Rich Habits Podcast - SpaceX Is Breaking The Rules, Siri AI & Ron Santella (HEDG)

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Starting point is 00:00:29 our Friday episode of the Rich Habits podcast where every Friday morning we're coming at you with the biggest headlines impacting you and your money. This episode is brought to you by VCX, the public ticker for private tech. My name's Austin Hankwitz.

Starting point is 00:00:42 I'm joined upon my co-host, Robert Croke, and the three things sitting at the top of our Rich Habits radar this week include SpaceX breaking all of Wall Street's rules to go public, Apple's new Siri AI, and inflation coming in over 4% for the first time in 3%.

Starting point is 00:00:59 years. Be sure to stick around to the end where we're talking with Ron Centella, portfolio manager at Equable Shares. We cannot wait to have that conversation to get his professional opinion on all this volatility we've seen in the markets. So Robert, let's jump into our first story. Yes, our first story today is SpaceX breaking Wall Street's rules, and I mean all the rules. As we film this on Thursday, June 11th, SpaceX is going public tomorrow, June 12th, and nothing about this IPO is normal. Let's start with the numbers. SpaceX priced its IPO at a fixed $135 per share.

Starting point is 00:01:37 No range, no price discovery, no process, no buildup. It's a take it or leave it deal. And at that price, the company is valued at about $1.77 trillion, making it instantly one of the most top 10 most valuable companies on the planet. They're raising $75 billion. the largest IPO raise in stock market history. The stock's going to trade on the NASDAQ under the ticker SPCX starting on Friday, June 12th. SpaceX generated $18.7 billion in revenue last year and recorded an operating loss of $4.2 billion.

Starting point is 00:02:11 Among the nine current public trillion dollar companies, the smallest buy revenue is micron at $58 billion, and the least profitable is Tesla with a $3.8 billion in, in net income. SpaceX is going public at a higher valuation than all but a handful of these companies on Earth while still losing money. Now as we extrapolate a little bit about that business to understand how they actually make money, or I guess in this instance, lose money. The Starlink broadband business is the revenue engine. That satellite internet service now has over 12 million subscribers around the world and growing very fast. There's a clear path to 100 million global subscribers. Their rocket launch business provides reliable cash flow. their AI data center. Elon Webb services is what people are calling it. SpaceX, they just leased

Starting point is 00:03:00 Colossus One facility over to Anthropic and then there was some stuff about Google. So like, that's interesting. That gives the company now a narrative that touches every hot theme in the market at the moment. You got space exploration. You got AI infrastructure and you have defense. Lisa Bayer of Class V group told CNBC the other day, it's not like investors are home doing their math. There's zero math that makes any sense here whatsoever. So we're going to keep following this and keep a close eye on it. And NASDAQ 100 rules were also revised to allow massive initial public offerings, these IPOs, to enter the index after just 15 trading days instead of waiting for standard rebalancing periods.

Starting point is 00:03:44 So that's another change that's happening right now as we lead into these IPOs. To trigger this fast track, inclusion, SpaceX must maintain a ranking in the top 40 by market. capitalization in its first week of trading to prevent index distortion, low float, mega IPOs using a specific multiplier. This means SpaceX's weight in the index will be amplified based on the massive overall valuation rather than just its limited tradable float in the beginning. This accelerated inclusion into the NASDAQ 100 now will force funds and ETFs like QQQQ that are tracking the index to purchase billions of dollars worth of SpaceX shares within weeks of their IPO. Nasdaq and the Russell 2000, like they change their eligibility

Starting point is 00:04:32 parameters to fast track these big, cool, massive fun IPOs. The S&P 500 rejected that. They said, no way. We are not going to fast track anybody to join the S&P 500. You have to join us the old fashion way. You got to be trading for X amount of months. You've got to be profitable. Like all these normal things. We're not changing the rules for anybody. So, cheers to the S&P for holding their guns. Yeah, it's a little bit of Wild Wild West happening right now around this SpaceX and these other IPOs, but the demand is off the charts. I don't know if I agree with the numbers, but SpaceX told investors it would stop taking orders on Wednesday a full day early to give its underwriters all day Thursday to map out where the allocations actually land. The company wants

Starting point is 00:05:18 retail investors to receive roughly 30% of the shares, which would be about $22.5 billion worth, which is three to six times the typical retail allocation for an IPO such as this. Charles Schwab, Fidelity, Robin Hood, SoFi, and Morgan Stanley's E-Trade are all listed as platforms that will make shares available immediately. And we just saw breaking news, according to Bloomberg, just retail investor demand, $100 billion of like straight up, I got the cash, I want this money. for SpaceX stock. So this thing is crazy oversubscribed. Everyone wants to buy this stock, which is a good time to take a deep breath. Usa, as Robert says a little bit, and take it slow.

Starting point is 00:05:59 Now, the CEO of Infrastructure Capital Advisors told CNBC that the SpaceX IPO is actually creating an overhang on the broader market. We talked about this, Robert, inside the Rich Habits Network a couple weeks ago. Investors are selling other positions to free up cash for this offering. So, Robert, we kind of talked through the nuances, how they're breaking the rules, kind of like a bull in the China shop here. But what does this mean for everyone listening and their money? I think it means we're seeing volatility because liquidity has to come somewhere. And this is the biggest liquidity event in IPO history.

