The Investor Utopia is Here with Eric Balchunas

13:31Downtown Josh Brown:Yeah. Not everything survived. Like NFTs did not survive. NFTs went to do that. And a lot of cryptos didn't. Apes and punks. I'm just talking about Bitcoin. I'm just talking about Bitcoin. Yeah. Right, but there were millions of NFTs and most of them were worth nothing. Yes. I think Bitcoin, it's special compared to the other ones. I think the other ones are more like little businesses trying to solve like financial rails and become better tech for infrastructure. I think Bitcoin's more like a, you know how rich people like to have hard assets to hedge against inflation like art and like real estate?

14:06Yeah. Yeah. To me, Bitcoin is in a way a very convenient democratized version of that. It's something you can own easily that the government cannot debase. So that is sort of, I think, the value it has, but there is a lot of belief in it. There is some faith involved in all this, but I will say when you dig into how the whole network was made up and I mean, there was a lot of people that came before that the influences were in it, just like the ETF. The ETF was built off a lot of influences. But the idea of making something that is like completely decentralized, like the computer, the nodes don't even know each other or like each other.

14:41Like it doesn't matter. And it just goes on and on without a leader for 17 years. That's not easy. So the incentive system in the actual decentralization is pretty incredible, let alone. So it's, I think it's more interesting when you dig into it.

14:56Michael Batnick:So that part, that part lands like, oh, Bitcoin has no purpose. Well, first off, aside like the debasement stuff, but it works. It just does what it does. It survives. It's just kind of cool to have something that is worth value that is outside of the governments, because one of the chapters we have is on inflation and monetary policy. And we don't go like full tinfoil hat, but we do say, look, if you're a politician, I don't think any of them are ever going to run on like taking back entitlements. You can't tax that much. Like it's hard to balance the budget. I don't think it'll ever happen. I mean, Doge couldn't do it, right?

15:31So they're going to keep increasing the money supply in order to tax people in a way that they can't see, which is inflation. It's an easy way to tax people. This gives you some degree of a protection from that. Not that it's also used as a currency around that.

15:48Michael Batnick:Some degree is doing a lot of work here. Well, this is also what gold's case is. So gold and Bitcoin have a similar case in terms of having something that is finite or scarce that can't be debased. but I think the reason that the third group you mentioned, if you're a boomer and you've made a ton of money in stocks and they've done great for you, a little bit of inflation doesn't bother you. In fact, stocks are an inflation hedge. So you're like, I don't see the purpose in it. I think for younger people who do feel like there's something out there that's just like stealing from them, they can't quite put their finger on it.

16:16This is, I think, part of why a socialist wants in New York City.

16:20Michael Batnick:Prices go up. Let's start the show. There's the longest cold open in the history of the show. All right. Well done. Yeah, sorry.

16:28Downtown Josh Brown:All right. What a cold open though. Very cold and very hot. Ladies and gentlemen.

16:34Michael Batnick:Did you have, yeah. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is brought to you by Invesco. Is it time to take your equity portfolio off autopilot? Relying solely on traditional market benchmarks may not give your portfolio all of the lift it needs. Invesco can help you take control with strategies that offer a different approach. Whether you're looking for an equal weight approach or mid-cap exposure that can balance growth and stability, Invesco offers funds designed to help you break your concentration. Want to fine-tune your approach? Explore our strategies targeting momentum, low volatility, quality, and more.

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18:41Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed

19:00Michael Batnick:in this podcast.

19:02Downtown Josh Brown:You want to do more Bitcoin? No, no, whatever you want. We have a lot of non-Bitcoin. You want to hear about the Knicks? You want more? The Knicks? Don't you wish you were rooted for the Knicks? All right. Ladies and gentlemen, welcome to the Calm Down and Friends. Repeat guests, fan favorite, returning champion, Eric Balchunas in the house. Eric is senior ETF. Give it up. Let's go. Give it up. All right. Guys, Eric is a senior ETF analyst at Bloomberg Intelligence covering the exchange traded fund industry. He is the author of The Bogle Effect, a biography examining John Bogle's lasting influence on investing and co-hosts the trillions podcast, which explores the ETF landscape.

19:49Downtown Josh Brown:Eric is back. So happy to have you. You excited? This is my favorite podcast. It's fired up. This is great. Looks great. Keep getting more handsome. No, he's tan. He grew his hair out. It's combed. Were you just in Europe? Where were you? He looks European. I couldn't have my finger on it. Paris and Madrid. Yeah, it rubbed off on me, I guess. I went from Madrid to, I went from a Vanguard event in Madrid to a Bitcoin event in Vegas, which is probably the biggest, I wouldn't recommend it. It's too much, too much too soon. You need a middle ground there. That's like almost you left, you are planet hopping, right?

20:25Michael Batnick:That's cold sauna, sauna cold plunge. That's light speed right there. Yeah. Yeah. Planned. Where do you want to start? All right. We're going to do a lot of ETF stuff today. We have the expert in the house, but I want to talk markets for a second. because we showed a chart earlier in the year. It was February. We said, this is like some weird shit. You don't see what's happening today very often. And that continues through when it's now May. So several months later. Back in February, before the war, the market was acting weird. You had stocks that were getting blown up all over the place. And yet the index was at an all-time high.

21:05Michael Batnick:And part of this is a market cap weighted story but it wasn't just the S &P that was at an all-time high. You also had the equal weight at an all-time high with stocks getting blown up all over the place. So we shared this chart in February. John, chart on, please. We showed when 115 stocks fell at least 7 % in a single session across a rolling eight-day period. So basically, a quarter of the index, full blower, blew up in a single day, and yet the market was at an all-time high. Okay, this was back in February. I said to ChartKid yesterday, hey, I think something weird is happening again today.

21:38The market was up 1.4%.

21:41Michael Batnick:And yet I'm scrolling down the screen. I see a lot of stocks down a lot, like a lot. There was a couple that were down 20, a bunch of stocks that were down 10. So again, he shared a chart. He made a chart. We had 20 stocks yesterday that were down 5%. At the same time, the index gained 1.4%. And similar to the chart that we just showed, John, go back and go forward. So go back, please. Similar to the chart that we just showed, this type of price action normally happens in a bear market, chart forward. And here, of course, obviously, we're not in a bear market. So when this happens on average, the market is in a 21 % drawdown.

22:19Michael Batnick:So this is a combination of the cap weighting is throwing things off. AI is throwing things off. And of course, it is earnings season. But some weird shit is happening again in the market, and it's been happening all year. Would you like to explain the market? Well, how could this be? Well, first of all, this is why indexing rules. You don't have to worry about any of this. It's just going to work out and the net result of the index is up. That's great. At the Vanguard event I was at, there was a reminder of that Bessenbinder study where 4 % of the stocks create all the wealth. I mean, if half the stocks can't even keep up with treasuries, there's something similar here.

22:54A lot of stocks just aren't that good, you know, and you have a couple that just drive the market. This is why it is important, arguably, to market cap weight if you do index. Equal weighting can be good at times, though. You know, if you think there's going to be, I feel like every fourth year, the little guys have to catch up. International has to catch up. Tactically equal weight,

23:13Downtown Josh Brown:but strategically market cap weight. Yeah, I mean, I just did a note today looking at ARK. And if ARK had just let their winners run, NVIDIA, Bitcoin, Tesla. That was good stuff. It would have been the greatest active managing performance ever. But they have a discipline rebalancing, like equal weighting. And the equal weighted index - So they're cutting their winners. You compared her to Barron. Barron didn't. Barron let Tesla take over the whole fund. So Tesla was a 50 % weighting at one point. Yeah. But Barron's up 750 % in 10 years. The only active manager that we found that has beaten the Qs.

23:47That's how hard it is. And he did it just by letting, and Kathy had NVIDIA and Bitcoin too, by the way. Those were up 5X Tesla. So she had a good eye and she was an ETF because Barron got no flows because they did it all in a mutual fund. So Kathy had the good eye to be in an ETF and have those picks. But the rebalancing, I think, held her back from just totally exploding. Interesting tale in rebalancing being absolutely critical. Coupling stock picking. You got to know when you have a real winner. Don't mess with success. You know what I mean? Is ARK systematically rebalancing now? It's like when we traded Jimmy Butler.

24:25Why would you trade Jimmy Butler? It makes no sense.

