Welcome back, everyone. Today on the Joseph Carlson
Show, we have a new price upgrade from Tom Lee, one of the
notable bulls in the market today.
He's upgrading the S&P 500, saying that it's going to rise
around another 5% this year to end the year around 22%.
And he gives his arguments here. So far, Tom Lee has been correct
on basically every major call he's made over the past couple
of years. He's become more popular, more
notable. He's gotten more screen time.
He's actually becoming a a bigger figure in media because
of how correct his calls have been.
On the other hand, we have the bears.
The bears have been having a difficult time.
One of the most notable bears, in fact, I think the most
bearish bear is JP Morgan's Marco Colonovic.
At least he was JP Morgan's as of this morning.
He is stepping down. A nice euphemism for being let
go. After a series of bad calls,
we're going to be looking at this dichotomy of bulls getting
more popular and bears getting let go or stepping down from
their positions. Is this a sign of the top?
Does this mean that the market is too bullish right now?
Or are there some reasons why bulls are more often correct
than bears? Now we also have some other
news. We have news that Amazon, one of
my largest investments, one of my most critical investments for
a brief moment in time, surpassed $200.00 per share.
Now, $200.00 is just a nice round Number.
It doesn't really mean anything, but it's symbolic.
It's like breaking a a big glass ceiling for Amazon.
And they just surpassed it for a brief moment in time.
And then we're hit with news that Jeff Bezos is selling $5
billion of additional shares, $5 billion worth.
And of course, Amazon traded down.
After that. We'll be discussing the impact
of Jeff Bezos selling on Amazon stock.
We also have another important topic to get to in this episode.
We know the controversy over Chipotle's bowl portion size.
Their TikTok creators with millions of views saying that
Chipotle needs to be boycotted because of how bad the portions
are that they give in their burrito bowls.
Well, Wells Fargo wanted to get to the bottom of this.
One of their analysts visited Chipotle locations 75 times to
measure whether or not they give consistent portion sizes.
We have the data. We have the statistical analysis
of Chipotle's bowl size. I'll be looking at it in today's
episode. And then finally, we also have
news that Sam's Club lowered their warehouse membership price
to $20 per year. At this point, when a membership
is $20 per year, can you really call it a membership warehouse?
We'll be discussing. We have all of that to get into,
plus much more. Let's go ahead and jump in now.
We start off today's episode with the main story, which
revolves around bears and bulls. The most notable bull in the
market is Tom Lee, and he's becoming increasingly popular.
If I was to measure the rise of Tom Lee and the popularity of
Tom Lee, it is directly linked with the success of his calls.
He is becoming more popular for good reason.
He's correct, and he's consistently correct about
things that many other people are wrong on, specifically price
targets for the S&P 500. I've noticed the rise of Tom Lee
over the past few years as he has made non consensus correct
calls. Back in 2020-2021, 2022-2023, he
has been calling for seemingly outlandish price targets of the
S&P 500 surging upwards more and more, while other analysts in
consensus were saying, no, the economy is going to go down.
The stock market's going to enter into a recession.
We're going to have stagflation. We're going to have all of these
issues. Tom Lee has said no, no, no,
these are going to resolve. The market's going up.
We have ample liquidity. The economy's strong.
And he's been correct. He's hit price targets that
people thought were nearly impossible or at least silly.
And since he's done it so well and so consistently, now, more
and more people are paying attention to him.
Let's go ahead and take a look at his most recent interview
here. This is from CNBC and he goes
over his case on the S&P 500 and why he believes it will rise yet
again another 5% to round out this year.
Unstacked global advisors managing partner and CNBC
contributor, but close enough for government work.
You're right again. And once again, your rationale
was born out and it was that inflation would continue to
cool. It's July 1st, you have a new
target for the end of the year. Or or.
I've already sort of foreshadowed some of the things
you were talking about. The S&P earnings might even be
above what you thought. Yes, I, I think that now that
we're at the mid year 2025 earnings look a lot stronger
than we thought at the start of the year.
We thought maybe 260. It's probably closer to 275,
maybe 280, even 285. So he just raised what he thinks
the S&P 500 is going to earn this year from 2:50 to 270 or
even up to 285. He thinks earnings per share of
the S&P 500 is going up. And This is why he's raising his
price target once again for the S&P 500.
