The Compound and Friends - Reverse Ponzi Scheme

Episode Date: July 8, 2022

On episode 54 of The Compound and Friends, Brendan Ahern (KraneShares) and Kai Wu (Sparkline Capital) join Michael Batnick and Downtown Josh Brown to discuss Chinese stocks, China's tech crackdown, innovation and tech stocks, the Voyager bankruptcy, crypto regulation, ETF trends, and much more! This episode is sponsored by The Peak Group. To learn more about investing in single family rentals visit www.thepeak.group/phrfacts. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com 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/disclosures/ Inclusion of advertisements by podcast sponsors 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: https://abnormalreturns.us5.list-manage.com/track/click?u=f8843b0fc6f0ed7d35e67dcf5&id=33b07916d1&e=4e0f612ef0. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Wait, come out. Every time you put on the headphones without a hat? Yeah, I feel naked. Worried about sunburn? I'm always worried about sunburn, are you kidding? He doesn't go in the sun. No, I go in the sun, I just lather up. You guys are on a long island, you've got the best beaches. We really do. You know why?

I would say it's the Amalfi Coast and South Shore of Long Island. No, no, no, but like in... That's fair. But in the Northeast, we have a on that's fair but in the northeast we have a beach that's perpendicular to the coast so all right so think about the coastline basically the sun is going over your head yeah yeah yeah yeah right holy shit i never thought about that so yeah i never thought about so it rises you're facing it but then if you're in the beach and you're facing east by noon it's right over your head,

and then the rest of the day, it's behind you. So what do you do? That's why you don't move to New Jersey. Right. Where do you grow up? In Connecticut. Okay. Where in Connecticut? I'm from New Canaan. Real rough. Headphones on. Yeah. But I live in Westport now. Wait, what do you mean, real rough?

Oh, you're joking. The mean streets of New Canaan? Yeah, it's a real pull yourself up on the bootstraps. What's the big difference between New Canaan and Westport? Westport's like

Martha Stewart land, right? Not anymore. She moved to Bedford. Oh, okay. It's a little more diverse. Yeah, right. It's not a Lily Pulitzer magazine. Okay.

Westport's more diverse. More diverse, yeah, for sure. My wife's from California. She's from the Bay Area. Nice. And she was just like, I can't. I can's more diverse. More diverse, yeah, for sure. My wife's from California. She's from the Bay Area. Nice. And she was just like, I can't. I can't with this. Yeah, this is too much.

John, I'm having an emergency. Yes. My computer is out of power. That is an emergency. Let's get you a cord. I have one in my office. We don't have one here. I have one in my bag.

I think there's one here. The blue one. Do we have... But I guess the question is, will it plug in? Because I have this other stuff plugged in. Did you guys hear about Jimmy Conn? I have one in my bag. But do we have... But I guess the question is, will it plug in? Because I have this other stuff plugged in. Did you guys hear about Jimmy Conn? I have one extra port. Yeah, he died.

Yeah, passed away. End of tweet. End of life. Sad. He was the best. How old was he? 82. Okay.

He had a good run. Great run. He was like a one-of-a-kind type of guy. He did a podcast with Marc Maron a couple years ago. Oh, okay. Like two hours of stories about the Godfather. Okay. Just a maniac of a guy in the best way possible.

Yeah, yeah. Yeah. We went to see the Godfather in a theater. Oh, yeah. Two months ago. They put it for their 50th anniversary. I can't believe it's 50 years old. Yeah, yeah.

That's kind of depressing. So 1972. So they put it back in two theaters, and one of them was in Queens. Okay. So we went, and my wife had never seen the movie. And the guy was with his wife, never saw it either. Okay. And they were like, oh, my God.

That was, like, they were like, oh, fine, we'll go. Josh and Aaron want to go. This is going to suck, whatever. Yeah. How long is it? Three hours. They were like, oh, my God. That was an amazing movie. I think this has to go

on this side and then later in the later years he did like Elf he was a bud of the Elf's dad yes he was he could do it all that's a fan favorite

every holiday season it's worth it you ever see Thief no that was a good one Caillou no Josh

he was in Mickey Blue Eyes you've seen Thief? Yeah, I saw Thief. He was in the movie with Hugh Grant. He's like a mob boss. Oh, we have wait we have something we have to do. I'm trying to think what what are the other movies he's known for? Um, he's like a fifth year of Korea. He was in Eraser. That's like a random one. Not a very good Arnold movie.

Thanks. Oh, Misery. That was his big one. Oh, yes. Yeah, that was incredible. Where's Nicole? Misery was very good. Somebody locate Nicole.

He's done so many movies. What else? Oh, what was the sports movie? Any Given Sunday? No, no, no. Which one was he in? Oh, Brian's song. Nicole, we have something for you.

Oh, my God. Not with. We're not going to turn the lights off, obviously, but we'll do our best. Not Brian's song. Okay. Do we sing? Is anybody going to sing? No.

Happy birthday to Nicole? We're not going to sing? It's up to you. But is it bad luck if she blows out the candle without the song? Probably. Is it like less classy that I left it in the plastic case? No, it looks great. It looks okay?

Okay, I'll speak the song. Nobody wants to hear me sing. Happy birthday to you. Happy birthday, Nicole. Happy birthday. All right, now make a wish. Okay. Wow, you really thought about that.

Did you wish for higher interest rates? Alright, I think you're going to get your wish. Very soon, actually. Happy birthday, Nicole. John, how are we looking on time? Yeah, we're close. Kai, did you tell anybody about how much fun we had in Austin?

Well, Mike was saying. Mike missed that night. You missed out, man? Sixth Street? No. Oh, it was on Second, I think, where you guys were. Went out to dinner, and we were drinking ranch waters. Oh, yeah, yeah.

You know what that is? I do. I do. They've become very popular. I've never heard of it. I just learned what it was for the first time. What's a vodka? Nope.

What is it? It's Blanco Tequila. Uh-huh. A beer? It's Topo Chico. You know what that is? Isn't that just carbonated water? It's like fancy mineral water.

But it's like Mexican, and it's got minerals in it. So it's like a Texas Moscow mule. It's a... No. Yes. That's exactly what it's like. It's like a te it's got minerals in it. So it's like a Texas Moscow mule. It's a – no. Yes. That's exactly what it's like. It's like a tequila soda. Yeah.

It's like a tequila soda. It's a tequila soda but with a special kind of soda and a lime and it has a way cooler name than tequila soda. What's it called? Ranch Water. Ranch Water. So I had – how many do you think I had? Six? A few.

Last count. Plural. How many do you think I had? Six? A few. Last count. Plural. So the dude, David, that we were with, we ended up having a few more at the hotel.

And he's like, this is like the best night ever. I'm like, stick with me, kid. That was fun. And Hunt came out for that. It was a good time. It was a good time. And they've become very popular, the Ranch Water. Why do you think that is? Because there's more people go to Austin?

No, I think it's just it's a low-cal. It's part of, like, everyone drinks vodka sodas. It's like Tito's and soda. There's no calories in the mixer. There's no calories. Yeah. No one drinks beer anymore, besides me. It's like no one actually thinks hard seltzers taste good, right?

It's just there's zero calorie. They don't taste good. No, you know what genuinely tastes good are the high noons. Yeah. Like, those are dangerous because they don't taste like alcohol at all. I never had one of those. You would love it. But I don't like I don't like. It doesn't have like that weird I don't like Trulies or White Flaws.

It doesn't have that weird taste. Are you on the Barstool payroll or do we have a sponsorship yet with High Noon? What is their relationship to high noon i don't know i just feel like they're always advertising them i'm sure it's a monetary relationship uh all right we are not sponsored by high noon we do have a sponsor which you'll find out very shortly all right this is the happy birthday nicole show what episode is this john

say it this is the compound Compound and Friends episode 54. Oh my God. Welcome to the Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's show is brought to you by Peak Housing and REIT. A couple of weeks ago on Animal Spirits,

Ben and I spoke with Joe Alas about the single family rental market. Josh, what do you know about this? The single family rental market? I actually own some stocks that are single family rental REITs. Okay, well, you could do better. So the Peak Group owns 1,850 homes.

They're in seven markets, four states. They've got a focus. I don't know if you call this a niche, the Dallas-Fort Worth area. Okay. You bullish on that? Sort of. We spoke about the Cowboys on the show. Depends on the price of oil. All right. So the Peak Housing Group, they've got $110 million in equity from LPs. You could own a piece of the real estate market without managing properties, which I've learned is kind of a pain in the ass. So I actually think this is a mega trend. People that are not, I don't want to say forced to rent, but people who decide to rent don't want to necessarily live in an apartment building and don't necessarily want to deal with

a single operator who owns one or two houses. I totally agree. I don't know what the single family rental market is in terms of, I'm sure it's tiny at this point. It's tiny but growing very fast. Yeah. So basically you can rent a house from a corporation. They are spreading their cost out across all of these homes and they can provide all these other services, everything from entertainment systems to alarms to landscaping. You want a ring? So all of a sudden you're not dealing with 80 vendors to be in a home.

You're dealing with one company that's doing it all for you. I think it's the future. To learn more, go to thepeak.group. 54. How about that? What do you think?

54 is a lot. Yeah, and there's the plaque. Guys, this is like a very big show now. I don't know. What was the latest stats? Like where was our placement in the investing podcasts? We're like a big show.

We've hit number seven. Number seven on Apple investing podcasts. Who's one through six? Paul, Dave Ramsey. It's basically. No, for real. No, I mean for real. It's Dave Ramsey.

I think maybe a Motley Fool and Suzy Orman, something like that. But we're in the Suzy Orman league. I feel like that's the big time, right? People call me the... No. What? I don't know. The Suzy Orman of finance?

I think she's the Suzy Orman. The male self-sensor. Nothing came to me. Nothing came to me. Anyway, it's a very big show, so be on your best behavior, I think is what I'm trying to say. Wait, hold on. Brenton's got a notepad. What's hold on. Brent's got a notepad. What's going on?

What's with the notepad? Old school. Like, I got to write it down. Are you going to be taking notes while we're recording? Hold on. If you say something really— Just do it. Wait.

It's a blank. What is that? What is that? What is that? This is my child. Well, so knowing you guys are like historical— Is that your homework? No, no, no.

Follow me here. You guys are historians of finance. Sure. We sure are. So last week was the guys are historians of finance. We sure are. Last week was the 25th anniversary of something. Can you think of what it was? 25 years ago. Oh, LTCM.

I was going to say Stone Temple Pilots broke up. Yes. But the trigger was the Thai bot devalued. That was July 2nd. It got de-pegged. De-pegged. De-pegged and that's why you bought your homework? Well, just because like the numbers are

crazy. Hold it up so we can see it. Show us that. You can't see that. From peak to trough. So this is the 97 high to the 98 low. Indonesia and USD terms lost 92%. Malaysia, 87. Wait, what are you talking about? The currency?

No, stock market. Stock market. Thailand, 85. Philippines, 81. South Korea, 79. Wow. South Korea lost 80% of its value? 63. Hong Kong, 60. Taiwan, 50. How long did it take for those to recover? So some of them haven't. I mean, that's the kind of crazy thing. Some of them are technically. And all of that was because of currency contagion is what sparked that whole thing? Well, policy error, mismanagement at the government level. It was three hours capital.

