← The Compound and Friends
The Compound and Friends
Becoming the Amazon of Real Estate With Rocket’s Varun Krishna, Roaring Bank Earnings, Wall Street Fires on All Cylinders
01:34:40
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- [00:00]
A
Ladies and gentlemen, welcome to the compound and friends. Today's show is brought to you by FM Investments. We are also sponsored by Rocket Money. You might think you have a solid handle on your budget. Maybe your spreadsheet says you should have an extra thousand dollars left over each month. But if your bank account isn't reflecting that, something's off. Rocket Money helps you track every dollar, uncover hidden spending and take control of your finances. Rocket Money is a personal finance app that helps find and cancel unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. Rocket Money shows you all your expenses in one place, including subscriptions you forgot about. If you see a subscription you no longer want, Rocket Money will help you cancel it. Rocket Money has saved users over $2.5 billion in including over 880 million in canceled subscriptions alone. Their 10 million members save up to $740 a year when they use all of the app's premium features. Cancel your unwanted subscriptions and reach your financial goals faster with Rocket money. Go to rocket money.com/compound today. All right, I want to tell you guys that tonight's show is super sized. We have special guest CEO of a company I am personally invested in. Varun Krishna is the CEO of Rocket Companies and he came on to talk about the prospects of a real estate and housing cycle and lower mortgage rates. And also got a chance to ask him about these two massive acquisitions that Rocket has closed over the course of the summer. They bought Redfin, which many of you know is a big online housing portal and, and they bought Mr. Cooper and that's a big mortgage servicing business. So Rockets kind of built this vertical, I called it the Amazon of, of housing where a user can basically stay inside of their funnel for all phases of the home purchase experience. And I thought it was a really cool story to bring to you guys. And then it's an all new edition of what are your thoughts? Michael Batnik and I take a look at the financial company earnings that we got this week. We're also gonna take a look at some interesting things happening when you drill down into the conference calls. A lot of analysts asking about some of these non bank financial institutions, some of the risks out there in lending and private credit and we're gonna do the whole thing. There's a make the case, there's a mystery chart. It's a lot of fun. Thank you guys so much for listening. Hope you enjoy the show. We'll send you in right now. Welcome to the Compound and friends, all opinions expressed By Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.
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B
Clients of Ritholtz Wealth Management may maintain.
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A
Positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to Live from the Compound. My name is Downtown Josh Brown. I am here with a very special guest. Varun Krishna is the Chief Executive Officer of Rocket Companies, a position he has held since September 2023. Prior to joining Rocket, Varun served as Executive Vice President and General Manager of Intuit's consumer group from May 2022 to September 2020 23. Prior to Intuit, Varun has held positions at PayPal, Groupon, Betterworks, and Microsoft. Rune Krishna, welcome to Live from the Compound. How are you today?
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B
Great to be here, Josh. Thanks for having me, my friend.
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A
All right. I had to have you on because I feel like one of the big stories for, let's say, Q4, 2025, and hopefully into 2026 is the thawing of the housing market. And Rocket is going to play a significant role in, I think, just getting existing home sales, new home sales, getting consumers back on track. We've kind of been in this ice age. We all understand the underlying reasons why, but it feels like that's starting to break now in a positive direction, and you guys are right at the epicenter of that. Is that how you see it as well? We do.
- [04:35]
B
I mean, look, housing is the bedrock of the American dream. It's 20% of the GDP, and it's something that all human beings fundamentally want and need. And so if we can do things to improve the housing situation in this country, improve affordability, improve inventory, that's like a fundamental cause for us. And so it's exciting to see, you know, some thawing, as you said, some green shoots the horizon, and we're going to keep building. We're going to build like it's our mission, because it is.
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A
I want to ask you for the viewers who are not familiar with Rocket, just as a quick primer, Rocket Mortgage is probably familiar to a lot of people, certainly Rocket money to fans of, of this channel. But tell us about your position in the, the US Mortgage market and kind of your, your competitive advantage, if you would.
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B
Yeah, I mean, Rocket is a story of legacy. We've been around for over 40 years. You know, we sort of have led every transformation in the mortgage space. We were the first to bring mortgages to the Internet. We were the first to put them on a mobile phone. We are now going to be the first to reinvent them in the context of artificial intelligence. But the company has a pretty amazing legacy. I mean, we're, we do business in all 50 states and 3,000 parishes. We have built a massive mortgage engine. We have an incredible experience that's very technology driven and it's fueled by our soul and our culture. You know, this company didn't sort of come out of nowhere. This is a legacy that has been around for a long time. And so we are obsessed with building great experiences for clients. The Rocket mortgage experience is known for being low cost, seamless, personalized, and just building confidence with consumers every day. And that's how we've grown to become the largest lender in the nation.
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A
So I want to, I want to just full disclosure before we start talking about recent events. I am a shareholder in Rocket, not trading the stock. I intend to be a long term shareholder. And one of the things that attracted me to the story, or two of the things I should say were two acquisitions that you guys made over the summer that caught my eye because in a moment where the housing market was kind of moribund and down and out and people were more excited about technology market, etcetera, you guys were doubling and tripling down on this vertical integration strategy. So you bought Redfin, which is one of the largest, I guess, platforms for home buyers and lead gen for realtors, etc. Sort of like a top of the funnel idea. And that closed over the summer. And then you bought Mr. Cooper, which is the largest portfolio of, of mortgage servicing business. So now you guys have top of the funnel to drive more mortgage originations or refis. You've got the Rocket mortgage business and you've got this Mr. Cooper business which is just closed where you can actually service the mortgages once they're, once they're, once they're in existence, I guess would be the way I would phrase it. Tell us about why those deals are important to the future of what you guys are working on.
- [07:51]
B
Yeah, absolutely. So it's been a very big and busy summer for Rocket and we're very excited that Both Redfin and Mr. Cooper are officially closed. These are two public company deals. It's a huge milestone. And I would just say these are not just acquisitions. I mean, they're very direct accelerators of our vision and strategy. You know, we've set some bold goals to hit by 2027. We want to double our purchase market share from 4 to 8%. We want to expand our refinance market share from 12 to 20%. And when you think about it, these acquisitions are really in service to that strategy. It's about increasing our distribution, building more relationships with clients, and just building a better experience. You know, the context for this for me is that when I joined this company, you know, I took a look at the housing market. I spent a lot of time learning from the outside, talking to CEOs in the industry. And Josh, there's such an adversarial dynamic in the homeownership journey. Each of these parts of the experience, the home search experience, the real estate experience, the mortgage financing experience, you know, going through title and credit and then going into closing and servicing, are like completely different worlds. But a consumer has to go through every single one of those things as they experience homeownership. And there's this hugely competitive dynamic at every part of the funnel. And so that was kind of the first realization. The second thing is when you just think about the economics of housing, you know, in consumer products, there's this concept called an LTV to CAC ratio, lifetime value to customer acquisition cost. And the problem with these segments being all sort of separated is that you can't create good economics, right? Like, because the consumer basically goes from one part into the other part into the other part, everyone sort of takes their cut and their piece. It's very antiquated. There's a lot of friction. And value is not created for the consumer. And so our thesis is very simple. It's that if we can connect these parts of the experience, we can acquire clients at a lower cost. We can create a great mortgage experience. We can then service those clients, and then as they enjoy their experience in servicing, we can recapture them and continue to offer them new products, cash out, refinance another purchase or rate and term refinance, home equity loan, a personal loan. And so the thesis is very simple. It's that these are not parts of separate funnels. We think that they can integrate to create a super funnel. And in an era of data and AI, this strengthens our company. It allows us to have more data, more signals that data powers better models, better experiences. When you think about Mr. Cooper and Rocket, you know, that's 10 million clients that we will service in 10 total, it's 150 million annual interactions with those clients. You know, Redfin has approximately 50 million monthly active users that are engaging with the product, most of whom are using the product daily. So that's a lot of interactions. They have 2200 agents that are now part of the Rocket ecosystem and over 5,000 agents that are part of the partner network. And so ultimately we can just create a better experience. We can create a more AI driven experience with better data. And then the best part is that we can save consumers money. I mean, today the average consumer is spending something like 10% of the cost of a home on things like fees and rates and buy downs and things like that. And so on a $400,000 home, that's like 40,000 bucks. And if we can lower the cost of acquisition and we can become a lot more efficient and streamlined, we think we can eliminate a huge chunk of that expense and we can create a better experience for clients. So the thesis is just connecting these parts of the funnel, creating a super funnel, reducing kind of the expense related, passing that savings back to the client and then obviously driving value prop that allows us to grow our market share.
- [11:38]
A
Is the intention to have the customer come in through. Let's say Redfin is searching for a three bedroom home in a specific zip code. They happen upon a listing. Okay. From there they get a realtor on the site who's willing to show them the home. From there, okay, I'm closing. I'm going to need a mortgage. Get a Rocket mortgage. Are they, is that in app or is that like an email chain? Or how, like, how do you keep that person in your ecosystem versus shopping around for each of those steps along the journey that you just laid out?
- [12:16]
B
Yeah, I mean the idea is to build a fully integrated, fully verticalized experience that's very deep versus shallow. And so we have a preferred pricing bundle that we've already launched with Redfin where clients can save up to $6,000 on closing costs. We have a button inside of the Redfin app where you can apply for financing. We're going to move more of the mortgage experience up into the Redfin experience so that clients don't have to leave and go through multiple destinations. We have trained our Redfin agents to work with our Rocket mortgage local bankers. And so, you know, and then there's everything from just the account and sort of login experience to seamless data transfer. Just making the whole experience feel like it's just one simple and seamless thing. So. And we're going to continue to build on that. But the other thing is it works in the other direction as well. There are some clients that start with the home, there's other clients that start with the financing and then look for the home. And so the lead flow actually works in both directions where we actually create and generate demand for our Redfin agents and our ecosystem as well. And that's the beauty, is that we want the funnel to work in every direction. And the same thing applies to servicing as well, is that the servicing book with Mr. Cooper and Rocket put together represents a lead pipeline for not just our agents, but also our mortgage brokers as well. We have a healthy broker business and so ultimately we want to just create an ecosystem where everyone that participates in that ecosystem can thrive, can run, can grow. And for that to be a much.
