Netflix Reports, Why the Bull Market Has Legs Into Year-End With Nick and Jessica, Warner Bros for Sale, Unemployment Cracks Appear

28:22The first is, how much money does big tech actually make and where does it go? Like how much is going into CapEx? And then what's the actual required return on that investment? So the first table, and apologies, it's going to be a bit of an eye chart, but the first table shows you the cash flow from operations for the big five companies, the big five hyperscalers, Microsoft, NVIDIA, Amazon, Alphabet, and Meta. So it shows you cash flow from operations last year and the first half of this year. It shows you CapEx, which is the money going into hyperscaling, and then buybacks and dividends. And it basically breaks down how much of the cash flow from each company goes to those end uses, investing in the company CapEx or handing money back to shareholders by buybacks and dividends.

29:07And a couple of big points on this. First, we're not including Apple in this, by the way, because they're not really an AI hyperscaler. But just these five companies, Microsoft, NVIDIA, Amazon, Alphabet, Meta, are generating about$570 billion in cash flow this year. Oh, is that all? Yeah, exactly. Exactly. It's like most of the way to a capitalization of J.P. Morgan. I mean, it's just a mammoth number, and people forget that sometimes. Wait, Nick, is that, I'm sorry, is that versus$38 billion a year ago? Can that be true? No, it is versus$532 billion the year ago. What's the$38 then? The change from last year.

29:49The change. Okay. So it's$570 billion up$38 billion from the prior year. So over half a trillion dollars of operating cash flow. This is just straight off the cash flow statement from the financial statements. Of that$570 ,000, about$325 ,000 is going into CapEx. So they have more than enough money to cover the CapEx budget. And they're still buying back in aggregate about$170 billion in stock and paying out$40,$41 billion in dividends. So it's a big misconception that they're plowing all their money into CapEx. There's still money going back to shareholders. And more importantly, the companies have tremendous operating cash flow.

30:28If you were going to add Apple to this, it would add another$100 billion of operating cash flow. I was going to say, you might have to include Oracle next time you do this. Yes, yes. It's a late arrival to this story. The one last thing I'd point out is just the way companies spend their money is very different. So NVIDIA, for example, spends almost nothing on CapEx, 5 % to 7%. and it buys back with its cash flow, roughly from half its cash flow. Amazon is the only big tech company left with no dividend and no buyback. So it all goes to CapEx, which is kind of nuts. It's the last pure play, old school tech name with no buybacks and no dividends.

31:11That really isn't. Look how it sticks out. That really is amazing. I've never seen this stuff laid out this way with Amazon compared to the others. there is zero attempt to return capital. I guess they see the investing opportunity as so much bigger than the opportunity to shrink the share count. Yes, I've often thought if I had to cover one of these companies as a single stock analyst, the last one I want to cover is Amazon because there is nothing that leaves that shop. Money just stays in that machine and just keeps circulating back and forth. It is amazing. It is amazing that that company of that size with, you know, that kind of cash flow, roughly$100 billion of cash flow, is still reinvesting all of it.

31:56The last chart, last table I'll just show you, this is even a little bit grimier, but I'll try to summarize it for you. This is an attempt to understand how much these companies have to make an incremental cash flow based on the CapEx that they're putting to work. So if you put in, and this is a very simple corporate finance calculation. So if you put$100 billion of cash flow to work in a project, you're going to want to see at least a 15 % return because that's going to be what your return for your shareholders is. That's being a good steward of capital. And so what I've done is just take the CapEx budgets, figure out a 15 % return on investment, and then work out how much incremental cash flow the companies have to generate to justify the CapEx that we talked about in the prior table.

32:39And the answers vary, but they're not very high. Amazon, because it reinvests so much, has to generate a 30 % return on its CapEx. But the rest are between 2 % and 12 % and 15 % and 15%. So these companies are so big and generate so much cash flow that they actually could justify their CapEx investments in Gen AI just with the growth of their organic businesses. So people are saying, oh, when's the so-and-so going to hit the fan from all this investment? And the short answer is they're so profitable and generate so much cash flow that we're not going to know for a couple of years at least if this CapEx and Gen AI actually, quote, paid off because the underlying cash flows are so strong.

33:21I think there are journalists out there who are on the hunt for evidence from internal documents and memos about concerns within these companies about the levels of spending and the lack of quote unquote ROI on the spending. And it's almost become like a subgenre of technology journalism is Microsoft is worried that blank or Oracle executives privately are concerned with. I understand the impulse. It's a really hot story if and when one of the hyperscalers decides they're pulling back the reins. It has massive ramifications for everyone and everything. So I understand why the reporters want to be the ones that break that story.

34:13I think there's also like a degree of schadenfreude because a lot of people that have missed out on the AI trade, a lot of investors, they want to believe that it's not true and that they couldn't have been mistaken by not owning NVIDIA because it's all fake anyway. So there's that component of the disbelief of these CapEx numbers. So I do think that there are a lot of people rooting for this to end. But to your point, most of this spending coming out of cash flow and most of this CapEx spending, it doesn't appear to be the type that's unsustainable. The numbers are huge, but the cash flows are there to back it.

34:55Is that what your table is proving? Yes. And more than anything, this is an analytical point. When you're trying to identify marginal returns on capital for a company, you ultimately only can use the baseline numbers from the entire cash flow statement. So we don't have the internal ROIs on these new projects. All we can do is judge the aggregate numbers. And by the aggregate numbers, you don't have to generate that much more cash flow to justify these investments because the underlying cash flows are so strong. So it's going to be hard as a financial analyst to say, aha, Microsoft's ROI went from 15 to 2 % in a year because the CapEx for AI didn't pay off.

35:35It's not going to happen that way. Yeah, and because Amazon's a great example, but all of them to some extent, it's a little bit of a black box. The money is fungible. You don't actually know which dollars are being allocated to what. to your point, you have the aggregate numbers, but you don't know individual projects, which one is very profitable, which one's not profitable at all. Nobody really has visibility into that other than people inside of the company in the CFO's office. So it's really hard to, I guess you could look at the aggregate and make a judgment on the overall company's spending and what did it return, but you don't know which specific AI projects are quote unquote good versus is bad.

36:18There's some element to that, right? Right. Look, I mean, if you wanted to tell a really negative story about this entire environment, I touched on this last week for clients, and I don't want to make too much of it, but I want to bring it up. We know a lot about where all this money is coming from and where it's going, right? But here's a simple question. Who audits OpenAI? Who's the auditor? Twitter. No one knows. Now, the people who invested money, Microsoft probably knows. The big VCs probably know. But even the public auditor for the most important linchpin name in this entire story, we don't know who the auditor is because it's a private company.

36:58It's a not-for-profit. And that's totally understandable. But if you want to pick on a part of this story, to me, it's a lack of transparency in that one company because we're relying on that company for a lot of the growth. OpenAI, right. So OpenAI being a$500 billion valuation in the private market, not filing financials publicly. But they do routinely do stock offerings. There's got to be a deck with financials in those. It's under NDA. It's not, you know, it's not for public consumption, but somebody is seeing something. They are. And that's that is, you know, that's a nice point of clarity.

37:36But, you know, we know SpaceX's auditor. I think it's E &Y. We know the auditor of some other large private companies. Why not at least know who the auditor is for OpenAI? Yeah, interestingly, I remember reading a Bloomberg story about Jane Street, the trading firm. Sure. And Jane Street's got publicly traded debt. So as a result, we do have, you know, it's not a public company, but they've got publicly traded bonds or debt so that we're able to see on a somewhat regular basis the financials of Jane Street, which they're not advertising. advertising. They're not interested in people seeing it, but it does come out.

