Are We in a Bear Market?

0:00Gallagher's is gonna slap tonight You know, I want to a steakhouse last night, but I didn't eat steak. It's what we do I went to Hendricks and I got not steak. Not really a steak. Well, I mean did you get lamb chops or did you get like swordfish? There's a big difference you would like you would like Hendricks Hendricks used to be called the George Washington tavern and Legend has it. It's where he stayed Before crossing or just the Battle of Brooklyn Actually took place on Long Island They just haven't am I right? No, no. They didn't have a name for Long Island yet. It was basically brought It was just like oh, that's Brooklyn and George Washington stayed at this tavern. It's a historic landmark and There's a restaurant group called the Paul Brothers on Long Island. They own the best restaurants and they took this place over It used to be these blue-haired old women That's who a little dated here like you think I'm from the revolution No, no, no, I'm just saying I'm just saying it's kind of a cool place because

1:00You got started to get Did the Labanthol family raised municipal bond money during the Revolutionary War? Oh, we shared a field. We shared a real chat You know what's good at a you know what's good at Hendricks the the bone marrow We got the hot dogs and they're had those before on real Not my thing so The book is called how to ride the subway Famously this guy will not ride this up on them. Do you know seriously he gets mob by fans? Do you know I've I've been walking around Manhattan with a stick in my bag It's it's called a it's not I'm not making this up Michael. We'll tell you that it's real and he has one in his car It's a tire thumper. Okay, you know what that is not really but it's like a short baton that truck drivers Thump a tire with to make sure that it's Inflated so on the days where I know I have to take the subway because I have to do some impossible thing to like get to try Deco or whatever from downtown. I will have my tire thumper in my backpack. I'm not fucking around here

2:04I see I so this is the every book every I'm gonna be a man of the people with a tire thumper every other post on my Instagram It's either New York Post or somebody showing me a slashing chunk Jimmy is this guy show Jimmy my stick psycho How far are you laughing? Do you know what me to stay alive in New York City? Three nobody's gonna mess with you. I have to tell you like I am the pride. I'll tell you I was like I stopped carrying it Cuz I was getting upset that nobody tried me Like I almost wish I almost wish somebody would no no, but all I see is people being pushed on the tracks People being like steps stop it. No, we have both And slashing in New York City you still take the subway every time to go down you have a stick I do not have a stick, but I have I have some I'm gonna get him I have some I have some If you're on a subway car and somebody starts acting crazy, like I just get off. Oh, do you wow it's moving?

3:08It's too late. You're already dead statistically. You're finished. They're lighting people on fire on the train They're literally setting fire to other people it is It's a zoo you and and there's no cages. You can see the parallel to dangerous investing, right? Yeah, here's my parallel. I already halfway moved to Florida I'm almost I one foot out of the state Josh is auditioning for an appearance on other projects So if that's the parallel the way I invest subway style like I'm like the black swan Investor like I'm I'm looking for the one of those funds called What are these ones that they literally call them that I don't know how you don't Josh and I can write a sequel. It'll be how to ride in your Maybach. Yes Yeah, you know what my book is called how to never get on a subway as long as you live by Josh Brown You know, there's your subway service. I know Josh is salt of the Mercedes Let's have some fun today when we won last is it a year ago? I think it was a year ago

4:12Thank you guys are having me on that was so much fun. I've really been looking forward to that was that was an awesome episode And you know what today is gonna be even better. We have so much that the market is so strange Yeah, like the weirdest things I've ever seen a good thing is you and I are on the show at least from my perspective enough that I know where your head is I hope you kind of know where my head is. Yeah, but it is weird. I mean the market you're in cash, right? I have a little bit of cash, but no the index off 5% but every stock feels like it's just getting taken to the wood I'm surprised I am surprised by how many big notable companies have a share price that's in a 15% or greater decline Let's not let's not do the show before the show. Come on John. Let's go. Come on in friends episode two thirty four Whoa, whoa, whoa, stop the clock. Here's a word from our sponsor Every RA knows attention. You don't want to turn people away You don't want to require high minimums and you want to help clients who are just getting started because that's where the long term relationships begin But here's the truth those simple accounts. They take a lot of work account opening trading

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6:22Visit Janice Henderson.com Welcome to the compound and friends all opinions expressed by Josh Brown Michael Batnik and their cast mates are solely their own opinions and do not reflect the opinion of Redholds wealth management This podcast is for informational purposes only and should not be relied upon for any investment decisions Fines of Redholds wealth management may maintain positions in the securities discussed in this podcast 234 Jimmy episode 234 it's a lot right That's a I'd like that for one of my stock boxes ladies and gentlemen welcome to an all new edition of the compound and friends I am your host downtown Josh Brown Like my drop All right with me as always my co-host Michael Batnik hello. This is the best investing podcast in the world

7:26and Today we have a returning champion one of my buddies one of my favorite people. I've ever met on the street He knows I feel that way Mr. Jim Labanthal is the chief market strategist and a partner at CERDI partners He has over 25 years of experience managing investment portfolios and is a regular contributor on CNBC And Jim is one of my cast mates for the best show on CNBC The halftime report give it up for Jim Labanthal. Let's hear it You audience is stolen. Thank you very much right now Welcome back. How have you been terrific delighted to be here. Thank you for having me back Of course being on your team on the halftime report. Yeah, it's one of the funnest things We we have made it a lot of fun and you and I we started when the show was taped in Jersey Right remember those days I too remember getting me in a black car in midtown And riding 45 minutes How many times would you say you did that? I think I did it like a thousand times

8:28You've been doing it longer than I have yeah, but I've been doing this since 2013 And I think I've done something like 1500 episodes so I gotta be I mean you got to be like 2500 or so What have I done with my life a lot Josh? I know but I'm proud of yourself. I'm proud. I think I'm getting I don't know it I'm 49 you just like how it's done every six months is like I how much longer? I'm much longer. Okay, we love we love the show. All right Hey, I I've positioned this opening segment as the weirdest stock market ever There are so many things about it that we can get into But I would just love your high level take on what we're living through right now in the investment world You know, we I entered this year saying the thing I say every year Hey, it's gonna be a good year, but it's gonna be a volatile year Well, guess what this year actually is volatile for real For real and a lot of different things the risks are real the opportunities are there But I think the reason it feels weird is so many people just got used to you get a down draft you come back quickly Like a year ago Post-liberation day hay stocks are a great buy and then we're off to the races

9:32This is more like the market is actually digesting real stuff Straits of hormones being closed concerns about private credit credit Artificial intelligence is it a bubble is it gonna eat everybody's lunch these are real things by the way I think the market will work its way through this. I still think this is gonna be a very good year But we've got to work our way through it. There are so many Thing that this is the problem like last year It was tariffs. Yeah, like they were I don't remember really anything else the Fed was sort of like Not really that big of a factor earnings were great quarter after quarter upside surprises I think the city economic surprise indicator is spent most of the year trying to catch up with you know So and it was year one of a presidential terms. So Trump was doing a lot of pro Economy things this year. It's like a it's like a carousel of nightmares If we're not worried about inflation one day the next day we're worried about like literally bombs dropping And oil rallying and it's just like one thing after another and I taking our jobs

10:36And then and then the AI software thing. It's almost it feels like existential for the labor force This is like such a different environment So I'm glad you went there and what you just said Michael too because a lot of what we're talking about is perspective Now bombs are actually dropping in the Persian Gulf. That's real. That's present time But you know, we had that Satrini research article. I hesitate to call it research article was more you know Sort of a fictional creative writing. He said he said it was science fiction. Yeah, okay I just love the part where he said it You know first line is this is not doom porn, which is like a red alert like you said This is not our base case or our forecast. Yeah, but nobody paid attention to that Well, I don't mean I don't mean to beat up on it so much my point is is that's all perspectives That was that was hey what might happen in 2028 and with private credit a lot of what we're talking about is the fears of what could happen to the software companies in the future Not happening right now There are definitely some defaults, but those defaults are fraudulent in nature It's an indication of bad underwriting as opposed to hey the business cycle is turning down companies aren't earning their cost of capital

11:41That sort of stuff A lot of the fears are perspective and actually I was looking forward to talking to you guys because something that's been driving me more and more crazy Maybe I'm just getting older and crankier is why is everything that happens compared to 2008 like why can't this just be Hey, there's some problems instead of availability bias. It's the thing that's in the front of everyone's mind still still Yeah, 18 years, but everything is looked at as this minskie moment of we are just going over the edge Well, if they don't do 2008 they do 2000. It's always gonna be 10 years ago everything was 1987 and that's yeah, and that's sort of like Shifted to the background because it's too far away. Yeah, so we grasp at these two things that occurred in the last 25 years They're just easy to wreck a lot. Let me ask you guys this Why isn't the market just flushing already like so we're finally in a 5% correction first time since liberation days And then hard to believe we have we've been near within five seven all time high for over year But why won't people just sell already like why won't we just get the flush and here's

