Greed Is Good

26:43Again, I don't think it's a front burner issue right now. but what i would say to your point is trump has surrounded himself with people who have the most to lose if there were to be a loss of trust in our markets and in in the business rule of law like they are the wealthiest people with the most assets there's no way they're rooting for that that's that's what's interesting about this because i think early on there was sort of like this discussion about stock market vigilantes right like if the market reacts negatively enough or the fact that he is surrounded by people who have so much exposure to i mean it's literally the ceos of the mag seven yeah you know are in the front row of the inauguration yeah zuckerberg was there bezos they were all there yeah and so it's so confusing to see like all these announcements about tariffs that are almost universally agreed on as a negative to you know especially publicly traded companies that do a lot of global commerce yeah um or maybe it's the case that they're all in the same game.

27:45But yeah, there's a lot of conflict there because I would have assumed that you wouldn't have this kind of rhetoric that's so unfriendly to the market that breaks down the confidence that's behind the market, right? Like the idea that rule of law and contracts hold and that you don't have to worry about your American trading partners or whatever. But that's where we are right now. I think the market is looking past this for now. And it is confusing for the average person who's either, even if you're in the middle or you're somewhat moderate, I don't know if that exists anymore. You have people that are like freaking out, like, how is the market holding up?

28:22It's going to collapse. He's going to break something. And then you have other people saying, well, yeah, maybe like it'll be rocky and then things are going to be so much better than the other side. We've got AI and productivity. But if you look at like just the analysts and these are non-partisan people, you have this chart three, John, please. There's a chart from facts at S &P 500 buy ratings. It's at the highest level it's been in a couple of years, which is pretty remarkable. We've got consensus expected earnings estimates still at all-time highs, next charge on. Like this, you're sure we had a mini VIX spike and the market wobbled, but wobbled.

29:00We were up 20 % back-to-back years and had a 10 % drawdown. That's it? one of them well one thing well the first slide you know let's not forget that you know all these analysts giving these ratings have a lot of career risk and and all kinds of different interests in mind like you know as you can as you can see there's always most stocks are always you know have a buy rating or most analysts you know give a buy rating so you know it tends to pick up when prices are going down right which is exactly how it's playing out now yeah because for better or For worse, you know, they're going to be anchored into whatever their fundamental analysis is saying in terms of price targets.

29:37So when the price comes down, the buy ratings are going to go up. I mean, that's exactly what happened in, you know, 2022, right? I guess the buy ratings actually came down. John, chart five. But even still, you've got bottom-ups, EPS, actuals, and of course, estimates. They're not incentivized to do this, but like they're still racking it up higher. Estimates have just come down for full year 25 from 12, correct me if I'm wrong, from 12 % to 7 and falling fast. The strategists are getting bearish. Yeah. Well. No, no, no, no, no, no, no. These are bottoms up earnings estimates. 12 to 5 is a lot.

30:1012 to 7 is a lot. You agree? Yes. That's very rapid. And I think that would certainly explain, you know, the pullback in the stock market. I think it perfectly explains it. Yeah. So you have sort of two competing narratives, right? So the expectation of definitely getting a little bit more cautious. But like what this is telling you is it's not, you know, outright disastrous in terms of the expectation. All they're saying is that we went from pretty bullish to a little bit less bullish because we're still expecting earnings growth in 2020. So that's my point. But look, I would say, I mean, all the talk about tariffs is scaring the daylights out of people, right?

30:43I mean, like the – in that I don't think there's anybody else – we cannot separate the signal from the noise on it, right? I mean it's – I'm going to tell you a very, very funny story about my one encounter with New York real estate, which is where I think – but it describes this. So I looked at doing a deal about 20 years ago. It was a complicated deal. I didn't know anything about real estate. And I got introduced by a top New York real estate lawyer to one of the developers in New York. And I went in and presented the deal. And they trashed me for 20 minutes to the point where I got up and walked out.

31:14I'm like, this is crazy. I called the lawyer back. Trashed you? Why? What are you, some little Harvard Business School guy? What are you going to pull out your HP 12C and tell us how to? I mean, it was personally insulting. It was professionally insulting. thing. And I walked out, I called the lawyer. And I said, Larry, excuse my French, but what the F was that? And he said, well, tell me what happened. I told him, he said, wait, those three guys were in the room for 20 minutes. They're dying to do the deal. And I said, I said, Larry, look, it was an idea. I'm not going to do it. I said, just tell them.

31:45Thank you. I want to be polite. Tell them. Thank you. Walk away. I got a call back from three days later. They loved your response. He's like, he's our kind of guy. Now we know he's serious. All right. And I'm like, literally, no, it's not, I'm not negotiating here. I'm not going to do the deal with him. Two weeks later, this went back and forth. Two weeks later, I got a shark in my office. They were calling me the shark because they thought my simply not wanting to do the deal. They couldn't imagine that I was walking away from the deal. Everything was a negotiation. And then he started telling me stories about like people in New York real estate who will invite somebody to lunch and then put their lieutenant two tables away and not show up and see how long the guy stays there.

32:20It's the amount of head games that goes into that world in particular. So the lens through which I look at Trump is it is truly impossible to signal, to try to figure out what's the policy signal underneath it versus what is, I mean, the answer could be you'll include the Melania coin in your sovereign wealth fund. It could be anything. Is the answer to solving the fentanyl crisis. I mean, it's like they're all unrelated. You'll book someone's wedding at the hotel or at the golf course. I think this also speaks to a lot of the analyst estimates too. Like one of the more popular phrases from the Q4 earnings calls and earnings announcements that wrapped up a couple weeks ago was we have not factored tariffs into our earnings guidance.

33:08Oh, well, good luck. So, I mean, yeah. So, I mean, what do you do about it, right? So, like, you know, the current guidance is basically assuming some sort of status quo because you're supposed to take him seriously, not literally. But if stuff actually gets enacted and it starts to affect business, or even if it doesn't get enacted and it starts to affect business, then you're going to start to see it come up in earnings guidance. Here's a note from Ren Mac to that point. Neil and Steve consider the tariff threat as more of a dial than an on-off switch. we expect Trump and the administration to fiddle with that dial well beyond April 2nd.

33:47So basically, it's like an ongoing negotiation that never ends. And this week, it's 25%. And hey, we had a great phone call. Now it's 10. If you're a sell-side analyst trying to come up with estimates for Stellantis, I don't know how you do that. But don't you think the market or don't you think that Trump blinked as a result of the market's reaction? Last week, he said, eh, 10 hours, we'll see. I think that's part of the reality show, though, is the twist. Right, right. I think it's part of the show. So there is so much uncertainty. Like, literally nobody knows. Well, and this is where you get into business planning, right?

34:19Who's going to hire? Who's going to do anything now? Who's going to make long-term investments now when you literally cannot? I mean, it's, I described it to a friend as it's like, you know, you get on a plane coming out of a storm and everyone's like rattled, kind of stumbling off the train because you've been bouncing, I mean, planes, you've been bouncing up and down. It's like, it's nerve-wracking to try to think about anything beyond an incredibly near-term horizon because three months ago, we could not be talking to tariffs at all, as you say. And so I think right now the market is assuming that this is noise.

34:50And that— You really do? Like we're in a 10 % correction right now. That's nothing. The market thinks it's noise. It could be. It's also—it's not just noise, but there's also the possibility that any tariffs that get enacted are very short-lived, right? Well, that's been my base case this whole time is that. If you zoom out and say, is the market super concerned about Trump's policies? And you zoom out, you'd say, no, it's a blip. I'm not saying that it can get there, but right now it's looking past it. Well, that's because— And so is the bond market. And back to the second and third order facts, right?

