Transcription
We do. We have a conference tomorrow. There's still a few tickets that are available. We have some great, great speakers. I'll be interviewing Dario Amini, who's the CEO of Anthropic. So actually, he's the person that should be answering your questions. Not not me. I can't. What? There's so many I want to ask him on a. We've also got Ken Griffin and Jamie Dam, and it's going to be it's going to be a fantastic and a very informative and educational day.
Will all of those guys participate in pick a ticker because this is a contest you do with Bloomberg, right? Right. So pick a ticker is you pick one long, one short. It's a six month. It's a six month contest. Think of fantasy football meets the markets because this year we're going to allow you to change your picks, I think two or three times during the six month process. So you put in 10,000 bucks. It's going to go to charity, it's going to 75% is going to go to Robinhood to help the least among us in New York City, which sadly has twice the national poverty rate. And I think we've all got a vested interest in making sure New York not just survives, but thrives, because obviously Wall Street, which is the I guess, the reason for so much financial wealth and all your viewers have is something that we need to be able to in New York City, have a, again, a thriving city, because the most important city in this country has got to always succeed.
Yeah, I mean, you've raised, I think, $3 billion over the time since you founded Robin Hood for fighting poverty in New York. I want to ask about Wall Street and specifically about this equity market. I do watch our competition, and I saw your interview with Andrew last week. You said this is like October of 1999. But after that, as you pointed out, you know, the stock market doubled. We had a drop in October, like an 11% intraday drop, but then the stock market doubled to March of 2000. Are we still in line for a doubling of this market?
Well, it's so funny because you had mentioned that 54% of fund managers think that we're in a bubble. If it's a bubble, it's it's a small one. If you just think about and again, how do you actually define bubbles? If you think about the bubbles of the past three or four decades, the 1989 NASDAQ in 99, biotech 2008, just after 2011 12, China 27, all those were 4 to 600% gains. The Nasdaq's up 200% off the bottom. So I don't know whether we're going to blow off like we did in 1999. Is it possible are all the ingredients in place? I think clearly they are. For me, the the one thing that you can never, ever forget is that a year from today, assuming that the president gets his wish, is that the Fed funds rate is going to probably be and then two and a half know I think they're I think they would like to see two, two and a quarter. So I think two and a half to 75, obviously, whoever the new Fed chair is going to have to be able to intellectually move that board. A majority of the board. He's probably whoever the new Fed chair, let's say they've got six solid votes, so he'll have to find one more. And I don't think it will be that hard to do. But if you're if you're going to have two and a half percent overnight rates or 275, that's a really compelling story for higher equity prices.
Well, not just that. I mean, you've got Neal Kaysar on our opinion team yesterday laid out the argument that this is not the same as 1999 because these companies are so profitable right now. 95% of the S&P 500 is expected to post earnings growth next year. And the average earnings growth is 16%. It's obviously a lot more for the max seven or the great eight plus. You don't have the same kind of leverage that you had back then. You have less than 100% debt to equity. And in 1999, it was more than double that. Right?
Well, the only thing I'd say is I don't think you've got the leverage necessarily in the corporate balance sheets yet. You clearly have leverage within the equity ecosystem. And by that I mean you just had a proliferation and explosion in derivative products. I want to say that leveraged ETFs are up 250% since the 2022 bottom. And I want to say there's four or 500 with another another couple of hundred in the pipeline. So you're clearly creating derivative leverage, whether it's in the options market, we see single stock options. We just see options, activity exploding. Everywhere you look, there's greater leverage again in the equity infrastructure for what has become a really trader nation. We have the highest percentage equity holdings by individuals in history. We have, again, more levered activity. You don't see it in margin debt because margin debt is actually an old anachronistic tool. You see it more so in the options markets. You see it more so in the leverage ETFs. So it's somewhere down the road. It's a little similar. I don't think we're there yet, but somewhere down the road there's going to be there going to be some in there, going to be some some real issues with that.