12:44Here's a question that I want to post to you Markets never underreact almost right like markets almost always overshoot They almost always instantaneously overreact oh never mind like let's you know shoot fish shoot first ask questions later They're not shooting first like So the market safe 5% draw down software stocks are underreacting No, okay, you are saying something that I didn't say I didn't it's a software stocks are now for reacting okay The market why is Michael not on the halftime report? This is my idea you that mean when I retire There's not sliding them right in The market is only the stock market of S&P 500 stocks. Yeah, it's 5% from an ultimae that's it Yeah, but all the various sectors have gone through their own corrections They've just been kind of phased it's sort of the same thing with why haven't we gone through a recession Well manufacturing has gone through a recession housing has gone through a recession So off-door stocks. I mean they're getting their faces rearranged Credit spreads are like not blowing out too bad the vex got to 35 for a second

13:46That's a good likely there's level that's a good like let's reset the mark 35 for a second First where's it now 24? I mean you kidding me. That's it What so you're you're you're saying like 24 why aren't people more panicky in general? Not just this is a good question. Where's the flush? This is a good question because go back to August of 2024 remember the Yen carry on wine of course, and what did the Vicks spike to in that period? I think it was even higher than that. I think it I think it was over 60 maybe even been 80 and that was the Mother of all over reaction So I don't know is the market maybe just kind of whizing up that not every scare is A little others moment. So I said this on TV the other day. Santa Holy didn't like it But I heard that I just got the modern investor Is not logging into their 401k to like go to cash Like the modern investor has seen this happen a million times at this point And they just they're they're not as easily rattled now down 10% maybe that changes down 20% but like

14:51I just people are selling individual stocks of course But this idea that people are going to take their portfolios flat I just don't think they're going to do it. Well, and people are expecting it Yeah, that was a good segment with you and Mike I watched it. I wasn't on the show that day But what I thought was Mike's talking about the institutional investor Yeah, you know, those are the guys who are like hey, we're in and out like in a moments notice And it could be the hedge funds could be quantitative hedge funds all that sort of stuff But I completely agree with you were living in the same world of the retail investor whether they're high net worth ultra high net worth Whatever it is generally speaking the advisors are talking to them and we're saying yeah, this is a really bad time But don't sell your stocks sure There are some people who 10 months ago post liberation day sold everything and moved to Europe I we didn't advise that I'd be surprised if you advised that I mean, I know you didn't But that was the minority let's say you're the person that did that yeah, or you watch somebody you know did that you're just a regular investor You're never doing that again right because it's so stupid right well, but also so I I think

15:54I think the market's gonna break like I don't think it's gonna hold these levels I think it's I think it's it's rolling over so I do suspect on let but here's here's the other thing This could all end with a tweet Right, I understand the things that are going on in the straight of her moves like the actual fundamentals will take maybe Perhaps the years to work through yeah, but investor sentiment could change on a dime If he just says that's it we're done. We're pulling out mission accomplished Jim Jim said that This is I'm gonna quote you I'm gonna quote you to yourself If traffic can start throwing flowing through the straight of hormones soon by the end of March The damage from high energy prices need not be lasting Those positive forces will come back and play but we're still dealing with daily headlines about bombing oil terminals in April Businesses and consumer confidence will start to take hits And unlike the past five years those hits could lead to layoffs and consumption declines purely from higher oil prices or Like a consumer sentiment hit. It's the consumer sentiment. It's the business sentiment I mean we know there's been really no firing, but there's been no hiring

16:57And if you add firing to it if businesses say hey, maybe we better hunker down raw material costs energy supply chain disruptions all this sort of stuff I think if we go too long with oil where it is businesses will say maybe we better pull in but Mike to your question of why aren't things Worst than they are we can cite in a number of reasons, but profits are growing. Yeah So as long as profits are growing we all know we're business men if we're profits are growing We're gonna lean into it. We're gonna expand. We're gonna hire But if profits start coming down on the back of higher energy prices or supply chain disruptions It's a different story. Powell said yesterday. There's been effectively zero job creation this year Uh, that shows up in the numbers doesn't it isn't that good for profits? What's that isn't that good for profits? And I'm like, I'm not being facetious. No, I certainly don't want one The only problem is then you know, I know it's tough for society. It's tough line pressure If you don't have people who are employed to buy your stuff. So this is from suction um pre-shock Fundamental signals were firm and improving Even now earnings revisions remain net positive

17:59With both the Nasdaq 100 and the S&P 500 staying in upgrade territory since last May The US continues to outform the world on the broadening of the EPS cycle So I actually love this setup even though the market is heavy right now And even though invest in sentiment suck shit right now. We'll get into some of that stuff John thumbtron to please this is from duality research So he is breaking down the S&P 500 returns by sectors and he's looking at the price return The EPS growth and then of course the multiples and it's all multiple contraction earnings are strong and people are souring on maybe I don't even think it's the potential of future earnings growth There's just a lot of headwinds right now And so we are building a wall of worry. There is a lot of um People that are getting out of the market and I don't like to lose money nobody does But you need this I totally agree This is a reset from which we can grow higher We all came into the year observing where the S&P 500 multiple was 22 times forward earnings Hey, isn't that too expensive the mag seven are up towards 30

19:02We've had a nice little reset as long as these earnings revisions that you're properly pointing out Don't start coming in I think that's where some of your skepticism may come from is how could these earnings not be being Revised down already and the answer is as long as oil comes back pretty quickly You know look if we start the straits open again comes back to where like seven six six these seven which it probably will Because there's a heck of a lot of oil. I mean we knew this there was like a two million dollar a two million barrel a day surplus before this Iran conflict started and that was a lot of surplus So that will be there when the straits open up again. What so all right So this is an impossible thing though for investors to know If and when the strait will reopen It's an impossible thing. There's no nobody has an edge on this. I'm even looking at polymarkets And I get no signal from polymarkets You know you get a lot of bets there that are like 31% that it opens by april 15th. I don't know what to do. Oh, I have a bet on there that Tim Shalamay will reopen the strait of hormones So what's the probability there's a nine nine cents per

20:04You guys both mentioned something that's obviously true That a lot of stocks are getting whacked in fact John chart through please one in three stocks and the S&P Are down more than one in three are down. Oh, this is updated. So yesterday was one in three now It's two hundred and three stocks are in a bear market. That's almost that's 40% half the market That is that is a lot of bear markets Yeah And you know the immediate question that I think many people watching this will come to mind is how can the market itself Only be off 5% the answer to which is the peaks from which those stocks are coming down Happened at different times in the past But there's no I think that's healthy I really think this status healthy that 40% of the S&P 500 is in a bear market I don't think we can complain about valuation being too high in that set of circumstances What we can say is it's a reflection that maybe earnings are more uncertain the further we go on in this conflict with Iran The problem is which which two hundred and three stocks. I'm so glad to ask Josh

21:05That to me that's because I always look beyond the internals like with the headline internals Well tell me which stocks if you tell me The 50-week low list is littered with profit lists or or barely profitable biotechs and Um, you know a lot of software companies that have disruption risk. I'm like All right, I sort of understand it, but we're talking about credit card companies Regional banks and that's not trying to say 61% of tech stocks are in a bear market 57% of discretionary stocks. We were talking the other day about Starbucks McDonald's Where's financials on here 39% of financials all of these lower end consumer the fast food names Higher gasoline prices guess what you pull them back on right although Before we do the k-shaped economy and maybe you know the consumer who's driving a range rovers can still afford a note mill Glottay Let's focus on tech because I think this is where sentiment really lies right Microsoft's off. I'm not going to do it. I mean we can it's it's only seven twenty twenty eight percent right Meta, you know the big companies a lot of these companies are down a lot a lot and that weighs on investor sentiment

