The Compound and Friends - Netflix and Disney With Alex Sherman, Crypto Takes Washington, Can the S&P 500 Hit 6,000 This Year?

Episode Date: June 18, 2024

On this TCAF Tuesday, Josh Brown is joined by Alex Sherman, Media Reporter for CNBC, to discuss: how Bob Iger is trying to right the Disney ship, the streaming landscape, NBA rights, and more. Then, at 43:57 hear an all-new episode of What Are Your Thoughts with Josh and Michael Batnick! Thanks to Public for sponsoring this episode! Visit https://public.com/ to learn more!  The Compound x Tropical Bros: https://tropicalbros.com/products/super-stretch-the-compound-hawaiian-shirt 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: 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 https://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. Today's show is brought to you by public, the public app and public.com. What a tool. I use it all the time. Public makes your savings work harder. You can earn an industry leading five point one percent APY with a high yield cash account right on the app. You connect your bank. You can move money very quickly. It's really easy,

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5.1% APY is as of March 26, 2024, of course, subject to change. Full disclosures and terms and conditions found in the podcast description. Shout to public. We appreciate you. Tonight, we're going to talk to Alex Sherman. Alex is a reporter at CNBC.com covering media, technology, telecommunications. He's been with CNBC since 2018 after a decade at Bloomberg. And we get into all of the latest developments at Paramount at Warner Brothers the NBA contract

Netflix Disney so much happening right now and Alex is on top of it all really super informative and and just a lot of Fun, and I can't wait for you to hear it following that it's Michael Batnick and I with an all-new What are your thoughts one of the biggest bearers on Wall Street, strategist on Wall Street has just flipped and become the biggest bull. I kid you not. You're going to want to hear more about that and everything else happening this week from stocks to bonds to interest rates to crypto to tech. We have it all for you and that'll be immediately following the Alex Sherman interview. So without any further ado, I'm sending you over John Duncan take over. Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnick and their cast mates are

solely their own opinions and do not reflect the opinion of Red Holt's wealth management. This podcast is for informational own opinions and do not reflect the opinion of Red Holes Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Red Holes Wealth Management may maintain positions in the securities discussed in this podcast. All right guys, I'm here with Alex Sherman. Alex Sherman covers media, entertainment, telecommunications for CNBC.

He's been there since 2018 after almost 10 years at Bloomberg where he covered M&A and was a media reporter. Alex is on TV all the time. You've probably heard him on other podcasts. He is an expert on some of the biggest stories, business stories of the year. Alex, I wanted to ask you, does 2024 like you are Super Bowl given your area of coverage and all the things that are happening right now? It's certainly right up there, Josh.

I mean, every year has its own twists and turns, but this one is as big as any that come to mind, no doubt. So for a long time, for years, we heard about the industry is in flux and streaming is coming on and these things are going away. And it just seemed to be almost the thing that people said. But there was a lot of business as usual. This year is the year where all of that upheaval that we've all been hearing about finally became front page news and genuinely upended a lot of things, a lot of careers,

a lot of publicly traded companies. Talk a little bit about just the pace of breaking news these days and how many disparate stories are seemingly churning at the same time right now. So let's go back in time a little bit and we can kind of get into the why behind what you just said too. So for years I think the general industry watchers have been predicting that we're going to be in for another round of consolidation among the major media companies. But it hasn't happened quite at the same pace I think that people were thinking because we've been through certain chapters here right. So I would say a good place to start

is 2019. 2019, pre-COVID, we see Disney launch Disney Plus, and it is an amazing success right out of the gate. They get 10 million subscribers in the first 24 hours. And then a few months later, we hit COVID. And what we see among the general legacy media companies is a pivot to streaming that all of the companies do, whether it was Paramount Global or Warner Brothers Discovery or NBC Universal or Disney, they all start launching their own streaming services.

And for a little while, it appears as though investors are on board. We're in COVID, everybody's stuck at home, and these stocks are all trading on sort of the quarterly updates of the subscriber growth for all of these streaming services. And then we hit January 2022, and COVID is starting to wane, and Netflix announces its numbers, and basically the growth has stopped at Netflix. And Netflix stock plummets, and so do all the other legacy media companies.

And through 2022, the story is, okay, all of these companies have now pivoted around streaming, and investors have basically shut the door on that narrative because they no longer see the same total addressable market in streaming that they did a year or two ago. So at the time, people were throwing around, oh, there's like 800 million global subscribers in streaming.

And like, well, wait a second, we've seen the growth now shut down on Netflix at like a little bit over 200 million. So what about all these other companies whose streaming services are more fledgling and have less content than Netflix? So the bottom falls out in all these stocks. And then in 2023, you see Netflix start to reinvigorate their growth again, largely through a crackdown on password sharing and an invention of an advertising tier. And the legacy media companies are all trying to now repivot to profit and revenue growth

over subscriber growth because investors have sort of pushed them in that direction. And also, frankly, the sub growth isn't there in the same way that it was a year or two ago. So we've had to go through all of these different stages to end up in 2024, where finally we've seen sort of a calming of these different chapters. And now we're in the mode of like, okay, what's next? And I think that's why we're finally here in your sort of prelude and why we're seeing Paramount Global maybe do something and the other companies lining up behind them. I want to back up and get your take on this. One part of the story, how we got here,

that you didn't mention, but I think was hugely important, was interest rates. Because in that run-up to the end of the road in 2022, in that run-up of people are really excited about sub numbers, is the fact that equity financing, which was effectively free and really cheap debt played a role in enabling companies like Disney and Netflix and everyone else to create endless amounts of content and do spaghetti at the wall instead of like any kind of rational planning. Higher interest rates changed that, changed investor attitudes, knocked down stock market capitalizations, raised the cost of playing.

And I think that was a really key element to why these companies are now focused again on profitability and revenue for the sake of earnings rather than revenue for the sake of let's get more subs. Yeah. You got to the answer at the end there. The reason that the stock price plummeted at Netflix and all the other legacy media companies, yeah, the growth stopped, but the reason that happened was because of the interest rate story also. Those things go hand in hand.

In other words, if there's no more growth here and we don't have any more free money, then what are we doing? So those two stories were like a handshake sort of, they happened to coincide at the same time and the investor narrative shifted on this industry and we're still seeing sort of the late stage ramifications of that as we're still operating in a higher interest environment today.

So the legacy media companies, which they're all trying to get their streaming services up to profitability as quickly as they can, they're still kind of working on this leap of faith that investors will follow them there. Because what we haven't seen, what we've seen Netflix's stock surge, even in a higher interest rate period now, we have not seen that same pickup among Disney and Warner Brothers Discovery and Paramount Global. So they're all now racing to get their streaming services up to profitability, but there's still sort of the dot, dot, dot question mark, the South Park episode of the underpants gnomes

or whatever. They're hoping that there will be a light at the end of the tunnel here, but we actually don't know if that exists. Well, Alex, what's so funny about that is by the time they get their streaming services up to profitability, that'll be right around the time the Fed starts cutting interest rates again. Maybe that leads to another boom in the share prices and these companies become cavalier about creating

content. But one thing about investor attitudes, the shift in investor attitudes, Disney went from having activists tell them in 2020, cut the dividend, just spend money on content. Whatever you have to do, make 50 Marvel movies a year, anything, just grow the subs. That went full circle. We had a new activist group come in and say, no, no, no, no, no, cut $10 billion in spending right now and stop any future spending that's going to eat into the dividend and the buyback. So obviously, investor attitudes will shift. I guess these companies, to some extent, will always be hostage to what's in vogue amongst

the institutional shareholder class. Look, this was a big point of debate in the waning days of the Bob Chapek era at Disney. I mean, Chapek was saying internally, we can't be so quarter to quarter motivated here. Like we've just spent the last year, two years on a sub growth narrative. Like you got to have a longer term outlook here. We should just continue to push that subscriber growth narrative. And you know, Christine McCarthy internally and others, I think internally, who were listening to investors, Christine McCarthy being the CFO, was sort of saying like, we can't play that game anymore. That game's over. Like, we need to be more adherent to what investors are

telling us. Results-oriented. And so, you know, I don't know what the right answer was there, but for sure that was that internal debate was happening at these companies in late 2022. And we've seen the result of it has been there's been sort of a consensus that the legacy media companies have stopped the sub growth game. So that's where they landed. But yeah, I don't know that we know that that was the right decision.

