One Million Dollars Today or $1,000 Per Week Forever? | WAYT?

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Join Downtown Josh Brown (CEO, Ritholtz Wealth Management) and Michael Batnick (Managing Partner, Ritholtz Wealth …

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[music] Okay. Can everyone hear and see me? Raise your hands. All right. So, one person. All right. Wi-Fi issues today in multiple locations. Not my favorite day of the year, but it's 5:00 Eastern and we have a show to do. So, I want to welcome everybody to an all new edition of What Are Your Thoughts? My name is Downtown Josh Brown. My co-host is here as always, Mr. Michael Batnik. Michael, say hi. >> Gosh damn right, I'm here as always. How you doing? >> That's right. And look at this monster I got behind me in the uh in the guest bedroom. Can you see? >> No. What is that? >> Can you see the puppet? You can't see it. >> What is that? >> Is that a >> It's a It's a It's a puppet named Richard. >> Um Okay. >> When my When my kids were younger, >> there were many puppet shows. All right. Uh guys, tonight's a big show. We um I think we have tons of topics in the dock that we want to get to. I want to just before we uh shout out the sponsor, I just want to say hello to a few people who have joined us live in the chat. Really appreciate you as always. Uh, Suzanne Newman is here. She says, "Hi, everyone." Hi, Suzanne. Thanks for joining us. Jeff H says, "Greetings from a snowstorm in Minnesota." Sorry to hear that. John Mellet's here. Chris Hayes, D Snider, Magnus is back. All the all the gangsters are here in the chat. Uh, we got a fan named Random Trends calling uh coming in from Portugal. That's Superfly. We love it. That's so hot. All right, guys. Thank you for being here. We appreciate it. Tonight's show is brought to you by Public. Michael, what's the story with Public? >> That's right, Josh. And Public is, as you all know, the investing platform who takes it seriously. On Public, you can build a multi-asset portfolio of stocks, bonds, options, crypto, and now now this is good stuff. Generated assets, which allows you to turn any idea into an investable index with AOI. It all starts with a prompt. From renewable from renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year-over-year. You can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one-of-akind index, and lets you back test it against the S&P. Then you can invest in just a few clicks. Generated assets are like ETFs with infinite possibilities. Completely customizable based on your thesis, not somebody else's. Go to public.com/wyt and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com/wyt paid for by public investing. Full disclosure in podcast description. >> That's a pretty good offer. I like it. I think people should uh take them up on that. Uh all right. Uh this week we're going to get uh we're going to get a heat check on the AOI trade because Oracle has earnings tomorrow night. And I want to start off by sharing something that the trading desk at Bank of America put out in an email blast. They said probably the most systematically important print for the AI trade this week. this week. This is an opportunity for management to speak on the infrastructure buildout, address investor concerns, on the timing of free cash flow, capex, revenue recognition, etc. Um, I think the analyst meant systemically important print, not systematically important. >> I hope Gosh, I hope not. >> I Well, no, but I think that's what that's the it's not systematically important. It's systemically important. like a systemically important financial institution. I think they um I think they use the wrong word. Uh this this is a big one. Do you agree? I sure do. Say more. Okay, I will say more. So, when we were in the last time that Oracle reported the stock was up as much as 43% on the day, it closed up like 36%. Throw this Wall Street Journal cover up. Um, we were in we were in future proof. We were in California when this came out. So, we obviously saw the headlines, but I I didn't dive into the report. So, in preparation for the show and chart off, please. And as a shareholder myself, I said, you know what, maybe I should get smart on this call. What did they say last time? Because in fact, what was interesting about the call last time is the numbers were actually not even great. So um the Wall Street Journal said the bright revenue prospects or this was in on September 9th when they reported last time um overshadowed an otherwise mixed performance. So revenue was up 12% but they missed expectations. They missed topline. It didn't matter because what mattered was what they said which was this. The cloud infrastructure revenue is on track to grow 77% this year to $18 billion. the CEO said. Then she said it's expected to reach 32 billion, then 73 billion, then 114 billion, and finally 144 billion in four fiscal years that follow. So obviously ex whatever happened in the most recent quarter, who cares? It's all about expectation. So here's why the stock jumped so much. Obviously, there's what she said as well as the the Ford multi-billion dollar deals that they said. But I was listening to the man, Larry Ellison, talk about um the quarter. Here's what he said. This is what got people excited. He said, "AI will change." And give give me a minute just to get through this. AI will change everything, but right now AI is fundamentally transforming Oracle and the rest of the computer industry. Though not everyone fully grasps the extent of the tsunami that is approaching, some things are undeniably evident. Several worldclass AI companies have chosen Oracle to build largecale GPUcentric data centers to train their AI models. That's because Oracle builds gigawatt scale data centers that are faster and more costefficient at training AI models than anyone else in the world. Training AI models is a gigantic multi- trillion dollar market. It's hard to conceive of a technology market as large as that one. Um but if you look close, you can find one that's even larger and it's the market for AI inferencing. So he goes on and on to talk about this but this is how they opened the call and this blew people away. This made him yeah uh he gained a hundred billion dollars like overnight. This was the thing that it fundamentally changed the story of Oracle. Now we know what what's happened in the since then. Obviously Sam Alman spoke the stock closed the gap etc etc but it was a massive quarter and now obviously expectations have been reset investors have sobered up but yeah it is a very very important report and I'm staying long to the print. I uh I hope I'm right. We'll see. They So they lost all of that market cap gain. So what that was in September, the last Yep. That's right. >> Okay. So by like the end of November, the bloom was off that rose. >> Gone. >> And I think the entirety of that gain just left. >> Nastiest gap fill. I mean, in recent memory. >> Okay. So, I want to share some of the storylines going into why this uh not just the numbers themselves, but like the call um because people are people are genuinely concerned with some of these issues like revenue recognition and um the the the long-term accounting value of a GPU, etc., etc. So, these are these are some of the these are some of the highlights. Um, first of all, the street is looking for earnings of $164 on 16.2 billion in revenue. And if they hit that number, that's 15% year-over-year growth, which is damn good. Um, analysts are talking about a metric called