IBM Warns, Apple Sues OpenAI, Big Bank Earnings Blow-Out, EPS Bubble, Welcome to Y’all Street

9:21Michael Batnick:I mean, listen, it's been trading for three weeks. I have no idea where this thing is going to settle at, but not for me.

9:27Downtown Josh Brown:So that's a good point. Three weeks. What this process is called, what they refer to this on the street, this is called seasoning. Seasoning. The stock is being seasoned. Like your hair. Very much like my hair. So, all right. Next thing. I actually think this is the biggest story of the last week. Apple versus OpenAI is the big one to me. I think that this lawsuit, Apple sued OpenAI. I'm going to explain it in two seconds, but I just want to say why we're even talking about this. This, the outcome of this, or not even the outcome, but the process of how this lawsuit runs its way through the courts, literally has the ability to shape the next five years in tech.

10:15Downtown Josh Brown:That's how important I think this is, and I'm going to explain why. Apple is saying that OpenAI stole trade secrets. Um, number one, there are hundreds of 400 former Apple employees now working at OpenAI. Not an accident, very deliberate. OpenAI understands the thing that I have been telling you guys for a long time, which is that he who owns the device decides how the end user is going to interact with a given product and is going to share in the revenue almost regardless of who wins. And that is the position that Apple is in. It's an installed base of two and a half billion devices around the world.

10:59Downtown Josh Brown:And my investment thesis is that Apple is going to own the consumer relationship with AI. Whatever LLM you want to use doesn't make a difference. You're going to access it through iOS and Apple's going to get paid and knock yourself out. You could use any of them that you want. That's just how this is going to go. It's no different from a lot of other things we've seen before this. OpenAI knows that. I'm not a genius. Sam Altman hired Johnny Ive, bought Johnny Ive's design studio to create a physical product that could do an end run around Apple. They want to do a pendant, like a necklace that sits at your chest that you talk to, and they want to do a desktop device, some sort of a box or something that's got speakers, perhaps a camera that you can interact with without looking at your phone.

11:53Downtown Josh Brown:This is priority one at Meta. This is what the Ray-Bans are all about. Snap with the spectacles. Alphabet with, they tried it with Google Glass. We'll see what they do next. Everybody wants to figure out a way to provide AI without paying the toll at Apple. Okay, that's what's going on. So Apple is saying that OpenAI is just openly stealing trade secrets that have to do with its hardware and the way it builds products, et cetera, so that they could build their own. What's their case? Their case is they have a ringleader, Tang Yu Tan, OpenAI's chief hardware officer who worked at Apple for 24 years.

12:37Downtown Josh Brown:He was the former VP of iPhone and Apple Watch product design. Apple says this guy directed job candidates to bring actual Apple parts, CAD files, that's computer-assisted design, and prototypes to open AI interviews for, quote, show and tell. I mean, this is like hardcore industrial espionage. they say another guy Cheng Liu ex-Apple engineer allegedly exploited an authentication bug to access Apple's network storage from a former colleague's Apple laptop they have text messages in the filing lol I found out I can access the network storage so funny and quote I still have another computer they say OpenAI was coaching departing employees from Apple to avoid the dreaded walkout, which is where Apple physically walks you out after your two-week notice is up.

13:41Downtown Josh Brown:So they'd have more time to extract data. And employees were allegedly told to notify OpenAI ASAP and avoid signing anything at an Apple exit interview. Now, I don't know Sam Altman personally, but I could kind of look at his face and absolutely picture him directing this kind of activity. I don't know why. Maybe that's not fair. What are your thoughts?

14:08Michael Batnick:How long does it take for something like this to play out, to work its way through the courts? Is this going to be going on for three years?

14:14Downtown Josh Brown:I'm so glad you asked. It almost doesn't matter. The thing that's going to happen is discovery. Discovery is this process by which The court directs both parties to reproduce documents and all sorts of things that can be used during the course of the trial. And if any of this is true, discovery is going to kill these guys. So any trade secret suit, now OpenAI's internal communications will be laid bare. Their own product roadmaps will be exposed. Their own hiring practices. And this is at a moment where open AI is trying to create and project stability in the eyes of Wall Street and to show itself as not a startup that literally hasn't been operating for more than three years, but to really show itself as like this big, stable, trustworthy technology giant.

15:12Downtown Josh Brown:But this is going to work in the opposite direction. Reputational risk. Yeah, it's a really, really big deal.

15:20Michael Batnick:Zero to 100 % chance of certainty. What would you say the odds are of that in three years from now? We're all or many of us are using a device that's powered by OpenAI, a physical device.

15:35Downtown Josh Brown:I would say very slim. And now I would say, think about this as a worst case scenario for OpenAI. Why? Because now not only can they not move forward in building physical products without the threat of anything they build, Apple immediately suing them. Now they have to be distracted by this whole thing where the people they hired could be pulled into depositions, right? Or could be asked for sworn affidavits or could be scared away from wanting to share their own internal knowledge because they might end up sharing something that they weren't supposed to have retained from their time at Apple.

16:15Downtown Josh Brown:So I actually think this is extremely detrimental to OpenAI's hardware story.

16:22Michael Batnick:So I wonder what Apple's motivation is for doing this. Like, why are they doing this? Why bother?

