Transcript
0:00 And I know that that's fueling the anti-AI movement, but in our view I don't think there's going to be much job loss from AI. And I'll I'll explain a couple of reasons why. First, as a fact pattern, and this is a study from Hubstaff, but there's other companies that have corroborated this. In a typical work week, only about 25% or 10 out of the 40 hours that anyone works is spent on real work. Most people spend their work day getting ready to do work, getting their coffee, reading the email, thinking about what they're going to say.
0:34 >> >> very little of the work we do today is actually real work. The second thing to point out is that only one in four jobs are quote real jobs based on a study by Asana. Cisco's a good example. From '94 to '97, Cisco went from 80 cents to $9. And then we had the Asia financial crisis and it fell by 40%. People would have said that was the end, but then Cisco year later went to 18.
1:02 But then long-term capital happened and it fell 40%. People would have said, "Oh, well, there it is, the top again." Cisco ended up going to 80. And that was a 10 100x from the, you know, from 1994. I think that's probably a good analog and I think we're about here today. But AI stocks won't go up forever. But the AI trade is creating inflationary pressures on memory and energy consumption.
1:36 those are bottlenecks. The reality is the Fed raising rates isn't going to slow down AI spending. So, I think in many ways, and again, flash memory doesn't really show up in consumer CPI anyway. So, I think we should just be mindful the market's selling off today because of good PMIs, it's probably just a reminder that that's the where the psychology is at the moment. >> Let's take a look at the 10-year, 5.264, down about five, six basis points from the levels that we saw yesterday. And really, Jim, I think that's where we have to start this conversation. Bond yields pulled back a bit after that softer-than-expected jobs report, and we're seeing tech taking off and video hitting a 52-week high, as well.
2:18 >> Well, I think you're starting in the right place, which is the 10-year yield. I mean, this bounced back from the teens today, and now it's at 5.26. I think that's just a little muscle memory, Frank. I don't think that's really the trend that we should be looking at, because this week we've gotten a lot of data that takes a little bit of the heat away from the Fed in terms of raising rates, at least this month. We got the PCE, that was a little lighter than expected, and then the jobs report today was kind of Goldilocks. It was good enough that we don't have to worry about, you know, a meaningful slowdown, but it wasn't so hot that the Fed really needs to go this month. I think they would be unwise to raise rates this month, by the way. I think that just just would put a crosshairs on their back one week above in front of the election. So, where you are right now is the odds of a rate hike have gone down to about 20% this month. I think that should pull the 10-year yield down with it. I note the 2-year, by the way, is still predicting about four rate hikes to come. Here's my call. You can disagree with it. I think the 2-year is way ahead of itself, okay? Here's why.
3:17 If energy prices just stay where they are, let alone go down, which they're doing today, but if they just stay where they are, inflation over time comes down, because as we all know, it's a rate of change, not a price index. so, that being said, I think you can see inflation come down towards the target. The Fed isn't as antsy to raise rates. By the way, you had that good Micron result a couple of days ago.
3:39 There's a lot of reasons to maintain a bullish attitude, as I do, for the end of this year. >> So, just to your point, very quickly, CME FedWatch Tool, 77% chance of a hold today, just a week ago was about 36%. Brent, I want to come over to you. As we're looking at the market right now, again, the NASDAQ hitting a 52-week high. Is this trader saying that they don't believe the Fed's going to raise rates? Is that what's giving the market confidence?
4:03 >> I think going into midterms, you know, obviously November, it's a very low likelihood that the Fed does anything, I think, until their December meeting. Just they want to stay out of the way of being looking to be political at all in either way. And so, I think the Fed is on hold through at least December. I agree with everything that Jim just said. The two-year is telling you that we're going to have multiple rate hikes.
4:26 It's telling you inflation's higher. And I think the two-year has overrun itself. And so, I think that as inflation, core inflation, continues to come down, I think we'll see the two-year actually start to settle in more towards, we'll say, Fed funds rate than than closer to the 10-year, where it's moving directionally. And that's really positive, I think. Once we get through, you know, October historically is up about 58% of the time. Obviously, everyone remembers the crash of '87, but that's more of the anomaly. And I think this this midterm election site cycle is a really great time to dollar cost average into names you like like our ETFs, if we do have that traditional midterm volatility.
