Retail Investors Just Plowed $100 Billion Into Stocks. THIS MONTH.

26:41Well, the puts are going to, even if the underlying doesn't move, the puts are going to be worth less 30 seconds later. Yes. So options have become much, much, much more popular over the past five or 10 years. And for good reason. 20 years ago, people were all about options because they got leverage. All they wanted was more and more and more and more leverage. Now people have come to the conclusion and some pretty sophisticated retail traders have come to the realization that the benefit of options is not leverage. It's not more, more, more. It's that if you combine and underlying with an option, you can create a payoff profile that's absolutely superior to the 45-degree line that is owning or shorting the stock.

27:27But don't you think that's why people are in these leveraged products? So there's 100, whatever we said,$140 billion. It's the off chance that you're in the AMD double levered ETF before the announcement like we had last week. And there's like a fun component in here. I think that people are in these sorts of products or some of these buffered products, that sort of thing, is because they understand the value of the strategy, but they don't want to be bothered to do it themselves. Yeah, it's an easy button. To a certain degree, it's like going out to dinner. Yeah. I could make that, or I can pay somebody a little bit more money and make it for me.

28:03Retirement account, I can't use margin. Hey, I don't need it anymore. Now I buy this product, I get 2X AMD. Right. And if Lisa Su has a great appearance at a conference somewhere, instead of making 5 % on that day, I'll make 10. They made 45 % last week in that one day. Well, 45 times 2. Times 2 divided by 6. But that's one name. And how many of those things are out there that lost them? But Michael's point is it's lottery-esque. So, Scott, yeah, well, unfortunately, yeah, there's— No, but that's what it is. So Jason Zweig wrote an article. And again, he knows he's screaming into the void. Nobody actually cares, but it's astounding.

28:43So there was this new double levered software ETF, whatever it was. And it was small. This guy was just launching the product. And he said the swaps were 1.7 % a month. And so right off the bat, the manager and this guy, credit him, he's like, I can't justify this. The swaps alone were like 20 % annualized. But if you're in this thing for a week, a day, a month, people don't care. So there's no amount of warning. There's all amounts of tobacco warnings on the labels. People just don't care. People, unfortunately, people have gotten to the point where they're like, you know, even if they have a great advisor.

29:18I know it's bad for me, but I like it. And they're like, say they're 65-30, and they have that 5%. Yeah, I agree. They're like, you know, I'm going to roll the dice with some of this stuff. I agree. And in some cases, it's working out really well, and that's why it's so hard to talk them out of doing it. Think about all the financial advisors who told their clients, don't buy Tesla. It's a money losing company. Don't buy Bitcoin. It's internet fake shit. Listen to what Warren Buffett, Jamie Dimon, Charlie Munger, and the rest. Like if you are on the receiving end of that advice, don't do this, don't do this, don't do this.

29:54And then you make a million dollars doing it. You're probably done being talked out of recreational activities in the market. What you're talking about is not what he's talking about. Nobody's making a million dollars buying the double levered. I think, no, but directionally, a lot of crazy shit has paid off in the last 15 years. Well, or something even worse happens, Josh. You don't make the million dollars. Oh, that's the right. But your friend or neighbor does. Yep. And that's it. That's it. Then you're done. Right. Then you're like, oh, it's risky? Okay, how about this? Give me more of it.

30:25Here's five times the amount. Right. How you like me now? Right. 100 % I agree. Give me more of it. Oh, my God. You mean my idiot brother-in-law? He made all this money. Yeah. And you told me not to. Do you agree this is one of the hardest parts about knowing the markets is communicating to people the difference between process and outcome. And sometimes you could have no process whatsoever and an incredible outcome. And sometimes you could have an amazing process that historically works really well with a terrible outcome. And it's very, very hard to disentangle those two ideas. Yeah. One of the things I write about in The Anxious Investor, and Thaler is the guy who actually first kind of started writing about it, was this myopic loss aversion idea, which means that essentially, we'll put it this way.

31:14The less often you look at your portfolio or monkey around with it, the better your returns are. Yeah. And so I like a thought experiment. How much better would the average investor do if the stock market was open one day a year? you could only rebalance, you could only trade, you could only invest one day a year. And the other 364 days a year, you had to sit on your hands. Can I introduce him to private equity? Yeah. Well, no, it is an interesting thought experiment. But so you would - Except you get liquid ones every seven years. But you would say like, obviously people would perform better.

31:50But what if on that one day, people are like freaking the hell out? This is my only chance to get out. By the way, everyone's a seller on that one day. No one's a buyer. You think so? The stock market goes to zero when it opens. Yes, because the people are buying other things. They find something to do besides stocks. They're in crypto. They're in real estate. So on that day, you close the market for a year. Guys, it's only open on Wednesday. Your point is well taken. The more you trade. Everyone's selling. All right, then if everybody is selling on that one day a year, I want to buy. You want to buy.

32:18I agree with that. I want to be the buyer. So, Scott, as you – so you are a quantitative investor. You are looking at the math and objectively saying things are this way, things are that way. It doesn't mean you know the outcome, of course. but you're giving yourself a chance. There is, we are in this moment right now where there are so many outside forces, people acting in ways that may or may not make sense in the long-term, but in the short-term, whatever, it is what it is. So - They're drinking out of pumpkins. Right, yeah. It's like a whole thing going on right now. So Marlin Capital is as awful as estimated from public data.

