How Not to Invest With Barry Ritholtz, Dip Buyers Winning, Coreweave

30:49They said instead of – they looked at like 2 ,000 managers over 20 years and hundreds of thousands of transactions. And they said anytime a manager sells a stock, instead we want to run the simulation where we're not selling that stock but randomly selling any other holding they have. And the outperformance was hundreds of basis points. Oh, my god. They're randomly selling a holding versus, no, no, we should sell this. And the explanation was pretty simple. They're selling the winners? No, they're selling things emotionally. Either they're selling the winners. Oh, they're selling big losers. They're selling winners that have gone up, or they're selling things that have just come down a little bit.

31:37Conversely, once something drops a certain amount, they hold it till grim death rather than admit the loss. So they sell the winners when there's still a ton of upside. or they sell the winners when they've faltered 10, 15%. And it's just normal volatility. So let's leave people with a couple of the absolute worst things you could do as an investor. And then of course, we want them to get the book for themselves and learn a lot more, but let's give people a couple of nuggets. So some of the big things are pretty obvious, not having a financial plan, which will determine how much risk you take, what your allocation looks like.

32:17You know, the idea that we just want more money for the sake of more money is a bad strategy. Think of the hedge - Right, so you ask somebody like, what are you doing with your money? I'm investing it. Okay, why are you investing it? Why, why? So that it's more. Well, what, like more to do what? I don't know. That's not good. So how do you determine how much risk you want to take in order to achieve your goals? How much more you need. You know, the guy who blew up that hedge fund a couple of years ago, it was all about more. I'm trying to forget the guy's name. Bill Wang. Wang, that's right. And he just recently got, you know, lost an appeal.

32:57Now there's other indictments coming along. And it's like his whole purpose was more for the sake of more. It turns out that, you know, money is a tool. And you don't just keep buying hammers and lining the rows of your garage with hammers. you get the tools you need and you deploy them towards a purpose. If your purpose is philanthropy, generational wealth transfer, retirement, maybe you have a couple of little ones in the house and you want to max out their 529, you are investing so you could pay for college. You're investing towards a purpose. And that purpose not only puts a time horizon on it, but that determines how much risk you embrace.

33:36So that's mistake number one. Mistake number two is straight out of the Dunning-Kruger playbook, which is imagining your skills are much higher than they really are. It's not just that it's hard to pick stocks. It's hard to pick stocks and most people aren't good at it. It's not just that it's so difficult to market time for a variety of reasons that you and me and Ben and Michael and Nick have talked about the clusters of big down days and big up days together and how frequently if you miss a big down day, you also frequently miss a big up day. But how challenging it is to do. One of the other numbers in the book that blew my mind is that when people, and by people, it's mostly middle-aged men, but when people panic out of the market, 31 % of them never go back to equities.

34:32Stop and think about how devastating that is. The market's not for me. Right. And it's like, wait, so what are you going to do when you retire? Or it's the one that we do. It's rigged. You and I used to hear this. So for people that don't know, Barry and I started working together in 2010. And we spent the first two or three years talking to people who had reached out to us. These were successful, educated, intelligent, normal people. But a lot of them were just carrying this baggage of the market's rigged. And they would call us almost like a challenge. You can't convince me that I should ever be invested again.

35:12Now, of course, that's at Dow 1 ,000. And excuse me, Dow 7 ,000, 8 ,000, 9 ,000. It's at S &P 1 ,000. Here we are at S &P 6 ,000, NASDAQ 20 ,000, Dow 45 ,000. But we would have these like almost – they almost verged into like late-night college dorm room sessions, like the philosophy of like why are we here? And you still like – we could not get through to everyone. Yes, you should trust the markets. Yes, you should start to invest again. I know 2008 was hard. So people have trouble with that. Let me interrupt you one second before you follow up. You had the best line ever about this to people, which was, yes, of course it's rigged.

36:02It's always been rigged. Now that you know that, don't you think it's time to stop playing their game and start playing your own? We know it's rigged. So here's what you're going to do. You're not going to play these games. You're going to own a broadly diversified portfolio. The core of it will be a low-cost index, and you'll let the market compound over you. You go into their – it's called home court advantage for a reason. You go into their field. You play their game and their rules. Of course it's rigged. You're totally going to lose. Don't play their game. And every now and then someone would like, oh, that makes sense.

36:36But it was an uphill battle. It's like when people – it's like some short sellers, they'll – a position goes against them and they'll say, well, it's rigged. You're right. Right. It's everyone else is on the other side of the boat working against you. The executives want the stock higher. The board wants it higher. The investors want it higher. America wants it higher. All the pension funds and mutual funds that own it want it higher. It is rigged. One of the stories that I used to tell in response to it's rigged, literally the buttonwood tree on Wall Street, like before there was a building, The original New York Stock Exchange was a bunch of son of a bitches in knee-high satin socks robbing each other.

37:25It's just – it's the nature. Next to the wall that kept the sheep away because it was literally a pasture. They kicked out the people that wouldn't agree that they would only deal in securities with each other. It started as a cabal. Right, right. All right. But that's a good point, though. People that liquidate portfolios or swing to cash or whatever, they're very unlikely to ever look back at the market, higher or lower, and say, and now I'm going back. Right. Barry Redholtz, I'm so excited that your new book is finally here. You've been telling us it was coming. You've been prophesying it. And I guess my only question is, when is the follow-up?

38:14Is that 15 years from now? I don't know. This is going to keep people tidied over. You know, I partially blame Michael Batnick for the book because every time I'm telling a story that he heard before, I literally hear his eyes roll in his head. I'm like, you know what? I'm going to put this down on paper so I don't have to watch him roll his eyes. Let me gather a few more stories, and when I have enough to fill up another 300 or 400 pages, that'll be the next book. All right, guys, get How Not to Invest by Barry Ritholtz at bookstores near you, at Amazon, anywhere books are sold. And I promise by the time you have gotten through the first or second chapter, you're going to start to say, why didn't I think of that or why didn't anyone ever tell me that?

39:02And those are the two reactions that I had. And I've been in the business for 25 years. So thank you so much for joining us today. And thanks so much to you guys for listening and for watching.

39:32What up, gangsters, gangstarettes? I'm checking the chat. We are, we're going. It's going to be a big one, Michael. What do you think? It's going to be huge. So huge. We have two first-time live chatters that I can see. Michael Graham is here. First-time live, long-time watcher. Let's get after it tonight. You got it, dude. Also, Chet Flanagan. Long-time listener, big-time fan. First-time wilding out in the chat. I love that name, Chet Flanagan. That slaps. That's a great name. That does, right? Mm-hmm. All right. Jackie Sosa. Not to belabor the point about Chet, but it sounds like a fake name from Wedding Crashers.

40:12It could be. We appreciate his availability. Either way. Sure do. Who did I just say? Jackie Sosa's here. Chris Hayes. Mini Dev. Matt Wide or Weed. You never know with those EI names, right? Is it I before A? Room is in the house. Andrew Buehler, Brian Grill is here. Joe Altamoro. All the gangsters are out. All right, guys, we have a packed show. Before we get into it, I want to tell you about tonight's sponsor, Betterment Advisor Solutions. Michael? Today's show is brought to you by our sponsors at Betterment Advisor Solutions. Imagining a better future, that's the first step. Investing in that future with Betterment Advisor Solutions is the next step.

