Market Bubbles With Owen Lamont, Autonomous Vehicles Everywhere, Barron’s Roundtable

Summary

The Compound and Friends – Episode Summary: "Market Bubbles With Owen Lamont, Autonomous Vehicles Everywhere, Barron’s Roundtable"

Release Date: January 15, 2025

In this episode of "The Compound and Friends," host Josh Brown and co-host Michael Batnik engage in a comprehensive discussion with guest Owen Lamont from Acadian Asset Management. The conversation navigates through the complexities of market bubbles, the burgeoning fields of cryptocurrency and autonomous vehicles, and the financial repercussions of recent Southern California wildfires. Additionally, the hosts critique the efficacy of Barron’s Roundtable stock picks, highlighting the challenges of stock selection in a volatile market.

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1. Understanding Market Bubbles with Owen Lamont

Timestamp: 03:24 – 07:47

Owen Lamont introduces his framework, "The Seven Pillars of Market Bubbles," providing insight into the currently observable bubble-like behaviors in various sectors. While agreeing that the broader market isn’t in a full-blown bubble, Lamont points out "bubblish" elements pervasive across different investment landscapes.

Josh Brown remarks, “...the bulk of the gains for investors in this era have been through arguably the most high-quality companies that have ever existed. Are they tulips? Not really.” This emphasizes the distinction between quality growth and speculative bubble characteristics.

Michael Batnik concurs, stating at [04:27], “The broad stock market is... priced, but not obviously a bubble.” However, he remains vigilant for signs like a surge in IPOs, which could signal impending bubble conditions.

2. Crypto and Meme Stocks: Rational and Irrational Investing

Timestamp: 06:07 – 22:59

Lamont delves into the dynamics of cryptocurrency, particularly Bitcoin, highlighting the interplay between rational investors and what he terms "irrational" or uninformed traders. He references George Soros's paradoxical behavior in bubbles, illustrating the complexity of different investor motivations.

Josh Brown articulates a sense of market cynicism, observing, “...society has grown increasingly cynical. They turn politics into a game show. Why wouldn't we treat markets like...?” This skepticism extends to crypto, meme stocks, and the broader implications of financial narcissism.

Michael Batnik warns of the potential systemic risks as crypto becomes more integrated into mainstream finance. He notes, “If crypto collapsed today, I would expect it would impact the stock market at least some crypto-related stocks.” The conversation underscores the fragility and interconnectedness of modern financial systems.

3. Financial Impact of Southern California Wildfires

Timestamp: 43:03 – 58:49

The hosts shift focus to the catastrophic wildfires in Southern California, discussing both the humanitarian crisis and its financial implications. They cite a Wall Street Journal article profiling individuals like Sylvia Sweeney, whose primary asset—their home—was destroyed, erasing their net worth.

Josh Brown emphasizes the economic devastation, explaining how insurance payouts are insufficient in high-risk areas: “...what I see is that $800,000 sounds really generous... it’s not going to go far in the Palisades area.”

Owen Lamont echoes the severity, stating, “It's hard to imagine what these people are dealing with. It’s an absolute nightmare.”

They also analyze the stock performance of property casualty insurers like Allstate, Chubb, and Travelers, noting their typical recovery post-catastrophe due to increased premiums and improved underwriting practices. However, concerns remain about regulatory caps on insurance premiums, potentially leaving many homeowners uninsured.

4. Autonomous Vehicles: The Future of Mobility

Timestamp: 58:49 – 91:22

The discussion transitions to the autonomous vehicle (AV) industry, with Lamont highlighting significant advancements and market opportunities. Josh Brown underscores the technological and infrastructural necessities for AVs, particularly the need for robust, on-car computing systems independent of cloud connectivity.

Josh Brown elaborates, “...the decision has to be made on the car level, which is chips in the car that are making that call.” This points to the significant role for semiconductor companies like Nvidia in the AV ecosystem.

The hosts examine Waymo’s progress and challenges, including fleet maintenance issues and market penetration. They note that while AVs are making strides in major cities, logistical hurdles like maintenance and user onboarding remain substantial barriers.

5. Critique of Barron’s Roundtable Stock Picks

Timestamp: 56:07 – 82:25

A significant portion of the episode critiques the reliability and effectiveness of Barron’s Roundtable stock recommendations. Josh Brown presents a list of poor-performing stocks picked by the Roundtable, highlighting their consistent underperformance against market benchmarks.

Josh Brown expresses disappointment, stating, “...they're setting them up to fail. None of these people are stupid.” He suggests that the process lacks adaptability and fails to account for the dynamic nature of the market.

Owen Lamont acknowledges the difficulty in stock picking, especially in a market dominated by high-performing growth stocks like the MAG7. He adds, “Stock picking is always and forever really difficult,” emphasizing the impracticality of expecting consistent success from such recommendations.

6. Warren Buffett’s Philanthropic Endeavors

Timestamp: 91:22 – 93:56

The conversation briefly shifts to Warren Buffett’s significant philanthropic contributions, highlighting his recent conversion of 1,600 A shares into 24 million B shares to support family foundations. Josh Brown praises Buffett’s legacy, noting, “He trusts his children to do the right thing with it... philanthropic role has been dedicated for decades.”

Michael Batnik adds, “...credit to Warren Buffett and Alex Morris for following in his footsteps,” acknowledging Buffett’s influence on modern philanthropy and investing.

7. Highlighting a "Secret" Stock: Ubiquiti (UI)

Timestamp: 93:56 – 102:25

In a light-hearted segment, Josh Brown introduces Ubiquiti (Ticker Symbol: UI) as a "secret" stock with significant growth potential. He outlines Ubiquiti’s dual business model—serving small ISPs and offering enterprise products like ubiquitous Wi-Fi solutions.

Josh Brown enthuses, “...this is one of the most secretive publicly traded companies I've ever seen or heard of. Have you ever seen anything like this?” He details the company’s rapid valuation growth, from a $30 million IPO in 2011 to a $23 billion valuation, driven largely by founder Robert Pera’s innovative approach and limited public presence.

Despite skepticism about its long-term viability and maintenance challenges for autonomous fleets, Brown remains intrigued by Ubiquiti's unique market position and potential.

8. Concluding Thoughts and Future Discussions

Timestamp: 103:06 – End

As the episode wraps up, Josh Brown and Owen Lamont express their anticipation for future debates and discussions, particularly focusing on investment strategies and market behaviors. They extend gratitude to listeners, encourage engagement with their content, and promote upcoming episodes and associated programs like Animal Spirits.

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Notable Quotes:

• Josh Brown [04:27]: “...the bulk of the gains for investors in this era have been through arguably the most high-quality companies that have ever existed. Are they tulips? Not really.”

• Michael Batnik [06:14]: “The question is whether they impact the stock market or impact bitcoin or whatever... we're in a recipe for disaster right there.”

• Josh Brown [07:12]: “There's this culture of meaninglessness or just like nor. I don't know what you want to...”

• Michael Batnik [09:40]: “Bob Shiller has talked about the mystique of bitcoin, the mathematical mystique of bitcoin.”

• Owen Lamont [25:02]: “Bitcoin is the difference between bitcoin and Beanie Babies. Beanie Babies were produced by a company that, you know, eventually made a lot of Beanie Babies.”

• Josh Brown [35:15]: “...when it stops going up, then there might be consequences.”

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Conclusion

This episode of "The Compound and Friends" offers a multifaceted exploration of current financial trends and crises, enriched by expert insights from Owen Lamont. The discussion underscores the precarious nature of market bubbles, the transformative yet volatile potential of cryptocurrencies and autonomous vehicles, and the profound personal and economic impacts of natural disasters. Through critical analysis and candid dialogue, Josh Brown and Michael Batnik provide listeners with a nuanced understanding of the intricate interplay between market forces and real-world events.

Transcript

[Josh Brown]

Ladies and gentlemen, welcome to the Compound and friends. Today's show is brought to you by FM Investments. As 10 year yields approach 5%, the huge sell off has improved risk return attributes. Dramatically surging 10 year yields make it possible for investors to both clip a high coupon and benefit from possible rate declines. To find out more, visit fminvest.com and read all about it. I also want to tell you about our sponsor, Rocket Money. Rocket Money is a personal finance app that helps find and cancel your unwanted subscriptions, monitors your spending and helps lower your bills so you can grow your savings. It's super cool. All your subscriptions are in one place. You know where your money is going and if there are services that you are paying for that you no longer use, Rocket Money will help you cancel them directly from the app. Over 5 million users currently on Rocket Money, saving a total of $500 million in canceled subscriptions. Members can save up to $740 a year when using all of the app's premium features. Cancel those unwanted subscriptions today. Go to RocketMoney.com compound right now. All right, we have a lot to do today. We talked to Owen Lamont. Owen is at Acadian Asset Management and we get into this thing he wrote called the seven pillars of market bubbles. When I read it, I found myself kind of like nodding along because while we are not in a full blown stock market bubble, there are tons of examples of bubblish psychology. Bubblish activity. And I think distinguishing between the big picture and the little bubbles all around the big picture becomes really important. So Owen was great. His first appearance on the compound and hopefully not his last. And then it's an all new edition of what are your thoughts with Michael Batnik and I? We look at the financial ramifications of the tragic wildfire episode in Southern California. We also get into autonomous vehicles. I have a secret stock no one's ever heard of. Michael has a mystery chart. There's a lot happening there. Really want you to hear that as well. Please stick around and we'll get you right into the show.

[Michael Batnik]

Welcome to the compound and friends.

[Josh Brown]

All opinions expressed by Josh Brown, Michael.

[Michael Batnik]

Batnik and and their castmates are solely their own opinions and do not reflect.

[Josh Brown]

The opinion of Ritholtz Wealth Management.

[Michael Batnik]

This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

[Josh Brown]

Okay, we are here with Owen Lamont and today we're going to talk about the seven pillars of market bubbles. And this is Owen's first time on the show. He is the senior Vice president and Portfolio manager at Acadian Asset Management, a Boston based global investment management Firm founded in 1986. Specializes in quantitative and systematic investment strategies. Owen, thank you so much for joining us. Are you in Boston right now?

[Michael Batnik]

I am. Great to be here.

[Josh Brown]

All right. Very cool. So I really liked what you had written because I don't currently view the entire market as being in a bubble, but there are undeniable bubble elements everywhere you look. I think before we go into the seven pillars, I think just broadly speaking, the only trouble I have with full blown this is a bubble diagnosis, full stop, is that the term bubble implies that people are making money primarily in either low quality or Ponzi esque types of investments. And while those are everywhere, the bulk of the gains for investors in this era have been through arguably the most high quality companies that have ever existed. Are they paying up for them? Totally. But are they tulips? Not really. So I just wanted to get kind of your overarching take and then I want to dive into what you wrote.

[Michael Batnik]

So I totally agree that I am not. It is not obvious that, like The S&P 500 is in a bubble. I think it's closer than it was six months ago. There are some items on my checklist that I'm checking off, but I would not say that it is in a bubble today. And the main thing I would look, the main thing that might make me change my mind is if in 2025 there's like a huge wave of IPOs like we saw in 99 or 2021. That would be a signal to me, just hasn't happened yet. So totally agree that the broad stock market is. It looks pricey, but not obviously a bubble.

[Josh Brown]

Yeah, it. So to me, it feels like we're on our way to a full blown bubble.

[Michael Batnik]

And there's a lot of things that would, you know, would take a fork in the road, but, like, we're going off every checklist. Boom, boom, boom.

[Josh Brown]

I totally agree. And I had this conversation with Jason Zweig just a month and a half ago and I said we're not quite in madness, we're in the foothills of madness.

[Michael Batnik]

We're in the foothills of madness. Exactly right. And we can, we can see the distant peak of utter insanity. It's, you know, the mists are clearing.