And I think the multiple, we thought originally could be 20
times that number for next year. But given the Fed has more
reasons to be dovish and I think maybe the employment picture is
softening, PE multiples actually could be higher next year.
So I'd say between now and your end, stocks should be higher.
I mean, we've had a strong first half already and second-half
won't be as strong as the first half, but we should build upon
those gains. So yeah, it looks pretty good.
You have numbers, I mean, so if if the S&P is 285 you, you
possibly that's earnings 285 up from 270 because the economy
doesn't cool multiples don't expand.
In fact they might contract from 21 to 20.
So if you multiply 20 * 285 you get to 5800.
Yeah. So that that sounds like it'd be
within reasonable as a reasonable base case that stocks
don't have to have a prodigious second-half.
They just have to follow what typically happens in the
second-half, especially in an election year.
So Tom Lee is doing simple analysis of combining the S&P
500 earnings projection that he has, which is 285, and he's
multiplying that by the multiple 20 times earnings.
When those things combined, you get around 5700, which is
another three or 4% gain from today.
So he doesn't believe the market's going to rock it up
another 15 or 20%, but he believes we'll have moderate
gains from here to the end of the year.
So 5800 for the year, what, what would that be the total return
if it's 15 now, so. Yeah.
So it's, you know, it's a little bit more than 20%.
Which would be after last year's. 24. 24, that's a couple
years no one really expected, I don't think.
That that's right. I mean, that's painful for
people who've been sitting in cash for two years earning 5%
because they missed out on a 50% gain.
And that's 10 years worth of sitting on cash.
So I think the end of this year is a little bit of a day
reckoning for those who said, oh, I'm I'm happy with my 6
trillion in cash earning 5%. When in reality, unless the
economy is rolling into recession, you know the
expansion continue for some time.
He's forecasting and so far correctly, that we'll have two
years back-to-back of 20% plus gains.
Now a lot of people think that that's super unusual or very
unlikely, but as we've shown before on this channel, it is
not unusual to have market gains back-to-back that exceed 10%.
The stock market almost never has average returns and that's
counter intuitive. You've been told that the stock
market should go up between 7:00 to 10% on average over a long
period of time. While that data is true, it
leaves out the fact that the average is based on negative
years and positive years. More often than not, the stock
market either has a negative year going down 5% or 10% or it
goes up 15 or 20%. It never really has those years
of the nice seven to 10%. That is the average, not what
really happens year by year. And Tom Lee knows this.
He knows that the stock market has many years throughout
history that go up 20% consecutively.
That's not something unusual. So even though his call at first
seems a little outlandish and it seems unusual, it actually fits
well within history. Now, he also talks about how
this is a day of reckoning for the Bears.
Notice him say that towards the end here.
Is a little bit of a day of reckoning for those who said oh
I'm I'm happy with my 6 training cash earning 5%.
He's correct here again. This has been a day of reckoning
for the bears, and specifically one notable bear.
This interview came one day before JP Morgan decided to let
go of their most notable bear, who is Marco Kalonovic.
Marco Kalonovic is one of the biggest bears on Wall Street.
In fact, I believe he is the biggest bear, second only to
Jeremy Grantham. He has had incredibly bearish
calls over the past couple of years and he stuck by them.
He's doubled down on his bearish calls and he's been incredibly,
incredibly wrong over the past couple of years.
So we have bears having a day of reckoning and the bulls having
their time in the limelight, getting more and more popular,
more and more esteem. A lot of people are suggesting
that this is now a tipping point, a point where when all
the bulls are celebrating and bears are getting let go or
fired or exploring new opportunities, that is a tipping
point that is a sign for rougher times ahead.
Only a month ago, there were notable people on Bloomberg
saying that we need these bearish takes, even if they're
wrong. In a recent note, Klonovic, who
was incorrectly bullish in 2022 and bearish in 2023, effectively
doubled down on his latest out of consensus call, highlighting
January data for consumers and producer price increases to warn
that the market narrative is taking a turn for something like
the 1970s stagflation. He said that this could lead to
a period of sustained underperformance for stocks like
the one that prevailed from 1967 to 1980.
Although I'm more optimistic than Colonovic, it's a pleasure
to see him still swinging for the fences even after two
strikes. One of the most frustrating
features of today's Wall Street is the surfeit and milquetoast
homogeneous research that says a lot without saying very much at
all. The majority of these sell side
equity strategists tend to offer relatively predictable calls,
typically within 5 to 10% of the median, and only change their
views when the rest of the herd does as well, often when market
moves leave little choice. This narrow range of predictions
is hard to reconcile with a market that's as inherently
volatile as this one is. And in fact, the consensus view
are often frequently off by a mile, about 18% points too low
in 202125 percentage points too high in 2022 and then 18
percentage points too low again in 2023.