41:01Whether you're launching your own practice, looking to streamline client onboarding, or just searching for efficient ways to scale your firm, Betterment Advisor Solutions is here to help. That's right, Josh, because they automate to make tax optimization simpler. They provide support to make administrative tasks easier. At Betterment Advisor Solutions, they are building innovative technology for anyone who's ever said, I think I can do better. So grow your RIA your way with Betterment Advisor Solutions. Learn more at betterment.com slash advisors. Investing involves risk. Performance not guaranteed.

41:35Josh, let's get to the show. Dude, we crushed that one. All right. So I was gonna, yeah, I guess let's do it this way. We have a couple of big IPOs coming and we've talked about Klarna on the show before. And that's one of these gigantic buy now, pay later companies. A firm is currently public. PayPal is in that business. One of the other large ones, Afterpay, has been acquired by Block. So I guess technically that's public. And then the last big one still out there is Klarna, which is, I think, from Denmark. No, no, no. Wait. I think I have it right. Is it? Okay. Okay. It's definitely Scandinavian.

42:21It's definitely Nordic. Is that the same thing? So what's cool about Klarna is they were one of the first large startups to come out and say, AI is real, and here's what we're doing with it, and here's how many hires it stopped us from having to make, and here's how much money we're saving. So I wouldn't go so far as to say it's an AI play, but people that are super interested in AI are going to be paying attention to that. But tonight, we're going to talk about another AI-related IPO, and that is CoreWeave. And this one looks like, unless we get a surprise like SpaceX or Starlink IPO, it looks like this is going to be the biggest one of the year.

43:06I want to set the stage first about what we're talking about, and then we'll get into some of the details. But CoreWeave is basically a company that is built out. I think they have 24 massive data centers around the world, and they are like infrastructure as a service. So effectively, they're competing with some of the hyperscalers who have their own data centers, but then they're also kind of going after parts of the market that maybe would be doing something very specific at a core weave data center. But like they accumulated a quarter million GPUs. They raised tons of money, which we're going to talk about in a minute.

43:48And they are open for business. And it's really not that old a company. They started in 2017 as a very different kind of company and then pivoted. They did$1.9 billion in revenue last year, Michael, with about a$900 million loss. So I guess they make it up in volume. negative 6 billion in free cash flow, not great. And 77 % of last year's revenue came from the top two customers. Most of that is coming from Microsoft. Microsoft is 62 % of CoreWeave's revenue last year. So there's a whole bunch of stuff on this that's a little bit red flaggy, But just on the surface, what do you think about CoreWeave being kind of like a heat check on investor appetite for the AI theme?

44:41I'm so glad you went there because I was going to say the financials are – I'm like less concerned about that. There's been plenty of successful companies that were burning hemorrhaging cash early in their careers. The thing that worries me is their guidance last year was way ahead of what they actually delivered by like two times as much. So interesting thing with this company is they're going to be the fastest growing company on the top line to IPO in a couple of years. Also, the most heavily indebted company. I think it's like five times EBITDA or something like that. But as far as you nailed it, like the market's reaction to this IPO, I think is going to be very important.

45:20The growth is real. They had 770 % revenue growth from 2023 into 2024. like that's astonishing yeah but unlikely to be repeated yeah so i don't know what the forward looking expectation is for growth i doubt the company has gone you know crazy with like hyper specific forecasts so they brought it down and then there's people that are speculating it's like listen this might just they just might be for show they might be lowering expectations so they could raise so they could beat him all right let me show you some shit number one this is not what you want to see right before an IPO. This is the Financial Times shortly after the company dropped its S1 filing.

46:05So the S1 is what a company files with the SEC stating their intention of going public and raising money and laying out like 100 pages worth of risk factors. Very common. And they'll throw every potential risk under the sun into this S1, not to scare people, but to cover their own asses. It doesn't mean that they actually think all the things that they list could go wrong. They're just acknowledging that it's possible. So, you know, but there are a lot of risk factors, even for something that's prone to have a lot of risk factors. There are a lot in this particular S1 that I think we have to get into.

46:43So what bothers you the most? Well, here's what that FT article says. Put that back up. Microsoft drops some core weave services ahead of$35 billion IPO. AI data center provider dealt blow by biggest client as it readies for Blockbuster listings. So I told you Microsoft was 62 % of their revenue last year. Here's a little bit of detail. Chart off. Microsoft has walked away from some of its commitments with cloud computing provider CoreWeave in a significant blow to a company seeking to launch a Blockbuster$35 billion IPO next month. CoreWeave provides Microsoft with computing capacity from data centers, which the tech giant uses to scale up powerful AI models such as ChatGPT.

47:30The partnership is worth billions to CoreWeave. However, Microsoft has withdrawn from some of its agreements over delivery issues and missed deadlines according to people with knowledge of the matter. That's not great. They're still working with CoreWeave, but like just the fact that that's dropping a month before the IPO is like really not great. When does it go in public? Like any minute. Okay. So - Like they're going to price this in the next week or two is the last thing I heard. Could be very wrong. I would say that this is going to go nuts. And the reason why I say that is because this is as pure a play as you're going to get in the public - On data center.

48:13On data centers. Great. And it's been a minute. So if you're not playing NVIDIA, If you're looking for something else, Micron, AMD, Intel, like all the others. I mean, there's a few others that are pure plays, but this is like the one. So I think that this is going to be heavily, heavily oversubscribed. And I think it's going to trade well out the gate, but that could be very wrong. You know, it could price at$40 billion. And then if it does, and then again, it's$40 billion on$2 billion in revenue last year. And what we should really do, though, is get into the balance sheet because, for me, this is another sort of deal breaker for at least buying it on the IPO.

48:54Blackstone put out a press release last summer. You know, all of this debt that this company is – again,$10.6 billion in debt currently. All this debt is being financed by somebody. to somebody in question is all these private equity firms that have launched these infrastructure funds and they're going to keep funding it okay probably um this is this is what was said when they um when they raised the money last summer uh core we've announced that has signed a this is blackstone press release has signed a definitive agreement for a 7.5 billion dollar debt financing led by funds managed by Blackstone.

49:36Strategic participation from Magnetar, which I think is also in on the equity, and KOTU, which I'm sure also owns equity. Carlisle's in the deal. CDPQ, Digital Bridge Credit. JT Marlin. BlackRock is in the deal. Great Elm Capital. All these things I don't know about. Today's announcement builds on Corweave's exponential momentum and growth, evidenced by over$12 billion raised from equity and debt investors in the last 12 months. So, you know, a lot of these PE firms have raised massive funds and they're like infrastructure funds specifically for tech and cloud and data. And yeah, CoreWeave is like the target investment for many of them.

50:21And so if you want to know like who the hell gave this startup that's been in business since 2017 and originally started as a crypto miner, who the hell gave these guys all this money? as debt capital, that's where it's coming from. I feel like they've got an infinite runway. I know that sounds absurd and hyperbolic and I don't literally mean infinite, but like they're going to have no problem getting funding from anyone. Okay, next red flag. The founder's already cashed out. This is from, and another thing I really don't like to say. This is from the S1 from early March. I think this is Bloomberg.

