How to Play the Money Game with Michael Santoli

14:07Michael Batnick:I've asked for you a million times, and he always says he can't do it. I always say, f*** that guy.

14:12Downtown Josh Brown:I appreciate being considered and just left in the waiting room. I was a little nervous to ask you because I know you're on TV. But I did want to tell you, you taught me the stock market. This is a true story, and I've told you this before, but I want the audience to understand this. You make it sound like I'm 30 years older than you, which is fine. But it's okay. But you really did because – so I started my career at Lou Lieberbaum, blue chip firm. It was a bucket shop on Long Island, but my parents didn't know better. They knew somebody that worked there, and they're like, go work for him. I was an aimless idiot.

14:46Downtown Josh Brown:But I was smart enough to realize that the people I worked for didn't know anything, like literally nothing except one guy. And I'll never forget this. I went up to him after four o 'clock, all the brokers were doing cocaine or whatever they were doing. The room was empty. And I walked up to him and I said, you are the only person that I see reading the Wall Street Journal. You seem to sort of know what's going on. How do I learn about stocks? And I'm a cold caller. I'm not even licensed. And he said, exactly. He said, very important. The C-section of the Wall Street Journal every single day. Was that the money and investing?

15:23Downtown Josh Brown:Money and investing. Read the C section. Don't worry about B. It's politics. Don't worry about A. It's like New York Times. Read the C section. Okay, I'll do that. What else? If you want to learn how to, if you want to learn why the market's doing what it's doing, every Saturday, read Barron's, except for Abelson. Yeah, exactly. He said, Abelson, you will leave the business. Everybody else. He didn't say you, but you were the best columnist at Barron's at that time. And then the third thing he said, which is maybe where I learned the second most from, He said, Business Week, Gene Marshall. Yeah.

15:56Downtown Josh Brown:If you want to learn how to pitch stocks, Gene Marshall is the best stock, individual stock storyteller in the world. Yeah. And his column was called Inside Wall Street. And so I did it. I listened to this guy. Yep. And that's how I learned the stock market. And yours was the first column I'd read because of everything that we just talked about. I just felt like this guy's not just saying what's happening. He's a writer. and I read novels, I read literature. So it just, it resonated with me. Anyway, that's how I learned the stock market. So thank you for that. I'll take a tiny slice of the credit for that.

16:32Thank you. I mean, obviously Barron's was a great place to just like find a voice. And also, you know, you're being read by people who know a whole lot more than you. Oh, I agree. And you have to therefore rise to, in fact, one of the reasons I stepped off, you know, a lot of reasons I felt like I wanted to move on from there. but one was I got myself in this trap on this treadmill of like you know this is like early 2010s and it's like I'm trying to stay one step ahead of these guys who stay two steps ahead of the overall market for a living and they have all the resources and yeah and it was just exhausting and you kind of think yourself into circles and to be honest a lot of times what it did being at Barron's was part of this, is it backed you into a kind of reflexive contrarianism?

17:18Or let me just say the provocative thing that goes against the prevailing trend or whatever it is. And I kind of bristled at doing that all the time. Because you have to have a certain tolerance, like Alan did, Abelson, of just screaming into the darkness and saying, why does the market go down?

17:36Downtown Josh Brown:So he was like this feared there back then. Don't you feel like his columns now versus like what else is out there is pretty quaint. I don't even think it would get noticed on Twitter these days. But back then it was like, uh-oh, Abelson's about to go to town on Microsoft. Now it's like - It would just be this florid way of saying like, oh, there the crowd goes again, doing its silly herd-like things. And once in a while there would be a targeted, you know, takedown of a company or whatever. And, you know, I don't know if this is true, but I've had people come to me and point to the crash of 87, that period of time where the, that was of course a Monday and the weekend before that, Alan, who was bearish leading up to that.

18:20But if you remember the market peaked in that August and it was down huge into the crash. Like it was already kind of, kind of a mess. And I think he was kind of saying like, aha, look at this. Finally, the world's coming around in my way of thinking. There's some good stocks that are cheap now, whatever. Next day, Mark goes down 22%. And it was like, never again. He had his moment.

18:41Downtown Josh Brown:I have no idea if that's true. So then he couldn't ever be bullish again, just in case. I mean, I think temperamentally he wasn't geared to anyway. Nobody ever expects the crash of 87, right? It's like a Monty Python sketch. All right. And then I taught Michael the stock market after you taught me. That's right.

18:58Michael Batnick:Yeah, sure. Who taught you the stock market? Nobody really taught me anything. I think it's really just like pulling from every direction and just like reading smart people and uh is that is that barton biggs book up there yeah because i mean like barton's a great example what i'm talking about it's like an english major but you talked to a lot this is

19:15Downtown Josh Brown:the thing about what's different about you versus what michael and i do michael and i when we write we're bloggers we've written books but like yeah we're not sourced we're just reading other people synthesizing looking at charts looking at some data yeah coming up with our own opinions, you were talking to real people behind the scenes that were managing real money. And I think that's where your part of your edge probably came from. That is true. And especially the people who are a little bit more tactical, willing to kind of stray away from, you know, the kind of standard playbook a little bit or not the closet indexer types.

19:52But you know what? These days, it's more what you do than not. Like, I do still keep in touch with people and try to have a read on what they're thinking and saying, but they don't know anything. Anyway, nobody knows. That's almost comforting though. But you think it's the opposite now? Everyone knows everything because there's so much information out there? I think, yeah, everyone knows a certain level of what's going on. I've always said that that was what I found valuable about, you know, when I first took to Twitter and, you know, I've been a Newswire reader in real time my whole career, but it was just like, let me just keep it up with this to make sure I'm not missing anything, right?

20:29And it is all there. Like you sort of see the crescendo of attention in certain things. And yeah, so I don't know if anybody is anymore saying, you know, in a broad sense on the overall market, I have an edge.

20:42Downtown Josh Brown:But I think to your question, I think everyone is now so up to speed and everyone is like drinking from the fire hose. The skill is like figuring out what to really pay attention to, what not to, which, of course, you can do it sometimes. You can't always do it all the time.

20:58Michael Batnick:But that's what makes you so valuable still is because there's almost too much now. Yeah. People need somebody to synthesize. Focus it down. Yeah. Give me 800 words. What matters? Right. Focus it down. What theme is either misunderstood? Look, a lot of this comes down. You guys know it's like what version of history applies today? Because you can find an analogous period or something that looks like this type of market behavior. And you could infer what you want from it. But nothing is 100%.

21:28Downtown Josh Brown:We're the, it's always different guys. Yeah. Like unapologetically. Right. No, this time it is different. And last time it was different too. And the time for like, that's our step. Michael, I'm so curious.

21:38Michael Batnick:You just reminded me of this about like different interpretations. Yeah. So I was talking with Ben this week and we've had this argument a billion different times. When does a bear market end? When does a bull market start? Yeah. So the analogy that I gave to Ben is you could look at a player like Vin Baker, just as his box, right? Basketball references. Like, oh, he was a great player. Like, whatever. He was okay. it's not the same thing to look back as to live through it. Right. So you can look back to 2009 as the start of the bull market, which is what Ben was arguing for. And I said, dude, no way was that a bull market.

22:10Michael Batnick:No way. I know it was the end of the bear market, I suppose, like on the chart. Yeah. But the bear market didn't actually end until 2012, 2013. Like you were there. Sure. Who was talking about a bull market in 2011 during the double dip, the euro stuff? When did people even start to say the word?

22:28Downtown Josh Brown:I'm on your side. I'm on your side. I'm on your side. Ben's describing a rally. A rally is not a bull market.

22:34Michael Batnick:But I think what matters is what people were saying in real time. And nobody was dumb enough to say bull. I wouldn't say nobody was saying that. But I do think that the end of a bear market and the beginning of a bull market are really only defined in retrospect. So you're in this nether zone of like, we don't know how it's going to break from here. And it's going to look very similar. a bear market rally. I can remember one of the most highest hit rate pieces that Barry Ritholtz ever wrote. It must be because it was called Bear Market Rally. Okay. And it was like I used to just stumble on it all the time for some reason.

