Big Tech earnings continue to shine even as smaller companies lag. Noah and Chris discuss why corporate margins remain historically high, how they factor into today’s valuations, and what this divergence says about the underlying strength of the market.
New York City’s new leadership has investors talking. The hosts explore how political change in one of the world’s financial capitals could influence business confidence, taxes, and economic activity, and whether markets are as worried as headlines suggest.
With recent layoffs making news and labor participation trending lower, Noah and Chris examine how the job market is evolving. They consider what these shifts might mean for consumer confidence and whether AI-driven productivity gains are masking deeper employment challenges.
The conversation turns to valuations, comparing traditional price-to-earnings ratios with a deeper look at operating margins and cash flow. They argue that stronger profitability may justify current valuations — and debate whether innovation is pushing the ceiling even higher.
From the Erie Canal to quantum computing, Noah and Chris connect two centuries of innovation to the present day. They highlight how advances in technology and connectivity continue to reshape productivity, profit margins, and long-term market growth.
The hosts break down ongoing policy debates — from government shutdowns to Supreme Court discussions on tariffs — and how these political standoffs affect sentiment, trade, and global markets.
Welcome everybody to the market enthusiasts podcast. I’m Noah Brooks and obviously with me Chris Needs.
Hello, hello. Hey, we just had Halloween. What was the scariest thing for you for Halloween? Ooh, I don’t know what was the scariest. ⁓ My son was dressing up as ⁓ like a American soldier and then he ditched it last May because he didn’t like people were saluting him. he’s like, don’t I don’t like it. He switched up real quick. went into like He say it was Godzilla, but it was really just like a dinosaur. He’s not respecting the military Chris. He darn well better. ⁓ so I brought up Halloween. I’m a big candy guy, but this year I’m trying to not eat it. So obviously I brought all our extra candy into the office so you guys can eat it or other people other than me can eat it. yeah, that’s, that’s one of those. one of those things that I need to get away from. I’ve been trying to dodge taking the kids candy this year as much as I can. think I’ve only taken like 15 pieces. Normally it’s much worse. I had some skittles today. They were good. ⁓ So let’s start with some elections, right? So here we are. It is the beginning of November. I brought up Halloween. What do you think Jamie Diamond thinks the scariest thing about Halloween is? I think that he got a socialist mayor in New York City, the bastion of capitalism. Yeah, just finished that $3 billion building. And now he’s has to work with a socialist. So a self proclaimed democratic socialist. What’s the what’s the difference there? What’s just adding democratic make it better? Yeah, I don’t I don’t know. I don’t know if there’s any actual value to putting those two words together from a standpoint of what is believed. I’m sure if I asked the Internet, it would tell me. ⁓ I know that, you know, I think he won first off Cuomo, you know, Heather, some baggage there. ⁓ The other guy, the guardian angel, I don’t I don’t know that he’s. He’s a. Yeah, he’s an interesting character, but I don’t think there’s a lot of legs with him outside ⁓ the vigilante crowd. A lot in order. Yeah, yeah, something like that. And then you have this younger guy, I think he’s 34, 35, who’s talking to the youth of New York. And I don’t necessarily mean the youth of people in Manhattan. I think you pointed it out that he won large majority from the other boroughs. Yeah. not not in Manhattan and I’m not younger than me and he’s going to be the mayor with no prior experience to the mayor of New York City. It’s pretty amazing. What is in a sense what is his experience? have no idea. No idea. mean, he’s gonna become experienced real quick. Yeah. I mean, people are gonna step in to help him. Obviously, everybody wants the best for the city, whether they were, you know, agree with him on everything or not. But yeah, interesting. I hope he has a good team around him. he’s gonna have to Yeah, I mean, that’s a big job. Does the mayor of New York City, how much does he or she impact the daily lives of people that live in the city? I mean, they kind of already had a socialist I would say build a blase. It was pretty darn close to a socialist. But I mean, I think ⁓ most of the tax reasons have to be approved by the governor. Kathy Hokel has expressed in the past she does not want to raise taxes on just the wealthy per se. don’t know everything behind that, but she signaled that. So he’s going to have to work with them a little bit. He has some ambitious goals, ⁓ childcare, universal childcare, free bus transportation, some of those things, which will definitely require some funding. Well, I mean, we live in the freezes as well. Yeah. We live in the sticks comparatively to, ⁓ to New York city. mean, I enjoy being a tourist there, but it would be difficult to find a place to live. And honestly, I don’t travel to the other boroughs like Manhattan itself, the Island. ⁓ And I go there as a tourist as you know, millions of other people do every year, but I couldn’t imagine having to try to find, especially as a young person. I mean, it’s hard enough here in Pennsylvania to try to find a starter house in Manhattan. Like that’s not a thing, right? Yeah, I don’t think so. You got to be a millionaire to buy a one bedroom if I’m not mistaken. Seems a little that’s a little bit scary. And that’s probably why he won. Right. ⁓ I think we were talking about it. ⁓ rent controlled apartments. And the idea of rent control kind of decreases the mobility, right? Because nobody wants to leave. Yeah. So I mean, it’s double edged sword like the people who are in the houses get that rent control, they don’t get the annual or biannual, you know, increases. ⁓ But it’s a double edged sword because then you have people who own the properties, they’re not going to put, you know, a million dollars into those buildings for upkeep if they can’t increase their rent, they’re not going to build new buildings and, you know, do that kind of stuff if they’re capped at what they can charge. And like you said about mobility, those people, you know, they can’t leave those those prices because the prices are insane. There is an affordability issue in the cities. Everyone’s aware of that. And then people who want to come in, maybe they get an awesome job, they get hired in that new beautiful JP Morgan building, and they want to move into Midtown or something like that. And there’s no houses for them because no one will leave their houses. It’s you know, we were talking similar to like myself being stuck in a very low interest rate house, which is amazing. But if I wanted to move, it’s going to be cost. It’s going to be tough. Yeah. There’s no question about it. Um, well, so hopefully you don’t have to move anytime soon and, and maybe rates will come down a little bit. It doesn’t seem like they’re moving too much lower. They’re still in the, uh, low sixes, six 26 or something like that today. And, and we’re sitting here in the beginning of November. Obviously we just had this election that we’ve been talking about. Uh, October was an interesting month. Um, a little bit bifurcated. had some large caps that ⁓ outperformed the NASDAQ was up almost 5%, I think 4.65 for the month, but you had small caps that were down for the month, mid caps that were down for the month value was up maybe a half a percent. So it’s still the same companies that are moving and obviously having a little bit of a pullback today, ⁓ maybe a half a per one and a half percent ⁓ at the lows. ⁓ it seems to me there might be a little shift in investor sentiment though. Like you said, with how bifurcated it really is those top 10 companies which make up about 40 % the S &P 500, you know, they’re performing and you know, the averages don’t look terrible per se. But underneath, there’s a lot of companies not doing well, mentioned small and mid caps. So there’s going to be a lot of days where the index doesn’t do much and everything beneath the surface looks rough, like the breath isn’t that great. And alternatively, in the future, we’re gonna inevitably have days where the underneath companies, the other 60 % do well. But those mega caps don’t perform and then the index looks like it’s awful. won’t notice it, right? Right? Yeah. No, I mean, honestly, like you won’t notice it from if you’re just looking at the SMP, you look at the other indices, you’ll probably see it. But I mean, you can have 300 companies in the S &P 500 go up a full percent and you just need 10 of them to go down a percent and it wipes all that out plus. Yeah, it still ends negative for the for the day. We’re we’re in the midst of earning season. So it is an exciting time. I drive down some numbers here that I thought were just very notable. So earning season has been largely good. You had some stats on that. Yeah, facts that reported 83 % of the S &P 500 companies reported earning surprise. 