This Is When The Market Rally Ends And Stocks To Beat Downturn | Jay Singh

You won't believe this number, it's actually 50% year to date. That's still an absolutely phenomenal number for earnings. The speed at which these companies are growing is just so tremendous. The models themselves will be commodities and I think everyone understands that now. [music] We've had a massive, massive re-rating and based on the earnings growth, the 12-month PE ratio for the S&P 500 is only 20 times. >> [music] >> Now, with the S&P 500 all-time highs because a lot of that's driven by earnings growth. >> Jay Singh is back, he's a founder of Special Situations Report and we're going to get Jay's Special Situations update today. What are the special situations? Welcome back to the show, Jay. Before we get into that, this broad market rebound right now, let's talk about the big picture here. Stocks, in particular tech stocks, had a dramatic sell-off in July with the semiconductors leading the charge downwards. V-shape recovery upwards now throughout August. Sentiment has improved dramatically and I've noticed that people are overall a little more bullish on my show as well. Some people are more cautious going into this rally and some people are selling this rally, but overall the tone is more bullish. You're also bullish on the gold miners, which we'll talk about. Are you buying into this rally or do you think this is a dead cat bounce? Let's start there. >> Absolutely. Well, thanks for having me as always, David. It's very nice to to be able to share insights. >> Happy to be here. This has been a very volatile year. I know that while the S&P has been, you know, effectively in a 5% range bound market for the last couple months, the Nasdaq had an 11% drawdown um last month, which was driven by a big sell-off in the semiconductors and the Korean stocks. As you know, there's over speculation with leveraged ETFs in Korea, the government clamped down on them. We subsequently had a 45% drawdown in those names and we had a 50% drawdown in the momentum stocks, which is the biggest drawdown in several years. At the same time, you had firms like Citadel Securities arguing for a rate hike which I thought and I think I I said, you know, we have a weekly call every Sunday and we also do uh Twitter spaces on those calls. I had publicly stated I do not expect a rate hike in July um and frankly not even in September. And you know, I think that there is an overreaction to rate hike fears uh given the risk um around the >> [snorts] >> uh Iran war extending. Now, I still think the geopolitical risks are there. However, I do think that real estate inflation um has been something that's dragging down uh overall CPI. So, we had CPI faithfully meet expectations this week. We also had PPI below expectations. Final demand at 0% versus 2% survey expectations month over month. You know, annualized uh PPI final demand came at 4.7 versus 4.9 and uh core came in about 4.2 which is a little bit hotter than the 4.1. But overall, PPI final demand was below expectations which is a positive. Um so, I think we've hit a a temporary peak in the 10-year yield. And you know, the 10-year yield is inversely correlated with speculative names. It's also inversely correlated with tech stocks. And as a result, um now that the market um you know, tends to feel that the 10-year um has peaked which has been my view for the last few weeks although we finally got it now. Um I think that you have will have a few weeks of of a rally going into midterm elections given there isn't much really Trump can do uh given how close we are. Um you know, as we know, midterm elections are in November. Trump definitely does not want uh to lose the house nor the Senate although I think I think the house is already lost. And as a result, we're in this short-term you know, type of Goldilocks environment. And there's several pockets, you know, that we've been buying into this rally. You know, for example, in the gold miner space, we've been long AGI, which had a tremor at one of its smaller mines, but you know, it's flagship mine is actually done relatively well and it it's set to ramp production up to over a million ounces. So, that's AGI. We're also long Kinross Gold. We're also long Barrick, which reported I think we timed AGI almost perfectly at the bottom. We're also long Barrick and we're also long Agnico Eagle, along with, you know, physical gold and silver PHYS etc. We've also been long the REITs during the index rebalancing from the small cap index when there was big selling in Redwood because of a fear of interest rates as well. We loaded up on Redwood. It was paying like a 17% dividend at that point. We've spoken with IRM management. It's a well-run business. They do high-quality mortgage origination and securitization for individuals in the US, you know, that are non-W2. You know, it's a dentist, doctors that, you know, want to buy a million-dollar home, need a jumbo loan. They buy those, you know, have 750 FICO scores above and they securitize those. So, because of the index rebalancing, we were able to buy that we were able to buy that at at a three handle and now it's rallied almost to $5 a share. So, very healthy return for a few weeks and even today at the close at about, you know, [snorts] four spot 77, it's a 15% dividend yield, which we think is sustainable. And then, you know, we're long the Warner Brothers WBD spread, which is one of the big merger arb spreads in the market. You know, another one of the big So, that's Warner Brothers Peace Sky. So, that's a cash deal. It was about a $5 spread, so 19%. Uh and we think that it's going to go through antitrust the deal probably will close next year. Uh we've also been long NSC UNP, which is a 12 and 1/2% spread on the merger arb side. Um and then, you know, on the on the earnings front you know, there've been a number of companies reporting, you know, that we bought for a trade, right? So, in the big AI sell-off, you know, we saw uh GPU lease rates go up and you can track them on Bloomberg uh for the H100s, um which is one of the things that uh Jensen has been been touting um in the B300s and as a result we bought Nebius and CoreWeave. Uh had earnings both of them crushed. I think Nebius reported Q2 26 revenue of 582 million, which beat estimates of 573. It was up 454% year-over-year. Adjusted EBITDA came in at 236 versus 175. Um compared to negative 20 million of EBITDA last year and AI cloud revenue was up 514% to 575 million and operating cash flow actually reached positive 2.2 