RPO, remaining performance obligations. And so this is about the backlog and the big deals that they're announcing, the bookings are continuing to accelerate because obviously if you're if you're long the stock, that's what you need to hear to justify um buying it. Um you do have a bunch of analysts that have gotten out ahead of the call and have been positive on the stock, which I would hope so because they were all positive at the top. So I would certainly hope they still they still like it. Um, but then you've got analysts that are saying, "Wait a minute, all this heavy capex, all this leverage, um, you know, how much of the the backlog actually turns into revenue at some point." So, so it's an interesting battleground stock at this point. Um, customer concentration risk is another big story line. So, that sounded like a strength in September when Larry talked about multi-billion dollar whatever. Um, but now that's sort of been turned into a uhoh, you have all your eggs in just a few baskets and what happens if Meta pulls back and what happens if if this customer or that customer. So that's that's one of the story lines here. Um, the capital intensive nature of the buildout. Lots of questions on how much pressure that will put on free cash flow in in terms of like depreciation, which we've been talking about for a while. What is the interest expense on the debt? So, you'll get questions about that. Um, >> wait, the risk the risk is this. It's it's it's not it's not Meta or any of those customers pulling back. It's Wait a minute. >> The five-year $300 billion deal that you announced with Open AI, are they going to be able to pay you because that is obviously in question and that's what rocked the stock. Well, but I do think like follow on things like the Meta issue, like Meta letting it be known via the tech press that they're considering using Google's TPUs. That to me is in direct competition with the idea that all of these Nvidia powered uh data center buildouts make sense economically in a in a world where there is a potentially cheaper option. That's what spooked uh a lot of the investor base. So yes, I agree with you. The open AI issue is 100% important, maybe the most important, but it's not mutually exclusive from some of these other uh potential nits that people are going to want to pick. So there's a lot there's a lot of there's a lot of different storylines. We have some charts. >> Why don't why don't we roll through these and Michael, you can narrate what we're looking at. [snorts] >> Let's go. Chart on. Um all right. This is not particularly important to me. Matter of fact, what this shows, we're looking at earnings per share over the next over the last 12 months. It's flat. It's been it's been flat. This this what's done is done. Everybody's looking forward. So, this chart to me is not particularly relevant. What's the next one? Uh revenue. Okay. Not nothing up 28%. >> 59 59 billion annualized. Um and it's the the the pre-hat GPT moment. That number was like more like 40. >> Yeah. So, it doesn't seem like a dramatic rise on this chart, but it's a big deal. >> No, you see the inflection for sure. Um, next chart. What do we got? >> All right, this is it. I mean, this is obviously going to be a big one. How are you paying for this? How much debt do you plan on taking? What does the interest expense look like? And, uh, is the revenue going to be there to fund these obligations? So, this is this is a big one for sure. I don't this this the stock is not going to meander tomorrow. I think it's going to be either up 10 or down 15%. Oh, I wanted to ask you that. So, you don't think that there is any chance of this being a hoham reaction? >> There's always a chance, but no, I think it's a I think it's a relatively small chance. I don't know. I would guess under I would under 15%. I don't know. I'm making that up. I think I think it is much more likely that the stock either gains 15 or loses 15. And uh obviously I hope it gains 15 for my sake and for the sake of the market. [snorts] >> Where where are you where are you in this name? What's your average price? I bought the bottom. Not to brag. I will tell you. I mean, I could grab it, but I bought it. I bought it like down near the bottom >> like two like like 212 bottom. Which bottom? >> Very impressed by that. >> Um, >> your co your call is important to us. >> Yeah. Let's see. Uh, thought about where I bought it. I'm up uh I'm up 3%. So, my average price is Oh. Uh 215. So I I bought and then I bought more. So I don't know where my first buy was, but 215. >> Okay. Look, I um I'm rooting for a positive outcome here. I'm not one of these people that, you know, is looking for drama or looking for like uh news just for the sake of news. I would love to see the company come out with a good report and affirm all of the the spending and all of the um the necessity for the spending that the bulls want to hear. And I'd love to see the stock bounce a little bit and continue higher. Um I'm I'm not currently long and I have to be honest with you. Uh I'm I'm I'm sort of worried. I'm sort of worried. I I think uh there it might be a situation where almost no matter what they say, it won't be good enough. Um but maybe that's not the case. And we're all we're all going to find out and it's not going to take very long. We're going to find out this time tomorrow. Uh >> let the record show that my f my first buy my first buy was November 14th, so not the bottom. In fact, uh yeah, I did not buy the bottom. >> What do I What do you think? What area of the market do you think is most at risk of a not great outlook or a not great report? I think it's the chips >> on the heels of this. Like if they miss, what's what's in trouble? >> Not if they miss. Let's say they Let's say they beat but they don't give strong enough uh guidance or the tone of the call isn't positive enough because the Chips the Semis just made a record high like today or yesterday. Um, what is the highest beta the name that's high most highly levered to the trip story? Is it Coreweave? I don't know. >> Yeah, be interesting. I wonder if um I wonder if all those power providers and that whole electricity trade can hold up if Oracle falls because they they're sort of like one of the biggest customers for all of the like AI data center components and the electricity. So, look, I I um I I'm worried, but I also don't think that any of these companies could jeopardize all the spending they've done already by giving anyone the impression that they that that they're not going to follow through with it. >> I'm less worried about the report itself. I'm not worried about the report itself. I I would be surprised if they're like, "Uhoh, guys, uh what we told you in September didn't pan out." Like, I just But I think the I think the worry would be that the market doesn't care. sort of like it did with Nvidia in the short term. The market just wants to sell it anyway. >> Does Michael Bur get on the call and ask a question in the Q&A? >> You're joking. >> No, I'm asking. >> No. >> Is that a thing that could happen? >> No. Cannot. >> No. Okay. >> No. >> All right. Would they let him through? >> No. These are No. These are sell analysts. He's not on the call. >> I'm just asking, could he get on the call? >> No. Is it possible? You've never heard a buy You've never heard a buy by side firm get on a call and ask a question. We've heard Mike Capital has done >> dude. He's a oneman operation. He's not getting on the call. >> All right. All right. Just just just