The Compound and Friends - Becoming the Amazon of Real Estate With Rocket’s Varun Krishna, Roaring Bank Earnings, Wall Street Fires on All Cylinders

Episode Date: October 14, 2025

On this TCAF Tuesday, Josh Brown is joined by Varun Krishna, CEO of Rocket Companies, a $50 billion giant in the mortgage and real estate market, to discuss the prospect of a refi boom and a new upcycle for the housing market. Then at 28:00, hear an all-new episode of What Are Your Thoughts with ⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠! This episode is sponsored by F/m Investments and Rocket Money. Learn more about the F/m Compoundr ETFs at https://FmInvest.com Cancel your unwanted subscriptions and reach your financial goals faster with Rocket Money. Go to https://rocketmoney.com/compound today.   Sign up for ⁠⁠⁠⁠⁠⁠⁠The Compound Newsletter⁠⁠⁠⁠⁠⁠⁠ and never miss out! Instagram: ⁠⁠⁠⁠⁠⁠⁠https://instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠https://twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠https://www.linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠https://www.tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements 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 see here ⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. 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/podcast-youtube-disclosures/⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to the compound and friends. Today's show is brought to you by FM Investments. We are also sponsored by Rocket Money. You might think you have a solid handle on your budget. Maybe your spreadsheet says you should have an extra $1,000 left over each month. But if your bank account isn't reflecting that, something's off. Rocket Money helps you track every dollar, uncover hidden spending, and take control of your finances.

Rocket Money is a personal finance app that helps find and cancel unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. Rocket Money shows you all your expenses in one place, including subscriptions you forgot about. If you see a subscription you no longer want, Rocket Money will help you cancel it. Rocket Money has saved users over $2.5 billion, including over $880 million in canceled subscriptions alone. Their 10 million members save up to $740 a year when they use all of the app's premium features.

Cancel your unwanted subscriptions and reach your financial goals faster with Rocket Money. Go to RocketMoney.com slash compound today. All right. I want to tell you guys that tonight's show is supersized. We have a special guest CEO of a company I am personally invested in for Maroon Krishna is the CEO of Rocket companies, and he came on to talk about the prospects of a real estate and housing cycle and lower mortgage rates and also got a chance to ask him about these two massive acquisitions that Rocket has closed over the course of the summer.

They bought Redfin, which many of you know is a big online housing portal, and they bought Mr. Cooper, and that's a big mortgage servicing business. So Rockets kind of built this vertical. I called it the Amazon of housing, where a user can basically stay inside of their funnel for all phases of the home purchase experience. And I thought it was a really cool story to bring to you guys. And then it's an all new addition of what are your thoughts? Michael Batnik and I take a look at the financial company earnings that we got this week.

We're also going to take a look at some interesting things happening. when you drill down into the conference calls. A lot of analysts asking about some of these non-bank financial institutions, some of the risks out there in lending and private credit. And we're going to do the whole thing. There's a make the case. There's a mystery chart. It's a lot of fun.

Thank you guys so much for listening. Hope you enjoy the show. We'll send you in right now. Welcome to The Compound and Friends. All opinions expressed by Josh Brombrose. Brown, Michael Batnik, and their castmates are solely their own opinions and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any

investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to Live from the Compound. My name is downtown Josh Brown. I'm here with a very special guest. Varun Krishna is the chief executive officer of Rock, companies, a position he has held since September

2003. Prior to joining Rocket, Verun served as executive vice president and general manager of Intuit's consumer group from May 22 to September 2023. Prior to Intuit, Verun has held positions at PayPal, Groupon, BetterWorks, and Microsoft. Faroon Krishna, welcome to live from the compound. How are you today? Great to be here, Josh. Thanks for having me, my friend. All right. I had to have to

have you on because I feel like one of the big stories for, let's say, Q4 2025 and hopefully into 2026 is the thawing of the housing market. And Rocket is going to play a significant role in, I think, just getting existing home sales, new home sales, getting consumers back on track. We've kind of been in this ice age. We all understand the underlying reasons why. but it feels like that's starting to break now in a positive direction. And you guys are right at the epicenter with that. Is that how you see it as well? We do.

I mean, look, housing is the bedrock of the American dream. It's 20% of the GDP. And it's something that all human beings fundamentally want and need. And so if we can do things to improve the housing situation in this country, improve affordability, improve inventory, that's like a fun. fundamental cause for us. And so it's exciting to see, you know, some thawing, as you said, some green shoots on the horizon. And we're going to keep building. We're going to build like it's our mission because it is. I want to ask you for the viewers who are not familiar with Rocket,

just as a quick primer, Rocket Mortgage is probably familiar to a lot of people, certainly Rocket money to fans of this channel. But tell us about your position in, in the U.S. mortgage market and kind of your competitive advantage, if you would? Yeah, I mean, Brockett is a story of legacy. We've been around for over 40 years. You know, we sort of have led every transformation in the mortgage space. We were the first to bring mortgages to the internet. We were the first to put them on a mobile phone. We are now going to be the first to reinvent them in the context of artificial intelligence. But the company has a pretty amazing legacy. I mean, we do business in all 50

states and 3,000 parishes. We have built a massive mortgage engine. We have an incredible experience that's very technology driven. And it's fueled by our soul and our culture. You know, this company didn't sort of come out of nowhere. This is a legacy that has been around for a long time. And so we are obsessed with building great experiences for clients. The rocket mortgage experience is known for being low cost, seamless, personalized, and just building confidence with consumers every day. And that's how we've grown to become the largest lender in the nation. So I want to, I want to just full disclosure before we start talking about recent events. I am a shareholder in a rocket, not trading the stock. I intend to be a long-term

shareholder. And one of the things that attracted me to the story, or two of the things, I should say, were two acquisitions that you guys made over the summer that caught my eye. because in a moment where the housing market was kind of moribund and down and out and people were more excited about technology market, etc., you guys were doubling and tripling down on this vertical integration strategy. So you bought Redfin, which is one of the largest, I guess, platforms for homebuyers and lead gen for realtors, et cetera, sort of like a top of the funnel idea, and that closed over the summer. And then you bought Mr. Cooper, which is the largest portfolio of mortgage servicing business. So now you guys have top of the funnel to drive

more mortgage originations or refis. You've got the rocket mortgage business, and you've got this Mr. Cooper business, which is just closed, where you can actually service the mortgages once they're in existence, I guess, it would be the way I would phrase it. Tell us about why those deals are important to the future of what you guys are working on. Yeah, absolutely. So it's been a very big and busy summer for Rocket,

and we're very excited that both Redfin and Mr. Cooper are officially closed. These are two public company deals. It's a huge milestone. And I would just say these are not just acquisitions. I mean, they're very direct accelerators of our vision and strategy. We've set some bold goals to hit by 2027. We want to double our purchase market share from 4 to 8%. We want to expand our refinance market share from 12 to 20%. And when you think about it,

these acquisitions are really in service to that strategy. It's about increasing our distribution, building more relationships with clients, and just building a better experience. You know, the context for this for me is that when I joined this company, you know, I took a look at the housing market. I spent a lot of time learning from the outside, talking to CEOs in the industry. And Josh, there's such an adversarial dynamic in the homeownership journey. Each of these parts of the experience, the home search experience, the real estate experience, the mortgage financing experience, you know, going through title and credit and then going into closing and servicing are like completely different worlds.

But a consumer has to go through every single one of those things as they experience homeownership. And there's this hugely competitive dynamic at every part of the funnel. And so that was kind of the first realization. The second thing is when you just think about the economics of housing, you know, in consumer products, there's this concept called an LTV to KAC ratio, lifetime value to customer acquisition cost. And the problem with these segments being all sort of separated is that you can't create good economics, right? Because the consumer basically goes from one part into the other part, into the other part. Everyone sort of takes their cut and their piece. It's very antiquated. There's a lot of friction.

And value is not created for the consumer. And so our thesis is very simple. It's that if we can connect to these parts of the experience, we can acquire clients at a lower cost. We can create a great mortgage experience. We can then service those clients. And then as they enjoy their experience and servicing, we can recapture them and continue to offer them new products, cash out refinance, another purchase, a rate in term refinance, home equity loan, a personal loan. And so the thesis is very simple. It's that these are not parts of separate funnels.

