The Compound and Friends - Biggest Risk Right Now, Nvidia Is a Circus, T+1 Settlement Is Here

Episode Date: May 28, 2024

On this TCAF Tuesday, Josh Brown and Michael Batnick are back with an all-new episode of What Are Your Thoughts! They discuss the biggest risk to the stock market, T-Bills, earnings season, Synapse chapter 11, Amazon vs Nvidia, and more! Thanks to Public for sponsoring this episode! Visit https://public.com/ to learn more! Sign up for The Compound newsletter and never miss out: https://www.thecompoundnews.com/subscribe Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: LinkedIn: https://www.linkedin.com/company/the-compound-media/ Public Disclosure: A High-Yield Cash Account is a secondary brokerage account with Public Investing, member FINRA/SIPC. Funds from this account are automatically deposited into partner banks where they earn a variable interest and are eligible for FDIC insurance. Neither Public Investing nor any of its affiliates is a bank. Learn more at public.com/disclosures/high-yield-account 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. Tonight's show is brought to you by Public and the Public App. More on Public in a moment. We're going to open the show tonight with a conversation about the incredibly high dollar amounts coming into high-yielding, low-risk instruments like money market funds and T-bills. And we'll talk a little bit about some of the different ways that investors are doing that with their excess cash and even some of their investment capital, not just cash.

So I think it's one of the biggest stories of the year, and we're gonna get there in a second. I wanna welcome everyone back from Memorial Day weekend. Hope you guys had an awesome relaxing weekend. We're so fired up to be doing the show all summer, not really taking that much time off. And we have so much new stuff that we're going to be doing, a lot of things in the works. So I just wanted to check in, say a quick hello. Tonight's show is What Are Your Thoughts with Michael and I.

We're going to get into a lot of really interesting stuff, some things that we haven't covered in a long time. In addition to T-bills, we are talking about earnings season and some of the incredible things that we have seen in terms of buybacks and dividends. It's been a minute since we checked in on those topics and there's a lot to say there. We're also going to talk about a fintech company that blew up last week with the bankruptcy filing and we're going to talk about some of the biggest risks to stocks right now. And I certainly have my opinion. If you're reading my blog, you know. Okay, that's it for me. I'm going to turn you over to Duncan and John,

who will send us to the show right now. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of RitholtOLES Wealth Management may maintain positions in the securities discussed in this podcast. Alright, so last week we had a little error with no music playing when we came on. Wasn't an error, it was a hiccup.

It was a hiccup. So this week we rectified that, we started the music 15 minutes ago. And that's why as soon as we came on, you knew that we were coming on. Greetings, Ryan Tumbleson from Chattanooga, Tennessee. Hi, Ryan. Mike, we got a full house in the live chat. Can I tell you some of the people that are here tonight? Is Jay Luther here? Of course he is. So is Media Mindy. So is Biff Griebelz. Jake Doe. Got some returning champions. John Suarez is here. Doc Horton. And then we've got some new people we haven't seen before.

Scott A, Situation Room, Jay Dog. Who else is here? There's a whole, it's cool man. It's a whole group. Hey guys, thank you so much for joining. Welcome to What Are Your Thoughts? This is the longest running show we have on the Compound YouTube channel.

If you're tuning in for the first time, my name is Downtown Josh Brown. With me as always is my cohost, Michael Batnick. Michael, say hello to the folks. Hello folks. Guys, what we try to do with the show is touch on the biggest topics on the street in the world that we inhabit each week. And there just happens to be a lot going on these days, so it's pretty exciting.

We appreciate you guys who come here for the live. I want to recognize our awesome sponsor, Public. Mike, tell us about public.com and the Public Trading app. We're going to talk about cash today. Cash is so hot right now. I've got some cash parked in public. And the thing that I love about it is you see your interest grow up every day.

I should say you see the balance of your account change every day because with their industry leading 5.1% AP one, your cash it's going up every day. I love it. So that's higher than Robinhood, higher than SoFi, higher than Marcus, Wealthfront, Betterment, Capital One. You get the drift.

If you've got idle cash sitting in a checking account, what are you doing? Get it out, get some yield. This is such a good point. Like I have my bank, I'm not gonna ever change my bank. I have too many things going in and out of that bank and too much invested. But the cash sitting there is pointless. So moving over to public is pretty easy to do. And it seems like very obvious that people should be thinking that way. So shout to, uh, shout to public. We have to read this.

