AI Bubble Watch: Has the Hype Gone Too Far? — ft. Josh Brown

0:00:02 Where’s your playlist taking you?
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0:01:07 Today’s number?
0:01:09 20.
0:01:11 That’s how many dogs participated
0:01:14 in the World Dog Surfing Championships
0:01:16 in Pacifica, California this month.
0:01:19 The winner was a chocolate Labrador from Brazil
0:01:20 named Kakao.
0:01:22 When asked how the waves were,
0:01:23 Kakao responded,
0:01:24 rough.
0:01:30 Why am I laughing at that?
0:01:42 Welcome to PropG Markets.
0:01:44 We are back from vacation
0:01:45 with one of our worst jokes,
0:01:47 possibly in history,
0:01:49 but we’re very excited about it.
0:01:50 We’ve been out for two weeks.
0:01:52 Somehow Scott is actually still on vacation.
0:01:54 He should be coming back very, very soon,
0:01:56 but I’m very glad to say
0:01:59 that we have an incredible stand-in,
0:02:01 the one and only Josh Brown,
0:02:03 filling in for him today.
0:02:05 So Josh, thank you very much
0:02:06 for joining me again on PropG Markets,
0:02:08 our very first show back.
0:02:10 Very excited to have you on.
0:02:11 I’m so excited to be here.
0:02:13 I wish I were on vacation,
0:02:14 but since I’m not,
0:02:15 this is the next best thing.
0:02:17 Did you take any vacation this summer?
0:02:18 I think I saw some stories
0:02:19 of you jet skiing around.
0:02:21 I don’t know where you were.
0:02:22 Were you on vacation?
0:02:23 That’s all day, every day.
0:02:25 I’m from the south shore of Long Island.
0:02:26 We’re born on a jet ski,
0:02:27 but I went to,
0:02:30 I did Lake Como and Milan
0:02:31 earlier this summer.
0:02:31 It was pretty cool.
0:02:32 Oh, amazing.
0:02:33 What were the highlights
0:02:34 from Lake Como?
0:02:34 You know what?
0:02:35 The lake itself
0:02:37 is the only highlight that you need.
0:02:38 The hotels are fabulous, obviously.
0:02:42 Grand Tremezzo and Paso L’Aqua
0:02:44 are two of the most beautiful hotels
0:02:45 I’ve ever seen.
0:02:46 But like,
0:02:47 you literally jump in the lake
0:02:50 and it’s crystal clear,
0:02:51 you know,
0:02:52 it’s a mountain lake
0:02:53 and it’s pristine
0:02:55 and it’s worth the trip.
0:02:56 All right.
0:02:57 Well, I’m glad you got your rest.
0:02:59 Let’s get into this episode.
0:02:59 Today, we’re discussing
0:03:01 the latest tech sell-off
0:03:02 and we’re also discussing
0:03:03 why private funds
0:03:05 are entering 401ks
0:03:07 or might be entering 401ks.
0:03:09 So, let’s get started.
0:03:14 Now is the time to cry.
0:03:17 I hope you have plenty
0:03:18 of the wherewithal.
0:03:20 AI may be hitting
0:03:21 its first real wall.
0:03:23 An MIT study released last week
0:03:24 found that, quote,
0:03:26 95% of organizations
0:03:27 are getting zero return
0:03:30 on their generative AI investments.
0:03:31 Adding to the unease,
0:03:33 OpenAI CEO Sam Altman
0:03:34 recently warned in an interview
0:03:36 that we may already be
0:03:37 in bubble territory.
0:03:38 Meanwhile,
0:03:39 Meta just announced
0:03:40 a restructuring
0:03:41 of its AI division
0:03:43 with potential downsizing ahead.
0:03:45 These reports fueled fear
0:03:45 on the market
0:03:47 and triggered a sell-off
0:03:47 in US tech,
0:03:49 sending every mega cap stock
0:03:50 on a multi-day decline.
0:03:52 The Nasdaq fell more than 3%
0:03:54 and the S&P 500 shed
0:03:57 $1 trillion in value.
0:03:59 So, a pretty significant sell-off here.
0:04:01 We’ve had three main drivers
0:04:02 for the sell-off,
0:04:03 three main catalysts.
0:04:05 First were Sam Altman’s comments,
0:04:06 where in this interview
0:04:07 with The Verge,
0:04:07 he said, quote,
0:04:09 are we in a phase
0:04:10 where investors as a whole
0:04:12 are overexcited about AI?
0:04:14 My opinion is yes,
0:04:15 end quote.
0:04:15 That was really
0:04:17 what got investors spooked.
0:04:18 Second, we had
0:04:20 this Meta news.
0:04:21 It was a New York Times article
0:04:22 about Meta.
0:04:24 According to the New York Times,
0:04:25 Meta is considering
0:04:27 downsizing its AI division.
0:04:28 And then third
0:04:30 was this MIT study.
0:04:32 This report
0:04:33 from a research group
0:04:35 at MIT called Nanda,
0:04:36 this AI research group.
0:04:37 And their report found,
0:04:38 as I said,
0:04:40 that 95% of organizations
0:04:42 are getting zero return
0:04:43 from their investments
0:04:45 in generative AI.
0:04:46 So, those three stories
0:04:48 were really what set this off.
0:04:50 That’s what caused this sell-off.
0:04:51 Josh, let’s just start
0:04:52 with your reactions,
0:04:53 your reactions to
0:04:54 the sell-off
0:04:56 that we saw in tech last week.
0:04:57 So, these things do tend
0:04:58 to happen in threes.
0:04:59 So, I like hearing you
0:05:01 run down that list of…
0:05:02 No, I’m not even joking.
0:05:06 So, one of my formative experiences
0:05:07 25 years ago
0:05:09 was being a young
0:05:10 retail stockbroker
0:05:12 trading all of the stocks
0:05:13 related to the original
0:05:14 dot-com boom.
0:05:16 And there were literally
0:05:18 three events that happened
0:05:20 all within close proximity
0:05:21 to each other
0:05:23 that I don’t want to say
0:05:26 caused the top to be formed
0:05:27 and then the subsequent
0:05:30 85% crash in the NASDAQ.
0:05:32 But, they were like
0:05:33 the most notable events
0:05:35 that happened at the top.
0:05:36 So, we can argue
0:05:37 causation, correlation.
0:05:38 But, like,
0:05:40 those specific moments,
0:05:41 because there’s an echo here
0:05:42 to what you just laid out.
0:05:45 The first is micro-strategy,
0:05:46 the original micro-strategy,
0:05:48 not the Bitcoin treasury
0:05:49 we know today.
0:05:50 same company,
0:05:51 same CEO,
0:05:53 had an accounting problem.
0:05:55 They disclosed it
0:05:56 and it was like
0:05:57 a $400 stock
0:05:58 that fell 300 points.
0:05:59 It was, like,
0:06:00 shocking
0:06:03 to the investor class
0:06:05 because they were trading
0:06:06 50 different stocks
0:06:07 like micro-strategy.
0:06:09 I think at that time
0:06:10 it was a, quote-unquote,
0:06:11 B2B
0:06:13 internet software provider.
0:06:14 The professor would probably
0:06:16 remember more of the details,
0:06:17 but that was notable.
0:06:19 Within that same
0:06:20 week or two period,
0:06:22 this is March of 2000,
0:06:23 Bill Gates came out
0:06:24 and said he wouldn’t
0:06:25 buy his own stock,
0:06:26 Microsoft.
0:06:28 He was still the CEO
0:06:28 at the time
0:06:30 and he was talking
0:06:31 about how expensive
0:06:33 valuations for tech stocks were
0:06:34 and he included
0:06:36 his own company.
0:06:37 Of course,
0:06:38 nobody wanted to hear that.
0:06:39 You know,
0:06:40 so, like,
0:06:40 you have, like,
0:06:41 these, like,
0:06:42 touchstone events
0:06:43 and you can’t really
0:06:44 point to one of them
0:06:44 and say,
0:06:45 that was the moment.
0:06:46 But in hindsight,
0:06:48 you can go back
0:06:49 and you could be like,
0:06:49 ooh,
0:06:50 that, you know,
0:06:52 we should have known,
0:06:53 we should have,
0:06:53 okay.
0:06:53 So,
0:06:55 the things that you laid out
0:06:56 to me don’t spell
0:06:56 a death knell
0:06:58 for the AI theme.
0:06:58 I,
0:07:00 my personal belief is
0:07:01 we could run into
0:07:02 the end of the decade
0:07:02 at least
0:07:04 with all the momentum
0:07:04 and the money
0:07:05 that’s being spent,
0:07:06 et cetera.
0:07:07 but I think
0:07:08 the past couple
0:07:08 of days
0:07:10 stock price action
0:07:10 in the market
0:07:12 tells investors
0:07:14 how over-owned
0:07:15 this theme is
0:07:16 and how,
0:07:18 and how easy
0:07:19 it is to now
0:07:20 spook the herd.
0:07:22 It doesn’t take much.
0:07:23 Like,
0:07:24 a rumor
0:07:25 of Facebook
0:07:26 meta restructuring
0:07:27 the way it’s doing
0:07:28 its AI hiring
0:07:29 is, like,
0:07:30 enough to,
0:07:30 you know,
0:07:32 knock billions of dollars
0:07:32 off all these
0:07:33 semiconductor stocks
0:07:37 and hyperscaler stocks.
0:07:38 So,
0:07:39 I think we’re,
0:07:39 like,
0:07:40 in kind of a fragile
0:07:41 state now.
0:07:41 And,
0:07:43 I think it’s okay.
0:07:43 Like,
0:07:44 stocks are supposed
0:07:45 to be volatile.
0:07:46 So,
0:07:47 the way I’m thinking,
0:07:48 the way I’m thinking
0:07:48 about this is
0:07:49 right now,
0:07:50 if you’re an investor
0:07:52 or you’re a money manager,
0:07:54 you should not be out there
0:07:55 hunting for your
0:07:56 21st AI stock.
0:07:56 Like,
0:07:57 the 20 you have
0:07:58 is probably good.
