The Compound and Friends - The 60/40 Portfolio is Dead. Again.

Episode Date: October 15, 2021

On this week's episode of The Compound & Friends, Michael Batnick, Blair duQuesnay, Eddy Elfenbein, and Downtown Josh Brown discuss how Blackrock got so big, the death of the 60/40 portfolio, Project Thunder, red flags that no one cares about, the 5.9% increase in Social Security benefits, college football, and much more! This episode is brought to you by Direxion. Visit https://www.direxion.com/leveraged-etf-education for more 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 Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

So I'm walking through the new Moynihan train hall, which just opened, I guess, during the pandemic. And on my way here, it's like two hours ago, and I see a ghost. I see this guy that I worked with for like probably two or three years, and I just forgot that he was even a character in my life. The donor? No, no, no, no. even a character in my life. The donor? No,

no, no, no. So this, all right. So this guy was in charge of the prop trading unit at, at a broker dealer I worked at and his whole thing, he was like not a trader.

He was like in charge of the desk and more importantly, every day, how much they made or lost. And he was like maniacal about the whole thing. And in those days, probably still now, the prop traders like were always felt underpaid, right? So he would have to have a negotiation with them every month, how much they contributed to the success of the trading desk. And I just, I never had anything to do with him

because I was a broker, but I just remember him always being like – like there would be like a commotion in the hallway, like people waiting outside his door. He would come out of his office. He would say, guy, guy, come over here. Let me show you something. And he would walk people around the back of his desk to his computer. He would say, guy, this screen doesn't lie. And he would say that every single time.

This screen doesn't lie. Here's the screen. It's not lying. And I listened to him do this every month with 10 different traders, like honestly, for I think two full years. And so, and then I never thought about this gentleman ever again and i see him just now did he recognize you dude i wanted to pull my mask up over my face like if i had a

hooded sweatshirt on it would have been so i i avoided fortunately because i it's one of these things where it's like oh i hope this guy forgot that I'm alive. Probably not. Not a chance. But I definitely forgot that he's alive and his screen that doesn't lie and that whole routine. It's just like one of these reminders that, oh, my God, life is very different now than back then. And he's still doing it with the hot dog vendors. The screen doesn't lie.

He could be homeless or he could be working in the industry. I don't know. But just that whole shtick, like, look at this screen. Is it lying? Of course it's not lying. Eddie, you were never a trader, were you? No. Never?

No. You were an analyst and a writer? Mm-hmm. Okay. I almost took a job at a prop trading shop, I guess, or whatever the hell you call it? In like 2010. I feel like you would have crushed it. Thank you. It was at the...

Definitely not. It was in the Trump building on Wall Street. And I walked in there. It was like a lot of Orthodox guys. 41. And it was just... I don't know. Well, it's not really a job. No, it looked not really a job.

No, it looked like fun. But I have enough bad habits. I can't imagine doing that. You show up until you lose enough money that they tell you to stop showing up. It's not like I work for this company. I don't think you're missing anything. Basically, it's like your knish in rounders, you know, just trying to grind it out. My first job was in a boiler room.

Oh, really? Yeah. Same. Which one? Which one? Maybe we worked in the same in a boiler room. Oh, really? Yeah. Same. Which one? Maybe we worked in the same one. In Atlanta. Okay. Really?

Mm-hmm. Commodities. You know about the commodities shtick? It's the same thing though, right? Yeah. It's like calling retail people and telling them to trade commodities with you? Wait, tell us, what's the boiler room of commodities like?

Like I got this hot new metal? Options. So it was options and I was there for such a short amount of time but by the time i realized something was off i wasn't even sure if they were trading on the real exchanges like i didn't know if it was all made up or anything but they would close shop and open up under a new name that's normal that happens all the time well hedge funds didn't do well was that the red flag that you needed to say i just got a creeps and i didn't do well. Was that the red flag that you needed to see? I just got a creeps and I didn't

like the cold calling and the $600 a week draw, or maybe it was $300 a week draw. And so I went and got a real job and then I got a call from the CFTC. Oh really? Yep. And say what were you there? I told him what I knew. I told him what I knew and I didn't know anything. So right. Never snitch. Good. I worked at a, uh, kind of a boiler place do you remember oldie discount yeah it was not a boiler room it was close to all day a thousand beverage that was like uh no that was a discount brokerage yeah kind of what were you doing what were you doing there i mean they were just they were they they threw the book at them because they were told only to hire white males, young white males.

So it was like a fraternity background. And you just called, called all day long. The lead was Muni Bonds because they could take that subsection of the Series 7. I think it was like the Series 52. And you could pass that like within two weeks. And so they wanted you to pitch Muni Bonds and just get money in. What's wrong with that, though? like within two weeks. And so they wanted you to pitch muni bonds and just get money in. And they're – What's wrong with that though?

Nothing was wrong with that. But it was just sort of – they didn't want people – unless you hit your goals, people were fired very quickly. Yeah. And their big thing was to – it was commission-free trading, but it was how they did the spread on the stock. So – and they got basically the SEC threw the book at them. I thought they were bought.

They were shut down. They were. They were bought by H&R Block. Oh, wonderful. So that's why H&R Block got into the brokerage business. That's right. OK. I remember they had financial advisors.

That's where they were. I feel like that was a name that existed slightly before I came into the business when did that all happen mid 90s yeah early mid 90s I guess I was there in 93, 94 I thought you're not a millennial I don't think so Eddie's right on the cut off

give or take which cut off from what Gen X to Boomer Silent to Boomer I love that I don't know what I am From what? Gen X to Boomer? Silent to Boomer. Silent to Boomer. I love that. I don't know what I am. Because sometimes they say 1980.

Sometimes they say 1970. Oh, you're an X. No offense. You're not an X. I feel X. You're an Xer. And wait, hold on. Speaking of my love for Eddie, I've told you many times your Twitter account is the number one account that I copy and paste to Ben.

At least once a week. What's his last hot tweet? How is Eddie so gosh darn funny? I'll find it. Talk to yourselves. I've been kicked off the network, so I haven't seen his tweets. Are you still funny on Twitter? You're always really funny.

I try to be. I think you guys are funny. But have you just given up Twitter? Yeah. You just walked away? Yeah. I mean I thought I would come back, but then I thought I would take like a month off or something. I thought I was going to take the summer off.

Summer of 2020. Like I got off Memorial Day and I figured I'll come back Labor Day. I'm just going to take the summer off from everybody's bullshit. And I never came back. Oh, no. The first one I clicked on, Eddie, you deleted it. I'll find another one. You tweet and delete?

Are you Michael Burry now? I delete a lot, yeah. Why would you delete a tweet? What would make it? If it's just too silly. Okay. Really? Yeah. I honestly try to be a little more serious. What's the right level of

silliness on Twitter? Depends how many likes I get. Okay. Fair. I would never, back in the day, I would never leave a tweet up that got under a certain amount of likes. Like I would go back later when no one was I would never leave a tweet up that got under a certain amount of likes. Like I would go back later when no one was paying attention to get rid of it. Really? Yeah. So you were really on the juice.

I would never leave something up that didn't hit. Because it's like that's now part of my track record and people didn't think it was good. I always felt like I wanted to be authentic. Did you used to look at your tweets at the end of the day and be like, nobody liked this one and get rid of it? I don't think so. I know I've deleted tweets. I know I have. I don't know if I deleted a tweet because it didn't get a good hit.

I'm sure I have. Who am I kidding? I'm sure I have. Well, I definitely have because I just feel like if you leave it up there, it's like part of your, I don't know. There's no really good reason. How we looking? Ready to get underway? All right.

Let's roll. John's going to come in with three claps. Try not to get nervous. Don't say that. Okay. Don't think of a pink elephant. All right. Break a leg.

Welcome to The Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's episode of The Compound and Friends is brought to you by Direction. Direction's leveraged ETFs are powerful tools for short-term active traders, but they're definitely not for

everyone. So know the risks, trade boldly. For investors looking for longer-term investments, Direction offers strategic and thematic ETFs for precise exposure to satellite investment themes. Direction's latest leveraged ETF is Dozer. That's D-O-Z-R, the Daily U.S. Infrastructure Bull two-time shares ETF. Offering two times the daily return on infrastructure stocks. Go to direction.com

slash dozer to find out more. If you're a bold, short-term active trader or thematic investor, Direction has ETFs built for you. Before investing, carefully consider a fund's investments, objectives, risks, charges, and expenses contained in the prospectus available at direction.com. Read that carefully. We're here. Is that too loud for you, Michael? No, you know what it is? It's great. I can't hear. I can't hear. Can you guys hear? That's all by design. Listen, I'm very happy to announce that today's show of the compounded friends features my friend, Eddie Elfenbein. Eddie, say hello to everybody. Hello, everybody. Okay. Eddie came all the way here from Washington, D.C.

Did you take the Acela big shot? No, I had to take the Northeast Regional. What the hell is that? That's the other one. It's the not fancy one. Why? Was it a timing thing? Yeah.

Okay. And Blair came by limousine. Blair Ducanet came all the way from New Orleans. What's going on? I'm just happy to be here. You excited? I haven't seen you in the flesh in like two years. When's the last from New Orleans. What's going on? I'm just happy to be here. You're excited? I haven't seen you in the flesh in like two years. When's the last time you came to New York, though?

