Stocks in Pre-Crisis Mode, Multiple Compression, the Citrini Crash, Halo Goes Viral

Yeah. I don't know, does it feel like that for you? Uh it's a lot to talk about. Yeah.

Listeners, my name is Downtown Josh Brown, and with me as always, my co host, Mr. Michael Batnik. Michael, say hello. That's going on on YouTube. Normally accustomed to listening to us, every once in a while, pop onto the live. We tape this at 5 p.m. Eastern. Hello to some folks. Chris hit the like button Appreciate that, sir. Y'all gonna talk about Paramount and Netflix with the new bid for Warner Brothers. Too busy. You don't have time for it.

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All right. Uh it's a crazy week. I want to start with PE multiple compression. And the reason why is because I really think that this is the key to the market this year. Earnings are coming in at record levels, revenue too, profit margins are rock solid. If somebody says why the hell is the S P uh underperforming the international stock market by the widest degree almost of all time, especially in a bull market.

The only answer I can give you is that investors are less confident in future cash flows and are therefore. demonstrating a lack of willingness to pay current multiples. And that is a very fancy way of saying the multiples are too high for the level of confidence we have in the future. And it's a what we call a classic PE compression. And this could end up being a year where earnings are good to great.

And stocks are flat to down, and the reason I mean it's February, so who the hell knows? But I'm just saying this could be one of those years. Where you get the earnings right, but you don't make money in the in the index. What are your what are your thoughts before we get into some of the reasons behind this?

That is that is the entire story. And valuations are not a catalyst. They're not support. People want to sell. There's no, there's no floor. It does right. Like, but what I take a little bit of comfort in, not a lot, but a little.

is the fact that we are already seeing this correction throw match chart up, please. So Josh mentioned the SP is doing just fine. Price is right near an all time high. Um, multiples are contracting, which is why you see the earnings growing, but the index churning sideways. So we're at 21 times. All right, tells you absolutely nothing. Quite literally. There's no information in there whatsoever.

But if we were and all and all right, if we were to look at the equal weight version, also doesn't tell you a whole lot, but it's closer to like 17 times chart off. And I feel better. That can we go from 17 to 13 and be in a world of pain? 100% we could. There's no reason why we can't. But I do I do feel better than uh being at say 25 times at the equal weight. Or worse.

Being at a cheap valuation with earnings falling. I promise you that doesn't double-that's worse. That's worse. Way worse. Way worse. Way worse. So look. We've had an incredible run. No, I don't mean like over the last fifteen years. I'm just saying like the last two or three years have been really, really good. And part of part of that sometimes is a period of give back. Now that could be for a quarter.

Um, it could be for six months, could be for a year. I can't tell you. But like I what I will what I will stand on is that you have to train yourself mentally to endure it. You have to be okay with that. It's part of it's It's part of the deal that we all make. And if the reason is there's uncertainty about the future because of innovation, like if that's our worst problem, that's really not that big of a problem. So Dude and bro, I would say that

If you were to tell somebody, yeah, how much we're stocks up 23, 24, and 25, it's okay if we're not up again 20%. Nobody wants to hear it. I think everybody would say, yeah, true, fair, good, you're right. But nobody's worried about a flat year. They're worried about a down 25% year. Yeah. And nowhere near that. That's a little early. That's a little bit more than a little bit. Here's another thing. Maybe I'm saying this to make myself feel better. And I am. Um midterm election year.

The June to June, they just are choppy. I don't know why. And I'm not suggesting that the AI route is any way related to the fact that there's an midterm election cycle coming up. I'm not. But and also if you look at the November to November following my midterm election year. You could laugh, but it's uh it's up a hundred percent of the time. And it's not a sample size of three. Are you gonna watch the State of the Union tonight? No.

I've I don't think I've ever missed it. I will never miss a Trump State of the Union. They are they are incredible. He is j listen, uh not political. I don't care about you guys know I'm not a political person. There there has literally never been a more entertaining uh president in that setting.

Where he just he knows he has everyone's attention. Not mine. He j he go he's like he goes for it. Okay Well, I will be watching the Knicks Cavs in my in my entire existence. I've been on the planet for forty years, I guess as an adult for ten of them. I never once. I I don't think I've ever spent more than ten minutes watching a State of the Union address. And I won't I'm not about to start now. He's g his own j let me just say one thing. I'm not saying don't watch the Knicks.

His own Supreme Court, which basically he put like five of the nine people on it on it, just smacked him in the face this week. They sit in the front. Fing row. People don't even understand what's coming. They sit the I almost shouldn't even be hyping it up because uh people should be watching this show uh later tonight. But like they uh they they sit the Supreme Court justices in the front.

Like it's a a rock concert and they're uh they're VIPs. This is gonna be completely unhinged. I cannot wait. Um, all right, let's let let's do this Civita thing. So

Uh one of our one of our favorite analysts, uh Savita Supermanian, who leads the equity and quant strategy group at Merrill Lynch or Bank of America. I don't know what they call it now. Um this is actually her forecast. Stocks are going to get cheaper this year. Not stocks are gonna get killed or just like they're gonna get the PE multiple compression is gonna be the story of the year.

And she laid out five very easy to understand reasons why that that will be the case in in their opinion. And um I wanna go through all five of these at a very high level and then get your take when I'm done. Reason number one is disruption mass. So basically she's saying relative price declines often precede earnings downgrades.

Our quant back test says historically, cheap tech lags rather than leads. Real disruption can be a long process. It was eight years from the Netflix IPO until Blockbuster went bankrupt. IT services swung from a 14% premium to a 23% discount post-Chat GPT. And we're not going to put the chart up, but you can take her word for it. IT services is like the companies that come in and help. Fortune five hundred work businesses like implement.

um implement solutions. And that's like uh on the front lines of potential disruption. Reason two, equities equity shrinkage behind us, glut of issuance ahead. Mike, we talked a lot about buyback. and how, um, ladies and gentlemen, the stock market is shrinking was a post I wrote years ago talking about the lack of publicly traded companies and um Just like the the the dearth of IPOs. You don't have to worry about it anymore. Civita says scarcity drives multiple expansion.

Um, so it's no surprise stocks re-rated in the 2010s amid a twenty-five percent drop in stock supply. Accelerating buybacks helped too, but are now slowing. From here, potential for mega IPOs. The top three private companies are valued at twenty-five plus prior years of US IPO proceeds could represent a seismic supply shock. So when we get anthropic open AI.

SpaceX, maybe Starlink as a standalone company, Andorr's on the runway, uh, maybe Stripe. These are massive market caps coming to the NYSC into the Nasdaq. They suck up supply from other stocks. Everybody understands. Uh reason three, really strong earnings per share means really compressed multiples. Above average earnings saw PE multiple compression sixty six percent of the time since the year nineteen hundred. Fourteen percent earnings per share growth growth years.

That's their forecast for this year, have seen an average of ten percent PE compression. Really good fact to tuck away. Wait, that's so interesting. Yeah. We should look we should have chart kid do something on that. Um Asset intensity and financial leverage is worsening. Asset-intensive financially levered index of the 1980s morphed into an asset-light, cash-rich index of the 2010s. But

Software, media, and internet companies have recently jumped in asset intensity. That's what we talked about with Nick and Jessica last night. Did you know Ford is now pr more profitable than uh than Amazon Meta and uh Alphabet? Wow. Literal yeah. Did you know Nick and Jessica calculated that those three stocks are putting over a hundred percent of their operating cash flow back into CapEx this year? All of it. That's he goes, people are wondering like where do these CapEx budgets come from?

