Ladies and gentlemen, welcome to the compound and friends It is Tuesday night, May 20th, and we had quite a show. I want to mention that tonight's episode is sponsored by our friends at Betterment Advisor Solutions. We are also sponsored by Rocket Money. Rocket Money is a personal finance app that helps you find and cancel your unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings.
Imagine an app where you open it up and all of your subscriptions are in one place. You know exactly where your money's going. And then you can look and say, do I even use that anymore? No? Rocket Money can help you cancel. It's a dashboard and it's super helpful. And in this day and age, why spend money on things you don't actually use or need? Rocket Money has 5 million users. has saved a total of $500 million in canceled subscriptions, saving members
up to $740 a year when they use all of the app's premium features. Cancel unwanted subscriptions and reach your financial goals faster with Rocket Money. Go to rocketmoney.com slash compound today. Alright, it's Michael and I tonight. We did an all new edition of what are your thoughts. It's been a big week already for news and it's only Tuesday. We cover like the Moody's downgrade of America. We look at 10 stocks that are just part of this new trend that we're calling the Cougars.
And the Cougars are... a particular group of stocks that does not seem to want to slow down or stop going up. It's a really interesting story. We take a look at a lot of different things that are happening, so stay tuned. I'll send you right into the show right now. Welcome to an all new edition of What Are Thoughts? I'm here with my cohost
Mr. Michael Batnick. Michael, say hello. What's up, everybody? How are we doing? Feeling good? All the usual psychopaths are in the live chat tonight. Okay. Yeah. Georgie's here. Jerry, Cliff, Chris. The doctor is here. Roger is here. All the gangsters. Somebody said Apple Dim says I need Trump to restart the tariffs so I can buy some more stocks. Yeah, I'm with you, man. I'm with you. Michael Skyros. What's up, man?
We got a full house tonight. It's a pretty exciting week. We got to within 3% of the record high for the S&P. Some selling late this afternoon, but nothing crazy.
They asked me today on TV, are we going to punch through? What the hell do I know? Actually, there was buying this afternoon, not to be too pedantic, but... there was buying this afternoon selling in the morning selling in the morning and and not really talked about very much as bitcoin's right at an ultimate Like relative to the hype that you would have seen previously, nobody seems to care. That thing just will not stop. Every dip is getting bought.
Pretty extraordinary. All right. We have a sponsor tonight. I want to tell you guys about my friends at Betterment Advisor Solutions. This is actually a product that we use at our firm, Reynolds Wealth Management, for our liftoff. solution for investors with under 250,000 who want to begin to accumulate wealth and have a path. That's right, Josh. We provide that path. Today's show is brought to you by our sponsors at Betterment Advisor Solutions. Imagining a better future.
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I guess you're gonna start The big news that came out Friday after the close was a downgrade of the US Treasury as a bond issuer by the third of the triumvirate of credit ratings agencies, Moody's. And just give people a little bit of background. We saw Standard & Poor's do this in 2011. And it was during a fairly chaotic political moment during the debt ceiling debate and amidst the European credit crisis. That was legit. Like, that was scary.
Yeah, and then two years ago, Fitch did it, 2023, and nobody paid any attention. Can I be honest? I genuinely don't remember that. I didn't remember it either until Callie was writing about it internally. And I was like, oh yeah, that is a thing that happened that nobody cared about. In this particular case, this time it's Moody's. I don't know that that means anything more or less.
than when S&P does it or when Fitch does it. I can tell you right now, the stock market thought about it for eight minutes. What did you? Because honestly, I was like, I shrugged. I wrote about it. I wrote about it over the weekend. It's like, is this going to be yet another thing that should be scary that nobody cares about? And yeah, that's what ended up happening. Politically motivated?
I don't believe that. The White House instantly, their head of communications, put out a note saying Mark Zandy, who is, I guess, the chief. economist at Moody's or whatever his title is. is a former Obama appointee and has it out for the Trumps and the Republicans. He's a loser in whatever else they said. Honestly, I'm talking right out of my ass. I have no idea. But if there was a Democrat in the White House, would this have happened? Would that have happened?
Yeah, I think so. Are you there? Okay. But, well, actually, I'm not sure. Because if there were a Democrat in the White House, I don't know what the conversation around extending the tax cuts at the end of the year would look like, and I also don't know what to pay for. would look like. I think this is part of it. It's not an anti-Trump thing. It's just like, oh, here they go again, extending the tax cuts with no money to pay for it.
And so if the Democrats were trying to do that, which I'm not sure that they would. maybe they would have had to do that. So it's politically motivated, but not in a partisan way. This is just what's happening in American politics right now. They're trying to get through this big, beautiful bill, which is going to be...
It's going to extend the existing tax cuts and make even bigger tax cuts for different segments of the... population and it's not exactly clear where the money's going to come from to cover it other than Mexico economic growth. Well, originally it was going to be the tariffs, but I don't know that we're doing tariffs anymore.
I don't know if that's really still a thing that we're doing, so not sure. All right, so let's go through some charts. I mean, the fact is, yes, we have a spending problem. Not news to anybody. I think we know this is from John Authors, which, by the way, Josh, credit to you. Great TCAF with John Authors and Chris Davis. You had fun?
Yeah, no, it was great. I mean, we missed you, but those guys brought their A game, and I thought we had a really good show. Okay, so this is from John Authors. The U.S. federal deficit is the deepest in history. outside of a recession, what we're looking at for people that are listening is the deficit as a share of GDP. And yeah, it's not great. It's, what is it? Like, I don't know, 7% give or take. And the problem is, I think this is a legitimate problem. Like, shut off for a sec, please.
I have probably been more on the side of there's we've always had a spending problem this is like not unique to now but the problem is the numbers are getting so big Next chart, please. So for example, this is from the Treasury site. We're looking at U.S. government spending by category. And the top one is not surprising. It's Social Security. It's 22% of all of our spending. Number three and four, not surprising, health and Medicare. Number five, national defense. But number two...
