Tom Lee Says It's Still Early

25:34So that was a single theme of demographics. And the internet boom was a singular thing of actually creating digital infrastructure. So it's always been a story of the stock market. So the fact that the entirety of the market's gain this year is being fueled by earnings coming from this one theme actually does not fly in the face of financial history. It happens all the time. Yeah. So it's only a bubble if spending is not driving income growth. So margins should be shrinking or debt should be rising faster than revenue. And we don't have a leverage cycle yet and we have margins expanding. So it's not even late cycle for AI.

26:14It's all AI. Dean Christians at Sentiment Trader had a great tweet this morning. He said, the internal conflict within the technology sector is remarkable, with a significant number of stocks making new highs while others are making new lows, as captured by what's called the High Low Logic Index. He said, last week, it surged to its second highest reading ever, underscoring how AI is creating winners and losers within the sector. So in other words, in plain English, there are more all-time highs or 52-week highs and 52-week lows simultaneously than there have been over the last 60 years. So the index rises on increasing dispersion between new highs and new lows.

26:59So the index is being driven by the larger stocks. There's stocks that are obviously winning, we know, but there's stocks that are getting destroyed. This is semiconductors versus software to me. That's what I see. Yeah, I think it makes sense because when you're in a big cycle like this, the winners are easy to identify because they have visibility. But it doesn't mean the losers are dead mad. But for now, they're kind of untouchable. This should be a good stock picking environment. A lot of people are saying the weakness in the software sector can be attributed to the employment picture and just less hiring, weaker hiring, which makes sense.

27:38Businesses spend more on software when they have a higher headcount, right? You need less seats or more seats from an enterprise. So that's one part of it. And the second part of it is disruption. What software is being disrupted right before our eyes by AI? And one of the poster children people cite is the chart of salesforce.com, CRM. Salesforce would say, no, no, no, you don't understand. We're going to invent agentic AI. The market doesn't think so. the market thinks that ai is going to be able to do a lot of things that people's employees can do which means less demand for enterprise sales uh at salesforce where do you fall in that debate i i think it's more the latter is driving because you know we know creator the value that you pay for a creator now has dropped a lot because of ai whether it's content creator or software developer yeah people are writing their own apps internally now yeah chat gpt fixing the code.

28:36So on the margin, if let's say it's only a 1 % change in the demand of something that can cause 20 % change in the price of something, we know it's been chipped away. Okay. So you think the weakness in the enterprise software space is somewhat warranted? Yeah. And you can probably see it in Silicon Valley, right? They're not funding SaaS companies anymore. They're funding AI startups. They're funding tanks and drones, but that's a whole other conversation. Do you think the next leg of the bull market comes from a broadening out. We saw something interesting yesterday. Duality Research posted a chart showing that there has only been two days with better breadth and a bigger loss since 1996.

29:18So this was on Tuesday. The S &P was down 40 basis points. I think the equate was up 40 basis points, something like that. Do you think that that's what is going to drive the next leg higher is an expanding market? Yeah. I mean, I think that But there's many reasons to argue market will expand because the Fed has been on hold all year. So they're neither dovish or hawkish. But if they resume cutting, that's a dovish cycle resuming. That's broadening. The ISM's been below 50 for 30 months now. Why does that matter? Well, it's a sign of business confidence. The CEOs of these companies, because now I'm chairman of a company, there's no internal economist.

29:56You get your economic view from the Fed and from Wall Street, right? And so if the economists are cautious, like companies are cautious, that's why the ISM has been suppressed. But that means you're not funding CapEx beyond demand. So expansionary spending hasn't taken place. That's a broadening. And then the third, of course, is that AI, agentic AI, we're kind of moving into the phase where we're seeing useful applications. That means companies are using AI to actually grow their business. That should be broadening opportunities. It's not just the – Where are they using agentic AI? Is that chatbots at like an e-commerce site where they're handling customer complaints via an agentic AI, like an agent versus a human agent?

30:38Is that what we're talking about? I mean, I'd say even at Funstrat, like we're finding a lot of ways now to use AI within the company to make it to run better. whether it's identifying the source of like why people are having issues or what they don't understand about what we're saying or how to actually sort of clip things that we're saying to emphasize more information or even understanding like the source of inbound traffic, like the inquiry. So it's this is the maybe even in the last couple months where I've said, wow, we're really benefiting from it. Now, that would stop you from hiring a person to manually do those things yeah i can share a story of a company but i can't tell you the industry's in because they asked me not to say but they're a really big company adult entertainment industry no no okay say more but they're really big and use the supply chain and they said that they were like they kept they have a commodity that they got a hedge and they kept losing money on their hedging and then they were losing money on the supply chain because like they have to buy this commodity and they have to package it and sell it then they brought in palantir and then they like just fed every one of their invoices and all the truck times and literally every trade they did for hedging.

31:48And then it just spit out this like series of recommendations. Now they're making money. Their hedging of their commodity is a huge profit maker and their operating margins have and then they said they have no idea what Palantir did. It's like magic. Yeah. So it was like just, it wasn't like a bunch of consultants coming. It was like literally they just fed this into like a - Can I ask you about Palantir? So I listened to their conference call for the first time. I'm like ridiculously late to the Palantir story. I sort of understood that it was a government contractor primarily that was now going to go into commercial and talk to corporations about how they can take their magic and apply it to every industry.

32:29And I love the story. The stock is a$400 billion market cap. they're predicting$4 billion in revenue for this year. So it's like everybody gets it. I don't know how much opportunity there is in the stock right now. But it was remarkable the stats they put up on this call about adoption of people hiring Palantir. Like, I think they added like a thousand corporate customers in a quarter or something crazy like that. Is that the kind of company that you think transforms American business to the point where you get that re-rating in small caps. Yeah. And finally, you get valuation expansion in mid caps because Palantir or somebody like them comes in and completely transforms the company and Wall Street then gets shocked on the next quarter of the earnings report.

