Why Tom Lee Thinks We Could See S&P 15,000 by 2030

Published Jun 24, 2024, 8:00 AM

The stock market has had a torrid run in 2024 despite the fact that interest rate cuts haven't materialized in the way people had expected at the start of the year. In fact, outside of a few blips here and there (like spring 2020), US stocks have been phenomenal performers for years. Tom Lee, the founder of Fundstrat and FS Insight has been bullish for a long time, having caught the correct side of this lengthy trend. On this episode, we speak to the former JPMorgan strategist about how he thinks about the market, what he sees happening right now in macro and demographic trends, and why he thinks it’s plausible that the market could roughly triple in the next six years.

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Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

And I'm Joe.

Why isnt thal Joe?

Every once in a while, I think it's a good idea to pause and consider everything that's happened in the market and how it actually matched up to initial expectations, because I think, you know, we're recording this on let's see June eighteenth, s and P five hundred is at another record. Meanwhile, ten year treasury yields are at what like four point three percent now, and I think certainly two years ago, maybe even a year ago, I don't think anyone would have thought that stocks would rally this much in a rising rate environm.

No, I mean, I think this has been you know, the beginning the middle of twenty twenty. I'm starting to lose track of the years. Parts of twenty twenty two, obviously the stock market was total dead money, and going into twenty twenty three, I think there was a lot of pessimism recession, and that would have been like, well, yes, this is what we expect when we get a rising rate environment. Stocks go down, the economy slows maybe a recession happens and then the market turned around, the economy continued to boom. But it's not like they cut rates or anything. And in fact, the main story has been that rate cuts keep getting pushed further into the future rate cut expectations.

Yeah.

Absolutely, But despite the record in the s and P five hundred and all these you know, we keep talking on the podcast about all the lines going up into the right, and there are a lot of them at the moment, there's some nervousness in the market right now. I think that's fair to say. So you see a lot of people, for instance, talking about the lack of breadth in stocks.

Yeah.

Look, if you're in sa P five hundred index fund holder, then there's a lot of conversations you just turn out someone's like, oh, there's lack of breadth. It's like, yeah, whatever, man, my ETF is up fifteen percent through the year.

I'm happy with that.

You know, like that's pretty great no matter what. But if you're an active manager, you want to beat the index. If you're worried about like durability, you might notice the fact that, like you know, if you strip out a few really big tech stocks like Nvidia and a few others returns are much worse, and so that raises all kinds of anxiety. Is this entire thing just sort of hanging on analysts demand for chips to run AI models?

Absolutely?

So today I am pleased to say we do indeed have the perfect guest. You know, I said in the intro that almost no one would have expected stocks to be where they are. This person did expect stocks to be where they are currently. This person is one of the few that I can think of that has basically called a lot of the market right over the past year or two.

Probably someone we should talk to.

Yes, absolutely so we are going to be speaking with Tom Lee. He is, of course, the co founder and head of research at Funstrat Global Advisors and FS Insight. Tom, welcome to the show.

Thank you very much.

So.

I know you're sometimes described as an uber bowl. Is that a fair a fair characterization of how you feel about markets?

I think that label is not reflective of how I feel about markets. I think that label is generally used by perma bears who've been perma wrong, and it's a cheap shot.

Taken, Okay, but I get that it sounds like a cheap shot. But on the other hand, uber bowls or permables historically have like one hundred years of lines going open to the right on their side.

So my view when I hear someone being.

Described as a permeable is, oh, this is someone who, except for like five minutes here and there in twenty twenty, in two thousand and nine, is permacorrect.

Yeah, i'd say so.

I think people don't live in those longer time frames, you know. In the day to day. People live as if this is a street battle, and the label uber BWL is like someone well, you know what, he might lead us out, but I don't trust him because we're in a street fight. And so it's generally I find people saying it more as a cheap show.

No, the people who say it are all really obnoxious. That I agree.

I didn't mean to be obnoxious. Wait did you just call me obnoxious?

No, you described when you said it, you were characterizing other people.

Yes, well, I feel like we should give people the offense.

Okay, excellent. I feel like we should give people the opportunity to describe their own work. But why don't we talk about something concrete, which is at the beginning of this month, Tom, you at Funstrat put on an S and P five hundred target of five thousand, five hundred, we're at about five thousand, four hundred seventy five or something like that right now. So just in that short time frame, you know, called it correctly.

