Midsummer’s Melt-Up, Robinhood, SpaceX and Palantir Report, Chips Rip, Leopold’s Margin Call

14:21Michael Batnick:I listened to – I don't know. If you're just listening to it and you don't know anything about the business, which I think is a lot of people, he didn't really talk about anything other than just galvanizing the troops, which he is very talented at.

14:38Downtown Josh Brown:Did you watch it or listen to it? I listened. Because they do this as a video.

14:42Michael Batnick:But you heard him beating the pen onto the table.

14:47Downtown Josh Brown:Yeah. Listen, I know he's very controversial.

14:51Michael Batnick:Oh, he went after the DSA a million times. Yeah.

14:56Downtown Josh Brown:People get mad at him. They don't like him because he's unapologetically pro-West, pro-America, pro-Israel. He's like – his attitude is like very staunchly saying like everyone is going to have this technology. I want American companies to have the best version so they win.

15:20Michael Batnick:It's an us against the world mentality.

15:22Downtown Josh Brown:Yeah. And our military should have the best AI and blah, blah, blah. And so, okay, it's not controversial for me, but I understand why it's controversial for others. And we don't go there.

15:33Michael Batnick:Let's talk more about the earnings season more broadly. What's sticking out to me, I think the first thing is the market's reaction to various earnings reports. I don't know that I've ever seen companies gain 30%, fall 30%. And not just a few. A lot of companies are making massive moves after reporting earnings. Yeah.

15:57Downtown Josh Brown:In both directions. Yeah.

15:59Michael Batnick:Yeah, I agree. Roblox and Reddit. Roblox down 30. Reddit down 20. Palantir today up 30. Although, and I can't confirm this with data.

16:09Downtown Josh Brown:Another thing that I'm noticing, though, in line with what you're saying, is that on day two, some of those extreme moves are being retraced. Well, Google and Meta. Microsoft. Amazon just gave back a whole bunch today. Wait, did Microsoft give some back? No. Microsoft had a horrible reaction and then bounced. No, it didn't. Yes, it did. No, it didn't. It's up 7%. It's up 7 % last week. Yes, it did. No, it didn't.

16:36Michael Batnick:Microsoft was up like 15 % after earnings. Oh, no.

16:40Downtown Josh Brown:I'm saying the wrong stock. Meta has come back.

16:44Michael Batnick:Meta came all the way back in two days after falling 7%. Yeah.

16:47Downtown Josh Brown:And then Amazon the other way. They had an incredible response. And then probably related to Jeff Bezos selling another$4 billion worth of stock. But that retraced some of its gain. So you're getting an extreme first day move. But not all of these moves are sticking.

17:07Michael Batnick:All right.

17:08Downtown Josh Brown:Got some charts.

17:09Michael Batnick:Got some charts. Chart kid.

17:11Downtown Josh Brown:We have to do one more. We have to do toast. Right.

17:16Michael Batnick:Everybody is dying to hear what happened with toast.

17:19Downtown Josh Brown:Well, it's down 5 % after hours, but we have talked about the stock a lot on the show, so we should at least get into it. Top line beat, bottom line beat. Revenue,$1.9 billion versus$1.8 billion for the quarter. Earnings were up 100 % earnings per share. $0.26 versus$0.20 expected. 9 ,500 net new locations in the quarter. They're at 180 ,000 restaurants are running on toast. That is a 22 % year-over-year increase. GPV, which is like total payment volume on the system, 22 % up year-over-year to$60.7 billion. ARR up 25 % year-over-year to$2.4 billion. Wow. And they bought back 19 million shares for half a billion dollars year to date.

18:15Downtown Josh Brown:And so I took some of my toast off the table at 32.

18:18Michael Batnick:By the way, the stock is flat after hours. Stock looks great.

18:21Downtown Josh Brown:Yeah. So I bought a ton of it in the 20s after it got killed the last earnings report. Good for you. It ran right back up into the low 30s. I took some off, not because I don't want to be in it because I still have a bunch. You own too much? No, I just saw how easily one quarter could knock this thing down 40%. And I just said, you know what? There's other fish in the sea. And I think I'm going to have time to accumulate this. So I'm still long for people that care. I'm not going anywhere. It is an investment. But I don't need to own as much as I did. But when they killed this thing last quarter, I had to buy more in the 20s.

18:58Downtown Josh Brown:And I'm glad I did it. That was a good move.

19:00Michael Batnick:That was a good move. Yeah.

19:01Downtown Josh Brown:All right. Let's keep going.

19:02Michael Batnick:All right. So corporate profits. I mean, it's been an incredible earnings season for a lot of companies. Throw this chart up, please. We're looking at adjusted revenue growth and adjusted EPS growth. And, of course, they're going the same direction for most stocks. Look in pallet here on Micron. I mean, Micron broke the chart.

19:18Downtown Josh Brown:So it almost doesn't fit on the chart.

19:22Michael Batnick:Pretty good. All right. I don't know if you noticed, chart off, the stock market at an all-time high today. I know you noticed. And it's not just one or two stocks. It's a lot of stocks that are doing really well. It's a melt-up. It's a melt-up. You know what? We haven't said that phrase in a long time.