Yeah, hot money came in, left. Three arrows got involved. Nothing good happens from there. But it was an epic disaster. So I thought, you know, you guys love financial history. Like, I don't think you mentioned it. We do. You're saying that was 25 years ago today or this week?

July 2nd. Huh. Where was I 25 years ago today? 97? Maybe preparing for my bar mitzvah. In 1997? When I was 12. You were at a Google Dolls show, for sure.

No, I did not do Google Dolls at all. Front row. Spin doctors. Mouthing the words to Black Balloon. No doubt. I know where you were. No doubt was hot when I was 12. No doubt.

Okay. What have we learned from that crisis? Nothing. No, I mean, I think, you know, for today, you talk about potential for policy error from the government. What did they do wrong that prolonged the problem or caused the problem? Well, they had all issued dollar-denominated debt. Which is hard to pay back in a crisis.

And then, you know, you lose your currency. You can't afford to pay it back. So you basically, yeah, you're ruined. Now, you issue dollar-denominated debt because it makes it more marketable to the potential buyers. Correct. OK. But then the downside of that is you owe dollars. Right.

So when you're in a currency crisis, that turns it into a spiral. No bueno. Yeah, yeah, yeah. There's no way out. It's the – yeah. This is the compound show. So that's the compounded pain. Oh, I want to intro you guys before we get – I mean we're already in Thailand and I haven't had a chance to do this.

Brendan Hearn, who has a voice – you have a great radio voice I feel like, right? Have you been told this before? Face for radio, yes. No, no, no. That's not what I said. That's me. It's only you. You have a very like – how do I explain it?

You have good inflections. Is that baritone? What is that? Yeah, what are you working with there? Is that a baritone you got? You know, if you need me to do some intros for you, like, we can talk offline. Okay. We're going to have you do some drops.

He'll be our announcer, a la George DeCoe. All right, but your real job is the CIO at Crane Shares, where you lead research and education efforts and focus on China and emerging market growth. You're also a leading commentator on investing in China. And you write, I read this every week, you write China last night. I know it's daily. I do my best. That's all right.

No, but that's, you're my source for how I like find out what happened. So China last night is a smart way to phrase it because for US investors, all the shit goes down while they're sleeping. Yeah, yeah. So, okay. You have a pretty big readership on China last night now?

It's been growing? It has. I actually don't know the numbers. I've actually never read it. Okay. It's somewhat ironic. I mean, I write it, so why would I read it? You don't need to read it.

But I think it's got a pretty good pickup. How are you building that audience? Well, first of all, how do people subscribe to China Last Night? We'll send them there right now. Just ChinaLastNight.com. That's it? That's it. So they don't have to go to the Queen Chair's website or anything?

No. Okay. Is it on TikTok? Not on TikTok. We're on Twitter. Okay. Okay. So just at ChinaLastNight.

Before we get to Kai's intro, can I tell you something, Brendan? I was looking at one of your tweets today. You tweeted potentially big news for NIO and China most extending EV tax break. And Twitter flagged it. Do you know that? I did not. Twitter flags it. It says, stay informed.

This tweet links to a China state affiliated media website. So it's interesting. There's a great, great financial, Chinese financial website called Yike Global. They're based in Shanghai. I don't think they have anything to do with the Chinese government. Well, they might not have anything to do with it, but they're being overseen by it. Better safe than sorry, I guess. Yeah, there's probably, I mean, there's probably censorship approval maybe.

But it's like they've got real reporters. They do their work. And they're shown on Twitter as like Chinese state media, which I actually don't think is accurate. I blame Elon Musk. So, no, he's going to get rid of all that. That's what he's going to do with Twitter. Like there won't be any more oversight of anything. I'm sure.

Kai Wu. Kai is back, ladies and gentlemen. This is your second time here. You're a veteran now. Kai, you were a very popular guest the first time. You were. You got good feedback from coming on. You did, right?

Yeah, yeah. Awesome. Thanks so much. Kai is the founder and CIO of Sparkline Capital, an investment management firm specializing in machine learning and computing. Prior to Sparkline, Kai co-founded and co-managed Kaleidoscope Capital and was a member of Jeremy Grantham's $40 billion asset allocation team at GMO. Welcome back. Welcome back, Kai.

Do you follow emerging markets or Asian stocks at all? I know it's not like your primary focus, but there's a lot of technology coming out of there. Yeah. No, no. As much as anyone does. You got to go closer to the mic for me. Not a specialist, though. I'll leave it to Brendan. No, I'm definitely not a specialist. All right. So this morning I woke up, speaking of China last night, and the first thing I saw was China considers $220 billion stimulus with unprecedented bond sales. So what is going on? In a nutshell, as the world tightens, China's easing.

Is that why the stocks are outperforming? Is that why all of a sudden Chinese stocks are outperforming the rest of the world? I think when you say China, you almost have to differentiate between the A-share market, the onshore market, so Shanghai, Shenzhen, which is 90%, 95% owned by investors in China. Yeah, we can't buy that. Right. You can through crane shares. Right. But you contrast that with the offshore market, so Hong Kong and US-China ADRs. Okay. And I would say definitely the investors in China are more on top of this easing cycle coming in China are more, you know, on top of this easing cycle coming in China, where a lot of foreign investors, they're more worried about the political, you know, US-China political

relationships, headlines, some of the regulations from the US, from China. So, you know, these two different markets that move very, very differently from one another. So, certainly, I think the story for foreign investors, it's starting, they're starting to connect the dots that, you know, most central banks are tightening and China's actually going the other way. Are they doing that specific, like on purpose to go the other way? Oh, yeah, yeah, yeah. I mean, they, you know, you think about you have global stimulus, you give people free money, what do they do with it? They go out and buy, you know, laptops, they buy iPhones, Peloton bikes.

Yeah. Ponzi schemes, all kinds of stuff. Yeah. You're Simon. So you're taking, that's kept the world's factory busy for two years. As that goes away, China's export-driven manufacturing is going to slow. So how are they going to offset that? Well, through this Bloomberg News talked about this infrastructure deal. But they mainly got to raise domestic consumption, right, to offset this weakness in part of the economy. They got to get Chinese consumers pick up the slack for the fact that the rest of the world is going to take a break from buying physical goods from China. Yeah, it's like everyone who wanted a Peloton went and bought it. Yeah. And so you're just taking five years of demand and squashed it into two.

So things are just going to fall off. So the way they do something like stimulus, they allow the local governments to sell bonds again, and then that money goes into infrastructure projects. So that will be infrastructure. But, you know, more, you know, I think the bigger issues are, you know, they've lowered their loan prime rate. They've lowered their- What's the rate to borrow money in China now?

Well, the 10-year treasury is about 2.8%. So it's comparable to where U.S. treasuries are. Who are the buyers of their bonds? You know, for treasury bonds, it's virtually all in China. They do have an offshore bond market, which dollar denominated bonds in Asia. It's a smaller part of the overall bond market, but that it is, you know, that's where that's, that market is dominated by real estate developers, Chinese and Asian. It's done horrifically over the last two years because of Evergrande and concerns.

But that's supposed to be a store of capital for Chinese businesses. Yes. To buy Chinese treasuries, the same as it's supposed to be here. Oh, huge. Insurance companies, sovereign wealth, et cetera. We're going to stay on China a little bit longer because I wanted to get your take on how they're handling the COVID and lockdown, lockdown off, lockdown on, lockdown off. Like what is this bullshit? Because it's not helping the rest of the world.

Is it helping them? Well, it's saved 1.5 million lives. Is that what we think? Yeah, yeah. If you take Omicron. Is our lockdown saved zero? Yeah. Conservatively.

In China, there's skepticizing amongst the elderly on getting vaccinated. So you take their population or you apply Omicron to the elderly population. I mean, they did the math. It would have run through them. It would have killed a lot of people. Like a nursing home like we had in 2020,

like all the nursing homes got hit really hard. Yeah, I mean, they had said it would have caused 15 times more demand for ICU beds than they have hard. Yeah. I mean, they had said it would have caused 15 times more demand for ICU beds than they have available. Okay. So the West calls it a zero COVID policy. In China, they call it lives first. Okay. Now, I think what we're seeing is that post the Shanghai, the big lockdown, they're not doing as draconian lockdown. I mean, there's a full-on outbreak in Hong Kong, 3,000 new cases every day for the last few weeks, Xi'an, China, Shanghai. So they're doing more targeted lockdown. So more residential district neighborhood as opposed to shutting the city.

I need my semiconductors at a certain point, right? So I'll give them another six months. I don't know. I mean, this is like the issue though, right? The manufacturing is not keeping pace with demand because we rely so much on manufacturing in the region. Yeah, I mean, it's not just the stuff they make. It's they make the inputs that get manufactured elsewhere. And it's not so much you shut Shanghai down. It's more of the port got shut down.

Truckers couldn't get the stuff through the city. So that's where we feel like the early read is that they're not going to do a mega, mega lockdown like we saw. I'll knock on wood. We don't know. But if you look what's happening in China in terms of some of the COVID outbreaks, it's a different response than what we saw. Last thing on this is China's tech giant crackdown over. We're going to throw some charts up real quick. John, you want to hit us with Tencent? Okay, here we go. That was quick. Good job, John.

This is like a huge drawdown in – was this the largest stock in China at one point? Tencent and Alibaba were always kind of one and two. Was it a trillion? Did it cost a trillion ever? No. Not quite. They got close. Okay.

This is a 60% at its worst drawdown in Tencent, which in market cap terms is how much money? Oh, we're talking about- Probably 400 billion. I would say three to 400 billion. I mean, that's like enormous. Yeah. Okay. What else do we have?

This is Alibaba. Same thing. Down 75%. Can you 75%. Alibaba down 75%. I think in the United States would be equivalent to Apple being like as widely known and widely held. That'd be like if Apple fell 75%. talk about the Asian currency crisis, right? Is that you have that sort of effect in terms of the price action of the stocks. And the argument would be that what has actually happened isn't nearly as bad. It's just a lot of people have been forced out of the names because of the worries of China's internet regulation, because of things like tax loss selling in the ADRs, you have indiscriminate price sellers. Yeah. And so that's just put all this negative,

you know, it's not fundamentally driven. It's just people, if you're an EM portfolio manager and you hold Alibaba, you're worried about looking like an idiot. And so it's easier just to kick it to the curb than to try to defend it. Tencent went from a high of $9.50 in market cap, $950 billion, to a low of $378.

These names all bottomed in March. Yeah. And so this was surprising to me that over the last six months, they've actually dramatically outperformed the NASDAQ 100. Now, if you zoom out, they've got it killed. Yes. So it's maybe a little consolation,

but they did bottom much earlier. Let's do JD real quick. John, just throw that up. And what's JD? Is this like the match.com? It's like Pepsi to Alibaba's rival. One more. Two more. Meituan.

What is this? Delivery. Delivery listed in Hong Kong. Down 77% from high to low. Or from – when is this going back to, the highs? Okay. Yeah, yeah. I mean, if you think about it, like you had Archegos in February of 2021. Oh, yeah, yeah.

Oh, my God. And that's really kind of kicked things off. And Pindodou, down 87%. This one murdered. Another e-commerce, you know, the number three player in terms of e-commerce in China. So, Brendan, all of these names are in KWEB, which is—is that your flagship fund? It is. It is.