We think that they can integrate to create a super funnel. And in an era of data and AI, this strengthens our company. It allows us to have more data, more signals. That data powers better models, better experiences. When you think about Mr. Cooper and Rocket, you know, that's 10 million clients that we will service in total. It's 150 million annual interactions with those clients. you know redfin has approximately 50 million monthly active users that are engaging with the product most of whom are using the product daily so that's a lot of interactions they have 2,200 agents that are now part of the rocket ecosystem and over 5,000 agents that are part of the partner network and so ultimately we can just create a better experience we can create a more AI driven experience with better data and then the best part is that we can save consumers money i mean today the average consumer is spending something like 10% of the cost of a home on things like fees and rates and buy downs and things like

that. And so on a $400,000 home, that's like $40,000. And if we can lower the cost of acquisition and we can become a lot more efficient and streamlined, we think we can eliminate, you know, a huge chunk of that expense and we can create a better experience for clients. So the thesis is just connecting these parts of the funnel, creating a super funnel, reducing kind of the expense-related, passing that savings back to the client, and then obviously driving value prop that allows us to grow our market share. Is the intention to have the customer come in through, let's say, Redfin, you're searching for a three-bedroom home and a specific zip code, they happen upon a listing, okay, from

there, they get a realtor on the site who's willing to show them the home. from there, okay, I'm closing. I'm going to need a mortgage, get a rocket mortgage. Is that in-app or is that like an email chain or how, like, how do you keep that person in your ecosystem versus shopping around for each of those steps along the journey that you just laid out? Yeah, I mean, the idea is to build a fully integrated, fully verticalized experience. That's very deep versus shallow.

And so we have a preferred pricing bundle that we've worked. already launched with Redfin, where clients can save up to $6,000 on closing costs. We have a button inside of the Redfin app where you can apply for financing. We're going to move more of the mortgage experience up into the Redfin experience so that clients don't have to leave and go through multiple destinations. We have trained our Redfin agents to work with our Rocket Mortgage local bankers. And then there's everything from just the account and sort of login experience to seamless data transfer, just making the whole experience feel like it's just one simple and

seamless thing. And we're going to continue to build on that. But the other thing is it works in the other direction as well. There are some clients that start with the home. There's other clients that start with the financing and then look for the home. And so the lead flow actually works in both directions where we actually create and generate demand for our Redfin agents and our ecosystem as well. And that's the beauty is that we want the funnel to work in every direction. same thing applies to servicing as well, is that the servicing book with Mr. Cooper and Rocket put together represents a lead pipeline for not just our agents, but also our mortgage brokers as well. We have a healthy broker business. And so ultimately, we want to just create an ecosystem

where everyone that participates in that ecosystem can thrive, can run, can grow, and for that to be a much more integrated experience. It's really fascinating. So it's a legacy business that people know and have come to trust over decades, but it's wrapped in this fintech app experience with AI as a top layer to make everything just work more intelligently. And it's really rare, I think, in finance to see something like this, most of the debates within fintech is like brand new business, 100 year old business, compete head to head. And you guys are kind of a hybrid of both. ideas and I really like it. Yeah, you know, what's interesting is that I've been in fintech

most of my professional career. I mean, I've been in the payments business. I've been in point of sale. I've built local commerce applications for merchants. I did the nation's tax. You went about the turbo tax. I oversaw turbotax and mint. And so you learn a lot. And one thing you realize is like all of fintech at some point, it's about something more fundamental. And that's when I discovered housing. And in my view, you know, the housing industry is the last frontier of fintech. It's sort of the cause. At the end of the day, that's why people are saving. That's where they're trying to, you know, handle things like payments, taxes, personal loans, you know, investing.

Ultimately, it all is about paying one thing, and that's the mortgage. So that's why in some ways I feel like mortgage is really the last frontier of Fintech. So I read a lot of sell side research. And when you guys first announced these deals, I guess, in the spring, there wasn't universal approval among the analysts who cover Rocket. it. I don't think anyone disagreed with the thesis. I think maybe just people looked at they're spending a lot of money. I sure hope this pays off. That seemed to be some of the, and then there were people who were extremely positive about it and they got it immediately. The Bulls have been validated so far just based on the share price appreciation from the lows. But do you think that some of the

skeptics on Wall Street now that you've closed these deals are starting to come around? Is that the tenor of the conversations that you're starting to have? It is. And I think fundamentally, you know, at the end of the day, you have to have conviction in your strategy. And if you believe in your strategy and you execute well and you believe in sort of the long-term value of the company, I'm a big believer that the rest of it just kind of takes care of itself.

And so, you know, I've built funnel-based products for most of my career. And so when you see an opportunity to connect a funnel and growth hack that funnel, you know that there's a there there. And housing in some ways is the biggest funnel that there is, right? It's a $5 trillion market. And so I think what's interesting is just each parts of these funnel reflects like sort of different investor thesis. So you have growth investors, you have value investors that fundamentally manage on a different kind of construct of how they build models. But what we're creating is in some ways a new species. And so it's understandable that how do you think about that new species, right? How do you value it? How do you think about its growth prospect? But when you just

try to understand that a consumer has to go through each parts of the experience together, and they're not disparate, they're not disconnected, and when you really just sort of understand that in an AI driven world, data is going to be the air that we breathe. And when you think about the application of AI to the mortgage experience and the homeownership experience, which I'm happy to talk about more, it's a very natural fit. And so the strategy, in some sense, is something we have massive conviction around. And we're going to keep putting up points. We're going to keep putting up proof points.

We're going to keep executing. We're going to keep growing our share. We're going to keep innovating. And we're pretty confident that if we do a good job with that, you know, from a long-term perspective, the rest will take care of itself. I love that. I want to ask you about just mortgage rates in general, not a rate prediction from you, but how meaningful is it for a company?

like yours, if in fact mortgage rates follow overnight rates, two-year rates, lower. Because if you're bullish on, let's say, home-building stocks, home renovation, mortgages, like if you're looking at that segment of the stock market as an investor, then you have to believe that mortgage rates should be and will be lower as the Fed very, very slowly takes down overnight rates. What does that do? What does that do for the various businesses under your umbrella? Yeah. I mean, look, it's no secret that Rocket has a built the world's greatest massive refy machine. And so low rates is pretty straightforward. That leads to more refis and it leads to more purchases. So it's a very, very healthy dynamic for us. And what's also interesting

is that we have one of the things that we're very proud of is what we call our recapture rate. And that means our ability, because we have such an amazing servicing experience with Rocket and now with Mr. Cooper as well, we earn the right to generate more business with those same clients. So we have a recapture rate that's three X higher than industry. And that's a big deal when you think about stretching that over 10 million loans now versus what we serve today. But, you know, Josh, I think the biggest thing that I would call around. Let me just put a, let me just put an exclamation point on that recapture idea. This gets to the heart of that LTV versus CAC calculation. It's not just, hey, we did a refy for this person and maybe we'll talk to them in 20 years.

People have continuous needs to refinance. And if you do a good job for them on one project, you should be the first choice for the next time they need to do something, whether it's a HELOC or second vacation home or something, maybe even an insurance need. Like, you guys should be, like, that's the idea is that you guys are front and center for them. Yes, exactly right. That is the fundamental thesis behind why Mr. Cooper and Rocket are coming together. I mean, we have a massive origination business. Now our servicing business is equal to that, if not bigger. But connecting them to create a flywheel effect and a network effect is the fundamental thesis.

Because if we do that, our cost of acquisition effectively goes to zero. and we can create an LTV to CAC ratio that's never been seen before in housing. So that's the fundamental thesis, exactly right. But the thing that I would also say is that the beauty of these acquisitions is that they counterbalance the company in a really healthy way. Because regardless of what the market does, even if you have, let's just say, a higher rate environment, those MSRs, the mortgage servicing rights that we have, they increase in value. And so when you combine these different parts of the business, what you end up with is a housing

is a housing company, a homeownership company that's more counterbalance, that doesn't need a low-rate environment to thrive because we have a more stable earnings base. We have a more, we have a more scalable growth springboard for generating future originations. We can kind of make hay and survive and thrive in any rate or economic cycle as well. I think it's a really great point. It's almost like a built-in hedge. Obviously, you'd prefer to be writing more business on the front end with home sales and refis. But if you can't, because of prevailing factors that are outside of your control,

hey, we have this other part of the business now that's gigantic and we actually get paid more in a higher rate environment. Okay, I want to ask you about the AI opportunity. Obviously, everyone working in fintech wants to share with their shareholders and with the investment community. This is how AI is going to make us a better business

or make a better customer experience or some combination. So tell us what you guys are working on and how you think about that opportunity. Yeah, very excited about AI. You know, there's a lot of hype out there around this technology. And just as an engineer, as a computer scientist myself, I think it's very important that you kind of have to look past the hype and look to really concrete benefits and concrete impact.

And, you know, what I would say is that first off, you know, I think technology is most definitely going to define the next decade of housing. It's not just AI, it's what AI actually will lead to in the coming three to five, ten years. You know, it's applying AI to robotics, 3D printing, materials engineering. But even when you just think about some of the core applications of AI, you know, we think about it as a couple of key areas. There's like natural language processing, there's machine learning, and there's like knowledge engineering. And when you think about those key applied technologies in the context of like a homeownership experience, right, it's a lot of interesting things. It's like talking on the phone with a mortgage banker to get a loan price.

It's your capital markets infrastructure and the models that apply hedging and pricing and arbitrage day over day. It's providing documents and data and extracting, classifying, you know, using computer vision to automate the document process. It's underwriting, right? A deterministic algorithm that helps you understand, you know, how to qualify a particular client with more seamlessly. Then it's things like title, appraisal, and closing.

using computer vision to understand appraisal values, right? You know, understand how to create fairness there. And then it's servicing, right? Servicing is a massive opportunity for significant improvements in automation, personalization. And so it's capabilities there. So when you think about these kind of applications, the reason I think about NLP machine learning and KE knowledge engineering, because they very directly apply to improve all of those processes.