- [13:48]
A
More integrated experience, it's really fascinating. So it's a legacy business that people know and have come to trust over decades, but it's wrapped in this FinTech app experience with AI on top as the top layer to make everything just work more intelligently. And it's really rare I think in, in finance to see something like this. Most, most of the debates within Fintech is like brand new business, 100 year old business compete head to head. And you guys are, you guys are kind of a hybrid of, of both ideas and I really like it.
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B
Yeah. You know what's interesting is that I've been in fintech most of my professional career. I mean I've been in the payments business. I've been in point of sale. I've built local commerce applications for merchants. I did the nation. You involved in TurboTax, I oversaw TurboTax and Mint. And so you learn a lot. And one thing you realize is like all of Fintech at some point it's about something more fundamental. And that's when I discovered housing. And in my view the housing industry is the last frontier of fintech. It's sort of the cause at the end of the day that's why people are saving. That's where they're trying to handle things like payments, taxes, personal loans, investing. Ultimately it all is about paying one thing and that's the mortgage. So, so that's why in some ways I feel like mortgage is really the last frontier of fintech.
- [15:10]
A
So I read a lot of sell side research and when you guys first announced these deals, I guess in the spring, there wasn't universal approval among the analysts who cover Rocket. I don't think anyone disagreed with the thesis. I think maybe just people looked at they're spending a lot of money. I sure hope this pays off. That, that seemed to be some of the. And then there were people who were extremely positive about it and they got it immediately. The bulls have been validated so far just based on the share price appreciation from the lows. But do you think that some of the skeptics on Wall street, now that you've closed these deals are starting to come around. Is that like the tenor of the conversations that you're starting to have?
- [15:55]
B
It is. And I think fundamentally, you know, at the end of the day, you have to have conviction in your strategy. And if you believe in your strategy and you execute well and you believe in sort of the long term value of, of the company, I'm a big believer that the rest of it just kind of takes care of itself. And so, you know, I've built funnel, built funnel based products for most of my career. And so when you see an opportunity to connect a funnel and growth hack that funnel, you know that there's a there there and housing in some ways is the biggest funnel that there is. Right? It's, it's a $5 trillion market. And so I think what's interesting is just each parts of these funnel reflects like sort of different investor thesis. So you have growth investors, you have value investors that fundamentally manage on, you know, a different kind of construct of how they build models. But what we're creating is in some ways a new species. And so it's understandable that how do you think about that new species, right? How do you value it? How do you think about its growth prosp. But when you just try to understand that a consumer has to go through each parts of the experience together and they're not disparate, they're not disconnected. And when you really just sort of understand that in an AI driven world, data is going to be the air that we breathe. When you think about the application of AI to the mortgage experience and the homeownership experience, which I'm happy to talk about more, it's a very natural fit. And so the strategy in some sense is something we have massive conviction around. And we're going to keep putting up points, we're going to keep putting up proof points, we're going to keep executing, we're going to keep growing our share, we're going to keep innovating. And we're pretty confident that if we do a good job with that, you know, from a long term perspective, the rest will take care of itself.
- [17:36]
A
I love that. I want to ask you about just mortgage rates in general, not a rate prediction from you, but how meaningful is it for a company like yours to, if in fact mortgage rates follow overnight rates, 2 year rates lower? Because if you're bullish on, let's say homebuilding stocks, home renovation mortgages, like if you're Looking at that segment of the stock market as an investor, then you have to believe that mortgage rates should be and will be lower as the Fed very, very slowly takes down overnight rates. What does that do? What does that do for the various businesses under your umbrella?
- [18:19]
B
Yeah, I mean, look, it's no secret that Rocket has a. Built the world's greatest massive refi machine. And so low rates is pretty straightforward. That leads to more refis and it leads to more purchases. So it's a very, very healthy dynamic for us. Yeah, and what's also interesting is that we have. One of the things that we're very proud of is what we call our recapture rate. And that means our ability to. Because we have such an amazing servicing experience with Rocket and now with Mr. Cooper as well, we earn the right to generate more business with those same clients. So we have a recapture rate that's 3x higher than industry, and that's a big deal when you think about stretching that over 10 million loans now versus what we serve today. But you know, Josh, I think the biggest thing that I would.
- [19:06]
A
Let me just, Let me just put a. Let me just put a exclamation point on that recapture idea. This gets to the heart of that LTV versus CAC calculation. It's not just, hey, we did a refi for this person and maybe we'll talk to them in 20 years. People have continuous needs to refinance, and if you do a good job for them on one project, you should be the first choice for the next time they need to do something, whether it's a HELOC or second. Second vacation home or something, maybe even an insurance need. Like, you guys should be like. That's the idea is that you guys are front and center for them.
- [19:44]
B
Yes, exactly right. Is that is the fundamental thesis behind why Mr. Cooper and Rocket are coming together? I mean, we have a massive origination business. Now. Our servicing business is equal to that, if not bigger. But connecting them to create a flywheel effect and a network effect is the, is the, is the fundamental thesis. Because if we do that, our cost of acquisition effectively goes to zero. And we can create an LTV to CAC ratio that's never been seen before in housing. So that's. That's the fundamental thesis. Exactly right. But the thing that I would also say is that the beauty of these acquisitions is that they counterbalance the company in a really healthy way. Because regardless of what the market does, even if you have, let's just say, a higher rate environment, those MSRs, the mortgage servicing rates that we have, they increase in value. And so when you combine these different parts of the business, what you end up with is a housing, is a housing company, a homeownership company that's more counterbalanced, that doesn't need a loaded low rate environment to thrive because we have a more stable earnings base, we have more, we have a more scalable growth springboard for generating future originations. We can kind of make hay and survive and thrive in any rate or economic cycle as well.
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A
Think it's a really, I think it's a really great point. It's almost like a built in hedge.
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B
That's right.
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A
Obviously you'd prefer to be writing more business on the front end with home sales and refis. But if you can't because of prevailing factors that are outside of your control, hey, we have this other part of the business now that's gigantic and we actually get paid more in a higher rate environment. Okay, I want to ask you about the AI opportunity. Obviously everyone working in Fintech wants to share with their shareholders and with the investment community. This is how AI is going to make us a better business or make a better customer experience or some combination. So tell us what you guys are working on and how you think about that opportunity.
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B
Yeah, very excited about AI. You know, there's a lot of hype out there around this technology and just as an engineer, as a computer scientist myself, I think it's very important that you kind of have to look past the hype and look to really concrete benefits and concrete impact. And what I would say is that first off, I think technology is most definitely going to define the next decade of housing. And it's not just AI, it's what AI actually will lead to in the coming three to five, ten years. It's applying AI to robotics, 3D printing, materials engineering. But even when you just think about some of the core applications of AI, we think about it as a couple of key areas. There's natural language processing, there's machine learning, and there's like knowledge engineering. And when you think about those key applied technologies in the context of like a homeownership experience, right. It's a lot of interesting things, right? It's like talking on the phone with a mortgage banker to get a loan priced. It's your capital markets infrastructure and the models that apply hedging and pricing and arbitrage day over day. It's providing documents and data and extracting, classifying, you know, using computer vision to, to, to automate the document process. It's underwriting Right. A deterministic algorithm that helps you understand, you know, how to qualify a particular client with more seamlessness. Then it's things like title appraisal and closing, using computer vision to understand appraisal values right under, you know, understand how to create fairness there. And then it's servicing. Right. Servicing is a massive opportunity for significant improvements in automation, personalization and so it's capabilities there. So when you think about these kind of applications, the reason I think about nlp, machine learning and KE knowledge engineering, because they very directly apply to improve all of those processes. And all of those processes are pretty much core to what it takes to originate a mortgage service, a mortgage search for a home, work with a realtor, et cetera. So We've spent about $500 million over the past five years investing in our data infrastructure, our models, our AI infrastructure, our personalization. We have a platform called Rocket Logic. You know, it basically handles everything from our telephony to our document processing to our underwriting to our title appraisal and closing. And we have some pretty amazing applications. I would love to invite you down to Detroit and just show you some demos of the stuff that we're working on. But it's pretty wild. I mean when we get, we do hundreds and hundreds of thousands of calls every single week. We have telephony systems that will analyze a call, provide proactive coaching, provide conversion opportunities for bankers in real time, grade them report cards. We have interventions that help you understand how to persuade and talk to the client at the right time, how to make sure you understand their needs, ask for the business the right way. We have instant answers and chat chats available 24, 7 now. You know, it's three times more productive than. And a banker can handle multiple chats at a time because the generative aspect of it is handling most of the issues and resolution. We have something called model context Protocol. That's something that allows us to build internal apps that we can use to drive personalization. And so it's not just our engineering teams that are building products and services for driving conversion. It's anyone, it's someone who's non technical that can just use agentic AI and just say, hey, build me an application that does this and that and tap into the vast amount of data that we have. You know, we have, have just a speed and sort of productivity increase. That like what used to take weeks and months to develop develop now takes hours and days. We have 30 petabytes of data that's fueling just predictive intent. We have better models on our clients, we have better understanding of where they are in the conversion funnel. And so we are, I would say, not just like connecting the homeownership journey, Josh. We are fully, fully reinventing it. You know, it's AI powered, it's data driven, it's built on trust. And the one thing I would also say is that this is very much going to translate into core KPIs. And one of the things as an.
- [25:39]
A
Investor, new KPIs or existing KPIs that will be supercharged.
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B
I would say it's existing KPIs that are supercharged, but it's ones that I think that our investors should be able to hold us accountable to. Are we growing the top of the funnel? Right. That's one that we've talked about. Are we driving massive conversion improvement? Are we becoming more efficient and reducing the cost to produce a loan and obviously thereby creating more value for clients? And then are we driving a recapture rate that is best in class for the industry? And so those four metrics, those four KPIs are effectively how we're going to run the company. And so the same metrics, I think, should be applicable to how we think about telling our story to the street as well. And so there should be no error between how we think about running the company and how we manage the expectations of our shareholders.
