The Compound and Friends - Bad News is Good News

Episode Date: October 14, 2022

On episode 66 of The Compound and Friends, Bob Pisani and Kyla Scanlon join Michael Batnick and Downtown Josh Brown to discuss stories from the stock exchange, investors of the future, the Fed's toolbox, stocks for the long run, the most important developments in trading over the past 30 years, and much more! Thanks to our friends at Kraneshares for sponsoring this episode. To learn more, visit: https://kraneshares.com/webinars/party-congress-policy-q4-outlook-q3-market-review/# Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/disclosures/ Inclusion of advertisements by podcast sponsors does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers: https://abnormalreturns.us5.list-manage.com/track/click?u=f8843b0fc6f0ed7d35e67dcf5&id=33b07916d1&e=4e0f612ef0. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Kyla, you have 20,000 YouTube subscribers. I know. That's insane. I mean, I know how you did it, but like you did it. Yeah, yeah. Okay, that's like a level that most people never get to. Really? Yeah.

How long? When did you start? Oh, like a year ago, a year and a half ago. The Federal Reserve of San Francisco is a fan of Kyla's content. Well, why wouldn't they be? Because the... The Federal Reserve? Who's the Fed governor of Kyla's content. Well, why wouldn't they be? Because the – Federal Reserve?

Who's the Fed governor in San Francisco? Mary Daly. Right. So her office reached out to you. The Fed is now putting out like 18 podcasts a day. So it makes sense that their content – is my mic not on? I'm not hearing myself. Well, yeah, they're all in the – everyone's in the content business.

The Fed is big time in the content business the fed is big time in the basically an influencer at this point well neil kashkari is an influencer absolutely yeah yeah i mean he won't stop talking well i that's part of the part of the job is to say things that will influence things in the direction they want them to go yeah so i guess it makes sense that they would be watching YouTube. Are they doing any video besides speeches? I don't think so. Okay.

Yeah, they don't do like Gary Gensler does. He should hire you. Like as consultant. Yeah, project stuff. I want to work on that. Does Bill Dudley have a sub stack? No, he just has his Bloomberg. He doesn't need a sub stack.

Actually, he just did an opinion piece. The Federal Reserve owes the world to Mia Coppa. He's like guns blazing because he was the dissenter, right? On the Bernanke Fed. You can do that when you're out. No, but he was dissenting

the whole time. He was like the only one, I think. Well, also, he was the New York Fed, which is the most important Fed. It's like on Game of Thrones. Like the New York Fed is King's Landing. Do you watch Game of Thrones? No. But she's with me on most important Fed. It's like on Game of Thrones. Like the New York Fed is King's Landing. Do you watch Game of Thrones?

No. But she's with me on that. Yeah. I think that's it. Yeah, Williams came out with that whole bedrock commitment to price stability piece. That was pretty intense. Mike, I have a new drop. Zero percent chance.

What do you think? I can't f***ing hear. I can't hear. No, no, no. That one's very low. That one's very low. You can't hear anything? I can't hear myself.

No, I hear it. Oh, make sure he's on. Is your headphones working? Yeah, I'm good. You can't hear anything? I can't hear myself. No, I hear... Is your headphones working? Yeah. I'm good. Kyle, are you here good? Yeah, I can hear. Oh, there you are. Oh, wait. Hello? Hello? Did you bring a copy? Bob, did you bring a copy of the book? Yeah. Okay. I have one copy. Where is it? I'm just going to hold it up

for the camera. Hello? Hello? Hello? I don't think I hear myself. I hear other people. I don't think I hear myself. I hear other people. I don't hear myself. It's all the same. It's all running through the same thing. Thank you. No, for real.

No, here, try it on. This is awesome. Oh, wow. That's awesome. Have you written a book? I've never written anything like that, no. I advise against it.

I'm going to write an article. Thinking of writing a book? Reconsider. Yeah. It's really... I've heard it's really rough. It's a bear. Yeah.

Two years. And you never wrote a book before this? Oh, no. I wrote a book 33 years ago for the real estate courts. We taught at Wharton. That's how I got the job at CNBC. It was a course on real estate. I love the pictures.

I love the pictures in here. Duncan, am I wrong? No, you're not wrong. It's Bob with Muhammad Ali. Warren. Warren Buffett. Who's this? That's Jimmy.

That's Warren Buffett's specialist for 25 years. Great legend on the floor. He helped kind of make me on the floor. He convinced everyone to talk to me. Walter Cronkite. Jack Welch. That was the day. That was the Jack Welch top.

That one day right there. You and Fidel Castro. Holy shit. Yeah, right there. You and Fidel Castro. Holy shit. Yeah. Not a good story with Fidel Castro. All the stories are in this book. Jimmy Page played... Yeah, a whole lot of love.

We should play that. I watched that video today. What year was that from? May 2005. Aretha Franklin. She was wonderful. You know what they said? Sam, uh...

Motley Crue. Hey, Mike. Yeah. Motley Crue. Hey, Mike. Yeah. Motley Crue. Stan Lee. That was my favorite of all time. You never meet somebody like – you meet people all the time that are famous, but all of a sudden you meet somebody that you really meant a lot to you.

I collected Marvel Comics when I was a kid. I'm old. I mean, I'm talking 63, 45. Stan Lee would freak me out. And I ran up to him and said, oh, my God, I am so happy. I still have Avengers 1. I have X-Men 1. I still have the original shit. You have your collection? He looked at me and said, I don't have anything anymore. I got rid of it decades ago. He was in his big fight at the time with Disney.

He lost control of Marvel for a while. Totally control of it. And then they made up with him, but that was when he was really – he just said, I don't have anything. Do you have any theories on why they can't make a good Fantastic Four movie? The characters aren't – I mean other than the thing, the guy – the main leader is just boring. And the girl is not interesting enough. She's not edgy enough. What's the main – The stretch.

Mr. Fantastic. Mr. Fantastic. He's not interesting. Because they tried twice and they're both terrible. I mean The main guy? The stretch. Mr. Fantastic. Mr. Fantastic. He's not interesting in the comic book. Because they tried twice and they're both terrible. I mean, the Human Torch

is kind of cool, but the two lead, the husband and wife are boring. Yeah. That's the problem. They should have them get divorced.

Like they should, right? Like they should make it, see, this would be my favorite picture of you and Art Cash. Thank you.

He is, he's coming to the party. Is he coming? Yes, he called and said, I'm coming. Oh, hello. You and Art Cashin. Thank you. He is, that's my, that's my guy. He's coming to the party. Is he coming? Yes, he called and said, I'm coming. Oh, great. I'll be there. I'll be happy.

How great is that shot? Incredible. Is that at Bobby Vans or is that before, that is? Yeah, he, you know, he decamped the day

they went public. They closed the luncheon club on the sixth floor as a cost-saving measure in 2006. It was a loser. It always was, but it was where everybody hung out at the top, in the main dining room in the luncheon club on the sixth floor as a cost-saving measure in 2006 it was a loser it always was but it was where everybody hung out at the top in the main dining room in the luncheon club on the sixth

floor and for a 50 70 years that's where people had hung out uh and they did it as a cost-saving john thing and they were it was so furious that he went took everybody the friends of fermentation these are people that hung out with Art at the bar upstairs in the NYSE, literally walked across the street

to Bobby Vance and never went back. Yeah. That's how it happened. Yeah. It was a cost-saving thing. And then they just closed Bobby Vance.

A couple weeks. They closed it a few weeks ago. He was heartbroken. It was the end of an era. Well, he doesn't feel like he has a lot of places to go now.

And I told him, you know, we'll go to Harry's. Harry's is doing the 50th anniversary. Yeah. The 18th. And Harry's going to – we're all going to go. Art's coming in. We're going to go. Harry's going to be there.

Harry's is like the last place on Wall Street. It's not – Stone Street is its own thing. Harry's is the last place where you'll see the guys with the white collars and the blue shirts and suspenders and it's guys in their 50s, 60s. Traders still go there. Traders still go there. It's the last of them, right? Yeah, he owns that whole block. Peter, his son, owns Stone Street.

They own everything on that block. He owns the pizza place and the place next door. All the bars are owned by him. and the place next door. All the bars are owned by him. So he's 85 now, and he's opening a new restaurant in West Palm Beach called Harry's. And I don't understand how he has the energy. I haven't seen him since COVID.

I'm going to see him for this thing. God knows. Carla, have you been to the Stock Exchange? No. Well, maybe. Yes, I've been to, yeah, NYSE. I know somebody who's pretty influential on the floor, Bob Dasani. You ever want to come down, come down.

That's amazing. And tell us all about it. We'd love to see you. Yeah. We'd love to have you down there. We're looking for new people, and that's another thing I want to talk about. Yeah. How we're getting new people involved in the markets, because you guys have an edge on this better than anybody, which is why I went to your conference. Oh, thank you.

Yeah, yeah. Thank Alex. You're the man. Thank you I went to your conference. Oh, thank you. Yeah, yeah. Alex, you're the man. Thank you. Thank you very much. Appreciate it. Sorry. So, Bob, you were saying new blog conference?

I want to talk about this. I want to talk about – I want to get a plug for the conference and hear about next year. Yes. Because we're going to double it. We're going to have 5,000 next year. We're going for it. We're going to try. And I really feel like Robin Hood, 20 million new people three years ago.

So this is the greatest thing ever. And the derision these people were met with on Wall Street, a bunch of Reddit, no nothing. I could not figure it out. Vlad Tenet, all right, he made a lot of mistakes, whatever the hell he did. But who else had 20 million? Who else ever got 20 million accounts in a year or two the thing that i the thing that i was saying during that i was not like into like all the gamestop ape stuff but like i understood it i remember back in the late 90s when i was 20 i wasn't doing such great shit back then it's like it's not like every generation doesn't start off

stupid and then learn like that's how it. There's no generation that got into the stock market and had it figured out in the first year. So I was basically like, can we give the kids a chance to like figure this out? Do they have to be, do they have to be Bogle, Bogle heads on day one? No, but that's our job. Right. Absolutely. Well said. Well said.

What are you guys whispering about? John, are we doing this thing? Let's do this thing. Coming in with a collapse. Trying to figure out a hum. There's a hum in the room? Yeah. I think it's the excitement.

I'll fix it. I'll fix it in post. I think it's the excitement. We always fix everything in post. So markets are HRDing. Episode 66. Oh, my God. Here it goes.

Welcome to The Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's show is brought to you by Craneshare.

I want to point your attention to a webinar that they're going to be hosting next Tuesday, October 18th at 10 a.m. Eastern. It is going to be on the Q4 Outlook as well as a Q3 market review. On that call is Craneshare CIL Brendan Ahern, their head of international, Dr. Xiaolin Chen, and their general counsel, who used to be the U.S. ambassador to Singapore, David Adelman. On that call, they're going to talk about what drove performance in Q3, insights on US-China relations, and much more. Again, that's Tuesday,

October 18th at 10 a.m. Eastern. Hit the links in the show notes to find out more. Wait, we've done 66 episodes? I'm always amazed by the number. Was that the bottom. Was that the bottom? Was that the bottom?