What did you did?

You see?

This is actually a textbook rally. At the start of this month, we alerted our clients that since nineteen twenty seven, when you look at the start of June, but markets were up in the first quarter, but then had a draw down in April, which is what we had. Yeah, that happened eleven times. Eleven of eleven times, June was a positive month. So May is essentially a recovery month, and then June is the month where markets go back to risk on. The median gain since nineteen twenty seven is three point nine percent, which calculated a fifty five hundred.

There you go, simple math investing made easy, but zooming out. You're a fun strat for years prior to that, you're a JP Morgan I was a big fan of your org then correctly calling for much higher stock prices through much of the twenty tens, when you know there were still a lot of people calling for double dips in the sort of raw of a pretty large, bearish contingent.

How do you work? What do you do?

Because there are all different approaches that people have towards, you know, making educated guests as to where the stock market could go. How would you describe your approach?

Well, fundamental to our process is evidence based research, so you know, at the core we really try to frame where history could explain where we are today. Okay, we rely on a lot of cross market signal, so to us, the bond market is always smarter than the stock market. That's why they say equities are the land to sea students. And the third is, of course monetary policy is really the driver, so you can't fight the FED. And then I think the fourth is that thematic approaches surpass cyclical What does that mean? Well, part of our work relies on what we call like thematic drivers. One is millennials. Ok so that since twenty eighteen we've talked about how millennials, which is the largest generation, are reshaping the economy, which they are mainly through fintech and changes in preference. But of course now coming is a big generational wealth transfer of you know, as much as eighty trillion dollars. The second, of course, is that there is a huge global labor shortage which has started in twenty fifteen and won't be resolved till twenty thirty five. And the two previous instances of global labor shortage resulted in a parabolic movement technology stocks, which has been part of our themetic approach, and now we see two other things like energy security and cybersecurity are huge thematic drivers, especially because of AI, and so this grounds our work. We not only use it to judge markets, but we use it to build our Granny Shots Core Stock portfolio, which is a thematic portfolio fixed the strongest stocks within each theme, and that has outperformed every year twenty nineteen.

I'm trying to think how to phrase this question, but what do the strong themes mean for the overall market? Because I think everyone would agree that stuff like AI is interesting and promising, maybe a little overhyped at this point, but you could make the argument that there is potential there. And yet you know, we've seen the S and P five hundred as a whole go up, and there is that argument over breadth, like how much of this is purely AI? And the stuff that people are getting excited about versus general optimism about the market.

Well, I mean, if I look at the stock market, I think it is playing out with all the things you just mentioned, because the groups that are affected by high and tight monetary policy have really lagged, whether it's the regional banks or industrial multiples are being suppressed. And we know that the spend and actually now some of the synergy coming from AI is driving not only the producers of AI like and some of the software companies, but in many of the companies that are levering leveraging this for revenue growth. So I think it is playing out. But overall, I think it's on balance a healthy economy because companies are generating good earnings growth, and the labor market has come back into balance, and consumers aren't highly levered, which is really the big deal because to me, when consumers can't borrow more money because they borrow too much, that's really when the economy hits the tipping point.

When it comes to consumer balance sheets. Just on this, what do you look at when you say, Okay, the consumer is not high levered. I alouls say discussions like oh, excess savings gone.

People look at total credit card debt.

Yeah, what do you look at?

Well, I think the gold standard is still the debt service ratio, which the Federal Reserve puts a lot of time into and employs a lot of economists to build a fair view. And the debt service ratio today is still under ten percent, which you know, for instance, before this decade, you'd be in a sort of peak consumer borrowing at a fourteen to sixteen percent level, so consumers can if interest rates don't move, they can borrow forty percent more money. I think the cash say excess savings is a spurious argument because I don't remember it in my thirty years people saying consumer cycles turn when their excess savings is gone. I mean, that's not really been how the business cycle works.

You mentioned thirty year career just then, and I realized I'm kind of unfamiliar with you other than at funstrat. Can you maybe give us a recap of what you've been doing for three decades?

Yes, I've essentially had the same job for my entire post college career. I started off at Kidder Peabody in the early nineties as.

