The Compound and Friends - Economic Data Deteriorates, Private Credit Struggles, Retail Traders Give Up

Episode Date: March 24, 2026

Join ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ for another episode of What Are Your Thoughts and see what they have to say about: the economy, HALO in private credit, college grad unemployment, a stock Michael is watching, and much more! This episode is s sponsored by Betterment Advisor Solutions and ClearBridge Investments. Learn more at https://betterment.com/advisors Companies with physical assets, predictable cash flows and durable moats are well-positioned in a volatile, high‑valuation market. Learn more at https://www.clearbridge.com/ 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

So sorry, we're late. We're live now, I think. Yeah, guys, give us a sign. Tell us that we're actually here. All right. Sorry, I was busy negotiating a ceasefire in the Gulf. The street. Looks like we got everything under control.

I think it's a 30-day ceasefire. Did you read that? I saw a tweet. All right. 30 days. Yeah. Yeah. 30.

Well, we already won. So I don't even have. understand why it's a right wasn't there a victory all right we're back to another edition of all new edition of what are your thoughts here on the compound channel first time listeners and viewers my name is downtown josh brown here with my co-host michael batnik michael say hi hello hello you guys we uh we're super excited to see everybody that's here for the live i saw literally every pounder i've ever heard of plus all sorts of new names and faces thank you you guys so much for showing up. Last week, we broke a record, had over 2,000 people come for the

live. We'll see how we do tonight. We have an ad read. We'll get through this and then we'll get right to the show. We have tons to do. Tonight's show is brought to you by Betterment. That's right, Josh. Every RIA knows attention. You don't want to turn people away. You don't want to require high minimums and you want to help clients who are just getting started because that's, that's where long-term relationships begin. But here's the truth. Those simple accounts, they take a lot work, account opening, trading, rebalancing, and before long, your staff and back office are underwater and trying to stay afloat. That's why established RAs are turning to Betterment advisor solutions. It's the platform built for segmenting your book and streamlining those

smaller and simpler accounts. Explore what segmentation can do for your business today, lower your operational lift, but keep your standard of service high, all with Betterment advisor solutions. Your biggest regret will be not doing it sooner. Learn more at Betterment.com slash advisors. Slash advisors. All right. Advisors. Thanks to Betterment.

Not only are they a sponsor, we actually use the service ourselves at Rittholz, and we appreciate it. This episode is sponsored by Clearbridge Investments. A manufacturing comeback combined with resilient consumer spending

and the tailwinds of monetary and fiscal stimulus confirm a healthy economic backdrop that should continue to support broadening equity leadership going forward, position your investment portfolio, for wider equity participation

with fundamentally driven Clearbridge active equity strategies. Clearbridge, a Franklin Templeton company, go to clearbridge.com to learn more. Okay. Let's not beat around the bush here. Don't do it. The economy's just not good.

And it's going in the wrong direction in many ways, not in all ways, but in many ways. And it's super noisy and hard to just stare at anyone data point and try to draw a conclusion. And we don't try to do that. But like we came into January talking about like four or five percent GDP.

And now we're scraping the bottom. We're talking about 0.7% growth. And I know that number moves and it's varied and it is prone to constant revisions. So it's not the end all be all. But I do not think it's a good economy right now. It's certainly not as good as it was last year in the year before. It's mid. It's mid as hell.

And I think the market is sort of reflecting that some extent. What do you think? I don't know. The market doesn't really care about the economy. I think there's a lot of things going on. Which chart? On Friday, the S&P 500 broke below its 200-day moving average for the first time since May 2025.

And then after the close, Trump tacoed the Iran situation with a, tweet about we're in talks with the Iranians, if there's any left, and they want to be cool, and we're going to figure some shit out. And then Iran came out and said, no, nobody's talking to you. There are no deals. There's nothing even being discussed. The market didn't seem to really care. This is like par for the course. And then it looks like today after the close, there was some sort of a ceasefire announcement. And that's great. We like a ceasefire, I guess. But But the reality is it doesn't matter that much outside of the price of oil. What to me, I think is really worth talking about.

Thank God, earnings growth is holding up. I think that's what's keeping the S&P 500 from being down worse than 7%. Because almost everything else that you could point to seems to be going in the wrong direction. And I want to show you a few things and just get your read on the situation. So Brian Westbury at First Trust is talking about the hard numbers. Real GDP growth for the fourth quarter of last year, according to Atlanta Fed, GDP now, which is a model. They were talking about 5.4% in January. Now it's 0.7%.

We've had a bunch of punk labor reports and private payrolls were up 33,000 per month. Jerome Powell said the other day there's been effectively zero job. creation so far this year. And Westbury points out if you pull out health care and social assistance, private payrolls are actually down. Manufacturing jobs are down. Retail jobs are down. The inflation numbers are not good either.

He calls them bizarre. Producer prices rose 0.7% in February or up 3.5% over a year ago. But the increases on the services side, not the good side, which is actually. not the thing that people were worried about. And yet here we are. Prices for goods in the PPI are up 2.5% over the last year. Services are up 3.8%. So that's strange.

There's some weird stuff going on with consumer prices as well. It's very tough to look at this through the lens of a normal economy because so much of this is never actually normalized from the pandemic. But when you put those things together, it's just not a pretty picture on the hard data side. What are your thoughts? The thing that drives the economy is consumer spending. And consumer spending is obviously going to be impacted in a bad way by higher gas prices. The good news is the stock market doesn't trade off GDP.

