Good morning everybody. Welcome back to another episode of the market open. We are live. It is Tuesday, November 18th. Thank you everybody for being here. Not only are the pre-markets down, but Cloudflare is down. Not just the stock, the stock is down, but also the entire company's services. And as a result, a lot of different websites have not been working today. X, for example, which is a big place that I get my news. I know a lot of people get their news from X. That's just not working at all. I mean, it was working for a little bit and then it stopped working. Now it's not working again. If it ever starts working for people, let me know. But I cannot log on and see anything. Nothing is loading.

And I was worried that Streamyard, which also runs on Cloudflare, would be off today. But so far so good. So if the stream stops randomly, it most likely is a Streamyard thing. Hopefully that doesn't happen. But definitely Cloudflare is not working. Nonetheless, we got a red pre-markets once again.

Nvidia down 1%. Meta, lowest it's been in the past five weeks, 592 in the pre-markets, that's down 1.5%. BMR is down 1%. S&P 500 down half a percent. S&P got to 660.5. We were at 662.2. We are very close to violating the lows of yesterday, which was basically at these levels. So, when the market opens, we're going to see how low it goes. But we are down. Google somehow green with the Bergkshire news. Google up 1.4%. Tesla's red. Palenteer is down 2%. Robin Hood's down another 2%. Amazon's down 3%. Weeble's down 2%. IN's down 2%. Rocket Lab down 2%. Zeta down 1.3. Oaklo down three. PayPal down half. Dualingo down one. AMD down 2%. Microsoft uh down half a percent. Micron down 2%. It's ugly.

It is once again an ugly day. We talked a lot last night on the market close of what's going on and kind of my thoughts and my opinions on it. I talked to a bunch of different people yesterday and tried to get some analysis on what's going on. I did some research last night. I have some perspectives. I have some ideas. And look, ultimately it's boiling down to a simple question in my opinion. And that simple question is nothing to do with Nvidia, even though I think Nvidia is going to crush it.

By the way, we got some jobs data from the ADP. It's kind of a nothing burger. Um, two things. 2500 jobs down ADP said for last week 2500 jobs down is um like a negative 2500 report that's very consistent what we saw over the past couple weeks I mean a capac in October they said it was 11,000 jobs per week so negative 2500 is fine.

the other piece of data we got yesterday that was also really important and it just randomly showed up on the BLS website there was like no scheduled release or anything anything was the jobless claims that we're supposed to get every Thursday we got them for the month or for the week of October 18th I don't know if anyone else saw this uh 200 32,000 jobless claims. 232,000 jobless claims. So that came out last night. And that's not recessionary. Recessionary is upwards of 350,000 jobs. So that was actually a relatively decent jobs number. And you I actually saw stocks like start to move higher as soon as that number came out. I think it was at like 12 a.m. because markets were like, "Oh, it's not that bad."

But I think the actual October uh jobs report we are not going to be getting. We're remember we're getting September's uh job report on Thursday which is estimated to be like 50,000 jobs which is whatever. Um you know that's going to be fine but that's September. We're we we need like the worst of the worst which was October and we're not getting that. So we're going to have wait till we get November. I don't know what that job report is going to look like but um as of now you know you just don't have a lot of the data and that's another reason I think that the market is struggling.

The most important thing right here is the rate cut. I keep coming back to the rate cut to try to understand what is happening. Why the hell are we not getting this rate cut and how much is it affecting the economy and why do I, you know, keep going back to that?

Well, let's get started with this topic. Mike Wilson, who is one of Morgan Stanley's top equity research analysts and top portfolio strategist, he came out with a statement yesterday and Mike Wilson is saying 7,800. He's saying 78 freaking 100red next year. And I'm reading his report last night and I'm like, why is he so confident? How is he making this argument? And and I pulled up a video of him from two weeks ago that I want to watch with everybody because I do think it really gives a lot of context. Um his argument is not that crazy.

Now, maybe he's wrong. Again, he's one of Morgan Stanley's top guys. He was wrong in 2023 to be too bearish. Maybe he's being a bit too bullish in 2025. But all of it rests on the rate cut and the pivot that we got from the Fed to not cutting rates is really in my opinion substantially hurting the the way equity prices are being perceived because if we are behind the curve or if the Fed is steeply behind the curve which you know Mike Wilson thinks we need 150 bips of cuts at minimum to get even to neutral then you know you're going to have some issues and as a result it's kind of hard for the equity markets to kind of go higher if we are dealing with those rate cuts.

