The Compound and Friends - Why You Shouldn’t Sell Your Losers Yet

Episode Date: October 24, 2023

On this episode of TCAF Tuesday, Downtown Josh Brown kicks things off with his thoughts on Killers of the Flower Moon, how Netflix won the streaming wars, and parenthood. Then Josh teams up with Michael Batnick for an all-new episode of What Are Your Thoughts. See what they have to say about the biggest topics in investing and finance! On this episode they discuss: Microsoft and Google earnings, small caps, gold, M&A vs IPOs, tax loss harvesting, and much more! Thanks to US Benchmark Series for sponsoring this episode! Visit https://www.ustreasuryetf.com/ to learn more. If you would like to meet up in Charlotte, email [e-mail] with the subject line "Charlotte." Watch this episode on YouTube: https://youtube.com/live/p_l---n_Bhk 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. It's your boy, downtown Josh Brown. I wanted to start today by talking about a couple things, actually. Let's get into Killers of the Flower Moon. This is one of the better books that I've read in the last couple of years. And I don't want to tell anyone not to see the film. And I'm not going to spoil the whole thing thing, but it's a historical true story. And by now you probably have some sense of what it's about. This is a string of murders that took

place in the 1920s. Basically the Osage Indian tribe was per capita, the wealthiest people in the world. They were given this horrible farmland as a reservation. And then little did anyone know, this land was sitting atop just a massive oil reserve, very close to the surface. In those days, they weren't able to drill deeply. And, you know, oil was just at that point really taking off as, I suppose, the most important technology of the day. So they become fabulously wealthy. And then, of course, the white man is looking on, and they are working, in many cases, for the Osage. And they are in tent camps. And so, of course, And they are in tent camps.

And so, of course, the murders begin. And it's a really, it's an amazing story. And it's a really well done book. And the movie was really good too. The problem is, it's a three and a half hour movie. And it's not just that it's a three and a half hour movie that's the issue. It's that you could have told this story in two and a half hours and really not lost anything. And a lot of what makes up that three and a half hour runtime is it's – I don't want to blame it on cinematography. But there are like these really long lingering shots on the prairie or someone's face, or they'll follow someone walking through

the crowd. And it just, it slows the action down to the point where it's noticeable. So you're two hours in and it's just an incredible film. And you recognize that what you're watching is just a really beautifully crafted, well-made movie by Marty Scorsese, who has made many beautifully crafted, well-made movies. And you see all of the art that he's putting into this. But then you also see your phone screen and you say to yourself, like, I'm basically halfway through this. And it's almost like unbelievable what you're signing on for. But it's a great movie. So I want you to see it. I just want you to, I don't know, like just mentally prepare yourselves. It's not been a huge hit at the box office. So I thought this was interesting. The movie costs like $200

million. And for the most part, it was financed by Apple. And Apple can afford to spend $200 million on something like this, even if it's not a smash hit at the box office. The real goal of this is for it to stay in theaters long enough to qualify for all the awards, but then find its way onto Apple Plus or Apple TV and be part of the streaming platform and hopefully be the means through which Apple adds a whole bunch of subscribers. So for Apple, they're probably one of the few companies that – I'm sure they're not thrilled that it's not a smash hit, but I don't know if anyone's getting fired for this either.

It's Scorsese. So they probably said to themselves, look, he's an artist. It's probably part of his deal where nobody can edit him or nobody can tell him how long the runtime is. So they just said, you know what? We got into bed with an artist. It's Leo. It's De Niro. It's Scorsese.

More often than not, whatever they put out is a hit. Wolf of Wall Street was three hours. That was a huge hit. That's already 10 years ago. I think The Irishman was successful enough at Netflix. Not so successful that Netflix wanted to do this movie, but also not a bomb. And that was three and a half hours. So I think they just said, all right, I guess this is what it is.

You work with maybe the greatest living director whose name is not Steven Spielberg. And he's an artist and we'll do it. The problem is the rule of thumb is that the studio needs to see something like two and a half times the original budget in order to make money in a film. So if this is a $200 million budget, they need to see like 500 million. And I don't think they're going to get there at the box office. And not just because of the slow start, which we'll get into in a second, but the movie did 23 million domestic in its opening weekend. And granted it was up against the Taylor Swift movie. I don't think there's a ton of overlap there. But just being charitable, Wolf of Wall Street a decade ago opened to 18.3 million.

Ended up, I don't want to call it a sleeper, but ended up building in intensity. Ended up with 116 million US, 400 million global box office. So it ended up being the highest grossing movie of Scorsese's career. And of course, that is possible here. I just don't think it's going to happen. So Killers opened that, 23 million domestic, 22 million or so international. So in the opening

weekend, it did like 44. And again, remember, it's a $200 million budget. And I don't know how long it'll be in theaters. I don't think it's going to have the same momentum overseas to match Wolf for a variety of reasons. One of them is this is like a very Midwestern kind of American-specific type of story with the Native American tribe. And it just doesn't strike me as the kind of thing that is going to find popularity in Europe or Asia where it really would need to. Again, it's not impossible. One of the other issues is they make DiCaprio or he makes himself really ugly.

I think he's got something going on like inside of his cheeks or in his jaw or he's holding his jaw in a really specific, odd way. And he's playing a villain and De Niro's playing, again, no spoilers, basically a serial killer. And so neither of them are redeeming. Actually, there's like one redeeming, two redeeming characters in the movie. One of them doesn't show up until more than halfway through. He's a Texas Ranger who's become an FBI agent. And then the

other is she's an amazing actress. She plays the female lead. No one's ever heard of her. Her name escapes me now. Certainly not like a box office draw. So it's going to be very difficult, I think, for this to be a huge success. But again, it's Apple. And it's one of the few companies that it's fine for them. And I think what that really indicates to me is that we used to talk about the streaming wars. The streaming wars are over. Netflix won. And everyone else has room to experiment. And there's going to be consolidation. And I wouldn't be surprised if a few of the existing streaming platforms merge in the next couple of years, mostly out of necessity. They're just going to have to. Netflix added 8 million net subs this past quarter.

We found out last week. Netflix is the only profitable standalone streamer in existence, including Apple's streaming service. Netflix is the only streamer that consistently creates new hits, like consistently in every season, there's a new show that takes off, usually more than one. There's a new show that takes off, usually more than one. Netflix, I think, has really, for all the talk of competition and all the concern about the spiraling cost to make content, whatever it is, Netflix has figured it out better than anyone else. They had this huge wake-up call in the spring of 2022.

The stock price crashed 70%. They got the memo, okay, rates are going up. Nobody wants as much risk as they used to. We can't afford to keep producing as much content as we used to. We have to refocus on profitability. They came out with the ad-supported platform six months later at the end of last year. That was a huge success. The ad-supported users were actually more profitable than the plain vanilla subscription users, which is interesting. I don't think a lot of people predicted that. The password sharing crackdown worked exceptionally well. They're still running off the fumes of that as more and more people who had been sharing a password, stealing a password, whatever, just come in.

They pick a tier, maybe the ad-supported tier. Good enough. Okay, fine. I'll pay for it, but I'm only going to pay X dollars. Good enough. Good enough. It's working for Netflix. component of this is, again, Netflix slowed down on all the low quality quantity production that they were doing in the spring of 22. They got the memo ahead of everyone else. And now you're seeing

Max slow down, which is HBO. You're seeing CBS and Peacock and all of the other services. They are now getting the memo or have gotten the memo at this point. And now, oddly, counter-cyclically, Netflix can actually go back to spending again. And the reason why they can and the other platforms can't is because they're profitable. And you can take more risks when you're profitable and you have a stock trading near a record high and Wall Street is happy. That gives you the license to take swings

that I don't think the other publicly traded streaming platforms want to take right now. They're all at 52-week lows, whether we're talking about Warners or any of the others. publicly traded streaming platforms want to take right now. They're all at 52-week lows, whether we're talking about Warners or any of the others, Paramount, which is a disaster. So it's an interesting situation Netflix is in. And if you ask, how did the streaming wars end up, I can't tell you who's going to be two, three, four. Is it Disney? Then Max. Then I don't know.