But the bad news is the GDP is contracting, I think, because the consumer is probably weakening. And it is a middle, it is a muddied picture as it almost always is. There's some good. There's some bad. retail sales are not growing. Consumer spending is pretty sluggish. So I would describe the economy is fine. It's not like defaults are picking up in a meaningful way. The labor market's soft. Not a lot of hires, not a lot of fires. Initial jobless claims are totally fine. Continuing claims are totally fine. So it's middle. I would say like it's nothing. It's not it's not great

at all, obviously. And it's, I wouldn't say it's terrible. It's somewhere in between. I think it's terrible because I don't think of the economy as, being in a static condition good or bad you think what's terrible I think the economy is terrible because I always think about the economy as something that's on its way in one direction or the other and the direction that it's on its way to is the wrong direction so that's why I would say that's why I personally would say this this economic situation actually is terrible I don't think you know what that word means well I'm not saying I'm not saying it's the worst economy i've ever seen i just think it's a terrible economy we we are we we have had interest rate

cuts um we now have uh we now have fiscal uh stimulus in the form of the tax bill that was passed last year which takes effect this year we have this a i boom that is absolutely creating um economic activity and you add all those things up and they're not really helping most people Well, it's creating economic anxiety is what it's creating. I mean, look, I think it's not great. And you said there's no problems of credit yet. What did you say? How did you phrase it?

I said credit quality is fine, more or less. I mean, there are pockets of problems. Yeah, the pockets of problems are getting bigger. This is Peter Brookfarr today. Shifting gears to private credit. I'm sure you all saw the Apollo news, keeping its withdrawal rate at 5%, which is the right thing to do rather than satisfy the 11% requested. The fact that 11% is being requested is the problem.

Also, the Moody's downgrade of the FSKKR Capital Court private credit fund to junk status. Yes, I do believe some credit issues are surfacing, but will instead state here again, the unhealthy relationship between private credit and some in retail with the differing time horizons and views on liquidity. Either way, an increase in redemptions and a rise in default rates will lead to a higher cost of capital for borrowers and a tightening of lending standards. So this is what I mean. It's not like in it's not in the garbage yet, but that's the direction. So when I say terrible, these are the things that you don't want to see. And here's Peter posted a chart of the LSTA leverage loan index.

I'm not sure the, I think on the Y axis, he's in. indexing into 100. I think he's indexing to 100. But again, we're talking at not the absolute level. We're talking about directionally. This is not the right direction. This is not what we want to say. Yeah, financial conditions are tightening.

And the cost of capital is going up. Interest rates going up meaningfully is not really what you want to see. So I'm not here to say that the economy is good by any means. I think terrible is a bit of a stretch. In fact, I know it is. Here's what I will give you though. It is remarkable to me, and I know we're about to talk about it. that the economy has done even fine,

considering that the housing market, a third of the economy is absolutely frozen, frozen solid. S. S. The housing market is just absolute ass. Look, chart on. Okay, there's a lot going on here. The top line is the 30-year mortgage rate,

which drives a lot, obviously. If you have a low-fire, low-hire environment, you're not seeing huge dislocations in the labor market. the only other thing that would have as big of an impact would be what the cost to borrow to buy a home is. And it's stuck above 6%. It almost fell below for like 10 seconds. But this is now multiple years of a 6% plus 30-year mortgage rate. Here's in the next pane, U.S. existing home inventory. And you can see a pattern of higher lows.

inventories are starting to rise. I wouldn't say that on the surface, that's definitely a negative because, you know, I think for a lot of reasons we've been under housed and we've wanted to see that comeback. But I think it's more indicative, not of a lot of building, but just a lot of not buying. The next. Yeah. Go ahead. U.S. housing starts. Okay. We're doing some more building. It's not, it's not shooting the lights out, but not the worst thing. The bottom pain, though really for me is the story. This is U.S. existing home sales and you can see we are at what looks to be 10-year lows, 4 million U.S. existing home sales. This is year-over-year data they're showing you when you look at the trend. And to Michael's point, since the middle,

since let's call it 2023, it's now almost the middle of 2006. It's basically three years of a flatlining U.S. existing home sale. And that wears on people because people that want to sell aren't getting the amount of interest from buyers that they hope they get. Prices are affected, et cetera, et cetera. Let me show you one other thing. Wait, hold on. Before you do that,

I'll do you one worse. If you look at U.S. pending home sales, so combining existing and new, all time low, all time low. Nothing is happening. Now, why is that, why does that matter? Here's what I want to go. So I say the economy's terrible. This is the most important part of the economy for most Americans outside of whether or not they have a job.

This like, like one, two and three is do I have a job? Okay, great. Number one. Number two, what is the situation with whether or not I can buy a house, sell a house, what's my home situation? And then number three probably has something to do with the car. And that's it. It's not the stock market. It's not Bitcoin.

This is not the things that really matter to most people. Roughly 65 to 70% of Americans own a home. Housing accounts for 25 to 30% of total household assets. For the median family, it could be 70% of their net worth. And that creates maximum sensitivity in the consumer economy, the real economy, to the prices of houses, the availability of houses, what they're worth, whether or not they can be sold. And that is the real wealth effect away from the top of the K. A 10% move in home prices produces a meaningful change in perceived wealth from most households.