Net interest and I understand I understand that this is an asset for a lot of the lenders and most of it Not not US citizens, but a lot of it is from our country, but nevertheless My God, we're spending, I don't know, is it a trillion dollars on interest? Whatever it is, it's a big number. Can you put the first chart back up? This will not be popular on what I'm about to say, but that's how you know it's true.
Number one in every recession the deficit gets way worse because we're forced to do things to support the economy and the people who are hardest hit in the recession to keep the wheels on track. Some would argue after the great financial crisis, which you could see, I guess you could see prior to the COVID dip, you can see what happened with the deficit at first blew out because of course it did.
and you know they were rescuing banks and insurance companies and mortgage lenders and a lot of people who are underwater on their home loans and it was just an all-around disaster, not just the United States, but globally. But that's when the deficit tends to get worse. in a recession so we're not even in a recession right now
And the deficit spend mimics what it looks like when we are. Can you imagine what's going to happen if and when we do have a recession at the current level of deficit? That's one. The unpopular part is the only time we've ever successfully balanced, I don't want to say balanced the budget, but when the deficit actually turned into a surplus. When we have a stock market bubble so you can see a tiny surplus after 1968 all the way on the left side of this chart
that's coming on the heels of this huge boom in the 1960s in the stock market. And then when everyone goes and pays taxes on the gains, You got a surplus. The same thing in the year 1999, 2000, 2001. You had this huge bubble in stock. People made a ton of money, and the net result was Clinton was able to walk around saying, I balanced the budget. I have a surplus. No, you had a... Mobile telephony and wireless and dot-com bubble.
And the taxes on stock gains made it look like you did something heroic. I was at the Museum of American Finance. annual gala a couple of months ago, and one of the featured, one of the honorees who gave a speech was Dick Ephart. And Dick Ephart was the leading congressperson at that time who was responsible to balance the budget.
And he gave like this 30 minute speech about all the negotiations and all the horse trading with Republicans and with Clinton and the White House and how hard it was to get that done. And then Bush in the White House. And it's like. None of that really actually mattered, dude. I didn't say this out loud at the gala. All that mattered was we had this massive stock market bubble, which temporarily made it look like we had our budget under control. The reality is we never do.
We never do. The only question is what direction is the size of the deficit going and how bad is it relative to overall GDP? There's no other conversation. No one's going to balance the budget. So what part of that was unpopular? People don't want to hear that you need a stock market bubble to be in surplus.
People want to hear that. It's like this political mission where the two sides come together and agree to cuts and whatever and all of a sudden they have a balanced budget. It never happened. Who's arguing we need a surplus? We've had a deficit forever. that's my that's my point and you're not and that's not going to change and if you have an insane stock market bubble from here and the dow goes from 42 000 to 75 000
You might balance the budget for a year or two. All right, we'll check this out. Because you're going to be coasting on massive capital gains. Look at this next chart. It's public debt. It's a net interest payment to GDP. And we're off the chart. and second place is Greece. Not a great situation there.
Then you've got Iceland, number three. I mean, my God, these were the countries that were in Michael Lewis's, what was the book in 2008? I can't remember, or 2009, whatever it was. Like, these are the nations with the most upside down. uh indebted status so yeah maybe we do deserve a downgrade a slap on the wrist now i mean obviously if we're not triple a then nobody is because we are the definition of money good you lend the u.s government money you're getting your money back
Yeah, that net interest being paid by the U.S. Treasury, they're paying it to the people that own the bonds. Here's the good news. Most of the people who own the bonds are Americans. or American corporations or US banks or regular people who have savings accounts. who have cds like that's who owns money market funds. That's who owns the bonds. It's not a situation where we owe money all over the world, like 70% of the debt is held.
elsewhere. We're not one of those countries. Like a Buddy Lebowski situation, am I right? Doesn't make it good, but we're paying ourselves the interest, at least, for the most part. It dampens the blow a little bit, for sure. Where's the money going? Well, it's going back into the economy. Honestly, it's going back into bonds.
People with huge treasury holdings are buying more treasuries when they receive that interest, in some cases in an automated way. Let's wrap this up with what happened to the bond market the last few times again. N equals two. barely any data here but in 2023 as listeners remember we were in the midst of a nasty bond market sell-off chart on please john so that's the black line um
Actually, yeah, they were going sideways. And then big sell-off after that, we recovered. And not bothered in 2011. This is bond prices. The bond market didn't flip. really much at all so the zero line is the day that the downgrade happened correct so bond sold off in 2023 why don't i really remember was it i guess it didn't last that long These are days before and after. So for 75 days. You know why? We're probably going to Jetsuke.
And then let's look at the stock market. This is Chart Kids, Chart of the Week at Exhibit A. Again, N equals 2. 2011 was a scary time. The last time the debt was downgraded, I guess it did sort of knock the S&P off its track, but again. Very small sound. There's no investor alive. Who would tell you that a treasury downgrade is the reason they did anything meaningful with their portfolio? I mean, stock market investor. Yeah. I mean, it's, look, it's a...
It's a notable thing that's happened. Maybe if the thing in 2023 hadn't have happened, this one would be reacted to differently. Is that possible? I wrote over the weekend about just the way in which stocks have seemingly assessed every risk ahead of us. and just completely ignored it. And I don't know if that's a changing of the guard. If we just have a new generation of investors, that's just a lot more fearless. and a lot less willing to sell or stop buying.
That could be part of it. I haven't really thought that deeply about why we're ignoring these things, but just the fact that we're completely ignoring it is notable in and of itself. I think it's muscle memory. It's 15 years of body debt. right it's like people like oh you're not going to get me this time right
Yeah, I think that's true. I don't know that I would argue with that. But I also don't want to close over the fact like, oh, one day they'll be sorry. Okay, but we had a bear market. We had a two-year bear market in 2022. It wasn't up forever. In fact... The stocks are most likely to get bought by these, these air quote dummies, these air quote know nothing investors.
