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Welcome to Animal Spirits with Michael and Ben. It is Tuesday, July 14th at 9:04 in the morning, and it is a busy morning. We have the banks reporting this morning. We got Wells Fargo, Bank of America, JP Morgan, Goldman Sachs. We had IBM announcing disappointing results. The stock is down 23% pre-market, taking...
Wait, do we really have to pretend that IBM still matters?
You don't know anything about IBM?
I know it's coming back, but come on. Let's... Maybe this is the go-go years then.
I don't know. People are pretending like IBM's a market-moving event today. It's like, when is the last time IBM mattered as a company? 1993.
Um, I know this that came back and...
Come on, dude. IBM is a what? It's got to be a $200 billion market cap, right? Or more.
Uh, $270 billion. That kind of matters.
If we're worried about IBM, this is the doldrums of the summer market.
You're being too dismissive, dude.
It's one of the 50 biggest companies in the entire world.
I'm not sorry. I'm not a move-on sort of guy when a stock of that size falls 23%.
Yeah, it happens all the time though. All right, keep going.
And when it happens, we talk about it. You know, this is a podcast, right, for an audience.
Yeah, I'm moving past IBM.
IBM is dragging software down with it. You might move past it, but listen, I happen to like talking about stocks in the stock market, so that's what I'm going to do. If you don't want to participate, Ben, you don't have to.
Okay. Then we also have inflation. Inflation cooled. Do you care? You know, you want to talk about inflation? You know, let's just go home, Duncan. Sorry. We're done. We're done here. Ben doesn't feel like talking about things.
Okay. Inflation cooled. Keep going.
Okay. Keep going. No, that's about it. Well, a lot to talk about. The doc is busy. The doc is full. Oh, let me talk about another thing that you hate to talk about. So, prior to this morning's welcome cooling of inflation, interest rates of all sorts were moving up and out of the range that they've been in for the last couple of years to levels that would potentially...
They were not. Every time they move up a little bit, people worry and then they come back down. That's...
You have to look at the market a little bit more. You can't just say this when you're factually wrong. Yesterday, the 2-year was at the highest level that it's been at in a long... Well, maybe not two-year.
All right, fine. I stand corrected. It's pushing up against the levels that you always... I guess rightfully you deserve some credit. Every time interest rates get to these levels, people are talking about it. You're right. They have come back down.
Yes. Every time the 30-year hits 5%, people freak out. Every time the 10-year hits 4.75%, people freak out and then they go back down because I think the market... rightfully so, inflation jumped to 4.2%. And people are wondering why the market isn't more worried. Now it's back down to what is it? Three and a half percent today.
I'm giving the market credit, not myself. But yeah, you're right. But people... these are normal interest rates. This is normal. I'm seeing these are normal rates. Normal.
If interest rates were a stock, I'm looking at the 20-year yield, you would say this thing is about to break out higher, like meaningfully higher, because it's been up against these levels one, two, three, I don't know, six times.
Yeah, but you need a smack upside the head if you're doing technical analysis on interest rates.
But okay, fine. Well, you know what? I am a believer of buyers and sellers determining prices and the buyers of interest rates.
If you look at rates for the past year, I'm looking at the yield curve right now. There's no way you would say that there's a trend involved. It's up and it's down and they're really not going anywhere. The trend is range-bound.
And the longer the base, the higher in space. Have you no respect for Louis Mada?
Fine. Let me just answer this. So right now we're at 4.45 on the 10-year, which is a pretty important benchmark rate. That's the rate that everything basically is set off of. At least mortgages, I should say. Not everything.
Listen, the only level I care about right now is the height of your buttons on your polo. Let's talk about this for a second.
Wait, whoa, whoa, whoa, whoa. Well, you can talk about the buttons on my polo in one second, but if the 10-year goes to 5%, are you still going to say, 'Oh, rates are normal'?
5% Treasury yield on the 10-year is pretty normal historically.
Okay. All right. So, there's your...
How can we see a 5% 10-year rate when inflation is coming back down?
Yeah. I don't think we'll see it. That's what I'm saying.
Well, I hope you're right.
And what's wrong with my button? So, this is a three-button polo. Certainly, you don't button to the top, right? What am I...
No, you go halfway, but you don't want your shirt collar hanging open like this. You look a slob.