33:22Yeah. Okay. I did speak to Palantir because I saw them at an event. And this is what... So even like our company, which is only 33 employees, but we of course have big asset management and we have tens of thousands of clients. But I was like, could you guys just drop it and like make us better? They're like, just let us do it. Can you do it for free? Yeah, but here's the thing. My business partner, a bit my mosaics, says that, you know, he has this term called grifting. Palantir eliminates grifting in your business model. Okay, say more. What they mean is like they'll find where someone is taking money from you that you don't need in your operations.

34:08Or there's too many people in this movement of something and you don't need them. Or maybe internally you don't. Grifting is harsh. Well, I know, but it's just - Inefficiency maybe would be a polite way of saying that? Yes, but that's like a millennial term. Like, because I'm not a millennial. But you know what I mean? Like they're finding how to get you from your revenue to your net income or even more revenue without - They're the new efficiency expert. And you don't have to be a better marketing. They're actually just saying, this is how you should replumb your business. So we have all of these magical companies that keep popping up out of nowhere that are getting huge and pushing the valuation of the index to new highs.

34:48And this is a tired case that the bears have been making for 15 years. Maybe eventually it'll prove out to be true. But when you see something like this, the EBITDA of the S &P 500 or whatever metric you choose, In this case, that's what Gainify is using at an all-time high. Why doesn't this, why doesn't this scare you? What are the bears misunderstanding? I think if that, if we said started at point A, which is 2016. Okay. And every company was unchanged and their business strategy was exactly the same. And they didn't have to do anything and face any stress in that nine years. Then I would be shorting that chart.

35:28But look at what happened to all these companies. They had to deal with the six kill shots. We have, like, as you said, AI revolution, which is really an American story and maybe part China, but nowhere else. So why shouldn't more value be coming into American businesses? So, you know what I mean? So you're saying we're paying up for companies, but shouldn't we? Haven't all of these companies gotten so much more impressive in the way that they handle? Like we don't even have recessions anymore. Yeah. And look at 2Q earnings that just passed 12 % earnings growth. Like if someone said by the end of this - Why wouldn't you pay up for, right.

36:04Why wouldn't you pay up for companies that are this good at finding new ways to pull the profit lever? Yeah. And they're growing faster now, 10 years in. I might say that's a good horse, you know? Well, Tom, one of the central precepts of the macro, like the macro commentator is that ultimately profit margins, A, are always too high, and B, are on the verge of mean reverting. Yeah. And then they never do. Yeah. Which means companies of 2025 are better than companies of 2015 and way better than companies of 1985. Who would dispute that? Yeah. Well, the profit margin mean reversion people dispute that every day when they wake up.

36:46Yeah, mean reversion is too commonly used a word. It's proper in the fixed income world, but in the equity world, there's no such a mean reversion. There's winners and losers, right? And remember in the S &P, like those companies in 2016, out of the 500 in 10 years ago, I bet you 20 % are gone. So it's a different index. Well, that's the other thing. It's newer, younger, better, faster, stronger companies. Correct. Right. It's not the same. We're not tracking the same 500 companies over 10 years. Yeah, if this was the Wilshire 5000, I bet you it's been flat. Okay. All right. So we have a collection of 500 companies that doesn't necessarily match the ones that we were looking at 10 years ago.

37:25Okay. I think that's a strong argument. Do we want to do this one? All right. Let's move on to the economy. So, Tom, you mentioned earlier that the ISM manufacturer, at least this one, the ISM manufacturer has been below 50 for 28 months. Do you care about this? Yeah. Why is this bullish? Well, because remember, this is actually one where there's no one making up the answers. Like this is a survey that's sent and people respond if things are better, worse, or the same. So it doesn't have any political bias. It doesn't have any like— But the answers are biased, no? The people giving the answers are not necessarily answering the question.

38:05But if they're answering it in a negative sense, that means that they're cautious. So you can take their answer at face value. Yeah. You don't want this to be like a heavily bullish reading. Correct. You never had a cycle peak when you've had ISM below. By the way, this is the longest stretch since 1950. When you have this pervasive caution in business, we're nowhere near a cycle peak. So imagine people, imagine they turn bullish and they start spending money. You actually were talking to the bankless guys about this, and this is an important point. Like, everybody's bullish. No, they're not. It might feel that way if you're not bullish.

38:38Why do we have 25 months below a 50 reading on the ISM? Is it because people that answer this survey, what they hate the most is inflation? That would be my guess. And tariffs now. Well, that's like they hate tariffs because of inflation. Yeah. I think they hate inflation more than anything. So I think that that's why you get four straight years of below 50 ISM prints. Yeah. Okay. Now, you remember when you are this far forlorn and dejected and then you flip positive, you won't just go to 50 and then it's over. We're probably going to have four years of this staying above 50. I mean, if you look at the history, once it breaks above 50, it's multiple years.

39:24But this could be a record stretch above 50. This is bizarre. Talk to the chart that we're looking at. This most recent episode of the ISM below 50 and the stock market just relentlessly grinding is not typical. Yeah, I would say maybe the people answering these surveys are just not terribly important to the economy anymore in the way that they once were. ISM is still more correlated with S &P earnings than services index. Because we're more of a manufacturing. Who are the people commenting for this survey? So it's members of the Institute of Supply Management. So it's basically the survey. It's a factory foreman?