35:23So, okay, so we throw tariffs on everybody. They're going to throw tariffs back on us. Well, it's already— And then he's going to triple them. Yeah. And they're going to triple them. Like, it's—I mean, it's an insane downward spiral that nobody's thinking about. Back to your point, nobody's saying, like, well, that's likely. So here's how stupid this is. We do tariffs against Europe. What we sell in Europe is software and services and financial shit, and it's like a 50 % profit margin. The stuff Europe sells to us is a 5 % profit margin. They sell us Volkswagens. They're breaking even. They sell us Porsches.

35:58They're not making any money on any of this. A lot of people along the way are making money. That's not the same as selling software at a 50 % margin. Why on earth would we want to upset an apple cart where the stuff we sell around the world, services are so profitable and the stuff being sold here is razor thin profit margins. It just doesn't seem like even if we got the outcome Trump seems to want, it doesn't seem like we win. Oh great, we get to manufacture more things that have a 7 % profit margin and the rest of the world stops buying our software. Who wins in that? It doesn't seem like we win anything.

36:36Is that something I'm saying? I don't think any of the people around him, I think this is one of those issues that has some sort of political driver behind it. I mean, he has surrounded himself with some people who, from what I understand, are believers in tariffs. But I don't think the Elon Musks of the world, the— You think Bassett's a believer in tariffs? I think he has to twist his mind into a pretzel to become a believer. I think he and Lutnick and—well, Lutnick, I'm less sure about it. But I think what the Trump administration is doing now, which they didn't do the first time, is they've unified messaging.

37:09Yeah, they're really good at it. Right? I mean, it's normal to use signal. No, it's not. Right? But it's the adoption of Trump's Roy Cohn approach to everything, which is you don't concede anything and you punch back as hard as you can. This is Ricardo Hausman writing at Project Syndicate. He's an international trade expert at Harvard. U.S.-based companies like Apple, Google, Microsoft, Facebook, NVIDIA, Johnson & Johnson, and Tesla leverage their innovation-based market power to extract rents from consumers and businesses around the world. If these firms were hit with the equivalent of a tariff, they would not be able to pass the cost on to their customers abroad.

37:48After all, they could have raised prices without losing profits. They already would have done so. If we multiply American companies' foreign earnings by 26, which is the average P-E ratio of the S &P 500, the value of U.S. investments abroad can be estimated at$16.4 trillion. By contrast, foreign companies operating the U.S. earned just$347 billion in 2024. So we've built this value on foreign earnings of, if you use a PE ratio, like$16 trillion. Europe is making a few hundred billion. How are we losing in the status quo? It seems like we're not. But I think the market is saying the base case scenario is nothing's going to happen.

38:33There's going to be noise. It's going to always be on the front page of the news. But ultimately, you know, because of what we've seen about it, you're not going to see a Mark Zuckerberg or somebody else stand up and say, I think this is insane. Stop it. It's going to have to be in a way where they, you know, they shift the narrative. They talk about something else and they claim victory. Yeah. Right. There's no there's no and I think that's the problem with the media and the way they approach this is that it's it's like a you know, it's like a 1980s like like like high school flick where like the bully at the end of the day is like, you know, you know, I'm sorry, I shouldn't have been mean to you or like it's not going to happen.

39:09Right. It's not it's there is no concession. There's no moment of concession. There's no acknowledgement. OK. If the media stops talking about tariffs, though, Wall Street analysts won't. So it's more than just immediate – like I get what you're saying. You're saying if everyone just calms down over it, he'll get bored of it. No, no, no. I don't think – he's going to go on his normal path and he's going to – look, and we don't – the second-third of effects may be good for all we know at this point. Like I said, I'm not – I mean it's like what's happened with Europe with defense spending. Yeah.

39:42It's hard to argue that's a bad thing that's happening economically, et cetera, et cetera. So we don't know. We just don't know what the combination – we don't know the motivation of the first order effects. We don't know how the second and third order effects will play out. We don't know how it will be resolved. And I think this is one of those things where there's the known unknowns and the unknown unknowns. I think the market is saying like it seems so destructive to take this to its logical conclusion that's not going to happen. I agree. So I'm going to just say I think the typical person who is not a Wall Street finance person trading shares of GM is perfectly fine with what's happening unless it's directly affecting them, which is not a huge number yet that have really felt the effects of this.

40:24and in the meanwhile, the number one thing that you have to admit about Trump, whether you love him or hate him, he's doing exactly what he said he would do. Today, they arrested the number three guy in MS-13. They ripped him out of the house in Virginia. They put it on TV immediately. They're getting rid of a lot of the regulations that annoyed people. Started with plastic straws and we all laughed. But in the meantime, every day, there's more news about different departments in government where they're cutting regulation. I know everyone doesn't love that. But I think the people that voted for Trump, they love it and they're getting it.

40:59He's really doing it. I think – and I think – look, I think for the Democrats' perspective, right? Are there any left? Well, I mean like for the Democrats' perspective, like pick your battles, right? I mean your battle is not the government was functioning perfectly the way it was before. No one thinks that. But on the other hand, focus on the essential things that we want to preserve to make sure there's not a bad impact on people's lives. focus on the fact that this vilification of every government worker because they made a choice to go work for the government is very very damaging to the social fabric of this country yeah there are people i've been dealing with the government the whole career there are people who are wonderful who work for the government it's just the career path that they chose and there are people who are very very difficult and it's um but in a sense it's the same way that the arrogance of the you you know, kind of sort of Washington geopolitical establishment about free trade and ignored the consequences that it would have to the families, the multigenerational families in an industrial city.

42:02That's the part that Trump is right about. It never was free trade. We called it free trade. In reality, U.S. goods were being tariffed everywhere. So that's the part that he's right about. And I think, you know, again, to bring it back to investing, though, like I think the chaos might be part of the point because of all the attention it gets. But the market is looking past it. I don't know. I think each week we're losing a little bit more ground. And one week, it's going to be a really big move. You might be right. But in times of like heightened uncertainty, I defer to the market. I think the market knows more than any of us collectively.

42:36I mean, obviously, it doesn't mean it's always right. And this could age very poorly. But for now, the market is looking past it. So Morgan Stanley's Andrew Sheets was quoted in the FT this week. And he said, we're mindful of the temptation for equity investors to take comfort from the credit market's resilience. Yet, remember, two of the big issues that have faced stocks were not really credit stories. So then later in the article, they quote Greg Obenshine from Verdad Capital. And Josh has been talking about this, that maybe it's not showing up in credit spreads because really we should be looking to the private credit markets.

43:08But even then, they say, while the private credit markets has experienced rapid growth within the past 10 years, the high yield market is the same size as it was in 2014. Pretty interesting. Furthermore, of the same period, the share of double Bs, which are the highest rated portion of the index, has climbed from 41 % to 51 % of the high yield index, giving credence to what Josh has been saying. It's like, if you're looking there, it's more highly rated than it used to be otherwise. However, even the junkiest of junk, so forget about the double Bs, even the junkiest of junk, we're looking at triple C and lower, remain sanguine over recession risk.

43:40So there was a little bit of a spike, but to call it a spike is a hyperbole because it's still below where it was for almost all of 23 and all of 24. So unless this starts to pick up, I have a hard time being too worried. Sam, this doesn't look like starts to pick up. That's exactly what it looks like. Yeah, I mean, it's like, you know, on one hand… But it was on the floor. On one hand, you have the whole like, you know, it happens slowly and then it happens suddenly kind of thing too. But, you know, don't forget, we also spent the last couple of years is talking about how much credit quality has improved from a lot of these companies we're talking about.

44:13Right, so all of a sudden it's different because of the threat of tariffs? Yeah, no, I mean, like, I think the threat of tariffs or, like, you know, higher costs or lower revenue and all this stuff, you know, might, you know, be a problem when it comes to earnings growth, going from earnings growth to slower growth, or maybe you have some earnings declines. But I'm not sure anyone's, like, saying, well, we're in a situation right now where we're having actual financial distress. Nobody yet. Nobody. Yeah, nobody. Because again, you know, credit quality, cash balances, all this stuff is very high.