19:37Downtown Josh Brown:It's a mid-summer melt-up, the best kind of melt-up. It has been a long time. It's not your traditional Thanksgiving into Christmas run. This is something different. It's a mid-summer melt-up, and I have very strong views on what that means for the balance of the year. Well, keep going. I want to hear. Okay. This is my 29th year on Wall Street. I got Series 7 license in 1997. I got a mind like a steel trap. I remember everything, as you know. Every slight, every horrible thing that's ever happened to me, every offhanded comment people thought I didn't actually hear what they had to say, but I heard it.

20:18Downtown Josh Brown:I store it all up. And my memory of market rallies is equally powerful. If I close my eyes, I can re-experience some of these moments. And And I'm going to tell you right now, this particular tape, I would say, is one of the healthiest tapes I have ever experienced. If I wrote down, if you gave me a legal pad and say, fill the first page, yellow pad, fill the first page with every characteristic you would want for a market rally in order to feel confident to stay long. Like write down all the things. Here's what I would write down. Okay? Earnings beats in every sector. I think we have 10 out of 11 companies are on average beating or something like that.

21:12Downtown Josh Brown:So check. Rotations. Leadership stocks getting killed and other stocks becoming new leadership. Defensive rallying with cyclical. Growth rallying with value. Large cap rallying with small cap. Revenue growth ahead of expectation. not just games with earnings or buybacks, but like actual sales growth ahead of what's being expected. Analysts raising their expectations for next quarter during this quarter across the entire S &P 500, which is what's going on. International stock support, lots of IPOs, but not too many IPOs. Like every single thing that I would write down on the pad to say healthy market, we have all of it.

22:02Downtown Josh Brown:One more ingredient. Economists getting cautious. Oh yeah. Fuck them. That's perfect. I love that. Every minute that those people spend analyzing Kevin Warsh's suit and tie is another minute I have to make money in stocks. But literally, you couldn't script it better. Couldn't script it better. And you got Bitcoin falling, right? You got like, you can't say it's a speculative mania because you have stocks that went up 100 % and then fell 40%. The DGN Dow is in a 50 % drawdown. Yeah. Remember what we said. A healthy bull market takes out its own trash. Its own trash.

22:42Michael Batnick:Its own trash.

22:43Downtown Josh Brown:So we had all those 2X memory people knocked out of the box. We had Leopold Ashton Kutcher. Margin called into the Stone Age. Like all of that excess leverage and the Korean psychopaths. Like that all cleaned itself up. And you know what the word was today out of the street? Is the bull market over? No, the bull market was reset. That momentum crash in July reset the bull market. It gave us a new foundation upon which to build future gains. We got a lot of leverage out, a lot of margin calls, a lot of 24-year-old effeminate German boys trading stock for the first time, knocked out the box. And now we're in a really good, I think, a really good position to enjoy the rest of the year.

23:34Downtown Josh Brown:This is a mid-summer melt-up. It's not very common. But when you get it, I think it says a lot about people chasing the market until year-end. They're really going to do it. So I'm very happy.

23:48Michael Batnick:You and me both. All right. Here's another one from Truist Wealth. Earnings revisions. Look at this shit. This is abnormal, folks. The average year since 2000, you're looking at the calendar year earnings revisions. And the longer the year goes on, analysts are usually too optimistic and they take their earnings revisions down. This is the exact opposite. The exact opposite.

24:15Downtown Josh Brown:it. Yeah. I mean, how much are like, like, where are we normalizing this by all the write-ups of private market assets? Like, like, uh, Amazon and alphabet obviously had big write-ups in their positions and things like anthropic is what you're showing me just straight up operating earnings. I don't know, but I think operating earnings look, look just as good.

24:36Michael Batnick:So there's obviously an asterisk here, but just as good, but not as extreme. It's all working. And, uh, it won't forever, obviously, but these are the good times. Enjoy them while they last because they won't last forever.

24:49Downtown Josh Brown:Yeah. ChartKid, Matt, as of Friday, so this is a little bit out of date, but directionally, it's the same. 64 % of companies have given results, 29 % earnings growth for the second quarter. 137 S &P 500 companies will report this week. What's revenue growth? Do we have that? It's 14.1 % year over year, which is 200 basis points above. That's insane. The estimates at the beginning of the season.

25:18Michael Batnick:Why does NVIDIA report in like three weeks? It's like so anticlimactic at that point.

25:24Downtown Josh Brown:I don't even know. Is it late or is it early for the next quarter? 10 of 11 sectors posting a year over year increase in profits, as I mentioned.

25:33Michael Batnick:Do we know which one was down? I'm curious.

25:35Downtown Josh Brown:The lowest growth rates are healthcare, staples, and real estate. So let's assume one of those three is negative year over year. Real estate. But 11 of 11 sectors have beaten beginning of season growth estimates and put up the one-day reactions. So Palantir today – nope. The chart kit Matt's a thing. Palantir today one day price reactions to earnings from select S &P 500 company was by far the biggest to the upside followed by Zebra Tech, Gartner Mcore Lamb Research, Kwana, Garmin Micron, and Microsoft

26:20Michael Batnick:These are monster moves 29.5 %

26:24Downtown Josh Brown:for Palantir so it's pretty notable. I do have some stuff from Nick and Jessica at Datatrack that I wanted to just run by you. 86 % had beaten the consensus of Wall Street's analyst earnings estimates, which we know the 1, 5, and 10-year averages are 80, 78, and 76. The long, long, long run average is like 76, 77%. And it always is that. We're so far above. Healthcare, 100 % beat. Do you hear me? 100 % of healthcare reporters beat. Industrials, 90%. Materials, 89%. The worst sector, consumer discretionary, was 75%. So Nick and Jessica say the fact that more companies than usual are beating expectations is an unalloyed positive in terms of signaling strong corporate fundamentals.

