The Compound and Friends: How to Pick Stocks Like Morgan Stanley With Dan Skelly
On episode 258 of The Compound and Friends, Downtown Josh Brown and Michael Batnick are joined by
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The Compound and Friends: How to Pick Stocks Like Morgan Stanley With Dan Skelly
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On episode 258 of The Compound and Friends, Downtown Josh Brown and Michael Batnick are joined by Dan Skelly, Portfolio Manager at Morgan Stanley Wealth Management, to discuss the resilient U.S. economy, record earnings growth, the AI spending boom, Nvidia and Broadcom, whether today’s data center buildout looks anything like the dot-com bubble, the rotation out of semiconductors, the return of healthcare and financials, risks facing small-cap stocks, why the Mag 7 could lead again in 2027, AI’s impact on corporate productivity and profit margins, the strength of the American consumer, stock-picking in an increasingly efficient market, and much more!
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Transcript
Josh Brown: So this is going to be fun. How you, how long have you been at, at Morgan?
Dan Skelly: 21 years out of college. Only feels like 20.
Josh Brown: Wow. So what office do you work in?
Dan Skelly: At the moment, 757 Ave, but on my way back to 1585 Broadway.
Josh Brown: They move you guys around, they move
Dan Skelly: us around, they keep the real estate moving.
Josh Brown: Okay.
Dan Skelly: But as you probably well know, 55 has gone through like a five year construction.
Josh Brown: Yeah.
Dan Skelly: So some of us were kind of off grid, as I call it.
Josh Brown: Yeah.
Dan Skelly: Or this will be my third time going back to 1585 in 21 years.
Josh Brown: Wow.
Dan Skelly: And I always say everyone loves a trilogy, so that's my mantra.
Josh Brown: So Morgan Stanley is so big that whenever I meet a financial advisor from there, I ask them about other financial advisors that I know in New York and they never know each other.
Dan Skelly: That's wild.
Josh Brown: But that's the size of the firm. I'm saying 100%. Right. Because there's so many different offices and it's just, I mean, I, I've said this, you don't have to agree or disagree, but I have said Gorman was incredible as a CEO, as a visionary.
Dan Skelly: Yep.
Josh Brown: And that's why is it 20 trillion now? Do you know?
Dan Skelly: Just, just under that. Yeah. Between wealth and MSM.
Josh Brown: Yeah.
Dan Skelly: Yeah. It's something like 16, $17 trillion.
Josh Brown: So basically stealing Smith Varney. Brilliant move.
Dan Skelly: Yes.
Josh Brown: During the, during the height of the
Dan Skelly: crisis phases, like really well executed joint venture.
Josh Brown: Then we'll take a third. We'll take another third.
Dan Skelly: Fine.
Josh Brown: We'll take the whole thing. Buying E Trade, the Morgan Stanley at work platform is a lead generator.
Dan Skelly: My opinion, I think that's the key.
C: Yeah.
Dan Skelly: That's like. That was incredible.
Josh Brown: Yeah. So I mean it's, it's. And you were there, you were there. You watched the whole thing happen.
Dan Skelly: Watched the whole thing. When I started Josh in 05, wealth as a percent of overall revenues was 8% of the firm. And pro forma, for all the different deals you just alluded to, it's like 60% of the firm's revenues now. Now, I'm Dan Scott.
Josh Brown: Oh, I'm sorry.
Dan Skelly: Good to see you.
Josh Brown: So right. So I think what was the guy before Mack?
Dan Skelly: John Mack. John Mack.
Josh Brown: So I think John Mack understood the value of. Let's go more heavily into advice. But Gorman actually executed it.
Dan Skelly: Absolutely. And John was the one who went out and found James, who was at Merrill at the time and had really revamped Merrill's wealth business. And James prior to that, as you probably also know, was a McKinsey consultant. So he brought this strategic consulting background as well. And you said it like, sometimes timing's everything. So he had the strategy, the timing, the pricing, and, you know, the multiple and the rerating has come together since that point.
Josh Brown: Yeah. I wonder if there are still Smith Barney guys walking around saying, I was Smith Barney, I was legacy Smith Barney.
Dan Skelly: You're looking at one. So quick story, quick story for you. In college, sophomore year, I interned at a financial advisor's office at Smith Barney. My junior year, I had like one of these official analyst programs at MSIM, actually high school. Hired into wealth in 05 full time. So after the merger, depending on what office legacy branch I would go into, I was either a Smith Varney guy or a Morgan Stanley guy. Very strategic.
D: Right.
Josh Brown: And then there were also Morgan Stanley Dean Witter guys.
Dan Skelly: 100% predating this from 97. Yeah. All right, well, so it's been quite a evolution.
Josh Brown: Yeah, it's a cool front row seat that you've seen.
Dan Skelly: Thank you, Josh.
Josh Brown: I appreciate it. To see that all develop. How we looking, guys?
C: Headphones on, everybody.
Josh Brown: Oh, yeah, Headphones on.
Dan Skelly: Mute your devices. Okay. To have my devices on my person. Okay, thank you.
Josh Brown: All righty.
C: Yeah.
Josh Brown: Let me.
C: Wait.
Josh Brown: Let me. Let me. Do not disturb.
Dan Skelly: Do not disturb.
Josh Brown: Combine friends. I think I'm doing that right.
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Dan Skelly: All right, thank you, John.
Josh Brown: Oh boy, what a treat this is gonna be. This is gonna be a very. I'm feeling like this is gonna be a very special episode. Nicole's nodding her head yes. John's saying thumbs up. All right, guys, we are coming to you live from Bryant park in New York City. This is America's favorite investing podcast. It's called the Compound. And friends, first time listeners, we appreciate you coming by. Longtime. Thank you guys so much. We have a very special guest today. First time, first appearance here on the Compound. His name is Dan Skelly. Dan is a portfolio manager of Equity. Wait, what is Equity Maps?
Dan Skelly: Clear that up for me. Portfolios. We have a lot of acronyms. Morgan Stanley. So it's an SMA portfolio.
Josh Brown: Portfolio manager of the Equity Maps at Morgan Stanley Wealth Management where he oversees the Equity Model Portfolio team and thematic research project products including Alpha Currents. They love that US Policy pulse. He is lead portfolio manager for the US Model and Dividend Equity Strategies, part of a suite of eight long only SMAs. He has spent his entire career at Morgan Stanley starting in 2005 as his associate in the research division. He's a regular on cnbc. Squawk Box and Closing Bell over time. Ladies and gentlemen, please Say hello to Mr. Dan Skelly. Thank you, thank you, thank you. The crowd almost cannot be contained. All right, tell me about the Squawk appearances. I watched two of yours recently. You Do a pretty good job there. Do you like doing television? Do you like getting the firm's views out to the public?
Dan Skelly: I love it. And look, I think it's become, in this kind of media technology intersection, it's become table stakes for kind of what we do. Right. And so remember my first appearance on cnbc was a 6am slot in the summer of 2015, and it was with Becky, Joe and Andrew. And, you know, it was, I would say it was touch and go to begin. And, you know, as you know, from having done this world for so long, over time, you get your feel for it, you get your, your groove. And it's been really fun to do it over the years.
Josh Brown: I spent a year doing the 5:00am oh, and I asked, I asked, I asked the, the host, like, who, who are we talking to? And she said, basically, Singapore.
Dan Skelly: Yeah. Asia markets.
Josh Brown: I said, all right, let's do it. All right. Thank you so much for coming here.
Dan Skelly: Thanks for having me, Josh. I'm excited.
Josh Brown: So, as we mentioned prior to officially starting the show, you sit in a really interesting seat at one of the largest firms on Wall street, one of the largest asset managers in the world, quite frankly. I wanted to get your take just overall on the current environment. There's a little bit of a push pull right now. I think a lot of the investing public professionals and retail investors have arrived at this point where they almost have learned that they can't afford to pay attention to the news anymore because it's almost all negative. And every time they get carried away with one of these negative narratives, they miss the next 20% in the S and P. How do you help people with that? Kind of like, you know, all right, I know the news is bad, but the stocks keep going up either way. Like, how do you help people with those two opposing ideas?
Dan Skelly: Yeah, absolutely, Josh. And candidly, aside from this podcast, of course, we often advise and counsel a lot of, you know, normal retail investors to turn it off. Like, just stop paying attention every moment of the day. And what's interesting is, except when you're
Josh Brown: on, then keep it on.
Dan Skelly: No doubt.
Josh Brown: Got it.
Dan Skelly: Or you.
Josh Brown: I say the same thing.
Dan Skelly: Exactly. So, look, I mean, I think a lot of. And the other additional biography piece I would just add to is I'm a member of the firm's asset allocation committee, which is called the Global Investment Committee. And in that effort, right away from my day job picking stocks, we're really focused on long term, compounding diversification. And as you well know, better than anyone, the last decade plus maybe Prior to even the last few months has been all about concentration. And now the market, of course, is broadening. And we're all talking about broadening as per the last several months. But at the end of the day, we've tried to counsel our clients to stay focused on their goals, stay focused on their risk tolerance, which at times a lot of people who've made wealth, as you also know, in a concentrated fashion via entrepreneurship or starting coming up with a innovation technology or something really kind of innovative, they're used to taking risk in a concentrated fashion. It may not be the most preferred way to stay wealthy over time. And so having that diversified bent is always top of mind for us.
Josh Brown: Okay, do you think more people are worried about the next correction or more people are worried about missing out on S&P? 8,000, Dow 60,000? Like, where do you think the bigger fear is at the moment?
Dan Skelly: It's fun, it's interesting timing of that question. If you had asked me that back in May or June, it was definitely fomo, definitely missing out. I think the rotation and some of the implosion and some of that first half momentum leadership that we've, that we've experienced definitely has rebalanced that feeling, that sentiment. And so today I think it's more balanced. I don't think it's really one way or another, but earlier in the year, it was absolutely fear of missing out.
