The Compound and Friends - Time Heals

Episode Date: August 30, 2024

On episode 155 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Gunjan Banerji of The Wall Street Journal and Paul Hickey of Bespoke Investment Group to discuss: Nvidia earnings, the AI led market boost, the Fed's impending cut, politics and investing, and much more! This episode is sponsored by Public. Discover how you can lock in a 6.9% yield until 2028 with a Bond Account at: https://public.com/compound. 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/ Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com 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/ A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this account are used to purchase 10 investment-grade and high-yield bonds. The [6.9%] yield is the average annualized yield to maturity (YTM) across all ten bonds in the Bond Account, before fees, as of [8/28/2024]. A bond’s yield is a function of its market price, which can fluctuate; therefore a bond’s YTM is “locked in” when the bond is purchased. Your yield at time of purchase may be different from the yield shown here. The “locked in” YTM is not guaranteed; you may receive less than the YTM of the bonds in the Bond Account if you sell any of the bonds before maturity, or if the issuer calls or defaults on the bond. Public Investing charges a markup on each bond trade. See our Fee Schedule.   Bond Accounts are not recommendations of individual bonds or default allocations. The bonds in the Bond Account have not been selected based on your needs or risk profile. You should evaluate each bond before investing in a Bond Account. The bonds in your Bond Account will not be rebalanced and allocations will not be updated, except for Corporate Actions. Fractional Bonds also carry additional risks including that they are only available on Public and cannot be transferred to other brokerages. Read more about the risks associated with fixed income and fractional bonds. See Bond Account Disclosures to learn more. Learn more about your ad choices. Visit megaphone.fm/adchoices

Have you traveled this summer? I didn't. Did I? I just went to Provincetown actually. Okay, Rhode Island? The tip of Cape Cod. Michael Summers in Provincetown. I thought, yes, I thought that Cape Cod was like a location. I didn't realize that like the whole thing is Cape Cod. The whole tip. Did you know that?

Like the whole, I don't know what you call it, the claw? Peninsular? Ah, that's the word. The peninsula. Yeah, I don't think it's called the claw. Actually, they call it that. I have family in Boston. They call it the claw. I stand corrected.

It should be called Cape Claw. We should call it the claw. Cape Claw. Cape Claw. So, you're putting money to work here? I mean, we're staying invested here. Gunjin, are you putting money to work here? I'm always invested.

Do you know what that reference is? Do you know what that's from? No. No, what that reference is? Do you know what that's from? No, what is it from? It's true story. So I used to do, uh, the three o'clock hour on CNBC 12 years ago. And it was Maria Bartiromo.

She was like, she was like basically done. She wasn't quite like Trump train Maria, but she was definitely leaving for Fox. So she was on autopilot for like the last eight weeks, I guess, let's say. So you would watch her interviews, and I didn't realize that somebody pointed out to me, it's hysterical. Every line, yeah. Like, what's your name? So she would like introduce you, and then first question, no matter who the guest is.

And I mean, she would have a Fed official on and be like, so you're putting money to work here? And then you would watch her eyes just glaze over. Yeah, yeah. And I mean, she would have a Fed official on it and be like, so you're putting money to work here? And then you would watch her eyes just glaze over. And she's probably like replaying a pleasant memory from some time in her past while the person is talking. But the funny thing is, I never saw somebody say, no, I'm not putting money to work here.

Like obviously, why are you on TV? You know what? No, we're not putting money to work here. Maria, we're all set. Maybe next year. I mean, but every newscaster, they ask you the question and then they just go down to their computer pretty much. Half of them don't even listen when you're on. I don't know about...

Every? When you're trying to get banned from TV? I'm not saying it to them. So like this, like Maria, say you're putting money to work here. And people are just like, I don't know. Yes, of course I am. All right, great. Start talking so I can glaze out, so I can be back on my own planet. Shout to Maria, no disrespect.

Hey, she was a pioneer, right? Listen, if I knew I were leaving anything, it's really hard to give it your all. It's really hard to be 100% if you already know you're done. Yeah When are you gonna be on TV? I feel like this is any minute. Your time is coming. No offense I mean writing I I do like writing you're great. You're a great writer, but like also I feel like you have a You have a presence. You're Josh and I follow you on social Yeah, are people like every week like hey, hey, do a hit, do a hit? You know, the CNBC crew has been really, really great to me.

I can tell they love you. They ask me to come on all the time. And yeah, the producers are great, the anchors are great. The team there is awesome. You work with them a ton. Yeah, can I tell you one other story? Please. And then we'll actually do the podcast.

The year is 2011, I want to say and a young cub reporter from the Wall Street Journal Highly respected she did incredible stories Kelly Evans comes to me and says Hey, I want to talk to you. I know you do a bunch of CNBC at that time. I wasn't even a contributor She's like they offered me something. She's at the Wall Street Journal. She's doing like web video for them, which is great. She's like, what do I do?

I'm like, well, it's TV. Go to TV. What do you want me to tell you? I don't have career advice for anyone. I don't even have my own career yet. She ended up becoming like one of the best on air people ever, I would say, for CNBC. She's incredible. Yeah she's great.

She's incredible. Yeah she listens. I mean so she listens. But so she went to London and learned to do TV. And then came back here and basically can do whatever she wants. But she's Kelly Evans ladies and gentlemen. She crushes it. I love her news letter.

I love her interviews. She's so smart. Yeah. Big fan. Yeah. Big fan. She's awesome. Anyway I. Big fan. Yeah. Big fan. She's awesome. Anyway, I see you as a star. I can't imagine they're not calling you every single day.

Come on TV. Come on TV. Thank you, Josh. I'm sure if that's not happening yet, it'll happen soon. Guys, we have a Pac show today. We are so excited to have you, Paul, for the first time. I can't believe we haven't had you on yet. I know. Thanks for having me. It's the first time. I can't believe we haven't had you on yet. What's the story? I know, thanks for having me.

First time you asked. Um. That must have been it. Why do you keep talking to us? Why do you keep talking to us? You're one of the first people I met in financial commentary. So I met you through Scott Bell. Right, yeah, exactly.

Tell me if you remember this night. It was at Grand Central night. It was at Grand Central Station. It was at Campbell apartment at Grand Central. Yeah. Exactly. Yeah. So Scott's like from LA. Scott doesn't know anybody. Right. But via email, he connects with like every financial blogger who's on Twitter. Yeah. And this is 2009. So there's like 10 of us. Right. 2010 or something. Maybe even maybe even earlier wasn't it so you and Justin were there yeah and Guessing Linzen Joe Weisenbaugh, me. Yeah, I don't know who else But that's the first time I met you guys. Yeah. No. Yeah, there was I feel like it was even before 2009

But maybe not it's possible. Yeah, I don't know. I'm getting old my memories going tell me about it So alright, well, it's it's, it's a real treat to have you. Do we put these on? Put those on. Please? Here's why I'm having you put those on. Alright, we're locked in. Three o'clock, you're coming in?

Alright. But I'm not ready. Ready or not. Here we come. Hey, hey, John, what show is this? It's a dumb, John, what show is this? 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 Red Holtz 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. Today's show is brought to you by Public. If you want to earn a nice 6.9% yield for the next four years or more, you got to check

out the bond account at public.com. It's a new way to invest in a diversified portfolio of bonds. It only takes a couple of minutes to get started, but you have to act fast because we know, don't go look at me, we know that the Fed is going to cut in September. These rates are not going to stick around here, waiting for you forever.

Act now. Public.com slash compound. That's public.com slash compound. That's public.com slash compound. One 55. All right. The room feels electric today. It is electric. Ladies and gentlemen, you are now rocking with the world's greatest finance and investing podcast. My name is downtown Josh Brown. I'm here with my cohost, Michael Battnick as always Michael say hello. Hello. Hello Nicole is here back in Europe. John is here Duncan's here Rob is here. The nugget is in the house Make some noise nugget

We have two very special guests first up up, our returning champion. Hold on, let me pull up my bios. I was going to half-ass it. Let me do it right. Gungeon Banerjee is the lead writer for Wall Street Journal Markets and a CNBC contributor. Gungeon led the journal's award-winning coverage of Meme Stock Mania, and her reporting on GameStop went on to be the basis for an Emmy-nominated Netflix documentary. Welcome back, Gungeon.

Thank you, I'm excited. We took a look at all the stuff we were talking about the last time you were here. We'll get into that in a second. Paul Hickey is here. Paul co-founded the Bespoke Investment Group in 2007. Bespoke offers extensive market research, recurring reports and newsletters and wealth management services. Prior to Bespoke, Paul was a research analyst for Berenie Associates

and he spent time at Salomon Smith Barney from 97 to 2007 on the firm's emerging markets. 2000. Okay, I don't know. They write it, I read it. Nobody gives a shit. Hey man, you're a legend. Oh, no, you guys are the legends.

I introduced Sean and Charred Kid Matt to you and they had stars in their eyes because you, so you and Justin Walters, let's just do a quick bespoke thing. Yeah. you so you and Justin Walters, let's just do a quick bespoke thing. Yeah. Okay. You and Justin are at or working with Lazlo Borini.