Those stocks got hammered, right? I know we say this all the time, but it bears repeating for people that think this has been an easy ride. Netflix saw 75% of its value, so did Nvidia. Two-thirds of its value. More than that. Google, Amazon, they all cut it in half. Just three years ago.
Yeah. And then the other thing is like, well, if there was a recession, the deficit is going to get much worse, probably. But then the Fed is going to be cutting and the net interest owed on the new bonds that are issued will be. I don't know in the app it'll be lower, but it won't be getting worse. So that's a really big component of this is like where the Federal Reserve has interest rates there.
High relative to the amount of economic growth we're expecting this year because the Fed thinks they need to be high relative to that growth because of the risk of inflation. The Fed won't be worried quite as much about inflation if GDP tanks, retail sales tank, unemployment spike. So then I don't want to say it's a full on get out of jail free card, but the interest rate will be lowered. And as a result, the Treasury will be able to finance itself at a lower prevailing rate.
So that's the mitigating factor that might end up helping this be less bad. Josh, did you read this article? As optimistic as I'll get. Did you read this article by David Brooks, We Are the Most Rejected Generation? Yeah, what was your take on that? Because he's talking about your generation.
I actually think this is like the people that are... No, this is people coming out of college. This isn't my generation. Yeah, I guess it's slightly younger than you. So this is a pretty scary article for parents of this generation, and Tara's not too far behind. So this is the upshot. He said...
By 1959, about half of American college applicants applied to just one school. But now you meet students who feel that they have to apply to 20 or 30 colleges in the hopes that there will be one or two that won't reject them. the past two decades the number of students applying to the 67 most selected selective colleges has tripled to nearly two million a year while the number of places at those schools hasn't come close to keeping up Roughly 54,000 students
applied to be a part of the Harvard class of 2028 and roughly 1950 were accepted. That means 52,000 were rejected. The same basic picture applies to the summer internship race. Goldman Sachs, for example, has 2,700 internship positions, which, by the way, that's a lot of interns. Doing what? And they receive roughly 315,000 applicants. Yeah. Every generation has its challenges. This seems pretty stark.
Well, this is what I'm living through. So I got my daughter into college last year. She just finished her freshman year at UMiami. They said they have 2,400 spots for freshmen. And they said they got like 50,000 applications. That's a higher rejection rate than Princeton. Like, this is, this is what, and by the way, the funniest thing when you become a parent and you hear about the schools that your friends' kids are applying to and getting rejected from, you're like, what?
I know kids with GPAs above 90 coming out of my kids' high school. that couldn't get into Ohio State. We used to apply to, I don't know, six to eight schools, and now it's like, is it just the norm to just apply to 30? Here's what's the norm. You have to ED if you really want to get into a school. And they offer early decision like the private schools. You have to do it. And so you can apply to 12 schools and have your safe schools and blah, blah, blah. Bye.
You have to really demonstrate to these schools your commitment way before you send in an application. They all have these summer classes that are for high school kids. If you're dying to be at one of these schools, like a Tulane or Miami, you have to be in the, or Syracuse, you have to be in that summer program as like an 11th grader. You have to do a visit and a tour.
they note like who came for the tour because what they're looking for is commitment and so when you ed or early decision or ed2 you can have an ed2 school too when you tell them I did the tour, I did your summer classes and I'm applying early decision, meaning if you say yes to me, I'm locked in, I'm definitely coming. When you demonstrate that level of commitment and you're at the academic level where you belong to be in that school, you'll get in.
you'll get in but you have less flexibility if they say yes i don't care what the other schools tell you you have to say no It's not just one thing that's causing this. He raps by saying that maybe the core problem is the overproduction of elites, that we're churning out more knowledge worker graduates than their knowledge worker jobs. Or maybe it's just a feature of online life. It's easier to apply to stuff and more applicants And with more applicants, the competition grows ferocious.
According to an article in Business Insider, the average knowledge worker job opening now receives 244 job applications compared with just 93 as recently as 2019. That is wild. Look, there's a reason for this. People with a college degree are living on average seven years longer than people with that one. That doesn't seem in and of itself, oh, seven years, big deal. That's on average.
So like the people that you know in your life who have found the most success, the likelihood that they are a college graduate has been increasing. So basically we have this world where you can start a business and get wealthy or you can join the middle class and have a shot of that translating into joining the upper class. But that's like pretty much it. And if you're not part of that world.
You're not in a job that has access to a 401k and health care benefits, maybe. Or if you are, you're a nurse. working for the state or police firefighter but for most people like just being locked out of that retirement savings thing is a really huge deal and the impact of whether or not you're part of that knowledge economy It compounds So that when you're in your 30s, if you're in it, your life looks...
radically different than the people you graduated high school that didn't go down that college road. Again, we're overgeneralizing, but people understand you look at those charts. The average salary of somebody with a bachelor's degree versus the average salary of that one, it's black and white. It's as stark as you can imagine. And the out or the way to do it.
differently is if your dad or mom owns a business and they're going to give it to you. They're going to mentor you and then hand it off. That's all right. That's a way to do this without college, I guess. How many people are in that position? Not that many. Here's another possible explanation. It's not one thing. There's a whole confluence of factors that are leading to this, but this is from Semblis, and I definitely buy this.
He said there's also an indirect sign that AI is impacting the job market. For the last 30 years, this is important. For the last 30 years, the unemployment rate for recent graduates was below the overall unemployment rate, meaning it was easier for new grads to get a job. This is now flip, Michael says, with recent graduates having a higher rate of unemployment. This is a big deal. This is a really, really important chart. We're not ready for this as a society.
