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Michael, I didn't know that Treasury buybacks were a thing. Like buying back shares of stock. I don't think this is a conversation we've ever had before.
You ever hear quantitative easing?
That's different though. That's the Fed. This is the Treasury. I know they're kind of all the same. Um, what is your initial feeling about this? So Scott Bessent last week said, "Hey, we don't like the direction of long-term rates. Everyone is worried about it. We don't want them to be higher. We think they should be lower. So the Treasury is going to do what we can to bring them down." And they made, you know, a drop in the bucket in terms of a purchase. Rates fell for a little bit, then they immediately rose back the next day, and now they're saying, "No, no, no. We're going to take the bazooka to this if we have to, and we're bringing long-term rates down."
My knee-jerk reaction is I am a free markets guy. I don't like this. I don't think that there should be government, Treasury, political interference with the bond market. This is a market of buyers and sellers. Interest rates are determined by things that are far outside the control of Mr. Scott Bessent, who looks like what's a character that Will Ferrell plays in SNL when he's got like the... he's like a... is he a NASA guy? He's got the funky space hair.
Oh, you're right. He does kind of look like that. I could see that.
I don't think it's going to work. Now,
Will Ferrell can play a good Scott Bessent. You're right.
But I do feel like the timing might be good. Like I don't know if it's going to work. It worked for 24 hours. Rates came down quite a bit the next day, and then they took it all back. But they're doing it at a natural place, so it might work. It might work. Um, but I don't like it.
Okay. The free markets thing, I applaud you for taking a stand in principle. Like, there's no such thing as free markets. Let's be honest about that. They've always controlled these rates. In World War II, the government put their foot on the rates and they said, "We're keeping rates low so we can borrow for the war." Okay. In 2020, the Fed was buying bonds to bring rates down. So there's never really been free markets.
Well, I completely reject that. There's never been free markets because two other times.
Well, I'm just saying this isn't like... it's not a new thing for the government to try to control rates. This is something that has happened before. My thing is I feel like this is just kind of part and parcel of where we are in society. We just want there to be an easy button for everything. The way to really bring rates down would be to stop the war in Iran and take away all the tariffs. That's how you bring rates down. If they said, "Hey, listen, we're putting a 12-month moratorium on every single tariff there is. We're pulling out of the war in Iran," the rates would drop immediately. So instead of doing that, we've decided, no, let's just throw a bunch of money at it. I think that's just kind of...
You're right. So there's... this is the first analogy that popped in my head. We're doing surgery on a patient and we keep putting band-aids on it to stop the bleeding. No, no, no, no. Just stop doing the surgery. That'll stop the bleeding, right?
Quit making incisions, right?
And I think neither president this decade has really said, like, "I'm going to tackle inflation head-on." Like, there are things that you can't completely fix inflation, but there's certainly things you can do. I also think people pay way too much attention to long-term bond rates. Like, if we just decided to snap our fingers and we did away with 20 and 30-year Treasuries, would the world really change that much? Would it really change financial markets if we said we don't need 30-year Treasuries anymore, we don't need 20-year Treasuries?
I think... but they exist. That argument is sort of neither here nor there. I don't buy that.
They account for like 10% of all borrowings. It's a small...
But for the signaling, I think it's super important. Here's to me the bigger issue. I think this is normal. I don't think there's anything wrong with a 30-year Treasury to be at 5.2%, where nominal growth is and where inflation is. This is... you're right. This is a normal... this is where rates should be.
Yeah. What are they trying to fix now? I understand that it's the highest it's been since 2007. I get that. I understand why there's a little bit of heartburn and indigestion, upset stomach, diarrhea about what's happening, but it's normal.
Yes, you're right. I know mortgage rates are a worry, but this is where inflation is. So the point is, you're right. You're treating the patient, not just these weird symptoms. So Stanley Druckenmiller wrote an op-ed for the Wall Street Journal last night. He said, "Let the bond market speak." He said... oh, wait. First, for those who don't know, Stanley Druckenmiller is the greatest macro trader of all time. He's got the best long-term track record of any investor ever. He's an influential thinker, speaker, investor. So when he writes something in the Wall Street Journal, people pay attention. The funny thing is, you're right, he's probably the best macro trader of all time, and his macro calls the last 15 years have been like an abomination. He's been wrong with everything. This one, I took pieces of this that he's been right on and wrong on.
