Are We in a Bear Market?

Gallagher's is gonna slap tonight

You know, I want to a steakhouse last night, but I didn't eat steak. It's what we do

I went to Hendricks and I got not steak. Not really a steak. Well, I mean did you get lamb chops or did you get like swordfish?

There's a big difference you would like you would like Hendricks

Hendricks used to be called the George Washington tavern and

Legend has it. It's where he stayed

Before crossing or just the Battle of Brooklyn

Actually took place on Long Island

They just haven't am I right? No, no. They didn't have a name for Long Island yet. It was basically brought

It was just like oh, that's Brooklyn and

George Washington stayed at this tavern. It's a historic landmark and

There's a restaurant group called the Paul Brothers on Long Island. They own the best restaurants and they took this place over

It used to be these blue-haired old women

That's who a little dated here like you think I'm from the revolution

No, no, no, I'm just saying

I'm just saying it's kind of a cool place because

You got started to get

Did the Labanthol family raised municipal bond money during the Revolutionary War?

Oh, we shared a field. We shared a real chat

You know what's good at a you know what's good at Hendricks the the bone marrow

We got the hot dogs and they're had those before on real

Not my thing so

The book is called how to ride the subway

Famously this guy will not ride this up on them. Do you know seriously he gets mob by fans?

Do you know I've I've been walking around Manhattan with a stick in my bag

It's it's called a it's not I'm not making this up Michael. We'll tell you that it's real and he has one in his car

It's a tire thumper. Okay, you know what that is not really but it's like a short baton that truck drivers

Thump a tire with to make sure that it's

Inflated so on the days where I know I have to take the subway because I have to do some impossible thing to like get to try

Deco or whatever from downtown. I will have my tire thumper in my backpack. I'm not fucking around here

I see I so this is the every book every I'm gonna be a man of the people with a tire thumper every other post on my Instagram

It's either New York Post or somebody showing me a slashing chunk Jimmy is this guy show Jimmy my stick psycho

How far are you laughing? Do you know what me to stay alive in New York City?

Three nobody's gonna mess with you. I have to tell you like I am the pride. I'll tell you I was like I stopped carrying it

Cuz I was getting upset that nobody tried me

Like I almost wish I almost wish somebody would no no, but all I see is people being pushed on the tracks

People being like steps stop it. No, we have both

And slashing in New York City you still take the subway every time to go down you have a stick

I do not have a stick, but I have I have some I'm gonna get him

I have some I have some

If you're on a subway car and somebody starts acting crazy, like I just get off. Oh, do you wow it's moving?

It's too late. You're already dead statistically. You're finished. They're lighting people on fire on the train

They're literally setting fire to other people it is

It's a zoo you and and there's no cages. You can see the parallel to dangerous investing, right?

Yeah, here's my parallel. I already halfway moved to Florida

I'm almost I one foot out of the state

Josh is auditioning for an appearance on other projects

So if that's the parallel the way I invest subway style like I'm like the black swan

Investor like I'm I'm looking for the one of those funds called

What are these ones that they literally call them that I don't know how you don't

Josh and I can write a sequel. It'll be how to ride in your Maybach. Yes

Yeah, you know what my book is called how to never get on a subway as long as you live by Josh Brown

You know, there's your subway service. I know Josh is salt of the Mercedes

Let's have some fun today when we won last is it a year ago? I think it was a year ago

Thank you guys are having me on that was so much fun. I've really been looking forward to that was that was an awesome episode

And you know what today is gonna be even better. We have so much that the market is so strange

Yeah, like the weirdest things I've ever seen a good thing is you and I are on the show at least from my perspective enough that I know where your head is

I hope you kind of know where my head is. Yeah, but it is weird. I mean the market you're in cash, right?

I have a little bit of cash, but no the index off 5% but every stock feels like it's just getting taken to the wood

I'm surprised I am surprised by how many big notable companies have a share price that's in a 15% or greater decline

Let's not let's not do the show before the show. Come on John. Let's go. Come on in friends episode two thirty four

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234

Jimmy episode 234 it's a lot right

That's a I'd like that for one of my stock boxes ladies and gentlemen welcome to an all new edition of the compound and friends

I am your host downtown Josh Brown

Like my drop

All right with me as always my co-host Michael Batnik hello. This is the best investing podcast in the world

and

Today we have a returning champion one of my buddies one of my favorite people. I've ever met on the street

He knows I feel that way

Mr. Jim Labanthal is the chief market strategist and a partner at CERDI partners

He has over 25 years of experience managing investment portfolios and is a regular contributor on CNBC

And Jim is one of my cast mates for the best show on CNBC

The halftime report give it up for Jim Labanthal. Let's hear it

You audience is stolen. Thank you very much right now

Welcome back. How have you been terrific delighted to be here. Thank you for having me back

Of course being on your team on the halftime report. Yeah, it's one of the funnest things

We we have made it a lot of fun and you and I we started when the show was taped in Jersey

Right remember those days I too remember getting me in a black car in midtown

And riding 45 minutes

How many times would you say you did that? I think I did it like a thousand times

You've been doing it longer than I have yeah, but I've been doing this since 2013

And I think I've done something like 1500 episodes so I gotta be I mean you got to be like 2500 or so

What have I done with my life a lot Josh? I know but I'm proud of yourself. I'm proud. I think I'm getting

I don't know it I'm 49 you just like how it's done every six months is like I how much longer?

I'm much longer. Okay, we love we love the show. All right

Hey, I I've positioned this opening segment as the weirdest stock market ever

There are so many things about it that we can get into

But I would just love your high level take on what we're living through right now in the investment world

You know, we I entered this year saying the thing I say every year

Hey, it's gonna be a good year, but it's gonna be a volatile year

Well, guess what this year actually is volatile for real

For real and a lot of different things the risks are real the opportunities are there

But I think the reason it feels weird is so many people just got used to you get a down draft you come back quickly

Like a year ago

Post-liberation day hay stocks are a great buy and then we're off to the races

This is more like the market is actually digesting real stuff

Straits of hormones being closed concerns about private credit credit

Artificial intelligence is it a bubble is it gonna eat everybody's lunch these are real things by the way

I think the market will work its way through this. I still think this is gonna be a very good year

But we've got to work our way through it. There are so many

Thing that this is the problem like last year

It was tariffs. Yeah, like they were I don't remember really anything else the Fed was sort of like

Not really that big of a factor earnings were great quarter after quarter upside surprises

I think the city economic surprise indicator is spent most of the year trying to catch up with you know

So and it was year one of a presidential terms. So Trump was doing a lot of pro

Economy things this year. It's like a it's like a carousel of nightmares

If we're not worried about inflation one day the next day we're worried about like literally bombs dropping

And oil rallying and it's just like one thing after another and I taking our jobs

And then and then the AI software thing. It's almost it feels like existential for the labor force

This is like such a different environment

So I'm glad you went there and what you just said Michael too because a lot of what we're talking about is perspective

Now bombs are actually dropping in the Persian Gulf. That's real. That's present time

But you know, we had that Satrini research article. I hesitate to call it research article was more you know

Sort of a fictional creative writing. He said he said it was science fiction. Yeah, okay