Like where you can go to business school at a top 100 college and have nobody be interested in you because. Whatever your output is going to be in your first three years out of school for the company can be done by AI. Yeah, we don't need your grunt work. Thanks, no thanks. We don't want to train you. Yeah, I don't know. I don't know what the ramifications are. Something tells me. Something tells me the rubber is meeting the road right now. It is, yeah. It's not good.
Yeah, and I'm very much in this world. I know hundreds of families where they have a kid that's either just started school, just graduated college. First of all, so I'm talking about Miami because I know it best. What percentage of the undergrads at New Miami this year do you think were majoring in business? Uh, a third? 40%.
That's a ton, right? That's crazy. It's insane. Yeah. 40% in business. Think about how many different professions and vocations there are in this world. 40% are in the business school. Now, most of them are not getting the Goldman Sachs internship, which then leads to the Goldman Sachs job, which then leads to hopefully partnership at Goldman Sachs.
The amount of people that are going to get that from any given university, even Ross School of Business, Michigan, even Kelly School of Business, Indiana, like those aren't. You're not guaranteed anything, even if you can get into these business schools. So I don't really know what you do if corporate America decides we used to hire 300 kids out of school every year. Now we hire 100. Because we've got software programs putting out the same level of work that they would have put out.
And we're going to save a lot of money that way. And if that's where we are in this AI thing, if we're already there, I don't think we're ready for that. No, it's not good at all. It's a really good piece by Assemblist I'm going to reference. I'm going to reference Semilis a little bit later. This J.P. Morgan piece is interesting.
the same vein this came out of courts I think today JP Morgan hired 60,000 people in the last five years increasing its workforce by 23 percent it looks like that's about to grind to a halt Jeffrey Barnum, JP Morgan, CFO. told investors at a meeting in New York on Monday that the bank is telling managers to take a beat on hiring. Quote, we're asking people to resist headcount growth where possible and increase their focus on efficiency.
AI will be a big part of that, he said, resulting in a 10% staffing reduction in divisions like account services, processing, and fraud. Last thing, quote, it should go without saying we'll never compromise on safety and soundness. We'll continue to hire and invest in high certainty areas. But blah, blah, blah, blah, blah, AI. I have a friend that works in the private bank at JP Morgan. He said every day he's watching them train their employees how to train their machines.
to eventually do the jobs of those employees. And the employees almost like don't even know. He said it's like... That's dystopian. It's like watching cattle be marched into a slaughterhouse. They have no idea where they're headed. They're training their software to do what they do, but better. It's not just one firm. This is like a microcosm for the way I think most large companies are going to start thinking. Not really.
I mean, not for humanity. I don't think so. I don't know. It's not black or white. Like, obviously, there will be societal benefits. But, yeah. Yeah, everybody can be a playwright now. All right, I want to introduce the Cougars. This is the hottest trade of the year, and I invented this term, so nobody knows what it is yet. That was so you. So on, Brent. All right.
This is a trend that I've observed and I think others will observe it later. Wall Street has fallen in love with the stickiest subscription and app-based business models that consumers will not likely unsubscribe or discontinue their use of unless things get really bad. And I call these stocks the Cougars, which is an acronym, stands for Cancelled Only Under Great Recession. Is that good? there's no there's no there's no
canceled only under Great Recession. Think of the services that you use that you wouldn't cancel unless it's like 2008. And then even in that case, you might have a hard time doing so. So there are a lot of things that I could have included in here, but I didn't. Like I could have included cybersecurity. I think these are the most recession resilient of the enterprise software place. Look at CrowdStrike. It's about to make a new all-time high.
They just announced a huge deal with NVIDIA. They're going to be the standard cybersecurity in NVIDIA's AI, whatever, blah, blah, blah. But I kept stuff like that out, and I just wanted to focus mostly on consumer. apps and subscriptions that people are going to keep doing no matter what. Wait, apps and subscriptions, those are not the same thing. Correct. Activities. Okay. Activities that are app based or subscription based. So like only fans is both.
So the crowd is saying like Apple Music and Amazon Prime. Yeah, both of those things, but I don't have them in here because they're so obvious. here's what i have um robin hood No one's going to stop. We already know from 2022. We know from the crypto crash. Nobody's going to stop doing what they're doing on Robinhood. So they do have a subscription product called Robinhood Gold.
And I think they've converted a lot of their users over to it, their power users. I'm going to tell you right now, this company, I don't know about the stock won't go down in a recession. I know it's got to be a really bad recession for the business. to take a really big hit. To be clear, the stock will get pummeled in a recession, just like every other stock. Fine, fine. But if that's in a bad recession...
In a slowdown, I don't know if that's a negative for Robinhood. People seem to be trading more when the market gets rocky. Yeah, I think the business will be just fine, but the stock will get hit. Keep going. Here's the point. The stock is up 88% since April 8th. Wild. Okay. It's up 72% year to date. I have a company called Sezzle in here. I don't know what the hell this is. It's a buy now, pay later. The stock is up 230% since April 8th.
It's up 125% year to date. It's a $100 stock with a $3 billion market cap. S-E-Z-L. And if I show you this thing over the last six months, you'll fall out of your chair. I think it's up 1,000% in six months. Oh, Sazel, I forgot I own this. So one of the things that I did in my research here is I took note of the number of users or accounts or subscribers. Sezzle has 658,000 people subscribed to their Buy Now, Pay Later service.
Again, is anyone canceling their buy now, pay later? Because they're worried about the economy? No, that might make more people use it. Well, you just don't pay. And then the losses go up. They haven't seen that yet. They haven't seen that. So Duolingo, look at the stock. It's a $520 stock. It's up 60% this year. It's up 77% from the lows in April 8th. 74 million monthly active users, 5 million paying subscribers. Wait, what are those numbers one more time?
