Only One Thing Can Stop the AI Crash, Worst Drawdowns, Blue Owl vs Apollo

Summary

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The Compound and Friends

Episode: Only One Thing Can Stop the AI Crash, Worst Drawdowns, Blue Owl vs Apollo

Date: November 19, 2025
Hosts: Downtown Josh Brown (A), Michael Batnick (B)

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Overview

This episode dives into the tumultuous state of the stock market, particularly regarding the recent steep declines in AI-centric names. Josh Brown and Michael Batnick debate whether we're seeing an "AI crash," unpack the unique factors shaping this correction, and discuss the market’s renewed skepticism about AI’s financial promise. They also tackle the wild world of leveraged ETFs and meme stocks, unpack the drawdowns in both public and private credit, and compare the business models and communication strategies of Blue Owl and Apollo. The episode is peppered with memorable quotes, vivid data points, and the show’s trademark blend of irreverence and candid market wisdom.

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Key Discussion Points & Insights

1. Setting the Stage: Market Volatility and the “AI Crash”

[06:29 - 11:08]

• VIX Spikes, "AI Crash?"

  • The VIX hit 25 amid surging volatility. Some major AI-themed stocks (Meta: -27%; Oracle: -30%) have seen rapid declines, but the hosts disagree on whether “crash” is the right term.
  • Brown: “If I just…said they were down 30% in a matter of weeks, you would say that sounds crashy.” [07:09]
  • Batnick: “Let’s not split hairs. It’s ugly. Okay. We could argue crash, not crash. Whatever…this is calling into question a lot of the things that we believed two weeks ago.” [07:27]

• What’s Really Changing?

  • The hosts note it wasn’t a demand shock that broke the narrative, but the cost and financing of AI investments.
  • Brown: “It’s rarely the thing you’re worried about. It’s always something else that you probably would not have conceived of in advance.” [09:04]

• Market Psychology: Wall of Worry

  • Batnick: “Although nobody likes to see their stocks go down, myself included. We need this. You need to build a wall of worry to climb to new heights. It can’t just be announcement, boom, 35% to Oracle. That’s not sustainable.” [10:13]

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2. Skepticism Rises: AI Bubble, Analytic Downgrades, and Fundamentals

[12:09 - 18:23]

• Fund Manager Survey & Skepticism

  • Record numbers of fund managers now believe companies are over-investing in AI CapEx, flipping from historical norms.
  • Crowd still “bullish” (64%) but more than 50% think AI stocks are in a bubble—though few are actually selling.
  • Brown: “All the shorts are just people that tweet.” [14:28]

• Redburn Rothschild Downgrade

  • Microsoft and Amazon both downgraded to neutral: “It takes six times more capital to generate the same economic value with Gen AI as it did during the build out of the early cloud era.” [15:26]
  • Earnings payback on GenAI is much slower; $1 of AI infra is only generating $0.20 of net present value.
  • Batnick pushes back: “It is way too early to look at the unit economics of these businesses. We have no idea what they’re going to turn into or what they’re going to become.” [16:50]

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3. Nvidia: "Only One Thing Can Stop the AI Crash” [Josh’s Thesis]

[18:23 - 24:41]

• Nvidia’s Earnings as the Deciding Factor

  • Brown: “A lot of investors think that Nvidia is the thing that can stop the AI crash…If anyone or any thing or any event could put a pin in this and calm everybody down, it’s a blockbuster number for Nvidia with amazing guidance and the typical Jensen Wang optimism.” [18:29]

• Current Setup is Doubtful

  • Batnick: “This is by far the weakest setup or the weakest price action going into [Nvidia’s] earnings over the last couple of years.” [23:48]
  • Brown: “If this thing does drop 10% overnight, I’m buying the snot out of it in the after hours. I’m telling you right now." [24:14]

• Recent Moves & "Leverage Mania"

  • Major Nvidia stakeholders (Peter Thiel, Masayoshi Son) have sold their shares.
  • The double-leveraged Nvidia ETF (NVDL) assets have shrunk despite Nvidia’s stellar YTD price gain. “They cooled off on it…That peaked in December of last year. …In fact, [investors] just really didn't.” [25:13],[25:30]

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4. Drawdowns & Losses: AI and Market Breadth

[25:28 - 27:47]

• Semiconductors: Historic Runs, Now Correction

  • Philadelphia Semiconductor Index in a 10-20% drawdown after skyrocketing in months prior.
  • “Semis added a trillion dollars in market cap in the past five days…And that was literally the top.” [26:16]

• Perspective on Correction

  • Even after the sharp declines, the context is a massive run-up.
  • Brown: “A little bit of...context...even with the scary headline..." [26:56]

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5. AI Cloud Economics & “The Bill Comes Due”

[29:12 - 34:41]

• Google/Alphabet and the Varied AI Take

  • Loop Capital upgrades Alphabet; “AI cannibalization fears were overstated.”
  • Contrast with the Redburn’s take: “Who knows anything.”

• Raymond James Forecast

  • Projects AI cloud revenue to increase ninefold in five years—but the price tag is staggering.
  • Brown: “JP Morgan’s model projects $5 trillion in AI infrastructure. To justify that, AI products would need to deliver $650 billion in revenue a year—over 150% of Apple’s annual revenue.” [33:14]
  • Batnick: “Who’s the six hundred and fifty?” Brown: “JP Morgan. So just to put that number in perspective…”

• **Brown: “What’s changed is not the fundamentals of the AI race…What's really changed is the way we're thinking about the bill.” [34:12]

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6. Retail Mania: Dip Buying and ‘Squid Game’ Leverage

[34:42 - 43:30]

• Retail Flows: Buying the Dip

  • Citadel: Last week saw the “fifth strongest retail dip buying in the past two years.”
  • Brown: “Retail buys the dip really quickly and with tons of conviction. I just don’t think they do it on the third week.” [35:54]

• Leverage-Fueled Risk-Taking, Especially from Asia

  • FT: South Korean traders have doubled their US stock holdings, hunting high-risk meme names and using extreme leverage.
  • Batnick: “This is wild. …They are having a party.” [36:38]

• Leveraged ETFS: The New Vegas

  • Many double-leveraged, single-stock ETFs (e.g., MicroStrategy, Super Micro) have seen 90%+ drawdowns—yet hundreds of millions remain invested.
  • Brown: “This is like walking into Vegas…‘Here’s $4 million. Let’s play.’” [39:13]
  • Batnick: “People are gambling their balls off…Dude, it’s Squid Game. Were you not paying attention?” [40:00], [39:45]

• Regulatory Risk Discussed

  • Brown: “I think if you get a regime change at regulatory bodies…a lot of this stuff is going to get drug back out onto the carpet.” [43:30]

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7. Private Credit: Blue Owl vs. Apollo – Who’s the Grown Up?

[44:22 - 55:12]

• Apollo’s Confidence, Blue Owl “Clown Show”

  • Apollo’s CEO admits opportunity set is “less attractive” as rates fall—grown up, candid answers.
  • Blue Owl’s Mark Lipschultz offers defensive and “nasty” responses regarding their falling BDC, now in a 38%+ drawdown.
  • Batnick: “All of the smoke they’re inhaling, they deserve. …Is it an overreaction? Maybe. We’ll find out. But they’re in the thick of it.” [55:12]

• Merging Private and Public Credit Funds

  • Blue Owl proposes merging its private credit fund into its public BDC amidst surging redemptions.
  • Brown: “Don’t have a vehicle set up where the thing you’re counting on is that some schmuck financial advisor didn’t sell this to people as low risk because it’s bonds. Because I know they did.” [56:41]

• Yield Illusions

  • OBDC BDC is offering a supposed 12-13% yield—but Batnick warns, “With these…you can annualize it, but you shouldn’t, because you’re just making shit up.” [54:56]

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8. Broad Market Drawdowns & Lessons

[57:18 - 62:56]

• Earnings Season “Woodshed”

  • Batnick: “The companies that are missing earnings…are just getting taken out to the woodshed.” [57:18]

• Largest Market Cap Losses Since Highs

  • Nvidia: $594B, Meta: $469B, Microsoft: $349B, Amazon: $328B, Oracle: $300B, and several others have lost over $100B each in market cap. [58:06]

• Non-S&P Highflyers: The Pain is Sharper

  • Stocks like Strategy, Atlassian, Circle, HubSpot: all in 50%-70% drawdowns.
  • Brown: “No one taps you on the shoulder and tells you when to walk out of the party. Of course not, if anything, you’re adding more money to those strategies." [61:19]