Dummies. It's the entire uh operating cash flow. That's where it comes from. It's literally the number. That means somebody high up at Amazon goes to the treasurer and says, what's our operating cash flow? Oh, it's uh 200 million. 200 billion. Great. Right into CapEx. That's what's going on. Um, and then number five, Savita's list. Index risk from private hiccups. As the VIX is set to rise. She notes that pension funds.

have shifted from acqu active public equity funds to a barbell of passive and private equity. Today's private capital woes mean could mean raising capital in more liquid investments. This is so interesting. Equity index funds. And the relationship between the VIX and the yield curve suggests a big increase in the VIX in 2026, also accompanied by lower Ps. So in other words,

Um, asset managers who have made these illiquid investments that they're worried about and they need to raise capital, that's selling pressure in the traditional stock market. Not something that was on a lot of people's bingo cards. earlier uh this year, but this is a a real risk to multiples.

And so you add those five things up, why would you expect PE multiple expansion this year? It seems like it'd be really hard for us to get it. What do you think? I don't think anybody coming into the year was arguing for multiple expansion.

Well you ain't gonna get it, so tough shit. It is weird that the VIX is under twenty. Don't you think? Don't say that out loud. Well, it just is. I know. I would I would think in this environment there'd be a little bit more elevated than that. Um so yes, everything that she said, I don't really I think that index from private hiccups is is sort of whatever. I don't think that's that's Which is the one of those five that has that lands on you the hardest?

Um take out this take out disruption math, because we all understand that already. Well, okay, but that's the first one. Equity shrinkage. I don't I I don't know. Are we gonna get those three IPOs this year? I I don't think so. I mean Anthropic is at a monster raise. I think you're gonna get I think you're gonna get three out of the five largest private companies in the world in the next twelve months. I don't think so. I I think the public market will lift.

zero appetite for open AI who just s shared with the world that they expect to burn Two hundred and what? It doesn't matter what the appetite is. They're in a race with anthropic. One of them the both of them want to beat the other. It doesn't matter what the appetite is. No, it's it. I said this to Ben today. Nobody was scared when OpenAI was in the lead. We were laughing. Like, ha ha ha ha ha. And then all of a sudden, anthropic comes over the top.

Oh f like this shit's real. Who do you hate more? You I'm not sure now. I I thought s I th I I said I don't like this creepy little doll from a horror movie. He looks like uh Brahms from The Boy. I don't like this guy. But then he just has like dead eyes when he talks. He doesn't seem to like it. Which one? Who are we talking about, Dario? No, uh Altman. But then this guy Dario is really Pissing me off. Just shut stop doing podcasts for five minutes. We've all heard enough.

Everything out of this guy's mouth is another pronouncement of the the futility of humanity. A, it's bullshit, he's gonna be wrong. But B, it's like annoying. Why are you why do you have to say all this out loud every day?

It's it's it's kind of strange. Could you just like you have a private market valuation of$380 billion? Could you just be in a like a a good dude? Does ever does every public Does every public statement out of you have to scare the shit out of like normal, regular people that are just like thinking about their family? Do you like who is that in your contract? Do you have to show up on all these podcasts and be a dick about it? I don't I I don't think he's being a dick. He's not that scary.

He's actually the he's actually the one saying that we need some sort of regulations and guardrails. Well, there's a there's a uh there's a conspiracy theory about why he's the one saying that and Um, a lot of people are saying what he's really trying to do is entrench himself.

See, one of the interesting things about what happens with big tech and regulation, the more regulation you have, the harder it is for new entrants to come along because the cost of complying with that regulation is insurmountable. Great example of that would be the banks after the financial crisis. They made the rules so impossible that only five banks had the ability to grow.

Um, you could also look at uh meta, alphabet, et cetera. They're entrenched further by regulation. They may be hemmed in about what they can do, but the silver lining is. There is no other meta. Nobody can afford it. Anthropic just raised thirty billion dollars. There's not a lot of companies on the planet that could do that. They already have it. Not to the same thing. I was saying, like Claude is Claude is cool. Um, the products are great. I use open AI all day long.

uh Chat GPT all day long. I it's fine. But like guys, can you shut up for a few minutes? All right. And getting back that's getting back that's all I'm saying. Getting back to the multiple compression, the thing the real thing that worries me that's not on here is

What if multiples are peaking? And so stocks might look reasonably priced on a forward basis. What if the earnings aren't$290? And what if they're actually$270 in two years? Like what uh what happens to price? No, well we know it happens. It comes way down. Yeah. I mean the th the thing that I also take comfort in is look at the global market. Look at the global stock market. They're all red hot on fire. I think a lot of the earnings benefits are accruing to other places of the market.

And on the one hand, there's only so so I love the broadening, I think everybody does, but there's only so much selling pressure that the market can take. Before the 493 come down with it. So right now the Mag 7 are in a 12% drawdown. The market could swallow that. But if NVIDIA reports tomorrow and bombs and the mag seven is down 15, 18, 19, the rest of the market's gonna follow suit. Unfortunately. Yeah. Um so I I don't I actually think that's unavoidable. And which which part?

Oh yeah. I don't know that anyone's really spared from that. It doesn't have to last long, but that'll definitely be the story of the next day. All right, so here's a weird thing. This is from Bespoke. 2026 has seen the narrowest spread between the year-to-date high and year-to-date low through 220 since 1966. So if you look at a chart of the SP, it's going nowhere fast. It's very bizarre. Uh Yeah, because I just think it reflects like the extreme uncertainty right now. And

Some of the biggest stocks that matter the most to the index are caught in that uncertainty. Yeah. It it's hard to be bearish on these companies. They're they're gonna have twenty nine percent earnings growth this year. Okay. I'm glad you said that. So how do you how do you like How do you get like completely out? You can't. So as I'm wearing this t shirt for the first time, Markets of Turmoil.

As all that we're such a great tea that's such a great shirt, by the way. Uh thank you. Well or you're welcome. You'd know this. Now available at idonshop.com in the compound store, by the way. Um All that the market is talking about right now is risk. Rightfully so. Everybody's talking about it. You and I know how fast. sentiment concern, one earnings report, one piece of regulation, one whatever. It doesn't matter. It does it doesn't matter. So what do you think is more likely?

In December. Um that LOL the chase is back on. We are we actually are gonna get some sort of AI melt up or Man, we could have gotten out so easily in February. Markets were within two percent of an all time high. All the warning signs were there and we end up having it down twenty five percent year. Do you know how hard that is? Do you I mean, do you know how much we have to get through? Between now and your end. I'm just asking no I do that. This is an impossible rhetorical question. Uh

I I think it's gonna be a bifurcated market. Um I'm on record. I I we would talk about Halo in a second, but I really think that like half the stocks in the market, and they're not gigantic, but there are enough of them.

uh are you gonna have a good year. But don't don't I don't think this is a bad thing. I feel like everybody is extrapolating the last four weeks until the rest of the year. Everybody is saying the same thing that this is going to last. Avoid the avoid the the junk, buy the halo stocks. And not just because you coined it, but like everybody seems to be guilty of extreme recency bias, which we all are. I mean myself too, but it really feels pronounced now.

