Alright. Hello everybody. Welcome back to another episode of the market close. We got a lot to talk about. We got a lot to go through. It is one of the ugliest days, rather I should say ugliest reversals that we've seen in the global capital equity markets in the past year. S&P 500 is down 1.39%. In the morning, we were up 2% on the S&P 500. So, you're talking about almost a three and a half% intraday reversal. And I mean, it's ugly. It is very, very ugly.

I'll have Chris joining in about 20 minutes. He'll give his thoughts on what's going on in the macro. You have a lot of theories going around from a variety of different people on why we are getting this much pain. But Tesla losing 400 down 1%. Nvidia after one of the best earnings in history down 3%. Robin Hood $5 away from losing 100 down 10%. Palantir lost 160, lost 155, 154.61. That's down six and a half%. Cipher, which was up 18% this morning, is down 2%. Rocket Lab loses 40. I haven't looked at Rocket Lab in a little bit. Just lost 40. That's down 10%. Oaklo down 13%. Bit mine absolutely disgusting day for Ethereum and crypto that's down 10%. Nebia is down 10%. Google even down 2%. Big Bear AI down 4%. Broadcom down 2.5. Microsoft now in the 470s down to Meta at 580. Amazon at 217. Micardo Libre very close to those liberation day lows from April. Bitcoin 86,000.

I mean, it's just an ugly day. It is just an ugly day. I have some theories on why I think it is this ugly. At the end of the day, none of these theories necessarily have to make sense. I think the velocity and magnitude of the rugpull, if that's even what you want to call it, from the highs this morning, it's quite incredible. I don't think we've witnessed the choppiness, we witnessed the selling, we've witnessed up 1%, then down half a percent. we have not witnessed up 2% after a bombastic quarter by Nvidia which essentially controlled the entire market and then almost systematically a complete reversal.

and any little bounce you had on that reversal which there were a couple obviously did not hold through and you know you got extreme fear and greed it's a couple points away from going back down to those April lows it really does feel like there should be a bottom that is forming too but then again That's usually when the bottoms fall out. And obviously this morning throughout the entire day, we've seen this bottom fall out. And you've got a lot of different narratives going back and forth making people really question what happened today. Which begs the question, what actually happened? I have some theories, but let's hear from Tom Lee. Here's his perspective on what's going on in the crypto markets and how that's affecting the equity markets today.

>> Uh well, I think I'm I'm gonna kind of add to what Steve said. You know, I think the crypto market has been limping along since October 10th because on that date was a negative shock. I mean, today's stock market looks a lot like an echo of what happened October 10th. But on October 10th, that liquidation was so big, Brian, it really crippled market makers. And now market makers are critical in crypto because they provide liquidity. I mean, they act almost as the central bank in crypto. And if they've got a hole in their balance sheet that they need to raise capital for, they need to reflexively reduce their balance sheet, reduce trading. Um, and if prices fall, they've got to then do more selling. So, I think that this drip that's been taking place for the last few weeks in crypto reflects this market maker crippling. And so, in 2022, it took eight weeks uh for that to really get flushed out. We're only 6 weeks into it. So, I kind of concur. I think crypto, Bitcoin, and Ethereum are in some ways a leading indicator for equities because of that unwind and now this sort of limping and and weakened liquidity.

>> Well, that and that was that was the point that my my very very smart team behind me, we put together for the top of the show, which was showing that that Bitcoin turned down today before the market did. All right, take us back. So October 6th, I think it was October 6th or 7th, Bitcoin hit 125,000. Yeah. A couple days later, it was still around 120,000. Now, obviously, Bitcoin's at 86 and change. So, what specifically occurred on or around October 10th that would lead us to where we are now on what, November 20th?

>> Yeah. Well, Steve actually pointed this out. There's a lot of what they call automated processes in crypto. One of them is called ADLK and that's an automatic liquidation feature that would take place if someone's account or their collateral drops in price. It's essentially like a margin call. Um on a specific exchange, a stable coin's price varied from other exchanges. It actually stable coin should stay at a dollar. It dropped to 65 cents. But that only happened within the exchange quotes within this exchange because of liquidity. That triggered an ADL, an automatic liquidation across many accounts. It wiped out as that spread across other exchanges, right? Because liquidations cascade, almost two million crypto accounts got wiped out even though minutes before they were actually profitable accounts.

>> essentially Tom Lee is blaming a software glitch inside of a market maker for why we're seeing the uh exceptional levels of crypto deleveraging which is his thesis for why the equity markets are also being hit as well.