So the consensus analyst or strategist predictions are very,
very frequently off. They're just wrong.
Some of them are more wrong than others, but the consensus
altogether is wrong. They show a chart here
illustrating how often consensus is wrong.
This is why overall, it's very difficult to listen to market
strategist, to listen to overall macro calls, because so many of
them can't think for themselves. They want to stay in the herd of
safety and just make predictions that everyone else is making.
So if their predictions are wrong, they aren't uniquely
wrong. You see, in the business of Wall
Street, in the business of investing, people are OK being
wrong. They're just not OK being
uniquely wrong. For example, if I invest in
Google and I'm wrong, investing in Google, and Google turns out
to be a bad investment, that doesn't really make me look so
bad. I'm not going to get uniquely
blamed for investing in Google and being wrong.
But if I invest in Texas Roadhouse and I'm wrong on Texas
Roadhouse, I am uniquely wrong in Texas Roadhouse.
There's a lot more reputation risk in taking non consensus
bets and investing in things that most other people are not
invested in. Because again, if you're wrong,
you look uniquely wrong, uniquely silly.
And in the case of market strategist, it's the same thing.
You can afford with your job to be wrong if everyone else is
wrong. Your job is safe in that case.
But what you can't afford is to be uniquely wrong.
Like Marco Kolonovic. He was uniquely wrong for the
past couple of years, and now he's being dropped from JP
Morgan. We've learned long ago as
species, as humans, that staying with the pack means safety.
It's safety in numbers. And it's the same thing here.
The reason that all of these strategists have the same calls
and the same takes all the time is because they want,
ultimately, safety. They don't want a bad outcome
for themselves. So you have the case of Marco
diverging from the crowd, making his own calls and sticking by
them. This time it didn't work out.
And the argument is, even though it didn't work out for him this
time, it's still good to have people in the arena that are
making these unique, divergent calls, that are sticking with
their own unique research. I do agree with the analysis
that it's good to have people that give their own unique takes
and they stand by them, that they don't always seek safety in
the crowd. But I also think that reputation
matters, that your record and your judgement matters.
Marco has been incredibly wrong for two years.
He has cost a lot of people a lot of money that have followed
his fierish and doomerish takes, so he should have some
consequences for his incorrect calls.
If he can continually just call everything incorrect all the
time and still remain gainfully employed and getting lots of
compensation for it, then what is the price to pay for actually
being wrong? There should be some
consequence. Now, overall, with this debate
of whether or not this is a tipping point, I don't believe
so. I don't believe that this is
some type of signal of a top. History shows that bears are
usually rung and bulls are usually right.
The stock market usually goes up. the US is full of incredibly
talented, intelligent people from diverse backgrounds all
over the world competing to create the most value possible.
The stock market captures the best companies.
In this incredible economy, the most talent is captured at the
very top. The companies that are the most
successful, the biggest compounders, they rise to the
top of these indexes. They're built in such an
incredible way where they capture and wait the best,
smartest, most fruitful companies in the world.
So it makes sense that the market typically goes up
overtime. Bears will continually be rung
on average, and bulls will continually be crept.
So if I'm having to pick a team between Tom Lee or Marco, I'm
going to continue to pick Tom Lee.
I'll continue to align with the people that are overall bullish
because as history has taught us, they're usually correct.
Now we move on to the next news story here.
Amazon, for a brief moment in time yesterday rose to above
$200.00 per share. We finally broke through that,
that mental barrier for this stock.
Amazon has traded around this price point back and forth.
For a few days. It seemed like it was flirting
with it, and then finally, finally, it rose above $200.00
per share. I was celebrating mentally for a
little bit there, and then we got the news immediately the
next day, just today, that Bezos is selling $5 billion of Amazon
shares. So he waited.
Bezos waited until Amazon broke $200.00 per share.
And then he's like, hey, look, everyone, I'm going to disclose
that I'm selling a huge amount of Amazon shares, $5 billion.