I can tell you fairly definitively Netflix won. And they have the audience, and the audience is paying, and it's profitable, and they're churning out hits. And they're in a really good place right now with Wall Street, having gotten their subscription growth numbers up and having gotten this ad-supported platform as a new growth driver, and everything seems to be headed in the right direction. I also wanted to talk about Charlotte, North Carolina. We are super excited to be coming down there. We're going to be down there November 6th, 7th, and 8th.

We're doing a live podcast taping, which is already completely sold out. And please don't send an email because if we let one more person in, it almost would be against fire code. We have done our best to maximize the space at NASCAR Hall of Fame, but we are way, way, way more oversold than I thought we'd be. But we are going to be spending three days there and we are going to be seeing clients and at the same time taking meetings with prospective clients. And we do this all over the country and And we only do it a few times a year. And we've never done it in the South. So I would just say, if you're an investor, and you've always been curious, what would it be like to be a client of Ritholtz Wealth?

What are their personnel like? What are their advisors like? What do their portfolios look like? This is it. This is your opportunity. And I was talking to Michael about this a little bit earlier today. I'm not doing six or seven of these next year. I love traveling and I have a great time when I'm in a city and I'm with my employees and I'm with my clients and I'm definitely my clients. And, you know, I'm definitely going to do a few, but we've done a lot of these. And, you know, Michael's got kids very, very young, two little adorable boys.

And my kids are 14 and 17. And it is just very different. And you would think it would be the other way around. You would think like when the kids are younger, it's harder to get away and leave your spouse with two kids for three days or three and a half days. You would think it'd be harder when they're four and seven years old,

but it's actually the opposite. Because when you're raising kids and anyone who's raised kids before is probably nodding their head, listening to me having this revelation for the first time. I'm a slow learner. When you're raising kids, all of the struggle before they're 12 years old is physical. It's physically exhausting to have two-year-olds, four-year-olds, seven-year-olds, nine-year-olds. Physically, you're driving them everywhere. They're in a million activities. You are physically lifting them up and carrying them around the house. When they're really small, they don't sleep. You're up all night. It's like a physical challenge with kids under 12.

And then, and it's not always right along this dividing line, but at a certain point, the switch flips and the physicality of it is mostly over. You're still an Uber driver. Like you still have to be in the car pretty much the entirety of the afternoon, the evening, and all weekend, just getting them to and from all their stuff. But then you also become like a secretary because things have to be scheduled. And they're not yet mature enough and old enough to do it themselves. But it's really critical stuff.

It's beyond just, hey, you have a dentist appointment. It's like tutors. It's extra help. And then the buses are gone. So a parent has to pick them up. It's a whole thing. And then, God forbid, they start driving. And the challenge goes from being physical, where you're just so exhausted, like your eyes are closed before you hit the pillow. It becomes mental, mentally exhausting. And they say, little kids, little problems, big kids, big problems. Yeah. Yeah.

because if two six-year-olds get into a fight, everyone cries, nobody remembers it five minutes later. If two 16-year-olds get into a fight, boys, girls, boy and girl, whatever, it's probably something that lingers for a while. And it's probably over something deeper than so-and-so took my Cheerios. And when you're a parent, first of all, you're getting nonstop lip from your kids. I know your kids are perfect. My kids, nonstop. We'll call

you any name they can think of just to get a reaction from you. But they're up all night. They're always on the phones. Every minute of the day, they could be doing something that could be detrimental to their future. You don't know who they're hanging out with, or you think, you know, but you don't really know. You don't know what the people they're hanging out with are capable of. You don't know which experience they're having for the first time. You don't know when they leave the house for the night with their friends. You don't know where the night's going to end up or what time or how they're getting home or who's driving where.

It just, it becomes mentally exhausting. You can go out on a Saturday night with your friends. You can think your kids have plans. This one is going to his friend's house to watch the Giants game or whatever. And this one is going to a party two towns over. And it's 8 o'clock and you go sit down for dinner and the texts start. And it's, hey, actually, we're going to get on the train. We're going to go to Manhattan.

Or I need you after dinner to pick me up from this place and drive me, drop me off at this other hangout in this other place. And you just, you sit there through dinner. Your friends are talking, if they have kids different age than yours. And you're just staring at your fucking phone. Because it's like incoming. And so you're a secretary. You're an Uber driver. You are a punching bag, and every time something

negative happens with one of your kids, they fail a test, they don't make a varsity team, or they get left out of someone's party, or their girlfriend breaks up with them, or their boyfriend, or there's a big hangout and they're not there or something. Every time something happens, you feel it, the same emotional gut punch that your kid feels, but you feel it doubly as hard. Sprinkles says to me, And Sprinkle says to me, you're only as happy as your least happy child, which is absolutely the truth. And this is, you know, it's finite. It's not forever.

You're not going to have teenagers for even 10 years. It goes fast. It's like seven years each kid. So two kids, three years apart, it's a 10-year period where you're dealing with teenagers and trying to turn them into human beings. And it is the most emotionally taxing and exhausting thing that I think you could possibly go through because all of your emotions are going to be so tied up. And it's the other thing. There's no break. It's every single day. It's every hour of the day that you're awake for sure.

And it's every day. It's seven days a week. And so for that reason, I'll be very glad to be in North Carolina. This is where this was all headed, guys. I'll be very glad to be in North Carolina for three days. But more than that, I am not going to be doing a lot of these trips for the foreseeable future, not as many as I used to do, especially pre-pandemic, because leaving my co-parent at home in this situation by herself to bear the brunt of this with no assistance, no feedback, nothing, is not something that I particularly want to do. Makes it really hard to be away. And she's a,

you know, three times as good of a parent as I am, but still, but still it, it just makes it more challenging. I was explaining this to Michael. He gets it like intellectually. He understands it.

He's just not there yet with the age of his kids and he will be. And, uh, you know, he'll remember that. Like, so, you know, the firm has business all over the country. We have clients probably, I don you know, he'll remember that. So, you know, the firm has business all over the country.

We have clients probably, I don't know, probably in 50 states, 48 states, whatever it is. We have advisors all over the country. We have people that we want to get in front of, people that we want to see. We have fans everywhere. The nature of the firm demands that we hit the road and we get out and see our people and we want to, we have a great time. Um, it's just, I have to personally do less of that, at least in this, at this, uh, at this point in my life.

Um, and you know, everyone's cool with it. It's not really an issue, but I just wanted to, uh, to mention that. So we're, we're coming to Charlotte. I hope if you live anywhere in the South that's within a reasonable driving distance and you want to come see us, this is what you do. You hit info at ridholtswealth.com and you put Charlotte in the subject line. And we have some slots left on the calendar for prospective clients and anyone who wants to come and talk to us about their situation, their portfolio, their financial plan. This is going to

be one of the best opportunities you'll ever have. So I hope you get in touch with us. All right, on tonight's show, an all new edition of What Are Your Thoughts is coming next. Michael Batnick and I go through all of the biggest topics, including some very big, important earnings reports. We're going to talk all about what's happening in the markets and the economy, everything that we're reading, everything we're seeing out there. I think, as usual, you'll enjoy it. And if you do, the last thing I would ask you to do, make sure to leave us a rating and review wherever fine podcasts are played really goes a long way. All right, I'm going to send you to the show right now. Thanks so much for tuning in. And here comes what are your thoughts? Welcome to the compound and friends

all opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. All right, my gangsters and my gangstarrats. Welcome to an all-new edition of What Are Your Thoughts? Thank you guys for joining us on the live. My name is Downtown Josh Brown. With me as always, my co-host, Mr. Michael Batnick.

Michael, say hello to the folks. Thanks for that. This is partially- Oh, for the audio. Hello, listeners. Welcome. Wow, what a guy. Hey, guys.