C: I think if you asked, people took a poll, next 10% move, I think it'd be close to 50. 50.
Dan Skelly: Yeah, I think you're right. I think you're right.
Josh Brown: And in May it would have been like 70, 31, 100%.
Dan Skelly: Absolutely. And what I would say is, you know, look, we've kind of coined this phrase that the markets and certainly the
C: economy halo was that you guys, not us.
Dan Skelly: We can't come with halo.
Josh Brown: That was me.
Dan Skelly: That was you. Or Kramer, I think dovetailed off you,
Josh Brown: but he's welcome to do that.
Dan Skelly: All right, so what I would say is we've come up with this observation, this realization as of the last year really, that the economy continues to be super resilient. Everyone's been talking about it, and it really continues to look through these policy shocks, these inflationary pressures.
Josh Brown: Is it the economy that's resilient or S and P earnings that are resilient or both?
Dan Skelly: I think it's the economy mostly. And I'll circle back to earnings, no doubt, which is a great comment, but earnings have been really astronomical. And I'll come back to my theory on that. In A second. But the economy, I think what isn't as realized today, and it certainly wasn't four years ago, Josh, was this idea of how much the economy has paradigm shifted away from cyclicals, away from a normalized income distribution. And, and add on top of that the AI spending super cycle. And you've got I think a very non to atypical economic cycle. And so we've seen this resilience. And on top of that, coming back to your question on earnings, look, earnings at the index level did 28% year over year growth in the second quarter. If I look at the median company, it was 14% growth, which I don't think gets talked about enough. So why is the median, the average company experiencing that much growth? It's not just AI. And I know we're going to talk about AI ad nauseam today, which I look forward to my presumption, I'm trying to prove this with dad and I know our mutual friend Adam Parker is a friend of the show and we have been talking about this a lot recently. Personally, I presuppose that we had a synthetic tariff trade related earnings or economic cloud or hangover in the first half of last year. Emerging out of that right now, 12 months later is a equally or proportionate synthetic operating leverage earnings boost for the average company who had more pricing than I think most people would have perceived
Josh Brown: and then didn't have to give it back.
Dan Skelly: Correct. We passed through on the tariff front, which remember tariff was the headline for like six or nine months.
Josh Brown: Trump really is a genius.
Dan Skelly: Some people would say that.
Josh Brown: So every company had to take price,
Dan Skelly: most companies, the average company just to muddle through, but they passed on 60 to 70% of it.
Josh Brown: Right. And the prices don't go back down when the tariff emergency is over.
C: Josh, Dan, you think that's tariff related, this margin expansion? So this is the 493.
Dan Skelly: I think part of it is tariff related on the pricing perspective, which I do want to come back to as a new, relatively new suburban homeowner in Long Island. My wife is Long Island, I'm New York City. But I'm an adopted Long island child now. Son, I learned you're going to love it. It's been a wild ride so far.
Josh Brown: I never left.
Dan Skelly: How about that lie? What I learned from my landscaper after Covid is when he had to take up price 15 to 20% because of cost, because of all these things, he never took it back. And so it's just, it's a small anecdote which speaks to this Broader thread. So I think part of this, part of your great question is no doubt pricing surprising to the upside. Secondly, I think coming through on this, and it's hard to obviously prove dollar for dollar, but we hear it a lot in terms of surveys and we're seeing it in the transcripts, is AI productivity on top of existing workforce. What your margin math at the moment on the chart doesn't yet show is a labor lever being pulled.
C: So let's go higher.
Dan Skelly: Absolutely.
Josh Brown: Wait, say more. What's the labor lever?
Dan Skelly: We're in this. If you zoom out, we're in this. No hiring, no firing zone. And we've been there for a long period of time, couple years it feels like. And what I would argue is if you think about what people were talking about in terms of all the different AI boogeymen in January SaaS apocalypse software going away that's been thus far disproven with some dispersion, we could talk about it. Labor apocalypse also disproven what is happening at the Fortune 500 level vis a vis our data and our surveys. It's productivity on top of existing labor force. Right. And so I think that is coming through in the margin line to my earlier point. I don't think what's coming through just yet, and I think it's a 12 to 24 month time horizon is labor actually being pulled in terms of additional margin and earnings and that's going to be largely AI driven.
C: So you're saying earnings are going up without additional headcount?
Dan Skelly: That's what it looks like at the moment.
Josh Brown: Right. So normally in order to produce the revenue. So I think the revenue increase for Q2 year over year was also an incredible number.
Dan Skelly: 15% on 6% nominal GDP.
Josh Brown: So historically, in a more cyclical analogy, economy that's more goods heavy, you're not doing 15% revenue growth with no headcount growth. No way.
Dan Skelly: Well said.
Josh Brown: You need people on an assembly line literally welding things together and packing them in boxes. You're saying now the next tailwind might be companies continue to grow revenue which translates into earnings without the concomitant addition of another 10% labor force. I'm not saying this is great societally. However, we're in the business of earnings and it should be good for the earnings.
Dan Skelly: I think you summarized it perfectly, Josh, and I think very good at this. I think to your tier, embedded in your statement was this longer term debate around socioeconomic effect.
Josh Brown: Just have less babies, it'll be fine. I mean honestly, we can't solve that.
Dan Skelly: On this show we talked about Asia. Markets coming out like that is a phenomenon going on across Asia, across Europe and no doubt across the US and so we'll see. The joke I've been saying is in terms of GLPs and longevity on top of a housing stuck in the locked in housing market, on top of AI and robotics is we're all gonna live longer, but we're gonna have nothing to do and nowhere to live. So that's like our future.
Josh Brown: And a shortage of 18 year olds apparently. I was reading about Syracuse University this week. They're not gonna hit their admissions targets yet again and obviously there were some Syracuse specific issues like the weather. But the bigger picture is there just aren't going to be as many young people prospectively.
Dan Skelly: And the nature of work is gonna change too. Back to AI. What is the entry level? Legal, audited? What does that all look like? Syracuse is very near and dear to my heart. I was fortunate enough to marry a former Syracuse laxer who played for Gary Gate in her day. And so it's the article, it's definitely
Josh Brown: batted around one factor in amongst many. But to your point, Europe, China, the Koreans are not reproducing anymore. So it's a. So I think I've always been glass half full about robotics, automation, AI. Likewise in that we're sort of gonna need it. Like we're gonna have a nursing shortage here pretty soon. We're gonna have shortages of specific careers and it'll only get exacerbated by a slower population growth.
Dan Skelly: Well said. And oh, by the way, let's talk about. There's been so much myopic focus on AI and there should be a lot of that is justified. But let's focus for a minute on some of the other massive initiatives impacting the earnings picture, the economic picture, et cetera, reshoring, which I don't think gets enough press and enough ink. But we're going to have, according to a lot of the work Morgan Stanley's industrials team has done, we're going to have a lot more factories. We're already seeing evidence of that. Will all of those factories be filled by the next 18 to 35 year olds?
D: No.
Dan Skelly: A lot of it's going to be automated. And so there's an effect and an initiative under reshoring and production that also questions that demographic risk. But I think the robotics is no doubt the part of the answer.
Josh Brown: So it sounds like you are fairly sanguine on where we sit today. Not. Not that you don't think a correction is Possible. But you, you sound as though the earnings growth looks to be sustainable based on these tailwinds that you're talking about.
Dan Skelly: My presumption is we have the midterms coming up right around the corner. It's gonna be Labor Day this weekend. That flew by. And the phrasing, I'll go back to the outset of this conversation that I've come up with over the last year is policy shocks, inflation pressures, all of these factors and dynamics that used to matter more to markets are like pop up ads today. They kind of come and go and the main narrative keeps coming back to earnings and AI. And so like being intellectually honest, knowing that Liberation Day mattered for a minute for the market, knowing that Iran has mattered in March and April and other points in time, can I intellectually say that the midterms aren't going to matter? No. But to your point, Josh, because the earnings backdrop is so strong, I think whatever drawdowns or corrective experience we get is super moderate.
C: Well, how about this? I think one of the reasons why all of these things that we've dealt with over the years that would have at a minimum derailed the economy if not thrown it right into a recession, I think part of the reason is there's so much money in the system and I think it's underappreciated how much that is distorting, not in a bad way. What otherwise could have happened in a different generation. Now the assets could shrink in a bear market and fear can return, obviously. But think about like all of the secondaries that we're seeing. Anytime something goes bad, it's bought up immediately.
Dan Skelly: And that is Google's issuance ahead of the big SpaceX deal.
C: Bought up immediately, really impacting the economy and the market in an underappreciated way.
Dan Skelly: No, I think that's absolutely right. And that's like the residual benefit of a 15 year bull market. Started out as Fang, then went to Mag7, then went to AI Capex and now I agree with you. The most healthy thing I would argue in terms of the duration of this cycle is the rotation we just saw. It's as if you really needed the semis in June and some of the other first order AI Capex winners to roll over here. Healthcare, take it to get the health care sector to get materials, mathematically get the mag 7 working right. And we saw that in, you know,
Josh Brown: selective Finance financial stocks working all year and all year. Last year for the most part, healthcare. This year small caps coming out.
Dan Skelly: Yes, small caps.
C: Industrials had a Run. I know they've pulled back but they had a big.
Dan Skelly: And kudos to Mike Wilson, our other friend and partner, you know, of many years, whom it used to be my direct boss 10 years ago who had a small caps call earlier this year late last year. So yeah, I think that's been one of the surprises as well.
Josh Brown: Okay, are we going to see the dramatic earnings growth gains that have now spread from the S and P into the mid caps and the small caps, is that sustainable?
