Josh Brown (3:26)

Less than 24 hours ago, President Donald Trump issued his long awaited executive order on crypto and digital assets entitled Strengthening American Leadership in Digital Financial Technology. My guest today is Franklin Bee, who is a partner at Pantera Capital in the San Francisco bay area with 10 years of experience building and investing in cryptocurrency. Graduated from the Wharton School with a BS in economics. Pantera is a pioneering investment firm exclusively focused on blockchain technology and digital assets. You guys are, I think 5.4 billion in assets was the last number I saw. Is that low?

Franklin B. (4:06)

It changes by the day, but that's right where we are right now.

Josh Brown (4:11)

Okay. You guys have a really long history in terms of, I mean, it's crypto is maybe 15, and you guys are a little bit over 10. But I know you've made hundreds of early stage investments in different crypto companies and tokens. I also know you guys launched the first ever blockchain dedicated fund in 2013 when Bitcoin was $65 per coin. So I guess what I want to start off by asking you is, and I know you guys are big into Solana and we'll talk about all that. How does it feel to have the White House, the sec, the cftc, Homeland Security, the highest levels of government, all on the crypto industry side for the first time in a decade and a half. What is that like for you guys right now?

Franklin B. (5:01)

It feels really surreal. You know, I think we've been waiting for this for years. In some ways, it felt like we were in this twilight zone for blockchain and crypto technology where there was just this perception that it was only being used for criminal purposes and that there was no value to the technology. When I first came into the space, it was through JPMorgan, which has been very vocal about blockchain and not bitcoin. And I actually got to start the blockchain team there back in 2015. So I came to it from that perspective, and now it feels a little bit like redemption. One of the things that I was doing for so many years was trying to convince people in the bank that this technology was going to help transform capital markets and payments and so many parts of the Internet that just aren't open and aren't efficient today, now they're talking about it. I mean, it started with the pandemic.

Josh Brown (5:58)

Yeah, to J.P. morgan's credit. So you're there, your job is, your role is to help build out blockchain technology and I guess assess the landscape and bring intelligence in about what's happening. The boss of the whole firm, Jamie Dimon, every chance he gets, is referring to crypto as though it's some sort of a disease. But I guess like to the bank's credit, there were enough people that were open minded internally to keep researching, keep considering the possibility that the boss is wrong.

Franklin B. (6:31)

You know, it's, it's sort of intentional schizophrenia is how I think about it. When you've got an organization that big, you've got to have people who think differently. And you know, I don't know if we ever really made progress in convincing Jamie that Bitcoin wasn't a scam. I think that's still in progress, but we, we made it up to his direct reports at least, and I think eventually we'll get there.

Josh Brown (6:55)

Yeah, I think you will too. We talk to many people within JP Morgan on the wealth side, we talk to people on the research side. I think it's probably as close as it gets at this point to just, I don't want to use the term capitulation. I would just say like full on acceptance that, hey, this is not going away. But let's talk about what President Trump said. So the executive order, basically this is, this is how they open it. The digital asset industry plays a crucial role in innovation and economic development in the United States as well as our nation's international leadership. It is therefore the policy of my administration to support the responsible growth and use of digital assets, blockchain technology and related technologies across all sectors of the economy. And then there are several items in here protecting and promoting the ability of citizens and private sector entities to access blockchains, to deploy software to mine providing regulatory clarity, fair and open access to banking services for people in crypto. So it goes on and on and on. And the only thing it really prohibits is the issuance of a central bank digital currency, which I thought was interesting, but most of this is exactly what was promised. And I think sometime around the summer of 24. Like, there was this daunting realization that, oh, wait a minute, conservatism and crypto are now completely aligned, and that's what this election is going to be about for people in the technology industry. And it worked. This is like day two. You guys got your eo. Yeah.

Franklin B. (8:41)

It's amazing to see going into November, there was a ton of optimism in the blockchain industry, but also sort of a sense of holding our breath. Would all of this sentiment actually convert into real action? And I think with these executive orders and with the new task force, both on the legislative side and at the sec, you're seeing that turn into real action, and that's great to see. The central bank digital currency part, I think, is unique because it shows that we're going to take, hopefully a very similar approach that we have in traditional banking as we will to cryptocurrencies, which is that the commercial sector and the public sector are going to have to work together rather than trusting that the Federal Reserve is going to somehow become a technology company overnight.

Josh Brown (9:28)

Okay, Right. So in traditional finance, the Federal Reserve does not take deposits from consumers, does not act as a bank to Americans. It acts as a bank to the banks. And that's really important because that's exactly what you're talking about, there being this commercial layer in between, rather than the United States government itself being, you know, a bank to its own people. And so you're saying that the prohibition of central bank issued and controlled digital currencies so there won't be a Fed coin, and you're saying that that's an important part of what's in this EO because it puts that discussion to bed and maybe backs off some of the people who are worried about government censorship of the way we spend money or some sort of like a. Some sort of like a social credit system. And it kind of keeps the two things separate enough.

Franklin B. (10:25)

Exactly. Mentioning the social credit system is, I think, a reference to how things work in China, where there is not this separation between politics and money. And I think that's really important to preserve in America, because the right to transact, the right to participate in the economy is essentially a right that we have as citizens. And so I think having a central bank digital currency actually sometime down the road can become something that gets corrupted. Whereas I think today, having banks and having intermediaries that actually serve as that distribution layer can actually be a positive for the economy.

Josh Brown (11:09)

Franklin, based on your experience in the industry and all of the people you've met and all of the People whose ideas you've read, who do you think wrote this executive order, or who do you think contributed meaningfully to the language and the ideas that are in here? Because in addition to what I've quoted, there's this whole section about how it's gonna be implemented and rewriting previous executive orders and rules from 2022, when it was a different administration. And obviously, crypto was in a state of tumult at the time. So, like, all of that is being broomed out the door. And the language here is pretty sophisticated in terms of the way that crypto works. So, like, who would you say is behind these ideas?

Franklin B. (12:00)

I think it's a combination of entrepreneurs who have been in the industry and have been good actors. Right. It's folks like Coinbase, it's the blockchain association, that have been working with legislators over the past few years to say, look, this is the kind of framework that we need. We've been talking to all the companies that are trying to do things the right way. And I think it's also something that David Sachs, who has been appointed as the crypto and AI czar, has been making sure is how we approach this kind of thing is to actually listen to the industry. And when you look at some of the other parts of the executive order around protecting the access to the traditional banking system for digital asset companies, that's something that you'll only hear from founders. Right? I mean, you mentioned we've invested in hundreds of companies across the whole blockchain ecosystem. And we've seen it firsthand, dozens of companies calling us saying our banking accounts have been shut off overnight just because they saw the word blockchain or they saw the word crypto.

Josh Brown (13:03)

And our this is the operation choke point stuff that Marc Andreessen had been tweeting about. And it's amazing, you look at the replies to what he was revealing for the first time in the public eye, and all of a sudden people came out and said, yeah, that happened to me. That happened to us. So people trying to build companies in this space were treated like pariahs by the traditional banking system. I think in part because maybe there was some paranoia in traditional finance about regulators. And then I. But. But part of that is not really paranoia. We watched them execute a couple of banks in 2023 that were doing business with crypto companies. And it almost looked like, this is a warning. This is what happens if you bank these people. So it was like a healthy paranoia. So you think all that stuff is probably done now, hopefully, whether it's a.

Franklin B. (14:00)

Real or perceived paranoia. What it ultimately does, it has a chilling effect on entrepreneurs being willing to build in the space. And that's the biggest thing that I think will change over this coming year, is the actual impact of a lot of the policy will probably need one or two years to take place. But the sentiment that's going to change in the technology sector, where entrepreneurs have held themselves back from building on blockchain because it's just not worth it. Why would I spend the next five to 10 years of my life trying to build what I think is a meaningful product if it's going to get pulled out from under me, or if my bank accounts are just going to get shut down before I can even make this successful?

Josh Brown (14:41)

One of the aspects that I think the regulatory regime under Biden and honestly under Trump won, one of the aspects that they did not like about the crypto ecosystem was just the sheer amount of frauds and scams and people who were bad actors and people who were utilizing the excitement about blockchain and bitcoins to their own nefarious ends. And of course, that continues to this day. And I think the presidential meme coins dollar Trump dollar Melania coming out a day before the inauguration almost sort of like, I don't wanna say justifies some of that regulatory distaste, but I guess it kind of like makes you feel that there is another side to the story and there is a need for there to be real regulations. What do you guys think when you see that stuff? Does it tarnish the industry overall or can people compartmentalize it at this point and say, yeah, of course there are scams. There are penny stock scams too. We don't shut down the stock market over it.

Franklin B. (15:53)

It reminds me of that old Spider man quote, with great power comes great responsibility. And the power of blockchain is that it makes the ability to create new capital markets form sort of new marketplaces where this type of speculation can be almost put on steroids compared to the traditional system. It opens it up to this kind of speculation that runs rampant. And we're not looking for complete deregulation of the industry. We don't think that makes sense for the long term. We really want just sensible regulation where bad actors like FTX and Celsius end up not having free rein, while good actors actually can come in and work with regulators to actually come up with policies that make sense. The fact that that wasn't possible created this huge adverse selection thing where the folks that had the most flexibility and the most sort of area to play in were the bad actors. And hopefully that can change now that we open a path for them to actually work with policymakers.

Josh Brown (17:07)

Yeah. So it looks like we're gonna get some rules within 30 days on the president's desk for him to vet. That's part of what the working group is here to do under Gary Gensler. The SEC basically looked at this stuff and said, we don't need new rules. These are all just securities. That is not going to be the stance of the new administration. So we might have very similar rules to traditional securities markets, or we might have a radical departure. We may also end up in a situation where some of the rules for traditional finance are reconsidered in light of what you're able to do in the crypto world. And that's why I think this is such an important story for investors, whether they're heavily invested in crypto or completely on the other side of the spectrum and have no interest in it. I think this kind of, like, almost overnight revolution that's about to take place is notable and going to have a really big impact going forward for everyone.

Franklin B. (18:07)

And it ultimately just comes down to making sure that America stays competitive. Right. I think the fact is that technology leads the world, and the US has to lead in technology for us to continue being a dominant force. So I agree. I think the. The industry has been asking for new rules and regulation, and someone has to listen to that and say, look, we need to put in the work.

