The Compound and Friends - Tariffs (Finally) Wreck the Stock Market, Ackman’s Buffett Bid, April “Tax Drain” Sell-Offs

Episode Date: March 4, 2025

On this TCAF Tuesday, hear an all-new episode of What Are Your Thoughts with Josh Brown and Michael Batnick! They discuss the recent market turmoil, Trump's tariffs, Bill Ackman's aspirations, the strategic crypto reserve, and much more! This episode is sponsored by Betterment and Rocket Money!  To learn more about Betterment, visit http://Betterment.com/advisors Cancel your unwanted subscriptions today by visiting: http://rocketmoney.com/compound   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/ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to the compound and friends. Tonight's show is brought to you by Betterment. Tonight's show is also brought to you by Rocket Money, which is a personal finance app that helps find and cancel your unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. Rocket Money will even try to negotiate lower bills for you. They've got five million users. They've saved a total of $500 million in cancelled subscriptions, saving members up to $740 a

year when using all of the app's premium features. Cancel your unwanted subscriptions and reach your financial goals faster. With Rocket Money, go to rocketmoney.com slash compound to learn more right now. Okay I look this is like a crazy week. I was giving this a little bit of thought like we don't do politics on the show but there there are moments over the months and years where the stuff that's happening in DC, the stuff that's being done either in Congress or by the president or both, there are just times where it's unavoidable. This week we have to talk about, unfortunately, as much as I don't want to, we have to talk

about the tariff stuff, the immigration stuff, the deregulation stuff, the crypto strategic reserve stuff. This is what's happening in the markets and it's not going to be like this for the rest of the year. At least I hope not. I'll fling myself off a roof, but this could be the ongoing narrative for the next few months. I don't know that anything else could come and stop it. Uh, we don't have earnings really for, uh, you know, now that Nvidia's reported,

that's the end of that. We don't have like serious earnings reports until May. Um, I, you know, so this is really what's going to, what's going to be the conversation and it's chief strategists, chief economists, even like analysts doing bottoms up fundamental analysis of companies. They can't ignore what the CEOs of companies are telling them as they come up with their projections and their outlook. So this is just going to be what it is.

Now the good news is we are all over this topic and our secret weapon at Red Holtz Wealth Management is Callie Cox. Callie joined the firm last year as our chief strategist. She is like on a daily basis working on this topic, compiling stats, looking at data as far as RIAs are concerned. I can pretty much promise you without even bothering to do any kind of research, that we are putting more out on this topic than any other wealth management firm and not just spam. We're really trying to get this moment right for clients and not make stupid decisions and help them avoid

stupid decisions. So we're all over this. We have tons of stuff to say. And we're going to try to do this through the lens of investing and not through like a partisan lens. You guys, I think I've been pretty good at this over the years. You guys have no idea who I vote for, how I vote, for the most part. Maybe with the Trump stuff, it's a little bit harder for me to kind of hide how I feel all the time, but you don't know who I voted for this time. And I want it that way. I don't want to, I'm not looking to build like a following that's like, yeah, Josh agrees with all my social and fiscal stances on everything.

I probably don't, but I want you to be able to trust me and I don't want to give you the impression that, you know, I think one side is right about everything or wrong about everything, because I really don't. So we're going to try to do this as an economic story. And I'm just giving you that prep because honestly, I don't want the fucking emails or the DMs. If I say something and you think it's partisan or I'm wrong or I'm an idiot, that's great.

Just please keep it to yourself. We're doing the best we can. This is a political moment in the stock and bond markets. We can't afford it, avoid it. I promise you, we're going to try our best to keep this about investing. All right, enough. Thanks so much to our sponsors, Duncan, John, Daniel. Send everybody into the show.

Let's get started. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of 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. Yo, one day, and it's not gonna be today, I swear I'm gonna spit the craziest freestyle over the theme song.

I don't know when and I don't know what the occasion will be. It's gonna happen. You're gonna log off immediately. Not on my watch. All right. What's up gangsters? We got a full chat tonight. Super excited to welcome you all to a new edition, live edition of What Are Your Thoughts? Only on only on the Compound Media Network. And with me as always tonight is my co-host, Mr. Michael Batnik. Michael, say hello. Hello, hello. Some shout outs for the,

some shout outs for the Pounders who are joining us for the live. Stephanie James is here. Tyrone Ross is here. My boy, Chris Brown, Brian Grill. Let's see who else. Jerry Gould is back. Cliff is here, my boy. Chris Brown, Brian Grill. Let's see who else. Jerry Gould is back. Cliff is here, Roger's here.

Wouldn't be the same without you guys. Matt Stevick, I see you. Michael Skyros, I see you. Nicole, ladies and gentlemen, Miss Nicole is in the chat. Georgie D. All right, we have a sponsor tonight. Michael's gonna tell you all about them.

Yeah, now a word from our sponsors at Betterment. Imagining a better future. That's the first step. Investing in that future with Betterment Advisor Solutions is the next. Whether you're launching your own practice, looking to streamline client onboarding or just searching for efficient ways to scale your firm, Betterment is here to help. They automate to make tax optimization simpler.

They provide support to make administrative tasks easier. At Betterment, they are building innovative technology all for anyone who's ever said, I think I can do better. So grow your RIA your way with Betterment Advisor Solutions. Learn more at betterment.com slash advisors investing involves risk performance not guaranteed. Let's get to the show Josh.