23:12Oh, on the big picture blog. On the big picture blog.

23:14Downtown Josh Brown:Yeah. And it was probably in late 2009. And it's like rage bait at that period of time. Right. But that's the point that Michael's making. I know. Saying Bear Market Rally or dare I say, new secular bull market in 09, people would think that you should be arrested. Well, that brings me to my mystery broker guy, because that's kind of what he did in late 09. He says the financial crisis is over. Should we clear up once and for all that it's not me? Well, we had a little bit of vagueness about that up until last December when he actually was identified. Right. But I wouldn't ever, I would always say it's nobody you've ever heard of.

23:54Which is what makes it so fascinating. Which is exactly what it was. Tell the story for people that don't know. I was at Barron's and there was a guy who was a financial advisor, a broker, who would occasionally write, you know, he would like send me his kind of client letter. And he had done so, he had written one in 07 that was really close to the top of the market. And he was like, this is going to fall apart. Not saying he caught every beat. This was not March of 09 that he wrote me back. But he did later that year. I think it might've been August, September that year. Close enough. And he was like, it's done.

24:22It's over. Financial crisis is over. You know, you have to be playing it like it's a new bull market. And I wrote about it without naming him because he did not want to be named. He didn't want credit. But you said mystery broker. Eventually, not in the first. Oh, okay. Not in the first time. The first time I was like, so there's this guy who writes me. And literally that's how this thing started. And for me, it was a lesson of people's psychology of why they just fixated on this guy. and they wanted it would ask for updates all the time on twitter i would update when he had a change of view i would never call him and ask him what he thought because i felt like that was a little artificial i want to make sure he's kind of got a new take before i highlight and i became this weird franchise it kind of got away from me i didn't really want it to become a major thing over the years he he kind of flirted with the idea of being identified uh the mystery broker etf and i would always tell you i would always say i would always say to everybody you'll be

25:16Downtown Josh Brown:disappointed when you find out because it's nobody from nowhere nobody you heard of yeah and it's you know and then they would say like oh i think it's tepper it's like tepper talks about tepper goes on tv when he has something to say he doesn't talk to me why is that what's up or it's art what do you mean by that the psych it speaks to the psychology of people like uh people think there's a secret person who knows the answer i was gonna say i read somewhere 31 of u.s adults believe in magic. Yeah. So that's, like, they believe there's a man who can divine the future course of the stock market based on whatever signals he's looking at.

25:52Michael Batnick:Michael, you have a bit in here from Adam Smith's The Money Game, which is my favorite investing book of all time. Oh, yeah. Like, by far. And I'm pretty sure it was him, but it could have been somebody else. Maybe it was Peter Bernstein. I can't remember. Who said, like, nobody can see the future. We're all so bad at predicting what happens next. Then why? Surely the public, like, must be onto it. After a while, you're like, all right, I get it. No. The quote was like, the demand being there, the predictions must be supplied. That's right. And it's demand from the public. People like, no, I know you can't really see the future, but like, so a family member of mine asked what Josh told me.

26:24Michael Batnick:Is Josh still bullish on CrowdStrike?

26:25Downtown Josh Brown:Okay. And I was like, listen, yes, Josh has - Uncle Morty, I'm still bullish. Yes.

26:30Michael Batnick:I said, but he, you know, he would, he, this is what Josh would say. You probably know as much about the stock as I do. I'm bullish long-term on cyber. I like the CEO. I like what they're doing, but what do I know? And he said, no, I know, but like, does he still like the stock? Yeah. Like you can't convince people that you don't know the future. That's exactly right. And people come to me all the time. It's like, wow, I'd really love to get you, you know, just across the table and you could tell me what, you know, what's really good. What's really going to happen.

26:53Downtown Josh Brown:Can I tell you a thing that I've noticed in that regard? And I wonder if you've noticed it too. I have spent, I've done TV 14, 15 years. I've spent the entire time complaining that stock people are being held to a different standard than NFL commentators on Sunday where they go around the table. Terry, what do you think? What do you think? I like the Steeler. And like, nobody, nobody's like, you son of a bitch. You said the Dolphins. It's just like, they made a prediction. And somehow they're worse than a coin flip against the spread. Fine. But they're right. They're wrong. They have biases. They like the player.

27:30Downtown Josh Brown:They like the coach. They used to play for the team. It doesn't matter. That's right. That's one standard. I go on CNBC. I'm right on three stocks in a row. The fourth one's not good. This scumbag, Josh Brown. Okay. So I always like, whatever. I don't complain too much. I'm doing fine. But like that was always, I've noticed that that's changing in the era of everybody gambling. Those guys are getting hell. I don't know if I want to be Howie Long right now. I might rather be Jim Cramer than Howie Long. I want to pick 16 games.

28:06Michael Batnick:Those guys get that thrust. They must. All the fantasy. Sure.

28:08Downtown Josh Brown:Because now that's almost being looked at as financial. Now that you put gambling into Robinhood. Yeah. And prediction markets into the broker, into interactive brokers. Now, all of a sudden, those guys are like being treated like, like Kramer. Right. And I don't know if they're having as much fun right now. Real sophisticated seeming tip sheet type, you know, program. It was like, I'll never forget. So have you noticed this? Definitely. Okay. I'll never forget. But this kind of came into a little more clarity for me when dirt right in the pandemic meme stock craze post, you know. And, yeah, of course, we could look at Hertz being bought up when it was in bankruptcy or the whole thing.

28:47And there was a quote, I believe it's in the FT story about this. And they went to a guy who's like a golf pro at some club. And he's been playing these stocks. And they asked him about it. It's like, you know, you don't really know anything about this. Like, what's the story? He's like, no, look, I mean, it's better than sports gambling because if I'm wrong on a game, I lose everything. If I buy Hertz, it goes down 30%. I still have 70%. I'm like, I guess.

29:10Downtown Josh Brown:Yeah. That's why you got to do the 10-team parlay birdcage that Michael does. Then you get to be wrong on multiple legs. Right. Okay. Yeah, we send somebody up to Foxwoods to place the bets for you in a helicopter. Yeah, I know about that. I want to play a video for you, okay? Yeah. All right. Do we have that clip from Michael's birthday party, 1989? Twenty five years ago when the country announced good numbers, interest rates went down because we had a stronger country. Now, when we announced good numbers, the better they are, the worse it is for interest rates. So we could be we could have a GDP of 10 times.

29:43Downtown Josh Brown:You know, they say, oh, it's going to be three times or four point one. We could have a GDP of 10, 12, 15 times if they just leave us alone. Let us let the rates go down. We should pay the lowest interest rates. You know, every point of interest is$600 billion. Think of that. Every point of interest is$600 billion. Two points means we make a fortune. But we keep driving it up. It's a very unfair system. And I've said it now for a long time. When our country does well, interest rates should go down. I mean, every time I hear our country is doing well, I say, oh, that's too bad. Because they lift up interest rates.

30:25Downtown Josh Brown:They should drop interest rates because it means we have a strong country and it's all based on credit, meaning good credit. And we have the best credit and we'd pay off the debt very easily, very quickly. But if somebody is paying a half a point, we should be paying a half a point, not somebody else. Right now, I think it's Switzerland has the lowest again. And I don't want to single them out. But if you take our business away from Switzerland, they have problems. So why are they paying a half a point? And we're paying much more than that. Does that make sense to anybody? No, it does. No, it does make sense.

31:00Downtown Josh Brown:All right, so I actually agree with everything he said, other than the numbers. The first thing he said was right. The premise, but it occurred to me, it occurred to me, Trump thinks like a borrower. Of course. He's a real estate guy and a casino guy. A borrower who was repeatedly cut off and who repeatedly went bankrupt and who therefore did not have credit or access to it. Yes, but as a real estate guy, he's like, if my business is going great, I'm going to pay a lower interest rate. Traders don't think that way. Traders think if things keep going this well, they're going to have to tighten the money supply.