And all of those processes are pretty much core to what it takes to originating. a mortgage, service a mortgage, search for a home, work with a realtor, etc. So we've spent about $500 million over the past five years investing in our data infrastructure, our models, our AI infrastructure, our personalization. We have a platform called Rocket Logic. You know, it basically handles everything from our telephony to our document processing, to our underwriting, to our title appraisal and closing. And we have some pretty amazing applications. I would love to invite you down to Detroit and just show you some demos of the stuff that we're working on. But it's pretty wild. I mean, when we get, we do hundreds and hundreds of thousands of

calls every single week. We have telephony systems that will analyze a call, provide proactive coaching, provide conversion opportunities for bankers in real time, grade them, report cards. We have interventions that help you understand how to persuade and talk to the client at the right time, how to make sure you understand their needs, ask for the business the right way. We have instant answers and chat. Chats available 24-7 now. You know, it's three times. more productive and a banker can handle multiple chats at a time because the generative aspect of it is handling most of the issues and resolution. We have something called model context protocol. That's something that allows us to build internal apps that we can use to drive

personalization. And so it's not just our engineering teams that are building products and services for driving conversion. It's anyone. It's someone who's non-technical that can just use a Gentic AI and just say, hey, build me an application that does this and that and tap into the vast amount of data that we have, you know, we have just a speed and sort of productivity increase that like what used to take weeks and months to develop now takes hours and days. We have 30 petabytes of data that's fueling just predictive intent. We have better models on our clients. We have better understanding of where they are in the conversion funnel.

And so we are, I would say, not just like connecting the homeownership journey, Josh, we are fully, fully reinventing it. You know, it's AI powered, it's data driven, it's built on trust. and the one thing I would also say is that this is very much going to translate into core KPIs and one of the things as an investor new KPIs or existing KPIs that will be supercharged I would say there I would say it's existing KPIs that are supercharged but but it's ones that I think that our investors should be able to hold us accountable to are we growing the top of the funnel right that's one that we've talked about are we driving massive conversion

improvement, are we becoming more efficient and reducing the cost to produce a loan and obviously thereby creating more value for clients? And then are we driving a recapture rate that is best in class for the industry? And so those four metrics, those four KPIs are effectively how we're going to run the company. And so the same metrics, I think, should be applicable to how we think about telling our story to the street as well. And so, you know, there should be no air between how we think about running the company and how we manage the expectations of our shareholders. But The reason that these KPIs are important is because they're directly relevant to our investments in AI. Yeah, I think that's right.

And I think you get a bigger, I think you get a better multiple on Wall Street these days if you can demonstrate that not only are earnings growing as a result of efficiencies due to some of these next gen technologies, but if you're a leader in creating the path for these technologies, I think the investor base changes. And you're looking at more of a growth kind of tech investor versus I got to fill my bucket with 10% financials, you know, in a mutual fund. So it's very exciting time for Rocket. I totally agree with you. I'm really thrilled to be part of the story as an investor. And on behalf of all of your shareholders who are watching today, I just want to thank you for giving us some of your time and sharing what you guys are working on.

It's really interesting and we appreciate it. We appreciate it too, Josh. and thank you for having me on the show. I love what you're doing with this channel in the community as well. And I'm going to come to Detroit and we'll do a tour and I'm going to get a cony dog. Sounds good. I love to have you anytime.

All right, Vruon and Krishna, ladies and gentlemen, thanks to rocket companies and thanks to Veroon. Thanks for watching, all of you. Like and subscribe, do all the things, and we will see you soon. All right. You have a Jackson DART shirt already? Gotta support Jackie, baby.

Of course. Do you know, I tried to, we tried to find Justin a Jackson DART jersey and they said they're not being shipped until October 30th. Like, they weren't ready for this kid's level of popular popularity. Nobody had any idea. Oh, shit, we better have a million Jackson Dart jerseys ready. Just get a, just get a fake one from China before they have the blue one. Oh, I shouldn't

say there were no jerseys. They have the blue ones, but he just got the Brian Burns in blue. He doesn't want to have two blue Giants jerseys. So he wants the white one. There aren't any, like literally. So it's, uh, listen, we say the market's efficient. It's not always so efficient. Hey, ladies and gentlemen, welcome to an all-new edition of what are your thoughts here on the Compound Network. We are so excited to be here live tonight. The chat is going crazy. You all say hello to my co-host, Mr. Michael Battnick. Michael Badnick, you say hi to the folks, all right?

What's up, folks? Let's see what's going on the chat right now. I am told Table for Seven says, ready to go to Pound Town. I'm becoming a gold bug, okay? Maybe we'll talk about that. Some shoutouts to Nicole in the chat. Guys, I want to tell you about something. Nicole has officially gotten the compound's Instagram account as of today to over 50,000, 50,000 followers,

which I think is coming from a thousand or 10,000 when she joined. So she's 5X, the channel. just a couple of years. I think we have a shot on Nicole here being Nicole, Nicole being Nicole. She is literally our resident social media genius and has absolutely helped us transform this channel into more like it's more of a movement, I would say, at this point. So shout to Nicole, we're going to drop a link where you can follow us on Instagram in the live chat on YouTube right now.

And for those of you listening, it's the comment. Compound News is the official compound handle. So up, there she is. Thanks, Nick. All right. I also wanted to mention we have only, or there might be less by now, only 10 tickets or less left for the New York Live show with Michael, myself, and Jim Kramer. So that's happening on Friday, October 24th.

Doors open at 6 p.m. There will be food, drinks. There will be Kramer. There will be signed copies of his new book. a live podcast recording. Nicole, do we have that link? Let's drop that now. If you guys are watching this video later

and there were none left, don't say I didn't try. Don't say I didn't try. I really hope that, I hope that whomever wants that ticket sees this alert. She's saying now saying less than 10. All right, we're on fire.

Sponsors tonight, FM Investments. Michael, take us through FM Investments. All right. Listen up, folks. Even after the Fed's recent modest cut to overnight rates, compelling bond yields are still attracting a lot of investors. That's right. $90 billion, $98 billion in September?

Wild. Most bond funds come with the catch, which is the catch is those regular income distributions that bond funds have to pay out. Distribution sound nice, obviously in theory, but they actually weaken the magic of compounding. Why? Because every E.T.F.

Why do distributions weaken the magic of compounding? Taxes. Oh, shit. Paxes. That's it. Every ETH distribution pulls assets out of the market. I just shut up for a second. Let me finish this.

Temporarily. It says for BATO. So the FM compounder ETFs are designed to solve the fixed income distribution problem. Compounder ETFs can help investors avoid distributions, stay invested, and compound their capital gains. What are the compounder ETF tickers? I'm glad to ask Josh. It's CPAG. That's CPAG.

The FM compounder U.S. aggregate bond ETF. and C-P-H-Y, the FM Compounder High-Yield E-T-F. C-Pag and C-P-HY help investors harness the magic of compounding. Learn more about the FM Compounder ETFs at FMInvest.com. Shout out at FMInvest.com. That is a real problem, and it's nice to see somebody finally address it. All right, we have some...

You just shout out their website. Unbelievable. Yeah, well, listen. Yeah, shout out to the website. Shout to the site. We got some peeps in the live chat tonight. I want to say hello. In Jensen, we trust, Cam Rackham, Matthew Stevik is here, Oliver is here, Joe out tomorrow, we see you, Jay Luther.

What's up, man, Ring, KPS, Fred, C-Note, Connor McLaughlin, what's up, Georgie? All right, thank you guys for being here for the live. Let's get down to business. First things first, the banks reported some of the banks, some of the largest financial companies in the world report and earnings this morning. And the reports were awesome. Now, I don't think that's surprising to most people. Financials have been among the top three or four sectors of the year, pretty much all year. And the big banks are among the best of the financial sector stocks. So no one was really like totally knocked out that these

reports were so good. But I think it just underscores the broadness of the rally because the banks don't just deal with technology companies. The banks have customers in every segment of the economy. What do you think of that take? What do you think of that take? Like banks as a gauge of the economy beyond tech. I know they're involved with tech as well. Yeah. So J.C. was on the show earlier in the year. And if you'd listen to me for a second, I'll let you know that, yes, banks are important to the economy, to the stock market, it's discouraging when you see the banks being left behind. You want to see real confirmation that there is activity in the real economy outside of just this circular notion of open AI and Salesforce now, which was a dud and whatever, Oracle and all

of these deals. You need the real economy, damn it. So just before we get into the reports today and the market's reaction, I wanted to highlight Adam Parker's work, Adam did this really interesting thing showing that, showing what you want to pay attention to in terms of stocks before earnings. So chart on, please. Adam said, stocks in the bottom half of industry group relative momentum, all right? So stocks in the bottom half tend to beat expectations on the earnings release. And those in the highest 5% of two-week stock performance see a statistically significant underperformance on the day that they,

they report earnings. This is important. On average, big moves into earnings releases should be sold and big laggers should be bought. So let's see what happened today with Citigroup and with Wells Fargo. Next to your charts, please. Both of these acting pretty damn heavy. Not necessarily if you were just purely technicals. I don't know that I want to be longer than this going to earnings. Boom. Big candle. Next one. Same thing with City. Also, pretty cruddy price action. And yet a very nice day today. So kudos to Adam. I thought that was interesting stuff. I only agree with half of that. Which part? I like, I guess it's the on average part that I don't love because think about, I know, I know, I know, I know.