And you guys are I'm assuming doing a lot of the heavy lifting and you break out and become bespoke investment group and your blue and green charts. Iconic. Iconic. That color scheme, the format, the font, everything is uniform. Your shit looks better than anyone on Wall Street and anyone off Wall Street. And as a result, in the early days of social media, people are like sharing your charts everywhere. Not just because of the colors, but like the insights.

You guys were really early to figure out that if you do good research and you present it in an appealing way you can really accelerate a brand and you did it before anybody else so I wanted to just tell you that. Well thank you. How did that come about? Like what was the genesis of the brand? So like you said Justin and I were at Barini Associates. We worked there together. You're math guys. You're like quant guys. Yeah, it's quantitative historical research. And so we were heading up a lot of the domestic equity

research, doing a lot of that, putting out a lot of the analysis. And this was back when blogs started to get popular, right? And so we started a blog there called Ticker Sense, which we published on. We made a lot of connections, we made connections with you, a lot of other people. Barry Ritholtz was stealing your stuff of seven days a week.

No, he was great, he published us, he gave us more coverage. And then at one point we were just like, we were young in our 20s, and we're just like, you know what, if we're gonna, you know, I want to sink or swim on my own. I don't want to sink or swim under the name of someone else. And so we're just like, if we're doing all this work, why don't we just try doing it ourselves? We were young enough that we were... You could take the

risk and then get a real job if it didn't work. Exactly. And so it's funny, so we decided, the day we decided, I come home, I always tell this story, I come home and I go to my wife, I go, I have some news for you. And she says, oh, I have some news for you too. And I go, what's your news? She goes, I'm pregnant. And I go... I'm quitting my job. Yeah.

So then she says, what's your news? And I go, oh, nothing, forget about it. You know, I got a hole in my pants today. So like, no, she's like, no, seriously, what is it? I was like, later on, like an hour later, I was like, well, I was going to tell you I'm quitting my job and she's like, you have to quit your job and do it. So she was, she was like, she was like, I, you, I have much more faith in you doing it on your own than doing what we're doing now.

So, you know, I think you should, uh, you should go for it. And if you don't, I'm leaving you. I love, no, I love that. Being in a relationship with somebody that wants to take the risk with you. Like within reason. It's not the craziest risk on earth. You didn't tell her you're going to like build a dam in Africa. No, no, no.

That was a backup. No, but listen, I came from a situation like that. I had nothing. I really had nothing to lose though. So I took less of a risk than you guys did. I was making no money and Sprinkles is like, well you better do something. So that was a little bit of a different conversation than your conversation. How old were you? 27? 28? So I was actually, you know what? I was about 30s at the time.

30s. And this is what? 07? This is 07. This is 07. Why do you look 12 years younger than me? What's going on? There's a chick flight for breakfast. It must be what it is. All right. Congratulations. That's a long run. Congratulations to you guys, though. You and Justin, you ever disagree on anything or you guys are pretty smooth sailing?

We're pretty calm and laid back on that. Everyone's going to have their disagreements, but it's been going on for over 17 years now, so it's... If you haven't thought about it yet, it's probably not gonna be an issue. Exactly. That's great. It pretty much runs, you know, things run pretty smoothly now.

And, you know, we started out at a kitchen table, literally, and Justin was renting the house of the Melissa Melissa and Doug from Melissa and Doug Toys. Oh, the puzzles? They had a rental property, so he was renting the house. First day, we're coding up the website, bringing it up, putting it up together, and we have the mech game on, and the guy, Doug, comes in and goes,

oh, I love this, you guys are here. He goes, you got to turn that TV off, though. Because he goes, we started in 94, I believe it was 94, and we were watching the OJ trial during that. And we wasted so much time on that. He goes, I'd be a billionaire now if I didn't watch that OJ trial. I think he may be a billionaire now.

He might be a billionaire. Melissa and Doug. Yeah, but in 2007 they weren't. So he said that kept us back years. Imagine if instead of starting Bespoke, you just put $10,000 into Nvidia. What's wrong with you? Or imagine you and Justin were like, tell us about the puzzle business.

Maybe that's what we're destined to do. Yeah, that would have been a lot more fun, right? So, all right. So it's really, it's a thrill to have you here. And congratulations on all your success. It's a very long partnership. Thank you. NVIDIA reported this week.

Did anyone really pay attention to this or no? I don't know. What's your takeaway? Everyone on the planet was paying attention to this. Is it just because the stock's gone up so much and the market cap so big and people are just so fascinated with AI and that's like that's those are the ingredients but it's not a meme stock. It's not a meme stock.

It's three trillion dollars. So I feel like people put so much emphasis on it. Right? I was at a watch party yesterday at a midtown bar. How many people were there? There's a few dozen. Like 60 people showed up. That's not a bubble.

A few dozen? That's it? Come on. Call me when the bar has to call the police. Wait, so... I like that. I like that as an indicator. How many of the 60 people-ish, if you had to guess,

are like... Journalists. ...trading Nvidia or professionals? And then how many people are just there to like, network and make contacts? It's so funny. A lot of people were shareholders. I spoke to a bunch of them.

One guy was telling me about how he was going to off of this another woman was trading weekly options on Nvidia I bought it. Yeah, exactly I like it. Some people were there to network like so that makes people Yeah Some journalists it was some people were like I just wanted to see what the madness was all about just observing the Some people were like, I just wanted to see what the madness was all about. Just observing the craziness. Yeah. So I said to you, they picked the wrong stock.

Dude, if you want craziness, Tesla earnings watch party. Because Jensen's pretty understated. He's not a hype monster. He doesn't say weird things. He's not signing bras. Oh, wait. Well, oh, wait. You might have done that once.

All right. But so the crowd dissipated when it became like a non-event. Well, it was so funny. It was literally like being at a Super Bowl party. People were cheering as the results came in. Like watching every tick of the stock move after hours. Sorry? Was the sound on in the bar? CNBC was blaring.

So was everybody like you see me? I was on a three. I think we got to the bar right after. All right, it was on mute until I got off the air and then they turned the volume up. I think everyone arrived like 3.30, 3.45. Everyone was glued to the television screens around four, 4.15 as the earnings came in.

Were there cheers? There were, people were cheering and literally watching every tick of the stock after hours. It's just drunkenness though. The fact that it went down, it had to let the air out. It did and then the crowd thinned shortly after. It was just really, really funny to watch. Well, if the stock had gone up by 20%,

which has happened after one or two of their recent earnings reports, first of all, that would have taken $600 billion worth of buying power. But fine, put that aside. I feel like the place would have gotten tipsy. Totally. I mean, some people, a shareholder said to me, that's what they were hoping for. We were hoping for a New Year's Eve party, right? We were hoping to pop champagne and get really wild with a big stock move and instead it

went down and people went home. This is one of the problems with financial media. It's not, so there's such a huge ESPN envy, but you just, there's nothing climactic enough to like really give you that satisfactory. First of all, the visuals suck. It's a guy talking on a conference call. It's not even video, right?

And there's no home runs, there's no grand slams, no touchdowns, there's no, youams, no touchdowns. There's no, you know, there's nothing really to look at. And then the second part of this is we price the news into the stocks. Nvidia is up 150% on the year. They had a great earnings report. Would you want to go up another 150%? So this is the trouble with covering finance as though it's sports. It's not so right and should be I mean as much as you Want to make it entertaining and you know, no fault in we all do media. No one's interested I mean HP announced a ten billion dollar buyback yesterday, which is actually something when you consider that market.

You call that a buyback? Right, okay. So, but that's, it's tough. But I like the energy behind that, the idea. Like, let's get everybody together and let's be social around our investments. I like, I was rooting for that party to be, I wasn't going because

I'm old but if I were in my 30s I probably would stop by. I used to do shit like that all the time. The thing is I think this shows how investing has become more like entertainment for a lot of people right like the sports team analogies I heard while I was there the options you know that I heard about. Dan Ives quote on Nvidia did you hear what he said? What he said? This is like LeBron in high school the best is Dan I've said it in his 40 trillion here we come I think he said that great analogies he's the best

What one investor said to me yesterday was you don't have to you know be rooting for the home team to come to the bar To watch Nvidia earnings. He wasn't even bullish, he just wanted to come watch the action. It's a spectacle. Hey, can we put this chart up? Retail trades on Nvidia or retail trades tied to Nvidia. How do we know this is retail? So NASDAQ tracks this data of small trades and they-

Oh, go NASDAQ. Yeah, it's- What is this data? Is it $8 billion per day of retail trades tied to Nvidia So what we saw was ahead of the earnings retail trading in the stock hit the third highest level and data going back to 2016 So there was a real mania underway ahead of the earnings and it's bidirectional. It's people betting long betting short So it's so interesting because remember that awful day for Nvidia early August, a little something happened in markets.

The yen carry trade was exploding. But also like Taiwan Semi, I think one maybe a few weeks, this is like in June or something. Exactly. Yeah, it had one of the worst days of the year. We saw was retail investors piled in to buy the dip. Well, we'll see. We'll see. Like when will we know what they did today?