No. You should hand my music zero percent chance. Zero percent chance. Is that you? It doesn't work. All right. It doesn't work.

But we tried. All right. I'm so excited for today. I've been looking forward to this for a long time. We have two rock stars on the show. Two first time friends

on The Compound and Friends. We're going to start with Bob Pisani. Bob has been a reporter for CNBC since 1990. Wow. In addition to covering the global stock market, Bob covers IPOs, ETFs, financial market structure. Prior to becoming the on-air stocks editor, Bob covered real estate. I'm going to throw this out. I'm going to say, I said this on Instagram this weekend,

Bob covered realist. I'm going to throw this out. I'm going to say, I said this on Instagram this weekend, you have been the constant companion of the American investor for 25 years. Is that too much or is that about right? I like the role there. I like the way it comes off your tongue and I like to believe that. I'm a lot more humble than that. And part of the reason I wrote the book is to explain what I think I know and what I think we don't know overall, and ask people to be a little more humble in what they think and how they advise other people.

Full humility understood, but still your voice, your face, it's fair to say one of the most constant things in the lives of investors, at least since I'm doing this, like you're always there in a very good way. Anytime somebody sees you, they're going to get an explanation of what's going on and they're going to get it in plain language and they're going to get, I think you're an optimist overall. Like I watched you report on 2008 prior to us ever meeting and you were one of the people that was just trying to be constructive every day and it helped people. It's important to be a glass half full person.

I don't understand people who get up every morning and say, well, ladies and gentlemen, life sucks and it's not going to get any better. The glass half empty crowd. And I've always been amazed how many people there are out there that are like that. Well, that's a business model for some people, which we could get into. I want to introduce Kyla Scanlon. Kyla is the founder of Bread, a financial education startup,

as well as a writer, researcher, and financial influencer. Kyla frequently puts out financial-related content on her YouTube, 20,000-plus subs. We'll give them a round of applause. And you're big on TikTok. I think, TikTok and Instagram, and I think the first time I ever saw any of your stuff was not your written stuff, but people sending me your videos like, this girl's blowing up.

You got to see what she's doing. And you're like very good at it. And that's arguably the most important skill right now if you're a financial communicator is video, short form video. Do you agree with that? Yeah, I would say it's super important to incorporate. Yeah, because that's just attention spans, right? This is how people are getting their news. So my 3,000 word blog post aside,

like this is, but you're also a very good writer. What's your Substack called? It's just kyla.substack.com. That's easy. How did you get that? You were early? Early, yeah. Super early to Substack.

So wait, let me just give Kyla one more plug. So Kyla has become, burst onto the scene, I think one of the things you did to see that really- The vibes. Absolutely nuts was the vibes. You said it's a vibe session, people ran with it, and you did an opinion post in the f***ing New York Times. Yeah, yeah.

Unbelievable. How did that happen? They reached out to me and were like, do you want to write an opinion piece about this? Do you think it's important? And I was like, sure. But how do you think they knew to reach out to you? Because you wrote on your sub stack about it and it sort of caught on.

It caught on. Yeah, I mean, I think because it was a little bit controversial. Some people do not like the word vibes. So a lot of people didn't like it and a lot of people did like it, you know? Okay, but you have since become extremely influential. And a lot of people did like it, you know, so. Okay. But you have since become extremely influential. And I'm so glad to have the two of you here today of all days because it was kind of a momentous thing that happened today.

So let's recap. We got September CPI up 8.2% year over year. That was hotter than 8.1 expected. Core CPI was on fire. All-time high. Well, for this, it accelerated. Yeah, it's actually getting faster. It's getting worse. Up 6.6%. Core CPI up 0.6% month over month versus 0.4 expected. So basically, this is one of the worst of a series of very bad inflation prints and kind of almost makes you think like nothing the Fed is doing is working.

And so what did the stock market do? Well, this morning, Josh and I were driving into Manhattan and sentiment trader who I'm a fan of his data that he puts out. He said this, the S&P 500 is on track to open lower by more than 1% after six consecutive losses and at a 52-week low. The only other time since 1982 that that has happened – so again, just to recap. Lower by more than 1% in the open after six consecutive losses at a 52-week low was October 2008. That's the sort of shit – You said – you were like, we're really in this shit.

We're in it. This is what it is. We're in it. Yeah. And of course – well, no, I shouldn't say of course. We're now recording this at 255, and the S&P 500 is up 2.75% on the day. How many points? Stop.

How many points is the Dow up? No, for real. I don't like to entertain this nonsense. Who cares how many Dow points? Bob, do you care about Dow points? No. Thank you, Bob. Because the Dow is not important.

It's a price-weighted index, and it's not a good reflection. For the simpleton over here, it's up 900 points. That's a lot of frigging points. Isn't the Dow the people's index, though? Yes. I understand how it's calculated. Yes, but we're in the business, and professionals use S&P. Okay, so if somebody on the street says to you,

how'd the market do, would you give them an S&P number or would you say the Dow went up 900 points? I would say the market went up 2.4% or something like that. And do you think that resonates as much with somebody as opposed to if you were like Dow went up almost 1,000 points? Isn't that so much more evocative? No, but nobody knows necessarily that that's 3%. And what we need to do is educate people about percentages. That's what matters. So you want to see Michael on this? Okay. Well, because Bob is a sensible man. But what was so interesting about today is that there was so much data coming into today that how bad markets have

been reacting on all CPI prints. So JP Morgan did this thing showing that over the past 10 years, CPI prints. So JP Morgan did this thing showing that over the past 10 years, never- John, let's throw it up. Never has the S&P been so reactive negatively to an economic indicator as it is now to CPI. This is the entire game. All you need to know going into today was what was CPI going to do, and you could predict the market, except for the fact that you can't predict the market because it was down 1,000 points at the open, and now it's up 900. Right. So are you asking why did the market rally?

Is that the question? What are we saying? What's the narrative? Well, what you want to look for here is, first off, the standard narrative. Okay, sentiment indicators, everything's oversold. The problem with the word oversold is it can be oversold for a long time. How many oversold rallies have we had this year? We had one in March.

We had one in April. We had one in June. We had two in September, at least. And every time we come on, we show the AAII numbers. We show RSI numbers. And look how oversold this, my God, it's got to bounce. And it bounces and then it goes down again. So what does this tell you? We're in a very unusual, extraordinary situation, whether it's COVID, whether it's the Fed, whether it's the Russian invasion, weird stuff's going on and oversold sentiment indicators don't help us that much. So why did we bounce today? And I think the key, the minute this happened, I got a message, hey, Bob, why is the VIX down today?

That's what I said. Why was the VIX down? What the heck is this all about? So I call my, go ahead. I mean, no, no. So why did it bounce? In other words, it would have bounced eventually, but why was today on this negative CPI per day? That's the question.

Okay. So here's the question. Look at the VIX and why it's – ask the question. Why is the VIX down when in theory you would think it would go up because if it's a fear indicator, it should go up. And the VIX measures events 30 days out and probabilities. It's literally an indicator of puts and calls for the near-term S&P 30 days out exactly. There are three events that matter in the next 30 days, the CPI, the November 2nd Fed meeting, and then the election. All of a sudden, right now, we got

two of these data points probably taken out. We now know what the CPI is, and we now all know that the Fed's going to do 75 basis points. Two of the three data points have been taken out. Therefore, a lot of people would cover positions believing now that they have a reasonable expectation of what's going to go on. Now, the numbers are very unusually high. It is very odd for the VIX to stay over 30. 32 implies a – you know this rule, divide by 16 to get the daily moves in the VIX? Give it to us for the audience. There's a simple rule.

The VIX is designed to tell you what do people expect the S&P 500 to move on a yearly basis in the next year, on a monthly basis, 30 days. But if you want to know what's the daily swing, you divide by 16. And there's some reasons for that. But the VIX at 32 implies that the market is expecting a 2% move on a daily basis for the next 30 days. That is extraordinarily high volatility. And you really need to have a lot of stuff go bad for it to move that much in the next 30 days on a daily basis. So, all of a sudden, we got two of the three most important data points. Remember, it's just 30 days out. That's all the VIX measures. And now, you have two out of these three data points, and they already know. So, they reduced the

probability of weird outside events coming down. They covered some positions. Some people are in cash, so they need less protection overall. So, that's how you get to that point. All of a sudden, you get some people just covering shorts and the market changes. Now, does that mean, by the way, does that mean that suddenly we're out of the woods? It doesn't. That's the problem. 20 days from now, we could have people going crazy and buying more puts again. We're always in the woods. Well, this is why I say everybody says, okay, so now we're out of the woods. You just explained away the problem. No, we're not.

That doesn't- No, but I thought that was a very good explanation about it being a 30-day lookout. And November 2nd falls squarely within that 30-day period. It's exactly in there. So then what are you,

you know, what are you going to worry about? You're going to worry about the Fed meeting now in November and then December. But Bob's right. You remove uncertainty even if once you get the certainty, it's bad certainty. At least you remove – and that's what the market hates.

The only thing they care about when you're owning that VIX, that cash, is what's going to happen in the next 30 days and what will move the market. And those three events are the ones that would move the market. With two of them out of the way, less probability of things going wrong. 2% moves on a daily basis, extraordinary. Very difficult to sustain that over a long time. I was looking at this morning on the open. I was looking at the bank stocks wanted to open green and the dollar falling and the VIX not budging. And I didn't predict anything from this, but I just said something is not going according to the script.

Based on the chart we just had up, every CPI day this year. Josh said we're going so much lower. I'm just kidding. I still feel that way. going according to the script, based on the chart we just had up, every CPI day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day-to-day- Now the inflation has become so broad based. It's always been really broad based, but now it's lagging to a certain extent. So like what's being reflected in inflation right now is shelter. Shelter costs are apparently high according to CPI. But if you look at Realtor.com or Redfin, rents are actually slowing down. Healthcare services are increasing in price. The Fed can't do anything about any of that though, right? So like all the Fed can really do is raise rates in order for people to stop demanding

things, but they can't like build more apartment buildings. So it's sort of – that's like the issue with inflation is that what the Fed is trying to do is just like hammer down the market or hammer down inflation. But that might not fix like the underlying problem. The Fed can't make more people turn to the nursing profession. The Fed is not going to build apartment buildings. The Fed is not going to discover oil. The Fed is not going to build homes. There's like a lot of structural things. So if they want to just knock down demand like a shotgun approach,

I guess that's the only thing they really can do. The scary thing is that shelter is about a third of CPI. And what rent measures is people that are already in leases. It doesn't show what like new rents are being signed for. So that's going to take a while for itself to work its way through CPI. So inflation can stay high for longer than we probably think. So are you with Jeremy Siegel was on this afternoon saying this is the problem. The Fed is now continuing to raise rates when we've already got data that indicates things are going to start changing. Are you with Jeremy then that the Fed should stop with this aggressive program?