You've been here since the pandemic, right? I came up for a show at the end of August. Okay. All right. So you've been to New York. I have. Okay. How's New York look to you these days?

Well, first of all, the weather's perfection. Yeah. It does not look very different to me. It doesn't? It looks the same. It's getting harder to park in my lot to get on the train. So I feel like more people are coming through. I was on the subway yesterday and the cars were full. Yeah. I haven't been on the subway,

so I don't know. That definitely changed. It looks pretty normal to me. Yeah. All right. We'll make, we're making a big comeback. So first of all, so glad to see you guys, not just for the show, but just in general. And you had never met each other before, did I? No, we hadn't. How is that possible? Big fan for a long time. Are you surprised by that? Yes.

You guys read each other's blogs, I bet. Okay. And you guys have Barry Ritholtz in common, pretty much, right? Yeah. How long have you known Barry, by the way? You've known Barry longer than you know me. And I'll tell you how I know that. I thought, now I know I was at the dinner

where you met Barry. Yes. But I knew Barry before that. You just blew up my whole thing. Oh, I'm sorry. I just barged on your point. But I guess I, Barry's was the first blog that I read regularly. Was he writing before you? Yeah. Okay.

So he sort of got me into it by reading him. But I i don't i can't recall when we first met you and i knew him no barry's here today should we have him in to tell us his origin story we'll never get we'll never get out of here we'll never get the show on the road uh first of all eddie i want to start by congratulating you on five years of crossing wall street the etf right thank you what is the what is are you allowed to say the name of the ETF or the paratroopers crashed in the window? How does that work?

What are you not allowed to say? Monsters Inc. What is it? You can talk about the index. No, I can, I can talk about it. It's, it's the official name is the Advisor Shares Focus Equity ETF. Oh, right off the tongue. Great name.

Yeah. Ticker symbol CWS. Yeah. I'm surprised that name wasn't taken. You got lucky. But I did get the ticker symbol from crossing Wall Street. CWS is the ticker. All right.

So what's it like running an ETF for five years? It's so challenging. You learn a lot about like the fees that go into it. When you hear all these people talk about, oh, the fees are too much. The fees are too much. You realize everybody who takes a bite out of the ETF, that's something that's not talked about a lot. But when you're at the other end of the table. Who's in there?

Bank of New York Mellon gets something just for waking up. Yeah, the lawyers, the prospectuses, the exchange fees. You don't even think about that. Right. DeFi solves that. That's right. Just throwing it out there. And Blair is here.

Blair, you are on Ritholtz-Welts Investment Committee. So I know you talk to Michael a lot, probably more so than you talk to me. And you're also a CFP. And you had clients up in the office. Are those your clients or is that somebody else's? I couldn't figure out what was, those are Nick's, right? Yeah. Nick, my colleague down in Louisiana. That's right. Okay. Those are some clients that he's been talking to. And ironically, it's a really funny story, but they ended up being in Alabama where my parents are from and we met up. And then they ended up being here the same week that I was. So it's meant to be. Meant to be. They're awesome people. All right. We're going to start talking about BlackRock, which reported earnings this

week. And Eddie, I know you were day trading this name right after they reported. Michael, what do we want to say here to open this up? I think a good place to start is that BlackRock is a big organization. Maybe you've heard of them. They manage just under $10 trillion. They reported yesterday. I think it's like 9.45 or whatever. They'll be there tomorrow.

9.45 trillion? Yeah. So that's only nine coins. That's really not that much if you think of it that way. With the trillion dollar coin. Yeah, no, you're right. Small change purse. And you can manage the whole thing.

It's 9.45 coins or the entire global hedge fund, private equity, and venture capital industries combined. And so as I was thinking about this topic, how do they do it? Like I understand obviously the Barclays Global was huge. That's the origin of iShares. And there was a great article by Robin Wigglesworth in the FT. But how did they, like, leave Vanguard in the dust? Like, how did they get from, like, $5 trillion to $10? Do we think they'll be the first asset manager to $10?

They'll probably do it right now. Yeah, they're probably there tomorrow. I mean, yeah, they are just stupendously large. But remember, the iShares was a brilliant acquisition from Barclays. They also had the Merrill acquisition a few years before that. So they really got when – What did they buy from Merrill? It was some institutional brokerage.

The asset management. That's where the asset management business came from. OK. And so they bought at very opportune times. But also remember, they have that whole Aladdin business with God knows exactly what that is. I think that's fake. Let me jump in. No, it's not fake.

It's very real. No, it's very real. And this is a great origin story. So when – after Larry Fink left First Boston, they started this program that was called the Asset Liability Debt and Derivative Investment Network or Aladdin. Ooh. I wonder if that was an accident. So no, this was in like the early – this was before – I think it was before the movie. And what it was was I think the way they described it was like an MRI machine for portfolios and for derivative, bond derivatives. Specifically, I think it was mortgage-backed securities.

So I know that that's very widespread technology throughout the industry for risk management. But I've never spoken with somebody who could give me a good description for why it differs from anything else that anyone else could do. No, I've used it. Okay. So tell everybody what the story is with this. At least the way that they're using it with advisors, it is super sophisticated and frankly overkill for our purposes. Right. But they get granular, super granular. Heat maps, like crazy factor breakdowns, like way more attribution than is necessary for what we're doing.

So it's not really actionable for wealth management. No, it can be. If you're trading, it certainly can be. I never really understood why they were offering it to me. I was at like a $100 million RIA and they wanted to run my portfolio of mutual funds through it, which I thought was a little bit hilarious.

The even more hilarious thing is that we didn't share our portfolios with them because we didn't want them to know our secrets. But you're right. You didn't want BlackRock to know what your asset allocation mix was. It's proprietary. Right.

This was back in the day when – Yeah, dude. That is so hacky. That's like not sharing data with the NSA. What is that from? Like boxing? What's that sound like? Wait, wait, wait.

That's just like my favorite sound on Earth, I feel like. It's the only way to explain it. Wait, hold on. The reason they wanted to x-ray your portfolio – So they could sell me their products. So they could say that the iShares version of whatever you were doing is better than – I mean that's their job. Or they're like you need Minval or whatever you need. Right, what you're missing.

I think this is precisely how they got bigger than Vanguard. I assume they're bigger than Vanguard. Yeah, they are bigger than Vanguard because they're aggressive. They have salespeople. Like Vanguard has external wholesalers and so does iShares, but they're not, Vanguard is nowhere near as aggressive. And I don't mean that in a bad way. Like iShares is actively out there all the time, selling, selling, selling. They are a vacuum for assets.

So how big, so let's put this chart up, John. I think Aladdin is something like 30 trillion are tied, is tied to it. 30 trillion is, but what does that really mean? It means 30 trillion is being x-rayed by it. Yeah,

whatever. So like sovereign wealth money, like BlackRock will overlay Aladdin and tell the CIO this is where your risk is. They basically know where all the dollars in the world are. But not the crypto. I get that. Not the crypto. Crypto's not in there?

No, I'm just saying they haven't scanned the crypto yet because it's DeFi. I bet you they have. So this is the breakdown of their assets. They've got – so this is just showing in pink is BlackRock versus private equity and hedge funds. They're basically neck and neck. So I remember when they bought Barclays and they were something like $2 trillion, and that does not seem like that long ago. So what's blowing my mind about this is from 2 to 10 in the blink of an eye. How did that happen?

The Fed. Well, performance, although historically they're a bond shop oh we just had we had a lot of money creation like and and most of it fell in their lap because they're really good at what they do what it is the iShares and also you you mentioned the fed ironically they they do everything for the fed as well yeah they were they were executing the bond buying programs or at least it was using it was their funds their funds. So, all right, they've got $3 trillion in ETFs. $3 trillion in ETFs. $3 trillion in ETFs.

They've got $1 trillion in retail. I don't know exactly what that means. 40-act mutual funds. No? I don't know because under institutional, it says $1.6 trillion in active strategies for institutional, $3 trillion in index strategies for institutional. So maybe the $1 trillion are the mutual funds. So that's $8.7 trillion right there.

They've got $700 billion in cash management, like, of course. So they reported earnings this week. And they do auditing as well. They've got $10 billion in advisory. So they reported earnings this week they beat estimate no surprise they somehow missed the mark on new assets which i mean it doesn't seem like they did uh revenue grew by 16 to 5 billion that's surprising how you could be this big and still be growing in the teens uh still be growing top line. And then they raised like $98 billion during the course of the quarter in net inflows.

Where the hell is that money coming from? You need spending money. Long-term net inflows for the quarter were $98 billion. I see, yeah, 58 in ETFs alone. So where is that coming from? This is actually interesting. This is very interesting. 25 billion inflows in active institutional products.

401ks. No, that's institutional. Yeah, I don't know where that's coming from. 8 billion in outflows from the index on the institutional side. I think what they've done is they've so successfully captured so many niches and major areas of the market esg they're huge like people people that would normally like compete with a firm like this they probably just look at their breadth of products and say i'm not even going to bother and then that feeds on itself and they just keep getting bigger well it i mean it also raises a

question what kind of firm are they i mean are they are they a SIFI? Should they be defined as one? Yeah, yeah. Because, well, they're not a bank. You can't talk about capital ratios. Well, because they're not making loans. Right. I think they're the SIFI, like for markets. They don't have deposits like banks.