billion with cash at 8 billion. So, this one doesn't have a lot of debt like CoreWeave. You know, they have customer prepayments of about 9 billion to help them construct in 2026 and they raised their contracted capacity to about 5 gigawatts from their prior guidance of 4 gigawatts. So, management has basically said that it could sell its entire 2027 capacity today, but it's still deliberately holding some back for higher value immediate customer demand and stock was up, you know, 34% on the day that it reported and we we trimmed. Um we also were long uh CoreWeave, which also had some strong results. So, I won't go into a lot of details. It's It's a well-followed name. Uh we you know, we're selling some of the names that rallied. Um you know, on the software side, one of the big shorts for hedge funds uh were the software names uh because, you know, as we know, we'll talk about situational awareness in a minute, but, you You a lot of these tech names had to short um software uh as a hedge to their long AI stocks. So, what we had was because AI stocks are so much bigger than the individual software stocks, we had um you know, very high short interest and sit you know, systematic selling with software names and we bought a lot of the software names like DataDog, uh which has done very well. Um and even you know, cybersecurity was our biggest overweight. Um and some of the other names that we bought um you know, were names like Wix from the lows, which have also rallied given the subscription price is so low. Um it doesn't make sense for people to replace their their web subscriptions with um with AI. Uh we also bought ServiceNow and Snow and some companies that we think, you know, have some moats. Um even you know, you even saw Palantir, although we don't own it, you know, it rallied about 40% on earnings. And for those of you of you don't know what happened, you know, in late July of 2026, um Ken Griffin acquired the public equity portfolio of Situational Awareness, which was the AI focused hedge fund run by the former OpenAI researcher uh Leopold Aschenbrenner uh after he suffered heavy losses. I think he's he was actually like he given back all his gains on the years of like 400 plus percent uh on the public book and he was up 80% net just on Anthropic on the private book and then you know, I think he's been he's going to focus on privates now. Um you know, basically this guy um was a former OpenAI super alignment researcher and back in 2024, he published this 165-page paper titled Situational Awareness: The Decade Ahead and he predicted, you know, a lot of the AGI and a lot of the rallies we've seen in in memory and and you know, optic optical stocks and in the whole ecosystem. And the problem was he was using leverage and this is why I always caution people on using leverage. He using he was using about four times leverage and had 45 billion of exposure. You know, he had he was long AI infrastructure like Cor Weave, SK Hynix, SanDisk, and he was shorting software companies like Adobe. So, what we did was we started to buy software companies back in March. There are some are trading at like 10 times cash flow as a contrarian bet and all of those names almost all of those names have paid off since we bought them and then in the latest sell-off in July, some of these names like the memory names were trading at four times earnings. So, we bought SK Hynix, we bought the DRAM ETF. We bought Cor Weave, we bought uh um Nanya BS and just for a trade, not for long-term. And so, you know, this this this end of you know, July and August has been a really good backdrop for us, but you know, I think we'll get cautious again going into November into the midterm elections because we feel you know, after November that you know, our president is not really going to hold back and we might see a re-escalation in Iran, we might see new tariffs announced because at that point he'll have really nothing to lose. Um so, we're you know, we're going to be cautious again in about a couple months, but I think for now, I'll take a pause here and um you know, if you have any if you have any questions, you know, happy to happy to go into in another direction. Before we continue with the video, let's talk about a problem that comes with owning gold. Now, gold has long been treated as a store of value, but the catch is that sitting in a vault, it doesn't pay you anything. So, that's where today's sponsor Monetary Metals comes in. They offer investors a way to earn a yield on gold paid in physical gold. Through their leasing platform, investors can earn up to around 4% annually with yield paid monthly in ounces rather than dollars. So, your holdings are measured in gold itself, not in fiat currency terms. The gold stays your asset throughout and it can be redeemed at any time. Thousands of investors are already earning a monthly yield in gold through Monetary Metals. So, visit the link down below monetary-metals.com/lin or scan the QR code here on screen to learn more and get started today. >> A lot of people are actually just sidetracking a bit and going back to the markets later. A lot of people wondering how a 24 20 Well, 24 year old at the time was able to raise 45 billion dollars. You've worked on the institutional side before. Just tell us how that process happens. And how one is able to accumulate so much capital at such a young age. I'm not singling out Leopold here, but it's just very curious for a lot of people how that happened and whether or not there was any risk um officers at the fund for such a large fund why that was even allowed to be forex levered. >> Yeah, that's a really good question. So, after he wrote this viral manifesto, you know, the reason why there will always be a need for humans in the markets is because fear and greed. And institutional you know, LPs, they tend to chase momentum. And they always tend to do the wrong thing at the wrong time. You know, you should be a contrarian, but you should buy managers when they're down and what they do is they buy managers when they're up. So, after he wrote this viral manifesto, he had some seed investors. So, here, you know, he's a very smart guy. He was a Columbia valedictorian at age 19. Um You know, so basically his seeds were like Patrick and John Collison. You might know them, the co-founders of Stripe, Nat Friedman, the former GitHub CEO, and Daniel Gross, and then Graham Duncan, who's the founder of East Rock Capital. So, they actually only gave him about 225 million of initial capital to start. Um and so, then