I mean, that's like the tough part. Like, so theoretically, yes, they should stop. But like you still have inflation. You still have to fix inflation. And ideally, fiscal policy would step in and be like, OK, this is how we build more apartments. This is how we allocate. None of that's going to happen. Exactly.

So it's like the only mechanism that can happen is the Fed continuing to raise rates. But that isn't really, you know, and everybody knows this, but it's not like addressing the underlying issue. You think they know this internally? Like they might. If we're all well aware of the lagging effect of housing,

for example, in the inflation date, like this is not news to them, but yet, and yet they're going forward anyway. So either they know something that the rest of us aren't thinking about, or they've said internally, you know what, this is basically all we got. But two things, wages just increased at the highest level since 1980. And that's the sticky part. And what if they said, you know what, guys, things are starting to break. Maybe we just pause a little. If they communicate that to the market and financial conditions ease, like the market rips, they're like, well, why did we just do all that just to undo it?

Yeah. They're between a rock and a hard place. Here's the broader question. Simply raising interest rates or adjusting the money supply is a very blunt instrument. The Fed has nothing else. Is there any other way we could fine-tune the economy? Is there anything else? Can we change the 1913 Federal Reserve Act and give them some kind of other fine-tuning powers?

Isn't that the source of this problem? We could do immigration reform and bring workers in from all over the world. And that wouldn't solve anything in the next three months. And that's also not a Fed thing. Correct. All right. But so I'm not a Fed thing. Correct. Right. But so I'm asking you an econometric question. What other powers could we give the Federal Reserve that are less blunt than this that might be able to fine-tune it?

Could you? Or is the economy just so big it's basically unknowable and it doesn't matter? I think a lot of it right now is about labor allocation. So the reason that wages are going up is because you can't hire what or you can't fire what you didn't hire. Right. And so like a lot or something like that. So a lot of people like fired a lot during the pandemic. So like construction, mining, utilities, et cetera. And so now they have to raise wages in order for people to come work for them.

And like the Fed can't really control labor allocation. They just can nudge everything in the right direction. So to answer your question, I don't know the answer to it, but like the, the tools that they have shrinking the balance sheet, raising rates, um, talking is a big tool for them. Communication in general, setting the standard like that. Well, I think they dried up. So I think they did some things that aren't showing up in, in maybe the economic data yet, but they have shown up in sentiment. Yeah. They have knocked out the funding source of a million startups. So we don't have IPOs anymore in this country.

Last year, we had 1,000. They killed the vibes. Well, they killed the vibes for sure. So this year, I don't know if we're going to have 100 IPOs, but we're definitely not going to have the venture funding. We're not going to have all the startups. We're not going to have all the hiring that comes with stock options. All of that is over with.

Again, it doesn't solve the immediate issue, but that has to, at some point, have an effect on the labor market, even if it's regional, even if it's just in California. But to Kyla's point, and Nick Hollis spoke about this last week, companies just worked so hard, and they still are working so hard to fill these openings. Maybe they're not going to be so quick to let them go. What do you think about it? Nick was on the show last week. So I meant the warehousing of talent.

And if you're a CFO making these decisions, it's not so easy to just say, let's cut loose a thousand people because how expensive will it be a year later to try to go and get them back? The Fed is saying slow, saying to the economy, slow down. The economy is saying, no, I don't think I will.

Yeah, they can't, you know, to a certain extent. They to the economy, slow down. The economy is saying, no, I don't think I will. Yeah. They can't, you know, to a certain extent. They have to keep on doing projects. And that's the thing. Like corporations are relatively okay right now. They have large cash balances. Like they're okay. But, you know, the Fed is –

Their stock prices are not, but they are. Let's go into this good news is bad news. Because I think one of my takeaways from today is that basically we have to root for bad news now. And I hate that. Like, like philosophically, that's not the kind of person that I am, but I feel like that's the only way we get closer toward the end of the cycle. What do you think about that? Of course, you're right. But the problem is this is why the public hates financial reporters. This is part of it. This is the bizarro world. Remember, we were growing up, well, you were young,

but in Superman in the 1960s, bizarro, everything was upside down. And you should see the Twitter universe. Like, oh, you guys are rooting for the economy to go in the shitter. For job losses. Thanks a lot, you know. Yeah, because you want to stay with the stock market, you greedy bastards. And, you know, I have a problem with this too. I always say, explain this to your mom.

Robert, the news today was good. Job growth was very strong. No, mom, that's bad news. Oh, Robert, why is that bad news? Well, kind of like the Fed wants the job market to fall apart so they can get a handle around economy, around the inflation. Well, Robert, but if everyone loses their job, it's going to be really bad for the country.

It's your point. And you have to explain to your mom why you're rooting for shit things to fall apart. In your book, which we're going to talk more about, you said that one of the things you did early on was invent the viewer that you're speaking to. And it sounds like it's a composite of a regular person. You said she's 48. Where does she live? Minnesota. Minneapolis.

It was very specific. Yeah. But it was interesting. You created in your mind the person that you're speaking to and that helped you decide how you wanted to present information each day. Well, this was 1990

and it was very early days of CNBC and the problem was staring into a camera. You're looking at a black hole. So there's cameras around us here. You look into these things. What's there? Who's looking back at you? Yeah. And you don't know. And it made me nervous because you have to assume a certain level of awareness and nomenclature. So if I was talking to somebody and I was the real

estate reporter in 1990, and I explained what, talked about mortgages, I knew that most of them knew what mortgages were. But if I talked about mortgage-backed securities, they didn't know what mortgage-backed securities. So how do I know the level of sophistication? I invented someone in my head, a woman in – 48 years old living in Minneapolis. Her husband worked for 3M, Minnesota Mining. And she had two kids who were 20 years old, 24 years old, and they were interested in buying a house. And she was watching me. And I could tell – I got to know her, and I could tell if my reports were on and they were at a certain level that she could understand, she liked it.

And if I started getting wonky, I could see her actually wrinkling her nose. And so that's what I try to do as a reporter. Talk to a certain level. If you're going to go out of that or you're going to explain the VIX, for example, take a minute and explain to do that. I think that's a brilliant device. example, take a minute and explain to do that. I think that's a brilliant device. And, you know, Kyla's content, I think you've, I don't, I think you've kind of stumbled upon the same idea, which is your audience who's reading your sub stack, following you on Instagram, on TikTok,

you're giving all of this information to them, but in a very digestible way for that audience. So I don't think- Who are you talking to? So I wanted to ask you, who did you create? Who did you create in your mind? I mean, I just like, I pretend that it's my friends. So like if I talk to my friends who most of the time don't like finance and often say like, oh, like why are you rooting for the world to burn?

I try to, you know, talk to them and talk to a younger demographic. So I target like, you know, 15 years old to 30 years old, sort of that age range. But that was a consensual. You just said, I'm on a platform. I know who's here. I know who's not here. I'm 25, so I'm like, right.

That's all I can talk to is myself to a certain extent. Hey, wait. Are you producing those videos? Are you doing all of that? I'm a team of one for everything. That's amazing. Wow. It's bananas.

Let's do this Citigroup economic surprise index. All right. So to Josh's point about good news being bad news, the link between the S&P 500 and Citigroup's widely followed surprise index for the US economy has jumped to the most negative since 2015. So Bob, what you were saying earlier, how could we look at the news and say, hey, this great data, the market tanked. Well, that's what it is.

The market is responding negatively to positive data that just won't quit. And Bespoke tweeted this yesterday that we have had the longest series of surprise upside beats on nonfarm payrolls like ever, six in a row. And the data – Every time the stock market sells off. The data just won't turn and the market – neither will the market. So what should we be advising investors to do? I mean, how do you tell investors we're looking for layoffs here? Like how it's, it's, it's so bizarre because we came, we had a 22 million job comeback from the pandemic. Like we literally, we gained, we worked so hard and did so much stimulus to get

back all of the jobs that we lost in the pandemic. And it worked. And now we want to reverse it. And we want to deliberately get to we're at 3.5% unemployment. They're talking about 4.5%. So I know we talk in percentages. That's like a million something. A million and a half.

A million and a half jobs if we were to get back to. People losing their jobs. A million and a half families with somebody not able to earn money to support those families. And that's what we're aiming for? But that's not what I asked. Let's say we got a 30-year-old. Let's talk – you're 25. Let's say we got a 30-year-old.

They got $100,000 in stocks. They got an S&P fund. They got some individual stocks. What are we telling them to do? Oh, this is a blessing for younger investors. No, it's great for them. Good.

They're not using the money. Good. Absolutely. Then we should be emphasizing that. Absolutely. We should be educating people about the history of the markets. I'm so glad you said that.

This is a very, very weird, unusual year. I'm so glad you said that. There's only 15 times since 1926 the S&P has been down 20% or more. 15 times since then that it's been down. Three quarters of the time, the S&P 500 goes up year over year. And it goes up a lot. 10%.

If you look at the times the S&P is up 10%, 56% since 1926, the S&P is up 10% or more. 56% of the time. 12% of the time, it's down 10% or more. Oh, let's take a look. This is one of those 12% years. There's a lot more. This is one of those rare years. There's a lot more green here than red.

So what we're looking at is a chart of the S&P 500. To Bob's point about stocks usually going up. So 64% of the time, the S&P 500 has been within 10% of its all-time highs. And the opposite of that is, listen, these are not free returns. The reason why stocks go up, they're risky. They're risky investments. And you have to eat the losses along the way. And so right now, we're in a situation where we're between 20% and 30% off the highs.

This is not unprecedented. It's happened 11% of the time. So one of the things about financial television is that, of course, wealthier people are watching it. Wealthier people tend to be older because they've had a lifetime to accumulate assets. A day where the S&P 500 is down 2% or a week where it's been down five straight days, it's not a good week for them because they, by and large, cannot replace that money in their portfolios.

They've already earned it. They're not making as much as they used to or they're in retirement already. And you've got to cover the news for that audience. But there's a secondary audience and it's coming of age now. And you made this point earlier. It's, you know's the people who opened their first Robinhood account two years ago or the people who got their first 401k at Fidelity

in their new job. For that audience, nothing could be better than a down week, a down month in stocks. They can't touch the money for decades, right? They're forced savers. They're putting the money in no matter what happens. Why would they want to buy stocks from the boomers at a record high of what what purpose does that serve the buyer? So I actually created something. I had Michael reverse the S&P 500 and I called it the Investor Opportunity Index.

And so I made a chart and the chart is when the S&P drops, on my chart, it goes up. And I could say to an investor under the age of 50, hey, great news. The Investor Opportunity Index went up today by 2%. Here it is. It's the inverse S&P. Look, this is good. Yeah, that's a brilliant idea. Brilliant idea. So what we want to do, though, is- So we have to talk to everybody, though. We have to talk to both groups, and it's not easy to do. You said they have no reason to do anything. The problem is there's an itch to do, though, is— So we have to talk to everybody, though. We have to talk to both groups, and it's not easy to do. You said they have no reason to do anything. The problem is there's an itch to do something, and that may be the mistake.