40:05But it also could be the Intel NVIDIA purchasing manager. Although they get one vote, right? They get one survey. Okay, so tech is in here. Everything's in there. Okay. So you're saying that this is like a coiled spring. Yeah. Okay. But what makes this flip positive? Because we're not going to get 2 % inflation unless something's really going wrong. So what do these people need to flip positive? I think we need policy stability, which could come next year, like from the White House, I mean. Oh, this White House is known for stability. Okay, I'm with you on that. Yeah. What else? Okay, or it doesn't get more unstable.

40:41Okay. You get a Fed that's dovish. Okay. Which is cutting. You're probably going to get that, if not now, at a minimum by May. But then you need this third thing to happen. You need the excess spread on interest products to fall. Like today, you know, if you're borrowing for a mortgage, it's normally only been at 160 basis points above the 10-year or like 1.6%. So the 10-year's at 4.2. The 30-year mortgage should be 5.8. But it's not. But it's like 7. So there's excess spread on mortgages. But as soon as those other two things happen, I bet you that spread drops. What is the source of that spread being so high?

41:18It's actually hard to explain. Someone says that it's either banks worried about prepayment velocity because they're going to charge. So they charge an excess spread. Or it's uncertainty about the value of the collateral. Like, can home prices drop? So you have to charge a high rate because they're only putting 20 % down. Wait, the spread is high because they know that if and when rates drop, people are just going to prepay. Yeah, so you lose money. Yeah, you're losing money. Or refinance. Yeah, so the velocity hurts you. Right. The lenders don't want 10 % of their customers saying, here's all the money I'm refinancing lower.

41:54Yeah. So they want to make money on it for now on the current income. OK. And then third is, of course, like the mortgage market doesn't have as much hedging and there's a QT. And so like it's harder to get spreads moved out. But for whatever reason, it's unusually wide. It's like 50 or 60 year wides. Okay. So should that fall, which it sounds like you think would coincide with Fed funds rates coming down, what's the meaning of that? What's the effect of that? I think the simple way to think of it is, I don't know, let's say there's$20 trillion of mortgage debt out there and like half is above that rate.

42:29That's$10 trillion times 1.6 percentage points. Like that's money in people's pockets. Plus, how many more people are going to get mortgages now that it's 5 %? I actually think the Fed has not kept rates this high for this long in a really long time. and once they appreciably fall, I don't care how bad the economy is. I actually think you could see the biggest mortgage refinance boom we've ever seen, like outside of the pandemic. Yeah, so think about how much money that drives housing recovery and liquidity and people starting to upgrade their homes. Remember like Home Depot said, the upgrade projects keep getting pushed out.

43:09Yeah, that's what they're being pushed out for. Yeah. All right, do you think that's the next bull market is housing, I don't want to say recovery because prices are okay, Housing activity recovery. Yeah, it's like a rethinking of shelter because people will want to own housing, but they're too expensive. Like maybe there'll be new kinds of smaller homes being built or demand for modular, but people will borrow money to get it home. Okay. All right. I like that idea. Tom, are you worried about the labor market at all? Yeah. I mean, because we know we're not tracking it correctly anymore because ADP probably tracks it correctly, but they don't seasonally adjust correctly.

43:44And then we know the BLS numbers are different. But overall, I think the job, the labor market is softer. I also think there's a lot less hoarding. That's why there's no pricing power anymore, right? Companies were holding onto employees. Now they're just letting them go. Okay. I want to ask you about the phenomenon that's been chronicled this year at the New York Times and other places about the difficulty of recent college graduates to get a job relative to history. just anecdotally you probably i know you've got a you've got a college-aged uh daughter so do i just anecdotally you're probably hearing tons of parents like i don't understand why my kid can't get a job like why is it so hard right now the economy seems to be good the stock market's booming i'm hearing this all over the place talking about business school kids kids that should be hired um a are you seeing that anecdotally and b what do you make of that data is it something that could get worse?

44:44Is it a blip? What do you think is happening? I think it is a big problem. I mean, I think it's observable. It's like too many things that could explain it because one, AI means there's a huge mismatch because most people aren't equipped to do the jobs that are going to be in the future available for AI. Second, I think there was this oversampling of and people pursuing like liberal arts degrees expecting a job. I mean, liberal arts education is good, but we probably need, we have now a huge shortage in trade workers, like massive, massive shortage. Like it's to such a degree that AI robots are doing jobs that normally were trade jobs because there's a shortage.

45:30So it's really complicated. But I guess I advise my kids because I have three kids like age 20 all the way 28 that, you know, there's no linear careers anymore, right? It's a very different future because AI - Meaning you might do one thing for eight years, take a break and then do something totally new that we can't even conceive of yet. Yeah, or you might be paid for something that you didn't go to college for. Like you may just be super creative and that's your most virtuous skill, but that wasn't what you went to college for. What do you say to friends of yours who have kids in this position, because I'm sure they're all asking you for jobs.

46:11Like, what do you tell other parents who have kids that are like, I don't understand, this kid just graduated UPenn. Why is this employer that he's talking to making them go on a fifth interview and dragging this out for six months? Because I'm hearing stories like that everywhere. Yeah. Well, you know, I think a lot of people who work in the financial services industry are actually good, have personal experience of what is happening to the rest of the country, which is Wall Street got disrupted by AI a long time ago. Like, that's why trading went electronic. It's all computers. Yeah, and research shrank what you need because you can just use.

46:48So everybody who's worked on Wall Street in the last 20 years has already seen their lives disrupted. And plenty of people survived, but you had to have been adapting to it. Okay, so more adaptable kids? Yes. You might go to school for one thing, but you might have to pivot and take an opportunity somewhere else. That's right. And then some people will make money passively. Okay. You know what I mean? Like some people may make money because they bought stocks. I mean, maybe people should just buy stocks early because in 20 years. You have to buy a lot of stocks to make money passively from them.

