The Compound and Friends - The Biggest Mystery on Wall Street

Episode Date: September 19, 2023

On this TCAF Tuesday, Zeke Faux joins Downtown Josh Brown to discuss his new book Number Go Up: Inside Crypto's Wild Rise and Staggering Fall. Then, join Josh and Michael for an all-new episode of What Are Your Thoughts and see what they have to say about the biggest topics in investing and finance! On this episode they discuss: when the recession will arrive, earnings season takeaways, oil prices, the Schwab/TD transition, the ARM IPO, and much more! Thanks to YCharts for sponsoring this episode! Click the link below to register for YCharts’ webinar with Nick Maggiulli if you want to learn more about Proposals, and get 20% off your initial subscription when you start your free YCharts trial: https://ycharts.zoom.us/webinar/register/7416928946879/WN_OD3x5xyzQ7qWTrtGDChLFA#/registration Watch this episode on YouTube: https://youtube.com/live/14rodMs08YA Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com 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. Wealthcast Media, 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 on tonight's show. We talked to Zeke Fox. Zeke is a Bloomberg reporter. He investigates financial frauds. And over the past couple of years, he has been around the world, hanging out in the Bahamas with Sam Bankman Freed, busting Chinese gangsters in Cambodia who are, I guess, selling women for tether. I don't know. This is one of the craziest financial books to have come out in a long time. It's actually coming out this week. Zeke is one hell of a reporter. This guy is fearless and he is funny. And we had such a great time talking about Number Go Up, which is the name of the book. And you will definitely be hearing more about that. And then we did an all new episode of

What Are Your Thoughts? Michael Batnick and I tackling the biggest mystery on Wall Street. You'll have to listen to hear what that is. I think we had some decent solutions or answers to the mystery, but we'll let you be the judge of that. We talked about where the hell is this recession already? We talked about, let's say, leveraged loans. We got into WTI crude rallying to a 10-month high. Oil is now $90 plus a barrel.

Gasoline at the pump is going up. Will that lead to the next recession? Is that going to be the trigger? Maybe. We have some answers on that as well. We also talked about really earnings and just anything that matters right now. The latest IPOs, ARM came out last week. This week we had Instacart.

So you'll have a great time with us on what are your thoughts. at Instacart. So you'll have a great time with us on what are your thoughts. And as always, we appreciate any ratings reviews that you leave on the podcast platform of your choice. Okay. Thanks for listening. Have some fun and we will talk to you soon. Welcome to the compound and friends, all opinions expressed by Josh Brown, Michael Batnick, and their cast mates 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.

Hello, hello. Welcome to a special edition of Compound and Friends with Zeke Fox. All right, Zeke. I'm going to do a quick intro. We're so excited to have you on the show. You broke me out of my bear mark. We're going to talk about your book in a second. Number go up. Zeke, for those of you who don't know, Zeke Fox is an investigative reporter for Bloomberg Businessweek and Bloomberg News and a national fellow at New America. He's a winner of the Gerald Loeb Award and the American Bar Association Silver Gavel Award. He's also the author of Number Go Up, The Compelling Account of the Crypt of Delusion, and how Sam Bankman Freed and a cast of fellow hustlers turned virtual coins into trillions of dollars. Zeke, welcome to the show.

Thank you so much for having me on. You know, I just noticed, it's kind of, I don't know if this is ironic or what, but currency, Crown Currency is the publisher of this book? I think they might have done that just for me. Okay. I don't even know. Yeah. Is there a token attached to this?

I'm too late. I'm too late. Like I should have, uh, I should have, I should have done that as part of the reporting. I had some ideas, but I missed my chance. So before we get into all of this, I want to give the audience know that I am at least crypto curious. I believe in a lot of its promise, which has yet to unfold. So, cause we're going to talk about the bad part of it. And there's a lot of bad, but just don't shoot the messenger. Email Zeke if you hate him. Just kidding. All right.

So we've come a long way from the Bitcoin white paper, huh? Yeah, well, we better have because it's been 14 years. So, all right. I want to start with this. A quote from Michael Saylor. And the book is about, man, it's about so many things crypto, but I would say mostly about the shady characters. And there are a lot to choose from. You profiled a few of the biggest ones. I'm going to start with this quote from Michael Saylor. And this is an actual quote, lest anyone think that I'm just making up words. Bitcoin is a swarm of cyber hornets serving the goddess of wisdom, feeding the fire of truth,

exponentially growing even smarter, faster, and stronger behind the wall of encrypted energy. Whoa. So I'll turn the mic over to you in just a second, Zeke, but you use this line in the book. And I feel like this is a great way to distill your experience with crypto as somebody who is reporting on it, who is a skeptic, a non-believer for reasons that we'll get into. What's called the bullshit asymmetry principle, which you wrote in the book, which is basically the amount of energy needed to refute bullshit is an order of magnitude bigger than to produce it. And when the number is going up, it's difficult. So sum up the last three years in two minutes of your life. I mean, I had this idea that they're great at telling you

this story that crypto is about to go legit. Mainstream adoption is right around the corner. And right out of the beginning of this journey, two years ago, I fly down to Miami. I'm at Bitcoin 2021. And I start hearing people say all sorts of crazy stuff like that Michael Saylor guy. I mean, that was the conference. There was a guy on stage in a white suit yelling like, bleep Elon, bleep Elon. And I'm like, I met all these guys who are just, their business plans made no sense. They seemed like total scammers. And then I'd ask them like, oh, how much money do you manage? And they'd be like, $10 billion, $20 billion. And I was like, I hadn't really wanted to write about crypto. I went back to my editor once I got in New York and I told him, we could be investigating this

for years. It's full of crazy guys, the kind of guys I love to profile. They all actually love talking and saying crazy stuff. They'll hang out with me. And they're all like, so many of them are up to no good. And cut to like, two years later, I'm investigating crypto fueled human trafficking in Cambodia. And I'm at Sam Baikman Freed's penthouse in the Bahamas, just before the cops got there. So it was like an adventure that I don't think I will ever match, but I'm glad I was there to see it because I don't see there ever being a bubble like this.

Again, famous last words, but. Hey, Zeke, you and I go back like 15 years. And when I was first starting to blog, a lot of what I was talking about were the scams. Like in hindsight, they were tiny. I was first starting to blog, a lot of what I was talking about were the scams. In hindsight, they were tiny. We were talking about guys running boiler rooms and stealing like $30,000. So when you say these are the kinds of guys I like to profile, I remember you writing all of these really well-researched articles on the boiler room guys.

And that's how you and I originally met. And what those guys were doing was a joke compared to what you ran into in the last couple of years. You ran into stuff on the scale of billions, tens of billions, hundreds of billions, maybe a trillion in some cases, we'll see. That seems to me like to be the big difference and my question is how do you ever going go back to writing about traditional financial fraud ever

again after the party that you've just witnessed uh come to an end it's almost like anything you cover for the rest of your life might be anticlimactic. I totally feel that way. I mean, yeah, when we met, I had learned a lot about these boiler room operators from your book, Backstage Wall Street. And you helped me understand their mindset. And I actually think some of these guys, we're talking about Jordan Belfort type guys. Because it wasn't just in the 90s. They still kept trying it out, even though the returns got smaller and smaller. But some of these crypto founders were no better.

But because crypto is such a great story and such a believable story, they could be like, this is the future of money. And instead of getting laughed out of the room, a lot of investors are like, great, I've heard so many stories about my friends getting rich on stuff like this. Where do I sign up? Here's a hundred grand. Well, that's an important distinction. The guys who were doing small time penny stock scams, nobody ever made money. Whereas with crypto, people made oceans of money. And so the premise when you were selling something crypto related to the public, like at least you could point to look at how rich everyone is. And that was true

for like a very long period of time. People really did change their lives if they got in early enough. I don't think you could say that about any of the stock frauds. ED HARRISON No, definitely. I can think of people in my life who did very well on crypto because they got in early. The problem is that everybody thinks they're the one who's going to get in early and get out while the getting's good and like you're not the odds are against you you know it's kind of uh uh why do you have the inside info the guy who started it is the one who got in early the venture capitalists who got in at the beginning they got in early by the time you're hearing about it it's probably kind of late

zeke you made a great distinction in the book about the difference between scams in the blockchain versus the Madoffs of the world. You said, running a stock scam is a lot of work. It requires crooked lawyers, brokers, and bankers to draft reams of securities paperwork, even if all the information in them is false. And that leaves a paper trail that pretty much inevitably leads to the scammers getting busted. Crypto didn't require any of that. All it takes is some rudimentary programming, which can be done by freelancers, hired online, and some posts by a social media influencer. And you yourself, you yourself were almost, unless you, you know, Vicky or whoever her name was, didn't realize that you were in on it,

but you almost got scammed or attempted. Yeah, so, and I like that quote that you read because I know like from my years- Because you wrote it. Well, yes, thank you. Thanks for reading my genius words. I know some of these crooked lawyers. They made their whole career

out of drafting these phony documents and crypto would just put them out of work. Who cares about lawyers? Just throw out our coin. Yeah. But yeah, the time that I almost got scammed, I was kind of playing along. But it started with one of these weird text messages that we all get. Hi, Zeke.