Starting point is 00:06:31 And it matters whether you buy a single share or not. When $75 billion moves from investors' pockets into a single stock in a single day, it creates ripple effects across the entire market. We've been talking about this in the network for a few weeks. So all of those big high flyers, the microns, invidias, and intels, they're all going to take a little bit of ding because people are going to move profits from there into this SpaceX IPO. And the fact that investors are reportedly selling all of these other holdings to fund their SpaceX allocations explains part of the

Starting point is 00:07:04 weakness we've seen in the tech sector over the past week or so. And it's not just the Broadcom sell-off or the Iran headlines. It's capital reallocation ahead of the biggest offering ever. So you have to ask yourself this practical question now. Do you want to own a company valued at $1.77 trillion or even $2 trillion, depending on where it opens, right? Do you want to own a $2 trillion company that's losing money? The Starlink growth story is real. Again, clear path to 100 million subscribers on that. That's going to be a ton of recurring revenue. Defense contracts are real. Like all of the money is real. Like get that. But this valuation, you are paying for five, 10, 15 years of perfect execution by their management team, 50, 60 times. forward's revenue. Like, that is unbelievable multiples. On the flip side, you go look at an undervalued Amazon or a beaten down Microsoft. And you're like, why not just buy these companies instead? Now, here is one thing that I definitely agree with. I was on an X space the other day. And people were talking about, hey, if you get allocation in SpaceX at that 135 a share and it opens at 150, 160, 170, 180 a share, whatever it opens up as, you know, someone was saying,

Starting point is 00:08:12 I don't care if you get blackballed. I don't care if they're not going to let you buy anymore. IPOs, sell the stock, get your 40% return on your, you know, 20,000 or 30,000 you put in, and like, rock and roll, congratulations. And I have that same mindset, Robert. If I can, if that is something that you might find yourself, maybe you're on one of these platforms and you got a 10 or 20,000 allocation in SpaceX, and you got it at 135 a share, and it opens up at 180. Again, we're filming this on Thursday the day before it actually starts trading. So we don't know what it's trading at. But if it opens up at something pretty cool, take those profits, redistribute them elsewhere in your portfolio. And then wait,

Starting point is 00:08:45 maybe a quarter or two of public financials, some earnings, things like that, some earnings calls, get to hear what's going on behind the scenes before you make a true bet on what this company is actually capable of. Yeah, that's a great take. But I just feel the average retail investor, they're not the party guests. They're the party favor here. They're not going to be the ones seeing all this upside because, like you said, most of the upside here is baked in years and years in advance.

Starting point is 00:09:13 and that's based around perfect execution, as you alluded to. So that's really, really tricky, and that's why I've been telling people, be careful out there, make sure you understand what you're doing and getting yourself into, and really think through, do you want to sell off all of these really good winners for something that's probably going to be very volatile over the next two, three quarters? And for me, the biggest takeaway today is this IPO window tells you something about where we're at in the market cycle. Companies go public when conditions are favorable. and the fact that SpaceX, OpenAI, and Anthropic are all racing to list simultaneously,

Starting point is 00:09:49 suggest these companies believe this might be as good as the window gets. That's not necessarily bearish, but it's definitely worth noticing. So when insiders are selling, you should at least ask why. It's a great call out. We talked about that on the live show we had earlier this week, Tuesday night, Inside the Rich Habits Network. I had brought up a chart that illustrated all the different IPOs over the last, let's call it, 30 years. and it skyrocketed heading into the dot-com bubble,

Starting point is 00:10:15 but those were all just junk companies that added dot-com to their name, cashed in on what was exuberance and, you know, irresponsibility from investors, and that was the bubble. Now, we're seeing what I would argue is probably maybe early to middle endings of an IPO sort of cycle, right? We've got SpaceX, Anthropic, OpenAI. We had Cerebris recently. There's still going to be Lambda.

Starting point is 00:10:38 Maybe there's going to be fluid stack. Maybe there's going to be, like, there's a lot of AI IPO excitement still. around the corner. So I think it's a great call at Robert of figuring out where we might be in this market cycle depending on who is going public. How much of their stock are they willing and happy to sell to retail investors here at whatever these valuations are? Now, Robert, let's jump to our second story, which is Apple's WWDC and announcing Siri AI. So on Monday, Apple held their annual Worldwide Developer Conference, Tim Cook's last WWDC as CEO before he hands the reins over to Chief John Turnus on September 1st, and the headline announcement of this conference was one that the

Starting point is 00:11:16 company has been promising for years now, which is a genuine AI-powered Siri. Well, you know I've been saying for a very long time that I think Apple's been really late to the party and has a lot of catching up to do, not just in AI, but in design changes as well. So I think this is a good headline because Apple's finally rebranding the assistant as Siri AI and building on top of what they're calling the Apple Foundation models developed in collaboration with Google. The most advanced version, AFM Cloud Pro runs on Nvidia's GPUs in Google's cloud and is comparable to Google's frontier Gemini models. Siri AI can now hold real conversations, understand personal context, work across apps, and even take agentic action, like automatically fixing

Starting point is 00:12:05 insecure passwords and everything else across other websites. Now, here's what matters for investors. though. Apple, and we've all known this, they're a couple years behind with AI. When Apple first announced Apple intelligence at WWDC 2024, it was supposed to be the company's answer to chat GPT and Google's Gemini, but it wasn't ready

Starting point is 00:12:25 and it still wasn't ready at WWDC 2025. Now at WWDC 2026, the features are finally shipping, but Siri AI won't be available in Europe or China at launch due to these regulatory challenges, and you need the latest

Starting point is 00:12:40 devices, the iPhone Air, iPhone 17 Pro, or M3 Max with at least 12 gigabytes of memory to access the most powerful on-device features that we're talking about. Now, I'm an Apple investor, and I was really looking forward to a big wow moment that would justify this like AI narrative that people have been kind of excited about with Apple. And I still think they're going to be a dark horse in this AI race. But what we got was a competence and maybe like incremental update that relies on Google's infrastructure for the most advanced capabilities. In a week where Anthropic released their Fable 5 model, OpenAI filed for IPO, Apple's AI just feels like it's still years behind.