All right. Topic one. Is anything going on right now? Boring. What do you think we should watch? What should we talk about? You haven't heard this yet for the but the audio pod, I did a quick disclaimer. It's impossible to talk about markets right now without talking about politics, but that

doesn't mean we have to be political. So I kind of prepped the listeners like, look, here's the reality. There's nothing else going on. This is the big thing that's happening right now, and we can't pretend it isn't. The best we could do is try to handle this in as nonpartisan a way as possible. That being said, our story so far, and this is really having a huge impact on the markets right now, and probably will have an impact on earnings as we start to get these reports For the next earning season Donald Trump allowed the threatened tariffs on Canadian and Mexican imports to go through

He also ratcheted up the Chinese tariffs and then of course all three countries reciprocated immediately and I'm sure they were sitting on these plans. They couldn't wait to say, oh, yeah, here's our tariffs. So we're back in this. And we did this in 2018. We've seen it before. And we know it has a huge impact on the VIX, on risk premiums, and it absolutely makes

people second guess some of the investments they're making and we know that every corporate leader, every CEO, every CFO, every person involved in procurement and operations are laser focused on this threat and that's their job. So this is what it is. I don't know, does this feel any different to you than the 2018 version of this that we went through? No, it feels I mean, I don't know it feels pretty similar now the the Lol's of it all is that after the close there's a quote from lot Nick Howard lot Nick Trump may roll back Canada Mexico tariffs tomorrow

Well, but I mean like he's saying like oh it could be over tomorrow. All they have to do is kiss the ring. Like that's what he means. It doesn't mean like, he doesn't mean like, oh, it's one day's worth of tariffs. I don't mean that's what he's saying. It could be over. It could be over. It could be over. It could be.

It could not be over. You don't understand negotiating. So I think I have a pretty good handle on this method of negotiating. It's not my taste, but I can see that it could be effective. The markets were looking through all of this up until, I would say, the middle of last week. In fact, I've had a pinpoint when the market started to decide, oh, you know what, actually, let's stop looking through this and let's start repricing companies. I think it's probably Wednesday or Thursday last week.

And this week they are taking him both seriously and literally. I want to point out the Wall Street Journal's editorial page. Put that graphic back up, guys. So the Wall Street Journal is not a liberal rag. It's not MSNBC. It's not the old Washington Post before that became a libertarian. The WSJ, the way to think about the op-ed page here is this is effectively the voice of the Chamber of Commerce. This is corporate leaders probably have more of an influence on this page than do, let's say, other bastions of the right. This is not like Christian evangelicals.

This is not the new right. This is not the crypto anarchists. This is basically the conservative side of corporate America. And they are referring to this as the dumbest, Trump takes the dumbest tariff plunge. And then if you actually go through the piece itself, there are a lot of stats in here about how stupid these tariffs are and why they're counterproductive, why they could be raising SUV prices, for example, by $8,000 or $9,000 per vehicle, and why nobody's going to win as a result of this. It was pretty scathing.

And again, it's the journal doing the scathing. So I thought that was kind of interesting. What do you think? Yeah. Dr. David Kelly, this is his take on tariffs. He said, the trouble with tariffs to be succinct is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity, and increase global tensions.

Other than that, they're fine. So the Wall Street Journal, Dr. Kelly, and everybody else with half a brain is saying the same thing. Tariffs are negative sum. And I'm trying to figure out the motivation here is it he said he was going to do it and I know like you said that he's been talking about tariffs forever but it's hard to imagine that there's no body in his ear that's like we sure we want to do this it's tariffs for tariffs sake he's saying it there's the what the this is

according to the journals read of it is the same as mine. It's not tariffs for blank. The way you know that is because depending on what time of day it is and who's behind a bank of microphones, the reasoning changes. You might hear him say, at 10 o'clock in the morning on Fox and Friends, you might hear him say this is about fentanyl because the audience of that show doesn't understand how the economy works. And then you might hear Scott Bessent an hour later on CNN telling them that it's about bringing down inflation.

It's, you know, you know what I mean? Like when something has 10 different reasons, it has no reason. So this is, he likes tariffs. Well, but what does he want? He never said he didn't. So the New York Times wrote a long piece on the impact that the tariffs are having on fentanyl. And it's making, it's actually, it's effective.

They said that the fentanyl producers are scared, they're running scared, whatever. And this is the Times, like not supporting Trump, it's saying it's working. What he was doing is working. So my question is, what does he want? We're gonna get to that we're gonna get to that part in one second But I want to talk about the economic impact first the Atlanta feds GDP now forecast is

Rapidly reacting to the data that it always reacts to we're gonna get another reading for this on March 6th Which is Thursday guys, But this drop off, and just so you understand, there's no person in a back room calculating this and informing with their opinion. This is quantitative. Yeah, this is quantitative. They're collecting economic data from every report that comes out during the course of the quarter, and they're constantly letting the data update the formula. So this is coming from the Atlanta Fed, and let's put up ChartKidMAT data version of this.

So like, I mean, this is the expectations currently for Q1 2025 is a drop of, is negative 2.8% GDP. And just to reiterate, the importance of this is that all of the soft data, the surveys that were mentioned that are 100% political, this is none of that. There's no politics in that chart. Well, there is, yeah, there is ISM stuff, which is derived from surveys,

but you're right. Here's Reuters. The Atlanta Fed's GDP Now model estimate for annualized growth in the current quarter was a stunning negative 2.8% on Monday, down from plus 2.3% last week. A month ago, the model showed that growth in the January, March period was tracking close to plus 4%.

And some of the inputs here, consumer sentiment in January slumped the most in three and a half years. Retail sales dropped by the most in two years. Real spending fell at the fastest rate since 2021. Walmart warned of a tough year ahead. Target this morning. The Citi Economic Surprise Index has been in negative territory, the lowest points in September.

Everything is doing the same thing, but I don't think you've ever seen a one week period where GDP now has gone from an estimate of plus 4% to minus 2.8. That might be the biggest swing outside of COVID like we've ever lived through. I would have to check. I don't know that for sure. That's a pretty wild overnight change. Wouldn't you agree? Yes.

All right. Just some of my thoughts on what this is about to answer your question. Specifically Canada and Mexico, because the Europe stuff hasn't even started yet and the China stuff is fairly muted. Why are we in a trade war with Canada and Mexico less than eight years after Trump signed the USMCA agreement with Canada and Mexico. Nobody really has a great answer. So economists are calling this chaotic and blunt.