50:55One surprise from the filings that the company's three co-founders have already sold off much of their class A holdings between the 2024 tender offer and the one held in 2023. So this was a revelation from the S1. Whatever happened to this IPO, the co-founders have already cashed out nearly 488 million worth of shares, specifically across both tender offers. Co-founder, CEO, and chairman, Michael Entratter, sold 160 million worth of shares. Another guy sold 177 million worth of shares. and a third person sold 151 million. So now between the three of them, they own less than 3 % of the class A shares, but they maintain control of the company through the class B shares, which carry 10 votes per share.

51:46So in other words, these three guys have less than 3 % of the equity, but they control 80 % of the vote. Do you love that? No, but wait. so now they're down to three percent they took out as you mentioned 488 million dollars but was that was that like 15 down to three or was it like five down to three like i need the numbers i mean they sold hundreds they sold i understand 500 million worth of stock so that's just good risk management no but the point is like i i need to know what the percentage was did they like sell if they sold 90 of their stock yeah probably not not great you don't want to see that i don't but But if they sold a third, I'm not mad.

52:26It's a good point. I don't know how much of their stock they sold. I don't know how many shares they had. Did they have 600 billion and they sold 500? That's not great. That's not great. Did they have a – I mean, again, the valuation today I think is higher than it would have been when they first sold shares in 2023. But people sell shares on the way up. That's not controversial. Founders of tech companies need liquidity too. So I don't specifically have a problem with it, but the 3 % number, no matter where it started from, you must agree with me, is like not amazing. Okay, so their stakes are now worth at around$35 billion.

53:04Their stakes are now worth a billion dollars still. So maybe they took half off, I don't know. I know it's a lot. Another red flag, it's not a huge amount of stock, but this thing has been available on Robinhood. Private shares in the secondary market on Robinhood. I think this would be the case for every single company going forward. Go out on a limb and say those probably aren't the most sophisticated buyers, but I doubt they bought a lot of it. This is Nasdaq, C-R-W-V. The origin story is this started as a company called Atlantic Crypto. They got their start by offering infrastructure for mining for Ethereum.

53:42So there was a moment in 2017 where mining crypto was a really great business. and these guys were like an infrastructure provider to people that wanted to mine crypto. I won't hold that against them. After digital currency prices fell, the company bought up additional GPUs, changed their name to CoreWeave and then told everyone they're focused on AI and they pulled it off. Did you mention NVIDIA yet? NVIDIA owns 6%, but as we just saw with Serve Robotics, that means nothing. They could blow it out right after the IPO. I would not be a buyer of this or any other stock thinking that NVIDIA is going to be a co-investor forever because it's just not what they're doing.

54:27It's not Berkshire Hathaway. You sound neutral to negative. I think I'm negative, period, to be honest. Not at any price. Look, this could melt up on the first day. I fully agree with you. Like this could be super oversubscribed price ahead of the expectations. And it's look, it's a real company with incredible backers, including NVIDIA and Blackstone and very sophisticated people who understand how much debt they have and are like clearly OK with that because they're providing the debt. So I'm not I'm not saying like, oh, it's it's it's it's a it's a bomb. I'm just saying I don't know if this is for me.

55:09The$10.6 billion in debt that they're currently carrying cost them$944 million to service last year. That$944 million goes to Blackstone. That's a great deal for them. They were able to invest billions of dollars into a company that's going to spit out interest rate payments to the tune of a billion dollars a year. That's awesome for as long as it can keep going. They're going to raise something like, I think it's four and a half. What did I say? It looks like 2.7. 2.7 up to four is what I read. One other thing in the S1 is that they made it pretty clear that it's not enough money. So basically, they have commitments from like Tokyo and London to buy all this AI infrastructure capacity from them in the future, in order to build for that, they're going to have to raise more money, which means there could be even more debt here.

56:15And again, negative$6 billion in cash flow. So if they're going to have to build more, I think they're going to have to tap the debt markets or maybe even a secondary share sale. So I just look, I'm not here to say this is great or terrible. I'm just saying like, if you're considering investing in Corweave, I feel like everything we just said is stuff that people should know yeah okay e toro this one could come tomorrow come the next day it's on the runway as they say uh also nasdaq ticker e-t-o-r they're filing an f1 not an s1 because it's a foreign company they're based in israel lead underwriter goldman sachs jeffries ubs and citigroup also on the cover and um in addition to raising capital, there's a bunch of selling shareholders here too.

57:08Raising$400 million at a$4.5 billion valuation. Basically, this entire business is fueled by crypto trading. If not for the fact that Robinhood stock price just tripled, I don't think this would be coming public. But by the way, they tried to SPAC this in 2021, right as the whole SPAC thing fell apart. they were looking for a$10.4 billion valuation. I don't know which SPAC had the guts to do that, but it didn't end up going through. So now they're coming out four years later at a significantly lower valuation. You have to understand this company was founded in 2007. Wow, I realize that. Howard Lindzen was telling me about these guys in 2010 when they were sponsoring StockTwits.

57:58Like they have shareholders that just have to get out at this point. So Robinhood tripled. Bitcoin went nuts. Their revenue growth exploded last year because of all the trading in Bitcoin before the ETFs and during. And now it's like this is the time. They're referring to themselves as a startup, which is funny. I don't think it could be an 18-year-old startup. I think it's just a private company at this point. But there are some differences in numbers. So Bloomberg is saying eToro had$12.6 billion in total reported revenue, up from$3.89 billion the prior year. And crypto assets made up$12.1 billion of that, or 96%.

58:45The cost of revenue from crypto assets was$11.8 billion. So – but then there are some like net revenue numbers. That sounds absurd. the cost to service that was 11. That was like, the margins are nothing. But I don't know if, I don't know if, because then I'm also seeing, they reported a net profit of 192 million, which was an increase of 15 million in 2023 and a loss of 21 million in 22. But then Sean and I found these numbers that are very different, where it was like just a few hundred million and maybe that 12 billion number is like the total amount of volume in crypto. But either way, almost all of the revenue is crypto related.

59:31So it almost looks more like Coinbase than Robinhood would be my comment. And yeah, revenue grew a lot last year because Bitcoin rallied like crazy. So if you want to bet on Bitcoin, one way of doing that is just buying Bitcoin. I know that's old fashioned, but I don't know. Any thoughts on this one? It's international Robinhood. That's how you think about it? Yeah International Robinhood? Maybe I think it's international Coinbase 3.5 million funded accounts Across 75 countries That's tiny Yeah 3 million accounts All right, room for growth I guess All right Well, listen For better or for worse It's nice the companies are coming public Absolutely And I want to see them both go up To be honest with you Same Like, it would be Pretty disappointing to see these things flop out of the gate.

1:00:24So nobody who's interested in capital markets being healthy wants to see two bad deals dumped on the public. So I am rooting for both companies, but just want people to understand what the potential risks are here. Okay. All right. Let's talk about the state of the stock market, shall we? So we're leaning heavily on the man Warren Pies at 314 Research. Warren tweeted, before we were officially in correction territory. He said, if the current pullback is going to devolve into a correction, it should happen relatively quickly. Why? Warren says, historically, 76 % of all corrections play out within a 60-day window.