44:44Profit margins are near record high. Did credit quality get better? Yes. Or was there just so much money available that nobody could actually default? I mean, what's the difference? The companies themselves probably aren't better. But the Treasury and Fed printed$4 trillion and rained it down on everyone. Margins are at all-time highs across the board of almost every company. Not every company, but across the board. Even when you look at issuers in the junk indices? I don't know about that. Those are never highly profitable companies. But my point is, I'm not dismissing risk. I'm just saying that for now, the market seems to be not super-duper concerned.

45:20And again, maybe it's wrong. Yeah, I mean, if this stuff persists, then yeah, it could probably turn into a problem. Because, I mean, that's another thing that's sort of like, you know, you balance, is this a good or bad thing? That, you know, so many of these companies have shifted toward long-term fixed debt as opposed to a lot of short-term floating rate debt. So it's like this might not affect companies for the next couple of years, but if rates stay where they are or they creep up more, then maybe you'd have a problem, especially if growth goes sideways. Do you worry about like the wall of maturities or like the amount of private credit expansion and how much more important those types of lenders have become relative to the traditional banking sector?

46:00Is that like on your radar as something to worry about or not yet? I would say with respect. So first of all, I think in any area where you throw tons and tons of money people and you give them an incentive to put the money to work, you're going to have people are going to take more risk at lower yields. I mean, a great case study would be to talk to a typical buyer. What was your experience doing a loan today versus five years ago and 10 years ago? And so on the other hand, there's not the contagion risk, right? I mean, private credit funds can lose money, but they're not leveraged. Nobody's calling.

46:32I mean, yes, maybe some of them have a little bit of leverage built into them. But you don't have that. I mean, in a sense, you've actually decentralized a lot of the lending. They're not tied to deposits like at a bank. Short-term deposits. Their money runs. There's no Silicon Valley issue here. So I really don't know the answer to that. I agree. I'd rather Apollo take the risk than Bank of America. And those guys are, again, Apollo, Blackstone, Aries, Sixth Street. These are some of the greatest investors, allocators, like businessmen. And the top six, the top six issuers are responsible for 75 % of all loans in private markets.

47:09So you're already seeing the payment of kind stuff pick up. But you're right. Like Blackstone can probably take these companies through. There is almost infinite money. Now, I know this figure, when it turns, it gets dry very quickly. But for now, I would rather it be in their hands than syndicated all over the place. Well, because I would say I would have said before in the 2010s when you were looking at normal issued bonds. You know, my argument about it was, OK, so, you know, you're you're going to negotiate those bonds and you find out that Apollo owns your bonds. I mean, that's your that's the worst day of your career.

47:44Because they are so tough. OK. Like Apollo, Aries or whatever. It used to be if you're negotiating with a bank, you know, that banks have ongoing business they're worried about, whatever. I mean, these are such hardball negotiators. They always leave the room more than anybody else. So this is that creditor-on-creditor violence we hear so much about. Right. And that's when they're inflicting it on each other. Imagine if you're a normal corporation or a normal corporate board. I mean, it's just so – anyway, look, I think they're responsible stewards of capital. And I think they're aware of the historical precedence of taking on too much leverage and stuff.

48:24I don't see it. I'm not an expert in the overall industry landscape. But I doubt that's going to be a flashpoint. I guess the – but the question is like if there's really so much – Michael might be right when he says that the markets are looking through a tariff-driven recession. because if there really were as much concern as people say they think there is, why is copper making a record high right now? Why is the tenure at 4-3? Why is the tenure at 4-3? Why do we not see spreads blowing out really anywhere? Because there isn't any distress yet. So it might just be it hasn't gone on for long enough.

49:04Might be the right answer to that question. Or we haven't been surprised by, you know, second, third-row effects, the unintended consequences, and all that kind of stuff. Everything, you know, because, you know, like you were saying, that a lot of the stuff that's happening is stuff that Trump has been promising for a really long time. And so, you know, as much as there's volatility in the markets, you know, a lot of companies will tell you that they've already been, you know, setting aside a plan B for, you know, all these different things that could possibly happen. But, you know, none of that stuff will ever capture, you know, So, well, let's say Europe decides that they just hate America now.

49:38And then all the consumers there decide that they're not going to buy American-branded products anymore. Like, okay, then maybe you have bigger problems. I'm not saying that's going to happen. But, you know, it's really disturbing when you watch like a Canadian hockey game and like people are booing the national anthem. It's not great. I'm going to Montreal next week. See you later. The hard gate is not softening yet. I mean, it's not as strong as it was last year. But initial jobless cancer, people have been waiting for that to spike. Maybe it will. It hasn't yet. I mean, Trump has an extraordinary nose for power, right?

50:12And he recognizes that the U.S. is still, and however you think about it, the most powerful nation in the world. You don't want to counterpunch on a trade war. You want to concede what you can concede and slither out of the room as fast as you can to avoid getting into a major escalation. But you said this. He's going to declare victory before anything happens. Well, he already won the trade war. It doesn't matter. Right. But Apple and NVIDIA are two pressure points that the Chinese, if they wanted to, could really push on. Apple is hugely reliant on China, both as a place to sell phones, but also as a place to manufacture.

50:50And, you know, you could see it hasn't happened yet, and it may not happen. I hope it doesn't happen because it's the second largest market cap in the United States of America. But the Chinese are very well aware if the iPhone disappeared tomorrow, there are plenty of Chinese phone makers who would fill that void. And if they really wanted to put the screws to our stock market, pushing on that Apple pressure point is pretty easy thing to do. You don't even have to do it. You could just talk about it. That's one. Two, now they're going – now they're sort of waffling on the NVIDIA relationship with China.

51:27They're saying that all of this AI stuff happening with NVIDIA's chips is not great for the environment. These are hints that they're dropping. NVIDIA and Apple are massive pressure points for the entire global economy and very acutely the United States stock market. And that hasn't really been tested yet. Do we want to know what the NASDAQ does in that scenario? Do we want to guess at what the S &P looks like if that becomes the new theater of the trade war? And I think that's why the market's ignoring it or largely looking past it because they see this. I mean, usually when the market freaks out, it's either something big happens overnight that nobody was expecting.

52:10Deep seek. Or it's three things that converge at once. So last July, it was the bizarre political stuff happening here at this. Because, again, it was like everyone thought Trump was going to win and he was going to face Biden. than overnight Kamala Harris was put in, which everyone thought would be worse than Biden. All of a sudden, she's doing really well in the polls. So all of a sudden - Stock market didn't love that. Animal spirits, stock market didn't love that. At the same time that Powell comes out and talks about weakness in, and you get a number of data points on weakness in the economy.

52:40At the same time, the Bank of Japan comes in and decides to blow up the macro world. And so it's usually convergence of things like that. It's either a shock or it's an in threes thing where the market sits up and says, wait a minute, all of this sounds bad. Right. And it kind of builds on it. Right. And so to me, it would be, you know, it's less likely that there's going to be a like a like visible escalation on the terror front that results in kind of mutually assured destruction on on the economic side. It's more likely that while that's going on, there's a bond market tantrum in the UK that causes something bad to happen there.

53:19And that same week, you know, some bank that nobody's heard about goes under at the same time or like it's going to be it's it's it's usually and then there's a new virus i mean like there's gonna be it's it's always something weird where you're where people don't know how to price it initially um how about a 40 how about a 40 billion dollar ipo that nobody wants to buy just i would do it yeah that would do it would that do the trick i would do it because that's what i think happens tomorrow i don't know by the time people are listening to this i will look like an idiot or i will look like or or i will look like george Soros.

