The Compound and Friends

Episode: "Is It Too Good? AI Capex Explodes Higher, Pre-Revenue Stock Boom, Will Falling Mortgage Rates Save Us" (with Telis Demos, WSJ)
Date: September 23, 2025
Host: Downtown Josh Brown
Regular co-host: Michael Batnick
Guest: Telis Demos (Wall Street Journal, "Heard on the Street")

Episode Overview

This episode dives into the latest tidal waves hitting business and investing:

• The monumental restructuring of TikTok’s US operations
• What really determines mortgage rates and the potential for a housing market thaw
• The shifting power struggle and business models among credit card heavyweights
• A no-holds-barred look at the euphoric stock market, the boom in AI and pre-revenue names, and why it seems "too good" right now
• The explosion of AI-driven capital expenditures (capex) and whether it echoes the tech bubbles of old
• Market psychology, speculative manias and what keeps the rally going (or might eventually break it)

With insight and debate from Josh, Michael, and guest Telis Demos, listeners get high-level analysis, memorable moments, and tactical takeaways on everything from TikTok's fate to where the next blowup might be hiding.

Key Segments & Discussion Points

1. TikTok’s U.S. Restructuring—A National Data Silo?

[03:33 – 12:11]

• Telis Demos (WSJ) breaks down the just-announced deal for a consortium of U.S. investors (including Oracle, Silver Lake, and possibly Fox Corp/News Corp’s Murdoch family) to take over TikTok’s U.S. operations.
• The crux: TikTok’s U.S. user data to be controlled domestically (by Oracle in US-based cloud centers), algorithm retrained, and tech licensed from ByteDance.
• The U.S. government’s role is as broker, but the new TikTok is not a government entity.
• Political concerns addressed: user privacy (removing Chinese access to U.S. data) and algorithmic influence (reducing the risk of foreign interference in what 35% of U.S. 18–35-year-olds now use as primary news source).
• Market/Competitive dynamic: Will this “free up” TikTok versus Reels and YouTube Shorts, which now all look and act similar?
• Josh:

  “I feel like every app I open now kind of feels like TikTok… maybe the future is a little bit agnostic to that. As long as the viewer can just scroll up, up, up, they don’t care what platform is facilitating that as long as the algorithm is good enough.” [12:11]

2. Mortgage Rates & the Housing Market: What Really Drives Rates?

[12:14 – 32:59]

• A masterclass from Telis Demos on why mortgage rates are down—but not because of the Fed directly. Instead, rates are dictated by the mortgage bond (MBS) market and investor bidding.
• The spread between U.S. Treasury yields and MBS has been falling, tightening rates, yet true housing affordability remains elusive (rates would need to plunge to ~2% from 6%+ for true pre-pandemic affordability).
• Key explanations:
  • Most mortgages are sold into the bond market, so institutional investor demand for different “buckets” (yields/coupons) determines what rates lenders offer.
  • Prepayment risk: Investors wary of refinancing activity (risking the loss of high-yielding bonds) prefer lower-coupon bonds perceived as more stable.
  • Banks and the Fed (as buyers) impact MBS spreads; when the Fed exited, spreads widened.
• Memorable insight:

  "The prevailing wisdom is to look at the 10-year Treasury as a guide to 30-year mortgage rates. The link between the two is much more direct than any adjustment in overnight Fed rates.” —Telis Demos [19:10]

• On refinancing ‘tranches’: Small moves in rates unlock whole new groups of households for refis, not just for home purchases.

3. Credit Cards: Why Big Banks Still Chase Your Swipe

[33:19 – 42:31]

• JPMorgan (Chase) is doubling down on credit cards – expanding Sapphire Reserve and acquiring new travel/restaurant partnerships.
• Credit cards aren’t just for consumer spending profits; they are “on-ramps” for deeper client banking relationships (cross-selling checking, mortgages, partnerships with merchants).
• Josh on scale:

  “If you’re not doing it with them, you’re doing it somewhere else. Pre-pandemic, under $200 billion in sales volume; as of now, just shy of $350 billion. One of the fastest growing businesses in banking.” [35:44]

• Telis Demos on JPMorgan’s edge:

  “They have a profitability cushion. The market trusts how J.P. Morgan spends its money… they could put a loss leader out just to grab share.” [39:27]

• The ‘race’ is expensive, but the scale advantage and stickier customers is an industry-wide play.
• Risks? Credit risk isn’t dead; if the cycle turns, losses can hit even prime customers.

