The COUGRs Trade Takes Wall Street, America Downgraded by Moodys, Walmart vs Trump

Summary

Podcast Summary: The COUGRs Trade Takes Wall Street, America Downgraded by Moody's, Walmart vs Trump The Compound and Friends – Episode Released May 20, 2025

Hosts: Downtown Josh Brown and Michael Batnik
Guests: Rotation of friends from The Compound cast

---

Introduction

In this episode of The Compound and Friends, hosts Downtown Josh Brown and Michael Batnik delve into several pressing topics affecting the business and investment landscape. From the recent downgrade of the United States by Moody's to the emergence of resilient subscription-based stocks dubbed "Cougars," the discussion offers comprehensive insights for investors navigating turbulent times.

---

1. Moody's Downgrade of the United States (05:13 - 16:05)

Key Discussion Points:

• Historical Context: Josh Brown provides a backdrop by referencing past downgrades by Standard & Poor's in 2011 during the debt ceiling crisis and Fitch in 2023, noting that the market's reaction has grown progressively muted.

• Current Implications: The latest downgrade by Moody's has garnered limited attention from Wall Street, with the stock market only briefly acknowledging the event.

Notable Quote:

Josh Brown (06:26): "This time it's Moody's. I don't know that that means anything more or less than when S&P does it or when Fitch does it. I could tell you right now, the stock market thought about it for eight minutes."

Analysis: Michael and Josh debate whether the downgrade is politically motivated, with Josh suggesting it's tied to current fiscal policies rather than partisanship. They explore the sustainability of the US deficit, its historical patterns during recessions, and the challenges of balancing the budget without relying on stock market bubbles.

---

2. The US Federal Deficit and Historical Patterns (08:35 - 19:24)

Key Discussion Points:

• Deficit Trends: Highlighting that the US federal deficit as a share of GDP is at its highest outside of a recession, currently around 7%. This trend mirrors past recessions where deficits surged due to economic support measures.

• Future Risks: Concerns are raised about exacerbated deficits should a recession occur, coupled with the Federal Reserve’s potential rate cuts to mitigate economic downturns.

Notable Quote:

Josh Brown (12:00): "We're not even in a recession right now. And the deficit spend like mimics what it looks like when we are. Can you imagine what's going to happen if and when we do have a recession at the current level of deficit?"

Analysis: The hosts emphasize that the US has consistently operated with deficits, with surpluses only appearing during stock market bubbles that temporarily inflate GDP. They discuss the implications of high net interest payments and compare the US debt situation to other countries like Greece and Iceland.

---

3. Stock Market Resilience: The Rise of "Cougars" (29:58 - 41:43)

Key Discussion Points:

• Definition of Cougars: Josh introduces "Cougars" as subscription-based or app-based companies that demonstrate resilience, continuing to grow despite economic downturns. These are acronyms for "Canceled Only under Great Recession."

• Stock Examples: Companies like Robinhood, Sezzle, Duolingo, Netflix, Spotify, Uber, Applovin, DraftKings, Match Group, Bumble, and Peloton are highlighted as Cougars due to their strong subscriber bases and consistent performance.

• Market Trends: The shift towards subscription models is seen as a driver for the resilience of the S&P 500, making these companies integral to the market's stability.

Notable Quotes:

Josh Brown (30:00): "Robinhood. No one's going to stop. We already know from 2022. We know from the crypto crash. Nobody's going to stop doing what they're doing on Robinhood."

Michael Batnik (35:37): "Peloton smells like a ME stock. I hate that. I like it."

Analysis: The hosts argue that these subscription-based businesses create a stable revenue stream, making them less susceptible to economic shocks. They discuss how these companies have adapted during recent market downturns and their potential for future growth.

---

4. Impact of AI on the Job Market and Future Workforce (25:43 - 29:44)

Key Discussion Points:

• AI Adoption: The rapid advancement and adoption of AI across various professions are leading to higher unemployment rates among recent graduates.

• Generational Challenges: Discussions focus on the pressures faced by the younger generation in college admissions and the increasing difficulty of securing jobs in a market increasingly influenced by AI.

Notable Quotes:

Josh Brown (25:43): "We don't need your grunt work. Thanks. No, thanks. We don't want to train you."

Michael Batnik (29:09): "This is a pretty scary article for parents of these, of this generation."

Analysis: The conversation highlights how AI is reshaping the job market, reducing the need for entry-level positions, and increasing competition for the roles that remain. The hosts also touch on the societal implications of these changes, including the rising importance of higher education and the challenges faced by new graduates.

---

5. College Admissions and Pressures on the New Generation (19:26 - 27:38)

Key Discussion Points:

• Competitive Admissions: The episode covers the increasing competitiveness of college admissions, with applications to top universities skyrocketing and acceptance rates plummeting.

• Job Market Saturation: There's a parallel drawn between the hyper-competitive nature of college admissions and the burgeoning competition in the job market, especially for knowledge worker roles.

Notable Quotes:

Josh Brown (20:43): "This is what I'm living through. So I got my daughter into college last year. She just finished her freshman year at U Miami."

Michael Batnik (23:22): "The average knowledge worker job opening now receives 244 job applications, compared with just 93 as recently as 2019."

Analysis: The hosts discuss the implications of these trends on future generations, emphasizing the heightened competition and the evolving landscape of higher education and employment. They explore the broader economic and social effects of these pressures.

---

6. Walmart vs. White House: Tariffs and Pricing Strategy (51:32 - 54:30)

Key Discussion Points:

• Walmart's Stance: Walmart’s CFO publicly blames tariffs for rising prices, prompting a sharp rebuke from former President Donald Trump on Truth Social.

• Economic Implications: Josh Brown analyzes Walmart’s profit margins and the impact of tariffs on their pricing strategies, suggesting limited options for the retailer to manage increased costs.

Notable Quotes:

Josh Brown (53:55): "This time it's Moody's. I don't know that that means anything more or less than when S&P does it or when Fitch does it."

Walmart CFO (transcript segment): "Low prices is what we stand for, but we're going to keep prices as low as we can, as long as we can. [...] You’re going to see prices go up."

Analysis: The discussion centers on the challenges large retailers face in balancing cost increases due to tariffs with consumer price sensitivity. The interaction between Walmart and the White House underscores the political dimensions of corporate pricing strategies.

---

7. Venture Capital Trends and IPO Activity (55:36 - 60:33)

Key Discussion Points:

• Venture Capital Slowdown: The episode highlights a decline in venture capital funding, with a significant increase in bridge financing at the seed stage, indicating financial strains for startups.

• IPO Landscape: Despite the downturn in venture capital, IPO activity has seen a modest increase in deal count, though total proceeds remain lower compared to previous years.

Notable Quotes:

Josh Brown (56:00): "Series A deal count fell 79% between the first quarter of 2022 and this quarter. So over three years, an 80% drop off in series A rounds. That's like that. That sounds like a bottom."

Michael Batnik (58:21): "I think we're near bottom, at least anecdotally from what I'm saying."

Analysis: The hosts examine the current state of venture capital, noting the shift towards bridge financing as startups navigate financial uncertainties. They also discuss the state of IPOs, suggesting a cautious but present market for public offerings amidst broader economic challenges.

---

8. Energy Sector Analysis (60:33 - 41:43)

Key Discussion Points:

• Energy ETF Performance: The episode features an analysis of the energy sector ETF, highlighting its historical resistance points and the potential for growth despite current challenges.

• Individual Energy Stocks: Companies like Chevron and Williams Brothers are discussed, with a focus on their financial health and strategic moves to navigate market conditions.

Notable Quotes:

Josh Brown (62:13): "I bought some Chevron recently. It was a 6% yield. And I just said, I'm not afraid of this thing. I'm buying it all right."

Michael Batnik (64:34): "All right, here's another one. Exe. Come on, dude."

Analysis: The discussion underscores the potential for growth within the energy sector, even in a difficult economic climate. The hosts highlight specific stocks and ETFs that may offer attractive investment opportunities, emphasizing the sector's resilience and strategic importance.