Dan Skelly: So I feel like that space is a lot trickier because on the one hand you would argue like the sectors that are disproportionately overweighted to small and mid industrials financials have a lot of, as I've mentioned so far, a lot of idiosyncratic positives like capital market cycle rates, building, building production no doubt.
C: Josh fomo.
Dan Skelly: FOMO for sure. That risk taking liquidity you mentioned. Great.
C: All the M and A lead leads
Dan Skelly: to more M and A and it should. And look at how the biotech sector is acting of late as an example. So here all of that can be true on the one hand and then on the other hand I think it can be true that rates backing up particularly for that lower quality cohort of small caps should be an issue. Right. And we've talked about this phenomena. As of the last 15 years we went through this massive monetization cycle in privates and something like 80% of the companies in the US today that generate 100 million plus revenue are private. So basically your small cap allocation as a private, as a retail investor could have just been in the private market and not in the Russell.
Josh Brown: It's an alt now.
Dan Skelly: Totally. And so that you've had like almost this negative selection bias in the public in the Russell 2000 which is like whatever the stat is, 40% of that index isn't profitable. And so like I think on the one hand you have positive drivers, but on the other hand beware rates number one and beware AI. Look, let's face it, I think AI, we've talked about it earlier in terms of the big caps and when does that show up in earnings? But I think AI could be really tricky for small caps in the sense that number one in some of these industries AI is going to disintermediate certain industries completely and they may be more small cap in nature. Number two, I would argue that the AI adoption wave we're going to experience, which is going to be a decade experience, may not also be felt in terms of the right tail from the Small caps. Because in many of the cases those less profitable small caps don't have the capital to invest in AI. So they might have a left tail risk disintermediation. They may have a right tail risk in terms of not participating in the AI adoption.
Josh Brown: So small caps will do what small caps do, which is periodic moments of inspiration followed by disappointment. And then when you're so disappointed, all of a sudden they start to rally again. Very different return profile than catching.
Dan Skelly: I think that's well said. I think it's like catching a Friday morning flight to Tampa. You're going to have a lot of periods of calm and you're gonna have a couple seconds of turbulence.
Josh Brown: I like that. I like the pop up ad metaphor even better though. That's a good one.
Dan Skelly: Thank you.
Josh Brown: Where, yeah, we see it. It's peripheral. Can't wait to close that window and not think about it. So I'm that way with the midterms. I have no opinion of what's gonna happen. Cause I'm paying as little attention as possible.
Dan Skelly: I think that's wise.
Josh Brown: So maybe the House turns over, the Senate doesn't. And nobody really does anything differently. The one big thing that might change is all these Astroturf data center protests might very quickly go away because there's no longer a political opportunity to say how much you hate Microsoft all of a sudden. We were talking about it. Talking about it. Then the election comes and goes and nobody's talking about it anymore. I could picture that.
Dan Skelly: I think that's spot on. I was at a client dinner earlier this week out on the island with Brian Nowak, who's our leader, thought leadership, thought leading, industry leading, Internet analysis, you well know. And we were talking about really the midterms, but also 28. And this idea that the midterms, like you just said, are gonna come and go and then people are gonna focus on 28. And what you might feel right is just a very fast pull forward in
Josh Brown: terms of, yes, we may have a presidential election in 28.
Dan Skelly: Yeah. Every four years or so they seem to come back.
Josh Brown: Okay, go on.
Dan Skelly: What I was just saying is Brian's view, and it makes. It's intuitive to me, is past the midterms. Right. And keep in mind that AI Capex and momentum implosion in June, which has struggled technically to come back to the 50 day. If you're like memory stocks or. I think it's very interesting when you get past the midterms that you have maybe almost a pull forward ahead of 28 in terms of the data center trying to get as much done ahead of that.
Josh Brown: So that would be a negative catalyst eventually in terms of like great in the moment hangover. Well, so the last capex cycle that became a pull forward was Y2K and the hangover from that started to be felt in the second quarter of 2000. So wait, wait, wait. People are not going to buy this many intel chips every quarter. Oh, that's not good. So that's the thing that I most worry about. The amount of the earnings growth that's expected to come from the hyperscalers, the 50 largest semis and memory companies and then the Dell computers of the world. It's a large, it's not all of the earnings growth, it's a large amount of it. And if it goes into reverse, I don't know that the market's going to treat that well from 21 times earnings.
C: Also Broadcom today, what are they, 90% growth, whatever it was, and the stock fell 5%.
Dan Skelly: It wasn't 91% with Nvidia recently, nothing is good enough. Blew out the guidance and even said guidance amid capacity constrained backd and the stock worked well on the day and then really hasn't followed through.
C: So what does this tell you about where the stock market is today? Now the environment could change, but people are simultaneously worried that the earnings are too high, the earnings estimates are too high. And even when companies destroy earnings to the tune that we've never seen before, the stocks still aren't working. Is that bullish? It doesn't really sound it.
Dan Skelly: I think it's my opinion it's good for the duration. Again, like it comes back to this idea of I think we're in a longer cycle and like secular. Here's the good news, the way the capitalism works, the secular bulls last a very long time. Like they last 20, 25 years on average. And the good news is also that the secular bears tend to be half that duration. So we had a nasty bear market, as you well know, coming out of O, out of the 2000 Internet bust and really since 090 10, it depends if you adjust it for inflation and S and P price in gold terms or not, which I know, which is one popular way to look at it. But we think we bottomed in 10 or 11 in real terms. And so, you know, whatever, we're 15 years into that cycle. I think the factors that are going to matter, right to Josh's point, a minute ago, 60% of 2Q earnings, 28% headline came from AI Infrastructure. So I think we're money good on that particular contribution. 27. That was then 20 I think we're money good. 27, 28. Talk to Brian who I saw two nights ago. His numbers for AI capex in 27 are 1.5 trillion. The street is at like 1.2. So the street is still low. And that's been. There's been a catch up we all know for the last 18 months or so on our team we call it the quarterly tradition. Like every quarter you can bank on the numbers going higher. Why? Because it's a generational competitive risk among the US players zooming out among China as well. We could talk about it. Secondly, on a more technical basis, the scaling laws continue to work, meaning every time we train new levels or new models of AI, new AI models on higher levels of compute the outputs and the results continue to get better. So what is the technical incentive for drawing down the Capex at this moment? So I agree that one other thing
Josh Brown: to add to that that I've been talking about that I think is maybe underappreciated. It's not as sexy as new data centers and it's not as sexy as new GPU sales to new customers. But when you build these data centers, you are embedding guaranteed purchases of servers and chips as far as the eye can see. We could argue about the depreciation schedule. And is a GPU produced in 2026 a five year asset? A three year asset? I don't know the answer. I'll be the last person that will know that answer. But the point is it's not a 20 year asset.
Dan Skelly: Correct.
Josh Brown: It's not the same as Toyota building a plant that's gonna make Rav Fours for the next 20 years. Like you're gonna need new chips all the time. And there's a story there for Nvidia, story there for Dell which just had a blowout earnings report this week. Like that's a big part of the story that I think people underappreciate. Like now that you built these data centers, even if that slows down the pace of new construction, we still have to feed all of this existing infrastructure with tons of technology.
Dan Skelly: So I think that's the most important point that anyone's made so far in the pot. And the reason I say that I
Josh Brown: told you I'm good at this.
Dan Skelly: Is that tennis clap.
Josh Brown: Yes.
Dan Skelly: The reason I say that is because of the following. We wrote a Note back on June 1st and I love writing, I wish I had more time to write, but I write fairly infrequently But I wrote a note on June 1st which I'll share with you cautioning the semis momentum and our takeaway was you hear all about demand constraints. To your good point, I think under the hood in reality it's more about deployment constraints. You are ordering servers and chips and all these electrical components and industrial components ahead of 40 gigawatts, 50 gigawatts of projected data center construction in the next two to three years. Are all of those buildings going to get built? Unless you're elon, are all those buildings going to get built on time? And do you have a risk of double ordering in the supply chain of semis of service? Absolutely. Is it a risk today? No. But is a risk from here for now? Could be.
C: This is one of the most bearish charts that I've seen. Accidentally I was looking this. I'll hold it up because it's not in the dock. This is a chart of Siena. And as you know, Sienna was around during the dot com bubble for the fiber optic build out straight up, straight down and it looks eerily similar. Doesn't look great.
Dan Skelly: Yeah. And so that's a perfectly reasonable analog, I think. A couple things I would argue. Right. So one is when we look at our prime brokerage book and we're the biggest wealth manager in the industry and I like to, I'll say the best, we're the biggest prime broker in the industry on the institutional side. All right. So if you look at the net and gross exposures of our hedge fund book and our hedge fund clients, a lot of our hedge fund clients have not regrowsed in memory and a lot of the first half winners in AI CapEx, they've been waiting and we are paying very close.
Josh Brown: So the stocks came down and they didn't get back into them or at least not of the same size.
Dan Skelly: Correct. Not even close. And where have they rotated? They've rotated a tad to mag 7 somewhat to software picking the bottom in some of those areas. But it's been healthcare, it's been some of these other parts of the market. So the reason I mentioned that number one is number number one, I think that's healthy. Like I think the idea that everyone didn't jump back on the train is a positive. They're kind of waiting to see how things go in terms of pricing, in terms of midterm, political football and data center. But again, I think the healthiest thing that has happened in terms of this cycle vis a vis 2000 is the rotation that's happening. And lastly, let's not also forget, as Brian and I spoke about on Tuesday night, that all the major hyperscalers are in the early innings still of a cloud transition. And yes, the cloud business is being in effect supercharged by the AI intersection today. But how many big Fortune 500 and beyond companies have fully transitioned to the cloud? You're not in the ninth inning. You're not in the sixth inning. You're probably in the fourth or fifth inning. So here's the key takeaway. The way this kind of differs from 2000 is when you laid all this fiber, you had no alternative for the fiber. It just went dark. And it was dark for 10 years until Amazon became Amazon. So did it eventually matter for creating us exceptional Exceptionalism? Yes, but not.