1:01:07I thought that was an interesting stat, and I bet you that if you were to look at, I don't know, the 10 % corrections of the last decade, it happened probably even quicker than a 60-day window. So then, next chart, please. He says, all right, we did it. The S &P is now down 10%. In the tweet below, we showed that 5 % pullbacks devolved into 10 % corrections rather quickly, as I just mentioned. Conversely, and this is the interesting part, moves from 10 % to 15 % are more protracted. The majority take longer than 60 days to play out. So chart off, please. The reason why I think this is just, I mean, it's just great data, But it's also intuitive because what we get is the market digesting news really quickly, right?

1:01:50You get the whoosh. We had the whoosh. And typically, you get some sort of stabilization outside of like a COVID crash. You usually get some stabilization around 10%, which we just got. And then who knows where we go from here? Maybe we go higher. Maybe we would chase 50%. Maybe we roll over again. Maybe we go lower. But this is Chef's Kiff's data. I like this. And my personal opinion is that we're not done. And the bounce last week was much needed because it was really like a straight line lower. Like one of the more intense corrections that I've seen in my career. But I don't think we're done.

1:02:28And I think smart people that are in this reprieve right now, if they were really feeling the pain or they were heavily on margin or they looked at their portfolio and said, what is all this garbage? Like this type of bounce, which we're going to talk about the dip in a minute and the buying of the dip was really well-timed. and then like, all right, use it. And if that ends up being wrong and we race back to all-time highs, all right, so you have a less junky portfolio and less margin debt. That's not the worst thing. I do want to go back in the chat and address Chris Kubica. Can Josh and Michael disclose whether they are in on either IPO?

1:03:10They just said they hoped went well. No, neither. No financial interest whatsoever in either. And if we had one, you would hear it from us. I just wanted to make sure we got to that. Okay. Show me the next one. So this is also from Warren. It's great stuff. Keep it simple. Warren is showing two paths. One, both after a 10 % correction. One, when there is a recession, which is a purple line. And of course, in which case, they usually don't get a bounce. Or there is no recession. And it ends up in hindsight being a buying opportunity. And if that's the case, then, oh boy, you're going to wish you had bought.

1:03:46Dude, this is so binary. Look at this. Yeah. This is so stark. So a 10 % correction where a recession happens does not recover. Correct. Like it bounces a little bit, but does not even get back. It looks, I'm just eyeballing. And this is on average, of course. Looks like it doesn't even get back a third. Yep. We've already gotten back a third. I'll tell you something. Not that I get to make the rules of where the market goes. I would be very happy if we got that temp site correction and then went sideways. If only for nothing else, chart off, please. I'll take the sideways. Other than to just digest, right?

1:04:25Like a market that goes up 20 % a year, year after year is unstable. That sets you up for really nasty crashes. It just does. You can't go up 20 % forever. We did that in 23. We did that in 24. People got super bowled up at the end of December last year. And if we go sideways and we set ourselves up for a springboard in 2026, wonderful. I'll take it all day. I was looking at my 401k over the weekend. I was actually looking to see how my international holdings were doing. These are Fidelity Mutual funds that own international stocks. And the diversification is really working this year, so much so that I don't even think I think I'm up slightly since the beginning of the year.

1:05:15That's number one. But also number two, if the market – I'm putting$900 every two weeks or whatever into the 401k. I'm not consciously thinking about it. That's just automatic until I've hit my level. But I'm happy to do that in a flat tape that doesn't bounce back. It doesn't affect me at all. I want it. I don't want to buy – why do I need to buy all-time highs for every time I buy stock? So that's just like I'm trying to – I'm just like trying to like give people both sides of this. If you're under the age of 70, there's like no need to cheer for a V-shaped recovery. It doesn't really do anything to you.

1:05:53But even if you're over the age of 70, you're never going to make another dollar worth of contribution to your account. Again, you don't want something going straight up because that is unsustainable. You don't want that. It makes the fall harder. Yeah, no, it sucks because then you're anchored to that high price. It's just no good. It's no bueno. All right. So what works best in a recovery? This is some great data from our friend Adam Parker at Trivariate Research. He's showing the average performance following the worst 20 S &P 500 drawdowns since 1999. And not surprisingly, you've got junk number one, and this is just low-quality crap.

1:06:26And then – oh, actually, he has something – that's interesting. He has something that's actually labeled low-quality. So similar but different, I guess. And then also, not surprisingly, small cap and micro number two and three. I wouldn't have guessed this, would you? Oh, yeah, yeah. Yes, he would have. What would you have guessed? I guess, what are we measuring here? Average performance. Oh, okay. So we're not saying how well they hold up through the downturn. We're saying what's the bottom? Well, you also got to figure that these are the things that get hit the hardest too. Yeah, well, that's the thing with this.

1:06:57I guess that's what I feel like is missing. And shout out to Adam Parker. He's doing really great stuff on this, on buybacks. We got to have him back on soon. Put that back up. So one of the things that I remember from like the literal big, big bounces off of bottoms, and I've seen a couple of them in real life. I remember biotechs like in 2003 just being like, you couldn't buy these things fast enough. Like these were stocks that had gone from 20 to three back to 20. And it would be really hard to time those purchases. Oh, yeah. But I just remember – I guess – I don't know if those would be considered small cap or junk, probably a little bit of both.

1:07:42But like that was the play for probably a good 90 days. Yeah. So then conversely, you've got mega cap bouncing the least because it probably fell – not probably. They do fall the least. Mega and large small fall less than small and micro. Duh. Let's talk about how individual investors are – I was going to say this time might be different. How so? If this market bottoms with NVIDIA in a 35 % drawdown, junk stocks are not going to be able to outdo that on the way back up. NVIDIA is not in a 35%. It's up 35%. Well, it's 25%, but I'm saying if it gets worse. Uh-oh. Right. All right. So they bought the dip.

1:08:18Individual investors, this is from the FT, have pumped almost$70 billion into US stocks this year. Net inflows,$67 billion. And that's down only slightly from the$71 billion in the final quarter of 2024. This is from Vanditrack. Here's a quote from the chief market strategist, Steve Sosnick at Interactive Brokers. Dip buying has been an essentially foolproof strategy for four of the past five years. Doing something that works remarkably well for so long means you're conditioned to stick with it. And this is what I was saying. I think it's going to take a lot more than one 10 % correction for that mentality to break.

1:08:57And I don't know if it happens if we go sideways or if we roll over, but that muscle is so ingrained in investors today. I think it takes like a year for everyone to fully give up on buying the dip. Like flat markets with a lot of chop for a year might really change a lot of people's minds and how they're investing. and I think anything short of that, they're going to, like the first time it rallies, they're going to be like, oh yeah, that's right. That's what I'm supposed to do. But what you're saying here, so individuals have pumped 70 billion into US stocks this year. It's not really a dip buy.

1:09:37What do you mean? Because that's parallel with what they've been doing. Yeah, but I'm saying it didn't dissuade them. All right, they didn't shy away, but they weren't like buying the dip, like buying two of everything. But they didn't sell either. They just keep coming in with money. So Goldman Sachs data shows that retail investors have been net sellers of US stocks in just seven sessions this year, despite the S &P having fallen on 25 days. Pretty good. But this is the interesting thing. In contrast, big investors tracked by Bank of America made the biggest ever cut to their US equity allocations in March.