80 % of them have reported a positive revenue surprise and that’s only about 65 % have actually reported yet. still, we’re still, they’re still coming. So that’s really positive. What I don’t have is the data on how much of that is represented by those, those big those big names, right? I have a couple of the big names. yeah, yeah, let’s see. So I’m just going to emphasize like the scale we’re talking about here. So Google, their first $100 billion revenue quarter, big number, yeah, Microsoft 78 billion in revenue in the quarter, Amazon 180 billion in the quarter stock really jumped ⁓ AWS didn’t slow down as much as you know, they were forecasting. So they obviously have a dominant market share, but it’s been slowly bleeding away. We didn’t see that that quarter. So they really jumped and popped off that, ⁓ meta 51 billion in revenue in one quarter. They did have a one-time tax charge of 16 billion, which is just a one-time thing really hurt their profitability. then, Zuckerberg has totally done away with the year of efficiency from two years ago and they’re doing massive capex. Their stock slumped on that. much of that meta revenue is from advertising? gotta be like 80 % of it. What I mean, I’m not a Facebook guy. But other than capturing maybe a portion of sales that that are sold on Facebook, like, there’s that much ad revenue on there. Do ever just talk about something and then boom is popping up in there? Yeah, they’re listening. I don’t like they’re selling that right away. So in your info, I don’t like that one bit. Yeah. I don’t like that one bit. You know, I think the big difference between some of those companies that you talked about is you said 151 billion for Amazon and Google just had their first hundred billion dollar quarter. But the profit margin on an Amazon versus a Google is pretty, very, yeah. Yeah. Really different, right? I think, ⁓ I think Amazon’s was about 11 to 12%. I think that’s what their profit margin was. I don’t have a job down here, but, Yeah, Google is higher than that. Obviously they have the low margin business on retail where they’re basically almost like a third party seller now and they just own the marketplace and take a little slice. AWS has good margins. yeah, no question about it. But that’s being balanced out by their more revenue, you know, done on the retail side. Yeah. So we’re obviously, everybody’s looking for information, looking for data to try to figure out what’s going on in the economy. And we are now on day 37 of the shutdown. So tomorrow, Friday the seventh, we should be getting the jobs report and it’s not happening. ⁓ so everybody’s, you know, got their microscopes on and their binoculars out and trying to ascertain what’s going on, ⁓ from an employment standpoint, let alone all the other data that we’ve missed. So this week we’ve had the challenger jobs report come out. which showed, ⁓ layoffs. Now it doesn’t aggregate everything. It doesn’t show how many were added and how many were taken. It just shows the layoff number. It was, ⁓ essentially, ⁓ 159,000 layoffs were reported in October, which is up 177%. I mean, it was 55,000 last October. So, you know, some of that is bleeding over to today’s market. don’t, you you don’t know what, It’s going to happen even at end of the day, let alone tomorrow. ⁓ but I think the more of that type of data that comes out, you’re going to find that sentiment shift maybe a little bit higher because the big tech names can still have tremendous earnings. But if we’re losing jobs, if the total number of people in the United States, ⁓ or the total number of employed people is going down, that’s probably not a longterm positive. Yeah, labor participation has been trending downwards, but there we were recovering after COVID for a while. And it seemed to turn the other way. It was hoping it was going to keep going up and, you know, get back to where it was. But we’re trending back down on labor participation and you see all these other jobs will, I don’t know if we’ll call them middle, middle manager type jobs or maybe middle consultant type jobs, white collar jobs where think about what’s going on DC and everything. where they’re utilizing more software rather than consultants. Now you’re seeing a lot of them lay off ⁓ what are by all accounts probably high compensation jobs. So it’s hitting multiple areas. It’s not just necessarily, it’s not like just lower income people are getting hit on layoffs. It’s also hitting the middle section. ⁓ Amazon was laying off a bunch of middle managers we’ll say or corporate jobs. Yeah, what 29,000 2727. That’s a that’s a that’s a big number. Now as a percentage, I don’t think it’s a big number. But it’s still on the aggregate. It’s it’s a big number. So I said we’re in day 37 of the shutdown, Chris, what do think it’s gonna take to get this resolved? They have to either promise that they’re going to in good faith negotiate, but there’s no trust anymore. There is no trust. So I think they’re just going to have, Republicans are going to have to give up some dollars and fund ACA subsidies for some amount of time that will be appease essentially Democrats. And then maybe they’ll come and sign the CR, but we’re running out of time on the CR. Like that was, it’s only good for like another two weeks or something like that, even if they signed it now. it seems to me, and I don’t want to be too negative on this, but it seems to me that the Democrats are kind of backed into a corner. And what I mean is you have the Republicans to control both houses of Congress and obviously the White House. And so this seems to be one of the last ⁓ muscle flexes that you can have on the Democratic Party. mean, they’re kind of clinging to any power that they have. And quite frankly, they’re, you the White House is a freight train moving along at a really big, big clip and so if this is one of the few remaining power power positions that they can take and leverage points that they can take there’s 53 ⁓ Republican senators and only 47 so they need seven Democrats to vote with them to really do anything with the filibuster at 60 votes ⁓ We could talk about that in a second. But so this seems like I to say a last gasp but it So it’s over these ACA Affordable Care Act subsidies that were put in place after COVID, or shortly after COVID, which equates to roughly $41 billion a year. ⁓ It’s a lot of money to you and I, but it’s a routing error to the federal government. it’s really a sticking point. I mean, we just, we gave $20 billion to Argentina the other day. $41 billion. I don’t know. It doesn’t. And it would be staying here at least, you know? Yeah. So I think something’s got to give. mean, I said the last time we were sitting here, uh, the reason that the last shutdown ended was because travel got all sorts of discombobulated and TSA workers were calling out. And essentially when the American public is trying to travel, uh, and you know, you see lots of lines and flights canceled. mean that just people start maybe calling their, their elected officials. Now I just came back. ⁓ you didn’t have any issues and have any issues. I flew down to Orlando and back in a matter. Well, stayed two nights, Philadelphia airport on Monday, four and a half minutes in T S T S eight line. And yesterday around, ⁓ four 30 in the afternoon. So Wednesday afternoon at Orlando, I was literally the first person in the TSA line. That’s why because I feel like more Monday morning you would or did you fly out Tuesday morning? No, you’re out Monday morning. Monday, you would think that’s when business commuters are going. I know business Monday after Monday afternoon, Monday afternoon, but there was nothing going on. Philadelphia Airport, easy peasy Orlando Airport, which in my experience, I’ve had a lot of wait times at TSA in Orlando, there’s nothing going on now. I did have a little bit of a kerfuffle yesterday. he wouldn’t tell me this before the podcast. So I’m going to be in. I’m interested to hear this. So I the flight was delayed. There was something going on. The incoming flight was coming from LA. So we were delayed maybe about 40 minutes. I had a zoom call. And I don’t normally make zoom calls at eight o’clock at night. But there was something important that we had to get done. And I told them that I would be late and I, you know, get on when I got on. So it was yada yada yada. I leave the airplane. I go into the Philadelphia airport and I thought, well, I’m just going to take it from here. So I’ll just find, ⁓ you know, a gate where nobody’s at and I’ll take it from here. So I grabbed the laptop, open it up. I get on the call. call last about a half hour. So it was maybe like 9 15 or 9 20 and I’m wearing my Bose headphones for the call and grab my stuff, pack it all up. And I start walking out and I call my wife, call Alish and I’m talking to her. And then I call one of the people that was on the call and we discussed what happened. All right, no problem. I’m in the car. I’m driving home. I get home. have my backpack. I turn around to grab my luggage. I left my luggage somewhere. No, I left. So I either left it on the plane, which I don’t think is possible. I think more likely is that I left my luggage at the gate where I was on that zoom call. And when I was packing up my laptop and putting everything away, I just grabbed my backpack. They probably think that’s a bomb threat. Like they brought like. So I called. I called the land securities, checking your bag out. Yeah, I called. Philadelphia lost and found and they were like, no, I don’t have anything here. It might come. And then I called American and they said, well, file a claim. ⁓ My Sonicare toothbrush is in there. Like seriously. So yeah, that I, that was, that was interesting to say to get home and