he got other investors as as his return started to be good last year. And you know, he didn't probably get into payout of his carry last year, but the 45 billion was really, you know, probably like 10 billion dollars of equity that was levered, you know, four times. And and compounded because of 400% return. So, I think he only raised like probably single digit billions. I mean, it's still very impressive for someone at that age, but you know, again, this is momentum chasing. Uh there are follow-on LP capital raises in 2025 and early 2026. Um and I think that I think it's the heavy leverage that killed him. Honestly, I think he would have still been around if instead of leveraging up four times, even if he only leveraged 50%. If he wanted to play uh you know, play the cards a little bit, I think he would have still been around and he would have still been running billions today if it wasn't for for that that mistake. >> think he had good risk management to be frank. >> How much leverage is too much leverage? Is there a rule that you follow? >> I personally have a I personally have a rule uh that we use at Special Situations Research. Um and that follows Seth Klarman's margin of safety, uh which now I read a couple decades ago. Um and that's that's actually that we almost never use leverage. Um we have about 20% cash at all times and and we take trades. We can we can trade amplify trades through call spreads. Uh but in terms of taking margin leverage, um you know, just I'll just give you you know, the Japan flash crash, uh the VIX blow up a few years ago, COVID. Um people don't understand in If you're leveraged even one times, you can get taken out to the woodshed. Uh so we prefer not to use margin cuz it puts all the power in the broker's hands. They can sell whatever they want. Um I don't think there's really any any healthy way to use leverage. You you know, through COVID, I think we were up like 3-400% over those couple years. I mean, you didn't need to use leverage. We were short SPACs using puts. Um we were we were long very cheap companies. And then you know, you could have bought Meta back in 2022 after that big sell-off and made multiples. I mean, there's so many ways to make money. You don't really need to use leverage. I think you know, young people often get um you know, taken for you know, they they look at you know, the whole greed and fear to fear is amplified when you're young. And uh with experience, you realize that it's never really good good idea um to use leverage. >> Okay. I'd like to talk to you about now and that's good advice by the way. People should pay attention to that. Jot down some notes. Yeah, too many people over leverage themselves. Just ask the good folks at in South Korea. 1.2 million 1.2 million accounts margin called but that's a discussion for another time. Going back to earnings, Q2 was strong like you said. Um A lot of examples, several examples of equity issuances Google Alphabet being one of them. I think Google raised $85 billion in Q2. Probably the biggest equity raise in for America history. But at the same time they reported revenue growth. I'm looking at the numbers right now. 24% year-over-year. They've had a pretty good pretty good 2026 so far. I I I just wonder how how much CapEx is too much CapEx now for investors. At some point people are going to ask themselves why are you issuing equity and diluting shares to fund the AI compute build out at such a large scale. Is all of it going to be productive? What is the ROI? People are going to start asking questions. Are you asking questions? >> Yeah, absolutely. Um So Google reported Q2 2026 results on on July 22nd so a couple weeks ago. Um I remember that their consolidated revenue was was pretty strong. It was up 24%. The reason why the stock didn't rally was it was before the the Leopold liquidation and and the subsequent rally. Um but um you know, there are I believe revenue was up 24%. Their cloud business is doing relatively well like Amazon's. Operating income was $41 billion. Net income was $112 billion and diluted EPS was $9 a share. Now that EPS was a little bit um it was a little bit skewed by their stakes in Anthropic, etc. But, overall, the company did well ex the one time. Um And Google Search, you know, was up 17% buoyed by use user engagement and the use of AI overviews. I mean, Gemini itself is now one of their biggest products. So, that was, you know, that was quite positive. Um The reason why the stock didn't rally a ton, um despite even YouTube ads being up 11.1 billion up 13% and subscriptions up 15% was that they did 45 billion capex for the quarter, you know, bringing quarterly non-GAAP cash flow to uh to -5.85 billion. And so, because of that, um you know, I think what what we have seen is um is that the market is penalizing tech companies for effectively overspending on capex. So, I think Microsoft is the only company, so Microsoft was up 13% after earnings, uh because they said capex would be roughly flat, they weren't increasing it. But, outside of Microsoft, I think all of the hyperscalers are now burning cash flow. And so, even though earnings look strong, um you have to be really careful with these with these companies, um because they're not the capital-light um free money generating businesses they were in the past. They're now becoming capex-heavy. And I think over the next year there will be a trillion raised. That's a trillion with a T uh for new AI projects. In fact, Nvidia is raising 500 billion alone uh to finance its own GPU purchases. And that was that was a deal announced a couple days ago. So, um I still like Google. I still like Microsoft. I still like Amazon. I'm just saying that the businesses are not the capital-light businesses they were before. >> Take a look at this article from the FT yesterday. Uh Goldman Sachs analysts have scoured through the footnotes of the hyperscalers' regulatory filings, counted 1.5 trillion dollars of lease commitments, of which 1 trillion hadn't started yet. Those analysts noted, "From a credit perspective, this treatment can understate leverage and finance liquidity needs as these obligations are eventually recognized and contractual payments come due." Okay, the headline of this article, "Hyperscalers exploding purchase commitments reach $1.5 trillion." Kind of alluding to what you were talking about earlier. I'll leave this chart up. Hyperscaler shopping spree purchase commitments in billions of dollars uh Q2 2026 dramatically up from Q1. And now we have um apparently reports that uh