True or False - Private Credit Is This Generation’s Subprime

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Ladies and gentlemen, welcome to an all-new edition of The Compound in Friends.

My name is downtown Josh Brown.

Here with my co-host as always, Mr. Michael Batnik.

Michael, say hi.

Hello, hello.

All right, and with us today,

Garrett Baldwin.

Garrett is a research economist and financial analyst based in Maryland.

He is the author of me and the money printer,

and the founder and editorial director of AJB Capital Research.

Garrett, welcome back.

Good to have you.

Please be back.

Thanks for having me, guys.

All right, so the last time you and I spoke,

the audience went wild.

They just, they really loved the conversation.

Michael didn't get a chance to be in the mix.

So now it's the three amigos we're all together,

and I see that you are coming to us live from what looks like

series bar at the CME.

I know it's AI, but still, that's a pretty cool call out

for the people that trade commodities in our audience.

It's either that or you just see boxes of baseball cards in my office.

And I don't want to look like a 12-year-old boy.

I want to look like I'm old enough to drink.

Understood.

So in real life, you're actually in Baltimore, Maryland.

All right, awesome to check in with you.

So can I ask a very general question to get us started?

What even just happened?

On Sunday night, I said, oh, okay, cool, wartime stock market.

Let's go.

Let me brush up on all my charts and all my data

so that I can speak intelligently, provide thought leadership

for the clientele of Ridhold's wealth management,

and do my job.

What do I need to know?

And we're pretty off script right now,

as far as a post-initial air strikes of a war playbook.

What do you think is the story behind that?

This is one of those days where I get up and I say,

I could have done anything else with my career.

I could have chosen any other thing to be passionate about.

And I could be covering the world-based ball classic right now.

I wouldn't be frustrated getting up in the morning

and just trying to figure all this out.

Again, we've talked before.

You know that my thesis comes back to monetary support, liquidity,

and what the Federal Reserve is doing and what Japan has been doing.

And I think that that's the more critical thing.

And we've just been range bound.

We've done nothing for three months.

And as we'll talk about,

you still have this large swath of stocks

that are up more than 5% up 10%,

but the Mag 7 continues to bleed.

I think that goes back to just the natural cycle

of liquidity peaking in August, September.

And the kind of shift toward defensive energy commodities

which tends to correlate with this period in that cycle.

I heard somebody on TV saying it's not even really...

What were they saying?

It's not really a war until Congress declares war.

And then I chat GPT.

One is the last time Congress declared war.

And I think it was against Japan.

So I don't know if that's the best way to gauge whether or not

we should expect a wartime stock market.

I don't know if we need the official declaration.

Whether you like that or dislike that, that's just the reality.

The reaction to the reaction in oil and the dollar

and all the things that you would typically expect to react

sort of had like an 18-hour moment.

And then we were right back to our regularly scheduled programming,

which is the software sell-off and the private credit crash.

Is that surprised you how quickly we got back to business?

It does a little bit, but I don't think the worst of this

situation is over.

The people that I talked to who were oil traders,

people who traded large swaths of oil back in the day before the Russia war,

they're very concerned about this.

They're more concerned about the Strait of Ormuz.

They think that escalation is coming.

They are the people who are reading the report saying $200 oil.

I don't know if we're going to get there.

But the reality is that this is one missile away,

one headline away from a significant shift

that is comparable to the commodity rally,

if we want to use that term that happened back

when Russia invaded Ukraine.

We'll mind us.

What was the reaction?

What was the run-up and then what was the reaction when Russia invaded Ukraine?

It was a monstrous run-off,

but the process had started some time about two months before they actually went in.

And then we had a huge run-up that ran.

I believe until April.

And then all of a sudden it was just a massive risk off event.

And all of a sudden just funds were dumping oil and gas.

And we had a huge downturn.

I believe the June 8th downturn in 2022 was the largest hedge fund sell-off in 15 years.

And it was a lot of relationship to commodity profit-taking.

They decided not to keep oil prices elevated indefinitely

because that war is still going on.

And it's where you're for now or something like that.

I wish I knew what was going on.

I really do.

It just you wake up and I go back to something that I wrote last week about Japan

changing the rules around insurance and what the insurance companies have to hold.

And whether or not they had to sell their bonds like price discovery.

I don't even know if it exists anymore.

And we're just in an environment where it's kind of just a yolo market where

people are chasing headlines.

We got back to the private credit side.

I think that that's still a major issue.

It's very, very clear that Federal Reserve has had to step in with $55 billion a month.

In short-term treasury bill purchases in order to protect

our banking reserves.

And at the same time, the private credit story just continues to be this ongoing concern

and deterioration about ongoing refinancing and questions about whether or not there's enough

capital in the system to enable a lot of refinancing that's going to be needed to be done later this year.

I believe Crosswater Capital put it.

It's something like 13% of GDP needs to be refinanced just this year.

And then you have to account for the fact that the U.S.

is refinancing a significant amount of treasuries.

That can crowd out private credit.

That can crowd out private equity that needs to refinance as well.

I think one of the reasons why the futures markets are responding as

calmly as they are.

So Sunday night, you saw missiles flying and futures market opened down 1.2%.

I mean, it was really not a lot.

And we've seen this.

This is not the first time where you've seen

something happen over the weekend.

And then you look at the markets reaction.

I don't know.

And I guess it's like not really that big of a deal.

The market doesn't seem too concerned.

And I think the primary reason why is

though this chart up chart one, John, please from your dining,

the U.S. has been a net.

The net imports have crashed.

We are now a net exporter of energy.

The energy independence story, I think, is the primary reason

why our markets aren't doing what say markets in Europe are.

Like those stock markets and of course Korea that is much more dependent on energy

are getting hit a lot harder than we are.

And you could talk about liquidity and all of this other stuff that obviously

does matter.

But for this week, particularly, I think that is why you're not seeing the market

react the way you think it might.

I concur with that.

The one of the things that's such a strange thing about geopolitics.

And I don't know if this happened post-COVID or not.

But remember, there was a time when King Jung-Un just launched a single missile

into the Pacific Ocean.

And it wasn't an attack.

It was just a test fire.

And the SAP 500 or the Dow fell 4%.

Like instantly.

That doesn't happen anymore.

And you know, I might even rally on that.

Right.

I might actually, because that might be bullish for Palantir.

And I wish I only have kidding.

Yeah.

But I think that that has, I don't know if it's the plumbing of the financial system.

I don't know if it's the fact that again, passive investing is 50% of

of equities now compared to 5% in the 1990s.

So once again, it may just be the fact that there is just this ongoing burn

continued support of equity prices.

And you've talked about this regularly.

The fact that every two weeks more money flows into these equity markets

through passive ETFs.

Yeah, that's the that's like the secret undercurrent that people still haven't

wrapped their heads around.

That there is a price insensitive buyer coming in almost no matter what happens

literally other than maybe nuclear war.

We learned from COVID, the Vanguard 401K contributors, they didn't blink,

fidelity, same story, Schwab, same story.

Like we know that that underlying bid exists.

It doesn't mean, all right, so just always buy.

It's always going up.

But like, man, could you imagine if we had that current in reverse,

you would never want to invest in a stock ever again.

Yeah, let me ask you this because there is a large course of people that

I don't say blame the positive market because that sounds like a weird thing to do,

but they do.

They there's a lot of blame for passive money,

distorting markets and no price discovery.