[Josh Brown]

All right, let's go through one through seven. Number one, I'm going to quote you and then I want you to React to it. You said there are idiots. Look around. This, of course, is apocryphally something that Larry Summers wrote in an unpublished paper. It sounds like you got a chance to look at it. It's such a. I don't know if it was his opening line. The way you talk about call me Ishmael from Moby Dick. It sounds like it would be a great opening line. What was Larry saying? And what are the relevant aspects to this concept for today?

[Michael Batnik]

Okay, so first of all, I have never seen it, okay? But it's not apocryphal. There are many witnesses who have read it.

[Josh Brown]

People have. It's apocryphal to me.

[Michael Batnik]

It's like, it's a. It's a. You know, it's like a forbidden scroll that you will ever see. Okay, Might be possible. Anyway, there are idiots. Look around. I think the relevance of that is when we think about bubbles in the stock market, they're partly rational and partly irrational. And I would say that in the world of bitcoin, there are irrational and rational people interacting. So nobody disagrees there are idiots. Or we could just say irrational or uninformed traders who are gambling. And no one disagrees that those people exist. The question is whether they impact the stock market or impact bitcoin or whatever. So there's been decades of research trying to plot out how rational and irrational people interact. But to me, when I think about bitcoin, I do think about a bunch of new people flowing in who definitely do not understand monetary economics, don't really understand finance at all. And they're just, you know, they're just buying the Bitcoin ETF because they're part of a movement. It's part of something cool, it's part of something lucrative. And an interesting qu. A quote that I didn't include was George Soros's famous quote, When I see a bubble, I rush in. This is not irrational. So that there are other people. I don't know they're front running the idiots or what they're doing. But it's a. It's a complicated situation with different types of actors making different types. Everyone's trying to outwit everybody.

[Josh Brown]

So this is what I wanted to ask you. There's an. There's an element to this. There's a cynicism. And I'm not sure if it's generational or if it's pros versus retail, but it's like, well, I know there's this army of morons that's going to keep buying, therefore why would I sell? And so you have rational people deliberately, possibly acting irrationally, making the bet that there are even more irrational people right behind them. Yes, that's what's at the heart of the Soros quote. And I think, if anything, all of society has grown increasingly cynical. They turn politics into a game show. Why wouldn't we treat markets like. On its face, the only use for it is greater. Fool.

[Michael Batnik]

Yeah, I mean, it's always been true that there's been this, you know, what Keynes called the beauty contest, the animal spirits that we're all trying to. Judging the judges, but it seems like, let's just. You're old enough to remember the tech stock bubble. There was a lot of that in the tech stock bubble, but at least there was like a core of a good idea, which was there was this Internet thing, as opposed to many of the cryptocurrencies, where it's just, it's, it's. Everyone knows is crazy and they're just, you know, they're, it's just, they're just part of the game. They're just, they're just playing to outwit the other guy. And it's, it's a timeless thing. But just like you say, it seems worse. And I totally agree. It's, it's part of our culture of meaninglessness or just like, you know, nor. I don't know what you want to.

[Josh Brown]

Call it, but it's a, it's a financial economic nihilism.

[Michael Batnik]

Yes. I think that's the phrase of Matt Levine, and that's definitely the meme stocks. That's what the meme stocks of many of the cryptocurrencies have in common. Like they stop pretending that there's an economic reason for it.

[Josh Brown]

Yeah. So I think, I think there's an. I think there's an element of that. And then to your point, I think there are players who genuinely hold these kind of, these kind of like crypto libertarian views about the financial system. And they, they, they believe in what they're building and what they're doing and the purpose of all of this, and they're willing to tolerate the carnival sideshow that's taking place in the tent next door. Because in their way of thinking, and you wrote about this, yes, there are idiots, but they don't matter because they cancel each other out.

[Michael Batnik]

Right.

[Josh Brown]

So if you're the CEO of Coinbase, you know, you can't get rid of the idiots, and maybe you make some money because they exist, but you're not really focused on that. You're focused on building the Charles Schwab of the crypto era. And you're a true believer.

[Michael Batnik]

Right. And in the defense of the crypto boosters, every great economic transformation has had nonsense and stupid people and crazy stuff. So railroads and those were all good things that helped society. So I can see where they're coming from. But you can't really say that about the meme stocks and stuff. That's just pure nonsense. And it seems related and it seems like it might be kind of intersecting, especially the cult like aspects of it.

[Josh Brown]

Yeah. So let's say, all right, let's say there's $4 trillion ish in crypto, most of it bitcoin and bitcoin related securities. Like let's. I know there's some overlap there, but let's just say that's like that universe of speculation. Then let's say the meme stocks are another. I don't know. They do, they add up to tiny. It's at 5 billion still with Gamestop being half. I don't even know. I don't know what a meme stock is. So I was told last week that the quantum computing stocks are the new meme stocks and they are super tiny. These are companies with effectively no market cap. So let's say the whole phenomenon though between crypto and these tiny meme stocks, let's say like all of it adds up to what I say, 4 trillion plus 10 billion. I mean it, I guess it would qualify as a bubble if this were 1997, but in the context of the global economy and market. Global market cap, it's not, it's not there yet. And that's why I say foothills.

[Michael Batnik]

Yeah, I mean in, in 2018 there was a crypto bubble not as, not as big in billions, but. And it really had nothing to do with the American stock market. And we've also seen like these Chinese bubble. We saw one in 2018 and 2015. They're kind of like off in the corner doing their own bizarre thing, burst, growing and bursting. But I do kind of think that as crypto and bitcoin are becoming mainstream, they keep having these bubbles and as they get bigger, they're starting to intersect with the real world where that would be my concern. I don't really care. There was a crypto bubble in 2018, but if crypto collapsed today, I would expect it would impact the stock market at least some crypto related stocks. There's more crypto related stocks. There are stocks that are, are announcing that they're buying bitcoin as Bitcoin Treasury. So it's, I would say it's infecting our stock market or it's like, it's like a contagion of crypto. Crypto. In addition to meme stocks, there's crypto adjacent stocks.

[Josh Brown]

Yeah. Microstrategy being obviously the most well known. Several others, Riot blockchain, Mara, bunch of ETFs. I guess what I would, what I would ask you is, do you think we're now at the point where crypto investing has or crypto assets have become so financialized that they are effectively systemically important or the dollar amount's not there yet? And specifically I guess I would think of like stablecoins, which tether has long been looked at as how do we really know what's going on there? Well, what's going on there is now they make a lot of money because they own a lot of bonds. Are they now, is that now a systemically important pool of capital for not just crypto, but for all of us? So these are like the new questions we need to ask as this asset class grows in size.

[Michael Batnik]

Okay, so there's kind of like two things. One is you. In 1999 we had a huge tech stock bubble. Tech stocks went up, tech stocks, they went down. There was no like global financial collapse. Why? Because that was 100% equity. That was an equity based thing and you know, hurt a lot of people invested in tech stock. But it didn't like cause a global collapse. What is the difference? The difference is debt. My former colleague at University of Chicago, Doug diamond, who won the Nobel Prize, has this quote. Let me try to get it right. Financial crises are always and everywhere about short term debt. So I totally agree with you that the rise of tether and other stable coins are a are would be a really serious thing. Like forget about these meme stocks. That's like a sideshow. If somehow we had a shadow banking crisis that would be concerning. I don't know if we're there. That's like over my pay grade. But that would definitely. If we had a messed up financial system that was half libertarian and half regulated, that the libertarian part being the crypto, the regulated part being the bank, that would, that's a recipe for disaster right there.

[Josh Brown]

Well, we sort of are in the opening endings of that when we have brokerage accounts that can seamlessly. Where you can move money seamlessly between the libertarian. Crypto Libertarian type of world.

[Michael Batnik]

Yes.

[Josh Brown]

And the traditional finance world. And it's not just Robinhood at this point now. It's Fidelity and Schwab said right after the election, okay, we're going to do this too. So we're, that's the foothills idea. Like that's, that's where we're going.

[Michael Batnik]

I mean, the amazing thing is how many people have changed their mind about Bitcoin. You know, it used to be this terrible thing. Now it's like, hey, we're, we're starting this bitcoin ETF or whatever. So it's, you know, there's a tendency to join the winning team and that's what's happening.

[Josh Brown]

Having a kid in college and this being fraternity and sorority bid week, I can tell you right now, the feeling of belonging or not belonging is maybe one of the most primal human urges. And the behavioral financial psychology that comes along with those ideas, I almost feel like that's the whole. If you understand how badly people have this urge to be in the, in group and not on the outskirts of the bonfire where they might fall prey to, you know, a hyena. It's just a hundred thousand years of human development, especially young men, you know.

[Michael Batnik]

Young men want to form their band that goes out and fights against injustice and you know, you know, brings home the, brings home, Go to the hunt and bring home the prey. So it's kind of like it's not a bull market, it's a bro market. It's about masculinity. You know, Mark Zuckerberg said it this week, we need more masculinity. And it's, that's really, it's a distinctive feature, I guess. You know, it's all part of a cultural moment we're at.

[Josh Brown]

Yeah. Where of all the cowboys gone. They're, they're on their phones, they're, they're trading and sports gambling. All right, number two, everyone ought to be rich, you say? That's the title of John J. Rascob's spectacularly ill timed article urging Americans to buy equities in the August 1929 Ladies Home Journal. I guess the joke there is like by the time it's in Ladies Home Journal, it has now permeated every possible avenue to reach the masses. Because that would not be the first place you would see an article about investing up here. At least not 100 years ago.

[Michael Batnik]

Yeah, Rascop was a, he was, he worked for General Motors and he kind of invented, I'm probably going to say it wrong, but he was part of the whole like installment plan and how to, how to buy a car. He was a, he was a legitimate pioneer of household finance. Let's say, or consumer finance. But anyway, this relates back to the crypto libertarianism. It's kind of like we have this. There's a element of society that's like, there's no way the whole system is rigged against me. The whole just working hard will not work. So what I need to do is take a, take a big risk and go bold with this crypto stuff. So I would say that the crypto has always been part of a utopian vision of starting with the correct premise that we have an inefficient financial system, but then leaping to this like, hey, this bitcoin thing is going to solve everything. It's going to be everywhere, it's going to transform society and you know, it's going to. GDP will go up a million times. Yeah.

[Josh Brown]

So when I hear democratizing. All right, let's start with this. We have democratized blank to me means hold your wallet. Because nobody in any kind of position of power, any kind of gatekeeper of returns or capital is going out of their way to democratize anything unless there's money to be made. And that doesn't mean anything's wrong with that.

[Michael Batnik]

Right.

[Josh Brown]

But instead of leading with hey, we're doing this because we think it's good for business. No, no, no, no, no, no, no. We're doing this because we have such incredible lives and it's just keeping us up at night that no one else does and we want to bring you into the club. It's always bullshit. It's never not bullshit. I think it's maybe just a spectrum where it's like little bit more altruistic and then completely, completely a masquerade. I don't totally hate the message, I just know it's fake.

[Michael Batnik]

Yeah, I mean, Josh, this is gonna be a boring video cuz we just agree on everything. But you know, democratizing sounds good, but not everything should be democratized. Like democratizing surgery. I do not want my surgeon elected. I want to pick. I want elite surgeons, not democratic surgeons. So I think it's often been the case that like there have been well meaning attempts to like we're going to promote financial literacy and they backfire. It would be like promoting surgical, you know, giving out a scalpel and saying you could do surgery. It's inevitably going to backfire.