Jeff Bezos, can you at least give us a little bit of slack, a
little breathing room? Can you let the stock sit there
for at least one day before you hit us with this huge headline
of a huge sell order? Do you have to sell immediately
whenever the stock goes up? Now, I understand here that
Bezos is done with Amazon. He's mentally moved on.
He's now trying to figure out what he's going to buy.
But I have to question, what does he need this money for?
I mean, he already has like $10 billion in cash.
Does he need another yacht? He already has an entire fleet.
It looks like AAUS Navy fleet. When he goes out with his yacht,
what is he buying here? I can't even imagine what he's
using this money for, so I I don't know whether what what
he's doing with it what he needs it for.
But what I know right now is that every time the stock goes
up, Bezos sells and it causes the stock to just flatten to go
down for a few days. I think this is going to be a
continual headwind for Amazon for at least the next year or
two, but eventually Bezos share count is going to be low enough
that it won't have as big of an influence.
Right now he still owns 8.8% of Amazon, so he is a massive
shareholder and it's difficult for people to want to buy Amazon
stock when every time they're doing it, they feel like their
exit liquidity for Bezos selling his shares.
That's what it feels like right now.
Now, I don't believe this is any indication on the future value
of Amazon. I don't believe Bezos is saying
that Amazon is going to go down in price.
I think he's just completely moved on with his life.
He built the company, he's incredibly rich and he has other
things that are drawing his attention.
So overall, I don't think this is anything that is
fundamentally bearish. It doesn't change my thesis at
all, but it's it's a little bit of a bummer that every time the
stock goes up, Bezos sells, causing the stock to go down for
at least another few days. Now let's go ahead and move on
to the real important news of the day, Chipotle's burrito
size. This has been a point of
controversy on TikTok. Many Tik Tokers mocking Chipotle
and saying that they're giving too small of portions, many of
them bailing out of the line halfway through, leaving the
poor Chipotle burrito maker with the burrito there that they just
have to throw away. And then some Tik Tokers are
even calling for boycotts with Chipotle, saying that people
need to rebel against this company because they're not
giving the portions they deserve.
This caused such a stir that even the CEO of Chipotle has
responded multiple times to this controversy.
Here he is on TikTok saying that there's not really a problem
with the serving sizes. First I can.
Tell you the portions have not gotten smaller.
One of the things I think it's great about Chipotle is if you
come into the restaurant and you want a little more rice or you
want a little more people, all you got to do is kind of like
and usually our guys and women give them a little more scoop.
You know we always want. To give, that's the CEO of
Chipotle suggesting how to get bigger portion sizes and it's
giving the Chipotle workers the look.
Now, this doesn't really work if you're ordering online.
Maybe you can put like in the notes of the order I'm giving
you the look to give me bigger portion sizes.
Like you might be able to write that in.
But a lot of people have pointed out that the portion sizes you
receive when you're in person ordering and you can kind of be
there to hold the employee accountable.
You can look over it and make sure the order looks correct.
The portion sizes are very different than when they make it
in the back of the restaurant when they make it for the to go
orders. So there's a lot of controversy
over this and a lot of people are not agreeing with the CEO.
Want to give people big portions that get them excited about the
food. It's kind of who we are.
I mean, these are big burritos. These are big bowls.
Our goal is to give people great experiences.
Now, if you want double the amount of meat, you got to pay
for it. But yeah, you know, our goal is
to give people really excited about what I believe is really
delicious food. So there we have the response
from the CEO. But of course that didn't
satisfy people. That only caused more debate,
more people on both sides of this great Chipotle burrito bowl
war. Some people taking pictures of
their burrito, suggesting that it's huge, it's a giant burrito,
they can't even finish it. Chipotle gives so much food.
And then a lot of other people pointing out that their burrito
bowls are just too small. As the debate continues on,
Wells Fargo decided to finally get to the bottom of it.
Doing it through data. We can always rely on data and
statistics to get to the bottom of things.
We have a analyst from Wells Fargo that went to Chipotle 75
different times and he went to multiple different Chipotle
locations and ordered the exact same burrito bowl.
That analyst weighed every single meal they bought from
Chipotle, so we have the exact weight of every meal for all 75
orders that were identical. And you can see these charted
out over time. Now, before we even get into the
analysis here, there's one thing that I want to point out that I
think is incredibly important. When you look at charts like
this, any type of visual chart, like a bar chart or line chart,
and that is where the X axis starts, that sways the visual in
a very dramatic way. For example, on Qualtrum, as you
look through all of the financial charts, like we can
look at the revenue, it starts at 0.