• Bear Market Dynamics

  • Batnick: “When these things get going to the downside…you could go to the dentist and it’s down 14% on no news. …The next day is down another 14%.” [62:00]

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9. Bottoming, Setup, and Buys

[62:56 - End]

• Market “Clearing the Decks”

  • Batnick: “There has been so much enthusiasm in the market. And this is a clearing of the decks, a reset." [62:56]

• Looking Ahead

  • “I think we see higher prices before the end of the year or at least early in Q1.” [64:05]

• Buys of the Week

  • Batnick: “I bought Meta today. …I'm comfortable holding it. If it gets murdered, I'll buy more…I'm also bought Oracle. Never owned Oracle my entire life. I sold Disney and I bought Oracle.” [64:31], [65:51]
  • Brown: "I like the purchase here. …We've learned so many times what happens when everybody gets bearish on Zuckerberg." [65:06]

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Notable Quotes

• On What Breaks the AI Mania:

  • “It’s rarely the thing you’re worried about. …It’s always something else that you probably would not have conceived of in advance.” — Josh Brown [09:04]

• On Retail Risk-Taking:

  • “People are gambling their balls off. …Dude, it’s Squid Game. Were you not paying attention?” — Michael Batnick [39:45], [40:00]

• On Double-Leveraged Products:

  • “This is like walking into Vegas…‘Here’s $4 million. Let’s play.’” — Josh Brown [39:13]

• On Market Correction:

  • “You need to build a wall of worry to climb to new heights. …It can’t just be announcement, boom, 35% to Oracle. That’s not sustainable.” — Michael Batnick [10:13]

• On Blue Owl's Defensive Stance:

  • “The difference in the answer and the tone between what he said and Mark Rowan said could not be more dissimilar. It was defensive. It was nasty. It was, ‘Investors don’t understand.’”— Michael Batnick [46:33]

• On BDC Risks:

  • “Don’t have a vehicle set up where the thing you’re counting on is that some schmuck financial advisor didn’t sell this to people as low risk because it’s bonds. Because I know they did.” — Josh Brown [56:41]

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Memorable Moments & Segments

• [18:29] Brown’s argument: “A blockbuster Nvidia earnings is the only thing that can stop the AI crash.”
• [26:16] “Semis added a trillion dollars in market cap in the past five days. …That was literally the top.”
• [33:14] $650B/year AI revenue needed to justify capex. “That’s more than 150% of Apple’s annual revenue. OpenAI is only at $20B.”
• [39:45] “It’s Squid Game. …People are gambling their balls off.”
• [47:52] Blue Owl’s handling of BDC redemptions called “clown of the week” behavior.

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Timestamps for Key Segments

• [06:29] AI crash debate and VIX spike
• [12:09] Fund manager survey and skepticism
• [15:26] Redburn Rothschild downgrades on AI economics
• [18:29] Nvidia as the lynchpin for the “AI crash”
• [24:41] “Leverage mania” and ETF craziness
• [29:12] Google’s AI business, conflicting analyst takes
• [33:14] JP Morgan’s $5T AI infrastructure math
• [34:42] Retail mania, Asian dip-buying, meme stocks
• [39:13] Double-leveraged ETF horror show
• [44:22] Private credit faceoff: Blue Owl vs. Apollo
• [54:56] BDC yields – what’s real, what’s not
• [57:18] “Woodshed” earnings season: Big-cap drawdowns
• [64:31] Batnick: I bought Meta and Oracle

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Tone and Style

The episode maintains a fast, irreverent, and banter-heavy rhythm, combining market expertise with blunt takes, humor, and an emphasis on lessons learned the hard way. Both hosts have strong opinions but aren’t afraid to challenge each other or admit uncertainty—making for a lively and relatable take on serious financial turbulence.

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For Listeners in a Hurry: Top 3 Takeaways

1. The “AI Crash” isn’t driven by demand disappointment, but by escalating capex, depreciation, and questionable returns—Nvidia earnings loom as a possible market turning point.
2. Retail and institutional leverage has reached spectacular (and sometimes reckless) proportions, magnifying both upside and drawdown—especially in single-stock levered ETFs and meme names.
3. Private credit, particularly Blue Owl, is in the hot seat over liquidity and transparency, while Apollo’s straight-talk approach wins more respect. AI-exposed BDCs face not just rate risk but scrutiny over loan quality as well.

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Transcript

[A]

Ladies and gentlemen, welcome to the Compound and Friends. On tonight's show, an action packed edition of what are your thoughts with Michael Batnik? And I I think I know the one thing that can put a stop to the AI crash on Wall street and I want you to know what that thing is too. And we will discuss. Special thanks to our sponsor Public. More on Public in just a moment. Let me send you into the show. Welcome to the Compound and Friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Yeah, yeah, yeah, yeah, it's us. We're back. Hey guys, wanted to say thank you so much for joining us. Those of you who are with us for the live on YouTube every Tuesday at 5pm we really appreciate it. Want to shout out some people in the chat before we say thank you to the sponsor. Cliff is here. Jerry Jinma is here. Christian Grof says Josh low key called the pullback like two weeks ago. Quote, people are talking. I really did. I really did. I believe the exact phrase I used was get out. We are in a kayak headed over Niagara Falls. I, I wish I could uncall the pullback and, and have it reversed, but I'm not that powerful. Chris Hayes is here. Akbar Muhammad, what up? Says what up y'?

[B]

All.

[A]

What's up man? Georgie's here. Everybody's here. Nicole is in the chat. Everybody Say hello to Ms. Nicole. Anybody else? I. I missed that. I've been meaning to say hello to for a while. We'll do it. We'll do it in post. We'll do it later. All right guys, tonight's show, like every week, Michael Bannock and I talk about some of the biggest topics in the markets. It's been hella active for the last couple of weeks. Vix hit 25 today and we have all sorts of action to get into and we're so excited to be here and do it with you guys. But before we continue, I want to say a huge thank you to our sponsor. Thank you Public. Michael, tell us about Public.

[B]

Today's show is sponsored by Public. That's right, Josh. Public is the investing platform for those who take it seriously. You can build a multi asset portfolio of stocks, bonds, options, crypto and more. You can also access industry leading yields like the 3.8% APY you can earn in your cash with no fees or minimums. But what sets Public apart AI isn't just a feature. It's woven into the entire experience, from portfolio insights to earnings call recaps. Public gives you smarter contacts at every touch point. Plus earn an uncapped 1% match when you transfer your portfolio, including IRA transfers, rollovers, and even contributions. Fund your account at five minutes or less, paid for by Public Investing. Full disclosures in Podcast Description Josh, you saw, you saw the real ao.

[A]

I'm so sorry to do this. Let's give people the URL public.com w a y t. That's public.com wat. Did you, did you get to watch that demo that the Public guys did for me yesterday?

[B]

Not yet. I was just about to ask you, how'd it go?

[A]

I mean, it's pretty sick, dude. It's like it's in two stages. Stage one is available now, which they call Generated Assets. And some of you, some of you guys have seen it on YouTube. We published it last night. But basically, Generated Assets is like, I want a portfolio with only CEOs who are older than 45 years old, and I want no companies that have economic exposure to Brazil.

[B]

Equally weighted, equally weighted.

[A]

Whatever you wanted by earnings growth, whatever.

[B]

Just want bald CEOs.

[A]

No, I'm telling you that, like, this is what they built. And so, and so now you get this list. You don't have to trade it. They just, they give you the list, they show you all the holdings. And, and then if you click into the holding and explain how it got onto the list. So it, it enables you then to refine it in any way you want. And if you like what you ended up with, you can click trade with a certain dollar amount. And it's like buying a stock.

[B]

I love it.

[A]

And it's you, you end up, it's not an etf, obviously, because you just created it. You just end up with a basket of stocks that you can buy instantly, sell it instantly. It's like a, it's, it's like held by a ticker just like all of your other holdings. So if you like, here's a really good example. When the price of crude oil falls as it did again today, or as it's been for the last week or two, and now I think Goldman Sachs came out and said $52 crude next year. That's a negative for a lot of energy stocks, but there are stocks that, that's bullish for, and that includes the refiners. Valero was One of the top performers in the S and P. Also on my best stocks in the market list. You could say to it, build me a portfolio of stocks that are involved in refining and benefit from low oil prices or whatever it's going to give you generate a list and you could just instantly be like long.

[B]

Love it.