24:27Michael Batnick:Can buy a tower silver million?

24:29Downtown Josh Brown:Hold on. But is ARK systematically rebalancing? or it's their own kind of internal time to rebound? So from what I know, they have a lot of pay, like 35 stocks, right? They may like that small biotech stock a lot too. So if Tesla does well, you take your profits to keep it at 11%, 12%, then you can buy a little more of that other stock you like that went down. But the problem is just like equal weighting, you end up funneling money to stuff that isn't doing that well and taking it away from the stuff that's just gonna keep winning and winning. and that's why equal weighted underperformed market cap weighted since 90 by about a thousand percentage points, even though it has good runs and it's logical.

25:10If you told somebody this, you're like, makes a lot of sense, let's take profits because you don't know what's going to happen in the future. But it's almost like it's counterintuitive to just like let this thing just like take over. It's interrupting the compounding.

25:22Downtown Josh Brown:Yes. The thing is though, we're in a fairly rare period where we have the same market leaders for like the 15th consecutive. Yeah, this is unusual. Well, this is another point that we brought up with the MAG-7 being 35 % of the index because like, oh, is it concentrated? I think that they don't really – it doesn't seem like they enforce antitrust laws anymore. No, they did try under Biden, but it didn't work. Well, because we looked inside. You know, the MAG-7 has acquired 850 companies. Wow. And some of these are massive, right, like MGM and Whole Foods. And like Google, we look, YouTube would be like the 20th biggest stock if they spun it out.

26:01And that's one of 270 acquisitions by Google. So if you look at the MAG 7 is 70 companies, you chill out a little more. Plus, America isn't even that concentrated versus other markets. So a lot of what we do on our team is because there's so much like hysteria and hyper, what's the word I'm looking for? Hyperbolics.

26:22Downtown Josh Brown:Hyperbole. Hyperbole out there. and histrionics that we're trying to like make everybody just calm down because you can midwit overthink this yeah you could just midwit yourself into the poor house whereas the jedi and the dumb dumb are like hey u.s stocks are good it's just not complicated same thing with bitcoin these guys are like oh it's it i was like look if you really believe in it you like it all right well buy the book jeez well no but it's a really it's but it might just own a couple good things in fact most Most of the people who go to like the business schools and the CFA, they really should incorporate like patience trainings and like just time and how to like let time pass.

26:59Because I think half the battle here is just not messing with it. The art of doing nothing, which is the last chapter in the Bogle effect. There's another plug for you.

27:08Downtown Josh Brown:But it's a really important point that you make. And back to the thing with like, um, you know, Facebook bought Instagram and, and Google bought YouTube and people, people in the antitrust side will say, well, if those companies had grown up to be their own thing, you know, X would be worth it. But then you have to remind yourself, oh, wait a minute. The reason why Instagram has billions of users is because it got sucked into the Facebook vortex and then all these people were pushed to it. Obviously, Google search rankings have helped YouTube become the largest video platform. It wasn't a guarantee that they were going to own that spot.

27:46Downtown Josh Brown:I don't know, 20 some odd years after the thing was formed. So we don't enforce antitrust. We are forced to invest in companies that are themselves collections of companies, but we shouldn't pretend like they didn't create these monsters themselves. It wasn't like they were just allowed to buy things. They built them. These were built products. Absolutely. But I look back up, I was the last market leader GE. I'm pretty sure. Anyway, I look back at the last time, the number one stock, I think it was GE was like the number one stock in the S &P. Right? Is that right? Yeah. In like basically about 20 years ago.

28:22And GE all told acquired 70 companies. Yeah. Also a conglomerate. Yeah, but not 270. Right. Yeah. I see.

28:29Michael Batnick:So one of the reasons why this is happening is because obviously AI is distorting everything. Yeah. Creating mega winners and mega losers. There is so much dispersion within the index right now, especially within tech. John, throw this up. This is from Barclays Derivative Research, sources Bloomberg. Average big tech dispersion. So they're showing that big tech earnings dispersion has surged around recent announcements with Q1 2026 standing out as the highest on record. Datadog yesterday or today was up like 30-something percent. Today. Today?

29:02Downtown Josh Brown:Yeah.

29:02Michael Batnick:The software names are catching a monster bid.

29:04Downtown Josh Brown:Fortinet, 21 % today up after earnings. And then you can find one that's absolutely crunched. So it's all over the map.

29:13Michael Batnick:Lastly, in terms of the calming down, the hysteria, which I know you love to do, so do I, there was a lot of talk about a bubble. Is this a bubble? Is this like the 90s? We were talking about this yesterday. To me, I know like, listen, I throw down the word bubble like casually, but if you're actually debating it, to me, the meaning of the word bubble is prices today for which you cannot possibly, plausibly justify at any fundamental future state. And that's just not where we are today, in my opinion. I think that the prices for a lot of these companies, even though the price seems to be egregious, look what the earnings are doing.

29:51Michael Batnick:And maybe the earnings are temporary, but the price is responding to the earnings. So last thing, Eric, and then you can go. Somebody made this chart, BlueCurtic Market Insights.

29:59Downtown Josh Brown:You could leave after this, he said.

30:00Michael Batnick:BlueCurtic Market Insights has a chart of the NASDAQ 100 showing the annual count of a daily plus or minus 1 % move. And there are 17 updates in the NASDAQ 100 so far year to date. and in 2000, there was 103. And in 1999, there was 69. And the year before that, there was 62. We are not seeing anywhere near the type of euphoric price action, indiscriminate buying that we saw in the late 90s.

30:26Downtown Josh Brown:I'd love to see you rerun this, but just with the socks. Yeah, the socks are going mental. The socks would look like 1999. Sorry, it definitely would. Yeah. Right. Yeah, I mean, a guy on our team who he left, but he did a study and found that they weren't quite as stretched as the four horsemen in the late 90s. But they're stretched. So the problem is people were saying this 200 % ago too. So like, when do you pull the trigger? My thesis is if you are that nervous about equity valuations, you think like, instead of calling a top and like rooting for like chaos, just buy more cash or buy hard assets, or maybe you could even buy like put options.

31:10Like, I think there's a way to be optimistic stocks and be ready for the fall versus being the Mr. Big Short guy. I think that's where I would go. But - Depends on what you,

31:19Downtown Josh Brown:if you were selling a newsletter, you need to. Seriously. If your job is, this is my sub stack. Yes. And I need to call the top. And then when it goes against me, I need to get increasingly negative. Yeah. Oh, no, I see it. I see it. The problem with that is somebody should invent a service that keeps track of them like batting averages. I mean, and then when they go on TV, it says, oh, I'm batting, you know, 0.07%. It's just like, you know, the opportunity cost of listening to somebody who has had 20 top calls that are wrong is astronomical. But here's the thing. I don't think anybody's listening anymore.

31:56I even see the headlines and the columnists and the economists. it's especially heavy under trump because a lot of stuff makes everyone like oh my god everything's going to hell but like the vu people uh ivv even spider like all of the cheap beta people are unfazed uh etfs took in a record amount of money last year and they're about to break that record again this year what are those records okay so there's three major records flows volume and launches. Last year saw 1.5 trillion in flows, 1 ,100 launches. That's four a day. I know. Job security. Oh my God. 1 ,100 ETFs launched last year? Yeah.

32:40I remember once we were at a, we were at inside ETFs. We were outside at the, yeah. We were outside one of those fire pits and smart beta was all the rage and you leaned back, kind of took your sip, your drink. He's like, we need a new factor.

32:52Downtown Josh Brown:Yeah. I did say that. I was at 2015. Turns out I invented it. We'll talk about it in a little while. So volume was 65 trillion last year. All those were 20 % over the old record. This year they're headed for 2 trillion, 90 trillion in volume, which is, and about 1200 launches. So everybody's happy. Who's like retail advisors. They seem to be not, I wish there was a way to measure the sentiment from people who are buying holders, the vanguardians of the world versus the headlines. The gap is so wide right now. It's weird. So I don't know what to say. Like, I think you're right. You get more clicks and more attention if you're like, oh man, it's time to worry.

33:34But we've, on our team, we keep throwing these headlines in the chat and like, oh, here we go again. And the market goes up 20 % after that. So it's just difficult because nobody knows the future.