A 10% move in stocks doesn't really change all that much on the ground for the economy. me. And here is the Kay Schiller 20 home price index. So this is the 20 biggest housing markets in the United States averaged. And what you can see here is we may be going negative in home prices on a year over year basis. Home prices are up 1.4% year over year, which obviously is not the end of the world. So what, dude. This is not the story. The story is the true. The story is the true. that shows the number of home buyers. This is the problem.

This is the whole kit and caboodle, so to speak. There are, this is the opposite of the pandemic. When you listed a house, he's hold the house in 20 minutes, best and final, who's going to one up it, right? Now, there are so much, the ratio of sellers to buyers is in a historic imbalance. It's almost two to one for the people listening. It's, it's two million versus one point three million buyers. So the big problem, I mean, this is, you're looking at it, but it's that home prices aren't budging.

They're not coming down and they probably will and they definitely have to. And you combine that with the fact that mortgage rates are going in the wrong direction. It's really ugly and it's not getting better. So Redfin says there were 630,000 more sellers than buyers in February. Yeah, that's that's true. It's gross. 46.3% more sellers than buy. That is the largest gap since Redfin began tracking this in 2013 and a huge jump from this time last year when there were 29% more sellers than buyers.

And we didn't think that was great. This is way worse. And it's it's seasonally adjusted, which means this is this is not just about, oh, it's March, wait till May. It's a bigger story. There are two million people selling a house right now. And just not enough interest in buying. One other thing, one of the big home builders, Lenar, in order to maintain sales in the current environment,

they spent an average of 14% on the final sales price on incentives in the first quarter of this year, which is back to 2010 levels. They had to do this shit after the housing crisis. So in other words, a $450,000 home sold with a $14,000, incentive rate translates to Lenar handing over $63,000 to the buyer in the form of incentives. And this is, here's a chart. What you're looking at is Lenar's sales incentives on home deliveries as a percentage of the

revenue of that home. And you can see this 14% level is completely abnormal, way elevated versus our experience. in the last 10 years. And obviously they can't keep doing. You can do that to get through a week's season. You can't just do that forever. So needless to say, the stock got, the stock got whacked hard. It's done, it's in a 50% drawdown.

They whacked it off, Michael. Big time. And it's obviously not just Lanar. You look at Pulte, DR, all of the home building suppliers. I said this to Ben today in the pod, a great example of how difficult individual stock picking is. Since April 2021, there have been $9 trillion worth of cumulative home sales. Actually, $9 trillion. You can only imagine how much of that flow through to Home Depot's bottom line, tens of billions of dollars. Literally. Oh, yeah. The stock is flat since then.

Yeah. So right. So what does it take for that thing to go up? What's this collection? a chart to you out here so just tying a bow on this where are we in the economy jobless games are strong continuing claims are sort of elevated red book sales are strong strong travel we'll talk about that later strong card spending we know it's case-shaped bankruptcies are rising not great business formation of surgery we don't speak about that often but maybe we'll do that one week bank loan out of desperation well i don't know about that there's a lot of technology that's embedded in that. It's never been easier. But anyway, it is a mixed economy for sure. And if I'd say, is it getting better or is it getting worse? Obviously, it's

getting worse. Hence, terrible. Not the same thing. All right, let's do this. We're going to talk about the retail trader washout. And I'll open the story by sharing this. Citadel Securities, Nets record, $12 billion trading hole in 2025, up 25% from you. the previous full year. Oh my God. And you could think of the Citadel as the rake. They are the market maker every time you buy an option or sell an option or this or that. They're just scraping pennies every day, a lot of pennies. So they absolutely feasted on retail activity, which is not 25% on the market. Obviously, it's pulled back since. So some charts from Gungent that showed that retail traders have have retreated. All right, we're looking at a chart of retail

volumes and the chart shows the retail as a percentage of total single stock volumes over a five-day period. And it hit a fever pitch, fever peak, I should say, a crescendo, if you will, of 15% and has cooled up dramatically. When was that? That was December. December. Yeah.

And this is like off, like literally off a cliff. But I'm trying to figure out does that happen in a lot of jobs? Januaries. I'm just looking back at the chart and I'm trying to see I don't think this is a seasonal thing. I think it's a stock market thing. The stock market sucks and they're getting burned. We'll get to that more in a second. Zero DTE options. So options that expire in 25 minutes after you buy them are near a one year low as a share of total as in peak contracts. And I think this is that's the gambler. That's the gambler is running out running out of money after five or six trades went against them. It's just not fun anymore. It's not fun anymore. That's the reality. And I get it. The dispersion in the market, the rotations, the fact that some of the most popular stocks, not just amongst retail, but like period, are among the biggest losers this year.

Stocks that no one's ever heard of are leading the market. Like it's not a retail market. You know what two of the biggest stealth winners are in the market this year? Sandisk and Sienna. Throw those out. Those are fun. AT&T and Verizon. Right.

Not fun. No retail investors trading that shit. That's Jenny Harrington. Credit to her. Yeah. And Jenny's no fun. No, I'm just kidding. All right.

So Goldman says Thursday saw the most selling from long only investors across their trading floor since they began tracking in 2022. And of course, the lack of activity from retail investors. is whacking off Robin Hood in a real way. The stock is down 54% from its eyes. I mean, this thing is this thing is trading like, like they had horrible news. I don't, I don't think Robin Hood has had horrible news.