47:22The average dividend yield in the S &P is 1.6%. Yeah. But as you know, like if, when you look at people who bought basketball teams and like the compounded return, You actually did better just if they had put the same amount of money in the S &P. I mean, they didn't get to go to like get court site seats. Less fund, better return. Okay. I mean, are we going to build a nation of people who start investing earlier because it kind of like everyone becomes aware of this idea? Like you have to own the capital. Yeah. It's like, remember people used to say like, oh, buy a house when you're 20. Now maybe we should just say buy the stock market.

47:59because now you're long the AI disruption through equities. Invest in your own disruption. Yeah. Okay. Let's do this non-farm payrolls versus unemployment rate. Were you one of these people that was up in arms when the White House threw the head of the BLS out of her job? Or were you one of the people that was like, the data sucks anyway, and we probably need a brand new way to collect it? What was your take on it? I mean, I'm a researcher. Yeah. And so if - You like the BLS. I like the BLS. And it's like me getting fired, and it happens to me all the time by a client because the market didn't do something they wanted, but I get blamed for it, you know?

48:38So I empathize with the BLS. I think that they're probably really well-meaning people want to get the right number, but they have incomplete information. But perhaps they should be making very clear the standard error. Because, you know, the known standard error is like hundreds of thousands, and they never post it, but it's a known standard. Well, because if they were to post it, it would render the information worthless. You're telling me we added 70 ,000 jobs last month, but the margin of error is 200 ,000 jobs. Then what did you say? Yeah, so I think they should have, and I rechart those little circles on the line so you know what the high-low of a one-sigma error is.

49:14The data quality has been declining for 20 years. The lack of response to their surveys. Maybe they need to rethink the whole thing. Yeah, and there's probably better ways to track the job market anyways. I agree. Cell phone tracking. Why? Because you can see who's going to the office or you could see how many people are at Starbucks when they should be at the office. I mean, you know what I mean? Like, I mean, I feel like payrolls, like ADP does a good enough job. ADP is really accurate. It's like, it's not 100 % of the population, but yeah, it's very accurate. Tom, we've got Powell tomorrow at Jackson Hole.

49:50What is the market pricing in terms of number of cuts and how do you feel about what the market is pricing in? Are they right? And what do you think Powell's going to say? Let's throw his chart up while he tells us. Yeah. I mean, the market's pricing in two cuts between now and year-end. I would say, to me, two cuts make sense if the Fed realizes real interest rates are too high because tariff inflation is transitory. And so they should look at the break-evens and realize 4.5 % Fed funds versus 2.5 % is 200 basis points. Extremely tight. if you don't even think you're going to hurt the job market.

50:28It's clearly hurting the job market. But do you think more rate cuts all of a sudden rejuvenates the job market or not necessarily? I think that a dovish cycle is going to get the ISM back up. So I think it actually is expansionary. Okay. And of course, on the housing, it's very expansionary. Do you have expectations for the speech itself? And understand, by the time people are listening to this, it'll be Friday morning. Yeah. I don't know what time Jay Powell is speaking. It's the afternoon. Yeah, 10 a.m. Okay. Okay. So make a prediction that could be instantly rendered incorrect. I'll make one too, but I want to hear yours.

51:02Well, last year, the S &P was up 2 % after his speech. I think we're going to rally tomorrow. Okay. Even if he's hawkish and exerts his independence. Why? Just because it'll be over and people are waiting for it to be over? Yeah, because we would expect him to exert his independence, but it doesn't have negative implications because he's already on hold. I don't think he's going to do like a highly politically charged thing. Nah. Wow. See, then the market's going to go up even more. Yeah. Yeah, so it's— So the way that this was phrased, the way that this is being looked at is like it's Powell's last stand.

51:39That's how Barron's phrased it. Like ostensibly this is his last chance to give a Jackson Hole address as the Fed chair. And he's being called a moron publicly. like he's being shit on and people are like, he's going to strike back. He's going to do this like fiery speech about the independence of the fed and why that's so important for America. I don't think he's going to do any of that. I think he's going to acknowledge the fact that the labor market is softening. I think he's going to signal that there's a rate cut coming in September and then he's going to deliver the rate cut. I just don't think that he wants more smoke.

52:17I don't know. I could be dead wrong, but we're all going to find out together. Yeah. And he's, you know, from what I've heard, because I don't know him personally, you know, high integrity person. Yeah. You know, a really class act. So you're right. It's more consistent with what you're saying. If he cares about the independence of the Fed, then ratcheting the temperature up is not going to help him. Yeah. OK. What do you think of the irony that the jobless claims? Oh, excuse me. The NFP numbers were actually trending in the right direction for a rate cut. and then Trump gets mad that they're not showing enough jobs.

52:51Yeah. But wait a minute. I thought you want a rate cut. Let me get this straight. You want a rate cut and you want an explosively higher hiring number? How do those two things work together? I don't really get it. That's right. And also knowing in September, there's a big revision, the annual revision, which is probably going to make all those previous job reports look even worse. Right. But that's good if you want a rate cut. Correct. Okay. Maybe they don't really care what they want. They just want the attention. Yeah. And maybe, you know, I mean, I'm just a fan of an independent Fed. I'd, you know, let the Fed do their job.

53:25Well, I think those days are over. All right, Tom, let's do some crypto stuff. So, because people love that. Just kidding. No, they don't. People, nobody owns crypto. And I know that's not true. But it's the people, it's the companies that are buying the crypto. It's you guys. It's Sailor. It's the people that are early adopters. there are still a lot of people who just feel like they missed it. They hate when we talk about it. It's enough. Bank of America, they ask their clients, do you guys own crypto? And 75 % of them are at zero. So it is this weird thing where the price keeps going up. We know some of the reasons why.

