The Compound and Friends - Netflix Reports, Why the Bull Market Has Legs Into Year-End With Nick and Jessica, Warner Bros for Sale, Unemployment Cracks Appear

Episode Date: October 21, 2025

On this TCAF Tuesday, Josh Brown is joined by Nick Colas and Jessica Rabe of DataTrek Research to discuss: the key to understanding Q3 reporting season, the seasonality of S&P highs, a financial analysis of Big Tech, and more! Then at 39:40, hear an all-new episode of What Are Your Thoughts with ⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠! This episode is sponsored by Betterment Advisor Solutions. Grow your RIA, your way by visiting: https://Betterment.com/advisors   Sign up for ⁠⁠⁠⁠⁠⁠⁠The Compound Newsletter⁠⁠⁠⁠⁠⁠⁠ and never miss out! Instagram: ⁠⁠⁠⁠⁠⁠⁠https://instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠https://twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠https://www.linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠https://www.tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to the compound and friends. I'm recording this live from Las Vegas. And we had a pretty packed show. There's just so, I was saying to Michael, there's just so much news happening right now. So many things going on from corporate finance to the economy to politics. It just feels like a really exciting time to be in the investment markets. And we try to pack as much of that element into the show for you as. possible and I think we did it this this this week so uh first things first let me let me just

say a quick shout out to betterment advisor solutions betterment advisor solutions is uh the sponsor of uh the show this week and um here's the deal if you're a financial advisor you're listening to this and you find yourself spending i don't know 10 20% of your day with paperwork with doc you sign with emails back and forth bothering clients for things, looking things up that should be right at your fingertips. If you haven't modernized your operations by now, I mean, I don't know what to tell you.

I don't know how you're going to compete, how you're going to keep up with the pace of this world that we're heading into. So I strongly suggest you do what we did. Go to betterment.com slash advisors and see what Betterman can do to help you run your practice in a more streamlined, more efficient way. Shots of Betterment.

All right. Tonight we have the return of Nick Coles and Jessica Rabe from Datetrek, two of my favorite people

on Wall Street, two of the smartest people I know. We take a look at current valuations for the S&P 500. Jessica does this really great thing

about seasonality. There's just a whole host of information in there, and I want you guys to have it. And then it's Michael Badnick and myself. All new,

what are your thoughts? We react to Netflix earnings. We take a look at the unemployment The employment or labor market and some of the issues that are happening there. We do a whole thing on Warner Brothers, which today decided to sell itself. It's just, as I mentioned, it's a jam-packed show. I think you're going to enjoy it.

And I'm going to send you in right now. What could be better? Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management

may maintain positions in the securities discussed in this podcast. Compound Nation, it's the return of Nick and Jessica. I am so excited. Welcome back to what did we learn. Nick Hollis and Jessica Rave are the co-founders of Data Trek research and the authors of Data Trek's morning briefing newsletter, which goes out daily to over 1,500 institutional and retail clients. Nick and Jessica also have their own YouTube channel,

which you can find a link to in the description below. Guys, it's so good to see you again. Hope all as well. Hope you're getting ready with your Halloween costumes, I guess. What are we going to be this year? The VIX. What are we thinking? Oh, golly.

The VIX is a great idea. How would you do it? how would you do you'd have to invent like some sort of vix creature i suppose i don't know be a tough one something's asleep for a long time and then it comes up and becomes a monster yeah i suppose i suppose all right um we're going to talk about the uh the earnings power of the s and p 500 which very apropos to the moment that we're in this is yet another very i'm this is me my me editorializing you guys tell me if you agree i believe that this is yet another very good um quarter worth of earnings with the caveat that we ain't seen nothing yet um all the big technology

companies are still to come uh very quickly but if you were just to judge it on what we've seen so far it's uh i think a sigh of relief and i think it justifies some of at least the rally that we've been enjoying since the summer what do you guys think about that yeah that seems totally fair um it's you know it's still early early days though you don't want to prejudge too much i i well i agree That's why you're here. Okay. You guys say the key to understanding Q3 reporting season and valuations can be found in this chart. I'm just going to let you cook.

I want to hear what you think. Cool. Let's start up the first chart. This chart shows it's a fact set chart, and it shows by how much the S&P 500 companies beat earnings expectations over the last five years. And on the left-hand side of the chart, you can see during 21, they were huge beats because nobody thought companies could make as much as they did. So, like, 14% beat percentages.

So if a company was expected to report a buck, they reported a buck 14. Just tremendous. We went through kind of a slog in 22. It slowed down a lot. And then it picks up again during the current bull market, 23, 24. And the first half of 25, those two quarters, Q1 and Q2, actually had the best earnings beat percentages since 2021. So 8.1 and 7.9%, I think.

So we were coming off of two quarters of extremely strong earnings beats. And right now, through the last week, we were like 5.9%. So it's pretty good. But the issue was companies basically didn't really guide down this quarter. So analysts didn't take their numbers down this quarter. So analysts actually left their numbers unchanged because they got beaten so bad in the first two quarters. So expectations are quite high right now. Can we put that chart back up?

I want to ask you. So just for the listener who's not looking at the chart at this moment, we're not saying the percentage of companies that beat. That's a totally different data series. We're saying the amount that earnings were above expectations. So not the beat rate, but like literally what percentage companies were beating by. And to Nick's point, in Q1, they beat by 8.1%, which is fantastic, the following quarter, 7.6. But now with a lower beat rate, at least so far, Nick, I think what you're saying is, The analysts aren't getting sandbagged anymore.

They're not going to play that game where, you know, they allow their coverage universe to come in and crush their expectations by 20 cents a share. So it's like everyone has now figured out that earnings are going to remain strong, which lowers the nominal beat rate, nominal beat percentage. Correct. You know, and it's fine news. It's not anything to be worried about. It's just I wanted to point out that the first two quarters were extremely strong.

And that goes to a lot of why the market's been strong. Perhaps we can just flip over to the next chart, because this is Jessica's explanation of how things are going by profit margin by court, by sector. Sure, yeah. The point here is that it's not just tech improving the S&P 500's overall net profitability. So as a baseline, FACSET expects the SMP 500 to post a 12.8% net margin in Q3, 2025, which is a 0.3 point gain from last year. third quarter. And that's also close to the all-time quarterly high of 13.1% in 2021. So this chart shows which sectors have contributed to this increase in net profitability. And we also added our notations of each group's year-over-year change in net margins in green

to mark a positive comp and red to note a negative comp. And I have just three quick points on this data. The S&P's year-over-year expected net margin improvement for this quarter. quarter is due to five out of the indexes 11 sectors, with financials adding the most at 1.7 points, followed by technology and utilities at 1.5 points each, and then industrials and materials at 0.5 and 0.8 points. And then there's two sectors that are expected to keep net margins relatively stable at negative 0.2 points for energy and negative 0.4 points for consumer staples. And lastly, four sectors are expected to see meaningful net margin contraction anywhere from down 0.6 to one full point. And these are real estate, communication services,

consumer discretionary, and health care. So the upshot here is that while tech has led to higher expected margin improvement for U.S. large caps over this quarter versus a year ago, there's still four other S&P sectors that have also helped. So this shows that this isn't just a tech phenomenon. And we think helps support high valuations here since margin expansion should continue with many S&P sectors contributing. I want to ask you about two of these sectors, utilities and financials. Let's do financials first. Chart off for a second, guys. So a net profit margin expansion year over year in this quarter of plus 1.7 percent, that's really meaningful

these are this is like I don't know a trillion dollars worth of market cap or two trillion dollars worth of market cap JP Morgan is like 800 billion by itself

so let's just assume like we're talking about really big companies that are not semiconductors or software and I guess my question would be I don't know if you have the data

at your fingertips it would probably be really rare to find a bare market where a financial company we're expanding margins. That probably never happens. Now, it probably does happen coming out of recessions.

Okay, but that's not the situation that we're really in right now. So it kind of feels mid-cycle when you just think about like financials having that ability to grow profitability. And I know it's a really unique set of circumstances like, you know, longer rates holding up, shorter rates finally coming down,

a lot of pent-up, you know, things happening in housing, et cetera. But like, for me, if you ask me, like, when would you see financials expanding margins, the last answer I would give you is in a downturn or, or, I don't know, it just feels like this should coincide with a continuation of a bull market. Am I extrapolating too much? No, we'd agree with you.

Okay. Utilities has to be the story of the year. Has to be. This is, I've never seen anything like. this, the utilities as a group have undergone this insane re-rating. They've become growth companies. I believe that they are the top performing sector on the year. They're so small. They don't even move the needle for the overall S&P. And then also, I think they have higher profit growth than technology as a sector. Do I have that right?

We have to go back to check. That sounds aggressive. And all the facts that charts, it shows up as less. But perhaps it's a subset of that group. Okay. All right. I saw something like that where profit growth for the utilities was higher than something. Maybe it's not the tech sector.

What do you guys think of, what do you think, what do you guys think of that story? I know there, it's a small category of stocks in the overall markets. I know it's not terribly important to what the S&P does. but it's got to be something that I think is bolstering the case for a broader rally than, you know, what people would have given us credit for on the surface. Well, you've got a couple of things. You've got obviously the tech story, and then you've got rates coming down. So you've got the two things that could really drive both secular demand and then demand for the stocks

because the stocks are kind of dividend yield plays. Now, interestingly, consumer staples have not done well this year. So the yield play itself has not been enough, but you're right. But as an old cyclicals analyst, I mean, I covered the autos in the 90s. To see a group like utilities get re-rated like this really is a, as you alluded to, almost a historic event, something that you only see once or twice in your career, and this is happening now. Okay.

It's really hard to predict whether or not this can continue. I'm just curious when people ask you guys about the utility sector. By now, most growth managers own a bunch of these in their portfolios, probably getting questions about companies that you forgot even were publicly traded these are not bonds anymore they used to be so how do you

how do you think about whether or not there are forward-looking opportunities in the space is it just about CAPEX and AI electricity demand holding up in the short term yes yes that's the story that's got to keep it together you know it's look at the way we tell clients is it's a better group for yield

than consumer staples. It has a better growth profile. So it still fits into the yield category, but with more of a growth bent. Okay. All right, let's continue. What's next? Next chart.

