial lives with us month in month out. Moving nearly four trillion in cash every month. 4 trillion in cash every month. I mean we see this in our firm. All of the cash activity, right? Money coming in, money coming out. $4 trillion in cash every month. And lastly, approximately
Just for Schwab, 70% of new to firm retail households are Gen Z and millennials. And it's going to take a lot to scare these people to scare them proper where they're like, "Nope, I've touched the stove 17 times and I like it's not going to be once or twice."
It's also kind of funny. You wouldn't associate Charles Schwab with being a place for like new investors to go, right? I think that to me that is like mature new investors, newish investors, right, that have gone from another discount brokerage to Schwab. Now,
I thought this is a good take from Joe and this is the right one. Almost always when we're having these conversations, not just you and I, but like just market participants, we are guessing, we are estimating why stocks are doing what they're doing, sectors, individual stocks, bonds, whatever. Like there's no official score, right? It's not like, oh, the Knicks beat the 76ers 117 to 99. Can you imagine if that's right? It is. We're just guessing. But last week, we found out that all of the blowoff top in interest rates, how much of it is fiscal irresponsibility, how much of it is the government versus AI? It was all AI. At least 90% of it. I'm making that up. I don't know how much
I never believed the fiscal stuff, as you know. It's funny. I'm questioning this a little bit, but someone tweeted out a few weeks ago. Isn't it funny that the whole point of working in the markets is trying to figure out what other people think? Like, we're all just trying to figure out what everyone thinks,
and that's why we try to fit these narratives. But so, to Joe's point, do you believe then that a lot of the yield increase really was crowding out that it was all this money going into other forms of debt? So therefore, government bonds rose. Is that what you're saying or not?
No. But maybe no where I was going with this was that the AI trade and the amount of money that they were borrowing. Actually, yes, maybe. Maybe that is what I'm saying.
I think that's kind of what my leap I make.
Yes. But I thought it was the turn that the borrowing is going to be over. Economy weakening, money coming down.
So my kind of final answer on CoreWeave like 15% chance this could be a canary in the coal mine because I think with the hyperscalers they don't they're like get out CoreWeave really like they're the hyperscalers aren't going to be impacted because CoreWeave's debt is trading at higher multiples or higher yields. That's what I think.
There's no way this is it. Sorry that that's my final answer. CoreWeave is a small company. In the grand scheme of AI, CoreWeave is nothing. It's a drop in the ocean.
Yeah, but you just opened the show saying the mortgage company that went under was nothing.
I don't think the size of the company matters to whether or not this is like the real
I'm saying my take is that there's going to be a canary eventually. This is not it.
Okay. Well, and by the way, I'm wearing a nice nice canary yellow sweater today. So, I'm doing my best.
You look good. All right. All right. So anyway, so last week from Jessica Menton, an equal weight version of the NASDAQ 100 trailed the S&P equal weight by four and a half percentage points. Its largest weekly underperformance since November 2020. Mike Zaccardi shows that consumer discretionary stocks, which are under pressure from rising rates, outperformed staples by the best week in 24 years. So it was
staples versus staples. Staples versus tech.
Staples versus tech. My bad. So, it was definitely a week for the stock market for sure.
Okay. I think the whole blood bath under the surface thing, if you say that, you're telling on yourself for when you bought stocks. So, let's look at semis for example. Sandisk, Micron,
fine. You're telling on yourself for not being a stock market guy.
I'm saying you're telling on yourself for when you bought risky stocks. For everyone who could keep saying like, oh, sure, the index is 2% off the highs, but look under the surface. Allow me to present my case to the jury. Go ahead.
Okay. So, if you look at Western Digital, Seagate Technology, Micron, Sandisk, the semiconductor stocks, they're all down anywhere from 25 to 50%. Right? Western Digital is down 50% even after a bounce yesterday. Year to date, these companies are still up. Sandisk is still up almost 500%. Micron is up 200%. Seagate is up 140%. And Western Digital has doubled. So, those if you're saying, "Oh, blood bath under the surface, you're measuring from a high. You're anchoring to a high point and you probably bought around the high and if you're saying these stocks are getting killed, it's because you haven't been in them all year. That's the problem. Okay, so listen to this from
Yeah, but that's but you're just making that up. That's total nonsense.
No, but this is from Duality Research cuz I showed this. If you look at emerging markets, EAFE, midcaps, small caps, S&P 500, all up roughly 9 to 15% for the year. Totally different markets, all very good returns. Duality Research sent me this. The guy from Duality Research said cap weighted index is up 13% this year. Equal weight is up 13%. The average stock in the S&P is up 15%. The median stock is up 8% this year. The whole blood bath under the surface is I'm a degenerate person who's invested in these momentum stocks at the wrong time. You're telling on yourself if you say there's a blood bath in the market right now about when you bought stocks. All the other stats show that the market this year is fine.