If if mutual funds were 100% managed by active managers who were merely closet indexing,

do you think that would change the story?

Like do you really think that it's the past?

Yeah, no.

And the other thing about that is that you actually see,

I'm trying to go back to the exact numbers because I did something on this

back when I was at Modern Trader where you had massive amounts of passive flows,

but then you have all the active managers who are just trying to meet their benchmarks.

So they're buying the exact same stuff.

They're buying.

They set the batch, they set the indexes.

Right, right, right.

So there's no, there's crowding around those specific figures.

Everybody's buying the same stocks.

And then ultimately what we hear is we have an narrative shift.

And that's how we end up in the situation right now.

We're trying to make sense of what's going on the software stocks.

There's a technological component to this particular geopolitical crisis,

if that's what we're going to call it.

Where like with Ukraine, it was the first live example of a battlefield with drones,

like actively participating in war fighting for both sides.

And I think it's sort of changed the story somewhat.

In this case, it's AI.

We know there are huge issues with Department of Defense wrestling with Anthropic

because they want, you know, obviously more control over the technology.

They don't want to abide by the same terms of service that my mom does.

So that's part of it.

Someone was saying the reason why oil is not reacting is because

number one, the first thing that we did was take out the Navy.

So the straight-up Hormuz is an issue in that ships don't want to go,

but it's not blocked.

And then number two, every time Iran launches,

there's an AI Department of Defense effort to immediately pinpoint exactly where that

launch came from and they wipe out the launcher.

And as a result, Iran has stopped launching either because they've run out of launchers

or most of their launchers or because they know this shot that account,

because in a minute we fire it, the United States has this AI thing that incidentally routes

a tomahawk to take that thing out.

Like that is, I'm not a war expert.

I'm just saying this is part of what explains why we're not contending with $100 oil,

a CPI spike to come and people freaking out about whether or not this means the Fed is now unhulled.

That's not really the conversation right now.

And thankfully, because I think that would have wrecked the market this week.

That's an interesting observation because at the end of the day,

I believe it was the former head of Google, wrote a piece in the Financial Times recently,

Eric Schmidt, and he basically said the future of warfare is happening in Ukraine right now.

And the no man's land from a source of mines 15 miles.

Those tanks are not rolling across Europe anytime soon.

And a $35 drone can knock out a $1 million to $10 million tank.

That could be part of the story.

It could be the fact that the future of warfare is going to be much more localized.

It's much more targeted.

It's not carpet bombing.

And in some ways, the question is kind of nuclear war off the table.

I don't mean that it's obviously you have deterrent.

But the reality is we can put a you can put a missile into a single car and just take out

one person rather than hitting an entire block.

And that's going to be very interesting to see how all this works because once again,

companies like Kratos, you're seeing it with Blanken on Palmer Lucky's company.

That I had somebody who was recently in Ukraine and came back and he said,

I need to do every single thing that I possibly can to invest in this company.

However, I possibly can.

That seems to be the tone around and roll.

That is the hottest ticket in town everyone wants in.

What's this what's this Korean Cosby index chart?

So on Tuesday, the Korean market had its worst day going back to 1990.

And then a day later, it had its second best day going back to 1990.

Garrett, I don't know the composition of the Korean market in terms of the traders,

but it seems like there's obviously a lot of leverage.

They're having a very good time.

They're partying over there.

Yep.

I couldn't tell you a thing about what's going on over there.

I can't know everything.

I mean, that way.

So let's put that to the side.

But the thing is with South Korea, there has always been stocks that have been highly

undervalued comparatively to other countries.

I remember POSCO a couple of years ago was trading at 0.6 times book value.

Steel Manifesto.

Korea is a memory chip stock.

Korea is a meme stock for people that are trading international country ETFs.

It got slammed because they import almost 100% of their energy.

So that's the obvious reason to sell that market.

But also, it's like 40% to memory chip plays.

One is Samsung, the other is SK Heinix.

So you have like, you have this incredibly weird situation where it's both an energy exporter.

But also, it's the primary source for the most important chips on the planet right now.

And people just, I guess, panic sell and panic buy when that thing gets moving.

I think it's fascinating.

It's one of those countries where I'll just look at and say, I don't know enough about it to

make a decision, but it kind of feels to me when somebody says, yeah, I'm long Korea right now or

I'm long, you know, pick a random country.

It's like, yeah, I used to bet on ping pong back during COVID when there was no bait.

You know, no other sports to bet on.

I'm like, okay, you're just looking for action wherever you want.

So this is a very, very weird market.

And this week was weird.

And 2026 has been weird.

I was very surprised.

I wasn't surprised Monday when they took the 1% loss away and we closed green.

I was very surprised on Tuesday afternoon by Tuesday afternoon.

So Tuesday morning, we gapped out hard.

And I was like, oh, shit, like that rally didn't stick.

And when that sort of thing happens, you usually have trap balls, complacent balls.

And they took it all back Tuesday too.

And when you have that sort of reversal, John, chart, the bespoke chart,

when you have that sort of reversal where you're down 1% and you finish in the green,

historically, that is very bullish.

So the spoke says that this has happened on 2.8% of all trading days.

So it happens, like obviously, it's not super unusual, but it happens.

And they look at the performance of what happens a week, a month, three months, six months.

And I think intuitively so, these type of bullish reversals have historically been bullish

for the stock market and go forward basis.

But, Garrett, I want to ask you, I want to ask you about that chart and just the mentality around that.

I'm one of these people that has a very strong belief that when people sell stocks for any reason,

either it's something with the individual company like Mrs. Erning's or it's something where

like the market is getting volatile and they just want to sell something.

I have this like mental model and I hate that phrase, but I do, where like the maximum amount

of time the money is going to sit and cash in that person's account.

And I don't care if it's a hedge fund amount at a PM at a hedge fund or a mom and pop on Schwab.

I think the maximum number of days that money sits in a money market is like three days.

And then three days go by, the world doesn't come to an end.

And they're like, they're like, what should I buy?

And I understand it's not that simple and it's not as contained a world where it's the same

dollar amounts and we don't have money moving in and out of banks, et cetera.

But just big picture, I think it explains the V's.

I think it explains, I just think it's a different investor class, both professional and

retail these days and they don't buy their time.

And I think some of that just has to do with the pace of life in general.

100% everything we do is sped up.

Yep. So why would that reallocation into a new stock process not be sped up?

100% what do you think about that?

Well, I just I think that there's a there's a couple of moving parts.

One, there's incentive for brokers to try to get people to sell.

There's there's incentive, you know, for as much market action as much money flowing around as

possible. And if you look at it, there's that one crazy chart where it says like the average

holding time in the 1970s was like 10 years. Now it's down to what? Like 60 years.

That's it. Yeah, it's it and and I think that there you speak to the immediacy of the market.

You speak to the fact that we can trade on our phone in any given time, everybody's got a tip,

everybody's got an opinion and everybody's, you know, bouncing from one platform to the next

trying to find something. And I think that in an environment like this where we're at all,

we're within two percent of all time highs. And most of us feel like what's going like the

old again, we talked about JC JC's going to say that it's going to go to 8,000. But like the

rest, the rest of us are sitting here going, there's a war. There's, you know, constant money

printing. There's a lot of uncertainty around new fed chair coming in. Right. And and and

and I was going to say this or there's that one meme that says, well, the end of times will be

horrifying. The pre-end of times will be extraordinarily profitable, defining on the opportunities

that you can invest in. But that that's what this feels like. And when I think when markets are

at highs, right, it's it's people are looking for. I missed out on this. I missed out on this.