16:27Downtown Josh Brown:because they actually said the phrase rotten to the core to describe the way open AI is going about its hardware ambitions, just like trying to deliberately rip off Apple. Now, four or five years go by, the court might find after multiple objections and delays and all sorts of tactics that Apple is wrong. It almost doesn't matter. Apple is basically saying, oh, no, you don't. You're not hiring 400 of our people, telling people to bring their laptops, telling people to share files. No chance. We're not letting you get away with it. So now what makes this really fascinating is that Apple on a parallel track fell out of love with the idea of working with ChatGPT.

17:20Downtown Josh Brown:there was a time where it looked like chat GPT was going to be the default AI technology behind its own apps.

17:29Michael Batnick:Well, so this is the other angle that I was asking about. Do you think they're actually afraid of the hardware competition, which seems extremely far-fetched? Or is this more they want to get closer into bed with Claude for whatever reasons?

17:40Downtown Josh Brown:Not Claude, Gemini. Apple and Google have one of the best relationships among the tech giants, like one of the most complementary relationships that exist. I actually, I don't even know what would be a good comparison.

17:53Michael Batnick:Google pays$20 billion a year to be the default browser?

17:56Downtown Josh Brown:Google has been the default browser and search engine inside of the iOS environment. So in all of the Apple apps, Google has, it was default search, not browser, browser Safari, which is Apple's, but default search. And they paid a lot of money for that. And these two companies have worked very well together. and now they're working together again. OpenAI was kicked out and their renewed push to create a Gentic Siri and other AI stuff within their phone is now being powered by Gemini. So this is like OpenAI not only started out in pole position to be the AI solution for Apple users, they got kicked out of there.

18:42Downtown Josh Brown:Now they're going to work on a hardware product that they're already being sued for before it even comes out. This is, I think, a really, really big story. And the ramifications of what's going on are going to come back to haunt a lot of the players in this space over the next couple of years. All right.

19:00Michael Batnick:Well, we are still on topic 1A. We have 43 more pages left to go. And we are 20 minutes into the show. So let's keep moving.

19:05Downtown Josh Brown:IBM blew up today. The worst day for IBM ever. Some people said back to 1961. Ever. I'm going to say ever. Fine, 61. Who cares? Well, in dollar terms, for sure, the worst day ever. Put the chart up. The stock lost 25 % of its market cap today. That is$67 billion in lost market cap over a revenue miss of$660 million. Does that sound disproportionate to you?

19:34Michael Batnick:So is that 100x market cap? Let me ask you this. Why do companies pre-announce the way that they did? Why do they do this? Their earnings report is in a week or two. Why get ahead of this? What's the benefit?

19:45Downtown Josh Brown:So that they don't have a class action lawsuit, which they will anyway.

19:51Michael Batnick:Why would they have a class action lawsuit? They can't just wait 10 days?

19:55Downtown Josh Brown:Wait 10 days and then blow up? People will say, why didn't you give us any guidance? Why didn't you warn suing you? They're going to get sued either way. It's just the culture. There'll be a class action for any time a blue chip stock loses 25 % a day, there's going to be a class action lawsuit. But I think by coming out with guidance, I guess the theory is next week, they'll do the actual call. And the bad news is already out. So they can focus more on like telling the sell side how they're addressing some of the issues. All right. Well, I thought the bad news is I don't think they really there's much that they can actually do, which we'll talk about in a second.

20:33Michael Batnick:I thought that the reaction in some of the stock prices was moderately interesting today. So a lot of the AI infrastructure names that have been under pressure since Samsung topped a couple of weeks ago, I guess you could have expected them to be up 8 % to 10 % on the news and software to get killed. That didn't really happen. Like actually, software put in a really, really nice bullish candle today. And the names that you thought would benefit with the exception of the cyber names, which they mentioned, like I thought the market's reaction was interesting.

21:05Downtown Josh Brown:The stocks that were hit negatively on this news have shrunk in terms of their importance to the IGV. This is the most important thing. ServiceNow had a tough day. Not really. Workday had a tough day. They didn't get killed. So they opened up down 9 % or 10%.

21:24Michael Batnick:And Workday was down 3.5 % on the day.

21:27Downtown Josh Brown:Okay, but my point is, if this were six months ago. Oh, down 15%. the software sector would have been negative. The IGV was green in the middle of the day. No, IGV was bright green.

21:39Michael Batnick:And my point is, I think that it will take a lot. And not from IBM. I think you're going to have to hear from Salesforce or one of these companies directly, which you might. I mean, we have already seen this in a couple of weeks.

21:51Downtown Josh Brown:I want to make a different point. I want to make a different point. The point I want to make is that the order of things inside of the IGV has changed significantly. The cybersecurity stocks are so much bigger now than they were six months ago relative to the enterprise SaaS stocks. So Oracle has shrank big time. Well, like ServiceNow, Workday, Salesforce, these were much bigger market caps and much more important to the IGV. And now CrowdStrike and Palantir and Palo Alto Networks and Fortinet are way more important than they were. So there are Cloudflare. Like these are companies where the share prices went up based on what – all right, so the CEO is Arvind Krishna.

22:41Downtown Josh Brown:Wait, hang on, hang on, hang on. Back to your point.