- [26:28]
C
And.
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B
But the reason that these KPIs are important is because they're directly relevant to our investments in AI.
- [26:34]
A
Yeah, I think that's right. And I think you get a bigger, I think you get a better multiple on Wall street these days, if you can demonstrate that not only are earnings growing as a result of efficiencies due to some of these next gen technologies, but if you are a leader in creating the path for these technologies, I think the investor base changes and you're looking at more of a growth kind of tech investor versus I got to fill my bucket with 10% financials, you know, in a, in a mutual fund. So it's very exciting time for Rocket. I totally agree with you. I'm really thrilled to be part of the story. As an investor. And on behalf of all of your shareholders who are watching today, I just want to thank you for giving us some of your time and sharing what you guys are working on. It's. It's really interesting and we appreciate it.
- [27:25]
B
We appreciate it too, Josh. And thank you for having me on the show. I love what you're doing with this, and I'm going to Community as well.
- [27:33]
A
And I'm Going to come to Detroit and we'll do a tour and I'm going to get a Coney Dog. Sounds.
- [27:38]
B
Love to have you anytime.
- [27:39]
A
All right. Varun Krishna, ladies and gentlemen. Thanks to. Thanks to rocket companies and thanks to Varun. Thanks for watching all of you like and subscribe. Subscribe. Do all the things and we will see you soon. All right. You have a Jackson Dart shirt already.
- [28:14]
C
Gotta support Jackie, baby. Of course.
- [28:16]
A
Do you know I tried to. We tried to find Justin a Jackson Dart jersey and they said they're not being shipped until October 30th. Like they weren't ready for this kid's level of popularity. Like nobody had any idea. Oh, we better have a million Jackson Dart jerseys ready. So just get a.
- [28:34]
C
Just get a fake one from China.
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A
Before they have the blue one. Oh, I shouldn't say there were no jerseys jerseys. They have the blue ones, but he just got the Brian Burns in blue. He doesn't want to have two blue Giants jerseys, so he wants the white one. There aren't any. Like literally. So it's cut. Listen, we say the market's efficient. It's not always so efficient. Hey, ladies and gentlemen, welcome to an all new edition of what are your thoughts here on the Compound Network. We are so excited to be here live tonight. The chat is going crazy. Y' all say hello to my co host, Mr. Michael Batnik. Michael Batik, you say hi to the folks.
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C
All right, what's up folks?
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A
Let's. Let's see what's going on in the chat right now. I am told table for seven says ready to go to pound town. I'm becoming a gold bug. Okay, maybe we'll talk about that. Some shout outs to Nicole in the chat. Guys, I want to tell you about something. Nicole has officially gotten the Compound's Instagram account as of today to over 50,000 50 50,000 followers, which I think is coming from a thousand or ten thousand when she joined. So she's 5x the channel in just a couple of years. I think we have a. A shot on the call here being Nicole, not Nicole being Nicole. She is literally our resident social media genius and has absolutely helped us transform this channel into more like it's more of a movement I would say at this point. So shout out to Nicole. We're gonna drop a link where you can follow us on Instagram in the live chat on YouTube right now. And for those of you listening, it's the Compound News is the. The official Compound handle. So up there she is. Thanks, Nick. All right. Also wanted to mention we have only. Or there might be less by now. Only 10 tickets or less left for the New York live show with Michael, myself and Jim Cramer. So that's happening on Friday, October 24th. Doors open at 6pm There will be food, drinks, there will be Kramer. There will be signed copies of his new book and a live podcast recording. Nicole's would have that link. Let's drop that now. If you guys are watching this video later and there are none left, don't say I. Don't say I didn't try. Don't say I didn't try. I really hope that. I hope that whomever wants that ticket sees this alert. And she's saying now saying less than 10. All right, we're on fire. Sponsors tonight, FM Investments. Michael, take us through FM Investments.
- [31:21]
C
All right, listen up, folks. Even after the Fed's recent modest cut to overnight rates, compelling bond yields are still attracting a lot of investors. That's right. 90 billion. 98 billion in September. Wild. Most bond funds come with the catch, which is the catches. Those regular income distributions that bond funds have to pay out. Distributions sound nice, obviously, in theory, but they actually weaken the magic of compounding. Why? Because every ETF distribution.
- [31:49]
A
Why do distributions weaken the magic of compounding?
- [31:51]
C
Taxes.
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A
Oh, taxes.
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C
That's it.
- [31:56]
A
Every ETF distribution pulls assets.
- [31:59]
C
Shut up for a second. Let me finish this temporarily. The FM Compounder ETFs are designed to solve the fixed income distribution problem. Compounder ETFs can help investors avoid distributions, stay invested and compound their capital gains. What are the compounder ETF tickers? I'm glad to ask, Josh. It's cpag. That's cphe. The FM compounder US Aggregate Bond ETF and cphy. The FM compounder High Yield etf, CPAG and CPHY help investors harness the magic of compounding. Learn more about the FM compounder ETFs@FM.
- [32:34]
A
Invest.Com shout out fminvest.com that is a real problem and it's nice to see somebody finally address it. All right, we have some shouted out.
- [32:44]
C
Their website.
- [32:45]
A
Unbelievable. Well, listen.
- [32:46]
C
Yeah, Shout out to the website.
- [32:48]
A
Shout out to the site. We got some peeps in the live chat tonight. I want to say hello. In Jensen we trust. Cam Rackham. Matthew Stevik is here. Oliver's here. Joe Altamora. We see you, Jay Luther. What's up, man? Ring KPS. Fred C note. Connor McLaughlin. What's up, Georgie? All right, thank you guys for being here for the live. Let's get down to business. First things first, The Banks reported. Some of the banks, some of the largest financial companies in the world reported earnings this morning and the reports were awesome. Now I don't think that's surprising to most people. Financials have been among the top three or four sectors of the year pretty much all year and the big banks are among the best of the financial sector stocks. So no one was really like totally knocked out that these reports were so good. But I think it just underscores the broadness of the rally because the banks don't just deal with technology companies. The banks have customers in every segment of the economy. What do you think of that?
- [33:55]
C
Right.
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A
What do you think of that? Take like banks as a gauge of the economy beyond tech. I know they're involved with tech as well.
- [34:04]
C
Yeah, we. So J.C. was on the show earlier in the year and if you'd listen to me for a second, I'll let you know that yes, banks are important to the economy, to the stock market. It's discouraging when you see the banks being left behind. You want to see real confirmation that there is activity in the real economy outside of just this circular notion of open AI and Salesforce now which was a dud and, and whatever Oracle and all of these deals. You need the real economy, damn it. So I want to just before we get into the reports today and the market's reaction, I wanted to highlight Adam Parker's work. Adam did this really interesting thing showing that. Showing what you want to pay attention to in terms of stocks before earnings. So chart on please. Adam said stocks in the bottom half of industry group relative momentum. All right, so stocks in the bottom half tend to beat expectations on the earnings release and those in the highest 5% of two week stock performance see a statistically significant underperformance on the day that they report earnings. This is important. On average big moves into earnings releases should be sold and big laggers should be bought. So let's see what happened today with Citigroup and with Wells Fargo. Next your charts please. Both of these acting pretty damn heavy. Not necessarily. If you were just purely technicals. I don't know that I want to be long. This going to earnings boom. Big candle. Next one same thing with City. Also pretty cruddy price action and yet a very nice day today. So kudos to Adam. I thought that was interesting stuff.
- [35:44]
A
I only agree with half of that.
- [35:46]
C
Which part.
- [35:49]
A
I like. I guess it's the on average part that I don't love because think about. I know, I know, I know, I know. But think about Anecdotally. Like how many counter examples of this that are so easy to find at your fingertips.
- [36:06]
C
Dude. Of course. He's just. He's all.
- [36:08]
A
Because that's so.
- [36:09]
C
Put his chart back on. Put the bar chart on. Back on. So this is showing you pretty clearly that the stocks with the strongest momentum. Now listen. This is very short term stuff. We're talking the next day. The stocks that are ripping into earnings like they tend to. The expectations are too high in the short term.
- [36:24]
A
And is that percentage gain?
- [36:26]
C
Yeah. I don't know if this percentage gain. It's. It's a T stat. Don't. Don't worry about what TSAT means. It's. It's very top.
- [36:33]
A
Because. Because the point is what this is not this. So what. This is not saying. Chart off. What this is not saying is that stocks rallying to earnings have bad earnings results. No, it's just describing profit taking. Selling the news.
- [36:47]
C
Correct. That's it. You're such a hater.
- [36:51]
A
What's wrong with you?
- [36:52]
C
It's a great chart. It's a great chart. It's a great chart.
- [36:54]
A
I think it's good. Food for thought. But I want to see. What is that the next day? I kind of want to see. Give me the total return the two weeks before the earnings and the one week after and I guarantee you that. That. That that stat gets obliterated. Like how many people are buying the stock the day before earnings and selling it the day after. That's a very small component of the market.
- [37:20]
C
Clients are hedge funds. I'm. I'm merely making the point that's.
- [37:24]
A
No.
- [37:24]
C
So let's get to the.
- [37:25]
A
I do understand the point. I just question the. The practicality of paying attention to it set.
- [37:36]
C
There's a lot of things that we talk about that people should not pay attention to. Let's be honest.
- [37:39]
A
That's definitely true. All right. Earnings. So. So we have a bunch of great stuff here from the gang. Callie. Chart. Kid. Matt. Sean. I don't know whose is who's. But these are some things that we want to share. This is the financial sector or earnings week. Not every one of them reports, but almost every big company that reports this week is a financial. 65% of the companies reporting this week are from the XLF.
- [38:07]
C
I love this week.