Because today was not like a really big dip, but the stock went down. Totally. You know, I would guess that they were buyers. What we've seen is individual investors really like to come in and buy these dips. They're definitely buying. Every single purchase has been rewarded if you hold it more than six days. Totally. But we'll find out tomorrow. As of, so we're recording this. It's a little bit after three o'clock New York time on Thursday. The stock is down a little bit less than 6%, which I feel like is notable. The Nvidia's last six or seven earnings reports since that blowout quarter in early 23, the

stock was flat to up. Guess what? The S&P is flat today. So I know it's only one day. So not to poke at the bears. Oh, we can't we can't Invita said take the market down, but and very strong six turns a lot markets flat I remember market couldn't rally without financials market can't rally without Apple now market can't rally with it. I know exactly

Always wrong. I'll do you one better. Sorry to cut in but the equal weight S&P is up 46 basis points, right? Yeah 46 So here we go. Right. 46. So here we go. Rotation, baby. We're doing it. What is this defect that makes people think that because NVIDIA sells off, no one's going to want to own any other stocks that day?

It's not true. No. Paradoxically, if NVIDIA's results are weak, it's actually probably better news for the hyperscalers because it means they're not having to spend as much so in that respect. So you could make that, you could even make that argument that what's good for Nvidia may be bad

for the hyperscalers who have to spend all that money. If $50 billion comes out of Nvidia, which I don't know if that's the number today, market cap, right? Way more. Yeah, way more.. Market cap, right? Way more. Yeah, way more. What is it, 100? I mean, you said 6%.

It's probably about three trillion. It's a lot of money. Carry the one. 150 billion. All right, $150 billion came out of Nvidia today. What are we saying? It went into the mattress? No, it goes into other stocks.

That's not exactly how it works. I feel like it sort of exactly works that way. I know we've done this before. Stop. Don't embarrass yourself. So here's what would have happened. If Nvidia said something bad, like, uh-oh, and like, that would shock the market, no doubt. But the risk of them saying that was effectively zero because we heard from all of their biggest customers. It wasn't going to happen. Right.

Well, guidance though might not have been... Guidance was fine. What do they say? They said total revenue is expected to be 32 and a half billion dollars plus or minus 2%. So, where was it this time? So, 30 billion dollars. So, I mean, the stock's on 6% big deal. It's up 150% year-to-date. It's giving a little back. No, and I think, I mean, this stock has had an enormous run. And I think what you're saying, the S&P equal weight, since the S&P is basically flat since mid-July, it's down about maybe 1% now. The equal weight S&P is up 1% from that mid-July high. The Nasdaq's down about 5%. The Semi's are down about probably 17% now. So what looks like nothing's happened in the last six weeks,

you've really seen this rotation in the market where you are starting to see some broadening out in the market. It's taken a long time for it to happen. It's wonderful, finally. But it's a good thing. Dude, in August, when Nvidia was down almost 30%, in August, this just happened.

When it was in a 30% drawdown, the Equate was off 4%, 5%. It didn't blink. Finally. So right now, if you just look at the queues, if you're only looking at the queues, your assumption would be this has been a weak summer. Nothing's happened. If you own individual stocks, you have many stocks

at or near all-time highs. Every sector. Exactly. They're not just the tech stocks. They're the industrials, the utilities, consumer staples. Think about some of these themes. Utilities on AI spend. Drug stocks on GLP-1. You've got like a whole group of gigantic drug stocks that look good. Not the one I own, but everything else. Financials. Financials is the second best performing group on the year.

You got Berkshire Hathaway became, this week, the first non-technology company at a trillion dollar market cap. You guys sound AI. You know, Buffett's 94 years old. It's about time, right? It took him 94 years. I mean, all these other guys have done it in 50 years or less.

I saw a chart. I can't remember from here, maybe you guys. The highest number of components within either financials or real estate, maybe both, at 52 Ecos in a couple of years. Like a lot of things are working outside of tech. Which is wonderful. Yeah, no, you want broad rallies, and people always talk about that.

You know, for the last 18 months, they've been talking about how, you know, it's just a mag seven, but now we're getting the broadening and they're saying, oh no, this is terrible, because you can't rally without Nvidia. I thought this was an interesting quote from Jensen. He said, generative AI, just taking a step back

about why it is that we went so deeply into it. He says, it's because it's not just a feature, it's not just a capability, it's a fundamental new way of doing software. Instead of human engineered algorithms, we now have data. We tell the AI, we tell the model, we tell the computer, what are the expected answers, what are our previous observations,

and then for it to figure out what the algorithm is, what's the function. It's a completely new way of doing everything that we've done to date. And that's why all these tech behemoths are saying, we're going to keep spending. Investors are freaking out a little bit about how much these mega cap tech stocks are spending on CapEx, on AI. But they just said in their latest earnings calls, we're gonna keep doing it.

They seem to be afraid to stop. It's an existential threat. They're afraid to stop, exactly. Well, so one of the things I think is interesting is the current CEOs of the tech giants, the hyperscalers, most of them with the exception of Zuckerberg, were around as executives or even as low level executives during the last revolution. And they remember all the companies that didn't make it. They remember the Compaqs, the He the Hewlett Packards, the Dells, the first incarnation of Dell, Sun Microsystems. The companies that blinked and didn't keep spending

on CapEx and R&D and building, they just vanished. They went from being some of the largest market cap companies in the world to having no value. That's got to keep some of these people up at night. If you're Sundar Pichai, you know the history. And you can't be Scott McNeely. You cannot be some micro systems. Right, and if your competitors are spending, you can spend, you can justify it. Because you can say, look, they're doing it.

But if everybody else is spending and you say, I'm not spending, and you end up being wrong, see you later. Well, also, these are free cash flow machines. What are the margins on these giant tech businesses? They could afford it. How many hundreds of billions of dollars are they sitting on? What's it for? To do more buybacks? Right. It's not spending in absolute terms. It's relative to what?

What else would you be doing if not chasing AI? Raising their dividend even more? But it's just crazy how quickly we moved past the year of efficiency. Remember that? In 2022, Zuckerberg talking about how he was going to cut costs and here we are 18 months later. It's the year of, oh my God, I better spend because everyone else is spending. And it is crazy because AI, Alphabet was an AI first company in 2017. Pichai branded the company as an AI first company. It was chat GPT on November 30th 2022 Which really got everything going and got this whole you know, almost hysteria towards AI going

It's not a stretch to say that the S&P where is it right now 5600 that had this never happened They could be out. I'm throwing out not throwing out a number 4,000 4500. Yeah, who knows where it is an alternate universe Where AI where like chat GPT didn't take the world by storm and in that universe The S&P is probably 20% well We're in an earnings recession for sure without it right like in 2022 the things that we were afraid of would have happened And Nvidia of course is not the largest company in the world in that scenario Yeah, right Nvidia since chat GPT every earnings report since then was an earnings triple play Which is it reports better than expected earnings, revenues, and raises guidance.

And like before that, it wasn't doing it every quarter. I think seven quarters in a row now of that. So 78% of Nvidia's revenue is now data center. Prior to this all happening, the stock moved on gaming news. It was a gaming company. Gunjan, the Journal did a piece on all of these Nvidia millionaires, these regular retail investors that just bought the company 25 years ago. It was a, forget 25 years ago, five years ago it was a different company. It traded on console.

What even was it? It traded on PS5 is coming out and people would get bullish on Nvidia, I swear to God. And then it was a Bitcoin mining play. Totally. Now I was looking at some data and without Nvidia, the S&P 500 information technology sector would have half the earnings growth it's going to have for this quarter. So that would make a big difference.

Yeah, but that's why I think people end up getting so hung up on the stock. Well, so what do you, so I remember last quarter or maybe the quarter before, there was a story floating around about how CoreWeave was some sort of like self-dealing vehicle that was set up with Nvidia's backing to buy chips from Nvidia

because Nvidia didn't want to be in the distribution business. So they wanted to have this third party exist and they funded it. That seems to have gone away, or at least I'm not hearing about it anymore. What do you think that, was that just about people being mad that the stock had gone up so much? Or were there like real hardcore shorts

betting on that thesis? That's so interesting because I don't hear about that anymore either. No, it went away. Yeah, what a spirit. And so have all the shorts. You know, we've talked about how all the shorts have disappeared in these Mag-7 stocks, right? No one wants to bet against them anymore.

Well, it's easier ways to lose money. Like zero DTE options. Yes. Well, so to that point, like professional short sellers often make the point, they don't like go out there looking to punch the biggest guy in the prison yard in the face. Like that's not what how professional short sellers think about their role. They're much more likely to be involved in a mid cap company that's been super self promotional

and has shady, you know, a shady past that people aren't aware of. In the case of Nvidia, the founder is still the CEO. It's well documented that their revenues are coming from the five biggest companies on earth. It's, it's like a much, I'm not saying the stock can't go down. I'm saying if you're a professional short, those aren't the inconsistencies that you're looking for. There's so many junkie companies.

Right. Why is that? There's a lot of shit out there. You can get a lot better edge on smaller companies than you can on Nvidia or other mega cap that 80 analysts are covering. So there was a report today that OpenAI is looking to raise that $100 billion valuation.

Apparently the journal is reporting, sources say, this is from Walter Blum who tweeted it, that Apple's in talks to join the funding round. This is very out of character with how they behave, but it just goes to show, if this reporting is accurate, how big of a story and how big of a deal this is. It's out of character for Apple to be investing in. Especially alongside Microsoft.

