Josh Brown on Trump, Tariffs & Where Investors Go From Here
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Welcome to the Risk Reversal Podcast. I'm Dan Nathan, joined by Josh Brown. He is the CEO of Ritholtz Wealth Management. Josh, welcome back to the podcast. Hello, Dan. Hello, America. Hello, America. Two things here. About 10 years ago, you rolled into the green room at the NASDAQ market site to do CNBC's Fast Money at Five, not the Halftime Report, of which you are a star. And it was, I don't know what the hell was going on.

I don't know if you remember this, but you're like, guys, guys, this might be the most important show we ever did. There was something, it was something was melting out. But by the way, that is your legacy with us because there are times like a day like today, we will roll in there and Guy will be like, guys, this is the most important. And everyone gives a hat tip.

You guys still make fun of me for that? No. I mean, we don't make fun of it. It's just a fun thing to do. What could it have been? If you think it was 10 years ago. You know what I think it was? Do you remember there was like growth scares and there was the Chinese devaluing their currency? I think it was like one of those sorts of things. Does that make sense? In 2015 or something like that? You know, listen, we got a lot to talk about. I remember being like, listen up, guys. This could be the

biggest show we've ever done. Grasso, straighten your tie. No, it wasn't like that, but it was more like a day like today. So we're recording this. It's 15 minutes after the stock market opened on Thursday. Yesterday was, as Josh likes to refer to it, Liberation Day for America. We are bringing back glory to this fine country. We are reopening the sweatshops from coast to coast. The mills, the grist mills.

We are going to go back to a time when America was truly great. When a pair of shoes cost two months salary, we're bringing it all back. And I love it. iPhones, they're going to be what? 3,000 bucks or something like that. Children and their tiny hands manufacturing Blu-ray players. We are, it's,

all coming back. It's been too long. We've been taken advantage of. - All right, listen, we're gonna talk about that and some of the stuff that we saw in 2018 that was meant to bring manufacturing back here to the United States, which kind of did the exact opposite. I take a lot of issue with Scott Besson, Treasury Secretary. I had a little bit of rant on one of our podcasts earlier this week when he was talking about the American dream is not cheap flat screen TVs. That almost was like a let them eat cake sort of thing.

But we're going to talk about how we think this thing plays out a little bit, both in the economy and the markets, what the recession probabilities are, some of the things that you're doing for your clients. I think that's really important right now. So let's just get started here. What are your quick takeaways? Because I'm just going to roll through what's going on in the markets right now this morning. All right.

We have an S&P that is down 3.5%. We have a U.S. dollar that's getting smushed. It's at 101.60. That is the U.S. dollar index. We have a 10-year yield just above 4% that was trading, what, 4.5%, I want to say, two weeks ago. The VIX...

It's only 27. That's kind of interesting to me a little bit. Crude oil getting smashed. It's at 67. It was trading at 72 the other day. So that's just taking a little bit of stock of what's going on here. Give me your first blush, because last night as the news was coming out, I'm seeing on the desk of Fast Money and you know, the market was down 1%. That was down 2% and that was down 3%. This is the after hours. So it's basically opening at very near the lows of this last 12 hours or so. Okay. A couple of things.

This is actually a Michael Batnick take, but as soon as I read it in Ritholtz Wealth Company Slack, I said he's right. The market doesn't believe these numbers. They're so nonsensically large. There have been people dissecting how they arrived at these numbers, the calculations, the formulas. I saw they're putting some Greek letters into some stuff, so it must be real. So Trump must have done that bit. Yeah. So I think the market doesn't believe...

The numbers doesn't believe either that they'll be sustainably at or that we're not now going to get a wave of concessions and negotiations and carve outs and exceptions, bailouts. Like the market, I think, is looking at this and saying, OK, that's a great opening gambit. Now what happens? So the worst, the way that goes really wrong is.

is Europe and China say, okay, we see your 38% or whatever, and we go to 50%. That's like really would be bad. And it looks like, from my take, it looks like right now, based on that VIX, based on stock prices, the market thinks that that's not the way it's going to go. They think it'll go the other way, which is closed-door meetings and Tim Cook and Mark Zuckerberg and this one and that one. And ultimately-

It'll be a mess either way. It just doesn't necessarily have to be the Great Depression. So you just mentioned Tim Cook. You know, they have already suggested that they're going to spend $500 billion here in the U.S. over the next four years. This is what all the big tech bros, when they went in there, you know what I mean? They basically bent the knee, that sort of thing. What more could you expect from a company like Apple, right, when you think about that? Because they've already done the thing, you know? So like, like,

You know, supposedly Zuckerberg was in the White House last night talking to Trump, lobbying for him to kind of, you know, get rid of the FTC thing. They have issues with the EU. They probably don't like TikTok, you know, being sold here in the U.S. They'd like to have it banned. So, you know, what sort of carve outs at this point could some of the big tech companies get? Look, I think Trump likes this where everybody has to everybody has to genuflect before his office and give him something red meat.

And not fake stuff, but like really say, hey, we're going to do this. We're going to do that. We agree with what you're doing. We appreciate it. Help us and we'll help you with that messaging. I think he likes it. Like I...

I don't think he wants the stock market lower, but I think he's willing to accept that in exchange for this period of time now where world leaders, business leaders have to come before him and ask for things. And that's fine. Like, look, one of my things about Trump, and I know you and I don't see eye to eye here. I think one of the major differences between Trump, I mean, there are many. One of the major differences from an investment perspective is

of Trump versus prior presidents is that he just does the shit out loud that everybody was already doing. Like LBJ pinned a Fed official against the wall, a Fed chair against the wall. Don't you dare raise interest rates during my term.