22:44Michael Batnick:Do you know what the biggest name in IGV is? Today? Isn't it Microsoft still? How is this possible? Palo Alto Network is number one. Yeah. Palantir is two, and Microsoft is three. It's obviously not exactly calculated. That's interesting.

23:00Downtown Josh Brown:It's not perfectly cap-weighted, I guess. All right, go on. I think it's a function of how much of their business is derived from software.

23:08Michael Batnick:Oh, okay. That makes sense.

23:09Downtown Josh Brown:It's how they figure that out. That makes sense. So look, they said revenue would be 17.2%, which is up 1%, which obviously you can't do. Infrastructure revenue down 7%. Earnings, gap earnings down 2%, blah, blah, blah, blah, blah. These are some of the statements that he made. I guess it's an 8K. This is from a letter filed with the SEC. Quote, in the first few weeks of June, we saw clients shift their quarterly CapEx towards servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. Basically, they're saying deals didn't close because their customers were focused on buying other things.

23:54Downtown Josh Brown:And one of those things is obviously hardware, and the other one is cybersecurity. So we're going to show some of these charts because the market actually reacted the way it should have. Let's do Dell.

24:10Downtown Josh Brown:This is what IBM's customers are spending their money on. Let's do CrowdStrike. New record high. This stock just split four for one. If it hadn't split, it'd be$800 stock right now. This was, look at it, look at it. This was$350 not long ago. Palo Alto, P-A-N-W, stock ripped today. So this is what – so basically, chart off, IBM's customers are securing compute, spending the related increase on cybersecurity for all these workloads that are now going to be AI workloads. and, of course, buying more servers and buying more CPUs and buying more GPUs and buying more memory, anything but what IBM sells.

24:59Downtown Josh Brown:And IBM, by virtue of being the first of the tech companies to pre-announce a weak quarter, I think just said the quiet part out loud. Which is? enterprise SaaS spending is not a priority for the enterprise, for corporations. And it's probably not going to be for the rest of the summer. And I honestly think that this was a warning shot that investors need to pay attention to. What do you think?

25:28Michael Batnick:I agree. By the way, we

25:34Downtown Josh Brown:owned what we're all about here.

25:37Michael Batnick:But I'm surprised at the reaction from a Salesforce, which probably opened down 8 % and closed moderately red. It was down 2 % today. I would have thought that this would be like, to your point, if this was a few months ago, Salesforce would be down 16 % in concert.

25:55Downtown Josh Brown:These stocks were already so, all right, this is a good point that you raise, IBM started the day within 5 % or 10 % of an all-time high.

26:06Michael Batnick:It's interesting that the market got it so wrong.

26:08Downtown Josh Brown:The stocks that you talk about were already negative 30%. Yeah. So that's an explanation. Way more.

26:12Michael Batnick:But it's interesting that the market, listen, the market's not all-knowing and all-seeing, but it usually doesn't get surprised this bad. So IBM, the stock looked okay. Like you said, it was right near its highs and down 25 % for a$290 billion stock is remarkable.

26:26Downtown Josh Brown:IBM had a very bad day one day last week. Do you know why?

26:29Michael Batnick:I don't.

26:33Downtown Josh Brown:Starbucks told Wall Street that they are actively working on their own AI products. And Wall Street interpreted that as Microsoft and IBM, which are big Starbucks vendors, are going to be in trouble.

26:49Michael Batnick:Starbucks is building a data center?

26:51Downtown Josh Brown:Starbucks is – no. No, no, no, no, no. Starbucks is building software to help operate what some of these giant software companies typically sell them. So this is the vibes. I got to tell you, I can't imagine it being an IBM-only issue. Can you? No. All right.

27:12Michael Batnick:Let's talk about this. Everyone says – not everyone. A lot of people are mentioning the B word. Many people are saying. Many people are saying. That's the correct vernacular. Thank you. that we're in a bubble. And how do you not see it? Now, I suppose when they talk about the bubble, they are talking about a very specific... Now, there are some people that think everything's a bubble. Forget those people. There are some people that think that memory stocks are in a bubble, but maybe focus on the fact that these earnings are unsustainable. And let's just say that we're in an earnings bubble. Okay?

27:43Chartkin Matt did a thing where he overlaid the forward EPS of the S &P 500 versus the actual EPS. In other words, how accurate are analysts' expectations

27:59Michael Batnick:for the forward 12-month earnings per share of the S &P 500?

28:03Downtown Josh Brown:That's brilliant. And it turns out they're pretty good at their job.

28:07Michael Batnick:All right? So the light blue line, which is the part that people say, this is not sustainable. There's no way that this is, maybe it'll happen over the next 12 months, but people doubt the, I don't know if I'm using the the word right here, the efficacy of these earnings over the next 36 months. But over the next 12 months, they're probably going to happen. Here's why. Next chart. They're within 5 % of each other, 67 % of the time. The only time where they meaningfully diverge to the downside, where analyst estimates are way off, obviously, is when you get a recession, which is impossible to foresee, obviously.

28:46Michael Batnick:So absent a recession, we are likely going to get the earnings that people are estimating. All right.