I just love the part where he said it

You know first line is this is not doom porn, which is like a red alert like you said

This is not our base case or our forecast. Yeah, but nobody paid attention to that

Well, I don't mean I don't mean to beat up on it so much my point is is that's all perspectives

That was that was hey what might happen in

2028 and with private credit a lot of what we're talking about is the fears of what could happen to the software companies in the future

Not happening right now

There are definitely some defaults, but those defaults are fraudulent in nature

It's an indication of bad underwriting as opposed to hey the business cycle is turning down companies aren't earning their cost of capital

That sort of stuff

A lot of the fears are perspective and actually I was looking forward to talking to you guys because something that's been driving me more and more crazy

Maybe I'm just getting older and crankier is why is everything that happens compared to 2008 like why can't this just be

Hey, there's some problems instead of availability bias. It's the thing that's in the front of everyone's mind still still

Yeah, 18 years, but everything is looked at as this minskie moment of we are just going over the edge

Well, if they don't do 2008 they do 2000. It's always gonna be

10 years ago everything was 1987 and that's yeah, and that's sort of like

Shifted to the background because it's too far away. Yeah, so we grasp at these two things that occurred in the last 25 years

They're just easy to wreck a lot. Let me ask you guys this

Why isn't the market just flushing already like so we're finally in a 5% correction first time since liberation days

And then hard to believe we have we've been near within five seven all time high for over year

But why won't people just sell already like why won't we just get the flush and here's

Here's a question that I want to post to you

Markets never underreact almost right like markets almost always overshoot

They almost always instantaneously overreact oh never mind like let's you know shoot fish shoot first ask questions later

They're not shooting first like

So the market safe 5% draw down software stocks are underreacting

No, okay, you are saying something that I didn't say I didn't it's a software stocks are now for reacting okay

The market why is Michael not on the halftime report? This is my idea you that mean when I retire

There's not sliding them right in

The market is only the stock market of S&P 500 stocks. Yeah, it's 5% from an ultimae that's it

Yeah, but all the various sectors have gone through their own corrections

They've just been kind of phased it's sort of the same thing with why haven't we gone through a recession

Well manufacturing has gone through a recession housing has gone through a recession

So off-door stocks. I mean they're getting their faces rearranged

Credit spreads are like not blowing out too bad the vex got to 35 for a second

That's a good likely there's level that's a good like let's reset the mark 35 for a second

First where's it now 24? I mean you kidding me. That's it

What so you're you're you're saying like

24 why aren't people more panicky in general?

Not just this is a good question. Where's the flush? This is a good question because go back to August of

2024 remember the Yen carry on wine of course, and what did the Vicks spike to in that period?

I think it was even higher than that. I think it I think it was over 60 maybe even been 80 and that was the

Mother of all over reaction

So I don't know is the market maybe just kind of whizing up that not every scare is

A little others moment. So I said this on TV the other day. Santa Holy didn't like it

But I heard that I just got the modern investor

Is not logging into their 401k to like go to cash

Like the modern investor has seen this happen a million times at this point

And they just they're they're not as easily rattled now down 10% maybe that changes down 20% but like

I just people are selling individual stocks of course

But this idea that people are going to take their portfolios flat

I just don't think they're going to do it. Well, and people are expecting it

Yeah, that was a good segment with you and Mike

I watched it. I wasn't on the show that day

But what I thought was Mike's talking about the institutional investor

Yeah, you know, those are the guys who are like hey, we're in and out like in a moments notice

And it could be the hedge funds could be quantitative hedge funds all that sort of stuff

But I completely agree with you were living in the same world of the retail investor whether they're high net worth ultra high net worth

Whatever it is generally speaking the advisors are talking to them and we're saying yeah, this is a really bad time

But don't sell your stocks sure

There are some people who 10 months ago post liberation day sold everything and moved to Europe

I we didn't advise that I'd be surprised if you advised that I mean, I know you didn't

But that was the minority let's say you're the person that did that yeah, or you watch somebody you know did that you're just a regular investor

You're never doing that again right because it's so stupid right well, but also so I I think

I think the market's gonna break like I don't think it's gonna hold these levels

I think it's I think it's it's rolling over so I do suspect on let but here's here's the other thing

This could all end with a tweet

Right, I understand the things that are going on in the straight of her moves like the actual fundamentals will take maybe

Perhaps the years to work through yeah, but investor sentiment could change on a dime

If he just says that's it we're done. We're pulling out mission accomplished Jim Jim said that

This is I'm gonna quote you I'm gonna quote you to yourself

If traffic can start throwing flowing through the straight of hormones soon by the end of March

The damage from high energy prices need not be lasting

Those positive forces will come back and play but we're still dealing with daily headlines about bombing oil terminals in April

Businesses and consumer confidence will start to take hits

And unlike the past five years those hits could lead to layoffs and consumption declines purely from higher oil prices or

Like a consumer sentiment hit. It's the consumer sentiment. It's the business sentiment

I mean we know there's been really no firing, but there's been no hiring

And if you add firing to it if businesses say hey, maybe we better hunker down raw material costs energy supply chain disruptions all this sort of stuff

I think if we go too long with oil where it is businesses will say maybe we better pull in but Mike to your question of why aren't things

Worst than they are we can cite in a number of reasons, but profits are growing. Yeah

So as long as profits are growing we all know we're business men if we're profits are growing

We're gonna lean into it. We're gonna expand. We're gonna hire

But if profits start coming down on the back of higher energy prices or supply chain disruptions

It's a different story. Powell said yesterday. There's been effectively zero job creation this year

Uh, that shows up in the numbers doesn't it isn't that good for profits? What's that isn't that good for profits?

And I'm like, I'm not being facetious. No, I certainly don't want one

The only problem is then you know, I know it's tough for society. It's tough line pressure

If you don't have people who are employed to buy your stuff. So this is from suction

um

pre-shock

Fundamental signals were firm and improving

Even now earnings revisions remain net positive

With both the Nasdaq 100 and the S&P 500 staying in upgrade territory since last May

The US continues to outform the world on the broadening of the EPS cycle

So I actually love this setup even though the market is heavy right now

And even though invest in sentiment suck shit right now. We'll get into some of that stuff

John thumbtron to please this is from duality research

So he is breaking down the S&P 500 returns by sectors and he's looking at the price return

The EPS growth and then of course the multiples and it's all multiple contraction

earnings are strong and people are souring on maybe I don't even think it's the potential of future earnings growth

There's just a lot of headwinds right now

And so we are building a wall of worry. There is a lot of um

People that are getting out of the market and I don't like to lose money nobody does

But you need this I totally agree

This is a reset from which we can grow higher

We all came into the year observing where the S&P 500 multiple was 22 times forward earnings

Hey, isn't that too expensive the mag seven are up towards 30

We've had a nice little reset as long as these earnings revisions that you're properly pointing out

Don't start coming in

I think that's where some of your skepticism may come from is how could these earnings not be being

Revised down already and the answer is as long as oil comes back pretty quickly

You know look if we start the straits open again comes back to where like seven six six these seven which it probably will