- [38:08]
A
Okay. Me too. And I love that it's first, by the way. I think that's huge. Okay. The entire financial sector is expected to have growth of 13.2% for the quarter. That is the fourth highest within the S&P.500 fourth of 11. Not all of these stocks, even though they all had good earnings, not all of them went up after. Again, Adam's right. That phenomenon is real. A lot of these are stocks that have run up 20, 20% into these reports. So I get it. Okay. Trading and investment banking revenues beat and look strong across the board. Deal making is okay. I think deals were the big story at Goldman Sachs or overall investment banking revenue, I should say. Worries about credit quality are. I don't know, they're not new. I feel like it's every quarter people are like dying to find some sign of it.
- [39:04]
C
Dude, there's nothing there.
- [39:06]
A
There's nothing there. J.P. morgan. The provision for credit losses was $59 million, driven by the impact of a charge off related to a single client, which we'll get to later. Net charge offs were $62 million and the net reserve release was $3 million. They asked about the credit card business early or they didn't even before they were even asked about it on the JP Morgan call. They just went right to it. Ccb. Ccb. There's nothing happening there. There's like literally nothing to report. There's no uptick. There's no like scary activity in the worst borrowers. Like none. None of it. So that's the good news. Jamie Dimon's economic comments were, you know, the usual. He is never going to give you what you want if what you want is everything's great. That's not. That's not Jamie esque. He sees himself as a risk manager, not as a cheerleader.
- [40:05]
C
Hold on, let me read this quote. So this, this is, this is the. This is slide 1 in their earnings release. While there have been some signs of a softening, particularly in job growth, the US economy generally remained resilient. However, there continues to be a heightened degree of uncertainty stemming from complex geopolitical conditions, tariffs and trade uncertainty, elevated asset prices and the risk of sticky inflation. As always, we hope for the best, but these complex forces reinforce why we prepared the firm for a wide range of scenarios. He says this every quarter. It is who he is and he shouldn't say anything different. He's the head of the biggest bank in the country. In the world.
- [40:41]
A
You don't write somebody was joking around. I forget who it was. Like, what would get you bearish.
- [40:46]
C
He'll never spike the football.
- [40:47]
A
Is Jamie Dimon taking the victory lap? All right. We're all right. We're good.
- [40:52]
C
He never made it.
- [40:54]
A
Okay, City. Anything, Anything crazy to say on the city? Not really.
- [41:00]
C
So you know What? I'll be honest. City and Wells, I just, I can't listen to them all. I do blackrock, I do Goldman and I do JP Morgan.
- [41:08]
A
Yeah, I only did blackrock and JP Morgan today and Goldman. I read about Citi beat on revenue for all divisions and didn't really have any negative comments on the economy. I saw they put somebody on TV today and he echoed a lot of what Jamie Dimon had to say about overall credit quality and lending and et cetera, et cetera.
- [41:31]
C
They basically all say the same thing.
- [41:33]
A
It's business as usual though is I think the takeaway. Wells Fargo got out of bank jail. So for, for a long time because it was the worst run bank in America. Worst 1 run large bank in America. Literally lying, cheating and stealing. They had a cap on how much money they could return to shareholders. They were shut out from doing any kind of M and A. They were like in a penalty box deserved. They faked 40,000 fake accounts at the retail bank branch level. Everyone running the firm has been fired as a result. New management. They have this guy Charlie Scharf now for the last couple of years as the new CEO. He is a Jamie Dimon protege. People seem really happy with the turnaround at Wells Fargo and now they had this asset cap lifted. So the third quarter was the first full quarter without that, without that cap. So they're going to be treated like every other systematically important financial institution or sifi and they should be able to do bigger buybacks, dividends, et cetera. Now this was a good reaction though, Mike on, on Wells.
- [42:50]
C
Yeah, well, because nobody expects anything from them.
- [42:52]
A
Yeah, the team notes that's the best earnings performance, best post earnings performance since 2015. Stock hasn't done this in response to an earnings report in a decade which I find notable.
- [43:08]
B
All right.
- [43:09]
A
J.P. morgan, Goldman, both went down or under. Under or underperformed the KBW bank index. Let's put that chart up.
- [43:17]
C
Goldman was down 2%. Goldman and JP Morgan both down 2% on the day.
- [43:21]
A
This is market caps. Look at JP Morgan acting like a, acting like a MAG7. Almost a trillion 846 billion. Goldman is 238 billion. BlackRock 178 billion. Are you surprised by the order?
- [43:40]
C
That's a good question.
- [43:41]
A
Between Goldman and blackrock. If I blindfolded you, which would you have guessed is bigger black by market cap right now?
- [43:48]
C
I, I probably would have guessed black rock.
- [43:50]
A
That's what I think. I would have guessed that too. We would have been wrong. Although they're close enough that like A month of market performance could change that.
- [43:59]
C
Hold on, hold on just for a second. We spoke about this with Scott nations, man, I know Robinhood is killing it and their future is bright, but 120 billion, just in the context of BlackRock being 100, what do we say? 180. One of those is wrong.
- [44:18]
A
Oh, why is Robinhood almost the same valuation as BlackRock?
- [44:23]
C
One of those is wrong, very wrong. Come on.
- [44:27]
A
I mean, I pitched, I, I pitched BlackRock on CNBC today. Pull up, today, Pull up a technical chart though. This is, this is a legit, legit, legit breakout. Like. All right, so legit breakout.
- [44:43]
C
So it closed at an all time high today. BlackRock took in $205 billion in quarterly net inflows. $205 billion? How much is on Robin, its platform? Is it that much? Does Robin have 300 billion? What's the number? Whatever, it's close.
- [45:01]
A
It's in the billions is the point. And BlackRock said 13 and a half.
- [45:04]
C
Trillion BlackRock took in. And I know it's their different businesses, but BlackRock took in $200 billion in quarterly net inflows.
- [45:13]
A
Oh, I had some notes from jp. Could we just go back to JP Morgan?
- [45:17]
C
Yeah.
- [45:18]
A
All right. So the consumer is fine was my big takeaway. They said it 50 different ways. And you know, they would love to tell you if that's not the case. They'd love to be the first bank to say, yeah, no, there's a real problem here because they're going to handle everyone else. Yeah, they'll tell you.
- [45:34]
C
So Jeremy, Jeremy, the CFO said, I mean, Jamie may have his own personal opinions here, but I think at a high level, the story that we're trying to tell is one that's anchored on the current facts. The current facts on the consumer side are that the consumer is resilient, spending is strong and delinquency rates are actually coming in below expectations. Those are facts that we really can't escape.
- [45:56]
A
Can't escape. As if, right? As if it's a bad thing to say. It's crazy. Which I'm going to ask you a question about the net interest income outlook for 2026, which is the bulk of their, the bulk of the revenue. It's a bank, after all. They said the consensus estimate on Wall street of $100 billion for 2026, quote, does look a bit low. So this bank could conceivably exceed $100 billion in net interest just given the size of its deposit base, which is really, really, really remarkable. Then they Then two different analysts wanted to talk about First Brands, which I know we're gonna, we're gonna dive into in a minute, but I just wanted to point out to people. So JP Morgan has minimal exposure to first brands, although not zero, but they do have exposure to this thing called Tricolor, which we talked about this last week, how that's being talked about as the next disaster. It's another auto related business. But they kept saying nbfi, nbfi, nbfi. And I had to Google it because I forgot it's been a really long time since we heard analysts on a call asking about this. But non bank financial institutions. NBFI is going to be the buzzword of the fourth quarter in the financial world. I believe it's my, that's my top pick for like top buzzword that people start writing articles with that in the headline. I think it's going to be like just because, just because there is a huge contingent of people who want things to go wrong. Especially for hedge fund managers and private.
- [47:45]
C
Equity people and especially the Financial Times.
- [47:48]
A
Oh yeah, the ft. The FT would, the FT would love to see this all blow up. But I just, I think this is the new buzzword that people are going to walk around saying because they think it makes them sound significant, sophisticated. Jamie kind of said he thinks the news gets worse or there are more revelations.
- [48:07]
C
No, no, he did not say.
- [48:08]
A
But he doesn't think it's like, hold.
- [48:10]
C
On, he did not say the news gets worse. He did not say the news gets worse.
- [48:13]
A
No, he did not. We just.
- [48:15]
C
Dude, he did not. First of all, this is from Jeremy. So Jeremy said, we've also acknowledged that a lot of the private credit actors are, you know, large, very sophisticated, very good at credit underwriting. I don't think you're supposed to jump to the conclusion that, that there are necessarily lower standards or a huge systemic problem. To the extent that we lend to some of these folks who are client of ours as well as competitors of ours, that lending follows our normal practices, it's often highly secured and everything we do is one way or the other or another risky. Not sure that our lending to the NBFI community is an area of risk that we see as more elevated than other areas of risk. And the quote that you're mentioning about Jamie, Jamie said something like, probably shouldn't. No, no, no, he didn't say that. He said, I probably shouldn't say this and I'm, I'm guessing because he doesn't want to scare people, but there's never One cockroach in the kitchen.
- [49:04]
A
That's what he said. Okay. Yeah. So that's the same thing as I'm saying.
- [49:08]
C
No, more to come.
- [49:09]
A
How to wait. How did the voice just go up six octaves? Yes, more to come. There's never one cockroach. How are these two.
- [49:17]
C
Those are the same turns.
- [49:18]
A
How are these two turns of phrases not synonymous?
- [49:22]
C
Okay. Because there's never one cockroach in the kitchen. Is saying.
- [49:24]
A
What's the implication of that? That there's another cockroach more to come.
- [49:30]
C
No, that's not the same.
- [49:35]
A
Stop.
- [49:35]
C
It is not the same.
- [49:36]
A
Please stop for my bad.
- [49:37]
C
There is more. More to come is saying that. You know, there's never one cockroaches. Like wouldn't be surprised if something else happens. There's a difference.
- [49:48]
A
Sure, Michael. Let's do Goldman's. All right, let's do Goldman.