31:38Downtown Josh Brown:Yeah. And that's why the rates go up. Of course. Okay, but I'm making this point. People were mocking him. He's like sort of right. I don't know where to go. I mean, he's not at all right in talking about interest rates. No, but the premise of it, we're the United States and the economy is going great. And I think that's fairly true. Not for every single person in the economy, but right now there's a ton of activity. People are making money. Consumers are spending. It's like, it's good. Business is spending. He sort of has a point like, wait, the news is good and they raise our interest rate. I understand the disconnect, but I just thought that was an interesting way of phrasing it.

32:20Downtown Josh Brown:And I think - He has said things like this for years. And it's very clear. It's exactly where it's coming from, which is what you said. You know, but also, he's not talking about the country. It's the government. And the government has to sell trillions of dollars worth of paper every year. Right. And next year, it's going to be$2 trillion more than it was this year. And so, obviously, you know, global markets set those rates. We don't pay a premium because of bad credit. Right? It's because of the macro conditions. By the way, we've been so fixated this week on where treasury yields are. It's not the creditworthiness that's driving the yields.

32:58Downtown Josh Brown:Which is what he's experienced. That's right. It's definitely not directly creditworthiness. Now, I think there's a lot of debate as to why rates are where they are. If you look longer term, I don't want to get too wonky about it. But how low do we think 10-year yield should be when nominal GDP is close to 6 %? Right. and we have all this borrowing going on to invest in the private sector and everywhere else, it's not weird. It's like it's kind of in the range of where you'd expect it to be, even if it does become punitive. So here are the things I want to hear your response to them. Thing one is political dysfunction, as if like three years ago, everything was like not politically dysfunctional.

33:38Downtown Josh Brown:Okay, fine. Throw that out. Maybe that's an issue, but it's like a forever issue. It's global yields. Okay, thing two, to Michael's point, This is happening everywhere with long bonds in every country. Thing three, $1.7 trillion worth of corporate debt, which is like 30 % more than the same time last year. Competition for, you know, it's AAA debt for the most part. On top of at least sticky inflation, if not rising. Yeah, the war and higher energy prices. So to you, this is where the rate should be. Multiple weather systems all interacting in a way that are pushing in the direction of higher, not lower rates.

34:19It's everything you said. It's basically the world is demanding so much capital. The bond market has to reprice and ration it. Right. You have to just find the clearing price through higher yields. The fiscal concerns, which arguably you could say long term, are kind of a creditworthiness thing in a vague way. I always feel like that's, it's kind of like the underlying autoimmune condition, where it's like under high stress, all of a sudden that starts to flare up and it starts to create symptoms and people start to get really worried about it. But it's not really the thing causing right now. You're describing the difference between the weather and the climate.

34:59Yeah. And I think, and so the fiscal concerns are always going to be there. But like you say$40 trillion in US debt today, we could have had the same panic at 30. I'm not, I don't think there's a magic hard trigger level where all of a sudden the world changes. What I will say, you talk about political dysfunction. So we're basically at 3 % of GDP goes to paying interest on the debt. Okay. We were last there in the early nineties. So in the early nineties, what it did create was a single issue, third party presidential candidate, Ross Perot. Like literally that's all he cared about. Got to bring down the debt.

35:37Downtown Josh Brown:The trade and the debt. Right. And, you know, right or wrong, it did, you know, maybe just because the pendulum swung and you had gridlock between Congress and the president in the 90s, you actually did get fiscal discipline, even though nobody really kind of planned for it or expected or wanted it. Right. And I also think that's one of the reasons and, you know, reason that, you know, the kind of hoped for AI productivity miracle might have a harder time happening in exactly the way it happened in the 90s. Because in the 90s, you had debt to GDP coming steadily down the entire time to the point where you had a surplus on paper by the end of the 90s.

36:14The other piece of it is the demographics. You had very few retired people per working person. Which is not the case today. That's not the case now. So I just feel like those are a little bit of headwinds to some kind of huge productivity boost. But as you guys are saying, it's always different.

36:30Downtown Josh Brown:Put up the chart, guys. Can we do that? What is this saying? This is public debt outstanding. We've got two colors. The light color is debt held by the public, which Michael and I have said like, yeah, we owe ourselves money. We are the investors in the debt and the debtors.

36:48Michael Batnick:Robbing Peter to pay Paul.

36:50Downtown Josh Brown:And then the other is intra-governmental debt, which I don't know. What is it? It's like a accounting plug factor for like social security trust funds and other things that we say, you know, they have a surplus now, and so we say that they own treasuries. Is it too convenient for us, me and Michael, anyone else to say, hey, we're the people that hold the treasuries. We own them in our money market funds. We own them in our 401ks. We own them like we're the whole – is that too convenient and simple to just say, eh,$40 trillion. We own 30 of it. Yeah, I mean I don't know that you can dismiss it.

37:28Like in other words, any level will be defined because we owe it to ourselves because at some point in theory, it crowds out. Turtles all the way down. Yeah, it crowds out other productive uses of capital.

37:39Michael Batnick:Let me ask this. But I don't know. Are you surprised how strong the stock market is? So you have basically every index at or near an all-time high. We are still involved with the war. The strait is still closed. That should have been or could have been or would have been predicted to have been a black swan event. Energy limit up, stocks limit down, right? That didn't happen. The AI trade is not really that hot. Yes, the memory stocks and the chips had a moment, but NVIDIA is flat. Meta is down. Microsoft is down. Google, whatever. Apple's up. But it's not like the Mag7 are powering the stock market higher.

38:18Michael Batnick:All their free cash flow is down. You had a report earlier this week that OpenAI's revenue numbers look kind of shitty. I would have thought just, and with interest rates where they are, given all this, that the market would be, I don't know, in a normal 12 % drawdown, considering how long the bull market has lasted? Yeah. I wouldn't say I'm outright surprised. I do think all the things you mentioned could easily have served as a handy excuse for something much more damaging on the downside. We have. Now, on the one hand, I don't know how much trouble the economy or the market can get into with 6 % nominal growth, deficits, 6 % of GDP, corporate earnings, absolutely flying.

38:59to the point where I'm more worried about over-earning and overstating of earnings than anything else. But earnings are just supporting things. And I think there's this massive swing from labor to capital. That's all going on. And that's to the benefit of what the S &P 500 captures, which is mostly a business-to-business, capital goods kind of wholesale economy. And so for those reasons, I'm not super surprised. I guess it wouldn't also surprise me to be down of it. It's a bull market. To me, that means 3 % to 7 % drops happen for almost random reasons.

39:32Downtown Josh Brown:You make such a great point. Micron is 10 times bigger than Disney. Yeah. People think about how's the economy doing. By the way, Disney's doing okay. It's like$107 stock again. But people, when they think about how's the economy doing, their minds go to Disney, maybe a hotel chain. Target or something. I mean, I guess Apple. But their minds don't go to Micron, But that's what's in the earnings. That's what's driving it. I mean, look, I was saying this in June back when, you know, semis could, you know, were just vertical to the upside is so many approaches and strategies got you to the same place.

40:10It's like, oh, I buy the best earnings revision stocks. I buy the best price momentum stocks. I buy growth at a reasonable price. They're all the same stocks. It's like, congrats, you own semis. And value. Micron's the biggest value stock. Yeah, exactly. Very true. And so you had a situation where it's like 18 % of the S &P is semis. Another 16 % is the four hyperscalers. They kind of were a zero something trading against each other for a while. I think another part of the answer, and I know you guys have kind of tried to puzzle out this whole dynamic of this immaculate rotation, as I call it.