Yeah, the big the more interesting question is like, is it realistic? If there's a serious problem in tech. If like if there's a serious problem with these software companies now actually coming out and one by one, I know we got a work we got a warning from work day. It seemed like a pretty mild guidance miss. It's not like that big. It wasn't that bad. Well, let's actually go to work day. Next chart.

So um here's part of the problem. So work so these stocks like these weren't cheap stocks to begin with. All right. That's the problem. Yeah. So look at look at the non gap operating margin. Okay, great, it's accelerating. But look at look at the blue line. Like, are you freaking kidding me? With these software multiples, like your actual cash earned cash uh margin is like six percent.

Yeah. What are you doing? So AI. They're building they're building their own agentic AI, they said. They should. What else are they gonna do? Anyway, so we're like, oh, these stocks are risky. Oh wow, that's so insightful. Workdays into sixty percent drawdown at the open tomorrow. It's not to say that it can't fall 80%. I don't know what what why you can't. But these stocks are so bombed out. Yes, but the problem is.

Everything was fine until and now you're starting to get if you start to get earnings warnings from not just one of them, but like ten of them. If that's if that's what we're gonna start getting, then people are gonna say, Oh That sell off made perfect sense and probably it shouldn't be over yet. So Salesforce Salesforce reports tomorrow night. Um that's gonna be a big one, obviously.

They're lo they're reporting the same time as NVIDIA. Tomorrow night's gonna be low key like fireworks. I bought it. I should probably just sell it at the open. I'm down I'm down three percent. I'm down three percent. Who cares? I should just sell it at the open. Let's do a thought exercise. What could they possibly say that would have the stock go higher? Um beaten rate beat and raise. No, their their AI product was at a five hundred million dollar uh run rate, like not nothing.

And it doesn't matter what they say, matter I don't care what they say. I care how the stock I care how the stock reacts. Right, but I'm saying what would be the thing that gives you the reaction of the stock that you want to do. Dude, I don't know what they're gonna say, but stocks do bottom on bad news.

It's not like I'm right. Like it just does. So I'm not saying that tomorrow's the bottom for for Salesforce. It probably is. It's probably gonna go down fifteen percent for for all I know. Um, all right. So on software. So Warren Pies said software has been a high margin.

High multiple cornerstone of the SP. Yeah. It trades, it trades at roughly three times the indexes price to sales multiple and has margins that are more than twice the index. If AI disrupts software, then the overall market will have to derate. Using this model, try it on, please, a 50% reduction in software margin.

suggests that the group must trade down from a 10 times price to sell multiple to five times. Oh my God. Yeah, not great. So what we're looking at here on the uh horizontal axis are software margins. And of course, the higher the margin, the higher the multiple. But Warren's saying that software has gone from overvalue to fair value. But that's assuming that the margins don't deteriorate, which uh maybe they will, maybe they won't. It's hard to see how they don't.

Can we safely say uh Rest in peace to Software is Eating the World, 2011 to 2026. R.I.P. That's great run though. I mean one of the all time greatest runs. And uh I don't know what the next thing's gonna be. I think AI is eating software is like a little too cutesy. Um but it's uh it's a new era.

There's no there's no way around that at this point. So it's a full blown bear market. So the uh the unknowable question is I mean is so software is having it IGV it's having the worst month since two thousand eight. Yeah. So investors are acting like there is a systemic risk in software stocks. And yeah, they're probably right.

Right. So s I think the way to people when people so just to wrap up this multiple compression slash software segment of the show and then we'll we'll move on to Oh no we won't. I've got one more piece. To something even worse. All right. But I think the thing to say is like when you're paying thirty times uh eBITA for a software stock. That's like annual cash flow. You're paying thirty times. That means

Give or take, like you feel pretty comfortable that that cash flow is coming in for at least the next thirty years. Nobody knows. You think it's gonna get bigger. Nobody knows. No, I know. I know, but I'm just I'm going through a theoretical exercise because I think it's important. So like you're saying like for the next thirty years, I'm not worried about this company's cash flow coming in. And of course, I think the number's gonna go up.

Um, if you're like now I know people don't invest for thirty years, but I'm just I'm Conversations conversations that happen when sales what's what's uh software companies are a 60% crash. Right. Uh but if if you're now taking that multiple down from 30 to 15, which is effectively what's happening, um, in some cases worse. It's not that you're saying, oh, I'm only comfortable with the next 15 years worth of cash flow. It's just a demonstration of a of a a a change in confidence.

And and that's like the best way to explain what's happening here. I wish I could tell you it's cause these companies earning suck, but it's not. It'd be easier that way. So when when when when software was eating the world in the pre COVID era, okay. So forget about twenty twenty one. Salesforce was trading at nine to ten times earnings, eight to ten times earnings. It's now on its way to four. And is that the right number? Who knows? Yeah. Multiple revenue you say.

Four times sales. Right. Um, all right. So Adam Parker weighed in. Really good stuff here. He said, we looked at the last several times the software industry, EV to sales multiple, have contracted sharply over a rolling six month period. All right, so there's nine periods um since since two thousand. He said, we then observed after these periods how valuation worked for picking software stocks following these sell offs. I thought this was really well done.

Um, for the last 20 years, buying the most expensive software companies outperformed buying the cheap for the six months following these valuation corrections. So Adam's saying if you want to add a software name, add a fast growing, expansive one like Palo Alto, not Salesforce, because it's cheap. So next chart. This is these are the numbers. Um, the most expensive quintile, that's the blue highlight. And he's looking at the spread between the most expensive and the least expensive. And uh

Interesting thought exercise here. Oh, so you got paid better in forward looking returns if you bought the more expensive software stocks. Yeah. Okay. Uh I I bet you that would hold this time because You go, you go to the, the mental You go through the mental exercise of saying, Well, why is it expensive?

And when you do that, you end up with the stocks that have the best growth outlooks. The market's not stupid. They have those high valuations in in some cases, relative to their peers for a good reason. So here's what I'm struggling with. I take the stock market very seriously. Not perfect all the time, obviously, but I genuinely believe, and I think you do too, that there is a lot of information in stock prices and you would be foolish to ignore them. You agree?

Well, I never ignore stock prices. Okay. I don't know. I don't I don't have to agree with what the market's doing. I might have a different perception. So then and also sometimes the market is drunk. And I think the market is drunk right now. So I bought a I bought Crowd Strike yesterday. A stock that you've been a longtime proponent of, just bombed out. I don't know anything about their business and and cybersecurity and privacy. I know nothing about it, but this idea that like

Claude is just going to disrupt this monster of a business because they put out an agent. Like I just come on. No. Nobody actually thinks that. They just think other people are gonna think that and they're selling. If you understand what CrowdStrike does versus what Claude put out, Claude put out a bug finder. Echa, echa, echa

It's a uh it's a product that allows you to detect bugs in a security network. That's that has nothing to do with CrowdStrike. CrowdStrike is literally incident response. I'm sniffing the risk. I know. It's it's normal. It's like protecting companies. It's not searching for bugs. It's so far beyond that. And it doesn't matter. They took uh, I don't know, fifteen billion dollars out of the market cap or or whatever. Like it's it's bonkers. Well, Schwab too. I mean, we you and I know that's wrong.