One of my old bosses.

Was it Kidder Peabody, David wire No, No, someone else said, okay, sorry, keep going.

Yeah.

I got into stock research at that time, and I was working at the sector I was assigned was wireless. So the first fourteen years of my career ARC was as a technology analyst covering the wireless industry, which again for my clients, many of which I still have from those days. No, I'm not an uber buwl because there were many times I had cell ratings on stocks. But it's not fun to be telling people the shortest stock that they own. That's when they're very angry. And then in the two thousands, wireless was consolidating and I wanted to find some other things to do, so I started to do some work on bankruptcy bankrupt stocks because many wireless stocks from bankrupt I did a whole piece called the Chapter after Chapter eleven where I looked at over two thousand publicly listed bankruptcies. I used our Mumbai team at the time, we called it Momba team at JP Morgan, and we went through all these filings and we found that stocks that emerged from bankruptcy do well. So we had a whole strategy around buying bankruptcy stocks and then JP Morgan asked me at the time if I wanted to become the small cap strategist on top of wireless, so I had two jobs. I ranked in both categories, and then in seven they asked me if I wanted to become the chief equity strategists, which I've been doing ever since and started fundstret twenty fourteen. So this is our tenth year.

O congraguate.

Congratulations. Okay, So, given your history with the wireless companies and technology overall, I feel like I have to ask you about AI and Nvidia and all of that. Is there any common thread or any valid comparison between the AI boom that's happening right now and say, the Internet bubble of the late nineteen nineties and early two thousands.

There are a lot of parallels. When I started doing wireless, there were thirty four million cell phones. Today there's seven billion. So it's a hypergrowth industry that grew almost in parallel with Internet because without mobile you wouldn't really have the Internet that we have today in the early stages of that growth. So when you look at penetration, Wall Street always underestimates the importance of the technology, and part of it has to do with it's a generational lens. Every new technology is adopted by a young cohort, people in their twenties, teens, or even thirties, but most people on Wall Street are in their forties or fifties, so they're one generation removed. I remembered when our PC Analystic Kidder said, why would you have one computer per household or even more than that, because they're twenty five hundred dollars. And I know when cell phones first emerge, people thought it was a yuppie toy and it was going to be only for people make seventy five thousand a year. But what I learned as a Wilds analyst was teenagers and young kids, especially in Europe, were using cell phones. So I used a vintage model saying that if one hundred percent of like teenagers have a cell phone by the time they're sixty, the penetration rate should be whatever it is, that's AI. The adoption rate for AI is staggering, but the use case is important because there's a labor shortage. So to me, I think it's very likely we're underestimating how much revenue all these companies will make. I can give you some simple math. Yeah, please, the global labor shortage by the end of this just by the end of this decade is close to forty million worker equivalents, and that's three trillion of wages. Okay, we're turning labor cost into silicon a center or into tech automation, of which we know today eighty percent is hardware silicon. So does that mean whoever supplying the chips might have a two trillion revenue probably, and right now the largest share of that would go to a company like in Vidia. So if in Video is one hundred billion in revenues, now you know what does by the end of this decade, is it it's eight hundred billion of trillion dollar revenue company? And then what should we discount that rate at I'd say there's probably a lot of upside.

So that's sort of the argument from the fundamentals perspective. The other thing people like to do is they like to draw these dual axis lines where they're like, here's the chart of Nvidia starting at some arbitrary date, here's the start of Cisco starting at some arbitrary date, and then they line up the peak so that the peak always happens to be right now. But regardless of the fact that that's, you know, largely what naves and scammers do, it is true that just from an overall index perspective, there is an incredible lot riding on a handful of companies right now, whether it's in Vidia specifically, the mag seven more broadly, and that you know, in nineteen ninety nine there was just an incredible weight on Cisco and Sun Microsystems and Microsoft and a couple of others. Do you see any parallels in the market environment.

Yes, there's a lot of parallels, but there are some differences. You know, keep mind Cisco sold a one hundred dollars box in video selling at fifty thousand dollars chips, so the moat around that is much much greater. I also think to contextualize this, we need to look at the global economy. If we're turning labor cost into silicon, then which countries are really the primary suppliers of technology? The US, by a country mile is the only supplier. So the US is essentially exporting technology now. And that's different because Internet was more democratized, people just put up towers and laid fiber. You can't, you know, create your own version of an Invidia chip you have to buy from video.