Yeah. Well, mine was like, hey, David, how are you doing today? And I decided to go along with it just to see what would happen. So I'm like, hey, I'm not David. I'm Zeke. And she's like, well, instead of being mad, why can't we be friends? We started chatting. And I thought this might be a good way to investigate this kind of crypto scam. So I wanted to see where it went. She tells me her name is Vicky Ho. She starts sending me pictures.

She's like a sexy young Asian woman whose face has been so face-tuned. She looks like an anime character. But I kind of liked having this new pen pal, even if I know it was fake. But for days, she's just texting me all day how's your day good morning oh like you look so handsome i'm like where's the scam um yeah and just ask me for money already yeah before i fall in love she starts dropping hints that she's good at crypto trading she's got like this uncle who's taught her the secrets and she starts sending me some price charts and she's like look there's. She's got like this uncle who's taught her the secrets. And she starts sending me some price charts.

And she's like, look, there's a great setup here. I'm going to trade this short-term node. And then she sent me a screenshot that said, oh, I just made like 50 grand. And I'm like, okay. Like, are you going to ask me to play too? Like, when is this coming? Finally, I had to tell her,

Vicky, like, it's killing me. I need to have a Tesla. It costs 150 grand grand i just wish there was some way that i could make a lot of money very fast lucky you finally she's like okay download this app and she has me download this fake crypto trading app called zbxs and it looks just like a regular crypto app i I mean, there's so much random stuff in crypto. Anything sounds plausible, right, to somebody who's gullible. And she has me download a real crypto app and send her, buy 100 tethers, which is like

a normal cryptocurrency, send them over to her address for the fake app, and then we're going to start trading. And this is a scam called pig butchering. send them over to her address for the fake app, and then we're going to start trading. And this is a scam called pig butchering. It's called that because they like to fatten you up before they take all your money. And they'll show you fake gains in the fake app. They'll even let you make withdrawals. But the whole time, they're sizing you up.

They're like, how much can we take this guy for? And once they've gotten you to send in everything they think they can get you for, they disappear. And people send in a hundred grand, 500 grand. I mean, I talked to retirees, but also young people, smart people, they get, I don't know, you text enough people, eventually you get one. So I don't want to sound like, I don't want to sound like an asshole, but it's going to be impossible after I say what I'm about to say. How f***ing stupid do you have to be? Dude, there's a lot of sophisticated scams out there.

This is not sophisticated. This doesn't sound sophisticated. This is not that. I myself got scammed. I was on a Discord channel, and it was an airdrop. I got excited about it. I can't remember the details, but I lost a few grand. Mark Cuban today.

He just said 100 grand. Mark Cuban today lost $900,000. His MetaMask wallet got, yeah, this is today. And as fate would have it, Zeke, literally an hour ago, I got a call from an unrecognizable number and I was hoping a scammer and I'm only kidding, but it was a scammer. So I get a call. Is this Michael Batnick? Yes. There's like all this noise in the background. And I'm like, who, hello? Yep. Hello. Who, who are you? She goes, I'm so-and-so from Coinbase. I'm like, oh my God. The guy just smiled. I'm like, wait, from where? She's like from Coinbase. I'm like, go on. And I'm like, I can't hear you. Close the door. What's your password? Yeah, basically. So anyway. Oh, so sophisticated.

She's Walford's dummies. Stop, stop, stop. She ended up hanging up on me, unfortunately, because I couldn't find out what the scam was. But we're joking, but there's some really dark and sinister shit that goes on that you detailed in the book. Yeah, so this is kind of the twist,

and it actually, it kind of goes with what Josh is saying. Yeah, this usually doesn't work. You got to text like a million people before you find the one who's like, you know, the one whose wife is dying of cancer, and they're really lonely, and they're willing to trust you. So the reason this works economically is that these scammers, the ones sending the messages, are themselves often victims. And they're people who, they're often based in Cambodia or Myanmar. And the scams are run by Chinese gangsters. They post job ads. They lure people in with offers of high-paying jobs and customer service. People come from all around the region, China, Taiwan, Vietnam.

They'll come to Cambodia. When they're there, they're trapped. The boss is like, you're not leaving this building. We're going to beat you. We're going to torture you unless you run scams. And so that's what makes the numbers work. the people who are doing this are really low paid and can like scam try to send messages all day long they're they're slaves literally somebody who's making them do this and it sounds like uh honestly it sounds like a conspiracy theory like when i heard it i didn't really believe it but there are like whole office parks tower after tower, floor after floor, filled with people who can't leave. In the book, I went to one in Sihanoukville in Western Cambodia. And these towers, they're like modern office towers that were built with balconies. But the balconies, you can see that they originally had like a low glass wall.

Now they have metal bars welded on them to prevent the workers from jumping out and escaping. This particular area that I visited holds maybe 5,000 or 10,000 people. One guy that I talked to, a crypto expert, estimated that $10 billion have been lost to these kinds of scams. And the UN actually just put out a report saying they estimate 200,000 people in Southeast Asia have been trafficked and been victimized in this way, mostly to Cambodia and Myanmar. So it's like a huge international issue. And the weird thing I found was that these scammers, in addition to selling you this crypto story, they always want the victims to send them crypto. Vicky didn't say, give me your visa number, even though that would have been a lot

easier for me as the gullible victim. She went through this whole rigmarole, like download Coinbase or crypto.com, buy some tether. Because the crypto is untraceable in a way that a credit card transaction is traceable, you're saying? Right. Yes. So it's facilitating. Even if crypto is completely legit, this is facilitating a type of fraud that the architects of these white papers maybe were not thinking about. Yeah. I mean, that's what I found again and again was that they hadn't thought about what was going on in the real world, what the consequences of this were. But criminals definitely find it super useful. And I even found it useful too. When I was in Cambodia, a lot of the book, I'm looking into this coin called Tether that Vicky Ho, the scammer,

had me use. I'm bumping along the road on this bus from Ho Chi Minh City to Cambodia. I get across the border. I'm in this dusty casino town called Bavette that is home to lots of these scam compounds. I've seen YouTube videos of workers escaping from them. I've seen all sorts of... I mean, it's a big issue in the local media. It's no secret. I've read all about this place. And I get there, what do I see in the parking lot for a money exchange store that has right on their banner, like, we'll trade your Tether coins for US dollars, something I'd never seen anywhere else in the world. It doesn't prove anything, but it's like, this is an interesting coincidence. Well, Zeke, I can hear pro crypto people yelling at the screen right now because it actually is traceable.

But the problem is that oftentimes it leads back to places like Binance. And good luck getting any information out of them. Yeah. And all these companies will say we comply with law enforcement requests. But I spoke with a veteran human trafficking investigator from Taiwan. trafficking investigator from Taiwan. And he was like, he had gone to Cambodia to rescue victims of the big fatty gang who'd been Taiwanese women who'd been trafficked to work on top of a mountain called Bokor Mountain. And he said, to work in these crypto scams. And he said that the criminals even bought and sold these women for tether and like yes in theory you can trace things on the blockchain but each it's sort of like a swiss bank account each account is

only associated with like a string of random letters and numbers and this investigator was like look i've been doing yeah crypto didn't cause human trafficking i've been investigating it for years but when they use banks at least i had clues. What am I supposed to do with these like random string of numbers? You know, it makes it a lot harder for me. So Zeke, what you're doing, what you did takes a ton of balls going across the world to these shady places, confronting people, literally face to face. And I remember when you wrote the paper on tether, was that two years ago at this point or something. Yeah. These people know who you are. These are shady characters to say the least. This one guy that you mentioned, uh, Giancarlo

Devasini, he is, is he the CEO of tether? He's like the boss. He's a CFO on paper. All right. So this guy, uh, it was an Italian. He's an Italian. Not what he is an Italian, but he was a former plastic surgeon who somehow got into this. There's another guy at Tether, Van Der Velde. This guy used to run a Chinese electronic exporter that claimed from the book, quote, if you dip a butt of a cigarette into viticool

when you smoke a cigarette, 80% of nicotine will be transformed into vitamins. I mean, these are some really crazy people. Yeah, seriously. But doesn't that sound like, Josh, doesn't that sound like an old penny stock guy? I could write that pitch and sell an 80 cent stock. Wait, so here's my question. If you get into crypto as a profession, you have to have your passport in working order because there's just a lot of international travel required for anyone that's involved in. Like these guys are like on the fucking lamb. Like even at the highest levels that they're never in the same country more than two articles in a row when they're being reported on.

What is the story with this? Doesn't anyone stay in one place anymore? What is the story with this? Doesn't anyone stay in one place anymore? Well, there's one place that, again, might just be a coincidence, but a lot of the top guys in crypto do not come to the United States. You haven't seen Binance's CZ here, who's like one of the biggest guys in crypto, facing all sorts of trouble at the US authorities. Justin Sun from Tron is another major player

who you don't see him here, even though their big conference is here. The guys from Three Arrows? Three Arrows guys, yeah. Just like, you know, doing shrooms in Bali, but they don't come here. That was the big one that blew up. We want to get into Tether.

Wait, hang on, hang on. Before we get there, just stick with this point of you confronting these people. So this guy, the Italian guy, you couldn't get ahold of him, but he sent you kind of a bad-ass email. I must say his reply to you was basically something, and I'm paraphrasing, but correct me if I'm wrong. Bees don't try and convince flies that honey is sweeter than shit. Was that approximately right? Yes. Um, and I really, I love that message.