not have my luggage. was the Catherine Bigelow movie with the bomb detonator? I’m just thinking of who’s a germy runner. think going up to your bag. Yeah. So that happened. So, ⁓ this guy was working on his laptop and then ditched his bag. As far as the shutdown goes and TSA, I didn’t see anything that’s, ⁓ I mean, anecdotal to me, but obviously Atlanta yesterday, I think there was like four and a half hour lines for TSA and EWR Newark was shut down for a number of times in the last week. Sean Duffy said they are going to over the next couple of weeks, the head of transportation. ⁓ the somehow decreased 10 % of flights at major airports. It’s not every airport. didn’t see Philadelphia was on it. But like the majors are on it. was a list of 40 put out that I read this morning. I don’t know. What do they do? They just say they call up the airlines and they say, Hey, we need to cut 10 % of your flights like, sorry, your gates no longer open. can’t rent that to you. So I think this goes a little bit deeper because this happens. regularly when the government shut down. Not that the government shuts down regularly, you’re putting not just TSA, but you’re putting, ⁓ you’re putting people at risk from the, the flight operators, from the flight controllers. And it seems to me that they should do something a little bit different instead of it being a federal organization. I don’t want it as a private organization. ⁓ but maybe there should be like a nonprofit. that instead of instead of being funded through the government, it’s just funded from a usage tax. Right? Like as people fly, that’s what they do in Canada. And you would never have a shutdown of impact flights. like a quasi government like Fannie Mae, even though they’re no, no, no, no, no, it’s just it’s just a nonprofit. And there’s a, you know, there’s a head of think of like, Finra is like, member funded. don’t know. Finner is kind of shut down. it the SEC? They’re only doing SEC is but Finner is a self regulating authority. Self regulating. Yeah. Where does Finner get their funding from the trade transactions? Member fees? ⁓ Well, when you look at a confirm, it always has the Finner fee on there, right? I think that’s where they get a lot of it. All our trades out all the trades they do go go to that a little bit. ⁓ But yeah, I mean, it’s it’s one of those things where there’s real safety involved. You know, the FAA shouldn’t be impacted by our elected officials not being able to come. be non discretionary and like, yeah, get the money regardless. Yeah. So that brings me to another thing. Did you happen to see the plane crash? This was not because of the government shutdown. I don’t want to make any, ⁓ Yeah, the plane never got off the ground. Yeah, it was like a well it was in the air. It was in the air was UPS plane 31 year old UPS plane. And there’s this video I think we can get it up on here. A video of the plane coming down and it’s landing there’s a like an Amazon driver or FedEx driver maybe he was even a UPS driver watching this plane come down in flames. And it looked like a scene from you know, it looked like a scene from a clip I saw. didn’t even know it was in the air. I thought I was trying to take off and just never took off. But yeah, the fireball was insane that the video we were looking at there was like a delivery worker in his vehicle watching the fireball come towards him. And then he finally ran. I’m like, I would have been out of there 15 seconds ago. I mean, what are going to do? You see this massive plane in front of you is probably only a two or three or 100 yards away. You said fireball. That’s like the the the asteroid out there. ⁓ boy. Three IA Atlas. It’s kind of creepy. It’s it’s interesting though. I’m trying to ignore it as much as possible, but we have a lot of conspiracy theorists around us talking about it. Maybe. Maybe. Yeah. There’s no question about it. But the the what I’m seeing is that there’s people that are going down a rabbit hole on social media over it and even younger kids. I mean, 10 year olds and 15 year olds that are going down this rabbit hole. ⁓ it’s 260 million miles away and it’s supposed to bypass us completely. It’s not even going to be close to us. And people are kind of going apeshit about it. I don’t, I don’t get it. You watch interstellar. They’re just us from a future time went through a wormhole coming back to wave. worked with a kid 30 years ago that used to say aliens were actually us in the future coming back. That’s I’m going with interesting character, interesting character. ⁓ so let’s go back to earnings for a little bit. We have valuations that we know are stretched earnings seem to be good. ⁓ PE can always continue to go higher, but we were having a conversation earlier this week about not necessarily priced earnings ratio, but the margins. Yeah. So when you’re looking at price earnings ratio, doesn’t take into it only takes the current stock price and their current earnings, which any company can manipulate their earnings. not saying manipulate like SEC fraud, but they reinvest in their business. they can, they control what goes through to net income and what they get taxed on. ⁓ So if you actually look at either something like operating or free cashflow, or simply look at the profit margin, account for that I was making the debate that if you adjust for the profit margins we’re seeing right now which are historically high, we’re not nearly as overextended on evaluation basis as if you just look at PE alone. And I stand by that. Yeah, we were talking then we went to the the CAPE ratio and that’s I pulled some stats that we are debating. So the CAPE ratio is the 10 year cyclically adjusted price earnings ratio. So they just smooth it out over 10 years. And over that 10 year period, the average profit margin was 12.3%. Very good. That is also historically high from what we could find looking backwards. Don’t have a definitive stat to quote on like a longer term average. But right now we’re at 14.5%. Yeah. So. higher margins. Generally, if you’re a more profitable business, this is an aggregation of companies, obviously. But if you’re a more profitable business, you should probably get a higher valuation. Obviously, you have to account for expected future performance. But if we’re just zeroing down and filtering down looking at this snapshot of well, you know, we’re 17 % more profitable than we were, we should have some sort of premium on the valuation. Well, don’t you think we do have a premium? We do. definitely do. So my point was saying is, yes, we’re certainly valued at a premium right now, but it’s not as much as you think just looking at that P, which is a very simple measuring tool. Yeah. It seems to me that all of these, ⁓ well, the profitability of companies has gone up with innovation with different types of innovation and October. I don’t know another day, but October marked the 200th anniversary of the Erie Canal, which now is used for kayaking and, you know, houseboats or something like that. River boats recreation. Yeah. Rec recreation. But 200 years ago when it was open, ⁓ what it did was it, it really allowed New York city to become a hub. And so imports from Europe, instead of going all over the United States, they were Boom, they all came, not all, but about 70 % of imports that came in at the, in the, at the opening, the first 10 years of it came into New York city. And it was much lower in the beginning because it was spread out throughout the East coast of the United States. And so, ⁓ instead of going to Baltimore, Boston, Philadelphia, ⁓ Savannah, it all started coming into New York and it really opened up and it made New York the powerhouse that it was. that transportation. ⁓ Communication and transportation is that innovation that just allows things to move faster and have, well, let’s say higher margins. ⁓ I was looking at this and I was thinking, well, when was the first telephone call from the United States to Europe? ⁓ The first call wasn’t, let’s say a landline telephone, but first call ⁓ somewhere around 1927. was a radio call. And in those dollars, not today’s dollars, but in those dollars, it 75 bucks for the first three minutes. It’s a lot back then. Yeah, a lot in 1927. Um, the first actual physical line that was put throughout the Atlantic to connect New York and, and England or to London, uh, didn’t take place until 1956. It only had the capacity of 36 lines phone calls at one time. Ailish’s family obviously lives in England and it used to be a really big thing to be able to get an international phone call, whether to make one or to take one. And now it doesn’t matter on our cell phones and doesn’t mean anything because we have this fiber going back and forth. It seems to me that all of these advancements in transportation and technology just makes the entire world more efficient and productive. And so is it possible that as the advancements continue and whether this is, you know, faster planes that are allowed to break the sound barrier, whether this is quantum computing and more information being around, is it possible that the profit margins, let’s say in the S &P 500 or the Russell 3000, that they just continue to grow over time or is it an anomaly at the moment? No, I think it’s a trend we always been working for, as you mentioned, talking about canals and railroads and then cars and trucks, internet, you know, so on and so forth. Human interconnectedness being more efficient has led to productivity boost. Same thing here when you’re talking about