Prof G Markets: How the Debate Moved the Market & Wall Street’s Take on Trump - with Josh Brown

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1:23Welcome to Prof G Markets. I'm Ed Elson and I have some good news and I have some bad news. The bad news is that we are unfortunately missing Scott this week. He's floating around in Greece on a yacht right now. and I'm very embarrassed to say this on his behalf, but he does not have Starlink. I know he's been talking a lot about that. He has standard Wi-Fi on the super yacht and apparently it's not good enough to record a podcast. So he is out. He's out of commission, but here's the good news. We have our favorite New Yorker standing in for Scott this week. He's the co-founder and CEO of Ritholtz Wealth Management.

1:57He's a regular on CNBC. We're working on that. He's a sharper, meaner, hungrier version of the dog and, at this point, a great friend of this podcast. Ladies and gentlemen, please welcome the one and only Josh Brown. Josh, thank you so much for joining us. I'm just going to pause for applause.

2:15Hey, I actually got an update on Scott's Odyssey. Oh, you did? He has just passed between Scylla and Charybdis. Okay. The crew has slaughtered the cattle of Helios. And shortly, they will be arriving at the land of the Lotus Eaters en route to Calypso's Island. So we're getting updates sporadically and I will keep you posted. Do you want to deliver a message to Scott who's going to be listening to this episode when he's probably in Bodrum or I don't know where else he goes, the Aeolian Islands somewhere? I'm going to let my performance on the pod be the message. It speak for itself. All right.

2:53I love it. We're already off to a great start. I'm not too worried about this one. So let's start with the headlines.

3:05A GameStop shareholder filed a lawsuit against Keith Gill, also known as Roaring Kitty, for an alleged pump-and-dump scheme. Martin Radev claimed Gill was manipulating the stock for his own gain after Gill's posts in May triggered a 180 % rise in GameStop shares. However, Radev dropped the suit within days of the filing. Warren Buffett has reworked his will to put nearly all of his remaining wealth, about $130 billion, in a charitable trust. The billionaire said his three children will oversee the trust and unanimously decide where to donate the money once he dies. And finally, the Supreme Court voted to overturn a 40-year-old decision that provided increased regulatory authority to federal agencies.

3:44That decision known as Chevron deference created a legal precedent that courts should defer to federal agencies on how to interpret laws from Congress. With the ruling now overturned, federal agencies are likely to face increased legal challenges when regulating things such as the environment, health care, and taxes. Let's start, Josh, with this Roaring Kitty lawsuit, which we discussed a little bit when you were on the show last time, but there have been more developments. One, the lawsuit. Two, he also bought a stake in this company, this pet retailer, Chewy, which caused the stock to rise 20%.

4:17So this is kind of becoming Keith Gill's playbook. He buys a large stake in a small, kind of questionable company. He posts about it on Twitter. He watches the stock explode and then it's up to him if he wants to hold or sell any reactions to Roaring Kitty and his influence on the markets right now? Well, I'm a freedom of speech guy. So from my perspective, he's an investor. There is no rule that says he can't come out and say he bought a stock. In fact, I would argue he is more transparent in his transactions than most professionals on the street. If he were a hedge fund manager, the minimum requirement that he would have to meet would be to file within 45 days of the end of the quarter, whatever positions he finished the quarter holding, which means in real time, he would never have to say a word.

5:08So if anything, he's been more transparent. I think the guy should be able to buy and sell at will. And I think if he chooses to reveal his portfolio, there's nothing wrong with that. Where it gets into a gray area is if we think he is deliberately manipulating the stock in order to pump and dump on other investors. The truth is he's not selling. So to have a pump and dump, there's got to be a dump, right? So I have no problem with what Keith Gill is doing. And the last part of this is, Ed, no one's putting a gun to anyone's head and forcing them to follow his trades. People are doing that of their own volition.

5:50So I think he should be able to get long, get loud, so long as he's not running afoul of manipulation rules, which it does not appear that that's what's happening. Yeah, which is likely why it was rescinded. It seemed a flimsy argument to begin with. What if he sold, though? Do you have any opinions on that? Say he dumped, he did dump everything. It's America. Would that change your opinion on this? He's allowed, he's allowed to, like, where I'm not saying he should get an exception and be able to do something that any investor isn't able to do. And honestly, again, in the first go round with the meme stocks, he was among the most transparent people.