[Josh Brown]

There's a well known paper that looked at the results of promoting financial literacy and what they noted after looking at actual investor behavior on the heels of this democratization is that it actually ended up promoting overconfidence and people did worse in the markets believing that they were now literate. All right, so there's a lot of that. There's a lot of that. And it's not just in crypto and meme stocks, which obviously it's a big feature of that. We're starting to see that in private equity, private credit. Just this concept of we are liberating you to come into our highly sophisticated market. And, you know, now you're part of the gang in a million ways. We know how that will go wrong. We don't know the timetable. Okay, Number three, nobody knows anything. This is as William Goldman, famous William Goldman quote.

[Michael Batnik]

Yeah. He's the guy who wrote many great Hollywood scripts and many wonderful books. Yeah. Nobody Knows Anything was like, you know, nobody, no Hollywood executive knows which movie will succeed. That's why they, you know, they make a million Marvel movies, and some of them succeed. So nobody.

[Josh Brown]

Oh, and here's the. Here's the full quote. Nobody knows anything. Not one person in the entire motion picture field knows for a certainty what's going to work every time out. It's a guess, and if you're lucky, an educated one.

[Michael Batnik]

Yeah. So in finance, we have a special version of that called the random walk theory, which says whatever the price is today, that's our best guess for what it'll be, you know, tomorrow. So that nobody. The whole theory is it is impossible. It's utterly impossible to predict financial outcomes. And people often criticize finance professors for, like, you know, you failed to predict the global financial crisis or whatever. Well, we have a theory that says it's impossible to predict financial outcomes because people are trying to anticipate it today, and the expectations are already embedded in today's crisis. So anyway, the main point of Nobody Knows anything is we're all existing in a total fog of war here in finance. And that's a situation which gives rise to charlatans who claim to know something but don't know anything. So we. It's. It's kind of a. I know I don't sound very humble, but I think we should be humble in the face of market prices. So if bitcoin is at $100,000 now, I should humbly say I don't. I can't. You know, even if I think it's worth zero, it's not. I don't think best prediction to say it's going to go to zero tomorrow, so nobody knows anything is we live in such uncertainty that it's hard to evaluate people making crazy claims. When people make crazy claims, it sounds right. So we go with it.

[Josh Brown]

One of the, one of the most helpful things I ever heard a traditional finance person say about the price of bitcoin and he had, no, I don't, I think he might have had a target, but he admitted the target was made up. But William Miller is one of the greatest all time equity fund managers and also had some of the most notable blow ups. But his comment probably 10 years ago now on Bitcoin is the supply is only going to rise by 1 or 2% a year. So do you think demand will rise more or less than 1% or 2% a year? And if the answer is demand will rise more, then it's an investable asset. The one thing we know for certain, or we think we know for certain is that there is a finite supply of this, which I like better than dotcom IPOs, of which there can be an endless amount. My trouble with that is always, well, somebody will do Bitcoin 2 and Bitcoin 3. That's obviously not been correct. We've got all types of cryptocurrencies, but none of them have attained anywhere near the, the, the network effects of, of this one. But is that kind of what you're saying? Is that like you can have predictions and you can kind of have theories, but they should not be stridently held in the face of this fog of war that you describe?

[Michael Batnik]

I mean, I think it's a little more than that, that we could. If somebody says, I am sure bitcoin is going to $13 million, you know, in 10 years, I think we can safely say that person is a charlata, you know, or maybe is a direct line to God that I don't have. But I mean, you're exactly right about bitcoin. The genius of bitcoin is the limited supply. And that is the difference between bitcoin and Beanie Babies. Beanie Babies were produced by a company that, you know, eventually made a lot of Beanie Babies. Not going to happen with bitcoin. And you're right that it is a, it's a puzzle that people will not accept substitutes for bitcoin. There's thousands and thousands of al alternatives.

[Josh Brown]

So far, no. So far, no substitute there. There's also like a kind of, I don't know if it's a giffen good or a veblen good aspect to this, where the higher the price goes, the, the more desirable it is, it is to buy. Which, which, which metaphor am I, am I supposed to be using?

[Michael Batnik]

It's not a giffen good. It's I think that there's a famous quote. It's by the guy who wrote reminiscences of a stock operator. What's his name? Lefebvre. He said.

[Josh Brown]

Edward Lefebvre. Writing about Jesse Livermore.

[Michael Batnik]

Right. He said the higher the stock price, the better. That was one of the quotes I didn't put in here. But he was talking about in 1929 and in the South Sea bubble. They specifically designed the South Sea bubble that, like, when the price went up, it benefited the existing shareholders. So it was like everybody had a incentive to be a cheerleader. So I don't think it's a giffen good. It's the. It's not a normal good. Maybe there's a term. I don't know.

[Josh Brown]

Okay. I think. I think it's a Veblen good. Just what I would. At least. What A luxury product that has a direct relationship between price and demand, which is the opposite of economic theory.

[Michael Batnik]

So the more expensive a Lamborghini is, the more people want it. Okay.

[Josh Brown]

It has an upward sloping demand curve, meaning that demand increases as the price increases.

[Michael Batnik]

Okay.

[Josh Brown]

So that's. That's what I think this is. All right. I wanted to. Where was I going? Oh, number four, A fanatic is someone who can't change his mind and won't change the subject. We don't know who said this. Sometimes Churchill, sometimes Truman, probably neither. But the zealotry in meme stocks, in crypto, in a lot of corners of the tech stock market, it's undeniable. It's getting louder. And they are in ascendance because they've been right. They now are being appointed to government positions. It's a very tough thing if you're on the outside looking in to fight the urge to join the people who look like they're winning. And that reinforces the fanaticism.

[Michael Batnik]

Yes. Well, first of all, they're not. They're right today. You know, two years ago, they were wrong. And we see them as going up and down, but they see them as, like, linearly ever getting ever closer to bitcoin utopia. The one thing we all lived through was Covid. And we all lived through this idea of, like, there's infections and they come in waves and waves. And that is an idea that is also spreading in economics that, like, the best way to understand some social phenomena is like a contagion effect. And just like you say, part of it is the bandwagon effect that when one side is winning, everybody defects to that side. So I do see the dynamics of like, contagion or infection or whatever you want to call it, epidemiology working. And it's like, spread by social media and other ways of communication. And we've always had rumors in the stock market and fads and stuff, but it seems to be getting bigger and the magnitude and the speed seems to be going up. I mentioned a paper by last night, Betterson, where he modeled this, and it was like, the fanatics are a key part of this story because the fanatics are always there. It's like a disease reservoir that's always reinfecting the population. When new people enter the population, they get reinfected.

[Josh Brown]

Yeah. Fanatical optimists play an important role in generating mispricing. They continually transmit their bullish message, operating as influencers or thought leaders whose ideas spread through the information ecosystem. So to your point, they're not going away. They get more or less attention based on the recency of how right they look, but they never exactly disappear. But there's this phenomenon also where after a huge drawdown, and I think bitcoin has been cut in half five times in 10 years or something, after a huge drawdown and then the subsequent comeback, which, by the way, these events seem to be happening at a quickening pace, it emboldens them even more. I told you it would be volatile and I told you to buy the dip. And, you know, like, so it's, It's. There's a lot of power amongst the loudest of the fanatics.

[Michael Batnik]

Yeah. I mean, the power of human beings to justify and rationalize events to fit their worldview is amazing. It's like these doomsday cults where the guy predicts that doomsday will happen and it doesn't have. He's like, oh, I, you know, I just miscalculated. It's going to happen next year. And. And some people leave when that happened, but other people, like, double up. They're. They're like, committed to this idea.

[Josh Brown]

Yeah. So.

[Michael Batnik]

Yeah. But, you know, again, I'm looking stupid today because I think bitcoin's worthless. They're looking like geniuses.

[Josh Brown]

Yeah. So say they. They put a date that's 20 years in the future, and it's a random Tuesday. The date comes and goes, and these people that have been living with them on the compound for 20 years. So then Tuesday goes into Wednesday. Nothing happened. The guy turns around, he says, well, that's because we weren't worthy. Yeah, we were all supposed to ascend to heaven, but you haven't been listening to me.

[Michael Batnik]

Yeah. You know, if only you were believed bitcoin more, it would go up. Yeah.

[Josh Brown]

All right. Five, the more confusion, the better. Why is crypto. This is you. Why is crypto good? What's the use case for bitcoin? These are simple questions, but they do not have simple answers. And the answers provided seem to change every year. Okay, so there's a lot of mission creep. This used to be about banking the unbanked. Lol. All of the money in crypto is held by rich people or people who have recently gotten rich. I don't see a lot of soup kitchens that have been transformed into Peter Luger's as a result of bitcoin. I don't, I don't really hear a lot of stories about people whose lives have changed. However, the kernel of truth is there were a lot of lower income people who because of social media were infected and bought Bitcoin at $1500, $2000, $3000. You can't deny that this has absolutely changed their lives. I don't know how many of them there are, but I do know they exist.

[Michael Batnik]

Okay, so gambling is always, you know, some people always benefit from gambling, while the majority of people. And it certainly changes their life, usually for the better when they, when they win. The original quote, more confusion the better is from this guy from the South Sea bubble. So I would say part of the success of bitcoin is that people just don't understand it and they think it's cool because they don't understand it. And Bob Shiller has talked about the mystique of bitcoin, the mathematical mystique of bitcoin. I think part of it is, I don't know what your experience is, but if you've ever taken a money and banking course. I took one in college. It is the most boring thing in the world. Like money in banking has a, A, an impenetrable wall of boredom protecting you from understanding it. Like, you know, fractional reserve, you know, interest on, on deposit. The Fed is just boring. So bitcoin is exciting. There's like a hero, there's a villain you're fighting as part of this thing.

[Josh Brown]

And yeah, it's a video game.

[Michael Batnik]

Yeah, it's exactly like a video game. Bing, bing, bing. Number go up and there's, there's a villain, which is the evil fiat currency. People who are trying to put down bitcoin.

[Josh Brown]

Yeah, regulators lately who are trying to stop us from making money. Okay. But there is this aspect to a lot of areas in finance, and crypto is one of them where that flexibility of convictions about what the thing is even for or how it works is. Is a really powerful recruiting tool because it could be anything to anyone. Right.

[Michael Batnik]

So there's no accountability. They keep saying, you know, okay, bitcoin is going to provide this free WI fi to everybody. Or there are these games that you play and the bit that there's a cryptocurrency associated with it. And these, these projects all collapsed because they weren't good ideas. And we're on to the next. The next justification of bitcoin, the next use case.

[Josh Brown]

Yeah, one, one of the things about the movie Dumb Money, they. They do a really good. It's not a great movie, but they do a really good job in the movie showing the transmission of how the first people buying GameStop and AMC because of the short squeeze, they kind of like understand the concept of why it should work. But then they show that like game of telephone as they tell their friends and their friends tell their friends. By the fourth generation of people hearing about it, they have no idea how short selling works or what any of it means. What they've picked up on though, is that everyone else is doing it.

[Michael Batnik]

Yeah.

[Josh Brown]

So I don't think the people who just put $50,000 into the BlackRock Bitcoin ETF for the first time last week have read the white paper, the satoshi white paper. Okay.

[Michael Batnik]

But I mean, in their defense, you know, I drive a car. I don't know how it works. I use a computer. It's part of a dealing with uncertainty. You know, we do with do it all the time in modern society. It's just that the types of things that are sneaking in are getting more absurd.

[Josh Brown]

Okay, we got two more number go up. This is you. You don't need to tell me that. The number go up captures a central dynamic in financial markets. You can call it extrapolation, FOMO or as I've previously suggested, the iron law of return. Chasing flows, money chases, trailing returns. We both. I don't know if you know, I know Zeke, the author of the book, great reporter, really funny guy. The book is hilarious. Isn't number go up though, in the end, like the only thing. And when it stops going up, then there might be consequences. But it's been going up all year and you know, people really aren't paying attention to anything other than that. I think.