22:12And that's why I think a lot of people feel this market is a lot more lousy than it is a lot of people are saying Are we in a bear market? What with the S&P 500 off five percent Nasdaq I'm not gonna look right now, but probably eight percent. No, but there are many prominent important stocks that are in their own individual bear market I think there's people own these a lot. I'm sorry Mike. There's goodness for the bad news Oh, I've been just telling me could we bomb this test great um what What what is the test that they give to his age it was about consumer sentiment We don't need to get into it right now. Is it like how can you make a popsicle? No, it's fractions. It's fractions It's okay. All right John chart five. Please So maybe I'm grasping for straws here and I am But people are bearish and Jimmy I think you're a hundred percent right the people in the AI ii survey Guess what they own they own Microsoft they own meta all these names are getting bombed out. Yes, and We are so char kit broke it down by deciles in terms of what is the forward return

23:12One year later Based on how bullish or bearish the sentiment is and the good news is obviously the more bearish the sentiment is The better the returns are a year forward now the bad news is obviously there's no guarantee here It's like statistically significant. I think it's 16% higher For your later for it. He should have done that in green not red. That's right that bar That's right for the three of us who were experienced in the markets We love this we know what that says we know the high hit probability when sentiment against this negative as far as forward returns go And the flip side is is when you're over here on the left side and you're more bullish and everybody's just buying buying and you know President Kennedy or maybe it was father talking about the shoe shine Kid telling them a stock pick. You know you're in trouble. We're nowhere near that We're at the as you're pointing out here. We're all the way at this end. It's good. It's what we need The difficulty with sentiment for me has always been I don't believe that people are actually answering the question about what they're asking I think when they do these kinds of kinds of polls I think we all agree the a ii poll is like older

24:15mostly gentlemen in their pajamas And there's somewhat crankier than the pop than the overall investor population It's got to take a tire tire thumper to the a i No, I just all right, so who's picking up the phone and answering this survey in real life and Oftentimes they're saying things they're they're negative on like the political Yeah, situation. They love Trump. They hate Trump. They hate Mamdani. They hate like whatever that is So they're negative But they're not really answering the question about the stock market. They think they are They just like don't like the times that we live in And so well be that as it may when they are just negative fault returns are way higher than normal Okay, all right, that's just a fact Josh, you're correct about you know consumer sentiment surveys small business CEO And they've been terrible for years. Yeah, the bull bear surveys I and I don't know who I actually don't know who's answering them But they have been pretty consistently a contra indicator even to the current day

25:16Okay, no, I would agree but when they were at extremes. Yes, and we had a stream. No, no, we're not not even close not even close Um, so you open the show saying this is a weird stock market and it really is. Yeah John chart six please this from Adam Parker Adam shows the number of stocks Up or down 15% in a quarter. Yeah, and he's looking at the top 900 US equities That's just volatility in either direction. So this is the highest that it's been since I don't know 2022 when inflation was spiking like stocks are getting murdered and stocks are going straight up like The memory stocks Sandisk and and and micron oil stocks oil stocks refineries There are stocks that are working. It's just it's just not the stocks that you want to see so chart eight, please All right, this is not great Actually, you know, let's do let's do this one This is Grand Hawk Ridge So this is a short-term in nature, but all of the risk off stuff is rolling well all of the stuff that you want to see in a good market Looks like shit

26:16So we're looking at charts of high beta versus low volatility Rolling over cyclicals versus defensive rolling equal way consumer discretionary versus staples crashing dollar bad Advanced decline line bad high yield bonds versus treasures everything risk off is flashing Even go even hit gold. I know gold is below. It's 50 day moving average for the first time this year You know, I'm thinking about the answer to this this chart in the context of of what you said earlier Do we are we're going to get a capitulation and I'm not sure that we will because of the proverbial tweet That could come in at any point in time or just the you know somebody posting that there is a tanker flowing You know sailing through the Straits of Hormuz and it's got an America. What is that tweet? No, it's a tweet from the president, but saying what he wanted to clear victory No, but literally what we won. We're leaving, but we're leaving might be the tweet I'm not sure we need capitulation Especially when I look at the upper left here high beta versus low volatility said that I think people are always waiting in a bear market with bear market. We're 5% of all the highs

27:17But people are always waiting like wait for capitulation. Why why you don't need that you don't think we need it either I don't think you need it you may get it, but I don't think you need I totally agree We it might happen, but look every but if I look 40% of stocks are in a bear market things are washed out So if you look at the high beta versus low volatility when I look at that all I think of is palantir or apple oven Are any of those stocks that there's no and Josh you know there's no way I could ever own those stocks But when they were it while you're not American Yeah, you got a problem When they were at 100 Bellataur When they were at a hundred times earnings and I was saying they're too expensive guess what they go to 200 right and At some point that's got a correct Corrections are I know the three of us agree nice corrections are healthy great fair market stink And I don't I don't think we're going into one. I mean there's a lot of good things going on stimulus from the budget bill deregulation blah blah blah But corrections are healthy because they set up for the next leg. Well, we'll change your mind that what we're experiencing now

28:21Is more meaningful than a correction? Would you need to see the earnings revisions go lower for the overall market? Would that be the thing that that is one of the things but those weekly jobless claims I mean we get them every week if we all of a sudden see those spiking I think we got to pay attention. What's the number 250? It's around 200 right now just over 200 50 is the spike where you're like 250 is where you start to come back from that Yeah, 250 is where you start to get nervous and if you start to approach three So for the list and it's 250,000 people in one week filing for unemployment That's like what people say is the trigger or the point of no return now It's all it's all keyed off of where it is now in an absolute level 300,000 on initial weekly jobless claims I mean we would do that routinely in the 1990s But going from 200 to 300 is a way of saying there's a problem. Yeah, yeah, because it's a it's the delta between the current state and where it gets to On the on the earnings part problem is that I know we all know this by the time we see them actually come down It's too late you're already in the market. I think I think you're right and

29:24Look this upcoming earnings season. I'm so surprised we haven't had more pre-announcements like everybody's got carte blanche right now to say up Our freight costs went up our oil prices you know our gasoline our diesel costs I'm surprised we're not seeing more pre-announcements as long as the AI story is intact And I'm not talking about the shares prices of meta and Microsoft because they look terrible. Yeah, but as long as the spending is there And nobody is saying nobody's the first to say hey, we're pulling back. Yeah It I think it I think that and the potential of a tweet I really think it's hard to get too bearish. You're not gonna have to worry about pre-announcements We're about to not even have to report earnings anymore So um, I want to get back to this attrini thing and the software apocalypse because in my view Before this war started we already had a big market-wide problem And I think if you get that sweet that you're talking about like Hey, uh There's a truce conversation with Iran. We've done enough damage We're gonna now talk about reopening the straight something like that, right? So let's assume oil falls $8 a barrel on that day

30:27I don't know if it stays down, but We still have to contend with the bigger story Which is there might still be a lot of disrupted market cap That is meaningful to the S&P 500 Meaningful in terms of like Spending from people that work at these companies and the corporate spending itself If you see a lot of investment in the software arena dry up. We don't we've never seen it So there's no way to know like what that does to the economy regionally, I would imagine it's a problem in NorCal But like to me like that's the story that that remains but that happened What do you mean that sales force went from 350 billion dollars to 180 I'm not saying that I can't go to 100 right, but a lot of that story We did that about it. Here's what you said elaborate on this not on board with the Satrini thesis Yes, there will be job destruction But it's likely to be another chapter in mankind's long history of creative destruction Jobs will be created to look at the last 30 years

31:30um Talk about the NYSE where you and I sit and we are Surrounded by literally dozens of floor traders right right it's the reality right And the New York Stock Exchange has never been financially healthier It's just it takes less people to run the floor operations So this is I'm kind of passionate about this concept and you guys can tear it up all you want But yes, so in 1998 that was actually the first time I was on the floor of the stock exchange path to the guild joint was jumping And it was jumping you know, they had these extra rooms entire trading floors that are now walled off and their condominiums By the way, I don't know if you knew that but yeah Um, so now those are walled off and there's literally Less than 10% of the population that was there 30 years ago. It's a few hundred Daily people on the floor and it was it was over 5,000. Yeah, it was over 5,000 So you know all those runners that were going between the phones on the wall to the specialist stations the specialists themselves Really aren't there anymore

32:31Couple of thoughts about this number one price discovery is much better in the digital age than using the hand signals I can't even do them But you know I buy 2000 or whatever filler killer. That's all that sort of stuff price discovery is much better using computers than human beings And we've had this massive decline not just on the New York Stock Exchange But think about all those exchanges that I struggled to remember even exist. Yeah, American Stock Exchange Remember the curb. That was the thing people paid attention to was oil oil stocks Right now. I'm burying the punch line So I'm going to bring it out here in the last 30 years financial industry Employment has gone from 5.7 million to 6.7 million roughly a 20% increase So jobs have been destroyed, but jobs have been created where if they've been created I remember roughly 2003 visiting a friend of mine at get co which was one of the first high-frequency trading companies I don't know who that citadel bought them or something But you'd walk into a room and you'd see these giant cages that look like weightlifting racks