32:51So let's just say it's directionally right, even if it's not 100 % precise, who knows? We have just witnessed the largest retail investing buying ever. Sure. Retail has bought over$100 billion of U.S. stocks in the last month. The largest one-month buying on record. Surely this amount of money coming into the market, into these names, has to have a dramatic impact on everything. Retail investor just bought$100 billion of U.S. stocks. Is this aggregating individual stocks and funds? I don't know the methodology, but maybe the next chart is a good setup for this. So Deutsche Bank has this chart that shows a basket performance relative to the rest of the market.

33:33And they're showing the stocks with the most net call volume, which as we know is what the retail investors are buying. And it's also showing the most shorted stocks, again, what retail investors are buying. And these things are on absolute fire. And it's hard to tell somebody this isn't rational. It's like, what? Making money is not rational? It feels pretty rational to me. on its surface. Is it totally irrational to be buying the most shorted stocks? I don't think so. I don't know. I mean, they're not going to be the most high-quality stocks. We know that. I hate for retail investors to get fired up about some of these metrics.

34:10Yeah. And I would expect, listen, the market's at all-time highs. I'm trying to do the math in my head. What's the market cap of the U.S. stock market? Almost$50 trillion. Okay. So$100 billion out of$50 trillion is actually not that big a deal. And so I would expect that. I think the fact that retail investors, as opposed to retail traders, continue to put money in the stock market is a great thing. Agreed. I just, I hope if the stock market is off 25 % from the time, from highs, let's say next year, middle of next year, if it's down 25 % from here, I hope that they're still buying, and in fact, they're buying more.

34:55And one of the things that drives me crazy when it comes to professionals is stock buybacks. Companies who are doing stock buybacks are the worst traders in the world because they double up at the high. Yeah. Yeah. Yeah. If XYZ, company XYZ announces a stock buyback or increases the size of their buyback, I'll bet you the stock has done really well over the past 12 months. Unfortunately, that is the way it works. But isn't that human? that's like human nature that's like you when are you the most confident in your own stock probably after it's just gone up 40 but these guys are supposed to the cfo and the ceo of xyz company are supposed to be professionals they're supposed to be not devoid of emotion but they're supposed to have steeled themselves against here's the other side of that though here uh berkshire hathaway had a buyback and they said publicly we're buyers below 1.3 times tangible buck value I think that's what it was.

35:47Yeah. The stock never even got close to that. So now it's just like, all right, fine. We're not going to buy as much as we thought because we don't have an opportunity. In your mind, that's the right way to handle it? Well, you can't. I think the mistake there is you can't say this is what we're going to pay because it's never going to get down there. You have a natural put option. Maybe that's brilliant, though. Well, yes. See? Okay. Scott. Come on. You just spoke about like, okay,$100 billion. Yeah, it sounds like a lot of money, but if you normalize it for the size of the market. All right, we did normalize it.

36:24Hold on to your face because it's about to be blown off your body. Daniel, chart five, please. So the retail stocks, I had ChartKid make this chart. We're looking at some of the most in-favored speculative names. So I'm talking about Rigatoni, RGTI, Oclo, Corweave, MicroStrategy. So what Matt did was he adjusted for the 20-day average volume, not of shares, of dollars traded. Okay? Dollars of shares traded against the Mag7. And holy shit, Regetti, which is a$10,$15 billion market cap, and Oklo and Corweave, which is approaching 100, MicroStripe's 100. Those names trade as many dollars as Netflix and Google, which are Google is a trillion plus dollar company.

37:12Is this wild or what? Well, this is a function of what we were talking about earlier. Markets are incredibly efficient. Companies are able to brokers are able to sell their order flow. And there are a bunch of institutional hedge funds who are willing to buy it and make a 20th of a penny on all that volume. and gin it up. And we talked how it's becoming more like gambling. For those names, somebody's going to, I don't know, trade 100 shares or some call options. And it's the 5 % that's not in the S &P or in treasury bonds. But when you see this type of behavior, are you of the mentality that, listen, if this is your 5 % money, trade your ass off, have a great time, or does this bother you?

38:02No, this is human nature. Yeah. I mean, this is human nature. Can I say one thing about this also? What are there, 10, 11 stocks in this group? I mean, I could have given you 20. Okay, fine. But like in every market era, these stocks exist. They're just different stocks. So here are the names. Not to this degree. You're right, but not to this degree. So you have Qubit and Rigetti in here, which are, and QS. This is quantum computing. What's IRAN? I don't even, I still haven't bothered to Google it. Do I care? It's quantum aviation. Get the f*** out of here. All right, fine. What is that? Okay, go.

38:37Nobody knows. It almost doesn't matter. Orbs and BMNR are these digital asset currencies. One is Tom Lee. One is Dan Ives. Coreweave is AI. Strategy is another treasure. What's the point of naming all these companies? That's not the point. Well, I'm just saying like if you pull these, Joby circle. If you pull these names out and you go back to 2005, you will find the same version of that. There's no way I'm guessing. Hold on. There's no way I am guessing that in 2000, that the companies that were in the bottom 20 % of market cap were trading as much daily volume as IBM and Cisco and Yahoo. There's just no way.

39:24That's got to be different. Because it was - Not in 2000 because the market was crashing, but in 99 - There's no way, dude. The small stocks were not trading as much as the giants. No way. It was much more difficult to physically trade stocks in 1999, but how about this? One of the things I write about in The Anxious Investor is that, and there's some wonderful research done on this. In 1999, if a company changed its name to include - Yeah, dot com. Web,.com, any of that. It didn't matter what they did. They could be a cafeteria. But if they now became cafeteria.com, then the stock would zoom.