Well, you know, Brian, I'm I I am aware of names, but because uh you know, I'm not someone who wants to name names, uh I think what you should keep in mind is that the this error is actually essentially a bug, you know, a code error because they I think in retrospect they would have pulled pricing from across exchanges to set the price for that stable coin rather than rely on internal quotes. Um so but this has resulted in a lot of market makers and traders having less capital and as you know as crypto prices drift lower because trading volumes drop they need to then have more capital available which means they shrink their balance sheet further. So this is then that reflexive okay weakening.

>> I hate let me go I want to go back to this point Tom. I hate the term glitch. I can't stand the term glitch because you know things go down at the airport and they say, "Well, a glitch cause your flight to not take off." That's that's not a glitch. That's more than a glitch. It's a word that is used to describe pretty serious automation issues, software problems, crashes for some reason that they try to minimize. Is this some kind of a a software bug that's causing part of this? I'm trying to follow exactly what you're hinting around about.

Uh yeah, I mean Brian it is. I mean uh for instance in 1987 portfolio insurance was the quote glitch and that triggered the cascade in 1987 and so the industry learned uh and then never offered that again. You know in 2009 it was really that the collateral wasn't secure in real estate in these package subprime mortgages. Now the industry learned and they recoded that. I'm talking about Wall Street. But then regulators came in and like overregulated. That's that was the negative effect of that. In crypto, this code of ADL and the way they pull prices never going to happen again. The good news is we're not going to have overregulation in crypto. But but now we have to deal with that liquidation effect. 2022 was a big liquidation and it took eight weeks. Um but it it that is not kind of you're right it is the nature of DeFi where there is going to be code and there's going to be an error found and you said it leverage is what's dangerous and so investors should not be using excess leverage in crypto.

So that is Mr. Tom analysis right here on why uh the equity markets are getting hit. are getting a painful residual impact from the crypto markets and the crypto markets are getting hit because of a glitch. Now, I am not as educated on Mr. Tom Lee on if a glitch is enough to explain the pain that we've seen. I think there's a lot of other people that will say it has nothing to do with the glitch. It just has to do with the fact that crypto has topped. Um, but that's his argument and he's using a historical argument from 1987 where that he's not wrong about around how there have been other certain glitches that have existed.

If he is correct that it's just the glitch and that's it. I mean theoretically we would imagine there would be a bottom soon and that deleveraging would be done and then things would kind of move forward and and maybe that is what happens but I'm not sure if a lot of people actually think that that is the reason for what's going on right here. And so as a result you're seeing some pain.

goes on further in that interview to say that one of the reasons that Micro Strategy, for example, is getting hit as bad and he wants people to, you know, uh, watch Micro Strategy very well is um that once this glitch has occurred and you have all these market makers that now need to hedge their positions because they just got out of leverage, they can't kind of use leverage to go short Bitcoin or short Ethereum again through these professional futures contracts. So, they're looking to liquid options markets. One of the most liquid option markets in the world is Micro Strategy. And what is Micro Strategy correlated with Bitcoin? So the reason MSTR is and probably Bitmine, I mean he didn't mention Bitmine, but I would imagine you have tons of market makers saying, "Hey, let's just go short BMR as a way to get some hedge exposure to the downside of Ethereum." That also could be taking place, which is why Bitmine and Micro Shai are getting hit as bad as they are.

But quite frankly, I mean, if you don't want to believe the glitch explanation, which is fine, what other explanation is there? And we'll go through some different theories. take a look at this chart right here. Nvidia gains 450 billion in the first 12 hours since their earnings and then they lose 450 billion in the next 12 hours. I mean, this is just like I have never seen something like this before. I mean this is absolutely insanity.

and the the the craziness of how this move has taken place makes you believe well maybe there is something going on that is more algorithmic more uh programmatic and and maybe you know maybe that's Japanese yen carry trade maybe that's deleveraging maybe that's systemic selling maybe it is a glitch but it doesn't feel rational that after Nvidia gave those earnings everyone was like yep let's buy Nvidia Nvidia's the moon or it's going to the moon it's probably the moon as well um there's no issue with this AI bubble yada yada And then 12 hours later, everyone's like, "No, we think Nvidia is a scam. The earnings aren't good. They didn't really deliver and we're going to sell off the most important company in the S&P 500, Nvidia, and now down 3% on the day."

And yes, there have been a lot of theories today about circular financing and people looking at their accounting and all that stuff. And I think those are valid concerns to have and those are reasonable concerns. It's just do we really think $450 billion in market cap decided that oh the accounting for Nvidia seems off given the accounting for Nvidia has been the same accounting for the past 10 quarters. So like maybe there's some minute differences people are finding but not enough to the point where you would have that entire reversal of a market cap move which then affects every other stock in the market feels more like a yen carry trade to me.

