The Compound and Friends - Tesla’s Taxi Day, Jobs Report Shocker, Dan Dolev on PayPal’s Comeback

Episode Date: October 8, 2024

On this TCAF Tuesday, Mizuho fintech analyst Dan Dolev joins Josh Brown to discuss the potential earthquake coming for Visa and Mastercard, the reasons behind PayPal's big rally this year, why Affirm's genius founder Max Levchin is important to watch and Accenture as a "picks and shovels" play for investing in AI. Then, at 44:47, hear an all-new episode of What Are Your Thoughts with Josh and Michael Batnick! This episode is sponsored by Rocket Money! Visit: http://rocketmoney.com/compound and cancel your unwanted subscriptions today!  Sign up for The Compound newsletter and never miss out: https://www.thecompoundnews.com/subscribe Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to the compound and friends. Tonight's show is brought to you by Rocket Money. Rocket Money is a personal finance app that helps find and cancel your unwanted subscriptions, also monitors your spending and helps lower your bills so you can grow your savings. Rocket Money has saved over five million users, a total of $500 million in cancelled subscriptions. Stop wasting money on things you don't use. Cancel unwanted subscriptions by checking out rocketmoney.com slash compound. Tonight's show is double decker.

I don't know how else to put it. We have Dan Dolev up first. We talked about some of the most exciting stories in fintech. Dan's got a coverage universe that ranges from, it's a huge list of names. It ranges from Visa and MasterCard, which we get into, to PayPal, Affirm, and the buy now pay later companies. He does Square, he does Coinbase. They're all in his in his realm and

We chopped it up on a few important stories. You definitely don't want to miss that and Dan is really good And he's and he's got great stories to tell Then it's another all new edition of what are your thoughts? It's Michael Batnick and myself and first things first We had to get to that big reaction in the bond and stock market on Friday, when the Bureau of Labor Statistics report came out for September non-farm payrolls. It was a huge upside surprise. So we're gonna walk you through the reactions

and what we thought was notable. We're also gonna do some stuff on high income investments. And we will get into Tesla's robot taxi day and a whole lot more. So stick around, John and Duncan will send you into the show starting now. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any

investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Hey guys, it's me, Josh Brown. Over the last few months, PayPal has become one of the top performing stocks in the S&P 500. This is after a disastrous fall from grace in the post-pandemic period, which ultimately led to the company appointing a new CEO, Alex Chris, who has been highly successful as the

senior vice president at Intuit prior to coming to PayPal. Joining me today to discuss the PayPal comeback and some of the more interesting stories from within his coverage universe is my friend Dan Dolev. Dan is the senior analyst at Mizuho covering the fintech equity space. Prior to Mizuho, Dan spent time at Macquarie, Nomura, Jeffries, and Sanford Bernstein. What's up, Dan? How are we? Hey, Josh.

Thanks so much. Thank you so much for having me on today. Ready for ready for a busy week. Good man. PayPal has been on fire. This is a five-year look back. I made this chart. This is not from chart kid Matt.

So everybody give me but we're basically showing you that in September of 2023, Alex Chris was named as the new CEO. And you can see that this is a company that had lost probably 80% of its market cap in the two or three years leading up to that. I want to do one more chart. Now I'm showing you PayPal versus the S&P 500. This is over the last year. The stock is up almost 40% against an S&P 500 that's up about 35%. If you said, here's an item for your Bingo card for 2024, Dan, PayPal is going to be

beating the market, I would have said, no way. But there seems to be a lot of momentum here. So I'd love to just hear from you. What do you think is the primary driver for why this stock is starting to work again? I mean, look, and you remember we had, when we did the last podcast, you know, I was negative and then I changed my mind.

Yes. And I think that the number one reason to like it is new management. So this guy is a superstar. Like you often say, like it's really all about management. This guy is a superstar. And you know what he specializes in? He specializes in what decisions to avoid.

And it's been a remarkable news flow. Like every week you get like great news, like whether it's Walmart or, you know, pay by bank or, you know, all these things are coming together or Fastlane and we can talk about that too. They manage expectations and they manage the news flow and that's why the stock's working. John, put that first chart back up. So he's a superstar, but if you look at price action, it's a delayed reaction.

Nobody really seemed to think that when he became CEO. Otherwise you would have seen a big spike on that news as opposed to what we actually saw, which is it looks like a 52 week low upon that announcement. So people, Chardof, so people are just now starting to recognize that he's a superstar. It doesn't appear that when he came in, that was the chatter around Alex Chris. Do I have that right? I think you got it spot on. You know, like I was chatting with one of the industry executives when he was

nominated and the joke was he was like the number five call, right? Like nobody wanted the job. You know, we remember people were talking about Bill Reddy, who now runs Pinterest, and there is Sarah Friar, who's now CFO of OpenAI. There are a lot of names juggling around. None of them was Alex Chris. Okay. So what do you think it is about him that makes him a superstar? You mentioned he's deciding the things not to do, which I like that concept. As a fellow CEO, I should probably be doing more of that than I do.

But while he's deciding what not to do, meaning what frivolous M&A deals might a prior management team have done that we're not even gonna think about, it sounds like. But then as he's doing that, you're right. There's a blitzkrieg of announcements. It seems like every week PayPal has something new to tell Wall Street or tell its users. Yeah.

So for four years, PayPal could not go on Amazon. And then all of a sudden you saw the news flow of buy with Prime. So all of a sudden you have an opportunity to check out with PayPal on Amazon. This is a, you know, like an earthquake when it comes to sort of the PayPal button, right? That's just number one. Number two in the news flow is the- Well, how do you think he got that done? I think he basically, I mean, that's a good, I actually didn't think about this, but as you asked this, I think they basically said, look, our button helps you with conversion. There's no need to fight that war against PayPal.

Let's just collaborate. There's going to be more for everyone. Why not use us? There are hundreds of millions of PayPal active accounts. Why not have our button there? Yeah. What's to lose, right? What's to lose in having our button there? Yeah, what's to lose, right? What's to lose in having our button there? People use it.

And you know what's interesting? We live in this sort of Apple ecosystem and we're sort of siloed. I mean, there's a lot of people in the world and outside America that don't use Apple and they don't trust websites. So PayPal is a huge vehicle. You always have to think about the international opportunity because there's a lot of people

out there that don't trust punching in your credit card detail. Right. On to a phone. Right. Yeah. I mean, we're 350 million people. There's a lot more people in the world that don't use, you know, kind of our ecosystems. So you titled your research report that the buy with prime partnership is only a first

important step in collaborating with Amazon, which would lead people to believe you think there could be more to come. What do you think are the possibilities of this relationship? I mean, you could basically have PayPal like front and center on the Amazon checkout. I mean, just think about Amazon does, does hundreds of billions of dollars of volume every year, and just a fraction of that goes to PayPal, right? So I think this is kind of probably a test vehicle because Amazon wants to see how it works.

And if it works well, they're just going to integrate them into their website. And all of a sudden, that spikes their most profitable business. Remember the checkout button is 80% of profits. So it's really important to do well on the checkout button for PayPal. What do you think is going on with Venmo and buy with Venmo, pay with Venmo? Is that a new avenue for growth that PayPal really hasn't taken full advantage of, or is that kind of stalled out these days? What's your take? I take this down as to kind of how he manages the news flow. I think the first step was

to sort of stabilize the checkout button, show some good news there. We can talk about Fastlane too, and I think kind of maybe 2025 is going to be the year of the Venmo, because there's so much opportunity, right? Venmo is sort of the de facto Alipay of the US. How many users does Venmo have? I think like 60, 50, 60 million right there. Just in the US? It's just US, right? So the opportunity, it's nobody outside the US knows about Venmo. So the opportunity there is to find a way to integrate Venmo and PayPal and really create a global payment networks. So the opportunity there is to find a way to integrate Venmo and PayPal and really create a global payment network. And the reason it's important, it's an offensive and a defensive

move at the same time. It's an offensive move because there is none. No one has this sort of like global payment network. The defensive move is because Elon is buying licenses to turn Twitter or x.com into a payments vehicle. You got to outrun Elon, which is pretty hard to do. Yes. Okay. A lot of people look at that and say, well, if he's successful, like he was with Tesla, we have something to worry about. If it looks more like Twitter, we have something to worry about. If it looks more like Twitter,

we have nothing to worry about. I agree. But it's been a bad bet to bet against him for the last 20 years. So I would be, I'll take notice when he's working on something. And I think that's what PayPal needs to do is to outrun him because they have a great brand in payments.

So much easier for you to convince people to use PayPal Venmo globally than Twitter. One of the things that's been hurting PayPal over the last couple of years is the dominance of Apple Pay within the iOS ecosystem. It's the default thing that I use for Starbucks, for example, it's just right there, it's so easy. And that's just one app.

I could think of dozens of reasons why that's like an undefeated payment button. But that narrative seems to be like calming down a little bit. I don't hear as much about it. And I also noted, I think you wrote about this near field communication chip change where Apple's actually either because they feel forced to or because they want to is going to open up pay with blank as one of the options when you touch your phone to an NFC screen. Talk a little bit about why that might matter.

Yeah. And I think Apple is the perfect example of people just making trades because they know something, right? Not because it's so grounded in facts, right? So one fact is PayPal is actually growing in line with e-com. If you look at sort of their blended websites and their growth, I mean, PayPal is not undergrowing that. Maybe they're not gaining massive share, but all they have to do is just maintain shares

so that they can work on these new initiatives. So that's number one. Apple is under pressure from European regulators, US regulators to open, and we wrote about this, the NFC chip to let every other third party app to actually tap with it. So that's number two. And number three, and we'll talk about this in a second, but Apple has sort of capitulated on many things, payments, right? They wanted to do buy not pay later by themselves, and now they're giving it to a firm.

So I think there's an interesting momentum here where Apple is no longer sort of the kind of most feared factor in payments because they figure out they can't really do this right. Okay, so there is a world in which something happens where PayPal becomes the de facto secondary payment option on an Apple NFC system. I'm not saying it will happen, but like it is now a possibility more so than it was prior to that news. I believe in it because there's a lot of young people.