It's a different kind of financial risk. But without question, they sit in the middle of everything. They were neck and neck with State Street in, I don't know, maybe a decade ago. Probably they were probably neck and neck in assets. I don't know what happened there, how State Street fell behind. I think, and I'm sure people can fact check me on this and know a lot more than I do. I think State Street was really, really, really confined by its relationship with S&P. And the fact that S&P was taking such a big chunk

of the sector ETFs, of the spiders. Right, so they didn't have the ability. That hamstrung their growth. They didn't have the ability to shop index providers. So they had to stay at a certain basis point fee. iShares was able to go to Russell, FTSE, and just be like, this is what we want to do. Yeah, they had power.

Every year, those fees get less and less. They are trending lower? Oh, yeah. It's been a war of just fee compression. Well, that's the other thing. At this point, it's a barbell. The only assets that are – the only categories that are making money are index funds and, like, niche products, thematic products. But they're making a lot if they hit, like the thematic stuff.

BlackRock's not very big in thematic, or has that changed? I don't think so. They're not doing like new tech, like that kind of thing, right? I don't think so. Not that I know of. I want to do this thing about the era of mutual funds is dying, long-lived ETFs. Is there still stuff to say on this topic? Like don't we just – haven't we just all accepted that this is going to be what it is for the next 20 years? It is.

Yeah. I mean, the only thing holding it back at this point is the 401k. Right. That's the only reason we have new flows going into mutual funds. And now we have pretty much every company is now doing ETFs. Right. Yeah. So I wonder I wonder if the the last surviving mutual funds are the ones that just convert and make ETFs. Yeah, because people just, there's accounts out there that people don't even remember that they have. There's all kinds of assets that are just stuck there.

I think one of the things over the next decade that we're going to see happen more and more is advisors launching their own ETFs. Patrick Cleary and Wes from Alpha Architect were on Mev's podcast a few weeks ago talking about, that's like a big, big, big part of their business now, is helping advisors bring ETFs to market. But isn't that a conflict? Why?

Like, how do they get around? So, all right, so I'm a financial advisor. I'm billing my clients an AUM fee. And then I invent an ETF. And I'm putting it in their accounts. And that is also paying an AUM fee. I I invent an ETF and I'm putting it in their accounts and that is also paying an AUM fee. I think as long as you disclose it, I don't think it's fine. Yeah, it's not new.

Well, are there any prominent advisors that have their own ETFs? Not with ETFs, but they do their own private funds. They do other asset management wrap products where they're charging a fee and they disclose. Now, do some of them charge way too much because of that? Yes. But as long as you disclose, it's above board. Let's say Rick Edelman created an ETF or asked for an ETF to be created for him to use, but he didn't get any fees from it. Let's say that an advisor has an active strategy, sector rotation, trend following, whatever it is. Yeah. And it's more tax efficient to put this inside of an ETF wrapper. Right.

Now, I don't know why an advisor would want, A, the scrutiny from the public if they're public facing like we are of just being – having the shit beat out of them every 30 days. But from a tax efficiency standpoint, I get it. Oh, because that becomes the advisor's track record. Yeah. Whatever's in the – like the ETF versus the SPY. Right. Is – I mean, I don't know. What do you think about that?

I don't know. I don't have any thoughts that come to mind. It's kind of scary who the let's start ETFs nowadays. Anyone. Told you this guy was funny. But I mean, what I think of is the origin of the hedge fund industry. And that's how it was started sort of after hours, people taking client money and putting them into the funds. It really was not seen as an industry. And I think

you probably know this if you're under 100 or so, a lot of the regulations are much, much softer. As far as why an RIA would want an ETF, that's it. I can't think of a particular reason outside of track record. Well, how about this? Not just for their own clients, but if they want to raise money from actual clients. Tax efficiency, too. Yeah, of course. You hit the nail on the head. Absolutely. Why? Because the ETF would be better than them running that strategy

in separate accounts? If you have an active strategy in-house like we do, people might be wanting to put that inside of an ETF. I guess I wonder why we haven't seen the largest RIAs launch ETFs. Well, I'm saying, I think it might be coming. Okay. We're not doing, you have no plans for this, right?

We're not doing it. Okay. You're with him on that? I don't. I'll back you up. I haven't heard this conversation yet. We're not doing it. All right, cool.

What if the stock market were a bond? Eddie, this is you. Did you eat magic mushrooms before you wrote this blog post? Maybe. What the hell is going on here? I just thought it would be kind of a clever thing I did is what if we took the returns, the daily returns of the stock market, but had it in the form of a bond? So we just assume a make-believe bond that was a perpetuity that never matures and what it would look like if we just compared it with the stock market. I actually had done it a couple of times and I took the

Wilshire 5,000, the total return goes back to 1970. The thing is you, since it is make-believe, you got to have to find a starting point. And so I had to mess around with that. And I lined it up against the red line is the Moody's AAA. What, the yield? Yeah. Okay. And so you can even see the gap around 2000. You can see just how overpriced the stock market won.

Yeah. Was that a particular spot of trouble? That was when the Y2K ruined all the computers. Right. We did recover from that. All right. So what happens if you turn the stock market into a bond? Like what was your conclusion from doing that? Just sort of seeing a relative valuation level. You can see what's going on where, can – I think it's just – if you tell investors, think of your stock as an income-producing asset and that really changes how you approach it. OK.

And imagine if you just got dividends like it did years ago. Even though if you won't get that, imagine if you did. OK. And then you look at it like almost like you would look at real estate, like these are my rents coming in. Exactly. So Josh and I spoke about cash flows on What Are Your Thoughts this week. And your strategy, it's not a dividend strategy at all really, but a lot of your companies do pay dividends. Is that correct?

Yes. So you tweeted recently, be suspicious of any investment thesis that heavily relies on demographics. Colgate-Palmolive is up 30 fold in 30 years. It ain't demographics, it's toothpaste. So I want to talk about, which I love, it's brilliant, but I want to talk about that and juxtapose that with the environment that we find ourselves in today, where nobody wants cash flow producing assets because money costs nothing, so who gives a shit? And you look at Verizon or AT&T or a lot of these juicy yielding stocks. Nobody wants them. Almost across the board, they look like shit. Staples are a smaller percentage of the S&P 500 today as they were in

2000. So is this difficult for your strategy? Is this permanent? Is this because of interest rates? What do we think is going on here? You talked about the consumer staples. I thought that was a very good point because historically, these are some very strong names, and the sector has done very poorly. I think some of that is due to interest rates. I mean they're the closest stocks that kind of trade like bonds except for utilities. So the sector can be out of favor. Didn't they do really well during the pandemic, the early stages? Didn't the consumer staples go nuts?

Well, sort of the Clorox. That was a special situation. But yeah, they did. Right. So when did they start to underperform? But in the last, I'd say, 18 months, they've really started to lag. But they've had periods like that before, like the late 90s. Right.

And then they had dramatic outperforming. So it's a defensive sector. It's going to follow the economy. OK. So it's not a demographic story, but maybe it kind of is a little bit. Or is it really more about like how rate sensitive they are? I can't figure out what the driver is for these stocks. I wouldn't say it's rate sensitive.

I would say these are cyclical or the opposite of cyclical. Okay. Do they trade differently from each other? Is there like a lot of dispersion in the sector or not as much? They follow each other a lot because it's a straight line. I mean, that's what a staple is. You know, the home builders, you see the report, it's either up a lot or down a lot.

We think of like, I don't know, like Winnebago or something. Either they're doing business or they're not. And it's just not that way with, you know, Church and Dwight is one of the stocks. It's baking soda. It's baking soda and condoms. I mean, you really can't get more basic than that. Do not mix the two.

Yeah. Don't buy both at the same time. You're invested in Winnebago? No, I'm not. I was just using it as an example of a strong cyclical. Oh, I see. Okay. So like Staples is like Procter & Gamble, Coke, et cetera.

Exactly. I think like Kimberly- It's toilet paper. It's just not a lot of- It's very rare that one of those companies is bucking the trend. But listen, also when people want growth, people don't want staples.

But staples do well in poor times for the economy. Yes. And we're not having that right now. Exactly. That's it. Yeah. Yeah. So they're out of,

it's like the perfect shit storm for staples. No, like people aren't, people aren't covetous of those dividends enough to be. So how does that change? Does the whole market have to come down for those to shine or can they eventually catch up in a bull market well i think first they'll start to that they can outperform in a down market right that's where they really make their difference and then they kind of tread water or lag during during the good times but i think once you start seeing bad times people are going

to turn to those names. I mean, it's high quality. It's dividends. That's what people go for when they get scared. All right, well, bad times have been outlawed, so I feel like we're going to be okay for a while. I want to do this 60-40 portfolio thing because it was just pronounced dead again.

Wah, wah, wah. Blair, how many times in your career have you witnessed this death? Oh, if I had a nickel. How about this? Every time. Josh, at our first conference in 2014, there was a panel, the death of the 60-40 portfolio. It was called that?

Yeah. Did we name it that, though? Probably. Okay. It was 2014. Can I guess who was on it? Who would have been on that? I actually, if I have this right, remember Larry Swejow was late?