6:28He came out and said, I haven't sold, I haven't sold. Okay, I'm planning to sell. And again, it's strange because it's very rare that an individual investor who is not registered, who is not running a fund, who is not working at an asset management firm would have this much influence over the actions of other investors. If you tell me Bill Ackman came out and said, you know, he's long a stock, I could understand why so many people would want to follow him in. This is just one of those weird fluky things that there's not much precedent. He doesn't work professionally on Wall Street. He's just an individual and he's got an army of hundreds of thousands of people who want to do what he's doing.

7:14And he's got tens of millions of people who are paying close attention to it. It's really rare. I can't think of another example of it. And I don't think that that means that he should be held to some above and beyond standard that no one else has held to, even professional investors. Yeah. It's interesting because it is so similar to everything we've seen. I mean, you mentioned Bill Ackman. I think the other example that Scott's been talking about is Chamath or any of these other guys who have gone on CNBC and pumped the stock, and then they indeed do dump the stock. It's a very similar thing.

7:47I know that people had complaints with some of these guys, but it feels like I hadn't thought of what you just said, which is the difference with this guy is he's not a traditional player. He's not your average hedge fund manager or investor. He's sort of outside of the in-group. Do you think that's why we're seeing so much, I don't know, chaos and anger and issue? Is that why people are taking issue with this? because he's not one of the traditional players? Maybe. I mean, look, if you're not a professional, but you buy over 5 % of a public company, you still have to file notify. So that rule applies to everyone.

8:23And as far as I can see, he is doing what he's supposed to be doing. He is disclosing this activity. The fact that he's not a professional, is that creating chaos? I don't think so. I think these are small, heavily shorted stocks with small market caps. and a torrent of buying from a million people at once, especially utilizing options, is going to lead to that sort of wild volatility. But here's the thing about the stock market. It's like going to an amusement park. You choose which rides you want to ride. I don't do log flumes. I don't want to walk around with wet sneakers. So even if the log flume looks like it's going to be the best attraction in the park, I'm not forced to do it if I don't want to do it.

9:13No one is telling any other investor that they need to start trading in shares of GameStop and Chewy and AMC. Just don't take that ride. 100%. Or if you want to take that ride, buckle up and understand what's happening there. And you enter the park, you're in the investment game, but you don't have to ride all the rides. 100%. I love that. Yeah, we've got a guy who is suing the log flume because he got wet at the end of the ride. Yeah, maybe get off the log flume, you know, is how I would think about it. Let's move on to Buffett and his charitable trust. So$127 billion to this charitable trust that's overseen by his children.

9:52I'm not one of these, like, radical, effective altruist guys, but I do believe in, you know, just generally speaking, we should be allocating capital efficiently, whether that's in private investment or in, in this case, philanthropy. And what's striking about this move, to me, is there is no overarching mission or theme or vision as to where this money is going to go, how it's going to be put to work. He simply handed it over to his children. He said, OK, it's yours. You guys go figure out where to donate all this money, which is very different from, say, the Gates Foundation, which a lot of people are making these comparisons, which has been extremely precise, extremely intentional about its strategy.

10:34And then I look at this and it's like, there's no real strategy at all. Maybe I'm being a little cynical. It is charity after all. And, you know,$130 billion, it's going to make a difference somewhere. But what is your reaction to this move by Warren Buffett? Do you agree with my cynicism? I think I disagree, Ed. It's true that Warren Buffett doesn't specifically talk intensively about, you know, where he wants his money to go, but it's not true that we can be sure there is no plan. Understand what's happening here. He's turning the money over to his family members and they've got their own foundations and effectively he's putting it in their hands and they are pretty specific in what they've done philanthropically over the years.

11:23We do a wealth management for high net worth individuals. And a lot of the stuff that we do is involved with funding our clients' philanthropy. So I have a couple of people in-house who specialize in this sort of situation. And I turn this over to them to get their take on what's been announced. And I want to quote Gary Palford, who is in our Orange County office. And he said, I believe what he has created is a charitable foundation with a trust structure. So Buffett is calling it a charitable trust, but we think it's a foundation that is structured as a trust. That is different from a foundation that's structured as a corporation, which is what you'll see most of the time.

12:07The difference here is that if Warren Buffett dies and his money is in a corporate foundation, the officers of the corporation can change the bylaws and therefore they can change the philanthropic focus of the corporation. This is different. This looks more like an irrevocable trust. What makes it irrevocable is if he dies, that's the end. You know, nothing can really be changed there. So the kids couldn't in some situation say, oh, actually, I don't want to I don't want to donate this. I want to keep this for myself. You're saying that that couldn't happen. Correct. Now, Susie runs the Sherwood Foundation, which focuses on reproductive rights and college scholarships, if you read their tax filings.