[Michael Batnik]

Yeah, yeah. I mean anybody, everybody in the asset management business knows number go up is what you want. That's what's, that's what gets you clients. That's what gets you customers, that's what's getting inflows. And the question is like how, how long can number go up and what makes numbers stop going up? So there are many things that could make the number stop going up. And I don't know if I'm saying that English correctly. Last time around, I guess it was FTX and SBF and the revelation of fraud. You know that's often part of bubbles. It was part of the South Sea bubble and other bubbles that you know, you know that people are, that some of the agents out there are not honest. But yeah, number go up. I would say that in, in our brains there's two things going on. There's value and momentum and they're fighting with each other because when something gets more. It's kind of like what you were saying about your Devlin Good. When the Lamborghini gets more expensive, well, you know, it's, I have less money, I don't want to buy it. But maybe as it gets more expensive I think it's going to go up even more. So it's like value and momentum are at war. A number go up is the momentum part.

[Josh Brown]

I think, I think probably nothing really puts an end to this now from a regulatory perspective. Like I, I don't think, I don't think an SBF at this point can do the damage that he was able to do three years ago because of how institutional this market has now become. So FTX was important in a world where Fidelity couldn't be a broker, but Fidelity can be a broker. Here these assets are trading on the CME as options contracts. For me, I feel like you kind of need an economic event where people need the money. I'm not saying it can't stop going up, I'm just saying how does it have a long term decline is people need to live on the money and can't afford to use it to speculate. A lot of people. So we haven't seen that yet. People forget for the last 15 years we've only been in recession for two months, April and May of 2020 and it was man made. We actually have not had a business cycle in the post great financial crisis period. That's the entirety of crypto's existence. We could show me, show me what Bitcoin does in a recession. You can't, we haven't had one. So to me that's the risk here. It's another financial asset and people live on their financial assets when times are tough. All right, last one. This time it's different Full quotation from Sir John Templeton. The investor who says this time is different when in fact it's virtually a repeat of an earlier situation has uttered among the foremost costly words in the Annale of investing. Of course, the well known corollary is that to some extent it's always different. But I still think that's a meaningful quote because the markets change, the securities in question change, the political situation changes, but the constant is fear and greed. It's the core of human behavior is stemming from those two ideas. So I think that's what you're getting on here as well.

[Michael Batnik]

Yeah, I mean it's, it, it's kind of the same as number go up. Like we see this thing where the price goes up, it goes up more, it attracts more people, it goes up again. There's this whole psychology of bubble beliefs that build and we've seen it so many times. Yeah. I don't, I don't really know how the fear, the fear is like when it ends, but the greed is there.

[Josh Brown]

Yeah, yeah. And you point out Charles, Charles McKay who wrote the extraordinary popular Delusions in the Madness of Crowds, which is a book about historical bubbles, arguably the ur text on, on financial bubbles.

[Michael Batnik]

Yeah.

[Josh Brown]

He himself felt fell victim to the British railway bubble and blew himself up.

[Michael Batnik]

Yeah. So first of all, that book that he wrote is not reliable, is widely criticized for just making up stories, repeating nonsense. But it is pretty cool that he was, he was all huffy about it in that quote like well, you know, if you're stupid, you think if it's repeating itself. But actually the railway bubble is different and he had a point like the railway bubble was a real thing, unlike the tulips that you know, really generated profits and stuff. So again, this goes back to rationalization. People are always rationalizing what they're doing and they're able to come up with stories that explains why they're, why they're bullish.

[Josh Brown]

We're very, we're very good at that. All right, well we'll leave it there. Oh, and I want to thank you so much for the writing that you do in the research and appreciate you coming on. Where can people find more of your market commentary and, and make sure they get that delivered to them when you write.

[Michael Batnik]

It's on the Acadian Asset management website. It's the, it's called Owenomics and you can sign up and get it emailed to you when it comes out.

[Josh Brown]

All right. Owen Lamont, ladies and gentlemen. Make sure to check out acadian-asset.com and you can find Oonomics and all sorts of other good stuff. Thanks so much for joining us. We'll talk to you soon. Foreign PM in the East. You know what that means. It's time for another all new edition of what are your thoughts? This is the longest running show on the compound YouTube channel. I think this predates the animal spirits video, right?

[Owen Lamont]

Yep, yep.

[Josh Brown]

Okay.

[Owen Lamont]

20, 18. Yeah, 19.

[Josh Brown]

Guys, we gotta tell you, we appreciate the love so much. The views on this channel to start the year have just been absolutely Titanic. You guys are awesome. And we got a full chat tonight. We got the live gangsters are all here. All my compounders. Debbie Dantes is here. Rick G. Michael Griffiths. Somebody asked an interesting question. If you're a Giants or a Jets fan, do you now root for the Bills? I think you root for the Bills if you're a football fan because you want to see Detroit Buffalo is like a. That's a classic sort of. Sort of Super Bowl. Isn't that the right answer to that?

[Owen Lamont]

Well, I don't know. I mean, you think people, you just make it shit up. People are rooting for the, for the Bills just because what? Because what? Because that's a nice job.

[Josh Brown]

Because Josh, Josh Allen. If you don't get Patrick Mahomes, Josh Allen is probably the best replacement for him.

[Owen Lamont]

Have you heard of the mvp, Lamar Jackson?

[Josh Brown]

Yeah, I don't, I don't. I don't know if that. I think he's awesome. I just don't know if people get as excited for that. I'm not sure.

[Owen Lamont]

Okay.

[Josh Brown]

I'm not sure.

[Owen Lamont]

Okay.

[Josh Brown]

How does Lamar Jackson get MVP without Derrick Henry making it so everybody has to focus to the left or the right of him every down.

[Owen Lamont]

Let's move on.

[Josh Brown]

All right, I want to mention that tonight we have a very special sponsor. It's a new sponsor. Michael's gonna tell us.

[Owen Lamont]

Not new to me. Not new to me.

[Josh Brown]

New to me.

[Owen Lamont]

So FM Investments had this really great concept. Hey, what if you could just buy like this part of the yield curve inside of an etf. Who wants to deal with like government websites and pain in the butt ways of buying treasury bonds?

[Josh Brown]

Boom.

[Owen Lamont]

You want the 10 year, you got the 10 year. You want the three month and the six month, you got it. And now they're launching some new credit series products. Really interesting. They nailed the timing of this product launch. And so check them out. FM Investments.

[Josh Brown]

Wait a minute. So the downside is limited.

[Owen Lamont]

No, no, no, no, no, it's not. There's something like that. What do you.

[Josh Brown]

This okay, so how does this work? Exactly? Exactly. Give me like the, give me like the elevator pitch.

[Owen Lamont]

Okay. The elevator pitch is this. If you want access to the 10 year, not just like a 10 year, that might have been issued a couple months ago or a couple years ago, that's going to mature. If you just want to buy the 10 year bonds, you could do it inside an ETF or whatever maturity that you're, that you're looking at. That's the pitch.

[Josh Brown]

Okay. Oh, I like that.

[Owen Lamont]

Love it. It's a good idea.

[Josh Brown]

So it's a new idea. It feels like it's something that people should have invented prior to now.

[Owen Lamont]

Well, dude, five years ago, there's no, there's no interest rates. Who cared?

[Josh Brown]

All right, hey, if you guys want to learn more about this, go to fminvest.com you can read all about how it works. You can read all the disclaimers.

[Owen Lamont]

And we, Ben and I have had Alex Morris on the pod multiple times. Talk about us. If you want to learn more, Google Animal Spirits. Alex Morris FM Investments.

[Josh Brown]

All right, very cool. So tonight. Oh, tonight we do have to mention that. Let's start with this. So we normally stay far away from covering natural disasters or geopolitical events or school shootings or terrorist acts. We did talk a lot about COVID because it like fed into the markets. But we weren't like every night reporting on like the, the horrific aspects of it, the death cap count, the infection count, like we don't do that. The way that we've always thought about the compound is that we stay in our lane. We talk about what we're experts in or the things that are relevant to investing. And you guys have a million places to get news. So we're, we're not CNN, we're not 60 Minutes. So we try to give you an escape, I guess. But the story over the last week and a half, two weeks and you can't take your eyes off of it are the wildfires out west. It is. I was talking to my brother who lives in, who lives in Calabasas and basically, you know, from his perspective this is like Los Angeles is 9, 11. It is just probably going to go down in history as one of the costliest disasters. We have 24 people dead, 30 something people still missing. We've got people who are going to be displaced for months, if not years and an entire way of life in a couple of these towns just completely over. And it's not clear what the rebuilding is even going to look like. But it'll never Be the same. So we are going to talk about it a little bit. At the outset I saw some data.

[Owen Lamont]

On this in terms of like the scale of the impact. So 19,000 acres, 30, which is 31 square miles, 5,000 plus structures, and almost 70,000 people are like directly impacted by this in the areas.

[Josh Brown]

It's so big this like the scale of this disaster because the nature of it is wind blowing the disaster from one roof to another.

[Owen Lamont]

So you were explaining this to me the other night. This was completely foreign to me that they have like these high winds there.

[Josh Brown]

They haven't had a substantial rainfall in L. A since May. So they had a really rainy spring and then they had a bone dry summer. And what that ended up producing was an excess of vegetation which then dried out. And so that's like basically just kindling. And then you get these Santa Ana winds. And what they're doing now, because they're back on alert is the utilities are voluntarily shutting down their equipment so that something doesn't spark and start this all over again. Which means you have hundreds of thousands of households and structures without power right now. Some because the equipment in their area has been burned to the ground and some because they're trying to prevent it from happening and have a fourth and a fifth fire. They haven't even put out the fires from last week yet fully they've contained them, but they're still raging. So it's not over. It's unlike a hurricane that blows itself out in a day or two. This is like a lingering disaster. And it's not clear that we've seen, you know, hopefully we've seen the worst of it. But it's a financial story, which is why it's relevant to us every bit as much as it is an investing a humanitarian crisis. And I want to point to this Wall Street Journal piece because I think this really gets to the heart of why it's a financial story. Basically they profile, the title is their wealth is in their homes, Their homes are now ash. And they profile people who are like regular people, not Steve Gutenberg, not movie stars who basically like most of their net worth is the house that they happen to have bought. And that house has appreciated substantially along with all other real estate in the last few years and now it's zero. So let me just give you the opening, Michael, and then I want to get your reaction. Sylvia Sweeney and her husband Bob Honeychurch, great names, bought their three bedroom home nestled in the foothills of the San Gabriel Valley for 780,000 in 2009. At the start of this year, it was worth more than double that. 1.6 million by one estimate. Sweeney is 69 years old, worked at a church. Like these are not high flying celebrity people in the Pacific Palisades. These are amongst the thousands of people who just, their, their entire net worth evaporated along with the place they live. It's like a double, it's like a double penalty to wake up to that reality. And I don't know, man, this is a lot of people. And the Journal profiles all sorts of people who are in this situation.

[Owen Lamont]

Yeah. Ben and I were talking about this on the pod today that there's a big difference between the stock market and the real estate market in the sense that the top 1%, the top point 1%. Right. Because they're founders, they own the majority of the shares. They own the stock market effectively. Right. And the, the crumbs are for the rest of us with, with real estate. It's, it's not like that. Like to your point, these are not, these are not all Hollywood celebrities. These are regular people. Some have been there for, you know, 20, 30, 40 years and more. And to see your home wiped out, I mean, I, you can't put yourself in that situation. It's hard to, it's hard to imagine what these people, what these poor people are dealing with. So I don't know where they go from here. I know that there is like a, obviously a shortage of housing. So it's, it's a nightmare. I don't really have many profound words. It's just an absolute nightmare.