Now, expanding the conversation about earnings is something about valuation. Let's go to the Schiller PE. This is the scary chart that everybody looks at every single day, and it shows the Schiller PE, which is the based on 10-year average trailing historical earnings. So if the S&P earned 100,000,

on average over the last 10 years trades for thousands peas shiller p's 10 right now we're trading at 39 almost 40 and that's levels we haven't seen since the dot-com bubble that's the bump in the middle of the table or the chart and so we're very very high historic valuations and this chart bothers a lot of people so let me flip over to the next chart and kind of try to explain it away a little bit this shows you s and p earnings by year um earnings per share by year and the current you know 39 and multiple on the Schiller PE is $167 a share. That's the normalized earnings from which we derive. That's 39 Schiller PE.

However, the averageing the earnings per share over the last 10 years to come up with. What did you say 167? Correct. And now, if you look at the last five years, 21 to 25, the average S&P EPS is $232 a share. So it's 39, 40 percent better. So I think a problem with the Schiller PE is, that we're still using earnings numbers from a long time ago, literally from the mid-2010s,

where earnings power for the S&P has improved materially since then. Margins are better. Revenue growth has been good. And so if you're looking at just the last five years of earnings, the Schiller P is more like 28, 29, a much more reasonable number. So I don't want to overly excuse high valuations, but I did want to point out that the earnings power of the S&P, I think, is closer to 230 than 160, 170, 180.

And if that's the spirit of the Schiller PE, then its actual number is actually quite a bit lower. And it's not as worrisome as that first chart would indicate. It's so funny because 10 years ago, when you're saying companies now are materially more profitable and things have changed even 10 years ago and prior, like from 2012 to 2015, this Schiller-CAPE ratio stuff really got a lot of attention in the markets. and it was one of the primary things that people used to keep other people from investing in stocks. And they pointed at the year 2000 and they said, here we go again.

And Michael Batnik and I were talking about this the other day. We were writing, I don't know, dozens of blog posts just obliterating the Schiller PE. Not that we don't think there's validity in looking at long-term averages, but like, oh my God, you want to compare Amazon and Apple today versus Bethlehem Steel?

Like, is this an exercise that's helpful to anyone? It's different stocks. Yeah. Forget about higher, forget about like systematically higher profitability. It's just different companies. If it were like companies and we were saying today's IBM versus IBM in 1985, all right, I'll pay attention somewhat.

But I kind of find like this whole exercise, it's like, it's like thinking about an NBA player in the 1970s and dropping them into the NBA of 2025. Like what is the likelihood that that player would even be able to function in the middle of the court? So I don't know, maybe that's overly dismissive or overly generalizing. But I just think companies are better today

at being companies than they were 50 years ago. What do you think about that? Well, I'd also say that the top seven companies that are a third of the S&P are really, really good companies with amazing cash flows. And we'll get to this in the third section of the video, but these are amazing companies that are at the top of the stack, and they dominate the top of the stack. They're a third of the entire index, the seven names. And so it's not just they're great companies.

It's that they're great companies with a lot of weight in the index. If you guys had to worry about one or the other, I think I know the answer, but which would it be? Worry about valuation on earnings or worry about whether or not earnings growth will continue. I sort of think the latter is the thing that's going to decide whether or not stocks can go up and not the former. Like all of a sudden, everyone's going to decide, oh, these are too expensive.

Like, I think they won't do that until earnings growth goes away. Yeah, as long as earnings growth supports valuations, it can continue. Even elevated. I'd rather buy, I guess the way I would phrase it is I'd rather buy an expensive stock market with earnings growth than a cheap stock market without. And the lesson from 2000 is you want to buy a market where the Fed's not raising rates because that's what really tipped over the Apple card in April and May and June and really crack the dot-com bubble.

The first big crack in the NASDAQ was right after March and it was because of the fact that the Fed was beginning to raise rates again and no one knew how high they would have to go. And so that was really the catalyst. So I just want to layer on the macro side to the argument, but I think you're right. Okay. What are we saying here? The 24 times consensus estimate for 2026 of 304 a share is 9% upside from here. Why is that important for people to keep in mind? It's important because the S&P valuations over the last, call it, decade, had run from 14 to 22 times, 14 at the trough, 22 at the peak. That's been the formula. In order to get a reasonable buy target, like 9% up for the S&P, you've got to go out to 26. You've got to believe in 304 a share, which is about 14% growth from this year.

That's the fact set consensus number, so it's fine. It's the Wall Street consensus number. But you've got to put a 24 multiple on that. You've got to be comfortable putting a 24 multiple on this market to generate a reasonable S&P upside from here, 9%. If you can't get there, it's probably a tough market to rationalize. we personally think it merits 24 times but it's a big number it's a chunky number what are the mental gymnastics for us to all be comfortable at 24 times like what did you guys

have to be i assume we're baking an easier monetary policy continued deregulation um i don't know what like what else do we have to throw into the mix global economic growth no i mean i this is a little bit facile but i really believe it's true you have to absorb the concept of a third of the S&P having a 50 to 60% R.O.E. And that's the big tech names. You have to absorb the fact that is materially different from any market we've had before. And these companies not only dominate on ROE and return on capital, but on the next phase of tech growth, which is obviously AI. So I think it's the realization that these are truly unique times. This time actually may be a little bit different for a while. Not forever, but for a while.

Dr. Rabe, do you concur? Yes. Okay. I assumed you did. All right. Let's talk seasonality. Sure. So back when we were on in June, the peak for the S&P for the year was in February. And we said that was unlikely to be this year's high despite the trade shop because it's only happened one other time since 1980. And that was that one time was in 1994. When the Fed aggressively hiked rates throughout the year, no transparency. ahead of that hiking cycle. And our upshot was that the odds are much higher for a Q4 peak, barring an exogenous shock when annual returns are usually up by double digits.

So fast forward to now, and that turned out to be correct. With now the S&P's current peak for the year being October 8th. So the table you just had up shows you back in June shows you the number of times the S&P has reached its high we showed you this back in June. It shows a number of times the S&P has reached its high for the year and each month back to 1980, along with the average annual returns for each of those 12 instances. So I have just four quick points here. The first is that the S&P has peaked for the year almost three quarters, 71% of the time, in Q4 over the last four and a half decades.

So this year's October 8th high so far is in keeping with those historical norms. And the reason is because U.S. equities usually post-annual gains doing so 82% of the time from 1980 through 2024. And the highs for the year tend to come in Q4 because the S&P has been rallying through the year. And then the second is just that the S&P has always had a positive annual return, total annual return when it has peaked for the year in Q4. And typically by strong double digits, up an average of anywhere from 19 to 22%. And when the S&P's high for the year was in Q4, it had positive total double digit returns, annual returns of 88% of the time, 28 out of 32 years. And the remaining four years, it was up anywhere from 5 to 8%. So the S&P is currently up

13.3%. So again, that is in keeping with historical norms. And then- Are you saying it's a typical year then? Yeah, it is actually is a pretty typical positive year for the ESPN. We never think it's typical when we're in it. Yeah, yeah, yeah. Like we never, nobody would say, yeah, this feels normal, but like it's fairly normal what's going on. It is. And, but I would just say for the peak being in October, that that's a good segue to the third point here.

It's that the S&P has actually only peaked though for the year. And this is good news for investors. It's really only peaked for the year in October four times. since 1980 or less than 10% of the times. And those were mostly in the 1980s, 1983, 88, 89, and 2007, with an average annual total return of positive 19% ranging from 31.5% and 89 to 2007's 5.5% just before the Great Recession. And then the S&P has also only peaked in November.

four times since 1980 as well. Also, just 9% of the time. And those were also mostly in the 1980s, probably from mutual funds, year ads from tax loss selling. So I was in 1980, 82, 84, and lastly, 1996. And these four years also had an average annual total return of 20% ranging from 6.1 percent in 84 to 31 percent, 31.7 percent in 1980. But really, the point here is that the S&P has peaked for the year in December, 53 percent of the time back to 1980. The average total return was positive 22 percent. So given that the first nine months of the year are over, the odds that the S&P peaks in this month or next is 12 and a half percent each. while the chances of the index topping out in December are 75%.

So the takeaway here is that with just three months left to finish this year, the S&P has much higher chances of topping out in December, 75% odds, rather than this month or next. And the index would still have to nearly double to meet the average performance of when the S&P does peak in December. Again, an average of 22%, a 22% total annual return. So it has plenty of runway left. So overall, we remain bullish on U.S. large-cap equities through year end and see any near-term incremental weakness as buying opportunities before that year had melt up.

So if the if the if this the typicalness of this year holds up, there could be a lot more gas in the tank to get us into the end of the year just to do like an average, you know, December high. Why do you think the market makes its high for the year, 53% of the time in the month of December? What's the, is there like an anthropological reason for that? Is it people that have earned money all year? That's like when they want to get it fully invested before they go away for Christmas. Is it structural? Is it mechanical? What do you think is behind that?

Yeah, it's just that the S&P 500 is usually up most of the time. and it rallies throughout the year. So it tends to melt up into throughout December. Okay. Nick, what do you think about that? Yeah, no, I think it's fair. I think that's, you know, that's specifically how it works out. I also think that, you know, come to the end of the year, if it's been an up year, you get a little juice at the end of the year from two effects.

The first is just people putting money to work at the very end of the year, just for a year-end showing people that they were invested. And secondly, there's always this big drop involved in the year as options desks take off positions in the final week to not show a lot of exposure on the balance sheet of banks or brokerage firms. And you get a bit of a ball mouth up too. I think there's some career risk stuff going on

and just people that maybe are trailing in the index, they get a little bit more aggressive into year end, try to make something happen for themselves as far as like window dressing. Like, look, I did own Broadcom. I was in these stocks. I think there's always some of that, which we call it a performance chase or whatever

but like I know from talking to people that it's real I also think buybacks which no one's talking about anymore so we're in this like blackout period with earnings but when we come out of this period of earnings you're going to see the buybacks resume again and I do think that there's you know corporations want to get a lot of that done so that when they're reporting Q4 earnings in January and February it's helping their earnings

per share. You know, I do think they want to shrink the share count going into year end. And this year, like many years before it, there are a lot of resources at the disposal of these companies. They've made tons of money all year. And I think this is, I think the buybacks are the thing that, like, get us going in November once we get through the big tech earnings. I don't know. Do you think there's something to that effect at the end of the year? That feels right. Yeah, this year for sure. It all depends on how strong earnings are, but yes. Okay.