- [49:53]
C
So Goldman, it was the same questions on. On the Call and David DJ Soli, you know, he might. He might draft my playlist because it's never interesting. No, I think I'm done with Goldman.
- [50:03]
A
On purpose, do you think?
- [50:05]
C
I don't know. He's just. There's no. There's. Respectfully, there's just not that level of charisma. And he doesn't say anything interesting. Maybe. Nor should he.
- [50:13]
A
But I think that's like by. I really think that's by design. I don't think he wants any more attention personally.
- [50:20]
C
Like, I mean, I don't came through credit to him. He did come through. There was two years ago. It's pretty dark. So they were asked the same questions about, you know, private assets, private credit risks, etc. And nothing. You know, I listen. Nothing to pull out. But the big story for Goldman and to the point that we opened the show with is that the economy is firing. There is deals, there is activity. So throw this chart up. Look at Investment banking fees. Second quarter was 2.1 billion. Third quarter, 2.6 billion, up from 1.9 billion in the third quarter of 2024. Year over year. I mean, it's humming. It's definitely.
- [50:59]
A
That is. That's a. That's a meaty bar right there.
- [51:02]
C
Things are happening. Yeah. Goldman bought industry ventures, which is interesting. $8 billion venture.
- [51:09]
A
What is that place in the. So venture capital fund or. It's more than that. They.
- [51:14]
C
They do a lot of different things. They were the pioneers of venture secondaries and they've been. They've had a very successful storied career. $8 billion in a. And on the platform I think the cash comp was like 600 with another 300 on their earnout, something like that.
- [51:28]
A
So, so it's almost a billion dollars for, for the business. Do you think that that was a comp. You think that was a situation where the company put itself up for sale and Goldman won an auction?
- [51:40]
C
I doubt.
- [51:40]
A
Do you think this was strategic and Goldman went to them and said, there's a good fit here. For some, like, for some reason beyond just like.
- [51:49]
C
Yeah, you know, so not knowing anything, speculating tourist here. I would, I would say that this company is very well respected. I would guess that they're not hiring a bank to shop them. I would guess that Goldman approached them.
- [52:04]
A
Well, you know, there's never just one cockroach. So I wouldn't be surprised to see more, more deals, more deals for these, for these companies now that they sort of can do whatever they want, almost whatever they want. I think, I think from a regulatory standpoint, from an antitrust perspective, if they want to do something, they could probably do it. So I think we'll see more. Let's do, let's just. On blackrock, I know you have some data on this one. This is what stood out. This is what stood out for me. Thirteen and a half trillion in AUM is so big. Yeah, we say the words. True, we say the words trillion a lot on the show because we're always talking about like Apple and Nvidia. But like, honestly. Okay, I'm so an investment firm with, with 13 and a half trillion under management. This is one company managing 13 and a half trillion. Not just managing, but like responsible for that is so big.
- [53:05]
C
Okay, I'm really glad you mentioned that because. Show this chart from Bloomberg Intelligence. John, please. So IBIT took in a hundred billion dollars in about 400 something. Okay, so IBIT and their other ETFs total did $61 million in crypto ETF revenue. So I call it a $250 million annual run rate, give or take a quarter of a billion dollars. And guess what the percentage of that revenue was.1%.
- [53:37]
A
Oh my God. Wait, can we put that chart back up? This is showing how many days it took for IBIT to get to 100 billion. And they have four other ETFs that are 100 billion VOO.
- [53:50]
C
No, no, that's not. No, no, no, that's not what this is showing. This is showing how quickly it took other companies, other ETFs to get to $100 billion. Yeah, that's Voo.
- [53:58]
A
No, that's what I said these are all BlackRock products. Oh, no, they're not. VO and VA are Vanguard.
- [54:05]
C
Yeah.
- [54:05]
A
IEFA is State street and IEMG is.
- [54:10]
C
No, no, no. Those are BlackRock. IMG. Those are BlackRock.
- [54:14]
A
Oh, okay. So, but I'm saying that's the length of time by days is how long it took. Right. So I did it in, in just over a year. And voo, which is like their S is like the Vanguard spy, basically.
- [54:31]
C
Yep, correct.
- [54:32]
A
Took 2,000 days. That's the point I'm trying to make. Okay, what is it? What does that say? Is that say more about Bitcoin or does that say more about just the development of the ETF business?
- [54:46]
C
Yeah, both. Both, both. In fairness, obviously, ETFs are a lot more mature than they were when VO was launched, you know, back in the day. So. But my, my big point is this. Show the table of business results. So look at September. Look at the fourth column. September. Okay, September 30th. A, um, as a percent of total.
- [55:05]
A
Okay.
- [55:06]
C
Digital assets. 1%.
- [55:09]
A
Oh yeah.
- [55:10]
C
And 1% of fees. It's like a blip. And it's a hundred billion dollar product. And it's a blip. Look at Quebec.
- [55:18]
A
Sorry, I have another question. I have a question on that though. So What? So only 1% of BlackRock's AUM is in digital assets.
- [55:26]
C
Let's say I and base fees and BAS.
- [55:29]
A
How big is BlackRock in Bitcoin overall? Are they 10%?
- [55:35]
C
Like how much of Bitcoin does.
- [55:38]
A
If Ibid. Is 100 billion. How much bitcoin is there?
- [55:41]
C
And Bitcoin's, what is it, 3 trillion? I don't even know what it is.
- [55:44]
A
I don't know the answer. But they're a meaningful. They're like a meaningful amount and rapidly becoming more meaningful.
- [55:50]
C
Yeah. All right, try back on the other portion that's interesting is private markets. $300 billion plus. And it's 13% of the revenue. And that will. That number will grow higher, undoubtedly.
- [56:05]
A
Yeah, yeah, for sure. Anyway, the point is it's super profitable. Even though.
- [56:10]
C
Josh, you're right.
- [56:11]
A
Even though there's 12 or more digital asset ETFs, like all. None of them are cutting fees. Like all of them are making money.
- [56:21]
C
Bitwise is.
- [56:22]
A
Oh, bitwise cutting fees already.
- [56:24]
C
Okay, I think they are. But the point is this. Trillions of dollars. To your point earlier, it's so much money that showing that the hundred billion dollar ETF is 1% of their AUM, 1% of revenue really puts it into context. It's so much Money. So like getting back to what I said earlier, BlackRock is either way undervalued or Robin Hood is way overvalued. Maybe a little bit of both.
- [56:48]
A
All right. Story today in the Wall Street Journal mid morning reacting to these earnings reports that we're talking about. Can we get a screen grab of this, John? Wall street is firing on all cylinders fueled by deals and trading. The subhead is results are beating expectations across the big banks. So not to repeat a lot of what we just said, but here are some things from here. Goldman is now on pace for its best year ever. Ever. Did you hear that? In its main investment banking and markets division, JP Morgan is on track to make over 50 billion in annual profit for the second year in a row. BlackRock 13 and a half trillion. These are the most important companies in on Wall street and all of them are just absolutely crushing it. This year we've already had the biggest ever leveraged buyout. That's Electronic Arts advised by Goldman Sachs. $20 billion in financing from JP Morgan. Bank of America is expected to bring in the biggest ever disclosed deal fee for a single bank. 130 million. So did you hear what I said? Bank of America is getting 130 million for that deal. JP Morgan is financing with 20 billion and either the buyer or the seller was. The seller was advised by Goldman. It's like, it's unbelievable how much money is being made which explains why these stocks have done so well. And they go on and on. There's equity trading, there's equity underwriting, there's debt, capital markets activity. Just, it's all explosive and it's all on a year over year basis. Just a huge change. So the question I wanted to ask you is one thing that's really interesting. We're kind of like in these Goldilocks days for Wall street with all these records being broken. But it seems like everybody wants to spend the entire time imagining ways for it to all come crashing down rather than just like enjoying it. Like all right, we're in it right now. Why do we have to focus relentlessly on how it's going to end? Do you get that feeling that that's all anyone wants to talk about?
- [59:02]
C
All right, the question is who's anyone? Because I think what you're referring to are the headlines. And I was talking to Ben today about this. Journalists don't. And this is not their fault. Good news is boring as shit. Nobody cares.
- [59:14]
A
And I mean the best good news. But this is an exciting article. But no, it's not headline, dude.
- [59:19]
C
Come on.
- [59:20]
A
You know, gathering on all cylinders.
- [59:22]
C
Not interesting. They want more. They want more first brand stories. That's interesting. How could people have been so irresponsible? People with so much money, how could they have been so reckless? That's what people click on. Nobody cares that Goldman's going to have a record year. Like investors care, as well they should. It's the second biggest sector in the economy or in the stock market. But this idea that people want to see the banks blow up or whatever. Big Short 2.0. Yeah. That's what the headlines want you to see. Of course they do. They want you to. That's. That's their business.
- [59:51]
A
But how do you explain the amount of regular people who are doing Google searches for stock market bubbles? Everyone's saying bubble now. Everyone. Is it because things are just so good that people just can't take it and they just have to ask, like, when is this gonna come to an end?
- [60:08]
C
I mean, that's a different story. The stock market, banks doing well. Those are different stories.
- [60:13]
A
Not really. I think they're pretty. I just. I don't hear anyone, regular people or the media being like, yeah, it's a bull market. Things are good. It's a bull market. But it's weird. Like. Like, I don't understand this obsession with, how's it going to end?
- [60:31]
C
Well, I love that.
- [60:32]
A
And how's it going to end?
- [60:34]
C
Dude, we need. We need a wall of worry. We can't have everybody's like, you know, everybody in the boat, no risk, whatever. S and P, 15,000 get in, moron. We're getting rich. Like, I'm happy that there's. And. But.
- [60:47]
A
Yeah. Well, there's a lot. I want to show you something funny. Put this first tweet up. This is a good tweet.
- [60:54]
C
Yeah.
