REVOLT

The market is experiencing a significant rally, which the speaker describes as "the most frustrating rally." The triple Q's price target of 675 was just hit, a target that was set and maintained since the beginning of April, despite initial negative reactions from many. Google is also showing a breakout as predicted. The speaker apologizes for not posting a video yesterday due to being overwhelmed with a PCAOB audit for House Hack, which was successfully completed, and a personal family emergency involving his son, J, who is now recovering at home. J is even holding a coupon code, "goodbye Powell," which was extended since the original expiration was yesterday. The speaker playfully notes that J, whose last name starts with P, shares initials with Jerome Powell, and that Kathy Wood might not appreciate the sentiment. The market's current state is deemed frustrating due to prevailing negativity despite strong economic data. Many people remain negative about geopolitical situations like the Iran conflict and new tariffs, along with a slowing labor market. However, this negativity is being counteracted by positive economic indicators. The speaker has been bullish not only on hardware but anticipates software will be the next major driver. Companies like Team, which are currently losing money but saw a 21% surge today, are expected to lead a reversal in software stocks over the next 5-6 months. Key economic data points include capital good orders, which were 3.3% versus a 0.5% expectation, and the Employment Cost Index (ECI) annualizing at 3.6%, which is considered phenomenal as it aligns with a target of around 3% for wage growth. Jerome Powell views this as stable and not a source of broader inflation. Continuing claims are at a 50-year low, and earnings are strong. Manufacturing PMIs indicate continued economic expansion for the 18th consecutive month, with new orders expanding for the fourth straight month after four months of contraction. This suggests a significant rebound in the economy in the first quarter, with GDP holding at 2%, which was largely unexpected. This rebound is happening despite widespread negativity, which is why it's a frustrating rally. People are raising capital but are unable to deploy it fast enough. Even during the Iran war, while 69% of comments were negative, demand sentiment on new orders was positive, with a 1.6 to 1.0 ratio of positive to negative comments. Gains in production and order books are the steepest in four years, attributed to companies trying to get ahead of supply shortages. This strong inflow of new orders and output is unequivocally bullish, not bearish. Business expectations for future output have improved, partly due to hopes that the US will be less affected by the war. However, unemployment has fallen as firms worry about cost reduction amidst rising material prices. The speaker believes the commodities play is over, having called the top for gold earlier. The focus is now on skyrocketing earnings at companies like Amazon and Google. Amazon’s product sales grew by 11.5% and service sales by 20%, but its free cash flow is a negative $18 billion, requiring $53 billion in debt. The surge in Amazon's earnings per share (EPS) is partly attributed to equity investments in private companies like Anthropic, accounting for $12.3 billion in adjustments. Similarly, Google's "other income" grew from $11 billion to $37 billion, largely due to investments in SpaceX and Anthropic, boosting their EPS. These gains are from AI and software investments. The speaker practices what he preaches; House Hack, his company, started buying CPUs (Central Processing Units) like those from ARM and AMD months ago, anticipating the shift to software revenues. This foreshadowed the significant rise in AMD, Intel, and ARM stocks. AMD surpassed its $342 target, ARM exceeded its $188 ceiling to reach $212, and Intel is nearing $100, past its $88 target. The next play is software revenues. While companies like Team are still losing money, their top-line revenue growth is accelerating (31% year-over-year in 3 months, 25% in 9 months), and their gross profit is 85.3%. They have a strong balance sheet and are buying back twice as much stock as they issue, which is crucial for offsetting selling pressure from employee stock compensation. The speaker acknowledges that software is currently "in the doldrums" but sees this as a buying opportunity, similar to how yields are currently high in real estate. His long-term thesis, dating back to 2022, is that interest rates will be lower by 2032 due to technological deflation, offset by money printing. This decade-long window of lower rates makes buying real estate when it's unpopular a strategic move. House Hack, which owns $80 million of debt-free real estate, is leveraging this to build software and grow its real estate portfolio. This "Trojan horse software company" approach capitalizes on the unpopularity of real estate and software due to high interest rates and AI concerns, creating a "wedge deal" opportunity. The current market fluctuations are less important than the broader trend. There are still many bears on the sidelines, but the bullish trend is likely to continue, supported by factors like the third aircraft carrier leaving the Middle East and Trump's unlikelihood to initiate strikes before midterms.