The Compound and Friends - Sell-side Indicator (BofA) is almost on Sell, Vix is still asleep, the Bear Case revisited, FICO massacred | WAYT?

Episode Date: October 6, 2026

Join ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ for another episode of What Are Your Thoughts and see what they have to say about: whether the stock market is getting too bullish, why the VIX remains unusually calm, and what weakening market breadth could mean for investors. They also break down Michael Burry’s latest warning, Nvidia’s growing influence on the S&P 500, FICO’s stunning collapse, and the disconnect between mega-cap tech and the rest of the market. This episode is sponsored by Neuberger. Explore NBSD–including all risks and important information‒at ⁠https://www.neuberger.com/nbsd⁠  Please take our 2026 audience survey ⁠⁠HERE⁠⁠. Sign up for ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Compound Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and never miss out! Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠ Neuberger Disclosure: Investors should consider the Fund’s investment objectives, risks, fees, and expenses carefully before investing. This and other important information can be found in the Fund’s prospectus, and, if available, summary prospectus, which you can obtain by calling 877.628.2583. Please read the prospectus, and, if available, the summary prospectus, carefully before making an investment. Neuberger Berman BD LLC, is the distributor of the Fund and a FINRA member.⁠⁠⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to what are your thoughts, America's favorite investing live stream. I'm your host, downtown Josh Brown. My co-host is with me as always. Introducing Michael Batnik for first-time viewers and listeners. Michael, say hello. Hello, Josh, you are slowly morphing into Fabia before our very eyes. It's really incredible. The transformation is almost complete.

I am assuming my final form. All I'm missing right now is a tan. I haven't been in the sun in a minute. You can get that back. I know. I'm going back to Boca next week. All right, guys, this is a show where Michael and I discuss the number one, two, three, four, and five. Most important things happening in the market at the present moment, or at least what we deem to be the ones most worth discussing.

I want to thank everybody who's joining us on YouTube for the live premiere. We appreciate you guys. fun treat each other well. We have a sponsor tonight. Michael, tell us who the sponsor is. That's right, Josh. This podcast is sponsored by Newberger. Wondering how you might adjust your fixed income allocations in today's environment?

Yes. Oh, I'm in on this. With central bank policy diverging and economic growth shifting, staying parked in cash or ultra-short funds could mean yield left uncaptured as the market moves forward. That's right, Josh. Moving out on the curve, even modestly. may offer a potential yield advantage without stretching for duration. That's why you might consider the Newberger short duration income ETF ticker, NBSD.

NBSD aims for consistent and efficient income, investing across rates and credit markets at the front end of the curve, targeting an investment-grade risk profile. Explore NBSD, including risks and important information at newburger.com slash nbSD. Investors should consider the funds, adjustments, investment objectives, risks, fees and expenses carefully before investing. This and other important information can be found in the fund's prospectus and if available summary prospectus, which you can obtain by calling 877-628-2583.

Please read the prospectus and if available the summary prospectus carefully before making an investment. New Burger-Berman BD LLC is the distributor of the fund and a FINRA remember. Josh, before we get into the first topic, which is a juicy one. I just want to say how much nachus I had last week watching ChartKid shine like the star that he is. I was at cruising altitude. Was I 30,000 feet in the air? I think so. And I was watching him just deliver. I was watching all of the people support him in the comments section, which I was beaming with pride. So thank you to everybody that came out and supported him,

showered him with views and praise. He was awesome. You know, we really try so hard to keep the show going every week no matter what. And when it was just Michael and I all the time, it would be pretty tough to, you know, we're both executives at a wealth management firm. This is not, this is not so easy to balance actually being market participants and working in the industry with doing the show. But having Sean and Chart Kid in reserve, these are not bench players. A-list players that arguably could easily run a show of their own. So it is really cool that when one of us is incapacitated, there's a ton of talent behind it. So I totally agree.

All right. Michael, are we one step away from sell? I mean, so they say. Does it feel that way at all? We're not more. Or do you not feel, do you not feel it? Listen, I, I, I, I, I, I, I, I, I, I listen to the market. I listen, I feel it.

And right now, I think the message is pretty clear. And I don't think it's telling you to sell, even though it's very easy to draw that conclusion. So I will present evidence to the jurors later in the show. But let's hear what Sevita has to say. Well, I would say, I would say if you're listening to the market and you're being at all intellectually honest about what's gone on over the last 17 years. almost 18 years, the message of the market is, I dare you to sell. Like, I, I dare you. Do it. Do it. Watch what happens. Because that's, that's been the history. We're not even in, we're not even in a 5% pullback from the high, which is pretty remarkable, given all of the

things that we're contending with. But, but that's, that's why I might take is that's the message of the market. You said something on the show last week that I really wanted to expand. because I thought it was the most important comment of the show. Or was that two weeks ago or I don't know. You said there's no fear in this market pointing to a VIX at 16, but there's plenty of doubt. And the doubt, I think, can be measured in the contracting multiples as quarter after quarter, we see record high earnings above consensus numbers, upside surprises, and increased forward guidance. and yet the multiple we're willing to pay for earnings is actually shrinking,

despite the fact that the market's up 14% on the year, earnings are up way more. So I think that's the perfect encapsulation of 2026. Like if I had to explain it in one sentence, I would say no fear, tons of doubt. What are your thoughts? I mean, I agree with everything. Those are your thoughts.