Josh Brown: Yeah, but we had to, we had to live through a 90% NASDAQ decline on the way to somebody inventing YouTube. Like, we had to wait. We had to wait from first quarter of 2000 to 2013, I think, for
Dan Skelly: the Nasdaq and the Nasdaq to fully make a new high. Very great point.
Josh Brown: Something like that.
Dan Skelly: Very good point. And so where I just put a fine point on, just to end that comment is keep in mind that taking both of our, I think, I think we're on the same page, well founded risk factors around data center deployment and double ordering, a lot of those chips can be reverted back to cloud. And so do we have dark GPUs the way we had dark fiber? Maybe not as likely.
Josh Brown: I like what you said about the duration of the bull. So not having a bubble. So when Michael brings up like Nvidia blowout numbers a week later, Broadcom blowout numbers, why are these stocks flat down? It makes no sense. I agree with what he's saying. But I also like what you said. If we don't rocket those two stocks up 70% right after earnings, it gives you more potential upside over time. And so those stocks can rally. But we don't have to have the rise and fall all take place inside of two weeks.
Dan Skelly: 100%.
Josh Brown: And I think I sort of like, I like that it's in slow motion.
C: Well, the glass half full version is we're building the wall of worry. And you need that.
Dan Skelly: You need to slowly, you need the wall of worry. Thank you, Michael. And by the way, the wall of worry was like the Empire state building in 22 and 23. Remember when everyone predicted. And I'll give kudos to Ellen Zentner, our colleague who at the time had the economics call. Remember that in 2022, 2023 we'd just gone through the most aggressive fed cycle in 40 years and the consensus was predicting this big bad recession that that never arrived. Why? Back to our earlier conversation, we have paradigm shifted away from goods to services, away from a normalized income scale to a hyper K shaped income scale where the 10% is driving 40% and is less elastic to monthly changes in gas and food prices. And last but not least, of course post 23 the AI super cycle. And so my point being is I agree with you Josh, I like the fact that you have and Michael, I like the fact that you have these clouds hanging over the kind of uber euphoria from happening number one. But number two, I just want to come back to it. I know I'm doing a little bit of a weave so I apologize. I just want to come back to your comment about the earnings growth risk because here's where the onus on the baton being hand off from AI infrastructure to AI adopters is really crucial. In the next two years, does the margin productivity boost from the AI adopters more than offset what could be a deceleration in the AI infrastructure spending? That is the key handoff. Well, I hope it helps.
Josh Brown: That way it better.
Dan Skelly: And by the way, let me just say this because a lot of our retail clients often everyone thinks and talks and invests at unfortunately at times with their generational bias in their memory. And a lot of our average retail clients are still stung with the memory of 08 with 2000 et cetera, you know, for not good, for good reason. And a lot of people are talking about is this 99 over and over again. And one of the things I would just argue is in terms of how it's different is number one the quality of the spenders today is so much different from back then.
Josh Brown: That's such a great point.
Dan Skelly: And yes we are talking about leverage now. But don't forget These were all Mag7 formerly Fang. The industry group formerly known as Fang was once upon a time net cash balance sheets. And so as an investor when I see a generational technology investment I want to see more capex. I don't want to see just buybacks for buybacks sake, which is what they had done for 10 years. Fang was capital light. They generated excess cash, they bought back stock. They did that to the tune of a trillion dollars.
Josh Brown: People who hated the buybacks though now hate the capex too. I don't know if you'd be surprised
Dan Skelly: by that just for the duration.
Josh Brown: So I want to double click on what you just said because in 1999, in order for Cisco to hit its growth targets and Lucent and Dell and Sun Microsystems and Sienna and Juniper and I can go on and on. In order for those companies to hold up, they were reliant upon selling to a customer that had gone public a week prior. Like literally like our Enterprise customers are Pets.com, eToys, CD Now DJ Direct and all these things that didn't exist a year later. The customers today are Amazon buying on behalf of its 30 million cloud customers who represent every sector of the economy, little different hospitals, insurance companies, government, manufacturers, government. So it's, it is not the same as I hope we get the next hundred IPOs so we can sell these people some, some Sun Micro products or some servers EMC needs to sell, you know, some, some stuff. So let's Hope we get another 500 IPOs next year. That is not. Now the asterisk is the two biggest players in the ecosystem on the buy side are not public yet.
Dan Skelly: Correct.
Josh Brown: Not profitable, not particularly transparent yet, because they don't have to be and not proven through any sort of economic cycle. That's the wild card that takes everything I just said and invalidates it a little bit.
Dan Skelly: 100. I think it's really well said and I think I'm somewhat limited, as you know, on what I can say on the privates or not understood. But what I would say in terms of what we've publicly written about and talked about is like the growth rates when you track what they're doing. Some of these companies on the privates were printing $10 billion arrs end of last year. Now they're last month 60, 70 billion. So the growth rates are still astronomical. And that's what ultimately what you need is the demand versus supply dynamic to still be at our favor. And we think it is. Let me just say two things quickly because I want to get them in. So one is the quality of the spenders is different. Secondly, I don't think what gets discussed enough is the credibility of the spenders. And this is also in vast Contrast to the pets.com/analog look at, I'm a fundamental investor, but look at the technicals of tech relative to the S and P over 30 years it always makes higher highs. I think that is an incredibly profound technical signal. Why do I say that? We go through our warts, whether it was Internet bus, whether it was 08, whether it was Covid, whether it was 22 duration, sell off, et cetera, et cetera, et cetera, but we always recover to new highs. What does that remind me of? The us, despite some of our political pitfalls and despite some of our issues, of which there are several, is still the single best allocator of capital to new innovative technologies and enterprises anywhere in the world. American exceptionalism lives. The historical analog, however, is that while we always figure out the next big thing and allocate to it appropriately, we almost always boom bust on the capex. So that was true of Internet fiber. It was true of Shale 2000-2015. Going even back to my blowing off my history books. Going back to Rails, no doubt. Here's where this could be different once again. It goes back to our comment about Nvidia and Broadcom are not screaming after phenomenal earnings. I also like that. I like the fact that the market is signaling one that they're treating those companies with rationality and frankly a lot of it's law of large numbers. And lastly, there's other games in town. There are private companies out there that are going to be coming out.
Josh Brown: I like that argument that it's not that they are not impressed by Nvidia, it's that they know they're not going to do 100% earnings growth next year. But in the meanwhile there are snowflakes out there. Like there are other companies that do have that sort of potential that the world is waking up to that don't
Dan Skelly: trade at a 5 trillion market cap
Josh Brown: and the money is shifting from one to the next. All right, I would buy that as a great reason for the rotation and for why it's so healthy.
Dan Skelly: By the way, last point is 40x mutual funds. Think about the mechanical ceiling or the issue with a lot of those funds have on being relatively an absolute overweight Nvidia. Right. Like they get kept out at a certain level.
Josh Brown: They can't go to 10%, they can't go overweight.
Dan Skelly: So who's the incremental buyer? A lot of our wealth clients and frankly to their great intuition have bought the dip. When you look at the trading patterns and the statistics in the last year, five years, 15 years, they've been better buyers on the dip and a lot of them have gone back to Nvidia. But at a certain point, if you're a retail investor, how much of your overall wealth can be in Nvidia?
C: So all this hinges on the hyperscalers ability to make an ROI on all these investments. Symbolist, a former guest guest of the
Dan Skelly: show I watched the program was excellent
C: and Michael, Michael's great hyperscalers and Nvidia new investment grade debt and SPV. It's 200, 200, $320 billion in 2026.
Dan Skelly: This is from his note.
C: So he, he argues that perhaps there's so much money, I mean this is
Josh Brown: traumatic, there's so much money here that
C: this is help pushing up government bond yields. Is this going to work?
Dan Skelly: So at the moment, the demand we're seeing and even the terms and the spreads we're seeing for a lot of this issuance is still relatively benign. And again, it goes back to my point that these, the names you all cite on this chart were all net cash balance sheets. And is there dispersion between the Oracles of the world and the Microsofts? Absolutely. Microsoft and JJ are the only two AAA rated names in the market left. Oracle's CDS spreads trade at very wide levels. So is the market, in my opinion, vis a vis that example, pricing in some of the risk in a dispersed manner, as it should? Yes. So the market is fully aware of this. But Michael, you made the point earlier in terms of just how much liquidity is out there and what types. I'll also add what types of new buyers are out there, including the insurance community, which I think has been another source of major demand for this paper.
C: That's such a good point. Getting back to the point I made earlier, God forbid the price on these come down, the yields, yields go up. Tidal wave of money waiting to buy these.
Dan Skelly: Agreed, agreed.
Josh Brown: The world wants this paper, otherwise it wouldn't be issued.
Dan Skelly: Absolutely.
Josh Brown: And it's not being issued out of desperation. They're calling up Alphabet and saying, hey guys, there's an opportunity here. Given your credit rating and your cash flows, there's an opportunity to do something that's potentially better than equity financing. If you don't want to just keep doing. They're going to spend anyway.
Dan Skelly: Yeah.
Josh Brown: So okay, how do you handle people asking about the circular financing question? Because that's, I would say five days a week on cnbc. That's being debated. It's not going away. There are some great answers for it. I'd love to hear your answer for it.