One of the things Jack Bogle was—Jack Bogle was the guy—I talk about the four or five people that influenced me the most. Jack Bogle was probably number one, the founder of Vanguard. And he used to say, don't just do something, stand there. That most of the time, when you get panicky, you will probably make a mistake. The most important thing is having a very, very clear plan. And you want to work on that from here. So you want to understand. And Warren Buffett once said, you want to know the way to do investing? He said, assume you only can make 10 decisions of the whole time that you're doing this. And you'll be a lot more careful about things. So we need to educate people about being

careful and being thoughtful and deliberative. Bogle used to pound this into my head every time I called Bob, I don't see this on your TV station enough. He used to call it our TV station. Return risk. Station is to tell. Yeah, that's how you tell somebody's from the 40s. Your TV station, Bob, does not have enough fundamental investing. Return, risk, cost, and time. Return is what do you reasonably expect over time. Risk is how much can you afford to lose in your pocketbook and your psyche before it's too much. The cost is whatever you do, Bob, tell everyone don't spend a lot of money on the cost. The costs are what eat into the returns overall.

And Bogle was brilliant at showing the long-term costs and the difference between having 1%, 2% returns over years. And finally, the time. How long are you investing? And here's the one point I think you've been on many times. If you start at 25 years old, you've got 60 years of investing. Think about that. If you're going to live to 85, and we're all soon that at least,

you're going to have 60 years of investing. That's an astonishingly long period. This down year, as rare as it is, is not going to make a difference in a long, long period. Now, the one thing we really ought to get at is, is there something really unusual long-term going on here? I believe that it's not. I believe that ultimately,

the reason the stock market goes up three quarters of the time is because of capitalism and American capitalism, which is ruthlessly efficient most of the time at allocating capital. And you can say it's working us all to death and we can go on the other side of that. But in terms of return on capital, the American corporation is one of the finest things ever invented to provide profits out there. That's so well said. Stocks don't just go up because they're risky. They go up because these are businesses and business fundamentals. Dividends have increased at 7% a year since 1988. Earnings have gone up 6% or 7%. So to Bob's point, this is ruthless fundamentalism and it works. I think the problem for investors this year, this is very

normal for the S&P 500 to go down 20 plus percent. That happens. It happens. The bond market. That's why people are so freaked out. And that's why the American Association of Individual Investors, the bearishness is off the charts because just seven to 10-year treasuries, which are, that's money, good money, right? That's bonds, is in a 23% drawdown. That's supposed to be the risk-off part that makes the stock volatility bearable. And it's worse than stocks in some cases. But look at the other side of that.

That forced an enormous amount of money into the stock market in the last 15 years. Since 2010, the S&P 500 has gone up 15% a year. That is extraordinary. The average return is 10% a year on the S&P for decades. What accounts for that bizarre 5% outperformance? You could say, okay, the Fed's pumping money, more liquidity. I think that's probably a factor. But the fact that there was no alternative.

TINA was a very real idea. And it drove people out of the bond market. Now maybe more people are coming back in. So, yes, it's very uncomfortable. But it's not like a mystery. We don't understand what happened. Oh, we know. We know exactly what's happening.

But now we have the opposite. We have reversed TINA. There Oh, we know. We know exactly what's happening. But now we have the opposite. We have reverse Tina. There are lots of alternatives. Yes. From unibonds to investment-grade corporate bonds, treasuries. There are so many other things. Those things probably not as attractive to younger investors. But the longer you've been investing and the less runway you have in front of you, it's obvious at this point.

I'm going to scoop up 5 percent and not worry about any of this bullshit. So to me, people ask me about this. I say, look, here's the only question. Do you still believe in capitalism as a practice? Do you think the United States is still the best place in the world to invest? Remember Churchill used to say that democracy is the worst political system except all the others? And capitalism is the best economic system except for all the others. Nobody who has looked at any kind of financial history for the last 500 years would disagree that capitalism has made, has lifted mankind out of poverty in a way nothing

else ever has. College students would probably disagree. Well, then they need to get a little bit, they need to read the economic history for the last 500 years. But do you think, though, if we continue to say in The Wall Street Journal and The New York Times, not that young people pay attention to that. And Carla.substack.com. No, but do you think like if the message is Wall Street wants layoffs, that somebody who's 25 and is probably in line to be laid off would think capitalism is successful? I mean, kind of. You're asking me that. Well, I'm asking one of the two 25-year-olds in front of me. Like, what is that messaging like received by young people that like,

wait, what the f***? Wall Street wants people to get fired? I think it's rough. So I think like we can talk about, like, it's very good that the S&P keeps on going up. But a lot of people don't really have exposure to that unless they're in their 401k. A lot of people, you know, they have Robin Hood accounts, that's their first exposure, but they're down, you know, 70% now. So it doesn't feel very good. And I also think that there's a lot of like demographic envy to a certain extent. So with the housing market in particular, you know, the baby boomers own about one third of the housing market. 32 million people have no mortgage. So it feels like, you know, could I ever get a house? And then it just feels like a crisis after a crisis after a crisis. So like for me, you know, I was born in the late 1990s. Tech bubble happened before I could even talk.

And then we had 2008. That must have been rough on you. Yeah. Were you the E-Trade baby? My portfolio was so bad. Which I actually am. Pets.com. But I think it's but i think but you bounced

back from the tech yeah and then 2008 happened and then a pandemic happened so it's just been a lot of like bad stuff for everybody but i think like the younger generation has become increasingly financially nihilistic about you know the future of what it what it all means what does that what does that look like when you say they become increasingly nihilistic like like the sarcasm and the memes and trading things that you know have no value just to piss other people off, like that kind of thing. Yeah, the AMC, GME stuff,

I think that sort of proved against this concept of markets are fundamentally businesses. AMC and GME are not companies, they're stocks, right? And so I think that was one part of it. And then I think crypto is a big part of it too, where it's like there's these alternatives that are going against the status quo per se. But of course, if you own Peel the Layer, it's similar to the status quo.

But you have like a million people who think the purpose of the market is to bankrupt the hedge fund manager in Miami. Like, there's like a lot of people who are, it's like, why are you doing this trade? Yeah. Oh, it's like an FU to- Right. Against the system. Why are you really doing it?

No, that's what I'm doing. Yeah. Like an FU to – Right. Against the system. Why are you really doing it? No, that's what I'm doing. That's very hard to understand until you realize the context that that person has grown up in. And that's – look, I don't think capitalism is in trouble, but I do think there's more disillusionment now amongst young people than there was in my generation. Don't young people always feel like the older generation is f-ing them over? Thank you. I'm older than all of you. So 1970, I was 15 years old. My father gave me my first stock, Kawiki Berlko. They made beryllium for the space program. And I

was in the NASA. And he said, I hope, Robert, 15 years old, I hope you will invest in stocks. I believe in the stock market. I believe in America. My father was Horatio Alger. He was a poor Italian kid from the Bronx. And I looked at him like, are you nuts? The stock market's terrible. I don't care about the stock market. I want to go be in the 60s. I want to go to Led Zeppelin concerts and be Norman Mailer, be a famous writer. I sure as hell don't want to be a stock market investor. And I thought he was crazy.

So our whole generation, literally all of us in the 1970s did nothing. You know what I bought? Nothing. And when Kawiki Broco was bought out in 1976, I refused to tender my shares. I had two shares. I refused because I thought, you know, there were a bunch of, you know, capitalist swine.

And I didn't want anything to do with it. I didn't buy anything until I got to CNBC in 1990. And that's when I started taking it seriously. And that was a massive mistake. Our entire generation, the baby boomers, all of us, we screwed up royally. We didn't invest early enough. Thank God people like you are around to talk to your generation about investing early, even if it's a little cynical or they're doing weird things. At least you're doing something. We did nothing. And as a result, you know what

happened? We are under-invested. And we, and I, and I describe this in the book had to take a lot more risk in 1990 than I otherwise would have I put everything because I realized I'm screwed you were playing catch up

already we all are our whole generation has been underinvested the median retirement balance for boomers is dreadful and I think one of the reasons

why it feels so shitty for young people is because they can voice their opinion they can broadcast back in the 70s it was you shitty for young people is because they can voice their opinion. They can broadcast. Back in the 70s, it was you and your buddies talking. You weren't talking to the world like instantaneous data just flowing freely. Bob, I want to get to this part of your book where you talk about the most important developments in trading that you've seen in the last 30 years.

So you mentioned the birth of electronic trading and decimalization. Then you mentioned ETFs and passive investing. And now you're saying the more recent thing, behavioral finance. Yeah. Really like going from being an obscure topic to being something that's now on the minds of most financial intermediaries and their clients. I had to talk about the people who had influenced me the most, including Jack Bogle, Jeremy Siegel, who wrote Stocks for the Long Run,

Charlie Ellis, who wrote Winning the Losers Game, and Burton Malkiel, who wrote the intro to the book, most important book, in my opinion, Random Walk Down Wall Street. But in 2000, Robert Shiller had a book out called Irrational Exuberance. At the very height, literally March 2000, it was extraordinary, where he talked about what was essentially behavioral economics, Robert Shiller had a book out called Irrational Exuberance at the very height, literally March 2000.

It was extraordinary where he talked about what was essentially behavioral economics. But Shiller had made an observation long before about the volatility of the market. He said, look, if we buy stocks because we're expecting a dividend and a future stream of earnings, you would expect a certain level of volatility in the stock market. But he found that the volatility level was much higher than would be expected by rational investing. And he concluded there is some kind of irrational component that must explain this much higher volatility level. This was the birth of behavioral economics. Behavioral economics purports to show how people really behave, not how they're supposed to behave by some theoretical model. And as you know, people don't buy low, sell high. They buy high and sell low. Why? And behavioral economics

tries to figure this out. And that's the important thing. So it turns out there are all, why are people so bad at everything? Why are people so bad? Not just amateur stock pickers, professional stock pickers are bad. Economists are terrible. The Federal Reserve has a terrible track record of forecasting where the GDP is going to be one year from now. How is it possible? I've been doing this 30 years. I look around. How is it possible everyone is so bad? And getting worse. And getting worse. Statistically. And it turns out there's two things that I have learned. And one is there are enormous amounts of biases that people have. They have cognitive biases. They have cognitive biases. They have emotional biases.

They have emotional biases that sort of affect the way they think, the way they feel. So people have loss aversion, for example. People are afraid of a loss much more than the expectation of a gain. This explains why people hold on to losing positions for a long period of time. Myself included. People have overconfidence. They think that they're on a win streak. Therefore, they're always going to be on a win streak. And these biases infect your ability to make decisions.

The other problem is the future really is unknowable. So imagine being an analyst. It's December 2022. You're supposed to figure out what's going to be the earnings of this company you're covering. A year from now, you think, hey, that can't be hard. It turns out it's almost impossible because the amount of data that would go into making that price in the next year is enormous. You could have macro effects where the economy is going to change like we've seen this year. You could have company effects where the company has a new competitor where all of a sudden they're bought out. The CEO could fall ill. There are literally thousands of variables, and they're unknowable.

