Podcast Summary: The Compound and Friends - “It’s Not the Money, It’s the Mood”

Release Date: February 14, 2025
Host: Downtown Josh Brown
Guests: Michael Batnick, Robert Frank
Description: In this engaging episode, Josh Brown, Michael Batnick, and Robert Frank delve into the intricate world of wealth, family offices, generational perspectives on money, and the broader economic implications of concentrated wealth. Through insightful discussions and candid exchanges, they explore how mood, rather than mere financial standing, influences spending behaviors among the wealthy.

1. Personal Backgrounds and Origins in Finance

[00:00 – 01:01]
The episode opens with Josh Brown and Michael Batnick reminiscing about their childhoods, highlighting their close yet brief proximity during Michael's early years. Michael shares his unconventional entry into the finance world, recounting how he met Josh at a train station during a tumultuous period in his life, leading him from being expelled from Indiana University to embracing a career in finance.

Michael Batnick: "I met Josh at a train station. He saved my life. [...] It turns out, like, that's not real life. So spoiler. It wasn't fine."

2. Navigating the World of AI Tools in Wealth Management

[04:02 – 06:16]
The conversation shifts to the utilization of AI tools in financial journalism and wealth management. Josh discusses his experience using various large language models (LLMs) like OpenAI's GPT, Claude, and DeepSEQ for research and content creation. Robert Frank humorously mentions the phenomenon of "Claude boys," exemplifying the reliance on AI for decision-making among younger generations.

Josh Brown: "I used OpenAI. Now I use Claude more. I haven't used Deep SEQ much. My daughters love Deep Seq."

3. Family Offices: Evolution and Current Trends

[06:16 – 33:40]
Robert Frank joins the discussion, bringing his expertise as CNBC’s Wealth Editor. He and Josh delve deep into the rise of family offices—private entities that manage the wealth and affairs of ultra-high-net-worth families. They explore the transition from traditional wealth management services to in-house operations tailored to individual family needs.

• Growth and Significance:
  The number of family offices has more than doubled over the past decade, currently managing approximately $3 trillion, with expectations to reach $5 trillion. This surge is attributed to the increasing complexity of managing wealth, desire for personalized services, and dissatisfaction with traditional private banks post-financial crisis.

• Challenges and Risks:
  Robert highlights potential pitfalls, such as over-reliance on single-point relationships within family offices, which can lead to conflicts of interest and lack of diversification in advice.

Robert Frank: "You become wholly dependent. Your whole family becomes dependent on this person. [...] And they're also involved in your investments."

4. Generational Perspectives on Wealth and Inequality

[33:40 – 62:00]
The hosts transition to discussing how different generations—Baby Boomers, Gen X, Millennials, and Gen Z—perceive and interact with wealth. Key points include:

• Generational Wealth Transfer:
  An anticipated $100-130 trillion will be passed down from Baby Boomers to subsequent generations over the next three decades. Gen X is set to inherit around $39 trillion, while Millennials could receive approximately $40 trillion. This massive transfer is expected to reshape wealth distribution and perceptions of money.

• Millennials and Inherited Wealth:
  Millennials exhibit a more critical view of wealth, partly due to witnessing more peers inheriting substantial assets compared to previous generations. This shift fosters resentment and alters their aspirations regarding money.

Josh Brown: "There is this inequality now within Millennials that the wealth gap within millennials between the top and the bottom is the widest of any generation."

• Gen Z's Relationship with Wealth:
  While Gen Z grows up in an era of unprecedented wealth concentration, they are also directly affected by economic pressures like high rent and student debt, influencing their attitudes toward wealth accumulation and distribution.

5. Taxation and Wealth Inequality

[62:00 – 76:15]
A critical segment addresses how tax policies contribute to wealth inequality, focusing on:

• Carried Interest Loophole:
  This allows private equity and hedge fund managers to pay taxes at capital gains rates rather than ordinary income rates, significantly reducing their tax burden.

Robert Frank: "They are being taxed as investors and it's a favorable tax rate on the gains when they sell a property or a comp or they have a liquidity event."

• Step-Up in Basis:
  Currently, when individuals inherit assets, the cost basis is "stepped up" to the current market value, eliminating capital gains taxes on unrealized appreciation at the time of inheritance.