Hold on. Credit to him. I saw him speak somewhat recently, and he's very... he's got a great sense of humor.
Yeah. He's very self-aware. He was asked a question and he basically said, "Why are you asking me? I haven't gotten anything right in a long time."
Yes, except for his trades probably.
He said, "I spent five decades trading on a simple premise: markets aggregate information that no committee possesses, and prices are how that information reaches decision makers." Correct.
I wholeheartedly agree with that. You're right. Because I thought about this in context with you and Josh talking to Michael Saylor last week, and you and Josh kind of made the case, along with what Trump has been saying, that listen, we are the biggest economy in the world, we have the best markets, we have the biggest, best companies, we should have the lowest borrowing rates of anyone. And you and Josh kind of made that case to Saylor, and I felt like he kind of said, "No, I don't think so." And I think the reason he said that is because of this: like, you get information from the bond markets, right? Like...
If my point about long-term rates not mattering, the government, if they wanted to, could say, "Okay, fine. We're going to have the Fed set rates at 0.5%, and we're just going to borrow using short-term paper. That's all." So if we want to effectively lower our borrowing rate, we could do it very easily. We could say we're not going to tap the bond market anymore. We're just going to... but that has ramifications to it. And you're right, even so, even if you took all those bonds away, we don't have those... like, it would still have a meaning because the bond market sends signals about what inflation is doing and what rates are doing and what growth is doing. And the bond market is not always right. Of course, the bond market has been all over the place. But this is the thing now. He's saying the long-term Treasury yield is the most important price in the world. I don't really believe that, but he's saying it is also the only fiscal disciplinarian the US has left. Neither party will run an entitlement reform. He's saying the bond market is saying that there is a storm coming. And this is the part where I diverge from that and I don't agree with him. But I do agree that yes, the bond market gives you signals, and you need that because it's telling you what's going on in the markets and what the market is expecting going forward.
Well, think about what the bond market did to force the administration's hand in March and April.
Or was it... Oh, I'm sorry. I'm sorry. My bad. I got that wrong. Uh, during the tariff tantrum.
Yeah, bond market freaked out, right?
By the way, you said Druckenmiller wrote this. Apparently, AI wrote this. There was a lot of people who were extraordinarily upset that the Wall Street Journal allowed somebody to publish what was so clearly written by AI. Now, I don't know if it was or if it wasn't, or if parts of it were, parts of it weren't.
I missed this discourse. I did not realize this.
Did you? Okay, so Joey Politano quote-tweeted, and he was not alone. I mean, this was... he said, "Sorry, but this is the most obviously AI-generated op-ed ever. It has quote, 'it's not X, it's Y' construction in both the first two paragraphs." Pangram has it as 100% AI. Apparently, that's a program that identifies if something's really not. "One of the most prominent finance billionaires submitted this. The Wall Street Journal just ran it. Are there no standards anymore?" So Druckenmiller wrote... Ben, I made a meme. Look at this meme I made. For those of you who are listening, not watching, it's the Steve Buscemi "how do you do, fellow kids?" And Doug wrote, "If the 30-year must trade at 5.5% to clear, that isn't a crisis. It is an invoice."
Now... okay, you're right. That is total AI. Oh my gosh, you're right.
All right, so I have to be honest.
So wait, he put into Claude, "Write me an op-ed about me worrying about..." in Stanley Druckenmiller's voice, essentially.
I don't care. I understand why journalists might be very upset about this. This is their profession.
Hey, busy guy. He's a busy guy.
I get it. I don't give a... I really don't. I understand why some people do. Not me. Don't care.
Okay, I do kind of care. And I got more on this later about why I think people writing and reading. But you're right, he's probably a busy guy. He probably said, you know, he probably wrote some bullet points and he said, "Turn this into an op-ed."
Write this in Stanley Druckenmiller's voice.
Oh my. Okay, so all right, that's pretty funny. So you mentioned like this being normal. I took the 30-year Treasury rate and subtracted... did the spread between the effective Fed funds rate, right? What the short-term and long-term, what the difference is. It's about 1.7% now. And this data in YCharts goes back to the late 1970s. If you looked at this chart, you wouldn't say like, oh my gosh, this is going crazy. It looks pretty normal. It's probably basically average or median.