But think about anecdotally, like how many counter examples of this that are so easy to find at your fingertips. Dude, of course. He's just, he's all because that. Put his, put his charge. back on, put the bar chart back on. So this has shown you pretty clearly that the stocks with the strongest momentum. Now, listen, this is very short-term stuff. We're talking the next day. The stocks that are ripping into earnings, like, they tend to, the expectations are too high in the short-term.

And- Is that percentage gain? Yeah. On the left. I mean, I don't know if this percentage gain. It's a T-stat. Don't worry about what T-Stat means. It's very tough. Because the point is it's what this is not, so what this is not saying, chart off, what

this is not saying is that stocks rallying to earnings have bad earnings results no it's just describing profit taking selling the news correct correct that's it I'm such a heater what's what's wrong with you it's a great chart it's a great chart it's a great chart it's a great short it's I think it's good food for thought but I want to see what is that the next day like I kind of like I kind of like I kind of want to see give me the total return the two weeks before the earnings and the one week after and I guarantee you that that that that that stat gets obliterated like how many people are buying the stock the day before earnings and selling it the day after that's a very small component of the market

his clients are hedge funds i'm i'm merely making the point that's no all right so let's get to the best i do understand the point i just question the uh the practicality of paying attention to it is that there's a lot of things that we talk about that people should not pay attention to let's be honest that's definitely true all right um earnings uh so so we have a bunch of great stuff here from the gang um callie chart kid matt sean i don't know who's is who's but these are some things that we want to share this is the financial sector earnings week not every one of them reports but almost every big company that reports this week is a financial 65% of the company's reporting this week are from the xlf i love this sector

Okay. Me too. And I love that it's first, by the way. I think that's huge. Okay. Same. The entire financial sector is expected to have growth of 13.2% for the quarter. That is the fourth highest within the S&P 500, fourth of 11. Not all of these stocks, even though they all had good earnings, not all of them went up after. Again, Adam's right. That phenomenon is real. A lot of these are stocks that have run up 20, 20% into these reports. So I get it.

Okay. Trading and investment banking revenues beat and look strong across the board. Deal making is okay. I think deals were the big story at Goldman Sachs or overall investment banking revenue, I should say. Worries about credit quality are, I don't know. They're not new. I feel like it's every quarter. People are like dying to find some sign of it.

Dude, there's nothing there. There's nothing there. J.P. Morgan, the provision for credit losses was $59 million, driven by the impact of a charge off related to a single client, which we'll get to later. Net charge offs were $62 million, and the net reserve released was $3 million. They asked about the credit card business early, or they didn't even, before they even asked about it on the JP Morgan call, they just went right to it, CCB. CCP, there's nothing happening there. There's like, literally nothing to report there's no uptick there's no like scary activity in the worst

borrowers like none none of it so that's that's the good news um jamy diamond's economic comments were you know the usual he is never going to give you what you want if what you want is everything's great that's not that's not jamie-esque he sees himself as a risk manager not as a cheerleader. Hold on. Let me read this quote. So this is slide one in their earnings release. While there have been some signs of a softening, particularly in job growth, the U.S. economy

generally remained resilient. However, there continues to be a heightened degree of uncertainty stemming from complex geopolitical conditions, towers and trade uncertainty, elevated asset prices, and the risk of sticky inflation. As always, we hope for the best. But these complex forces reinforce why we prepare. the firm for a wide range of scenarios he says this every quarter it is who he is and he shouldn't say anything different he's the head of the biggest bank in the country in the world you don't right

somebody was joking around i forget who it was like what would get you bearish he'll never spike the football is is jimmy diamond taking a victory lap he never were all right we're all right all right we're good he never made it okay um city anything anything crazy to say on the city not really so you know what i'll be honest city and wells i just i can't listen to them all. I do Black Rock. I do Goldman and I do J.P. Morgan. Yeah, I did. I only did Black Rock and J.P. Morgan today. And Goldman, I read about. City beat on revenue for all divisions and didn't really have any negative comments in the economy. I saw they put somebody on TV today. And he echoed a lot of what Jamie Diamond had to say about overall credit quality

and lending and et cetera, et cetera. They basically all say the same thing. It's business as usual, though, is I think the takeaway. Wells Fargo got out of bank jail. So for a long time, because it was the worst run bank in America, worst run large bank in America, literally lying, cheating and stealing. They had a cap on how much money they could return to shareholders. They were shut out from doing any kind of M&A. They were like in a penalty box, deserved.

They faked 40,000 fake accounts at the retail bank branch level. Everyone running the firm has been fired as a result. New management, they have this guy Charlie Sharf now for the last couple of years as the new CEO. He is a Jamie Diamond protege. People seem really happy with the turnaround at Wells Fargo. And now they have this asset cap lifted. So the third quarter was the first full quarter without that cap. So they're going to be treated like every other systematically important financial institution or SIFI.

And they should be able to do bigger buybacks, dividends, et cetera now. This was a good reaction, though, Mike, on Wells. Yeah, well, because nobody expects anything from them. Yeah. The team notes that's the best earnings performance, best post-earnings performance since 2015. Stock hasn't done this in response to an earnings report in a decade, which I find notable. All right. J.P. Morgan, Goldman, both went down or underperformed the KBW Bank Index.

Let's put that chart up. Goldman was down 2%. Goldman and J.P. Morgan, both down 2% on the day. Literally, this is market caps. Look at J.P. Morgan acting like a Mac 7, almost a trillion. 846 billion. Goldman is $238 billion, BlackRock, $178 billion.

Are you surprised by the order? That's good question. Between Goldman and BlackRock, if I blindfolded you, which would you have guessed as bigger by market cap right now? I probably would have guessed BlackRock. That's what I think I would have guessed that too.

We would have been wrong. Although they're close enough that like a month of market performance could change that. Wait, hold on. Hold on, just for a second. We spoke about this with Scott Nations. Man, I know Robin Hood is killing it and their future is bright, but $120 billion, just in the context of Black Rock being 100, what do we say, 180? One of those is wrong. Oh, why is Robin Hood almost the same valuation as Black Rock? One of those is wrong. Very wrong. Come on. I mean.

I pitched, I, I, uh, I pitched Black Rock on CNBC today. Pull up, uh, pull up, uh, pull up a technical chart, though. This is, this is a legit, legit, legit breakout. Like a highly legit breakout. So, it closed out on Altam High today. Black Rock took in, um, $205 billion in quarterly net inflows. $205 billion. How much is on Robin's platform?

Is it that much? Does Robin have 300 billion? what's the number whatever it's close it's in the billions is the point and and black rock's had 13 and a half trillion black rock took in and i know it's their different businesses but black rock took in 200 billion dollars in quarter of the net inflows oh i had some notes from jpccc could we just go back to jp morgan yeah all right so the consumer is fine was my big takeaway they said it 50 different ways um and you know they would love to tell you if that's not the case they'd love to be the first bank to say, yeah, no, there's a real problem here because they're going to handle

it better than everyone else. They'll tell you. So, Jeremy, the CFO said, I mean, Jamie may have his own personal opinions here, but I think at a high level, the story that we're trying to tell is one that's anchored on the current facts. The current facts on the consumer side are that the consumer is resilient, spending is strong, and delinquency rates are actually coming in below expectations. Those are facts that we really can't escape.

Can't escape. As if, right, as if it's a bad thing to say. It's crazy, which I'm going to ask you a question about. The net interest income outlook for 2026, which is the bulk of their, the bulk of the revenue, it's a bank, after all. They said the consensus estimate on Wall Street of $100 billion for 2026, quote, does look a bit low. So this bank could conceivably exceed $100 billion in net interest.

just given the size of its deposit base, which is really, really, really remarkable. Then they, then two different analysts wanted to talk about first brands, which I know we're going to dive into in a minute. But I just wanted to point out to people, so J.P. Morgan has minimal exposure to first brands, although not zero.

But they do have exposure to this thing called tricolor, which we talked about this last week, how that's being talked about, the next disaster. It's another auto-related business. But they kept saying NBFI, NBFI, NBFI. And I had to Google it because I forgot. It's been a really long time since we heard analysts on a call asking about this.