Josh Brown (18:32)

All right, so let's turn to your predictions for 2025. This is a really great piece. This is available@pantera capital.com as part of your ongoing blockchain letter. This is the year ahead in crypto 2025, which you published a couple of days ago. And here's a couple of great quotes that I'll just pull out here, and then I'll have you react to your own writing. You said the best venture investors don't predict the future. They see the present with great clarity. One thing is clear about the year ahead. 2025 will be a turning point for the crypto industry. And you point out, like, imagine the state of the Internet if Jeff Bezos went to jail for selling books online, or Steve Jobs were sanctioned for launching an app store, or Jensen Huang had to build Nvidia offshore because his bank account was being closed. That's the Twilight zone that our industry is emerging from. Okay, so that's over now. And so now the question is, what happens this year as a result of those shackles coming off and there being a framework to actually do legitimate business and build companies and train people and hire. Like what. What should we think? What should we think about in the next few, let's say next few months?

Franklin B. (19:50)

Yeah, it's a great question. You know, being in the industry for so long, we hear the, the critiques coming from folks outside the industry of, yeah, sure, that look, you've been selling us this dream for so long. Where is it? Right? Where is it? I think what I want people to take away is, look, this is the first time that a new technology has been held back so much by regulation. You didn't see this to this extent with E commerce and the Internet and social networks. And so a lot of the entrepreneurial energy has been held back. A lot of products have been held back from actually being embraced by the customers who want it. So I think there's a couple of areas that will really start to take off now, now that the regulatory landscape.

Josh Brown (20:38)

So let me tee you up. You point to a convergence of 3 megatrends to unlock crypto adoption from this year forward. Gateways, developers and applications. So let's start with gateways. This is connecting, you call it the legacy financial system. I'll stick with traditional, but this is connecting banks and brokerage firms with blockchain rails so that it's a little bit more seamless, the back and forth between things in US Dollars, for example, and things in crypto terms, products and services that can move back and forth between the two. I would agree that that should be the priority. Tell me about why gateways are going to be important.

Franklin B. (21:22)

Yeah. When you look at the market cap in crypto today, it's basically at $3 trillion. And it's all crypto native assets. Right. It's Bitcoin, Ethereum, things that are just native to crypto networks. But the real power and the real inflection point comes from the traditional system bringing over 1,000 trillion dollars of financial assets. Right. The net worth, that's held by individuals, corporations, governments. All of those, I think, follow this simple rule in finance, which is that assets want to go wherever they can flow most freely, trade most efficiently, and find their most attractive price. Right. And so when you think about a share of Apple today, it's listed on the New York Stock Exchange, it's held in your brokerage account. There's people in countries outside of the US who love to own Apple. Right. They love to have a piece of ownership in that, but they might not be able to. Right. In the traditional system, you need your local brokerage or local fintech to find the right connections and actually bring that asset over. Right? That's called depository receipts, and that's why you can trade Alibaba on the New York Stock Exchange.

Josh Brown (22:33)

So, so some people would say there's a reason for those gates and that we don't necessarily want all of those gateways open. We don't necessarily want foreign investors to seamlessly be able to invest in U.S. companies and vice versa. We don't necessarily want U.S. investors to have entrepreneurs, you know, to markets all over the world. I guess some of that is like an ideological thing. Like, is this what's best for America? It sounds like from within the blockchain industry, the answer is always going to be a resounding yes. People should be able to move their money where they want. Is that where you guys stand on that? Is that, is that the, the ideological bent of the argument?

Franklin B. (23:17)

I think that's the starting point. You know, I think the, the default assumption is that if we truly own our assets, we should be able to have them available on any exchange. There's no reason why it needs to be just New York or just Hong Kong or London. It should be available anywhere because that's the best way to do price discovery. It's the best way for free market to run. Now, there's always going to be a counter force, right? There's always going to. Going to be other priorities that the US Government needs to go and satisfy, which is protecting our national interests. But I think that comes after, right? That comes when you actually identify the problem and before you freeze out all of the good things that are happening in capital markets or should be happening, right? The markets that should exist but don't. And that's where blockchains are really powerful, is by enabling those markets, okay?

Josh Brown (24:08)

Remittance payments are a really obvious example of where the blockchain is already. The influence of the blockchain is already being felt. You point out, we must scale platforms that can effectively onboard new users and existing assets. Regional on ramps, like Bitso in Latin America are processing over 10% of US to Mexico remittances using blockchain. So that's like Western Union. That's like a moneygram. Somebody is here working, they want to send money home to their family. The fees to utilize traditional finance to move that money are obviously high. The complication is high. Blockchain is an easier way to do remittances. And indeed, you point out, it's like one out of every $10 that's notable. So as that gains acceptance now and less regulatory scrutiny, could that be 50%?

Franklin B. (25:05)

Yeah, it makes a huge difference. That's basically a month's wages for a migrant worker. And so the fact that that's how much gets paid out to Western Union and MoneyGram today is just disproportionate to the value that they're providing. I think Bitso and others in Brazil and Mexico, Argentina, they're providing a really valuable service, which is that payments don't have to be this gate kept service. There's something that you have a right to do. You have a right to send the money that you've been earning where you want to send it. And so sending that cost to as close to zero as possible is really something that will add value to just the economic GDP of the world.

Josh Brown (25:50)

One more example you use in terms of gateways is a company called Ando. I guess the platform that is going to do tokenization work for traditional existing securities like U.S. treasuries, for example, you note that there are $20 trillion in U.S. treasuries currently. They do not trade on the blockchain. They are not digitized, they are not tokenized. But you think that's something that is now going to get underway?

Franklin B. (26:18)

Absolutely. Ondo, I think, is one of the biggest stories to watch this year. They started with US Treasuries tokenizing them and distributing them outside of the US where exactly that kind of market need is present. People want to own some type of yield or some type of wealth preservation asset that is tied to the strength of the US Economy rather than their own local economy. But that's just the start. U.S. treasuries are just the beginning. They're competing already head to head and sometimes doing even better than BlackRock and Franklin Templeton, who are doing the same thing. There's $2 billion of tokenized treasuries already. But it just sets up a blueprint for everything else to come on chain. Right. At the end of the day, this is just a template that you can apply to stocks and bonds and the rest of capital markets. So I think this is just a set of dominoes that's starting to fall.

Josh Brown (27:14)

So a foreign investor who may not have access to the ability to buy U.S. treasuries through a local brokerage firm or bank in their home country can have an account that can have an account that connects with the Ondo platform. They can take their own local currency. They can convert it into digital, a digital ownership stake in U.S. treasuries. They don't own it directly, but they own a coin that is backed by the Treasury.

Franklin B. (27:49)

Exactly. They own a token that's backed by a US treasury and that's custody at a financial institution that.

Josh Brown (27:56)

They get the yield too.

Franklin B. (27:57)

They get the yield as well. Okay, exactly, exactly. All they need is a mobile phone and a wallet to be able to interact with on those platform. But at the same time, it's not just about the individual. Think about the Robin Hood of Indonesia that wants to do something like this for their customers. For them to do that today in the traditional system, they need to go find a partner, they need to go sign a bunch of contracts. It's a six month thing. If everything goes well, this is something they can do overnight. It's connecting to an API and just as easy as doing that. So it's also about helping the local financial systems actually modernize.

Josh Brown (28:40)

Okay, couple of other names that you mentioned here. Tip Link, which is I guess micro payments in crypto denominated terms. Very simple, not dissimilar from Venmo. I'm guessing just if you want to pay your gardener or you want to pay your beautician and they want to take cash. But we're in this cashless ecosystem. This is another way to accomplish that. If you have assets that are digital versus dollars sitting in a Venmo.

Franklin B. (29:13)

Yeah, we've come a long way in onboarding people to crypto, right? Yeah, it should feel like Venmo. And the way Tip Link has really done a good job of this is it feels like just getting a text message that says, hey, grandma, your grandson has sent you $5. Do you want to accept it? And in the background, it's setting up a wallet for her. It's setting up all the ways that she needs to interact with it in a normal way. But it's crypto behind the scenes. And that dollar or that $5 that she's getting is actually much more powerful than the average dollar. Right. It can be used in so many different places and she can take it abroad and actually use it.

Josh Brown (29:52)

Okay, so the gateways are a big megatrend. The next one is developers. This is you. There are about 100,000 developers building on blockchains today. That's higher than I would have guessed. That's half of a single Silicon Valley tech giant. To enable mainstream adoption, we need to increase that by 100 times and onboard 10 million developers. Do we? We need to. What will they all be doing?

Franklin B. (30:20)

Well, they'll be building new products and applications. I mean, this goes back to what has Been holding back tech talent and entrepreneurs coming into the space. Right. 100,000 sounds like a lot, but in the grand scheme of things, if you're really talking about a new technology sector where there's a ton to build and so many different verticals to go after, the fact that there's only one half of a typical technology company is outrageously small. Right. It doesn't make sense that it's been 10 years of blockchains being in full production and that's the talent pool that has been able to come into the space and feel.

Josh Brown (31:01)

Did you have to explain, did you have to explain to your family why you were taking your Wharton degree and deploying it on behalf of blockchain versus going to Apple? Like, did you have, did you have to make that explanation yourself? Did your friends from school have to do that?

Franklin B. (31:20)

Yeah, it's definitely.

Josh Brown (31:22)

It was a stigma. It was either like, this is fake shit anyway, this is like not real money, or these are all criminals and scam. Like, it must have not been easy to explain to everyone in your life.

Franklin B. (31:33)

Yeah. I started this journey back in 2015. Right. Where every time I walked into a conference room in JP Morgan to talk about the technology, I would leave with people kind of laughing.

Josh Brown (31:46)

Oh, it's the crypto guy.

Franklin B. (31:48)

Yeah, exactly. Right. So half of them would say, wow, this guy is going to end up in jail. And the other half would say, wow, this is not serious. We don't need to worry about it. Right. So getting past all of that has definitely been part of that journey. But now I think the sentiment has really changed. And for that new college grad with a computer science degree who's saying, look, where do I go next to build something big? They can feel a lot more comfortable saying they're going to do it with blockchain and crypto.

Josh Brown (32:16)

Yeah, it's a legitimate on ramp now for talent. And that stigma maybe hasn't gone away yet, but the clouds are definitely clearing. You talk about where are these developers going to go? One of the things that you seem to be excited about is multi chain, different blockchains that talk to each other. That being important as this ecosystem develops. Yeah. I guess it should be obvious to people who don't know anything about crypto that if we're laying all these rails, they sort of have to be able to be interoperable.

Franklin B. (32:50)

Yeah. It's something to sort of think about is we've had so many different operating systems, so many different social networks, and in blockchain, we've only had a pretty narrow set of options so as technology.

Josh Brown (33:04)

Like Ethereum, Solana and maybe a couple of other base layer ones, but not, not a situation where everybody who's building something can have their thing, talk to the other person's thing. And that's exactly, kind of what's missing.