Yeah. So now, so now I want to spend a second on Disney. One of the other issues there, the activists really couldn't do much about it. It was the creative issues and Disney just losing its connection with the audience, at least temporarily, green lighting a lot of things that nobody really was asking for, taking classic IP and flipping it upside down and just getting lambasted on social media for doing things like that. And there was a sense that they lost the parents that wanted to bring their kids to something

theatrical. This weekend, that narrative now gets turned on its head. Disney has the second best animated film opening weekend of all time after only The Incredibles 2 in 2018. It's Inside Out 2. My daughter went to the movies last night with a huge group of 18 year olds. When the first movie came out was 2015,

they were still kids. They were super nostalgic for Inside Out 1. They don't go to the movies, Alex, like literally ever. And they went in a huge pack and I'm told the theater was packed. Disney just did $155 million this weekend. I think people expected a big opening but this was a shocker. What is the message? What should the rest of the IP creators in Hollywood take away from or is just a one-off

not to be repeated? I think there's a message which is that Pixar sequels work. You know, all popular Pixar movies that have sequels work. Buzz Lightyear? That wasn't a real sequel. That was not a sequel. Toy Story 5 is a sequel. But look, there's always so many of these that you can do. However, I think that, let me go back to the beginning of your comments.

So what happened was that the loss of grip and touch with the Disney creative team coincided with what we were just talking about, where there was a massive push for sub growth on Disney Plus, because the mandate at the time was make more, make more. How do we get more subs? Well, we just need more content. So Disney made too much, I think, is the internal decision on that. They made many movies that were not of Disney quality.

And so the brand started to suffer. And there was a decision made in 2023 with the return of Bob Iger to CEO that we need to make less and we need to make better. So it's now, it's easier said than done to just make better but you certainly can make less. So what I do think, what I do, we can- You can't definitely make better,

but you can take less shots on goal. There doesn't have to be 10 Star Wars programs a year. We can do less and put more creative people into one project. So now let me answer your last question there, which was the lessons to be taken from this. Beyond just the idea that there's certain Pixar movies that are going to work from a sequel basis, I think the takeaway is good and bad because, well, what do we know? Well, we know that you can

– the message here, I think, is again sort of de-risking the industry seems to be working, right? This is not a new, it's not new IP. So this one worked and it's kind of a tried and true Pixar movie. And so look, if we make less, but we focus them on kind of non-risky ventures, like maybe that'll work. I don't think that's great news

for the Hollywood creative community because there is definitely an undercurrent that is very prevalent among creators, among agents, that they want more original stuff and that this sort of the last 15 years of Disney has shown that from a business standpoint it works to leverage your IP, your owned IP, whether that's Star Wars or Marvel or Pixar, but it is suffocating the creative industry where we need new IP not just sequels and this is another example Counterpoint if if Disney

Can even considering print and advertising and all the other expenses that go into opening a theatrical movie If they can go back to doing that a few times a year There's a lot of money left over that can take shots on original IP. And maybe it doesn't work that way and I'm being too optimistic. But I think a cash strapped floundering Disney leads to less risk, not more. And you could make that same case with all of the other streamers that are trying to do a little bit of both. Yeah, so you, I tend to agree with you, which is that it's too idealistic and simplistic

to just rip away, well, it's good business, but what about the creative? Like those things are mutually associated with each other. I just explained what happened when Disney took a lot of shots on goal and it didn't work. Like it had a major negative ramification on the company and like the stock price plummeted and there was a change in leadership and sort of morale got sucked out of the place because

you know, it kind of Disney again kind of looked like late stage Michael Eisner when they went through this sort of doldrums again of a lack of any movies hitting after this great run in the, you know, sort of early to mid years of the Eisner regime. So obviously Iger doesn't want that to happen again. I would say there's still a question to be fair if Disney can actually succeed on its fewer attempts at shots on goal at creating new IP that will exist. So it will try, but I do think it is an open question about whether or not it or any other company really can succeed consistently if they are in fact taking fewer shots on goal. Stocks up a percent and a half today, no big deal.

But I think if you're an investor in Disney, the part of the story that you were losing was this thing where Disney's got this 100-year-old content library that can be endlessly mined for more profits each year going forward and take the same IP and connect it to the next generation. That part of the story started to look less bulletproof when things like Pinocchio and the Little Mermaid, like when those reimaginings didn't work. So I think that part of the story is probably worth 10 or 20 bucks in the share price just

by itself if people feel that Disney is once again telling great stories and bringing in kids of the next generation. And it's probably harder than ever given YouTube and Netflix and all these things, kids just, they're almost born knowing how to use. It's now Disney's to gain back rather than Disney's to lose. And that's a tougher proposition. Yeah, I'm going to front run a story that I'm working on right now, but I'm working on a story about YouTube and sort of about the grip it has on the younger generation

and the response that some of the traditional media companies are working on. And so I won't go too much into that because I'll save some for the story. But you know, every company takes this differently. But I do think Disney is very serious about Realizing that there is a threat and that they need to potentially at least offer more more from a more modern Storytelling standpoint. I think if you look back at how Disney has done this Like there's two ways of thinking about what you can do. You can either modernize the Disney brand change it or you either modernize the Disney brand, change it, or you can modernize the technology and the storytelling mechanisms, but keep the brand the same.

Door number two seems like the right decision. Bob Iger has definitely gone to number two. That is the choice he has made. And so what I think you'll see out of Disney is new storytelling techniques, but don't mess with the brand. Like this thing has been successful for a hundred years. There are rising and falling at different tastes and ways people view stories,

but clearly that Disney brand has worked for a long time. Don't mess that up. So we're not gonna get a Beauty and Mr. Beast. Right. Or some sort of a, I'm sort of a YouTube Show on YouTube from highly unlikely right you might you might find something like that at Amazon or something But you're not gonna find out at Disney Can we talk about we talk about I don't is Paramount or is Warner Brothers like the like the the Enron of the...

Not that any of them are committing any crimes, but these things just continue to tank and get worse. I had taken a shot in Warner Brothers stock recently, like around here in the sevens. I don't really have a lot of hope for what could happen here. It just feels like it's so bad. The next development might become good. Paramount I have no involvement in, but that story is a perennial meltdown at this point. Like, what are your thoughts on like,

which one of these has a better shot to have a happy ending? Well, I mean, are you counting the NBA as a foregone development or next development? Because if the NBA is the next development, I don't think it's going to look that good. There's too much smoke. It's too much smoke. It's over. They might just they might get a lose lose situation for that company. I think Warner Brothers might extract a payment to walk away because the matching rights just may not be applicable given how we're delivering games now.

It's not this era where there's like five TV networks. Now the packages are getting smaller, there are more partners, there are more places the games can be seen. So they're going to have to just make the case, hey, when we signed this thing, we thought that we could do what we've always done and the technology has now changed and give us money. Like that's where I think it's going. I don't know anymore. You're a better source than I am. What do you think is going to happen? That's as logical of a reasoning as I could make out. I mean, it certainly wouldn't surprise me if that were the outcome. Again,

just for some of your listeners that aren't quite as up to date or familiar with this, you alluded to it. But basically in the last deal that Warner Brothers, it was Time Warner at the time, Turner Sports within Time Warner, did with the NBA, they have matching rights or which is basically like the right of last refusal for a new package of NBA games. That's what we're going through right now as the league negotiates its new media rights deals. It has basically worked up frameworks with Disney, NBC universal and Amazon as it's three go forward media partners that leaves

Warner Brothers discovery out of the cold, but Warner Brothers discovery, sorry, they're not doing four companies. Like if NBC gets in there and Amazon gets in there, there's no space at the table for Warner. Most likely. Right. Most likely. In order for there to be space at the table for Warner, those other media companies would have to give up games. And those companies are already paying more money for fewer games than Disney and Warner Brothers Discovery because there were only two partners had previously paid for. So, you know, for instance, Warner Brothers Discovery, because there were only two partners, had previously paid for.

So, you know, for instance, Warner Brothers was paying $1.2 billion a year for its, let's say, half package of games. Now the games are being a third, a third, a third, and the NBA is getting $2.5 billion from NBC Universal and $2.6 billion from Disney. So the idea that these other media companies would be like, yeah, sure. Take a few of our games. What's Amazon paying? 1.8. 1.8. Yeah. So the least amount.

And also sort of the least like good games. Like they're not going to get the finals. You know, they'll have rotating conference finals. I'm told they may have some all-star games in there, but they're not going to get the prestige, prestige NBA finals games that get the highest ratings of any of the packages. So that's why it's 1.8. Now I'm told that Warner Brothers Discovery will likely use its matching rights on that Amazon package and that its argument will be,

will look like that is not an apples to apples package. In other words, we have matching rights. They're only for the games that have previously appeared on TNT, but some of the games in this Amazon package were our games. So we should at least be able to match those. Of course, that doesn't make any sense. Like you're matching a partial package,

but the company's argument will be, well, look, we paid for these matching rights. Like they were part of the last deal. We paid for that. So if we can't use them, what did we pay for? So what Josh said basically was, well, maybe the league can sort of compensate them for the fact that they did.