The difference is that wasn't on Twitter. It wasn't posted to Truth Social. So I think the thing with Trump is he's not doing things that are so radically different from past presidents. He's just doing it as a reality show rather than behind closed doors. So I think that's what we're in for now is this raft of news releases about such and such company has agreed to this. Thailand already is like the first to say, hey, if everyone's going to negotiate, we want to be first.

Brilliant. So that's now what I think is going to happen. And that's what I think the S&P is reflecting. Well, you know, Guy's been saying that all week is that obviously Trump likes to get wins. He likes these kind of, you know, moments where he can do these press releases or these pressers and stand with these guys and, you know, in the like. And he's obviously very enamored with like real billionaires. You know, if you think about that, I take a little issue with what you said about Trump.

you know, he's been doing the thing that all these other presidents have been doing. You know, I saw Howard Lotnick, the commerce secretary on CNBC this morning, and in a six-minute interview, he probably said Donald Trump knows, Donald Trump this, probably 20 times. Donald Trump's going to deeply study this issue. It was my favorite. Donald Trump can't.

So my point is, is like we've never had that sort of situation where the entire administration is just kind of focused on one guy. And I've been saying this is like we have never been in a situation in this country where we had such a single point of failure as it relates to because there's nobody opposing these processes or these suggest, you know, I mean, like that's a real problem. I disagree. There was a there was a vote in the Senate.

where four Republicans joined the Democrats about tariffs on Canada. It's Murkowski, it's Rand, it's Susan Collins, and it's the same people always. But it's just, listen, it's a little bit too dire to say nobody. There's an opposition. The opposition is enfeebled. And arguably, if you don't like what Trump has just announced in this whole tariff trade war thing,

You could blame the Democrats because they did not listen to people for four years who were really unhappy with the direction things were taken. They passed this absurd Inflation Reduction Act. They passed...

a lot of things that exacerbated the inflation situation. And that's how you got Trump back. So Trump would have done the exact same thing if he had won in 2020. Of course they would have. There was so much uncertainty about the path to reopening the global economy and how interrelated we are and the smashing of supply chains. And I mean, I'm just telling you, like, do you think the companies- Not sure. Okay. Well, you and I can agree to disagree. I got to ask you, I mean, we can sit here and argue for 40

I don't blame Biden for inflation. I blame the Biden White House had a communication problem because the economy was pretty good. Wasn't good for everyone, but no economy is. The Biden problem is their lead guy on the economy basically did a few MSNBC hits here and there. Jared Bernstein or whatever. Nobody knows what he looks like. Nobody knows anything about him. The one thing about Trump's cabinet is...

and his people, you know exactly who they are. You know what they're going to say before they say it. They're on message. They're in the media constantly. When they're not on TV, they're on Twitter. And they are very effective. You could disagree with them, but you know what they think. You know where they stand. But we're like...

You cannot say that about- We're two and a half months into this. Let's see what happens. I'm just saying, okay? Like, all right, let's talk about the S&P for a second because you said something that the market thinks this, and like you're basically implying it's not so bad with an S&P down 3.5%. No, I think it's bad. I think it's bad. I think the market doesn't believe

the formula. What if the market closes down 5% today? This is going to be one of the worst days, you know, going back to COVID and then you have to go back to the financial crisis to have a gap like this. I know that you study the markets. You look at, you know, I know you, there's very few people that I know who have such a good sense of market history. And if we were to close down, let's say 4% today, we have a really ugly day tomorrow into the weekend, that sort of thing. If people are expecting that maybe we'll have some concessions, we'll have some big headlines over the weekend, you don't get that much.

Monday could be really bad. You know what I mean? So at this point, I think they're playing chicken with the global economy. I think they're playing chicken with the markets. And I think you and I both know if we go back to these last three major crises over the last 25 years is that once these things start going, at least in the markets, they're really hard to stop.

Yeah, but they don't all always tip into recession. This one feels like it really could because this one is more about the economy and less about the markets, if that makes sense. And what's interesting is Scott Besant made an offhand remark. This is a MAG-7 problem, not a MAGA problem. Bullshit.

So it seems like that right now. This is one of those that looks like it could tip over into the real economy and not because stock prices are falling, but because there are this trade restructuring. What it's done is it's engendered a ton of uncertainty. And I do think one of the risks here is that people that would have been spending on CapEx in the normal course of events just say to themselves,

You know what? Let's give it six months. And that's how it tips into the real economy is if investment spending freezes. There are hiring freezes. We just saw a jobs report this morning that somewhat surprised the upside of

a firing report. Like these are the types of things that are real and not about the VIX. Yeah. All right. We're going to talk about CapEx in a second. But, you know, the recession word has kind of moved back into the lexicon, I want to say, after the last four months or so, which is kind of ironic in a way, because, you know, this pro growth agenda that was meant to be one of the main reasons why, you know, Trump got reelected.

You saw all those Trump trades. They kind of reversed before we knew that this kind of trade war was going to have or the tariffs were going to have some real teeth. So if you think about that, let's just talk about the potential for a recession and what it means. All right. So we have the GDP now. You know, it went from up two and a half percent for Q1 to down two and a half percent or maybe even down three and a half percent. A lot of folks say that's a bunch of BS. Right. But what if it means that we actually had.

a quarter of contraction, okay, that would be Q1. And now if you say to yourself, even if these tariffs and, you know, in the trade war gets dialed up, but then by mid-May, you know what I mean? It's a much calmer place. Well, Q2 could be out the window, right? If you think about that, because once you start firing people or kind of stopping down on production or, you know, whatever the hell it is, it's really hard to turn that on a dime. So what would it mean if we're looking at this, let's just say in late December,

July and it's confirmed that we had a recession in the first half of the year. What does it mean, I guess, for capex spending? What does it mean for consumers? That sort of thing. The worst part of this is the Fed might have to sit back.