So, what were the conversations like for you and your team over the last couple of months? I guess particularly the third, fourth quarter of 2021 must have been a lot of fun. Well, you know, to really pour the salt, you know, you've got the trade war, you've got the tech war, you've got COVID, then you've got Archegos. By the way, stop, I have to stop you.

I've heard Archegos, Archegos. I've never heard of Archegos. So that's a new one to me. I'm just saying in my deep, bare-turned voice, hopefully it sounds good. I have no idea if that's the pronunciation. Well, it's a made-up f***ing word, so we can say it however we want.

All right, sorry, I cut you off. Sorry, go ahead. So anyway, so just, yeah, yeah. I mean, for the team collectively, like, it's been busy. But I think, you know, there's been a void to fill about this. You know, the point of China last night for crane shares was a balanced perspective.

And there's things that happen. You might not like the rationale, but there is a rationale. You're not doing a nightly email cheerleading China. You're basically just talking about what happened in the market. Yeah, yeah. I mean, ultimately, you know, China is 18% of global GDP. If you own U.S. equities, you're highly exposed to China. Okay.

That if you're really worried about China, then you've got to be worried about Apple and Nike. When do you write this note? Do you wake up at 2 o'clock in the morning? I wake up around, you know, varying on the day. I get up, you know, sometimes 5.30, 6.30. All right. You have a lot to learn from Kai.

He's writing quarterly. I'm jealous. Two o'clock in the afternoon, usually. By the way, explain this to us. So I've never seen this situation before where at the low, K-Web was at an 80% drawdown or 79.54 to be precise. And yet the fund had massive inflows in 2021. Positive flows with negative performance.

I've literally never seen that before. It's usually kind of the opposite. What, can you give us some color? Dude, it's his voice. Imagine he calls you up. Like you're a hedge fund that's allocating to Chinese stocks and you're using crane shares.

And Brendan's like, good morning. We only do conference calls. Here's what happened in China last night. Could you give us some color on how did you do that? Because there's a lesson there. Well, I think A, it's the collective effort

of getting in front of people and explaining what's happening. But it was about, you know, there's no alpha on a drawdown. Like, you know, on those charts you just showed, like, you know,

why would, you know, pay someone to own Baba versus JD or Pin? They? They're all going to make a difference. It's a beta play. Right. So if you're tax loss harvesting out of the individual names, just buy K-Web. If you had hired active managers, you know, there's very little alpha. It's a beta play. And then I think, you know, one of the concerns has been this Holding Foreign Companies Accountable Act, the potential delisting. And we've converted, a year ago, K-Web was 25% Hong Kong. Today, it's closer to 75%. So people are almost hiring us because of this potential delisting risk of saying, maybe know, maybe I don't want to,

or I can't hold Tencent in Hong Kong or Alibaba share class, like we'll do it for you. So I think some of it is people recognize that, you know, for the last two years, we spent a lot of time in Washington, D.C. trying to tell, you know, politicians, U.S. regulators that this delisting idea is a really bad idea. You're not hurting the Chinese government. You got $2 trillion of market cap held by U.S. investors. And delisting the stocks does nothing to hurt China. You're hurting U.S. capital markets.

What was their response to that? I think the SEC is the regulator. It's not their job to opine on the regulation or interpret it. They're the enforcement agency. So there's very little they can do. You know, I think for, unfortunately, you know, there's a push to potentially shorten the window for delisting from 2024 to 2023, which is still not, it's in one of these bills that, you know, so who knows how that plays out. But I think in general, the view in DC is, well, we're forcing China to deal with this issue. And that's a good thing. Well, that's true. But,

you know, putting a gun to the head. Their backup plan is Hong Kong listing. F*** you. Well, that's where it's... We call HFCAA the Hong Kong Investment Banker Employment Act. You're literally forcing jobs out of New York to Hong Kong. So then what do you do in that situation? All your holdings become Hong Kong listed

issues? Well, we're converting. We don't hold Baba US. We own Alibaba Hong Kong. So you're getting ahead of that. Yeah, yeah, yeah. You're wondering how he's doing that? Yeah, we're converting. So, you know, we don't hold Baba US. We own Alibaba Hong Kong. So you're getting ahead of that. Yeah, yeah, yeah. You're wondering how he's doing that? Yeah. Yeah, we're just- Paying some notes. Well, if they start delisting all your stocks, it's like, well, wait a minute. What do I- So, yeah. I mean, I think ultimately the two sides figure it out because it's so embarrassing for both sides. Okay.

But, you know, we recommend to people, you know, talk to your custodian, talk to your broker dealer. Can you hold a Hong Kong stock? Not all custodians, not all US broker dealers allow that. So if they can't and they want allocation, then they have to use a fund to an ETF? Correct. Okay. They won't be able to just hold the issues? Correct. Huh. Okay. So that's not for a couple of years, and it sounds like a lot can happen between now and then. Yeah, yeah.

I mean, I think our view is we're optimists in that we think the two sides – this is a resolvable issue, that these companies – China should allow the companies to adhere to a global standard. PCOB does great work. global standard. PCOB does great work. And for China, for the Chinese government, there's a rationale for allowing this, which is these companies provide a great insight into China and China's economy that you might not get elsewhere. So these numbers are a little bit stale, but this surprised me. I don't know who threw this chart in here. This goes back to 2018. Apple derived 17% of their revenue from China in 2018. That's a massive number. How much? 17.

I don't think that's... That's not surprising though because that's like their biggest growth market. Look, look, look. There we go. Oh, yeah. I mean, this is where a lot of people will say like, oh, you know, I'm worried about China, US-China play. Well, our view is well, if you're worried about it, this is what you should be worried about. Which facet?

Well, that you own a lot more of these companies. Is this a factor in how you're thinking about portfolio construction? Like, are you worried about overseas sales for tech companies or overseas domicile? It's not something we focus on too much. Okay. How come? It just kind of washes out, I guess. Okay. How come? It just kind of washes out, I guess.

We're trying to look at the things that the drivers of kind of macroeconomic and politics are really difficult to predict for us. Not for me, but for you. You got it. Brennan's got it. For me, you know, for our algorithms, right, we're focused on fundamental value. So brand, human capital, network effects, and IP. And yeah, obviously over, you know, certain periods, politics matters, but it's just very difficult for us to know. And you can't quantify it. You can't quantify it. And to some extent, like the discounts, right? So like obviously EM stocks rated the discount.

I mean, the reason why in part, right, is to bake in that uncertainty, that risk premium. And we're just saying, look, if markets are at least somewhat efficient on this dimension, we can safely ignore it and let it just be noise in our models So, I mean there's gonna be big price movement, but like you're saying like that'll happen in both directions. That's right Yeah, okay Systematic bias one way or the other they notice is that those names have no had no beta To you know Trump tweets to US political Which which all of those names that, that only the

China names would trade based on tweets. But, but you would argue that these companies have a beta. U.S. companies with high China exposure. So Tesla in 2018, I'm sure the numbers are different today, but Tesla had 25% of their revenue. That's a huge number. And the trailing 12. Yeah.

Oh, so it was 2017? Uh, no, that's from today. Oh, wait, what? This looks like it's a sales generated by U.S. multinationals in China amounted to $376 billion in 2018. Are we talking about different charts? So the table is different from the quote. So the quote came- Here we go.

Yeah, yeah. So this quote came from the Fed here in New York, where they run a blog called Liberty Street Economics. And they wanted to quantify what has the trade war done. So this is from back in 2018. They basically said, you've got 376 billion of US companies' revenues generated in China. And this was kind of the point where China says, we don't have a trade deficit with the United States.

That the US definition of trade is something, you build it in the US and you put it on a boat. But you have all these US companies that own factories in China that then sell in China. So China's view is, well, who cares where Nike's plan is? As long as Nike's selling to the Chinese. So if you take the $376 billion, add it to the trade deficit, there is no trade deficit. Right. Arguably, the US... So the New York Fed was saying... Apple's doing $366 billion revenue in China.

So then on the bottom was working with Morningstar. We were able to kind of quantify these numbers. So this is the table of stocks. This is the trailing 12 based off their last quarter's earnings, according to our friends at Morningstar. You know what's so funny? Amazon, only 5% of their revenue is from China, and that's $25 billion.

That's crazy. And that's only 5% of their revenue. Yeah. I mean, the energy ones are interesting. That's weird. Chevron, 19%. I would not have guessed that. Texas is now the largest exporting state to China,

over to California. Is that right? And that's LNG, oil. Oh, okay. Exxon Mobilobil's building a multi-billion dollar petrochemical plant in China. They're actually like number one in like, you know, synthetic lubricants and like gas, you know, in China. It's interesting. Do you own any of these EV stocks, Kai, in your portfolios, like NIO? What's LI?

We, Lee Motors. Lee Auto. Lee Auto. Well, we don't because we're we're us focused but i can tell you we don't own tesla we don't own vivian um i think the pure play evs um on our metrics seem overvalued okay it's like look like for example like tesla they have a they have a good market share right now they have a first mover but it's not like gm and ford and so many of the other companies cannot they they're able to figure this out. But aren't you like big on the intangible stuff? Like isn't Tesla's brand worth – or like is that – are you saying that – even that part of it is overvalued?

Yeah, we're saying that Tesla is a formidable brand. They have great IP, great talent. They're really ahead of the curve on pretty much all these dimensions except that their market cap is greater than all the other auto companies combined. And so it's like at some price, like it's just not worth it anymore. Right. And then Converse, you have the legacy automakers who are, you know, a few years behind, admittedly, but they also have strengths to their name. They also have brands, you know, Ford and GM. They also have, you know, actual manufacturing capacity and technical ability there. And they're actually coming out with new models, right?

Tesla has not really continued to push the R&D well forward, unfortunately. So when you're looking at stuff like this, are you looking at like patents and copyrights and all that sort of stuff? Yeah, we're looking at that. We're looking at who they're hiring, like what sorts of like skill sets do their employees have in terms of, you know, say, full self-driving and things like that. And yeah, we're seeing actually interesting, like a growth of talent and IP into some of these legacy firms. And they're trading at, you know, such a cheap price. Wait, do any of the legacies make the cut?

Yeah, so Ford's in there. I think GM might be in there too. So you have Ford and GM and not Tesla. And the main reason is just like the price. Right. It's like the idea of disruption at any price, which is disruption at a reasonable price. And for us, we care about the price we're paying for these things. And just because Tesla is a great company, which in many dimensions it is, at some price it becomes untenable to hold.

On a back test, was there a point in time where Tesla would have been a holding based on that and it's just launched out of the stratosphere? I don't think so, no. Because it's always been expensive. Ever since it kind of came out, it's always been expensive. Okay. And again, just not to belabor the point, but you're not looking at like book value type stuff. Like you're looking at next generation type metrics and even still. Right.

Like giving all the credit to the network effects and whatever, like even still. Yeah, we're doing the best job we can to make it easy for Elon to get into the portfolio and he still manages to mess it up. Right. Because it's next gen metrics, but then there's a multiple on those metrics. Exactly. And Tesla's expensive on everything. Right.