5:08 >> So, Brent, you didn't see this. Jim did a little celebration dance because you agreed with his points. Amy, I want to come over to you. Is the market perhaps doing a bit of a premature celebration dance? I mean, remember, we do have a carrier group going into the middle of these. The Iran situation has not been resolved. To Jim's point, Brent crude's down 3/4 of 1%. WTI down 2%, but certainly there could be another energy shock, and we also have some other inflation reports coming up this year.
5:32 He seems to say, you know, mission accomplished. It looks like things are moving down. >> I that's that's Don't don't use those words. That's not what I'm saying. >> Directionally, you're saying that it looks like we're on the right direction. Thanks for correcting me. But, should we be a little concerned? Is this the right time to have bullishness when it comes to stocks, or is this a time for caution in Q4? >> look, I I think in the near term we're okay, but longer term, so I'm not as focused on the next Fed meeting or even the December meeting. I think it's going to be hard to get rates down sustainably without a slowdown in economic growth. So, if you think economic growth is going to be robust, and I think most people do, and that's sort of the trend that we're having, I think rates stay at this these elevated levels, and I do I think eventually that puts pressure on the S&P multiple. It just always has, and I think it will.
6:16 And not that's not a one quarter projection, but I do think to get rates sustainably lower, you need much lower economic growth than we're seeing right now. >> You know, speaking of the S&P, Malcolm, S&P trying to avoid its third down week in the last four, but it's also important to note it's still about 1% from a record high as well. >> Yeah, I think realistically for the next month at least until we start to get earnings from the tech companies that will include guidance for what they see spending-wise and everything else, it's going to be a lot more of playing of the old hits. So, this whole year we've had or at least since February we've had this issue with the 10-year being elevated. Incrementally it crept up as the war continued on, energy prices stayed high. All of those things have been true throughout this entire year, and the market has not cared. Stock investors specifically have not cared. I think that that trend probably carries through the month of October at least.
7:05 Yes, September was rough. Seasonally it is a rough month in, you know, historically anyway, but I think a lot of it had to do with the AI doom-erism that we got that was starting to make people question whether some of the things they've been holding all these months and years that they felt so strongly about, maybe they're starting to be cracks forming. Now that that is kind of faded a little bit, we're probably going to get an IPO from Anthropic in mid-November, at least that's what we've been promised at this point. Those things will lead to people being a lot more willing to continue taking the same risks they've been taking, regardless of whether oil cracks 125 or 150, regardless of whether the Strait of Hormuz opens tomorrow. Like those things have been here.
7:43 All right. day two of Q4, obviously, you've seen some bullish notes coming out today. One from Citadel, Scott Rubner, calling it the Q4 reload. I want to get your take on this. We're turning more constructive on US equities in a Q4. September delivered much of the reset we wanted to see. Leverage came down, retail cooled, systematic sold, valuations compressed, the market enters Q4 from a cleaner starting point, with considerably more capacity to rebuild exposure. Jim, agree, disagree?
8:06 >> agree. And let me just qualify what I was saying before. When I said not mission accomplished, I meant that in particular overstated. That was my No, but I meant that in particular with regards to Iran. I am bullish. I am in agreement with the Citadel comment about what the next few months can bring. And I just want to restate for the you know, purposes of buttressing the argument that you don't need oil to go down. You don't need diesel to go down for things to calm down. You just need it to stop going higher. And I think to the extent that even if we start bombing after the election, okay. I'm not hoping that that happens, but if we do, you know, there have been a number of workarounds around the Strait of Hormuz already. so I I I think we've already started the decoupling process that will take years, but we're well into it now from the Strait of Hormuz.
8:51 With regards to the rest of the setup, I mean, we've got good economic growth. Atlanta Fed GDP at 3.7%. Some will say, "Hey, a week ago it was 5%." True, it was, but still 3.7% is darn good. We know about the profit growth. The labor market, I'm going to say it's good. People like to say it's stable, but I I'd say it's good when you've got weekly initial jobless claims below 200,000 for two months running. So, I see the fundamental setup looking very good for the rest of the year.