1:10:11So there is a severe disconnect from retail and the mega wealthy. Don't say. OK. I thought you were going to say the smart money. I wouldn't do that. I would not do that. We know better. Well, we're going to find out who is right. That's interesting. So the professional asset allocators are raising cash, getting out of US stocks, or buying Europe, or whatever they're doing. And the regular investors, they've barely been net sellers at all, no matter how bad it's gotten. And they continue to plug away the way they always have. I don't like it. We should have got data for this. Jerry Gold is saying this is more DCA than Bitcoin.

1:10:50Yeah, sure it is. That's the point I'm trying to make. Yeah, sure it is. But also, I don't think that people bailed in 2022, did they? I don't think 401k allocations changed, but I do think retail got wiped out. So here's what happened. They stopped buying the 2X. Trading volumes fell off the cliff. They stopped buying the 2X levered ETFs, which I know we're going to talk about later. Yes. This is from Yardeni. The stock market sell-off is one of the factors. he makes a list of all the factors contributing to the huge drop in consumer confidence. And obviously, there's more going on in the stock market.

1:11:24But this is one of the factors that he lists. I think my takeaway here is this can be quickly reversed if the dip buyers push it back to where it was. But let me read what Ed said. Some of the decline in consumer confidence is undoubtedly attributable to the rapid drop in stock prices. Indeed, the percentage of respondents expecting lower stock prices in 12 months jumped from 21 % in November of last year to 44 % in March. That's the sort of jump that has occurred in the past at the start of bear markets and recessions. On the other hand, with economists, there's three hands. On the other hand, from a contrarian perspective, high levels of bearish sentiment have often signaled stock market bottoms.

1:12:10But those bottoms have often coincided with implementation of the Fed put, which isn't likely to happen anytime soon since Fed officials have stated they are in no rush to lower interest rates given the current resilience of the economy and the potential inflationary impact of tariffs. The Fed – right, chart off. The Fed's in no rush until one of these f***ing data center bonds blows up, and then we'll see how patient they feel like being. Wait, chart back on. This chart is so fascinating. If you're listening and not watching, you're showing the percentage. And this is from the conference board.

1:12:45This is like real. The consumer confidence surveys, people that are expecting stock prices lower in 12 months. And this skyrocketed. Only like 22 % of the respondents were expecting stocks to be lower in the next 12 months. It shot up to 45 % in a matter of months. So this is - He says that almost always happens right before a bear market. Okay. So either people are going to have seemed very prescient that, wow, they were right, or it's going to look like the biggest head fake we've seen in a long, long time. Hey, important to note on sentiment, when we were 2 % from all-time highs, the crowd got crazy bearish before a 10 % sell-off in the S &P.

1:13:30Yeah, yeah. so the crowd's not always wrong and the sentiment surveys aren't always great contrarian opportunities agreed yeah well so and the crowd the crowd you know it's a little bit it's it's like a little bit of like a tautology but like the what the crowd does is the crowd sentiment so when they all get bearish and sell they like make themselves right because it's them selling So, you know, Bank of America asked this morning, what if U.S. exceptionalism hasn't peaked? They say they are not counting U.S. equities out yet. And I'm not going to read the whole thing, but a couple of things they said.

1:14:09They're thinking we're going to see an even larger AI bubble in the coming years. So they are super bullish on what AI is going to do and therefore what people are going to be willing to pay for these stocks. So if they're right, then CoreWeave will be a hot stock. Um, drawdowns and rotations even larger than what we have seen are not abnormal in bubbles. So I guess in their framework, this has been a wild market destined to get even more wild, but these types of big drawdowns and rotations are common within bubbly. Okay. They say the rebound from the, the March 13th lows has been in line with historic historical norms and dip buying strength remains near the strongest in 100 years.

1:14:56So they keep all this data on people with Merrill Lynch accounts and they break it down institutions, hedge funds, corporates, which is like buyback activity and retail. And they're saying like the dip buyers are as strong as they've ever been in this tape. And then they also say the Powell and Trump puts, you know, the ones that don't exist, remain, quote, available, even if perhaps struck lower than some thought. So, like, everyone's, like, ready to pivot away from large cap US. They're basically saying not so fast. This bubble hasn't fully bubbled yet. And I don't know. I feel like that's probably a take that looks smart today.

1:15:42But if this rally fails, that's going to look really out of touch. That's why this is so hard. But it depends. Like, when you say the rally fails, if we undercut the new lows and, like, we go down 15%, does that really invalidate this? if the MAG7 stocks, if the US exceptionalism trade fails, sort of feel like it does. I don't know. I'm lukewarm on that though. I can go either way. Cyber stocks look good though. So I want to talk about this. Do you know why 23andMe just filed for bankruptcy? I don't. A f***ing data hack. Literally, it's a public company out of business because of a data breach.

1:16:26This is from the information. Martin Pierce wrote this. If you want a detailed look at how hacking is hurting companies, check out 23andMe's bankruptcy filing. The DNA testing firm was hacked in late 2023, I remember this, with the hacker getting access to personal information for about 7 million customers, according to a court filing today by the company's chief restructuring officer. In the wake of the hack, more than 40 class action lawsuits were filed, 35 ,000 people asserted or threatened arbitration claims. The Federal Trade Commission began an investigation. Then the attorneys general from 42 states and the District of Columbia began an investigation.

1:17:11Internationally, 12 foreign regulators, including a joint Canada-UK investigation, looked into the issue. A$30 million payout resolved some of the lawsuits while the company on Friday settled other claims. But pending litigation and claims continues to complicate 23andMe's life. The lesson, lock down your servers. So now it's in bankruptcy. Someone else, it'll go into like receivership and like maybe the people that are owed money will somehow take control of the company. But if you gave them your personal information and they literally have your DNA on file, like you want to get that shit out of there because god knows who's going to end up inheriting this thing once it works its way through the the bankruptcy courts so wait a 30 million dollar payout wiped them out or did that's just one that's just one thing they settled michael again 40 class action lawsuits were filed maybe they settled one of them 35 000 people asserted or threatened an arbitration they're being investigated by every country and excuse me every state attorney general plus in foreign countries.

1:18:27So that's game over. You can't survive that. You must reorganize. So this next table that we're going to share on the largest US cybersecurity stocks, it's so - Oh, let me just, so let me make my point. This is the one line item that no company in the world is cutting. I don't give a shit how bad the recession gets. This is out of business risk. Yeah. And so these stocks are rightly trading at a premium to the market because they are - And defensively. Because they are secular growers. It's not to say that they can't fall 40 % like every other stock, but the market's not dumb. So I throw this table up.

1:19:07The forward PE on Palo Alto Networks is 51. The company is expected to grow 40%. That seems kind of wild. But okay. CrowdStrike, for example, 84 times forward PE, but expected to grow 32 % next year. And I'm guessing 25 % of you after that and so on into the future. So yeah, high growth, high multiples. Duh. Yeah. These are double-digit growers. Very hard to knock these companies off their growth path. And double-digit showers. That's right. The risk that these companies have is losing business to each other. The pie is not going to shrink. That's the way I would phrase it. So in any given quarter, one of these companies, and it happens every time, disappoints Wall Street.