Because there's a heck of a lot of oil. I mean we knew this there was like a two million dollar a two million barrel a day

surplus before this Iran conflict started and that was a lot of surplus

So that will be there when the straits open up again. What so all right

So this is an impossible thing though for investors to know

If and when the strait will reopen

It's an impossible thing. There's no nobody has an edge on this. I'm even looking at polymarkets

And I get no signal from polymarkets

You know you get a lot of bets there that are like

31% that it opens by april 15th. I don't know what to do. Oh, I have a bet on there that

Tim Shalamay will reopen the strait of hormones

So what's the probability there's a nine nine cents per

You guys both mentioned something that's obviously true

That a lot of stocks are getting whacked in fact

John chart through please one in three stocks and the S&P

Are down more than one in three are down. Oh, this is updated. So yesterday was one in three now

It's two hundred and three stocks are in a bear market. That's almost that's 40% half the market

That is that is a lot of bear markets

Yeah

And you know the immediate question that I think many people watching this will come to mind is how can the market itself

Only be off 5% the answer to which is the peaks from which those stocks are coming down

Happened at different times in the past

But there's no I think that's healthy

I really think this status healthy that 40% of the S&P 500 is in a bear market

I don't think we can complain about valuation being too high in that set of circumstances

What we can say is it's a reflection that maybe earnings are more uncertain the further we go on in this conflict with Iran

The problem is which which two hundred and three stocks. I'm so glad to ask Josh

That to me that's because I always look beyond the internals like with the headline internals

Well tell me which stocks if you tell me

The 50-week low list is littered with profit lists or or barely profitable biotechs and

Um, you know a lot of software companies that have disruption risk. I'm like

All right, I sort of understand it, but we're talking about credit card companies

Regional banks and that's not trying to say 61% of tech stocks are in a bear market

57% of discretionary stocks. We were talking the other day about Starbucks McDonald's

Where's financials on here 39% of financials all of these lower end consumer the fast food names

Higher gasoline prices guess what you pull them back on right although

Before we do the k-shaped economy and maybe you know the consumer who's driving a range rovers can still afford a note mill

Glottay

Let's focus on tech because I think this is where sentiment really lies right

Microsoft's off. I'm not going to do it. I mean we can it's it's only seven twenty twenty eight percent right

Meta, you know the big companies a lot of these companies are down a lot a lot and that weighs on investor sentiment

And that's why I think a lot of people feel this market is a lot more lousy than it is a lot of people are saying

Are we in a bear market? What with the S&P 500 off five percent

Nasdaq I'm not gonna look right now, but probably eight percent. No, but there are many prominent important stocks that are in their own individual bear market

I think there's people own these a lot. I'm sorry Mike. There's goodness for the bad news

Oh, I've been just telling me could we bomb this test great um

what

What what is the test that they give to his age it was about consumer sentiment

We don't need to get into it right now. Is it like how can you make a popsicle? No, it's fractions. It's fractions

It's okay. All right John chart five. Please

So maybe I'm grasping for straws here and I am

But people are bearish and Jimmy I think you're a hundred percent right the people in the AI ii survey

Guess what they own they own Microsoft they own meta all these names are getting bombed out. Yes, and

We are so char kit broke it down by deciles in terms of what is the forward return

One year later

Based on how bullish or bearish the sentiment is and the good news is obviously the more bearish the sentiment is

The better the returns are a year forward now the bad news is obviously there's no guarantee here

It's like statistically significant. I think it's 16% higher

For your later for it. He should have done that in green not red. That's right that bar

That's right for the three of us who were experienced in the markets

We love this we know what that says we know the high hit probability when sentiment against this negative as far as forward returns go

And the flip side is is when you're over here on the left side and you're more bullish and everybody's just buying buying and you know

President Kennedy or maybe it was father talking about the shoe shine

Kid telling them a stock pick. You know you're in trouble. We're nowhere near that

We're at the as you're pointing out here. We're all the way at this end. It's good. It's what we need

The difficulty with sentiment for me has always been

I don't believe that people are actually answering the question about what they're asking

I think when they do these kinds of kinds of polls

I think we all agree the a ii poll is like older

mostly gentlemen

in their pajamas

And there's somewhat crankier than the pop than the overall investor population

It's got to take a tire tire thumper to the a i

No, I just all right, so who's picking up the phone and answering this survey in real life

and

Oftentimes they're saying things they're they're negative on like the political

Yeah, situation. They love Trump. They hate Trump. They hate Mamdani. They hate like whatever that is

So they're negative

But they're not really answering the question about the stock market. They think they are

They just like don't like the times that we live in

And so well be that as it may when they are just negative fault returns are way higher than normal

Okay, all right, that's just a fact

Josh, you're correct about you know consumer sentiment surveys small business CEO

And they've been terrible for years. Yeah, the bull bear surveys

I and I don't know who I actually don't know who's answering them

But they have been pretty consistently a contra indicator even to the current day

Okay, no, I would agree but when they were at extremes. Yes, and we had a stream. No, no, we're not not even close not even close

Um, so you open the show saying this is a weird stock market and it really is. Yeah

John chart six please this from Adam Parker

Adam shows the number of stocks

Up or down 15% in a quarter. Yeah, and he's looking at the top 900 US equities

That's just volatility in either direction. So this is the highest that it's been since I don't know

2022 when inflation was spiking like

stocks are getting murdered and stocks are going straight up like

The memory stocks Sandisk and and and micron oil stocks oil stocks refineries

There are stocks that are working. It's just it's just not the stocks that you want to see so chart

eight, please

All right, this is not great

Actually, you know, let's do let's do this one

This is Grand Hawk Ridge

So this is a short-term in nature, but all of the risk off stuff is rolling well all of the stuff that you want to see in a good market

Looks like shit

So we're looking at charts of high beta versus low volatility

Rolling over

cyclicals versus defensive rolling equal way consumer discretionary versus staples crashing dollar bad

Advanced decline line bad high yield bonds versus treasures everything risk off is flashing

Even go even hit gold. I know gold is below. It's 50 day moving average for the first time this year

You know, I'm thinking about the answer to this this chart in the context of of what you said earlier

Do we are we're going to get a capitulation and I'm not sure that we will because of the proverbial tweet

That could come in at any point in time or just the you know somebody posting that there is a tanker flowing

You know sailing through the Straits of Hormuz and it's got an America. What is that tweet?

No, it's a tweet from the president, but saying what he wanted to clear victory

No, but literally what we won. We're leaving, but we're leaving might be the tweet

I'm not sure we need capitulation

Especially when I look at the upper left here high beta versus low volatility said that

I think people are always waiting in a bear market with bear market. We're 5% of all the highs

But people are always waiting like wait for capitulation. Why why you don't need that you don't think we need it either

I don't think you need it you may get it, but I don't think you need I totally agree

We it might happen, but look every but if I look 40% of stocks are in a bear market things are washed out

So if you look at the high beta versus low volatility when I look at that all I think of is palantir or apple oven

Are any of those stocks that there's no and Josh you know there's no way I could ever own those stocks

But when they were it while you're not American

Yeah, you got a problem

When they were at 100

Bellataur

When they were at a hundred times earnings and I was saying they're too expensive guess what they go to 200 right and

At some point that's got a correct

Corrections are I know the three of us agree nice corrections are healthy great fair market stink

And I don't I don't think we're going into one. I mean there's a lot of good things going on stimulus from the budget bill deregulation blah blah blah

But corrections are healthy because they set up for the next leg. Well, we'll change your mind that what we're experiencing now

Is more meaningful than a correction? Would you need to see the earnings revisions go lower for the overall market?

