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In the last few bear markets, the U.S. economy was in a tailspin. Whether it was the great financial crisis of 2008 and 2009 or the bear market bonfire at the outset of the pandemic in the spring of 2020, the Federal Reserve responded by dropping interest rates to the floor and buying Treasurys. Now the Fed is raising interest rates to battle inflation and reducing its balance sheet by selling Treasurys. And it's trying to do all of this without driving the economy into a recession. Whether we'll get a recession or whether we're already in one, it won't be like the others. The U.S. labor market is pretty strong and there are a lot of job openings out there. 372,000 jobs were added in June and the unemployment rate held steady at a pretty healthy 3.6%, giving the Fed no reason to deviate from its plan for aggressive rate hikes.
While recession fears may have cooled momentarily, the Atlanta Federal Reserve’s GDPNow tracker shows an expected second quarter decline of 1.9%. Believe it or not, that was a slight improvement from the July 1 reading, which pointed to a 2.1% drop. Falling oil and gas prices likely had a lot to do with that. In fact, the whole commodity complex keeps tumbling, led by copper, as we discussed last week. And inflation expectations keep coming down. Inflation expectations, as expressed through the five-year breakeven rate, fell to 2.5% last week, well off the 3.5% percent projections back in March. Remember what Mike Wilson and Morgan Stanley told us last week: We could be headed into a period of deflation like the 1940s. Falling prices and slowing growth. The big sell-off in commodities is most likely being triggered by investors expectations for a recession, which could crush demand and prices right along with it.
Mediaite
Sam Ro, CFA, is the editor of TKer substack and a veteran business news journalist with approximately 15 years of experience covering financial markets. Previously, Mr. Ro was the managing editor of Yahoo! Finance, and prior to this he was a deputy editor at Business Insider. He has also been a markets correspondent and senior equity analyst for news outlets Axios and Forbes, respectively.
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I don’t know about you, but I’ve heard enough about recessions, bear markets, sour investor sentiment, and sell-offs for a while. We can’t avoid the realities around us as investors, but I think we’ve beaten the drum on that enough for a bit, and we deserve a little fun, don’t you think? We’re going to mix it up this week and have some fun with some new categories, lists, and awards for the Express that we’re going to affectionately call the Express-os. And I brought an old but new friend onto the show. Sam Ro is joining us this week, and like me, he’s a financial markets junkie and a veteran in the business news trenches. He’s the former managing editor of Yahoo! Finance, a former deputy managing editor at Business Insider, and now he’s penning his terrific substack called TKer. If you love market commentary and insights with a modern spin, check out TKer. I love it, and I am delighted to welcome Sam aboard The Express this week. Welcome my friend. 
Sam:
"Thanks for having me, Caleb."
Caleb:
"So, you got your terrific substack—I am an avid reader of it. What are your readers into right now? Like us, you get a lot of response from them. You know what they're reading, you know what articles they're most into. What is top of mind for your readers on the substack?"
Sam:
“A lot of my readers are mostly investors who have this long-term time horizon. So, to answer your question, what they’re all interested in is reasons to not sell. There are a lot of investors out there who do have a little bit of experience with bear markets and recessions and whatnot. But whenever you are in a bear market, whenever stocks are down 20%, 30%, 40% from from their high, sometimes it’s nice to have someone hold your hand a little bit.”
“So, yeah, it’s reasons to not sell. And the way to sort of answer that question is to look back at the history and talk about past recessions and past geopolitical risk events that might have rocked the financial markets. Talk about past instances of inflation spiking and energy crises and all these things that might have happened in the past to remind people that, for whatever reason, the economy and the financial markets come out stronger. When you do see prices fall, if anything, it’s probably more attractive to be buying than selling. So, selling is probably not the move.”

Caleb:
“Yeah, I know. We’re getting a lot of the same questions and the best thing we can do is provide that context—that educational context, that historical context. What happened in past recessions? What’s the average drawdown? What’s the time to recovery? One of the biggest up days in the stock market, as you know, half of those come in the middle of bear markets, which is why we remind people to stay in the game. So, you got a lot of self-directed individual investors. We have a lot of self-directed individual investors. Not surprisingly, that we’ve got some crossover there. All right. Let’s get in to some categories right now. Let’s talk about some of the biggest surprises for the first half of 2022. What do you think were some of the biggest surprises, or the biggest surprise we saw, in the first six months of the year?”