I missed out on this. So do I try to buy this stock that is, you know, trading at 20 times sales,

but it's unprofitable, but it's down 40%. You know, it's going to go back. And I'm going,

and I'm going to be I'm going to be smart because I, you know, I timed that. And that's a very,

that's just kind of the way that the market is aligned to us. I think you remember the

remember the vibe session, the hard data and the soft data. I think the hard data is the market.

And the soft data is how we all feel. Aside from JC. And by the way, I'm more team JC in the

not on this one. I don't think anybody feels pharma. I don't think anybody's like, I can't miss

the next rally. I think people are very anxious. And I think that the market has swallowed so much.

Like, I can't believe the rally on Tuesday. I really can't. I was shocked that we didn't close

on the lows after opening like that down. Em down seven percent, the doubt down, whatever was

down at the open. The market continues to be hit with these super bearish narratives. And it

just won't go down. Like at some point, you have to say like, okay, like, yeah, I'm anxious too.

But clearly, there's an overwhelming demand for stocks. There are so many more buyers and sellers

despite the way that we all feel like this doesn't feel great. But what about what about the narrative

or the argument of an I'll go back to what Stanley Druckenmeller said in 2018. You already got

me. I mean, I can't, I can't robot it. Whatever your best say. So all he said was, look, you know,

like trend investing is very complex now. Like if I'm, if I'm down, if I'm looking to go down on

something and, and short it, this, this stock moves into the third standard deviation and the

algos step in and start buying it. And, and if you want, if you just look at volume weighted

average price on a one minute chart, watch, you know, watch somebody like Jamie Dimon say something

about the bond market, watch it dip into the four standard deviation and then watch it rally

to the fourth deviation on the upside. Like it's, it's absolutely wild. This type of price

action that we're seeing and the, and I think the difference between, you know, the 1990s and now

we would see three, four, five percent moves. We would see moves to the downside. We would see a

continuation of trend. And now what we're seeing is kind of like this round tripping during the day.

And I don't know how that's possible. I don't know what's necessarily driving it. I do understand,

you know, what's going on with zero date. But I'm not going to blame zero date.

Dude, on liberation, liberation day. So we were down 10 percent, 12 percent, whatever it was.

And I'm staring at my screen. As I always do, I'm staring at the screen and I blink. And the

market went from down four percent to up seven percent. Yep. How, how does that happen? Because the

app, so what the algorithms have done is they've, they've made it, they've made it so all

intuitive thinking, at least in the short term, is completely worthless. Any, any sort of like

linear, like if A happens and then B happens, therefore the probabilistic result will be C and

then D and then E. The people who think that way, the most intelligent people in the market will

understand all of these connections between cross asset, it's blah, blah, blah, blah. It's not

that they're stupid now. It's that the machines are speed racing, speedrunning that whole process

in minutes, rather than weeks. I remember there were weeks for a story to play out. And then it

would go too far and then the buyers or the sellers would come in and correct that. And that's where

the term correction comes from. Right. Now you're wasting your time and actually one of the most

popular trader memes for this reason is that thing where it's like the bell curve and you have

a complete moron with crossed eyes on the left. And then all, yeah. And then all, all the way on

the other side on the far right, you have a complete genius egghead. And both of them,

there are turns are zero. Right. And then in the middle of the meme, you have like a Jedi figure

who's just like, I don't even think like like I just, I just basically buy the index and I don't

even know what you guys are trying to do. But don't you think that this is awesome for people

that have a brain? Because we saw what happened when Schwab felt 10% because of the altruist news.

And I know we keep bringing up, but it's important. And when CBRE and all these related names just got

and crashed like felt 10% one day and then eight percent the next day. Doesn't that provide

opportunity for people that aren't trading with an algorithm that can think for a second?

Yeah, I couldn't agree more. Yeah. And to compliment that, you know, one of the things that I

focus on, there used to be a very distinct pattern that would happen in the market. The S&P 500

would fall under its 20 and it's 50 day moving average. It would peter out. There wouldn't be any

ins, there wouldn't be any buying. Then it would squeeze back up to its 20 and then it would just

tank. And then insiders would start buying and there would be some sort of policy accommodation.

You can see that in 08, 11, 15, 18, 20, 21, 22, 23, 24 in last April, of course. And then the

best one of the year was insiders picked up on November 19th and Japan announced 117 billion

dollars in stimulus. And I just, it was a Sunday night. I just sent an email out. I said,

you better cover your shorts because this is just going to move. And now what's happening is we're

seeing policy policy moves. We're seeing repo. We're seeing, you know, the support of the Fed.

But like even that right now in the last couple of weeks and months, all we're doing is we're

hitting a hundred day moving average and we're going to write back up. We're hitting a hundred day

moving average. And now what's happening? The hundred day moving average is now moving right in line

with the 50. That's where I think it can get interesting, particularly tax season into April.

But this is a market where you better be compressing if you are a trader, compressing the time

frame that you are trading on. If you're long term, if you, if you have a thesis, if you believe in

capital efficient businesses, if you want to buy poll corporation because there was just a massive

amount of insider buying, that's a good company. That's got a good thesis. I'm good with that.

But from a trading perspective, I mean, it is. Oh, that's a great point. It's wild.

So I actually, I actually believe this very strongly. It has never been more important for people to

decide whether or not they are investors or traders. Whereas I think that you could have had

sort of a more nebulous definition about what you do in the markets as a regular person.

Over the last couple of years, you could say like, yeah, I'm an investor and then every once in a

while I'll throw on a day trade like that kind of thing. I just, I don't think that this is an

environment that's conducive to tourism on either side of the fence. If you're a trader,

don't miss your opportunity to stop out and then become an investor by accident.

And vice versa, like if you want to bet against the trend, you have to decide, I'm an investor

and I'm going to let that trend keep going against me. And I might buy a third, a third, a third on

the way down because I'm determined to be an investor here. But you have to, but you have to know

what do you do it? Like what are you doing? And I think I think there was a long time where you

could kind of just be like, oh, whatever. I don't think people should be a whatever right now.

No, and again, I focus heavily on momentum and insider buying. So there's a chart that I you

guys have, but it's all of the stocks that are breaking down right now, the worst of the worst.

It's like Campbell's soup and it's all the credit companies. It's KKR. It's a hunting bank

shares, CBREs on that list, Aries management. And we're seeing a massive amount of insider buying

on a lot of different equities. The moment that that that stock falls off that momentum list,

that negative momentum list, and there's insider buying, look at a stock like MSCI, Fernandez,

the CEO, he bought it at 520. It broke down. It fell to like 500. Every time he buys this stock,

it goes from 520 to 600. And like you just look for these, you just look for these themes,

these strategies, and you return to it. And by the way, I'm I would love to buy KKR.

Like I would love to buy. I think it's a phenomenal company, but I'm not going to touch it yet.

And also, when do I really want to own it? When we do our next round of QE, like that's it.

Like the second that we, the second they really print money and they will, our financial sector

goes up because we're a financialized economy. Let's let's stay there. You think you're not saying

they'll print money because of the KKRs of the world, but you do think we're going to have a

a credit cycle that goes heavily against some of these companies. And, but it'll also go against

publicly traded, you know, it's not going to be a, if we have a credit cycle, it's not going to be

a private equity, private credit only situation. Well, the theme right now in monetary policy,

as you have Warsh, who doesn't, who wants to reduce the balance sheet, but then you have

Bessent, who wants to issue more capital, more, more, more, more T bills for refinancing purposes.