This is a paid endorsement for public investing. 5.1% APY as of March 26th, 2024. Subject to change. Full disclosures and terms and conditions can be found in the podcast description. Thank you, public.com. Americans do love T-bills. Barron's did an awesome feature story on this that I wanted to get into. And the idea was like, you know who else is buying T-bills? Warren Buffett loading up. And so is pretty much everyone you know. So let me just set this up here. Warren Buffett, they just did the Berkshire Hathaway annual shareholder meeting, they have about $153 billion in T-bills, which is

182 billion of the cash and cash equivalents that they list on their balance sheet. Buffett is mostly buying the three month and the six month T-bill. That's his, that's above his line. That's, that's his zone. Um, Buffett says T-bills are the safest investment there is, and he does not That's above his line. That's his zone. Buffett says T-bills are the safest investment there is, and he does not screw around with Berkshire's cash. He's not doing commercial paper.

He's not doing things other than just good old American T-bills. They just so happen to be one of the highest yielding risk-free assets in the world right now with as little risk as they have. It's a really great time, I think, for T-bills. Well, I think certainly one of the biggest risks that I was about to say cash investors, I guess I'll call them, people who had a large amount of money in cash earlier in the year coming into 2024 was reinvestment risk. Yeah, cool.

You're getting 5% annual return, but you don't know that the 5% is going to be the return for the year because these are short term overnight rates. And if the Fed cuts, which everyone was projecting in the bidding, and the others would be, I think, three or four cuts, then what? Because by the time the Fed does cut, perhaps other asset prices have taken off, perhaps you miss other yields coming down, bond prices going higher, et cetera, et cetera. That risk is now off the table for the most part. It's such a great point.

Every asset has risk. Some risks are more tolerable than others. In the case of a three-month T-bill, the risk is roll risk. You're going to have to roll that when those three-month T-bill, the risk is roll risk. You're going to have to roll that when those three month T-bills mature. Now, you might want to do that automatically. And so we were just talking about the public app. They will automatically roll your T-bills. The thing is, you don't know what the next vintage of T-bills are going to be as far as yield until the time comes because it changes.

There's no guarantee that you're going to preserve that weight for any particular amount of time. And to what you just said, Michael, seven rate cuts was the consensus. Now, nobody would be shocked if it were zero rate cuts. So the best bet to have made earlier this year would have been the overnight rate bet on the three month T-bill and not worry about real risk. It looks like as of May, that's the risk that's paying off, but there's still a risk. Yeah. So investors rightfully love cash. In 2018, when the overnight rate hit 2%, I was jumping for joy. Oh my God, 200 whole basis points and now it's 5%.

And it's risk free. And okay, Nvidia is up 130% of the year, but whatever, who cares? It's phenomenal. It's 5% risk free. Here's Barron's. Individual investors have been following Buffett's lead. Retail demand has been strong at the treasury's regular auctions of T bills of which there are six trillion dollars Outstanding so that's the total amount of that asset class that exists in the world right now

Non, so this is this is important Non-competitive bids at those auctions a good proxy for individual demand have averaged $15 billion a month over the last year, $17 billion last month. That compares with under $2 billion a month in 2022. So to unpack that a little bit, and I'm not like an expert on the T-bill market, non-competitive bids in every auction the government does when they put up the next round of T-bills for sale, they leave some room for what are called non-competitive bids. What that means is it's not an institution that's trying to set the price with a bid. They just want to be there at whatever the prevailing bid is. And so that's retail money.

So retail money doesn't try to set the bid. Retail money just says, OK, whatever the yield ends up being because of the auction, put me down for X dollars. So that's how they're gauging. We're actually going to skip ahead to this chart in on the action. John, higher yield. So this is the data that I just told you. This is the chart coming from the US Treasury Department.

They're showing you what they consider to be retail involvement, which again, are these non-competitive bids. And you could see this has been going on all year and it's at a highly elevated rate. Regular people are showing up at these auctions. We talked about the apps that let you do this and some of the fintechs, but let's show the ETFs too. We have this chart. So just to walk you through, I have the AUM of what I think are the four largest T-bill ETFs.

The smallest one is Goldman Sachs. It's G-bill, G-b- ETFs and the smallest one is Goldman Sachs. It's G-bill, G-b-i-l. This is the zero to one year treasury. So it's all T-bills, 5.29 billion. The next one up is the iShares short treasury bond ETF, SHV. Not short meaning they're betting against it, but literally short duration, $18.8 billion. iShares, which is SGOV, that's got $21.4 billion. And then the biggest one, BIL, great ticker.