But non-bank financial institutions, NBFI is going to be the buzzword of the fourth quarter in the financial world, I believe. I believe it's my that's my top pick for like top buzzword that people start writing articles with that in the headline. I think it's going to be like just because just because there is a huge contingent of people who want things to go wrong, especially for hedge fund managers and private equity people. And especially the financial times. Oh yeah. The FT would the FT would love to see this all blow up. But I just, I think this is the new buzzword that people are going to walk around saying

because they think it makes them sound significant, suffocated. Jamie kind of said he thinks the news gets worse or there are more revelations. No, no, he didn't not say that. But he doesn't think it's like a catastrophic. Hold on. He did not say the news gets worse. He did not. We just quote.

Dude, he did not. First of all, this is from Jeremy. So Jeremy said we've also acknowledged that a lot of the private credit actors are, you know, a large, very sophisticated, very good of credit underwriting, I don't think you're supposed to jump to the conclusion that there are necessarily lower standards or a huge systemic problem. To the extent that we lent to some of these folks who are client of ours as well as competitors of ours, that lending follows our normal practices. It's often highly secured and everything we do is one way or another risky.

I'm not sure that our lending to the NBFI community is an area of risk that we see as more elevated than other areas of risk. and the quote that you're mentioning about Jamie, Jamie said something like, I probably shouldn't, no, no, no. He didn't say that. He said, I probably shouldn't say this. And I'm guessing because he doesn't want to scare people,

but there's never one cockroach in the kitchen. Oh, okay, yeah. So that's not the same thing as I'm saying? No, more to come. How is there a big difference? Wait, how does the voice just go of six octaves? Did it? Yes, more to come.

There's never one cockroach. How are these two turns? How are these two turns of phrases? not synonymous. Okay, because there's never one cockroach in the kitchen is saying, what's the implication of that? That there's another cockroach, more to come. No.

But it's not the same. Stop. It is not the same. Please stop for my benefit. There is more to come is saying that you know. There's never one cockroaches like, wouldn't be surprised if something else happens. And there's a difference. Sure, Michael.

Let's do Goldman. All right, let's do Goldman. So Goldman, it was the same questions on the call. And David, DJ, Sali, you know, he might draft my playlist because it's never interesting. No. I think I'm done with Goldman actually. On purpose, do you think? I don't know.

He's just, there's no, there's respectfully, there's just not that level of charisma. And he doesn't say anything interesting. Maybe nor should he. But I think that's like, by, I really think that's by design. I don't think he wants any more attention personally. I mean, he came through. Credit to him, they'd come through. There was two years ago, it was pretty dark.

So they were asked the same questions about, you know, private assets, private credit, risks, et cetera. And nothing, you know, I listen, nothing to pull out. But the big story for Goldman and to the point that we opened the show with is that the economy is firing. There is deals. There is activity. So throw this chart up. Look at investment banking fees. second quarter was 2.1 billion, third quarter, 2.6 billion, up from 1.9 billion in the third quarter of

24 year over year. I mean, it's humming. It's definitely cooking. That is, that's a meaty bar right there. Things are happening. Yeah. Goldman bought industry ventures, which is interesting. $8 billion venture company plays in the, so they are. It's just a venture capital fund or it's more than that? They do a lot of different things. They were the pioneers of venture secondaries and they've been they've had a very successful story career eight billion dollars in a um and on the platform um i think the cash comp was like 600 with another 3 engine on their earn out something like that so so it's almost a billion dollars for for the business do you think that that was a company you think that was a situation where the company put itself up for sale

and goldman won an auction i doubt do you think this was strategic and goldman went to them and said there's a good fit here for some like for some reason beyond just like, you know. So not knowing anything, speculating tourists here, I would say that this company is very well respected. I would guess that they're not hiring a bank to shop them. I would guess that at Goldman approach them. Well, you know, there's never just one cockroach.

So I wouldn't be surprised to see more, more deals for these, for these companies. Now that they sort of can do whatever they want. almost whatever they want. I think from a regulatory standpoint, from an antitrust perspective, if they want to do something, they could probably do it. So I think we'll see more.

Let's do, let's just on Black Rock, I know you have some data on this one. This is what stood out, this would stood out for me. 13.5 trillion in AUM is so big. Yeah, like we say,

we say the words, we say the words trillion a lot on the show because we're always talking about like Apple and Nvidia. but like honestly. Okay, I'm so glad you mentioned that. An investment firm with 13 and a half trillion under management. This is one company managing 13 and a half trillion, not just managing but like we're responsible for.

That is so big. Okay. I'm really glad you mentioned that because show this chart from Bloomberg intelligence, John, please. So I bet took in $100 billion in about. 400 something days. Oh my God. Okay. So Ibit and their other ETFs total did $61 million in crypto ETF revenue. So I call it a $250 million annual run rate, give or take, a quarter of a billion dollars. And guess what the percentage of that revenue was? One percent.

Oh my God. Wait, can we put that chart back up? This is showing how many days it took for Ibit to get to $100 billion. And they have four other. ETFs that are $100 billion, V-O-O, which is- No, no, no, no, that's not what this is showing. This is showing how quickly it took other companies, other ETFs to get to $100 billion. Yeah, that's what I said. No, that's what I said.

These are all BlackRock products. No, no, they're not. V-O and V-E-A or Vanguard. Yeah. I-E-FA is State Street and I-E-M-G is... No, no, no, those are Black Rock. I-E-E-F and IEMG, those are Black Rock. Oh, okay.

So, but I'm saying, it's the length of time by days is how long it took right so i bid did it in in just over a year and v o oh which is like their is like the vanguard spy basically yep correct took 2,000 days that's what the point i'm trying to make okay um what is it what does that say for is that say more about bitcoin or is that say more about just uh the development of the et f business in general Yeah, both, both, both. In fairness, obviously, ETFs are a lot more mature than they were when VEO was launched it, you know, back in the day.

So, but my, my big point is this. Show the table of business results. So look at September, look at the fourth column, September, okay, September 30th, AUM is a percent of total. Okay. Digital assets, one percent. Oh, yeah. And one percent of fees.

It's like a blip, and it's a hundred billion dollar product, and it's a blip. Look at Quebec. Sorry, I have another question. I have a question on that, though. So only 1% of BlackRock's AUM is in digital assets. Let's say I bet. And base fees. And base fees.

But how big is BlackRock in Bitcoin overall? Are they 10%? Like how much of Bitcoin does, does, is in the BlackRock? If I bid is 100 billion, how much Bitcoin is there? And Bitcoin's what? Is it $3? I don't know what it is. I don't know the answer.

$4 trillion. They're a meaningful, they're like a meaningful amount and rapidly becoming more meaningful. Yeah. All right. Try back on. The other portion that's interesting is private markets, $300 billion plus, and it's 13% of the revenue. And that will, that number will grow higher, undoubtedly. Yeah.

Yeah, for sure. Anyway, the point is. It's super profitable. Josh, you're right. Even though there's 12 or more digital asset ETFs. like all none of them are cutting fees like all of them are making money bitwise is oh bitwise cutting fees already okay i think they are but the point is this trillions of dollars to your point earlier it's so much money that showing that the hundred billion dollar ETF is one percent of

their a um one percent of revenue really puts it into context it's so much money so like getting back to what i said earlier black rock is either way undervalued or robin hood is way overvalued. value to maybe a little bit of both. All right. A story today in the Wall Street Journal, mid-morning reacting to these earnings reports that we're talking about. Can we get a screen grab of this, John? Wall Street is firing on all cylinders fueled by deals and trading.

The subhead is results are beating expectations across the big banks. So not to repeat a lot of what we just said. But here are some things from here. Goldman is now on pace for its best year ever. Ever, did you hear that? In its main investment banking and markets division, JP Morgan is on track to make over $50 billion in annual profit for the second year in a row.

Black Rock 13 and a half trillion. These are the most important companies on Wall Street, and all of them are just absolutely crushing it. This year, we've already had the biggest ever leveraged buyout. That's electronic arts. advised by Goldman Sachs, $20 billion in financing from J.P. Morgan. Bank of America is expected to bring in the biggest ever disclosed deal fee for a single bank, $130 million.

So did you hear what I said? Bank of America is getting $130 million for that deal. J.P. Morgan is financing it with $20 billion, and either the buyer or the seller was, the seller was advised by Goldman. It's like, it's unbelievable how much money is being made, which explains why these stocks have done so well. So, and they go on and on.

There's equity trading. There's equity underwriting. There's debt, debt capital markets activity. Just, it's all explosive. And it's all on a year-over-year basis, just a huge change. So the question I wanted to ask you is one thing that's really interesting, we're kind of like in these Goldilocks days for. Wall Street, with all these records being broken, but it seems like everybody wants to spend the

entire time imagining ways to all come crashing down, rather than just like enjoying it. Like, all right, we're in it right now. Why do we have to focus relentlessly on how it's going to end? Do you get that feeling that that's all anyone wants to talk about? All right. The question is, who's anyone? Because I think what you're referring to are the headlines, and I was talking to Ben today about this, journalists don't, and this is not their fault.