28:55Downtown Josh Brown:Put the first chart back up. What do you notice? So the gray shaded areas of recessions, obviously. What do you notice happens right at the start of those recessions? Why don't you just tell me Sherlock Holmes? Happened all three times. The street is almost always right, except at major economic turning points, and they go right off the cliff. They keep raising estimates long after the companies start missing and disappointing. Great observation. Right. Well, I mean, to me, so the real question is like, could something big enough happen where the street gets the memo too late once again, and actual results start to disappoint while their estimates remain high?

29:41Downtown Josh Brown:Of course. Well, so what is that thing? Because I have an opinion.

29:47Michael Batnick:I don't think it's going to be what everyone thinks it is.

29:49Downtown Josh Brown:What is the thing that you think everyone thinks?

29:51Michael Batnick:Hyperscalers pulling back.

29:54Downtown Josh Brown:No, I have a new nightmare.

29:59Michael Batnick:Lower the volume so people think - I'm ready to unlock a new nightmare. This is very, very serious.

30:04Downtown Josh Brown:Okay. seismic shift in the pricing of AI due to more efficient models that rely on less token use and less memory?

30:17Michael Batnick:Nah.

30:19Downtown Josh Brown:What do you mean, nah?

30:20Michael Batnick:Nah. Why not? Because with every step function increase in the efficiency and whatever these models are able to do, people are spending way more, not less. So this idea that all of a sudden there's going to be some seismic breakthrough that pulls the cost down seems highly unlikely. I'm not a scientist.

30:41Downtown Josh Brown:There already has been a breakthrough. It's the adoption of it that's still in question. But it is only increasing the overall spend. I think it's increasing the overall use. And spend. But what I'm describing is different. What I'm describing is an open-weight model catches fire. We've seen this happen before. Linux is a great example. Everybody thought they were married to Microsoft for life. And all of a sudden, Linux came along. And a lot of developers just moved over to that because it was more efficient to build things. If they decide that they're going to use these open weight models for 95 % of the workflows and then only send the most critical 5 % to the more expensive frontier models like LLM and Anthropic, if they decide, hey, you know what?

31:34Downtown Josh Brown:We actually don't need the best model. We just need something that we can repeatedly do at a fifth of the cost. But that changes all of a sudden the earnings expectations that are in this chart. Plus 1 ,800 of that happening.

31:50Michael Batnick:Could happen. It's a long shot. Imagine if it does. I will kiss your feet.

31:55Downtown Josh Brown:No, I don't want it to happen.

31:57Michael Batnick:If that happens, I will regrow my hair.

31:59Downtown Josh Brown:How about that? Well, isn't that the history of tech that eventually cheaper, more efficient ways of doing things come along and that puts pressure on pricing? Isn't that what always, literally always happens?

32:12Michael Batnick:Yes. And I am out of my lane here, but these are like very expensive models to train. Now, I don't know how much deep seek raise or whatever, but like that somebody is just going to spin this up. I just, it seems very far-fetched. All right, let's keep going.

32:24Downtown Josh Brown:Okay. I think it's sort of already exists and we'll listen, it's too early. Nobody can know definitively. We'll leave it at that.

32:34Michael Batnick:All right. But the other thing is there's not a stock market bubble. And let me make my case. Duality Research has a chart that shows the year-over-year price change and the year-over-year EPS change in semiconductor stocks. And the spread is crashing because, he says, investors are clearly pricing in a peak in earnings growth. That's why. Investors are not overly optimistic. Look at this spread. It is at an all-time low. So the year-over-year EPS change is so far outpacing the year-over-year price change for reasons that I think are probably rational. Not probably rational. People are estimating that this is not going to go on forever.

33:18Michael Batnick:Otherwise, the spread would not be crashing to this extent. Would you agree?

33:21Downtown Josh Brown:I completely agree. That is what this chart is showing, a lack of belief that this has any more legs out past 27. Nobody thinks so.

33:32Michael Batnick:So we could skip the next chart because it's not really relevant to this conversation. We're already going way late. Go to the chart from Mike Zaccardi. If this were a stock market bubble, this chart would not look like this. And here's what we're looking at. We're looking at, this is from Paulson, Jim Paulson. The S &P 500 old era relative stock price index. So we're looking at a market cap weighted index of the old era stocks. That is the remaining nine sectors excluding information technology and communication sectors. and they're breaking out.

34:03Downtown Josh Brown:I feel like they're trying to say halo, but not pay me by saying old era. Get the out of here. Just say the halo stocks are breaking out.

34:13Michael Batnick:All right. A few more charts. Let's keep it moving. This is like sort of a tangent to my overall point. I just thought this chart was super interesting and I wanted to share it with the audience. So Bespoke shares that the second quarter was the first time since at least 1990 that only one of the major S &P 500 sectors outperformed the index. How nuts is that? How nuts is that? Everything's working.

34:35Downtown Josh Brown:Yeah. Oh, it's like still shocking the degree to which this is the case. It's unbelievable. Yeah.

34:43Michael Batnick:And then lastly, you say, all right, SK Hynix was up 27 % today. Am I going to say that there's not areas of speculation? Of course there are always, but does this look like a bubble? Throw up the DGEN DAO. Look at this piece of shit. names like Rigatoni. We don't talk about these names anywhere. IREN, Ionic, or IONQ, whatever it's called. These names are just stuck in the mud while the index is at an all-time high.