Yes. And Morgan filled his slot and then got remember Larry Swejow was late? Yes. And Morgan filled his slot and then got off the stage when Larry came in? Yes. Larry definitely would have been on there defending the 60-40 portfolio. I think Meb was like, it's definitely dead. No, I'm kidding. I don't remember what Meb said. Who else?

I can't remember. Right. Meb would have been like, it's definitely dead, but there's some interesting things you can do. It's not bad. It's not bad. Not a bad Meb. That's actually a pretty good Meb. All right.

Bank of America called it the end of the 60-40, while Goldman Sachs Group said losses from such portfolios could swell to 10%. Time out. Time out. You can't say swell to and then follow it by 10%. I didn't say it. That's GS.

If you're going to say swell 2, it's got to be at least 20 or 30. Am I right, Eddie? The stock market only goes down 5%. That's the most it does anymore. So swelling to 10% is a lot. That actually would be catastrophic relative to... Similar alarms also rang at Deutsche Bank.

Are they even allowed to speak publicly still? That's remarkable. Strategists, including Jim Reed, said a shift in the stock bond relationship may force money managers to adjust their thinking. Yeah, no shit. They did. They're buying Bitcoin. Like, like that's what's going on right now. I mean, the 10 year yields has soared all the way up to one and a half percent. So it's just really taking it out on the 60, 40. Well, what do people think? If the 40% of the portfolio is getting 1.5%, yeah, lower your return expectations. I did that

five years ago, and I've been wrong the entire way up. Love it. I love being wrong on the upside. Theoretically, if we think that bonds offset the risks of stocks, not every day or every month, but over an appreciable period of time, how could a 60-40 portfolio be, quote unquote, dead? Well, the only time would be inflationary. So they're assuming either stocks go up, bonds go down, bonds go up, stocks go down, or they both go up. Then you get the other corner on the quadrant where they both go down.

That doesn't happen. It does happen. But where would the money- It was the 1970s. Where would the money be going now? Is there another asset class? I mean- Gold. That doesn't happen. It does happen. There's too much money. But where would the money- It was the 1970s. Where would the money be going now? Is there another asset class? I mean- Gold.

Gold would offset it. So is there enough gold in the world to offset the amount of money in 60-40 portfolios? I would bet. No. I've never run the numbers on this, but if you did a, you know, 55, you know, 57, 37, and whatever the balance in gold,

I bet you could severely limit what, you severely limit these periods where they're aligned. We should have Nick look at the periods of time where bonds and stocks both declined together. I've done this a billion times. No, no, no. Inflation adjusted. Whether or not gold really helped in those moments. I bet it's only half the time it helps.

And that doesn't really mean anything for the future anyway. Right. And gold has been financialized now to a degree that it wasn't in the 70s. You had to like buy a brick or buy a futures contract. Now it's another stock. Have you ever been to the basement at the New York Fed and they let you go down in the elevator? Yes. They let you go down in the elevator and they open the doors and you can see the bricks. When did you do that? I was in college and I was on- Pre 9-11? Nope.

Post 9-11? And they're still letting people do that? Yep. And we went on a field trip to the Fed and they took us down to that diehard scene and we saw the bricks just laying there and I'll never forget it. That was one of the better diehards

that people didn't think it was good at the time. No, Die Hard with a Vengeance. Is that which one? Die Hard with a Vengeance? The one with Sammy Irons? Yeah. That was one of the better diehards that people didn't think it was good at the time. No, Dyer with a Vengeance. Is that which one? Dyer with a Vengeance? The one with Sammy Irons? Yeah. That was great. It was great.

But at the time, people were like, all right, so you saw the bricks themselves? Yeah. Okay. Not impressed. Yeah. So wait, hold on. The 60-40 portfolio is going to have lower returns going forward than it has in the past 10 years.

That's obvious. I feel like you can't even really debate that. I mean, it's all about risk. What's your risk tolerance? What's, you know, going back to wealth management, what are your goals? What are your objectives? What's your time horizon? What's your risk tolerance? Yes. Some clients have more stocks now than before because interest rates are low. Big deal. It doesn't mean anything's dead. This is Jim Reed from Deutsche. There is every chance we are, obviously for this relationship to reverse, There is every chance we are, obviously for this relationship to reverse, meaning bonds offset stocks, we need to be in a sustainably higher inflation era. There is every chance we are in one.

And if so, a lot of the relationships that have prevailed in the average person's investment career could change. Yeah. So could or maybe could not. So from my perspective, it's hard to imagine both asset classes declining together for more than a couple of months before people start buying. I don't think they've ever declined together for more than four months at a time because eventually money has to go somewhere. And if stocks are falling, eventually it will find its way into safety, which are bonds. Right. So this September, there was a pretty ugly moment, though, where they both went down together. Yeah, they can go down together, but not just not for like two days, not for more than a couple of months. Right. On the list of things that I'm like terribly worried about.

By the way, I shouldn't say can't because, you know, oil went negative. So on the list of things I'm terribly worried about, this isn't high. Where is it for you? It's I mean, I it's a pet peeve of mine when people say it's the death of something. That's just a very hackneyed way to get attention. Yeah. And anything in finance. It works.

You know, Bitcoin, it's dead. Yeah, the death. I'm saying, I'm proclaiming right now, it's dead. Right. But, you know, for a 60-40 model, I'm not worried about it. It'll do fine. Okay. Did you ever work at Merrill?

No. Where did you work? UBS? Yep. Okay. Do you know about Project Thunder? No. No, but it's bringing some stuff to mind, the thundering herd.

They're trying to turn – this is like one of the funniest things I've seen. This is at Advisor Hub. Shout out to Mason Braswell. They're trying to turn broker sentiment around because they're losing advisors to other wire house firms. So we're in week seven of Project Thunder. And every week, there are like more things that they're giving back to the advisors. If I was Robin Hood, I would run that and just with LOL on top of that and just run that as my advertising, just run the right. Uh, okay. New rewards program for customers with a million

dollars or more in their accounts. Uh, great. You become diamond tier or diamond honors if you're 10 million or more, but these are some of the funny things that I absolutely loved. Brokers will now have more options for sending custom invitations and can also pull more content off the shelf to build presentations and will no longer have to circulate chief investment office research reports

pre or post seminar, according to the memo. So you can- That was word salad. What was that? You can now invite clients to? You can now invite clients to seminars, which I can't imagine there are people still showing up at these things.

With custom invitations. With a custom invitation. But is it embossed or is it thermography? Because we've got to get down to the details here. They're making it easy for brokers to take on customers who have marijuana related businesses uh that's that's a pretty big perk for the six or so people that that might apply to i guess um it's bigger than you think allowing brokers to send non-branded greeting cards

so unbranded non-branded so you can go into a Hallmark now if you're a Merrill broker. I mean, this is where we are. So there was one other that I thought was pretty excited. Actually, this is a good one. Merrill has added a tax-efficient management service to clients in Merrill's investment advisory program that allows customers to pick and choose tax management. All right. So that's like one useful thing out of this whole list. They didn't have that before? I mean, that's table stakes. I would have assumed.

Do you know advisors at Merrill right now? I only know one. I only know one. You know, I think I might know some people, but it might be Morgan Stanley at this point. I don't actually know. Right. So I went to a Merrill trainee event, and it was actually pretty good. So they had a speaker.

Will you have that with me? Yeah. Oh, that was – Nick Murray? That was awesome. That was pretty cool. Nick Murray is awesome. There was a lot of young, vibrant energy in the room.

I couldn't believe it. There was people there. The problem is they can't keep the young people there. Right. No, I understand. But I just thought the program was dead and maybe it is dead now. I know we're getting back to Eddie's pet peeve word, but let's

just say it's dying. The death of Merrill's Thundering Herd. So they're making these guys into bankers basically and that's I think what they're trying to fight off. So when UBS bought Payne Weber, right, I think that was their goal, their thought. It's a European bank.

The European bank model is actually pretty good. You walk in on the street, you do your banking, you get a certain amount of assets, they move you upstairs to the wealth management. But I think UBS figured out really early, because that merger is, you know, early 2000s, they weren't going to bankify Payne Weber. And so they've just run it as an American arm and it never became

UBS I think they realized very early on no the DNA of this company is not is not going to tolerate this so I felt bad that they changed all the names of these like storied brokerage firms and like when we talk about how big Black Rock is even if

you ask a hundred people on the street who's BlackRock, they probably don't know. They all know Merrill Lynch. They all- DLJ. If they're of a certain age, they all know Payne Webber. Yeah. These brands are gone.

I feel like that's a very big difference from BlackRock. What year did Vanguard buy Stratton Oakmont? I think that was just a few years ago. All right. RIP. I guess I shouldn't say that. It's maybe too early. RIP Merrill because these guys are now World Bank for America.

Quote the great Ram Capital. RIP IP. Herb Greenberg's theory on why nothing matters. So he did this thing about where did all the red flags go? And I feel like we're in a moment where people don't care about red flags at all. Red flags didn't go anywhere. No. People's reaction to them.

People's reaction. Yeah. People don't give a shit about red flags. Why is that? Because it's a bull market. Rates are at zero. So all the models. Yeah.

When the Fed decided to buy junk bonds, risk-taking changed dramatically. And it's almost as if there has to be risk. But for the time being, nobody cares. The only risk is not being in. Yeah. But I kind of think that a lot of the red flags and the big names people don't care about, like Tesla as an example, was a short seller's dream, right? And it just didn't work out, whatever.