Up 77% from April 8th. No, the users are the users. 74 million. Did you know that? Holy smokes. Holy shit. Wait. Did you see Google's announcement today? You can do Google Meet Translate Language like real time? Yeah. Why does anybody... No offense. People want to learn the language. They don't want the cheat code. I guess. All right, listen to me. 5 million paying subscribers, 74 million monthly actives. Nobody talks about this stock.
It's up incredibly from the lows in April. Impressive. Hims and hers, 140% return from the low on April 8th. 2.4 million subscribers. people that are regularly getting, um, penis pills and bald stuff. And I'm not a doctor. I don't know if you could tell. Um, but this is like, Highly unlikely. The medical term is boner pill, sir. That's right. Highly unlikely for these people that are using the service or paying a subscription fee to go away. Oh, that's a staple.
I'm just telling you. No, of course not. I mean, you've got to live. Netflix is the best example on here. Up 30% from the lows on April 8th. Up 33% year to date. One of the best names in the S&P. 300 million subscribers. Nobody cancels. Spotify is on my list. Spotify is up 30% from the low. It has 678 million monthly actives. 268 million subscribers.
Those people are not leaving. That's this theme. This cougar theme. Spotify is a cougar. Uber up 42%. 170 million MAUs. 30 million Uber 1 subscribers. You could say people might order less food from Uber because of how expensive it is. All right, I'll give you that. But more people are willing to drive for them, driving down their cost.
And I think that's why this is the third best performing stock in the S&P year to date. By the way, I don't know if you know that Uber is the third best S&P 500 stock year to date up 52%. What's number one in town? Who cares? It's my highest conviction possession. How do you like me now? Applovin is up 60% off the lows. I don't know their user base. I just know that this is online games and their ad business is interwoven with online games. And my God, what a name. DraftKings.
2 million monthly Octave users. These people are going nowhere. Precisely nowhere. especially if they get laid off. Then what else are you doing? Match group, online dating, 16 million subscribers. Stock is up 50% on the year. Bumble, same thing. Stock is up 55% this year, 56% from the low on April 8th. 42 million monthly active users on Bumble. Peloton. If you were going to cancel, you probably already have. This stock is up 27% from the April 8th low, 6.7 million members.
Let me see what else I got. All right. So the point, let me wrap this up. Palatine smells like a mace stock. I hate that I like it. Give me my table. I put the top ten on here. These are your cougars. And yes, there are other big publicly traded companies making a lot of money from subscriptions, Costco, Amazon. Those are the obvious ones. This is like maybe the next tier down that people wouldn't necessarily associate with this theme.
But again, this is canceled only under Great Recession. I don't know what the S stands for, savings. Here's some individual charts. Look at this Sezzle piece of shit, whatever this is. Can you imagine? Look where this came from. I think it was under $10 this time last year. It's $100 stock. Is that Berkshire accumulating? Yeah. Here's Netflix. Bye. Wow. Gone. Spotify.
What do you think's about to happen? Hire. Do you have to be a professional technician to understand what's in the works here? DraftKings. This is interesting only insofar as you think about it from the low. That's not interesting. It's literally sideways. Sideways for a year. Not interesting. All right. Match. Next, yeah, not. Big recovery off the low. All right, here's him.
This is becoming a meme stock. I mean, you can't trade this. Look at this wild shit. Wild shit. This is a meme stock, and I hear it's a really popular stock on Robinhood. It's a roller coaster, dude. This thing was $25. It's back at $60, like a blink of an eye. This is for Lunatex only. I mean, this is the Ozempic. This is the Ozempic trade, basically.
They're doing these compounded versions of all the fat loss shots, and they're delivering it right to your house, and they're making money, hand over fest. Anyway, so this is the Cougars theme. I stole this from, we're going to talk to Rich Bernstein about this, but one of the other things Sembalist said, Tech and interactive media stocks now account for 35% of market-wide earnings versus 19% a decade ago. This is what I was trying to explain to John authors.
And Chris Davis on the compound and friends last week, a huge percentage of the S and P's market cap. is now comprised of companies that have made themselves recession resilient and almost, you could call them borderline defensive, because they don't require you to do a transaction with them. They're getting subscription revenue because you already agreed that you're a user. Nobody opts out. Nobody nobody cancels because of inertia and things just don't get that bad
And that's what makes up the market cap of the S&P now. So they're not like classically defensive. They're defensive in the way that they charge their users. They've subscriptionized businesses that used to be transactional. And this is not just publicly traded app companies. You know how I pay my exterminator? he's a subscription no he's just we just we agree at the beginning of the year this is the annual rate i'll come this many times who the hell's canceling the exterminator
You know what I mean? So this is, I think, something that people have overlooked about the resilience of the S&P 500 and arguably maybe the whole economy. I think you're 100% right. And again, just to reiterate from Zambalist, tech and interactive media stocks account for 35% of market-wide earnings versus 19% a decade ago. And Josh, the point that you just made about... These now being defensive, not in the classic sense.
So when you thought about defensive names previously, you would think of something like Procter & Gamble. Yeah. Right? Everybody needs toothpaste. Everybody's got to have toilet paper. Well, guess what? Procter & Gamble had a margin of, I don't know, 14% of making that up. Apple's got a gross margin of what 45% like these are it's Pun intended apples and oranges and that's why the market looks so much different than it used to
Yeah, because these companies, they don't rely on you walking into a store and buying an iPhone to make their numbers. And they're growing mid-teens. Maybe not Apple, but it's just, come on, what are we doing here? All right, great point, Josh. Okay, sticking with this theme and sticking with Symbalist. so in his recent post he was talking about the push and pull
of tariffs pulling the market down and AI spend pushing the market forward. So he says U.S. companies spent a lot more time talking about AI than tariffs in the first quarter earnings call. This is according to empirical research. The market cap of AI plays, and this is really important, the market capitalization of AI plays is 2.6 times larger than their, quote, tariff victim category.