Starting point is 00:13:21 But with that said, there are some bright sides. So, Robert, what does this mean for you and your money? It means 2.2 billion active devices. That is what Apple has that none of these AI native companies have. 2.2 billion active devices. distribution is Apple's moat. It has been forever. So they don't need to build the best AI model. They need to build an AI experience that's good enough and deeply integrated into the daily lives of their billions of iPhone users. That's the bet. That's what's going to win for them. And if Siri AI works well enough to keep users inside the Apple ecosystem, ordering food, managing their calendars, handling email, fixing passwords, it generates enormous downstream value. through services revenue, which already runs at over $100 billion annually. And Robert, if you go to wall streetfavorites.com and you type in Apple, you will see that 61 different analysts

Starting point is 00:14:17 are covering the stock with a median price target of $355 for the next 12 months compared to the current price here of about $2.95. So Wall Street definitely thinks there's about 20% upside still with the stock. Apple is not a hidden gem. No one's saying that it is. But it's a quality compounder to have an a portfolio. I've owned it for years now. In an inflationary environment like what we've seen, all this geopolitical uncertainty, that's the kind of stability that keeps value in someone's portfolio. Now, the big takeaway to Robert's point is this AI strategy is a distribution play, not a technology leadership play. Anthropic, open AI, they're the big tech names when it comes to these AI models. And if Apple can take some of that cool tech and share it with billions of people, more power to

Starting point is 00:15:02 them. Distribution wins in these consumer markets. The question is, is good enough AI on 2 billion devices worth more than the best AI in the world on, you know, 100 million devices? Hard to say. I think that's the biggest call out. If they can pull this off and it's good enough because people still love Apple devices, then I think they'll do just fine. So, Austin, before we jump into our third story, support for this show comes from VCX,

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Starting point is 00:15:49 of the great American companies. But now that's changed. Today, our most innovative companies are staying private rather than going public, and the result is that everyday Americans are excluded from investing and getting left further behind, while a select few reap all of the benefits.

Starting point is 00:16:04 Until now. producing VCX, the public ticker for private tech. VCX by Fundrise gives everyone the opportunity to invest in the next generation of innovation, including the companies leading the AI revolution in space exploration, defense tech, and so much more. So visit getvcx.com for more information. That is getvcx.com. Carefully considered the investment material before investing, including objectives, risk, charges, and expenses. This and other information can be found in the fund's prospectus at getvcx.com. This is a paid sponsorship. Robert, let's round off the episode before we jump to our conversation with Ron Santella with our third and final story, which is the fact

Starting point is 00:16:43 that inflation is back to 4.2%. Can you believe it? This is unreal. Yeah, thumbs down for sure. On Wednesday, the Bureau of Labor Statistics reported that the Consumer Price Index rose half a percent in the month of May, putting the annual inflation rate at 4.2%. Highest in three years. Highest in three Years. Holy smokes. For the third straight month, inflation has accelerated. We haven't seen a four handle on the CPI in three years, and the timing could not be worse. Energy prices also surge 3.9% for the month alone, putting the 12-month increase at a staggering 23.5%. The national average for regular gasoline is sitting at about $4.50 a gallon, driven almost entirely by the ongoing war in Iran and the blockage of the Strait of Ramos. Food prices rose about 0.2% shelter costs, which actually make about a third of the CPI, climbed 0.3%. Putting the annual rate there on shelter at 3.4. Airline fares jumped 2.7% in a single month. Another direct causality is energy paths through with higher jet fuel prices.

Starting point is 00:17:51 But Austin, here's where it gets interesting. Core CPI, which strips out food and energy, rose just 0.2% for the month and 2.9% annually. That number came in below the 0.3% consensus. Core commodities actually posted a 0.1% decline. Transportation services spell 0.6%. In other words, underneath the energy shock, inflation pressures are actually cooling. Now, there's a chief economist at Navy Federal Credit Union named Heather Long, who, and I quote, says Americans are getting squeezed financially by inflation that's back at a three-year high.

Starting point is 00:18:28 The frustration for many Americans is that so many of the basics are up right now. gas, food, electricity, medical care, all clear pain points that are above 3% inflation. Ending the war in Iran will help to moderate inflation, but the worst is likely still to come for rising food prices, end quote. And then literally hours after the CPI report dropped, President Trump escalated things further, warning that Iran will pay the price for not accepting a peace deal. This came just two days after Iran shot down a U.S. Army Apache helicopter near the Strait of Hamos on Monday. prompting the U.S. to launch retaliatory strikes. Iran then attacked targets in Bahrain, Kuwait, and Jordan. The two pilots were rescued, but the geopolitical temperature just went up another notch, and so did the oil prices.

Starting point is 00:19:14 The breaking news here, Robert, hopefully this turns it down a notch. Trump just says he's canceling these Iran strikes. Wall Street Journal reports. President Trump said he has canceled planned strikes on Iran. After leadership and other parties negotiating a deal to end the conflict, approved discussions and final points. Points. Ongoing discussions have been brought to the highest level of Iranian leadership and approved. This is after we heard of him saying that he's going to strike them very hard. So I'm so over this.