What's the third thing that we want to do today? Financial analysis on big tech. Yeah, this is a little bit grimy, but I thought it's really important because this is ultimately the conversation that the market is having right now. And it breaks down into two questions. The first is, how much money does big tech actually make and where does it go? Like how much is going into cap X? And then what's the actual required return on that investment?

So the first table, and the apologies, it's a good thing. been kind of an I-chart, but the first table shows you the cash flow from operations for the big five companies, the big five hyperscalers, Microsoft, Nvidia, Amazon alphabet, meta. It shows you cash flow from operations last year in the first half of this year. It shows you CAPX, which is the money going into hyper-scaling, and then buybacks and dividends. And it basically breaks down how much of the cash flow from each company goes to those end uses, investing in the company, CAP-X, or handing. money back to shareholders by buybacks and dividends. And a couple of big points on this. First,

we're not including Apple on this, by the way, because they're not really an AI hyperscaler, but just these five companies, Microsoft, Nvidia, Amazon Alphabet meta, are generating about $570 billion in cash flow this year. Operating. Oh, is that all? Yeah, exactly. Exactly. It's like most of the way to a capitalization of JP Morgan. I mean, it's just a mammoth number, and people forget that sometimes. Wait, Nick, is that, I'm sorry, is that versus $38 billion a year ago? Can that be true? No, it is versus $532 the year ago.

What's the 38 then? The change from last year. The change. Okay. So it's $570 up $38 billion from the prior year. So over half a trillion dollars of operating cash flow. This is just straight off the cash flow statement from the financial statements. Of that 570, about 325 is going into KAPX.

So they have more than enough money to cover the KAPX budgets. And they're still buying back in aggregate about $170 billion in stock and paying out $40, $41 billion in dividends. So it's a big misconception that they're plowing all their money into KAPX. There's still money going back to shareholders. And more importantly, the companies have tremendous operating cash flow. If you were going to add Apple to this, it would add another $100 billion. of operating cash flow.

I was going to say you might have to do, you might have to include Oracle next time you do this. Yes, yes. It's a late arrival to this story. The one last thing I've pointed out is just the way companies spend their money is very different. So, Invidia, for example, spends almost nothing on CAPX, 5 to 7 percent. And it buys back, you know, it buys back almost with its cash flow, roughly from half its cash flow. Amazon is the only big tech company left with no dividend. dividend and no buyback. So it all goes to CAPX, which is kind of nuts. It's the last pure

play, you know, old school tech name with no buybacks and no dividends. That really isn't. That really, look how it sticks out. That really is amazing. I've never seen it. I've never seen this stuff laid out this way with Amazon compared to the others. There is zero attempt to return capital. They just, I guess they see the investing opportunity as so much bigger than the opportunity to shrink the share count. Yes, I've often thought if I had to cover one of these companies as a single stock analyst, the last one I want to cover is Amazon, because there is nothing that leaves that shop. Money just stays in that machine and just keeps circulating back and forth. It is amazing. It is amazing that company of that size with, you know, that kind of

cash flow, roughly $100 billion of cash flow, is still reinvesting all of it. The last chart, last table I'll just show you, this is even a little bit grime here, but I'll try to summarize it for you. This is an attempt to understand how much these companies have to make an incremental cash flow based on the CAPX that they're put into work. So if you put in, and this is a very simple corporate finance calculation. So if you put $100 billion of cash flow to work in a project, you're going to want to see at least a 15% return because that's going to be, you know, what you return for your shareholders is that's being a good steward of capital. And so what I've done is just take the CAPX budgets, figure out a 15% return on.

investment and then work out how much incremental cash flow the companies have to generate to justify the CAP-X that we talked about in the prior table. And the answer is vary, but they're not very high. Amazon, because it reinvest so much, has to generate a 30% return on its CAP-X. But the rest are between 2 and 12 and 15% and 15%. So these companies are so big and generate so much cash flow that they actually could justify their CAP-X investments in Gen AI just with the growth of their organic businesses. So it's a, you know, people are saying, oh, when's, when's the, you know, so-and-so going to hit the fan from all this investment? And the short answer is they're so profitable and generate so much cash flow that we're not going to know for a couple of years at

least if this cap X and gen AI actually, quote, paid off because the underlying cash flows are so strong. I think there are journalists out there who are on the hunt for evidence from internal, like documents and memos about concerns within these companies about the levels of spending and the lack of quote unquote ROI on the spending. And it's almost become like a subgenre of technology journalism is Microsoft is worried that blank or Oracle executives privately are concerned with,

I understand the impulse. It's a really hot story if and when one of the hyperscalers decides they're pulling back the reins. It has massive ramifications for everyone and everything. So I understand why the reporters want to be the ones that break that story. I think there's also like a degree of Shaden Freud because a lot of people that have missed out on the AI trade, a lot of investors, they want to believe that it's not true and that they couldn't have been mistaken by not only. invidia because it's all fake anyway so there's that component of the disbelief of these cap x numbers so i i do think that there are a lot of people rooting for this to end but to your point most of this spending coming out of cash flow and you know like most of this cap x spending

it doesn't appear to be the type that's unsustainable it the numbers are huge but the cash flows are there to back it is that what your table is is proving Yes. And more than anything, this is an analytical point. When you're trying to identify marginal returns on capital for a company, you ultimately only can use the baseline numbers from the entire cash flow statements. So we don't have the internal ROIs on these new projects. All we can do is judge the aggregate numbers. And by the aggregate numbers, you don't have to generate that much more cash flow to justify these investments because the underlying cash flows are so strong. So it's going to be hard as a financial, and to say, aha, Microsoft's ROI went from 15 to 2% in a year because the CAPX for AI didn't pay off. It's not going to happen that way. Yeah. And because Amazon's a great example, but all of them, to some extent, it's a little bit of a black box. The money is fungible. You don't actually know which dollars are being allocated to what. To your point, you have the aggregate numbers, but you don't know individual projects, which one is very profitable, which

one's not profitable at all. Nobody really has visibility into that other than people inside of the company in the CFO's office. So it's really hard to, I guess you could look at the aggregate and make a judgment on the overall company spending and what did it return, but you don't know which specific AI projects are, quote, unquote, good versus bad. There's some element to that, right? Right.

Look, I mean, if you wanted to tell a really negative story about this entire environment, I touched on this last week for clients, and I don't want to make too much of it, but I want to bring it up. We know a lot about where all this money is coming from where it's going, right? But here's a simple question. Who audits OpenAI? Who's the auditor? Twitter. No one knows.

Now, the people who invested money, Microsoft probably knows. The big VCs probably know. But even the public auditor for the most important linchpin name in this entire story, we don't know who the the auditor is because it's a private company. It's a not-for-profit, and that's totally understandable. But if you want to pick on a part of this story, to me, it's a lack of transparency in that one company because we're relying on that company for a lot of the growth. Open AI, right.

So Open AI being a $500 billion valuation in the private market, not filing financials publicly, but they do routinely do stock offerings. There's got to be a deck with financials in those. It's under NDA. It's not, you know, it's not for public consumption, but somebody is seeing something. They are. And that's, that is, you know, that's a nice point of clarity. But, you know, we know SpaceX's auditor.

I think it's E&Y. We know the auditor of some other large private companies. Why not at least know who the auditor is for OpenAI? Yeah, interestingly, I remember reading a Bloomberg story about Jane Street, the trading firm. Sure. And Jane Street's got publicly traded debt. So as a result, we do have, you know, it's not a public company, but they've got publicly traded bonds or debt so that we're able to see on a somewhat regular basis the financials of Jane Street, which they're not advertising. They're not interested in people seeing it, but it does come out.

In the case of Open AI, I think it's an interesting point. If only the most important company in AI were publicly traded and there was a, I guess, a heavier degree of. scrutiny on things like spending and capex and profitability. But again, we're an uncharted territory in so many ways. And this is just one more, I guess, would be the way I would think about it. Guys, it's so great to have you back. Thank you so much for joining us. I want to make sure people know where they can follow so they can watch your stuff

and subscribe and get your research. So first things first, we want to tell people to go to datatruckresearch.com. Yep. Okay, and you guys are publishing every day and just an unbelievable quantity of information. I also want to tell people your YouTube channel is YouTube.com slash what is the full URL? It's long. Do you know your URL? It's like Nicolas and Jessica Rabe.

All right. YouTube.com slash Nicola and Jessica Rabe. And of course, there's a link to that in the description if you are watching the video below. Thank you guys so much for joining us. Thanks to Nick and Jessica. We'll talk to you soon. Thank you. in the chats in the in the live chat it's gangsters only as it should be right amen amen sister

thank you for that endorsement uh hey everybody it's an all new edition of what are your thoughts if you're wondering where i am i am in uh i'm in las vegas i'm at the encore it's pretty sweet and uh i was here the same time last year for the same event and uh it's kind of becoming a thing I'm excited to be I'm not a huge Vegas person Does I don't gamble No but I Because I don't play

But we'll see some friends tonight We'll see JC We'll see Joe Fami Where you guys have for dinner I will not Don't say don't say Until tomorrow Yeah

All right I wasn't going to tell you Oh The chat is all the way live Cliff is here Chris Hayes C note is going absolutely nuts East Bay elitist

Chase is here, Georgie. John Tagnachi asks, when is Nicole going to have her own podcast? I don't know. What would it be about, though? That's what I was just thinking. I don't know. She has many interests.

John, she has a TikTok. She crushes it on the talk. So if you're looking for more Nicole-flavored content, that's where you want to be. Anyway, all the gangsters are here. Shane, I see you. Matt, Oliver. Thanks for coming, guys. Great to check in with everybody.