[Josh Brown]

As a 77 year old woman in the piece, she was told that Insurance would cover $800,000 to rebuild and $12,000 a month in rent. She's like, I can afford a $2,285 monthly mortgage payment basically. So $800,000 sounds really generous from an insurance company until you realize that's probably not going to go far in, in the Palisades area. Like that's not that it sounds like a lot of money if you live somewhere else, if you live there. It's, it's, it, you know, it's almost like a punchline to be able to rebuild something from scratch. And so they say their typical home in the Palisades is worth $3.4 million. Maybe not anymore, obviously, because the community has been decimated. But it's just, it's as messed up a situation. And then where do you live?

[Owen Lamont]

Right.

[Josh Brown]

So we would talk. So we have an advisor in Southern California, Michelle, and she's got obviously a ton of clients in that area. And it's a combination of people staying with family or hotels. If you were lucky enough in the early days to find an Airbnb, great. Most of those are now taken and for huge dollar amounts. And there are people out there that don't care about the money because they, they could back it up, but most people can't. So that's like a whole other issue is like where do you, where do you even go? If you don't have a family member that's got a house in the area, there's a limit to how many hotel rooms there are. So you hear stories now about people's kids started school yesterday, Monday morning in an entirely different district, just wherever would take them. Imagine being an eight or nine year old being sent into a school where you know no one, just because you need to be in school. So there are like a lot of aspects to this that are just. You've never had to think about these things, right? They're sort of on. It's like sort of unimaginable.

[Owen Lamont]

No, it's 100 unimaginable. Our friend Dave Maza lost his house and his school, so his kids are going to your point, it's like, what, how do you. I don't know how these people begin to pick up the pieces of this and figure out a way forward. It's. It's beyond words.

[Josh Brown]

It's another interesting aspect of this. The Journal's got a chart showing the median homeownership tenure by city. And of all the major cities, Los Angeles has the highest meaning people stay with their houses in L. A. I don't know if that means the lowest turnover. I don't know if that's quite the same thing, but people. Los Angeles is 18.7 years and the next highest is San Jose at 17.8, then San Francisco at 16.7. So comparably, Vegas is eight years, Tampa is nine, Miami is 11, New York City is 15. So people tend to keep their houses in California and not move around all that much. So this is like a double shock for people who have been in one place their whole lives and that place is no longer going to be inhabitable. I wanted to, I want to talk about the insurance stocks for a minute. One of the weird things about these types of natural disaster moments and see people. Jerry Gold's talking about Sandy. That was sort of our miniature version of this back in 2012. One of the weird things is that the first thing that happens in the property casualty insurance Stocks is they crash or they fall because obviously they're going to owe a lot of money. But then sooner or later they come back hard. And there are four main reasons for why the property casualty insurers have such an obvious comeback. The first is increased demand. So natural disasters lead to more people looking for more coverage, which of course allows insurers to raise premiums. The rate increases after a catastrophe. It's like one of the biggest no brainers that everyone is able to charge more and justify why they're charging more. Pricing power is long lasting, doesn't go away after a year. People still, where we live talk about Hurricane Sandy and flood insurance, which is a big thing in the town that Michael and I live in, is mandatory. And then the last thing is underwriting improvements. Catastrophic events prompt insurers to refine their own risk assessments and their own underwriting practices, which leads to better long term performance. So basically they don't have to model a crisis anymore. They live through one and they know exactly how to underwrite as a result of that. So typically what happens is these stocks end up becoming, I would say intermediate term winners once the checks have been paid out and the hit to earnings has happened. The last number that is out there is like a $20 billion cost, which would make this the costliest wildfire event in US history. I'd probably take the over knowing absolutely nothing. It just seems like we don't know how much the damage is yet. So if that's the number that they have out there, it's probably too low. The three publicly traded insurers with the greatest exposure in the state, Allstate, Chubb and Travelers. State Farm is there, but not public. Let's put up Allstate. I don't know, did it bottom for the crisis yet or, or is that the head fake bottom?

[Owen Lamont]

We'll find out, I guess. I don't know.

[Josh Brown]

Yeah, for me it seems early, but let's do Chubb. They all have the same chart, guys.

[Owen Lamont]

I mean they were, they were bought, they were aggressively bought in the last two days. Again, I hate to like make it about these stocks, but it's what we're talking about.

[Josh Brown]

Yeah, here's Travelers. All these charts are the same and maybe this was the bottom or maybe this is the trapdoor bottom and there's a lower bottom a month from now. But these should be on a value investors radar just given how much market cap they've given up relative to what the future opportunity will be. As they're writing policies in California, assuming they stay in the market.

[Owen Lamont]

Yeah. Well, and then there was a lot of hemming and hawing, of course, about the insurance companies dropping the, dropping the homes because of the regulations in place and how much they are able to increase premiums. And they said, well, the math doesn't math, so we have to pull out. And now there's all these poor people who are left uninsured. It's just an. It's. It's.

[Josh Brown]

I don't know. I don't know if that's a Gavin Newsome thing. I obviously wasn't following that story before this all happened, but they're legislatively. They put a cap on how much you could. What premiums you could charge people for insurance in the state. And there's a formula. And State Farm said, okay, there's a thousand policies in the Pacific Palisades area that we will not renew when they come up based on that cap because the level of risk that we're assuming doesn't. Doesn't add up.

[Owen Lamont]

I'm so what happens if these people didn't pick up other insurance? So they just like completely state.

[Josh Brown]

The state has to provide. So in California they have a fair plan. And this is no different from where we live. A lot of the insurers don't. Don't want to renew the houses that are on the water in the wake of Sandy and other flooding episodes. So the state has to have like a backup insurance plan. It's a, It's a mess, dude.

[Owen Lamont]

Yeah.

[Josh Brown]

And mess. And you know what's really interesting is like I don't feel like the country has come together over this one. Based on what I see online. If you go on Blue sky, you basically have people talking about climate change and we told you so. If you go on Twitter, they're talking about DEI and they're pointing out that the fire chief is a lesbian and the mayor is a diversity hire. And it's just like, can we not do this, guys? Yeah, like can we or can we wait to. To have the climate change versus DEI debate until everybody that's missing is found? It's the fires are out.

[Owen Lamont]

It's the ugliest part of the Internet is when shit like this happens. It's just like immediate mud flinging.

[Josh Brown]

But. But I guess so there was no Twitter after 9 11. But I guess I just can't pick. Maybe I'm dead wrong and the red team versus blue team stuff would have been just as prevalent as it is now. Maybe I'm wrong. I just don't think it was that way. 25 years ago. I think it's worse now. And you would think after a tragedy, that's the moment where people stop saying the grossest thing that comes to their mind. But that's. I guess we didn't. We didn't have that. Now, I don't know, man.

[Owen Lamont]

I think if this is dark, but if Twitter was around back then, there'd be people like, well, we were warned. We ignored the warnings.

[Josh Brown]

Oh, no, you would have, right? You would have. You would have, like, pro terrorist marches in New York City. Like, you would have, like, people fully like, yeah, this is great. I'm glad this happened because we had that last year. So we know that exists. And Twitter surfaces it in a way that it just did not exist in 2001. All right, now that we've put everyone in a great mood, let's. Let's move back to. Oh, I wanted to mention we have a friend, Jason Lijida at Street Cred PR who reps us, and Jason is a resident of the area and they lost the school and the house. What. Or his house is. Okay. What was the last thing that I heard about?

[Owen Lamont]

I don't know.

[Michael Batnik]

All right.

[Josh Brown]

It's a. It's a wreck. Anyway, Nicole is just putting the live chat. There's a GoFundMe that Jason has launched. It's going directly to the California community. I forget the full name of the organization, but it's going right into supporting recovery efforts and people who were affected. So if you have not given any money yet and you don't know where to give money, I guess this is as good a place as any. So if you want to copy and paste that link from Nicole and make a donation, it's. It's all going to the right place. So thanks. Thank you, Nicole.

[Owen Lamont]

Okay. All right, we can move on. Yeah. Just our thoughts with everyone there. It's just the worst thing ever. Okay. All right, let's. All right, clean slate. Let's talk about the market. So I view this as. Are we even technically correct in territory? I view this as the best possible reason for a stock market sell off and the TLDR is that there are going to be.

[Josh Brown]

What's the reason?

[Owen Lamont]

I'm.

[Josh Brown]

Okay. It's the best reason. But that was a tease. You're going to tell us the reason.

[Owen Lamont]

The reason is that due to the strength of the economy, the Federal Reserve is going to have to cut rates fewer times than was originally anticipated. And higher terminal rates, higher borrowing costs, lower stocks, whatever. I think the market was looking for an excuse to sell and what better, what better possible reason for a sell off for the end investor than oh, the economy is too strong, the Fed's not going to be as accommodative. It's beautiful now, you know, we'll see. I'm not saying that it's like, you know, over and there's no risk. Of course, there's always risks. But I view this as the best possible reason for a stock market sell off. So last week on tcaf, we use some charts for Todd. So, and it was a spaghetti chart. It was all of the S&P 500 paths in the year three of a bull market. And Todd is back again with a better follow up to this image. So we're in year three of a bull market chart on. So year one, we're looking at the average versus where this bull market started. So a little bit of an underperformance relative to the average year for a bull market in year one. Year two blew away the average year two.

[Josh Brown]

Oh, wow.

[Owen Lamont]

And year three tends to be choppy, which makes a lot of sense. Okay. Stocks can't go up forever and ever and ever like this. Just makes intuitive sense. So I love how Todd broke this down. Do you love this too, Josh?

[Josh Brown]

I do. And just like you say finance and I say finance.

[Owen Lamont]

Okay.

[Josh Brown]

You say choppy, I say consolidation.

[Owen Lamont]

Okay. Tomato.

[Michael Batnik]

Right.

[Owen Lamont]

I can go either way.

[Josh Brown]

Year three, on average is a year of consolidating the gains of the prior year. Doesn't mean giving it all back. Also doesn't mean screaming vertically, higher. Just because everybody's chasing. It's kind of like a. It's kind of like a back and fill kind of situation. Doesn't mean we'll get it. That would be. I agree. That is the best case scenario.

[Michael Batnik]

Yeah.

[Owen Lamont]

I sign up.

[Josh Brown]

Best case scenario is not plus 20% this year. That would set us crashing.

[Owen Lamont]

Then we're crashing. I agree.

[Josh Brown]

Yeah, Yeah. I love this idea, but can we back up? Are we both sold on this idea that the reason the market is selling is the economy is too strong for more rate cuts? Because I think it's 100.

[Owen Lamont]

Well, it's. It's two reasons.

[Josh Brown]

It's that and selling related. And nothing really more than that. Wait, hold on.

[Owen Lamont]

You.

[Josh Brown]

I'll be proven right.

[Owen Lamont]

Hang on, hang on. You froze out? Did you just say that it was taxes? What is this shit you're making up now?

[Josh Brown]

Was.

[Owen Lamont]

Yeah, taxes.

[Josh Brown]

No, not making it up. That's what I think happened. Okay, wait, I froze.

[Owen Lamont]

You did froze.

[Josh Brown]

Am I back?

[Owen Lamont]

You're back. Okay. So the reason why the stock market is selling off, and I can't prove this because, you know, that's not how the market works. It's because the dollar is ripping and rates are ripping, and there are fewer prices, fewer rate cuts priced into the market, and it's selling off. And if you want to say tax. Taxes. All right, fine. But you're.

[Josh Brown]

Well, I look at what's going up and what's going down and what. I saw.

[Owen Lamont]

What a concept.

[Josh Brown]

Late last week. What?

[Owen Lamont]

Good.

[Josh Brown]

No, I, I. What I saw last week was a big drop in tech stocks, which were the biggest winners of last year, and nobody wanted to take gains in those stocks before December 31st. And. And then I saw rallies in health care and energy.

