We Asked Ben Hunt, Jim Paulsen, Kevin Muir and Brent Kochuba Why Bad News Can’t Break This Market

[00:00:00] We are excited to announce the launch of a new podcast, Last Call. While many market rap shows can cover the same ground, we wanted to try something different. We wanted to get away from what the market did in the past month and instead bring in some of our friends who offer truly unique perspectives and data. And we wanted to have some fun along the way. Our latest episode looks at the question of why the market isn't down despite war and oil shock and some signs of problems in credit markets. We talked to Jim Paulsen and Kevin Muir about macro, Ben Hunt about narratives and Brent Kochuba about the flows behind the scenes. You can subscribe to Last Call on all major podcast platforms using the links in this episode description. Thank you for listening. We hope you enjoy the show.

[00:00:28] We've, you know, had these two big explosions happen. The light hasn't reached our eyes yet. And so we think they haven't happened, but I think they have. We had an excess demand driven inflation problem in the 1970s that required appropriately massive tightening to get rid of, to shut down demand, to bring it back in line with supply capabilities. That is not what we got today.

[00:00:56] When you put all these things together, Matt, you realize that a lot of the bear cases is longer term in nature. It's not something that's happening today or tomorrow. This actually is not conducive to the market just falling apart. And I think this is one reason that we have not seen sort of the sum of all fears, the realizing of downside.

[00:01:30] You're watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use for better questions, lead to better decisions. This is Last Call. I'm Matt Ziegler. That's Jack Forehand. You're ready to try to talk about this month that just happened with some of our favorite people, Jack? I am. But before we get started, Matt, I mean, we got to talk about oil a little bit because we just got off this private jet. I mean, I don't know if you've been holding your half of the bargain here in terms of a little money for the gas here.

[00:01:56] The checks in the mail, the checks in the mail, that jet fuel, you know, it's not my it wasn't my choice to stop in the UAE on the way over. I didn't know it was going to get like that. You're the one who had to stop to hit the gold ATM, I heard. Maybe someday we'll actually we'll actually get the private jet and we'll actually be able to talk about this, but it's probably I'm like, I'm just hoping there's still six people who think that's real. So that's that's really all there. There have been a couple in the comments who actually did did believe it was real.

[00:02:23] So hopefully they're still out there. But we've got an incredible lineup today. You know, if you want to look at what's going on the market through a bunch of different lenses, we've got everything you could want. We've got Jim Paulson and Kevin Muir on the macro side. We've got Ben Hunt on the narrative side. We've got Brent Kochuba flows. We've got brand new interviews with all four of them. So we should kick this thing off. Yeah. Brand new interviews, short and tight, 10 ish minutes each. Some of our favorite people just to check in and say, hey, what just happened? What do you think comes next?

[00:02:49] I'm actually really loving that we do this because then I show up to investment committee meetings and I sound really smart because I get these sound lights. And so you at home, I invite you to do the same thing. Steal from these people. So before we get into it and start playing clips from these guests, we're going to do the look back. I would think the biggest story is why is the market not down? I mean, the thing I talk to most clients with is probably that topic. I mean, we've got an oil shock. We've got a war that doesn't seem to be resolving.

[00:03:18] The market just keeps going. And I think so many people are asking the question of why. I don't know if you're hearing the same thing. I'm hearing exactly the same thing. I keep going back to the Brent Kachuba or no, the Brent Donnelly. Wrong Brent. Too many Brents and then Brent crude. You got me all thrown off of my game here. Brent Donnelly, who had that line about bear markets and down markets require successive bad news. So it's bad news on top of bad news on top of bad. Like you get no respite in a real bear market.

[00:03:45] And I think what's wild here ever since he said that it's we have another event. We have another economic number. We have another piece that hurts. And then it's like, oh, blowout earnings. Oh, strong, not so bad employment data based on the headline interpretation, even though we know that's probably not right. That breaking up of the bad news with reasons for optimism seems like that's what makes this so hard to bet against right now. What do you think? Yeah. And I was trying to write down some reasons, I think.

[00:04:13] You know, one, I think there is this anticipation of by the dip that's kind of come in. Like these dips have all been so small and they've been bought so quickly, like people are trying to get ahead of it now. Probably the anticipation of some sort of resolution slash taco, whatever you want to call it. That's probably part of it, too. But also, I think this kind of gets out. I'll read this Warren Pye's tweet because I thought it was really good. He just had it out yesterday. He said, August Brent up 20 percent in 10 days and equity is still resilient. Tells you two things. One, de-escalation without a reopening is losing its power to cap oil, physical market biting.

[00:04:43] And two, equities are seeing something pretty bullish on the quote other side of this. And that second thing is kind of what I was thinking about is like there's some I mean, AI is kind of the thing that's just floating out there right now. And it's this transformative thing. And the market has a way of seeing through maybe some of these blips on the radar. Not that this is a blip on the radar, but some of these short term things when we've got a big long term thing coming. Like I remember when just recently, like what's going on with semis is crazy. So it's almost like the market is anticipating that, I think, to some degree. I don't know if you agree with that.

[00:05:13] I completely agree with that. And part of it, too. So, number one, buy the dip. You got peak to trough. S&P was off, what, 9%? NASDAQ was off like 10%. I think it's almost 10%. Yeah, I think that's right. Yeah, S&P, I think, just almost got there. NASDAQ just got over the quote unquote 10% arbitrary correction line. So you have everybody who's looking for something approximately like that who wants to go and buy. Because earnings have been so resilient, and I know we've done a bunch of things with guests talking about forward earnings, that made everything cheaper.

[00:05:42] And I think this is one of those annoying things. This is one of the investment committee lessons that I'm going to bring back into this conversation, too, which is where the trained stewards of capital, with the right letters after their name and all the things, they're like, look what just happened to valuations. Because you got that 10% drawdown at the same time you've seen the expectation of double-digit earnings growth hit this market. So when you put that combination into play, how do you not buy the dip if you have any type of long-term valuation focus,

[00:06:12] and you trust or believe these numbers? That's a real incentive for the other side, which is what Warren's talking about here. And I'm getting that sense from people where they're willing to look through this turmoil. Yeah, and we'll see how it plays out. Like, you know, part of me is concerned about, like, this buy the dip, buy the dip working every single time. Like, eventually, when it doesn't work, it's going to be worse. But that's not a bearish thing. That's just me thinking through it. But yeah, who knows? I mean, it's just very interesting because every time you talk to a client, they're like, why is this thing not down?

[00:06:42] Like, they want to panic. They want to sell. It's like, why is this thing not down? And there's a lot of reasons for it, but I think it is the topic of the month. Easily the topic of the month. The other part that we don't really get into in extreme detail here, but I think it bears mentioning, is with this volatility, with whatever else has been going on outside of private credit. We'll talk about some of that, too, in bond land, which the ability to rebalance. Like, bonds have held up. Diversification in the portfolios worked.

