Rest in Peace, CFA

27:26And so for those listening, the headline of the article said, meet your new investment banker, an AI chatbot. And we do see this in the data. And the data that I'm referring to is the number of global people sitting for the chartered financial analyst test. It is down 42 % from the peak. And is RIP, rest in peace, CFA hyperbolic? Yes. But I do believe that is a generational top in CFA test takers. I don't think we will ever see that many again. And I think it makes a lot of sense. Before I hand the mic over to you, Callie, the CFA did a lot for my confidence. I learned a lot. But if I was a young person now, there's no way that I would go into this field or seek that credential knowing that a lot of what you're going to learn is going to be, in fact, I should say, is being automated today.

28:27Wow. There's a lot to unpack here. I'm going to give you an analyst answer. And full disclosure, everybody knows I am an analyst. So I'm talking my book here, but good analysis. And I'll start with this. So a lot of what junior analysts do, yes, you could probably automate it. We will probably get there. But the best analysts know how to marry context with data. And I think you're finding that more and more, especially in a world where there's such a big divergence and going back to future expectations and present conditions. We're seeing a lot of these big, big breaks that somebody needs to step in and explain.

29:04This is different than modeling. This is different than iBanking. I still think that analysts have a use or I still think they have a role, human analysts have a role in iBanking. But I just think that I think it changes the job, Michael. I don't think it eliminates the need for people with EQ who understand the data, who can connect the dots that aren't as easy to connect, you know, look at the psychological factors of things. I don't think I don't think AI replaces that. I hope not, because that means AI overlords are going to take over everything. I don't think we're there. What it does though, what it definitely does is it eliminates the need for 50 junior analysts at Bank XYZ.

29:50A lot of the tasks that they were doing, you can do today very quickly. Josh and I spoke about Adam Parker was doing some work with ChatGBT last week and asking about NVIDIA expectations. And I'm using the quarter app and using their chatbot and a lot of the stuff that analysts were doing. So it's not that they don't need to exist and that the work is invaluable and there's the soft side of it, obviously, but the amount, the sheer number of candidates is going down dramatically. I agree with that. That's what I agree with. And I'll say it was already moving in that direction. You can see it from the chart, but research desks on Wall Street have been cut for years now.

30:33That's just a product of technology and automation. But I think you still, and I'll say too, so I took level one of the CFA. I studied for level two, didn't end up taking level two because I signed up in June, 2020. We all know what happened then. But I think you have to have a really honest discussion with yourself about the CFA material. But for me, it was really, really helpful because I didn't have the basis in school that taught me about the basics of finance and money and the time value of money and portfolio management. And it really helped marry everything together for me. I had all these scattered experiences and the CFA program helped me connect the dots.

31:17I didn't get the charter though. And clearly fewer people are getting the charter. Yeah. It's a lot of work too. Yeah. Yeah. Um, all right. What's going on with the policymakers? Wait, you still don't, you don't want to fight over analysts anymore. I could do this for hours. I, I know, I know we'll move on. Okay. So happy Fed week, everybody. Rate cuts are are maybe coming sometime this year, probably not this week. So throw up this first chart, John, the Fed funds rate. Yeah, yeah. Okay. So Wall Street thinks that we're going to get three to four cuts, three to four 25 basis point cuts before the end of this year.

31:57This was pulled as of today. This is Fed fund futures expectations. Wall Street pretty much agrees that we're not going to get a rate cut this week. I agree with that too. I would be really shocked if we did. But there are some questions around if Jay Powell will step out and maybe set the stage for one in June. You know, do the typical Fed prompting where he doesn't really say it, but he kind of says it in the language that he uses. I don't think he's quite there yet, but I don't know. That would be less surprising to me. Michael, I don't know if markets have really considered what it means in this environment to be considering cuts or to be expecting rate cuts.

32:36What I mean by that is the Fed's in a really weird position. It's between a rock and a hard place. We're still not sure how tariffs will affect inflation. The Fed has told us multiple times that it cares about tariff-related inflation and how it works into inflation expectations. and the job market, we already talked about that. The job market is a lot weaker than 2022, but even compared to last year, we're seeing layoffs. And the Fed is looking at both sides of its dual mandate. It's like legal obligation, and it doesn't know which one to focus on. So from where I'm coming from, if these conditions persist, or if one side of the mandate breaks in the wrong direction, if the job market falls apart, if unemployment spikes, then yeah, we're probably going to get a cut, but that's not the circumstances that you want to see a rate cut in.