I think that's where it'll go. My guess. That may be the softest landing for all the parties because otherwise the only other way I see this leading to is some elongated lawsuit and every other sports league is going to look at this and they're going to say what you're suing the NBA Warner Brothers Discovery like what are you going to do to us? Like I can't imagine that's going to be a strong Relationship play so they have them for another year too. They have to work together this season because we're talking about the 25-26 season That's right. Yeah, okay. That's one while suing the league. It just it seems almost nonsensical. Yeah also the league. It just it seems almost nonsensical. Yeah. Also, the league is making so much money on these 10 year deals, assuming they all go through. It would be easy for

them to just find a way to settle with Warner, because they don't want TNT is the truth. This again, I'm speculating who the fuck would want TNT if you could have Amazon. Amazon doesn't even need to make money. They'll push these games everywhere. If you do this deal with Warner, they're already talking about building a sports app and that so you already can envision they're going to start charging people for the NBA to put it on a digital streaming app.

charging people for the NBA to put it on a digital streaming app, the whole benefit to the NBA of being with traditional broadcasters is reach. If you're going to limit the reach by making people pay up for it, it's counterproductive. Amazon just wants to sell laundry detergent. So if you're the NBA, obviously you'll do anything to make these guys go away and be on Amazon Prime. That just seems so obvious to me. Right. So again, like if just for what Josh was saying, the way Warner Brothers Discovery has marketed it, and I'm assuming they'll go forward to doing this, even though it hasn't quite launched yet, is that any sports will be tiered on Mac. So you'll need to pay another $10 or so a month to get sports that would severely limit the audience

because only hardcore sports fans will be paying for that. Amazon will just drop the NBA right into your prime subscription. So that's 200 million people or something. So the NBA loves that and they would hate the Warner solution. So that again goes back to this is not apples to apples to say that Warner Bros discovery could just match the Amazon package.

The league would be like, no, we don't want that. And to your point, Josh, I'll give, I'll give, I don't know that I could say I'll give David Zaslav a little credit here, but let me defend him for a little bit because when, when and if Warner Bros. Discovery loses the NBA, you're going to read a lot of articles and takes about how David Zaslov f***ed this up, for lack of a better word. To his credit, if you can say that, the NBA did not want Warner Brothers Discovery as a partner.

That would be my argument. So there was just nothing he could do. Like as you go through this discussions, if the league kind of kept coming back to you and saying, we want more money and by the way, we don't want this. Cause from my understanding, they were close to inking a deal and sort of the sense that Warner Boat Discovery got was that the NBA

simply didn't want to close with them. And it makes a lot of sense. Do you really want to tie your boat to, for the next 11 years, to a company that gains most of its money from cable TV, not broadcast. It's a $7 stock with twice as much debt as market cap. And who's going to own this company three years from now, let alone 11 years from now? I think the NBA is pretty safe that Amazon is going to be a standalone company for many

years to come, or that Disney is going to be a standalone company, or that Comcast is going to be a standalone company for many years to come, or that Disney is going to be a standalone company, or that Comcast is going to be a standalone company. That faith does not exist at all with Warner Bros. Discovery, and it's not even just sort of a logic. Like, you've got John Malone kind of publicly saying for years, look, we did the Warner Discovery deal as a stepping stone to the next deal. Like, he said that publicly when that deal was announced a couple years ago. So they haven't even hit that this is like a stepping stone to the next deal. Like you said that publicly when that deal was announced a couple of years ago.

So they haven't even hit that this is like a stepping stone to whatever's coming next. I also gotta say, I'm not even sure that if they were to announce that they got the 1.8 billion or spent 2 billion to match somebody that they're back into the NBA. I'm sure there would be a knee-jerk rally on that news, but then I think a week later,

people would be saying, wait a minute, what's the point? Like they're not gonna make money at this dollar amount or enough money, and I thought this company was talking about deleveraging. I thought they were talking about like lowering how much total debt, terming out as much debt as they can, getting a better credit rating for a re-rating on the equity.

How does guaranteeing Adam Silver $2 billion a year help them? I get why it keeps TNT, you know, having some value to cable carriers, but is that even the future? Is that even worth what we're spending the money on? So that's why I sort of alluded to that. It's a little bit of a lose lose situation for them. Yeah. Look, what I would say to that is I think the question for Warner Brothers Discovery,

if they walk away, assuming they do not get the NBA, is when is the time going to come that David Zaslav needs to make a bolder move with that company, whether it is selling CNN or selling the Turner networks and saying, look, we're going to harvest this off to some private equity firm. At some point, I would think he's going to need to do something a little bit more drastic with that company in order to A, avoid any activist shareholder, or B, to just give investors a reason to get a little bit more excited with the company in order to A, avoid any activist shareholder or B, to just give investors a reason to get a little bit more excited with the company. If he can raise $10 billion by selling off assets that he can claim are sort of non-core

or non-future looking, A, he'll pay back a lot of the debt, which investors will like, but B, he'll just sort of reimagine the company to give investors a little bit more of a future looking narrative. We really haven't seen anything yet from Zaslav since that merger has gone through other than cost cutting in terms of what he envisions this company to look like in the future. Alex, they have seriously under earning IP, which they have taken steps to right the ship. Harry Potter is getting a reboot for the next generation We'll see if it has the same cultural oomph as it used to But that's a massive piece of IP that is earning nothing for the last 10 15 years

Batman Superman these franchises are all getting we don't reimag. James Gunn is in the mix. If he can do 20% of what he did for Marvel franchises with some of these properties, it's a huge morale boost, creatively, within the company. I think if you could find a way to sell CNN and have Paramount sell CBS into the same receptacle and have some private equity billionaire who wants to be influential, buy both of those assets, Paramount is saved, Warner's is saved, and now you have a true news powerhouse as a standalone business because broadcast news is not a great business anymore. Only older people are watching it and it's shrinking.

I don't know what else they could sell that the street would be excited about. I don't really know what the other assets are. Gaming that they looked at the gaming division that they looked at selling a few years ago and decided not to. They probably could sell that, you know, for a couple of billion dollars or so. But yeah, look, you know, look, they looked at doing a merger with Paramount early. And I think they decided, you know, the street didn't like it. And it would just be a huge mess to put those two companies together with the amount of

debt on both companies. But CBS, like you said, if that ever sprung loose, that's a much better fit. Has a merger in media ever saved anyone? Well, let's let's think about the most recent sort of well sized media mergers. There were, there was. Comcast NBC. Your Comcast NBC though that one is a little different because that was not two media companies coming together.

That was a telco company buying a media company, but you've got scripts and discovery that didn't work. Massive value loss, putting those two companies together via common CBS. That did not work, just massive loss. Disney buying Fox, a terrible deal. Comcast, NBC buying Sky, a horrific loss of value. How many of these do we need? The most recent one being Discovery and Warner, another terrible deal.

So that's five in the past whatever amount of years that's been. None of them work. So I do think this goes back to how we started the conversation. While there has been a lot of talk about how we're in for this next run of media consolidation and, oh, if only we had a different regulatory regime, you know. Yeah, they don't work. Maybe a Trump administration would allow us to do these deals. A, the deals don't work. And I think like the world is onto that. And B, when Trump was president, he tried to block AT&T time

war, so we don't even know if his regulatory regime would allow these big media mergers. So I think that narrative is and has been incorrect. And instead, the type of deals we are going to see are divestitures, like we've just talked about, or sort of one-off deals where other buyers come in, like Skydance Paramount, which obviously didn't happen, but at least almost happened. So let's, so let's end with that.

And I don't want to keep you much longer, but obviously no discussion about the media landscape in 2024 is complete without the unbelievable soap opera that the Paramount situation has turned into. And I know that a lot of the twists and turns are being played up almost for soap opera that the Paramount situation has turned into. I know that a lot of the twists and turns are being played up almost for dramatic effect and maybe on the inside things aren't so dramatic. Basically, this is my read on this and I'm not an investor here at all. My read on the situation is you've got basically three businesses, two of them are in permanent

decline smashed together. You've got the cable networks, Nickelodeon, MTV. Could they have a resurgence? Yes, I guess it's possible. Very unlikely. Obviously, the broadcast TV stuff, CBS, it's never going to be what it was. It could be salvaged. There are some profits there, but it's not going to

turn around. The Paramount streaming platform, while not quite making money, is actually pretty great in terms of the lack of churn. The people that are paying for it keep paying for it. And that in and of itself, I think, makes it the most interesting part. The question becomes, should these three things be kept together? Now, there was a lot of talk that Shari Redstone didn't want her father's legacy to be broken up, or she didn't want to look foolish for having been the architect of this disaster. So she was looking for a buyer that would preserve it or at least keep it together for a little while so she could or at least keep it together for a little while so she could emotionally claim victory. Also, she had her own share class and she wanted preferential treatment

relative to all the other shareholders. So obviously like a lot of weird moving pieces here. The latest is that her preferential deal with Skydance seems to have fallen apart. And we don't know if the other players are still as interested as they were. The share price is plunging, and tomorrow could be a whole new story

about where this thing is going. So what's your read here? Yeah, my read is that it was very clear that she had handpicked the Skydance deal as her deal of choice. They were going to give her a super large premium on her national amusements controlling stake. Voting shares.