[Owen Lamont]

I.

[Josh Brown]

Both of which really.

[Owen Lamont]

Oh, yeah.

[Josh Brown]

How?

[Owen Lamont]

How? I mean, this is just. Come on. This is clown. This is clown show. People just decided to take gains in January 1st because.

[Josh Brown]

Wait, I'm. Wait, hold on. I'm. I'm.

[Owen Lamont]

I'm not waiting for you.

[Josh Brown]

I got.

[Owen Lamont]

I'm not waiting. I'm not waiting. I'm keeping going. You could catch up.

[Josh Brown]

All right, I got to go and come back. Stay, stay. Stay here. Tell. Tell a joke. I'm. I got to go and come back.

[Owen Lamont]

Okay, so I apologize for Josh's lousy Internet, and I'm even more sorry that you had to listen to that nonsensical explanation for why stocks are selling off. So I will wait for Josh to get back for the show so that we can move on. No, I won't wait. Let's keep going. All right, John, chart on, please. So only 22% of stocks in the S&P 500. There you are, Josh. Only 22% of stocks in the S &P 500 are above their 50 day, which is not quite a bullish washout I had chart could look at. Like, where do stocks bottom or where does the S and P bottom in terms of like. So it's not quite there. But listen, this is good. It's a reset. It's a reset. You got to go lower before you go higher. That's how I roll.

[Josh Brown]

Do you think my Internet cut out because it knew I was going to say some crazy shit? That was offended.

[Owen Lamont]

It was offended by what you already already said. Forget about what you were going to say. All right, so let's look inside the market. So the equal weight. The equal weight. S P is in a 6.8% correction. Chart on, please. John. We've got mag seven. Max seven. Taking it on the chin is a bit of A stretch, but it's, it's giving you an opportunity.

[Josh Brown]

It's legit, dude, it's 8.2%.

[Owen Lamont]

It's not nothing. So Apple, Apple's giving some back. Nvidia is getting, giving you a chance to get in Microsoft. And then homebuilders are getting, are getting shellacked as, as people are, I guess taking profits in tax. I don't know what the hell you're talking about. Is that not a great story too?

[Josh Brown]

Yeah. Did you see the KB Homes earnings report? They're crushing it. Dude, I think this sell off in homebuilders is overdone. I just. Look, I'm not one of these people that always thinks I'm smarter than the market. I know a head fake when I see one. We're not going to 8% mortgage rates the Fed is not considering hiking. The economy is not that great. Like relative to last year, it's definitely not better. Corporate layoff news all over the tape over, over the last week or so. Actually Neil Dutta collected a whole bunch. And it's Microsoft and it's Metta and it's also non technology companies trimming 5% of the workforce, 10%, blah blah, blah. Like it's, we're not in 2023 and I don't believe that 10 year rally. I think it's fake and I don't believe these homebuilders should be in a 16% drawdown. Like if you ask me, of these three trades, put that back up. Equal weight s and P. Mag7 homebuilders. Of these three drawdowns, which one do I want to fade the most? I think it's, I think it's XHP more than it's MAG seven.

[Owen Lamont]

Yeah, I agree.

[Josh Brown]

You're with me on this.

[Owen Lamont]

I am, I am with you on this. And I think the next chart, well, I don't. The next chart supports it.

[Josh Brown]

But we're, we're. No matter what, no matter what happens in the 10 year, we are 5 million homes short of what we need based on existing demand. And we are in the midst of a demographic tailwind the likes of which we haven't seen since the boomers were in their twenties.

[Owen Lamont]

Yeah, I'm with.

[Josh Brown]

And, and the, and the rate doesn't change that reality. So if they want to knock, if they want to knock These homebuilders down 15, 20% to start the year. I'm not a seller, I'm a buyer.

[Owen Lamont]

I agree with you.

[Josh Brown]

All right.

[Owen Lamont]

A couple of months ago we had Katie Stockton on I think it was Katie Stockton show. And the title of our show on YouTube was the most bullish chart in the world. And I want to bring that chart back because I'm not worried about this sell off at all. And this is the chart that's giving me confidence. Chart on, please. Okay. What we're looking at are the equal weighted version of consumer discretionary stocks, which is really important because XL Y or the cap weighted version is basically half Tesla and Amazon. Okay. So you equal weight the consumer discretionary names and on the. In the denominator are the equal weighted consumer staples names. And over the past five, three and one year, it's. I mean, you know, it's up and to the right. No give back whatsoever. This is something that you do not see in a bear market, to quote the great J.C. peretz.

[Josh Brown]

Now you equal weight the discretionaries because if you don't, you end up with an Amazon Tesla chart. Do I have that right?

[Owen Lamont]

That's right, sir.

[Josh Brown]

Okay. So by equal weighting it, you get a more representative look of discretionary stocks, of which there are many well known companies, just most of them are in a trillion dollars. Plus equal weight to Staples is probably just for symmetry because I think you have a lot more market cap parity there than you have on the discretionary side.

[Owen Lamont]

Yes, but I would say the weighted average market cap in XLP is significantly higher. Right. Because you've got Costco, you've got Walmart, you've got.

[Josh Brown]

Oh, yeah, guys.

[Owen Lamont]

But nevertheless.

[Josh Brown]

So you have to do it. So you have to do it for both. Anyway, apples to apples.

[Owen Lamont]

It's apples to apples.

[Josh Brown]

Yeah. Oh, I like that chart. Lot of love for Katie Stockton in the chat. We haven't seen her in a while. We got a.

[Owen Lamont]

No, no, no. We had her on in the fourth quarter. No, I don't know. Time, guys.

[Michael Batnik]

I don't.

[Josh Brown]

I don't think so.

[Owen Lamont]

Okay, maybe you're right.

[Josh Brown]

I think in the summer we got. We got to get her back shots. Katie, the Barons Roundtable. I.

[Owen Lamont]

You've participated, so be careful.

[Josh Brown]

I know. I was never in the balance round table.

[Owen Lamont]

You aren't. I went with you.

[Josh Brown]

No Barons round table. What did we do? Never put me in this.

[Owen Lamont]

We went. This must be 10 years ago. Savita was there. Chanos was there.

[Josh Brown]

Okay, that was the Fortune magazine. It was less roundtable. It was more like a look ahead. And I was hosting it. I wasn't. I was like asking. I was like the. I was like Vanna White.

[Owen Lamont]

Yeah. Nobody gave a shit about your pictures.

[Josh Brown]

You hear what I thought, all right, so fire away.

[Owen Lamont]

So fire away. Let's throw some arrows.

[Josh Brown]

I'm so torn. I love Barons. I'm a subscriber my entire life. Like, back to 1998. It was the first thing somebody told me to subscribe to when I got into the business, and I never canceled.

[Owen Lamont]

You know what's so funny? I. I went to the bar.

[Josh Brown]

I'm the last Baron subscriber.

[Owen Lamont]

I went to the Merrick Library. This is probably 2007 or 2008, and I'm trying to learn about the market, and I'm like, do you have Barron's.

[Josh Brown]

Magazine, The Merrick Library? Did they?

[Michael Batnik]

Yeah.

[Owen Lamont]

Hell, yeah.

[Josh Brown]

Yeah, I like Barron's. I like all the writers. I like the editors. I like the covers. It. For me, it's like one of the last traditions left from the early days of my career.

[Owen Lamont]

Yeah.

[Josh Brown]

I don't. I got to be honest. I don't read it. I don't read it cover to cover the way I used to. And that's not partially my fault, because I'm too busy.

[Owen Lamont]

Dude, that's. That's a reflection of you, not them.

[Josh Brown]

Like, no, I think it's. I think it's a reflection of the times we live in. They. They used to only publish on Friday night or Saturday morning. Now they're publishing seven days a week like everyone else.

[Owen Lamont]

Right.

[Josh Brown]

And there's nothing special about, like, oh, let me read this article, because it came out on Tuesday.

[Owen Lamont]

True.

[Josh Brown]

So it's just not. It's not the same experience, and it's not their fault. The roundtable is. Is severely problematic, and these are some of the smartest people maybe ever on Wall Street. So this is no disrespect.

[Owen Lamont]

That being said.

[Josh Brown]

Hang on. Bill Priest, John Rogers, David Giraud, Henry Ellen. Ellen Boggan.

[Owen Lamont]

Garter.

[Josh Brown]

Yeah. Merrill Whitmer, Mario Gabelli, Scott Black, Abby Joseph Cohen. These are, like, brilliant people. Yeah. So this is no disrespect to anyone, but. All right. So they do their. Like, how many bulls. How many bears do we have in the house? It's, like, the most consensus. It's like, listen to the reasoning that they give. This is like watching an hour of cnbc, basically.

[Michael Batnik]

Here.

[Josh Brown]

First to the bears, why they're gloom. Levitating bond yields, which reflect fears of insurgent inflation. Levitated equity valuations. Price for perfection. Inexorable growth of government debt. Policy uncertainty. Trump. Thanks.

[Owen Lamont]

Right.

[Josh Brown]

You know, and it's not, again, not their fault. It's just, like, not that interesting because we're in a 24. 7 financial news cycle now, it's not their fault. This is the time the optimists, guess what they say. A, a strong economy, double digit earnings growth, government deregulation, wave of M and a widespread adoption of AI It'll be choppy, but ingredients for more gains. Again, it's 30 minutes of CNBC. Basically it's just like ingest everything everyone else is saying. And then here is like the. All right, so I don't love that. Again, it's not their fault. It's just that time is marched on. This is what they should maybe stop doing. The picks are so bad. Like they do. And credit to Barron's. They do a report card for the prior year and they tell you everything. Like this is what this person said in January. Here were their picks and here's how they did. And can I tell you something? None of them look good. It's like 12 people.

[Owen Lamont]

What? Last year was like the worst year for stock pickers ever.

[Josh Brown]

Fine. But it's just. But it's beyond bad. And I wanted to get your take on why. Um, and I'm not picking on Abby Joseph Cohen, who I have a ton of respect for, but let's just use her as an example because I think she's probably the longest tenured person. So I, I've talked to people at Goldman. I know how this go. I know how this is. This. The sausage gets made. It's like November. And Abby's handler is like, hey, she's. She's going to be there early January for the roundtable. Let's get some picks. And then like maybe she sort of shapes like what sectors, but for the most part it's like the analysts at Goldman like come up with their like best, best, best ideas to give to Abby and then she studies them and shows up at the hotel ballroom and lays them out. And here, here they were. This was January 2024 picks Chevron total return 0.6% Pfizer. Who would buy Pfizer? Total return -4.3% Estee Lauder -43.7% I mean, it's almost impossible to do this. Linus Rare Earths which trades in Australia. Minus 4.2% Nippon Prologis REIT Negative 14.9% 1 positive. Japan Hotel REIT Investment 6.8 but wait, there's more, unfortunately. Next slide. So then they bring these people back in June for the half the mid year update and it's like worse. So new picks, Samsung negative 39% SPDR S&P value 5.4% positive. National Vision Holdings. Eye. Never heard of it. Negative 14%. IShares Footsie 250, which is UK negative 0.6%. So there's two gains out of. What is that? Is that 11 picks? Two gains, even the gains vastly underperform the S and P. I think these international stocks underperform the international markets too. All right, Stock like, In other words, in 24 is not a lot of Samsung's. Negative 39%. It's almost like, I don't think you could do this if you tried. Like, I don't think you could be this wrong if you tried. And again, they all look terrible. So it's not just about the notorious ajc. I just think this is an impossible, an impossible task. I don't think I would. I would do better than that. I don't think that I would be good at this, this exercise. And I'm starting to think the problems here for. Let me hear what you're.

[Michael Batnik]

What.