40:03It was like crazy. We saw that in 17. They all became blockchain companies. There you go. We saw that in – they're probably going to do that now with quantum. And there's – or anything having to do with blockchain or crypto or anything. And I guess if you're a shareholder, don't you want your guys to do that? Oh, we own this boring cafeteria company. Depends how long you own the share for. Not if you're a long-term investor. But now you have an option to sell at a much higher price. They arrested these guys who own the deli in New Jersey. Those are good guys. I thought they were on Long Island.

40:39I thought they were next to the place that sells the pumpkin spice latte and a hollowed out pumpkin. But one thing, real quick. In 2002 and 2003, the guys who wrote the paper about what happened in 1999 with renamings, they turned it on its head. And the companies in 2002 and 2003 that renamed themselves away from.com, web, they outperformed the names that didn't. Yeah. Because everyone wanted to be in traditional value stocks in that era. Right. Yeah. Yeah. So if GM.com changes its name to GM and we don't have anything to do with the web, but we're going to make some great cars and a whole bunch of them, people were like, that's for me now.

41:23I want old economy. We had real world examples where DLJ spun out DLJ Direct. DLJ Direct was going to be its online brokerage arm. They spun it out as a tracking stock for the first six months that outperformed regular DLJ and then it flipped. So yeah, we do the, so I guess I would argue we do this all the But to Michael's point, this might be the most extreme version we've ever seen. Because those companies that he's showing, they're small companies. Some of them are telling investors, we won't have a commercialized product until 2029. And they're trading as much volume as Google. Right. And I am firmly convinced that a combination of AI, fusion energy, which is probably 10 years away, and quantum computing is going to be massive.

42:11It's going to be absolutely massive. But how in the world do you invest in a quantum computing business? Now, that's just, that's darts at a dartboard. But that's the point. They're not investing. They're trading. But here's my question for you. Does that turn you off from the overall market? Like, it's an expensive relative to history, S &P. It's a very expensive NASDAQ. And then you have that activity as like a sideshow. But it's not even a sideshow. It's the main event for a lot of investors. Yeah. Well, I hope that the main event for a lot of investors is putting money from their 401k into SPY or TLT every month.

42:51I hope. I think it probably is. But the self-directed investor with a Robinhood account is not doing TLT and SPY. Well, and I would take – I would argue with your describing him as self-directed investor. Those aren't investors. In 2022, they were. Remember, they were diving headfirst. TLT was like - Put up the evolution of meme. This is such a great chart. All right, so we love the round. Whose idea was this? We love the round, guys. So this is no disrespect to them, but it is just hilarious that they have a meme ETF that was listed towards the end of 2021. Good timing. We know what happened.

43:28They got delisted in 2023. And I'm overlaying this with the ARC price just because I guess it's the closest proxy. And yesterday, it's back. They resurrected a dead ETF. I don't know if that's ever been done before. I'm sure it has. I've never heard of that before. But, uh. Because the stocks are in favor again. Because we're back. So this is meme priced in ARK? Or ARK priced in - No, it's not priced in anything. I'm merely putting the dots on the ARK price. I could have done the S &P, but this is a better proxy. All right. I'm going to do something I probably shouldn't do. Do it. What is the management fee, annual management fee for meme now?

44:01I don't know. 70 basis points. I made that up. I could check. I have an internet. I bet you it's over a buck. No way. No way. On an ETF? No, these are not those guys. You can get away with it now because people are completely - 69. Price - 69. Okay. All right, you're right. Scott, you can get away with anything right now. If Tom Lee dropped the time travel ETF - Well, that's my point. People would f***ing put a billion dollars into it. That's my point. People are completely price-elastic when it comes to - But wait, I want to ask your opinion on this because Paul Tudor Jones was on CNBC this week saying it feels like 1999, and maybe it does.

44:34I wasn't around in 1999 trading stocks. But this type of thing that is happening now is a new permanent feature of bull markets. It will never not, they will, the ability to speculate as we open the show with, it's so easy. You just got to get used to this. Yeah, I don't, I don't disagree with that. And to the degree that people are paying attention to the stock market in a way that they didn't 30 or 40 years ago is fantastic. The stock market is a great way to build wealth and provide for your retirement, finance your kids' educations. as long as you only put a little bit of money in some of these knucklehead names.

45:09And to be clear, I do think that most people that are being reckless are doing it responsibly. Like, I don't think that people are taking now, with, of course, there's exceptions, but I do feel like generally speaking, people are like, yeah, I eat my vegetables and potatoes and meat in my 401k, and I'm having a hell of a lot of fun doing this. And guess what? I'm making money, asshole, so shut up. What do you make of the blurring, though, of the lines between gambling in things outside of the stock market and the stock market? So all the stock exchange yesterday. So ICE is not the immigration ICE, the other ICE that controls the New York Stock Exchange.

45:43They made a$2 billion investment into Polymarket at a valuation for Polymarket of what? 10 billion, whatever the number, some insane number. They're not even operating in the United States yet. And I assume they will be able to soon. Cal, she is operating in the United States. But this is a prediction market that ICE has now decided is worth more than like the biggest casino corporations. I love a prediction market. Don't call it gambling. Yeah, we call it prediction market. Prediction market. But like if Robinhood is going to combine sports gambling with prediction markets, with investing in an IRA, stocks and bonds, and the next generation investor is going to grow up in an environment where you could just do all those things simultaneously.

46:28We really are. like in a very different world. Very different world and much more dangerous. I hate the intersection of investing and gambling because over time, investing is not gambling. There's never been a 20-year period where the S &P lost money once you account for dividends. Doesn't happen. We're doing our best to make that happen, though. Yeah, you get to a high like this. So I, and I have a dear friend, dear friend, who we're on a text chain for fraternity brothers. And on Sundays, he'll send us his goofy parlay bets. He has 20, and he's risking$20 on a 20-leg parlay. Yeah, for fun. And I'm like, yeah, I'm like, go with God.