33:33You know like you're doing squats Mike. I know you know I do a lot of squats. Yes Filled with screens and I remember looking and saying what the hell is this? But that was the future that was where you know floor brokers lose their job But if you're a high-frequency trader with a dozen screens around you that's a new job creation Yeah So you think that But but do you Do you believe that as consumers and employees of corporations increasingly Start utilizing AI That we're all of a sudden going to magically create these replacement jobs within a year or could it like be five years before a lot of these people find something new to do That's someone's willing to pay them for yeah, I think that's what I'm worried about That's the risk as I see it is that it's not a is it you know It's not Indiana Jones in the temple of doom taking the statue off in one hand and put in the back of sand Yeah, this is not cars replacing horses and then all of the obvious jobs. I came from the car industry

34:33I will make this observation even if it's just totally personal like there is a lot of training that I need to do on using AI and I see what it's doing I see Claude putting together these these presentations like in 10 minutes if less or less and I'm like okay I need to learn how to interact with Claude you need to learn how to get close out of the mic my friend. Oh, please So I'm having such a relaxed time here. I'm just kicking back. So one of the interesting things about this um and the thing that I worry about as The father of two college age kids or I have a I have a kid in high school that's gonna be applying to colleges in the fall and I have a sophomore And I don't know what this job market's gonna look like for a 22-year-old who the hell needs a 22-year-old right now Because all of the things that Claude and chat GPT seem to be excelling at are the exact things that you would hand to a recent graduate to work on like a presentation deck Um or finding go find the answer to this question um or excel stuff or

35:35uh, it just it seems very obvious that They are going to all become Socialists like that entire generate already happening. Well, right. It's already in progress And they're just gonna say what the hell is this like one out of 10 of my friends Came out of university and can't get a job because nobody wants another body in a seat Why would they why would they you know and so this is like a near and dear issue for me Because I know a lot of people who have recently graduated kids and they kept they can't even get internships Now a lot of this is anecdotal, but here's the data the college the recent college graduate to find this 22 to 27 years old Unemployment rate is 6% and the overall is 4% and it's going higher and it's It we have never seen this before that number that I just quoted to you has been growing three years straight for cop recent college graduate unemployment Um, I don't know what the externality is is for the S&P 500 earnings next year

36:39I don't know how to marry those two things. I just know it's bad So I have a 25 year old and a 23 year old so when you talk about that unemployment rate And I've watched them come out of school and look for jobs. I can attest that you are correct. It is difficult I don't really matter than when you at that age Has to be uh I don't know. I came out in 1990 things were look 1990 things were pretty good good enough that I decided to heck with it I'm going to go into the Navy 1991 though had a little mini recession and people were having a tough time again So this feels very different from that because we're not in a recession I hear you on that and that's what I was thinking as you were saying that is I don't know if what you just described is the normal evolution of a young person They start out on the left and as they grow old are generally speaking not always but generally speaking They move to the right Or if this is something more systemic more demographic We know right that young people are having a tough time Finding homes that they can afford and they're pissed off at the boomers because of it I am in a little bit of a different boat than you fell as um so forgive me for

37:42Oh your kids supporting to Elon Musk your kid the kids your kids age won't even need jobs So my nine-year-old think Kobe needs for it. I told my so I told my nine-year-old I was gonna do it that he said I suck at fractions Don't worry about it. I said so when we tell you you need to study you have to listen I will help you you don't suck. I love you and I'm proud of you, but I don't like studying Oh, well best of luck How do you feel about prompting Kobe? Unbelievable see I look at that leaving Kobe aside and Kobe's your son. He'll be trained just fine Okay If if what you're pointing to there is hey mankind is learning less how to think how to critically think What I think about is for the people listening to this podcast for our children man the competitive environment just got easier If if the vast majority of people are just gonna rely on AI to solve problems for them Imagine if you have an innate problem solving capability, but I don't believe that part of it I think I feel myself my knowledge expanding so rapidly From AI. I don't view it as a shortcut that people's brains are going to turn to mush

38:44I think it's the opposite. I think people are going to be so much better equipped and Yeah, the job displacement is a huge problem like I do believe that the younger people It's not gonna get any easier So it's a problem and this is obviously going to have massive political ramifications. Yeah It will by the way, I don't know how this is going to turn out I'm hoping that it's the Indiana Jones thing, but it could well be You know, I was making that reference to the digital digital age and finance Let's not forget the 2000 to 2003 was a pretty terrible time in the markets There were a lot of job losses maybe a mixing apples and oranges there, but the the handoff can go poorly I do think though that even if that happens even if we had some three-year bear market that on the other side of that humanity America or kids are going to be just fine. I just can't tell you Mike What those new jobs are going to be? I know there's a job for somebody to teach me how to actually use AI how to interact with clawed Um, I believe it's oh you would hire somebody to help you get good at AI. Yeah, that's probably a consultant not an employee

39:45But bigger the bigger issue. What's on that college graduate unemployment? um Really ripping higher versus overall and this is before the robots even show up Which is probably three to four years from now The amount of investment going into autonomous trucking and I mean two million people in this country. They're list their occupation as driver Now I'm not saying that goes to zero But if it goes to 1.5 we have a huge amount of displacement and this is among people that are not interested in getting clawed jobs Yeah, there's not gonna be enough new jobs That's the thing that now I don't again Maybe that shows up as in that positive for S&P 500 earnings, which is a sick joke in and of itself But maybe that's actually bullish fine. Look be that as it may I know it's not great for sentiment Definitely not great for consumer sentiment and it may be problematic for a lot of business sentiment too Yeah, I think futurists might go take this conversation in the direction of global population

40:48You know, are we approaching a point where we really don't need to be above the replacement rate? I don't I don't want to go there. It's a little bit apocalyptic. It's a little bit more It's a little way to me Yeah, but what I would say is that it's not the first time that we've had conversations like this I already used that example think about farming right? I mean in the 19th century families were big Because you need a lot of kids to farm and frankly not all of them would make it to adult stage where they could Abely farm and now replacement value you have like eight kids to end up with five kids And now you got like two people farming the entire country. All right, John sharp 13. It's enough of this talk Let's talk about the stock market. That was a little depressed. We got a little we got a little dark We're gonna we're gonna we're gonna lighten it up a little bit with all right with some markets So let's get back to the incoming bear market So really delwish has a great chart It's obvious, but it's true. He said bulls continue to stream towards the exits With the a ii bull bear spread dropping this week to its lowest levels in June

41:51All the net gains for the S&P 500 over the past decade have come with the bull bear spread above 20 percent Without balls, it's hard to have a bull market circular but true You need people to be bullish. I mean, well, what's the take what's the takeaway from this you the takeaway is that you need bulls in a bull market I know it's obvious and it sounds cute, but it's true So the point is that when this spread of but bulls and bears is less than 20 percent That's not the type of thing you see in a bull market But that's counter to what we were saying before which I do believe is you need sentiment to be low For which the bulls can come in and start pulling up the more it's come back Yeah, they need to come back. Yeah, I mean if the implication is the bulls are gone and they're never coming back I disagree we need we need the bulls come back. Um, here's more bear news chart 12 We are okay And now this is they're not do we get to drink on this show at all this is just a fact Uh, and this is a lot of this is from the daily chart book which has does a daily chart says they say um all right color Morgan Goldman sex Buy out blackout

42:52We are expecting the next blackout window to begin this week. Oh for sick 45 percent of the S&P 500 to be in a blackout by that point Assuming entry six weeks prior to earnings we expect blackout to run through the end of April Meaning what this is why and that they're stopped. Yeah head of the net. Yeah, and this is a big source of buying so Absent you know absent a tweet and you know here's here's the real Uh, not nightmares in air, but here's like here would be the real uh, uh, this would this would make me nervous We get a tweet we leave and the market fills us out Pops 3% and closes in the red that's how you know we're have we're going to go into it We get a we get an iran surrender's tweet or I'm saying if that happens and the rally fizzles That's how you know we're going with our Well, I So what you're saying of course makes sense that you want you know more demand for stocks That's just microeconomics But I think we would all agree that when you're looking at the prices of stocks There are times where it jumps promptly That's what we're talking about whether it's April 9th You know that by stocks today. I'm pausing the tariffs. Yeah, or if we get whatever proverbial tweet that ends the war in iran