If they were given, we did some survey work. This was a little bit, it's like two years ago, but we've asked people if you had a choice to actually tap with Venmo. I think a vast majority of people said, I'll try it right. Because they already use Venmo for P2P. And if you go to the store and it's easy to do, then why not just tap with Venmo? Why not just tap with Venmo at like every toast restaurant?

I mean, there's an enormous opportunity for Venmo to start monetizing in a way that it's never done before. Before we move away from PayPal, tell me about Fastlane and why shareholders should be excited about this. So this is probably the biggest opportunity right now, right? The TAM is infinite. We're talking about like, you know, $3 trillion globally. Fastlane is the white labeled payment for other people's websites.

Correct. And 60 and when I heard the statistic, Josh, I was shocked. 60% of volumes globally still go through punching in your credit card detail. It doesn't go through some sort of a digital wallet or Apple Pay. The opportunity here is to make this, and PayPal can recognize 70% of that. They have a vault of 800 million users globally. It's like all the people that have used PayPal at some point or another in the past, and they can triangulate your information.

If you think about this, a lot of these sales just go to the trash can because it's just so cumbersome to punch in your credit card details. So if they offer a... So let's pause on that. So I'm on, I don't know, Instagram or somewhere and I see a product that I'm interested in and I click on it and I slide through some pictures of the product and then I go to say, all right, you know what, buy it. And then the next screen I'm shown is 30 fields I have to fill in.

Yeah. And I just say, you know what, I don't want it that bad. Okay. All right. So the opportunity is if I'm pre-filled with my PayPal account information, it's a higher likely that I go through with the transaction. One click, done, purchased. Kind of like what you do with Apple Pay,

but think about it, I think we look at it from a very myopic kind of tunnel view of, oh yeah, Apple Pay, I use it, I check out with it, but again, the world is much bigger than Apple Pay, and there's a lot of people using their desktops versus laptops, versus phones or laptops or desktops. There's just a vast universe of online checkout and a lot of it is still done manually.

That's the statistic. Now, it has been proven that if you actually use the Fastlane product, you improve conversion by 10%. So you can sell 10% more if you don't just say, oh, I don't want that thing anymore. Right, the average merchant. Is Fastlane enterprise only or can anyone with an e-commerce site bring in that technology?

Like how widespread is it, anyone? So they're partnering, that's a great question. So they went from like offering it to enterprise, now they're partnering with Audien, right? And they're partnering with pretty much everyone so they can bring it into every SMB, right? Every person has an online store. So it's not just Target, it's going to go trickle through down to pretty much everyone that has selling pet know, selling, you know, pet grooming stuff online, right?

It's just a no brainer in my view. Remind me, where's your where's your target on PayPal? And of course, guys, this is for educational purposes only. We're not making stock recommendations on podcasts or YouTube. But where do you think where do you think this stock should trade based on the fundamentals? I mean, I got a $90 price target. But I think this is I think that PayPal is is just in the first inning of the kind of revival or resurrection, right? Like it's it's coming back and just the most before we move on to the next topic, I want to say something I

think is really important There is a very strong muscle memory in the long only community in the US Like if you go to Boston, right when I go marketing in Boston, it was just there last week People remember making a lot of money owning PayPal. So it's a very easy sell Yeah Like if they just execute like they're doing now and kind of going back to Alex being a superstar There there's a lot of people, a lot of PMs at the Big League of Only Funds are going to say, I want to hear the story. Yeah. Which is very rare. So I'm in that group. I bought the stock at 70 a couple of weeks ago when it broke into

a new 52 week high. I like to buy strength in a turnaround story. So I like when there's a turnaround story, but the technicals line up with what the analysts are story. So I like when there's a turnaround story but the technicals line up with what the analysts are saying. So I got sucked in by that muscle memory too. I remember when this stock was an incredible investable security. It's been a while but I have that same muscle memory. You wrote about Visa and MasterCard recently. I know there's two of the biggest names in your coverage universe. Let's just put up a price chart on these

just to set the stage. This is one year, the top pain is Visa, the bottom pain is MasterCard. MasterCard recently looks like it's got more momentum than Visa, it looks somewhat better. Maybe you have a take on why. But you had a fairly provocative research report titled, could Walmart's pay by bank initiative weaken the Visa MasterCard moat?

So set this up for us. What is the Visa MasterCard moat and why could Walmart potentially weaken or threaten it? Yeah. So we have a neutral on Visa and a buy on MasterCard. I think it's a pair trade. It's like the perfect pair because MasterCard is gaining share. And there's a lot of other issues that Visa has

that MasterCard doesn't. We'll talk about it in a second. But back to Walmart and what's going on there. The number one issue, in my view at least, of what's hurting Visa right now is that they just run out of runway, right? I don't know if you've ever been to Aspen skiing. No.

So they have a little airport. So the analogy here is like Aspen. It's a beautiful village, very prestigious, but the runway is really short. And that's how I think about Visa. And with that analogy, if you think about it, 45% of their top line growth historically has come from cash to card conversions. So the average Joe, right, is basically using more card this year than he used in year zero. And in the US, we've reached, Yeah. And in the US we've reached like I per my estimates 85 to 90% card penetration already meaning anything that is still a cash transaction at this point will probably stay that way. We've had the we've had the runway of we went from 100% cash to 90% to 80% and now people

are pretty much using their cards for anything that they might use their cards for. Correct. It's like a little stuff and some stuff that we probably shouldn't be talking about on the podcast. People are still gonna be using cash for or crypto. But another topic, right? But for anything legitimate,

there's no reason to use cash anymore and people are not doing this. So as evidence, in the last two, three quarters, they cannot outgrow personal consumption expenditure, which is the key yardstick, right? I track it. They've been growing faster. They've been growing five to six percentage points faster than PCE historically. And now that growth has kind of converged. Now their growth is like a railroad. It's just whatever the economy's growth is, that's the boundary.

So why do you grant them a premium multiple for that? This is all I'm saying. It's not a... It's a good business. It's Aspen. It's very prestigious, 70% margin, but the runway's really short. Really, really hard to land it.

Why does MasterCard not have that same constraint, or do they? In it by itself, it's the same business, right? You can't just say, you know, pick, kind of pick and choose there, but they have way less exposure to the US, which is kind of like the epicenter of the storm right now in terms of that.

So Mascar is more global. Where that cash to card conversion has more room to run. There is a little more, you could argue, we can talk about that too. You can argue like places like Germany or Japan or there is a little bit more room. But we can talk about that too, because that's another problem that might not exist, right? It might be just like that sort of fantasy land that never exists. And two, they have less exposure to debit. Debit is sort of like the problem here.

Debit is just a very expensive way for you to get your own money. And you've seen the Durbin Amendment going after debit. You're seeing now the DOJ going after, as of last week, I think two weeks ago, they're suing Visa for debit practices. So debit is under the gun and you don't want to have exposure to debit. Credit, you're really offering value. I'm giving you credit, I'm taking risk. But debit, pay by bank, which was your other topic, this is what's going to take debit

down. Okay, so let's flash that chart back. So what you're explaining here explains the discrepancy. It's not a huge discrepancy, but why MasterCard is close to a breakout and why Visa appears to have at least short term broken down. You've got this debit regulatory overhang potentially, and you've got a higher reliance on debit versus and the United States versus MasterCard, which is more global, less debit and therefore might have more secular growth runway. All right. Yeah, I think when the DOJ just like one last thing here and the DOJ went after Visa a couple weeks ago, they were saying Visa has has like I think something like order magnitude 70% market share in debit or some crazy number

I mean don't know exactly the number but like an outrageous number even if it's 60 It's a big number and you don't want to be in that position Because it attracts a lot of fire. It sounds like Visa is going to have to become highly politically active this fall. There's a lot of lobbying down in DC now. 100%. Okay. So pay by bank, this is the threat to debit because the consumer might prefer this to the standard of debit payments. Is that what you're saying? Yeah. And also, so here's the technological shift that has happened over the last year that we didn't have before. So for the first time since July of last year, we have FedNow, which is quasi basically the account to account

real-time payment rails. Like today, if I want to send you money that's not via debit, I send you like an ACH transaction. It takes two to three days to settle. And you're taking risk of not getting paid. Who knows if the money's in the bank? But with FedNow, which started last July, July 23, and already has, I think, close to 900 banks signed up, including like two large money center banks, you can settle immediately.

So you're basically taking the key competitive advantage out of debit. Think about it like that with FedNow. There is no need to have like a middleman that helps you do a real time transaction. Now it's bank to bank. It's bank to bank. And by the way, in Brazil, PICS in Brazil, which is their sort of their Alipay, went from 0% market share in 2020 to 33% transaction share like last year. I mean, it's insane.

And debit lost about a third of that. So if you think about that 30%, 10 percentage points came from debit. And then there's other forms of payments in Brazil like Boleto or whatever that lost share. But debit is a direct casualty of account to account, and that's been proven internationally. Why wouldn't it happen here? And that's what we're saying. So Walmart, I think, is the second largest e-commerce player after Amazon. This is obviously a super important market, not just because of the

market share, but the mind share. Most Americans are very comfortable with whatever Walmart offers as a payment option, and they will default to it if Walmart wants them to. What is Walmart doing and why could that be a threat to this moat that the credit card companies have enjoyed for it seems like 25, 30 years. Sorry. We got you. Don't worry. Yeah.

I bought this at Walmart. They're the cannery in the coal mine, right? Yeah. You can hear me, right? Sorry about that. They're the cannery in coal mine. And by the way, and we're not talking about this today, but they work together. This is a collaboration with Fiserv, which I'm a big fan of, the huge payment giant.