Um, that's pretty good. After I, I flew to, I went to Switzerland to see his, uh, partner's art show in hopes that he would show up. This was a big waste of a week. He didn't show up.

Uh, then I went back for another week where tether was hosting a conference i had thought john carlo wouldn't come because he's kind of a mysterious guy doesn't like to be seen by reporters but i was able to finally see him there um i did i was glad i did because then i was able to write in the book that he looks like gargamel the bad wizard from smurf um but uh uh yeah so then i i said i sent him a message i was like jean carlo i know that like you probably don't want to talk to me but look i'm here i want to hear your side of the story i'm going to be at this bar um come by if you want to say hi and we can we can tell me your story uh but he did not come

and he only sent me that message later while i was sleeping and i would just say um you know he's a weird former plastic surgeon who found himself like a crypto billionaire he's he's not someone who i don't find these guys to be shady characters i find them to be very funny. And I just think it's like a great story how all of these people who you wouldn't expect found themselves like overnight billionaires and like major players in this new crypto financial system. Well, also, it seems like, but there's like a random, what's funny about it to me, and I agree with you, just because you made a lot of money in crypto doesn't mean that you yourself did something shady.

But you had to have been willing to embrace the shadiness. Like if you own a ton of crypto at $300 Bitcoin, like you knew that you were embracing something that was very nontraditional and you did so in size. and you did so in size. And so you're definitely a quirky person, which is why we have so many colorful people as the crypto billionaires. Contrasted with, let's say, the steel magnets of 1885, this crop of people is probably way more interesting. John McAfee was a great example of that type of person, right? He said he would eat his own something if something didn't happen. But anyway, Zeke, you're an incredible writer. You wrote, as I thought more, just getting back to Tether, as I thought more about the giant volcano of crypto bullshit erupting at Crypto Bahamas, I realized that Tether

was its molten core. Talk about Tether. For those who don't know, what is Tether? How did it get so big? Why is that at the center of so much of this deplorable behavior? So I say in the book, I mean, I think of a lot of crypto exchanges as basically being like offshore casinos. And Tether is kind of like the chips.

It's like if all the casinos in Las Vegas, all the poker rooms in Macau, sent everyone to this one cashier to get their chips. And so a Tether token is always worth a dollar because it's supposed to be backed by real dollars in the bank. And when I set out to explore this, Tether had sold about 50 billion of these tokens and was supposed to have 50 billion corresponding dollars in the bank. And the idea is that whenever you get these tokens, you send real money to get them. And whenever you want the money back, Tether's supposed to have it and send it back to you. It's a money market token without the yield. Yeah, no yield, which becomes important later in the story. And when I started out,

it was this big mystery. janet yellen was calling meetings of all the top regulators to be like does tether really have this money and because it was a lot of money in it like yeah it's not small so it better it better be backed by something because otherwise totally it's totally out of the reach of regulators and they're not they always say we're going to publish our audited financials but they don't so people rightly were sort of like and they're looking at the guys behind it you guys john carlo one of the founders uh brock pierce is a kid from the mighty ducks he plays uh gordon bombay in the flashback at the beginning one two three triple d yeah so that makes perfect sense so i i just this is what got me this is what hooked me on the whole

crypto thing i'm like wait what going on yes janet yellen's having a meeting to talk about some coin dreamed up by a kid from the mighty ducks like what has gone wrong with a financial system where like i actually what's i don't say it's not to like. You have Chinese gangsters. You have plastic surgeons from Italy, Gargamel, the kid from Mighty Ducks. Like, why is this so illegitimate to you? What is the problem with Tether from what you've discovered that our viewers should understand? Or what is the – maybe, like, what is the risk of it? understand? Or maybe what is the risk of it? So at first, I was really focused on this risk that they would not have... If it was revealed there was problems with its backing, there could be a run on Tether. Which we've seen. Everybody would dump their Tether. Yeah. Well, not exactly.

They've always survived. They're the... No, not with Tether. I'm sorry. It's important. What led to the crypto panic of 2022 that effectively wiped out the whole asset class was a stable coin blowing up. But it was different because Terra Luna, which Josh has described, was a stable coin that was backed by an algorithm. When that cracked, they couldn't recover. Tether on the other... Go ahead.

No, but that's a good point. That was essentially the fear, that something like that would happen to Tether and it would crash the whole crypto system, which seems like it was actually a pretty reasonable fear given what happened, even though Tether itself held strong. And so I was trying to figure out where's this money? What's backing Tether? I had a fun side trip to the bahamas where i met the one bank that would say we were holding some of this money for tether it was run by the creator of inspector gadget a charming frenchman named jean chalapin i don't do it um have you seen uh casino royale of course yes uh do you remember the scene when Daniel Craig emerges from the ocean,

like all glistening and in front of the- I recreated that scene last week in Huntington Beach. Go on. There's a shot of a house where the bad guy's wife is looking at him like, hmm, that was John's house. So he's kind of like a bond character himself and i'm like okay this is tether created by the mighty ducks guy we got inspector gadget guy he's the banker i later found that uh that tether had invested a lot of its money um they'd invested a

lot of money in chinese commercial paper which as one does yeah because at the time well you need stability so you know yeah yeah so yeah for stability yeah yeah so this whole time like but that's a good that's a good question it's like why aren't people cashing in their tethers it seems like look i mean there's certainly some reason to question it. You got USDC over here, which is the other stable coin, very similar product, which is US regulated. And I think few could argue that it's not at least apparently safer, although it ran into its own problems.

Zeke, SBF told you that Tether was generally okay. So listen, I'm going to, no offense, but I'm going to take his word for that. No, no, no. Well, why would you, why would somebody, why would somebody in a crypto brokerage account utilize Tether as opposed to USDC when moving in between different coins? Why would like, why would Tether ever be the stable the stable coin of choice is there a reason overseas money right is it more liquid or is it no i mean yeah i think it is uh it's people overseas i don't honestly i don't know what's stopping them from using other

cryptocurrencies but it's just become kind of like the default choice in a lot of places. Everyone uses it because everyone uses it. And I mean, I certainly saw the appeal in Cambodia. I went to a money exchange place in Phnom Penh, and I'm sitting there with this Chinese guy with a T-shirt and a big belly in front of me. Another Chinese guy walks in. He walks out with 50 grand under his arm in cash, a big brick. And I zapped this guy 105 tethers from my phone. And he gave me a crisp $100 bill, no questions asked. Didn't know my

name or anything. And I was like, oh, finally, I'm seeing. Crypto's pretty cool. It's being used in the wild. You saw it used in the wild. Yeah. And if you're in a country where there's really high inflation, it might be attractive as a way to hold US dollars. I could see that, too. John, can we throw up these charts of Tether while I give a – I don't know if irony is the right word here. But so this is Tether. It's got about $80 billion in assets.

And it cracked a little bit from the dollar. Next chart, please. I think it got – but not really. Not as much as you would expect. Certainly when there was a ton of smoke surrounding this thing. And for reasons – maybe it really – there really is $80 billion. Look at what this thing has survived. Other than May of 2022, it's a dollar.

You can't say it's not. So Zeke referred to it as, I think, a financial cockroach. But here's a quote from you. I couldn't believe it. Even as crypto company after crypto company failed, Tether survived. It was more than a little frustrating. Back in 2021, I could have picked a company to investigate by tossing a dart at a wall full of crypto logos and whichever one I'd hit would have probably blown up by now. Instead, I'd spent more than a year investigating one of the few that hasn't.

So have you changed your mind at all that maybe there's just no there there? So let's say, imagine there had been a hole at Tether of a few billion dollars. Well, now the situation's changed. Whatever assets they have, they say they've invested them in US treasuries. It's been reported that actually Cantor Fitzgerald is holding a lot of those treasuries for them. And treasuries now pay 5%. So Tether's got, they say they got $80 billion. That now throws off $4 billion a year. So if you had some sort of hole-

ED HARRISON Right. They don't need Chinese commercial paper. They can- CURT NEWTON No, they're done with that. Yeah. ED HARRISON They don't need it anymore. It doesn't matter. CURT NEWTON and it's a tiny operation that is now one of the most profitable companies in the world.

Their quarterly profits are higher than Nike's. Giancarlo, the plastic surgeon's a billionaire. And so I'm not saying that there was, but even if there was a couple billion dollar hole, they could earn their way out of it by now. billion dollar hole they could earn their way out of it by now so unless there was some like really really massive fraud which would be then uh they they could be in the clear now i would say though that um i'm definitely saving room in the paperback for like an epilogue because i don't think that this situation is not over yet yeah i. I can't see them displacing JP Morgan or that the US government will let there be

this sort of unregulated quasi-bank that allows everyone from China. Zeke, just to explain to people that don't do any crypto stuff at all, the purpose of Tether is so that you're not converting back to actual dollars and you're not trying to constantly move money from the crypto ecosystem back to traditional finance, then back to crypto. So people who are moving between various crypto things are not moving into dollars in between. It's too cumbersome. And it's like almost it's anti-crypto to do that.

That is the role of Tether. It's dollars on the blockchain. That's right. Yeah. Okay. And that's why it's important. That's why it exists. That's why it is 80 billion in it.

