The Compound and Friends: Episode Summary

Title: Socialist Mayors, AI vs Labor With Callie Cox, Falling Knife Stocks
Hosts: Downtown Josh Brown, Michael Batnick
Guests: Garrett Baldwin, Callie Cox
Release Date: August 5, 2025

1. Introduction and Episode Overview (00:00 - 03:44)

The episode kicks off with Downtown Josh Brown introducing the show, "The Compound and Friends," highlighting the dual focus on business and investing insights. He briefly mentions tonight's topics, which include the surprising rise of socialist mayoral candidates amidst a booming stock market, an in-depth discussion with economist Garrett Baldwin, an edition of "What Are Your Thoughts?" featuring Michael Batnick, and a playful segment on "Falling Knife Stocks."

2. Socialist Mayors and Economic Disparity (03:44 - 24:49)

Guest: Garrett Baldwin
Discussion Highlights:

• Stock Market vs. Political Choices: Despite the stock market reaching all-time highs and an influx of young investors opening millions of brokerage accounts, there's a simultaneous rise in socialist mayoral candidates in major U.S. cities.

• Historical Monetary Policies: Garrett traces the roots of current economic disparities back to significant monetary policies initiated around 1993. He emphasizes the Federal Reserve's shift to a 2% inflation targeting policy at the Jackson Hole conference, which he argues has led to the debasement of the dollar and increased asset prices.

• Impact on Different Demographics: The policies have disproportionately benefited "stock market Americans" who hold assets in publicly traded companies, while many others face rising costs in housing, food, and services, fostering frustration and support for anti-capitalist political candidates.

Notable Quote:

Garrett Baldwin (05:04): "The Federal Reserve's job then is to create this inflation. And ultimately what we have seen is a dramatic amount of costs go through real assets."

3. Monetary Policy and Federal Reserve's Role (24:49 - 39:27)

Hosts: Josh Brown and Garrett Baldwin
Discussion Highlights:

• Cantillon Effect: Garrett explains how new capital benefits those closest to its introduction, primarily financial hubs like New York and Chicago, exacerbating regional and economic inequalities.

• Policy Accommodations: Each market downturn sees the central bank stepping in with policies akin to quantitative easing, ensuring market stability but often at the cost of widening the wealth gap.

• Insider Buying Patterns: Garrett highlights a pattern where insiders consistently buy stocks during downturns, benefiting from recovering markets while average investors face losses.

Notable Quote:

Garrett Baldwin (18:00): "When you have massive levels of inflation and a debt spiral, it ends up pushing the markets higher, benefiting the rich."

4. Impact on Different Generations (39:27 - 56:00)

Hosts: Josh Brown, Michael Batnick, and Garrett Baldwin
Discussion Highlights:

• Generational Disparities: Josh and Garrett discuss how younger generations, burdened by student debt and rising living costs, are less able to participate in the stock market boom, leading to political shifts.

• Educational Investments: The rising cost of education without clear returns has left many young people in debt, unable to invest or own property, further distancing them from wealth accumulation opportunities.

• Stock Market as a Status Symbol: The hosts note that being a "stock market American" has become a desirable status, while those excluded from this system feel disenfranchised.

Notable Quote:

Josh Brown (09:43): "We're having a generation of people who are looking around saying, I can't afford this and I'm willing to just blow the whole thing up as a result."

5. Earnings Season Overview and Market Reactions (56:00 - 86:01)

Hosts: Josh Brown, Michael Batnick, and Guest Callie Cox
Discussion Highlights:

• Earnings Performance: The recent earnings season was positive overall, with most sectors showing year-over-year profit increases. Notably, the MAG7 (top 7 market-cap stocks) exceeded expectations, pushing the overall market bar higher.

• Sector Performance: While sectors like technology and financials performed well, others like energy and materials saw lower growth rates. Missed earnings reports are being harshly penalized in the market.

• AI Investments vs. Consumer Spending: Callie Cox presents charts showing that AI and tech investments are outpacing consumer spending, suggesting that AI is propping up the economy even as consumer demand stalls.

Notable Quote:

Michael Batnick (51:39): "If you can't make that low bar then there's probably something seriously wrong. That's what it's what's what's going through investors' heads."

6. AI vs. Labor and Economic Implications (86:01 - 112:27)

Guests: Callie Cox
Discussion Highlights:

• AI CapEx Spending: There's a significant surge in AI-related capital expenditure, which is fueling parts of the economy but simultaneously leading to a standstill in consumer spending. This imbalance raises questions about the sustainability of relying on AI investments to drive economic growth.