There's a lot happening this week. I can't really remember a time like this where there's just breaking news every five seconds for the last two or three weeks. I mean, it's been a about time. It was boring. It was boring, though, right? Yeah, but at the end of the summer was boring. Nothing happened. Nothing happened.

Well, we are so back. Good. All right, guys, we have a lot to do tonight. I want to shout out the sponsor. We love all our sponsors. We truly love Betterment, advisor solutions. Riddle's wealth is a customer of Betterment Advisor Solutions. Today's show is brought to you by our sponsors at Betterment Advisor Solutions.

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Performance not guaranteed. All right. Shout to Betterment. So let's just get right to Netflix. They reported, I don't know, an hour ago, right? And the conference call started 15 minutes ago, which we're obviously not listening to. Before we even get into the numbers, this is the first thing that I want to say. I feel like this is an example of where individual investors have an edge over the algorithms that dominate so much the trading volume.

Because this knee-jerk reaction to a one-time tax-related issue in Brazil is so stupid. I almost can't believe that I have to read the words and explain to people what's going on and I feel like the first sellers on that headline number were undoubtedly algorithms. I don't think a human being looked at that and swung around that much stock. But the name is off about between four and five and a half percent so far in the after hours. And I think the majority of the selling that happened like immediately, of course, is computers selling to other computers. Do you have a strong opinion one way or the other on that? I am inclined to agree. I would also point out that we never do know why a stock moves the way it did. I mean, sometimes you do. Sometimes you do. This could nearly be the stocks up 40% in the last year and it was going to sell off anyway,

unless it was a blockbuster report, which it wasn't. So I mostly agree with you. My take on the Netflix earnings, and I've been listening to them for a long time, they've gotten probably deliberately, and this is not a bad thing, more boring over time. So they no longer, they no longer report their subscriber numbers. Net ads. Yeah. And why would they? No more net ads. And they no longer report their RPA, their average revenue per user or average revenue metric. I think they call it arm. Whatever, doesn't matter. And so in addition to that, and they've been doing this, I think, for a couple

of quarters now, the, the questions are pre-screen. So it's like an internal Q&A. And it's fine. It's a mature business. Healthy as shit. Nothing wrong. They're still killing the game. They won. And it was a boring, boring report. My hot take on Netflix is don't listen to a thing they say because they change their mind all the time. They say things like, we're not interested in live. Now it's all about live. Live is driving all, like, live is driving all the excitement around the stop. They said for 12 years, 10 years, we're not going to do ads. And now it's all about, like, all about how profitable the ad businesses relative to the premium tier.

So like, whatever they, the way to think about Netflix, and I was actually listening to Matt Bellany this morning talking about this and Lucas Shaw, they do these like trial things in a very small way. They gauge the reaction from their users. And it either disappears forever. They never do it again. Like they tried this thing interactive shows. and, like, people were just not into it.

And you never saw it again. You know, so now they're going to get into podcasting. Yeah, yeah. How about the refresh with the home screen? Like, they don't just do wide rollouts, right? To your point. Right. Right.

And that's, like, that's business. Like, that's what you're supposed to be doing. I don't think that a Netflix needs to do these, like, these grand pronouncements. So from now on, we're all about podcasts. But the reality is. is podcasts are cheaper than traditional TV show. You could trust me on this. Cheaper to produce than traditional television.

But this is where the culture is. People enjoy listening to the insights or the hilarity or the dirty talk of their favorite people. They will leave it on for four hours in the background. They want to hear Bill Simmons. They want to call her daddy. They want to see them. And they want to, sometimes they want to see them. Dude, I thought it was hard to believe in the early days when people were asking us to put our podcasts on YouTube.

I was like, but why? Who's the hell is going to watch that? And obviously, YouTube crushed and Netflix is better late than never. And if it stops working, they will pull it back. But it is going to work. It's not going to not work because it does work. I, for example, Patrick O'Shaughnessy, friend of ours, it's a relatively, it's not a boring show by any stretch of the imagination. But it's one dude interviewing usually another dude.

And why would you want to watch it? Guess what? I don't watch it on my TV, but it's on Spotify. It is the video. And so if I see the person, if I only look at them for two minutes at the entire show, just to get a sense of who am I looking at? What is their body language? Are they smug?

Are they sincere? Are they smiling? It adds another dimension that is critical to developing our opinions about who we want to listen to. That's a good point. The other thing is we had a lot of people who listened to us on Spotify. and they were always at a disadvantage because we put a lot of charts up when we do the compound and friends

or their show for that matter and now if we're talking about a chart somebody can grab the phone press that button go from audio to video and for two seconds they can glance at the chart and then go back to you know whatever they were doing making lasagna or beating their wife

so it's like you have the option of like when you want video when you want audio toggle back and forth in between and you can have your hands free and your eyes free when it's just two dudes talking to each other. You don't have to watch it. Was that like the Sopranos reference that you just threw in there? I don't know.

But, no, I'm just saying, like, people have other things that they're up to while they listen to us. I can't even imagine the depths of depravity of the typical podcast listener. What I would say, what's weird is, Spotify, obviously owns the ringer and has been pushing that video. And now you'll be able to get that video still on Spotify, but also on Netflix. And they're removing the full episodes, ringer episodes for these specific shows from YouTube. So my- I don't know that part. So here are my hottest takes.

We're finally here. Everything has been leading up to this. This is the heavyweight championship of the world on the line. 2026 is going to be about Netflix versus YouTube, and that is the battle. And YouTube started it. YouTube spent so much time and energy and political capital to get YouTube TV and get regular YouTube app on every OEM TV manufacturer. It's an app on every TV you can buy.

I don't care if you buy a TV at Costco, like a Kirkland, or if you buy it. the highest end TV. It's not just YouTube TV. There's regular YouTube as a standalone app. And that has been a huge push. And as a result, the amount of viewing of YouTube content that takes place in people's living rooms now is alarming for Netflix. They can't do, they can't just let YouTube run away with the, with the podcast thing. So, so some of this looks like they're on offense, but some of it really feels like they're defending their turf. Netflix is turf. is the television set in your living room and the TV set in your bedroom.

And YouTube is encroaching. Oh, yeah, they're there. They're there. They're actually, most of the viewing of YouTube podcasts is done on a television. Right. So this is like, so I think in 26, we used to talk about the streaming wars.

And then the narrative early this year, the reason why Netflix has been such a home run stock, the narrative is Netflix won, the streaming wars are over. They were the first to profitability. They demonstrated substantially more profitability than their competitors. We used to think their competitors were Disney Plus. So they beat Peacock, they beat Disney, they beat Max.

Like that war is over. Hulu is now a channel on Disney. Yeah, that war is over. Right. That war is over. And now HBO is going to be owned by Paramount within six months. And the real war, the real war for 2026. And this is why this leads to my last hot take.

I think Netflix is going to buy Spotify. I like that a lot. But they're not acquisitive. I think they're going to emerge. Historically, they have not been, but times change. I think the combination of Spotify's stranglehold on the music business and how great they are, even versus Apple, as well as the podcast business, many of the top podcasts, they actually own the rights and the ability to destroy. tribute. I think that's too tantalizing for Netflix, not to seriously consider doing it. Spotify's $140 billion, just the equity. It's a lot.

It's a merger. It's a merger. I love the take. I love the take. I think that the war will never, they can both win the war. There doesn't need to be a loser. They're both the winners. Yeah, no, I agree. There's Miller light and there's Bud Light. I'm not saying like one goes away. I'm saying if you thought Netflix's competition was Hulu, you have no idea what's coming. You're like, YouTube. Google's the final boss. Right.

So Netflix is subscale to compete with an alphabet. They can compete with YouTube. But like head to head against alphabet, they need more firepower. They need more content, more views, more subscribers, more cash flow, more everything. I'm telling you, I think this is like a greater than. let's say greater than 10% chance whereas it would have been unthinkable a year or two ago and it's greater than and growing

let's do the numbers let's do the numbers Netflix reported revenue of 11.5 billion up 17.2% year over a year and that is actually their guidance for the year 17%. That's like the Netflix number for the full year. Earnings $6.97

of 29% 29.1% year-over-year was the expectation. What they actually reported was $5.87 which was only up 9% year-over-year, and that's what the algorithms

responded to. And that's why the stock went red immediately. But there's a massive caveat in that quote-unquote miss. And I just want to share that with you. There's a long-running dispute between Netflix and the

Brazilian, I'm not even making this up, tax authorities that was not in the guidance. However, Netflix has disclosed this previously in their risk disclosures. This is like three years worth of fighting and it ended up being like a Bloomberg actually, Bloomberg actually has a two-sentence explaining on what ended up happening. Netflix had to pay $619 million to settle a multi-year tax. dispute with Brazilian authorities going by the 2022. The company had identified the potential risk in previous filings, not in its earnings guidance, and said it would have beaten forecasts, if not for the expense.

Future payments will be smaller. And Netflix has also already said they do not see this being a lingering issue or anything that's going to go past this quarter. So if you sold the stock down 6% on that news, paper hands, I don't really know what's say. I am a shareholder. I'm not selling. People didn't sell. To your point, we'll find that tomorrow. Because if this thing falls 5% tomorrow, then it wasn't just the Brazilian thing, because everybody is looking past it. Like everybody, everybody understands what you just said, that this is a one-time thing. That's not immaterial, but it won't matter going forward.

Now, John, throw up charts, the stock charts one year and three-year. It could just be profit-taking. I mean, this thing's up 62% over the last year, over the last five years. This is Netflix versus the triple the performance of the NASDA. last three years, it's up 363% now. The shares were depressed, but even still, if anybody wants to take profits, you know, I'm not going to, I'm not going to, I'm not going to blame him. I sort of agree with that take, except for the fact that it's up a lot, but it's, it got so murdered in 2022, that that starting point, I know you're not cherry picking,

but to start from there feels cherry pickish. I just said that. because the stock was cut in half, and then it went up 300-something percent. Because I bought that dip. I know because I bought it in real time. So did it up. Can we put this on Netflix share of TV time?

