The Compound and Friends - The ETF that beat Buffett and Cathie, YouTube’s takeover, CPI and Bank Earnings

Episode Date: January 10, 2024

On this episode of TCAF Tuesday, Josh Brown is joined by Eddy Elfenbein to discuss his active ETF that has outperformed both Warren Buffett and Cathie Wood over the past 5 years. Then, Josh joins Michael Batnick for an all-new episode of What Are Your Thoughts! Topics include: Bitcoin ETFs, what YouTube could be valued at, sentiment, CPI and bank earnings, and much more! Thanks to Rocket Money for sponsoring this episode! Cancel your unwanted subscriptions by going to: https://rocketmoney.com/compound 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. So excited to bring you this evening's new show. We have an all new What Are Your Thoughts segment with Michael Batnick and myself. We get into everything from the SEC's Twitter account being hacked over Bitcoin nonsense. What else is new? We get into valuation, earnings, CPI coming this week. The banks are reporting. There's just a, we do a whole thing this week. The banks are reporting. We do a whole

thing on YouTube. There's so much going on. And before that, a conversation with my friend, Eddie Elfenbein, one of the funniest people in finance, also running an active ETF that over the last five years has outperformed both Warren Buffett and Cathie Wood. And that's an awesome story. And Eddie gives us some brand new stocks to take a look at for 2024 with his all new Crossing Wall Street buy list. So you are going to absolutely love the show. I hope you love it as much as we love bringing it to you. Thanks so much. I want to thank our sponsor very quickly, Rocket Money. Rocket Money is a financial app that helps you track your spending and save money on the things that you're paying for, but you don't even know why. We all have subscriptions, things we've signed up for, things we've forgotten about.

Take control. Now is the time. Stop wasting money on things you don't use. Rocket Money has over 5 million users. They've helped save people an average of $720 a year. That's over $500 million in canceled subscriptions. Go to rocketmoney.com slash compound. Cancel your unwanted subscriptions today.

Rocketmoney.com slash compound. Okay, I'm going to send you to the show now. Enjoy. Have fun. We'll talk to you soon. opinions and do not reflect the opinion of Redholz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Redholz Wealth Management may maintain positions in the securities discussed in this podcast. Okay. Hey, everybody. It's downtown Josh Brown. I'm here with my old friend, Edward J. Elfenbein. You probably know him as Eddie Elfenbein of the Crossing Wall Street blog. Eddie is a researcher, a deep thinker, a jokester, a prankster. No, it doesn't cross over to pranks.

Philanthropist? Yeah. Eddie's an asset manager. And Eddie, every January 1st, sets his new buy list. And the buy list is 25 stocks. And most of the time, stocks are carrying over from the prior year. So it's not 25 new stocks. But it is his list of 25 stocks that he wants to be long for the entire year.

And then the buy list just does not change. But Eddie, let's just give people a little bit of a glimpse into the why behind this strategy. And then we'll talk about some of the names that are in your list for 2024. Yeah, thanks for the intro. I wanted to show when I started the blog almost 20 years ago, I wanted to show investors that you can do very well in investing with a set and forget mentality. You don't have to do a lot of trading. You don't have to be in and out. You don't have to get

well-known growth stock names. You can get a sort of boring portfolio, set and hold it, and be disciplined. And you can do very well with the market. So I set out to prove that by setting up the buy list. We changed it to 25 stocks. What year is this? So this is our 19th buy list. So I guess it was 2006 was our first one. Oh, my God. Yeah. Okay.

And it's live on the website every day for nearly 20 years. And the rule is each year five new ones come in, five old ones get kicked out. So we keep the turnover at 20%. Average holding period is five years. And if there's a lesson I can pass on to people listening is a lot of people say, you really do hold it? You don't make any changes during the year?

And I think it's a benefit because when I sit down to select a stock, I want to say, is this something I'll be comfortable holding for an average of five years? And that's a really, it changes your mentality, how you think about the stock, how you think about the dividends, what you want the stock to do for you. Yeah, you're not looking to just, in a best case scenario, it stays in the list forever. You're not looking for just the one year hold period, it stays in the list forever. You're not looking for just the one year hold period, but that's the minimum. Aflac has been on every year.

Right. What's the worst case scenario when you build a list and force yourself? If this is your discipline, what are you most worried about? Like an earnings restatement or like a shock chapter 11? I'm trying to think like- It's a bad merger. A bad merger. So they buy somebody and the stock just gets taken out for the year.

Exactly. And the thing is, it's not the company you bought. That's the problem. You fall in love with one company and then you find out it's something else. So that can be really frustrating. Okay. Now, if a company gets acquired in March and it's no longer trading by, I don't know how long these things take, September, like it literally

loses its ticker symbol and it's a stock deal, you will hold the acquiring company at least through year end and reevaluate. Exactly. And if it's a cash deal, you'll hold it as cash or you'll pick a new stock. We'll redistribute it among the other 24 stocks. Okay. That's all that's only happened once because usually we're getting some stock. Right. Okay. This last year, we got Veralto from Danaher.

Okay. Yeah, no. So if it's a cash, if it's a private equity deal, company literally gets taken off the market, then you'll just say, okay, this was a 4% position and we'll just distribute this money amongst all the other names. Exactly. We're lazy as fossil. That's the goal. Okay. No, I don't hate that approach at all. I know you have a lot of people who read your site who are professionals and they probably are using you for idea generation.

So they're probably saying like, all right, Eddie has a whole universe of like, I don't know, 10,000 companies he could pick from. These are the 25 he likes the best. That's probably not a bad hunting ground if you're a value-oriented investor. But then you have people who actually just want you to do the investing for them.

And that's why you launched the ETF. Can you talk a little bit about the Crossing Wall Street? I know it's not called Crossing Wall Street ETF, but it has CWS as the ticker. Thank you for the plug. But yeah, so we started the buy list and we've had pretty good returns over the years. So I was asked again and again and again, I love this strategy. I love what you're doing. Can I invest with you? And I had the answer was, well, no, I can't do that. But the stocks are, you can see. So it took a while and I met with Noah Hammond of Advisor Shares, and we had some discussions about this. Is there a possible product? And we said, yes, there is. So it was in September of 2016, we launched it.

I had one of the fun experiences of being able to choose a ticker symbol. I've never done that before, going through all the stocks and CWS was open for crossing Wall Street. So it was lucky we jumped on that. They're traded on the NYSC ARCA. That's the archipelago for those of you

who've been around for a while. Actually, this past April, I was invited to ring the opening bell. So that was a lot of fun to do that. And, you know, we've recently had all-time high for net asset value for AUM. We're closing in on $100 million. I'm so proud of you.

Thank you. Thank you so much. I remember in your first 90 days. Oh, my God. It's terrifying. Well, you know, so I was one of the first buyers of the ETF just because I'm friends with you, and I just said, you know what? Whatever.

I don't care how it does. But I remember you saying, like, all right, I built it. When did they come? Yeah, exactly. No, really, it is a learning process. Another thing, I remember us having conversations. You hear all these talks about all these fees and why do they have these high fees? And I remember there was a meeting.

We were sitting at a table and they were going through all the fees. Okay, the lawyer fees, the custodian fees, the exchange fees. And you really see that the fixed costs are pretty high to launch the fund. You have to charge something because you have to pay all these people. Exactly. In order to wake up in the morning and have the thing exist. And so people say, well, Vanguard is four basis points. Well, yeah, that's Vanguard. Right. Another thing I just want to mention that we were the first ETF to have this

is the fulcrum fee. So that means that the fee is tied to how well we perform. The fee is tied to how well we perform. So if we outperform the S&P 500, I get a little bonus. If we underperform it, shareholders get a little savings. So to get one share of each stock on the buy list, I think it's about $5,000. And this you can get for, I think it's around $58,000, $59,000. And this past year, we just got our fifth star from Morningstar. Very happy about that. And for a five-year performance,

we're in, I think, the second percentile Morningstar assets. So, you know, over the last five years, we've beaten Cathie Wood. She's 100 times larger than we are. We've beaten Warren Buffett, and he's 100 times larger than she is. And so we're this kind of little robo, but you know, I'm really thrilled that we've had, you know, a loyal, wonderful group of subscribers of, of, of investors. And, um, you were, we're doing,

I guess we're up from about 25% last year. So I'm so proud of you. And you did that without being loaded to the gills with Microsoft, Apple, Nvidia. That's not what you're doing. We were MAGA free, Magnificent 7 free. So I was looking at your performance, like I'm looking at a three-year, I mean, it's random. So as of January 5th, your three-year performance, 32.2 versus, I compare you to the Russell 1000. compare you to the Russell 1000. So I think you skew large cap, but you're not quite S&P 500. So 32.2 versus 25% for the Russell 1000. Now there are timeframes in which you'll underperform. That's life. Absolutely. Yeah. Yeah. And that's the, the important thing is that anyone can cherry pick a period of time where they look better or they look worse. They could cherry

pick an index. But I think what Morningstar probably loves about you is the simplicity and the fact that it's no longer a back test. You're actually doing what you told investors you would do from the day that you launched. And that has not changed. And that to me is, I assume to Morningstar as well, that makes it really easy to recommend your strategy. It doesn't mean that it's going to work, but at a bare minimum, it's going to do what you say it does. Yeah. Yeah. Absolutely. And also, I mean, just throw in, this isn't a big deal to me, but like our beta is around 0.9. So even we're doing this with less risk, however you want to measure that. Upside downside capture is probably the way advisors would most frequently quote what

you're saying to their, right? We get, we're shooting, we get 95% of the upside, but only 82% of the downside. That's a home run when you're building a proposal for investors as an advisor. All right, let's talk about the list. So how much turnover do you have coming out of 23 into 24? Is it more than usual, less, or just about average? It's always the same. It's five and five.