Those are my thoughts. I totally agree. All right. I want to show you something that we, have periodically checked in on over the years. Savita Supermanian is like the equity quant strategist at Bank of America. She's

one of our favorites here on the show. We can't get her to come on the show. But that's, that's a she's always like, yeah, yeah, I want to do it. And then we go to schedule it. She's a busy person. She's on sabbatical. All right. Anyway, we love, we love

Savita. Okay. Her new note is pretty provocative. came out over the weekend. This is her cell side indicator. The sell side indicator, uh, thank you, John, sell side indicator increased in September and is now just 30 basis points from a cell signal. The blue line is what you're paying attention to. And I guess what this is, is it's measuring. The, the red line is extreme bullishness based on strategists recommended allocation, I believe. And then the green line is extreme bearishness. And we've been sort of in between going back to 2014, 2015, give or take. Like, we really haven't had a breakout above or below.

And that's why this line continues to converge. So it's much narrower banned than it used to be. But I want to connect. Let me quote Savita. And then I want to get your reaction to this. The sell side indicator is a contrarian chart of sentiment, sentiment, that tracks sell-side strategists average recommended allocation to equities in a balanced fund. So like are they saying 70-30? Are they saying 50-50? That's how they get this number. And it's had incredible moments, this indicator, where it has picked up on extreme

bullishness and has served as a good cell signal. It's also had great buy signal moments historically, which is why we pay attention to it. It's not perfect. It's not like an amazing timing tool, like to the day. But I think it gives you a pretty good idea of where the street is and how extreme that is in both directions. We're still on neutral, but we're approaching cell and we're 30 basis points away, which is pretty much there. And she gets into the whole history of it. But I think the bottom line here is, I'll quote, Savita, while our SSI suggests,

equity optimist approaching cautionary levels. AAIII, which is a separate survey, indicates that are still some bears. The bull bear spread fell to minus 25 percentage points in mid-September, roughly 1.5 standard deviations are below its 10-year average, but has since ticked up historically. Next 12-month, S&P 500 total returns have been slightly stronger when the spread was one to two standard deviations below its 10-year average. your average than when it was one to two standard deviations above. So the relationship is noisy, and I think just to focus on the strategists themselves, one more time on the chart, I would not say a break above this red line puts a hard stop

on the bull market, but it's just one more notable thing that the street has grown increasingly bullish in terms of their allocation recommendation. One more arrow and the quiver of people that want to be contrarian. Do you feel, I understand that what you just showed us quantitative, it's like measuring data. Measuring people's feelings. One particular groups feelings. Yes. Yes.

Because. Because. There are many other metrics that you can point to, such as, and this is just another data point. Equity, ETF inflows have cooled dramatically. That is not the feeling. that is a data point. This is a feeling.

As you mentioned, the AAI-I-I-Bull-Bair stuff has been pretty skewed to the bears. Does it feel this note notwithstanding that there is extreme bullishness for stocks? No. You know what it feels like? Exactly what I started off saying. What you said,

there's no fear. Like, we're not seeing this waste to buy puts. We're not seeing this race to put on hedge. It's just that's not what's happening. It could change today, but not yet. However, the amount of skepticism in the market, but the thing is, people who dictate portfolio allocations on Wall Street for a living are tired of being rug pulled.

And every time they get negative, and every time they suggest lower your equity exposure, or they drop their target for the S&P, or whatever the case may be, they look stupid a month later. And I really think that that's what's key. keeping the VIX in check. And that's what's keeping the strategist allocations high.

So what I would say to Sevidia, if she were here right now, is I'm going to give you this big fat asterisk, which does not show up in the data. But trust me, talk to enough people and you'll know it's real. These guys do not want to get bearish. They don't want to get Mike Wilson. Nobody wants. If you have that job, you want to keep that job. And again, the market is daring you to get bearish.

It's saying, go ahead, do it. Do it. Flip Barish. I dare you. The index is at an all-time high right now. And I am surprised that the VIX is still at 16. I am surprised that the index is hitting new highs despite interest rates going up seemingly every single day.

Yeah, 36% earnings growth for the NASDAQ will do that to you. That's like that'll happen. you'll get people saying, I can't get out yet. That's why. By the way, I'm not mocking the Wall Street strategists. What are they supposed to do? You know how important a factor in their models' earnings is? It might be, I mean, depending on the firm and depending on the strategist, it might be the most important factor that goes into their allocation advice.

What would be more important than earnings growth? It's probably a number one for all these guys and gals. So I sort of get it. The guys at Renmac are not as sanguine as the strategist on the street. So this is Jeff DeGraph. I want to show you him saying the VIX won't budge feels ominous. Let me tell you what's in the chart and then you can react to it. He's showing the VIX index, which is on the bottom in black.

It has been flat lining since March. No uptick in sight, 16 spot 3-9 as of, I guess, the weekend. The blue line is the J.P. Morgan Global FX Volatility Index. So there's a lot more happening in currency markets in terms of vol than we're seeing in stocks. And then the orange line, the maroon line, I should say, is the B of A Move Index. and so they're looking at bond yield volatility. So you've got volatility in bond yields, got volatility in currencies. The stock market is in a coma.

What do you think? I have another one from Ren Mac, but what do you think about what we're looking at here? I wonder if the VIX is the right measure. Like I don't know enough about market structure. Like in this day and age? Yeah, but if, right, because of the concentration, because of how well large tech has held up relative to everything else, I don't know that it really tells you the right story.

If there was a VIX for the 493, for example, I think it would look a lot different. There is. We've seen, like Nick Coles has done this. He's done the VIX of the Russell 2000. He's done the VIX of the NASDAQ. I've seen it for semiconductors. He does have these alternative. But I still think all of that stuff gets captured by the overall VIX number.