The White House sometimes talks about this as it pertains to fentanyl. Sometimes they say it's good for the economy. Sometimes they're saying, we need to get respect for America in the eyes of the rest of the world. And this is like almost like a PR tool. So it's very strange, it's completely insane. Nobody can quite articulate why it's gonna work economically.

Although Scott Bessent is doing a pretty good job of coming up with all sorts of stories for it. But like this is, to me, this is really just Trump living out this fantasy that he has had in the back of his head since the 80s that we have to like, for some reason punish foreign countries for trading with us and doing well at trade. And the only thing that people are coming up with right now is that maybe the chaos is the point. And of course, this is where Twitter seems to have landed.

That's how you know it's wrong and also the worst possible take. But I want to share... Hold on. What's the take? He's trying to create chaos. Hard reset. Hard reset. This is the hard reset theory.

What is that? I'm going to lay it out for you. They want to knock down treasury yields. They want to wipe out Biden era stimulus driven investment market bubbles. They want to reduce home prices for Gen Z. And they want to put the final nail in the pandemic inflation coffin. And the way they're going to do that is f**king with Canada imports. Honestly, I'm not saying I agree with this, but I'm telling you that this is where people

are coming up. This is where people are landing. And the idea is that if they do enough damage to asset prices and sentiment, treasury yields will fall, mortgage rates will be pulled down with them, and sometime between now and the midterms, the housing cycle will restart. And that's Scott Besson's plan to hard reset the economy and get the Trump era off to a start from like a harder race. Like pulling out, literally like yanking the cord out of the computer and then plugging

it back in. Kyla Scanlon is not dumb. She has a tweet up saying, the problem is the vision is very clear. The slowdown is the goal. The soon to be enacted tariffs, the face slap to allies, the cratering sentiment of the people, the uncertainty from businesses, the distraction that was the crypto strategic reserve. It's just a plan to crater this thing.

It was said, this is the plan. Her evidence, she shares two things. We should have these as separate images. Reuters, US Treasury's best vows to reprivatize an economy that is brittle underneath. That was February 25th. What does that mean? Like it's a fake Biden economy and he's going to restore the real economy underneath. But this one's better. Put this up. Somebody named Fisher King tweeted this in October.

If Trump succeeds in forcing through mass deportations, combined with Elon hacking away at the government, firing people and reducing the deficit, there will be an initial severe overreaction in the economy. This economy propped up with debt debt generating asset bubbles and artificially suppressed wages as a result of illegal immigration. Markets will tumble, but when the storm passes and everyone realizes we are on sounder footing, there will be a rapid recovery to a healthier, sustainable economy. History could be made in the coming two years, to which Elon Musk responded later

that day, sounds about right. So Kyla is like, they're telling you what they want to do. Here's Jake at Econompic, our friend Jake, quote, if I wanted to crash the economy, I think I'd put on indiscriminate tariffs, push cheap labor out of our country, slash public jobs, cut public spending, promote an alternative to the dollar, and incentivize every global ally to look to partner with China. He said that on January 31st. We got a couple more. Ben Carlson, great meme. Ben says, remember, it's all about messaging when you try to destroy the economy. For the people listening, this is the Winnie the Pooh meme.

Bored Winnie the Pooh is saying crashing the economy. Tuxedo Winnie is saying lowering mortgage rates. So I'm telling you, Michael, this is like a theory. And last but not least, you have to decide if you really believe Descent has convinced Trump to play three-dimensional chess with the opening months of his presidency. Chamath does. But he doesn't listen. Trump doesn't listen to anyone.

That's my point. I agree. Chamath says Trump is more, I mean, this is gene galaxy brain level. Trump is more popular with young people than old people. False, but okay. Most young people don't even own stocks or homes. They are asset light. Trump is also more popular with working class and middle class folks.

That part's true. Most of these folks are also asset light. It stands to reason that a fall in asset prices will have very little impact on his core constituents. To that end, basically he's saying Trump is going to get rents lower and unite young people and asset light working people. That's another way of saying poor people now. We say asset light. This is a very clever mouth.

We're going to create this new voting block of people who want the stock market to crash, want home prices lower and want a lower rent. I'm not sure how bringing mortgage weights down is going to help lower home prices, but I mean, there's some inconsistency here, but this is a theory now, the hard reset theory. It's stupid, but it's not as stupid as the other theories. Oh yeah, this isn't stupid. Quote, he will have given them the trifecta,

cheaper stocks, cheaper homes, lower rent. Because the first thing that people do, the first thing that asset-like people do when they get fired because there's a recession is buy stocks. Yeah, makes a lot of sense. Dude, I'm telling you it's stupid, but all of the other reasons are stupid also.

He's doing this to get respect. I don't buy it, I don't buy it. I just think he likes that. Get respect from who? I think he likes tariffs. From the guy in Hungary? He wants Orban? Like who's respect? Alright, listen, I don't know what to tell you. Well, what's your opinion? Do you believe that he's doing this? I told you, it's tariffs. No, it's tariffs for the sake of tariffs. There's no three dimensional chess being played here. You know what Scott Besson's job is? Scott Besson's job is to make it make sense in front of serious people.

Dude I listened to him on Bloomberg yesterday. It made no sense. He doesn't want to do, I know he doesn't want to do this. It made no sense. I know he doesn't want to. But he, but that's not his job. Like Larry Kudlow has had this role before. People that know better and don't like tariffs, if they want to have the job and try to help, the way they help is not by resigning. The way they help

is by publicly saying, no, no, no, this is going to work. And then privately trying to get Trump to come to his senses before it gets too crazy. Like, that's the only thing that I can think of. My theory is he just thinks this is fun and has really badly wanted to do this for decades and now he has the chance to do it. Did you see the tweet he sent out to farmers? No.

