Podcast Summary: The Compound and Friends - Episode: "Greed is Good"

Release Date: March 28, 2025
Hosts: Downtown Josh Brown, Michael Batnick
Guests: Andrew Beer (Managing Member at DBI), Sam Rowe (Founder and Author of Ticker)

1. Introduction to Guests and Today's Theme

In the 184th episode of The Compound and Friends, Josh Brown and Michael Batnick welcome their regular guests, Andrew Beer and Sam Rowe. Andrew Beer brings his expertise from DBI, a pioneer in hedge fund replication, while Sam Rowe introduces himself as a bourbon enthusiast and the founder of the award-winning newsletter, Ticker. The episode centers around the provocative theme, "Greed is Good," exploring its origins, implications, and current relevance in corporate America.

2. Greed is Good: Origins and Evolution [10:48 - 16:22]

Andrew Beer delves into the historical context of the "Greed is Good" mantra, tracing its roots back to the late 1980s. He references the release of Oliver Stone's Wall Street in 1987, where Michael Douglas's iconic speech advocating for profit maximization ignited debates on corporate ethics. Beer emphasizes how this philosophy shifted corporate America from a focus on community and diffuse incentives to one centered on shareholder value and profit-driven management. He notes, "Greed is good was so shocking at the time." [13:35]

Sam Rowe and Michael Batnick add to the discussion by highlighting how this shift influenced the alignment of management incentives through stock options, fostering a culture where financial success became paramount. They compare the corporate ethos of Japan and Germany, which prioritized employee welfare and long-term stability, contrasting it with the aggressive, profit-focused American model.

3. Unfettered Capitalism vs. Cronyism in Trump's Administration [16:22 - 23:02]

The conversation transitions to the contemporary economic landscape under President Donald Trump's administration. Andrew Beer characterizes Trump's approach as "unfettered, unapologetic capitalism," suggesting that it seeks to minimize regulatory constraints to foster innovation and efficiency, akin to Elon Musk's ventures with SpaceX. He asserts, "Without opining on whether they're going to be successful or doing it or not." [16:22]

Josh Brown counters by redefining Trump's policies as cronyism, arguing that the administration's actions resemble patronage networks similar to historical examples like Tammany Hall or the Clinton Global Initiative. He states, "It's the same picking winners and losers that the other party does." [19:22] The hosts discuss how Trump's policies favor certain businesses and political allies, potentially undermining the principles of free-market capitalism.

4. Market Resilience and Analyst Outlook [23:02 - 35:06]

The discussion shifts to the impact of Trump's tariffs and trade policies on the market. Michael Batnick presents data indicating that S&P 500 buy ratings have reached their highest levels in years, despite economic uncertainties. However, Sam Rowe and Josh Brown express skepticism, noting that declining earnings estimates from 12% to 7% suggest growing caution among analysts. Brown interprets this as a clear explanation for recent market pullbacks.

Andrew Beer highlights the complexity of Trump's trade policies, emphasizing that their unpredictable nature makes it challenging for businesses to plan long-term. He explains, "We don't know what the combination. We don't know the motivation of the first order effects, we don't know how the second and third order effects will play out." [35:06] The hosts debate whether the market is overreacting to tariffs or if the policies will have more substantial, long-term negative effects.

5. Private Credit ETFs: Innovation or Risk? [55:42 - 87:05]

Andrew Beer introduces the concept of liquid alternatives (liquid alts) and critiques their performance and structure. He defines liquid alts as strategies typically employed by hedge funds—such as long/short equity and managed futures—packaged into mutual funds or ETFs for retail investors. Beer is critical of these products, citing poor performance and high fees. He states, "Since they launched, they've done about 2% per annum during one of the great bull markets ever." [56:53]

The conversation then turns to the emergence of private credit ETFs, which aim to democratize access to private credit markets traditionally reserved for institutional and high-net-worth investors. Beer explains the challenges these ETFs face, including liquidity issues and accurate pricing of illiquid assets. He warns of potential pitfalls, such as selling illiquid assets at discounts during market downturns. Josh Brown and Michael Batnick express concerns about the transparency and valuation of these products, questioning their long-term viability and impact on investors.

Notable Quote:
Andrew Beer: "The issue is in an ETF, because there's $10 trillion of money that's sitting in ETFs, they're trying to jam illiquid assets." [76:43]

6. Conclusion and Personal Anecdotes [87:05 - 97:16]

As the episode winds down, the hosts shift to lighter topics, sharing personal stories and upcoming plans. Sam Rowe mentions his upcoming vacation to Aruba, while Andrew Beer talks about enjoying time with his family and his child's interest in Legos. The hosts reflect on the balance between professional insights and personal joys, wrapping up the episode with a sense of camaraderie and anticipation for future discussions.

Key Takeaways

• Corporate Culture Shift: The "Greed is Good" philosophy fundamentally transformed corporate America, emphasizing profit maximization and shareholder value over community and employee welfare.

• Trade Policies Impact: Trump's approach to capitalism, characterized by cronyism and aggressive trade policies, introduces uncertainty into the market, challenging traditional free-market principles.

• Market Resilience: Despite economic uncertainties, the market shows resilience, but declining earnings estimates indicate growing caution among analysts and investors.

• Private Credit ETFs: While innovative, private credit ETFs present significant risks related to liquidity and valuation, potentially disadvantaging retail investors compared to institutional counterparts.

• Financial Innovation vs. Investor Protection: The episode underscores the tension between financial product innovation and the need for transparency and protection for retail investors.

Notable Quotes

• Andrew Beer: "Greed is good was so shocking at the time." [13:35]

• Josh Brown: "It's cronyism." [19:23]

• Andrew Beer: "The issue is in an ETF, because there's $10 trillion of money that's sitting in ETFs, they're trying to jam illiquid assets." [76:43]

• Sam Rowe: "I'm a lot of things, but like the main thing I'm not is I'm a lot of things, but I'm mostly bourbon, but also tequila." [04:07]

Final Thoughts

In this episode of The Compound and Friends, the hosts and their guests navigate the intricate landscape of corporate ethics, government policies, and financial innovations. They critically analyze the enduring legacy of the "Greed is Good" mantra and its resurgence in modern economic policies, while also offering a cautionary perspective on the latest trends in financial products like private credit ETFs. The discussion provides valuable insights for investors seeking to understand the interplay between corporate culture, government intervention, and market dynamics.

Follow the Hosts and Guests:

• Josh Brown: Truth Social
• Michael Batnick: Twitter
• Sam Rowe: Ticker.co
• Andrew Beer: DBI Website

Disclaimer: The views and opinions expressed in this summary are solely those of the podcast hosts and guests and do not necessarily reflect the views of Ritholtz Wealth Management.