Because people just love the stock. I mean, they have a huge following that just, there's so much hype around the stock and it is a good company. It is a great company, but you know, again, at again at some price you just can't you can't hold it is anybody asking you for an international version like like the adrs that trade in the u.s and they meet the requirements but they're just foreign domiciles so i don't know if adrs themselves give you enough breath but there has been like um requests to launch like parallel products and like ifa and so developed um developed international and then

emerging markets and i think i've said this before one of the really cool things about all the uh the machine learning techniques that we use is we use statistical natural language processing and what that means is that in order to port the models from say english to japanese to chinese it's pretty easy because all you need to do is you don't need to go there and hire boots on the ground, hire a bunch of linguists and experts in those languages. Instead, you can go out there and take, you know, the Wikipedia sites from Japan or whatever, right? The entire Japanese internet, feed it into your models. It retrains on that language and you're pretty much good to go from there. So I think there's a lot of capacity to kind of take strategies like this and scale them abroad, especially into these more like long tail countries where like, I don't know, like Thailand you brought up, right?

Where, you know, may not be a big enough market to justify huge teams of analysts on the ground, but, you know, it can be done and definitely gives you an advantage to be able to speak to local. Is all the same data available like that you would – the machine learning is reading something. Yep. So do all of these companies overseas or all of these countries, it's standard to track the same metrics that you're tracking for U.S. companies? Or is anything missing? It'll vary by country. So obviously there's the equivalent of the U.S. patent office in Europe, for example, but not in all countries. I believe it's called lay patent office in Europe.

That's right, yeah. But you can get a data feed on it and figure out how you want to read it. Local news sources are easy. Company communications are easy. And then obviously, as you know, filings are kind of completely different depending on the country. Okay, because I'm thinking like a CraneShares by Sparkline collaboration, China Innovation Fund. I'm just spitballing. Just spitballing.

We can make it happen. Alright, this is the week that innovation bounced. I think, Mike, ARK is outperforming the S&P for two weeks now. I mean, this is a very short time, but over the last five days, ARK's up 12.5% and the Q's are up 4%. How much is ARK off the lows? It's like 20? It could be more.

It could be. Remember we were like, you can't come back from down 80%? Can't come back. Never say never. No, no, no. The price, no, no, no. ARK will,

I don't want to say never make a new high. It's so far down. But like, it might never make a new high. It's so far down. But this was a big bounce. And I don't even know what stocks are. I know Tesla is still in the top five.

But I don't think it's- Over the last, again, five days, so whatever. Barely any time. You've got Ginga Bioworks. I don't know if she holds it. I think she might. That's up 14.5%. Moderna's up 12.

Datadog's up 11. Teladoc's up 10. Zoom. Roblox is up 10. Rivian's up 10. Wow. Okay. So they don't go straight down. Or at some pointx is up 10. Rivian's up 10. Okay. So they don't go straight down or at some point

they stop going down at least for a little while. They've gone straight down for a long time. It's been a long time. February 21. These are all down like 70% minimum, right?

Some are down 80 and 90. Okay. Literally. Yeah. What's this next chart? Show me this. Lesson two after PE reset. Earnings revision. Oh, this is great next chart? Show me this. Why, uh, lesson two after PE reset earnings. Oh, this is great.

Okay. This is great. This is from KOTU. This guy, Eric newcomer has this awesome sub stack and somehow he got access to, to a deck that they were putting together. What we're looking at is phase one, two, and three of, um, of PE reset, earnings revision, and sell-offs. So what they're looking at is the NASDAQ 100 or the NASDAQ composite. Oh, this is from the dot-com bubble. This is from the dot-com bubble. March 2000. All right. So phase one, you've got the trailing 12-month PE. And you see in phase one, that's

the first to go, is multiples compress. Then in phase two, you see earnings revisions. Then you start to see earnings revisions come down. And I think we're getting there. We're starting to see some downgrades from companies, which our analysts are way behind the ball there. And then finally, you get capitulation. So look what happens, though, in capitulation. You have a rebound in PEs probably because earnings are dropping faster than stocks for a little while. But then they both catch down with each other. And I don't know. He didn't want to do the bounce.

He didn't want to show how this is. I just thought that this is a really interesting way to show the process. Again, you have the PEs mushed, and then you get the downgrades, and then you just get it all. Yeah. So what's interesting about this is the timing that we're looking at it because earnings season starts next week. We really have not seen meaningful S&P 500 earnings revisions lower. I know that the estimate has been lowered,

but like that could be this phase two thing could be the thing that's about to start now. Well, I think that's what a lot of institutional brokers are starting to talk about is that you got to start bringing some of these estimates in and that's only going to raise. The thing is that they're not getting that guidance from like S&P 100 companies. Well, Apple and Microsoft earnings estimates from analysts has not budged, like literally still at all-time highs.

And that's like 12% of the S&P. I don't know what the earnings contribution is. Google's come in a little bit. I guess they're more sensitive to the economy with advertising money. I'm very excited to see what these companies say. Well, I just wonder how much TikTok is eating the lunch of the Googles and Facebooks. Yeah, Snap. Snap. That, you know, clearly in China, you know, in the China space, we see it, that it comes up on the earnings calls

where they say like, you know, we're competing. If you're Alibaba or Badoo, you're competing with TikTok in China. And it's definitely a big, big threat. Kai, why is TikTok killing everyone? Like, do they have the smartest algorithm or the smartest employees?

I know you're not like a TikTok analyst, but like, are you seeing anything in your data to suggest why they're just killing everyone well i think it's all about attention right at this point like we're all competing for eyeballs and tick tock is the most addictive um their short form videos are addictive and then they're i refuse to download it i refuse it will not be on my phone you guys have it dude you could just end up in a loop do Do you have it? Do you have it? Dude, I'm a user. I'm a creator.

Everyone go follow the compound on TikTok. Do not do it. Do not for your own mental sanity. Do it. Do it now. Kai, are you on TikTok? I have TikTok. I have not ever produced any content. He's a viewer.

I don't know how to dance. Yeah. I don't either. We put content from this show on there. So I am on TikTok then. Yeah. It does very well. 500, 600 people watch.

You did this amazing post a couple of months ago breaking down where are ARK's returns coming from? From innovation, from X, Y, and Z. What did you find? Yeah, so the big question there is people are like, hey, innovation stocks are down 80%. Innovation is dead. We're never going to come back from this, etc. And so the question was, is ARK really innovation? Is that what you're buying when you buy ARK? And what I was able to

do was take the returns of ARK and decompose them into a few different pieces. So kind of the most important ones are this innovation factor, which is exposure to innovative technologies, AI, robotics, genomics, et cetera. The second category are your standard like Fama French, what they call it, like style premium. So these are like value, growth, size, quality, momentum, you'd say. And then alpha, right? And so I guess the bright spot was that she has that alpha, right? Relative neutralizing for all these other factor exposures, it turns out that she actually has managed to pick stocks and beat this benchmark in excess of her fees, which is really good. I mean she found Tesla early.

That's a hard call to make. As I was saying, my models couldn't have picked that out. Everyone was – it was overvalued based on trailing metrics and she kind of correctly foresaw the future. Great. And then of the first two, they have both contributed to her returns. The innovation factor has been kind of the biggest contributor. It's been one of those things that she,

ARK has been long innovation as is her brand and that's done really well. And by the way, the way I constructed this factor was I went back and looked at 200 plus years of patent data and was able to find that, you know, when you see technologies trend in like the patent literature, like you see the rise of like the railroad or, you know, electricity, the steam engine, those things tend to continue, right? Technology tends to kind of build on itself. it's kind of pretty easy to predict the future by just looking at the past and saying, let's run like a Google trend style algorithm on the clusters of patent technologies,

which we use like machine learning on the abstracts to define through time, right? Yeah, Michael does it that way also. That's how you look at it. That post was so good, I wanted to punch a wall. It was unbelievable. So wait, so your finding though is that she actually did have both alpha

and was benefiting from innovation as a factor. Yes. Like not as a buzzword, but like the number of patents. How do you look at that? Per stock or per what? Yeah, so what we do is we don't look at a number. We look at the type of patents. So we look at all the abstracts of the millions of patents and classify them into technological groupings, like AI, right? And then we say, at any point in time, what are the

trending technologies? Because it changes each year. Like every year is a little bit different. Like cloud computing was not a thing 30 years ago. Today, that happens to be the case. And then what we were able to say is which companies have exposure to the trending technologies. And that's, you know, easy to glean off of who, you know, is making those patents. And that's easy to glean off of who is making those patents. And that gives you like a grouping of companies for each of these kind of thematic baskets, you know, AI companies, robotics companies, et cetera. And then you can look at the performance of that,

those baskets as if it were an ETF, let's say, diversified across many, many stocks. And then you ask the question, which is, are the companies that she's buying, you know, exposed to that? And then something changed though. Like all of a sudden she went from making innovation bets to just betting on glamour stocks, right? Like, that's the main finding that you came up with.

Right. So that's what happened. Wait, John, let's put this first chart up while Kai talks. So look, I said there are three different buckets. OK, so look at this. So the gray line is the performance of the ARK ETF, right, where it went up and then went down. Big round trip. This is an exception.

The blue line is just the market. So you can kind of put that aside. Then there is in the green is the innovation factor. So it's easier to see just in the table, right? You're seeing what 4% annualized returns, you know, on 5% vol. So it's a 0.8 sharp. Pretty good. And then the yellow line is for alpha. And on 5% vols, that's a 0.8 sharp, pretty good. And then

the yellow line is her alpha. And then in the red line, that's style factors. So what that means is this is her exposure to your traditional kind of well-known value growth, size, quality, these sorts of things. It got more than cut in half. And yeah, look, basically it was a helpful thing to have up until, you know, the peak and has basically explained 100% of the drawdown. It's a 50% hit. So when you say that ARK has lost money, what you really should be saying is not that innovation stocks have lost money, but that junk stocks and expensive growth stocks, unprofitable tech, so to speak, have lost money. She started betting – wait. She started betting on Robinhood and DraftKings.

And Coinbase. I don't think – And Coinbase. I don't think – And Coinbase. Coinbase. So DraftKings probably doesn't rank highly in patents, for example. No. But is that the only way to quantify an innovative company or it's an important way? It's one way.

So what we can also do, right, is look at, as I mentioned, like the filings. You can look at like the 10Ks. Hey, so what do they actually say they're doing? Are they saying they're doing AI? I mean, of course anyone can say it, so you have to be a little bit careful, but I mean, if it's in a regulatory filing, you know, they can't fudge it too much. You can look at the, the labor market. So look at who they're hiring. Are they hiring folks who have, you know, TensorFlow on their resume? That is probably a pretty good signal that they actually are putting their money where their mouth is.

What about social media mentions? Like when you look at social media of DraftKings versus their competitors and say like, is there any sort of signal there? Yeah. Yeah. We absolutely look at that. And I mean, that's more in the brand dimension. So it's a little less about like, are they innovative or not? But I mean, that's certainly a component of, you know, when we look at the four pillars of intangible value, the brand dimension is one of those four things. I know she's not here to answer for herself. But why do you think – so I have a guess.

I think it's size. I think she got so big that she had to start making bets on $20 and $30 billion market cap glamour companies just because – so just like continuously bet on innovation, she would have had to go lower and lower in cap size and almost turn the fund into a small cap fund. But then she would be like 20% of these companies. Like she'd be filing 13 Gs every day if she was going to really keep doing the innovation. At her peak, that was a big concern that she was such a big percentage of some of the smaller stocks in her portfolio. What was the size of this thing at the peak? 50?