So it's not that tariffs don't matter. Of course they do. But the size of the AI plays is 2.6 times them. So Michael says, in other words, What can make the argument that AI is at least as important as tariffs to equity investors, if not more so? I want to spend a second talking about, again, using Michael's research, the advancement that we're seeing in AI. So try it on, please.
So there's a lot of dots here. This is a bit confusing for listeners and for people that are even looking at this. But what we're doing here is we're going from June 2023, shortly after OpenAI was launched, through today. And what you're looking at is... PhD level science questions on the left. versus U.S. Math Olympiad selection exam on the right. And all that you need to know is that the proficiency of these models, whether it's Google, Anthropic, DeepSeq, OpenAI, XAI, or MetAI,
It's going up and to the right. And the level at which these things are getting better every day is exponentially growing. And not surprisingly, Next chart, John, please. Not surprisingly, the adoption is increasing big time. So they asked people in October 2023 what the adoption rate was in various companies or various categories, whether it's marketing or knowledge workers or core product enhancement.
versus December 2024. And it looks like it's doubled across the board. And then they asked in August of 2024 and May 2025 and just recently, what do you expect to be doing in the next six months in terms of your AI adoption? And it is It's here. Big time. Yeah. On the left side, so the adoption rate by, I guess, profession for AI, October 2023 versus December 2024. So that's a 14-month period.
And just as an example for people, if you worked in marketing in October of 2023, it was a 35% adoption rate of AI, and now it's 55%. And look at all these categories, sales, operations, customer onboarding, finance, legal, non-software, R&D, human resources doubled the use of AI. Look, I don't know how much people are just saying, yeah, yeah, yeah, we're using AI. But I just think about our business.
Everything we're considering doing with every vendor we talk to and every company that approaches us has an AI bent to it. One of the things I thought was funny is all the... Future Proof Retreat was in Colorado. You were there. Chris was there. Anna, Barry, Jay, and everybody there was talking about Data Lake. Like this is the whole thing is like controlling all of your client data in one place and cleaning it up and making sure that it's...
Making sure it's useful for what? For AI purposes so that you can turn AI loose on that data and learn shit about your business. And then I go on LinkedIn two days after the Future Proof event. And every CTO of every financial advisory firm is making data lake announcements.
So Data Lake is going to be the term of the summer for our industry. I brought our own AI little thing here. So I want to play a clip. Just bear with us for a second. It's at one and a half times speed. So forgive me. I just didn't want you to sit around here for two minutes. So John, clip on, please. Welcome to the deep dive. Today we're really digging into the current market. looking out through the eyes of Richard Bernstein. He's the CEO and CIO of Richard Bernstein Advisors RBA.
You know, and he used to be the chief investment strategist over at Merrill Lynch. Yeah, and for this deep dive, we're mainly drawing on a conversation he had recently. It was on the Compound channel. The episode called The Magnificent Seven is a Bubble. Exactly. So our mission here is to really get under the skin of Bernstein's argument about these.
Magnificent Seven tech stocks. We want to understand, you know, how does this market stack up against history? Bubbles, booms, busts. And maybe find some potential investment ideas that are getting sort of lost in all the noise. Okay, so right off the bat, Bernstein isn't exactly subtle. He flat out says the Magnificent Seven is a bubble. That's pretty bold compared to many of his peers. What's his reasoning?
Well, it's interesting. It's not just a gut feeling. His firm, RBA, they actually did some internal studies. They asked, you know, are these seven companies really the only places with real growth globally? And surprisingly, a lot of the Magnificent Seven, they don't even pass basic growth screens when you compare them to everything out there. Really? Yeah, they did this global growth ranking, right?
Was that Scarlett Johansson? So that's Notebook LM, and I uploaded our podcast, and it gives you a 15-minute... podcast from these two hosts. The AI made a fake podcast based on our real podcast. It's about one eighth of the time. So it's like 12, 15 minutes. So is that good for us or bad for us? How much did I get paid for that? My point is, look what it can do today. It's a listenable, it sounds like a real conversation. So what I did...
I said, because we have Richard Bernstein on this Thursday, I said, what are the four most important things that Richard said on the show? And it pulled out four dope quotes that I'm going to reference. So this is a boomer question. Why does it have to be in the form of a fake podcast? Why can't it just be...
It doesn't have to be. Why can't the AI just say these are the five things that Richard Bernstein said in case you don't have time to listen to the whole hour and a half? That's an option too. You can do that. I mean... dumb to get a machine to create fake babble. That's not the point. My point is that this is what... I can't be... What I do on the show can't be reduced. to an AI explanation. There's a magic.
that I bring to these conversations that's spontaneous to show the audience how powerful there's a contemporaneousness to the to the dialogue it can't be scripted in advance, then it can't be distilled into... All right, stop with this fake aggression. Nobody is suggesting... No, it's like offensive. It's like, oh, I didn't listen to your podcast. I listened to a fake podcast.
Created by AI that tells me what was in your podcast my response is what are you moron? Like what else were you doing that you don't have time to listen to me directly? But you had time to listen to that there was not a single person on planet Earth that is doing I was demonstrating how powerful AI What's the power? It's clever. It's clever that they trained a large language model to take in an audio file and spit back out a distilled audio file with fake hosts. However, how is that powerful?
I mean, tomato, tomatoes. What power does it have? I have the power here. Alright, asshole. Next topic. Don't I? Next topic. Don't you have the power with your words and your bearing and your delivery? Next topic. The fake podcast hosts have no power. No one's going to be a fan of that. It's not about the fake podcast. Stop it. When we started the show, it was about the music, man.
Not all this corporate. Walmart picked a fight with the White House, and I knew it was coming. When did they do this? This is over the weekend. All right, so here's the progression. Put up my LinkedIn post. I knew this was coming, dude. So I saw, I think Brian Sazi at Yahoo Finance or somebody at Yahoo Finance had the CFO of Walmart. Like do a hit on Yahoo Finance. And I said.