This year's a little different because we're selling Viralto, which is the sixth, but that was part of Danaher anyway. So it's always five and five. Okay, so you always take out five names and you always add five names. Right. So you always take out five names and you always add five names. Right. Okay.

These are the five names. The five names coming out are the ones that you have the least conviction in or something has materially changed. Something has changed. Yeah. That's usually what happens. Eddie, will you get rid of a holding where you still love the company, but you just, there are 25 better opportunities.

That does happen a lot. And I've, and I've brought back names before, which sometimes I've stupidly sold, but yeah, it's all, I don't want to say love, but there be some reason why I want to get it. I could love it at a better price. Okay. Do you worry top down about sector weightings and concentrations, or are you bottom up and wherever the chips fall, they fall? I'll go wherever I see something.

I don't have any energy stocks and people say, is that like your OPEC or your thing in the Middle East? Are you bearish on oil, Eddie? Yeah, I know. I just don't even think that way. Okay. All right. Is there a sector where you've just never had holdings there because you just don't know it well enough, or is that not an issue? Well, I would say energy is a good example. I mean, I would go there if I

saw something, but it's not as, you know, I probably have a bias towards a lot of domestic manufacturing companies, probably where I most go to. But I'll go anywhere. All right. So what are the new names coming in? Let me see if I have them. First up is – If somebody has them, it should be you.

Yeah. American Water Works, cool. Cool. And, you know, this is, if I could, you know, a lesson for people listening is not every stock in your portfolio has to be the company that's going to colonize Neptune. It doesn't have to be the next whatever. I mean, it's a water utility. It's a very well run. It's been around for a long time. They have consistently raised their dividends by a good amount, by like 10% for the last several years. They have these big contracts with several U.S. military installations. These are 50-year contracts. No one wants to be the next Flint, Michigan. So, you know, people really are careful about that water utility. Their operating margins are very high, around 30, 35%. I think of this as a stock. This is a player that

can come off the bench. It's not a superstar. It's a dependable player that can come off the bench, get some key turnovers for you, hit some big free throws. It's dependable. It's going to be there for you. What's the dividend yield on something like that? It's a regulated utility. Yeah, it's about 2.1. I think of the low two, somewhere around there. But it's growing. Yeah, and I get frustrated when a lot of these dividend or risk credits raise it by a penny just to keep the street going. They've raised it quite nicely.

Okay. What else is getting added this year? Here's a cool stock. And this is, I like to go for off the beaten path. And this is the Federal Agricultural Mortgage Corporation. Josh, are you familiar with this one? Federal Annual Mortgage. Agriculture. Farmer Mac? Farmer Mac. Okay. Yes, I know Farmer Mac. I'm surprised. This is a company that so many people don't know. And it was, you know, in the 1980s, a really bad time for American agriculture. So Congress chartered this company in the late 80s to be sort of the credit provider.

Is it a GSE? Yeah. Yeah. Okay. The president appoints five of the board members. And they provide, you know, they lend to the lenders of the agricultural community. By the way, agriculture is probably one of the most socialized sectors in the United States. So there is an implicit backing, but not a literal backing from the U.S. government. And in fact,

that happened during the financial crisis when Faramak owned a giant slug of Fannie Mae. The stock fell from something like 37 to 2. Now it's at 190. Yeah. So, and they are the low-cost borrower. It's one, I can't believe it's not Better Know, but it's a cool little company. Also, I like companies that are overlooked, that are really not followed by Wall Street.

And when I say, i mean there are people follow them i mean the large investment houses say what sector is farmer matt far the ticker is agm agm 186 stock is this a financial services company that's what i would say financial services okay all right so what's the what's the thing that makes it go up? How does it grow earnings? Uh, if they're the low cost producer that they, they, nobody can do what they do. Providing making loans to agricultural businesses in the United States. Exactly.

Exactly. No one can get it. They are a hyper efficient operation. They have a, not that many employees. They have, they make a net profit of $800,000 per every employee. And they're going probably about-

That's like a tech company. Yeah. And they're going for about 10 times forward earnings. So it's a good deal. And it's just one of these, it's a cool company. Not many people know about it. I really, I like finding companies kind of off the beaten path. So Eddie, where do you find the story like this?

Is this a screen? And then you say, I never heard of off the beaten path. So Eddie, where do you find the story like this? Is this a screen? And then you say, I never heard of this ticker before. Or what's your process? Well, I have no life, really. That's the short answer. No, I think everyone gets that part by now. It's been 15 minutes. You don't have to worry.

I love what I really do. I remember Josh, you and I having this conversation that, you know, is the Buffett and Munger approach dead? And I don't think it is. A lot of people want to say it is. I think there are those little companies out there that aren't well known. They just get overlooked. You probably can't build the, you know, $800 billion fortune of Berkshire Hathaway.

That probably can't be done anymore. But if you look around, there are just kind of neat companies that get overlooked. And that's what I enjoy doing. Well, so I agree with that. The thing is, Berkshire can't do that with companies that are a $2 billion market cap because it won't affect their returns at all at this size. So they have to do it with Apple. But somebody like you can absolutely do this year in, year out.

And I just found one yesterday. I forget how I came up. Oh, I was running one of my screens. I only care about 52-week highs because I'm just, that's just my persona in a nutshell. I found a company called Stonex. Have you seen this? Yeah.

I never heard of it. It's because it has a different name every three years, but basically it's financial services business for commodity traders. They do everything. They do clearing, they do custody, they do reporting, data analytics. This is a stock that went from five to $70 in the last 10 years. I've never met anyone who's ever said a word about it. Right. So these things were out there. So,

you know, it's just like, yeah, you can build a portfolio of on overlooked companies. They won't all go from five to 70, but a few of them will. Yeah. Yeah.

Here's a, a, another cool one. I don't know if you know, uh, McGrath rent core. It's followed by, I think, two analysts. MGRC, $112.

Okay. It was started by this guy, Bob McGrath. And what they do is it's business to business and they rent like modular buildings. So if you have a construction site in the middle of nowhere and you want an office there, they can do it for you. I mean, overnight.

And it's not just the, the, the, the modular offices, but it's like storage tanks and liquid containment and electronic equipment. They can get out there. Really? Nobody can match what they do. They've raised their dividend. I think, I think they, they have one off year, but it was like 30 years in a row, 30 years of raising the dividend. Every year, yeah. That's pretty impressive. Not one. I think the market cap is around $2 billion.

They IPO'd in, I want to say, like 1984 at $6. It's split, so it's like $0.75. And what did you say, $1.20? Is it that now? I think it's on your buy list, you say the price is $1.12, that once I think it's one you on your buy list, you say the price is one 12 and you would buy it under one 30. Yeah. Yeah.

So that's, that's what it's done. Do you have to be bullish on the, do you have to be bullish on the macro economy with a lot of these smaller industrials or is that not really the bet? That, that's not really, I mean,

of course it helps, but that's not necessarily the case i mean you get the uh the volatility you can get in at a better price and also i mean we're talking about the macro economy there are so many areas of the economy that can be booming or that can be lagging during an overall bull or bear so you know when we talk about- So in TV land, anytime a guest says like they're buying some industrial stocks, the assumption on the part of the host is always, oh, so you're bullish on GDP growth. But it's way more nuanced than that. There are areas of the industrial sector where their stocks do better in a recession actually, or like the cycles don't, these cycles of an individual type of business

don't neatly line up with the global economic cycle always. Or there are spending decisions that are getting made that are regardless of the economy. And I don't think that that's very well understood by the public. And again, like, or the particular financing of the company,

that can be affected by where interest rates go or currency movements. So all these things can be, it's an industrial company, but it still can be largely independent from a lot of those, what we call important variable. All right, so that's Mark McGrath, RentCore.

And of course he was the founder of the band Sugar Ray. That's exactly the connection. Okay, so if you're into Sugar Ray, you'll probably like his equipment rental and storage business. What else you got? Well, keeping with that, we have Rollins. So with Henry Rollins. That's right.

This is another great example. Formerly of Black Flag. Now we're doing pest control. It's just not going the way I initially planned it. But yeah, exactly right. But a good example of something that, you know, Peter Lynch talks about that is companies that do gross things can really be good businesses. Rollins owns Orkin.

This is the biggest pest control company in the country. They kill bugs. Yeah. And they talk about an important variable when you look at a company that has a strong moat, when people talk about that, is pricing power. Not necessarily that you'll use it, but that you have it. And when people have rats in their house, they're going to say, I don't care what I have today, but kill them all.

100%. You're also, Bloomberg recently, they called, this is Bloomberg, not me. They said, Rollins is the Nvidia of pest control. And they talked about that. That's how they get you to click the article. I guarantee that was the headline. I can't believe that Bloomberg would stoop to such a pedestrian. And I hold them in much higher degree.