Do two buttons. Come on. Button it up there.
That's way better. You look much cleaner.
It's a nice-looking polo. Do you know the average 10-year Treasury yield is 4.196%? It doesn't matter. It's the direction. It's the direction. It's not the level, right? But everyone always worries when rates go higher. Oh my gosh, what does this mean? Maybe it means we're having higher economic growth. What about that? Maybe it means inflation means growth is going to be higher.
Listen, I just want to talk about these things. This is a podcast where we talk about these things. You're trying to just move past everything. You want to get recommendations...
Every time. Every time about rates. All right. No. Okay. Let's talk about something that matters. This chart. I feel like every single week now, we have a new chart with the cash flows of the hyperscalers. And every week it gets a little bit better. We've seen this a lot like with the cash flows are crashing. Now, Bank of America put the free cash flow for semiconductor companies on here. And it looks like a perfect trade-off. This is to me so far the chart of the year. But this also... this can't continue with hyperscaler free cash flow crashing and just handing it over to semiconductors. It's like they're being extorted, like they have bad information on them. Like give us all your money or we're going to tell everyone about what you did.
Well, this is why a lot of the hyperscalers are getting in the game.
So yes. So Meta, scroll down a little bit.
By the way, that's... You have a great shirt. Is this new?
So Mark Zuckerberg tweeted for the first time in, I don't know, two years or something. He said, 'Today we're releasing Llama 4.1, a strong agentic coding model at a very low price. It's available through our new Meta model API and in Meta AI.' And I made a meme here. I don't know if you can see this. It's all the different Anchor Man teams from Anchorman.
What's Ben Stiller's... Oh, he's for the part of the Spanish. What's his name? I can't remember.
But so I guess my question is, what happens when this turns into an all-out brawl by the hyperscalers and they go and they turn on each other? At what point does... because it seems to me like if Meta is going to release this low-priced version...
There was Arturo Mendes. I never would have remembered that.
So if they all turn on each other eventually, and it seems like... so I don't know how Meta releasing a new lower-priced agentic coding model... to me, I don't know how that makes any of these companies more profitable if they all just start undercutting each other. And it's like, wait, we're spending all this cash flow and we're not going to be as profitable. Like when do these firms that have seemingly gone in hand... when do they start turning on each other? Because this chart cannot continue. It just can't. A reasonable person would think this cannot continue.
Yeah. I don't know. I don't know. But you're right. This is the chart of the year for sure.
When I say I don't know, I mean I feel very unqualified to have an opinion on how long this can continue.
I guess I'm trying to think of what are the second-order effects if these companies do decide to turn on each other and say, 'All right, fine. Every man for himself now. That's it.' Well, Apple is suing OpenAI. Microsoft, Satya Nadella has spoken out against the power that these companies are now wielding.
Obviously the simple answer is that these semiconductors... they've already started to fall, maybe in anticipation of this, that they would be the ones that get hit the worst.
Well, the hyperscalers have already gotten hurt. This book has a chart showing the average absolute one-day change in the SOX index, and the absolute just takes the negative numbers and flips it positive. So we're just looking at how much these stocks are moving on a daily basis.
Yeah, I went to sixth-grade math and what absolutes are.
There's an audience, Ben.
Okay. So 3.36% has been the average absolute daily change over the last 50 days. And you only see spikes like that... you saw that during the COVID crash, during the financial crisis, and during the dot-com bubble unwind. So it's kind of crazy that I'm surprised that these numbers aren't closer to the dot-com. With as much as these stocks have been moving, I'm surprised that the dot-com bubble still makes this current iteration look kind of tame.
Who knows how high this goes? I think they were down 5% yesterday, looking up 5% in pre-market. And a lot of this is a result of the leverage that we keep talking about. So Mike Zucardi tweeted, 'Goldman Sachs shared the momentum factor had one of the largest three-week sell-offs on record, comparing it to the rest of the market was down I guess 8% or so over the last three weeks, which is good. Those stocks can't go forever.'
Last week or two weeks... no, it was last week, right, when Samsung... Yeah, we were talking about this last week. And I said to Josh, 'Stocks top on good news.' Right. Good news. That's just not as good as people were expecting.
So would it be fair to say that this is like a top, right? Like maybe the semiconductors got ahead of themselves and are going to... but the question is, like, is this the top, right? Which is obviously hard to know.