chips, quantum, so on and so forth. We should become more productive. ⁓ more efficient usage of capital dollars with those tools. So realistically, I think it should continue to improve. I don’t think there’s like a line in the sand where it’s like in 2050, we can no longer become more productive. So we become less productive, per se. I don’t think there’s a line in the sand like that. go back to the Super Bowl of 2000. Do you remember it? Was that the Rams? have no idea. It I just remember it was the year where all of the ads were all tech companies. And there was one particular ad that always sticks with me. ⁓ it was kind of a, a take on, ⁓ Who was the guy in the shower? Mother, the horror movie Bates Motel. It was the Bates Motel. It was a guy driving up to the Bates Motel. It’s raining. He gets out of his car. He goes into the, uh, the check-in area and he passes a pool and it’s nasty. And he says to the lady, um, at the registration, do you have any, uh, do you have any breakfast? And she kind of points behind him. and there’s like a half-eaten donut and a cup of coffee. And he says, well, do you have anything to do? And she kind of points out to the pool and there’s like a tire floating in the pool. And he says, well, do you have any entertainment? And she’s smacking her lips with chewing gum. And she says, every movie ever made in the history of the world in any language. And the screen goes black and it goes quest. And now 25 years later, you can get essentially every movie ever made in any language on demand. only took 25 years and 12 streaming services, 12 streaming services. Yeah. Maybe even more, maybe even more. ⁓ it’s just interesting, you know, and, and some of, some of my thought process is that the hype around artificial intelligence today may take longer. than the market is pricing in. It may not, but it’s the same type of hype around the internet and that Quest commercial from 2000 that really did take 20 years to go through. I don’t know that artificial intelligence is going to take 20 years. I don’t think it is. think productivity gains are already being felt across the region. The Challenger job report that I mentioned earlier, one of the citations that they put in there is that they thought a lot of those job cuts were done because of productivity gains being made by artificial intelligence and smarter software. So I don’t know that it’s going to take 25 years or 20 years, but I don’t know that it’s going to be next year either. Yeah. And the productivity will be there, whether it comes in two, three or five years, whatever, but will it exceed the expectations? Cause that’s what the market is going to look at. So whether we have a deflation or something in five or 10 years is going to depend on the extent if what our calculations you have analysts right now putting in what they think it’s going to do to the economy and to GDP, whether you know, they were too ambitious with their sort of targets or if they’re spot on or below will sort of depend how long the party will go on in the market. you mentioned inflation. ⁓ As we get close to the end here. We didn’t really talk about tariffs at all. So the tariff situation is now with the Supreme Court to decide the legality of tariffs. Could get messy because it’s looking like they’re going to at least shoot it down on the current emergency authorization act or whatever it was in the seventies. Well, Gorsuch came out and he called it a tax on Americans. ⁓ Chief Justice Roberts said that it puts too much power in the president. And to me, seems like there’s a consolidation of power in the executive branch that was doled out in the constitution to, ⁓ to the elected officials, right? Not, not just the executive branch, ⁓ to tax and spend. And so I, it seems to me from a constitutional standpoint and from what they’ve already kind of espoused, ⁓ the opinion wise and some of the, the back and forth between the attorneys and the justices, it may get reversed. What happens then? I think they’re going to try and rationalize a different reasoning under one of these still allowable. Yeah, but what are they going to do with all the tariffs that they’ve already collected? would have to, whichever ones they can validate under the other sources, under the other laws, they would have to remit back to the importers, I guess. It would be messy. I’m sure they’re going to try and find a loophole to get it listed under the other ones. ⁓ you know, so, ⁓ with the power Trump has, wouldn’t he lean on Republicans to say, we’ll pass a law then give me that power or you, or you vote that power. they still need 60 votes for that to pass a bill? I don’t think they need that to pass a regular bill. This is a, the 60 vote is CR. think they would need simple majority depending on I’m not a civics. ⁓ No, specialist. No. ⁓ But if that gets reversed, I mean, that’ll be a major blow to the White House. It would seems like a cluster to give the money back. Although it could be positive for earnings. You think it Yeah, would help companies I guess. Who paid that? Yeah. One time tax credit, you see them pop up in earnings and they’re insanely profitable. Well, I mean, yeah, Amazon and Walmart, I don’t think at one time would really do anything for the stock price. I mean, it’s not a repeatable. It’s not a repeatable process. Yeah. Well, you see how a one time tax bill charge hit meta. Yeah, they’ve gotten they’ve gotten really hit over the last. They’re the cheapest mag seven right now. Yeah. basis as we know not perfect. Not perfect. What do you have for us as we as we wrap up here? ⁓ Couple things. So November, the next six months starting in November, seasonally the strongest period for historical SMP 500 turns averages 7 % over that period. I think the win rates 76%. And all the all the strongest periods all sort of float around December. So but November starting with November is the strongest period. Two other pieces there was Goldman and Merrill Lynch CEOs who made headlines on Tuesday actually when the market had a rough day Saying which is super vague and I hate it I just laughed at and I know you’re you laugh at to you probably know I’m talking about they said basically we could definitely see a 10 to 20 percent pullback in the next 12 to 24 months On average every 1.6 years you have a 10 percent pullback like wow, thanks for that information guys But you know the headlines run with it as they do but sort of piggybacking off of that. Michael Burry again getting headlines because he’s going short Palantir and Nvidia. So I saw he had like 66 % of his portfolio in straight puts on Palantir, which he might be out of already. We don’t know. But and then 14 % short on Nvidia and then Palantir CEO ⁓ blew him up for he’s like, are you kidding me? You want a short chips? Are you kidding me? Well, I think the fact of the matter is, I you know, we don’t know when he put it on him. He might have said, I don’t know when he put it on. They are lower. Since that news came out. Yeah. I mean, could he could have sold already. could have could have covered. You don’t really know when people put that their trading information in public. You know, you don’t know. And you don’t know what is your he could have been short all year. And he just lost tons of money. And now he’s going to make some money on one trade. But Yeah, that’s just one of those they said they were quoting like an early 2024 tweet, I think it was where he was saying short the semiconductor stocks. Yeah, surprise even has any money left after that. Go for him. Yeah, not well. No, no, it didn’t. It didn’t go very well. Never never get yourself worked out. Oh, worked up over headline of what some hedge fund manager is doing. It’s not worth it. And on that note, I would just say, you know, maybe we’re are going to have more volatility to the end of the year. you said, you know, Santa Santa rally, possibly, ⁓ historically pretty strong. Maybe you are going to have more volatility. That’s not a reason to become emotional and to alter your course. ⁓ you know, whatever happens with tariffs, it’s not going to really impact the market over a long period of time. At least I don’t believe it is, you know, let’s just not get emotional in all this. I think that’s the key takeaway. Market’s gonna go down, they go up. I mean, obviously Liberation Day, right? We were down almost 19 % and you know, market’s up 15.5 % for the year. So let’s not get emotional. Let’s not bet against America. Everybody knows I always say that. And just try to keep your head on straight, right? Hey, for everybody at Good Life, thank you so much for listening to The Market Enthusiast. We will see you next time.
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The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a decision. Economic forecast set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
IIn Episode 48 of The Market Enthusiast, Noah Brooks and Chris Needs dive into the intersection of politics, profits, and perception as the year winds down. From Jamie Dimon’s $3 billion Manhattan headquarters and New York’s newly elected socialist mayor to shifting investor sentiment and stretched corporate margins, they unpack what’s really driving the markets beneath the surface.
Margins, Markets, and Mayors
Big Tech earnings continue to shine even as smaller companies lag. Noah and Chris discuss why corporate margins remain historically high, how they factor into today’s valuations, and what this divergence says about the underlying strength of the market.