But I put Fiserv today with like Audien and like the e-commerce giants. They bifurcated away. We'll talk about it next time. But what Walmart is doing, help with Fiserv, they are basically going to let people pay directly from their bank account. So they're using the Now network, which is basically an intermediary network that's powered by Fiserv to help almost like dispatch transactions. Do you want to use FedNow?

Do you want to use RTP, which is another thing? So Fiserv is basically sitting there in the middle, helping Walmart connect your bank directly with their register. And this is a huge- How does a consumer physically do this? Do they pull out their ATM card? Or like what's, or is it an app on their phone? So this is the big question.

I think it's going to end up being an app that you're basically going to link your bank account. So this is, it's all kind of like new. And my, again, I don't exactly know how they're going to do it, but my, my guess is it's going to be some app based thing where you're connecting your, your bank account, let's say with Plaid. And this is by the way, why the reason Visa wanted to buy plaid so badly in 2019 is because they knew this was coming. Okay.

They, and that's why the DOJ plaid is called plat is the middleware that makes these connections between financial institutions possible. That's my that's my guess. I mean, the plat is everywhere. If you sign up for like a Coinbase account or anything, you'd basically be connecting your bank. So now that they have your bank detail, the next thing that they can do is start, you know, sending money around, right money around. Right. Okay.

And so this is what Fiserv is planning together with Walmart. I think the big news here is that for the first time ever, we have an alternative to debit and to your point, people trust what Walmart is doing. And you know, and I think that there's people at Walmart that are thinking very, very dearly about payments. You know, the CFO of Walmart is the-CFO of PayPal, John Rainey. Oh, I didn't know that. So he knows how to sausage is made.

So he knows how to do payments and I think that's a big competitive advantage for Walmart. So Dan, if like 5% of transactions in store move from a swiped credit card to a pay by bank via Fiserv, that will be felt everywhere. That's going to be an earthquake itself. That is a very difficult pill to swallow if you're on the other side of it. I mean, Walmart's running what 500 billion? Yeah, 25 billion a year and growing. You don't want to be on the other side of it.

Okay, that's a key. So that's a key story for anyone in this space to keep their eye on. I want to make sure we get to a firm. This is this is a stock that you write a lot about, your most recent piece. Let's put this chart up first. So Affirm came public and started out as one of the darlings of payments during the pandemic when it appeared as though nobody would ever leave their house and transact in any way other than buy now, pay later via Affirm.

And it was kind of a wild time for valuations. in any way other than buy now pay later via a firm. It was kind of a wild time for valuations. What I have here is both the share price but also the drawdown. This stock has gotten off the mat since late 2023, similar to PayPal. It's still in a 78% drawdown relative to its 2021 valuation. But you talk about, Chardof, you talk about this being a different business than what people think,

and there being more than meets the eye in this story. So you said lower rates could help drive 30% upside to consensus volumes and two to three times to gap EPS. And you're talking about the multiples that you think the stock could trade at relative to other names in your coverage universe. Give us some idea of what's happening with the firm and why you think there's some sort of a re-rating coming for the stock. I mean, you don't often let me start with the end. for the stock. I mean, you don't often let me start with the end as much you know, I love Alex, I love Alex Chris and I love everyone.

But you don't often come across a genius like Max. Max is the founder and CEO of a firm. Yeah, Max, I mean, co founder of PayPal. He's in that rat pack, right with Elon and Peter Thiel. I mean, that's you don't pay former PayPal mafia. Now we visiting the payment space. Exactly. I mean, that's a one of a that's like a one of a kind opportunity to sort of bet on a

founder CEO that's like really wickedly wickedly smart. So that's one thing. Now, why am I so bullish about this? And, you know, think of lower rates as lower risk. If you start thinking about this, as the rate comes down. Lower interest rates in the economy. Lower interest rates in the economy is lower risk of default.

And as the default risk comes down, a firm can open the spigot and just let more volumes come in. So at 5%, they can get this much volumes. At 4%, they can get this plus 30. And no one's models is actually, even though everyone knows there's going to be like nine cuts over the next, I don't know, two to three years, no one's modeling that lower risk in terms of what it does for higher volumes because-

Risk of the buyer defaulting on the transaction. Yeah. When you talk to Max, and I have a lot of max time He always says we're in the business of taking risk like they don't yes the consumer and like the brand and all that Like kind of wishy-washy stuff is great But they are in the business of taking risk and I think that's like that That's the number one thing when he wakes up in the morning. That's number I bet you that's the number one thing he thinks about. So playing devil's advocate, another way that some people might think of this as the lower

rates are the worst the economy probably is, therefore taking more risk while on the surface it may make sense, it might actually from a macro standpoint not make sense because rates are coming down for a reason. And that reason is there's a problem in the labor market. Yes. And the pushback to the pushback, I agree, is that my 30% only assumes half is being realized.

So I basically took a 50% haircut to what the real impact, the real number is like 60% upside to consensus. But I was like, well, let's assume there's going to be some weakness in the labor market. And you want to hear sort of the ultimate thought here, and I don't know if that's going to play out or not, but we've never been in a cycle. We've been in a one month cycle. This was like June 2020, one month recession. We've never been in a real cycle with this.

This could be counter cyclical. Because when you're not getting credit from your bank, you might go to Max and say, can you give me credit? And they have the ability because they have millions of data points over like 15 years, they have the ability to understand who's bluffing and who could be granted some risk. I mean, it goes the same. That's why I like upstarts. Same reason. So you call this widening the credit box. So a firm is going to complete the transaction and then be owed money by this end consumer. And when they widen the credit box, what that means is they are accepting transaction volume from more consumers than they were prior because they think it's a lower risk

because rates are lower. And also giving the same consumers that are good actors more credit. So if you're a good actor, rewarding good behavior, rewarding good behavior, you're it's it's like prison. Yeah, right. Good behavior, you get a reward bad time off for good behavior, you're going straight to the can. So that's exactly how it works. So a firm's revenues are coming from gross merchandise value, all of the transactions happening, utilizing a firm as the payment method. The more of those there are, obviously that don't default, the higher a firm's revenue

and ultimately earnings will be. So it's very straightforward. And there's no shortage. And you know the best part about this, Josh, is like the TAM is like $5 trillion. It's all credit. Like there's no shortage of demand. So it's not demand, it's supply driven. Like does a firm want to give you credit or not? It's not whether or not you want credit because everyone's going to want credit. And so the onus is on want to give you credit or not? It's not whether or not you want credit because everyone's going to want credit. Okay. And so the onus is on them to give you credit. And then take that to the next level.

The OPEX, the operating expenses are not growing as fast as revenue does. And this is what's creating enormous operating leverage in the business. We've calculated it if they beat consensus by 30% in FY27, which is June 27, the earnings power on a gap basis could be as high as three bucks. So what is a company growing 30% should trade at? So could it trade at 30 times three bucks? That's $90. I mean, that's not crazy.

That's double of where it's trading today. So you see it today. I guess you're comparing it to Visa, which I guess- Yeah. I'm saying, look, you get a 10% grower trading at 25 times and then you got a 30% grower. What kind of a multiple do you want to put on it? I'm like, well, maybe you should put the same multiple at the very least. And then, I mean, my price target is 65 because I'm just what we laid out in that note is

our blue sky scenario. But in a blue sky scenario, this stock could really, really, really work. So this is like a $39 stock that you think right now should be worth 65, but longer term, if, if some of this, this leverage exists in the business model, he was a lot more, um, who last thing on a firm, who should be the most afraid of this company coming on and max truly being a genius is this American Express discover Visa mastercard or someone else? The banks, the banks that are issuing credit.

More so than the credit cards. I think so. Well, it's going to be the credit. The networks are going to see a drag if you go sort of pay by bank. Unless if you're using the firm card, you're still going to get interchange. So they're not as harmed by this. But the banks, like the chases of the world to be a vase of the world They are the ones extending credits So if I'm coming in and saying I can extend credit and I'm taking share from you But there's a super interesting shot chart that shows you credit volumes in Australia where buying out pay later started actually inflecting as

So credit volumes inflected down as buying now pay later started rising, talking about like 18, 19 before COVID, you might see the same effect here if it gets really big. Is Australia the best way to look at a country where there is high buy now pay later penetration or is there a better example? No, Australia is the birthplace of buy now pay later. It's like that's where, after pay, which is now owned by Block Square, that's where they started.

And it's just been the longest run in Australia. So you can really see how it plays out and what it does to credit. Okay, the last one we're gonna hit today is Accenture. This is a company that you got really excited about, I think a year ago or so, based on how important companies like this are going to be to the AI build out story.

So Accenture is kind of like an IT consulting company would be the way to think about it. And there was a recent Bloomberg story that introduced a little bit of nerves into the stock where they said Accenture to delay the bulk of promotions by six months on Outlook technology consultant on Outlook. And then you said that they would announce staff elevation, or Bloomberg said they would announce staff elevations in June, and they were citing the industry cutting jobs to weather

a demand slump. But you don't think that captures the Accenture opportunity, a demand slump. So tell me the story for why you're as bullish as you are. And let's put up this chart of this is price versus market cap. Accenture is a gigantic company. It's a $226 billion market cap. And it's a $360 some odd stock right now. You could see that last summer was a really tough summer for these names, this past summer. I don't 100% understand why, but there's been a big comeback since. So tell us what's going on here.

I'll explain it to you. I'll explain it to you. So last summer, it was the perfect storm. You had two things going against you if you're betting on IT services. One, cyclical and one, secular. Both have been refuted at this point and that's why the stock's working. Let me start with the cyclical and that's kind of the more important one. You saw that mountain, I call this the ascent of pleasure and the descent of pain because that mountain that you were going through, we were going

through like multiple quarters of pain as we were coming down that mountain and all that mountain was it was excess IT spend by say the, you know, the Fortune 500 companies because of digital transformation post COVID. Everyone's like COVID, COVID, COVID. I got to start like spending more. And then at some point they got to this glut and they're like, okay, I cannot spend more and then your spend starts coming on basically on the receiving end of that. It's like these IT services companies who whose budgets are being cut. And this is what's that that that sort of that, you know, kind of like downhill of pain.

