AI Is Propping Up GDP While the Consumer Quietly Breaks

0:00Today's market call is presented by FACCEP, Financial Data Analytics, Powered by Tomorrow, and so fun. Get your money right all in one app. I win you. It's the seventh, get your money right all in one app. It's the 17th of September. It's a market call it's 11 a.m. In the middle of the screen you will see Liz Thomas wearing a blouse that is new to me, but not new. That of course Dan Nathan wearing some sort of gray shirt. We have butters today, not in real life, but his work. And we obviously have the fine work done by Mario and the aforementioned Liz bit Thomas. The Milwaukee Brewers are the best team in baseball. The Packers got bootstomp by the Vikings which surprises me, but they play the gents this week so they will write the ship. And off we go Dan. We do. And we don't have to get in your note right away, but just give us the 411 of what you heard,

1:01what your takeaways were, what the bond market reaction was, what the stock market reaction was. Yeah, but it's so interesting that you get this move after the announcement and then you get the Fed presser. It's not too different when you see an earnings call, right? Like Microsoft reports earnings and then they do the call and you have a lot of volatility in the movement. But today's reaction and it's something guy won't give himself credit, but today's reaction seems something of like, okay, we're good. You know, like I'll clear here, I'm just curious like what your take is on this, what happened over the last 24 hours? Well, holy Toledo they did. Toledo. You know, I had been saying, well, I felt very strongly that they shouldn't do it. And I still really feel that way, not that they should never hike rates, but I don't think that there was any risk in waiting a little bit longer. So anyway, it doesn't matter. They don't ask for my opinion. I don't get a vote, but that was my opinion. They did it anyway and it was unanimous, which was the second surprise to me that it was fully unanimous. So the reaction today, I mean, you could call it a bounce off of yesterday.

2:05First of all, the initial reaction to a Fed move is rarely the real reaction. You usually get a couple days later, you get the real reaction in the market. Here's what I think is bizarre about this whole thing. If the reaction today is, oh, everything's fine. Think about the logic of that. We just hiked rates. We increased our interest costs as a country into a problem of debt that we already had that was larger than everybody. We are hiking rates in order to crimp demand in an economy that's dealing with inflation not caused by demand. And we all well know that hiking rates is going to affect parts of the economy that have absolutely nothing to do with what's driven inflation. We are hiking rates into wartime oil prices and into insatiable AI demand. I get it. I understand scientifically and mathematically why they had to do that because I think Kevin Worsh was trying to remove emotion from the equation here and say, look, the data says

3:07this. Our responsibility is x. The data says y, which equals in the equation, we have to hike rates. I get it. Mathematically, that makes sense. I think that this was a time when it should have been a little more art over science and they went full science. So my bottom line take is now the horse is out of the barn and it's going to be a while before the horse goes back in the barn. You're making guys smirk, by the way, it's all the fun. Yeah, you know my feelings about Elizabeth Thomas. I think I've made that abundantly clear over the years. But you're just smirking. You're just smirking the whole time. You and I had a great conversation yesterday with David Rosenberg. We just call him Rosie and Elizabeth just said in a very artful way, exactly the same thing that Rosie said yesterday. Oh, did I? You have two of the most brilliant minds in the market, you know, whether they want to call themselves economists, strat, whatever, or basically saying the same thing.

4:08And that is why I'm smiling. But by the way, that guy is a bit of an outlier. And especially to the point when you say that I was surprised to a unanimous decision. Yeah, but the last, you know, the last meeting, there was three to centers. We heard this, you know what I mean? Well, last time we had three to centers was, you know, you have to go back a long, long way. So you were definitely out of consensus, Liz, on that. And again, you're right. And wrong. I mean, wrong in the sense of I said they, I said I didn't think they would go. No, it's more of an academic thing. Come on. I mean, so it's the, it's the nuance here. And, and I want to be clear about what my opinion is because my opinion hasn't changed. That now the horse is out of the barn and the commitment that Kevin Worsh has made to 2% and even yesterday reiterating that and saying that we need to make progress toward that goal faster tells everybody they're going to hike more. So back to the original statement I was making, what's so bizarre about this is that the market is reacting as if, okay, let's hike rates. This increased costs of our debt problem that we already have.

5:12Let's crimp the consumer, which is the thing holding up the U.S. economy. Let's hurt parts of the economy that don't really deserve to be hurt by this in order to fix an inflation problem. So then the result of that is buy stocks. It's just, you know, it, there's a bizarnas in that mentality. So I think right now the market is reacting on a very short term basis. And that's fine. That is usually what happens. But think about what happens. Let's call it 12 to 18 months out in the future, right? It's never the first hike that's the problem. And this 25 basis point hike makes absolutely no difference whatsoever. It's the cumulative effect of those hikes and the fact that hikes are a blunt object that are designed to reduce demand in the economy. And I'm concerned that not only will it reduce demand in the economy where we don't want that to happen, but that the Fed has never been good at trying to figure out when they should stop hiking. And frankly, they usually, if not always, do it a little bit too long. So I'm afraid that this time will not be any different.