So great to see everybody. I wanted to say a couple of quick hellos in the chat and then we'll get right down to business. It's earnings season, of course. Roger's here, Jack is here, Gregory Mark, MK, what's up? Nick P, Rachel and Chris are here. Matt Dodge is here, Nick Kaspersky. Let's see who else. Jeff Asola, Gary Walter, Drew Hickman.

Nice to see everybody tonight. Thanks for tuning in. Michael, who's our sponsor? It is U.S. Benchmark Series, an FM property. John, throw up this chart. All right. This is a very, very interesting... I actually wrote about this the other day. What we're looking at here is interest rate scenario analysis. So

what US Benchmark Series has that's really unique are they target different maturities. So they've got a three-month bill ETF, US Treasury three-month bill ETF. They've got a six-month, they've got a 10-year, they've got a lot. And actually, if you look at the total assets in these things, it really says a lot about investor preference. So for example, the three-month T-bill, Josh, ETF has 2.4 billion in assets. Wait, can I stop you and ask a question? Because I'm not as familiar with this as you are. When you say they target, so it says, say they target? So it says to chart off two year treasury. So if you buy it now, the fund actually matures in two years, like a bond, it's not an ETF that lives forever. Uh, no, they're continuously targeting that area of the curve. Okay. All right. So they're just giving you what the maturities are

in that. Yeah. But it's interesting because like I said, they have $2.4 billion in the three month. Yeah. 450, I'm sorry, 500 million in the six month. And then in the 10 year, only 60 million. Nobody wants duration. Nobody wants duration. But chart back on. I do. Chart back on. Okay. So what this is showing you is the asymmetric, in my opinion, well, not my opinion. This is a fact. These are just math. Risk reward in bonds. So look at the 10-year treasury, for example. So when they made this, it was yielding 4.46%. That's like in the middle, you see it? 4.46% for the 10-year treasury? Yeah. So this is showing you what happens 12 months from now if rates go up 50 basis points or down 50 basis points or up 100. So what's interesting is this. So if rates go up 100 basis points, now this is called convexity. It's the second derivative after duration.

If rates go up 100 basis points over the next 12 months, this thing will lose 2.64% total return. Yep. Because you've already got the 4.5% starting buffer, right? But. But if rates go down 100 basis points, you've got the yields today plus whatever yield you're going to be getting plus price appreciation. Preston Pyshko, So you make, what is that? 12% on a 10-year? Jeff Lerner, 12% of rates go down 100 basis points. You lose 2%, 2.6% if rates go up 100 basis points. This is over the next 12 months. Preston Pyshko, So you would say that the risk from here in something like a 10 year treasury is fairly asymmetric.

It is possible we get another four quarters of worth of hikes from the Fed, not likely based on current projections, but conceivable. Yeah. So what? So what? Who cares? So what? So what? Who cares? Because the benefit of those first four rate cuts, even if they don't come for two years, is a much bigger payoff. Listen, I was talking shit about 10-year bonds today on LinkedIn.

I don't care what anyone says. I'm a hungry hippo right here. I want to lock that shit in. I don't care if it goes to 6%. I want it now. Can I say one more thing that's interesting that you might not know about? So a lot of the popular ETFs that will target areas of the curve, three to seven, seven to 10. Yeah, this is a specific maturity. No, but listen. But listen. So if you're buying this seven to 10, and not that there's anything

inherently wrong with this, I'm just saying, that is sort of like a market cap weighted ETF. Yes. What determines how much you're getting and where is how much the government is issuing inherently wrong with this. I'm just saying that is sort of like a market cap weighted ETF. Yes. What determines how much you're getting and where is how much the government is issuing at different spots. So if you wanted to target a specific maturity, now you can do it. And there are people that do and increasingly more. So it's benchmark. Where do people learn more about this? U.S. Treasury. What's this?

It's USTreasuryETF.com. There you go. All right. USTreasuryETF.com. All right. Let's get it on. Okay. You're up.

Before we do. Oh, as Josh mentioned in the monologue, I know people are, take it easy. We're going to Charlotte, but I'm'm asking with peace and love with peace and love there are no more tickets we are sold out so we we what what no yeah it's a good point i feel bad we we appreciate people continuing to reach out but we have no more tickets left you know we did we we uh we just we didn't think big enough when we booked it we booked we booked the event. And we know better for next time. We've never been there before. We don't know.

You're just such a rock star that we just need a bigger, you know? Listen, I thought 10,000 seats would be enough. But apparently, it's not. By the way, shout out to Nicole for planning the whole thing. And if we closed you out, it's her fault. So just let her hear it in the chat. All right. We're going to go through, really, we're going to spend a little bit of time

on Microsoft and Google. But before we do, just a couple of quick items. Coca-Cola, apparently people still like to eat sugar, right? There's all this Ozempic stuff. I thought everyone was going to be skinny. What happened? The stock's getting killed. It's had a pretty nice bounce off the lows. So Coca-Cola revenue,

third quarter sales rose 8% to 12 billion. Analysts were expecting 11.44 billion. So I think that was fairly predictable that Coca-Cola sales were not going to crash because a couple of people are losing weight. Last week, we spoke about uh i think it was last week about uh ldmh and sorry stop get out of the chat we're live no no one thing about wait what to stop one thing get out of the chat you're distracted i'm not in the chat one thing about coke cola so my friend that's on the ozempic you know him too he smokes a pack of cigarettes uh at night now when he's out drinking. And you're not supposed to drink on that stuff also. And this is just, to me, this whole idea that all of these junk food stocks and fast food stocks are going to zero. No way, man. Have you met any human beings before in your life?

Are you kidding me? All right. Sorry. Go ahead. All right. So last week we spoke about LVMH and I said, a luxury slowdown? Question mark? A luxury slowdown? Yeah. Actually not. Hermes, did I say that right? What do they make? Bags and stuff? Hermes? Dude, leather goods. Yes. Okay. Yes. Bags. So at the end of September, 2023, all the geographical areas posted solid performance with growth above 20%. So I think year over year, that 22%. So I guess in like real, and that's real luxury, right? Yeah. Well, Hermes is interesting.

It's like, it's kind of off in its own world. It's super hot right now. The reason why the emblem is the horse and carriage, their original product, same as Louis Vuitton, was big steamer trunks for royalty so you had a king or a queen or a duchess how do you know this because i just know and so that you know but like so i'm answering your question what do they make like yeah you could buy a belt from hermes for like 1200 you could buy a silk scarf for two thousand dollars or you could buy like a giant you know

leather overnight bag for $7,000 this is aspirational oh my god $1,075 sneaker this is wealth this is not like polo Ralph Lawrence shit this is like the next next good lord real luxury there's a gentleman loafer you could wear this gentleman loafer

it's $860 outrageous anyway they're on fire. It's not even that much, dude. It's like Ferragamo's are like $750 now. $860 for a pair of loafers? No, it's not a lot of money, but I'm saying it's not outrageous. I don't know. I'm wearing a $12 Gap shirt, so you're talking to the wrong guy.

It's fine. Listen, I'm wearing a Red Holtz racing hoodie. It's fine. There we go. So Visa, I didn't get a chance to look at the earnings to really dig into the report yet. But revenue was $8.6 billion over $8.55 expected. And earnings per share, one, one.

Beat. And Visa shares are trading not too far from an all-time high. Not too far. I sold this too early. I sold this sometime in 21. I should have held it. Yeah, but you held it for a long time. I did really, really well with it, and I held it for like 10 years,

but I probably should still be in it. All right. You want to do this via Sean's stuff, or can we skip over this? Yeah, no, let's just get right into Alphabet and Microsoft. All right, Microsoft first. Okay. So this is from, we're just going to go through these charts. This is from Consensus Guru.

Consensus Guru, excuse me. This is an interesting table. It's showing the EPS beat or miss. And tonight they, why do I keep saying they won? Tonight they beat. This next column is showing the PE ratio into the print. This stock is trading at 30 times, as high as 34 in Q421, as low as 24 in Q1. And the stock reaction's kind of not been great. I kind of, in my head, thought that Microsoft tended to do well.