The Fed might not be able to cut. If we're back to PCE reports with a four handle in front of them, this is not a scenario where the Fed races in with 200 basis points worth of rate cuts. They might have to wait for like a much worse economic situation that eventually drags prices down. And there could be a lag between a legitimate slowdown that ordinarily the Fed would react to and when they can actually react.

What they can't do is start preemptively cutting rates and saying, okay, here's an exogenous shock to the economy. Our mandate is to focus on full employment because it's a dual mandate. And they don't have inflation where they want it. And this actually might make it worse. A lot of the notes on Wall Street this morning have the term stagflationary shock.

in them. I'm not saying I agree that that's where it's going to land. I'm just telling you that might be the thing that keeps the Fed from doing what they would ordinarily be doing in a situation like this. And it's reminiscent of 2018. Yeah, you know, it is reminiscent of 2018, except for the fact that we didn't have inflation where it is and we didn't have the cumulative effects of four years of inflation. Right. And so I think that's what, to your point, makes it that much harder for the Fed. But what if

we started to see, like you just mentioned. The Fed was hiking in 18 and they're not hiking now. They went off a zero interest rate bound. They got to maybe like two and a half percent. Fed funds now is at four and a half percent. So, you know, I get all that. What if Trump,

calls Powell into the oval, has his forearm up against Powell against the wall saying, I don't care what you're seeing as far as employment, as far as growth and this sort of, you are not raising interest rates if inflation does kick back up. They're not raising interest rates. And interestingly, the 10-year, while it's fallen and it's hovering above 4%, it's not 3%. It probably should be, but there's a reason it's not. And I think the reason is

There's going to be a lot of movement of capital around the world into and out of various instruments. That's number one. Number two, I think the market doesn't know what to panic about first. The return of inflation, that's man-made inflation as a result of this supply chain shock or the deceleration in the economy that almost assuredly is going to be the result of this. I don't even know which way the 10-year should go, but arguably it's probably 100%

basis points in the wrong direction. I just don't know which direction yet. Well, it's kind of the midpoint at 4% of the last year or so. And so maybe it gets stuck around here. If you remember, it went down to 3.6% as the Fed kind of indicated that they were going to lower interest rates in the fall. That didn't make a whole heck of a lot of sense. Okay. But if grocery prices, apparel prices, automobile prices shoot up, the 10-year probably spikes.

And then when it dawns on us all that we're going to have a consumer driven recession, that's when it falls back down again. Yeah. So Tom Lee, and I think he's been on your pod recently, too. He was on with us, I want to say, about a month ago or so. And we're talking about the potential for tariffs across the board in a trade war that kind of feels a bit protracted.

And the question was, is this going to be inflationary? Tom said it actually could be deflationary because when you have consumers pull back from buying goods and services, that ultimately that has the opposite effect. And I don't agree with that, but I'm just curious how you think about this. Explain that. So if prices are going up and consumers are not buying, then I'm

You know, he said it could be deflationary. I mean, he just said it's actually not going to have the impact on longer term inflation. Oh, well, that's what I kind of just said that by talking about that. Like, at first, it's inflationary because the prices are literally the prices.

But then the second thing that then happens is the economy slows to the degree that demand just goes away. And then it becomes disinflationary. We're not rooting for that outcome. Except, though, if the outcome of the tariffs and a protracted trade war is to bring manufacturing back here, then reshoring and the like. And you could say. Can we talk about that? Sure. Let's just double click there. I just don't believe it.

I understand the rationale. Isn't that the whole goal of this whole trade war? I just don't believe that it's – it just doesn't – it seems fantastical. And I could totally be wrong. Number one, I'm not a trained economist. Number two, I'm not the world's foremost authority on global trade. I just don't believe it. So here's what has to happen. I listened to Lutnick this morning on Squawk also. Mm-hmm.

So what has to literally happen in the imagination of the White House for this to all work out okay, and I don't believe Besson believes in this either. I don't. I think he's twisting himself into pretzels to make it sound like it's plausible. But this is what has to happen. Literally, all of a sudden, all of these international companies –

have to come into the United States and scrap these facilities that they've built around the world in Mexico, in Canada, in Taiwan. Just say, forget it. Forget that investment we made. We're going to make a brand new investment. It's going to be in Alabama or Arizona or Louisiana. We're going to erect these 500,000 square foot production facilities. We're going to hire American workers at American wages to

And we're going to do this now so that in three to five years, we're fully up and running and producing everything in the United States so that we can someday avoid these insane tariffs that nobody believes are really going to last. So that part has to happen simultaneously.

governments all over the world, the European Union, China, like Japan, governments have to also decide that they're going to zero out tariffs with us and that they're going to be okay with this idea that they sell us shit with a 5% profit margin. We

We go there and sell them stuff with a 50% profit margin, like software and financial services and intellectual property. Okay. And they're going to be okay with that. None of these, to me, none of these things sound feasible. I understand why they might be desirable. I saw in the Rose Garden yesterday, they had that guy from the auto union come on. He's great. I love the enthusiasm. I just think he's like misguided. I feel bad for him. I feel like they don't.

actually understand... He was a prop. Whatever. I think he believes... I think he wants to bring... I think they all want to bring back the 80s, but I just... I don't see... Number one...