47:13That sounds fantastic. I think you're wrong here, but I think the Chiefs are going to win, but he's having a good time. And that's fantastic. Some people spend a bazillion dollars on fishing gear. But the intersection where people think that investing and gambling are alike. Equate them. Yeah, that's incredibly dangerous. They're not. It's going to happen. Whether people like me and you like it, it's inevitable. Sure. There doesn't seem to be any restrictions against doing anything at this point. I don't like fishing. But if you want to go buy a bunch of fishing, you're going crazy. Can we show you a ratio chart?

47:50This is, so one of the beneficiaries and one of the inventors of this new meme world that we're living in is, of course, Robinhood. And this chart really and truly is a miracle. What I'm showing here is the market cap of Schwab divided by the market cap of Robinhood. And at its peak, the discrepancy was 22 and a half times. So in other words. Only two years ago. Schwab in 2023, Schwab's market cap was 23X Robinhood. And two years and changed later, it's converging on one. It's 1.3 times. Robinhood's market cap is 135 billion and Schwab is 170 billion. Could have been like one of the greatest pure alpha pair trades I've ever seen.

48:37If you had put this trade on in 23, I want to be long Robinhood, short Schwab. Holy cow. If this touches one, go the other way. Oh, you think that's the moment? That's interesting. I will say this. And I had this conversation with some people on social media right after Robinhood launched. And as long as you understand what the deal is with Robinhood, what your relationship is with them, then fine. Then use Robinhood. But I had a number of people say, well, it's free. Robinhood is free. I said, well, it's not really free. It's just that you don't see where they're making money off of you. No, it's free to me.

49:18And at some point, you just have to slap your head and say, fine, okay, I'm not going to waste any more time. If you understand their value proposition, then good. You know, I'm all for more options. The other brokerages are now all in the payment for order flow business anyway. Yeah. So that's number one. So there's no alternative. That's one. And then two, yeah, I guess to somebody that's going to buy Apple and hold it for 10 years, does it matter if they pay a penny higher than a normal bid-ask spread? Probably not. Well, and now it becomes a marketing problem. Yeah. Schwab is your great-grandfather's broker.

49:57Yeah. Robinhood is, you know, for a 20-something. And that's the marketing problem. That's Pumpkin Lattes guy's broker. I already pitched this to Schwab. I said, guys, Chucky S. And Chucky S has a skateboard. Let's like, let's do, I don't, look, I don't think, I don't think Schwab has a image problem because if you look at the amount of wealth at Schwab versus Robinhood, it's still a huge difference. But in Wall Street terms, Wall Street is purely interested in what is the future path of earnings growth. And the story at Robinhood is we're basically gonna allow people to do whatever they want.

50:36We know what the numbers are. I think Robinhood has$350,$400 billion worth of assets. I mean, not nothing. No, it's more than that. It's way more than that. No, assets under management? Robinhood? Oh, no, no, no. I thought you said Schwab. No, Robinhood is like$350,$400. Right, and Schwab is the trillions. Schwab is$10 trillion? Yeah, yeah, yeah. Well, but you say you don't care, but let's walk it back. What if you're a Schwab shareholder? Oh, no, I agree. I'm saying - They're lighting their hair on fire. As a user, I don't care. And I'm not saying it's an investment problem. I'm saying it's a marketing problem for Schwab shareholders.

51:09Yeah, you know what? It could be, but in a bear market, we just made that point. The companies that took.com off their name did better. You get into a substantial bear market for this type of trading activity, and all of a sudden, that's going to look like a bad word, and you'll see the Schwabs of the world come back into favor on the stock market. Last thing, to be clear, Schwab's shareholders are fine. The stock is up 45 % over the last year. The thing is, Robin is up 500. Well, and that's, it's like we were talking about before at Thanksgiving coming up, your idiot brother-in-law is going to say, oh, you're still invested in Charles Schwab stock.

51:46You know, I've been along for the Robin hood ride for the last two years. So the red car out in front, that one's mine. And, you know, I see you still got that Buick and you're just going to, you're going to want to throttle your idiot brother-in-law. I tell this story in one of my books about the ad campaigns on CNBC and other channels, frankly, every channel, every sporting event. The difference between 1999 and 2001. In 1999, it was like, Phil Jackson, what's your next big trade going to be? Like people thought it was basketball and he's like on his laptop in the limo. Anna Kornikova picking stocks, Shaquille O 'Neal giving stock tips.

52:27Jackie Chan kicking a trade into the laptop that's in air while fighting off assailants. He's got money coming out the wazoo. Do you remember the commercials? Do you remember the commercials in 2001? It was Sam Waterston from Law & Order in a suit. And the tagline went from Jackie Chan kicking his laptop to place a trade to investing in serious business. And he did this whole direct-to-camera monologue with somber tones because the marketing of this stuff mirrors the recent experience of the people who are market participants. So I guess my point is, I don't know how excited you would be to be a Robin Hood shareholder in a bear market.

53:15And I kind of feel like you'd see the action rotate back to people wanting to be invested in Schwab because of its perceived permanence and stature. Let me ask you this. In 2001, if you had been Schwab, would you have hired Sam Waterston or something? In 2001. In 2001 and said and had our marketing messages now, eat your vegetables. Yeah. Or would you have just gone quiet? No, they did the eat your vegetables. What would you have done? Probably the same. I would have gone quiet. Why? I don't think you get anything by reminding people how badly they've done over the previous 18 months and that you were part of that even though it's not your fault.