54:06Yet, nobody seems to be owning it. Yes. I, we know crypto is a generational divide. Because if you did the survey with someone under age 30, it's probably like 50 % on crypto. History shows pretty clearly it's people in their 20s and 30s that are driving all future change. Credit card spending shows their investment - The 75 % doesn't matter, in other words. Yeah, or the 75 % is going to flip to 75 % on crypto. So we had the chief legal officer and chief financial officer of Coinbase, which is arguably the most public-facing successful crypto company. They spent 45 minutes with us on Monday. We put out the video.

54:56The video does far less views than what we typically put out on Mondays. I'm not mad about it. I thought it was an amazing interview. I'm really good at this. I don't know if you know. You're very good. And Michael knows crypto better than I do. And I thought we did a great job. I look at the comments. These are our fans. So like, that's fine. You know, we want to hear honest feedback. They don't fucking care. They just decide, oh, these assholes again, talking about Coinbase. So we had crypto people in the comments who hate Coinbase because it's centralizing crypto. That's fine. That's a minority.

55:36like people in traditional finance still do not want to hear about any success in crypto. And I think my answer to why that's the case, I think they look at the people who have made millions or billions of dollars in crypto as having done something illegitimate or lottery-esque. I don't think it captivates their hearts and souls. They don't look at it like, look how smart these people are. And what's so funny is there are famous value investors who haven't outperformed the market in 15 years, if I put them on YouTube right now, the views would skyrocket. And you know the names I'm thinking of.

56:14I'm not going to say them. But it's like, let me get this straight. This asset class has been the best performing asset class in the world for 10 years. And you don't want to give any credit to the people that saw it early and capitalized. You'd rather hear from somebody who can't, who couldn't make money if it hit them in the head because they're quote unquote doing it the right way. Yeah. I think that's what's going on. Yeah, it is. So imagine like if your neighbor one day discovered oil in his backyard and became like really rich. Oh, you would hate his guts. You'd hate him for a— I agree with that.

56:45That's it. And then he's like—it becomes an oil evangelist. You'd be like, I hate oil. Enough with the oil. Shut up with the oil. Right. I hate you. I hate oil. Right. All right. So that— And then imagine the oil did have some—a lot of scammy parts to it. Yep. And— Right? You'd be like, enough with the oil. Well, that's right. That's the other thing. A lot of this money, they view it as a lot of the activity is bad. There's a lot of bullshit. But let's talk about this. All right. Specifically with BitMine Immersion Technologies. The risk to any asset class, the primary risk is leverage. And leverage took down crypto in the last cycle.

57:22A lot of bad actors. Talk about, so you tweeted or BitMine tweeted on August 18th that you guys held 1.5-ish million ETH valued at$6.6 billion. Is this leverage? Where is this money coming from? And why are people who say that this is like the epicenter of the next catastrophe wrong? Okay. I assume you're meaning leverage of Bitmine. Like does the Bitmine stock have a leverage? Just what you guys are doing, what Saylor is doing, like is there going to be more? The concept of the crypto treasury involves we're going to borrow money, use it to accumulate these coins where the supply is shrinking.

58:02Yes. And that's the secret sauce. Will there be a margin call? Is that the risk? Talk about that. Well, if you could let me do like a couple minute explanation here. Duncan, what do you think? We're going to allow it? Good with it? Because it's not a sense. I'm genuinely fascinated by this. So I want to hear it. So on June 30th, Bitmine announced the transaction where I joined as chairman and then Mosaics, who's my partner in this, became the digital consultant to help manage the treasury. So essentially, we helped recast the company as an Ethereum treasury company. What was it prior? It was tanning salons?

58:36No, it was a Bitcoin mining company. Oh, it was a miner, okay. Bitcoin miner. Got it. And at that time, there was a$250 million investment that we brought in, you know, Founders Fund and Stan Druckenmiller and a bunch - Real people. Real people. And what we, at that time, there was$4 of Ethereum per share. and the stock was$4.50. So no premium, effectively, almost no premium. Yeah, that's right. And then we've used capital markets, like brought institutional investors subsequently and then bought more Ethereum. So as - You sold them new shares of stocks? Yeah, that's right. Okay, that's right.

59:16And that includes Cathie Wood and Bill Millers. And so last week - I don't remember you calling me, but okay. Continue, we can talk about that later. Yes. And last week, there was an updated registration statement file. So you could calculate how much Ethereum was held per share. And it was$35 per share. So the stock, you had$4 of Ethereum per share on June 30th. And then last week at the registration statement, it was now$35. And the stock was trading at like one and a half times. Because the stock was, let's say,$50. You know, one and a half times its Ethereum held. but when you bought it on june 30th it was trading at 0.2 times where the ethereum would be in a month from a month later okay now all of that was financed with equity mainly institutional investors there's the only debt on bitmines company is a million dollar loan that was originally there on june 30th so the company had a but everything it's first principle is it's literally straight, clean equity.

1:00:20So no leverage. It's cash to buy. Cash to buy. So you guys call Druckenmiller, Kathy. It's like, hey, we're going to do this thing. We're going to use this stock as a vehicle to acquire ETH. Yeah. And we need to sell stock to you in order to facilitate those purchases. Yeah. In other words, you're putting money into the company. We're issuing you shares in the company. We're going to take your money that you give us, and we're going to buy ETH. Okay. Okay, so nothing magical other than it's Ethereum and it's not, you know, hey, we're going to do a transaction where we're going to buy, I don't know, buildings.

1:00:57Yeah. Or something that's more. Yeah, so Ethereum, number one, is where the stablecoin boom is taking place. 60 % of it. So like this whole Genius Act, Besant says stablecoins are going to go from$250 billion to$4 trillion. That's an exponential demand growth for Ethereum. They're replacing money market funds. Correct. And it's dollarization and all that. Ethereum pays a 3 % native yield if you stake it. So the$6.6 billion held of Ethereum is over$200 million in net income right now. The day we turn on staking, not only is there no debt on BitMiner, it's going to pay you$200 million a year in dividends.