Voting shares, originally two and a half billion dollars. Then the class B shareholders hated the deal because they were going to- Mario Gabelli, other mutual fund managers. Right, so exactly. So Mario Gabelli in a, oh, actually is a class A shareholder, but not Sherry Redstone's voting control. She's also class B, but does own some voting shares.

And then just a slew of common shareholders. Neither one of them liked it. So they wanted, they said, how about us? Kick us some money. Don't make this, you're simply buying out Sherry Redstone. You're overvaluing your Skydance business and merging it with Paramount. And now we're left holding this company that now has an inflated valuation of Skydance and we get nothing.

But wasn't that the pitch though, that the loss won't be final because you get to keep holding the equity and make the bet that Larry Ell and son is the second coming, you know, like That was the that was the bet the Apollo bid is you're just out of it You just take the loss that was the pitch but the pitch the I think Sherry Redstone of the Paramount Global Special Committee Didn't buy the pitch or were afraid they would get sued So skydance changed the deal and they said, okay, well, we'll raise more money and we'll buy out some of the class B shareholders.

We will give Mario Gabelli a premium on his shares, but we expect Sherry Redstone to kick in a little bit of the money in order to do this. We'll get most of it, but Sherry's gonna take a haircut too. From my understanding that pissed off Sherry Redstone, and that she felt like David Ellison was re-trading the deal, and that that was a significant reason why, among other reasons,

it's hard to give up a company that your dad built and that you've been running. And also the current leadership in place, which are three people that are now running that company. The three CEOs. And Brian Robbins, right, the office of the CEO, or the Pep Boys, as the media industry likes to call them. Now, I've heard the three amigos and the Pep Boys are the two phrases that people use for them.

They made a pitch to Sherry to say basically, let us- Don't do anything. Yeah, don't do anything. We'll stay the course and we'll fix it internally. Right. And I think Sherry likes them. And look, the easiest thing to do is do nothing, right? Give us six months.

Let us try. We have these things to do. Except these are taking, they're not taking time bombs. I shouldn't put it that way. But they're melting icebergs. Melting icebergs. So the pitch though is let us sell some assets. Let us try to figure out if there's a JV to be done

with Paramount Plus to your point, or we can push this together with another streaming service and we'll co-own it. And that will help reduce churn even more. And also we can sell it with bundles of other streaming services and build something. So that's, I think, I think the current leadership will try to do something sooner rather than later

to test out the theory, to say, look, we'll give us a shot, we'll do it quickly and see how the stock responds. And that will be Sherry Redstone's answer. In other words, at least a near term answer. That's the fastest thing they can do. Right. Well, so I don't know, but this is hypothetical.

They certainly could tomorrow they could say we're putting up BET for sale or whatever. You know, name your non-core asset. They've had offers. They've had offers for right. like a $3 billion offer. But culturally, that asset is not available to any buyer. You have to sell that to a very specific buyer for a lot of reasons. And they still, let's say Diddy is out of the running for that, but they will be able to sell that asset. It's an incredible asset. Yeah.

Tyler Perry would make a lot of sense as a buyer for sure. Yeah. So that's a possibility. And then, you know, like I, they've definitely had talks about this JV idea before. I know they spoke to, uh, to my parent company, Comcast, about potentially trying to do something with Peacock that actually exists overseas already where NBCUniversal and Paramount Global have a JB for their international streaming sites. Subscribe to one, get the other, both companies share the subscription to some extent. No-brainer.

Exactly. So they could do something like that with either Max or Peacock or those would probably be the two obvious ones to deal with. And again, like you could sort of see what the stock reaction would be. I don't want to be overly optimistic on this. I subscribe to your general idea that this is probably a melting iceberg. It probably isn't some sort of great success story, but it would at least maybe bide her a little bit of time or maybe generate a new offer that in the end

may give her a little bit more money. Maybe, I don't know. And I guess she figures, well, maybe Skydance will be there six months from now if nothing happens and maybe they still are the buyer of Last Resort and they'll come back to the table. So I'm guessing that's her thinking that there's at least a shot that by waiting she'll end up better than she is today.

How likely is that? I don't know. Does Apollo say no more Hollywood? We can't be in these bullshit negotiations anymore. Or do they take their huge amount of money and possible partnership with Sony, which is a really interesting content only arms dealer in this business now, not trying to do its own streaming or anything like that. Does that pair look for other deals given how long they spent on this or they just say,

this is stupid, we can't talk to these people, they're not rational, let's go find a chain of dry cleaners and be done with this. I don't know the answer, but I can answer it in two different ways, which is on the one hand, the special committee looked at that offer

and they passed on it already. In fact, they've passed several times now on Apollo. So it seems to me that there's a strong signal from the Paramount Global slash Sherry Redstone camp that they are not interested in Apollo, that they don't want this thing ripped to shreds. On the other hand, I think Apollo was known for like hanging around the hoop and picking up pieces when things fall apart. And that's where we are today. So it sounds like a situation where Apollo would feel

like they would be in great positions to maybe do something. So again, nothing will happen without Sherry Redstone's blessing. And you're right that Skydance worked really hard on crafting a deal that would not rip this company up. So assuming Sherry Redstone doesn't have a complete change of heart, I would imagine that any deal that revolves around Apollo that would just be, we're just going to sell everything is probably unlikely.

Yeah, Alex, this has been so much fun. I'm so glad you came on the show. I can't believe we haven't done it before. Love to have you back sometime. Let's tell people where they can follow you for more of your insights on all of these stories and more. Your Twitter handle is what? At Sherman 49 49. Okay. What's the significance of 49 49? I am a big 49ers fan.

That's the significance. Okay, great. Alex, this has been awesome. Thank you so much. Alex Sherman, ladies and gentlemen. All right, guys, that's it from me. Thank you so much for listening. Ladies and gentlemen, welcome to What Are Your Thoughts on the Compound YouTube channel and the Compound and Friends podcast.

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All right, let's get the show on the road. Is the S&P 500 heading to 6,000, Michael? By year end? Yes, it is. You'd say yes. Where are we right now? 54. It's only 9% higher.

Does it bother you that everyone is now on that side of the boat? Not 6,000 but higher rather than lower. You okay with it? Meaning like the bears are capitulating, everybody's bullish? I don't love it. It doesn't bother me. It doesn't bother me. We could go a long stretch of time where most people are bullish.

If you tell me everyone's so bullish, but they just seem to be a little bit bullish. Yeah. Why would you be bullish? People might not like to hear this, but I'll ask, what's the bear case? Valuation. And we can economy. It's actually a substantial bear case. The weekend economy, that's legit. All right. So the city economic surprise index is plunging, which doesn't mean the end of

the world, but the surprises are all to the downside, including one that we got today, which we'll talk about in a minute. And stocks are now 21 times earnings versus 16 times earnings a couple of years ago. And the concentration in the market really made it so that the Dow is almost basically flat on the year. The S&P's performance is coming from Nasdaq stocks dragging it up. So that's the bear case. And we've learned not to go over the top focusing on internals and breadth, but I also don't think that you can just ignore them forever. So if you're bullish, you really do want to see the internals bottom and start to head up the other way and confirm. It doesn't have to happen, but I was saying like that,

that would make me feel better about 21 times earnings with this long economy. I don't know. What do you think? No, listen, I would prefer to see broader participation, but you're stepping on my title. So stay with yours. My topic's next.

All right, fair. I wanna share this. Evercore ISI has a strategist who had the lowest target on Wall Street until Monday morning when he woke up. This is Julian Emanuel, who I don't know, the firm's chief equity and quantitative strategist raised his year-end forecast on the S&P 500 to 6,000. He went from the lowest target to the highest target of the major equity strategist tracked by Bloomberg. He is 10% above the market's closing level on Friday. That is an about face from one of all, this is Jess Menton wrote this,

one of Wall Street's most prominent bears who previously expected the gauge to finish the year at 4750. Emanuel's new estimate tops the 5,600 level. Goldman Sachs is David Costin is at. UBS is Jonathan Golub. BMO is Brian Belsky. If you're more bullish than Belsky and the week prior. Just give it a week. Belsky's coming over the top.

And the week prior you were the low man. It's a weird, it's a weird move to go from lowest target to highest, but maybe I'm wrong. Maybe that's what you actually have to do in order to flip. Like can you flip to neutral? It's not that drastic. It's 10% higher. It's not like he's calling for like, you know, monster, monster moving here. I would say, weren't a lot of strategists weirdly neutral coming into the year? It was like an odd number of like 0 to 5% estimated gains, which almost never happens.

Yeah, because it was not easy to foresee the legs that this AI earnings growth story would have and what that would mean to the overall S&P because you're not getting earnings growth like this everywhere. Like you're getting decent earnings. It's not horrible, but it's definitely not every company looks like the semi-sector. So you want to hear the bull case? Emmanuel raised his estimate for the indexes per share earnings in 24 and 25 to 238 and 251. The new levels imply an 8% and 5% profit growth. So to your point, pretty reasonable.