Yeah. Does it but it doesn't matter that you can make money on it on the long side. That's right. All right. We have to get to this. Uh I I know a million things have been said about it already, but this is the thing that everyone's been talking about for 48 hours. The Citrini research.

I I don't even know what people call it a report. It's not. It's a very well done creative writing exercise where these two guys put their heads together and tried to picture Um, a worst case scenario two years from now, and then write a history of today to then. Um, pro I don't know, uh prospectively, like act as though it's 2028 and they can go back two years and they paint this. Sort of stair step.

down downward into hell, um, all of the various things that blow up along the way. And this piece has everything. It has

uh white collar unemployment surge. It has mortgages blowing up. It has um the credit market seizing. It's got like every neck every possible domino falling because the lifeblood of the economy is that is the people doing knowledge work the upper colour at a white c right at a at a at a at a white collar salary and just having those jobs vanish and what are all the all the knock on effects.

Um I wanted to get your take we haven't spoken about this, but I know you I know you had a pretty strong response to it. I think you didn't you probably didn't sleep well last night, if if what I heard is true. So it really bunged me out. Chris said you were crying a little? No. It really b it really bummed me out to the point that Robin said what's wrong.

f me out. Number one, it was a great piece and it was really well done. And this is not why don't you just call me? And cause well, because we I want to save it for the show. Okay. Um and this is not some bullshit permabare guy who's just you could safely discard. He was very clear that this was like uh people call I don't know if he called it science fiction.

But the part that bung me out the most, not like the market lens. And I was shocked at the market's reaction, like American Express and Capital One fell 8% because of the support. Like legitimately, those stocks would not have done that absent support. That blew my face off. Here's the part that bummed me out. Um the human element of it. There are factual Unfortunately, people in my life and in your life and in everyone who's listening, there are people whose lives are going to get blown up.

And they're going to blown up. Blown up. There are people that are white collar workers that live around us. Who are going to lose a job, lose a spouse, lose a family. Like I'm not saying that do you think that happens anyway? What do you mean? In general? This is a constant this is a constant. Don't stop.

Yes, that happens. That is always a part of life. And it it but it's going to h I'm I'm not like see I'm not hyperbolic like we're gonna get ten percent unemployment overnight,'cause I reject it. I I genuinely don't think that that it's gonna be mass unemployment, mass hysteria. But shit, dude, like I could think of people that are expendable. And it really bums it really bums me the f out. Like seriously. Did you text any of them?

No, but seriously, there's a lot of people who just don't know what's happening. And we and it's and it's inevitable. And that part of it that part is true. That part of it like really, really made me sad. This is like All right. Let me just react to that really really quickly. Um, I think that that happens every day in America in different industries, in different now you and I.

live in an upper middle class suburb in a place w probably one of the most expensive places to live in America. And the reason it got that way is because there are huge employment opportunities. in this area. And that's why so many people want to be here. And the employment opportunities pay very high salaries. That's like part of the territory living in places like Westchester, Northern New Jersey, Nassau County, Long Island. We happen to live in a place where it costs a lot to live.

Um and I think as a result of that, we very acutely feel these like tremors because It's almost impossible if you're like on a$600,000 salary and you're at the top of the range for what you do because you're in New York. And then they tell you like a machine that's plugged in somewhere in Cincinnati is faster than you at what you do and you're you're out.

You're probably not gonna get that level of income back. You will get another job, probably doing something else, maybe in the same field. Maybe you have to reinvent yourself. It's very hard to replace a$600,000 annual income. So I'm with you there.

Um I just don't I mean that that that's that's very high. I'm I'm just talking about like regular people in our town. Like that is right uh dude, that's not regular. What are you talking about? That's absurd. I don't know. Okay. You're on another one. Why is it absurd? 300,000? Yeah.

For a family household. Fine. Everything I said is still true. Yes. It's hard. It's really hard. Once they you can't replace that with what? I'm agreeing with you though. But you we're saying the same thing, like somebody making a hundred and twenty thousand dollars, it sucks. They get laid off. It's an easier income to find the place that will replace that.

even within the same sector, you get to the point where um it's much, much, much harder. And I don't know where that threshold is, but I'm making the same point that you are. I just think it happens every day anyway. Does this accelerate it? Does this put more people in the line of fire? Yes, of course it does. All right. Um so that so that to me, and there's a lot of a lot in there that like again is probably above what I could understand, but I just I that that really hit.

All right, I get it. There's a rhetorical trick being played here. Which is piling up every possible negative, stacking them one on top of another with no positives and no offsets and absolutely no beneficial um uh You know, be uh uh bends in the story. And I remember 2011 watching people do this with the European debt crisis. Where and it was not guys on Substack, it was guys working at SockGen, but it's the same bullshit. And the the general idea was like Substack is a new sock gen.

Basic it's it can't be worse than sock gen. So they would have these British guys do these like purposely. Do these like thought exercises where they would extrapolate out first Greeks defaults and I saw that with you live in 2011. Well these guys are doing this profession they were doing this shit professionally. Scared the bejesus out of me.

But that's what they were doing. Like they were like they were coming up with like the dominoes. Yeah. And it was every single day. And they were having op-eds published at the Financial Times. The Financial Times like was almost rooting for this. So they like wanted, they wanted literal economic implosion. I don't know why it's this day, but it was like maybe it was just about the click. Or the FT Alphaville subs, but for whatever reason, it was like this cabal of the economist.

FT alpha will British strategists working at French investment bank. And they would just hit publish and publish and publish. And it was just like the Citrini piece. It was like. This domino, then not domino, then civil war in Germany, then the Italians ally with the Chinese. And it was like one after another. It never plays out that way. There are positive externalities, even in a debt crisis. I know it's hard to believe, but it's actually true.

Um, so things got really bad in southern Europe. And I know people went through a lot of hardship, but the world didn't come to an end. And so I don't like this sort of like domino effect think pieces where the only externalities are possibly negative. And so that was the first thing that jumped out at me. The second thing was they had Discover card blowing up.

Does anyone know that Discover doesn't even trade publicly anymore? Whatever, whatever. I'm just I'm just saying like there there's a lot. All right. Uh it doesn't matter. It was really well written and I think that's why it got the reaction that it did. The stock market fell like one point eight percent.

Dude, American Express felt 8% capital one, which is like I've been pointing this entire run-up when people are saying one thing, but the data shows another thing. I'm like, I understand people are bummed out. But don't tell me that consumers are under pressure when Capital One Financial, the most credit exposed company maybe in the country, is at a 52-week high. It fell 8% yesterday. Sorry, I gotta address this in the chat. Asaro 631. Josh, could you please give a take on toast?

What are you are you listening? No offense. Or like uh do your ears work? Do you understand what's going on? You're asking me about a small cap software company in the midst of the biggest software crash in history. What would you like to know, sir? Do they still make software? Yeah, stop, stop, stop. Don't talk to the crowd. Um Bruh. JP Morgan. All right. So Jamie Diamond. What is this about? Is Brian Sazi?