So I think that.

Tech will probably be, you know, forty fifty percent of the global stock market weight where we know that's probably twenty. Oh wow, it's probably like eighteen. I mean, you know in the US it's only forty.

And what in the US it's forty. Globally it's eighteen. And you say it's going to go to forty to fifty percent globally.

Yes, because you're replacing recurring labor costs with the capital investment.

Interesting, so you mentioned the net present value of tech stocks just then, and I'm curious talk to us about rates, the higher interest rate environment and what it means for stock valuation, because I think this is where people are either a little bit surprised or perhaps a little bit nervous the idea that even in the higher rate environment, stocks can move upwards.

Yeah.

Well, again, I can cite some history and then maybe provide some context. Please, Since nineteen thirty five, when you look at the relationationship between the tenure yield and ford PE, it is not linear. It is a dynamic relationship, and between four and seven percent it is positively correlated. So when interest rates go up, pe rises. Logically, it sort of makes sense because you're seeing it now. When you have higher rates, it's barriers to entry. So the existing companies make more money, and companies earn money on their cash, so the unlevered companies are actually you know, for Apple, it's like six seven eight dollars in earnings, right, it's some big number. Actually with splits its lower and between four and five percent. The median Ford PE has been eighteen and a half and forty eight percent of the time. It's actually above twenty.

Anyway, what is it what says inp trading at now?

Well, then the pe, the Ford PE is probably around eighteen, okay, but the median Ford pece sixteen.

What should we make of the fact that a lot of the market is not doing well? So again, you know, for those of us who are just like the boring put it in an index fund investors, amazing year, But there are big chunks of the market that doubts only up two percent, I know, or something like that. What should we read? Does it say anything that so much of the market is doing pretty I guess mediocre this year.

I think it speaks to a lot of things. One is the market is starved for cash, and there's six trenty of cash on the sidelines. Finram margindet is like twenty percent below where it was in October twenty twenty one, So there isn't a lot of money slashing in the stock market. I know, it's weird because we're at record highs, so that if there is money actively trading, it's just buying the high volume sectors, which is tech. From a rates perspective, that and I kind of mentioned before, like the groups that are hurt by type policy have really been sucking wind. So I think if monetary policy eases or people aren't more convinced of it than expansion is going to be pretty fierce later this year.

What is your outlook for rates at this point? Because you mentioned the strong consumer earlier, but on the other hand, we have seen a little bit of weakening in the labor market. We have seen CPI start to soften, although there's a lot of debate over whether or not that's going to be a durable trend.

But what are you see well, I think inflation, if we looked at historically how people looked at inflation, whether it's the surveys or ISM's inflation's under control because like for instance, the ISM services manufacturing, the price is paid component is below the long term average right now. So at fifty seven, people think fifty sev means price going up. That's not true. It's averaged like fifty eight since inception. So actually price trends are below where they have been. I think people aren't using history to understand where we are now. And if you look at UMISH surveys, both one year and five year inflation expectations are below the long term average. So consumers and businesses in their perception don't think there's inflation. CPI is elevated, but as you guys know and talked about, and many economis point out, it's really due to two components that are kind of lagging right one's shelter and one is auto insurance. And you know, the median CPI inflation rate right now is one point four percent your year. It's long term average is one six Everything except for housing and auto insurance is below trend.

Median is when you just look at what each component is doing, and some are higher and some are lower, but the median category.

Yeah, there's one hundred thirty seven components. Another way to look at it is what percentage of the basket of CPI equal weight is below their long term year year growth rate. So take each component and just say where is it sit. It's now at fifty five percent fit in the long term marriage is fifty. So more than five fifty five percent of SLEEPEA components are below their long term average, it's considered controlled. When it's fifty percent.

We're at fifty four to seventy three. Tracy mentioned your June target. Do you have a year end target for the market or a one year target or anything like that one that like, where can we go?

Well, our current at the on the first week of December twenty twenty three, we had said our target for twenty twenty four was fifty two hundred, which at the time was almost twenty percent upside. Now our fifty two hundred is low because we're above that level. Yeah, we haven't changed our target because our practice is typically to do it at the mid year.