But, you know, the CEO was talking about, like, these people relocate from, like, Maine and they'll go to Florida. And suddenly they see all these bugs and they freak out. Lizards. Yeah. And so they're calling they freak out. Lizards. Yeah. And so they're calling up Rollins. Huge business. A couple years ago, it was a broad-based manufacturer, but they sold off everything but Orkin,

and they have some other names, but it's Orkin for overseas. Yeah. I think since 2000, they're up like 80-fold. This is a $42 stock that on your buy list, you say you would buy it under 50. Okay. Is this a, is this a bring back or is this your first time in the stock? This is my first time in it.

Okay. Is there a price that this could trade to between now? If it's the Nvidia of pest control, clearly it belongs at $400 a share. If it were to have the best year ever and end the year, I'm just making this up. I'm not saying it's going to happen. Let's say it doubles this year. You now have to go into 2025 and say, hey, I still love the company, but I got to take it off the buy list because I don't think the fundamentals justify the run it's had. That's probably a tough conversation you have to have with yourself because

you're the investment committee. Yeah. And on top of that, so all the new positions, they're all equally weighted as of January 1st. So I'm doing a lot, you know, it would be in that case, a lot of selling just to get everything. Exactly. Exactly. It's a tough decision. selling. No matter what. Exactly. It's a tough decision. I try to make any decision not purely on valuation levels because that I think is so often a mistake. You really want to see, does the business change? Because the valuations come and go. This is the business we've chosen

as the godfather. These things, they go in big waves. So sometimes you'll be rewarded. Sometimes you'll be punished. But if the company changes who they are, that's not coming back. The, uh, one of the hard things for me is always position sizing with my own, with my own investing. Like I, of course, I always feel like I don't own enough of the ones that are going up. So you are imposing this equal weighting on yourself to keep the discipline. So you don't go run away with the circus. The next time you have a stock that's like breaking away and you don't have that temptation to start selling other things and doubling up on that. Exactly. Exactly. It for, it forces the discipline on you, which I think, you know. But you'll let it run through the course of the year. Are you doing, how many

rebalances are you doing during the year? None. Zero. Zero. That's really, okay. Josh, I do nothing. I am a hero of American labor. I can see, I can see. No, but so, all right, this is really important. A lot of people think like rebalancing is always good because it's discipline and blah, blah, blah. But if you rebalance too much, you will throttle your returns. You'll constantly be cutting back your winners. So at the beginning of the year, once a year,

that strikes me as the right amount. If you're rebalancing quarterly just to like imitate some index, to me, that's a terrible way to manage a portfolio of individual stocks. Stocks move in streaks. You want to be there for the streak. Right. And so often, the best year of owning one of my stocks is like the third year.

That's what's happened so often, that you get it, you're excited about this new company. Oh, that's interesting. And it just sits there. And, you know, there's this saying, sometimes the best stock to buy is the one you already own. And that happens time and time again. And just out of nowhere, you know, my friend Louis Navalier said, you know, they can be like rabbits. They're just sitting there, not moving at all. And then suddenly they just, you know, gallop off for a a huge gain what's the fifth one i think we got four ethanol and they are talking about boring uh aph uh 90 94 dollars

a share makes electrical electronic fiber optic connectors inter i don't know what any of these things are yeah tell us what it's it's cords yeah i mean yeah that's it they they make cords uh cords are gonna be big this year they were i think they're gonna be as big as they were in in in 2019 i really a lot of people were saying we're not gonna get back to the cord you know environment we had back then but i think we will but you know there's one of these companies, I mean, everywhere you look, their products are used. Not well-known name. Look at the long-term chart.

It's just a straight logarithmic line upward. This is the one I owned. I got rid of. I was stupid. I should have held on to it. So I'm asking for repentance from the company. Well, you know, what's, what's interesting about these types of companies is you let you say, oh, they make coaxial and flat ribbon cables who gives a shit. Well, the thing is in a lot of cases, this is the last company left making these things, which means pricing power, which means lower SG&A,

which is good. It's good to be in a business that no one's even challenging you in anymore. Exactly. Exactly. Right. Okay. What's, before we wrap up here, so you're in Abbott Labs. You're in, see, a lot of the companies that we mentioned just now might be a little bit obscure, but you're in FactSet Research, which people know.

You're in Hershey, of course. Miller Industries is the, what is that? Towing and recovery equipment. That's the trucks? Yep. Yep. Tow trucks. Great little style.

That's our smallest by far. That is a special place. Otis is the elevators. Polaris is the snowmobiles. So Stryker is a big company. Stryker, wonderful company. Moody's has probably been one of our best that we've ever had. Sure.

It's a little bit Berkshire-y to me. It's got that. All of these are companies I could picture Buffett buying. Josh, I don't mean to call you on this, but I like to say Berkshire is a little bit Elfenbein-y. Yes. That's how I think of it. Many people are saying this. Many people are saying this.

Many people are saying this. Is that accidental? I know he's somebody that you've always been inspired by and you've probably read as much as anyone about Buffett and Berkshire. So it's, I don't want to say homage, but you've definitely learned some tricks from them. It absolutely is.

It absolutely is, yeah. You should put that right in the name of the ETF. You should call it the Buffett ETF. And, you know, it's probably a billion-dollar product. Just see how it goes. It's probably a billion-dollar product. All right. Hey, man, I'm so proud of you.

Thank you. I'm really happy to see that the product has caught on. You're doing great. You look great product has caught on you're doing great you look great great stories that you're invested in you've kept the discipline most importantly you didn't go chase NFTs two years ago

right? you didn't chase disruption you're doing what you do and people appreciate it we're consistent, we do it and thank you for all your support and all the guys at Ritholtz. You going to come up to New York and get some lunch or something? When am I going to be invited? Okay.

Fair enough. We'll figure it out. All right, guys. So visit crossingwallstreet.com slash buy list to read about Eddie's 25 favorite stocks for 2024. Make sure to follow Eddie on Twitter. If it still exists by the time this goes live, Eddie is one of the wittiest of all witty people in financial social media.

So what are you, at Eddie Elfenbein? At Eddie Elfenbein, yep. Okay, all right. Hey, Eddie, really appreciate it. Guys, thanks so much for listening. We'll check in with you soon. Now stay tuned for What Are Your Thoughts? Where's the music at? What is happening?

There you are. Scared me from it. I don't come on without the music. Right. What up, gangsters? Gangsterettes. Welcome back. All new episode of What Are Your Thoughts?

We are live on YouTube. It's youtube.com slash the compound RWM if you're listening to this. Want to give a couple quick shout outs here to all the live participants in tonight's show. Todd Polish? Polish? Roger's here. Sean's here. Tate R.

Tate R is calling for five F-bombs. I'm going to disappoint you tonight, Tate. My grandmother's listening. Chris Brown. Nick Kaspersky is here. Tim F. There's a lot. We had a lot ofaspersky is here. Tim F. There's a lot. We had a lot of people

in the chat tonight. So excited. Some new names too. Aaron, Aldo, Mark O'Connell. Hey from Tampa. I was just in Tampa.

Had a great time. All right. We have a sponsor. It's Rocket Money. Michael, say some nice things about Rocket Money. I'll say many nice. You know, so I've

said this before and I'll say it again. I love seeing the large transaction detected because it lets me know where my money's going. Today, I got one. It's like the opposite of Christmas. Ooh, where's the money going? You know where it was? Town of Hempstead. What do you mean? You have a subscription... It's not a subscription though. It's just like a one-time charge.

Oh, no, no, no, no. I do pay for Rocket Money. I'm subscribed to Rocket Money. No, no, no, no. To the town of Hempstead, I'm asking. I don't have a subscription to the town of Hempstead. What are you, nuts? I pay my taxes. Okay. Just making sure. So what is Rocket Money? It's a personal finance app that helps you find and cancel your unwanted subscriptions. And I had too many of those. Helps you lower your bills, monitors your spending. They have over 5 million users and they've helped save members an average of $720 a year, over 500 million in canceled subscriptions. Not bad, not bad. So if you are wasting money on things that you don't even know about, like, are you subscribed to Peacock? You don't even know about it? Maybe. Go to

rocketmoney.com slash compound to cancel your unwanted subscriptions. Although you are going to want that. You are going to want Peacock. Chiefs Dolphins. I just, honestly, I just assume I'm paying for all of them. I should get this for Sprinkles. I feel like she'd be into this because she does all the bill pay stuff. I really do. Yeah. You know what I mean?

It shows you your upcoming subscriptions, all your bills, everything, whatever you're paying for. I need a thing where like everybody agrees that we're going to go to something and then one person buys the tickets and then says okay here's my venmo everybody pay me you know 120 dollars that's called the text message that's called no because then like a week goes by and some of the people did it and some didn't and you already oh like a reminder i need like a yo venmo your boy because you said you were in. You said you wanted to go to Backstreet Boys reunion. What the hell?