[A]

Like, dude, this is like so that's generated assets and then the next phase is they take that technology and they turn it agentic. So now it's like not only are you speaking this investment product into existence, then you could tell it, I want you to tax loss harvest that portfolio. Look for tax loss harvest opportunities every 30 days. Or I need you to pull $5,000 out every month and put it into Bitcoin. Like it'll, it'll agentically that's available in January. Like basically make the brokerage account into your, your worker. I mean it's.

[B]

I love it.

[A]

Yeah, these guys are, these guys are on fire. I'm so proud of them. All right, let's get into the show. Should we talk about the AI crash or. Nothing to see.

[B]

Let's do railroads.

[A]

Is it an AI crash?

[B]

No.

[A]

Okay. Meta in a 27% drawdown very fast. Not a crash crash. Oracle in a 30ish percent drawdown very fast. It's not a, it's not an AI crash.

[B]

Are you sure? I. Well, we're allowed to disagree. You might call it a crash. I mean there are names that are crashing. Cor Weave is absolutely crashing. Is it, is it an AI crash? I think there is a lot of disbelief, certainly a lot of doubt. Looks a lot different than it did a couple of weeks ago for sure. Well, what.

[A]

So if I just, if I didn't say the names to you, if I didn't say Oracle and Meta, but I told you, two of the seven largest market caps involved in the theme as well as the Neo. The Neo scalers like Cor Weave. Like if I just. I said they were down 30% in a matter of weeks, you would say that sounds crashy.

[B]

Let's not split hairs. It's ugly. Okay. We could argue crash, not crash. Whatever there is. There is. I think what's different about this particular sell off and they're all different, is that this is calling into question a lot of the things that we believe two weeks ago. Hey, wait a minute. What's the depreciation schedule of these chips? You're saying six years, but really it's like three. That changes the, that changes your balance sheet dramatically, Changes your financial statements dramatically. Maybe your earnings are going to be nowhere near what we think they are. And therefore, boom, Reset needed it healthy.

[A]

Right. What's so interesting is we always assumed all along that the thing that would put. And this has been going on for three years, by the way. We always just all, like, tacitly agreed that the thing that would put this all in jeopardy was when one or more of the players decided they wanted off the carousel and they were going to stop spending. That actually didn't happen at all. If anything, they've ratcheted up the amounts they're going to spend and the street is now saying, maybe that's not the best idea, or maybe we don't love the way you're financing it and. Or accounting for the expenses. And that's. So it was not what we all thought.

[B]

Such a good point.

[A]

Such a great. I. All I do is come to the table.

[B]

No, you're so right. We thought, at least I thought that this would, quote, end when we listened to an earnings call and we heard something different where, like, the demand might not be what we thought it was. And then, oh, Nvidia is down 26 overnight. That is absolutely not what caught. What happened. And, yeah, credit to you. It's a good point.

[A]

No, and that's. And that's the, you know, the. That's the funny thing, the frustrating thing about markets, but also the funny thing about life is, like, it's. It's rarely the thing you're worried about. It's always something else that you probably would not have conceived of in advance. And so that's what's playing out. Like, nobody is saying, all right, that's enough. That's. It's the opposite. And that turned out to be the bear case. And look, it's one of the things I'm doing this almost 30 years. It's one of the things that I most love about the markets is that it's a puzzle that'll never be solved. But then it's also one of the things that's really frustrating. And, hey, here we are. Let's put up this VIX chart just to set the table. That escalated quickly. We had a faster VIX rise. When was that? Is that early October? That was me.

[B]

Yeah. That was the Friday day when Trump was going to slap 130% tariffs on China again. That was that.

[A]

Oh, wow. And then. All right. And then prior to that, really nothing on this. Nothing on this scale this year.

[B]

So I'm going to make the case.

[A]

You go. Until you go back to Liberation Day.

[B]

I'm going To make the case later in the show that there's been a lot of nothing going on in the market. Right. It's just been like, there's been no news and it's been a lot of. Call it what you want, complacency, whatever. We've had a hell of a run up. And the reintroduction of risk. Although nobody likes to see their stocks go down, myself included. We need this. You need to build a wall of worry to climb to new heights. It can't just be announcement, boom, 35% to Oracle. That's not sustainable. So we reset. There was a lot of doubt. And we'll see. Listen, I said to you guys yesterday, I love a wall of worry. I love, I love it. Unless there's a reason to worry and you know, we'll find out, you sit.

[A]

On a throne of complacency.

[B]

Excuse me, you.

[A]

You just said there was a lot of doubt. No, there, like, is right now. A lot of doubt.

[B]

There is a lot of doubt.

[A]

There was like.

[B]

I don't think.

[A]

I don't know if we're through this.

[B]

No, excuse me, if I said was I meant to say is.

[A]

There is.

[B]

There is a lot of doubt. And I don't know. I don't know if we're gonna. If this is overblown or not. I don't think the AI trade is over. How about that?

[A]

I don't think this is the top either. Nicole or Duncan just dropped a poll into the chat, but I don't see the results. I don't even know what the poll was.

[B]

What's the question?

[A]

I don't like, like bullish or bearish. And somebody responded bullish or bearish.

[B]

That's.

[A]

Somebody responded like most bearish. I don't know. Duncan, can you pop in?

[B]

We got to be more specific than that.

[A]

I don't really know what happened.

[B]

It's in the chat there if you want to look. It's 64% bullish, 36% bearish. 362 votes on what and when. Are you bullish or bearish today. Are you feeling bullish or bearish? I do it every week.

[A]

Great poll dunk. All right.

[B]

Okay, then enough credit to Duncan every week.

[A]

All right. Here's a poll of portfolio. Matt, the fund manager survey from bank of America put this up. Okay. Like, this is notable.

[B]

Yeah, absolutely.

[A]

Record number of fund manager survey investors. So these are global portfolio managers that respond to bank of America on a regular basis. And they are. This is a record number. Now, say companies are over investing. I assume they mean in AI. Too much capex. The net percentage who say companies are over investing is. What does that look like to you? 20%. 20% of investors saying that. That was a negative number in every survey ever up until this week. That, I mean, that look, look at it. That looks weird, right?

[B]

Yeah, dude. You know, it's so funny how fast narratives change. So you mentioned five minutes ago that this, this doubt came out of nowhere. Like the, the depreciation expense. Okay, I. That was on my bingo card. You know, how. What, what could fix this in 2 seconds if, if Sam Altman gets on another podcast next week and says, guess what? $30 billion in annualized revenue. Okay. Over. Party back on.

[A]

Oh, I don't know. I think he's caused himself some credibility. I was going to say, you know what could take us into a 50% drawdown? He gets on another podcast, gets into a snit with the host and drops off.

[B]

Yeah, that wouldn't be good.

[A]

That would do it.

[B]

That wouldn't be good. All right.

[A]

According to the fund manager survey, the investors, bullish, running very low 3.7% cash levels and more than 50% continue to think AI stocks are in a bubble. And the contrarian trades being mentioned. Long sterling said pounds or silver? I don't know.

[B]

Pounds. Okay.

[A]

Long foot. Long long footsie. Short emerging markets. Okay. Long discretionary, short banks. I don't really understand that. All right, next chart. This is that more than 50% think AI stocks are in a bubble, but, like, they're not selling the stocks based on their positioning. So, like, everyone is still like, yeah, it's on the way to becoming a bubble. Like, no, they don't really have a lot of people that are like, it's a full blown bubble. And not only that, I'm expressing that with my portfolio positioning. I'm short or I'm out. It's not what's going on right now. All the shorts are just people that tweet.

[B]

Okay. It's not a. I guess the question is if it, if it is a bubble, then it was a bubble.

[A]

Okay.

[B]

Then it's on its way to popping because you can't say it's a bubble today when Met is in a 27% drawdown. We'll get to the numbers later, Oracle. It either was a bubble that is deflating or that's it. It's not a bubble. We're not in a bubble right now. There's no euphoria anywhere. Everybody is skeptic.

[A]

All right, so let's do some skepticism. There was a very notable downgrade today from a small firm, Redburn Rothschild. I think they're British or based in London and if I'm wrong about that, nobody send me an email and get mad at me. I'm doing the best I can. But like this got the market's attention. Redburn downgraded Microsoft and Amazon from buys to neutral ratings, saying the market is too complacent about the economics of Gen AI. They argue investors have been treating Gen AI like early cloud computing but the numbers don't support that comparison anymore. So basically what they're saying is that Gen AIs Economics unit economics beating like per customer I assume are far weaker than Cloud 1.0 which was like 2015, 2016, 2017. The analysts said it takes six times more capital to generate the same economic value with Gen AI as it did during the build out of the early cloud era. They're estimating $1 of AI infrastructure is only generating $0.20 of net present value. They're being nerds about it and looking at the actual numbers which I don't know why but this is a thing that people used to do and their basic take is the economics just don't work yet they cut their target on Microsoft from 560 to 500 which is a big chunk on slower monetization for AI workloads and their Amazon target stayed at 250 but they still cut it to a neutral risk reward. No longer looks asymmetric to the upside. They say AI workloads now account for more than half of of AWS and Azure growth but are delivering lower returns, higher depreciation, heavier capex and slower payback periods. This is the first time since this analyst Alexander Heisel cut both stocks since 2022. What are your thoughts?