38:13In the case of OpenAI, I think it's an interesting point. If only the most important company in AI were publicly traded and there was, I guess, a heavier degree of scrutiny on things like spending and CapEx and profitability. But again, we're in uncharted territory in so many ways, and this is just one more, I guess, would be the way I would think about it. Guys, it's so great to have you back. Thank you so much for joining us. I want to make sure people know where they can follow so they can watch your stuff and subscribe and get your research. So first things first, we want to tell people to go to datatrackresearch.com.

38:52Yep. Okay. And you guys are publishing every day and just an unbelievable quantity of information. I also want to tell people your YouTube channel is youtube.com slash what is the full URL it's long do you know your URL it's like Nick Colas and Jessica Rabe all right youtube.com slash Nick Colas and Jessica Rabe and of course there's a link to that in the description if you are watching the video below thank you guys so much for joining us thanks to Nick and Jessica we'll talk to you soon thank you

39:48It's all gangsters here today. I can tell already. I can tell already. I'm just looking at the names in the chats, in the live chat. It's gangsters only. As it should be. Right? Amen. Amen, sister. Thank you for that endorsement. Hey, everybody. It's an all-new edition of What Are Your Thoughts? If you're wondering where I am, I am in Las Vegas. I'm at the Encore. It's pretty sweet. And I was here the same time last year for the same event, and it's kind of becoming a thing. So I'm excited to be – I'm not a huge Vegas person. No, you're not. Because I don't gamble. No, because I don't play. But we'll see some friends tonight.

40:32We'll see JC. We'll see Joe Fami. What are you guys going for dinner? I will not reveal. Don't say, don't say, don't say. Until tomorrow. Yeah. All right. I wasn't going to tell you. Oh, the chat is all the way live. Cliff is here. Chris Hayes. C-Note is going absolutely nuts. East Bay Elitist. Chase is here. Georgie. John Tognacci asks, when is Nicole going to have her own podcast? I don't know. What would it be about, though? That's what I was just thinking. I don't know. She has many interests. John, she has a TikTok. She crushes it on the talk. So if you're looking for more Nicole-flavored content, that's where you want to be.

41:14Anyway, all the gangsters are here. Shane, I see you. Matt, Oliver, thanks for coming, guys. Great to check in with everybody. There's a lot happening this week. I can't really remember a time like this where there's just breaking news every five seconds for the last two or three weeks. I mean, it's been a bad time. It was boring as shit. It feels relentless though, right? Yeah, but the end of the summer was boring. Nothing happened. Nothing happened. Well, we are so back. Good. All right, guys, we have a lot to do tonight. I want to shout out the sponsor. We love all our sponsors. We truly love Betterment Advisor Solutions.

41:52Redholds Wealth is a customer of Betterment Advisor Solutions. Today's show is brought to you by our sponsors at Betterment Advisor Solutions. if you happen to be thinking, there's got to be a better way to grow my RIA, you're not alone. With Betterment Advising Solutions, we do the heavy lifting so you can focus on what matters most to your clients from improved service that makes asset transition smoother to fast paper-free onboarding that delights clients on day one. We've built a digital-first platform designed to streamline your operations and make life easier. Now, if you're thinking, wow, they take the paper out of paperwork, you'd be right.

42:26That's right, Josh. Grow your RIA. your RIA, excuse me, your way with Betterment Advisor Solutions. Learn more at betterment.com slash advisors. Investing involves risk. Performance not guaranteed. All right. Shout out to Betterment. So let's just get right to Netflix. They reported, I don't know, an hour ago, right? And the conference call started 15 minutes ago, which we're obviously not listening to. Before we even get into the numbers, this is the first thing that I want to say. I feel like this is an example of where individual investors have an edge over the algorithms that dominate so much the trading volume.

43:11Because this knee-jerk reaction to a one-time tax-related issue in Brazil is so stupid, I almost can't believe that I have to read the words and explain to people what's going on. And I feel like the first sellers on that headline number were undoubtedly algorithms. I don't think a human being looked at that and swung around that much stock. But the name is off about between 4 % and 5.5 % so far in the after hours. And I think the majority of the selling that happened immediately, of course, is computers selling to other computers. Do you have a strong opinion one way or the other on that? But I am inclined to agree.

43:54I would also point out that we never do know why a stock moves the way it did. I mean, sometimes you do. Sometimes you do. This could merely be the stocks up 40 % in the last year, and it was going to sell off anyway, unless it was a blockbuster report, which it wasn't. So I mostly agree with you. My take on the Netflix earnings, and I've been listening to them for a long time, they've gotten probably deliberately, and this is not a bad thing, more boring over time. so they no longer report their subscriber numbers. Net ads. Yeah, and why would they? No more net ads. And they no longer report their ARPU, their average revenue per user, or average revenue, I think they call it ARM.

44:33Whatever, it doesn't matter. And so in addition to that, and they've been doing this, I think, for a couple of quarters now, the questions are pre-screened. So it's like an internal Q &A. And it's fine. It's a mature business, healthy as shit, nothing wrong. They're still killing the game. They won. And it was a boring report. My hot take on Netflix is don't listen to a thing they say because they change their mind all the time. They say things like we're not interested in live. Now it's all about live. Live is driving all the excitement around the stop. They said for 12 years, 10 years, we're not going to do ads.

45:13And now it's all about like all about how profitable the ad business is relative to relative to the premium tier. So like whatever they the the way to think about Netflix and I was I was actually listening to Matt Bellany this morning talking about this and Lucas Shaw. They do these like trial things in a very small way. They gauge the reaction from their users and it either disappears forever. They never do it again. like they tried this thing interactive uh shows and like people were just not into it um and you never saw it again that you know so now they're gonna get into podcasting yeah yeah how about the refresh with the with the home screen like they didn't they don't just do wide rollouts right to your point right right and that's like that's business like that's what you're supposed to be doing i don't think that a netflix needs to do these like um these grand pronouncements so from now on, we're all about podcasts.

46:14But the reality is podcasts are cheaper than traditional TV show. You could trust me on this. Cheaper to produce than traditional television. But this is where the culture is. People enjoy listening to the insights or the hilarity or the dirty talk of their favorite people. They will leave it on for four hours in the background. They want to hear Bill Simmons. They want to hear call her daddy. They want to see them. And they want to, sometimes they want to see them, not always. Dude, I thought it was hard to believe in the early days when people were asking us to put our podcast on YouTube. I was like, but why?

46:55Who the hell is going to watch that? And obviously YouTube crushed and Netflix is better late than never. And if it stops working, they will pull it back. But it is going to work. It's not going to not work because it does work. I, for example, Patrick O'Shaughnessy, friend of ours. It's a relatively, it's not a boring show by any stretch of the imagination, but it's one dude interviewing usually another dude. And why would you want to watch it? Guess what? I don't watch it on my TV, but it's on Spotify. It is the video. And so if I see the person, if I only look at them for two minutes of the entire show, just to get a sense of who am I looking at?

47:30What is their body language? Are they smug? Are they sincere? Are they smiling? it adds another dimension that is critical to developing our opinions about who we want to listen to. That's a good point. The other thing is we had a lot of people who listened to us on Spotify and they were always at a disadvantage because we put a lot of charts up when we do the compound and friends or their show for that matter. And now if we're talking about a chart, somebody can grab the phone, press that button, go from audio to video. And for two seconds, they can glance at the chart and then go back to, you know, whatever they were doing, making lasagna or beating their wife.

48:06So it's like you, you have the option of like when you want video, when you want audio toggle back and forth in between, and you can have your hands free and your eyes free when it's just two dudes talking to each other. You don't have to watch it. Was that like a Sopranos reference that you just threw in there? I don't know, but no, I'm just saying like people have other things that they're up to while they listen to us. I can't even imagine the depths of depravity of the typical podcast listener. What I would say that's weird is Spotify obviously owns the ringer and has been pushing that video.