Apple's going to be their number two customer on Earth. No, it makes sense, but it's just corroborating how crazy this is. I think what's interesting is that there really is no alternative that Apple is willing to bet on, and they're not doing a bigger tie up with Google because they're already so entrenched with Google. Chrome is the default browser on iOS devices. For now at least.

For now Google search pays them, I don't know, God knows how much money for that placement. I think it's like 20 or 30 billion. But they don't want to go deeper with Genesis, Google's AI product. They want to get in deeper with the one that Microsoft is already the biggest backer. That's interesting to me. I mean, I was talking to a venture capital investor recently about the private market for AI companies. He was just saying there aren't that many places to put your money. That's a good point.

If you want a piece of the AI pie pie and I think this is what that shows. Because these are so capital intensive. How are you going to compete with the company that's raising tens of billions of dollars? It costs so much money to build these things. And it's still so early. Yeah, there were a few notable AI founders who sold themselves because they realized like there's gonna come a time where we're gonna have to Have a five billion dollar CapEx budget and it's just not doable So the weird thing is that every time there's a new way of a new hype cycle. There's like a new

Set of winners and yeah, there'll be winners open AI and the others But it sounds like the max seven companies at least a lot of them are gonna be some of the biggest winners in this new hype cycle That's the way it seems now at least but I mean them, are going to be some of the biggest winners in this new hype cycle. That's the way it seems now, at least. But I mean, you look back to the dot com bubble, I mean, a lot of these companies now, the Ubers of the world, the Airbnbs, they wouldn't be in existence today if it wasn't for what happened in the dot com bust.

And they didn't come around for years later, or more mobile too, as well as the iPhone. But the internet facilitated mobile and then facilitated a lot of these companies. Whereas, who knows what's going to happen in the next year at this point. Totally, but I feel like a lot of investors over the years have been like too, emphasizing too much historical analogs.

Like you've never seen winter stay winters for this long. You see the top 10 market cap and it's always being recycled. And people have been afraid to say, in fact, getting egg on their face. Like what if it, what if this is the time that it's different? Right. Well, if you look at it, Microsoft, that's a company that's been, I mean, they, they went through, you know, dotcom bubble biggest company and they've maintained their leadership today, which is one of the more amazing stories to, because to your point, Mike, normally companies come and go depending on the cycle.

Microsoft has stayed around and as much as everybody has shit on in all these years... It's almost 45 years of being among the top 10 technology players, wave after wave after wave. These are effectively monopolies with 60, 70% gross margins depending on the companies. Like, who comes in here and disrupts them? The thing is you hear concerns about concentration, but then when you look at where people are actually putting their money, where individual investors are putting their money, where hedge funds are putting their money, it's tech. It's mag-7.

These are crowded trades at the end of the day. So we talked about this on Tuesday, like Dan Loeb, Third Point, they took a big position in Apple this spring and they wrote, you know, their shareholder letter, like we think like, not only do we not think Apple is a laggard, we actually think they'll take the lead. It's Apple. So it's like different than what's Michael's point, it's different than prior tech waves. Like when mobile came along, there was a lot of excitement about a whole host of stocks, Motorola, Nokia, and then they came and they want Blackberry.

We just have the same five gigantic stocks year in, year out, almost no matter what the technology is. What might change is where the money's being made. So being the cloud provider might become less profitable as they beat each other to death for market share and the software layer of AI might become more profitable. And to that point on the Salesforce.com earnings call, Benioff was saying, you will not believe how much money people have wasted already in AI. He said, every one of these Fortune 500 companies is doing do it yourself AI and it's a disaster.

A company like Salesforce already has all your customer data. If you'd say to them, why don't you be my AI provider and I'll stop all these science experiments. That's an example. That's a 250 billion dollar market cap, that if they get the kind of adoption and AI that they've gotten in CRM, that could be 400 billion overnight. And that could be a whole new story that's an AI story. Yeah, it's been out of favor all year now until today.

We could also end up in a place where maybe years down the road where these hyperscalers, they're not growing as quickly as they are now. And they sort of transition to like value companies where they just get re-rated a little bit lower and they're still the biggest companies, they're just not as sexy as they used to be. I mean, isn't that what happened in 2021? Not 2021, in 2022, these stocks actually joined

value indices. Yeah, 2022, a lot of them got cut in half. Yeah, Meta. Like prior, like. It wasn't yet. Meta was a value stock in 2022 to a lot of people. I think it was down 65% or something like that. I'm as I got cut in half I think meta got down to like 15 times earnings Google got cut in right

It was in the Russell. I think it was in the Russell growth ET. Sorry the Russell value ETF It was one of the biggest it was part of the S&P value at one point Yeah, alphabet to alphabet got down to like a 15 times earnings multiple. It definitely fell into that bucket. Could we do some economy stuff? We got a lot of good data today. So let's put the bespoke, let's use this as a jumping off point.

John, do you have this today's economic indicators results? So I think GDP was revised higher. Paul, is that right? Yeah. Personal consumption. Paul, walk us through these. Yeah, so I mean, this is just today's economic reports. Green means better than expected.

Red means weaker than expected. Blue means in line. One of the, so a good report. And you see the inflation data, a red dot. People always say, you're showing a red dot. But it's good. But it is good. But if you say higher than expected inflation, is that good?

But like, so it's, it, people always talk about it, but that's a green dot. Paul, come on. This is great data today. And we saw it last, I think it was exactly last Thursday. We saw another similar set of really good data. Wait, start from the bottom. Pending home sales were supposed to be plus 0.2%. Right. And they came in negative point two percent. Right. And

they came in negative five point five. Right. So that was how? I mean I didn't read through the details of the report yet today so that George... That's a huge downside mess. It's not that big when you look at it I believe. So but when you look at these reports, housing has been weak you know for a while now. You saw new home sales come out better than expected last week. So the deal here is you have this situation where we came into the last two weeks. About two weeks ago, everyone was worried about the economy

falling off a cliff. And is it going to get a lot weaker here? And we've seen some good data between now and then in terms of retail sales coming in jobless claims which had spiked everybody Everybody was worried about it But then you look back at the the same four-week period the last two years post covid you saw those same spikes And then they pulled back so Covid messed everything up and the seasonal adjustments you can make a really good argument that it's messing up a lot of these seasonal adjustments

So what you have is you have more signs that the economy is starting to stabilize here. And then you have the Fed, which has gone from defensive line rushing at the quarterback, if you want to make the sports analogies we're talking about before, to now it's the offensive line blocking for the market. So two years ago, Powell was an adversary to the market. He came out and said, it's going to take some time for adjustment. There's gonna be pain. And then last, at Jackson Hole, we're gonna do, he didn't say quite say, whatever it takes, but I forget what his exact line was.

We're gonna do whatever we have to do to support the labor market. To support the labor market, which is backwards from what he was saying. Exactly, and that's a pretty significant, I mean, remember Draghi in 2012 said, we'll do whatever it takes. I mean, this is nowhere near that.

But everyone was talking about the time has come quote from Powell. But I think that quote was more important in a speech. That's the one that I seized on also is like, we'll do whatever we need to to support the labor market. Oh, OK. So now you're on the other side of where you were a year ago. Yeah. Let's do this initial jobless claims chart. People have been really worried about this that once this, and what we're looking at here is we've got a long-term chart. We're still way below historical average.

But nevertheless, the notable thing is that once this chart starts moving up and to the right, it usually, the momentum builds and it usually doesn't stop. What's the red line Mike? Is that the point of no return? That's the red line Mike is at the point of no return? It's just the average yeah, so we're so well below this is a weekly number that comes out us initial jobless claims This is people the first time they file for unemployment and and it's pretty rare for this to be like a market moving type of Event it's a weekly thing. It's a noisy series, but it but it but it's been in focus this time around I keep saying that there's historical data like it's not to thing. It's a noisy series, but it's been in focus this time around. I keep saying that there's historical data, like it's not to throw it in the garbage, but we've never been in this type of an economy.

There's no roadmap for where we are right now. And that's why I think so many people have gotten it wrong because it looks, based on the data today, this week, as Paul said, it looks like we're headed towards a soft landing. And how many people predicted that? None. We had a people predicted that? None. We had a GDP revision that fears about the economy from early August were so short-lived.

And yeah, now the Fed is on track to cut rates in just a few weeks. I think even the Fed is more surprised than anyone else. They're like, can you believe this? I think they can't believe it, honestly. Since they started hiking rates in 2022 in the first quarter, the US economy in total has grown 5.5%. And they tried to slow it down. And they tried to kill it.

And we said, nope, we're spending. You can't stop us. The German economy over that same period has shrunk by 0.3%. Wait, stock market has added $5 trillion in cap. Jobs growth has been like, you would have thought the Fed had been easing. Right, and so it's been a big surprise, but whatever, what people miss is the fact that, you know, we have so much government spending and the stimulus, beginning in mid 2002, really took things into another level.