Okay, so we're two weeks away give it. Can you give us a little hint?

Yeah, I'd say at the originally we said earnings could be two seventy okay, and we'd put like an eighteen multiple on that, and that's got to fifty two hundred twenty twenty five earnings no longer look like two seventy, looks more like two eighty five. And as I was citing, is interest rates moved up, the PE should be higher. So let's say twenty is a more appropriate PE multiple, or even twenty one. Then you get into the fifty eight one hundred ish level. But I think the open question is, really, if you're in mid June and December thirty one, is it a line up or is there a pullback and then a lineup? And I'm I would probably this is not evidence based, just an opinion. I don't see why it would be.

Straight up, Here's something I always wanted to ask an equity strategist. But when you're coming up with the price targets, do the specific numbers actually matter for your clients or are they mostly interested in the direction the overall direction, like line go up, line down?

Well, it's a do you know this is a lifelong debate because for thirty years I covered wireless stocks and I had price targets, and our sales people would always say, no one cares about your price target. But then the first thing in the question meeting people, what do you think where do you think this thing goes? So they always care about the price target. I don't really value people's price targets which is ten percent above where you are now, because to me, that's just like that's like staying in the middle of the lane, and you can't make clients money. So whenever we did stock research, we always had to build a base case on what we think could happen and then discount it at what we think is a reasonable rate. A lot of our price targets seemed really crazy. When we did wireless, I remember I upgraded you can timestamp but actually show you Almos holdings at twenty one cents and it went to twenty two dollars. My price target was not thirty cents. It was twelve dollars at the time. And we upgraded Western Wireless at a dollar seventy four. Our price target was twenty five dollars and it ended up going to forty. So I think we tried to look at a normalized situation and in a normalized world, if this is a normal SMP cycle, Okay, following demographics, I could provide a chart later SMP should be potentially fifteen thousand by the end of the decade. So yeah, so to me, that's the more as you move into longer time frames. That's probably where I think we're moving towards.

Can we title this episode, tom Lee, why SMP could go to fifteen by twenty thirty?

Is that for sure?

Okay, we have we have many charts to explain that number.

Oh you should send them to us.

Yeah, well we'll post them. Yeah, yeah, that'd be great.

I would love to just make this whole episode about the wireless in the late nineties, because I have some memory of that period. What are the early warning signs?

You know?

I think you go back and you start to see things in the accounting that's like some of the sales quality is deteriorating or whatever. And I guess when people look at whether it's the mag seven or Nvidia specifically, or some of these other companies that are clearly just benefiting from this tremendous KPEX cycle, they're like, well, they want to like look at the signs. And granted, I know you see a long runway because we're part of the silicon or labor to silicon transition, but just going to even think about late nineties, What were the sort of signs that a company might suddenly not be able to live up to the hype, and what are the types of things people should look for.

Yes, I can cite many, I'm not citing them in the order of importance.

Sure.

The first is I remembered when investors suddenly said our price targets weren't adequate. So I remember putting a buy rating on a stock and it had twenty five percent upside and they're like, Tom, I can make that in a week. And it was at a time when many people in the markets were famously making thirty thousand dollars stocks when they made ten million dollars in a month. I mean there were many people I was working with that were realizing trades like that. The second is when analysts have to suddenly shift discount rates to a level that removes all risk. So the ce Lex, for instance, you had to apply a five percent cost of money, and you assumed everybody was paying market rate for fiber. I mean, it was that was not possible, but that's you had to fudge it. The third is capital markets. There was so much investment banking activity. There's no investment banking and IPOs right now. I mean, it's a paucity of it. So I don't think you could say there's a bubble even in the next two years because there aren't tons of AI IPOs. There was so much IPO I think it was I don't know if the numbers were staggering, like it was forty or fifty percent of all ips were tech IPOs. Back then, it was some crazy numbers and there were like dozens in a day. Yeah, that's right, and they all were doubling or tripling.

Wait, but is there an argument to be made that in the current environment there's less incentive for companies to go public? I mean we talk about, yeah, the amount of VC money, the amount of money floating around in private credit. Is it possible that you know the money is just private versus.