27:27Downtown Josh Brown:And then he gets into some of the technicalities. But like just from a big picture standpoint, you can nitpick and you could find examples. But what about this? What about that? If I'm telling you that this is the overall environment, why nitpick? Why not just accept it's one of those moments in time where corporate America is shocking people left and right, every sector, every industry. Why not just say, yeah, that's going on. Hold on, before you move on.

28:00Michael Batnick:This is very important. If you're listening to us and you're getting nervous because we sound overly bullish or whatever, I understand that impulse. I get it. You have to understand and remember that all-time highs are bullish. Statistically, the one-year forward return at an all-time high is above the average for all other days.

28:23Downtown Josh Brown:Very counterintuitive.

28:24Michael Batnick:So you might want to fight it and say, oh, Josh and Michael, so bullish. Ding, ding, ding, ding. I got to get it. Okay, fine. Good luck.

28:30Downtown Josh Brown:Statistically,

28:33Michael Batnick:these are not times to get afraid. What's your last point?

28:36Downtown Josh Brown:S &P net margins, 14.7 % in the second quarter, pulling out Amazon and Alphabet because of those big write-ups. Ridiculous. The five-year average is 12.4.

28:47Michael Batnick:Dude, I remember when 10 % was as good as it was going to get. That was GMO's whole bearish thesis, which I understood at the time. Mean reversion of profit margins. Right. No. No, no, no. Okay. We're going to talk about some of the stuff in semiconductor blow-up land. I know we want to get to Leopold later, so we don't need to go there. But let's start with this clip from the second podcast in 45 days or whatever, Patrick O'Shaughnessy and Gavin Baker. Have you met anyone in your travels out here that you would say is like way more bullish than you?

29:22Downtown Josh Brown:And if so, what do they believe that you don't? I mean, essentially, everyone out here is more bullish than me, man. You know, I read this thing that Dorkesh wrote, you know, forget my like Bayesian probability space of expected outcomes. that wasn't even in my considered but dismissed his totally unlikely outcomes.

29:42Michael Batnick:I look at what's happening in the stock market and I feel like a foolish optimist. And then when I talk to people, whether it's people at the labs, whether anyone in this

29:54Downtown Josh Brown:ecosystem, like I'm like bearish relative to essentially everyone, which is just a strange

30:01Michael Batnick:state of affairs. All right. So that was so great. So him and Patrick are talking about what's going on. And Gavin Baker is like, the fundamentals have never been stronger. They're accelerating. Like, I thought I was bullish on the East Coast to come out here. And everybody's psychotically bullish. And they're trying he's trying to wrestle with, like, why are stocks going down so much? Obviously, we understand now this is like probably eight days ago. So it was pre finding out that there was a margin call. But the market looked past this because something really weird happened last week. Let's start the semis imploded chart, please.

30:34Michael Batnick:Skip the first one. So ChartKid made this. He showed the Russell 3000 drawdown when 88 % of Russell 3000 semiconductors are in a bear market. And most of the time, the market is in a bear market, right? Most of the time, there's a complete watch out in semiconductors when the rest of the market is falling apart. And in the last week, this was happening when the market wasn't just a three and a half percent drawdown from its high. That dynamic had never happened before. So investors, the rest of the market participants, were correctly looking past the blowup. And they bought, chart off please, and they bought the ever-living shit out of the dip.

31:15Michael Batnick:Let's use the first chart from Goldman Sachs. This is from Chris Lucas. While the Sachs index has faced one of its worst months of performance in nearly two decades. Semiconductor ETFs are on track to have their best month of fund flow since the inception of SMH. That's debt buying. One final one from Todd's own. Check this out. Todd is showing that semis were down a good clip in July, yet the ETF flows, and this is unlevered exposure, were content with adding on weakness. I mean, this is just what an outlier of a month. Like we've never seen anything like that. And investors, rightly so, the buckle up buttercup crowd, who's going to get their comeuppance one day, they nailed it again.

32:02Downtown Josh Brown:Meaning, no, they just got their comeuppance. They're going to get their revenge one day. They got their comeuppance to themselves. Oh, whatever.

32:11Michael Batnick:You know what I meant.

32:12Downtown Josh Brown:No, I know. I'm fixing it. Can I ask you a question about that second chart? Would an accurate way put up the scatterplot one? Okay. Would an accurate way to explain this be that in normal times when a whole sector is selling off, it's being driven by the index ETF or derivatives thereof?

32:34Michael Batnick:No. No. What this is showing is that... So the red dots is showing the 20-day sum of flows. And normally on the Y-axis, when you have a 30 % decline, obviously people are selling. the ETF. They're saying, get me the hell out of here. No, no, no, wait, wait.