[B]

My thoughts are it is way too early to look at the unit economics of these businesses. We have no idea what they're going to turn into or what they're going to become. Imagine looking at Facebook in 2014 and jumping to conclusions on oh the spend on the mobile build out it just doesn't support the all the whatever cap we it's too early now healthy skepticism makes sense. I get all that. It is way too early which is why you see these companies gyrating wildly violently because there is a lot of uncertainty and right now investors are asking questions but they're selling there's a reset. Good. These companies need to prove their worth.

[A]

Let's see it counterpoint. I I I'm sympathetic to it's way too early cause of Course, it's always too early. Like, no, nobody knows in the future. And there's equal amount of space for the optimist to be right. Okay, but don't we jump all over these people for being late? Like, yeah, like, in other words, so they, they're admittedly early, but what they're saying is like, based on the current economics of the spend versus the payback. And we're going to talk a little bit more about that in a second with a, with another chart. Like, it's not encouraging and it's definitely not pointing toward a need for spending more. It's like, oh, we're barely making money if only we spend more. Like, that's not, I mean, that's not always how it works.

[B]

Credit to this analyst for going out on a limb. I do, I do respect.

[A]

No investment banking business for you, Alexander.

[B]

But current economics, tell me future economics, which I know they can't. I get it.

[A]

All right. Nvidia reports tomorrow night. Can I share some of the storylines?

[B]

By all means.

[A]

All right. A lot of investors think that Nvidia is the thing that can stop the AI crash, or you call it AI Correction. A lot of people are saying, like, if anyone or any thing or any event could put a pin in this and calm everybody down, it's a blockbuster number for Nvidia with amazing guidance and the typical Jensen Wang optimism that we've all become accustomed to. And I sort of think that's right. And if you were to ask me, like, what could make this better or way worse, It's a function of what, what's going to be said tomorrow night at five o'. Clock.

[B]

Now what would be very interesting is I am assuming we're gonna hear good things. I'm assuming we're gonna hear good numbers. Optimism. What if the street doesn't buy it and just wax it anyway?

[A]

Well, well, pull up a chair. Cause we're all gonna find out together. Okay. J.P. morgan is bullish. They put out a note today and they recommended a short dated option trade, you know, for the Robinhood crowd. That will pay off if Nvidia stock climbs after tomorrow's earnings. Their target on Nvidia is $215. The stock closed 182ish. 181. We also have a bunch of big name sellers in Nvidia over the last quarter. Peter Thiel's Macro hedge fund dumped its entire stake during Q3 worth about $100 million. And Masayoshi Son famously liquidated his Nvidia stake. This is SoftBank $5.8 billion worth of stock whacked it out. And some people actually are pointing to that sale as being the trigger for a lot of the selling and other NASDAQ stocks related to AI, which I sort of feel like it was happening first. And Nvidia has barely come down relative to the others. So I'm not sure if I agree. Michael Burry is out there allegedly with a short on against Nvidia, but who the hell knows, because he's like initiating positions, then he's closing his fund, then he's teasing some event on November 25th. I don't know, is he gonna set himself on fire in the street? I have no idea what that's about, but that's part of the storylines here, here. Earlier this month, the securities filing showed that if Burry's hedge fund bought options that will pay off if Nvidia shares drop. So the idea is he shut down his fund. Meaning, like the fund has to live with those trades and nothing happens until something happens with those trades, I guess. Or he's kicking out his investors and converting to a family office maybe in order to hold those trades without anybody interfering with him. I have no idea. I'm just saying this is the speculation. And then I wanted to say two other things. Let's just give, I want to give people the numbers. So the revenue expectation is 54.8 billion for the quarter. The earnings per share is $1.26. The data center revenue is expected to be 48.9 billion, which would be 59% year over year growth, gross margin 73.5%. Can you imagine that? And then guidance for next quarter. The Whisper number is 61 billion. And then like the, the wild card is if anything is going on with China, which Jensen already told you, expect nothing from China. And anything that happens there is like a cherry on top, not in, not in the guidance. So it's, you know, as usual, it's all about the data center. Everybody's going to want to know about Blackwell shipments. And I think the, I want to get your take on this. I think like the, the number one question if I were a sell side analyst that I would ask during the call is what's your take Jensen Huang on the depreciation debate? Because these are all his customers. So keep in mind he's talking out of both sides of his mouth. On the one hand, he's mocking people for jokingly, for using prior generations of GPUs, like, get with the program. You need Hopper now. You need Grace Blackwell now. You need whatever the next thing is. But then on the other hand, all of his biggest customers have depreciation schedules where they're showing these chips will be in use and productive out to five years, in some cases six years. So like, which is it? Please weigh in Mr. Wang, because like this has got real consequences in this ecosystem and you're the most important player in this ecosystem. Weigh in on this, on this debate, would you please? What do you think about that question? Do you think anyone will ask it? And what do you want to know?

[B]

Well, that's what I was going to say. So we're on the same wavelength and I would say that there is a 140% chance that that question gets asked. What I, what I like about the this earnings season?

[A]

Dan Ives asks it. No way.

[B]

Some no 100% it comes up.

[A]

It's not coming from Dan though.

[B]

Throw up this chart that about Nvidia into earnings. This is by far the weakest setup or the weakest price action going into earnings over the last couple of years.

[A]

I was even aware of this.

[B]

There is a lot of doubt heading into the quarter and we'll see. I'll tell you what, if this, if this thing does drop 10% overnight, I'm buying the snot out of it in the after hours. I'm telling you right now.

[A]

Can we put that chart back up? This is the two week return heading into the earnings. I mean if you're bullish, it's a nice setup that they just gave you. You're buying the stock 9% lower going into the number. So even if it's just an on target number and doesn't blow people away, it's not like you're buying it up 10% into that. So sort of, I sort of like that for, for a long.

[B]

Check this out. You know what we haven't spoke about in a while. Remember the etf? Nvdl, the double levered Granite shares etf. The assets peaked. We have this chart please, John. The assets peaked I guess about a year ago at 6, ooh, 6.69 billion. And the stock is up quite a lot since then. And I guess in a really sensational environment you would expect investors to be piling into this thing. No, not really, not at all.

[A]

In fact they cooled off on it. Look at that. That peaked in December of last year. I mean one caveat is like the markets. Do you remember the markets post election going into year end, that November to December period? It was. Yeah, bonkers.

[B]

Yeah, you're right, it was.

[A]

And I Just think that was less about Nvidia and more about like, oh my God, Trump won again. We're all, we're all getting tax cuts, we're all getting laid.

[B]

Like it was 100%. But, but Josh. And also year to date at the peak a couple of weeks ago in video was up 50%. So you would expect people to be piling in and they just really didn't. So here's, here's where I'm at. Things got. Things were so wacky a couple of weeks ago with this one way trade. I think we did this on the show or maybe it was on tkaf. I had chart kid make a chart showing the rolling whatever day return. Where's this chart of semis compared to. There we go. Semis added a trillion dollars in market cap in the past five days. You remember this?

[A]

Yeah. And that was it.

[B]

So that was, that was the literal. That was literally the top. That was October 30th over a five day period.

[A]

We said it was. You said, this is ridiculous.

[B]

Yes.

[A]

When you put the chart up.

[B]

And so since then, guess, guess how much has come out. $830 billion. That was the top.

[A]

Holy shit. That's so much money. Think it, just think about. Just pause that. It's $1 trillion came out of one sector of the market in a week, two weeks since.

[B]

Since the top. So I understand that these names are down bigly. Oracle, Meta, a lot of other names, Core, we've, of course. But come on, do you think these things were up so much? They were up so much.

[A]

So I wanted to say that put my chart up. That was before that. This is from the Wall Street Journal. The headline is the Philadelphia Semiconductor Index enters correction territory. But like, look at the chart. Look where it came from. So, yes, it's officially in a 20% drawdown, 10% drawdown. So that's correction territory. Fine. But like a little bit of. And to the Journal's credit, they gave you that context. You know, even with the, even with the scary headline. They said the last time the semis were in a actual bear market, which is 20% or more from a recent high, was January 22 through April 8. You know, right into Liberation Day, the semis were in a 35% bear market by April 8th. Did you know that? I don't even remember it. I know it happened.