Public that that has been a change. Now if you look at the prequel database, there's more privately held companies than publicly listed. But every company needs an exit, so there was going to be an IPO cycle, or there should be a merger cycle, or there should be huge amounts of venture money pouring into this where allocators are fighting over themselves to allocate I don't see any of that today. I think there's a lot of skepticism that AI has a lot of hype.

Wait, but I did see this is a headline again. We're recording this June eighteenth. This is the headline that ran on the Bloomberg terminal about an hour and a half ago. Steve Cohen's point seventy two ready's new hedge fund targeting AI stock. Steve Cohens is seeking point seventy two, seeking to raise about one billion dollars for a new stock picking hedge fund focused on artificial intelligence. According to people familiar with the matter, the fund will bet on or against AI hardware.

Blah blah blah. It looks like the.

Emergence of some vehicles perhaps where people just want to play this theme in some way or another.

Yes, so maybe it's starting. I wouldn't consider that a late I would never consider firms like co two or point seventy two as late cycle signal.

Yeah, fair to me.

There probably the front edge of that.

Outside of technology stocks more broadly, or the economy more generally. And what would make you nervous, what would you watch out for as your bear signal?

Well, in wireless, I did call many tops and stocks and had many fundamental shorts, so there is of course, the key anchoring is are the price levels disconnected from a justifiable fundamental reality? I mean I don't think so. I think if we have pees of one hundred for Omega capstock, maybe that's something to question. The second, of course, is sentiment, because when everybody is bullish, then one cannot be convinced there's upside because a lot of the best case would be priced it. We at Funstrat don't find most of our clients are bullish. Most of them are skeptics because many still don't feel October twenty twenty two was a complete bottom because markets have since risen while the fetes stayed tight. Most people cannot sleep at night with that notion. And they want to see how stocks react to the first FED cut. And as you know, how many people tell you, oh, stocks are going to fall as soon as I FED starts cutting. Because many people say that I'm probably in the camp the markets rally on the first cut.

I'm curious.

Sentiment is always one of those things that strikes me is easier to talk about measuring than actually measuring, And you say it some of the conversations you have with clients. Are other sort of surveys or market indicators that you have found to be good reliable measures of sentiment over time.

You know, most sentiment indicators are not reliable because most people don't take the time to film out. Okay, but at the extremes they're quite useful, like the AAII I think is really useful. But if you look at surveys, they're not that reliable because the response rates terrible. I mean, look at the labor surveys, right, isn't the BLS. Isn't the response rate like in the forties Now it's.

Gone down a lot.

Yeh.

Yeah.

That's why I think as a company we pride ourselves we are in conversations with our clients, not you know, a blue chip bank. We have many clients that we're in constant contact with. But it does represent a meaningful percentage of professionally managed money, so we have a very real time way to measure sentiment.

Can I ask about bitcoin, because in addition to getting the bull market of recent months and years correct, the other prediction that you are known for is bullish calls on bitcoin. And can you talk to us maybe about how you come up with a price target for bitcoin, because to me, it seems difficult to put it mildly like, to me, bitcoin is almost a pure expression of momentum or flows, and that kind of feeds on itself, and it just feels difficult to me to predict. And yet you have been very specific in the numbers that you will put on this thing.

Yes, bitcoin is unlike other asset classes because there is a cooperative value. You know, the people who contribute to the network benefit from it, and that's different than any other asset class. When we first wrote about bitcoins in twenty seventeen, and bitcoin was around one thousand at the time, we published a white paper that said, even if you don't really believe in blockchain and the security of the network, we had pointed out at the time that just two variables explained over eighty percent of the price move a bitcoin, which is the number of active wallets and the activity per wallet. And at the time we made a simple projection we said that in five years, so by twenty twenty two, if the number of wallets went up by seventy percent and activity per wallet went up by forty bitcoin would be twenty five thousand by twenty twenty two. So it was really kind of maths that bitcoin, even if you don't understand it, and I think it's it's an incredible technology, right. Decentralized database is so secure it hasn't been hacked. In the fourteen years of existence. Not a single entry on the bitcoin ledger is fraudulent. In that same period of time, six percent of all bank ledger activity is considered suspicious by the FDIC. But today, if you look at any time interval and say how much of the price move is explained by wallet change and activity per wallet, it's still over eighty percent. So to me, Bitcoin's price in the future it will be depend on how many people further adopted and whether activity on the network will grow. We're confident both will take place, and that's why you can get some really high exponential price levels from here. I know folks like Kathy would say it's in the two million, believe it or not. If you go out into far enough time frame, let's say five years, and you grow the number willlet's at a linear rate, you can get in the millions for bitcoin.