53:49So for right now, it's still a political story, right? Like it's more of a political story than a market story. If you look on who's on the talk show, the political show, it's not markets people yet. That's when you know we're in some shit. When Jim Cramer's on Bill Maher, then it's a market story. For now, it's a political story. They're not calling me yet from like CNN. And that is a thing. There were a couple of days close to whatever the bottom was when we entered that 10 % correction that there was a couple of folks. Yeah, we might get there. Josh might get the call. Yeah, yeah. Don't worry.

54:18Well, stand by. Stand back and stand by. What I always say is— Well, that's another thing too, right? It's like as much as we're going to say that it doesn't look like the market's taking this very seriously. Well, these corrections can happen for over a very long time. Totally. Right? Totally. But there's one— Hold on. What I always say is about that. You never do the first markets in turmoil. So I'll usually— When there's going to be a markets in turmoil special. So this is at 7 o 'clock at night on CNBC when they would normally run like Shark Tank. Like if the Dow is down 1 ,300 points or something, they'll call for a markets and turmoil.

54:52And with good reason. That's when people like actually are paying attention. You got to have something there for them. But you never want to do the first one. You always tell the producer, I'm not free tonight. I'll do if you need me tomorrow night. Because that first day of markets and turmoil could be reversed so fast. And then it's like, I just spent an hour last night like doom scrolling with people. and so you always want to wait until the second or third edition. If you need a crash tomorrow, I'd be more than happy to put a Twitter post up saying I'm not worried about a crash. No, we don't need that.

55:28Yeah, we're good. I just went all in. Bye, bye, bye. We're good. All right, where are we going next? Andrew, you've got some opinions on the ETF market specifically. Let's talk about it with alts. Go ahead. The mic is yours. Well, thank you. Can you define liquid alt for the audience that's not sure what that term means? Sure. So liquid alts was a term, it's a terrible term that came into existence in the early 2010s after the GFC. And basically, the idea was there are alternatives, which means generally it meant things that hedge funds do. So you go, you don't just buy stocks, you also short stocks, you make macro calls, you know, you might go long and short different fixed income instruments.

56:08So kind of the bread and butter of what hedge funds do inside hedge funds. And hedge funds are vehicles that a typical investor cannot get access to unless you meet certain net worth accreditation requirements. And they're kind of a pain in the ass and tax inefficient, all sorts of things. So generally, it's the realm of institutions and time net worth investors. So people came up with this idea after the GFC where a number of these hedge funds did well. And they said, well, these would be great. Let's take them out to the retail world, to the everyman investor. and will take the same kinds of strategies.

56:39They had great three-year numbers because a 60-40 portfolio in 08 looked horrible. And so if you were doing something that deviated from that, you looked better in comparison. And on Wall Street, the number one rule is you sell what people want to buy. Yeah, and you look at 1 ,000 funds and you find the 50 that have done the best. And then that's your benchmark. That's your track record. And so they package them in mutual funds to make them more accessible to people. It's generally been a catastrophe for investors. So since they launched, they've done about 2 % per annum during one of the great bull markets ever.

57:16And that's after about 200 basis points in fees. Yeah. So I'm in a kind of a, you know, I'm in sort of an unusual position. I think that there are some things that hedge funds do that can be very valuable for the typical investor. but I am a hugely critical of the vast majority of stuff that's been created where I don't think there's any real value that they've offered to investors, but they have made a lot of other people rich. Is the problem the mutual fund wrapper itself or is the problem that once a strategy is done really well, whether it's a liquid alt or a hedge fund, the strategy is going to become so crowded that the alpha is not going to be enough to go around?

57:57Which is the bigger issue with liquid alts? Well, I would say one, I would say, honestly, it's both. But the mutual fund wrapper has been a very big problem. And in 2013, I wrote a paper with a professor at Columbia basically saying people are radically underestimating how hard it is to take what hedge funds do and make it work with daily liquidity, all sorts of other constraints. I mean, you couldn't kind of go on this list of things you have to do to make it work. And I described it as taking a great mixed martial artist and asking him to use his feet, basically. It's just not going to work as well.

58:27And we were right. It didn't stop the business from growing to hundreds of billions of dollars because the typical firm in this space has what Ben Johnson at Morningstar calls a spaghetti cannon. They shoot a bunch of crap at the wall and they hope some of it sticks. And whatever sticks, whatever is doing well, they unleash their army on you. And that's the only one you'll hear about. You won't hear about the ones that did badly. And so it's very much of a – it has historically been an area where products are sold because, again, going back to your boiler room analogy, you got a 200 basis point product.

59:00You can pay your salespeople a lot more than going out and selling at 25 basis points. Not only are you paying the brokers more who are selling this to middle America, but also it's giving the brokers an aura of sophistication. Yep. Just being able to talk about it versus having the conversation like, well, what do you do that's different than Vanguard? What do I do? How about private credit, motherfucker? Can I show you? Can I show you? And then, of course, they'll pull out whatever the best track record is and they'll sell that. I mean the average advisor has, I think, two major strategic issues at this time.

59:41One is you're competing with Vanguard. Yeah. It's absolutely bizarre that one of the two largest firms in this industry is a nonprofit. I mean, imagine if Steve Jobs set up Apple as a nonprofit, what that would have done to the tech industry. Your iPhones would be$7. The other is that 6040 stopped working. A lot of the asset management business was built on a peculiar statistical relationship between stocks and bonds in the 2000s and 2010s that has not been working. Wait, what do you mean it hasn't been working? I mean, it didn't work for one year. It didn't work in 2022. It didn't work in 2022.

1:00:172023 and 2024. How didn't it work? Okay, so the - When you say it worked, what do you mean exactly? Providing meaningful diversification benefits relative to equities. Okay, so I start from the assumption that if you want - But those are bull market years. It shouldn't work. Meaning like, bonds are a drag on stocks in 23 and 24. And rightfully so, because stocks did 20 % plus in both years. Well, okay. I would frame it the other way. I would say in the 2000s, 2010s, you literally didn't need anything other than bonds. That's true. Okay. Bonds did 350 basis points more than cash. Sharper ratio 0.9.

1:00:53Volatility of three, right? It was a straight line to the upper right. Negative correlation to equities never went down more than 4%. Yeah. Great decade for bonds. If that was a hedge fund and whatever, all you should have done is in 2000, you should have leveraged up bonds and forgot about everything else. Which is why I did that. And that's why you own this building. That's right. Since then, vols have doubled. The max drawdown has quintupled. And on a real basis, forget about it. Right. And it's underperforming cash, negative sharp ratio. And it now has a correlation to equities. So you're looking specifically at the fixed income piece, whereas Michael and I are always biased toward the equity piece.

1:01:36Right. Because that's the way we think. You start with 100 % equities. Yeah. And then you say, how much do I want to peel off? That's right. To sleep at night. 10, 20, 30. Buffett would say, give me 95 % equities. Give me 95 % S &P 500. I've got 500 people going back to this options discussion. We're going to go to the office every day, try to make me more money. Yeah. But I'll keep 5 % in cash. So I can buy more equities sometime. So I can buy more equities. Right. And then, but the industry was built around a particular mathematical relationship where they said, well, you know, and look, and model portfolios are a phenomenal social good for the average investor because they combat two of our worst weaknesses, which is one is we tend to panic and sell at the bottom.

1:02:18And we focus obsessively on insignificantly small line items and how they did last month, right? So getting people to look at their overall portfolio and map out where what the horizon is going to look like in 10 or 20 years is hugely beneficial to tens of millions of of individual investors. But underpinning it is also is a belief that you can't time the markets, right? You want to remain invested through good times and bad. And since you can't accurately pick whether stocks and bonds are going to do better this year, just keep it at 60-40. And my point is that 60-40 was the right answer for 20 years.