[00:07:10] If you weren't all MAG7 or you weren't all, like, focused on certain corners of the market, this has been pretty resilient. Like, the diversification case in the beginning of this year has been pretty strong, and that's made it a lot more comfortable, even in this short-lived drawdown, where people wanting to panic versus feeling like they need to. We didn't cross that line, at least in my client conversations that I've had. Yeah, no, I would agree. I think it's the same thing in mine. So we should probably get into the guest series.

[00:07:39] People have probably heard enough of us. So let's start with Ben, because what Ben talked about was we've had this supernova in private credit and in the straight-of-horse moves in the oil situation. And when he says supernova, he's not talking about the actual explosion of the star. What he's talking about is this thing happened in space, and the light, the information, the story hasn't gotten to us yet. So listen to the whole clip, because I pushed him back. They do this model portfolio on Perseid Pro that they did something really interesting.

[00:08:07] So it's like negative, negative, negative, negative, terrified, all this bad stuff. Not blowing it out of control. But then, at the end, here's why I'm long. And it's inside of the supernova definition. I think this is so cool. So here it is, Ben Hunt. Next up, we've got Ben Hunt, Epsilon Theory. We're talking about some of the Persean Pro data.

[00:08:30] You basically said there's a supernova going on right now between the domestic credit freeze, the Strait of Hormuz, and the oil crunch. It's all this stuff that's backed up that it seems like we're all talking about it. Markets haven't really reacted. And you're telling me we're processing this information, break down the lay of the land force, Ben. Well, I don't even know that we're really talking about it anymore. So what I mean by a supernova, I really mean there have been two supernovas.

[00:08:56] I mean there have been two gigantic explosions that have happened in the world, but they're a long way off. Or in the case of a domestic credit crunch for mid-market U.S. companies, it's not that it's a long way off, but it's invisible to us. Because you don't read about it in the Wall Street Journal.

[00:09:20] Kramer's not talking about a company that does $150 million of revenue, this private company that funds itself through private credit lending. But that's all come to a halt. That's all just stopped. And that's what we mean by a credit crunch. And that's a big freaking deal. That's what I mean by one of the supernovas that's exploded. It's invisible to us.

[00:09:49] And it just takes time for the light to reach our eyes. And ditto with what's happening in the Persian Gulf. We're looking through the events because we figure, well, it'll go back to normal. And honestly, I think it kind of will. I think that's right. I think the massive conflagration, I feel like, that really is kind of off the table.

[00:10:18] But the street is still closed. And I don't know of any outcome there that doesn't result in permanently higher prices and uncertainty around price for all the oil that comes out of there. And that has an impact. I know it's having an impact in Asia and emerging markets today. It's like it just takes time for that to spread, the impact of that to spread to our eyes.

[00:10:47] And until it hits our eyes, we return to our usually scheduled entertainment of, you know, let's talk about the Mag 7 or let's talk about, you know, a SpaceX IPO. Not that those things are unimportant, but I really do feel like we've, you know, had these two big explosions happen. The light hasn't reached our eyes yet.

[00:11:15] And so we think they haven't happened, but I think they have. So fascinating inside of this is we saw the spike in private credit concerns. We've talked about that. We had a couple of headlines, blue owl, blah, blah, blah. Yeah. But to your point, when those went away, that's specifically in credit. That's such a huge part of the lending function that got replaced in the system post GFC. That's that's where private credit came from.

[00:11:43] And yet we're not talking about and I agree with this wholeheartedly, we're not talking about how your middle market company accesses credit, which it is dependent dependent on as a source of capital. Got to have it. Got to have it. And so, you know, used to be you would go to commercial banks for that loan after the GFC for a wide variety of reasons, both good and bad. Commercial banks really stepped back from that market.

[00:12:12] You know, I'm not and they step back from all of these corporate loan markets, including the big guys, the syndicated loan market. But. Into that opportunity came these alternative asset managers, the Apollos of the world, Aries, Blue Owl, KKR. And thank God they did right.

[00:12:36] They came in and they're making loans to these private companies, some public ones, too, especially these private companies. That's where they need the capital. Getting a loan, that's that's the oxygen by which companies grow, by which the engine keeps firing. And look, I have my concerns about what's happening in the private credit portfolios.

[00:13:03] Is it as bad as the GFC and residential mortgage backed securities? No, it's not. It's not as big in absolute numbers and it's not as levered. There's not as much borrowed money on top of it as in the GFC. But it's not a small number, right? If our if our threshold is, oh, it's got to be as big as the, you know, great financial crisis. Well.

[00:13:30] No, it's big enough to be a real problem in and of itself. But there is an even bigger problem, which is that if these companies are now dead in the water and for all practical purposes, they are. I mean, you know, Apollo, I think, is still making some loans because they've got a captive insurance firm that can keep funding them to make new loans.

[00:14:00] But all of these companies are like sharks. Once you become an origination and securitization machine, once you become a machine that's in the business of flow, you got to keep flowing. You got to keep originating deals and funding them and securitizing them. Man, that's just stopped. It's come to a halt. So my real concern more so, and I have real concerns about the existing private credit portfolio.

[00:14:30] My even bigger concern is who's lending to a middle market, decent sized American company today? Because that's that's always been our engine of growth. That's where the hiring is. That's where the growth is. Because if they don't have access to credit, we're going to have a nasty recession.

[00:14:53] But because this is happening invisibly, not on the pages of the Wall Street Journal, you get hints of the Wall Street Journal. You had this company, Bedalia, where the sponsor basically had to turn over the keys to the to the creditors because the creditors are saying, no, we're not going to redo the debt. We're not going to roll the debt. We'll just we'll just take it. Thank you very much.

[00:15:18] And so you just end up with zombie companies, companies that have no opportunity to grow because they don't have access to credit. That's my real concern right now. It's a supernova explosion that I think took place. But the light from it hasn't reached our eyes yet. Okay, same metaphor with straight of Hormuz because carry that one through.

[00:15:43] So I understand the recession risk from it's the tightening in credit that no one's seeing yet. It's there. If you're one of those companies, you see it, you feel it. Having conversations with people who are experiencing some of this. What about on the oil side? What do you see there post straight of Hormuz? Because we're now what? For both credit and the price of oil. And people say, well, look, so if the price of oil goes to. Whatever, 120 or something like that. 140 even.

[00:16:11] Oh, let's look at an inflation adjusted return. You know, it's not it's not as bad as it used to be. Again. Right. Correct. But our threshold for bad news. Right. Doesn't have to be great financial crisis. It doesn't have to be 73 or 79 oil crisis. Right. That's not we don't have to get to that for it to be a real problem. So we're at the real problem stage because.

[00:16:41] There is physically not as much oil going into the world. And when that happens, well, the users of that oil, they don't have it. You can either pay a lot more money to secure it or you just don't do your thing. And for a lot of them, they'll just stop doing their thing, which means global growth goes down in the same way that a lack of credit means that U.S. growth goes down.