6:14And it's going to be confusing because I think the market has a high probability what I said last week of whistling past the graveyard because AI stocks will just continue to drive it up. And if you look at a rotation back into mega cap tech, that will make the index look pretty healthy. So the market may look just fine. Well, the economy is sort of squandering under the surface. And again, none of that's going to happen in the next like 90 days. I realize that so you can stay invested here. I'm not worried about the next 90 days. I'm worried about what happens in 2027 that then we look back and say, maybe we didn't have to go quite that soon. And this harkens back to your note last week, by the way, which you know, I'm a lot of things not good, but I am good at remembering things. And you gave us that you and Mario gave us that work that talked about rate height cycles and then the subsequent recessions, the follow the recessions with a vertical gray boxes that went vertical suggests they go up and down as opposed to horizontal, which is this way. I won't tell you the reason why I remember why horizontal is this way as opposed to this

7:16way, but I learned it when I was a young lad. You also just mentioned letting the horse out of the barn. Of course, if you harken back to your production of the Wizard of Oz, when you were young lad, you probably didn't have horses. But if you were calling the beginning of the movie, Dan, they let the horses out of the barn because a storm was coming. Thank you, guy. You just harken back to what you were coming. You just harkened one of the back to one of the first movies you probably saw in a movie theater. And when you, well, that must have, did that blow your mind when it went from the first movie to the first movie? It was like color. It wasn't just my mind, and it was the collective theater's mind. Well, obviously, as you gave us a very succinct summary of your thoughts leading in and leading out, but you also, again, the aforementioned Mario, who you work closely with, Mario sort of stuff. Is it Mario or Mario? It's Mario. Mario is good. You know, I have, I have marios in my life. I have a couple, you know, itinerian marios, but I don't know.

8:17When you're Italian, it can be Mario. I've got you this. So what happened? That's, yeah, okay. That's the, yeah, see what happens. You mess with the tie-ins and you get the clock. Yeah. It's not coincident. I, you know what something really cool is before we get your note. You're choking because you meet for a nice guy. And Tommy tonight is the host MC of the FDNY's annual Gala again. The honoree is David Solomon, Goldman Sachs. Amazing. And, and Guy, and Tommy also secured him as a guest on last Friday's CNBC's Fast Money, which is pretty cool. Amazing. Yeah, so that's tonight. So everyone give to the FDNY. I don't know. Do we have a link guy or something like that, but. I'm sure you're going to have to. No, I don't want people to listen to me. By the way, talking about another Italian, Hank Azaria was the MC a couple years ago. And I was there and they, I don't know why, but like he sucks so bad.

9:20And then they went to Guy Adammi. I mean, like, that was not a difficult act of thought. I just want to listen to this. I'm proud of very few things. My wife, my kids, and that's, you know, that's the end of the list. But like, this is an event that I'm proud of. And I think this is the third year I'm doing it. The first year they honored Harvey Schwartz last year was a dean of Friedman. This year is David Solomon. There will be 1500 people and attendance at this thing. They're going to raise over $5 million. And it is a, well, I mean, I think if you're familiar with the Tri-State area, especially if you remember what happened 25 years ago, you understand the importance of the FDNY, all the workers of the fire department, EMTs, first responders, the whole Shabang. So there you go. Thank you for mentioning that. It's awesome. Do you have your joke ready? I remember that last year's joke was something it ended with the punchline of Thank You Father. Right. It was that's good. Well, I made a forgetful guy approached me at the bar and said, what are you doing here? So he goes, well, you suck on it. And he said, yeah, I said, thank you, Father.

10:22I'll see you at Mass on Sunday. I love like that. That's pretty good. Oh, you're a new one, CUDA. I'm, you know, who knows? It's whatever this has, the spirit moves me as you know. I'm typically pretty unscripted individual. Pretty, pretty much. Well, I look forward to hearing about it. Liz, before we get to some themes, some single stocks, because we're going to drill down, there's some stuff going on in the markets here. Let's kind of hit your note. You want to look at Treasury yields here. You know, I will say this before we get to it for a second, Liz, you can just go to SoFi.com slash Liz. Thank you very much, Guy Dami. Once again. Yeah. You know, Guy was of the camp. I'm just going to speak for him because he doesn't like to kind of give himself credit, you know, for a guy who's been saying since it was $375 on the 10 year, he thought rates were going back to 5%. That sort of thing. He also said over the last couple of weeks, he said, here, he said it on fast money. He actually thinks that once they finally raised the Fed funds rate, that you might see a calming of the upward pressure in the 10 year yield and again.