1:19:48I've seen it with Zscaler. I've seen it with Palo Alto. I've seen Fortinet get hammered. And the one I own, CrowdStrike, could happen to them. But that's a game of analysts, sell-side analyst expectations for each company. But in the bigger picture, this sector, these stocks, they're acting defensive because they kind of are. Let's put this chart up. this is the year-to-date returns for the five largest publicly traded cybersecurity stocks and uh not a lot of areas of software look like this no um these are among the very best technology stocks so far this year look way better than the semi stocks i'll tell you that shit uh the next one i'm showing you is the cyber etf so all right so cibr is the first trust NASDAQ cybersecurity product.

1:20:43You can see while it fell off in February, it's gained a lot back and it's still up year to date. The next one is just the software sector ETF. Does not look as good. And then the bottom one is the XLK, which looks much worse than both. So that's kind of the hierarchy here. Yeah. Good stuff. CrowdStrike got upgraded today.

1:21:13by BTIG. So this is what they're saying. We are upgrading crowd from a neutral to a buy rating for two primary reasons. First, with the July 19th, 24 IT outage, remember that? Now eight months in the rear view mirror, we think CrowdStrike has much better visibility on forecasts. As we run through ARR recapture scenarios, we see potential for growth to re-accelerate in second half 26. and anywhere from two and a half to 8 % upside the street forecast.

1:21:45There's a whole lot of other stuff, but they basically, they went out in the field and talked to companies and they say our field work leads us to believe Crowd is best positioned of any vendor to win the security information and event management or SIEM market, a$6 billion opportunity. Crowd is a top two or three vendor in the$7 billion cloud security space. Our checks show rapid momentum in the$2.5 billion vulnerability management market. So Crowd is playing from a position of strength in all these key areas of cyber. They slapped a$431 price target on it, increased their ARR estimate, and price targets now 18 times calendar year 26 enterprise value to sales.

1:22:32So I mean, these stocks just in a sea of red tech, they really stand out. And I think that could continue to be the case throughout the year. All right. Let's talk about the potential recession. So last year, we spoke with Rick Reader and others about how the dynamic nature, specifically like software, how you could just turn things on and turn things off that were less prone to booms and busts. Do you think that that theory is going to be put to the test? Yeah, I think it has to be And that's why I mentioned CoreWeave as a vibe check Like, do people really believe that this spending is going to hold up If the rest of the market all of a sudden, you know, is coping with a recession?

1:23:20Like, definitely not So, it's hard for me to believe that any publicly traded company Would be so irresponsible as to follow through on a CapEx plan in the second half of this year if we're in a recession. Who on earth would do that? Your shareholders are going to punish you. So you're going to live through that? You're talking about robots? What are you, f***ing crazy? I've seen too many of these cycles. So I don't think that this is going to be a secular growth story if the cyclical growth story completely falls apart. Now, I don't think the cyclical growth story is going to completely fall apart.

1:23:58I'm not in that camp yet. I recognize all the challenges. I read all the same articles as everyone else. I just don't see the consumer behaving the way people think the consumer is about to behave. Okay. So let's talk about that. I think it's going to hold up. Just there's also, we talk about like the economy. There are so many economies. Everybody has their own economy. It's mostly people talking past each other. So I pulled a few quotes from the transcript, which is a great resource. Let's start with the godfather of AI, Jensen Wang. He said, the second thing that I said that nobody's got right, none of these forecasts has this concept of AI factories.

1:24:35Are you guys following me? It's not a multipurpose data center. It's a single function AI factory. Do you guys understand? Listen, he said, nobody knows how to go do that. And these multiple hundred billion dollar CapEx projects that are coming online, it's not part of somebody's data forecast, data center forecast. So he's saying that people, our analysts are still underestimating the amount to spend, the amount of revenue and infrastructure that's going to be built in. He could be right on the dollar amounts and very wrong on the timing. Let me just run through these and then you can comment.

1:25:09So Ali's bargain outlet COO said, I don't know. He said - This is publicly traded? Higher income consumers, we define as over$100 ,000 household income. We continue to see that trade down and retention of those customers. We're seeing, we continue to see strong low middle income cohort at the$40 ,000 to$65 ,000 range, and our low income cohort has been stable. The CEO of Darden says, as we come out of the third quarter into the fourth, and we give you our expectations for people, even if they say they're feeling less optimistic, we haven't seen a huge correlation between that and dining out. So changes in consumer sentiment haven't necessarily translated to material changes in consumer spending.

1:25:53And then finally, the CEO of Bodycoat, which I admit, I don't know what that company does. He said, so turning to Outlook, obviously the market environment is mixed and the soft demand we saw most notably in automotive and industrial has continued into this year. And in aerospace and defense, the underlying demand remains very positive, but there are some temporary headwinds, some supply chain challenges. All right. So the point is you speak to a hundred different CEOs and they're all talking like not past each other, but there's pockets of, there's different economies within the economy. yes i agree and i also um all right two things as soon as you said ollie's bargain outlet i started thinking of buck's super cool stereo store from uh from boogie nights and i come on down to books buck's super cool stereo world yeah that's good all right uh and i'm very salt of the earth so i'm surprised i don't know what that is the chat um chat is telling me ollie's has been a good stock.

1:26:52O-L-L-I. All right. You are onion powder of the earth. I am very salt of the earth and I have not been to an Ali's bargain outlet, but supposedly the stock's doing okay. All right. I apologize, guys. I just don't know what that is. I agree with you. What economy? Right. Because I promise you, I promise now they're all interrelated and everyone's spending is everyone's income. So we don't really have 50 different economies. But like I promise you - Your spending is not Ollie's income. That's right. Well, not yet because I haven't found one to shop at. But I promise you, the guys pulling the trigger at Blackstone about whether or not they're going to fund the next$5 billion worth of data center build out are not the same customer that Darden Restaurants is talking about feeling less optimistic.

1:27:45Like it's just, it's two different, it's not even two different worlds. It's literally two different planets. Now those things ultimately converge if things get good enough or bad enough, but we could have a multi-speed economy with two different realities for different groups of people for a really long time. And, you know, I want to remind people of 2022 was a rich person recession. Stocks crashed, bonds crashed. You couldn't sell a home. But for lower income people, they were getting raises. Now, they weren't enjoying those raises because the price of eggs was up and the cost of credit card financing was higher.

1:28:30I understand that. But that was a two-speed recession in favor of lower income wage earners. These people were in a really good position with their employers. hence the insane jump in quit rate and all the raises that had to be given out, number one and number two, were crippling the stock market and forcing the Fed to jack up rates. So I'm not suggesting lower income people enjoyed 2022. I'm just gonna tell you, rich people felt that one way worse. Didn't necessarily result in layoffs, but did result in some pretty nasty portfolio and real estate situations. So now imagine a wealthy family where their wealth is derived from, I don't know, commercial office space.

1:29:18Like that was not fun for them. That was way better for a let's call it a bottom decile or bottom two decile household. So we have two speed economies and three speed and four speed and K-shaped. We have all that stuff. So I definitely agree with your premise, like which economy and who are you talking to? So because everyone's going to feel things a little bit differently. And that's why it's important to listen to what CEOs say about what's happening with their business, but not to then go out and extrapolate that across every business. Because the people building data centers are not the people eating at Olive Garden.