35:06Downtown Josh Brown:I very notably said, a healthy bull market takes out its own trash. That is exactly what's happened. I love that chart that you just put up. I love that this market is not being led by companies without earnings, companies that are selling people dreams. Nonsense.

35:25Michael Batnick:And let me do you one last one. This is from Vanda Research. They show the single stock net weekly buying is at its lowest since COVID. Now, we're about to transition into the SK Hynek's debut because there are a lot of people that have moved away from single stocks and into levered single stocks and the ETFs. So maybe that's part of what's happening here. But there's no doubt that retail, that's a fact. They are trading and speculating way less overall than they have been in the recent past, like in a serious way. Look at that chart.

36:07Downtown Josh Brown:No, I know. I see what's on the chart. So don't you, listen. Can I add, like, what if we blended this though with single stock ETFs?

36:16Michael Batnick:So I just said that there are certainly a lot of people that are trading single stock ETFs. like, obviously, we're about to get into it. Of course, we've been all over this. But I really do think that a lot of, there's different pockets, there's different types of speculators. The single stock buying has slowed down dramatically. And a lot of it shifted to the ETFs, but not all of it.

36:37Downtown Josh Brown:I agree. And I just think that that person that liked to speculate in individual stocks, they're still out there. There are less of them right at the moment. but those other people haven't gone away. They're doing prediction markets. They're doing options. They're doing lever ETFs. They're doing single stock ETFs. They're still around. You make this point all the time. They're never leaving. They're just playing different games. Like looking, it's like walk into the casino, look at the backgammon table. Nobody's sitting there. What do you conclude? They're sleeping? No, they're at a different table playing a different game.

37:09Downtown Josh Brown:So let's get to that table. What game are they playing? Pick one.

37:12Michael Batnick:There's more games now than ever. That was an alley-oop, sir. You're up next.

37:18Downtown Josh Brown:Well, we're going to do this SK Hynix thing very quickly because I know literally nothing about it. I'm not even interested in it. I don't even really care. But I would point out, I think it was$29 billion worth of stock they were able to sell to Wall Street investors. It's not really a traditional IPO. It's an ADR. Yeah, this company was already trading without a problem in Korea. and now they wanted to give US investors quote unquote access to SK Hynix on a US exchange and voila! And of course, it's already one of the most volatile stocks I've ever seen in my life, which is pretty much talk about seasoning.

38:00Downtown Josh Brown:So this thing probably needs a month or two before anybody could look at it and figure out what the hell is going on. But one thing US investors should be aware of, this is the tail, not the dog. The dog trades in South Korea and Seoul. This stock will open with huge gaps up and huge gaps down based on what happens 14 hours earlier in Asia every night. This may not be your cup of tea, I guess would be the point I'd make. There have been many - It's my cup of green tea. Get it? Many successful, yeah, ADRs of international companies. I prefer the ones in the Western Hemisphere where they sort of open up for trading and close around the same time as the US market.

38:47Downtown Josh Brown:MercadoLibre would be my example of that. Shopify in Canada. I don't really love the idea that you wake up to a surprise every single day of the week because you buy something where the primary trading is taking place in Asia. So that's my comment on SK Hynix. I hope it goes to the moon. I hope everybody makes a ton of money. It was up 28%. Yeah, but what did it go down in two days since it came public? It's a roller coaster. You could wake up. This stock could be up or down 20 % on any given day is, I guess, the point that I'm trying to make. More volatile than Western Digital, more volatile than Micron.

39:29Downtown Josh Brown:Fair point. Yep.

39:33Michael Batnick:So you're not buying the 2X levered version of it?

39:36Downtown Josh Brown:Staying out.

39:36Michael Batnick:All right, let's talk about banks. I listened to three calls today I listened to Jamie Dimon and Jeremy

39:45Downtown Josh Brown:That's the only one I do

39:46Michael Batnick:At JP Morgan And I listened to DJ David Solomon As I always do And I listened to Bank of America Two things Alright so they all smashed Like across the board Business is good Jamie Dimon was asked about return of capital to shareholders. He's like, you know, I hate that term. I view it as like, we have investing opportunities and that's another investment just like anything else. And our bogey is 17%. If we can't do that, yeah, maybe we'll buy back stock. And they asked David Sullivan, he was like, we love returning capital shareholders. Like there's the dichotomy between the two was very interesting.

40:25Michael Batnick:Really very little mention of private credit, not once on the JP Morgan call, just didn't really come up. But I thought that was notable. And anyway, the banks are kicking ass.

40:36Downtown Josh Brown:Private credit's been super quiet. That's such a great point. Maybe it wasn't the last earnings quarter, or maybe it was the one before. But one of these earnings quarters, every Q &A started with one or two questions about private credit risk. That's a really good point.

40:53Michael Batnick:Goldman raised$31 billion in private credit this quarter. Yeah.

40:57Downtown Josh Brown:This is my takeaway. The theme across all of these reports, very simple. Trading. We're in a bull market. These are the companies that benefit the most from bull markets historically. And the system is working as it's supposed to. Any business that's in any way connected to equities is absolutely on fire. Prime brokerage, margin lending, equity finance, IPOs, follow-on offerings and secondaries, preferred stock issuance, market making, intermediation, any business that touches equities is just going absolutely crazy. And Jamie said, quote, the markets are booming right now. It's getting as close to as good as it gets.