not all of this is from equity raises, they have lease commitments as well. So uh walk us through what you're thinking when you read something like this. >> Yeah, absolutely. Um so, my view is that what we have right now is we have a we have an AI race. And everyone is trying to buy as much compute compute as possible. According to Morgan Stanley, they're looking at AI CapEx as being, you know, 1.2 trillion next year, which is double the estimate they had last year. Um so, the question is like why is AI compute spend um so vo- vociferous? Um and the reason why is that, you know, there's just a lack of of supply, right? Nvidia and AMD are the biggest producers. I know Am- Amazon has its TPUs and Google has its TPUs, but in terms of GPUs, um there's a limited amount of supply and the AI sector is growing so quickly. I mean, just look at, you know, I think we're going to see, you know, Anthropic, which owns Claude, um IPO in September-October now. And I think they're like looking at 50 billion run rate revenue, and they're on the single-digit billions last year. So, the speed um at which these companies is are are growing is just so tremendous that everyone wants to capture that pie. And [snorts] the only way to capture that pie is to be a first-mover. Um the models themselves will be commodities and I think everyone understands that now. So as a result, I think that there's just there's this mad dash for compute. And as a result, I think that is what's resulting in this AI hardware frenzy. And I don't think it's going away. I think that you're going to see continued really high demand for high bandwidth memory, HBM memory. I think you're going to see energy and grid connection demand. You're going to see liquid cooling demand. You're going to see premiums for advanced GPUs continuing for ASICs like Google's TPU or custom silicon. You're going to see demand for Broadcom products and eventually there's going to be a symmetric risk of the cost of overbuilding. So you're going to have a lot of unused GPUs because these data centers are going to take a long time to be completed. I mean they're they're running one two-year delays. But for now, you know, I think the hyperscalers are just focused on building as much compute as possible so that they can be, you know, the biggest cloud provider. And you can see that in the numbers, right? You can see that Microsoft, Amazon, like all these companies have like they've doubled their backlogs, their their cloud backlogs and the risky part is a lot of it's circular financing and that a lot of the backlogs are OpenAI and Anthropic and that's, you know, money that's being raised in the public markets and from VCs. So it's important not to let the hype get out of control, but for now, there's so much money being raised. Like I mean if Jensen can raise 500 billion from eight large asset managers in such a short period of time. I mean Nvidia's going to have to it's going to be it's going to be beating earnings for the next couple quarters with that much, you know, that circular financing works in the short term. Eventually, people will question it. >> People will question it, but in the meantime, it looks like it's firing on all cylinders. >> The numbers will continue to beat for the next couple quarters. At some point next year, the market will say, "Okay, how long how long is this this sustainable?" >> I mean, people will start questioning it, but for the in the meantime, it looks like it's firing on all cylinders and um it just it does it does it surprise you that the tech uh boom over the last year or a couple years, but especially the last year has been relatively insulated from the Iran war? In other words, it didn't really have much impact on on on the growth of the Nasdaq. Uh this probably I wouldn't have made this statement 20 years ago. But um it seems like things are moving in a different direction now. >> It's a really good question. You know, what we've had um was we you know, starting you know, this was several years ago, big tech eventually became uh flight to quality. You know, this is several years ago um and and it became more pronounced during COVID, right? Instead of buying bonds, um investors would buy the Mag 7. And what we have today is we have a hyper concentration in the socks names. And you know, we've become a trend following nation, a momentum following nation and um people who bought these names have done quite well, so we can't say they're wrong. Um but you know, there's a very small percentage of the names, like 5% five uh names in the S&P 500 did like 20% earnings growth, right? Like Micron and SanDisk, for example. So, um it's becoming, you know, hyper concentrated. And um that will eventually lead to over investment. That's, you know, that's what happens. And Meta's done this a couple times, you know, uh they've invested in um you know, several projects that have that have failed miserably, uh like virtual, you know, virtual reality labs. Um but then they recover, they cut costs, and they invest in the next big big thing. I think AI's a lot more real than virtual reality. And if we look at, you know, overall earnings uh as as a side note, um you know, for the second quarter of 2026, 88% of S&P 500 companies have reported actual results. It's you know, well, there's been a concentration of good performance. 86% of S&P 500 companies have reported positive EPS and 76% of S&P 500 companies have actually reported positive revenue surprise. So, it's been very broad, but it's been a few companies that have that have done extremely well. Now, in terms of earnings growth, because of the tech names, earnings growth for the S&P 500 you won't believe this number is actually 50% year-to-date. Now, some of that is due to the mark-to-market of the ownership of Anthropic by Google etc. So, the real number is closer to 30%, but that's still an absolutely phenomenal number for earnings. In terms of earnings revisions, you know, going back to June 30th, the earnings growth rate for the S&P 500 was expected to be only 23%. So, we've had a massive massive re-rating and based on the earnings growth, the 12-month PE ratio for the S&P 500 is only 20 times. Now, with the S&P 500 all-time highs because a lot of that's driven by earnings growth. Last year, we were looking at S&P uh multiple of 23 on a forward basis. So, the earnings has actually lowered the multiple and so, if you believe the earnings are not going to fall from here and they're not peak earnings, then S&P is actually not even that expensive. Believe it or