Starting point is 00:19:42 We got it. We don't got it. It's good. It's bad. We're at war. Syke. No, we're not. They shot us down. We're going to get them. No, we're not. Like, dude, get out of this. I'm done with this. I have no idea what's going on when it comes to any of this. All I want is inflation to come back down. And we just heard from Bank of America's latest consumer checkpoint data. and this is showing that total card spend rose 5.1% in the month of May, strongest growth in nearly four years, but then the Washington Post reported this week

Starting point is 00:20:07 that Americans are dipping into their savings to maintain that spending pace. So I just, I'm over this. I don't like this at all. I'm going to call my mom and tell her to come pick me up from the party. Well, I guess the way to look at it is the personal savings rate has been declining

Starting point is 00:20:24 and credit card usage is rising. The Fed's own beige book report reported last week noted increased credit card usage, fewer retail visits, and stronger demand for necessities. So these are sobering signals for an economy that's been sustained by consumer spending for a long time. So Austin, that's a lot. We got wars. We got this. We got inflation. We got all these crazy things. Break it down for everyone. What does this mean for you and your money? Here's what I'm doing. I'm watching what the Fed does June 16th and 17th, right? Are they going to raise rates? Are they going to rates or they keep rates the same new chair chairman kevin warsh can't cut rates obviously because we have a 4.2%

Starting point is 00:21:06 headline print on this on this inflation but he also knows that this is not demand driven inflation like the covid induced bubble was back in 2021 when inflation went rampant then it's a supply shock from geopolitical issues raising rates isn't going to bring down gas prices it's only going to crush the consumer even harder who according to bank of america is already dipping into their savings to keep their spending going. For your portfolio, you want to own companies that can pass through higher costs without losing their customers. Costco, not dollar general, Visa, not some random fintech company burning cash. If you go look up Costco right now, actually at wall streetfavits.com, they're covered by 36 analysts on Wall Street, and the price target is at $1,150 a share.

Starting point is 00:21:52 It's not a cheap stock. We're not saying that, but I've owned Costco for years, Robert, and I'm excited to hold on to this one and hopefully it helps me stabilize my portfolio as all this. Volatility ripples through. Yeah, the biggest takeaway from me is the U.S. economy is caught between an energy shock. It can't control and a consumer that's still spending but running out of that cushion. Every month this continues, the margins get thinner and thinner. If the Hermos situation resolves, headline inflation drops fast and Warsh gets room to maneuver. If it doesn't, we're looking at a 4% plus inflation rate through the summer with a

Starting point is 00:22:26 Fed that's simply stuck. So don't make financial decisions based on rate cuts that haven't happened yet. I could not agree more on that one. And I think that's a great time here to bring Ron Centella onto the episode. As a reminder, Ron is the portfolio manager of equitable shares. And he's got a great product, HEDG. We'll definitely talk about that. But he's also been on Wall Street for like 30 years. He's worked with the biggest and the baddest and getting his perspective, in my opinion, is incredibly important. Ron, thanks so much again for joining us on this episode of the Rich Habits Radar. Great to be here today, guys. Robert, nice to see you. Austin, thanks for having me. Yeah, man. Happy you're here.

Starting point is 00:23:04 So something literally right before we started recording, you were talking about, I think's important. You know, I had just broke some news while we were recording about Trump canceling these U.S. You know, strikes on Iran and the talks are getting approved, like all these things. But then you were saying, yeah, we live in such like a news-driven environment that people forget sometimes. that there's larger trends happening all around us that we need to be more focused on. So maybe elaborate on that. For those of us in the market, Robert, Austin, you know, your students in the market, you watch the markets, both are important, right?

Starting point is 00:23:39 Just look over the last week. The jobs number last Friday was real. It certainly affected the bond market and the stock market. There's been tension in the Middle East for now over 100 days. It's affected the price of oil. There's been a lot of sort of fits and starts about whether it's going to stop or not stop. But the headline today is showing people that we could be there. And the bond market, the oil market, the equity markets are all responding to the news. But I think when one looks at

Starting point is 00:24:05 these day-to-day events, they step back and say, is my portfolio prepared not just for the short term but for the long term? What are the longer term trends? How do I ride through this volatility? And what themes am I investing in? I'm a big fan of thematic investing. I think it's much easier to pick a theme that pick an individual stock. So we're experiencing the day to day and you're seeing the same thing that I'm seeing. Yeah, I completely agree. I'm the same way. I think Robert is as well here, right? We've been talking about something called secular growth trends, right, which are these things that are taking place behind the scenes that have compounded annual growth rates and the double digits that just it's going to be here. One of the,

Starting point is 00:24:43 my favorite secular growth trends that I've been investing in now since 2020 is cybersecurity, right? think Palo Alto networks and CrowdStrike and a little bit of Fortinet and things like that, cloud flare, right? And so these names continue to do well. And I think with the rise of AI, cybersecurity is only getting more important. But no, I could not agree more. And I think it's really important to have sort of that when in doubt, zoom out mentality, right? Sure.

Starting point is 00:25:08 I've always been a big fan of trying to identify secular trends and investing in the long term. I think what we're seeing in the current market is something in between. You know, historically we've had the classic cyclical stock. All those would be a good example of that. And then we've had stocks that just have long-term secular trends, something that might play into the age and demographics, healthcare, for example. But now we're hearing that term quite a bit, we're in a super cycle. So some of the industries that historically reviewed as being cyclical,

Starting point is 00:25:35 for example, semiconductors, we're not talking about are they possibly in a super cycle? And that may be true. And it probably speaks to why we've seen the kind of appreciation in that sector and that segment of the market this year. Where do you think, because today is the day, SpaceX IPOs, where do you think SpaceX fits in super cycles, secular growth trends? Like, you know, we were just talking about it before, right? Space exploration, AI hardware infrastructure, defense, right? It seems like they're doing a really good job of getting investors excited about touching all the hot narratives at the moment right now.