33:26That's not good for the stock market. That's not good for your borrowing potential. That probably means that we're heading into a recession. He is in a weird position because on the one hand, it would be unusual to say the least to be cutting rates as one-year inflation expectations go vertical. That would be odd. You don't really usually see that. However, the economy is softening. There is a lot of angst out there. The housing market sure could use it. Does the current economy support Fed funds rates where they currently are? My naive opinion of this is no, I think rates probably are too high.

34:07And I think the bond market is telling you that. What do you think? I agree with you. And I think that we're children of the 2010s. And I say children, I mean, people who started in the industry around like the late 2010s. And I always have to check this bias, but I agree with you. I also haven't worked in an inflationary environment, certainly not a stagflationary environment. There, I said it, stagflation. We're not there yet, but we're almost there. So I think that's right, but I don't think the Fed is convinced enough that something could happen. And I also think that there's a lot of psychology that goes into this, Michael.

34:48Fed Chair Powell doesn't want to be the chair that's known for missing inflation twice. That is a bad reputation. Yeah, I get it. Let me try and oversimplify this a little bit because I know it's complicated and it's a huge responsibility. So there's risks on both sides. what if we cut prematurely and inflation just runs away from us versus what if we don't cut, the economy weakens and by the time we cut, the damage has been done, it's too late. I think the latter is so obviously more dangerous because if we do cut and if we do get another spike in consumer prices, eventually, probably sooner than later, probably, I have no idea, I'm making it up, sooner than later, the economy, the high prices will fix themselves because people won't be able to afford it and prices will come down.

35:48Yes, I agree in a vacuum, but I think it gets really, really complicated. Actually, throw up the stagflation chart, John. No, John, don't. We don't want to see that. This is actually a really pretty chart. So this is the percent of Fed members who think that inflation and unemployment will move higher before it moves lower and vice versa. Wait, hang on, hang on. Wait, Callie, I've never seen this before. Could you, for people that are listening, this is very interesting. Walk us through what is on screen. Yeah. So every other Fed meeting, Fed members mark down a bunch of projections about rates, about the economy, about the risks in the future.

36:30They answer the same questions that we're trying to answer, except they're PhD economists and academics. And this chart was taken from their last projections in March. And one of the questions that I find really interesting that they're asked these days is, do you think inflation will move higher before it moves lower? Do you think unemployment will move higher before it moves lower? Or the opposite scenario, So unemployment moves lower before it moves higher. They're basically saying, like, where are the risks, right, to inflation and unemployment? And in the last meeting, 95 or greater than 80, I think it was closer to 90 percent of Fed officials said they think inflation will move higher and unemployment will move higher, which is your classic stagflation definition.

37:15So I take this as, you know, the Fed has no idea what's going on. And if they're stuck in this cloud of uncertainty, they're probably going to do nothing. Powell's been pretty clear about it. And I think I agree with you, Michael, but I really don't think we see an action from the Fed until something breaks. All right. So we've got the May meeting this week. And there's a June meeting as well, right? Or does it skip to July? No, there's a June meeting. And we'll get projections and the dot plot and everything in the June meeting. I think it's like mid-June. All right. I know you will be tuned in.

37:49When is Fed Day? Is that tomorrow? Yeah. Fed Day is tomorrow. Okay. 2 p.m. for the announcement, 2.30 p.m. for the press conference. The presser is always more interesting than the announcement. I will die on this. How do we get you an invite? I don't know, but I would faint if you got me at the press table before Jay Powell. I don't think I could get a word out. I'm a Jay Powell super fan. You are? I don't know how many people know this. I didn't know that. Yes, Michael. How did you not know that? I didn't know that. Yeah. Yeah. Yeah. I have the Jay Powell shirt. The, I'd have to, I'd have to send you a picture.

38:23I like Jay Powell. I have a whole shirt. Yeah. I like Jay Powell. Oh yeah, that's right. You do. I do like Jay Powell. I've been, I was critical of how he handled the inflation, but he seems like a good person. I think he's done the best, the best he can. Well, I mean, that's not really saying much. I mean, you can do the best you can do. Bless his heart. That's what we say in the South. Bless his heart. All right. Let's talk. All right. This is, this is one of the most fascinating topics on Wall Street these days. as far as I'm concerned. And that is the dichotomy and the divergence between what a lot of big money is doing versus what we, the people are doing.