11:24And you didn't think it was going to be that negative for equities either, okay? So that's a pretty new one sort of view. And I think that's what's playing out a little bit. It doesn't seem like a rate-hiking cycle as Liz just, or just like kind of laid out because it's clear from the, for a guy who doesn't want to give forward guidance, that's kind of gave some forward guidance there. You know, that sort of thing. So Liz, talk to us a little bit where you are in yields, what you kind of wrote for your note, and how we should think about it, I guess. Yeah. So if we just bring up that first chart, I mean yields have relaxed a little bit today, but let's pretend that it's yesterday at 4 p.m. So the reaction in yields the two year and the 10 year up sharply, which if anybody's been paying attention is not what the treasury wants to happen. So this was the opposite reaction of what I think many people expected, and a lot of it was on the heels of Chairman Worsh's statement that they removed a dose of accommodation. So there are a couple of things. This is one of the biggest takeaways from the presser. A couple of things implicit in that message.

12:25And for most is that they believed that the Fed Funds Rate was accommodative, so below neutral. And secondly, that you have to believe that they have to get restrictive in order to reign in the economy more so that inflation does actually get closer to target. So that means we're not there yet. So we've done the first of likely more hikes, and that's why I believe yields spiked for the most part yesterday because coming into it, yes, we were expecting the hike yesterday, and we weren't necessarily expecting him to hike and be kind of hawkish about the forward guidance that we did get from him. So yields responded in kind, and we had a five, a 10 year that went almost well above five again. We had a two year that spiked on expectations that they would hike more this year, and then again twice next year. So you saw the yield curve flattened. Now what does that mean for the market? Interestingly, that hikes are usually good for financials because you think about that's their revenue stream, right? The cost of borrowing goes up. Well, the cost of borrowing is their revenue.

13:27So that's usually good for financials. But what happened yesterday is that the yield curve flattened. If you want to be really specific about it, it's what's called a bare flattener. So both the long end and the short end moved up, but the short end moved up more. A flattening yield curve is typically not good for financials. So the market was confused yesterday as this was happening, and I think is trying to digest it today. It looked like for the go forward look on what's going to happen to the rest of stock. So yields are still something to watch. Yes, they've relaxed today. Full disclosure. What is today? Thursday on Tuesday, I bought the 10 year treasury. But you did that. I did that because it was kind of hovering right around 5% again. But I did that because not because I think suddenly, you know, the government's going to figure it out. But I do think that the market has this mental threshold somewhere around that five percent range. It doesn't believe that it's going to get much above that, at least not for an extended period of time. Not only that, 5% on the 10 years are pretty good income stream, right?

14:28Your coupon is a little less than that. But it's a pretty good income stream at a time when I'm feeling like, I don't know how this is going to turn out. So I'd like to have the income for that period of time. And I do think that the government will have to do something, whether it's reduced debt, change policy. I don't know what they're going to have to do. Or if the treasury intervenes more, I do think something is going to have to happen because the message from the Fed yesterday is we will not be pushed around. Well done, by Elizabeth. You broke it down. And so let's leave the slide up for a second. And I will say, my view, Dan, has been you're just going to see a relief rally in bonds on the back of this collective sigh of relief. But in the long run, I still think yields are going higher. And the long run being, you know, if we're having a conversation in December, I think we could be very easily talking about 10 new yields, north of 5.15, 1.15%. It's how we get there that's important. So if Amanda, who the way, by the way, is doing great, wants to throw up a TLT chart, there is a downtrend line that she can draw from February of this year when the TLT was

15:32I believe around 91 ish. The second point will be the high that we made in June of this year, which I believe is like 87 and a half ish. And you will see that that downtrend line with time decay probably comes in somewhere around 84 and a half or so. And it's going to coincide with a sloping downward to an end of day moving average. I think maybe inevitably that's where we sort of go. That would probably get 10 new yields. I don't know, somewhere between 4.75 and 4.80 ish back the envelope math. And then I think it starts to that downtrend stays intact and we start to go lower in the TLT higher in yields. So that's how it plays out in my playbook. You said the same thing yesterday. Yeah, throw up on the S&P chart for a second because I think if you're correct on that, if we get to 4.75 or something, the S&P is going to be trading above 7800. I'm just, again, what the hell I know. But one of the things Liz, I think, is interesting because we're not talking about growth.

16:35What is economic growth? Looked like you obviously were taking a look at that because your point about raising interest rates, like, yes, the long and variable lags, we get it, we get it, we get it. But in the near term, that lower part of the K has a difficult time. And Fedshire Walsh specifically said this. He said that the lower income strata, just paraphrasing a little bit, is going to benefit from a more stable inflationary environment, right? He doesn't seem particularly worried about the labor market right now. But his point is that if they're able to get inflation down, it's going to be able to help them in the long term. But in the near term, it might really have a problem. And then when you think about you just mentioned the cost of financing our debt, as a country, that will only weigh on growth too, right? So in the near term, you might have it as good as it gets. The GDP now right now is tracking like 5%. But the first quarter is about 2%. 1.5% year-over-year growth in the second quarter.