But there are, as we keep saying, I feel like every week, there are a lot of stocks in the stock market that just blew up. If Apple said tonight- Well, it went down by half. Yeah. If Apple said tonight, we have to restate two years of earnings, the stock would go up, right? I don't think it would go up, but it would go down, but it probably wouldn't last long.

People would not be freaked out. If it happened 15 years ago— Do you remember that? No, but I really think that this nothing matters. There's no—no offense to Herb. I really think that that's kind of like a cop-out because there are plenty of stocks blowing up all over the place. There really are. And there are a lot of shitty companies that are being—that are crazy overvalued and investors seemingly don't care

about the red flags, but there's a lot of stocks that are getting blown up out there. Here's, here's what Herb says, uh, while figuring out which red and he, by the way, for people that don't know who Herb Greenberg is, he was like one of the original short seller columnists or he wasn't selling short, but his contacts were short sellers. He was like one of the original skeptical stock writers at thestreet.com. While figuring out which red flags investors should care about has never been easy, it's harder than it has ever been. The reasons for this may surprise you. Top of the list.

Things that might have killed the stock 10, 20, or 30 years ago, things investors might have cared about don't matter today. What's different, I think, is that stocks don't go to zero anymore. Regulatory investigations, stocks go up. Like how many times was Tesla investigated while it made new highs? Lemonade, I believe, got crushed on there. I don't know if it was investigation or that news. Virgin Galactic, all the SPACs, Opendoor.

These stocks are getting annihilated, but I guess there's no more bankruptcies. Yeah, they don't go away. They don't go to zero. So maybe that's what Herb was trying to say. Do you remember stocks having regulatory issues and literally getting pounded to zero? Absolutely. They would just say, we acknowledge that the SEC is opening an investigation, just something like that.

But short sellers used to be able to expose giant red flags and take the stock to zero, not because they manipulated it to zero, but because they exposed the fact that this is a zero. This business is a fraud. And the bulls would get scared. They'd be like, oh my God, did you read that short report? This changes everything I thought about this company.

Now they're like, all right, whatever. That guy's wrong. Here's a great example. So Gingo Bioworks, which is a recent SPAC, I forget who put out a short report on it. I think the stock fell like 25% down, you know, like literally, I think it fell 25% in a day.

And it is one, two, three, or six days later, the stock was up 14% today. Six days later, all of that 25% loss in a day, it's all been recovered in six day. And it is one, two, three, or six days later, the stock was up 14% today. It's six days later. All of that 25% loss in a day, it's all been recovered in six days. So this might be the poster child of red flags not mattering. And I don't know anything about this company. Herb pointed to market structures changed. A big part of that is so-called quants who depersonalize all trading by creating algorithms that buy and sell stocks automatically, a process triggered by headlines, words, and a seemingly infinite number of variables.

So that's the ETF argument or the quant hedge fund. How much of that do you think is responsible for there not being the same kinds of reactions and stocks that short sellers used to feast off of? That's not new. I mean, we've been blaming the algos for 10 years. We've been blaming the passiveos for 10 years. We've been blaming the passive strategies for just as long. Yes. But something is different since the pandemic. So neither of these things are it because they're not new. So

I'm not sure. But also, again, sorry to beat this dead horse. Lemonade was at 190. It went to 60. On what? They're getting investigated or maybe stating earnings? On shitty news. It went from 190 to 60. Look at, again, a ton of specs got absolutely blown up. Now, Tesla seems impervious,

and maybe the company has escaped, and they've made it work. I don't, you know, I'm not a Tesla analyst. But again, there are companies that are really getting blown up. But Herb's point is well taken. These companies don't go to zero anymore. And I think in the past, they definitely did.

I remember being out of the Linzen event with Her herb debating alibaba i think i was the bull not that i give a shit but just like for for fun and he was the bear and then like six months later trump won the election and alibaba's lawyer became the head of the sec and i remember i think i got an email or a DM from Herb. He's like, all right, forget everything I just said. None of that shit's going to matter now. So I think there was some element to that. Maybe that's reversing now, but.

I remember he was early on in the sterocycle. That was a stock friend. He was exactly right on that one. What happened to that? Did it go away? It didn't go away, but it got knocked down pretty severely. Yeah. So listen, he's an original, Herb.

So now he's coming back because he's been quiet. I think he was working privately, and now he's going to get loud again. So I think that'll be it. But you know what's also interesting? This is the glaring difference between being a business analyst and a stock analyst. What do you mean? And businesses and stocks sometimes diverge and they can diverge for a long, long time. That's what we learned this

past winter with the meme stocks. Like whatever analysis you're conducting on AMC may not be relevant. And so it's hard, right? You can be right on the business, but it might take several years for the market to agree with you. Yeah. I think the shorts have gotten much smarter though about market mechanics. I think so. And they're obviously much savvier about how they present their ideas. It's like a social media thing immediately. Well, going on stage and shorting a company is now like, that's putting a target on your back. Like that's the best way to pump a stock. Yeah. That's the other thing that you can't really do anymore. Show up at Iris zone with, here's my 86 slides

on this stock that i am materially short was was ackman the beginning of all of this when he was on stage talking about his herbal life short there's einhorn no ackman there was a documentary i forget what it's called where ackman it followed ackman's herbal life short and there's one scene in the documentary where he's with his public relations person and they're saying, before you go on stage, the guy's saying to him, what happens if the stock goes up while you're talking? And Ackman goes, not gonna happen. And the PR guy was like, alright, but just

humor me. Just like, what if it does? And as he's talking, like, I think the stock was up double digits as he's laying out his short thesis. What year was this? 2015, maybe. Wow. I remember the Einhorn bubble basket.

That was 2015. And those stocks ripped right in his face. And that's when you knew like that game was over where you put on a short position. Oh, betting on zero. It was 2016 was the documentary. So yeah, 2015, it was called betting on zero. That's the documentary.

So I don't think you can do that anymore. But I'm saying that's, I think that's when this started. That was the end of the beginning or whatever. The beginning of the end. But I've always been super impressed with anybody who is a short seller. I mean, that is the hardest thing I think there is because you could be right and still lose money. And there's the time component to it.

I think it's just impossible. So shout to anybody who can be successful as a short stock. Do you have a short of stock? Oh, sure. Did you make money? I have and I haven't. Michael Burry is a perfect example of that. He was exactly right.

He was way early and he had to wait and wait and wait for the payoff for that. Not just early. They were f***ing with him. They were like not marking these bonds where they should have been marked because they knew that him and a few other people were out there

like dying of illiquidity. Was it Joel Greenblatt who was his backer? I think it was Joel Greenblatt who went to his office and was like, dude, give me my money back. And I don't want to make fun of you. Is that true? Was it an office or was it a garage? I hope I'm not like misrepresenting the facts of this,

but I'm pretty sure that it was Joel Greenblatt who was like trying to get his money out of his- Like stop telling me about how bad the housing market is. It doesn't seem to matter. When did he start? In 04 or 05? Yeah. But no, it was like this moment

where he knew he was right and the market was reflecting that. Well, because the banks weren't accurately pricing what was going on. Right. So that's among like 50 other things. That's to your point. That's what makes short selling so hard.

It's not quite as simple as I'm right. The market agrees with me. Next trade. So I don't like Noriel Rubini. I wouldn't say he's a short seller. I don't know how he manages. But he was a prominent bear for years. Who was that?

Rubini. Okay. Yeah. He's not a bear anymore? I mean, he may still be. Definitely. Definitely. Bears don't change their stripes.

Yeah, it was Greenblatt that seeded Barry. There's only one person that was a prominent bear that I can remember ever becoming a bull, and that's Barry. I was going to say Barry. No, honestly, though. Yeah. I think he was known as a bear. That was his-

He wrote about real estate, and he was really the only person doing that where you would see it every day. Yes. That was his claim to fame because I remember when I started working with him in 2010 and we would take calls from potential clients, I would take them, and these people were like, what are we shorting? And I'm like, no, that's not what we're doing. They're like, come on.

Barry's not skeptical of this rally, blah, blah, blah. I'm like, Barry doesn't care. No, but Barry turned bullish. Like all credit to Barry. And he would, you know, whatever. He would say a lot of it was luck, but so what? How many bears turned bullish? About zero.

Actually one, Barry. He held on to some of his perma bear friends though, which is nice. That's nice to see. I mean, you gotta keep a diversified mix of people. people or else you'd just be like reinforcing your own. Yes. So I like to get really bearish after the market's crashed and then I get really bulled up right around the time. I just want to talk about this chart just for a second, this, this net profit margin chart. This is the one part of the market that just defied gravity. And this has been Grantham's John, chart on. market. We've never seen anything like this. So I understand why people who are from an earlier

version of the world and the market and businesses haven't been able to make sense of what the hell is going on. This is saying a net profit margin for the S&P 500 since 2016 has pretty much been between 10 and 12 percent, like unwaveringly. Yeah, I'd like to see a longer chart. You know, this is high this is like basically record highs record highs but sticky yeah at those record highs uh what is this reflect well i think interest rates right off the top okay you know a lot of times the you overlay uh short-term rates and you know since uh the pandemic people have cashed up. All these companies have brought in tons of cash.