41:42Downtown Josh Brown:We just don't know how long it's going to last. He was asked if this is as good as it gets. And that's what he said. He said almost. Give me the JP Morgan chart. Full disclosure, I own the stock. I've been long for over a decade. I never sell it. What an unbelievable run the stock's been on for all that time. But even this year, this thing is now up meaningfully on the year and starting to move. This is almost a trillion dollar market cap bank. They all said the same thing.

42:14Michael Batnick:Consumers and small businesses continue to show resilience despite elevated gas prices and inflation with higher tax refunds and a solid labor market contributing to strong spend growth. Wells Fargo said the same thing. I didn't listen to that. Bank of America said the same thing. I thought this was interesting. Back to the comment about the trading stuff. Jeremy was asked to unpack his comments because I think it wasn't just trading. There was record revenue in every segment. Everything went well. And so he said, there's really not a lot behind my comment. It's essentially what you would get from asking any of the commercial AI models this question.

42:51Michael Batnick:The two stages. Okay. We had some major IPOs. We had some major index rebalancing. We had some very complicated dynamics in the Korean equity market. There's been a lot of activity in Asia. The clients have been extremely active. It's all the headlines basically that have driven the market. And then Jamie says, you guys can see most of this on a daily basis through the volumes of the New York Stock Exchange, the CME volumes through hedge funds. It's not a secret. Margin loads. You could see a lot of this taking place during the course of a quarter. Yeah.

43:19Downtown Josh Brown:So look, there are offsets to this in a declining market. You have volatility and volatility creates a lot of trading opportunity. That's not what this is. This is not a very volatile market. This is a market that's a classic bull market. Almost every sector has huge winners. And a couple of things happen in bull markets. And this will always be the case. one of the things is you could sell a lot of stock, whether that's Google doing an$85 billion secondary share sale or it's SpaceX doing a record IPO. In either case, JP Morgan is getting paid. Goldman Sachs is getting paid. So that's one of the things.

43:59Downtown Josh Brown:The other thing is people who are long want to be more long.

44:02Michael Batnick:More long, yeah. So they commented that their derivative book was up massively. So their equity trading was up.

44:07Downtown Josh Brown:Margin balances, prime brokerage. Like this is where all the money is. Two funny things with the analysts. Two different analysts asked about succession. Very notably, the head of banking, Marianne Lake, resigned from the firm during the course of the quarter. And Diamond took two – elevated two people to co-president, Troy Rohrbaugh and Doug Pettino. I don't know who these people are.

44:35Michael Batnick:I think the board does that, not just him. Like it's the board's decision.

44:39Downtown Josh Brown:Sure. No, for real. Not around him, though. Anyway, they wanted to get a comment because she had been, like, the rumored successor for very long. Her and Mary Erdos had been, like, the two rumored successors. And he just said, look, we said what our plans were. She chose not to work here rather than stay. No mystery. I think they handled that well. He would not give a definitive answer on when he's leaving. He said a couple years. A couple, few, severals. In a few severals, I might go. Oh, last thing that was funny. Mike Mayo from Wells Fargo asked, why did you make an FX trader the president of community banking or consumer banking?

45:27And Jeremy Barnum said, actually, he's an options trader.

45:32Downtown Josh Brown:I think that was a pretty good way to answer. Last thing, investment banking fees up 30%. That's not going to be every quarter from here on out. You should not extrapolate that. Equities revenue up 86 % year over year. Again, there's not going to be a SpaceX every quarter from here on out. Asset and wealth management, listen to this. 38 % pre-tax margin on$6.9 billion of revenue. Revenue was up 19%. Assets under management were up 18%.

46:09Michael Batnick:A lot of loans. John, throw up that chart, the black chart with the blue and green bars, please. The next one. It's like a few charts. There we go. Thank you. Great job. So the green is JP Morgan, and the blue is Goldman, and this is equity trading. And pretty range bound for the last one, I don't know, five quarters. And look at that explosion this quarter.

46:27Downtown Josh Brown:Yeah. Again, very traditional, classic bull market. And exactly what you would expect to happen is literally what's happening.

46:34Michael Batnick:All right. Bank of America.

46:37Downtown Josh Brown:I didn't listen to this, so I'll let you take this one.

46:39Michael Batnick:It's very banky stuff. It's like a lot of net interest stuff. It's not as exciting as the other two. But I pulled out two things. Look at the first chart. So they show the first half, credit and debit, year-over-year growth. And obviously, there's gas. But look at entertainment and travel, dude. people are having a great time. The dollar volume is up 13 % for entertainment. Things are getting more expensive, but transaction numbers up 7%. That is super healthy. I mean, beyond healthy. That's robust. Two Goldman. Wait, I have one more thing. Hold on. Asset quality at Bank of America. So I'm not sweeping under the rug the concerns about credit card debt and auto loans, But Bank of America is Main Street.

47:26Michael Batnick:This is literally the Bank of America. And the net charge-offs on the consumer side are... It's like 90 basis points. This is the overall. But there's nothing going on here. There's nothing going on here. Provision for credit losses are down. The economy and the consumer are beyond healthy.