17:37I just think 5%, I mean, that seems a little aggressive here, Liz. Well, the driver of that 5% is mainly private investment, some consumption, but mainly private investment. So you're looking at CapEx spending driving a lot of that. So let's talk about, if you want to put up the second chart, let's talk about the Fed's projections. This is their summary of economic projections. So basically what changed from June to September? What changed is they believe GDP growth in 26 will be stronger, unemployment will be lower, PCE will be higher, so then the Fed funds rate will also be higher. Again, mathematically, this all makes perfect sense. If you have inflation that's heating up, unemployment that's getting better, and GDP growth that's getting stronger, you should raise the Fed funds rate. So I get it. However, back to the K-shaped economy and what happens with growth, if growth is mostly driven by CapEx from AI, that's not really what the rest of the economy is running on. And the lower part of the K in particular is not benefiting from CapEx in AI.

18:41And if you've got the lower part of the economy, I mean, just think about this logically. If you are a lower income consumer, number one, your costs have risen over the last five years on things that are non-negotiable, food, energy, transportation. So what does that mean? You're still spending, because we know that consumer spending has stayed steady. Retail spending has stayed steady. You're still spending, because you still have a job. It's just not keeping pace with what your spending is. So that probably means that you're saving less. And even more so, you might be using the credit card. So and or a personal loan or some other type of borrowing. So a rise in rates increases your cost of borrowing, doesn't yet fix the level that you've had to spend. And we all know, too, that companies that have to pass through inflationary costs as higher prices don't bring their prices down when inflation comes down. So those pass-throughs are permanent. So maybe the energy prices come down over time. Maybe some of the other inflation comes down over time. But I'm willing to bet that the bottom part of the K and the K-shaped economy is not benefiting

19:41very soon. So I still don't think that that's going to have much of an effect, at least not in the near term. And the upper part of the K isn't really all upset about it to begin with, because they're doing just fine. So they're the ones benefiting from CapEx in AI. They're the ones benefiting from being invested in the market and invested in those types of stocks. The takeaway, and I didn't put this in the note, but the takeaway for the next few weeks is that I think now your investing playbook has to change a little bit. Will inflation be hotter? Yes. So some of the stuff I've talked about, commodities, I think agriculture, still are good investments. But now you have to think about, all right, if we're hiking rates, that likely does put a damper on growth. So what happens in the market? Where do you find growth in the market? You still find it in tech stocks. But what do you get out of that might get hurt? Then you got to start thinking about hard economy things. And what happens if and when this war actually de-escalates, and inflation comes down in energy prices, will the energy sector likely come down as well?

20:42So I think we have to rethink the playbook a little bit here through the end of the year and into 2027. Again, right now, I think everything is going to be okay. I think the market will just whistle right through this and say, oh, this is good news. They're going to control inflation. But it's out of touch with what's happening in the real economy and to real consumers. So well done, obviously. And this is not a talking point necessarily. But if you put that chart back up, we just had it be interesting to me. I don't know how this works. But do they come up with these numbers to back up their rate hike or do they come up with the rate hike on the back of these numbers? That's interesting. And I know you know the way that, but it's worth it. Yeah, so I believe they come up with the numbers first. And also, keep in mind, Kevin Worscht does not provide dots, right? So he doesn't provide his projections. They come up with these numbers first. And again, I've never sat in a Federal Reserve meeting, but from what I understand, the first day of the meeting is doing this sort of stuff, coming up with these numbers.

21:44And then the second day, late morning, is when they actually vote on which statement gets released. So they've drafted a number of different statements the day before. And then the next morning is when they vote on which statement actually gets released at 2 p.m. So it is my understanding that they come up with their projections first and then look at what the Fed funds rate should do. Which is exactly what it should be. Number one, number two, and backing up Elizabeth's point. So we've talked about Dan Consumer Facing Stocks and the weakness in McDonald's and home depot and those things. If you want to see this in real time, Paul Polinarcha, which by the way happens to be higher today, but Lenaris, a home builder on one end of the spectrum, I think their average selling price for a home is about $362,000. If you go longer term, this stock has been more than cut in half over a period of time. There it is for you. And that speaks to one side of the consumer. The flip side is toll brothers, which average selling price is either side of a million dollars. That stock has come off, but not nearly to the extent that a name like Lenaris come off.

22:46Why do I bring it up? Because you're seeing these dichotomies, these sort of, you know, haven't have knots, manifests itself, Dan, in a number of different industries that Elizabeth just discussed. Yeah, we're talking a 30 year fix above 7%. I mean, like that seems something. I mean, we all know folks who, A, we're taking, you know, mortgage that below 3%, this is 5%, 6% or, you know, 5 or 6 years ago, or we're refinancing at those sorts of rates. And you're looking at like 2x now. You know what I mean? Like, so again, you know, you talk about a 40 ability problems. This is something that's likely to weigh on a whole host of folks who are looking to buy a home, or looking to kind of trade up on a home one way or another. So again, Liz, thank you so much for that. If you guys want Liz and Mario's note in your email box, go to sophie.com slash Liz. There are no dashes there. It's just a slash. You know, you know, we will find Elizabeth. Oh, so, go find.