Ethereum right there 3,000 and then Bitcoin 91,000. Bitcoin did fall below 90,000. I am still trying to figure out to the best of my ability what is going on with Bitcoin. Again, it does feel like Tom Lee is right. There is this structured margin calls that are being placed across the industry and as a result there's some institution that is selling. However, I feel like, you know, it's been about a month since we had that $20 billion liquidation. If that was going to happen, that should have happened by now. I think now it's more retail that's just saying screw it, I'm out of this thing. And that selling pressure is also starting to take place. We did lose 90,000 last night. We'll see if it ever revisits that. But um you know that along with lack of rate cuts I think is also a big concern and as a result it's kind of messing up a lot of different portfolios.

X is working now. Let me see. Is X working? X is working for me too. Correct. Awesome. Okay, cool. We got Twitter back so we'll be able to go through some of the stuff. All right, let me play Mike Wilson. I think this will give a little bit of context for at least how he thinks the market is revolving and why he thinks the rate cut is one of the most important things that the Fed needs to give us. Uh and maybe we'll get it if we actually get the jobs data over the coming weeks.

>> Consumption, increase investment. Okay, it's a totally different economy. And what that is, it's a it's a higher velocity economy for all the companies that haven't been doing well for the last I would say three years. We've been sort of in a recession. I I would argue strong. We've we've done the work on this and you know we we've done the analysis with respect to the rolling recession that has been in place for I would say three years most of the private economy kind of suffering government kind of carrying the water and then we basically saw all of that come to uh fruition at the end in April April capitulation day as I call it was basically the government recession that was the final piece of the rolling recession and if you actually look at the challenger job cuts and you look at the revision data now on the on the NF on the payroll data it it it it looks to me like a rate of change low okay in payrolls and a rate of change high in challenger job cuts came in April. So the market's figured all this out. That's why revision breath has gone straight up.

>> So rolling recovery where are we in those stages?

>> So we we we deemed it the rolling recovery in April and we're now seeing that like these areas of the market are not everything's going to recover at once because it's it's an unorthodox recession. It's not like everything flushed at once and everything recovers at once. So it is going to be staged and we've seen that in the market. We're still narrow quite frankly. AI capex is still is is kind of one of early recoveries here. Semiconductors being an early cycle group, but we're not seeing the other quote unquote early cycle groups recover the way they typically do in a new economic cycle. Why? Because the Fed is behind the curve. The Fed is way behind the curve on rates. They need rates much lower. If you really want to get the private economy moving, rates are too high.

>> Much lower. How much lower do you think that really is required to get that broadening out?

>> Well, let's just start with the two-year Treasury yield. Okay. So my barometer is always the Fed is behind the curve if they if Fed funds is above two-year Treasury yields. And in order to stimulate the private economy, I would say they need to be well below that. So that's 50 basis points just to get to neutral and maybe another hundred plus to get to something that's more stimulative for the average company and the average consumer.

>> the argument Mike Wilson is making right there is that the economy has shifted in the Trump administration from consumption to investing and the big beautiful bill has really prioritized companies to invest. That's why you have all these data center investments being rewarded in a variety of different ways from a regulatory perspective. For example, zoning laws for data centers have been very accretive. So his argument is that if we are in an investing part of this economy which for the past 15 years American companies have not really been incentivized to invest then we need to stimulate by lowering rates because one of the easiest ways to invest is that if you can borrow capital borrowing capital means lower rate lower borrowing costs which means rates needs to come down in order to be able to build all those jobs and factories construction sites for data centers etc.

Uh so his argument is you have 10 companies in the S&P 500 that have done well and that are carrying the bulk of the load. The other 490 have been essentially in a rolling recession. That recession bottomed in April during liberation day. And his argument is now we are on a rolling recovery with a 7,800 S&P 500 target by the end of next year. But in order for that to realistically happen, his argument is you got to get rates to come down

>> on that broadening out and expecting maybe AI to underperform going forward as they invest more in some of these uh debt sales and the infrastructure side and the rest of the economy plays catch-up.

>> Absolutely. Think about the trickle down effect of this capital spending. I mean, it's not just going to be semiconductor companies. There's there's a lot of infrastructure. There's a lot of job creation. there's a lot of velocity in the real economy and the lending channel starts getting going perhaps for small medium businesses that job creation deregulation is another part of that story. Okay, so absolutely that's what should happen if things play out the way they they could. Now there's risk to that. Let's say the Fed continues to say, "Hey, you know, we still think there's inflation risk. We we don't like the, you know, inflation rate at 3%. We're not going to raise our our targets there and and we just kind of drag their feet." It's going to stay narrowed then. It's going to stay up the quality curve. And that's where we are right now, Lisa, is that people basically are are are trying to choose between those two outcomes. And I would say right now, most of the institutional community is still huddled into the high quality stocks. They haven't really made the transition yet.