Nobody's investing in it to make money because it pays no yield and it doesn't go up in price. It's 100% risk. So the only reason you use it is because it's a utility. Yeah. And now, Tether, like if you were holding your money in Tether, you could switch it to your Apple wallet, get 4%. So you have to really like Tether to keep it there and earn zero interest. But it was a really important way for people to get real money into the crypto world. Because some of these exchanges had trouble accepting payments.

They had no way for people to send them money. And instead, they'd say, hey, go to Tether. Send Tether your money. They'll give you these Tether tokens. Take those to my casino. Gamble with them. And you go back the opposite way when it's time to cash out. OK.

Sam Bankman-Fried. Innocent? No. go back the opposite way when it's time to cash out okay sam bankman freed innocent uh no tell us tell without giving away everything that you have in the book give us like give us some shit what what was going on there just before the cops showed up why does it why do you like why do they like you why did they why did they trust you or why did they like you enough to talk to you it's jewish uh is that is that that's all it is i mean okay well so i gotta admit like i went down there when things were going great right and i wrote a story about him and my the first story was the thesis of the story was like at the end of the first section i say hey this guy said that he only wanted to get rich so that he'd give it all away will he really do that the altruism stuff yeah will he be altruistic in the end

because he hasn't given it away yet or will this pursuit of wealth and power corrupt him i wasn't like i should have been there i was there in time to be like, hey, this is a big fraud. But I didn't know that. I didn't write that. Dude, nobody knew that. Nobody was writing that. He had every stamp of approval you could have in this industry. I'm around 25 years. in this industry, traditional or crypto or whatever, with as much universal approval as Sam Beckman Freed had

for like a couple of years. He really had it. There was nobody was like f***ing digging. We just accepted, oh, this guy made it. Yeah, but that's why when things were looking bad, his exchange had collapsed. $8 billion were missing. It looked like there was a massive fraud.

I was like, hey, man, can I come down and interview in the Bahamas? I mean, he's probably thinking, hey, this guy came down one time and I was running a massive fraud and he wrote a nice story. Maybe he'll do it again. Right. Zeke's going to give me the old Bloomberg rubber stamp. Okay. So Zeke, there's a lot in the book. We don't want to spoil everything that we didn't get to.

Like you buying a board, I'm sorry, a mutant ape. And tons of good stories. But I do want to end this talk on a somewhat positive note. A lot of the book was not about the why behind Bitcoin, why it exists, the troubles with the current financial infrastructure. It was about the characters and Tether primarily. And it was wildly entertaining and you wrote a great book and I would encourage everyone listening to read it. But there were some stories this week that caught my eye that I wanted to get your take on. One was, so USDC, like one of the things that

attracts people about this, like not the scammers, but the legitimate things is that sending money internationally, I don't know what the rake is. It could be, I'm making this up. Is it 6%? Is it 8%? It could be a fortune to wire money. Western Union, it's a lot. It's ridiculous.

So with these stable coins, you could send money instantly. There's effectively, the fees are very, very low, if any. So Visa, this is a headline. Visa to send stable coin USDC over Solana to help pay merchants in crypto. JP Morgan unveils blockchain-based token for faster payments. Just before we started, there was one from Citi. Citi Group has launched a digital token and private blockchain system. Do you think that maybe in a twist of irony that the traditional financial system will

slowly or maybe not so slowly migrate onto the rails of the blockchain. Is there going to be anything good that comes out of crypto? I do think that, OK, first, I don't want to be the one to hedge. I think that's unlikely, honestly. I've been hearing these headlines for years since the 2017 boom. And I've had all sorts of meetings with people who said things like this, and it hasn't happened. And so I like it's sort of like that mountain of bullshit thing that we were talking about.

It's like these each of these headlines. I can't tell you that there's nothing there. It would take a really long time to investigate. But like if I was a gambling guy, I would bet that nothing comes of any of those things. That said, I think if there is anything that comes out of crypto, it will be behind the scenes. It won't involve, we won't even know about it. It's not going to affect our lives. And it's not going to mean that we start using, it might not even result in Solana tokens being valuable, or these companies being good investments. If there's some use of the technology, it could be some sort of back

office thing that doesn't really affect us. People were saying in 2017, there's a universe in which blockchain gets adopted as this ledger system that's just more efficient than centralization, but a coin doesn't necessarily have to go up. The Andreessen people pushed against that. They said, no, you don't understand. If blockchain gets adopted at scale, there's going to be so much money running through all these systems that the coin is going to have to go up in price just to accommodate the dollar figures of commerce. So that was like the intellectual reason why number go up because of this like adoption at scale. But it sounds like you don't fully buy into the premise. What you're saying is true. And they would have to invent some sort of use case that's

going to bring in the mainstream and what i saw from two years yeah two years going down this rabbit hole i didn't see anything that would get my mom to open a crypto wallet and you saw that you said show the other headline earlier mark cuban lost a million bucks i'm not on twitter what so what what happened with this i didn't read the article what happens okay he he He has used one of the most popular crypto wallets, MetaMask. He clicked the wrong link. And MetaMask is a great – you can send USDC real fast with that, which is cool. But he clicked the wrong link and his million bucks is gone.

And whatever. He doesn't care. But personally – Why? Did he come out and complain about MetaMask? Did he want to see the manager uh yeah he must have it he must have been uh dude worry about worry about building around luca before uh before he pops his achilles uh what what else happened today anything anything else worth getting into while we have today uh what else blew up today dude let me ask you a question, Zeke.

What's like the number one thing that people reading the book will come away with it that maybe they didn't go into reading the book with? Like what's something that people, like what's the reason people, there's a bunch of books on crypto. I'm definitely reading yours because you're my man. But like why should the public choose to spend time with you on this topic?

So, alright, maybe you're getting at the elephant in the room, which is Michael Lewis, who's also writing a book about crypto. Maybe I'm not. I don't know. I was a little worried about that when I set out. But I'm telling you that I've read my own book once.

And I'm like, you know what? This book rules. Nobody's going to write a better book about crypto. It's really funny. It's like a great experience to read it. And don't wait for the movie. Read it now. You're going to love it.

And that's why. It is funny. I'm proud of you, man. Not to spoil, but we were on the airplane. I show this to Josh. First sentence of the book. I can not, not to spoil, but we were on the airplane and I, I, I show this to Josh first, first chat, first sentence of the book.

I'm not going to lie. Sam Bankman free told me this was a lie. Zeke. Well done. You have a great, you have like a very droll sense of humor. You're, you're funny.

You have a funny way of talking about things. And, and I think people are going to enjoy the book. So, all right. So everybody go out and get your copy of number. Go up by Zeke Fox. Inside Crypto's Wild Rise and Staggering Fall.

And Zeke, we want to wish you the best of luck. We hope people buy the book. We hope they make it into a film. We hope somebody very handsome plays you wandering around Cambodia. And thanks again for being part of the show. Where can people follow you on social media you're on you're on uh twitter yeah i'm on twitter at zeke fox f-a-u-x uh yeah so check me out there all right my man congratulations everybody hit that like button leave comments

leave ratings leave reviews read zeke's book We'll see you soon. All right. All right. We're live, everybody. Welcome to What Are Your Thoughts? My name is downtown Josh Brown. I'm here with my co-host, Michael Batnick. Michael, say hello to the folks. Hello, hello. All right. I want to say a quick hello to some people that are joining us live tonight. We love, we love that you guys are here for the live.

Roger is here. John Carlos, Sean, Rachel, what's up? Dave Wilson is here. Cliff is here, of course. Jay Luther, of course. All the regulars are in the house tonight. We appreciate you guys. Some new faces and names as well. Thanks so much for joining us. We do the show every Tuesday at 5pm. Before we get into what we want to talk about today, Michael would like to tell you a little bit about tonight's sponsor. Well, a company called YCharts, maybe you've heard of them. I use them every day. They've got a new exciting tool for advisors called Proposals, which displays beautifully like a before and after. You're in this portfolio. We want after you're in this portfolio.

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proposal tool, hit the show for the link for the notes. The show for the notes. The link for the show. You know what I'm trying to say. And Nick Maggiuli is low-key an absolute technology gangster. So if you're going to watch anybody demo the YCharts product, that's the guy.

That's the guy. All right. I feel like we missed the show last week, right? You're starting off with a... No. I missed the show last week. I'm trying to remember how we started the show because we did this in California. I had things to say, but didn't get a chance to,

so we're going to say it today. All right, Josh. First question on everybody's mind. Where's the recession? Coming any minute. Where's the recession? Can't you feel it? All right.

Can you feel it coming in the air tonight? Did you see, wait, did you see the new Chris Stapleton Snoop Dogg rendition of In the Air Tonight, the Phil Collins song? I think it was for Monday Night Football. No. They premiered it last night. It's like Chris Stapleton covering Phil Collins in the air tonight. They got the drummer.

I think she's the drummer from Lenny Kravitz's band. And then Snoop comes out and Snoop drops a verse over Chris's guitar playing. And it's- You know who else covered last night? Pretty fire. Me with the Saints and the Steelers. No big deal. Okay.