48:43And now you'll be able to get that video still on Spotify, but also on Netflix. And they're removing the full episodes, ringer episodes for these specific shows from YouTube. so i didn't know that part so here here are my hottest takes we're finally here everything has been leading up to this this is the heavyweight championship of the world on the line 2026 is going to be about netflix versus youtube and that is the battle and YouTube started it. YouTube spent so much time and energy and political capital to get YouTube TV and get regular YouTube app on every OEM TV manufacturer. It's an app on every TV you could buy.

49:36I don't care if you buy a TV at Costco, like a Kirkland, or if you buy the highest end TV, it's not just YouTube TV. There's regular YouTube as a standalone app. And that has been a huge push. And as a result, the amount of viewing of YouTube content that takes place in people's living rooms now is alarming for Netflix. They can't just let YouTube run away with the podcast thing. So some of this looks like they're on offense, but some of it really feels like they're defending their turf. Netflix's turf is the television set in your living room and the TV set in your bedroom. and YouTube is encroaching.

50:18Oh yeah, they're there. They're there. They're actually, most of the viewing of YouTube podcasts is done on a television. Right. So this is like, so I think in 26, we used to talk about the streaming wars and then the narrative early this year, the reason why Netflix has been such a home run stock, the narrative is Netflix won, the streaming wars are over. They were the first to profitability. They demonstrated substantially more profitability than their competitors. We used to think their competitors were Disney Plus. Well, it was, so they beat Peacock, they beat Disney, they beat Max, like that war is over.

50:55Hulu is now a channel on Disney. Yeah, that war is over. Right, that war is over. And now HBO is gonna be owned by Paramount within six months. And the real war, the real war for 2026. And this is why this leads to my last hot take. I think Netflix is gonna buy Spotify. I like that a lot. But they're not acquisitive. I think they're going to merge. Historically, they have not been, but times change. I think the combination of Spotify's stranglehold on the music business and how great they are even versus Apple, as well as the podcast business, many of the top podcasts, they actually own the rights and the ability to distribute.

51:42I think that's too tantalizing for Netflix not to seriously consider doing it. Spotify's$140 billion. Just the equity. It's a lot. It's a merger. It's a merger. It's a merger. I love the take. I love the take. I think that the war will never – they could both win the war. There doesn't need to be a loser. They're both the winners. Yeah, no, I agree. There's Miller Lite and there's Bud Light. I'm not saying like one goes away. I'm saying if you thought Netflix's competition was Hulu, you have no idea what's coming. You like YouTube? Google's the final boss. Right. So Netflix is subscale to compete with an alphabet.

52:22They can compete with YouTube. But like head-to-head against alphabet, they need more firepower. They need more content, more views, more subscribers, more cash flow, more everything. I'm telling you, I think this is like a greater than – let's say greater than 10 % chance. Whereas it would have been unthinkable a year or two ago. I'm just – and growing. Let's do the numbers. Let's do the numbers. Netflix reported revenue of$11.5 billion, up 17.2 % year over year. And that is actually their guidance for the year, 17%. That's like the Netflix number for the full year. Earnings,$6.97, up 29%. 29.1 % year over year was the expectation.

53:09What they actually reported was$5.87. which was only up 9 % year over year. And that's what the algorithms responded to. And that's why the stock went red immediately. But there is a massive caveat in that quote unquote miss. And I just want to share that with you. There's a long running dispute between Netflix and the Brazilian, I'm not even making this up, tax authorities that was not in the guidance. However, Netflix has disclosed this previously in their risk disclosures. This is like three years worth of fighting and it ended up being like a – Bloomberg actually has a two-sentence explainer on what ended up happening.

53:59Netflix had to pay$619 million to settle a multi-year tax dispute with Brazilian authorities going back to 2022. The company had identified the potential risk in previous filings, not in its earnings guidance, and said it would have beaten forecasts. If not for the expense, future payments will be smaller. And Netflix has also already said they do not see this being a lingering issue or anything that's going to go past this quarter. So if you sold the stock down 6 % on that news, paper hands, I don't really know what to say. I am a shareholder. I'm not selling. People didn't sell, to your point.

54:36We'll find out tomorrow because if this thing falls 5 % tomorrow, then it wasn't just the Brazilian thing because everybody is looking past it. Everybody understands what you just said, that this is a one-time thing. It's not immaterial, but it won't matter going forward. Now, John, throw up the stock charts one year and three year. It could just be profit-taking. I mean this thing is up 62 % over the last year, over the last five years. This is Netflix versus the triple Qs. It's tripled the performance of the NASDAQ. Over the last three years, it's up 363%. Now the shares were depressed, but even still, if anybody wants to take profits, I'm not going to blame them.

55:13I sort of agree with that take, except for the fact that it's up a lot, but it got so murdered in 2022 that that starting point, I know you're not cherry picking, but to start from there feels cherry pickish. I just said that. Because the stock was cut in half. And then it went up 300-something percent. Because I bought that dip. I know because I bought it in real time. So did I. Can we put this on Netflix share of TV time? And then I sold it way too early because I'm a stupid bald idiot. It's just showing. Well, all right. Two things in here worth noting. Number one, record. Record share of TV time at 8.6%.

55:54This is in the US, but it's also a record in the UK. It's second biggest market. uh interesting that they put all other streaming into one bucket when we know that it is in fact trailing youtube yes um and then linear i mean and linear is just shrinks yeah linear at the start at the start of this which is q4 2022 linear linear is like uh cable subscribers right or or just like broadcast tv and that was 57 and a half percent of all tv time and that is now 42. And we know that's going to 32 and then 25. The only question is how fast. So Netflix is one of those, I guess, compounded stocks people talk about.

56:40I mean, the business is going up and to the right for a long time. Who knows what the stock price is going to do? That's maybe a separate conversation. But they are confident that they will double their ads in 2025, albeit off of a small base. But that is tremendous runway. They continue to just kill it on the content. K-pop Demon Hunters, their biggest watched movie ever, like of all time. Top five Halloween costume this year. Happy Gilmore 2 was huge. The Canelo Alvarez fight was big. They've got doubleheader for NFL Christmas. I mean, the business is on fire. Do they have basketball now too?

57:11No, I don't think so. Oh, they have the NFL game on. They have the Christmas day NFL. The doubleheader. So the business is incredibly healthy and you can't, I mean, That said, there's no buts. K-pop Demon Hunters is going to go into the theaters for Halloween. They made up, there was a long running dispute between AMC and Netflix. AMC does not want to put things in theaters that are airing on Netflix day and date because they're like wasting a theater, but they actually are going to collaborate on this because it's such a huge cultural phenomenon. Oh yeah. And also because AMC's market cap is$1.5 billion.

57:50So they should do whatever they can. All right. Warner Brothers put itself up for sale today. This was not surprising. This had to happen eventually. They were pursuing this convoluted thing where they were going to spin off the non-growing business and separate it from the growing business. Who was that? Yeah, we'll take the piece of shit. Give it to us. Well, you'd be surprised. There are different types of investors that more highly prized cash flows, even if there's no growth and it's a melting ice cube. For like political reasons or something? No, for just like it's a higher – it's a lower investment-intensive business.

58:37You buy something that's got high cash flows, even if you know it's going to disappear. So what's the crown jewel? You can eat those cash flows. What's the crown jewel of the non-growing – is it CNN? Or is it Turner? What is it? CNN's a disaster. The last I heard, CNN has 50 ,000 viewers in prime time. It's like almost or something or 500. I forget what the number is, but it's - Whatever it is. Relative to the millions of viewers it used to have, it almost might. We have more viewers than some of these shows on CNN and the amount of money that it costs to keep that running. And the other problem with CNN is it's just a perennial headache for whoever owns it.