A Socialist Mayor Meets Wall Street
New York City’s new leadership has investors talking. The hosts explore how political change in one of the world’s financial capitals could influence business confidence, taxes, and economic activity, and whether markets are as worried as headlines suggest.
Jobs, Layoffs, and Labor Participation
With recent layoffs making news and labor participation trending lower, Noah and Chris examine how the job market is evolving. They consider what these shifts might mean for consumer confidence and whether AI-driven productivity gains are masking deeper employment challenges.
The Power of Profit Margins
The conversation turns to valuations, comparing traditional price-to-earnings ratios with a deeper look at operating margins and cash flow. They argue that stronger profitability may justify current valuations — and debate whether innovation is pushing the ceiling even higher.
Innovation and Productivity
From the Erie Canal to quantum computing, Noah and Chris connect two centuries of innovation to the present day. They highlight how advances in technology and connectivity continue to reshape productivity, profit margins, and long-term market growth.
Tariffs, Shutdowns, and Government Gridlock
The hosts break down ongoing policy debates — from government shutdowns to Supreme Court discussions on tariffs — and how these political standoffs affect sentiment, trade, and global markets.
Key Topics Covered in This Episode
Corporate Margins — Valuations, profitability, and investor confidence
Political Change — New York’s socialist mayor and Wall Street reaction
Labor Market — Layoffs, participation, and AI-driven productivity
Innovation — Historical context and modern parallels
Policy Risks — Tariffs, shutdowns, and market stability
Investor Takeaways
1. Margins Still Matter: Strong profitability continues to support equity prices.
2. Politics Meets Profit: Market sentiment can shift quickly as policies change.
3. Labor Signals: Productivity gains may be masking softness in employment.
4. Innovation Endures: Technology continues to push long-term growth higher.
5. Stay Rational: Volatility and headlines come and go, but fundamentals persist.
Listen to the Full Episode
Full Episode Transcript
Welcome everybody to the market enthusiasts podcast. I’m Noah Brooks and obviously with me Chris Needs.
Hello, hello. Hey, we just had Halloween. What was the scariest thing for you for Halloween? Ooh, I don’t know what was the scariest. ⁓ My son was dressing up as ⁓ like a American soldier and then he ditched it last May because he didn’t like people were saluting him. he’s like, don’t I don’t like it. He switched up real quick. went into like He say it was Godzilla, but it was really just like a dinosaur. He’s not respecting the military Chris. He darn well better. ⁓ so I brought up Halloween. I’m a big candy guy, but this year I’m trying to not eat it. So obviously I brought all our extra candy into the office so you guys can eat it or other people other than me can eat it. yeah, that’s, that’s one of those. one of those things that I need to get away from. I’ve been trying to dodge taking the kids candy this year as much as I can. think I’ve only taken like 15 pieces. Normally it’s much worse. I had some skittles today. They were good. ⁓ So let’s start with some elections, right? So here we are. It is the beginning of November. I brought up Halloween. What do you think Jamie Diamond thinks the scariest thing about Halloween is? I think that he got a socialist mayor in New York City, the bastion of capitalism. Yeah, just finished that $3 billion building. And now he’s has to work with a socialist. So a self proclaimed democratic socialist. What’s the what’s the difference there? What’s just adding democratic make it better? Yeah, I don’t I don’t know. I don’t know if there’s any actual value to putting those two words together from a standpoint of what is believed. I’m sure if I asked the Internet, it would tell me. ⁓ I know that, you know, I think he won first off Cuomo, you know, Heather, some baggage there. ⁓ The other guy, the guardian angel, I don’t I don’t know that he’s. He’s a. Yeah, he’s an interesting character, but I don’t think there’s a lot of legs with him outside ⁓ the vigilante crowd. A lot in order. Yeah, yeah, something like that. And then you have this younger guy, I think he’s 34, 35, who’s talking to the youth of New York. And I don’t necessarily mean the youth of people in Manhattan. I think you pointed it out that he won large majority from the other boroughs. Yeah. not not in Manhattan and I’m not younger than me and he’s going to be the mayor with no prior experience to the mayor of New York City. It’s pretty amazing. What is in a sense what is his experience? have no idea. No idea. mean, he’s gonna become experienced real quick. Yeah. I mean, people are gonna step in to help him. Obviously, everybody wants the best for the city, whether they were, you know, agree with him on everything or not. But yeah, interesting. I hope he has a good team around him. he’s gonna have to Yeah, I mean, that’s a big job. Does the mayor of New York City, how much does he or she impact the daily lives of people that live in the city? I mean, they kind of already had a socialist I would say build a blase. It was pretty darn close to a socialist. But I mean, I think ⁓ most of the tax reasons have to be approved by the governor. Kathy Hokel has expressed in the past she does not want to raise taxes on just the wealthy per se. don’t know everything behind that, but she signaled that. So he’s going to have to work with them a little bit. He has some ambitious goals, ⁓ childcare, universal childcare, free bus transportation, some of those things, which will definitely require some funding. Well, I mean, we live in the freezes as well. Yeah. We live in the sticks comparatively to, ⁓ to New York city. mean, I enjoy being a tourist there, but it would be difficult to find a place to live. And honestly, I don’t travel to the other boroughs like Manhattan itself, the Island. ⁓ And I go there as a tourist as you know, millions of other people do every year, but I couldn’t imagine having to try to find, especially as a young person. I mean, it’s hard enough here in Pennsylvania to try to find a starter house in Manhattan. Like that’s not a thing, right? Yeah, I don’t think so. You got to be a millionaire to buy a one bedroom if I’m not mistaken. Seems a little that’s a little bit scary. And that’s probably why he won. Right. ⁓ I think we were talking about it. ⁓ rent controlled apartments. And the idea of rent control kind of decreases the mobility, right? Because nobody wants to leave. Yeah. So I mean, it’s double edged sword like the people who are in the houses get that rent control, they don’t get the annual or biannual, you know, increases. ⁓ But it’s a double edged sword because then you have people who own the properties, they’re not going to put, you know, a million dollars into those buildings for upkeep if they can’t increase their rent, they’re not going to build new buildings and, you know, do that kind of stuff if they’re capped at what they can charge. And like you said about mobility, those people, you know, they can’t leave those those prices because the prices are insane. There is an affordability issue in the cities. Everyone’s aware of that. And then people who want to come in, maybe they get an awesome job, they get hired in that new beautiful JP Morgan building, and they want to move into Midtown or something like that. And there’s no houses for them because no one will leave their houses. It’s you know, we were talking similar to like myself being stuck in a very low interest rate house, which is amazing. But if I wanted to move, it’s going to be cost. It’s going to be tough. Yeah. There’s no question about it. Um, well, so hopefully you don’t have to move anytime soon and, and maybe rates will come down a little bit. It doesn’t seem like they’re moving too much lower. They’re still in the, uh, low sixes, six 26 or something like that today. And, and we’re sitting here in the beginning of November. Obviously we just had this election that we’ve been talking about. Uh, October was an interesting month. Um, a little bit bifurcated. had some large caps that ⁓ outperformed the NASDAQ was up almost 5%, I think 4.65 for the month, but you had small caps that were down for the month, mid caps that were down for the month value was up maybe a half a percent. So it’s still the same companies that are moving and obviously having a little bit of a pullback today, ⁓ maybe a half a per one and a half percent ⁓ at the lows. ⁓ it seems to me there might be a little shift in investor sentiment though. Like you said, with how bifurcated it really is those top 10 companies which make up about 40 % the S &P 500, you know, they’re performing and you know, the averages don’t look terrible per se. But underneath, there’s a lot of companies not doing well, mentioned small and mid caps. So there’s going to be a lot of days where the index doesn’t do much and everything beneath the surface looks rough, like the breath isn’t that great. And alternatively, in the future, we’re gonna inevitably have days where the underneath companies, the other 60 % do well. But those mega caps don’t perform and then the index looks like it’s awful. won’t notice it, right? Right? Yeah. No, I mean, honestly, like you won’t notice it from if you’re just looking at the SMP, you look at the other indices, you’ll probably see it. But I mean, you can have 300 companies in the S &P 500 go up a full percent and you just need 10 of them to go down a percent and it wipes all that out plus. Yeah, it still ends negative for the for the day. We’re we’re in the midst of earning season. So it is an exciting time. I drive down some numbers here that I thought were just very notable. So earning season has been largely good. You had some stats on that. Yeah, facts that reported 83 % of the S &P 500 companies reported earning surprise. 