curious. All right. So, we're rooting for you. We're rooting We're rooting for you, Michael. Um we're not making a big deal. >> If I lose money, um it will not be the first time. So, it's okay. Whatever happens, it'll be okay. >> We know. All right. >> Uh where we going next? Okay. Um, okay. This next segment is brought to you by Pimco to learn more about their suite of ETFs. Visit pimco.comfs. I've got a chart for you. Um, I believe this is from Oh, it says it right there on the bottom. This from Goldman. Check this out. Not new, but Nope. Nope. Nope. There we go. All right. The 10 largest companies represent 41% of the market cap of the index and 32% of the earnings. So this is hardly breaking news to say that everything hinges on the top 10. Right? That's it. That's the story. I was very surprised by this next chart. Here we go. This is a value composite. And the reason why I was surprised, I'm like, wait a minute. So what this is showing you for the listener, whatever value composite you're creating, multiffactor, just one of of price of sales, price of book, e to eBay, whatever, whatever it is, they all look like this, obviously went nuclear in 2000 and in 2020. But what I what surprised me was the extent to which these names came in, the value spreads came in. Reason why is this is a global value composite. Josh, did you know that international value stocks are absolutely Did I delete this? Maybe I did. Are absolutely beating the pants off of the index like S&P and global >> international value stocks are up like 35. >> So I was talking about this with Ben today. Completely under reportported I think maybe because it's only been a year >> and if you like zoom out it's like a glitch. Uh not a glitch. It's a it's a blip. It doesn't register at all. If these if value international stocks and value stocks continue to work, particular international value in 2026, it's going to start to make headlines. I think one of the reasons it's been so under under reportported and I know Ben shared that chart with us where uh Italy like the country's stock market beat the S&P over the last what was it three years, one year? I forget what it was. >> I think it was three. >> Right. I think one of the reasons it's it's been so little remarked upon is because nobody owns those stocks. You know, if you if you're um if you're doing stories at the Wall Street Journal, you go to an editor and either you have an idea or they assign something to you and they're not assigning articles about international value stocks because who who is the [ __ ] reader? >> Yeah. >> Who's clicking that other than me, you, Me, Faber, and like nine other losers? Nobody else cares. we care cuz we're we have nothing better to pay attention to. So that's one of the reasons why uh this is not being reported on. And then it's the stocks themselves. Like you you look at what's in these indices, you know, like Canada is up 31% this year. Why? Cuz gold went up like and and banks. Um Italy, the story is is is banks and a little bit of auto. Uh, but you go country by country and you realize it's really boring companies that people just don't care about. So like we we pay attention because we're invested in international value stocks. >> Put that chart back on. But my point I guess another point is this. In 2021 and 22 as these value metrics were getting to or past where you were in 2000, this was widely reported, right? Like a lot a lot a lot a lot. Yeah. >> And now that they've come down, nobody cares anymore. >> Yeah. If only they did more AI. >> All right. Anyway, I wanted to I have a good chart for you. So, did you know the S&P value index looks an awful lot like the S&P? >> Throw up this table. >> So, these are the the top three weights in the S&P value ETF is Apple, >> Microsoft, and Amazon. Did you know this? Do words have no meaning anymore? These are val Apple is a value stock. On what basis? On what? On what metric? Amazon. What are they valued at? What are they valuing them based on? >> All right. So, look at this next chart. So, I honestly I didn't look under the hood into the methodology for this, but the chart on the chart on the left >> shows you the S&P on the x- axis. Okay. the weight >> and >> IV which is the S&P value on the left. >> So it doesn't own Nvidia interestingly. It doesn't own Google or Meta >> but if you look at Microsoft it's basically in line uh Apple and Amazon basically in line. So I don't know what they're using but look at so >> what's what is MF what is MF US the multiffactor ETF? >> This is Pimco's Rafi product. Okay, got it. >> So they similarly are very underweight but just it looks nothing like the chart on the left like this is actually giving you valueish exposure. >> Okay. So your the return should be wildly different >> and they are or divergent enough where it makes sense. >> So obviously the S&P value which is it's it's S&P has destroyed anything else with a actual value bend. Right. So are we saying that the S&P value is not actually a value is not actually a value fund right now >> given the top holdings [snorts] in it >> the top three holdings are what is it Amazon, Apple and Microsoft? >> In what universe is in what universe is Apple a value stock? >> Okay. So if val if the value factor actually works from here works like outperforms the market then an active value manager has a pretty good shot at doing better than the value index itself. >> So there's also something yes there's also something called pure value like S&P has a pure value index. So the S&P value the IV has like $50 billion in assets. the pure value which is not Apple, Amazon, and Microsoft. Nobody wants like there's like a billion dollars in there. [sighs and gasps] >> What? Wait, what's in that? What's in that that like screens out anything that's over a certain valuation or how >> there's I don't know the methodology, but that's actual like you look at the top 10 names, you're like, "Yeah, I get why this has a billion dollars." It's the actual value stocks that nobody wants. >> Yeah. Right. Um you look I think it's like uh it's just hard to envision a scenario where you get like multi-year outperformance from a pure value index. >> No it's not like >> it's absolutely not. If the AI if the AOI trade goes south >> dude if the AI trade goes south of course value >> I agree that's what it would take. It would take a it would take a bare market for for the AI stocks. You'd have to be bearish on the AI stocks. Dude, open AAI has has a trillion dollar valuation. It's very easy to conceive a scenario in which value outperforms. >> Yeah, I think it's half a trillion, but your point is well taken. All right, whatever. Uh, Duncan, give me my give me my thing on the screen. Okay. Do we have like the wording or no? Anyway, it it it almost doesn't matter. So, this was a this was a post where a 20-year-old lottery winner was offered a million dollars or $1,000 a week forever, right? So, let's say she lives to a hundred 80 years of $1,000 a week, something like that, or lives to 80, right? 