0:07:59 And the last thing
0:08:00 I want to say on this,
0:08:03 if you think
0:08:04 AI
0:08:05 is going to be
0:08:06 transformative
0:08:07 for society,
0:08:08 and if you are
0:08:09 hugely bullish
0:08:10 on the theme,
0:08:11 and I know most people are,
0:08:12 and with good reason,
0:08:15 with your next thought,
0:08:15 you should consider
0:08:16 the fact that
0:08:17 everybody else agrees
0:08:18 with you already.
0:08:18 Yeah.
0:08:19 Right?
0:08:20 There are currently
0:08:22 20
0:08:24 AI-specific
0:08:25 ETFs
0:08:26 publicly traded.
0:08:27 20.
0:08:28 They all own
0:08:28 the same stocks.
0:08:30 They all own NVIDIA.
0:08:31 They all own Microsoft.
0:08:34 20 specific ETFs
0:08:35 and all of them
0:08:36 have been raising money
0:08:36 this summer.
0:08:37 20.
0:08:39 And there are another 10
0:08:40 that are considered
0:08:41 AI infrastructure.
0:08:42 So like,
0:08:43 they also own
0:08:44 utilities
0:08:45 and power
0:08:46 transmission lines
0:08:47 plus NVIDIA.
0:08:48 So,
0:08:51 you got 30 ETFs
0:08:52 that investors
0:08:52 are using
0:08:53 to capitalize
0:08:54 on the AI theme.
0:08:55 You got NVIDIA
0:08:56 sitting with a $4 trillion
0:08:57 market cap.
0:08:58 Broadcom
0:08:59 is one of the
0:08:59 biggest stocks.
0:09:00 That’s like
0:09:01 the stock
0:09:02 that people buy
0:09:02 because they
0:09:03 missed NVIDIA.
0:09:05 AMD is
0:09:06 hundreds of
0:09:06 billions of
0:09:07 market caps.
0:09:07 So like,
0:09:08 you are not,
0:09:10 by professing
0:09:11 your bullishness
0:09:11 for AI,
0:09:12 you’re not saying
0:09:12 anything that
0:09:13 anyone doesn’t
0:09:13 already know.
0:09:13 Yeah.
0:09:14 Just go,
0:09:15 I mean,
0:09:16 I’m glad you said
0:09:17 that about
0:09:18 these headlines.
0:09:19 I see these
0:09:20 headlines
0:09:21 and it seems
0:09:22 like a giant
0:09:22 nothing burger
0:09:23 to me.
0:09:23 I mean,
0:09:24 let’s just look
0:09:25 at Sam Altman’s
0:09:26 full comment.
0:09:27 So he said,
0:09:29 he said,
0:09:29 quote,
0:09:30 are we in a phase
0:09:30 where investors
0:09:31 as a whole
0:09:32 are overexcited
0:09:33 about AI?
0:09:34 My opinion
0:09:35 is yes.
0:09:35 And that’s the part
0:09:36 that I quoted
0:09:36 and that’s the part
0:09:37 that the street’s
0:09:38 worried about.
0:09:39 He then directly
0:09:39 followed that up.
0:09:40 He said,
0:09:41 is AI the most
0:09:42 important thing
0:09:42 to happen
0:09:43 in a very long time?
0:09:44 My opinion
0:09:45 is also yes.
0:09:46 So,
0:09:47 you know,
0:09:48 he’s just making
0:09:49 a rhetorical point
0:09:50 in an interview.
0:09:50 To me,
0:09:51 it doesn’t say
0:09:51 anything
0:09:53 about his
0:09:53 long-term
0:09:54 thesis on AI.
0:09:55 He also spoke,
0:09:56 I mean,
0:09:57 people are saying
0:09:58 in the headlines,
0:09:59 I saw this
0:10:01 headline on CNBC
0:10:02 where it’s like,
0:10:03 Sam Altman
0:10:04 sees a bubble
0:10:05 in AI.
0:10:07 But he spoke,
0:10:07 you know,
0:10:08 he spoke very,
0:10:09 very generally
0:10:10 about bubbles.
0:10:11 He spoke very generally
0:10:12 about the idea
0:10:12 that, you know,
0:10:13 bubbles happen
0:10:14 and people get
0:10:15 overexcited
0:10:16 and, you know,
0:10:17 stocks can get
0:10:17 ahead of their skis.
0:10:19 It’s very general stuff.
0:10:19 So to me,
0:10:20 that I’m like,
0:10:20 okay,
0:10:21 whatever.
0:10:22 Then you have
0:10:24 the Meta news.
0:10:25 And let me just read you
0:10:26 the full quote
0:10:27 from the New York Times
0:10:27 article.
0:10:27 It said,
0:10:28 quote,
0:10:29 Meta is also looking
0:10:30 at downsizing
0:10:31 the AI division
0:10:32 overall,
0:10:33 which could include
0:10:34 eliminating roles
0:10:35 or moving employees
0:10:36 to other parts
0:10:36 of the company
0:10:37 because it has grown
0:10:38 to thousands of people
0:10:39 in recent years,
0:10:39 the people said.
0:10:41 Discussions remain fluid
0:10:43 and no final decisions
0:10:44 have been made
0:10:45 on the downsizing.
0:10:46 So that’s what they said
0:10:47 about Meta.
0:10:47 Again,
0:10:48 very soft news.
0:10:49 And then this
0:10:51 MIT report.
0:10:54 I do not understand this.
0:10:55 I don’t understand
0:10:57 since when did
0:10:59 a small group
0:11:00 of researchers
0:11:01 at MIT
0:11:03 putting together
0:11:05 a little research project,
0:11:07 possibly by undergrads,
0:11:08 I actually don’t even know,
0:11:10 since when did they
0:11:11 become the leading authority
0:11:12 on the adoption
0:11:14 of generative AI?
0:11:15 These are the kinds
0:11:16 of numbers I see
0:11:17 in consulting
0:11:19 and research reports
0:11:20 all the time.
0:11:21 These kind of broad numbers
0:11:23 are 95%
0:11:24 of organizations,
0:11:25 they’re not seeing a return.
0:11:27 I’ve probably seen that
0:11:28 like a million times
0:11:29 on the internet.
0:11:30 And then I sort of think,
0:11:31 okay,
0:11:33 so MIT says that,
0:11:33 fair enough.
0:11:35 But isn’t this exactly
0:11:36 the kind of thing
0:11:37 that investors
0:11:37 on Wall Street
0:11:38 are supposed
0:11:39 to be tracking themselves?
0:11:40 I mean,
0:11:41 isn’t it literally
0:11:41 the job
0:11:43 of the buy-side analyst
0:11:45 to look at the companies
0:11:46 that he or she
0:11:47 is covering
0:11:48 and figure out,
0:11:49 okay,
0:11:50 this is the return
0:11:50 that they’re getting
0:11:52 on their Gen AI investments.
0:11:52 I mean,
0:11:53 this is what we’re all
0:11:54 supposed to be focusing on.
0:11:56 And then suddenly MIT comes out
0:11:57 and says this little
0:11:58 research number.
0:12:00 A few media outlets
0:12:01 pick it up
0:12:02 because let’s be honest,
0:12:03 it’s a fun story.
0:12:04 And then suddenly
0:12:07 we see this drawdown
0:12:08 in the NASDAQ.
0:12:09 We see the S&P
0:12:10 lose a trillion dollars
0:12:11 in value.
0:12:12 And I just think
0:12:12 it’s fascinating
0:12:14 that this is what
0:12:15 brought down the markets.
0:12:17 And I agree with your point
0:12:18 where it’s like,
0:12:18 you know,
0:12:19 this indicates
0:12:20 that there’s a level
0:12:21 of sensitivity
0:12:22 in the markets right now,
0:12:22 which is interesting.
0:12:24 But I think back
0:12:25 to a month,
0:12:26 two months ago,
0:12:27 you know,
0:12:29 it wasn’t a missile strike
0:12:29 on Iran
0:12:31 that brought down
0:12:31 the markets.
0:12:32 It wasn’t the president
0:12:34 firing the chief
0:12:35 of the BLS
0:12:38 for supposedly falsifying
0:12:40 national economic data.
0:12:41 It wasn’t even
0:12:42 the reintroduction
0:12:43 of tariffs.
0:12:43 I mean,
0:12:44 we saw,
0:12:45 you know,
0:12:46 some small corrections,
0:12:48 but the level
0:12:48 of correction
0:12:49 that we’re seeing
0:12:50 in tech itself,
0:12:51 it didn’t really
0:12:52 compare to this.
0:12:54 I don’t understand that.
0:12:55 How is it
0:12:55 that it was
0:12:56 this little
0:12:58 obscure research report
0:12:59 from a little division
0:13:00 out of MIT?
0:13:01 How is it that
0:13:03 that spooked the markets?
0:13:03 I think it’s because
0:13:04 all of the gains
0:13:05 in the market this year
0:13:06 have come from
0:13:08 the AI infrastructure theme.
0:13:09 There’s nothing,
0:13:10 there’s no other show
0:13:10 in town.
0:13:11 Yeah.
0:13:12 Even the GLP-1 stocks
0:13:14 have been falling.
0:13:15 Like,
0:13:16 nothing else is working.
0:13:17 So then people say,
0:13:18 all right,
0:13:18 well,
0:13:19 what are the top
0:13:19 performing sectors
0:13:20 this year?
0:13:21 utilities,
0:13:23 tech,
0:13:25 communication services,
0:13:26 and financial,
0:13:27 I think financials
0:13:27 neck and neck
0:13:28 for the third spot.
0:13:30 All of those
0:13:32 are directly related
0:13:33 to earnings growth
0:13:33 that’s coming
0:13:34 from the AI
0:13:36 infrastructure build out.
0:13:36 The utilities
0:13:37 is obvious.
0:13:38 I don’t need to explain it.
0:13:39 These stocks
0:13:40 have just undergone
0:13:42 a once in a century
0:13:42 re-rating.
0:13:43 They’re all at
0:13:44 52 week highs.
0:13:45 They all look
0:13:45 unbelievable.