Would that be the thing that that is one of the things but those weekly jobless claims

I mean we get them every week if we all of a sudden see those spiking

I think we got to pay attention. What's the number 250?

It's around 200 right now just over 200 50 is the spike where you're like 250 is where you start to come back from that

Yeah, 250 is where you start to get nervous and if you start to approach three

So for the list and it's 250,000 people in one week filing for unemployment

That's like what people say is the trigger or the point of no return now

It's all it's all keyed off of where it is now in an absolute level 300,000 on initial weekly jobless claims

I mean we would do that routinely in the 1990s

But going from 200 to 300 is a way of saying there's a problem. Yeah, yeah, because it's a it's the delta between the current state and where it gets to

On the on the earnings part problem is that I know we all know this by the time we see them actually come down

It's too late you're already in the market. I think I think you're right and

Look this upcoming earnings season. I'm so surprised we haven't had more pre-announcements like everybody's got carte blanche right now to say up

Our freight costs went up our oil prices you know our gasoline our diesel costs

I'm surprised we're not seeing more pre-announcements as long as the AI story is intact

And I'm not talking about the shares prices of meta and Microsoft because they look terrible. Yeah, but as long as the spending is there

And nobody is saying nobody's the first to say hey, we're pulling back. Yeah

It I think it I think that and the potential of a tweet

I really think it's hard to get too bearish. You're not gonna have to worry about pre-announcements

We're about to not even have to report earnings anymore

So um, I want to get back to this attrini thing and the software apocalypse because in my view

Before this war started we already had a big market-wide problem

And I think if you get that sweet that you're talking about like

Hey, uh

There's a truce conversation with Iran. We've done enough damage

We're gonna now talk about reopening the straight something like that, right?

So let's assume oil falls $8 a barrel on that day

I don't know if it stays down, but

We still have to contend with the bigger story

Which is there might still be a lot of disrupted market cap

That is meaningful to the S&P 500

Meaningful in terms of like

Spending from people that work at these companies and the corporate spending itself

If you see a lot of investment in the software arena dry up. We don't we've never seen it

So there's no way to know like what that does to the economy

regionally, I would imagine it's a problem in NorCal

But like to me like that's the story that that remains but that happened

What do you mean that sales force went from 350 billion dollars to 180

I'm not saying that I can't go to 100 right, but a lot of that story

We did that about it. Here's what you said elaborate on this not on board with the Satrini thesis

Yes, there will be job destruction

But it's likely to be another chapter in mankind's long history of creative destruction

Jobs will be created to look at the last 30 years

um

Talk about the NYSE where you and I sit and we are

Surrounded by literally dozens of floor traders right right it's the reality right

And the New York Stock Exchange has never been financially healthier

It's just it takes less people to run the floor operations

So this is I'm kind of passionate about this concept and you guys can tear it up all you want

But yes, so in 1998 that was actually the first time I was on the floor of the stock exchange path to the guild joint was jumping

And it was jumping you know, they had these extra rooms entire trading floors that are now walled off and their condominiums

By the way, I don't know if you knew that but yeah

Um, so now those are walled off and there's literally

Less than 10% of the population that was there 30 years ago. It's a few hundred

Daily people on the floor and it was it was over 5,000. Yeah, it was over 5,000

So you know all those runners that were going between the phones on the wall to the specialist stations the specialists themselves

Really aren't there anymore

Couple of thoughts about this number one price discovery is much better in the digital age than using the hand signals

I can't even do them

But you know I buy 2000 or whatever filler killer. That's all that sort of stuff price discovery is much better using computers than human beings

And we've had this massive decline not just on the New York Stock Exchange

But think about all those exchanges that I struggled to remember even exist. Yeah, American Stock Exchange

Remember the curb. That was the thing people paid attention to was oil oil stocks

Right now. I'm burying the punch line

So I'm going to bring it out here in the last 30 years financial industry

Employment has gone from 5.7 million to 6.7 million roughly a 20% increase

So jobs have been destroyed, but jobs have been created where if they've been created

I remember roughly 2003 visiting a friend of mine at get co which was one of the first high-frequency trading companies

I don't know who that citadel bought them or something

But you'd walk into a room and you'd see these giant cages that look like weightlifting racks

You know like you're doing squats Mike. I know you know I do a lot of squats. Yes

Filled with screens and I remember looking and saying what the hell is this?

But that was the future that was where you know floor brokers lose their job

But if you're a high-frequency trader with a dozen screens around you that's a new job creation

Yeah

So you think that

But but do you

Do you believe that as consumers and employees of corporations

increasingly

Start utilizing AI

That we're all of a sudden going to magically create these replacement jobs within a year or could it like be five years before a lot of these people find something new to do

That's someone's willing to pay them for yeah, I think that's what I'm worried about

That's the risk as I see it is that it's not a is it you know

It's not Indiana Jones in the temple of doom taking the statue off in one hand and put in the back of sand

Yeah, this is not cars replacing horses and then all of the obvious jobs. I came from the car industry

I will make this observation even if it's just totally personal like there is a lot of training that I need to do on using

AI and I see what it's doing

I see Claude putting together these these presentations like in 10 minutes if less or less and I'm like okay

I need to learn how to interact with Claude you need to learn how to get close out of the mic my friend. Oh, please

So I'm having such a relaxed time here. I'm just kicking back. So one of the interesting things about this

um and the thing that I worry about as

The father of two college age kids or I have a I have a kid in high school that's gonna be applying to colleges in the fall and I have a sophomore

And I don't know what this job market's gonna look like for a 22-year-old who the hell needs a 22-year-old right now

Because all of the things that Claude and

chat GPT seem to be excelling at are the exact things that you would hand to a recent graduate to work on like a presentation deck

Um or finding go find the answer to this question um or excel stuff or

uh, it just it seems very obvious that

They are going to all become

Socialists like that entire generate already happening. Well, right. It's already in progress

And they're just gonna say what the hell is this like one out of 10 of my friends

Came out of university and can't get a job because nobody wants another body in a seat

Why would they why would they you know and so this is like a near and dear issue for me

Because I know a lot of people who have recently graduated kids and they kept they can't even get internships

Now a lot of this is anecdotal, but here's the data the college the recent college graduate to find this 22 to 27 years old

Unemployment rate is 6% and the overall is 4% and it's going higher and it's

It we have never seen this before that number that I just quoted to you has been growing three years straight for cop recent college graduate unemployment

Um, I don't know what the externality is is for the S&P 500 earnings next year

I don't know how to marry those two things. I just know it's bad

So I have a 25 year old and a 23 year old so when you talk about that unemployment rate

And I've watched them come out of school and look for jobs. I can attest that you are correct. It is difficult

I don't really matter than when you at that age

Has to be uh

I don't know. I came out in 1990 things were look 1990 things were pretty good good enough that I decided to heck with it

I'm going to go into the Navy

1991 though had a little mini recession and people were having a tough time again

So this feels very different from that because we're not in a recession

I hear you on that and that's what I was thinking as you were saying that is

I don't know if what you just described is the normal evolution of a young person

They start out on the left and as they grow old are generally speaking not always but generally speaking

They move to the right

Or if this is something more systemic more demographic

We know right that young people are having a tough time

Finding homes that they can afford and they're pissed off at the boomers because of it

I am in a little bit of a different boat than you fell as um so forgive me for

Oh your kids supporting to Elon Musk your kid the kids your kids age won't even need jobs

So my nine-year-old think Kobe needs for it. I told my so I told my nine-year-old

I was gonna do it that he said I suck at fractions

Don't worry about it. I said so when we tell you you need to study you have to listen

I will help you you don't suck. I love you and I'm proud of you, but I don't like studying

Oh, well best of luck

How do you feel about prompting Kobe?