Good news is boring as shit. Nobody cares. I mean, this is good news, but this is an exciting article. But it's a big flashy headline. Dude, come on Wall Street, twilering on all cylinders. Not interesting. They want more, they want more first brands stories. That's interesting.

How could people have been so irresponsible? People have so much money. How could they have been so reckless? That's what people click on. Nobody cares that Goldman's going to have a record year. Like investors cares, well, they should. It's the second biggest sector in the economy or in the stock market. but this idea that people want to see the banks blow up or whatever,

a big short 2.0, yeah, that's what the headlines want you to see. Of course they do. They want you to, that's their business. But how do you explain the amount of regular people who are doing Google searches for stock market bubble? Everyone's saying bubble now. Everyone. Is it because things are just so good that people just can't take it and they just have

to ask like when is this going to come to an end? I mean, that's a different story. The stock market bubble, the banks don't. Well, those are different stories. Not really. I think they're pretty really. I just, I don't hear anyone, regular people or the media, being like, yeah, it's a ball market.

Things are good. It's a bull market, but it's weird. Like, like, I don't understand this obsession with how's it going to end? Well, I love that. And so you're going to end. How's it going to end? Dude, we need, we need a wall of worry. We can't have everybody's like, you know, everybody in the boat, no risk, whatever.

S&P 15,000, get in moron, we're getting rich. Like, I'm happy that there's, and but. Yeah. Well, there's a lot. I want to show you something funny. Put this first tweet up. This is a good tweet. Yeah.

Nathaniel Whitmore. Do you know him? I don't know. I don't know. An entire generation watched the big short, thought Michael Berry was cool, and spent the next decade calling everything a bubble. I wanted to, I didn't like. this because I'm not on, on Twitter, but I would have liked this 500 times if I could.

This is, I think, one of the best explanations for all of the hate and bitterness about the stock market. I think a lot of it boils down to all these ambitious young men who saw that film in their teens or 20s, or God forbid, read the book a little bit earlier than that. And just they thought, like, this is what you're supposed to do. You're supposed to be the smartest person. Find the fraud. You're supposed to be the smartest person in the world, outsmart everyone, spot the bubble before everyone else, bet against it, and like that's like what you're supposed to do in the market.

That's like literally what 100 million people think they're supposed to be doing. And I'm exaggerating the numbers, but like there's a whole, there is this whole generation. They think that shit is cool being like this freakishly, like brilliant contrarian who. makes everybody else look like a moron now i think a lot of these people that you're describing are people that wanted to be professional investors like real serious investors i think most average people don't aspire to be michael barry um but and i think i and i think a lot of people grew out of that shit like our friend dan mcmurtry is killing it in the hedge fund business and he's not one of these freaks that is betting on the world and that everything's a fraud like

i think that there are certainly there is a corner of the universe absolutely that was brainworned by this. But not everyone. Like brainwormed, but like I think in a, I think they want to be the hero. I don't think they're like villainous. I feel I almost like,

they want to be the guy that saves everyone. Well, you know why? Because they're like, that's about to blow up. And I'm going to save you. So Michael Steinhart famously said, nothing makes a money manager feel better than making their clients money

when everybody else is losing theirs. You are hero goaded forever and ever. There's no, There's no higher mountain for a money manager than that. And so bold markets make that sort of investing really difficult, obviously. This was a good clapback from high-yield Harry. This is one of the top five funniest people in the world in finance. He's pseudonymous.

I don't know him in person. He said, disagree. I was inspired by these guys. These are the mortgage brokers in the big short, right? Who would like beyond, like, beyond ridiculous, like caricatures. of, I know mortgage brokers and directionally, the movie sort of had it right, but like, they were like to the end of degree. I thought that was good.

Anyway, it's kind of sad that there aren't a lot of people who are just like, yeah, this is pretty great. Like my friends who work on Wall Street are doing well. They're making money. They're, you know, buying bigger cars. They're buying bigger homes. Okay. Maybe a little bit of envy.

But overall, it's a good thing that the capital markets are working. that like nobody has that opinion i don't know i don't know i think people in the real world might have that opinion like people in wall street in the world might have that opinion i think that i think that all forms of of media consumption social or otherwise just warp everything i really do i do too all right let's move on um okay so i saw this poster i think robin actually shared this with me. I throw this Luther thing at. All right. So the economist, um, famously late and the poster child of a lot of magazine indicators, which I don't believe in, but sometimes. I was going to say this might be the bottom for Lulu, but sometimes. So I immediately wanted to

buy the stock. So I thought I'd play a game with you, Josh, where we're going, okay, value or value trap. And we're going to start with Lutu. So, and I told Sean, we're going to revisit this in a year. okay. So Lulu is in a 67% drawdown. So this is obviously surface level analysis, right? We're not going deep on each of these names. So try it on please. We'll start with Lulu. So on top you see the price, Lulu is down 67% from its high. In the middle, we've got the free cash flow. And on the bottom, we've got the PE ratio. And I got to be honest, I, so the free cash flow is obviously turning. Like, duh, it's, you know, stocks don't fall 67% for no reason. I thought it would have been way worse.

I think it's a buy if my only two choices are buy or sell, but I don't invest this way personally. I'm not a value guy. And in fashion, it's even twice as hard. So, like, in other words, one thing to be a value investor and look at like Hershey and be like, all right, this company's been around for 380 years, I'll take the bet. that whatever's going wrong they'll fix it and there will still be an underlying demand for chocolate. I don't know that anyone can say that about any fashion brand. That being, and some

go away forever. That being said, there are some really great examples. And I'm sure they're a minority of the time of brand resurrections. And what we witnessed, um, Crocs to just think a couple of months ago, all it took was Sidney and Abercrombie and what is it? American Eagle. I don't even American Eagle. They're all the same to me. No, you're right. So, so, so retail companies turn around, but it is hard as shit. It's hard, dude. As much as I really want to fade the economist and just

hold my nose and buy, I think you're right. Like, Allo is just destroying them. So maybe they get it together. Maybe they don't. All right. So it sounds like we're both pretty skeptical. Just get Sidney wearing Lulu Lemon yoga pants. Why is it so difficult? You can't write a big enough check? Close 10 stores and give her the money. Next question.

Was the question, how do I turn around Lulu Lemon? All right, sales force. Cassie. Salesforce. So, interestingly, the stock is down 35%. Free cash flow is near an all-time high. Forward PE is about as low as it's been for the last couple of years. And nobody wants any part of the stock.

In fact, it failed to around. on the news today that there's a partnership with open AI. I mean, nobody wants to own the stock right now. I think that there's an open question about the need for buying seats per employee head on a go-forward basis. I think every SaaS company will be facing this reality in the AI age. Companies are writing their own software at this point with the aid of AI to enable them to do a lot of the things that you needed to rely on Salesforce for.

that's A, B, yes, we're in a low hiring, low firing equilibrium. That's going to break in one direction or the other. And I think most people would bet it's going to break negatively. And you will eventually see layoffs. It doesn't have to be catastrophic. But companies like Salesforce that rely on enterprise sales, those are per head deals. And if you have a lower head count working in corporate America, it stands to reason. it's going to be very hard to sell,

it's very hard to grow an enterprise SaaS business that quite frankly already has everybody as a customer. Who are they going to go next? Enough for this. Value of value, trap.

I have two more names. What do you think? Trap. It's going lower. Trap. I don't want it. Okay. Nike, we spoke about the stock a million times.

Down 62%. Holy shit. Close your eyes and buy it. Just buy it. I'm going to buy this. I'm going to violate my own rules. Just close your, all right. Here's who you.

do. Here's who you do. Here's who you do. By 500 chairs now, have 500 chairs in reserve for when it, when it has a false breakdown and breaks below 55. And it'll last for 10 seconds. You need to use a buy stop limit in that moment. But I am telling you, when it breaks below 55, you put in a buy stop limit for 60 and just ride it back higher. And I don't know. I could see this being, this could go to 95 in two weeks if they get the right, the right headline, the right news flow. The reality is it's just not that bad. It's bad.

The counterpoint is, the counterpoint is, it's 35 times earnings. Countercounterpoint, nobody gives a fuck. I agree. You want to hear, you want to hear how many times earnings palenteer sells for? Come on. Well, what are we doing here? A little bit different, point taken. All right, Chipotle, I actually think I want to buy the stock.

So, Chipotle is an. a 38% drawdown. Its free cash flow is near an all-time high. The stock is always expensive, so forget about that. But nobody wants it. I think a lot of this is the CEO leaving. And there was problems, no doubt, the food got ridiculously expensive. But I'd be a buyer of the stock.

You know what I think about whenever I walk into a Chipotle, usually to pick up food from my 16-year-old? I feel like the kid in the emperor's new clothes. Why, am I the only person willing to say out loud that food is terrible? No, it's not. It's literally terrible. Why? No, it's not.

Why am I the only person who will admit it? And so now it's expensive and terribly. I've seen you eat Chipotle. I know I do. I look, well, do I look very selective? Come on. Dude, Chipotle is a great lunch food. What are you talking about?