This is the Spyder one to three month T-Bill ETF from State Street Global Advisors, is $32.3 billion. That's a lot of money into these four ETFs, Mike. What do you think? It is 32.3 billion. That's a lot of money into these four ETFs, Mike. What do you think? It is a lot of money. I was talking with Ben today. I was surprised to learn he shared that, so not only is a ton of money going into cash, and in 2022 a lot of money was leaving,

a lot of money was leaving mutual funds and ETFs, both equities and bonds to go into cash. This year, you still have a ton of money was leaving mutual funds and ETFs, both equities and bonds to go into cash. This year, you still have a ton of money going into cash, and you also have a ton of money coming into the market. So VOO, which is Vanguard's S&P 500 ETF is on pace. Now we'll see what happens the rest of the year. It's on pace to be the first ETF to have $50 billion in inflows in a year. So it's amazing

that there is both appetite for risk and appetite for cash. And I think it's a great thing. Do you think it's a good argument if somebody's like, oh, it's a bubble, blah, blah, blah, Nvidia, we're going to talk about that later, AI, it's speculative mania. And it's like, wait a minute, but investors can't stop buying treasury bills. In a true mania, are people opting for 5% risk free? Not really. No, but I don't think that those are diametrically opposed. I think both things can be in place at the same time.

I would agree, but I just feel like it can't, it can't like really be a bubble environment when you have trillions of dollars going into money markets or treasury bills outright. It's like hard to make the case that people are acting like they're in some sort of a 1999 paradigm. Because people would not, retail was not plowing into T-bills in 99. And I don't think the yields were all that different to be honest with you.

Yeah, that's a good point. So I would just say that is not an indicator that anyone's doing anything outrageously speculative. Like some bubbles are risk off bubbles, I guess would be the way I would put it. This looks like we have both going on at the same time. All right. Moving on, Ed Klessel at Ned Davis Research had a killer thread. He tweeted that the first quarter earning season is almost done. What stood out to me was the refocus on returning capital to shareholders. John, chart on please. For the first time since

2018, all three levers of shareholder payments can move in the right direction, adding a bullish underpinning to the market. So he's showing a chart of dividends, buybacks, and debt reduction, and then he combines them to show total cash dividends. And it's at an all-time high. Josh, just two- Wait, what is the total cash- Just two more charts at an all-time high. Josh, just two- What is the total cash? Just two more charts and then I'll get your thoughts. Next chart, please.

So this is the aggregate cash dividend payment over time. So dividend growth 4% in 2023. S&P 500 companies returned a total of $940 billion to shareholders in 2023 via dividends, net repurchases, and net debt reduction. It's a wild number. $940 billion. That offsets the first $940 billion coming into the market. offsets the first 940 billion coming into the market. People are wondering where's the money coming from? Well, people keep getting money returned to them in one form or the other. It's not part of it.

Yeah, you're damn right. Not only are these companies incredible at pulling the levers to make sure that their margins are what they are, obviously the sales are a different thing, but just the way that they give back to their investors, these are just money printing behemoths. Can we go back to the first chart? I wanted to ask you a question about that. So is the top pain, it just says cash dividends. The next one is buybacks, which actually have taken a pause, net or net repurchases. So I guess what stops the net repurchases from being at an all-time record high is there's

probably new share issuance in recent years and some combination of less buyback activity. So here's what's going on in the charts, if I'm reading it correctly. The top, the blue is just cash dividends. I got that. That almost goes up uninterrupted, minus the GFC. Underneath that, you've got total net repurchases of debt. The red line is showing the two of them. So that's basically the shareholder yield.

Oh, got it. OK. And then the green line is total net debt reduction. And then the blue line is all three of reduction. And then the blue line is all three of them. See, the green line is surprising to me because I had been under the assumption that debt was still rising as recently as two years ago when everyone was issuing debt at like 0%. But I guess we were still in some sort of a net debt reduction across the board. Yeah, that surprised me too.

But that's a good thing that we weren't at max debt issuance going right into 5% rates. I think that's a car crash avoided is one way to think about that. Yeah. So anyway, those are really good visual demonstrations of why the market does what it does over time. I want to tell you a story about Synapse, which I had only heard the name before. I wasn't intimately familiar with what the company does, but basically they're like a B2B provider to other apps of banking services. So let's say you have an app that's like a payroll app for corporations that want to do all their payroll stuff for employees.

Part of having that app is you need to have some sort of a banking connection that allows for money to sit somewhere or to move from one account to another. So Synapse is one of these companies that came along to provide banking services to other people's fintech apps. So like there's an app for teenagers to save money. It needs like a banking connection. Synapse provides that. Okay.