Franklin B. (33:21)

Exactly. When you look back at the cycle of technology adoption, that's something that naturally has to occur, right. People are going to come in with new needs, with new requirements, new things they want to do. You know, JP Morgan coming in to tokenize, their, their balance sheet is not going to look the same as what I want to do with my assets in a video game. Right. And so to solve for both of those things is going to look like a different set of technology stacks.

Josh Brown (33:49)

Okay. You talk about zero knowledge technology and no code solutions and things that on the surface they seem daunting. They are in non blockchain technology, so why wouldn't they be daunting in a, in a crypto context? But what do you mean by zero knowledge technology and why is that an area now that you think will see some traction?

Franklin B. (34:13)

Yeah, zero, zero knowledge technology has been, you know, one of the most promising parts of blockchain. It's the idea that you can reveal information without giving away the underlying data. So for example, you know, one of the classic cases is, you know, if you walk into a bar and you get carded, right, they want to know that you're over 21. Well, you know, you hand over your driver's license and suddenly they have your address, your phone number. Well, they have, you know, everything about you. And all they needed to know really was that you're over 21. So they don't need to know my exact age even. So the idea is you can verify that fact without giving away the entire set of information. And so that type of application is super useful for things that require that level of privacy. Great example of this is something that one of our portfolio companies, Rarimo, is building called Freedom Tool, which is a digital voting solution. So obviously that's been a huge topic is the transparency, the validity of elections. How do we actually know that they're happening in a fair way? And they're testing out this technology now in some of the most controversial places in the world. Russia, Iran, Venezuela. And so the idea is people can vote and verify that they're a citizen without giving away their identity.

Josh Brown (35:40)

Oh, that's interesting. Okay, and then let's talk a little bit about no code solutions. I mean, we've seen one of the hottest stocks in the traditional Stock market last year was applovin. And just companies that are enabling people who are building applications, software, products, I guess, to do more with less, to some extent is part of the story. There's. Why do you see this as part of the big trend in blockchains this year?

Franklin B. (36:12)

I think it's one of those things that has to happen for us to get from 100,000 developers to 10 million. Right. Is, you know, the average person building on blockchain 10 years from now, hopefully, is not someone who needs to have a PhD in zero knowledge technology or needs to understand distributed networks. Right. It's someone who you think of as building a storefront on Shopify or building a website on WordPress, making it easier and easier to abstract the underlying complex technology away so that we can really unleash the creativity from folks who aren't as close to the technology's backend. And so this kind of evolution of going from the raw code to low code to no code to now people being able to launch websites just by talking to ChatGPT, that's the same kind of evolution that blockchain's gonna have to go through for us.

Josh Brown (37:09)

So if I have an idea for how blockchain could work, there should be tools available where I can express that idea and turn it into something without having come from mit.

Franklin B. (37:22)

Exactly. And it's just about finding out what the right building blocks are that people want to build with.

Josh Brown (37:27)

Yeah. I actually think the better analog to that comes from social media. Like, none of us are trained photograph. But Instagram built a tool that makes our shit look good, makes it so that we can edit photos as though we studied at film school or photography school. But of course none of us did. So I see that as being an obvious thing. I don't know how many civilians will actually have something relevant that they want to build in blockchain. But for the one out of a thousand who actually do, that could change the world. The way Kevin Systrom changed the world with his idea for Instagram. We don't know how. Could you rule it out? I guess would be the point.

Franklin B. (38:15)

Yeah. Actually a great example that's live still comes from the NFT world, which some of your listeners might have some association with.

Josh Brown (38:25)

Batnik went all in on NFTs right into the top.

Franklin B. (38:29)

Yeah, a lot of people did. And you know, it's just part of that initial sort of exploration and experimentation. But the part that really resonated and I think has. Has the sticking power is the fact that real artists actually embrace this movement and Said, look, this is a way for me to generate new revenue where I don't need to be limited to, you know, an art gallery in SoHo, and I can instead sell to the entire world and still have kind of the rarity and the specialness of my pieces happen through digital technology. That's the kind of thing that we want everyone to have the power to do. Right. Because you can become a creator and an artist from anywhere in the world.

Josh Brown (39:13)

Yeah. And it takes out some layers in between the artist and the artist's fans. And if you want that kind of relationship as an artist, it makes that possible. All right, let's do the last one. Applications is the third megatrend that you see as being key to this year. I'll quote you. By most estimates, the number is around 80 million on chain users. Much of that growth comes from crypto's appeal as Wall Street 2.0. A new place to raise capital, speculate, and send money. Yes, we can all agree the biggest success in crypto so far is getting people to trade crypto. Okay, I could see that being good and bad, but expanding 100x to 8 billion people from 80 million people who are on chain will depend on crypto's shift from Wall street to Main Street. All right, so this is the thing that people like me say, if this technology were truly as important as its believers say it is, why do I not see any examples of it in my real life other than speculation and I guess, store of wealth being, you know, another obvious use, and my wife and her friends are not using it. And until they are, the promise of crypto will never be able to be said to be fully fulfilled. I guess that's my attitude. But tell me, tell me if finally we're at the precipice of some of these things breaking through and becoming mainstream.

Franklin B. (40:46)

Yeah, exactly. Right. We need to break through from crypto just being Wall Street 2.0. Right. Because that's only going to attract people like you and me who are into investing and.

Josh Brown (40:56)

Or as I've said it, nerds and junkie gamblers. It's got. There's got to be, like, normal people that are utilizing this stuff.

Franklin B. (41:05)

Exactly. And you know where. Where I see it happening first is going to be in place in things like gaming, because you talk about your wife having a reason to interact with blockchains. Ultimately, it's the people who are playing Candy Crush. Right. I think of the journey that Facebook went through where their first social gaming hit was an app called FarmVille. And that was really the Thing that led to the huge inflection point and the huge network effects in Facebook's growth. Right before that, it was just photo sharing between college campuses. And, you know, this was what really onboarded the mom and pops.

Josh Brown (41:43)

And it's a great point. Like. Like farmville came along and people started sending it to each other. And it was in app purchases, was the business model. And you had, I guess, mafia wars around the same era and maybe two or three others, I can't remember. But you're right. That was probably the first time that people were like, where are you doing that? And people said, oh, on Facebook. And that was like an onboarding moment for, I guess, I don't know, millions of people.

Franklin B. (42:11)

It was. It was, I think, 80 million people at Farmville's peak, which is today a small fraction of Facebook's user base. But it was really what kicked things off because suddenly these connections between people were not just limited to college campuses. So I think crypto is starting to hit that farmville moment where.

Josh Brown (42:32)

So people using crypto in the context of playing a game.

Franklin B. (42:37)

Exactly. Playing a mobile game. There's a great one out of our portfolio from a company called Infini Gods. You can download it today. It's called King of Destiny. And when you first open it up, it feels just like another great, addictive game. You could play on the bus with a train. But when you get to a certain point, you get this pop up that says, hey, would you like to insert more ethics? Well, that too, if you really love the game. But the magic of it is also that you can sell to other players.

Josh Brown (43:07)

What can you sell?

Franklin B. (43:08)

Well, you can sell the assets that you earn in the game to folks who maybe want to progress through the game faster. So there's this constant sort of arbitrage of people who are going to be big spenders and people who are going to be big earners in the game.

Josh Brown (43:23)

Sounds like real life. Sounds like. Sounds like America. Yeah. How many people do you have playing this game right now?

Franklin B. (43:30)

Well, there's been over 2 million downloads already in just a few months, so they're well on their way. But the magic of it is that what's happening behind the scenes for you to sell to other players is blockchain. You might be selling to someone in South Korea or Brazil, and that's not something that the typical game pre blockchain could do. You know, that's a huge undertaking, but it comes basically in the box, out of the box with blockchain technology.

Josh Brown (44:00)

All right, let me reel off a Couple of these rising trend predictions and then, and then, and then we'll wrap. Just pick one of these that you think is worth getting into for a moment. You say RWAs, also known as real world assets excluding stablecoins will account for 30% of on chain total value. Bitcoin fi you think there's going to be bitcoin native finance protocols that don't require bridging? I sort of believe that could happen just because of how widespread bitcoin ownership is and how comfortable people seem to feel with it. Okay. Fintechs become crypto gateways. So this is WhatsApp and PayPal and Venmo 100% this is happening. The only question is the extent to which it happens. Throw block in there and a bunch of other names. Okay. Unichain becomes the leading L2 by transaction volume. NFT Resurgence but application specific restaking launches which I don't know what that means. And then you've got a bunch of other stuff. Which of those is worth exploring for a non crypto audience?

Franklin B. (45:14)

I'll pick the first one which is real world assets becoming tokenized. I think that's the one that is going to get everybody extremely excited.

Josh Brown (45:21)

And you know, we think real estate, art securities.

Franklin B. (45:27)

I think it's going to exactly that. But I think it's going to start probably with people's stock portfolios. I think the real magic moment that people are going to experience hopefully soon is when they realize that their share of Apple or Tesla is actually worth more after it's tokenized. And that's when I think all the financial institutions and brokerages will wake up and say, oh wait, our customers are asking why their portfolios are not worth as much as they could be.

Josh Brown (45:56)

Because why is it worth more? Why is a share of Apple worth more once it's tokenized?

Franklin B. (46:01)

Because once it's tokenized you go from it being limited to a local market where people have demand to go and buy that asset to now a global market. Right. Blockchain is unlocking the first truly global capital markets. So the price discovery that's still kind of hidden to us is where people without access to the US financial system can actually go and express their demand by being willing to pay a higher price for it.

Josh Brown (46:32)

Foreign investors have no problem buying and selling Apple. Maybe that's not the best example, but there are probably some securities that are more obscure, harder to access, and if they had a bigger pool of potential buyers like de facto they would be more valuable. I just don't know that I would pick the Largest stock in the world that's probably already 30 or 40% owned by foreign institutions as it is. But I certainly can appreciate what you mean by that. So you think that's a 25 story, the tokenization of publicly traded securities?

Franklin B. (47:05)

I think it will be. I mean, just look at the conversations coming out of the World Economic Forum in Davos, right? You've got Larry Fink, CEO of BlackRock, saying he's hoping that the SEC will rapidly approve tokenization of assets, stocks and bonds. You've got the CEO of Bank of America saying he's predicting the same thing. And if it all actually gets the green light, big banks will be extremely active on the transactional side, which to me sounds like they're going to go and buy a crypto business that allow them to hit the ground running.