No, the index stats show that. How many stocks do you know how many stocks are in a 20% drawdown
from all-time highs? The median stock this year is up 8%.
Okay, but guess what? People look at their account and they say, "I had this much money and now I have this much money."
I'm sorry. You can't use the word like blood bath or carnage unless something really this is to me this is normal. This is perfectly normal. This should happen in
Well, there are I mean it is you're right. There are normal blood baths, but that was not a convincing case. The 25 best stocks of the first half of the year last week fell 19% on average
because how much were they up though heading into that? That's
true. But just because the stock is up a lot. Yes. You're giving proper context.
So I see the list here from Bespoke. Look, these stocks were all up over 150%.
Yeah, but it's but Okay, fine. But if we showed consumer staple stocks or retail or discretionary stocks, it's not just these. There are a lot of stocks that are in smithereens factually speaking. And also fine, the average stock is up whatever year to date. Yeah, it's been a decent year.
So I just think we've had so many stocks that have had massive years and they should have had a drawdown because you can't have returns that high without experiencing a 20% drawdown a week. That's the way it works actually. So that is true.
This is interesting. So a college kid sent this to me. He goes to USC. He has this website called Portfolio Autopsy
So he was talking about this stuff and he looked at there's 343 companies that existed in 1999 in the S&P that are still around today. So he took all the data on these companies and he said what's their worst drawdown since 1999. This is really interesting. 92% of today's S&P 500 companies have lost at least half of their value at least once. So the worst drawdown this century for the S&P is like negative 55, 56%. 85% of companies that still exist fell further than that at some point.
Isn't that really really good? Like look at these companies that have fallen 89. It's kind of hard to believe that you don't think about it now but JPMorgan fell 74%. Microsoft's peak to trough drawdown was 70%. Cisco fell 90%. Nvidia fell 90% at one point. And he's got all these tools where you can kind of input a stock and see what it has done. Like take your pick. Really cool. So, we'll link to that in the show notes, but I thought it was kind of apropos of what we're talking about here.
Yep. All right. Does this another thing we've been talking about the compressing price to earnings ratio. Does this make you feel better about the state of affairs?
It does. This is another We're not going crazy. So, another Duality Research one. He shows the forward PE ratios for all the different sectors right now. Consumer discretionary, consumer staples, healthcare, and industrials are all more expensive on a forward PE basis than technology. That's pretty wild. In a huge giant innovation bubble boom. Exhibit A, Matt's chart of the week showed the 10-year average for PE ratio versus the current. And it's funny, the S&P is right on the 10-year average, but technology is trading below the 10-year average right now after a massive 10-year gain. The NASDAQ is up, I think, 19% per year, something like that. That's pretty wild.
Here's why it's got to make you feel good. Imagine these charts were reversed. They were going up and to the right. Could you imagine how much worse the sentiment would be if people were pointed to how high the valuations were if technology was trading at 41 times forward earnings. It would be nothing but 1999 comparisons.
Right. And now of course the only thing you can hang your hat on if you're a valuation bear is well that just means the market doesn't trust the earnings.
Yeah. But I would much rather have the market not trust the earnings and have valuations falling than valuations going crazy and the market not trust the earnings. Like you don't want both of those. Look at this one. This is from Schroders. They did this for all of it. They did the US, UK, Europe, ex-UK, Japan, and EM. And they showed the decomposition of returns. So it's earnings versus dividends versus multiples. And across the world now everywhere, this is even bigger in the EM than it is here. Valuations have fallen this year because earnings growth has been so strong. Like Chart Kid Matt was telling us, if the market would have just matched earnings, if valuations wouldn't have fallen, the S&P would be up more than 30% this year, right? 30, 35% or something.
I think this is good news to me that people really aren't taking the bait to go nuts.
I agree. I agree. And that doesn't mean that the market can't fall a lot because valuations were very reasonable heading into 2008.
By the way, speaking of that, there's a lot of 2027 bears out there. Paul Tudor Jones, who's always bearish. Well, not always bearish, but publicly always bearish. Who said this? Oh, Jim Cramer had a good tweet. He said, "Billionaires are always bearish. Just pay him no mind."
It's true. Anytime you get a white-haired person who's been a legendary investor, they're bearish. Always. Well, I guess they've got more to lose than us.
We talked about this. It's a personality thing. To be a hedge fund manager, you have to be bearish almost at all times. Like you're because you're a risk manager. It's a personality thing. All right. I have a friend Matt who has a bunch of Airbnbs and he said he was cleaning out an Airbnb last week and he found an old paper from 1960 and he found the Wall Street part of it and he sent it to me and he said, "Check this I found this old paper from 1960 and it shows the Standard and Poor's 500 and it shows the companies that make them up. 425 industrial stocks, 50 utilities, 25 railroad stocks. That was the S&P 500 in 1960. Is that not crazy?"