[B]

Whacked into the Stone Age.

[A]

All right, Berkshire Hathaway. So this is Warren Buffett's. One of his last trades of his life. He bought Google.

[B]

Well, he, he retired. He didn't buy this.

[A]

I know, but whatever. Berkshire Hathaway under his watch technically for the last couple of months. They did this in the summer. Berkshire Hathaway disclosed who 4.3 billion to $4.9 billion worth of Alphabet.

[B]

You know what's funny? Us two schmucks, we sold to Warren Buffett.

[A]

Oh, literally. I think I sold it in June, but close enough. I sold it lower than where they bought it. I looked, don't think I didn't look. What was going to say. So they bought almost 18 million shares. Loop Capital upgraded Alphabet today from a hold to a buy.

[B]

Tough sin.

[A]

Raised their target to 300. Didn't really help. The stock looks better than the others right now. I think the halo from Berkshire buying. But they liked the name. It didn't do much. Let me do a one year Google price performance. If you wanna know where I sold, just find the lowest point in the chart. I think I'm June. I forget. Pretty, pretty damn close. Pretty damn close to the lows. I either sold right before or right after the lows. And of course look at it smiling back at me.

[B]

Nobody's perfect.

[A]

Look at this chart. Look at this smile in this chart.

[B]

Yeah, you dumb bastard.

[A]

All right, so Loop saying Google's core ad business is actually re accelerating. Search is showing stronger pricing and improving click through rates, which helps reinforce their view that AI cannibalization fears were overstated. Overstated by me. They're saying the Google cloud platform is being driven by higher margin AI workloads. That's so weird. I just read that workloads were lower margin for AI. Who knows anything. They're also emphasizing Alphabet's balance sheet strength, cash flow plus slower capex intensity versus their peers.

[B]

Yeah. Wait a minute. I thought redbush was talking about unit economics.

[A]

Maybe they're looking at a different Alphabet. They didn't downgrade Alphabet. They downgraded Amazon and Microsoft. Loop says Alphabet's still the best risk reward among the mega cap AI names and much less exposure to the severe capex burdens that Amazon and Microsoft are facing. All right. What I think this all boils down to is what's changed in the last two weeks is not the fundamentals of the AI race. And I think everybody still understands that these companies sort of have to continue if they want to be relevant and competitive in the future. I think what's changed is what is the cost of it going to be and is there a payback that's going to come soon enough to justify the cost? And also the way it's being paid for all the debt. So I want to remind people why everyone was balled up on these stocks in the first place. We're not all delusional. Raymond James is projecting that cloud revenue for AI will explode in the next five years to nine times its current value. Thank you, John. So what, what you're looking at here is the revenue from AI cloud products and services. This is what Ray J thinks they'll be able to charge all of the companies and people on earth that want to utilize this tech like it's not, it's not this mass fever dream of nonsense. You know, it's, it's, it's not like we're all kidding ourselves. Like this is the opportunity that they're all investing for. So and, and so and that's like on an annual basis. So I want to remind people of that. The problem is who's going to pay for it and how. So this is from the Journal.

[B]

Taxpayers die.

[A]

Yeah, sure. Eventually, JP Morgan's fundamental research created a financial model that projects total investment in global AI infrastructure through 2030, taking physical limitations into account. You know what the physical limitations are? There are already so many plans for data centers and connecting them to the grid that companies like GE Vernova are telling Wall street we're booked out until 2028. If somebody came to us with a new project, we couldn't say yes to it until 2029. The physical limitations are you have to connect natural gas turbines to, to these transformers which look like gray house shaped boxes or box shaped houses and like to get physically the electricity. Like that's that limitation. But the point is they're saying it's 5 trillion to build all the stuff that's being been committed to. What they did was they calculated how much new revenue these companies would have to generate to justify spending 5 trillion on these AI supercomputers. And what they came up with is AI products, ChatGPT, all the enterprise stuff that Anthropic sells, etc. Would have to create an additional $650 billion a year indefinitely just to give investors a reasonable 10% annual return.

[B]

Who was that? Who's the six hundred and fifty?

[A]

JP Morgan. So just to put that number in perspective, 650 billion a year. That's more than 150% of Apple's annual revenue. OpenAI's current revenue is about 20 billion. So think about the distance between 20 billion and 650 billion for AI revenue to get to just for investors spending that 5 trillion to earn back 10%.

[B]

Yeah.

[A]

Well, that would equate to every. Hold on. That would equate to every iPhone owner in the world agreeing to pay an extra $35 a month for products and subscription, like just to try to like figure out like, what is the payback. So if you ask me, like, what's changed? Fundamentally, nothing. What's really changed is the way we're thinking about the bill. What is the, what is the cost, when do we recoup it and how are we borrowing the money to do it? That's the really big change here.

[B]

And the spark was lit when Sam Altman was asked, hey, wait a minute, you're doing $13 billion in revenue. How are you gonna pay this 1.3 trillion dollar billet you amass over the next 10 years? And he basically said, he hung up and said, I can't wait to get for you to short my stock.

[A]

He went like this.

[B]

Yeah, not, not so. Yeah. So are, are all of the questions, all of the reasons for the air coming out recently? I think it all makes sense to me. Right? Like all of it. It all makes sense. I don't think anybody's dumb for selling.

[A]

All right, you're up.

[B]

All right, let's. I want to talk about some charts that I found in the daily chart book. Who does a daily. Well, it's a chart book daily and it's great stuff. So this is from Citadel Securities. Retail investors continue to add into weakness, becoming the new price setters. Well, I'll be damned. During the latest pullback, retail flows showed one of the largest buy the dip events on record.

[A]

Unbelievable. Look at that spike. I guess they know how to disentangle retail buyers from institutional buyers. Like they know what they're looking at.

[B]

Yeah, Vanda Research does this as well. There's also something called a, they have a, A, a retail risk on risk off index. This RORO Citadel. So this tool tracks whether retail investors are increasing or reducing exposure to different forms of market risk. This week saw the fifth strongest retail dip buying in the past two years. So stocks are dipping and we're buying.

[A]

I'm going to tell you something. How often do they run this? Weekly?

[B]

Every four. Every four? I don't know. I'm assuming. Yeah, look, looks like it.

[A]

Well, this week we, we don't know what Nvidia will bring. So I'm just going to tell you if it's more of this for the rest of the week. I think that retail, that, that RORO shit is going to be way less. I think there is, I think retail buys the Dip really quickly and with tons of conviction. I just don't think they do it through on the third week.

[B]

Completely agree, completely agree. There was a great article in the FT talking about. They call it the Squid Game market. How Asian retail traders are driving US meme stocks. I didn't come up with that name, so don't get mad at me. Look at this. I mean this is wild. So they say. Known for their.

[A]

It's like a little racist.

[B]

Yeah, I think so. Known for their high risk tolerance, her behavior and use of leverage. South Korean traders have piled into U.S. markets this year. They, their, their holdings doubled $170 billion at the end of October. And what they're particularly keen to buy are the crazy shit. So Ionic Ionq is a huge, huge holder of theirs is the fifth most popular US stock for South Korean investors. They do a lot of the leverage shit. Like they are having a party.

[A]

You know it's interesting, the Asian stocks got murdered overnight and that's like new because yeah, they have AI exposure. Like Europe was down 1% and I think Asia was down 2 and a half or 3. Like as a group some of those markets got just absolutely annihilated overnight. They're sort of acting like our market and it's weird right, because they don't have, they don't have Amazon and Microsoft and Meta in their indices. I mean they have other companies that are exposed to the theme. But this kind of went global over the last 24 hours in a way that a lot of US tech sell offs just historically haven't or should not have. And I, I sort of feel like that's new. What do you think?

[B]

Yes, funny you should mention because I don't, I don't pay attention to, to Asian markets that often. But I did see a headline this morning and I said different. Yeah, look at this. Look at this table from our friend Todd Sohn. So the levered long single stock ETFs. ETF drawdowns. So the monster ones. I'm sorry, not the monster, the. My bad. The micro strategy ones from Defiance and t Rex down 95 and 97% from 52 week high and still MSTU. Is that at the peak?

[A]

Wait, wait, stop.