It gets my, look, Apple's in a product cycle and making record highs. And V-Vidia made a record high two days in a row. Just wild. These are the number one and two largest stocks on Earth. So when you have the index being buffeted by that sort of like tranquilizer, you know, you look at the VIX. The VIX is supposed to capture the S&P. Those are the two most important stocks in the S&P mathematically. Microsoft is stabilized.

Meta is now in rally mode. like these are gigantic Amazon is flat but not down these are the gigantic stocks that are pacifying the VIX or the holders of the S&P. I want to show you the market cycle clock from

Ren Mac. We have brought this on the show before. Basically they're not saying use this for timing to the day but what they are saying is bad shit happens when we're up in this top right hand quadrant and

I could barely read this. It looks like it's growth and inflation. All right. This is Wren Mac. In 2018, rates were rising with a new Fed chair, and our market cycle clock was in the upper right. We know what happened then. In the year 2018, we had two separate bare markets. One negative 17, one negative 21.

I think the first one started in February, and the second one started in October or November. very unusual to have two giant double-digit declines in the S&P inside of one year. And they're pointing out it was a moment where the market cycle clock was right. On October 1st, 1987, dun, dun, done, our market cycle clock was in a similar zone. We're not calling for a crash. Just a reminder, bad things tend to happen when growth and inflation are in a similar position with the Fed raising rates. The good news here is the Fed looks to be on pause through at least October, which is the month that we're in now. But as Neil Duda points out, their bias is to remain tight.

So I thought of this. The funniest outcome here would be more people paying attention to this and saying, wait, economic growth is this. inflation is that. The Fed just tightened. May tighten again, probably a tightening before a cutting. Funniest outcome would be everybody gets all worked up, and then we have an October flush, and then earning season starts, which is right around the corner. And all the reports start coming out jackpot one after another, and the whole market

just rips into year end. Wouldn't that be hilarious? Sure. The way that I see it, the market is not going to all of the sudden wake up to what's been happening for the past couple of weeks and months. That's usually not how it works. Like all of the sudden, collectively we're going to say, holy shit. No, 6% on the tenure is what is what pushes everyone over. Did you know that the tenure was 5.3%?

Yeah. Everyone does know that. Do you know that inflation is this and the Fed is that? Yeah. Everyone knows that. So in order for there to be a material. come down in the stock market. I think you're going to need something that we don't already know. I, six percent on the tenure would get the job done. Maybe. I mean, probably. I wouldn't,

I wouldn't argue that. Okay. I don't see it happening, but a miss out of a big financial, the first week of earning season. Wells Fargo or Bank of America, both of which are in pretty big drawdowns. One of them comes out and says something fucked up about their bond portfolio or like I'm trying to contrive an out-of-left-field scenario that's somewhat plausible. But I think it's hard to do that because, you know, there's no evidence that that's what's going to happen. We're just, you have to literally make something up. Another potential reason for the stock market to sell off that didn't take was meta and Microsoft

talking about pulling back on the frontier model's usage. Like, that could have been a chink in the armor. And the stock market just does not want to sell off right now. Could change. A successful rocket strike on a pipeline by the hoofies. I mean, sure. Yeah. Saudi Arabia is in there driving over people on the beach.

Like it's like a literal, it's becoming a conflagration in the Middle East that's expanding beyond this straight of Hormuz theater. That's the other side of the Arabian Peninsula, now an active war zone. I mean, these are the things that you have to think about. My point is there are so many, not potential, there are so many risks today staring us in their face. And the stock market is looking past it. I think you should listen to that. Is all of the stock market looking past it?

No. Or just the meaningful companies that move the chains for the index? Fair point. And we'll get into that later. I want to anything else before we get to the bear case. Why won't you flip the Irish? Why is it so difficult? I'm listening.

the market is telling me to stay bullish. We'll get to them in a second. I have evidence later. Okay. All right. Michael Burry tweeted this morning. The stock market, the stock market is quite obviously in its first stage of grief denial per 2000 and 2008. This stage lasts six to nine months.

It sounds like the opening of a street.com column. Yeah, maybe. Okay. I don't know. Who is this for, the last five people, following him that have money left. I don't even understand. Like, why is he doing?

Why is he enjoying this? Does he, does he think that he's like really going to save everyone? Maybe that's what he, I want to ascribe to him like the most positive possible motivation. Because I don't think he's a superville. I don't think he's like, I'm going to trick everybody,

but I don't think that at all about him. I would agree with you. I think he means well. I agree. I don't think that he's trying to lose anybody money. I think he's doing what he's saying. as he's doing. I think he believes. I think that he has the battle scars to remember what it's like to be 100 to know you're right and the market is wrong. So I think that he's, yeah, of course,

he's trying to do the right thing. We talked about this before, though. There's also this element, and I know people that have been afflicted by this where like their fondest professional memories were that one time where they were right and everyone else was wrong and they saved the day and they and they were carried off the floor of the New York Stock Exchange like they just won the NCAA championship and in his case it was that on steroids they not only did he really he didn't save the day but he was the one that was right when everyone told him he was wrong and it and it took three years for that to bear out but it did bear out and not only was he celebrated.