Josh Brown (47:40)

Yeah, they want to do it. They, they want to do it, but they, they need, they need approval. You know, they're not pioneers. They're not, they're not Pantera. They're something else. They're. They're 200 year old institutions and they need to be told, yes, you can do this. So, all right, so they're getting that. All right, listen, Franklin, this has been incredible. And I want to tell the audience where they could follow you and Pantera and learn more about what you guys are thinking about these markets. So they can go to panteracapital.com and go into the Insights tab and the blockchain letter is there. Your conference calls are there. The blog, any press that you guys do. Where can we follow you personally on social media? Where do we go?

Franklin B. (48:24)

I'm on X and X at Franklin B, which is my first name, last.

Josh Brown (48:30)

Name spelled B I, guys, Franklin B, I, B. That's right.

Franklin B. (48:35)

And I also published my thoughts on a newsletter called Chainbrain, which if folks are interested in following along, they can subscribe.

Josh Brown (48:43)

All right, awesome. Thank you so much for spending this time with us. We really appreciate it. Everybody go out and follow Franklin. Check out Pantera Capital. Can we have you back? As things develop, a lot's gonna happen.

Franklin B. (48:54)

This year, so I'm happy to come back anytime.

Josh Brown (48:55)

All right. All right, we'll hit you later. All right, thanks. Thanks, everybody. Talk to you soon. We're here. Hey, everybody. Wow, the chat is lit tonight. Did you see Michael?

Michael Batnick (49:28)

Yeah, it's been, it's been going on since 11am lighting up.

Josh Brown (49:31)

People are excited. The people love Aoi. I've come to learn, and this is one of the biggest aoa weeks since.

Michael Batnick (49:39)

It's the biggest. It's the biggest.

Josh Brown (49:41)

It'S a big. This is a big one. All right? And we guys, we will not disappoint. We're going to go, we're going to go deep and seek some truth out of this situation. Giancarlo's here. Matthew Stevik, Rob Fitzpatrick, Georgie D. Jerry's here. Magnus, what's up, man?

Michael Batnick (49:59)

Chris, don't forget about, don't forget about 4 5, 4 SS true.

Josh Brown (50:05)

Manny is here. Akbar, Muhammad, Cliff, Mark Pugh. Hi. From the uk. Hello. Who else? Bob Rice. We got some dudes, some ladies too. All right, everybody's here. The chat is lit. Welcome to what are your thoughts? My name is Downtown Josh Brown. With me as always, my co host, Michael Batnik. Michael, say hi.

Michael Batnick (50:29)

Hello. Hello.

Josh Brown (50:30)

All right. And we have a sponsor we want to tell you about before we get directly into the content. Who's sponsoring the show tonight? Mike.

Michael Batnick (50:38)

It's public and public. Tell me more is I will. It's a platform where you can buy, sell or hold. What do you want to buy? You want bonds, you want stocks, you want crypto?

Josh Brown (50:51)

You know, you know what, I'm doing it public right now. I'm dollar cost averaging every month into IBIT and gld, I think. And, and I, and I keep my six month treasuries there as well, which, which we used to refer to as like the, the T bill account. Now they call it the six month treasury account. But like I'm just, I'm just like steadily adding it's connected to my bank account. I don't even look at it. I don't even really care. And it's so easy.

Michael Batnick (51:21)

So very casual investing.

Josh Brown (51:24)

Big public fan. All right, guys, this has been paid for by Public Investing. Full disclosure in podcast description if you want to find out what public can do for you, go to public.com w a y t as in what are your thoughts? And it's all there. I want to announce. Also, we gave away a book last week, a signed book. And the winner is Daniel DeJesus who says he is a superfan and listens to everything. Daniel McColl will be in touch via email and has a signed copy of my new book headed out to you. So thank you so much for watching.

Michael Batnick (52:02)

Sounded like you're about to say Daniel Day Lewis.

Josh Brown (52:06)

Daniel. Daniel Day Lewis was. Is not a super fan that I'm aware of. All right, we're going to talk Deep Seek and the spooking of the Mag 7 and we're going to get into some of the stuff that took place with The AI stocks this week. Is that a doorbell that I hear? Who can. It's Alex Kanchowitz, ladies and gentlemen. Alex, welcome the show.

Alex Cantrowitz (52:30)

Great to be back. Great to see you guys.

Michael Batnick (52:32)

So Alex is in Miami. He thought he would be on vacation this week.

Josh Brown (52:35)

Nope.

Alex Cantrowitz (52:36)

Going to be a working vacation where you do the bare minimum and you hang out on the beach the rest of the week. And that has not proven to the case.

Josh Brown (52:43)

Emphasis on the working part. Yeah, I have mic envy. Look at, look at this gentleman's mic. Michael, you see what's going on?

Michael Batnick (52:51)

Yeah, I like it. Hey, Alex, so what?

Josh Brown (52:53)

One of the things.

Alex Cantrowitz (52:55)

This is the same mic as Josh. It's just a camera angle.

Michael Batnick (52:57)

Oh, no. And Josh has the. The fluffy thing. So, Alex, some people have been talking about, like Wiesenthal was asking, hey, wait a minute, like, why did the Deep seek stuff like break on Sunday night when it's like been here for the last couple of weeks, like, what was the trigger for all of this that we're going to talk about?

Alex Cantrowitz (53:15)

So it's a new model that they released called Deepseek R1 that does reasoning, so you could basically ask it difficult questions. And you see it right out its chain of thought, basically trying to figure out how to answer your question the best way, and then it spits out a response. And so that is the model that came out last week. And it took a little bit of time for people to catch onto it, but what they realized was after the evaluations happened, that it was about as good as the best models in the world. I mean, it ranked number three, tied for third on this ranking of large language models called Chatbot arena, where they literally blind test these, the output of these bots, one against one, and you can evaluate which did best. So it was number three. Right. Anthropic, which raised 4 billion last year and is about to raise another 2 billion, is in the teens. So that's how good this model was. But there's a second component to this that is really important to talk about, which is that the model's open source. So basically what Deepseek did was it told developers, download the model, you run it on your hardware, do whatever you want, customize it, and it'll be as good as ours. And so I think what happened on Friday was basically the tech industry figured out that this was impressive because the testing had happened. Then they started to run it on their own machines and they were able to replicate performance. So over the weekend, you started to have everybody in the tech world who's Tinkering with this stuff, confirm that this stuff works. And then by Monday, you had perplexity running Deepseek that had been altered to not censor sensitive issues to China, like the Taiwan question, like, who's the president of Taiwan? And then all of a sudden there was this mass realization where people went like, oh my goodness, this model is good. This model is independently verified. And this is the third part. It's cheap and it is, I think, 3 to 5% of the cost of OpenAI's cutting edge reasoning models to run. That's why you've had this perfect storm.

Josh Brown (55:16)

There seems to have been this thing where Joe Wiesenthal, who is extremely online, and while he gently mocks the Twitter VC crowd, he also follows all of them. And he had been talking about this way prior. And so I think like, when Joe saw that the tech and venture people on X were really excited about it, he kind of took it upon himself to start talking about it more, which is, I think the transmission mechanism from how it jumped from VC Twitter to finance Twitter.

Michael Batnick (55:55)

Wait, hold on, Josh, are you saying that Joe.

Josh Brown (55:57)

And then all hell broke loose.

Michael Batnick (55:58)

Joe wiped out $600 billion worth of market cap with a tweet?

Josh Brown (56:02)

I think. Look, I wrote about it on Friday morning and I'm very far divorced from that whole like online Twitter world, but I like the way that I follow news. I had seen enough articles in the tech journals that I follow start to pop up. So I wrote about it Friday morning at like 7am and the stock market did not react on Friday. It wasn't until Monday. So to Alex, to your point, like something about the marination of this over the weekend as people were testing it on their own machines is what really said it.

Alex Cantrowitz (56:39)

And Josh, you made a great point on CNBC that it was a lot of the attention happened on Twitter where you had. It's this amazing sort of chemistry where you have all the people in tech that are sharing insights about artificial intell intelligence and testing this and sharing their perspective. And then you have two different groups in the financial side. You have the people that have been betting against Nvidia, which you pointed out on cnbc, who are, which is every.

Josh Brown (57:03)

Active manager, every active manager in the world.

Alex Cantrowitz (57:05)

And they're on Twitter and they're getting the message out on Twitter. And then the other element is the venture capitalists. And I think it's actually Marc Andreessen who poured gasoline on this fire when he said, he said something like, this is one of the most beautiful innovations I've ever Seen. And then people were like, wait, Andreessen, who's like the, you know, the head of Andreessen Horowitz, the guy who invented Netscape, is calling this a beautiful innovation. This isn't it. It took public consciousness from being like, yeah, there's this fishy thing in China that we're not fully sure it lives up to the ex, lives up to the boasts to like, oh, the VC has tested it and it works. And he's been pumping it like crazy in the.

Michael Batnick (57:47)

But he's also an early investor in OpenAI. I mean, I think that, I think I heard you say, or somebody say that they did not invest in the most recent round. But he's right, he's involved.

Alex Cantrowitz (57:55)

Yeah, but look, he passed on the most recent round. And I think that what he is saying from a venture capitalist perspective is the fact that AI is now so cheap is going to actually make a huge difference to the startups you invest in. Because, all right, you have this early bet in OpenAI, but what really matters is the application, right? How is this technology, if it is so powerful the way.

Josh Brown (58:18)

Well, that's where the money is.

Alex Cantrowitz (58:19)

Exactly.

Josh Brown (58:20)

The money is the application above the LLM 100%.

Alex Cantrowitz (58:24)

And that's why Andreessen is so into this, is because as a vc, it's Christmas for him. Because all of a sudden any startup trying to build on top of OpenAI's models, or basically regular open source models, can now use deep seek and whatever comes after it at 5% of the cost or 3% of the cost. And all of a sudden the economics change for AI startups and, and companies that are implementing AI in a way that the, the equation becomes much more enticing to a venture capitalist trying to invest in this stuff.

Michael Batnick (58:53)

John, can we chart on this, this cost versus performance that Alex could walk us through? This is from Michael Semblis at JP Morgan. Alex, I don't know if you had a chance to look at this, but can you walk us through what this means?

Alex Cantrowitz (59:05)

I mean, you're looking. Okay, so what I'm looking right now is the input price, right? So you want to be about as far to the left on this chart as you possibly can. And that's where deepseek is. And basically what you're seeing here is that it's the cheapest model to run on the entire chart. And when it becomes that cheap and the performance is, as, you know, as good as it's been, you're in the sweet spot here, because why would you, let's say, use I'm going to go to the other side of the chart. Claude Sonnet or something else, or the Claude Haiku, right, Which is a smaller model. Like that's, that's anthropic smaller. Smallest model is Haiku. Why would you use something that's going to be, you know, 10, 10 times the price or more where you can use Deepseek and it's cheaper and as performant or even more performant than that. And that's, that's why everybody's like saying, okay, this could be a watershed moment for the industry because it enables cheaper development and its performance is about as good as what you're getting in the industry so far.