43:57That it's not so much volume comes in it's that the price resets instantly higher I remember I think it was April 9th. I might have it wrong But I remember everybody on my floor were in an open uh, you know an open floor plan Like everybody stood up and looked over everybody's cubicle saying what the heck just happened. Yeah. Yeah. Oh because it was instant You were up 6% in an instant the speed of that gap was crazy. Yeah, like people just People just like completely changed their mind. This is you know what you're pointing to here Mike is obviously a negative It's short term normal flow short term flow. So you're you like an individual stock Yeah, so do I This chart 11 Makes me never want to buy an individual stock that was so crazy and I'm not gonna do it So I'm in it for the love of the game But for the last five years Microsoft which over this period of time has done I'm making this up 70 billion dollars in profits maybe quarterly I mean it has done everything it had to do it has been the leader in every category It is at the forefront of every

44:58Inventia blah blah blah blah blah. It's underperformed the S&P 500 for the last five years. Yeah So what is the message is the message in that If you bought it at the 4.5 you mark you basically bought peak multiple Or one of the one of the highest you bought it a year ago if you bought it a year ago Uh, you bought it peak multiples, but you know look I No stock is a forever stock Microsoft often gets labeled like that And I have it in my portfolio, but one of the things that I like to do I do think this adds a little bit of alpha is when it gets too high you trim it And I don't want to sound like oh, that's obvious, but you know what it's too high mean and I'm not being you So in my no not at all, but in Microsoft's case same with Apple, you know It trades around mid 30s as a multiple as a forward multiple That's generally been a high point now right now. It's at roughly 22 times forward earnings I went into this year at half the market Waiting of Microsoft so 3% versus 6% a couple of weeks ago. I said all right You know it can go lower it can always go lower, but now is the time to load up

46:00So you just gave you just gave such a great professional answer like when it when it when do I have to trim it and you're talking about Um, where the multiple typically peaks for the stock so many individual investors would answer that question differently a Michael would say When do you know it's time to trim a stock they'd say well when it gets to be 5% of my portfolio or when I'm up 100% in the stock right right right like that said that I think right there is such a great Example of the dichotomy Like how do individuals think about when to sell versus when the pros think about when to sell there's a background thesis here And I know the investors that you have had on you've had some legendary investors And I see the books that you have on the wall behind you if you think about just warn Buffett as an example, right? He has not been on the show He killed it last time one can you come on? I mean you can you take my spot war Um, you know What guys like that will say and I will say and I think you will say as well If you get the opportunity to get great companies at good prices go for it

47:01All right, and that's Microsoft at 25 to 30 times if right now you have an opportunity to get a great company I will submit to you that Microsoft is whether it's azure whether it's the operating systems You know, whether it's the investment in open AI If you get an opportunity to get a great company at a great price You just leap into it now 22 times somebody watching somebody listening maybe saying I think that stinks Okay, I mean you guys know me I anchored to 20 years ago. They think they're gonna get it at 14 They're not gonna have well, let me ask you this So Microsoft the stock got killed all right in a little baby bounce And they're clearly so obviously way more people that want to sell than want to buy right now that could change And it probably will change. I think that Microsoft is probably a screaming buy at some point if it's not today or or temp solo I have no idea But this is a massive secular winner It's earnings keep I think azure is to 20% a year a year a year for the last 39 Or something um, but how do you what's your thought on the sentiment on this?

48:03I don't even know if open AI is good or bad for the Microsoft story anymore Like the market's telling you it's bad. So the sellers just my point is this my question is this the sellers are so obviously in control of the stock right now How do you know and I know you sort of can't but how do you know like? What's a good price what the sellers are done? I mean you gave the answer I don't have the answer to your question and so that's one of the the reason I phrase things the way that I do It can always go lower is look when I buy I'm not saying that this is the moment that the the sellers are done and the buyers are stepping in I'm just saying this is a price that I think two years from now. I'm going to look back and say man That was a steal, but this does worry me at least in the short term. It does worry me It's a heavy market. I can't even heavy market I can't even it can't even bounce for a second. I'll give you two ways to know The first is good new bad news and the stock goes up. Yeah The second is an RSI washout. You're at 36 RSI for Microsoft. It is Very rare to see the stock this technically weak on relative strength and how much of a time cattle

49:06If you see a 25 RSI on Microsoft like if you see the stock that oversold I'm not saying it's the buy of a lifetime and it's going straight up But you'll get 10% out of it right because you always do right again great company I mean, that's a hill. I'll die on at least today And you're now getting it at a great price whether it's the 36 you know I mean you you've forgotten more about RSI's than I will ever know But that strikes me is very low. We'll go to 25. I don't know Well, so hit so let me give you let me give you the hit. Let me give you the history I think this is I mean You have not you have not seen this Be an oversold stock in the last uh three years You have not seen Microsoft At a at a more washed out place than where it is just on that one singular measure You know what there and it is it It genuinely looks like it's going to get More oversold than we've seen in the last three years right now When there was blood in the streets in a name like this Let's say you have to buy but don't ever quote warm buffet

50:09Why if you're not if you're not willing to buy me like no, yeah exactly Now you you guys love RSI. I have learned to love it. I've learned a lot from you I think you know that my favorite metric to use is the peg ratio Price to earnings over the growth ratio. Yeah, now if I look and I'm trying to do this on the fly you guys may have it Up right now roughly 22 times earnings Next year's growth rate and of course I've got Facts that wasn't loaded. So this is going to take a second But let's just take a look at what the Microsoft earnings growth rate. It's a June count uh June fiscal year So if we just take June 26 1660 yeah, it says 1.4 the peg ratio Why is he going through all this Should be shit actually it says wait, it says no, this is okay 0.87 Are you kidding me once that was pretty fun. It's less than one Uh, yeah Yeah So this year's earnings 1648 last year's earnings 1364 and it's growing over 20% so right

51:11Yeah, it's an absolute steal right you guys like RSI but but but but but it's going lower Maybe no, I'm saying literally it is going lower. Oh, okay. I'm not saying that's gonna keep going off forever But the price is going down right now and that's a fact and everyone is aware of that peg ratio Right, that's not an edge true But you know what the edges if that's not an edge and obviously it's not the the ratio is never an edge Patience I suppose I don't think you're gonna have to be that patient is the point on making what I'm trying to say is I think it's Recent downturn like the last couple of weeks is reflective of the market not the stock I mean, there's been no news on the stock. Yeah, I agree that sellers in qqq Exactly and spiders which but but all the mag seven names don't look the same And this one in particular metatoo looks like absolute dog shit just technically that's a technical trim gem Um So I don't know what because the open AI is that the thing you think is that they're overhang? No, I think it's the I think it's the spending without a clear investor Embraced Strategy for how that's going to turn into enough ROI to justify it

52:13And I think meta and Microsoft uniquely I think you're right. Satya problem. Satya is in my opinion the CEO of the hyperscalers that you just hear him The way that he talks he and son doctor, but I think Satya in particular is so committed to the spend He is all the way in the problem the problem is that Nobody believes that what meta it has been spending on is paying off in any way beyond reels Nobody thinks that All these hires they've made paying paying guys a billion dollars to acquire their companies just to hire them Nobody believes that that is doing anything for the meta shareholder in 2026 So the insiders whether it's Satya whether it's Sundar whether it's Brad Gersner You know all of these insiders are saying a couple of things one that they just don't have enough supply to meet demand You like that if you're a business owner you're like bring more demand And that every increment of compute is profitable very different you and I've had this conversation a bunch of times And Mike you know those two then the fiber optics of the late 1990s which I just remember being downtown

53:19One New York Plaza and every week they were ripping up the street there and putting more fiber optics down They pay over pay over doing the next thing It turned out that like 95% of that was unused that was ridiculous. It's not what we've got here. It's the opposite It exactly and you know the other thing that's been labeled on these companies is all the debt spending now leave Oracle aside for a second Most of these companies have a net cash position. I'm looking at Microsoft right now It ended last year with net cash on the balance sheet. So yeah, they're spending a lot But it's not like they're putting you know, it's not like they're turning their balance sheet into an airline balance I had Nikolas on the show and he said actually they're spending a hundred percent of their cash flow on CapEx this year Okay, so including Amazon all of them so and The like the the what makes that problematic is a lot of the thesis for why you should all those stocks and why you should pay 30 times earnings to buy them Is the degree To which they were asset light and that story's over with it's a different story and not everybody is on board