I mean we'll talk about a variety of different theories but it feels more like something that is happening in the macro. Obviously, you know, I know people are probably getting tired of me saying this, but the rate cut disaster that we are in right now. You had two Fed presidents come out this morning and basically say, "We don't need a cut." And then you had Goulsby, by the way, who doesn't have a vote on the next meeting, but Goulby is one of the more important members of the Fed. He came out an hour ago and says the the 2% inflation target is sacred. It was like, we made a promise to keep inflation at 2%, so we can't violate that promise.

But every single Fed talk that we got this morning was rooted in this idea that we're not getting a rate cut. Um, and as a result, I think that's why the Fed is, you know, or that's why the market is reacting the way that the market's reacting.

So, I wish I had better reasons. if I had to give one reason for you guys, I think it would be the lack of a rate cut and then something systemic happening from a market maker perspective, from a option expir perspective, you have a lot of options expiring tomorrow. Um or from this programmatic glitch that Tom Lee is talking about, that could be the reason. But it feels more rooted in a combination of macro, whether that's yen carry trade, uh, programmatic glitches, and then obviously the rate cut, uh, scenario that seems like it's playing out for December, which would entail not getting a rate cut.

There are two companies that have to report today. I mean, you talk about bad days to report, but these two companies have to report. Weeble, which somehow was up today. And then you have into it that's also reporting today.

Weeble moving a little bit after hours. Uh Street wanted 3 cents. They came in at 7 cents. That is a beat by 133%. That's a pretty big beat on EPS. Revenue 137 versus 156. That's a beat by 14%. EPS is up 275% year-over-year. revenue is up 55% year-over-year on Weeble. It's a good beat.

In it is also out 334 on into it. They beat on the top and the bottom as well. Beat by 8% on EPS by 3% on revenue, 3.885 billion versus 3.76 billion. EPS is up 34% year-over-year. Revenues up 18% year-over-year.

Ross also had earnings. Let me pull them up. Ross Stores, they are up 3.55%. Another company in the consumer space. Ross beat by 12% on EPS. 158 versus 141. Beat by revenue on 4%. 5.6 versus 5.4 billion. Revenue is up 10% year-over-year. EPS is up 7% year-over-year for Ross.

JP Morgan, by the way, took away their rate cut forecast for December. Uh they still believe the S&P 500 can have a good end of year, but they said that we don't think the Fed's going to cut rates based on the jobs data we got this morning. And as a result, the Fed probabilities which although they were lower yesterday at 27%, they're now at 39.6%. They're down from 42% in the morning. So once again below this 50% level and obviously that's why we're seeing a lot of or that is one of the reasons potentially we could be seeing a lot of pain in the equity markets.

All right, let's get some other perspectives onto the show and see what some people are thinking. Ladies and gentlemen, Mr. Chris Patel.

I mean, when you sign up, when you get into crypto, it's an asset class that has a lot of breath, but it also has a lot of volatility. So, um, whenever you have these volatile assets, you just have to remember that, hey, this is what you're signing up for, right? So, risk mitigation is supposed to be on every investor's mind, especially when it comes to crypto, because the the underlying fundamentals of crypto are basically built on what the next person is willing to pay for the most part.

So I think we have to kind of start off at October 10th, right? Once you once you get an understanding of what happened on October 10th, you can kind of see how a lot of this stuff makes somewhat sense what we're going through right now. So, October 10th was one of the largest liquidation events for crypto ever. A lot of people what they did is especially this on the speculative side, they rushed in and they bought a lot of Ethereum, a lot of uh Bitcoin and they did it with a lot of leverage.

especially with these perpetual futures contracts which allows them to go up to 250x leverage. October 10th we get that infamous tweet from Donald Trump saying we're going to send China you know we're going to tariff China 100%. And when he did that, it sort of triggered um markets to go down. that day because of that massive dip, a lot of people got margin called. And the way that the the brokers, they kind of protect themselves is that when you go, you know, when you lose when you hit your limits, they start automatically selling. The problem is if they all start selling at the same exact time, it causes like this giant flood of people going through out the exit door.

The problem is once you do that, you you're basically taking away this giant pool of liquidity from that specific asset class. And to get confidence back, it takes time. So the key here is time will eventually fix this because the the reason to be bullish especially on Ethereum is that there actually are some use case catalysts that are coming up in the next few weeks.