- [60:56]
A
Nathaniel Whitmore. Do you know him? I don't know. An entire generation watched the Big Short, thought Michael Burry was cool, and spent the next decade calling everything a bubble. I wanted to. I didn't like this because I'm not on. On Twitter, but I would have liked this 500 times if I could. This is, I think, one of the best explanations for all of the hate and bitterness about the stock market. I think a lot of it boils down to all these ambitious young men who saw that film in their teens or twenties or, God forbid, read the book a little bit earlier than that and just they thought, like, this is what you're supposed to do. You're supposed to be the smartest.
- [61:38]
C
Find the fraud. Find the fraud.
- [61:40]
A
You're supposed to be the smartest person in the world, outsmart everyone, spot the bubble before everyone else, bet against it. And, like, that's like what you're supposed to do in the market. That's like, literally what a hundred million people think they're supposed to be doing. And I'm exaggerating the numbers, but, like, there's a whole. There is this whole generation. They think that shit is cool being like, this freakishly, like, brilliant contrarian who makes everybody else look like a moron.
- [62:11]
C
Now, I think a lot of these people that you're describing are people that wanted to be professional investors, like, real serious investors. I think most average people don't aspire to be Michael Burry. Yeah, but. And I think I. And I think a lot of people grew out of that. Like, our friend Dan McMurtry is killing it in the hedge fund business, and he's not one of these freaks that is betting on the world and then everything's a fraud. Like, I think that there are certainly. There is a corner of the universe, absolutely. That was brainwormed by this.
- [62:39]
A
But not everyone, like, brainworm. But, like, I think in a. I. I think they want to be the hero. I don't think they're, like, villainous. I feel. I almost like they want to be the guy that saves everyone. Well, you know, they're like, that's about.
- [62:53]
C
To blow up, and I'm going to save you. So Michael Steinhardt famously said, nothing makes a money manager feel better than making their clients money when everybody else is losing theirs.
- [63:03]
A
You.
- [63:03]
C
You are hero goaded forever and ever. There's no. There's no higher mountain for a money manager than that. And so bull markets make that sort of investing really difficult.
- [63:13]
A
Obviously, this was a good clapback from High Yield Harry. This is one of the top five funniest people in the world in finance. He's pseudonymous. I don't know him in person. He said, disagree. I was inspired by these guys. These were the. These are the mortgage brokers in the Big Short, right. Who would, like, beyond, like, beyond ridiculous, like, caricatures of. I know, mortgage brokers. And directionally, the movie sort of had it right. But, like, they were, like, to the nth degree. I thought that was. I thought that was good. Anyway, it's kind of sad that there aren't a lot of people who are just like, yeah, this is pretty great. Like, my friends who work on Wall street are doing well. They're making money. They're. They're, you know, buying bigger cars. They're buying bigger homes. Okay, maybe a little bit of envy. But overall, it's a good thing that the capital markets are working that, like, nobody has that opinion.
- [64:08]
C
I don't know. I don't know. I think people in the real world might have that opinion. Like people in Wall street in the world might have that opinion. I think that. I think that all forms of media consumption, social or otherwise, just warp everything. I really do.
- [64:21]
A
I do, too. All right, let's move on.
- [64:23]
C
Okay, so I saw this poster. I think Robin actually shared this with me. Throw this Lulu thing out. All right, so the Economist, famously late and the poster child of a lot of magazine indicators, which I don't believe in, but sometimes.
- [64:43]
A
I was going to say might be.
- [64:44]
C
The bottom for Lulu, but sometimes. So I. I immediately wanted to buy the stock. So I thought I'd play a game with you, Josh, where we're going. Okay, Value or value trap. And we're going to start with Lulu. So. And I told Sean we're going to revisit this in a year. Okay, so Lulu is in a 67 drawdown. So this is obviously surface level analysis, right? We're not going deep on each of these names. So chart on, please. We'll start with Lulu. So on top, you see the price, Lulu is down 67 from its high. In the middle, we've got the free cash flow, and on the bottom, we've got the PE ratio. And I got to be honest, I. So the, The. The free cash flow is obviously turning like duds. You know, stocks don't fall 67 for no reason. I thought it would have been way worse.
- [65:30]
A
I think. What? Yeah, I think it's a buy if my only two choices are buy or sell. But I don't invest this way personally. I'm not a value guy. And in fashion, it's even twice as hard. So it, like, in other words, one thing to be a value investor and look at, like, Hershey and be like, all right, this company's been around for 380 years. I'll take the bet that whatever's going wrong, they'll fix it and there will still be an underlying demand for chocolate. I don't know that anyone can say that about any fashion brand, that being. And some go away forever. That being said, there are some really great examples, and I'm sure they're a minority of the time of brand resurrections and what we witnessed. Crocs. Did you think a couple of months ago all it took was Sydney Sweeney and, and Abercrombie and what Was it, what is it? American Eagle? I don't even. American Eagles, they're all same to me.
- [66:32]
C
No, you're right. So, so, so retail companies turn around, but it is hard as shit. So I, as much as I really want to fade the Economist and just hold my nose and buy, I think you're right. Like Alo is just destroying them. So maybe they get it together, maybe they don't. All right, so it sounds like we're.
- [66:48]
A
Both Sydney Sweeney wearing Lululemon yoga pants. Why is this so difficult? You can't write a big enough check, close 10 stores and give her the money. And next, next question was the question how do I turn around Lululemon?
- [67:04]
C
All right, so Cassie, Salesforce. So interestingly the stock is down 35%. Free cash flow is near an all time high. Forward PE is about as low as it's been for the last couple of years and nobody wants any part of the stock. In fact, it failed to rally on the news today that there's a partnership with open A. I mean nobody wants to own the stock right now.
- [67:24]
A
Yeah, I think that there's an open question about the need for buying seats per employee head on a go forward basis. I think every SaaS company will be facing this reality in the AI age. Companies are writing their own software at this point with the aid of AI to enable them to do a lot of the things that you needed to rely on Salesforce for. That's a b. Yes. We're in a low hiring, low firing equilibrium that's going to break in one direction or the other. And I think most people would bet it's going to break negatively and you will eventually see layoffs. Doesn't have to be catastrophic. But companies like Salesforce that rely on enterprise sales, those are per head deals. And if you have a lower headcount working in corporate America, it stands to reason it's going to be very hard to sell. It's very, very hard to grow an enterprise SaaS business that quite frankly already has everybody as a customer. Who are they?
- [68:26]
C
Enough of this. Value. Value. Trap. I have two more names. What do you think?
- [68:28]
A
Trap. It's going lower.
- [68:29]
C
Trap, Don't.
- [68:30]
A
I don't want it.
- [68:31]
C
Okay. Nike. We've spoken about the stock a million times. Down 62%. Holy shit.
- [68:37]
A
Close your eyes and buy it. Just buy it. I'm going to buy this. I'm going to violate my own rules. Just close your eye. Here's what you do. Here's what you do. Here's what we do. Buy 500 shares now have 500 shares in reserve for when it. When it has a false breakdown and breaks below 55 and it'll last for 10 seconds. You need to use a buy stop limit in that moment. But I am telling you, when it breaks below 55, you put in a buy stop limit for 60 and just ride it back higher. And I don't know, I could see this being. This could go to 95 in two weeks if they get the right. The right headline, the right news flow. The reality is it's just not that bad. It's bad.
- [69:22]
C
The counterpoint is it's 35 times earnings.
- [69:26]
A
Counter, counterpoint. Nobody gives a.
- [69:31]
C
I agree.
- [69:32]
A
You want to hear how many times earnings Palantir sells for?
- [69:35]
C
Yeah.
- [69:36]
A
Come on. Well, what are we doing here? What are we doing here?
- [69:39]
C
Point taken. All right. Chipotle. I actually think I want to buy the stock. So Chipotle is in a 38% drawdown. Its free cash flow is near an all time high. The stock is always expensive, so forget about that. But nobody wants it. I think a lot of this is the CEO leaving and there was problems. No doubt the food got ridiculously expensive, but I'd be a buyer of the stock.
- [70:02]
A
You know what I think about whenever I walk into a Chipotle? Usually to pick up food from my 16 year old. I feel like the kid in the Emperor's New Clothes. Why am I the only person willing to say out loud, the food is terrible.
- [70:18]
C
No, it's not.
- [70:19]
A
It's literally terrible. Why?
- [70:21]
C
No, it's not.
- [70:21]
A
Why am I the only person who will admit it? And so now it's even terrible.
- [70:25]
C
I've seen you each.
- [70:26]
A
I know I. Do I look. Well, look my. Do I look very selective?
- [70:30]
C
On. Dude, Chipotle is a great lunch food. What are you talking about?
- [70:33]
A
No, it's not. It's convenient and it's nearby everywhere and it's. And it's fast and it tastes good and it's. And it's slop. And I have to be honest with you.
- [70:42]
C
All Mexican food is slop.
- [70:44]
A
No. And it's getting worse. And it's getting worse. Would you like to apologize to the Mexican community? This is just.
- [70:52]
C
I love sloppy.
- [70:53]
A
No, it's not good food. It's not good. I want it to be because, Mike, I have to go there for nugget every three days. That's all these kids eat. It's all they eat. Gen Z and Millennials, they'll eat Chipotle seven days a week.
- [71:08]
C
I just don't like Chipotle.
- [71:09]
A
I just don't understand why people won't say it used to be better than it is now. I've been to, let's say, Chipotle's in five different states in the last two years. Okay. It's never good anywhere I go, but.
- [71:22]
C
It used to be. I enjoy it. We have one more. Last one.
- [71:26]
A
What do you get? Salad.
- [71:27]
C
Two more.
- [71:28]
A
You got a bowl?
- [71:31]
C
Don't worry about what I get. I get what I get.
- [71:33]
A
Good.
- [71:34]
C
All right. Airbnb. I like this one, too. All right. This is a great. This great story. So Airbnb, the problem here is it just came. It came public in a. In a mania, and the valuation was ridiculous, but it never stopped growing its free cash flow and the stock has gone sideways for three years. I think this is a buy.