Starting point is 00:26:10 Do you think these are durable trends? I think SpaceX is the classic. foster child for, go big or go home. Something that really stands out in their filing, their S1 filing, is the size of their addressable market. The number's 28.5 trillion that they list in that document. So they're aiming to really go after some very large markets. For me, I think SpaceX is representative, maybe something much more important, which is innovation is really the key to growth. And we're living in the time that I've never experienced in my 40 years in the market. It's where none of us have, whether it's AI, robotics, autonomous driving, medical technology,

Starting point is 00:26:51 body technology, defense technology, the advances are unbelievable, and the rate of growth is even improving over time. SpaceX, to me, is right in the middle of that when it's going after. And by definition, there'll be risk in that. They all won't be winners in that portfolio. Right. But I think SpaceX is a company that's coming public at slightly less than $2 trillion. And I think the people believe are going to see a company much bigger than that a decade from now.

Starting point is 00:27:19 I like that take. Yeah, I think so too. But I also want to say Austin and I both have SpaceX exposure through our venture portfolios. But how does this $1.75 trillion public valuation? How does that change the math for these early private investors and then also touch on what that looks like at IPO for people that are trying to get a piece? because I've been saying all along, you know, and Austin mentioned it earlier in this episode, a lot of this valuation and it's going to go up dramatically, I feel is already baked in and I feel like he has to get a lot of things right for SpaceX for it to really be worth this.

Starting point is 00:27:56 But touch on that a little bit of how this works for this valuation for the early private investors. I think there's a couple things that address there, Robert. Number one, there's a musk premium here for sure. And I think we would all agree, and your listeners know that Musk is a unicorn. Using traditional metrics and valuation tools to value with Tesla or SpaceX probably fall down at some level. So you're banking on who Jamie Diamond called the Thomas Edison of our age to deliver many future promises. I think for the early investors, it puts you in an interesting spot because it depends how early you were, of course. But this is going to be probably the greatest wealth creation IPO ever.

Starting point is 00:28:37 Going to create millionaires and billionaires. And so there'll be some people who never had that kind of money before to say, what do I do? Do I want to continue to have the bulk of my net worth in a single stock? Or do I want to diversify? So I don't have a clear answer on what that means for the individual because it's a very personal choice. What I do know is there's an army of wealth advisors who are very excited to go meet some of these SpaceX shareholders. And I can tell you, just from our own experience, we talked to dozens of advisors a week, branch managers, senior management of Street firms. Uniformly, they tell me they've never seen something like this before.

Starting point is 00:29:14 Yeah. That's interesting. So I wonder, because I think I might have seen an article with like the Wall Street Journal or somewhere else where this like girl in her mid to late 20s is going to become a millionaire because she's worked at SpaceX for the last half decade. And, you know, she was doing some engineer work and, you know, she was doing her thing and she decided to take 10% of her salary in stock. And so she's just been, you know, kind of piling it up there. And because of this IPA, she's going to be a millionaire in her 20s, which like, congratulations. I think that's incredible.

Starting point is 00:29:43 I love it when companies, that's one thing like I really appreciate about, about SpaceX is like, I love it when companies are willing and able and happy to give equity to their, to their employees and give them some liquidity when they wanted as well with these sort of tender offerings. But I didn't really think about that, Robert, in the sense of like, I think it'd be foolish for this woman to keep, I would imagine, probably 90% of her net worth here just in SpaceX stock. Like, she's probably going to, you know, thought, diversify into index funds and other different things. Do you have any perspective on maybe like who some of the biggest beneficiaries of that maybe capital reallocation might be?

Starting point is 00:30:20 That story is interesting, Austin, because it just hits me on something I've noticed over my career, which is real wealth is created through concentration. Preserving wealth is usually done through diversification. I think that's going to be the challenge for people that are paper wealthy overnight is when do they make that leap from having that concentration? concentrated bet to diversifying their wealth, right? And again, that's a very personal choice, spent on one's age, risk tolerance, their liquidity, things of that nature. I think by definition, people in SpaceX are looking for new frontiers.

Starting point is 00:30:55 I think they're looking for emerging technologies. I wouldn't be surprised if some of that money finds his way into some of the IPOs we see coming the rest this year. Anthropic has filed for an IPO. You know, Chad GBT's parent has filed for an IPO. We'll have other AI support infrastructure companies come to the market. I would make a bet that you'll see a portion and perhaps a large portion of those proceeds go into those type of companies. That makes sense.

Starting point is 00:31:21 So staying on SpaceX, you take all these early investors, all these employees that are now going to be multi-millionaires, you factor in the lockup period for most of these people, which I'm guessing is going to be six months probably. So when you look and factor all that in after the IPO, after what we believe will be some volatility because people are going to take profits, where do you see it going in the future? Because I believe there is a world down the road. I don't know what that timeline is based on how much he pulls off of all of these lofty expectations. But do you see SpaceX, whatever it turns into being a $6,8 trillion company in the next two to three years or is it much further out?

Starting point is 00:32:06 I think it's easier for me, Robert, to make a prediction about what the value can be. I think the pieces are there for SpaceX to be a $6, 7, 8, and perhaps a $10 trillion-plus company over time. And part of that is Elon Musk has a demonstrated history of providing value to his shareholders. So this is not completely pie in the sky. I think trying to pinpoint that time is difficult. And if somebody said, Ron, do you expect this to happen in three years, take the over or under? I'll take the over on that. I think there will be bumps in the road.

Starting point is 00:32:39 I think some of these businesses are going to be capital intensive, very capital intensive. They tend to take longer than one thinks. So without giving an exact date, for me, it's more than three years. Okay. That's fair. Yeah, I appreciate it. And I was just curious where your head's at because I do believe we see it get to $8 trillion in years, not in a couple years, five, six, seven years maybe.

Starting point is 00:33:06 So I think long term, it's going to be a really good investment. I've just been very wary of telling people to try and jump in at the IPO because I just think that a lot of the values already baked in. So that's my take on it. And I'm glad you kind of agree in the timeline and the later valuation down the road. I think two technical sides of the IPO, which one has been talked about and one not so much, is we will see demand coming from the index funds. The cues will be the first that at it.