So I don't really know like why this happened to them. Maybe they just ran out of funding or they spent it incorrectly or they lost some big customers that were paying. But for whatever reason, it's a bankruptcy. And the problem is, it's now not just a Synapse issue. There are over 200 other FinTech apps that are utilizing Synapse services and products as part of their app. So there's a lot of users of all these apps that now have money that they thought was sitting in a bank stranded.

And I think there's some good lessons here or some takeaways, but I just want to set up like some of the details with the viewers, they raised 50 million in venture. And the reason why this became a big story is Andreessen Horowitz is part of some of these rounds. And so anything they do, obviously it gets magnified because they're among the more famous venture firms. They wanted to sell all their assets,

but the company that they were about to sell them to walked away. So they probably should be chapter seven, but they're chapter 11. The court asked them to put up a bankruptcy trustee because these things have to be worked out. Chapter seven is like a liquidation and then nobody knows where the money is and that just prolongs.

So they're going to go chapter 11 and now they have to go through each of these like stranded accounts and figure out who owes what and how to get people their money back, which is probably still going to be excruciating and take forever. What were your thoughts when you read about the story? FinTech in general, just the whole premise that they were going to disrupt the banks, that thesis fell on its face, just didn't happen. I think what banks did was co-opt the best of what they were doing and they just ingested it.

I think Robbett had, I know we spoke to Mowgli and he would contest this, but I do think that Robbett was very influential in taking commissions down to zero. And they were gonna disrupt the industry, no. The industry said, actually, we'll do that. Betamine and Wealthhunter, another great example. There was a modicum of success there.

And then Vanguard said, okay. Schwab said, okay, we'll do this too. And stomped him. Right? So I think that's my biggest takeaway. So I think in finance in general, this is not like disrupting e-commerce or like, oh, everyone likes to buy their groceries in the store. What if we sell them online? It's a little bit riskier than that. And we've seen this, like we saw this with insurance, this company Lemonade came along. It seems to be like this pattern where a founder will like stick a flag on the ground and say, we are going to upend this industry and we're going to do a and and the young people are gonna be with us. But the founder, the founder famously, always from outside the industry. Yes. What happens is the founder comes into contact with the industry as a result of having

founded something else. Got liquidity and said this is so dumb. They got rich and they're like, why do rich people put up with this shit? It's so dumb. It doesn't work right. And then they get the bug like, oh, you know what? I'm actually going to build something. And honestly, I would have just built this for myself. But then they don't realize, oh, wait a minute, this is a 500 year old industry. And maybe there are certain norms and standards that exist for a reason.

So this is one of those cases. And I read that the CEO joined the bankruptcy hearing via zoom on the Island of Santorini. Was it like a real, was it like a fake background or was he really there? And Santa, no one is in Santorini on business. If you're there, you're there on ecstasy. You know what I mean? You're not there on business. That you're there, you're there on ecstasy. You know what I mean? You're not there on business. That's not a business place. So I don't know, could he have been at a day

party like vibing out and it's like, oh, I have to join this bankruptcy. So it just, this is another area where you would not see a Trab-Fi CEO on a Zoom from the Greek islands. Like you just, that's just not a thing that would ever happen when people need to get their money back. So, I guess my big takeaway is like be wary anytime someone tells you they're about to revolutionize something in finance. And to your point, sometimes what will happen is you'll have a great idea that's not a great company and all the incumbents will just take a great idea and do it better than you because they're better capitalized

and they know why your idea is an eight, not a 10 and they'll figure out how to make it a 10. And there's a lot of examples of those. So I just thought this was a wild story and be careful who you use as a bank would be, would be the last thing. So, okay, Josh, uh, you wrote something, the biggest risk to stocks. What's the TLDR here? I think the TLDR here is Nvidia is basically like,

uh, Nvidia is leading the parade down Main Street. And it's not that the stock couldn't go down and the rest of the market would be fine. It's the story behind the stock has to hold up because a lot of other stocks are being held up and the entire market's earnings growth is at risk here. So I think we're supposed to grow by 10% in earnings this year, and half of it's going to come from six stocks. And all of them are on this carousel where they're feeding each other revenue or revenue in the form of investment or whatever.

And if somebody says, I want to get off the ride, we don't know what the other players will then say. And if they all decide they want to get off the ride at once, we got problems because the biggest components of the indices are all tied up in this AI spending story. So if Meta, if Amazon, if Alphabet, if some CFO says, you know what, I think actually we're good on GPUs.

Or God forbid we over ordered or yeah, maybe we should resell some of this and if we need it later, we'll just rent the compute from someone else right now. That's not happening. And I want to, I want to make this really clear. It's the opposite that's happening. Tesla just announced 6 billion in funding. No, X, I, Tesla XAI, which eventually will be rescued by Tesla shareholders, but it doesn't matter. XAI just announced six billion in funding. So what happens?