Send Josh the money. Right. So that's what's going on. I do like that. We have to get to this tweet that the SEC is now saying their account, their Twitter account was their ex-account was hacked. And so they sent an ex that said, here it is today. I don't even know. I don't, I don't even know what's going on there today. The sec grants approval for Bitcoin ETFs. They

use the hashtag. So I should have, I should have known this is fake. I'm usually smarter for listing on all registered national securities exchanges. There's a fake Gary Gensler quote, exchanges. There's a fake Gary Gensler quote. And it looks like as of 4-11, there were 1.1 million views on that tweet, which means it like immediately. And then what happened next? Gary Gensler himself, the chairman of the SEC, came out and said the at SEC gov Twitter account was compromised and an unauthorized tweet was posted, the SEC has not approved the listing and trading of spot Bitcoin exchange traded products. So that tweet came

out at 426. So it took them a minute. But of course this happened. Of course. We are in the dumbest timeline. Do you have a theory? Not who did it, but how it happened. Do you have a theory? not who did it but how how it happened do you have a theory i do we'll go ahead okay my original thought was oh they were they this was a scheduled tweet for

tomorrow right but then i said no way this is they don't schedule tweets they don't schedule tweets they probably figured out somebody whose employment is involved. Like they probably figured out through an employee who's like doing social media for the agency. And they probably just stalked this guy or gal and hacked their account to find out their password. The thing is, though, if you were doing this and I'm guessing the hackers were doing it to make money, why would it – you don't think that's true? No. But if you were going to, you would say that it was rejected and you would be short Bitcoin because once it's approved, you don't know what the reaction is going to be. You know that if it was rejected, that these things would have cratered. So you think that there's somebody

who put out the tweet immediately, did some sort of a short sale on some instrument, and then waited for the SEC to come out and say, this was fake, it wasn't us? No. I'm saying if you were going to hack

their Twitter account in order to make money, what you would have... What? What are you giving me the one? What? You interrupting me? No, dude. What happened? No, Graham Thomas, Graham Thomas called my cell phone and knocked me out of my headphones. This is why you amateur. I know. I know. Thank you for reminding me. You're right. Turn your focus on air. And honestly, Graham is

fired. Graham is fired for not knowing that we do this every single week, same time every week. Anyway, if they were trying to make money from hacking the account, they should have said that the approval was rejected and they should have been short Bitcoin. Interestingly, though, now we know that it would have been a sell the news event. And it was only a little sell. Like the first candle ticked down to 44, 750. So not major, but now, now, now, now what is it going to be? You know what? It's, it's a really good point. And my assumption, like, oh, this was the tweet they wanted to send is totally invalidated just by like the wording of this. They didn't even, first of all, the SEC

does not do this. Let's, let me, let's start there. If they put out news, they put it on their website. They don't go to Twitter first. Okay. That's one. Now, most people wouldn't know that or be aware of that. Or most people would assume I don't need to check the website because it's on Twitter. I assume it's already on the website. So that's one. The second thing is the SEC doesn't like announce approvals of ETFs, like in a tweet. So why would they make an exception for this? If anything, they want as little fanfare around this as possible. It's like a grudging approval. They've made these people grovel for 10 years. So I don't know, 12 years, how long has this been going on?

So the whole thing, I should have, as soon as I saw it, I should have said bullshit, but I didn't. And that's the takeaway. That's the lesson. This is how easy it is to manipulate any market, any security, whether using Twitter or anything else. People are prone to just believe what they see as a first reaction. Do you agree with that? Oh, absolutely. I believe everything I see on the screen. Even brilliant, experienced people like me, I saw it and my first instinct was, oh, cool. Let's add it to the show.

No, but listen, but so now I feel like the guy in The Princess Bride, who's like switching the poison a million times about, well, now are they going to sell the news? Or now because they almost sold the news, they're going to now buy the news? Maybe the SEC likes that better. That's what they want you to think. That's what they want you to think. We're getting notification that CNBC reported the tweet as news and then five minutes later had to react it. That's coming from Giancarlo and Patrick both telling us this. You never fight a land-worn agent.

That's my big takeaway. I mean, this is – so now they have to, I think – this is like so – this has got to be so annoying for the staff. They have to now figure out what happened and tell everybody, I think. Like there's a lot of transparency. Could there be any other way? Could there be any other way for crypto? This is the perfect way for anything crypto to go through the approval process at the 11th hour. Have there be some sort of a hack? It could not be more poetic.

It really couldn't very, very on brand. All right. Congrats to crypto land. You guys never fail to disappoint. This is a sort of big week. We have the start of earnings season. All the banks are reporting on Friday, or many of them. And we're going to get an inflation report. Let's just start, though, with last week very quickly. You got a surprise upside in the December jobs report. Apparently, it wasn't enough of an upside surprise to rattle the market

because we recovered from that pretty quickly. I think if this had happened three months ago, it would have been really problematic for the S&P. Well, rates had a decent move after the report and since then, they've held. Yeah, but stocks didn't get beat up. Stocks digested. Let me ask you a question. Go ahead. Sorry. Before we get to what the Fed's going to do, I don't know why in my head I thought the next Fed meeting was in March, but there's one in January. Yes.

I'll be on TV, I think. I'm not sure. 216,000 jobs added in December. That's 40,000 more than the month prior and ahead of what Wall Street was expecting. Unemployment rate stayed at 3.7 which is obviously very low average hourly earnings which is really important right now um increased 0.4 monthly 4.1 year over year economists were looking for 0.3 and 0.3.9 we're splitting hairs a little bit

but directionally it was a little bit hotter on the wave side than we thought. A little warm. A little warm. March rate cut odds fell immediately after this came out from 88% to 66%. So I thought that was kind of interesting. Those are the rate cut odds. so the market did somewhat reprice although still overwhelmingly it appears that traders do not believe there's a a sit still in march or worse yet another hike so why are we talking about march because there's one in january i think because march is the targeted quote-unquote

first cut understood right because it's always been jan, they're still expecting a pause. I think Goldman Sachs or UBS or some big firm started by timing when they thought the first cut would be. And the consensus started to settle around March. That's why they're watching that month. John, we have, this might be a few charts ahead, but the CME FedWatch tool, the meeting probabilities, oh, your money. You're so money, John. You don't even know it. charts I have, but the CME FedWatch tool, the meeting probabilities, oh, your money. You're so money, John. You don't even know it. So here we go. So there's the January. We're at 525 to 550 right now. And it looks like that's basically been decided that they're not doing anything in January. And then it looks like just one itty bitty baby cut in March. As of now.

Maybe that's why stocks didn't have a bigger reaction because there was no indication that January was a live meeting, I guess. And I know the Fed would say they're all live meetings, but they're not. And all of those numbers change with every report. If CPI comes in hot on Thursday, then those— So I was going to say January could very quickly become a live meeting if CPI comes in hot. So let's talk about it. We got a live one!

Got a live one. Thursday, we get CPI, Consumer Price Inflation Index. And then the next day, these are for December, by the way. So this data already comes out a little bit stale. These aren't real time. And then the next day, Friday, we get December PPI. And this is coinciding with the reports from the banks. It's going to be a lot of action this week.

And this is coinciding with the reports from the banks. There's going to be a lot of action this week. CPI is expected to increase 0.3% month over month for December and 3.3% year over year. November's monthly increase was 0.1% and 3.1%. So it's actually a little bit hotter. Yeah, 0.3 sounds like not nothing. No, it's not nothing because you have to annualize that shit you know what i mean all right let's take a look at this so this is cpi on top and ppi on the bottom cpi i think is the more market moving

number typically uh these are not big increases or anything like that. But, you know, it's about expectations. It's not about absolute numbers. Right? Okay. Anything left to say on this? No. Going in the right direction. Bank earnings start Friday.

JP Morgan, Wells Fargo, Bank of America, BlackRock, and Citi all on the same day. Why do they do that? Always. I don't know. Why are they trying to get all that in in one shot? Somebody's trying to hide behind someone else. Man, JP Morgan looks like NVIDIA. JP Morgan is the NVIDIA of banking.

I have always said this. So JP, here's the deal. We have a chart. JP Morgan's revenue is projected to grow 13%. No one else is growing revenue. It's wild. Look at this. It's dope, right?

They are, the bank's recent updates suggest, all right, this is Bloomberg. The bank's recent updates suggest it could surpass its net interest income guidance for the period. That would open the door to a possible lifting of its $80 billion midterm target for the metric. Net interest income is literally the lending book.

Like, JPMorgan Chase does a lot of stuff. Net interest income is, like, how much they're making on bank, like, traditional banking. Is that the best way to explain it? Deposits, yes. Deposits, right. Net interest income at Bank of America and Wells are both going to contract,

but the story there is improving asset yields should begin to offset funding cost pressures. You know, I have a question. Please. So, we got, I think, our first firing in the NFL today. Two. Mike Vrabel was like from the Titans.

Good coach. I don't know Rivera's gone Smith is gone from Atlanta so anyway anyway if Jamie Dimon went to Wells Fargo could he turn that back around and if so like

how long would that take it's a Jamie Dimon it's a Jamie Dimon For him to be traded to Wells Fargo. It's a Jamie Diamond protege at Wells Fargo. It's Charlie Scharf, I think. He's a Diamond protege. So it'd be weird. It'd be like Bill Parcells replacing Bill Belichick

as a head coach. So I don't, that one doesn't look likely. I think if Diamond's going, it's not to go run a shittier bank. No, I know he's not going anywhere. I'm just saying. I think it's to be the treasury secretary. If he were at Bank of America, would he be able to turn Bank of America – would he be able to recreate the success that he had at J.P. Morgan?