0:13:47 And the story
0:13:47 that they’re telling
0:13:48 investors
0:13:49 is that
0:13:50 they are
0:13:51 submitting formal
0:13:52 proposals to their
0:13:53 regulators for a
0:13:54 rate increase.
0:13:55 And the justification
0:13:56 for the rate increase
0:13:57 is the fact that
0:13:58 they need to spend
0:13:59 money,
0:13:59 CapEx,
0:14:01 in order to keep
0:14:02 pace with the demand
0:14:03 coming from the
0:14:04 hyperscalers
0:14:06 for more
0:14:06 electrification
0:14:07 needed
0:14:09 to facilitate
0:14:10 the
0:14:11 ubiquitous
0:14:12 use of AI.
0:14:13 There’s one
0:14:14 particular utility
0:14:15 called Dominion,
0:14:15 which I wrote
0:14:16 about recently
0:14:17 for CNBC.
0:14:19 Dominion is like
0:14:20 this 100-year-old
0:14:21 company,
0:14:21 sleepy,
0:14:22 boring
0:14:23 utility,
0:14:24 right?
0:14:25 And it just
0:14:26 so happens
0:14:27 they’re based
0:14:27 in a place
0:14:28 called Loudoun
0:14:28 County,
0:14:29 which is
0:14:30 the cloud
0:14:31 data capital
0:14:32 of the world.
0:14:32 It’s in
0:14:33 Virginia.
0:14:35 And the reason
0:14:35 it’s there
0:14:36 is because
0:14:37 a million years
0:14:38 ago,
0:14:38 AOL
0:14:39 was based
0:14:40 outside of
0:14:40 D.C.
0:14:41 And that’s
0:14:42 where like
0:14:42 the first,
0:14:43 they weren’t
0:14:44 calling them
0:14:44 data centers
0:14:45 back then.
0:14:46 This predates
0:14:46 even cloud
0:14:47 computing,
0:14:47 but like
0:14:48 that’s where
0:14:49 the first
0:14:49 cluster
0:14:51 of this
0:14:51 stuff
0:14:51 started to
0:14:52 be built.
0:14:52 And then
0:14:53 Yahoo came
0:14:53 and then
0:14:54 Google came.
0:14:55 Now Amazon
0:14:55 has spent
0:14:56 $50 billion
0:14:57 there.
0:14:58 So like
0:14:58 this is an
0:14:59 example of
0:14:59 a utility
0:15:00 that is
0:15:00 completely
0:15:01 transforming
0:15:01 itself
0:15:02 because of
0:15:03 demand
0:15:04 coming from
0:15:05 hyperscaler
0:15:07 AI infrastructure.
0:15:09 And that’s
0:15:09 why the
0:15:09 utilities
0:15:10 are leading
0:15:11 the market.
0:15:13 Why tech
0:15:13 is working,
0:15:14 that’s
0:15:14 obvious.
0:15:14 Why
0:15:15 communication
0:15:16 services is
0:15:16 working,
0:15:16 that’s
0:15:17 obvious.
0:15:17 Keep in
0:15:17 mind,
0:15:18 meta is
0:15:19 in that
0:15:20 sector.
0:15:21 Alphabet’s
0:15:21 in that
0:15:21 sector.
0:15:23 Why
0:15:24 financials?
0:15:25 Why are
0:15:25 financials so
0:15:26 good?
0:15:27 Because Wall
0:15:27 Street came
0:15:28 alive this
0:15:28 year.
0:15:29 We have
0:15:30 IPOs,
0:15:31 CoreWeave,
0:15:32 Figma,
0:15:33 Bullish,
0:15:34 believe it or
0:15:34 not,
0:15:36 Circle.
0:15:37 like all
0:15:38 of a
0:15:39 sudden the
0:15:39 amount of
0:15:39 activity,
0:15:40 private
0:15:40 equity,
0:15:41 private
0:15:42 credit,
0:15:43 underwriting,
0:15:44 M&A is
0:15:44 back,
0:15:45 there are
0:15:45 deals again,
0:15:47 like that’s
0:15:47 why the
0:15:48 financials are,
0:15:49 but all of
0:15:49 this is
0:15:50 coming as
0:15:51 a result of
0:15:52 the AI
0:15:53 build-out and
0:15:53 then the
0:15:54 ripple effect
0:15:54 coming.
0:15:55 So you
0:15:55 asked the
0:15:56 question like
0:15:57 I don’t
0:15:58 understand we
0:15:59 were shooting
0:16:01 at Iran and
0:16:02 nobody cares
0:16:03 but an
0:16:04 MIT study
0:16:05 and a
0:16:06 Facebook rumor
0:16:08 surface that
0:16:08 could be
0:16:09 negative for
0:16:09 the AI
0:16:10 theme and
0:16:10 the NASDAQ
0:16:11 loses a
0:16:11 trillion of
0:16:11 value,
0:16:12 that’s why.
0:16:13 It’s the
0:16:14 whole thing.
0:16:14 There’s
0:16:15 nothing else
0:16:16 going on.
0:16:17 GDP growth
0:16:19 is sluggish,
0:16:20 no offense to
0:16:20 anyone who
0:16:21 believes otherwise
0:16:22 or they think
0:16:23 the data is
0:16:23 fake.
0:16:24 The labor
0:16:25 market is
0:16:26 okay but not
0:16:26 as good as
0:16:27 it was last
0:16:27 year,
0:16:28 right?
0:16:29 Wage growth
0:16:30 is gone.
0:16:31 So now you
0:16:32 have price
0:16:32 growth,
0:16:33 you have
0:16:34 inflation but
0:16:34 no wage
0:16:35 growth,
0:16:36 not a great
0:16:36 recipe,
0:16:37 that’s probably
0:16:37 why we’re
0:16:37 going to put
0:16:38 a communist
0:16:38 in the mayor’s
0:16:39 office in
0:16:39 New York.
0:16:41 What other
0:16:42 stories are
0:16:42 out there?
0:16:43 What else
0:16:43 is happening
0:16:43 in the
0:16:44 economy?
0:16:44 And the
0:16:44 answer is
0:16:44 nothing.
0:16:46 It’s the
0:16:47 high-end
0:16:47 consumer who
0:16:48 owns stocks
0:16:49 out there
0:16:50 spending with
0:16:50 abandon.
0:16:52 The reason
0:16:53 they’re able
0:16:53 to do so
0:16:54 is because
0:16:55 their portfolios
0:16:56 are absolutely
0:16:57 juiced by
0:16:59 record insane
0:17:00 amounts of
0:17:01 CapEx,
0:17:02 being spent
0:17:02 on AI.
0:17:03 And if you
0:17:04 pull that
0:17:04 leg of the
0:17:05 stool away,
0:17:06 there’s no
0:17:06 way we would
0:17:06 have had a
0:17:08 30% recovery
0:17:09 off the
0:17:09 Liberation Day
0:17:10 lows in
0:17:10 April.
0:17:11 No chance.
0:17:12 Not a chance.
0:17:13 If you don’t
0:17:14 have that leg of
0:17:14 the stool,
0:17:15 there aren’t
0:17:15 two other
0:17:15 legs.
0:17:16 And that’s
0:17:17 what the
0:17:17 market is
0:17:18 very precariously
0:17:19 balancing itself
0:17:19 upon.
0:17:20 Well, I
0:17:21 think that
0:17:22 really sums
0:17:22 it up.
0:17:23 And I
0:17:23 think that
0:17:24 is probably
0:17:28 what is
0:17:29 most
0:17:29 concerning
0:17:31 is it
0:17:31 does
0:17:32 emphasize the
0:17:33 extent to
0:17:33 which the
0:17:34 entire
0:17:34 market is
0:17:35 dependent and
0:17:36 reliant upon
0:17:37 this AI
0:17:38 story.
0:17:39 And so,
0:17:41 yeah, an
0:17:42 MIT report
0:17:42 comes out and
0:17:43 suddenly people
0:17:43 get very
0:17:44 nervous.
0:17:44 I mean, by
0:17:45 the way, I’m
0:17:46 almost shocked
0:17:47 by the
0:17:47 lack of
0:17:47 conviction
0:17:48 that investors
0:17:49 seem to
0:17:49 have.
0:17:50 The fact that
0:17:51 this report
0:17:52 comes out and
0:17:52 they say,
0:17:53 oh, our
0:17:54 thesis is wrong.
0:17:54 That to me is a
0:17:55 little bit crazy.
0:17:55 Well, in
0:17:56 fairness,
0:17:59 we’re talking
0:18:00 about a 2%
0:18:01 move, but the
0:18:02 Nasdaq has
0:18:03 tripled in
0:18:04 recent years.
0:18:05 It’s not…
0:18:05 They haven’t
0:18:06 reversed their
0:18:08 opinions, but
0:18:08 there has
0:18:09 certainly been a
0:18:09 vibe shift in
0:18:10 AI in the
0:18:11 last two or
0:18:12 three days.
0:18:12 I agree.
0:18:13 We’re seeing it
0:18:13 in the markets.
0:18:14 We’re also seeing
0:18:14 it online,
0:18:15 chatter, people
0:18:15 saying, oh,
0:18:16 is the AI
0:18:17 story, is it
0:18:18 not going to
0:18:18 happen?
0:18:19 The Sam
0:18:19 Altman thing is
0:18:20 notable, but I
0:18:21 think people
0:18:21 don’t understand
0:18:22 what he’s
0:18:22 saying.
0:18:24 He’s not
0:18:24 saying there’s
0:18:25 a bubble in
0:18:25 AI.
0:18:26 He’s saying
0:18:27 there’s a
0:18:27 bubble in
0:18:28 other people
0:18:29 investing in
0:18:29 things that
0:18:30 might compete
0:18:30 with him.
0:18:31 He’s still
0:18:32 going to raise
0:18:32 money in the
0:18:33 private market
0:18:34 at a $500
0:18:35 billion market
0:18:35 cap.
0:18:36 You know he
0:18:36 is.
0:18:37 He’ll break
0:18:38 every record on
0:18:39 the books for
0:18:40 a privately
0:18:41 held company
0:18:42 that only two
0:18:43 years ago was
0:18:44 like a not-for
0:18:44 profit.