1:01:37And what do you do with that? Buy more Ether? Or we might just pay it out as cash dividends. Where does that 3 % native yield come from? Is that gas fees that users are paying to use ETH? Well, it's called proof of stake. So Ethereum doesn't have a proof of work model where you're competing for a block reward. It's saying if you hold ETH and you agree to stake it and validate transactions, you earn the staking fee, which is 3%. Okay. So that's where that's coming from. Yeah. And then there's a power law at work, at Foresight Work, that if we get to 5 % of Ethereum, we become a really benevolent staking entity.

1:02:10That's why we want to get to 5%. One of the many distinctions between ETH and Bitcoin for people listening that don't care that much but care a little is that the Ethereum Foundation and the Ethereum whales are fairly coordinated. They have made changes before in the protocol, and they have changed ETH successfully, I would argue, to make it more useful to the community. Whereas Bitcoin, there was one major fork where they created Bitcoin Cash. But other than that, it's probably too disperse for there to ever be any kind of coordinated action. That's right. Okay, so this is not quite as decentralized as Bitcoin, but it's more useful for things like stablecoins.

1:02:58Yeah, so we're working with the Ethereum Foundation because we can explain to them what Wall Street's looking for. So keep in mind that the Genius Act and then SEC's Project Crypto is the recognition that using blockchain makes Wall Street faster and more efficient. I've seen it at Bitmine because when we get the cash, the minute it touches the blockchain, it moves much. We have much better visibility, and it's much easier to actually track the money. The wallets are all tracked. And this is like 1971 because in 1971, the dollar went off the gold standard. Yeah. And everyone said, oh, I'll buy gold instead.

1:03:36But remember, the dollar suddenly became a fiat. Yeah. And Wall Street innovated because they said, now we have a dollar. Let's make sure we can move the dollars efficiently. You don't need to move bars of gold to match the movement of the dollars. Correct. So it created Wall Street, came out of that single act in 1971. So now, 2025, Project Crypto from the SEC and Genius Act is saying, Wall Street, take advantage of this new technology to make Wall Street a tech industry. But they're all choosing to do it, or the majority are choosing to do it on Ethereum. Ethereum is a smart contract platform.

1:04:10It has what they call EVMs, Ethereum virtual machines. So you can do basically a lot of smart programs and contracts. That's where Robinhood is doing their stable coins, the tokenized products on top of Ethereum. Right. So that's... Well, there's another L2 in the mix also for what Robinhood's doing. But they basically want to turn stocks into a tokenized thing, which I would imagine the initial stage is you're doing that to attract more investor capital because people are really into it. But over the long term, if a large portion of the market goes that way, it's probably just in a more efficient system.

1:04:47Get rid of DTC. Here's the risk. Let's just say that there's no margin call. It's clean, it's cash. The risk potentially is that I think that you are responsible for the move in ETH, the crazy move of the last couple of weeks. You did that in my estimation. You got people excited. Bitmine is a huge thing. You're raising tons of money. You're buying tons of ETH. if and when, because at some point there'll be a pullback, obviously, like it's a risk asset. If at some point there's a pullback, there's a geopolitical event, a macro event, whatever the case may be, risk off, and ETH goes from 4 ,200 to 3 ,000 to 2 point, whatever.

1:05:21If you can't raise fresh capital because people just say like, I'm not doing this, and you're not buying at the pace at which you were buying, would that like take the floor underneath away from ETH? Is that possible? Yeah. I mean, keep in mind a couple of things because I can't tell you too much about the operations. We're not moving the price of ETH. I can assure you. No, but the announcement of you being involved got other people to buy ETH. But I'm just saying like in a practical sense because when we're actually in the market, I don't think we've ever done an outbid. Okay. So I can't explain what we're doing.

1:06:03You're cleaning up sellers? people that are selling I have to be very I can't tell you how we're buying our but we're buying you know ETH tokens but we're not I'm we we got it yeah and secondly just to keep in mind like we have a billion dollar buyback program in place and with this native yield from ETH we could be buying back buying back the shares not more ETH but the actual stock that's right okay so like in other words like we have an internal mechanism to protect shareholders but But shareholders aren't being hurt in the sense that there's$35 of ETH. Well, last week,$35 of ETH held per share supporting the stock price, which means we're not trading at a premium, especially considering the growth of that Ethereum held per share.

1:06:49It's growing like 50 cents a day or something. But if you're going to be at 5 % of ETH, if that's the goal, don't you kind of want ETH to come in? Don't you want to buy at lower prices? Yeah, I want to be stacking it lower. So I'm going to say this has been a good environment for BitMine to see ETH kind of correct here. Pull back a little bit. How big could ETH get? I hate the term market cap because it's not applicable. Your company has a market cap. ETH doesn't have a market cap. It has a market size. It has a network value. What is the current value of all the ETH in the world? How big do you think it could get?

1:07:22Because working backwards, that's what the 5 % stake in ETH, right? Yeah. It's about$480 billion right now of fully diluted network value. Okay. Is the supply contracting or not yet? It's actually growing about 1%. Growing 1%. It's slower than Bitcoin's inflation rate. Okay. It's actually a third of Bitcoin's inflation rate. Okay. And how big do you think that could be? Well, I think that there is a very high probability, I'm going to say maybe even 50%, that Ethereum's network value will flip Bitcoins. Wow. Like when? The flippening. Maybe in a couple years. People have been saying this for a long time.