Yeah, I think inside of three years. I think because it's culture and he sets the culture from the top down. And Bank of America is not even doing badly. It's just not as good as JP Morgan, right? Citigroup is going through a transformation. They have a CEO named Jane Frazier, and she's firing anyone or anything that even looks at her wrong. And the street loves it. So Citi is a story stock.

Piper Sandler noting that executive comments at a December conference implied weaker than expected results. Net interest income is projected to be flat after six consecutive quarters of double-digit expansion. That's not good. Nobody's too excited about Citi. Yeah, but the stock looks really good. The stock looks good. I'm saying the expectations are low, which is what you want. You understand?

Okay. I asked you to take a look at BlackRock. I don't really follow this company as closely as maybe I should. This is the largest asset management firm on earth. Certainly one of the most important companies in our ecosystem, the financial advisory and wealth management space. Did you see the news today? I don't know.

What is it? I'll tell you if I saw it. No, you didn't see it. BlackRock will dismiss about 600 employees or roughly 3% of its global workforce. That's good. We like that. Here's a, no, we don't.

Here's a quote from Larry Fink. We see our industry changing faster than at any time since the founding of BlackRock. The executive said that the ETFs have become the preferred vehicle. Okay, of course. And perhaps most profound, new technology is poised to transform our industry

and every other industry. So whatever, they're letting, I don't know the last time BlackRock did layoffs. That's meaningful. They have a lot of people, dude. I mean, they have a lot of assets under management, but they have a lot of people. Nine trillion? Yeah, I mean they have a lot of assets under management but they have a lot of people nine trillion yeah i know they have great they have great people almost everybody we've

ever dealt with at black rock almost i say almost because you know the guy i'm talking about but in general almost everyone we've everybody at black rock's been maybe the wholesaler from like eight years ago i'm not no names the guy the guy who was yelling at you to watch your duration or whatever. No, that wasn't BlackRock. That wasn't BlackRock. It wasn't BlackRock. I do. I know exactly what you're talking about.

That was hilarious. Um, all right. Let's look at some of the charts though. So watch your duration. God damn it. He's like yelling at me. Like this is like, this is a long time ago. It's like 2016.

Okay. Uh, wait, can I just set the set? I want to set the stage though. Yeah. Here's the problem at BlackRock. Net flows are expected to slip 58% versus the same period a year ago, which is a much more moderate decline compared to what they reported last quarter,

which was an 85% plunge in net flows. So the analyst is saying, while large client redemption and fee rate pressures made for a tougher operating environment last year, the outlook for asset managers in 2024 is turning more positive, potentially aiding flows. So that's the setup. Last year was just, look, last year,

everyone's competing against the 5% dollar. How many times did I say that to you? All of us. We were all competing with cash. And BlackRock, the biggest asset manager in the world, is certainly no exception. So 2021, I mean, obviously, the pandemic boom was massive for them. Net new flows at all-time highs. And so this is their revenue.

So yeah, they're off their highs. They break down. This is kind of weird how they break down their business. So if you look at like client type, they break it down by institutional and this is sovereign wealth funds and pension funds and all of that. ETFs are a third of their business. This is just in terms of AUM. And then retail is another 10%. Can I ask you a question? Yeah. I don't understand this. Where does wealth management or like the wire house channel, like where does, let's say Morgan Stanley go? Where does Ritholtz Wealth Management go? Are we in institutional? That's an ETF. Oh, we're in ETFs because we use their ETFs.

What if we use their SMAs and not their ETFs? Then that would be institutional. Are we then in institutional? Yeah. They should change that reporting. It's weird. It's been like this for a long time. It's odd.

Try it back on. You know, let's go to the next one, actually. So look at retail. Now, this is, I'm guessing, things like SMAs and some of their active mutual funds, which obviously have fallen out of favor. Oh, shit. It's a nonexistent business for them at this point.

Well, it's small. It's 10%. Yeah, it's 10% and shrinking, it looks like. 10% and shrinking is nonexistent. Yeah, not good. Give it like versus the size of this company overall. So total is on the top left. And you could see just decelerating net new assets.

Last year was really hard. OK, so then that's a good setup, though, for this year. Really good setup. Look at the chart. The chart looks really good. Do we have that chart? Do we make that chart? It's OK.

I didn't put the chart in. The chart looks really good. OK. Describe it to me. Now, how far off the high is BlackRock right now? I'm just eyeballing it. Let's see. 15%. Not that high. Not that far. Okay. All right. Looks good. I will be following this with great interest, Michael.

I want to do some more bank stuff. I grabbed some stuff from Belsky. Not all banks, it's 18% off its highs. Not all banks are created equal. John, can we run through some of the tables in here? Let's look at, no, no, no, we could skip this. Let's, all right. I just want to, just real quick on this. This is from JP Morgan's Guide to the Markets.

Look at the exposure. Just focus on the left-hand chart. Don't worry about it. We skipped a whole bunch of stuff. That's okay. The tables, you don't want to do it? Okay. No, I do, but I want to do this first. All right. The main difference in terms of asset exposure by bank size between the top 25 banks and the smaller banks, look at the commercial real estate book. Holy moly. 44% of the exposure of small banks is to commercial real estate versus just 13% at large. That makes sense to me. I probably would have guessed that.

You're surprised by that? Yeah, I am. Okay. They're about the same. Small banks and large banks are both like 22 to 24 ish percent residential real estate that's exactly what i'm surprised by that's exactly what i would have expected actually you know what never mind now that i think about it i'm not i'm not totally surprised that consumers have more exposure to the to the jp morgan's of the world you have it backwards it's jp morgan has more exposure to the consumer that's credit credit. You said it. You said consumers have more exposure to JP Morgan. That's credit card. So like, like for the most part, so small banks are not issuing visa cards and chases.

So that's, that's that. Put that back up real quick. Chart back on. CNI loans are fairly close. That's like construction stuff. I don't know what other is. What do you think that is? You know, just like other stuff.

It's a big difference though. 19% of large bank businesses quote other. So- Other is mind your business. Others don't worry about it. Maybe Wall Street stuff. Don't worry about that. I want to look at some valuation stuff. This is from Belsky at BMO. So others, others, others mind your business. Maybe wall street. I want to look at some valuation stuff. This is from Belsky at BMO.

So not all, not all financials are created equal. Like look at, and we'll talk about why in a minute, look at the valuations that you could get these big banks for really nothing. 10 times forward, 10 times trailing. Well, there's a reason. There is ailing well there's a reason there is a reason there's a reason they're not great they're not great businesses like they're really they're highly regulated my argument i what i've said about the banks in the post gfc period is that we've turned them into regulated utilities they just happen to be yeah they just happen to be um

well here's why involved in, not electricity or water. Look, they just, they are not, JP Morgan and a few others aside, they are not nearly the dominant money-making kingpins that they were prior to the great financial crisis. They have been delevered dramatically. A lot of the businesses they've been driven out of have now been taken over by private equity, private credit, hedge funds, all sorts of other types of structures, mostly funds, where they're willing to take risks that banks are no longer able or willing to take. And that's why they look more like regulated utilities than they look like corporations. That's why they look more like regulated utilities than they look like corporations.

And there's nothing wrong with that. It's okay. But so that's the new business they're in is just being bulletproof. And that's why JP Morgan went from 120 to 170 last year and the other banks didn't. JP Morgan is considered to be bulletproof. And that is the primary attribute you can exhibit as a publicly traded bank. I really like the setup for banks. It's been the last time financials were the leading sector was 2012. John, quilt on, please. Yeah, they were almost $0. These were penny stocks in 2011, so that makes sense.

It's been a long time. And I would bet on financials being the leading sector, what sort of odds would I need for the year? I'll take the other side. Plus 600? Hey, do you know that like 2012 Bank of America was $6 selling private instruments to Warren Buffett? Like it was, when people forget,

there was this echo crash in the financials in 2011 when it looked like Europe was going to wreck them, interestingly. And these banks in 2012, the setup was incredible. I don't think that's the same setup right now. No, you know what? I'm sorry. I take that back.

Not plus 600. If there are 11 sectors, Yeah. like what would the odds need to be for you to pick the banks to win? I think that they're going to finish in the top five. I like the setup a lot. Top five sector out of 11? No, if you were to pick for,

you're not a betting guy, but in other words, what I'm getting at is the odds that you would need. How much money do I want to put up? Because obviously my bet is easier. I don't have to get them at number one. I just have to make sure they're number two through 11. That's an easier bet.

So would I be able to put up – would I put up 300 to make 100? Like that kind of thing? Let me think that over. But the opposite. Right. But let me think about it. Let me think about it. I do like banks this year.

They look good. Okay. Well, I'll let you know Friday what I think about it. Let me think about it. I do like banks this year. They look good. Okay. Well, I'll let you know Friday what I think of that. I'll let you know Friday by 9 a.m. what I think about that idea. Did we want to look at some of these performance charts or are we done? We can skip it. Skip it? Okay.