---

Conclusion

The Compound and Friends episode provides a multifaceted exploration of current economic and investment trends. From the nuanced impacts of US debt downgrades and the persistent federal deficit to the innovative rise of subscription-based "Cougar" stocks and the transformative influence of AI on the job market, Josh Brown and Michael Batnik offer valuable perspectives for investors seeking to navigate a complex financial landscape. Additionally, the dialogue on venture capital dynamics, competitive college admissions, and the evolving energy sector further enriches the conversation, making it an essential listen for those involved in or interested in business and investing.

---

Notable Quotes Recap:

• Josh Brown (06:26): "This time it's Moody's. I don't know that that means anything more or less than when S&P does it or when Fitch does it. I could tell you right now, the stock market thought about it for eight minutes."

• Josh Brown (12:00): "We're not even in a recession right now. And the deficit spend like mimics what it looks like when we are. Can you imagine what's going to happen if and when we do have a recession at the current level of deficit?"

• Josh Brown (30:00): "Robinhood. No one's going to stop. We already know from 2022. We know from the crypto crash. Nobody's going to stop doing what they're doing on Robinhood."

• Michael Batnik (25:43): "This is a pretty scary article for parents of these, of this generation."

• Josh Brown (53:55): "This time it's Moody's. I don't know that that means anything more or less than when S&P does it or when Fitch does it."

---

Timestamps Reference:

All timestamps correspond to the transcript provided, enabling listeners to reference specific segments of the episode for deeper insight.

Transcript

[Josh Brown]

Ladies and gentlemen, welcome to the compound and friends is Tuesday night, May 20, and we had quite a show. I want to mention that tonight's episode is sponsored by our friends at Betterment Advisor Solutions. We are also sponsored by Rocket Money. Rocket Money is a personal finance app that helps you find and cancel your unwanted subscriptions, monitors your spending, and helps lower your bills so you so you can grow your savings. Imagine an app where you open it up and all of your subscriptions are in one place. You know exactly where your money's going and then you can look and say, do I even use that anymore? No, Rocket Money can help you cancel. It's a dashboard and it's super helpful. And in this day and age, why spend money on things you don't actually use or need? Rocket money is 5 million users, has saved a total of $500 million in canceled subscriptions, saving members up to $740 a year when they use all of the app's premium features. Cancel unwanted subscriptions and reach your financial goals faster with Rocket Money. Go to rocket money.com compound today. All right, it's Michael and I. Tonight. We did an all new edition of what are your thoughts? It's been a big week already for news and it's only Tuesday. We cover, like the Moody's downgrade of America. We look at 10 stocks that are just part of this new trend that we're calling the Cougars. And the Cougars are a particular group of stocks that does not seem to want to slow down or stop going up. It's a really interesting story. We take a look at a lot of different things that are happening. So stay tuned. Let's see. I'll send you right into the show right now. 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. Hey, everybody. Welcome to an all new edition of what are your thoughts? My name is downtown Josh Brown. I'm here with my co host, Mr. Michael Batnik. Michael, say hello.

[Michael Batnik]

What's up everybody? How we doing? Feeling good.

[Josh Brown]

All the usual psychopaths are in the live chat tonight.

[Michael Batnik]

Okay.

[Josh Brown]

Yeah, Georgie's here. Jerry, Cliff, Chris, the doctor is here. Roger's here. All the gangsters. Somebody said apple dim says I, I need Trump to restart the tariffs so I can buy some more stocks. Yeah, I'm with you, man. I'm with you. Who else? Michael Skyrose. What's up, man? We got a full house tonight and it's a pretty exciting. It's a pretty exciting week. We got to within 3% of the record high for the S and P. Some selling late this afternoon, but nothing crazy. They asked me today on tv, are we gonna punch through? The hell do I know?

[Michael Batnik]

Actually there was. There's buying this afternoon. Not to be too pedantic, but there was buying this afternoon.

[Josh Brown]

Oh, maybe the last.

[Michael Batnik]

Selling in the morning. Selling in the morning and. And not really talked about very much as bitcoin's Right. At an all time high.

[Josh Brown]

Yeah.

[Michael Batnik]

Like relative to the hype that you would have seen private previously. Nobody seems to care.

[Josh Brown]

Oh, that thing just. That thing just will not stop. It's, it's.

[Michael Batnik]

Every dip is. Every dip is getting bought pretty extraordinary.

[Josh Brown]

All right, we have a sponsor tonight. I want to tell you guys about my friends at Betterment Advisor Solutions. This is actually a product that we use at our firm, Reyholz Wealth Management for our liftoff solution for investors with under 250,000 who want to begin to accumulate wealth and have a path. That's right, that path.

[Michael Batnik]

Today's show is brought to you by our sponsors at Betterment Advisor Solutions. Imagining a better future. It's the first step.

[Josh Brown]

Investing in that future with Betterment Advisor Solutions is the next. Whether you're launching your own practice, looking to streamline client onboarding, or just searching for efficient ways to scale your firm, Betterment Advisor Solutions is here to help.

[Michael Batnik]

They automate to make tax optimization simpler and they provide support to make administrative tasks easier.

[Josh Brown]

At Betterment Advisor Solutions, they're building innovative technology. For anyone who's ever said, I think I can do better, learn more at betterment.com/advisors. Grow your RIA your way with Betterment Advisor Solutions.

[Michael Batnik]

Investing false risk, of course. Performance not guaranteed.

[Josh Brown]

That in there. Shout to shout to Betterment Advisor Solutions. So I guess you're going to start. The big news that came out Friday after the close was a downgrade of the US treasury as a bond issuer by the third of the triumvirate of credit ratings agencies, Moody's and just give people a little bit of background. We saw Standard and Poor's do this in 2011 and it was during a fairly chaotic political moment during the debt ceiling debate and amidst the European credit crisis.

[Michael Batnik]

That was legit. Like that was scary.

[Josh Brown]

Yeah. And then two years ago, Fitch did it. 2023 and nobody paid any attention.

[Michael Batnik]

Can I be honest? I genuinely don't remember that.

[Josh Brown]

I didn't remember it either until Callie was writing about it internally. And I was like, oh, yeah, that is a thing that happened that nobody cared about in this particular case. This time it's Moody's. I don't know that that means anything more or less than when S and P does it or when Fitch does it. I could tell you right now, the stock market thought about it for eight minutes.

[Michael Batnik]

What did you. Because honestly, I was like, I wrote about it.

[Josh Brown]

I wrote about it over the weekend. It's like, is this going to be yet another thing that should be scary that nobody cares about? And, yeah, that's what ended up happening.

[Michael Batnik]

Politically motivated.

[Josh Brown]

I don't believe that. The White House, instantly, their head of communications put out a note saying, Mark Zandi, who is the, I guess the chief economist at Moody's or whatever his title is, is a former Obama appointee and has it out for the Trumps and the Republicans and he's a, he's a loser. And whatever else they said.

[Michael Batnik]

Well, if I honestly, I'm talking right out of my ass. I have no idea. But like, if there was a Democrat in the White House, would, Would this have happened? The downgrade happened?

[Josh Brown]

Yeah, I think so.

[Michael Batnik]

You do? Okay.

[Josh Brown]

But. Well, I don't actually, I'm not sure because if there were a Democrat in the White House, I don't know what the conversation around extending the tax cuts at the end of the year would look like. And I also don't know what the pay fors would. Would. Would look like. I don't. I think this is like part of the, it's not an anti Trump thing. It's just like, oh, here they go again. Extending the tax cuts with no money to pay for it. And so if the Democrats were trying to do that, which I'm not sure that they would, maybe they, they would have had to do that. So it's politically motivated, but not in a partisan way. This is just what's happening in American politics right now. They're trying to get through this big, beautiful bill, which is going to be. It's going to extend the existing tax cuts and more, make even bigger tax cuts for different segments of the population. And it's not exactly clear where the money's going to come from to, to cover it, other than Mexico, economic growth. Well, it was originally it was going to be the tariffs, but I don't know that we're doing tariffs anymore. I don't know if that's really still a thing that we're doing. So not. Not sure.

[Michael Batnik]

All right, so. So let's go through some charts. I mean, the fact is, yes, we have a spending problem. Not news to anybody. I think we know this. This is from John Authors, which by the way, Josh, credit to you. Great TCAF with John Authors and Chris Davis. You had fun?