23:50Go find.com slash. No, you'll still find there too. You'll still find there too, no, dam. I mean, you could do a number of different websites where you can find a. All right, but you're not going to find her on CBC's fast money because whatever reason she refuses to do. But, you know what? You're not going to find Guy Adami. No, on the important part of podcast, which is you should go follow. I'm Liz. Who do you have this week? I had Libby Cantrell from Pimco to talk about midterm elections. She's great. And she had some really hot takes. So watch that one. It dropped yesterday. All right. Check it out, people. Let's talk about what's raging in the market. Of course, Guy, it would be the semi-conductors. Liz just talked a little bit about the demand and the AI trade and what that means for the economy. I mean, listen, you know, what's going on in the stock market with these names might not always be reflective of what might be happening, you know what I mean with the order books and that sort of thing. I mean, I think we're getting to a point where a lot of the orders, a lot of the back lot, a lot of these remaining purchase obligations, they're basically being funded by debt.

24:54Let's just be really clear. And what did we just spend 20 minutes talking about higher interest rates, right? Higher financing for, you know, whatever you're looking to do as far as in the AI trade and, you know, these companies, the hyperscaders, the spenders have, you know, spent basically all of their free cash flow, you know, to do that. So at some point, if there's any pullback in demand and Guy, you and I've been talking about this, we've been talking about it here, we've been talking about our risk reversal podcast, which by the way, we had Rosie on, dropped in the podcast feed. We were doing it right after the presser was done. So go check out David Rosenberg of Rosenberg Research, Guy and myself, risk reversal podcast feed. But, you know, you have this scenario where, in my opinion, the moratoriums on data centers and then some of this around the, you know, I guess the pushback, the slow down and the pace of development, it's going to work its way into the psychology in and around these days. But right now, it doesn't matter because, and I'm not, I'm, I'm a little bit, but look at the SMH, you know, right here are the socks.

25:54We'll leave the socks up. It's fine. That's a bad, that's not a good looking chart guy. I mean, just, whatever you want to say, I mean, draw the down, Sean. Yeah. Amanda who continues to do great at 1126. I mean, you can see what that down trend looks like. So we're right there to the penny guy. Well, that's the line straw themselves as it turns out. Okay. But, but you see what I'm talking about. I mean, like at the end of the day, we had this conversation with Michael Contopolis last time. High yield, Heidi. Guy Nickname, years ago, the high yield, Heidi, when he was at Maryland, you know, you didn't name him that, but you love saying it, by the way, I think it was Amanda who actually named that when she was a producer of CMBC's Fast Money. But we're talking about like what's going on in the stock market. And if you're likely to try to impute stuff on the way that investors are expressing views, I mean, semi is after doubling from the spring, right, into the summer. They're down like 30% right now and they can't get out of their own way. And yeah, every other day, you'll see them up five, six percent of the SMH up or down

26:55two and a half percent. It feels like on days like this, they're just raging, but they're not. They're just grinding, you know, and then pull up the XLI. So we were talking about industrials yesterday, you know, and one of the things with Contapolis is like, we're talking about how constructive, let's say some of the action might be, this is not construction. It's not constructive. I mean, to me, if you look at the sectors in the S&P 500, most of them are underperforming the index. What does that tell you? It's that energy and the mag seven or whatever the hell you want to call it. They're doing a lot of the hefty lifting list. And when you see XLI acting like this and semis, these are two of the most. So, you know, the cyclical groups in the entire, you know, economy. This XLI piece, the industrials kind of rolling over in the last month or so, is a chart I used in last week's column to say why the Fed should not hike rates because you've got a part of the economy very dependent on economic activity that's showing some signs of, eh, we're not sure that we're headed in a very strong direction.

27:55So this does concern me. Now, to be fair, and I'm curious how you guys think about this, I am currently playing both sides of the coin in my portfolio. In the sense that I have two positions in a two year treasury. I've now one position in a 10 year treasury, and I have a position in gold that's new. All of those are very defensive on the possibility that this all goes terribly wrong sooner than anybody expects, right? I also own socks. I'm long the socks ETF. And I'm long the software ETF because I also think that there's a decent possibility. It gets totally ridiculous and we haven't seen that yet, and it won't make any sense, but I don't think we've hit that peak of inflated expectations that is talked about in the technology hype cycle. So it's possible that we still have a big run up well. The Fed is hiking rates because that does often happen. There usually is a market peak during the hiking cycle. So I'm playing both sides of it at two pretty big extremes, and in a strange way, I feel

28:56like that might be the right way to do it right now because there's not a whole lot of middle happening. There's a lot of volatility in the high beta stuff. There's also a lot of volatility in the defensive stuff. So I'm trying to balance it with extremes. I think that's the right way to do it. I'll say this as well, and we've talked about this on this show and fast money. The comments we heard, look, Dan knows more about AI than I'll ever know. It just really not interests me all that much. But I understand the importance of it, and I get the global importance of it, and different countries vying for superiority. Like I understand that, and I understand that the gains you can have if you're the leader and some of the pain you can suffer if you're not. With all that said, when you hear the leaders of Anthropic and Open AI saying, listen, we get it's important, but we got to sort of rein things in a little bit and slow things down. I get that part, but the problem is, Dan, the system, the stocks that support it are not built for a slowdown. They're built for a foot on the gas pedal 100 miles an hour going forward.