- [71:51]
A
I don't want to dislike all of these. What did I say I like so far? Lulu and Nike.
- [71:55]
C
Nike. No, you don't like Lulu, you said. No, Lulu, you said. I've said the Sweeney's in Lulu, you don't like.
- [72:00]
A
Yeah, no, I think. I mean, it's turnable. Yeah. So I only like Nike out of these.
- [72:04]
C
Okay.
- [72:06]
A
Well. Okay. I never liked it. I never. I never understood it.
- [72:11]
C
Because you personally don't like it because.
- [72:13]
A
You don't like Chipotle. I have a bias.
- [72:15]
C
This is. This is Josh is a snob episode. All right, let's. Let's. Last one, last one. All right.
- [72:19]
A
I don't like the stock. I think it's too much competition and lodging.
- [72:22]
C
Okay, fair enough. All right. Adobe. This is like a value. The value. People won't stop talking about this one. So free cash flow, all time high. Stock is in a 50% drawdown. So stocks been cut in half because nobody believes the earnings. Nobody wants you to be there.
- [72:37]
A
What's the valuation?
- [72:39]
C
21 times.
- [72:44]
A
It'S a buy.
- [72:45]
C
I mean, knowing nothing, it looks like a buy.
- [72:48]
A
No, I'm. I'm just. Look, I'm looking at the chart. I don't care about. I was joking. It's. It's a buy.
- [72:54]
C
There's a lot of support here.
- [72:55]
A
It's a buy with a very obvious place to put. To put a stop. Like an extreme.
- [73:00]
C
I think your stop is your buy. Where your stop is, you buy it. Don't. Don't put a stop in.
- [73:04]
A
Mike. Be a man, Mike. The April low. The April low was tested three times. This is now the. This is the third test of the April low, which is 3:30.
- [73:16]
C
But it's right there.
- [73:20]
A
I understand. I think that. I think It'll. I think it's gonna. It's gonna break below and it'll be a false breakdown and then you plow into it when it reverses.
- [73:29]
C
I agree.
- [73:30]
A
This is. I love this setup. I love it.
- [73:32]
C
I love it. I love it. This will be. This will be 450 in a year.
- [73:37]
A
So the reason why the stock's not doing well is obviously, like, the business isn't growing, but everyone thinks Sora and ChatGPT and all these services are going to obviate the need for professionals with Adobe licenses doing design work. I'd go the other way. I'd go the other way. Most of the people doing their own childish, childish AI slop design work are doing these, like, cartoon images of themselves that, like, that's not going to pass for design. The world.
- [74:12]
C
My math raves.
- [74:13]
A
Beauty.
- [74:14]
C
My math just water. I'm thinking about Chipotle. I might get a bowl for dinner.
- [74:18]
A
Like, voluntarily, not because it's convenient.
- [74:21]
C
I do love me some Chipotle.
- [74:23]
A
Do you, bro? All right. All right. This is a good game. I like it. Was that the last one?
- [74:28]
C
That's it. We're done.
- [74:29]
A
All right. So I like. I like Adobe. I don't know if I have the guts to do it myself, but I. I think it's. I think it's trying to bottom right here. Okay. Jerome Powell spoke today. Did the market really react or not really. I couldn't tell. I didn't see, like, big signs of a big reaction while he was talking.
- [74:48]
C
I don't even know what time he spoke. I did. The market reacted intraday to the Trump tweet.
- [74:54]
A
All right. Callie points out the new thing that he said was that balance sheet runoff could end in the coming months. So what that means is that the tightening might be too much. Might be too much tightening. Balance sheet runoff is. Bonds mature and then the Fed does not go out and buy new bonds to replace them. Which is. Right. Like, that's like, the end of the runoff.
- [75:21]
C
So remember, the bull market was only. The bull market was only being supported by Fed liquidity.
- [75:26]
A
By. By the Fed, like, replacing bonds that were maturing and buying. So I thought. I don't know. I thought that was an interesting comment. I don't. Callie points out yields didn't move much on this. Maybe a few basis points down. Okay. Job market employment prospects continue to worsen, although conditions haven't changed much since the September meeting. Good nugget. Let me see what else. Callie points out. Inflation increased year over year for a third straight month in August. So that's looking at CPI pce. Here was her, by the way. Callie's our chief strategist at Red Holds Wealth. That's why we're citing her.
- [76:07]
C
Read what you wrote to Reuters.
- [76:11]
A
Jay Powell dropped a major piece of news when he mentioned that the Fed could stop calling the size of its balance sheet in the coming months. The Fed has been reducing its runoff for months now, but the idea of a stable balance sheet could help lower yields in the middle to long part of the curve. Meaning that's where the Fed would be buying bonds and thus lowering yields. Yes, that's a hidden source of relief, especially to homeowners that the rate cuts alone may not be able to deliver. Okay, I think that's really interesting. Otherwise, Powell didn't say anything too surprising. He repeated the no risk free path comment, which I'm guessing will be a buzzy monetary policy phrase for the rest of the year. Both sides of the Fed's mandate are still under threat. Even though Powell and co have chosen to focus on unemployment. Inflation worries still linger. All right, I think at this point in time, the Fed is a chess piece for the stock market is off the board. What do you think?
- [77:13]
C
I agree with you. I don't think that whatever the Fed does at the next couple of meetings, I don't think it's going to have a big impact on the stock cut.
- [77:19]
A
Or, or cut or not cut. I don't think it matters that. It might matter in the moments, but I just don't think it matters for where the market ends the year. I think they're off.
- [77:29]
C
I am curious to hear what companies have to say, especially consumer facing companies, about the impact of tariffs on spending and margins.
- [77:38]
A
All right, let's do this First Brands thing. What we, I know we covered it last week. What do we want to say about this?
- [77:44]
C
Here's what I want to say. All right, first of all, throw this, throw this graphic up. So for people who are not aware of who First Brands is, they are a conglomeration of all these auto parts. The one, the only one that I know, frankly is, is Michelin.
- [77:58]
A
You and I, just for the, for the listener who can't see us, Michael and I are not the kind of guys that know how to fix anything on a car. We don't lift the hood up for any reason. We don't change tires. We just, we don't do any car stuff. We don't. So these brands mean nothing to me. You, I honestly have never heard of any of that. What have you heard of on this Michelin. They don't own Michelin. This is important. They license Michelin. Just the windshield wipers. Okay. Yeah, they don't own. They don't own the Michelin brand. And I only know Michelin because of the restaurant ratings. Go on.
- [78:36]
C
All right, so we spoke earlier about NFBIs. Okay. NFBIs. And one of the things that Jamie mentioned was fraud. He used the word fraud. That. This is. This is. Even though there. There is not one cockroach. This was fraud. So Bloomberg did a story. So this guy, Patrick James, built a company. 26,000 employees, six continents, revenue of $5 billion. But a lot of it was just buying up companies. So debt and very little organic growth. So in 2023-24, its revenue only rose 1.3%. The cost of servicing its debt went up 38%. Not bad.
- [79:19]
A
Is that bad?
- [79:20]
C
Not great, obviously. So Jefferies had a hedge fund, Point Bonita Capital, that had a quarter of one of its portfolios, $715 million in first brands, which is very bizarre. I'll get this. I chart it. Look at this chart of Jefferies smoked. Not great. Not great. Why would a hedge fund have a quarter of its money in. I think the. The. The debt of a company, all you can do is get paid back. Why would you make a concentrated bet on debt? It's very bizarre, but. So the. The article goes on to say that in 2011, a unit of Fortress Investment Group sued some of the companies and claimed that they had obscured the CEO's controlling interests. And the fact that all the companies share the same employees and management, do not have separate books and records, and are grossly undercapitalized. This guy denied the accusations, but he paid to settle the case. And another one that was alleged fraud two years earlier. Public records showed that he took out mortgages for homes in Cleveland, set up a foundation to give churches and schools in the area money, but he left almost no trace of any of this on the Internet. So there's all sorts of red flags all over the place.
- [80:32]
A
What the hell?
- [80:34]
C
This guy took massive steps to obscure all. All trace. So you couldn't find anything about this guy on the Internet. So one of the. One of the analysts said it seems like he went above and beyond to hide himself and his assets. All of this should be a huge red flag for investors. So I don't know who misses how they missed it. Whatever. But the point is, there was allegedly fraud going on. And Larry said on talking about private credit, the market has grown increasingly anxious given some of the recent dynamics Both related to perhaps growth, blah, blah, blah. So Larry said, all right, thanks, Alex. I hope you're doing okay. So listen, I'd start by saying just that the heritage of blackrock and HPS and definitely the combined firms steeped in rigorous. Okay, so we've taken a, we've, we're talking a lot with teams about the news but I'd say that teams are generally seeing strong credit quality from borrowers. They're generally seeing a positive environment from credit investing. Even in syndicated loan markets, default rates have been declining. We of course read the same headlines that you do around private credit bankruptcies but those exposures are actually in syndicated bank loans and CLO markets. They're not with large private credit managers and direct lending books. And in those very public cases, the ones that we're reading about, you're reading about potential frauds also been reported. So anyway, listen, Black Rock is obviously they're all in on this so what do you expect them to say? But this, is there another cockroach perhaps. Would it be surprising if this blows over as an isolated incident? Not for me.
- [82:07]
A
All right. I actually think it's good that this is happening because I do think that it reprices the market and it reprices the, I should say it reprices risk in the market. I think it heightens everyone's awareness of this possibility. And I think you, I think you, you can't just have a one way credit market for 10 years where nothing ever goes wrong. Because that there's this concept known as the Minsky moment after a famous economist where when things are too stable that in and of itself produces its own form of instability. People have to feel like other people are watching what they're doing and people have to be alert to risks. So I actually think unless this is the Bear Stearns hedge fund in 07 and it's the true canary in the coal mine, which I mean I won't be the one that will know that in advance unless it's that and I look like an asshole six months from today. I don't think that you want. You have to assume that it's. That a lot of people want it to be that. Back to what we were saying about bull markets. The all the usual suspects who want there to be another Lehman Brothers. First Brands is their new Lehman Brothers. They have to have it. They need. It's almost sexual.