So this has been- Oh, both games? Well done. I money lined and the Steelers. No big deal. Okay. So this has been- Oh, both games? Well done. I money-lined and I teased. I don't like two Monday night football games. It's too much. It's a lot. It's too much.

All right. All right. So we've been experiencing a historic- Non-recession. Unprecedented rate hiking cycle. What was that? A historic non-recession. It's one for the record books. All right, turn on, please. Let's get it started. So the black line is where we are today. For those of you who are listening, I'm showing a

chart from the Wall Street Journal. It's showing all the interest rate hiking cycle is going back to 1988. And some- The black line is this one that started in 22. Some lasted longer than the one that we're currently in. We're 18 months into this thing, but none of them have been as extreme in terms of the amount of tightening. So we raised 525 basis points. And not only do we do that, but we did it coming off zero. And so this was supposed to do some very obvious things, slow down the economy.

It's definitely hurt the housing market, but it hasn't really, and it hurts some technology stocks, hurt their valuations, but it hasn't really impacted the overall economy. You could make, say whatever you want, but the bottom line is the unemployment rate is still 3.5%. So it hasn't done what they thought it would do, what I think most market observers, market participants, economists, strategists, what everybody thought it would do, which is lead to a recession. And maybe it's coming, but it's not here yet. So there's this really great chart from Deutsche Bank. It's so great that I have no idea what it's saying, but I get the gist.

I get the gist. I'll explain it. Pop it. Okay, fine. Chart, please. Chart on, please. Let's hear it, smarty pants. Recession versus leading indicators.

Nearly all leading indicators suggest the US should have already entered recession. I could read two. I could read two. In fact, it should have entered one long ago back in September, October last year. We had a recession in Silicon Valley. We had it.

We had a stock market crash in NASDAQ, and we had a Silicon Valley recession. Next question. Sir? It ended with the blow up of Silicon Valley Bank. I'm telling you, we had one. Chart off, please. I got to see this asshole. You don't know what this chart means any more than I do. No, but this is what I do. Sir, I'm a television star. Here's how this works.

They ask a question. You can't double star or triple star. You can't read the chart. You don't know what it means. I don't know what it means. I don't need to. They ask me a question I don't know the answer to. I say the thing

that I want it to say anyway. And then it's a commercial. Who taught you that? And no one even realizes it. Who taught you that? Get back in respect. Barry. Get back in respect.

This is how I do. Throw the chart out. As you were saying, the chart is showing all of... Chart economic indicators. So core capex, ISM, University of Michigan consumer expectations, margins, all of them. And again, I don't know what this chart is showing, but I know what it's saying. What is the blue and what is the yellow? I don't know. It's a standard deviation. What is that, a sigma? I don't know. But the point is this. The point is this. Nearly all leading indicators suggest that the US should have already entered a recession.

In fact, it should have entered one long ago, back in September or October. Hold on. Hold on. What are you doing? What the hell are you doing? Josh is getting off screen? I had to pick up that Sigma you just dropped. Oh, there you go. Oh, listen, I found something interesting. I found a little tidbit

of a nugget in Nick Tamareos wrote an article why a soft landing could prove elusive. And this, this, uh, there's a face blower right here. Did you know where soft landing came from? Did you know where soft landing came from? Like the term? Yeah. No. The 1969 moon landing propelled the soft landing expression into the economic lingo in the early 1970s. The Nixon administration officials sought to conquer high inflation without triggering a severe downturn.

How about that? So like they used space terminology as like a metaphor for the – okay. It was a soft landing on the moon. So why do you think we haven't seen a recession? And don't tell me because unemployment is low, like why hasn't there been layoffs? Why hasn't- No, but why can't we, but why can't I tell? All right. So here it is. When they teach this at business school, I wouldn't know. I've never been to business school. My guess is what they'll have to teach is. And in 2002, we learned that the economy was a lot less sensitive to overnight rates than we once thought. Like that will be the less that that'll be the takeaway from this. But I think that's the wrong takeaway. So you, so the reason I think the reason I think the

economy is sensitive to overnight rates. However, during the pandemic, all of these companies gorged on record- And consumers, and consumers, and consumers, yes. And consumers on record cheap debt. And so remember, actually, remember we said, how many times did we say that if there's a recession, the consumer and the corporation have never been better positioned or better prepared to go into it with their balance sheets? Yes, but we shouldn't have said that. We shouldn't have said that. have never been better positioned or better prepared to go into it with their balance sheets. We shouldn't have said that.

And what we should have said was they're so prepared that it will stave off a recession. You can't have it. That's right. Exactly. So that was my takeaway. That was the interesting takeaway. Chart on, please, from Renaissance Macro Research.

We use volatility, the VIX, as a liquidity indicator. It's amazing that we're testing multi-year lows this deep in the tightening cycle. Hell yeah, it is. Wait, VIX as a liquidity? Yeah. Yeah. Why are we at a low teens VIX? It's nuts. Given everything the Fed has thrown at this market and all the fiscal stuff that's wound down. It just, they did so much stimulus and so much refinancing activity that it just made overnight rates not matter. Like they will matter. They do matter, but they didn't matter this time for the reasons that we discussed. Right.

They don't matter to the degree that they could throw us into a recession. If you're already, if you're already taken care of with debt, it doesn't matter what the cost of money is. Now, it does matter, but it doesn't matter for this period of time. So I posited a few weeks ago with Ben that there will be rolling recessions and maybe the economy can stave off a recession. Maybe it can, but maybe it can. So we already had it. We're in it in housing for sure. We already had it in technology. We had it in freight. So for example, Conor Senn tweeted-

Hollywood. Yes. Full-on recession. If you rent costumes to Hollywood Productions right now, your thumb is up your ass. You're doing literally nothing. Office real estate, obviously full-blown, right? Office furniture, full-blown. Okay. So the president of the J.B. Hunt said that the freight recession might be over, quote. So I've talked about us being in a freight recession now for several quarters. I might change that slightly to say that we're coming out of a

freight recession. That's interesting. Connorson retweeted and said, echoing Walmart's cautious optimism this week and Amazon close today at a 52- this week and Amazon closely at a 52-week high. Is Walmart at a 52-week high? Close. It's pretty close. But Amazon last week hit a 52-week high. And most of that business, most of the revenue of that business

is directly related to the consumer. AWS is like 17% of revenue or something. So Amazon and Walmart are telling you that there's still no sign, you know, worth talking about. I thought this was interesting. I think this is like the biggest mystery on Wall Street. I asked the guy, so last week at Future Proof, I went to this really elite private party that you

didn't get invited to where joe and tracy were interviewing the new guy taking over as cio at oak tree like the real howard marks like the guy that's like managing the money and i forget his name but it's on their podcast oh yeah who else is at this party? Me, Matt Midds. I don't know. The people that really were important were there. Joe and Tracy interviewed him, and he's a credit guy because it's Oak Tree. And I didn't stay because I went to a different party. How exclusive was that one? Was that the super exclusive one? Super exclusive.

So I asked him before. So they did a live podcast there. It was on the roof of like the Hilton or some, or the roof of the Hyatt or something. Anyway, so they asked him whatever they asked him, but I like butted in before they went on stage. And I was like, why aren't credit spreads moving? Like, why won't HYJ or JNK, like like why is there absolutely no sign that there's any impact after all these rate hikes? And he's like, I honestly don't know. And he is, again, at oak tree. Like they literally eat, sleep, and breathe credit.

And so this is, I think, the biggest mystery on Wall Street. This is a tweet somebody sent me to get my, like, what do you think, Josh? I don't really know, but I thought this was the right question. This is David Deer King. Do you know who this is? He's a street.com reporter or street.com columnist, something. Of all the things that baffle me about this market, this might be the biggest one. How in the world are high yield spreads going down right now? Consumers are running out of money to spend. Debatable. Consumer credit is through the roof. Defaults are rising. Bankruptcies are rising. We've got de facto recession in Europe. China is imploding. Student loan payments just restarted. Yet investors are demanding less return for low

quality bonds. I don't get this at all. This looks like a setup for the end result gets really ugly. And then it's a chart of the ICE B of A US high yield index option adjusted spread. So this would be, I guess, the yield above the comparable maturity treasury. Yeah? Mm-hmm. Okay. And it is at three spots, seven, eight. So you're getting like three and change percentage points above the comparable treasury for the high yield index of bonds.

Well, what he's asking is basically where's the recession? It's the same thing. Well, that's why I bundled it in here. But he's more like – but this is like more than recession. This is almost like market pricing. Like is the market not responding to any negative information whatsoever with respect to consumer credit or rising bankruptcies or default? So I have a few answers to this and I wanted to see what your thoughts are. My first answer is everyone's working. I don't think you could see spreads blow out with unemployment at three and a half percent. It's just like, it's hard for me to

understand why they would. And there might be an uptick in bankruptcies and defaults, but they are not like, quote unquote, skyrocketing. They are not even outside of the realm of normal. John, put the chart on. We've got a bankruptcy chart. Keep talking. Can we do it? Like, does he know where to find it?

Okay. Next one, please. Boom. Yeah, all right. So like, go back to the year 2000. We're at the low end of low. I mean, it's off zero, but, but come on. There's nothing here. Fine. Fine. All right. So I said that. The second thing, put my other thing back on.