They made a fucking Hollywood movie about it. He was played by Christian Bale. So I'm not inside his head. I don't know him. But I can't imagine that not messing with you. Just as a normal person. Totally. You're like I,

like you're chasing that feeling now for the rest of your life. Like I want to be that guy again. I want that thing to happen again. It's almost impossible not to. I would be the same way. Yeah, yeah. And guess what? who knows what the world is going to look like six to nine months maybe he'll maybe he'll

right maybe he'll be maybe lightning will strike twice and okay he will be the the guy that called the bear market twice well the thing is I don't know if you can have credit for that if you're negative for 200 percent okay so that's the thing he's been he's been doing this for a long time the goalposts keep moving he keeps finding new reasons to be bearish and the most recent incredible bear case was from November 2025. So about a year ago, I'm sure everybody remembers when he talked about understating depreciation by extending the use of life of assets artificially boosts earnings. One of the more common frauds of the modern era. Basically that these chips will lose their value fast and these companies are counting for it.

All right, fast forward to today. A16Z did a state of the markets and they showed the reports of obsolescence greatly exaggerated. They show the GPUs getting more valuable over time. So look at this. I can't read this. But what's one of the earliest chips? Is it the H100, the blue line? Yeah, again, I can't see which one it is.

There's still, I can't see it on my screen. But it doesn't matter. The point is, they're still in you, they're still an active use. The ones that are years old, years and years old, are not budging at all in terms of what people are willing to pay to rent them. Not at all. There's still a massive shortage. Yeah. And then the other thing, and we've talked about this on the show before, I understand that there's a political backlash to data centers. They're unpopular with pretty much everyone other than like, you know, 50,000 people who live in Northern California and private equity, private credit firms rather. Nobody else likes it.

the people that don't like it have like a whole spectrum of reasons ranging from environmental to oh my god this factory you're building next to my town is also going to take my job it's super popular politically right now in the season that we're in for people of both parties to call for moratoriums the governors in different states to harass these developments with more environmental red tape like that we all Understand that. But even still, there is enough construction currently in progress that's not going to be stopped. And there are enough states and municipalities that do want them, which means when these companies come out and tell you, Micron just recently, what their guidance is going to be for next year. And not only is it not being tempered, it's actually being ratcheted up. Like, I sort of believe them. I think the orders are the orders. And more importantly, the replacement side. cycle. And Burry's whole case about, you know, this whole build out is based on false accounting because the depreciation, these chips are going to depreciate at a different schedule than what

the guidance is saying. I sort of feel like it's melting like, like an ice sculpture right now. And maybe, yeah, well, maybe he would say like, oh, it's still early. You'll see. Inferencing is burning out chips faster than you think. And that thesis has been proven to be incorrect. One of the hypothetical bear cases that we had pondered is eventually investors will not show up to the auctions. Over the last couple of weeks, we've made a point to talk about. For bonds. Yeah. We've made a point to talk about how much money.

We talk a lot about the liabilities, but the assets are overwhelming. The amount of money looking for a home is changing a lot of things. Now, that is not a forever phenomenon, but for right now, that is certainly the case. And this idea that maybe investors won't show up for a hyperscalor bond auction, I think you could put that to bed. And I will present to you this as evidence. Potential investors, this is from the journal, I believe. Potential investors placed orders of $150 billion of paramount debt.

Fucking paramount, dude. A strong showing that nearly triple. Well, they know it's really backed by Oracle. Doesn't matter. Okay. Oh, and Oracle is the best money in the world? Dude, tripled. It was the largest, I don't know if this thing it was investment grade.

It was one of the largest public bond offerings ever. They tried to get $52 million and $150 billion showed up for paramount. Do we know what the yield was on that? I should have looked. I don't know, 9% maybe. This idea that Amazon or META is going to have trouble building out the infrastructure from fixed income investors. Not today.

One of the things we touched on, and it's worth repeating in this conversation, for as long as I've been in this business, which is almost three decades, there's been this idea that the bond market is the smart money. And not that the bond market will front run what's going to happen

in the equity market, but just like that's where the people who are more cerebral are at play, and therefore that signal is more important. which we know is complete nonsense. But I actually would say recently, that's been flipped on its head. If the equity is strong, the bond buyers will show up for the bonds.

And I think meta is the best case in point. I actually think we stopped talking about these tech bond auctions, the minute meta launched Muse, and the stock price ripped 30% in two weeks. All of a sudden, I, I think that changed the conversation about the bond offerings to fund the AI data centers because people looked at that and said, oop, meta has a new product. It's hot. Everybody's downloading it.

And they're going to find a way to monetize it. And we should stop talking about meta bonds the same way that we might talk about core weave bonds. And so I think that that was the conversation changer. And it's only October 6 today. Like that happened less than a month ago. Microsoft too, for that matter, hitting 52-week highs pretty quietly, I should say. Yes.

And I think that, so I think this idea that the bond market is the stronger signal, no, I don't think so. I think the fixed income buyers pay a lot of attention to the prices of stocks. And when they see a stock price rally, I think they look at the bonds as, well, the stock guys figured out that this is going to be an AI winner. I'm not so worried about the debt this time. So I agree with you.

That pillar of the bear case where we're going to lose the credit market, maybe in the future, but like not today. That is not a working thesis for right now. So I like it. Can I give you a crazy stat to set up the FICO conversation? So FICO is one of these interesting companies. It's called Fair Isaac Corporation. and your FICO score is in the public lexicon. It's like a vet.

It's the widely accepted. When you talk about your credit, what's your FICO score? So it's actually interesting that the score takes its name from the ticker symbol of the company. I can't think of any other examples of that. It's really, it's really fascinating. So listen to this. So the stock is getting destroyed, which is the topic of the show. But try it off for a sec.