It's not a tweet. It said truth social. It's like I'm paraphrasing, but basically he's like, hey, you guys might be short term fucked, but we're going to figure out a way where more Americans are buying the stuff you're growing and it's going to be fine. Like pain. There's this whole, there's this whole like overarching thing that all of the Trump spokespeople on all the shows are saying, it's necessary to take this pain now.

Biden was masking the weakness in our economy and Trump is revealing it so that he could fix it. That's the story and they're all running with it. And that's obviously now, if you're listening to this tomorrow, I apologize if things have changed because tonight Trump is doing a 90 minute address to a dual, um, to a joint session of Congress. So we'll have the Senate and the house together. And I would imagine they're going to use most of that time to come up with justifications for this chaos that is plainly now crossing

over into a mainstream media story, not just an economic story. Last thing, Michael, and I know we went along with this, but I think it's important. Jeff Sonnenfeld had a New York Times op-ed, friend of the show. Jeff, Professor Jeff said, it's time for business leaders to collectively speak to Trump. Yeah, I dare you. Jeff says, today, 40% of all revenues for the S&P 500 companies are earned outside the United States. Guys, that's why this matters. About $5.4 trillion in foreign direct investment flowed into the country in 2023 with Britain, Canada, Germany, and Japan each investing over $600 billion. In the US, over 20% of American securities are foreign owned, including one third of

outstanding treasury debt, more than one quarter of corporate debt, and one fifth of equities. So his point is like, hey guys, time to speak up. Which of course is not going to happen. But they're speaking to their shareholders. They're not speaking to the White House. They're not yelling at the White House, at least not yet. So this is where we are. I don't know, any parting thoughts on the tariff story or you want to wait to hear what

happens tonight, I guess? I don't like it. I don't get it. I don't like it. Let's move on. All right. Great chart from Grant Hawkridge. JC has shared this with us when he comes on the show.

It's a risk on risk off ratio. And what's in here, risk on is copper, high yield bonds, the Aussie dollar, semis, and high beta. Risk off is gold, US treasury bonds, yen, utes, and staples. And we are coming into an interesting area of what was previously resistance in this ratio or in this indicator has now potentially

turned into support. We'll see. Any thoughts on this, Josh, before I move on? This is a, no, I like this chart. It's wonderful. How do they construct it? Is it long, short? Well, I told you what's in the basket.

I don't know if it's equal weight or what exactly, but this is a good indicator. You know, we used to have two different ETFs off and on. I remember those. I mean, it was totally stupid and they didn't really work anyway. But we used to have this market environment where Monday is risk on, Tuesday is risk off. And if I told you at 9 a.m. it's a risk off day, you would be able to repeat back to me which stocks would be up.

Or which sectors, because it became like a roulette, red, black, red, black, black, black, red, red. It was utility, staples, healthcare, and REITs. That used to be the risk off trade. It was dumb as shit, I made fun of it in real time and thank God it died. But I do think that is an important concept to just have a sense of like on the days where

the news flow is bad, where's the money going? I do still think that that's something that people should be aware of. So I like that chart. All right. So Warren Pies has great, great research and he shared something with us this weekend that Josh, you've spoken about in the past without any data to back it up. And it turns out that you were 100% right. Right. Okay, let's spend some time on this. Let's really let's

really double click here. So what I'm talking about is this idea that around tax season, there is weakness in the market, particularly after a really positive weakness in the market particularly after a really positive year in the market. So Warren Pies bring some data. Chart on please. So he's showing this is the cumulative US Treasury deposits of individual income and employment taxes not withheld in January through May and what he's showing is that every year but especially after really strong years this ramps up like bigly.

So, this is again, this is the treasury collecting individual income and employment taxes. So, what impact does that have on the market? Well, Warren says, we compare the S&P 500's average calendar year performance following 20% up years versus all other years. And sure enough, in the years following, next chart please, in the years following monster stock market rallies, the S&P 500 corrects during the tax season.

This is a chef's kiss of a chart. And on the next chart, he zooms in. Next chart please. How great is this? So again, what we're looking at is there is- This is going like our permanent, like this should be like part of our permanent collection. So there is real weakness in the market in April and May following a strong year in the

market when people have to pay taxes. It's a real phenomenon and all credit to Warren and Francisco. It's very pronounced. Show the chart before. Show the chart before. Yeah. Like it's, so can I ask you a question? I don't remember the argument that we had.

Did you agree or did you disagree? No. Were we arguing? Well, there was some weakness and you were like, good taxes. So the only reason, so I've never seen this data before and I've never seen any data confirming it. I just, I'm doing this a long time and I do like have specific memories

and I understand this is not data, it's anecdotes but it's also not fake. I have specific memories of like people saying, all right, just hold it through the end of the year and then we'll figure out when to get out of it because I don't wanna pay the taxes this year. And I know that that's's especially when you have you have a year where you're up like You know 25% you have a lot of stocks that have doubled

Like people are gonna pull the money out and pay and and pay taxes and they're gonna wait before they sell it to do that So it was just like an instinct thing. Um, I don't really think it's that controversial of an idea. I don't know. Do you? You know hadn't seen the data. It's not that controversial. No, I just I'm a data guy So I like see I like data seeing what you what you qualitatively thought to be true Yeah, I'm like a feel guy like at the end of Star Wars when when Obi-Wan was like Like put the shield down like close your eyes, I would have been like, I already did close my eyes, you didn't have to tell me. I'm all feel, Michael, you know this.

I wanna look inside the market before we hop off this topic. Let's look at a chart of the percentage of stocks in the S&P making new four-week lows and new 52-week lows. So for the new 52-week lows, it's been a minute, right? We haven't really had a spike because it's been a bull market for the past couple of years.

But a new four week lows, we got a spike. Not like a crazy washout, but we did the thing. And breadth is looking junky. Only 49% of stocks are above their 200 day, which is the lowest level since the end of 23. Josh, what's your take on the market? Where do we go from here? I think lower, but not as low as people want it to.