[Josh Brown]

Oh, yeah, no, it was great. I mean, we missed you. But those guys were, those guys brought their A game and I think a really good show.

[Michael Batnik]

Okay, so this is from John Authors. The US Federal deficit is the deepest in history outside of a recession. What we're looking at for people that are listening is the deficit as a share of gdp. And yeah, it's not great. It's, it's. What is it like, I don't know, 7%, give or take. And the problem is, I think this is a legitimate problem. Like, shut off for a sec, please. I have probably been more on the side of. There's. We've always had a spending problem. This is like not unique to now. But the problem is the numbers are getting so big. Next chart, please. So, for example, this is from the treasury site. We're looking at U.S. government spending by category and the top one is not surprising. It's. It's Social Security. It's 22% of all of our spending. Number three and four, not surprising, health and Medicare. Number five, national defense. But number two, net interest. And I understand, going up. I understand that this is an asset for a lot of the lenders, most of it not, not US citizens, but a lot of it is from our country. But nevertheless, my God, we're spending. I don't know, is it a trillion dollars on interest? Whatever it is, it's, it's a big number.

[Josh Brown]

Can you put the first chart back up? This will not be popular, what I'm about to say. But it's, that's, that's how you know it's true. Number one, in every recession, the deficit gets way worse because we're forced to do things to support the economy and the people who are hardest hit in the recession to keep the wheels on track. Some would argue after the great financial crisis, which you could see, I guess you could see prior to the COVID dip, you can see what happened with the deficit at first blew out because of course it did. And they were rescuing banks and insurance companies and mortgage lenders and a lot of people who were underwater on their home loans. And it was just all around disaster, not just in the United States, but globally. But that's when the deficit tends to get worse in a recession. So we're not even in a recession right now. And the deficit spend like mimics what it looks like when we are. Can you imagine what's going to happen if and when we do have a recession at the current level of deficit? That's one. The unpopular part is the only time we've ever successfully balanced, I don't want to say balance the budget, but when the deficit actually turned into a surplus is when we have a stock market bubble. So you can see a tiny surplus after 1968 all the way on the left side of this chart. That's coming on the heels of this huge boom in the 1960s in the stock market. And then when everyone goes and pays taxes on the gains, you got a surplus. The same thing in the year 99, 2000, 2001, you had this huge bubble in stocks. People made a ton of money and the net result was Clinton was able to walk around saying, I balanced the budget, I have a surplus. No, you had a mobile, telephony and wireless and dotcom bubble and the taxes on stock gains made it look like you did something heroic. I was at the Museum of American Finance annual gala a couple of months ago and one of the featured, one of the honorees who gave a speech was Dick Ephardt. And Dick Ephardt was the leading congressperson at that time who was responsible to balance the budget. And he gave like this 30 minute speech about all the negotiations and all the horse trading with Republicans and with Clinton and the White House and how hard it was to get that done and then Bush in the White House. And it's like none of that really actually mattered. Dude, like I didn't say this out loud at the gala. All that mattered was we had this massive stock market bubble which temporarily made it look like we had our budget under control. The reality is we never do. We like, we never do. The only question is what direction is the size of the deficit going and how bad is it relative to overall gdp? There's no other conversation. No one's going to balance the budget.

[Michael Batnik]

So what part of that was unpopular?

[Josh Brown]

I think people don't want to hear that you need a stock market bubble to be in surplus. People want to hear that it's like this political mission where the two sides come together and agree to cuts and whatever and all of a sudden, I guess balance budget. No, never happened.

[Michael Batnik]

Who's arguing a surplus? We've had a deficit forever.

[Josh Brown]

That's my, that's my point. And you're not, and that's not going to change. And if you have an insane stock market bubble from here and the dow goes from 42,000 to 75,000, you might balance the budget for a year or two.

[Michael Batnik]

All right, well, check this.

[Josh Brown]

You're going to be coasting on massive capital gains. And look at this next chart.

[Michael Batnik]

It's. It's public debt. It's a net interest payment to gdp, and we're off the charts. And second place is Greece. Not a great situation there. Then you've got Iceland, number three. I mean, my God, these were. These were the countries that were in Michael Lewis's. What was the book in 2008? I can't remember 2009, whatever it was. Like, these are the. The. The nations with the most upside down indebted status. So, yeah, maybe we do deserve a downgrade, a slap on the wrist now. I mean, obviously, if we're not aaa, then nobody is, because we are the definition of money. Good. You lend the US Government money, you're getting your money back.

[Josh Brown]

Yeah, that net interest being paid by the US treasury, they're paying it to the people that own the bonds. Here's the good news. Most of the people who own the bonds are Americans or American corporations or US Banks or regular people who have savings accounts who have CDs. Like, that's who owns money market funds. That's who owns the bonds. Not a situation where we owe money all over the world. Like 70% of the debt is held elsewhere. We're not one of those countries. And like, like a, like a, like.

[Michael Batnik]

A Buddy Lebowski situation, am I right?

[Josh Brown]

Doesn't make it good. But we're paying ourselves the interest, at least for the most part.

[Michael Batnik]

It dampens the blow a little bit, for sure. At least you're paying, right?

[Josh Brown]

It's. Where's. Where's the money going? Well, it's going back into the economy. So it's going back. And honestly, it's going back into bonds. People, people with huge treasury holdings are buying more Treasuries when they receive that interest. So in some cases in an automated way.

[Michael Batnik]

Let's wrap this up with what happened to the bond market the last two times. Again, n equals 3 or n equals 2. We have barely any data here, but in 2023, as listeners remember, we were in the midst of a nasty bond market sell off. Chart on, please, John. So that's the black line, actually. Yeah, they were going sideways and then big sell off after that. We recovered and not bothered. In 2011.

[Josh Brown]

Like, this is bond Prices.

[Michael Batnik]

The bond market didn't flinch really much at all.

[Josh Brown]

So the zero line is the day that the downgrade happened.

[Michael Batnik]

Correct.

[Josh Brown]

So bond sold off in 2023. Why don't I really remember was it. I guess it didn't last that long. These are days before and after. So for 75 days, why we were.

[Michael Batnik]

Probably a jet ski. And then let's look at the stock market. This is chart kids. Chart of the week at exhibit A. Again n equals to 2011 was a scary time. The last time the debt was downgraded. I guess it did sort of knock the S and P off its track. But again, very small sample size.

[Josh Brown]

There's no investor alive who would tell you that a Treasury downgrade is the reason they did anything meaningful with their portfolio. I mean stock market investor. Yeah, I mean it's look, it's a, it's, it's a notable thing that's happened. Maybe, maybe if the thing in 2023 hadn't have happened, this one would be reacted to differently. Is that possible? So I wrote over the weekend about just the way in which stocks have seemingly assessed every risk ahead of us and just completely ignored it. And I don't know if that's a changing of the guard. If we just have a new generation of investors that's just a lot more fearless and a lot less willing to sell or stop buying. That could be part of it. I haven't really thought that deeply about it's got to be part why we're ignoring these things. But just the fact that we're completely ignoring it is notable in and of itself.

[Michael Batnik]

I think it's muscle memory. It's 15 years about a dip, right?

[Josh Brown]

It's like people like oh, you're not going to get me this time.

[Michael Batnik]

Right?

[Josh Brown]

Yeah, I think, I think that's true. I don't know that I would, I don't think I would argue with that.

[Michael Batnik]

I also don't want to gloss over the fact like oh, one day they'll be sorry, okay, but like we had a bear market, we had a two year bear market in 2022. It wasn't up forever. In fact the stocks are most likely to get bought by these, these air quote dummies, these air quote know nothing investors. Those stocks got hammered, right? Like I know we say this all the time, but it's bears repeating for people that think this has been an easy ride. Netflix lost 75% of its value. So did Nvidia. Two thirds of its value. More than that. Google, Amazon, they all got cut in half. Just three years ago.