And they're borrowing for 30 years at like 4%. But isn't a big part of the story the mix shift of what's in the index? So that's what I'm saying. Yes, absolutely. Like Facebook, you can't model that versus any company in history. And that's also you get the problem that you use like price book is used for the value indexes with Facebook. What is their book?

Yeah, it's all intangibles. Exactly. So a lot of these strategies, they get biased to and away certain sectors. Right. Let's talk about Christine Benz's thing. Who put this in the doc? Was this you? Yeah, I did. Right. Let's talk about Christine Benz's thing. Who put this in the doc? Was this you? Yeah, I did.

Okay, what's going on here? Chris, let's just quote her and then we could riff on this. Christine said, the more I know, the more I can't be bothered with the arcane, the volatile, the hard to understand.

Instead, I crave simplicity, peace of mind, and the ability to sleep at the switch and know that things will be okay. I also put a big premium on my time. If an investment requires frequent monitoring, I'm out. So then she says, why aren't we also judging portfolios and choices based on whether they impart a peace of mind, are simple, livable, and low maintenance that she said, because

attributes like simplicity and peace of mind can't be quantified and are subjective, whereas the other stuff can be weighted and measured. I thought this was brilliant. This reeks of complacency. No, I'm just kidding. That's the opposite. Love Christine. It's basically like, listen, am I leaving some money on the table by not doing X, Y, or Z?

Yeah, but I just want to live my life. I don't want to spend my entire life on my phone keeping up with the latest and greatest. And I think you should put a premium on your time. What the hell else are we doing here? So what are the types of investments that require you to constantly monitor your portfolio? It's like, like options contracts,

obviously. What else? NFTs. Like, obviously. What do you think? That constantly monitor? Yeah.

I mean, it's, you're looking at your list like once a year. Yeah. Making very few changes. I mean, but there's people, there's such an urge for people to look at their portfolio every day.

It's like gamification. It's like sports. Well, the phone buzzes. Yeah. The market's doing this, and it gets you to look, okay, how am I doing? I do. I look at my Robinhood portfolio 15 times a day for absolutely no reason. You're just like Christine Benz.

Yeah. Exactly. It's a state of mind. I also place a premium on time. No matter what you have in your portfolio, you can choose to disengage in the need to check it all the time. Unless you have things that require changes. No, Blair, I'm addicted. You don't get it.

I know you're addicted. But what I'm saying is if you have a plan, if you have a thought-out methodical process for what you invest in and don't make that process be what happens at the open or the close of the day. Wait, what? Yeah. Well, I think the new generation, the new generation doesn't want that right now. They will when they get older, you know, young people with their, you know, they want to be, they want to be in it. They want to touch the stars. And so do people of all ages though. Right. You know, that's the transition that we make for a lot of people is I've been watching this all the time and I'm so relieved now that, that you guys are handling it because I don't have to think about it anymore. And that's a peace of mind. That's a decision.

Yeah. I, I, a client said that to me the other day, like, just, I just want to thank you that I am now able to like live my life and not be a slave to the screen. Eddie, let's do a lightning round. Okay. I asked you for your highest conviction holdings in crossing wall street for the coming year. I want you to, I want you to pitch me hard. I want you to take me to the mat, get me to buy one of these stocks. What do you got? What are your names? Josh. Can I call you Josh? Yeah. Okay. Unveil the first ticker, sir. Let's see. Uh, Ross stores. great company. I like it a lot. You're shooting it down?

Sell it. What do you got? Why would I put R-O-S-T in my portfolio? A deep discount. I just fell asleep. Why else? The stock is down. That's a good reason.

Do they sell V-necks? Do they sell stretched out V-necks? Can we get? Okay, what else? Very well-run company. Long history of rising sales and earnings. They're also not a competitor. Is it rising earnings?

Yeah. That sounds like a short, Josh. Yeah. Earnings. Why aren't they building scale? They're not a competitor against Amazon. They're not being pushed out by everybody else. Because it is deep discount, they can pack their inventory.

Other retailers can't do this. It's a very good company. And they warned that they're going to have some weakness over the next few months. Honestly, this is a really big winner. Semiconductors? Yeah, a lot of semis go into discount clothing. I think that they lowball with earnings a lot.

Sandbag and son of a bitch. How long have you been in this stock for? Oh, probably at least 10 years. Okay. You know, I was talking to Ben about this today. I've never held anything for that long. Really? Yeah.

Well, you've only been investing for like 12 years. You haven't been around that long. So in the last 10 years, the stock has done actually pretty exceptionally well. No? Yeah. I don't know how it long. So in the last 10 years, the stock has done actually pretty exceptionally well. No? Yeah. I don't know how it's done relative to the stock market. So what do you think happens from here?

Just steady Eddie? No pun intended? Yeah. Okay. And that's your milieu. Am I pronouncing that right? You, yeah. Milieu?

That's your shit? Mm-hmm. Okay. Like that's what you're looking for? It's five big companies. You're looking for like stability of earnings growth. Could you like explain that to me? Like what, what's your initial screen to find your universe of things that you're going to

look at? I don't follow, you know, it can't be reduced to a formula to borrow from Christine. It's more of an art form. We know you're an artist. But I look, I like to look for solid companies that have a strong competitive advantage, that sort of have a lock in their marketplace that usually is manifest

by rising sales and earnings, stability of the cash flow, generally... Manipulated accounting. Exactly. You like a lot of shady accounting. At the Sohn conference, they're always called out. Russian subsidiaries.

Right, I get it. What's your next stock? What else do you got? I think I listed Heiko. Cool company, not very well known. H-E-I is the ticker symbol. You're getting long right now as you talk. Keep talking on my board. This is why we need a 24-7 stock market.

That's right. It's an odd business. They make replacement parts for aircrafts. So in many ways, it's similar. I know I'm putting you to sleep. What are we talking about? All right, next. The physical economy.

The real world. Nothing sexy you could say about that. This is the IRL world. All right, keep going. Let's do Zoetis because this stock is a mover. Is that how you say it? I didn't know. Zoetis.

Spun off by Pfizer. I saw it's great. You already don't like it. Is that how you say it? I didn't know. So that is. Spun off by Pfizer. I saw it's great. You already don't like it. No, I love it. That's a good thing when I do that. Oh, that's a good thing. I thought you were blowing it up. This is one of the best stocks in the market.

So it's great. As I heard, it's pills for animals. So it's medical for animals. Yeah. I know a lot of animals and they love pills. Go on. If your horse just has too many worms, turn to these guys. Ivermectin? Medical for animals. Yeah. I know a lot of animals and they love pills. Go on. If your horse just has too many worms, turn to these guys. Ivermectin.

So it's COVID cures for animals? I'm long. I'm a buyer. I've heard over the last 50 years, the dog has gone from sleeping outside to sleeping inside to sleeping in the bed. Under the sheets. That's true. Mine does.

My dog sleeps with us every night. Okay. This stock is up huge. It was a spinoff from Pfizer. Have you owned it since the spinoff? Not long after. Look at that chart. Look, this stock is up huge. It was a spinoff from Pfizer. Have you owned it since the spinoff? Not long after. Look at that chart. Look at this thing.

Up bigly. I think it spun out at 30. It's 200. Why would this stop? People aren't going to stop loving their pets. And also it's farm animals as well. Well, fuck the farm animals. Let's focus on the dogs.

People aren't all of a sudden going to spend less on their household animals. Do you know how many hormones people are going into these animals we eat? It's a big business. Oh, into like livestock? Yeah. Are they doing that too? Yeah. I don't know if I'm for or against that.

Is it politically correct to be for that? This is not an ESG. Is it not ESG? But what if it's keeping them alive? True. And clean. And turning them interesting colors. So what could

happen to zoetis from here is all of the the good stuff they're doing priced in or is there you think you're gonna hold on to this one into next year i i'm still holding on to this i think who do they compete with that's a good question i don't know if they go one-on-one against anybody okay all right so it's it's. So it's a unique company. There's not like a lot of competitors. Let's talk one more stock. What's Miller Industries? This is a cool Buffett kind of company.

They make, Josh is going to buy, extraction equipment. At this point, I'm only doing that to get side-eyed from Mike. Go on. So if you need some, if there's been a wreck and you need to pull something out, these are the guys to go to. Wait. What sort of a wreck? Jaws of Life.

Yeah. Really? Vehicle wreck. Yeah. I just made that up. Wait. They manufacture the Jaws of Life? All sorts of any vehicles, specialized vehicles dealing with extraction.

What's the origin story of this getting on your radar? I follow oddball companies. I had to look it up. I wasn't sure. No, but where did you originally find it? Like, do these stocks come from a screen or? On TikTok. On TikTok.

Okay. That's fair. Why did the stock crash? Tell us. Is there an opportunity created by this? I think that's very much related to the lockdowns and their business just dried up. Oh, and people weren't driving as much. Exactly.

Well, how sad that the success of your company is based on people needing the jaws of life to take them out of a car. That's right. It's silver lining. Well, what happens with automated driving when nobody needs car insurance anymore because all the cars are perfect? That's not happening. Dead. No, people won't worry about the crashes. There will be more crashes because people won't worry about crashes.

Eddie, how many competitors does a company like this have? None. That's a good point because they've actually – the big red flag for them is that they've had antitrust problems because they so dominate the industry. That's bullish. Seriously. But there doesn't need to be a competitor in something this niche-y. That's exactly my point. Like this company you would think has a sustainable advantage.