not. If you you know, if you believe these metrics are sustainable. All 11 sectors report have have been reporting year-over-year revenue growth through the S&P. It's not like that in other parts of the world, but it's definitely like that here and and energy because of the Saudi war has reported revenue growth of 42.5%. You know, IT, second highest growth year-over-year versus last year, IT is growing at 36%. Communication services, 15%. So, it's just you know, we're hitting it on all cylinders. S&P revenue growth is up is basically 15%. That's the highest revenue growth we've had since the second quarter of 2022, which is 13%, and the fourth quarter of 2021, which is 16%. But, those are less impressive because those are coming from weak COVID quarter year-over-year. This is a lot more impressive because it's actually coming from a relatively high growth last year, and we're still growing revenues at 15% year-over-year this year. >> I wonder if the fact that the US is relatively insulated from the Iran war, meaning the US imports oil from Canada mostly, and so it doesn't doesn't rely on the Strait of Hormuz. Uh I wonder if that puts a competitive makes I wonder if that puts the S&P 500, a global index, uh in a competitive relatively competitive position relative to its peers abroad. Um >> That is a great point. Um so, I want to emphasize that, you know, of the 120 trillion of global market cap, like, you know, 60 to 70 trillion is in the US, right? So, the US is just an extremely wealthy nation. It has its own natural resources, right? Canada does, and Canada helps us with energy. Um but, we're we have two oceans separating us, right? The Atlantic and the Pacific. Um so, Iran doesn't pose a conventional threat to the US because it doesn't have the long-range power projection capabilities or intercontinental ballistic missiles capable of launching a strike to the US mainland. So, you know, European stocks and Middle Eastern stocks, Asian stocks are more sensitive. Um I would say even LatAm is protected, um especially cuz Brazil is a big commodity producer. Argentina is a big oil producer. Um I think the risks that we face are like the cyber attacks, you know, the water infrastructure that was hit by by I'm assuming Iranian um I I I IRGC terrorists. And I mean, the Iranian people are not the ones to blame. It's it's the IRGC. Um And while our overseas US troops personnel are at high risk. It's a very small percentage of our of our troops and a small percentage of our bases. I mean, the Strait of Hormuz disruption does affect our allies. So, that's why we're sensitive. But, you're absolutely right. You know, the US is we produce like 13 million barrels of oil a day. We also import a couple million from from from Canada and we're also now importing a little bit from Venezuela. So, we're relatively insulated you know, from from what's going on overseas. >> Yeah, Nvidia hasn't reported earnings yes yet. It's reporting on August 26th. That's going to be a very important report to watch. What are the key metrics you're looking out for? What Nvidia reports could be a huge indicator for how the semiconductor industry sector overall is is performing and and that is some say a leading indicator for how the AI compute story is playing out. >> Yeah, absolutely. I would look to see how the compute business does for Nvidia. The data they call it, you know, they have a data center revenue and product architecture ramp coming up as well. The data center revenue accounts for like 85 to 90% of Nvidia's top line. Because it's been growing so so much faster. So, the sequential quarterly growth rate and the next gen architecture shipments are going to be important to look at like the Blackwell rollout and the transition towards Vera Rubin is going to be very important. Um visibility in the future quarters because people are worried about, you know, this AI demand peaking for the next two to four quarters if they give guidance that will be very important. Other things that I looked at for like Micron as well and Sandisk and SK Hynix like gross margin resilience is something people focus on on Wall Street. So, the target range again analysts probably expect gap gross margins for Nvidia around the 73 and 75% range. Like Micron they're worried about peak it's peaking out and the memory guys are 85% gross margins which is insane. So, you know, things that could hurt hurt gross margins for Nvidia could be like cost pressures, you know, TSMC raising you know, chips on wafer substrate packaging costs, high bandwidth memory costs, which is what hurt Apple. Um you know, people are going to look at this earnings and look at hyperscaler CapEx read-throughs. A significant portion of Nvidia's revenues, right, comes from big cloud providers like Microsoft, Alphabet, Meta, Amazon. So, analysts are going to cross-reference Nvidia's reported sales with the CapEx guidance provided by these tech giants and see if it makes sense. Nvidia is also being investigated for its shipments to Singapore. Obviously, Singapore doesn't have that many data centers, so where are those GPUs actually going? So, that might be a topic. Um there's Spectrum-X and Quantum InfiniBand. Those will be like small things that the market will be looking at CPU attach growth, software and services, CUDA ecosystem licensing might be something that's brought up on the call. Um but overall, it's just going to be, you know, their forward guidance, you know, their margins uh that's going to be the most important in the data center business. >> Okay. Overall, I think the bigger picture here is that earnings have been spectacular for Q2, in fact, record uh earnings for a lot of companies. For example, Goldman Sachs reporting uh record profits surging 78% on a year-to-year basis to 20.98 um EPS. Analysts returns common equity of 23.5%. The company itself reports record profits. I I think the the the point I'm trying to make is that um it's kind of a stark comparison to how consumers are feeling overall. If you take a look at my screen right now, the uh consumer sentiment index of the University of Michigan is still near record lows, historic lows. Now, this is worse than 2008, this is worse than the dot-com bubble burst, this is worse than COVID. Um and I I just wonder whether or not, first of all, the the the overall sentiment is actually reflecting the reality of the economy. Perhaps the economy is stronger than what people feel. And I I I I wonder if a lot of the consumers' fears about where the economy is headed, and ultimately where