Unbelievable see I look at that leaving Kobe aside and Kobe's your son. He'll be trained just fine

Okay

If if what you're pointing to there is hey mankind is learning less how to think how to critically think

What I think about is for the people listening to this podcast for our children man the competitive environment just got easier

If if the vast majority of people are just gonna rely on AI to solve problems for them

Imagine if you have an innate problem solving capability, but I don't believe that part of it

I think I feel myself my knowledge expanding so rapidly

From AI. I don't view it as a shortcut that people's brains are going to turn to mush

I think it's the opposite. I think people are going to be so much better equipped and

Yeah, the job displacement is a huge problem like I do believe that the younger people

It's not gonna get any easier

So it's a problem and this is obviously going to have massive political ramifications. Yeah

It will by the way, I don't know how this is going to turn out

I'm hoping that it's the Indiana Jones thing, but it could well be

You know, I was making that reference to the digital digital age and finance

Let's not forget the 2000 to 2003 was a pretty terrible time in the markets

There were a lot of job losses maybe a mixing apples and oranges there, but the the handoff can go poorly

I do think though that even if that happens even if we had some three-year bear market that on the other side of that humanity

America or kids are going to be just fine. I just can't tell you Mike

What those new jobs are going to be? I know there's a job for somebody to teach me how to actually use AI how to interact with clawed

Um, I believe it's oh you would hire somebody to help you get good at AI. Yeah, that's probably a consultant not an employee

But bigger the bigger issue. What's on that college graduate unemployment?

um

Really ripping higher versus overall and this is before the robots even show up

Which is probably three to four years from now

The amount of investment going into autonomous trucking and I mean two million people in this country. They're list their occupation as driver

Now I'm not saying that goes to zero

But if it goes to 1.5 we have a huge amount of displacement and this is among people that are not interested in getting clawed jobs

Yeah, there's not gonna be enough new jobs

That's the thing that now I don't again

Maybe that shows up as in that positive for S&P 500 earnings, which is a sick joke in and of itself

But maybe that's actually bullish fine. Look be that as it may

I know it's not great for sentiment

Definitely not great for consumer sentiment and it may be problematic for a lot of business sentiment too

Yeah, I think futurists might go take this conversation in the direction of global population

You know, are we approaching a point where we really don't need to be above the replacement rate?

I don't I don't want to go there. It's a little bit apocalyptic. It's a little bit more

It's a little way to me

Yeah, but what I would say is that it's not the first time that we've had conversations like this

I already used that example think about farming right?

I mean in the 19th century families were big

Because you need a lot of kids to farm and frankly not all of them would make it to adult stage where they could

Abely farm and now replacement value you have like eight kids to end up with five kids

And now you got like two people farming the entire country. All right, John sharp 13. It's enough of this talk

Let's talk about the stock market. That was a little depressed. We got a little we got a little dark

We're gonna we're gonna we're gonna lighten it up a little bit with all right with some markets

So let's get back to the incoming bear market

So really delwish has a great chart

It's obvious, but it's true. He said bulls continue to stream towards the exits

With the a ii bull bear spread dropping this week to its lowest levels in June

All the net gains for the S&P 500 over the past decade have come with the bull bear spread above 20 percent

Without balls, it's hard to have a bull market circular but true

You need people to be bullish. I mean, well, what's the take what's the takeaway from this you the takeaway is that you need bulls in a bull market

I know it's obvious and it sounds cute, but it's true

So the point is that when this spread of but bulls and bears is less than 20 percent

That's not the type of thing you see in a bull market

But that's counter to what we were saying before which I do believe is you need sentiment to be low

For which the bulls can come in and start pulling up the more it's come back

Yeah, they need to come back. Yeah, I mean if the implication is the bulls are gone and they're never coming back

I disagree we need we need the bulls come back. Um, here's more bear news chart 12

We are okay

And now this is they're not do we get to drink on this show at all this is just a fact

Uh, and this is a lot of this is from the daily chart book which has does a daily chart says they say um all right color Morgan Goldman sex

Buy out blackout

We are expecting the next blackout window to begin this week. Oh for sick

45 percent of the S&P 500 to be in a blackout by that point

Assuming entry six weeks prior to earnings we expect blackout to run through the end of April

Meaning what this is why and that they're stopped. Yeah head of the net. Yeah, and this is a big source of buying so

Absent you know absent a tweet and you know here's here's the real

Uh, not nightmares in air, but here's like here would be the real uh, uh, this would this would make me nervous

We get a tweet we leave and the market fills us out

Pops 3% and closes in the red that's how you know we're have we're going to go into it

We get a we get an iran surrender's tweet or I'm saying if that happens and the rally fizzles

That's how you know we're going with our

Well, I

So what you're saying of course makes sense that you want you know more demand for stocks

That's just microeconomics

But I think we would all agree that when you're looking at the prices of stocks

There are times where it jumps promptly

That's what we're talking about whether it's April 9th

You know that by stocks today. I'm pausing the tariffs. Yeah, or if we get whatever proverbial tweet that ends the war in iran

That it's not so much volume comes in it's that the price resets instantly higher

I remember I think it was April 9th. I might have it wrong

But I remember everybody on my floor were in an open uh, you know an open floor plan

Like everybody stood up and looked over everybody's cubicle saying what the heck just happened. Yeah. Yeah. Oh because it was instant

You were up 6% in an instant the speed of that gap was crazy. Yeah, like people just

People just like completely changed their mind. This is you know what you're pointing to here Mike is obviously a negative

It's short term normal flow short term flow. So you're you like an individual stock

Yeah, so do I

This chart 11

Makes me never want to buy an individual stock that was so crazy and I'm not gonna do it

So I'm in it for the love of the game

But for the last five years

Microsoft which over this period of time has done I'm making this up 70 billion dollars in profits maybe quarterly

I mean it has done everything it had to do it has been the leader in every category

It is at the forefront of every

Inventia blah blah blah blah blah. It's underperformed the S&P 500 for the last five years. Yeah

So what is the message is the message in that

If you bought it at the 4.5 you mark you basically bought peak multiple

Or one of the one of the highest you bought it a year ago if you bought it a year ago