And then I sold it way too early because I'm a stupid, what is this? What is this? It's just showing, well, all right, two things in here with noting. Number one, record, record share of TV time at 8.6%. This is in the U.S., but it's also a record in the UK, its second biggest market. interesting that they put all other streaming into one bucket

when we know that it is, in fact, trailing YouTube. Yes. And then linear just shrinks. At the start of this, which is Q4, 2022. Linear is like cable subscribers, right? Or just like broadcast TV. And that was 57.5% of all TV time. and that is now 42, and we know that's going to 32, and then 25.

It's not a, the only question is how fast? So Netflix, Netflix is one of those, I guess, compound their stocks that people talk about. I mean, the business is going up until the right for a long time. Who knows what the stock price is going to do? That's maybe a separate conversation. But they are confident that they will double their ads in 2025, albeit off of a small base, but that is tremendous runway. They continue to just kill it on the content.

K-pop demon hunters. their biggest watched movie ever, like of all time, top five Halloween costume this year. Happy Gilmore 2 was huge. The Canelo Alvarez fight was big. They've got double header for NFL Christmas. The stock, I mean, the business is on fire. Do they have basketball now, too?

I don't think so. Oh, they have the NFL game on. They have the Christmas Day NFL. The double header. So the business is incredibly healthy and you can't, I mean, that's it. There's no, there's no butts. K-pop Demon Hunters is going to go into the theaters for Halloween. They made up, there was a long-running dispute between AMC and Netflix.

AMC does not want to put things in theaters that are airing on Netflix day and date because they're like wasting a theater. But they actually are going to collaborate on this because it's such a huge cultural phenomenon. Oh, yeah. And also because AMC's market cap is $1.5 billion, so they should do whatever they can. All right. Warner Brothers put itself up for sale today. This was not surprising. This had to happen eventually.

They were pursuing this convoluted thing where they were going to spin off the non-growing business and separated from the growing business. Who was that? Yeah, we'll take the piece of shit. Give it to us. Well, you'd be surprised.

There are different types of investors that more highly prized cash flows, even if there's no growth and it's a melting ice cube. And then there are, for like political reasons or something? No, for just like it's a higher, it's a, it's a lower, um, investment intensive business. You buy something that's got high cash flows, even if you know it's going to disappear. So what's the crown jewel? What's the crown jewel of the non-grown?

Is it CNN? What is it? Or is it Turner? What is it? The last I heard CNN has 50,000 viewers in prime time. It's like almost or something or 500, I forgot what the numbers, but it's whatever it is. Relative to like, relative to the millions of viewers it used to have, it's, it almost not, we have more viewers than some of these shows on CNN and the amount of money that it costs to keep that running. And the other problem with CNN is it's just a perennial fucking headache for whoever owns it.

If they piss off Trump, it's problematic for the whole corporation. This is, this is why Apple got rid of John Stewart. is John Stewart decided to do an whole episode Trashing China Not great for Apple's corporate Ames Nobody wants to be in this business

So there's two versions of what can be done You can sell one of these news operations To a private buyer Like Bezos bought the Washington Post Bezos wants to use the news business To be influential That was the idea All right, that's one version

The other version is you can tame your news business or trumpify it. And that's what Ellison did with CBS. So CBS News is one of the most storied news franchises in the history of America. But it had to pay a lawsuit in order for Shari Redstone to be able to sell the company. Larry Ellison's very tight with Trump. It was like, pay me my fine and I'll let this deal go through. It happened. And then the next thing they do is bring in Barry Weiss, who is center-right.

I wouldn't call her a Trumpist, but her positions and her vibe are way more right-leaning than left-leaning. And she is not going to allow the type of, like, persecution of the Trump family that 60 Minutes and these other CBS News properties were doing. So that's the other version. The thing is, if you're David Zah. Asloff, you don't give a shit about any of that. All you want is the ability to do big deals. And so having something like CNN at Warner, at Warner, it's just this politically toxic asset that you already know is a melting ice cube, doesn't make that much money,

isn't that influential. It's like an obvious thing to get rid of it. But finding a standalone buyer is not easy. So they have to sell the whole thing because the other assets are amazing. The problem with Warner Brothers is the debt level. It's $35 or $40 billion still. Yeah, but chart out. It's coming down.

All right. They've been paying down that debt. They've actually done a really good, what is it, 34? Yeah, but it's down from 50 or something. Down from 50. That debt was incurred when they bought this business from AT&T or whatever a few years back. It was unsustainable, could not compete. They don't even have like movies in theaters this year, really.

So they had like Superman was a really big hit. that might revitalize their big franchise, which is D.C. They also have Harry Potter, which potentially could be huge, although it's been dormant for a long time. They have a lot of assets. The studio is a great business. The streaming business is not great, but it's getting better. HBO has always been good.

The rest of the shit they were thrown at the wall was not going well, but HBO still has a ton of value. And then the library. It's a hundred years of some of the biggest smash hit TV shows and movies in the history of Hollywood, like thousands and thousands of titles that can be monetized, new sequels, reboots, brand extensions, merchandise, theme park. It's like, it's a great asset, and I think ultimately Paramount will end up with it is the way it seems. I don't really think there's going to be a million competitive bids coming out of the woodwork. I asked Sean to show us the largest global media deals. Let's put this chart up.

So the enterprise value, guys, the enterprise value is the $45 billion in market cap plus the $34 billion in debt. So it's $77.5 billion. If you have to pay a 20% premium on the stock, you're not paying a premium on the debt, on the equity, you're talking about a deal like in the eight, let's say, 80s billion range. is where that would rank aOL time warner maybe the worst media deal ever 186 billion and that was 25 years ago so you get an idea of the enormity of that time Warner AT&T also a disaster um in 2016 109 billion um Disney's big deal um was it was 83 billion uh charter and time Warner merged that was $79 billion, two cable companies. Comcast bought AT&T's broadband business, 76.

So we're getting into that range where this could be like a top four or five. And I think there's really only one natural buyer who would want to take the whole thing at once. If they do, I mean, Paramount, if Paramount ends up with this whole thing and they could start selling off chunks of things that are worthless or a pain in the neck. I mean, that really could be a gigantic company. What do you think about that? I wonder, what would, you can't kill the Warner Brothers name, obviously. What would it be called? Like, how would that work?

No, the Warner Brothers Studio will live forever. So, all right. What ends up happening is HBO and Paramount Plus are kind of like slammed together in some way. and maybe if they're smart, they keep... It'll be the same way that Disney and Hulu smash their apps together. You know, it worked. So, so, Bellany was saying that this is not a bidding war

because Apple is out. Netflix is just not. They're not doing it. They've been pretty clear. So Bellany says, Comcast is out there. Comcast owns Peacock, and they are shedding CNBC, MSNBC, and the Golf Channel.

They're getting out of another company. Brian Roberts, right after the election, couldn't wait to announce we are spinning off all of our news properties into a standalone company that will be publicly traded on its own. They named the new CEO. You could tell Roberts has no interest in the political aspects of owning a news business. That's going. Here's the bottom line, I think, from Bellany, is that Zazov wants to create a media circus. He wants the attention.

He wants shareholders to believe that they. is a bidding war out there. But Bellany said, the Zaz strategy, which is all but broadcast via bat signal is to fend off the Ellison overtures for all of Warner Discovery, amputate the gangrous cable networks next spring, and shop the studio and streaming assets separately to the many, many interested parties whose Junkie will result in a grand windfall. Maybe that would ultimately be best for the studio and a streamer, maybe, but it would certainly be best for Zazlov.

Bellini's the best. He said a delay would keep him flush with an eight-figure annual pay. Eight-figure. It's obscene. A comp package so gluttonous that his longtime benefactor John Malone, whose boards are famous for shamelessly awarding outsized compackages, recently walked it back slightly. And more importantly, a delay would keep the spoils of a Hollywood empire at Zaz's disposal, which is what many of his peers think is really going on here. Put off the inevitable, and he keeps the attention of celebrities and billionaires. He keeps appearing on TV while sitting courts at big sporting events.

He keeps being honored as a humanitarian, and he keeps getting ridden about by people like me. So Bellany over at Park is saying that, listen, this is all a charade. There is no bidding war. Like, it's, he wants somebody other than Paramount to fake interest, and it's just probably not going to happen. David Faber said much the same thing when he broke the news on CNBC. It's like, it's not like there's 20 bidders. There's like a very small handful, and this is so messy. now what you could see is an activist come in and you could see a private equity partnering

with a Hollywood company and coming in and trying to pick off assets and like you could have like three different groups come in and try to buy different parts of this but like did is that what's in the best interest of shareholders to spend a year on that kind of a bakeoff that would have happened and watch this thing get picked apart piece by piece like is that No, the stock is... If you're a shareholder in WBD, that's not a good outcome. Dude, that would have happened when the stock was at $8 and it was staying there for a while. The stock is now at $20.

It was up, it's up 90% year-to-date. It was up 10% today. So, hey, somebody thinks that there's a deal coming. Maybe there is. Sodak, Jason, in the chat says Zazloves, the same genius who decided they didn't need the NBA. Yeah. Well, he tried to keep it. He tried to keep it after saying, I don't need it.

It was too late. That was talking about a bat second. That was like smack Adam Silver in the face and force him to go talk to Amazon and Netflix and all these other players. So that one didn't work out. Should we sell the compound to Paramount after they buy Warner Brothers? Should we be or should we sell do a deal with Netflix? What should we do? What's our like what's our streaming war game plan here?

I'm not here. I'm not here in a game plan for you. I'm unequivocally team Netflix. like, sorry, sorry, Sundar. I'm not interested. Why isn't Rob Passarrella taking biz dev meetings with Netflix? We got the wrong guy. He's not watching this, is he?

I got to walk out. Oh, my God. Shout to Rob. All right. We have to come up with our streaming wars game plan at some point, Michael. We'll go to Bagel boss. We'll sit down. We'll chop it up.

No, let's get a pumpkin spice at the barn. We'll sit on the bench. All right. We're not going to do a whole huge thing on the, quote, unquote private credit bubble. We're not going to go crazy here, and I'm going to tell you guys why. We have a very special guest for the compound and friends at the end of this week, who is sitting right at the crossroads of media and private equity and private credit.