Sam:
“Well, we can talk all we want about stock prices falling or whatever, and plenty of people will tell you that wasn’t a surprise. But I think the biggest surprise is how the outlook for earnings continues to be very strong. So, coming into 2022, before all the terrible stuff that we know about, before we heard about this inflation spike, before the war breaks out in Ukraine, and before the Fed gets very hawkish with with monetary policy. We had expectations for a certain level of earnings per share growth for the S&P 500, for instance.”
“And as all of these negative externalities and scary bearish forces emerged, expectations for forward earnings only continued to increase. There were periods where analysts were cutting their estimates for Q1 earnings and Q2 earnings—and, you know, we’re about to go into Q2 earnings season. But companies, as much as they are also struggling with all these problems, they’ve managed to beat expectations when it comes to earnings. And so, we have a setup right now where analysts continue to expect 2022 and 2023 earnings to be very robust.”

A recent report from Citi shows that global earnings downgrades are now outnumbering upgrades at an increasing pace. Here in the U.S., earnings among companies in the S&P 500 are projected to have risen 4.3% in the second quarter from last year, according to FactSet. That would mark the slowest pace of growth since the fourth quarter of 2020.
Caleb:
“Yeah, we’re going to find out in the next couple of weeks as we get those second quarter reports. And it’s not a surprise—you and I have watched this game for many, many years. You guide lower and then you produce to the upside. Your stock usually gets a nice jolt when that happens. But as we know, Sam, words matter. So, the words that companies use going forward now, how many times are they going to mention the word ‘recession’? How many times are they going to mention pressure on profit margins? The words they use probably matter more than the results because companies do find a way to make those numbers look good or better than they were supposed to look.”
“For me, that biggest surprise was, ‘Where did the apes go?’ We had such an aggressive retail investor trader really joining the stock market in 2020 when there was nothing else to do and there was money in folks hands. So passionate about companies, including GameStop and AMC and and even BlackBerry, you name it. Where did they go all of a sudden? The trading activity has been so muted, and you see it in the results of some of the online brokers. Obviously, you see it in the crypto brokers. A lot of these folks are struggling now for business because they can’t compare to what was happening a year or two years ago. That’s my biggest surprise. Let’s talk about questionable corporate moves in the first half of the year. There have been a few of them, but a few stick out to me. Give me, in you mine, what’s the most questionable corporate move you saw from your seat in the first half of the year?”
Sam:
“I’ve been thinking about this a little bit, and yeah, there’s definitely been a couple of ones that have drawn a lot of headlines. But I think to answer your question another way, you can also make the case that there haven’t been a whole lot of questionable corporate moves. That’s sort of the unattended consequence of tightening financial conditions and interest rates going up and stock prices coming down and all the stuff. And suddenly the people making these moves and making these decisions don’t have the financial flexibility to take these insane risks.”
"That said, I don't know if this falls into the category, but the thing that continues to blow my mind is Elon Musk and his bid for Twitter and how he's been handling it and how that continues to unfold. I mean, it's it's just like, 'The richest person on the planet? Sure. That's great.' Lots of financial capacity to do pretty insane things. But everything about his pursuit and everything that's happened since then with this transaction that's just completely mind boggling. And I think people agree that he's realized that he might have bitten off more than he could chew."
Caleb:
"Right. And if you ever need someone to to make a questionable move, you can always count on Elon Musk, always full of surprises. And I thought so as well; that deal yet to close, the price a lot different than it was when he first made the bid, and it's bounced around a lot from there. So, great call on Elon."
“For me, it was AMC buying that gold mine in Nevada. All of a sudden, AMC was trying to make it as a movie theater business. People are going back to the movies. What do they do with all this cash that they’ve been able to raise through that aggressive share price and some of the splits? What’s they do? They bought a gold mine in Nevada because that seems to be the right play for a movie theater company. That blew my mind. But that company is full of surprises.”