Put the tweet back up. I'm not a credit guy, but if you look at what makes up the index that he's referencing here with his chart, the B of A US high yield index, I think 24% of it is consumer cyclical fine, but 11% is energy. And typically, in the early stages of a recession, you might see some nervousness around commodity-related companies. Energy, they've transformed their balance sheets over the last year or two. And crude oil hit a 10-month high today. So you're not going to see it in the usual suspects in the high-yield index. You're just not going to have energy companies have bond prices that are struggling. So that's why you're not seeing it blow out there.

So the combination of everyone's working, energy bonds are 11% of this industry. Oil is fine. But Josh, 35% of this is consumer. I said that. And then another 15% is corporate communications. Yeah. Okay, fine. So nobody, listen, what's the last thing people get rid of in a recession? Their cell phone. Last. Literally last. Take my car first. So you won't see it there.

You won't see it in energy. So take communications. Take energy. Put those to the side. Consumer cyclical. So I don't know specifically what companies make up high-yield consumer cyclical debt. I'm guessing it's not Walmart and Costco and Amazon. But maybe that's where the surprise is, but that's not the whole index. So that's my take. What do you think? Yeah. I mean, I think you can get a spike in spreads if there's like an event.

Yeah. But absent a real- It's probably how this ends. It's probably how this ends, to be honest. Yeah, probably. Probably. Yeah. But absent that, you're not going to see spreads blow out. There's got to be a catalyst. Right. Something has to like materially change the way people are behaving and rates weren't enough. So next chart, John, the performance one of the leveraged loans versus investment-grade bonds. This is Wall Street Journal today. So the difference between leveraged loans and other bonds is duration.

These are floating rates. It's all credit risk. And credit is fine. This is part of the biggest mystery on the street. So rising interest rates are boosting risky corporate loan returns instead of hurting them. This is one of those weird things. That is confounding. Okay. So let me just read this real quick. It is one of the biggest surprises on Wall Street, the outside performance of risky corporate loans. That's a leveraged loan. Since the start of last

year through Friday, loans backed by companies including PetSmart and Uber. In the Morningstar LSTA US Leverage Loan Index delivered a return of 9.3%, buoyed by higher interest rates in a resilient economy. Investment grade bonds lost 13% in that time. That's incredible. Yeah, well, because there's a lot of interest rate sensitivity. Last year, junk bonds-

And the S&P is down about 4%. So this is starting from January, 2022. Investment grade bonds down 13, S&P is down about 4%. So this is starting from January 2022. Investment grade bonds down 13. S&P stocks down 4%. This shit is up 9%. And it's another one of these things that people are like, wait, what the fuck? I think junk bonds outperform treasuries. They did last year.

Because it's a tiny market comparably. No, it's because there's not as much duration risk. Not as much duration. All right, let's move on to the next one. Before you do, I just want to say that you're trying to flex on me. I party with the people. Just saying. I party with the people.

I'm just kidding. I didn't stay at that party either. Not a flex. All right, go ahead. You could have gone. No, but you literally could have gone there. All right, oil prices. WTI, this was as of this morning, up 1%. WTF.

WTI crude up 1% to 92. Nat gas up 4% to 284. US crude making 10-month highs. US oil output continues to fall three months in a row, according to the EIA. This is the bull market right now. Stocks don't go up every day with oil, but these stocks look better since, let's say, the end of July than anything else I see in front of me. And here, Sean put this in my notes today. Energy stocks still aren't overbought. What's with the yellow? Wait, yellow what? In August.

I think that was someone's birthday uh no that was the bottom so um here hashtag technicals zero percent of the xle has an rsi above 70 only four percent of xle components are at 50 day highs there's a weird chart which is below the 11 what is this percentage of xle stocks advancing for five. It's a way of saying that it's not carried away yet. So what are your thoughts? On which part specifically? Bull market continues.

Would you get in the way of this? Would you fade this? I wouldn't. No, I own energy. Yeah. I bought IEO. Put up crude oil. This is definitely is definitely listen i don't know shit about uh energy but what happens what happens next just purely on technicals what happens next i show you

this chart it's yeah it's going higher it's going higher is this the big risk for inflation re-accelerating i'm so glad you asked and softening consumer demand wait we have a couple more charts and then we're gonna answer that question because the gas prices, I know WTI is not necessarily a gas price, but they're correlated. That's what messes with people's brains. Yeah, no shit. Give me natural gas real quick. John, thank you. You can see this is a breakout, possibly in the making, although there have been several

failed breaks above three. And then let's see. I want to buy that. This is IE. Well, you technically own it. You own IEO, right? Yeah, but I want to buy like UNJ. Okay.

So IEO and XLE side by side. You see these are effectively the same trade. They bottomed sometime in March of this year during the banking crisis. They double bottomed at the end of June, and they are the best show in town really since the end of July versus the rest of the stock market. The question that you're asking, when will higher prices for oil and or prices at the pump affect the economy? November. And I'm glad you asked.

Second week of November. Some divergence of opinion here, but I agree with you. This could become the next risk that people are focused on. We've seen it before. Ed Yardeni just raised the odds of a recession before the end of 2024, and he cited specifically higher oil prices and widening deficits. And he cited specifically higher oil prices and widening deficits. The 30% spike in oil since late June has given him reason to reassess.

Quote, today, in response to several new developments, we are raising the odds of recession before the end of next year from 15 to 25%. Okay. Nick Colas, who is a frequent guest on the show, has a different point of view. Nick doesn't think that a rally in crude matters until it doubles, which I found really interesting. Yeah. So let me break this down for you. Crude is over 90 a barrel for the first time since November, 2022. Nick is saying oil price spikes matter much more than modestly rising prices. That's what we've had this year, modestly rising prices. We haven't had a spike. He says household income is fairly fixed in the near term.

So spiking oil and gas prices force people to quickly cut back on other spending categories. The greater the increase, the more likely recession eventually unfolds. And he has a chart. I'll narrate this. The following chart shows the year-over-year change in WTI crude prices from 1987 to 2019. As noted, oil prices essentially doubled or more in September 1990, February 2000, and June 2008. One was because the invasion of Iraq. The latter two were super cycle peaks. Regardless, the US economy was either in recession when oil prices doubled or would shortly be in one. So this is a causation correlation thing that we can argue. But the good news is the magic number, according to Nick, for when oil prices would double would be like

$140 a barrel, meaning most of the summer we sat at like $70 before it took off. So we are nowhere near 140 and we're working our way up slowly. So he doesn't view this as an imminent thing that could cause a recession. That's a good chart. And that guy knows. Unless something changes. And Nick knows his shit. The CEO of Chevron just came out and said,

we're going to $100 a barrel, which I guess is not a bold call from 93. I think that'll change psychology a little bit, though. What do you think? I think Nick's right. I think that the speed is at least as important as the level. By the way, Jamie Catherwood said – he slacked me the other day. The compound you did with Data Trek guy was unreal.

Genuinely reignited my interest in finance podcasts. Casually threw it on at like midnight last night thinking I'd watch for five minutes and then I watched it all. Yeah. Um, Nick is the man. I said, I said to JB, he's absurd and no, I will not make an introduction. Yeah. Nick, Nick is the Nick is Nick is absurdly great. Uh, we want to be in the Nick Colas business anyway. I thought that was interesting. One more chart, one more chart. One more chart. Chart on, please. Look at this one. So this is from Bloomberg,

the driver of oil prices. And this is not, it's more of a demand thing, which is interesting, than a supply thing. So this is not the economy softening? Yeah. Right? Yeah, not yet.

It's definitely not here. All right, Josh, anything else before we move on? No, let's definitely not here. All right, Josh, anything else before we move on? No, let's go. Warren Pies, another phenomenal macro dude bro dude. I just wish it was Warren Peace. I know it's pronounced Pies, but can you imagine if it was Warren Peace? How f***ing great would that be?

So Warren Pies at 314 Research produces among the best research. Is it among or amongst? We like that guy. Love that guy. Amongst. Either way. Either way. All right, try it on, please.

So here's what we're looking at. We're looking at earnings for Q2, beats and misses. And he charts stocks that beat estimates versus stocks that missed estimates. And this is something that we spoke about a lot going into earnings season was we were really curious to see the reaction because the stocks that had been beat up really badly, i.e. crappy businesses that have been missing earnings, had rallied viciously going into earnings. So it's not a tremendous surprise that a lot of that rally was taken back after they reported

earnings. But what is interesting and notable is that not only did stocks that miss get punished, so too did stocks that beat. So we're back to good news is good, bad news is bad. And is that the takeaway there? I wouldn't necessarily overthink it. It's a really pretty chart. I just think that the stock market got ahead of itself is really all there is to it. And now we're digesting the earnings and sort of trotting along. Yeah, and you really don't have anything.

You have a Fed meeting this week that I think 99% chance of no hike. Yeah, I don't think the market's expecting much. Maybe they'll shock us, but then you don't have earnings season for a while. So we're in this no man's land period, basically. And what is the next catalyst? And of course, nobody knows, but pretty quiet right now. Yeah, the next catalyst is that they keep dropping these overvalued IPOs on our heads. We'll see how long before the stock market revolts. So let's move to Arms IPO.

What do you think about the way this thing has come and gone so far? So went public last week. Seemed to have been really well received. Closed up 25% on the first day. They priced it at 51. It opened at 63.5. And straight down ever since. No, no, no, no, no, no.