I just think. Well, they did. They did. It's, so options are the number one moneymaker. Yeah. Crypto number two. And the, by the dip, the dip keeps dipping. Mm. So it's, listen, these people, these traders,

can come back in a blink. So I'm not in any way, shape, or form suggesting that they're gone forever, but a lot of the things that kept them coming back, obviously, is just not working. What do you mean these people? You're talking about my Gen Z friends? They'll be back.

Of course they'll be back. And they'll come back smarter. Of course it will. I think, I think 2024 and 2025 were sort of toxic environments in that, They gave people, or 23, too, for that matter. I basically think we had a three-year period of time that gave people a false sense of ability. And the dips were bought quickly.

The glamour stocks led the market. There's a lot of intuitive stuff going on. Like, AI is a hot theme, therefore buy all these AI stocks and they went up. You had things like Oracle doubling. Like, I just think it was an environment that lent itself to. like retail retail alpha if that makes sense like it does make sense yeah retail trader from 23 to 25 kicked the shit out of professionals just they yeah and now this right and now this year you you just have like stocks that the retail

trader is not interested in or aware of or are leading the market they're not buying energy stocks and industrials they're just not they haven't heard of these names that right they've never been in a market environment where these names led think industrials have the I think industrial have the I think industrials as a sector have the most stocks that are still up or something like that. People, these are not Robin Hood stocks. These are companies that make boilers and, and, uh, and fences. Like these are, they just, they don't, they don't rise to the level of awareness for the Gen Z investor.

You know what stock is rightly getting whacked in a big way. And this goes to the hurting consumer because this is quite literally the first thing that you stop doing, Dordash. DoorDash is in a 45% drop down. Yeah, when you're when the first thing to go. That's right. When the cost to fill your tank goes up 30% in a month. Now, dude, that's where you're cutting back.

And you find that fucking food. That's right. You get in your car. Once you make a grill cheese, get off your ass and cook something. All right. I'm now at the point where I'm reading a halo article every day, some days three, five. I can't even keep track. Bloomberg has a halo section on their website.

I'm going to sue everybody. I don't know what else to do. You just be flattered. That's all. That's all you can do. I'm super flattered and litigious. And I'm not even asking for money. I just want people to be like downtown Josh Brown made this up, popularized it, coined it.

And we're using it as the premise for yet another research report, yet another article. It's in the public down Maine. You did a public service. But I want something. So I'm not asking for a lot. I just want somebody to be like, you want, you want credit. You keep asking, you keep asking for it. You got it.

You have the credit. Nobody doesn't know that it's yours. I did think this was a good article. I emailed the reporter. Don't you worry. I was like, hey, you know who I am? It's my shit. You're writing about my shit.

This is Bloomberg. Private capital firms are starting to swap software systems for hard hats. as the AI boom forces the industry into a quick rethink of its priorities. Blackstone, Bain, and Brookfield have all been talking of an increased focus on heavy assets with low obsolescence. This so-called halo trade is targeting makers of everything from ship engines to conveyor belts that are considered less likely to be made extinct by AI. And then they got a quote from Jonathan Gray at Blackstone about it. And then they said it's also in Europe and it's global halo is everywhere I did you ask did you ask where that chart came

from they showed a chart in the in the article that shows the that counts the number of mentions of the word halo and it goes back several years I don't understand what like it says it's it says data based on prepared remarks and management answers no way no way no what No, no way. You can't tell me on 200 conference calls in 2021, CEOs said the word halo. It says literally mentions of halo in transcripts. It keeps up to Bloomberg terminal.

Nobody said the word halo unless it was by accident to 2021. That's my point. You know what this is like? You know the movie where the guy wakes, he's a singer-songwriter, he wakes up in a world where nobody knows the Beatles. ever existed yes and he and he becomes the biggest star in the world because he likes he starts recording i want to hold your hand and uh and he becomes the biggest like what do you mean like did i just wake up in a world where people were using this term that i invented two months ago

in 2021 what is what is this chart what are these what are these people trying to do to me i guess you actually steal it from somebody else that would be i'll kill you i'll take my my my tire thumper and I'll put an end to you all right um all right uh put it put the chart up let's do the chart i think this is kind of interesting this looks good you getting long here no um but for all the humming and hon the thing hasn't the thing listen what's what's the nominal what's the nominal yield uh right now it's march 26 it's march 24th this this This thing has obviously puked. This is the pub, by the way, this is an ETF of the publicly liquid BDCs.

BDCs. And it's gone sideways since February 3rd. Yeah, I am not, I am not calling a bottom. I'm not. But here's what I want to say about these things. Where did it come from? It's 17. It went to 12.

And it was at 17, it was probably yielding 8%. What is it yielding now? 13. Not that they're going to pay any of that out. You know how we say all the time that news follows price. If the stocks aren't going with a certain direction, like wherever the stocks are going, that's the narrative that is written about it. Usually, yeah.

Almost always. Sometimes, sometimes there are obvious, there are news. There are events that change. Yeah, yeah. I'm with you on that. This is really interesting because I'm not faulting entirely the media for writing about this. How could they not? It's juicy. It's salacious. The asset class has 10xed. It's transparent. It's high fees. Like they should be covering it. But and also if they didn't or if they stopped and I know that's not their job, the prices would not be doing this or maybe not the prices. But like it's really interesting for all the Heming and Hong and we're going to continue to cover it. A bad year for the private

BDCs and these are public. Like, what does a bad year look like for Cliffwater? Because 2008 was down 6% from the index. So is a bad year down 2%? That'd be really bad. It's just kind of hilarious that we're spending this much time as we should and we will. And yet the context is this thing could fall 2% that would be really, really, really bad. I guess I'm not following what you mean.