1:30:01Most importantly, Bank of America, Bank of America, who serves probably, I don't know if they serve more, more U.S. citizens and like any other business, probably besides from Walmart. Moynihan was on CNBC and he said, he's like, I know what the soft data is saying, but people are still spending. So it's not to say that people won't change their behavior. They're just not doing it yet. And some people are. Sure. Some people aren't. Always. And we learned recently, like half of consumer spending is now being done by 25 % of the population or something. it's the definition of multi-speed um all right how's your Robin Hood Robin Hood is being looked at by the top securities regulator in the state of Massachusetts just to give people context the Massachusetts state securities regulators have this like long-standing reputation as being the toughest cop on the beat.

1:30:59They pride themselves in being like the most pro or what they consider to be the most pro-consumer state securities regulator there is. So it's not surprising this is coming from Massachusetts. They're investigating Robinhood's decision to launch a prediction markets hub that allows users to bet on the outcomes of a range of events, including March Madness, college basketball tournaments. So basically Robinhood found a loophole where they don't have to be a casino. They could just give people binary outcome bets, prediction markets, bets on these sporting events. So you're not like betting the game like you would on MGM or Caesars app, but you're betting the game.

1:31:46You're using a prediction market on Robinhood. And I think they just launched it. So Massachusetts Secretary of State Bill Galvin In an interview with Reuters said He was concerned that Robinhood was Linking a gambling event on a popular sports event That's especially popular to young people To a brokerage account Quote This is just another gimmick From a company that's very good at gimmicks So lure investors away from sound investing And you know This is This is like sort of This is the Robinhood thing it's like we'll we'll let you do whatever you want yeah they're good and i'm not a lawyer they're not gonna lose this case are they like people could bet on whether apple it's not a case it's an investigation the state can find them and they can appeal it i mean well so my i've gotten very cynical i used i'm pro-regulation but i'm also pro like who gives a shit yeah these are people that cannot be helped you you could step in and stop robin hood from placing a prediction market trade using brokerage money they will take the money out of the brokerage and do the goddamn trade somewhere else yeah everybody knows it yeah so i don't i maybe that sounds like overly cynical i don't really know what to say but like i told you on a show two or three weeks ago i think it's just a matter of time before all of the brokerages are in sports betting and fantasy because that's where the customers are going no i don't yeah i still don't believe that this is what the gen z's want to do.

1:33:19I don't want them to do this. I don't encourage this, but I also don't care. It literally doesn't matter to me. So maybe it's great. Massachusetts can stop them from doing it, but they'll do it in Rhode Island. I feel the same way I felt about cannabis. I don't smoke weed. I don't eat edibles. Well, I'm just like, what gives a shit? You're not going to stop anybody from doing anything they want to do in 2025. I definitely don't care. So yeah, I think they'll investigate They'll slap a fine on them Because they're totally doing it And Robin Hood will pay the fine and they'll do it anyway Right So, I mean, what's the point?

1:33:59And in the Trump era, like, this is just what it is So I think everybody needs to loosen up And just let these things Play out and let the people Who need to learn a lesson learn their lesson I don't know, I feel bad That that's where I've arrived at this You think it's because I'm 48 years old? I think at 38, I would be like railing against this. And now I'm like, do it. Do more of it. I hope you lose everything.

1:34:30What am I going to do? I'm not the world police. Leverage ETFs.

1:34:39So here's my question. What is the cause and what is the effect? are the stocks that are the subject of leveraged etfs down more because the leveraged etfs are forced to sell or are the leveraged etfs down because people are selling the stocks both it's not a riddle like it's it's chicken or egg and i don't know the answer why can't it be chicken egg and egg. I mean, it totally can, but one starts it. Here, let me read it. Wall Street Journal. Investors who loaded up on funds that doubled down on their favorite stocks were rewarded with record highs. Now they are facing the downside. Who could have seen that coming?

1:35:24MicroStrategy has one of the big ones. That's like a really big or was a really big product. the fund that offers investors twice the exposure to micro strategy is down 83 % since November. Congratulations. Another one, which does the same thing with Tesla is down 80%. They're citing all these people who are in the Reddit forums complaining about how much money they lost. I don't know. Did anyone buying these really think that they were meant to be held for more than a few days? So there is obviously still, unfortunately, a percentage of the population, the investing class, that doesn't know how these things work.

1:36:05The company's direction and the like cannot be more vocal that these are trading vehicles and not investing vehicles. If you impute the amount of money that's coming in, the volume, the turnover, I think Jeffrey Patak might have done this. The turnover is extraordinarily high. In other words, people are not overstaying their welcome in general, right? I don't know if it's like four days or whatever it is, But for people that don't understand how these things work, no better way to learn than to get insinuated. How is it possible that they don't understand how these work? To your point, the companies that offer these products are screaming from the rooftop.

1:36:42These are not, over the long term, going to give you two times the return of the underlying. These are for short-term trading. They say it over and over again. Everybody knows this. How can anyone not know this? People learn. I learned this lesson early on. I was trading FAZ in 2010. And I was like, hey, wait a minute. That's 15 years ago. All right. 15 years ago, I was 25. People learn. Here's a public service. And here's from the article. Over a period longer than one day, returns begin to differ substantially. The NASDAQ 100 index has risen 20 % since the end of 2021. the fund that offers leverage daily exposure is down more than 25%.

1:37:32What else do you need to know? Duncan, are you listening? How many people need to tell you this? Here's what I actually think is going on. I think everybody knows, but they put it on the trade and then it goes against them and they wait to get back to even. Yep. That's probably right. And then it goes on for so long that it's not even worth selling anymore. And that's what I actually – I think everybody knows and they think that they are going to be the person who gets all their money back when it recovers. And maybe sometimes that happens. You can't stop people from gambling. Most of the time it doesn't.

1:38:08People like to gamble. Now, I also think that, again, with obvious exceptions, I think like people are putting 150 % of their portfolio in these products. Okay. The biggest micro strategy fund, MSTU, has posted almost 500 million of infos year to date, including 312 million over the past month. So not only did quote unquote investors put half a billion dollars into this thing since the start of the year, they're accelerating their purchases on the way down. Smart. It is? I'm kidding. But - Wait, wait, hold on. No, no, no. You hold on, sir. In the last five days, if you just time this right. Dude, but here's the thing.

1:38:55No, literally, it's up 43 % in the last five days. I understand. And so that's what people are chasing. 43 % in five days. Where else are you going to get those type of returns, Mr. Brown? Nowhere. Who needs those type of returns? The hell is wrong with you? So, but over the last month, it's down what? Oh, all right. It's up over the last month. Over the last three months, down 33%. Yeah, you have to nail this thing. So I think you're right. People that are still in this, It's just trap money. They know. Begging to be made whole. And congratulations to the people launching these things because it doesn't matter how horrible the performance is.

1:39:28They just collect fees because people trap themselves in them and they don't sell. Yeah. Or if the theme gets hot, they plow into it. Now, I don't know what the fees are. 50 basis points, 80 basis, whatever it is. You're probably not collecting a full year's worth. Like you're probably not getting 80 basis points because the money doesn't stay for the year, but it's not supposed to. It's not supposed to. So I feel like these are a great business for the issuers. They're a terrible investment for people that think they're going to get their money back. And for traders, maybe there's value here.