Nvidia goes up seven and a half percent because six billion in funding sounds like two billion in engineer salaries and four billion in GPUs. Like just off the top of my head, like very quick math. So that's what's happening right now in this market. That's what's holding the whole game up. And I wish it weren't true. But if you ask me what's the biggest risk, I don't think it's a reacceleration and inflation. I don't think it's the Fed shocking us with a hike instead of a

car. I don't think it's anything like that. I genuinely think the risk is somebody blinks in this spending race and the whole thing unravels or normalizes, some would say, and stock prices are not ready for anything like that. So I don't know. What are your thoughts? I guess my two cents on that would be, I agree with you. I think it would be sort of a short-term risk, like a zero to 12 month type of risk, where customers right size, we figure it out. I still think the AI story is in the early innings.

So I don't see this as like a down 30% S&P type of thing, but it could definitely be a bumpy road if this happens and take some time to work through it. I agree with that. Both things can be true. You can say, I'm super bullish on AI. I think over the course of the 2020s, it's going to be the transformative technology, and it has as much potential to change the world as the internet.

However, that doesn't mean the spending is just going to grow 50% a year in a linear fashion with no break in sight. So that the TLDR on the piece is just trying to be reasonable. Like at some point, someone's going to have to account for all this spending and be able to show a profit. And we don't know when that'll be. Maybe it's in two years, or maybe it's next quarter. And that, like, if you ask me what is really at risk here, a lot of the earnings growth that the S&P 500 is going to get will be coming from this one admittedly exciting story. And let's hope the story remains intact. So I guess what I would say is, like, if Nvidia were to fall 30, 40%, I don't

think that would end the secular bull market, but it would certainly, certainly. I want to take it further. A lot of people new to investing. They think about bear markets and recessions as being interchangeable because like that's kind of all they've ever seen is, is like a bear market and also a recession, you could just have a bear market and also a recession. You could just have a bear market in the NASDAQ that does not spill over into the real economy.

We just looked at that. 2020 was a bear market without a recession. We had it in 22. It's highly possible that this thing I'm describing is more of an investor issue than a citizen issue. And let's, I mean, for God's sake, let's hope so. Well, especially with tech, with InfoTech being 31% of the S&P, it could be isolated to that corner of the universe and not spill over to Main Street.

That's 100% right. And we have actually had these like industry specific rolling recessions. We had one in the mortgage market. Tech, media, housing. We had one in 2015, 2016 in energy. Energy, yeah. It was a legitimate recession in parts of Oklahoma and Texas. It wasn't a nationwide issue, but it's possible that if somebody blinks, there could be a chain reaction in AI spend.

And maybe you have a little mini recession in one region of the country like San Francisco that doesn't become like a nationwide thing. So I'm not saying the biggest risk to the economy. I'm very clear. Yeah. Biggest risk to the stock market. And I think it's a unfortunately, I don a unfortunately, it's I don't think it's like a high probability that it happens this year. But I think it's at least 50%. I don't know. That doesn't seem

outrageous to me. No, not at all. All right. T plus one. What's the deal here? I feel like people like you take settlement for granted, Michael. What do you think? Yeah, no, definitely. I don't think about it. Do you ever worry about settlement? You ever think about it? Never, ever. Okay. Well, we are now at T plus one settlement and we were there in the 1920s and then they

had to change the rules and make settlement take a week, a week full of business days. And here's the reason why. Things were so hectic in the stock market in the 20s, and the processes were so manual that there was no way to reconcile Tuesday's trades by the next day on Wednesday. Like, there was just too much volume, too much activity, not enough people writing things down in the ledger.

Literally, that's how they did it. Um, now we have the opposite issue. We have billions of trades, no problem. And we are actually able to use technology to pull settlement from being two days to one day. And we're actually tomorrow going to have a double settlement day. What is that? It's that the trades that were done Friday, T plus two, will settle Wednesday, but also the trades

that were done today will settle Wednesday. A double settlement day. That'll be a nice test for the system. But firms have been preparing for this for months. And it seems like if you're involved in this, your employees are not sitting on the beach right now. They're probably sitting at their desks to make sure this goes smoothly. What, if anything, does this mean for people listening? Well, I think when you do a trade specifically in something like a retirement account in an IRA, because settlement takes a few days, you don't have immediate

liquidity. So if you sold something and you want to use that cash, you have to wait for settlement in a lot of cases in order for that cash to be accessible. Because again, settlement is the counterparty who bought those shares have to exchange their dollars, which has to go through the brokerage system to get back to you. In 2017, we went from T plus three to T plus two. So that was a long time ago now, and this is the next evolution. I think where this is eventually going is instant settlement, but it could be a really long time that we're at T plus one. So Bloomberg has a great piece where they go through the history of, you know, when they shortened it and why, and, uh, the time has come. We're a T plus one world. And the good news is Mike,

if you sell something tomorrow, your cash is ready to be used again on Thursday. And that's the first time really ever that we say your cash, you mean to withdraw the cash because you settled settled cash. Yeah. Yeah. You don't have to free ride. You could like literally pull the cash out because it the trade has already been settled or completed. This is good news.