That's what we've been seeing through all of last year. And that's why they cut guidance. And it's not just them, by the way, it's everyone. Yeah. But they're the bellwether. They're the biggest one. So that's this, you know, the cyclical, the secular. And this is what the perfect storm. You had the story, which is AI is going to take jobs away. There's a bunch of empty suits running around India. You know, all these jobs are going away, blah, blah, blah. You had those two things hit them like two big arrows straight to the heart. That's why the stocks just didn't work. One by one, you saw that, well, this was just cyclical.

This wasn't secular because you're seeing kind of like the we track on our team, we track, and I have a great partner here, Sean Kennedy, who does IT services with me, we track basically the IT spend for the S&P 500 constituents on a one by one basis. What you're seeing now is you're seeing that the bottom is, it's more like call it a soft lending. It's not going negative anymore. It sort of kind of flattens out at zero and then it's expected to go like this.

Right. And that's number one. And number two, to your point, AI is huge. Now they're partnering with Nvidia, right? Just last week they announced it. And so AI is going to create more work, not less work. And so basically those two bare cases just got completely thrown out the window. And that's why the stocks often races. Does that help?

Yeah. So when you see a Fortune 500 company make a big splashy announcement, we're going to do this AI initiative, there's a high likelihood that they're working with an IT services company to help implement that. And there's a very high likelihood if they're working with an IT services company to help implement that. And there's a very high likelihood if they're a large company that Accenture is the one. So it's one thing to have an idea that you want to try AI. It's another thing to actually implement. And so if you want to bet on implementation, Accenture would we, you had me on and thanks again on the show when we initiated and we called it the picks and shovels of software.

That's AI. I mean, someone needs to do the work. AI just doesn't do itself. Someone needs to be there and maintain it, right? So think of it as like, they are the engines of AI and that's not going to change. ACN is pretty close to your price target you're at 365 that's a 27 PE multiple on it looks like $13.49 expected earnings. How would we know if there's additional upside from here?

Like what would be the thing that you'd be looking for? You're going to see them. They just guided the year. There was a ton of anxiety. We put out a big preview saying that they have like at least 7% growth. They guided, I think, 3 to 6% constant currency. So this was like, you know, a big, a big sigh of relief. I think as the quarters continue to come, you're going to see them

revise. We're working now and you talked to like Julie Sweet, she said like nothing has changed. So things are not getting better, not getting worse. If things do start getting better and our predictions on the OPEC start improving, this is going to be an upward revising revision cycle in the stock, and that's what's going to have the stock break from those levels. So I expect the odds of that being pretty high next year. Dan, I want to thank you so much for walking us through some of the most interesting names in your coverage universe. Thank you.

Dan is, again, the senior analyst at Mizuho. I know you're active somewhat on LinkedIn. Are you available anywhere else where people could follow your insights besides when you make your TV appearances? I have thank you and I owe that to you. You're my agent. I think I also have an ex account at DDoL. All right, very cool. Dan, thank you so much for coming to hang with us. And we will definitely be checking in with you as these stories develop. Appreciate it. Thank you.

Thanks, Josh. All right. Thanks for listening, guys. We'll see you soon. The compound nation has turned out, Michael. I'm looking at the chat. It's going crazy right now. Everybody's here. Do you want to know who's here?

Is Jay Luther here? I didn't know if I saw him yet, but JD roaring on 20s, Chris Hayes, Kenyon LaPierre, Alex Galvis is here. Dave Wilson, Akbar Mohammed, Stock Market Mike. What up? Simon East. Everybody's here, dude. Zoe's here.

Donald Brenner, Bob Rice, the whole Zoe's here, Donald Brenner, Bob Rice, the whole Roger's here, the whole crew. Hey guys, we have an action packed show tonight. This is one of those weeks where last week so much happened and then later this week, so much is about to happen. And we're gonna get to all of it. I wanna tell you about our very special sponsor. You know this company at this point.

You love them. It's Rocket Money. Michael, what does Rocket Money do? Can I just ask a question? Hold on, before we get to Rocket Money, which is not just a sponsor, it's a way of life. It's a way of my life. I get updates daily.

Are you watching the Menendez Bros? Oh, I'm all in. Oh my God. It's not my typical cup of tea. I'm surprised that you're watching. What episode are you on? I'm obsessed. Four? Okay, it's wild. The problem is, football last night, Chiefs, amazing game. Not an amazing game, not even close to amazing.

Well, I love watching greatnessness, so I celebrate Greatness. So every game Mahomes plays in is greatest for me. What the hell is that? I just saw the weird and they got it on my shirt. All right. It's hard to get to anything besides football during football season. I got you. All right.

This is just to be here the rest of the show now. Charles just said Menendez Brothers is that shit right now. It really is. Like, you know, when they had me, the pilot, they're playing all the music from when I was 13, because it takes place in 89 and 90. They're playing, I mean, it's not, I don't listen to this music now, but like, they had like a banger from Milli Van Vanilli to open the show and Vanilla Ice and Snap. I got the power. These are like music I haven't heard in 40 years. It's so much fun.

Okay. So anyway, speaking of fun, Rocket Money, lots of fun. If you, like I do, have subscriptions up the wazoo and you're like wait, what am I paying for? How do I cancel this boom you could do it right inside the app from rocket money? I say this whenever we have rocket money on but it's true. I get large transaction detected. Wait, what's this Jake? What Robin did you just go to J crew? Yeah. Okay. I get the refunds Not your subscriptions like everything every time there's a large transaction, I get an alert. Every time there's a refund, I get an alert.

I love it, love it, love it, love it. Well, is there a specific URL that we can tell people to go to? Wow, we have 35 pages in the doc today. Yeah, you got damn right there is. RocketMoney.com slash compound. That's RocketMoney.com slash compound. Stop wasting money.

Okay, All right. So let me set this up. Last Friday, we had the BLS report, September non-farm payrolls, and it was a massive upside blowout surprise. The most notable reaction has not really been in the stock market per se. The action has mostly been in the bond market, which if you think about the mentality of the bond market, they were all set up for this economic deceleration where they know rates are coming down, the economy is slowing, inflation is more or less under control.

But this economic deceleration really doesn't want to come easy. And we immediately had higher intermediate term yields in the treasury market. And then that kind of hit the stock market negatively yesterday. You got a 400 point Dow Jones sell off while the 10 year raced up to 4%. And I guess this was not a price, not priced in, so to speak in advance. To what? To the stock market and to the stock market. Cause it's Friday, the commentary even the day of. So Friday. Yes. Well advance. To what? To the stock market? And to the stock market? Because Friday, the day of- Into the commentary even.

The day of. So Friday, yes. Well, the move wasn't bonds were to get to in a second. But stock market was at 1% closer to an ultimate high. We gave some of it back yesterday, but we took it all back today. Yeah. No, I'm just saying people were like, wait, wait, wait, wait.

What? I have to change my whole mentality now. Well, when we got the data that morning on our channel, we were saying like, I'm curious to see how the market closes today. Right. Because like how much of the stock markets, uh, gain year to date has been looking forward to rate cuts versus being driven by it's a good economy. We've got good earnings.

And it looks like luckily the stock market wasn't, listen, what days of day of Friday, it wasn't just counting on rate cuts, which is great. Yeah, you know what? It's not good or bad. It's like a monkey wrench thrown into the narrative. That's all. People had to, oh, all right, let me put it this way. People that were like, yeah, they should have done 50 basis points were actually pretty quiet. Right? Like it was just a little bit of a narrative shift. Like, Oh wait, maybe things aren't decelerating to the degree that we thought they were in August. Okay. Uh, chart kid Matt put together a couple of things here. Just wait, Josh, can I just pause just for

a sec, just for the audience. I know you've been seeing our charts. I just want to give a special shout to chart kid Matt who went crazy for tonight's show. Wait till you see the charts that we've got cooking. Yeah. And Yeah, and if you feel like we're glazing this kid too much, it's probably not enough. Dude, dude, dude. His charts are all over our stuff and it's like a huge step change improvement in everything that we're doing.

All right, let's do this first one. Yield curve post NFP report. Somebody's saying bring out Matt. Not yet, all yet. I can't believe what you just said. But okay, what are we looking at? This is the yield curve following the NFP report. And we're showing you like one month, two months, three months, all the way out to 30 years. And you can see the red cross back over the blue when you get out six months. And I think that's a good thing.

And I think that's a good thing. And I think that's a good thing. And I think that's a good thing. And I think that's a good thing. And I think that's a good thing. year. You can see the red cross back over the blue when you get out six months. I think what's interesting here is probably the 10-year from my perspective. This was supposed to be much more subdued by this point. We've already had the first rate cut and it was a 50 and we've like all kind of settled on this idea that there's still growth, the consumer is hanging in there,

quote unquote, resilient, but 25 is not really going to be anything like 23. And it just like refuses to cooperate. And if you look at the arrows, you can see like where the real action is. Look at those moves, like big, big, big moves in the bond market. I asked Matt to do a daily chart, but if you look at a weekly chart too of the two-year, we had the biggest weekly climb in two-year in terms of basis points. And on a daily basis, even still it stands out. So the narrative that the economy was decelerating definitely flipped on Friday for sure.

And the futures market reacted in terms of how many price cuts were the market is expecting. Next chart, please. So here the gray line is a Fed funds rate. It's the upper band, which is where we are today or where we've been. And the light blue line is before the jobs report, what the market was pricing in terms of forward rates. And you see that shifted dramatically higher after the jobs report based on the strength. So maybe the market doesn't need or the Fed doesn't need to cut as many times as the market

was suggesting. So like if you look at like January, January 2026, like out 18 months or whatever. Yeah, big move. Right. They were thinking like we could be sub 3% and now they're not thinking that we're going below 3% as the terminal cut in as the terminal level in this cutting cycle. I guess also like take all this with a grain of salt, right? Because these are just predictions and it moves all the time as new data comes into the market. Yeah. I think that the action yesterday was maybe not so much like fear of a 4% 10 year, but just like maybe a realization that some of the appeal based

on rate cuts maybe had to come out. And I don't think that, and I know we got it back today. I don't necessarily think that it's like a narrative that we all agree to. I just think it's like a lot of individuals all acting on their own and just maybe taking a little bit of profits. I mean, last week was an amazing week. And the week before that was pretty good. So it's like, to me, it's just like a little bit of air coming out, but it's not a trend

change. This is a lot of noise. What we're saying people took profits yesterday and bought it back today. Yeah, I don't know. I mean, what are we doing? Somebody did. At least one person did. I'll tell you that much. All right.