So this chart that we're looking at, The fat line at the top is the current? We're looking at the cumulative change of the Fed funds rate by cycle, by hiking cycle. We've never done this before. We've never raised rates 525 basis points. That's a great chart, Kunjin, right? It's a really good chart. And, yeah, the economy didn't respond the way we thought it would. I mean, the housing market did, but... Because it's the speed and the magnitude that stand out about this particular hiking cycle.

So Paul, they tried to slow us down and they couldn't. No, they tried to. And again, it was the... You have the fact that we had so much government stimulus coming in. Gungeon just went to Japan. Gungeon's going to earnings parties. The Fed tried to hush everyone's buzz. And now they're first going to start cutting weights

and you see the party she throws. All right. What's this next one? Months between last Fed rate increase and first cut. Okay. We're not exactly breaking a record, but this is a very long period of time to stay quote unquote higher for longer.

So we stopped the hikes in July of 2023 was the last one. Yeah. Okay. Through the present. So what is this 13 months? It's meaningful relative to history. And I think this is a great chart because you look at the period that was longer 2006 to 2007 and you look at that didn't go out. You look at the period that was shorter 2000 to 2001. So those two periods were very rough periods for the market. But when you look at it, this reminds me of the inverted yield curve. Everyone talks about when the curve uninverts. Yeah, that's when you really have trouble.

That's when you have to really have to worry. But the thing is, it only happened in those two periods when the curve inverted. Every other period that the curve inverted, that un-inverted a year later, this is, I'm talking about twos, tens here, the four other periods, the market was higher a year later by like a median of 13%. So it really wasn't that big of a deal. That's interesting.

I wouldn't have known that. Let's do the historical Fed policy changes. Let's just take a look. So this is the actual Fed funds rate versus the size of the hikes and cuts. Which is on the bottom. Oftentimes when they cut, it was in response to an event. Inside the market, inside the economy,

holy shit, we have to do something. The idea that they were able, and I don't want to say pull off because they deserve credit, but that collectively we were able, and I don't want to say pull off because they deserve credit, but that collectively, we were able to raise rates this much and start returning towards neutral as the economy is moderating and the S&P is ripping.

Oh my God, what an outcome. It's remarkable, especially when you think about two years ago, I think everyone, including the Fed, felt like they were late, right? They missed the mark, they had waited maybe too long. Well, they did. They did. It seems like they waited too long to raise interest rates.

But they didn't pay for it is what you're saying. Yeah. They didn't pay the price for being late. So far, they haven't paid for it. No, Joe Biden paid for it. Seriously, politically, that's who paid for it. The sitting president paid for the inflation. Because absent 9% CPI, like it would have been really tough to dislodge considering how little else happened while he was there.

But that's the killer. You can't have inflation. This is random. Speaking of inflation, gas prices are way lower, like way down. I felt it my gas tank. I was like, holy shit, gas is 320 or something? Right. You know, so you, I love it. You're a city mouse. We're all country mice. But it was the first time in a long time that I thought about the gas price, good or bad?

No, and that's, well, two things. You look from Memorial Day to Labor Day. This is one of the steeper declines in gas prices you've seen during that period. It's one of the largest ever from the end of Q1 through now. So you normally see gas prices plateau at the year to date highs in the summer, but they've been declining. And is anybody talking about it? Like we only celebrate bad news.

Of course, that sells papers. But I think it's probably because like the Middle East is so calm. The Middle East is calm, but... Lips. I'm just kidding. No, I see it like you look at... Iron run burgundy? Everything you should say higher oil prices, but you, and then you're reflecting,

you're looking at the consumer sentiment reports, you're starting to see rebounds in consumer sentiment. We do a monthly called bespoke consumer pulse report where we survey consumers and, you know, discretionary spending plans are low relative to history, but they're turning higher. And plans to purchase consumer electronics in our last report, we saw... That's crazy, they're turning higher. Yeah, people are starting to spend more.

They got, especially consumer electronics. What are consumer electronics, like TVs? Like TVs, computers, iPhones, you know, headphones. But so those things though, like... I just like, TVs used to be like big purchases. They're so cheap now. Yeah. People buy them on their phones.

There's like, my first big screen TV was 37 inches and it was like $2,700. $4,800. Yeah, yeah, yeah. Now you can get an 80 inch for like $900. Oh, but also you couldn't watch it. So the first big screen TV I bought, the guy at the store is like, yeah, but like make sure it's off most of the time. Why? Because it was an

liquid crystal display or plasma. It was plasma. So it's plasma and the guys like oh yeah no it's the best picture in the industry but if you like pause something and leave it on there it'll freeze on to the display forever. It'll burn into the screen. So alright can I pay more for this? It sounds great. Let's do history of Fed cuts. One of the things, Paul, one of the things we did earlier this week is we took a look at the difference between what Cali Cox,

our chief strategist, refers to as celebratory rate cuts, which is what we think this one is, at least so far, versus desperation rate cuts, where the Fed is fighting off a recession. Hold on, Paul. We're getting pretty good at this chart stuff. I was just thinking before like, I gotta go back right back to the office today and start working on our... Shout out to Chart Kid Matt.

Shout out to Chart Kid Matt. Good job, Matt. Our chart game is reaching bespoke level heights. All right. But so one of the conversations we were having was like, yes, sometimes the Fed is fighting a recession, therefore the rate cuts are a precursor to a bear market. Sometimes the Fed's fighting a recession, you get a correction and the market's higher anyway even with the recession.

And then sometimes there is no recession, the Fed is just taking, taking weights down to get back to neutral and not fighting any sort of, which we think is the case now. Cali and Matt broke down these cycles and we've had 18 weight hiking cycles since 1960. Seven of those 18 were celebratory rate cuts where they're just lowering policy, not because they're terrified of recession. It's just, all right. If that's what we're experiencing right now, it's a much different stock market picture. Much different.

It's an average drawdown of 4% versus 16%. So we're showing you the average of 11 here, just for argument's sake. Average max drawdown. Average max drawdown. 11 is in line. This is 12 months later. Any rolling 12-month period over the same time frame was minus 9%. So like if that's the worst that we're talking about, like, you know, average, not so terrible. What do you think?

Well, so I think, yes, you know, benign rate cut cycles are much better than when they have to, you know, when they can versus when they have to. The key is, is when you look at going into a rate hiking cycle, what you typically see is you can see interest rates declining, you see gas or oil prices declining, and you see the dollar. We might even see negative jobs. Right. So you tend to see the same things, but then you, so you never know how

that's going to keep going, going forward. So, I mean, at this stage, it looks as though things, it's going to be one of the more of those soft landing type environments where they're cutting because they can and not because they have to. And so I think that's why you're seeing the market right in your all time highs. ZS&P is up 18% year to day. I think we're already beyond like almost any strategist year end price target. Totally. And you know, one thing that's really interesting when you look out and think about Fed cuts heading into this post-Labor Day

stretch until the end of 2024 is that the market, the bond market, the derivatives market, is not pricing in a return to zero interest rates. People are expecting a Fed funds rate of around 3% at the end of 2025. That's so far from the years of rock bottom interest rates that we had before the pandemic. So we really priced in a new normal here.

So this is why I think money market deposits are going to be stickier than a lot of people are predicting. Have you done any stories, you've spoken to any people, what their plans are for reallocating their cash as rates come down? It's so interesting. What we've seen is money market funds have attracted new money this year. And I think that's so the opposite of what...

With people knowing that the rate is going lower. Right. Yeah. Right. People are still piling into cash. It's been really fascinating to see. And, you know, people were talking about all this cash on the sidelines that was going to go into stocks. We didn't need it.

Turns out. We didn't need it. You've been writing about ETFs this year. And you guys do a ton of stuff on ETFs, of course. I thought this was interesting. The average fee of an exchange traded fund launched this year is 61 basis points, one of the highest averages in data going back to 2010.

This is a Bloomberg intelligence story. So we've had almost 400 ETFs launched so far this year. Two thirds have a fee of higher than 50 basis points. Read about your interest quote. This is a good one. All right. This is Eric. Ironically, the more popular passive gets, the crazier and more expensive new products

will become. Because the rest of the portfolio is 10 basis points, people don't get really that bothered about paying up for something that's 1%. So I think that's true. I think financial advisors who are the driving force behind ETF use, they look at it as an overall expense budget, the whole portfolio. So yes, on a product by product basis, it's important, but they will put a 75 basis point fund in if it does something specific. And they can do that because the rest of the portfolio is core and it's two basis points.

And who gives a shit? So you have a blended average expense ratio. So to Eric's point, that's how you can have hundreds of new ETFs launch in the quote age of low cost passive that are anything but. So I thought that was a really interesting take. Yeah, he's absolutely right. So they have a great chart showing the average asset weighted fee on all US ETFs is going down to the right, right?