Uh eavesdropping at at cocktail parties. Apparently. What is this? Here's what Jamie said. What is he doing? What if I think there are two million commercial truckers in the United States and there are lots of other examples you can give. It was a thought exercise. You could push a button, eliminate all of them, and they make a hundred twenty thousand dollars on average.

Save fuel, save lives, time, blah, blah, blah. Um, would you do it if you put two million people on the street where even if there are jobs available, that next job is$25,000 a year stock and shelves. I was saying that's kind of really bad civilly. Should we as a society agree to that? I don't think so.

I was talking about the business and government and they should start thinking today, not when it happens, what to deal with the uh issue. It's gotta be the business and government. All right. I don't think anybody has faith in the government. Depend doesn't matter what side of the aisle you're on. But I do, I do have faith in humanity. So for as much as I'm scared of the individual level and I then nothing will change that, because I think that there's an inevitability to that.

I believe strongly in humanity that yes, we will solve this. There will be all sorts of amazing, amazing things that come out of AI. um, medicine and a million things that we can't predict. But I'm worried about between now and then. I really am. What's more likely to you, two million commercial truckers lose their job in the next five years or

We have a missing generation of new truckers who just never go into that job because there are less opportunities over the next five to 10 years. And it just sort of fades away as a job option. Because I'm going to tell you. For most of these things, that's actually how it works. It's very rare that a new innovation comes along and everyone gets displaced at once. It's more likely it just becomes an industry that shrinks.

And we have less people go into that, but they don't do nothing. They leave. They go do something else. Um It's not pleasant. Okay. I'm not gonna say uh It it's been pleasant for coal miners over the last thirty years. But when was that a good job? When was when was climbing down into a coal mine ever pleasant. Yeah. So I think this is more gradual and it does not displace two million people. But the good jobs are gonna be under assault too.

Says y says you. And are all these email bullshit jobs that we're saying are good jobs good just because they pay a six figure salary? Are they definitely good? Is it a good job to sit there and spam people's emails all day? Is that we think that's a good job because it's air conditioned? I I don't even know that I agree with the premise.

that all of the jobs being disrupted, like that we're not doing certain people a favor. Well, what's good? A good job is a job that puts food on the table and security for your family. That's a good job. Oh, all right. Well if that's the only baseline, then yes, a lot of good jobs are gonna go away. But I just don't I don't know that I agree with that's the base that's the baseline. Let's talk about Hala.

Are you ready to jump out that window behind you yet? Yeah, I'm j uh I'm I don't like this. Let's let's let's move. Well here's the good news. Uh Josh went viral. I am the smartest man alive. Ha ha ha. Good luck disrupting the genius that is me because this week I went viral. All right. So I'm not going to do this whole discussion of what Halo is. We did that already. We've done it a few times. Um heavy assets.

Low obsolescence risk is the theme of the year. I said at the beginning of February, still believe it. Everything that's happened since has only confirmed how brilliant I think I am. Uh I wanna put this table up real quick. This is yesterday. Um, this is what the stock market looks like this year, but this was just yesterday. This is a perfect Halo day. Look the leadership. Consumer Staples won.

Healthcare two, utilities three, energy four, real estate five, materials six. All six are the only s sectors green. What was read? Communication services, industrials. Um that one you can go either way with. Technology, consumer discretionary financials. John, throw out my chart from later on. This is what the end of the year. Well, I don't I don't know that. I know. Nobody knows that. I know that.

We so I made the same chart, the same table. I made it into a chart. John, just throw that up. Where's the leadership coming from? Just so we could look at this one more time. This is so nuts. Look at where the SP 500 is. It's up 80 basis points. Yeah. And look at everything to the left. Energy is 1% of the SP. It's up 24%. Materials is I could even be smaller. It's up 17.5%.

Staples plus fifteen. Industrials plus fourteen. And when Sean and I are doing our best stocks in the market research, these are the stocks. Okay. Chart back on. Chart back on.

The thing that scares me or worries me about the stock market itself. And listen, I'm not overly concerned. I know this isn't a popular thing to say out loud. Stock market falls 10% this year. Who cares? Right? Like we're in a massive, massive bull market. It's fine. Nobody's gonna But the the red bars, com services, tech, discretionary, financial.

You need these to participate for a sustained bull market. You just do. Now maybe you don't. Maybe you don't. Maybe you don't. But it's just mean reversion within a bull market and it's um Sectors that had lagged for three years catching up, getting re rated. Well, that is what's happening. Fine, how about this definitely? Why do we not like it? No, it's dude, I love it. It's great. If those three if those four bars stay where they are, we could we could it we could still rock.

But if the mag seven like implodes, then everything else is coming down with it. That's all I'm saying. Okay. Uh let's hope not. I don't think it will. All right. Um, I just want to show off the uh the recognition that my brilliance has received. John, can we roll through some websites and some media outlets?

Here's the Wall Street Journal. Wall Street's latest bet is on Halo companies with AI. You spoke to the company now. Yeah, I talked to uh her name is Hannah Lang, uh great reporter at the journal. Uh here's the next one. Financial Post. I think this is like the WSJ of Canada. If I'm not mistaken, halo stocks, AI may be a threat to some stocks, but investors should be watching for this halo effect. Bang! Next one.

CNBC.com. All right. That's the home team. Josh Brown's Halo stocks. They can't be disrupted by AI and will get more profitable because of it. That's February ninth. Look at the date on that. Um, here's Goldman Sachs research today. Strategy matters. This is like this is some like high-end luxury shit from Goldman. They might have put you in the footnote, but come on. Like I know. They no literally they're spelling it out. Focus on Halo, heavy assets, low obsolescence. Literally.

Nobody could give me attribution. Should I email Tony Pascarella? Yeah. And break his balls about that, right? Can I say one more thing about the current stock market? So I also I don't think I think you would agree with this. Nobody likes the fact that discretionary is underperforming staples in a serious, serious way. Even the equal weight looks disgusting. That is not a risk on appetite.

But but look at small caps. Look at the Russell two thousand hanging right near fifty two week highs. Small caps are most small caps set by industry designation are mostly halo. Don't interrupt my ticker tape parade. Barons put this up. Want stocks with AI immunity? Think Halo next. Market watch. Go. Fire market watch. Why the Halo trade boosting hard assets is no fluke, according to Morgan Stanley.

Also no attribution. That's all right. Dude, show the cover of good housekeeping. He's on the Ax here's Axios. Anything but AI is giving rise to the Halo trade. Michael

Am fing famous. I don't know. All right. Um, let's let's play this video real quick. Taxi drivers and accountants both got automated. One group got poorer, the other got richer. And the reason why is probably the most important idea for understanding what AI is about to do to your job. Before Uber, London Cabby spent years memorizing twenty five thousand streets. It's called the knowledge. That expertise was the entire job. You were paying for what they knew.

Then GPS automated the expert part, the hard part, the thing that took years to learn. Suddenly anyone with a car and a phone could do the job. Employment and ride services went up two hundred and fifty percent wages because the hard part was gone and anyone could do what was left.