Let's take a look at the stock reaction. This is the 10 best and 10 worst performing S&P 500 stocks on the day of that blowout earnings report. Listen, I would not create an investment strategy based on this, but it's good to know where heaven and hell is if we're not quite going to get as many rate cuts as we thought. It's good to have some sense of what they're going to throw. So look at how many home builders were in this bottom list of the biggest decline-ers. And it's not like those charts are broken because I looked at them, but that's what

people were willing to sell when they thought that we would get less rate hikes than prior expectations. It's so weird to me that I know that's not the topic here. It's just so weird to me that the home builders are consumer discretionary. Why? Like they should be, what should they be? too much discretionary. Why? Like they should be, what should they be? I don't know. I know real estate is REITs, so that's, you know,

The industry is household durables and those are the houses themselves. That's what's weird. Again, put the tarp back on. So in terms of the negatives, yes, the home builders all got whacked. But I mean, look at the run they've been on. You know what I mean?

These are some of the best performing stocks in the market. So I would view that as pure noise. On the flip side, the best performing stocks and things that stood out to me are Discover and Capital One. And that's pure consumer. Throw United Airlines in there and Norwegian Cruises. So that's pure consumer too. Yeah.

Yeah, I'm with you on that. All right, this is Neil Dutta's reaction. He sent an email out and the subject line was all caps. Wow, period, good number. This is what he had to say. all caps, wow, period, good number. This is what he had to say. NFP Friday overwhelms all other employment indicators. Thus, the simplest reaction to this morning's employment report is that labor market conditions

are so strong that it makes a 50 basis point rate cut unlikely at any remaining meeting this year and reinforces the Fed's 25 basis point guidance between now and year end. Labor market conditions are not slowing as material as we thought. Bond markets are repricing on the news as less recalibration is needed to stabilize the economy. For the equity markets, it is undeniably good news. At the end of the day, the Fed is still cutting policy rates, even as the economy grows. Okay, that's my big takeaway. Also at Ren Mac, technician and our friend, Jeff DeGraaff, yields are in their first overbought condition since April of this year off the impressive payroll print on Friday.

The spike in yields did not dissuade equity investors as cyclicality led and took stocks higher with defensive and interest sensitive names lagging. That's exactly what we just showed you guys. We view that bullishly as it implies equities are not overly reliant on the benevolence of the Fed cutting rates. What else? One last thing he said.

Our market cycle clock entered the bullish zone for October, but as interesting is that this zone tends to favor cyclicality over defensive names. We're not seeing it in discretionary names versus the broad market yet, but we are seeing discretionary outperform staples with a new relative strength high. So the up economy trade basically worked. You didn't quite get the discretionary outperforming the market, but they beat the staples. So there's belief that what we just got on Friday is part of something sustainable and not something anomalous. I guess we need a big takeaway. I'm looking at, I was just punching up a chart of RSPD divided by RSPS.

This is the consumer staples, I'm sorry, the consumer discretionary equal weight, because if you use XLY, it's like 40% Tesla and Amazon. So the equal weight discretionary divided by equal weight staples is ripping. Michael, was 50 basis points too high in light of September labor market strength? You know, you and I spent too much time together because I said to Ben today, Ben, Bill Simmons voice, are we sure the Fed should have gotten 50? Okay. What did he say?

He said no. And I would tend to agree with him. It's a, it's a fun discussion, but the reason why I still think 50 was appropriate is look where the two year yield is compared to the fed funds rate number one and look where inflation is. So yeah, 50 basis points was still appropriate. What would it take for the fed to not cut in November? Right now, right now we're saying 25 base, like we, everyone, we're saying 25 basis points. What would make them not do that? What could happen between now and

then? Well, we have another inflation and PCE number, right? And we've got another report. So if those October, October, NFP, first Friday of November before, and you've got CPI, no big deal tomorrow. So 2%? That's what it would take. Yeah like a wild number on something like shelter or labor costs. I think it would have to be such a downside surprise for them to... Upside surprise? no downside in terms of inflation oh below what I'm saying if inflation came in so far below expectations oh well then they're still cut we're asking what would make them not cut what would make

them not cut yeah they are cutting expectations they are cutting what would stop them like a red hot hot CPI or red hot employment report. But that's not going to happen. A red hot CPI number? Think Friday was going to happen. I didn't either. No, but a red hot CPI number? That'd be so odd. The readings are so odd. No, no, no. But CPI is not volatile like that. It's not going to come out of nowhere. No, they're cutting. No, no, no, but CPI is not volatile like that. Like it's not going to come out of nowhere.

No, they're cutting. OK. Bank of America US economist Aditya Bhave says the bar is pretty high to avoid cutting, meaning most likely they're cutting. Let me read to you what Bhave has to say. The Gangbusters September jobs report and the large upward revisions to GDP and GDI suggest to us that the Fed's supersized 50 basis point cut in September was not warranted. Client conversations have quickly shifted from will the Fed cut by 25 or 50 in November to does the Fed need to cut it all in November or will the Fed skip November to make up for

the 50 it already did in September? That's interesting, right? It's an idea. If inflation is at 2%, why do overnight rates need to be at four and a half? Especially when the housing- Unless you think they're going to go back up. especially when the housing market is still frozen, especially when you have mortgage rates going up, they need those numbers come down now. Uh, we craw in the chat is saying, didn't they make up for missing July by doing the 50? Yeah, I think, I think so.

Oh wait. Uh, even if the fed concludes with the benefit of hindsight that it didn't need to cut by 50 in September, we doubt it will be deterred from cutting based on strong labor data alone. Governor Waller said as much in his recent comments, as long as the Fed feels comfortable that disinflation is on track, it can keep cutting rates. So to your point. But inflation is top of mind once again. All eyes will be on the Thursday data. We are above consensus at 0.3% month over month on the core CPI, but the core PCE should

be more benign at 0.2. That's probably soft enough for the Fed to cut by 25. All right. That's probably soft enough for the Fed to cut by 25. All right. Oh, let me, let me show you a chart really quickly of core PCA and housing. So this is the question and this, this is B of a inflation looks much more benign. If one is willing to look through housing, can the Fed

look through housing? Yes. Because if you just look at core PCEX housing, there's not really much to be worried about in terms of the trend of inflation. I mean, the housing component is still elevated. Rents are coming way, way down. They're going. They're going. Yeah. Okay. Eddie Ardeni has a piece out, which we're not going to do a whole thing

about right now, uh, but he disagrees. He says we might've seen all of the cuts we're going to see this year. And his piece is called 12 reasons for none and done. And I just, I'm not going to like read like the whole thing, but I just want to give you a couple of the headline reasons that he cites. And you could probably imagine the commentary. Demand for workers, supply of workers, aggregate hours worked, hourly wages and earned income proxy. The economy didn't need the 50 basis points. Fed officials should now be having regrets that they did that much.

No, but the housing market needs it very badly. The backup in bond yields since the Fed started easing on September 18th is signaling that the easing wasn't necessary and increased the possibility of even stronger economic growth or higher inflation. Four, further cuts would raise the odds of a 1990 style stock market meltup. They don't want that. Good, let's do it. Five, oil prices are rising because of mounting geopolitical risks in the Middle East. That's reminiscent of the 70s style stagflationary scenario.

You would not be cutting into that. Six, cleaning up and rebuilding following Hurricane Helene will be stimulative and possibly inflationary. Seven, the dock workers' recent huge pay settlement could raise import prices and put upward pressure on other unions' wages. Eight, both presidential candidates are proposing inflationary fiscal programs. Nine, the Chinese are stimulating. Ten, further cuts in Fed funds might weaken the dollar, which is inflationary.

Eleven, as Governor Bowman said, the Fed has not fully accomplished its mission. Twelve, the neutral Fed funds rate might be much higher than reflected in the FOMC summary of economic projections. So, those are 12 reasons that might give them pause and we might already be done for the year. You don't think so? No. Okay.

Well, that's the debate. I wonder how the market would react if the economy is so good, the Fed doesn't have to cut, do We buy or sell. That's like the scene. It's like the scene in Princess Pride, right? Like you keep going round and round and round. It's like, hey, guys, good news. The economy strongly thought, yeah, but I want the medicine.

Right. But you don't need medicine. You're good. No, no, no. I was but I was investing based the medicine. You're good. No, no, no. But I was investing based on it. Yeah. Yeah. All right. So that's what's going on there. I don't know. Wait. Hold on. No, no. I don't want to let you off the hook. What do you think the market would do? I think the market would shoot a brick. I think so long as wages, so long as wage gains stay under control and the labor market

stays this, I think it would be okay. If they pause, you think the market's okay? You probably have one really nasty day and then we come back in and buy them. Yeah, I agree with that. That's exactly what I think. Yeah. Katie Greifel tweeted the, uh, the re inversion. This is some weird shit.

I didn't even see this. I can't even see this on the date. Go ahead. You have to use a magnifying glass, but the twos and tens re inverted on this news. Well, they disinverted again, so we're good. Uh, let's look at the 10 year, two year spread. You could see it on here. Charket mat.

Well done. Um, you could see this brief spike above, this is the 10 year, two year spread closed at 0% on October 7th and then went back positive on October 8th. Which is today. Recession avoided. Recession avoided by 0.06 basis points on the 10s tos. Beautiful, okay.