It already fell substantially more than 2%. These are the public ones. Oh, you're talking about the private ones. Well, I think the story here is not about the price of the public BDCs or the or the private BDCs. I think the story is we have a situation where ordinary Muppet money was herded into 20 or 30 different products, some public, some private. Unfortunately, in the case of the private BDCs, the entryway is the size of a football field and the exit is the size of a phone booth. and everybody wants out at the same time because they think if they don't get out now,

the prices will be worse. And maybe even if there are advisors in the mix, which of course there are, the reputational risk as well. And that's really the story. And I don't know that... I know the people that cover this professionally and are investors,

they're focused on the prices and the values and the NAV and the discounts. And I get that. I'm saying like for the media, The story is about, oh, my God, they did it again. They got all these regular people to buy all these bizarre instruments, and now it's going bad. And why they really love this is every single person that runs one of these private equity firms also owns a professional sports team. Yeah.

They are monopoly men. They are billionaires with capital Bs. And the media just they fucking love it. It's like catnip. So it's a lot of, it's a lot of, I knew this is bullshit. So throw this chart up. I agree. This is the nav of Aries publicly traded.

You could buy tomorrow. Not saying you should. This is a chart of the nav. So not the price, okay? The net asset value of all the assets. Right. Based on their own, based on their own calculations. It needs to be said.

So, so it's worse than that. It's based on calculations of a third party that they pay to come up with the nav yeah all right so so show so show the next chart so that's the that's the public one and this is the private one and this is the historical performance of apollo's debt solution bdc right this doesn't trade this does not trade this they tell you what it's worth every time they put out a report this line of up until the right with zero interruptions and there has been some shit between between January 2022 and now. Now I went down a little bit.

Actually, I went on a little bit. But since then straight up into the right, this is the part that the media rightfully says, wait a minute. Yeah. Hold on. You're telling investors that you've got 600 basis points above SOFA. No volatility. Yeah.

Up until the right. Only always semi-liquidity. All right. Okay. I want to use Apollo again. Look at this portfolio. This is for their private BDC. they don't have a public one.

This is for Apollo's private BDC. Show the portfolio overview. There are, show the industry diversification, John. Do we not have that? Oh, I put this in late. My bad. All right.

Anyway, there are, this is 100% first lien, 96% floating rate. And unlike B-Cred, who I said, 26% of the portfolio is software-related. Uh-oh. Yeah.

That's not what you're here. With Apollo, it's 12%. There we go. We have, thank you. We have it. Okay. So look at this industry diversification. It's 12% software, 7% health care providers and services, 6% financial services.

Look how many slices there are. All right. So my point is, dude, this is not going to blow up. And I don't know anything. Okay. Maybe I look like a giant jackass, but these are not dumb people. In fact, they're the opposite. Yeah, but this is the problem.

But this is the problem. you're referencing Apollo, they are the best in the world at what they do. There's 50 other companies in the same space that are not as good at Apollo, don't have the pedigree, don't have the track record, don't have the amount of analysts covering all of these credits that are in these portfolels. Like you can't show the gold standard and draw, just like you wouldn't show the worst player in the industry and say, this is what it all looks like.

So the point is they are getting swept up in this just like everybody else. There's no reason why they would be immune. The stock is down 40%. Yeah. And historic default rates, whatever they are, like I guess my point is this, this stock is trading like their loans are going to absolutely get cremated. And maybe they will. I don't think so.

I don't think so. I don't think the stock is down 40% because people think, Apollo's whole portfolio of loans is going to blow up. I think you're wrong. I think the stock is down 40% because it went up 100% on the expectation that Apollo was going to be able to grow 20% a year for the next five years as it onboarded 20 million retail investors. And that dream has gone up in smoke.

And with it, the multiple associated with that sort of growth. And what you're seeing is give back from the gains. This was one of the big winners over the last few years. years as private equity and private credit came into their own on Wall Street. This stock went up huge. So did Blackstone. So they all did. But this one went up a lot. And what you're seeing now is not a referendum on the credit quality of their loan portfolio. No way. This would be down way more. What's actually going on is people are saying, oh shit, worst fundraising environment ever coming up for the next one to three years while they wait for us all to forget about

the redemptions and the asset gating. And that's the reality. And people could look at it and say, oh, it's cheap. Yeah, probably is. It's also going to be left for dead. I don't think people are going to forget so easily. I agree. That's what you're witnessing here. I completely agree. Everything you just said is correct. The, the difference. I am really good at this. The difference between the BDCs and the interval funds, they look almost identical. The difference is the interval funds have a legal obligation to buy back up to 5% of the shares outstanding on a quarterly basis. Yeah. And so Cliffwater is the biggest interval fund and they will be buying back 5% of shares for who knows how long and who knows how long their credit

facilities last and who knows if they have to offload some of the loans. This is all to be to be determined. This could blow over. I don't think it's probably I don't think it's going to. It's going to be a while. The loans could turn out to be fine and people could settle down. But the private BDCs have no legal obligation. Now, there could be bigger problems if they just say, no, we're just not doing it. I'm not giving you guys money back this quarter. It would impair it's for the betterment of the shareholders. We'll see how this plays out.