Let's transition to the equity markets and kind of how you're thinking of it. Nvidia, best quarter ever. Uh, everything's green, including crypto. And then at around 11 a.m., it all dumps. I mean, you've been around markets longer than me. What do you think your gut reaction is that happened? And do you think there's a lot more to the sell-off that we saw today?

Um, I think people have to I think take a step back sometimes and just say to themselves like what is the market sentiment, right? I think Nvidia even though when they came out with these numbers the initial reaction was holy crap like there's tons of AI demand. There still is a lot of uh fear out there when it comes to this sector and seeing some of the financing deals that you know the hyperscalers are doing in order to support this buildout. because they've lived through multiple um multiple bubbles like this they've called it a bubble.

So, I think what we saw today, and this is something that I saw in the reports, which was um there was a lot of liquidity in these names with a lot of people FOMOing into Nvidia this morning. volume was absolutely insane. So while retail and a lot of FOMO like people who were FOMOing into the to to Nvidia, a lot of institutions were selling out. You know, so that's why you saw this absolute giant reversal in Nvidia.

Uh, do you think the earnings from last night justify this type of sell-off or do you think there was something else to the sell-off besides the profit taking? Like, are you thinking yen carry trade, rate cuts? Is there anything else in the macro that you think is leading to the sell-off?

I mean, from a macro side, I think that there has definitely been a giant rerating of the level of rate cuts that we were we were thinking that we were going to get versus what we're actually going to get. I mean, sentiment's been flipping since Pal came out. I think the last uh meeting and said, "Look, we're we're I think the Mar basically Pal kind of screwed us a little bit and saying, "Hey, listen guys, December, there's no guarantee that December is going to have a rate cut and then all of us, you know, and then now we're also dealing with this blackout period where we don't have any data. So the Fed is just being cautious and saying, "Look, in the absence of legitimate data that can prove out the need for another cut, it's better that we just kind of wait it out."

you know, Morgan Stanley says 7,800 by the end of 2026. Do you think 2026 has a shot of being a bull market if the labor market collapses, if inflation doesn't slow down, like if the AI trade gets wobbly, or do you think it's a flat year? Do you think it ends up being a 2022 repeat?

I mean, I think there's going to be a point where things get oversold again and we see like uh we see like a 10% plus correction in the markets. But I think those are like opportunities to keep to add rather than trying to sell things off and try to call a top. And I'll tell you one of the reasons why is because you're literally going into a rate cutting cycle, right? From a business standpoint, a lot of companies, you know, their profit margins are directly linked to how much money they can borrow, like how much money they can borrow and at what rate.

Okay, let's do this. So, given everything that has happened over the past couple of weeks, and obviously opinions can change in the coming weeks, uh five stocks to construct a portfolio for next year, whether you own them or you don't own them.

Um, I'd say Google is definitely one of them. You definitely want to have Meta exposure. I'm actually bullish on Norwegian Cruise Lines, NCL. Verizon, would you put that up there? No, no, no, no. Put Novo Nordisk on there for me if I if I had to say. you know what? Take Novo out. Put Eli Liy on there for me. Sorry.

emotionally, do you have any advice? You are a bit older. You've been through these cycles for people trying to navigate a draw down like this.

Peter Lynch, use the Peter Lynch model. Find the companies, the stocks, whatever that you know five years from now you're going to be using. So if you think that you know what, you're invested in a stock that you're not going to be using in five years or it's not going to do well in five years regardless of what other financials are, then don't be in it. I would say expand your investment horizon to five years from now. Go from there, you know, and and don't think about, okay, what's overvalued today, what's overvalued tomorrow, like think about five years from now. That's it.

Essentially your advice is it is really easy to handle a draw down if you have very strong conviction on the names you hold and if you truly believe in them aka you use their products or you you know just feel very passionately about their products like it's hard to get that afraid when they go in fact you get more excited when they go down right

yeah you get you get you sometimes the market overcorrects like like I said you remember Meta Meta had no business going into the 8090 range in 2022, but we got there, you know, and that's the thing, like you could cry about it and be like, "Oh my god, no." Like, "I've lost all this money." And I'm like, "Bro, it's to real investors that was just like, oh man, that's an opportunity to add more, you know, as long

All right, guys. I think that's it. I mean, there's not really much else here today. Hopefully with Chris on he was a little bit consoling. One of the worst reversals we've seen in a year three and a half% not just down or up but up then down. And so that's why it was really so gut-wrenching seeing it completely reverse. And then there was no there was no bottom. The bottom fell out. I mean these names violated every moving average that they have. So, unfortunately, it was one of those days that we just got to live live through.