Mhm. The spread between long-term rates and short-term rates are pretty normal right now. They were actually abnormal through much of the 2020s and 2010s. Um, and I do think one of the big reasons we're seeing a freakout over rates where they are is just because it's been so long since we've had normal rates. Rates have been abnormal for 15-plus years since the Great Financial Crisis. So people aren't used to them being where they are, where they were for most of history.
I do think it is a big market story though. Like, I'm not poo-pooing this. I'm not pooing. If the White House and Treasury are getting involved, of course it's a big story. Yeah.
I think the direction of rates, not just the level, matters, as I've said a million different times. And I also think what the administration is doing is super noteworthy.
Of course, because they're obviously worried too. Yeah, they wouldn't be doing this if they weren't worried.
Uh, it is funny though. Last week you talked about the fact that if you think the market is wrong, you're probably wrong. They're basically saying the market is wrong. That's a very bold stance to take, and usually you're the wrong one. Um, Exhibit A chart of the week. I want to talk about a few things about this debt crisis everyone's freaking out about, and why I think it is more of a political crisis than an actual financial crisis.
All right, I'm listening.
Okay, so Chart Kid and Matt at the team at Exhibit A, they showed record US debt interest costs are in line with history. So they show US federal interest payments as a percent of total federal spending. It's kind of surprising. It's right at the long-term average of about 15%.
Can I just say one thing?
I think this is not the worry. I think the worry is the spending. So you're normalizing for what people think is a very abnormal number. If you compare the spending on interest rates, the interest spending compared to the size of the economy, it's much more uh-oh.
So there are a lot of people who get really angry about this stuff. And I think... not that people are rooting for there to be a crisis, but they want to be proven right on this. So I put this on Twitter, and I knew it was going to stir up a little bit, but I couldn't believe how angry people got. So here's my tweet: "My most contrarian take right now is that I'm not worried about a US government debt crisis. We have the biggest economy, the global reserve currency, the most rich people, and there's no substitute for Treasuries. We'll keep spending and people will complain, but no crisis will occur. That's my baseline assumption." Okay. But here's my worry. My worry is there are enough people who are worried about this becoming a crisis that it will be a political thing. And so politicians will overreact and they'll cut Social Security or they'll cut Medicare or they'll do something to try to get ahead of this. And I think that's the politics of this. That's where the true panic and crisis could come from, not like this turning into a financial crisis. Is that fair? I think it could be a policy error as a result of people worrying about a crisis that's coming.
Well, you know, you were kicking the hornet's nest with this one, right?
Of course, but I truly believe this is my baseline assumption that there's going to be no government debt crisis. Let me give you some more evidence. Let me give you some more evidence.
Before you give the evidence, just two things here. Number one, the US reserve currency is what the world runs on, and it is the most sacred thing that we and the globe has. It's extremely important.
Second, so I think it's worth being concerned even if it's a small chance.
But what's the substitute? There's...
So that's the second point. Whenever people get worried about the strength of the dollar and the dollar is weakening, there has to be an alternative. The money on corporate, federal, individual balance sheets has to go somewhere. And if it's not going into US government bonds because people are concerned about our fiscal irresponsibility, where's it going? Now, we'll talk about this later in the show: Bitcoin, gold, silver.
It went there last week, but there has to be a secondary place for it to go. And it's not going to the euro, and obviously it's not going to the yuan, and obviously it's not going to the krona or any of these other currencies. We're fine for now. But the reason people started crypto in the first place is they thought the dollar was going to crash and they wanted to be anti-system. The biggest leap forward in crypto technology is stablecoins. What do stablecoins allow you to do? Access to the US dollar. The people who tried to buck the system couldn't get away from the dollar. Okay. So Morgan Housel had a great tweet for me in response. He said, "There's been such a strong consumer deleveraging that total debt, government plus private, as a share of GDP is flat over the last 20 years." So here's the trade-off. Here's the trade-off we made.
The government took on a massive amount of debt following the Great Financial Crisis and the COVID pandemic. That allowed...
Households to repair their balance sheets.
As far as I'm concerned, that's a great trade-off. Would you rather have household balance sheets be a mess, but the government is pristine and they're running a surplus? No.