Uh, you bought it peak multiples, but you know look I

No stock is a forever stock Microsoft often gets labeled like that

And I have it in my portfolio, but one of the things that I like to do

I do think this adds a little bit of alpha is when it gets too high you trim it

And I don't want to sound like oh, that's obvious, but you know what it's too high mean and I'm not being you

So in my no not at all, but in Microsoft's case same with Apple, you know

It trades around mid 30s as a multiple as a forward multiple

That's generally been a high point now right now. It's at roughly 22 times forward earnings

I went into this year at half the market

Waiting of Microsoft so 3% versus 6% a couple of weeks ago. I said all right

You know it can go lower it can always go lower, but now is the time to load up

So you just gave you just gave such a great professional answer like when it when it when do I have to trim it and you're talking about

Um, where the multiple typically peaks for the stock so many individual investors would answer that question differently

a Michael would say

When do you know it's time to trim a stock they'd say well when it gets to be

5% of my portfolio or when I'm up 100% in the stock right right right like that said that I think right there is such a great

Example of the dichotomy

Like how do individuals think about when to sell versus when the pros think about when to sell there's a background thesis here

And I know the investors that you have had on you've had some legendary investors

And I see the books that you have on the wall behind you if you think about just warn Buffett as an example, right?

He has not been on the show

He killed it last time one can you come on?

I mean you can you take my spot war

Um, you know

What guys like that will say and I will say and I think you will say as well

If you get the opportunity to get great companies at good prices go for it

All right, and that's Microsoft at 25 to 30 times if right now you have an opportunity to get a great company

I will submit to you that Microsoft is whether it's azure whether it's the operating systems

You know, whether it's the investment in open AI

If you get an opportunity to get a great company at a great price

You just leap into it now 22 times somebody watching somebody listening maybe saying I think that stinks

Okay, I mean you guys know me I anchored to 20 years ago. They think they're gonna get it at 14

They're not gonna have well, let me ask you this

So Microsoft the stock got killed all right in a little baby bounce

And they're clearly so obviously way more people that want to sell than want to buy right now that could change

And it probably will change. I think that Microsoft is probably a screaming buy at some point if it's not today or or temp solo

I have no idea

But this is a massive secular winner

It's earnings keep I think azure is to 20% a year a year a year for the last 39

Or something um, but how do you what's your thought on the sentiment on this?

I don't even know if open AI is good or bad for the Microsoft story anymore

Like the market's telling you it's bad. So the sellers just my point is this my question is this the sellers are so obviously in control of the stock right now

How do you know and I know you sort of can't but how do you know like?

What's a good price what the sellers are done? I mean you gave the answer

I don't have the answer to your question and so that's one of the the reason I phrase things the way that I do

It can always go lower is look when I buy I'm not saying that this is the moment that the the sellers are done and the buyers are stepping in

I'm just saying this is a price that I think two years from now. I'm going to look back and say man

That was a steal, but this does worry me at least in the short term. It does worry me

It's a heavy market. I can't even heavy market

I can't even it can't even bounce for a second. I'll give you two ways to know

The first is good new bad news and the stock goes up. Yeah

The second is an RSI washout. You're at 36 RSI for Microsoft. It is

Very rare to see the stock this technically weak on relative strength and how much of a time cattle

If you see a 25 RSI on Microsoft like if you see the stock that oversold

I'm not saying it's the buy of a lifetime and it's going straight up

But you'll get 10% out of it right because you always do right again great company

I mean, that's a hill. I'll die on at least today

And you're now getting it at a great price whether it's the 36 you know

I mean you you've forgotten more about RSI's than I will ever know

But that strikes me is very low. We'll go to 25. I don't know

Well, so hit so let me give you let me give you the hit. Let me give you the history

I think this is I mean

You have not you have not seen this

Be an oversold stock in the last uh three years

You have not seen Microsoft

At a at a more washed out place than where it is just on that one singular measure

You know what there and it is it

It genuinely looks like it's going to get

More oversold than we've seen in the last three years right now

When there was blood in the streets in a name like this

Let's say you have to buy but don't ever quote warm buffet

Why if you're not if you're not willing to buy me like no, yeah exactly

Now you you guys love RSI. I have learned to love it. I've learned a lot from you

I think you know that my favorite metric to use is the peg ratio

Price to earnings over the growth ratio. Yeah, now if I look and I'm trying to do this on the fly you guys may have it

Up right now roughly 22 times earnings

Next year's growth rate and of course I've got

Facts that wasn't loaded. So this is going to take a second

But let's just take a look at what the Microsoft earnings growth rate. It's a June count uh June fiscal year

So if we just take June 26

1660 yeah, it says 1.4 the peg ratio

Why is he going through all this

Should be shit actually it says wait, it says no, this is okay 0.87

Are you kidding me once that was pretty fun. It's less than one

Uh, yeah

Yeah

So this year's earnings 1648 last year's earnings 1364 and it's growing over 20% so right

Yeah, it's an absolute steal right you guys like RSI but but but but but it's going lower

Maybe no, I'm saying literally it is going lower. Oh, okay. I'm not saying that's gonna keep going off forever

But the price is going down right now and that's a fact and everyone is aware of that peg ratio

Right, that's not an edge true

But you know what the edges if that's not an edge and obviously it's not the the ratio is never an edge

Patience I suppose

I don't think you're gonna have to be that patient is the point on making what I'm trying to say is I think it's

Recent downturn like the last couple of weeks is reflective of the market not the stock

I mean, there's been no news on the stock. Yeah, I agree that sellers in qqq

Exactly and spiders which but but all the mag seven names don't look the same

And this one in particular metatoo looks like absolute dog shit just technically that's a technical trim gem

Um

So I don't know what because the open AI is that the thing you think is that they're overhang?

No, I think it's the I think it's the spending without a clear

investor

Embraced

Strategy for how that's going to turn into enough ROI to justify it

And I think meta and Microsoft uniquely I think you're right. Satya problem. Satya is in my opinion the CEO of the hyperscalers that you just hear him

The way that he talks he and son doctor, but I think Satya in particular is so committed to the spend

He is all the way in the problem the problem is that

Nobody believes that what meta it has been spending on is paying off in any way beyond reels

Nobody thinks that

All these hires they've made paying paying guys a billion dollars to acquire their companies just to hire them

Nobody believes that that is doing anything for the meta shareholder in 2026

So the insiders whether it's Satya whether it's Sundar whether it's Brad Gersner

You know all of these insiders are saying a couple of things one that they just don't have enough supply to meet demand

You like that if you're a business owner you're like bring more demand

And that every increment of compute is profitable very different you and I've had this conversation a bunch of times

And Mike you know those two then the fiber optics of the late 1990s which I just remember being downtown

One New York Plaza and every week they were ripping up the street there and putting more fiber optics down

They pay over pay over doing the next thing

It turned out that like 95% of that was unused that was ridiculous. It's not what we've got here. It's the opposite

It exactly and you know the other thing that's been labeled on these companies is all the debt spending now leave Oracle aside for a second

Most of these companies have a net cash position. I'm looking at Microsoft right now

It ended last year with net cash on the balance sheet. So yeah, they're spending a lot

But it's not like they're putting you know, it's not like they're turning their balance sheet into an airline balance

I had Nikolas on the show and he said actually they're spending a hundred percent of their cash flow on CapEx this year