0:18:45 He’s going to
0:18:46 raise money at a
0:18:46 half a trillion
0:18:47 dollar valuation.
0:18:48 So what he’s
0:18:49 basically saying
0:18:50 is he sees a
0:18:51 lot of other
0:18:52 people funding
0:18:52 things that
0:18:54 could represent
0:18:55 a challenge to
0:18:56 ChatGPT and
0:18:57 other products at
0:18:58 OpenAI and
0:18:58 they’re destined
0:18:59 to fail.
0:19:01 And that’s,
0:19:02 read between the
0:19:02 lines.
0:19:04 What he’s
0:19:04 basically saying
0:19:05 is we own
0:19:07 this and all
0:19:07 these other
0:19:09 valuations people
0:19:10 are paying for
0:19:11 other startups
0:19:12 are going to
0:19:13 look foolish.
0:19:13 He’s not
0:19:14 going to say
0:19:14 it the way
0:19:15 I’m saying
0:19:16 it, but
0:19:16 that’s what
0:19:16 he means.
0:19:17 Yeah, no, I
0:19:18 think that’s
0:19:18 definitely right.
0:19:20 But just
0:19:21 going back to
0:19:22 what you say
0:19:23 there about the
0:19:24 reliance, the
0:19:24 dependence in
0:19:25 the markets on
0:19:26 AI, just some
0:19:27 data here.
0:19:28 So the top 10
0:19:29 stocks in the
0:19:30 S&P right now
0:19:31 account for 40%
0:19:32 of the entire
0:19:33 market cap of
0:19:34 the S&P,
0:19:36 25% of the
0:19:38 entire earnings
0:19:39 of the S&P.
0:19:40 NVIDIA alone
0:19:42 makes up 8%
0:19:43 of the S&P.
0:19:44 It’s the largest
0:19:45 single stock
0:19:46 concentration in
0:19:47 over 40 years.
0:19:48 We’ve seen this
0:19:50 just unbelievable
0:19:52 CapEx spending,
0:19:52 you know, leading
0:19:53 AI companies
0:19:54 spending a 10x
0:19:55 increase in CapEx
0:19:56 in the past
0:19:57 three years.
0:20:00 This is basically
0:20:01 the AI market.
0:20:02 This is the
0:20:03 entire stock
0:20:03 market.
0:20:03 This is all
0:20:04 that anyone
0:20:04 cares about.
0:20:07 And I just,
0:20:08 as a money
0:20:09 manager yourself,
0:20:10 I mean, how
0:20:11 are you supposed
0:20:12 to kind of
0:20:13 defend against
0:20:13 that?
0:20:14 You can’t just
0:20:15 get off of the
0:20:15 AI train.
0:20:16 There’s clearly a
0:20:17 bunch of AI
0:20:18 hype that’s
0:20:19 happening, and
0:20:19 that’s sort of
0:20:20 what Sam Altman
0:20:21 is alluding to
0:20:21 a little bit.
0:20:23 But how are you
0:20:23 supposed to sort
0:20:24 of protect
0:20:25 yourself and
0:20:26 keep those two
0:20:27 things in your
0:20:28 head at the same
0:20:28 time?
0:20:29 One, yeah, of
0:20:29 course we’ve
0:20:29 got to invest
0:20:30 in AI.
0:20:30 AI’s the next
0:20:31 thing.
0:20:31 Two, at the
0:20:32 same time,
0:20:33 what does it
0:20:34 mean that this
0:20:35 MIT report
0:20:37 is shaking
0:20:37 investors’
0:20:38 confidence, at
0:20:38 least a little
0:20:39 bit?
0:20:39 I think
0:20:41 Palantir is a
0:20:41 really powerful
0:20:43 example of the
0:20:43 case that we
0:20:44 make with our
0:20:45 clients.
0:20:45 And just to
0:20:47 back up, we’re
0:20:48 not bearers on
0:20:49 AI.
0:20:50 And, you
0:20:51 know, we’ve
0:20:52 been invested in
0:20:53 this theme the
0:20:53 entire way up.
0:20:55 Obviously, these
0:20:55 are some of the
0:20:56 biggest stocks in
0:20:56 the world.
0:20:58 I’ve been bullish
0:20:58 and talking about
0:20:59 NVIDIA, long
0:21:00 NVIDIA, personally,
0:21:02 for 11 years now.
0:21:02 So, like, I’m
0:21:03 not, I don’t want
0:21:04 to give people the
0:21:05 impression that
0:21:05 I’m, like,
0:21:06 predicting a
0:21:07 crash.
0:21:10 But we’re very
0:21:11 sober when we
0:21:11 talk to clients
0:21:12 about the
0:21:13 possibility that
0:21:14 there could be a
0:21:15 hiccup along the
0:21:16 way or something
0:21:16 worse.
0:21:18 And, you know,
0:21:18 we preach
0:21:19 diversification, which
0:21:20 seems really quaint
0:21:22 right now, but
0:21:24 like fanny packs,
0:21:25 it will come back
0:21:26 into style eventually.
0:21:27 It always does.
0:21:29 It could be many,
0:21:30 many years between
0:21:30 now and when that
0:21:31 happens.
0:21:33 We’re managing
0:21:34 six and a half
0:21:35 billion dollars for
0:21:36 over 4,000 families
0:21:38 and people have a
0:21:39 lot of money at
0:21:40 risk in the stock
0:21:41 market with good
0:21:42 reason.
0:21:42 People are going to
0:21:43 have very long
0:21:44 lifespans and they
0:21:45 need to earn above
0:21:46 inflation returns.
0:21:48 And our job is to
0:21:50 help people, you
0:21:51 know, get from A to
0:21:53 Z and Z could be a
0:21:53 long way off.
0:21:54 So we have to take
0:21:55 risk.
0:21:56 We have no choice,
0:21:57 but we want to take
0:21:58 intelligent risks.
0:21:58 I was talking to
0:21:59 a client yesterday,
0:22:02 extraordinarily wealthy
0:22:04 person, very
0:22:05 successful, way
0:22:06 more successful than
0:22:07 I am.
0:22:09 But one of the
0:22:10 things that we’re
0:22:11 talking about, you
0:22:12 know, he’s saying,
0:22:13 look, I understand
0:22:14 diversify, et cetera,
0:22:16 but it seems like none
0:22:16 of these other stocks
0:22:17 matter anymore.
0:22:18 And he had a really
0:22:19 good point.
0:22:20 I remember a time
0:22:22 where like Target
0:22:23 would report earnings.
0:22:24 The markets would
0:22:25 almost shut down
0:22:26 because everybody
0:22:27 would want to hear
0:22:28 what the CEO had
0:22:29 to say about the
0:22:29 outlook and the
0:22:30 consumer.
0:22:31 And, but no one
0:22:32 even, no one even
0:22:33 notices anymore.
0:22:34 There, there were
0:22:35 times where like
0:22:37 McDonald’s and
0:22:38 Home Depot and
0:22:39 like these were like
0:22:40 bellwether, like
0:22:41 what, what is the
0:22:42 state of the
0:22:42 consumer?
0:22:43 Let’s tune in and
0:22:43 listen.
0:22:45 These earnings
0:22:46 reports in the last
0:22:47 week, they just,
0:22:47 they come and go
0:22:49 because they’re not
0:22:50 the thing that’s
0:22:51 driving earnings.
0:22:52 When you talk about
0:22:53 the size of the
0:22:55 hyperscalers in the
0:22:56 S and P 500, like
0:22:57 what percent they
0:22:58 make up, um,
0:22:59 proportionally the
0:23:00 earnings growth is
0:23:01 even bigger.
0:23:02 The earnings growth
0:23:03 is coming from a
0:23:05 very select group of
0:23:06 stocks.
0:23:07 They happen to be so
0:23:09 gigantic that it’s
0:23:10 meaningful for the
0:23:11 overall index.
0:23:12 And then you start
0:23:13 talking about like,
0:23:14 Oh, Freeport
0:23:15 Mac Moran is a
0:23:16 bellwether for copper
0:23:17 demand.
0:23:18 And nobody gives a
0:23:18 shit.
0:23:19 I don’t even think
0:23:20 it’s market cap is
0:23:21 20 billion.
0:23:22 So like, it almost
0:23:23 doesn’t matter.
0:23:25 The, the amount of
0:23:26 the amount that
0:23:27 Nvidia’s market cap
0:23:29 moves in a day is
0:23:30 larger than 400
0:23:31 companies in the S and
0:23:32 P 500.
0:23:34 So, so what people
0:23:35 say like, Oh, the,
0:23:36 the, try to connect
0:23:37 the dots, the stock
0:23:38 market, the economy
0:23:40 from my perspective,
0:23:41 they’ve never been
0:23:42 further apart.
0:23:43 So I don’t think the
0:23:45 main street economy is
0:23:45 bad.
0:23:46 I just don’t think it
0:23:47 looks anything like what
0:23:48 the S and P has done
0:23:50 over the last couple of
0:23:51 years and that people
0:23:52 struggle with that
0:23:52 disconnect.
0:23:55 So our message, you
0:23:56 know, to get to the
0:23:57 answer to your, your
0:23:58 question in a very
0:23:59 roundabout way, but our
0:24:02 message is the market
0:24:03 that we’re in right now
0:24:04 is not the market that
0:24:05 we’re always going to be
0:24:06 in this year.
0:24:08 The factor with the
0:24:09 most import to
0:24:10 returns is momentum.
0:24:11 Fine.
0:24:12 We all understand
0:24:13 that, but that’s not
0:24:14 every year.
0:24:15 Some years it’s dividend
0:24:15 yield.
0:24:16 Some years it’s
0:24:17 balance sheet quality.
0:24:19 Some years it’s
0:24:20 competitive moat.
0:24:21 Some years it’s, it’s
0:24:22 value.
0:24:23 Some years it’s, it’s a
0:24:25 size factor and small
0:24:25 cap does better than
0:24:26 large cap.
0:24:27 It’s been a minute, but
0:24:27 it happens.