Whoa, whoa, whoa, whoa, whoa. This is not a thing that happens. Like the CFO of the largest retailer in America doesn't just start randomly dipping in on Yahoo Finance to do it. Clearly, they had something that they wanted to get out there and this is what it is. I'm going to quote what he said.
Low prices is what we stand for, but we're going to keep prices as low as we can, as long as we can. But when you look at the magnitude of some of the cost increases on certain categories of items that are imported, It's more than what retailers can bear, more than what suppliers can bear. So we'll work hard to keep prices low, but it's unavoidable. You're going to see prices go up.
If you've got a 30% tariff on something, you're likely going to see double digits in price increases. This is what the guy said. And I said, Yeah, this is not going to go well. And sure enough, very quickly, here's the White House response. This is a truth social from Donald Trump. Walmart should stop trying to blame tariffs. as the reason for raising prices throughout the chain.
Walmart made billions of dollars last year, far more than expected. I don't know what that means. Between Walmart and China, they should, as is said, eat the tariffs, all caps. As I charge valued customers anything I'll be watching and so will your customers three exclamation points I won't stop watching if I told you a politician said that
But not Donald Trump. You might have guessed Elizabeth Warren. Correct. Correct. I spoke with Ben today. That's not a Republican. It's unbelievable. That's not a Republican point of view that Walmart made too much money. More than expected? When Elizabeth Warren says a shit, we cackle. And we laugh at how dumb it is. Yeah. The fact that a Republican is saying it is mind-bending. I think that Trumpism is mercantilism. It's not capitalism. What does that word mean?
Hold on, let me ask my AI. I got you. Mercantilism is an economic system that dominated Europe. Basically, companies exist in order to serve the state. It's not a Republican principle. It's not a libertarian. It's the opposite. So in the 16th, 17th, and 18th centuries, the dawn of corporations, these corporations were willed into existence as a means of
fixing the financial problems of these countries that had spent hundreds of years at war with each other. All the kings were bankrupt. All the parliaments were looking for a solution so they would grant. these like monopolies to the Dutch East India Company and the South Seas Corp. And they would say, you have the exclusive right to murder anything that moves in South America and bring the gold back here. And that was mercantilism. And the primary goal was, again, to solve the state's problems.
by means of corporate activity that investors could invest in. And this idea that Walmart exists to... please the White House with the way it's charging customers? How dare they raise their prices because their inputs prices are going up? I'm just saying it sounds like an AOC drop. And also, their margins are 2.7%. I mean, what?
The Lone Phoenix says it's an STFU statement from the White House. I agree. Walmart said, I bet if we come out publicly, other companies will do the same. And nobody had their back. Nobody else said shit. Then the White House is like I dare I dare you I dare you to keep telling us tariffs are the reason that.
You're raising prices. Well, their customers don't care about the tweet or the truth, and it's a stock market. It's nonsense. The typical Walmart customer does not care. They care about the price. They don't care what caused it. We know. Matter of fact, I listened to the earnings call and they said, yes, For areas that are impacted by tariffs, we will be forced to raise prices. We're not going to do it across the board. They're specifically not being greedy.
They are going to do it for food that is imported from Latin American countries, bananas, for example. Like where their prices are increasing, they will increase their prices. This was my response. Not that anyone's listening to me. In 2024, Walmart's net profit margin was 2.9%. It's not in a high-margin business. They imported about $50 billion worth of goods from China at a 30% tariff rate. You're talking about a $15-18 billion hit.
People have pointed out that's just their raw costs. You don't know what the price they sell the item for. Okay, correct. I'm estimating. I'm not an auditor from Pricewaterhouse. Here are your choices. Negative second half earnings at the largest retailer in America. Eat the tariffs! Meaning they eat the tariffs.
Two, higher costs to the consumer. That won't be popular. Or three, another beautiful deal exempting Walmart and everything they sell. It has to be one of those three. There's no fourth way. There's no fourth option. So either Walmart says we will shut up if you exempt. these 500 SKUs that are the bulk of our profit margins, or
I don't know. Or some combination of eating the cost and passing on the cost. But it's not good, no matter what, for the end consumer. It's not. Wait, Walmart has a subscription service too, doesn't it? Yeah, well, of course. Like an Amazon Prime-y kind of thing. All right, look, I don't know where this is going. Maybe this is one off or maybe another CEO or CFO is going to pop on Yahoo Finance and FAFO. We'll find out, but it's interesting.
f around and find out so all right uh venture capital hangover we could spend a total of 30 seconds on this i just thought it was a cool chart Dan Primack at Axios was writing about the most recent report from Carta. which if you're in this world is worth downloading. This is showing startups raised $21 billion in the first quarter of this year, which is down 3% from the first quarter of last year. And I thought this was the most interesting thing.
46% of all seed deals, and Michael, I know you're a big seed level investor, were bridge rounds in Q1 2024. So half of all the financing for seed stage companies. is bridge financing. which means it's not a new valuation or anything like that. It's just like, we need some more money while we wait for our next legitimate round.
Half. That's the highest bridge rate for any stage of investing since Carta began tracking this data. For context, last year it was 39% and the year before it was 31%. So now... Like half the seed stage startups are taking bridge capital, which requires them, I think, giving up some equity. And it's like not a great position to be in where that's the only financing you could obtain. I think we might be near a bottom.
At least anecdotally from what I'm saying. In venture? I don't know. At least in our small corner of the venture universe, we have a bunch of companies that are raising at higher valuations. Well, you're getting IPOs and venture follows the stock market like in the end. If there are exits and there's liquidity, people are willing to invest in more things. That's like always how it's been. So maybe that's true. Series A deal count fell 79% between the first quarter of 2022 and this quarter.