"All right. Let's go to this one. You knew the bubble was about to pop when this happened… fill in the blanks. For you, what was it, and what did you see in the last six months that made you say, 'Oh, that's got to be the top.'"
Sam:
“Alright I’m going to be I’m going to be really selfish here. It’s when I launched my newsletter in October of 2021.” So, my career in media goes back for about 15 years covering financial markets, especially covering the stock markets. We know that the trend is up. Earnings tend to grow over time, and like we said at the top of this conversation, the stock market and the economy always manage to emerge. And so, with the constant bombardment of scary negative headlines, even in bull markets and economic expansion that you get in the news, I often got a lot of feedback as to, ‘Well, gosh, I’m hearing all this terrible stuff, but I’m looking at Yahoo! Finance or whatever and I see that the S&P 500 and my 401(k) plan is doing really well. So, how do I sort of make sense of this?’
"And so, to address that discrepancy in terms of how news and information is communicated, I started this newsletter to put the good news and bad news into the context of this long-term trend of the stock market usually going up. And then, of course, I do this for about two months and then that's the top of the market. And for the last six or seven months, the stock market has only been going down. So, I can tell you that one of my favorite indicator of top ticking the market that might have been a little bit frothy was when I leave a very secure, safe job with health insurance benefits and all that good stuff to launch a newsletter about stocks usually going up starting from zero."
Caleb:
"Well, we're glad you did it. I know the timing may have been circumspect, but your newsletter is invaluable. We need it in bull markets. We need it in bear markets. We need it in flat markets. So, fortune favors the brave."
Sam:
"And I think maybe that also accompanies this whole big surprise of the first half of the question is… not to boast or anything, but my subscription numbers have continued to go up month after month, week after week. It's been a very steady increase and cancelation rates have been very low. So, it might actually be the case that a newsletter like this is is needed more than ever during during market downturns."
Caleb:
“Yeah, and quality is quality. Real knows real. And as they say, fortune favors the brave. Which brings me to my biggest moment when I knew the bubble popped or we jumped the shark or pick your metaphor. That was the Matt Damon Super Bowl commercial for crypto.com. Soon as that happened, Bitcoin prices fell literally out of the sky and have continued to tumble since then. So when you get Matt Damon, Jason Bourne, whatever you want to call him, fronting a commercial for cryptocurrency, usually that’s a good sign that it was the top and indeed it was the top for cryptocurrencies right around the Super Bowl.”
Sam:
"That same Super Bowl, they brought back the E-Trade baby. And you knew… problems for for the stock market when you bring back the E-Trade baby, which we haven't seen since 2000, and we know how that story ended."
Caleb:
"Yeah, absolutely. And I was happy to see the E-Trade baby. Some of the other commercials around the Super Bowl, maybe a little bit more questionable, but you got to love the floating QR code. Very much a Back to the Future or a revert to history. But it did not play out well, especially for stocks and especially for cryptocurrency. All right: Best trade of the year? Not necessarily one you made, but one that investors have made that turned out to be the right call. What did you notice?"
Caleb:
"I got to say, the one that really jumps out, the clear winner here has to be oil. Now we know oil prices have come down from their peaks. And who knows where they're going to be going in the near-term future. But a lot of the fundamental arguments that oil analysts and oil sector analysts were making about oil prices were all very compelling, and it was very difficult to argue with stuff like that. This transition into alternative fuels and alternative energy is a very, very long-term matter. So, people are going to need oil for a long time."
“The demand for oil continues to go up if the economy is growing. And if we know anything from history, not just the U.S. economy, but the global economy continues to grow. Standards of living increase in emerging markets. And you know that demand for energy will always just keep trending higher. And then speaking of this whole alternative energy shift, drillers are also facing a lot of headwinds when it comes to things like companies and their customers shifting to green. It might be a slow process, but they see what’s going on in the horizon and maybe they don’t want to expand production as much as they want. So, you have this really great fundamental argument where the desire to expand supply is not there, whereas demand from a fundamental economic perspective is very strong and the long-term storage is very strong.” 