9:18 >> All right. Fundamental setup's good, but what about the breadth, Malcolm? I want to come over to you. You and I have talked about this quite a bit. Bank of America's Michael Hartnett coming out saying, in part, 400 of the S&P stocks are trading below their 50-day moving average. Is that concerning from a technical basis and just in general that is so much narrowness in the market? And you were talking about this anthropic IPO. So much of the action is in tech.
9:39 >> Yeah. Yeah, it would be concerning if not for the fact that that's been the case for 4 years since ChatGPT set the world on fire, right? Like I mean, we've had these rotations or these head fakes, I would even call it, throughout the summer where it looked like the broadening was going to take shape. It looked like other sectors were going to matter, but I've been making the argument for some time now. A lot of the sectors that we're seeing the spillover into are also related to the AI boom, right? So, we're talking about the industrials and we're talking about the heavy earth movers and we're talking about the HVAC companies and like the the second and third order effects that we suddenly become aware of and that these companies exist and have ticker symbols because they're helping to power the AI build-out. And so, until we've we're given a reason to stop believing that OpenAI and Anthropic are going to somehow figure out a way to be able to spend at the level that they have committed to spending at these hyperscalers.
10:32 Again, I said it before, it's going to be a playing of the old hits. That means the S&P 390 490 probably not going to matter all that much toward the end of the year. It's really the 10 that have been doing the heavy lifting throughout the course of this year. >> Nvidia just hit an all-time high and closed in on $6 trillion today. And in the same 24 hours, federal agents arrested a California man accused of smuggling $300 million of Nvidia chips to China. Let's break down both. Nvidia shares hit a new all-time intraday high today, touching $237.55 and pushing the company's market cap to roughly $5.7 trillion, its first record since May. That puts Nvidia under $300 away from becoming the first company in history worth $6 trillion. This caps a sharp turnaround.
11:22 The stock is up nearly 25% since a late July low, when AI outlook fears wiped out more than a trillion dollars of its value. The rally's been fueled by a mix of things we've covered this week. The record $150 billion buyback, strong AI agent demand, and Nvidia's new open agent safety platform. Morgan Stanley's Joseph Moore reinstated Nvidia as his top semiconductor pick, calling the valuation very undemanding even at these levels. One number worth flagging, Nvidia now holds about $99 billion in shares of its own customers, companies like Intel, SpaceX, and OpenAI, up from just $7 billion a year ago. That's the circular investing pattern critics like Michael Burry keep pointing to, and it's climbing right alongside the stock price. Second story, and it's a reminder of what's happening on the other side of export controls. Federal prosecutors arrested Greg Louie, the 38-year-old owner of a California company called Earth Made Computer, accusing him of smuggling more than $300 million worth of export-controlled Nvidia servers to China between 2023 and 2024. The method, prosecutors say Louie routed the shipments through Malaysia and Singapore using false paperwork to disguise where the chips were actually headed, and allegedly received over $176 million from two Malaysia-based shipping companies in under a year. One cited order alone was 27 servers packed with Nvidia H100 GPUs worth about $7.6 million. He's facing conspiracy, smuggling, and money laundering charges with decades of prison time on the table. Nvidia put out a statement on this one directly, saying smuggling is a losing proposition legally, economically, and technically. And this isn't an isolated case. It follows charges earlier this year against a Supermicro co-founder for similarly diverting billions in Nvidia chips to China, plus a separate case out of Taiwan involving former Nvidia and Supermicro employees. Here's the thread connecting them. Nvidia's stock is hitting records partly because its most advanced chips are so valuable and so restricted from China that legitimate demand everywhere else is exploding.
13:31 That same scarcity is exactly what makes smuggling profitable enough for people to risk decades in prison over it. The higher Nvidia's chips are valued, the bigger the black market incentive gets. So today, Nvidia's knocking on the door of $6 trillion and federal prosecutors are knocking on doors in California over the same chips that are getting it there. Let me know what you think. Does this kind of enforcement actually slow the black market down, or is it just the cost of doing business at Nvidia's scale?