So it's kind of like the weather. The weather is pretty good. The forecasts have gotten good three, four, five days out. You go past seven, they're clueless because the amount of variables multiply, and there's unknowable effects that go on. So when you realize this, you see, number one, huge amount of biases, and I list like 30 of them. This is what behavioral economics has got a whole school studying the biases, how you screw up your thinking. And number two, when you recognize the unknowability of the future, you start getting very humble. You start saying, you know, these analysts are a bunch of dum-dums.

I can't believe they can't get anything right. And you realize why they can't. So the book that had the biggest influence on me was Philip Tetlock's book, Super Forecasting. This guy's at the University of Pennsylvania. Amazing. Everything I just said, he studied in an academic way and came to some conclusions. He said, it's true.

The future is unknowable, but you can get better at forecasting. And he talked about two different groups of people, foxes and hedgehogs. Hedgehogs are people who have strong ideology. One big idea. And they superimpose this ideology on the world. That's Duncan.

Foxes are people who are – Yeah, I was going to say, that's like Duncan. Foxes are people who are very chill. They're very – they don't have strong ideologies. They're open to new ideas. They change when the facts change. And he found that those foxes are better at – they get better at forecasting. So you can learn.

So anybody who's interested in this, Ted Locke has a whole project called the Good Judgment Project where he literally tries to train people to improve their forecasting and does it against very rigorous standards to see, okay, is your forecasting this year better than last year? Why is it better? It's a wonderful thing. And I've really been influenced by him. As much as the behavioral finance stuff, it's important that that's become more well-known. We have no evidence that – so everybody ran out and bought, uh, thinking fast and slow. Yeah. Like everybody is now very, everybody is now very quick to quote a lot of the behavioral finance tropes and people look at forecasting, I think with a more sober, uh, in a more sober way,

but isn't it important that you believe in something when you're putting money at risk? Like, I don't know that you have to live and die with a forecast, but shouldn't you believe some level of probability? So the stat that markets go up three out of four years, that's a philosophy, right? Like you do need to have some basis of why you're investing in what.

I hope I didn't give the impression that I think fundamental analysis is bullshit. It's not at all. Listen. The world's too complex. Why do we own stocks? And I always go back, the very first stock, the Dutch East India Company in 1602, they floated, they created the Amsterdam Stock Exchange. This thing was the biggest thing in the history of the world.

It basically was every multinational company in the world, one company, they own the spices coming in from India and everything else, the banana trade, the coffee trade. And in the very first prospectus, we should do a show on this, 1602. I have the prospectus. What are you buying? They tell you, what are you buying? Did they mail it to you? Yeah, it got late. It took 400 years to get to me. Talk about a slow mail. But they said, you are buying, when you buy our stock, you are buying a stream of profits coming on from the spices, which we are going to sell when the ships come in. So here's the birth of fundamental analysis, them saying, you're getting a future stream of revenues or earnings from these spices. And number two,

immediately at the Amsterdam Stock Exchange, because they didn't have data, they couldn't, they stood and wait for the ships to come in. They had people who were rumors around, and they would sell their stock without knowing what's going on. And they'd say, OK, well, I bought the stock at 100, and it's 105, so I don't know if the ship's going to come in. Literally, I'm going to sell – there's the birth of technical analysis. Right there, you got people immediately within the birth of the modern stock market doing fundamental and technical analysis.

Now, I don't know any other reason. We have people, remember Arch Crawford? He used to talk about astrology. He'd come in and say, the moon is in Saturn,

therefore Microsoft is above. I'm not kidding. This guy had an enormous following in the 1990s. We'd go like, really? Did you put him on CNBC? Oh, yeah.

Look up Arch Crawford. He was famous. And people would write in. They love hearing about this. And we'd all go, what is this guy doing? Why do you think people gravitate toward? So if you can convince enough people. This is the GameStop thing. They want to believe.

Right. The minute the GameStop thing happened, people said, you know, Bob, so there's all this bullshit about fundamental analysis. You see, the GameStop proves fundamentals don't matter because there is nothing fundamental thing happened, people said, you know, Bob, so this all this bullshit about fundamental analysis. You see, the GameStop proves fundamentals don't matter because there is nothing fundamental here. And I said, listen, if you get enough people, the theory of stocks is the fundamental analysis. Just what I said, the Dutch East Indicum. But if you get enough people saying I'm buying Microsoft on sunspots and you get enough people in your religion to believe Microsoft on sunspots is the buying thing, you can convince people and they can move the market.

Right, short term, anything can happen and probably will. And it does, it does. And I think young people get into the market with this idea that they can beat it. I think that's probably normal. Nobody opens up an account and says, you know, I'm gonna buy the S&P 500 and just set it and forget it.

Nobody does that. So when I first read A Random Walk Down Wall Street, I was 24 years old. I got 30 pages and I said, this is total bullshit. This guy doesn't know what he's talking about. I reread it five years ago. I said, okay, this is a classic. I get it now.

But to the point of fundamental investing, not being bullshit, but just being difficult, if somebody told you in 2019 that there's a global pandemic, you probably, and the economy's going to shut down, you're probably short as much as you can. The S&P was up, what, 28% in 2020? Facebook is another example. One of the greatest companies of all time.

In 2016, it was doing $5 billion in revenue a quarter. And so if somebody said to you, hey, by the time 2022 rolls around, this company will be doing $30 billion a quarter, 6X. What do you think the stock is going to do? It's flat since 2016. The revenue is up from $5 billion a quarter to $30. And the stock is back to where it was. Because of forces that are completely out of our control. And the multiples change too. The multiple. So remember, the

multiple is, you know, it's just hard to explain to people about the multiple because they can understand, all right, the earnings. Okay. So the earnings are up 10%. So shouldn't the stock be up 10%, Bob? And one of the things Bogle kept – I used to call Bogle in 97. I said, what the hell happened? Bob, do you understand what the multiple is? The multiple is what people are – so you've got a stock that's making $10, and it's got a dollar in earnings. Okay, so now what happens if the economy changes

and the company is still making a dollar in earnings, but they don't think that that company is worth so much anymore? And it goes to $8. The multiple is changing. What people are willing to pay for that dollar, it hasn't changed, but maybe they don't think that future stream of earnings is worth as much. You can't quantify the multiple because it's the vibes. You can't predict how people are going to feel about the market. It's very clear this year. You can see what has happened is the multiple has collapsed, not the earnings.

The earnings are remarkably steady this year. I mean, they're down a little bit for 2023 and late 2022. But what's collapsed is the multiple. The multiple was 21 in January. It's 15 now. In 2016, investors were paying 17 times sales for Facebook, and now they're paying three. Are you like – You're using sales, right?

Well, yeah. I'm using sales. I'm using sales. Kyla, have you adopted like an investment philosophy, whether it's passive or active? Or like what's your take on just the advent of behavioral finance as becoming like a mainstream topic? Yeah. I mean, for me, like I invest primarily in ETFs and crypto. So pretty passive in terms of the stock market itself.

I just don't think I'm smart enough to beat it. And I think like having broad exposure is better. So that's how I do it. Do you try to convey that or you stay more on the economy side and let people do with your information what they will? Yeah, my whole goal with like the content is to give people tools and to help them sort of close the gap between like what's happening and what they understand about what's happening. And that's like very macroeconomically. See, the Facebook example is so interesting to me because when you think about the hottest stocks of 2020, and I remember saying to Michael, I'm like, it's not supposed to work this way. The most popular brands of technology companies

were also the best performing stocks. And I said, like, it's not supposed to be this intuitive. How much longer can this go on for? Like people would be like, I love Peloton and I made three times my money on Peloton stock and go down the list of like all the leaders in the market, DraftKings and Zoom. Teladoc.

And I remember saying to myself, like, this is everything that I've been taught is not supposed to work from a behavioral finance. Like you're not supposed to, the stock market is not supposed to be a popularity contest of like, what's the coolest brand?

Oh, that's the best stock. But it really was that way for, I don't know, a year. Year and a half. Year and a half or something like that. And look at the, well, again, that's the best stock. But it really was that way for, I don't know, a year. A year and a half. A year and a half or something like that. And look at the – well, again, this is another factor. It's liquidity that's very difficult to figure out. And I used to talk to Jack about trying to figure this out.

What is intuitively – if there's more money around, prices should change because the money is available. Forget about the fundamental of whether the company is going to earn a dollar or not. change because the money is available. Forget about the fundamental of whether the company is going to earn a dollar or not. If there's just a lot more money and money wants to go into risk, then it's going to change the prices. And so you have to address that issue. How do you figure that out? You made a very good point that you said that you like ETFs. One of the things that happened in behavioral economics is it really helped popularize index investing because after the financial crisis, everybody looked at this and everyone, including me, became a behavioral economist because we saw everyone selling. I agree with that. Selling at the bottom.

March 9, 2009, we didn't know it was the bottom, but the number – the sales of mutual funds accelerated at the bottom. Now, it was down 50 percent already. A rational actor would say we're 50 percent off the high. If you – you sure as hell do not sell. You either hold or buy at that point. But that is not what happened. Because people want the pain to stop. The opposite happened.

That's incongruent. People sold even more. And I looked at this and I said my whole generation is screwed. They're selling real estate at the bottom. Stocks – they're never going to recover from. It's going to be a decade before people do. Well, I think in 2009, you had to choose your adventure from there. So you probably changed a lot about what you used to believe.

But then you said, I'm going to go one of two ways. I'm going to go the route like who made the most money during this crash. And it's a handful of hedge funds. So I'm going to become a dyed in the wool believer that there are people who could time the market or there are signals or that there is a reason for me to trade on macro data. That's one group of people. And then to your point, another group of people, a bigger group of people, they became Vanguard investors. Um, after seeing After seeing the crash and then the rebound, 2010, 2011, 2012,

you look at the flows into BlackRock and Vanguard, they just absolutely explode and they never looked back. And they're enormous because exactly what she was just talking about, that behavioral investing gave a booth to indexing because the theory was, listen, if there is factors, if there are biases that are infect affecting all of us, then why

should we try to do that? Well, they don't affect me, but I get what you're saying. Of course not. And there's no overconfidence here at this table. But why should we do that? Let's just stay with indexing. And that's really what gave an enormous boost to the business. I think we need to really, Stuart, also address the going in and going out question. The evidence is just really overwhelming. The academic literature about the ability to market time is just amazing. S&P just had their SPIVA report out. They look at active management very carefully, and it's still the same. 90% of large cap fund managers underperform after 10 years. 90%. It's enormous.