No, of course not. This has been good for the situation we were in: the Great Financial Crisis, the biggest financial crisis since the Great Depression, and then the pandemic, which we turned the economy off. Yes, we had to take on a bunch of debt. And was it all useful? Of course not. But it allowed households to repair their balance sheets in a way that probably would have been... people would have never believed you considering what happened. Okay, so I think that's a fair trade-off.
Um, Colin Roche wrote about this. He's also on my team, which makes me feel a little better. I feel like I've learned more from Colin than anyone as far as macro goes, the way that he explains it. Um, he asked, "Is it time to panic about government bonds?" And his point, he put this chart in here that shows US government public debt, that's government debt, as a percentage of total financial assets, which is interesting because again, a Treasury is an asset for someone, right? It's not just debt. Someone's debt is another person's asset. Um, he said they're at the upper end of the range, but still at just 9%. It was 5.5% in 2005. He's basically saying in the last 15 years it's pretty much in the range. So like he said, if you're worried about a debt crisis in 2010 and you're still worried about that debt crisis today, then you'll probably have to keep waiting for that crisis. And I am in agreement here. Like, the crisis is more in the political sphere than it is in... like, this is a thing we have to worry about now because it's financial.
One minor asterisk, and I agree with Colin and I agree with you. Charlie Munger said, "The liabilities are always good. It's the assets you have to worry about."
Fair. So the asset levels are very high right now.
So this, of course, yes, that helps. Housing prices have gone up a lot. Stock prices have gone up a lot. You're right.
So if there's a bear market and asset prices come in 30, 40%, this chart is going to look very different very fast.
That's fair. That's fair, but that happens every time. Speaking of like long-term rates not mattering so much, I just think this is an interesting way to think about it. Jesse Livermore says that take the current outstanding supply at market value of US Treasuries with maturity of 10 years or more, it's $4.3 trillion. He says Apple is worth $4.6 trillion. In other words, just one single stock in the US equity market is bigger and heavier in weight in the global portfolio than the entire long-term Treasury market. So again, the...
But it's not the size of the Treasury. It's not the size of...
You're right. It's a signal, but I think putting it in context like this goes to show you how... you're right, the assets, yeah, if they come down 30 or 40%, that's a big... like, no one ever thinks about the asset side of the equation. Everyone only looks at the liabilities.
That's the point. The assets dwarf the liabilities, and it's not even close.
So bringing this all full circle, if you talk to any hedge fund manager right now, they go on CNBC, any macro tourist on Twitter, what are they going to say? You should own gold and short bonds. Every macro tourist on the planet is saying they hate bonds right now.
I think Dalio just said that.
Yes, of course. Every hedge fund manager is saying this. I'm sure Druckenmiller would say the same thing. And the reasons they give are valid: spending. We're... nothing stopping this train with government spending. We took the smartest man on the planet potentially, Elon Musk, and said, "Hey, try to fix spending." What did he do? Literally nothing.
Oh yeah. He gave it three weeks. He said, "Ah, never mind."
Literally nothing is stopping this train. So spending is out of control. It's never going to be reined in. Let's be honest.
Uh, inflation is sticky and higher than we've had in a long time. Interest rates are rising.
So everyone is saying, "I hate bonds. Let's short them." I said this in December 2024. I'm not trying to pat myself on the back. I said international stocks are the most hated asset class in the world right now. I think you could make the same case about bonds right now. The bonds for the pundit and hedge fund investor class are the most hated asset in the world right now. Is that fair to say?
Um, I don't know. I suppose you can make the case.
Okay. So I pulled this chart from our friends at FM Investments, which... congratulations to them.
Just got taken over by T. Rowe Price.
Yes. Uh, we've had Alex Morris on Talk Your Book a number of times. Very happy for them. So they have this really cool tool where you can put in... because they do Treasury ETFs, and they take every Treasury from the 2-year to the 30-year, and they say what would happen over an estimated 12-month total return on these bonds if rates rose 100 basis points, fell 100 basis points, rose 200 basis points, fell 200 basis points. Okay, so now you're a hedge fund manager. What do you want? What is the one thing you want that sounds really cool in a book or on CNBC? I want an asymmetric risk profile, right? If the gain goes up, it's going to be way bigger than the loss is going to be on the way down, right?
I have a capped downside. I have a much bigger upside.
These numbers are kind of crazy to me. So it took the 10-year Treasury. If rates were to fall 1% from now over the next 12 months, you'd get a 12% return. If rates were to rise 1% from here, you'd have a 2% loss over the next 12 months.