32:53Downtown Josh Brown:You didn't let me ask my question. Hold on. Would a way of explaining this be in a normal sector sell-off, like specific to the sector, you would see outflows from the ETF because people are selling off the ETF. But in this case, the semiconductor sell-off was concentrated more in the individual names than in the ETF because it was being driven by a hedge fund margin call specifically. Yes. Okay. So that's what's different. And that's why you see them buying the ever-loving shit out of the dip and plowing into the ETFs because they weren't the people selling the stocks. The sellers of the stocks were very concentrated.

33:40Downtown Josh Brown:Although - It wasn't the whole retail crowd selling semis. They never sold.

33:44Michael Batnick:No, they sold the stocks. This is such a, I'm glad you mentioned this. So Gunjan tweeted last week. So this was on Tuesday of last week, which I think was the bottom. Data from Vander Research. Retail investors sold$285 million worth of individual stocks. Oh, wow. Which was the largest outflow since, I think, Liberation Day. So individual stocks were sold aggressively. Maybe they sold the stocks for a tax loss and rolled into the ETF. Who knows? It doesn't matter. But both of those two things can be true. People capitulated on the stocks and they dove headfirst into the ETF. So it was an interesting dynamic.

34:23Michael Batnick:All right. This is very, very important. There has been a lot of 1999 comparisons over the years. And I want to make a very important point. This is nothing. The stock market looks nothing like 2000. Nothing at all. This chart is incredible.

34:40Downtown Josh Brown:Haven't we been saying – you and I have been saying that for three years now. I'm going to say it louder. Nobody wants to hear us. It looks nothing like the dot-com bubble.

34:48Michael Batnick:The chart on the left is JC's favorite. And all technicians point to this chart. You had ample warning because on top is the S &P 500 advanced decline line. And a lot of stocks peaked in 1998. Financials, materials, industrials, like a lot of stocks peaked two years prior to the actual index peaking. And look at the chart on the right. do they look anything the like at all?

35:18Downtown Josh Brown:No, it's the opposite. It's the opposite. Everything is going up and to the right. It's the opposite. The advance decline line is making a record high. People are making money in biotechs. People are making money in retailers. They're making money in health insurance companies, making money in REITs. It's oil stocks. It's the literal opposite of 1999. I know it didn't feel that way for a lot of last year. Excuse me, for a lot of 2024, when it felt like it was all MAG-7. And that was legitimate to talk about that concept. But that was just the first phase of the AI bull market. Now we're like in the third phase.

36:04Downtown Josh Brown:And you've got companies involved in the AI trade that are going up. You have companies that have nothing to do with the AI trade. also going up. Take a look at J.B. Hunt. Take a look at Insight, which I talked about on the air today on TV. Biogen iDeck, or we don't call it that anymore. Biogen Inc. They have nothing to do with it at all. And they're going straight up and to the right. We talked about on the show, Casey's General Store. It's fucking gas station pizza in Nebraska. There are so many of those. hundreds of those that I can off the top of my head. This idea that the 1999, oh, it's all.

36:49Downtown Josh Brown:Now, I am sympathetic to people saying the rally in the financials is based on AI and its concentration and it's 1999-esque. That part I will grant you. When I looked at the earnings reports from Morgan Stanley and read their commentary after, there are 10 trillion in assets. And they specifically on the wealth side, They added nine – I forget the number on the wealth side. It was some obscene number for the quarter. And they were saying, yeah, this is companies going public and we have all their shareholders as wealth management clients. And they said there's going to be more of this. So I am sympathetic to the argument that a lot of the market is rallying on the AI theme.

37:32Downtown Josh Brown:I would not say that's not true. But I would just make the point it's not one narrow group of stocks. It is literally the opposite.

37:39Michael Batnick:So the best case that I've seen or the best comparison that I've seen recently to the dot-com bubble or just bubbles in general, I saw a chart from Bank of America Global Research that showed the prior manias. So the nifty-fifty, the dot-com bubble, Japan, and now AI all peaked at around 40 % of market cap. And that's where we are today. So if you want to say that this is a bubble mania, that would be the chart. And is it possible? Of course it's possible. We'll see. All right. let's keep it moving can we like have one company miss earnings right right right so okay i know amd

38:17Downtown Josh Brown:reported today after the close we're not gonna we're not gonna we don't have time to do that one but like so josh we get one amd miss um before you share your thoughts on leopold i thought it

38:26Michael Batnick:was so funny listening to not haha just interesting listening to gavin who is you know obviously on the forefront of this entire move he's he knows what he's talking about um and he was like stress testing all his ideas over the last couple of weeks like what the am i missing like everything that i'm hearing and like literally not just seeing from the earnings reports everybody that i'm talking to everything is accelerating what am i missing and he wasn't missing anything other than a margin call and they were looking for signal and noise or noise and signal okay so

38:57Downtown Josh Brown:this is what I wanted to run by you. I like this kid. He's got chutzpah. I like that he got fired from Open... I didn't even know who this was until 10 minutes ago, so I'm not going to do a whole biography. But basically, he got fired from OpenAI, allegedly, for sharing information with people that worked at Anthropic. he's dating a girl that works directly for Dario and I think got married over the weekend to the chief of staff for Dario Amadei at Anthropic and he spent a year or two inside of OpenAI that's after working at FTX LOL so he went from FTX to OpenAI and maybe there was one stop in between but he's a child he's 24 years old so I give him tons of grace he's not a Wall Street guy.