4. Market Mindset—"Is It Too Good?"

[45:58 – 84:27]

• Josh & Michael debate: With the S&P500 grinding to new highs, and “209 best-performing stocks” in the Russell 1000, has it just become “too easy”?
• “This market is unforgiving for people that insist on buying dips. It is not giving you a chance. If you can’t buy at an all-time high… I don’t know what to tell you.” —Josh Brown [48:54]
• Michael:

  “There are pockets of screaming euphoria and pockets of nothingness… But if you own stocks, you’re making money.” [48:37]

• Still, underneath the green veneer:
  • 1 in 3 S&P stocks are >20% off highs (pockets of ‘blah’ abound) [60:29]
• No real “bear case” to hang on:
  • Government deficits? Endlessly kicked down the road.
  • AI Capex boom? Returns appear massive; insiders are still all-in.
  • AI labor disruption? Maybe…eventually, but for now, it’s margin-boosting.
• Adam Parker wisdom:

  “The lack of a bear case is the bear case.” [46:47]

• “We know everyone will make the first choice: stay in and be down with everyone when it finally turns. Because while you’re out, you’re missing upside.” —Josh [56:53]

5. AI Capex Mania & Echoes of Past Bubbles

[61:43 – 77:01]

• The new AI capital expenditures (capex) wave is "the greatest show on Earth."
  • OpenAI, Oracle, Nvidia in multi-hundred-billion-dollar self-reinforcing vendor loops.
  • Oracle’s move to negative free cash flow starts a new phase: debt-fueled arms race rather than cash-flow-funded expansion.
• Michael quotes Ben Thompson and Doug O'Laughlin:

  “What had been a disciplined cash-flow funded race may now turn into a debt-fueled arms race. That’s a vibe shift if I’ve ever seen one.” [69:08]

• Reference to dotcom/telecom 2000: Vendor-financed sales cycles where builders and users leveraged each other’s growth until the bubble burst.
• Josh:

  “This is sort of how the .com and telecom bubbles came to an end. The vendors were literally funding their own growth.” [66:03]

• Companies, especially hyperscalers, are now “defending their turf” at all costs, with capex justified by presumed future AI gains.
• What’s the real ROI on AI spend? Even bulls can't pinpoint whether these investments will recoup themselves as predicted.
• Caution for investors: Don’t blindly pile into “AI plays” and risk concentration. Focus instead on current positions, position sizing, and not chasing every next ‘hot’ stock.

6. Speculative Mania: IPOs, Meme Stocks & Pre-Revenue Rockets

[78:08 – 86:55]

• Stock market euphoria:
  • Retail investor baskets (per Goldman Sachs) rising “straight up to the right”
  • Degen stocks (pre-revenue, pre-profit) up 67%+ year-to-date
  • Ongoing boom in speculative nuclear energy, quantum computing, zero-revenue names like Oclo—driven in part by the “AI needs power” theme [81:30]
  • Social media flooded with posts of retail investors posting million-dollar account gains
• Josh:

  “The more you know, the worse you’re doing right now.” [82:54]

• Michael’s rational reminder:

  “This type of activity is not going away ever. Get used to it. It’s the game now… Don’t let it distract you from the fundamentals and the reality that this is a legitimate bull market. This nonsense is just going to happen when there’s risk appetite.” [85:30]

• Boom time even for broken IPOs of 2021 vintage as retail chases FOMO.
• Prudent advice: If overexposed, buy some protection (e.g., VIX calls) with a tiny slice of the portfolio.