Okay, so including Amazon all of them so and

The like the the what makes that problematic is a lot of the thesis for why you should all those stocks and why you should pay 30 times earnings to buy them

Is the degree

To which they were asset light and that story's over with it's a different story and not everybody is on board

So we've all been through those periods of time where there's all this free cash flow and the company starts spitting it out to shareholders

Right increase the dividend increase the share buybacks a lot of times people say to those companies really you couldn't find something more productive to do

Yeah, at this exact moment in time. I don't think AI so bubble

You know, the spending as we've said is profitable. There's no signs to the point you brought up Mike that anybody's backing off of it

Is the spend in a bubble because the prices obviously are the share prices aren't as the spending in a bubble

Let's rephrase the question will it be a bubble of course it will of course it will

We all know that because we're old enough and we've seen enough bubbles. We know that this will end in the mother of all

So in my opinion, in my opinion the bubble is in the venture back startup world once again

None of those companies can make any money

It's going to be five companies that make money from selling AI and compute and

When does that bubble when does that bubble pop? Who does it hurt? It hurts it hurts the venture venture capital ecosystem

It doesn't matter. It's the average person when and when bubbles pop everybody gets hurt

But here's here's another point that I think is important

We're talking about the narrative right now and the fundamentals

We all know that it's the price that drives the narratives

So very true

So if the bull if and when the bulls do come back their narrative will change

It doesn't mean that the story has changed

But the way that we talk about it will change because prices will change

And if prices turn higher the bulls come back in two freaking seconds. Yep. I think I think you're a fan of Christopher

I am too

I mean, yeah, he's terrific

So yeah, it is that simple and I'm sorry. I can't tell you when the bulls come back. Yeah

Story changes based on what price does um, I want to I want to move along

We got to talk about the other catastrophe that's slowly unfolding right before our eyes

This is a fun one because it's sort of a panic that you can't see because there are no prices

Um, the private credit thing that that got rolling this year

Uh, we've talked about it in a bunch obviously over the last few weeks

Um, I think it overlaps with the software the SaaS apocalypse story to some extent

And then to some extent it's kind of its own thing

Um, but I'd just love to hear what your thoughts are

Whether we're talking about Apollo, Aries, Cliffwater, Blue Owl

The commonality is

Got a lot of nuance fiscated money that have come into these products

The funds were all too happy to take that new money all of them have ballooned in in size

Um, the asset class has been around forever

But it's only really become something that's been accessible by retail investors in the last three years

Yeah, and this is the first test of that

And not all of these funds will have a bad outcome

Not all these funds did anything wrong blah blah blah. We'll say all the nice things

I'm friends with all these people

But

It's probably too much and we might have done ourselves a favor

Having this little mini panic before

These funds wound up in every 401k in America. What do you think? Um, so let me let me state what I think is the most obvious

That the gates that have put been put up this quarter are likely to continue through the rest of the year

That that we before we've seen this before with some of the

Non-public reats

It's highly likely at the rest of the year we're going to be talking about gates

Not to be a pedantic, but the term is important here. Yeah, because the 5% quarterly withdrawal limit

It's not like they just decide that they impose that no, we're going to get people that is the limit

That's in that's in the prospectus everybody knows that ahead of time

I love that you went there because it's obligatory for any advisor who's putting their clients in these

To educate them

Not just that there's a theoretical gate, but that it could well be hit

And the and the purpose of the gate is to try to match

Liabilities and assets. This is no longer banks taking in deposits and lending them to companies good

That was done well because of systemic risk is why you say yes, okay

So that was done 18 years ago these companies have come up to take that place if they don't gain

The if they don't gain its worse absolutely because then you have companies that are forced sellers of assets in the market

Those assets become toxic

Exactly so much worse so and and by the way, I want to make full disclosure here

Serity partners my firm does invest clients in some of the private credit funds

We think we do a very good due diligence job of finding the ones that are doing the good underwriting and most importantly managing risk properly

You know again, we said this earlier why so your advisors are equipped to explain to clients absolutely like

This is the pros. Yeah, this is the cons the pros is way higher returns than you get in regular bonds

Yeah, it's not for lunch, but let me keep you in the office

This is the cost of those returns. Here's another pro

You know, we're all public equity investors here and this may surprise you

We often kind of jokingly or sassily save cheese

I wish I could mark my book to whatever I want like the private equity guys do

I would submit to you that the private equity guys are probably getting it more right than the public equity markets

The public equity markets all all over the place take your baby in video

I mean, you know, it's where it is $183 right now a year ago little more than a year ago after deep seek

It was 93 then it went up to two 15 then it went back

You know none of those price movements make any sense now do some private the speed or the because of the

The oscillation from highs to lows exactly the value of these companies don't change by hundreds of billions of dollars and stocks

So let's not do apples and oranges publicly traded bonds versus privately held loans

So I just I wanted to point out that the fact that there is

Much less transparency isn't necessarily a bad thing

But in the wrong people's hands absolutely. It's the wrong thing or it allocated to the wrong person's portfolio

Who actually need to put it and that absolutely you cannot put this in a portfolio and say that it's going to be liquid

You're gonna get all your money out

You know whenever you want it probably it's like prisoners dilemma because a lot of these funds these semi-liquid funds

It's all wealth clients

It's not like there's institutions that are in these same products now in some case not all

But in some cases these these interval funds are purely wealth management interval

So I actually you know, I don't know everything surprise. I don't know which funds those are I believe you

The funds that we invest in have institutional as well as as private clients. Okay, and you know

That by the way there are still gross flows going into these funds as of right now that there will be

Well, I don't know right now. I think this actually has that activity disappears

Okay, but it may well be institutions and you know, there are hedge funds out there like

Boaz Weinstein-Saba who are out there making kind of I think predatory offers

But hey the market is the market all right, so 70 cents on the dollar for some of these funds

In a weird way that puts a floor to the value of these funds and the floor is not 70 cents

Because they're not offering to buy these at 70 cents because they think that's what it's worth

They think it's worth 90 cents on the dollar or more point

So you could get this wave of like new second private credit secondary funds coming along

To try to do the Weinstein trade. I mean you could. I'm not that's not that's not central to my thesis

But what I am saying is that if we go to the core

The fears are prospective fears their fears about the sass apocalypse the citrini article

AI eats everybody's lunch and there's no money. So the private capital funds have lent a lot of money to the software industry

And the software industry is being heavily scrutinized because

The sentiment right now is that not all these software companies are gonna make it right

We only have publicly traded proxies to go by and they're not good and they're not good

Yeah, so if you think Salesforce is under pressure, what the fuck do you think a mid-tier

Privately held software companies situation is right now. Oh, I feel like I'm I feel like it's new and we're down at the stock exchange like

But that's what invent that's why the redemption requests are coming in. I got you two ex

You could say listen

I think a lot of the fear is overblown and will prove to be overblown

Given the past of time

But I don't want to be the last one out the door

Well, that's an understandable human reaction. You saw today you get the NAV today

You know if you sell in six you start selling in six months

You don't know how many markdowns have happened between now and then a little quick math on this