39:57Downtown Josh Brown:He's a San Francisco guy. And this is not his world. And the problem with mocking him is that even being wiped out on all of these public stock positions, he still somehow managed to blunder his way into a$5 billion position in Anthropic, which could be one of the biggest IPOs of all time later this year. And the way he was able to raise money was not because he grew up with this person or his dad is a VP at this place. He wrote something that resonated with really smart people. He wrote a paper after getting fired called situational awareness. He stated his intention. He's going to make a big all-in bet on the companies that are going to benefit from his thesis.

40:48Downtown Josh Brown:And he was right. He just didn't trade it well. The fundamental issue seems to be he was up a thousand percent and remained four times leveraged. The other problem is he doesn't know what a hedge fund is. So he had longs and shorts, but they put the same trade. So his longs got killed and the things he was betting against were the counterbalance to those and they went up. And you can't have your shorts running up at the software stocks and your semiconductor longs going down simultaneously at 4x leverage. It was a one-sided trade. He doesn't know what he's doing. It's a one-sided trade with leverage.

41:28Downtown Josh Brown:Right. He's a very smart person and he accurately, accurately called almost everything in the right direction. He just doesn't know how to manage money. That part could be fixed. I bet you he's better. I bet you he's a better risk today than a lot of people running money that have not gone through this with fresh cash. And I bet you he could raise himself another$10 billion with his eyes closed. People say, oh, Leopold Ashenbrenner, I've heard that name. I forgot why I know the name. Whatever. Like, he's fine. People mocking him, he's a billionaire. Shut the fuck up. He didn't lose your money.

42:11Downtown Josh Brown:What are you mocking this kid for? And he just learned the most important lesson there is to learn when it comes to managing money. Don't take the knockout punch. He's not gonna do it again. So I bet you he's gonna have a long and distinguished career going forward. And by the way, the last thing, the people he lost money for are all themselves billionaires. They're fine. This is not like Madoff stealing from nurses and teachers. they're billionaires in silicon valley they love this shit they wear failure as a badge of honor in in where that in and where they're coming from they probably think it's the most entertaining thing on earth i'm sure they're not thrilled that they're down a hundred million dollars but again they're billionaires and i don't think i don't think we've heard the last of of this uh this young man well what are your thoughts uh the fund is not shuttered he's not

43:09Michael Batnick:going away right all of his all of his lever positions got sold at a 10 discount and i'm sure he was down all of it on that level position he still is uh yeah he's gonna be fine and i agree with you the impulse to like kick somebody when they're down especially like a 24 year old what does it say about our casino culture he just took the largest i think the largest trading loss

43:31Downtown Josh Brown:in history on dollar on a dollar basis the fund bigger than bill wang the fund peaked at 45 billion

43:36Michael Batnick:and what was it after the wipeout?

43:38Downtown Josh Brown:Whatever. It's the Anthropic stake. Six billion? Yeah. It's the Anthropic stake, which could be worth 10 for all we know by the time it comes public. But it's the biggest trading loss in history, I think.

43:51Michael Batnick:Wow.

43:51Downtown Josh Brown:And it happened in two weeks and he's going to be fine.

43:56Michael Batnick:What does this say about the culture that we're in? I mean, it's a great story. It's a juicy story. So obviously it deserves all the press that it's getting. Mark Rubenstein wrote a sub stack. He writes a net interest. It's phenomenal. And he said, I forget who he was quoting, but somebody that allocates money said, the best investors have blown up once. Right? Like you blow up once like this. That's my point. Give him money now.

44:22Downtown Josh Brown:You're never going to do it again. Because what do you think? So if you think this kid is smart and he did this like generational deep dive into the AI rabbit hole to come up with this thesis that, once again, let me reiterate, was exactly correct. What do you think he's going to do on risk management now?

44:42Michael Batnick:Well, you know what? It doesn't matter, dude, because Sandus is not going up another 1800 percent.

44:48Downtown Josh Brown:Tough act to follow. I agree. I don't think having a little bit of situational awareness myself, I don't think it's as target-rich of an environment as it maybe was in 2024. But again, the question is not is he smart or is he not? We know he's smart.

45:05Michael Batnick:Everybody's smart. What does that matter?

45:07Downtown Josh Brown:Well, my point is if he spends 1 % of the time learning how to structure trades and do risk management that he spent learning AI, I'm pretty sure this would be a pretty good time to give somebody like that money if you were so so inclined I don't like the comparisons to Bill Wang yes he was reckless but I feel like though Wang was running a scam Bill went Wang was tricking the prime brokers tricking the prime brokers this kid I honestly think just believed he was allocated correctly for what he thought was going to happen he was not shopping prime brokers and pretending that this assets not leveraged yet like bill wang was a fraud like go going to jail fraud this is just a bad trader yeah um okay so i don't i don't love that i don't love that wait i want to share one thing with you so i mentioned he's from he's from the san francisco world there was a funny anecdote in the new york times piece i think it was rob copeland wrote it um when this star of san francisco arrived in New York during his fundraising tour around last summer, he received a relatively cool reception, according to three people from whom he tried to raise money.