• Impact on Employment: Increased AI investments are not translating into higher employment. Instead, companies are using AI to control costs, leading to stagnation or reduction in hiring across various sectors.

• Future Economic Outlook: The hosts debate whether current AI investments can sustain the broader economy, emphasizing the critical role of consumer spending and the potential long-term implications of reduced workforce participation.

Notable Quote:

Garrett Baldwin (92:27): "Do you think a rate cut, if I had to throw a story in there, I think a rate cut is it."

7. Falling Knife Stocks and Speculative Markets (112:27 - 114:54)

Hosts: Josh Brown and Callie Cox
Discussion Highlights:

• Falling Knife Stocks: The hosts engage in a segment identifying stocks that have experienced significant drops, termed "falling knives." Examples include UPS, UnitedHealth, Lululemon, Sweetgreen, and Meta.

• Speculative Behavior: There's a surge in speculative trading activities similar to high-risk betting, with discussions around the sustainability and profitability of such strategies.

• Market Sentiment: While some stocks show potential for recovery, others highlight deeper operational or structural issues, raising concerns about the current market's volatility and speculative nature.

Notable Quote:

Josh Brown (73:10): "It's impossible to see, but this is a very important metric for enterprise software companies. And what you're looking at is, on one axis is."

8. Company Spotlights: Palantir and AMD (114:54 - 123:00)

Guests: Callie Cox
Discussion Highlights:

• Palantir: The hosts delve into Palantir's rapid growth and ambitious projections. Palantir aims to 10x its revenue in five years, currently holding a market cap of $400 billion with substantial revenue growth. However, concerns arise regarding its valuation compared to its growth and market positioning.

• AMD: While AMD has shown impressive revenue growth and operational performance, its stock price movements do not fully reflect its underlying business strengths, contrasting with peers like Nvidia.

Notable Quote:

Callie Cox (117:00): "They spoke a lot about the rule of 40. And it's the first thing that they have in their deck."

9. Dividends and Utility Sector: Dominion Energy (123:00 - 131:00)

Hosts: Josh Brown and Callie Cox
Discussion Highlights:

• Dominion Energy: Highlighting Dominion Energy's strategic advantage in Loudoun County, Virginia, known as "Data Center Alley," which hosts major data centers crucial for global internet traffic. Dominion is poised to benefit from increased AI-related demand for data center electricity and infrastructure.

• Dividend Appeal: With a 4.42% dividend yield and anticipated rate increases to support capital expenditure, Dominion presents as an attractive option for dividend-focused investors amidst growing AI-driven energy demands.

Notable Quote:

Josh Brown (126:35): "It's like discovering oil in your backyard. So that's exactly what's happened here."

10. Market Sentiment and Final Thoughts (131:00 - End)

Hosts: Josh Brown and Callie Cox
Discussion Highlights:

• Optimism vs. Speculation: There's a palpable sense of giddiness and optimism in the market, fueled by rapid AI investments and speculative stock trading. However, underlying concerns about economic sustainability and income disparity persist.

• Call to Action: The hosts encourage listeners to stay informed, review their investment portfolios, and be cautious of the speculative frenzy that may not be backed by fundamental economic strengths.

Notable Quote:

Josh Brown (112:22): "But I think so long as it stays above 50, you're getting a four and a half percent yield and I think the story stays intact. You can, you can stay long."

Key Takeaways:

• Monetary Policies: Historical and current Federal Reserve policies have significantly influenced asset prices and economic disparities, benefiting those invested in the stock market while leaving others struggling with rising living costs.

• Political Shifts: Economic frustrations among non-asset-owning demographics are leading to the rise of socialist candidates in major cities, challenging traditional capitalist-centric policies.

• Earnings and Market Reactions: Recent earnings seasons have shown positive growth in several sectors, particularly among top market-cap stocks, but misses are harshly punished, reflecting high investor expectations.

• AI and Economic Balance: While AI investments are booming and contributing to parts of the economy, they are not compensating for stagnating consumer spending and may lead to reduced employment opportunities.

• Speculative Trading: There is a notable increase in speculative trading activities, often disconnected from fundamental economic indicators, raising concerns about market volatility and sustainability.

• Utility Sector Opportunities: Companies like Dominion Energy are strategically positioned to benefit from the AI-driven demand for data centers, offering attractive dividend yields amidst a growing technological landscape.

This episode offers a comprehensive analysis of the interplay between monetary policies, market dynamics, political shifts, and technological advancements, providing listeners with nuanced insights into the current economic climate and its broader implications.