Josh Brown (60:06)

Put that chart back up the Y scale. Going up the left side is the test how these models score. And one of the things being said right now about Deep Seek is that hyper trained in such a way to do well on this test, but on tasks off the test doesn't do as well and some of those performance advantages start to fade. Have you heard something similar?

Alex Cantrowitz (60:35)

Yeah, that makes sense. So look, actually the model I was looking at just now was 2.5, which is the cheapest tier you have. Deepseek R1, the one that we're talking about is the most performant here. And it's much cheaper than the most powerful models that we're talking about. So it's important to point that out. Look, all these AI models, they are trained to get the answers to the test, right? This is what they all do. So the fact that it is the most performant, I don't think it's a real criticism to say that like it was trained for the test. Of course they all trained for the test. And your ability to do well on the test sort of talks about.

Josh Brown (61:11)

All right, here's a real, here's a real criticism though. This was not. This, this is not really a native Chinese trained model at all. And so here are a couple of things coming from semblance and semblance is referencing Jan Kamarath. Do you know who that is? But this is some criticism that emerged during the course of the week. I'd love to get your take. First of all, I went on Perplexity, which I use when they said that they were using Deep Seek. I went on there and said, who killed more people, Mao Zedong or Adolf Hitler? And they got the answer right. It said Mao Zedong killed potentially 80 to 100 million people, which is the truth. I think he killed twice as many people as Hitler. If this were truly natively Chinese there's no way that answer would have, would have come about on Perplexity running that model.

Alex Cantrowitz (62:08)

So Josh, what you're pointing at right now is the most important thing about this model, which is that again, it's open source. So what Perplexity did was it downloaded the architecture and then it customized it and then it ran it in Perplexity. So if you go to like deepseek.com or wherever, you can use the model that they run, it's gonna, it won't give you that answer because it's censored. And the crazy thing about this is we have a Chinese firm who said, we have this new architecture, it's more performant on the tests, it's cheaper and you now can take it and download it doesn't matter. Are you an American firm, are you a Chinese firm? And you can use it. And that's exactly what Perplexity did. Where Perplexity took deep seq, R1, downloaded it, it customized it to the point where it might censor on the Deep SEQ website. It won't censor on Perplexity now. And that's how you get that answer.

Josh Brown (63:01)

I'm sorry, Semblance is saying, when answering questions about Volkswagen car sales in China, ChatGPT, Grok and Gemini all gave very different answers. Deep Seats answer was almost identically worded to ChatGPT. He also points out, he also points out, why would a Chinese chatbot be trained on what happened at Tiananmen Square in 1989 and be so easily cajoled into talking about it? Why does it talk about presidents and best cities to live in by talking about American ones? Even when asked in Germany, why would a Chinese chatbot refer to a single party state as a dictatorship and reject the one party system unless it was trained on Western data with strong ideological beliefs? And last thing, when asked, what model are you in? Five times out of eight, version three of Deep Seat actually answers by saying it is ChatGPT. It thinks it's ChatGPT. So like that's like where a lot of the criticism is coming is like how far did they get by just training the model on other models and then like at the last minute putting their own spin on that. And I don't, I don't know the. I'm not a data science, but scientist, but it feels like there are ramifications to that answer.

Alex Cantrowitz (64:21)

Yeah. So I think this is important. So one of the things that they've done is they've distilled, they've distilled other models down. So they are pretty upfront at the fact that they've taken models and they've sort of trained on them and they've learned how to use some of the answers that they get from other models and put it into their answer set. Now, are they completely upfront about that? Probably not. Are they getting the answers from the test from the llamas and the chatgpts? Probably. But I want to talk about why I don't think it matters as much as Zimbalist might be saying, and that is that they have, wherever they've gotten these responses from, they've been able to develop this model that is more performant and cheaper. And if it was so easy to do, why hasn't OpenAI done it? And I think that's the core thing here, is that they took the AI field and they took some shortcuts. I don't doubt it. But they've taken the AI field and they've shown a new way to do it, a new way to train these models and a new way to run these models. And it's working. And is it a little sketchy? Yeah, probably. So to the question of, is it.

Josh Brown (65:28)

TEMU AI, as Dan Ives has coined, is this just on brand China stuff where shortcuts, faster, cheaper here, throw it out there, and at first you feel like it's a viable competitor, but then you realize it breaks apart the more you use it. Or do you think the effect of this is going to last longer than just this week?

Alex Cantrowitz (65:55)

Yeah, I think TEMU AI is selling it short. I do think that if you, if you talk about, let's say you talk about somebody, you talk to somebody in retail, online retail, about temu, they'll point out again all the shortcomings. If you talk to people who've been working on the architecture of large language models, they will applaud. Deep seek they like, reluctantly or not. And the tech industry is, I think, rightly in a frenzy over this. All these criticisms, I think, are valid to a certain degree. Right. There's some sketchiness. You know, the big, the big criticism this week was they didn't train it on the four or five million dollars they said they did.

Josh Brown (66:32)

Or they're hiding. They're hiding chips because they have to pretend they don't have them.

Alex Cantrowitz (66:36)

And again and. Or spitting back chatgpt. And I'm going to say right now that is, is, or can all be true. But it doesn't negate where they've gotten the AI industry, which is that they've created intelligence that is smart and cheaper to use than anything else and that you can, you can sort of negate everything that they've done to get there. But the architectural advance here is big enough that it's put the entire AI industry on notice. And none of that, none of the folks who are in the industry have said this technology is, is, doesn't work. They've, they've questioned how, how they got there, but they're all just like, yeah, we've been, we've been able to replicate it. It works.

Michael Batnick (67:18)

So to the question of how did this even happen? Like, we're spending bazillions of dollars building these things and they just were able to do it. Sembla said, I've read it in a few places that the US chip ban on China indirectly led to deep SEQ success by forcing China to innovate with less cutting edge hardware and software. Chinese engineers figured it out and developed innovations along the way. I thought that was pretty interesting.

Alex Cantrowitz (67:39)

Oh yeah. So look, we have in some ways in the US a natural resource curse where we have all the money, we don't have any of these exports, export controls. And so what the leading firms have done is say we believe in the scaling hypothesis, which is basically the more compute and the more data, you know, throw, throw as much data and GPUs as you can at the problem as possible and it will get better. Now it's interesting. Well, they can't. And that had been hitting a wall actually in the US and that's why these, you know, companies started to use the, introduced this reasoning methodology. But basically, yeah, the firms in China, they can't do that. And maybe if, and you know, one interesting point about this is OpenAI is going to say that there's a great clip going around about with Sam Altman telling an audience in India, like, don't even try competing with us. You should do it, but you're probably not going to get as good as we will. And there was almost comfort in the fact that it took all these billions of dollars to build what the US Firms could because that meant nobody could compete with them. And you're right, because the firms in China did have those constraints. They just had to do it in a smarter way and they got there and that's why things are crazy.

Josh Brown (68:50)

Can you debunk, can you debunk this myth for us or confirm if it's true? They released this latest research paper during the two hours that TikTok was taken offline in the United States. And the timing is a warning from Chinese authorities that they have the ability to upend entire industries within the United States at will. If we want to go down this road of banning their apps, that sounds really far fetched, but I do think the timing actually syncs up and that's a terrifying thought to me. What do you think about that?

Alex Cantrowitz (69:29)

Look, I don't think they were going to sit on this, so maybe it was a convenient matter of timing for them. But that being said, they did release their previous model on Christmas Day and I think that timing warfare, right, really has been a thing here where basically they're saying, you're sitting at home, you're enjoying your Christmas dinner, we're in the lab and we're working and we're releasing this. Now, is it symbolic? Like, did they get that all queued up on the 23rd of December and hit it, have it set publish, schedule it to hit publish on the 25th? Maybe. But I think that there's a chip on the shoulder of the folks in China for technology, as there is for most things where the Western. They believe that the western countries have this sense of superiority to them. And so far the west has been kicking their butt and when they can, they're going to poke back and they've been poking back.

Michael Batnick (70:21)

What do you make of the reaction from both Sam Altman and Satya and some of the other people that have a huge vested interest in all of this?

Alex Cantrowitz (70:28)

I think Sam has been scrambling and looks a little bit desperate right now. Sam is somebody who's been so on message throughout this entire thing, even when he was fired. Right. Didn't he handle that pretty well? Like got the whole world on his side. What's happened here? He's been kind of quiet about it. He did a small tweet thread yesterday talking about how they're going to push up some releases. And by the way, stay tuned for AGI. And then he tipped his cab.

Josh Brown (70:54)

He said, this is, he said, this is impressive. He didn't, he didn't debunk it and neither did Satya.

Alex Cantrowitz (71:00)

Right, exactly. But there's been no, like, usually OpenAI has a way of like reacting to the news and positioning themselves as a leader.

Michael Batnick (71:07)

So what do you think they're saying behind closed doors, like in private, are they like, oh or.

Alex Cantrowitz (71:12)

Yeah, I do, I do. I think this is, I think overall this is a pretty optimistic moment for AI. Broadly. Right. AI in terms of developing with AI and what you can do and where the research goes. But I do get a sense that a lot of folks in Silicon Valley are A little bit shaken that this didn't come from there. And it should especially shake the proprietary model builders like OpenAI and Anthropic, because the game just got real for them because they've been building their own things and they've been charging for them and they've been out in front in the lead and they're still like in the lead, although a lot less than they were before. And what they now see is open source literally nipping at their heels and it's just them against all the open source developers right now. And the trajectory is that they're going to lose. Right, because you have all of open source developing.

Josh Brown (72:00)

So that's what I want to, that's what I want to ask you about. Does Zuckerberg come out of this looking like, looking prescient for having open sourced llama almost from the get go? And I guess on the opposite end of the scale, on the opposite end of the spectrum, if OpenAI was publicly traded, if Anthropic were publicly traded, what would those stocks have been doing this this week?