All right. Last week on the show, we talked about Chart Kid Matt had a great piece on 10 reasons to be bullish. So I decided to write a follow-up piece called 10 Reasons to Be Bearish. I'm guessing you didn't read it. So I'm going to go through the 10, and I want you to let me know what you think.
Okay. And honestly, it was harder than I thought. So the first chart is a good one to the hyperscaler. So point one would be most of the hyperscaler capex is just circular. That's reason to be bearish. Two is the Mag Seven are underperforming. They can't...
Hold on. I just have a question. You know, just keep going. Who cares?
The Mag Seven are underperforming. If they keep underperforming like this, eventually that's going to impact their free cash flow usage, I'm guessing. Three, AI is bleeding into the economy. You guys had Michael Saylor on TCAF last week. He talked about how the change in GDP is being more driven by AI and the spending on AI. So if we actually do see a slowdown in spending on AI, it's not just a stock market thing. It's bleeding into the economy. It could lead to an economic slowdown. Number four, retail is all in. We've been talking about a lot of these charts from Citadel Securities, leverage, all this stuff. Retail is in, right? Five, inflation still remains relatively high. It was 4.2%. It's still 3.5%. Way above where people think should be reasonable, right? This is way higher than it was for much of the 2010s. Six, mortgage rates are still high. We're back to the highest mortgage rates of the year again, and we're closing in on 7% yet again. I know this hasn't mattered yet, but people probably say housing is the economy. At what point does this start? Okay. Seven, complacency. The S&P 500 was up 10% for the first six months of the year. That was following gains of 18% last year, 25% the year before, 26% in 2023. We could have a Minsky moment. Stability breeds instability. Okay. Eight, AI checks all the bubble boxes. We talked about this with Derek Thompson. It just does. Nine, we're due for a recession. We haven't had a real one in 17 years. It's been way too long since we've had a slowdown. And finally, 10, the returns have been too good. 24% annualized since November '82.
No. Well, what did you say for number eight? I feel like you just talked about returns being too good.
Number eight was complacency. That's part of returns being too good.
I mean, it's all part of the same pie.
It is. So it's funny because I took both of these pieces and I put it to Claude and I said, 'Here's 10 reasons to be bullish. Here's 10 reasons to be bearish. What do you think? What's the better argument?' And Claude said, 'The bearish arguments are way flimsier because the bullish reasons are happening now. The bearish reasons are things that could happen, but they're not happening.' So it was like actually the bullish argument makes way more sense.
And you'll notice I didn't... I mean, I don't know what else I missed, but I didn't include valuations, right? Deutsche Bank has this thing on the CAPE ratio. I couldn't bring myself to do this.
That you didn't include that because the valuations that matter, not the CAPE ratio, the valuations that actually matter have been improving for forward earnings, right? You've talked about this is your one reason we're not in a bubble. But Bloomberg had a chart that shows Nvidia's valuation is the cheapest since early 2019 on a PE ratio, which is kind of nuts to think about. The valuation just keeps falling as this becomes... I guess we supercharged the cycle for Nvidia and it got so big so fast that it's now turning into...
I wonder if... I'm very curious. Is the market wrong on this? Like, is Nvidia an opportunity? Is there an opportunity on the long side of Nvidia here? Or is the market getting this absolutely right and saying, no, no, no, like peak Nvidia happened in 2024. It's not going to continue to spread to the upside. We know it's printing gazillions in cash, but we doubt the sustainability of this and we're going to put a lower premium. Like I think the market is probably right.
So per my thesis of everything getting pulled forward faster again, Nvidia was not in the top 10 for the S&P or the NASDAQ 100 as of 2020.
So I think we... what if we pulled forward a cycle of Nvidia that took Apple 15 years to live through? And Nvidia... I don't remember Apple had the cheap period now. Maybe that is what's happening.
Wait, can I blow your face off for a sec?
I'm throwing this in the doc. Where should I put this so you could see it? I'll put it after the Nvidia thing. You spoke about retail being all in.
Have you taken a look at... So we have a DJIA index, or it's a fake index. It's like the meme ETF, right?
So it looks terrible. So look at this chart from Vanda Research via Kevin Gordon via the Daily Chart Book. How's that? A three-fer. Retail investors' net single-stock buying has fallen to a new post-COVID low. We're looking at the one-week rolling net retail buying of single stocks.