But it is obviously not going away anytime soon. Yeah. And you know, a lot of the apologists for the space and the defenders have said, well, look at B. Weet. They were in the, you know, they were, they had their turn in the, in the sleeping bag as everybody beat them with bars of soap. and batteries and socks. I know it's oddly specific, but I went to a very violent summer camp.

And they had their time, and then B-Reed eventually, was able to say, okay, redemption is no longer an issue. Call us whatever you want you could have back because the ship was righted. They steadied the ship. They lasted.

They lived through it. And so a lot of people have said that's what will happen here. And maybe that's true, and I hope so. I just don't know that this is going to go the same way. There's real estate, real estate, sorry, real estate, a real estate portfolio has a tangible quality to it that a portfolio that is 40%

soft SaaS software just doesn't have. Ding, ding, ding. The problem is these companies say, listen, the historic default rate is this. And the historic recovery rate is 94 cents of the dollar. We're senior secure. We get paid back. Yeah, the equity is. get wiped out, we'll get paid back. With what? There's no factories or land or or inventory.

It's software. What are you getting paid back with? That's right. So a better comp and also not apples to apples is I follow the substack, Covenant Light who writes all about this type of stuff. And Apollo was in the middle of it. Remember the energy trade, the unwined the 2014, 2015, 2015? They've been through that with this. So they survived. Listen, they're going to survive I mean, this, let's not be, you know, ridiculous here. But it is going to be a very slow bleed. And where it ends, nobody knows. All right, let's keep them moving.

We just did a lot on that. I mean, do you want the good news? I love good news. New opportunities are being created. If you do not have money at risk now and you were ever interested in exploring, adding private credit to your portfolio, you, like over the next year, you're going going to get a crack at, I think, some distressed valuations in the space and choose your fund very carefully. If this is something that you want to do, definitely a better entry than two years

ago when it looked made-off-esque just every month. It's up. No, I can't talk. Believe me, I won't be the one that gives you the timing of it. I only mean literally the price that have not come down yet. And this is part of the problem is that there are, there is leverage here. And if these companies are tapping their credit facilities at the banks and they can't mark down their loans because guess what some of their covenants get triggered or trip by the banks it's like wait a minute you can't you can't have one three times leverage like no you got to sell you we need some money like margin call so then that's more selling of portfolio holdings which puts more pressure on the overall asset class but it's it's not great i'm i'm not saying like rush off the sideline i'm saying if

you were interested in the space okay it's about to come your way you didn't have to it yeah it's not all bad okay so software got whacked off again today I mean that was that was a baby bounce dude so throw this throw this chart on the screen I didn't we did us to my I didn't believe the bounce on Monday okay to my credit we had we had we had a rotation today which is good financial stop going down you like that at least the big bank stopped going down we had 260 stocks I think we're up today, but the NASDAQ was more decliner than than advances. Does Microsoft go down every day?

Pretty much. So let's go through some charts. This is IGV. It's Salesforce. Tirethumped. Microsoft. This chart looks like it looked me the wrong way on the subway. It's just.

So this thing went from like that candle to 75. And it, you know, it's a baby balance. And it can't even sustain that for a minute. Like not good. Not good. Um, next chart, please, uh, I threw two in IGV here. Let's, okay, perfect. Thank you, John.

Um, Microsoft. Are you kidding me? I mean, it's got like, it looks like the, the devil character from South Park. Look at the horns at the top. It just, it looks like three. It looks like Satan. This, how could you buy this? It, well, I, I will.

Every candle is redder and longer than the one before. I will be buying the absolute snizz out of Microsoft, but not a 350. Support at 350. Maybe. We'll see. That was the liberation day bounce at 3.50 was a false breakdown. And then that gap, that gap up is when Trump tacoed.

I need a down 4% day that closes up 2%. When that happens, I'll buy it, but not before that. And now they're getting to Google. Why not we, can we pause on Microsoft? Why not just buy calls? You don't want to be loaned this stock. You just want the bounce, right? You see it at 355, just buy the 375 calls.

Isn't that like a base? It's a base hit. It's a base hit, but you commit very little capital, and it's not like a position in your portfolio. Okay. I will report back on that. I like where your head's at. Alphabet, like the secular winner,

has now broken below previous support. Not great. I wrote this up in Best Stocks of the Market with Sean yesterday. And I basically said, I hate this chart. Not everything we write is like, go buy this. We said lay off alphabet here. It's in no man's land technically. And we said Apple looks like it's about to break.

It's 200 day. And that might have happened today. So I just, I look at these stocks and I understand what's happening. They're being used as a source of funds. Yeah. And they're big. And there's a lot of money. and there's a lot of liquidity in these stocks and people want liquidity right now.

All right. And they're just pulling it out. Last chart. Chart kid made this for me. I want a hint to show me since software bottom on 20, on 223. What stocks, so there was a lot of balances, but as we can see on the left, a lot of stocks bounced and rolled over. They did not keep their balance.