59:12If they piss off Trump, it's problematic for the whole corporation. This is why Apple got rid of Jon Stewart. Because Jon Stewart decided to do a whole episode trashing China. Not great for Apple's corporate aims. Nobody wants to be in this business. So there's two versions of what can be done. You can sell one of these news operations to a private buyer. Like Bezos bought the Washington Post. Bezos wants to use the news business to be influential. That was the idea. All right, that's one version. The other version is you can tame your news business or Trumpify it. And that's what Ellison did with CBS.

59:59So CBS News is one of the most storied news franchises in the history of America. But it had to pay a lawsuit in order for Shari Redstone to be able to sell the company. Larry Ellison is very tight with Trump. It was like, pay me my fine and I'll let this deal go through. It happened. And then the next thing they do is bring in Barry Weiss, who is center right. I wouldn't call her a Trumpist, but her positions and her vibe are way more right leaning than left leaning. And she is not going to allow the type of like persecution of the Trump family that 60 Minutes and these other CBS News properties were doing.

1:00:44So that's the other version. The thing is, if you're David Zaslav, you don't give a shit about any of that. All you want is the ability to do big deals. and so having something like CNN at Warner, it's just this politically toxic asset that you already know is a melting ice cube, doesn't make that much money, isn't that influential. It's like an obvious thing to get rid of it but finding a standalone buyer is not easy. So they have to sell the whole thing because the other assets are amazing. The problem with Warner Brothers is the debt level. It's 35 or 40 billion still Yeah, but chart on it.

1:01:23It's coming down. All right. They've been paying down that debt. They've actually done a really good, what is it, 34? Yeah, but it's down from 50 or something. Down from 50. That debt was incurred when they bought this business from AT &T or whatever a few years back. It was unsustainable. Could not compete. They don't even have movies in theaters this year, really. So they had Superman was a really big hit. That might revitalize their big franchise, which is DC. They also have Harry Potter, which potentially could be huge, although it's been dormant for a long time. They have a lot of assets.

1:01:59The studio is a great business. The streaming business is not great, but it's getting better. HBO has always been good. The rest of the shit they were throwing at the wall was not going well. But HBO still has a ton of value. And then the library. It's 100 years of some of the biggest smash hit TV shows and movies in the history of Hollywood, like thousands and thousands of titles that can be monetized, new sequels, reboots, brand extensions, merchandise, theme park. It's like it's a great asset. And I think ultimately Paramount will end up with it is the way it seems. I don't really think there's going to be a million competitive bids coming out of the woodwork.

1:02:43I asked Sean to show us the largest global media deals. Let's put this chart up. So the enterprise value, guys, the enterprise value is the$45 billion in market cap plus the$34 billion in debt. so it's 77.5 billion if you have to pay a 20 % premium on the stock you're not paying a premium on the debt on the equity you're talking about a deal like in the 80s billion range here's where that would rank AOL, Time Warner maybe the worst media deal ever 186 billion and that was 25 years ago so you get an idea of the enormity of that Time Warner, AT &T, also a disaster in 2016,$109 billion. Disney's big deal was$83 billion.

1:03:40Charter and Time Warner merged. That was$79 billion, two cable companies. Comcast bought AT &T's broadband business, 76. So we're getting into that range where this could be like a top four or five. and I think there's really only one natural buyer who would want to take the whole thing at once. If they do, I mean, Paramount, if Paramount ends up with this whole thing and they could start selling off chunks of things that are worthless or a pain in the neck, I mean, that really could be a gigantic company. What do you think about that? I wonder, you can't kill the Warner Brothers name, obviously.

1:04:21What would it be called? How would that work? No, the Warner Brothers studio will live forever. What ends up happening is HBO and Paramount Plus are kind of like slammed together in some way. And maybe if they're smart, they keep Paramount and HBO. Same way that Disney and Hulu smashed their apps together. It worked. So Bellini was saying that this is not a bidding war because Apple is out. Netflix is just not. They're not doing it. They've been pretty clear. So Bellini says - Comcast is out there. Comcast owns Peacock, and they are shedding CNBC, MSNBC, and the Golf Channel. They're getting out of another company, Brian Roberts, right after the election.

1:05:12couldn't wait to announce we are spinning off all of our news properties into a standalone company that will be publicly traded on its own. They named the new CEO. You could tell, um, Roberts has no interest in the political aspects of owning a news business. So, so that's going here. Here's, here's the bottom line. I think from, from Bellini is that Zasov wants to create a media circus. He wants the attention. He wants shareholders to believe that there is a bidding war out there. But Bellini said, the Zazz strategy, which is all but broadcast via bat signal, is to fend off the Ellison overtures for all of wanted discovery, amputate the gangrists cable networks next spring, and shop the studio and streaming assets separately to the many, many interested parties whose jockeying will result in a grand windfall.

1:05:57Maybe that would ultimately be best for the studio and a streamer. Maybe. But it would certainly be best for Zazzlove. Bellini's the best. He said a delay would keep him flush with an eight-figure annual pay. Eight-figure. It's obscene. A comp package so gluttonous that his longtime benefactor, John Malone, whose boards are famous for shamelessly awarding outsized comp packages, recently walked it back slightly. And more importantly, a delay would keep the spoils of a Hollywood empire at Zaza's disposal, which is what many of his peers think is really going on here. Put off the inevitable and he keeps the attention of celebrities and billionaires.

1:06:32He keeps appearing on TV while sitting courtside at big sporting events. He keeps being honored as a humanitarian, and he keeps getting written about by people like me. So Bellini over at Puck is saying that, listen, this is all charade. There is no bidding war. Like it's – he wants somebody other than Paramount to fake interest, and it's just probably not going to happen. David Faber said much the same thing when he broke the news on CNBC. It's like – it's not like there's 20 bidders. Right. There's like a very small handful, and this is so messy. now what you could see is an activist come in and you could see a private equity partnering with a hollywood company and coming in and trying to pick off assets and and like you could have like three different groups come in and try to buy different parts of this but like did is that what's in the best interest of shareholders to spend a year on that kind of a bake-off that That would have happened if it was going to happen.

1:07:31Watch this thing get picked apart piece by piece. Like is that? No. If you're a shareholder of WBD, that's not a good outcome. Dude, that would have happened when the stock was at$8 and it was staying there for a while. The stock is now at$20. It was up. It's up 90 % year to date. It was up 10 % today. So, hey, somebody thinks that there's a deal coming. Maybe there is. Sodak Jason in the chat says Zasloff's the same genius who decided they didn't need the NBA. Yeah. Well, he tried to keep it. he tried to keep it after saying it was too late it was too late that was that was talking about a bat signal that that was like smack adam silver in the face and force him yeah to go talk to amazon and netflix and and all these other play and all these other players um so that one did that one didn't work out um should we sell the compound to paramount after they buy warner brothers should we be or should we sell uh do a deal with netflix what should we do what's our like what's our streaming war game plan here uh i'm not here i'm not hearing a game plan i'm unequivocally team netflix like sorry sorry sundar i'm not interested why isn't rob passarella taking uh biz dev meetings with netflix we have we got the wrong guy he's not watching this is he

1:08:48shout to rob all right uh we have to come up with our streaming wars game plan at some point michael we'll we'll go to bagel boss we'll sit down we'll we'll chop it up no let's get we'll get a pumpkin spice at the barn we'll sit on the bench all right we're not going to do a whole huge thing on the quote-unquote private credit bubble um we're not going to go crazy here and i'm going to tell you guys why we have a very special guest for the compound and friends at the end of this week, who is sitting right at the crossroads of media and private equity and private credit. Her name is Shanali Basak.

1:09:26She was, in my opinion, one of the best reporters covering high finance for Bloomberg. And now she's at iCapital. And we really want to have this discussion with her. However, I didn't want to let the moment go because Barry Ritholtz, my partner, Michael's partner, and one of the founders of the firm, reminded everybody he had, like everyone's talking about bubble all of a sudden, like the Google search term for bubble, for whatever reason, like bubble's going crazy right now. He unearthed this thing he wrote in 2011, shortly after the great financial crisis, when he actually did spot the bubble in real time.