And Jack Bogle, just to set the record straight so that I'm not saying here all I believe is indexing, Jack Bogle was very instrumental in the creation of active management at Vanguard because he knew that there were people exactly what you're talking about that, well, that's nice. Okay, I understand. But I want to play. I want to try to beat the market. I think I'm smart. And he was instrumental in creating actively managed funds of Vanguard, including capital opportunity, huge funds still there. And he do. And he used to say, okay, you want to scratch the itch? I still tell you people it's in the, in his book. He doesn't mind active. He minds high cost active active. High-cost active, right. And he was extremely aggressive about that. He said, Bob, I don't care.

I'm telling you, the guys who – the rare few who can really outperform end up underperforming because the amount that they're charging destroys the alpha. And that was one of his key insights, aggressively keep control of the cost. And in his books, Common Sense on Mutual Funds, he shows, look, suppose you get the 4% return a year on stocks. And because of the cost associated with paying that, you only get 3.2%. He had tables that said, okay, you don't think this is a lot? 3.2 versus 4? Let me show you what this is at $10,000 a year over 30 years years and it's enormous. So the power of numbers, of large numbers come into effect. And it turns out a difference of 1% is actually enormous over 30 years. And that's one of Bogle's central insights.

So not against active management, just finding ways to control it. So I want to pivot to where we might be going next. And Kyla did a thing about the US dollar on your sub stack, you did a thing that I thought was really good, where you laid out the the power of the dollar to almost like set up dominoes and wait, can you say that dollar dominoes? But you were talking about pumpkin policy and dollar-o-minos. And I know it's a bigger piece, but I think there's a lot of meaning here. And I talked about seeing the dollar go negative this morning.

That, to me, really seems to be a better signal for the stock market, at least this year, than anything else people could have looked at and probably kept you out of a lot of the head fake rallies. But can you talk about what you were trying to say about liquidity and what you think the ramifications are here? Oh, man. I mean, there's, I don't even know where to begin, but I think it's like, to the point of like active passive management

and like the US stock market, what's really interesting about what the Federal Reserve is doing is they're raising rates and that creates a safe haven for the dollar, as you all know. So a bunch of people are going into the dollar, making the dollar super strong. And that is just wreaking havoc on countries that have dollar denominated debt, energy imports that are priced in dollars. So it's like all of a sudden this domestic monetary policy that we have here in the United States to protect the United States' inflation or diminish that is having these worldwide ramifications.

Because other countries have their own currencies. Yeah. And if the dollar is strengthening, they're weakening. Exactly. Like Japan. I don't know what's about to happen there, but it's super concerning. Like they had no bid on their 10-year bonds because the government— It's all the government.

They had days where the bond didn't trade. It's flat. There's no yield at all. And the yen is at the lowest level since 1990. There's no market for it either. Who's going to buy it? Yeah.

And why would they? Because the government will step in and do it. But then you have emerging market nations that are impacted by this. Like Europe is just going through it in general right now.

So there's all these like tipping effects that the dollar has and it's all... It's not all because the Federal Reserve, but because the Federal Reserve is raising rates, creating a safe haven status out of the dollar, it's creating a... But this is a long history. When I became the stocks correspondent in 97,

I walked right into the Asian financial crisis, the Thai bot crisis. This is exactly what happened. All of the emerging market countries, Malaysia, Indonesia, Thailand, were attracting foreign inflows. They were keeping rates high. And all of a sudden, the Fed started raising rates and money started flowing out. Their currencies were tied to the dollar and it all kind of blew up. So this isn't the first time this has happened. We've seen this and it created quite a lot of havoc. It really ruined the economies of the emerging markets for years in the 90s.

And I think the worry about it, like, so yeah, it has happened. But like now, and like you, I guess you could always say this, but like now everything is so much more fragile because of the pandemic, because everybody is still recovering in that way. So it's kind of like, you know, at one point, is it going to tip hard enough that it creates like a crater instead of it tipping back? So does increasing complexity increase risk? One thing that's happened that's very obvious to me is compared to when I came on the floor in 1997, the world's a lot more complex. There's many more instruments. There's much more data points. I mean, I can remember thinking, gee, if I just master a couple dozen things in 1998, I'll be a genius. And then

I could coast the rest of my life. It turns out they're completely wrong. The exact opposite has happened. The world's gotten much more complex and harder to understand. So there's some informatics here that are coming in. But, Bob, I think with that, investors have gone the other way. And they said the world is so complex that I'm just going to automate my index investing. And every two weeks come hell or high water.

Money is going to come out of my paycheck, go into my 401k. It is rational. If that, like to say, things have gotten so complex that I need to simplify how I live in that world. Like the answer is not always,

well, let me level up and out complex at all the complexity. So I understand that. So you quoted Waller from the Federal Reserve. And I love this. Waller said a lot of people complain about treasury market strains and liquidity. A lot of people complain about treasuries aren't liquid. What does that mean? It means people aren't willing to pay the price you're selling at. Okay, we'll lower the price. On October 31st, the liquidity for pumpkins is very high. But on November 1st, the market liquidity for pumpkins goes to zero. That's a good line. I'm not going to try to step in and try to fix the pumpkin market.

That's not a good line, though. Because we're not selling pumpkins. Bad analogy. But it's good for pumpkins. It works for pumpkins. But this idea of like – this is the same with the job market. It's like you can't hire anyone. Oh, no, you definitely can.

You're just going to have to pay a lot more for that person because the labor market is a market. A lot of liquidity complaints do boil down to, well, change your price and you'll bring in liquidity. But sometimes not always, right? Right. Yeah, I mean it just – it creates so much more fragility. Like Janet Yellen came out yesterday and she was like, hey, treasuries aren't getting bids. Like that's a little bit concerning. JP Morgan had a big note about it. Like there's just not structural demand for US treasuries. And that is Waller's problems. That is the federal reserve's problem. So you can talk,

you can talk about pumpkins. Um, but you know, if there isn't liquidity in these markets, the federal reserve will likely have to step in. So I haven't heard a lot of concern about liquidity yet in the financial media, but we had a liquidity issue in 2019. With the repo stuff? Before the pandemic, the Fed was intervening in overnight money. So that is, I think that could be the kind of thing that maybe makes them rethink how far they want to go. If that starts to become a louder.

But if there's no bid, isn't the implication that the market's expecting higher yields, right? That's the obvious implication there. So, you know, the market's right. If you believe the market's right, then- Jan van Eyck was talking about this, remember? Jan van Eyck said, there's no buyer for BUDs except the Fed.

So he was sitting where you're sitting now, Jan van Eyck. This was six months ago. And we were trying to reason with him that maybe 3% would be where people get greedy and buy up all the bonds. He goes, guys, there's no buyers but the Fed. You're not listening. There are no

buyers in the world but the Fed. And it ended up being extremely hard. I had him on last week on ETF Edge on my show. And he's the commodity guy. I've known him for 20 years. So I'm trying to get him to talk about gold and the oil service ETF that he runs and agricultural stuff. And he said, you know what I really like? I really like bonds right now.

I said, I'm talking about commodities. He said, I know that, but I don't like commodities. I like bonds. I'm telling you, Bob. This was last week. I like three-month treasuries at 4%. I love commodities. I like bonds. I'm telling you, Bob. This was last week. I like three-month treasuries at 4%. I love them. I love it.

We were just talking about this. Junk bonds are yielding 9%. Fallen Angels, which used to be investment-grade, just kind of knocked out. Well, there's Jan's fund. VanEck runs a Fallen Angels fund. 8%? That's not bad.

The Occidental's in there. You know what's getting a lot of attention? On Monday, I'm going to have a guy on. They are single-stock ETFs. They just introduced single-bond ETFs. Wait's now, they just introduced single bond ETFs. Wait, can you explain why we need a single stock ETF? Oh man, you're not really, you're really going there? First off, we don't.

We really don't. Okay. Can you say that? A single stock ETF. What do you mean, can I say that? I just did. It's like. We don't need them.

Okay. No, it's for leverage. It's leverage. That's why. Well, wait, are you asking me, do I personally. What is the reason? No, it for leverage. It's leverage. That's why. Well, wait. You're asking me do I personally— Is that personally unbelievable? No, it's leverage. It's leverage. It's leverage.

What does that mean? So you can get two times the opposite exposure, if you want, to Tesla. Yeah. What? Instead of—because it's easier to do that than to trade options, frankly. I'll tell you why this is happening. The ETF business is maturing. They're looking for new lines of business.

And if there is enough interest in people who want to bet for and against Elon Musk, fine, they'll figure out a way to do it. And they did. So the answer is, do we need it? Does the investing world need it? There's a lot of stuff we don't need. Do we need leverage and inverse ETFs to begin with? Do we need three times inverse oil? I don't think so. No, we don't. But the question is, should we stop people from doing it? I don't think so unless there is some kind of systemic risk that it creates. And then I'm just saying, so here's my position. Should we have a three times long and short oil but no one-for-one Bitcoin ETF?

So you're switching topics here. one Bitcoin ETF. So you're switching topics here. The short answer to that is there are reasons, you know, for all the problems I have with Gary Gensler, there are some very rational reasons why he's not approving a Bitcoin ETF. I agree. But I'm saying if you're going to approve the other thing, it makes it harder to justify not approving it. I agree there are legitimate reasons not to do it.

Just on leverage and inverse ETFs, there is no particular – I don't think they serve an awful lot of purpose. I understand why people want to play them. They have enormous volume. It's used by intraday traders, and sometimes they're using it to hedge portfolios. But for the average person, no. I don't think you need – the 2% of the volume and 98% of the problems that actually occur in the ETF business. The ultra Q, the triple Qs, TQQQ had $20-plus billion in assets in December. It's now under $10.

That money is evaporating, vaporized. But look on the other side. Every day, the leverage and inverse, S&P and triple Qs are the biggest things that trade on the ETF world. You can look at the dollar volume or you can look at share volume every single day. They're there. So there are people that are playing them. They get the job done for some traders. The problem is very simple.

You cannot explain – the investing public cannot get their head around the daily reset. We get that question all the time. They just cannot explain it. I feel like we explain that every three months and we still get the same question. How do these things work? Yeah, so that there's decay and that over 30 days, it won't look anything like 3X.

No, on a daily basis, people think, oh, I bought two times the S&P 500. So the S&P is up 1%, therefore I have 2%. Yes, one day. The next day though, if you bought that day, the next day it's going to reset again, and you're not going to get two times. You hear people be like, well, long

term, I'm bullish, so I want to be 3x the NASDAQ. That's not how it works. There is no way you can do that and make it run. If you're going up, the market will work for you. If it's choppy, you can actually go down. You can go the other direction.

You're not going to get three times. People can't get their head around. No matter how many times we put up numbers, examples, it's impossible. And so the average public, I tell people, just stay away from leverage and inverse ETFs. Tesla. So we don't talk a lot about this stuff. Look at this. This is like the literal textbook head and shoulders of Tesla.

Holy moly. So this is an interesting situation where everybody on earth knows that a lot of stock has to be sold by Elon Musk to complete another transaction. I really don't know what you would do with this if you were a Tesla bull. Why would you sit through this? It's a guarantee that he has to sell. This is what's so depressing about it to me. I think Elon Musk is one of the great geniuses of the 21st century. I think he is the Alva Edison of his day.