Do you think that's partly because you can buy single stocks in ETFs now? That's happening more.
That's what I was going to say. Okay.
Still somewhat surprising, but it's still... I don't think every single person that's buying this is now buying the leveraged ETFs. I still think this is an interesting data point.
So here's another one on why I didn't include valuations in my thesis on being bearish. This is from Duality Research. They have the forward PE ratio for the tech stocks and it's down. It's below the 10-year average. It's well below the 5-year average and it's been falling and it's basically near the lowest levels it's been since the start of 2025. So tech stock valuations are improving during what many think is a technology bubble. That's surprising. Now you can say, well, Nvidia is a lot of that, but I don't think that the valuation thing, that the market is obviously overvalued, is such a slam dunk like people think it is.
No, I don't think so either.
That's why I didn't... Nobody.
Wait, what else did I miss on my bearish reasons? Is there anything else that I missed?
Um, reasons to be bearish.
I don't think you said the AI white-collar potential recession.
Yeah. Okay. Well, we're going to talk about that later. That one is way down on my list of worries because it's not happening.
Yeah. All right. This is not a bubble. The only thing that you could say is in a bubble that I think is potentially credible to at least argue is the memory stuff.
Well, it's the capex. You'd say that the bubble is the spending by these hyperscalers. You'd say that is the bubble.
Fine. Correct. Because it's not in the prices of the stocks. Again, memory, Micron aside maybe. And I don't know that Micron's a bubble. Who am I to say? But Oracle is down almost 60% still. That's pretty nuts.
Wait, can Netflix come back in and buy Paramount now since Oracle's down 60%? Can David Ellison still afford it?
That deal's not done. Did you watch the fight, by the way?
Oh, no. I don't really watch UFC anymore.
Not for... I just... It's been a while since I watched UFC.
Well, didn't it last 10 seconds?
It did. Yeah, it was fast. All right. Aside from technology stocks, there's a lot to be optimistic about in the stock market. I'm talking about the stock market right now. Alfonso Depolo tweeted, 'Great game.' Yeah, it really is. The S&P 500 ex-Technology Index closed the week at a new all-time high. I didn't know that this existed. The ticker is SPXT. Here's another one from him. His handle is... he's got great charts. It's alpharts, alfcharts. The advance-decline lines for the S&P 500, 400, and 600 have all pushed to fresh all-time highs. And this is with what percent of the technology indexes in a bear market? Is it...
I don't have that number.
Is it 20% or 50%? Josh and I were just talking about this last week. I can't quite remember.
Equal weight also at all-time highs, RSP.
Break if I'm a... what did you... looking for the base and the uptrend and the...
Longer the base, higher in space. All right. Here's another one. So speaking about where the bubble is. If it's in the memory names, then it's in the earnings per share, right? Because Micron's earnings went from $9 in January 2025 to $135 today. A 15x, something like that.
So Chart Kid Matt showed the S&P 500. So oftentimes when analysts are talking about earnings, they're talking about forward estimates. Okay. So when you're looking at like when all these analysts are posting charts, it's always the estimated EPS over the next 12 months. So the question is...
Who cares about what already happened?
So the question is, all right, well, are these estimates any good? Like are they just completely... how accurate are they? Should we take them to the bank?
The other thing is like these earnings are not a mirage. They're happening, but can they last? That's like that's the idea.
So the answer is yes. They are quite accurate. 67% of the time, actual earnings are within 5% of estimates. Furthermore, the only time that you see these lines divert in any meaningful way is when recessions happen. And when recessions happen, the gap is very large.
This is a very good chart. So, yeah, you're right. So if you want to say that earnings are way overdone, you basically have to... if you really want to be bearish, you have to say, 'Okay, we're going to have a recession.' That's going to do it. That's what everyone is wrong because we're going to have a recession and that's going to cause earnings to crash. Based on this data, it's also funny. Matt said that he showed me this chart yesterday and he said it's interesting that the E is easy to estimate. Not easy, but analysts are pretty good at estimating the E outside of recessions, right? Take recessions off the table. No, analysts are good at predicting recessions. They're good outside of it, but no one can predict the PE. That's what's interesting. Like the earnings, it's kind of forecastable most of the time, but no one knows what people are going to be willing to pay for those earnings.