markets are headed, are a little bit overblown given how the Iran crisis has spooked people. Or do you think that corporate profits are just not reflecting economic reality? Either way, there's a disconnect. How would you describe it? >> Yeah, I mean, that's a great question. Consumer confidence has been very low. It's been affected by politics. It's been affected by um you know, fear of rising oil prices. It's being you know, it's been affected by price levels, not actual inflation, cuz inflation is is is not extremely high, but the price levels have been high you know, the last three or four years. The cost of living has been going up and you know, the poor have been affected by that. Um >> [snorts] >> you know, >> [gasps] >> if you look at GDP growth, you know, half of GDP growth has been because of AI and data centers. And you have people like me that are smart enough to pick up trends. You know, I bought Babcock and Wilcox. Um you know, the prefs which basically doubled. The stock was up 40%. Um and people who follow the market, you know, we can make money on these types of things, but the average person is not trading the market or benefiting from AI. You know, they're not benefiting from from the water usage and the power usage. And there's a huge backlash. Um you know, again, it's um AI because it's [clears throat] seen as a job stealer. Um and the reason why people are not happy is the cumulative price level versus the inflation rate gap. So, you know, you versus pre-pandemic baselines, the average American when you factor in the prices of essentials, groceries, rent healthcare utilities um those costs are roughly 20 to 25% higher than pre-pandemic baselines. So, that results in an erosion of purchasing power because wages in many sectors have not kept kept pace. They have in certain service sectors, but um you know, like in tech and in finance, but those jobs are also uh very AI uh sensitive. Uh minimum wages have also gone up. Um you know, in certain parts of the US like New York, you know, you can earn $20 an hour. But, the issue is that, you know, rents are going up much faster. Uh the cost of food, the cost of healthcare. Um and the administration hasn't done really good job of controlling healthcare costs uh like they said they would. Um you know, gasoline prices are something that we see as a daily billboard for the economy. And while oil prices have come down, the crack spreads of refiners have not come down. Um and that's resulted in gas prices remaining stubbornly high, uh which I'm sure is very frustrating for people in the US and frankly around the world. Um then you have financing pressure with mortgage rates being very high, uh rates on credit cards are near all-time highs, auto loans, and personal loans. Um I frankly think that mortgage rates are near near-term peak because they're correlated with the 10-year yield. So, that's why I'm buying mortgage rates right now. Uh that's also why I'm buying gold because I think real rates have temporarily peaked. Um but, one of the other reasons why people are unhappy is cool is cooling job mobility. So, you know, we had this area this time during COVID of the great resignation, you know, of of very easy job switching when people were getting raises and they're very happy. And now with AI, you know, that uh that confidence that people had uh is gone away. And so, this emerging tech anxiety, surging corporate investment in automation instead of people, you know, uh Meta is firing people to invest in these data centers. That's it particularly amongst the creative white-collar administrative workers that that results in this K-shaped reality. Invest in can deny it and call it C-shaped or however much he wants. I understand that, you know, minimum wages have gone up. But, overall, I think the average worker is not doing as well um >> Mhm. >> on an inflation-adjusted basis as they thought they were going to do. Um and that's the exact economy right I'm sorry. Go ahead. >> Please. Go ahead. >> I was I was saying in this economy right now, are Are are we looking for the consumer to continue lifting earnings or are we looking at B2B sales? Because it doesn't sound like consumers are very confident in their job prospects. And if I'm not confident in my job prospects, I'm not spending money on discretionary goods even in the tech space. So, I I don't know how we can count on the consumer to carry this forward unless unless you think I'm wrong here. >> No, 100%. You know, I think half of the GDP growth as you mentioned has been really just B2B. It's been AI infrastructure and that can continue maybe for a few quarters, but you need the consumer to come back. So, you know, what's happening in the US is the top 10% of consumers do about 60% of overall consumer spending now versus 30% a couple decades ago. And so, there's been a concentration of the ultra-wealthy, you know, they're buying the nice cars, the nice vacations, the nice homes. And you're seeing that, you know, the luxury stocks have been outperforming. You know, the middle-income catering stocks and a lot of the you know, middle-income middle-class people are now shopping at places more like Walmart and Target, you know, to save money. So, like obviously Walmart's doing well, but you know, a lot of the brick-and-mortar stores are suffering and the tariffs certainly haven't helped as well. You know, so the Iran war and the tariffs have actually created inflation, which is something that this administration said administer you know, they said inflation would be going down. And you know, a lot The reason why their approval ratings are so low almost basically at Biden approval ratings is just the the series of lying. You know, the four billion dollars of crypto grift. You you just can't deny it. It's just it's factual. And it is what it is. People are just not happy that the president's getting rich while they're not. And if everyone is getting rich, no one would care to be honest. And it's just a concentrated group of of asset owners and people exposed to tech and who know what to do and people like in our community that have saved and they and they know how to trade and and allocate properly, but the average American is not doing well. Um and there's and now Trump wants to cut capital gains taxes. Um you know, it's not really he's this is not a main street mainstream economic boom. It's really not. >> Jay, what kills this spree? >> I think there are three things that can kill this spree. Um one of them is temporarily alleviated, which would have been