Her name is Shanali Basak. She was, in my opinion, one of the best reporters covering high finance for blue. Bloomberg, and now she's at I-Capital, and we really want to have this discussion with her. However, I didn't want to let the moment go because Barry Rittholz, my partner, Michael's partner, and one of the founders of the firm reminded everybody he had, like everyone's talking about bubble all of a sudden, like the Google search term for bubble, for whatever reason, like bubble's going crazy right now. he unearthed this thing he wrote in 2011 shortly after the great financial crisis when he actually did spot the bubble in real time how to spot a bubble in real time

and it's a 10 10 item checklist and I just want to I'm not going to like read every word of this I was about to say I know it's more than 10 I just have a feeling and of course it's 14 of course I'm going to give you 10 elements is that the most on brand Barry thing ever

Here, 10 things on my checklist, that's also 14 things. All right. But when you read these things out loud, I really think the private credit, we're not doing this with AI because there's not enough time on the clock, but with private credit, it checks everyone. I don't think it does. Okay, you're going to tell me which ones it doesn't. One, standard deviations evaluation.

Look at traditional metrics to rise two or three standard deviations away from the historical mean. No one would argue that deals in the private markets are not going off at higher valuations than historically. Nobody would. Significantly elevated returns. Private credit has had an incredible... Wait, wait, wait.

What are you better to throw a laugh out? No, no, no, no, no. Valuations, I don't know that valuations in private credit are elevated. It's not like... It doesn't work that way. it's it's it's more like uh it's more like the the rates that you're accepting as an investor being much lower than what you would have normally not true not true not true at all there's a 600 basis point spread and it's pretty it's pretty consistent over silver market private market

assets are at parity generally speaking with public market assets that's not what's changed we're talking about private credit and yields people there's not a chase for yield where they used to take 600 basis points and now they're taking 300 that's not happening no they'll take the 600 but they're lending faster and easier than they used to okay so that's that's it we're not doing private equity so i agree with you it's not quite as black and it's not quite as apples to apples but it's close enough let's get going significantly elevated returns private credit one of the reasons why this bubble you don't have to call it a bubble i will formed is because the returns have been damn good. We spent a lot of time with very low returns in traditional fixed income

and private credit filled that bucket beautifully. The returns have been really good and you can't have a bubble without great returns. But I feel like the word bubble is not helping here because a bubble is not just a word that you just throw around when there is like enthusiasm. A bubble is an environment in which the fundamentals have so far fallen behind the returns such that in no way, shape, or form, is there any way out without the absolute excess getting wiped out? And you could say that there's a lot of... I think it's an activity bubble.

Okay, but it's very different. It's very different. But also, an activity bubble... It's different. I would also argue that if this is an activity bubble, why I still think we're in the early stages of this activity bubble? Like, they're just coming to us. Number three, excess leverage.

Every great financial bubble has at its root, easy. money you're going to deny that one i don't uh i don't have a strong opinion here i don't know i'm not we had easy money all over the economy and a lot of it went into okay four new financial products i know you're not going to fight with me on that one you think private credit is new no i think the amount i think the amount of products and the amount of quote unquote innovation in the space to get wealth management people in family office people and i i really think it was a Cambrian explosion of new species. So you're right.

The explosion in new interval funds off the charts this year, 100%. Okay. Expansion of credit, this is Barry said, this is beyond mere speculative leverage. With lots of money floating around, we eventually getting around to funding the public to help inflate the bubble. From credit cards to HELOCs to 20th century was when the public was invited to leverage up. so again not apples to apples but apples to what's close to an apple a plum it's close enough we're doing that now we're in that process right now i would say it's expansion of availability and this is the industry's big push um six trading volume spike okay this doesn't trade so of course it's a tougher analogy but when you talk about in an activity bubble

i don't think anyone would disagree the amount of launches and and and product creation would suffice to replace trading volumes in this sense. One thing that's – Wait, hold on. One thing that's important to mention is that the activity in the wealth channel, it's up until the right. At the same time, you have a lot of traditional institutional investors pulling back in their investments in private credit. Like, they're full. They're good.

It's a good point. Perverse incentives. This is the thing that we'll argue with Shanali. where you have unaligned incentives between corporate employees and shareholders, you get perverse results, like 300 mortgage companies blowing themselves up. I do think that there's a lot of syndication and a lot of loans being sold and resold and packaged, not unlike previous debt bubbles that we've seen in history. And I also don't think that we even know. You're right? I just don't think we know.

How is this for a perverse incentive? Charge you on the leverage, not just the underlying. It's like amplified the fees. budget fee on the on the borrowed yeah so that tortured uh number eight tortured rationalizations look for absurd explanations for the new paradigm price to clicks ratio aggregating eyeballs dow 36000 do you think that's this i don't this one's tough i would not say it's the only way it's a rationalization i only is tortured no it's not it's just people saying 6040 is dead it's now 60, 2020, and 20% is private, private debt.

And I'm like, well, why? These are non-traded junk bonds. Why is that the new 20? That's a tortured rationalization for me. Fine. But here's the non-torture part of it, is that these borrowers, which represents 90% of the economy, okay? They're not all junk.

It represents 90% of the borrowers of the economy. They traditionally were being served by the, by the, not the giant banks, but the mid-sized banks. After the GFC regulations were put in place that made these loans much more expensive to make, they pulled back and stepped in Blackstone. So that's not a torture rationalization. It's very straightforward. I agree with that. There's a reason this whole industry just 10xed.

And the reason is we decided we don't want, we don't want deposit institutions like Bank of America and Chase taking deposited money that's supposed to be safe. safeguarded for the consumer and gambling in markets that are not transparent, not liquid, et cetera, et cetera. So somebody had to step in because businesses still need loans. Perfectly legitimate. I'm with you on that. Number nine, unintended consequences. All legislation has unexpected and one side effects.

Okay, we just described that. Number 10, employment trends, a big increase in a given field, real estate brokers, day traders, may be a clue as to a developing bubble. You can't argue this with me. You can't. Go ahead. Yeah. The smartest kids from my daughter's graduating class last year, a year and a half ago,

coming out of her high school, literally the smartest kids, the ones that went to the best schools, and you talk to them or their parents, where are they going after college? What are they trying? Private equity, private equity, private equity, private. They didn't even know what the fuck it is. They're just repeating what their big brothers and sisters are telling them because they see who's making money in this world.

Let me ask us just to interject here. Do you think that in five years we're going to look back and say there was a lot of sloppy behavior, which I think we probably will. But and also in five years, the industry is going to be a lot bigger than it is today because I think both things are probably going to happen. Yeah, I don't think I'd argue with that because I do think people that are adopting these private asset investments. as part of their portfolio are not going to run away. I think they're going to stay put. And I think most of these funds aren't going to blow up. A lot of them will be fine.

They can't leave. What I think is going to happen, though, that's a little nuance. I think a lot of financial advisors are going to have to apologize for locking people's money up in the next downturn when people actually want it out or want to know how it's doing. I think there's going to be a reckoning. So there's been two stress tests, one of the GFC and one in 2020. And the defaults were not crazy. The actual navs, now you could say the navs are fake.

Okay, fine. But the navs did not crash nearly as much. And I think advisors... Throw out of 2020. I think advisors and clients are going to love this in a downturn. Because guess what? It's not like people are going 100% in on this stuff. They'll have liquid assets if they want to pull from that they can.

That's what the treasuries are for. I have a little bit of a little bit of a little bit of a little bit of a longer, I have a little bit of a longer runway behind me than you do. And I'm just telling you, there were a lot of people who were pissed off because they were in mortgage funds and real estate funds and hedge funds that had illiquid assets. And this is how advisors lose clients in a downturn. It's not that the stock market falls. Everybody gets that that's part of the deal. When your money is locked up and you can't buy the dip or you can't pull some out to make yourself feel better and put it in cash, you get really angry. And it's not like these things

are throwing off 30% returns where it's like, fine, I can live with the illiquidity. I certainly agree that there will be advisors who are completely irresponsible and reckless about the way they build portfolios that aren't thinking about the downturn, that don't have enough reserves, that aren't setting their clients up for success. A hundred percent that's going to happen, without a doubt. I also think in aggregate that in the next downturn, people are going to want more illiquid stuff because they're not going to. to want to feel the pain. They're going to be like, oh, it was only down 7%.

That's you. I don't think that's, I don't think that's the general public. Oh, really? Very smart. Oh, really? You're very smart. Most people don't think that way, dude. Sorry, you're giving people more credit than they deserve.

This is the behavioral argument. I think one of the reasons why private credit has resonated so much in the past couple of years is because of the pain of bonds at 2022. That's what, that it was a huge catalyst to spark the inflows. Oh my God, I'm getting 8%, 9%, and I don't have to see the marks. every day. I want more of that. So I think the same thing happens in the next downturn. Okay. Well, we're going to find out. What's not? Let's do these last, let's do these last ones. Credit spreads. Look for a very

low spread between legitimately AAA bonds and higher yielding junk can be indicative of fixed income risk appetites running too hot. And junk markets for sure. Okay. No, not case closed, dude. I'm telling you, the spreads in these products are fairly consistent. They're around 600 basis points, give or take. Now, the speed at which they're being done, and the way that loans are being made with probably sloppy diligence, that is definitely happening. Not everywhere.

You're saying the spreads are appropriate given the amount of risk that people are taking? I'm saying in average, the spreads are where they always are. If you just look at that and I'm not saying you should, that's not where you see the bad behavior.

It's in the documents, the loans, like the sloppy behavior. It's not the rates people are accepting for risk. It's in the speed of transacting. Holy shit. We just got $7 billion in fulls. Put it to work. That's where you see the blowups.

All right. All right. 12, credit standards. Number 12 on Barry's list of 10. Credit standards. Low and falling lending standards are always a forward indicator of credit trouble ahead. This can be part of a bubble psychology. Do we have to articulate anything else about that?

Two more. 13 default rates. I thought he said 10. Wait, very low default rates on corporate and high yield bonds can indicate the ease with which even poorly run companies, like first brands, can refinance. Say it again. This suggests excess liquidity and creates false sense of security. 100%.