Now look at accountants. Computers automated the routine part, the data entry, the bookkeeping, the repetitive calculations, the easy part, what was left, the complex analytical work, the judgment calls that required more expertise, not less. So wages went up. The job got more specialized and more valuable. Same story. Technology automates part of a job, completely opposite outcomes. The difference is whether the technology took the hard parts or the easy parts.

If the technology takes the hard parts, the things that took years to learn, the expertise that made you worth paying for, you're heading towards more competition and lower wages because the barrier to entry just disappeared. Machines can come in.

If the technology takes the easy parts, the routine, the repetitive, the stuff that you didn't need much training for, you're heading towards more specialization and higher wages, because now you spend all your time on the work that actually requires you. This is the question you need to be asking right now. Not will AI take my job? That's the wrong question. The right question is, in my job, is AI taking the hard parts or the easy parts?

Think about what you did last week. The tasks that AI could already handle, were those the tasks that took you years to learn, or were they the parts that could have taught you could have taught one new player on day one? Because All right. Uh that's a r I mean that's a really great point that juxtaposition between taxi drivers and accountants.

The technology with um taxis took the hard part. The drivers knew where everything was. And then once the machines did, there was nothing for them to do. What are they just like on the steering wheel? Uh The thing with accountants though, it's the opposite. All the rote annoying task stuff. The calculations

A machine could do that. That's not the thing that makes an accountant an accountant. The thing that makes the accountant the accountant is that specialized knowledge and that ability to communicate options with customers and lifelong clients. So I and that's why accountants get paid more. Since TurboTax came along, but taxi drivers get paid less or nothing since the advent of Uber.

And I think it's a really I think it's a really important um way of understanding what's about to happen. You don't seem convinced. I'm not. Is that because she's from Middle Earth? Talks like a hobbit. What what is the reason? Where is that accent from? We need to That's Australia or maybe New Zealand. We need to find out what's going on. That was classic. Oh no, you know what? That could have been South Africa.

All right. Well I thought she I thought she made uh a really important distinction between does the AI do the hard part or the easy part? Now there's people in the chat saying, what if it does both? I don't know what to tell you. Move to New Zealand. Ask her.

All right, next. All right. Hard to believe. Hard to believe that the cumulative advanced decline line for New York Stock Exchange listed stocks hit a new all-time high the other day. Nobody would know this. Like what? These are Halo stocks. That's uh well what else you want to tell you? It's it's uh it's anything but software and

Information technology. All right. So this makes me feel a little bit better about the state of affairs. Next chart, please. Look at chart goat Matt doing his thing. Expensive stocks are underperforming. So Matt is looking at median price of sales based on 10, 10 equally weighted buckets of stocks. And it's very clear. This picture picks a very clear story. The stocks that are getting smoked or the stocks that were expensive to begin with.

How do you not look at this and say it's just mean reversion? And it's just like uh it's this like the the the counter trend answer to correcting what's gone on for the last three years. It's sort of how it seems to me. Right? Yeah. Like it's it's it's like all right, we had this one group of stocks. They were expensive at the start. They got even more expensive. And that ran its course. And now there's concern about their future earnings cash flows.

Let's sell those and buy these cheap ones. And now the cheap ones are getting expensive. I did a thing on the air today at CNBC about the oil stock. The huge re rating in those multiples. People don't even understand. Like you got stocks now, Oxy is trading thirty-two times uh trailing twelve month earnings. Yeah, that makes sense. ExxonMobil's gone from fourteen to twenty two.

Chevron has gone from uh I think sixteen to twenty-eight. What uh what's the expected earnings growth for these companies? It's gotta be the five percent? Really? No. No. No, in most cases, not even close. Well, why would it be? WTI accrued is like sixty.

It's gone nowhere. Is this but this is this is the funny thing? This is the funny thing about valuations. Like, does this make sense? Oh, you're paying for the next twenty-four years worth of like give me a break. Nobody cares. All right, I'm sorry for doing that. Uh but I'm just saying, like, that's That's uh that's what it looks like. All right. Uh let's move on to better news.

Yeah, pre crisis uh parallels. All right. Um, we did a whole thing with with uh Diamond, but I did want to take one more quote of his. John, give me this screen grab. This is Boombard. Diamond sees pre-crisis parallels as rivals do dumb things. So now we come to the private equity, private credit portion of this, which is its own story, somewhat connected to the software crash.

Um, this is Jamie. Unfortunately, we did see this in 05, 06, and 07. Almost the same thing. The rising tide was lifting all boats. Everyone was making a lot of money. Um I see a couple of people doing some dumb things. They're just doing dumb things to create NII. That's net interest income. And then they do all this like 2008 stuff. The Tricolor. Did he name names? Yeah. When Auto Lender Tri-Colour Holdings and Car Parts Supplier First Brands Group.

imploded last year. He said seeing one cockroach meant more would likely crop up. And then he said, quote, there's always a surprise in a credit cycle.

Uh this time around it might be software because of AI. Hold that thought. Lloyd Blankfein off the top rope. Coming in to trash whoever's running Goldman Sachs. And whoever's running all all of these private credit firms, look look at this guy. Uh

Blank Fine has a book coming out on March third. That's why he's talking, just in case you were wondering. Oh yeah, what whatever happened to that guy? Um, what happened was he crushed it and he sort of retired. And now he's in that mode where, hey, I got something to say. So here's what he said. Is a crisis brewing in private credit?

Quote, the people who run these firms have had great lives and made a lot of money. These firms are very successful, very lucrative, not content with the market that they have. And as big companies they have, they want to make them bigger. How are they making them bigger? By finding new outlets of capital. What are they going to? Retail, consumers, 401ks, insurance companies. If something blows up and big institutional investors lose money, does the public sector care that much? Not really.

If a bunch of individuals start losing their 401k plans and their money, does the public sector care? Does the government care? Yes, a lot. I think it's crazy to put those assets there. And I think it's crazy from their point of view. They have nice lives. They make a fortune. Their companies are huge. They already own their yachts and whatever it is they want.

Why are you going into this dangerous territory just to make your business a little bit bigger when that represents such a big potential problem? All right. Team blank line on this. I mean, I wish you just would have answered the question. Seriously the answer. No, it's not. He did an answer. It's a crisis brewing in private credit.

Um yeah. He answered a different question. Well, the the answer to the question, well, I think that's what he sees as the question, dude. I think I think he speaks for all of us. And I think this is actually a good thing that this is happening before, not after these things are informed. He said in a financial crisis a trader would say I think an investment is worth X and I'd say go out and sell it and they couldn't.

These private credit investments are illiquid, so how do they find out what the true value is? We don't know what something's worth for sure unless you try to sell it and somebody buys it. I think something will occur and we'll say, I can't believe there's gambling in the casino. I can't believe my predecessors let this happen. And then I'll have to get fixed. And it'll be more conservative than it happened. And it'll he's almost like.

What is he lobbying to come back and run an investment bank? No, he's right he's writ he's public he's writing a book. So the st the story with private credit is that in the springfall, these these BDCs and these stocks started to get lower started to go lower. As interest rates are coming down and these are floating rate loans. And so the investors were gonna own were going to earn less interest income. And therefore, all things equal, these were less relatively less attractive than they were.