I know it's a lukewarm, it's a mid take, but I think we just drift lower until we get close in the middle of April. And then we're back into the banks reporting earnings and the earnings gonna be good. And we'll have to navigate some of these industrial companies' earnings reports and the autos. And it's going to be a little messy. But I just don't think we're in for as horrible of an earnings season as some of the worst fears that people have. But like, it almost makes no sense to have a short term outlook because to your earlier point,

you got people like Howard Lutnick who is arguably one of the three closest people to the president on the economy saying, hey guys, we might just cancel all this tomorrow. So like whatever my opinion is today, it's like honestly, it's like a joke. It's like asking me It's like ask me. What's the next card? I'm gonna pull out of the deck. It's Let me ask it this way. Let me answer this way. Do we get a new all-time high in the S&P 500 this year?

Yeah, I agree Because I already because I already explained, um, on the compound and friends on Thursday. You were right. You were right. This is the, he's going to save us from the tariffs. Yeah. And stocks, we're not going to go back to the February highs.

We're going to rip through them because that's just, this is just how it works. And anybody who has a problem with that, I get it. It's really frustrating. Yeah. Um, if you're anything but a buy and hold investor, I know it makes you nuts, but that's how this will ultimately resolve. All right.

So what the hell is Bill Ackman up to, Josh? I wanna do this Ackman thing because it's, he's like one of the most interesting people on Wall Street. And I don't hate the idea, although people have like really strong opinions about this. But basically, he is now saying out loud that he wants to build the next Berkshire Hathaway. He's not like hinting at the Buffett that Buffett's is idle or, you know, there's nothing obtuse about it.

At this point, it's like I want to build new Berkshire Hathaway. And he wants to do it with a publicly traded company that he is already a large shareholder in called Howard Hughes Corp. And basically what he's saying is this company can continue to manage real estate. They own South Street Seaport, by the way. Oh, no, I know that. That is the only neighborhood in Manhattan that is, or I think in all five boroughs, that is privately owned. They own the whole thing.

And they own like a bunch of stuff in California. Basically it's like literally Howard Hughes, this real estate empire, he cobbled together while he was pissing in mason jars and they turned it into a publicly traded, managed real estate company. And Ackman's been on the board before. He's been a big investor in this name. It's a small cap. And he basically, he made an offer to the board where he goes from 30 something percent

to 48 percent by buying stock at a big premium to the current share price, they pay him 1.5% of the company's market cap. And in exchange, he manages the cash that the real estate portfolio is throwing off as though it's Berkshire Hathaway making public and private investments to boost the, I guess, the book value of the company. So I'll pause there just to get your sense on like, what do you think of the idea just on its surface? I think it's weird.

Like, I think it's why this company is- But if you're a huge Warren Buffett fan, is it weird to want to follow in his footsteps and do something similar? I also don't understand where this all fits into his hedge fund. Pershing Square gets paid the management fee for running the assets of Howard Hughes. So what is he asking for? He's asking for one and a half percent management fee? At the current market cap, he would be getting $55 million a year, which Persian Square would be paid for buying and selling stocks and other things on behalf of the Howard Hughes Corp.

So basically he comes in, he becomes CEO, he tells the existing management, keep running the real estate, like you guys are keep doing what you're doing, it's fine. And then he's like buying Nike and Chipotle and maybe taking companies, you know, better private companies under the umbrella. I don't know, is that worth paying them one and a half percent? The stock doesn't go anywhere, by the way. We should point out this is basically like not a stock that like people are making tons of money in. Yeah, it's a real estate company. They do multifamily and commercial and.

Yeah. It's nothing special. Yeah. He just, he's looking at this as a vehicle because I guess the, I guess the, the real, right. So he wanted to do a SPAC, the window closed. Then he wanted to do a really weird version of a SPAC called the spark where. I forget how it works, but it doesn't matter.

The SEC didn't love it. He did a publicly traded vehicle, Pershing Square Holdings, which I think trades in Amsterdam, that is trading below its NAV and nobody wants to own it. He's been dying to get retail money and like mom and pop money outside of the hedge fund structure to get like a bigger pool of capital paying him fees. This is like a really big thing for his own personal ambitions. And I really do believe that he wants to build like, not just more money, but like legacy. Like I think he wants to create his own Berkshire.

And I think it's, I think it's a cool idea. I'd probably throw a couple of bucks in. Um, but the shareholders aren't, the shelters aren't having it. They keep rejecting his offers. Well, wait, they rejected it, but they were in a 13 or 14. I forget the number, like a two week standstill, which means he stops buying stock and saying things publicly, and that gives the two sides room to negotiate.

Either the $90 per share offer that he made is not enough, or they don't want to pay 1.5% for the management, or they want to carve out some voting rights for, I don't know but like it could happen. He's also putting in willing to put in like a massive amount of his own personal money like a lot like a not bullshit amount. Persian Square's money but yes it's a lot of a lot of it is his money. Here all right two things let's put up these magazine covers. these magazine covers. So originally, after referring to him as Baby Buffett, Eddie Lampert is the hedge fund manager

from Connecticut who drove the once greatest retailer in America to zero, bankrupted Kmart Sears. So smashed them together and then bankrupted the combined thing. So that didn't work out well. This cover was sort of embarrassing for Ackman at one point because immediately after, this was May 2015, Michael, he got demolished in this billion dollar short bet against Herbalife. The stock ran up 50% in a year

and he had to basically cover his short and run away licking his wounds. That's when he was against Carl Icahn. I mean, that was crazy. That was crazy. He's crazy arrogant. He said, but when he put a short on, he said he'll donate all proceeds to charity. Like he was so arrogant about it. He thought that he was so influential and powerful that all he had to do was say a company was a fraud and the justice department would immediately shut the company down and the stock would go to zero.