So, as well. I want to talk about a topic that we don't spend a ton of time talking about on this show, but I think it's really important that Ryan Curlin tweeted about it and I thought it was worth talking about. Okay. He said, quote, I want 4% to 5% income portfolio for retirement. Many people then go to dividends, high yielding corporates, et cetera, trying to achieve this

goal. I get it, I feel safer. If I just don't have to touch a principal and can only use the distributions kicked off, I'll be safe. Ryan says, if you want to give yourself the highest chance at maintaining a 4% to 5% withdrawals, I believe the safest way to do that is to ensure you have proper diversification,

manage your costs, manage your taxes, trying to create an income portfolio where you never have to touch the principles like playing, prevent defense in football, or trying the four-corner strategy in basketball. You need balance in your strategy. OK, completely agree with him, doesn't matter. People love income.

The market, the heart wants what the heart wants for better for worse, people love income. And I get it. So there was an article in the journal, I'm sorry, in Bloomberg, I apologize, talking about the explosion of derivative based ETFs primarily with high income. So they said there's been a record 164 derivative based launches in the US so far this year.

Some firms have filed to start as many as 25% of the time. The assets have grown sixfold in the past five years to $300 billion. Chart on please. So just an explosive. Slow down. These are derivatives based ETFs. So these are like, are the buffers in here? Yes.

What else is in here besides that? Anything in here that uses ops. Ops, geez. Swaps or options. Ops. I would guess all of this, not guess, all the single stock stuff is in here. So here's one that's in here.

So again, next chart. Just the number of stuff is in here. Here's one that's in here. Again, next chart. Just the number of launches is crazy. There was a rule change that allowed for ease of access into these things. There's a company called Yieldmax, which is an issuer that works with Tidal. They have amassed more than $4 billion in assets in less than two years. They've got 10,000 people on their Reddit community engaging. One of their strategies, the YieldMax coin option income strategy has set more than 100% of its current share value back to hold.

There's just cash in the past year, yet thanks to a swoon in the ETF's price, it's actually down on a total return basis so far in 2024. Here's a quote from a guy in the article who's dabbled in these things. This guy, this 57-year-old, he said, investors need to utilize caution when they read about double digit distributions on a monthly basis. Understand how the covered call funds work. In my case here, the net asset value totally eroded away. Luckily for me, it was only 1% of my portfolio.

I call it my collateral damage. I punch this up on Y charts. Coney, Connie, Conway, the yield max coin option income strategy. I'm sorry, Michael, this is it tracks Coinbase, but it sells options to capitalize on the volatility of Coinbase. Yes. So chart back. How do you get a drawdown in this?

Look at this. The dividend yield is 161%. Unbelievable. Assets under management, $640 million. John, next chart, please. This is the assets under management from the inception to today. So the point is, the point is people love, love, love, love high income. Love it, can't get enough of it. I'm gonna tell you a story. The year is 2005. The hottest trade on earth is emerging markets.

And one of the hottest ways to play it for US investors is the shipping stocks. And there are about 10 or 12 of them. And they trade on the American stock exchange in some cases, and they have really shady management and corporate governance. It's a lot of Greek people that are not Americans that are sitting on the board. What are the names of these stocks? These are like, it'll come to me, but the point was you bought them because they had obscene, obscene nominal dividend

payouts. John Carlos says dry ships, DRYS. That was a biggie. A lot of them are bankrupt. And the thing is you had to be an old soul to have remembered the 60s, 70s and 80s where these were popular and they were going bankrupt on a regular basis. So we had like 10 or 12 of these things and they'd be called like star shipping, blah, blah, blah.

Every single one of these had somebody named Georgopoulos as like the chairman or the CEO and I think it was all one person. And they were like a darling because they had these like 70 percent dividend yields. And everybody knew like it's not really going to pay out 70 because the price is so volatile and the profits are so volatile. The dividend goes up and down also. But like they were all unsustainable yields. And we used to go to these conferences in Manhattan. They would rent out the Pierre. They would feed 400 brokers. And they would go on stage and tell you about all the new ships. And they're buying new builds. And they're doing this. They're doing that. And they would all

just go to zero. And the reason why they were so popular was not because anybody cared about global shipping or the dry bulk index. It's because of those crazy dividends. So people have not changed. It's just a different way of getting the same thing. People love high payouts. So when these things get paid out, the net value of the fund goes down. So that's how you could have 160% stated yield and still potentially negative returns. How does a fund like this Coinbase, Yieldmax, Coinoption income strategy, which I literally have never heard of until just now, how does something like this amass $640 million? Dude, that's real money. But most ETFs that have real money in them are not retail.

Their advisor driven flows. This is retail. This has got to be all retail, right? Yeah. If, if a financial advisor puts you in this, they need to be arrested immediately. Like somebody has to come crashing through the window, right? Or is that, is that overstating the issue? I don't know.

I mean, that's a bit harsh. But anyway, the point is this. Ryan's 100% right that you need to think about the overall portfolio. Stop being so freaked out about dipping it to principal. That's what a balanced portfolio could do for you. Nevertheless, doesn't matter. People love high income. You know what they hate?

They hate when you tell them as many advisors had to during the free money era of let's call it 2002 to 2022. There's a 20 year period where advisors basically had to be like, I can't get you 4% in current yield. So if you want 4%, I could get you 2.5, and then each year, we're going to have to sell some stocks off to equal a 4% withdrawal. And people did not like it. They really, really, really disliked it, almost to the point where they said, you know what,

I don't even want the 4. Don't sell. Don't dip into my portfolio to give me income. I'll find it somewhere else. I mean, that was a real phenomenon and it went on for two decades. Now they don't have to do that. But the worst version is if 4% is great, what if I have a portfolio that averages 8%? Yeah. I would also say to the point that this gentleman in the article made, like I think that for the most part, people aren't going all in on these products. I don't think anybody, I think most people are not like, this is 100% of my portfolio is I use these strategies that will deliver 160%. You know what I mean? I think people are being relatively sober

about it. But yeah, I think that's right. But okay, also speaking of yields, Kevin Gordon, we're switching gears a little bit, but I just wanted to point this out. I don't know where else to put it. Kevin Gordon tweeted, in the most recent week, money market fund assets increased by $121 billion, the most since March 2023, and before that, the most since April 2020. People just love yields, even if they're coming in. It's pretty remarkable. So we talked about this and I forgot where I saw this research, but legend has it, every

time the Fed starts cutting rates, there's this weird phenomenon where money markets take in a ton of money at first. Why is that? My theory is it starts in money markets because people fund brokerage accounts and then it leaves. So my theory is people take money out of a savings account or a CD or something and they load up their brokerage account which adds to money market flows but that money is just on the runway. That's why you would have a 50 basis point cut in the fed funds rate overnight Ways come down half a percent and you see the assets soaring into money markets

That's people getting ready to do something different with their cash It's a reasonable hypothesis that cannot be proven or disproven. Well, I just said it so it's basically proven tomorrow Did you know that? on the 10th? Which is Thursday is Tesla Robo taxi day 1010. He almost did it on 8 8, but he wasn't ready So now it's 1010 and that's this week and Barron's says Let's put this graphic up Tesla Robo taxi day is a make or break moment for Elon Musk. Before I even get into any detail, is that just like click baiting?

Yeah, yeah, I was about to say, no, it's not. No, it's not. That doesn't sound right, does it? It's an important day. It's not make or break. It's not make or break. And we know because the robot day with the person dancing around in a robot costume

wasn't make or break. No, I'm not mad at that line. It's okay. What's at stake for Tesla on the 1010 Robotaxi launch? So I wanted to mention a couple of things. He first teased it in April during a particularly nasty sell-off in Tesla. And a lot of the Elon haters have hypothesized that he just makes these announcements to stop the stock from selling off and then the engineers have to like, oh, what are we doing? Maybe there was some element of that here. He said in April, it would be August and now it's this week.

I thought it was interesting that he's holding the event in Hollywood, California, which tells you how badly he wants mainstream attention on this, not just Tesla fans and not just like the tech media. Like he wants, he wants like good morning America to be paying attention. You understand? Like you wouldn't, he despises California. He left. He's not a Hollywood guy.

You wouldn't throw an event in Hollywood unless you really wanted to have a crossover splash. Let's take a look at the drawdown in Tesla shares right now. This is, I guess, why you could maybe say it's make or break. This is the worst of the mag 7. It's in a 40% drawdown. It's been a pretty tough stock over the last couple of years. The company is doing fine. It's just not keeping up with the expectations.

And then there's a lot of stuff that has nothing to do with Tesla that has infected the share price. Some of it's political, some of it's Twitter problems. So it's just it's not been a lot of fun to be a Tesla shareholder. The stock has sucked and the business is doing great. They delivered as many vehicles this year as it did last year. That's not good. Yeah, I guess.

We have a chart showing Tesla versus the S&P and the rest of the Mag-7. Just to give you some sense, I think this is one year. So it's not catastrophic. It's down 8% over the last year. The problem is, if you could have bought Meta instead, you would have doubled your money. If you just equal weighted the Mag-7, you'd be up 50%. And if you just bought the S&P, you'd be up 34%. Tesla shareholders are accustomed to drawdowns. They're not accustomed to being outperformed to this extent by the rest of the stock market. I think that's a fair statement. Yeah. The stock, the stock peaked in November of 2021.

And you listen, it had an incredible run in 2020. Did it go up 10 X like literally? It might've been like one of the best single year performances of any stock ever, not just the percentage terms, but dollar terms. It was out of control. Yeah. So if you put up the table, just real quick, this is a, this just gives you a sense of the mag seven performance, each stock, and then also the valuation.