1:10:09how to spot a bubble in real time. And it's a 10 item checklist. And I just want to, I'm not going to like read every word of this. I was about to say, I know it's more than 10. I just have a feeling. And of course it's 14. Of course. I'm going to give you 10 elements. Is that the most on-brand Barry thing ever? Here, 10 things on my checklist. That's also 14 things. All right. But when you read these things out loud, I really think the private credit – we're not doing this with AI because there's not enough time on the clock. But with private credit, it checks everyone. That's my opinion. I don't think it does.

1:10:46Okay. You're going to tell me which ones it doesn't. One, standard deviations evaluation. Look at traditional metrics to rise two or three standard deviations away from the historical mean. No one would argue that deals in the private markets are not going off at higher valuations than historically. Nobody would. Significantly elevated returns. Wait, wait, wait, wait, wait, wait, wait, wait, wait. What, are you going to throw a laptop? No, no, no. What are you doing? Valuations. I don't know that valuations in private credit are elevated. It's not like - It doesn't work that way. It's more like the rates that you're accepting as an investor being much lower than what you would have normally accepted.

1:11:37Not true. Not true. Not true at all. There's a 600 basis point spread, and it's pretty consistent. Private market assets are at parity, generally speaking, with public market assets, and that's what's changed. We're talking about private credit. And yields, people, there's not a chase for yield where they used to take 600 basis points, and now they're taking 300. That's not happening. No, they'll take the 600, but they're lending faster and easier than they used to. Okay, so that's it. We're not doing private equity, so I agree with you. It's not quite as apples to apples, but it's close enough.

1:12:13Let's keep going. Significantly elevated returns. Private credit, one of the reasons why this bubble, you don't have to call it a bubble, I will, formed is because the returns have been damn good. We spent a lot of time with very low returns in traditional fixed income and private credit, filled that bucket beautifully. The returns have been really good. And you can't have a bubble without great returns. But I feel like the word bubble is not helping here because a bubble is not just a word that you just throw around when there's like enthusiasm. A bubble is an environment in which the fundamentals have so far fallen behind the returns such that in no way, shape, or form is there any way out without the absolute excess getting wiped out.

1:13:02And you could say that there's a lot of - I think it's an activity bubble. Okay, but it's very different. It's very different. But also an activity bubble - It's different. I would also argue that if this is an activity bubble, I still think we're in the early stages of this activity bubble. Like they're just coming to us. Number three, excess leverage. Every great financial bubble has at its root easy money. You're going to deny that one? I don't have a strong opinion here. We had easy money all over the economy, and a lot of it went into – okay. Four, new financial products. I know you're not going to fight with me on that one.

1:13:39You think private credit is new? No. I think the amount of products and the amount of, quote, unquote, innovation in the space to get wealth management people in, family office people in, I really think it was a Cambrian explosion. of new species. So you're right. The explosion in new interval funds off the charts this year, 100%. Okay. Expansion of credit. This is Barry said, this is beyond mere speculative leverage with lots of money floating around. We eventually getting around to funding the public to help inflate the bubble from credit cards to HELOCs. The 20th century was when the public was invited to leverage up.

1:14:20So again, not apples to apples, but apples to what's close to an apple, a plum, it's close enough. We're doing that now. We're in that process right now. I would say it's expansion of availability. And this is the industry's big push. Six, trading volume spike. Okay, this doesn't trade. So of course, it's a tougher analogy. But when you talk about an activity bubble, I don't think anyone would disagree. The amount of launches and product creation would suffice to replace trading volumes in this sense. Wait, hold on. One thing that's important to mention is that the activity in the wealth channel, it's up and to the right.

1:15:02At the same time, you have a lot of traditional institutional investors pulling back on their investments in private credit. They're full. They're good. It's a good point. Perverse incentives. this is the thing that we'll argue with, Shonali, where you have unaligned incentives between corporate employees and shareholders, you get perverse results, like 300 mortgage companies blowing themselves up. I do think that there's a lot of syndication and a lot of loans being sold and resold and packaged, not unlike previous debt bubbles that we've seen in history. And I also don't think that we even know.

1:15:36You're right. I just don't think we know. How's this for a perverse incentive? Charging on the leverage, not just the underlying, It's like amplified the fees. Charge a fee on the borrowed. So that's gross. Number eight, tortured rationalizations. Look for absurd explanations for the new paradigm. Price to clicks ratio. Aggregating eyeballs. Dow 36 ,000. Do you think that's this? I don't. This one's tough. I would not say it's the only way you – it's a rationalization. I don't think it's tortured. No, it's not. It's just people saying 60-40 is dead. It's now 60-20-20. and 20 % is private debt.

1:16:14And I'm like, well, why? These are non-traded junk bonds. Why is that the new 20? That's a tortured rationalization for me. Fine, but here's the non-tortured part of it is that these borrowers, which represents 90 % of the economy, okay? They're not all junk. It represents 90 % of the borrowers of the economy. They traditionally were being served by the, not the giant banks, but the mid-sized banks. after the GFC regulations were put in place that made these loans much more expensive to make. They pulled back and stepped in Blackstone. So that's not a torture rationalization. It's very straightforward.

1:16:48I agree with that. There's a reason this whole industry just 10xed. And the reason is we decided we don't want deposit institutions like Bank of America and Chase taking deposited money that's supposed to be safeguarded for the consumer and gambling in markets that are not transparent, not liquid, et cetera, et cetera. So somebody had to step in because businesses still need loans. Perfectly legitimate. I'm with you on that. Number nine, unintended consequences. All legislation has unexpected unwanted side effects. Okay, we just described that. Number 10, employment trends. A big increase in a given field.

1:17:36real estate brokers, day traders, maybe a clue as to a developing bubble. You can't argue this with me. You can't. Go ahead. Yeah. The smartest kids from my daughter's graduating class last year, a year and a half ago, coming out of her high school, literally the smartest kids, the ones that went to the best schools, you talk to them or their parents, where are they going after college? What are they trying? Private equity, private equity, private equity, private. They don't even know what the f*** it is. They're just repeating what their big brothers and sisters are telling them because they see who's making money in this world.

1:18:15Let me ask this just to interject here. Do you think that in five years, we're going to look back and say there was a lot of sloppy behavior, which I think we probably will, but and also in five years, the industry is going to be a lot bigger than it is today? Because I think both things are probably going to happen. Yeah, I don't think I'd argue with that. because I do think people that are adopting these private asset investments as part of their portfolio are not going to run away. I think they're going to stay put. And I think most of these funds aren't going to blow up. A lot of them will be fine.

1:18:49They can't leave. What I think is going to happen though, that's a little nuance. I think a lot of financial advisors are going to have to apologize for locking people's money up in the next downturn when people actually want it out or want to know how it's doing. I think there's going to be a reckoning. So there's been two stress tests, one in the GFC and one in 2020. And the defaults were not crazy. The actual NAVs, now you could say the NAVs are fake. Okay, fine. But the NAVs did not crash nearly as much. And I think advisors - Throw out 2020. Throw out 2020. I think advisors and clients are going to love this in a downturn.

1:19:30Because guess what? But it's not like people are going 100 % in on this stuff. They'll have liquid assets if they want to pull from it they can. That's what the treasuries are for. I have a little bit of a longer runway behind me than you do. And I'm just telling you, there were a lot of people who were pissed off because they were in mortgage funds and real estate funds and hedge funds that had illiquid assets. And this is how advisors lose clients in a downturn. It's not that the stock market falls. Everybody gets that that's part of the deal. When your money is locked up and you can't buy the dip or you can't pull some out to make yourself feel better and put it in cash, you get really angry.