And that matters because when you move, when you move out of 10, 15 years, not having to lock things

up in bonds and you start issuing treasuries, go back and look at the 27, 2017 chart of the S&P 500.

We have gone from what 3000 to 7000. You know what happened that year? The Tax Cut and Jobs Act.

And the Tax Cut and Jobs Act in order to afford it, they started to sell aggressively at the short

end of the treasury bills. So instead of trying to fund it with 10 years, they funded it.

We've gone from 11% of our debt being funded under under a year to roughly 23 to 24% and

Bank of America thinks it's going to go higher. That is that is bullish. That's bullish for

for the for the amount of money that is sloshing around in the system. And that helped.

Why is it but why is it bullish? Because those because those treasury bills are liquid assets that

could be utilized for the purposes of repo. And that is what that is what has helped to drive that

leverage trade of, you know, you can call it 64 or how 60, 40 however you want. But,

you know, we re-hype the Kate. Somebody made fun of me for using re-hype the Kate last time,

but it's the most walkish term in the world. You lever up. I love it. You lever up.

You lever up. And then you borrow and then you borrow, you know, you go out, you buy Facebook,

you take it back to the repo market, you do this 10 times and now you have turned a 100 million

dollar position to 2.5 billion. Wait, who's doing that? I'm not doing that. I wish I didn't do it.

Maybe you should. Michael, we should, Michael, we should be hypothecating. What am I doing? I

moron. All right, let's get back to the stock market. So there, there, there's all sorts of

rich and as they keep saying. So our Fred Pazson has his killer chart. I guess it's a table.

And he updates us all the time and we're looking at every year that the S&P 500 was positive.

Yep. And then also how much did the top 10 stocks contribute as a percentage of the total?

And of course, 2023 and 2024, it was all the big boys that did the heavy lifting. It was like

60% of the overall return. But year to date, the S&P is marginally positive.

Right. So I don't know how tied to this math. It doesn't matter. Yeah, I don't get it.

It doesn't matter. So the minus 533%. I don't know, whatever. Yeah, no, I have it.

The top 10 stocks are a detracting. No, we know. I know. But the negative, that's my

quant. I don't care. The point is this, it's never happened before. You've never, you've never

seen an environment. That's the weird. That's one of the weirdest things about this year. That's

right. And I've got, it's anti leadership. I've got, it's like, it's an anti matter.

I've got two more data points and then I'll shut up. So our friend Andy Thrasher has a chart

that shows as of yesterday, the S&P 500 has a three month negative return. However,

more than a half of large cap stocks are up 5% or more over the last three months.

And 38% of advanced 10% or more. We'd have to go back to 1990 2000 to find a similar setup.

Don't don't die. And then lastly, so you've got this tug of war between the top 10 sucking wind,

giving everybody else an opportunity to make some alpha, which is great.

And the rest of the market and they're netting each other out. Right. That's a tug of war.

And we're like, we're not moving. So this is the tightest range for the S&P 500 to start a year

in history. And this just feels so wrong. It doesn't feel like this is possible given,

like even prior to the missiles flying, it just feels like there's so much noise and anxiety

between private credit, the software, like all of this. It just feels like the AI built out.

What is happening? Well, don't you see that this proves my, my idea like, yeah, you're right.

No, no, no, in this particular case, though, doesn't go back to the second chart for a second.

So the S&P is a three month negative return. But more than half of large caps are up 5% or more

during that period and almost 40% or up 10%. So chart off, what's happening? Hey, Larry,

simply, no, people are selling the AI trade that they were long last year. They're coming out of

the metas and the Microsoft's and the Amazon's because those stocks are not working. And they're not

sitting around and doing nothing. They're saying, well, shit, look at Exxon. I'll buy that. Look

at Lily. These are mega cap stocks that institutions can buy in size, liquid as water. And they're going

up and they have nothing to do with data centers. And that's, that's, that's my point. Nobody is

sitting on their hands when they get out of Microsoft. They're like, okay, what else are we doing?

And I, that's happening like that. They're not waiting. They're not deliberating. You can't

deliberate. Yeah. So I really do think it's money coming from the left pocket to the right. And

the S&P is so far able to hang right where it's been and not give up anything.

If you are a person who prescribes, subscribes to the idea of cycles and credit cycles and investing

accordingly, this is that. This is the idea of when liquidity expands, you start to buy

high beta right off the bat, right? So the second that the second that they engage in QE or the

liquidity bottoms in that that was early 2023, high beta stocks. And then once everybody misses

that rally because most people do because they're still bearish from previous events, that's where you

start to see movement into some commodities and financials. Then as we move into the later part

of the cycle, we are there now. Yeah. We're on the, we're on the other side of the cycle now.

So now you're seeing the max seven, the higher beta stuff drop. It is a rotation to energy materials

and consumer defensive. So it's, it's right on time. And then what's the last stage duration?

You know, actually moving into bonds and looking at, looking at the possibility of the 10 year coming

down, we'll see what happens. That's parties over. That's parties over. And then you're buying. Yeah,

you're going out, you're looking at corporate bonds. How long do these, how long does this phase

65 months, 65 months, according to cross border, 65 months is the entirety of the cycle or the period

of cycle that we're in, trough to trough. How long does the consumer staples energy commodity phase

typically buy us to start getting well, bear it up? If, if we were not providing a significant

amount of $55 billion a month and Japan doesn't step in and Bessent doesn't tell them to get their

crap together, we'd be there. I have a very hard time believing that with all, we know that we

would see SOFR blowing out right now. That's, that's exactly what Pau hinted to. And that's what Logan

hinted to and Dallas. They said, we've got problems in SOFR and our banking reserves are too low.

So that's why they're providing the support. Now, this can, this can go. They're not going to,

they're not going to call it QE ever again. Oh, it's called reserve asset management or something

like that. And then they'll come up with a new name for the next time. Yeah, come on, you mop it.

Keep up. So, um, so, but the thing is this can, this can either be a slow process. And if you look

at 2022, it lasted nine months, really, you know, but we also did have a war at the same time.

But in 2008, it went fast and we were, we were at the top of a cycle in mid 2008 and then it

just went. So, you know, this is why, this is why we follow momentum. This is why we watch, you

know, these key moving averages. I think right now, if we were not providing the support, the way

that we are, we would be in a much different place. Rate this, rate this phrase on a scale of one

to 10, 10 being very accurate, one being ridiculous. Private credit is this generation's version of

subprime. Seven seven. Come on. Yes. My comment is not like it. Subprime, dude. Oh, yes, you

first. No, no, no, so, so subprime. You have to, which did not matter until it mattered.

Qualify your statement, Josh, are you saying that are you, uh, um, analysing them just in the sense

that subprime was like the, the epicenter of the spark or that these companies are subprime?

Great. I'm glad you asked for that clarification. Yes. I'm not the one making that statement.