I didn't know he was necessarily wrong. It was a multi-level marketing scheme. It is. Yeah, but there are a lot of companies that probably shouldn't exist and they do. And just because you say something is bad doesn't mean everyone has to agree with you. Well, you know what it was? He said, I'm going to show this company. Carl Icahn said, oh yeah, I'm going to buy every

share that I can. Yeah, I'm going to ram it up your ass. And he did. Although karma came for Carl after. But also after the Buffett cover, the Valiant pharmaceuticals thing happened. He had a monster long position in Valiant. He was on the circuit like at like Irisone and all these things, promoting that position. And I mean, that didn't go to zero, but like that's one of the all time biggest unraveling

frauds in the history of the stock market. And you know, he just he got annihilated there too. And he's to his credit, like he did four hours or nine hours with Lex Friedman or whatever, like whatever that whatever that podcast structure is. And he went deep on these losses and how wrong he was. Yeah, that was good. But that's like what happens when you pose for a magazine cover and they call you the next Buffett.

Like that's the karma that you're inviting in. He's done much better recently. He's made money, big money in the Chipotle turnaround. I think Netflix and Nike. No, no, no, no, no, no, no, no, no, no, no, no, no, no, no. He sold Netflix at the bottom. Oh, he screwed up on it. All right, anyway, he's back to his knitting.

He's investing in good companies now and he's not doing these 200 slides, short presentations. I like the idea. I don't think real estate is gonna have the same benefits as what Buffett was able to do building around insurance. And I'm gonna leave it at this, but with insurance, you have people paying premiums for their policies no matter what the economy is doing.

In many cases like auto, Geico, it's mandated by law. You literally cannot legally drive without car insurance. So people in a recession, in a stock market crash, don't stop sending in insurance premiums, which is part of the secret of Berkshire's success. He always has permanent capital, the float coming in that he can put to work when other asset managers have outflows because they don't have insurance money.

They have mutual fund money and that shit ain't sticky. So I don't think real estate is going to be the same kind of permanent capital that insurance has been for Berkshire Hathaway. So maybe like the first move, if you take control of Howard Hughes, you find a small insurance company to buy. But to me, it's like not starting with the same. The other big advantage Berkshire had in the early days for Buffett was huge net operating loss because it was a textile mill, which was a dying industry,

and they were able to shield profits not having to pay taxes because of big NOLs, which you're not gonna have here with this. But anyway, I'm curious to hear what your thoughts are about the potential structure. Thought we did this. I have nothing else to say. You're done?

Yeah, I don't know. You got nothing left. Would you buy it? No. Are there any hedge fund managers who if... Can you buy shares in his company? No. Why? Well, you can, but it's not his company.

Like his, you could buy Pershing Square Holdings, but it doesn't work. It doesn't rise and fall with the fortunes of the investments that he holds. Are there any hedge fund managers who if they manage to have a publicly traded company under their wing that they were doing all the investing for that you would be like, I want it? Millennium? Could you buy into Citadel's marketing thing? That's printing money. Yeah.

I didn't think of that one. I thought of a few of them and all the names I thought of, they're out of the business now. I thought of David. If David Tepper was like, I'm buying this small cap stock and from now on, I'm going to invest their whole treasury. I'd be like, oh, I'm buying it too. You're all in on Julian Robertson.

I think he's passed away, sir. Exactly. Okay. Since ghost. So this is good. There's an article in Bloomberg. There's an article in Bloomberg. The headline is hedge funds face new watch dogs scrutiny over huge macro bets. And here's the takeaways. The Financial Stability Board

is setting up a task force to identify areas where shadow banks could spark a broader crisis focusing on areas with high leverage and rapid buildup such as the carry trade and basis trade. The task force aims to gather more data on non-bank financial institutions. So I guess my question is this doesn't exist. This doesn't exist. I was going to say this sounds remarkably like what the SEC does. But this is for what a lot of people assume they do. But this is like for shadow banks for not JP Morgan.

This doesn't exist. Uh, I don't know. Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system?

Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system?

Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? Is this a risk-based system? It's like two different problems. It says the world's top financial stability wash I'll be setting up a dedicated task force to unmask areas where shadow banks could spark a broader crisis. Here's a quote From oh, yeah. Yeah, I get it. I'm trying to figure out the hedge fund angle. I understand it Look like basically basically you went uh when who's a dude that blew up credit Suisse

Um, I forget his last name, he had all these bets on that none of the banks knew and Goldman bailed first. Yeah, Bill Wang. Bill Wang. Goldman bailed first, then like, and nobody knew what was going on. So I, all right, I think it's- Like all these swaps and stuff that like, you can't really see. I think it's more about the hedge funds that are acting as lenders.

And a relatively recent phenomenon is a lot of hedge funds have these loan books now, and they've gotten into private credit. And they're doing bank-like activities, but unregulated. But they're putting credit out there into the real economy and they don't get overseen by traditional banking regulators because they aren't banking regulators. I think that that's what this is really about. How about this? All right.

So a report earlier this month by the European Securities and Markets Authority found that a group of hedge funds were using 18 times leverage on market bets totaling $220 billion, highlighting the risk that they could post financial stability. How much leverage? 18 times? Only 18. Only 18. Why not 50?

Well, in my day, it was 40. All right. Let's get serious. Let's talk about the strategic Bitcoin reserve. Some more Trump stuff. All right. Over the weekend, by the way, this didn't get much of a response. I thought it would be bigger. So it tells you much response. What from from who from Bitcoin? Dude it ran from 86 from 84 to 95 it gave it all back but yeah, it's not it's but I'm my point is

Let me here's let me say my piece Trump made a surprise announcement that the crypto strategic reserve is not just gonna be Bitcoin It's gonna include some of the most controversial coins and that surprised even people in the crypto crowd Over the weekend like a lot of crypto people like, wait, wait, wait, wait, what's included? So we don't actually know in the end what will be included. But immediately like the anti-Trump people were like, you see, he's bailing out all these pump and dump artists, all these, these ripple people and David Sachs' Ethereum bags are being pumped and blah, blah, blah, blah, blah.