>> In order for that to transition to work, the Fed has to cut though. That's what it's contingent on.

>> It's it's one of the main things. Now, Dereg is a big part of that. Okay. The capital spending is a part of that. Those can happen without the Fed cutting significantly, but it would really it would really solidify it for And if you go back and look at all these different economic cycles, small caps and mid, you know, lower quality stocks typically don't outperform until the Fed gets below two-year Treasury yields. We we've documented this. So, by the way, it doesn't mean these stocks can't work in absolute terms. It just means that relative outperformance you typically get in that early cycle rotation needs Fed funds to be much lower.

>> so Mike Wilson actually making the argument that we are early cycle. I mean, it's definitely a contrarian perspective from a lot of the other people. Then again, it's not as contrarian because all of his colleagues on the street have a lot of the same targets on the S&P, right around that 7,7500 range if you go out into 2026. So, um, his argument is just we need rate cuts and in order to get those rate cuts, the Fed has to acknowledge that they're behind the curve. And part of the reason over the past three weeks why things have been so ugly is because we've not we've completely pivoted or the Fed has completely pivoted on the idea of us in in any sense of the imagination actually getting those rate cuts in December. probabilities have continued to go down and that has also led to a lot of pain in the equity markets.

Well, we're at 50% right here. We were at 41% yesterday. So maybe some of that jobs data by ADP negative 2500 jobs for last week got these probabilities go up. Here's where the optimism comes in and and I think it's actually quite simple. If we get a bad jobs report in November and that jobs report tells the Fed very obviously guys like stop messing around. The labor market is not okay. like inflation is not the concern, right? It really is not the thing you should be worried about. I think that probability jumps closer to 90% and we get a rate cut. I don't know what the stock market does, but I definitely don't think the stock market has to take a dump. If we don't get the rate cut, I think it's more obvious than not that the stock market's going to get hit. And you can see the choppiness in the past couple weeks. It's almost like the market's teetering and tottering on the idea of if we get a rate cut or not.

And at the same time, the the most hilarious thing about this is um when I look at analyst upgrades on stocks and I have tip ranks, so I you know, I get a lot of these notifications. All of these are upgrades and buys. All of them. Robin Hood got a buy for 160 today. Yesterday, Barkclay's upgraded Robin Hood 168. Google got an upgrade by Oppenheimer yesterday to 320 from 290. I mean, if you guys remember 2022, like a lot of it was downgrades. sell, get out of the market, reducing our price target because stocks are untouchable in a world in which the Fed is hiking and then in a world in which earnings growth is not there, which is what we had in 2022.

I mean, maybe that's going to come in 2026, you know, maybe these analysts are just uh trying to keep the hope alive, but nonetheless, nothing fundamental has changed for Robin Hood. Nothing has changed for Google. Nothing has changed for Cororeweave. I mean Cororey getting slapped from 150 to 75. It's like I get it they have a lot of debt but my goodness like taking it down 50% seems a bit aggressive. And so the question simply then becomes you know is there something structurally that has changed in the economy that has led to this type of selloff and as of now the answer might be no but the answer might be yes it's just we need a little bit more data to kind of solidify that and you know hopefully we get that data soon.

Fear and greed, by the way, is at 13. We were at four on April 8th. The lowest we were was at four. And um you know, now we're at 13. So, I don't know. I mean, if you look at the history of this thing as well, look at the timeline again at at we were at three actually on April 8th. We jumped all the way up to 70. Then came all the way down by June to 57. Jumped up to 74. Came all the way down to 50. Then we jumped to 66. Then we came all the way down to 23. That was a buying opportunity. Came up. I mean, every time we bounced technically, we went from extreme fear to fear. So theoretically, you would imagine that maybe this is a buying opportunity. The question is just do people believe it's a buying opportunity?

Not to mention, um, I I don't know if this has been showing up in people's algorithm, whether it's on YouTube or or Twitter, but my goodness, the amount of bubble bearishness, it's all fake, it's all going to collapse stuff that has been popping up for me, and I'm not necessarily the most bearish person ever. So, the fact that it's popping up on mainstream channels, it's kind of crazy. I mean, you had an entire 57 minute podcast yesterday with Jeffrey Gunlock, who is pretty respected in the finance world on Bloomberg, basically saying everything's overvalued. You got to get the hell out of everything. Uh, private credit is a massive bubble. He compares it to 2006 and he's saying we're going to collapse. And then look at the video on my recommended. Jesse Felder, the AI bubble of all bubbles is about to hit. It's just like it's becoming aggressive, bro. It's almost like sentiment is shifting rapidly.