We know that's happening as money piles into index products. But the average new ETF fee, it's something different. And people don't give a shit. If it's 4% of my portfolio, I don't care what it costs. If I'm having fun, if I think I can make's 4% of my portfolio I don't care what it costs if I'm having fun if I think I can make a shitload of money I don't care what it costs so a great example of this that Eric tweeted about is MSTX it's the 1.75 X 1.75 times Microstrategy ETF which is effectively like leverage Bitcoin exposure. It's a hundred twenty nine basis points is 1.29 percent nobody cares It launched on August 14th and it's got,

I'm looking at wide charges, it's got $148 million in it right now. And you know what's even crazier about that? That's more assets than half of all ETFs listed on US exchanges. Is that right? Wild, and two weeks old. Yeah, so I mean, you have to ask yourself,

with ETFs. Wait, you don't care about, so you don't care about the 1.29%? You're trading it. Because you're not going to own it long enough to get charged. And the stock micro strategy moves 10% a day. I think they could charge 400 basis points. People wouldn't care. I mean, you have to ask yourself, I mean, ETFs are, don't get me wrong, they're a great

tool, but Wall Street takes all these good ideas and ruins them. How can we make this a bad idea? Like you look at, you look at credit default swaps. I mean, remember those? I mean, those were for insurance companies or corporate companies to hedge certain exposures, then options trading futures. Zero date options, you were just talking about those before, but like so they are, they're just,

they become gambling and such. And then you see these ETFs, like I was saying, half of all, there's more ETFs on the market now than there are individual equities. So like, it's just, it's too much of, there's such thing as too much of a good thing, and these leveraged ETFs, these, you know, all these crazy strategies, like you were saying, Mike,

like, yeah, sure, maybe you can make a ton of money on it, but most of them, besides ARK, Oh, they're money incinerators. for about two years, yeah, they're money inciner make a ton of money on it but most of them besides ARK for about two years. These leveraged ETFs. This is what Bogo was afraid of. Gunjan you've been writing about this. I want to put your chart up. This is the assets in leveraged and inverse ETFs.

I don't know when you did this story but to me, this was in July, this is one of the biggest stories of the year. The traders piling into inverse and turbocharged ETFs. What are you seeing out there? It's so crazy. It's a hundred billion plus this year? Yes. Assets in these leveraged and inverse exchange traded funds hit more than a hundred ten billion

this year. That's on track for an all time high in data going back to 2008. And people are eating these up. People are eating up these super risky ETFs. They want the inverse Tesla products, the inverse Bitcoin products, the NASDAQ products out there. I was at a wedding party recently. This really smart guy works in crypto,

is an engineer, says to me, I have a pretty conservative portfolio. It's only in Bitcoin, no meme coins. So only blue chip crypto. Exactly, blue chip crypto, index funds, and levered funds on the S&P 500. And he considered this a conservative portfolio. So people's views on risk have changed,

and that's what this chart represents. That sounds generational to me though. It is. I try to keep my habit to heroin. I was going to say that's not a 45-year-old. That's a 31-year-old. I'm surprised how many 45-year-olds I talk to as well who are buying SQQQ, TQQQ. Those are the leverage products.

But they're buying it. They're holding them. Are they holding it? Yes. Some of them are holding. Some of them are trading them in and out, and you're not supposed to hold a lot of these products. I credit to these companies, listen, they are very explicit.

They shout from the rooftops, these are trading products. People seem to not care. Oh, they're not obscuring it. They're shouting it from the rafters. It's a selling point. Are you a trader? This is for traders.

But I remember early on in my career that was not explicit. And if you were recommending these as an advisor, you had to get a special letter signed by a client. I acknowledge that the leverage means this could experience negative compounding. I acknowledge that these are not meant for long-term investing. You would have to get somebody to sign off on that. And some firms just ban them outright. Do you remember FAS? It was the triple leveraged inverse financials

And FAS was the other one Yeah, one I forget which was FAS was the bear. That was down in 2008 Wow Yeah, because of that negative compounding right that what kills you on these things is the churn It's not the up and down. It's those periods of time where they do nothing and every day it's eroding the, I guess the NAV. Well when it's plus 10 minus 10 plus, those are huge, you bleed a ton. Because the volatility is like a tax on those products. Do you think, is your sense that most of the people using these things understand what

we're describing? Or some of the people, Wow. A lot of people lying to them. It's a mixed bag. I don't think people. I don't think people are being lied to. I still don't think a lot of people understand the risks. You know, I hear about some people holding on waiting for that giant one day 10 to 15 percent pop. And, you know, these these products, it's like driving down the highway in a Ferrari

instead of a minivan. Some people want that level of risk. They want that, you know, that adrenaline rush from trading these. But it's really part of a rising, it's part of rising complexity and risks in this whole ecosystem. One thing that's clear is that this is self-directed activity.

The $110 billion in leveraged and inverse ETFs, I would bet is's like 90% self-directed retail or hedge funds. There are no financial intermediaries like Michael and I or Paul or really anyone with a license actively allocating to these assets for their wealth management clients. No chance. He's right about that.

I think there's more hedge funds than you'd think. Hedge funds. So much money. One thing that I was right about was we were debating and during the mean stock meeting, like what happens when there's a bear market and these people are going to go away forever? Wrong.

You don't get unaddicted to gambling. So we had the- They found a new game. We had the gigantic bear market in 2022 and all these tech stocks, they did something else. But the options trading, all these, like it never went away really. Right. And those leverage ETFs that we were just showing, it was 50 billion, I think in 2020. When people were saying that was a crazy

time. It's double that. Yeah. Okay. So it pulled back for a minute. But if the long stop work and then they'll inverse, they'll go short. It's only been growing. Go ahead. No, no, I was just saying it's only been growing. No, it's just the individual investors recently made up around 20 21% of all US options activity. That's one of the highest levels ever. So these people are sticking around. I tried options trading for the first time this year. I love that story. What responsibility, if any, do the brokerage platforms have for cautioning people away from, for example, being heavily concentrated in inverse or leverage ETFs or doing weekly options trades that settle today or this week? Does the platform have any responsibility at all?

Other than- Does 7-Eleven say you can't buy 12 six packs or 6 12 packs? No, but so is financial services akin to convenience stores? Yeah. It is in your arms? Or you could damage yourself by being irresponsible. My opinion is that people are going to do what they want to do and they'll find an outlet, but if you educate them,

it might change what they want to do. And then some people outlet. But if you educate them, it might change what they want to do. And then some people are going to do whatever. I think people are smart. After banging their head against the wall a few times, they're like, oh, I didn't know that, but now I know. And they do it anyway, or they don't. And you lose money a couple of times,

most people are going to get the lesson and learn their lesson the hard way, but experience is the best teacher. The lesson is they didn't go big enough. If they just listen to their gut. On some of those exchanges, I think you actually have to check a box on some of them. It's called the DJ's. Check a box, that'll do it.

Yes, I acknowledge this is degenerate behavior. We're all adults here, but we are also surrounded by adults with the brains of children. And, you know, unfortunately unfortunately some people are going to experience a consequence from this kind of activity that's going to make it so the rest of us have to pay their health care forever and the rest of us have to support them because they blow up their finances like this is also part of that reality we may not feel it day to day but like long term it's not great to have a populace

that's so obsessed with gambling that they never learn how to invest the right way. Agreed, but like you said, people are gonna find an avenue to do that, whether it's on Schwab or somewhere else. Yeah, they'll do it on prize picks, they'll do it on FanDuel. But an interesting counterweight

is that people are still piling their money into, shoving their money into 401ks, and index funds are still dominating flows. So this is a sideshow, it's a big sideshow, but it's a sideshow nonetheless. Gunjan, are you starting to hear from readers about the election and how that might impact their portfolio? It's so interesting.

When I talk to investors, when I talk to financial advisors, they say the election is top of mind for investors. It's the number one concern that financial advisors. Do you think we're hearing that? Not yet, I don't think. I mean, we think we try to do a pretty good job educating our clients that this is not. Are they afraid to ask us about the election? This is not.

We've beaten them up with so many stats. But go ahead. No, I think it does come up among investors. And you know, my colleague, Greg Ip had a really good piece recently where he mentioned that regardless of which economic party you look at, both of them seem to not really care about economic principles right now, right? When you think of tariffs, you think of price controls on both sides. These are not principles that economists usually support.

Maybe that's part of why people are getting nervous about this. The good news is that I don't think either side intends to do any of the things they're saying. Like I'm trying to believe that Kamala Harris does not in fact want to slap 45% capital gains taxes on the investor class. So I know there are some people saying, oh no, she only means it for the top whatever percent. And it's like, all right, today. You know, what is it a month from now? So I'm trying to believe that's not true.

I'm also trying to believe Trump doesn't want to go back to tariff land. So whoever ends up winning. But Paul, you're making a different point here. You have a chart. Don't get political. Send this to Barry Redholtz. Tell us what's in the chart. Yeah.

So, it just shows if you took $1,000 and invested it in 1953, right? And so, you only invested it when a Republican was in office. So, JFK gets elected. Sell everything. Obama's elected. Sell everything. So, you're in cash? is that, 61,000 today? Oh, so you, wait a minute. So, you have that backwards. No, he doesn't. No, no, no. So, the blue line is investing only when a Democrat is president.

So, that's on the left there, right? Oh, yeah. So, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have, you would have. So you have that backwards. No, he doesn't. No, no, no. So the blue line is investing only when a Democrat is president. So that's on the left there, right? People must have saw this and wanted to kill you, but then your conclusion is even better.

So yeah, the conclusion is don't listen to Sean Hannity. Don't listen to Lawrence McDonald on either of those networks because if you just had bought in 1953 and held the whole time and said, who cares about the election? Maybe that's why your clients are smart. They're smart. They're not asking you. You'd have over a million dollars.