- [83:28]
C
They want powerful to be exposed as. See what these guys. Why are these guys.
- [83:34]
A
It's grotesque. They're licking their lips. They need this to be The. The. The private credit version of Lehman. They want it so bad, so. And maybe they'll. Maybe they'll finally get it. Maybe this. Finally. The meteor hit Earth. My God.
- [83:52]
C
I don't know, man. I don't think Stone and Aries and Blue. I don't think all these guys are idiots. Is there too much money there?
- [83:59]
A
Someone's going to clip that.
- [84:00]
C
Okay, fine. Are returns going to be lower than they were in the past? Probably this. There's a lot of money coming in, but is it going to be an absolute destruction of ruin and people going to jail? I don't think so.
- [84:12]
A
You know what's funny about bilateral lending? Like in game theory, you would assume that to be the safest form of lending. In other words, syndicated loans. We all understand how they go wrong.
- [84:24]
C
That's dangerous. Yeah.
- [84:25]
A
It's a thousand people who barely give a shit or putting money into the pot. A bilateral loan where I call you and say, okay, I'm going to give you $80 million, but these are the covenants, and if you violate, we're going to court and I will press you until you either pay me back or I seize your assets or some combination. Wouldn't you just, like on the surface be like, all right, these probably aren't all first brands. Probably. Most of this activity is not dumb.
- [84:57]
C
Some of it means if you're making that assumption, you're dumb.
- [85:01]
A
Right. It's like, oh, I just. I gave this. I gave this guy an entire loan and I had no expectation of getting paid back. Like, how. Who's doing that right now? Is anyone doing that? Probably not any. Like, probably not Aries. If somebody's doing it, it's not them. Okay, I actually am going to call an audible here. We're going to dive into this. We're going to dive into this hedge fund. Excuse me. Into this global fund manager survey during. During the Compounded Friends later this week. We'll do it with our guest because we're at a. We're at 558, and I don't want to. I don't want to skip over it.
- [85:40]
C
I'm very glad you all, because honestly, I don't think it's that interesting, but we could. We could pull out some stuff.
- [85:44]
A
All right, so maybe we'll pretend we were never going to do it at all. All right. You want to make the case?
- [85:48]
C
I do. So I want to make the case that I think it's easy to get distracted. I keep saying this. It's easy to get distracted by the nonsense, the speculative Stocks and become very cynical. Iron oklo. All of these names would be like it's a big freaking bubble. And maybe that part of the market is. And it probably is. And see the hyperscalers and think like there's nowhere to make money. And that's just not the case. You might be shocked to know that a third of the market is in a 20% drawdown from its 52 week high right now. Third of the s and P. There's a lot of areas that are. That have opportunity. A third of the s and P501 third is 20% of below but low. It's 52 week high. Throw this chart up from that Matt charted the median stock. The 52 week drawdown from the. From. From the. For the median stock on Friday.
- [86:40]
A
That was interesting. So this flies in the face of the. But this flies right in the face of the bubble narrative. There's like how is this about. How is this a bubble if the median stock is in a 13% drawdown from high.
- [86:53]
C
Right. Like so.
- [86:54]
A
Like okay, bubble.
- [86:56]
C
So show the Russell 2000. Let's. Let's skip here. The Russell 2000 has been sideways since the peak in. In 2021. It is only now breaking out. And the longer the base, the higher in space. That's Louis Yamada via JC JC loves to quote that one. I think this one's going a lot higher. But the one that I want to shout out. It's a stock that I don't own. I've owned it in the past. I was listening to Delta. Delta stock is in a. It's. It's 11 off its highs. And the stock is. The company is crushing it. Free cash flow at an all time high. And the story with Delta is very interesting. Chart off please. Did you know that 60% of the industry profits are now generated by Delta. It is eating everybody's lunch. It is the only premium brand in the sky. Hard stop.
- [87:43]
A
Well, I'm very sorry to inform you that we booked American Airlines for our trip to D.C. in a couple weeks. Delta is always the best. The best customer experience overall I would say by far. And with an airline like that's the bar is low. But they, they do it. I like I'm happy when I. When I fly Delta Corporate travel.
- [88:05]
C
Corporate travel is higher than pre Covid highs which shocked the shit out of me. They're just winning. They're doing everything right. They're firing on all cylinders. And I think the stock is grossly underpriced. And airlines historically have sucked lo multiple shitty Companies. But this is different. I think it's going a lot higher. And I should. And I don't.
- [88:24]
A
I like it. I think you'll have a crack at it. These are just high beta, sloppy charts. Like, I think you buy a name like Delta when they wrecked the overall stock market and it just comes right.
- [88:38]
C
I think that's right.
- [88:38]
A
This is not going to, this is not going to double while you watch it and say, I wish I owned it. It's just not going to happen. I mean, just look at the. You know what I mean? Like, it's just, it's an airline.
- [88:47]
C
It's, it's, it's not going to double in a year.
- [88:49]
A
You'll be fine. You'll be, you'll be fine. But I like it. And I, I agree, I agree with you. If you are invested in anything travel related, this is as good a name as any other. So I do like it. Mystery chart time. I feel good about your chances today.
- [89:06]
C
Feel great.
- [89:07]
A
Okay. These are two different investable asset assets. They're related to each other. And I think the main point that I'm bringing out is what's gone on over the last two weeks.
- [89:25]
C
Okay, so are these semiconductors?
- [89:28]
A
They are not. They're not. They're not companies. I specifically went out of my way to say that they are investable assets.
- [89:36]
C
Investable assets. Okay, so I see a lot of si. Oh, oh, okay.
- [89:46]
A
Do, do it for me. Do it. Come on. You got this. One more hint.
- [89:52]
C
Is it is a bitcoin and eth.
- [89:54]
A
Look at you. Look at you. Super impressive. I'll tell you what I find interesting here. A couple of things. Bloomberg has this really great article about what went on last weekend. Kind of had like a flash crash.
- [90:15]
C
Oh, there was a flash crash. Absolutely.
- [90:18]
A
So I just want to read this really quickly for a few manic hours on Friday. The world of digital assets. We played Wall Street's oldest reflex at machine speed during market stress. A stampede for the exits. The spark was familiar but unexpected. Donald Trump's hundred percent tariffs. The pain was most acute in crypto with an index tracking altcoins dropping 40% in minutes. Dude, that's nuts.
- [90:47]
C
It was gnarly.
- [90:48]
A
While the crash was brief and prices have partially recovered, critics point to underlying issues in the crypto market structure makes it prone to violent sell offs. Quote, during this crash, depth evaporated and liquidation engines got overwhelmed. This is like a crypto expert auto deal control mechanisms that exchanges poured gasoline on the fire and it felt like a market and more, less like a market and more like a trap snapping shut.
- [91:18]
C
Bullish. It wasn't, it wasn't really bitcoin per se. It was Seoul, I think. Felt like 25. Solen eth fell 20 plus percent. But it was really the altcoins. A lot of these ones went down 80, 90%. And just to their point is an absolute air pocket. No liquidity whatsoever. It's pretty ugly.
- [91:36]
A
Coin Glass estimated that a total $19 billion worth of positions were wiped out across trading venues. The actual total is likely much higher since Binance only reports one liquidation order per second. I mean it's. Listen, a lot of people, it's not, it's not good enough that they're taking the risk of being in these things. They also need leverage on them or they have options and futures trades on them. It's like it's, it's still. It's the biggest casino on earth.
- [92:06]
C
It's so insane. I was, I was saying to Ben today, somebody tweeted long Term Capital Management blew up. They were trading fixed income arbitrage.
- [92:15]
A
Treasuries. Treasuries.
- [92:16]
C
So these are basic points and they were using 25 times leverage. So what are you doing using 50 times leverage on just this?
- [92:25]
A
It's just this generational nihilism where it's like, I will never make it in life. Just doing my stupid 9 to 5 job. Like I have to.
- [92:35]
C
No, it's not, it's not good. It's not.
- [92:36]
A
I have to do this.
- [92:38]
C
It's not good. And I'm not a monster. I know there's a whole lot of people like, no crying in the casino. And I, I agree, no crying at the casino. But I do, I do feel bad when people get wiped out. I, you know, I'm not, I don't, not happy when I see people losing money. Even if, even if they should know better. And hopefully the silver lining is some people learn some lesson from this. But it's, it's ugly. It's not great.
- [92:56]
B
Lol.
- [92:56]
A
Nobody learns. We have one more chart. This is from Chart kid Matt. Bitcoin has seen shallower pullbacks versus eth. That's about what you'd expect. But he illustrated it for us. His chart on the left, the blue is the bitcoin pullback and the red line across is the average. The chart on the right, you could see these Ethereum pullbacks are like, every time is. Every time is a crash.
- [93:21]
C
That's heavy. Interesting though, because back in the day, not back in the day, prior to like 2 years old, Bitcoin would have done 30% too, in 24 hours.
- [93:28]
A
That's why bitcoin is, like, matured. People don't. People aren't as quick on the trigger with that thing.
- [93:33]
C
Yeah.
- [93:33]
A
As they used to be. So that. I thought that was notable. All right, Great job guessing the mystery chart, guys. Thank you so much for tuning into the live show. We appreciate all our pounders in the audience. You guys are literally the best. We miss you when we're not here. We love you very much. Please tune in tomorrow. All new animal spirits with Michael and Ben dropping in the morning video out as well. I'm gonna start on ask the compound later in the day tomorrow. Ben has me on as his special guest with Duncan, and we're gonna have some fun. I got a peek at the questions that we're answering. I love doing ask the compound. So that's happening. And then at the end of the week, it's an all new compound and friends with a new guest friend of mine. Super excited to. To have this person on the show, and you guys will love it. So thanks so much for everything. We'll talk to you soon. Good night.
- [94:29]
C
Sam.