29:58So if you were to see a slowdown on back of what we've heard from some of these CEOs, maybe the slowdown is necessary. I, again, I don't know the dangers associated, but that to me is an existential risk in these stocks that not enough people are focused on. Yeah, and something that a lot of people aren't focused on either. We've been talking about it, but Doug Cass has also been writing about it. We talk about these being very cyclical sectors that we just spent some time on traditionally cyclical. Look at the banks. Look at what's going on here. We've been talking about Goldman Sachs over the last. We just talked about David Solomon, who's easily one of the best CEOs in America. No doubt about it. I think he does. Probably get his enough credit as he should. But at the lows yesterday, look at, well, great. Right now, I mean, yeah, it's up less than a percent. That's a horrible looking chart. So what is that saying? And put up a multi-year chart. I mean, this thing hasn't been materially below its 200-day moving average. You know, in a very long time, right? That looks like an AI stock.

30:59Why? Because it's levered to the AI trade because they're lead left on SpaceX. They're lead left on Anthropic. They're lead left on Open AI. We've been saying that, yeah, it's not just the fees that you get from a banking standpoint, but the trading is going to be fantastic. They're going to do debt deals. You know what I mean? They're going to do M&A forum. So it's just the start. I mean, if you look at Goldman here, and yeah, it's had moves like that. Let's go back to a one-year. What was that peak to drop decline that we had when I found stuff for 200-day? So maybe this is just another one. It gives people the opportunity. Give me that was a thousand down to 800. Okay. It's pretty similar. You know what I mean? Peak to drop that we're in right now, whether this is a drop or not. So, Guy, when you see this activity, am I drawing to far of a conclusion from that? Thank you, right. So, and Elizabeth, obviously mentioned the yield curve inverting, which is not going to be support. So let's do a longer term chart. We actually, man, it continues to do grade 1132, but that trend line, that uptrend line from there, which we said looks like it's holding.

32:00Well, now it's been broken. And you're through it and you're through the 200-day. So let's see if it recaptures it. But it needs to do so over a short period of time. Otherwise, I think the pain can be to the downside in some of these names can be longer duration. And maybe we'll get down to levels that we saw in the spring. So I think you're right to bring it up. And again, this isn't just Goldman specific, but Goldman got hit most on this. The drawdown that happened just recently was just after OpenAI came out and said, we're not going to go public this year. Everybody speculated that, but then he confirmed it. So I think this drawdown is about deal flow. It also tells you that a lot of that uptrend was also about deal flow and the expectation of a much hotter IPO market, a much more exciting IPO market, maybe a much more rewarding IPO market. And what I think the takeaway is from OpenAI saying we're not going public this year is that the IPO market has not been as rewarding as anybody expected. And it still remains to be seen if anthropically does it.

33:04Either way, I think much of this is about deal flow. And then you've got the flattening yield curve on top of that and volatility in stocks. We haven't made it to 8,000 on the S&P yet. You've got some strategist lowering their targets for the end of the year. So now there's a confluence of factors pressing on some of these big financials. It's also worth noting that, and people didn't spend a lot of time on this. I mean, Elon, he really squished the banking fees on the SpaceX deal. And so if that is going to be the leverage that this is always existed, but not to the size in which we're talking about. And fees are often associated with the size of a deal when it becomes an IPO. So it'll be interesting to see what sort of pricing these guys are able to get. And I get all of that. I wanted to hit one other thing. Damn it. I just lost my train of thought. Oh, let's do crude. Last night we had Halima Kroff. She comes on our show guy. I mean, she is one of the most amazing guys.

34:06She is. What a great yell from our she is. I mean, she's a capital. She comes on your show. Oh, do you not know her? She's not only so so smart and so well schooled in the energy space. She was a former CIA analyst during the 2000s. And she just has great energy guy, doesn't she? So you know, my view. You say former. I don't know if the former is I mean, she's fine talking about it. No, no, she might still be there just on it. By the way, that you should have her on the important part. Spicy takes. She would be awesome. But the point I was going to make is like, she is actually not optimistic that this war is ending anytime soon. And you know, a lot of the choke points that we're seeing are also ones that take a long time to be fixed if you think about it. And she also said that if you look at the way Iran is acting and if you look at the way when there are diplomatic sort of, you know, conversations going on, they are not giving

35:06up the straighter her moves. Okay. So you tell me maybe a lot of these Gulf countries are going to be able to get pipelines going and do all this stuff. You know what I mean? To kind of get 20% or at least some part of that oil flowing again from the region. But you know, I'm not saying it deserved to go from 80 to 100 over the last month or so, but it seems like now we say this all the time. There is a higher floor at the moment, Guy Dami. Like, you know, thoughts on that because if you think and, you know, they say this all the time, the central bankers or whatever, these are one time shocks. Well, this doesn't feel like a one time shock. I think the structural energy market has changed dramatically on the back of what's happened. In the countries have seen how tethered they are to very specific areas that are now been shown to be potentially problematic in a word. And I think everybody's sort of figuring out what's in the best interest of their countries and are you and understand energy is now a homeland security risk, which is why I think