Starting point is 00:33:34 They've gone out. They've waived their normal mandatory waiting time. But this will be added to the other indices over time. So there will be buyers of that. For those that put value on corporate governance, I don't believe SpaceX meets the test for that. As we know, Elon Musk is controlling over 80% of the vote for the company. It's not unprecedented.

Starting point is 00:34:01 We saw that in the case of Facebook. We saw it in the case of Google, but the market is not usually a fan of super voting dual share classes. I think that speaks to his following. And frankly, the trust that people have need on mustard to deliver value over time. Now, talking about things that I've also doubled inflation, just printed 4.2% on Wednesday. What's your take on that? It's a three-year high. You know, how is the Fed going to have to respond to this, especially now is,

Starting point is 00:34:33 It's very clear that the inflation we've experienced with energy specifically is not a demand side, but more of a supply side. So inflation numbers are too high. And why the recent numbers may have been in line with expectations, expectations are too high. And that's what the Fed is going to be looking at next week. Now, for those who I look at those numbers, we've talked about this several times in the show, we have the headline number. We have the core number. So one looks at inflation, X energy and food. It's a little bit of a different picture there, right?

Starting point is 00:35:06 I think Kevin Warsh has an interesting situation ahead of them when it comes to inflation because it's recent history when Jerome Powell talked about the transitory nature of inflation back during the pandemic. And it's why they did not act that aggressively in 21, which in 22 led to the highest rate of inflation in 40 years. And so as we're sitting here with inflation that have been elevated now for quite a while, Fed has to look at that carefully and what their steps are going to be. Something we discussed on the last episode that I was on, Austin and Robert, is the Fed has a dual mandate. Their job is to help support full employment and also to help support price stability. I believe the recent labor numbers have given the Fed cover to really focus more on controlling inflation. Yeah, I know you're right. They certainly have, and I guess the real question is, are these labor numbers real? Because I feel like a lot of 2020 and 22 and 2023, you know, we saw all these like exciting big labor numbers and they were revised lower to essentially net and zero growth. And so it's like, you know, when it comes to these labor numbers, like, yes, that's really cool to see. But we'll see how they'll like continues to shake out. Something I want to share my screen real quick and get your take on this Ron is this really cool chart that I had found. I think I saw it on Act.

Starting point is 00:36:27 but it's the market performance during the initial first year whenever a new chair or a Fed chairman jumps in here, chairperson rather. And so during Jerome Powell's first year, right, 12 months, the stock market was about 4.5%. But during that same period of time, the markets fell about 19% max drawdown. And so the median drawdown in that first 12 months is 13 and a half percent, despite about a 10% return in the markets. And so I think this is important for us to talk about here because it sort of sets expectations for some of these investors. You know, you get like a new Fed chairman or, you know, chairperson, what you want to say there is rocking and rolling. Like, we should all get excited or things are going to change or whatever, but the market doesn't like uncertainty. The market

Starting point is 00:37:13 doesn't like knowing that someone who's not been making decisions for the last couple years now, you know, someone's news coming in. They get to make different decisions and who knows what the type of decisions are. And, you know, June 16, June 17, it's going to be a great time for us to get some insight into Kevin Warsh's perspective on what he thinks these rates are going to be. I think I saw on Polly Market, there's a 60, 70 percent chance now of a rate hike in 2026. So it's all over the place. But I want to get your reaction to this chart on screen. We actually spoke about this this morning internally. We had a discussion. We actually had a panel discussion with some wealth advice regarding this. It raises a business. It raises a bit.

Starting point is 00:37:52 bigger question to me, actually, Austin, because I think you're right. When a new Fed chair comes in, it presents some uncertainty about policy. I do think Warsh is a little bit different in that he was a governor for a while. He's written white papers on how he stands, so he's not coming as a completely unknown commodity. What's not known is how the overall committee will come together with him and how they'll work together. Some dissents recently, as you know, with some of the recent votes. But for us, the larger question is not just the Fed, but when you look at the second and half of the year, which starts next month. What type of risk are out there for the investor?

Starting point is 00:38:28 The Fed is one of them. The midterm elections are another that's coming out. Expectations for earnings growth. We're coming off a very solid start to the year for earnings growth. People will be looking to see, will that continue? Right. And so I think when you look at the Fed, you should now earn as a yes. This may create some uncertainty, but one should also think about what other things are out there

Starting point is 00:38:51 the rest of the year that could create some volatility in this market. And how do you protect yourself of those volatile periods? I love this, Ron, and I want to bring up something you led right into it, actually. The 10-year just hit 4.53 percent, and Fidelity said yields have broken out of their established trading range. So, in your opinion, what is the bond market telling us that the stock market isn't given all of these conditions? I've never seen, you mentioned this earlier, I've never seen a market with so much knee-jerk reaction because of headlines day-to-day? What are your thoughts on this with the 10-year being at 4.53%? The bond market is looking at what we're talking about, Robert. They're seeing the inflation numbers. And we look at the stock market and some of these

Starting point is 00:39:37 dramatic moves we had. Yesterday, the Dow was down 900 points plus. Today, it's rallying back strong. But when one looks at Friday's bond market action, you look at the two-year jump, 11 basis points, that's a big move. Yeah. And so to me, the two year is as important as a 10 year with something we discussed in the past because the two years essentially that forward funds rate. And I believe the Fed focuses on that. But I think when it comes to the 10 year, the bond market and stock market are saying they're not quite aligned right now.

Starting point is 00:40:08 Something has to give there in terms of that yield or level the stock market. Yeah, I really like that take Ron. I believe and agree with you 100% here that, you know, they're just not acting in alignment. and I think that's okay right now until the market settled down a little bit more. I want to go back to earnings, though, because you had shared that earnings are really important. What's been your take on Q1 earnings so far?