So it's a it's good news. It's nice that we are making advances in the markets. And it'll be a good test. If we pull this off without a hiccup, it'll be great. So all right. I don't know exactly where Nvidia closed, but at like 2 o'clock we made this chart. What's happening in Nvidia right now,

I don't know if scary is the right word, but it worries me a little bit to see right word, but it's a little bit Wires me a little bit to see a company say it's a mania. It's a company a company of this size just going absolutely vertical so over the last three days Nvidia had the third largest run over the last three years But the difference between so it went up 21% in the last three days Since it reported earnings on Wednesday. The difference between now and when it did it last time is that now it's $2.6 trillion a year ago.

It was, I'm using air quotes, only $900 billion. So as a result of this three-day 21% move, it added $484 billion in market cap. That alone would make it the 15th largest company in the United States. Stupid. Stupid. Yeah, this is stupid. I'm not saying it shouldn't have eventually gotten here. The fact that it just did this in three days after reporting earnings. Now, I know a lot of this is split related, and anyone who wants to laugh can, but I know no more than you about this topic. I know for a fact that there are enough retail people who would buy a stock ahead of the split, even if they understand that the math doesn't compute or make sense, they would

still do it because they think enough other people are going to do it. And I know for a fact even further, there are pros that front run that. Yeah. Yeah. It's rational. If you think other people are going to do it, then buy. You know for a fact that other people are going to do it. And we said this last week, people are going to do it. But still, these numbers. Yeah, it's bad. So you're telling me half a trillion dollars came into the stock in three days. What I mean, I get that they beat revenue by 2 billion. So let's let's let's hope this next chart for some context.

All right. So Nvidia alone, it's larger than the combined entities of Google, Home Depot and Disney. Now we're just looking at market cap. There's no, we're not doing enterprise value, no debt here, but still. It's bigger than Disney, Home Depot and Google. It's bigger than Netflix, Walmart and Amazon.

Oh my God. That chart is amazing. This is epic. It's bigger than JP Morgan, Berkshire and Metta. And it's bigger than McDonald's, Pepsi, Salesforce, Coca-Cola, AMD, Bank of America, Johnson & Johnson, Costco, and Procter & Gamble. I'm going to have to sell this at $1,500, aren't I? I can't hold. At $1,500, I have to sell. It'll be $3.5 trillion.

It'll have a bigger market cap than the GDP of the planet Neptune. Yeah, seriously. I don't think I can hold this if it does that in the next week or two. At the rate that it's going, it's gonna go to 1500, like by Friday. You know the scene, the opening scene in Twister where the father's trying to hold the door closed

and he gets blown away by the tornado? That's gonna be you selling Nvidia. Get rid of it. Someone's in the chat saying, Bob Rice, I think he's joking. Maybe not. Nvidia is cheaper now than when Josh first bought it in 2015. I'd ask scary that that actually could be true. Well, based on like cash flows, it probably is.

Oh, so here's another thing. All right. So, but if, but if those aren't, but if the earnings estimates for the next four quarters don't hold up, that ain't going to save anybody. It's just not going to work. So on the one hand, it's not crazy expensive. It's like 42 times forward earnings. However, it just added $500 billion in market cap in three days.

So I don't really care about the fundamentals in the short term. It's crazy. By the way, this gap's getting filled. Oh, this gap is the most fillable gap I've ever seen. Because it's based on nothing. And not the gap from yesterday. That's definitely getting filled. Well, not, I guess you can't say definitely.

Oh, yeah. I'll say definitely. That's getting filled. The earnings gap down at 958, that's getting filled too. Oh, yeah. They're going to fill that gap like a Twinkie. Yeah, they're going to fill it. I don't know when.