0:24:29 The, the purpose of
0:24:31 maintaining diversification
0:24:33 is you always have to
0:24:34 say you’re sorry, but
0:24:36 you also never have to
0:24:36 say you’re sorry.
0:24:38 You, you are not going
0:24:39 to be able to race
0:24:40 Nvidia and Broadcom
0:24:41 with a portfolio.
0:24:43 year after year and
0:24:44 not eventually pay the,
0:24:45 the, the penalty.
0:24:46 So I mentioned
0:24:46 Palantir.
0:24:48 This company put up one
0:24:50 of the most insanely good
0:24:51 earnings reports I have
0:24:52 ever seen.
0:24:53 I’m doing this 28 years
0:24:56 insane on every metric,
0:24:57 the rate at which they’re
0:24:58 adding corporate
0:25:00 customers, the rate at
0:25:00 which they’re adding
0:25:02 government contracts, the,
0:25:03 the growth of cashflow,
0:25:04 the growth of profit,
0:25:05 the growth of profit
0:25:06 margin.
0:25:07 it, you look at this
0:25:08 report and then the CEO
0:25:10 comes on the call and
0:25:11 he’s like, fuck you to
0:25:12 the haters.
0:25:13 Literally, that’s what he
0:25:14 did.
0:25:16 The stock has now erased
0:25:19 the entirety of its post
0:25:20 earnings pop.
0:25:22 it had this massive move
0:25:24 where like, down like 10%,
0:25:25 something crazy.
0:25:26 So like every growth
0:25:28 manager who owns stocks and
0:25:30 didn’t own Palantir basically
0:25:33 had to buy it that day or get
0:25:34 fired.
0:25:34 Right.
0:25:36 And then like within a week
0:25:38 that entire post earnings pop
0:25:39 disappears.
0:25:41 What is the message?
0:25:42 The message is, yeah, we
0:25:45 already know how good AI is.
0:25:46 We already get it.
0:25:48 We already know how good
0:25:49 Palantir is.
0:25:51 That’s why it’s a $400
0:25:53 billion market cap on revenue
0:25:54 of $4 billion.
0:25:56 We get it.
0:25:57 Everybody gets it.
0:25:59 There’s no one left to figure
0:25:59 it out.
0:26:02 So that’s really what we’re
0:26:03 trying to get across to
0:26:04 clients.
0:26:05 It’s not saying we’re
0:26:06 bearish on AI.
0:26:09 It’s just like, dude, how
0:26:10 much more do you think could
0:26:12 possibly be in the tank given
0:26:13 that everyone agrees?
0:26:16 But I think some people would
0:26:17 say that sounds like a little
0:26:18 bit like a bubble.
0:26:19 It is a bubble, but it could
0:26:21 be, but, but it could be
0:26:22 1997.
0:26:24 It doesn’t have to be March of
0:26:25 2000 yet.
0:26:26 Of course it’s a bubble.
0:26:28 Every, there’s a CapEx
0:26:29 bubble every generation.
0:26:30 It’s not that rare.
0:26:31 It’s not that unique.
0:26:33 We, we, we had them in the
0:26:34 fifties.
0:26:36 We had them in the, in the
0:26:37 sixties and the seventies, but
0:26:39 it, it always happens where
0:26:40 it’s happening again.
0:26:41 No big deal.
0:26:43 It’s, it’s not a signal to
0:26:44 sell everything and hide.
0:26:47 Um, not every CapEx bubble has
0:26:49 to result in a generational
0:26:49 crash.
0:26:51 You could just have a bear
0:26:52 market, follow this.
0:26:53 And what if it starts three
0:26:54 years from now?
0:26:55 Think of all the money that
0:26:57 you, you are missing out on
0:26:59 making worrying about it’s a
0:26:59 bubble.
0:27:00 it’s not a bubble.
0:27:02 The answer remaining that,
0:27:04 that the diversification is
0:27:04 key.
0:27:06 I assume is, is basically where
0:27:07 you ultimately land.
0:27:10 But again, it’s an interesting
0:27:12 thing because a lot of people,
0:27:13 as you say, these days is
0:27:15 saying, well, diversifications
0:27:15 for losers.
0:27:17 You might as well be in the S and
0:27:17 P 10.
0:27:19 If I listen, I have some
0:27:20 clients where if I listen to
0:27:21 them, their portfolio would be
0:27:23 like 30% Nvidia, 30%
0:27:24 Palantir.
0:27:25 They’d be crushing it.
0:27:26 And by the way, they, they
0:27:27 would have, they would have
0:27:28 won big.
0:27:30 The problem is what does that
0:27:31 look when this ends?
0:27:32 What does that look like?
0:27:33 And I want to say one thing
0:27:36 about the bubble idea and then
0:27:36 we can move on.
0:27:38 The 2000 bubble burst.
0:27:40 It’s real, it’s really
0:27:40 important.
0:27:42 I was talking to a venture
0:27:44 capitalist who was about my
0:27:44 age.
0:27:45 We both had roughly the same
0:27:47 experience when we, when we
0:27:48 started in the nineties.
0:27:51 there were, there was
0:27:54 about, uh, I don’t know,
0:27:56 let’s call it 450 billion in
0:27:58 market cap in the, in the
0:28:00 stocks, uh, that, that we
0:28:03 tend to identify with the 2000
0:28:03 bubble.
0:28:05 Like it was not large at all.
0:28:07 450 billion in market cap.
0:28:09 The combined profits of all of
0:28:11 those companies was like 15
0:28:11 billion.
0:28:14 It was, it was tiny, like
0:28:15 literally tiny.
0:28:17 Open AI is going to do like
0:28:19 $15 billion in profit this
0:28:20 year alone.
0:28:20 by itself.
0:28:22 And when you look at the
0:28:23 revenue of the companies
0:28:25 involved today and the market
0:28:26 cap and the amount of
0:28:28 employees and the amount of
0:28:29 customers, it’s literally
0:28:30 night and day.
0:28:32 We’re back then we’ll forget
0:28:33 about price to earnings
0:28:34 ratio.
0:28:35 These were companies that were
0:28:38 pre-revenue, no revenue, no
0:28:39 business model.
0:28:40 You can’t say that today.
0:28:43 These companies are among the
0:28:45 most successful companies of
0:28:48 all time on every metric, tons
0:28:49 of revenue, tons of earnings,
0:28:51 tons of growth.
0:28:53 So it’s, it’s not a great
0:28:53 analog.
0:28:56 Back then there were 200
0:28:57 million internet users.
0:28:59 There are 7 billion internet
0:29:00 users right now.
0:29:01 It’s a completely different
0:29:01 world.
0:29:04 So I don’t love the comparison
0:29:05 for that reason.
0:29:07 And it’s, it’s almost too easy
0:29:08 of a comparison.
0:29:09 Everyone’s trying their best to
0:29:10 figure out how do we make the
0:29:11 analogy.
0:29:13 And that’s kind of when you
0:29:14 know, okay, it’s too easy.
0:29:15 It’s too easy.
0:29:16 Yeah.
0:29:17 We’ll be right back after the
0:29:17 break.
0:29:18 And if you’re enjoying the
0:29:19 show so far, be sure to give
0:29:21 Prof G Markets a follow wherever
0:29:22 you get your podcasts.
0:29:32 Introducing Taco Bell’s $5 steak
0:29:33 burritos.
0:29:35 From the zesty Chipotle ranch to
0:29:37 the decadent cheesy melts.
0:29:39 We’d call them rich, but they’re
0:29:40 just five bucks.
0:29:42 new $5 steak burritos.
0:29:43 Only at Taco Bell.
0:29:49 This week on Criminal, in 2019,
0:29:51 E. Jean Carroll published an
0:29:52 essay called Hideous Men.
0:29:54 In it, she said that President
0:29:56 Donald Trump had sexually assaulted
0:29:58 her in her Bergdorf Goodman
0:30:00 dressing room in the 1990s.
0:30:03 Donald Trump told a reporter that
0:30:05 it didn’t happen and that, quote,
0:30:07 she’s not my type.
0:30:09 You knew he would react, though.
0:30:12 I thought he would say it was
0:30:13 consensual.
0:30:16 This summer, I went to visit E. Jean
0:30:18 Carroll at her house in the woods.
0:30:20 We spoke about what her life has
0:30:21 been like since she wrote that
0:30:23 essay and what it was like to sue
0:30:25 Donald Trump twice.
0:30:28 You can hear my conversation with
0:30:29 E. Jean Carroll on the latest
0:30:30 episode of Criminal.
0:30:32 Listen wherever you get your
0:30:33 podcasts.
0:30:38 Support for the show comes from Basecamp.
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0:31:50 We’re back with PropG Markets.
0:31:52 Trump has signed an executive order
0:31:54 that could reshape how Americans
0:31:55 invest for retirement.
0:31:57 The order tells regulators to update
0:31:59 the rules for 401ks so that they can
0:32:01 include alternative assets like crypto,
0:32:04 private equity, and real estate.
0:32:05 Supporters say the move could unlock
0:32:07 fresh capital for the private markets
0:32:10 while also opening the door for
0:32:11 Americans to gain exposure to
0:32:13 investments that they are typically
0:32:14 locked out of.
0:32:17 So this executive order actually
0:32:18 happened a couple of weeks ago.
0:32:20 I’ve been on vacation, so that’s why
0:32:22 we haven’t really covered it.
0:32:22 But it is important.
0:32:26 It essentially means that your 401k
0:32:28 manager, so, you know, for us, it’s a
0:32:30 a manager called Empower.
0:32:33 So that’s a 401k administrator.
0:32:36 So you have the plan sponsor, which is
0:32:37 the company that you work for.
0:32:37 Yes, please.
0:32:39 And then you’ve got the administrator,
0:32:41 which is effectively like the platform
0:32:43 that you log into to make your
0:32:44 investments.
0:32:47 Yes, and those platforms can now offer
0:32:49 alternative investments.
0:32:51 So private equity, private credit, even
0:32:53 digital assets like crypto.
0:32:57 And there are $9 trillion in retirement
0:33:00 accounts in America today, and 90 million
0:33:02 Americans have some form of retirement
0:33:02 account.