33:44Downtown Josh Brown:I do. You want to know what's going to send people into a rage? I'll tell you the future right now. Go ahead. I'm not going to tell you what it's going to mean for prices, but here's what's going to happen. This is really going to send people off the deep end. The people who have been naysaying the bull market, not even for 10 years, like for 10 months, this is going to really piss them off. When this Iranian thing fizzles out without some sort of catastrophe, price of oil probably doesn't hover back down to 60, but maybe just sticks around 70s, 80s. Okay, no major conflagration, no real ceasefire.

34:19Downtown Josh Brown:It just kind of is. Okay, that's an outcome that the bearers don't love. Then we don't get a private credit blow up. We don't get a private equity blow up. We don't get like one of these major funds like literally going to zero. So that doesn't happen. So you get gas prices come down, no private equity blow up. Earnings continue to grow throughout the rest of the year. And then SpaceX comes public, doesn't blow a hole in the side of the NASDAQ. Open AI comes public, doesn't destroy everybody who invests in it. And if you're bearish throughout all of this and every one of these things represents the reason for the next bear market, right?

34:58Downtown Josh Brown:And none of them plays out for you. That's it. Like, where are we going next? I want one of them - You'll see the next pandemic. Like, what are you even going to say? I have to think there's a, they have to be having internal existential crisis but I also have this other theory that the people saying that literally are long vu like I think everybody's long vu but because you have to get clicks and there's all this noise I don't know I wish you could see people's holdings when they write like I wish at the bottom it told you like exactly what their portfolio is

35:32Michael Batnick:Talov has a great line he said don't tell me what you think show me your portfolio yeah

35:36Downtown Josh Brown:so there's a lot of noise out there a wholesaler for one of the big three index providers who shall remain nameless a million years ago once told me about all the macro hedge fund masters who had index portfolios set up like very quietly. Now, they also owned a ton of their own hedge funds. So it's not like they weren't also eating their own cooking. But I do agree with you. There is some element of like, it feels too good to be true. I'm not selling, but just in case, let me tweet some negative shit out. just to like make it look like I'm not like an insane wild-eyed bull. But wait, was it Morgan Housel who was like being skeptical and negative looks like you care?

36:23Downtown Josh Brown:Yeah. Whereas being optimistic looks reckless. Reckless. And naive. Especially in hindsight if something bad does happen. But, and Tom Lee gets a lot of crap for this because he's very megable. Yeah. But directionally, you would have made a lot more money listening to him even if his price targets weren't hit.

36:40Michael Batnick:The risk of embarrassing ourselves, we are at all-time highs and we're being very positive and very negative to the bears, you know, understandably so. There is some weird shit happening at the index level to make room for SpaceX. What's going on? Because I don't know that the market can survive a trillion-dollar IPO at this point.

36:54Downtown Josh Brown:Can it? It's not a trillion dollars, though. It's the amount of money they raise.

36:58Michael Batnick:How much money does it need to raise? Between that and Anthropic. How much money will it, like when it enters the market? What's SpaceX looking to raise? What are they saying? Is it$100 billion? What are they looking at? Well, I heard they was going to IPO at$1 to$2 trillion. So how much are they selling? I don't know. Well, figure 10 to 15%. All right, so 100 to 200 billion. You think there's not a... Oh my God. The stock market, what is it? 80 trillion or something? What's the size of the US? I think there's 100 trillion for...

37:22Downtown Josh Brown:I think there's a... I don't think they're raising that much because they've raised so much money in the private market. Yeah. They have so many shareholders. They have a lot of people who think they're shareholders but aren't. Yeah. Which is a whole other interesting thing that's going to happen with all the SPVs and all the Russian doll. Like how many versions of this SPV? TV is investing on someone else's balance sheet. But like, I, I feel like, I feel like it's so obvious that that should be the market top that it probably won't be. It should be. It's poetic. If you get a trillion and change dollar IPO from Elon Musk, and that is the last day, then as that goes up for the year, it would make perfect sense to me.

38:02Yeah. The other thing is a lot of people who are out there saying all these index fund investors, They don't know what's coming. And I'm like, yeah, we do, honestly.

38:10Downtown Josh Brown:Yeah, 2 % sleeve in SpaceX. Well, no, not even the SpaceX, just in general. It's like, dude, we understand what corrections are. Like we have a diversified portfolio. Like things go down. It doesn't mean it's not good long-term. Like it can go down for a whole year. 2022 is awful. And everything's up after that. Generally speaking, I think, again, I come back to Bogle and Buffett a lot. and both of them are like, you know, just buy U.S. stocks and just wait. Like it's not complicated. And those are the two like masters, right? You can trust them. They're like on like Yoda level of markets. They're not like slinging anything cheap.

38:47And they would say the same thing and they know it's tough to time, but they would say, look, if you can't handle a 50 % drawdown, don't be in stocks. But what's going on the committee level with these names? What do you mean? With SpaceX. Yeah, so SpaceX is, well, so Dave Nadig, who you know well, we had a, not a debate, but we had a discussion on - I know him so well. I call him Dave Noddick. Noddick, yeah. That's how well I know. You say Noddick, I say Noddick. Let's call the whole thing off. Anyway, he'll love this. Okay, so anyway, he doesn't like that NASDAQ's going to change the index to let it in.

39:22I'm a little more liberal on this front because as an investor, I kind of want exposure. Tesla went up, I think, 60 % in the first year, even though it went down a couple of days after the IPO. like things can still go up after it IPOs. But so what if it goes down? The other thing is a lot of IPOs back in the day would have time to grow as small caps, mid caps, large caps. So the index rules made sense. If you're coming in as it's like LeBron going right to the Lakers or I mean the Cavs skipping college. If you're coming in that big and good, you could argue that you skipped a lot of the growing that you would, the rules were made for.

39:57So I don't know, it's complicated. I would just say, you know, investing, be careful.

40:03Downtown Josh Brown:And for the listener, just the controversy that you're describing, SpaceX got some sort of a guarantee by the index provider. How did this whole thing go down? I think it had a vote and it said like, yeah, this is NASDAQ? Yeah. So NASDAQ said to SpaceX, if you go public on our exchange, we'll include you in the NASDAQ 100. I don't know if there was some deal like that. It was, again, it's something like this. They had a vote that they're going to change the rules to let NASDAQ in. I mean, the SpaceX in, I think it's 15 days after the IPO. Now, why is it so important to SpaceX to be included in the index that quickly?

40:36Well, again, there's some - They need the liquidity? Well, because right around that time, BlackRock and State Street both filed for their own version of the Qs. So the thesis, this is a thesis, we can't prove it, but the idea is that a lot of the asset managers have a lot of demand for SpaceX, but they don't want to go like Ron Baron and like just shove it in one of their funds. That's not their style. But if it's in the Qs and they have Q's products, then they can have their wholesalers have SpaceX somewhere.

41:02Downtown Josh Brown:Can I ask you a tangential question to that? Michael and I noticed this, and I didn't bother clauding it, so you'll be my Claude. Why all of a sudden are there these competing NASDAQ 100 funds coming out? Was there some sort of moratorium on them being able to? There's a lot of theories here. We get into some real, like... What are the theories? Okay. One theory is that when... Let's back up. So Invesco owns... The triple Q. Yeah. It used to be power shares. Yeah. Or Invesco swallowed power shares. Or they are power shares. But then Invesco had a vote that turned it into an open-end fund. Okay.

41:40And by doing that, there's no more forced marketing dollars. And there's some people think that might have upset NASDAQ because it means the Qs aren't going to be marketed as much. Because when you're an open-end fund, it's better for Invesco because they get more revenue. Unit Trust has earmarked money for marketing, like a 12B1 fee. open-end ETFs don't. And a couple of the early ETFs, like the Qs and SPY, are earmarked as their unit trust. So they have an earmark for marketing. There's a guaranteed amount of money that should be spent for the funnel for. Yes. All right. So if they go to an open-end fund, that goes away.

42:13So there's, that happens. When do they make that change? That was six months ago, five months ago. Did an investor go break even on the Qs or something like that? I don't know. Like NASDAQ got most of the economics.