46:23Downtown Josh Brown:They said they viewed him as a lightweight and a one-hit wonder. The asset management colossus Blackstone passed on investing. One wealthy New York investor who did take the meeting welcomed him, gave him a grilling, and asked him, what's your plan if the AI revolution doesn't pan out quite as hoped? The hedge fund founder had no detailed response, the investor recalled. Mr. Ashenbrenner simply truly believed it would all work out. Yeah, that's my read. And I think it's interesting the difference between San Francisco risk-taking versus New York. New York is much more hand-to-hand combat. San Francisco I think they're a little bit more philosophical about taking losses and swinging big for the fences I think some of that is cultural and I think some of that is just like this kid speaks their language and doesn't speak ours and that's probably why the primes wrapped them up in a box and threw them in the river so quickly because they just they looked at each other and said we extending this credit another second no we're not and he had to go out and find a buyer and he did fortunately for him um but again i still think he'll he'll he'll be okay and if i were a betting man i would bet that he's going to get really good at risk management going

47:47Michael Batnick:forward all right let's talk about robin hood um this is pretty impressive they have 13 lines of business that are doing 100 million dollars or more in annualized revenue what are these businesses chart on options trading margin interest equities trading crypto trading I can't read the rest

48:09Downtown Josh Brown:margin based securities lending cash sweep gold subscriptions which is like their top tier clients instant withdrawals I don't know how it's a business but okay I can't believe that's a hundred million dollars

48:22Michael Batnick:holy shit what's Robinhood what's Robinhood legend Robinhood legend that I don't know okay

48:28Downtown Josh Brown:I think that's like their top top top tier.

48:31Michael Batnick:Okay. So next chart, their trading volumes, I mean, unbelievable. The equity notionals up 85 % year over year, 50 % quarter over quarter. Options contracts up 50 % year over year. Obviously an incredibly lucrative business for them. Crypto down bad. We'll get to that in a second. Next chart. This is so nuts, dude. $215 million of the 389 from margin interest. Holy shit.

49:01Downtown Josh Brown:Well, that's what the clientele is doing. I mean, I know we know.

49:05Michael Batnick:And guess how much of this margin interest is in levered ETFs?

49:10Downtown Josh Brown:Yeah, but that's not actually the right question. The right question is, how much is Robinhood doing culturally to encourage people to use margin in their brokerage accounts? Do it more. I don't know what they're doing. Now, I know there's no regulation anymore. I understand that. And the pendulum will swing back though. But wait, what do you mean?

49:34Michael Batnick:I don't think they're doing anything to encourage people. You don't? What could they be doing? You think Vlad's calling people? No. Like making it available, making the button prominent. It's way cheaper than other places. I don't think anybody really gives a shit what they're paying.

49:48Downtown Josh Brown:All right, let's do a thought exercise. You're the CEO of Robinhood, and I'm the chairman of the board and I come to you and say the board has met and we've decided it is not in the long-term best interest of Robinhood to have as much margin per account as our users have. We think it risks in a bear market. It risks blowing us up for a year. So what I want you to do is encourage less margin going forward and I want you to give me the results at the end of this quarter, what would you do? What would I do? Yeah.

50:25Michael Batnick:To stop people from speculating? You would raise

50:26Downtown Josh Brown:minimum account size that can use margin. You would raise requirements on certain securities. You would take the button and instead of it being bright purple, you would bury it at the bottom of the page.

50:37Michael Batnick:I don't think they have a bright purple button.

50:38Downtown Josh Brown:You understand what I mean. You can do things with the user interface to make it less apparent to people that margin is even available. My point is they're not doing that. So are they going the other way? Are they, as soon as you open an account, sending you an email? Hey, did you know, rather than the$3 ,000 you put in, you could trade with six? I'm not saying they're doing that either.

51:01Michael Batnick:So I am a Robinhood power user. That is my app of choice for seeing what's happening in the stock market. I've got my list. Everything's on Robinhood. And I don't feel like I'm being pushed to trade with margin. Okay. What also is super notable in here is they are doing – next chart, please, actually. They're doing more revenue from events contracts,$156 million in the most recent quarter, than they are from freaking crypto.

51:26Downtown Josh Brown:Well, there's always a new bubble. And credit to Vlad.

51:31Michael Batnick:I told him to his face. I said, I think you're drunk. I think you guys are drunk on the prediction market events contract stuff. I said stipulating. I think it's going to grow. I think it's going to be big. But I think that you're way overestimating how big the market is. And obviously, I was 100 % wrong. Polymarket just spoke about raising a$20 billion valuation. People are eventing their ass off.

51:51Downtown Josh Brown:Yeah. And it's extremely profitable. And I don't know if it's a bid-ask spread business. But you could probably drive a truck through where the sellers are, where the buyers are. And it's almost completely unregulated. In fact, there are lawsuits in states all over the country. A lot of states are angry because it's a workaround. They have prohibitions on gambling on sports. And then you can just buy like, all right, I won't gamble on sports, but will the Chicago Bears win 12 games this season or 10?

52:26Michael Batnick:It's a total workaround. The states make a lot of money from regulated betting entities like DraftKings and FanDuel are paying 50 % of the revenue or something like that. and Kashi is paying nothing.

52:37Downtown Josh Brown:I saw John Mellencamp last weekend and played Jones Beach. Speaking of betting. And he opened the show. If you ask, like, is John Mellencamp more likely to be a Democrat or a Republican? I don't, you know, he played at Farm Aid. He just fucking rocks. I don't know what his political relations are. He just rocks, right. But he's like from Indiana. It's all about the heartland and rural America. So it's like not obvious that he's either one, right? He opened the show with a song I've never heard before. It might be an old folk song or something, or maybe it's something he wrote. But the chorus is, my, my, my, these are lawless times.