No one else has ever figured out a way to build a rocket to go to Mars. No one else has revitalized the electric vehicle. How about land a rocket? Nobody else, right. Nobody else has figured out solar power storage like he has. These are really big problems. Any idiot could run Twitter. I'm sorry.

I'm not impressed at all. Nobody can do what Elon Musk has done. No one else. He's virtually unique. So here's a man that we need this guy's brainpower. I'm rooting for this guy. And now he's off in this corner. He's not going to run it though.

With this nonsense. He's not going to run it. Well, I don't know. He'll be hugely distracted by it, but he already is. You don't know that. Look at the brainpower that has been drained from him just dealing with this. Look what Tesla holders have to deal with right now.

Look, I'm just a big fan of his, and it's very depressing to me. We need Elon Musk to solve big problems, not to figure out a way to use Twitter as a platform. Musk owns 9% of Twitter stock already, because he had already bought it. He needs $37.5 billion in cash to buy the rest. He has about $13 billion in debt coming in to help fund it, debt financing.

He's already sold $15 billion worth of Tesla stock that we know of. And then there's $7 billion coming in from like Andreessen and some of his buddies. So how do you play that how do you even how do you he's got to sell i have no idea he's also selling perfuma to help pay for it i mean i give me what you what you got a you got a spicy take on this whole shit show are you are

you on twitter even do you me yeah am i on twitter i'm not so i wouldn't know uh yeah i'm on twitter i wasn't asking you foretiously. No, sorry. I just, I'm very on Twitter. Kyle's an amazing tweeter. You're extremely, you're extremely on Twitter. Yeah, yeah. Like my whole take, you know, he's a meme lord guy. Agreed.

And I think he thinks this is funny, or he did think it was funny, and now he's sort of realizing. Now it's like, wait, this wasn't a joke. He poked the bear. Okay. Do you think, so do you think that Twitter will, all right,

the question is like, do you think it'll get better? Like, it can't get worse. Can we start with that baseline? It would be tough for Twitter to be worse, right? Twitter.com. Yeah.

Like the app itself. Yeah, yeah, sorry. No, yes. Yeah, well. Twitter.com. I think it could get worse. How could it possibly? I think if you allow people.

If they re-release the Nazis onto the platform? Yeah, exactly. Okay, that might happen. Yeah. All right. In what other way, though? Functionally, probably not, right? No, I mean, they try their best, I think.

Okay. Sort of. So are you hopeful that he will do some of this stuff with cleaning up bots that he says he wants to do? I think for him, a lot of it is just talking like he has that idea for the X app where it's like that super app. Um, and I think he wants to maybe use Twitter for that, but I mean, I don't know if he has a master plan for it. Okay. You are not abandoning the platform if he buys it. Yeah. I don't abandoning the platform. If he buys it? Yeah.

I don't know if it's going to go through. It seems like a lot of people are pulling financing and it might be tough. I feel like if he buys it, Kyle is moving to Truth Social. My prediction is like a year from now, we'll be reporting that there is word that he's going to merge it with Tesla.

How about this? That's what he'll bail out the financing. Is he going to merge it with Tesla. How about this? That's what he'll bail out the financing. Is he going to make money on Twitter? He did it already with the SolarCity. He got away with that. That's a fundamental thing that was integrated into the plan. You don't think Elon could effectively

make the case that I have decided the best way to market and sell more Teslas is the brand awareness I get from Twitter. Therefore, it's synergistic. He can tweet without owning it. That's true, too. Don't ruin

this for me. This is what I think is going to happen. No, I think he can make a lot of money on Twitter. How? Subscriptions? I think the company can be worth a lot more than $45 billion. Would you pay subscriptions to follow tweets? They have Twitter Blue and people pay for that now and you can pay. I think it's tiny. Yeah, it's like

$2.99 a month. Is there anyone you could think of that you would pay to follow their tweets? Actually, you know, when you think of the stuff you pay for, it's pretty amazing. You know, I literally lost track of the streaming services that I own. If they just simply said – The answer is yes, I probably would.

If you use Twitter for real, if you have more than 1,000 followers, it costs $5 a month. I always said they should have charged for TweetDeck, and you get $10 a month from the biggest content creators on the platform. Do they kill TweetDeck? For Mac, yeah. Why would they – why? It's insane. It makes no sense to me at all. Don't ask me why Twitter does what Twitter does.

Right. So that's insane. It makes no sense to me at all. Don't ask me why Twitter does what Twitter does. Right. So that's insane to me. But Instagram just enabled subscriptions to people. So you can pay to like follow people on Instagram now too. So I'd imagine like the subscription-based model is going to go to Twitter. Twitter's monetization is crap. I've been on the platform for 10 years, 10 hours a day, and it still serves me Dove's Woman deodorant hands.

And how much have you bought? Well, they only serve it because you're buying it, right? I mean, somebody knows what they're doing. It has no idea who I am. And I'm have you bought? Well, they only serve it because you're buying it, right? I mean, somebody knows what they're doing. It has no idea who I am and I'm only on the app 10 hours a day. I want to do

a little bit more on the book, Bob. I know we have you for a finite amount of time. Where are you speaking tonight? Security Traders Association in Washington. Why are they doing that

in Washington? Is that where they're based? Well, every year they do a whole thing around market structure. And the SEC is there, and that's kind of important. So this is the organization that tries to figure out what our trading system looks like and what should be done. Absolutely.

And as rickety as it is, and it's got some strange aspects, if you think about it, it's very remarkable how well our system works. We have 40 dark pools and 15 stock exchanges. It sounds pretty rickety to me. It sounds like they could break down at any time, and yet it doesn't. It's pretty remarkably efficient. So you have probably witnessed more up close than anyone else I could think of the changes in that market structure over the last 25 years. Do you think that there's going to be this big Gensler-led overhaul on how all of this stuff works and who gets paid for what?

No. Or you don't think – do you think there will be a proposal though that ends up not going through? He'll make some modest proposals. Look what happened to payment for order flow. I mean when you really look at this whole thing – My understanding is that nothing happened. Nothing. Well, that's exactly the point.

OK. Nothing has happened. Well, that's exactly the point. Nothing has happened. And if you really look at what's going on, you could rail all you want against a few people who are reaping the profits. But the system has worked very efficiently. It is not free. Payment for order flow costs money.

Somebody is paying for it. In the form of a slightly worse execution. Right. But you are kidding yourself if you don't see that in the last 20, 30, 40 years, and since I got here in the 90s, consumers are getting better and better deals. The pricing is better. The bid acts are better. I don't understand the hysteria about payment for order flow. Because it's – by its very nature, there's enough opacity, and there are people becoming billionaires from it. Okay, fine.

It looks like some – Maybe they don't like the billionaires. Ken Griffith is making $8 billion a year. Hold on. Doesn't it? Hold on. This is my understanding of it. It's the same amount of money is being made.

It's just shifted who's making it. The brokerages now make effectively no money. Yeah. And Citadel and Virtu are making all of the money. This is a business issue. Charles Schwab, I'm picking on them. They're one example of many. They just decided there was no reason for them to be in that kind of business anymore.

Transactional. Yes. And what happened was Reg NMS in 2005 basically put a stamp of approval on what you call price-time priority. They established the fact that everyone had to provide the best bid and offer that's out there. Okay, so what does that mean? I have the best bid and offer, but so does the other guy and the other guy. That meant that the person who got there first made the difference. That's what you call price-time priority. Everyone has to provide the best prices, but after that, you get there first, you get that trade. That created high

frequency trading. That's what created that incentive for people to say, you know what? If you and I, we get the best prices, if I can put my computer closer to the stock exchange, co-locate it, I'll get there first. I'm going to out-compete you. And that's how we got this perverse system where everybody is trying to move quicker, faster than everybody else. is trying to move quicker, faster than everybody else. What I see here is they have spent so much money now, these few firms, to be faster and faster that a company like Charles Schwab said, why am I in that business? I'm not in this business of trying to put computers next to the stock exchange. Find somebody who can do that.

But by the way, they better damn make sure they get the best price. And they have people watching these people like a hawk. The idea they're getting ripped off, it doesn't make any sense to me. If they're not executing, they're fired, those people. I don't care how rich they are. I'd rather them take a fraction of a penny than pay $8.95 per trade. Well, that's another factor. People don't understand that even when I got there 30 years ago, a trade, you want to buy

100 shares of IBM in 1990, 1.5%, 2%. And before the commissions. That's what I did for a living. I sold stocks at 2% commissions. Imagine 2%. And today, you can almost do it in a frictionless way. On the buy and the sell. Yeah.

Wow. You would buy a stock for a client, charge 1.5%, let's say. So a client would give you $50,000. You would charge 1.5%. The stock went up 10 points. You would sell it for $60,000, take another one and a half. That's 3% round trip. That was the max. And then the next day, not even waiting for settlement, you'd buy another stock, another one and a half percent, start all over again. That's obviously a shitty business for the client. It was a great business for the brokers. It disappeared, as it should have.

But now, I guess, what would you replace speed with? So right now, the business model is speed. What would you do to change it? People say, in a perfect world, I would like everything to be put on a lit exchange. I'd like everyone to put the bids and offers in a big book that everybody can see.

That's not the world we live in. That is a fantasy. If I'm a big institutional guy and I got 100,000 shares of Pfizer to buy at the close, I sure as hell am not going to put it on a public limit order book somewhere. You're going to get picked off. The high-frequency guys are going to see this immediately, and they're going to play right around your order immediately. This is the world that we were given by Reg NMS. That's what I said. You want to change the world? Go ahead. Knock yourself out. You're going to exhaust, spend your career. I'm dealing with the real world. In the real world, what happens is you get the payment for order flow because Schwab says, we're not doing this. I'm not doing this business

is high frequency thing. I don't care. I just want to move it through. So fine. Let's all, in a perfect world, I'd like everything to be put on a public lit exchange. But we don't live there. So people have these dark pools where they can put up, where they can have orders, transactions go, where the world can't see them and get picked off. That's why we have these dark pools. Would I prefer if they went away? Yes.

Would I prefer if they didn't have to pay for order flow? Would I prefer if the New York Stock Exchanges and the Nasdaqs didn't charge a rebate fee, which we have? I'd prefer that, yeah. But we don't live in that perfect world. I live in the real world. And so far, it's remarkable how well it operates given how strange the circumstances that were around the creation of the whole thing. Bob Pisani, ladies and gentlemen. Can I just say one thing about you guys?

I want you to. I went to your conference. Everybody pay attention. This is going to be something nice. The future-proof conference that you guys had. Thank you so much for coming. And by the way, people were f***ing starstruck. They were so excited to meet.

Did you find that? No, actually. People came up to me and kept saying, you know, when are we going to get better? When's the stock market going to get better? Well, of course. There's that too. So I saw you taking pictures of people. I'm happy to take pictures of people. I love people coming up and talking about the markets. But I want to talk about your conference. I went to this conference for a reason. I think the conferences are in... Just kidding. Just kidding. Oh, my God. Everybody calm down.