42:24Downtown Josh Brown:Yeah, yeah, yeah, yeah. Okay, famously. Yeah. So then I did not know if there was some special exclusive contract, but all I know is iShares followed for a Q's product and then State Street did. This all happened around when NASDAQ also said we're going to let SpaceX in within 15 days. So I'm not sure which of these dots are connected or if they're just coincidental, but something's up. So clearly, I think the Q's is going to be how maybe some of the big ETF providers are able to say we have SpaceX too. because listen, the thing with private credit and private equity, private credit came out, nobody really cared, but private equity is sexy.

43:02SpaceX is sexy. People know this company and they know OpenAI, they know Neuralink, they want some of this. And these companies aren't going public anymore, so they can't get them in small caps really. And so the private equity area is pretty sought after. And - The venture-backed, venture-backed private equity. And going to space and doing all this stuff is, is everybody sees it as a growth industry. So I don't blame people for wanting SpaceX exposure. Like it's pretty natural to me. But the thing is, at some point, all the people in early are looking to exit, get their money. And does that cause the price to go down?

43:39And do retail get hurt?

43:40Downtown Josh Brown:That's why SpaceX cares what index they're in. Because if you're not at an index, you're not going to have the liquidity for a thousand shareholders to exit inside of the first year. And when I say a thousand shareholders, I don't mean retail. I mean funds that have been invested in SpaceX for 10 years. And that's sort of the point of the IPO. They could raise money privately indefinitely, I assume. Yeah. Okay. So the actual point of the IPO is exit liquidity. Yeah. For people that have been in this thing forever, took a huge swing. Yes, they've made money. It wasn't guaranteed that they would make money.

44:15Downtown Josh Brown:Yeah. And now they want to take a profit. They have their own investors and their own funds. That's the purpose of this going public now. The other thing that I think is that it's important to them what index they're in because they don't want to have something that drops in half because everybody's trying to sell that's been, you know, it's a long-lived asset. Most companies aren't private for this long and don't get this big. It's totally unusual. So it should have an unusual index inclusion situation. I'm more okay with it. I I understand other people's pushback on it because indexes are all about rules.

44:51And if you change the rules, it's people get touchy. There's also people that just flat out don't like him or don't trust him. That's the thing. When it comes to Elon or the administration, you have to say like, do you have to sort of do some math? Does this person just hate Elon? Yes. And you have to do like calculus. It sucks. I hate to have them do that, but it's a good point.

45:11Michael Batnick:So, Eric, from 2014 to 2019, 20, whatever, your coverage was sort of boring. Now that you were doing anything wrong, I just mean the industry was boring. It was the race to zero. Yeah. There was no new launches. Smart beta.

45:26Downtown Josh Brown:It was all about passive, passive. It was exhaustively boring.

45:31Michael Batnick:And Hot Sauce entered the chat.

45:33Downtown Josh Brown:Exhaustively boring. It was.

45:35Michael Batnick:Weren't you bored in 2017? The reason I liked it is I always saw Vanguard and the sort of push for cheaper fee wars as punk rock. It was something that came in and it was so brutal and it kind of made everyone on Wall Street a little nervous. And I thought that was interesting. It was a huge disruption. So there was conflict and some punk rock in that whole movement.

45:58Downtown Josh Brown:Duncan and I didn't think that your podcast was nearly as boring as Michael did. Not as podcast, not as podcast as coverage. So the other thing is that fee war created what is now investor utopia. We have just arrived at the greatest time to ever be an investor. You can get everything for under five bips. It's done. That's why this tokenization stuff, I'm like, easy. Market exposure is solved. It's free. Yeah, I'm like, easy. I don't have to get out of bed. I used to say, you can just roll out of bed and grab your phone. You can grab your phone in bed, type in this and own anything in the world for like under five bips in a second.

46:37commission free. We're so jaded. Nobody cares. I know, but that's, that's amazing. And I agree. I agree. People have to sometimes remember how that took a long time to get to. Eric,

46:46Downtown Josh Brown:people that never called a broker on the phone. How much did it cost to buy a mutual fund back in the day?

46:52Michael Batnick:The transaction fee.

46:53Downtown Josh Brown:So I don't think I've ever told this story here before and it only takes 10 seconds to tell. The first time I ever bought a stock ever, ever. I was 18 and I called my dad's broker and his name was Jerry. He was at Merrill Lynch in like Huntington, Long Island. And just mocking me the entire time. Like, oh yeah, you want to buy? What do you want to buy? Like, and I don't even blame him. Like looking back in hindsight, I don't blame him. I totally get it. It's like, oh, I got to take this call. My f***ing client's son. Hang on. Hang on a sec, guys. I can almost picture the golf putter in his hand as, you know, the cordless phone in between his chin and his shoulder.

47:35Downtown Josh Brown:So I, for whatever reason, I gave him some ticker symbol of some stupid oil stock. Somebody told me to buy. The whole experience was so humiliating. And I knew it at the time. I was old enough to know that I was being mocked, right? Most people even aren't. And then, of course, the stock goes down five points. It was like 13, I went to eight. I was so humiliated by the purchase. I was afraid to call him and ask him why it was down. And like, that stuck with me. So I'm with you. Anytime I see somebody creating ways for people to not have to go through that and be able to invest, I do think it's punk rock.

48:11Downtown Josh Brown:I do think it's cool. And we probably take for granted how much easier it is today for an 18-year-old to put their first trade in and not feel like a total f***ing asshole versus even 25 years ago or maybe even 15 years ago. How do you like me now, Jerry? So, yeah.

48:28Michael Batnick:By the way, speaking of punk rock.

48:29Downtown Josh Brown:Jerry's probably a fan of the show now.

48:31Michael Batnick:Speaking of punk rock, you make the best metaphors with music, with ETFs. Have you not been to a concert at Future Proof? No. Well, okay. I feel like we haven't seen you. First of all, the Future Proof, you tend to have it right after Labor Day. Yeah. Is that a big one for you? Well, it's the first week of school. I have two young kids. It's a weird time. I got to go out there. It looks great. And you have the one in Miami that competes with Vettify. We're two weeks. I'm not sure that's going to happen.

48:56Downtown Josh Brown:We're two weeks after Labor Day this year. But I went to the first one when it was called what? no no no no it wasn't called future proof no don't even try it this was like when Pearl Jam was called on a Friday no no no Radiohead was called on a Friday you're thinking of Wealth Stack different event yeah that was not this yeah it was close it wasn't close because I was on stage like what were the similarities it was the same core group we're outside now yeah I don't think so

49:23Michael Batnick:in the words of well we invented that one too Eric in the words of Nicky Santoro I'm over here now Okay Alright hot sauce So The Yeah It got a lot more interesting For sure The fees have bottomed

49:36Downtown Josh Brown:He just squirmed out He didn't even confirm That he's gonna come to a future He's not coming It's like the 15th

49:42Michael Batnick:No but the concerts dude The music Yeah I know Who'd you get last year? It was like somebody pretty good We had Bush Better than Ezra Bush In Miami we had Better than Ezra

49:51Downtown Josh Brown:What was the name of the band? We never had Better than Ezra Oh we Ezra Ray We had So it's like a comedy It's Mark McGrath from Sugar Ray with the guys from Better Than Ezra and Tonic. I call that Gen X Yacht Rock.

50:06Michael Batnick:You would have loved it. You need to get Hootie next time

50:08Downtown Josh Brown:and Toad the Westbrook.

50:10Michael Batnick:We had Blues Traveler and Bush. It was so good.

50:12Downtown Josh Brown:We had Third Eye Blind. We've had some amazing... Listen, tell me, was Bush closed with Come Down? Or was it the My Brother in L.A. song? He was so good, dude. He opened with Everything's End. They have like five bangers. Calm Down was probably the closer. Yeah, it's a good song. And I think they did Glisser in like two songs before. Yeah. It was a great closing.

50:33Michael Batnick:No, Machine Head was the opener. Oh, they opened with Machine Head. You're right. This is the first strum on the guitar. Oh my God. You got to come. All right. So fees have bottomed. Chart five, please. The asset weighted ETF expense ratio has made a, in my opinion, a, well, permanence is tough because there's so much money coming into the free ETFs. But whatever. It's made a local bottom because there's new hot shit.