All right. I don't really have anything, but I want to talk about earnings overall. John, could you put this Wall Street Journal chart up while I talk? So analysts expect companies in the S&P 500 to report a second straight quarter of earnings growth. Profits for the fourth quarter are projected to have risen 1.3% from the fourth quarter a year earlier. So not bad.

That's down from the 8% profit growth analysts had projected at the end of September. For all of 2023, Wall Street now expects earnings grew 0.8% from 2022. So in other words, we get these Q4 numbers, we will now have the official tally for all of last year. One of the things that's interesting that's going on, chart off, this year, analysts are looking for profits in the S&P 500 for 2024 to be up 12% full year. That's fact set. But there's some question about whether stocks will rally,

even if earnings climb, because the S&P is trading 19.2 times those projected numbers. Thank you. And the five-year is trading 19.2 times those projected numbers. Thank you. And the five-year average is 18.9. So even if you get those numbers, we're basically like at the average forward PE. Does that make sense?

There is absolutely zero, and I mean zero information in how expensive the S&P is over the last 12 months and what it's going to do over the next 12 months. Completely meaningless. Completely. Right. But you would concede. No but.

Hard stop. If we were 16 times and not 19, you would still be more bullish. Absolutely. Absolutely. So is there zero information? There is zero information. Or is there not that much? At the fact that we're 19 times Ernie, that tells you absolutely nothing.

Yeah. It tells you nothing. All right, great. I'm glad we spent five minutes on that. I'd rather be 16 to 19, but so what? Okay, you're up. Guess what? I mean, if you're at 60, you can be on your way to 14. At 19, on your way to 21 or 17, who the hell knows? It's meaningless. Lower number better on your way to 14. At 19, on your way to 21 or 17. Who the hell knows? It's meaningless.

Lower number better. Sorry. Lower numbers usually go lower. No, they don't. Sometimes they don't. Sometimes they're bottomed. All right, let's talk about just when people think about Google, I think most

people think about the search engine. Yeah. And don't appreciate just how gargantuan YouTube is and what size it would be. Maybe if they started calling it by its actual name, which is the alphabet. As a standalone entity. And they wouldn't just think of Google, the search engine. I'm sorry. I still say Google.

I'm a traditionalist. Our friend Pierce Crosby tweeted this chart. I still say Google. I'm a traditionalist. Our friend Pierce Crosby tweeted this chart. This is the estimated size of YouTube. And I don't know how fast it's going to grow in the future. But I mean, this is going to just continue to grow now.

What is this? Estimated size in what? I'm guessing billions in revenue. Billions. Oh, OK. So we don't know what the number is. It could be. Who cares? Numbers.

Yearly estimated size of YouTube. It's big. It's got to be dollars in revenue. It's billions of seconds viewed. I don't know. It's a big number. This is a great setup for this segment. All right.

I think this is my number one of the Mag7. And we have a very special guest coming on Compound and Friends at the end of this week that we're going to be able to ask all these kinds of questions of. But I think Alphabet has the most potential upside this year. And it was amazing last year too.

But this is still not at its 2021 high. And I think the fundamentals are much better now than they were three years ago. And I think it's going to take out those levels very soon. I agree. Most of the reason I think that is because of the value of YouTube not being appropriately reflected within the alphabet mothership. Also, there's been headwinds. I didn't get to this article today, but I don't know if it was Axios or somebody said that the ad rep, the ad, uh, industry is stabilizing, which is, which is the business of this behemoth. That's right.

So look, Alphabet is the only, only major media play media company company that doesn't need sports rights. Everyone else has to have sports rights, including eventually Netflix and probably right now, Amazon Prime, just to justify their existence. Warner Brothers needs, everybody needs sports rights. With YouTube, they could decide they want to start bidding for stuff just to turn the whole world upside down and put pressure on their

competitors. But if they didn't, it wouldn't matter. And that puts them in a NFL Sunday ticket. Yes. But they didn't have to, I really don't think materially it would have made a difference because they're not under the same pressure from Wall Street as a lot of the other players. True. It's just like a nice to have. And that puts them in a really interesting position. But I'm telling you, they are going to do more with NFL. They will do more with NBA.

And why would they do that if they don't need to? And it costs a lot. It'll accelerate the transition that's already inevitable from linear and it will hurt their competitors and force their competitors to spend more somewhere else it's a brutal game media and they have media people inside of youtube figuring this out right now the street value is a company at 40 billion um there's a very popular take michael nathanson of Moffat Nathanson last summer.

Wait, hang on, time out. I'm sorry, I'm sorry. How do we know the street value is YouTube at $40 billion? Like on average, based on where the analysts peg it in their reports. That sounds crazy low, no?

YouTube's worth a fifth of Netflix? I think it's about to be re-rated substantially higher. Michael Nathanson says it's worth as much as $240 billion, and I think that's low. He said that last August. He went on CNBC, and he kind of explained, this is him, we think in four or five years' time, YouTube TV will be a bigger provider of channels than Comcast or Charter. We think YouTube TV will get over 10 million subs in four or five years,

and then they'll really be in the driver's seat of deciding what the next bundles look like. Growth in YouTube will help position the platform to sell channels. So they're going to be the hub. Everyone's like, oh, they're going to rebundle all this shit again. Yeah, and guess where? Guess where? It's going to be your Google account. Guess where?

It's going to be your Google account. That's how you turn on your TV, start with YouTube TV, and have access to all of your bundles, all of your channels, all of your apps, all in one place. Google literally has the potential to be the gatekeeper, to be the new cable company. If people understood that better, this would not be worth $40 billion. And then I saw a take that was even more bullish. You know who Laura Martin is from Needham? She's their internet analyst. She re-ups her valuation for YouTube every quarter. So she takes Alphabet's running commentary on what they say about YouTube and then adjusts.

She said two weeks ago, if Alphabet were to spin out 10% of YouTube as a standalone company, it would be worth between 350 and $400 billion. Like if they were to do like a 10%, not a tracking stock, but like here, we're going to spin out the first 10% in an IPO. She thinks it would immediately be worth double what Netflix is worth. Double what Netflix is worth. Okay. I asked Sean to make this chart and he crushed it. Put this up. Isn't this so good? We made this. This is a, this is a Redholds original. This gives you an idea of what the media landscape would look like if YouTube were a standalone publicly traded company. I love this chart.

The only thing is. At her valuation, at Laura Martin's valuation. We need, we need some disclaimers on YouTube estimated, right? I don't want it to be circulating. Well, no, no, no. This is based on what the Needham analyst thinks it could be worth. I understand that.

I'm just saying. Yeah, it's hypothetical. Okay. That's wild. But by the way, it does seem inevitable. I was thinking yesterday, what night was it? I was watching a football game and my TV was spotty for whatever reason. And I said, let me just throw it on. There was a game, it was Sunday night football. So I was watching on Peacock and it was perfect. And I thought that when I was watching the Sunday

ticket, which I subscribe to, it's wild that you get all of this through like the internet on your TV, right? Just the fact that this exists. And it does seem inevitable that this is like, it's, it's the digital versus the linear, which is the analog. It's the same thing with what ETFs did to mutual funds. It's inevitable. I think the, the real battle is Amazon versus YouTube to be the hub for people's watch. So it's the fire stick versus YouTube right now. That's what I think it is. That's what I think it is.

I thought you were going to say that Amazon is going to be competing with YouTube for sports. I think those are going to be the two biggest- That'll for sure happen. They will be the two biggest digital players. I will tell you how you know they're about to get serious and start competing on national- ESPN just did a huge deal with college sports for all these championships. Put that aside, NBA, NFL, these things are all going to be in flux in the next couple of years. And it's like, can you imagine Amazon? Like,

oh, we have to outbid Fox. Like, are you kidding me? So, okay. Here's how, you know, what happens to the regional sports networks? They're a disaster. There are only like five cities that could afford their own mega app with all their local teams. New York, Los Angeles, Chicago. There'll be a few of those. But every team, like Utah Jazz fans

want to be able to watch the Utah Jazz on TV. Where are those deals going to happen? I think Amazon is going to start just creating regional sports network apps for different cities and just locking up the rights from the teams. Like what would stop them from doing that? So I think that'll happen first before you see any kind of major takeover

for bigger events like Super Bowl. But directionally, we can all see that this is where this is trending. I think so. Because right now, if you live in a city outside of your home city and you want to watch your team, there's a bundle. You can't just watch the jazz if you live in New York City. You have to pay for the entire thing. Let me bring this full circle for you and then we can move on. Do you know how Mark Cuban became a billionaire? Do you know, do you know what he built and sold? It was like a thing for streaming basketball. No, it's 25 years ahead of his time. Um, he built, he was building

something theoretically that would allow him. I think, I think he wanted to watch Hoosiers games right in Indiana college hoops. He wanted to be able to watch Hoosiers games. In Indiana college hoops, he wanted to be able to watch it from wherever he was. And that was the idea behind broadcast.com. And of course, we weren't where we needed to be with anything for that to actually be possible. Yahoo bought the idea, I guess, for like a lot, a lot, a lot of money. But we definitely didn't have the broadband or any of that to do it. But that was the idea. And man, man, was he ahead of his time. That's what's actually literally going to happen. You're going to be able to watch your favorite sports teams via YouTube TV or Amazon or some

platform that is digitally native and not a cable company. And let me take this one step further. Not today. I don't even know if it's next year or in five years, but with the Apple vision pro thing, you're going to be able to sit courtside. Like you're gonna be able to watch games with a premium service. From the perspective of somebody sitting courtside. Right. Yeah. Yeah. It's going to be nuts. Yeah. But can I stick my foot out and trip a player like Larry David? Cause then it's not really courtside if I can't. All right, let's move on.