[Josh Brown]

Yeah. And then the other thing is like, well, if there is a recession, the deficit is going to get much worse probably, but then the Fed is going to be cutting and the net interest owed on the new bonds that are issued will be, I don't, I don't know. In the aggregate it'll be lower, but it won't be getting worse. So that's, that's a really big component of this is like where the Federal Reserve has interest rates, there's high relative to the amount of economic growth we're expecting this year because the Fed thinks they need to be high relative to that growth because of the risk of inflation. The Fed won't be worried quite as much about inflation if GDP tanks, retail sales tank, unemployment spikes. So then I don't want to say it's a full on get out of jail free card, but the interest rate will be lowered and as a result, the treasury will be able to finance itself at a lower prevailing rate. So that's the mitigating factor that might end up helping this be less bad.

[Michael Batnik]

Josh, did you read this article?

[Josh Brown]

Mystic as I'll get.

[Michael Batnik]

Did you read this article by David Brooks? We are the most rejected generation?

[Josh Brown]

Yeah. What was your take on that? Because he's talking about your generation.

[Michael Batnik]

I actually think this is like the people that are. No, this is people coming out of college. This isn't.

[Josh Brown]

Yeah, I guess it's slightly younger than.

[Michael Batnik]

So this is, this is a pretty scary article for parents of these, of this generation. And Tara's not too far behind. So this is the upshot. He said by 1959, about half of American college applicants applied to just one school. But now you meet students who feel that they have to apply to 20 or 30 colleges in the hopes that there will be one or two that won't reject them. In the past two decades, the number of students applying to the 67 most selected selective colleges has tripled to nearly 2 million a year. While the number of places at those schools hasn't come close to keeping up. Roughly 54,000 students applied to be a part of the Harvard class of 2028. And roughly 1950 were accepted. That means 52,000 were rejected. The same basic picture applies to the summer internship race. Goldman Sachs, for example, has 2,700 internship positions, which, by the way, that's a lot of interns doing what? And they receive roughly 315,000 applicants. Every generation has its problem, has its challenges. This seems pretty stark.

[Josh Brown]

Well, this is what I'm living through. So I got My daughter into college last year. She just finished her freshman year at U Miami. They said they have 2,400 spots for freshmen and they said they got like 50,000 applications. That's a higher rejection rate than Princeton. Like it, this is, this is what. And by the way, the funniest thing, when you become a parent and you hear about the schools that your friends kids are applying to and getting rejected from, you're like, what? Like I, I know kids with GPAs above 90 coming out of my kids high school that like couldn't get into Ohio State.

[Michael Batnik]

But was it the thing where we used to, we used to apply to, I don't know, six to eight schools and now it's like, is it just the norm to just apply to 30?

[Josh Brown]

Here's what's the norm. You have to Ed. If you really want to get into a school and they offer early decision like the private schools, you have to do it. And so you can apply to 12 schools and have your safe schools and blah blah, blah. But you have to really demonstrate to these schools your commitment way before you send in an application. They all have these summer classes that are for high school kids. If you're dying to be at one of these schools like a Tulane or Miami, you have to be in the, or Syracuse, you have to be in that summer program as like an 11th grader. You have to do a visit and a tour and they note like who came for the tour because what they're looking for is commitment. And so when you ED or Early Decision or ED2, you can have an ED2 school too. When you tell them, I did the tour, I did your summer classes and I'm applying early decision, meaning if you say yes to me, I'm locked in. I'm definitely coming. When you demonstrate that level of commitment and you're at the academic level where you belong to be in that school, you'll get in, you'll get in, but you have less flexibility. If they say yes, I don't care what the other schools tell you, you have to say no. So it's, it's, it's new.

[Michael Batnik]

It's not, it's not, it's not just one thing that's causing this. He wraps by saying that maybe the core problem is the overproduction of elites, that we're churning out more knowledge worker graduates. And there are knowledge worker jobs. Fact. Or maybe it's just a feature of online life. It's easy to apply to stuff and more applicants. And with more applicants, the competition grows ferocious. According to an article in Business Insider. The average knowledge worker job opening now receives 244 job applications, compared with just 93 as recently as 2019. That is wild.

[Josh Brown]

Well, look, there's a reason for this. People with a college degree are living, on average, seven years longer than people without one. That. That doesn't seem in and of itself seven years, big deal. It's that that's on average. So, like the people that you know in your life who have found the most success, the likelihood that they are a college graduate has been increasing. So basically, we have this world where you can start a business and get wealthy, or you can join the middle class and have a shot of that translating into joining the upper class. But that's like, pretty much it. And if you're not part of that world, you're not in a job that has access to a 401K and health care benefits, maybe, or if you are, you're, you know, a nurse or working for the state or police, firefighter. But for most people, like, just being locked out of that retirement savings thing is a really huge deal. And the impact of whether or not you're part of that knowledge economy, it compounds so that when you're in your 30s, if you're in it, your life looks radically different than the people you graduated high school that didn't go down that college road. Again, we're overgeneralizing. But people understand. You look at those charts, the average salary of somebody with a bachelor's degree versus the average salary without one, it's black and white. It's as stark as you can imagine. And the out or the way to do it differently is if your dad or mom owns a business and they're going to give it to you, they're gonna. They're gonna, like, mentor you and then hand it off like, that's. That's all right. That's a way to do this without college, I guess. How many people are in that position? Not that many.

[Michael Batnik]

So here's. Here's another possible explanation, and it's not. It's not one thing. There's a whole confluence of factors that are leading to this. But this is from semblance, and I definitely buy this. He said there's also an indirect sign that AI is impacting the job market for the last 30 years. This is important. For the last 30 years, the unemployment rate for recent graduates was below the overall unemployment rate, meaning it was easier for new grads to get a job. This is now flip. Michael says with recent graduates having a higher rate of unemployment. This is a big deal. This is a really, really important chart.

[Josh Brown]

I think we're not ready for this as a society. Like where you can go to business school at a top 100 college and not have no. And have nobody be interested in you. Because whatever your output is going to be in your first three years out of school. We don't need. We don't need to be done by. By AI.

[Michael Batnik]

Yeah. We don't need your grunt work. Thanks. No, thanks. We don't want to train you.

[Josh Brown]

Yeah. I don't know. I don't know what the ramifications are. Something tells me. Something tells me the rubber is meeting the road right now.

[Michael Batnik]

It is. Yeah. It's not good.

[Josh Brown]

Yeah. And I'm very much in this world, like, I know hundreds of families where they have a kid that's either just started school, just graduated college, first of all. So I'm talking about Miami because I know it best. What percentage of the undergrads at U Miami this year do you think were majoring in business?

[Michael Batnik]

A third?

[Josh Brown]

40%.

[Michael Batnik]

That's a ton, right? That's crazy.

[Josh Brown]

It's insane.

[Michael Batnik]

Yeah.

[Josh Brown]

40% in business. Think about how many different professions and vocations there are in this world. 40% are in the business school now. Most of them are not getting the Goldman Sachs internship, which then leads to the Goldman Sachs job, which then leads to hopefully partnership at Goldman Sachs. Like the amount of people that are going to get that from any given university. Even Ross School of Business, Michigan, even Kelly School of Business, Indiana. Like, those aren't. You're not guaranteed anything even if you can get into these business schools. So I don't really know. I don't really know what you do if corporate America decides. We used to hire 300 kids out of school every year. Now we hire 100 because we've got software programs putting out the same level of work that they would have put out. And we're going to save a lot of money that way. And if that's where we are in this AI thing, if we're already there.

[Michael Batnik]

Yep.

[Josh Brown]

I don't think we're ready for that.

[Michael Batnik]

No, it's not good at all.

[Josh Brown]

It's a really good piece by Semblance. I'm going to reference Semblance a little bit later. This JP Morgan piece is interesting in the same vein. This came out at Courts, I think today. JP Morgan hired 60,000 people in the last five years, increasing its workforce by 23%. It looks like that's about to grind to a halt. Jeffrey Barnum JP Morgan's CFO told investors at a meeting in New York on Monday that the bank is telling managers to take a beat on hiring. Quote, we're asking people to resist headcount growth where possible and increase their focus on efficiency. AI will be a big part of that, he said, resulting in a 10% staffing reduction in divisions like account services, processing and fraud. Last thing, quote, it should go without saying we'll never compromise on safety and soundness, will continue to hire and invest in high certainty areas but blah, blah, blah, blah, blah. I, I have a friend that works in the private bank at JP Morgan. There he said every day he's watching them train their employees how to train their machines to eventually do the jobs of those employees. And the employees almost like don't even know. He, he said it's like that's dystopian. It's like watching cattle be marched into a slaughterhouse. They have no idea where they're headed. They were there. They're training their software to do what they do, but better. That's. What's that. It's not just one firm. This is like a microcosm for the way I think most large companies are going to start thinking bullish.