50:56Downtown Josh Brown:But like things are things are thingy. The average fee bottom that is now lifting off the bottom slowly. Yeah, this was the scariest chart on Wall Street because it's like it's sort of like the rising sea levels. When's this going to stop? Are we in trouble? 17 bips looks like it's where it's bottomed. And the reason it's going up is you do have a good chunk of money going into the Degen hot sauce. That all charges 1%. The buffers, they all charge 90 bips. And then Legacy Active is charging 30 to 40. I'm going to go into the, oh, the D-gen. D-gen. He said D-gen like it's French. D-gen. Do you say D-gen?

51:32I say D-gen. I've never heard D-gen. It's degenerate, but everyone says D-gen. Yeah, but I'm saying, okay. He said the D-gen. No, I said D-gen. Yeah, they say gasoline. That's literally part of the word degenerate. Yeah. No, you're right.

51:45Downtown Josh Brown:Listen, do you say potato? You ever see on The Simpsons when Moe is making fun of Homer for saying, Oh, your garage. What do you call it? A car hole.

52:00Downtown Josh Brown:Oh, that's good. That's good. So the 1100 ECFs that launched last year, a lot of them are nowhere near a five basis point. Like, these are 70 basis point active things. I call it the hot sauce arms race. Yes. Because a lot of them will not make it. In fact, Ethan on my team did a good study of like, so many are launching. There's like 452X stock ETFs now, but there's only like 40 billion. So it's like 100 million or something per ETF. On average, there's 3 billion per ETF. So in other words, it's flooded with supply, but you only need one hit to make it. So like GraniteShares launched 2X NVIDIA.

52:38It's got like 5 billion. That makes that person 50 million a year in revenue. So you just need one. So they're going to, as Ben Johnson put it, fire up the spaghetti cannon. and just go crazy.

52:49Downtown Josh Brown:What does it cost to keep these almost dead ETFs alive? Very little, right? Very little, but they, I would say around at 1%, maybe 30 million you need to have a break-even point. Which means they can all basically trade forever. Here's what's also brilliant. Most of them are long. So a lot of these guys came with quantum computing 2X and I was like, oh, are these going to sell? First of all, there was enough interest because they go up a lot. The volatility on some of these is like 20X the S &P. I mean, it's like the ghost pepper of like hot sauce. Anyway, they pick US stocks that are in growthy areas.

53:24So you get a little bit of flows. Then the market appreciation gives you assets too. So you're profitable. You only need a little bit of flows. And then the market appreciation, you're set.

53:36Downtown Josh Brown:I was talking to the guys that launched. I was talking to the guys that launched. I guess the skill is either A, being so efficient that you could launch a ton of shit or B, be a really highly attuned, almost like a tastemaker or not a tastemaker. I know what you're saying. Somebody that just like sees, oh, everyone's going to be into that. You got to skate to where the ETF is going. Yeah, they used to have these people at big brands. They'd have like somebody who just knows what the cool things are. You have to have a good ear to the ground for what, and Tuttle is a good example. Yeah. He says, he is kind of a degenerator.

54:15He'll admit it. And he makes products that he would like to trade. So I don't know if someone who's like from the legacy asset management could do this well. You kind of have to be one of those people.

54:24Downtown Josh Brown:The Roundhill guys are great at this. They're great at the DRAM thing. They just broke 2 billion. That's it. By the way, this is an insane story. Brilliant though. Brilliant. Tell the story. So the memory trade, which is these three memory stocks, Micron, SK Hynix, and Samsung. Sandisk. Oh, Samsung. Right. They control 95 % of the memory. And these AI data centers are desperate for high bandwidth memory. So obviously there's demand. But you couldn't get all three in an ETF. You could get two of them in the South Korea ETF. So people started buying that. Roundhill noticed and was like, wait, why don't we do one and throw Micron in there?

55:02And we'll jack up the weightings using swaps because the diversification rules make it tricky. So they give you like 67, 65 % of the portfolio. It was just those three companies. And it's the only one that gives you all three at that waiting. And it came out and I was a little like asleep at the wheel. I was shocked. It traded 250 million the first day. I'm like, what? These are crazy numbers. Now, yesterday it traded like more than Chevron. Like it's trading like in the billions in a month and it's got 3 billion in assets. This is insane for a theme ETF. It's the best debut by a mile.

55:36Downtown Josh Brown:These are the guys that did meta so early that Zuckerberg had to buy the ticker. Yeah, which by the way, that just happened with SpaceX. We've had Will Hershey on the show. Did you hear that Tuttle had the SPAC ETF? Okay. That he never closed. The ticker was SPCX. So they want it for SpaceX. So he, well, the SPAC ETF was like living in oblivion. Yeah. But instead of closing it, he let it hang around just in case. And it just changed tickers to something else, which I can't prove it, but that would indicate that they did buy it for SpaceX. Oh, interesting. So that's a whole, so I think the issuers are out there now.

56:09Downtown Josh Brown:So reserving tickers for private companies. I was going to say, if I buy that ETF right now, will I get SpaceX? No, no, not at all. You'll get a really like beat up SPAC product. You'll get a not available message on your brokerage account because you can't do it. But hot sauce, we have a thesis that, you know, a lot of the portfolios have gotten pretty, people have stopped dating five-star managers and they've gotten married to like Vu and BND. And they're like, I love this portfolio. I am off the market and I'm going to be with this for 50 years. but they want to have a little speculative fun on the top.

56:44You still want to have a fling. They want to have their flings. Couldn't agree more. So people have the fun account. They have trading and they went wild and crazy there. So I think the hot sauce -

56:53Downtown Josh Brown:Who is the Ashley Madison of ETF issuers? Oh my God. He can't tell you. These people are in his coverage universe. I agree with that. I agree with that. People are, you know what? Because you asked the question, you asked this question earlier about Bitcoin. Why can't people just be both? I have always said this. Why can't someone say with 80 % of my money, I want a low cost, tax efficient, index, market cap weighted portfolio. And then with 20%, I want to core and explore and I want to do other stuff that's not representative within the index. And why do I have to be part of a tribe? And most people, they don't even, they're not even, most people are not even burdened with that question.

57:36Downtown Josh Brown:They just do whatever they want. Who's paying attention? The flows would tell you that's what people are doing. 80 % goes to cheap something, active or passive, and 20 % goes to hot sauce. Give me chart six, John. By the way. This is yours. So this illustrates this point, I think, pretty well. What you're saying here is. Well, this is. This number, right? This is the fact. The number of funds. There's more active ETFs than passive ones now. Okay. Look at that. That is crazy. Isn't that crazy? This is not dollars. This is number of funds. This is just number of funds. But what's crazy about this is there was literally no market for active ETFs as recently as 10, 11 years ago.

58:16Yeah, look at the gap. I know. So by the way, that white line is only 10 % asset share. So there's obviously this huge flooding of active products because try competing with the other line. What are you going to do? Like fight Vanguard and BlackRock? You can't make it. It's too brutal.

58:32Downtown Josh Brown:Game's over. So that's where you have to launch. but the one, do you have the chart that has the beta adjusted fee demarcation line? By the way, okay, listen to me, listen, no, no. This is my E equals MC squared. All right, walk us through this. I need a catchy moniker for this. So if you have something better than beta - I got you covered because it's terrible. Okay, why did active equity stock pickers finally make it in ETFs? Because that was a big thing. They could never break through. Nah. Yeah. Kathy. Yes. Well, Kathy was one example, but now you got DFA. You've got Capital Group, JP Morgan.

59:11Why are they all - Because she proved that it could work. I'm telling you, it's her. Yeah, but there's another thesis here, which is this. Okay. If you look at active share and expense ratio, and you draw a 45 degree angle, a line, and you look at the most successful products, and you look at where products see outflows, if you're above that, you're in the mix. You can get money. If you're below that, it's very difficult. Why? Because Vanguard made beta free. So you cannot charge for beta. Stop, stop.

59:42Downtown Josh Brown:This is saying the more active you are. The more you can charge. The more you can charge. Isn't that logic? Because people have no fee sensitivity in hot sauce. But once you get into the core, people are very fee sensitive. Wait, but isn't a better way to say this though? Go ahead. Cheap or shiny? No, I think it's retail advisor. Yeah, but I think even an advisor, if they're going to - So, let's stop. I got to go off mic for a second. This is where the advisors live. Sorry. This is where the advisors live. Yeah, yeah. Very inactive. Therefore, the advisors can explain to their clients - Yeah, yeah.