A lot of stocks did. So here's the stocks that did not balance. And there's others. But as, and these are particularly the stocks that have been in the AI disruption camp, Okay. So S&P Global, a stock that I bought and sold, rolled over big time. Same thing with CrowdStrike. Same thing with Salesforce. Service now workday, Adobe and FICO forget about it. My God. And in the winter camp, we said that, but we said this. We said with those stocks, you can't prove a negative. The sellers, the sellers are basically saying,

I know they are in some way disrupted. I don't know. the extent, therefore, I'm selling every update until I lower my risk here. The sellers are not saying, like, what's the valuation? No. It's a much more existential issue here. And you can't none of those service now can't come out and say, all right, we've proved it. Eureka, here are the results from the, from the lab. We are 100% undisruptible. Nobody could say it. Knowing what little I know, I do believe that this is overblown. I do believe. the incumbents are ultimately going to be the biggest beneficiaries. Prove it. Totally wrong. Totally.

Totally. Dependly on your time frame. Prove it. Right now, right now the sellers have the sellers are in control. Period. Hard stop. That's it. And they might look foolish. Some of those stocks have insider buying. Doesn't that nobody cares. Yeah, nobody cares. Yeah. Um, so these are go buy. Well, what's your risk tolerance?

How much tolerance do you have? Blah, blah, blah, blah, blah. Okay. Stocks that did stick the landing. Dell, Expedia. That's a surprise to me. Netflix and even, Even that rolled over pretty hard today. So maybe that's into it, same, same deal. Actually, you know what? A lot of these stocks rolled over today. Pallantir, block.

So yeah, man, it's hard. The sellers are in control right now with these names. Those news clips with the five-hour lines at Atlanta Airport and LaGuardia. Could you imagine? But those are like advertisements for being long Expedia. Because look at what people are willing to endure. In addition to the higher jet fuel price. raising ticket prices people are standing in la guardia for five hours just to get somewhere yeah

that's super polish expedia in an alternate universe um all right we're gonna do this college grad unemployment thing i i'm telling you i think i'm onto something i think this is going to be a politically explosive issue come june when yet another wave of college graduates leaves the commencement ceremony, spends 30 days hunting for a job, looks at mom and dad, and goes, I don't know what you want me to do. And I know that this is an acute thing to me

because I'm in this. And so I know part of this is like me projecting this onto everyone, but it's too big to ignore. It's too big to ignore. Co-pilot tools, LLM tools, these things are carrying out the exact functions that had formerly been the province of the college-aged, college grad Excel Monkey for decades. And hiring managers at companies are being told, stop.

Don't bring on. How many college grads do we normally hire? 60. Okay. Higher 10. Let's see what happens. Higher 10, give the older people more AI. Let's see what happens.

Axios wrote about this today. chart on what you're looking at here is a thousand U.S. adults the gold line is non-college grads and the pink line is college grads and they're asking people what they think is this a good time to find a quality job and as you can see in the non-college grad camp things look okay 44% says yes it is 27% college grads say it is a good time to find a the job, which means almost three quarters say that it's not. Workers with higher levels of formal education are way less optimistic than those with less school.

And just to like put a bow on this, that is the widest gap on record going back to 2001. So it always was the case that people with college degrees were more confident about whether or not it was a good time to get a job than people without. college degrees, and that is now flipped, and the gap is exploding. The unemployment rate for college grads is now 6%. For the overall economy, it's like 4.2 or 4.3. And then they took a look at Indeed. There were 29% fewer job listings for software developers in March

than there were pre-pandemic. That is massive industry shrinking. working, 27% fewer marketing jobs, 36% fewer listings for media and communications roles. These are college education jobs, and they are literally vanishing right before your eyes. We made two charts. I know Sean and Matt worked on these. I want to put these up. This is a beaut.

This is unemployment rates for recent graduates versus all workers. And I want you to pay attention, Michael, and audience. the red. This has been a trend that's been enforced since the pandemic and has gone into hyperdrive since the advent of chat GPT. And when the bars on the bottom are in the red, that is a higher unemployment for recent grads versus all workers. Our entire lives, this goes back to 1990. We have never been an environment where it was harder for a college-educated kids to get a job than for a non-educated kids to get a job. Our entire lives, until the last five years.

And now it's picking up steam. Let's do this unemployment by major. Now don't laugh at people that got an anthropology degree. You ain't so brilliant yourself, because look what's right below that. Computer engineering, 7.8% unemployment rate. Computer engineer, let me repeat. Computer engineering, 8% unemployment,

computer science, 7% unemployment. Remember 10 years where you laughed at people and said learn to code. Those are those people. 8% unemployment for the people that, quote, learn to code. So you could laugh at the art history people and the environmental studies people.

And you can do that if you want. You're gonna laugh at a computer science major. The 10 majors with the lowest unemployment, special ed, miscellaneous education, elementary education, That's tax dollars, guys. Agriculture, foreign language, geography, engineering, social services, nursing, and secondary education. So plenty of employment still in government-supported types of jobs and in education.

And not much else. So we have a lot of people educating people who are going to come out of school and not have anything to do. And it looks like it's getting worse. and I do think this will become a political issue and the AI thing is going to be under the microscope like never before. And you're going to see, I don't know if it's the Republicans or the Democrats,

but somebody's going to push back on all this and ask the question out loud, why are we allowing this? And I'm not telling people how to feel about the issue, but I really do think it's going to come to a head this summer. What do you think? I agree with everything you said. I think this is terrible.

I'm surprised that it's only 5.6% or 6. whatever it is. I would have thought it would be higher. I don't know how this manifests itself politically. I don't know what the solutions are. I think that number will be, I think that number will be 6 to 7% by the time this next wave of college grads.