12:49Howard Buffett runs the Howard G. Buffett Foundation, which specifically works for food security, conflict mitigation, and combating human trafficking. Peter Buffett, the other son, leads something called the Novo Foundation. Those are projects that include working with indigenous communities. Warren Buffett is basically saying this, quote, it should be used to help the people that haven't been as lucky as we have been. There's 8 billion people in the world and me and my kids, we've been in the luckiest 100th of 1%. There's lots of ways to help people. So yes, it's broad, but no, it's not that unspecific.

13:29He knows what the pet causes are of his children. And that seems to be what he would prefer to have happen here rather than set up some corporation that, you know, 10 years after his death could completely choose to, you know, go in a different direction. Yeah. It seems that he's also just putting a lot of trust and faith into his kids that they're going to, they're going to make the right decisions here. I mean, this is, this is basically his life's work that he's handed over to them, which is pretty remarkable when you think about it. Yes. But it should be pointed out, Susie Howard and Peter have spent their lives on philanthropy.

14:07They haven't, they haven't, They're not software developers. They're not lawyers, right? So they have always had this responsibility. They've grown up with it. Immense, unspendable, unfathomable wealth. This is$130 billion, most of it Berkshire Hathaway stock. And the kids have grown up kids. I don't know, they're in their 60s. The adult children of Warren Buffett are not strangers to giving responsibly. Let's finally move on to this Supreme Court decision. Now, this is different from the presidential immunity decision, which has also been making a lot of headlines. We're focusing on this Chevron decision because it, generally speaking, has more of a direct effect on companies and on markets.

14:54It means, overall, it's going to mean less regulation for companies because, you know, what the decision does is it withdraws the power from federal agencies. It sort of takes away their ability to adjudicate based on their interpretation of the law. And that's going to be less incentive for companies to comply with federal agency regulations. This is generally a win for corporate America. As I've said on this podcast before, I feel that corporate America has gotten enough wins recently. Do we really need to hand corporate America another win, which will likely come at the expense of a whole host of other things, such as consumer protection and health and safety and all these things that regulations exist for?

15:41That's why we have regulation. What is your take on this? So this Chevron thing dates back to 1984. And so for 40 years, this has been a hobby horse of the business community. And, you know, I think the I think the big takeaway here is it's just a continued rollback of things that the business community doesn't want. And one of those things is being called in front of an in-house tribunal, for example, or having having a disagreement with a regulator be adjudicated with no jury, with no judge or with with a judge, but under the terms of the agency itself. And, you know, the Supreme Court just ruled against the SEC and their use of in-house tribunals as being unconstitutional in a case on June 27th, Supreme Court versus Giacchese.

16:34So this is somebody that the SEC was seeking civil penalties for securities fraud. And Giacchese's argument was, no, the Seventh Amendment requires you to bring this to action in a court of law. And I am entitled as a defendant to a trial by jury. So this will slow down, I think, the ability of government agencies to quickly interpret the rules that Congress has set up and then make a judgment. It's definitely a victory for the Chamber of Commerce, folks. I don't think anyone would argue otherwise. How do you feel? I mean, this podcast, we're pretty, I would say Scott is certainly very pro-regulation and he makes that opinion very clear.

17:18I think I would say I feel the same way. How do you feel about this as an investor, as someone who has a financial interest in the success of corporate America? I'm pro-regulation. So my wealth management firm is 10 years old. We've already had two on-site examinations, which is pretty much the standard. Somewhere between three and five years, a registered investment advisor should expect the SEC to send a letter and then follow up and conduct an examination. And it's a lot of work. It's a ton of document production. It's a ton of back and forth. But in the end, if that doesn't happen, if that doesn't exist, no one would trust a registered investment advisory firm like mine.

18:02We're doing business in all 50 states. If there's this sense among the general public that nobody's paying attention and there are firms doing whatever they want and running through the rules willy-nilly, it doesn't benefit us. So I actually, the way I think about regulation on Wall Street and in the investment advisory world, it's a barrier of entry to bad actors and it increases the public trust and they don't see it that, you know, they don't, uh, the public doesn't really see all of the work that regulators do. They hear about things every once in a while when there's a blowup, like the Archegos hedge fund, for example, or Bernie Madoff or FTX, but they don't see the day in day out dotting eyes and crossing T's that in my opinion, keeps the, keeps the train on the track.