[00:17:09] It's just a it's just a winding down that in this highly optimized world that we're in, because that's the other thing is there's no slack in our economic world today. We're all levered. Every country is levered up to the gills. Every company is levered up to the gills. Everything depends on growth. And if you have the whole machine just kind of. Then in a highly levered environment.

[00:17:39] That breaks things all over the place. That's what I feel has happened. But until you see things break. The market's not going to pay attention to it because that is the breaking. That is the light hitting our eyes. I think it's happening. I think things are already breaking. But they're either under the radar screen or too far away geographically. It just takes time for the light to get here.

[00:18:09] One more thought, because I know you're writing about this over on Perseid Pro where you're tracking. There's a model portfolio. You're looking at some of this stuff. Any updates there and just trying to stay in front of this developing story of global growth slowdown? Yeah, so coming into the month we were very net short. Net short as I've been. And at the start of the month I covered all my shorts and went long.

[00:18:35] Because we are in a period once that systemic risk was taken off the table that just like happened in 2008. We had a 17% market rally in 2008 during April and May. Because until the defaults, until the lack of loan growth, until the breakage actually hits us, we're going to look through the daily news.

[00:19:05] And so I'm waiting for the breakage to kind of appear to us, the light to hit us. Then I'll put the shorts back on. But until it does, you just want to go with the flow. You go with the narrative flow. So that's what I've been doing in the model portfolio. I needed people to hear that, too. This is why you follow Ben. Because despite that warning, listen to what he's actually doing with at least that model portfolio there.

[00:19:33] Ben, if people want to read more buggy on the internet, where should we send them? Perseid is where you can go see a lot of it. But then I'm always available at Epsilon Theory on Twitter. Go to the internet. The interwebs, they'll take you to our new website. It's great. Epsilon Theory is the place to look. Thanks, Ben. Thank you, Matt. So next up is my conversation with Jim Paulson. And Jim probably does some of the best charts out there.

[00:19:59] But it's also interesting because he's kind of seeing the two sides of this as well. Like Jim's done a lot of work around the idea that we're seeing cracks in the economy now. We're seeing maybe what's going on with the war having an impact. Inflation, he's also seeing coming down. But he's also seeing a bullishness in that weakness in the economy. So here's my conversation with Jim. Jim, welcome to Last Call. Thanks for having me. Well, we're really excited to have you. You have such a unique take on markets. And it's a data-driven take. And that's why I wanted to talk to you today.

[00:20:29] And for anybody who wants to see, you put out all kinds of great charts all the time. Those can be found on paulsonperspectives.substack.com. You've got a great substack. I saw 8,000 followers or something. So you're growing pretty rapidly here. It's getting there, I guess. So, and part of that is because of how uniquely you look at the markets. And we're going to talk about inflation. You said a recent post on inflation. And you don't see inflation as big a problem as maybe some do. But I want to start with our theme of the episode here, which is we've been talking about this idea that the market just seems to be immune to everything.

[00:20:59] I mean, we continue to get news that would typically drive a market down, whether it's an oil shock, whether it's a war. And it seems like it's pretty resilient to this. And I'm just wondering if you have any thoughts as to why that might be happening. Well, the first thing I would say is there have been a couple of really good gut checks here just in the last 12 months. You've got to remember 12 months ago, we had a 20%, which almost was a bear market in the S&P 500 in April of last year when they introduced the tariffs.

[00:21:26] And then we just got done here earlier this year with a 10% correction almost in the S&P 500. And, of course, worse moves in the broader markets. That's two pretty good gut checks for a 12-month period in any 12-month period. So maybe there's more downside than people realize, so to speak. They're kind of quick turnarounds, but they've been downside. But I would say the biggest reasons are just the attitude that has existed for the last several years, Jack.

[00:21:51] I mean, we've got confidence on Main Street at all-time record lows in the post-war period right now, despite an ongoing bull market, despite an ongoing economic recovery. Main Street says they've never seen it this bad out here. And because of that attitude, people are cautious. People, if they think bad things are going to happen, guess what? They're not going to be overextended in the stock market, overextended on their financial balance sheet. You know, they're not going to buy their credit card, you know, swipe it too much.

[00:22:18] And as a result, it's difficult to get a real vulnerability, not only in the economy, to bring it down, even with a lot of bad things, but also in the stock market. People are sitting on loads of liquid balances. If you look at money market funds to disposable personal income, they're almost at record highs. Cash levels in the economy to GDP are close to some of the highest levels we've ever had.

[00:22:42] You know, it's a little less at the moment, but you've had players like Jamie Dimon telling you there's going to be a recession every week, you know, imminently. And so people, I think, I think caution, pessimism, conservativeness, you know, I think that's the kind of stuff that reduces the vulnerabilities to bad things that happen. And if you don't have vulnerabilities, it doesn't have to go down very far. I think that's so.

[00:23:06] We're going to get to a period, I think, where we're going to have an outbreak of animal spirits and, you know, optimistic attitudes. But I don't think we're there yet. Yeah, it's this idea. It's hard for bad things to happen when everybody thinks bad things are going to happen, right? And we've kind of, despite the market being up, like people still think bad things are going to happen. That's right. It's true. So I want to get to your inflation chart because it's really good. And you wrote a piece here on inflation. And you don't think, a lot of people are very worried about inflation, especially in light of the street of Hormuz still being closed.

[00:23:36] And some people were worried about it before that. But you don't see it as big of an issue, as many people do. And I'll put up this chart one here, which is the annual inflation rate against the trailing four-year average annualized U.S. labor force growth. So can you talk about that chart and why you think it's important? I will. Well, I think one of the most interesting aspects of this bull market, which started in October of 2022, is we have had chronic primary worry about inflation almost from the get-go, almost since the pandemic.

[00:24:04] So about five years in a row now, inflation was mission number one and growth and everything else is mission after that. And it's certainly the headliners, the Fed, but everyone's kind of been that way. And we've conflated the inflation situation of the pandemic and then worried about the tariff inflation and now worried about the war inflation with environment of the 1970s. And I think they couldn't be more different, those two environments.

[00:24:30] And the policy officials in post-Depression have built their entire policy approach on the inflation rate. I really think they have. That's kind of the, it's really the idea of too many buyers chasing too few goods. If that's the case, then whenever the inflation rate goes up, it's a signal to policy officials they must tighten to slow down aggregate demand to bring inflation. And if inflation starts to flag, they can ease again and focus more on growing.

[00:24:59] That's fine if demand drives inflation all the time. And in the 70s, it did. The chart that you're showing basically overlays the annual rate of growth and a four-year moving average of the labor force growth rate in the United States over the annual rate of inflation. And you can see that back in the 70s, there was a really strong correlation. You had rapid labor force growth. You got higher inflation. Why?