60 years of a um and she chose $1,000 a week. And I looked at the comments and it's amazing. But like as many comments as there were, oh, she made the right decision, she did the right thing. There were as many comments saying this idiot doesn't understand inflation. And I sort of feel like the right answer to this, I know there's a right answer to this financially, of course, there's a calculation. Um, but then there's also like a right answer that's lifestyle driven or just like based on how somebody wants to live their life. So before we get to the right answer, I was curious what your answer would be. You're not 20, you're 40. Um, you win the lottery tonight and they say, "We'll give you a million dollars now or we'll give you $1,000 a week forever." What do you do? >> Well, you nailed it, Josh. I'm not 20. I'm 40 right now. give me a million dollars and it's no no hesitation because there is a time value of money. There is a financial calculation like if you were to just pl in a spreadsheet and forget about taxes gets really complicated. The $1,000 a week will never catch up. It just it just won't. If you compound at whatever percent on $1,000 or whatever percent on a million dollars, the $1,000 will never catch up. However, as a 20-year-old, here's a few things that you give yourself if you're doing $1,000 a week. You give yourself peace of mind. You give yourself flexibility. Forget about time, value, money, inflation. I think we all understand the math part of it. But guess what? Who's to say that a 20-year-old would be able to properly handle a million dollar windfall, even if it's cut in half after taxes? What if you blow it? What if you make a few bad decisions? So, if I'm 20, I probably take the $1,000. Now that I'm a grown-up, I'm happy to take the million dollars. >> Okay, I think that's my answer, too. And I'm older than 40. Um, so $1,000 a week is less meaningful, but also it's a function of where you're at in your in your life. >> Yeah, that's it. >> Cuz if you say this to a you say this to a billionaire, what the hell do they want to bother with a $1,000 week a week check for? What what is it what is even the meaning of that? Probably making a million dollars a month in interest. So that there's a there's a component to this where it's like who are you? Not just how old are you, but what's your current financial situation? where one answer makes more sense than another. And the thing about being a billionaire and taking a million dollars is not going to change your tax bracket. Um, for her, it might take change her tax bracket. If she takes a million dollars, the IRS is going to look at that like she made a million dollars this year and she'll be in the 37% federal tax bracket immediately and we don't know what state and we're we're not going to get involved with state and local taxes. So instantly that decision does have an impact. whereas $1,000 a week will not jump her up to a higher tax bracket. So that's that's the first thing. Um, so I don't know if she'd lose half in taxes, but it'd be close enough. The actual calculation on how long it would take for that weekly payment to get to a million is 19 years. So for her, she'll be 3. She'll be 39 years old by the time that starts to look smart. and lifetime that gets to like 3 million like assuming she makes it to I think the number was 80 I think the 80. So >> but but but hold on but you would you she's going to invest the money so you have to assume some growth. >> Well that's so that's my next question. Are you more likely to invest the money if you get a million dollar lump sum or are you more likely to invest the money if you're getting a th000 a week? Because in my opinion, what's more likely to happen with $1,000 a week >> is you're just going to raise your living standards, >> right? >> And you'll add expenses that you can quote unquote handle because you have the money coming in. >> So, I actually think the million-dollar lump sum more likely to be invested. >> And but and also, if you're 20 years old and you get a million dollars, guess what? You're buying yourself a few things, right? >> So, but listen, I think I think uh I think this young lady did the right thing for her. I'm sure she thought a lot about it. And $1,000 a week for life is not bad. Despite what the math says, it's it's okay. It's not the worst choice in the world. >> One comment, one comment said, "You're all wrong. The right answer is take the million dollars and buy a million more lottery tickets," which I thought that [laughter] I thought that wasn't bad. >> Yeah. But but you know what? You know what else? Like windfalls are not good psychologically and mentally for people's well-being. Everybody comes out of the woodwork, right? Obviously, hey, lend me some money. >> You make a bad decision or two, like it's not healthy. It is not normal to inherit such a large sum out of absolutely nowhere. It's one thing if you grew up in this lifestyle and you grew up with money and you got an inheritance that you already knew was coming and it was planned for and accounted for. That's one thing. But to just have a half a million dollars just land on your head. You're probably going to do something foolish. I would. >> At 20, you're going on a big trip and you're buying a really nice car. >> Yeah. Yeah. Yeah, it's the money. >> You might also do something really nice for your You might also do something really nice for your parents. And maybe it's like, all right, yeah, I'm not investing it. I'm doing something that makes me feel good instead. And I want to buy my parents uh a house and for the next 50 years, that's my investment. I get to see them grow old in a house that I bought for them. >> I don't know what the return on that is. That's what I just that's what I decided to do. >> So there's a there's somebody in the chat JB buys a BMW M. Was that John Suarez? Yeah, I'm going to buy an M3. >> You [laughter] 100%. You definitely would have bought an M3. >> How many pairs of sneakers is am I buying with a million-dollar windfall? Um this is but I bring this up and we can move on after this because there are things in finance in investing in personal finance that the mathematical answer and the right answer are not always aligned depending on who you are and what it is about yourself that's important. So there's a lot of things where it's like oh I'll just to get a calculator I'll get a spreadsheet. There's a lot of things where, okay, the numbers are the numbers and we could sit here and oh, and like we could sit here and do inflation calculations, like what is $1,000 a week really going to be uh what kind of buying power is that going to have in 20 years? Probably way less than it does today. Like we could do all that stuff, too. But like sometimes the right answer is person dependent. And I I think it's something that we lose sight of. >> You know what doesn't show up in the spreadsheet? Not to belabver the point I just made, but your friends asking you for money, >> like everyone you ever met that that doesn't show up in the spreadsheet. Like, so you're you're 100% right. All right. Anything else? >> Um, no. I was curious what you would say and and uh you actually gave me the answer that I thought you'd give and and I agree with it. So, okay, we can uh we can move on. >> Let's talk about the stock market. It I know I keep referencing like the show we did a few weeks ago with Warren after the Nvidia earnings. I just can't believe that we're here again. I mean, I I guess I can, but it's just it's wild how the market just does what it does. We are fully in I don't know if you know this. I mean, I know you know this. We are fully in risk on mode in the stock market right now. >> Maybe >> maybe. >> No, no, >> make the case. Make the case. I'm not sure. I agree, but >> we are not in risk on mode. >> Okay, I'll make the case. Um, please. >> Techn technology stocks are up 11 days in a row. This is fairly rare. In fact, going back to the turn of the century, it's happened two other times. I would think