That was him. That wasn't me. That was me. I went because the conference business is in big trouble. It's boring. And not just financial conferences. There's too much of everything. Too many biotech conferences.

Too many financial conferences. They're boring old guys with gray hair and big noses and dark glasses. Not me, but other old guys. You're describing me 10 years from now. Go easy. And we all sit there. We go to the conference. They give a slide presentation.

Then we have a cocktail. And it's boring. And you guys had an idea. You said, so how do we get more young people interested in this thing? Drugs. Boring white guys. And we should take this on the road. So your idea was this.

First off, let's do it outside. Let's do it on a beach. And this is your central insight. Let's put as much emphasis on social as we do on content. So I show up at this thing. I go, I'm there for three days. I go to the first, the party's the first night. It's Monday night.

And there's a bunch of people. They're all stunningly good looking millennials. And I'm like the oldest thing in the room by 40 years. And I say to this guy, he's there. I said, so you went to the content today. It's Monday. And he said, no, we got in Sunday night. We went to all the parties and getting up to 11 o'clock in the morning. I said, well, hell, what are you here for? He said, let me tell you something. I'm a RIA. I'm a registered investment advisor. I'm from Detroit. I got seven guys with me. I brought them here as a team building thing. We work hard. And I said, guys, let's go. We're going to go hang out. We're going to go meet some new friends and we're going to party. And he said,

tomorrow I'm going to the content. I'm going to go. And that opened my eyes that this is really important. You guys had rap stars and DJs, Steve Leisman's Grateful Dead cover band, Stella Blue's band was there. Wonderful. But the point is that you want to figure out how to get more people involved. Social is important. Now, I also had old school guys come, old school RIA guys that said, you know, a lot of parties here and we're still interested in the content. So you got to figure out a way. My point is people like you and me, we knock ourselves out about content at these things. We just obsess all the

time. And it turns out a lot of that's important, but it isn't the only thing. So, right. Of course you have to have good content. The conference business was about CE creds, like continuing education. It's a requirement. If you're a CFP, you have to go to a certain amount of events a year. The pandemic showed us we could do that online so now what how are you gonna get people on a plane how are you gonna convince people to leave their their kids for for two days three days well there has to be something there that's meaningful to them that they can't do on the internet and it turns out that thing is networking and then my point here about what you guys are doing so well is the rob the robin hood model that I look at.

When that happened three or four years ago, 20 million new accounts, I said, hallelujah. What the hell? Where are these young people? Thank God this group, Robin Hood, got them. And who gives a damn if they only got 5,000 people, $5,000 in the account? And the division these people were met with, I couldn't understand it. They'd say, oh, they don't know anything, bunch of Reddit guys, and they all think we're idiots. I say, God bless them. They're going to be so much smarter than we were at their age. They are mainlining this stuff. Exactly. And here is our central mission, your central mission, which you're right on top of, as you always are, both of you, is to figure out how to keep them and not have them wave their

hands and say, ah, it's all a bunch of conspiracy bullshit. The market's rigged. It's the hedge funds. The market's rigged. It's all – it's not rigged. Well, that's why Kyle is here because they may not believe me, but I think they'll believe you. Well, look how much – look how – I never had a 25-year-old when I was 25 that explained a lot of this stuff to me because we were listening to old guys. Even then we were listening to old guys. So this is the beauty of having you here, you helping educate. The point is, don't you agree, we've got to find a way to keep those people as investors long-term and don't make the same dumb mistakes I did, my generation did. We partied our ass off in the 1970s.

Can we keep that? Not that there's anything wrong with that, but you should figure out a way. I should have been investing in stocks in 75 and not sold my two shares of Kowicki Burl. Instead of being at KISS concerts. Hey, can we keep this generation? Even if like we go into a recession now, is there going to be like mass disillusionment? Or do you think like we can keep these kids and they'll get smarter from this? I think you can keep them.

It'll be okay. What else are they going to do? Yeah. Right. Got to do something. Got to do something. Did else are they going to do? Yeah. Right. Got to do something. Got to do something. Did you have fun today? Yeah.

Yeah. Did you? I had a great time. Did you have fun today? It was fabulous. Did we all learn stuff today? I want to thank you both for, you guys are figuring out a way to get what I give a shit about, young people involved.

Remember, what business are you in? You could say, eh, we're in the stock business. You're not in the stock business. Communication business. You're not in the stock business. We're not even the retired business. We're you, and to a certain extent, I am because I follow you guys. We're in the dreams business. That's what it is. We're in the business of helping people realize their dreams. That's what the purpose is. Unless you're in love with owning IBM, the purpose is to have something in the future to show for it. And that's what we're doing. We're selling ideas and selling the future

and selling dreams to people. And I think we should take that very, very seriously. And you guys are just doing a great job. Couldn't agree more. I wanted to, do we have a moment? When are you running out? We have six minutes.

Let's do favorites really quickly and then we'll get both you guys out of here. We had so much fun today. I wanted to ask you, Bob, if there are any, besides your fabulous book, Shut Up and Keep Talking, which, what's the date this comes out? Tuesday, October 18th. Okay, so everyone's going to go and buy a copy,

and we're going to link to that everywhere, and I had so much fun reading it over the weekend. Are there any books or shows or movies or music that you're excited about right now that you would share with the folks? Well, I saw Hall & Oates at the Hard Rock on Friday in Atlantic City. They were pretty damn good. They're still at it, those guys? Yeah.

They're last leg of the tour and they're Philly guys. Okay. Other than the fact that the rock and roll giants are passing the torch, you know, the Lady Gaga is going to be selling out the stadiums.

They're the new things out there and I think it's wonderful to keep music alive. You know who's the new thing? It's Bad Bunny. Yes. Huge tour.

This guy just broke every concert tour record other than like the Rolling Stones. Who's Bad Bunny? Exactly. He's Puerto Rican. Who's Bad Bunny? Exactly. He's Puerto Rican. He's Puerto Rican

and he sings in Spanish and there is nothing on earth bigger than Bad Bunny right now. Is he such a good singer or what is it exactly? His community comes out like you would not believe.

It's the Super Bowl every night. They're selling out the biggest venues in America and it's just, it's erupting. And traditional media doesn't even know how to explain it, which I find fascinating. Right.

And a lot of it's social media. And the point is, music evolves. The old timers, my generation said, you know, rock's dead, Bob. I said, well, no, it's evolved. It's now country music. Three guitars and a drum is, The sonic possibilities are kind of exhausted. We've been doing this since Chuck Berry, for crying out loud. 1956, three guitars and a drum.

There are other sonic possibilities. Jazz itself also kind of hasn't petered out. It's still around. But when it really mattered from the 1930s into the late 50s and mid-60s, that period has sort of passed now. So the music evolves, and I think it's wonderful. I'm not a huge Bad Bunny fan, but I understand why people like him. And I think he's great. And we need to keep investing in new technology. We need to believe in the future. We need to be optimistic, new music, new technology, the world's getting better. It's not getting the worst. We're not going to hell young people are great and what i found as an old fart you give a little respect you get some

respect i agree with that i agree i couldn't agree with that more kyla you got a favorite for us yeah so i'll take i guess the other side of your trade and say like you can learn a lot from the past too so i there's this quote from james baldwin where you can learn a lot more from literature than you can from like literally anything else. So I think, you know, Philosophize This is one of my favorite podcasts. I always try to include a quote about philosophy at the end of every newsletter, kylodoslovesac.com. And then, you know, talking about Hedgehog and Fox, that's Isaiah Berlin. So like, you know, markets are essentially philosophy too.

And it's good to remember that as we talk about some core dynamics. Philosophize This is the name of the podcast? Yeah. How often do they put out episodes? Usually it's once a month. Okay. We're going to check out that. And where do we get all of the Kyla stuff?

So you're Kyla.substack. Yeah. Kyla.substack. What's your Twitter handle? KylaScan. Yeah. So that's on Instagram. KylaScan is Twitter and Instagram? And TikTok.

Yeah. And then I have my YouTube as well and my podcast. Okay. How many TikToks are you putting out on a weekly basis you're doing one or two it looks like one a day

do you know that I am verified on TikTok that's amazing and I'm like really good at it they won't verify me how many followers do you have on TikTok 151k

yeah it's a big deal incredible I have 27,000 that's awesome Bob has like 90,000 I do did you open that account is that one nice Michael you got a favorite for us yeah the New York I have 27,000. That's awesome. Bob has like 90,000. I do.

Did you open that account? Michael, you got a favorite for us? Yeah, the New York Giants. We're back. It's been a long time. We are back. We're four and one. I almost cried at the end of the game. My wife's like, what in the world?

No, that was amazing. Yeah, it's been a minute. So very, very happy. I have two very quickly. There's a really great writer. Her name is Jessica Lesson. And if you know the website the information which is like very heavy silicon valley kind of insider baseball stuff on

tech jessica does this email briefing for the people like me who don't have time to read all the articles and she just has a really unique voice and is very witty and gives you everything you need in one email so subscribe to uh the briefing from the information by Jessica lesson. Any hip hop fans in the room today or am I outnumbered for a change? John, you're nodding it. Freddie Gibbs, you're a Freddie Gibbs guy. He's great. Yeah.

Okay. Thank God somebody. His new album, I think is the best album of the summer fall for me. So everyone check out Soul, Sold Separately. This is, he's calling it his debut album because he spent 10 years doing independent shit on his own. This is like, I guess, a real label. It's definitely not a debut album, but it is incredible.

Every single song is a slap. All right. I saw a wonderful band this summer. It's like a young Krungbin from Texas. Yeah. They do Texas Sun with- Texas Sun. They're my favorite band. Yeah. It's a young Krungbin from Texas. Yeah. They do Texas Sun. Texas Sun. They're my favorite band.

Is that your favorite band? They're great. Wait, who sings on Texas Sun? Is that Leon Bridges? Leon Bridges. That was a few years ago. The new album is great. It's basically blues.

How do you pronounce the name of the band? Krungbin. It means airplane in Thai, I believe. Of course it does well everybody knows that I mean you f***ing googled that though I did not

honest to god I took yeah of course I speak Thai right I don't even speak English very well you guys you guys are awesome

as I said at the beginning of the show both rock stars just want to say thank you so much for coming in really appreciate it guys you made the episode very special.

I hope you had fun. We'll make sure everyone checks out all of your stuff. And for God's sake, Bob Pisani, this is like the voice of the stock market. Please buy this book. Shut Up and Keep Talking is the title.

Shut Up and Keep Talking by Bob Pisani. You will enjoy it as much as I did. I know it. All right, guys, we're going to roll out. Thank you so much. All right, so that was the warm up and I just wanted you guys to get a feel for what the show is like.

Now we're going to get rid of it for real. Was that fun? That was great. It went high. Thank you. So you're going to end the train now? Yeah. Go, run. I think you'll be fine.