39:01And I got some daily chart book, another shot for them. Who is, okay, from Goldman. As long as there is full employment, as long as there is full employment, households are structural net buyers of US equities. They're now on 30 % of total market, kind of wild. And the chart that we're looking at is the two-week rolling net flow. And they bought the shit out of the dip once again. Yeah. Aren't we surprised everything boils down to the job market? If people have money, they're going to spend money and they're going to invest money. I don't know that I'm surprised necessarily that they bought the dip.

39:38I guess I'm surprised at how quickly they were rewarded. But look at this next one from Bank of America, Global Research, longest private client buying streak in their data history. Wow. Number of consecutive weeks of private clients were net buyers. It's 21 weeks in a row. So, but let me ask you this. But how do we, I know there's so much noise. It's like, what do we even, how do we marry that with the fact that sentiment is air quote terrible? and I'm looking at the AAII bull bear spread, which maybe this is just, I guess it's just pure noise. Like there's no signal in here whatsoever. Maybe there never was.

40:21Maybe there was in certain times, but how do we marry the fact that you hear that sentiment is terrible and yet people are buying the dip like there's no tomorrow? Well, I think it boils down to the job market. I hate to sound like a broken record. The job market is strong. People are making money, but also yes the vibes are whack around us but if sentiment is this in the dump first of all people can say one thing and do another true you know do as i say not as i do right um talib said don't show don't tell me what you think show me your portfolio oh that's good yeah that's really good uh i think there's a lot of that going on a lot of you know things don't feel great i'm gonna keep buying because i have a 401k and i know that's the right thing to do or i dca out of my paycheck or, you know, I really like Nvidia.

41:07So I toss money there in there every once in a while, but do I feel great about the future? No, clearly not. I haven't felt great about it for a while. That AAII chart that you saw has been at extreme, extremely pessimistic levels, um, for 10 weeks. This is actually the 10 week moving average. It's been really low for 10 weeks now. So people have felt terrible for months and months and months now, which on one hand, like not great. That could be a self-fulfilling prophecy. On the other hand, this beaten down sentiment could be responsible for these crazy bear market, not bear market rallies, but like relief rallies that we're seeing in the stock market.

41:46You know what? Maybe this is only useful for content, which is fine. I'm fine with that. It gives us something to talk about. All right, but I want to talk more about the retail investor because I was listening to the earnings call for the CME group and they were asked, I think twice, about the retail investor. So Terry Duffy, chairman and CEO, said, let me comment as it relates to why I think the retail is different today than it may have been a year ago or 10 years ago. The retail today has many more tools to allow their participation into our marketplace as much as well as many others that they did not have just a few years back.

42:23So when you look at retail brokers today offering futures, we didn't see that before. There was a comment earlier about Robin now offering futures contracts of CME. That was not around a few years ago. So the size of the retail market is so much bigger and diverse than it was years ago. I think that's one of the reasons why we're seeing not the takedown in retail and why we still see the uptick continuing. And it's just the distribution of that product, the technology that allows people to participate. People have access to it. They want access to it. All right, we can stop there. But it's a different environment.

42:54I mean, obviously. Yeah. And I think for the better. I'm interested in hearing what you think about this and I kind of already know. But look, I think it's good when investors have more access to tools. Maybe that's the brokerage side of me speaking. I used to work at brokerages, but you know what? It's your money. Use it however you want. Put the education out there. Investors are more sophisticated. Give them what they want. I think it's great. I love it. I'm all for it. I mean, there are a million caveats. There are aspects of it I don't like. I don't like the fact that some people do irresponsible things and all of that aside, on balance, I love it, even if I don't love all of it.

43:32All right. Robinhood, who credit to them, they have one of the prettiest, cleanest, easy to interpret slide decks. You don't need to be a CFA charter to understand what's going on here. I pulled out some slides that I want to highlight. Net deposits were a record$18 billion in Q1, translating to a 37 % annualized growth rate, and we're$57 billion over the last 12 months. That is remarkable. $57 billion over the last 12 months. And Callie, this goes to your point, which I completely agree with. It is all, shut off, please. It is all about the labor market. We are not going to change our habits, I don't think, until we see the labor market turn.