I don't see why that's beneficial. I don't know how many Americans want to work in a textile factory. I just, I don't get it. So I want to believe that this is going to have a happy ending and that it actually could work out and all the skeptics and all the Democrats and everyone's going to be wrong and that this is going to be glorious. I would love for that to be the case. I'm not partisan. I don't, I'm not on the blue team or the red team. I'm on the green team. Okay. So I want that to be true. It just, it,

it seems fantastical to me. Yeah. And, you know, I agree with that. That should be kind of bipartisan that there are good jobs for Americans here in kind of participating in the growth of America. And I think that's one of the reasons why you've seen this massive shift over the last 40 years. I think that auto guy, I can't remember. Trump didn't even like introduce him. He just called him Dave. He said, Dave, will you come up here? Dude, but I get it. But I get where that guy's coming from. I just think he's like,

he's being misguided by people that are telling him something that can't actually happen. - Well, let me tell you this. If GM stops down and Ford stops down on some of their factories over the next few months or so, all those folks, he had 20 people who work in the factories with him, you know, they're all gonna be super pissed off. Like, let's be really clear. And you know, earlier in the week, there was an article in the Wall Street Journal, it was about Harley Davidson.

OK, and most of Harley Davidson's bikes are made here. They're made in Wisconsin, in Milwaukee. Right. And the article said in 2018 that when we had the first kind of tariff situation or so, they were absolutely getting drilled overseas because of like the high tariffs. And they don't sell a lot of bikes overseas, but they took a hundred and sixty six million dollar hit that they did not pass on to the consumer. And you know what they did?

They open factories in Thailand to avoid tariffs and they sell around the world. So isn't that the exact opposite of what the intent is of these tariffs? Yeah. And this is like Nike was directed to move manufacturing out of China and into Vietnam. And now the tariff on goods coming from Vietnam is higher than it. It's just like it...

There's an incoherent portion to it all is one aspect to this. I think that's being reflected in the market. And then there were just like outright lies like we can't sell corn. We're the biggest exporter of corn in the world. Like it's just – so it's this combination of like fantastical beliefs about things that are just not feasible in the real world.

posturing. And we don't know how much of this is just for like the optics, the desire to have people kowtowing to the White House. I totally get that politically. Again, I think that happens with every president, every party. In this case, it's just more on display. But then there are like falsehoods and just outright lies. And then there's this other component of like the incoherence and what you're describing with the Harley Davidson. It's like, all right, can we play chess, not checkers?

In checkers, oh, I get it. Like, oh, you're not going to let us sell motorcycles there? Okay, no problem. Like, we'll do this. But then in chess, it's like, well, what happens then? What happens then? What happens then? And the problem is business people are making decisions based on the next 90 days, the next 180 days. They have to. They have no choice. Unfortunately, some of those decisions are going to be in like a stasis. Like we're going to do – the decision is we sit and wait.

And that is what could grind this thing into an actual recession.

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Let's talk about what you're doing at Ritholtz Wealth Management. You manage money for lots of individuals. And so in a period like this, I mean, they look to you, they see you on CNBC, they listen to your podcast, right? They're probably very much in tune with your thinking, but then you run these portfolios.

without emotion. Like that's the whole goal. And I've heard you speak about it a lot, but you do make tactical shifts, right? And you can't do that too frequently because it's kind of hard to turn the aircraft carrier, right? And some of your portfolios, because you don't want to get whipped around with what's going on, you know, headline. Well, there are tax, there are tax consequences too. And so,

When we build rules-based strategies that are tactical, one of the most important things is asset location. So asset allocation is what are you going to invest in? Asset location is where are you going to hold these things? Where are you going to transact?

So the number one thing with tactical strategies when possible, we want to run them in tax deferred or non-taxable accounts. The worst thing you can do is incur a tax liability. You have exposure to stocks which have gone straight up for almost two full years. And then it's like, all right, now we're going to take a huge gain because such and such problem in the economy. Even if that ends up being the right decision,

you still are left with the tax bill that you've incurred. So as a fiduciary, and we're all financial planners, my client facing people are CFPs, we really have to weigh the consequences of not just returns, but like how does this holistically affect the households that we're working for? So that's the number one thing is before we do anything, which strategies in which account types? Okay, so that's one. Two,

Rules-based means rules-based. So even if I, in January, feel really strongly like, wait a minute, the Trump bump is subsiding as the gravity of what they're talking about doing is starting to come out, let's flip to cash. Like, you can't represent yourself as rules-based and then make a shift in a portfolio because you read something in Barron's or you saw a press conference you didn't like. So...

We've been running our tactical strategy. It's called Goldtender for about 11 years. It's proprietary. It's completely run in-house. And the way it was built, because we're a wealth management firm, is how can we trade the least and still be tactical? And what are the rules so that we don't have to call an audible? The way you get into trouble on Wall Street is you call an audible. You've got...

You're wrong. You compound it by doubling down because you told your client something. You're afraid to tell them you were wrong two weeks ago, right? Wait, are you describing my career training over the last 25 years? But this is how people get into trouble on Wall Street. So the rules are purely based on trend. We can't have rules that are based on economic data because as –

as the world evolves, some economic data is no longer important. I'll give you a, for instance, 12 years ago, people used to look at the, the Baltic dry shipping rate index. That was somewhat important and it would move markets. Now, if you said it to somebody, they would say, what are you even talking about? Okay. So there's no economic data in the model. Um,

There's no sentiment. We're not looking AAII. Those sentiment surveys get more extreme over time. They're almost always at extremes now. It used to be when they were at extremes, that was a tactical opportunity. Now it's 1929 every time the market goes down 1%. Useless. Throw it out. We don't do that. So once you peel back all the things that either only work sometimes or –

don't work anymore because the world has changed. What you end up with is price.