1:00:19Downtown Josh Brown:Like what the fund is going to do, what it mimics. Yeah. Okay. The advisors don't live here. Yeah. They don't want that level of active. You're right. Okay. you know who buys this shit that you know buys this shit people that really do want something that deviates from the market because they're not baking it into um a back test for a financial plan yeah i mean am i crazy i i agree with you okay and dfa rules and capital group's very good at that too i would call that like it's low it has less career risk yeah if you're low that's what trying to say. If you have to explain yourself, you're not doing that.

1:00:57But back in the day, all those tickers would be in the lower right-hand corner. Because they'd be mutual funds. Yes. And you wouldn't buy them. So if DFAC was over on the lower right-hand corner, you wouldn't buy it because you're like, why am I buying beta for 90 bips? Too expensive and too close to the benchmark. Yes. So here's my metaphor. It's like a bag of potato chips. Just charge me for the chips, not the air. Oh, that's good. That's very good. That if you do that, you can make it in this world as a non beta person.

1:01:28Downtown Josh Brown:So your message is, this is really important. Your message is, if you're going to launch an active ETF, be very active. And then you don't have to explain why it's priced where it's priced. That's why half the launches are wild and crazy. All right.

1:01:44Michael Batnick:So earlier I said what I think a bubble is, but there is another part of a bubble, which is the behavior, right? The way that investors are behaving. And right now our boy Todd Stone has a chart that shows here comes the two X Hynix funds. Let's do it. We're looking at the one year percent change. I've been waiting on this for a minute. Of the Bloomberg of flows into some of these ETFs. Um, and I thought it was kidding by the way, multiple ETFs, literally a file for the two X. And most of our listeners don't even know who SK Hynix is. It's a South Korean memory stock. It's basically that in Samsung or 50 % of that index.

1:02:20Michael Batnick:But the flows, the one year flows are completely off the charts, completely insane. And this is euphoric behavior. Yeah, well, that's the price. There haven't been any launched. They're dying to get those launched. However, however, just filed. Those are just filings. Okay, so all the stuff he has there is the percent performance. We don't have flows. Believe me, it will be a hit. But I've got a great data point for you. We have a note coming out on this this week from Rebecca in Asia. The SK Hynix, there's a 2X version in Hong Kong. it's so popular because especially in South Korea, where the Dijen per capita is like through the roof, certain Asian countries love to gamble.

1:02:58This ETF is the fourth biggest in the country already. It's 8 % of the whole ETF market. 2X SK Hynix is the biggest ETF in the country?

1:03:09Downtown Josh Brown:Fourth biggest. Fourth biggest. But it's just, it's not even a year old. Think about that. That would be the equivalent of launching 2X Tesla here. and all of a sudden it's as big as VTI. But can I ask you, but can I ask? The percentage of the weighting of that market of this one ticker is absurd. But can I ask you an obvious question? Can't that dollar amount in that fund get cut in half in one day? Yeah, if there's a 50 % drawdown. Okay, I own a stock. Wait, if it gets cut in half, where does the money go? It goes somewhere else. No, but I'm just making the point. I own a stock called Shake Shack.

1:03:47Downtown Josh Brown:It fell 35 % today. Wait a minute. Well, you mean in your index or you have a stock picker account? No, I own it personally. I don't own it like professionally. Is it a hedge? Is it a hedge? Yeah, it's a hedge against me being dangerously malnourished. There's a New York City ETF that Ethan might buy to hedge his rent. So that stock fell 30. I don't think it closed down 35%. but my point is that can happen to any stock at any time. That ETF will lose half of the dollars in there. And South Korea will be in an hour. It'll be in the country. We'll go into a great depression. That's part of the fun.

1:04:25Downtown Josh Brown:But I'm just making the point. Oh, you know what? You know what else I was thinking about? I wanted to ask you, there's a difference between an RIA getting to$10 billion versus an ETF getting to$10 billion. Oh yeah. Because the RIA, even if they're giving horrible advice, it does not have the potential to go to 5 billion. An ETF that can happen in a week. One allocator says, you know what? We're switching from this fund to that fund. Yeah. It's not, these things are not equivalent.

1:04:55Michael Batnick:Eric, I was talking to a friend of mine yesterday who runs a big giant asset management company and one of their popular ETFs has a ton of money in it. And he said to the CFO, just model it at 50 % less. Like for cashflow purposes, just pretend we're at half.

1:05:11Downtown Josh Brown:Because it's a mirage. It's not like AUM, like, oh, we raised this money client by client. This happened with DXJ and ARK. These were flavor of the month for a while. They went from nothing to, I don't know, let's just say 20, 30 billion, but then down to like seven. Now people are like, oh my God, it's a failure. I would say, no, just draw the line from nothingness to 7 billion and you're fine. It's sort of like, it's better to have loved and lost and be at 7 billion than to have never loved at all and be in oblivion. So some of these products come out and they're - But finish that thought, wait a minute, finish that thought though.

1:05:46Downtown Josh Brown:An investment firm that goes from 30 billion to 7 billion. Yeah. It's like the Titanic. Yeah. That's the difference between ETFAUM and - 100%. You guys are in a different boat. Okay. And that's why - I agree. I've always thought this, like the advisors understand psychology and emotions that like the asset managers really don't. They're just putting products out. You're supposed to use use them as you see fit. They're just fulfilling demand in the marketplace. Some of these are used by direct retail, though. They don't need to worry about you. A lot of these are direct retail. They're bypassing you.

1:06:21But you guys have different needs, but you're very well represented in the ETF flows. That's why VTI and VU and SPYM and GLD, a lot of those are like, in fact, most of the flows goes to this stuff. I mean, it's just, what else can you say? Like, okay, VU is great. It took it takes in VU grows at 1.25 billion a day

1:06:44Downtown Josh Brown:isn't that crazy almost no matter what where do you think that money's coming from

1:06:47Michael Batnick:is it coming from 401k rollovers is that part of it everything okay it's coming from target date funds it's coming from just vanguardians who feel nothing you know they're just like robo advisors but it's 1.25 billion a day into just that one fund it's so much money well it's about 800 million a day the other part is asset growth because it went from like $560 billion to like$900 billion in a year. Like it's grown more than a billion a day in the past year. But the flows have never been seen. $750 million a day is crazy. That's just in flows, even if it goes down. So it takes in, I don't know,$150 billion a year.

1:07:30This year, it could be a little higher. It's really remarkable. It's crazy.

1:07:33Downtown Josh Brown:Yeah. But it's such a, if there's a perfect ETF, it might be that. You could say VTI, but then with VTI, you get small caps. Bogle tended to lean on -

1:07:44Michael Batnick:It's the same thing. Who cares? Well, the reason - Are they the same price? In Buffett's - Are they both three? What are they, three basis points? Yeah, they're both three. Okay. VTI is a little better for behavioral because if small caps have a good run or value, you don't have to worry about it. You own it. Right. But for people who can stand a little small cap regime change for a minute, Buffett would probably recommend Vu because in his letter to Berkshire investors like 10 years ago, he said, just buy the S &P. This is three years. Nobody cares. It's the exact same thing. Yeah, it doesn't matter really at the end of the day.

1:08:19I mean, well.

1:08:21Michael Batnick:I want to ask you about the prediction market ETFs. Yeah. So I think that if there is enough liquidity, this is not my idea, but I think it's a good one. Let's say that there's enough liquidity on some of these exchanges where let's say that there's contracts that have$10 million of liquidity, whatever the number is. And there's an ETF that buys up every single yes for anything trading over 85 cents. Because if something's over 85 cents, it probably happens not 15 % of the time, but let's say 12 % of the time. All right, great. That's a 12 % annual return, even if there's some slippage, 10%. And then you could get more aggressive, say, no, no, I only want to buy things that have a 70 % outcome.

1:08:59Michael Batnick:And then you could slice it up and say, I want to do that, but only for sports. And then you could say, I only want to buy the guarantees. So I want to buy the 95 cents NFL favorites and I will make my four and a half percent return or whatever it is. Like, I think all that's coming. The sports is an interesting one because there's some lawsuits and legislative issue with sports. But the political stuff is the first one they're trying to get past. So how is that going to work?