Nonetheless, year long now, Right. I mean, at least last time we spoke to you in June, you said your portfolio would be long stocks. You said you'd be long gold, you said you'd be long Bitcoin. And those have been great picks. Check out this chart. Right. Gold alone is a 22% gain, but all of them are well above zero. Do you hold on to that portfolio?
So I would take them one by one. I think for stocks, the the critical time is going to be the last week here in October. And we see the when we see the big tech earnings as well as by that point in time, we'll have greater clarity on the resolution of the US-China conflict. I would think then, if the Nasdaq is higher going into early November, then you've got a chance for a real ramp in the last two months. What happens between now and then? I kind of think the market's going to be on the defensive until we get to that's going to be a intersection of just so many really, really important data points. So so that's going to be a critical time. They also have a Fed meeting that week. So I would think I'm you know, my prior is is that it will resolved the upside will focus on where Fed funds will be the market to look ahead 6 to 9 months and focus on that.
Bitcoin gold are interesting. They're interesting as a pair in the sense that if I just look at since Liberation Day and you've had about $40 billion of inflows into a combination of Bitcoin and Ethereum ETFs and you've had a like amount of inflows into the combination of gold and silver. But if you think about it. The vol adjusted 40 billion that goes into Bitcoin because it's got had say five six times. The vol of gold was really a much, much bigger bet on on crypto than it was on precious metals. And yet. Gold has outperformed Bitcoin since that period in time. So clearly retail has made a mistake in terms of trying to figure out which of the two debasement trades were going to outperform. And I have to admit, until a couple of weeks ago I thought Bitcoin digital gold was going to outperform again the historic stores of value. I think they're both probably still good. But my guess is, again, we're here in the fourth quarter momentum into the end of the year that of those two, it appears that gold and silver are going to outperform crypto. You know, I'm always going to be a trend trader. I'm always going to follow the momentum and I'm not going to be so pratfall that I'm going to try to out guess what the market's telling me.
But you do think that we continue to see inflation, because I've been talking to Neel Dutta from Renaissance Macro. He's pushing back on this. He says inflation hawks need to seek help. But his main point, I think, is that housing is that the shelter component is going to come down. And he he said, no, no, last week. Housing prices are likely declining. The fact that home buyer demand has declined, even as rates have dropped suggests that a deflationary psychology has infected the housing market. You buy that?
I think I'm probably looking past current conditions and I'm just thinking about the future. And we're we're in a fiscally constrained time. So why is it that the president is hell bent on finding a Fed chair that's going to have easy money? Because the only way that we can reduce our debt to GDP, that you can even begin to deal with it. 6% budget deficit is to have the lowest funds rate you can possibly have to lower your interest costs to stimulate growth, etc. But the only way to reduce debt to GDP is to have obviously nominal growth exceed your interest rate. So in a situation like that. Particularly given where we are in this economic cycle, where we are now, it's just hard not to see. And I think this is what the markets looking ahead to see inflation not be rekindled and start up again. 612 In a more serious fashion, 18 months hence, you can kind of see it now. And it's again, think of this. We have $370 trillion worth of global financial assets, 370 trillion. So when you come to a market like goal, which is 12 trillion silver, which is, Oh my Lord. A fraction of that Bitcoin crypto, which is say 2 to 3 trillion. It doesn't take very much. Then you start thinking about the copper markets and some of the other rare earth minerals, and you think about just individual commodities. Good gosh, the ability to elevate those prices because we have so much, again, money and financial assets, it just takes a small tweak to really begin to create a rise in the price level. And I think we'll see that. Assuming that we have a new Fed chair who's going to take the funds rate down to two and a half percent. And I think I think the White House is thinking they'd like to see the funds rate at two and a quarter to two and a half.
Will we see a significant drop in the dollar from that? Because we had seen right in the first half the biggest drop for the dollar since 1973. That's the year I was born. So a long time ago. But we a baby. But we thank you. But we have recently seen the dollar recover and showing a little bit of strength here as people look for, I think, safe haven in that.