7. Energy Stocks Reawakening—Josh’s "Make the Case"

[101:47 – 104:03]

• Best energy stock charts: Valero, Marathon, Baker Hughes, Phillips 66, Chevron.
• “Time to start looking at energy stocks… someday you’re gonna wish you did. I know there have been a lot of false promises, but…” —Josh [104:03]

8. Market Structure, Froth, and Global Vibes

[98:21 – 100:50], [89:10 – 94:49]

• Breadth is improving; all major US indices hit record highs together for first time since 2021.
• International value stocks have quietly matched S&P500 returns for 5 years [104:25]
• Despite euphoria in pockets, no evidence of a 2021 style IPO or M&A boom.
• OECD/IMF raising economic growth forecasts even with tariffs—we might be “waiting for Godot” on tariffs as a market-breaking event [91:07]
• The global party and wealth effect: Never have so many had so much equity.

Notable Quotes & Moments

• Telis Demos on TikTok:
  “The fact that everyone’s so interested in TikTok is a reminder that this is where we live our lives… The power users I know are middle-aged people just trying to zone out at night.” [06:20]

• Josh (on today's stock market):
  “It is unforgiving for people that insist on buying dips… if you can’t buy at an all-time high, I don’t know what to tell you.” [48:54]

• Adam Parker paraphrased:
  “The lack of a bear case is the bear case.” [46:47]

• Michael on the AI arms race:
  “What had been a disciplined cash flow-funded race may now turn into a debt-fueled arms race… That’s a vibe shift if I’ve ever seen one.” [69:08]

• Josh:
  “We had this whole thing in the tech bubble where vendors would literally finance their potential customers’ purchases just to keep growing—until it all stopped.” [66:03]

• Michael, on retail mania and pre-revenue stocks:
  “Making money is the opposite of stupid… Ride the wave, but don’t risk more than you can lose. This type of vertical move higher usually ends very poorly.” [83:02]

• Market wisdom:
  “Stay focused, do what you think is best for your own long term investing, and do not fall sway to the madness of the crowd.” —Josh (final remarks) [106:02]

Summary Table — Timestamps of Important Segments

| Timestamp | Topic/Segment | |----------------|--------------------------------------------------------------------| | 03:33–12:11 | TikTok’s restructuring and U.S. data policy | | 12:14–32:59 | Mortgage rates, bond markets, housing affordability | | 33:19–42:31 | Credit card business, JPMorgan Chase, competition | | 45:58–61:43 | “Is it too good?”—Market euphoria, breadth, lack of bear case | | 61:43–77:01 | AI capex boom, vendor loops, echo of past tech bubbles | | 78:08–86:55 | Retail mania, pre-revenue stocks, memes, prudent caution | | 101:47–104:03 | Energy stock breakout—"Make the Case" segment | | 89:10–94:49 | Global economic outlook, tariff fears, spending patterns |

Tone & Style

• Candid, conversational, and witty; equal parts analytical and irreverent
• Josh and Michael’s banter mixes pop culture references (Scooby Doo, Nintendo, Sopranos) with economic rigor
• Practical, clear-eyed about bubbles and bull markets: "Ride the wave but don't risk more than you can lose"

Takeaways for Listeners

• The TikTok deal signals a possibly new era for data sovereignty, but won’t fundamentally reshape social media platform dominance.
• Mortgage rates are more about bond investor appetites than Fed policy, and housing “unfreeze” requires deep moves, not just gradual rate declines.
• Card business rivalry is about customer stickiness and scale, but credit risk and rewards 'arms race' make it perilous for smaller players.
• The market is hot enough to make anyone uneasy, but the euphoria is uneven—winning depends on how you ride it, and when you step aside.
• The AI boom is creating a capital spending frenzy with bubble-like features beneath the surface—watch out for the warning signs and don’t overcommit.
• Retail mania and speculative fever are real, but knowing when to leave the party is what separates smart money from cannon fodder.

End Note:
This episode is a must-listen for anyone fascinated by the linkage between markets, policy, technology, and the psychology of investing in a once-a-decade environment. You'll come away smarter—if not humbled—about what drives (and possibly breaks) the modern financial world.