Price is the sum total, the distillation of every economic indicator in the world multiplied by the degree to which the market has decided to pay attention to it. So we have a rules-based strategy. It's dictated on price. It's trend following. We didn't invent the wheel, reinvent the wheel, but our version of it has fewer trades with higher consequences when we buy or sell. That's the goal. Okay.

On Monday, for the first time in 17 months, the tactical model demanded that we go risk off. We were 100% equities from October of 2023 up until Monday. And now we're 40% large cap US, 60% T-bills. That could reverse itself. Like the next reading, the next shift, maybe the market environment changes and we have to put back some of that stock exposure on. Maybe we have to put it on higher.

It never feels good to have to do that. Or maybe things deteriorate, get worse, and we have to go even more risk off. I don't know. I can't tell you what we're going to have to do in May, in June. And that is what, essentially, that is what trend following is about. It's not about forecasts. It's about reacting to current conditions.

and trying to do so in as efficient a way as possible. - All right, let's talk about sentiment from your clients. On a couple month period like we've had right here, we've gone from an S&P, I think it was 61.45 or something like that. Now it's 54.45. And the speed in which it's happened, I think it's one of the kind of quickest 10 plus percent declines.

What's the mood of your investors? You hear from them. Tell me which part of the country the investor lives in, what industry he works in, and who he voted for. Okay, that makes sense. So you could throw that out there. But you just mentioned the rules-based and quantitative model that you have there. Are there qualitative— Technical, not quantitative. Okay, are there qualitative sort of decisions that are made in running some of that money also?

Well, not in gold tender. Gold tender is pure trend. But in our core models, which are fully invested, they're not fully invested stocks. We're in a range of fixed income. We're in international stocks, not just US. A lot of it now is direct indexing because we're doing constant tax loss harvesting. This is actually a great environment for that strategy. If you don't have losses to harvest,

All right.

Let's make this, I don't know, let's just suggest that these tariffs stay in place at least for the first couple months of this quarter, right? And we're going to get earnings in the next few weeks. We're going to have all these macro sort of, you know, movements that are really going to make it confusing for C-level suites to kind of, you know,

I don't know, just give guidance. You know, like you're going to have a company, you're going to have plenty of companies that actually say we're just can't give guidance right now. We don't have clarity about when this sort of situation ends. And so obviously the moving commodities and dollar and interest rates, that's all important. But just, you know, the lack of clarity is going to affect, you know, corporate capex and consumer spending.

So if I told you that the S&P earnings estimate coming into this year was what 270 or something like that and it hasn't moved down materially I think it's still expected to grow 12% year over year and that's going to be something that just gets hacked you know what I mean as we get into let's say the latter part of the Q2.

And if I told you that the low in the S&P last April was below 5,000, just below 5,000, we're at 54.50 right now. And if we got back to that low, which was like, I think, 49.50 or so, that would be a 20% peak to trough decline.

Do you think that's possible? And do you think that's the sort of thing that investors could basically handle after two consecutive 25% year-over-year gains in the S&P? Well, I think, unfortunately, there's sequence of returns risk for all investors. And you don't get to dictate in advance when you're going to get the bear market years versus when you're going to get the bull market years, which is

which is why we think it's so important to not run your entire portfolio as though investing is optional. We're always invested. The degree to which we're long US stocks could change the degree to which we'll have fixed income. But to your point, if I had sat down most investors three years ago and I said, we're going to have a plus 27% total return year, we're going to have a plus 24%, and we're going to have a minus 10%,

And number one, I can't tell you the order. I would love to have the minus 10 first, but I can't, right? That's number one. And number two, you can't have one of those years and not the other two. You have to eat all three. How many rational investors would not sign up for that? Everyone would. Well, that's the situation that we're now in.

You got a 20 multiple with GDP growth grinding lower. You might end up wiping out all of the expected earnings returns for the next three quarters. So you might have like flat earnings growth versus plus 12 was the expectation at the start of the year. That sucks. You might have multiple contraction down to an 18 multiple from 21 where we started the year. That hurts.

In that situation, you have a negative 10 or 15% S&P return for the year. Not my forecast, just saying it's possible. Yeah.

If that's the shit sandwich that you're being served now, but it's coming on the heels of two of the best years in the history of the market, that's what you, as an equity investor, that's the game. If you think the game is, oh, no, no, no, no, I'm only going to be invested for the good years and I'll get out before the bad ones. You have the mind of a child. You will be taken advantage of by every scumbag on Wall Street. They will sell you that.

They will say, yeah, we could do that for you. They'll promise it. They won't put it in writing. They won't send it in an email. They'll imply it. Sure, no problem. We'll give you the up, not the down. Sign here, initial here, have your wife sign here. We'll set you up. So you can't be that stupid as an adult

with a seven figure portfolio. You do not have that luxury. You must be realistic. And unfortunately, being realistic right now means potentially accepting a bad outcome for 2025. Not guaranteed. Yeah.