But what drives the opening of wallets or adoption other than price like that? Because It seems almost circuitous in many ways that people see again the line going up into the right, and then they want to get in on it, and so they open a wallet. But when stuff starts to fall and go in reverse, you can have these very dramatic price cuts.

Yeah, so I think it sounds like we're describing currency because like dollar adoption probably look that way, right, I mean, not everybody accepted dollars in the beginning, but more people accepted dollars, and then as more people accepted they start to use it. I think in that way, the history of currencies could explain how bitcoin can grow, because over time, as bitcoin is more widely held, you can start to innovate around it, whether it's pricing off bitcoin, letting people lend off bitcoin, or micropayments around bitcoin, or settle things on the blockchain. That's what's happening. So I can't give you a single use case that will explain the growth and wallets, but we know that institutional adoptions growing. I mean, I think it was a huge deal that black Rock has gotten into bitcoin because it pretty much invalidates the idea that this is just a bunch of people in their basements playing with you know digital money.

Going back to real money for a second, or you know things that maybe ground traditional additional assets. I want to talk more about your twenty thirty calls. So what do we say fifteen thousand is a possibility in twenty thirty we're at fifty four eighty fifty four eighty three oh six as of the time I said those words, what have it? So that's you know, six years tripling almost What has to take place or what takes place from a valuation perspective, et cetera, an earnings growth perspective in the next six years that can get us to that number.

Yeah, I haven't updated the numbers recently, so I can speak to it from I think three or four years ago when we first published that number. It's roughly a twenty percent annual price appreciation. Wow, Now earnings growth would be twelve to fifteen percent of that total. Okay, so then you have five percent a year PE expansion. Now can PE expand it five percent a year? I think one thing to keep in mind is COVID proved to us that businesses are a lot more resilient than we realized, So why should we assign the same PE to them? That we assigned to them prior to this, knowing that if you shut down the global economy, jack up unemployment to twenty percent, have huge supply chain disruptions, and yet companies could manage earnings. I think they deserve a lot more credit. So I think the multiple can compound at higher rate than five percent.

Yeah, Tracy, Actually, I have to say this is something that i've like, my thinking is sort of sharpened on over the last few years. Essentially, this like US businesses, at least the big ones are.

Really like well run.

You know, the fact that, as Tom described, so many of them were like quickly able to adapt to the COVID environment. The fact that when interest rates started going up in early twenty twenty two, so much of the so many of the overstaffed tech companies were quickly able to pivot, and when I say pivot, cut workers and maximize for free cash flow, which investors were clamoring to see. Like, just from a sort of objective investor based standpoint, my estimation of the sort of agility and skill of big US corporations I have been impressed over the last several years.

Never underestimate American companies a reality to make money for real. Okay, well, I have to ask one question, which is Tom, You've explained very well how you use history and data in your thinking. But I guess one thing I would love to know is is there anything from the experience, the post pandemic experience that has surprised you.

There's things that have reinforced some things I always wondered about. One is I think as much as people say they're objective and they only look at things objectively, they always have a bias. And I think the bias since COVID has been that we are in a state of emergency. There's too much debt, there's still a virus out there. Now, AI is going to get us, and that is played into how people view stocks and not as objective instruments of shareholder value. The second thing that is true is that there's what I always observed as the youngification of money management, which is, let's take you know, the top twenty largest hedge funds and the top twenty largest I don't know active managers. Well, when we look at the average age of a fund manager, I don't know, they're probably in their late thirties. If you go back ten years. They're also the same age in their late thirties, you know, because you know, in hedge fund most people retire because they made a lot of money or they don't survive, which means that the look back of institutional knowledge isn't growing over time. It's the same. You know, they have ten years of experience. So today most people don't have necessary real time knowledge of GFC that are actually managing money. Yeah, so that means the pandemic is influencing how people view markets disproportionately without appreciating the historical backdrop, which is what you know, which is something I'm continuing to observe.