I don't know why. But I just know they're going to fill that gap. One more chart. So I was talking about, hold on, let me try that for one second. Let me just set this up. On the show with Joe Mogli, I was saying like, I know you can't really invest this way, but it just doesn't seem right that Nvidia is $700, $800 billion more than Amazon. It just doesn't seem right. So let's look at some of the funding. Hey, can I say one thing? You can invest that way. You just have to accept the L sometimes. But you can invest that way. Put that chart back. Put that chart back. We always, you

and I talk about, there we go. Hold on here for one second. Michael, you and I have this conversation about the day Zoom was worth more than ExxonMobil. True. Of course you can invest based on that. You and I talk about the time in 2011, you were in grade school, that GLD had more assets in it than SPY. These moments in time, they are inflection points

where something that might have made a little bit of sense just gets so carried away and absurd. So I think every one of those bars on this chart that we just had up, wait, what was it? JP Morgan, Berkshire Hathaway, and Metta combined are worth less than Nvidia? This doesn't make sense. Get the f**k out of here. It doesn't make sense. No! The answer is no.

So maybe that's true today. I cannot wrap my brain. And it's not like those three stocks are at all time lows. They're all at all time highs. So will that be true a year from now? Two years from now? Sorry, I have trouble with that. I really have trouble with that. Yeah, it's tough. And I'm long, I'm in it. I'm not a hater.

I'm not a hater. I hate myself that I didn't sell my house and put it into the stock, but like, it just seems wrong. And so a lot of times when things seem wrong intuitively, we find out six months later, oh yeah, that was wrong and I should have acted on it. I think that this could be one of those things. Yeah, I mean, you look at a company growing this quickly and you say, well, what should it be trading at? 20 times forward earnings? No, of course not. So it's not necessarily the fundamentals that I have to take umbrage with. It's just the speed,

the adding $500 billion in three days part. That's the part that's like, no, you can't do that. All right. Take this whole rant of ours and turn it into a clip for Twitter when the stock goes to 2000. Oh, it's going to three and a half trillion. It's going there. Next chart. All right. So let's look at some fundamental comparison. So let's look at the current quarter. This is in billions. So Amazon is doing $143 billion. Nvidia is doing $26.

Now there's a gigantic difference because the next thing shows the gross profit. I forget about gross profit. The operating income, the free cash flow of Nvidia, Nvidia is generating way more to the bottom line on that revenue than Amazon is. Then almost anybody, by the way. The best margins, I think, in the S&P. Is anyone a better margins than Nvidia in the S&P?

So look right there, chart back on. So forget about gross profiting, but I go to operating income. So at the current quarter, Nvidia is doing more operating income on a small, small fraction of the revenue. So Nvidia is just called a cash machine. I don't know. It's absurd. No, it's incredible. It's absurd.

And then you look at the margin. This is why this stock has done what it's done. So look at the right side. So gross profit margin is 70% versus 49%, 66% EBITDA margins versus 21%, 65% operating income versus 11% for Amazon. So could it be worth more than Amazon? Okay, I could understand that. Well, so here's the- But 800 billion more? Here's the problem. Stocks are not being valued on their economic footprint or on their name brand recognition with consumers. That's not

the way that we're valuing. Nvidia is being valued on its earnings growth and its earnings growth is incredible. And it's not an accident why it's in the running to become one of the most valuable companies in the world. Nobody made a mistake. It belongs in the conversation. It's just like, should it be? Yeah. It should be. It just shouldn't add $500 billion in market cap in three days.

It should not do that. And then let's all remember, like in the end, it's a component supplier. And the long history is there is no component supplier that stays on top forever because everyone on earth is looking at the amount of money they're printing right now and saying, why can't we have a piece of that? So maybe it takes them too long to catch up and they never do.

Or maybe no. Maybe no. But it's hard to believe that this company is going to be at 50% margins six years into the AI revolution. Probably not. Right? Like it's, you know. All right. I'm going to make the case.

This is a redundant case. I apologize. Hand up. I made the case for the stock. As I'm going through this, I'm like, wait, did I just do this? Yeah, I did. I'm sorry. I made this case for Home Depot.

It was pointed out that you've done European financials as your mystery chart three times now. OK, I like to go back to the well. Sorry, I like what I like. You're a creature of habit. I like what I like. All right, Home Depot. I did this in early April.