0:33:07 So this is a big deal for private market
0:33:08 investment.
0:33:11 It’s basically opening it up to $9 trillion
0:33:12 in capital.
0:33:16 And so I think this is relevant for a lot
0:33:19 of reasons, one of which is we’ve been
0:33:22 talking a lot on this show about this idea
0:33:24 that retail investors are increasingly
0:33:27 locked out of investment opportunities that
0:33:30 are reserved for private investors,
0:33:32 institutional investors, accredited
0:33:32 investors.
0:33:33 We’ve talked about that as well.
0:33:37 And, you know, I’ve talked about the idea
0:33:39 that you’ve got open AI, which is being
0:33:41 valued at half a trillion dollars, most
0:33:43 valuable private company in history.
0:33:46 And yet, if you’re a regular investor, if
0:33:47 you’re a retail investor, you can’t get
0:33:48 in.
0:33:51 So that’s kind of another talk track, but
0:33:52 it’s certainly related.
0:33:54 It’s also relevant because you wrote an
0:33:57 article about this new executive order on
0:34:00 your blog page, Downtown Josh Brown.
0:34:05 So, Josh, give us your reactions to the
0:34:06 executive order.
0:34:08 A lot of people are saying this is going
0:34:11 to open up the opportunities for retail
0:34:11 investors.
0:34:13 Now they can get into alternative assets.
0:34:15 And there are other people saying, no, this
0:34:19 is going to sort of expose retail investors
0:34:22 to all of the risk and the craziness that
0:34:24 exists in the private investment world.
0:34:26 Plus, Trump was being lobbied by all of these
0:34:28 private investment groups.
0:34:28 Yeah.
0:34:28 All right.
0:34:30 I think it’s a really big deal for the
0:34:33 private equity and private credit industry.
0:34:35 I think it’s a nothing burger for investors.
0:34:38 I actually, there’s no danger here.
0:34:43 The danger is like lagging returns because
0:34:45 you’re going to take a portion of your 401k.
0:34:48 You’re going to allocate it into some high fee
0:34:50 private equity fund.
0:34:52 You’re going to lock up that portion of your
0:34:54 money, which is already locked up anyway.
0:34:57 You’re sitting with a 401k for decades anyway.
0:34:58 So that’s not a big deal.
0:35:00 So you’re giving up liquidity, but who cares
0:35:02 because it’s not liquid for you anyway.
0:35:03 All right.
0:35:05 So I could see that people saying that’s a
0:35:06 negative.
0:35:07 I don’t really view it that way.
0:35:09 I think the longer you hold investments, the
0:35:10 better personally.
0:35:12 So I don’t know that that’s definitely a
0:35:13 negative in a 401k.
0:35:14 All right.
0:35:15 So put that hysteria aside.
0:35:19 The other thing people will say is like, oh, you’re
0:35:21 exposing people to new, you’re at risk anyway.
0:35:25 When you cite NVIDIA is 8% of the S&P 5, well, what
0:35:28 do you think America owns in the 401k?
0:35:29 They’re already at great risk.
0:35:33 They already are overloaded in gigantic technology
0:35:36 stocks in the midst of a CapEx bubble.
0:35:39 So it’s like, it’s not like, oh, now all of a
0:35:40 sudden they’re at risk.
0:35:41 Stocks are risky.
0:35:43 They’re inherently risky.
0:35:45 Here’s a fun fact.
0:35:47 I don’t mean to name drop.
0:35:51 I was talking with a legendary investor, Peter
0:35:53 Lynch, considered to be the GOAT.
0:35:56 Literally, literally, I was talking, love it.
0:35:56 Fine.
0:35:57 Whatever.
0:35:58 I’m owning it.
0:36:00 I’m dropping that name.
0:36:01 I’m picking it back up.
0:36:02 I’ll drop it again.
0:36:05 Peter Lynch asked me a question.
0:36:06 He stumped me.
0:36:08 He said, do you know what the average range of a
0:36:11 New York Stock Exchange stock is over the course
0:36:12 of a year?
0:36:16 And I was like, the average range, like, like how
0:36:17 much from the high to the low?
0:36:19 And I said, like 30%.
0:36:24 He goes, okay, 90% of people say 30%.
0:36:26 It’s 100.
0:36:28 He said, he said, Josh, it’s 100%.
0:36:29 What?
0:36:31 And I said, what do you mean?
0:36:33 He said, well, just think about it.
0:36:38 A stock starts the year at 20, drops to 14, rallies
0:36:38 to 28.
0:36:41 That’s 100% range.
0:36:43 It’s not linear.
0:36:45 It doesn’t, like, go in the direct, you know, it
0:36:46 doesn’t go all in one direction.
0:36:49 It doesn’t, the average stock doesn’t double or get
0:36:49 cut in half.
0:36:50 Yeah.
0:36:53 So, like, he said, people don’t even understand the
0:36:56 basic, the basics of how volatile the stock market
0:36:56 is.
0:36:59 So, I bring that up to you so I could drop a name.
0:37:03 No, I bring that up to you, Ed, because the stocks are-
0:37:04 What does that have to do with anything, huh?
0:37:06 Public stocks are volatile.
0:37:06 Yes.
0:37:09 So, private equity, which is just privately owned
0:37:12 companies, that volatility is not like this new
0:37:14 dimension of risk, okay?
0:37:18 So, the hysteria around this is not necessarily
0:37:19 founded.
0:37:24 The last thing is actually really important.
0:37:24 Yeah.
0:37:27 For the people listening to this, everyone pay
0:37:28 attention to me.
0:37:31 I hope you already have been.
0:37:32 This is really important.
0:37:35 You’re not forced to do anything.
0:37:39 No one’s going to, like, shove private equity down
0:37:39 your throat.
0:37:44 They might include it as a sleeve in a target date or a
0:37:47 life cycle fund, but it’s going to be tiny.
0:37:50 You won’t even know it’s there, and you can opt out of
0:37:51 it if you don’t want it.
0:37:54 You could say, well, I’m not buying that life cycle fund
0:37:57 because it has private equity, and I read something
0:38:00 about the high fees of private equity funds, and I don’t
0:38:02 believe in it, and I’m opting out.
0:38:04 Yeah, but those are the listeners of this show.
0:38:06 Those are the people who kind of know what they’re
0:38:07 doing.
0:38:10 I mean, it’s certainly going to be a lot of people who
0:38:12 don’t really know what any of this means, but the
0:38:15 administrator is going to say, oh, you’ve got to get
0:38:15 into this.
0:38:17 This is the greatest thing since sliced bread.
0:38:17 You won’t.
0:38:18 All right.
0:38:20 So, yeah, you won’t hear that from an administrator
0:38:22 because none of them want to get sued, and that’s one of
0:38:23 the interesting things I wrote about.
0:38:24 Fair enough.
0:38:25 I agree with you, Ed.
0:38:26 That’s not a good thing.
0:38:31 If plan sponsors start pounding the table to their
0:38:34 employees why they should allocate private equity, that’s
0:38:37 problematic, but there’s no incentive for them to do that.
0:38:38 So it’s not – I don’t think it’s a real danger.
0:38:45 What’s actually going to happen is these will be very large
0:38:51 providers like Blackstone and Vanguard and huge private equity
0:38:57 firms, and they’ll create specific vehicles meant precisely for
0:38:58 this 401k use case.
0:39:02 So you are not going to be investing alongside people that
0:39:03 traditionally invest in private equity.
0:39:06 They’re going to create like a kiddie pool for you.
0:39:08 I’m not saying it’s going to be bad.
0:39:11 I’m just saying don’t think you’re investing with Mark Cuban.
0:39:14 You will 100% or not.
0:39:18 Those people are getting into the top, top, top, top funds.
0:39:24 That is not going to be available through Vanguard and Fidelity.
0:39:26 It’s just – you can’t – why would they?
0:39:29 If you’re an amazing private equity investor, why would you be
0:39:31 looking to take in retail flows?
0:39:32 It makes no sense.
0:39:33 Nobody would do it.
0:39:37 So I don’t think this is that big of a deal, and I don’t think that
0:39:38 many people are going to be into it.
0:39:43 The crypto stuff will probably attract an audience faster.
0:39:48 Young workers who see an option to put 10% of their 401k into a
0:39:51 Bitcoin fund, they’re going to do it.
0:39:53 100% they’re going to do it.
0:39:56 The venture thing is really where we get silly.
0:40:00 So you kind of interchangeably were talking about open AI and private
0:40:01 equity.
0:40:07 To be very clear, venture capital opportunities do not belong in a 401k.
0:40:12 It’s like the ultimate asset class mismatch.
0:40:19 There’s absolutely no reason for there to be shares of privately held experimental
0:40:22 companies with no earnings and revenue.
0:40:27 The odds of that working at scale are zero.
0:40:34 The nature of venture capital is like one out of 50 companies turns into something, and
0:40:38 one out of 100 can outperform regular stock market.
0:40:41 It’s like very, very difficult odds.
0:40:46 It’s a very specialized market where the practitioners know what they’re doing.
0:40:56 You can’t export that into a mutual fund wrapper and throw it into an insurance company’s 401k.
0:40:57 So I don’t like that at all.
0:40:58 I don’t think it’s necessary.
0:41:04 So in summation, you will see private credit be substituted for some public bonds.
0:41:08 You will see private equity be substituted for some of the equity portion.
0:41:10 It’ll be minor.
0:41:12 Very few people will actually be interested.
0:41:15 I don’t think anyone’s going to be massively hurt by it.
0:41:23 Venture capital in a 401k is fucking stupid, and Bitcoin is probably going to attain some
0:41:28 real fund flows just given how much young people are attracted to being invested in crypto.
0:41:33 I find it interesting that venture capital is sort of off the table.
0:41:37 It’s too silly in your view, but Bitcoin, you don’t seem to have, or crypto, you don’t seem
0:41:38 to have the same view.
0:41:45 I’m not endorsing people do this, but I think it’s, uh, I think it’s just an easier, it’s
0:41:51 an easier rollout into a product at a 401k than venture capital would be.