In 2022, when interest rates were killing bonds and these things were floating high or no duration, like it was it was kumbaya, it was a perfect storm for great. So first it was the it was the rates coming down that said investors saying, you know what, I don't think we'd like these things anymore. And then it was the tri-color and first brands, which by the way were syndicated loans. Those weren't even private credit things.

And then there's like uh maybe these are more those weren't poorly underwritten, those were frauds. Again, not private credit frauds, just frauds. Right. And and so you were, I was able to hand wave a lot of that away. What I wasn't able to hand wave away was the the tidal wave of money coming into the space.

Like there can't be this many good loans available. There just can't be. So a sloppy underwriting, which we're going to find out about in give it a, I don't know, give it a couple of months, give it a week now. Um and the the the thing that for me just is like makes us really hard is the software part of it. So B-Cred, for example, 26% of their book is in software loan.

Of middle market software companies. Right. And that doesn't mean they were bad loans or anything anyone did anything wrong. No, the world changed. It's a private, illiquid investment and the world changed. The world changed. So if the if the equity and yeah, like these could have been made at proper loan to values and there's plenty of equity cushion or there was, well, guess what? The publicly traded stocks down sixty percent.

What do you think the privately traded businesses are worth as a percentage of what they were worth? Way less. Okay. Yeah. So what h so I don't know what the portfolios look like. Who the hell knows? But investors aren't waiting. These names are getting murdered. Blue Alison has sixty percent drawdown.

The the the publicly listed BDC is getting murdered. Um and again, lessing, lessing. The worst part of it is Josh, we haven't even seen the cycle turn. There's no distress. Like everything is fine. Again, it's multiple c compression, but in a different arena. It's the same concept. Yeah. We know these companies are worth less. None of them have there's no pro literally no problems.

None none of them are filing chapter seven, chapter eleven that makes it more scary. I well that but it's the same concept. We're just we're just not willing to agree that they're worth what they were last year. Put a pin in that though, because we're gonna revisit that at the end. Uh

Ten year treasury rate, Neil Dutta, quote In the last couple of weeks we have seen stronger than expected employment and firm core PCE inflation. We might even get a politically pliant Fed chair. There's also quite a bit of enthusiasm out there as financial market conditions have eased and the tax refund season, expected to be stronger relative to last year, is in full swing. Despite all this, Tenure yields have actually been sliding.

I am not sure what the right level of the 10 year should be, but there's every reason for longer-term yields to be rising right now. It's notable that they haven't been. Uh 10-year hit 4% today. Um, do we need to read more into this? I don't know. This is such a weird market, dude. If you hear like the way that we're talking, um, just our tone and what we're saying, you would just assume the market's at a fifteen, twenty percent drawdown.

And we're right near all time highs. Now I don't know if that makes me more it I don't know if that makes me more or less confident. I'm honest. That's why I call this episode pre crisis vibes, because that's what it that's what it feels like. Like It feels like everybody sees a crisis about to unfold, but it hasn't started yet. Okay. So I love that you said that because going into 2023 and 2022 during the rate hiking cycle. Everybody had the ability to brace for impact.

Everybody got religion and had and did what they had to do with their balance sheet and then this and their that. And they braced for an impact that didn't come. Now I'm not saying that because it didn't happen the last time, it won't happen this time, but I think what Satrini did in service to society for everybody focusing.

Like everybody is bracing for impact. And I think that changes the nature of risk. Not saying that we're gonna el eliminate it, of course, but I like that everybody's sort of feeling anxious about the future. That's not a bad take. Like in other words He told everybody he told everybody like put your pads on and if enough people do that

Some of the recklessness that maybe we were worried about last year is not going to manifest itself. Done. All right. All right. Let's talk about an area of the Halo trade that's not working. U.S. pending home sales. Holy massive. That's part of that tenure though hitting four falling to four percent. Like people are not bullish on the economy right now. Um, let's look at pending home sales. Yeah, not great. Like this this is a very seasonal chart.

Like it it goes for the last three years, the lines all move together. And the red line for 2026, it's it's diverging bigly. We're looking at at four-week rolling average of weekly pending sales, and it does not look like the other. And then the roll four week rolling average on the bottom chart of median days on the market. Like this is bad, dude. Houses are just not selling. So pool corporation reports. Um the stock is getting murdered.

Swimming pool builds are down 50% since the pandemic. Now, obviously a lot of this is pulled forward, but still in 2025, we estimate that just under 60,000 new pools were built in the US, a mid-single digit decline. This is about half of what we saw at the height of the pandemic and 40% lower than 2022. Holy shit. One other floor and decor. Murder. Murdered. Oh. What is this? Like carpets and uh wood woods? I'm guessing it's like floor and probably some decor. Just dis destroyed.

Uh chat, would you have guessed uh you would see floor and decor and pool in drawdowns of this size? Is that anecdotally what you I think I would have. I d I feel like everybody shot their shot. from 2020 till 2024, 25-ish.

And then like if you were gonna do something, you're gonna redo your house or dig a pool, like you already did that. But we were bullish now it's a retrenchment. We were bullish on rates coming down and the housing market. Well, they have to come down. But they have come down. The thirty years below six percent. Home like rocket.

Like it these stocks are not working. All right. Sean Gray Sean Graylish in the chat is saying the sellers have to bring their prices down. Yeah, we know, but they're not going to. It's a buyer's market where nobody's buying or nobody's selling. It's it's it's it's not good. Um I grabbed this. I wanted to share with you. Home Depot. Reported this morning. Adjusted earnings 272 versus consensus 253. Topping estimates despite year over year pressure.

Revenue actually beat. Um, same store sales were up 0.4% in the US 0.3%, which reversed prior declines. And it beat the forecasts, which were for a drop. So somehow and lows is tomorrow. Oh yeah. And the stock still could have barely bounced a close on the lows of the day. Um or no, Lowe's is tomorrow before the open. So we'll see any confirmation there. One more thing. Here's a uh skeet from Sean Broderick. A skeet?

A blue sky tweet? I don't know. What are we calling it? We don't call them skit? All right. Um, Google search this is a chart of Google searches for quote, can't sell house, absolutely skyrocket to the highest level in over a decade. Isn't this a great chart? What is going on? You can't sell your house because it's because it's not worth what you think it is.

You what what like do you need somebody to hit you over the head with a baseball bat? You can't sell it because the price is wrong. Isn't that it? There's more than that. That's it. If you if you were able to afford a house, you probably already bought a house.

Well, I think that's the same thing as the put in the pool. We do the floors. I agree with you. I totally agree with you. Right. The people that wanted to did it. All right. Let's do make the case. Then you're gonna do a mystery chart and then we're gonna let everybody out of here. Um

You call yourself a contrarian, you son of a bitch? Well let's let's see. Chart on. Now dude, I bought Blackstone on Friday and then it fell eight percent the next day. LOL. I said a real contrarian. No, you know what? I just blue owl. I just Go ahead. I've I have things to say. Go ahead. I listened to your episode of Talking Wealth uh today.

And I thought it was great. And you got into who who is the guest again? Brian Moriotti from uh Morningstar. All right. Guys, if you're a financial advisor or interested in wealth management topics, we have a uh weekly podcast called Talking Wealth. And the latest episode is about the Blue Owl and the OBDC saga. I thought that was really good, Mike. Thanks. What's your your takeaway from that is even at ten dollars a share?