Howard Marks was on TV the other day saying the worst loans are made during the best of times. 100%. Okay. Last last 14. Unusually low volatility. And this is explicitly equity. Low equity volatility readings over an extended period indicates equity investor, or complacency.

In the credit world, there were no losses, so the complacency is like understandable. No, but I think the complacency, I hate to say complacency, the lack of volatility in the equity markets makes it such that people are more lackadaisical with what they're doing with their money and check, check, check. So yeah, there's definitely, there's not nothing. There's definitely some shit going on. Can I just say Barry eight on that top 14 list? He ate.

Yeah, he did. It was just no way. He was false. That was vintage redholtz. That's good stuff. Yeah, there's elements for sure. You want to show me this chart? Because I don't know what it means.

Sure. Ascent quality. So Bank of America, now this is the consumer, okay? These are not corporations. But for all this talk, and we've been belaboring this point on a lot of unreasoned shows about how desperate the media is to feed us the blowup. We're just not seeing signs of stress in the consumer. I'm sorry. This is consumer net chargeoffs.

Look at the gray dot, Josh. It was 98 basis points in the first quarter. It's actually falling. Then it was 90. Now it's 82. Bank of America serves Main Street. And I just, I look at the data. I'm sorry.

Anecotes aside, I'm sympathetic to all the bad stories as well. But the data is the data and there's just not a lot of stress out there. Okay. I can't disagree. All right. We're going on, but I think this is a topic worth covering. So last week, we spoke about a lot of potential value stocks. We'll look back on those in a year and see how these stocks did.

But this is a tweet that made the rounds, and it's great stuff. Steve Mandel, the founder of Loem Pun Capital, said, I don't need an analyst to tell me when a 10-PE stock is cheap. I need an analyst to tell me when a 40-P.E. stock is cheap. That's so brilliant. That's such a brilliant insight. It's so true. It's so good.

So I want to take a moment to talk about a, stock that I've been wrong about and the stock is Apple. So Apple is about to hit four trillion dollars in a market cap. The stock has had a market high yesterday. New record high. The stock has had market performance over the last five years. So the cues are up 100 percent. Apple's up 100 percent. Obviously some of its competitors, Google, meta, Microsoft are up a lot more. And if you look at like the PE ratio, which I do and a lot of others have and you say, how does this make sense? 40 times like this madness and it said whatever 30 times forward whatever it is um okay look at the operating margin and we've spoken about this but like this is i guess the story of why the

the elevator bulletful makes sense i had this right from jump street i had this right from jump street apple is being valued like a high margin consumer staple which is exactly what it is your iPhone breaks, you get another iPhone. You might not buy the newest model. You might not buy the ProMax, but you are buying another Apple. Your iPhone breaks, you do not say, let me check out the Galaxy ecosystem. It's a consumer staple. You have your brand of paper towels that you buy.

That's got a way higher switch potential because bounty is fine, but the other one is probably fine, too. with this, it's high margin and it's a locked in consumer and Costco is 50 times earnings. How does that make sense? Walmart is 40 times too. Oh my God, you almost choked on that.

Is that a big enough jug of water for you? I worry that you might get dehydrated. No, what? I'm a big, big straw guy. I love the big straws. You should drink four or five of those and then go right to the hospital. So Apple, that's the way Apple's being valued.

The way Costco is being valued in such a way, it's not that they're growing fast enough to justify. It's that you know for a fact those earnings are going to be there. People prize certainty and the way a stock gets to 30 times earned. I'm not saying it deserves it. It's got, it's got nothing to do with it. What it's about is people prize consistency of earnings over, growth of earnings in some cases.

And so in the case of Costco, people have a membership. They're not going to go somewhere else to shop. We know the earnings are going to show up. And that's worth a premium to the market. Apple is no different. We know they're not going to grow 30% a year, but we know that the earnings are going to show up. We know the buybacks are going to happen. We know the cash flows are massive.

And we know that in three years, the same amount of people or more who are using an iPhone will still be using an iPhone. And that is where the stock gets the multiple in addition to its insane levels of profitability. Amen, brother and sister. That was great. Great stuff, Josh. I also want to share one.

So the stock got a huge pop yesterday because the 17 is tracking much stronger than the first two weeks of the 16. People are buying it. But throw up this chart from six college, John. You could skip the gene tweet. All right. So we know that the iPhone revenue has been, has plateaued. It just has.

It's not growing at all. It's fine. It is what it is. But to your point, Josh, it's still there. And the street doesn't care about it because a lot of the reason, and this is not breaking news here, the big reason why the margins are what they are, it's not the hardware. It's the software.

And look at services. Look at the percent of the total profit. It's, it's locked in. Yeah, there is. Locked in. Yeah. They know it. All right.

Last thing, this is a hilarious jab. Berkshire blew its Apple stock investment. Yeah, sure they did. They may have left $50 billion on the table. What do they make a trillion dollars in Apple? Yeah, greatest trade of all time, dollars-wise. All right, what do you want to do on this show? P.

Good. Me either. You know what? We're not doing it. Okay. I want to get to this unemployment thing. Let's do an amuse-bush. just to set the table here.

Dude, nobody knows what that word means. It's that little thing on a spoon that the chef sends out to your table before you even order. Wow. Slow clap. That was impressive. Just to get, like, just to get your, like,

your palate going. It's usually something, it's usually like some kind of like, not a, I don't want to say a sauce, it's like a sorbet, a sorbet. It's like cold. Yeah, there's, there's oftentimes,

there'll be like a cucumber involved or a little gazpacho. Sometimes it has, dainty little drop of oil on the top of it it's like this it's like the it's like the chef it's like the chef showing you how swaggy shit's about to be and uh i i like it yeah someone said biff greebles microgreens on foam in a tiny spoon god damn right uh cook all right here's the unemployment rate in the united states just to set the table historically low so what i'm about to say is not intended to act like that's not the case. We are in a very healthy labor

market. The thing is, it is noticeably deteriorating for certain segments of the population who either are forced to switch jobs right now or want to. There are very few places for a lot of these people to go. And the job search, as New York Magazine puts it, has become a humiliation ritual. Let's put this, let's put this, I guess this is a magazine cover or this is the, or this is just the art that's accompanying their feature article this week. And this resonated so much with me. Here, the job search has become a humiliation ritual because I hear anecdotally so many people who are going through this right now. And it's more than I can remember for a long time. So I won't read the whole thing, but here's New York Magazine. Roughly 7.4 million

Americans are now unemployed. As of August 2025, approximately 1.9 million Americans have been looking for work for six months or more. The highest share of what we call long-term unemployment since the pandemic years. And six months is typically the longest you can collect unemployment in most states. Unemployment numbers, of course, only paint part of the picture. Even the employed, for a variety of reasons, may want or urgently need to acquire different jobs.

So we keep saying it's a low-fire environment, but a low-hire environment also. And I think that that's what this gets to the heart of. Many office, this is New York Mac, many office workers have historically been better paid and relatively shielded from poor working conditions. But now the promise of upward mobility and identity through a job is starting to slowly dissolve. Leaving a generation of laptop workers, that's who we're talking about, knowledge sector workers who are not bosses, confronting a new, hostile economic and cultural landscape. What sets this downturn apart from the panics and busts of the past is that now every

layer of labor from hiring to firing is increasingly mediated by automations and algorithms that cannot hold the irreducible realities of human life. So you apply for a job, it's not even a person reading your resume. It's software, and you don't even know why you're being weeded at. out or why you're not getting a return phone call? And the answer increasingly is you are literally talking to AI. And this is the humiliation ritual aspect of it. And I believe it's acutely difficult for the type of people that I'm hearing from. These are recent graduates. Maybe they got their first job right at the school. Maybe they didn't even get that. They're not in a great spot.

a lot of them are trapped because there are less and less companies even willing to take a meeting, even willing to take an interview right now. Companies from the top down are slowing down on hiring because there's so much uncertainty about what if we put all these people on and it turns out AI could just do all this shit that the entry level kids used to do. Before I go further, what are your thoughts? All right. You don't talk to as many people as I do. As you know, I'm like always out and about in the community. Excuse me, I've, unfortunately, I've sent a few of these emails. Don't tell me I don't talk to people.

That's literally all I do all day is talk to people. As a sort of the earth person, though, I just, I feel like I have a lot more of these conversations on the ground in the trenches than you do. You are the opposite of whatever that is. I don't even know what that is. All right. No, here's my thoughts. And I have lots of thoughts.

I have competing thoughts. I change my mind on this. I go back and forth. There have been periods over the course of history where getting a job. was extremely difficult when I graduated during the GFC young people were toast it was really hard and that has happened over and over and over again and at some point the labor markets cooled and people were able to to get absorbed into it I also think that this time is different particularly for this young cohort because all of this grunt work is being automated and and It's scary. Like I am a, I'm a techno optimist. I think that technology has and does a lot of amazing things

and that we as in society always figures it out and we get to the other side. And that's true, but it doesn't mean that there's not a lot of people that are displaced in the meantime. And so while society is not going to crumble and we're going to be better in the future, we always are. The people that are feeling the pain right now,

I don't know where they do or what they turn to because these jobs are not coming back. So, for example, a Bloomberg article today, Open AI has more than a hundred investment, ex-investment bankers, help with train its artificial intelligence staff and how to build models as it looks to replace the hours of grunt work performed by junior bankers across the industry. And here's the dark part. They're paying people 150 bucks an hour to write the code that's going to wipe out potentially tens of thousands of future jobs. And this is happening billions, billions, and salaries. Right.

Yeah, it's going to wipe out billions in salaries. They're paying 150 bucks an hour to wipe out billions and salaries. So this is happening here, obviously, and it's going to happen in many industries. And I think if you're not concerned, like, I don't know, how could you, how could you wake up? Wake up. Right. If you're not concerned, what are you paying attention to?

One of the first chapter, I think the first chapter in my new book was about just own the, just own the damn robots was the name of it. It's based on a blog post I wrote years ago, 10 years ago probably. And I opened up that blog post and the chapter of the book with. with this excerpt from player piano by Kurt Vonnegut. When I read that story this morning that you just referenced about OpenAI training its model on ex-investment bankers, like how to do DCF, how to bring a company public, blah, blah, blah, blah. So this chapter is a fictional character named Rudy, and Rudy is a machinist who's worked in this factory for 40 years. and they tell him he's retired, but he has one last job to do.