Love it. Sign me up. I just... I still think that I don't know what the timeline is because no one can predict the magnitude or the direction of interest rates. At some point, people are going to be kicking themselves for not owning bonds or some bonds at these yield levels.
I feel like bonds can't hurt you anymore. Now, that's a bit of a... you know, I don't literally mean that, but if interest rates go up another 1%, which would be a big move at this point, it would be a big, big move.
Your total return is negative 2%. Who cares? Stocks fall 2% in a day, right?
Even the 30-year Treasury, which is the most volatile, if rates rose 1% from here, which would put them at over 6%, you'd lose 8%. If rates were to fall 1% for 30-year Treasuries, you're making over 21%. Like, the risk-reward trade-off in bonds right now is way skewed to the upside than the downside.
All right, so let me ask you this thought exercise: under what scenario do rates fall outside of a recession?
We have to get inflation reined in, I guess.
I think rates are structurally higher.
Which is a great segue to this tweet from Connor Sen. Connor Sen tweeted, "Just thinking about how people spent 15 years saying aging societies would mean low inflation and interest rates."
Uh, there's definitely clips of us in 2020, 2021 saying...
I don't think 10-year's ever gone above 3%. How wrong we were.
Ben, I made the case that we have too much government debt now. There's no way they can allow rates to get this high as they are. Didn't matter. You're right. The bond market was the signal. You're right. Um, and it is funny because technology is supposed to be deflationary. You could argue all the spending from... Okay, how about this? Why will rates fall? AI. The AI spend right now is powering inflation in a lot of ways. Think about...
It's also powering a lot of bond issuance, and there was a structural imbalance of supply and demand. Way more demand than supply of bonds in the 2010s, and that is now going the other direction.
So AI gets ahead of itself. Mark Zuckerberg finally says, "All right, I'm tapping out. We're pulling back the capex." Google says we're pulling back the capex. Inflation falls. Bond yields drop hard in that scenario.
Yes, and then bonds are a great hedge, right?
That's the thing. All right. Uh, a little feedback on my young person rant from last week.
People must have loved that.
No. Well, there was two different groups. People say...
Young people and old people.
People over 40 were applauding me. Now, I went hard on that for a reason. Uh, and a lot of young people basically said, "Hey, Ben, you sound like a boomer. Eat and die."
Well, there's nothing worse than people that are doing well telling people that are not doing well to toughen up. Doesn't land very well.
I just... if a few young people got the message that you play the hand you're dealt, that's my point. Your hand sucks sometimes, but you can't just spend your whole life complaining about it and being a victim. That's all I was trying to say. Now, how a bunch of people sent me this... this is what I'm talking about from the... and I don't... I think I see young people being softer than older generations. Every younger generation is softer than the generation that came before them.
Right. When I was in college, I was in a fraternity, and we had a guy who was like the provost of the college or something. He came and gave a speech to our fraternity, and he said, "I pledged this fraternity, and the guys who brought me in for initiation went through World War II." He goes, "Do you realize how hard it was, like what these guys did to us who came back from World War II?" People from that generation, anyone below them had to be softer. They had to, of course.
So I think it's a sign of progress. Still, University of Michigan drops first semester grades to curb mental health crisis. So they are going to, instead of a letter grade, the first semester transcripts will have a pass or no credit because they don't want to have people have a breakdown their first semester in college. You know what happened to me in my first semester in college? I partied six days a week. It was the worst GPA. I had like a 2.5 GPA. You know what? Did I have a mental health crisis because of it? No. I said, "Ben, what are you doing?" So I partied five nights a week in the second semester.
I went the other way. I think I got a 1.4, and then I think my grades dropped in the second... I think I got a 1.2.
By the way, literally, I remember I think on the show I found my transcript.
0.0. Uh, anyway, I just thought that was kind of funny.
All right, before we get to some stock market stuff, there was an article in the Wall Street Journal. Some take on debt for their weddings. These brides are making money. As wedding spending rises, brides are borrowing from their celebrity influencer playbook, finding sponsors to pay for invitations, dresses, and bachelorette parties. Let me just read you two things from the article. Number one, weddings are expensive. The average cost was $34,000 last year. Here's a quote.
I'm surprised it's not higher than that.