The S&Ps jumped to 6,000 by late December on earnings of $238 per share. We'll push the gauges price to earnings multiple to 25 on a trailing basis. Elevated by historical standards, but still short of the 28 level during the dot com peak. He sees the possibility of the S&P 500 reaching 7,000 by the end of 2025. Oh, this is what I wanted to ask you. So this is one of these weird things now that people have to get used to. The distance between S&P 3000 and S&P 4000 is 25%. The distance from 6,000 to 7,000 is like half of that. People are gonna have to get accustomed to these milestones hitting faster. Like with what we saw with the Dow,

where it was like, oh, it's 30,000. Oh wait, it's 40,000. Like that's a new thing now that people are gonna have to get accustomed to. Saying 6,000 this year, 7,000 next year. Yes, it's lofty, but it's also not insane. It's 17%. Right.

But it's not like the most insane thing in the world. No. It's definitely lofty, but this is like a new thing now. You think if you were to ask strategists or just a casual investor, the biggest risk to the market, it's that the AI story peters out or it doesn't deliver on what people are expecting it to be. That's what I think it is. Guess who has the lowest target on the street of all the major Wall Street firms?

Tom Lee. Great guess. No. Take a guess. Seriously. Big bank. Sockgen? No, no. EBS? I'm very surprised. JP Morgan.

Oh yeah? JP Morgan has the lowest year end target for the S&P 500 at 4200. Is this Dubravko? I thought it was, is it Marco? Marco Kalanovic, yeah. 4200 implying a drop of more than 20% from Friday's closing level. So to recap. Interesting.

The most bearish strategist on Wall Street just flipped is now the most bullish, more bullish than Belsky. And the largest bank has a strategist calling for a bear market. And welcome to the show. Sometimes this is how the show goes. Do you remember a year ago when Barron's had on the cover, this market has legs? You didn't ask me if I think we could hit 6,000. Do you think we can hit 6000. Are you serious?

Do you think we can hit 6000? No. What do you mean? You don't think we can or you don't think we will? This year? No, I don't think we will. It's 10%. I know we can. I know we can. Uh, yeah, I don't think we can get it. We're up 15% of the first half. Yeah, that's a lot. Yeah. I think it's great. You close the market right now.

Oh, I love that. Yeah. Nobody would look back and say, shit, I wish there was another six months so we can go for another 15%. I don't think we're getting another 15% this year. See, you're not a better. So I can't even do the, I can't even play the game with you. Would plus 250 entice you?

$100 to win 250? Yeah, no. I would have to put $100 on my bet to win $250. Yeah, would you take that? Are those odds juicy enough for you? Yeah, I already lost the bet to you, though. I owe you $50. For what?

I remember we made a bet I don't. I thought Morgan Stanley would kick Roaring Kitty off of V-Trade, and they didn't do it. I'm already negative 50. Do I want to go further into the hole with you? No. No, I don't. Okay So do you remember a year ago this cover on? Oh my god, Logan is screaming. What's going? What's going on? Is that a hostile work situation for you? No. Well, no, it's not hostile. I just I feel bad

He's he's on the couch and I guess he woke up from a nap and he's he's not happy. That's okay I've been unhappy before it happened. So do you not have cheddar goldfish in your house? I don't understand. We have cheddar goldfish. All right. You just take a fistful of cheddar goldfish. I can. We're potting. Take five minutes and feed him and then come back. He's fine. A year ago, we were discussing the cover of Barron's, this market has legs. And I went back and I saw what we were speaking

about. I want cheddar goldfish right now. Okay, go ahead. And I think we're pretty reasonably dismissive of market covers as indicators. I've said this a million times. If you're on the stock market on the cover of Sports Illustrated, yes, sell everything. But it's Barron's. What do you expect them to do? They have two players. They don't have the's either they have two characters. They have two players. They don't have the whole NBA or the whole NFL. They have a bull and a bear.

Right. That's right. And hilariously enough, on that show when we spoke about it, Nvidia had just crossed a trillion dollars. How adorable. Yeah. Oh my God. This is one year ago.

Nvidia is crossing a trillion. This is the cover. I'm not, I'm not active on Twitter. Were people mocking it? The cover? Yeah. The bull is back where people like. You like to point out so frequently that you're not on Twitter that it leads me to believe

that you actually are very much on Twitter. No, I actually made a tweet today. Oh, I made a tweet. Yeah. For future proof. What's the news? We broke 2000 registrations. It's amazing. This is going to be a year ago. This time last year for future proof year two, we were

at 720. Monster. We're through 2000 and I think 1400 plus our financial advisors. So it's best conference ever. Okay. So a couple of things are true. The market's at an all-time high. The Nasdaq had its seventh straight close at an all-time high. Brent is narrowing. The mega caps are leading. But the other part is that stocks aren't falling off. It's not like the rest of the market is falling off a cliff. Two thirds of all stocks in the S&P 500 are above their 200-day moving average, 68%. Right? So not great, but it's not as if the rest of the market is... This is not the 2000 pop yet.

Okay. Wait. So two thirds of stocks are in an uptrend. They're not at all-time highs, confirming the market's all-time high, but they're also not getting crushed. That's important. That's an important distinction. John, can we start with the bespoke chart showing that they said you never get the market made for

new all-time highs? I'm sorry, this is out of order, but I think this is a good place to start. If we can't, we'll just go through them in order. Oh, there we go. Perfect. Okay. So Bespoke tweeted this, and this is the percentage of stocks above their 50-day moving average for all of these sectors in the S&P. Oh, sure. Okay? And just eyeball them. So you've got energy, horrendous, financials not great, healthcare mid, materials bad. Really the only place where you've got a roaring bull market is the bottom left. It's technology, which is good enough.

And look at the overall S&P on the bottom right. So if you just saw the snapshot and you said, where is the index? I don't know. You wouldn't guess. You wouldn't guess it's up 11% or whatever. You wouldn't guess it's at an all time high. At a bare minimum, you'd say, in a 10% drawdown. Right?

So Brett doesn't great. Sherwood has a really clever chart. I've never seen it this way. They showed the S&P 500 cumulative advance decline line over a four-week period. And then they plot that with the four-week change in the S&P 500. So the dot on the top left shows where we are today.

This is uncharted territory. Now, the S&P 500, it's only up 3% over the last four weeks, but it's doing so with very few stocks going up over the same period of time. Yeah, because the stocks that are going up are so big and their earnings growth is just powering. It's very weird. And I know that there's a lot of research showing that concentration isn't really like the end of the world and most bull markets feature some version of concentration. I know Barry linked to something recently and so did Sam Rowe about industry dominance of the market in any given decade.

It's always going not simultaneously to these mega cap leading the charge, you also have a spike in percentage of members in the Russell 3000 making a 12-loop low. Now, of course, this includes a lot of shitty mid and small companies, but it's still a very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, have a spike in percentage of members in the Russell 3000, making a 12-loop low. Now, of course, this includes a lot of shitty mid and small cap companies, but nevertheless, it is stark. And if the market does start to roll over actually, like if the equal weight actually

starts to roll, then I'll say, okay, I'm concerned. But it just hasn't happened yet. So I think what's more likely is what has happened every single time almost over the last 15 years that we've seen a divergence is that the rest of the market catches up. And listen, has the bull market not earned the benefit of the doubt? And maybe this is the time where the rest of the market catches down, but until that happens, you got to give the bulls a benefit of the doubt, I think. Well a great segue then is to say, well, what would make the rest of the market catch up?

And if I can think of one thing, it's the first rate cut. And just the market processing this message that we actually had a soft landing, mission accomplished, and now they're not accommodating with monetary policy, but they're loosening up on how tight it's been. So like if you ask me, look, what is the thing that can make the S&P 490 catch the S&P 10? Like that's a pretty good candidate, right? Totes. That's as good of a candidate as I can come up with. And my opinion right now is that we might be on

the verge of it starting and it might be starting in July. And I'm going to walk you through my reasoning why. Before you do that, would you allow me to just look at the chat for a second, just see what's going on, just peruse? Yeah, please. All right. All right. This activity. All right, go ahead. Dick. They've now they really love you. All right. The next FOMC is July 31st. Prior to that on July 3rd, we're going to get the June meeting minutes. And then you get a whole month's worth of data, including, you know, nonfarm payrolls, you'll get another CPI, you'll get another PPI, get all kinds of shit. And right now, walk us through the target weight probability chart.

This is your charts. It's not my chart. Don't foist. All right, fine. You want me to do it? You want me to do it? I'll do it. I'll do it. Go ahead. Walk us through. Okay. So right now, this is showing that, OK, July. So they're not going anywhere in July. There's a 92% implied probability

that they're going to stay exactly where they are. And this really hasn't budged a whole lot. I guess it's up from the last month. A month ago, there was a 70% likelihood that they weren't going to move. It's creeping. It's creeping. No, no, no.