54:02Right. I'm not saying you'd hide. You know who went quiet? Who? They put the E-Trade baby to bed for a little while. Well, and they did E-Trade. Wasn't it E-Trade that did he's got the money coming out the wazoo? Yep. E-Trade did the one. Maybe it was E-Trade did the one with the truck driver who owns his own private island from trading in the stock market. Remember that? Yeah. He's got a picture taped up on his sun visor. They go, what's that? He goes, it's my island. So some of these were like incredibly egregious and they all stopped on a dime. And I really feel the same thing could happen this time.

54:38I think there's one difference. Going out on a limb. And we were talking about it before. I think there's one difference here in that when the market sells off, people do rush in to buy. Buy the effing dip. They rush in to buy the dip. And we were talking about before in the vol space. We are now in a market where traders are so accustomed to seeing vol normalize after a volatility spike. Yeah. And we saw it happen in April. And we saw it happen twice last year. There was December, and then there was another one, I think, in July of last year. And now traders are so commonly rush in to sell that volatility spike.

55:26They just want to sell options, just sell them like crazy when they see these vol spikes because they know, if you will, that volatility is going to revert to the mean. You know, it's so interesting. And so they have to get – and quickly, I had just gotten started in 87, and the option market took years to recover after 1987. And now it takes about 18 hours. Yeah. And what level is, like, how does the VIX ever get to 35 if people are already fading it at 20? It just can't stand there. And I think that I never thought about this until just now. Josh mentioned earlier that the stock market can affect these businesses if they're able to feed the shareholders more stock, raise money, pivot, whatever.

56:12I never thought of this until just now, how the vol spikes, I'm sorry, the vol crushes can impact the world in a real way. Because this is what ends up on the newspapers. And as soon as these vol crushes happen, it dampens the hysteria. Not that the media needs any more of it, but it dampens their ability to try and scare investors and generate clicks and all that stuff because the vol disappears pretty quickly. Yeah, it reverts very, very quickly, surprisingly quickly, to the point where guys that are my age are kind of shaking their heads a little bit. because I think what's going to happen is this is going to involve, this is going to continue to happen.

56:51Something crazy will hit the wire. Stocks will be down 10%. Vol will be up a bunch. And traders will rush in to sell volatility. And they'll pat themselves on the back. And then at some point, stocks are going to take another 15 % or 20 % down way. Vol will spike again. And these people will all be like, well, this trade always worked in the past. Yeah, what did we just do? Right. And now I've lit my portfolio on fire by shorting vol. And I think we will eventually, unfortunately, have that happen. One thing I will say, I get to ask this question a lot because in my crash book, I talk about contraptions.

57:35There's always some financial contraption that injects leverage at the worst. Portfolio insurance. And, you know, the world only, Josh, the world only really, broad world, only learned about portfolio insurance on October 11th. No, October 12th of 1987 when somebody wrote about it in the Wall Street Journal. Yeah. A lot of people didn't even know it existed until then. But portfolio insurance or mortgage-backed securities. Subprime. Subprime, right. Right. And so people ask, is retail trading, all this retail trading and vol selling and that sort of thing. and zero DTE options. Is this the next contraption?

58:14And the good news is I don't think it is. I don't think the system can build up enough size, enough leverage in these things to be the next contraption. I think if the next contraption, if we have some sort of problem in the next few years, and crashes are very rare, thank God. I write about five in that book. First one in 07, last one in 2010, the flash crash. So they're very rare, and thank God, because they do incredible damage to psyches. But if we do have some sort of big downdraft in the near future, I think it's going to be private credit is going to be the contraption. I totally agree.

58:48And can we skip ahead and just go to that story now? Let's do it. Okay. We might go back to this gold Bitcoin thing because I want to get Scott's take on it. Private credit, it's not an anti-private credit message, what I'm about to say. Sounds like it's going to be. No, no, no. Now, but to your point, like what's the mechanism by which the market actually gets nervous about something? Well, it's probably going to have something to do with one of the areas where the most money has been going. That's sort of aberrant relative to history. You have a lot of new holders of funds that are private credit.

59:24So two things in the last couple of days. The first is the BDCs. So for people, business development corporations, these are publicly traded vehicles, usually sponsored by larger organizations. With leverage. They dole out leverage as lenders and they themselves are backed with leverage. And the goal is to capture the spread in between. The designation BDC is, they're paying out all the income in the middle. Can I show you a chart? this is the vanek um bdc income etf ticker bizd so this is an index of i guess the 20 biggest 25 biggest bdcs that are publicly traded that vanek puts into an index and they created a product you can see now that we are below the april lows in this bizd etf price wise and what i'm showing you i'm sorry the pricing is kind of ridiculous this is a total return product but they look Well, I'm so glad you brought that up.

1:00:26The reason why this is falling is because the total return is being lowered by the fact that dividends are being cut. So a lot of these nominally look like they're going to pay out 9, 10, 11 percent. But investors are smart and they're realizing as interest rates fall and God forbid accruals, non accruals or non payment of debt starts to bubble up, the dividends have to be cut. And that's why these are falling. The pain at the bottom is volume. I think I did 30-day average volume. So you have volume spiking as people try to get themselves out of these ahead of dividend cuts, which we know are likely for 26 because rates are coming down.