That's and that's kind of how it was until like the 80s essentially. So Jason Zweig had I thought that was a good leadup into this Jason Zweig piece. The Wall Street Journal, he wrote about how the stock market has changed over time. So, he talked about first how trading used to be way more expensive, right? A brokerage account, you could have been paying 2% for fees to trade a stock. Funds you could pay up to 5 to 8% upfront to buy a mutual fund, which is just insane to me that that existed. Here, here's a dollar. Now you have 92 cents just to buy this fund. I think this is probably the biggest one. You wrote a piece a long time ago where you plotted like legendary investors when they were born and after a certain point like there's no new good legendary investors essentially, right? We haven't had another like who's the next Buffett. Every time they're on the cover it never happens.
You know what's funny? I believe like the last famous investor was like maybe Einhorn or Ackman or Einhorn and they were born were they born in the 60s, right? I don't or yeah, maybe you could say, well, they've gone into VC, whatever. But I think this is the reason why you have no like new legendary hedge fund investors. He says until the Securities and Exchange Commission imposed, the playing field was tilted until Reg FD in 2000. And I think if you read a lot of like the More Money Than God books, like Michael Steinhardt and stuff, a lot of the stuff they did
And like if you read about Jesse Livermore,
Yeah. They were getting the first phone call.
Yes. They were getting the first phone call. Jesse Livermore after the SEC was invented in 1934, none of his tactics worked anymore.
the playing field is leveled. There are no legends anymore.
So he makes Jason makes the point that like one of the reasons stock returns had to be so much higher in the past is because it like you had to be compensated for all these other risks like the fees were really high and there was like the left tail event in the Great Depression, all these things. And he's saying, "Well, what if returns aren't as good going forward because you don't have to worry about as many risks as we did in the past?" And my counter to that would be fees are so much lower today that on a net basis, you're probably going to get the same thing even if returns on a gross basis are lower than they were in the past.
I feel like you've been writing about this for like 10 years. And all of this sort of meta stuff pales in comparison to what the business cycle is.
Yeah, you're right. That's it. That's the only thing that matters. Like if 10 years ago we knew what would happen with the hyperscalers, who gives a about how much it cost to trade a stock. If the biggest companies are growing their earnings at 25% a year for 15 straight years, guess what? The returns are going to be good.
But the point is also like you have to ride those waves though when they happen and not keep trading in and out and getting out of the way.
Yeah. Anyway, interesting stuff. All right. I want to just show the chart of Open Door because I think it's important to talk about the lottery tickets that didn't hit for people. So, Open Door went crazy and was up like six times in a matter of two or three months. And people are saying it's going to go to $20 a share, $30 a share, $50 a share, $100 a share. This company is going to be even like the insiders at the company.
Wait, hold on. No, no, no. Say why.
The reason why this happened is because there was a hedge fund manager named Eric Jackson. And Eric Jackson actually on Compounded Friends a couple of years ago. And I don't think this was the first place that he laid out his bullish case, but he was bullish on a company called Carvana. And Carvana 10x, 20x, whatever.
Yeah, it was down like 95% then went up like a ton. It was a huge huge gain.
So he called the shot, Babe Ruth'd it, it worked. And then he tried to do the same thing for Open Door and he took the stock. I mean, I really do think he's not I think no opinions. He single-handedly sent the stock from 50 cents, whatever it was trading at. A bunch of people followed him in. The stock went up to $11,
right? From under a dollar to 11, and now it's crashed all the way back down to two. Yeah.
And I think it's important to talk about these kind of lottery ticket stocks that don't hit because I think there's a lot of survivorship bias talking about the stocks that do work and we don't spend enough time talking about the ones that don't. Anyway, all right. Elon Musk announced yesterday, this is his tweet. Next year, I will give one of my SpaceX shares to every kid in America. This will be the first of many. I think the rich people in the world because there's going to be so much wealth created from AI and there already has been. They're going to have to do stuff like this to avoid the pitchforks, right?
Yes. A lot of politics and not a lot of no posturing like public posturing.
Yes. But so Anthropic I think announced that they're going to create some sort of public fund. They're going to have to do these companies are going to have to do this especially if they start really taking jobs and ruining things. And there's already a lot of people who really hate technology. I was driving through a rural part of Michigan yesterday and I went to my son's football game, which we'll talk about later, and I saw all of these signs that had the red circle with the cross in it saying no data centers. All these people, all the political signs in their yard were saying no data centers. Like the technology people who have a lot of money are going to have to do stuff like this. There's going to have to be some sort of like listen, we're going to be willing to give blank percent of our profits to some UBI, right? There's going to have this is going to have to happen.