18:52So I'm pro-regulation. And, you know, I think the thing that we always have to guard against as a society is regulatory overreach. When somebody at the head of an agency decides that they want to redefine what the rules are and they want to use fines and they want to use public executions as the way they're going to do that. Like, I think that's the other end of the spectrum that, of course, nobody wants to see. Would you say that you're alone in that opinion, in terms of people on Wall Street? Are you a rad breed? No, I wouldn't say that. There are 18 ,000 registered investment advisory firms.

19:28And I think what they mostly have in common, of course, a few bad apples at all times, but what they mostly have in common is their rule followers. The type of people who are attracted to wealth management are not renegade, rock star, Steve Jobsian, you know, geniuses who want to break the rules. It's just not the type of people who gravitate toward our side of the business. So I don't think I'm alone in that. I think if you talk to a typical investment advisor, and again, we're not a hedge fund. We're not high-flying investment bankers. If you talk to a typical person in my neck of the woods, in my part of the industry, they would probably say something similar to what I've just said.

20:08All right, we'll be right back with Josh's reaction to the presidential debate.

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21:52We're back with Prof G Markets. The presidential debate was largely considered a disaster. While Trump was his usual chaotic self, Biden showed much more notable signs of age than he has previously. His answers were slow, halting, and confused. By the end of the night, even prominent Democrats were calling for Biden to step aside for a new candidate. Now, Josh, we're going to discuss Wall Street's reaction to this debate, But I first just want to offer an observation about this idea of managing expectations. And this is something we talk a lot about on this show, particularly as it relates to earnings calls.

22:26And that is, if you are a company and you're about to report a bad quarter, let the market know ahead of time. You know, give them some signals. Tell them maybe it's the demand is softening or that the macroeconomics aren't as good as they used to be. give them some guidance and make it clear that you know what the problems are, and you also know how to address them. Now, let's shift to Biden's performance here in this debate. This, to me, was like delivering the worst earnings call ever and at the same time doing nothing to prepare your investors for it. He had this weak, raspy voice. They're saying he had a cold.

23:05Tell us he had a cold ahead of time. Tell us that he's tired. Tell us maybe he's not as good as he used to be. That's what he's now saying. But tell us something and don't lie to us that he's sharp as a tack and then suddenly shock us with the reality of the situation on the biggest stage in the world. You are, you know, you're a student of the markets. And I feel like a lot of markets is just communication. Is this not one of the worst PR management disasters you've ever seen? You know, look, I'm not a partisan. Like, I'm not somebody that's overly political. But I think I think even even if you're even if you're someone that is hoping the Democrats win the White House or you're OK.

23:48I don't think Biden has like diehard Biden fans, but like if you're a pro Biden person, it's probably because you're anti Trump or anti Trump's policies. All right, fine. But so even if you're in that camp, a couple of things you have to admit. Number one, it was the Biden camp that wanted the debate. So talk about mismanaging expectations. Not only did they not sandbag or give you any sense that, hey, guys, debating is not really his thing. They actually pushed for it. Trump would have been perfectly happy to have no debates. He doesn't need them. He doesn't necessarily win as a result of debates.

24:26He wins as a result of the rallies and his own social media activity. So he didn't. So so not only did they not manage the situation or prepare us, it went hard the other way. It gave people the impression that Biden was about to kick the door down. The other thing I would say is he's never been good at this. He was good. He was good enough at debates throughout his career. But I don't think I've ever seen him do well in a situation where you've got to come up with rapid fire answers. He's got a stutter even when he was younger. This is just not his strong suit. I heard some of the coverage on MSNBC.

25:05I was curious to hear if there would be as much panic there as there was at CNN. There wasn't. Oh, there wasn't. Their primetime people came out the next night and said, Lawrence O'Donnell, his monologue is no president as part of his duties as the president ever has to debate anyone else in a format like this. It's not part of the job. It may be a part of how you get the job, but it's not part of the job. So don't worry. That's not if that's the best argument for like why we should just gloss over this. It's not going to it's not going to be. So the impression that people now have is everything the anti Biden people have been saying is wrong with him has now been confirmed.

25:49Like like we've all seen it with it with our own two eyes. So you could say, well, who cares? He never has to debate again once he wins. All right, fine. but for most people that's not the the uh it's not the takeaway they're going to have the takeaway they're going to have is this is not the guy right now yeah lawrence o'donnell can gloss over it all he wants but you look at the prediction markets biden's chances of winning fell 30 percent after that debate so a huge drop well so from a so from a from a market perspective the knee-jerk reaction that we saw was what's called a bear steepener so in english we saw the two-year treasury rise about five basis points, very little, because everyone knows the short-term rates are coming down.