Alex Cantrowitz (72:28)

I'll hit those two right now. I think OpenAI and Anthropic would be down further than Nvidia was now, like 30%. It's feasible for sure. I mean if your whole, if your whole approach. So let me just say quickly about OpenAI and then I want to talk about Zuck because it is really interesting. So, okay, so for, for OpenAI, you, your advantage was two things. One was building the best model in the world this week. That's less. Your, your advantage is much less than it was. The other thing is that you built ChatGPT and so you have the lead in the consumer models for AI. ChatGPT has 300 million users. If you look at OpenAI's financial projections that have been reported in the information elsewhere, they are expected to do more revenue with ChatGPT than leasing the model. So you could say, even if we don't have the best model, we can build our lead on ChatGPT. This week the ChatGPT side of the business becomes way more important than it was. And it was already super important. So that's OpenAI on the meta front. It's very complicated, but I'll try to say it as simple as I can. Yes, Zuckerberg looks prescient for going open source because if that's going to be the lead of this AI moment, then he's going to really have a say in it. But it really depends because all this investment that they've put in really only Adds up. If they're the leader in open source AI. If you're the leader in open source AI, you get everybody to, to develop on your stack all the iterations. Everything comes from the tone that you set. And so them being the best open source model has definitely paid dividends because their vision of AI is the one that has been seen out.

Josh Brown (74:13)

If you look at leadership, all right, startups can grab Llama and start working, not paying licenses, not adhering to some other person's structure. They just say like, all right, this exists. We could use this to build something. Now, it's not obvious that that will be the go to platform to people to build on. Spot on is what you're saying. Okay, yeah.

Alex Cantrowitz (74:34)

So there's a three step process. When you build AI companies. You first build with a proprietary model like GPT because it's easy as off the shelf. Then you change your technology to make sure that any model can plug in and you'll still be operational. Then you go open source because open source allows you to customize. Like I was speaking with the CEO of Replica, which is a, it's a bot that you can film form a relationship with and maybe fall in love with or marry. It's a story for another day. But she said that they use Llama.

Josh Brown (75:01)

Michael, did you hear that? Continue.

Alex Cantrowitz (75:05)

It's a. Yeah, Michael, you and I, we can talk about it later. But so then you can share one.

Josh Brown (75:11)

Okay, so, so they.

Alex Cantrowitz (75:13)

All right, so they could then use Deep Seek.

Josh Brown (75:16)

Right, so this is what I wanted to ask you. So like, if somebody today is using llama or using ChatGPT, like what is the likelihood that they're like, wait a minute, I can do the same work but with less, you know, billions of parameters and therefore it'll be more efficient and cheaper. And I could just switch over and use that. Like, what is the likelihood that people in Silicon Valley and elsewhere are going to do that?

Alex Cantrowitz (75:44)

High. I mean they're already looking at it high. And. But there's one other side to this, which is, you know, your meta, if your whole deal is open source, you need to find a way to replicate what Deepseek did. So there's going to be a back and forth. Meta pushed the standard, the status quo forward with Llama and then Deepseek push them and Meta will push back and you just sort of will bet on who you think will be the winner. So. But if you're a startup, it's incumbent upon you to be evaluating Deepseek if it can allow you to do what you do better and cheaper.

Michael Batnick (76:18)

So public.

Josh Brown (76:19)

Let's put the chart, let's put the chart up while, while we, so public.

Michael Batnick (76:22)

Markets are trying to figure out what's going on, how to, how to make, make sense of all this. Yesterday, Nvidia had the largest market cap wipeout of all time for any stock. Makes sense. It's. It was a 17% drop on the largest, one of the largest companies.

Josh Brown (76:35)

Look at this.

Michael Batnick (76:36)

$589 billion, which is larger than MasterCard, Exxon, Oracle, Costco, Home Depot and Netflix. Okay, so the, the market cap wipeout was bigger than all those companies I just mentioned. There was a nice rebound in Nvidia today, but did this make sense to you or do you think that this was overblown and the market is fundamentally misunderstanding what impacts deepseak is going to have on the space?

Alex Cantrowitz (77:00)

Yes. I've spent the last day and a half thinking about why Nvidia took the hit that it did. Because if you believed in the AI story last week, you probably believe in it even more this week because it's just now much more efficient. And that's what happens in hardware. The one thing that nobody's talking about that I thought might be behind this, and I'm actually curious what you guys think about this, is we might have just seen deepseek sort of build something that can commoditize the state of the art in, you know, a moment's notice or like pretty quickly. And if that's.

Michael Batnick (77:35)

Wait, what do you mean that deepseek is going to be able to figure out what Nvidia is doing somehow?

Josh Brown (77:39)

They're claiming to have done this without H1 hundreds.

Alex Cantrowitz (77:42)

Right. So basically this is a thing like if they're, let's say they are, you know, getting some of the answers from the test from OpenAI, like we talked about earlier. So you're OpenAI, you spend, I don't know, 2 billion, 3 billion to train a new model. And did Deep seek just find out the. Find the architecture to then go kind of crib notes from your model and then run, run it cheaper and more efficiently and everybody is then going to go replace it with what deepseek has built? This is, I think, a more of an outside chance than what's actually going to happen. But it's a possibility. If they figured out a way to sort of distill these models down and run them for cheaper, then why would I, if I'm OpenAI, then build, go invest to build the next model. If there's an open source way to just Kind of crib off of what I've done. That to me is sort of the extreme risk. I don't think that's going to happen. But if I'm like all this, I think you guys, I'm sure you guys know this, right? All this is based off of like your probabilities, certainty versus uncertainty. And it just things like this added a level of uncertainty to the future of Nvidia, which is core to those big training runs.

Michael Batnick (78:47)

And guess what? When you're trading at 60 times sales or whatever it is, there's not a lot of room for safety. Like there's not a lot of margin safety.

Josh Brown (78:54)

Yeah.

Alex Cantrowitz (78:54)

I mean, what do you guys think?

Josh Brown (78:56)

Well, I wanted to ask you, I'm almost done pumping you with questions, but we, Alex, we always learn so much from you because we look at everything from like a, well, what's the trade standpoint? And you're going, you're talking directly to the people who are involved in like the business side of this stuff and not it's not about stock price every second of the day, the people that you're talking to. So we learned so much from talking to you and getting your perspective. My. So I saw Satya Nadella start tweeting Wikipedia articles about Jevons Paradox.

Alex Cantrowitz (79:29)

Always a good sign, which is, I.

Josh Brown (79:31)

Mean that's like what the is going on. So this is the CEO of the third largest company in America, like shitposting Wikipedia as like, as like Cope. He's because Jevons Paradox, the essence is like a more efficient, you can use something, the more of it you will end up using. And I guess that would be bullish then for AI tools because they become more efficient, they'll become more widespread. So I think that's what that was about. Maybe that's good for the chip makers too. But the biggest impacts, not in dollar terms but in percentage drops, were not in the chips. Like, granted, Broadcom and Nvidia got wrecked, but the infrastructure plays the power, the utilities, Vistra, Vertiv, all of them. Like there's 20 of these now. But the companies that got these, all of these stocks doubled and tripled last year. Vistra was the best performing stock in the S and P last year. The utilities that were telling a story where they were going to be instrumental in the build out of AI, those stocks got hit the hardest. And I think the reason why is because, okay, maybe Jevons Paradox is real and chip demand won't fall off. The power usage story though, is now under the microscope. Do we really need as much of a build out of a power infrastructure build out if we found unlocked a new level of efficiency. What do you think about that idea? I know it's somewhat new for all of us to really explore, but I don't think those stocks are buys.

Alex Cantrowitz (81:14)

I've been thinking about the Satya tweet and obviously read the Wikipedia article and wrapped my head around Jevons Paradox, which is something you implicitly know when you think think about technology. But there's a name to it now. Maybe we should coin a new phrase called the Jevons Fallacy. And that is that we've been. And this might wrap it all together. We've been talking so much about infrastructure, right? Nvidias of the world and the power and the cybersecurity that's sort of going to emerge based off of this stuff and the cloud hosting. But we haven't been talking very much about the applications. It's almost like the entire AI discussion and I'm selling it short a little bit. But a lot of the AI discussion has been based off of the infrastructure numbers. Okay, so they invested 6.6 billion in OpenAI, therefore we can expect X return and therefore AI must be worth Y. But I think the fact that the applications have been so left out of this discussion sort of points to the weakness to this point of applications. Like what's been built with this AI. We know that there's been better coding tools that have been built. We know that like some SaaS, companies like ServiceNow are getting better with AI. We know that ChatGPT is a cool consumer product with 300 million users. And there are some other use cases out there.

Josh Brown (82:30)

Apple Intelligence so far is doa. Copilot's got all kinds of complaints about it everywhere you look. We don't have other than ChatGPT and a little bit perplexity. And I read about the Claude boys. I don't know if you're aware of that trend. Oh yes, the teenage boys who only do what Claude says. Okay, we have a few of those stories, but they don't seem like they're anywhere near the applications, anywhere near justifying the spend.

Alex Cantrowitz (82:59)

And that's why I'm calling it the Jevons Fallacy. Because it's like, all right, as this becomes more efficient, people will want to use it more. And to me I'm like, yeah, only if they're knocking down the doors to use it at this point.

Josh Brown (83:11)

Use it for what?

Alex Cantrowitz (83:13)

Correct. And we need to see the applications. The applications are the most important part here.

Josh Brown (83:17)

I Love you. We're gonna goodbye you, Alex. We want to have you back. Of course. And Michael and I are going to rip through some stock charts. But I want to say you were like literally the first person that both of us thought of. We were planning this show. Thank you so much for coming by. And of course, I want people to listen to your podcast this week because I know it's going to be lit. Tell everybody where they can hear more of what you think on the topic.

Alex Cantrowitz (83:42)

Yeah. So you could just go to Big Technology Podcast. It's on every podcast app. Also, I'm Alex cantorow. It's on YouTube. We have an interview up from last week with Demis Hassabis, the head of Google DeepMind. Reid Hoffman's coming on tomorrow. Although we recorded before this stuff happened, but we break down the news every Friday. And by the way, I just want to say thank you to you guys because as you know, I'm a regular Listener viewer on YouTube. I watched, I've been watching Josh, I watched all your appearances on CNBC before I went on today. And you guys have been been on it from like a business and a technical side and keep it up. I look forward to being in the audience now.

Michael Batnick (84:19)

You're the man.

Josh Brown (84:19)

You're the man. All right, everybody. Everybody watch and listen to Big Technology Podcast with Alex. Alex, we'll talk to you soon. Michael, let's do some, let's do some reaction charts from the market.

Michael Batnick (84:30)

Let's rip it. All right, so Nvidia took a big dump yesterday, down 18% and it caught a lot of it back today. I think that, like, as we discussed with Alex, the market has no clue. Nobody knows. Right. And so this volatility is to be expected. Does it close the gap? Who the f knows? But you can expect this volatility to continue both directions.

Josh Brown (84:52)

Were you surprised at the non bounce until about 3:00 today? Were you surprised at how, how much Nvidia had been struggling to find buyers?