But I think it's meant to mean that it's a sign of something worse beneath the surface,

not as it being causal. Okay. Now, in the case of subprime in O six, O seven, it was both. It was

both a sign that there was **** up underwriting taking place. And it was causal because it was pulling

out the jenga pieces at the bottom of the tower. I, I'm not the one making that statement. I am the

one hearing that statement. And I would love to hear from Garrett. Private credit is pricing a

massive default cycle. It is. So, Garrett, what do you think about this? Well, this is, but again,

it doesn't have to be, it doesn't have to be a subprime crisis of, you know, the proportion of

everybody, uh, you know, losing their house. I'm not, I'm not saying it to that degree. I'm saying

that the source of the crisis is in private credit, like it wasn't subprime and like it was an

unprofitable tech stocks and like it was savings and loan, you know, paying 20% having to pay 20%

to make eight. This is, this is where, this is where a lot of people who are banking experts that I

listened to on a regular basis have consistently said, look, this is going to be the source of the

next crisis. And if we look at, if we look at the, we look at what this really is, this is the

shadow banking system, right? It's the, it's, it's private credit. It's private equity. It's

hedge funds. It's all largely unregulated. But being, being finance, being financed by the

traditional banking system, but what was there? The, the, these banks are originating loans and then

just can't wait to get rid of them, get them off their, get them off their balance sheet. That's

what they're doing. Like since Dodd Frank, banks don't bank anymore. They are rich, but the banks,

but the banks are making the loans. And then they're dumping them, right? And then they're handing

them, and then they're handing them off. And, and that's, and that's the real issue at the end of

the day. Like, where, where did the origination of the housing crisis start? It didn't start at

Goldman. It started in the, with MBS in the, in the shadow banking system, according to Posner,

and, you know, the people who really covered that. So I think, I think that this is, if we were to

ask, like, what's the, what's the highest likelihood of the, where the, where the current crisis is,

oh, and by the way, we've already seen a lot of issues. We already are seeing refinancing

challenges coming. And we're also seeing the fact that the United States government is going to

have to refinance a lot of its debt and could potentially crowd out those private credit companies.

And that's very comparable to some of the things that we've seen in past. The private credit,

the private credit guys, though, would say, okay, so we're the only people who are going to have

the faults. Right. But come on, right? Everyone's going to have to, everybody. Yeah. This is, so, but

unless we print more money, let's just print another $750 billion and plug the holes,

because that's, that seems to be the only way. We could have a health, a health crisis to,

to give us cover to do that. There will be no appetite, obviously, to bail out these private

credit companies that have, that took loans from KKR and Blackstone and the like, I mean, obviously,

there won't be any appetite. They're still, they'll still try to do it. Can I ask you as a follow-up,

one of the things that's really interesting is that we used Dodd-Frank and Basel III and all

of these things to keep banks out of this business of making these loans. And that is why we have

the Apollos and the Areas of the World at the scale that they are. And it's a good thing.

We separated the deposit-taking banks with, you know, nurses and police and firefighters,

where they're putting their money. We separated that from people making loans to, to let's call them

lower quality borrowers or riskier loans or whatever. Good. However, the banks over the last

couple of years couldn't stand to stay on the sidelines completely. So they're not directly

making the loans. They're funding. They're financing the loans. They're financing the loans.

I don't, I'm not suggesting that that's some sort of like systemic thing, but I would say

they're not ring fenced from this circus if it goes sideways. One of the things that I think we

have to take a little bit of a step back in discussing this is you have to look at what has happened

in this market for the better part of 18 months. Let's go back to Japan. Let's go back to the Japanese

crisis. Biggest drop since 1987 on August 5th, 2024, right? Since then, and I think it probably

happened again, since then we have had volatility spike and then pulled back by 40% in 10 trading days

that had never happened before before 2011. And my point is this is what is, this is policy related.

This is Japan stepping in. This is the Treasury Department stepping in. This is the Federal Reserve

stepping in. And it's just become constant. It's just this process. And I think that that is one

of the other underlying reasons why this market's just doing what it's doing. There's ample capital

in the system. And as we know, there's always ample capital capital until there isn't. And that is why

my concern is in the private credit side because it's opaque. And because we've already seen what's

transpired, we've already seen these types of moves. And I think it's just going to be a constant theme

that we're not going to work. It'll go away for a month. And then it's going to come back in April.

I totally agree. So everybody is concerned. Blackstone's equity is down 40 plus percent.

All right, nobody, nobody does not know what's happening here. But I think you're so right because

B cred, which they just had a big redemption for, which they met. 26% of the portfolio is in

middle market software companies. So if Salesforce is under trouble, if their business model is under

trouble, can you even imagine companies that are one 100th of the size? So these, the payment and

kinds that we keep hearing about the defaults, which we haven't heard anything yet. There's really

been nothing. There's been some fraud, some write downs, but we haven't even started to see the

underside of some of the stress in these portfolios. And that is what makes this even just so much more

bizarre, like the returns are good, the defaults are not there, but they're pricing in GFC like

defaults. And in 2008, 2009, I think high yield, just I don't know, it's not a perfect proxy.

I think defaults were like just above 10%, maybe 12%. And that's what is being priced into

some of these BDCs right now. There's leverage there. So that's getting washed out.

Yeah, ironically, the HYG and JNK ETFs, which you used to be able to use as a proxy for

visually being able to see stress in the high yield market and the junk bond market, they're not

as effective because those portfolios are way higher quality than they used to be.

So like the bonds that make those that index, both of the indices upon which those products are

based, they're just better credits. I don't know if they'll stay that way. But that's not a good,

that's not a good canary anymore. That canary has been upgraded to, I don't know, a cockatoo.

Like it's not, it's not even in the coal mine. Those are better credits. I think in this cycle,

the publicly traded BDCs are a way better. And it's not to say that they couldn't be wrong.

But I told you six months ago, I'm watching those more than anything else because that's like real

time stress. There's this, there's that scene in the big short where they're talking about

mortgages and they're like, who shorts housing? And then they stop and they go, oh my god,

this is like the MBS is down like 30%. And it's, it just comes at you really, really quickly.

And you don't even realize in real time that it's happening. And I have a, I have a value

reversion model that we built that I pulled from a lot of different academic sources. And right now,

looking at this, it's all BDCs like from like, from like value quality perspective, from

reversion perspective, from the ability like Warren Buffett rankings. It's Chicago Atlantic BDC,

Manhattan bridge capital, Chicago Atlantic real estate financing, B, BCP invested

corporate, Carlisle secured lending. Like this stuff looks dirt cheap. So this is my point.

Everybody is like anything I want to buy right now. Hold on,

risk is like risk. The subprime is always, and it's not to say that people didn't see subprime

coming. Right. But everybody is all over this private credit trade. Everybody is bearish.

The equities are bombed out. And guess what? What makes me feel a lot better about this not being

the next subprime? These things are in liquid. So yeah, they'll bleed 5% in quarter until people

calm down. And if the returns stay reasonable, eventually the 5% selling pressure will abate.

So that makes me much more optimistic. Not that I'm naive to the rest that this is not the next

subprime. Do you think that there are a lot of people that want it to be? Yes. The financial time

certainly does. There's a shade, there's a shade and Freud element to this where people who did

not make money in this space and have watched these guys become billionaires. And they have,

they think they have no exposure to it. I think there are a lot of people rooting for defaults

and blowups. And they want to see some of these guys personally humbled. And I think the same

could be said about what was going on with Silicon Valley bank and people wanting to see the start-up

economy implode. I think there's an element of that. And I'm not saying the reporters covering

this are definitely in that camp, but it's really easy to spend every single headline as being

dire because there's a huge audience who will click on that. There's a, I would say two elements

to this. And I want to phrase this properly. I still think that there is an angst and anger

that will always linger from 2008. Particularly for private who are under 50. And I want to point,

I'm going to be 45 in a month. How many financial crises have I lived through in my lifetime,

post 2000? It's a lot. It's like 2008, 11, 15, eight, like it's a constant process. And on top

of that, I think there's a cultural issue here in the US. And it's kind of emerged over time.