0:41:58 How does, how does a, so you could have an existing mutual fund and some of the large asset
0:42:04 managers do this where they have a sleeve in their portfolio for pre-public, uh, pre-IPO
0:42:05 venture-backed startup.
0:42:12 I’m okay with that, but like, you can’t invest into Andreessen Horowitz in a 401k because they’re
0:42:15 not going to give you the access to be able to do so.
0:42:21 So like, just, you’re not going to get the best of the best and in venture capital, you
0:42:23 have to be in the best funds.
0:42:25 You can’t be the fourth best fund.
0:42:26 There’s just no way.
0:42:32 Um, so I think that’s like a very winner take all type of investing.
0:42:34 Bitcoin is a commodity.
0:42:39 One Bitcoin is as good as another Bitcoin and a Bitcoin fund doesn’t need a manager.
0:42:42 So that’s where I would draw that distinction.
0:42:42 Okay.
0:42:46 Well, I’ll lay down my, my views on this.
0:42:53 So I think this has been sort of portrayed as, oh, we are democratizing access to alternative
0:42:53 investments.
0:42:55 That’s, that’s been the pitch.
0:42:57 That really has been the pitch.
0:43:02 And, um, and that’s the part that I, I really find a little annoying.
0:43:05 And I think it’s especially annoying to me because I’ve been, I’ve been talking a lot
0:43:11 about this, about how the, the private markets have been getting so big and there’s so much
0:43:16 money now, um, that they are essentially acting as if they are the public markets.
0:43:19 There’s basically no incentive to IPO.
0:43:24 If you’re an open AI or if you’re a stripe or if you’re a database at this point, if you’re
0:43:29 a big venture backed company, and as you say, with massive profits, massive revenues, you’re
0:43:30 well on your way.
0:43:34 It used to be that you go public to get some liquidity.
0:43:36 You don’t really need to do that anymore.
0:43:38 The liquidity is there in the private markets.
0:43:46 And what it essentially means is that if you want to get in on AI, you only have your
0:43:50 invidias and your big tech stocks to choose from in the public markets.
0:43:56 You can’t invest in open AI and Anthropic and all of these other AI startups that honestly,
0:43:59 that’s where the actions kind of happening, at least on the consumer side.
0:44:02 The 401k though is not the answer to that problem.
0:44:04 So, so fair enough.
0:44:08 And this is, this is part of my issue here.
0:44:17 So the way that this has been presented is that now you have access through your 401k.
0:44:20 And by the way, I agree the 401k is not where you should be putting that money, but I also
0:44:23 think that should be a distinction here.
0:44:29 There’s a huge difference between investing in a private fund versus investing in a private
0:44:30 company.
0:44:35 If you want to go invest in a private company with some, some leftover money that you have,
0:44:36 I think that would be great.
0:44:41 And the big difference between those two things is, you know, one is autonomy.
0:44:45 I mean, you’re kind of just letting these, these money managers decide what they’re going
0:44:45 to invest in.
0:44:49 And as you say, these, these venture funds that are going to go in these 401ks are probably
0:44:50 going to be ridiculous.
0:44:52 And the two, the other big thing is the fees.
0:44:58 I mean, you’re going to be paying stupid fees for these funds that, as you’ve pointed out
0:45:00 in the past, don’t even perform well.
0:45:05 I mean, I think one thing that you brought up in your article is that actually the stock
0:45:07 returns on the top private equity companies.
0:45:08 I love this.
0:45:11 The stock has outperformed their own funds.
0:45:12 People hated this.
0:45:15 People hated this so much.
0:45:18 Let’s take Blackstone as an example.
0:45:24 This is, this is one of the best performing stocks in the, in the, uh, S and P financial
0:45:25 services sector.
0:45:27 It actually, when it came public, it wasn’t a corporation.
0:45:31 It was a partnership and they changed the structure because a lot of funds couldn’t own
0:45:34 it as an, as a, as a partnership structure.
0:45:36 They, they have to invest in corporations.
0:45:42 So all of these companies, KKR, Blackstone, they did these conversions and now they’re
0:45:43 all in the S and P 500.
0:45:48 Um, I think Blackstone’s up 1800% since it came public in 2007.
0:45:56 And that’s including the stock probably losing like 60% of its value during the, the 2008 crash.
0:45:58 So this has been a runaway winner.
0:46:06 I can promise you Blackstone doesn’t have a single fund, uh, private credit or equity that
0:46:10 has done as well as its, uh, stock price has, uh, at least I don’t, at least I’d be shocked.
0:46:11 I really don’t think so.
0:46:13 I know the average fund is not.
0:46:19 So what we did, my research partner, Sean and I, is we took the universe of the top 10
0:46:22 publicly traded private equity and private credit funds.
0:46:25 And you know, all the names, it’s Aries, it’s Apollo.
0:46:27 Um, it’s, uh, Carlisle.
0:46:29 These are amazing companies by the way.
0:46:34 Um, uh, but we took the top 10, we market cap weighted it, and then we equal weighted it
0:46:37 just to make sure that we weren’t being unfair.
0:46:43 We compared it to, um, Bloomberg has a PE index benchmark and I’m sure people will complain
0:46:49 about what’s in it, but effectively it’s the best way we know of to track the returns of
0:46:50 private equity funds.
0:46:56 So basically we raced the sponsors, uh, themselves, like the companies that launched the funds,
0:47:00 their publicly traded stock prices versus the products they sell.
0:47:02 And the results are hilarious.
0:47:10 Um, so if you had invested in, uh, the market cap weighted basket of the top 10 private equity
0:47:16 companies invested in their stocks, a hundred dollars turned into $264 going back to 2022.
0:47:22 If you had put, put the money into the Bloomberg PE index benchmark, let’s just assume that’s
0:47:27 like an approximate of the average of all their funds, a hundred dollars were to turn into
0:47:28 $113.
0:47:34 So it’s like, not even like you almost can’t even put it in percentage terms.
0:47:37 The funds returned 4% per year.
0:47:39 The stocks returned 38%.
0:47:39 Yes.
0:47:40 Now, is it fair?
0:47:42 I’m just using the last three years.
0:47:43 No.
0:47:46 And I don’t, I don’t know what the next three years will be.
0:47:48 Maybe it’ll be the opposite, but it struck me.
0:47:55 Why be a player in the casino when you can own a piece of the casino and let other people
0:47:57 try to pick private equity funds to invest in.
0:48:00 So, uh, I just thought that was an interesting way to think about it.
0:48:01 Yeah.
0:48:06 And I think it’s indicative of the point, which is, is I think unanimously understood at this
0:48:10 point, which is that these funds net of fees are not very good.
0:48:16 They, I mean, you can, you compare them to the S and P, the S and P consistently, I don’t
0:48:22 know if there’s really been a 10 year span in the history of the stock market where the
0:48:27 S and P has put, has underperformed these P funds, maybe in the early days of private
0:48:27 equity.
0:48:32 In the early days, like in the, if, like if Mitt Romney was your private equity manager
0:48:35 at Bain Capital in 1993.
0:48:36 You got it on the Bisco.
0:48:37 Yeah.
0:48:37 Yeah.
0:48:38 Their returns are amazing.
0:48:42 Like I, I read Steve Schwartzman’s biography last year.
0:48:44 It’s incredible what these people have done.
0:48:48 Uh, I’m, I’m friendly with Harvey Schwartz at, at Carlisle.
0:48:50 I interviewed him for my podcast.
0:48:53 Like, well, I’m saying like, I, I revere these people.
0:49:00 I think they’re amazing, but that doesn’t mean that an individual investor needs to own a
0:49:03 product necessarily in a 401k.
0:49:10 Like if the goal is long-term compounding equity returns, I think the stock market’s good enough.
0:49:11 That’s, that’s, that would be my comment.
0:49:14 We’ll be right back.
0:49:18 If you’re enjoying the show so far, hit follow and leave us a review on Prof G Markets.
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0:51:40 We’re back with Prof G Markets.
0:51:48 The final thing that I’ve been thinking a lot here about is this distinction between the private markets and the public markets,
0:51:52 which, in my view, the distinction is becoming increasingly blurry.
0:51:54 I don’t know if you agree with that.
0:51:55 Yeah, it’s true.
0:51:56 No, it’s true.
0:52:00 I mean, the private markets are functioning pretty much like the public markets.
0:52:08 And, you know, I just think it’s a shame that this is happening.
0:52:17 Because I think it’s a shame that we’re not having more companies, more strong, growthy AI companies that have really proven themselves.
0:52:19 They’re not going public.
0:52:21 And I’ll just put it flat out.
0:52:22 I want to invest in open AI.
0:52:24 I want to invest in all the AI startups.
0:52:28 Or they are coming public, but once all of the money has already been made.
0:52:29 Exactly.
0:52:31 Coming public at a full valuation.
0:52:32 And that’s a shame.
0:52:36 And my issue is, I think a lot of people saw this headline.
0:52:37 They said, well, this solves the problem.
0:52:39 You can get in.
0:52:40 It’s like, no, no, no, no.
0:52:49 I can get in in some bullshit basket and pay 1% to 2% in fees per year and then pay the 20% in the carriage.
0:53:02 I was going to say, if there’s a venture capital fund that’s like actively courting people in their 20s and 30s that are not like centimillionaires, you probably don’t really want to invest there.
0:53:18 The best way to get in early on a hot venture-backed private company that then goes public is to work there and be paid in part with RSUs or ISOs, some sort of stock option.
0:53:19 That’s the best way.
0:53:25 The second best way is to be like the college roommate of the guy that founds Uber.
0:53:27 Like, that’s a really great way.
0:53:32 And I’m saying this like half facetiously, but like at the end of the day, life is not fair.
0:53:39 Don’t you think everybody wishes that they had the ability to invest in Facebook in 2006?
0:53:47 Like, obviously, it’s not going to be democratized because the wealth of the world is not democratized.
0:53:48 It sucks.
0:53:49 Get mad about it.
0:53:49 Start a band.
0:53:51 Put on eyeliner.
0:53:52 You know what I mean?
0:53:54 Like, what do you want me to tell you?
0:53:56 Like, it’s not going to be fair.
0:53:57 It’s never going to be fair.