40:40Where it's just like on a given day, oh, semis are down 2%. That has to mean Apple's up a percent and a half and healthcare's flying. Like it's just almost like. Programmatic. It feels programmatic. Yeah. And it kind of is, right? It's like there's these big trades on where the incremental dollar, at least tactically, is all about trading one factor against the other, essentially trying to stay neutral across all these different variables, and also not be out of the market. All the signals say you should probably have exposure to equities. But on the other hand, nobody has to buy.

41:14Downtown Josh Brown:But when you talk to traders about the modern market, most likely you're not talking to a trader who's trading news. you're most likely talking to somebody that works at a hedge fund that's acting as a market maker so if you talk to somebody at jane street or susquehanna or citadel like they don't give a shit what the news is so that that that mechanical thing that you're describing that rotation we just look at headlines and say oh that's why this is happening but it's not it's not that way it's machines with machines and every once in a while there'll be like a moderna-esque moment where the news actually is the thing that the traders are reacting to.

41:54Downtown Josh Brown:I think a lot of intraday trading, it's senseless, it's mindless. Intraday for sure. I do think, look, there's news, there's economic data that gets released. It creates a bit of a flutter. Something moves on it. And then everything else we're talking about sort of like reacts. Counter moves. Against it. Yes.

42:13Michael Batnick:I feel like this year, more than any in recent memory, John Chardon, please. It does feel like it's basket trading. Yeah. Where it's like so predictable that one thing's going to happen and one thing will get taken up or down by it. To the point where Bespoke said, we haven't seen an all or nothing day when basically every stock went up or every stock went down. We haven't had that since December 31st, 2025. That's the longest streak since 2001. Now, a huge part of this is March and the energy stocks not being all or nothing. So that sort of distorts us a little bit. But it's also been like, AI is going to kill everything.

42:47Michael Batnick:Oh, shit, AI is actually not what we thought it was. So it's the AI semi, the AI software stuff. It's just been a very interesting year. It has. So there are all these offset trades. And the other piece of it is you mentioned energy. And you know everybody is on this idea of like this group of stocks that act as negative beta. Negative beta, yeah. So now that's just an outgrowth of this current situation. By the way, so much of this stuff was like, oh, how many days have we had negative breath when the index was up and vice versa? That's all downstream of the concentration. Correct. I mean, that mathematically only happens - Oh, this has never happened.

43:21Yeah, it never looked like this. Exactly. But the negative beta thing is really fascinating to me because I think it became really consensus-y in the industry that energy is your diversifier because bonds can't be owned, at least in the way they used to be. So describe this factor that we're talking about. So it means stocks that have a tendency to move in the opposite direction of the S &P 500 on a given day or even longer than a day and therefore can act as a diversifier. That used to be utilities.

43:46Downtown Josh Brown:That doesn't work anymore. Exactly. Those are AI trades now. They're AI trades. A lot of trades are a little more rate sensitive than they used to be, like, you know, tech hardware and all that. So I think that's definitely part of it. What I want to hesitate to actually suggest is it's not the same as saying, like, the machines are mindless and the machines run the market. And therefore, you know, it doesn't make any sense and it's not connected to fundamentals. Because if there was a macro shock, if there was something that came along that really did change the underlying equation. Another COVID.

44:18Every stock would drop. Of course.

44:19Downtown Josh Brown:Well, the machines in that scenario, the first move they make is they turn off. Right. And then they might trade. But I've been dealing with this my whole career where it's like, you know, HFT was a huge thing 15 years ago as if it was just like, you know. And I was like, yeah, fine. They're market makers, you know. They're kind of trading these little like flow models. Flash boys. Flash boys. Yeah, exactly. And it's like, oh, you know what? Um, they, they're like, these models are right, like 51 % of all trades and they're making a sliver. It's not like they're, you know, racking up the big gains.

44:50Um, and it's funny when I, when I also first got into it, I, I get into the business in 92. It's really psychologically still in the, in the hangover of the 87 crash and like the 1990 real estate crash and the, um, the LBO crash. Savings and loan. Oh, it's a financial, uh, markets really had it back. And so if you remember, after the A7 crash, they did this forensic thing. What caused it? You know? Oh, program trading. Portfolio insurance. We got to make sure we take it. Portfolio insurance. So from that moment on, they mandated every single week, there was something that came out from New York Stock Exchange that was the program trading activity, you know, report on Thursday after the close.

45:27And I used to look at it every week. It was in the wires. And it would be kind of meaningless. But it would show you, like, volumes each firm executed by index ARB strategy or other strategies. And it's like, what are we doing here? I don't know what to do with this information, but somebody decided that that was the tail that wagged the dog once. Let's make sure it doesn't wag it again. And so years later, this is probably mid-2000s. I was in with a head of equity capital markets at one of the big firms. And he said, yeah, he's like, you know, that wasn't really a scientific thing, program trading.

45:56It was like his definition of, you know, at least 20 stocks traded as part of a strategy. It's like I'm working like an order of like multiples. But it was like open to interpretation. And he said, back in the day, the stock exchange, like the examiners would be like, if there's a gray area, just say it's not a program. We don't want to make it look like, you know, this is all bots doing this stuff. And then at some point in the early 2000s, it changed. And New York Stock Exchange is like, no, no, we want to seem high tech. We want to seem like we're, you know, we're up with it.

46:27Downtown Josh Brown:More program trading good. Yeah. Loaded into program trading. So I sort of see flows that way. I don't know what to do with it. Yeah, exactly. Is it contrarian? Do I always? Do I? It's just interesting. Something to talk about. It's for content. Yeah. But do I need to know at Merrill Lynch? I know. We have a weekly report. It's what you're getting at. It's institutions, hedge funds, retail. Retail bought the most tech stocks in five weeks. Okay. Good?

46:59Michael Batnick:Yeah. Bad? How about this? That data is probably valuable to somebody. I do think there's a way to actually make a model. Look, you guys had Todd Sohn on from Strategas. He does good work with ETF flows, in sectors. As a sentiment. You create bands that say, this is normal, this is extreme, and then you can trade it. I will say that one thing that has been consistent is people now track retail net buying obsessively. Vanda does that. Vanda does that. It's been happening, especially since the meme stock got crazy. And definitely, retail is much more of a force, much more active. They push and push.

47:35They stampede in some directions and they're just, they buy. Like that's what they mostly do. But Scott Ruben over at Citadel, who's this flow guy, used to be at Goldman, you know, you have retail net selling. It's not happened often. Last week of March, guess what? The market bottom there. And the last week of July. It's just another way of saying the VIX. Exactly.

47:53Downtown Josh Brown:It's another way of saying like, yeah, that's why stocks were down. We could arrive at that answer in 50 different ways. I could look at RSI at 30. I could look at advanced decline washed out. Like it's all the same. My only take on that is I kind of bristle at the what's happened more recently, which is to lionize retail traders as actually they're the ones that are the smart money because they always buy the dip. They buy the dip until it gets a little scary or goes on a few weeks and then they sell. Not in 401ks. No, of course not. That's the exception that proves the rule. But that's different.

48:22Downtown Josh Brown:But that's like. That's the best investing. Of course. Anywhere in the country. Better than any hedge fund. 100%. They will buy. they all vanguard talked about how they reacted to covid yeah the answer is they didn't i know they literally bought every every print on the way down vanguard also fire a client that trades too much and gets too over excited but that's good i'm just you know they don't act like retail investors but they are yes the same people here's another great example of just it's it's great stuff

48:50Michael Batnick:to talk about is it actual i don't know but what we're looking at john authors uh shared this chart DRAM ETF total assets. So he's comparing it with the SOX index. And we know semiconductors got the shit kicked out of them during the situational unwind. And then individual investors didn't care. They just kept piling in. And Michael, you're right. I think there's maybe too much of them. They're now the smart money. It's a reflection of the market environment that we're in. So it's not to disparage them. 100%. Credit to them. They've had the balls to continue to pile in. And it's a reflection of the market that we're in.