This, so I had, I had, uh, sharkin and Sean look at this because prior to the current decline, which is, I don't know if it's off 70% off its highs. The stock peaked in November, 2024. Yeah. So there are 220 stocks in the S&P 500 right now that were also in the index in 1990. Okay. Okay. Okay.

Okay. Got it. So over the last 36 years, there are 220 stocks that were in the index. It stayed or came in and out. In November 2024, prior to the current decline, FICO was the number one performing S&P 500 stock since 1990. The number one. Shut up. Really?

Yeah. From 1990 through 2024. Correct. out of 200 stocks that were still in the index 36 years later. Okay. Why am I so surprised? Because number one, I'm an idiot. I guess my assumption would have been, if you said to me, of the 220 stocks that have maintained index status from 1992 today, what's the best performer?

I would have made two comments. I would have said, it's got to be a big one. Apple? Oh, 100%. my guess, but I would have said it has to be a big one. This is not even a big stock. Even at its peak in 2024, it was not a big stock. What's the market cap on this? So 230 companies, okay? That's the number. Even including the decline, Josh. So even including the 60 or 70% drawdown, whatever it is, it's the 10th best performer compounding at 20% a year,

even including the crash. So it has been a massive winner because it is a monopoly. or it was a if you held it for 36 years which I'm guessing nobody in the shareholder base has done with the exception of one or two and long-term shareholders

put up the chart so basically this is a company that had a monopoly not like a oh they're monopolistic no like an actual fucking monopoly

like they owned boardwalk and had four hotels on it like they FICO score is FICO score and there's no other FICO so for any kind of credit approval that you need,

this was it. This was it. The stock has been falling since the advent of AI because I think the threat of, well, there are going to be new ways for people to calculate a better read on each consumer. You don't think that was in the stock at all? Maybe a tiny bit.

Nobody that actually knows anything is selling it for that reason. Do you think the housing market weakness is part of the market? It's two things. It's the housing market and software. So this is at the epicenter of you're fucked. Now it's definitely- The two worst things happening in the market right now. Software disruption and housing.

So this stock, this company was a victim of its own success. John, fast forward to the two purple lines where you see the price and the margin. So what happened was their margins were, their operating margins were like 20 to 30% for the, for, you know, decades. And then they got greedy. They took their pricing up from like, say, a dollar or score up to $5. And then the FHFFA Federal Housing Finance Authority or Agency said, wait a minute. It's not, no, no, no fucking way.

So the three other, the three bureaus, the three, which are TransUnion, Equifax and Experian. But that's mostly credit card stuff. But listen. So they have this company called Vantage Score, which was, that's not new. They had that in 2006, but the federal government shot that down and said no, FICO or nothing. So that regulation got shot down, got repealed. And since then, Rocket and United are relying on these things heavily from zero up to show up this chart. So there's a subset called Just Value.

They're relying on the vantage score, which is coming from another company. It's coming from the three bureaus. They own this thing collectively. Right. Like Zell, like the banks collectively own Zell. Exactly. So Rocket was at zero.

It's now 41%. United was at zero. It's now at 26%. Stop. Explain. So 41% of people going for a mortgage with Rocket are being rated by vantage score instead of FICO. Yeah.

So people could have, so that's, That just happened. The chart you showed me is showing that started at zero in May. Correct. This monopoly was ripped away from Fair Isaac in the span of the summer of 2026. It's insane. So this is a very, very interesting story. I was listening to the call this morning and trying to get educated on this.

And the CEO opened the call saying, with another strong quarter, we are increasing our fiscal 2026 guidance. They're buying back a shitload of shares. All the numbers are going up into the right. It's very unusual, very unusual to see a stock down 60% with little fundamental deterioration. Now the street's not stupid. I'm not saying the stock is by. I have no idea. There is not a credible threat.

There is a threat to the monopoly and the pricing power. If existing threat that exists today. Yes. So the same way that Salesforce was getting credit for being able to raise their price as far as I can see, that's over. And now Wall Street is re-rating the stock. And who knows what the right value is for this new company. Right. So the reason the FHFA and Bill Pulte's action was important is because that's Fannie Mae and Freddie Mac using that pricing framework.

And now is an option. The consumer ultimately is bearing these costs because all of this goes into your closing costs. The banks are passing. They're not eating it. They're passing it to you. Rocket Mortgage said they tested both systems and they determined that vantage score, qualified more, more is better, prospective buyers while offering borrowers and average closing savings of $600 per loan. That's why it went from zero to 40 percent because priced in the millions of users, that is real money.

FICO actually went from 60 cents to as high as $10. Gross. I agree with you. This is fascinating. You know, it's the worst. It's the number one worst performing stock in the S&P 500 unit date. It's down 60%. Yeah, and all the analysts, the analysts had to cut it because it's like there was an earthquake

that swallowed up this company's advantage overnight. So like Goldman caught it, Wells Fargo caught it. There's security fraud investigations going on, whether or not management misled the public regarding regulatory risks. It's a really interesting story. And it got me thinking, can you think of another company today where by the stroke of a pen, some government official or some act of Congress, their advantage could vanish in two seconds? Apple with the app store. I was thinking that like somebody, somebody very powerful,

it would probably come from the Democrats. They get somebody in position that can actually win, which takes years, could actually win an antitrust case that gets them to open up the app store at less than a 30% Vig. Yeah, that'd be catastrophic. The thing is, that's slow moving.