47:47Downtown Josh Brown:I wish there was something going on here. I would shout it from the rooftops. I would title a YouTube video, the consumer is melting down and you motherfuckers would click on it. It's just not in the chart. I'm sorry that you have so many people in your lives telling you how horrible things are. It's just not true. They can't stay off an airplane for five minutes.

48:09Michael Batnick:This was a great quote from David Solomon. So Goldman Sachs had a monster, monster quarter and a monster day for the stock. And this is Goldman. This is who Goldman is. He said, the trust we have built with clients over decades continues to position Goldman Sachs at the center of the most strategic and consequential transactions. This includes acting as lead left book runner on the record-breaking IPO for SpaceX and equity race for Alphabet, as well as advising Dominion Energy's sale to NextEra Energy and Comcast spinoff of NBCUniversal. Goldman is still the king.

48:41Downtown Josh Brown:If ever there were a Goldman market, we're in it. It's this one. Yeah. Yep, for sure. All right.

48:47Michael Batnick:Wells Fargo. What a great.

48:49Downtown Josh Brown:Put up the stock chart, Goldman. One more time. My God. You want to fade it? Go ahead.

48:58Michael Batnick:So I just assumed that Wells and Citi said the same thing. And I'm very curious.

49:03Downtown Josh Brown:Wells is sort of boring. I'm sure. Citi had a negative reaction today. But I think that's just because the stock had run up so much. Their wealth business is on fire.

49:16Michael Batnick:Speaking of that, we're going to hear from Morgan Stanley. I will listen to that. And then we're going to hear, obviously, the asset managers, BlackRock. I am going to follow those very closely over the next couple of weeks.

49:25Downtown Josh Brown:Yeah, Citi has a big catalyst. Banamex, which is like a Mexican consumer bank, gigantic. They sold half of it to outside investors. And then they're going to do a full IPO of the rest of their stake at some point later this year. That should be a good catalyst. that it'll quote unquote unlock shareholder value.

49:46Michael Batnick:You know, hold on, hold on. I have a strong place in my heart for Citi. I'm part of the franchise, part of the story. I was a temp there in 2010, watching compliance videos, doing my thing.

49:57Downtown Josh Brown:Yeah, they did mention you on the call today. All right, we were going to do a preview, but it's too much. We were going to do Morgan Stanley, BlackRock, and Schwab, but it's literally not enough time in the day. So we'll hold on to those. I thought we were going to skip the Texas thing.

50:11Michael Batnick:There's like not a lot to say. I don't have a lot to say here. Do you think there's a good story?

50:15Downtown Josh Brown:I want to say three things. I think it's fascinating. So welcome to Y 'all Street, the Texas stock exchange. Just opened for trade. You're about to laugh. That's why they're calling it Y 'all Street. And it's Dallas. And it just opened for trading last week. My entire career was a consolidation of exchanges. The NYSE bought the American. NASDAQ bought, I think, the Philadelphia. There was a time where there were regional exchanges. They all got consolidated. And now we have the taxi.

50:47Michael Batnick:Knowing nothing. Knowing nothing. I don't think this is going to work.

50:51Downtown Josh Brown:Oh, I guess we'll find out. Wall Street seems to think it's going to work. Goldman Sachs and Morgan Stanley are shifting thousands of jobs to Dallas. Put this picture up. This is the new building that's now under construction. This will be uptown in Dallas. and Morgan Stanley is in negotiations to put their name on top of it. This will house the taxi, the exchange itself.

51:16Michael Batnick:Yeah, but they're not going to Texas. Morgan Stanley and Goldman are not going to Texas to support the taxi.

51:21Downtown Josh Brown:They're already in Texas, and they're adding more personnel, many of whom will be involved in market making, trading, and attracting new issues. How are they going to attract new issues to list there? Very simply, they're starting out with nine companies. There's a public company called Energy Transfer. The CEO's name is Kelsey Warren, and he is the majority owner of the taxi.

51:44Michael Batnick:Is that the MLP?

51:46Downtown Josh Brown:Yeah, well, I think it's a former MLP, and they did a C-Corp conversion, or maybe they didn't. Richard Fisher is involved, former Dallas Fed president, Texas Governor Rick Perry, former Texas Governor Rick Perry. And they have companies already listing. And what they said, oh, Goldman and Bank of America are involved, BlackRock, Citadel, Schwab, Fortress, J.P. Morgan. They raised money for this thing. And they said that their listing standards will actually be stricter than the existing. They said there are 1 ,500 NASDAQ companies right now that would not qualify to list on the taxi and 200 New York Stock Exchange companies.

52:26Downtown Josh Brown:So they're actually going for regional – like they're looking for companies that are of the south and of Texas to start as primary listings. And then they're going to have thousands of stocks also trade there the way that you can buy New York Stock Exchange stocks on the NASDAQ and vice versa. So you will be able to trade any security you want there. And they're going to have companies that are primarily listed on the taxi. and I think it's notable. I don't know that it changes anything from an investing standpoint, but it could change the business.

53:02Michael Batnick:Don't care.

53:03Downtown Josh Brown:Don't like it.

53:04Michael Batnick:No, I just don't care.

53:06Downtown Josh Brown:You want to visit the taxi with me?

53:07Michael Batnick:Dude, I love Texas.

53:09Downtown Josh Brown:Yeah.