But it's been pretty much a mixed bag. Stock's up 5% in the after hours right now. I think what's important here is that the best business they have, which is cloud, is re-accelerating. And that is really the most important thing to the stock. I mean, there's a lot that they do. And the AI stuff, obviously, is going to get a lot of headlines. 13% revenue growth at a company doing $56.5 billion per quarter. It's just a crazy growth rate. But what was really great in this report and why I think the stock knee-jerk rallied higher was Azure cloud business was up 29.

And that had been coming down. So it had been coming down and it had a huge spike. 29 is definitely higher than it had been in some time. Let's talk to some of these charts. This is from Corder who, by the way, now I was listening before we hopped on, quarters got live earnings calls with live transcripts. It is remarkable. So speaking of remarkable, look at this business. So this is their 24 Q1 fiscal quarter. I don't know, don't ask how they measure this shit. So 21.5 billion, which is a lot of EBIT. That's a lot of EBIT. A year ago, grew 25% year over year. 25% year over year. 26.9, yeah. Remarkable. And if you compare it to the last quarter EBIT from the companies as follows, so Microsoft has

done more earnings before interest and taxes, that's what that means, than Adobe, Salesforce, Microsoft has done more earnings before interest and taxes. That's what that means. Then Adobe, Salesforce, Tesla, ASML, Costco. Netflix. NVIDIA. I miss Netflix. What's that goat?

Is that a reindeer? I don't know what that chart that is above NVIDIA. I believe that's a general goat. I don't know. What company has a goat? Let's keep going through some of this stuff. So, all right. Just remarkable numbers. $'s, I don't know. Let's keep going through some of this stuff. So, all right. Just remarkable numbers.

$56 billion in revenue. Dude. Gross margins at 70%. Operating margins at 48%. I don't know how many times we've said this, but these companies just defy the laws of business as we know it. They just do. Can I say one other thing?

I think they have like 144 billion in cash now. So they said that AI-related capital expenditures jumped 70% from this quarter last year, but to only 11.2 billion. And I know it's a lot of money. I don't mean it tongue-in-cheek. They're spending $11 billion to build that AI every quarter. It's a lot, but not compared to the rate at which they're piling cash up. And now if they're even vaguely attempting to cash manage their own cash pile, which you know they are. Literally billions? Not probably.

What are they earning in cash versus? Yeah, go ahead. Not probably. What are they earning in cash versus – yeah, go ahead. Didn't Barry and Chris, when they went out to Washington State, meet the treasurer of Microsoft? Yes. You think they kept in touch? But Josh's point is – That guy is probably working his ass off right now.

They locked in debt at 3% or thereabouts. And now they're getting 5% five plus percent of their cash. So 2% on $150 billion, it's endless. They could spend more on AI than anyone and, and not even disturb the, the, not even disturb the cashflow really. Not to get amazing, not to go too far off on a tangent, but I was reading, who did I share this with? I'm sorry, just one sec. This guy, Sam Lesson, had a report on the state of venture capital that I was sharing with you guys last night.

And there might not be a lot of AI startup winners. That's like what his thesis was. These companies, it's going to be Microsoft and Google and Meta. They're just going to gobble up anybody that even remotely starts to have success. The biggest winners in AI are going to be the incumbents. I want to just say one thing about that. I sort of agree, but with a twist. There are not a lot of internet companies per se. There are platforms, but it's just like a few. And then there are, I suppose, the telecom and cable companies that are providing broadband. I don't know if anybody would look at those and be like, what a big winner.

Some of these stocks have been down 20 years straight, like Verizon. But whatever, like that's the whole internet. And then there's another layer of companies that have built on top of those big platforms and services. Those will exist. It could be 10 years before they even arrive. That follows every pattern of every tech adoption curve we've ever seen. But I don't know that old patterns extend out to where we are today. So he has a slide that says, AI startups are wishful thinking by VCs. AI startups and their investors are going to get crushed. So he basically said that the incumbents... But then here's a great line. He said, even if you think I am wrong and there are startup opportunities, the problem with anything like AI

is that the businesses will be so picked over and so outrageously priced, it isn't even worth bothering playing. There's so much more capital chasing startups, hot startups today than there were even 10 years ago. One thing that we forget, this is like the role of venture capital to lose a shitload of money in a tech transition for the benefit of the rest of us who are further downstream. We won't become billionaires as a result of what they do, but we will very like calmly and casually grow a million into a couple of million based on the work that they're doing.

And they have to invest in this stuff. They can't afford to miss something and they have to own a lot of zeros. And we kind of forget that that's like historically, that's what they do. And that's not, I think, I think there was like a 10 year period where like everything just worked and there were very little few zeros. And if you couldn't take it public, you could SPAC it. If you couldn't SPAC it, you could do endless rounds in the private market, or you can do M&A. We're going to talk about M&A later. It's not usually like that. It's usually more like, hey, we invested in 20 things.

This one thing worked out, paid for all the others, hopefully. And we did about 20% returns on the fund. That's how it usually works. In the last few years, we spoke about venture through the lens of an asset class, forgetting that how many things that we use today are venture-backed companies. It's actually an incredible thing. All right, whatever. Let's keep going. All right. Microsoft Cloud. Look at this growth. John, please, John. Back up one, if you don't mind. Thank you. Okay. So Microsoft cloud revenue in billions. So just go back to a year ago, they were doing 25.7 billion, then 27.1, then 28.5, then 33, and then 31.8. So the growth, it's 24, I'm sorry, year over year. It's crazy. It's crazy growth. You're growing this segment. And the margins.

24% and the margins are at 73%. They don't budge. They don't budge. Josh, there's no precedent in history for this. No. Next chart, please. You can't model. You can't model.

So Alex Morris said, this is the Microsoft Cloud revenue run rate. So run rate revenues now exceed $127 billion. So run rate revenues now exceed $127 billion. The entire company in fiscal year 2019 was $126 billion. All of Microsoft. All of Microsoft. Somebody said that. All of it.

The year Microsoft was founded, they did $16,000 in revenue. And now they do $16,000 in revenue every two seconds or something like that. I forget where I saw that, but it's, yeah, the superlatives that aren't enough. Let's do a- By the way, hold on. Before we get to Google, Josh, there's a good segue to Google. When we were talking a couple of weeks ago about ranking our Magnificent Seven for the rest of the year, I think you and I both had, well, of course we were going to lose. We had, when we had the exact same list, we had Google one, Facebook two, Microsoft three, or Nvidia three. No Nvidia. I think I had Nvidia two. I don't know. We got to, we got to pull that up. All right. Google, whatever. It's, it's, it's already not going well. Uh, Google, Google is one last thing. I'm sorry. I'm sorry. One last thing on, on,

on Microsoft. LinkedIn is still growing 8% a year. Yeah. I told you the best social, it's the best social network in existence. It's the only one that matters at this point. They're all, Facebook is over. Twitter is obviously a disaster. LinkedIn is the last one left and Microsoft owns it. And it's pretty remarkable. All right.

Alphabet's not so great. I don't really understand why because on the surface, the numbers look pretty good. Beat on revenue. Beat on earnings. YouTube. Yeah, I mean, they...

All right. Sales growth in the cloud division slowed to 22%. And we said Microsoft was positive 29%. So versus the third quarter last year up 22%, it's not terrible. It's 8.4 billion of revenue. It's our biggest engine of growth.

So I guess that potentially slowing is what's hitting the stock. But the thing is, it's just not that big. Like they're a very, very distant third to Amazon and Microsoft. So they only made, only, they only profited $266 million this quarter in the cloud. So it's not growing as fast as Microsoft's. It's smaller.

And maybe it's short-sighted to get bearish on it based on this one particular quarter, because there is no future for cloud computing where google's not a huge player but that's probably if you ask me like what's the reason this is down and microsoft's up that would be my guess what do you think well i'm sorry i wasn't listening i was getting ready for my next point sorry i'm being honest make it uh now i forgot my next point. Damn it. You're crushing it tonight. I'm on fire. One thing about-

Oh, I'm sorry. I remember. I recall my point. So Google and Facebook are important through the sense of that, if the economy was to be softening, which a lot of people say that we are softening right now, we're slowing down, ads are what goes first, right? The ads are the easiest knob to turn for businesses. And I'm sorry, you're just not seeing it yet.