[00:25:26] Because labor force growth is probably the best proxy for aggregate demand. If we create a ton of jobs and we got a lot of people that have jobs, there's going to be stronger demand. And we had an excess demand-driven inflation problem in the 1970s that required appropriately massive tightening to get rid of, to shut down demand, to bring it back in line with supply capabilities. That is not what we got today. We almost have the opposite of that.

[00:25:54] The pandemic inflation, worried about tariffs, inflation, war inflation, are all temporary, number one. Apply side restrictions that really have nothing to do with demand. Demands, whatever. But what we did was really restrict supply for a period. And when you do that, inflation goes up. But that's a different inflation signal. Because if you think about it, why, when the inflation went up during the pandemic, should we have tightened?

[00:26:24] All it's going to do is slow demand more and make the inflation problem worse. And you're not going to correct the supply problem until the global pandemic goes away and supply comes back online. So now we've got the same thing going on. If we raise interest rates and tighten policy today, what are we going to do? We're not going to bring oil prices down. They're not going to come down until we get peace. So it's not going to help the inflation problem. But in the meantime, we're going to kill agron demand even further.

[00:26:52] And so I think we're getting inappropriate policy signals going on today because we're misinterpreting inflation as excess demand when what it really is is temporary supply restriction. And the reason this is important, I think, is that we're going to – I think we're about to the end of this obsession with inflation. Because if we get peace, I think inflation is going to return very quickly.

[00:27:14] As you can see in that chart, there's simply not enough demand in this country to support that high of inflation rate on a sustained basis, primarily because labor force growth is only half a percent a year on average. It used to be 3 percent in the 1970s. But if we have peace and war is over, I think oil prices are going to come down because that's what put them up in the first place. But then we'll be left with the growth rate that we have in acreage demand, which I think is pretty weak.

[00:27:40] And I think what – the reason – long story short in all this is that the whole bull market we've been in, the mission number one has been inflation all the time. I think maybe for the first time in this bull in the not-too-distant future, we're going to switch our focus among investors and among, more importantly, policy officials. Mission number one may be growth, and we'll get much more relaxed about a sustained inflation problem.

[00:28:07] So that could have a whole other bull leg because they'll bring policy support in a manner we haven't had yet. And policy support probably helps the broader marketplace that haven't participated as much as technology that has been the leader. Yeah, and you talked about this in other episodes. Like, we're seeing a lot of signs. It's interesting. We've had a bull market for a pretty long time, but we're seeing a lot of signs you would only see usually early in a bull market. And that's pretty positive from your perspective going forward, right? I think so. I think so.

[00:28:37] I mean, if you just think about the policy potential we have left, you've still got – 10 years, you know, they're not two. There's a lot of room. You've still got the real money supply at a little over 1%, very modest. You've still got the yield curve, which is relatively flat, 50 basis points. You've got the dollar, which is extraordinarily high in real terms that could be brought down a lot. So there's a lot of room to bring policy support.

[00:29:07] We just haven't utilized it. Because why? Because we've been so obsessed with inflation. But if that obsession goes away, I think we're going to bring some of that. And quite frankly, I would argue that having a five-year period in this country where the obsession of policy officials and everyone was, we have to win against inflation every day you wake up.

[00:29:27] I think that's also just hurt and held back real growth, employment growth, Wall Street or Main Street sentiment, and probably ultimately the American dream. If you think about it, we've kind of depressed all those for a long time. And if we finally get away from that obsession, maybe we can raise all those things I just mentioned. And that could be another – extend the period of this bull market. Yeah, maybe we'll have people stop worrying about the stock market going down and recessions and inflation.

[00:29:56] And maybe we'll have walls and optimism out there. A little bit for a while. Well, Jim, thank you for doing this. I appreciate it. You bet, Jack. Thanks for having me so much. I appreciate it. So on one hand, we have the bad stuff that's going on, private credit, straight-of-whore moves, everything that everybody knows is bad. On the other side, we have the look-through. And you said it in the intro with Warren Pies' chart and saying what the market's expecting. Then what Paulson's describing here, which I think is just utterly fascinating for the optimism case.

[00:30:22] My favorite person to do the what's on the left hand, what's on the right hand weighing of this, and he wrote two amazing posts over on MacroTourist about this, is Kevin Weir. That's who we got next. Next, here's my conversation with Kevin. So next up, we're welcoming Kevin Weir back to Excess Returns. Kevin Weir, MacroTourist. Kevin, how's it going? Good, man. How about yourself, Matt?

[00:30:46] I am doing fantastic because you just keep throwing great emails my way, and I'm like, well, that's another thing I have to get Kevin on to talk to him about. So in the great tradition of somebody please give me a one-handed economist. You did this thing with the bull case and the bear case, and then where it lands. I was hoping you could walk us through that bull and bear argument as you see it right now. Yeah, because this war has definitely been tough to navigate.

[00:31:14] I don't know about you, but I've experienced a lot of difficulties figuring out what's going on. And the amount of traitors that have just reached out to me and said, like, I have no clue. I don't understand. So in the kind of the hopes that by outlining it all, it'll become more clear to me, I just kind of walk through the bull and bear arguments. And it was actually very helpful because I realized I was probably a little too bearish. So let's go and talk about this.

[00:31:44] First of all, in terms of let's just think about what occurred from the moment the war started. We had this out-of-the-blue event. Oil all of a sudden spiked. And I think the really surprising part about that whole episode was the fact that we saw the most pain at the front end of the yield curve, which was very, very shocking for a lot of people.

[00:32:11] Especially, I would say, the hedge fund community that if you look at the type of hedge funds that got hurt the worst. It was what's known as stir traders, short-term interest rate traders. And they were all just leaning too much on the camp that we were going to see lower front end rates across the board. So we had this situation where the war happens. All of a sudden oil spikes. And instead of the Fed having three cuts priced in, we had this move higher.

[00:32:41] One of the interesting things about it was the first couple weeks, if you remember back, Matt, we had this situation where the stock market wasn't going down. Like I think in the first couple weeks, they might have been down 3% or something. It was a weird water tread moment of being like, no, no, no. Like Jaws is there. Jaws is there. What's going on?

[00:33:02] And we had this very, like this pain within the market, meaning violent moves where you see energy going straight up and then tech stocks going straight down. And a lot of the systematic community was just getting crushed or the quant community was getting hurt. And so what I think was happening in those first couple of weeks is that there was just general de-levering across the board. So people were covering their shorts. They were covering their longs. They were pulling it in.

[00:33:29] And some of the trades that were really kind of overexposed, for example, gold, everyone was confused because we had this situation where gold fell immediately. And I think that was just because everyone was long. So first couple of weeks, we had just this general de-grossing. Then we got to the FOMC. And I don't think enough attention is placed on that FOMC meeting.

[00:33:49] And one of the things that occurred then, if we remember back going into that meeting, the previous meeting, we had had three descents, which were widely viewed as Waller, Bowman and Moran. And then we have this situation where rates all of a sudden are rising in terms of forward implied rates are no longer pricing in quite as many cuts. And then we have the FOMC meeting.