That's not, there's no one person like, like in the case, in the case of the FHA, FAA, that could say, I hereby demand competition. I don't think there's no one person powerful enough to do that where Apple is that reliant on it. The other examples I thought of were the refiners. Like, we haven't built a new refinery in this country, I think, since the 1970s. So you sort of have three companies that own all refining capacity, Valero, Phillips, and Marathon,

which are the numbers one, two, and three performing stocks in the XLE this year. But I think they've all doubled. But the stroke of a pen, like some jurisdiction says we want a refiner here. We're going to allow new companies to submit bids for proposal. I mean, this is far-fetched. But like, there are companies in the stock market that have these de facto or actual monopolies. And we don't see things like this very. often where the government just takes it away. And I think the stock prices reacted appropriately

because now you have to rethink all of your assumptions on their pricing power. Yeah, very interesting story. All right. Let's talk about the unbroadening. We spent a lot of, I guess, spring into summer celebrating the fact that so many stocks were participating in a rally. It was, it was nice to see for a change. And right now the broadening, the broadening. Right now we are back to where we were. We are seeing the unbroadening where it really is tech and everything else. And I want to start with this. Todd's own shared us shared a chart this morning showing the index breakdown of the S&P. How big could like what can the ceiling? What's the ceiling for Nvidia? So as in video, it's almost $6 trillion. The stocks on an all time high today. And it's larger.

And then the consumer discretionary sector as well as industrials and staples and energy. I mean, it's bigger than staples and energy combined. Now, I don't know if this is a particularly useful way of thinking about investing, but it is interesting, at least. What, that the outsized, like the companies that have the most outsized influence on the S&P in both directions? Well, just thinking about, remember the book's scale? Yeah. Like, there are certain physical features of nature.

an elephant can only grow so large. Companies can only grow so. Like at a certain point, you run out of food and the physical constraints of the body of an elephant. So I don't know that invidia's compressing multiple says as much about the sustainability of the earning story as it says about scale.

Oh, that's good point. And how much investors are willing to pay for this company just given its size. We made a chart earlier than the year showing if Nvidia was trading at a market multiple, at a premium multiple, what is it going to be a $13 trillion? Is it going to be 40% of the index?

Yeah, and every active manager, I'm saying every, like I'm sure there's two exceptions, every mutual fund manager is underweight in Vida. Correct. Like if you look at all of them. This has been the story for the last three years. They're all underweight. They have to be.

Nobody's paying them to overweight the mag 7, even if it's not, it's almost 9% even if it's the right, even it's the right trade. Nobody is, nobody is giving someone money and telling them make Nvidia a 12%. I want you to be 300 basis points above the index weight on Nvidia. Nobody is saying that to their active manager. So it's, yeah, that, so that's probably the constraint. And that's why even though the earnings are, I think the. I think the next quarter they're supposed to report is still like an 85 or 90% earnings growth

number. Like, it doesn't matter. So what can they show the stock to a 50 multiple? What can they show the street to push the multiple higher? Nothing. Nothing. They just buy the dips. They have a treasury that's exploding with free cash flow.

They're making equity investments all over the world. Doesn't matter. And they're buying back stock. It's a capital. It's not up to them to try to convince you. You should pay 30 times earnings for our stock because of our growth rate. They can't do that. All they can do is say, okay, you want to sell my stock at 21 times?

I'll fucking buy it. And that's what they have been doing. And I think it's helping to hold the market up, quite frankly. It's crazy that one company's cash flow is enabling it to support its own market cap, which in and of itself is serving as, you know, the foundation of what's keeping the market high. And we've never seen anything like this before. No. So let's show up this chart from duality research from a little lean on for the segment.

Alex shows the S&P 500 technology sector in purple, which is hitting a new all-time high, and the rest of the market, X-Tech, which as we, as we all know, if you're not in tech, you're not having a great six-week period. He shows the rolling two-month correlation between the two is that the most extreme negative that we've seen since the bull market started at the end of 2022. I want to bring in this next chart from negligible cap showing he looks at the different industry or industry groups. Look at the percentage of stocks with the max drawdown since June 1st. And he breaks it down like how many stocks are down 10%, what percentage of the industry group is down 15, 20, etc.

what if anything jumps out to you here? Well, obviously the extremes. What's extreme? I guess you would have to look at the negative 30% column right in the middle. That's where my mind is. Yeah. Yeah. So 29% of the Russell 3000 is in a 30% or worse drawdown.

Pretty crazy. Which is definitely worse than most people would guess. And then you look at some sectors that are not important to the index, but are important, I guess, on Main Street or to the economy. Automobiles and components, negative 40 as a sector or as an industry group. So 40% of automobile stocks and components. So, Riley, AutoZone. Can that be right? What's that?

Software and services, 47% of those stocks are in a 30% or worst drawdown. I guess that sounds right. Yeah. You know what I mean? Like you're not, it's not Microsoft, but it's all the rest. So there's a lot of stocks, a lot of stocks. Next chart getting killed. So chart kit put this together.

We're looking at it a composite of different metrics of the unbroadening. So the cumulative advanced decline line crashing, the equal weight down into the right, not quite crashing, but a steady bleed. the number of stocks above their 200 day went from 62% I'm sorry went from 75% down to 40% in a hurry and yet the mag 7 are going up into the right what do you think keep this chart up what do you have to say to the people that when the market is rallying they keep pointing to the internals and saying no signs of any reason why it shouldn't keep going look at the internals and then when the Eternals look as shitty as they do now, they just ignore it.