Well, I'm not sorry. It's actually a good thing. You're not seeing it yet. Yeah, I think both of these companies are moved by what they say on conference calls and what kind of guidance they give. So we're like reacting to this stuff, you know, with the news out for about an hour.

But I think just overall on balance, these are still the companies that are in the best businesses on earth. And that's why you got four stocks worth $6 trillion reporting in the next couple of days. These are just the best. These are the best of the best still. And none of that changes based on tonight's earnings. What's going on with Snap? Hold on. I forgot this thing was still public. Yeah. One more thing on Google. So they said, in January, 2023, we announced a reduction of our workforce. And as a result, we recorded employee severance and related charges of 86 million and 2.1 billion for three and nine months

ended September 23. Unbelievable. In addition, we are taking actions to optimize our global office space. As a result, exit charges for the nine months end of September were $649 million. The fact that they're able to do this, like, all right, $2.1 billion in severance. We're going to take a charge of $650 million for real estate. It's wild. And John, chart on, please, exempt number six. $50 million for real estate. It's wild. And John, chart on please, exhibit number six. Next one. We'll skip over this one. All right. We don't see any reports about the fact that tech layoffs have basically stopped. Remember this was all over the place in late 2022, early 2023. It was nothing, but it was, oh, another one. Now it's Amazon. Now it's Salesforce.

Now, and guess what? It doesn't happen. And now the media doesn't report it anymore. Well, I think this is going to factor in heavily in Amazon's quarter. And it's not even a tech company. Like Amazon is a consumer discretionary, but like they're going to report Thursday. And I think, I think like Amazon is going to have a great quarter profit-wise because finally all the layoffs, the charges, the severance, all of that stuff is now baked into the cake. And a little bit of uptick in their business like we just saw with these other companies combined with that lower cost structure. And I think Amazon is in a position to not disappoint this time after a few disappointing quarters in a row. But you're right, you're not hearing as much about layoffs

and actually some of these companies seasonally had to hire back. Amazon's a really great example of that. All right, John, let's end with Snapchat. Okay, so Snapchat for a change. So I first grabbed it after I was like, oh my God, it's not down 15%. That seems to be the theme every quarter for the last couple of years. It's such a piece of shit, but it has such a hold on the younger generation though. They really use

it. Well, the rally pretty much faded. It's up 4% now, but I mean, I wouldn't invest. I wouldn't invest in it. Cause I don't think they found a way to make money from that, but look at the revenue. What is it? Uh, all right. So it's, it, it, uh, troughed a couple of quarters ago. It's back on the way up. That's both in terms of like global revenue, as well as average revenue per user. So not terrible. I mean, the problem is like the revenue model just makes no sense to me. It's supposed to be advertising. And there is some content on Snap

that's not kids sending messages to each other. The content just sucks. And Instagram kicks their ass at that. Snap is just super effective. If you're 16 years old, all your friends are on it it's the easiest way to keep in touch with everyone you know each day you take a quick picture of yourself yeah i just don't know where the business opportunity is there yeah they're only there's so much it reminds you it's what are quite frank quite frankly uh and i think this has more users

than twitter is that possible yeah, it does. Okay. I think it does. Yeah, it's just not. Actually, wait. Well, Twitter had like, what, 300 million? Does Snap have more? Actually, about positive. Honestly, who believes any of this bullshit?

Okay. All right. All right. Let's move on. So that's earning. So not bad. I mean, not bad at all. All right.

What do you want to say about small caps? This is you. Yeah, this is me. Let's go through. John, can you just throw up some of these charts? Do we have these charts from Aaron Stanhope? So last week, Josh, we showed this chart that Aaron has recreated. It was the maturity schedule of the S&P 500, which again, not so bad.

Uh-oh, small caps. He used the S&P 600. Same thing, Russell 2000. But Aaron was like, well, actually, next chart, please. Oh, we only have one? All right. My bad. I forgot to put this in the doc.

But here's Aaron on the matter. So he says, when we break down small cap components by sector, the dominant part of maturities are in two sectors, real estate, big shock there, and communication services. And like half of the debt that's coming due, half of the debt coming due is real estate and communication sectors. However, it turns out that the communication services, all of that debt is two firms, two fallen angels, Dish and Lumen Technologies. So this is not like inflation, ex-food, ex-this. It's take two companies out and take out real estate. And it looks- Out of 2,000 companies.

It looks wildly different, wildly different. So it's not to say that tighter financial conditions, higher cost of capital aren't impacting small stocks. Of course they are. I just thought it was a great way, a great reminder that like, maybe don't take everything at face value, even things that seem objectively true. We had this conversation last week about,

or two weeks ago about Amazon. We were talking about like this earning season, what sectors are going to have the biggest earnings growth year over year. And I was saying to you, like, if you pull Amazon out, consumer discretionary is actually gonna be negative, but leaving it in, it looks like the sector is growing its earnings by 22%. So that, you know, yes, situational awareness. And actually Sean gave me this. I didn't, I didn't get to talk about it on CNBC today. If you takeIA and their earnings growth this quarter out of the market, the S&P's earnings growth goes much more negative. And the tech sector goes from positive to negative. Listen to this. NVIDIA will be the number one contributor to earnings growth for the S&P tech sector.

The whole sector should report 4.8% growth this quarter, year over year. Pull out NVIDIA, the growth rate is negative 2.9%. Wow. Look at how nuts that is. Yeah. That's just on the tech sector. On the S&P, if you pull NVIDIA out of this Q3 earnings season, the S&P goes from negative 0.4% to negative 1.8%. So that's one stock, not even the biggest stock in the market.

I mean, one of the biggest, but yeah, there's a lot of distortions because we're talking about a handful of companies in each sector that drive the whole thing and a handful of companies at the top of the S&P. And we should always keep that in mind when we're talking about market-related stuff. Got some M&A going on. Chevron is buying Hess. This is an all-stop deal. They're buying all of the outstanding shares in Hess. The transaction's valued at $53 billion or $171 per share. Hess shareholders are going to get 1.0250 shares of Chevron. So Chevron is going to issue new shares to pay for this. And if you include debt with the equity, this is going to cost Chevron $60 billion.

And this is, I want to say more about more M&A later. This is a huge deal in dollar terms. I don't care how big Chevron is. I don't care how big Exxon is. These are very, very big deals happening. And I thought what was interesting, Hess, I think is the second largest holding in IEO, which is an ETF we talk about all the time.

Exxon two weeks ago announced they were buying the third largest holding, Pioneer. So these are the companies that are targets. These are domestic oil and natural gas producers. And IEO has another 30 of these. And I just think it's interesting that the oil companies are using the relatively depressed valuations to buy up some really, really big names in the space. And I think it's super bullish for the whole sector. What are your thoughts? Pioneer is the fourth largest. Hess is the fifth largest. But do you think that Exxon and Chevron, I mean, they're done, right? They're out of the market. It's not like they're going, right? They're out of the market. It's not like they're going to be buying the seventh and eighth largest.