But people are really, I don't want to use the word bloodlust, but there's like, there's an

element of revenge that is kind of like an undercurrent of our system. Especially for the billionaires,

like everybody wants people on top to have you on the bottom. Right. If you're on the bottom of the

K, you would love nothing more than to see private equity guys that bought your favorite sports

team and whose kids are getting into the schools that your kids can't. You would love to see

them taken down a path. Dude, in handcuffs, people would celebrate it. That's the world we live in.

And even if we, and I think it's even if we are, if that group is impacted. So back in the day,

well, we got to bail it. We got to bail out 2008 because the housing market's going to go down,

and that's going to impact you personally. At this point, though, I think there are, there is a

large group of people that are willing to take down their own ship if it takes some other

people down with it. And that's, I think that's political. Especially, especially they'd love to see

rents come down. Yeah. Because yeah, I mean, look, I don't think people want to see a ton of

job loss. I don't think people want to relive 2008. Yeah. But they, they do want to see some karma

come for the top half of the K. We, I mean, that's a normal human instinct.

I live in Maryland right now where our electricity costs just keep going up. And do you mean the,

the anger here is not only am I paying for all of the AI centers that are being built in Virginia

with my, with my money. In addition to that, I'm paying for what will ultimately potentially take

my job, right? So that's like, that's like hiring your replacement and then giving them your money

in the process while you're training them. And that, and that is very palpable here in Baltimore

County. Yeah, that's the crazy thing. Like there was an, there was an employee who was not laid off

by block. Last week, this week, I lose track, there's like probably two days ago, Jack Dorsey came

out and said he's firing 40% of the company. Right. They're going to go from like 13,000 employees

back to six or whatever, or seven. And somebody who was part of the 60% that gets to stay quit anyway.

And she went on like the social media tirade. And she's like, dude, they've been shoving this AI

shit down our throats. We have to use AI and everything. None of it works. None of it is helpful.

There are no efficiencies from it. But they've just been saying AI, AI, AI. And then after two

years of that, they fire half the company. Right. And it's like they made everybody use AI so they

could figure out who they could get rid of sort of thing. And that was like the last insult. So

I do, I agree. I think societally, there's a, there's an element to that out there. I have a

question for you guys on what, what can, what can break this? So John, throw that bespoke chart

up again, please. So I mentioned that these 1% reversal days, like the down 1% in finishes is green

is bullish. There's only so much that we can withstand. Like if you continue to see this,

that will turn from from bullish to bearish. And what I mean is the red dots that bespoke has in

this chart, I know it's a little bit hard to see. Those are the times where it's down 1% at the low

and finishes green. But it's the first time in three months. Okay. So that's what we just had.

Right. That's the first time in three months that's happened. When you start seeing that cluster

and it's really only happened in the lit in the lead up to the dot com bust in the aftermath

and 2008, trust off. When that start, when that behavior starts to become a pattern,

that's when eventually the flush happens. Like so if we start to see more and more of these,

I'll become concerned because that's what changes behavior.

What could, so what could, what could break this meeting like what could break the cycle and get

us out of this kind of weird market behavior? I posited on Slack the other day

a really big strategic acquisition or two, not a private equity take, not an LBO or not a

financial transaction. But for big European bank made a bid for Apollo, that would get people

to shut the **** up very quickly. I'm saying the opposite Josh. I'm saying to the downside,

yeah, what could break the retail's likelihood of saying, you know what? Like I touched

three times. So you mentioned like the money boots on the ground in Iran would probably do it.

The money goes from Microsoft to Halo stocks or whatever. The money doesn't stay still. Eventually,

it will stay in the money market. Job loss. That's the answer to your question. I think you're right.

Tax people won't change people won't change their investment behavior until they lose their job

and enough of them do that will that you could say goodbye to the 401k inflows for at least those

people who are affected, but we haven't seen it. In fact, the ADP report this week, you call

the narrative violation. What do we make of this situation? Where are all these job losses that

were pricing in? I just wanted to add one last tax payments might be the other thing, right? So

seasonally, we have a lot of we look at the money markets going back 2024, 2025. Yeah,

but that's a shorter phenomenon. Sure, it would it would take us into April, but then the question

is, all right, well, if it takes us into April, does the does the Fed continue with its asset

management strategies? I mean, we're getting the benefits, but we're getting the benefits of the

tax deal this year, the 2025 tax deal, the big, beautiful bill, those benefits haven't shown up

yet. That's now that's this year. So that might be a countervailing force.

This is why I just follow one number and one thing with momentum and then I just traded quarterly

costs. I was going to say this is why I stress it. Yeah, yeah, yeah, 100%.

Yeah, let me ask you this. One of the things that I said, you know, if there's anything that's

like flashing a yellow, maybe, maybe a shade of red light, it's the fact that staples were going

parabolic. Yes, like that was that was concerning. It just I was concerned by it. And those stocks,

if you look like those stocks have got to whacked off hard in the last four or five sessions.

And as a matter of fact, we have a chart showing the sector dashboard. John,

Keith, I'll please. So this is looking at a bunch of various factors above moving averages

and making new highs versus making new lows. Right. And I feel really good that staples are now

at the bottom of the battle in terms of like weakest breath. Now, I don't feel great that

financials are down there with it. I don't feel great that at the top of the leaderboard.

How fast those cooled off? Wow. Yeah, I don't feel great. I don't feel great that utilities,

energy, real estate are the best and industrial materials. Like that to me,

that that does feel late cycle. Like it, it just does. Now, maybe it's healthy rotation.

And maybe maybe the tech trade comes back. And it was just a short term rotation. But what's your

take on what we're seeing in terms of the leadership with these? What happened to me? Did I just

chunk out? That's okay. We still hear you just put your just click the I think the data. I think

the date. What happened? I think the data center took your uh yeah, I think I think they hear

they hear me and we hear them. Took your juice. We hear you fine.

No, give me one second. All right. This is pre tape. So we can uh don't worry. No, no, no, no

pressure. And he's gone. By the way, this this is awesome. He's he's so smart, right?

Really good conversation.

There we go. That was weird. I want you back. So so got what is your take on? Somebody's trying

to silence you. So what yeah, he is near he is near the Capitol. So what is what is your take on

what I described as the defensive nature of the leadership board?

Well, it it it reminds me and it's very comparable to 2022 and you have geopolitical events

transpiring and you ask like what can take this down? Well, a significant move in oil can,

significant move in food can and then go back to June 8th. I mean the XLE falls from 46 to 34 in

like three weeks, right? So that that might be it. It might just be a bunch of, you know,

funds that are following the momentum and the defensive following the momentum and the energy

following the momentum and the industrials. They all just wake up one day and say, you know what,

we're taking profits and we're doing it right now. And that is that's exactly what happened on

June 8th of and I think we fell 15% SEP maybe 12% in a very short period time and it was just

everybody woke up and said that's it time to time to exit. And then we had another hated rally

through the summer. That was a like one of the most hated rallies that I've ever been a part of

was after that huge fund sell off, we burned higher all the way through when Jerome Palspoke

and in Jackson home. Do you think do you think the rally in stocks and gold last year proves what

you're saying about liquidity being the primary thing? Because like what else would cause that?