ARK, I think. The flagship. Yeah, yeah. 40, 50? Right. So then you become a big percentage of these companies and nobody really wants to do that if they can help it. Yeah. So I think that's part of it.

So I think there's two – when I say there's style factors, it's really there's two things that have caused the kind of meltdown. First is unprofitable. So junk stocks, you could say. And the second is growth or expensive stocks, i.e. not value. And I think what you've seen is that the exposure to quality has been consistently negative the entire way through since inception. So it's not like she's changed anything about the hair investing style. I wouldn't say negative quality, just money losing companies. She's willing to put her money into companies

that don't have any positive cash, have no earnings, sometimes no revenues. Quality, so a lot of people who are not quants or not familiar, they would assume like, oh, that's a low quality stock, meaning it's a piece of shit company. That's not what we're talking about. We're saying like quality of balance sheet

and income statement. We're saying like speculative stocks. Let's say it's speculative stocks at a really early stage. Don't have like any, you know, stable or robust earnings. Which Tesla would have been a low quality stock for most of the last 10 years. Until it wasn't, yeah. Until it wasn't.

But like that was. So it's not obviously a bad thing to do. I mean, it's a bad thing to do on average. Like it's a bad thing to do with 100% of your money. Yeah, the quant will show you that, you know, the quality factor. So if you just, on average, bet on more profitable, stable earnings,

high ROE companies, they tend to outperform low ones. But paradoxically, the best performing companies are the low quality ones. Start off as low quality. Well, because there's more upside. There's more asymmetry. Like if you can get in

and find Tesla before it becomes a big deal, you can make 100X. You know, you're buying a company that everyone knows is a pretty robust, like high margin company. Colgate, Pomala.

Yeah, you're not going to be able to. I think Facebook coming public is a low quality. It's a marquee brand. It's a blue chip social media company, but like on a factor basis, they're losing money in that transition

from desktop to mobile. It was not a quality, $40 billion market cap. And the stock got killed. Well, even Google's IPO was the same way. People were trying to short it at the IPO. Dude, Apple's IPO got blocked for Massachusetts residents.

The Massachusetts securities regulators said nobody living in this state can invest in the Apple IPO. Netflix transitioning from mailing envelopes to streaming definitely would have been a low quality stock on every metric. John, throughout this next chart,

this is interesting to me, Kai, that not only did she generate positive alpha on the way up, obviously, but even on the way down, and I know this doesn't really help her investors, but she has- She had 4% alpha versus the benchmark. She has underperformed just a benchmark

of non-profitable tech. Right. If I were to strip – What is the benchmark? Lottery? The benchmark is a basket of companies with the factor exposures that are equivalent to what she has historically had in her portfolio. Okay. Got it.

Right. And so you can see here it's 30% of her drawdown was due to the companies being on average junkier, 22% on average more expensive than the market. So those two things combined are really kind of the big drivers. That's half her drawdown. Wow. Half her drawdown is there was no value in the stocks or they were overvalued. Right. Another way of saying it is like when you buy ARK, you're buying like two things.

You're buying innovation, but you're also buying expensive junk stocks. And the thing is that like for the first five years of the back test, like the value and the junk and growth part didn't really matter. It kind of came out in the wash. Right. And then only more recently with interest rates being hiked and people starting to care more about cash flows and things like that, are these things really coming to hurt her? So we're getting more or less of an everything bounce today. The only thing that's right on my

screen are bonds, but you've got ARK up 6%, XME, which got killed, is up five and a half. Semis are bouncing bigly. Bitcoin, oil. I call this an everything day. Buy all the things. Adam Parker from Trivariate Research, who we've had on the show before, showed that the second quarter that we just lived through was I think the 18th or 19th

worst quarter ever. Oh, shit. The years on this list are not great. You've got a lot of depression. You've got 2020 Q1 COVID. You've got 2008 makes an appearance on this list one time. What else is in here? 2002, which is the WorldCom, Enron, all that bullshit that ended the, that bear market. You've got a 1970 and 1974. I mean, this is a bad list.

1987, 1974, 29. A lot of these years were in the 30s and 40s, I noticed. There's some pretty bad company to be in. So we don't need to overthink why these stocks are bad. They just fell 90%.

Wait, Mike. The worst quarter ever is not Q4 1929. It's 1932. Because that was the double dip. That's why- You know what they did? They raised interest rates, these maniacs. Well, they didn't know.

They didn't know. And then they did tariffs. Two stupid things. So they had no- We only know because we look at that and say, all right, don't do that. And the president at the time, the president during the Great Depression like would not acknowledge that things were bad. Yeah. Well, we had to deal with the Nazis.

But don't you think you could replicate ARC's performance, just levered NASDAQ 100? NASDAQ 100? So NASDAQ, if you were to run NASDAQ through the same kind of apparatus that I just showed there, you would find, yes, it has a beta of like 1.1 or whatever. So it's a high octane index that it has exposure to growth and to low profitability. But you wouldn't get the same exposure, I guess, is what I'm trying to say. I wish I had the chart up there, but if you look at this innovation factor that I put together, where you're just trying to trend follow what sorts of technologies are trending and buy stocks that are related to

those things, that thing is when you strip out all the exposures in a pure factor basis, it's almost a straight line up. Look at this. I'm looking at the TQQs and ARK, and I'm looking at a five-year period, and they basically followed one another. So the TQQs, I don't know if that's two or three times levered NASDAQ. It's double NASDAQ. Okay, it's double. So again, like neck and neck, right?

From basically- What was that break? From the bottom, that was the top. From the bottom in 2020 through the top in 21, and then something broke. In March of 2021, they completely went, they completely diverged. Meaning that's when the double Nasdaq started

to outperform. That's when ARK started to massively underperform. I think that's more of a size thing. It could be a size thing. It could be because Nasdaq has the Googles and Apples. But didn't Tesla have an amazing 2021 that's why this doesn't make sense well that's where i think one argument is that you know it's

interesting you know most active managers historically want not wanted to use a transparent etf wrapper that you know if you have an alpha you want to hide how you you know because she did she had it but but But the argument would be that by buying lower quality names, it's almost like a reverse Ponzi scheme. You tell everyone what you're buying and then they go and drive it up. But you've already bought it.

It's diabolical. Like it's- It's a reverse, well- The trades are always after the market's closed. I want to say pyramid scheme. Reverse pyramid scheme because it's like you're recruiting other people to – well, you're not asking them to bring in other people's money. Is a pyramid and a ponji the same thing? No.

No, my friend. No. A pyramid requires you to actually be social and get other people to be social. A pyramid is like the makeup on Instagram. Got it. It's not enough for you to buy my lipstick. I also need you to fill your trunk with lipstick and go sell it to your friends.

And I've recruited you. And so I'm higher in the pyramid than you are. I see. And I'm building my own little mini pyramid beneath me. A Ponzi is just like, I took Kai's money last week. i promised him 10 so i raised money from michael today to give kai back his money right and then that just builds on itself into like yeah one of the people different than like you know when berkshire hathaway files their 13f

like it's like oh my gosh he raised so this is that on this is that on steroids yeah yeah exactly this is that on steroids so in other words the mechanism is she buys a stock at 3 o'clock. But wait, that was not her intention. No, no, no, no, no, no, no, no, no. We're not saying that. No, people are doing this to themselves. She buys a stock at 3 o'clock. It becomes part of ARK's holdings.

And if it was a new position, then it really gets discovered on social media because people get excited about what she's buying. And she's buying and she's doing that in the name of transparency right but then people are muppets and they're like i'm buying it because so-and-so is buying it and that could feed on itself but then it works in reverse correct it's hard for her to get out of a stock yes okay yeah because she's a hundred shares moves a stock right yes if anything she's doubling down isn't she what do you mean like she's not trying to get out of the stock. If anything, she's doubling down, isn't she? What do you mean? She's not selling out of the stocks as her ETF is going down.

She's actually kind of doubling down on these positions. That's called a martingale. No, it's not. You know what? I think she spent most of this year doing what most people would do with a portfolio, concentrating into favorite names. When you have redemptions, but you still have a job to do, and you have 20 stocks, hypothetically. She has more, but like anyone. You have 20 stocks. You have $10 billion under management.

You get hit with redemptions for $2 billion. So now you have $8 billion to work with. You're not looking for your 21st favorite stock. No. You're getting rid of the five that you just sort of like, and you're constantly... It's called circling the wagons. everybody does this in every profession it's like when you're in trouble or when you're under siege or when you have money going out the door you don't want to do the 20th best thing you

want to just greatest hits right think about a restaurant has too many menu items and they're going out of business you know what Everybody likes the cheesesteak. We're going to double down on the cheesesteak. We're going to put it at the top of the menu. Two variations. Did you guys know that Tesla's no longer in the biggest position? Yes.

Well, Zoom is, right? Zoom is. I wonder if that's just natural market dynamics. Zoom's actually been holding up pretty okay. No, she's made sales of Tesla and has added to Zoom. Okay. Yeah.

Well, how about that? All right, the market just closed. All right. Not a bad day. Not a bad day. I just want to return to this real quick. In Q2, Apple lost $636 billion in market cap. It's almost like the money is fake and just

exists on a computer screen. Well, that's exactly right. Amazon, 578. Tesla, I think Tesla had its worst quarter ever. I'm not positive. Tesla lost $415 billion. Google, 400. And then on the other side of that- Let me say this.

I shouldn't have to ask, but I'm going to ask, is a $636 billion one quarter drawdown the biggest in history for any individual stock? I can just guess, confirm that, right? It has to be. I mean, that is- It has to be. I mean, that is- It has to be.

That is just- I mean, what was Enron or WorldCom? No, no, no. They were never that- But nowhere. Yeah, yeah. Those might have been $80 billion companies at their peak. Yeah, that's true.

Maybe. I mean, the numbers are- It's staggering. The numbers are staggering, right? And the stock wasn't even down that much. It was down 20%. How much was Apple down? Yeah, probably. I think it was in a 20% drawdown. So you've got, so $2.5 trillion in lost market

cap between Microsoft, Apple, Tesla, Amazon, and Apple. $2.5 trillion. But since the GFC low- Don't say it. From the GFC low, the market today is up 640%. At the start of the year, it was up 800%. S&P 500. No, it's not. From the GFC. Oh, the GFC. I'm sorry.

I was thinking 2020. I remember the Dow at 700. Now it's up 640. The Dow bottomed at 6,500. Where's the S&P bottom? 666. 666, right. So how much are we up from the low of the great financial crisis?

640%. Even in a 20% drawdown or 15 where we are now? But that was – we were up like 800. Right. And now it's 640. Okay, pivoting. But I don't get it because 800 minus 20 is – Pivoting.

A compound show. Voyager Digital filed for bankruptcy this week do i have to like spend the time reading about what this even is or was or like is it not that important it doesn't seem bitcoin's rallying on this news so how important can it be and chapter 11 sounds like they're not liquidating it they're gonna try to find a way to keep well bitcoin's not rallying on this news the this news has been in the works for weeks. Okay. I think if anything, Bitcoin is rallying on the fact that-

What is this? All risk assets are bouncing, and Sam Bankman Freitas came to the rescue. But it's not a rescue if it goes- It's not a rescue for shareholders if it goes bankrupt, but it's a rescue for the users? Like nobody's going to lose any- Nobody who's using the platform is at risk.