[00:34:13] And the real question was, is the Fed going to push back against that implicit tightening? And what happened was that the Fed didn't push back and accepted it. And most importantly was the two descents disappeared. And we only had one descent. And what that was widely viewed was Bowman and Waller were okaying that implicit tightening.

[00:34:40] And especially Waller, I think the next day or two had a speech where it was very clear that he was saying, nope, the cuts are off the table. And if you look, it accelerated into those final two weeks of March after the FOMC. So we had a situation where the situation was getting worse in terms of oil was going higher. Not only that, the front end yield started to pick up. A lot of hedge funds were cut off guard.

[00:35:07] And then it was also made all the worse by the fact that we had the JP Morgan option whale short put position all of a sudden started coming in. And in terms of we were approaching that put position. Matt, the amount of bad takes I saw out there about this at the time just astounded me. Because so often we rally up into the call position where the market makers are long. So people were talking about, oh, we're going to get pinned to the strike. And it's actually the opposite.

[00:35:36] When the market makers are short that put, it means that they're short gamma and they're selling more as it goes down, buying more as it's going up, chasing it all around. And so it ended up being that those final two weeks were really just violent. And especially the last couple of days in terms of the month end were very violent. And then the position rolled. All of a sudden, Trump brought back some of his rhetoric and the market stabilized. And to me, that wasn't really unusual.

[00:36:06] I kind of expected that with the rolling of the option position. But the really strange part or the part that caught me off guard was the subsequent rally. On the day once they said the ceasefire. And all you have to do is look at all the stats that never happened befores that are happening. Like there's just so many of them, right?

[00:36:32] We've never had a situation where we're down 10% and then rallied within 10 days to new highs. Things of that nature. And it was just kind of shocking to me. So I said, okay, let's really think about what's going on here. Why is this the case? So one, I think that we had a situation where the JP Morgan whale probably made it worse than it needed to be. Then we had some vol de-levering, vol control funds, and the CTAs made it worse.

[00:36:58] But I think at the end of the day, what's really driving this rally is that earnings continue to be great. Right? And it's really that simple. And I always said if there was one chart that you said you could have one data series to predict where the stock market would be, it would be the next 12-month forecasted S&P earnings.

[00:37:26] You and Ed Yardini, both like forever. Like if all I need is one thing, just tell me where people think earnings are going and follow that until they change their mind. Right. So we had this situation where everyone was caught short. Then all of a sudden Trump starts whispering some words about peace. And we all of a sudden, everyone looks around and says, okay, the S&P 500 used to be trading 22.5 times. Next 12-month earnings is now 19, which is the level upon which we've bounced in the past.

[00:37:55] And a combination of different things. And next thing we know, we have this just rocketing bull market. And it's just feeding upon itself. And I kind of thought to myself, okay, so if I'm bearish, what's the bear argument? Right? Because there's the bull argument is that – oh, and by the way, at the end of the day, I was always one to say the geopolitics never matters. Right? The Marco Popich, you know, the reality is that the sound of cannons you should be buying.

[00:38:27] I always ask folks like that are really into geopolitics. I give them a chart of the S&P 500 and I say if I take away the time on the bottom and say point to me like where the Ukraine war was, they can't. Right? And point to me where this conflict is. There's almost no geopolitical event that you can see on the chart. Right? But you can see where the economy rolled over or where the Fed cut rates or things of that nature.

[00:38:55] And too often people assign too much importance on geopolitics. It seems very important. So I fell for it. I actually thought that this time might be different. I did the cardinal sin that investors should never do. Because if you look at Marco Popich's chart, his table, you'll see there was one time was different and it did matter. It was the 1973 Yom Kippur War. But that's – so I fell for it.

[00:39:23] And I think a lot of folks might have fallen for it. And so I think what the market's now doing is saying, okay, the war doesn't matter. The reality is that oil is not as big a deal as we think. And I'm actually very much in the camp that if you look at prices, let's just take gasoline prices and it seems like it's high. But then you discount them by inflation and look at them. We're 50th percentile in terms of in real terms. Right?

[00:39:52] It's – yeah, it's not as good as it used to be. But the reality is we've had lots of markets that have gone up and had oil rising a lot more than this. So the market just looked around and said, hey, wait, look, we have a situation where the fiscal – the one big beautiful bill is kicking back all sorts of money. So there's a stimulus that way. The reality is that we've now priced out the Fed cuts.

[00:40:17] So the chances of the Fed going and raising rates is a lot different than them taking out cuts. And that's something I've just highlighted. There's one thing to remove priced-in cuts. It's quite another to price – to actually hike in the face of this. And meanwhile, we have this situation where earnings keep going up.

[00:40:40] And ironically, even though the United States started this war, they're actually a beneficiary in terms of they're the ones most able to handle the energy situation. And we had a situation where that rest-of-the-world trade, meaning that when people were selling U.S. to buy the rest of the world on this idea that we had fiscal stimulus,

[00:41:03] the rest of the place, and that we should invest in the rest of the world, it flipped back, and they started to say, okay, let's go back to the U.S. So it was just this mad scramble back into stocks. And especially the part that really caught me off guard was I didn't expect it to be the AI names. Like, that's – like, it just shocked me. And so, you know, I'm telling this story, and it sounds like, okay, well, there's nothing stopping this train, right? Like, there's no reason to be bearish.

[00:41:33] And so I really had to check my inner gut and say, okay, what is the bearish story? And to me, the bearish story is, yes, earnings are going up. Do free cash flow. Completely different story. And it's shocking how bad the free cash flow is. That's one side of the equation.

[00:41:54] And in terms of the employment, I look at the situation and I think about how precariously perched the employment situation is in terms of the amount of hiring going on, the fact that we have this threat from AI that's making people to put their hands in their pockets in terms of hiring people. And then I think about the oil situation. I'm like, that's just another reason for people to not hire.

[00:42:21] And it just increases the certainty all the more. And then another aspect of this war is that I look around and I say, okay, the world has become a much more dangerous place in terms of transporting goods. Globalization is going to be going even more in reverse than it has. What does that mean? And that means the countries need to spend more on their own military. They need to bring money back.

[00:42:49] In fact, you could make the argument that this has increased that rest of world trade because the money to basically to fund all that infrastructure and military spending is going to have to come from somewhere. And it's going to come from the world's largest savings, which is the U.S. stock market.

[00:43:11] But when you put all these things together, Matt, you realize that a lot of the bear cases is longer term in nature. It's not something that's happening today or tomorrow. And so it's just one of these situations where you get in the meantime, stocks are running and it's just attracting more and more players. And it's going up because it's going up.

[00:43:38] And I'm sitting there saying, yeah, what are all these bear things? And right now the market doesn't care. And it was just kind of illuminating to realize that my bear case is, I think, founded in real easy, sorry, solid analysis. But that the reality is that it doesn't matter today. Anyway, the it's in the other segment, which I'm extremely excited for you here.