It's a very strange thing to have golden stocks race each other higher. And when I see stuff like

that, like my, the obvious answer is yeah, Garrett's right. This is just this is just money being

pumped into the system and buying, buying whatever it can. It's not me saying that. That's that

Stanley Druckenmiller back in 1988. Inbearance saying, hey, you know, you know what you really want to do?

You want to be involved in an environment where the central bank is accommodative. And

boom, like, you know, absolutely nailed that call in 88 and had a great run through 90.

You know, as far as gold last time I was here, we chatted. I said, you know, what was the

what was the major catalyst that a lot of people still forget? And it was the fact that we weaponized

the dollar against Russia and you and you start to see that run in gold transpired. That's when

all the central banks started to bid. And then the retail, the retail trade in China has just been

off the charts. And one last thing to keep in mind, you know, we're at the top of our cycle. China's

actually at the bottom of theirs. So if China is engaging in stimulus, they actually would that

would benefit gold. It would benefit oil. It would benefit natural gas and other metals. And it

goes back to that argument that China is a manufacturing economy. And we are a financialized one. So

that when we do QE, we, we, we tend to benefit our banks. I want to hit, I want to hit your idea

crowd strike against blackstone minerals. Tell us tell us what you're writing about and what's

the idea here? I was watching you guys last week. And Michael had a had a thesis around crowd

strike, I believe. And, you know, I was curious about it because, you know, from a fundamental

perspective, I found that I found that stock to just be, you know, 20 times sales, unprofitable,

potential AI disruption and granted, like it's a great momentum stock. But then you've got

blackstone minerals, which is cheap, pays 8%, highly capital efficient, and is, you know,

owns the royalty rights on the fuels and natural gas that's going to actually be pumping, you know,

energy into AI. So I was, I was, I was curious, you know, what you were seeing in crowd strike

from a valuation perspective that made you excited about it. So I, I bought crowd strike at 355.

I sold it yesterday at the open at 400. There we go. Sorry. That was, I mean,

at a trade up to 425. No, 8% mineral yields involved. No, but you know what? I think one of the

lessons that I've learned over a long period of making a lot of mistakes trading is what we

said earlier, you have to know what environment you're in. Right. And I was not looking to be an

investor. I think crowd strike is the best company in the space. I mean, this is what Josh is.

I think he's worth for it. Right. But that's not what I'm doing here. I thought I thought the

two day, the 10%, the 9%, back-to-back sell-off was absurd. And we know how these markets rebound.

And I thought I'll shoot my shot. And if I was wrong, I would have, I would have taken,

see, I'm winning out of the way, Garrett. If I was wrong, I'd stick a tax loss, right? No big deal.

So that's my thesis. You know, Josh could speak to the longer term thing.

The crowd, the crowd, the crowd sharing reversion. Yeah, the crowd strike multiple needs to be

thought of in the context of it being a network of fixed business, not a SaaS business. The way

Falcon works. Imagine an invisible shield all around the globe covering the most important

government, governmental institutions, NGOs, mega corporations, small mid-business,

imagine this invisible shield. The more companies that join and utilize crowd strike, the more

threats come in. And the crowd strike, the crowd strike AI will take an attack on one company

that's under this umbrella, learn from it, and instantly share that knowledge with every other

company that's under that umbrella. So it's a network of fixed business. If crowd strike had

three customers, the product is not as powerful because you're only intel sharing amongst

three potential victims of hacks. If you have 30 companies, it's 10 times more powerful.

If you have 300 companies, what happens when you have 3,000 companies or more, which is the case

with crowd strike, then all of a sudden, every single attack just becomes intel for how to

prevent or protect all of the other thousands of companies before that hacker could even get

around to them. And that is why it's got the valuation that it has. I think at 100 billion being

the most important cybersecurity company in the world, it's probably undervalued. And that

revenue that 5 billion plus in annual, annual run rate ARR, it's catching up. It'll catch up

slowly. Valuation has a premium because people understand once you're in and under the umbrella,

you don't leave. You have to be crazy. You have to be crazy. Literally crazy to rip this stuff out

and go shopping for another vendor. So this is not scientific, but I think we all agree, maybe

we do, not scientific, but for the leader in cybersecurity to not be to not one day be a half

a trillion dollar business. Yeah, you're going to have to eat shit. It's not going to be a smooth ride

it never is. But that's the type of like, Josh has the personality, which I don't to ride to ride

massive winners, which is really hard. Yeah, it's very hard. Right. Like Josh has been an

Nvidia forever. And that's what it takes. If you're going to make 3000% in a stock, I can't do it.

I just know I can't. If I'm up, I saw the crash strike for a 12% gain in four days. And I'm like,

whoo, right? Like that's just my personality. Cybers tim is faster, bigger and bigger and

faster. The cybersecurity opportunity, Tam is growing. They can't like Gartner and all these

research organizations, they can't even keep up with their own estimates. They keep going higher.

And AI, AI is like a gift to cybersecurity, because now you're 1000 X in the amount of workloads.

And every workload needs to be secured. And every time snowflake and Microsoft Azure

pass some corporations data between each other, that's a workload transaction that needs security

around. So AI is an accelerator for threats, not a, and obviously a revenue accelerator too,

which I think Kurt's made the case for on the last call. Pretty effectively. He says it better than

I could say it. The reason I bring up BSW and the way that I think in terms of your

crowd shrink, I see that as something that I want to trade. I see it as a momentum stock up and

down both both ways. And what I would I look at, we talked about this briefly last time I was here.

One of the things I went back and I did back in November, I started to look at, again,

thinking about ends of times, what did all the wealthy family zone over time? Like back in, back in

Rome, back during the fall of Judea, back during the revolutionary war, back during the French

revolution. It's always choke points. It's always like toll roads, things like that. So land bridges,

land, yeah, waterway, waterways, things that kick off cash,

compubines, just saying baseball cards. So, so what I, so a name like BSM or energy transfer

or it's that related to blackstone BSM. Is that related to minerals? No, no, no, no, no, no, no.

So they just happen to be called blackstone minerals? Yeah, it's an interesting company.

It started as a lumber company back in the 1800s and they then found out that there was just a ton

of oil under all of their land. Where is it? It became Texas. Did you watch train dreams?

No. Holy shit. Oh, come on. Holy shit. Are you serious? Now I got to read the book.

You loved it. What'd you watch on your phone? Yes. Okay. That's the problem. I was watching

your naked while I watched it. No, that is a, no, that is a you movie. Yeah, no doubt. I was

like flooring. Stunned, but you could say, but anyway, no, no, no, no, I'm sorry, no, no,

I'm burger on the plane. 12 out of 10. I'm watching that tomorrow. Uh, Michael Shannon.

Yeah. Um, what's the kid with the, the overbite, Rami Malak, Freddie Mercury. Yeah.

And, uh, who's the third guy in it? Uh, Russell Crowe as, uh, Herman Goring. Holy shit.

Okay. With a German accent. This is out of the park. So speaking of German accents, Garrett,

how do you find what you keep talking about liquidity? Uh, the, the repo market, uh, what,

what, uh, what they're doing over there? What are you looking at? Like you keep talking about

this, this phenomenon. What exactly like for the listeners? Are you, are you seeing on the

screen to judge whether or not there is favorable access or a lack of liquidity? So, um, the,

the primary source that I pull from, um, I had, I had studied cross-border capital at, um,

in 2018, but I pay very close attention to what Michael Howard writes about. So Michael

House on Substack, he, uh, founded, um, cross-border capital. What's his last name? How? H-O-W-E-L-L.