Starting point is 00:40:33 And do you think that this earnings momentum is going to continue in the back half of 2006? And the reason I asked specifically, I'm going to share my screen again for all you guys listening, you should go pick up your phone and look at it or watch us on YouTube or Spotify. But this chart does a really good job at Illustrate, that since 1995, there have only been six calendar years where the S&P 500 grew earnings by over 20%.

Starting point is 00:40:59 Right. 95, 03, 04, 2010, 2018, and 2021, all of those years. But 2018 ended up with the S&P up double-digit returns. I think 2006 is going to be another year of that here. You know, S&P is up 8% plus year to date. So how important is earnings right now? as it relates to driving a lot of this stock market appreciation. Because to me, I think it's everything. I mean, yeah, we've seen some volatility right. Last Friday, we saw the NASDAQ have the worst day. And not like how many years, I think it was like October or something the last year.

Starting point is 00:41:35 Maybe 14 months, actually. It was the worst day in like 14 months. And the S&P had the worst day since like October of 25. But a lot of that had to do with the Fed's expectations and rate cuts and jobs and things like that. And of course, a little bit of broadcom here and there. but I have a feeling that the markets are kind of shrugging off the war. I got a feeling that the markets are really trying to say like, okay, I don't care about that. We care about earnings and what your take on that?

Starting point is 00:41:59 To me, earnings are everything. I think ultimately strong economy trades the backdrop for strong earnings and earnings drive stocks. It's not much more complicated. But I do think we're at a market where there's been a record amount of dispersion. So when you look at the market, one is to find what is that market for them? If you're in energy this year, you've done well. If you're in semiconductors, you've done even better. If you're in financials, you could be down for the year.

Starting point is 00:42:27 So one has to look at how their portfolio was allocated. But ultimately, earnings drive stock prices for sure. I think the next derivative is the earner's momentum. We've been to the market where the momentum of earnings itself has increased. I think in the future, people will look to see how that momentum is going. Can the market continue to grow at that pace? I think two interesting stories with earnings are two well-known companies. If you look at Dell Computers, recent earnings, they blew through the numbers.

Starting point is 00:42:56 At a pace I haven't seen for a company covered that well by analysts in a long time. Doc was up, I believe, 35% on the news. But to me, it was interesting. Even their legacy business did extraordinary. And there's a company that I was invested in back in 1993. And I'm watching it just, it's like a growth company. And then I watched Oracle yesterday come out and they beat their numbers. At least they beat their headline numbers.

Starting point is 00:43:22 But the market looked at their cap X and looked at their additional financing needs, at least for a day, it doesn't like the news. And so I think it's easier that earnings drive stocks. But I also think for investors, you have to really know what you're invested in and make sure you're following those individual stories. Now, something an observation we've seen on Wall Street Favorites.com recently is that, and we just did this back test over the last, I think, like four months or five months. companies that have market caps above 100 billion returned 13 and a half percent over last

Starting point is 00:43:54 four or five months compared to companies sub one hundred billion all the way down to like 10 billion market cap have been basically flat and so do you think this mega cap mega market cap momentum concentration is a feature of this current market we're in or is it a warning sign or like how should investors be thinking about the mega cap company is driving a lot of returns right now. So two things come to me. Through yesterday, the equal weight index was actually slightly had the S&P 500. So we are seeing some breadth to the market.

Starting point is 00:44:27 And even on a day like Friday, which was a notable down day, we saw some stocks like consumer staples actually rally that day. So market concentration in these names that are grown that are in excess of $100 billion, I think it's both. I think one has to recognize over the short term that These are momentum stocks. These are crowded trades. And by definition, there will be volatility.

Starting point is 00:44:52 So when you see the semiconductor index up close to 90% for the year and then drop 12% in a week, that should be expected. On the other hand, if you have conviction in the theme and you have conviction in the investment you made, you ride through those periods. And as long as the fundamentals stay strong and support that, these companies should continue to grow. So I think two things can be true at the same time. You had mentioned the equal weight S&P. I'm sure there's people listening to the show right now that has RSP, that have VOO and QQQ, and they're looking at the volatility we experienced last Friday and at the start of this week. And now, you know, it's Thursday when we filmed this in the markets just jumped one and a half percent because of the, you know, what happened with Trump.

Starting point is 00:45:36 And so you pair that with Fed uncertainty. Whatever, IPO all over the place. walk us through how HEDG is built to handle exactly this type of environment. We think HEDG is designed to handle any environment. I think this type of environment does shine a brighter light on what we do, but this should be part of a portfolio in this environment, in any environment. I'll walk you through the reasons why. A, we're a big believer in not timing the market.

Starting point is 00:46:05 Stay invested in the market. Something we've discussed on this show more than once is you can miss a handful of days over the last 10 years, 20 years, and you can lose a large percentage of your gains. So when one choose to invest in high-growth names, and one is what we're talking about, SpaceX today, this is how you create wealth. But to ride through those periods

Starting point is 00:46:28 when you have market declines of 10, 12, 15%, hedge is going to be a bright spot in those periods. So, for example, if one looked through yesterday, was to the S&P 500 was down about 4% month to date. Hedge was unchanged for the month. So that gives one a little bit more stability in the portfolio. And I think it allows you to ride that emotional roller coaster that may come from some of those moves that go like this,

Starting point is 00:46:56 in other parts of your portfolio. To me, that just having an intelligent, long-term investment plan. I also want to point out that when markets do rise, we've delivered double-digit returns. In 23, 24, 25, the S&P was. up double digits. All three of those years, hedge was up double digits. So we think it's suitable for any investor. It should be part of an overall portfolio allocation plan. I completely agree. I have it in my portfolio. Robert has it in his. And as we think about, you know, percent allocation,