They're not going to move. They're not going to move. Yeah, no, no. Yeah. All right. Next one. When's the next meeting? September. OK. So looks. Let're not going to move. Yeah. All right. Next one. When's the next meeting? September. Okay. So looks.

Let's not skip ahead. So there's no meeting in August because they do Jackson Hole, which is central bankers around the world get together in Wyoming and they fly fish and they have a symposium where different people give speeches and sometimes the speeches are really momentous. And sometimes a policymaker, including the Fed or BOJ or somebody from Europe will get up there and use that stage to announce a pivot or like really like break some ground on some new thinking from within their respective organization. We saw that with the rise of interest rates a couple years ago.

Like Jackson Hole turned out to have been pretty momentous. Anyway, they sometimes will use that moment to give a speech that resets expectations. Europe is cutting, Canada is cutting. If we get another flat CPI next month. So I'm saying, I think July is going to be the first cut. It's ceremonial. It's just 25 basis points. It doesn't actually do anything.

It doesn't change anything. Oh wait, you're very much out of consensus because nobody thinks they're right. I know. Oh, okay. I'm making a surprise thing. So I wanna walk you through this. I think they go in July,

they use the Jackson Hole meeting to remind people it's data dependent, and just because they cut once doesn't mean now they're cutting every meeting, no meeting in August. September is probably their last chance, if they don't do July, to get one in before it's too political. Pull up the chart, September rate cut odds. So this is where the market's at. So the market believes that there's a So, the market believes that there's a 63% chance, excuse me, a 61% chance that September is going to be the first cut. Correct.

So, I'm a little bit out of consensus. I think they're going to start early, but we'll say there's no FOMC chart off. There's no FOMC in October, importantly. So the next opportunity, if they don't do July, they don't do September, is November 6th and 7th, a day before the election. I feel like you can't do it for some reason. I think enough people believe that you can't do it, that you just can't do it. How would that be interpreted by Trump? They're not.

Yeah, no, I agree with you. They're not going to July. This this Fed does not surprise the markets. They just don't. So they go September, December, two cuts. Yeah. Okay. December. The last meeting of the year is December 17th through 18th. And I do agree with you. Let's pull the chart up for that probability. So this kind of all over the map.

You know, 40, 45 percent. So this is kind of all over the map. It looks like 45% chance of no cut. No, no, no, no, no. How about this? There's a 5% chance that we're still where we are in December. Right. And so it seems that 525 to 550 is right. There's a 95% implied probability that something will be done by then.

Yeah. I think that makes sense. Now you could do an intra meeting cut, but not without scaring the shit out of everyone. So that's a very low probability, but it has happened. It is possible. I just don't think so. I just thought the language of the last, and we spoke about this with Alicia, I just thought the language is weird.

He's acting like they still have a lot of work to do. It's like, dude, we see the data. I think he has to say that because people are still so angry about inflation. I think he had to say that previously, but we're not on the one yard line anymore. Like we're in the end zone. We did it. All right. Neil Dutta says it's time to cut now.

Maybe this is why I think July is possible because maybe I'm ODing on Neil Dutta, but I really liked his take on this and he's just been so good for so long. Neil Dutta said, a week or two ago, I noted that an accident was brewing. In the most likely scenarios, bonds would work either growth and inflation slows or growth is steady while inflation slows, hence bonds over stocks. Thursday's market action, he's talking about last Thursday, was not especially encouraging. Rates are down and yet home building stocks are underperforming. Industrials are lagging.

There's a fine line between soft landing Nirvana and the Fed overstaying its welcome. The Fed just unveiled hawkish dot plots while Powell was relatively skittish yesterday. As the summer progresses, the Fed dots will look increasingly off sides relative to the incoming inflation data. There's plenty of reason to think further disinflation is in the pipeline. I hope the Fed's rhetoric shifts quickly. The risk is that it doesn't. Meanwhile, risks to the labor market are building. The direction is not good. California represented an outsized driver of claims this week. The trend was up even before that. He started talking about initial jobless claims. If you have a job, things are fine. If you're looking

for one, things don't look so good. Last thing, Fed is a risk management enterprise. I think risk management and realized inflation progress support recalibrating policy. At the end of the day, unemployment is up and core inflation is down. The implication of that is clear. I've seen hawks make the argument that if the Fed cuts, they risk a repeat of watching inflation flare back up. I'm not so sure.

You want to cut a little now as opposed to having to cut a lot later. Waiting longer for the sake of making up for Q1 is the policy equivalent of biting off your nose to spite your face. So Q1 was not great for the Fed. Stocks handled it well, but all of the data was surprising to the upside, which pushed out the timeline. And that's why we went from seven cuts to no cuts this year. Now we're back at one or two.

So his point is like, start now. You don't have to go crazy into an easing cycle, but let's not have an emergency and then try to do all the cuts all at once. And I feel like that's reasonable, don't you? Yes. The risks to me seem asymmetric. Unless they're worried at this point, staying too restrictive and causing an unnecessary recession versus starting to normalize a little bit, are they worried that if they ease up,

risk assets are to go bonkers and they're already have risk assets. Bitcoin is up 60% this year. If that's what you were trying to forestall, it didn't work. You got Micron is up 80% this year. Well, as you know, that has nothing to do with them. I understand, but I'm just making the point you're saying if risk assets are going to scream to the upside, didn't they? You know what I mean? I think they should cut.

I'm asking what are they worried about? The vibes? All right, whatever. Like all of a sudden, like banks are going to be like, oh, let's lend more. I don't see it. I don't get it. I really don't get it. Retail sales slump continues in May. Does this look like an overheating chart? Throw

this up. This is the month over month change for US retail sales. We got the number this morning. You could barely see the increase. Last month was an actual decrease from the prior month. I don't know. This doesn't, is this hot to you? No. Can I give you the numbers? Retail sales increased at a slower than expected pace in May as high interest rates and inflation continues to weigh on consumers.

Retail sales increased 0.1%, less than the 0.3%. All right, it's one month, it's month over month, it's super noisy. Excluding autos and gas, retail sales increased 0.1%, which is pretty low relative to expectations. So not disastrous, but the consumer is calming down already. It's like more confirmation that we've done the job. What, what else? Want that number to go negative three months in a row? What are you looking for? Yeah.

So, all right, Elon, he got it. He got what he wanted. Thank God. The, yeah, seriously. He was down to his last a hundred something billion. I haven't slept. He was down to his last a hundred something billion. I haven't slept. All right. So the story on this is this compensation package, they passed this in 2018, a shareholder sued and a judge in Delaware struck it down and said, it was like unfair or the shareholders didn't know. I can't remember exactly what she said, something like that. But anyway, the shareholders voted and they supported the shit out of him. It was backed by 77% of votes.

I didn't know this. I guess I should have, but retail investors own 30% of the stock. That sounds extraordinarily high. It is extraordinarily high for a company of this size. BlackRock and Vanguard supported him. And when- They own 30% of the stock,

and also, but they are like the most vocal shareholder base in the world. I don't think there's any company that has a shareholder base long and short the stock that's as talkative. Well, let's be honest, if you're, I mean, yeah, you're right. They are zealots, but Tesla is better off with Elon there than not there. He just is in terms of the share price. I can't think of anyone who would with a straight face say otherwise. That wasn't the question.

The question was when they signed this contract, did the board of directors really represent the shareholders or were people really clear that if he made shareholders $500 billion, he would expect $50 billion in return based on the terms. And honestly, I feel like every person right now would sign on to that for every stock they own. Dude, in 2018, when this package passed, Tesla was like $50 billion or so, give or take, maybe a little bit less. The stock ran to $1.3 trillion.

So you know the Wall Street Journal had a reporter covering Tesla basically saying it was an insolvent company. The paper of record on Wall Street was saying the stock was a zero. Well, to be fair, he came close. Right. No, but that's my point. That's my point.

Okay. Okay. So that's into the depths of that moment is when he signed this deal and Alex was on, Alex Cantwood said, or Eric Jackson was on the show with us. He said he rewatched the clip on CNBC. They were in Davos. Nobody gave a shit. They were laughing Right like oh all he has to do is quintuple the stock price, right?

Yeah, and then he did and then he did so all of the stocks that you own right now, let's say you're gonna vote You if if one of these companies struck a deal with a chief executive that if the stock goes up 5X, roughly 10% of the monetary gain is going to go to the CEO, you'd probably say, sure. There's never been a company that's more synonymous with their leader than Tesla. Would you agree with that? Are these companies of this size? The really interesting thing that happened, because I don't think most people thought that he was going to lose the shareholder vote.

The really interesting thing that happened, though, is now the company is incorporated in Texas. And Texas has stood up these business courts that are now open for business. And you're going to see whether or not any company wants to follow Tesla. One of the negatives for shareholders in a company that goes to Texas from Delaware, Delaware has got decades of precedent.