Here's a quote from Brianna Severson, the CMO of a wedding planning platform, Zola, which can pay brides up to $150,000 for collaborations. Okay. "It's the most effective way of marketing. When a couple announces their engagement, it's like they've set up a giant billboard. The bigger a bride's following, the more lucrative their wedding can be." I get it. I understand. But this is about everything that's wrong with the world today in terms of social media, capitalism, steroids at all costs. If you're turning your wedding into an advertisement, I think we've lost the plot.
Okay, I honestly am not trying to be contrarian here. I don't mind this.
Really? You get someone to give you a wedding dress because they want to show off the brand, and you...
What if your invitation is sponsored by, I don't know, brand XYZ?
If someone wants to pay for your wedding, I don't hate this at all. I really don't. We're commercializing... weddings are already commercialized.
What? How? It's like this... it's a crazy thing. People spend thousands of dollars on a dress that they wear once, one day of their life.
Interesting. Did not expect that one from you. Okay.
Because weddings are so expensive. Like, if people can get sponsors for them, like if my wife said, like, listen...
Sure, fine. I'm sympathetic to that. I get it. Weddings are expensive. You can lower the burn a little bit.
But we're doing this now.
All right. I just... I don't care.
It would be kind of funny if the best man got up and be like, "Hey, my speech is brought to you by Miller Lite tonight."
It's kind of funny. I don't know.
All right. I want to talk about narratives, Ben.
So very often, especially for talking heads, market commentators are grasping at straws, right? Especially on a day-to-day basis. Oh, the Dow is up 30 basis points as X, Y, or Z. Lol, right? We laugh at this. It sounds totally ridiculous. And so I think there are... it's like two sides of the barbell. On the one end are people that ascribe a move to everything, as people on TV have to do, and on the other end are people like you who say nobody has any idea why the market did what it did, and anyone who's trying to ascribe meaning to this is full of baloney, right?
I don't... I wouldn't go that far.
Yeah, oftentimes the narrative is fitted to the price after it happens.
I think I'm somewhere in the middle. Now, I'm more closer to you. Like, I think a lot of this is just... let's say 90% of it is noise, but oftentimes things happen and it's very obvious why it happened. So why do I bring this up? Bitcoin gained 20% last week, seemingly out of nowhere.
Why did it do that? It is obviously responding to the dollar, deficit, interest rate stuff.
Yeah, it was after Scott Bessent made all those comments.
You saw... you have this chart from Todd S. You saw spot crypto ETF flows go wild after having been totally apathetic for months and months and months. Um, so you might say to yourself, well, how come Bitcoin didn't care about the 30-year at 5%, but at 5.2% it does? Or how come it didn't care about government debt at 39 trillion, but $40 trillion is the magic number? And how come the last time Bitcoin... it doesn't matter. So sometimes the stories that the market believes are the only thing that matters. And it's not to say that just because asset class X is responding to Y today, that this means that going forward it's going to work. And I think this is the problem, or this is what trips people up always, is they're looking at current relationships and current market moves and extrapolating this to the next time something like this happens. But you had gold up 5% last week. You had silver up 7%. Clearly right now the anti-dollar debasement trade is a thing.
And it's also... this is also the John Maynard Keynes beauty contest. You're not voting on who you think the prettiest is. You're voting on who you think everyone else will think the prettiest is. And so what people did, I'm sure a lot of smart traders go, "I don't believe that this is a dollar debasement thing. I don't believe this is a debt crisis, but I know a lot of people will believe it. So I'm jumping on this trade too because I know people... this will be a narrative." So the narrative feeds on itself.
Yes. And of course, narratives are often wrong or ephemeral or go the other direction, and then people like us say, "Ha, see." So, for example, Michael Antonelli tweeted, "I want you to take a look at Visa and Mastercard and remember that at one point it was thought crypto was going to disrupt them. Then it was thought that AI would disrupt them." There are absolutely times in the stock market where the collective wisdom makes zero sense. Duh. Of course. Yes. So I understand why people laugh at efficient market theory and say that prices are always right. But as we spoke about last week, the point is not that prices are right at all times, always. It's just that in real time, it is incredibly difficult, dare I say impossible, to consistently say that prices are always right or always wrong.