I don't know. People are going to lose money. Yeah, they are. You're saying like user accounts, people that have Bitcoin on the platform are going to lose money? So there's two things. So BlockFi is the one that Sam Bankman created through FTX backstop. So far it looks like they'll be okay. Okay, so FTX subordinated themselves to the depositors and have an option to basically buy out the equity holders of BlockFi for a pretty low price, like a 90% discount or something.

Okay, but the users, like the person that owns one Bitcoin and it's sitting on the platform? Again, non-investment advice, who knows? Probably fine. But you go to Voyager, totally different situation. So Voyager, the reason they're screwed is because they made loans to Three Arrows. And Three Arrows was in turn screwed because they made a long – leveraged long bet on Luna. So you can kind of see how this industry is so interconnected. Like it's like the GFC or like you mentioned LTCM all over again. Yeah, it's dominoes.

We're trying to figure out who's holding the bag at the end. And it looks like Voyager and its customers are. So Voyager walked into a bankruptcy court and said Three Arrows owes us $600 million, but we have $1.3 billion in customer deposits on our platform, and we have X hundred million in cash. That's our current condition. That actually doesn't sound that bad. They had to file for bankruptcy, though. Why? Like, was that part of the rescue package?

I'm trying to figure out, like, what is causing them to have to file for bankruptcy though. Why? Like, was that part of the rescue package? Like, I'm trying to figure out like, what is the, what is causing them to have to be bankrupt? I was reading the Matt Levine article was saying that they went out and shopped the business to try to find a white knight to come in and like buy them basically. Whatever, they were just so upside down they couldn't? Nobody bit. They were looking for crypto native firms who kind of were in the industry. Nobody wants that hedge fund debt that they know is never going to be paid. Well, basically, what people were saying is, I value the business at zero, so you're just telling me that I'm going to come in here and bail out the depositors. Why would I do that?

Yeah. So what ended up happening was they went into this – was it Chapter 11? They went into the bankruptcy to buy more time, have a stalking course in order to kind of figure out what their next move is. And then in this case, Sam Bankman-Fried did actually try to bail them out, but it didn't work out in this case. So it worked out in BlockFi's situation so far.

In the Voyager situation, it was really weird because this Alameda, this is a hedge fund, right? So they are a client of Voyager's. So they basically, you know, they borrow money from Voyager, use it for their trading activities. And they're also an equity holder in Voyager. And now Sam is going in and saying, I'm now going to give you a credit facility as well. So it's like three things now. It's a little bit confusing.

Here's a quote. Alameda seems to be wearing every possible hat in Voyager's bankruptcy as a creditor, shareholder, and borrower. There is a general phenomenon of a lot of recycled capital within crypto. And this is an example of that. So Sam had a good quote he gave to the journal. He said, because to your point, Voyager, that didn't work out. He said, if your strategy for trying to extend the lifeline to companies in need results in you never doing it to a company that files for bankruptcy, then you probably weren't doing your job. I guess he's talking from the vantage of a distressed investor, which I guess he is at this point. Yeah. It's like, if you're a doctor and you see 10 patients and one of them dies, like that's your job. I mean, it sucks, but that's what you're

paid to do. Right. So, all right. So this is something that – is this the end of the line for the current leverage unwind? Because you seem to say like – They said that the worst seems to be behind this. Who the fuck knows if there's another leg to drop? Can I ask you a question? And this is no disrespect to anybody in the industry, but like has anybody seen the books at FTX, which is saving everybody? Does anybody know the liquidity at Gemini and at Binance? Like not really.

So like – so in other words, you could run around being the white knight and like bailing all these companies out or trying to. And what if like there's nothing behind you? How would anyone know? They're not filing SEC – like it's not – this is not Bear Stearns or Lehman Brothers like where – like you even know what the player is on the board. I think that the leverage unwinds so quickly that it would stand to reason that if there was more cockroaches, like they would have been out at this point. But I'm just – I'm making the point that there was a moment in the financial crisis where people like Dick Fold at Lehman Brothers were like actively and publicly talking about bailing other motherfuckers out. And I don't know if that was like a strategy. Like, worry about us.

Distraction technique. Right. I don't know. And I'm not saying that's what's going on now. But what I am saying is Lehman was public. Like we knew what their – nobody really knows. But we didn't really know what Lehman had, right? So much of it was off balance sheet, right?

These weird SPV things. That's right. They would take it. They would take a huge loss and put – loss, a liability, push it off the balance sheet, file earnings, and then pull it back. So they would pay somebody to take a black hole off their hands, but it was like a predetermined, all right, and we're going to take it back 60 days later, which sounds like fraud. It sounds sketchy. It's called Repo 151 or something like that. Somebody probably should have gone to jail for that.

But the CFO was like a very sympathetic character. And she was like new to the job. And I just don't think there was an appetite to jail a woman and leave all these men out of it. But like, she clearly, like of all the people, did something that was so obviously fraudulent. I mean, she was directed to, but like,

you know. Who was the Enron Skilling? Who was the CFO? That's Skilling. No, no. Starr? No, hold on. James Caan?

I forget. He went to jail. Andrew Fastow? Fastow. So he was CFO of the year. And the next year he was in jail. A meme-aversion. So the 08 analog I think is very apt

for this kind of I mean it's on a much smaller scale and off of Twitter really nobody on earth gives a shit but it's like 08 for Twitter for Twitter I think that yeah like one out of three people on Twitter are crypto people oh I think it's like oh I was gonna say for the companies it's like the 1907 panic

it's just a background no I'm saying for spectators. If you're not on Twitter, none of this is on the news. Correct. Nobody knows who Sam Bankman Freed is in America. Only if you're on Twitter. The other day when we woke up, I looked at my wife. I'm like, you have no idea what's going on in crypto.

You don't even know. I think actually what you said was, you poor son of a bitch. I said, you dumb bastard. That's what I said to my wife. But you didn't actually say it. I think there's a billboard driving into the city with like Gisele Bundchen with like an FTX logo. My wife goes, who's the – she goes, who's FTX? Oh, it's FedEx.

Right? Why does Gisele work for Sam? I don't get this. All right. So if you're on Twitter, you know who Sam Bankman Freed is. You know what 3AC means. You know what Voyager is. You know what the price of ETH is, you know this shit.

If you're off Twitter, none of these things compute. Right, which is the reason like why in the GFC, the Fed, you know, and even LTCM, the Fed bailed out all these companies or helped orchestrate a huge bailout. But the Fed doesn't care about what's going on in crypto Twitter, right? No, no. So that's why you have this guy saying we have to do it. I'll tell you what better, the Secretary of the Treasury Treasury in 2008 was the former CEO of Goldman Sachs. Right.

It's Hank Paulson. To Hank Paulson, a world without Goldman Sachs existing is unfathomable. It's like impossible. There's nobody in any position of authority at the Treasury, at the Fed, in Congress, or SEC. Don't you think Gensler loves this? That's like an alumnus of us. Don't you think Gary Gensler loves seeing this? Oh, he loves this.

This is why we're... It's a huge opening for the regulators. They're going to come in here and look at BlockFi and Celsius and be like, so you guys are holding yourselves out as a quote-unquote bank, offering savings accounts, and then going out and acting like a hedge fund. Clearly, we need to regulate this.

And you have millions of deposits. Let me get this straight. You're a customer borrowing money, and you're a shareholder, and also, you're a lender to them. What the hell is going on? Why are you lending and borrowing from the same equity, from the same company that you're also a shareholder in? It's like a carousel of money.

Well, that's what this guy said. It's like recycled capital. Kai, what are you seeing? Because you do a lot of work here. Like when you analyze, I don't know if you're doing some on-chain work or whatever, or people going into the industry, are you seeing in the data a dramatic slowdown? So yeah, you mentioned a really important point, on-chain. So don't think back to the GFC analog. We have the kind of off-balance sheet SPV things that no one knows what's in these kind of black boxes. And then we have the audited financial statements. I think the same thing is happening here where you have on-chain.

You have like DAI and Maker. You have the ability to actually look at which accounts are holding the money. And you can see Celsius repay in you know, in many tranches, their loans on Maker. But then anything off-chain due to these centralized entities, whether they're exchanges or crypto lenders, it's very opaque. And it's even worse than in traditional finance because you don't have the financial audits on these firms. And there's no rules, really. So you have no idea what these guys hold. Well, because between BlockFi and the financial audits on these firms. And there's no rules, really. So you have no idea what these guys hold. Well, because between BlockFi and the hedge funds sits Genesis.

And so BlockFi is giving to Genesis, but they don't know what's going on or who their counterparty is or how many counterparties are interacting and basically all of the exact same risk exposure. Right. And they were all exposed. So there's no reg NMS in crypto. You do a trade with somebody.

There is absolutely no requirement that that person on the other side of the trade or that the market or exchange in the middle of the trade is providing you with the best execution. Like none of that shit exists in this world. So I think the big irony is that when crypto kind of came about, the whole promise was everything will be on chain. It would be like the CFTC, like these clearing houses, and everyone kind of like, you know, there's no counterparty risk. It's trustless. Everything is in the open. You can kind of go there, use your analysis and kind of audit like forensically who's

stealing the money, like where the money is going, et cetera. But what's happened is that you've built this, you know, because of many limitations of the decentralized model, such as like additional costs and things like that, you've ended up with a huge edifice of intermediaries that are effectively like prime brokers and – They're all centrally controlled companies. Centrally controlled companies but with less regulation. And so you end up in a place that's worse than if you – They look like Wall Street but with no rules. Right.

Because they are sitting in between all of these transactions or housing the transactions internally, and they're not taking place on a transparent rules. Right. Because they are sitting in between all of these transactions or housing the transactions internally. And they're not taking place on a transparent blockchain. Right. They're happening, who knows, like over a phone call. Yeah. So I think the hope is that we learn from this like crisis like any other, right? We put in regulations like we did in 08 and before that. That just makes sense, kind of clear out some of these issues.

And we also, by the way, you know, hopefully we'll see kind of a clearing out of the dead wood, right? Like it's kind of the analogy to the forest fire. We have all these things like 9,000 tokens, like a lot of them are crap and they shouldn't exist. Do you know? You can start the FINRA of. Well, I was going to say, do you know what the two most important rules are for the traditional securities market? Mike, do you know what they are? No.

The two most important – the Securities Act of 1933 and the Securities Act of 1934. And they were written 90 years ago and they still govern like almost everything that takes place in the securities markets today. The timing is not an accident. today. The timing's not an accident. The 1929 crash and then the ensuing depression through the 30s, they basically went, okay, somebody should be in charge of this shit and there should be some rules. And that's how you get the Securities Act of 1933. And when you go to take a Series 7 or a Series 65, that's literally what you're learning. So- That's right. I think you should do FINRA, right? FINRA is a self-regulatory organization.

FINRA was the NASD, which came along with the advent of the NASDAQ. So believe it or not, that was once part of NASDAQ, was having the NASD was like – because all of a sudden you had all these independent dealers dealing with each other on a network as opposed to the exchange, which was members. So it was the National Association of Securities Dealers, which then became merged with the New York Stock Exchange as securities arm and became FINRA. But basically, it regulates its own members, which doesn't really exist in – Well, also, it's an SRO. It's a self-regulatory organization, which people have philosophical issue with that.