[00:44:08] Ben Hunt's framing of this is it's a supernova. We saw it like we know what happened. But like the light hasn't gotten to us yet. OK, so he was like, like private credit, supernova, straight to Hormuz, supernova. It's happened. We just haven't gotten the light to the story. He's like, I can't tell you why nobody's talking about it. I can only tell you you should probably be long until people start talking about it. But there's no way this is good. It just adds to the list of like, well, this is a major problem that will eventually come home to roost.

[00:44:37] And that was that was one of the takeaways. Like, that's a very balanced view on where we are now and why we could continue to ignore these things. And unless stuff starts coming off the bear list. Right. I personally like folks ask me, what do you think the catalyst is? Where do you know, you're bearish. You have all these arguments. What is the event that changes the narrative? I still think it's employment.

[00:45:04] That's going to be when I see the first sustained uptick in unemployment, I'm going to lean harder on the short. That is going to be when I'm going to do it. Kevin, we are people on a buggy on the Internet. Where should we send them? They can go to themacrotourist.com or you can send me an email, Kevin at themacrotourist.com. And I will be happy to send you some recent pieces. Thanks for joining us, Captain.

[00:45:34] Thanks, Matt. And I would say to wrap it up, Matt, a great way to look at this is maybe what people are actually doing. And that's why I love talking to our friend Brent Kachuba is he sees what people are doing in options. You know, are they buying puts? Are they buying calls? What's going on? And then also, how do those flows in terms of the dealer hedging associated with that? How are they impacting the market? So here's what Brent's seeing behind the scenes. Brent, welcome to Last Call. Thank you. We're going to talk about my last call, which is thinking that this market is due for correction.

[00:46:03] And then maybe my last call. Well, you're not alone in that, Brent, as it turns out. That's been the theme of this entire episode. We've been talking to macro people. We've been talking to people all over the place. And I like talking to you because you're just looking at the flows. You're seeing what's going on behind the scenes. You know, as much as you and I will have our macro take, which are very poor, that's not your focus. So you're focused on the flows and you're focused on what you're seeing behind the scenes in the market. Yeah. You know what? And Jack, on that point, I've been doing some deep introspection.

[00:46:33] Sorry, I'm pronouncing that word wrong, I think. I'm looking at myself and trying to separate what's happening in the flows versus this tail risk that seems to be lurking that the market just doesn't care about. And, you know, as the stock market goes higher, you look, you know, or I look a little bit more silly in worrying about these risks. Right. And so it's a very it's a very interesting cross section of what's in the flows, how people are positioned.

[00:47:00] And then some of these macro signals, which as a macro analyst, I get rated a D or maybe an F. So I'm trying to put that out there. But right there with you. Yeah. But there's some relationships that matter. And they matter for a couple of interesting reasons. But we can get into that in a few minutes here. But it's interesting because it's not just you on the flow side. Like everybody seems to be thinking right now, why is this market not going down? I mean, the macro people are looking at oil and they're looking at everything's going off the war. And it's like, well, this thing should be down more than it is.

[00:47:29] And it's not. So I'm just interested to talk to you and see what you're actually seeing in terms of flows. And maybe if that helps us at least to some degree explain what's going on. Yeah. And, you know, you look at a few of these things. Like if I was to tell you, you know, oil is off a little bit today. The front month contract, I believe, rolls off. But there's no like a rhetoric change. Yesterday, we had a real breakout in oil. It starts.

[00:47:56] And the market just didn't care, which is fine. We had a song to you about this before. We did the FOMC yesterday. And so if you look at rates across the board, you know, they're higher. I was looking at this as the 30-year bond. And, you know, OK, maybe this doesn't matter all that much. But we're talking GFC levels of highs in this because inflation is going up and the gas prices. But everybody knows that story.

[00:48:24] And what overcomes that story is CapEx spend. And what is weird in my mind to try to put all together, and this is the macro conspiracy corner stuff that we are so famed for. There's tens of people that enjoy that. But you got energy demand from all this CapEx token spend, which is kind of interesting because energy costs are going up. And then obviously with the CapEx, there's also got to be some sort of value of money component and interest rates are going up as well.

[00:48:53] So that's kind of interesting juxtaposition. But people know this story. But the way that dealers are positioned are actually supportive of the market. And people are very concerned right now about making sure they don't miss that tech right tail as opposed to being concerned about any kind of a left tail because, you know, suddenly the energy market kind of breaks the U.S. economic engine. Can you explain that for people who aren't familiar with it? The idea is dealers are low on gamma right now, and that's going to suppress volatility to some degree. Is that right?

[00:49:24] That's right. And if you look at the earnings, I mean, there's no way to, you know, say it any other way. They've been blazing hot to make a 90s reference. Yeah, so like an 80 some odd percent beat rate like on earnings so far. So it's been like a solid earnings season. Yeah. And the semis in particular, Intel, just Qualcomm, STX Seagate, you know, not a semi maybe in particular, but those types of names,

[00:49:51] the stuff that is going into building out the servers for this A.I. LL.M. demand, you know, that stuff is doing really well. And what's funny is the options prices keep getting more expensive as the earnings blowout continue. But the names keep outpacing. You know, Qualcomm yesterday is up 18 percent. And then if you look at the MAG earnings like Google, OK, was up 6 percent. That was the implied move. Amazon flat. Microsoft down. Meta down. So the big MAG 7s are spending a lot on CapEx.

[00:50:19] And OK, Google did well. But, you know, the the the reactions are a little more muted. It's the stuff that is, you know, I guess downhill is what they're saying now from there. The hardware, the picks and shovels, maybe, so to speak, that are really, really doing very well. And so what you're looking at on the screen here is our compass. And what compass basically tells you if traders are super into calls. And I got this fancy screen annotator. This is a new feature for those of you who are new. Oh, wow.

[00:50:47] Yeah, we're not used to be having the access to this. Yeah. So if you look over here and this is from last night's close. So Meta, Microsoft obviously reported so did Cat. Cat had very good earnings of 6 percent. But what you see on this, we call this dispersion. What does this mean? These these plots are scattered all over the chart. A lot of them are also in the top right quadrant of this chart. That means that people are leaning heavily into calls in these names. If you are worried about the end of civilization, you would see names on the bottom left.

[00:51:17] And then if we realize the end of civilization, maybe not civilization, but, you know, stuff actually hit the fan, so to speak, you'd be top left. Top left is the bottoms of the markets, right? Where it's down 20 percent. No one wants anything to do with stock. So right now what we have is dispersion. And what that essentially means is that people are picking the winners now. Everybody wants to get into that next stock that's up 20 percent on one earnings report. On that point, we have Sandus reporting tonight. And Apple.