Okay, I'll answer that question of one second. Let's go to the next chart. So again, early in the year and in the summer, we had the broadening. 60% of the stocks and the index were outperforming, and that has crashed. The index itself. That has crashed to a year to date low.

Only one in three stocks are outperforming the index. And why am I optimistic? said earlier that I was listening to the market, feeling what was going on. For the last couple of weeks, chart off, for the last couple of weeks, and years really, we've said one of the themes of this bull market is that any time you see the breadth divergence, it is the rest of the market that catches up to the index. That is not set in stone forever and ever. But right now, that has clearly been the trend.

And duality research quantified. what we've been feeling all this time, Josh. Check out this chart. So he's saying this is the warning sign that everyone has backwards. And here's what we're looking at. This is important. So if you're listening on your phone, take your phone out and look at this chart. He breaks down the S&P 500 Technology Index versus the rest of tech.

And he's looking at times where the 493, let's call it, for shorthand, when that has diverged to the downside. It was not a cell signal. It has caught up. Yes. It ripped back. It ripped back higher to catch up with the large caps. And actually,

with technology. Actually, look at the warning signs, Josh. Anytime the technology has started to be weakened while the rest of the market took the baton. So when you got the broadening, that was the warning sign. That was the warning sign. So it's literally backwards when the rest of the market has shown strength in the tech sector. a certain weakness, that is when you want it to be cautious, not the other way around. Okay.

I think we're going to get a Vick spike this month. I think we're going to get in an October surprise. I can't tell you why I think that, and I can't tell you that that's based in any sort of reality other than in my own mind. But I go back to Jeff DeGraph's chart. How could stock market volatility flatline with this much volatility in? in currencies and fixed income. I am not taking my cues from the internals here

because I agree with you. I don't think that's the thing that we should look at and say the large caps have to catch down because we know that that's actually not how things have played out. And I think you and I have been saying that for a while and we've been showing people a million examples

of why don't get sucked into this argument that the, you know, it's an upside down pyramid at the top and blah, blah, blah. I just feel like we do get these moments in every year. We had one in March. And historically, we have had a lot of volatility in October. And then layer on the midterm election, layer on the interest rate shock, which is a slow motion shock, but a shock nonetheless. And I just, I feel like we can't really have that much of a divergence and escape a short-term doubt.

volatility. I actually would love for it to happen because I have money to put to work. I also think the advice that we're giving clients is the right advice right now. We have people that are egregiously overweight relative to their own plan. We're having conversations about it. Not every one of those conversations results in selling stocks, buying bonds, but at least we're having the conversation. And in some cases, it will take some people from being way overweight. But I'm not as short-term bullish, I guess, as you are. Where I will be wrong is if we start getting earnings reports from the financials. And once again, they come out and tell us, consumer is gangbusters.

No lending losses in sight. No concerns about credit cards. And things look as good as they do now going into Q4. I will shut the fuck up. I don't think the downward shock's going to come from the technology company earnings. Like I think the financials are, that'll tell me you're so worried about this October shock. Meanwhile, it's business as usual at the financial firms. If there's one area inside the market who's warning I am paying attention to,

I would say it's the consumer discretionary stocks. I've made a point that I'm not particularly, worried about the specialty retailers, like the fact that O'Reilly, like, okay, you could explain that. But there's a lot of really important stocks that look really shitty. Chart on please. What are they? What are they? So a lot of these are idiosyncratic in nature. McDonald's, for example, I don't know if that's necessarily a rethroat to the economy. Home Depot. We know the housing market lowest, same deal. Pepsi, you can explain a way higher interest rates are terrible for consumer staples. Why would you want Pepsi's 3%?

dividend yield or whatever it is when you could buy a treasury for five all right but it's not just those like amex amex that's that's screaming i'm so that's a big one that me american express is an important stock uh and it's it's getting mauled that's the top of the k or right right the top of the k and a lot of the middle of the k but like to me that's the signal not not home depot we know how bad the housing market is right so walmart's getting it's getting killed teachers J. Max and American Express in particular, as you mentioned. So this is the one that I'm like, all right, all right. Not nothing.

Okay. I like that. We're going to do make the case and then we'll do the mystery chart. All right. I know I just did this. So forgive me from repeating myself. But I really think you want to take a little victory lap? No, no, no.

It's way too short term for that. No, I made the case two weeks ago. I think Kathy might be back. So you were at. I hope so. I love her. You were at J.C.'s event last week. Yes.

And somebody put together a chart that I've never seen. And this just goes to show you like where risk appetite really is. Forget about all the indicators. Who's Sam, by the way? Who is Sam? Yeah, who made this? Oh, I'm not a thousand percent sure who made it. J.C. actually included this in his run of charts, but it was by somebody else.

I forget who it was. but the idea was arc has 70 tfs that trade and some of them are like specific to biotech or to space or to robotics. So they just they just average them all into a composite. Okay. So that's exactly right. It's a technical breakout. It's the genomics. It's the proper arc.

It's the Q's the Ws, the Fs. It is the most speculative stocks for the most part. and, you know, a lot of growth stocks. And it's mega caps, large caps, mid-caps. It's very tough to pin down what these stocks really are other than they're for people that are taking risk. Okay. So don't tell me.

Don't tell me what you think. Show me your portfolio. As Nassim Taleb said. There is so much noise and so many people bemoaning that this or that's going to happen, whatever, whatever. But if you look at where money is going to, it's going away from. defensive areas of the market, like Staples, for example. Yeah.