49:19Yeah, there's no doubt about it. And they have the tools now. And I also think there's a thing with retail is they don't crystallize losses. What do you mean? If something's down, they're not quick to sell it. It's like, that'll come back. And so therefore, there always seem to be the next move is always to buy. It's more often to buy than not. I know that this isn't borne out by like when Interactive Broker says what their people are doing. They're quasi hedge funds. They're kind of semi-professional traders, a lot of that flow. But I do, yeah, I totally agree with that. I mean, now you have - They don't sell unless it's a margin.

49:52I don't get obsessed with zero dated maturity options and all that stuff. It's kind of just noise. And if anything, it creates a little more of a mean reversion effect throughout the day. It's kind of like it kind of keeps things in a range over the course of a day. Because it's kind of like the public buys the calls in the morning. The street sells them to them. And then by the end of the day, you have all this decay in the options values. And then they buy them back.

50:15Michael Batnick:But it's so true. There's this push and pull. Because Citadel Millennium, they're down 5%. Sell. Don't care. Sell. yes and the retail is like great we're sold to us thank you totally and i think there's so much of that going on like i i've been working on this thing where like the options income funds are like private social security because it's like the young people they they pay for juice call premium to play the upside in these stocks and you have all these people who just want income out of options and they're just like let's sell the juice calls covered calls somebody's i never thought about that yeah of course you know it's kind of you know it's sort of overstated that it's actually like you know funding the retirements of people but i know people own those out oh you're

50:56Downtown Josh Brown:right and look at the most popular etfs this year a lot like a lot of the names in in that on the

51:02Michael Batnick:in the winner's circle are selling calls so neo neo is an innovator the ones that goldman just bought both of them big time options etf i find it somewhat i transfer from traders to to investors I find it slightly ironic because I understood why that stuff became popular at 0 % interest rates. You know, money markets weren't yielding anything. But I guess people just like it. So, Ben and I interviewed Bruce Bond in 2018 or 19. And I immediately said, holy shit, this could be a huge category. And the reason why I was so confident is because there's never been anything for the everyday investor where they can guarantee their range of outcomes.

51:40Yeah.

51:41Michael Batnick:With a 60-40 portfolio, all right, you're shrinking the range a little bit, but then 22 comes along. Yeah. Like you don't, right? So it's offset a little bit. But when you could say negative 10 up to plus 12, nah, that doesn't work for me. Okay, fine. Negative 5 up to plus 7. Oh, that's more my flavor. Yeah. There's never been anything like that with the stock market where you could say, this is the risk I want. I totally agree. And yeah, look, there's a reason that annuities have been around forever. People, psychologically, some people just want the certainty of outcome. You put this in the doc, I guess, about the current bull market.

52:16Prudent to assume that the valuation peak is in, then be open to pleasant surprise if not.

52:23Downtown Josh Brown:What do you mean? Yeah, what's your problem? So, at least on a PE basis. Why are you trying to confuse everyone, Santoli? I know. We get to 23 times last October forward. You know, you were there in the pandemic, but that was depressed earnings. So, you're on 23 times kind of peak earnings. at the time. And since then, it's compressed, right? Earnings have grown a lot faster than stocks have gone up, even though stocks are up since that. And I just feel like a few things are mitigating the rebuilding of that PE premium. One of them is, and I know you guys talk about this, the whole like, well, we don't have free cash flow anymore, right?

52:59This is all kind of like CapEx heavy capital intensive type drivers of the growth right now. Actually, on a forward price to free cash flow basis, we're at 30 in the S &P. Don't love that. And so, but it's voluntary.

53:11Downtown Josh Brown:They're doing it on purpose. That's the thing. Yes, I agree with that. And everyone knows it's not against their will. I totally agree with that. And that's the fascinating element to me, which is, it's funny because, you know, you have like, Google does their earnings call and like, you know, they get out there and they're like, no, it's early. Trust me, it's still early. I'm not sure investors want to still hear it's early. Like they want to get to a destination. But the people running these companies, they grew up worshiping Jeff Bezos. Totally. That's what they studied. 100%. When they were in business school or when they were at Stanford, that's what they studied.

53:44Downtown Josh Brown:No, the shareholder letter from the S1 is like in their crib. That's right. So these are Amazon cover bands. Totally. And Wall Street is not stupid. They get it. Yeah. Like, oh, you're doing this on purpose. Okay, in that case, we can live with it. Yeah. I mean, to a point. Well, look, and I also totally agree with the other bull case of these companies are responding to genuine demand signals. It's not like totally speculative that we're going to build it and maybe somebody is going to use this stuff. I still think it's a little bit of a threat. Like capitalism shouldn't work, that everyone all at once decides to spend all the free cash flow on the same thing, to build the same thing.

54:20And everybody gets a great return off of it. But maybe that's not today's business. This is what Kodrowski is saying.

54:24Michael Batnick:He's saying, I get the fundamental evolutionary technology. We're not spending because we're dumbasses. Exactly. But the ROI is just not going to be there. Maybe that's okay. I don't know. The longer I do this, the more I sort of doubt that there are any of these ironclad rules of like, what creates value and what does stocks need to – I was always pushing back against the, oh, buybacks jack up the market.

54:48Downtown Josh Brown:Yeah, well, we don't have any anymore. You don't have any. Well, you have a trillion dollars worth, but it's not as much relative to the size of the market cap. But it just didn't really hold up. Like, it was just – it didn't goose the stocks that were doing the biggest buybacks. In certain circumstances, they work. I do think that the economy runs on stock-based compensation to a degree most people don't appreciate. And so you have these huge companies that their buybacks are effectively soaking up the equity compensation that they give to their employees. And that's great because those people have the money.

55:17Who's more disingenuous generally, bulls or bears?

55:23Downtown Josh Brown:You know what I mean by that? I do. I do. I would say. Because I think it's a landslide. I think bears are probably more opportunistic in terms of the information that they will deploy. They will change the argument but maintain the stance almost no matter what. Yeah. Here's why. I don't think bulls do that.

55:43Michael Batnick:Here's why you're right. Bulls will always concede that there is a bearish case out there, almost universally. That's like, yeah, we know, like I understand the risk. I'm not naive. Bears never say that there's upside risk. It's just, they just keep digging and digging and digging

55:58Downtown Josh Brown:and then changing the story. So here's why I'm asking you that question. Because I know you respect the Bulls and the Bears at all times. And that's, I think, why you have almost universal approval on Wall Street. People say – like people – you have credibility. Let's put it that way. You have credibility on both sides. It's not that you're like catering to the Bulls this week and the Bears. You just – you recognize the risks. You write about them. You don't pretend they don't exist. But you're also not one of them just for clicks. You're not going to say the scariest shit you can in the headline to get people to click the way I do on YouTube.

56:38Downtown Josh Brown:Okay, wait a minute. Right. But here's my point. two years ago 2024 we were in a bull market extremely concentrated yeah definitely led by mag 7 can't argue it and the bears said this is bad here's what happens to concentration look what happened at the end of the 50s 1960 this time that time and then all of a sudden the market broadened out over like two years later to the point where we had multiple mag 7 names in 20 % drawdowns and the S &P was at all time highs. Did one of those people come along and say, okay, I was bearish about that thing. That thing has been cured. Therefore, I'm not bearish anymore.

57:22Downtown Josh Brown:No, they move on to the national debt. That's the disingenuous thing that I'm referring to. I agree with that. And look, I start with the premise, as everybody should, that market goes up 70 % of all years. It goes are 55 % of all days. You're fighting the tide if you really think that you're going to be down a lot and on a sustained basis. It's a conspiracy. Now, yeah, I mean, every incentive moves in that direction. Why wouldn't it, you know? That being said, I do find myself just like temperamentally not always wanting to play along. Like in this recent period where, and it's funny because I sit there in front of the wires, in front of the screens, listening to CNBC and all the guests all day.