[Michael Batnik]

Not really. Yeah, not for humanity. I don't think so.

[Josh Brown]

It's not, I don't know.

[Michael Batnik]

I know it's not black or white. Like obviously there's, there will be societal benefits, but yeah, it's, it's, there's some bad.

[Josh Brown]

Yeah, every, everybody can be a playwright now. All right, I want to introduce the Cougars. This is the hottest trade of the year and I invented this term so nobody knows what it is yet.

[Michael Batnik]

That was so you.

[Josh Brown]

So on brand. All right, this is a trend that I've observed and I think others will observe it later. Wall street has fallen in love with the stickiest subscription and app based business models that consumers will not likely unsubscribe or discontinue their use of unless things get really bad. And I call these stocks the cougars, which is an acronym stands for Canceled Only under Great Recession. Is that good. There's no, there's no E. There's no E. Canceled only under Great Recession. Think of the services that you use that you wouldn't cancel unless it's like 2008 and then even in that case you might have a hard time doing so. So there are a lot of things that I could have included in here, but I didn't like I could have included cybersecurity. I think these are the most recession Resilient of the enterprise. Software plays. Look at CrowdStrike. It's about to make a new all time high. They just announced a huge deal with Nvidia. They're going to be the standard CyberSecurity in Nvidia's AI whatever, blah, blah, blah. But I kept stuff like that out and I just wanted to focus mostly on consumer apps and subscriptions that people are going to keep doing no matter what.

[Michael Batnik]

With ad subscriptions. Those are not the same thing.

[Josh Brown]

Correct. Activities.

[Michael Batnik]

Okay.

[Josh Brown]

Activities that are app. App based or subscription based.

[Michael Batnik]

So like OnlyFans is both.

[Josh Brown]

So the crowd is saying like Apple Music and Amazon Prime. Yeah, both of those things. But I don't have them in here because they're so obvious. Here's what I have. Robinhood. No one's going to stop. We already know from 2022. We know from the crypto crash. Nobody's going to stop doing what they're doing on Robinhood.

[Michael Batnik]

No, it.

[Josh Brown]

So it's. They do have a subscription product called Robinhood Gold, and I think they've converted a lot of their users over to it. Their power users doing really well. I'm going to tell you right now, this company. I don't know about. The stock won't go down in a recession. I know it's gotta be a really bad recession for the business to take a really big hit.

[Michael Batnik]

To be clear, the stock will get pummeled in a recession just like every other stock.

[Josh Brown]

Fine, Fine. But if that's in a bad recession, in a slowdown, I don't know. That's a negative for Robinhood. People seem to be trading more when the market gets.

[Michael Batnik]

Yeah, I think the business will be just fine, but the stock will get hit. Keep going.

[Josh Brown]

All right, here's the point. The stock is up 88% since April 8th.

[Michael Batnik]

Mm. Wow.

[Josh Brown]

Okay. It's up 72% year to date. I have a company called Sezzle in here. I don't know what. I don't know what the hell this is. It's a buy now, pay later. The stock is up 230% since April 8th. It's up 125% year to date. It's $100 stock with a $3 billion market cap s EZL and if I show you this thing over the last six months, you'll fall out of your chair. I think it's up 1,000% in six months.

[Michael Batnik]

Oh, Sesil, I forgot I own this. I'm just kidding.

[Josh Brown]

Yeah, so one of the things that I did in my research here Is. I took note of the number of users or accounts or subscribers. Sezzle has 658,000 people subscribed to their Buy now, pay later service. Again. Is anyone canceling their Buy now, pay later because they're worried about the economy? No. That might make more people use it.

[Michael Batnik]

Well. Well, you just don't pay, and then the losses go up.

[Josh Brown]

They haven't seen that yet. They haven't seen that. So. Duolingo. Look at the stock. It's a $520 stock. It's up 60% this year. It's up 77% from the lows in April 8th. 74 million monthly active users. 5 million paying subscribers.

[Michael Batnik]

What are those numbers? One more time.

[Josh Brown]

Up 77% from April 8th.

[Michael Batnik]

No, the users. The users.

[Josh Brown]

74 million. Did you know that?

[Michael Batnik]

Holy.

[Josh Brown]

Holy shit.

[Michael Batnik]

Wait, did you see Google's announcement today? You could do Google Meet Translate language. Like real time.

[Josh Brown]

Yeah.

[Michael Batnik]

Why does anybody. No offense. Why does anybody.

[Josh Brown]

People want to learn the language. They don't want the cheat code, I guess. All right, all right, listen to me. 5 million paying subscribers. 74 million monthly actives. Nobody talks about this stock. It's up incredibly from the lows in April. Impressive hims and hers. 140% return from the low on April 8th. 2.4 million subscribers. People that are regularly getting penis pills and bald stuff. And I'm not a doctor, I don't know if you could tell, but this is, like, highly unlikely.

[Michael Batnik]

The medical term is boner pill, sir.

[Josh Brown]

That's. What. Highly unlikely for these people that are using the service or paying a subscription fee to go away.

[Michael Batnik]

Oh, that's a staple. You're not going to.

[Josh Brown]

I'm just telling you. No, of course not.

[Michael Batnik]

Yeah.

[Josh Brown]

I mean, you got to live. Netflix is the best example on here. Yeah. Up 30% from the lows on April 8th, up 33%. Year to date, one of the best names in the s and P.300 million subscribers. Nobody cancels. They might downgrade. Okay, Spotify is on my list.

[Michael Batnik]

Trades. So good.

[Josh Brown]

Spotify is up 30% from the low. It has 678 million monthly actives. 268 million subscribers. Those people are not leaving. That's why. That's. This theme, this. This cougar theme. Spotify is a Cougar Uber, up 42%. 170 million MAUs. 30 million Uber 1 subscribers. You could say people might order less food from Uber because of how expensive it is. And. All right, I'll give you that. But more people are willing to drive for Them driving down their costs. And I think that's why this is the third best performing stock in the S and P year to date, by the way. I don't know if you know that. Uber is the third best S&P 500 stock year to date, up 52%.

[Michael Batnik]

What's number one and two?

[Josh Brown]

Who cares? It's my highest conviction position. How you like me now? Applovin is up 60% off the lows. I don't know their user base. I just know that this is online games. And their ad business is interwoven with online games and my God, What a name. DraftKings. 2 million monthly active users. These people are going nowhere. Precisely nowhere. Especially if they get laid off. Then what else are you doing? Match group online dating. 16 million subscribers. Stock is up 50% on the year. Bumble. Same thing. Stock is up 55% this year. 56% from the low on April 8th. 42 million monthly active users on Bumble Peloton. If you were going to cancel, you probably already have. This. Stock is up 27% from the April 8th low. 6.7 million members. Let me see what else I got. All right, so the point. Let me wrap this up.

[Michael Batnik]

Peloton smells like a ME stock. I hate that. I like it.

[Josh Brown]

Give me my table. I put the top 10 on here. These are your cougars. And yes, there are other big publicly traded companies making a lot of money from subscriptions. Costco, Amazon. Those are the obvious ones. This is like maybe the next tier down of that. People wouldn't necessarily associate with this theme. But again, this is canceled only under Great Recession. I don't know what the S stands for. Savings. Here's some individual. Here's some individual charts. Look at this Sezzle piece of shit, whatever this is. Can you imagine? Look at. Look where this came from. I think it was under $10 this time last year. It's $100 stock.

[Michael Batnik]

Is that Berkshire accumulating?

[Josh Brown]

Yeah. Here's Netflix. Bye.

[Michael Batnik]

Wow.

[Josh Brown]

Gone. Spotify. What do you think's about to happen?

[Michael Batnik]

Higher.

[Josh Brown]

Do you have to be a professional technician to understand what's. What's in the works here? DraftKings. This is interesting only insofar as you think about it. From the low.

[Michael Batnik]

This is not interesting. Sideways for a year. Not interesting.