1:40:09I just don't know anyone. I've never come across somebody who like this is how they made their fortune. Yeah. Have you? No, of course not. But it's for traders. It's, you know. And I guess if you're going to gamble, it's not worse than like far out of the money call options. It's just a different way to lose money. So. All right. I don't know. Congrats, I guess, to somebody. Sure. It's probably great for the Contra traders, the creation trades, when there's$500 million comes into this thing. Who's on the other side? Citadel? They're laughing their asses off. Yeah. And with good reason. Let's put this up.

1:40:54Here's the Granite shares, NVIDIA. So just for people to understand what we're saying, okay? The 2x long NVIDIA ETF, NVDL, is negative 30 % since January. The two times short NVIDIA ETF is negative 6%. Boom. Perfectly hedged. So nobody wins except the people trading against this stuff and the very lucky few who are timing their buys and sells perfectly. Yeah. Perfectly hedged. One more, MicroStrategy. I actually have two more. All right, same concept. So this is the T-Rex two times long MicroStrategy daily ETF. It is negative 0.9 % on the year. And the 2X inverse, which bets against it, is negative 61%.

1:41:50So just winning all around. Last one, Tesla. This one's really interesting, actually. the 2x tesla short is up 52 yeah but look at that run it was up 160 yeah okay josh where else are you gonna get those type of returns and then the 2x long is down 60 all right yeah we we know they know i guess they know they know all right now we're up to the part of the show where we do make the case and a mystery chart and we'll let and uh and we'll get out of here all right so why should I buy NVDL? Quick update. I made the case on March 4th for KNSL. This one's working. So this was that very niche insurance company, ChartUp.

1:42:40You gave me a deep dive on this one. Yeah. Well, I went crazy on this one. So I wanted to give people an update. Yes, it's rallied a lot. I'm still long. I intend to make this a long-term holding in my portfolio. It's small cap. It's not always going to do what it just did. Nobody should be under that impression. But these insurance stocks have been a beacon in the, have been like a, not a beacon, a haven in the storm. Berkshire Hathaway made an all-time record high recently as well. But anyway, this is Kinsale, which is in a very interesting corner of the property and casualty insurance market.

1:43:19What do they do again? I forget. They do custom insurance plans for companies that don't fit the molds of what a large carrier would be interested in doing. They claim to be better underwriters of risk, and they claim to be using a lot of AI to be able to do these types of custom tailored products. And they sort of have a dominance in their niche. So I'm very attracted to long-term investments like these where it's a really unique thing. And that's the story here. All right. I want to show you Rocket. So just let's get this out of the way. We don't endorse stocks here. We don't give financial advice.

1:44:01And Rocket Companies is the owner of Rocket Money, which is a longtime sponsor of the compound and friends. But I'm bringing this up today because there was some good news on the housing front today. Some good data. The home builders looked pretty good for the first time in a while. And one of the things that I think is obvious is that mortgage companies are going to be like a coiled spring if we get into an environment where mortgage rates really do drop throughout the course of the rest of the year. So assuming the Fed has the cover to come down another 75 or 100 basis points this year, I think companies that are in the mortgage business are gonna do really well.

1:44:46Rocket Companies is one of those businesses. They went public in 2020. Market cap is 31 billion. Last week, they announced a deal to buy Redfin, which Michael and I, you and I talked about. Redfin is basically a lead generator for mortgage and real estate brokers. So it's home price listings and content around housing. It's like Zillow. Rocket's buying them. So Rocket's buying them for$12.50 a share, which was a huge premium over its Friday close, but a huge discount to where Redfin was trading in 2021. Redfin shares ripped 70%. Rockets fell 14%. That's expected. Rockets says the combined company will achieve 200 million in run rate synergies by 2027.

1:45:40So I just want to show you, so forget about Redfin. This is Rocket versus the 30-year mortgage rate since the company came public in August of 2020. You can see this very clear inverse relationship. So the red line is Rockets share price. crumbling as inflation gets bad in 2021, and then falling further as the interest rate hikes start. And now what you can see is we had this little dip in mortgage rates, the 30-year mortgage rate, earlier this year. Look how much rocket went up when that happened. So from my perspective, there are a lot of companies that could work if and when mortgage rates really fall and stay down.

1:46:26This is one of the more obvious ones. The next chart I'll show you is just one-year performance of Rocket. Like this stock is effectively very close to its lows. It had a little bit of a rip when rates started to come down. But I think there's still a lot of potential if mortgages get more affordable. What do you think? Yeah, no, I agree with the premise. To me, the stock, just the stock, it's a no man's land. No, totally. There's no catalyst unless and until lower mortgage rates unfreeze the real estate market. And now you've got this arbitrage situation because they're buying a company. Yeah.

1:47:06So it's in no man's land. But I think this will be one of the first to react if we get more rate cuts. Totally agree with you. Okay. Good segue, hint, hint, to my mystery chart. Ooh. All right. This are – there's three leaders in the space and I'm showing you charts back to 2004 with the context that the current sell-off is pretty severe. Next chart, please. Showing the drawdowns. So yeah, down between 34 % and 38%. Pretty nasty. And if I showed you these charts, you would have said, oh, f**k. Like what's happening in the overall economy that these names are down so much? You would not think that the S &P is 7 % off its highs or whatever it is.

1:47:53These are down so much worse than the overall market. It's actually astounding. All right. It's KB Holmes, Toll Brothers, and Pulte. Yeah, basically. I only pulled – you know what? Why didn't I pull Pulte and Toll? It's KB, Lenar, and DR Horton. Okay, close enough. But same thing. I think these are the three big ones. So, but if you saw - That's pretty good though, right? Pretty good guess. If you just saw these in a vacuum, you'd say like, uh-oh. So this goes to my point about the bifurcated economy. Like which economy are we talking about? Because the housing market is frozen and the stocks are getting crushed.

1:48:31Not great. It's so funny that our make the case and your mystery charts kind of rhymed. Yeah. Those, listen, those names are going higher too. Again, if the Fed cuts rates and mortgage rates fall, those names are going higher. I almost think regardless of the economy. I'd much rather be a buyer than a seller with those stocks. Yeah. So I don't buy falling knives, but if I did, I would buy one of those falling knives for sure. So, all right. Hey, this is a great show. Guys, I know we went a little bit longer than usual. Thanks for sticking with us. I want to thank everybody who tuned in for the live chat.

1:49:06You know, we appreciate you guys so much. Also want to mention that tomorrow is Wednesday, which means an all new Animal Spirits with Michael and Ben. Thursday I will be appearing with Ben and Duncan on Ask the Compound and we do that show live on YouTube and then the replay on the podcast feed so check me out on Ask the Compound and then of course at the end of this week we are back with an all new The Compound and Friends. Thanks so much we'll talk to you soon.

1:49:43whether you're just getting started as an investor or you're managing a multi-million dollar portfolio Ritholtz Wealth Management has the solution for you it all starts with building the right financial plan to speak with a certified financial planner today visit RitholtzWealth.com don't forget to check us out at youtube.com slash the compound rwm Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.