It's gone sideways the last few days. I think this is a definite win. The market absorbed all of this. I agree it's a win. It's only down 10%, but it's still above its IPO price. Yeah. It's a win. It's 50. It closed at 55 today. Yeah. And it was 50. Yeah. Yep. Yeah. No, it just saw if you bought it the first, if you bought it the first day, you kind of feel like a dick, but other than that, like it's, it's not, it's not terrible. Not as bad as if you bought

Instacart at the opening tech, it's down like 20 something percent since then. Well, well, I got to tell you, we were all over that over that we're gonna talk about that in a second um anyway the art so the arm thing they kind of fed into like the ai hype it's not really an ai company i guess like any chip company could say there's more demand for our chips because of the ai revolution but this is not like we want to do more ai stuff. Let's buy more chips from ARM. It's like cell phone chips. Everyone needs to calm down. They benefited from that. I think NVIDIA is trading beautifully considering how much this stock is up. You're a date, right? It's just digesting all these gains, not really giving much back.

right it's just like it's just digesting all these gains not really giving much much back all right instacart uh priced at 30 last night was the upper end of the range it opened at 42 it had a 14 billion dollar market cap when it started trading uh where did it go out today where did it close today is that 39 30 no 33 something oh No, 20% off the highs. What was that chart we just had up? So as my final trade on Halftime Report, I just said like sell Instacart. And I wasn't like trashing the company. I actually respect what they've been able to do. They did a hard pivot. First, they were being told, get as many users as you can. Don't worry about profitability. Then sometime in late 21, things started to blow up in the private markets. And the new mandate from venture investors was, no, we're just kidding.

We want profits now or you'll never be able to go public. And they pulled it off. And they're in like some of the worst parts of American business you could possibly be in. They have to recruit an army of gig workers and somehow have a margin in that. They have to deal with supermarkets, which themselves have like 1% profit margins. It's a dirty, grimy, ugly business. And they found a way to earn money. So I give them a lot of credit. I just don't want to own the equity. Yeah. But from the advertising, that's going to be the engine of growth. So I said, I made that point today. It's an ad business. Like all that shit they're doing,

getting people to go to the supermarket for you, put on a tip, this and that. That's like almost, it's almost break even. Yeah. The real business is Pepsi comes in over the top and says, here's $300 million. Make sure our products become the number one search result on the app. And that's not a bad business. I don't think the stock is wildly overvalued. I'm not buying. No, I think it's okay. But I think it's no.

So I think it's not growing that fast. 30% growth. And it's in a really tough business. I just, I feel like I own Uber. Why wouldn't I just buy more Uber if I wanted to be bullish on delivery? You know what I mean? Like or Amazon. Right.

Like why do I also want to own this? They're all competing for the same customer. Uber also trading beautifully. Well, Uber is – to me, it's going much higher. All right. So Instacart is not egregiously overvalued is the point. So Instacart's not egregiously overvalued is the point. So they traded four-time sales, which is in line with DoorDash 4.2.

Uber is sub-three-time sales. And Goldman put out something, a guide to the new IPO market. Things have changed since the last IPO market, obviously. And you want to run through some of these charts, Mike? Yeah, we've got three charts. Try it on, please. All right, obviously there's been a dearth of IPOs this year. There was effectively zero in 22, very few in 23, 15,

but there's been some big ones. Birkenstock was big. We've got Instacart. We had Arm. And the one on the right, the chart on the right is very interesting. I don't know what exactly is in here, but they've got their IPO issuance barometer and it goes high to low

and they're basically showing whether or not the macro environment is conducive to more or less IPO activity. And of course it crashed last year for reasons that are very apparent and it's on the rise. So the market is ready for IPOs and it seems to be digesting uh the big ones just

fine for now can we linger on this chart on the left number of us ipos yeah uh 15 year to date and last year it looks like there were 16 is that right ish that's like a really i don't know what that's based on that's like a really uh, this is IPOs raising more than 25. No, but it's, all right, it's a certain size because I know there were a lot more. They pulled out SPACs and they're only talking about deals raising more than 25 million,

which is essentially Goldman's universe. Like there are IPOs raising $5 million that they wouldn't touch. So from that standpoint, we've gone from 261 of those types of deals two years ago to 15. But every sort of IPO chart looks exactly the same, whether it's all of them or the total proceeds, they're just dry. Yeah, it's crazy. All right, next. This shows the percentage of IPOs reporting at least one quarter of positive net income.

And it's showing from 2001 to 2019. So all IPOs from 2001 to 2019, one quarter after the IPO, 41% of these companies were profitable. This is very important. Then four quarters later, 63%. And so these companies were getting profitable pretty quickly. The recent batch, on the other hand, so the 2020 and 2021 vintages- Still trash. 14% of them after the first quarter were profitable.

It went up to 40%. Now it's at 52%. So much lower than average. Still, still. And these companies have gotten destroyed. Next chart, please. So Goldman produced the 25 largest IPOs, again, not SPACs, by market cap at the offering price. And holy moly, how many of them outperformed the Russell

3000 since they first started trading? Two. Two out of 25. This is hard. Because there's so many. It's Airbnb, Snowflake, DoorDash, Robinhood. These are big names. Toast. And Unity. Only two of them have outperformed. Two companies I've never heard of. Samsara, which is a software company, and PPD, which is a biotech. Because if you're buying the biggest ones, it's most likely you're buying the ones that are trading at the highest price to sales. And they could come out, like Snowflake has had pretty damn good growth since it's come

public. Too rich. But it doesn't matter. It'll never match what the hype was. Right. This was a, like literally, this was cloud computing backed by Warren Buffett. Like forget about it. The hype around that deal was so legendary that it was almost impossible for them to grow into that market cap, and they still haven't.

So it's tough, but it's nice to see that there are deals coming back. I think we could both agree. Speaking of deals, let's go to the Schwab deal. Chart on, please. This is Barron's. Charles Schwab had a decline in its core net new assets the past two months. I'm not sure what to make of this. Where is the money going?

Well, that's what I wanted to ask you, Josh. The majority of these deals, and this is from their CFO, the majority of these deal-related outflows have been attributable to Ameritrade REA clients, including a select number of relationships that did not meet our criteria for an ongoing service relationship. So that's part of it. So net new assets totaled $4.9 billion, down from $43 billion a year earlier, and $13 billion in July. So massive, massive drop. So chart off, please. The CFO said that this was smaller advisors that they're getting rid of? He said what you think he said. That's a very nice way of saying that they're, this was smaller advisors that they're getting rid of? He said what you think he said. That's a very nice way of saying that they're not servicing the advisors that are sub,

pick a number, 50 million. I don't know what the number is. I bet it's like under a hundred. But that does not explain, that is a lot of, that is a huge gap. Where did the money go? Did these people go to interactive brokers like Pershing? No. It's a lot of money. There's no way there's no way that amount

of people up and went hey let's because you know how long it takes to set up a relationship like a pershing it's not an app right like if you're going to be doing custody as an advisor that you probably need like 90 days to put that together so did people set that up in advance and then wait for this to close and then pull money out? I don't know anyone doing that. And I know everyone. Schwab said net new assets totaled $4.9 billion last month, but excluding TD Ameritrade clients, it was 28 billion. That's a massive, that's a lot of money. Huh. And I don't think we'll ever get the bottom of it. Goldman?

No way. You could have had like two or three very large RIAs just completely cancel their relationship and move the whole thing. But I feel like that takes so long. Yeah, yeah. Like that's not like, that's not flipping a switch. You have repapering a thousand accounts. Yeah.

It's very strange i don't really know the answer it'll come out uh car insurance is up 19 year over year and this affects me acutely because as you know i have three drivers in my home now and three cars to insure and what the hell this is like they're talking about sticky inflation. This is beyond sticky. This is like abusive. This is gooey. What the hell is going on here? I thought cars were safer these days.

Do you have a theory behind why we have to live like this? Like animals. It's a very simple theory, but it's a theory nonetheless. Like animals. It's a very simple theory, but it's a theory nonetheless. These people are being greedy and they're taking the opportunity to use inflation as an opportunity to raise prices. I don't know. What else could it be?

So this is why we need Amazon auto insurance. I've about had it with this bullshit. I mean, do you agree with that very simple theory? I don't know. Yeah. Did it get more expensive to insure cars on the end? No, it's agree with that very simple theory? I don't know. Yeah. Did it get more expensive to insure cars on the end? No, it's the most plausible. What changed? What changed was they looked around, they said, hold on, Chipotle put through three price increases, right? Oh,

Chevy Tahoe is now a hundred thousand dollar car. Sure it is. You know what? here's what car insurance costs yeah but 19 one year it's egregious it's like what it did is the gecko asking for more money for the commercials like what like what what could possess them to think that's good business but i guess they're getting away with it it's great business what are you are you canceling your car insurance okay let me read this um this is axios put we have a chart of this oh we did we did it already? We did the chart? Okay. Auto insurance prices for American consumers rising at their fastest pace in 40 years and gasoline prices surged almost 11% in August alone. It's a bitch driving a car these days. That's not Axios. I said that. The surprising size of checks insurers have been forced to write for auto policies is essentially an echo of the vehicle price surge that drove inflation in 2021 and 2022.