58:03and you start to hear the mantra. You start to hear the echoes. Everyone starts to sound. And once the market came back after the July sell-off, it was like - Earnings. Earnings on my North Star. Earnings are the lifeblood of a bull market. And everyone is very self-congratulatory about having stayed the course because it feels virtuous and it was all fundamentals all along. And it's a foolish game to bet against it.

58:26Downtown Josh Brown:I told you not to panic. And that's fine. But I start to bristle at that a little bit, not because I think they're wrong, but because, you know, I wrote about it this week in my column where I said, you know, in Mad Men, Dr. Faye Miller says to Don Draper, you know, you only like the beginnings of things. And I only like the beginnings of things. I like when a rally feels like it's in the face of challenges or it's not just extending it on the obvious information. By the time everyone agrees, earnings were amazing. You're like, yeah, I know. But what I don't do anymore is say, that's why it's over.

59:01Because it probably isn't over.

59:02Downtown Josh Brown:Yeah.

59:02Michael Batnick:I still feel like there is a wall of worry. There is a lot of disbelief up there. But I would be moderately surprised if a year from now, we're having the same conversations with the continued negative free cash flow. Yeah. The continued, like, it's coming, it's coming, it's going to pay off. I would be surprised if the market is cool with that a year from now. Yeah, I think that's right. Or at least if there's not some kind of intervening jolt, some kind of gut check, some kind of – because honestly, I sometimes feel like that's what the market needs. It's like if it goes along on the same storyline for a while, it needs a scare.

59:37And a scare and relief cycle is often what can kind of cleanse it. You need that. I love it.

59:41Downtown Josh Brown:So we had that. We had situational awareness. We had a leverage unwind in Korea. And then the earnings bailed us out. Right. What else would you want to be bailed out? No, and I don't think that that's wrong. I think that the extraordinary part of it was you never had more than the 3 % pullback in the S &P 500. So you had the choreography work so well. Yeah. And, you know, you mentioned the broadening. I'm, like, known for not necessarily thinking that a broader market is, by definition, a more stable or rewarding market. Mobuson empirically proved that.

1:00:11Michael Batnick:What's that? Mobuson has a piece with Kyle and he said, actually, bull markets are where concentration happens. Be careful. Beware what you wish for. I agree with that. But they can be like these interludes, these phases where when the big stuff is correcting, it's good if the rest of the market kind of rises to take up the slack. I mean, that's what's happened multiple times. The other thing, though, that I think has been a hallmark of the last 15 years, everyone assumes everything's going to be a catchdown. Yeah.

1:00:40Downtown Josh Brown:So they assume anytime there's a negative divergence, small caps are lagging or value stocks are in a 20 % drawdown while growth is at all-time highs. They assume the cure is going to be the whole market succumbs. Sure. And I know that does happen, but almost never. What actually happens is it's a catch-up. Yeah. And that's got to drive the bears absolutely insane. Probably. If they even are aware of it. Yeah, probably so. I mean, look, the flip side of that is, you know, this chart that I just, I'm not going to expect anyone to see it, but it basically shows like. Did you hand draw that? That looks like a Luis Yamato special.

1:01:19I printed it out from somebody who had hand drawn it.

1:01:21Downtown Josh Brown:Okay. Percentage of S &P stocks above 70%, above the 200 average, exceeding 70%. So 70 % of all stocks above the 200 day. And these are all periods when you had a 15 % to 20 % drop from that level. Like, in other words, it's not like a get out of jail free card. Oh, it's a broad line.

1:01:38Michael Batnick:So basically, is this as good as it gets? Which brings me to this. Was Citadel awareness a tremor? The same way that LTCM was, the same way that the QuantQuick was, like, are we a year, two years away?

1:01:51Downtown Josh Brown:Is it the canary in the coal mine? I don't know how to answer it. I don't think it has to be. For example, I don't think long-term capital was a tremor that somehow you could draw a direct line from there to March 2000. Had nothing to do with it. You're right. Nothing to do with it. If anything, the only thing you could say is it creates this huge global tightening of financial conditions, recession scare, Fed has to cut, gun the economy into 99, and then you create the excess. So in that way, maybe, but it wasn't the long-term capital, the imbalances themselves.

1:02:25Michael Batnick:Where are you on this? People say, and I'm sympathetic to this, this is a service-based economy. There is so much money. Something seriously bad needs to happen for that train to be slowed down. Sure. I mean, I think that adds a stability to the macro. I think so many of those rules of thumb, like we were talking about, like, oh, market 15 times earnings is the long-term multiple. Not now it's not. Et cetera. No, I know. I'm saying when I came up - Made sense. That's what it was. Well, that's because you used to be trapped in this manufacturing business cycle. You have recessions every three years.

1:02:57Margins used to mean revert. Right. And now that doesn't mean I don't think people are over-earning right now because I do think -

1:03:03Downtown Josh Brown:John, we're going to title the show Earnings Can Never Fall. dash Michael Santoli. No, I mean - With his Twitter account in the headline. Plus, you know, there's all, I mean, you want to wear bears. Like there used to be a big thing of like, I can't believe that people bless operating earnings as the standard. Yeah. You think about that. Like he used to be gap earnings. What about this one? The current crop of CEOs and CFOs might be the most battle-tested group of executives collectively ever to run the S &P 500s companies. Look at what the last 10 years has been like for these people. You could start 10 years ago.

1:03:46Downtown Josh Brown:You could start five years ago. But let's just say Trump won. Yeah. Trump term won. Literally being screamed at on Twitter by the president threatened. Roll right into the original tariff and all the issues with soybeans and whatever we were dealing with in 2018. manufacturing, blah, blah, blah. Roll right into COVID, January 6th. Gay pride issues at the retailers, like how dare you put that display up? Disney having to fight culture war stuff in the parks, blah, blah, blah, blah, blah, blah, blah. Right into like the next Trump term, the new tariffs, Liberation Day, the Iran war, record high inflation, work from home.

1:04:32Downtown Josh Brown:Like these people running these companies, and I know there's been some turnover, but by and large, can you think of another era like without going to World War II of people running companies through this f***ing s*** that never ends and seems to get crazier with every passing year? Like these are ninjas at this point. Yeah. I mean I think you can definitely credit the kind of institutional resilience. And profit margins are at 15%. Yeah. Take everything I just listed and profit margins are 15%. Revenue growth this quarter was plus 14. That's not all AI. I mean, so much of that is, I had to say, so much of it is compositional, right?

1:05:09It's like the kinds of companies that are that big in the index are magic. Yeah, yeah.

1:05:13Michael Batnick:Starbucks and Chipotle can't get out of their own way. They're not run by dummies. Yeah, UPS's earnings are going to be what they were like three years ago. And Nike's where they were 15 years ago. And, you know, I was just looking at Thermo Fisher, great growth company over the years. It's been flattish earnings for a couple of years. But I agree with you in general. I mean, you probably have to go back to like maybe 68, 72, like hyperinflation, oil crisis, Nixon, Vietnam. But, you know, look, I think it always seems like we've just been through the worst or the most or the most extreme. I always go back to Byron Wien, the Morgan Stanley and later Blackstone strategist.

1:05:48One of the greats. He, is he one of the greats? Absolutely. He's a sweet guy as well. I remember hearing him speak at this event, and he said that he came into the business in like 1958 or something like that, right? Came out of business school, got a job at an asset manager. And he says it was at exactly the moment when stock dividend yields crossed below treasury yields. Which was supposed to be a market top. Supposed to be a market top. Never happened sustainably before that. It was supposed to mean you were massively overvalued market. And then it stayed there for 50 years until the global financial crisis.

1:06:22Right. And he said he saw what it did to the people at the firm, the older guys.