1:20:11And it's not like these things are throwing off 30 % returns where it's like, fine, I can live with the illiquidity. I certainly agree that there will be advisors who are completely irresponsible and reckless about the way they build portfolios that aren't thinking about the downturn, that don't have enough reserves, that aren't setting their clients up for success. 100 % that's going to happen, without a doubt. I also think in aggregate that in the next downturn, people are going to want more illiquid stuff because they're not going to want to feel the pain. They're going to be like, oh, it was only down 7%.

1:20:40That's you. I don't think that's the general public. You're very smart. You're very smart. Most people don't think that way, dude. I'm sorry. You're giving people more credit than they deserve. No, I don't. This is the behavioral argument. I think one of the reasons why private credit has resonated so much in the past couple of years is because of the pain of bonds at 2022. That was a huge catalyst to spark the inflows. Oh my God, I'm getting 8%, 9 % and I don't have to see the marks every day. I want more of that. So I think the same thing happens in the next downturn. Okay. Well, we're going to find out.

1:21:14Let's do these last ones. Credit spreads. Look for a very low spread between legitimately AAA bonds and higher yielding junk can be indicative of fixed income risk appetites running too hot. And junk markets for sure. No, not case closed, dude. I'm telling you, the spreads in these products are fairly consistent. They're around 600 basis points, give or take. Now, the speed at which they're being done and the way that loans are being made with probably sloppy diligence, that is definitely happening. Not everywhere. The spreads are appropriate given the amount of risk that people are taking? I'm saying in average, the spreads are where they always are.

1:21:50If you just look at that, and I'm not saying you should, that's not where you see the bad behavior. It's in the documents, the loans, like the sloppy behavior. So it's not the rates people are accepting for risk. It's in the speed of transacting. Holy shit, we just got$7 billion in full. Let's put it to work. That's where you see the blowups. All right, all right. 12, credit standards. Number 12 on Barry's list of 10. Credit standards. Low and falling lending standards are always a forward indicator of credit trouble ahead. this can be part of a bubble psychology. Do we have to articulate anything else about that?

1:22:27Ding, ding, ding. Okay, two more. 13 default rates. I thought he said 10. Very low, wait, very low default rates on corporate and high yield bonds can indicate the ease with which even poorly run companies like first brands can refinance. Say it again. This suggests excess liquidity and creates false sense of security. 100%. Howard Marks was on TV the other day saying the worst loans are made during the best of times. 100%. OK. Last, 14. Unusually low volatility. And this is explicitly equity. Low equity volatility readings over an extended period indicates equity investor complacency. For sure.

1:23:10In the credit world, there were no losses. So the complacency is like understandable. No, but I think the complacency – I hate to say complacency. The lack of volatility in the equity markets makes it such that people are more lackadaisical with what they're doing with their money. And check, check, check. So yeah, there's definitely – there's not nothing. There's definitely some shit going on. Can I just say Barry ate on that top 14 list? He ate. Yeah, he did. There's just no way. He was full. That was vintage Red Holtz. That's good stuff. Yeah, there's elements for sure. You want to show me this chart because I don't know what it means.

1:23:48Sure. We can do this real quick. Asset quality. So Bank of America, now this is the consumer, okay? These are not corporations. But for all this talk, and we've been belaboring this point on a lot on recent shows about how desperate the media is to feed us the blowup, we're just not seeing signs of stress in the consumer. I'm sorry. This is consumer net charge-offs. Look at the gray dot, Josh. It was 98 basis points in the first quarter. It's actually falling. It's falling. Then it was 90. Now it's 82. Bank of America serves Main Street. And I look at the data. I'm sorry. Anecdotes aside, I'm sympathetic to all the bad stories as well.

1:24:27But the data is the data. And there's just not a lot of stress out there. Okay. I can't disagree. All right. We're going low, but I think this is the topic worth covering. So last week, we spoke about a lot of potential value stocks. We'll look back on those in a year and see how these stocks did. But this is a tweet that made the rounds and it's great stuff. Steve Mandel, the founder of Loan Pun Capital said, I don't need an analyst to tell me when a 10 PE stock is cheap. I need an analyst to tell me when a 40 PE stock is cheap. That's so brilliant. That's such a brilliant insight. It's so true.

1:25:02It's so good. So I want to take a moment to talk about a stock that I've been wrong about and the stock is Apple. So Apple is about to hit$4 trillion in the market cap. But the stock has had - New record high yesterday. New record high. The stock has had market performance over the last five years. So the Qs are up 100%. Apple's up 100%. Obviously, some of its competitors, Google, Meta, Microsoft, are up a lot more. And if you look at the PE ratio, which I do, and a lot of others have, and you say, how does this make sense? It's at 40 times. This is madness. And it's at whatever, 30 times forward, whatever it is.

1:25:42Okay, look at the operating margin. And we've spoken about this, but like this is, I guess, the story of why the elevated multiple makes sense. I had this right from Jump Street. I had this right from Jump Street. Apple is being valued like a high margin consumer staple, which is exactly what it is. Your iPhone breaks, you get another iPhone. You might not buy the newest model. You might not buy the Pro Max, but you are buying another Apple, your iPhone breaks. You do not say, let me check out the Galaxy ecosystem. It's a consumer staple. You have your brand of paper towels that you buy. That's got a way higher switch potential because Bounty is fine, but the other one is probably fine too.

1:26:31With this, it's high margin and it's a locked-in consumer. and Costco is 50 times earnings. How does that make sense? I'll explain it to you. Walmart is 40 times two. Oh my God, you almost choked on that. Is that a big enough jug of water for you? I worry that you might get dehydrated. Know what? I'm a big, big straw guy. I love the big straws. You should drink four or five of those and then go right to the hospital. So Apple, that's the way Apple's being valued. The way Costco is being valued in such a way it's not that they're growing fast enough to justify. It's that you know for a fact those earnings are going to be there.

1:27:13People prize certainty and the way a stock gets to 30 times earned. I'm not saying it deserves it. It got nothing to do with it. What it's about is people prize consistency of earnings over growth of earnings in some cases. And so in the case of Costco, people have a membership. they're not going to go somewhere else to shop. We know the earnings are going to show up and that's worth a premium to the market. Apple is no different. We know they're not going to grow 30 % a year, but we know that the earnings are going to show up. We know the buybacks are going to happen. We know the cash flows are massive.

1:27:54And we know that in three years, the same amount of people or more who are using an iPhone will still be using an iPhone. And that is where the stock gets the multiple in addition to its insane levels of profitability. Amen, brother and sister. That was great. Great stuff, Josh. I also want to share one. So the stock got a huge pop yesterday because the 17 is tracking much stronger than the first two weeks of the 16. People are buying it. But throw up this chart from Six College, John. You can skip the Gene tweet. All right. So we know that the iPhone revenue has been – has plateaued. It just has.

1:28:33It's not growing at all. It's fine. It is what it is. But to your point, Josh, it's still there and the street doesn't care about it because a lot of the reason – and this is not breaking news here. The big reason why the margins are what they are, it's not the hardware. It's the software. And look at services. Look at the percent of the total profit. It's – Locked in. Yeah, there it is. Locked in. Yeah. They know it. All right. Last thing, this is a hilarious jab. Berkshire blew its Apple stock investment. Yeah, sure they did. They may have left$50 billion on the table. What did they make? A trillion dollars in Apple?

1:29:07Yeah, greatest trade of all time, dollars wise. All right, what do you want to do on this show?

1:29:16Good, me either. You know what? F*** it, we're not doing it. Yeah, it's enough. Okay, I want to get to this unemployment thing. Let's do an amuse-bouche just to set the table here. Dude, nobody knows what that word means. It's that little thing on a spoon that the chef sends out to your table before you even order. Wow. Just to like get your – Slow clap. That was impressive. Just to get – like just to get your like your palate going. It's usually something – it's usually like some kind of like – I don't want to say a sauce. It's like a sorbet. A sorbet? A sorbet? It's like cold. Yeah, there's oftentimes there will be like a cucumber involved.