36:06these stocks can continue to trade higher and why I think to your point, there's a there's somewhat of a floor in the energy market in terms of crude oil. How did that matters by the way for the stocks, although I think a lot of people think that it does. I mean, crude can trade sideways in perpetuity. I think those stocks go higher. And if you want to see how it's playing out, Thorpe of the Leroy chart, I mean, another all time high today seemingly works and just about any. Wow. Yeah. Crazy. Crazy. And XLE is basically an all time high. OAH has traded off, but it's I think that will continue to bounce. So energy stocks are in play here, Dan. Yeah. Liz, it's interesting. This morning and they were citing maybe El Nino, which is just a great little thing. We have not had a hurricane in the Atlantic or in the Gulf. I got a good hot take on this for you. Oh, I don't know if Mario's listening. This goes all to him. He said to me probably four or five, maybe even six months ago, like here's an outside possibility. El Nino is stronger than ever this year, totally disrupts agriculture and commodities.

37:10Now yesterday we were talking about like what about the idea of insurance companies benefiting from a strong El Nino because there won't be as many hurricanes, so there won't be as many claims. So there margins benefit from that. Good, Mario. I mean, that's like next level stuff. What? But it's a story that does not get. You've been a great mentor. You've been a great mentor. So the El Nino has caused, you know, unseasonally warm weather, which I guess is so I'm not like, you know, I don't have a Doppler like 5,000 in my pocket or anything like that, but let's do you have in your pocket. I have my AirPods. I always have my AirPods. Okay. We had a great segue to butters, but we kind of muffed it guy. I mean, you say we, I didn't say anything to muff it. All right. Well, here's the deal. Our fine partner, which is the data partner for risk reversal media. That would be fact set. But John butters, he's the senior earnings analyst at fact set. He writes the earnings insight blog. You can have it. Oh, there you go. In your email box every Friday morning, go to factset.com slash insight slash subscribe.

38:17Now guy, I know that that Thursday is for you on market call. It's my favorite days of the week. It really is. We have Liz Thomas on the fine program. Right. And then we get to quote butters work. So let's just get into it because he's talking about AI being cited by S&P 500 companies. Now, I love this data as we head into quarter end. We're going to get earnings going point. And this is not just I think what this data is going to show you. This is not just a tech story, right? This is how the AI theme plays out. It's got to find its way into other industries, right? So he's saying the term AI was cited on 331 earnings calls conducted by the S&P 500 companies for Q2. This marks the third straight quarter that AI was cited on more than 65% of the S&P 500 earnings calls guy. In this case, it's 66.2%. I can do that math. I went to school. And why wouldn't you, if you're a company, throw it out there?

39:18You're being rewarded if you do so. But again, when you look at work like this and then the obvious question is, does peak in terms of citing things and we've seen it with inflation, we've seen it with the concerns around the labor market over the years? Are peak concerns or peak mentions? Does that wind up being peak in terms of the cycle? And that's the question you have to ask yourself. And I'll go back to what I said earlier about some of the CEOs of the different, again, open AI and anthropic. There very might be a case that will come back to September of 2026 early in the month when you heard some caution out of these CEOs and that turned out to be a bit of a, I don't know, a cross, a, what is the word I'm looking for? One of those things in the road, a fork in the road that's going to go the wrong way. All right, I thought you were going to say a watershed moment. What watershed moment? Let's talk about the sectors, okay? So technology, this is not going to be that unexpected. 72 and financial 67 have the highest number of earnings called citing AI for Q2.

40:20Technology, financials and comm services, which is obviously also technology. Have the highest percentages of earnings called citing AI for Q2. Now there's one thing, you know, I was in this camp going back a couple years ago where the promise of this investment, the promise of these cloud infrastructures that are going to host the models, right, from a coding standpoint. It was my sense that highly regulated industries were going to kind of really wait to implement this technology for the reasons of being highly regulated, right? They're not the infrastructure builders, but they're also, you know, the big lenders and all that sort of stuff. But, you know, what's happened here is that regulated industries like financials, like insurance, like, you know, some of these others, they're starting to use it earlier. And I just think that that's why this work today by Butters is really interesting. Talk about the sectors and how this trade can broaden out away from, let's say, hyperscalers away from semis and memory and box makers and neoclass that sort of thing. Because that is really the next leg of this. You need to see a broadening out of this theme, working its way into other parts of the economy.