They are peeing into the ocean.
It's true. You're right. Part of it could just be like does this is this really going to move the needle? But I think getting people involved in the stock market who are not involved is a good first step. I agree with you that this is not going to do anything, but I think it's a good first step to get more people involved in the markets. How's that?
All right. I want to talk about inflation real quick because I think we have to also when we talk about the fact that AI was really impacting interest rates. I think a lot of people are assuming that AI is the biggest reason for inflation too. And that's certainly not the case. I still would make the contention that without the war inflation would be a lot lower than it is.
So here's another Duality Research one leaning on them heavily today. So the composition of they show the composition of the weight in the CPI calculation versus the contribution to the CPI index in September. So energy makes up just 3.2% of the weight in the CPI but it accounted for more than 30% of the increase in inflation in the latest reading. So, I'm sorry. This is still an energy thing.
Energy prices are so much higher. Look at this chart. How could you say that this if you took the war away that this wouldn't
All right. Well, decrease inflation. You can't take it away.
There's been 66 consecutive months where CPI is above 2%. 66. Sure. Is the war making it worse?
Above 2% that's not saying much. If you said above 3% then you mean something. Above 2% that's saying nothing.
Fine. Well, I'm using Bespoke chart, but whatever. Dude, it's been inflation's a problem. It's not just because of the war.
Okay. What's your inflation anecdote? I have one, too.
Oh. I pulled a Ben Carlson yesterday.
I don't know what that means. Explain.
I would not call you cowardly because you played football at a real level which takes courage. But when it comes to like confront you're a confrontational coward,
A Midwesterner.
Whereas you New Yorkers, you enjoy confrontation. You seek it out. I've learned from you and Josh and Barry that you're happier when you can confront someone about something.
Well, no. I like playful confrontation with friends. Like we, you know, we like to argue.
Um, all right. So I got a skirt steak yesterday. One piece of skirt steak was $29. And I walked down. I'm like, "Wait, what the... That seems like that's crazy," you know, like...
How many pounds are we talking here? Half pound.
So it was $40 a pound.
So I asked Claude, "What in the world? $40 for a pound of skirt steak?" And I'm pretty sure the guy just punched it in wrong.
But I go there a lot and I just kept walking.
Okay, that sounds like a lot. Okay.
So that's not inflation. That's just a fat finger. But beef is going up like everything else. So occasionally I will bookmark something and then, I don't know, once every six months I go through my bookmarks and I try to clean them up a little bit. I don't want to have too many bookmarks. So last year the Wall Street Journal had this piece, the best men's winter boots for staying warm in style. And I'm a big fan of... Just go with me here. I like leather boots with a nice jean in the winter, in the fall, right? A nice pair of leather boots. I think it's a great look if you wear them enough and they form to your feet. It's really, really comfortable too. It just takes a while. So they had the... and I must have done this, it was January of 2026, so this is less than a year ago. And I bookmarked this and I said, "Oh, let's take a look at some of these. Maybe I'll take a look." And so Wolverine is a local Michigan company based in Rockford, Michigan, just north of us here. So they had these boots, the 1000mi plain toe original boot. And I thought, "This looks like a pretty nice boot," you know, so I'll look at it again. And so when the Wall Street Journal story ran, it said these things were $385. This is again nine months ago. Now, that's a pretty high price for me for a pair of shoes. I don't like to pay that much money. I'm like, I kind of like these. You know, you wear them forever, basically. So I clicked on it and the price now, ten months later, went from 385 to 425.
You should have locked them in.
10% increase. How does that happen?
So I asked Chat and it said...
Margin pressure. Margin pressure. My... if I'm giving fashion recommendations here, Thursday Boot Company is probably my favorite one. Those are like $199. I've had a lot of luck with that company. But I couldn't believe a 10% increase in nine months for a pair of boots. That's insane.
I actually do, this will surprise you. I have one pair of leather boots.
I don't think I've ever seen you wear leather boots before.
Can't remember where I got them from. They were not cheap. Probably $424 if I had to guess. They're so uncomfortable. First of all, what I mean...
To wear them, you have to wear them in a lot.
Yeah. Where am I wearing them? Let's be honest. Okay.
Like a good pair of boots walking around New York in the winter.
I mean, they're snazzy, but I'm not a snazzy dressing guy. Number one. Number two, they're just not comfortable.
Okay. So there was a chart going around last week where they asked Anthropic employees, "What do you think the future is going to look like?" And it said, "What do you think GDP will be in 2030?" Did you see what they said the answer is?
The median guess for what do you think GDP growth will be nominally in 2030? What do you think they said?