80 % of them have reported a positive revenue surprise and that’s only about 65 % have actually reported yet. still, we’re still, they’re still coming. So that’s really positive. What I don’t have is the data on how much of that is represented by those, those big those big names, right? I have a couple of the big names. yeah, yeah, let’s see. So I’m just going to emphasize like the scale we’re talking about here. So Google, their first $100 billion revenue quarter, big number, yeah, Microsoft 78 billion in revenue in the quarter, Amazon 180 billion in the quarter stock really jumped ⁓ AWS didn’t slow down as much as you know, they were forecasting. So they obviously have a dominant market share, but it’s been slowly bleeding away. We didn’t see that that quarter. So they really jumped and popped off that, ⁓ meta 51 billion in revenue in one quarter. They did have a one-time tax charge of 16 billion, which is just a one-time thing really hurt their profitability. then, Zuckerberg has totally done away with the year of efficiency from two years ago and they’re doing massive capex. Their stock slumped on that. much of that meta revenue is from advertising? gotta be like 80 % of it. What I mean, I’m not a Facebook guy. But other than capturing maybe a portion of sales that that are sold on Facebook, like, there’s that much ad revenue on there. Do ever just talk about something and then boom is popping up in there? Yeah, they’re listening. I don’t like they’re selling that right away. So in your info, I don’t like that one bit. Yeah. I don’t like that one bit. You know, I think the big difference between some of those companies that you talked about is you said 151 billion for Amazon and Google just had their first hundred billion dollar quarter. But the profit margin on an Amazon versus a Google is pretty, very, yeah. Yeah. Really different, right? I think, ⁓ I think Amazon’s was about 11 to 12%. I think that’s what their profit margin was. I don’t have a job down here, but, Yeah, Google is higher than that. Obviously they have the low margin business on retail where they’re basically almost like a third party seller now and they just own the marketplace and take a little slice. AWS has good margins. yeah, no question about it. But that’s being balanced out by their more revenue, you know, done on the retail side. Yeah. So we’re obviously, everybody’s looking for information, looking for data to try to figure out what’s going on in the economy. And we are now on day 37 of the shutdown. So tomorrow, Friday the seventh, we should be getting the jobs report and it’s not happening. ⁓ so everybody’s, you know, got their microscopes on and their binoculars out and trying to ascertain what’s going on, ⁓ from an employment standpoint, let alone all the other data that we’ve missed. So this week we’ve had the challenger jobs report come out. which showed, ⁓ layoffs. Now it doesn’t aggregate everything. It doesn’t show how many were added and how many were taken. It just shows the layoff number. It was, ⁓ essentially, ⁓ 159,000 layoffs were reported in October, which is up 177%. I mean, it was 55,000 last October. So, you know, some of that is bleeding over to today’s market. don’t, you you don’t know what, It’s going to happen even at end of the day, let alone tomorrow. ⁓ but I think the more of that type of data that comes out, you’re going to find that sentiment shift maybe a little bit higher because the big tech names can still have tremendous earnings. But if we’re losing jobs, if the total number of people in the United States, ⁓ or the total number of employed people is going down, that’s probably not a longterm positive. Yeah, labor participation has been trending downwards, but there we were recovering after COVID for a while. And it seemed to turn the other way. It was hoping it was going to keep going up and, you know, get back to where it was. But we’re trending back down on labor participation and you see all these other jobs will, I don’t know if we’ll call them middle, middle manager type jobs or maybe middle consultant type jobs, white collar jobs where think about what’s going on DC and everything. where they’re utilizing more software rather than consultants. Now you’re seeing a lot of them lay off ⁓ what are by all accounts probably high compensation jobs. So it’s hitting multiple areas. It’s not just necessarily, it’s not like just lower income people are getting hit on layoffs. It’s also hitting the middle section. ⁓ Amazon was laying off a bunch of middle managers we’ll say or corporate jobs. Yeah, what 29,000 2727. That’s a that’s a that’s a big number. Now as a percentage, I don’t think it’s a big number. But it’s still on the aggregate. It’s it’s a big number. So I said we’re in day 37 of the shutdown, Chris, what do think it’s gonna take to get this resolved? They have to either promise that they’re going to in good faith negotiate, but there’s no trust anymore. There is no trust. So I think they’re just going to have, Republicans are going to have to give up some dollars and fund ACA subsidies for some amount of time that will be appease essentially Democrats. And then maybe they’ll come and sign the CR, but we’re running out of time on the CR. Like that was, it’s only good for like another two weeks or something like that, even if they signed it now. it seems to me, and I don’t want to be too negative on this, but it seems to me that the Democrats are kind of backed into a corner. And what I mean is you have the Republicans to control both houses of Congress and obviously the White House. And so this seems to be one of the last ⁓ muscle flexes that you can have on the Democratic Party. mean, they’re kind of clinging to any power that they have. And quite frankly, they’re, you the White House is a freight train moving along at a really big, big clip and so if this is one of the few remaining power power positions that they can take and leverage points that they can take there’s 53 ⁓ Republican senators and only 47 so they need seven Democrats to vote with them to really do anything with the filibuster at 60 votes ⁓ We could talk about that in a second. But so this seems like I to say a last gasp but it So it’s over these ACA Affordable Care Act subsidies that were put in place after COVID, or shortly after COVID, which equates to roughly $41 billion a year. ⁓ It’s a lot of money to you and I, but it’s a routing error to the federal government. it’s really a sticking point. I mean, we just, we gave $20 billion to Argentina the other day. $41 billion. I don’t know. It doesn’t. And it would be staying here at least, you know? Yeah. So I think something’s got to give. mean, I said the last time we were sitting here, uh, the reason that the last shutdown ended was because travel got all sorts of discombobulated and TSA workers were calling out. And essentially when the American public is trying to travel, uh, and you know, you see lots of lines and flights canceled. mean that just people start maybe calling their, their elected officials. Now I just came back. ⁓ you didn’t have any issues and have any issues. I flew down to Orlando and back in a matter. Well, stayed two nights, Philadelphia airport on Monday, four and a half minutes in T S T S eight line. And yesterday around, ⁓ four 30 in the afternoon. So Wednesday afternoon at Orlando, I was literally the first person in the TSA line. That’s why because I feel like more Monday morning you would or did you fly out Tuesday morning? No, you’re out Monday morning. Monday, you would think that’s when business commuters are going. I know business Monday after Monday afternoon, Monday afternoon, but there was nothing going on. Philadelphia Airport, easy peasy Orlando Airport, which in my experience, I’ve had a lot of wait times at TSA in Orlando, there’s nothing going on now. I did have a little bit of a kerfuffle yesterday. he wouldn’t tell me this before the podcast. So I’m going to be in. I’m interested to hear this. So I the flight was delayed. There was something going on. The incoming flight was coming from LA. So we were delayed maybe about 40 minutes. I had a zoom call. And I don’t normally make zoom calls at eight o’clock at night. But there was something important that we had to get done. And I told them that I would be late and I, you know, get on when I got on. So it was yada yada yada. I leave the airplane. I go into the Philadelphia airport and I thought, well, I’m just going to take it from here. So I’ll just find, ⁓ you know, a gate where nobody’s at and I’ll take it from here. So I grabbed the laptop, open it up. I get on the call. call last about a half hour. So it was maybe like 9 15 or 9 20 and I’m wearing my Bose headphones for the call and grab my stuff, pack it all up. And I start walking out and I call my wife, call Alish and I’m talking to her. And then I call one of the people that was on the call and we discussed what happened. All right, no problem. I’m in the car. I’m driving home. I get home. have my backpack. I turn around to grab my luggage. I left my luggage somewhere. No, I left. So