And here's what's interesting. Tesla is the worst performing of the Mag-7 over the last year and year to date. And it is far and away the most expensive. It's 77 times forward earnings, 455 times free cash flow. Earnings per share growth this year is minus 30%. The expectations for next year are plus 42%. It seems like that's not going to be easy. Well, guess what? It doesn't matter though, because look at the shareholder base. The valuation metrics for Tesla have never mattered. I find it hard to believe that they're going

to start mattering tomorrow. Okay, here's what Barron's had to say. They're fairly skeptical about the self-driving business. The rollout might go great and the stock might have a huge rally, but they seem to be a little bit skeptical. Self-driving is getting closer to a reality, at least for Tesla's competitors. Waymo is completing 100,000 rides a week without a driver. Uber is adding self-driving cabs from cruise while partnering with Waymo

and investing in the Nvidia-backed automated driving startup, Wave, which almost nobody knows about. Tesla has taken its own path, rolling out incremental improvements to its driver assistance product called Full Self Driving. Musk has hinted that other automakers are interested in Tesla's technology, but no concrete deals have emerged.

So we don't know what they're going to come out with, but it's going to be some version of what they're already doing. And it's going to be like their way to turn a car into a taxi and have it be automated. There is a lot of progress being made by some of these competitors already. And the experts like this guy, Dan O'Dowd, thinks that Tesla's approach is just not gonna work and its performance is way behind. So here, the data set shows full self-driving

completes roughly 90% of drives by itself with drivers needing to take over every hundred miles or so. This guy, Dan O'Dowd says, not even close to acceptable. He says that performance is equivalent to rear-ending another driver once a month and believes Tesla isn't close to solving autonomous driving. Whoa, whoa, whoa, whoa. I don't understand. So 90% meaning that every hundred miles you have to take the wheel. That's not the same. Yeah. Okay. Well, the way Mo doesn't have a driver, the Tesla FSD is more incremental is what he's saying. And I can't weigh in

on either side because I'm not an expert in this stuff. But this is a guy who has a business centered around being an expert on this. So here, Tesla provides safety statistics that indicate that using Tesla's driver assistance technology lowers accident rates materially. The technology, however, requires drivers to pay attention 100% of the time. So if they have now advanced past that where you don't need a driver, then we're in autonomous taxi time. And there seems to be a lot of doubt about whether they can really do that. So this is the reason why stocks in a 40% drawdown for now.

Losing share of the EV market. The EV market itself growing slower. Tesla is not a player in hybrid, which is the new hot thing. Sales are slowing. Questions about full self-driving. Questions about competitive versus Waymo, Cruise, Wave and all these other things. Then you've got the failure of Twitter financially, a massive exodus of users from the platform. You've got the write down of the value by outside investors, which has nothing to do with Tesla, but it shows that Musk is not infallible. It's not a given that the robotaxi will catch on or that their tech will be superior to anyone else's. The ball case is how have things gone historically for people who have

bet against Tesla very poorly or Elon Musk? Like, do you really think that he's run out of rabbits to pull out of the hat after all this time? You know, it's like, it's like too soon to like throw your cards down on the table and walk away. If you're a shareholder. That's not been a great trade historically. Well, until now. I mean, the stock has been in a four million people though.

Right now the stock has not worked in a long time. In 2019, he was cut in half and the bears swore up and down that he was bankrupt. And then the stock 10x'd. So I'm just saying he was sleeping in the manufacturing facility to turn that situation around. They were making cars in tents and he pulled a rabbit out of the hat and it's not completely out of the realm of possibility that he does it again. I would not disagree with that.

Last thing on this. Last thing on this. Many believe Tesla won't be able to live up to the hype around its robo taxi plans. Each robo taxi is expected to have a price tag of around 150 to $200,000. With some estimates suggesting Tesla would need $35 billion to develop a global fleet of such cars. With inflation and a lack of preference for electric cars as it is, a lot of American families are going to stay away from this robotaxi business. Well, let me ask you a question. So it's going to cost $150,000 to what? To purchase? But

aren't they selling these? I thought they were just- We don't know. We don't know. The other thing is that these big events are not necessarily great catalysts for Tesla stock. It did pop 12% after they unveiled the Model where they had a prototype of a humanoid robot. The event they had before that in 21 had a person dancing in a robot suit. That was not a hit. So it's not like these events come and the stock is automatically a home run.

Apple doesn't go up on their launches either, necessarily. So a lot of people are in this stock thinking it's an upside catalyst, and it might be, but that's not a slam dunk. All right, we're done with this. Let's talk about the broadening of the rally. So we're beating this dead horse, but it's important. We spoke a lot earlier in the year about the mag seven Doing all of the heavy lifting and yeah, it was look at this look at this chart art from chart kid So for those listening, we have a top pain which is showing the s&p 500 year-to-date total return And on the bottom we've got the mag seven contribution to the year-to-date total return And on the bottom, we've got the MAG7 contribution to the year-to-date total return. So the MAG7 as a group collectively peaked in July.

And at that point in time, they were responsible for roughly 12 of the 15 or so percent return of the S&P 500. It was effectively all of the MAG7. Since then, you've seen the MAG7 stall out. And oh my God, what is this? Is that the S and P 500 hitting an all time high without participation, without leadership from the mag seven? I think it is. I think this could be like chart of the year candidate.

It's really depending on, depending on how the year ends, showing the bifurcation like, all right, this was the first half. This was the second half. If this continues, this could be chart of the year. Next chart. So I really like this. So this is since the peak and this is before today. And so they had a good day.

So whatever it's a day old, but since, since that group peaked in July, the S and P is up 7%. I'm sorry. The S and P is up 1%. The equal weight, which is doing most of the heavy lifting is up 7%, while the Mag 7 fell 6.5%. Pretty remarkable. Yeah, this is pretty stark. Look, I wanted to bring this up. One of the things going on with large cap tech away from Tesla, these companies are getting their asses handed to them in courts all over the world, particularly the Justice Department in the

United States is full speed ahead and the European Commission is like winning. And I don't know what turns it around. Epic Games just beat Google in court on an antitrust case and Google has this Android App Store monopoly and the judge was sympathetic to Epic Games, which is Fortnite. And the judge ruled that for the next three years, Google cannot require developers to only use their in-app payment methods. The judge also ruled that Google had

to stop trying to block the installation on Android devices of rival app stores. So they're making these payments to the carriers to block the installs of another app store so that you could buy things like Fortnite. And the judge just said stop. They're going to appeal it and it'll go on for another three years. But I'm just like these are starting to weigh on the valuations of these companies. Apple is going to have a fight for its life at some point. The Justice Department might win its antitrust case against Apple. They're saying the iPhone unlawfully maintains its monopoly by controlling the distribution and creation of apps through its rigid app store rules.

Apple is already on the defensive of its App Store practices. This is coming from Martin Pierce at The Information. Google already lost the search antitrust case the DOJ brought where they're paying Apple to be the default search engine. It's like billions and billions of dollars to block any other search engines from being on the phone as the default search. So there's a lot of things going on with these large stocks that like headline risk in court and that's not going to stop anytime soon. So that's one reason why I think people are just looking elsewhere and they're not only

allocating to these names. Uh, oh, we have this from, uh, we have this from Todd. Let's do these really quickly. This is the small cap bull market. So far underwhelming relative to previous, uh, bull markets for small caps. So if this one started at 10, 12, 2022, we're up about 30%, which sounds great. Until I tell you that the average Russell 2000 run during a bull market for small caps is 77%. So you could take that either way.

You could say it's a sign of weakness or you could say, oh, look how much room we have. Yeah. I don't know. Which side would you fall on there? Both. Okay. Next one. Todd shows that it's a low bar.

We're still trailing the average move off the low for the Russell 2000. So they're showing you the performance one year off of a major low and they're using the 2023 major low in this case. So we're about 240 days since then. And as you can see, this blue line is below average and obviously below some of the biggest small cap rallies ever. How about this? We said earlier, what happens if the Fed pauses? We're thinking through the prism of the S&P. If the Fed pauses, the small caps get killed. Yeah. Victim number one is like community banks and the Russell itself

won't be very far behind. Yeah, the wack all these stocks. I agree. Pfizer is an activist. Are you excited about this? No. Okay. I am. I've been trapped in the stock for a year.

It hasn't done anything. I haven't lost any money, but I haven't made any money. Starboard value is legit as are youk. Are you familiar with their game? A little bit. Okay. If you were, I would have gotten a much bigger reaction out of you. I mean, the market's not excited, so I'm not excited. The market is not wrong. There are a lot of challenges here, but the market, like the Fed needs to see through real estate and shelter costs, the market needs to see through the near term challenges with Pfizer and understand that

this activist is the company that literally turned around the Olive Garden. These guys do not play games. Starbird value, well, let's start with Pfizer. The problems, they're fixable. Their M&A strategy has been all over the map. They bought a whole bunch of stuff that strategically doesn't make sense. That could be fixed on a dime. The giant bet on COVID we know about.

There's nothing to do about it now. Pfizer within the XLV, there are 62 stocks. It's the 24th worst performing XLV stock year to date. It's only up 1.5%. It's the seventh worst performing XLV stock over the last year, down 12%. Within the S&P 500, 142nd worst performer, 38th over the last year. Let me show you the three year versus the competitors. Not great. Pfizer is that garbage purple line at the very bottom.

Three years negative 22%. Eli Lilly is the big, big winner orange because they're making fat people skinny overnight. It's like kind of miraculous. Anyway, Starboard's latest activist campaign almost tripled the share price of Salesforce. Charred, please. Dude, you want to know where they came in? Davis campaign almost tripled the share price of Salesforce. Charred, please. Dude, you wanna know where they came in? October of 2022.

And they laid out their plan in January of 2023. Do you think it worked? How do you know it would have not worked without them? I don't know. I'm pretty sure because they were demanding significant cost cuts and they took an initial stake and then they added and they added. You know what else bottomed in October 2022?

Yeah. The market. Doesn't matter. Salesforce laid off 10% of its workforce. They committed to improving their operating margins by 25% and they appointed new board members and this thing literally worked. They turned around Darden, stock price gained 60%, seen as one of their biggest winners.