The guy Miller, there were a bunch of small family-run companies. He bought them all up and he made the parts work across the board. But that's really how he started the business. When you say this is a Buffett-like company. It's a roll-up. When you're buying stuff like this, do you say to yourself, like, this is the kind of thing I could picture Berkshire Hathaway buying? Sure. And there were a few Berkshire Hathaways around in the market these days.

Like, does that go into your allocation decisions or no? I mean, I just – it's probably not at the front. I'm not trying to build a mini Berkshire, but it's the kind of thing Berkshire could have done 30 or 40 years ago. Ben says Berkshire. That's unconventional. You said Berkshire? Yeah, it's unconventional. Are you from Nottingham? Is that the Queen's English?

Eddie, how important or unimportant are access to management? I don't know if that's a thing that people still talk about, boots on the ground, talking to management, supply chain, that sort of stuff.

Is that important at all? Are you at a disadvantage because you don't do that? Because I don't speak with management? Yeah. But I do speak with management. Oh, you do? In smaller companies, sure.

Okay. So, like, you can call up Miller because you've been in that stock for a couple of years and just be like, what just happened with this last quarter? One of the – for smaller companies,

you would be surprised how quickly you can get the CEO on. Yeah. And if someone says, I'm interested in what you do for work, can you sit down and tell me about it? That's not something people hear a lot. Right. I talk to some of the stocks that I own, the CEOs, like the ones that are off the beaten path.

I find that to be awesome that people are able to do that. Like most of them do not want to talk. So when you call Zoetis. Jamie Dimon calls me and I can't always talk to him. Can you talk to Zoetis or no? No, but I can talk to people in the investor relations. Right, okay. And if you say you're managing a fund, you're going to get more response.

Absolutely. He's big time. Of course they're going to talk to him. So tell us what goes into crossing Wall Street each year. So you're picking 40 stocks? 25. 25. Oh, so you're very concentrated.

That's focused equity, which you've made fun of before. No, no, no. I love the approach. I think the further away you can be from an index, the better for business reasons, for return reasons, if you get it right. Yeah. So you're doing 25 stocks. Each one is 4%-ish of the portfolio? So it's equally weighted at the beginning of the year.

Five go in, five go out. So it's implied that when we get a stock, we're going to have a five-year holding period on it. So it's going to be – You're not buying things that you think will only be good for next year's environment. You're buying things that you want to be in for the long term. Five years being the new long term. By the way, that's a really important thing for investors to think about. If you're thinking about buying a stock, imagine if you said to yourself,

there was a rule that you can't sell it for five years. Would you be happy buying that? Would you still pull the trigger on this trade? It changes your mind how you think about the company. So now five come out. What's the decision-making process to throw five stocks out of your portfolio? It's usually – it's not the company I originally bought. So there could be a merger that I didn't like.

A lot of times they're bought out and you're left with the new company that you don't like and just bad decisions. They won't take your phone calls. Exactly. Okay. Eddie, do you talk to shareholders? Sure. Yeah.

And that's one of the big differences about my ETF is that it's a lot of people I know and people who they support the system. So when- What does that mean? Well, for example, during, we had some of the worst days in history last year. Yeah.

The outflows, we really held firm. Right. What, you threatened somebody? Yeah. So people can call you and say, hey, why are you adding this stock for 2022? And you'll like have a substantive conversation with them. Absolutely.

BlackRock's not doing that shit. But you could do that with like Peter Lynch, you know, and what people did 30 years ago, your parents. You didn't even know it was in the fund. Yeah, you didn't care either, though. Like in those days, I don't think people cared. I think there were people who cared, bought individual stocks. People who didn't care bought Peter Lynch. And they weren't like reading 13 f's certainly wasn't an internet that they could read 13 f's on

okay so do you like having those conversations you seem like you would and i've actually gotten a lot of good uh recommendations from uh from uh people oh from shareholders absolutely yeah because they want to talk shop and they have ideas. Do you ever take any of their trades? Absolutely. What's the smallest market cap in the portfolio? Right now, it's Miller. Oh, really? Yeah.

So what are we talking there? I think it's around 450. Okay, and Miller was the Jaws of Life company? Yeah. Okay. It's so funny. It's $450 million market cap. What are their profits a year?

$150 million? Yeah. Right. That was a tech stock. It would be a $50 billion company right now. It's going for something like 10 times 2019 earnings. What all of a sudden – do you need the multiple to go up or you just need them to keep growing earnings? Keep growing earnings.

That's good enough for that stock. You have to go to Miller if you're in that business. There really is nobody else to go to. So how do companies like this grow their earnings? Is it operational efficiency? Is it new customers? It's a pseudo-monopoly. Right.

So what are the stocks? Do you want to give us a sneak preview of next year's stocks? You're not allowed to yet. I don't know them yet. So when do you do that work? That would be in late December. Like right at the end of the year you do that work? We try to balance so the buy list on the website follows as closely as we can the ETF.

Okay. We have to hold some cash just operationally, like 0.4%. I mean, we just can't get around that. So it's not going to be 100%. But we try to have a great team that I work with, and they try to get it as close as we can to december 31st also there are the custom back baskets that's something i never fully understand yeah but that also has to be done okay so can i pitch you some stocks between now and christmas absolutely okay what's your cell phone number i'm gonna i think i think uh i'm gonna give you one idea i could think of an idea that i feel like is an eddie elfin by name not gonna do it now but we'll see we'll see what

you think of it off the record uh yeah i'm gonna do an off the record i don't want to stop pitching stocks on the show all right uh let's hit this social security benefits thing because the the listeners that we have that are over 70 definitely want to hear about this. Benefits to increase by 5.9% next year, which is the highest increase in 40 years. What's going on with this? Blair, tell me what's going on with this. Yeah. So when I told Michael about this yesterday, he said, oh, that's amazing. And I said, no, that's super scary. And he said, why? I said, because that means there's inflation. Yes. This is tied to the actual government reported inflation numbers. Finally, they're telling the truth. The economy is on fire. Inflation is here.

The millennial is going to be pissed about this. This scares me because I'm going to be 40 this year. This is the highest number in increase in benefits in my lifetime. However, retirees need the increase. And the average check is going up like $98. Tell us how this works. It's a cost of living adjustment or COLA. Yes. And they do this each year. What are they looking at? CPI? I don't know if it's exactly CPI. It might be CPI-U. Okay.

But it's one of the metrics. And there were years where there was no increase after the financial crisis. Yeah. There was no increase after the financial crisis. Yeah. So no inflation. And like 2% is like high. So it's great that everybody's getting a pay increase, but that means that- My bonds are still not- Your costs have gone up that much. So, you know, we can't run financial plans on a 5.9% sustained inflation.

So we got to see this come down. A 6% cost of living adjustment is, so I feel like they're going to blow all that extra money on DraftKings. What like they're going to, I mean, they need the money. They can't live in this economy without an adjustment of that size, given what's happened with prices. Yeah. It says the average check in here is something like $1,200 a month. Right. Okay. And that's the majority of most people's income who are receiving social security. So they need the increase, but at the same time, that means prices went up this much.

So this is a huge number. And it really blew my mind when I saw it. So it's obviously not sustainable. We can't do this. We can't have this much inflation. We can't do this for another couple of years. No. Okay. This is pretty unrelated, but it's just a wow price increase story. So one of our advisors, Alex, was in Las Vegas over the weekend, and he got a double Red Bull and vodka. And guess how much it was? $6. $20. Wait, what? $6?

No, not downtown. Somewhere on the strip. $20? Not Binyon's. Oh, yeah, I say $20. $55. $55. $ on the strip. 20? Not Binyon's. Oh, yeah, I say 20. 55. No. What is it?

Was he at the Bellagio? He needs to go to the Monte Carlo. He got two of these. One for him, one for his friend. The guy goes, 110 bucks. And Alex goes, wait, what? It's a double goose. What is it?

Double goose with Red Bull? It's probably not even Grey Goose, but whatever. The guy goes, 110 bucks. No. Was this at the pool? This was at the club. Yeah's probably not McGregor's, but whatever. The guy gets 110 bucks. No. Was this at the pool? This was at the club? Yeah. Yeah, it was at the club.

Okay. But still. You're just paying to be there. This was at breakfast. So. $12 for water. Yeah. It's just hilarious.

Well, it's not even that shocking to me, I think, because I live in New York City. But if you visit Vegas from like Omaha and they're like $55, you probably think that there's something wrong with the guy's brain. But listen, you want to be at the day party? You want to be at... I don't. I definitely don't. I definitely don't either.

Alright, we're going to do favorites. And I want to start. I originally was going to say New Orleans versus Baltimore, but then I realized you live in Washington, D.C. Two of my favorite cities, though. What do you mean New Orleans versus? What does that even mean? Oh, got it.

What do we think which do we think like New Orleans or let's just say like, is it Chesapeake Bay area? What do we call it? Mid-Atlantic? Mid-Atlantic, yeah. Crab cakes and football. Okay.