1:08:06Yeah. How much bigger is Bitcoin now? Is it six times? It's 2.2 trillion right now. And ETH is what? 400 billion? Yeah. All right. But you're not an ETH maxi. You think there will be both? I'm not. I'm still a Bitcoin bull. I think Bitcoin's going to a million, but I'm saying like Ethereum's relative size, the ratio will actually be one-to-one. Last thing for me on this topic. When I dismissed a lot of this group as dumb money, what I meant was the people that are funding these treasury companies thinking that they're going to get the premium on the value of their tokens the way that Saylor did, the way that you are going to, I don't think there could be 30 ETH treasury winners.

1:08:46I think you can do it if anyone can. Do you agree with that? Yeah, there's two things to ensure the differentiation. One is you need to have liquidity in stock. Bitmine is the 10th most traded stock in the stock market. That's crazy. John, chart 14. This is unbelievable. Let me say this. So you have the alchemy of 5%. Bitcoin miner or BMNR ranked number 10 by five-day average daily volume. This is unfrigging believable. Your stock is trading more volume than Alphabet. Broadcom, MicroStrategy. MicroStrategy. Wow. Wow, you flipped strategy already. That's pretty impressive. So nobody else can do this.

1:09:28Correct. So that's liquidity because that make institutions want liquidity. So they know that, Tom, we can buy 10 million shares of your stock, but we can get out if we lose, you know, we're not stuck. We're not like a prison. The second is the velocity because, see, compared to an ETF, if you bought an Ethereum ETF on June 30th, you still only have$4 of ETH per share. We took your$4 and now it's$35. We're growing your ETH holdings. So it's different than owning a closed-end fund. We're actively growing your Ethereum. All right, so this is maybe a dumb question. Why wouldn't you do a secondary again?

1:10:01You think you wouldn't have buyers? Of course you would. Yeah, there's probably, there's enormous interest. But when you do a secondary, it's not dilutive because you're putting the money right into ETH? Correct. So it's actually, Michael Saylor's - It's not like a traditional secondary then. Yeah, Michael Saylor's explained it like - Don't say yield, don't say yield. No, no, no. he's saying he's selling you know a dollar's worth of bitcoin but because of the multiple of the stock he's buying three dollars of bitcoin with it that's what his mechanism is when you raise capital and then you're buying an asset instead of a building you're actually improving your book value and then ethereum itself is only at you know four thousand ish but if it flips you know I mean like ethereum has a lot of upside are there other tokens out there that this idea makes sense for?

1:10:52is that something that you guys are thinking about? I think if something is useful like because Ethereum has this whole story of like Wall Street going on to the blockchain that makes it more useful but remember the AI world, the agentic world where they, when you have robots you have to now know proof of human or proof that this is a valid instruction sent to the robot you know they're going to have to build a token model which is right now most of that's happening on Ethereum. So the AI world as you go to Agentic has to use tokens on a public chain. And it looks like a lot of it's going to happen on Ethereum.

1:11:28Okay. If there are any viewers still with us, we'll move. Is there anything else we want to do? It's enough. All right. We can't get out of here without giving you your flowers, as I could say, about granny shots. What an absolute home run. $2.28 billion in assets. When did you launch this? Last week? November 2024. Unbelievable. Let's just go through the slides really quickly. So for people that aren't familiar, Granny Shots is Tom's sort of like thematic ETF. The term comes from a famous basketball player who used to shoot free throws underhand. And Tom kind of used that as like a metaphor for picking stocks that he thinks are an underhand layup.

1:12:11Not layup, but like a free throw. Yes. Not that they're risk-free or that things can't go wrong, but like he looks at these as like granny shots and therefore the ticker is GRNY. Not promoting the ETF, just explaining it. Full disclaimers apply. But show us the holdings. So these are like multiple themes inside of one thematic ETF. Correct. Okay. And these are the themes that you think are going to be the dominant themes. Therefore, these are the types of stocks that you want to be invested in. Yeah, so the idea is like, these things are going to last 10 to 15 years. Just like you said, AI is a juggernaut of a theme, like a story.

1:12:50It's not just 2025. It's going to be 2035, until 2035. If you put BitMind Immersion stock into granny shots, does the universe implode? How does that work? Is that like two versions of you coming together at the same time? But he's got Lego strategy in there. It's like crossing the streams, right? Yeah, yeah, yeah. All right. Here are the names. Hidden gem, meta platforms. terms nobody knows that i'm just teasing you um but you have garmin but you have stocks in here that people would not associate with like the future thematically fair fair isa corporation which is a data provider caterpillar goldman sachs yeah um what what else is in here that hey pal progressive that's a granny shot yeah actually some monster beverage yeah by the way there was a rebalance last week.

1:13:36So there's some removals, but yes, because we did our quarterly rebalance last week. But yes, those are the names. One of the themes that is in here is millennials. And so not everything is an AI story because like Monster is an example of a millennial stock. They love it. Yeah, that's their Coca-Cola. Yeah. And the idea is there's plenty of millennial stocks, but we wanted to have a stock that's tied to two themes. So Monster has to be tied to another theme. as you can see, it's tied to seasonality. So the reason that matters is that a single theme won't always work at every month in a stock market.

1:14:14So stocks that find themselves being relevant to multiple themes can make it in. Yeah, so it'll have like one thing pulling it if something's not pushing it. What do you say to people who look at this list of holdings and say, oh, I get it. It's a f***ing momentum fund. It's not that, you're saying? It's not, yeah. There's more going on here than just these are the big winners over the last 12 months. That's right. If you pulled up the MTUM, which I don't have here, it doesn't look like the same list. Okay. So Morningstar does the ranking. Quantitative is just not opinion. Yeah. And you guys are crushing it.