1:06:27Downtown Josh Brown:Broke their brains. Yeah. He said they couldn't adapt. Because they set their watch by it. Yeah. Anytime the dividend on the stock market goes below the treasury, that means stocks are too expensive. Buy bonds. Yeah. Sell stocks. Buy bonds. And then the market quadruples. Even more. And so he said it kind of taught him. He used to have a funny way of saying, like, you know, these guys, like, they obviously are wrong for a while. And they kind of lose some of their clients. And, you know, he said eventually they go from a corner office to an interior office. And all they got to do is call the college roommate for new money, you know, whatever.

1:07:00And I think that he said that it fed into his idea to do the 10 surprises list every year. Because that was a big surprise. Let me test myself to figure out blind spots and where things might go different.

1:07:12Downtown Josh Brown:Okay, so you like Ween, you like Barton Biggs. Sure. What would Barton Biggs or Byron Ween be saying right now? I think they would, for one thing, be celebrating the long-term economic and sort of societal benefits that we're probably building with AI. Like, whatever you think about how the equity market's going to metabolize all this and whether it's overdone in the short term, if all this gets built the way that, like, it just increases capacity so much, whether it means that, you know, we accelerate the renewable energy thing. It's going to create, you know, I think that they would embrace that while also being nervous about, I think, pockets of, you know, unthinking excess.

1:07:56I don't know how they would think about, you know, three times levered single stock ETFs. You know what I mean?

1:08:02Downtown Josh Brown:They probably wouldn't love them. What's this money game anecdote from Adam Smith? Let's do this. Yes. You want to read it? Sure, let me read it. Adam Smith, of course, was a pen name. I believe his name was George Goodman Jerry Goodman. Okay, you might be right. So there's the money game in 1968 And this was like a classic kind of a real like slice of life of Wall Street at that time It was of course a real booming bull market And so he's kind of talking about how the younger people in the business were so excited about mostly the mainframe computer Craze and how it was printing money So this is in the voice of one of the younger people saying computer leasing stocks, sir he said like a cadet quiz by an upperclassman uh the need for computers is practically infinite infinite said billy the kid leasing has proved the only way to sell them and computer companies themselves do not have the capital therefore earnings will be up 100 this year will double next year will double again the year after that the surface has barely been scratched the rise has scarcely begun so core weave yeah exactly i mean that's obviously why i chose it Because, you know, hey, but you know what?

1:09:08The mainframe revolution was real. And it's just about like, I mean, so here's another premise. Here's another longstanding principle of mine. And everything ends in a boring place. Whatever company you're excited about right now, if everything goes beautifully, like it ends up being kind of a utility or a mature company or some parts of the guts and operations of the economy. And it slows down. And it's like eBay was a moonshot, exciting stock. It was hot. And, you know, I even think this about things like, oh, Circle comes public. It's a stable coin company. It's like, congrats. You know, you're a custodian.

1:09:45You earn a spread off of T-bills. Bank of New York Mellon has trillions of dollars and trades at 12 times earnings, you know. So I do think that you have to be aware of that. And you kind of ride the exciting phase and then figure out how it decelerates off of that.

1:09:59Downtown Josh Brown:I just, I think that's true, except if Elon is involved. Right. Because he will cannibalize his own company. He will reinvent. He just shut down. No more Model S. Yeah. No more, I forget which other, no more Model X. We're going to make robots instead. Nobody has the license to do that. Right, right. I think he's the exception. But generally, I agree with you. And actually, one of the most fun parts of the rally this year and late last year, how many throwback stocks have become their former selves? Okay. And I'm thinking about Sienna and Dell and Cisco. And I love that so much because those were the momentum stocks that I grew up with.

1:10:39Downtown Josh Brown:And they all became momentum. Whichever ones that left all became momentum stocks again. Yeah, exactly. I was looking for MFNX. I couldn't find it.

1:10:47Michael Batnick:I said, I would buy that if that was still around. Let me read something, another thing from The Money Game that always stuck with me. And I think this is so important for individual investors to heed this statement because it's so true, especially when momentum breaks. All right, here we go. A stock is for all, again, 1968. A stock is for all practical purposes, a piece of paper that sits in a bank vault. Most likely you will never see it. It may or may not have an intrinsic value. What it is worth on any given day depends on the confluence of buyers and sellers that day. The most important thing to realize is simplistic.

1:11:20Michael Batnick:The stock doesn't know you own it. All those marvelous things or those terrible things that you feel about a stock or a list of stocks or an amount of money represented by a list of stocks, all of these things are unreciprocated by the stock or group of stocks. You can be in love if you want to, but that piece of paper doesn't love you. And unreciprocated love can turn into masochism, narcissism, or even worse, market losses and unreciprocated hate. How good is that? That's beautiful, yeah. And of course, the corollary, as people always say, is like, it doesn't know what price you paid for. Like, if you think there's something magic about your cost basis, that it has to gravitate back there or anything like that.

1:11:56I fall in love with stocks all the time. I still do that. No, of course, it's the natural way. By the way, one quick thing. I don't revenge trade, though. One of my favorite observations right now is if you look at Tesla relative to the S &P 500, in its history, go back however far you want, it's outperformed the S &P by, what, 3 ,600%. It's massive. Every basis point of the outperformance happened in calendar year 2020. It went up 10x. Wow. Right? Yeah. So it's like, but it held it. I'm not saying it's like a disaster since then. It basically is mostly held it. But it's just fascinating that it's just like so many things hit perfectly well for that moment.

1:12:36And people love their Tesla.

1:12:37Downtown Josh Brown:So one of the other features of this bull market is I find myself on a weekly basis, maybe daily, asking myself out loud, am I dumb or are they dumb? And I don't know the answer, but I want to run this one by you. Yeah. Just as a, not that this particular story is that important. Open router. It's basically a harness. So it's like you used to go to Google as a search engine and it indexed all the links. So you went to Google first because it would take you to where you eventually wanted to go. Okay. So Open Router is the same. You have a project you want to use for AI. You go to Open Router. You'll select from hundreds of different LLMs and you'll pick one or it'll be a combination of multiple.

1:13:21Downtown Josh Brown:It's a great idea. It's sort of like the Google for the AI age, except it's tiny. but it's, so they're calling it like the harness, like the AI harness rather than going directly to Claude or directly to, okay, fine. This is the news on Open Router this week. Stripe is going to buy this company, which is quote, this is the information, like a retail store that sells access to hundreds of AI models. Most, they say including Anthropic, but I would assume it's a lot of Anthropic. Uh, they're going to buy this company that just had revenue triple to 13 million with an M 13 million. Stripe is going to pay seven to seven and a half billion dollars.

1:14:09Downtown Josh Brown:The valuation on open router in May, which was three months ago was 1.3 billion. So in three months, and I don't know what the user growth, all I know is it's 13 million in revenue valued at 1.3 billion three months ago. it's going to get acquired for seven and a half billion. Am I an asshole? I mean, like, am I dumb? Right. Are they dumb? I don't know. Do the numbers really mean much? I don't know how they're paying for this. It might be a brilliant, who am I? Right. Like, I don't know.

1:14:38Michael Batnick:Number one, Zuckerberg bought WhatsApp for 11 billion. That's true. And we were like, what? You can go back to Google with YouTube. Instagram. Instagram. A billion dollars. 11 people, a billion dollars. Like, who knows? I mean, people freaked out that Apple paid$3 billion for Beats. And they like, you don't even notice that. Do you find yourself asking that question? I do, absolutely, 100%. And to me, if nothing else, it's a measure of, you know, the desperation of the buyers to play in a certain area or to kind of find this sort of like - Make sure somebody else doesn't get it. Skeleton key to the next thing we need to do.

1:15:05I did hear somebody just talking about OpenRouter as one of the thing that makes it valuable is it has all this data for like all these agents that are flooding into it. So like there's a way I'm sure you could use it to exploit and map other things and have access to other information. But I am actively ignorant about a lot of the details of what's going on right now in AI and everything else. And I know everyone tries to pretend that they know everything about this kind of wafer and what tokens are going to cost down the road. I try not to pretend I have a strong view. Dude, it's impossible.