Now again, in terms of buying the dip, institutions have been buying. I've been showing a lot of that data and we have more and more charts that show that institutions have continued to buy. Hedge funds have been selling. Retail investors have actually been selling. But institutional money managers have been meaningfully buying the dip as per Bloomberg, as per Reuters. I'm looking at a variety of different charts and they continue to say Bank of America ETF inflows continue to say that institutions are buying.

So it also then begs the question of like okay I mean is this a fake out? Is this a lot is this uh market makers trying to get people scared? Has something fundamentally changed to such an extent that you know Robin Hood at 125 seemed reasonable and now it looks like the street wants to take Robin Hood below 100. like what realistically changed? I think the first thing that changes crypto took a hit, right? So, obviously Robin Hood deserves to get hit a bit off that and that's fair, but are we going back to 90 bucks? Are we, you know, is Nebius going back to 50 bucks? Is SoFi going back to 15? Like, are we are we getting to that part of the cycle where everything that we had this year, all of those gains just collapse?

I don't think so. I mean, that feels a bit aggressive. And the reason I'm saying that is not because of like like like like flowers and rainbows. It's because of earnings growth and like the earnings growth on a SoFi is amazing. The earnings growth on a hood is amazing. Now maybe Hood's multiple aggressive. That's why I understand I've been saying that for months. I'm like I understand it doesn't need to go to 150, but I don't think it needs to go back to $95. Like I think we're discounting a lot at that point. And it seems like those end up those hopefully will end up just becoming good buying opportunities. But I think it really is all up to the Fed and what they want to do with rate cuts.

Home Depot, they had earnings today. They missed by 2% on EPS, 374 versus 383. Beat on revenue 41.35 versus 41.12. Uh, Home Depot stock is down 4%. I don't think it's just down 4% on those numbers. It's probably down because the entire market is down unless they said something about tariffs that I didn't see, which we can check out in their earnings, but that could be hurting them right now.

Yeah, we had by due from China. They beat on the top and the bottom. This is like China's Google. These guys are down 4%. By the way, the Japanese prime minister uh the new Japanese prime minister, she is uh she's pretty ballsy. Let's just say that. In a meeting with Chinese diplomats, she basically said uh if you guys try to invade Taiwan, we will defend ourselves because it will create it will trigger a clause in their constitution around self-defense. And so if you because you know there there are islands that are very close to Taiwan that Japan owns. And so she was like, "Hey, if you try to do anything like we're going to strap up basically."

And China was like, "Oh, really?" And that's why China triggered the travel warning to Japan and now they're blocking certain people from going there. They're stopping certain state-owned businesses from doing trade. And China is basically just like uh China said the exact quote was we will decapitate anyone that tries to interfere in Chinese politics and our own self-defense concerns. And uh basically they said stay away from what we're trying to do. So, China deployed the same strategy 10 years ago with South Korea when the South Koreans started talking a little bit more um aggressively around, you know, China potentially invading Taiwan.

And re realistically over the past 10 years before this new Japanese prime minister, the previous Japanese prime ministers like ashiba, they just didn't say anything. You know, it was kind of just like, hey, we just don't talk about that. This lady a couple days ago, she was like, I'm going to talk about it. And the Chinese got pretty upset about that. So that is another thing that has been aiding the or ailing the the the Chinese and Japanese markets. And you know, Japan printed a ton of money or is getting ready to print a ton of money. So that's also triggering a lot of things around Japanese bond markets. We talked about that yesterday. Potentially not the best for the yen carry trade. But you have that and what they said about China, which is, you know, kind of making at least the Japanese markets a bit more scared.

Anthropic to buy 30 billion in Azure capacity, a new deal with Microsoft and Nvidia. Okay, I mean that's bullish. I don't know if that the market's going to care that much. Anthropic 30 billion. Oh wow. Nvidian Microsoft to invest in Anthropic. That's actually the bigger deal. Whoa. Okay. Anthropic is committed to buy 30 billion of Azure compute. Anthropic to contract added comput capacity up to 1 gawatt. Nvidia and Microsoft to invest in Anthropic. Nvidia committed to investing 10 billion.