Yeah, no, these deals take like 15 months to close. So does that mean there's going to be consolidation at the smaller end? Who knows? I just think it puts a floor under some of the valuations here is more important than who gets bought next because who the hell knows? is more important than who gets bought next because, you know, who the hell knows. But I think just like understanding what Exxon and Chevron were willing to pay on a valuation basis for these names, that's like an important signal that these stocks are probably ownable, broadly speaking. And then we throw Oxy in there. Oxy is not M&A, but Berkshire Hathaway is buying

every show that's not nailed down. Every time that stock drops under 60, they're adding to it. So I think there's a floor here for these stocks and I don't know where the ceiling is. We have, I have some, I have some more charts in the M&A section. So let's put a pin in this and we'll come back to it. Okay. You're up next. All right. So I had this in the doc. I probably put this in on Thursday. Why is gold working? I could have also included why is Bitcoin working. And in terms of like gold, just, I think just a fairly-

It's a fake flight to safety. What is? That's why gold and Bitcoin are working. It's a fake flight to safety. It's a flight to fake safety. That's what I'm trying to say. Which is? Both of them. Yeah, dude, people, people have gotten their asses handed to them in treasuries and they're just like, all right, I guess I'll buy gold. And then, you know, if you're a lunatic, Bitcoin works better than gold, but like, that's what's,

that's what's going on here. Wait, what do you mean? Why are you antagonizing a Bitcoiners? The only lunatics own Bitcoin. I own Bitcoin. Am I a lunatic? I own Bitcoin. I am a lunatic. I'm going to tell you right now, the same people are going to get all bulled up on this. And then this stupid ETF is going to come out and the price is going to fall. Well, because you said so? Crickets? I mean, yeah.

It only happens every time. Do you remember when the futures started trading? Yes. That was the top, late 2017. The other time that was top. No, it's interesting, speaking of Bitcoin, you know what was the actual bottom? November. November of last year. When FTX blew up, that was the bottom. Kind of amazing how markets work. Like crypto aside, just the way that markets work, you would think that when FTX goes kablooey, what's left, right? Like, f***ing A, this thing is unownable. What is even left here if they're not around?

You at the time said, if you're looking for a reason to buy, the biggest brokerage on earth going bust, and this thing's still standing, that's the reason to buy. You're right. And that's what we call a clearing event. And every market sometimes needs a clearing event after an extended bear market. And that's what that was for Bitcoin. That was a clearing event. That was every weekend out at once.

A great teachable moment that when it seems like the news could not possibly get worse, bottom. All right. So anyway, my point with gold is that, listen, gold trades on a lot of different things. That's what makes it, I guess, appealing for some investors, is that it can be sort of a chameleon. But one thing that has been fairly clear, at least an intuitive case for or against gold, is that it trades inversely with real rates, right? If real rates are going up, it should make gold less compelling, right? Like why would you hold gold doesn't do anything. So chart on please. So the yellow line is gold and gold had been hanging high much of this year, despite real rates increasing. So the black

line is real rates inverted. This chart looks great. But the black line is inverted. So you could see, right, it's negative. That means yields are going higher. And it's not, it's, you know, listen, it's far from one to one. But nevertheless, it really is interesting to note the strength in real yields and the fact that gold is still hanging high with a strong dollar. It's impressive. I think gold is going to break out before the end of the year. I mean, there's not much time left, but it's been bumping its head up against 2000 for a long time now. It looks good. I don't know why anyone, if you're in it right now, why would you sell it?

There's a million reasons to want to buy it i don't know why you would what would be the reason to not want to be in gold other than technicals like if it if it sells off technically you might want to be out but i'm saying if you're like a gold believer this is the time to own it if you're a gold believer you're never selling but the reason to sell gold is because you can get 5.5 in cash not saying it's what it should sell gold but yes but people but on the way up when there's momentum behind the price of gold, which there kind of is right now, you're not worried about 5%. Yep.

All right, let's get back- It could double. Let's get back to M&A. Okay. I think we take for granted that you need the IPO window for people to get exits. The IPO window is not going to reopen this year. That Birkenstock deal was some piece of shit. That was the final nail in the coffin of 2023's IPO window.

I mean, the last couple of high-profile deals were just absolute trash. What was the one that arm holdings that's not the one i was thinking of though birkenstock's not that bad it was uh it was an instacart all right anyway there look there's just here's the vibes right now there is just not demand for anything like this we tried we tried a private equity held thing. We tried to bring that out. Didn't work. We tried a profitable VC-backed startup like Instacart. That didn't work. We tried a popular consumer brand like Birkenstock. Nobody wanted that either. Just nobody wants it. So if that's the climate, probably the bailout here for the private markets is going to be M&A.

And I know there's always M&A, but it just might be a more realistic exit if you need an exit in the next six months. Aren't M&As always bigger than IPOs? Or maybe not always, but generally speaking? Aren't there more buyouts than IPOs? The M&A market is large. Yeah, yeah. Normally. there are more buyouts than IPOs. The M&A market is large.

Yeah, yeah. Normally. And keep in mind, like in 2021, those are not IPOs. Those SPACs are M&A. You know what I mean? I guess, yeah. The SPAC does an IPO, but it has to buy a company. So technically, it's M&A.

But yeah, it shouldn't be that surprising. Bloomberg is talking just about M&A in general. Let's put this chart up first. So Fortune magazine is basically making the case that there are 1,200 venture-backed private companies on the verge of running out of money. and it's high time that we see a turnaround in M&A to alleviate that because they ain't coming out through the public window. Now, Bloomberg is talking about public market M&A. We've had $139 billion worth of takeovers in just the month of October. Did you know that? That's triple October of last year. It is the highest volume for any single month in terms of M&A since June of 2019.

And does this include the energy stuff or is that, or is this like closed? Yeah, it does. Okay. Four of the five biggest M&A deals globally this year have been announced in the last two months. deals globally this year have been announced in the last two months. And put that chart back up. October is the busiest month in years for US company takeovers. We're having a moment. We're having a moment. And maybe some of this has to do with people feel like, all right, this is as high as rates are going to go. Maybe you just still have these depressed valuations going into the end of the year. People are looking for something smart to do. There's probably a whole confluence of reasons that we can't get into now, but it's not just the United States phenomenon. And it's not just energy.

Roche Holdings, which is a big Swiss drug maker, they're buying a drug for $7.1 billion. Uh, there's an Indian steel company spending billions of dollars to buy Walt Disney's Indian operations. Um, Microsoft closed the Activision deal. That's 69 billion after two years of regulatory hell. Um, then you have the Exxon deal. Uh, they say Devon energy is looking at major acquisition targets. So there's a lot.

Oh, Bristol Myers Squibb just bought a big biotech. There's a lot going on here. And I wouldn't be surprised if it continued. And I'd almost rather see this kind of activity than just buybacks. I think it's a more interesting market when companies get bought and then the whole sector has to be re-examined and rethought and maybe even re-rated. What do you think about that? Well, it's certainly preferable to these companies being gobbled up by larger companies

than being dumped on the public. That's for sure. than being dumped on the public. That's for sure. Yeah. The average premium is at a 25-year low. All right, so let's get back to this. It's only 9%. No, no, no. No, no, no.

This is only for energy stocks. Okay. So, churn on, please. I apologize. The person at Bloomberg writing this, I forgot to put their name on the deck, but they say that the North American energy sector has seen $270 billion worth of M&A deals year-to-date, with the average share premium at a 25-year low of just above 9%.

Between 1998 and 2022, the average premium was 26.5%. So I wonder if one of the reasons why, and I think they alluded to this in the article, the premiums aren't so large is because the companies have done well. And they're not exactly cashing out, right? These are not cash deals. They're still upside in these names. So now you have shares of Chevron, you have shares of Exxon. He also said in a, so where does this leave the rest of the industry? He said in a consolidating industry.

In other words, why is Hess selling for a 10% premium? Like why even do that? In a consolidating industry, one wants to sell early before the best buyers have satiated their appetite elsewhere. I thought that was an interesting point. I agree with that. And there's one other thing I would add to that, just from my own history as an investor. One of the things I used to always do wrong,

and a lot of people that don't know any better used to do wrong, is if you think a sector is consolidating, buying like the lowest valued or cheapest or smallest company, like being like, oh, I'll buy the $8 one. It just doesn't work. Nobody buys the lowest quality name. The lowest quality name goes chapter 11, 10 years later, while you're riding it from 10 to a dollar. So if you are, for example, looking at these energy companies and you think there's going to be more consolidation, you'll probably be right. The highest quality assets are the ones that are going to get bought,

not the lowest quality, because those assets can be ignored or replicated by better companies in the space. They don't need to buy them. So just a heads up. All right. Stick with M&A. Let's talk about Morgan Stanley. So their investment banking revenue was below a billion dollars for the first time in a long time. And here's a quote. The minute you see the Fed indicate they've stopped raising rates, the M&A and underwriting calendar will explode because there is enormous pent-up activity. Boards of directors are sitting there saying, until we understand the cost of financing,

it is very difficult to pull the trigger on some of these capital transactions. I know there's pent up activity. I just don't know if there's an appetite for it yet. Oh, pent up activity. That's interesting. You know what I mean? They didn't say pent up demand. The investors don't want any of this shit.