[Josh Brown]

Let me hear what you think are the problems here, and then I'll tell you what I think.

[Owen Lamont]

What are the problems with what, picking 10 stocks for this?

[Josh Brown]

Just the A, the exercise itself and B, the way the stock pickers are carrying it out.

[Owen Lamont]

I think that stock picking is always and forever really difficult.

[Josh Brown]

Well, granted, but that's why people are interested in stock picks.

[Owen Lamont]

And I think that 2024 was a particularly brutal year as I've been a lot of the last years. Let's be honest, it's been a really difficult environment because all you need to do is own the Mag 7 in hindsight. Right? Like, so what do you think?

[Josh Brown]

I just disagree. I just disagree. There are, there are hundreds of stocks that were up double digits last year. Like so many. So many.

[Owen Lamont]

Okay, so what's the problem?

[Josh Brown]

I understand the Mag 7 did really well last year, but Microsoft went up like low, double digit, like 10 or 12%. It's not like, it's not like seven stocks went up and everything went down.

[Owen Lamont]

Right.

[Josh Brown]

Okay, so off the top of my head, I could tell you 50 big stocks that went up huge last year. I think there's a couple of elements to this. First of all, I think the Roundtable itself is more heavily value investors than growth investors. I think there are a few token growth investors, but I think it's very steeped in the tradition of value investing. And so right off the bat, over the last 20 years, there haven't been a lot of years where value has done better than growth. So it's not that value stocks can't work a lot of value stocks worked really well last year. It's that the pond has less fish in it. Like you're fishing in the wrong pond, especially the year like last year. So I think that's one element. Then it looks like there people are playing the game as though there are extra points awarded for difficulty.

[Owen Lamont]

Right.

[Josh Brown]

Like, like he, like, here's a precious metals company in Australia.

[Owen Lamont]

Yeah, yeah.

[Josh Brown]

Like what are we doing here? Yeah, no, I guarantee you nobody read Barons and bought that stock.

[Owen Lamont]

Okay. Counterpoint, if they give you Apple, don't you think people be like, why you wake up. I did the second biggest.

[Josh Brown]

I'm so glad you said that. I think that people would prefer to see that work out and not make fun of it. Like, oh, thanks, you told me Apple. But, but, but again. And by the way, if you look at some of the people for the mid year update, they showed up with Oracle and, and Netflix and whatever. Like in other words, people picked the most bizarre things they could think of in January. Deep value, like Japanese property. And then they came back in June with like mag savvy.

[Owen Lamont]

Yeah.

[Josh Brown]

Look, to recap, I think this needs to be done differently. I think it would be more fun if there were a virtual investing ongoing thing where you could log into Barron's and see this stuff in real time and let these, let these guys and gals make trades intra year. Because think about how hard the exercise is. Pick a stock in December or January that you're going to want to stick with for the whole year because it's your report card.

[Owen Lamont]

Right.

[Josh Brown]

Like who could literally do that? What if the news changes? It's it. I feel like they're setting. I like Mario Gabelli, I like Abby Joseph Cohen. I, Scott Black. These people are brilliant and I look up to them and I think, I feel like this exercise is setting them up to fail. They're probably less upset about it than I am, by the way. But as a fan of Barron's is in a fan of the people on the roundtable, I really want to see them do this differently.

[Owen Lamont]

So what would you propose?

[Josh Brown]

I would do a virtual. I would do virtual portfolio.

[Owen Lamont]

Come on. You want them to have paper portfolios.

[Josh Brown]

Yeah. And because I want them to have the opportunity to make changes throughout the course of the year. Maybe not unlimited changes, but it's 2025. Everything is real time.

[Owen Lamont]

Okay. Counterpoint, Counterpoint. And this is a sample size of 1. But our boy Eddie crossing Wall street, the buy list, that's just a savant.

[Josh Brown]

You can't compare. You can't compare anyone to Eddie Elfenbein. Come on. Look, I'm just saying we've. It's not 1998 anymore where this stuff is in dry ink. Like, people will check the website every week to see who's leading. Like, make it fun, make it competitive. I'll do, I'll jump in and do it if they think it would help. Let's like, let's, let's put some life into this and make it winnable. Otherwise it's just embarrassing. And I feel like they're setting people up to look stupid. None of these people are stupid. So I was a little disappointed with this and maybe they'll, they'll do the mid year differently. Maybe somebody will. Maybe somebody will listen to me and, and reconsider. I don't know. Any. Any other thoughts on this?

[Owen Lamont]

Nope.

[Josh Brown]

Okay.

[Owen Lamont]

All right, where are we going next? Let's talk about self driving cars. So this is a quote from Jensen Wang via the transcript. Right now, the self driving car business is already a $5 billion business for us. Imagine how big it's going to be when we have 100 million new cars per year. Wait, what? That sounds.

[Josh Brown]

What? Okay, 100 million new cars.

[Owen Lamont]

Wait, what? Literally?

[Josh Brown]

Well, how many cars. How many cars are sold, bro? Is it a hundred million? How many cars are sold in the world each year?

[Owen Lamont]

Did AI, did Aoi write this? Anyway, this is likely to become one of the largest robotics industries in the world and one of the largest computing industries.

[Josh Brown]

Yeah, I fully believe that autonomous vehicles are a blockbuster video for. A Blockbuster Video. A blockbuster line of business for Nvidia. And one of the main reasons for this that's so interesting is that, yes, you need the cloud for, for autonomous vehicles, but you also need a ton of hardware on the car itself. Because I want you to imagine a scenario where the car is barreling toward a pedestrian who's maybe crossing the street where they shouldn't. We don't have time for the car to talk to the cloud to get instructions about whether it should stop or swerve. That decision has to be made on the car level, which is chips in the car that are making that, that call. We can't have the cloud controlling what happens with the vehicles themselves. So of course this is a huge opportunity for semiconductors. It might be, and it might arguably be in the fullness of time, one of the biggest.

[Owen Lamont]

So the Chat is saying 90 million cars produced a year. So. Okay, all right, all right.

[Josh Brown]

So maybe. So why are we second guessing?

[Owen Lamont]

Far be it from us, you dumb Asshole. Okay, so Eric Newcomer, whose substack I subscribe to, did a post on these self driving cars and this chart is a face blower. Josh, I got to tell you, we're looking at the San Francisco operating zone, market share of of gross bookings and uber's steady, you know, 60ish percent. But coming up the rear, out of nowhere from zero is Waymo and it is taking share from Lyft. And I feel like this is under discussed and underappreciated the fact that there is magic in the world and we don't see this in New York. So maybe it's sort of out of sight, out of mind, but this is like happening. There are self driving cars.

[Josh Brown]

Magic Hunt 100%. I shared with you the Zoox carriage.

[Owen Lamont]

Yeah.

[Josh Brown]

That is now ferrying people back and forth from the airport to hotels in Las Vegas. Zoox is wholly owned by Amazon. It looks like something out of Cinderella, but futuristic. It's got no front and no back. There's a windshield on both ends of the thing. Because it's bidirectional, it could drive forward or backward. Like the people sitting in the car are facing each other. They're not oriented toward one direction or the other. The doors are sliding doors on both sides so you can get out of this thing on whichever side. The traffic isn't like wherever the sidewalk happens to be on the left or the right. That's not futuristic. That's right now at CES last week, Zoox was giving tech journalists rides to the various events they had to be at. And there's no human driver, there's no steering wheel, there's no gas pedal, there's no driver's seat. It's not a car that became autonomous. It's literally born autonomous. And I agree with you people.

[Owen Lamont]

Like, oh, we were promised self flying cars. Like, dude, we. No, nobody's talking about. I know people are, but you know what I mean? Like it's not. It's a much bigger deal than I think it's getting attention from for. Because we only have time to focus on the negative.

[Josh Brown]

Yeah. Oh, we. We were promised flying car. Where are you going in a flying car, dumbass? You're not that important. Nobody need. Nobody needs you there any faster than you already get there. You ever notice it's that guy. All right. I think what's really. I think so this is really meaningful to me, this topic, because I'm long Uber. And Uber has expressed that their place in the future of autonomous taxis is they want to be the hub and all of the companies that own the autonomous rides will be different spokes.

[Owen Lamont]

Well, I plug into their network.

[Josh Brown]

Yeah. So look, it's costs a ton of money to put these cars on the road. I know, I know. Long term, it's more cost effective because you don't have the human driver, you don't have the meat in the front that has to get health care. So I understand that. But in the short term, the capex here is off the charts.

[Owen Lamont]

Yeah.

[Josh Brown]

So you want your autonomous car to have as many opportunities to make money as possible. And the way that's going to work, I think, is that Uber has the capacity and has the riders. The risk in Uber is that Waymo sidesteps them and just says, what do we need you for? We have enough people booking directly on the Waymo app. So that fear has knocked uber down from 87 to 60.

[Owen Lamont]

Well, I bought it.

[Josh Brown]

You bought what?

[Owen Lamont]

Uber.

[Josh Brown]

Oh, yeah, yeah, yeah. I own both stocks, but that fear, it's a legitimate concern.

[Owen Lamont]

What, both stocks? What, you mean the Google?

[Josh Brown]

Yeah, I own Alphabet and I own Uber, but I. So waymo is worth 45 billion in the private market. They raised 5.8 billion two weeks ago from Andreessen. And, like, all the names, they're all in it. So Alphabet doesn't completely own the whole thing, but they control its destiny. And Waymo is going to be everywhere. Yeah, that's it. Like, it's going to be. It might not be midtown Manhattan, like, tomorrow. So one thing it'll be.

[Owen Lamont]

It'll be. It'll be in all the major cities. Like, it's not going to be in. In rural areas, but it'll be in all the major cities. It'll be Manhattan. So this stood out to me, though, because this is. This is. I don't know how you scale this or how you solve this issue. So here's a quote from the article. No matter what, someone has to take care of the cars, said Josh Mora, a former Uber executive who managed the company's first push into New York. Moore told us he's skeptical of Waymo's ability to scale, in no small part because of the messy car issue. In contrast to a house sharing platform like Airbnb, the turnover between Waymo users is minutes, not days, which doesn't leave much room for cleaning, he noted. So if. What happens if some drunk idiot vomits in the car? Like, the car's, like, busted forever. You know what I mean? Like, that shit doesn't come out.

[Josh Brown]

Yeah. So there's a whole list of what happens If. What happens? If. And ultimately, it's messy at first, but those issues get solved. I will say that this is.

[Owen Lamont]

That's a tricky issue, man.

[Josh Brown]

Fleet maintenance is a business, and Uber is in a position uniquely to offer fleet maintenance to 10 different autonomous vehicle companies. Like it's. That's what you're pointing out is a huge issue. If the cars don't have an owner, like a driver, who's responsible for the car and has an economic stake in it, who's going to take care of it? Nobody. So you can count on people having perfect etiquette and not taking out their gum and sticking it to the seat. Like, you can count on that, or you can ask the next question, which is Kibene, who benefits? Who is positioned to service these vehicles for money? And I think that could be an avenue where Uber makes the case to Waymo. You need us as a partner because we're in market. We have facilities, we have companies that we work with that do this sort of fleet maintenance. And your cars are going to need not just cleaning, but servicing. And you might not want to build all that infrastructure yourself. So let's put. Put up this Uber chart. So at $86, I was beating my chest like I. Like I won the Super Bowl. And then this prick Elon comes out and makes his Cyber Cab announcement. And the stock tumbled. It's since recovered. I think the Cyber Cab was sort of underwhelming, the spectacle of it, which was over the summer. But the stock really hasn't come back. Uber has really has not come back yet. So I think people are genuinely worried that there are going to be enough autonomous cabs that go right around them. And maybe it's, you know, we'll find out. Maybe it's a legitimate concern. And I'm just talking my book, and I'm wrong. I guess we'll. We'll all find out together.