44:23And there's a lot of cash out there. My question is, when you got to the end of the side deck, did confetti fall from the ceiling? All right. Two more charts. Look at this trading. Q1 trading volumes increased double digits year over year. We're looking at equity notional volumes up 84 % year over year. Options contracts up 46 % year over year. And crypto just skyrocketing. So yeah, people are trading their asses off. And again, some good, some bad, but people are doing it here. I like this. I like this a lot. The average cumulative net deposits tend to grow over time across our funded customer cohorts.

45:08So this is one of the prettiest charts I've ever seen. It shows their customer cohort key. So people that joined in 2021 versus the next year, all the way up to today. And what it clearly shows is that the people that have been funding it for a while are making larger and larger deposits, which is phenomenal. Phenomenal. Yeah. It also means that Robinhood is executing well as a brokerage because that's what you want a brokerage customer to do. You want them to keep depositing, keep trading. That wasn't happening in 21, by the way. A lot of brokerages are sitting here with 21 customers that jumped in, made a trade or two and took all their money out because they got burnt.

45:49And now they have a bunch of inactive accounts. So props to Robinhood, I guess. I wonder what it would take to really break the psychological bull market. I think it would have to be a series of lower highs, a series of bear market rallies that roll over. And it would have to last, I don't know. I don't know. Is it three years? I mean, eventually people stop. I think a lot of people, myself included, in the day that you saw it, were really excited about buying a crashing market. And woo-hoo, we were rewarded really quickly. Wonderful. But you're going to be a lot less excited about buying it if we test the lows, right?

46:30Less money will come in, I would suspect. And less still if we bounce and roll over again. And maybe it's just that simple. The market needs to change for people's psychology to change. But the flip side to that is 2022 was a grinding, grinding bear market. And it wasn't the worst one we've seen by a long shot. And it was also not accompanied by a lot of job cuts. So I don't know. But I think it's going to take a lot. I think it's going to take a lot to break the average US investor. And I don't want this to happen. I want everybody to thrive here. I want everybody to have the tools that they need.

47:07But you can't walk back sophistication. You can't walk back education. I think we're there, right? I think this is an evolution and I'm not sure you break that that easily. I think the bar is a lot higher for that. Yeah. All right. Anything else on retail, Wall Street versus Main Street, dip buying, we good? I think you nailed it right there. And I'm just, just go retail investors, go everyday investors, keep kicking ass. Love it. All right. Let's wrap up with Tara of some movies. I mean, he already walked this back, so whatever, but let's, you know, we could discuss briefly. Okay. So I guess we'll throw up the truth social post and we'll go from there.

47:53Go ahead. All right. Oh, I have to read what Trump said. Okay. The movie industry in America is dying a very fast death. Other countries are offering all sorts of incentives to draw our filmmakers and studios away from the US. Hollywood and many other areas within the USA are being devastated, blah, blah, blah. Therefore, I am authorizing the Department of Commerce and the USTR to immediately begin the process of instituting a 100 % tariff on any and all movies coming into our country. Look, I'm not here to litigate if Trump is going to do this. He said he walked it back. We know that he's the king of snip snapping.

48:30So, you know, next week, who knows? but I mean, we're talking about tariffs on services now. What? I don't think our mind has fully gotten to the point because when we think about tariffs, we think about your Italian leather shoes. We think about that$30 comment, the Barbie dolls that you're importing from overseas. We think about TVs. We don't think about cloud contracts. We don't think about movies. We don't think about, um, you know, other tech services. Services are a huge services. Service of spending is a huge part of spending. Services are a huge part of the economy. And markets weren't really prepared for a tariff on services.

49:08So if this goes further, I have to wonder how that translates into stock market performance. Yeah. That was such a good point, the observation that you made. It didn't even occur to me because I didn't even think one step past the headline of how nonsensical this idea was. But the idea of tariffs on services, listen, I don't want to go I don't think it's going to happen. But it's funny because they're ironic. I don't know if it's funny or ironic, actually. It's just maybe perhaps interesting that he's not 100 % wrong on this because the movie industry is getting shellacked. And a lot of the production is going outside of the United States.

49:47So maybe tariffs aren't the right weapon to make it better. But I want to quote Matt Bellany at Puck. Matt said, Trump is right about one thing. The US movie industry is dying a very fast death, at least the movie and TV production business, for the reasons we're all very familiar with. From 2022 to 2024, there were 241 American movies released with budgets of$30 million or more, and only a third of those were shot in the US. And he goes on to say, Disney's Bob Iger might talk publicly about loving LA, but he'd happily ship a 100-year-old Dick Van Dyke to Bulgaria for Mary Poppins reunion special.