I either left it on the plane, which I don’t think is possible. I think more likely is that I left my luggage at the gate where I was on that zoom call. And when I was packing up my laptop and putting everything away, I just grabbed my backpack. They probably think that’s a bomb threat. Like they brought like. So I called. I called the land securities, checking your bag out. Yeah, I called. Philadelphia lost and found and they were like, no, I don’t have anything here. It might come. And then I called American and they said, well, file a claim. ⁓ My Sonicare toothbrush is in there. Like seriously. So yeah, that I, that was, that was interesting to say to get home and not have my luggage. was the Catherine Bigelow movie with the bomb detonator? I’m just thinking of who’s a germy runner. think going up to your bag. Yeah. So that happened. So, ⁓ this guy was working on his laptop and then ditched his bag. As far as the shutdown goes and TSA, I didn’t see anything that’s, ⁓ I mean, anecdotal to me, but obviously Atlanta yesterday, I think there was like four and a half hour lines for TSA and EWR Newark was shut down for a number of times in the last week. Sean Duffy said they are going to over the next couple of weeks, the head of transportation. ⁓ the somehow decreased 10 % of flights at major airports. It’s not every airport. didn’t see Philadelphia was on it. But like the majors are on it. was a list of 40 put out that I read this morning. I don’t know. What do they do? They just say they call up the airlines and they say, Hey, we need to cut 10 % of your flights like, sorry, your gates no longer open. can’t rent that to you. So I think this goes a little bit deeper because this happens. regularly when the government shut down. Not that the government shuts down regularly, you’re putting not just TSA, but you’re putting, ⁓ you’re putting people at risk from the, the flight operators, from the flight controllers. And it seems to me that they should do something a little bit different instead of it being a federal organization. I don’t want it as a private organization. ⁓ but maybe there should be like a nonprofit. that instead of instead of being funded through the government, it’s just funded from a usage tax. Right? Like as people fly, that’s what they do in Canada. And you would never have a shutdown of impact flights. like a quasi government like Fannie Mae, even though they’re no, no, no, no, no, it’s just it’s just a nonprofit. And there’s a, you know, there’s a head of think of like, Finra is like, member funded. don’t know. Finner is kind of shut down. it the SEC? They’re only doing SEC is but Finner is a self regulating authority. Self regulating. Yeah. Where does Finner get their funding from the trade transactions? Member fees? ⁓ Well, when you look at a confirm, it always has the Finner fee on there, right? I think that’s where they get a lot of it. All our trades out all the trades they do go go to that a little bit. ⁓ But yeah, I mean, it’s it’s one of those things where there’s real safety involved. You know, the FAA shouldn’t be impacted by our elected officials not being able to come. be non discretionary and like, yeah, get the money regardless. Yeah. So that brings me to another thing. Did you happen to see the plane crash? This was not because of the government shutdown. I don’t want to make any, ⁓ Yeah, the plane never got off the ground. Yeah, it was like a well it was in the air. It was in the air was UPS plane 31 year old UPS plane. And there’s this video I think we can get it up on here. A video of the plane coming down and it’s landing there’s a like an Amazon driver or FedEx driver maybe he was even a UPS driver watching this plane come down in flames. And it looked like a scene from you know, it looked like a scene from a clip I saw. didn’t even know it was in the air. I thought I was trying to take off and just never took off. But yeah, the fireball was insane that the video we were looking at there was like a delivery worker in his vehicle watching the fireball come towards him. And then he finally ran. I’m like, I would have been out of there 15 seconds ago. I mean, what are going to do? You see this massive plane in front of you is probably only a two or three or 100 yards away. You said fireball. That’s like the the the asteroid out there. ⁓ boy. Three IA Atlas. It’s kind of creepy. It’s it’s interesting though. I’m trying to ignore it as much as possible, but we have a lot of conspiracy theorists around us talking about it. Maybe. Maybe. Yeah. There’s no question about it. But the the what I’m seeing is that there’s people that are going down a rabbit hole on social media over it and even younger kids. I mean, 10 year olds and 15 year olds that are going down this rabbit hole. ⁓ it’s 260 million miles away and it’s supposed to bypass us completely. It’s not even going to be close to us. And people are kind of going apeshit about it. I don’t, I don’t get it. You watch interstellar. They’re just us from a future time went through a wormhole coming back to wave. worked with a kid 30 years ago that used to say aliens were actually us in the future coming back. That’s I’m going with interesting character, interesting character. ⁓ so let’s go back to earnings for a little bit. We have valuations that we know are stretched earnings seem to be good. ⁓ PE can always continue to go higher, but we were having a conversation earlier this week about not necessarily priced earnings ratio, but the margins. Yeah. So when you’re looking at price earnings ratio, doesn’t take into it only takes the current stock price and their current earnings, which any company can manipulate their earnings. not saying manipulate like SEC fraud, but they reinvest in their business. they can, they control what goes through to net income and what they get taxed on. ⁓ So if you actually look at either something like operating or free cashflow, or simply look at the profit margin, account for that I was making the debate that if you adjust for the profit margins we’re seeing right now which are historically high, we’re not nearly as overextended on evaluation basis as if you just look at PE alone. And I stand by that. Yeah, we were talking then we went to the the CAPE ratio and that’s I pulled some stats that we are debating. So the CAPE ratio is the 10 year cyclically adjusted price earnings ratio. So they just smooth it out over 10 years. And over that 10 year period, the average profit margin was 12.3%. Very good. That is also historically high from what we could find looking backwards. Don’t have a definitive stat to quote on like a longer term average. But right now we’re at 14.5%. Yeah. So. higher margins. Generally, if you’re a more profitable business, this is an aggregation of companies, obviously. But if you’re a more profitable business, you should probably get a higher valuation. Obviously, you have to account for expected future performance. But if we’re just zeroing down and filtering down looking at this snapshot of well, you know, we’re 17 % more profitable than we were, we should have some sort of premium on the valuation. Well, don’t you think we do have a premium? We do. definitely do. So my point was saying is, yes, we’re certainly valued at a premium right now, but it’s not as much as you think just looking at that P, which is a very simple measuring tool. Yeah. It seems to me that all of these, ⁓ well, the profitability of companies has gone up with innovation with different types of innovation and October. I don’t know another day, but October marked the 200th anniversary of the Erie Canal, which now is used for kayaking and, you know, houseboats or something like that. River boats recreation. Yeah. Rec recreation. But 200 years ago when it was open, ⁓ what it did was it, it really allowed New York city to become a hub. And so imports from Europe, instead of going all over the United States, they were Boom, they all came, not all, but about 70 % of imports that came in at the, in the, at the opening, the first 10 years of it came into New York city. And it was much lower in the beginning because it was spread out throughout the East coast of the United States. And so, ⁓ instead of going to Baltimore, Boston, Philadelphia, ⁓ Savannah, it all started coming into New York and it really opened up and it made New York the powerhouse that it was. that transportation. ⁓ Communication and transportation is that innovation that just allows things to move faster and have, well, let’s say higher margins. ⁓ I was looking at this and I was thinking, well, when was the first telephone call from the United States to Europe? ⁓ The first call wasn’t, let’s say a landline telephone, but first call ⁓ somewhere around 1927. was a radio call. And in those dollars, not today’s dollars, but in those dollars, it 75 bucks for the first three minutes. It’s a lot back then. Yeah, a lot in 1927. Um, the first actual physical line that was put throughout the Atlantic to connect New York and, and England or to London, uh, didn’t take place until 1956. It only had the capacity of 36 lines phone calls at one time. Ailish’s family obviously lives in England and it used to be a really big thing to be able to get an international phone call, whether to make one or to take one. And now it doesn’t matter on our cell phones and doesn’t mean anything because we have this fiber going back and forth. It seems to me that all of these advancements in transportation and technology just makes the entire world more efficient and productive. And so is it possible