No, it's not. It's convenient and it's nearby everywhere and it's fast. And it tastes good and it's, and it's slop. And I have to be honest with you. All Mexican food is slop. Nope. And it's getting worse. And it's getting worse. Would you like to apologize to the Mexican community? This is just not good food. No, it's not good food. It's not good. I want it to be. Because, Mike, I have to go there for Nugget every three days. That's all these kids eat. It's all they eat Gen Z and millennials. They'll eat Chipotle seven days a week. I just don't. I just don't understand why people won't say it used to be better than it is now. I've been to, let's say,

Chipotle's in five different states in the last two years, okay? It's never good, anywhere I go, but it used to be. I enjoy it. We have one more. Okay, last one. What do you get?

Salad? Two more. You got a bowl? A bowl? Don't remember what I get. I get what I get. It's not good. All right, Airbnb, I like this one too.

All right, this is a great story. So Airbnb, the problem here is it just came, it came public in a mania, and the valuation was ridiculous. But it never stopped growing its free cash flow. And the stock has gone sideways for three years. I think this is a buy. I don't want to dislike all of these.

What did I say I like so far? Lulu and Nike. No, you don't like Lulu. You said no Lulu. You said of Sidney's and Lulu. You don't like Nike. Yeah, no, I think it's turnable. Yeah.

So I only like Nike out of these. Okay. I don't like this one either. Well, I never liked it. I never understood it. because you personally don't like it because you don't like Tripoli. So I have a bias. This is Josh is a snob episode.

All right. Let's last one, last one. All right. I don't like the stock. I think it's too much competition and lodging. Okay. Fair enough. All right.

Adobe, this is like a value man. The value people won't stop talking about this one. So free cash flow all time high. Stock is in a 50% drawdown. So stock's been cut in half because nobody believes the earnings. Nobody believes the earnings. Nobody believes the earnings to be there. What's the valuation?

21 times. um it's a buy i mean knowing nothing it looks like a buy no i'm i'm just look i'm looking at the chart i don't care about that i was joking uh it's it's a buy there's a lot of support here it's a buy with a very obvious place to put to put a stop i think your stop is your buy where your stop is you buy it don't don't put a stop in mike be a man mike the april low the april low was tested three times this is now the This is the third test of the April low, which is 3.30. But it's right there.

I understand. I think it'll, I think it's going to, it's going to break below and it'll be a false breakdown. And then you plow into it when it reverses. I agree. This is, I love this setup. I love it. I love it. This will be, this will be 450 in a year.

So the, the, the reason why this stock's not doing well is, um, obviously. like the business isn't growing, but everyone thinks SORA and chat GPT and all these services are going to obviate the need for professionals with Adobe licenses doing design work.

I'd go the other way. I'd go the other way. Most of the people doing their own childish, childish AI slop design work are doing these like cartoon images of themselves. That's not going to pass for design.

The world, my math raves beauty. My math just watered. I'm thinking about Chipotle. I might get a bowl for dinner. Like voluntarily, not because it's convenient. I do. I love me some Chipotle. Do you, bro.

All right. All right, this is a good game. I like it. Was that the last one? That's it. We're done. All right. So I like Adobe.

I don't know if I have the guts to do it myself. But I think it's trying to bottom right here. Okay. Jerome Powell spoke today. Did the market really react? or not really. I couldn't tell. I didn't see like big signs of a big reaction.

While he was talking, I don't even know what it's time he spoke. I did the market react to intradited to the Trump tweet. All right. Cali points out the new thing that he said was that balance sheet runoff could end in the coming months. So what that means is that the tightening might be too much, might be too much tightening. balance sheet runoff is bonds mature and then the Fed does not go out and buy new bonds to replace them which is right like that's like the end of the runoff so remember the ballmark was only

the bull market was only being supported by Fed liquidity but by the Fed like replacing bonds that were maturing and buying so I thought I don't know I thought that was an interesting comment I don't Callie points out yields didn't move much on this maybe a few basis points down. Okay. Job market employment prospects continue to worsen, although conditions haven't changed much since the September meeting. Good nugget.

Let me see what else. Cali points out inflation increased year over year for a third straight month in August. So that's looking at CPI, PCE. Here's her, by the way, Callie's our chief strategist at Redholz wealth. That's why we're citing her. Do what you wrote to Reuters. Jay Powell dropped a major piece of news when he mentioned that the Fed could stop culling the size of its balance sheet in the coming months.

The Fed has been reducing its runoff for months now, but the idea of a stable balance sheet could help lower yields in the middle to long part of the curve, meaning that's where the Fed would be buying bonds, thus lowering yields. Yes. That's a hidden source of relief, especially to homeowners, that the rate cuts alone may not be able to deliver. Okay. I think that's really interesting.

Otherwise, Powell didn't say anything too surprising. He repeated the no-risk-free path comment, which I'm guessing will be a buzzy monetary policy phrase for the rest of the year. Both sides of the Fed's mandate are still under threat, even though Powell and Co have chosen to focus on unemployment. Inflation worries still linger. All right. I think at this point in time,

the Fed is a chess piece for the stock market is off. the board. What do you think? I agree with you. I don't think that whatever the Fed does at the next couple of meetings, I don't think it's going to have a big impact on the stock. Cut or not cut. I don't think it matters that. It might matter in the moments, but I just don't think it matters for where the market ends the year. I think they're off the board. I am curious to hear what companies have to say, especially consumer-facing companies, about the impact of tariffs on spending. And margins all right let's do this first brands thing what we i know we covered it last week what do we want to say about this here's what i want to say all throw this throw this graphic up so for people

who are not aware of who first brands is they are a conglomeration of all these auto parts the one the only one that i know frankly is is michelin um you and i just for the for the listener who can't see us michael and i are not the kind of guys that know how to fix anything on a car We don't lift the hood up for any reason. We don't change tires. We just, we don't do any car stuff. We don't, so these brands mean nothing to me. I honestly, I've never heard of any of it.

What have you heard of on this? Michelin. They don't own Michelin. This is important. They license Michelin just the windshield wipers. Okay. Yeah. They don't own, they don't own the Michelin brand.

And I only know Michelin because of the restaurant ratings. Go on. All right. So, um, we spoke earlier about NFBI, okay, NFBIs. And one of the things that Jamie mentioned was fraud. He used the word fraud that this is, this is, even though there is not one cockroach, um, this was fraud. So Bloomberg did a story. So this guy, Patrick James, built a company, 26,000 employees, six continents, revenue of five billion dollars. but a lot of it was just buying up company. So debt and very little organic growth.

So in 2023 to 24, its revenue only rose 1.3%. The cost of services, its debt went up 38%. Not great. Is that bad? Not great, obviously. So Jeffries had a hedge fund, Point Bonita Capital, that had a quarter of one of its portfolios, $750 million in first brands,

which is very bizarre. I'll get to a sec. Look at this chart of Jeffries. Smoked. Not great. Not great. Why would a hedge fund have a quarter of its money in, I think, the debt of a company. All you can do is get paid back.

Why would you make a concentrated bet on debt? It's very bizarre. But so the article goes on to say that in 2011, a unit of Fortress Investment Group sued some of the companies and claimed that they had obscured the CEO's controlling interest. and the fact that all the companies share the same employees and management do not have separate books and records and are grossly undercapitalized. This guy denied the accusations, but he paid to settle the case. And another one that was alleged fraud two years earlier.

Public records showed that he took out mortgages for homes in Cleveland, set up a foundation to give churches and schools in the area money, but he left almost no trace of any of this on the internet. So there's all sorts of red flags all over the place. What the hell? This guy took massive steps to obscure all traces. So you couldn't find anything about this guy on the internet. So one of the analysts said it seems like he went above and beyond to hide himself and his assets.

All of this should be a huge red flag for investors. So I don't know who missed this, how they missed it, whatever. But the point is there was allegedly fraud going on. And Larry said on talking about private credit, the market is, grown increasingly anxious, given some of the recent dynamics, both related to perhaps growth, blah, blah, blah. So Larry said, all right, thanks, Alex. I hope you're doing.

Okay. So listen, I'd start by saying just that the heritage of BlackRock and HPS and definitely the combined firms steeped and rigorous, okay. So we've taken a, we're talking a lot with teams about the news, but I say the teams are generally seeing strong credit quality from borrowers. They're generally seeing a positive environment from credit investment. investing, even in syndicated loan markets. Default rates have been declining.