We look at the AWS, this starts at 0.
The X axis right there is 0. The EBITDA starts at 0.
The free cash flow X axis starts at 0.
I specifically make every chart start at 0 so that when you're
viewing it, you're viewing everything relatively the same.
You have a good grounding of where things start, and so the
visuals actually make sense. That's something that's closely
paid attention to. What a lot of people do when
they want to dramatize a certain trend, when they want to create
a certain narrative or make a certain point, is they start the
X axis not at 0, but at a different number, making it so
that the difference looks even more dramatic.
And that's exactly what they did here with this analysis.
This looks as though it starts at 0.
So you have burritos right here that are tiny and ones that are
right here that are huge, but this actually starts at 12
ounces. So it's starting with a decent
sized burrito and then it goes up to 27 oz right here.
That is the range that you're looking at between 12 to 27.
But in reality, these bars would continue to go down all the way
to 0, making the difference here look less extreme.
So even though the visual here looks very extreme, it looks
like there's tiny burrito bowls and huge ones.
When you factor in the starting location of the X axis, it's not
quite as extreme as what's implied here.
Now, even taking that into account, this does highlight an
issue with Chipotle where when you have someone serving you
food by like scooping it up, you just get different serving
sizes. Like that's just the nature of
the game. You get different serving sizes
basically every time you come in, and the serving sizes can
range between AA10 oz difference.
That is a substantial difference in size. 10 ounces of food is a
lot of food. So the difference between these
huge burrito bowls up here and these smaller ones down here is
still substantial, not quite as extreme as it looks, but it's
still a substantial difference. And this shows, as they point
out here, that this is an area that Chipotle can get better at.
They can make more consistent sizes.
There's different things they could implement to do this.
Maybe better training on how to properly measure the scoop size,
maybe weighing each scoop. There's a lot of different
things they could do to make this more consistent.
Because with restaurants, one of the most important thing when
visiting a restaurant is having a consistently good experience.
This is what Texas Roadhouse excels at.
Every single time you go, they want you to have a good
experience. They'll remake the food if you
don't. Chipotle, if you go there and
one time you have a great experience, one time not so
good, you're going to think twice about going again.
So even though this analysis is kind of funny, I think it's one
of the biggest areas that Chipotle could improve.
On a related note, this analyst is so smart for doing this type
of analysis. He's going to different
restaurants, billing the company Wells Fargo for his analysis,
while he gets 75 free meals from Chipotle, and he's done the same
thing with McDonald's and many other businesses.
That's a pretty good gig to figure out.
Now finally, we move on to the news that Sam's Club has once
again dropped the prices of their warehouse, of their club
membership, this time to $20. That's not $20.00 a month.
That is $20 per year. By comparison, Costco's cheapest
membership is $60.00 per year, and they have the executive
membership. That's 120 per year.
So Sam's Club is supposed to be the competitor to Costco, the
one that's kind of going like neck and neck with Costco.
And Sam's Club is continually lowering their prices to try to
keep up with customers, to try to gain new customers.
They can't even get them in the warehouse at $20 per year.
Meanwhile, there's lots of debate of Costco raising prices.
Costco's gaining so many new customers every single quarter.
We can see the KPI is on Qualtrum.
They're gaining card holders and customers every single quarter
like clockwork, millions of them at the price point.
That's three times the price of Sam's Club.
This shows once again that Costco's competition really
isn't competition. The so-called competitors cannot
compete with Costco on price or the amount of members they have.
So they're continually lowering prices in the hopes of
encouraging new membership growth.
But it's going to take more than that.
The truth is people don't like shopping at Sam's Club as much
as Costco and that's why Costco can charge three times as much
at this point at $20 annually. When is Sam's Club really just
give up and and say this isn't a warehouse membership, you can
just shop here for free. They're almost to that point.
This is like $2.00 per month. It's less than $2.00 per month
is what they're charging the shop in their exclusive
membership warehouse. At this point I I think you just
give up the membership. Just give it up.
Allow people to shop there for free.
Change your business model because the whole membership
thing is playing a lesser and lesser role.
In the meantime, I'll continue to hold Costco stock.
That's it for this episode. I hope you enjoyed.
If you want to see exclusive episodes and more analysis, you
can join the Patreon membership. Other than that, I'll see you in
the next one.