Dan Skelly: So if you listen to Jensen's comment on the October call of 25 on that same risk or that same, same feedback, it was, hey, we have a really unique line of sight in terms of some of our supply chains and some of our partners future growth. And he's talking about the private labs and he said given that line of sight, given our net cash balance sheet, as an investor, wouldn't you want me to take some type of leverage or Take some type of skin in the game in terms of some of our partners and frankly I thought it was a really convincing statement.
Josh Brown: Wouldn't who want him, his own shareholders,
Dan Skelly: his own balance sheet.
Josh Brown: Because I know the shareholders of these other things love him doing that.
Dan Skelly: No doubt, no doubt. And look to your earlier point, does it create a risk factor? Absolutely. And so what I would say is I think it goes back to, it's a more of a qualitative answer but it goes back to my comment about 2000-2026. Look at how all these companies have managed through every technology wave, whether it was Internet, yes. Social E commerce, online ads, streaming entertainment, cloud, now AI. And oh by the way the next round which doesn't get talked about enough. Adam Jonas talks about it quite a bit. Robotics, space quantum and autonomous. And by the way, the Mag 7's going to dominate in a lot of those sectors as well.
Josh Brown: Right.
Dan Skelly: And so my opinion is he's saying we have a really unique line of sight in terms of how all these businesses are being allocated, how they're being allocated in the enterprise. I meant to say and we have the net cash balance sheet. So wouldn't as an shareholder of our stock, wouldn't you want us to take that opportunity?
Josh Brown: So vendor financing was a big issue during the dot com boom bust. And people remember like this is one. Oh when the equipment suppliers are giving money to the buyer who's then going to buy their equipment, that's usually closer to an end than a beginning or that's what, that's the thing that people are worried about.
Dan Skelly: So watch the spreads. Right. So the debt market, just like in 98, 99 when you had the Fed raising and you started to see the bond spreads on the tech name starting to widen out. We're watching that too. Right. And so look, I mean that was go back to the fall of 25. Oracle CDS really was the predictor of Oracle stock in the coming year.
C: Dan, this is weird. So we're looking at in red is the high yield corporate bond spread. Okay. And in black or gray is the triple C. So really junky junk. And they go in the same direction almost all the time. And there's been a very, very notable divergence where high yield corporate spreads haven't budged. Good. But the shittier stuff is taking up in a pretty meaningful way.
Josh Brown: What's in trip? What's in trip? I was just gonna said like private, private equity, private equity backed companies, even,
C: even worse rated stuff.
Dan Skelly: So take it with a grain of salt from the equity Guy. But my extrapolation of this data series is when I look at the underlyings of high yield, I look at energy, I look at materials, I look at chemicals, I look at industrials. One, a lot of those industries are benefiting fundamentally from the geopolitical issue in the Middle east right now. Second, if you just stick with energy for a minute, right, pre the 2015 shale bust, capex bust, a lot of executive compensation frameworks were incentivized towards production growth. So commodity prices would scream higher. What would all the EPS do? They put on extra production growth. What changed dramatically post the 15 implosion? A lot of the executive compensation structures today are more balanced in terms of capital return. And so what have a lot of energy names become today? They've become higher dividend payers, they become higher buybacks. Secondly, let's go downstream to materials and some of the industrials components. Okay, well we just talked about the AI data center build out. They're fundamentally benefiting from that build out. So maybe there's more of an idiosyncratic
Josh Brown: copper like you name it.
Dan Skelly: I feel like this series is diverging because in part because of AI and because of some of the compositional and fundamental changes in the energy sector.
C: I think that's right, especially on the energy side. We were talking earlier about the wall of worry and how there does seem to be a persistent level of disbelief which in the short term is maybe something to pay attention to. But longer term that's healthy for the continued secular bull market. John, chart six please. So this is from Goldman Leveraged Funds versus the NASDAQ 100.
Josh Brown: Never heard of them.
C: Bears are piling into NASDAQ 100 futures. Short positions have surged 35% since mid June and are now near record levels. So I want to share another chart that we made. John, chart seven. So chart kid Matt made this. And we're looking at the Median S&P 500 stock short interest as a percentage of market cap going up and to the right in a pretty steep way. And on the right side you have the bottom decile. So these are the ones that are least shorted and even the ones that are the least shorted are going up in a material way. Is there anything going on in here? Like my first reaction was well maybe dismiss this because there's a lot of other different hedging charts, a 30 year
Josh Brown: chart, but these are, but they're moving. Wait, did you just get bearish now?
Dan Skelly: I just got very pensive.
C: So let me, let me, let me.
Dan Skelly: So I've got I have to take this all in.
C: This is a lot. So while you're thinking I've got the stocks that are.
Dan Skelly: This is not a squawk box exercise.
C: Hold on, you could think so the stocks that are in the bot. So the least shorted stocks makes sense.
Josh Brown: This 99th percentile.
C: Yes, yes. So what's in that basket is Google,
Josh Brown: probably like Apple, Google and Berkshire.
C: Cause who the hell is short Berkshire? Morgan Stanley number three. Let's hear it. Morgan Stanley number three. General Dynamics, Walmart, Amazon, Wells Fargo, Eli Lilly, Apple, Anet and Chevron. So these are stocks that nobody wants to short and even them it's at the highest it's been since.
Josh Brown: Could this be mechanical people hedging even bigger long positions.
Dan Skelly: So the only way. This is fascinating and I'll come back to you with a fuller answer. Ask your question because I want to study this. Well, Chris Metley is our leader on the Quantitative Derivative Strategies desk in id. Boston's been around forever. Phenomenal.
Josh Brown: Do you say this is my quant?
Dan Skelly: This is my quant.
Josh Brown: Okay Chris.
Dan Skelly: All right, from Boston, here's the only thing I could say because I'm just still focused on this left hand side chart on the median stock. Remember that as of late second half 25 until June 22 when these semis locally topped is we had this really hyper concentrated market in AI CapEx. So let's year to date through June we had 90% of S&P's attribution come from three industry subgroups, SEMIS, IT hardware and power all tethered to data centers. And so if I think about like what's going on the left hand side of the chart, simply put is I think you have people rotating out of those names and also at and also shorting the median stock as a counter
C: to that there's interesting shit happening. It's hard to. So all right, the top decile so the most shorted by the way look at the Y axis obviously the bottom decile, nobody's short. Okay, it's at an all time high but it's 1.2% if you look at the top decile. So the Most shorted it's 9.8% which is in the 70th percentile. And these are the names the Most shorted stocks Reddit 13% I don't even know a lot of these names. KMB I.
Dan Skelly: Come on, it's helpful to see that.
Josh Brown: Okay.
C: Charter smci. I don't know, I don't know all these names. Trade desk.
Josh Brown: I know so I know I know
Dan Skelly: almost this feels like a rates move. So like the curve we were priced for three rate cuts from Jan till Iran, March, April and now that's completely flipped and I don't, I, I can't, I didn't see what happened this morning but I think we're now 5050 price for this month in terms of rate. So if I look at this cohort on the left hand side it's super low quality, less balance sheet strength. On the right hand side it's much higher quality. So to me it feels like the short interest in the lower quality things rated as rates have rerated the debt to equity ratio. There's a lot of profit margins, cash flow.
Josh Brown: There's idiosyncratic stories in here that like the trade desk has been an abomination in a very good tech sector not representative of anything else. SMCI is accounting scandals, Charter is cable.
Dan Skelly: Reddit has the Google algorithm change right.
Josh Brown: Reddit has to contend with the source of all its traffic changing how it sends people Echo is competing with SpaceX. Have fun with that. You can go through this and come up with a reason why this is not a market story. It's an idiosyncratic story.
C: So Dan, you'll like this.
Dan Skelly: Not to interrupt Michael Outlier on the right hand side, Charlie is I'm not sure why Microsoft wouldn't be there because I think what was really crucial to their narrative in the last month was how they tempered the capex comments on the earnings call a month ago and the stock reacted so positively towards that. And it feels like people are now siphoning out within the group. Maybe Microsoft, Amazon, Apple's in a different category, but they are in a different group at the moment than Meta Oracle.
Josh Brown: It's funny that you say that. I don't think that's at all behind the rally in Microsoft. I think what people really liked was the public divorce with Sam Altman and the end of exclusivity with OpenAI. I think people felt that Microsoft was not getting the best end of that deal and that they might be better off using cheaper open weight models to fulfill those AI software product commitments to their users. And I think that that's probably where Microsoft gets its mojo back. Some combination.
Dan Skelly: Absolutely. No, that's a great point. I think they went 180 from being tip of the spear investing in to now being more rational. I think that's a great point.
C: I want to introduce two charts to present evidence that the stock market is functioning pretty well. I think fundamentally I think it's responding appropriately to stocks that are doing well and stocks that are doing less well. John, let's start with chart four. So this is, this is a CNBC chart. Three month intra stock correlations. Is that, is that basically as low as it's been in almost 40 years? Like each stock is marching to the beat of its own drum.
Josh Brown: But Michael, I thought index funds were ruining the market, is that not true?
C: So Adam Parker, your friend, our friend John, let's Jump to Chart 9. Has an awesome, awesome, awesome chart that shows the mean 12 month industry group relative return of companies with year over year growth margin contractions of more than 1%. Okay? And these stocks are getting the shit kicked out of them relative to the index. And what he's saying is basically if your gross margins are missing, you are in big, big, big trouble. And we're seeing that over and over and over again with these earnings reports.
Dan Skelly: So I'll jump Broadcom today.
C: By the way, their gross margins fell to 200 basis points. Blowout numbers. Yeah, their margins weren't great and the Stock was on 25% going to the print.
Dan Skelly: Crucial, crucial point, Michael. So let me jump in on two things. I think the reason why this particular vector is compounded at the moment. One goes back to what I said earlier in terms of this synthetic tariff related cloud in first half of last year being now synthetically boosted by pricing. So if you're not getting the gross margin benefit from that pricing right now, you're in this camp. And secondly, maybe a little bit of this on the gross margin line even is on the AI productivity as well. And so like if your peer group is experiencing some modicum of AI adoption productivity and you're not, I think that's why you're getting triple dinged on this particular data series.