Caleb:
“Well, I’m going to go along with you. I think the best trade of the year, although I didn’t make it: long oil, short cannabis. Cannabis, now legal in most states. You think some of these dispensaries and some of these publicly traded cannabis firms would finally wake up after a few years of being in an a smokable coma there. But that’s not the case at all. What we’re seeing is a lot of price compression in the cannabis market. And a lot of these companies that went public without profit, without any sales, are being flushed right now. And we’re going to see a ton of consolidation there. That industry is going to look a lot smaller. But if you went long crude oil and short on cannabis, it did pretty well in 2022 so far. All right, let’s talk about NFTs, non-fungible tokens. We love talking about those on the show. And there have been some crazy use cases for NFTs not just this year, but really since they’ve been around. Let’s talk about the best and worst use of an NFT. Give me yours, and I’ll give you mine.”
Same:
"Okay, my answer is probably going to be a little bit generic here. I'll start with the worst use case for an NFT. The worst use case for an NFT is art. If you are buying it because it looks nice, so you could be the only person owning this image with no additional added benefits that comes with a lot of these other NFTs, I think that is the absolute worst use case. Sure, there are artists selling and making tons of money on this (and the value of a lot of that stuff has been going down). But NFTs that don't have any other sort of tangible value except for this intangible idea, like people will value it because it's the only one that exists, I think that's awful, and I think it's something that is very dangerous to dabble in unless you have money to burn."
"And so the other side of it is, 'What is the best use case of it?' Well, if you can use an NFT to get into exclusive events for people you admire or a group of people that you admire, I think that's really cool. I mean, it sounds a whole lot like owning season tickets to the Nets or whoever your favorite sports team is. But in that sense, you don't hear too much about those kinds of comparisons where it's like having a membership card into a club or having season tickets or whatever. Well, I think that it really is the interesting value because you have that sort of added layer of it being basically impossible to replicate or forge or whatever. And so, people who do have these tickets or membership clubs and all this stuff (of course, one of the risks is the wrong people coming in here), I do think that there's something there there when it comes to NFTs that you can use to access things that are exclusive to a group of people."
Caleb:
"Great point, and I completely agree with you there. The NFT is a tradable asset like a stock or even a crypto that never made a lot of sense to me. But what does make a lot of sense is the joining of a community. And folks, listeners remember our conversation with Gary Vaynerchuk. You buy an NFT, you get a doodle from him, you get an invitation to an event, you get private audience with him, you get a private call with him. It gives you access to a club that goes up in value as more and more people join it. That makes sense. But to trade it like it's a stock or a tradable asset never made sense to me."
"But there have been some bad ones out there. The Lindsay Lohan Herby NFT from her starring role in Herbie. That's a terrible idea. Corvette just came out with a new NFT. You get the car and you get the NFT. I just want the car. I really don't need an NFT for my Corvette. And then Jack Dorsey's first tweet. Important and valuable for Jack Dorsey, not so valuable for the rest of the world, though it did sell for a good chunk of money. All right, let's whip through some of these last categories of the espressos right now. The best money shows streaming right now. Sam, what's your favorite? Give me your top two or three if you have it."
Sam:
"So, I've been going back and watching Billions on Showtime, and it's a fun show. There's a lot of action, a lot of drama. But as a finance nerd, I really appreciate when they actually spend a couple of minutes per episode talking about why they are making certain trades, whether it's Bobby Axelrod and his analysts or whatever will make some obscure trade about how buying iron ore in Singapore or some developing country for some particular reason because some warlord is doing this… They'll have these really complicated, intricate, structured reasons why they think something is going to happen."
“I think that’s really interesting, especially for anybody who’s interested in finance. It’s not necessarily just like statistics and flow of funds or whatever, but there are people who are making huge wagers in the financial markets based off of a very sophisticated understanding of how the world works and how people work and how economies work. And they spend a lot of time talking about trades based off of these fundamentals. It’s just incredibly fascinating.”