[B]

500. No, I won't stop. 500. $557 million in this thing. Let me see.

[A]

Wait, wait, I don't understand. This is in dollars or in market cap, sir. That's price.

[B]

Price.

[A]

Wait, the 2x long MicroStrategy ETF is in a hundred percent drawdown. Like it's almost. It's almost zero.

[B]

It's down. I'm saying. Well, it bounced today. So, yeah, basically it was. Now it's only down 93. Now it's only in a 93% drawdown.

[A]

Oh, my God. I'm just. I'm eyeballing some of these. I didn't even know they had two X's for. There's a two X for super micro.

[B]

Need it. You got to have it. What's wrong with you?

[A]

What crack smoking muppet is. Is 2x long smci.

[B]

Holy shit.

[A]

What are we doing here?

[B]

So this thing. Okay, so that chart. Put it back on for a sec. That number. The. The. The A. That's as of today, dude. So the. The T. Rex MSTU. At its peak, it had $3.4 billion. Now it's 550 million.

[A]

What the hell are people doing? Why is there that much money?

[B]

Dude, it's Squid game. Were you not paying attention?

[A]

Isn't this. This is like walking into Vegas. Like, walk up to the first table you see, say, oh, blackjack. I love blackjack. Here's $4 million.

[B]

Let's.

[A]

Let's play like.

[B]

Yeah, this is like people are gambling their balls off. Yeah. Did you know there's good.

[A]

Is it. Is it like sort of good? I mean, it's bad because we know on the other side of the trade is Ken Griffin and he's going to buy 10 more. 10 more apartment buildings in Brickell. We understand, like, where this money goes. It doesn't disappear. It's transferred to somebody else. So from that perspective, it's not great for like wealth inequality because it's all going to Jane street in Citadel. But is it, like, good? Because these are young people who need to get their education now before they do this with real money. Is it decided? I mean, it's good.

[B]

No, it's not good. Who is it good for? It's great.

[A]

But isn't it the right lesson? But isn't it the right lesson?

[B]

It's not good. Let's just be clear. It's not good. There is a. There is a double levered bmnr. The bitcoin, the bit miner, Tom's thing. There's a double because.

[A]

Right, you needed a double of that.

[B]

A double of that. Listen, this is. This is unfettered capitalism. If there's.

[A]

Who launched the double, it's T. Rex, B minor.

[B]

So if there is a demand for these products, you know they'll be launched.

[A]

Listen, the only thing better than Tom Lee is double Tom Lee. So I get it.

[B]

Just.

[A]

It's just, I don't understand the dollar amounts here. Like, why are these. So why are they. Why were these so big?

[B]

So 570. So this thing just launched because it's not, it's not old and it was just immediately $575 million. Like that's a lot of money. So is this good? No, it's not good.

[A]

It's actually so up.

[B]

No, it's not good. Come on.

[A]

It's like, it's like really bad. And there's nobody on in. Nobody's watching this. Like, we, societally, we have decided deregulation and like anybody can launch anything and play at your own risk and the apps are encouraging it and there's like, like there's nobody coming to save any of these people. No. Nobody.

[B]

So this is serious money. When they. Listen when, when you have the double levered spy ETF and you, you touch a hot stove and you learn your lesson. Okay, but, but this, like, why does this need to be.

[A]

All right, I'm, I'm gonna say one thing and this will be unpopular, but I don't care. I'm, I'm. As for deregulation as the next person and I do think adults should be allowed to do what they want to do within reason. I think we should draw the line at like scams. But like if something is a bet and a bet goes against you and you're an adult, like, you know, that's just the way life works. Don't bet money you can't afford to lose. Okay, I get it that that's where the fault lines are. But I also think that in the midterm elections, if the Democrats have a little bit of a wave and they take some seats, it's gonna be nervous time for the people that are running around Wall street acting like robber barons, launching up products and convincing people to do really dumb things. And ultimately if you ever, I don't know if it'll ever happen again. If you ever get a Democrat in the White House who brings in their own SEC person and they decide, you know what, let's do a look back and see who was taking advantage of the public. Like, a lot of this stuff is going to get drug back out onto the carpet. Like, I think right now we're in an environment where people are just like, I get to do whatever I want. As long as I disclose and disclaim, I can, I can launch anything. I can encourage any kind of behavior. And that might not always be the case happen.

[B]

Who's to say where the line is this one is good, that one is bad.

[A]

It doesn't, it doesn't. It's, it's a, it's.

[B]

It's.

[A]

It's not even a legal argument. And some moralistic, like, was this in the best interest of the users of your brokerage platform? Like, what are you. How are you going to defend that? You're going to pay the fine? You can't defend it. I'm just saying, like, if you get a regime change at regulatory bodies who may want to go back and say, we got to clean some of this stuff up from the last era, and that really does happen. And a lot of people right now seem to have short memories of, of prior episodes where that happened. So I just, you know, it's all fun and games, and I know a lot of people are making a ton of money, and I'm not player hating, but, like, this stuff doesn't just go away. You launch a product that drops 98%. Like, you don't. You can't.

[B]

You can't just.

[A]

Well, it was the Trump. It was the Trump era. What do you want me to say? Like, that's not how it's gonna go. And I know, I know it's not because I've been around for a long time and I've seen the pendulum go in both directions. All right, let's do private credit. Our friends in private Credit, you are really good about listening to the calls, and I just kind of like, vibe comment on this stuff, but you actually do the work. And I wanted you to give me your take on what you heard. The difference between what Blue Owl is talking about versus a firm like Apollo because it sort of seems like a boys and men. The separation between the boys and the men right now.

[B]

Yeah.

[A]

So. So tell me a little bit about what you gleaned from listening to what these companies are saying.

[B]

So I did this this morning with Ben on what you're on animal service. Excuse me. And.

[A]

All right, then we'll do this. And I'll just listen to that.

[B]

No, no, no, no. I'll. No, stop. No, I'm saying I'm prepared. So. Okay. I listened to Apollo's earnings calls. Now, for those of you who are unfamiliar, Apollo is one of the gorillas in the private credit room. Mark Rowan, their. Their Found co founder and CEO is an absolute wildebeest. And he was asked very pointed questions about the rate environment and investors allocating away from private credit because these are floating rate securities. And so as rates come down, they are less. Less enticing for investors. And he answered the question like a man. He said, yes, listen, let's be grown ups. This. The, the, the, the opportunity set today is less attractive than it was one year, two years, three years ago. Hey, guess what? You could say the same thing for public equities. I wish I bought Nvidia three years ago. I mean this, this is what he said. He said. So yes, undoubtedly we are tightening our standards. We are being diligent. We are not upper upping risk. Okay. And it was, it was a phenomenal answer. And then you hear Mark Lipschultz who was clapping back at Jamie Dimon after the cockroach comment. And so not in fairness, but just in factness.

[A]

Who is that now? Who is that?

[B]

So Mark Lipschultz is the, is the founder and CEO of Blue Owl, which is the biggest. It's called GP Stakes company in, in the world. GP Stakes is. They are, they are seeding a lot of these alternative asset managers. It's great business. And they're taking unit economics off of that business. Okay. They're also in the private credit game. And you might have heard Blue Al because they are responsible for doing all of largest deals with all these hyperscalers. They're financing metas and all, all of them. He was asked a question about why their, why their BDCs, which are public vehicles are getting sold and what investors may get wrong. And oh boy, the difference in the answer and the tone between what he said and Mark. What Mark Rowan said could not be more dissimilar. It was defensive, it was nasty. It was. Investors don't understand. Well, guess what? I understand. The stock is down 50% from its highs almost. The BDCs are getting murdered. And now the FT did a report that they are trying to merge their private credit vehicle into the public credit vehicle into the BDC because they're getting redemptions out the ass. And some of the quotes from the article are so lolzy absolute clown of the week awards. So we'll get to that a second. But at a high level. That's the story.

[A]

Let's, let's show people what we're talking about in terms of the share prices. So the first chart is the corporation Blue Owl itself, which is basically the GP sitting on top of all of their funds.

[B]

This is.

[A]

Yes, if you're a shareholder in this, you own a piece of Blue Owl Capital Incorporated, the company. So whatever funds they launch, whatever fees they collect, whatever deals they do, you're like kind of like alongside the GPS. And this thing is a $13 stock now down from almost 30. It's in a 38% drawdown year to date. And they're not worse, worse, worse.

[B]

It's down 38% year to date. It's the drawdown.