Aha. So they're framing it as a catch-up. The cars cost more. Guess what? The cost to insure them costs more. Do you buy that? I guess. Okay. Tight labor markets jacked up the cost of- Not only do you buy that? I guess. Okay. Tight labor markets jacked up the cost of- Not only do I buy that, I'm embarrassed at my theory because that's much more reasonable. Okay. Prices for auto parts are up thanks to inflation,

raising the price of repairs. Tight labor markets jacked up the cost of sending your car to the body shop. Lack of labor also delayed repairs, resulting in increased insurer spending on car rentals. I wish you read that before I gave my dumb theory. And the cost of payouts for injuries has been driven up by the inflation for healthcare services. So, okay.

So it's parts, it's labor, it's the cost of healthcare, and all those things feed into the price of car insurance. I wish we could invest directly in car insurance without buying the insurance companies. Like I want to just trade the average price. And I don't know if I want to fade a 19% annual spike. But just generally speaking, the price of car insurance is rising faster than most investment options that we have access to. Well, this is the shitty thing about rising prices. You think

this is ever going down? Do the prices ever go down? No. They plateau for a little while. They don't go down. They never go down. You never get a call from your car insurance broker. Great news. Yeah. Hey, this year, down 19%. Yeah, never. It will never happen. Congratulations. All right. Then this is why you invest because these companies are really good

at protecting their margins. They're really good at it. No doubt. All right. We're going to do make the case. Then we have a mystery chart and then we're going to roll out. Are you following the UFC and WWE merger? Do you know anything about what's going on here? I mean, I listened to Mark Shapiro was on with Bill Simmons the other day. Mark Shapiro is a force to be reckoned with. Yes, Mark I. All right. So let's start with Endeavor, EDR.

John, the second chart. That's it. All right. Great job, dude. All right. So here's what this is. Ari Emanuel is the Hollywood super agent that Ari Gold on Entourage was based off of, played by Jeremy Piven. You following me so far? Okay. This is, Endeavor is his holding company, and one of its biggest operating units is WME, which is William Morris Endeavor. William Morris, yeah. So William Morris, chart off, William Morris is like one of the most powerful Hollywood agencies. They rep like, name a famous person, there's a 50-50 shot that WME reps them. Okay. They also have some other interesting businesses.

They own the bull riding thing, which is not big with the Jews on Long Island. We don't know from that stuff, but that's a sport. They own the whole thing. They also own ICM, which is like sports marketing, like getting athletes endorsements and shit. Like it's an agency business. They own that too. And then they bid for WWE, which was for sale. And these guys won the bid and Ari Emanuel and Shapiro.

And these guys went in there and did a presentation. And they were like, guys, here's all the shit that you are not doing that could make world wrestling so much bigger and more profitable. And after an extensive presentation, whatever, like Vince McMahon looked at them and said, okay, brother, you know, like, like, well, okay. So that's how he won it. So here's what they did. Next chart, TKO. So this is called Endeavor Operating Company. We'll change its name.

TKO represents a merger of WWE as well as their whole UFC business, which Endeavor also owned. They merged the two things. They're telling Wall Street they're going to find $50 to $100 million worth of synergies in terms of the expense of running these leagues. But now you can invest directly in fighting. TKO is like this huge thing now. And I think it's up there with every other professional sports league,

whether it's the NFL or baseball or hockey, just in terms of like viewers around the world, how many events they put on 350 events a year. Unlike real sports, they actually, I shouldn't say real, unlike traditional sports leagues, there's no season. It's every day. There's something either UFC or wrestling going on all seasons and it's global. And I think these guys are going to make this work. So the way this shakes out is if you buy EndeKO, the votes. And world wrestling ended up with 49%. I think Vince McMahon is like the executive chairman or something, and he has 16 for himself. So it's basically going to be like this huge collection of personalities. You got Dana White in there representing UFC. You got Vince, who's in his 70s. You got Ari Emanuel, who just

does not lose. And you got Mark Shapiro. And they're going to make a run at turning this into a much, much bigger, more profitable global sports entity. And they might even be making other acquisitions. So I like it. Now, the question is, do you buy TKO, just the wrestling and fighting business, or do you buy Endeavor, which is the majority shareholder of that, plus all of those other businesses that may or may not be undervalued, like the talent agency, for example. So I'm going to make the case that you go either or. If one of them works, case that you go either or. If one of them works, the other one will work. If I were to buy one, I would probably buy EDR and just make the bet that the wrestling business will succeed,

but also some of the other things they own are being given away for free in terms of the current valuation. So that's the pitch. I'm not in either of these stocks right now, but this just happened in the last week. And I wanted to shed a little bit of light on this for the viewers. You have any thoughts on the trade? Yeah, it's just interesting. We were talking about Instacart earlier. Would you rather own TKO at a sub $9 billion market cap or Instacart at 11? Now, I don't know how much debt TKO has. So I don't know what the apples to apples actual comparison is. But- How about they say they convert 61 cents of every dollar in revenue they bring in to cashflow. It's actually enormously profitable. Shockingly profitable, given how mature of a business. This wrestling shit's been around for 40 years. It's shocking how profitable this business is. Yeah, I think that's a good pitch. If this was a different market environment, this thing would be worth way more.

I think it's going up. Do you see how well it did today? It looks good. Apropos of nothing, I think it went up 5% today. People have not really discovered the stock. TKO is not even trading under the name it's going to trade under eventually. They're not going to call it Endeavor Operating Co. for much longer. Here's the risk. Here's the risk. There are two upcoming events where they're going to redo their contracts, one for UFC, one for wrestling. The wrestling one matters the most. It's much bigger. They have a deal with NBC,

and then they have a deal with, I think, Fox. One is Raw, and one is whatever the other show. I don't watch this shit. So they are going to have to announce, here's what our next contract is. So the bet you have to make is that they're going to get a lot more money for the rights to these shows than they got last time.

I think that's a safe bet, but that is a risk if they don't. The second risk is all those people I just mentioned are all crazy. Like Vince McMahon is legitimately crazy. Dana White is not a shrinking violet. They might all hate each other, and this whole thing might blow up. drinking violet. They might all hate each other and this whole thing might blow up. If somebody says the wrong thing and the other one disagrees publicly, I feel like the risk here is personality. But I'd be willing to take that risk. I think this stuff's going to work. So, all right. You got a mystery chart? I do. So this is a stock that I happen to own.

that I happen to own. I'm underwater, about 8%. It's a company. No, I don't want to. It's a company that, it's a product that I use. Product might be the wrong word. It's a service that I use.

Let's put it that way. It's a service that I use. This stock has been under pressure. That's a 200-day moving average that it bounced off today. We'll see. Tomorrow's another day. It's a product that you use. I said day. It's a product that you use. I said service.

It's a service that I use. This has been under pressure primarily due to rising oil prices. So between this and my energy stocks. I have to pause. We have some really good guesses. I'm perfectly hedged. Go ahead. Patrick asked, is it shampoo?

LOL. LOL. Sean Grealish guessing Peloton. That's not a bad guest. No, Peloton. It does not look like this. Oh, you're showing us the price to 39. Okay. Uh, all right. I don't let, all right. Is it a subscript when you say service? Is it a subscription? Is it like entertainment? No, and it's high-priced items. It's a high-priced service, I should say. Not relative to its peers, but it's a high-cost service. James Sykes is asking, is it mudroom construction?

Come on, listen to me. This company is under pressure. The sector is under pressure from rising oil prices, which is a huge input to their business. Come on, dude. What? How would I know? I don't know.

How would I know? I give up. I could lose. I know it's crazy. You never see me lose ever. I'm losing. I don't know what it is. What is it?

Wait, one more chart. One more chart. Next chart. Is it a jet ski? No, no, no. Same thing. John, before the reveal before the reveal this is uh the week this is uh again it's an airline thank you all right it's not a service it's a why you why why are you why are you bamboozling me it's not it's not a fucking good airline i know but like an airline is that is it a service absolutely yeah i guess it is all right uh delta okay all right i almost i almost given another second i probably would

have gotten it okay um wait this is under pressure from oil and probably from unrealistic comps that it will be very difficult for them to achieve in 2024. And people are already pricing that in. It's very possible that 2023 is the best year that it has in the next two years. Very possible. And that's not just Delta. That'll be everybody in this space. Very possible.

It's best in class. I love it. I use it. I'm sticking with it. All right. Great job with the mystery chart. Hey, everybody. Tonight is Tuesday, which means tomorrow, Wednesday

morning, you are invited to an all-new episode of my favorite podcast, Animal Spirits, starring Michael and Ben. Ben is doing a live Ask the Compound Thursday afternoon on YouTube. And then at the end of the week, boy, oh

boy, do we have a very special guest on the Compound and Friends. You don't even know what's going on. I might get a haircut for that. I didn't tell you this. I might get a little trim tomorrow. I want to look my best. So, all right.

Hey, guys, thanks so much for watching. I might grow a mustache. Michael might grow some facial hair. You have two days. Thank you so much for watching. Make sure to leave a review, a rating, whatever it is, depending on the platform. We love you. We'll see you tomorrow. Whether you're just getting started as an investor or you're managing a multi-million dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with

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