Sorry, not sorry, I'm doing it again. All right, let's run through some charts. I'll make this quick since I already did this. Chart on the left, Home Depot is everywhere where there's large population centers. It is the premier global brand in home improvement. I was there last weekend and of course, this is very seasonal, but the place was beyond jammed. Next chart, please. They are crushing it on the digital front, much like Walmart and others that are just squeezing a lot of juice out of technology and having people order stuff and go to the

store and pick it up. They're doing phenomenally well there. In terms of the actual stock, next chart, please. It's had a heck of a run, a remarkable run of the last 10 years. There was very, very few opportunities from call it 2014 to 2022 absent COVID, which everyone's in that boat, to buy it in a 20 plus percent drawdown. Well, now you have that opportunity. And part of this is the rate story. The longer rates stay higher, which is great for cash investors, the less likely people are to take money out of their house,

the less homework activity overall there is, and the more Home Depot suffers for higher rates. However, here's the thing. Home Depot is a great company, and you're able to get it at a fair price. Next chart, please. It's trading at 22 times earnings. That's the historical average of the last 10 years. And technically, last chart, technically you are getting it at an area of I would call potential support. This 320, 330 level was resistance, turned into support. There's a lot of price memory there. So I think you're getting a great company at a fair price and some potential support underneath it. Now, if this level breaks, it's going to,

you know, the next stop is 275 or wherever that is. I was going to say, I think I could buy this stock at least 50 points lower. Maybe. And I love that double top either. So I think the great company, don't love the timing. I'm not going to I'm not going to roll with you on this one. Are you long right now? No, I would say if I was.

Okay, I don't think I'm gonna roll with you on this one. But I will keep an eye on it night. Unfortunately, there are a bunch of stocks that look like this, where they're sitting on support like really good, good stocks that I've watched break through to the downside. Starbucks being one of them, Nike broke, Disney broke. So- Counterpoint, counterpoint. To me, this is an investment, not a trade. So I think if you get it and it does break,

you could add to it. Yeah, I think that's right. All right, what do you got? Mystery chart. This is a sector, excuse me, an industry group within the financials. These are all the stocks in the group. There's not a lot of public companies in the group. But I want to play a little which one of these is not like the other.

So maybe that should be the clue. Hold on. This is an industry group where one of the companies has a lot more headline risk than the others do, and they're all within the financial sector. Are these credit cards? No. Oh, okay.

Not a bad guess, just not the right guess. Okay, are these like gigantic, are these too big to fail banks? No. Are these, do they serve investors? Oh, okay, let me ask you this. Are these private equity companies? Yes.

Third guess was the charm. John, if you please, the reveal. Oh, wow. All right. So let's talk through what's going on here. These stocks have been on fire year-to-date You can see KK are in the lead up almost 30% not far behind it Apollo 25% Aries

24% and These are the big the big four. Let's say this one Carlisle's not Carlisle's not on here I left it off because it's just much smaller. Here is Blackstone, though, negative 4% year to date. Why do you think that is? B rate. That's right. Now, I would say two things.

Number one, Blackstone had a hell of a 20-23. So I'm looking tactically. You could just say the stocks trading side was consolidating. But look at the other stocks. They are kicking the crap out of it. Jared Dillion is massively short, his words, not mine, Blackstone, partly due to the B Reid story. So yeah, there's stuff, there's smoke.

Well, the B Reid story is weighing on the stock relative to its peers. And I don't think any of them have a private real estate vehicle like that. The only other one that I'm aware of because I'm not in that world is the Starwood one which we spoke about last week and Starwood is not publicly traded. So B-REIT is absolutely having an impact. Let's do the rest of the charts here. Yeah, I'm looking at it. They all look great.

Wow. So this is now I'm showing you Blackstone's market cap to back up what you were saying. The stock rallied hard in in 23 and it's a $92 billion company. And just to put that into perspective, I think it came public at the worst time possible into the financial crisis. Is it the biggest? Yeah, right. Yeah, this is the biggest one still, even despite the fact that the others have rallied

hard. So Apollo close almost at an all time high today. Like Apollo looks amazing. Next chart. Do I have one more? This is the total return since inception. So Blackstone has made investors 805% since it came public in 07. And it doesn't really show up on the chart, but this thing got cut in half immediately

when it came public, as you can imagine. So it's not as though shareholders have really gotten heard here. The stock really just like if you think about it over the long term, it's just kind of taking a pause. Good mystery chart. But not bad, right? Good one. So, hey everybody, did you know tomorrow is Wednesday?

And that means an all new episode of my favorite podcast, Animal Spirits with Michael and Ben. Thursday is an all new edition of Ask the Compound with Ben and Duncan and their special guest, plus the Compound and Friends Friday, Jill on Money Saturday. Keep it locked. We'll talk to you soon.

Thank you. Good night. Whether you're just getting started as an investor or you're managing a multi-million dollar portfolio, Ridholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit RIDHOLT's Wealth.com. Don't forget to check us out at youtube.com slash The Compound RWM. Make sure to leave a rating and review on your favorite podcasting app.

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