[Owen Lamont]

Okay, moving on. What do you got? Oh, me. This is still me. Okay, it's me again. All right, so we. So not we. The. The general population spends a lot of time vilifying and demonizing billionaires. And I just want to take a second to give a shout to the goat billionaire Warren Buffett. So this flew under the radar because I guess, whatever, nobody cares. But a couple of weeks ago, actually, a couple months ago, it was back in November, he announced that he's converting 1600 A shares into 2.4 billion shares. I'm sorry, 24 million B shares. Order to give these B shares to four family foundations. 1.5 million doesn't really matter where they're going. But he said, the gifts I'm making today reduce my holdings of Berkshire Hathaway Class a shares to 206,000, a 56% decrease since my 2006 pledge. So Warren Buffett is giving away tens of billions of dollars. And I bring this up because I wanted to give a plug to Warren Buffett, but also to our friend Alex Morris, who wrote a book called Buffett and Munger Unscripted. And what Alex did painstakingly. I haven't read the book yet, but I'm excited to. Was he watched because they became available. Alex watched all. I think it's 30 something years of Berkshire annual meetings. And he grabbed the best shit from it. So I would highly recommend it. And in addition, because Alex is a mensch, he's giving 50% of after tax net proceeds to charity. So credit to Warren Buffett and credit to Alex Morris for following in his footsteps.

[Josh Brown]

Yeah. So on the audio compound and friends pod, I covered this. I covered this announcement. I think I did this with Bill Sweet, maybe. So the money is going to his kids. Foundations. There's four foundations. His children. I'm calling them kids. They're in their 70s. Yeah. His children have dedicated their lives to philanthropy. So one of the things that Warren Buffett said is like, I don't know exactly how the money's gonna be used. I just know that I trust my children to do the right thing with it. I don't need to micromanage every decision because they were born into this philanthropic role and they've been doing it for decades. And I think the other thing that's crazy is like, he probably never expected the valuation of his holdings to appreciate at the rate that it has.

[Michael Batnik]

Yeah.

[Josh Brown]

Like, he like, undershot how much money he would have by now. But one of the things he said in that letter, which I thought was funny, bittersweet funny, is like, my kids might die. He's like, in, like, originally, the goal was I would die, and then my kids would have decades to give it away. But now they're in their 70s, I'm almost a hundred. I. I gotta accelerate this and do it now. So I thought, I thought that was kind of interesting. We're gonna do make the Case, and then you're gonna do a mystery chart and we'll get out of here. I have a secret stock for you.

[Owen Lamont]

Oh, a secret stock. Okay.

[Josh Brown]

Do you like secrets?

[Owen Lamont]

No. I hate him, to be honest.

[Josh Brown]

Okay, well, I'm gonna tell you one and you and the rest of the compound viewers. Okay, this is a secret company that nobody knows about. It has two or three analysts covering it. Barely. People aren't even writing about this. On Seeking Alpha. It almost. It almost doesn't exist. And it's $25 billion in market cap right now. Um, let's put this up. The ticker symbol is ui. The name of the company is Ubiquiti. Just looking at the chart alone, I know you've never heard of it. Just looking at the chart alone, is this a buy or a sell?

[Owen Lamont]

Come on, you know the answer to that question.

[Josh Brown]

How good does this look?

[Owen Lamont]

Yeah.

[Josh Brown]

Stupid, right?

[Owen Lamont]

Mm.

[Josh Brown]

Okay. Have you ever heard of the company? Have you ever heard anyone talk about it, even if you don't know what it is?

[Owen Lamont]

Nope.

[Josh Brown]

Okay, I'm going to tell you why. It's a secret. A very, very closely kept secret that I think is starting to get out. It's a. It's two companies in one. Number one, it's a very small, slow growth product provider for tiny Internet service providers. So it sells equipment to like little is ISPs. But number two, the reason why the stock is ripping is because it's got an enterprise products group that effectively starts off giving people Internet access wherever they are. Like, like rural places or all over the world places where WI FI coverage is spotty. You set up this equipment and you can build ubiquitous WI fi wherever you are. That's why it's called Ubiquiti. Millions of customers for their products. Unifi is the brand name that you most frequently see these products sold under. And a software platform that is now enabling people to connect not only devices sold by Ubiquiti, but other third party devices. Security cameras for example. And now there's a whole AI angle to the story. So just the network that people set up for themselves, enabling them to do a lot more with it and connect a lot more devices. The founder is this guy, Robert Pera. He worked at Apple for two years from 03 to 05. And then he realized, I want to build my own products and make my own Apple. I don't want to sit here and work under Tim Cook. So he left Apple as basically a kid and he started building this company. He owns 93% of the shares outstanding. So only 7% of the shares of Ubiquiti are freely traded in the market. Came public in 2011. The old symbol was UBNT. A year after the IPO, he bought the Memphis Grizzlies. So he bought the Memphis Grizzlies for $300 million. Which now is probably worth. I don't know.

[Owen Lamont]

Why did he even go public? I've never heard of such a thing.

[Josh Brown]

It's crazy because it's secret. So at the time in 2011, he needed capital to build these products. Like we're talking about physical. This is not Internet shit. This is not like software. These are like devices that are enabling people to build their own WI fi wherever they are. So he needed to raise capital. So he raised $30 million in an IPO, bought the Grizzlies a year later, became the youngest owner in NBA history. Think he was 33 years old. And then he disappeared. I mean off the grid, man, black ops. I'm telling you, he disappeared. He's never done an interview. He's never been on CNBC or Bloomberg. He never talks to the Wall Street Journal. No conference calls, no shareholder letter. Literal. Doesn't even talk to customers. He spends all his time in R and D building better and better products. And the word gets out amongst the users who become the evangelists for Ubiquiti's products. He basically disappeared. And this company, while he's been gone has ballooned to a $23 billion valuation. He is the most invisible tech billionaire CEO. If he owns 93% of 23 billion was, he's worth $17 billion.

[Owen Lamont]

Sounds like Sosa.

[Josh Brown]

Yeah, he does show up at Grizzlies games and there's like one photograph of him high fiving Justin Timberlake bald.

[Owen Lamont]

No.

[Josh Brown]

Who's a part. That's him in the black suit.

[Owen Lamont]

Oh, he looks very young.

[Josh Brown]

You, you will never see him anywhere. There have only been two episodes in recent history where he's. People have seen him publicly. One is Andrew left alleged that this was a fraud in 2017. Pull that chart up.

[Owen Lamont]

Sounds vaguely familiar.

[Josh Brown]

You see the first arrow September 2017. That's where Citron put out a short report and said there was like a revenue recognition scam with the accounting. The stock is obviously substantially higher since then. During COVID everybody wanted to turn their house into a. Into an office. So everybody was buying Ubiquiti's WI fi products. And you could see the stock went crazy. And then they had all of these problems because they couldn't get microchips. Just like the auto manufacturers. They had out of stock products. They had like a huge manufacturing issue and they just like completely crashed. The stock in the last six months has come all the way back and is now about to break above the COVID high.

[Owen Lamont]

So you claim. So you claim.

[Josh Brown]

Well, it's. I Mean, what do you think is going to happen here?

[Owen Lamont]

I don't know.

[Josh Brown]

You had to guess.

[Owen Lamont]

So let me ask you this. I mean, you're not actually. I know you're not actually making a. Not in the stock right now, but, like, you're not. But you can't buy this. Come on.

[Josh Brown]

I have one thing I want to show you before you make that decision. John, if you please. This is his house. On. On. I think it's Star island in. In Miami. Of course it is.

[Owen Lamont]

Now. Now I want to buy it.

[Josh Brown]

You see that big building in the back with the solar panels on the top?

[Owen Lamont]

I do.

[Josh Brown]

Rectangle?

[Owen Lamont]

I do.

[Josh Brown]

That's an indoor full basketball court with bleachers, locker rooms, and its own Jumbotron. John, do we have a picture of the Jumbotron? You can see this thing lit up from like a half a mile away. His neighbors were bitching and moaning about. About this thing being lit all night. This is the Jumbotron inside of his home basketball court. You know, his neighbors are diddy, who's probably not complaining right now. Anyway, this is the stock that no one's ever heard of that is now large enough to qualify for the s and P500. He doesn't talk to the stockholders. He doesn't give conference calls. Nobody has any idea what's going on with it. And it just goes up and up. And I just think this is like one of the most secretive publicly traded companies I've ever seen or heard of. Have you ever seen anything like this? How many shares can I put you down for, sir?

[Owen Lamont]

Zero.

[Josh Brown]

Why wouldn't you buy it?

[Owen Lamont]

Look, I don't buy charts like that.

[Josh Brown]

Sorry, was. It's too parabolic.

[Owen Lamont]

Yeah.

[Josh Brown]

Why do. They had a great earnings report in November, but that can't explain that whole thing, can it?

[Owen Lamont]

I don't know, man. Taxes. What's the opposite of taxes? I don't know. I'm out. Listen, it's great.

[Josh Brown]

I don't give a good pitch. I don't give. I don't give financial advice on this channel. So please, nobody buy this or any stock we mention. I currently have no position here. I'm just fascinated by it, you know?

[Owen Lamont]

This is remarkable.

[Josh Brown]

All right, hit me with a mystery chart.

[Owen Lamont]

Okay, sir, so you know the tendency for people to only focus on the negative, right? This is like.

[Josh Brown]

Yeah, yeah.

[Owen Lamont]

So this. This mystery chart is a great example of that. And this is a very obvious mystery chart. So, whatever. I just want to talk about the story. So this business had a massive, massive hiccup I think that's understating it in 2024, and it was headlines. It was responsible for a lot of outages and shit like that. And the stock fully recovered, basically. Nobody cares. Well, at outage, I know you can.

[Josh Brown]

About CrowdStrike.

[Owen Lamont]

Yeah.

[Josh Brown]

All right, let's. Let's do the reveal. Give me my drum roll and my applause.

[Owen Lamont]

But it's all the way back. Nobody cares. Nobody talks about it.

[Josh Brown]

You know, you and I are gonna have a debate on Thursday on Compound and Friends. We don't have time for this now.

[Owen Lamont]

Well, with the guest or you and.

[Josh Brown]

I. Yeah, we'll include the guest, but it's. It's. You and I just have such a different worldview.

[Owen Lamont]

I'm not gonna debate, Jerry. I'm not gonna debate.

[Josh Brown]

No, we are going to debate.

[Owen Lamont]

Well, otherwise, that's a.

[Josh Brown]

Otherwise, it's no fun. We have to have a debate.

[Owen Lamont]

All right, go ahead. What are we debating?

[Josh Brown]

Do you know what kind of. Do you know what kind of balls it took to hold this CrowdStrike thing through the. Through that summer where it looked like they sabotaged the company forever? You're going to tell me there's no skill whatsoever involved in not selling?

[Owen Lamont]

I'm not talking about that.

[Josh Brown]

Well, we are going to talk about it Thursday. We don't have time to get into.

[Owen Lamont]

It, but you're moving the goalposts of the argument that we had.

[Josh Brown]

I think it takes a lot of guts to stick with a crowd strike. And some of us didn't. And some of us did. And we're gonna have to leave it there. Hey, everybody, did you know tomorrow is Wednesday? Which means my favorite podcast, Animal Spirits, is up with an all new episode. It's Michael Banik. It's Ben Carlson. What not to like. We'll have a new Ask the Compound Thursday and an all new Compound and Friends on Friday. Please keep it locked. We appreciate you and we'll talk to you soon. Whether you're just getting started as an investor or you're managing a multimillion dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit ritholtswealth.com don't forget to check us out [e-mail] thecompoundrwm make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.