Just very plausible. It's really hard, though, to think about what a good outcome looks like right now. And so, you know, I mean, like when I think about the potential for them to stick to their guns as they think about, you know, what they're willing to accept from a concession standpoint on this. So, you know, just one other point about that 49%

sort of 50 level in the S&P 500. It was basically the high in 2021. We know that the S&P closed down 22 and a half percent off the lows in 2022. And then we had those two bang up years, right? It would be interesting from a psychology standpoint for investors,

if they had that great two year one, 2023, 2024, and to see it all wiped out. And again, I'm not saying it goes down there, but it might be, then it brings us back to market structure, which I want to hit with you right now, stock market structure and the concentration. I'm sure you've talked about it on CNBC and your podcast probably a thousand times, right? We talk about it. We maybe harp on it a little too much, but my perspective is that over the last two years,

that CapEx has been a huge driver of just the economic growth that we've seen. It's been a huge driver of earnings growth that we've seen. Tech CapEx. Yeah, so the Faithful Eight, when I think about it, right? So these are all the trillion-dollar market cap companies. So here we are now, and this goes back to what Besson said, it's a MagSven thing, right? It's not a MAGA thing.

So how can the market recover if we are having this digestion or this two-year generative AI trade is coming unwound? And again, you and I would totally agree it's here to stay, but it's just the levels in which CapEx continues and the levels in which companies get the return on investment and the productivity. So I think CapEx has driven the stock market, but not the economy. The consumer has driven the economy.

And that's what I'm most worried about right now. Because I think in the stock market, if the AI story falters, it'll hurt at the index level, but not necessarily at the portfolio level. And remember, I'm talking about not just buy the SPY and put your brain to sleep for the next 10 years. I'm talking about custom indexing where you might be utilizing beta factors. You might be prioritizing quality.

you might have a higher exposure to the dividend growth factor than you do to the pure growth factor. Okay? So...

I want you to look at... You can't look at this. I'm looking at the screen right now. Here's what I see. American Waterworks is up 3% today. Kroger's up 2.6%. Sencora up 2%. Consolidated Edison, McKesson, Philip Morris. CME Group is up. They thrive on volatility, as you know. Coca-Cola up 2%. Verizon up 2%. AT&T up 2%. So you asked me about market structure, portfolio structure. Look, if your bet...

was that you would just own these eight stocks and be highly concentrated in Tesla and maybe sprinkle on some Bitcoin and whatever was going on in 23 and 24 would be the way to outperform forever. It's not looking so good right now. Look at what's in place in the first quarter intra-market.

The tech sector and the consumer discretionary sector lost a lot of weighting. Lost a lot of weighting. Tesla is the biggest wheel in consumer discretionary. Okay. Got cut in half. Within tech, the semiconductor stocks got absolutely slaughtered. So we lost a lot of market cap there. It didn't disappear into thin air. You know where it went? Utilities. Right.

staples. Healthcare had the biggest charge to upside in their weighting within the S&P. So I think what investors are going to do now is they're going to rediscover areas of the market where only institutions have bothered to pay attention. I think retail investors, they may not get excited about Verizon and AT&T and Coca-Cola, but they're going to learn

why diversification is the answer to volatility. Yeah. And listen, you know, you and I have been doing this a long time. You know, all those defensive sectors that you just mentioned, they all act well when the broad market's going down, but they're not leadership on the way back, which brings me, you know, you and I had a conversation when Batnick and you were in here. I think it was like kind of mid might have been June of 2022.

And Guy and I had been really bearish. And you guys, I'm not saying you guys were like raging bulls by any means, because we understand the way in which you guys manage money. We were taking kind of a fast money meets halftime report sort of stance on this sort of thing. And my view at the time was that the prior leadership was going to be the leadership that brought us out of the malaise that we were in. At that point, it was a bear market, right? And my view had been all of 2022 is Qs and 2s.

just dollar cost average the Q's, you're going to be happy whether it's in a year, two, five, right? And then the idea that at some point, you know, buying two years or whatever, you know, you get my point is that, you know, the Fed had been raising interest rates and the two-year is obviously most tied to that sort of thing. So that's my view. That still remains my view, even with a lot of air coming out of this generative AI trade. Last year, 25% of the S&P's 25% gains was NVIDIA.

Now, I'm not telling you that's going to happen again with Nvidia. And I'm not telling you that there's another stock out there that's got a $250 billion market cap that's going to be $3.5 trillion in two years. But I do believe- I just don't- Yeah, but I think the setup now is different. Who would you rather be today? Would you rather be the CEO of Apple or the CEO of Chevron? Apple. You would? Yep. From this moment forward? 100%. Do you know what he has to do now? Who? Tim Cook? Yeah.

Yeah. He has to simultaneously align himself very publicly with what Trump is doing. He's already done it. And not risk.

the vindictiveness that comes from his second largest market for iPhones, which is China. This is not an easy needle to thread. And he's fighting off regulatory pressure from Europe and the rest of the world. But I'll make an argument. The Chevron guy, energy is exempt from the tariffs. And so long as we don't go into a Great Depression, it's pretty cut and dry that those companies are going to have a market to sell oil into for the next year. So why is Chevron down 5% today?

Yeah. My point is, is like an energy of the S&P is like 4% or something like that. So I'd much rather be Tim Cook. But you made the statement that the leadership is not going to come from these other areas of the market. But I know you know better. We went through entire three and four year periods where energy was the leadership of the market. 03, 04, 05, 06. It was Exxon Mobil was the biggest market cap company in the world. Okay.

So it's just not true that we won't have new leadership from some of these other areas of the market. Will it be as sexy as that moment in time when like ChatGPT came out and Nvidia was going up 10 points a day? Probably not. It's just a different type of market, but we can have leadership away from the Mag7 because we did before the Mag7 was even a thing.