Josh Brown: Okay? You know what's in this? In this, the stocks that are missing on gross margins. It's a lot of food service, okay? It's a lot of QSR restaurants, it's your Shake Shacks, your Chipotle's, the K
Dan Skelly: working in reverse, which is a thing now.
Josh Brown: It's just right, it's just not a, it's not a lot of fun to be in that business right now. Like Shake Shack is not supplying french fries to data centers. You know what I mean? Like they have less to look forward to. They had an earnings blow up a couple of months back. They blamed paper goods, the price of beef and it was all Iran war oil related, whatever. But they don't have that offsetting. Yeah, but look how much money we're making from AI like they don't. There's probably a thousand stocks like that in, you know, in the U.S. market of 3,800 stocks.
Dan Skelly: Yeah.
Josh Brown: They're small. They don't actually matter to the return
Dan Skelly: to the index 100%. And it's helpful, Josh, to your point, to see it through the lens of which business models, because let's just drill down for a minute on food staples which are going through two massive headwinds at the moment. Cyclically you've got the backup in rates and the volatility mostly to the higher side of the chart on oil. So the K shape which has been incredibly resilient on the lower run. I mean we talk about. Everyone focus on the upper rung. Let's talk about the lower rung for a minute. Which I mean I could argue and I think there's been this debate around does the official data capture all of the gig economy and all of the ways people are making money off balance sheets?
Josh Brown: The data come from comes from the 1950s. We didn't have that.
Dan Skelly: Right. We could use an update there.
Josh Brown: Yeah.
Dan Skelly: So I think on the one hand the data is skewed, but on the other hand, let's face it, like the middle lower income cohort has been, I think more resilient than most has most have perceived or anticipated until now. I think now you are seeing some degradation on the middle income worker, maybe vis a vis AI in the beginning stages, but just the macro factors and then just drilling down into food staples. Because as a generalist I talk to all of these sector experts, I think the GLP thing is real. I think when you look at Pepsi going back five, 10 years, five years ago, I think they were incredibly convicted that they were gonna sail through the issue. And when you look at Frito Lay and some of the food businesses missing their organic revenue growth targets for like two to three years running, I think
Josh Brown: so the mistake, it's a very real thing. The mistake is to look. The mistake is to look at McDonald's earnings and try to extrapolate something about the economy. Cuz it's just not the way that
C: look at the stock of Hershey.
Dan Skelly: Horrible.
C: That's years.
Josh Brown: Now Dan, I am a salt of the earth person and I am equally likely to be shopping at Americana Manhattan or at Dollar Tree as I am to be at Roosevelt Field. And Michael and I have been harping on this for like 3 years. Every time the banks report earnings less so Morgan Stanley, the banks that issue credit cards, it's almost like the audience is Clamoring for them to say the bottom decile, the bottom quintile is breaking. And now they don't even wait for the question anymore, like JP Morgan, they lead with it. They're like, before anyone asks us, everyone's paying their bills, delinquencies are well within norms and at historic lows and car loans are being paid off. And just anecdotally, like, who is filling up all these flights? The movie theaters are packed again. Like, you walk through the mall, it doesn't matter which mall, there are people in it. So even if you don't know the data, if you're a normal person and you talk to the people in your life and you look around and see what they're doing, they're leasing new cars, they're going to work, they're paying their bills. And then for some reason there's like this Internet component that is insisting that it's all fake and nobody is paying their bills and it's about to collapse. And that's the hardest part for me because the arguments are so seductive that we're at some sort of peak something and it's being hollowed out from the bottom. And you up there on Wall street, you don't see it yet. Have fun with your micron earnings, but you'll see it soon. When I keep waiting, do you feel that, that maybe we get to a point where we're ignoring that risk too much, or am I ignoring it just about the right amount?
Dan Skelly: It's really an important comment and I think super well said. And I'll say a couple things. First is, number one, I think it goes back to my statement, which is unproven at the moment, a minute ago, about the gig economy. It goes back to Covid, which, you know, a crisis doesn't usually create new trends, but it certainly can accelerate things that were already in place. And I think the, whatever you want to call it, social media influencer economy, vis a vis Covid got supercharged. And it's still going forward.
Josh Brown: People starting businesses, new business.
Dan Skelly: I was going there next.
Josh Brown: The entrepreneurial spirit.
Dan Skelly: Absolutely. I was going there right next. So we're on the same page. So new business formations that are two decade high is part of that vis a vis AI? I absolutely think so. AI in many ways is lowering the barriers to entry to being an entrepreneur, if you have a good idea. Now, does everyone have a good idea? No. But do I have more scale in advertising and marketing and process and technology if I have AI? Yes. And so what are those new businesses doing, Josh? They're hiring people. And maybe it's not all counted on the official monthly payrolls, but they're hiring people. And so my point is, I know you're coming about the big bank's earnings transcript so. Well, because we see the same thing and it's true, like the data is too diverse and too rich and too widespread to try to poke holes in it. Right. It's travel, it's eating out, it's all these different parts of the economy. And so my opinion, it's not a kind of one off phenomena. There's something underpinning it and I think these comments are underpinning it.
Josh Brown: Don't you think one day there will be a Bank of America or a Capital One financial conference call where they actually do say, okay, we're seeing an uptick in delinquencies or bills past due, like 30 days past due, whatever. But by the time they do that, we will all be like, yeah, no, duh.
Dan Skelly: I was just going to say look at the earnings.
D: How.
Dan Skelly: Right. How unlikely would it be that earnings prior to that moment hold up? How unlikely would be that earnings continue to trend quarter over quarter, not year over year in the short term, how unlikely would it be that they continue to accelerate? Very unlikely. So. So we've talked a lot about idiosyncratic nuances which I think today this cycle is unlike any other cycle. It's been a underlying threat of all of our comments, but to be fair, economics 101 just goes back to earnings and job growth. And it's very unlikely in this earnings picture to have that future B of a moment.
C: The lower shape of the K. I was looking at Affirm's delinquency rate. Which customer do they serve?
Dan Skelly: Affirm.
C: It's not amex.
Dan Skelly: No.
C: Buy now, pay later.
Dan Skelly: Yeah. So lower fico in their 20s. Okay. Yeah.
C: The delinquency rate is nowhere. It's nowhere. It's 2.3%. Whatever.
Josh Brown: That's the pay later part. You don't understand. You just don't understand economics.
Dan Skelly: I'll add to that.
Josh Brown: I don't know if they say pay later, you don't know how much later.
Dan Skelly: I don't know if it's GOP's at the 25 year old cohort level. But what I do understand from a lot of our clients and our partners, anecdotal comments about their children and the next generation is that people aren't going out as much, maybe to bars, maybe drinking, but they are gambling, they are making wages, wagers and maybe on average they're doing better than we would have anticipated. So maybe they have this excess capital from this proliferation in the gamification of betting and gambling, all these other things.
Josh Brown: So instead of overeating, they're betting, they're over betting. So it's so funny. Like the next generation, they're just going to do the GLP one right into the, right into the womb, like in vitro geo. I'm going to be the last two for one left in this world.
Dan Skelly: Yeah, less of a copay.
Josh Brown: Okay.
C: All right.
Josh Brown: I want to, I want to make sure we get to a couple of more things. Stock selection, you're managing money, you're also advising other people who manage money. You're on the committee. You're in all these conversations. What are you telling people about the end of year run? Hopefully it's a run and into 27. Like I don't know if it's your opinion, the House opinion. I don't know where one ends, where. But talk about our audience or investors, right? They love the stock market. People listen to compounded friends love the stock market. So talk about stock selection, what you guys are excited about, what you're looking at and maybe what you're leaving behind from 1H26.
Dan Skelly: Yeah, all the above. So let me bifurcate it between my asset allocation hat and my day to day PM equity hat. So on the asset allocation front, Josh, we've been overweight US equities for well over a year. And I would say while that has certainly served us well, we've also no doubt experienced this AI spending, AI highly correlated concentrated phenomena as well. And so at the asset allocation level, we've also told people allocate towards real assets, allocate towards long short hedge funds, counterbalance, no doubt, and in some instances allocate towards em. And we saw what happened when AI caught a cold this summer. We saw what happened in the US Rotation was the outcome peak to trough drawdown. The S and P was 3%. Because of that concept I alluded to earlier, semis went to MAG7 and mathematically MAG7 might be 35, 40% of the market. Semis are much bigger, but they're 18%. If I add in health care at 10% and financials at 15%, that's what really offset that cold metastasizing for the U.S. not so for the Cosby. So the Cosby had a market truly concentrated to stock. So we've told people to be selective in em. So what I'm trying to outline, Josh, at the broad level is asset Allocation We've been overweight us and are sticking to that for a lot of the reasons we've talked about resilient economy, accelerating earnings growth. But we've also tried to plug and play through diversified asset classes on the stock level. Again, the healthiest thing I would say because I'm most focused on long term investing. My team originated in 1995 under Byron Wein in the Equity Research department. And Byron, who is truly a visionary, thought of investing in a concentrated portfolio along a continuum. And we run 40 to 50 stock portfolios. And the idea being in a 50 stock portfolio you want to have the majority of your names, 40 names, 40, 35 names, be core holding esque, plus or minus the market in any given
Josh Brown: year they're going to be 2ish percent.
Dan Skelly: 2ish percent correct. So not super big, absolute sized. But I also want to build in maybe five, six positions that are big ideas. And this was truly Byron's philosophy. If I can get big ideas right over a cycle, be it Nvidia 10 years ago, Visa, MasterCard and Processing, be it Thermo, Fisher and the proliferation of life science, if I can get a lot of the big ideas right over a cycle, they can now offset the average over a longer period of time. So what we're telling clients today through
Josh Brown: our portfolio, I like that approach.