Michael Batnick (85:02)

I was like, I'm surprised. I'm surprised that it struggled in the morning and also equally surprised that it surged in the afternoon.

Josh Brown (85:10)

Yeah, I agree. And I asked Alex a question. He didn't really take the bait, but like, what would. Oh, he did, actually. He gave us a good answer. I'm sorry, like what would open AI and anthropic? He said, down 30, you know. No, I think that's right. I think that's right too. And I don't think they would have bounced today on day two.

Michael Batnick (85:32)

No.

Josh Brown (85:32)

In the way that Nvidia finally was able to.

Michael Batnick (85:34)

No, it's different. It's different. So some of the biggest winners or standouts like Meta, all time high. Microsoft got it all back today. Apple was bright green yesterday with a huge follow through today. I'm honestly not sure why that is the case. I know that you would say that money came out of Nvidia and went to Apple. Doesn't work like that. But sure, Google, under a little bit of pressure, Amazon, I have a different.

Josh Brown (85:56)

I have a different take on that.

Michael Batnick (85:58)

But let's, let's, I want to hear, take an Apple. Go ahead.

Josh Brown (86:02)

All right, John, skip to Apple. We have Apple, Microsoft and Amazon together. Apple went from being quote unquote, playing from behind and piggybacking Chachi PT and reliant on OpenAI for their apple intelligence. That was the narrative on Apple until yesterday. Right now the narrative is, look how smart Tim Cook was to not go all in and announce $50 billion of build out for a stupid LLM that just got commoditized.

Michael Batnick (86:37)

Okay, that's a good thing. You're 100% right.

Josh Brown (86:39)

That's the narrative shift on Apple and Apple. Apple started rallying immediately because people like, oh, wait a minute now, who gives a shit who owns the LLM?

Michael Batnick (86:50)

Yeah.

Josh Brown (86:51)

So I thought that was kind of cool.

Michael Batnick (86:52)

I think that's a good Apple. Full disclosure, it's a good take. And Apple was severely oversold, so it was a nice recipe for a bounce.

Josh Brown (87:00)

Put that back up one more time because I want to do Microsoft. This thing, this thing's come all the way back. That part I'm surprised. All right, we have a guy in the chat right now, situation room, who's really good and he's going crazy and he's saying some wild shit. But one of the things that he's saying, which I kind of agree with, he points out the President's son in law, Jared Kushner, who is obviously a tech visionary, is the last check into OpenAI. What did they, they did, they did around $157 billion valuation like three weeks ago.

Michael Batnick (87:36)

Check, check.

Josh Brown (87:36)

OK. And Kushner's got a venture fund. Yeah, but like if you invested in OpenAI three weeks ago in that last round at 157 billion. But my point is with Microsoft, like they're a big investor in OpenAI and they kind of, I guess they could separate from them and kind of do their own thing. And Sam Altman sounded unsure of whether or not that would happen the last time he spoke at, at a conference. But like, does Microsoft have More to gain because this stuff is much cheaper or more to lose because of how in deep they are with OpenAI? I'm not sure, but the market is voting on the former.

Michael Batnick (88:17)

Yeah, I definitely don't know shit about that. But what I do know is I love how Microsoft's chart looks like. I love it. This, this, this stock had an insane rally and it's been consolidating over the past couple of months and looks like a breakout may be coming. I mean, it may not be, but I like it looks healthy.

Josh Brown (88:33)

How would you like, how would you like to be taking OpenAI through an IPO roadshow this spring?

Michael Batnick (88:42)

Listen, let's see what happens. What if this deep seats stuff turns out to be a charade or a scam, like, we don't know.

Josh Brown (88:47)

I guess you gotta hope for that. All right, let's do these infrastructure plays. I don't know these companies well, so I want everyone to take my comments here with a grain of salt. But I'll tell you what I do know. I never bought into this idea. I think there are active managers who are not allowed to go like crazy long on Nvidia or they thought they missed out on it. And so last year they spent the year looking for, quote, unquote, pure plays on AI and they hit upon these stocks that are going to provide power to the data centers. And it's not that that story's not true. It's that in the end, these are still utilities and they should not sell for 27 times earnings as though they're anything other than power providers. Even if there's going to be this huge uptick in power demand, even if there's going to be this rebuilding of the infrastructure for power, et cetera, et cetera, et cetera, I really think these stocks got crazy and I think they're going to have these rallies, but they're going to look like, I think this is going to be a top that holds. And I think all these rallies are going to be fades from here on out.

Michael Batnick (89:59)

Vistra had a similarly ridiculously strong close. So maybe these things get in the gap, who knows? But I, but I do buy what you're saying about people, managers looking for exposure that just can't buy Nvidia. I buy that. What was Wall street saying today or yesterday, Josh? I mean, I know it's all over the place, but did anything really catch your eye? Because everybody put out an opinion.

Josh Brown (90:20)

Yeah, well, so here's what's really interesting. This happened literally before earnings season, so we're recording this Tuesday night. Meta's reporting 24 hours from now. Microsoft the same. Apple is Thursday. Alphabet is next week. Amazon's next week. Nvidia is the end of the month. So every one of these conference calls is going to be a referendum on what what Deep Seek means for each company's individual situation. That's one. Morgan Stanley cut all the semi price targets. They cut Nvidia, Broadcom, Marvell and Micron. Nvidia's price target went to 152 from 166 Broadcom.

Michael Batnick (90:59)

Wait, hold on, hold on. Where did it go from? From what to what?

Josh Brown (91:03)

166 to 152.

Michael Batnick (91:05)

Okay, it's at 129.

Josh Brown (91:08)

It's nothing until you consider nobody ever cuts their price target on Nvidia. True, nobody cuts their price target on Broadcom. Marvell caught, Micron cut. Let me see what else? Oh, Baird says AI demand remains very strong. Buy Nvidia, buy amd. We would be buyers. Nvidia stands out as a less expensive stock than Broadcom. I think it's 27 times forward earnings. Now when was the last time you were able to buy Nvidia with a two handle?

Michael Batnick (91:36)

No, it did not bounce.

Josh Brown (91:37)

AMD offers the most value.

Michael Batnick (91:38)

AMD did not bounce at all. Just a piece of garbage. Broadcom, very little bounce. John, can we throw up this, the chart of the green and red from Finviz from yesterday of the price action. All right, so this was at the close yesterday. I mean truly, you know, historic might be hyperbolic, but maybe you know what? No, you can use historic. This should never happens. Like the largest stock in the country falling 17%. The second large is going up 3%. Other areas of the market bright green. This was a very interesting day in the market yesterday.

Josh Brown (92:09)

Citigroup said Deep Seek is a risk to US exceptionalism. Further mag7 dominance questions. Yeah, does this call into question like the way that we venerate these companies. Like are we out of minds? They just put on the magazine cover the US stocks. Like the rocket taking off. JC was making fun of that. Like we might have, we might have like forgotten that the rest of the world's not just going to sit here and watch this forever.

Michael Batnick (92:35)

I don't, I didn't. This is, this. Listen, whether if this, if this turns out to be a nothing burger, who knows? It is definitely a shot across the bow like this. This has people's attention. Look at, look at another thing that happened inside the market yesterday which was super healthy and, and Chef's kiss esque. The S P500X tech rocket ship made a new all time high yesterday.

Josh Brown (93:00)

Talk about. Yeah, yeah. So my mystery chart is in the same vein, but like people did not sell these stocks and then take the money and put it back in their bank account. The money went somewhere and that's a, that's a really good chart.

Michael Batnick (93:17)

Okay.

Josh Brown (93:17)

All right.

Michael Batnick (93:18)

Anything else?

Josh Brown (93:19)

Topic two. We're in topic two at 5. 45.

Michael Batnick (93:21)

All right. I, I'm going to the Islanders game, so I, I've got 20 minutes. All right. Yesterday was a day, as we just mentioned. I, I want to show the next chart which is a historic, truly a historic day of outperformance of value over growth yesterday. And you could say like as everybody turned bearish on value. Value has been air quote dead for years, but up 4.6% yesterday. The type of one day return, the spread between value stocks and growth that we've seen only three other times in the last 30 years. And funny enough, today, a lot of that, A lot of those gains reverse. So that spread was up 4.6% yesterday. It was down 2.3% today. But the point that I want to make, Josh, is people are trading their asses off. And one of the stocks that got left for dead over the past couple of years that I had eyeballed, I think I, I think I took a fly on it and I, I bailed too early, as I am often to do, unfortunately, I'm an idiot. Is Robin Hood. Look at this stock.

Josh Brown (94:25)

Yeah, this is, this, this, this kind of consolidation is like the right. That's what you want. The stock's going higher. I have no, I think this could end the year at 75.

Michael Batnick (94:35)

You know where I think I sold. I think I sold it in early 2024. Like I thought it was breaking out and I bought that and I probably sold on the retest. Good job.

Josh Brown (94:44)

Yeah. This company is playing offense. They're making big moves in wealth. They're doing. They. They no longer have a gun to their head on the crypto side of the business, which I think is pretty profitable. And stock is going higher. I have, I have very little. I don't, I don't personally want to pull the trigger and buy it, but I think it's going to work.

Michael Batnick (95:03)

So it's hard to say that, that there was a sentiment washout with the S and P, like 2% off its highs, but Todd Stone's got a great chart showing that we had a pretty decent size spike in inverse ETF volume. And this has been lacking, like it's just been all, all straight up levered ETFs. So next chart shows again people are, they're doing it man. They are trading and they are trading with leverage. Lots of it.

Josh Brown (95:31)

Oh my God. What is single stock leveraged ETF volume. Yeah. Do you agree with me that part of the overreaction Nvidia is due to how much of a leverage and option circus there is happening beneath the surface with that stock? So let's say it should have gone down 12% and it fell 18% because people are just like way, way over the line.

Michael Batnick (95:59)

Because next chart positioning in the stock because next chart. So what we're looking at is the Granite shares two time long Nvidia etf. We've spoken a lot about this over the past couple years.

Josh Brown (96:09)

NVTL.

Michael Batnick (96:10)

Yeah, it was went from 0 to 5 billion in a couple of 18 months or whatever. This thing fell 34% yesterday. 34%. Now granted what had a hell of a rebound today, but just.

Josh Brown (96:21)

Oh my God. Yeah, this is a double long Nvidia fell by lost a third of its value in a day.

Michael Batnick (96:28)

Yeah.

Josh Brown (96:29)

Oh my God.

Michael Batnick (96:30)

So yesterday Josh, retail investors from Walter Bloomberg retail investors bought a record $562 million worth of Nvidia. So so far so good.