1:15:37I listen to Ben Thompson, who I love.

1:15:39Michael Batnick:I read his stuff. He was on with Patrick for an hour and 15 minutes. Listen to the whole thing. I can't tell you a word of what he said. Yeah. I have no idea. I mean, I'm a late adopter, too.

1:15:48Downtown Josh Brown:but this is another thing that I think is going to stop and we were talking about this last week there's such an intense focus by traders people that if they tripped over a wafer couldn't tell you what it's used for they think it's a waffle iron now all of a sudden they're talking about they're talking about chip yields that's not going to persist for more than I would guess the next correction that'll stop but right now Now, I've never heard so many Wall Street money guys talk more about the intricacies of manufacturing a memory chip. Right. I can't remember a time where people were this comfortable spouting terms.

1:16:31Downtown Josh Brown:They have no idea what it even means. Yeah, I was at a dinner where there was a lot of that talk going around, small group. But one guy, too, was like a new Parker dinner. No. Because I can picture it. All right. Go on. Every single thing about like the kind of repurposing of jet engines into, you know, gas turbo and generators. Oh, sure, sure, sure. And I mean, look, he obviously did the work. He's up huge in the stock he was talking about. Like it's not that it was for nothing. But I was like, you know, the other – probably two years ago he's trying to figure out like Lululemon comps, you know.

1:17:02Downtown Josh Brown:That's my – I think that's my point. And it's not as though I'm not guilty of it. Everyone's not guilty. So we're all to some extent now forced to learn this new language because this is what the stocks that we care about are trading on. But I'm just amazed at how far it's gone. And now they're launching ETFs that will build a basket of the companies that are in a specific AI company's ecosystem. And I just – I have no problem with it. And I bet there will be people trading it successfully. I guess my point was that's got to be toward the end is one. And two, people are going to lose interest in that shit real fast because I remember when they were taking apart the iPhone.

1:17:41Yeah, right.

1:17:41Downtown Josh Brown:And building baskets of whatever components. The component makers. How long did that go on? For a year? It's true. Okay. Or like the LiDAR companies and the EVs or whatever. Yeah. Right. So that's toppy behavior, I think. It feels like it. I mean, it also is. I mean, to your point about the old kind of guard of companies that are coming back. I mean, they obviously have a durable know-how, and they're going to be in the middle of whatever these trends are. And the Microns and, you know, Western Digit and all that stuff, great. Let's see how this renaissance. But never forget, Western Digital spun off SanDisk a year and a half ago.

1:18:17Because nobody wanted it. Because you couldn't care about it. That's so crazy. It's so crazy. And SanDisk would have met how many thousands of percent?

1:18:23Downtown Josh Brown:I think their shareholders demanded that they deal with it. Of course. Get rid of this piece of shit. It's an anchor. It's unbelievable. Right. So even the people in the business aren't quite sure what the next move is going to be. Do you have fun on the show today? I loved it. We had so much fun. So we're going to do a quick intermission. We'll do dinner. Sure, of course. Can we talk? You need me to cook? So I want to do two things before I let you out of here. I want you to tell everybody about Closing Bell Overtime. So you're the anchor. Co-anchor with Melissa Lee. Fine, of course. Love Melissa.

1:18:56Downtown Josh Brown:so you haven't had your you've been the anchor on every show on the network yes as a fill in as a fill in but you've done squawk you've done you've done it all pretty much you and I had a show together we did we got cancelled after six weeks but I knew we would it was a planned cancelled it was temporary because they told us it was cancelled before it started and Netflix calls it a limited series that's right we did a limited series tell us about Closing Bell Overtime what you love about it and how it differs from what's elsewhere on the network four o 'clock every day four to five and you know the simplistic analogy, but it's an accurate one is the post game show, the immediate, like, here's what happened.

1:19:33But also just pulling the themes out that matter. I mean, it's not just like the numbers and here's the up and down. We keep it pretty close to the markets. It's an amazing time slot because you get earnings. And we get earnings. Which is like the best. And which feels like, you know, it's basically seven months out of the year. Yeah. Pretty much is like pretty full of earnings.

1:19:52Downtown Josh Brown:I can't believe Wapner let you have that real estate. Imagine that. And he took three. He does get to kick out a little early. Okay. It's great real estate. The earnings are great. I mean, look, it's always tricky to figure out exactly how to execute that tradeoff between speed and depth. That's really hard. It's hard. You know, it's always like kind of a moving target on that. Like you're never going to be faster than the headline reading algos to trade these things. But you want to be fresh. You want to make sure you have an urgency about getting these numbers. And so, yeah, it's been great so far.

1:20:27Started in January and having fun with it. And you are still writing.

1:20:31Downtown Josh Brown:Yeah. Okay, so tell us about the writing and where people can find your stuff. Sure. So, yeah, I've written a weekly column for CNBC Pro since I got there. Now it's kind of being repackaged in a way into a newsletter. It's called Market Memo. Most of it is just the body of it is kind of like my column, my market column. maybe a little more targeted, a little bit less like here's the whole state of play for the market. And then maybe just stray observation, stuff like you guys would do. Like here's a chart that's fascinating. Here's a point of conversation that really kind of got escape velocity during the week and what are people saying.

1:21:08And then a little bit of pop culture nonsense and Gen X, you know, complaining that.

1:21:13Downtown Josh Brown:That's the part I'm looking most forward to. Because I know what happened in the market that day. I've been suppressing all these years, yes. Why don't they brand that as like the Michael Santoli column? I think it's Mike's market memo. Mike Santoli's market memo. Can I pitch you a different version? Go ahead. Okay. Santoled me. It's not bad. It's better than... John loves it. You know, people have tried nicknames over the course of my life. They haven't stuck except for the kid in fifth grade writing my name on the board. And he misspelled it. And so it became Santoled for a little while. Nice.

1:21:43Downtown Josh Brown:But I'm glad that didn't hang with me. All right. And then the last thing, we're going to settle a beef. The Long Island's eternal North Shore versus outshore beef. Well, where are you from? Well, here's the thing. I'm talking down to us. I'm sort of, I was originally from the North Shore. Are you from Plainview? That's not the North Shore. No, I was originally from Port Washington. Okay. That's North Shore. But my whole extended family had lived there for a long time. Look, I like the hills. But what's the beef, though? I'm making that up. I think there's good and bad on both. No, absolutely.

1:22:12You guys got the ocean. You have restaurants. You have the restaurants.

1:22:17Downtown Josh Brown:You have more of the good restaurants. Meanwhile, I live in the city. Let's be sure. No, no, no. This is me going back. I'm saying as a North Shore, obviously better school districts, but not crazily better. No. Slightly. It's preference. It's preference. It's a lot of preference. I do like the woods and the hills. The North Shore is obviously way prettier. The woods and the hills and the whole like, you know, if you go down a certain area, it's Gatsby and all the rest. Yeah, but the coast sucks. Like we have better beaches. Of course. Right. Yeah. The Long Island Sound beaches are useful. So I wouldn't jet ski off the North Shore.

1:22:48Downtown Josh Brown:You'll hit a rock. Like where I am, I have like white sand beaches. Right. So you're right. It is preference. It's 100 % preference, yeah. So if you live in Middle Island, you get the best of both worlds. I kind of grew up, yeah, more like in the middle. Yeah. I could ride my bike to either North Shore or South Shore. All right. So I guess we settled that with no answer. I now live on a different island than Manhattan. All right. Michael, we're obviously huge fans of yours. Thanks so much. You did an amazing job on the show. He did not disappoint. We're going to encourage everybody to check out Closing Bell Overtime, 4 p.m.

1:23:21Downtown Josh Brown:Eastern, five days a week. Check out Mike's Market Memo at CNBC.com. Definitely subscribe to that. And just thank you so much for everything that you've done, everything you've taught us. You guys are the best. Really appreciate it. You hear that? He said you're the best. We'll get into right there.

1:23:46Thank you.