And it's going to risk on areas like technology. And in particular, the stock's, the, the pond that she fishes in. Um, so the market can have this backwards. It can reverse it an instant, but the buyers are behind it for now. I think it's notable. All right. I think we, one thing that we're not saying, but we have said it before. I think the MAG 7 is defensive in a way that utilities and consumer

staples are not. not. So historically, people would look at like, well, what's the XLP doing versus the XLY so they could see like consumer staples versus discretionary. I don't really think consumer staples are terribly defensive. I think they're rate sensitive. People choose between the dividend they get there or an interest rate from somewhere else. They're absolutely defensive. They're low bit of names. They're not growth, but they're not defensive right now. They're contending with high oil prices, the consumer weakness at the bottom of the K, and competition for investors who would normally love a 3% dividend from them, but not if they can get a 5% yield on a treasure.

It doesn't. Everything you said is right. It doesn't change that Biden. The utilities have the same problem. Yeah. Okay. Utilities have the same problem. And so what are people doing who want to get defensive in the modern market of 2026? I think they're buying Apple, Microsoft, and Nvidia. I can't get there with you. I think it's the default. It's the easy button. It's like, yeah, I know these stocks aren't the cheapest in the world, but the earnings will happen.

They're not defensive. I think they're being used by stock market investors as defense, as frequently as they're being used as offense. Not all defensive. There is a defensive flavor to some of the buying in those stocks. No. Why not? I just come on.

It's muscle memory. Those are the stocks that always get you out of this. I just think, yeah. I'm not bullish anymore. I'm not bullish anymore. Then what else? The max seven, they're not defensive. Just stop.

Ooh, Jason's Wag is here at altruist. I got to hang out with, I got to hang out with Jason. That's unexpected. Hmm. Huh. I haven't seen, I haven't seen Jason. Let's, let's, let's miss a chart. All right.

I forgot what it is. So put it up and I'll remember. I'll tell you. Wow. I actually do know. I actually do know. I want is one hint for you. Okay. Yeah. And I might have already screwed this up. These are the three best stocks in one of the one of the lamest sectors in the market. Not the worst sector in the market. But these are three stocks that are absolutely doing their own thing. regardless of what's happening in the rest of the sector. Hmm. Hmm. Hmm.

Hmm. Okay. We mentioned them during the course of the show. Are these refiners? Look at you. Look at you. We're out of applause for Michael. I got to tell you.

I have one more behind it. Wait, can I tell you something? Shut off. In our Porterhouse strategy, yeah. I think for the first time since inception, we had to trim a stock because it violated our too big waiting.

It went up too much. Valero. Yeah. It's too big. Oh, full disclosure. We're still long Valero in Porterhouse. It's still the biggest position. Right.

You know the stock went up 120% this year, right? Wow. Valero was $100 a share in late 2024. It's 400 and change. What I'm showing you here is the percentage gains year to date for Phillips, Marathon, and Valero. It's not like oil has been doing this. Oil is higher, but there's really no natural gas component.

And there is a lot of diesel. Diesel is a big part of the positive story for the refiners. I had one more chart. This is the refiners versus the XLE, the sector that they're in. This is not quite night and day, but these stocks just absolutely broke free of the bounds of their own sector. And I think this is why we talk about, why Sean and I spent so much time and energy on our best stocks in the market research. Because you would never guess this in advance.

Unless you were a genius who plays nine-sided Rubik's cubes, you would not be able to divine that this tiny subsector little industry group within the XLE would put up AI like returns this year. The way you surfaced these ideas is the way that we did. First, they have to hit your radar. how do you get them to hit your radar, you should be looking at the best stocks in the market. And it doesn't mean they're all going to do this,

but like as a starting point, I think that's critical. All of the best stocks hit your screen. Not all of the stocks that hit your screen continue to win. Look at you, which is why God, which is why God sent Moses down from Mount Everest to explain to the people

stop losses. for exactly that reason. Let me ask you a question as we wrap up. What's more likely for the duration of this month? Interest rates come in, give a little reprieve and the rest of the market rips pushing the index higher. I would love that. Or we get a Vick spike because something happens. I'm going to tell you that a future episode of this YouTube show and this Spotify show will be titled, Josh called the Vick Spike.

and it'll be sometime between now and Thanksgiving. That's for me. That's what I think we're headed up to. Thanksgiving's in November. End of November. Okay. So Halloween?

You said October. All right. Do I get full credit October, partial credit November? Yes, fair. No, no, no, no, no. November's November. Well, you know I'll be taking it.

Guys, thank you so much for watching. Thank you for listening. We appreciate everybody who came out for the live chat. Tomorrow's Wednesday, which means you and I are getting an all new edition of Animal Spirits of Michael and Ben. Then we'll do Ask the Compound. We have, according to Ben, the questions from you guys, from the compound audience, are just flooding in over the transom. I don't even know what a transom is. Same.

I didn't grow up in a maritime family, but they are flooding in. over the transom. Thank you guys so much for submitting your questions. And if we answer any of your questions on Ask the Compound, we're going to send you some merch. Nicole's going to hook you up. At the end of the week, we'll have an all new edition of the compound and friends with a fan favorite guest. And we just want you to stay tuned, keep it locked. Thank you for all your comments and ratings on all the platforms. They go a long way. Also want to make a quick reminder here. We're announcing. a huge New York City event in the fourth quarter, this quarter. That announcement is going to come first to the people who subscribe to the compound news.com.

So make sure if you're part of compound nation, you've got to get the email alerts because we're going to give you guys the heads up before anyone else. All right, that's it from us. We'll see you soon.