So over three years, an 80% drop-off in Series A rounds. That sounds like a bottom. That sounds as bad as it gets. Yeah, I think we're close. Okay. I thought that was interesting. Shout out to Dan. All right. We're on the IPO front. I asked Sean for this. 76 IPOs priced this year. That's up 33% from the same period last year. So it may not feel like the IPO window is fully reopened, but that's pretty good. Total proceeds were $11.1 billion down 20% year over year. Smaller deals.
So more deals, but not as big as some of the big guys from last year. 92 IPOs have been filed for so far this year. That's up 19.5%. So here you see it by month. Pretty steady. Well, the big one that we've been talking about, I think Corey priced at, what, $40 down from wherever it was supposed to go out. And now it's at $90. Now it's at $90. All right. All right. You're up. Make the case.
I'm going to make the case for a stock that has burned me in the past. I lost money on it, and then I got back in, and I've been in for a minute now, and it's traded me well, so I'm going to flag it again. It's Dollar Trey. Sean, I'll play it. Holy shit, is this like filling some gaps? You know I love me some gap fills. What's going on with this? I'll tell you. Next chart, Dollar General. Oh, confirmation. I'm mad. Look at this gap. I wanted to buy this. I just never pulled the trigger on it.
So we have earnings for these companies in two weeks and we will find out. So part of the story of Dollar Tree is getting rid of Family Dollar, which is a horrendous acquisition. They paid $9 billion for it. How are they getting rid of it? They're just changing the names on the stores to... They're selling it for a billion dollars.
So they took a bath on that. I don't know all of the ins and outs. I followed Alex Morrison to this on The Science of Hitting. He writes some great stuff on it. They seem to be turning it around and the stock seems to be front running. Hopefully some good news into it. I don't invest in shit like that. I know you don't. The last time I brought this up, you said I only buy LVMH and then the stock lost 60% of its value. Well, I don't own that either.
I don't invest in retailers trying to make a penny. You are such a goddamn snob. It's unbelievable. I'm soft to the earth, but I just don't... It's unbelievable. I don't want to buy low-margin businesses. So don't buy it. I'm not talking to you. No, I'm just saying. I like the technicals. I like the recovery. What would keep me on the sideline is I'm salt of the earth, but I'm not that salt of the earth. You are not salty at all. Have you ever been in one of those stores?
I have. Multiple times. There's one upstate by my cabin. Upstate. Way upstate. Not the way upstate. That I got. Say no more. All right. Mystery chart. Are you ready? I can't wait. My favorite game of the week. Oh, it's Bitcoin. Just kidding. Kind of looks like it, though. Is it a JC special? What is this? Give me some clues. Okay. So this is a sector ETF that's been around. since the late 90s. It's one of the granddaddies of ETFs. Yeah.
So I'm narrowing this down to you. One out of 11. No, no, it can't be SMH. It's a sector ETF. So it's not XLK. I got excited. So I'm giving you, I'm pulling out. You've got 10 S&P sectors to choose from. And this is a Steve Straza chart. Shout out to Straza at All-Star Charts, and I'm going to give you some of his commentary once we get into the post-reveal on why this thing is interesting to take a look at. Yeah, I think I know who it is.
Wow, we're all waiting on you. Okay, well, I already have three guesses. But based on the absolute plunge in 2020, is this energy? Look at you! You did it. Actually, that was a good way to reason your way through this. That was pretty good. Thank you. Alright, why does he like it? So this is the energy sector. For those who are listening and not watching, resistance here is like 95 to 100. That was resistance in 07. It was resistance in 2014.
And it's been resistance since the post-pandemic period. Every time it gets to that level, it backs off, but it's backing off less and less. And I guess from a technical standpoint, ultimately, it's probably trying to punch through and eventually, well, this is...
This is the rationale. It's a raging bull market for stocks around the world being led by offense, but the internals continue to improve. Like any bull cycle, as time passes and the market grinds higher, it drags a growing list of non-performers higher with it. Some call that rotation, but it's really just a broadening of participation over longer time frames. And he thinks that this group is next to join the party. He points to international stocks, which already have.
Southeast Asia, South America, they're all working. Gold eventually broke out. You look at old laggards like transport, speculative growth, they're working too. Why not energy is the question. I'll show you one more chart. This is equal weight energy versus equal weight S&P 500 sitting right on this very solid support line that dates back to 2022. Sit on it, Minetti.
Well, look, this is where the buyers come in to the equal weight energy relative to equal weight everything else. And I don't know if you've done any of these equal weight charts. I don't know, man. There's nothing here. I bought some Chevron recently. It was a 6% yield, and I just said, I'm not afraid of this thing. I'm buying it. All right, so you won't buy dollar stores, but you'll buy shitty Chevron. No, Chevron's not shitty. I'm going to tell you that Sean and I...
took a look at the best stocks in the market, energy sector. There's only four of them right now. They all look amazing. Tell me their names. We're going to write these up later in the week for CNBC. Give me one. Okay, here's a dividend one, a WMB. This is Williams Brothers. It's a pipeline. What in the world? High dividend yield. Used to be an MLP. Oh, shit. How good does that look, Brian? All right, so this I can get excited. This I can get behind. All right, here's another one. EXE.
Expand Energy Corporate. I mean, it's too late. It's too late. It left the station. I haven't told you the fundamental reason why it's not. But anyway, we're going to write these up later this week. I thought it was interesting that... Even though the sector sucks. There are some energy names on my best stocks list, and that's why we keep the list.
So, alright. Guys, that's it from us. We're going to say thank you to everyone who joined us for the live. We love all your comments. You crack us up. We appreciate you. For those of you listening out in podcast land, Spotify, Apple, make sure we get a rating and review. It goes a long way, and we love it so much. Tomorrow morning is an all-new edition of Animal Spirit starring Michael and Ben. will be up on both podcasts. It's a baby ba- Gracias por ver el video.
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