[00:51:46] So, you know, that's what the focus is on. And anybody who has said anything about the macro conditions, the geopolitical conditions has really just largely looked foolish because of the fact that the stock market keeps marching higher. And these earnings are good and you can't dispute that. And so there is this bid to tech and it's only tech. If you take tech out of the equation and you look at like equal weighted S&P or something, the market's very flat, right? So there is just this one story.

[00:52:15] And that's fine because the gains are real. But we're really running on this CapEx AI buildout trade. And, you know, that's the truth of it. Now, Nomura put out a note and I think it was a very well, Charlie McGilligan always says things very succinctly. The barbell trade instead of 60-40 long bonds, long stock is now 50-50 long tech, long energy.

[00:52:41] So the energy trade is interesting because you want to get long energy because of the AI buildout, the demand for energy there. And then also the Iran situation where, you know, crude is obviously hitting all-time highs. And what's cool about that idea, or I should say with how that dovetails with this idea is that if we look at the sector, this is a sector breakdown. So if you see green on this chart, particularly in this first row, what that is, is put call volumes across a bunch of different sectors.

[00:53:10] Green means more calls than puts. So in this case, we have the volume ratio and the OI ratio. And so what you can see is that energy is getting a lot of bullish volume coming in. And you're seeing call volumes versus the last 30 days are peaking. So, you know, that sector is really picking up in kind of demand. And then, you know, you can see the tech here, right? There's a lot of just day trading volume that's kind of piling into that.

[00:53:36] And so what you end up with in this interesting situation is the market is very comfortable with the risk, as in low risk. And they're chasing calls in these tech names. They're trying to get in on the earnings plays, that kind of thing. But a lot of that is just short-term people trying to, like, chase, right? It's not necessarily the investing in options at these levels. It's more chasing the earnings in the short term. Energy is really interesting because energy is, it's like, it's a hedge and a long-term

[00:54:04] play at the same time right now, which is really interesting. Like, obviously, if you wanted to hedge, some people are hedging, like, an overall equity portfolio with energy right now because, obviously, with the correlation with oil, although that's come down now. But if we do get another spike, that correlation will probably spike again. So energy works, like, from that perspective. But also, it's like this long-term AI play. So it's just an interesting, I mean, obviously, we'll all be wrong. Probably energy will go down or something. But it's just interesting to think it's working on, like, both fronts right now. Yeah. And Jack, we've been doing this for a while now. And we look at these correlation metrics a lot of times.

[00:54:34] And the way that you look at this core one from the SIBO is quite simple. If we are below this red line, that's sort of like the most bullish stance the market's ever had or can get, right? You're talking about people just literally frothing at the mouth to buy calls. Jensen is signing women's shirts and stuff. So that's where you get peak bullishness. And this is an options indicator. So you're seeing that in basically call prices. So we're not quite at that incredible froth level yet. We're down at that low.

[00:55:04] But then what happens is you get that macro risk off, right? More bombs start flying. Whatever would matter to this market, right? Where all of a sudden you go, I can't own stocks anymore. We dump stocks. And then correlation, which you just mentioned, spikes. And the funny thing is here is like you can't go to bonds to hedge yourself anymore, right? So what is the hedge in the Iran situation? Well, it's energy. Because obviously oil prices would go up. And maybe this is a permanent dynamic. And then at the same time, all these new data centers can't get enough energy.

[00:55:32] So you also want to be long some forms of energy there. And granted, there's a lot of different flavors of trying to invest in energy. But as a sector or an asset, that's kind of like the new way to hedge out everything that's happening. So you win in a bullish market. And you win in an Iranian escalation type scenario as well. In which case, we would see correlation spike and ball get kind of crazy. I mean, this was the start of the war, right? And you saw that correlation spike.

[00:55:59] And now because of the fact that we've all been rushing into the market on these tech earnings, we've seen this correlation metric come down, which is simply a signal that traders are buying single stock calls. And they're selling S&P options. So that's a pairs trade essentially is the way that would break out. And I guess we're at a point with Claude Mythos where it's either the most bullish thing of all time for semiconductors or the end of the world. I mean, we'll just have to decide. I guess we just have to decide which one it is.

[00:56:26] I mean, both are bullish because in that, if the AI takes over the world, then if you're an investor in Claude or in Drop, then you're probably pretty happy about that, right? Global domination. Yeah, we'll have to come up with a, you and I could do a great YouTube video like hedging the end of the world or something. It would get a lot of views. I don't think there's actually a way to do that. But nonetheless, I could do an incredible thumbnail with you and some fire and stuff. That's so funny.

[00:56:53] So I wanted to round this out with kind of an interesting chart here. And this is a brand new lens that we put out before. And what you're looking at is a shade of blue across the market. And what we did here is we have a lot of great data that shows how market makers and dealers are positioned in options. And what this shows us is that market makers have positive gamma positions. What does that mean? So this is, we're right here, right? We're on this day here. And when you look out in time, so what does that mean?

[00:57:21] This shows that market makers are on net long options, long calls and long quotes. Now, why does that matter? Because the way they hedge this type of position suppresses market volatility. What does that mean? They sell reds and they buy dips. So if you were to look at the reaction this morning to Google dropping, you know, and then it bounced back up, right? Or Amazon was at a high as soon as the market opened, it drops, right? And so you get kind of trapped in this box.

[00:57:46] It's a weird thing because before I just said in the short term, we have people chasing calls and options, but they're not necessarily trying to buy longer dated positions. And this is why I make that statement, because if this map is all blue, it's telling you that on net market makers are owning options in the single stock space, which suppresses volatility. So if you're going to ask, why doesn't the market seem to react much to this geopolitical situations?

[00:58:11] Well, this dealer positioning in the SPX single stocks suggests that they are going to support the market. And I think a lot of this is concentrated in these five names. And I think a lot of this is systematic flows and unnecessarily investors thinking that NVIDIA is going to be a great stock over the next five years, right? It has more to do with, I think, pairs type correlation type trading. But needless to say, that supports the market. There's also a positive gamut position in the S&P.

[00:58:39] So the market making options community is there to simply hold the market relatively into place. Then we get this positive drift because obviously some of these semis are crushing it. And that is adding a lot to the improvement of the S&P index prices. So this actually is not conducive to the market just falling apart.

[00:59:00] And I think this is one reason that we have not seen serving the sum of all fears, the realizing of downside in an environment where the Iran situation seems to not be improving. Well, it'll be interesting to see how this plays out. And for people who are more interested in this stuff, I think in two weeks we've got options expiration. And you and I, in about a week or so, will be recording a full episode on this. So Brent will have a lot more stuff from behind the scenes on that at that time. Brent, thank you so much. Appreciate you doing this. Thanks, Shari.

[00:59:30] So as we do our Look Forward segment, Matt, what I really want to talk about was earnings. Because I think it's really interesting what's going on with earnings right now. I mean, earnings have been pretty consistently beating. We've got like 15% year-over-year earnings growth. But behind the scenes, you know, we've talked to a lot of our guests about this recently. There's a really interesting story playing out in terms of the Mag 7 versus everyone else. So where do you come down on this?