that as the advancements continue and whether this is, you know, faster planes that are allowed to break the sound barrier, whether this is quantum computing and more information being around, is it possible that the profit margins, let’s say in the S &P 500 or the Russell 3000, that they just continue to grow over time or is it an anomaly at the moment? No, I think it’s a trend we always been working for, as you mentioned, talking about canals and railroads and then cars and trucks, internet, you know, so on and so forth. Human interconnectedness being more efficient has led to productivity boost. Same thing here when you’re talking about chips, quantum, so on and so forth. We should become more productive. ⁓ more efficient usage of capital dollars with those tools. So realistically, I think it should continue to improve. I don’t think there’s like a line in the sand where it’s like in 2050, we can no longer become more productive. So we become less productive, per se. I don’t think there’s a line in the sand like that. go back to the Super Bowl of 2000. Do you remember it? Was that the Rams? have no idea. It I just remember it was the year where all of the ads were all tech companies. And there was one particular ad that always sticks with me. ⁓ it was kind of a, a take on, ⁓ Who was the guy in the shower? Mother, the horror movie Bates Motel. It was the Bates Motel. It was a guy driving up to the Bates Motel. It’s raining. He gets out of his car. He goes into the, uh, the check-in area and he passes a pool and it’s nasty. And he says to the lady, um, at the registration, do you have any, uh, do you have any breakfast? And she kind of points behind him. and there’s like a half-eaten donut and a cup of coffee. And he says, well, do you have anything to do? And she kind of points out to the pool and there’s like a tire floating in the pool. And he says, well, do you have any entertainment? And she’s smacking her lips with chewing gum. And she says, every movie ever made in the history of the world in any language. And the screen goes black and it goes quest. And now 25 years later, you can get essentially every movie ever made in any language on demand. only took 25 years and 12 streaming services, 12 streaming services. Yeah. Maybe even more, maybe even more. ⁓ it’s just interesting, you know, and, and some of, some of my thought process is that the hype around artificial intelligence today may take longer. than the market is pricing in. It may not, but it’s the same type of hype around the internet and that Quest commercial from 2000 that really did take 20 years to go through. I don’t know that artificial intelligence is going to take 20 years. I don’t think it is. think productivity gains are already being felt across the region. The Challenger job report that I mentioned earlier, one of the citations that they put in there is that they thought a lot of those job cuts were done because of productivity gains being made by artificial intelligence and smarter software. So I don’t know that it’s going to take 25 years or 20 years, but I don’t know that it’s going to be next year either. Yeah. And the productivity will be there, whether it comes in two, three or five years, whatever, but will it exceed the expectations? Cause that’s what the market is going to look at. So whether we have a deflation or something in five or 10 years is going to depend on the extent if what our calculations you have analysts right now putting in what they think it’s going to do to the economy and to GDP, whether you know, they were too ambitious with their sort of targets or if they’re spot on or below will sort of depend how long the party will go on in the market. you mentioned inflation. ⁓ As we get close to the end here. We didn’t really talk about tariffs at all. So the tariff situation is now with the Supreme Court to decide the legality of tariffs. Could get messy because it’s looking like they’re going to at least shoot it down on the current emergency authorization act or whatever it was in the seventies. Well, Gorsuch came out and he called it a tax on Americans. ⁓ Chief Justice Roberts said that it puts too much power in the president. And to me, seems like there’s a consolidation of power in the executive branch that was doled out in the constitution to, ⁓ to the elected officials, right? Not, not just the executive branch, ⁓ to tax and spend. And so I, it seems to me from a constitutional standpoint and from what they’ve already kind of espoused, ⁓ the opinion wise and some of the, the back and forth between the attorneys and the justices, it may get reversed. What happens then? I think they’re going to try and rationalize a different reasoning under one of these still allowable. Yeah, but what are they going to do with all the tariffs that they’ve already collected? would have to, whichever ones they can validate under the other sources, under the other laws, they would have to remit back to the importers, I guess. It would be messy. I’m sure they’re going to try and find a loophole to get it listed under the other ones. ⁓ you know, so, ⁓ with the power Trump has, wouldn’t he lean on Republicans to say, we’ll pass a law then give me that power or you, or you vote that power. they still need 60 votes for that to pass a bill? I don’t think they need that to pass a regular bill. This is a, the 60 vote is CR. think they would need simple majority depending on I’m not a civics. ⁓ No, specialist. No. ⁓ But if that gets reversed, I mean, that’ll be a major blow to the White House. It would seems like a cluster to give the money back. Although it could be positive for earnings. You think it Yeah, would help companies I guess. Who paid that? Yeah. One time tax credit, you see them pop up in earnings and they’re insanely profitable. Well, I mean, yeah, Amazon and Walmart, I don’t think at one time would really do anything for the stock price. I mean, it’s not a repeatable. It’s not a repeatable process. Yeah. Well, you see how a one time tax bill charge hit meta. Yeah, they’ve gotten they’ve gotten really hit over the last. They’re the cheapest mag seven right now. Yeah. basis as we know not perfect. Not perfect. What do you have for us as we as we wrap up here? ⁓ Couple things. So November, the next six months starting in November, seasonally the strongest period for historical SMP 500 turns averages 7 % over that period. I think the win rates 76%. And all the all the strongest periods all sort of float around December. So but November starting with November is the strongest period. Two other pieces there was Goldman and Merrill Lynch CEOs who made headlines on Tuesday actually when the market had a rough day Saying which is super vague and I hate it I just laughed at and I know you’re you laugh at to you probably know I’m talking about they said basically we could definitely see a 10 to 20 percent pullback in the next 12 to 24 months On average every 1.6 years you have a 10 percent pullback like wow, thanks for that information guys But you know the headlines run with it as they do but sort of piggybacking off of that. Michael Burry again getting headlines because he’s going short Palantir and Nvidia. So I saw he had like 66 % of his portfolio in straight puts on Palantir, which he might be out of already. We don’t know. But and then 14 % short on Nvidia and then Palantir CEO ⁓ blew him up for he’s like, are you kidding me? You want a short chips? Are you kidding me? Well, I think the fact of the matter is, I you know, we don’t know when he put it on him. He might have said, I don’t know when he put it on. They are lower. Since that news came out. Yeah. I mean, could he could have sold already. could have could have covered. You don’t really know when people put that their trading information in public. You know, you don’t know. And you don’t know what is your he could have been short all year. And he just lost tons of money. And now he’s going to make some money on one trade. But Yeah, that’s just one of those they said they were quoting like an early 2024 tweet, I think it was where he was saying short the semiconductor stocks. Yeah, surprise even has any money left after that. Go for him. Yeah, not well. No, no, it didn’t. It didn’t go very well. Never never get yourself worked out. Oh, worked up over headline of what some hedge fund manager is doing. It’s not worth it. And on that note, I would just say, you know, maybe we’re are going to have more volatility to the end of the year. you said, you know, Santa Santa rally, possibly, ⁓ historically pretty strong. Maybe you are going to have more volatility. That’s not a reason to become emotional and to alter your course. ⁓ you know, whatever happens with tariffs, it’s not going to really impact the market over a long period of time. At least I don’t believe it is, you know, let’s just not get emotional in all this. I think that’s the key takeaway. Market’s gonna go down, they go up. I mean, obviously Liberation Day, right? We were down almost 19 % and you know, market’s up 15.5 % for the year. So let’s not get emotional. Let’s not bet against America. Everybody knows I always say that. And just try to keep your head on straight, right? Hey, for everybody at Good Life, thank you so much for listening to The Market Enthusiast. We will see you next time.
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The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a decision. Economic forecast set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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