But it was surprising to even people that are pro crypto. But you also now have a lot of people like, wait, why are my tax dollars? So let me get this straight. We don't have enough money to keep social security going, according to Elon Musk, but we have enough money to buy Ponzi schemes and hold on to them for some reason. So like that's kind of the vibes around this being not just a Bitcoin reserve, but like in everything kind of pool of capital.

A lot of people are assuming now that this means they'll use it as like a slush fund to give money to people without anyone realizing it because it's in crypto. But I just noticed each time he tweets or sends a truth about crypto, the effect seems to last for less time and it's less high impact. Well, I would also say that if the market was not such a risk off day, yesterday and today,

it could have had a different reaction, we don't know. You think we'd be over 100,000 if the market was not selling off for other reasons yeah maybe I don't hate it I hate it I think I it's it's um I don't I can't what's the defense for this um well these are the people that got him elected and by and large backed Republicans in a lot of really important races like Ohio and it's payback. This is what he promised to do. What about a strategic power to use results?

The Democrats do this shit too. The Democrats do this shit too, but they do it in the form of NGOs and they fund like a lot of programs that are just really employment systems for people coming out of academia to get jobs in DC and New York. Like, every both parties are guilty of this thing where it's like, all right, I mobilized, you know, these people to come out and swing this election for you. Yeah. Now give me the shit we talked about.

So I'm not like, I'm not coming at it from that standpoint. Um, the next catalyst here is the Trump crypto summit at the White House. I'm going to keep an open mind. This could either be a total freak show filled with the Twitter influencers and the pump and dump scumbags that we all know, or it could be Larry Fink and Matt Hogan and legitimate people that we respect. I don't know who's going to win this. When is this?

I don't know about this. Friday. It's the first ever White House crypto summit. Like Biden wouldn't even talk to these people, which was probably a huge mistake in hindsight, he like he Kamala, like they refused to give any of this, any kind of serious attention. This White House is going the other way. I think that's smart. I feel like Satoshi, but I don't know who's going to be there.

Satoshi would be rolling over in his grave, creating like a decentralized self-suffering store of currency that has now become. So what I really wanted to say about this is like, basically, like, be careful what you wish for, because this is not a non-correlated asset anymore. This acts like a big NASDAQ stock. Bitcoin is a trillion dollars and it goes up and down with Nvidia and Tesla. And that's fine. There's nothing wrong with that. But you wanted this thing to get financialized and politically acceptable.

And those things have just happened in the last 12 months. And now, all right, let's put these charts up. Shout out to chart kid Matt. So I'm showing you on the chart where the strategic crypto reserve was announced. I mean, like no offense, a lot of people have been waiting their whole lives for this. So I'm just like, I'm just saying, um, now if they actually start accumulating hundreds of billions of dollars worth of Bitcoin, dude, they better not. Honestly, it'll, it'll the line line goes up, but like this, that that's it.

All right. We're next chart. We're cutting government spending and we're buying cryptocurrencies. I mean, can you even? Next chart. Here's some other bullshit. XRP, Cardano, whatever the f**k that is. Solana, which I actually like, which I'll talk about why in a minute.

But these were like super disappointing, just limp rallies that went nowhere. There was no follow through, no short covering in any of this stuff. I guess nobody was betting against it. Very anticlimactic. But again, if the federal government and other central banks in the world follow their lead and really buy. Maybe we'll... All right, the chat's yelling at us. They don't want to hear more about Bitcoin. I want to throw one more chart up, guys. To my earlier point, the green line is the GlobalX blockchain ETF.

That doesn't hold crypto. It holds companies that are involved in crypto, okay? Like stocks. The pink line is the Mag-7 ETF. The purple line is the iShares Bitcoin Trust, which is spot Bitcoin price. Orange is the tech sector XLK. Blue is the triple Qs. This is all the same thing.

The crypto sleeve in your portfolio is now acting like like semiconductor stocks maybe not always obviously I'm showing you like year to date and things change but like this is where we are so. All right. Make the case. Somebody asked why Solana? Solana is the best way you can invest directly in financial literacy. I have this opinion that can't be shaken.

I'm doing this 27 years. You could take my word for it. Nobody learns anything without losing money. Nobody becomes a great investor without blowing themselves up or getting scammed or some combination of the two. Solana is the base layer for fraud. So if you believe in financial literacy and you want to help people get that education, all of these meme coins are based on the Solana blockchain.

So I support Solana. I support crypto scams, teaching people at a young age what to believe, what not to believe, how this shit really works, how their emotions mess with them. I think you need to learn these lessons young. If you learn them in meme coins, which by the way have been designated as not securities by the SEC, which means there is literally zero oversight, you'll learn really fast, faster even than penny stocks. So I highly, highly recommend if you're going to blow up, don't do it at 45 years old when

your kids are counting on college education and you have a mortgage to pay. By all means, do it at 22 and do it in a meme coin. And so Solana, I feel, is a really important tool toward fostering that education. Am I explaining that in a respectful way? Yes. Is that like the worst take I've ever had on crypto or are you okay with it? Lose money so Josh can make money. I like it.

No, I won't make any money either. I just I want the ecosystem to have enough liquidity that everybody gets scammed. You see, I don't do me. I don't, you know, I'm not in the trenches. All right, can I make the ecosystem to have enough liquidity that everybody gets scammed. You see? I don't do me. You know I'm not in the trenches. All right, can I make the case? Please. I have a small cap stock that I think could 5X in the next 10 years.