[Josh Brown]

All right. Match.

[Michael Batnik]

Next.

[Josh Brown]

Yeah, not big recovery off the low. All right, here's hims. This is becoming a meme stock.

[Michael Batnik]

I mean, you can't trade this. Look at this wild shit.

[Josh Brown]

Wild shit. This is a meme stock. And it's. I hear It's a really popular stock on Robinhood and it's, it's a roller coaster, dude. This thing was 25 bucks. It's back at 60 like blink of an eye.

[Michael Batnik]

This is for lunatics only.

[Josh Brown]

I mean this is the Ozempic. This is the Ozempic trade. Basically they're doing this, these compounding, these compounded versions of all the fat loss shots and, and they're delivering it right to your house and they're making money hand over fist. Anyway, so this is the cougars theme I stole this from. We're going to talk to Rich Bernstein about this. But one of the other things Semblist said. Tech and interactive media stocks now account for 35% of market wide earnings versus 19% a decade ago. This is what I was trying to explain to John Authors and Chris Davis on the Compound and friends last week. A huge percentage of The S&P's market cap is now comprised of companies that have made themselves recession resilient and almost, you could call them borderline defensive because they don't require you to do a transaction with them. They're getting subscription revenue because you already.

[Michael Batnik]

Agreed you need to opt out that you're a user.

[Josh Brown]

Nobody opts out, nobody, nobody cancels because of inertia and things just don't get that bad. And that's what makes up the market cap of the S and P now. So they're not like classically defensive, they're defensive in the way that they charge their users. They've subscriptionized businesses that used to be transactional. And this is not just publicly traded app companies. You know how I pay my exterminator?

[Michael Batnik]

He's a subscription coins.

[Josh Brown]

No, he's just, we just, we agree at the beginning of the year, this is the annual rate. I'll come this many times. Who, who the hell is canceling the exterminator? You know what I mean? So this is, I think something that people have overlooked about the resilience of the s and P500 and arguably maybe the whole economy.

[Michael Batnik]

I think you're 100% right. And again, just to reiterate from Semblance, tech and interactive media stocks account for 35% of market wide earnings versus 19% a decade ago. And Josh, the point that you just made about these now being defensive, not in the classic sense. So when you thought about, when you thought about defensive names previously, you would think of something like Procter and Gamble. Yeah, right.

[Josh Brown]

Like in a recession everybody needs toothpaste.

[Michael Batnik]

Everybody's got to have toilet paper. Well, guess what? Procter and Gamble had a margin of, I don't know, 14% of making it up. Apple's got a gross margin of what, 45%. Like these are, it's pun intended, apples and oranges. And that's why the market looks so much different than it used to.

[Josh Brown]

Yeah, these companies have, have. They don't rely on you walking into a store and buying an iPhone to make.

[Michael Batnik]

And they're growing mid teens, maybe not Apple, but like it's just. Come on, what are we doing here? All right, great point, Josh. Okay, sticking with this theme and sticking with semblance. So in his recent post, he was talking about the push and pull of tariffs pulling the market down and AI spend, pushing the market forward. So he says US companies spent a lot more time talking about AI than tariffs in the first quarter earnings calls. This is according to empirical research, research, excuse me, the market cap of AI plays. And this is really important. The market capitalization of AI plays is 2.6 times larger than, than their quote, tariff victim category. So it's not that tariffs don't matter, of course they do, but the size of the AI plays is 2.6 times them. So Michael says, in other words, what can make the argument that AI is at least as important as TAFs to equity investors, if not more so I want to spend a second talking about, again, using Michael's research, the advancement that we're seeing in AI. So trot on, please. So there's a lot of dots here. This is a bit confusing for, for listeners and for people that are even looking at this, but what we're doing here is we're going from June 2023, shortly after OpenAI was launched through today. And what you're looking at is PhD level science questions on the left versus US Math Olympiad selection exam on the right. And all that you need to know is that the proficiency of these models, whether it's Google, Anthropic, Deep seq, OpenAI XAI or meta AI, it's going up and to the right. And the level at which these things are getting better every day is exponentially growing. And not surprisingly. Next chart. John, please. Not surprisingly, the adoption is increasing big time. So they asked people in October 2023 what the adoption rate was in various companies or various categories, whether it's marketing or knowledge workers or core product enhancement versus December 2024. And it looks like it's double doubled. A double across the board.

[Josh Brown]

Yeah.

[Michael Batnik]

And then they asked in August of 2024 and in May 2025 and just recently, what do you expect to be doing in the next six months in terms of your AI adoption? And it is, it's here big time.

[Josh Brown]

Yeah, let's the on the left side. So the adoption rate by I guess profession for AI October 2023 versus December 2024. So that's a 14 month period. And like just as an example for people, if you worked in marketing In October of 2023, you would. It was a 35% adoption rate of AI and now it's 55% and not stopping. And look at all these categories. Sales, operations, customer onboarding, finance, legal, non software, R and D, human resources, Doubled the use of AI. So look, I don't know how much this people just saying, yeah, yeah, we're using AI, but I just think about our business like everything we're considering doing with every vendor we talk to and every company that approaches us has an AI bent to it. One of the things I thought was funny is all the Future Proof retreat was in Colorado. You were there, Chris was there, Anna, Barry, Jay and everybody there was talking about Data Lakes. Like this is the whole thing is like controlling all of your client data in one place and cleaning it up and making sure that.

[Michael Batnik]

I'm Michael Phelps of Data Lakes.

[Josh Brown]

Yeah. Making sure it's useful. For what? For AI purposes. So that you can turn AI loose on that data and learn shit about your business. And then I go on LinkedIn two days after the Future Proof event and every CTO of every financial advisory firm is making Data Lake announcements. So Data Lake is going to be the term of the summer for our industry.

[Michael Batnik]

I brought our own AI little thing here. So I want to play a clip. Just bear with us for a second. It's at one and a half times speed, so forgive me, I just didn't want you to sit around here for two minutes. So. John, clip on, please.

[Josh Brown]

Welcome to the Deep Dive. Today we're really digging into the current market, looking at it through the eyes of Richard Bernstein. He's the CEO and CIO of Richard Bernstein Advisors rba, you know, and he.

[Michael Batnik]

Used to be the chief investment strategist.

[Josh Brown]

Over at Merrill Lynch. Yeah.

[Michael Batnik]

And for this Deep Dive, we're mainly drawing on a conversation we had recently. It was on the Compound Channel. The episode called the Magnificent Seven is a bubble. Exactly. So our mission here is to really.

[Josh Brown]

Get under the skin of Bernstein's argument about these magnificent 7 tech stocks. We want to understand, you know, how does this market stack up against history.

[Michael Batnik]

Bubbles, booms, busts, and maybe find some potential investment ideas that are getting sort of lost in all the noise.

[Josh Brown]

Okay, so right off the bat, Bernstein isn't exactly subt. Flat out says that Magnificent Seven is a bubble. That's pretty bold compared to many of his peers. What's his reasoning there?

[Michael Batnik]

Well, it's interesting. It's not just a gut feeling. His firm, rba, they actually did some internal studies. They asked, you know, are these seven companies really the only places with real growth globally? And surprisingly, a lot of the Magnificent Seven, they don't even pass basic growth screens when you compare them to everything out there.

[Josh Brown]

Really.

[Michael Batnik]

They did this global growth ranking.

[Josh Brown]

Right. And so was that Scarlett Johansson?

[Michael Batnik]

So that's Notebook. LM and I uploaded our podcast and it gives you a 15 minute podcast from these two hosts.

[Josh Brown]

The AI made a fake podcast based on our real podcast.

[Michael Batnik]

It's about 1/8 of the time. So it's like. It's like 12, 15 minutes.

[Josh Brown]

So is that good for us or bad for us? Unless. Did I get paid for that?

[Michael Batnik]

My point is like, look what it can do today. It's a listenable. It sounds like a real conversation. So what I did, I said, because we have Rich Bernstein on this Thursday, I said, what are the four most important things that Richard said on the show? And it pulled out four dope quotes that I'm going to reference. Like it's.

[Josh Brown]

But why does it. This. So this is Boomer question. Why does it have to be in the form of a fake podcast? Why can't it just be.