There probably is pent up activity, meaning there are a lot of issuers who would like to sell something to the public. The public doesn't want it. So that will change, but, I mean, that's where we are right now. I think it's obvious. So Morgan Stanley's underwriting is competing with the Federal Reserve, and so is their wealth management. Because when interest rates are 5% and when you can get 5% plus on cash, people are in a lot less of a hurry, especially when it's not like the market is going up. In 2017, holy shit, I'm getting 1% on my bonds and the

market is ripping. I have to do something. I need to speak with an advisor, right? Get me allocated. Well, now the market's whatever. The market's fine, but it's mostly going sideways. I'm getting 5.5% of my cash or 5.25%, whatever it is. I'm not like dying to speak to an advisor. There's no FOMO in the stock market whatsoever. So anyway, so Morgan Stanley's wealth management, net new asset flows sank by 45% year over year. That is insane. Now they're still doing numbers. $36 billion is nothing to sneeze at, but it was $65 billion a year ago. So that's a 60% sequential decline. So they pulled in half the amount of net new money this quarter from a year ago quarter. Unbelievable.

Stock hit a 52-week low after they reported. It looks awful. It looks awful. James Gorman. Now, I don't know if this is because they already plucked all or they squeezed all the food out of E-Trade. I'm sure that's part of it. I think they have to make another acquisition. Oh, here's what I want to say. Robinhood. Morgan Stanley's going to buy Robinhood.

It's so off brand, though. Why? Because it's just so low rent and shit. Because Morgan Stanley is Morgan Stanley and Robinhood is Robinhood. Morgan Stanley. It's the original white shoe firm. Morgan Stanley was a spinoff from JP Morgan. Like, it's just, it's, I mean, not that E-Trade was prestigious,

but E-Trade was, like, obviously dying. Robinhood's not obviously dying, and it's a very different culture. And I don't know if you're a Robinhood user and you get an email like, hey, welcome to Morgan Stanley. You're probably like, fuck you, I'm out of here. I don't think that's fair. No, fair. And look, I'm not saying they should. I'm not saying they should. Let me finish trashing your opinion. Looking at Goldman Sachs and how much shit they're eating for all these junk consumer acquisitions and things they try

to do over the last two years. Do you really think that James Gorman is sitting in his penthouse office? Like, let's do some of that. Like, I, I feel like they're going to go the other way. I think they're going to buy like five serve. They're going to buy like a company that's really involved with the plumbing of finance. And that's like, has no public facing brand, but they're all in on wealth management or they're not all they're deep. No, no, no, no, no. All right. I agree with you, but being all in on wealth management. They're not all, they're deep. No, no, no, no, no. All right. I agree with you. But being all in on wealth management, all that means is that you need more funnels to feed the financial advisors with potential clients. You don't need a direct, you don't need a consumer facing acquisition to build that.

to build that. You can like get, you can, they've done this like with all the, all the businesses that they have where they service 401ks for fortune 500 companies, or they service like stock option business. And then they feed that. Those are not publicly facing brands like a Robin hood or an E-Trade, but they have like a lot of customers. brands like a Robinhood or an E-Trade, but they have like a lot of customers. I think those, I think those are just better optically for Goldman and Morgan Stanley. Well, I think they're going to do something. All right, let's talk about mutual funds.

Not a fun business to be in right now. Mutual funds are in big trouble. One of the things that we talked about with Balchunas, there's this phenomenon where every time there's a market crash or like a big correction, what happens in the aftermath is that the money that came out of actively managed mutual funds goes right into index ETFs. And every time that happens, that's a big chunk of both dollars and investors who never come back. Like once you start building portfolios with ETFs, you're not like, you know what? I think I'm going to go back to using mutual funds. So that phenomenon has just been repeated so many times.

And now we're, I wouldn't say we're in a crash right now or even a correction, but we're still below the 2021 high for most stocks. And active managers are losing more assets under management. And it's becoming increasingly apparent that those assets they're losing are not coming back. This is a Bloomberg piece, money managers with $100 trillion confront end of bull market. And what they're basically saying is $127 billion out of T-Row price in two years. Think about how much money that is. You know how hard it is to raise $127 billion in two years? Yeah, probably takes 50 years. Franklin Resources, a 20 quarter,

uninterrupted 20 quarter losing streak. And then they talk about Aberdeen across the Atlantic, streak. And then they talk about Aberdeen across the Atlantic. It's Scotland, England, same shit. This is a direct quote. Across the $100 trillion asset management industry, money managers have confronted a tectonic shift in investor appetite for cheaper passive strategies over the last decade. We know that. Now they're facing something even more dire. The unprecedented run of bull markets that buoyed their investments and masked life-threatening vulnerabilities may be a thing of the past. So they were saying 90% of additional revenue taken in by money managers since 2006 came from the markets going up.

The markets went up and up and up and up. And that masked the fact that these companies organically were not growing. They were just living on market growth. And now that seems to be over, at least right now. And it's just a really, really tough time to be an active manager running a mutual fund. And we know these people.

We know that what the data is saying is being backed up by the anecdotes. So we have a couple of charts. I know how this ends. Chart off. Go ahead. How does it end? We talked to Nick Colas, and he said one of the things that dyeing industries do eventually was they buy their distribution. And he was telling us that in the context of Rolex acquiring Tourneau, which Tourneau

is their biggest retailer of Swiss watches. So the biggest Swiss watch company bought out its biggest distributor. And this happens in every industry. We're seeing like CVS, Caremark. You see this everywhere. When an industry is not growing anymore, they buy their own distribution. So I think where this ends is you're going to see the asset managers start acquiring firms like ours.

Are you allowed to do that? Are you allowed to distribute your own funds through an RIA? I think with enough lawyers, you will find a way. And they always do. And that's what I think is going to happen. So there are $500 billion asset managers that are subscale. We're in a world of Vanguard and BlackRock

are 10 trillion plus. That's scale. 500 billion sounds like a really big asset manager and it is, but it's subscale for the state of the modern industry. I don't know that they can just invent new index ETFs and catch up. Those categories are taken. So the next best thing is to own your own distribution. That's where I think it's, that's my personal opinion. I think within five years, a lot of RIAs will have been bought up by some gigantic publicly traded asset managers.

And not even to stuff funds through the channel, just because we are where things are growing and they need to add growth. That's what I think is going to happen. All right, got it, got it, got it. So I thought you were going to say as a way to get assets into client- Dude, our business is growing.

I think Chip Rome at Tiburon, the last slides I saw last spring in Boston, I think he's saying RIA channel is still organically growing 15% a year. Asset managers are negative. And we're a complimentary business. So I think that's what's going to happen. I'm not going to completely dismiss what you said. That might be. There's two other avenues. One is ETF issuance, which now crossed 10,000. They're just getting sliced and diced. Every sector and subsector and sub-industry is being filled. The other thing is, what if they're just melting ice cubes? They're just gigantic melting ice cubes and they continue to lay staff off and they just continue to get fees.

I think they have to make a decision. I think they have to start buying up tech. They have to buy, they have to start buying up tech and own the platforms through which advisors and investors buy and sell and make decisions. That's one option. And we know a bunch of people in asset management that are trying to do that right now. And I think that's smart. But the ice cube is just melting. It's not, it's not, the ice cube's not on fire. It's just melting.

They don't have to not, they only have to melt slower than the other ice cubes. You know what I mean? Like, like they have to find a new strategy. That new strategy is not going to replace what they're losing, but it could change the game up. It could change the rules of the game.