1:02:53It has not been the right answer for this decade. It would be a lot more equities. Because in a sense, if you think about that 40%, Right? The 10-year treasury was yielding 50 basis points in the middle of 2020, 70 basis points by the end of that year. Yeah. Okay. So you were basically going to your clients at a – what no one argued was not the world's craziest bubble over the past 20 years. You're going to your clients and saying we're going to put 40 percent of your assets into something that is sort of the equivalent of March 2000 with equities. And so – A treasury bubble in 2020. I was saying actually the dot-com bubble in 2000.

1:03:33But you're equating like allocating to bonds at 50 basis points in yield. Hmm? Now, a lot of advisors shortened up their duration, and their fixed income allocation is not always the same as a fixed income allocation. So I think a lot of people said I'm getting paid the same for cash. Then I'll just – I'll go to cash. I'll go to money markets. And that was a great move. Getting rid of duration was a great trade. Going to private credit was a great trade. Okay. You know, Cliffwater, Steve Nesbitt, billionaires, basically. He's become a billionaire under the argument that the public bond market is not giving you what it should be giving you.

1:04:10Anyway, my point is when you look at the statistics, if you were to build a portfolio today, it wouldn't be 60-40. And so the problem is going back to this connects to the disaster in liquid alts. And that's what's driving private credit ETFs and everything else. People are saying we've got$10 trillion of ETF assets. of which the entire legitimate hedge fund ETF category is probably$10,$15 billion. If that. If that. What, like a liquid oil that trades in an ETF wrapper? Yeah. I can't even think of more than three of them. Wait, is yours? Would you consider managed futures in that category? Yeah.

1:04:45Yeah. So managed futures is one of the categories. Equity long short is another category. They've gotten certain long short factor stuff like quant trading and other things. But it's not going to be the only solution, right? But the gold rush that you're seeing is, wait a second, that could be a, if even 3%. Right, they always do that. You know, and that's why I look. So we banished an ETF that's about a billion two, right, which you can look at it statistically and measure its benefits relative to a 60-40 portfolio, right? It's not a hard statistical argument to make. But we as an ETF are one basis point of the ETF world.

1:05:21It's crazy. It's a rounding error. Exactly. So it's not – the argument is not get rid of equities, get rid of bonds, et cetera. It's just 40 % is not the right number. 40 % for fixed income. 40 % in something that looks like the Bloomberg Act. Well, listen. Everyone seems to agree on this. So the only – other than on the Boglehead forum, everyone in our industry seems to agree. It's not 60-40. It's 60-20-5555. Exactly. Or it's 60-20-10-10. Yep. And then the argument is, well, what are those extra pieces going to be? And is that tactical in a certain interest rate regime? Do you say it's this? And then you – I mean gold is over 3 ,000.

1:06:04So you're starting to hear a lot of people back to the gold sleeve. Gold, Bitcoin, commodities, things like tactical things like managers, which we do, certain other kinds of hedge funds. People will – private credit. MLPs they used to do. Right. So people will feel, I mean, I think 60-20-20 is probably where most people are going to end up. What's the other 20? Private credit, private equity? All of your smorgasbord of things that you would consider to be non-stocks and bonds. The active ETF industry just hit over a trillion dollars or so. Beltran is tweeting. So people like you and Simplify and Corey and like people are allocating dollars to you guys.

1:06:40Yeah, you guys have broken through. But the – OK, so the active ETF story is an interesting one because active ETFs were a failure at first. Ironically, Cathie Wood was part of the catalyst of putting active ETFs back on the map. But because stock pickers didn't want to do active ETFs because they didn't want to disclose their positions. So they went down this non-transparent ETF route, which nobody bought. She loved disclosing her positions. Loved disclosing her positions. But you're right. Everyone realized, oh, all right, yeah, here's my positions. Who cares? But the vast – there's a trillion dollars.

1:07:17We got Dawson here. Beltrunas just noted that there's now a trillion dollars of what are called active ETFs. A lot of those would have been called passive 10 years ago. It's a – They're active in name only? They're really quant formulas? Yeah, it's a DFA value versus something, screening mechanism. We call those passive, but I can understand why they would be sold as active. Well, because when they were sold as passive, people would say, then why are you more expensive than Vanguard? Yeah, exactly. And so now what happened is active ETFs has become a thing. And it allows them to price the active ETFs at 40 basis points and not get pushback.

1:07:53And now what's happening is across the industry, most of the ETF models originally were passive models. Because, you know, a wealth management platform that had mutual fund models, they never really liked ETFs because they can't make any money on them. So they kind of relegate them and say, well, we can give you, I guess we have to give you an ETF model, but it's going to be passive. It's going to be, I think BlackRock's models are mostly like 12 basis points or something. So like the dirt cheap, super passive, super simple stuff to preserve the moat around the higher margin active stuff. But now you're seeing a convergence, right?

1:08:23So people are going to the same guys as the models and saying, you need to mix it up a little bit. Can we do this Liquid Alts train rack chart? Walk us through what's going on here. So this is data from February 2002 to December 2024. And what you see on the lower right, real estate, a venture event, long-short equity, macro trading, multi-strategy, those are the Morningstar category returns. Yikes. They're almost fully correlated to the S &P 500. So the horizontal line is correlation to the S &P 500, and they cluster around 0.8. Not good. So what's the point? And then the vertical is alpha, negative alpha.

1:09:02Horrible. Don't buy them. How long? Sam, write this down. Wait, for how long? 22 years. But wait, not to defend that, but in a bull market, these things are going to suck. It might work exactly as you want, but nobody wants diversification. Would you pay 200 basis points for that? It's not just they're expensive, they're complicated, they're hard to explain to cost. Anyway. I would pay 200 basis points for that if they take me golfing at winged foot. And they do. Right. So then yes. Right. But that's a different part of the business. I know. I know. I know. I mean, you maybe shouldn't be so reformed.

1:09:39So CTA replication and CTA hedge funds, very distant from those at the other end. Why? So CTA is a strategy where basically – So commodity trading advisors. Commodity trading advisors. It's a regulatory term. What it basically means is people build these models that are effectively next-generation charting. They're looking for breakouts. They're looking for the things that fundamental investors generally consider to be lowbrow. They just work well. And they've worked for 50 years. Now, what they do, though, is that sometimes they're long, sometimes they're short. So over a market cycle, if you look at that, they have no correlation.

1:10:17It's one of the few asset classes you can plug in and say, this really has no correlation to stocks. And by the way, it has no correlation to bonds either. and the horizontal axis is the amount of alpha it generates. So there's a$340 billion business of CTA hedge funds that do this. How much? $340 billion. Did you know it was that big? That's a lot more than I thought it was. Yeah, so the mutual fund side is only$20 billion. Okay. In part because these guys walk in, and they try to convince you to put your clients in something, and they basically are describing a leveraged long, short-term base black box, and they think your client's going to be happy with it.

1:10:48But the point is that even after high hedge fund fees, what that dot shows you, it's one of the few categories you can point to and say generates a lot of alpha. Alpha, look, alpha matters when you're putting together a portfolio. No one is going to give a crap about the alpha generation of a particular investment in a typical retail portfolio, but it is a way of looking at saying where there should be. So when I look at CTA replication, the dot above it, what I basically said is, well, if they can do that after all these hedge fund fees, after all these crazy, what if we could find a way to copy that cheaply, preserve that's where we are in that vertical axis, and just bump it up.

1:11:23And if I can do that in a simple way, I can put it into an ETF. And then I can be the anti-liquid alt by actually giving you diversification benefits in a client-friendly route. And what's the reception to that idea when you sit with wealth management firms? if they are wanting if they want to add things to their portfolios that that will bring diversification benefits if they're in that mode then it's very good i mean we this this is a breakthrough etf so you don't so you don't position that against the s &p 500 you say look i already know you're not i already know you're doing that right you're positioning that against the shitty liquid alts that they've been trying and failing with for 20 years i'm saying that 20 percent bucket that you need to fill.