Josh Brown: "Let’s say you start a business, you buy Apple stock, whatever it is, you bought it at a dollar, it's now worth a million dollars when you die. The basis of that for tax purposes goes to a million dollars, today's price. So there's zero tax."

The discussion emphasizes the need for tax reforms to address these issues but acknowledges the significant lobbying power of wealthy individuals and families in maintaining the status quo.

6. The Wealth Effect and Economic Implications

[41:00 – 48:10]
Josh Brown introduces his theory on the "Wealth Effect," where the spending behaviors of the wealthy significantly influence the broader economy. Key insights include:

• Correlation with Economic Confidence:
  The wealthy’s spending is closely tied to their confidence in the stock market and their assets' performance.

Josh Brown: "I always say for the wealthy, it's not about the money. It's the mood. They always have the money."

• Impact on Luxury Markets and Real Estate:
  A recession in luxury sectors like art and classic cars indicates shifts in the wealthy's spending moods, directly affecting these industries.

Robert Frank: "The art market was interesting partly because it wasn't so much that the stock market. Because the stock market did so well in 23. I was like, what the hell? That doesn't make any sense."

• New Spending Trends:
  The wealthy are increasingly investing in experiences and private clubs, reflecting a desire for exclusivity and unique lifestyle offerings.

7. Media Representations and Cultural Reflections of Wealth

[53:03 – 84:28]
The hosts analyze how media and popular culture portray the wealthy, drawing parallels with shows like "Succession" and "The White Lotus." They discuss the increasing glamorization of wealth and the creation of exclusive spaces that cater to ultra-rich individuals.

• Exclusive Access and Private Clubs:
  The rise of private clubs with exorbitant membership fees exemplifies how businesses are tailoring offerings to cater exclusively to the wealthy.

Josh Brown: "It's like Planet Fitness with an extra $10,000 instead of $10 a month."

• Impact on Public Perception:
  Such portrayals contribute to societal tensions around wealth inequality, as accessible luxury becomes synonymous with status and privilege.

8. Future Events and Content Highlights

[85:01 – End]
The episode concludes with promotions for upcoming events and content:

• Upcoming Interview:
  Josh Brown is set to moderate an interview with Russ Savage, the founder of Rockstar Energy, at Future Proof Citywide in Miami. The discussion will focus on Savage's transition from entrepreneur to investor.

Josh Brown: "How do you make that transition from entrepreneur to investor is very hard, and he's learning the hard way."

• Entertainment Recommendations:
  The hosts briefly touch upon new entertainment releases, including the movie "Friendship" starring Tim Robinson and Paul Ruddy, and discuss its depiction of wealthy lifestyles.

9. Closing Remarks and Takeaways

Throughout the episode, Josh, Michael, and Robert emphasize the evolving landscape of wealth management, the profound impact of generational wealth transfers, and the societal implications of concentrated wealth. They advocate for greater transparency and reform in tax policies to address inequality and underscore the importance of understanding the wealthy's behaviors and motivations to navigate the future economic terrain effectively.

Josh Brown: "It's the way that the wealthy aren't just getting wealthier. There are more of them and more and more. The economy is sort of roping off an even special version for the wealthy."

Notable Quotes:

• Robert Frank [01:20]: "There are 8,000 family offices now managing ... $3 trillion."
• Josh Brown [08:46]: "Have to work even, like which I can't imagine growing up wanting to not work..."
• Michael Batnick [25:27]: "A multifamily office is like, we’re your family office, but we’re also the family office for 10 other families."
• Robert Frank [33:40]: "There are multifamily offices ... like, we're your family office for 10 other families. ... We'l deliver the product."

Conclusion:

"It’s Not the Money, It’s the Mood" offers a comprehensive exploration of wealth dynamics, emphasizing that the psychological state and confidence of the wealthy significantly influence their spending and investment behaviors. By dissecting the mechanics of family offices, generational shifts, and the socio-economic impact of concentrated wealth, the hosts provide listeners with a nuanced understanding of the current financial landscape and its future trajectory.

For more insights and weekly updates on wealth trends, subscribe to Inside Wealth at CNBC.com/InsideWealth.