A thousand dollars would have become 1.69 million. If you reinvested dividends since 1953 and you did not jump in or out for either a Democrat or a Republican administration. Exactly. Everybody, this is like one of the best, this is one of the best charts I've ever seen. No, it's really amazing. Because it's right in front of your face. And how many people have you talked to, either side of the political aisle?

You know, when Obama was elected, I had Republican friends sell everything. Chuck, this can't be right. When Trump was elected, you know, it was the same thing. And so it's funny because you see that, you know, Democrats have, you'd have more money, but Democrats have also been president longer. So that's part of the reason. If you actually look at the annualized returns of... Yeah, I was going to say, I want to see this adjusted for years.

Identical, right? So 6.6%. Identical. Hey, I come from a place where somebody will buy a $2 million boat and put a f*** Brandon flag on the back of the boat. So I tend not to listen to anyone's opinions, especially when they start talking about the stock market. There are obviously big policy differences between both parties

now and always, but this is a really important point. You're going to be happy, you're going to be not happy. It's going to come, it's going to go. This side, it looks invincible, then it shifts all the way back. The pendulum swings to the other side. But that's not what the stock market is about. The stock market is not here to discount how great a president's opinion is about what

to do with the economy. The stock market is about the, I don't know, five million executives and employees of these public companies that really have a say. Going to work every day and trying to maximize profits. If Kamala wins, I'm taking my entire portfolio to zero days to expiration. All of it. Can you live stream this? He's going double long and then double in gross.

And then you look at like just, you look at sectors. So you know, when Trump was drill baby drill, the most friendly president to the energy sector, worst performing sector during Trump's administration, energy. Biden, best performing sector under his administration, energy. If you look at Obama and Trump and you look at sector performance, two presidents, nothing similar about these guys at all. The best performing sectors, three best performing sectors under Obama were the three best performing sectors under Trump.

No difference. And the worst performing sector, energy, was the worst performing sector under each of those two presidents. Did Apple go up? Yes, it did. Pretty sure Apple went up. Apple went up through it all. Let's do this next one,

Republicans or Democrats, does it matter? So we could just go through this quickly. Yeah, so this is the point here, you look at the, on the right hand column and you look at the annualized returns under a Republican administration or a Democratic administration, 6.6% for both of them. Period.

Period, end of story. Mic drop. Get over it. Period. End of story. Mic drop. Get over it. Next one, Time Heals. Let's get this one up. Yeah, so this is an amazing chart. So everybody always talks about, do I want to buy with the market at highs?

Like what happens if the market crashes? Let me pause you. This is the number one thing that we hear and have heard when people come to us and it's like they have whatever portfolio they have or they have a lot of cash or they just sold the business and it's not psych. All right. I want to work with you guys. I like the financial plan. I agree with everything that you're saying about how to invest it. The tax piece this that the other shouldn't we wait for the pullback? Like, why would we buy all-time highs?

But we have been telling people for 15 years, it's not the all-time highs, the all-time high to date. Right. Okay, go. So, this is if you had bought the S&P 500 the day before the 87 crash, the day before the dot com peak, the day before the peak crash, the day before the dot com peak, the day before the peak of the financial crisis, pre-financial crisis, or the day before the peak COVID. So those green lines are the annualized return of the S&P 500 at the four worst times to

buy over the last 40 to 50 years. And those are the worst nightmare that you take a $3 million lump sum that somebody got from selling a property, you put it in a portfolio bonds and stocks, and the next day they close the schools for COVID. Like that is the most terrifying scenario in the investors mind. Right. And what happened time heals. And so dot before the dot com bust 7.2%. Every one of these periods, stocks outperformed bonds going forward. So in the market, like you were saying, the market is in a bull market 80% of the time

throughout history. So to try and wait for that pullback, you're really looking, the odds are against you that you're going to time it correctly. But I just think, obviously, the few who knows what the future will be, you could buy today, if you bought 19, March 2000, you were, you know, feeling pretty lousy for a while.

But if you're a person in your twenties, your thirties, or you're just, you know, even, you know- You felt like the dumbest person on earth. If you bought March of 2000, you felt like, oh my God, I'm never doing this again. Yeah, and there were a lot of people who- Six months later, you're suicidal. Right, and then they probably sold, which was back in October 2002.

But the key is just to stick with it and have a steady approach to things because the market has proved itself to be the greatest wealth generator in history. And that may not be the case in the future, but for hundreds of years it's been the case. If the market falls 10%, you just lever long and you get back to even, am I right? You buy the triple level. There's one last thing I want to do today. Tell me if you guys believe this.

John Foley, the co-founder of Palaton, revealed this week that he lost all his money after leaving the exercise equipment company in 2022. He started the company in 2012 and he exited in 2022. He had quite a moment of time to be running Peloton. But he told the New York Post that he basically had to sell all his... He's 53 years old and he had to sell all his assets. Like he's saying he's lost everything.

Does that seem likely? I have to think he has some money somewhere. There's no way. There's no way. Like there's no way, right? Here, at its apex during pandemic lockdown, Peloton was valued at, tell me if you remember this. 40?

$50 billion. Oh my God. Hobbled by overproduction, recalls bad press. Do you remember the Sex and the City spinoff? What was the name of it? And Just Like That. And Just Like That. Episode 1, Season 1. Big, the lead male character on the show dies on a peloton. So that's not great. I remember that. I remember after that episode and the stock actually tanked because of that It literally did that was the that was the plot point that opened up the the show is big killed over on a pellet

All right The stock had a huge week this week, but here while Foley spends his summer weekends in the Hamptons He has downsized twice selling a 55 million dollar East Hampton waterfront home on Further Lane For people that don't know further lane is probably the most expensive Real estate on planet Earth. I would I would guess like for per square foot. Okay I'm working hard so that I can try to make money again because I don't have much left. I'm hungry and I'm humble And I don't blame him for any of this stuff. Does he want to be an advisor? Is it likely that he lost all his money? Well, he's still weak ending in Hamptons, it's said, right?

He might not be on further lane, maybe he's on Egypt. I don't know. I thought it was interesting how he said, my wife's super supportive, my kids are probably better for it. I thought that was the best line of the whole story there. It's so important on so many levels. You got to keep your kids grounded, but also you can make all the money in the world in

the stock market and you can do all that thing, all that stuff. But you come home and your family hates you. You're screwed. He said Peloton shares went from 170 to $2. With that type of Delta, I don't trust the public markets to get the pricing right. Peloton is a 40 or $50 company from my perspective today. The stock's $4.50 right now. Obviously, it's a lot of shares.

If he's right, this is a 10X, and he doesn't need to do anything other than hold the stock and he'll be fine. That seems a little bit far-fetched. Anyway, I bring this up because I sort of feel bad for him, but I also sort of feel like he's not out of money. If he is, then he needs a financial advisor. Because this thing was worth $50 billion.

Is this a sales pitch? I'm just saying. I'm just saying, anyway, he has a new startup. That's why he's doing press. Shout out to John Foley. Sorry, dude. So the market. Sorry, thanks to the market.

I really did admire how open he was about that. Yeah, no, listen, enough respect. Think about how many people have never even gotten to where he is now, let alone where he was at his peak. I don't think he was doing anything egregious by being the CEO. The company just had trouble. None of it was, I don't think it's his fault that COVID happened and people were exercising at home.

I mean, the company probably made, had some... So the pandemic pulled forward a hundred years worth of demand into three months and they couldn't make the equipment fast enough. And then by the time they could, they had too much capacity. Nobody wanted them anymore. That's it. That's the whole story. And I don't think that's his fault.

That's just, that's what it was. So all right. You guys have fun on the show today? Oh Great. Thanks for having me on you got any fantasy football picks, you know I was just thinking my draft is coming up next week. That's tonight Wealth manager, okay. Who do you like? We have $300 worth of Shake Shack being flown in whoo, and we got ten people here ready to draft So I like it. My son will be running my draft

because I'm not good at that stuff. So. I think Daniel Jones is a real, you know. He's under the radar. He's a cumber. I like it. BSNP closed exactly flat today. Seriously?

With Nvidia down 6.5%. Dude, I feel like that's a huge victory. That's poetic. Wow. All right, let's do favorites and we'll let you guys out of here. Gungeon, go first. What do you got? Wait, wait, wait, wait, wait. Oh, we have a little something I'm so sorry. We have a little something for the birthday boy. Look at this

Duncan is Getting closer and closer to 40 with each passing day. What is the what is What is the vegan happy birthday song? I don't know. How does it go? So Duncan, we got you. Rob got you. Thank you, Rob. A vegan, gluten-free, dairy-free, and kosher. This cake is beautiful looking. And it's about 80% seaweed.

That sounds great. Yeah, I know. Thanks, Rob. Happy birthday, Duncan. Happy birthday, dude. Thank you. I'm just 37 for the record. Oh, you're 37? And by the way, Duncan's fifth anniversary. Fifth anniversary. Wow. Look at this. Duncan's fifth anniversary at the Compound was on his birthday this week. Five years. So, dude, thank you for, on behalf of all the fans,

the listeners, the viewers, thank you so much for everything that you do. Happy birthday, the compound nation loves you. Thank you. Thanks. Happy birthday. Happy birthday. Happy birthday.