Caleb:
“For for folks like you and me, that’s just candy, and we love it. And our traffic spikes every time Billions is on the air. Why? Because they’re bringing up terms that have people like, ‘What? What’s a bear hug? What’s an option?’ So, I actually told Brian Koppelman, ‘You caused us to have to write the viewer’s guide to Billions because people are looking up these terms.’ He’s like, ‘We use it all the time.’ So, I agree with you. Billions is great. Succession, I’m a huge fan of that. More of a family drama, but it’s good family media drama. Lots of good business in there, lots of good investing terms to look up there. And you got to see Inventing Anna if you haven’t seen it, folks. That’s a money story. It’s a fascinating series, but it’s also at its core about money, and it’s about greed. All right, let’s get to the best money films. We’re going to go all time here for the Express-os. Your top five best money films of all time. And you could throw in an honorable mention or two if you want to.” 
Sam:
"So, off the top, I'm going to say Margin Call is really great. It's a great sort of window into professionals in the financial markets industry. And yeah, a lot of time is spent in these offices with fluorescent lights looking at spreadsheets. And then you put a number into the spreadsheet, and someone gets really excited, and someone gets really scared. And then you're suddenly in a boardroom meeting with people talking about how this stuff works. Really great tense drama, it's like watching a play, but I think Margin Call is great for anybody who's trying to get a peek into how the industry works."
“Trading Places, again, all-time classic. Eddie Murphy, Dan Aykroyd, great comedy, great fun. But, kind of like what I’ll say with Billions. The story revolves around how these commodities brokers are going to inside trade frozen orange juice futures. And it’s really interesting. They talk about the crop report and weather patterns and all this stuff. And I think for anybody interested in finance, it’s like, ‘Yeah, finance and financial markets and economics is about these things that you’re consuming every day.'”
“Another one that’s flown under the radar that nobody ever talks about is a movie from maybe like 20 years ago called The Family Man. I don’t know if you remember this one with Nicolas Cage who is this accomplished, very wealthy Wall Street guy who made all these decisions to get to where he’s at, to have all this incredible wealth. And then one day he wakes up as a husband of his high school sweetheart and has these kids and is living this very different kind of life. And then eventually, spoiler alert, he realizes that there’s more to life than just having tons of money. And I think that’s really important for people who do think about stuff like investing and trading and economics and all this stuff is that not everybody is solely motivated by money and profits and all that stuff. And I think it teaches us a lot about how economics actually works. Explain to us why people might vote for presidents who might not have their economic interests in mind if they are advancing, moving towards social concerns and whatever that might come at a financial costs. So, yeah, I’m a huge fan of Family Man. And then topping out the top five, I’m going to say, again, these might be cliches, but Wall Street from…”
Caleb:
"The original, the first."
Sam:
"I thought the sequel was great too. Not as good as the original, but I love the sequel in that you still have the Michael Douglas character. But how do you continue to exist in the financial markets world? What was dirty and scummy and whatever back in the '80s? Very different. And then how you define that sort of Wall Street radar behavior in the late 2000. So, I thought it was interesting how that character evolved between those two movies. So, that's my top five."
Caleb:
“That’s a good top five. We got some crossover there. I’m going to go with The Big Short, a little Michael Lewis action there, and Moneyball, which is a baseball movie, but it’s a little bit about money too. It’s not necessarily about Wall Street in the financial world, but it is about the way money works and the way to evaluate players and the use of metrics. You got to love Boiler Room, if you really want to learn about how those slock shops worked back in the day. Wolf of Wall Street, a little crazy, a little zany, but at the core of it, it’s about money, and it’s about ripping people off. But you learn a ton watching that if you can make your way through the scenes there. I put Wall Street on my list, and I also put Trading Places. Couple honorable mentions for me. I had Margin Call there. Now that you mentioned it, I do like it a lot better, and I do love Stanley Tucci. Who doesn’t? And It’s a Wonderful Life. A lot of people don’t realize this, that’s a very important film with lessons about money that you could learn. So, good crossover there. Good lists. We’re going to make sure we post these for folks in the show notes. All right, let’s zip through this in the last couple of minutes we have left, we’re going to do the lightning round. Overrated or underrated? Let’s start with buy now, pay later. Sam?”
Sam:
"Overrated."
Caleb:
"I agree. That's layaway in my neighborhood."
Sam:
"It's layaway!"
Caleb:
“Web 3.0?”
Sam:
"At the moment it's overrated, but we might just be early."