Not my intention. Okay. I don't give investment advice on YouTube, so please don't buy this ticker and if you do, don't tell me about it. I don't get paid for you buying it. I'm not interested in the result Kinsale Capital KNSL are you familiar with the company mr. Batnik? No, I'm not okay The founder is still there. He's the chairman and CEO. His name is Michael Kehoe

Founded this company in 2009 the reason you're not familiar with it. It's a 10 billion dollar market cap It came public in 2016 basically 2009, the reason you're not familiar with it, it's a $10 billion market cap, but it came public in 2016. Basically, Kehoe had this brilliant insight about the insurance industry, which is if you just focus on a niche market that the large insurance players don't care about, you can dominate that market and build one of the fastest growing most profitable insurance companies in the world. And that's exactly what they are currently doing. They're in this corner of the insurance market called excess and surplus.

Excess and surplus is like companies that cannot get insured by a huge carrier because they're too non-traditional and nobody really knows how to price the risk. cannot get insured by a huge carrier because they're too non-traditional and nobody really knows how to price the risk. What these guys are doing is a very conservative, data-driven approach to pricing the risk for companies that would otherwise just not get good pricing from a large carrier. So for example, a paintball range,

how do you price the risk of what could happen at paintball? It's minute. We're talking about thousands and thousands of customers. So they have one of the best combined ratios in the industry, 72% versus an industry average of 92%. The way to think about combined ratio, it's how good of an insurance company are you? It's all the premiums coming in from people paying for their insurance policy minus all the money that you have to pay out during the life of those policies.

So the lower number like golf is better. 72% is incredible. They're also growing revenue by like 38% a year. So it's one of the fastest growing companies and one of the best combined ratios in the space. And you just don't see that combination basically ever, anywhere. And that might explain why the stock's been such a huge home run. So let's go to the charts. This is the stock price since inception.

It's annualizing at 45% a year. The stock is basically up, let's go to the next table. Stock is up 2,900% since coming public versus the S&P 500 up 200%. And this is coming directly from the company's own presentation. So very Berkshire-esque to be measuring yourself against the S&P the way that Warren Buffett always has. I found that to be really interesting. It's a mid cap 400 index constituent.

And in a couple of years, I could see this entering the S&P 500. I want to show you one more chart. I'm showing you earnings growth. I'm showing you stock price above. I'm showing you cash flow below. This is not a hype stock. Look at the rate of growth, $500 million in EBIT on an annual basis, and that's up from under $100 million just like four years ago.

So they've quintupled the cash flow here. Last one, here's market cap and book value. Like Berkshire, they measure the growth. They used to tell shareholders the growth of the book value is like how you know that they're really creating value. It's very early to the story here. So I own the stock, I'm not trading it, and I'll take any questions that you have. How did you find it?

It's a great question. I was looking at insurance companies that might make for good candidates for Bill Ackman to make an investment in, to do his Berkshire Hathaway plan. And this thing just jumped out at me on the technicals and the fundamentals. And I went into this manic deep dive to try to learn more about it. I watched four interviews the CEO is given and the last two conference calls and when the market opened Monday I said I got to be involved with this name. So I don't do a lot of small caps like I might

have three small caps in my whole portfolio personally but this is the kind of stock that when I found these historically they've worked out really well for me if I've been patient Credit to you. Okay How many shares can I put you down for sir not this time what would it take to get you into a story like this? It's not AI Although they do use more technology than most insurance companies to price risk But like what I have to do to get you excited about E&S insurance?

Be pretty tough, right? There's nothing you can do, sorry. Nothing. This is below your line? Way below my line. Shout out to Trimoth. Okay. It's still a mystery chart.

But I do like it for you. I love it for you. All right, mystery chart. Let's go Daniel, chart on please. So Josh, what we're looking at here, it's a ratio and the ratio, I'll even tell you what ratio it is. It's a market cap ratio. So you could see that one company was, what does that say, 23 times bigger than another

company. Wait, I'm sorry. So it's a ratio of one stock versus another stock. The market cap of one Yeah, the market is declining. So it the stock that you're using as the numerator is falling Relative to the denominator so so this Ratio peaked the company a was 23 times bigger than company B And now it's only three times bigger than company B and I don't know if company a should be worried

But they're definitely paying attention. These are financial services companies. Oh, okay. Company A was how much bigger than company B? 23 times. 23 times and now it's only three X? Yeah, so you think company A has, or company B has company A's attention?

I think so. I know some. Part of me wants to say credit card, but that doesn't make sense. Because there are no credit card companies that have closed the gap to this degree. These are companies that have closed the gap. Oh, I got it. I got it. Dude, I'm so smart.

Before I even tell you that I know it, I'm gonna tell you that I'm really, really smart. You know what, I would bet. Schwab Robin Hood. Yep, I knew you. Schwab Robin Hood. Yep. I mean, I'm like, it's like, chart f***ing off. Eyes on me.

It's almost supernatural, my ability to do this week after week. I mean, it's gotta be exciting for you to try to stump me, right? You know, I'm giving you clues, right? You know, these are like, I'm giving you an alley-oop and you're dunking it, you understand that? Fine, but can I just have the illusion

that I'm really gonna move, right? Michael Vadek, ladies and gentlemen. All right, guys, this is been so much- Hold on, that's a great mystery chart. It's only three times bigger than Robin and now? I like it, and I'm actually surprised by it, because if you had told me to guess, I would have still guessed the Schwab is like five X at least. Yeah. Yeah. Um,

so that is a good one. Hey guys, tomorrow is Wednesday, which means an all new edition of my favorite podcast, animal spirits of Michael and Ben will do a new, uh, ask the compound on Thursday. And this Friday, we have a very special guest on the Compound and Friends and if you want to know who it is, the easiest way to get ahead of the rest of the audience is to join Compound Insider. It costs nothing. Subscribe to the Compound Insider and we will literally tell you who's coming up on the

show in advance in addition to lots of other background information. That link is below if you are watching or listening. All right, guys. Thanks so much for tuning in. We love you. We'll call to you soon. Whether you're just getting started as an investor or you're managing a multi-million

dollar portfolio, Ridholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit ridholtzwealth.com. Don't forget to check us out at youtube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.