1:01:09Do you have a strong opinion on the popularity of private credit amongst retail investors or even institutions? Stay away. I am not a fan at all for a lot of reasons. One, it's almost completely opaque. Fees are huge. We were joking earlier about private equity. Not a fan of that in a retail portfolio either for the same sorts of reasons. It's opaque. Fees are high. Returns are not particularly good. No liquidity. It's worse than a hedge fund slamming the gates in 08 or 09. And these companies are going to, these managers are going to say, yeah, but we have so much less volatility. Next chart, Daniel.

1:01:56This is just a list of the – these are the BDCs. These are all very reputable sponsors. Aries, Blue Owl, Blackstone, Main Street, Hercules, Golub, KKR, Morgan Stanley, Goldman Sachs. These are their BDC products that they've listed as tradable vehicles. Right, and I'm not taking aim at the sponsors. If there's a market for something and sophisticated investors want to buy it, then they should fill the market niche. But my point is that to the degree that the stuff gets sold because they say less volatility, you've got to remember who's coming up, who's pricing the stuff that's inside these portfolios.

1:02:41It's the managers. So, of course, they have less volatility. So the story here is, and full disclosure, I tried to catch a fall in that if I sold it, I took a 5 % loss and moved on in one of these BDCs. The story is that one of the big borrowers blew up recently. They said that there's$2 billion or God knows how many billions of dollars where they don't know where it went. This is first brands. So this is like an auto, there's some financing aspects of this where they're selling and buying the parts and the leases and the whatever, whatever. So I want to not conflate two different things, but to Michael's point, this is part of the same stress now that we haven't seen in credit markets.

1:03:20CLOs are a really big business. They have been for a long time. And basically, collateralized loan obligations. And there's a company called First Brands, which is kind of like this conglomerate of like auto parts businesses, different brands in the auto parts space. Auto is always the first thing stressed in any economic downturn. The auto market itself is fine. This is about the companies in that ecosystem that sell parts. So investors are getting worried that this is maybe systemic, that holy shit, if there's a God knows how many billion dollars lost here, are they actually reading the covenants?

1:03:52Like, what do these deals even look like? So there's a lot of doubt there. I will just say this. The idea that this is going to be the first of the next leg to drop, high yield credit spreads are doing nothing, basically. And if you look at the size of the private credit market relative to the rest of the loan market, It's tiny. It's a couple trillion dollars. The slice is absolutely tiny. So maybe should investors be careful? Perhaps. Yeah, and that's actually, I've had this conversation with a couple of people recently. Is it big enough to spawn some sort of real disaster? Yeah, subprime was tiny too.

1:04:27There was a time when - Now that's possible. There's just way more than we know about. Well, think about - People, subprime, nobody cares about that market. It was the bottom layer of something that was unstable above it. And are you guys, You guys are probably both old enough to remember long-term capital management. I was 12. Okay. Bastard. But there were, I mean, those were supposed to be the smartest guys in the world. A bunch of Nobel Prize winners. Big enough to be so systemic that the head of every bank was called in to meet with the New York Fed and figure it out. Right, and what was their number?

1:05:02Their number was$300 billion. But the leverage, what was it, 50? Well, but the number, the amount of capital that was$300 billion, which is a lot of money, but it's not all the money in the world, even back in 1997 when that was. So the point is, if this gets spread out over enough names, then any of these things can cause problems. I was in. It causes a shaking of confidence, which ripples. First brands is the stone that you throw into the middle of the lake. It's inconsequential. It's the ripples. And just to barge in here with some numbers, this is a company that ended up in its bankruptcy filing, which will now be a three-year fight amongst creditors,$11 billion in liabilities on$3 billion in revenue, which is not even the problem.

1:05:53The real problem is double factoring. They took the same collateral and used it for multiple loans. So now people are looking at everything they own. Like, whoa, whoa, whoa, whoa, whoa. This is going on? That's the problem. Yeah, to Michael's point, there's about – the number I saw today,$2.3 billion that they think was essentially double-factored. In other words, they sold it twice. Yeah. There's also – and quickly, try to be quick here. Every crash not only has a financial contraption, it has a catalyst. And often the catalyst has nothing to do with finance. People forget that in 1987, the Friday before the crash of 1987, we essentially went to war with Iran.

1:06:36Column one of the Wall Street Journal on that Monday morning was not, oh, the stock market lost a bunch of money last week. Column one, page one of the Wall Street Journal that Monday was that we were essentially at war with Iran. Why do I bring this up? because in 1929, what really, really got the crash going was a fraudster in London, a guy named Hatley, I think. Hattree. He had started forging stock certificates. And then he was selling these stocks or borrowing against them. And eventually somebody figured out, oh, my God, this is a counterfeit stock certificate. I wonder how many of these we have.

1:07:17Yeah. And the number was actually relatively small, but nobody trusted anything. That's the thing that happened. That's right. And so they said, I don't know if this stock certificate's genuine. Why am I going to wait around to find out? Sell them anyway. Right. And you bring that up because the weather in October of 1987 before the crash is not too dissimilar than what we're seeing today. Again, I'm not a crash guy. I'm not one of those guys who thinks that you have to buy gold now because it's going And a triple by the end of the week because of the stock market. I'm not that guy. The first brand's ownership is diffuse enough that we're not going to see one major player take a substantial hit just because of first brands.

1:08:02Jeffries has a$700 million exposure, which sounds like a lot of money, and it is, but not really. UBS has one specific fund where 30 % of its assets are first brands. About$500 million. Okay, so not knowing anything. So that's not taking anyone down, but that's forcing everybody to rethink the way they're investing in some of this stuff and maybe to ask some questions they weren't asking a week ago. But hang on, but not knowing anything, because I am certainly a tourist in this space, the likelihood of this blowing over or turning into something, holy shit, I'm just going to take the odds of it.