Caleb:
"I agree. It's going to be like, 'The Internet? Who's going to use Internet and email?' We were saying to ourselves in the '80s. We can't live without it right now. Esports?"
Sam:
“Underrated. I think there’s something really exciting about just video gaming in general. Like you look at demographic surveys, and 45% of gamers are female. So, it’s rare to see public spectacle or sport or whatever you want to call it where the gender breakdown is that split. Now, I think in the professional esports world, it’s actually very heavily male dominated, but I think it’s an interesting and exciting place, especially if we’re going to start talking about metaverse and all the stuff in the next couple of years.”
Caleb:
“Yeah, great call. And I don’t disagree with you on that. Not one bit. Fintech, Sam?”
Sam:
"I thought I was going to say overrated, but I'm going to say underrated. I think with the right kinds of fintech, it's extremely underrated. Just the other day, I was at a sandwich shop here in Brooklyn, and they made you order from the table using a QR code, which is one kind of experience. But at the very end, you could pay for it by just double tapping the lock button on your iPhone, and you're using Apple Pay, and it cuts out a lot of steps. So, I think any kind of fintech where you're cutting out steps when it comes to payment processing is really exciting. I'm a big fan of using debit and credit cards. Well, I mean, big fan of them in the ease of use but not having to take the credit card out and sign a receipt and enter security codes and stuff. Reducing frictions, always very exciting."
Caleb:
“Yeah, we always look for that when we look for financial moats. ESG? Last one, Sam.” 
Sam:
"ESG, well-intentioned but overrated. I think when ESG was first coined it, it might have been a good idea because everyone loves environmental sustainability, corporate governance, all that stuff. It's all the right things, but it's been completely taken over by people who are defining indexes and creating ratings systems. And as soon as you create those sort of guidelines, every company is going to have their lawyers out there and their strategy people to figure out how to game things so that they can get on to these these lists. And so, you'll look at a list of top holdings for an ESG fund, and you'll be horrified by some of the companies that are on there. They game the system. So, overrated."
Caleb:
“Yeah. Greenwashing in full effect. We talk a lot about that on the Green Investor podcast for folks who want to check that out. But I agree with you, overrated. But I do think it has promise. So good to have you on The Express, Sam Ro. Folks, check out the substack TKer. Follow Sam, a great follow in financial media and a great friend in the business. Thanks so much for joining The Express.”
Sam:
"Thanks for having me."
It's terminology time. Time for us to get smart with the investing term we need to know this week. And this week's term comes to us from Jeff on our legal team here at DotDash Meredith. Jeff suggests specific performance clause, which is technically a legal term, but it applies to Elon Musk's not-so-surprising revelation that he wants to terminate his $44 billion takeover of Twitter. Musk said in an FCC filing on Friday via a letter from his attorney arguing that Twitter breached its contractual obligations, namely that he believes that Twitter is undercounting its number of bot users and also that it didn't follow the ordinary course of business by firing top executives, laying off employees, and implementing a hiring freeze as business slowed down.
Twitter's board retaliated by threatening to sue Musk for breach of agreement, but Musk claims that he not only has the right to walk away from his agreement but also hinted that he shouldn't have to pay the $1 billion termination fee because the company may have triggered a reverse material effect clause. Then Twitter said the company will seek to have a Delaware chancery court force Musk to complete the buyout under the original terms via a merger term called the Specific performance clause. In fact, Section 9.9 of the Musk Twitter merger agreement says the company shall be entitled to specific performance or other equitable remedy to enforce Musk obligations, assuming various other conditions are satisfied, namely, that Musk has the debt finance in place to close the deal. We assume he does. He said he does.
Still, Twitter could sue Musk for helping to crush Twitter's share price since he started this charade. Shares are down about 24% since April, and trade well below the $54.20 per share offer that Musk originally made. If Twitter accepts less than the price it originally negotiated with Musk, it could expose the company to shareholder lawsuits. An out of court settlement is also possible, with Musk paying Twitter a large fee to be released from his obligation to buy the company. But somehow I don't see Musk willing to do that. Anyway, thanks, Jeff, for that suggestion. Specific performance clause; we're going to update that term on Investopedia. And you're getting a fresh pair of socks, my friend.
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