His last job, his last day of work, he has to train this machine. Vonnegut wrote this in the 50s. I want people understand this. He has to train this machine in his exact precise movements. I think he's a lathe operator, whatever that is. I'm not, I don't know. But like, the machine is recording, this is pre-computer. It's a science fiction book.

It didn't really happen. But the machine is mimicking what this man does with his physical movements. And when he's done training this machine, the management people, the management class, they come to him and they say, okay, thank you so much. Your work is done here. You're off to the R&R. And the R&R in that book is this community outside of town of former factory workers whose new job is, I think it's like wrecks and reclamation or something. like they basically like when a bridge breaks they have to they have to the worst jobs they have to pick up a dead animal on the side of the road like that's what happens to these people in player piano and when i read things like that today first of all it's insane that vonnegut could picture that 70 years ago and it's happening right now but i i also think um it's like it's like some of these things we really do want to take these as signposts for what's to come Now, I know there are very impassioned people on the other side of this in Silicon Valley, like Mark Andresen, who have written very poignant essays about why AI will expand employment.

And I tend to agree with that. But there's a gap in between the creation of the new jobs and the destruction of the old. And we don't know if that gap is one year or 10 years. And that is the thing that I think is front of mind for a lot of people. This is the Associated Press, new survey. 47% of U.S. adults are not very or not at all confident they could find a good job if they wanted to and increase from 37% when the question was last asked in October 2023. So basically in two years' time, we went from half the country feeling very confident

that they could find a job to just 30, I'm saying it backwards, but 47% of U.S. adults don't think that they can get it. You want to take a guess what direction that goes? Yeah. Okay. So I think these things are, they're notable. And we're documenting in the real time as we do the show. And we're not doing it to, like, scare people.

But, like, I really feel like people need to wake up. I think you're going to start to hear a lot about universal basic income as a result of this in a couple of years. And I agree with you agreeing with Andreessen. Yeah, in 10 years, 20 years will be great. The economy will be humming as a result of all of this. technology. But in between now and then, it's going to be ugly for a lot of, for millions of people. The optimist, the optimist right now is not saying creation of new jobs. The optimist now

is saying four day work week. Great. Okay. Maybe. Maybe that's the silver lining. Last thing on this. Seasonal hiring, job seekers have now overtaken job postings for the first time since the pandemic. Yeah, but that's sort of always the case, no. More people look for jobs and there are open jobs? Well, see, there's two layers to this. No, it's not always the case. We had two job openings for every person looking for a job in 2021. No, I'm saying recent history, that was the aberration.

Okay. Seasonal. Searches for holiday jobs were up 27% year over year at the end of September, 50% above 2023 levels. In contrast, seasonal job postings only increased by 2.7% compared to last year. What that means is there. are going to be a lot less people who rely on these seasonal jobs getting them. The percentage of seasonal job postings explicitly mentioning urgent hiring is down significantly

from 10% in 2021 to 2% in September 25. All right. Just keep in the back of head. Last thing. Many employers are taking a cautious approach to hiring in Q4, 2025, 45% expecting to maintain their current workforce. This is the highest number of. of employers saying they're holding steady

since early 2022. And it's a lot more. But this is the reality. Now, I don't know when this cracks and finally hits the headline employment numbers, but I am telling you the Fed is going to be reacting much quicker as these job numbers start to come out than they have been throughout the balance of this year

because I don't think they're going to have the same choice that they think they have right now. Right now, they think they're striking a balance. I don't think that they're going to have that luxury. I don't know if it's the next report or the one after. But this is going to go from a luxury of waiting to cut to a necessity. And I think it's going to happen quick. What do you think about that?

There's so much nuance in here because if it's only happening at the entry level position at the 22 to 25 age bracket, I don't know how they react to it. And I don't know how Fed cuts help. They don't, but that's the tool that they, they're holding a hammer. Yeah. They're holding a hammer. They're not also holding, you know, five other, there's limited things that they can do. They can, they can buy bonds and they could lower interest rates.

I would be surprised. I'd be pretty surprised if in two years from now, we were like, huh, remember we were worried about AI taking young people's job and it just never happened? Obviously, we all hope that happens. I'd be, I'd be pretty surprised if we don't see it in the data. I think the thing that's going to surprise this is the opposite direction of what you just said. Which is? White-collar mass layoffs.

So that's, that's the minor scenario. I think they're going to come, forget about seasonal Christmas worker's shit. It's going to be, we just heard Accenture. Accenture just said they're getting rid of 11,000 people after getting rid of 10,000 people earlier in the year. and explicitly they're saying we will hire other people they have to be ready to upscale for AI

the people we're letting go of we don't think that they can that's the consulting firm to Fortune 500 I want to clarify something that I just said when I said that's the nightmare scenario I don't mean specifically

white-collar workers losing their job what I mean is this if you see unemployment take up in a meaningful way up to 5% up to 5 and a half percent simultaneously you see corporate profits at an all-time high in the stock market on an all-time high.

That is a very dangerous cocktail. And I think that's a very, there's a decent chance that happens. Well, this is why you're going to get Mayor Che Guevara in a month. It's exactly this. Politically, that is dangerous. I agree. Okay. Enough good news.

So, Josh, I thought, and then I have a mystery chart and we'll bounce. Good news. I thought I was on mystery chart duty this week, so I don't have to make the case, but I will quickly make the case for a stock. Why do you think that? it clearly said that you weren't. Dude, I had a busy week, all right? Layoff.

So I will quickly make the case for a stock that has had a very nice, a very healthy uptrend with a very healthy pullback, a stock that you own, a stock that I followed you into. Thank you for the recommendation. The stock is toast. I think it is set up nicely going into earnings. Elevation expectations are low. What?

Did you sell it? Expectations are low. They just announced another partnership with Amex. I think the stock is set up nicely into earnings. I bought more last week. Okay. I bought it. I bought a 30. I had a buy, I had a, a 35, you got filled?

Yeah, I got a 35 on the nose. I had a, I had a buy-in, like a GTC forever, and we got it. Okay. There you go. I bought a bunch more. I'm an investor. I'm not trading it. All right. If it goes down to $0.25, I'll buy more, too. Mystery chart. This is a name that you and I have both traded on and off. I am not currently invested in it. That'll be one of my clues. It's one of the most fascinating stocks. Good stock. I like this one.

It's one of the most fascinating stocks in the market to me. So here are my clues. This company cannot grow. It is a 1 or 2% annual grower. But it's in one of the highest tech areas of the market. Is it Zoom? Look at you. I only had to give you two out of three clues.

I think I'm about to buy this stock. What do you think? I'm looking. I'm looking. Oh, I do like the setup. I really do. I really like it. I think it's inflecting.

I think it's inflecting. I really like it. Do you know? Do you, so we pay Zoom. We're a corporate customer. We use them. Our employees are not allowed to call or text clients from their personal cell phones. So all of our employees have a Zoom phone number that they can use for calls or text.

This is an industry regulation. Some of the big firms paid billion dollar fines over this during the pandemic. Zoom had just announced. They now have 10. 10 million corporate phone customers, Zoom phones. So people look at this business and they think it's just the video calls. They don't understand that when companies say, no, we're going teams only. The salespeople at these companies revolt.

This is in the transcript. Teams only. And they say, all of my potential customers want Zoom. Why are you making me do this as teams? And the company, you know, the company says, all right, fine. Get an enterprise license for Zoom. We'll use that too. They have the best product on the market.

I know it's Google Meet. I know it's Slack huddle from Salesforce. I know it's Microsoft Teams. Zoom has the best, easiest to use product on the market. And I think long term that wins. The problem is how do you monetize it? It's a very competitive market and it's hard. So they're going into other areas of enterprise software and they're winning.

And they said that they just got two Fortune 15 customers. I don't know which companies they are as enterprise clients. So the problem here is the growth rate. The good news is it's like 18 times earnings. You're not paying for growth. You're not paying for growth here. And they have $8 billion in cash. They could do an acquisition.

They could buy back a ton more stock. And the best part, the reason the stock crashed, the way we showed it to you guys. Employee stock options, just out of control because the problem is they recruited all this talent like everyone else. So they say to somebody, you come work here, give you a $200,000 base salary,

we give you $100,000 of stock. The stock collapses. The employee's like, what the fuck? I just lost my 100 grand in stock. They topped all those employees off. They said, okay, topped up. They said, okay, here's more. stock and it got out of control and the CFO just said on a call, we are listening to Wall

Street and Wall Street is telling us we have to be more chaste with our stock option excesses. And now you could even have a float shrink situation on your hand because they've gotten way more discipline. So the stock is stable, a company is stabilized. They're not growing. That's why it's so cheap. If they find a way to grow, it's I think. think it's a $100 stock.

Can I tell you the best part? Like 5% growth. Can I tell you my best part? There's a big-ass gap at $96 and I bet it gets filled. Yeah, it's got to get to $96. Of course. Well, yeah, I think it's going there. I like, I like the side.

I don't own this stock. Nobody's expecting anything out of this business. Nobody. I think I want to be in it before the next earnings call because that could be the inflection point. Yeah, I might join you. It's in a month. I like it.

I'm really good. I'm going to make the case. You're good. You're good. I feel if I were your broker, I would just have your money spinning night and day. I'll take 11 shares. Yeah. Why not?

All right. Guys, that's it from us. I know we ran long, but there was so much to get to. Thank you so much for watching. Thank you for those who showed up in the live chat. We love it. We have so much fun with you guys. I want to mention tomorrow's an all new edition of Animal Spirits with Michael and Ben.

We're going to do Ask the Compound with Duncan and Ben. And then at the end of the week, again, Shannali Bassack, making her. first appearance on the compound and friends. She is amazing. You guys will agree with me once you get a chance to see that show. She will not disappoint. And we're going to have a very in-depth conversation on some of the biggest topics happening on the street right now. Keep it locked on the compound. We love you. We'll talk to you soon. You know,