that's risk on. But wait, there's more. It's not just technology. It is, I don't know if you've paid attention to this. >> The Russell 2000, >> the micro cap index, which has gone nowhere for years, and the equal weight index are all at or breaking out to new highs. Uh, and how about the risk sniffer? Need I remind you of the risk sniffer? Can you smell that, Josh? >> Oh god, this is my favorite. This is my favorite thing. >> All right, this is sniffer. >> This is from our friend at Duality Research showing the high yield credit spreads, discretionary versus staples, high beta versus low volatility. He says, listening to the best risk sniffers in the market suggests this rebound is getting all the confirmation it needs. Uh Grant Hawkridge at Stock Market TV has a risk on riskoff ratio. And in the risk bucket, you have copper, high yield bonds, the Aussie dollar, semiconductors, and high beta stocks. In the riskoff, you've got gold, treasuries, yen, utilities, and staples. So this is a ratio chart, and it's at the highest levels of 2025. I don't know how you can make the case, make any other case that today, this is no commentary on where we'll open tomorrow or next week. But right now, this is emphatically, this is not my opinion. This is a risk-on market. But I'd love to hear the other side of it. >> All right. I agree with you that based on all of those data points, it's obviously risk on. Even Bitcoin seems to be showing signs that it wants to get off the mat. And that's another risk sniffer um item that I think is worth us keeping tabs on. That that's it's not quite a springboard off of 85,000, but I think it's sort of important to see that. uh moving with the markets given the fact that a lot of people were saying um Bitcoin liquidity issues were spilling into weakness in the NASDAQ. Okay, I don't know if that's true or not. That's a thing that people were saying not long ago, eight days ago. So, okay. So, that being up uh is another feather in your cap. I want to point out that headline risk can very quickly take us right back into riskoff mode like within minutes. And let me show you something that popped up today. >> Wait, time out. I of course I agree with you. At least things aren't aren't at odds with each other. If Oracle report Yes, I know you're saying I know what you're not saying, but my point is in true riskon mode, we laugh at negative headlines. >> Mhm. >> Okay, we're not doing that. Turn on. Give it. [snorts] All right. This is uh JP Morgan absolutely rolling >> on a random I know. Well, I was on TV while it happened. >> You were sniffing >> absolutely rolling. I was sniffing risk while you were still on your second dream this morning. Okay. >> Holy [ __ ] I didn't Yeah. This is an ugly candle. My god. >> Yeah. Holy [ __ ] is right. So this is all right. So JP Morgan is cruising along in riskon mode as you say all day and then at 12:38 a headline from a conference in New York hits the tape and this thing just [ __ ] rolled and look at it. It was it was almost 319 this morning. Closed almost below 300. Okay. And that is an is it a trillion dollar market cap? >> No. But whatever >> 800 billion, >> whatever. I mean, it's a this is a blue chip Dow component 100-year-old financial that that fell out of the sky intraday like a 67% loss on a comment from a conference. Do you want to hear what the comment was? >> Sure, I'd love. >> Pretty pretty innocuous. This is a woman named Maryanne Lake who is a very high ranking executive at JP Morgan and [snorts] she used the word quotefragile to describe the consumer. And after that, the Dow Jones spent the rest of the day rolling over. Here's what the journal said. JP Morgan Chase's stock fell more than 4% Tuesday after the bank told investors it will spend billions of dollars more in expenses next year. At the Goldman Sachs conference in New York, consumer chief Maryanne Lake told investors the bank had just completed budgeting for next year and is planning 105 billion largely because of higher costs in her division. The bank is expecting expenses this year to be 95.9 billion and analysts had anticipated 101 billion of expenses next year. So, let me catch you up on this. the street thought it would be like 101 billion in expenses next year. She just said more like 105. The disparity of 4 billion, it's big, but it's not that big in the context of JP Morgan's business. But it's where she sits in the bank that mattered to the market because she's on the consumer side. So, when we hear about a $4 billion uptick in expenses, what we're all saying is, "Wait a minute, more expenses on the consumer side sounds like charge offs." >> Mhm. >> Sounds like credit card [ __ ] or mortgage [ __ ] or car loan [ __ ] or whatever the stuff that she oversees. And that is why I think the market got spooked. Not just JP Morgan. Look at an intraday chart of the Dow. The whole thing started rolling in the the minute she opened her mouth and didn't stop. So my point is if we were truly in riskon mode this would not have gotten anyone's attention and we would not have seen the price action that we saw. So in like a very in a real riskon moment we laugh at danger. Danger is our middle name and this market I she said the consumer is fragile. Look how fragile stock prices were as a result of that and it was to the minute that it started. So that's why I I can't fully agree with you. Even though you have the ratios on your side and the the ratio charts and the risk on the risk sniffer indicators on your side, I'm looking at I'm looking at price action on headline risk and I'm saying nah, we're not we're not right back. This is a more fragile market than it was in October, November. And you know, I know cuz Jamie Diamond was also talking in October and people were laughing. He was doing his he was doing his like you know uh risk stuff also and nobody paid attention and now they are. So that's that's my my slight divergence from from what you're saying. >> Do you remember Carlos Danger? >> You're damn right I do. What is that? >> Was that was that the wildest [ __ ] ever? That was uh that was the skinny governor. Was what was that guy's name? >> Oh, that was wild. >> The the the sex pest from New York. >> What was his name? He had a he had an alias. >> That was the greatest thing ever. >> He's a Jewish guy. Anthony Weiner in the in the >> How we could How could we forget? >> Oh, wow. >> Thank you, chat. >> All right. >> Where is that guy? Where is that guy now? >> I don't know. We could use some more >> Carlos Danger. Uh, no. It's a fair point. I agree. I ag I I don't disagree with anything you said. Um, let's keep it moving. >> All right. Um, when alts go wrong >> Oh, wait, wait. I'm sorry. I'm sorry. I'm sorry. The one thing before alts. So we do have a we do have a Fed meeting tomorrow and I want to show a chart. Um this is interesting. So it it appears that the S&P I'm sorry that the Fed is going to cut rates. Um and Subu Trade has a great chart showing what happens after the Fed cuts rates while the S&P is within 1% of an all-time high. It's not that rare. So a lot of overlapping periods but 1985 86 89 90 91 95 96 1924 I mean it's happened um and short-term very mixed very very mixed uh one year later why would the So what wait what is it one year later what's the what's the typical oh they're all green >> all green >> okay they're all green so every time the Fed has cut rates within 1% % of an S&P 500 high the stock and it looks like noticeably high. >> Sick. Look how sick the chart is on the bottom. The chart