1:29:52or a little gazpacho. Sometimes it has a dainty little drop of oil on the top of it. It's like the chef showing you how swaggy shit's about to be. And I like it. Yeah, someone said, Biff Grebel's microgreens on foam in a tiny spoon. You're goddamn right. Cook. All right. Here's the unemployment rate in the United States, just to set the table. Historically low. So what I'm about to say is not intended to act like that's not the case. We are in a very healthy labor market. The thing is, it is noticeably deteriorating for certain segments of the population who either are forced to switch jobs right now or want to.

1:30:42There are very few places for a lot of these people to go. and the job search, as New York Magazine puts it, has become a humiliation ritual. Let's put this, I guess this is a magazine cover or this is just the art that's accompanying their feature article this week. And this resonated so much with me. Here, the job search has become a humiliation ritual because I hear anecdotally so many people who are going through this right now. And it's more than I can remember for a long time. so I won't read the whole thing but here's New York Magazine roughly 7.4 million Americans are now unemployed as of August 2025 approximately 1.9 million Americans have been looking for work for six months or more the highest share of what we call long-term unemployment since the pandemic years and six months is typically the longest you can collect unemployment in most states unemployment numbers of course only paint part of the picture Even the employed, for a variety of reasons, may want or urgently need to acquire different jobs.

1:31:49So we keep saying it's a low-fire environment, but a low-hire environment also. And I think that that's what this gets to the heart of. This is New York Mag. Many office workers have historically been better paid and relatively shielded from poor working conditions. But now the promise of upward mobility and identity through a job is starting to slowly dissolve, leaving a generation of laptop workers, that's who we're talking about, knowledge sector workers who are not bosses, confronting a new hostile economic and cultural landscape. What sets this downturn apart from the panics and busts of the past is that now every layer of labor from hiring to firing is increasingly mediated by automations and algorithms that cannot hold the irreducible realities of human life.

1:32:40so you apply for a job it's not even a person reading your resume it's software and you don't even know why you're being weeded out or why you're not getting a return phone call and the answer increasingly is you are literally talking to AI and this is the humiliation ritual aspect of it and I believe it's acutely difficult for the type of people that I'm hearing from These are recent graduates. Maybe they got their first job right out of school. Maybe they didn't even get that. They're not in a great spot. A lot of them are trapped because there are less and less companies even willing to take a meeting, even willing to take an interview right now.

1:33:25Companies from the top down are slowing down on hiring because there's so much uncertainty about what if we put all these people on and it turns out AI could just do all this shit that the entry-level kids used to do. Before I go further, what are your thoughts? All right. Yeah. You don't talk to as many people as I do. As you know, I'm like always out and about in the community. Excuse me? Unfortunately, I've sent a few of these emails. Don't tell me I don't talk to people. That's literally all I do all day is talk to people. As a salt of the earth person though, I just, I feel like I have a lot more of these conversations on the ground, in the trenches than you do.

1:34:00You are the opposite of whatever that is. I don't even know what that is. All right, no, here's my thoughts. And I have lots of thoughts. I have competing thoughts. I change my mind on this. I go back and forth. There have been periods over the course of history where getting a job was extremely difficult. When I graduated during the GFC, young people were toast. It was really hard. And that has happened over and over and over again. And at some point, the labor markets cooled and people were able to get absorbed into it. I also think that this time is different, particularly for this young cohort, because all of this grunt work is being automated.

1:34:44And it's scary. I'm a techno optimist. I think that technology has and does a lot of amazing things and that we as in society always figures it out and we get to the other side. And that's true, but it doesn't mean that there's not a lot of people that are displaced in the meantime. And so while society is not going to crumble and we're going to be better in the future, we always are, the people that are feeling the pain right now, I don't know where they do or what they turn to because these jobs are not coming back. So for example, a Bloomberg article today, OpenAI has more than 100 ex-investment bankers helping to train its artificial intelligence staff in how to build models as it looks to replace the hours of grunt work performed by junior bankers across the industry.

1:35:25And here's the dark part. They're paying people 150 bucks an hour to write the code that's going to wipe out potentially tens of thousands of future jobs. And this has happened - Billions in salaries. Right. Yeah, it's going to wipe out billions in salaries. They're paying 150 bucks an hour to wipe out billions in salaries. So this is happening here, obviously, and it's going to happen in many industries. And I think if you're not concerned, like, I don't know, how could you not be? Wake up. Wake up. Right. If you're not concerned, what are you paying attention to? One of the first – I think the first chapter in my new book was about Just Own the Damn Robots was the name of it.

1:36:04It's based on a blog post I wrote years ago, 10 years ago probably. And I opened up that blog post and the chapter of the book with this excerpt from Player Piano by Kurt Vonnegut. When I read that story this morning that you just referenced about OpenAI training its model on ex-investment bankers, like how to do DCF, how to bring a company public, blah, blah, blah. It's dark, right? So this chapter is a fictional character named Rudy. And Rudy is a machinist who's worked in this factory for 40 years. And they tell him he's retired, but he has one last job to do. his last job, his last day of work, he has to train this machine.

1:36:49Vonnegut wrote this in the 50s. I want people to understand this. He has to train this machine in his exact precise movements. I think he's a lathe operator, whatever that is. I'm not, I don't know. But like the machine is recording. This is pre-computer. It's a science fiction book. It didn't really happen. But the machine is mimicking what this man does with his physical movements. And when he's done training this machine, the management people, the management class, they come to him and they say, OK, thank you so much. Your work is done here. You're off to the R &R. And the R &R in that book is this community outside of town of former factory workers whose new job is – I think it's like wrecks and reclamation or something.

1:37:37Like they – basically like when a bridge breaks, they have to – they have to do the worst jobs. They have to pick up a dead animal on the side of the road. Like that's what happens to these people in player piano. And when I read things like that today, first of all, it's insane that Vonnegut could picture that 70 years ago. And it's happening right now. But I also think it's like some of these things, we really do want to take these as signposts for what's to come. Now, I know there are very impassioned people on the other side of this in Silicon Valley. like Marc Andreessen, who have written very poignant essays about why AI will expand employment.

1:38:17And I tend to agree with that. But there's a gap in between the creation of the new jobs and the destruction of the old. And we don't know if that gap is one year or 10 years. And that is the thing that I think is front of mind for a lot of people. This is the Associated Press. New survey. 47 % of U.S. adults are not very or not at all confident they could find a good job if they wanted to an increase from 37 % when the question was last asked in October, 2023. So basically in two years time, we went from half the country feeling very confident that they could find a job to just 30, I'm saying it backwards, but 47 % of US adults don't think that they can get it.

1:39:08You want to take a guess what direction that goes? Yeah. Okay. So I think these things are, they're notable and we're documenting them in the real time as we do the show. And we're not doing it to like scare people, but like I really feel like people need to wake up. I think you're going to start thinking about this. I think you're going to start to hear a lot about universal basic income as a result of this in a couple of years. And I agree with you agreeing with Andreessen. Yeah, in 10 years, 20 years, it'll be great. The economy will be humming as a result of all of this technology. But in between now and then, it's going to be ugly for millions of people.

1:39:41The optimist right now is not saying creation of new jobs. The optimist now is saying four-day work week. Great. Okay. Maybe. Maybe that's the silver lining. Last thing on this, seasonal hiring, job seekers have now overtaken job postings for the first time since the pandemic. Yeah, but that's sort of always the case, no? More people look for jobs than there are open jobs? Well, see, there's two layers to this. No, it's not always the case. We had two job openings for every person looking for a job in 2021. No, I'm saying recent history, that was the aberration. Okay, seasonal. Searches for holiday jobs were up 27 % year over year at the end of September, 50 % above 2023 levels.