54:22So we've all been through those periods of time where there's all this free cash flow and the company starts spitting it out to shareholders Right increase the dividend increase the share buybacks a lot of times people say to those companies really you couldn't find something more productive to do Yeah, at this exact moment in time. I don't think AI so bubble You know, the spending as we've said is profitable. There's no signs to the point you brought up Mike that anybody's backing off of it Is the spend in a bubble because the prices obviously are the share prices aren't as the spending in a bubble Let's rephrase the question will it be a bubble of course it will of course it will We all know that because we're old enough and we've seen enough bubbles. We know that this will end in the mother of all So in my opinion, in my opinion the bubble is in the venture back startup world once again None of those companies can make any money It's going to be five companies that make money from selling AI and compute and When does that bubble when does that bubble pop? Who does it hurt? It hurts it hurts the venture venture capital ecosystem It doesn't matter. It's the average person when and when bubbles pop everybody gets hurt

55:23But here's here's another point that I think is important We're talking about the narrative right now and the fundamentals We all know that it's the price that drives the narratives So very true So if the bull if and when the bulls do come back their narrative will change It doesn't mean that the story has changed But the way that we talk about it will change because prices will change And if prices turn higher the bulls come back in two freaking seconds. Yep. I think I think you're a fan of Christopher I am too I mean, yeah, he's terrific So yeah, it is that simple and I'm sorry. I can't tell you when the bulls come back. Yeah Story changes based on what price does um, I want to I want to move along We got to talk about the other catastrophe that's slowly unfolding right before our eyes This is a fun one because it's sort of a panic that you can't see because there are no prices Um, the private credit thing that that got rolling this year Uh, we've talked about it in a bunch obviously over the last few weeks

56:24Um, I think it overlaps with the software the SaaS apocalypse story to some extent And then to some extent it's kind of its own thing Um, but I'd just love to hear what your thoughts are Whether we're talking about Apollo, Aries, Cliffwater, Blue Owl The commonality is Got a lot of nuance fiscated money that have come into these products The funds were all too happy to take that new money all of them have ballooned in in size Um, the asset class has been around forever But it's only really become something that's been accessible by retail investors in the last three years Yeah, and this is the first test of that And not all of these funds will have a bad outcome Not all these funds did anything wrong blah blah blah. We'll say all the nice things I'm friends with all these people But It's probably too much and we might have done ourselves a favor Having this little mini panic before These funds wound up in every 401k in America. What do you think? Um, so let me let me state what I think is the most obvious

57:28That the gates that have put been put up this quarter are likely to continue through the rest of the year That that we before we've seen this before with some of the Non-public reats It's highly likely at the rest of the year we're going to be talking about gates Not to be a pedantic, but the term is important here. Yeah, because the 5% quarterly withdrawal limit It's not like they just decide that they impose that no, we're going to get people that is the limit That's in that's in the prospectus everybody knows that ahead of time I love that you went there because it's obligatory for any advisor who's putting their clients in these To educate them Not just that there's a theoretical gate, but that it could well be hit And the and the purpose of the gate is to try to match Liabilities and assets. This is no longer banks taking in deposits and lending them to companies good That was done well because of systemic risk is why you say yes, okay So that was done 18 years ago these companies have come up to take that place if they don't gain The if they don't gain its worse absolutely because then you have companies that are forced sellers of assets in the market

58:31Those assets become toxic Exactly so much worse so and and by the way, I want to make full disclosure here Serity partners my firm does invest clients in some of the private credit funds We think we do a very good due diligence job of finding the ones that are doing the good underwriting and most importantly managing risk properly You know again, we said this earlier why so your advisors are equipped to explain to clients absolutely like This is the pros. Yeah, this is the cons the pros is way higher returns than you get in regular bonds Yeah, it's not for lunch, but let me keep you in the office This is the cost of those returns. Here's another pro You know, we're all public equity investors here and this may surprise you We often kind of jokingly or sassily save cheese I wish I could mark my book to whatever I want like the private equity guys do I would submit to you that the private equity guys are probably getting it more right than the public equity markets The public equity markets all all over the place take your baby in video I mean, you know, it's where it is $183 right now a year ago little more than a year ago after deep seek

59:34It was 93 then it went up to two 15 then it went back You know none of those price movements make any sense now do some private the speed or the because of the The oscillation from highs to lows exactly the value of these companies don't change by hundreds of billions of dollars and stocks So let's not do apples and oranges publicly traded bonds versus privately held loans So I just I wanted to point out that the fact that there is Much less transparency isn't necessarily a bad thing But in the wrong people's hands absolutely. It's the wrong thing or it allocated to the wrong person's portfolio Who actually need to put it and that absolutely you cannot put this in a portfolio and say that it's going to be liquid You're gonna get all your money out You know whenever you want it probably it's like prisoners dilemma because a lot of these funds these semi-liquid funds It's all wealth clients It's not like there's institutions that are in these same products now in some case not all But in some cases these these interval funds are purely wealth management interval

1:00:35So I actually you know, I don't know everything surprise. I don't know which funds those are I believe you The funds that we invest in have institutional as well as as private clients. Okay, and you know That by the way there are still gross flows going into these funds as of right now that there will be Well, I don't know right now. I think this actually has that activity disappears Okay, but it may well be institutions and you know, there are hedge funds out there like Boaz Weinstein-Saba who are out there making kind of I think predatory offers But hey the market is the market all right, so 70 cents on the dollar for some of these funds In a weird way that puts a floor to the value of these funds and the floor is not 70 cents Because they're not offering to buy these at 70 cents because they think that's what it's worth They think it's worth 90 cents on the dollar or more point So you could get this wave of like new second private credit secondary funds coming along To try to do the Weinstein trade. I mean you could. I'm not that's not that's not central to my thesis

1:01:37But what I am saying is that if we go to the core The fears are prospective fears their fears about the sass apocalypse the citrini article AI eats everybody's lunch and there's no money. So the private capital funds have lent a lot of money to the software industry And the software industry is being heavily scrutinized because The sentiment right now is that not all these software companies are gonna make it right We only have publicly traded proxies to go by and they're not good and they're not good Yeah, so if you think Salesforce is under pressure, what the fuck do you think a mid-tier Privately held software companies situation is right now. Oh, I feel like I'm I feel like it's new and we're down at the stock exchange like But that's what invent that's why the redemption requests are coming in. I got you two ex You could say listen I think a lot of the fear is overblown and will prove to be overblown Given the past of time But I don't want to be the last one out the door Well, that's an understandable human reaction. You saw today you get the NAV today

1:02:38You know if you sell in six you start selling in six months You don't know how many markdowns have happened between now and then a little quick math on this Like one of the funds that were invested in has a four-year average maturity now That means on average 25% of the fund is maturing every year and 5% gates times four quarters is 20% That's the the reason for the gates is to try to better match the assets and liabilities so that you don't have to do So alone the chores the fund gets the cash back from the company that the company had borrowed and that will fund Whatever redemption requests may or may not come. Let me make another apocalyptic comment here You know for private credit to go bad on mass. You know, it's got to go bad first the whole The equity Thank you. The equity is and I'm using I think this is Christopher Rhodes numbers, but no, it's Jason Trener's numbers at Private equity invested right now 8.9 trillion private credit 2.5 trillion You got to burn through a lot of private equity. This is so important I don't get this is so important because these are for all the fear. I will push back

1:03:41These are senior secured loans. So the equity has to get wiped clean the cash flows have to run dry And yes, guess what in some cases they will but you guys are missing the real problem the problem is not defaults the problem is For the financial advisor Who is relatively unsophisticated himself or herself They have to contend with probably a year of headline risk that creates a relationship problem between them and their That's about that is the problem is not that loans are blowing up because they aren't right They are now and Josh you're 100% right, which is why I led this discussion with expect the year 2026 to have gates every quarter because of exactly why are those equities selling off if the loans aren't blowing up Well, so cause of that problem. I think it's going to chill fundraising for the next six months And that in and of itself can become systematically

1:04:41Problematic because somebody has to most of these companies are not done borrowing They have to roll the loan with tonight refinanced alone If the asset class is shrinking because of investor apathy That does create a problem. It's a bigger problem for the whole economy is less money for these types of loans It is a problem. I'm not sure how big a problem. I don't think honestly. I don't think it's systemic Is it a problem for blue owl which were positive on their actual funds But the stock has a dividend yield right now of 10.3 percent What's that telling nobody believes it right and you know, we all know you cut a dividend and your stocks in the penalty box for years Especially if you're a financial Yeah, financial honestly any company right But we're not talking about the blue owl bdc That's probably true. We're talking about the actual owl the company now. I do own in portfolios Apollo Few reasons for that one the the ratio of institutional to retail is like way way higher