41:25Yeah, that's the secular bull case. And I do think that over time that will happen. Right now, I think it's very possible that we've hit the end of the first phase. So the end of the first saturation phase where certain sectors, companies have implemented about as much as they're going to at this point, or they've gotten as productive as they're going to at this point, now they have to come up with other use cases. Or it starts to spread into other sectors. Healthcare has always been at the top of my list for something that could benefit greatly from AI. But it's not there yet. So maybe that's second phase. So I think we're right now at this point in the chart before this from Butters that if it does kind of roll over and you have less companies mentioning AI on the calls, I think that's indicative of exactly what I'm saying that we've hit that first saturation point. Now we have to come up with what's the next step of productivity and what are the next sectors that benefit from this. So I think there are probably companies through the end of this year that are going to wait and see, do we actually slow down on innovation?

42:26Do we have the money to spend on this next year? What does our CAPEX budget look like for next year? What are we actually trying to do with this? And then you have to think about how long is it going to take to put some of these into play, put some of that into the production cycle for whatever the company is. So far, it seems like the ones that have implemented it have done it. As you said, Dan, much quicker than we expected. And maybe it's been easier for them to do it much quicker than expected. I'll say this, maybe anecdotal, but everybody at a corporation has to do those compliance classes that are due every quarter or every year. Many of our compliance classes this year talk about AI and talk about the fact that whatever is generated by AI is subject to the same regulatory and compliance standards as something that we would generate as a human. So it's basically drilling into our heads that yes, you use AI. We like AI. We support it. But everything that is just as stringent, if you were going to do that yourself, applies here too. We have the risk reversal compliance meeting scheduled for this Sunday prior to the

43:27Packer Jet Game. Is it Packer's at Jets guy? Packer's at Jets. And it's a white out apparently for the Jets, which is embarrassing. I have to tell you guys something. Please. So because I don't know if this is going to happen or not. My husband has a big birthday this weekend. Whoa. What a big like he's turning 50 or. Yes. Hopefully he doesn't listen to this podcast and know that I just disclosed that. But he's he's got a big birthday this weekend. He went to art school in Chicago. So we're revisiting Chicago. We're going to Chicago this weekend as a family. No, wow. He made a request. I don't know. We haven't bought tickets yet. Okay. But the bears play the Vikings in Chicago. Can you imagine if I have to go suffer through a bear's Vikings game? No, but you do it with a smile on your face wearing a bear. Packer's. Scouting. This is a scouting sort of situation. Well, you already saw what the Vikings did to your packers. That wasn't pretty. Wait until you see what this bear's offense does.

44:29I mean, Caleb Williams, guy just say it. He is a what? Man child. He's a man child. If you look at these two receivers he has, you look at these two running backs you have, you look at these two tie ends that they have. I can have offense ever. I hear that. I mean, it's some bands. Okay. Whatever guy. All right. So we'll see this. You should go. Soldier Field is easily one of the best. I'm going to bear some moving to the state of Indiana. Well, hopefully not. I'm not going to rip this. All right. We should get out of here. But John butters, his fine work, you can have the earnings insight. It's working. Okay. You know it's more than okay. I have a lot. Come on. I have more. You know it's excellent. You love the guy facts at dot com slash insight slash subscribe. Liz, any final thoughts we're going to get out of here. We know that you know you're going to plan a birthday party and you got to get your bears jersey ready and all that sort of stuff. Final thoughts are, I mean, this is a turning point and this is this is a time for investors. I don't want to be overly dramatic, but this is a time for investors to really rethink how you're approaching this now that we're in a hiking cycle.

45:31The circumstances have changed. Were you overly dramatic when you portrayed Dorothy in the eighth grade production? No. I love, I love bringing that up so much and I know how much that irritates you. But I also know when you laugh like that, it's a genuine laugh as your mom has pointed out a number of times. In fact, I had a human, a human total, like I had a dog, you know, she had a human total. It seems like like an SNM thing or something. You had a dog like like an all fours with like a leash. That's creep is you know what? That's like that's on the list of things that just would not fly today. By the way, there is a guy running for Congress somewhere in New York State. Maybe it's Long Island in a firmly, I think Democratic, you know, a little district and he's a Democrat where 10 years ago he was like in some SNM sort of like doing photo shoots and they have pictures of him in like leather and like all this crap that, you know, I know.

46:31And today's world that gets them elected. It might do. All right, on that fine note, Liz, we appreciate you being here. Check out David Rosenberg in the risk-versal podcast feed. We also have a special podcast. I mean, I find it special because we can go deep on AI and tech Dan Niles. You just call him the annihilator, the annihilator. He's a brilliant tech mind. We're going to talk to macro to that's going to drop in the feed tomorrow. So as much as I love this is now my least favorite part because what people don't see is will fade to black. Oh, she's out. And then when we come back, Elizabeth is going like she leaves the effing vapor trail. Fire off my shoes. Have a great trip. Go to the weiner circle. What is that? That's a pretty personal question. I really don't want to go to this game. I mean, I don't know that we're going to stop it. You guys know next week. Okay, on that note, Liz, have a great great weekend. Fifth year wishes to our main man.

47:31We're not even going to give his name or anything like that. We don't want to dox them. We're not going to dox them. Fifth rib. I hope is doing excellent 18 months tomorrow. Guy dummy. See you later, brother. Bye. Bye.