As a result, they can really protect shareholders because they've had all these things tried in their courts. That precedent is important. In Texas, it's like anything can happen, which sounds great if you're Elon, sounds less great if you're a shareholder, not just of Tesla, but of any company. But that's one really interesting development that came from it. These days, most stockholders don't really care about these things, and it's really more institutions that have something at stake.

But I thought that was interesting. Anyway, also in related news, last week, Morgan said, I didn't read the report, but they put out a report asking if Tesla is going to make a phone. This is okay. Sure. Why not? I guess. Yeah, they definitely will.

They definitely will. I don't know how much it would cost them to make a phone, but I feel like they could afford to try. And you know, they've made a tequila. So like what? Tesla made a tequila so like what what Tesla made a tequila and it sold out you couldn't remember that so they made it they do they sold flamethrowers on their website yeah okay they've done they've done shit so could they throw a Tesla phone out there and get a deal with AT&T to carry

it yeah they definitely could. I mean, I don't know that people will use it, but I think people will buy it as like, you know, a collector's item. I don't know. I don't know. It's feasible. Is Tesla gonna make something that competes with the iPhone? To me, that feels like it would cost a lot of money

and be a really big risk that the shareholders would not be excited about. No it's cool that I saw my iPhone the other day. I got a voicemail and I was able to pop in, so I ignored the call, but I was able to pop in and see a transcription live of the voice message that the person was leaving. That's a new feature. That's interesting. So as they're saying words, someone's saying, oh, it's George. Okay.

Now I know who it is. I should call him back. Pretty cool. That is kind of cool. I haven't seen that before. I wrote about crypto and politics. And one of the really interesting things that I think is happening this summer. You good? Okay. One of the things I think that's interesting that's happening this summer is just like, there doesn't seem to be anyone that is anti crypto anymore.

There seems like there's just no reason politically to fight this thing at this point. Well, because it's like Will Ferrell streaking through the quad and up the gymnasium. He looks behind him. There's nobody there. There's no followers of the anti-crypto crusade anymore. Yeah. And the pro-crypto crusade is beating the shit out of politicians with money. They knocked Katie Porter out of the Senate race in the state of California.

She is a hardcore progressive California Democrat, and they spent $10 million to humiliate her with attack ads. They didn't use the word crypto once in these ads. They just called her a bully and a liar and an actor and a fake and a fraud and effectively drummed her out of office. They're trying to do the same thing in the Bronx with some House of Representatives people. For some reason, the far left progressive wing of the Democratic Party is anti crypto, which is weird because if you're into decentralization,

I guess decentralization probably as a concept is bothersome. If you're very progressive, you kind of want everything centralized. So maybe that's the, but I thought like part of the promise of crypto is like we're anti Wall Street and we're going to bank the unbanked. I guess that narrative is not powerful enough. So for whatever reason, the Republicans are pivoting to being pro crypto before the Democrats have a chance to get there. It's a lot of money on the line. And $94 million went into super PACs

and directly into political candidates coffers since 2023. And now that this thing is is legalized on Wall Street, I can imagine that number doubling. Who's on the other side? Nobody really. Even the banks want crypto to flourish now. There's no anti-crypto vote. That's what you're saying. It's not organized.

Yeah, yeah, yeah. So Elizabeth Warren is anti-crypto. She has no constituents. Her constituency is nothing compared to. Dead. Yeah. Compared to like, like you would think the incumbents, the banks would be anti-crypto, but it's not that way.

They're all making money now. They're either making markets in digital assets or they're doing asset management strategies with digital assets or they're underwriting companies that are involved with digital. It's too much money to be made playing ball. And I just think this- How big do you think the voting block is of people that are like one issue voters when it comes to crypto? Is it 5 million people?

I'm making this up, but I literally would guess 5 million people. It's a lot. 50 million people own crypto. Probably 20 million like don't care that much about it. And there's other things they care about more. And, you know, probably another I don't know, 20 million don't own enough that they even realize they own it. Like they just bought something during 2020 and then five, like 10 percent

of the crypto ownership owns a lot, really gives a shit, will wait online to vote somebody out who's been hostile, and hates Democrats, frankly, because Gensler really made the administration, really was like the face of Biden's administration in terms of this stuff and just was completely anti. The margin of victory is not going to be that big either way. And this could really swing things. It's going to swing.

It's swinging House and Senate races and not just not just swinging it because there's money but people are mobilized like the political will. So it's not just, yes, it's a lot of, here Jeff Yass from Susquehanna is a big donor, ProCrypto, FairShake, which is a super PAC, is two affiliated super PACs, Defend American Jobs and Protect Progress. They're raising money from Tyler and Cameron and Ben Horowitz

and Mark Andreessen and Brian Armstrong and Ripple is putting in money and Coinbase. There's a lot of passion and money on one side and no one on the other. So I think this is a really big reason to remain constructive on Bitcoin for the second half of this year is the point that I want to make. Yeah, it had a huge first half seems to have like taken a breather. Yeah, in the second half, you might have politicians from both parties demanding that there be more crypto like at the rate this is going. And it's a really crazy about face from two years ago.

Yeah, we're pretty much everyone wanted jail for people. So we've we've really come full circle in in a pretty short period of time. I wanted to mention for people who want to learn more about how advisors and professionals are utilizing Bitcoin in portfolios for clients head Head over to our sister channel, The Unlock. We put that up last night and I thought it was a really great conversation with Rick Edelman. All right, you're up next. Okay. F***ing Wells Fargo. Did you see this story? No. Tell me about it. No.

This story- Oh, I did. I did, but explain it. So the story is really not material because Wells Fargo was up 1.5% yesterday and another 1.5% today, but it's just emblematic of why you want a great leader at the helm of your bank, not taking stupid risks. So here's the story. Wells Fargo got into business with a company called Bilt. B-I-L-T, it's a fintech startup, they issue a credit card, and the unlock that Bilt came to market with was that users can pay rent with it without incurring fees, and landlords don't wanna take rent on a credit card, because you pay 2-3%,

and it's a big check, so like, no, give me a check, or give me cash, or not, I'm not bleeding. I don't want to pay interchange fees on a $3,000. Rent leading 3%. So this is super popular. More than a million accounts were activated in the first 18 months. Great idea. It's a great idea, but it doesn't work.

So Wells is losing as much as $10 million every month of the program. And the great thing is, dude, this contract goes through 2029. Wait, why are they losing? I'll tell you why. I'll tell you why. 10 million a month. All right. So here's from the journal. There's a reason why credit cards hadn't gained traction

in the rent sector until BILT came along. Most landlords, okay, we already spoke about this. BILT structured the cards so landlords won't incur the fees. Wells instead eats it. About six months after the card was launched, Wells began paying built a fee of about 80 basis points of each rent transaction, even though the bank isn't collecting interchange fees from landlords. Wells also is paying $200 each time a new card account is issued, which is normally reserved for airlines and super strong partnerships like that.

So Wells had a gross miscalculation of what they thought would happen. They thought that they would get all these young people to open up accounts and then they would cross sell and that they would use this as their default card. But the problem is a lot of these people open up an account just to put their rent on it, get the rewards. And they didn't use the card for Starbucks. And they're using their Sapphire reserve for their everyday expenses. So this was just a spectacular failure blew up in their face.

I mean how much did they spend though on advertising? Who? 10 million is 10 million a month like material. It's around the area. It's around the error. But of course it's Wells Fargo is the bank that did this. And also let's be honest, Goldman got into a lot of trouble going into the consumer business. Marcus was far from a home run. The shit's hard, but Wells has egg on their face again. I like the idea. What could have made this

work better? So Wells is going to eat the interchange fee, almost like a marketing cost. Yeah, exactly. And the assumption is that people will not only pay their rent with the built card, they'll also do all their other spending on it and that will wash out that interchange fee that Wells is eating. I don't hate the risk. I guess the calculus that they made that was wrong is that people are, for whatever reason, married to their reserve card, to their Amex, whatever it is. Maybe Wells wasn't, or built wasn't being as competitive with other rewards. Who knows? But you open this up by saying

f**king Wells Fargo, but like, is anyone mad at them? They tried to do something good. It just didn't, the public didn't play along. But if the public had played along and used the card, this would have been a nice story. I don't think Wells Fargo invented a way for people to use a credit card to pay rent. I don't think their communications people are super thrilled to have this negative press. They should have sponsored this show. We could have explained it. Anyway, what's hilarious is after the story, accounts are going crazy. People are opening up a ton of built accounts because not everybody's heard of this.

I hadn't heard of this. Oh, you could pay your rent. Are they going to shut it down or are they going to double down? I don't know the details. I don't know how can they? I don't know. What do you mean? How can they double?