[A]

The drawdown is bigger, but there's no. It appears that there's no end in sight. It's a relentless downtrend with very few positive weeks along the way. And I don't know where this stops. The next chart though, and this is the thing that I have been harping on. This is the bdc. So this is a Blue Owl product that is itself publicly traded. And basically they are making loans to private companies that are either on better terms or done quicker than what these companies would be able to do with a traditional bank. Obviously, we know because of regulations, the traditional banks, they're not lending as much, they don't take as much of their own balance sheet risk, blah, blah, blah. So that's where this whole private credit boom came from. It came from the last crisis where we decided we don't want deposit institutions that hold onto money for teachers and policemen to engage in reckless, reckless, engage in this type of risk taking. So somebody had to step in and they did. And they were all giant companies. But this BDC itself, the concern here is at the end of the day, people own it for the yield. The yield on not just this, but all of the BDCs is predicated on whatever the interest rates are in the real economy. And if you own something that pays, I don't even know what the yield is on this now, but let's say this year it was 9%, 10% and the interest rate is on its way down. The Fed has been cutting. You already know next year the yield on this is going to be lower, which generates selling, which has, not which Blue Owl can't do anything about that. That's beyond their control. They didn't do anything wrong. It's just the natural progression of what happens to yield instruments in the stock market when the interest rate, prevailing interest rate goes lower. So people are selling it for that reason. But there are also a lot of reporters that are hot on the trail of whether or not a lot of these loans in these portfolios will continue to perform, which has introduced a secondary concern. So now you have this thing selling off and the owners are like, wait, is it selling off because the dividend might go lower or is it selling off because the Financial Times is right and all of these loans are a mess? And what Lipschitz is trying to get across is These are just fantasies that we have to answer like people are. People are making up stories and everything is fine.

[B]

But wait, there's a third correct. That was basically his comment they reported, by the way at the end of October. So if they reported this week, the questions would be a lot harsher and the bullshit answers that he gave would not fly. But there's a third leg to the stool that are in the perfect storm. The hyperscalers and the data centers that is now that are now coming into question. Hey wait a minute. Meta has has an option to opt out of the lease. Like they are not where you want to be. And guess what? So thank I thank God I sold Blue. I own Blue Al the comp. The equity. I sold it earlier in the year. To be clear, I think if you're selling Blue Owl down here, you're an absolute donkey. Like I think that even.

[A]

And you would not. And you would not belong the bdc. You're talking about the corp. The corporation.

[B]

I'm talking about the equity. And I would much rather be long than short the bdc to be clear too. But there is, there is, there is a story there as well. So this is from the ftse. Earlier this month, Blue Owl told its shareholders that it planned to merge its Blue Owl Corp. Capital Corporation to fund. This is the private fund, okay. This is the private credit fund which has $1 billion in assets and was one of the first private debt funds targeting wealthy individual investors with its OBDC fund which is the bdc. The publicly listed one which has seven.

[A]

The one that's. The one that's currently in the process of crashing.

[B]

So they're talking about merger of the two funds as redemptions of Blue Owl Capital Corporation to have climbed this year to a level where it would eventually be forced to restrict investor redemptions. They've pulled $150 million from the fund through the first nine months of this year. A 20% increase from last year. Okay, but here's the clown of the week quote. I'm sorry Jonathan Lamb, CFO in an interview with the ft.

[A]

I think he's on the compound and friends later this week.

[B]

At current prices, the investors in blue AL Capital Corporation 2 could take a potential haircuts on their investments. But he said. And this is the. I can't believe he said this out loud. The merger came with significant benefits such as the ability to own more liquid shares in obdc. Excuse me, I thought the appeal was the illiquidity premium. What was the whole point? What are you talking about?

[A]

Why am I. In private credit. If you're, if you're merging it with a public equity.

[B]

It gets worse. It gets worse. Quote. There's no doubt that this is a no brainer transaction at 95 cents. Said Lamb of the new merger. Wait, why? And guess what? They're not talking out. They're talking about talking about 95 cents. They're talking about 80 cents. No doubt. Excuse me, sir. What in God's name are you talking about? I have doubts. Lots of doubts.

[A]

Yeah. Do you have a quote on there's no doubt? There's only doubt.

[B]

So anyway, will that stabilize?

[A]

Wait a minute. If they do that, could that bring stability to the publicly traded BDC now? Also more assets into the portfolio.

[B]

It's a, it's a billion dollars. A publicly traded BTC has more leverage. So maybe this will take the leverage down a little bit. I don't, I don't know where it goes from here, but all of the smoke that they're inhaling they deserve.

[A]

And to be clear.

[B]

So I think the reaction might be justified. Is it an overreaction? Maybe. We'll find out. But again, they're in the thick of it. Yeah, not great.

[A]

The dividend yield is 12% on OBDC.

[B]

Yeah. Is that it? Okay.

[A]

I mean, I don't know if that's, I don't know if that's accurate because. And up to, and up to date because I'm also seeing sources say it's 13.28%. Oh, and this is the other thing that people don't know about BDCs or they should know, but you know, it's not, it's not obvious. Like with stocks like dividend paying stocks like Dividend Aristocrats, you don't have like this crazy swing in the quarterly payment. Like they tend to, they tend to institute a dividend that they could stick to. They may not raise it a lot each year, but they try not to give you that variability.

[B]

They try to give you floating.

[A]

That's right. That's not what's happening with these. Like the dividend. You can't annualize that. You can annualize it, but you shouldn't because you're just making shit up. All you can go by is what they declare for next quarter and hope for the best for the following quarter.

[B]

1. That's right. 1 last thing. Let's just look at the portfolio. So as far as like what actually is going on in here, this is. Okay, this is not bullshit. Okay? These are legitimate loans. There's 293 companies in here. I don't know if the marks are valid or what. Obviously the street is questioning that, but these are. These are legitimate services being provided to companies all around the country. It's a diversified portfolio. I don't know about the covenants, lending standards or whatever, but all of this is obviously, obviously coming under scrutiny.

[A]

I wanted to just say as a capper to this chart off. This is what happens, Larry. This is what happens when you decide our target market for this is the Wealth Management Channel. Respectfully. You could put all the educational. And we talked about this with Shonali on the show. You could put all the educational materials you want in front of the advisors, in front of their clients when push comes to shove and you need them to act like institutions. They will not. They cannot. They're not institutions. They're people who have bills to pay and dreams to achieve. They are not 100 year college endowments that are funded in perpetuity. You cannot count on wealth management clients behaving like pension funds, you idiot. So I'm all for democratizing access. I totally get it. I'm not anti. I'm not a hater. But, like, don't have a vehicle set up where the thing you're counting on is that some schmuck financial advisor didn't sell this to people as low risk because it's bonds. Because I know they did. Because I listen to people talk and I've been around too long and I know that some people sold this right? And some people didn't. And this is the fo part of, of, of that process.

[B]

No doubt.

[A]

So. All right.

[B]

No doubt. All right, let's. Where are we at next?

[A]

So I got lost in the stock market sell off.

[B]

Okay. All right, let's. Let's get into it.

[A]

You got some charts here.

[B]

I got some charts here. All right. Foreign. Let's actually skip the first one. Let's go to the beat. And the misreaction. So we've been all over this. The companies that are missing, missing earnings. This is more implies, by the way, are just getting taken out to the woodshed. Is it wood shop? Woodshop. What is it? It was woodshed.

[A]

No, it's taken out behind the woodshed.

[B]

I remember that. Taken out.

[A]

No, it's like. It's like a child abuse. It's a child abuse metaphor. It's like, like if you misbehaved, your dad would take you out behind the woodshed where nobody could see or hear you scream.

[B]

Wow. All right, that got dark. All right.

[A]

It's the etymology.

[B]

Okay, so all Right, Check. Yeah, I'm sorry, I'm. Check this out.

[A]

Etymology.

[B]

Okay, go, go to the next. I'm done with this. Go to the next table, John. All right, thank you, Sean. The Great Sean Russo. Top 20 worst market cap drawdowns from their peak. These are numbers, dude. Nvidia 594 billion meta 469 billion. Microsoft 349Amazon 328 Oracle 300. UnitedHealth 264 Tesla 220 Broadcom 215. So what is that? 1, 2, 3. I don't know. There's like a dozen stocks that have lost $100 billion or more in market value.

[A]

Yeah, and these are. Everybody owns these stocks. Like, like these are the stocks that are in all everyone's portfolio. Right?

[B]

Yeah.

[A]

I mean that's like the list. That's the salient point is like these are the most widely held stocks in the world. Let me show you something. Let me show you something worse. These are the. I asked Sean and charkhead. The largest non s and P500 market caps that are currently in 50% drawdowns.