1:09:25Downtown Josh Brown:Well, they're going to - Wait, wait, wait. An ETF that incorporates bets from the prediction market around politics? Yeah. So the ones that are slated, they actually had an effective date of Monday, but we think they'll probably be pushed back a little bit. I think – Who's launching? Roundhill, Bitwise, and Granite shares. Okay. So the first ones that were slated – again, we don't know if they'll launch – are Republican win in 2028, Republican – or Democrat win in 2028. One's president, one's Senate, one's House – Why can't I just do that on Cauchy like a normal person? Because the ETF is in your brokerage account.

1:09:59It's a brokerage account.

1:10:00Downtown Josh Brown:Yeah. So – And it's a little more trusting. The ability to do this in a brokerage account is the thing. The people said the same thing about crypto. You could have gotten crypto easily. People like ETFs because they're liquid. They're trustworthy. They do what they say they're going to do. People like tickers. They like tickers. They're in the brokerage account. It's just, it's better in the plumbing. People that don't want to move money. That too. Like it's already, my money's at Schwab. I just want to do things at Schwab.

1:10:24Michael Batnick:So if it goes, so whichever outcome, does the ETF just get liquidated after that? Yeah, it'll either roll over to the next one. or liquidate like a termination event. We have things like that.

1:10:34Downtown Josh Brown:We have things like that already, right? Both the bullet shares that are the bond maturity. Yeah, the bonds. Okay. Good one. So we have that structure. The reason, and I want to get your take on this. It's interesting to me that say, you know when there's a presidential election or the Fed and all the analysts come out and say, oh, if Trump wins or Warren wins, this is going to happen. And then like half the time it doesn't happen. like the opposite happens every time basically yeah these eliminate that i love that you just get to bet on the macro event there's no like guesswork you want my take that's what everyone wants and i think it's you're so right you had people buying oil stocks for trump's first term because he was on the he was on the campaign trail saying that things like drill baby drill didn't f***ing mean anything.

1:11:27Downtown Josh Brown:Oil was the worst performing sector in the market. And clean energy crushed under Trump. So even if - It makes no sense. So if you were allocating like, oh, this is my Trump basket. And then this is my Hillary basket. It's almost, it's astrology. It is. Whereas this is like, do you think Trump wins or do you think he loses? And if you think he wins, how much are you willing to risk? Yeah. Or how much do you want to make? Here's what you'll have to risk. It does. That's what everyone wants. Now imagine we could do economic releases. like CPI, Fed. I think all the economic stuff will be prediction marketed, but then we're going to get into some weird stuff.

1:12:04You know, like some of these issuers are going to launch some like, it's going to turn into silly season. Hold on, before the silly season.

1:12:09Downtown Josh Brown:Chalamet breaks up with Jenner. Yeah, what's the name of Taylor Swift, baby? Before the silly season.

1:12:13Michael Batnick:I think that there could be global economic efficiencies created on these platforms. Yeah. And hear me out. The wisdom of the crowd. Surveys are totally broken. Totally. Totally broken. They do not work. If there are legitimate economic data points, things that can bring money to have some clarity there, and not that this is going to move the economy, but like, will Tesla deliver 500 ,000 car units or something like that? But if you could do that at things that matter, I think that we can have some better clarity to what's actually happening in the economy. Yeah, I mean, honestly, this macro guesswork game, so much of it will be irrelevant.

1:12:53Show me the numbers, show me the market. Yeah, you could just bet, like, will there be a recession in 12 months? And like, if you are worried, instead of like hedging with something, so you don't, you could just use that. I mean, some people would argue like the options market allows some of this. You can just buy a put option.

1:13:06Michael Batnick:But now it's so clear. Who do you trust? That or the economists? Yeah, I mean, and I think Polymarket really was born out of the fact that the political polls were really bad. And Polymarket had a better read on like what was happening. So I think people are more open to these being like a real market. But it is interesting. it's a whole new world. And the thing with poly market though, and these prediction markets is it's endless possibilities. Once the ETF and that marries, it's going to be again, ETFs are never a dull moment, man. It's a wild, wild west. It's like, I don't know what's going to happen, but I do think some of these will be bigger hits than people think.

1:13:43Will we be in a place in a couple of years where people are literally using these in their portfolio and it's completely like seen is legitimate. Not sure.

1:13:51Michael Batnick:I don't think so. But I do think for people who are like hedging the market or speculating, these could come in handy because you can eliminate. Yeah.

1:14:00Downtown Josh Brown:The question of whether or not they'll come in handy is going to be a function of the amount of liquidity. Like if there's enough people that are willing to make these bets, which I'm not sure about, it seems like right now there might be for some things and not for others. It's a lot of sports. So we had the CEO of Schwab on stage and we asked him like, would you rule out ever having prediction markets? He said no. But he said like it's 88 % sports betting or whatever. And they don't want to be in sports betting. Yeah. But he did say, we think that there might be investor value to having economic prediction markets.

1:14:36Downtown Josh Brown:That's the CEO of Schwab? CEO of Schwab. So you know they're having meetings about it. They're not dismissing it out of hand. And now, is Schwab going to be the first mover? No.

1:14:46Michael Batnick:Thomas Pederfee at Interactive is - They don't need to be. Pederfee is psychotically bullish on the prediction markets. Is he? Yeah, psychotically bullish. Yeah, I'm leaving a little room for, I don't know, but I would say that the other objection we already addressed, why do you need an ETF? And I think we addressed that. So I think, again, ETFs are the great standardizer. They take everything that's friction-y or out there, and they just bring it right to you in a format you're comfortable with. It's a package that people, it's like,

1:15:12Downtown Josh Brown:I don't have to do this myself. This is like, this expresses my view with one trade. Pricing transparency with the equity markets. So everything trades like, they basically equitize everything. And that's what's happening here. So it's interesting. That's definitely taken more of my mind share lately thinking about how this will play out. Eric, can we do a little lightning round before we let you go? Okay. What the death of the mall trade can tell us about the AI freak out. Yeah. I don't know if you have the chart, but remember the death - We had it. It wasn't great. We threw it out. Okay. I'm just kidding, John.

1:15:45Remember the death of the mall? You were supposed to go long Amazon and short XRT.

1:15:48Downtown Josh Brown:A lot of malls did die. Yeah, but a lot of companies are not idiots. They figured out how to like sell stuff on the internet like Walmart. And so if you look 10 years later, XRT outperformed clicks and empty, which were two ETFs that literally did the death of the mall trade. What's empty? Empty is shorting brick and mortar. I don't remember that. Get out of here. That existed? Yeah. And ironically went to zero? Yeah. Well, the daily rebalancing probably was part of that corrosion. Okay. Clicks was going long, online, short brick and mortar. And that didn't work either? So XRT beat both of them by a lot.

1:16:26But then guess what beat XRT by a lot? Vu. So here's my point. This whole thing of like AI, everyone freaks out. Who's the winners and losers? I'm like, these companies are run by -

1:16:37Downtown Josh Brown:Probably the S &P 500 is the winner. That's the winner. Because you know why? these companies are not dumb. They're run by smart people. They're going to incorporate AI. Some will. Yeah. There's a couple that, you know, might not make it, but over time that, that online internet commerce ended up floating up into the VU. Like it ultimately gets rewarded in that market cap weighted situation. I know you listen to every episode of the show. We had a guest on last week who is structurally like going to be long for the next 30 years, some of these software companies. And that was his comment. He said of the top 20 e-commerce companies in America, how many of them do you think were a new economy post-internet?

1:17:17Downtown Josh Brown:And how many do you think were old economy? And I think 15 of the 20 largest e-commerce websites are run by companies like Target. Yeah. Like 15 of 20. So that's what you're illustrating here. We arrive at the same point. Yeah. Okay. It's a great point. I'm curious what your thoughts are about gold, oil, ETFs. They sort of had a great, gold had a great year last year. Oil had a good start to the year leading up into the hostilities. And now it seems like it's a no man land, no man's land. When you show us the trillion and a half dollars coming into ETFs, a lot of it active, are these ETFs still attract, the commodities still attracting their fair share?