1:12:06Got it. Look, I'm going to, this is, I hope I don't get excoriated for this, but it wasn't my quote. He said, you are by far the tallest midget in that room. Yeah. We would excoriate you, but we don't know what that means. Would you like to be? All right. No, I love that concept. Let's put this demand for diversifiers chart up. I think this is good too. So by the way, that's the growth. So we got into the Man and Tutors. This was a non-existent space, basically, before we got into it in 2019. and again, Managed Futures ETFs. Managed Futures ETFs. Yeah, yeah. And you're the biggest by far, not to brag.

1:12:39So I think I'm not supposed to talk about specific tickers, but whatever. So you might get excoriated, bro. But so what I wanted to basically do is I wanted to take this, which is valuable to advisors and figure out how to translate it to advisors. Like the value proposition here is not some shiny object you can go to your clients and tell you about how cool this is. It's rather, how does this incrementally help your portfolio? Does it complement what you're already doing? Yeah. And so the space has gone from zero to three billion. Now, what's happened now is that people are realizing that out of that 20%, this is likely to be 3 % of that 20%.

1:13:153 % of the 20 % that's not bonds and stocks. That's not bonds and stocks. Maybe up to 5%. So what's that, Tam? Is that$500 billion? I think this could be$100 billion. $100 billion. $100 billion space. Okay. Now, what's happened is since on the basis of our proving that this could expand beyond its original areas. It's about$3 billion right now. So three basis points in the ETF world. BlackRock just launched one. Invesco just launched one. And Fidelity has one in registration. And what they're going to have to go out and do is now every time you fire up Aladdin and do your asset allocation, guess what?

1:13:51Guess what's going to pop up? And it's not going to be BlackRock's track record in it. It's going to be the dot that you just saw about the overall space and its diversification benefits. Got it. In the same way that after they did IBIT, all of a sudden, oh, maybe we should have Bitcoin as an asset allocation thing. So the point is that my goal is not to compete with that$340 billion of hedge funds. It's rather to try to find a way to make this useful and valuable to advisors who are trying to find a way to help their clients grow their assets and sleep at night, basically. But message it in a way because – like I describe this as the kale of asset allocation.

1:14:33You know what's good for you, right? And it could save you at some later date if you were going to have some nasty cancer come along. It's just not that pleasant at the time. You know, it's not – it's – Yeah, you're not going to – right. That strategy – It's not your tequila. That strategy in 2024 is not going to be the thing that your clients are thrilled that they own. Yeah, low correlation, low fees are great when the S &P is in a 10 % correction. Or even flat. In a 15-year bull market, it's tough. Yeah, I mean, the overall space is up 20 % in 2022. All right, guys, are private credit ETFs a bad idea?

1:15:06What do we think? PRIV got out somehow? Somehow. Did it get out? It's out. It's out. It's in the world. Yeah. All right. I get the idea why should only rich people have access to private credit, blah, blah, blah. They say this about everything. There's truth to that. I think regular people want to have the opportunity to invest in something that – I don't know. What is the compounding at? 12 % CAGR for the last 5, 10 years? It's been a great investment. It's been a great investment. So why – okay. So I like the concept behind it. the execution is you have companies that are willing to stand and buy any any and all redemptions so if somebody wants to sell the etf they can even though the assets are illiquid there is a buyer who is under contract to take that asset to provide that liquidity is that how that works i don't think that's i don't think so how does it work so there so a couple things one is you can get access to private credit you can get access through a mutual fund that's that's you know a 100 basis point mutual fund that Clipwater has.

1:16:09It's$25 billion. The thing is a straight line. Straight line meaning it's gone up and up and up? Up and up and up. It never goes down. Probably because they get to say what it's worth. Exactly. Go on. One of the great appeals of private credit is the returns are fake. Right. It's like your house. I love it. So it's like private equity. It's like – and people aren't pulling the wool over people's eyes. I mean it's like you know if you don't really mark something to market. So there are ways – the issue is in an ETF. So why in an ETF? In an ETF, because there's$10 trillion of money that's sitting in ETFs.

1:16:42That will only buy an ETF. Will only buy ETFs. Yeah, I agree. And that's going to go to$20 billion or something, or$20 trillion or something. So what they're trying to do is jam illiquid assets. Now, PRIV is controversial, not just because the SEC kind of said, don't do it. But it's also controversial because it's State Street plus Apollo, except Apollo's not the PM. Apollo's job is to source private loans, basically. Okay. And sell them to State Street, who's the PM of this ETF. Okay. And - Why is that bad? Well, because - Somebody has to do it. State Street's not set up to do that. Usually if your name is on the fund, you have a fiduciary duty to the investors.

1:17:25Again, the way I read it - Oh, Apollo can sell its bags to State Street's ETF buyers. That's the way I read it. But again, I'm not – OK. That's the controversy. But it's also – but in order to get – there are strict limitations on how many illiquid assets you have. This show brought to you by Apollo. I'm sorry. I meant to do that earlier. OK.

1:17:50So in order to bump the amount that they can have in private assets, it's only up to 35 percent of this is going to be private assets. The whole fund is not actually in illiquid assets. Right. And originally, I think they were going to call it the private credit. And then the SEC said you had to put public in there. So the – but what Apollo has said is, look, we'll make markets in these loans that we originated. That's what I was trying to explain. And in theory, that's fine on a normal Tuesday if you had to sell it and they were going to make a market for it. The problem is not that. It's March 20th, 2020.

1:18:21Everybody wants out. Everybody wants out. And there's one firm that knows how to price all these things. and they are the greatest distressed investors in the history of mankind. Yeah. And so I've used the analogy. It's like, it's so weird. Some of the structural decisions they made, it's like basically saying, don't worry, don't worry. I know all our money is tied up in this house, but our local vulture investors promised to buy it in the middle of a hurricane. Yeah. Like it doesn't, it's so weird. But also if I sell the triple Qs in a panic, right? Picture this, market's panicking, Sam's my client, Sam Cole says, get me out of the triple Qs, whatever.

1:18:57If I sell them, I roughly know what I'm selling and at what price. Like I could look at Apple, NVIDIA, Microsoft. Like I know the stocks that are big in there. I know the price I'm selling it at. All right? We all agree? Right. With this, get me out of P-R-I-V. I mean, A, you don't know what you're selling. B, you definitely don't have a way to look up what the price should be. And that's the – I guess that's like – that's the part of the asset class. You'll sell it at a discount to NAV. That's not even a horrible thing to me. If you want liquidity, that's the price. You have closed-end funds that – I mean, actually, a mutual fund is at greater risk of having this illiquidity unwind because you go to the mutual fund and say, I need cash tomorrow.

1:19:38With an ETF, you're selling it into the market. So the great example in this is people have always looked at ETFs with private assets, assuming that the ETF has to sell the assets to meet redemptions. It's not the way they work. They just trade in the market. The case study on it was the Greek ETFs in 2011. Okay, the Greek market actually shut down in the middle of the euro crisis. Remember this? It was GREK. It was my first year at Business Insider. I remember you writing about the European debt crisis. There was nothing else to write about. That's all we did. Yeah. Okay, so what happened? The ETF kept trading.

1:20:10It just traded a discount to the stale MAV. G-R-E-K? Yes. It was? You remember it? Yep. How old were you? 16. 16.

1:20:22But it's not disastrous. You sell it at below NAV. It's the weird ways in which they've tried to jerry-rig this in a way that State Street has tried to jerry-rig. To me, they look like the patsy. So people like you that get mark-to-market every day hate private credit. Hate. Yes. You just said the returns are fake. Let me play devil's advocate. If you are making a loan to a company that is private, and you're going to loan the money, they're going to pay you interest, they're going to pay you back, why does that need to be marked every day? It doesn't. No, no, no. I should clarify. The volatility is fake.