Well, look, you've got an X, You've got to you've got to see that money debasement going on pretty much virtually around the world. Right. The bond vigilantes, though, are being held in check by, again, central banks and populism that are pushing central bankers to run hot. So the the currency debasement trade has really turned into a gold trade and a crypto trade, Right. Bond vigilantes have been have been shot into the back toll or been put in abeyance and instead is manifesting itself in gold and crypto. That's really what's going on. So again, look at the new prime minister of Japan. She's already advocating for the BOJ to go slow on normalizing rates. You can't make it up. They've got they've got negative they've got negative one and a half percent. And it's almost like they just want to deny that they have an inflation problem. But so that's what we're seeing. And again, at some point in time, at some point in time, we're going to have some precipitous moments in sovereign debt markets. I don't know whether it's Japanese bond market, the US bond market, but we're going to have some precipitous times. And if you just think about we we're not even close to that yet. We're not even close to that truss moment we had three years ago where the currency was under attack, the stock market, the bond market was under attack. Just imagine if and when we get to that day, which I think was 6% budget deficits in the US, that day will come. Just imagine what gold and crypto, for that matter, the dollar. Imagine what they're all doing. We're in we're in good times now, right? Even with the shutdown, that even with the shutdown, we're in good times now.
I wonder what you think about that. You mentioned rare earths and even we can't inflate our way out of that problem. Right? J.D. Vance said we have the cards. But it seems to me China has us between a rock and a hard place. Meredith Whitney put out a note on Sunday and she says, you know, don't bother being distracted by 100% additional tariffs that President Trump was talking about because aside from the massive dependence on the US industrial complex for these rare earth minerals and magnets, the US military is 100% dependent on them and has nearly depleted of its reserves. What can we do about that?
Yeah, I'm sorry, I don't have a good answer for that one. I wish I did. I really I don't envy Trump and his cabinet trying to figure out what's going to happen here in two weeks. I really don't. I just think of the strategy that it looks like the White House is following. Right? They take a stake in MP materials. They take a stake in lithium Americas. They're trying to ramp up mining so they can produce these things. And at the same time they're taking stakes in private companies. How do you feel about that as a long term free market capitalist, the US government getting in and picking winners and losers?
I'm not in favor of that. And again, the reason why is it's the same reason. My concerns are I see concentration risk everywhere I look now. We have individual investors with the highest equity allocation they've ever had in the history of the United States, really four times that of the rest of the developed world. So I get nervous about that concentration. I get nervous about the fact that we have 35% of the S&P is now concentrated in seven stocks. I get nervous about the fact that this administration, even if all those decisions were smart and correct. Again, if you just think about the number one rule of portfolio diversity of portfolio management is you want diversification. That's why our founding fathers created as a democracy, not a monarchy, because you want that contestation of ideas. So I'm nervous when I see concentration virtually in anything, again, whether it's in the stock market, whether it's the composition of the stock market, who owns the stock market or the decision making that's getting made in Washington. It makes me nervous because I don't think in the long run. Right. Well, even if all the decisions that President Trump making are great, is that going to embolden the next president who may not make as good a decisions to do the same thing? So I'll look I'll look at that. And again, it raises caution flags.
But you're still you're still long stocks right now. You're still long, the Nasdaq.
I am I wouldn't say long at this second. I'm clearly. Again, I think there's such a confluence of possibly negative, possibly positive events. I think I want to kind of wait and see where we are and in a week or two time. But but my my belief is, is that we'll be substantially higher by the end of the year.
All right. So just to end on where we started with the pick of ticker contests for Robinhood, I asked you last time and I'll ask you again. For players at home. Yeah. What tips would you give us? What would you put?
I'll probably. So I think it's going to begin November one. I'm sure I'll probably be long. The Nasdaq will be my my long. Remember, you see, it's really interesting because the last 12 months of a bull market. Typically you double the annual gains up until that point in time, but that's to the end of the bull market. So we've got this situation confronting us where the best part of the market's possibly straight ahead. But it's also the most dangerous because it could be the top. So so I would probably be long the Nasdaq would be my long. And I've got to think about what my short would be. It could be. Hmm. It might be the bond market. Again, though. That'll be a bit boring. That wouldn't be boring. I'll take it. Okay.