They should double down. You get like a rapper. they double, they should double down. You get like a rapper. You got to you got it. You got to get like little baby to come out and explain this shit on Tiktok. I don't know who that is in his language. No, I know you don't. But 100 million people do. And they are the users of a credit card that would pay their rent for them. So you got to get somebody to come out and explain, why this is cool and why you should get a built card and use it for other things besides just your rent. Who does Wells Fargo have talking for them? Like Wilfred Brimley. I'm trying to think of like do they even have,

do they have like a spokesperson that anyone's familiar with? Because this seems like a real, you want people in their late, late twenties, early thirties to understand how this works. You got to get people that they respect like Quavo. I'm just, I'm just saying like, I, I feel like this is not a total loss. They could salvage it. Um, or are they going to give up? What do you think? I don't know, man, but Wilford Brimley was the most random out of your ass name. No, that's a guy that financial companies hire. Oh, he was diabetes and, and, uh, insurance shit and probably co gold coins. I'm making that up, but it sounds like it's true. But you know, like, like, uh, Tom Selig does the

reverse mortgage stuff. That's nothing wrong with that. I'm saying this, this demographic requires Wells Fargo to like, get somebody that get Kaisa not and explain to him if you can, how, how credit, how this credit card is different from other credit cards. Who get who Kaisa not a live stream kid that has like 4 billion of views. He just talks to his computer. I don't understand most of the words that he says. He says, bro a lot.

And sometimes he says breath. So online people also ask, why is Kai Sanat so popular? Cultural impact. Sanat is credited with popularizing viral internet slang words such as Riz. Okay, so then there you have it. So let's get Kai Sanat to talk about the build card. Breh bro.

And just let's see. Let's I would keep it in the market. All right. I'm gonna make the case. Did you know that storage is the new GPU? What type of storage? Like data storage. Physical storage?

I don't know. Like a mud room? Yeah, storage. I just made that up and it's not true, but the middle innings of the AI build out are going to require an enormous amount of flash storage, not hard disk storage, which takes a long time for data to be recalled, but flash storage, which is immediately available for AI application. There are basically three publicly traded pure plays on the theme.

And the one that I am most interested in, I just bought a tiny bit of the stock today. It's very high. The ticker is NTAP. We used to call this NTAP back in the day. I've made and lost money on this stock a thousand times before you were even born. We were trading this in the late 90s, early 2000s as part of the original dot com bubble. And now it's back. Let's throw a chart of NTAP on screen, John.

This is since inception. You can't see my mouse mousing over this period from 1998 to... You cannot even imagine what the stock used to do. This thing was like Michael Jordan. It would go up five points a day and every day, like five days a week, five points a day. And back then, it was called Network Appliance. The company's roots are from 1992. But basically, in the early 2000s, they came up with network attached storage, which I think was a prelude to the cloud. But basically having the data be separate from the computer or separate from the server.

Do you follow me on that? I have no idea. Having the data held somewhere else. No, I have no idea what you're saying. I got to be honest. Okay. Anyway. I like the chart.

Chart looks good. So you had network appliance, which has since we branded it as NetApp, which is what everybody actually calls it. You have VMware, which was acquired by Broadcom. And you had EMC, which is now owned by Dell. And there were probably one or two more, but these stocks were the storage stocks. Before there was such thing as cloud computing, you had data centers and companies would house data physically inside racks of servers.

And NetApp was one of the hottest stocks on the planet. Anyway, 20 years- And these data rooms, those were in mud rooms. They were in mud rooms. 20 years go by, these stocks are like, nobody even knows that they still exist. Dell went private, came back public again. And now all of a sudden storage is on fire because there's a realization that if you spent all this money on GPUs, it's pointless if you can't move the data fast enough to

make it worthwhile. Like, why did you buy all these GPUs to calculate and compute if the data is not moving efficiently and quickly? So storage is red hot. We've talked about Dell before. It's one of the best stocks of the year. This is in that group now. The stock's up 45% year to date. Do we have a more recent chart of this? I mean, the problem is this thing, like credit to you for buying it because most ordinary humans, most mortals, most mortals will look at the chart and say, nah, I missed it. Well, I didn't buy a lot and I actually think I'm going to catch it in the low 120s. It's a momentum name and let me show you another name, PSTJ.

John, we have a chart. So this is pure storage. This is much smaller and twice as expensive as NetApp, but it's going up for the same reason. AI storage, the products that these companies are now selling, this next generation, have much higher margins and are going to sell much faster than previous generations of storage because AI demands it. And this data center build out requires better data storage.

Let's put up Dell. Look at this shit. This is since it came back public, right? But this stock is parabolic this year. As you could see, it started the year at like 75. It hit 170 or something. It's at 150 now. And Dell does other things besides storage, so I shouldn't say it's a pure play, but again, they own EMC. Anyway, I don't think that people should follow me into this stock. I'm probably top ticking it short term. RSI is like 79 or something. But I'm gonna add to it if I get like a low volume pullback

and the bull market remains intact, I think I'm gonna end up buying more of it. What you didn't show on the chart, I'll blame Sean because we need candlesticks, is this a double gap, which is very impressive. There was a gigantic gap higher last November, and then it spent the next couple of quarters going sideways, and then another gap sideways and now accelerating again. That is super impressive.

What I also didn't show is that this is a 1.6% dividend and a stock selling 19 times forward earnings. So if you look at that chart, your assumption would be, holy shit, this has got to be 45 times earnings. And it just is not. So look, it could be a short term top. It's a crazy amount of momentum in here. On a retracement though, I think I'm going to be adding to this thing. Because I totally believe in that part.

If this gets down back to like 110, remind me to buy it and maybe I will. I will. Okay. All right. Try it out, please. Okay. Is this stock index? It's a stock. It's a stock. This might be the worst looking chart.

I haven't really thought this through, but this might be the worst looking chart where the company is a, is a, uh, Oh my God, nothing. A to be bashful. A verb. The company is a verb. Like the word, like, you know what I mean? Like I can't think of another company where it's, it's a verb. The name is Is it DocuSign or Zoom? It's Zoom. Yeah. I was in this thing. I gave up on it.

So it had What a piece of shit. Oh, I took, I took a very quick loss in here not to brag, but it had been holding on and it just, it just gave way. It just collapsed recently and a piece of shit. What a piece of shit. Oh my God. Well, so I shouldn't say that we're, we're customers and uh, I'm talking about the stock. Holy moly. We use them like everyone else. everyone else. Hang on, hang on, hang on. I just realized this. It's at an all time low. That's an all time low.

Yeah, it's lower than before the pandemic. It's way lower than the IPO price. Oh my good gourd. So the obvious thing here is that Google Meet is as good or better. Microsoft Teams is as good or better. Microsoft Teams is as good or better. No, no, no. Microsoft Teams is a war crime. To Microsoft corporate, all right, let me rephrase that.

Users don't love the Microsoft Teams experience, but enterprise Microsoft customers would prefer that their employees use Teams rather than bring in Zoom. And that's it. It's that simple. It's just that there are other options that consumers don't really give a shit. If somebody schedules a meeting with me and it's like a FaceTime or Zoom or Meet or Teams, I'm still going to the meeting. I might not love Teams,

but I'm going to go. So at its peak, at its peak during the pandemic, it was trading at 124 times sales. This is when it passed Exxon and market cap. It was 124 times sales today. You could have as much as you want for three times sales. Let's go to the chat for some opinions on this because I'm seeing WebEx is worse. That's Cisco. They had this market to themselves. So did WebEx was the original corporate video meeting. Oh, WebEx is a Shonda. If somebody sends you WebEx, you just say, I can't make it. But there was a time where that was the industry standard. And then Microsoft bought Skype. And Skype had a shot to totally own it, totally own it.

And for whatever reason, Skype just never got good. It just never got the genius of Zoom when it first came around. They figured out just make it so people could send each other a hyperlink and use the web browser. It's a good product. They made it so easy. It's a good product. They made it so easy.

It's a good product. But then that wasn't, it wasn't enough. And it's a feature. That's the last thing. For these other companies, it's a feature. Right. For Zoom, it's the whole McGill-a. And that's not enough as a standalone business.

So they got into enterprise telephony and they're selling phone service and texting service and email and they're trying but it's really, really hard to grow. Those are very mature markets. And that's that's the story of why the stock is where it is. So and I don't see it changing anytime soon. Yeah, no, it's not good. All time lows are not bullish. Nice mystery chart. I guessed it on the first, did I write?

First call. That's teamwork. That's right, that's right. All right, hey everybody, tomorrow is Wednesday, which means my favorite podcast, Animal Spirits with Michael and Ben, will arrive on the podcast app of your choice first thing in the morning.

Don't forget, Thursday is an all new Ask the Compound with Ben Carlson and Duncan Hill, followed by the Compound and Friends Friday, Jill on Money Saturday. We got you guys covered all week long. Thanks for keeping it with us. We appreciate it. We'll talk to you soon.

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