But we don't have an SRO even for crypto. So not only do we not have federal oversight and the banking regulators, they have no standing yet. There's not even really a serious attempt amongst the companies to self-regulate. What's the organization that regulates crypto? Does it exist? FTX. At this point, right? But think about that in the traditional securities world.

If there was no attempt whatsoever, even at a FINRA and a self-regulatory order. So that's where we are still. Right. It's so early. So bullish. I'm just kidding. So anyway, Tesla is no longer the world's where we are still. It's so early. So bullish. I'm just kidding. So anyway, Tesla is no longer the world's largest

electronic vehicle manufacturer. Electric. Electric. What did I say? Electronic. Electronic. They make toy cars. What is? BYD. What is it? BYD. But isn't that just batteries? No, they do buses. Okay, that's Berkshire Hathaway has been invested

in that for like 20 years, right? Since 08. Oh, my God. Okay. Or 08, 09. John, we have a chart on this? To me, it's remarkable because after they bought it, it actually got chopped in half, and then it didn't do anything for 10 years.

Wait. So, wait. BYD is worth how much? Well, they've got a Hong Kong and a China A. I can't believe how big that thing is. Yeah, they've done very, very well. Okay. How did it get so big?

Well, they were very early in electric vehicle buses. And then from the buses, they developed the technology and realized the batteries were kind of part of the gold. Right. So now, now they're selling the, not only the buses, but they can actually sell the batteries to other. Is that the only thing Berkshire Hathaway is invested in, in China of any, of any consequence? I think at the moment. I saw Charlie Munger get asked a really tough question about like at the height of the chinese concerns when there was a lot of harsh biden rhetoric so i think this was during daily journal um you know how he's like he does the sit down thing yeah so somebody asked him a question about how could you like allocate money to china like how could you allocate u.s taxpayer investor money to china because he

oversees um both berkshire Hathaway and Daily Journal's investment portfolio. And he was saying like, we should not expect the Chinese to have an identical society that we have, number one. And number two, wouldn't it be better if the US and China were against the rest of the world? Like, in other words, like imagine a partnership between the US and China. Who the hell could stand against that?

Like, just like thinking of the world that way, which nobody ever does. But what if the US and China actually had a partnership? Now, he's obviously biased because he's got investments in it. But I would imagine somebody like yourself probably thinks that that would be a better situation than the current situation. Yeah, I mean, I think- I know it's pie in the sky, but I'm- Well, yeah, yeah. I mean, actually, they call it situation than the current situation. Yeah. I mean, I think. I know it's pie in the sky, but I'm. Well, yeah.

I mean, actually, they call it like a G2 world. Right. You know, like. A G2 world with like a healthy agreement on the big things. Yeah. Yeah. Yeah. And I think, you know, one of the, you know, the U.S. and China at times have never been

more intertwined than today. Right. Politically, you could say not so much. But business people are getting along just fine. And I think U.S. companies in China are doing just fine, right? We showed, you know, the Apple and the Exxon Mobils. And, you know, that's where there's some, I think, almost hypocrisy. People will say, you know, oh, this about China, that.

And then it's like, you know, they're typing that on their iPhone. And it's like, well, where about China, that. And then it's like they're typing that on their iPhone. And it's like, well, where do you think that thing came from? I want to do – before we get out of here, I want to do ETF trends through the first half. There's some interesting stuff going on. Michael, what are we looking at here? Kind of the boom and bust of thematic ETFs. A lot of this is driven by ARK. So if you back that up, I'm not sure that there's really much there.

Have you guys heard about the new – there's a night ETF. Have you guys heard about this? Yeah. I saw that. Where they basically – so I forget who first documented this, but a lot of the returns happen outside of market hours, which isn't that shocking considering that's when most of the news happens, right? Gap ups, gap downs. Most of the news happens outside of market hours. So there's a fund,

and I'm kind of surprised it took so long for somebody to do this, where essentially they're buying the clothes and selling the open. Yeah. Your thoughts. That's so smart. That's so genius.

Wait, so on a gap down day, what happens? Does the ETF trade throughout the day and you're just down? They're buying the clothes and selling the open. They're doing it with futures contracts. I don't really know the mechanics of how they're doing this, but Kyle, what do you think? Bullish?

Look, I think – I mean I haven't studied this myself. I mean when I used to run my last CTA, we did strategies like this. We would like trade reversal and mean reversion into the close and at the open and around option expiry. I haven't looked at this overnight. In fact, what I've read about it, what I've heard about it is it has to do with like a risk premium associated with market makers holding inventory overnight, right? Because if you're going to own the market, if you're going to buy U.S. stocks at four, right, and hold it until 930 the next morning, if bad news happens over the night, that could

be bad. There should be a premium connected to that. Right. And people try not to do that, especially day traders, prop traders. If they can help it, they don't want to go home long positions. Right. Therefore, you should get paid if you're on the other side of the trades. Now, almost always you see back-tested strategies that fall on their face.

Why are you shaking your head? You don't like it? I'm just trying to figure out how many Altoids Michael has in his mouth right now. I believe that's called the cheekful. He's got a cheekful. I'm curious to see whether or not this erodes that... I don't know if it's alpha

or whatever the hell you're calling it. I don't think it's big enough to. I don't think it can. I think this is more of a structural thing, but I'd be curious to see how that works. I'd be less worried about... Sorry. I would think it's big enough to. I don't think it can. I think this is more of a structural thing, but I'd be curious to see how that works. I'd be less worried about, sorry. No, I would think it would work more, you know, close on Friday, open on Monday.

Because you really don't want to hold it over the weekend. Versus just over the night. I'm super bearish on Tuesday, so I think that's a good point. How many ETFs have you built at Crane Shares? I think we're up to just over 30, including European listed.

Okay. So a lot of the funds in the US, you have a European version? Yeah. Okay. So, all right. Another interesting note, this comes from ETF Trends.

Year-to-date net inflows, the most popular category, and it's definitely been a minute that this was on the leaderboard, were dividend ETFs and ultra short-term bonds. The ultra short-term bonds totally make sense. And I guess dividends too because defensive stocks have done much better. We were talking about like year-to-date gains and losses.

I'm sorry, Q2. So some top adding market cap companies were Eli Lilly, Merck, ExxonMobil. So I guess that makes sense. Worst performing ETFs year-to-date. It's got to be ARK, no? Excluding leverage and inverse. Crypto related. Cannabis related.

What else? FinTech innovation. All three are ARK products. SPAC related. Meme related. So basically like a complete reversal of 2021, which happens all the time. All right. of 2021, which happens all the time.

All right. So the bottom four, blockchain, digital transformation, Bitcoin miner, Bitcoin crypto, which is, I guess, what's BitQ? Bitwise. That's a Bitwise. If you have to ask, you can't afford it. Skybridge crypto, Elarian crypto. Yeah, anything crypto. It's a who's who of shit.

No, but look Oh man The D-SPAC ETF Year to date return Negative 64% If you own the stuff up top You need the stuff on the bottom You need your psychedelics Your cannabis

Psychedelic ETF I saw that In the second quarter I think ETH lost 69% In the second quarter Which is nuts That's horrible I didn't realize

That there's more than one cannabis ETF. The median market cap of cannabis companies is like $300 million. We need multiple ETFs for this. That's in Canadian dollars. And that's in Canadian dollars. What was the big one, Tilray? Yeah, I think it's the biggest one.

It's definitely small, though. So I was not aware. Put up this chart on Fe feast or famine for thematic it's interesting that all of the thematics are getting hit at once uh i don't see space on there but i bet it's i bet it's somewhat in the in the in the mix although maybe it owns enough like uh boeing and and uh uh defense stocks that it's okay but like like- That's all ARK now. No, this is ARK. No, no, no.

This is all of the funds. Yeah, but I'm saying ARK is the biggest thematic. Global thematic funds trailing 12 month flows. They were $250 billion in early 2021 and they have fallen to somewhere around 75 billion. But still pretty, still not bad you remember tilray was the first meme stock i remember rosh ashana it was 2018 and this name started going ballistic i don't remember what the catalyst was but probably not rosh ashana was probably not the catalyst but having to hang out i remember where i was at that point so it ran to 41 billion

dollars in market cap it's under two today but that was another one of these uh newly public short squeeze thing. It was like the original. Not the original, but of this era. Like I watched what was the camera IPO? Oh, GoPro. GoPro went from like 10 to 100 to zero.

I shouldn't say that. It might still trade. What about like the 3D printers? Right, but these were major short squeezes. So Josh, you're right. The IPO GoPro went nuts up to $12 billion, and now it's $870 million. Beyond Meat. Sorry. Sorry, no offense.

Beyond Meat was one of the big post-IPO squeezes that we've seen. Duncan, you still hodling? Oh, yeah. Yeah, it was good while it lasted, but yeah, I'm still hodling. Are we doing anything else on this ETF thing? What do you guys feel about the state of the ETF business right now? Like, things are...

The market sucks, but everyone seems to be holding up. Yeah, yeah. I mean... I don't heard any drama. I mean, I think there's a big home bias in the U.S. I think, you know, it's almost like some of these

investor sentiment surveys, like everyone's bearish, but they've never held more US equity. And that's where you can have from this GFC being up 800 to 640, and no one misses a beat because they're still up 640. And that's where I would think the market does what's least anticipated. Most people hold little to no non-US because over the last decade or 12 years, anything outside of the S&P 500, the more you own, the worse you did. And if you're on an investment committee or you're an advisor and you've got to with your clients yeah yeah you whittle it and now now it's zero but you know what's interesting it's gonna do it doesn't take five years of overseas outperformance to get people interested again yeah i think it takes like four quarters i think one year of inter and it's never happened in 10 years one one uh i asked michael to run this

calculation for me from 2012 through the end of 2021 so the last decade calculation uh 16 and a half percent returns for the s&p which is 360 percent on your money why would you be looking elsewhere if elsewhere looks like 70 returns 90 returns yeah but one one year that's good for international and just okay for s&p and it's well here's here's one uh yeah part of my notebook uh okay so since since the low s&p 500 is up it's like ryan gosling sitting here with the notebook all right go go can you tell my wife that? Yes. MSCI emerging markets, GFC low, S&P is up 640, MSCI EM is up 191, MSCI China is up 191. But here's like our take on it is that if you looked at MSCI emerging markets 12 years ago, 14 years ago, MSCI China 14 years ago, it was all financials, energy, industrials, materials, and real estate, all value sectors. So you go into this decade of growth stock decadence

and the big EM benchmark, the big China benchmark is all value. So is it that EM and China were out of favor or just that the broad benchmark, you kind of got what you paid for? And to prove that would be, well, what's a growth sector in EM and China? Well, obviously tech. So MSCI emerging market tech, again, S&P 640, EM 191, China 191. EM tech was up 724, 728, I'm sorry.

China tech was up 2,260%. Wow. Now, the problem is like 14 years ago, EM Tech- You couldn't get exposure to that. And China Tech was like, you know, like 20 bips or something, you know? I mean, you know, 200 bips.