[B]

Why did you ask this? I'm curious.

[A]

Okay, so the chart off. I'll explain it really quickly. These are the stocks that when you talk to some investors and they have some hotshot guy who's doing like some SMA for them. Like, and I know of programs like this at Morgan Stanley. At Merrill. At Merrill, where it's like, oh, did you hear about this guy Todd whatever his name is? He like has this concentrated portfolio of the best growth stocks and they're not in the index. And like, you know, it's like this whole thing and in a bull market it looks unbelievable. And it's like like clients are high fiving their advisor. But what we're seeing now is what ends up happening to these types of things. And it always does. It's only a matter of time. These are so. These are non S&P 500 names. So theoretically any money you make in these is pure alpha because it's not beta. Right?

[B]

Right.

[A]

All right, here are the names. Strategy is, is 61% from its 52 week high. Atlassian, which is team 54% circle, is in a 74% drawdown. Did you know that before I showed it to you?

[B]

I look, I look at this chart a lot, but it's wild.

[A]

Wild. And that's. That company sells fucking money market funds just for anyone that doesn't understand, okay? HubSpot 58% Duolingo 67% Oklo 50% Congratulate Rigatoni. Computing 56 HIMS is in a 50% drawdown. So. And there's real dollar amounts involved. Like, strategy has shed 68 billion from its 50 week high. So this is like the part of the market where people were making the most money, like, in the first half of the year, first eight months of the year. And, man, it. It turns so fast, and nobody taps you on the shoulder and tells you when to walk out of the party. Like, nobody. Of course not. If anything. If anything, you're adding more money to those strategies.

[B]

So, dude, I'm looking at Oklo, and we were talking about this. This. This head and shoulders top, which is only obvious in hindsight. Like, duh. But. So this thing RA 190, right? It dropped, like, and consolidated a little bit down to 158, stabilized a little bit. Boom. The. The what? The. The door. The bottom fell out behind the woodshed. Whatever, went down to 110. Okay. And then here's the dangerous part.

[A]

I believe it's pronounced oklo. It's Japanese for capital.

[B]

So the. So it bounced from 115 back up to 150, creating this. We're safe. No, motherfucker. That's the right shoulder. And then boom. So, like, even in hindsight, you're like, you understand how people get trapped in these names. It's so hard to get out.

[A]

It's so hard, dude, if you're not trailing it with a stop, like, you could, like, go to the dentist. And it's down 14% on no news. And it's like, well, what do I do now? I guess I'll just stick it out. Diamond hands, blah, blah, blah. And then the next day is down another 14%. Like these. These. When these things get going to the downside, I have two of these in my portfolio, like, very small. I have Archer and Joby.

[B]

Oh, you had a great line last week. I draw the line of flying cars.

[A]

Yeah. Yeah. Well, my flying car. My flying cars are demolished. Archer is way worse than Joby. They had. They had good earnings reports. And when I say earnings, I'm doing ironic air quotes. You just can't. All right, DJ Dow, let's put this up. Smushed 20% drawdown versus 3.2% over the time period from Jan. 2023 to now. Is that okay?

[B]

That's right. All right, so this next chart from Adam Parker. This is the point that I was trying to make earlier. I am not making light of a saloff, okay? I am only saying that there has been so much enthusiasm in the market. And this is a clearing of the decks, a reset. So Adam has a chart that shows the number of top 50 stocks, okay. Giant stocks, the number of top 50 that are up 50% over various windows. And look at the 12 month on top. There were just too many stocks that were going up too far too fast. Even if you zoom into six months yet Oracle multi hundred billion dollar Stock Going up 35% on the announcement, which has obviously all gone. Gone back and more like it was just too much. And now is the reintroduction of risk, which is healthy in a bull market. You know, it's not healthy. What's not healthy is no introduction of risk. What's not healthy is up 10% every month. That is dangerous. Okay. Giving some back pullbacks along the way that sets up for higher prices. And take this with a grain of salt, who the hell. I can't see the future, but I like the setup. I think we see higher prices before the end of the year or at least early in Q1.

[A]

Okay, listen, I like the setup better than I like the setup in October when it was 20 straight days of. Yeah, that's being up a half a percent that I.

[B]

That I did not like. So we'll say maybe this ages very poorly, but whatever.

[A]

All right, I'm going to call an audible. We're going to throw topic 5 out. It was more AI shit and I think I'd rather kill myself. Yeah, all right, you're going to make the case.

[B]

I bought Meta today.

[A]

Times Forward earnings.

[B]

I like it. Dude, it's a market multiple. I don't give a shit. You know what I mean? Like I'm comfortable holding it. If it gets murdered, I'll buy more. I swapped Home Depot, which I should have done a long time ago. Obviously the housing story is not housing. Took a 7% loss on that in my IRA. Whatever. I can't take a tax write off, but no big deal. I like matter here. I'm comfortable with it. We need to go into the story. It's down 25%. People are selling for. For legitimate reasons. I'm buying.

[A]

You have two and a half months before you have to worry about an earnings report. So that's good. I mean I think the stocks in the penalty box.

[B]

Oh no, it definitely is.

[A]

No, no, no. I mean like even if we get a year end melt up after all, I don't know that this is one of the leading names in that melt up. I sort of, I sort of like that. I like the purchase here. I would not be a seller here. We've learned so many times what happens when everybody gets bearish on Zuckerman Zuckerberg. Like, whenever that happens, it's only a matter of time before he pulls another ace out of his sleeve and the stock is ripping back to highs again. And so I, I feel like that will ultimately happen.

[B]

It is deeply out of favor. So am I early?

[A]

Yeah, maybe you might be early, but I, I don't, I don't disagree with you. I, I, I like it. I'm not in the stock at all right now, and I was, I was eyeballing it last.

[B]

I also, I also, I also bought Oracle. I never owned Oracle my entire life. I sold Disney and I bought Oracle.

[A]

I like that. Last 50 times earnings don't care.

[B]

Throw that chart up. Throw the, Throw the chart up that we. I'm just kidding. But whatever.

[A]

We don't have it. All right. Everyone knows the Oracle chart looks like. It looks like shit. Congratulations on your purchase. All right, Mystery chart time. Okay, this is ironic. I'm not even going to give you a hint. You don't deserve one. What is it? Is it triple top? You know how there's no such thing as triple tops? Well, today there is.

[B]

Man, I love it. I assume that we spoke about this name today.

[A]

Oh, my God. Dude, please get this right.

[B]

Oh, okay. Facebook. What?

[A]

There's a price next to the ticker. What are you talking about?

[B]

I don't know what we. Wait, what?

[A]

You know, Facebook.

[B]

You just bought Facebook. I don't know. Please get this right. I panicked.

[A]

This is so much worse than.

[B]

Oh, Nvidia.

[A]

I'm telling you, the price is 345.

[B]

I'm telling you, I'm not cheating. I'm not looking at my screen. What? The stock.

[A]

Do the reveal.

[B]

All right, whatever, Whatever. You just sold it.

[A]

All right. For those listening, it's.

[B]

Dude, when I'm done with this. Done. I erase this from my memory.

[A]

Chart back on the. All right, so it is triple top for now. The CEO basically said the three drivers of home improvement spending, all of them are working against the company. One of those is home price appreciation. You don't have it. Another one of those is. I forget what they were.

[B]

He said, no natural disasters.

[A]

Dude. It's a very, very good company. Extremely high quality in every way. Just in a moment in time. That does not work for their earnings. And as a result, they took down guidance which is appropriate. This will be a strong buy. And it won't.

[B]

I was about to say, if this won't be long. If this goes back to 275, I'm backing up the truck.

[A]

Somebody in the chat Rivian millionaire is saying first time in 26 years Home Depot didn't beat. Is that true?

[B]

That's wild. Wow.

[A]

Should we chat that?

[B]

I believe him. I believe him. That guy's trustworthy.

[A]

All right, dude, I'm dying. You just sold the stock 10 minutes ago and you don't know the chart.

[B]

I mean, it might.

[A]

And I put the fed next to it.

[B]

I sold it this morning. I had a busy desk.

[A]

You really wiped your brain clean of that thing. All right, that's. That's it from us, guys. I'm told we're close to breaking a record for the live. Thousands of you joined us tonight. Appreciate it. Thank you. I also want to let everybody know tomorrow's Wednesday morning, which means an all new edition of Animal Spirits with Michael and Ben. We'll do ask the Compound later this week. And then a very special guest on the compound and four friends, which we're going to get out to you on Friday. So please keep it locked here on the compound. We'll see you soon.