Let's do chip stocks. Do you even understand what's going on right now? No, educate me. These things went parabolic to start the year. CES is the Consumer Electronics Show. It is one of the most important launch pads for technology products for the year to come. Let's put up NVIDIA. Josh, how many times did we say over the last three months that NVIDIA was trading so, so, so well?

Digested all of those gaps higher. Went sideways. Never even threatened to come close to filling the gap or even in the gap. It just digested and then exploded. Credit to- You ain't lying. NVIDIA looks just sick.

So they came out guns blazing. They announced a whole host of stuff with Chinese automakers, like all these design wins in China, which people were really, like a lot of their homegrown automakers, they announced all these strategic deals with, which people were a little bit surprised. And then what else did they do? They announced the RTX 40 super chips, which are gaming and AI related.

And then they announced this workaround for China AI chips, which they have to throttle back their really powerful chips because there are military concerns about how effective their stuff is. But overall, the street obviously loved what it saw. And one other really interesting thing that came out of CES, Microsoft said for the first time in three decades, they're going to change the keyboard on their laptops and desktops.

There's going to be a copilot button. So like copilot is they built this AI into Windows, which is supposed to help you do your work or do what you're doing. They're actually going to have a key that brings up copilot on the computer directly from the keyboard. And they don't do this. They have not made a change to a Windows-driven keyboard in three decades. So Microsoft is really going all in here. Some other stuff from CES. Let's put up,

Let's put up, we have AMD. Dude, AMD is making moves. Look at this, look at this stock. We're long, we're long. Remember, we were on the trade. I said, I'm going to buy this just in case. Dude, AMD had a whole raft of announcements that took people by surprise as well. They announced their Ryzen 8000G desktop chip.

Oh, that was my thesis. The 8000G, there it was. Boom. The significance of this chip is when you do anything cloud computing related, excuse me, AI related, it requires you to access the cloud. And sometimes there's a wait

and sometimes it's faster, sometimes it's slower. They have a chip now, they say it's the first one ever that's going to go into a desktop computer that can handle AI-based tasks without connecting to the cloud. Native to your PC, you're going to be able to do certain AI workflows. This is a pretty big breakthrough. It makes the PC all of a sudden a lot more important in the new age of computing. Because what if the future of AI is some of the stuff your computer is handling and some of it's in the cloud and it's just better distributed that way? Pretty powerful. Now, imagine you're doing AI related stuff where there's privacy concerns. powerful. Now, imagine you're doing AI-related stuff where there's privacy concerns. You don't necessarily want to send those workflows to the NVIDIA cloud, let's say, or Amazon's cloud. This is a way that you can have that stuff stay close to home right on your own computer,

your own server. So this seems like it's a pretty big breakthrough. And I guess they're beating NVIDIA to market with this, or I don't know. But people seem pretty excited about it. Let's put up – we have one more. We have Arm. I was hating on this thing when it came public. I might have to change my mind. They are not like a huge innovator in this space, but they have the resources to become that. This company was almost bought by NVIDIA, Chardoff, Arm Holdings.

And the antitrust restrictions just made it impossible to do the deal. And so SoftBank floated it as an IPO anyway. Dude, if Arm Holdings gets big enough, that could lead SoftBank to fuel us to the next bubble. I hope so. I mean, that's what I'm hanging my hat on. Anyway, this was an incredible week for chips. All of these stocks went up 5%, 7%. And that's after being up huge last year.

This is just going to be a year of AI breakthroughs, announcements, new products, new hardware. It's just so exciting to be watching this in real time. Do you agree? What are your thoughts? I completely agree. You know, like years ago when I made the reasons to sell chart and I tried to invert it and I did like reasons to buy and I was like, uh, yeah. Like their AI, it was an actual, like November of 2022 was like a holy shit buy. It's the only time that I could think, and I guess the weight loss drugs too, but it is super exciting.

I was talking on- You should have said AI, bitch. That's a reason to buy. I was talking with Ben on Animal Spirits about somebody threw out this idea. What if Apple, who has been conspicuously silent, they really haven't said anything, what if they come to market with something? Can you even? And I don't know how to handicap that, but what if they do? Because they're not

getting any benefit of any of this stuff. Yeah, they've made some noises about AI, but they haven't done a product release or something. But can you imagine? Yeah, no, I can imagine and I think they will, especially if the stock price falls. That is not at all anywhere near the price of the stock. So yeah, chips are on fire. It's hard to be bearish when the biggest and best companies in the world are doing all of this exciting stuff. That's a great segue. That's a great segue. Are stocks expensive? That's a great segue.

That's a great segue. Are stocks expensive? So I know I said earlier that it means nothing over the next 12 months, and I stand by that. And I'm not even sure that it means anything over the next three years or five years. But nevertheless, we like to talk about how rich or cheap stocks are trading. And my opinion, are stocks expensive? No, not really. This chart comes from, looks like a Yardeni chart. It is. So the red line, for those of you who are in audio only,

this is the forward PE of the mega cap eight. And interestingly, like it's 28 times the forward P of Nvidia has come down dramatically as they've blown out earnings. The forward P of Nvidia is 40 times. I don't know. This is crazy. Obviously it's not cheap, but nor should it be. Nor should it be.

Why would it be cheap? If you strip out, if you look at just the S&P 500, it's trading at like 19 times forward earnings. But the S&P 500 X, the mega cap eight, it's 17 times. So it seems perfectly reasonable. And if we're just looking at one metric, of course, it doesn't tell the

full story. So Belsky at BMO has a valuation composite where they look at the S&P 500, the PE, the forward PE, the price to book, price to sales, and inverted dividend yield. And it's sort of in the middle. I don't know. Not crazy. So what does the y-axis mean? So that's a z-score. It's pretty technical. I'm not sure you would understand.

This is basically comparing it to its previous self. OK, got it. So on a scale of its own history, it's not terribly expensive. We've seen, we've seen it much more expensive is, is the point here. Yep. Okay. Yeah. I, I don't look, I don't think like, I don't think like this year, the bear case is valuation. I just don't hear the bears screaming about valuation, maybe because that particular complaint has made them look like idiots for so long, so many times. But no, at 21, it was real.

It was in the 2020 bubble era. Shit went crazy. And that was the bear case. Even good stocks got way ahead of themselves. I agree. They were right. So yeah, at extremes, valuation matters. When you're sort of floating in the nomad's land, there's a great chart

from Fernando at 314 Research. So he said today, the median stock is only a few percentage points away from its value at the time of the S&P. OK. So the blue line is the median stock. And as you can see, very close to an all-time high. However, if you go down to the 25th percentile, a quarter, they're like 25% off its highs. And if you go down to the bottom decile in terms of stock performance,

there's a lot of stocks that are still 50% below their highs. So if we do get a broadening out- When is it not? Wait, I'm sorry. I'm sorry. I know we're going to hang with Fernando at some point in the future, so we'll ask him this question in person.

But when is it not like this? No, no, no. This is extreme. It is? Okay. So I could be wrong. I don't know. I haven't done the work.

This is extreme. I would say that if you looked at the spread between where the median stock is from the all-time high versus the bottom decile, it's probably not a 50% spread. I guess I wouldn't know. Like I would guess that maybe it could be. Not all the time, but a lot. But maybe, I don't know.

So anyway, if the rally continues to broaden out, I would not fight this tape. And we'll see, but earnings season could change everything. Just on the basis of how far away, the 10% percentile, these are the bottom 10% of all stocks by performance since the high in 2021, are an average of 45% off their highs.

Correct. And you're saying that seems extreme. Okay. Yeah, I guess so. So the gap between the median, because the blue line is at the top, dude. It's the median. Correct. And you're saying that seems extreme. Okay. Yeah, I guess so. So the gap between the median, because the blue line is at the top, dude. It's the median. Yes. So the gap between the median stock

and the shittiest stocks, it's dramatic. Okay. I'll give you that. And that actually does sound, that does sound extreme to me. Now that I understand what we're looking at. It takes me a minute with some of these charts.

Asset class returns. Ben Carlson did his quilt. He does this to start every year. I love it every year. This incorporates 2023 numbers. So I just wanted to kind of go through this. Thank you, John. Well done. So he's looking at not only 2023, every asset class and where it landed on the quilt, but then he does the 10-year look back and averages the last 10 years of each asset class. So let's just focus on last year. The best performing asset class, large cap stocks, most people would have guessed that. That's 26.2%. International stocks up 18%. I don't think most people are aware of that story. JC definitely is, as people who watched the show last week know. Mid cap up 16, small cap up 16,

REITs up 12. Equal weight up 10% last year. Merging markets, it says EW. No, that's not right. I thought equal weight was up like 18%. Maybe he's doing small caps and large caps, dude. Maybe he's, right? Well, it says actually, it says the tickers of the ETFs he's using below.