53:21Downtown Josh Brown:And he put a big sign next to the stage. And that's what's going on right now. Like, oh, that's illegal? Well, what if I just technologically do it this way? then I have enough of a loophole that buys me time to get an equity position to Donald Trump Jr. and then, all right, come after me now. I bet you I can innovate myself into a loophole that you can't do anything about in the time that it takes you to bring an attorney general to sue me. That's the markets right now.

53:52Michael Batnick:Tarek from Kashy was on with Sorkin, I believe, talking about the affiliation with Donald Trump Jr. And Tarek was like, Like he's always been very into technology and Andrew's like, he's a real estate guy. What are you talking about?

54:06Downtown Josh Brown:He owns a stake in both Polymarket and Calci. Yeah, at Diversify. Which is bulletproofing both businesses basically for at least the next two years. And this prediction market stuff, I think it's fascinating. I have a whole bunch of bets. I have a Calci account. I'm not anti, but I know what I'm doing is within reason. I'm not going to blow my life up over it. I know if I were 18, the results would probably be different.

54:38Michael Batnick:Throw up this last chart. June 2026 monthly metrics. Look at the bottom right. These are event contracts. Now, obviously, a lot of this is sports. It just is. There's a World Cup in here, but whatever. There's a lot. I mean, that is a lot of volume. Holy shit.

54:55Downtown Josh Brown:But people should be people should be able to bet on the World Cup. People should. I don't understand. Like, I don't understand the mentality of like, oh, you could bet on the price of oil 10 minutes from now. But you can't bet on a soccer game you want to watch. I'm pro. I like it. I think it's good. Really? Since when? I what I don't love is that it's bundled in with a an investment account. And I'm not I'm not saying like Robin Hood shouldn't be allowed to do it. I just I don't think that that's healthy. for a population of predominantly young males. And I know they're trying to get women to get into prediction markets.

55:34Downtown Josh Brown:They're doing a lot of bets about like Bravo shows and the shit that young girls care about. But most of this activity is young boys. And I don't like the bundling of this is your investment portfolio. And then also like, why don't you take a soccer game out of the same pool of money? I'm not saying like it's illegal or I want to prosecute it. I just don't think it's good. I think it's societally not great. But these are public companies. They have shareholders. They have a profit motive. And they're going to do whatever they have to do and get away with whatever they can get away with for as long as they can.

56:10Downtown Josh Brown:And we should not be naive about that. It's what it's going to be. Can I show you one thing? Yeah, go ahead. Give me my chart. All in on prediction markets. This is what I want to underline here. the event contracts in gray. So that's for the second quarter. Now, to your point, bigger than crypto. They flipped crypto. So let's say the stock and options trading is effectively going to be what it's going to be. In a bull market, you're going to see more of it, right? In a bear market, you'll see less because people lose money and lose interest. But then they always have like this other layer, this like bubble layer, not bubble in price, bubble in activity.

56:53Downtown Josh Brown:which sometimes comes along with bubble in price. They lost Bitcoin this year. I think it's the worst asset of the year. But they found something even better and maybe even more profitable. And that's why Robinhood is a$100 stock and not a$60 stock. And it does not look as bad as Coinbase looks, which is not in these other markets to the same extent.

57:15Michael Batnick:Okay, we're going to skip the next topic and go straight to make the case. Okay. I thought I did this before, but apparently I haven't. So floor and decor. Now I've spoken about this stock. Maybe I did it with Ben. So this is a company that came on my radar from a guy, Alex Morris, who has a sub stack called the science of fading that I like to follow. Alex was on TCAF a couple of years ago. And Alex is a value investor, an actual investor. How about that? I am no such thing. But I read his work because I like his ideas and I like his writing and whatever, whatever. ever. So Floor & Decor is a company that is not where you want to be.

57:51Michael Batnick:They are in the home improvement category. And I don't know if you know this, but home activity is at zero. It's a bear market. It's a nice age. Mortgage rates are at 7%. It's brutal. So let me tell you the story real quick. Chart on. This is from Alex. So I probably read this back in March or something. This is when it came on my radar. So Floor and Decor has taken market share from Home Depot and from Lowe's because they specialize. They are all in on this one category, not just flooring, but any type of home improvement work. You can go right there. They have a much, much bigger warehouse. They dedicate a lot more square foot to these categories than Home Depot does.

58:32Michael Batnick:So this is becoming the place of choice for people that are doing work. My Mudroom, for example, my guy went to Floor and Decor. Okay, chart off. The stock has gotten

58:41Downtown Josh Brown:the shit you knew this was mud i knew this is mudroom related totally related okay so the stock

58:46Michael Batnick:obviously like like a lot of other home related stocks has gotten destroyed the stock fell almost 70 from its high in 2022. um and it's not and and the business is not really doing awesome so they reported earnings the other day and the cfo said uh our outlook assumes that consumers will remain cautious and project demand will continue to be influenced by the pace and sustainability of any improvement in housing market activity. Following our better than expected second quarter earnings and the anticipated greater impact from the repurchase of common stock, we have increased our fiscal 2026 earnings per share outlook.