0:54:00 It’s become increasingly unfair is what I would say.
0:54:03 It’s gotten a little out of control.
0:54:03 I wouldn’t argue.
0:54:13 One thing that’s true, Ed, and one reason that’s true, people talk about the small cap premium in the stock market, which has vanished.
0:54:19 But there used to be this concept that small caps offered better performance than large caps over time.
0:54:26 And there were all these reasons for it, like growing earnings off of a smaller base and the multiple increasing as companies become more well-known.
0:54:28 Like, there are a lot of good – that’s vanished.
0:54:31 And people don’t understand why it vanished.
0:54:37 The reason is the best young growth companies no longer come public as small caps.
0:54:38 Exactly.
0:54:42 They come public with $20 billion valuations.
0:54:44 They go right into the S&P.
0:54:45 This is my point.
0:54:45 Right.
0:54:47 $500 billion valuations.
0:54:51 OpenAI is 19th most valuable company in the world.
0:54:52 It’s a private company.
0:54:53 And 10 people benefited.
0:54:55 Exactly.
0:54:55 I know.
0:54:57 And my point to you, Josh, is that’s new.
0:54:58 That’s new.
0:54:59 Yes.
0:55:01 And I do believe it is unfair.
0:55:03 And fair point, you know, I’m complaining.
0:55:04 Go start a band.
0:55:07 Go work for OpenAI if you really want to.
0:55:07 Maybe I fucking will.
0:55:09 Maybe I’ll be there podcasting.
0:55:15 But my point is we, the young people, the retail investors, can’t get in.
0:55:19 And I just want to say this because it happened while I was on break.
0:55:24 There was a Business Insider article that came out about this at this point that I’ve been making,
0:55:29 specifically about how all the best companies are staying private and kind of the shitty companies
0:55:32 sans maybe Figma going public.
0:55:35 And so we’re frozen out.
0:55:36 I disagree with that.
0:55:37 I disagree with that premise.
0:55:39 I don’t think it’s all shitty companies going public.
0:55:40 But okay.
0:55:40 Continue.
0:55:41 Okay.
0:55:44 Less impressive companies.
0:55:45 Maybe I’m being too harsh.
0:55:47 Well, remains to be seen who’s impressive.
0:55:49 You need a little bit more seasoning.
0:55:50 Okay.
0:55:55 You need a little bit more time for these companies to see which are the good and which are the bad.
0:56:01 We’ll table this one and then you and I will get into an argument about this later because we do need to go through this.
0:56:02 I just want to cover this one point.
0:56:08 Joe Weisenthal, podcaster, Bloomberg journalist.
0:56:09 Shout out to Joe.
0:56:09 That’s my boy.
0:56:11 I like the guy.
0:56:12 He came at me on Twitter.
0:56:15 He posted this article.
0:56:22 He said, the way people talk about wanting to get access to hot private companies drives me crazy, riddled with hindsight bias and other biases.
0:56:27 I just want to say, Joe, you got to at me next time.
0:56:31 He screenshotted the article, Ed Elson, Ed Elson, Ed Elson.
0:56:33 I hear people talking about this.
0:56:34 It’s clearly, it’s me talking about it.
0:56:36 So he’s got to at me next time.
0:56:37 That’s a vicious subtweet.
0:56:37 It’s vicious.
0:56:42 Where he screen grabs your quotes in an article he doesn’t like.
0:56:45 That’s like, that’s a very aggressive.
0:56:47 I don’t know why he’s coming at me.
0:56:52 You and Joe, you and Joe, if you guys, if you guys spend time together, you guys actually would probably be friends.
0:56:53 Joe is awesome.
0:56:54 I totally agree.
0:56:57 But we’re going to have to get over this boot.
0:56:59 I’m going to connect you guys behind the scenes after this.
0:56:59 I’ll do it.
0:57:00 I got it.
0:57:02 Okay.
0:57:03 Thanks, Josh.
0:57:05 Let’s take a look at the week ahead.
0:57:09 We’ll see fresh inflation data from the Personal Consumption Expenditures Index for July.
0:57:12 We’ll also see Consumer Confidence for August.
0:57:16 And NVIDIA is reporting earnings on Wednesday night.
0:57:23 Now, we’re recording this just before the Jackson Hole Summit, where Jay Powell will be speaking.
0:57:25 But a lot of stuff going on in Fed land.
0:57:30 Specifically, Trump asking one of the Fed governors to resign.
0:57:33 We’re seeing more pressure on the Federal Reserve.
0:57:38 Any thoughts on what’s happening with the Fed right now, Josh?
0:57:46 And perhaps any predictions maybe on interest rates or what’s going to happen in terms of the Fed governorship?
0:57:48 What’s going on here with the Fed?
0:57:49 All right.
0:57:56 On Wall Street, this is being characterized as Powell’s last stand, meaning this is conceivably his last Jackson Hole address.
0:58:03 If you believe the president’s rhetoric on Twitter, this guy’s out of here when his term ends in May, if not sooner.
0:58:11 So this is really his chance, I think, to cement his legacy rhetorically at the podium.
0:58:24 There’s a lot of people who think he’s going to use this as an opportunity to reassert the need for there to be an independent Fed and to do something that’s somewhat politically charged.
0:58:28 I actually am predicting I would go the other way.
0:58:43 I think this is going to be more of like I don’t want to say victory lap, but like I think he’s going to signal that September we’re getting a rate cut because the Fed has given it so long and has done what it had to do.
0:58:54 The big debate in the Fed minutes that came out this week, some of the committee believe that the risk is to the upside, meaning higher inflation, stickier inflation.
0:59:02 And then some believe the risk is actually to the downside because the labor market by some metrics is weakening.
0:59:06 So there’s there’s not agreement in the committee.
0:59:08 It’s not like they all think one thing.
0:59:13 And you had two dissenters on the Fed’s last FOMC where they chose not to cut rates.
0:59:16 You had two dissenters who thought they should have.
0:59:21 So and that’s, you know, it’s not that rare, but it’s rare enough that it’s worth mentioning.
0:59:27 So I think the Fed is not going to give a politically I think Powell is not going to give a politically charged speech.
0:59:34 I think he’s going to give us a dovish hint and then in September he’ll follow through with maybe 25 basis point rate cut.
0:59:45 And I actually think he’s aiming to cool down the temperature, not, you know, stick his chin up and say, come, come fuck with me.
0:59:47 Cool down the temperature politically.
0:59:47 Yeah.
0:59:50 I mean, that is what what is interesting is I agree.
0:59:54 I think he’s he does not want to get involved in a political spat.
0:59:56 By the way, Scott takes the other side of this.
1:00:01 He thinks, oh, Powell’s he says Powell’s not going to cut rates because he wants to sort of give the finger.
1:00:04 My view is this guy doesn’t have an ego like that.
1:00:05 Yeah, I don’t think so.
1:00:06 I don’t I don’t think so.
1:00:12 And but what you’re saying is he does want to turn down the temperature politically because it has become politicized.
1:00:17 The more independently he tries to act as Fed chair, the more he’s endangering.
1:00:18 He doesn’t have a choice.
1:00:25 But the more he’s endangering the independence of the Fed, this is not the first president in history to have an opinion on where interest rates should be.
1:00:34 This is not the first president in history to try to intimidate the chairman of the Federal Reserve into acting on the administration’s best interest.
1:00:34 It’s just not.
1:00:37 He has a style all his own.
1:00:39 It’s the first president to do this on Twitter.
1:00:40 Important detail.
1:00:41 Yeah.
1:00:52 No, I get it, but I just I don’t think that Powell thinks what’s what’s in the best interest of the institution is to give the middle finger to Donald Trump.
1:00:55 And I also don’t think a rate cut would be so crazy.
1:01:02 Rates are too tight for a one to two percent GDP growth environment.
1:01:09 If you’re basing your opinion on whether or not rates should be cut on the stock market, then you don’t even understand how the Fed works.
1:01:15 The Fed, the Fed is not supposed to be paying attention to the stock market as its own variable.
1:01:17 It’s employment versus costs.
1:01:19 I don’t think we’re in an inflationary emergency.
1:01:23 And I think rates were too high given economic growth.
1:01:26 The labor market is not as strong as it was last year.
1:01:29 And they did a rate cut last year.
1:01:38 So I don’t think it’s that hard for Powell to get to the place where he says, all right, here’s your fucking 25 basis points.
1:01:39 Enough already.
1:01:40 And that’s what I think.
1:01:41 Well, that’s my prediction.
1:01:43 I don’t know anything more than anyone else.
1:01:44 That’s what I think.
1:01:46 I like that prediction.
1:01:47 Okay.
1:01:55 Josh Brown is the co-founder and CEO of Ritholtz Wealth Management, a New York City-based investment advisory firm managing six and a half billion dollars in assets.
1:01:58 For individuals, corporate retirement plans and foundations.
1:02:00 He also is a podcaster.
1:02:03 You should check out his podcast, The Compound and Friends.
1:02:05 Am I missing anything, Josh?
1:02:06 No, it’s enough.
1:02:07 It’s enough already with me.
1:02:08 It’s enough.
1:02:09 Okay.
1:02:13 We really appreciate you standing in for Scott this week.
1:02:15 And we hope to have you on again very soon.
1:02:16 Love you guys.
1:02:16 Thank you.
1:02:17 Thank you so much for having me.
1:02:18 Really appreciate it.
1:02:19 Thank you for joining us.
1:02:20 This was great.
1:02:25 This episode was produced by Claire Miller and engineered by Benjamin Spencer.
1:02:27 Our associate producer is Alison Weiss.
1:02:29 Miel Silverio is our research lead.
1:02:32 Our research associates are Isabella Kinsel and Dan Shallan.
1:02:34 Drew Burrows is our technical director.
1:02:36 And Catherine Dillon is our executive producer.
1:02:40 Thank you for listening to Prof G Markets from the Vox Media Podcast Network.
1:02:43 Tune in tomorrow for a fresh take on markets.
1:03:07 Prof G Markets from the Vox Media Podcast Network.
1:03:19 Prof G Markets from the Vox Media Podcast Network.