a spike in the 10-year. Um and and I think that's temporarily behind us because, you know, this Oman Iran side deal, US saying that the street's not going to be that important, which means we're not going to be striking them that much before midterms, at least I hope not. Um and inflation, the CPI PPI, you know, we're we're not hot. Um so expectations for a Fed rate hike, which were above 60% for September, are now below 40%. Um so if we don't get a hike in September, um I think, you know, we'll see a relief rally and risk that we've already seen a relief rally in risk assets. We've seen precious metals rally. And I I think we might even see crypto rally if uh if we can see the 10-year just stay in a range or go a little bit lower uh between now um and November, and then we would have to rethink everything ahead of the midterms, but we actually bought TLT, which is a long-term bond ETF as well, for the first time in years. Um last week. >> You're expecting rates to go down. >> I expect uh long-term rates to stay flat, uh to go down a little bit. I don't expect uh a big a big 10-year spike unless um we see a resurgence a big ex- not a small escalation, a very big ex- ex- escalation of the war. >> Tell us about one call you got wrong this year. And why? >> I think one call that we got wrong was we were very early to um and we started to buy the software names in March, and it was it was very um if you look at the if you pull up the IGV um ETF, you can kind of see what I'm saying. Um, we saw huge valuation resets in the software space. And uh, for a long period, um, you know, uh, from March, you know, you saw a drawdown of about 15% into April, and then we saw a massive rally into June, we sold, and then we rebought in in in July, but it was very difficult to trade that. You know, from December to Feb, you you basically saw a 35% drawdown in software. So, that's some of the best companies in the world. Then you saw a dead cat bounce into March. You know, we bought in Feb, we bought we kept buying in March, and then we saw a drawdown in April, and then eventually it paid off, but even after June, you saw another 25% drawdown into July. This is very very difficult to trade this market. Um, and um, you know, luckily we held on to some of those names, and we risk managed, and we shorted some QQQ, but it was it was a roller coaster, I'll tell you. I was not very comfortable for most of this year, and and I do plan to take some chips off the table ahead of the ahead of November. I mean, um, we did time some things really well, like we covered uh, a very large percentage of our our hedges after the bad jobs report on August 7th. And what that told me is that um, you know, that that there'll be less pressure on wars to hike. So, there the market did give us a lot of clues, even though the Fed doesn't really give you a lot of guidance. And there's some names we recently bought, and you know, which are longer term, where I'm not sure they're going to rally anytime soon. Like I bought Uber, um, and and I bought a little bit of Netflix and and Uber. Uh, I bought at 68, it's 75, so it didn't rally with the rest of the market, but you know, I thought Uber was very cheap, it trades at 12 times forward. It's down from $100 a share, it was down to 68, and it's down over 30%. Um, and you know, if you would own Uber last year, you would have you would have lost a lot of money. I mean, we we bought it this year. We think it'll be choppy, it'll be difficult one to trade, uh, because of all these risks around, you know, Waymo, is autonomous going to be profitable? We think that Uber is going to be you're to contract with these companies, and they have this big ecosystem. Um and if you look, you know, for a company to like this trade at 12 times forward, it's never traded like that. And this is a company that was burning, you know, billions of dollars a year. Now it's going to do 10 billion of free cash flow this year on a $150 billion market cap, and it should do 13 billion of cash flow by 2027 and 15 billion of cash flow by 2028. If those numbers are right, you know, this is a very cheap company. So, um again, this is a very very hard year. Um one of the another name that, you know, we got a little bit wrong um is App, APP. It's a wonderful company. Um you know, we think that it still has about 50% upside, but yeah, B of A B of A was a little bit concerned about a deceleration from 30% revenue growth down to kind of mid-20% revenue growth, which is still bit by by the way phenomenal. Um but you know, App um you know, after the re-rating, I mean, there are a lot of top-tier hedge funds in this name, and our average cost for App um is is like kind of the low 300s. It's currently at 312. Um we're underwater a little bit by about probably about $20 a share, $25 a share. And I think that this stock could be easily 500 five back at 500 over the next 2 years, but it is uh it's very tough to trade some of these names that that are growing like Shopify um was a name that we added to recently. Um you know, it had blowout earnings the last couple quarters. It didn't even rally last quarter. Had great earnings, it didn't rally. Um and then this quarter, they finally rallied after good earnings. But but this is choppy. We own this for, you know, you know, from March it fell, you know, we owned this at, you know, 120. It fell all the way to 97, and now it's at 158. But you know, we kind of ate for a while. In May, we were eating on Shopify, and it rallied. Um another one was Team Atlassian. Um this was a more speculative software name that we added. We were we were actually we were at a loss >> it called, sorry? >> Uh Atlassian, T T E A N. Um so for those of you of you who don't know, ticker TEAM as in Mary. This is a software company that it designs enterprise software platforms for project management, collaboration, issue tracking. It was private equity owned at one point. And this is one of the names where we were actually about to sell it at a loss. We bought this in March, you know, back you know, into April it fell all the way to like in the high 50s from you know, our position in the 70s. I mean now it's at 165, but again, we were eating We were down like 20% on this name. And it was at 40% on the print. And I think a lot of that was because the AI guys who were long AI semis were shorting software names. But you know, I've sold I've sold my my team and I'm I'm happy to take the gain on it. I just don't have the confidence to own software in the same size I did I did before. Um but I will