on the bottom shows one year later and it shows the average forward return. Now obviously this is an average and it's never it's not going to follow this path. Nobody's saying that. But just the point is the visual tells a very good story. Very choppy in the short term like not even short short to intermediate term. But give it give it give it nine months and um >> is that 15% the average return a year later >> is 15%. >> Yeah. >> Wow. Wow. And wait uh chart back on. I love this chart. I really do. >> Great chart. >> Look at all the draw downs though on the way. >> Yeah, dude. The first thing >> the first six months have been choppy as [ __ ] >> Anything can happen. Anything can happen. Look at that. There's as much red as there is green one month later. It's like half and half. >> Yeah. >> So, slow your roll, everybody. >> Okay. >> All right. Uh All right. Um let's do this. When alts go wrong. So, I don't bring this I don't bring this up because I'm trying to scare people out of alternative investments or trying to paint every alternative investment with a with a brush and and say that they're all problematic. But there are and there always have been my entire career some very prominent examples of really bad situations with al with alternatives. There's a lot of reasons for why. The first being the public has no idea what the hell they're buying. The second being that information asymmetry attracts bad actors into the industry or people who only say that they care about risk that but really don't or even people who don't know what they're doing and get lucky and manage to raise a lot more money than they should have. So sometimes investments go bad and nobody did anything wrong. It's just investments go bad. Um, but the less information the public has, the higher the likelihood that that's going to be an outcome. So, that's one thing with with alts. Another thing is obviously the higher the fees, the higher the hurdle rate to actually make money. Like you have to you you buy something that's extremely high fee. Like you first have to earn back what you just paid in fees before you could even get to the point where you're in the black. And then the third issue is um the economy has an outsized impact on non-traded uh investments where people like need liquidity no matter what and uh prices get crazy as a result of having a lack of price discovery. So alts when they go wrong can go really wrong and I want to share this story and I wanted to get your reaction to it. Um there was a company called Yield Street that has so thoroughly wrecked its reputation that they had to change its name. It's now called Willow Wealth, but unfortunately um the investments that have gone bad still have to report because they still exist because this is part of being an alt. It's not like a hedge fund that goes bad. They just liquidate the fund and close it. Um, CNBC.com is reporting that um, they continue to report losses to investor clients long after the name change. A new round of $41 million in losses from real estate deals that are now in default. Yield Street launched 10 years ago and their stated mission was to widen access to alternative investments to Main Street. Anytime you hear that as the pitch, you should grab your wallet. Nobody wants to democratize anything to anyone in real life. So, anytime you hear, "Oh, we're doing this for Main Street," LOL. Um, here's a quote. As Yield Street tries to distance itself from a rocky past with a new name and ad campaign, its customers are dealing with a present reality that is increasingly dire. Um, they lost money in real estate projects in Houston, in Nashville. Um, they uh had an $89 million wipeout in marine loans. Are those boats? I don't even What do you think that is? >> Individual investors should not be investing in marine loans, whatever in the world that [laughter] means. >> All right. So, $89 million in loans uh disclosed in September, $78 million lost in a report in August. In total, according to CNBC, Willow Wealth investors have lost $28 million. Um, so this Yield Street was a FINRA registered broker dealer and registered investment advisor. So, it's a hybrid with 1.86 billion in client assets. And they build itself on the website as the leading alternative investments platform. Um, and it's just it's one of these things where people put money in, it's illquid. We're not even in a recession, and these loans are going bad at a rapid rate. >> And now they've changed the name. They're trying to start over, but it's not so simple. >> So, these were real estate. The the the loans that went bad or the investments that went bad were in real estate, which absolutely was in a recession. Not excusing the fact. Um, did you see their rebrand? Do you know about Hampton Dumpty? You know about Hampton Dumpty? No. Do I want to know what what is this? >> Daniel, let's just play this, please. You got to see. >> The name's Hampton. [music] I know. I know. I look a lot more put together, right? But hey, I've come a long way from my humpty days. This is bad. See, I've learned a thing or two about crashes and [music] falls. Oh, on fire. Turns out you shouldn't put all your eggs in one basket. Oh, tempting. That's why I invest with Willow Wealth. Their online platform makes it simple to diversify my portfolio with private markets. I get exposure to everything from fine art and real estate. Evocative, right? Still got it to sports [music] and entertainment. Wa easy there. Plus, portfolios, including private markets, have outperformed traditional ones for the past 20 years. Not that it's a competition. Diversify your portfolio to help rise above [music] public market volatility and level up your game like me. Those who know know >> enough literally Hampton Dumpty. Can you even >> That's not AI. That's actually their commercial. That's like Is this a joke? Seriously, who is Who is that? Somebody said Wolf of Wall Street coded 100%. Um the the chat is going the chat is just so losing Humpty D's. >> As for CNBC's reporting on the new real estate defaults and rising tally of losses, the Willow Sperks spokeswoman called it quote a rehash of news on investments from 5 years ago. Like why are you rehashing old losses? Like just so what they were doing it >> what they were doing as I understand it is they were making their own investments. I'm I I don't I'm not sure of anything. I don't know if if if there was a third party sourcer involved in these real estate deals. I have no idea. But what they are doing now, they have pivoted to working with established brands like Carile and Goldman at Stepowner on their website. So they whatever they were doing, they stopped doing that for obvious reasons and are now doing something different. But here's what irks me amongst the many things is they have a chart on their website. Show this please, John. Uh Daniel, excuse me. Daniel's in the house tonight. Um growth of $100,000. All right. So, here's the problem. They show $128,000 over the past 10 years versus a private markets portfolio. And when you view the disclosures, because I'm such a sleuth, Josh, what I found was the private markets portfolio is 40% private equity from from Frequent, 30% private credit, and 30% private real estate. No beef with that. Here's the problem. You can't invest in these indexes. number one. And number two, uh uh financial indices assume the reinvestments of dividends and here's the cudigra do not reflect the impact of fees. Well, excuse me, excuse me, because according to CBC's >> including according