Josh Brown (96:39)

You know, you know who bought, you know who bought the nugget. So My son, my 15 year old is on Robin Hood. He's got a couple hundred bucks. He pulled the trigger Nvidia, he doesn't know anything about AI. He just it's action like I think the somehow that name was surfaced to him via the algorithm and nuggets in.

Michael Batnick (97:01)

Let's keep it moving. What do you got?

Josh Brown (97:04)

Long shot bets. We don't have to spend a ton of time here. The Journal did an article basically talking about how parlays and long shot bets are America's favorite bets. And this is in a sports realm but I think it fits perfectly with what you just showed us. So basically they are talking to people, they're talking to know nothings who are betting on sports apps and just having fun. Parlays accounted for 27% of the money wagered on all sports bets last year. I would have gotten in Illinois, New Jersey and Colorado. States in which gambling regulators report data by bet type. That's up from 22% of all sports bets in 2021. These multi leg bets delivered about 56% of sports betting revenue after payouts for companies up from 50%. So we're not getting more conservative with our gambling. Three years in to the Sports betting app phenomenon. We are getting more risk positive.

Michael Batnick (98:10)

I guess the way to say it, it's just starting.

Josh Brown (98:14)

It's, it's early. But this mirrors what we're seeing in the stock market with the leverage single stock funds and the zero day options. This is culture. This is a cultural phenomenon. I believe it's being driven predominantly by Gen Z. Gen Z. I don't think these are boomers that have been waiting their whole lives to do parlay bets on an app.

Michael Batnick (98:34)

I mean, young people, I agree with you. I've been eyeballing DraftKings and Flutter just because I think this is such a secular trend. The reason why I haven't bought it and the stocks look good is because these just like shitty businesses. You know what I mean? But I don't even know if that matters in the short term.

Josh Brown (98:49)

Doesn't matter. Buy them, sell them before the Super Bowl. Okay, got two weeks.

Michael Batnick (98:55)

Anything else?

Josh Brown (98:58)

Let me say, just do this one chart really quickly. Equity option index volume. This is effectively the same people. Would you agree it's the same people doing those bets are doing these trades?

Michael Batnick (99:11)

Yeah, definitely.

Josh Brown (99:12)

All right, you're up.

Michael Batnick (99:13)

Okay. We have been speaking a lot about concentration in the stock market over the past couple of years because how could you not. This is a new chart for me. So credit to Goldman Sachs for pulling this one together. They show s and P500 concentration and subsequent one year total return in their conclusion, as should be obvious by the chart that has no reason to it is that the level of concentration has no bearing on returns over the next 12 months. Now you could say, hey, well who. I don't care about 12 months. Show me three months or 36 months or five years. Well, I don't have that. But here you go. Over 12 months. Doesn't mean anything.

Josh Brown (99:52)

So the takeaway is when people tell you there's something wrong with the market because of the level of concentration, you pull up this chart and say, okay, show me what's the rhyme or reason behind what you're saying? Because that just has not mattered in one direction or the other in particular. It could be good, it could be bad.

Michael Batnick (100:13)

Yeah, yeah, yeah.

Josh Brown (100:14)

All right, I like it. Starbucks reported tonight. I'm long the stock. Are you still in Starbucks?

Michael Batnick (100:19)

I sure am.

Josh Brown (100:20)

All right, I think the stock. I think this. Take this turnaround is starting and I think this was the starting gun. It's not a huge upside reaction to the name. Overnight we have a quote, stock's flat now.

Michael Batnick (100:33)

Yeah, the quarter was, it was a really shitty quarter. Now expectations Were worse. But it was bad. Yeah, that was bad. It was bad.

Josh Brown (100:41)

It's the fourth shitty. It's the fourth consecutive or the fifth consecutive shitty quarter for this name.

Michael Batnick (100:46)

So global store sales. Global comp store sales declined by 4%. Not great. Net revenues were $9.4 billion flat. Flat from year over year. Operating margin contract by 390 basis points. Woof. Our earnings per share of 69 cents. Very nice. Declined by 23% year over year. Not nice, just really disgusting. So the stock is flat. Why? Because there were still a lot of beats. Because the expectations were so shitty. So I think flat makes a lot more sense than up 4%, which was the initial reaction. Whatever. I did understand that. So. Yeah. Okay.

Josh Brown (101:23)

Well, it's two things. It's. First of all, these are all upside surprises relative to very, very weak guidance. So 9.4 billion was better than 9.32 billion expected. 69 cents beat 66 cents expected. These are not good numbers.

Michael Batnick (101:40)

No.

Josh Brown (101:40)

Which is why they replaced the CEO and which is why the stock has done nothing for the last three years while the overall market has rallied. We have a chart. Starbucks vs Consumer Discretionary S Bucks divided by XLY ETF. It's a piece of shit. Yeah, it has our piece of shit, but it's my piece of shit. It has rallied recently, but like, look at the last four quarterly reports going into tonight. We have this as a chart. They missed last time by 10%. They missed by 0.12%. The time before that missed by 15%. The time before that missed by 4%. So this is the first. That's why I say we'll probably stop the bleeding. They were able to exceed expectations for the first time in a year. And now back to Starbucks is Brian Nichols campaign. So for those who are not aware, Brian Nichols is arguably the greatest living quick service restaurant CEO took Chipotle from where it was to where it is now. He is now running Starbucks. He's got a lot riding on this. Personally working out. And now they're writing our names on the cups with the Sharpies again. I don't know if you're excited about that. I love like a pretty. Actually, like they're not Starbucks.

Michael Batnick (102:56)

I'm still getting the. I'm still getting the printed version.

Josh Brown (102:59)

I got awesome written on my cup and I watched the girl do it. I feel bad. They're making these. They're making them do that. But apparently this is something that's important. You're making the case.

Michael Batnick (103:09)

I'm going to make the case. A few make the case. I'm going to make the case for one. We spend so much time talking about biggest risks to the market and once again, as it always is, almost always, it's what you don't see coming. Now, you could have made the case. Well, like, yeah, these tech valuations will vulnerable to any sort of downside surprise. But the point is you don't know where, how, when, why the surprises are coming. So just always keep that in the back of your mind. Risk is what, truly, it's what you can't think about. Like, that's what risk is. If you're thinking about if, if all the fund managers are worried about some sort of risk. That's not, that's not what risk is. That's priced in. Okay, so I'm going to make the case for two real pieces of shit that I own. All right, so the first one is, is zoom. This is a stock.

Josh Brown (103:51)

Looks great.

Michael Batnick (103:51)

Okay. Yeah, I know. This is a long term chart.

Josh Brown (103:54)

40% since the summer.

Michael Batnick (103:55)

This is a long term chart of Zoom. And if you pull it back farther, obviously it's, it's, it's way, way, way worse. But let's zoom in a little bit. Let's zoom in a little bit. Next chart, please. Oof. Josh, come on. You're buying this?

Josh Brown (104:09)

Yeah, I actually, I think it's on my best stocks in the market list right now, to be honest with you. I think, I think it, I think it might rsi.

Michael Batnick (104:20)

Look at that. Rsi.

Josh Brown (104:21)

I think it might have just popped, to be very honest with you. Hold on, I'll tell you in two. In two seconds. No, we don't have it. But we, if this keeps up, we will.

Michael Batnick (104:31)

Okay, well, because this has been a dog of a stock. It is one of my smaller positions, but I think I might have to make that a larger position. The other one, another one. And honestly, like, I don't even know anything about Square's business. I don't know how they make money. I mean, I kind of do, but like, whatever, I don't care.

Josh Brown (104:45)

Sold this idea.

Michael Batnick (104:47)

When did you sell it?

Josh Brown (104:48)

Well, I got, I got stopped out.

Michael Batnick (104:49)

Of it, but okay, I like.

Josh Brown (104:52)

All right, now wait. Most of the business is merchant services for payments.

Michael Batnick (104:56)

Okay, Chart on.

Josh Brown (104:57)

They have the Cash app and then they have some crypto shit.

Michael Batnick (105:00)

All right, so this is the long term chart. I love how it's respecting that $80 level. Zoom in a little bit. Now I feel like if this thing rolls over here, that's going to be way too many lower highs for me. So I I would add to this if it breaks, but if it breaks lower, I'm probably gonna be out.

Josh Brown (105:17)

All right. I would say it already did break and I got stopped out of it because it broke. And I do not want to enter back into this below its 50 day.

Michael Batnick (105:25)

No, I agree. I'm saying I'm gonna add if it breaks, like 90, 93.

Josh Brown (105:30)

Yeah. You ready for a mystery chart?

Michael Batnick (105:32)

Let's have some fun.

Josh Brown (105:36)

Okay, this is a sector spider etf.

Franklin B. (105:39)

What is this?

Josh Brown (105:40)

I think it's.

Michael Batnick (105:40)

Oh, it's daily.

Josh Brown (105:41)

I think it's. This is the primary beneficiary, it appears, of the large cap tech sell off. The money had to go somewhere and people bought this the shit out of this sector. And I don't think there's a reason why. I think they would just do what sector am I? Okay, so you have one out of 11 choices.

Michael Batnick (106:01)

So you're showing me.

Josh Brown (106:05)

One month.

Michael Batnick (106:06)

All right, it's real estate.

Josh Brown (106:08)

No. You want to take one more?

Michael Batnick (106:10)

Sure. Industrials?

Josh Brown (106:15)

No.

Michael Batnick (106:15)

Okay.

Josh Brown (106:16)

Want to take third guess or throwing in the towel?

Michael Batnick (106:20)

I'm good.

Josh Brown (106:21)

Reveal, please. Guys, this is the health care sector spider.

Michael Batnick (106:26)

That was going to be my eighth guess.

Josh Brown (106:29)

Some of this is the recovery in UNH shares obviously, and how destroyed like Lilly and all those fat fat stocks got. But like some of this is just people like, all right, we're selling big cap tech and we're going defensive. What the hell can we buy Johnson Johnson? They're 11 times earnings and they haven't gone up in three years. They pay huge dividends and they caught a bid this week. I thought that was kind of cool.

Michael Batnick (106:57)

Listen, I love it, I love it. Rotation, rotation, rotation.

Josh Brown (107:00)

All right, we're going to let Michael get out of here and head over to UBS for the Islanders game. Guys, thank you so much for watching. Thanks for listening. Thanks for being in the live chat. We appreciate you. If you want to check out my crypto conversation with Franklin B. From Pantera, we're going to post that on the podcast audio stream tonight and we'll talk to you soon. Have a good one. Whether you're just getting started as an investor or you're managing a multi million dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit Rithswealth. Don't forget to check us out@YouTube.com the compoundrwm. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.