You don't know when people are going to over or underreact. That's the thing. You don't know when investors are going to overreact. And this is the thing with crypto that we talked a couple weeks ago. The sentiment is dead. This feels like a dead asset class. And it took this to get it to... like, you don't know when people are going to have that collective, "All right, let's do it."
Now is the time to do this. It's funny. Yeah, you're right. Visa and Mastercard both were... so they're both breaking out to all-time highs.
So what was the Cathie Wood piece? Remember, they both fell 10, 15% on that. Like, that was a great buying opportunity for credit cards.
Yeah, and American Express got clobbered too. I think I had concerns that white-collar America was in deep, deep trouble. So yeah, there are definitely times where there are severe market dislocations, and very astute people can take advantage of that.
I still can't believe that... think about it, that piece caused a big market disruption for like a week.
Well, it was also on the tail end of software getting smoked.
And remember, the person who wrote it went on Odd Lots and said, like, "I can't believe that this is taken on... I can't believe this has gotten as big as it has." That... like, there's been a million thought pieces written on AI. Why did the market decide collectively we're going to zero in on this one, and this is going to have ramifications for certain stocks and sectors?
Yeah, I think because the market was already destroying a lot of the software names, and the narrative was already forming, and he just did an incredible job fictionalizing the narrative.
And the market just took it and ran with it.
Yes. All right. Um, we've been talking a lot about earnings, and every week now we have a chart from Duality Research. Great charts, by the way. Um, talking about like earnings growth can't possibly keep going as high as it has, right? Like the next derivative of it. You can't keep having 30% growth on top of 30% growth. Like, the numbers get too big. So Duality Research looked at, okay, what's the forward path projection look like in terms of the year-over-year earnings growth, and it's obviously coming down through... so this goes through like 2027, I think end of 2027.
What do you think the market does in this scenario, which is fully reasonable?
The earnings can continue to go higher, but the growth rate is not sustainable.
Yeah, still double digits.
So in this, but here's the thing, like you would say, oh well, the market has to fall. I don't know. I think this is consensus, not in a bad way. I think everybody understands...
Yeah, that's why the multiple has come down.
Yeah, I think so too. I think this to me is kind of baked into the pie already.
And so the deviation from this is what matters more. We're getting into very third-order effects here on today's show, right? We're going deep. It's not first order, second order.
All right. So I think one of the fun things that people love to do about market cycles like this is predict how it will end, right? And because we have recency bias, we look at the great financial crisis and the dot-com bubble and we say, 'Okay, it's got to be one of those. When this thing ends, this boom ends, it's one of those two options.'
I want to throw my hat in the ring on how I think I'm trying to visualize how this thing will end when it ends, because we know it will end.
The Go-Go Years by John Brooks.
This is one of the bear markets that you look back historically and no one ever talks about.
It was the end of the Nifty Fifty. It was before the 1970s. It was before the '73-'74 crash, which was bigger. So no one really gives it its place. And this book does it. It gives the up and the down. It's great. Michael Lewis writes the foreword for it. I remember reading this the first time and thinking like, 'Wow, I never thought of it that way.' And they talk about in the book that at the time, so this is 1968 to 1970, it was a 36% bear market, which is...
It's a decent, but that's average for a recession. A recession...
That was like it was called the Go-Go Years, and there was a lot of high-flying names that got smoked 80%.
So let me, this is why I think this would be a very good analogy for what could happen to this stock market. So they say, listen, the Great Depression, the stock market dropped like 90%. How could you possibly compare that to a 36% drop? So they said that there was a financial consultant who looked at the biggest stocks of the day, all like the 30 biggest glamour stocks that people were buying, IBM and Polaroid and Xerox and all these companies that everyone piled into. These were like part of the Nifty Fifty.
And the average decline of these stocks was like 80%. And the average decline of all 30 stocks in this hand-picked, I mean this is not like your DGEN Dow that you and Josh came up with and Sean, but they said they fell 80%. And so they were saying, and more people had money in the stock market then, and more people had money in these names than they had in the Dow back in the day. And so this guy was trying to make the case that this 1968 to 1970 crash, the end of the Go-Go Years, was actually worse than the Great Depression because more households were investing in stocks. And I do think that this to me seems like a good way to think about this playing out, where you have kind of a run-of-the-mill bear market, but there's plenty of stocks that fall 60, 70, 80%.
Doesn't that seem like more plausible than a dot-com bubble blowup where the stock market falls 75, 80%?