59:24Michael Batnick:So why am I presenting the stock to you? A couple of things. I know that this is like one-on-one type stuff. This is extremely basic. But as we are looking at stocks today, we are reacting to what's in the headlines. But that's not how investing works. Stocks are looking forward. So Stanley Druckenmiller said, never, ever invest in the present. It doesn't matter what a company is earning, what they have earned. Soros taught me that you have to visualize the situation 18 months from now. And whatever that is, that's where the price will be. But not where it is today. And too many people tend to look at the present.

1:00:01Michael Batnick:So look at their comparable sales growth. It's bad. Obviously, the stock didn't fall 70 % for no reason, but it's getting a little bit less bad. And the stock just broke violently above the 200-day moving average.

1:00:19Downtown Josh Brown:Now, listen. That's the first thing you've shown me that I liked. All right. Now you have my attention.

1:00:23Michael Batnick:I'm not done. So obviously, it's in a shitty position. The business is not doing well. But that's why the stock was down 70%. So all of the bad news, all of the frozen housing activity, it's all in the price. Now, here's the final thing I will say.

1:00:42Michael Batnick:Obviously, the bears are still in control, technically. I think they still have the benefit of the doubt because the 200-day moving average is firmly sloping downward. But I think this breakout is notable in spite of all the challenges. And I am not selling. I think I'm up 20 % or so since I bought it, and I'm sticking with it.

1:00:59Downtown Josh Brown:All right. So the good news is you got the earnings already. So like that potential landmine is, is out of the picture. So you have 90 days on until, uh, until they're going to, uh, report. Um, I, I guess aren't there, there are a lot of stocks like this right now in the market that are waiting for this turnaround in housing volume and, and, uh, existing home sales to pick up and new home sales to pick up. This is one of many. It could be 100 of these.

1:01:31Michael Batnick:I don't think you need a massive turnaround for the stock to work. It has already digested. All of the bad news is here. It just needs to get a little bit less catastrophic. Yeah.

1:01:40Downtown Josh Brown:I was looking at one in the same category. Which one? Mohawk Industries just made a monster move. It went from 100 to 136 in the last two weeks. Wow. The stock looks great. Same thing. They didn't get a fundamental turnaround. I should buy this instead. This looks better than yours. They didn't get a fundamental turnaround. It's just to your point. It's like less bad. We had a conversation with, we had a conversation with, what's his name? Ken, Ken Fisher. And he was saying, we did most. Yeah. Well, maybe you weren't part of the conversation. It stuck with me as a long time ago. He was saying most of the money, maybe that's not true anymore, but historically, most of the money is made on less bad.

1:02:31Downtown Josh Brown:Because when you start making money on less bad, not as bad as expected news, that means you're buying things that have been so utterly sold out by everyone that it almost doesn't even matter. You almost can't lose money anymore. Now, that works against you when you have a company that's literally going to zero, like a JCPenney or a Kmart or Sears. Like there's a limit to that idea. I don't think that's what this is. No, there's companies on zero. Right, right. So what you're saying is like, we don't need a housing boom. We just need a little bit of a thought in the ice age and nobody's expecting anything good.

1:03:11Downtown Josh Brown:Correct. And yeah, I think there's something to that. I have to tell you, it's the polar opposite of the way that I invest because I've been caught in a lot of value trap situations or I'm going to get in ahead of the turn. And I just don't have good luck with that. I did it recently with Rocket. Well, it's really hard. Most of the time it doesn't work out. Of course, we know this. I'm still in Rocket. It's still$13 a share. It might be$13 a share until I die.

1:03:37Michael Batnick:Now, Rocket needs, that needs lower mortgage rates. Yeah. Like that is a levered bet on the housing story turning around.

1:03:43Downtown Josh Brown:Right, but it's the same group of stocks. And then what will happen with Rocket is they're not going to grow like it's NVIDIA, but like not as bad as expected. starts to turn into, okay, actually pretty good. And then, wow, that's really good. And then by the time it gets to great, but you could have a 400 % return on a stock like that. The problem is, like one of the problems is the timing. When does that process start? So maybe that's already started with FND based on that rally that you're showing me. So for that reason, I'm blessing the trade. Thank you.

1:04:22Michael Batnick:Blessing the trade. I'll take it. All right.

1:04:23Downtown Josh Brown:No mystery chart tonight, guys. We're running late. I did want to say thank you to everybody who joined us for the live comment section is rocking. As always, we appreciate all of you. Thanks so much to those of you listening on Spotify, Apple Podcasts. Please make sure leave a rating and review. It goes a long way. If you're watching us on YouTube, make sure you subscribe to the channel. And we love you right back. Tomorrow is Wednesday, which means you'll get an all new Animal Spirits. every podcast platform under the sun, audio, video, Mike and Ben, what could be bad. We'll do Ask the Compound later this week and then another all new edition of the Compound and Friends to close things out on Friday.

1:05:05Downtown Josh Brown:Keep it locked. We'll talk to you soon. Thank you, guys.

1:05:36Michael Batnick:Hey, it's Ryan Reynolds here from Mint Mobile. Now, I was looking for fun ways to tell you that Mint's offer of unlimited premium wireless for$15 a month is back. So I thought it would be fun if we made$15 bills, but it turns out that's very illegal. So there goes my big idea for the commercial. Give it a try at mintmobile.com slash switch.