So you had to go out and you had no exposure to it. And- Well, I'm one of the people that thinks classifying stocks by what country makes no sense when you consider that almost all of the out or underperformance stems from sector, industry. Well, yeah, that's it. So I still don't know why portfolios are constructed that way, but they just are, and it's like a convention that many people have accepted. But it's just not – not that you have to be in the top-performing industry only. Yeah, yeah.

But like if you were starting from scratch – if you were starting our industry, asset management from scratch, you would not do it with a fucking heat map. With the globe. It's like meaning – we had Linzen on the show two weeks ago. He was some adventure capital decks, pitch decks. Linzen on the show two weeks ago. Here's some adventure capital decks, pitch decks. He's like, if you were raising money for a startup 10 years ago, you had the whole world, and you would

say these are our growth opportunities. He's like, now half the map is black. You're not going into China. Definitely not going into Russia. It's half the map. Or India. Right. But we're building portfolios based on countries when we know that the difference in performance is coming from industries.

What's in favor? What's not? We know it. Look at every country. I wanted to finish with what I thought was really funny. But now that I say it and you guys are in the room, it's more tragic than funny. Did you hear the one about the 90-year-old Morgan Stanley broker? Okay.

He shot his partner multiple times in an Oklahoma City branch. It was a 61-year-old colleague who was supposed to be the guy that was inheriting his book. So I just thought that this was – I mean it's obviously a tragedy. I don't think he's dead. But – no, knock on wood. So for 20 years, the 90-year-old has told – I'm going to leave soon. I'm on my way out next year, I swear.

I swear. Well, 20 years ago, the 90-year-old – 70. This is – all right. Here, police – let me set this up real quick. A 90-year-old Morgan Stanley broker has been accused of shooting a colleague multiple times in Oklahoma City branch office. Police say Leonard Bernstein – Bernstein in Oklahoma? This is already suspect.

Walked into the office last Thursday and shot Chris Bayouth, 61 years old, several times before driving away. Bernstein was later arrested in a traffic stop and charged with shooting with intent to kill. Witnesses told investigators that Bernstein and Bayouth had worked together for nine months and the elderly man was handing his accounts to the younger business partner. It's unclear what went wrong. I know what went wrong.

The international allocation. That's all. One guy said 30%, the other guy said 35%. Why are there 90-year-old brokers handing their businesses off to 61-year-olds? Shouldn't it be like a team of 30-year-olds? Like, doesn't... Servicing his 90-year-old clients?

Like, no, but aren't we doing succession for a reason? It's not like, yeah, I'm going to hand you off to this gentleman who will also be retiring very quickly. Very soon after. And I'll shoot him to make it faster. And I'll, yeah. Accelerate, accelerate.

We'll get rid of this guy. Sorry. You worked at BlackRock iShares for how many years were you there? I mean, going to the BGI days, it'd be like 13. Okay. But I actually have a great Jeremy Grantham story. Tell it. Let's hear it.

Okay. This is the time. But I actually have a great Jeremy Grantham story. Tell it. Let's hear it. This is the time. So 2000, the beginning of 2008, the Hartford CFA Society, BGI, iShares, we sponsor it. So we get a table. The first speaker is from the New York Fed.

This guy drove up, does his little shtick about, you know, there's some issues out there. Is that what's-his-name? It was not the head of the New York Fed. This was like an underling. Okay. And he does his little shtick about, you know, there's little flare-ups, but we're... Transitory.

We're on top. Contained. We're on top of it, and he walks off the stage, and the next speaker is Jeremy Grantham. And Grantham gets— Everything that guy just said is bullshit. That's exactly what he said. He was like—

You're all going to die. He actually said, it's a good thing that guy's leaving because I'm actually going to eviscerate him. That we're headed into a global crisis, and the world's about to end, and banks are going to go bankrupt. Actually, because we had sponsored, I went up to him after and I said, you know, like, I'm Brennan, you know, with Barclays Global Investors. And I just had a question for you. Am I going to have a job in six months? Yeah. So he said, you work for Barclays. And he's like, you should get your resume ready right now.

And they actually survived. Well, sort of. Barclays Bank, you know, basically sold BGI and iShares to BlackRock. War sale of all time? Is that how they survived? That's how they avoided being nationalized. But then they bought Lehman.

What the hell is that about? Well, it was just Bob Diamond was, you know, he was a banker. And so he, you know, saw this, this is the opportunity to grow barclays capital you can take over lehman brothers and yeah you get the whole building for free and uh but yeah yeah jeremy yeah absolutely nail it i mean he was 100 you know he called it uh it was pretty amazing i wish he would stop calling it though like i that's all i'm saying no disrespect don't shoot the

messenger yeah yeah no disrespect anyway I asked you that question that you were at iShares or Black you must have walked into some offices where there were some 90 year old brokers

walking around or financial advisors and you're just like what am I going to get accomplished here you must have walked into some well you know

I was trying I was trying to think that you know when we first met you and Barry were over by no don't talk shit about us. I want you to talk shit about other people.

No, I'm actually going to tell you. Actually, I remember that. We were at 90 Park Avenue. No, no, no, no, no, no. No, no, no. Oh, no, no. No, you were like off of Vanderbilt. 44th Street.

You were between Vanderbilt and Madison. Yeah, yeah. We were on 42nd, 44th. No, 44th. 44th and 5th Avenue. And I think you may have just joined. Yeah, you were there on Michael's first day. No, but you came up and you were like,

you were like, hi, I'm covering you guys for iShares. Let me see what you're doing with your portfolios. And we were like, about that. Because we were not very settled yet. I mean, this is 2012 or something? Probably before that. So we were just not like 100% in agreement, even internally,

on what we wanted all our portfolios to look like. But you were just like, guys, I walk into some of these RIAs, they have like 30 CFAs running around picking stocks. They don't ever beat any benchmark. It's all a big, elaborate show to impress the clients.

Like, you know, what if we were to just like start from scratch and look at ETFs versus any of these other options, which don't make sense. But I remember us having that conversation. Well, I think I was most impressed with you guys. Like the team was like, we're doing this thing called a blog. And I was like, what's, I mean, I had moved from San Francisco and I was like, what's a blog?

Yeah, we were freaks in the industry at the time. But like, it was like, no, no I mean, I had moved from San Francisco and I was like, what's a blog? Yeah, we were freaks. Freaks in the industry at the time. But like, it was like, no, no, no, we're going to write. I'm like, and you know, you're going to try. You're like, no, no, we're going to give it away. And like, we're going to get clients by trying to educate them. Oh, you thought we were like a newsletter. Like, what do you mean you're writing?

Oh, I was just like, I was like, this is like a foreign concept. Like, but, but, you know But you fast forward and you created this incredible thing. And at work, people at iShares were like, why are you going to go see those guys?

They run no money. I was just like, no, no, no. Really? Who said that? Well, it was just more of like, you know, iShares.

Larry Fink said that? Don't go waste your time with those guys? Yeah, I would never bring you up with him. Okay. No. It was more of like, you just do the math. If your iShares are

so big, how do you move the dial? It's not talking to a small RIA. You've got to be talking to the biggest RIAs, the biggest asset managers to move the dial. See, they should have focused on our patents, and then they would have known we were the next thing.

BlackRock iShares was always very good to us up to this day we have a great relationship with those guys yeah yeah it's incredible what they've built

100% we're happy customers it's really hot in here so let's do favorites and we'll let you guys escape the room we're gonna have we're gonna have a talk

about the temperature in here Duncan shortly after the show I'm comfortable you're okay? yeah oh the show. I'm comfortable. You're okay? Yeah. Oh, maybe it's me.

I'm hot. I don't control the weather. Dude, I'm being recorded right now and I'm glistening. No, we got to figure out a solution for the next two months. Prima Donna. I really am. Here's my – I'm going to start first. And then – hold on.

You're watching this show called The Bear? Everyone's talking about that. Nobody? Nobody in the room? What about nicole nicole not even i saw i advertised in the subway listen to me listen to me it's 22 minute episodes it is like one of the best new shows that i've seen the last five years it's like a chef do you like cooking like food i like to eat yeah it's like a chef in chicago who worked at this guy i think somebody told me he was on shameless which i didn't watch the actor um he he was a chef at 11 11 madison park which is the best restaurant in the world uh or used to be and his brother kills himself

so he has to move back to chicago and take over his family's sandwich shop but he wants to elevate the sandwich shop into like more than just hot dogs and, you know, cheesesteaks. Why do they call it The Bear? I still don't know. I'm only five episodes in and they have not explained this. It is such a great show. And it's really, really fast paced. I was thinking of you when I was watching it

because the way they shot it looks like uncut gems. Like the camera shaking, like you don't really know who's there. They're all talking at once. It's like very frenetic, which is my kind of... Anyway, that's my rec this week. It's on FX or Hulu. What are you guys getting into?

I actually opened up Spotify for the first time in a while and went on the Joe Rogan podcast. Marc Andreessen was on. Oh, really? Yeah, I got through about half of it and then i was in the subway and then spotify can't handle like buffering was it nine hours it's like three hours or something but so far so good it's i mean andreessen's been in the game for a long time he does crypto come up at all do they get there he alluded to it but we were in about 50 of the the way in. It was AI and X-Machina and the Google engineer who thought his AI was real. They talk about the history of computing and going all the way back to the early days.

So, yeah, it was kind of fun. Fun jaunt through history. I would definitely listen to that. You've got to listen to a lot of commercials to get there. Yeah, yeah, yeah. I'm reading Malcolm Gladwell's David and Goliath. What year is it? I have no clue.

Okay. But it's excellent. Why are you reading that? Because you are David. Well, you know, if you're fighting, you're challenging the big bohemus

in the asset management industry. You know, I've always, I've loved his writing and I just was stuck in an airport and I was like, hey, I've not read this one. But it's excellent. All books are better in the airport.

We were talking about this on the show last week. I re-watched True Romance. Duncan, did you watch it yet? I have not yet. Okay. Absolutely flawless. Holds up like nothing. I mean, what a movie.

He didn't take our word for it yet. Apparently not. Honestly, it's not free on any streaming, so I just haven't broken down. I learned today that Michael never saw Scent of a Woman. Yep, it's a big hole in my repertoire. It's like a top five Pacino. I haven't seen that one either. Wait, how are you involved in film? Come on.

Anyway, add that one to your list also. We're done with that. All right. Listen, you guys have fun today? Yeah. That was excellent. Yeah? Awesome.

All right. We all learned a lot from each other, I feel like. Yes? Okay. I feel like I didn't bring much to the table today. No, you would definitely. You had the charts. No, but you did have the charts, and we needed that.

So, hey, guys, don't forget, for the latest in financial blogger apparel, check out idontshop.com. We're probably going to be pulling those beach towels off pretty soon, right? What's next? We're doing like a— That's not in summer yet. Yeah, but I feel like if you haven't bought one yet— What are we doing for the fall attire? I don't know.

Something pumpkin spice. Maybe brainstorm. All right. We have a little bit of time to plan that. Sean, great job today. Thank you so much. Duncan, great job today. Happy birthday so much. Duncan, great job today. Happy birthday, Nicole.

Happy birthday, Nicole. Thank you guys for listening. New Animal Spirits podcast every Monday and Wednesday. New Portfolio Rescue with Ben live 11 a.m. Eastern every Thursday. And thank you guys so much for listening. Make sure to leave a comment. Make sure to leave a review. We will be back with you next week. Have an awesome weekend.