50:31If it saved a little money, everyone in Hollywood just accepts this now. One final data point on this. This is from Morning Brute. Said that from 2021 to 2024, film and TV production spending in the US dropped 28%. Tax incentives and lower labor costs have attracted the industry to Canada and overseas to countries like Australia and parts of the UK. I don't disagree. I, the movie industry has, I mean, from the writer's strike to COVID shutting down production, it's been a really hard few years. You know, services, they're just like us, right? But I mean, I don't think tariffs are the way to go about this.

51:15I mean, I'll state the obvious, but thinking back to portfolios, I still don't think we have a good handle on even what enacted tariffs mean for services and what it means for the the business relationships in these multinational companies. I have to wonder if this is something where five years later, we look back and we were like, oh, so obvious. It was so obvious, but at the time it wasn't. What was? The impact on services spending and business relationships, the squishy stuff, not the actual goods that are being tariffed. And my point is the squishy stuff, the intangibles, the services are a lot – it makes up a lot more of the economy and the capital markets than people realize, which makes me worried.

52:03I don't know. I sound kind of doomer. No, you don't. It's okay to be worried. So you look at a lot of data. You look at a lot of manufacturing data, services data, all the economic data, the labor market, the spending, the this and the that. When do you think some of the hard data will reflect some of the pullback that we're seeing? Because it is going to show up, right? It's already showing up. We got layoffs data last week and private sector layoffs were around the highest they've been since 2020 and before that 2009, which are not the best analogies you want to pull up around this. So I think it's at the very beginning of happening.

52:52Everybody's been following shipping volumes to see when prices increase because it takes a while for goods to get from China to here. We are seeing shipping volumes finally drop. We're seeing companies load up on inventory. But now they're saying, a lot of them are saying that they're going to pass the prices on. I worry that we're kind of on the cusp of seeing something. especially because we're seeing layoffs data increase and that's job market data. But how it translates into the health of the American consumer. I mean, I would have expected to see unemployment claims rise a lot quicker than they have.

53:27They haven't really risen at all. How they flow into hiring, you know, how they flow into spending. I think that's still a big question mark, Michael. So let me ask you this. How does the market, and there's a loaded question. I'm just, you know, let's just pretend for a second. Does the market react immediately negatively to softer data? Because we saw a pretty nasty gap down. Did we get a GDP, a weak GDP report? But they bought it back in two seconds. Is it because a softening economy is going to lead to a more dovish Fed? Or how do you think the market will interpret softer economic data? I think about this a lot because, I mean, have you seen how quickly people buy back into dips, like you said?

54:17I think at a certain point, if you see enough job cuts, enough of a pullback on spending, enough of a pullback on investing, that's basically where I was going. If you see incomes come down enough, then you don't have money to put into the stock market. You don't have money to spend. That's the problem with recessions. They're so insidious. And even if you're not losing your job, you have a portfolio that's down 20 % or has fallen 20 % and you're worried about that. We were all worried in April. You have friends and family who have lost jobs. The pizza place down the street is closing because it can't handle costs.

54:54The sick feeling that you get in your stomach just hurts so much worse when the economy cracks from underneath you. So I'm still of the opinion and I don't have a crystal ball Don't have no idea if this is going to happen, but i'm still of the opinion that if we see a recession Then we might see a deeper sell-off and we might see a sell-off that isn't v-shaped isn't immediately bought because There are a lot of question marks and we can't just I think we're at the point where trump can't just like walk tariffs back and then avoid economic damage. I think it's been done All right. Well, that's a horrible place to leave it but you know, I know.

55:32Can we end on a better note? Sure. What's on your mind? Let's go. Next 75 degree day in Charlotte. Let's go. Um, the world makes it through every single time. We always do. Um, always do. All right. Thank you everybody for tuning in. Callie, you were excellent as always. Uh, Josh will be back next week. Thank you to our sponsor. Grayscale. Thank you to Duncan and John and the entire team behind the scenes, making this possible. we will see you. Oh, wait a minute. We've got an Animal Spirits tomorrow. We've got an Ask the Compound also later in the week. We will see you next week. Thank you for riding with us.

56:10Have a great night.

56:17Whether you're just getting started as an investor or you're managing a multi-million dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan to speak with a certified financial planner today, visit RitholtzWealth.com. Don't forget to check us out at YouTube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.

56:56Thank you.