1:20:56The lack of volatility is a mirage. But that's the point. Okay. That's what investors are paying for. Exactly. Yeah. But now you have an ETF that trades every day? Yeah. Where the NAV doesn't move, but your price moves every day? Yeah. Oh, I get why Cliff – I get why Cliff is pissed off. I totally get it. I'm just saying from the investor's point of view, good lie to me. I don't care. I don't want to see the market. I used to get called by journalists about private, in 2022, private equity firms didn't mark down their portfolios very much relative to what happens in the markets. Because generally, they're leveraged long equity.

1:21:28So equity markets go down 20, 25. You know, they should be down 30 or 40, something like that. But they mark it down 10, right? And journalists were up in arms. And they called me and they're like, you know, they're deceiving their investors. So I called some guys who run PE firms. And I said, guys, how do you feel about this? And they said, honestly, we don't really care, right? It doesn't really matter to us whether we're marking down 10 or not. He said, but nobody's pulling the wool over our clients' eyes. If we mark it down, if we're co-invested with Apollo, with KKR, with somebody else, and we mark it down more than they do, and our clients invest with us and not with them, they'll call us and yell at us.

1:22:02And if we don't mark it up in the same way they do, they'll call us and yell at us. We're all in on it. We're all in on it. I said, the only people who care about this are journalists. Right, right. By the way, and in 23 and 24, the PE funds did not like have banner years. So yes, they may be under marked down in 22. It's not like they were up 20. They didn't match the S &P in 23 and 24. And all these journalists, by the way, got their starts during the financial crisis where everything— The FT hates them. All the controversy— About CDS. Yeah, CDS and, you know, Mark— I mean, it's literally mark-to-market was a huge issue back then.

1:22:40Accounting standards were constantly changing, and it turns out that arguably changes to accounting standards helped stabilize the market back then. But Andrew, you're 100 % right. Investors don't want to see the marks. That's why they're in the asset class. Only if the marks are going up. But if you run a mutual fund company, you're in the asset-gathering business. The thing that makes it easy to gather assets is when you look good relative to either your peers or the market or both. The thing that makes it hard to gather assets is when you look much worse. So there you are going about your business.

1:23:14Market has a great quarter. You look really good. Market has a terrible quarter. Maybe you look a little bit better or a little bit worse. And that's the life that you have like signed on for in that business. And then you see these other guys. In 2022, NASDAQ falls 30%, S &P falls 20%, Treasury is down 16, 17. These guys are down 5%. Yeah, it feels unfair. Well, they're going to raise a lot of money. Now, a quarter later on a lag, they may mark that down, but it doesn't matter. Money's already been raised. And so I think they look at it. Cliff Astin calls it volatility laundering. I call it regulatory arbitrage, which is what I think it actually is.

1:23:57But either way, it's got to piss you off. It feels unfair. It feels like it's bullshit. It's not fair. I get marked every day and they're f***ing lying. I get it. I'd be pissed too. Right. I have a ticker. Yeah. And they don't. Yeah. It's not fair. All right. So. It's not fair. All right. So we stop. No, no. I'm not saying. But you're saying they're not lying about the marks. It's just a different business. That Cliffwater fund that I told you about, it's done 13 % a year for the past since it launched or something. That's real money. Everybody's happy. Everybody's happy. That's right. Except for Cliff.

1:24:26Except for Cliff. But I think that, again, I think there's a difference between – I think what's weird about this ETF in particular is the ways in which they've bent over backwards to kind of position them in a segment of the market that's clearly very, very hot. But just as an investor looking at it, it seems weird. It's weird. It's a built-in conflict is the easiest way to understand it. Yeah, I called it like a moral hazard tied up with a bow. Like it's just – How much money has this thing taken in so far? It's$55 million. It just launched. All right. Is it going to have bad returns or is there blow-up risk?

1:25:04Like what do you see as the potential downside? I mean, well, first of all, it's mostly going to be normal bonds. I think that – I think just the question is do people – I'm sure they'll do well. Like State Street as an organization – Asset-wise. Asset-wise. They're going to throw a lot of weight behind it. I'm sure they control model portfolios. The first – look, give them credit for being first. Wait, will it get to a billion in a year? I don't think so. I don't know. I don't know. Again, it's - That's a bold call, Andrew. Well, look, the ETF space, like I've come out and said and called certain things out there niche products and people view it as an insult.

1:25:38JEPI from Morgan Stanley, from JP Morgan is a niche product at 40 billion. JEPQ is a niche product with another 17 billion. If you talk to somebody working in JP Morgan asset management, they will tell you JEPI is a huge home run. It is. It's the largest active ETF in the world. It's 35 basis points. right so so so chew on that for a second right they started with this thing being 35 basis points but i'm saying it's not going to supplant the s &p 500 it's actually people are viewing it as it's maybe looks feels a little more like that bond portfolio the traditional bond portfolio that isn't working in the same way i mean it's it's i am all in favor of financial innovation right i am all in favor of bringing and there's a lot going out there particularly the etf world which is like wild west stuff that we're going to look back on in five years and think why the hell did people do that stuff?

1:26:22You know, the X leveraged ETFs and single stock ETFs and stuff like that. Well, we know why they did it. That's the spaghetti cannon. You don't know which of those is going to work. Those are here to stay. Those are not going away. But people buy them, right? It's meeting some strange investor need out there. No, gambler need, gambler need. Fine. I mean, that's, but that's a need, right? I mean, you know, putting the sugar in the tequila. It's like, I mean, it's, I mean, if you need it. You know what? But those products have no marketing budget because Schwab and Vanguard don't make them. Shit sells itself.

1:26:56The shit sells itself. There are people using it, and they have their own reasons, and it's none of our business. It's bottled lightning, right? And you got five of them. And it's sort of a funny story. I took Matt Tuttle to lunch about a year ago, and it was before he hit the inflection point. And I was like, let me pay, whatever. I'll pay for lunch. should be magnanimous, whatever. Two months later, I was like, he has$4 billion? Yeah. I mean, look, he's an aggressive entrepreneur who has a great nose for sensing out the demands of a particular segment of the market, and he's going to build stuff for that.

1:27:34I don't think there's anything inherently wrong in that. Would I buy the products myself? No. Do I look at a lot of products out there that when you kind of get underneath the hood, do I think they're economically irrational? Yes. But I can make those decisions. But again, going back to the private credit thing, again, I don't think it's pulling the wool over people's eyes. It's what people want to see. The weirdness is going to be that the first private – like I would be more comfortable. There's actually a – the FT had an article this morning about a 33-act fund that's going to try to have 80 % of it in private assets from a bond box.

1:28:13And they basically say up front – and by the way, we may stop redemptions, right? or you may not be able to get your money out. But again, that's like a private wreath. That's like all these other things. So in a sense, you're taking these things and just making them tradable in a different way. So anyway, it's... Try it. I'm just not looking forward to the moment where my friend from college is going to text me and say, hey, this private credit thing that I've been reading about in the journal, I heard I can buy it now. Should I? Yeah, yeah, should I? I think like... Yeah, I mean, exactly. Exactly.

1:28:46That's what I've been ignoring this entire time. You must be torn. I wanted to ask you this. You must be somewhat torn, though, because some of the best market research is now coming from private equity and private credit firms. I know you're a big Torsten Slott guy. He's writing at Apollo. Have you noticed a lot of the other strategists that you frequently read and quote? They're all going to private equity now. Yeah. I mean, you know, so I used to work at Yahoo Finance, which is Apollo owned or operated. Yeah, that's right. And so every day, a newsletter, somewhat somebody's newsletter or something goes out where there's an ad for Apollo on it.