But look at how high those forward earnings are going on this chart. This goes back till 1995. We've not seen something like this outside of like the jump after COVID.
Well, also, I don't know if that's true or not. We did a live chart.
Because right now, you're right. Looking at this, it looks scary, right? But again, if you really want to be bearish, I think you're banking on a recession. That's what you have to bank on right now. If you really want things to be really bearish and this to get kind of ugly, even a mild recession, that's what you need. So the trillion-dollar question is, recessions are caused by something. They don't just happen.
Yeah. But there's a perfect reason for a recession to happen though. AI, I think a slowdown in AI spending can absolutely cause a minor recession.
So it's a legitimate... I think it's a legitimate fear. It depends how we're all waiting for that to happen. Feels like...
Yeah. How long are we waiting for? How long are we going to wait for it though? Probably a while. I mean, the hyperscalers, if they really want to take this to the next level, they haven't really even started borrowing that much money yet. I know they're just dipping their toe in the water to borrowing money. They still have so much capacity to borrow if they want to keep putting their foot on the gas pedal.
There's so many other areas of the market that look so good like we just discussed. It makes me optimistic.
Small caps. Last week we talked about we couldn't figure out why small caps are doing so well. Sonu from the Carson Group and Facts and Feelings podcast has our back. Why is it? Drum roll please. AI. He said that even small caps are kind of an AI trade.
Which is surprising, right? I didn't really know that either. Okay. He broke these down into... because tech makes up a much smaller percentage of the Russell 2000. It's like 18%, industrials is the next biggest one at 17. He's saying a lot of the industrials are also AI.
So he said 24% of the Russell 2000 index is tied to AI in some form. 52% of the total first-half return comes from companies tied to AI. So it's not everything, but it's a big part of it. So he's saying it's basically industrials and tech stocks and it's a lot of them AI-exposed stocks, like they're somehow exposed to the AI trade.
But yes, but the other half is not AI and that's, you know, the index is up quite a lot.
But that's, yeah, so anyway.
A good line from... so Jason Zweig, one of the greatest financial writers of all time, wrote a simple sentence but a good one: investors keep chasing performance, but they never seem to catch it.
Yes. So we've been talking about the fact that I think investors are becoming much better behaved. That doesn't mean to say that all poor investor behavior has been rooted out of the system, obviously. So Jason looked at a bunch of different funds and asset classes and basically showed that the behavior gap is still real, right? The performance of the fund versus the performance of the investors in the fund, there's still a gap there. He used some work from Jeffrey Ptak, who we've highlighted before, and he talked about how... so Bitcoin was trading at 46,000 when all the ETFs were launched. It's now, what is it, around 60-ish. So you'd think people in those funds did okay. But in aggregate, people who started out in the Bitcoin funds lost an average of 5.8% annually jumping in and out of these funds. So the people who started out in those Bitcoin funds when they were launched in January of 2024...
On a dollar-weighted basis, I don't... not to pick nits, because directionally I definitely believe and I think it's right. This is like an extreme example to prove the point.
Yes, it is. But I think the point still remains: people chase the hot dot. That's... I think that's still obviously a thing.
Some people do it. Okay. Some people are momentum traders and they've done okay trying to find the next thing, but a lot of people are finding the next thing after it already became a thing and that is still happening.
Ben, we got the opening bell and IBM is down 23%. Your thoughts? I'm just kidding.
I love that the stock market can still do that. How's that? I love that the stock market can still say, you know what, you're going to get punished bigly. You're going... just see you later, right? 20% plus for a single day.
Yeah. Not for, you know, not for investors in IBM, but the general idea of the stock market is just... it's cold, Ben. It is cold.
It's heartless. All right. Really good chart from Joe Weisenthal. He shared... they had a podcast last week and he shared a chart from that episode. He said it's not just that US household exposure to equities is at a record high, but that the stock market is a significantly greater component of total household net worth than real estate now, which blows my mind. The stock market is the economy. So a lot of people look at this data and they go, 'This is reason to worry because almost every other time when stocks kind of peaked and took the lead, they crashed and these things are cyclical.' And I understand that sentiment. My takeaway from this is that this is the new normal. We're never going back to a period before where stocks aren't the biggest asset as a percentage of US household net worth. And obviously this differs among different stratas of wealth. Obviously this is aggregate. But I don't think we're ever going back to a point where in the early 1980s stocks made up 10% of aggregate household wealth.