Okay. And he created a, uh, he created a global liquidity index and he has written about this,

you know, for years and years and years and wrote a book called Capital Wars back in 2020.

And what was interesting about it and the reason that I subscribe to this, I was trying to make

sense of the 2023 rally. Uh, because if we go back to 2022 and I know that JC had talked about

this, he's like, everybody was bearish and we turned around and we went bullish. I was trying to

make sense of that because I, I remember there was a, there was a, there was a, I think we were at

3,800. There were people calling for 30 to 50 because the expectation was that the Federal

Reserve was going to run off its balance sheet. And how wrote in the financial times, I think,

December 2022, bottoms in. And he explained his cycle. And once I read that book and then I started

to analyze that and assess that looking at Federal Reserve liquidity, looking at the, the type of

auction sheets from the Treasury, focusing heavily on Soma, SOMA, looking at what's happening

with the bank, Japan. What his number is, um, it's a liquidity index. It is all money outside

in addition to, to the M2. And there's a, there's a multiplier effect on it and he's got it somewhere

around $185 trillion. And that's all of the money that is used for the purposes of refinancing.

Because basically six out of every seven new dollars that is created is used to refinance

existing debt. It's not used to actually fund growth. How much does that 185 trillion fluctuate from,

I don't know what period's month, month or quarter. There's a chart, there's a chart somewhere

that I would, that I'd have to pull for you. But I think that during the 2020 crisis, it pulls back

from like a hundred down to 75 really quickly. And then the Fed prints and we, we start to take back,

we start to take up again. So this thing can, this thing can move. Yes. And, and one of the things

that's interesting about it was, so we, we built a momentum indicator. It's basically three

different things that we look at. But the primary, the primary thing is we're just taking the number

of stocks that are breaking out versus breaking down in a very academic perspective. This goes

back to the work of Grant Henning, who's a very prominent momentum trader. He wrote a book called

The Value and Momentum Trader back in 2009. And then we layered that with JP Morgan's 2015 and

then Cliff Asnist's momentum is everywhere report in 2012. And we built this model. And it's just

basically green minus red equals positive or negative. And I'm not saying that it predicts

everything. But when this goes negative, that's where we've had these big events. So for example,

it went negative on August 1st, 2024, three days later, Japan crash. Well, you email me the next

time it goes negative, please. I will, where do we stand? Where do we stand now? Give it, you're

a subscriber to me and the money printer, aren't you? Don't you get the capital waiver report? I

don't give it to you for free. Okay. So and the point and the point of what that is measuring is there

is a relationship between liquidity, momentum, and then returns, right? So momentum lives upstream

or forgive me, liquidity lives upstream. Momentum is the result. Equity returns are the the

consequence. And that's and that's a pretty simplistic way of looking at markets. And I don't

try to overthink things. Where do we stand now? Right now we're negative. We've been negative since

the last time that it went negative was January 28th, two days later, gold and silver crashed,

and then a week later, we had the biggest, that huge momentum move that transpired. I think it was

the Wednesday. When did we, when did your model flip negative? January 28th.

It's such a weird market. Even though we are at all time highs, right? And that's what's,

that's what's really crazy about it. And then the last thing that we're, we're focusing on,

there's a, there is a slide that I put in the deck and it's just a breakdown of all,

like the breakdown stocks right now. So you've got, I don't know if you guys can throw it up or not.

Yeah, we have. Where is it? Yeah, yeah. So these are, those are the stocks that are part of the

equation that are breaking down right now. And as you'll see, you know, Campbell's is on this list.

What is that? What the hell is going on with Campbell? I just brought up the trial. It's just,

it makes no sense because you would think consumer defensive, but didn't they didn't the guy say that

they're serving horse meat or something? It is. No, this does make sense. It's a perfect

downtrend. This style looks like a perfect downtrend. Generation alpha is never going to drink metal

cans filled with saltwater. Yeah. So this is a company that is constantly forced to reinvent itself

every three years. And it never quite does. And it's been a value trap my entire career.

So put, put that one aside. Brown form is interesting to me because it's also consumer defensive.

This is basically bourbon and whiskey, right? When you have the alcohol stocks breaking down with

the private equity stocks, that's some shit going on. I don't like seeing genuine parts on a

list like this because of how pro cyclical that company is. Literally, like, you do not want to see

the auto business in trouble. That's one of the worst signs that exists in the stock market for

the health of the economy. I don't love that. Interesting to see a bunch of banks on here too.

That crept up on us and happened that in nowhere. Yeah, I get it. I like this. This is a good window.

So what we do with that at that point is now we created a, I mean, I love Claude because as I

said, it's just like strapping a rocket to my back because I'm just naturally curious about

building things. We built a free website for insider buying that scrapes from Edgar. So now what I'm

doing is I'm taking those stocks that are breaking down. I'm looking for insiders to stop start

buying. And we've seen this happen. We saw it with MSCI. We just saw a huge buy with the trade

desk. Trade desk is up like 30% today. That's, that's TDD was down was on that list was on that

breakdown list. And then there was a little bit of insider buying the second that stock came off

that list. There's two different things you can do. You can choose trade it to try to buy it,

trade it to the upside set of tight stop. I saw spreads below where the CEO or the CFO purchased

the stock. So I'm willing to take possession of the stock at a lower level, but I'm targeting like

a 20% return and 80% probability of profit and an annualized return somewhere in the 100% range.

And I just do that over and over and over again. If the stock falls back on the breakdown list,

I get back out. But, you know, what we're seeing is that even the insiders are not calling the

bottom four names like KKR and Aries right now. Garrett, I want to, I want to let people know where

they can follow you for more. And something tells me your website might crash once this, once this

episode goes live. So give us, give us the URLs. So that platform that we just showed that

stuff is not going to be live for another couple of weeks. But that's just on my website,

Garrett Baldwin dot com. We'll, we'll make it accessible. Me and the money printer is at

a sub stack. I publish that. I never miss it. I public. We have a, we have a paid level called

capital wave report that follows liquidity momentum insider buying. We put that reading up every,

every day. If it goes positive, we send an email out letting everybody know if it goes negative,

we do the same thing. We created insider stock buys. I think we'll just read the article. It'll

be in there. And then postcards from the edge of the world as my other other thing on the sub stack.

That's a little bit more like polysyish almost, right? Yeah. And again, it's, it's, again,

that focus is on the choke points, right? So, you know, we, I've talked about AI. I've talked

about a lot of these other elements, but I, we do have a stock recommendation that aligns with

it each week. And, and then in about a week, week and a half, I'm going to start writing more

about about the, the AI phenomenon and try to focus on that. So those are the, the two primary

things, figuring out what else I'm going to do relatively soon. My man, you, you, you crushed your

first appearance on the compounding friends. We're so happy to have you. And we'll do this live in

person in New York sometime, maybe this summer sounds good. I love it. Both great to meet you,

Michael. Thank you both for your time. All right. Awesome. Guys, thank you so much for watching

and listening. We appreciate all your reviews. It tricks the algorithm into thinking that this

is a good podcast. So please help me be a part of that trickery. And don't forget to subscribe.

And we'll talk to you soon. Thanks for listening. Thanks for watching.