Yeah, but I mean, going back for 20 years, it has always been the largest tech stocks. You just mentioned last time Chevron was one of the largest market cap companies. I just think the economy has changed. I think globalization in a way in which, and I think folks like Tim Cook, they're going to start to have to see market share change.

in a place like China. Elon Musk is already starting to do that, right? So there's a whole host of things that I think that we have this bipolar world. It's very clear. My issue with the way in which the administration has gone off after this trade war, these tariffs, is that they could have used a scalpel.

but they're using a jackhammer, right? I would have focused on China and tried to reorient that. And again, I'm not an economist. I'm not a trade, you know, like a expert or anything like that. That's the way they did it back in 2018. And it didn't cause major disruption to our economy and the global economy and also the markets. But again,

Late 2018. They want the disruption, though. I guess they do. That's the point. I guess. But good luck with that. Let's see how that goes. I listened to Scott Besson to explain the purpose of the chaos. And he basically said, look, we have to do this lightning fast before all of the entrenched special interests

Pull us back down into the quicksand. We almost... We have to speed run through this and make it as chaotic as possible so that the usual gravity of the bureaucracy can't pull us down. Like, they're being very deliberate about making this as chaotic and noisy and fast and loose as possible because they don't think they can get it done traditionally by meeting with chambers of commerce and this lobby group and that lobby group. So...

At least they're saying out loud. You just said this. We just talked about this, that Donald Trump acts like a mob boss. He loves the exemptions. He loves the ability to kind of bring these guys to their knees, no matter whether it's Mark Zuckerberg or it's the CEO. Respectfully. Reagan acted like a mob boss when the air traffic controllers went on strike. It was effective.

I think most Americans approved of it, but like that was mob boss tactic. JFK was literally elected by the mob. I don't know if you know that, but like actually had rigged polls by his father. I know, but I'm just making the point. I said this earlier. I'm not a Trump guy. You know this, but I'm also not horrified every time he says or does something because my understanding is

The difference between him and the past is he just says what he's doing. You might hate it stylistically. This is not a political podcast, but I look at guys like Besson. I look at guys like Howard Lutnick. I look at these CEOs who've lined up behind him. They know better. This guy should have been disqualified for ever having any – We are where we are. We are where we are. I understand. Yeah.

But the fact of the matter is, if this economy goes into the shitter, if the stock market goes into a bear market- Then he loses the midterms. He loses the midterms. Okay. And then who the hell knows what he is willing to do? We already saw it with Jan 6th. What is he willing to do to kind of trample on our Constitution? And I'll just tell you this.

If we become a banana republic, the whole idea of trade imbalances and companies wanting to do business here, that's out the window, man. And so, you know what? Maybe the EU looks great. Maybe China's Belt and Road really starts to take effect around the world. And, you know, to me, this actually runs the risk of the end of the U.S. empire. So you don't like the autocracy of the Trump White House, so you flee into the arms of Beijing?

- Come on. - What are you talking about? I mean, like if they're producing AI tools that are really cheap to kind of manage and produce and they kind of go around the world, I mean,

Look at this. You just saw the deal that South Korea and Japan and the Chinese are trying to focus on. Those are three countries that hate each other. So we are pushing some of our allies into the arms of our biggest adversary. So again, we could argue this for hours here. I think the difference between you and I maybe, I think you and I agree on like almost everything, but I think that I maybe have more of a what could go right bent to the way I think.

And I think that you have more of a what could go wrong. - Okay, what could go wrong? - And one is not better than the other. You're a risk manager and you're an options trader. And I'm more of like a long-term, I feel like things will sort of work out. And I think that's like, it's not a philosophical difference. It's almost like a personality. - Well, I just wanna,

one in 24 hours. Yeah. Okay. This administration has done something. I think it's an own goal because I think they could have done this in a much more duplicate, a diplomatic manner. I am looking at Apple down 8%. I'm looking at JP Morgan down six and a half percent. I mean, the list goes, and I'm going to stick with like really important companies. I could do that with the mag seven across the board, but there's other really economically important companies

whose stocks are getting absolutely murdered today. And sometimes it's just really hard to look out and say, what could change this? If they came out with a, you know, tomorrow and they said, hey, hey, we're just kidding. You know what I mean? The administration and the credibility is gone. And they've already done a number on our most important trading partners that happen to be our allies. And then one last thing.

It's not just economic warfare. This already threatening some very important sort of situation as it relates to NATO. Can I ask you a question? Those are really important issues. Can I ask you a question? Yeah. Do you remember in the 2015 and 2016 primaries,

the relationship between Donald Trump and Marco Rubio? Yeah, it was bad. It was toxic. Yeah. Okay. Marco Rubio is the Secretary of State of the United States. You understand that none of this is about feelings. It's all about business and money and what's best and going along to get along. Would you be totally shocked if I told you six months from now there's a chance that Donald Trump is standing side by side with the head of the

the head of Canada, and they are hugging each other and announcing some... Do you understand that this is... So much of this... So much of this is like...

Here is the absolutely most catastrophic way that this could go. And then Trump comes in and saves us from his own bullshit at the last minute. And all of a sudden he's best friends with so-and-so. He was doing photo ops with North Korea. So just, I understand everything you're saying and I'm not saying any of it's wrong. There is the risk that we drive our allies into the arms of our enemies. There is the risk that we totally degrade

America's standing around the world is a place that capital can come and people, 100%, all of those things are true. But A, the story doesn't have to end that way. And B, the theatrics of this, just remember how many people Trump loved that ended up going to jail for him that he doesn't speak to. How many people he absolutely hated or hated him who now are working hand in glove.