Dan Skelly: What we're telling clients today through our portfolio process to conclude is yes, you want it to be cautious AI and semis in June. I think there's a lot more interesting ideas there today. But coming back to our overall thesis, this adoption wave is going to be a decade long and so we want to own a lot of those Fortune 100 companies that are quality oriented. And I know it's a off cited cliche to be quality oriented. Quality has not worked this year, it has not worked in several years. But when I think about the rotation as of the last three months, what's working again, again, kudos to Mike Wilson. Quality has been coming back in vogue. Rates are higher. The onus on whether or not you can make money and out compete your peer set on AI adoption is higher. And I think this really augurs for a quality diversified equity portfolio. Across health care, no doubt AI in many instances is taking a six to seven year timeline in terms of phase one drug discovery to like less than 12 months.
Josh Brown: One of the things I'm most excited about, likewise seeing that play out and seeing drugs in our lifetime, safer drugs come to market faster I think is a phenomenal out outgrowth of all this
Dan Skelly: spending and and and the downstream winners beyond that, the life science tools, the consumables, the lab and clinical trial managers. Keep in mind health care couldn't comp the COVID comp. Then it had to deal with the 22 rate cycle. Then it had to deal with everyone who had growth equity capital going to tech. So health care used to have growth equity capital. So that's one sector we like on the AI adoption theme, capital markets.
Josh Brown: But are you top down on this 50 stock portfolio? He's saying we're really bullish on healthcare, so let's find healthcare stocks that fit our thesis. Or are you arriving at that top down because from the bottom up these are the best earnings growers. How are you doing that?
Dan Skelly: It's more of the latter. For 30 years in a 50 stock context, we've been bottom up focused. So do we make sector calls? Yes, but our sector calls are modest in nature, two to four points over underweight, any given sector, as a way of controlling tracking error and risk. So to your good question, Josh, if we like a stock from the bottom up thesis, we might overwrite the sector call. But at the same time, as our old strategist and our friend Henry McVeigh has always said, who started out as a financials analyst now at kkr, great friend of Morgan Stanley, you gotta have a view. And so we think you no doubt have to marry the bottom up selection effect with the sector calls.
Josh Brown: Are there scenarios where you did get, you got the sector right, you thought you got the stock right, but then there's an execution misfire on the part of management and you say we're still bullish on this theme, we're riding the wrong horse, you must have to do that all the time.
Dan Skelly: Let's talk about software.
Josh Brown: How hard is that?
Dan Skelly: Oh, that's the hardest part.
C: That's hard.
Josh Brown: That's gotta be the hardest part.
Dan Skelly: Hardest part. Hardest part because in a, you know, going back to the process, right horse,
Josh Brown: wrong jockey or right race, wrong horse or whatever.
Dan Skelly: No doubt. I was supposed to get on a flight to the Derby and I ended up at Belmont.
Josh Brown: Yeah.
Dan Skelly: So what I would argue is in a 50 stock portfolio with a 2 to 3% tracking error, which is our process, you live and die by concentration. And so we try to temper the sector bets as a function of controlling that risk factor. But the stock selection effect drives really everything at the end of the day. And so you asked the right question, which was got the sector call right or wrong? What happened in the stock selection? No doubt software has been, I think the the most acute realization of that question in the last seven or eight months. So I told you earlier, I don't write often, but when I do, I've actually been fairly, you know, directionally correct this year. I cautioned on semis June 1, I said software is oversold in mid February. And my conclusion in software a little early. My conclusion in software was at the time, if you look at igv, the clot, the new Claude plugin had just come out in mid Feb and the whole sector was being priced for obsolescence.
Josh Brown: It freaked everybody out.
Dan Skelly: My statement was, I think it's very unlikely that as private entities, the business plan for these labs pitching Wall street future investors is our plan over the long term is to put a lot of corporate America out of business. I think that would be a very futile business plan to the Street. More likely, in my opinion back in February was forget about obsolescence. You're going to see chronic interdependence between AI and software. What's going to be most likely is dispersion of outcomes across the spectrum. And so I'd like to say across the holdings we had, we had 100% hit rate across that outcome. We were right on the concept. But there's been so much variation in
Josh Brown: terms of, yeah, like if you take the bet on Adobe based on what you just said versus take the bet on Crowdstrike, it's like, okay, we were right. Software was oversold, but we didn't get the full benefit. And that's gotta be. When you're doing 50 stocks, that's gotta be the thing that's like, oh man, I hope this is the right one. And look, it's hard for everybody.
Dan Skelly: We had puts and takes for us. Microsoft's rebound, ServiceNow's rebound. We were out of Adobe over a year ago. We were in Palo Alto as of the last two years, but it got to 70 times. And in the last two or three months we said it's the top end of the PE range the market has correctly discounted. It's an AI winner. But we run a 50 stock portfolio at 70 times. It was a high tracking error winner. So let's take it out.
Josh Brown: What's the stock in that portfolio that you are most convinced the market misunderstands
Dan Skelly: in the software space or just overall,
Josh Brown: just period, like what? I have mine in my own portfolio. I think uber. I think the market is uber wrong. Personally. You look like you're short. You look like you bear long only. Okay, so.
Dan Skelly: So I've been in and out of Uber over the years. So let me put this.
Josh Brown: What's your version of that? Where I'm saying to people, can you
Dan Skelly: give me two names?
Josh Brown: Yeah. No, you give me as many.
Dan Skelly: I'll give you two names.
Josh Brown: Okay.
Dan Skelly: So back in. Go back to February. So it seemed like every other week a big liquid part of the market was being priced for absolute. We talked about software. At one point it was insurance brokerage, at one point Moody's Wealth Management, cbre.
Josh Brown: We're also on the same page, spgi.
Dan Skelly: So Morningstar, where I was going to go.
Josh Brown: Okay.
Dan Skelly: The idea that data. Forget about software at the moment. The idea that data centric businesses were also being priced for obsolescence and in many instances have not rebounded. So S and P. As an example, in one of our full disclosure, one of our holdings does multiple things. It has the issuance business, but it has the data business. What? They just started talking about potential alternatives, but I don't think the issuance business is frankly getting enough bid. In a world of. Going back to your debt charts in a world of massive financing.
Josh Brown: Yes, bond investors need ratings. They don't. They're not going to take Claude's word for it.
Dan Skelly: Thank you.
C: Regulated.
Josh Brown: It's regulated. They have to be waiting.
Dan Skelly: Go back to health care. Okay, so it's highly regulated data centric businesses. And last one is nasdaq. Because when I think about that business, I have these future franchise IPOs on the right. Nasdaq for the year it might be at highs, but for the year, point to point is flattish. The last time I looked at it, you could be up more, continue to grow mid teens to high teens. The multiple has stayed really flattish. And to me, again, it was caught up in that February, March sell off of data going out of business.
Josh Brown: So NASDAQ has three businesses. They have a small fintech business, they have a data business, which is the crown jewel. And then they have the exchange business, which it is what it is. All three of those things feed each other. So they're not really three distinct businesses. But that's how they report.
Dan Skelly: Right.
Josh Brown: I remember thinking NASDAQ is the bet because all of this IPO activity listings great for the exchange. Then you think about the data business,
Dan Skelly: which is an AI optimization on the
Josh Brown: data and the market, said Joshua. I got stopped out in nasdaq. I think I made money on it, but I had been in it for
Dan Skelly: a while and it's been a great name for a long time.
Josh Brown: Yes. The market told me this spring, to your point that I was wrong and I think couldn't prose wait. We're saying there's this whole wave of AI disruptors coming along and NASDAQ's not going to capture its share of that upside. It makes no sense.
Dan Skelly: Doesn't make sense. Highly regulated industry data, the cyclical tailwind from the capital market cycle. And look, our analyst Mike Cypress, who's a great partner and friend of our business, has been positive on the stock and as the last two to three quarters of evidence shows, they continue to generate AI. Strong evidence of AI utilization in their business. And the market is just not roaring. So that was the example around here.
C: We don't believe in triple tops. That's gonna go, right, Josh?
Josh Brown: That's good to go.
Dan Skelly: Everybody loves a trilogy.
Josh Brown: When do you know? When do you know? When do you know you're wrong on a stock and it's time to take
C: action, but it's too late.
Josh Brown: I know it's always different, but what are like the big picture things that you think about?
Dan Skelly: So before I answer that, just to also reference having a hard and fast stop loss in a context of 50 stocks where we try to generate 30 to 40% turnover a year with a tax sensitive retail type client, I think is too rigid. And so to your question, we've adopted quantitative and quantum mental to use Adam's phrasing, quantamental inputs. But it's also just at the end of the day, a decision tree, usually binary.
Josh Brown: Did you see Adam's piece on stop losses this week?
Dan Skelly: Absolutely. We had a call the other day on it. Yeah, yeah.
Josh Brown: Okay, go on.
Dan Skelly: And so look, I would argue that there's the good news and the bad news. I told you Palo Alto earlier when I have something in the, in the high tracking error bucket that we've taken a idiosyncratic risk on and it re rates and we've owned it for our time horizon, one and a half, two years. And it's everything that's worked out. It becomes my 40th idea isn't as good as my 41st potential idea. It's friction and opportunity cost and portfolio.
Josh Brown: Because if that's still in the portfolio, it doesn't matter that it just doubled. You're allocating fresh cash to the portfolio. Do you really want to buy that stock now?