Which one of these would be equal weight? SPSM? No, it's SPSM. I'm an RSP guy. I'm looking right now. SPSM. Nope, that's small caps. So what do you think he's using for equal weight?

All right. You can call your boyfriend later. My mistake. My mistake. I stand corrected. Equal weight was up 11.7% in 2020. Wildly underperformed cap weighted. I thought it was another. And I thought you knew that. Bonds up 5.7%, cash up 5%, tips up 3.8%, and commodities down 10%. But what really is

interesting here is he then averages out that 10-year commodities are negative 1.9% over the last 10 years, which is just horrendous. That's the standout. That is incredible to me, right? That's the biggest takeaway from this. You can have an asset class do that over 10 years. That's got to be so disappointing for people that have like a heavy weighting toward commodities or they didn't understand commodities are for trading, not investing, which we run into people like that. What else? Oh, so this was crazy. He says a basket of commodities is down 50% since the start of 2008.

The S&P 500 is up 350% in the same period of time. So, I mean, that's a pretty big takeaway emerging markets absolutely suck this is another big one it's been this way for a while it's not news um but he says from 2008 to 2023 so it's 15 years. EM stocks are up a total of 28%. That's a compound average annual return of 1.3% a year. Again, versus 350% for the S&P. You know what it takes for me? Another one. Investing in the river mirror is very easy. None of this-

Well, of course. That's the point. None of this tells- Well, that's my point. None of this tells you anything about the right way to be allocated for the next 10 years. Which were that easy? Well, no. So, all right.

That is a true takeaway. I don't disagree. I'm saying no, because I think the bigger story is that a lot of the things that you think are the driver for stocks end up not being the driver for stocks. Go on. And so, well, when I got started in the business in the mid 2000s, so I guess I was somewhat new in the business. The whole story was emerging markets and the whole rationale was the brick countries were going to have much faster economic growth and

much better demography than the United States. And some of the demography stuff was way off. Like they were right about India and Brazil and really wrong about China. But put that aside. They didn't know Russia was going to turn into a basket case international pariah. They didn't know China was going to like do an about face about globalism. And they didn't know that Brazil was going to have one corrupt president after another. All they did was they said like, look at the middle classes of these countries. They're going to quadruple over the next five years.

Well, over the next 15 years, that hasn't meant shit. And these have been the absolute worst things to be invested in for so long that I almost can't remember the last time somebody was bragging about being in EM stocks. So it's not – you're not investing in the economy. And you don't even know how well the economy is going to do even if I tell you what the demography is or the population growth or whatever you think is like the metric. Can you just say demographics? As opposed to what?

Demography. Demography. Demography. Demography is a study of demographics. Fuck you. All right. What do we got next? Let's move on. Yeah, we're coming to the end here.

Next. Oh, I like this one. All right, this is from Warren Pies. Another 314 special. Look how great this is. Warren was saying that, what was he saying? The average strategist target is only 2% above the market. So this is an incredibly- For all of 2024.

This is an incredibly sexy chart. He took this back. This goes back to a year, but he's looking at the S&P 500 and the average strategist forecast for where stock prices are. And not much higher at all. Historically strategist targets are 6% above the market. And here we are barely, barely, barely 2% above where we are now. Anyway, the point is, the point is.

He's saying that's good from like a sentiment contrarian standpoint. Yeah. Yeah. Remember like in 2021, we were saying that analysts need to lower their their expectations well they did all the way around what do you mean analysts went up no they're not bullish enough they're not bullish enough yeah yeah no i know everyone got really bearish they lowered their expectations and they and they kept them low yeah Yeah. So, okay. I'm going to make the case. Here's a lesson.

Sometimes the best stock idea is the stock you already own. And CrowdStrike, which we had George Kurtz on the show recently, and I've been involved with the stock since 2020. But I just can't believe how good this thing looks right now. And, you know, a lot of people spend a lot of time. This is CrowdStrike price chart. Wow. And before we go any further, I don't give financial advice on YouTube. Please don't start putting trades in based on what I'm saying. I'm not you know, I'm not I'm not telling anyone to do anything. I'm a long term investor here. And, you know, people spend so much time constantly looking for new ideas and always like considering other stocks to invest in or,

but sometimes like the best one is right in your face. This thing is going up for the exact reason that everybody knew it would go up and it's not done. So Morgan Stanley, Morgan Stanley had to raise their price target. First of all, Morgan Stanley had to upgrade this stock from a neutral. Can you imagine a neutral to a overweight, I guess, or buy whatever their equivalent is?

Let me just read this. Analysts are upgrading the stock based on, quote, improving demand, broader platform traction, multiple product cycles still ramping, including Charlotte AI, which you and I talked to George Kurtz about. If anyone didn't hear that episode, you can find it in our podcast feed. Ransomware attacks are on the rise, driving stronger demand for CrowdStrike's incident response and endpoint security services, boosting the company's professional services revenue. How funny is it that they said this this morning and then the SEC got hacked this afternoon? The Twitter account got hacked that's exactly what we're talking about here and it's not going to get better it's going to get worse i generally like the idea of stop obsessing over the next thing and focus on what you already have but it sounds sort of like not survivorship bias but dude, this stock was at a 70% drawdown a year ago. Did you buy more? Yes, I did. Good for you. I was upside down on it for a while.

But it's easy to look at your winners and say you should have owned more of it. Like if only it were that easy. Of course. I wish it were that easy. You don't know what your best idea is. No, but what I'm saying is like the story here hasn't changed at all. Like the reason to buy it in 2020 was the same reason to buy it in 21 and 22 and 23 and still in 24. The mega trend of incident response to hacking and cybersecurity spending is and always was a story. This is not like, oh, they pivoted to this really cool thing. Like the story was always a great story is what I'm trying to say. And CrowdStrike was always a great player inside of their business.

So it's not a turnaround. It's not a company with a new CEO. It's just, it's always been the same story. And the story is good. Analysts said they expect improving earnings, improving EBITDA to sustain 30% to 35% free cash flow margin. Morgan Stanley upgraded, increased its price target to $304 from $203. Oof. Oof. Anyway, shout out to CrowdStrike. What a rally. All right.

It looks amazing. The fundamentals look great. The price looks great. What a rally. All right. It looks amazing. The fundamentals look great. The stock, the price looks great. Yeah, stars are aligning. Okay, I've got a mystery chart. I'm going to make this very easy for you. This was the second best performing stock in the Russell 1000 last year. Second best performing.

Why are you saying Russell 1000? Because it's a company that's not in the s&p but i'm assuming it's big and juicy yes sector please sir tech gotta be tech oh you know what you don't know i'm gonna say i don't even know what a sector is anymore, dude. I've been telling you this. I'm guessing it's a financial. It's a financial. It's a financial? Get out of here.

What is this? All right. I lose. I lose. Is it Visa? It was a stock that you said was, I think it's going to zero. Oh, it's Coinbase. What are we doing here, Michael?

What? Didn't I already eat shit on this uh on thursday i'm just saying are we gonna do like a rolling like apology tour for me on coinbase let me ask let me still want it to go to zero let me ask you this is it a technology stock or is it a financial stock uh it's uh it's a crypto stock my head hasn't been the same since i am a nine sector guy that's where my comfort zone is. Once they took REITs out of financials and communication services into its own thing.

Yeah, I don't know what they're doing. I'm out. I agree. What is it classified as? I really don't know. It's got to be a financial, no? Well, Russell and S&P don't have to match up. So it's in the Russell 1000.

It's not in the S&P 500. It's got to be one of the, it has to be one of the bigger market cap uh weights in the russell 1000 by the way like crowd strike also not in the s&p 500 unbelievably so are those the next are those the two biggest russell 1000 stocks i don't know is coinbase profitable four quarters in a row if so i would guess it's going in it's got to be bigger it's got based on its share price. It's got to be bigger. Based on its share price performance, it's got to be bigger than the bottom rung of S&P names. The thing is, there's no timetable.

It could happen any time. I think there are $10 billion market caps in the S&P 500. I think the cutoff's like 15. To get in, it's like between 15 and 20. But then if they fall, they don't just get kicked out right away. So you could be right. Yeah. I think CrowdStrike gets in before the middle of the year, personally.

So maybe after the next time they report, something like that. So, hey, everybody. Hey, everybody. Did you know it's Tuesday night? Which means by the time you're hearing this, there's a new Animal Spirits already on your favorite podcast app. Join Michael and Ben for Animal Spirits already on your favorite podcast app. Join Michael and Ben for Animal Spirits every Wednesday. Ben is going to do Ask the Compound on Thursday. If you have questions, make sure to send those questions in. We love them. What is the way to send questions to Ask

the Compound? Did we change the email? I forgot. I don't know. I think AsktheCompoundshow.com probably still works though. I don't know. Maybe we'll correct that in post. What else did I want to say? Brand new episode of Compound and Friends on Friday. So excited. This is a new guest to the show. I'm very excited. Somebody who's got an expertise in an area that I feel everybody wants to talk about.

So look for that. We will see you guys soon. Thank you so much for watching. Talk to you then. We will see you guys soon. Thank you so much for watching. Talk to you then. 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 building the right financial plan to speak with a certified financial planner today. Visit ritholtzwealth.com.