They lost the proxy battle with AOL in 2012, but they still managed to make a lot of money. Office Depot, Advanced Auto Parts, Acom, Cortiva, Mellanox, Symantec. These are all companies where they either got board seats or they got the attention of the management and got a big turnaround for shareholders. They bought a billion dollars worth of Pfizer. And that's not a huge stake relative to the market cap. But it's also not nothing. And I'm pretty sure the expectations here are so low that even modest improvements could take the stock significantly

higher. So, shout to Starboard. Welcome to the shit show. You know what, activists? I liked better the guy last week who got with Larry. What's the guy from CVS? Which by the way, stock is better the guy last week who got with Larry. What's the guys from CVS? Which by the way, stock is closing the gap. Larry Robbins. Stock is closing the gap that we spoke about. You know what else you spoke about last week, but that did not work. So we mentioned CVS closing the gap. That's in progress.

We spoke about Nvidia clearly putting it a higher low, invalidated. Bang. Inval invalidated. Yeah, it's fine. I'm sorry. A lower high. My bad. A lower high. Yeah, it's fine. $3 trillion. Yeah, there it goes. Bigger than Microsoft today. Is it back to number one? Number two. Apple. Apple. Yeah. And not by much. Yeah. And not by much. All right. Let's do some bank stuff. All right. Uh, look at this chart from chart kid. So the blue, the big thick blue line is the S and P 500 and

above or below are the industry groups within financials. So the best performer is consumer finance. Those are well done. Well done. Thank you. I felt like that was the appropriate time to say it. Those are the credit cards for the most part. You've got insurance absolutely ripping, banks performing well, capital markets are coming up the rear. We're going to get to that later. So yeah, what did I say?

Yeah, that's American Express, Capital One, and Discovery. So it's been a good year for the banks. Next chart, please. So within the banks sector specifically, these are the banks that are winning, M&T, Citizens, JP Morgan. Underperforming the S&P are some of the others, US Bank Corp, Truist, Wells Fargo, et cetera, whatever. But let's get into what the market is expecting.

So this, I believe, is from a let's get into what the market is expecting. So this I believe is from a fact set. The financial sector is predicted to report a year-over-year earnings decline of 0.4%. However, the bank industry is the only industry in the sector that is expected to report a year-over-year decline of earnings at negative 12%. So most of the decline in earnings estimates are coming from banks, which is the largest sector within financials. If banks were excluded, the estimated earnings growth rate for the financial sector would improve to 6.9%. Yeah, if you pull out the banks, everything else in finance is actually growing to varying degrees. And what's expected to report the highest earnings growth of the finance industries in the sector is capital markets at 11%.

Yeah. So those stocks are really, really working. So. Banking and brokerage. So Wall Street stuff, financial exchanges and data that's CME, NASDAQ, and then asset management, custody banks, which is like Aries and Blackstone, all those stocks are- Goldman, Moody's, Morgan, MSCI.

Throw up the chart. This is really illustrative. So the banks themselves is obviously that final bar that you see is negative 12% earnings growth year over year, which is what we're expecting for this quarter. Mike, I think that's the good news. That expectations are really low.

And also, I might be wrong, but I feel like there's not usually big surprises either way with banks. It's not like they were expected to grow at 1% and they actually shrank by 4%. These aren't like very, very volatile groups. You know where the surprises come from? Trading and fixed income currency. FIC and trading is where that big variation from the expectations comes. Because that's a function of when they decide they want to take a gain or a loss. And the Wall Street doesn't give the banks any credit on giant trading gains, because Wall Street understands that that's easy come, easy go.

So you do get big misses and beats, but then when you hear the explanation and you're like, wait, Goldman just beat by 80 cents. Why isn't the stock moving higher? Well, because it's coming from this honey pot of trading gains and losses. And they don't get credit for it in the multiple because nobody thinks that. They're temporary. Yeah, it's temporary. That's exactly right. What they get credit for, what they get credit for really is NIM. So so Net Interest Margin, very basic, how much they're making on their loans.

And then they'll get credit for when they are able to drop reserves back down into earnings, meaning that they've been good lenders and they haven't had a lot of loss. Well, that's going to happen because they took a lot of loss provisions that probably did not come to fruition. They've been aggressive. And what we're also going to hear from J.P. Morgan, I'm guessing is a very bearish Jamie Diamond, which is par for the course. You know what?

I thought that, but he did a Bloomberg hit today. He did 15 minutes with Bloomberg and none of that doom and gloom shit. It was about the IPO market is coming back. Okay. We don't know when, but we think it will. There were some structural reasons for why these companies are not in a rush to go public, but eventually there's enough pressure that they need the liquidity and it's going to happen.

He was like sort of upbeat about that. And he also decided not to endorse either presidential candidate this time. What did he probably, what did he do last time? I don't remember. He's a Trump guy. But he's not doing that this time. And what else did he say? He said one other thing that I thought was interesting, but he was not like, this is going to end badly.

He wasn't doing that. Good to say. Well, we'll see what he says on the call. All right. That brings us to make the case. I'm going to keep this fairly boring. I'm going to remake the case for a couple of names that we've spoken about a lot lately. One of them happens to be in capital markets.

And the reason why I'm making the case for these names is because they continue to work. They've all had great runs. They're cons... Ain't nothing wrong with that. You don't have to have a new idea every day. They're consolidating. They gave back a little bit. They're consi... Ain't nothing wrong with that. They're... You don't have to have a new idea every day. They're consolidating. They gave back a little bit. They're hanging high.

Like technically these names are, I don't wanna say flawless, but like, I don't know what else to call them. They look really good. So we've got some charts. Chart on please, John. So the first one, I do own this one, SPGI. This is S&P Global.

It continues to work, hang higher, not giving much back. Next one I think is ICE. There's that. So that looks pretty damn good as well. And the last one, I don't know, Josh, you do, this is NASDAQ. They all look the same. They're all working. Yeah, I think they're stock market proxies basically at this point. I mean overlay those charts with the stock market. I think there's now a very high correlation. I think higher stock market, higher interest rates, or excuse me, higher stock market, higher activity in the stock market and in the bond market, these companies do well. Like they don't need endless rallies, but they help. Well, a lot of the derivative stuff

is certainly filtering into ICE, for example. All right, one more group of stocks that is working well. And it's interesting because you would think, at least I would think, hold on, shut off please for a second. I would have thought that the recent economic strength and the likelihood of less rate cuts, I would have thought that would have been bearish for these stocks. The opposite was true, which means that, I don't know, the market is wrong. This is

pretty bullish. I own these three names. First up, Home Depot. Not quite at an all-time high, but very, very close. The next one is, I believe, Sherwin-Williams, a stock that I've pitched here, continuing to hang high. Then last but not least is Williamsonoma. These are all working to varying degrees. If the real estate, if the housing market unfreezes, these should continue to do well, unless it's all being priced in and we'll find out in a couple of months. So those three stocks, think about the backdrop, rates are coming down, which should lead to

increased housing turnover to some extent, which favors Sherwin-Williams, favors Home Depot, favors William Sonoma. What do you do after you buy a house? You repaint it, you go to Home Depot and change some doorknobs or whatever the f**k, and you go to William Sonoma and you buy like a gigantic rolling pin that you'll never use and maybe one of those bread things in the big silver bowl that you're also only going to use it twice. But that's what you do when you buy a house. So, uh, that makes perfect sense to me.

I want to show you my mystery chart and then we'll get out of here. John, if you please. All right, dude. All right. Don't let me, don't let me down. Okay. Okay. The yellow stock was once a wholly owned subsidiary. Oh, I know what this is. Purple stock. It's PayPal and eBay. I love you. Give me the reveal.

Both of these stocks are on fire right now. Both of these stocks are breaking 52 week highs. Both of them have a turnaround story. The eBay one is a little bit more boring, but matters the most to me because I pitched it to Al Michaels. The PayPal one I actually bought. What's going on with eBay?

It's on fire. With eBay, it's 10 times earnings and all they need is a slight uptick in revenue. All right, so the answer is you don't know. What's going on with PayPal? No, that's the story. It's cheap enough that nothing has to be going on with it. Okay. You understand? No.

Um, 10 times earnings. What, what else? I mean, dude, a lot, a lot of business for 10 times earnings. Internet businesses, not really. Okay. Um, PayPal, did you watch, did you watch my, uh, conversation yesterday with Dan Dolev? It was pretty great.

He looks like you too. He's almost like a proxy for you. But he covers fintech and we did like 20 minutes on PayPal. He loves the new CEO. He thinks they're going to get bigger. They got a big deal with Amazon. He thinks it's going to expand and he's not ruling out the possibility of a Venmo Apple pay with Venmo on the iPhone.

So he's bullish PayPal. Can you do that already? Can you do that? No, NFC chip like tap. Oh, oh, yeah. Yeah, yeah, yeah. Pay with Venmo, bro. There's 65 million Venmo users.

It's US only. He also thinks that Venmo could go international because PayPal is international. And there's a lot of shit going on there. All right. So the mystery charts are, you nailed it on the first guess. I guess there's nothing left to say. I want to remind everybody tomorrow is Wednesday, which means as soon as you wake up, freshly squeezed episode of Michael and Ben on animal spirits on the podcast app of your choice.

I also want to tell you guys as a programming note, Ben and Duncan moved Ask the Compound to Wednesday afternoon. So if you have a personal finance question, a financial planning question, an asset allocation question, and you want Ben and Duncan to answer it live on the show, let's be honest, mostly Ben, the best way to submit that is askthecompoundshowatgmail.com.

And then stick around for later in the week. Jill will be back, Michael and I will be back with a new guest on The Compound and Friends, and keep it locked here, and we're gonna keep delivering. Thank you guys so much. Have a great night. Whether you're just getting started as an investor or you're managing a multi-million dollar portfolio, Ritholtz Wealth Management has the solution for you.

It all starts with building the right financial plan. To speak with a certified financial planner today, visit riddholtzwealth.com. Don't forget to check us out at youtube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening!