The Compound and Friends - The Options Market is a Circus (with Dan Nathan) + The History You've Never Been Taught

Episode Date: February 12, 2021

This week on the Compound Show, Josh takes a look at the history you've never been taught - how failed policies from the 20th Century continue to tear our country apart today. Plus, a discussion about the rise of retail options traders with CNBC Fast Money's Dan Nathan, author of the Risk Reversal blog. Full show notes at TheReformedBroker.com as always. Leave us a rating and review - it goes a long way! Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Last summer, when the Black Lives Matter protests came rolling through my town, I was forced into a conversation about it with my son and daughter. I don't mean forced like I didn't want to have the conversation, but it came about very spontaneously. in order to give a better answer than the answer I originally gave. My kids don't understand any of it. And they're 11 and 14. And they understand inequality and racial injustice. And they're being taught a lot of the right things in school. But the bigger question of how it came to be this way was really something that I don't think they're being supplied with. And I don't think most people that I talk to even really understand. So we had a couple of nights, consecutive nights with

the marches coming through our town. And a lot of the high school kids and people in their 20s and 30s from my town joined these marches that were originating in towns next door. So I think for the most part, there was good participation on the part of younger people. And then you had kids. My son's 11, my daughter's 14, and they're not running to join a march, but they rely on their parents and their teachers to supply them with information. And my daughter just said, like, very nonchalantly, she's just like, Dad, why is it even like this? So I want to address that question. Why is it even like this? And what she meant was like,

why do we even have to have this situation with injustice and police brutality and economic inequality? I think what she's asking is, how did this happen? Because it makes no sense to her. It makes no sense to her that there would be one group of people treated differently than another group of people and have that carry on for so long and be so ingrained in the way we live in this country. It just doesn't make any sense to her. So I gave her a quick answer. I wasn't really satisfied with what I said. And that forced me to do some research because I wanted to have better

answers for myself. So I spent a lot of time on this. And a lot of the stuff that I uncovered haunts me even to this day. And I can't get it out of my a lot of the stuff that I uncovered haunts me even to this day, and I can't get it out of my mind. And the stuff that I found in order to be able to answer the question of why is it even like this turned my stomach. Our elementary schools spend the month of February all over the country teaching Black History Month. The kids learn about Harriet Tubman and the Underground Railroad. They learn about Martin Luther King. They learn about Rosa Parks. And if there's some time left over, maybe they get to Malcolm. We are doing generations of students and their parents a huge

disservice by not teaching them about the policies of the 20th century that have destroyed the lives of millions of people and have left race relations at such a perilous point that we almost don't know how to find our way anymore as a society. It's just all become so twisted and tangled up. I don't even know if we can solve this anymore. And the problems that we face are rooted in racism, but they're economic problems by and large. And economic problems are solvable. We can't ever hope to solve them until we understand the causes and why things are the way they are. So every school child can quote from the same passage

from Martin Luther King's famous, I have a dream speech that he delivered from the National Mall, right? Like all the kids learn, you know, that same part and they can all say it and they understand it and it makes sense. But there's another part of that same speech I want to focus on today.

And it goes like this, quote, it is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. a bad check, a check which has come back marked insufficient funds. But we refuse to believe that the Bank of Justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation. And so we've come to cash this check, a check that will give us upon demand the riches of freedom and the security of justice. King said that almost 60 years ago. And we've made some progress in terms of fulfilling that promise, but we have a long way to go. And I want to talk about why. It doesn't begin with economics and it certainly doesn't begin in the middle of the 20th century. But the policies of the federal government during the 1930s and 40s bear a major responsibility for some of the biggest

sources of racial inequality we live with to this very day. It starts off with good intentions, as these things often do. The Democratic administration of Franklin Delano Roosevelt creates the Public Works Administration during the Depression to create jobs and to build out the suburbs of America and to give workers a chance to own their own homes and build lives for themselves. It was essential. This had to happen. Then they create the Federal Housing Administration, had to happen. Then they create the Federal Housing Administration, what we know to this day as the FHA, to support the lending and financing that's necessary in order to carry out the intentions of the Public Works Administration. And the FHA, so let me just give you a quick definition. The FHA is the agency within the U.S. Department of Housing

and Urban Development, which we call HUD, and it was established by the National Housing Act on June 27th of 1934. And the purpose of it was to facilitate home financing, to improve housing standards, and to increase employment in the home construction industry in the wake of the Great Depression. So again, a very noble purpose for the formation of the FHA, its mission. The FHA's primary function was to ensure home mortgage loans made by banks and other private lenders, thereby encouraging them to make more loans to prospective homebuyers. The FHA's approach was designed to attract support from interest groups like real estate and banking. Real estate and banking were historically opposed to federal intervention in the housing

arena. Not anymore. Now you got the government backing larger loans than ever, which meant bigger housing developments than ever. government backing larger loans than ever, which meant bigger housing developments than ever. And it was a very prosperous time once you got into the 40s, the 50s of building out suburban developments all over the country. The FHA was created by men within the FDR administration who held beliefs that today would literally get them thrown out of the country. They believed that blacks and whites were, quote, incompatible.

This is a word they used to live among each other. This is how they felt. And so all of this development of the suburbs and public works and the building of homes and the financing of homes, all of the way that was done in practice, if not on the written page, but in practice was done so as to segregate the country. And that segregation we're still living with to this day. So I want to read you something from the Fair Housing Center of Greater Boston, writing about the historical period of 1934 to 1968. This is three decades of institutionalized racism written explicitly into America's federal housing policies.

Quote, through an overt practice of denying mortgages based upon race and ethnicity, the FHA played a significant role in the legalization and institutionalization of racism and segregation. The underwriting manual, this was a document, a government document, the underwriting manual established the FHA's mortgage lending requirements, ultimately institutionalizing racism and segregation within the housing industry. ultimately institutionalizing racism and segregation within the housing industry. FHA insurance often was isolated to new residential developments on the edges of metropolitan areas that were considered safer investments, not to inner city neighborhoods. The edges of metro areas mean suburbs.

This stripped the inner city of many of their middle-class inhabitants, thus hastening the decay of inner city neighborhoods. Loans for the repair of existing structures were small and for short duration, which meant that families could more easily purchase a new home rather than modernize an old one, leading to the abandonment of many older inner city properties. End quote. So this is the period that they call white flight. White married couples could get the necessary loans to leave behind the decaying cities, go out to the suburbs and buy these 40 by 60 lots, and they did so in the millions. Black couples of the same age and educational background, however, were explicitly

denied this opportunity. Now, you multiply this by tens of millions of people in every city across the country, North, South, New York, California, everywhere in between, and you begin to understand how schools that weren't segregated on paper became segregated in reality. And no discussion of housing inequality is complete without explaining redlining, which was another disastrous practice that was wholly supported by federal law. Quote, the FHA also explicitly practiced a policy of redlining when determining which neighborhoods to approve mortgages in. Redlining is the practice of denying or limiting financial services to certain neighborhoods based on racial or ethnic composition without regard to the resident's qualifications or creditworthiness. The term

redlining refers to the practice of using a redline on a map to delineate the area where financial institutions would not invest. The FHA allowed personal and agency bias in favor of all white suburban subdivisions to affect the kinds of loans it guaranteed. Applications in these subdivisions were generally considered better credit risks, end quote. So redlining, literally the term comes from FHA maps where they color-coded which neighborhoods loans would be made to and where blacks could buy homes. And then they further used highway construction to divide these neighborhoods from each other. Literally, freeways, highways, parkways to divide neighborhoods that were considered the right neighborhoods for banks to provide mortgages to and the wrong neighborhoods. And then we had the urban renewal projects a decade or two later, which moved black families out of downtown areas and pushed them further away from employment, from jobs.

Developers who built these suburban neighborhoods, these are not government officials. These are businessmen who are taking advantage of this legislation. But the developers who were building these neighborhoods could not get bank loans if they sold homes to black families. This isn't theoretical. This is in practice. homes to black families. This isn't theoretical. This is in practice. In real life, literally, banks would not lend to developers unless they prohibited black home buyers from buying in. There were actual loan covenants written into the deeds of sale that made it illegal to resell a home in one of these communities to a black family.

You might be familiar with the word Levittown. That's about 10 minutes away from where I am right now. It's where Billy Joel grew up. Levitt was a developer who built many of these suburban communities out here on Long Island where I live. The original residents of Levittown were predominantly white soldiers returning home from World War II, veterans, starting families. And many of those homes, most of those homes, are still sitting there to this day. And they're nothing special. They are built on concrete slabs. They're like three and four bedrooms. They're built on identical lots. You see Levittown from the air, like an aerial view. Every yard is a square the same size, and there are thousands of them.

And they enabled that generation to build equity, which led to the next generation and the next to continue to see improvement in their family's quality of life. An African-American soldier coming home from fighting in the same war on the same battlefields was shut out from that opportunity. They couldn't buy these homes. They couldn't get low-interest mortgages. They didn't have the chance to attain college educations paid for by the government in the same way that their white counterparts could.

And that has resulted in the opposite of compounding. It's negative compounding. We talk about the power of compounding wealth all the time on this show. It's literally the name of the podcast. The Compound Show is a story about a black entrepreneur who had sold Levitt nearly all of the sheetrock used in the construction of the Levittown suburban development, not being able to buy his own family a house there. Levittown for most of my life was still more than 95% white, even decades later. According to Newsday, as of 2018, 2019 school year, roughly 69% of students in Levittown and Island Trees districts are white, 19% Latino, 10% Asian, 1% black. So it's changed in some ways, but not in others.

Many towns on Long Island look this way. And what I try to explain to people is it didn't happen by accident. And it's not because the current residents of these towns today in 2021 are racists. You have to know the history to understand why is it like this. Federal policies led directly to this outcome. I want to touch on the GI Bill because the GI Bill, which came along in the 1940s, took all of the inequities of these New Deal era housing policies and accelerated them. The GI Bill was like the FHA on steroids in terms of racial inequality. If you were a white man in your 20s, veteran, the GI Bill's benefits would have massively positive ramifications that are still being felt by your descendants six decades later into modern times.

If you were a black man in your 20s, the exclusions of the GI Bill would have negative ramifications that are still reverberating six decades later. Aaron Blakemore, writing at History.com, talking about the GI Bill, said this, quote, While the GI Bill's language did not specifically exclude African American veterans from its benefits, it was structured in a way that ultimately shut doors for the 1.2 million black veterans who had bravely served their country during World War II in segregated ranks. So she writes about when lawmakers were drafting the GI Bill in 1944, some of the Southern Democrats, who were nothing like the Democrats we know today, the Southern Democrats went nuts. Their biggest fear was that returning black veterans would use public sympathy for veterans in general to start advocating against Jim Crow laws and pushing for desegregationist policy.

So to make sure this GI Bill mostly benefited white people, Southern Democrats used tactics, the same ones used during the New Deal, to make sure that as few black people as possible could take advantage of the benefits within the GI Bill. As they were drafting the law, the chair of the House Veterans Committee, this guy, he's a Mississippi congressman named John Rankin, played hardball. And he insisted that it would be individual states, not the federal government, who administered the benefits of the GI Bill. He wanted it to be up to the states, not national policy. And he got his way. And Rankin is a dirtbag. He was a segregation defender.

He was against the interracial marriage, like wanted to make it illegal. He was against the interracial marriage, like wanted to make it illegal. He proposed legislation during the war to confine and deport every person with Japanese heritage. So beyond internment, literally throw Japanese people, people of Japanese descent out of the country. in a situation where, yes, the GI Bill was meant to also benefit them, but it's being administered by racists in different states and cities and blocking them. So one of the ways in which black veterans were blocked from attaining the same benefits as white veterans was honorable discharge. A much larger number of black veterans were discharged dishonorably than their white counterparts. To this day, there's not really a good reason for why other than racism. Veterans who could qualify in things like vocational training programs were unable to participate in activities related to things like plumbing, electricity, and printing because they didn't have the equipment to be trained on.

They didn't have the same access to training as white students. And then there was just outright intimidation. There's an episode in 1947 where a crowd throws rocks at black veterans as they started to move into a housing development in Chicago. There are episodes where black veterans are attacked and singled out all over the country. It's not limited to any one place. So you basically have the situation where Rankin was unable to exclude black veterans in word from, for example, things like VA unemployment insurance, but he made damn sure it was doled out in a way that was unfair. This is back to Aaron Blakemore. Men who applied for unemployment benefits were kicked out of the program if any other work was available to them, even work that provided less than substance wages. Southern postmasters were even accused of refusing to deliver the forms black veterans

needed to fill out to receive their unemployment benefits. So there was nothing specific written into the GI Bill that was deliberately meant to exclude 1.1 million black veterans from receiving educational benefits. A lot of the problems were with the universities themselves and no oversight of their practices. They simply did not admit black students, even in the North. I don't want you to think this was just a Southern thing. This was all over the country. It turns out over 95% of the black veterans who used the GI Bill to attend college had to do so by attending black colleges, or what we now refer to as historically black colleges and universities. And most of these institutions were underfunded at the time, and all of them

had capacity issues. They couldn't take in all of the students that wanted to come there because those students had no other place to go. And many of these schools were unaccredited. So even if you did attain a degree from them, that didn't guarantee that that degree would be recognized the same way degrees from other universities would have been by employers or prospective employers. The Saturday Evening Post wrote, quote, the 1950s prosperity wouldn't have been possible without millions of veterans who had upgraded their skills with the Servicemen's Readjustment Act and set a new standard of living for themselves and their children and grandchildren.

It's really hard to overemphasize how important the GI Bill was to people living in the middle of the 20th century and what that meant for their descendants later. The GI Bill funded the educations of 22,000 dentists, 67,000 doctors, 91,000 scientists, 238,000 teachers, 240,000 accountants, 450,000 engineers, 14 Nobel Prize winners, two dozen Pulitzer Prize winners, some famous beneficiaries, Presidents Gerald Ford and George H.W. Bush, for example. areas, Presidents Gerald Ford and George H.W. Bush, for example. So almost none of those benefits went to black people. All of those careers funded, all of those educations attained, it was almost all for white people. And this is just a historical fact. The results of that, you didn't need to wait three generations to see. The original GI Bill ended in July 1956.

need to wait three generations to see. The original GI Bill ended in July 1956. By that time, 8 million World War II veterans had received education or training. So that's about half. So about half the people who came back from the war or had something to do with the war benefited from the GI Bill. There were 4.3 million home loans worth $33 billion that had been handed out. These were ultra low interest rate loans that made it possible to buy a home in the suburbs because it was actually cheaper to pay the interest on that loan than it was to pay rent in the city. And again, almost none of that went to black veterans. This is one of the most obvious roots of economic inequality in our society today. It was disastrous.

It's an entire race of people, more than 13% of all Americans still living with the consequences, still suffering from the disadvantages of the way in which the GI Bill was implemented in practice. And the federal government allowed that to happen. So by putting the power to dole out the benefits owed to black veterans into the hands of Rankin, who, again, is one of the most disgraceful pieces of shit ever to serve in the U.S. Congress, you end up with a complete socioeconomic disaster. Here's a stat from Rankin's home state, Mississippi. And this is from an article by David H. Angst writing at the Journal of Social History. 86% of the professional, skilled, and semi-skilled positions went to whites, while 92% of the unskilled and service sector jobs went to blacks. This is literally taking a workforce and carving out one group within that workforce because of their race and telling them they're unskilled and only fit for service sector jobs that

don't require any kind of training or professional ability. So then we think about the era of public housing projects. And a lot of people don't understand this. Public housing projects actually were originally meant for working class white families. There was a massive housing shortage in general in the country, right? And so in 1949, with federal law, they start building towers in cities across the country, and these towers are deliberately segregated. They're building three white housing projects for every one that's meant for black people, and they are literally segregating them by race. So white families, working class white families were able to get into these housing project homes almost immediately.

working class white families were able to get into these housing project homes almost immediately, there wasn't enough housing project capacity for the black families. So you have waiting lists. And then you have this suburbanizing push that the FHA again is behind, where whites start to leave the cities, heavy industry starts leaving the cities, and white people are being enticed to move out to the suburbs. So that's something that had started slowly long before. But basically, the government is giving whites low interest rate mortgages, and again, worked out to be less than rents they were paying in the cities. They create these suburban developments. They have the banks financing them. They're urging white people

to move out into single family homes, into segregated communities that black families cannot buy into. This is actually called the single family movement. Again, it starts earlier. President Harding, World War I era, was terrified of a Russian revolution happening here. So the idea was that if you push white families out of the center of the city and into the suburbs, they become homeowners. And according to the thinking at that time, people who own a home don't become communists. I'm not joking. So all of the subsequent federal regulations from that point forward and all of the initiatives and the propaganda for the next five decades would reinforce the housing segregation and effectively enshrine it

into law. According to the last US Census in 2017, the median income for white households is $68,145. For black households, it's $40,258. So today, blacks earn 60% as much as whites. That's a 60% income ratio. It's disturbing. But even worse, black wealth is only 5% that of white wealth. How? Well, most of the wealth of US families comes from owning their own homes. That's most of the wealth in the country, either directly because of what the home equity is worth or because of all the benefits you get from building equity in a home. Equity appreciation. If you're not building equity, you have nothing to leave the next generation. If you don't have a mortgage, there's no mortgage tax deduction. You think about

all the benefits that people who bought their own homes in the 40s, 50s, 60s had, and then how the repercussions of that, the positive repercussions of that echo throughout each successive generation, and you almost can't catch up. You could do a lot to make things more fair decades later, but it's very, very hard for people to catch up that haven't had that advantage. Let me go back to Erin Blakemore. She explains that in 1947, only two of the more than 3,200 VA-guaranteed home loans in 13 Mississippi cities went to black borrowers. So the VA makes 3,200 guarantees for home loans, and two of them go to black borrowers. Think about that. That's 13 Mississippi cities. That's not the whole country. There's a historian named Ira

Katznelson who says, quote, these impediments were not confined to the South. In New York and the Northern New Jersey suburbs, fewer than 100 of the 67,000 mortgages insured by the GI Bill supported home purchases by non-whites. Less than 100 out of 67,000 mortgages in my neck of the woods, New York and New Jersey suburbs. So just you think about the results that come from that 10 years down the road, 15, 20, 30, the advantages built in become insurmountable. There's a guy named Richard Rothstein. He wrote a book recently called The Color of Law, A Forgotten History of How Our Government Segregated America. segregated America. He's a research associate at the Economic Policy Institute and a fellow at the Thurgood Marshall Institute of the NAACP Legal Defense Fund. I'm going to link to his book. I think it's one of the best books on this topic. I'm going to link to some of the other articles

that I used to put today's show together so you can read about this for yourself. And I want to conclude by saying, I don't have the solution to these issues. conclude by saying, I don't have the solution to these issues. This all began long before any of us were born. But the reckoning happening right now is long overdue. We did this as a society, as a people, as a culture, and only we can fix it. And it has to be fixed if we want our kids to have a better future, if we want to put these issues to bed once and for all, if we want our kids to have a better future, if we want to put these issues to bed once and for all, if we want to leave our children and our grandchildren a better country than the one we were born into. We have to address it. So I told my daughter that money, and most of what we talk about in this podcast is money. Money is not the root of all evil.

Poverty is. Lack of money. Economic inequality is the root of all evil. Poverty is. Lack of money. Economic inequality is the root of all evil. It's the root cause of virtually everything that's wrong in America today and not just between black and white people, but among white people too. Lack of opportunities to better oneself leads to joining cults like QAnon and believing in baseless conspiracy theories because it's easier to believe a conspiracy for why you're unhappy than it is to believe the truth. It leads to a lack of educational attainment. and imprisonment and drug and alcohol abuse and chronic health issues like obesity and diabetes and class warfare and civil unrest and police brutality. All of these things stem from one thing. We have got to find a way to bring more opportunity to everyone and to make the nation's

youth, all colors, all races know that they can be a part of the future. Young men who believe that they can have a standard of living greater than that of their fathers and their grandfathers don't join militias. They don't instigate race riots. People who believe that they have a future or they can be part of the future of this country, do not resort to violence. So I'm just one person with a blog and a podcast. So I do what I can with my platform to give you the context and the background of how things got this way. So why is it like this? Or as my daughter said, why is it even like this? Well, now you know. But the better question is not why is it like this? Because we all can see with our own two eyes. The better question is what do we plan to do to change it?

We're going to talk to a good friend of mine, Dan Nathan, about the options market now. This is what they call a hard pivot. We're going to talk about what the retail and Robinhood effect has been on the options market. What kinds of stuff is he seeing out there? We're going to get into some old fast money stories. I know Dan for probably 10 years. You guys have seen him on CNBC. He's on Fast Money at Five, which is the show I used to do. And Dan does options action for CNBC and writes a killer blog called Risk Reversal, which we'll talk about. He's one of the most knowledgeable people writing and speaking about options to this

day. And options have a very big role in what's happening in the markets these days. And not just the options on their own, but the way in which they're being used. So I think you get a lot out of hearing from Dan. So excited to have him on the show. Good friend of mine, longtime friend of mine, and we're just going to chop it up. So thanks so much for coming by and stick around for Dan. Welcome to The Compound Show with Downtown Josh Brown. Josh is the CEO of Ritholtz Wealth Management.

All opinions expressed by Josh or any podcast guest are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. First of all, Daniel, it's nice to know you're still alive and thriving. I haven't seen you in over a year. It's got to be at this point. I see you noon on the halftime report. You see me five o'clock on the Fast Money program. Fair. That's true. But other than that, it's been a weird year. But you're in Manhattan most of the time or all the time? I've been in Manhattan most of the time.

We spent some time this summer up in Maine, which we usually do. But being in a place like New York, I know that you used to come in Monday through Friday every day. It's just been a very weird time to see what's happened to this city in less than a year. But I'm actually really optimistic how quickly I think things are going to come back. You're downtown. Is it like Mad Max vibes or? What's really interesting, you know, people were saying the Upper West Side had some really weird Mad Max vibes because so many people uptown took off and a lot of downtowners are just kind of living their lives

here a little bit. So I think the weirdest thing that I would mention is that the lack of commuters on a day-to-day basis, obviously, and then the lack of tourists. You know how many times when you're downtown, you get stopped by someone with a German accent asking you where pastis is, you know what I mean? So that's been gone for a year. Right. So I think the rule of thumb is if you lived on the Upper West Side, you're now back in Rockland County where you belong or Jersey. If you lived in Murray Hill, you're back on Long Island in Roslyn where you belong. And if you lived on the Upper East Side, you're in Westchester. You're in Scarsdale.

And I don't know when that comes back. Or on some undisclosed Caribbean island. Can I ask you a question though? From what I hear, like it's not even like values have been created in the nice neighborhoods to buy apartments. I heard they're down like 10%. I'm like, that's it? What does it take for an apartment price to fall? It's the f***ing end of the world. If you go back and you look at it kind of after 9-11 and then after the financial crisis, the dips were so shallow. I mean, maybe they were

deep quickly, but then they ended up being just really shallow when you kind of average it out over the next couple of years. I think what really got hit hard were rents. And I think commercial rents are going to be just a disaster. And that was already happening pre-pandemic. Except mine, I'm paying in full. I might be the only schmuck you know, but I'm literally lighting a pile of tens of thousands of dollars on fire every month. I'm trying to do the right thing. Well, everyone's got responsibilities, right? And so I think at the end of the day, that is the right thing. And then at a certain point, if the city is going to be in a lot of problems as it relates to a fiscal crisis

here, the state is obviously going to be. And so businesses like yours, I think you're going to find it important to be back in New York City at some point. Can't say when, um, and doing the right thing by your landlord makes some sense to me. I drove in a couple of mornings this winter. So I had like all these people sending copies of my book to me to get autographed. Like I did like a charitable thing. I did it. I did it. I sent my book in. I was amazing. Honestly, I think that was a great attachment to, um, you know, a book launch in a weird time. Must have been a weird time to launch a book. I know that you have a lot of fans who want to see you and maybe shake your hand, which you might never shake anyone's hand again.

But that was a cool way to raise a lot of money for that. Yeah, and I appreciated you sending me the books. I would drive in on Friday mornings and pick up like a box of books each week. the books. I would drive in on Friday mornings and pick up like a box of books each week. And then I stopped and people started UPSing the boxes of books from my office. It was so depressing. I'm on the south side of Bryant Park. Every single place that caters to the lunchtime business person, which is what my area is, They're all boarded up other than Chipotle and Duncan. There's nothing left, which sucks. And I don't know, like when that changes, does it change the summer? You know, it's been ringing in my head. I'm a huge Bruce fan. And,

and this was probably one of the best covers of a Bruce song ever. Eddie Vedder did it, my city of ruins. And it's the boarded up windows, the empty streets. And literally as I've been walking around, particularly in the evening, you know, New York City is the city, obviously, that there's something going on all the time. The evenings are the ones that are kind of the spookiest, because when you think about restaurants and bars, the lack of movies and Broadway and sporting events and stuff like that, the evenings has been like a ghost town. So I think the day stuff is going to come back really quickly. I think the night stuff is going to come back really quickly, but I think it's a 2022 thing, sadly. When you said Bruce, I thought you were going to go my hometown there. Well, you know, I did.

Foreman says these jobs are going, boys, and they ain't coming back, right? Yeah. You can quote the boss. You can quote the boss. I know you're a bit more hip hop than that, but you know, the boss is kind of an OG when it comes to speaking about- Dude, you know how well-rounded I am. You and I have been to radio head shows together. We should tell that story. There, there was a, there was a guy standing behind us that like kind of towards the end of the first set of that radio show, a radio head show at MSG, who said,

are you guys going to talk the whole time? I'm like, listen, if they kind of get into some of that early stuff, the Ben's okay computer, then maybe we'll, we'll stop talking. But this instrumental stuff wasn't doing it for us. Yeah, there was way too much. I don't know. What are the latter day records that nobody wants to hear about? King of Limbs.

Nobody wants to hear that shit. Hail to the Thief, which was kind of old at this point. But yeah, we wanted the deep cuts. No doubt. All right. So we haven't spoken to each other in a while, but I do catch you on, on CNBC and you do fast money. You're a couple of days a week,

right? Or one day, what are you doing these days? I do a couple of days a week. And it's just a, you know, it's a couple of days a week. Check in my man.

By the way, the first time you and I ever spoke, I was just thinking about it this morning. We were on set for five o'clock fast money. It was like my first time on the air with you. We were next to each five o'clock fast money. It was like my first time on the air with you. We were next to each other and like Melissa's to my left. And then I don't know who else is on the show. One of the Najari, I, um, maybe, maybe guy, but you like leaned over to me. We didn't even say, hi, I'm Josh. Hi, I'm Dan. You like leaned over to me like, Hey, uh,

so, so, so you're blowing up, huh? I'm don't i'm like what what do you mean he's you're like i i see on the twitter mixing it up with people people breaking you breaking your balls you know what that means right that means that you're making it like you you're kind of like don't listen to anybody look at you you know i mean anyone could say anything look at you now so that was that was nice that's probably 10 years ago eight years i don't even know it was really funny because when we both started doing cnbc we probably never thought in a million years we'd ever be up on cnbc right growing up in the business the way we did it was oh well yeah not me either i mean it was always kind of up you know on a screen no volume maybe you'd turn it up for faber breaking

in or charlie gasparino or something like that um But the rest of it, it was just like, yeah, those chimoles or this and that, whatever. We are those chimoles now, which is absolutely amazing. But I think there's two reasons why I've been doing it for 12 years now. And I wouldn't be doing it if I didn't really enjoy it. I love the people I work with on our group. I know you love Scott and your group at Noon. And if it wasn't fun, you just wouldn't be doing it. And then the other thing is, I think after being in this business for 25 years, we have all sorts of viewers. Obviously, the demographic skews to maybe more my age group or something like that, but they're bringing in new users or viewers or listeners, whatever you want to call them every

day. And I think we have something to share. So until we don't, and there's not going to be a meme on Twitter that chases me off of it. I'm going to tell you that right now, Wall Street's best people. You know what I mean? Like until, I don't know, until the business changes, I might continue to do it as long as I'm having fun. Well, I have a lot of fun doing it. And I wish I were popping on more with you. Maybe that's something we'll figure out how to do.

Because it's been a minute. I haven't been on The Five Show in five or six years, I think. But it was fun while we were on together. You know, I want to say one thing about that. It's really interesting. You get a ton of email. I get a ton of email. People tweet.

We got to talk about your Twitter. You know, I have so many people, more than anyone else. People always identify me and you obviously guy and i do a ton of stuff together and guy and i are just like we're like an old married couple but people like i want to see more dan and josh or why don't dan and josh or this and that i get that all the time so uh shout out to you tell them the truth which is that we have no control over that yeah we we really don't it amazing. We just show up and look pretty and sound smart. Shout to Guy, by the way. So let's get into that. You're doing a podcast,

which I just started listening to. I think you just started three weeks ago. Yeah, we started a couple weeks ago. All right. So it's you. It's Guy Adami. So everyone loves you guys. And then how did Danny become part of the the gang and tell people danny's background by the way yeah so danny moses to be honest with you i met him a couple years ago on the set of fast money um he was calling cannabis the big long um you might know danny from he was one of the guys prominently featured in uh the front point group um in the big short the michael lewis book and obviously the adam may movie, which is phenomenal. So Danny started coming on, talking about Canada. Wait, who played him in the movie?

Was that Ryan Reynolds? No, that was Ryan Gosling. Ryan Gosling? No, it wasn't Gosling. And there's an amazing deleted scene that Danny is actually in the movie. It was kind of a breaking a fourth wall sort of thing. So Danny is just one of those guys. I don't know if you met him, Josh, you'd love him. He's just one of those

just really, you know, great thinkers as it relates to markets. He's really into behavioral finance, that sort of stuff. And so we met on the set. He's just been a great voice for us. You know, Guy and I have a little ping pong sort of thing. He mixes it up a little bit. And so the point of on the on the tape podcast was really, listen, everyone knows us doing these two, three minute soundbites on our shows. And they think they know us from what we tweet or this and that or whatever. I love the long form thing. I listen to your podcast. I mean, your ability to do things. A couple weeks ago, you had a professor from Australia on talking about the first African-American millionaire on Wall Street in the 1830s is fascinating. Where else can you do that? Right. And so I just think that's amazing. We're not going to be going for that stuff. You're way too smart. You're much smarter than us. We just want to do longer form market stuff, the sort of thing that you might have gotten on the trading desk that you grew up on in this business. Well, right. So that's the thing. So I

actually I have this feeling like I don't think different formats of financial media compete with each other. I think they compliment each other. There is a great version of you that appears on TV that says things in very clipped, short form phraseology, which is necessary for people who are trading and just want to get the juxt of it. They don't want 90 minutes on every topic under the sun, but they want a solid minute or two from you. There's a huge audience for that and it's important. But then there are some topics that are worth talking about for 45 minutes or some moments where some topics deserve more attention than what you can realistically give them on a radio show or on a TV show. So I think that's what podcasts are for. And then the whole thing with written, some things should be a blog post. Some things should be an

article that's reported with real reporters. Some things should be a tweet or a Reddit post because there's really not that much to say and you could be clever. So I think all of these things complement each other. Very few people do them all well. I think that you happen to do them all well. And everywhere I see you or hear you, you adapt very well to the format that you're in. Well, I appreciate that. I mean, just, you know, it's funny.

You and I attacked this from a different perspective. You started out being one of the first financial blog writers, right? I mean, just, you know, it's funny. You and I attacked this from a different perspective. You started out being one of the first financial blog writers, right? Like you were at the infancy of it. I started reading your blog before I had ever known what you looked like, you know, which was a really interesting thing. I started doing a show. Were you let down?

Were you disappointed? No, you know, the last few years, we got to tighten things up a little bit. But no, but so I started doing CNBC's Options Action, a show about options trading in 2009. And why I started a blog was for transparency purposes, because I felt like while TV is a great medium to kind of express those views and detail these trade ideas, I was getting emails. This was before I was ever on Twitter or anything like that, getting emails, asking people to go into greater detail. So for me, it was the ability to be a bit more transparent, have it all down there on the written page and actually have it a bit more mobile so I could email a blog post or something like that. And obviously Twitter changed that a little bit, your ability. The blog is riskreversal.com.

Yeah. And really for me- And that's your Twitter handle is at riskreversal. Yes, it is. And really, and the point there, Josh, it was really simple. You know, I can be long-winded as you're finding out in this podcast right now. There is an audience for people who want more and more detail and I wanted the ability to give it to them. And it also, and I think you probably find this, writing out your thoughts is a really great way to make cohesive arguments, even if you're drilling them down into two minute sound clips on TV. Without a doubt. And also it's a good place to go to remind yourself that you're not that smart.

I've had some horrible, embarrassing, wrong takes and I leave them up there. And I think if you start deleting them, you're kind of like lying to yourself. And it's so much more powerful when you tell people, look, I have a very strong opinion about this. However, here's something else I used to have a strong opinion about and I've changed my mind. And that's my deal. And if you can't deal with that, don't listen to anything I say. But that's the biggest issue that I find about, like, listen, we have so many viewers who are just so generous with their compliments about what we do and they understand how it's difficult to go on TV. Just think about it. You are a market participant. You have clients. You have a fiduciary responsibility. You have all those sorts

of things, right? And then you break and you go, whether it be up to Englewood Cliffs or now, obviously, to your living room or whatever, and give those takes and you have to do it in a way that is digestible to the audience. You know, those are not easy things to do. But let me tell you this. I've been in the business for 25 years now. And, you know, the best traders, the best investors, they change their minds a lot. So the idea that you're on TV and you might have a different view on Facebook stock a week later, you know what I mean? Because the price moved or something fundamental happened or something like that. And you can kind of get lambasted on social media for it. So I don't pay a lot of attention

to it. It doesn't really affect how I do things um i used to go to the living room i got thrown out of my living room so i'm literally right now in an office that was built for me next to an eyebrow place like i'm not even i'm not even like around with you it's literally a better call saul you know how he's like upstairs from a nail salon? Like I'm literally next to an eyebrow place. So that's definitely your biggie picture though, up above your left shoulder there. No doubt about that. Who else do you think that was? My moms? All right. So I want to talk about the options market. First of all, a lot of people don't even know what the term risk reversal means. People who have been investing their whole lives, but have never been in the options market or have never traded on a desk. Why did you adopt that

name for your blog and your Twitter handle? And what is a risk reversal? Yeah, I thought it was a bit of a double entendre. I mean, it's a trading strategy within the derivatives markets. And very simply, for instance, if you were bullish on, let's say, a stock that was trading at $100, and normally people would say, oh, if I'm bullish, I want to buy a call, which gives me the right to own this stock or buy this stock at a certain price at a certain period of time, that's how one might express that view. A risk reversal is, I'll just give you an example, if you're bullish on that stock, you might sell a put. A put is the exact opposite of a call for all intents and purposes. It gives you the right to sell a stock at a certain price at a certain point in time. So if you were to sell a put and use the premium that you received to buy a call,

that is what you would call a risk reversal. You're basically doubling up on that risk. And so for me- Selling a put is bullish. Buying a call is bullish. Correct. And vice versa, right? So if you were to sell a call and buy a put, that's bearish, okay? And so that was the point of risk reversal without getting too much into the weeds about it. And so for me, the mission has always been, listen, I was an equity investor, long, short equity investor for 10 years before I really understood, to your point that you just made, how to use options effectively. Just understanding that the fact is, if you own a call or a put and nothing happens on the price movement of the underlying, you are losing money every day. Is that a great investment strategy? I don't think

you would tell your clients to do that whatsoever. But for me, the idea was, once I learned and I was taught by some very smart people, you know, the idea was let's use options to do three things. One, to add yield when it's appropriate to my existing holdings. OK, and that could be as easily as selling a call against a stock that you may never sell. It is in your kid's college fund. Right. And so you systematically sell way out of the money calls to take in a little premium. So that would be yield enhancement. The other one would be risk management. Maybe you're just a position has, and this is something that has happened a lot in the last year or so. Let's just say you own a small bit of Tesla a

year ago when the stock was trading below $100. And now it's, you know where it is, it's nearing $900. Maybe it is just way too much exposure to have in that name, but you don't want to sell it. Maybe you don't want to pay taxes. Maybe you think it's going to be a $10,000 stock. Well, there's ways to use options to kind of limit your risk. So risk management would be the other one. And then the last one, and I think this is where you're probably getting to, this is what we would call a segue in our business, is really speculation, right? And using them for leverage. And that's the one I think a lot of people get in a lot of trouble with. Well, I want to talk about that specifically

because I think there are probably somewhere between 10 and 20 million brand new investors who have entered the markets in the last 12 months. I think it's a combination of there being no sports on TV and the need for action. I think it's a lot of young people whose jobs shifted to working from home. And most people don't work an actual eight-hour day in real life. And then I think stimulus money, which gave people liquid cash. It's not a lot

of money, but it was enough to get started. And then the markets worked would be actually the fourth condition is that just about anything you bought is significantly higher. And actually the more risk you took, the better you did almost immediate, like the higher price, the most volatile stocks were also the best, the biggest gainers or the stocks that had been killed the most and look like the biggest risks like your carnival. So you have that atmosphere and now it's a year of that. And as a result, I think that most of what's going on in the options market right now has nothing to do with hedging or really any kind of thoughtful activity at all. I think it's pure gambling.

And it's a lot of people who have never really done this before teaching themselves to gamble or getting advice from other people who have never done this before that they think has value. And I'm not saying it's all bad, but I wanted to get your take. What's different about the options market now versus 2018, 2019? Yeah. So it's not just retail either with the stimmy and the access to an easy know, and easy. And I'm shocked you didn't use that term. You actually said the word stimulus. I know we're talking to the kids, I guess, on your downtown John Franz podcast. No, but I think it's easy on ramp too, right? So it was the Robin Hood. I think one of the big gripes for years has been that some of

the older establishment brokers, you know, it wasn't just the access to having an options account. It was really the tools that they were offering were too complicated, right? So all of a sudden now we're in this kind of Facebook adult world where people's attention spans are nothing and you have this really sleek, easy app that you can just get on and all the kids are doing it. And literally, I mean, Josh, how many teenagers have contacted you, whether they be relatives or friends of relatives or whatever the heck it is, you know, just so you know, I forgot to tell you this. My ninth grader, her history teacher actually had them listen to your podcast or maybe a clip from CNBC. But Ellie says to me, do you know Josh Brown? I said, yeah, I know Josh Brown. Yes, she did,

a ninth grader. I'm going to get the clip and we'll put it in the show notes. But I just found that amazing. It is permeating our lives. And I think to your point, we didn't have other activities. So what's changed? My point I would say to you is it's not just retail. Remember the soft bank whale who was buying upside calls? So that was used to generate a short squeeze over the course of the summer. And some of the most big liquid names in the entire market. So I think- I feel like that trade worked. Did it work? It did work. But remember what happened in September. Remember that high that the markets made on September 2nd? And some of the biggest names, Apple, Amazon, Microsoft, they went down much faster than the market did. I think Apple was down more than 20%.

What triggers something like that? That's an options position unwinding post-expiration? Or how does that work? So I think there's a lot of, well, it was not post-expiration. I think what happened was there was just an all-out frenzy for some of these names. It was concentrated in a small group of names. And then because of what you were talking about with retail, they were seeing this being reported, people who just are nonstop about unusual activity or whatever, you know, and then they have a lot of retail chasing it. And it really turned into

a frenzy. And so at some point, you remember those stocks, they had people like, why are these stocks going up like this in August? You remember that that, right? You're like scratching your head. And so it was because that you had SoftBank buying these massive options positions. And then when a dealer sells a call, they have to go out and hedge it, right, by buying the stock. They have to own the common, right. There was nothing fundamental to it. And then you have all these retails jumping on board. And it had all the markings of a frenzy. And I think it's not too different in some ways to what we saw in January with some of these heavily shorted names that when the unwind

happens, it's really nasty. And so I just think that there was a bit of a frenzy. And when manias pop, you know that they often overcorrect to the downside, just like they do to the upside. How is the options market acclimating itself to the levels of activity? I have this picture in my mind of a boa constrictor swallowing a goat. And it starts off at the top of the snake's body. It's like the stock market. And then it gets into crypto. And then at last, the goat is toward the end of the snake. And that's the options market. And I feel like that's kind of where either we are now or we're headed or the systems are the, is the piping substantial enough to withstand all the activity and are people changing their business like real

professional traders to like deal with what's going on? Yeah, that's a great question. And just, you know, I know a lot of guys and gals who run either big books or groups at all the major banks, you know, in equity derivatives groups. And so what they would probably tell you is that the retail activity is just noise, all those ones and two lots, that sort of thing. Because really what happens is on most of these platforms, and we saw this with Robinhood, they get bundled together. They get picked over, man. It's the whole payment for order flow thing. The big banks and the ones that are obviously putting up the big risk trades for huge customers like SoftBank, that's what they're most concerned on. The rest of the stuff is just noise, right? Those are the trades that could actually blow them up.

Those are the trades that they feel obligated to take risk on. And when you think about a lot of the regulations since the financial crisis, that's how a lot of those groups make a lot of money by really, you know, managing their risk well with some of the big whale traders on the street. And they could be, you guys wouldn't even know it, but I mean, some of the biggest option traders are some of the biggest mutual funds out there. And I'm not telling you they're speculating the way SoftBank was speculating. Oftentimes they're selling massive blocks of calls against some of these huge holdings that you know and love. Where'd you get your training in the options market? I know some of the firms that you worked at, but just give the audience a little bit of background on how you learned the ropes. So a great example of just how little I think most

institutional investors, traders know about options. And I go back to this. I started at SAC Capital in 1997 as a long, short equity trader for a guy who is just one of the best momentum traders probably of the last 25 years. I'm not even talking about Steve Cohen. And so our job there was just to kind of figure out stories and understand entry and exit points and do a little risk management and figure out catalysts and that sort of thing. The idea of trading options around that added a layer of complexity that these Chamolis just weren't ready to do. Most investors just

don't know. And so I spent a couple of years at Merrill Lynch in 07 and 08 and early 09 in the equity derivatives group. For a part of that, I was trading a prop book. And these guys trained me to derivative theory and really seeing how they trade against their customers, that sort of thing. So that's where I really learned about it. But starting in early 2009 when I left Merrill, because they obviously, prop trading wasn't a thing anymore in the wake of the financial crisis. It didn't go well overall there. I don't think it was your desk's fault. It just didn't go well. If you go back and look at the Q4 2008 call, I remember John Thain was the CEO there. He gave a shout out to the equity derivatives group. We made a billion dollars that year. I mean, literally that quarter, excuse me. So those

groups do well in those sorts of market dislocations periods. But I think it was kind of the mortgages and the CDOs and the synthetic CDOs and all that sort of stuff. So for me, that's where I learned options. And then I've spent the last 12 years, you know, I spent 10 years on options action on CNBC. And really, again, the whole point there was like, okay, you want to buy Microsoft, maybe you're full up, but you want a little more exposure. This is one way to do it. Or you're really worried about Microsoft into that earnings call next week, the stocks run up 20 point. Here's one way that you to do it. Or you're really worried about Microsoft into that earnings call next week, the stock's run up 20%. Here's one way that you might hedge it. Or you think it's going sideways, here's one way to add yield. So to me, this is not about a chase. This is trying to add another tool

to an investor's toolbox. And I've just found that a lot of investors are really interested in doing that. And it's not about speculation on my part. So I think a lot of, we keep calling them kids pejoratively. I still think of myself as a kid, It's not about speculation on my part. Don't you feel like even if you can't say it out loud, don't you sometimes say to yourself, like, there's no way these people are going to learn this the way I learned this? Like I learned this at a hedge fund and at Bank of America. And I saw every side of these markets. And these kids like teaching themselves options are never going to actually figure it out. Or do you not feel that pessimistic about it? Well, I think the tools now to figure it out are never been greater.

I say to kids all the time, you know, people say, and I know you have, you know, 20 year olds who are in college or want to go into financial services and their dad or their uncle or sister or whatever, say, Hey, talk to my friend, Josh Brown. I say to those kids all the time, if you come in and you sit with me and we're going to have one of those ear chewing sessions and I tell you this and that or whatever, and you are not really well literate in this business, then we can't even have a conversation because the access to information on the internet these days, you know what I mean? The idea of asking, like, you know that whole expression, there's no such thing as dumb questions. Oh my goodness. In 2021, almost every other question is a dumb question because you have access to all the answers in your fingertips. So to me, I think the kids today

should most definitely be able to figure out how to trade options. But what I'll just tell you, and I think you know this, and this is why you guys have people come to you to manage money at Ritholtz Wealth Management, is that it's time consuming. It takes resources to do it well. It takes discipline to develop good habits, right? And create repeatable behaviors. And that's the point that I think, unless this is what you want to do with your life, yeah, you could figure it out with the tools online and that sort of thing, and just kind of use Reddit as your first call, you know, machine as we might have used 20 years ago. But I just don't think that's something that most people are going to find repeatable.

I'm so glad you went there. I think one of the things that gets lost for people that are relatively new to investing in trading, when they start off, they almost like romanticize the life of a trader and think that like they want to get really good at this because it's like a way to escape working. But successful traders, first of all, there's only two types of traders. There's only two body types of a middle-aged male trader. They're either gym freaks with like 3% body fat and like eight pack abs, or they are so completely morbidly obese that they can't even stand up and there's nothing in between. And that is the lifestyle of being attached to a desk 10 hours a day, right? Like you're either doing pushups in between executing orders

or you're eating bags of potato chips, like just from the minute you wake up to the minute you go to sleep. Like, I don't know that everyone that's trying to become a pro trader now understands that it's work and it's not an escape and it's not that exciting most of the time um you must have to explain that to people right yeah and the other thing is it's really stressful you know especially when it's you know it's money it's real money why why do you think these guys are pumping like you know pumping iron the way they're doing or or eating the way they're doing you know these two buckets that you've put all these traders wait am i am i right about that though you're totally i was i was really i think the the the iron pumping thing is really funny

because it brings me back to the late late 90s here in new york and being at a gym whether it was new york sports in 1999 and listening you you know, to all the guys, you know, talking about, you know, Qualcomm or Yahoo or whatever it was. And creatine. Qualcomm and creatine was like 1998 in a nutshell. That's what was going on. Listen, you've heard this expression a thousand times in your career. Trading is hard. OK. And there's certain periods where it looks really easy and that's a period that we're just come out of. Right. And so, you know, one of the issues that I, I kind of face as a, as a pundit on CNBC is that I'm often trying to figure out or pick at the, the, the, what use is a universal bullish thesis. Do you know what I mean? And I

get labeled as this or that, or I don't care, man. I'm not, you know, like for me, like I'll tell you as a, if you want to be a good trader or a good investor and you think you have the best idea in the world, figure out how it goes pear-shaped because that's the only way to actually repeat that behavior routinely and be consistent and make money over time. So is that the same as saying like, no, your exits, even when you're bullish or are you trying to say something else? Well, what I'm saying is how could you be wrong? You know, it's really – and usually that's from a fundamental standpoint. And we've been hearing this, you know, for 10, 12 years since interest rates went to zero, you know, after the financial crisis is that this was a Fed-induced this or that or whatever.

And the Fed's got your back and the Fed put and this and that and this and that, whatever. But there's been some major corrections. And so my issue is not for investors to buy and hold Crow or buy the dip sort of thing. It really is for traders. That usually, the psychology of trading is that you get most amped up when everyone else is most amped up, and you make mistakes. And the GameStop thing is exhibit A. I talked to a kid who works on one of the podcasts that I do the other day. And he's like, I should have listened to you and Guy last week. I bought 15 shares of GameStop at $450. And now it's at $50. That's a disaster. Can I be honest with you, though? I have another perspective on that. I actually think that's the best thing that could have happened to that kid that's what guys said i really believe that because i live that

myself and i still make mistakes every day ask uh sprinkles if you don't believe me but i don't make the same ones and i don't make catastrophic ones and uh i think like that's a best case scenario is your introduction to trading is like chasing meme bullshit on the internet and you blow yourself up with a small dollar amount that really doesn't matter. But you take away a lesson that you can't learn from reading a book. So I don't think that's so terrible. All right. So overall, you're seeing a lot of people in the options market now, but it doesn't really appear to be changing that much. I think it's probably having a bigger impact in the stock market maybe than the options market. Do I have that right? Well, here's one thing I would say

to you is that right back to learning lessons in the markets, I think that people think that they're trading in the stock market. And if they're speculating in options, they're generally going to lose money doing it. And so it's going to really turn them off to the stock market. So, you know, and I'll just tell you, let me just tell you a quick example if you got a minute, because I think this, I'm a tinkerer, you know, back in the late 90s, when eBay became a thing and Amazon became a thing, I opened up an account, I try to transact on it. I always like to figure out how things work. You're probably a similar sort of way. So last, two weeks ago, it was a Wednesday, it might've been January 27, 26, I opened a Robinhood account. I connected via Plaid, which is a tricked out awesome service

to my Cinebank account. I transferred $10,000 over there. The money has not hit. They say it's not gonna hit for days. They offer me $1,000 to start trading immediately. Okay, I get signed up for an options account. Then they offer me $5,000 in buying power because I'm a Cine,

or I could be a Robin Hood gold member. OK, so all of a sudden the money hasn't even hit the Robin Hood. OK, and I can trade $5,000. Do you think I could trade $5,000 in stocks? What am I going to do if I'm that junkie who just did this? I'm going to go right for the options. Right. And so I just think that's a really Vegas.

This is Vegas sending the limo to the airport. That's exactly it. On a very small scale. Yeah. And just so you know, in full disclosure, I've had a relationship with Fidelity. They're one of the only firms that does not sell their order flow, okay? So they are not in this payment for order flow thing. Shout to Fidelity. No, I'm just telling you that I do a weekly thing called In the Money for them, and we're basically

doing what we talked about with options. We're not trying to speculate. We're trying to define our risk. We're trying to do smart things using options to augment people's stock investing or trading habits and do it with an eye towards financial literacy. So, you know, I'm not kind of banging on the other guys for the sake of doing it. I'm just telling you the barriers to entry are not particularly high and the ability to get in trouble is very easy. Yeah, no, I think that's a good message. And the payment for order flow thing is every brokerage pretty much. Fidelity is a big exception, but

it doesn't even really bother me. I think what bothered a lot of people in this last episode was that they had the sense that the rules changed. And they don't really understand net cap requirements at broker-dealers. They don't understand positioning and really anything. They just know that this is a – because trading is like Candy Crush when you first start. The dollar amounts are insignificant for most people. The user interface is super colorful and exciting. So it's like FanDuel or, you know what I mean?

It's like, wait, what do you mean you changed the rules? We're in the middle of a game. So that's the impression people got. But the payment for order flow stuff is the least of it, I think, for most people. It's the least of it, but it's funny. You know, Robinhood was meant to be the change agent, right, for this Reddit crowd, right? They were trying to democratize, you know, financial services and markets and this and that, whatever. And as soon as and I heard your podcast from a few weeks ago, in the middle of this, about Wall Street will

always change the rules. And it was a really great take in a way. And I don't know if you can draw a very, you know, a straight thread, you know, over history because the circumstances have changed. And I think that you and I would both agree, like, well, what the hell is Wall Street? Wall Street is really a bunch of incentives for all intents and purposes, right? And it's incentives of like what you're willing to offer the consumer and what sort of risk you're willing to take and what your baked in margin is. And I think the problem with the Robinhood situation was that none of these customers ever asked what the product was, right? It was like, you know, oh, you're charging me for

margin. Oh, you're selling my order flow. Oh, you used to sell the data. You know what I mean about what I'm clicking on or this and that or whatever. Well, they were the product, you know, for all intents and purposes, and they have reasons to be pissed off about it. Yeah. I think like young people understand that. I think they get that they are the product because they were born into this world of free services, free apps. And by the time you're 20, you understand that people are doing things for money.

So I think that's like an agreement that we've all made with all these apps we use. And we know that most of what we're paying is in the form of privacy or lack thereof. And like, we're all kind of like, ah, f**k it. If this guy doesn't steal my information, someone else's anyway. So I think we're all kind of mentally in that place where it's like, okay, I'm paying somehow. I get it. It doesn't bother me that they're selling my orders to a hedge fund. Like I'm trading $500 worth of stock. Who gives a shit? I think people are okay with that. The rule change thing though, that's like a, that'll be in textbooks for years to come. Like how not to do PR in a crisis.

Yeah. Well, here's a great example. So I'm, I'm at a friend's house watching the Superbowl small group under six. Don't worry about it. Socially distance. And you're going to get thrown out of Manhattan. Don't tell this story. Socially distance. I was going to say, you're going to get thrown out of Manhattan. Don't tell this story. But I'm with a teenage kid, and we're trying to figure out to download the DraftKings app, right? Because we want to bet a few hundred dollars on the game. I can't download the DraftKings sportsbook app in New York, but I can download a Robinhood

account and get trading in like a half a second, which is crazy because we know what's going on on the Robinhood app. It's the same thing as DraftKings. And let me tell you something. You probably have more of an edge betting on the Super Bowl than you do on the next five days of Apple. You know, it's funny. That's exactly, I was talking to Batnick about that. Like when the Robinhood app goes down, what app do people open next?

It's not Schwab or Fidelity. It's FanDuel. Yeah. Because that's what they're doing. And then you know what else? And Coinbase. And Coinbase. So it's all the same thing, man.

Oh, man. Don't shut down Coinbase. You'll have an absolute riot. You'll have an absolute riot. Yeah. Well, you know, and let me tell you something. You'll have a riot on your podcast hands if you say anything negative about the coiners because this is turning into a whole new world right now. I am too.

I'm in. Here's the thing. I don't feel the need to post what I own and how much I'm up and whether I'm like – And the fact that you couldn't criticize any pillar of the bull case without getting slayed on the social web is like the dumbest thing ever. Do you think if people ran around the way that these coiners do with these finfluencers, whatever the hell you want to call them, and all this other garbage that goes on about the stock market, this thing would be shut down. Is that a finfluencer? That's a name. Oh my God. I was at Fordham University moderating a panel with the Winklevoss twins in December 2017 on cryptocurrency and Bitcoin.

And at the time, I think like between them and maybe two or three other Wall Street related people, like they might have had like the biggest stash of Bitcoin of anyone in the country like that that people knew so they walked in with like a marine as like their private security so that was at bitcoin at like 15 000 or 12 000 now it's 45 000 so don't tell people what what what year was it 17 yeah well i mean bitcoin just you know i bought my first bitcoin because of brian kelly who wrote a book on Bitcoin, the Bitcoin Big Bang. He's one of my co-panelists. I bought that year, too. I remember. He wrote a book on it in 2014.

I went to the book signing. It was like 10 people. It was at the Grayscale office. And I think it was like the cantina scene in Star Wars. It was like, you know what I mean, a bunch of knuckleheads. And the thing was trading at like $200. You could have had all you wanted. know what i mean a bunch of knuckleheads and the thing was trading at like 200 you could have had all you wanted but i guess my point is is like at what point did it turn into that if you don't have

a bunch of like white billionaires who made their money on centralized web platforms based on fiat currencies like if you don't have these guys out there you know what i mean like pushing this thing along every day what's going to happen to this thing i i don't get it. I don't love manias. I don't like manias at all. And I think that's a mania. I buy a lot of the pillars of the bull case. This is not, it's like, I don't want to go into a whole Bitcoin thing, but I am bullish on the concept. I just have trouble wrapping my head around the scarcity. It's hard for me to understand why if you could create one coin, why you couldn't create 100. And that would dilute the interest across all of them

so that you didn't have one that everyone was trying to accumulate. But I guess we're not going to solve that today, Daniel. Listen, here's what I want to tell you. First of all, I want to tell you it's great to see you. And we'll definitely hang this summer. We'll try to do some drinks or something hopefully spring yeah but then i want everyone to check out the new podcast with guy adami and danny moses and it's called uh on the tape on the tape yeah fall said i'll add on the tape pod hey listen josh we were hoping to do a home away here so hopefully you will come on very soon on on the tape and we get to turn the tables on you and ask you the questions.

A hundred percent. I would love to come on. You guys send me a calendar invite. We don't have to talk about it. And I'm all in. All right. And everyone can follow your stuff at riskreversal.com, at riskreversal on Twitter. And they can watch you Monday through Friday, most days, some days.

Yeah, a couple days a week. And Fast Money. When they can tolerate me. You hi to melissa for me i haven't i haven't seen her in a year either all right we're gonna do like a mash-up it's gonna be like the brady's meet the um you know the partridge family at some point we'll do but i was like oh yeah but it's a little i was like a spin-off from this is more like uh what's the show that spun off from the Jeffersons? Oh, yeah. It was All in the Family.

Wait, the Jeffersons was a spin-off. Of All in the Family. Yeah, you were more. I'm George Jefferson. I like what you're doing. Yeah, listen, you do me a favor. You say hi to my buddy, Scott Wapner. He had dibs on you. That's really what happened here.

I think it was kind of like a little kind of family infighting. We'll never know. All right, hey, you're the man. I'll talk to you soon. Thanks so much, Dan. Thanks, Josh. Thanks for listening. Check us out at thecompoundnews.com for daily investing and market insights.

You can watch all of our videos at youtube.com slash thecompoundrwm. Talk to you next week.