[00:59:53] And I think this is so interesting because between Cameron Dawson dropping that bomb on us in ClickBeta the other week with it's all the earnings growth is attributable to two companies and the red is a myth and all this stuff. It feels like there is some improvement in earnings. We're seeing that at least in a general level. It's the weighting and the attribution that I find troubling and unsettling. Yeah, so I think first I'll just read from this fact set scorecard.

[01:00:22] So for Q1 2026, 84% of S&P 500 companies have been reporting a positive EPS surprise and 81% a positive revenue surprise. So going back to what I said before, we've got pretty positive news. But what's really interesting is this. You can use this behind the scenes data in so many different ways. First of all, I think it's true that you are seeing relative to the Mag 7, you are seeing other companies catch up. The 493 smaller companies, however you want to look at it. But what was really interesting from that thing with Cameron is this idea that you have to look into data.

[01:00:50] And it's like you've got the narrow Mag 7, you've got the 493, but then you've also got this narrowness inside the 493, which is I think she said like 50% of the earnings growth is being driven by like two companies. So on one case, you want to be like, oh, earnings are broadening, you know, look at these materials companies and all these great companies that are, you know, having great earnings growth. And on the other side, it's like it's two tech companies that are driving a lot of the earnings of the 493. And raising the question inside of Kevin's piece, he got into some more detail about this in the written piece on MacroTourist.

[01:01:20] But this idea that you're seeing sure earnings look good, but free cash flow doesn't look as good. And as you start to get into the attribution, as you start to break down that stuff, you start to go. It's not so easy to make a very bullish argument out of this, like we would normally look through in earnings expansions, which are, hey, this is part of what we're always looking for in recovery.

[01:01:42] If we had just gone through a 20% drawdown and we saw this earnings growth on the other side, we'd be super, super excited because we'd be assume other stuff is catching on and catching in to this breadth. But what we have here is this question, is this breadth actually a mirage? And when I see the free cash flow data, when I see some of the, what gives me hope is that, what did you say? It was 84% of numbers are reporting positive earnings.

[01:02:08] Yes, but I remember that it's always like, it's always well above 50, like companies always beat. So I think there's a little bit above average, but it's, yeah, it's been solid so far. Yeah, so the question is, are we going to actually see that maintain and hold over the next quarter or two of earnings? And are we going to see those expectations continue to tread water? Because if so, more companies will join the good news and they'll figure stuff out because the economy is not deteriorating. If this is deteriorating though, like we probably Wile E. Coyote off the cliff.

[01:02:38] Yeah, and it's interesting because the MAG7, one of the things we have to keep in mind is the biggest companies in the world are spending massive amounts of money for the future right now. So that plays into the free cashflow thing you were talking about before their free cashflow is way down. They're going to show worse results relative to everyone else right now as they're building this out. And that the huge question is, will it pay off? And, you know, we've talked to a million guests in a million directions and I don't know that anybody knows right now, but that's the question. I mean, if these bets work, you're going to probably see the MAG7, you know, three, four years from now, take over again.

[01:03:08] If they don't, if the money flows down and, you know, we see like we have another technological revolutions where a lot of the growth comes from the average company and not necessarily from the builders, you're going to see a different outcome. I think that is the big question right now. It's the biggest question I can think of. And let's not forget that money is getting spent back into other companies. So when the big companies place the order, it's with a smaller company many times in the index, hopefully not in some confusing flow chart of like, like for like vendor payments and problems.

[01:03:35] But it's this money gets spent back in just like us, just like me and you as consumers with our jet fuel. Like this money gets recirculated. One company's expenses, another company's revenue. And yeah, if this is right, this is lifting everything higher. If this is wrong or rotten in some places, we're going to figure out what the source of that is. It's going to be a headache for a while. And we're just, nobody knows. Yeah, that idea you talked about, we talked with Tom Hancock of GMO about this idea, which is like the money flows down.

[01:04:05] I mean, obviously what the Mag 7 is spending is the earnings of other people right now. And that is driving, that's going to drive earnings growth in other companies. There's this story about, you know, for instance, the two chip companies driving a lot of the 493. That would be a very different story if the Mag 7 were spending a ton of money. So it all, it all flows together. Like, yeah, the Mag 7 earnings coming down. Yes. Is that driving earnings growth in other companies? Yes. And so, and then will it eventually flow down to your average company out there? I remember like when, when you talk with Dave Nottingham, Clip Beta,

[01:04:34] he had said he's been talking to a lot of small businesses and they're seeing huge benefits from this. So like, will this flow down? I think is the question right now. It's a magical kind of trickle down earnings economics. I don't know where the tortured metaphor is inside of that, but it, but it's real. And just like we talked about this with David Rosenberg too, about the spending of savings. I think Cameron Dawson mentioned it as well. It's like the consumer spending down their savings. So we have less net savings on the average household's balance sheet.

[01:05:01] Well, these big companies that built up these fortress balance sheets, like this is also the money that's getting spent. We have the largest companies in the world with the largest cash hordes that aren't needing to borrow to do some of this build out and expense in the same way that they used to. And that benefit is flowing down through the system. I don't think we've ever seen anything on this size and scale in U.S. markets. No, and to your point, it's much more solid because a lot of it is coming out of cash flow. And so when we look at fiber and we look at all that stuff,

[01:05:29] we have to understand that this is differentiated from that perspective. There was way, way more debt being used back then. And so none of us necessarily know how this is going to play out, but it definitely means this has more staying power because of that, because this is coming from like legitimate cash flows, a lot of it. And we're seeing some more debt mixed in now, but the beginning and a huge portion of it are coming from cash flow. So in the fiber boom, how much of the forehand fortune was made on the fiber boom? There wasn't much of a forehand. It was getting out of college at that point.

[01:05:57] So the fortune was I had invested in a garbage company and lost all my money at that point because I was like trying to learn. I got a tip from my uncle's stock broker or something. So the forehand fortune was basically barely getting by at that point. Well, you know, you got to build it somewhere. I mean, the... Well, in a lot of ways, I actually was aligned with the fiber boom because I also lost all my money at the same time that the fiber companies lost all their money. You figured out your own way to lose all your money. Put that in being a cautionary tale. Maybe a cautionary tale for future tech moves is what went through, what Jack Forehand went through in the late 90s.

[01:06:24] Hey, listen, when they were talking about the fiber boom, I was still laughing about the colon blow sketch on SNL and had not caught up to this level of sophistication. So I'm sympathetic. Anything else we want to say? Well, I guess that's probably a great note for you and I to wrap up on given the topics we usually talk about. So you want to bring us home, Matt? I'm going to bring us home. Special thanks to Ben, Jim, Kevin, and Brent. That was awesome. We love doing these shows, especially these market recap shows at the end of the month.

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