Okay. Okay, the problem here guys is that the problem here is that this is only feeding into the argument from the bears around this whole circular financing stuff. Nvidia says anthropic we'll give you 10 billion. Enthropic says, "Hey, Microsoft, we'll buy 30 billion." Guess what Microsoft's going to do? They're going to buy more GPUs from Nvidia. it it goes back in this circle that if there is an ROI at the end of the day doesn't matter long term but in the meantime I don't know if this is a bullish headline at all the only reason Microsoft's buying the compute is because Anthropic's buying the compute from them but the only reason Anthrop is buying the compute from them is because they're getting a $10 billion investment from Nvidia

now granted Nvidia getting a little bit of green candle right here I I I don't I I think the deal is very similar to the other deals we've heard and those deals long term if you think there's an ROI will be bullish. It's just in the short term I think the immediate reaction might play into the fears of this circular financing stuff. Now if Anthropic becomes a multi- trillion dollar company and they needed all that compute and Microsoft was part of the infrastructure that provided them the compute and Nvidia obviously was providing them the chips then it all works out but you've got to believe that that that end north star for mic for open AAI and and Anthropic that are committing to all the spending and you've got to ask yourself as an investor do you believe in that? because if you don't, it's circular. If you do, then it's circular today, but it's long-term uh real in the future. That's the broader question.

>> let's hear from the horse's mouth. All three of them announcing this partnership folks uh just posted Super excited to be here with Dario and Jensen. What both of you are doing, Nvidia at the silicon layer and anthropic at the cognition layer is shaping what every developer and every organization will be able to build on going forward. On our side, we have been scaling Nvidia across this funible Azure fleet at the speed of light, something that Jensen's been talking to me about for multiple years now. And we're continuing to set pace, including with the AI superactory we announced just last week. And we've been deepening our partnership with Anthropic as well, incorporating their models across the entire co-pilot family. And today I'm excited to share that we're taking another step. Uh we're increasingly going to be customers of each other. We will use Anthropic models. They will use our infrastructure and we'll go to market together to help our customers realize the value of AI.

>> I'll close with this. As an industry, we really need to move beyond any type of zero sum narrative or winner take all hype. What's required now is the hard work of building broad durable capabilities together so that this technology can deliver real tangible local success for every country, every sector and every customer. The opportunity is simply too big to approach any other way.

>> Jensen, you know, I I think the world is just barely realizing where we are in the AI journey. You know, we're seeing uh three scaling laws happening at the same time. Pre-training is scaling incredibly well still. Post-training, the more compute you give it, the smarter the AI. And then of course inference time scaling, test time scaling, you know, the more the AI thinks, the higher the quality of answer. And so we we're now at a point with AI where it is very clear that the more compute we give it, the more cost-effective compute we give it, the more the smarter the tokens, the smarter the AI is going to be. And the smarter the AI, the more adoption both in the new applications that integrate these AI APIs and the more frequently how how more frequently you use it. And so the quality of these AI models now have really reached an inflection point.

All right. What do we think, guys? What do we think? That was Jensen, Daario, and um Nadella basically saying, "Hey, we need to continue investing at the level that we're investing at and we need to keep on putting in more comput." I mean, the thing that Jensen said at the end, I think is probably the most important, which is that in his perspective, whether you agree with him or not, we are at the very early stages of what AI can become. If that's the case, there's going to need to be circular financing. There's going to need to be vendor financing. There's going to need to be debt financing. There's going to need to be all that stuff to engage in this buildout. And investors either will believe in that buildout or not. But the buildout's happening and regardless of if they believe in it or not, the impact of it over the next coming years is what a lot of the more uh AI focused tech CEOs are worried about. And I don't think they're too worried about the the short-term implications of this stuff.

Like I really hate to keep saying it's about the rate cut, but from all the research I've done really since starting on Saturday when I started like diving deep into what could have changed in the market over the past couple weeks comes down to the cuts. The probabilities of the cuts going down really shifted a lot of people to thinking the Fed is not the like we hiked in 22. If the Fed doesn't cut in 22, at least until May when JPAL steps down, then the first six months could be the same as hiking, even if they're not cutting, which I can't fathom that they would not cut for six months. Um, but the impact could be the same. And I think the market's kind of interpreting more restrictive policy as uh detrimental to the market. And then it's kind of like you're fighting if the Fed says they're not going to cut and you're buying stocks, you're fighting the Fed because the Fed is telling you we're going to be restrictive. Stocks historically don't do well in a restrictive environment. So one of the reasons they were doing so well in October and August and September is because well, everyone felt the Fed was guaranteed to cut. So the easing cycle was laid out. I mean even the Fed said they're going to stop QT soon. So stopping QT rate cuts, all of that is a conducive environment. soon as you get rid of the rate cuts part of that equation, you start fighting the Fed and I think that's what got the market to be a little bit afraid.