I could... I mean, these lines will cross if there is a bear market.
But think about how this happened to equities in the same decade that housing went on its best run ever.
Yeah, I agree with that. Housing kept up a little bit.
I think that if you fast forward...
I totally agree. Fast forward 20 years and barring something entirely unforeseen, stocks will be above real estate for the majority of the next 20 years.
Unless we have like 10% interest rates or something. But the thing is, so I'm fascinated by how people own stocks and how it can change. And Josh has written about this with A Relentless Bid. 401ks and IRAs absolutely change this. And I wrote a whole chapter in Risk and Reward about the history of equity ownership in this country. So in the 1950s it was like 4% of people owned stocks. By 1983 it was 19%. So people were way underinvested in equities before. Now you would say, what about pensions? Pensions made up a bigger piece of it. But here's the thing, a pension really is like a bond. It's not like an equity. And the pensions back in the day, in like the 60s and 70s, they didn't really invest in stocks very much. They were heavily invested in fixed income. There were like rules that said you couldn't have more than like 50% or 30% of your money in certain states invested in stocks in a pension. Like most of the pensions invested in bonds too. So this is the new normal and the stock market is just more important than ever and we're never going back to where that isn't the case.
Okay. So Eric Belchunis, kind of on a similar note, he published this note in Bloomberg that basically said, is the stock market too big to fail? And he said, you know, 55 to 60% of people own stocks and he gave all these reasons why he thinks that the Fed could step in and buy stocks during the next downturn. And I think he's absolutely right. I think it could happen. It would not shock me. People would be so angry.
Japan did that for years.
So here's his six reasons why the stock market is so important that we would maybe step in and buy. And in a financial crisis, that would not shock me at all. People would be so angry and it wouldn't surprise me if it happened. So he says the stock market is our retirement fund. Totally agree. We have the biggest stock market in the world. It's outsized, 60%, 65%, however. He says the Trump accounts are going to add a bunch of new investors. I don't think that's as big of a deal as he does. Like all the new babies are going to get an account. We'll see. I think there's so many accounts out there. I think adding one more account is not really going to move the needle. We already have 401ks and IRAs and Roth IRAs and HSAs and 529s.
Can I say something? So many accounts.
Speaking of making people mad, that might make people really mad.
I think that sending people checks during an economic downturn is the most effective way to fight a recession. Now I...
You and old John Maynard Keynes think that.
I know what happened last time. It caused all of the [__] that we're living through right now. Inflation destroyed the fabric of our society. Hugely unpopular. Obviously it was terrible.
The way that you described inflation there, it sounds like it's like a bad guy in Avengers.
Worse. But part of the reason why we got the inflation was not just the checks. It was that the supply chain was turned off, right? And there was a huge imbalance of way too much demand and not enough supply. Assuming that is not the case in the next recession, assuming things are functioning normally, I think that obviously will be inflationary to some degree. It's never going to happen because the political impulse will be so...
Tomrade Batnick, welcome to the socialist side of things.
All right. He also says rich people just own so many stocks. The top 10% owns 87%.
Wait, hold on, comrade Batnick. This is a very important thing.
I agree with you. If you want to slow a recession, giving people money, like you're right. It totally...
But there is a huge school of thought that thinks that recessions are healthy, that people just need to take their medicine and things need to die in order to be reborn. And I totally get it. I'm not saying that I disagree with that sentiment entirely, but I am saying what if you could ease the pain a little bit and make people's lives a little bit less horrific.
Especially for those who need it the most.
Because the people that say that the economy needs to take its medicine are never the ones that are going to be collecting unemployment checks, whose lives are going to be turned upside down in a recession. It's people, right? It's people whatever on Wall Street...
People who will have the means to buy stocks when they're down. All right. So the question is, let's say the stock market is too big to fail. What are the second and third-order effects here? And I don't know exactly what the risks are. Like we lop off the left tail. It's gone. The left tail of Great Depression. See you later. What does that mean? Now here's my thesis of what this means. It means that markets will punish bad behavior way faster. And I think flash crashes now are not just going to be daily events. They're going to be bear markets. Like bear markets in the future are going to be flash crashes. We've already had them this decade essentially.