[Michael Batnik]

It doesn't have somebody. It doesn't have to.

[Josh Brown]

Why can't the AI just say, these are the five things that Richard Bernstein said in case you don't have time to listen to the whole hour and a half.

[Michael Batnik]

That's. That's an option too. You could do that.

[Josh Brown]

I mean, that sounds dumb to get a machine to create fake babble.

[Michael Batnik]

That's not the point. My point is that this. I can't be.

[Josh Brown]

What I do on the show can't be reduced to an AI explanation. There's a magic that I bring to these conversations that spontaneous.

[Michael Batnik]

To show the audience how powerful.

[Josh Brown]

There's a contemporaneousness to the. To. To the dialog. It can't be scripted in advance and it can't be distilled into.

[Michael Batnik]

All right, stop with this fake aggression. Nobody is suggesting.

[Josh Brown]

No, it's like offensive. Say, oh, I didn't have. I didn't listen to your podcast. I listened to a fake podcast created by AI that tells me what was in your podcast. My response is, what are you moron. Like, what else were you doing that you don't have time to listen to me directly, but you had time to listen to that.

[Michael Batnik]

There is not a single person on planet Earth that is doing that. I was demonstrating how powerful AI is.

[Josh Brown]

But what's the power? It's clever. It's clever that they trained a large language model to take in an audio file and spit back out a distilled audio file with fake hosts. It's clever. How is that powerful?

[Michael Batnik]

I mean, tomato, tomatoes. I am not tomatoes.

[Josh Brown]

What power does it have? I have the power here.

[Michael Batnik]

All right, asshole. Next topic.

[Josh Brown]

Don't I.

[Michael Batnik]

Next topic.

[Josh Brown]

Don't you have the power with your words and your bearing and your delivery? The fake podcast hosts have no power. No one's going to be about the fake podcast.

[Michael Batnik]

Stop it.

[Josh Brown]

When we started, the show is about the music, man, not all this corporate. All right, Walmart picked a fight with the White House and I knew it was coming. When did they do this is over the weekend. All right, so here's the progression. Put up my LinkedIn post. I knew this was coming, dude. So I saw, I think Brian Sazi at Yahoo Finance or somebody at Yahoo Finance had the CFO of Walmart like, do a hit on Yahoo Finance. And I said, whoa, whoa, whoa, whoa, whoa. This is not a thing that happens. Like, the CFO of the largest retailer in America doesn't just start randomly dipping in on Yahoo Finance to do hits. Clearly they had something that they wanted to get out there and this is what it is. I'm going to quote what he said. Low prices is what we stand for, but we're going to keep prices as low as we can, as long as we can. But when you look at the magnitude of some of the cost increases on certain categories of items that are imported, it's more than what retailers can bear, more than what suppliers can bear. So we'll work hard to keep prices low, but it's unavoidable. You're going to see prices go up. If you've got a 30% tariff on something, you're likely going to see double digits in price increases. This is what the guy said. And I said, yeah, this is not going to go well. And sure enough, very quickly, here's the White House response. This is a truth social from Donald Trump. Walmart should stop trying to blame tariffs and as the reason for raising prices throughout the chain. Walmart made billions of dollars last year, far more than expected. I don't know what that means between Walmart and China. They should as is said, eat the tariffs, all caps. As is said, charge valued customers, anything. I'll be watching and so will your customers. 3 exclamation points.

[Michael Batnik]

Stop watching.

[Josh Brown]

If I told you a politician said that but not Donald Trump, you might have guessed Elizabeth Warren, correct?

[Michael Batnik]

Correct. I spoke with Ben today. That's a little.

[Josh Brown]

It's not a Republican.

[Michael Batnik]

It's unbelievable.

[Josh Brown]

That's not a Republican point of view. That Walmart made too much money more than expected.

[Michael Batnik]

When Elizabeth Warren says this shit, we, we cackle and we laugh at how dumb it is. Yeah, the fact that a Republican is saying it is mind bending.

[Josh Brown]

I think that, I think that Trumpism is mercantilism, it's not capitalism.

[Michael Batnik]

What does that word mean? Hold on, let me ask my AI.

[Josh Brown]

I got you. Mercantilism is an economic system that dominated Europe. Basically, it's companies exist in order to serve the state. It's not a Republican principle, it's not a libertarian.

[Michael Batnik]

It's the opposite.

[Josh Brown]

So in the 16th, 17th and 18th centuries, the dawn of corporations. These corporations were willed into existence as a means of fixing the financial problems of these countries that had spent hundreds of years at war with each other. All the kings were bankrupt, all the parliaments were looking for a solution. So they would grant these like monopolies to the Dutch East India Company and the South Seas Corp. And they would say, you have the exclusive right to murder anything that moves in South America and bring the gold back here. And that was mercantilism. And the primary goal was again to solve the state's problems by means of corporate activity that investors could invest in. And that this idea that like Walmart exists to please the White House with it, with the way it's charging customers.

[Michael Batnik]

How dare they raise their prices because their inputs, prices are going up.

[Josh Brown]

I'm just saying it sounds like, it sounds like an AOC dropped.

[Michael Batnik]

And also their margins are 2.7%.

[Josh Brown]

I mean, what the lone phoenix says, it's an STFU statement from the White House. I agree. Walmart said, I bet if we come out publicly other companies will do the same. And nobody had their back. Nobody else said shit. And then the White House is like, I dare, I dare you, I dare you to keep telling us tariffs are the reason that you're raising prices.

[Michael Batnik]

Well, their customers don't care about the tweet or the truth, and neither does the stock market. It's nonsense.

[Josh Brown]

The typical Walmart customer does not care. They care about the price. They don't care what caused it. Because we know, I listen to the.

[Michael Batnik]

Earnings call and they said yes, for areas that are impacted by tariffs, we will be forced to raise prices. We're not going to do it across the board. They're, they're specifically not being greedy. They are going to do it for food that is imported from Latin American countries. Bananas, for examples like where their prices are increasing. They will increase their prices.

[Josh Brown]

This is my response. Not that anyone's listening to me. In 2024, Walmart's net profit margin was 2.9%. Like it's not an, it's not in a high margin business. They imported about $50 billion worth of goods from China at a 30% tariff rate. You're talking about like a 15, $18 billion hit. People have pointed out that's just their raw costs. You don't know what the price they sell the item for. Okay. Correct. I'm estimating. I'm not, I'm not, I'm not an auditor from pricewaterhouse. Here are your choices. Negative second half earnings at the largest retailer in America eat the tariffs, meaning they eat the tariffs to higher cost to the consumer. That won't be popular. Or three, another beautiful deal exempting Walmart and everything they sell. It has to be one of those three. There's no fourth way. There's no fourth option. So either Walmart says we will shut up if you exempt these 500 SKUs that are the bulk of our profit margins or I don't know. Or they. Or some combination of eating the cost and passing on the cost. But it's not good no matter what for the end consumer. It's just, it's not.

[Michael Batnik]

Wait, Walmart has a subscription service too, doesn't it?

[Josh Brown]

Yeah, well, of course. Like Amazon Primey kind of thing. All right, look, I don't know where this is going. Maybe this is one off or maybe another CEO or CFO is going to pop on Yahoo Finance and, and fafo. We'll find out. But it's interesting. F around and find out. So. All right. Venture capital hangover. We could spend a total of 30 seconds on this. I just thought it was a cool chart. Dan Pramac at Axios was writing about the most recent report from Carta which if you're in this world is worth downloading. This is showing startups raised 21 billion in the first quarter of this year which is down 3% from the first quarter of last year. And I thought this was the most interesting thing. 46% of all seed deals. And Michael, I know you're a big seed level investor. Were bridge rounds in Q1, 20, 24. So half of all the financing for seed stage companies is bridge financing, which means it's not a new valuation or anything like that. It's just like we need some more money while we wait for our next legitimate round. Half. That's the highest bridge rate for any stage of investing since Carta began tracking this data. For context, last year it was 39% and the year before is 31%. So now like half the seed stage startups are taking bridge capital, which requires them, I think, giving up some equity. And it's like not a great position to be in where that's the only financing you could obtain.

[Michael Batnik]

I think we might be near bottom, at least anecdotally from what I'm saying.