If they all become fintech providers and own platforms, it's a better story. And that way, they still have this melting ice cube that's generating a ton of cash, and they have somewhere productive to invest that cash. So I think it's either going to be, they want to buy the people who are closest to the clients, which is RIAs. Well, no one did this better than anyone. I hope I'm not speaking out of turn, but like obviously on a much smaller scale than say T. Rowe Price, but like, oh, Sean, is he asset management? An active shop. They created Canvas, this beautiful tech platform that literally did not exist and totally reinvented themselves.

Really hard to do. Really hard to do. All right. I'm going to do this little tax-less harvesting rant, and then we'll get into mystery chart and make the case. Let me do this quickly. I just want to put some people on to something that we don't talk about enough. We're not big seasonality guys, neither Michael or myself. bad enough. We're not big seasonality guys, neither Michael or myself, but there is one type of seasonality that I have come to see witness firsthand 20 times in a row. And it

doesn't always work, but I know it's a thing that exists. I have some really garbagey stocks that I've been in since 2021 and should never have bought. And I've written them down huge to the point where they don't matter in my portfolio. Like even if they tripled, it wouldn't help because the better stocks have gone up a lot more. So they're just, it's just a relic of another time. And I was about to clean house. And then I remembered, wait, it's October. Mutual funds have a fiscal year that ends October 31st. So to lock in, realize gains and losses, they have to be out of positions by the end of October. This phenomenon leads to rallies for the most beaten down stocks. Once the calendar switches into November, I know it shouldn't be that way and everyone should know better,

but it is that way. So if you have mutual funds holding a stock that's been down 70%, they will sell it down 80% just to get it off the books by the end of October. That seller is now out of the picture come November 1st. And you will see a lot of these shitty stocks levitate. So if you have huge losers in your portfolio and you do want to kick them or get rid of them, do it any time other than October when tax law selling is becoming the most extreme in the smallest stocks where it really affects them. So this is some, throw this graphic up. This comes from Alger, but they're using a Bank of America study.

And what they're basically saying is that there is a noticeable difference in TLC stocks, which would be tax loss candidate stocks. These are any stock that's down 10% or more in a calendar year through October. These TLC stocks tend to outperform the rest of the stock market from November through January by an average of 1.88%. This is data from Bank of America's quants that they looked at from 1986 through 2021. So basically, investors harvest equity losses for tax purposes at the end of the year. Mutual funds do it at the end of October. And once that selling pressure lifts, you see a big difference in the tone of these stocks. There are a lot of stocks that are down this year yet again. And the TLC candidates, the ones that are down more than 10%,

don't be in such a rush to sell. You might get a better opportunity later this fall. to sell, you might get a better opportunity later this fall. I'm thinking about a don't go chasing joke, but nothing's coming to mind, unfortunately. What do you think about that? I know you're not a big seasonality guy, but what do you think? It makes perfect sense. These are the rules. So sometimes seasonality doesn't have to be like voodoo.

There's obviously an explanation here. I asked Sean, what percentage of the Russell 3000 is negative year to date by more than 10%? 45% of Russell 3000 stocks are TLC candidates. That's high, dude. Tax laws candidates. 37% of the S&P 500 is negative by 10% or more year to date. So the S&P is down 1.15% for the month of October. What's that?

I mean, fine, finish. It doesn't matter. That's it. That's all I got. So don't be in such a rush this time of year. Give it a couple of weeks. All right, go ahead. You're going to make the case. I'm going to make the case. Uh, if, if you are in the camp, uh, that rates are at or near a peak and you're looking to

play rates in an instrument other than bonds, i.e. stocks, I think you want to, if I, if I knew, okay, let me ask you this. If you knew that rates were going to fall and maybe you asked this to me, this to me, or maybe Ben did, if you knew that rates were going to fall, would you, would you be more likely to buy utilities or the arc names? Oh, that's a great question. For the, like the initial knee jerk reaction. Yeah.

Can I, I think I'd buy both. I could picture them going up equally as much. So I would buy utilities, which I own, before I would buy those names because I think that even though those are also long-duration assets, I think there is just no appetite for money-losing companies right now.

So chart on, please. So what we're looking at is a Goldman Sachs basket of growing sales and profitable margins, right? That's the blue line, versus growing sales and negative profits. So you could be growing your sales, but this is just such, investor preferences change, right? And clearly, there is no appetite for companies that are not making money in this timing of this look at the separation starts right when the fed starts hiking rates yeah i mean almost you know there was yeah uh oh no that's not no march it's no it's march 2022 that's when we started hiking. I'm sorry. So when did the separation really get real over the summer? Either way, I get what you're saying. Yeah. Okay. So next chart. So

these names have gotten killed. The interest rate sensitive stocks, obviously utilities are sensitive to interest rates being high the other way, like the opposite way of ARK. Those are super long duration. Who knows when you're going to get paid back? This is sort of the opposite in that these are like a bond proxy, at least for like some equity investors who owned utilities just for the yield. Well, there's really no reason. And also, of course, these companies are borrowers of money. So there's that too. So the double whammy. There's no need to get 2.8% of utilities or whatever it was when you get 5% of cash. So these companies got killed and they're bouncing a little bit. Next chart also

in the same vein, Verizon, another company. So there's another stock that I own. I'm not up that much, so it's all good. But I had a big day today on less bad than expected earnings reports. And then one- I just bought it a couple of weeks ago. Look at it. I know, but look at it. And then, yeah, I'm up 4% on that. And then one other area that's rightfully being hammered by higher rates, that again, this is like if you think that rates are going to top out here instead of buying bonds, you

can buy these stocks, is Home Depot. Home builders are just getting destroyed. buying bonds, you can buy these stocks, is Home Depot. Home builders are just getting destroyed. And then Home Depot obviously is squarely in the epicenter of the frozen housing market. I like this. All right, you want to do a mystery chart? I like this idea.

Go ahead. All right. Let's do this quickly. Throw it up, John. Feeling bullish. Feeling bullish. All right. Dow component. Is this weekly? Yeah. Dow component. Is this weekly?

Yeah. Dow component. Monthly. No, look, I'm going back 10 years with this bad boy. But it's a monthly chart. I'm showing you a 200-day moving average. It doesn't really matter. But this is 10 years.

First of all, not knowing anything about this company fundamentally by yourself. By, obviously. No shit. All right. What is it? This is a DAO component. Yep. Can you give me like anything

else? There's a lot of DAO components. I don't know. What does it do? Well, we spoke a lot about this sector on the show today. Does that help? This is Visa. No. It's not a bad guess, though.

Is it a financial no throw it up because if i give you the sector you're gonna know you know what i mean yeah reveal so it's all right you can't win them all uh okay wait conico's in the dow this is the only stock in the dow the only energy no it's exxon in exxonon in? Exxon's in. No, Exxon's not in. They pulled it out at the bottom. Chevron's in. My bad. Okay. Yeah.

I don't know why they did that. ConocoPhillips looks fucking incredible right now. I mean, look at this thing, right? And this is over 10 years. It's not like a fast money type of stock, but my God, it's this thing positioned beautifully. So I don't own it, but I own it through the IEO, right? We have one more chart on this real quick. I know it's 601.

Everything's going in the right direction. It's a dividend. Here's your normalized diluted earnings per share on a trailing 12-month basis. Here's your quarterly buybacks. This is just like – this is a company that really does everything right. It's one of the highest quality energy companies in the world. And this is just year to date. So you got a little bit of a pullback here.

I think I might just take it. I might take it. We'll see. All right. Thanks for playing. Hey, guys. Did you know tomorrow morning, Wednesday morning, is the day we get our all new episode of animal spirits

with michael and ben we went hard to miss it what's that we went hard today yeah okay is that okay i listen i can't wait uh all new ask the compound with ben on thursday afternoon get your questions ready and an all new compound of friends at the end of the week thanks so much guys for joining us for the live tonight. Thanks for listening out there in podcast land. We'll see you soon. Whether you're just getting started as an investor or you're managing a multimillion dollar portfolio, Ritholtz Wealth Management has the solution for you.

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