Dan Skelly: Opportunity cost 100%. So that's the good scenario. Let's talk about the much more difficult conversation, which is when something goes against you and it goes back to in our world, the original thesis. So we build out every time we write up a new IDEA it's a 20 page proprietary note that my team builds. I have a seven person PM team. Yes, we use Morgan Stanley's research and have used them for 25 years and we really benefit from that relationship. We use street research and since I took over the team 12 years ago, I realized hey, we have all these asset managers on our platform trying to talk to our wealth management audience. Why don't we talk to their PMs? So we talk to a lot of the buy side as of the last 12 years and have established great relationships there. My, my filter.
Josh Brown: Those people are putting risk on in those stocks.
Dan Skelly: Absolutely. And in some cases they look like me in terms of process. In some cases they have a shorter horizon or a riskier horizon. But I love the mosaic of all the input there and we have great relationships there and I can recommend some friends for the pod. But what I would just say is when I look at that second scenario it comes back to the original thesis. Did something unforeseen happen in terms of competition, regulation, management, governance? And is the earnings power temporarily impaired or permanently impaired? Is the competitive moat temporarily in question or permanently impaired? And you have to make that trade off. So two things I will tell you. One on the stop loss front and one on just my 20 years deducing kind of qualitative signals on the stop loss. Cut your cyclical losers faster. Give your secular faster than the growth stocks faster. Correct. Because the cyclical momentum almost always begets more cyclical downside momentum. Them almost always. Whether it was oil rigs in 2014, 2015, whether it was banks in 0708 and when the earnings drop out on the cyclicals, you're not talking about an earnings haircut of 10% or 20% less
Josh Brown: likely for a V shaped recovery in a material stock, for example 1,000%.
Dan Skelly: And let me give you the counter to that.
Josh Brown: Are you writing these down?
Dan Skelly: Okay, the counter to that is on the secular names. And I'm gonna bring in my second comment in a segue here on the secular names. Maybe manage them down, maybe risk manage them as they beget negative momentum. But if they're really those Byron Wein big idea secular winners, Mike Durbin, Durbin Amendment 2010, Visa, MasterCard, they were down 30% in a six month period. They're at 10 baggers since then. Apple, we're worried about advertising, worried about Samsung 10 and 20. But so if they're really the secular winners, it can almost always come back. Whereas the cyclicals different story.
Josh Brown: Treating different types of stocks differently as
Dan Skelly: an individual than the risk management stocks. I wish there was. There's no formula, but it's one of those experience judgment things we've learned over 20 years. And the second comment I'll come back really quickly to end two types of risk factors. You're not getting out of here on this topic. On the risk factors, competitive risk versus government and regulatory risk. Here's where I've also extrapolated a lot of signal over time on the government regulatory front. It's almost always temporary and overkill in nature and there's exceptions to that. But Durbin Amendment 2010 as a case in point I just mentioned it's almost always more fear and more quickly discounted incorrectly by the market than not.
Josh Brown: I learned that lesson every six months. I'm a shareholder in Live Nation, so I know oh great, new high soon. As soon as people start freaking out about the next attorney general is suing them.
Dan Skelly: And we've talked about this a little bit in terms of the macro, but oftentimes you need a wall of worry for a stock fat call to work too. Last comment on this topic. By contrast, the competitive risk is so vastly different and this is where it's more nebulous by nature and just harder to discern. When companies are losing market share, when a brand is starting to fade in terms of its relevance, that is almost always the death knell of many businesses. And here's the hardest part for me because we only fish in the ascendant and high quality cohorts. It happens to everyone. It even happens to high quality Nike.
Josh Brown: Lululemon was a quality stock at one point, right? And then they go things go in and out of favor.
C: But Abercrombie is back. Interestingly, that stock is on fire.
Dan Skelly: The competitive dynamic in terms of brand and market share, brand equity and really just governance management change over time. One of my first managers when I started on the team 18 years ago, first exercise he had me do as a first year associate fresh out of the analyst program and I was a liberal arts major. Dan do a study of executive compensation across all of our 50 holdings and tell me about the correlation between compensation and pay and shareholder return and try to find outliers. And he had me do that exercise probably 11 or 12 different times. And so I mentioned governance earlier before changes in governance, lack of credibility, lack of capital allocation, consistency. Those are some of the qualitative things that we pay attention to.
Josh Brown: You know it's so funny because the way that you do things lines up so much better with my actual lived experience in the stock Market. But when I started, and maybe you experienced a version of this, this was not the way things were done. It was much more about metrics, and it was much more about math, and it was much more about, well, this PE ratio is lower than that PE ratio.
Dan Skelly: Remember when valuation mattered?
Josh Brown: Right. But that was like everybody coming out of Wharton. That's what they were taught. And so they would look at like the steel sector and they would say, Bethlehem Steel is the lowest PE ratio. Yes, it's got the highest debt, but, you know, we're buying a dollar for 50 cents rather than ishpat Steel, which is, you know, a dollar for 80 cents. And that was just the way people thought about the market. I don't think anyone thinks about the market. I think more people now think about it the way you and I do, which is that the price is behaving in whatever way it's behaving relative to valuation, because the market is smart. The market has more expensive than ever. The market has figured out that this stock should be an elevated valuation. That's not a negative. I'm not saying it's a positive. We only want to buy expensive stocks, but. Oh my God, are we saying it's expensive by accident? We can't be saying that.
Dan Skelly: No.
Josh Brown: I think it's amazing how many people were trained thinking that expensive stocks relative to their peers were accidentally. They call it a mispricing. What do you mean a mispricing? No, it's not mispriced. They want to own Dell cuz Dell's better than Compaq. What part of that don't you understand? So I think people have come along to that.
Dan Skelly: Well said. And I think the two things I would just add to that, Josh, are number one is the access to information, the speed of information and the proliferation of information has helped that efficiency in nature. And secondly, it's the microstructure of who's invested in the markets. Think about the proliferation of CTAs and quant funds on the institutional side, think about all the liquidity on the retail side. You know, I didn't mention it earlier, but I meant to. I made a mental note of it. But something like 40% of homes in the US are owned outright, no mortgage. So think about an aging population with excess capital on hand, and maybe from the other part of the spectrum, the younger cohort, who has more access to investing gambling tools. And just think about the momentum and trend followers in the market versus classically trained Wharton MBAs doing valuation work. The microstructure has changed the technology and the speed of information has changed, making momentum one of the single most important factors in markets this year through June 22nd in the last five years. And so what we say is, look, it can be true on the one hand that we're quality oriented, we're diversified, we're long term investors, we have one client in mind who's wealth management and we manage the tails. That can be true on the one hand, but on the other hand, don't pay attention to the technicals and the momentum at your own risk.
Josh Brown: That's right. It's nice to be able to punch into Google what is the PE ratio in this stock, but everybody knows that already. So the momentum is the actual story, the stock is under accumulation or it's not.
Dan Skelly: And watch for one momentum changes. We are at a crucial inflection right now. Whereas the aforementioned semis, hardware and power names have either traded sideways since June, failed to recover the 50 day, not had the PB hedge fund guys regrows back up. That's going on on the one hand and we've talked about it. Healthcare's working, parts of software's working, financials are working, energy's working. You know, one of our very simple tools this year has been every time we've had a ceasefire is to buy more energy in the book. Because every ceasefire deal has been pretty short lasting. And so yes, you have to pay attention to the momentum. You have to also try to exploit some of the anomalies out there too.
Josh Brown: Last thing, you think the year end setup is favorable given the earnings growth and all these tailwinds we talked about, you're feeling pretty good about. I mean most years we go out close to the highs, so it wouldn't be surprising.
Dan Skelly: Yeah, it's been tough to bet against seasonality the last several years. So I would say per our pop up ad exchange earlier, I think at best we trade sideways into the midterm. As you stated Josh earlier, I don't think there's any real profound outcome from the midterm. But then I think it's all about in terms of October earnings season, I think all of the trends and data we're seeing suggest and the conference season this September should also predict pretty solid acceleration there. And then it becomes what happens in 27. So let me leave you with my 27 thought which is in my mind 27 could look a lot like 23 where it's a return of more monolithic mag 7 outperformance. I think the average company is going to have trouble comping that synthetic tariff operating leverage. So if I were to make more of a thematic call for next year, it could be one of these ideas where it's bigger is better again, bigger is better. Quality is back and it could be a broader market, but you definitely want to be in kind of the 23 kind of AI enabler mag 7 names and maybe some of the healthcare adopters and maybe it's not as good a year for small caps or the average stock.
Josh Brown: I love it.
C: Good stuff.
Josh Brown: Do you have fun on the show today?
Dan Skelly: It was really fun. Thank you.
Josh Brown: Okay, we're happy you're happy on your end. Okay, we're gonna take Bree's happy. I'm happy we're take a brief recess and then we're gonna do some Israel, Palestine stuff. Is that okay? Is that good? All right. You were awesome on the show today. Put the headphones back on. We're gonna give you your flowers. I want to tell people where they can learn and get more of your insights. So you're gonna do squawk from time to time. Do you guys publish anything anywhere? Are you on LinkedIn? Tell us where we do.
Dan Skelly: And thanks for that. Heads up. So Josh, I'm on LinkedIn and the firm Morty Stanley's on LinkedIn. So we are available through those channels and then yes, we publish through the global investment committee. I publish a quarterly letter which I'll share with you both in terms of my fund, the sma. And then at times, as per the software and semis comments, we'll write more tactical ad hoc client facing material. So we'll share all those with you.
Josh Brown: That's great. And I know the audience definitely is going to want to hear more from you. Thank you so much for joining us.
Dan Skelly: Thank you for having me. A lot of fun.
Josh Brown: Really appreciate it, guys. Great job this week. John, Duncan, Nicole, the whole team, appreciate it. Thank you so much for watching. Thank you for listening. We'll see you next week. Thanks again.
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