to CNBC's reporting, those firms also charge their own fees. talking about the other ones that I mentioned leading to all- in annual costs ranging from about 3.3% to 6.7% per fund. Guess what? The numbers don't look as good as they did with fees included. This much I can tell you. Thank you for your attention to this matter. I mean, what is is that leg can you run that? Can you is that legal just because you put a little a little link that says see disclosures and then and then it's like a complete lie. That seems ins that seems absolutely insane to me. >> It's disclosed. It says you can't invest in the index and it it discloses it. I don't know if it's legal or whatever. I'm I'm guessing it's legal. I don't know. I'm not a complete >> So, what they're doing now is taking a 1.4% fee and they're thank god giving the money to people that actually know how to invest. >> Yes. uh Goldman Sachs, Carile, Stepstone Group. Not that that's a guarantee of anything. Of course, it's >> they're they're not going to lose. What is it? Did did CBC report a third of the real estate loans or or or either in Goldman Car are probably not going to default by one/3, but so all right. So So now So those f So now they're taking a 1.4% fee cuz they they're great at marketing with Humpty Dumpty commercials. Hampton dumped it. Excuse you, >> right? And they take your money and they give it to these other funds that are charging themselves 3.3 to 6.7% per fund. So, how does anyone ever make money here? I I think it's obvious how you lose money. Just just wait a while. Um, but how do you even ever make money? [laughter] It's all right. So, again, this is not uh this is not let's just bash alts. I'm sure there I'm sure there are good better versions of this. I'm just making the point if you don't know then you don't know. And this is the kind of thing that has happened to other people. And uh it you could lose money in the public stock market really easily. People do all the time. You could lose money in publicly traded bonds. You could lose money in public REITs 100%. But it's different to have like defaults and wipeouts and uh be be charged up the ass while you wait for that potentiality. That's a whole different dimension of risk that is very different from losing money in public markets. And that I think uh look I it's it's it's not to say oh this is every alt. It's just to show people what a really bad like worst case scenario could be. So >> yeah that's unfortunate. So, it's bad. All right, we are up to make the case time. We're coming into the home stretch. Um, I'm excited to talk to you about this because we haven't talked about it in a while. Let's let's uh put up uh long-term chart of Salesforce. This is 10 years stocks in no man's land right now. Sort of in the middle of the range, although inflecting slightly higher in the last week, which I'll tell you why in a moment. >> Here's a one-year technical chart. You would not buy this stock with your money or anyone else's money if you could help it. Um, doesn't mean it can't go up. >> I don't think it's that bad of a chart. I mean, it's not great. It's not We've seen way worse certainly. >> Let me gas. You like these bounces off of 225? >> I don't own the stock. I'm saying, dude, we we've seen way worse stocks. >> I guess what I'm saying is if you're going to buy the stock, it's not because of the chart. Is that fair? >> Right. That's not a That's not a That's not a a a green light uh in and of itself. Um the reason why the stock's starting to bounce here, looks like it could bounce here. Value Act Capital, which is one of the most successful activist hedge funds ever, um just added $25 million worth of stock this week. So, um, they now have they bought I think they bought 96,000 shares adding to an existing war chest of stock. They now own 2.994 million shares. Um, which is not in the scope of the of the size of Salesforce. That's not that big of a position, but it is a big position in in in dollar terms. They have a lot of money uh in in Salesforce and they're adding to it. Um, and the reason why this is notable is that the last time value act came into the name in size, they actually got someone on the board and the stock had a almost 100% rally inside of a year as a result of changes that they forced at Salesforce. So, value act is not one of these um activists that comes in and starts like looking for press attention and saying horrible things about the CEO. They tend to come in and want to work with the board and work with the company. They try to point things out that they think can be fixed. And that's that's their that's their uh that's their mo. And it's been successful. They've had a ton of big hits. Um, but they've been buying the stock back uh it looks like since so the LA the last time they came in was late 2022 which was also a bottom for the tech market and early 2023. They revealed their stake in January of 2023. Value Acts uh co-CEO CIO Mason Morphett was added to the board and in June they bought even more. where they bought 428,000 shares, $100 million worth, and that was at $233 a share. They got up to almost 4 million shares, and the stock spent the stock had rallied huge in in 23, and they I guess trying to make it happen again. Um, this time it hasn't happened, and so they're adding to it. They're buying more, but you did get an 85% rally uh the first time, the first go round. The other thing that's notable, Michael, is like last time, this time there are other activists coming into the stock at the same time. Starboard value, which was also in it for that last goround, they are they have just increased their stake by 50%. Um, so they own 1.3 million shares as of June 30th, and maybe that number's gone higher since. So, Starboard is back. Value act is adding. Um, they have board representation. the last time they got aggressive in in buying into the stock, they were able to uh help the thing almost double and I think it's notable that they've come back to the name. What are your thoughts? >> Um, did you buy the stock? >> No, I just bought Adobe. I can't have two of these pieces of [ __ ] on the books at the same time. Same story though. If people people think people think Salesforce is uh >> being disrupted by AI or about to be disrupted by AI and maybe it will be but a lot of times these are these are overstated risks that these companies find a solution to. >> Yeah. >> Not always. It could be Polaroid. I'm just I'm just saying it's usually not Polaroid. It's usually not Kodak. >> It's not Polaroid. All right. So Salesforce has obviously been been disrested. The recent bounce notwithstanding, nobody's bullish on this. >> Uh Salesforce is not Polaroid. Um but I do think that their business model is certainly under pressure and it's not going to it's not going to go away. Whereas a company like Adobe um I was talking to somebody this week actually who about this who who's a big Adobe user. I think that Adobe has a much better chance of integrating AI into their workflows, whereas I think that Salesforce is going to be under assault by AI solutions that do Salesforce solutions better than they do. Okay. So, Adobe's story is that they're going to sit on top of the AI and give their paying professional users access to the best possible versions of how AI can assist them in their workflows. >> Correct? >> That's their story. I don't know if the street is buying it, but the stock seems to have stopped going down. >> Well, they report tomorrow. They report why I bought it. >> They report tomorrow