1:18:00Downtown Josh Brown:Are they less popular than they used to be? Like where do those things stand these days? GLD was a top 10er last year. It definitely sees flows. People love GLD and IAU. Those are, there's no weird stuff. Staples. Yeah, you're not rolling futures there. So people do like those. Gold seemed to be a trading thing. I don't know if people were just all of a sudden allocating. It seemed like there was a lot of FOMO, same with silver, and then some came off. uh so i think gold is don't have a great oil etf don't mess with oil um uso is a wolf in sheep's clothing it's why we invented the traffic light system basically it rolls futures and so some years you can have roll costs of 30 so you can get the call right but like lose a lot of money um be careful so i would look at that as like a rated r movie uso investors but gld will be more like that instead yeah i would use xle we have uh vince piazza who works in bi he likes crack because crack is refiners.

1:18:53And if the Strait of Hormuz was closed, you got to get oil from other places where it's not as, it needs more refining. So there's this kind of like long equity plays around oil that I think makes sense because there's no weird derivative action. But be very careful. If you're going to use USO, just trade it.

1:19:08Downtown Josh Brown:Are US investors allocating to international ETFs to the extent that you would expect them to be given how well those markets have finally started to do over the last 18 months? Not as well as they have done, but a little better than normal. Because I think a lot of investors have seen this movie before. You know, International comes back. It has like a good six months. It's a short film, really. And then all of a sudden, the cues is like that bus meme. And they got to see more. But there has been some movement to like IFA, IFA, a little bit, but not a ton. Most of the money, if I look at flows like year to date, I'll give you the top five is VU, SPYM, VTI, and then VXUS is International.

1:19:49SPYM. SPYM. Mm-hmm. Oh, SPYM, by the way, you'll love this. Is the cheaper SPY? Yes. It's the offspring of SPY that has basically been programmed to avenge... IEMG. No, it's because VU knocked off SPY as the biggest ETF in the world. And, you know, State Street was like, and I took that personally.

1:20:08Downtown Josh Brown:Yeah. So they basically lowered SPYM's fee to two bips. And they changed the index. And it's getting inflows? Oh my God, yeah. Obviously. At one point in this year, it had more than VU. I've never seen Vu be second. Not more money and more inflows. More inflows. Okay. But the asset chart is like this. It's parabolic. State Street's like, oh yeah? Yeah. Watch this.

1:20:29Michael Batnick:Well, you know what? If you're allocating 500 million a billion, a basis point, no, basis point matters, I guess. Yeah, that's what I'm saying. Like a lot of people, if it's the same thing, they'll just sort by fee. Right. So the power of one basis point when it comes to cheap beta. Wow. That's why you don't want any part of cheap beta. Like imagine competing there, how brutal that is. Yeah, that's why that white line goes straight up because who wants to deal with that?

1:20:50Downtown Josh Brown:All right, more in the lightning round. Are you surprised, or maybe you're not surprised, by the almost complete non-effect of the popularity of custom and direct indexing on flows to ETFs? Because this was the thing people in the ETF land were worried about a couple of years ago. You were never worried. Not me. You were not worried at all. Thank you for acknowledging that. I was skeptical before it was cool. You were. I was also skeptical ESG before it was cool. How did you know that custom and direct indexing would not have an impact on the size of the ETF market? Simple. Everything seems to be going towards cheap and simple.

1:21:28These were going towards more. These are not cheap. They're more expensive and they're more complicated. Right. Then they also, they're active in a way. So forget the active passive. I used to say cheap, simple, passive. But active is more embraced. So I killed the passive. but the idea that you would want to go from like one light item to like 4 ,000. I get the tax advantage, but that does run out. And I think just in general, people like simplicity. I do think there's a niche purpose for them.

1:21:58Michael Batnick:It's pretty big. The custom indexing is pretty big.

1:22:00Downtown Josh Brown:Yeah, but what's pretty big to you? I think it's the money is not coming out of ETFs only into custom indexing.

1:22:06Michael Batnick:It's not about ETFs, but how big is the custom indexing worth? Do we

1:22:08Downtown Josh Brown:I was never bearish. Totally. I was bearish versus the hype. I'm going to guess, I'm going to guess it's, uh, I'm going to guess it's close to a trillion. Yeah. Let's say it's a trillion. Right. So that would be like 1.2 % of all fund assets.

1:22:21Michael Batnick:Yeah. So I said it'd be lower than, you know, maybe two or 3 % tops. Yeah. So I'm even saying it will grow a little. I just find it to be like very specialty. To me, it was for advisors to direct indexing. Um, what the hell is that thing called? Were you right around? Uh, Vespa. No, wait, you stand up on it. Oh.

1:22:44What are those? Segway. Segway. So direct indexing is the Segway. I was bullish on the Segway.

1:22:48Downtown Josh Brown:I was wrong. Yeah. It was supposed to revolutionize transportation. It's used by mall cops. You were bullish on the Segway? I was. Bill Gates was. I mean, didn't all these big people? Everybody was. There were people that saw the prototype. And they said, this is going to force entire cities to redesign themselves. And then it didn't. That's direct indexing. That's hilarious. But it is used by mall cops and city tours. So it does have some use. Okay.

1:23:14Michael Batnick:Ben and I were segwaying around DC the other day. It's great. I love it. Yeah, no. Like I said, it exists. But the hype was way too much.

1:23:21Downtown Josh Brown:All right. Last but not least, Jalen Brunson. I hate him. Under or over 26.5 points tonight? Tomorrow night. Tomorrow night? Under. Well, this will be air tomorrow. We're going to grind, you guys. Are you going?

1:23:34Michael Batnick:Come to the game. Maybe. You're going? Yeah, we're going.

1:23:36Downtown Josh Brown:Paul George over or under 16 and a half? Over. He better or else he's not even He's going to shut the bed tomorrow.

1:23:44Michael Batnick:He was hot last night. At least in the first half. He's good because he knows he's the third fourth option. He's like really I thought he was going to be bad. I underrated his ability to fit in.

1:23:55Downtown Josh Brown:He's got a smooth jump shot. Barry. Nick's minus 105 76 was minus 115. You're a fan. You can't bet. It's a pick-em. Well, this this is kind of a must win. we're at home kind of if we don't win this it's probably over uh it'd be well tough it'd be well tough you hate that I say probably you want me you want me to just like die now don't you no dude I'm not a cocky Knicks fan

1:24:19Michael Batnick:you guys just don't have the guys you don't have the bench so you know you have this guy McBride he's like your 7th guy at the he'd play 25 minutes for you I know but that's what I'm saying about 40 minutes for you this effing guy yeah at the worst time he hits like a shot yeah Deuce's money oh he could do that and you have that guy a corner three

1:24:38Downtown Josh Brown:anytime anytime he does that the crowd gets so hyped so you have that extra guy that seventh man in him that is we don't have and that could be the edge but keep in mind I think Tyrese Maxey has underwhelmed he's better than he's playing he's still so young he's gonna be great he looks like he's gonna be great he is great they can't use him for that many minutes though and wonder why he can't play defense in the fourth quarter yeah

1:25:04Michael Batnick:I don't think the all-nba teams came out yet, but he'll be 13, I think. Like I said, we beat the hated Celtics for America.

1:25:12Downtown Josh Brown:Yeah. And we exercised the big demon. We heard all that. Eric Boucher, this lady. Hey, I feel fine. It's okay if we lose. Did you have fun on the show today? I did. Always. All right. What's the name of your Bitcoin book? Both sides of the coin. Yeah. All right. Are we promoting that yet or it's too early? The pre-order is available? No, not yet. Okay. When is it coming out? Late October, early November. Want to come back and talk about it? I would, yeah. Mike is in the book I've quoted about 40 people Mike's quotes are the best Would you lose my phone number? I wouldn't want to be in it You were on the top of the Bogle book I go around the horn when it comes to your shop Barry was all over Bogle too I know less about Bitcoin I know absolutely nothing I said I like Michael because of the spike pointer The audience appreciates It's unbelievable your encyclopedic knowledge about asset management ETFs.

1:26:06Downtown Josh Brown:I mean, it's really a pleasure to have you here. So I want to say thank you on behalf of the audience for coming by. We will have you back this fall when the book comes out. We want to thank all of you out there in compound land, all the pounders. Thank you guys so much for listening, for watching. If you want to leave a review on Spotify, Apple, YouTube, today would be a good day to do that. What do you guys think? John, Duncan, yeah? Perfect day. Perfect day. Go ahead and do that. Our special thanks to Eric Valchunas. Guys, we'll talk to you soon. Thanks again for watching. Thank you for listening.

1:26:37Downtown Josh Brown:Good night.