1:05:44So the phenomenon that you aptly pointed out of just human sentiment whether you're an advisor or client saying get me out Is not going to be the pension funds are not panicking right Right exactly and then Apollo has the theme the captive insurance, which is its own I told you the pension funds and insurance companies that historically have been the right investors in these in these asset classes They know Before they get it and they understand that I don't know that every financial advisor Who was flown to Manhattan? Taken to a steakhouse and then a Yankee game and then flew back to Kansas and started allocating their clients to private Private credit. I just I don't think that their clients fully understand this of course And this was part of the story a lot of the distributions from private equity or lack there of Was causing fund raising from institutional investors to private credit to pull back And they're the wealth channel like that's exactly what happened So I'm not saying that it's like criminal at all, but that is the story

1:06:44Listen what you're both saying has a lot of truth to it especially the you know Let's take somebody to the capital grill and you know wine and dime on enough for me to allocate to this shit I need I The girls find for me I'm salty there. I write the subway, but I don't think the whole I need that as John George I don't think I don't I don't think the whole asset classes bullshit Um, but these headlines are going to continue. Yeah, and the conversations are gonna be harder and harder But if you can stay in you're likely to have the good Well, that's what I want to ask you I wanted to I wanted to ask you is the silver lining That um, you might get a tightening up of the way that some of this stuff is underwritten yes, I get stronger Covenants you might even get Um a better interest rate Uh Across a whole portfolio and maybe now is the time for somebody that has not allocated to private credit take a second look Well, what are you crazy? No, here's here's the silver lining here's the silver lining

1:07:45Assuming private credit can get through this and I think it I think they will I think that in X years time we'll look back and say okay, they will never and nobody will ever be able to say again They've never been through a cycle. There's never been any stress all the loans are bullshit No, this they're in it right now and assuming they come out of it they can point you put this on screen we survived That's I can't John can John Morgan Stanley sees private credit default rates hitting 8% I Drives me a little crazy though now Morgan Stanley selling a lot of this stuff to their wealth clients I just Because and look this is just me this is the problem I have with the citrinity article is that I hate when people Just lick their fingers sticking in the wind and say 8% back it up now. I don't have well They are they're they're showing that during the height of covid Did default rate hit 8% is bad. I know Well, I mean there were dolphins swimming in the canals of Venice because there was no boat traffic and it was clean. Yeah, I mean

1:08:48Right, that's a very it's an extreme Again, it's this minskie moment everything is like a so why are Morgan Stanley research people putting this putting this fear into the market You think they really believe this so they're saying this is how bad it could get Because this reads this chart reads like it's a forecast. Yeah, but you know what? This is a Bloomberg headline and fairness We don't know what Morgan Stanley actually said they might have said in the worst case right right I didn't read the research piece. I'm I'm not being sarcastic research analysts have a job to do and is to put stuff out every day We do a little like so we can close this topic out. Yeah, we do a little mini-lighting around on private credit go Okay, I am very unsophisticated when it comes to this subject some genuinely asking Do you think there are financial advisors right now taking a new meeting With cliffwater or with blue owl or any of the other purveyors of wealth management Do you think that that activity has completely chilled like you know what dude

1:09:49How about this let's not have lunch Why don't you fix your shit because I'm reading a different Wall Street Journal article about you mother f**kers every day And I'm not talking to my clients about your funds. Yeah, that's what I think we have to get to I don't know for there yet. I'm curious what you think yeah I think we have to get there. I will tell you that that's a already partners 1600 people 30,000 clients you guys would gigantic firm. We've gotten pretty big and I know you know You guys have done amazingly and you've done it 100% employee ownership, which is something to be proud of very proud of Thank you Jim. Yeah, no, I know how important that is But to answer your question there are still people advisors and clients of my firm who are saying on the Monday morning investment call should we be leaning in Now I think it's a little early. There may be some marks to come. I think you can what I don't think if did like Right now. Okay. Yeah, should all private credit be considered for a wealth management product Or are we learning that maybe direct loans for example aren't the right fit or maybe

1:10:55What was the fun I read about this week's Stone Ridge where they have a gigantic fund that's taking loans from fintechs packaging them and creating a fun like are there certain types of things that The wealth management industry should just say no thank you. Yes, structured finance type stuff The answer is of course, okay, and I think you really want to be the best of the with the best of the best in this asset I think so we will and I think you want to bet the jockey I think you want a very strongly considered the brand that's bringing you a product, right? Okay Like like look we I've had small meetings with Doug Ostrover. That's the CEO or the co-founder of blue out And we're all at an age where we can recognize garbage people like people you can't trust. This is the opposite and Doug is garbage No That was a terrible No, Doug is You know, they should have dug on the calls instead of mark. That's my suggestion. You know our first name basis with

1:11:59Partners and co-founders together. Look he thought and the whole team there thought they were doing the right thing By giving 30% back. I can't I can't believe they thought that was a good idea They I mean they honestly thought and I think he's telling me the truth No, I saw I was on a webinar and I heard them say that and I said Do you have any idea how human beings work? You really thought that they weren't gonna be meamed into the Stone Age It's a classic lesson. He'll say nothing to see here like dude All right, I had this idea that what could potentially put a stop to the panic Is a really big acquisition of one of these there are 10 publicly traded private equity private credit Specialty finance companies. These are some of the best brands on Wall Street blackstone KKR Apollo like these are about Carlisle. These are storied Companies that have decades of experience. I don't think that it's like this 2008 redux thing. That's not my belief I'm not that I'm not that cynical

1:12:59What if some giant European or Chinese or even American bank Looks takes a look at let's just use blue owl and says you know what The market is way too panicking and overreactive We could fix this company just by virtue of our balance sheet Like our credit waiting we could fix this whole situation in two seconds They kind of happen with be read if that happens That's where I was going. Yeah, if that happens I think that puts an end to this panic like stops in his tracks Yeah, and then the redemption's cool off and everybody calms down I would love to see that. What do you think? I think you need as Mike just alluded to I think you need that investment into the funds themselves. So Calpers did that. That's it was University of California. Oh, not not the acquisition of one of the companies But let's make sure that everybody listening knows what we're talking about be read was having the same problem Gating investors who were all getting out because of the commercial mortgage back tsunami that was coming by by the way I mean step back for a second remember how much press that guy. Yeah, and like the regional banks are doing fine

1:14:02Blackstone is doing fine. Okay, but back to the point university of California came in and made A preferred deal with them. It wasn't preferred. It was big. Yeah, but it was big and it was a vote of confidence That's what I think you need to see a somebody coming in saying I'm in you know the blue owl corporate Almost like in 20 people forget in 2011 Bank of America went to like $6 And Morgan Stanley or or $10 Morgan Stanley went to eight out three years after 2008 During the European financial crisis All the US investment bank stocks went back to single digits Because everybody said here we go again And that's when Berkshire stepped in and did some of those preferred deals. Yeah people think they lumped it together They think that happened in oh eight and it didn't Though that era Where uh Berkshire stepped in yeah, I think they did the bank of America preferred deal with a 10% coupon. Yeah, so I agree that that would be meaningful um, I don't want to I don't want to not get a chance to do this

1:15:05I asked you for some of your favorite stocks for this year. Yes I so I have one that I feel strongly about but I want to hear I want to hear what you're thinking for this year Okay, so I think the one you may be alluding to is Amazon. I know you're I know you're bullish on it And I am too. I was much later. He's a shot. Why does it stop app like ass every single day that I was just It's probably what you guys is it because I'm Jewish no I know is that are you Jewish? Yeah, sort of it wasn't with anything. No, I don't know Why does the market hate me so much every time I buy this stock? It's like an intermediate term top It just it just sucks. Why I want to break out it just sucks. All right. Don't good. What do you laugh at that? For what do you like about Amazon? Why won't this stop make me money? It will it well Let me look we see what's going on with Amazon web services again Same thing Andrew jassy saying that he has more demand that he can meet so everybody's saying well They're spending too much well. They're spending for profitable compute that they're bringing online There's obviously the retail business we know that there's all different levers that they're pulling here

1:16:06I mean we don't even talk anymore about the ad business Which one it started not that long ago was brand new logistics business The third largest advertising business in the world. Yeah, nobody cares. Nobody cares. I they will I think they're doing everything right on the AWS side. I think the strategic partnership with anthropic Was genius. Yeah, that's so early and now they're in business with open AI 50 billion dollars worth of business with chat GPT. They're almost like Cucking Microsoft with it with an open air and just stop getting the same thing. They both should be doing well No credit. Okay, I want to talk about Apple for a second go. Did you see the journal today? I thought I did what was on Apple today. Okay Apple is way behind an AI and still making a fortune from it You've heard me talk about this Basically We've seen 300 something billion dollars in gross revenue from the generator of AI apps Which is perplexity Claude chat GPT