We, of course, read the same headlines that you do around private credit, bankruptcies, but those exposures are actually in syndicated bank loans and CLO markets. They're not with large private credit managers and direct lending books. And in those very public cases, the ones that we're reading about, you're reading about, potential frauds also been reported. So anyway, listen, BlackRock is obviously, they're all in on this. So what do you expect them to say? but this is there another cockroach perhaps would it be surprising if this blows over as an isolated

incident not for me all right i actually think it's good that this is happening because i do think that it reprises the market and it reprises the i should say it reprises risk in the market i think it heightens everyone's uh awareness of this possibility i agree i think you i think you you can't just have a one-way credit market for 10 years where nothing ever goes wrong because that we there's this concept of quote known as the Minsky moment after a famous economist where when things are too stable that in and of itself produces its own form of instability people have to feel like other people are watching what they're doing and people have to be alert to risks so I actually think unless this is the Bear Stearns hedge fund in 2007 and it's the three.

true canary in the coal mine, which, I mean, I won't be the one that will know that in advance. Unless it's that, and I look like an asshole six months from today, I don't think that you have to assume that it's that. A lot of people want it to be that. Back to what we were saying about bull markets, all the usual suspects who want there to be another Lehman Brothers, first brands is their new Lehman Brothers. They have to have it. They need, it's almost sexual. They want the rich and powerful to be exposed as, see what these guys, why are these guys rich? They're looking at it's grotesque. They're licking their lips.

They need this to be the private credit version of Lehman. They want it so bad. So, and maybe they'll, maybe they'll finally get it. Maybe this. Finally the meteor hit earth. My God. I don't know, man. I don't think that Blackstone and Ares and Blue, I don't think all these guys are idiots.

It says there are too much money there. Oh, man. Someone's going to clip that. Okay, fine. Are returns going to be lower than they were in the past? Probably there's a lot of money coming in. But is it going to be an absolute destruction of ruin and people going to jail? I don't think so.

You know what's funny about bilateral lending? Like, in game theory, you would assume that to be the safest form of lending. In other words, syndicated loans, we all understand how they go wrong. That's dangerous. Yeah. It's a thousand people. people who barely give a shit or putting money into the pot, a bilateral loan where I call you and say, okay, I'm going to give you $80 million, but these are the covenants. And if you violate,

we're going to court. And I will press you until you either pay me back or I seize your assets or some combination. Wouldn't you just like on the surface be like, all right, these probably aren't all first brands. Probably most of this activity is not dumb. some of it maybe if you're making that assumption you're dumb right it's like oh i just i i gave this i gave this guy an entire loan and i had no expectation of getting paid back like how who's doing that right now is anyone doing that probably not any like probably not aries if somebody's doing it it's not them okay um i actually am going to call an audible here we're going to dive into this uh we're going to dive into this hedge fund uh excuse me

into this global fund manager survey during the compounded friends later this week. We'll do it with our guest because we're at 558 and I don't want to skip over it. I'm very glad you all because honestly I don't think it's that interesting

but we can pull out some stuff. So maybe we'll pretend we were never going to do it at all. All right, you want to make the case? I do. So I want to make the case that I think it's easy to get distracted. I keep saying this. It's easy to get distracted by the nonsense, the speculative stocks and become very cynical.

Iran, Aklo, all of these names would be like, it's a freaking bubble and maybe that part of the market is, and it probably is, and see the hyperscalers and think like there's nowhere to make money. And that's just not the case. You might be shocked to know that a third of the market is in a 20% drawdown from its 52-week high. Right now? A third of the SPP. There's a lot of areas that have opportunities.

A third of the S&P 500. One third is 20% of below below. It's 52-week high. Throw this chart up from Matt. Matt charted the median stock, the 52-week drawdown from the median stock. On Friday, that was 13%. So this applies in the face of the, this flies right in the face of the bubble narrative. There's opportunity.

Like, how is this a bubble if the median stock is in a 13% drawdown from high? Right. Like the bubble. So, show the Russell 2000. Let's skip here. The Russell 2000 has been sideways since the peak in, in 2021. It is only now breaking out. And the longer the base, the higher in space, that's Louisiana Mata via JC.

JC loves to quote that one. I think this one's going a lot higher. But the one that I want to shout out, it's a stock that I don't own. I've owned it in the past. I was listening to Delta. Delta stock is in a, it's 11% off its highs. And the company is crushing it. Free cash load on an all-time high.

And the story with Delta is very interesting. Chart off, please. Did you know that 60% of the industry profits are now generated by Delta? It is eating everybody's lunch. It is the only premium brand in the sky. Hard stop. Well, I'm very sorry to inform you that we booked American Airlines for our trip to D.C. in a couple weeks.

Delta is always the best, the best customer experience overall, I would say. By far. And with an airline, like, that's, the bar is low, but they, they do it. I like, I'm happy when I, when I fly Delta. Corporate travel, corporate travel is higher than pre-COVID highs, which shocked the shit out of me. They're just winning. They're doing everything right.

They're firing on all cylinders. And I think the stock is grossly underpriced. And airlines historically have sucked, low multiple shitty companies, but this is different. I think it's going a lot higher. And I should have it. I don't. I like it. I think you'll have a crack at it.

These are just high beta, sloppy charts. Like, I think you buy a name like Delta when they wrecked the overall stock market and it just comes. Yeah, I think that's right. I think that's right. This is not going to, this is not going to double while you watch it and say, I wish I owned it. It's just not going to happen. I mean, you know what I mean? Like, it's just, it's an airline.

It's not going to double in a year. You'll be fun. You'll be fun. But I like it. And I agree, I agree with you. If you are invested in anything travel related, this is as good a name as any other. So I do like it. Mystery chart time.

I feel good about your chances today. I feel great. Okay. These are two different investable assets. They're related to each other. And I think the main point that I'm bringing out is what's gone on over the last two weeks. okay so are these semiconductors they are not they're not stop they're not companies i specifically went out of my way to say that they are investable assets investible assets okay so i see a lot of

oh oh oh oh okay um hmm do do it for me do it come on you got this one more hint is it is it is a they coin an Heath. Look at you. Look at you. Super impressive. I'll tell you what I find interesting here. A couple of things. Bloomberg has this really great article about what went on last weekend. Kind of had like a flash crash.

Oh, there was a flash crash. Yeah. So I just want to read this really quickly. For a few manic hours on Friday, the world of digital assets. We played Wall Street's oldest reflex at machine speed during market stress. A stampede for the exits. The spark was familiar, but unexpected, Donald Trump's 100% tariffs. The pain was most acute in crypto with an index tracking alt coins dropping 40% in minutes. That's nuts. It was gnarly.

While the crash was brief and prices have partially recovered, critics point to underlying issues in the crypto market structure, makes it prone to violent selloffs. Quote, during this crash, depth evaporated, and liquidation engines got overwhelmed. This is like a crypto expert. Auto-deleveraging control mechanisms that exchanges poured gasoline on the fire, and it felt like a market and more, less like a market and more like a trap snapping shut. Bullish? It wasn't really Bitcoin, per se.

Seoul, I think, felt like 25, Sol and Heath fell 20 plus percent, but it was really the all coins. A lot of these ones went down 80, 90 percent, and just to their point, just an absolute air pocket, no liquidity whatsoever. It's pretty ugly.

Coin Glass estimated that a total $19 billion worth of positions were wiped out across trading venues. The actual total is likely much higher since finance only reports one liquidation order per second. I mean, it's, listen, a lot of people, It's not good enough that they're taking the risk of being in these things. They also need leverage on them or they have options and futures trades on them.

It's like it's still, it's the biggest casino on earth. It's so insane. I was saying to Ben today, somebody tweeted, long-term capital management blew up. They were trading fixed income arbitrage. Treasuries. So these are basic points. They were using 25 times leverage. So what are you doing using 50 times leverage?

on it's just this it's just this generational nihilism where it's like I will never make it in life just doing my stupid nine to five job like I have to no it's not it's not good I have to do this it's not good and I'm not a monster I I know there's a whole lot of people like no crying in the casino and I agree no crying in the casino but I do I do feel bad when people get wiped out out I'm not I don't not happy when I see people losing money even if even if they should know better and hopefully the silver line is some people learn some lesson from this but it's it's ugly it's not great l-o-l nobody learns we have one more chart this is from chart kid matt bitcoin has seen shallower pullbacks versus eth that's about what you'd expect but he illustrated

it for us his chart on the left the blue is the bitcoin pullback and the red line across is the average the chart on the right you could see these ethereum pullbacks are like every time is a crash. That's heavy. Interesting though, because back in the day, not back in the day, prior to like two years ago, Bitcoin would have been down 30% too in 24 hours. That's why Bitcoin is like matured. People don't, people aren't as quick on the trigger with that thing as they used to be. So that, I thought that was notable. All right, great job guests in the mystery chart. Guys, thank you so much for tuning into the live show. We appreciate all our pounders in the audience. You guys are literally the best. We miss you

when we're not here. We love you very much. Please tune in tomorrow. All new Animal Spirits with Michael and Ben dropping in the morning video out as well. I'm going to start on Ask the Compound later in the day tomorrow. Ben has me on as his special guest with Duncan, and we're going to have some fun. I've got a peek at the questions that we're answering. I love doing Ask the Compounds. That's happening. And then at the end of the week, it's an all new compound and friends with a new guest, a friend of mine.

Super excited to have this person on the show. and you guys love it. So thanks so much for everything. We'll talk to you soon. Good night.