Yeah. Yeah, that kind of recency bias is definitely a thing because I think for both Joe and myself, the two thousand and eight financial crisis looms very large in our heads, whereas for a lot of other people, now, a lot.

Of younger people, which is history.

It's yeah, it's history, and it's like the pandemic that they think about. Anyway, Tom, that was so fascinating and we're so glad we've been meaning to have you on the show for a long time. I don't know why it hasn't happened before, but I'm glad we could finally do it, So thank you so much.

And hopefully it's not another thirty years.

No, we won't wait another thirty years.

We'll have you back in a twenty thirty when the S and P is at fifteen thousand to get.

Your twenty forty call. Yes, that's right, all right. Looking forward to.

Joe, that was really interesting, particularly hearing about Tom's experience as a wireless analyst in the early two thousands. And I got to go look up that bankruptcy research project that he mentioned because that sounds interesting as well. But a couple things stuck out to me. So One, when I think of Tom Lee and his work, I do often think about those very lofty, specific price targets, and so it was interesting to hear him talk about why he goes down that route rather than just say, you know, ten percent upside or something like that, and it kind of makes sense. I guess that's a point of differentiation for him versus another equity strategist.

No, totally.

It's interesting that there is this perceptions like people just want to know whether things are going up or down, which sort of my standpoint. But then then in the conversation everyone's like, yeah, so what's the price target? Even though that's notoriously hard to well.

I guess we can see it in this conversation as well, because we will probably title this episode. You know, Tom Lely sees what was it? The S and P five hundred at.

Thirty thousand, No. Fifteen and twenty thirty. You know, there's a lot in there.

Like I said, I could talk about you know, late nineties wireless bubble stuff.

Go on, Joe, I know you want to No, it.

Never gets boring.

On the flip side, I have been thinking about this a lot, which is just that the financial crisis really is fading into what I would call like capital h history as just something that is for you and I. It feels like on you know, in many respects, we're still living in the aftermath of that event and decisions that were made and policies that were in place in that aftermath, and you and I could talk forever about how they still inform the markets today, I think in profound ways. But I don't think that's the case for a lot of people think about markets. It's literally something that you know, might as well be the Great Depression or the nineteen fifties or the Vietnam War or any other period that just feels like something you learn in history books, but you know, you don't think about as applying to your day to day.

Absolutely. The other thing that stood out for me was, I guess the connection between valuations and brates and it does feel like maybe there is a growing recognition that you can have an environment where companies continue, to your point earlier to make money even when treasury yields have like doubled, that you know empirically that seems to be happening.

It's also interesting I hadn't heard. So there is the fact that if you're one of these cash rich mega caps and higher rates also just directly add to your earnings because you don't have dead But then the other element of higher rates as a moat that then makes new entrance more competitive is a really sort of interesting idea. The sort of higher rates as this centralizing force for those who already have capital and this penalizing force for those who don't as interesting. And then also, as Tom pointed out, capital markets activity, and one thing that we haven't seen with AI is just this sort of endless train of AI related companies coming to the market to grab people's wallets and maybe because there's not that many good ones out there. But for whatever reason, that aspect of the boom has not materialized.

Yeah, although I suppose, you know, maybe it's only a matter of time, or maybe, as we were discussing, more of that activity is just taking place in private markets. Now, I guess we'll see, we'll see here or two.

All right, shall we leave it there?

Let's leave it there.

This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

And I'm Joe Wisenthal. You can follow me at the Stalwart. Follow our guest Tom Lee, He's at funstrat. Follow our producers Kerman Rodriguez at Kerman armand Dashel Bennett at Dashbot and Kelbrooks at Kelbrooks. Thank you to our producer Moses onm. For more Oddlogs content, go to Bloomberg dot com slash odd Lots, where we have transcripts, a blog, and a newsletter and you can chat about all of these topics twenty four to seven in the discord Discord dot gg slash od loots and.

If you enjoy odd Lots, if you like it, when we talk price targets with Tom Lee. Then please leave us a positive review on your favorite podcast platform. And remember, if you're a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is connect your Bloomberg account with Apple Podcasts. In order to do that, just find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening

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