53:09Michael Batnick:I just don't care about this particular story. Okay, we can move. All right. Do you want to do the Q's thing? I mean, this is sort of boring too.

53:17Downtown Josh Brown:Nope, throw it out. Let's do make the case and then mystery chart and we'll bounce. I've talked about this stock before. I like the technicals now for the first time. So I've always liked the fundamentals, but now I also like what I'm seeing in the chart.

53:33Michael Batnick:You know, it looks like Toast. I mean, all these software names look sort of similar. Yeah, it looks way better.

53:38Downtown Josh Brown:I'm so glad that you said that. What Toast and this company, Service Titan, have in common is that, well, that, but they are a hardware slash software play, meaning this is not like enterprise SaaS where you could just turn it off and use an LLM. The devices themselves are part of what the company offers its customers. And it's endemic to what the users do to have both the hardware and the software. So obviously in the case of Toast, it's point of sales. It's the kiosk at the front of the restaurant. It's whatever equipment is in the kitchen with screens. We know what post is working.

54:21Michael Batnick:Is tight in the business working?

54:22Downtown Josh Brown:Yeah, really well. And they're going to, I think, over the next four quarters, they'll have their first full year of gap profitability. We're well on their way toward it. This is a$7 billion market cap tech company. But don't think of it as tech because it's focused entirely via its customer base on the old economy. This is construction. Dude, I feel like this is plumbers, builders. This has taxi written all over it. It should list on the taxi. It's a very unique situation. It is the fastest growing software platform in its vertical. They are providing everything from appointment scheduling to billing services, etc.

55:02Downtown Josh Brown:When you have somebody doing work at your house, they will often have the device in hand. And they're just eating share. They are well on their way to becoming the biggest market share of all these scattered different solutions that people in this industry have used. They're going to become the industry standard. So I wanted to show people this technical setup. This is my type of bottom. I love it. So that is a 200-day moving average challenge currently underway. And if it breaks, it is no longer in a downtrend. I wouldn't say it's breaking out. But this is the first sign of life. And you look at that consolidation period.

55:43Downtown Josh Brown:They just could not push this stop meaningfully below 60. I love it. And now I think it wants higher. And look at the RSI at 65.

55:51Michael Batnick:Dude, I think it's wrestling wants higher. Let me ask you a question. Which do you have more conviction in, this or Toast? Because they look very similar.

55:59Downtown Josh Brown:It's the same story in a different industry, and they're both going to work. I think they're both. Toast is much larger, more mature, already profitable, more customers, bigger market cap. This is a much smaller version, but in my view, just as sticky as the restaurant business. I don't think a lot of carpenters want to do a software overhaul every six months. I think once a business standardizes on service tighten, that's it. That's what runs the business, and it's going to be tough to get them out of there.

56:31Michael Batnick:Are you ready for the mystery chart, Mr. Brown? Let's do it.

56:34Downtown Josh Brown:All right.

56:35Michael Batnick:Here we go. John, if you please. All right. The orange line is a bank and that bank is called JP Morgan. And JP Morgan has been the best performing bank across almost every timeframe, except for this timeframe and except for against this other bank. What's that purple line?

56:58Downtown Josh Brown:You show me these in percentages? This is three years.

57:00Michael Batnick:This is three years. What am I showing you?

57:02Downtown Josh Brown:Percentage return?

57:03Michael Batnick:Yeah. JP Morgan's up 144 % in the last three years. Not bad. The stock is up like 200.

57:08Downtown Josh Brown:I think it's Citi.

57:10Michael Batnick:Bingo.

57:11Downtown Josh Brown:Oh, man. I'm so good at this. Isn't that wild? I'm so hot. I had to take a shower after the show. You know what? It's wild and it's not. I did a segment on Citi on TV the other day. Credits to Jim Labenthal.

57:24Michael Batnick:He was pitching this on TCAF. with us.

57:27Downtown Josh Brown:That's right. That's true. Always happy when Jimmy makes money. I did a segment on this on TV. And if you look at this versus 2007, this stock is still in a 70 % drawdown. It's crazy how long it's been. And it's still hugely off those old highs, thanks to all the dilution they had to do to stay alive. But cities, cities on fire and they shrunk to get bigger. Like they sold 25 businesses under Jane Fraser before she was even the CEO. She really did it. And their wealth is killing it. She was running M &A for a city and she was just selling everything she could and they shrank to grow and it worked.

58:09Downtown Josh Brown:All right, that's it from us, guys. Thank you so much for tuning in to an all new edition of What Are Your Thoughts? Thanks to everyone who joined us in the live chat. We miss you when we're not here. We'd love to see you. Thank you so much. We appreciate it. Big shout out to Janice Henderson. Thank you for sponsoring the show. Remember, tomorrow's Wednesday, Animal Spirits of Michael and Ben. We'll have an all new edition of Ask the Compound later on. And the Compound and Friends returns on Friday with a brand new guest, someone you have never seen on our show before. And I can't wait to introduce you to this person.

58:43Downtown Josh Brown:Thanks again. Have a great night.

59:15Michael Batnick:Thank you. of future results. Investing involves risk and possible loss of principal capital. No advice may be rendered by Ritholtz Wealth Management unless a client service agreement is in place.