1:29:19Someone sends me a screen grab and says, hey, look at this. They're advertising. I mean, they're doing it. They're doing it. It is not slowing down. Yeah. I mean, you know, I think Torsten Slok's really good. He's got really interesting charts and stuff. And then every once in a while, he'll put out the private, you know, credit. Right. And you're like, wait, hold on a second. What's going on? Well, that's kind of the job. Yeah. Oh, yeah. No matter where you work. Exactly. That's all of our jobs. All right. Guys, did you have fun on the show today? The vest. Yes. Thank you. I could do this for hours.

1:29:46I don't know if our listeners can, though. So we're going to leave it there. We always end the show these days by asking people what they are most looking forward to. And you could tell me professionally, personally, sexually. I almost don't even care at this point. I'll let Sam go first. I want to. Sam, what are you most looking forward to? I'm going on vacation tomorrow. I knew you were going to pick option three. Same more. Yeah, I'm flying out to Aruba. Aruba's sick. Yeah. Meeting up with some old college friends. Awesome. Which is great. That's great. How many nights are you going away for?

1:30:22Four nights. Dude, you could do your thing mostly from there, too. Yeah. Technically, if you needed to. More or less, yeah, yeah. I've already sort of pre-written my stuff that's on Sunday. But yeah, I'm actually looking forward to unfolding it. Good for you. Good for you, man. Happy for you. What do you got for us? What are you looking forward to? It's embarrassing. Legos. Okay. I want to hear it. Say more. I got a three-and-a-half-year-old in my second marriage. Two daughters. They're 130. Wait, are you my age? I'm 58 or 57. Holy shit. You're 10 years older than me. Wait a minute. And you have a three-year-old?

1:30:53I have a three-and-a-half-year-old. So what's it like when you're in the dugout at T-Ball and the other dad coaches are hanging around? I haven't gotten there yet. I've been a boy. That's going to be fun. It's an everyday reminder of the joys and wonder and amaze life. Hell yeah. And it's also around that I'm older, you know. But anyway, he loves Legos. And when I'm in the city, I get to raid the Lego store. So you go to the Lego store in 30 Rock? Where is it? Yeah, it's right over there. It's right on Fifth Avenue. That store is magnificent. It's magnificent. Okay. Does he have a specific genre of thing he likes to build?

1:31:27Or is he too young? Entirely automotive and preferably construction. Automotive and construction. Yeah. That's so cool. Congratulations, dude. And Legos are cool. When I was young, I love when I was doing – I mean, when I was young, I did Legos. but they're all just blocks, right? And you'd make stuff with it. The sets are so cool today and the instructions are really cool. It's also one of the only things that you do without a screen. Yeah. Like there's no screen. I like the zoning out part. I love it. Also where like you have a mission, it's on paper. It's great. It's like a folded thing and like two hours could go by for me four hours because I'm not good at it.

1:31:59But like I love that that like turning your brain off and just completing a side quest. I think that's like mentally healthy. You can see the progress. You can stop. We're raising this boy in the 19th century. So this is about as exciting as his life gets. Dude, that's amazing. Congratulations. Thank you. Michael, what are you looking forward to? We're celebrating your birthday for a fourth or fifth time tonight. That's pretty cool. I'm excited to go to dinner. All right. We're going to Emmy Squared. There's a new one in Hell's Kitchen, apparently. We love the pizza place. And burgers. Pizza and burgers.

1:32:32We're big fans. So I have a nutritionist now. and I got to give her the heads up when I'm going to go do something like that. So Josh has been talking about his air quote nutritionist. Hang on. For the last like two months. Apparently it's a real person. I thought he was f***ing around. No. Yeah. Can I make things up? I did. I thought you made it up. This person exists. So I start showing her the Instagram for Emmy squared and she's like, oh my God, now I want to go. So it's Detroit style pizza and I'm a New York style pizza party. It's so good. It's so goddamn good. So we're going to Glengarry Glen Ross tonight.

1:33:07Oh, nice. And right across the street from the theater on Broadway is Emmy Square at Hell's Kitchen. So I was like, yeah, we have to do that. Do you watch Daredevil? No. Should I? I thought you would. I like it. I watch a lot of shows. It's fun. Not that one. Is there a new Daredevil show? One again. It's very good. Okay. So the last one is... Oh, yeah. They brought everybody back from the Netflix series. Wait, you watch it? Yeah. Dude, it's awesome. It's not as good as the first one, but it's eight years old the movie it's awesome it is I like it no the first one was better I liked the first one better that was 2017 it's a long time ago yeah I had Daredevil 100 I had Daredevil 1 through 186 okay I have a lot of those but I don't have the whole lot and look I was like I was born in New York I had glasses and I had red hair so it's like I had to like Matt Murdock what was your store you go to Midtown I went to the one on was it 51st all the way on the on the east side on Lexington no there was one it was almost like between 1st and 2nd Sutton Place.

1:34:05Something. It was, I forget, it was far over there. Okay. And then the first movie came out with Ben Affleck. I was like, you ruined the value of my collection. It's the worst. It's the worst I've ever seen. It's not bad. They took the Netflix actors and moved them over with only slight changes. Josh is right. It's not as good, but it's awesome for me. I'm enjoying it. I have a good time. Yeah, no, I think it's fine. I think it's fine. And actually, if the first version never existed, you would love this. True. There's some MCU threads that I'm a big fan of and some that I just can't keep up with.

1:34:33But I remember, I don't know if you saw Hawkeye. Yeah. It was like a Christmas special. It was a Christmas thing. Yeah. And then at the very end, like the epilogue after the credits had Kingpin walking in in the background. So I like when stuff like that happens, but then they didn't do anything with it. Yeah. Maybe this is, is this it? Oh, dude, how about this? They had Jon Bernthal playing the Punisher and somehow didn't make a movie out of it. But Jon Bernthal is in The Accountant 2, by the way. so that's why you have to catch up on that. Big Bernthal guy. All right. Guys, this has been amazing.

1:35:07I want to say thanks to the crew. Duncan, John, Nicole, Rob, Graham, Keith, Travis, Daniel. How'd I do? Sean, Charkid, Matt? Pretty good. Wow. It's crazy. You guys killed it this week. Views are through the roof. Until this episode, we'll say. No, I'm just kidding. All right. Guys, we love you so much. I want to tell people how they could follow you, how they could find your stuff. Sam, Let's tell everybody how they could find the ticker. Yeah. And they should be subscribed immediately, in my opinion. Yeah, it's ticker.co. T-K-E-R.co. Very easy to find. Very easy to find. Sign up for a free subscription.

1:35:44Shoot me a note. Say you listen to the compound. I'll send you some free notes. How many notes are you publishing each week? Yeah, somewhere between two and four. Every Sunday, a free one goes out. Josh is at Maga Josh on Truth Social. Yeah, find me on Truth Social. The real Maga Josh. Josh, the Derofman. That's right. Mr. Beer, tell us where we can learn more and follow your thoughts. Well, our company website, if you're interested in what we do, is www.dbi.co. Take care of DBMF. I could say it. You can't. I cannot say it. DBI.co. Oh, just like him. Yeah. Okay. That's the future, man. The commentary they do, I am on a sabbatical from Twitter for my sanity.

1:36:27Me too. You know what will be five years for me in May? Okay. God bless you. Yeah. I deleted the app from my phone five years. Did they give you a little medallion points? I sent four tweets this year. Yeah, I couldn't take it anymore. So anyway, I'm on LinkedIn. If you look me up, please reach out. I respond to everybody. And anybody who reached out for me, I respond. Yeah. LinkedIn is where non-sociopaths spend their time. And it has its own problems. You know what happened with me on Twitter was that for some reason on my feed, I started to see industrial accidents. Yeah. And it was just macabre.

1:37:01macabre and I just like I was like it was nauseating they keep showing it to you because you keep watching it all right guys that's it we're gonna wrap up special thanks to our listeners and viewers we love you see you next time thank you guys was that fun was that fun yeah man