So much of this is not worth getting emotionally worked up over because things change. But listen. Alliances shift. You can say whatever you want. The first term of his presidency ended so poorly under maybe there was a black swan

That's why he lost. You're right. But he doesn't admit that he lost. All right. Okay. Well, I'm just saying he still doesn't. And all these sycophants who actually bought into the big lie now just to get the jobs, they weren't doing it before. I think that's a huge problem. Maybe we're spending too much time on that right now. Could be. But –

But I just think that, you know, again, I think things have the – we run the risk of things kind of getting out of control. You're a young man. You're a young man though and you're going to see the pendulum swing back and forth and back and forth. You're going to stay invested. You're going to continue to make money, continue to thrive and build your business. Well, this is going to be testing. And sometimes you're going to like the person in the White House and sometimes you're going to hate the person. Yeah.

And sometimes you'll be in the majority of the country. And sometimes you'll be what you are right now in the minority of the country and things will change. - But that's your, it's not a minority. I mean, it's literally dead flat. - My guy. - I know. - My guy, he won a lot of demographics that he should not have won. - Dude, my guy,

If this economy goes into the shitter, he is going to have a 30% approval rating. It's just going to be the guys who went to jail for him. But this is my point. Look at the way things swing back and forth. So what I'm trying to tell you, and I think you know this, but what I'm really trying to tell the audience through speaking to you

There are going to be times when you look at what's going on and you hate it. And there are going to be times when you feel pretty okay and you like what's happening. But it doesn't matter because you don't actually get to choose. What you have to do is stay focused on what matters most. And that is improving your own situation, running your company or managing your career, raising happy and healthy kids. I say these things because you and I have both done these things. Through thick and thin, through Bush,

Through Trump, through Biden. It doesn't matter. We persevere. I don't want to put a Pollyanna spin on what's going on right now. I'm not in favor of it. I don't want the Dow to be down 1,500 points. I don't want America to be at war with the rest of the world. This is not my thing. I'm not into it. But...

I have a job to do. And so does everyone listening to this. And we have to just, whatever the situation is, our job is to get through it and figure out how best to conduct ourselves. Yeah, I just think it's different this time. I know you're a Wire fan. You remember when Slim Charles says the game's the same, it just got more fierce. I think that's what's going on. Yeah, I agree with that. I think if you're not paying attention, you're kind of whistling past the graveyard of our democracy, which I think is bad for all of the things that you just listed that is our job to do. Josh, should we leave it here?

Why don't we go around the table and say who we're going to vote for? To me, I got to be very frank with you. Like, I wasn't a Biden fan either. But you know what I'm saying? Nobody was. That was the problem. That's right. And there weren't too many people who were Trump fans either. And one of the things I'll just leave at this and you can kind of respond and then we'll leave.

is that all of these big issues that this administration is trying to solve and some very good people are trying to put some guardrails on it and think longer term rather than a quarter or two or a midterm or another one or 2028 election. Okay.

We cannot solve these problems if we don't figure out how to do it together, because it's going to take three different presidents or maybe more. It's going to take six different congresses to kind of stick to this and say, you know what? The deficit is a problem. Everyone agrees on that. We just don't know how to fix it.

And doing it this way is not going to be the way. It just will not be. Well, to your point, the market is voting and the sum total of investors around the world agree with exactly what you just said. This is not the way. Yeah. I mean, listen, I do think it's a little bit of a panic, but I think for over the next 48 hours, we're going to see how much people are willing to kind of throw caution to the wind and kind of discount what the potential is to happen or go the opposite way. You know what, though? I think this is going to be a sell the rip.

environment, not a by the dip environment. And I wish it weren't so. Nothing good happens below the 200 day moving average. And I think you will get those short, sharp rallies. There'll be a press conference. There'll be a tape bomb. Like Bloomberg will have a story about leniency and they'll do that.

The thing I want to leave people with is you need to know what kind of investor you are now so you don't run off on side quests or play games that you're not equipped to play. If you are a swing trader or you're tactical, this is a great environment for you. If you're not that, don't try to learn it. Like, that's not...

Play the game that you're supposed to play. And for most people, they should be playing no games. But I think this is going to be a great environment for trading. Not everybody who's invested is a trader. And maybe that's like the most constructive thing I could end this off by saying. You made that point on many occasions. Know who you are in the market. And I think that's really important. But it also helps to have folks like you who –

appear to be unemotional about the way they run money. And that's the way to do it. Yeah. I have emotional people right now who are clients and they're counting on us to be logical and reasonable and rational and not whistle past the graveyard, of course, but also not overreact. Look, we've made people a lot of money over the 11 years since we founded the firm by

by not overreacting. Think of how many moments we've gotten clients through where an overreaction could have seemed like the right reaction. Just think about COVID. Think about 2018, two 20% corrections inside of one, two 20% bear markets inside of one calendar year, very rare. Think about the European debt crisis. Think about the great financial crisis. I traded through the dot-com blow up like you did.

Overreaction has rarely been the right reaction. And we have to, I think we have to just remind people you're taking risk. There's a reason why it's not arbitrary. The risks that we have you taking are so that you can earn the returns that will fund your future lifestyle. Like there's a purpose to this. It's not random. Like why are we taking risk? I don't know, to make money. No, no, no, no, no. This money has a use.

We've earmarked it for specific uses. Therefore, if we want to remove risk now because you're nervous, no problem. Let's start crossing off some of the things we were going to do with the gains because you actually can earn returns without taking risks. So this market environment is a reminder of that.

I think everyone intellectually understands that, but people need to be reminded of it. And this is what we're doing today. All right. Thanks for reminding our audience of all this. It'd be great if you and I could follow this up in a few months and just kind of take some stock of like what the reaction was in the economy and the markets relative to what we think might happen with the trade war and a whole host of other things that we talked about. Let's do it this summer. Your pot or mine? Either way, baby. All right, Josh, we really appreciate you being here. Thanks so much.