[Josh Brown]

In venture, I don't know.

[Michael Batnik]

At least in our small corner of the venture universe, we have a bunch of companies that are raising at higher valuations.

[Josh Brown]

Well, you're getting IPOs, and venture follows the stock market. Like in the end, if there were exits and there's liquidity, people are willing to invest in more things. That's always how it's been. So maybe that's true. Series A deal count fell 79% between the first quarter of 2022 and this quarter. So over three years, an 80% drop off in series A rounds. That's like that. That sounds like a bottom. Like that sounds as bad as it gets.

[Michael Batnik]

Yeah, I think we're close.

[Josh Brown]

Okay, I thought that was interesting. Shout to Dan. All right, we're. Oh, on the IPO front, I asked Sean for this. 76 IPOs priced this year. That's up 33% from the same period last year. So it may not feel like the IPO window is fully reopened, but that's pretty good. Total proceeds were 11.1 billion, down 20% year over year. Smaller deals, so more deals, but. But not as big as some of the big guys from last year. 92 IPOs have been filed for so far this year. That's up 19 and a half percent. So some here. You see it by month.

[Michael Batnik]

Well, the biggest one that we've been talking about, I think Corey, priced at what, 40 bucks down from wherever it was supposed to go out, and now it's at 90. Now it's at 90. So.

[Josh Brown]

All right, all right, you're up. Make the case.

[Michael Batnik]

I'm going to make the case for a stock that has burned me in the past, I lost money on, and then I got back in and I've been in for a minute now and it's treated me well, so I'm going to flag it again. It's Dollar Tree. Char on, please. Holy. Is this stock filling some gaps? You know I love me some gap fills.

[Josh Brown]

What's going on? What's going on? What's going on with this?

[Michael Batnik]

I'll tell you next chart. Dollar General.

[Josh Brown]

Obviously a similar confirmation.

[Michael Batnik]

I'm mad at this gap. I wanted to buy this. I just never pulled the trigger on it. So we have earnings for these companies in two weeks and we will find out. So part of the story of, of Dollar Tree is getting rid of Family Dollar, which is a horrendous acquisition. They paid $9 billion for it.

[Josh Brown]

How are they getting rid of it? They're just changing the names on the stores to.

[Michael Batnik]

They're selling it. They're selling it for a billion dollars. So they took a bath on that. I don't know all of the ins and outs. I followed Alex Morrison to this on the Science of Hitting. He writes some great stuff on it. They seem to be turning it around and the stock seems to be front running. Hopefully some good news in two weeks.

[Josh Brown]

I don't invest in shit like this.

[Michael Batnik]

I know you don't. You invest. The last time I brought this up, you said I only buy LVMH. And then the stock lost 60% of its value.

[Josh Brown]

Well, I don't own that either. But I don't invest in retailers trying to make a penny.

[Michael Batnik]

You are such a goddamn snob. It's.

[Josh Brown]

I'm sorry to the earth, but I just don't.

[Michael Batnik]

Unbelievable.

[Josh Brown]

I just. I don't want to buy, like, low margin. Don't buy it. I'm not talking. No, I'm just saying that's. That would. I like the technicals, I like the recovery. What would keep me on the sideline is I'm salt of the earth, but I'm not that salt of the earth.

[Michael Batnik]

You are not salty at all.

[Josh Brown]

Have you ever been in one of those stores?

[Michael Batnik]

I have multiple times. There's one upstate by my. By my cabin. Because I'm a man of the people Upstate. Way upstate. Not the way upstate.

[Josh Brown]

Yeah, I got that. I got. Say no more. All right, mystery chart. Are you ready?

[Michael Batnik]

I can't wait. My favorite game of the week. Oh, it's bitcoin. Just kidding. Kind of looks like it, though. So the JC special, what is this? Give me some clues.

[Josh Brown]

Okay, so this is a sector ETF that's been around since the late 90s. It's one of the granddaddies of ETFs.

[Michael Batnik]

Yeah.

[Josh Brown]

So I'm narrowing this down to you. One out of 11. No, no, can't be SMH. It's a sector.

[Michael Batnik]

I apologize.

[Josh Brown]

ETF. So it's not XLK. I got excited, so I'm giving you. I'm pulling out. You've got 10s and P sectors to choose from. And this is a Steve Straza chart. Shout to Straza at all Star charts and I'm going to give you some of his commentary once we get into the post reveal on why this thing is interesting to take a look at.

[Michael Batnik]

Yeah, I think I know what it is.

[Josh Brown]

Well, we're all waiting on you, so.

[Michael Batnik]

Okay. Well, I already had three guesses, but based on the absolute plunge in 2020. Is this energy?

[Josh Brown]

Look at you. You did it. Actually, that was a good way to reason your way through this. That was pretty good.

[Michael Batnik]

Thank you. All right. Why does he like it?

[Josh Brown]

Here's what all. So this is the energy sector for those who are listening and not watching. Resistance here is like 95 to 100. That was resistance in 07. It was resistance in 2014, and it's been resistance since the post pandemic period. Every time it gets to that level, it backs off, but it's backing off less and less. And I guess from a technical standpoint, ultimately it's probably trying to punch through and eventually will just look shitty. This is the rationale. It's a raging bull market for stocks around the world being led by offense. But the internals continue to improve. Like any bull cycle, as time passes and the market grinds higher, it drags a growing list of non performers higher with it. Some call that rotation, but it's really just a broadening of participation over longer timeframes. And he thinks that this group is next to join the party. He points to international stocks which already have Southeast Asia, South America. They're all working. Gold eventually broke out. You look at old laggards like transport, speculative growth, they're working too. Why not energy is the question. I'll show you one more chart. This is equal weight energy versus equal weight s and P500 sitting right on this very solid support line that dates back to 2022.

[Michael Batnik]

Sit on it, Manetti.

[Josh Brown]

Well, look, this is where the buyers come in to the equal weight energy relative to equal weight everything else. And I don't know, I don't know if you hate these equal weight charts.

[Michael Batnik]

There's nothing here.

[Josh Brown]

I bought some Chevron recently. It was a 6% yield. And I just said, I'm not afraid of this thing. I'm buying it all right, so you.

[Michael Batnik]

Won'T buy dollar stores, but you'll buy shitty Chevron.

[Josh Brown]

Well, I'm. No, Chevron's not shitty. I'm going to tell you. I'm going to tell you that. Sean and I took a look at the best stocks in the market. Energy sector. There's only four of them right now. They all look amazing. And we're going to write, we're going to write these up later in the week.

[Michael Batnik]

Give me one.

[Josh Brown]

Give me one for cnbc.

[Michael Batnik]

Give me one.

[Josh Brown]

Okay, here's a dividend one wmb. This is Williams Brothers. It's Pipeline World. High dividend yield. Used to be an mlp. How good does that look, bro?

[Michael Batnik]

All right, see this I can get excited. This I get behind.

[Josh Brown]

All right, here's another one. Exe. Come on, dude.

[Michael Batnik]

Energy, Corporate. I mean this.

[Josh Brown]

Come on, dude. Look at it.

[Michael Batnik]

It's too late. Left the station.

[Josh Brown]

I haven't told you the fundamental reason why it's not. But anyway, we're gonna, we're gonna write these up later this week. I thought it was interesting that even though the sector sucks, there are some energy names on my best stocks list and that's why we keep the list. So. All right, guys, that's it from us. We're gonna say thank you to everyone who joined us for the live. We love all your comments. You crack us up. We appreciate you. For those of you listening out in podcast land, sp, Spotify, Apple, make sure we get a rating and review goes a long way. And we love it so much. Tomorrow morning is an all new edition of Animal Spirits starring Michael and Ben will be up on both podcasts. Look at this little boy. It's a baby batnik. All right, we'll be up on all podcast platforms first thing in the Morning and on YouTube.

[Michael Batnik]

So.

[Josh Brown]

So if you love Michael and Ben, tomorrow you get an all new edition of that. We'll have animals ask the compound later this week. And an all new compound and friends with a very special guest. Thank you guys so much for watching and listening. We'll see you soon. Whether you're just getting started as an investor or you're managing a multi million 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 rithswealth.com don't forget to check us out at YouTube.com 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.