1:08:40It'll blow over. And obviously this could age very poorly. Well, there's another one. It's called Tricolor. and it is involved in auto finance as well. Yes, sentiment is weighing on the group right now. There's no doubt about it. This is another CLO story that it's not. No, it is. It is. Well, I'm with you in that crashes are rare, thank God, because not only is a lot of money lost, but a lot of psychic energy gets wasted. But think about the stock market. How many stories over the years have blown over? People were worried and then they weren't. Right. Well, and we talked about long-term capital management.

1:09:14That was really ugly. I think the stock market was down 14 % in that month, and it bounced back. But let's look at it a little differently in that – and what I'm going to mention is two Bear Stearns hedge funds. In 06. I thought it was 07, but okay. 06, 07 were focused on mortgages and subprime mortgages. Blew up. They went to zero. One used no leverage and one used some leverage. And the one that didn't use any leverage fell 90%. And the one that used a little bit of leverage. That was the opening shots of the financial crisis. That's right. And people were having exactly the same conversation then that we're having now.

1:09:59Was it October? No, I think it was in the summer. I think it's August of 06, to be honest with you. Okay. And then within 18 months, Bear Stearns is zero. Right. And everybody is terrified and the market is seized up and nobody can get any money out of their money market fund. So it's the same situation. Then as now, we don't know. I don't think that we're going to have the same outcome. But sometimes the market gives you a little notice. And it's not just the BDCs. It's the equities too of the private equity companies. Correct. So it's very possible we never speak of this again a week from now and there is no other first brands.

1:10:36I agree with Michael where you still have to give the system the benefit of the doubt that this is not widespread fraud and people doing crazy shit everywhere. But it does get people asking new questions and looking a little bit more closely, and that's new. I want to finish by getting your take on this gold versus Bitcoin masterpiece from ChartKid Matt at Exhibit A. Michael. Not at Exhibit A, just to be clear. This is a Chartkin Matt production. It's too many names and things to keep track of. What are we looking at? I mean, you tell the story. This is great stuff. Gold versus Bitcoin on a calendar year basis.

1:11:21Are you shocked? Two questions. First, are you shocked that we're in a stock market bull with both gold and Bitcoin also making record highs? And before you answer that, one last thing. The number one category of inflows of ETFs this year is treasury bills. Yeah. This is a weird, weird blank. Yeah. This is a weird. Like how crazy is what's going on right now? That makes no sense because you can explain all of the other ones with lower interest rates. Anyway, gold outperforming Bitcoin this year. It underperformed last year, underperformed the year before. Just a straight ratio. I find that really fascinating.

1:11:58People are, gold is not what you would typically associate with a stock market bull market. And you definitely don't expect to outperform crypto in an economic expansion like this. What the hell is going on? You would expect both of them. You would expect crypto, gold, and the stock market to do well. Together? When interest rates are coming down. Sure. Okay. All right. All right. I'll buy that. I'll buy that explanation. It's not like gold is doing well because the stock market is doing well. They're all riding the same ride. That doesn't really mean anything to me. Okay. I will say this, though, that in an environment where unemployment is at 4.5%, and I understand it's looked kind of crappy over the last few months, and you can look at the revisions, but unemployment's at 4.5%.

1:12:51Why in the world does that demand cutting interest rates? Inflation, depending on how you look at it, is anywhere between 2.5 % and 2.9%, and the Fed's bogey is supposed to be 2%. So why in the world are they cutting interest rates? So I have a bigger beef with the Fed giving in to public opinion and cutting interest rates when it's really not appropriate. And the final thing I'll say, and I talk about this in the crash book, the Federal Reserve does 10 times, maybe 100 times more damage by keeping interest rates too low for too long than they ever do by having rates too high. They fostered the bubble in 1929 by refusing to raise interest rates, even though they knew.

1:13:37And the quote they used at the time was speculative orgy. Yeah. And. My favorite type. The only good kind. Yeah. And the same thing happened in 2004, 5, 6, when Alan Greenspan refused to raise interest rates, thought that the banks were their own. Regulator. Should referee themselves. Yep. Nobody knows their risk better than they do. They'll modulate and forget. You cannot forget the whole I'll be gone, you'll be gone concept. Yeah. What's that concept? Don't worry about it because by the time this matters, I won't be in this job and you won't be in the job that you're in. I will have gotten my bonus check.

1:14:20Right. I will actually have my own private island. Yeah. I'll be retired somewhere. Somebody else clean it up. That's right. I don't disagree with you, but Chicago guys typically don't like the Fed. I've noticed that. Yeah, you guys, the Chicago contingent is very suspicious of anything central planning, especially the Federal Reserve. Yeah, I get that. Because the Bears haven't won since 85. No. I'm a Giants fan, so I can't talk. They won in 86, and it's not like everybody in Chicago has to know that in order to get into the city limits. The season was in 85. The Super Bowl was in 86. That's right, and they beat the bejesus out of the Boston cake eaters.

1:15:03So my point is I don't hate the Fed. I think we need the Fed. It has a role. It should be a backstop. I'm not one of those guys who thinks that the Jekyll Island meeting that created the Fed was some sort of sabotage or larceny. Jewish plot. All right. Quickly, I'm a fan. I just think that they do make policy mistakes. He's in on it. He's in on it. Hey, what kind of last name is Nations? What is that? Is it English? It is English. It's unique though, right? It is. The first member of my, first American in my family came over from Somerset, England in 1740. Oh, shit. As a 14-year-old indentured servant.