as well. >> That's right. >> We didn't have time. We didn't have time to do a whole deep dive preview into that. And I don't know the company well enough. I can tell you I have a stop-loss in and if they actually report AI negative impact or they guide lower or whatever, I'll get stopped out. I'll lose money. But I'm not married to Adobe. Um the story on Adobe is buybacks and and shrinking the float and the stock having been substantially derisked. It's in a 50% draw down from its high. >> Yeah. >> Um Salesforce look what's so here's funny about this. When Value Act and Starboard and by the way um uh what's Dan Loe's fund called? Third third uh >> third point. Third point >> third point. They were all in Salesforce in late 22 early 23. And the story was that Salesforce was spending like a drunken sailor. They were like they just had too too much bureaucracy, too many employees, too much corporate bloat. Um and and that was like the way to fix it. And they bought into that whole year of efficiency thing. Like they like Beni off followed Zuckerberg's example and it worked. That ain't going to fix it this time. I don't think the street is selling I don't think the street has gotten bearish on Salesforce because of expense management. I think they pulled that lever already. >> No, >> the fix this time, >> right? The fix this time is more difficult. >> Yeah, >> because it's uh innovation and obsolescence risk and that's not the same as cost cutting. >> We're talking to companies in our space that are doing a lot of the automation workflows with better technology. That's not going away. It just started, >> right? No, I guess the question is does Salesforce uh is Salesforce able to hold on to its customers and maybe even potentially charge more because they become the AI provider? >> Get better margins because they're using a AI. >> Certainly conceivable. Would not be shocked if that's the world that we're living in where they just they just use AI to make their ship better. Um, I sort of didn't make I sort of didn't make the case. But what I did, I think, is I I'm putting this name on people's radar for two reasons. One, the pessimism about their AI strategy and the threat from AI may be overstated. It's not like the stock is at its high. So that's so that's one. I think the market is very well aware of that risk. And then two, this is a tax loss selling candidate where people are just unloading it into year end. Um, and often times those are great bounce candidates in January. >> But you got to get positioned early because you don't know when the sellers are done. >> So it's early. What is it? December 9th. So, I'm putting this name on your radar December 9th because you might get to a point where the tax loss related selling becomes exhausted and then you get this air pocket where the stock could lift. >> Yeah. >> Not saying it will. I'm just saying it's very possible with a name like this. This is uh a very big company and still financially very successful >> and there is a big gap at 430 just waiting to be filled. So, at 433 either way. Um, okay. Anyway, on the radar, >> I have a mystery chart for you. This is in a sector that um is was strong to quite strong. Um, I'm probably going to give this away. This sector was the weakest. Had a sick run and just really rolled hard the last [snorts] couple of sessions. And I'm not sure why. I don't pay much attention to it. This is a stock in the sector that I don't know if you still own or not. We haven't talked about the stock in a while, but you did own it at one point. chart on, please. Um, this is a long-term view. That's a 200 day moving average. The price is above it, but obviously that's not pretty. Uh, it's the last three years. >> I'm sorry. This is this is not the sector. This is the actual stock. >> This is this is a stock. Next chart. Zoom in a little bit. Um, not so bad. Not so bad, but I see higher lows. Uh, that's what I see. What stock is this, Josh? >> $26 stock. The chat is guessing Fizer. And I think that would be the only one that would make sense. >> The chat is right. Phone your friends. Great job chat. [applause] >> Love you chat. Much love to the chat. All right. Um I would >> What's up with healthare? >> Healthcare is rolling hard the last 10 sessions. It's very bizarre. >> They rotate in, they rotate out. >> I know. >> I wouldn't not have guessed Fizer. I threw in the towel on this name very early this year. So it's been a long time. I don't I don't follow it anymore. I don't really care for it. Um, they made this massive in they made this massive bet uh huge M&A deal. Um, and they just they have nothing to show for it a year later and it was kind of like a bet the company uh proposition. was a hu it was like a huge um dollar value and the idea was that it would strengthen the company's pipeline and maybe it is and maybe it will but the street is not giving it any credit and there are huge winners in this sector and there are GLP1 names and there are oncology names and there are like there are lots of great biotech stocks this year and this is just not one of them in fact it's one of the worst and you know I don't I'm not a value investor I don't really do that it's not my discipline. Number one, it doesn't suit my personality. I'm not patient. >> Me neither. >> I I I dis I despise being completely on the other side of everybody I know for for prolonged periods of time. Um I do tend to believe there's wisdom in crowds and uh I think stocks that are going up are a better source of finding stocks that will go up. So I I that is not my discipline. And sometimes when I when I um when I uh when I become a dilotant in in that area and uh I kind of dance in and do a little value investment sometimes it might pay off but like not systematically it will not pay. So like I I was bullish Warner Brothers at $6 and I I sold it too early. It's $30. It's $27 right now. um like that was a quote unquote value investment in that time, but for every one of those that I could cite that I would have been right on or whatever, like there's many more Fisers where I would have been dead wrong for sure. >> So, uh nice nice uh nice mystery chart. All right, guys. We're going to wrap up for tonight. Thank you so much for rocking with us to the live chat. We love you. Huge part of the show. Um we love seeing you show up for the live. Thank you for continuing to do that. I think we had a huge crowd tonight. lots of comments and uh you guys are the best. So, shout out to all the gangsters in the chat. Um to those of you listening to us in Spotify land, a rating and review goes a long way. If you love the show and you want to tell other people um that it's of value to you, that's the that's the right way to to do it. Uh Apple Podcast 2. [music] Tomorrow is Wednesday, which means you're getting an all new edition of Animal Spirits with Michael and Ben. We'll have an Ask the Compound with Ben and Duncan. And then Michael and I will be back with a massive >> what? >> It is massive. It is massive. But talking wealth, you have a big you have a big episode dropping tomorrow for adviserss that are listening. Check it out. >> Oh [ __ ] You know what? If if that's right, if you're a financial adviser and you like the compound, you're going to love talking wealth and uh we're dropping a bombshell tomorrow. Um we had some research that we did internally and I can't wait for you to to hear what we have to say. All right, that's it. We love you. We'll see you soon. Thanks again. Have a great night. [music] [music]