What's like the biggest difference in lifestyle between these two places, do you think? I lived in the D.C. area for a couple of years during school. What do you think? Well, New Orleans is unique in and of itself. When I first moved to New Orleans 11 years ago, I remember thinking this is like a European city. It's like not like being in America. It's like the most un-American city there is. There's just something very unique about it. But there are some similarities, right? There's the disparity in incomes. There's the inner city. There's the public school systems that are just suffering and i'm talking specifically

about baltimore but this also applies to dc by the way yeah um so i do see the similarities but you just can't compare anything to new orleans because it has its own it's very it's extremely unique yeah did you watch the did you watch the judge show with brian cranston what was that called your honor your honor that took place in New Orleans. Was this recent? Yeah, six months ago. That was an amazing show. And New Orleans was almost like a character in the show. Because to your point, those income disparities played a really big role

in what was going on. Did you watch that? I didn't see it. The guy from Breaking Bad is in it. It's a good show. DC. So I was talking to you before. are parts of dc that feel european to me also like first of all no grid you guys are a series of concentric circles yeah which is by design yeah it was designed that way so that you couldn't invade on foot basically you

think maybe they can redo some of that i don't't know. I find D.C. to be the hardest city to drive around of anywhere that I go. I know you've lived there forever, but do other people tell you that? Yeah, it's not pleasant to drive around. I have a car in the city, and it's really not a benefit having it. Have you ever thought about leaving D.C. or you're just going to be there forever? Like you ever think about Florida? Maybe, you know, way down the road when I retire. Okay.

You love it. Yeah. Okay. When you, when you meet up with people that work in finance, DC is not big for that. No, it's not. Isn't that strange? And it's something I kind of like. I mean, there's no Federal Reserve Bank.

There are no major firms are based there. A lot of, you know, they'll have branch offices. But as far as Baltimore, which is not the international city that D.C. is, Baltimore has way more. Baltimore has Legnason. T. Rowe Price. Somebody else bought now. Yeah. Right.

So there's a lot. It's not a big finance culture in D.C. at all. Not at all. Franklin bought Legnason. Yeah. Oh, that's right. We were just talking to them. All right.

Favorites. Michael, what do you got? Ryan Russillo, he's a sports guy, had a podcast with Trent Dilfer. You like Trent Dilfer. He's been on that show before. Trent Dilfer made a very good point. He's talking about football and scripting the games and management, in-game all that sort of stuff.

And he said, once the whistle blows, emotions throw everything off, or I'm paraphrasing, something like that. And it was a great analogy to investing, obviously. You can have the plan, but if you're not committed, you could shoot yourself in the foot. You could be your own worst enemy when volatility spikes, whether it's in the game or in the markets,

which has become a game. I thought that was very good, worth listening to. Blair, what do you got for us? College football. What about it? You're currently playing? I missed it last year. I know it happened, but it just didn't feel real to me without the crowds.

And my alma mater, Georgia, is number one. Thank you to Texas A&M for knocking off Alabama last week. That was a super exciting game. You're not Crimson Tide. You're from there. They are like the evil enemy. So my parents went to Auburn, which is the other school in Alabama. And growing up, you're either Auburnurn or alabama where's clemson in south carolina okay so you're either auburn or alabama

and neither the two you know you're either for or against so anytime alabama gets beat i'm i'm happy okay you're not allowed to be friends with people who are from the other one? Like how deep did that run? I mean, I am friends, but we're friends. Okay. Not the day after the iron bowl. So the last college football game I attended in person was the iron bowl when Auburn plays Alabama in 2019. Okay. Right before basically everything shut down in Auburn and they beat Alabama.

That's the last time Alabama lost before this last Saturday. Okay. And it was one of these back and forth games. I was screaming my head off. I was pregnant. So wasn't even imbibing at this, this game we're screaming. The Alabama football team thinks that the clock is going to run out for

halftime and they run into the locker room and it's not, and they have to run back out and Nick Saban's on the sideline like throwing his his he's just pitching a fit because he thinks that it should be over and then Auburn gets to kick field goal and so it that ended up being the deciding factor in the game anyway college football is the most exciting experience in live person um I'm really excited about my team Georgia have you been to a game since this shit all started? I have not. I could have gone to like Auburn-Akron.

But that's a nothing game. Are these games full again? They're packed. And it doesn't freak me out at all. LSU actually is requiring vaccinations or negative tests to get in. So I thought that was really admirable of them. Is that controversial still? I'm sure it is.

Right. Yeah. But it doesn't bother me. For whatever reason, the crowds don't bother me at all. There's nothing more exciting to me than college football. I'm really excited that it's back. I'm really excited my team's number one. We got to beat Kentucky this week, and we will be the winners of the SEC East,

which means we'll probably play Alabama in the SEC Championship game. And then we got the playoffs. Our coach, Kirby Smart, young guy, early 40s. He's just getting started. He's going to be there forever. You got to go to one of these games. I know. I got to get to Athens. I feel like you're really excited about it.

I'm probably going to go to a game at Ole Miss. My in-laws are Ole Miss alums, so I'm probably going to go to one of those games in the next couple of weeks. I look forward to the Instagram content. Yeah. All right, Eddie, favorites, and then we're going to get out of here and eat some dinner. What do you got?

I feel bad. I didn't have anything. Miller Industries. But I got to say. Pet meds. I love college football, and I think Ben said that on a recent podcast. Yeah, this week. And it's such a different sport.

And it just brings the energy you don't have. And the iron ball from, I'm going to say it was probably about five years ago. The pick six. Yes. Yeah, my brother was there. I wasn't there. The return. Okay, do you guys know about this?

Okay. It was, wait, a few seconds on the clock. And what did they, Alabama was going to kick a field goal. Yeah, very long field goal. Very long field goal to run out the clock and what did they Alabama was going to kick a field goal very long field very long field goal to run out the clock and the guy the Auburn receiver guy catches it it's not a field goal he catches it in the end zone the clock ticks zero he runs nine you know 103 yards to score and they win the game and it. And it was like on the field. People's jaws dropped. Yeah, and before that, it was punt, bam, a punt from back in the 80s or whatever.

I hope there's somebody on this podcast listening who's as into this as me, but I just love college football. Our audience is exclusively Alabama. I thought we skew Auburn. We do skew Alabama these days. So what's your favorite? College football? I love watching college football.

What's your team? You're a baseball fan. Baseball fan, too. You're a Orioles guy, right? No, no, Nats. Dude, he's not Baltimore. Oh, yeah. No, but there weren't any Nats.

I love baseball, too. The Nats are 10 years? No, it's closer to 20. Is it really? Where did they come from? Montreal. Oh, the Expos. We lost a team twice.

The Expos. We lost the Senators. Yeah, we lost the Senators twice. When did the Senators play? The 70s? Up to the 72 was their last year. Okay. And then what other team did you lose?

The Wizards. No, the Wizards. Worst team in the NBA. They're from Baltimore. I'm just talking about the Wizards, but they are thest team in the NBA. They're from Baltimore. I'm just talking about the Wizards, but they are the worst team in the NBA this year. Orlando? I think the Wizards are worse. Wizards?

Okay. So it's the Twins were the Senators, and so were the Rangers. The Minnesota Twins were the Senators? Yep. Do people know that? I didn't know that. Did you know that? I just found out.

So you learned something. So what's going on with the Nats this past season? They keep losing. Yeah, it's not good. No. What can we do about that? Score more runs and allow fewer runs. Yeah, I feel like you're really going to want to put up more runs, generally speaking.

All right, well, go Nats. Look, if you're in D.C., you don't have a good sports situation almost ever like i mean that's our football team is literally no comment your football team has no name yeah but at least you have congress that's true at least we can fall back and you have the wizards and then is that it what's the hockey team capitals the caps are usually pretty good wait didn't they win they won the stanley cup all right so you have some you're a hockey guy yeah i love watching the caps all right good for you So you have some, you're a hockey guy? Yeah. Love watching the Cavs. All right. Good for you. So you got that going for you, which is nice. All right.

No senators. You ever run into Tony Kornheiser? I have not. No. Oh, from Pardon? I feel like you guys would be friends. Similar demographic. So we're going to wrap and we're going to thank Eddie and Blair for coming through for the show.

You guys are two of my favorite people. Really great to see that everybody made it through the pandemic. Eddie, I told you, I was surprised by you. I didn't know that we would see you on this side of it. How did you stay safe from everything? What did you do? A lot of pet meds.

And extraction. Yeah. Alright. Well, listen, we're glad that you made it through. Thank you. Thanks for coming through. John, great job on the boards tonight. We appreciate you. Great charts. Thank you. And guys, if you want to see clips from today's show, always go to youtube.com slash the compound RWM.

Make sure you check out Eddie's website, which is Crossing Wall Street, one of the oldest blogs in North America. Am I right? 2005. 2005. 2005. If you haven't checked out Eddie's stuff, always witty.

You will always learn something. And of course, Blair's blog, The Bell Curve, which, when did The Bell Curve start? 18? 18, three years. Okay, and how often are you posting? I wish I was posting more often, about once a week. Once a week's good enough.

I have a link fest too. No need to do more. Say what you want to say. I'm a full you want to say and move on with your life. All right. Check out the bell curve for more from Blair, Duke, and A. And we will see you guys next week. Oh, man. What a show.

We did a lot. We did a lot of stuff tonight. Nice scans of stuff tonight. Right? Thanks again to Direction. Investing in a Direction Shares ETF includes possible loss of principal and may be more volatile than investing in broadly diversified funds. The use of leverage by the funds increases risk.

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