This blue owl is not yet uh safe to buy. Okay. Or maybe more dangerous than even when it was at twenty. It probably is. It probably is what? It probably is okay to buy. There's not investment advice. I don't want I don't want to invest in this company. I don't trust management. I was on the call yesterday talking to their investors about what happened and I just

I don't like what they're saying. They're acting like it's all fake news. It's like uh Mark Lipschultz is saying that he sees green flags, not red flags. It's like, bro, come your stock's down sixty percent. Now, maybe the FT is is inaccurately reporting some of the things, but don't act that there's no smoke. Okay. You just voluntarily gave your investors back 30% of their money. Like

And oh wait, we sold it for 99.7 cents on the dollar. Nothing to see here. People aren't dumb. And the fact that they were blindsided by the stock market's reaction tells me all I need to know. I have no faith in that. No faith in them. I don't think nobody else does either. All right. I 100% agree with you. So this is make the case and normally we talk about something I'm bullish on, but I really wanted to show like the sentiment on these names could not be worse.

And if you're really one of these people who thinks you're Warren Buffett and you run into a burning building with your wallet open and blah, blah, blah. Here you go. Wait, dude, I I bought I bought Blackstone on a Friday. I yesterday and yesterday and yesterday it was down eight percent. All right. This one I actually own. I own Carlisle Group. It's in a twenty six percent drawdown, which makes it one of the better Uh one of the stocks holding up best

in the space. Um, I really do trust management of this one. And um I I am not selling it. I I wouldn't say I'm adding to it. I'm still long, Carlisle, for those who are wondering. Uh let's do the next one. This is Apollo. 36% drawdown. I trust that's like you trust this company. To the extent that you could trust like any of these companies, I think that Mark Rowan tells it like it is. You hear him I like that. I like that. I like that guy. He tells the truth.

All right. This is gonna come back to bite us in the ass if he's hiding some cockroaches and uh but I I trust that guy. Is that everybody? Like we sh we trust the guy or we don't trust the guy, that's it? Everybody knows that there's risk, okay? What do you think a stock down forty percent is telling you? That everything's great? Uh oh, that's risky. No shit.

Steven Harman in the chat is pointing out um Blue Owl was bailed out by their own insurers uh last week. So that's that's a whole other story. That's a whole other we're not gonna get into that. All right. Um Aries. Forty one percent draw down. I don't know anything about this company at all.

So Aries has the biggest BDC. I think it's like I mean it was fourteen billion dollars. I don't know how big it is. Forget it. Next. Blackstone. This one you bought. I bought it. This is a forty two percent drawdown. This is the black rock. I think you're gonna I think you're gonna make money in this. This is the black rocket private equity.

And I I know the story's not pretty right now. And yeah, it could definitely, definitely get a lot worse. Could it get cut in half? Uh yeah, sure, maybe. Fine, why not? I remember the IPO of Black Blackstone and I'm I'm gonna tell you it fell seventy percent. They went public in like oh six, horrible timing for new investors. But this one was the first to come back.

And it came back the the biggest. And I think uh they've they've been through credit cycles, they've been through moments where investors don't trust the uh private assets. I think they're gonna they're gonna live. Yeah. Everybody knows that flows are gonna slow down. Like that's not that's not gonna surprise anybody. It's not gonna surprise anybody. It's in the price, okay? And these are for the most part illiquid vehicles. We know the fee-related earnings. Like

All right. Yeah. Here's KKR, disgusting, forty-three percent drawdown. This one is in every way, shape, and form as illustrious of a of a of a history as Blackstone, as uh Aries, Apollo. Like these have great reputations. Um, I don't know, what do we, what?

I don't know what to do. You don't have to s you don't have to buy these stocks. In fact, you probably shouldn't. I'm not going to. But if you but if you're selling these if you're panic selling today, you're never allowed to quote Warren Buffett ever again, okay? Ever. Those are the rules. Does but does Berkshire step in? And look at the loans and say

50% discount. Yeah, I'll buy 10% of this piece of shit. So Boas Weinstein's uh yesterday said that he's Lumble Owl and he's trying to buy, I think that's what he tweeted. And he's looking at the he's looking at the Is he buying the B D C or is he buying the equity of the corporation? The equity. It's two very different things. The equity. So he's invested in the stock of Blue Owl? Yeah.

Let me uh let me not miss he knows he knows more about this stuff than we do. He said the way the wheels are coming off the car and the equities of private credit managers and the investors who hold them look at LNC today. Public credit looks absurdly rich. This might surprise, but Saba Capital is long stock in BX, Aries, Apollo, and also OWL. We sold down, we sold down a lot of CDX high-yield at the same time. Okay, so he's hedging out the credit risk and buying the equity.

What he's like his his claim to fame and he's really good at this, maybe the best in the world at this, is Uh closed end funds. Well that's what these are selling at a discount to the N that's effec effectively what these are. Yeah. Um closed in funds selling at such a huge discount that he buys them and in some cases I think he He's an activist and he makes the c the thing shut itself down.

So that he gets par on the underlying. Or it's like listen, the this portfolio is trading at a twenty three percent to your bullshit nav. Maybe it's only trading at uh I don't know, a a a fourteen percent discount or whatever it is, and I can make money.

Okay. Well better better him than me, because I don't know what I'm doing in that space. I I really this is not nobody should listen to me on on whether or not it's time to buy them. I just wanted to get your take. All right, you have a mystery chart?

I do. Let's do the first one, please. I forgot even what I shared. What is this? Um, okay. This is five years and this shouldn't be that that hard. You and Ben were speaking about this last week. But what like what is it? It's stocks? Well, you should know you should know what the purple line is. Um the purple line is uh it's American index, but look at look at the spread. So five years, nine eighty-nine percent versus fifty-nine. What's up 89% and what's up 59%? Okay. Um, let's say that.

Uh emerging markets is yellow? Close. China? Close. China? The purple is the S P obviously. Um. But look at this spread, dude. This is not insubstantial. In fact, you could say you could say it's quite substantial. This is international small cap value stock. So fold us closed. Oh, international small cap value, tip of my tongue. Why didn't I get that? Isn't that wild? Uh

Yeah. Forty points. But can I tell you not forty. Not forty, my bad. That was really wait. Tell you one thing about international small cap value. Do you want to know? It's all Halab, the whole thing. All of it. Oh, I got one more for you. There's no there's no disruption in international smoking. There's no mystery here. I'll just tell you. This is um this is emerging. John, reveal it please. This is uh going back to October 2022.

Uh EM versus S PY. The S P has lagged emerging markets. How? Just what's gone on in the last month? Trop back on. It really it's from the the Liberation Day bottom. Smoking them. Unreal. Yeah. Look, and it's and you know, you don't know when you're in an outperformance or an underperformance regime in any asset class versus another.

Until enough time goes by that you can look back. Yeah, yeah. Holy yeah. Like right now, we could be in a regime where people are gonna be blown away by thing X is outperforming thing Y, but like you need enough time to go by In order, it's all hindsight, like all of it. Correct. So very difficult game to play. All right, guys. I want to mention uh first of all, thank you guys so much for joining us for the live. We appreciate it.

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