Look at IBM. Look at IBM today.
IBM Liberation Day was essentially a flash crash where the stock market... So this started in 2008 when they did not pass the TARP bill and the stock market went down like 10% in a day and they essentially forced the politicians to come together and pass that bill. The stock market said, no, no, no, you're going to do this or we're going to cause more pain.
Yeah. The same thing happened in COVID, right? The stock market went down so fast and forced the hand, the government had to send out money.
SV Liberation Day. They forced Trump's hand into saying, 'You know what? I think I'm going to do a 90-day pause on these tariffs.' This is what's going to happen. The stock market is going to hold everyone's feet to the fire and say, 'If you don't do this, we're... see you later.' That's what the market is going to be. You're going to get more way faster downturn. So the market holds, like, makes people make decisions to do so.
Yes, I agree. And it all works as long as earnings are going up because if corporate America slows, there's nothing politicians can do to make the stock market go up. It's just true. It's just earnings growth. It really is.
And guess what? Corporations are really good at producing earnings.
Especially when we have a 6% deficit from the federal government.
All right. The K-shaped economy narrative seems to be dying. Mike Zucardi in June: higher income households' after-tax wage growth eased while that of lower income cohort improved to a similar level. So you had this thing for a while where, oh, higher incomes are having faster wage growth. Now it's caught up. Maybe, just maybe, all of this stuff is cyclical and it changes and you can't subscribe... you can't make a narrative to everything. Like the K-shaped economy thing, I think has been kind of... it was kind of a flash in the pan just like lower income households doing so much better was a flash in the pan. These things change. I think the K-shaped economy has been kind of debunked in a lot of ways.
No, we talked about last week with the guy, a couple weeks ago with PNC, how lower income households are spending more on their credit cards.
All right. So, okay. So to be clear...
And the whole idea that the top 10% are spending 50% of the money, that number was debunked. It's not as bad as people think it is.
But it's always been that. I just think the K stuff, we took it too far.
Okay. So the economy is absolutely K-shaped. Always has been.
Yes, it is. And it always will be.
So I think you're saying just the narrative has gotten too far.
We took it too far. It's the same as it's always been essentially.
Yeah. The thing is, if we really want to do a deeper dive on this, the biggest anomaly in US economic history the past hundred years was the middle class being formed after World War II. We had a huge surging middle class. We built a bunch of homes. Everyone moved to the suburbs. That whole period in the 1950s and 1960s is never happening again. That was a one-time economic anomaly. And I don't think people have wrapped their heads around that yet. And it was because of the aftermath of World War II.
I've got all my yarn on the wall like the guy in... All right. All right. Something else that's wrong for now at least, the AI doomers are wrong.
Well, if Sam Altman says it, sure. So far, at least, I'm pretty sure AI has been net job creating. This was not what I expected. Although I was much less pessimistic than others, I thought by this level of capability, we would have seen some impact. It's possible this direction keeps going.
Oh, I think you could say...
I think he's just doing some... I think finally the PR people got to him.
But Dario from Anthropic last year was saying in six months white collar employment, like they were making...
And then people started throwing Molotov cocktails at their house.
But yeah, but we're not seeing any of the predictions. So I think you could say that the models are now performing probably better than anyone would have assumed two to three years ago.
Okay. Is it possible, I'm throwing a theory out, is it possible that people who sit in front of their desk and do computer coding their whole life don't understand how other white collar work actually happens? Is it possible these guys made a wrong assumption about how this stuff actually works and they don't really understand people?
Okay, this is from LinkedIn, head chief economist at Indeed. US software development job postings are up 15% since the launch of Claude Code in late February 2025, while overall job postings fell by 7% over the same period. And it's not a junior rebound. 71% of the gains came from senior roles, 37% from postings with AI in the titles.
Okay, software job postings are rising while we have the biggest software definer ever that's been created, that was made. This is what AI was best made for, is doing software roles, and there's more jobs available for that.
Look at the unemployment rate for ages 20 to 24 in the US. It had that little uptick from 2023 to 2025, and people go, "See this?" It's essentially unchanged since the start of 2022 when ChatGPT was launched. Ages 20 to 24, the biggest worry that people have. So all the AI doomers, Connor Sen...