They don't graduate until May. Yeah, who's hiring these kids? I mean, many of them will get hired, but less than last year, certainly less than the year before. And again, it's not that there are no jobs. It's not the labor market is crashing. It's a slow to hire environment because people are like, well, let's just see. Let's wait and see where all this AI that we're spending all this money on.

Let's see what it can really do before we just add the requisite body count that we've been a head count, I should say, that we've been accustomed to adding each year like almost on automatic. Let's not be automatic. Let's hang tight. And you're seeing that sentiment multiplied by, I don't know, eight million businesses, large and small. And this is what the net result is. And people are not going to be happy. Here's what here's one area that I could see, uh, hiring continue at the pace that it was historically.

Heavily regulated companies, banks, for example, that needs to carry favor in Washington. They say you hired 2,000 kids last year. you're not hiring one less than 2,000 kids this year, something like that. I know that's a band-aid. J.P. Morgan spent the last three years telling people that they're basically automating their own jobs and then, you know, it's not even about laying people off. It's the not hiring. And that's why I think the labor statistics that we're all citing to say that the economy

is pretty good. It's holding up. It's hanging in there. It's misleading. It's older people at the, top of the income scale who just aren't worth replacing because the AI is not skilled those people are fine young people who now not only can't afford to buy a house also can't afford to fill their cars gas tank and have no idea where they're

gonna get hired it almost doesn't matter what they have a degree in yeah this I'm telling you it's terrible and I agree I agree I shouldn't be this this is this is I think I think the biggest like human human I don't know, crisis is a strong word, but this is the big one. This is really good. If anyone is still out there and hasn't killed themselves yet, let's do make the case. Yeah. All right.

So you mentioned that what's going on the airport is a great case for Expedia. I actually made the case last year. I don't if you remember this in September. I made the case for clear and my case was not scientific. It was just I heard her on Patrick O'Shaughnessy's podcast. And I remember she said, I am a fucking. animal and I wanted to bet on her and I never did. And, uh, and the stock is absolutely on fire for reasons that are, for reasons that are

very, very obvious. Why don't you buy you just, you just forgot to buy it? I just kind of forgot about it. Um, John, it sold the stock price up there. Yeah. So massive buying, massive breakout. Wow. When did you, when did you tell us about this?

September. Holy shit. It was like 30 bucks. Yeah. So I, you know, probably not the best entrance today. But if it has a low volume pullback, I probably still won't buy. This is just clear at the airport.

Let's just clear at the eye scare. That's it. So I'm sure. So people don't cancel this. They get a free, they get a free trial and then they start paying. The retention ratio is actually less, less good than I thought.

It's like 92%. It's not bad. They actually stopped reporting it, which is a little bit concerning. But ironically, I'm sure that people that pay for clear were losing their goddamn minds because that was probably no better than TSA. I'm sure it was a little bit better.

But I bet you the clear line LaGuardia was at the exit at this point. So the company is working. The margins are improving, the cashels accelerating, but what an unbelievable commercial this experience has been for sure. Yes. Are those people like speed running the security line, the people that have clear?

Probably not because I've been better, but it's probably better. But it's probably terrible because I've been in many clears around the country where there's just too many people. There's nothing they can do about it. I don't know you get more monitors, but I was at Miami two weeks ago, and I went straight through it.

with clear was wonderful. So I don't know. But don't worry, they sent ice to the airport to help with the TSA lines. And if the, if the militias are not successful at speeding things up, they will send in UFC fighters, I'm told, is the next wave of. I think I feel like it'll be fine. All right, let's do mystery chart and we'll get out of here. My mystery chart, please, pop it up for us. All right. This is a sector of stocks. It's global. and probably the only one that looks like this right now. Yeah. And I would love to hear what you think it is.

Oh, these have to be energy stocks. Final answer? No. What am I looking at here? You're looking at stock charts. Oh, individual stocks. They're all different stocks, and I told you it's international. Some of them traded different currencies.

So Sean, like, normalized it. Final answer. Yeah. Okay. You'd be wrong, sir. Pop it. Oh, okay. Oh, the only other sector that's up.

Yep, that's good. You made a good guess. You probably made the guess that I would have made because I don't know what these charts look like. Chart back on, please. This is SK. Heinex, Samsung, Sandisk, Micron, Western Digital. Western Ditch. Western Ditch.

I'm sorry, my bed. Memory is so hot right now. These stocks are just, I don't know, even know what to say. This is this year's bubble. It'll get real ugly for the people that buy it today, I assume. although maybe I would have said that a week ago and they were all up another 15%. So just sell before everybody else does.

So right, sell before everyone else does. All right, great job with the chart. Sean and John, thank you guys. All right. Hey, everybody. Did you know tomorrow is Wednesday, which means an all new animal spirits podcast with Michael and Ben for the YouTubers right here on our compound YouTube channel,

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If you want to have your question featured by Ben and Duncan and their special guests. On Friday, we'll have an all new. compounding friends. Can't wait to see you then. Thank you guys for listening. God bless. Good night. Ritholt's wealth management is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Rithold's wealth management and its representatives are properly licensed or exempt from licensure. Nothing on this podcast should be construed as and may not be used in connection with an offer to sell or solicitation of an offer to buy or hold an interest in any security or investment product. Past performance is no guarantee of future results. Investing

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