1:14:42You're in the second percentile. Well, last week, who cares? But year to date, second percentile, out of 1 ,392 different players. Yeah. That's incredible, dude. It's a top 20, top 28. Now you got to stay there. Out of 1 ,400. What's a bad market environment for this? Is it a choppy market or a bear market? Like in what market does this not stay near the top of the rankings? It did see a drawdown February to April. So a bear market caused this to underperform, but then the recovery or stabilization caused this to make up all the ground lost. Okay. So I would say this is trying to find the 30 most important stocks in the S &P.

1:15:28that are tied to the growth drivers. Okay. So it's kind of a bit more growth-oriented. Can I pitch you a version of this that maybe you haven't considered? Yes. It's called Grandpa Shots. Okay. And it's like members only. We would get long. We'd get very long, like brown loafers if there's a trade. Classic rock, books about World War II. Like we would just like, right? Who's with me on this? And smoking. You got to have to have smoking jackets, things that you'd wear. Yeah, just like things that are just like… New Balance sneakers. Yeah, maybe it's not a great strategy. Maybe we want to short those things.

1:16:04Congratulations, dude. This is amazing to watch. And by the way, didn't we say not to do this? That was great advice. I said don't do it, but joking around. The reason I said don't do it is because when you have a bad month, when the strategy is a bad month, now this is like the thing that people use to beat you over the head with. But you never cared about that. Yeah, I'm okay with that. And we do record a video every week with our granny shot. So people have full transparency of like what's working, what's not. And I think that - Do people tell you who they're pulling money from to put money into this?

1:16:34Well, people always ask us what kind of bucket we're in. And at the moment, we're not on any of the major wire house platforms yet because we need to be one year in. That's how you get to$5 billion. Yeah. Right. Because then if they approve you, like UBS, Morgan Stanley, if they're like, all right, we'll put this in the growth bucket, forget it. It's lights out. Yes. Because then it's people like, well, I don't need to own S &P Growth. I want to own this. This resonates more with me. Yeah. Right. And I think it's, yeah, so we're, you know, we're just trying to find you the best sort of important theme drivers in the market.

1:17:11Dude, I love it. Congrats. It's amazing. Thanks. We end the show these days with something called What Are You Looking Forward To? And it could be career. It could be personal. It could be whatever. What are you most looking forward to right now? Oh, I actually have something interesting going on. Okay. Because like usually you'll ask me. I'm sure it sounds like you do. Okay. Next, at the end of this month, I'm going to Seoul with my wife to the Freeze Art Festival. What is that? It's an art festival. It's the last year in Seoul, Korea. Like Freeze has art festivals, I think, in Miami and a few other places.

1:17:47Okay. She likes art. But it's really, we're going there to see friends. So actually taking a little vacation. Is she Korean? She's Korean. Okay. So how long are you going to go for?

1:18:00August 29th. Okay. Then September 7th, I come back to Huntington Beach because… Future Proof. My favorite conference is going. I'm so happy that you're coming. We're so excited. We're bringing like half the company there. It's amazing. So what is Funstrat's presence at Future Proof going to be like? You're going to meet, I don't know, thousands of… I think we'll be at 5 ,000 people this year. Yeah. Which is going to be bananas. We're bringing Mark Newton. Okay. We love Mark. Head of technical strategy. We're bringing Sean Farrell. Okay. Who's our digital guy. We're bringing all this like swag, you know, granny stuff.

1:18:36Oh, I love it. And, you know, I'm going to be speaking. But you guys do put on, you know, I think is one of the most important conferences. And really one of the best conferences all year. So this is like, I'm very excited about it. Awesome. We're so happy. We're so happy to have you guys. And for those of you who are coming to Future Proof, Tom is going to be booking our slots to hang out with him. So whatever the activity is you want to do, Tom will commit to doing it. So jump on the app. Make sure you book yourself time in the breakthroughs, too, to meet with Tom's team. All right. What are you looking forward to?

1:19:12We've had a long week, you and I. Are you sick of me? No, never. I'm looking forward to Nobody Too. Yeah, the new Bob Odenkirk movie. Oh. Did you watch the first one? No, I didn't see the first one. It's like John Wick, but with Bob Odenkirk, which sounds weird, but it's great. Did you see Weapons? Yeah. Should I see that? Yeah, I loved. But will I like it? Yes. Should I see it in the theater? It doesn't matter. What else did you see recently? Together? Movie theater guy. Yeah. I love movies. So do I. I love storytelling, you know? Together with Franco and his wife was excellent. Excellent is a stretch.

1:19:43It was very good. But Weapons was truly a masterpiece. Second experience. Yeah, it was great. People are going nuts about this movie. He crushed it. All right. Duncan, what are you looking forward to? Well, I just saw Daniel Day-Lewis has a new movie coming out, so I'm excited about that. Is he unretired? Yeah. Well, I mean, but he's the lead in it, but his son is directing it, I think. Overrated. Is it a horror movie? Daniel Day-Lewis overrated? I think there's a supernatural element. I'm not sure exactly what it is. We watched the trailer. I'm still a little confused. All right, John, what do you got for us?

1:20:13Any trips? Any? Not in the moment. All right. Looking forward to making more content with us? All right, my man. All right. Guys, it's been a pleasure. Tom, thank you so much. I want to tell people that you have a special offer for Compound listeners. This is super nice of you. Exclusively for listeners of the Compound and Friends, Tom has provided a link for a 30-day free trial. Please visit funstrat.com slash Tom. That's funstrat.com slash Tom. You can also find a link in the description below. So if you're an experienced, self-directed investor looking for trusted insights to grow your wealth, Tom Lee's Fundstrat Research is the place to go.

1:20:53You're going to get daily access to his daily insights, market alerts, live webinars and stuff. That's super nice of you. Thank you very much. And compound listeners will most assuredly want to check that out. That's it for us this week. We appreciate everybody. Thank you for listening. We'll talk to you soon.

1:21:16Is that good? That was great.