Starting point is 00:47:25 talk to me a little bit more. I'm not trying to put you on the spot of like, put this exact amount, like, whatever. But I want to just like get your perspective on like how a new investor that might be saying, okay, maybe I'm not cut out for this 4.2 percent decline in the NASDAQ on a whim. or maybe I'm not cut out for this, you know, two and a half percent decline that we experienced earlier this week and the jump up and all this stuff. And, you know, how should they be thinking about portfolio allocation? We've heard about the Trinity study, the 6040 when it comes to retirement. How does this maybe compare to that? Is that something that is just completely separate? Like, how should someone that's brand new thinking about allocating to some HDG kind of

Starting point is 00:48:03 constructed portfolio knowing that this is a core component of it? When one construction portfolio, I think two things are important. I think one should be looking long term. And to me, long term is three to five years plus. That should be the starting point. I think the second thing is one should anticipate there will be volatility in the market. And you're going to have drawdowns of 10, 20, and sometimes more than that 30% in the market. So you want to make sure when that happens, A, you can ride through that.

Starting point is 00:48:31 And B, you probably want some liquidity so you can take advantage to buy additional securities if you want to. So when we look at a hedge, we believe that a hedge should be at least 10% of one's allocation, really up to 20 or 25%. And the reason is, let's just take this month, the month of June. We're outperforming the market by quite a bit. If you're less than 10%, that's not really going to be meaningful in the overall scheme of what you're trying to accomplish. So without knowing the rest of somebody's portfolio, Austin, because it'll be different for each portfolio.

Starting point is 00:49:03 For us, that zone is sort of more than 10%. and probably up to 20 or 25% for a hedging strategy in your portfolio. In this case, HEDG, our ETF. No, that's a great, great breakdown. And again, when people think hedging, they don't only think about like buying put options. But the difference is buying put options eventually go to zero. Like the value of those disappear. And sure, if you time the markets correctly and you're able to buy your puts and, you know, do things like that, right?

Starting point is 00:49:29 Shorting a stock. You're able to do that correctly. Yeah, it works, right? But I can't do it correctly. I can't time the markets. percent of people can't. You mentioned, you know, timing the markets doesn't make sense. Dollar cost averaging, you know, spending more time in the markets than anything is what does make sense. And so HEDG, in my opinion, solves that problem of having a hedge in a portfolio that you

Starting point is 00:49:50 don't have to move in and out of or try in time or do anything. It's just that permanent thing. And it does its job right. I mean, you just mentioned here, month of date in the month of June, you guys are outperforming the S&P dramatically. And when the markets are up and when your puts are going to zero, right? HEDG is going up with it. And so that's what's really, which you guys have built. So I really appreciate you walking us through that again. Just a follow point. We just said, Austin, because they hit on something that's been important to me and my career. I started trading options on the Chicago Board Option exchange back in the mid-80s. Over the last couple decades, I still cannot figure

Starting point is 00:50:20 how to time when to buy puts and when not to buy puts or when to buy costs. Timing is very difficult for investors. That's why when we structured this product, we did not want people just to buy puts and watch the premium we rode. Instead, when you buy your heads, our static rate and return, if the market, doesn't move, tends to be double digits, north to 10%. So you get paid to wait in a fund like this and hedge versus going on buying puts. I love it. We talk all the time and we can end on this time in the market versus trying to time the

Starting point is 00:50:52 market, I think is one of the best phrases in finance to get people to understand. Nobody can time it. Not AI, not the best funds. It's just all about being in the market long term. So Ron, thank you for stopping by. you always bring so much wisdom to our audience, and we really appreciate it. Make sure all of you guys check out HEDG. Very, very cool for your portfolio.

Starting point is 00:51:16 Ron, thank you for stopping by. Great to be here. Thank you, Robert. Thank you, Austin. Another top-tier conversation with a top-tier Wall Street veteran, Ron Santella. Again, go check out HEDG. Really, really cool product that they've built over there, and we're super glad and just proud to have Ron on the show to give his take on all things, stock market, economy, bond

Starting point is 00:51:34 market, SpaceX, IPO, everything. It's so cool to have someone like that. That wants to join us on these episodes. And, you know, it's conversations we're already having with people. I think that's what's so fun about the show Robert is we have these conversations with these industry experts. But the show, the rich habits podcast and now the rich hubits radar has allowed us to take those conversations that we have behind closed doors or over email or over the phone or over Zoom call and now publish them online for everyone to see. And so that we're super grateful to have awesome people like Ron joining us. If you enjoyed this episode of the Rich Habits Radar, please go check out wallstreetfavor. That is the nicest thing you can do for us at the moment.

Starting point is 00:52:07 Showing us some support over there would be incredible. And of course, consider joining the Rich Habits Network, which is our community for our biggest fans. We just uploaded our ninth video course in there, Robert. Ninth video course. It's like 9, 10, 12 hours of video coursework all about investing in personal finance and small business ownership and, you know, automating your money and retirement and taxes, like all these really fun things. They're all over there. Seven day free trial.

Starting point is 00:52:32 Literally completely free. Go trial the rich. its network, stick around if you like it, and we're so grateful to have 100,000 you come back every week. Thank you so much, and we'll see you on Monday. Are you one of those media strategy people clicking through slides, scrolling spreadsheets? Yes? Good. This is for you. Because on Spotify, there's an audience that's different, locked in, loyal, invested. They're called fans. Fans don't just listen to music. They feel seen by it, like it belongs to them. So when your brand shows up on Spotify,

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Rich Habits Podcast - SpaceX Is Breaking The Rules, Siri AI & Ron Santella (HEDG)

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