1:40:26In contrast, seasonal job postings only increased by 2.7 % compared to last year. What that means is there are going to be a lot less people who rely on these seasonal jobs getting them. The percentage of seasonal job postings explicitly mentioning urgent hiring is down significantly from 10 % in 2021 to 2 % in September 25. All right, just keep in the back of your head. Last thing, many employers are taking a cautious approach to hiring in Q4 2025, 45 % expecting to maintain their current workforce. This is the highest number of employers saying they're holding steady since early 2022.

1:41:13And there's a lot more. But this is the reality. Now, I don't know when this cracks and finally hits the headline employment numbers, but I am telling you the Fed is going to be reacting much quicker as these job numbers start to come out than they have been throughout the balance of this year because I don't think they're going to have the same choice that they think they have right now. Right now, they think they're striking a balance. I don't think that they're going to have that luxury. I don't know if it's the next report or the one after. but this is going to go from a luxury of waiting to cut to a necessity.

1:41:50And I think it's going to happen quick. What do you think about that? There's so much nuance in here because if it's only happening at the entry level position at the 22 to 25 age bracket, I don't know how they react to it. And I don't know how Fed cuts help. They don't, but that's the tool that they, they're holding a hammer. Yeah. They're holding a hammer. They're not also holding five other – there's limited things that they can do. They can buy bonds and they can lower interest rates. I would be surprised. I'd be pretty surprised if in two years from now we were like, huh. Remember we were worried about AI taking young people's job and it just never happened?

1:42:30Obviously, we all hope that happens. I'd be pretty surprised if we don't see it in the data. I think the thing that's going to surprise us is the opposite direction of what you just said. Which is? white collar mass layoffs. So that's the scenario. I think they're going to come. Forget about seasonal Christmas workers shit. It's going to be, we just heard Accenture. Accenture just said they're getting rid of 11 ,000 people after getting rid of 10 ,000 people earlier in the year. And explicitly they're saying, we will hire other people. They have to be ready to upscale for AI. The people we're letting go of, we don't think that they can.

1:43:14That's the consulting firm to Fortune 500. I want to clarify something that I just said when I said that's the nightmare scenario. I don't mean specifically white-collar workers losing their job. What I mean is this. If you see unemployment tick up in a meaningful way, up to 5%, up to 5.5%, simultaneously, you see corporate profits at an all-time high in the stock market at an all-time high, that is a very dangerous cocktail. And I think there's a very – there's a decent chance it happens. Well, this is why you're going to get Mayor Che Guevara in a month. It's exactly this. Politically, that is dangerous.

1:43:48I agree. Okay. Enough good news. Yeah. You make the case and then I have a mystery chart and we'll bounce. Good news. Good news. I thought I was on mystery chart duty this week, so I don't have to make the case, but I will quickly make the case for a stock that I – Why did you think that? It clearly said that you weren't. dude, I had a busy week, all right? Lay off. So I will quickly make the case for a stock that has had a very nice, a very healthy uptrend with a very healthy pullback, a stock that you own, a stock that I followed you into. Thank you for the recommendation. The stock is toast.

1:44:18I think it is set up nicely going into earnings. Elevation expectations are low. What did you sell it? Expectations are low. They just announced another partnership with Amex. I think the stock is set up nicely into earnings. I bought more last week. Okay. I bought it. I had a buy. I had a, uh, a 35. You got filled. Yeah. I got a 35 on the nose. I had a, um, I had a buy in like a GTC forever and we got it. Okay. And I bought a bunch more and, uh, I'm an investor. I'm not trading it. All right. If it goes down to 25, I'll buy more too. Mystery chart. This is a name that you and I have both traded on and off.

1:44:53I am not currently invested in it. That'll be one of my clues. it's one of the most fascinating stocks good stock i like this one it's one of the most fascinating stocks in the market to me so here are my clues this company cannot grow it is a one or two percent annual grower but it's in one of the highest tech areas of the market is it zoom look at you i only had to give you two out of three clues I think I'm about to buy this stock what do you think? I'm looking, I'm looking, I'm looking oh I do like the setup, I really do I think it's inflecting I really like it so we pay Zoom we're a corporate customer we use them our employees are not allowed to call or text clients from their personal cell phones so all of our employees have a Zoom phone number that they can use for calls or texts.

1:45:50This is an industry regulation. Some of the big firms paid billion dollar fines over this during the pandemic. Zoom had just announced, they now have 10 million corporate phone customers, Zoom phones. So people look at this business and they think it's just the video calls. They don't understand that when companies say, no, we're going teams only, the salespeople at these companies revolt. This is in the transcript. Teams only. And they say, all of my potential customers want Zoom. Why are you making me do this as Teams? And the company says, all right, fine. Get an enterprise license for Zoom.

1:46:30We'll use that too. They have the best product on the market. I know it's Google Meet. I know it's Slack Huddle from Salesforce. I know it's Microsoft Teams. Zoom has the best, easiest to use product on the market. And I think long-term that wins. The problem is how do you monetize it? It's a very competitive market and it's hard. So they're going into other areas of enterprise software and they're winning. And they said that they just got two Fortune 15 customers. I don't know which companies they are as enterprise clients. So the problem here is the growth rate. The good news is it's like 18 times earnings.

1:47:14You're not paying a tech stock. you're not paying for growth here and they have eight billion dollars in cash they could do an acquisition they could buy back a ton more stock and the best part the reason this stock crashed the way we showed it to you guys um employee stock options just out of control because the problem is they recruited all this talent like everyone else so they say to somebody you come work here give We'll give you a$200 ,000 base salary. We'll give you$100 ,000 of stock. The stock collapses. The employee's like, what the fuck? I just lost my 100 grand in stock. They topped all those employees off.

1:47:53They said, okay, topped up. They said, okay, here's more stock. And it got out of control. And the CFO just said on a call, we are listening to Wall Street. And Wall Street is telling us we have to be more chaste with our stock option excesses. and now you could even have a float shrink situation on your hand because they've gotten way more discipline. So the stock is stable. A company is stabilized. They're not growing. That's why it's so cheap. If they find a way to grow, it's, I think, it's a$100 stock. Can I tell you the best part? Like 5 % growth. Can I tell you my best part? There's a big ass gap at$96 and I bet it gets filled.

1:48:36Yeah, it's got to get to, yeah. It's got to get to 96. Well, yeah, I think it's going there. I like the stock. I don't own this stock. Full disclosure, I am not in it. Nobody's expecting anything out of this business. Nobody. I think I want to be in it before the next earnings call because that could be the inflection point. Yeah, I might join you. It's in a month. I like it. I'm really good at making the case. You're good. You're good. I feel like if I were your broker, I would just have your money spinning night and day. I'll take 11 shares. Yeah, why not? All right. Guys, that's it from us.

1:49:07I know we ran long, but there was so much to get to. Thank you so much for watching. Thank you for those who showed up in the live chat. We love it. We have so much fun with you guys. I want to mention tomorrow's an all new edition of Animal Spirits with Michael and Ben. We're going to do Ask the Compound with Duncan and Ben. And then at the end of the week, again, Shinali Bassac making her first appearance on The Compound and Friends. She is amazing. You guys will agree with me once you get a chance to see that show. She will not disappoint. and we're going to have a very in-depth conversation on some of the biggest topics happening on the street right now.

1:49:42Keep it locked on the compound. We love you. We'll talk to you soon. Call it the Fade at The employer.

1:50:15Exactly. VisoSteuer is the Steuere-App that understands you. Because Steuer betrifft your whole life. Arbeit, Kinder, Partner. You can't do anything wrong. Stimmt. Nice. It's not like Steuern. Steuern. Safe. With VisoSteuer. Now test your cost.