1:15:53Oh, wow. Think of the average 14-year-old today. Yeah. Do you think that guy would get on a boat and come over as an indentured servant? I can't indenture my kid to take the garbage out. Right. Yeah, or shovel the snow. I want to end the show with what I think is a perfect metaphor for the current economy and state of the world right now. Tell me what you think of this, Scott. This is an article, CNBC.com. Delta Airlines customers are getting used to first class. Revenue from the pricier, roomier seats toward the front of the plane could eclipse sales from standard coach seats for at least a quarter or two next year, Delta executives said Thursday, today.

1:16:36In the last quarter, Delta said ticket revenue from its premium cabin rose 9 % from last year to 5.8 billion, while main cabin ticket revenue fell 4 % from a year earlier to just over 6 billion. And the CEO said - So just do first class fights. That's it. No coach. Why are we putting coach people on the plane at all? Do I have to think of everything? I think that's called a private jet. During an investor day last year, Delta said just 43 % of its 2024 revenue was coming from main cabin tickets down from a 60 % share in 2010. basically it's flipped. And now all the revenue is going to come from 5 % of the customers, 4%, 3 % of the, how perfect is that of a metaphor for the, the K shaped bull market?

1:17:30There is, there are so many businesses. It seems like where that is the case where the, not the, the Uber wealthy, but the pretty wealthy, the well off are happy to spend money. Yeah. Whether it's, it's travel or dining or entertainment. I actually. I'll leave that one to you. I actually had drinks last night with a good friend, longtime friend who's a Hollywood, not a Hollywood, a Broadway promoter and producer. And he was talking about they just had a show open. Average ticket price,$450. Have absolutely average, average ticket price. One ticket. $450 for one ticket. So that's$1 ,000. You take your spouse.

1:18:12Yeah. You take your husband. Packed theater. Absolutely. And sold out. They're selling all that they can get at$450 average. And you know what that means? That means that the ones up in front are probably double that. Yeah. And if you're a kid who's a college student and wants to go see, good luck with that. Wait till it's on Netflix. All right, Scott, did you have fun on the show today? I did. You guys are fantastic. I love this show. A lot of fun. We're just big fans of yours. You're great on TV. You write great books. You know you have such a great breadth of knowledge and just an appreciation from us for everything that you do.

1:18:49Thank you. Well, thank you. I appreciate what you guys do to entertain and educate, most importantly, investors because it can be tough out there. It can be overwhelming. And to the degree that people are educated when it comes to financing a retirement or a kid's education, then God love you. Oh, look at that. What a wonderful way to end the show. Hey, we always finish with asking people what's one thing they're looking forward to or anything at all that you want to share with the audience that you think they should hear about. And we'll let you go last. Michael, you go first. Okay. What are you looking forward to?

1:19:28Apparently. You haven't been home in a few days. I was thinking about it. I'm happy to be home. Looking forward to sleeping in my bed. Amazon Studios. I guess MGM is reportedly making Heat 2, which I am quite excited about. I just saw one battle after another. I went in Florida. I went to Fort Lauderdale. They have a museum there that has a 70-millimeter IMAX. Oh, wow. And they show real movies on it from time to time. It's one of the best movies I've seen in the last 10 years. And on the big IMAX screen, you feel like you're on a rollercoaster ride. My wife actually just saw that, and she loved it.

1:20:09I'll stay with the movie theme. We have an apartment on the Upper East Side, and we see the cast of Devil Wears Prada 2 all over the neighborhood. Anne Hathaway, Stanley Tucci. That's right. And as you can tell, I'm not the world's biggest fashion guy. Yeah. Never read Vogue, but I loved the movie. I never saw it. It's actually a lot of fun. It's good. It's not a chick flick or whatever you would guess that it is. It's actually – it's a nice time capsule of Manhattan in that period of time too. Yeah. But also, you know, some businesses are tough to be in. And let's face it. It's probably none tougher than publishing.

1:20:54Fashion magazines? Over the past few years. Is there even one left? That's probably what the movie would be about. Magazines or books or newspapers. Yeah. And so it's a time capsule, if you will, of when that business was really in its sweet spot, making a lot of money, fun to be around, that sort of thing. I got my thing that we're looking forward to. We are doing a live recording of this show, The Compound and Friends in Manhattan on October. What's the date? October 24th. October 24th. It's a Friday night. Doors open at 6 p.m. And it's me, it's Michael, and our special guest, Jim Kramer, coming on the show for the first time.

1:21:31And super excited about that. Is this the one at the New York Stock Exchange? change no this is at the south this is at uh near the stop i can't say the location until people buy tickets actually okay i i just but it's close enough it's in the financial district where can they find out about it uh i'm gonna tell people to i i don't know i guess in the show notes we'll have links and all over the compound social media we still have some seats left and we would love if you guys are fans of the show and you haven't been to new york in a while you're looking for an excuse. Me, Michael, Jim Cramer, Duncan, Nicole, John, Daniel, the whole gang will all be there and we're going to have drinks, we're going to have food, we're going to have some signed copies of Jim's new book and I promise it's going to be an epic night.

1:22:17And final thing, final question. When is that again? October 24th. Sounds like fun. Thank you so much. Alright guys, that's it from us this week. Thank you so much for watching. Thank you for listening. Like and subscribe. Do all the things. Scott, where can we follow you? Well, you can follow me on, I still call it Twitter, X Scott Nations, or check out our offerings if you're interested in volatility. Nationsindexes.com. We provide bespoke volatility indexes for retail traders and sophisticated institutional traders. Help you create the best possible trade structure. Nationsindexing.com. All right, we're out.

1:22:59Thank you, guys. Have fun? Thank you.