1:17:09Okay Apple's collecting a nine hundred million dollar commission on that activity They are Literally, I think in the poll position to be the the biggest beneficiary of all this AI and they haven't even launched the new Siri yet Um, hey, let me read this to you Apple's Siri chatbot is still weak by modern AI standards What Apple does have that the other AI players don't is a dominant position making devices However fancy open AI Google and Thropic and X AI make their chatbots iPhones are still the primary way to deliver them to consumers That means they typically pay the app store tax Roughly 30% of subscription fees in year one and 15% a year thereafter Um generative AI apps paid Apple nearly nine hundred million in app store fees in 2025 So the the better the the more adoption Those apps get from the consumer the more money Apple makes

1:18:12And they have no capex increase apples capex is lower last year than it was the year before they're laughing at everybody So like to me that explains why Apple is Close to its of 52 hi. I think it's in a 14% drawdown Which is not bad compared to the others I really think Apple is distilled could it be distell AI winner And they might get there being the latest with their own products So I did mention Apple in pretty much the same breath as Microsoft when we were talking about it earlier And just a few months ago it was around 33 times forward earnings now. It's around 26 I may be waiting to 28 times rather. I may be waiting too long I have half the market weight in Apple which some people would say okay Then you're short Apple if you're benchmarked to the sb 500 I want to add that extra Bit of Apple back to bring it to to market weight. I'm gonna wait a little longer I mean, we've just seen with every stock in the mag seven that at some point they come down to the low 20s I may be waiting too long. I just can't buy it at 28 times everything you said

1:19:16Sounds smart as hell. I mean, I'm sitting there and saying why aren't I buying it? You're just gonna have to indulge me on this one. I'm gonna wait a little longer I think what's gonna happen is we're gonna get the agent xiri announcement this year. Mm-hmm Um, I don't know when it'll come But the idea that every app in the app store has to be interoperable with agent xiri So that the user can give agent xiri commands to go do things on the apps. Yep And that to me that'll be the moment when the whole world wakes up and realizes oh You know what the most important feature of AI is that it works That like can actually do things on your phone For you while you and I think that moment comes this year as you've been going through the list of positives for apple The one thing you left off which I'm astounded by is that they somehow have access to Gemini on the iPhone for $20 billion a year Yeah, I mean, that's a steal and but to steal and Google is gonna be detect provider to agent xiri which was already announced

1:20:17The Google's given it away. Yeah, why do you say that? That sounds like a lot of money Not not for the size of these companies. I mean if if you think about alphabet How much they put into Gemini and how much you know, they've spent on it Uh, they need and and this is the mother load This is the mother load of how you distribute that and you're giving it away for $20 billion You're kind of setting a ceiling on where your revenue is gonna be one of the stuff one of those stocks here Are you excited about for this year? What do you got uh city group? Okay, why? They've got this bannamex cipo coming up later this year That's the mexican subsidiary that's the mexican subsidiary is the final piece of the puzzle to get to spin out get rid of it Get rid of it. Yeah in the meantime Jane Frazier and company have done a great job of increasing profitability Trade the book value. It's got like a two and a half percent dividend yield I just think that's easy. Okay. Yeah, that's the easy button for investors. Okay. Got it anymore. Well, they're not so easy button as oracle I mean if you believe that AI is not a bubble Then oracle is the coiled spring that you just want to sit on and wait for it to take off and send you to how far below

1:21:21It's 52 he ties his stock now 55 50 it's over 50 percent Um here. Let me let me give you what's the like what's the best case scenario for oracle like what could happen here that that turns Well, nobody believes that open AI can pay them that contract Mikey went right to it. Okay, so that's exactly why the stock came down from 350 to wherever it is right now 160 and change or 150 and change Gross, um, nobody is so unbelievable, but open AI rally was equally stupid Open AI just raised $110 billion, right? They're gonna go public Sometime later this year most likely raise a few more $100 billion. They've got contracts starting to come in Absolutely the market doesn't think that open AI is good for for the money But they don't have to be good for all of it. They just have to be good for some of it And with the contracts and the fundraising that open AI is doing There's enough here that earnings should flow through to oracle. So you like it right here. I do all right We talk about the book. Yeah. All right. I want everybody to buy this book um

1:22:21Obviously, you know Jim Labenthal is an absolute man. She's a wonderful guy He's also very bright as as you have just learned if you didn't know that already Um, but you can write Hmm. Have you always had always wanted to do a book? I have always wanted to do a book. Okay. What why? Um, because there's an idea that's been just rattling around in my head that there's things that I believe in Not everybody's gonna believe in them But I'd like people to know about it and maybe get some advantage of it now if I just wrote a book of Hey, here's what I believe people that I got whatever who cares. Yeah So what I tried to do with this book is take something that I am peculiarly excited about Which is the New York City subway system. Are you crazy? I don't know. I'm worried about you I don't want you down there without I really wish you guys had known my father. I said this last time I mean, he would have loved you guys. You would have loved him. He was a showman He was an advertiser. He legend that you guys have done legendary And he was a municipal financier who would do ads from the subways from the sewer systems like you know to remember this

1:23:24But there were TV commercials and it was like it was like a thing like Labenthal was known as Did that's where you buy muni bonds? So I remember. Yeah, it was like the Frank Perdue. Yeah, municipal bonds I don't know if you know Perdue check it. I would have gone with like Tom Carvelle But even that would go Very young so anyway my dad would take me on the subways all the time And I just got a kick out of it And I still do we were talking about earlier that I take the subway from midtown down to the stock exchange every time I'm on the show now tell you the truth every time I go in the subway I just get a thrill. I do. I don't know what it is little boys like trains something like that So what I've done in this book is use the subway as a metaphor for investing lessons and Now I went a little further and this might be a little bit conceited of me But just personal beliefs I have of how you should carry yourself in the business world That may be a little bit more than some people want to read some people may find it's ain't demonious But I think it's useful and learning learning basic investing concepts patience. Can I ask for a teaser?

1:24:27Yeah, like let's give us like a life a life lesson. What do you believe that makes people successful in life? So I'll give you a couple. I was just going on one one is being patient Obviously, I'm more of a value investor. You've got to be patient You've got to let things play out city group. We were just talking about how long did I have to wait for that? You made a hilarious comment once on the show you said Jimmy you've been in that of like since I was bar mitzvah I think you've been in this office more than 10 years And it's and it's it's worked over that time for us Patients you got you can't just get thrown off the train or or like get off You know the train hasn't come so I'm going to walk that's not going to work Another thing that I pretty strongly believe is we're all in this together It's not a zero-sum game. We're all trying to use the subway to get to where we're going You might be more of a technical analyst you know using rsi I might be using more fundamental peg whatever we're all trying to get to the same place You don't have to succeed by my failing and vice versa and I think that's a lesson I love that. I think it's great that there are so many people with so many different disciplines in the market

1:25:32I think I think that's like I think that's why you have a healthy market not like totally agree People should not have to agree with each other in order to respect each other's Work absolutely. It's not a zero-sum game where you guys are where we are right now Brian square You could if you wanted to go down to the stock exchange walk west to take the two three to get to Wall Street You could walk east to take four or five four or five. No, it's just showing off. Yeah I'll do show you off weird stuff. Show you off that I'm a weirdo Mike. Thanks. I see So used to because CNBC sends me like a suburban. Yeah, and it has to be late model like 23. Well, imagine the headlines But you don't think the start stop CNBC star Josh Brown thumbs first somebody to death. I'm the subway with a tire No, I don't know what is it? It's a tire thump. I don't walk around with a tire Don't distort my Don't distort you already distorted things that I do so you So you go down to the subway reminds you of your dad. It does. I love that almost every time

1:26:32Dude, that's awesome. Well, I'm proud of you and I hope a lot of people buy I hope a lot of people buy the book And we will absolutely link to it the book is called How to Ride the Subway by Jimmy Leyvin thought congratulations Thank you, brother. Thank you, bro We do have to point out that the compound and friends the logo are the New York City subway. It's true The New York City subway is iconic and also life threatening. All right guys Thank you so much for watching. Thank you for listening special thanks to James Leyvin thought My buddy and congrats on the book. We will talk to you soon. Thanks again everyone Thank you