tell you man, this is a very very difficult year to trade. Um I didn't I did not expect this situational awareness thing to happen. Um and and launch all these names higher. I was expecting to hold on to them for like one or two years. And maybe keep the cyber keep the cyber security names in trim team and trim some of the other ones, but it's worked out well. And by the way, I was under I was underwater on gold for a while. It was a kind of a single digit loss, but when the tenure was ripping every day and people were worried about war. You know, we were up versus last year on our gold, but just you know, on this year some of our recent gold buys were underwater. Now the gold miners are up healthily and I think they'll they'll continue to run. >> So, final point then that's a great segue. Let me just take a look at show you this. This is gold versus the S&P 500. A lot of people were waiting on this rebound that's happening right now. And a lot of people this year is difficult like you said because last year everything went up. You could have >> Yeah. >> thrown a dart, everything went up. And this year not everything's breaking new all time highs except maybe the S&P and Nasdaq and Dow Jones. And so my point is look, gold is ripping higher, if the S&P's ripping higher. Everything started ripping higher around the same time, which is end of July, early August. Something Something triggered that pop, and people are wondering if whatever that trigger is, if that's sustainable going into the end of the year. Are there any major themes that you think will be different for the second half of 2026 versus the first half of 2026? >> Are any You're saying are any themes going to be the same or different? >> like yeah, different. Let's say yeah, basically how is the second half of 2026 going to be different from the first half thematic-wise? >> Yeah, that's a great question. Um I think that one of the main themes that has been clouding the market over the last year has been, you know, tariffs and the war. I think that we're going to take a break from tariffs and the war, you know, for the next 4 months, and I think that will be a welcome reprieve, and I think, you know, even I think Citadel published a note that I'm not sure that they bought Leopold's [snorts] portfolio that, you know, they think that retail should get back into the market. It's just funny. But anyway, I think that the AI pivot from chip height hype to power and ROI something I'm focused on. Um I think the energy and the grid bottleneck, companies that provide battery infrastructure, power, we're looking at some co-location companies that are quite interesting, some power companies like VST and others that we think will do quite well, because if you think of a power company when it comes to AI, right? That demand will sustain because the data center is going to need power every year. You know, they may not need to buy chips every single year, but they will need to buy power every year. So, we think that power is one of the areas that you can continue to own and buy. Um so, that that's quite interesting to me personally. I think in terms of monetary policy, rather than anticipating, you know, rapid, you know, a couple a hikes, which everyone expected because of sticky inflation. I think, you know, we might just see one more hike or or no hikes. I think the market's going to get more comfortable with that. And I think you're going to see a rebound in M&A and private capital deployment. Um because people are waiting due to interest rates, they're waiting because of the war. Um and then I think we're going to see a defense one theme that will stay the same is like a defense super cycle and geopolitical realignment. I think countries all around the world realize that they need to invest more in defense. Um so I think that um that we're going to see that theme uh extend across Europe, North America, and and and Germany and because specifically, you know, we're asking NATO to spend more as a percentage of GDP. Um and I think that you're going to see sovereign supply chains, governments subsidizing domestic production in critical sectors like critical materials like we are rare earths, energy storage, semiconductors. Um so you're going to see, you know, countries subsidizing these critical sectors. >> Okay. Excellent. Thanks so much, Jay. Wonderful recap of special situations. Where can we follow you? >> So we uh provide a lot of content for free, Special Situations News on Twitter, and then Special Situations Research. I want to share that we're coming out with something really exciting. Um we've developed a scraping tool that scrapes all of the large databases around the world including SEC Edgar for those of you in the US and effectively highlights and finds within several thousand ISINs and CUSIPs um all of the special situations um and all their filings daily. Right? So form 10s for spin-offs, um you know, 13Ds for activism, etc. And we're going to aggregate those and provide those to our members um with a login. So you can do your own research and see in real time when a new special situation is announced. We have a developer team that's been building this obviously with the help of Claude. Uh it's it's really fast-tracked this process. Um so that's going to be available for members. Um but right now, we just released our August asset allocation report with several names across preferred where you can earn you know, 8 to 10% dividends across gold miners across merger arb, spin-offs, value and growth. Along with our our fixed income and our safe cash allocation and we publish that on our Discord. So, you can access through special situations news through the Twitter through our Discord and through our website and our website's now going to include this new scraping resource for for professional traders. >> That's a great tool. >> Thank you. >> That's a great service. Okay, that sounds really interesting. When is this launching? >> This is launching in September. >> Okay, yeah. Keep us updated. Let's have you back on in September to talk more about that. We can actually use that tool and uh and uh >> Absolutely. I'm happy happy to share with you guys. >> and see and see how it works. That's that's really cool. All right, thank you Jay. We'll put the link down below to special situations. So, make sure you follow Jay there and we'll see you again soon in the fall. Take care for now. Have a great rest of your summer, Jay. >> You too, David. Take care. >> Thank you for watching. Please do like and subscribe.