Did anybody, did anybody watch, it might be the number one movie on Netflix, it was number two the last time I looked. Incoming. No, what is that? It was hilarious. It's about a bunch of high school kids. They go to a party.

We haven't seen one of those movies in a while. It's been a minute. Bobby Cannavale makes an appearance as like the teacher that parties with the kids. And I laughed out loud a few times, and Robert goes, what are you laughing at? It's so loud. Is it a comedy?

It's comedy. It's comedy. No, no, no, it's not a horror movie. It was very funny. How do you recommend it? It's allowed. Is it a comedy? It's comedy. It's comedy. No, no, no. It's not a horror movie. It was very funny. How do you recommend it? Hour 30?

It was great. Very fun. Check it out. Incoming. What do you got for us? So I finally read this terrific feature by the Washington Post on OnlyFans and like the economic engine that these sex content influencers have become. Have you seen Paul's OnlyFans while we're on the subject?

Can I plug it on the site? You can plug it on the site. We're gonna link to it. Go on. I have not, but it got into one of the influencers and how she's really built an empire. Like she has an army of people working for her, doing chats, helping with production. I forget her name, to be honest. I'm a married man. I don't even know what OnlyFans is. Check it out. No, there's real money, like obviously there is. The question for me has always been, like, there's no shortage of supply.

Like, how do you stop everyone from having an OnlyFans and then at a certain point, like, how does anyone make money? So I think in the influencer business, and this is what the piece got into on only fans It's really like a top winner takes all environment where like the the most popular influencers Make everything else. Yeah, they're the mag seven the mag sevens of only fans are raking in all the money, right? So like everything always organizes itself this way even in a thing where there's no barrier to entry People will find ways to stand above Sometimes that means they just got there early, and that's a big phenomenon with social media.

So I got over a million Twitter followers. If I had started five years later than I did, there's no chance. Throw me a retweet later. I was, but I don't even tweet anymore. But like I was there in 09, nobody else was, so I got to like a critical mass before anyone came and then all of a sudden I'm in the algorithm suggestion engine like follow Josh, follow

Josh, follow Josh. Like full disclosure, like that's how it works. And I would imagine something like an OnlyFans where there's no barrier to entry, anybody can start, being there early must be important and And then making it your full-time job is probably important. And then I think some of these people like cultivate their fan base. Are they going to be the public company? Like what's their revenues like? It'll be fun to see, right?

I'm sure like their valuation must be astronomical. The comp to them is Patreon? Yeah, Patreon was one of them. I mean, you say who makes money. It's the OnlyFans as a Patreon? Yeah, Patreon was one of them. You say who makes money. It's the OnlyFans and the Patreon. Do you remember 10 years ago you and me tried a thing, we tried to do Twitter subscriptions. And now Twitter is doing them.

Can you imagine Twitter was smart enough to have done this? You would sit there and be like why isn't Twitter doing this? It was just so... It was such a poorly run company. It's crazy, right? Maybe the worst run company in the history

of like Silicon Valley. I mean, the potential that they didn't live up to is just staggering. Zuckerberg called them a clown car, right? And he was right. What's that? Didn't Zuckerberg call them a clown car? Do you remember this?

Probably, yeah. He said it was a clown car that crashed into a Gulch. Is that after he tried to fight Zuckerberg? No, Mara said this. Mara Iman bought it. He was right. He was right. All right, so it's called Inside an OnlyFans Empire. It's on Washington Post. Yes. All right, I'm all in. I want to read that. Paul, what do you have for us? This is nothing nearly as exciting as the first two stories, but it's a great, it's from Lizanne Saunders. It has something for everyone for new investors.

It has, it reinforces a point that the market isn't necessarily just about profits, sales, revenues. That's a big part, but it's psychology. Who wrote this? This is Lizanne Saunders wrote it. This is an article on Schwab.com. Yes. So anybody can read it?

Anybody can read it. Oh, that sounds great. It's got a great number of books to read, like if you're a new investor. But also for professionals, it talks about how, you know, just she talks about the first time she was on Wall Street Week with Louis Rukeyser. And he said, are your parents in the industry?

She said no. And then he said to her, you know, when you come out and talk, make sure that they understand what you're saying about. And so much on Wall Street, we get caught up in this jargon and this BS, and people can't even explain what they're trying to sell. And if you can't explain it, it's probably not worth the time. So I think as if you're a strategist and what we try and do in our work, we try and

keep things as clear as possible. So the most novice reader can understand it or a professional can get some use out of it. It's interesting, like Lizanne represents one of the largest institutions in America, but she goes out of her way to make sure that when she's saying something, the majority of people listening can process it and possibly put it to use.

There's a tendency for people, especially if they cater to institutions, to want to go the other way and to speak in such a sophisticated way that it's impressing someone. I like her way better. Well, also, you, Justin, and George do a great job of doing the same thing. So kudos to you. Thank you very much.

Thank you. Absolutely. I have two. I went to a movie theater last night and saw Blink twice. How was it? I loved it. I really did. I really did. I saw two movies in the last week.

Did you see Strange Darling? No. I saw the Blake Lively movie. Oh! Didn't like. Who'd you go with? Sprinkles. She liked it. It's a child... It's a spousal abuse thing. I don't like stuff where it's like that.

I like it. Anyway. What? You saw the Blink? You like spousal abuse? No, I got the movie. My wife and I enjoyed it. I don't like stuff where it's like that. Anyway. What, you sort of like? I'm not into spousal abuse. No, I like the movie. My wife and I enjoy it. You know what? I don't like things where like little kids get hurt

or like men are hitting women. So, but. Fair enough. Unless it's like in a campy horror movie way. Are you like judging me? Yeah. What's your OnlyFans page? You want to see that one?

Here's how hypocritical I am. So, Bling Twice is like literally the worst, most abusive thing, men versus women. It's just horrifying, but it's Channing Tatum, so you're kind of okay with it. No, I'm kidding. It's a horror movie. It's explicitly a horror movie. And you know, it's, I don't want to spoil it. It's a lot of fun and the casting was over the top stunt casting.

Haley Joel Osment from The Sixth Sense. All grown up. Wow. Adorable still. Christian Slater randomly pops up in a role. It's like that. Anyway, I found out after Lenny Kravitz's daughter, Zoe Kravitz, directed it. She's not in it. This is her directorial debut She is just a mega talent because she can act

I'm assuming there's music in somewhere, right? All right, so that was great. Highly recommend blink twice I'm glad I saw it in the theater. It was fun. I Wanted to hate Post Malone's country album. John's eyes are gonna roll into the back of his head Do you list any of it? You won't do that to yourself. Duncan, are we in on Post Malone or we're out? I barely know who he is. All right, fair enough.

He's the guy with the face tattoos. Yeah, yeah, I recognize him. Anyway, I wanted to hate it. It's like good. It's like he has every major country star on the record. It's like 30 songs and he like really, I feel like it's an art project. It's not a commercial. You know, it's not just like oh let's sell a million. Dolly Parton's on it. Blake Shelton's on it.

Chris Stapelton's on it. Luke Combs is on it twice. Morgan Wallen's on it. It's like literally, it's literally the biggest stars on earth and post. So if you like post, you'll appreciate it. So it's called F1 trillion. All literally, it's literally the biggest stars on earth and post. So if you like posts, you'll appreciate it. So it's called F1 trillion. All right. That's it from us this week. Happy birthday to Duncan. Happy fifth anniversary.

Guys, I want to tell the audience where they could follow your stuff. Gungeon, of course, you're at the Wall Street Journal. What's your title? You're the lead markets writer? Yep. So when you guys do the market live blog, you're kind of overseeing that. Yep. Okay, so that's a lot of work and that's every day.

It's fun. Yeah, I get to write a lot about markets, do features. It's been an awesome gig. Okay, and are you putting money to work now? All zero DTEs. No, I'm just kidding. And what's your Twitter handle? At Gunjun, G-U-N-J-A-N-J-S.

Awesome, thank you so much for coming. Thank you for having me. You're now a two-time champion. I love it. All right. And Paul Hickey of Bespoke Invest. Where do people follow Bespoke and where do people follow you?

So Bespoke, it's bespokenvest.com and it's bespokenvest at Twitter. So we post on those pretty frequently, and so that's pretty much it. You guys are the OGs. We're all right along with you. I'm sure our kid Matt is nipping at your heels, but you guys are still the OGs.

Much respect. We're watching. Bespoke is amazing. We're looking over. You guys do incredible work. We really appreciate it. We learn so much every time you post something. So thank you.

Thank you. Thank you. Guys, thank you so much. Great job post something. So thank you. Thank you. Thank you. Guys, thank you so much. Great job this week. Duncan, happy fifth anniversary at the firm. Happy birthday. Rob, Nicole, John, Sean, Char-Kid, Matt, Graham, Daniel. Great job this week, everybody.

We'll talk to you soon. Thanks again. Thank you guys. Thank you. Do you want to do it one more time? Just to make sure we got it. We're good? We're good? You like it? Thanks again.