Like one of the funds that were invested in has a four-year average maturity now

That means on average 25% of the fund is maturing every year and 5% gates times four quarters is 20%

That's the the reason for the gates is to try to better match the assets and liabilities so that you don't have to do

So alone the chores the fund gets the cash back from the company that the company had borrowed and that will fund

Whatever redemption requests may or may not come. Let me make another apocalyptic comment here

You know for private credit to go bad on mass. You know, it's got to go bad first the whole

The equity

Thank you. The equity is and I'm using I think this is Christopher Rhodes numbers, but no, it's Jason Trener's numbers at

Private equity invested right now 8.9 trillion private credit 2.5 trillion

You got to burn through a lot of private equity. This is so important

I don't get this is so important because these are for all the fear. I will push back

These are senior secured loans. So the equity has to get wiped clean the cash flows have to run dry

And yes, guess what in some cases they will but you guys are missing the real problem the problem is not defaults

the problem is

For the financial advisor

Who is relatively unsophisticated himself or herself

They have to contend with probably a year of headline risk that creates a relationship problem between them and their

That's about that is the problem is not that loans are blowing up because they aren't right

They are now and Josh you're 100% right, which is why I led this discussion with expect the year

2026 to have gates every quarter because of exactly why are those equities selling off if the loans aren't blowing up

Well, so cause of that problem. I think it's going to chill fundraising for the next six months

And that in and of itself can become systematically

Problematic because somebody has to most of these companies are not done borrowing

They have to roll the loan with tonight refinanced alone

If the asset class is shrinking because of investor apathy

That does create a problem. It's a bigger problem for the whole economy is less money for these types of loans

It is a problem. I'm not sure how big a problem. I don't think honestly. I don't think it's systemic

Is it a problem for blue owl which were positive on their actual funds

But the stock has a dividend yield right now of 10.3 percent

What's that telling nobody believes it right and you know, we all know you cut a dividend and your stocks in the penalty box for years

Especially if you're a financial

Yeah, financial honestly any company right

But we're not talking about the blue owl bdc

That's probably true. We're talking about the actual owl the company now. I do own in portfolios Apollo

Few reasons for that one the the ratio of institutional to retail is like way way higher

So the phenomenon that you aptly pointed out of just human sentiment whether you're an advisor or client saying get me out

Is not going to be the pension funds are not panicking right

Right exactly and then Apollo has the theme the captive insurance, which is its own

I told you the pension funds and insurance companies that historically have been the right investors in these

in these

asset classes

They know

Before they get it and they understand that I don't know that every financial advisor

Who was flown to Manhattan?

Taken to a steakhouse and then a Yankee game and then flew back to Kansas and started allocating their clients to private

Private credit. I just I don't think that their clients fully understand this of course

And this was part of the story a lot of the distributions from private equity or lack there of

Was causing fund raising from institutional investors to private credit to pull back

And they're the wealth channel like that's exactly what happened

So I'm not saying that it's like criminal at all, but that is the story

Listen what you're both saying has a lot of truth to it

especially the you know

Let's take somebody to the capital grill and you know wine and dime on enough for me to allocate to this shit

I need

I

The girls find for me

I'm salty there. I write the subway, but I don't think the whole I need that as John George

I don't think I don't I don't think the whole asset classes bullshit

Um, but these headlines are going to continue. Yeah, and the conversations are gonna be harder and harder

But if you can stay in you're likely to have the good

Well, that's what I want to ask you

I wanted to I wanted to ask you is the silver lining

That um, you might get a tightening up of the way that some of this stuff is underwritten yes, I get stronger

Covenants you might even get

Um a better interest rate

Uh

Across a whole portfolio and maybe now is the time for somebody that has not allocated to private credit take a second look

Well, what are you crazy? No, here's here's the silver lining here's the silver lining

Assuming private credit can get through this and I think it I think they will I think that in

X years time we'll look back and say okay, they will never and nobody will ever be able to say again

They've never been through a cycle. There's never been any stress all the loans are bullshit

No, this they're in it right now and assuming they come out of it they can point you put this on screen we survived

That's I can't John can John Morgan Stanley sees private credit default rates hitting 8%

I

Drives me a little crazy though now Morgan Stanley selling a lot of this stuff to their wealth clients

I just

Because and look this is just me this is the problem I have with the citrinity article is that I hate when people

Just lick their fingers sticking in the wind and say 8% back it up now. I don't have well

They are they're they're showing that during the height of covid

Did default rate hit

8% is bad. I know

Well, I mean there were dolphins swimming in the canals of Venice because there was no boat traffic and it was clean. Yeah, I mean

Right, that's a very it's an extreme

Again, it's this minskie moment everything is like a so why are Morgan Stanley research people putting this putting this fear into the market

You think they really believe this so they're saying this is how bad it could get

Because this reads this chart reads like it's a forecast. Yeah, but you know what? This is a Bloomberg headline and fairness

We don't know what Morgan Stanley actually said they might have said in the worst case right right

I didn't read the research piece. I'm I'm not being sarcastic research analysts have a job to do and is to put stuff out every day

We do a little like so we can close this topic out. Yeah, we do a little mini-lighting around on private credit go

Okay, I am very unsophisticated when it comes to this subject some genuinely asking

Do you think there are financial advisors right now

taking a new meeting

With cliffwater or with blue owl or any of the other purveyors of wealth management

Do you think that that activity has completely chilled like you know what dude

How about this let's not have lunch

Why don't you fix your shit because I'm reading a different Wall Street Journal article about you mother f**kers every day

And I'm not talking to my clients about your funds. Yeah, that's what I think we have to get to

I don't know for there yet. I'm curious what you think yeah

I think we have to get there. I will tell you that that's a already partners

1600 people 30,000 clients you guys would gigantic firm. We've gotten pretty big and I know you know

You guys have done amazingly and you've done it 100% employee ownership, which is something to be proud of very proud of

Thank you Jim. Yeah, no, I know how important that is

But to answer your question there are still people advisors and clients of my firm who are saying on the Monday morning investment call should we be leaning in

Now I think it's a little early. There may be some marks to come. I think you can what I don't think if did like

Right now. Okay. Yeah, should all

private credit be

considered for a wealth management product

Or are we learning that maybe direct loans for example aren't the right fit or maybe

What was the fun I read about this week's Stone Ridge where they have a gigantic fund that's taking loans from fintechs

packaging them and creating a fun like are there certain types of things that

The wealth management industry should just say no thank you. Yes, structured finance type stuff

The answer is of course, okay, and I think you really want to be the best of the with the best of the best in this asset

I think so we will and I think you want to bet the jockey

I think you want a very strongly considered the brand that's bringing you a product, right? Okay

Like like look we I've had small meetings with Doug Ostrover. That's the CEO or the co-founder of blue out

And we're all at an age where we can recognize garbage people like people you can't trust. This is the opposite and Doug is garbage

No

That was a terrible

No, Doug is

You know, they should have dug on the calls instead of mark. That's my suggestion. You know our first name basis with

Partners and co-founders together. Look he thought and the whole team there thought they were doing the right thing

By giving 30% back. I can't I can't believe they thought that was a good idea

They I mean they honestly thought and I think he's telling me the truth

No, I saw I was on a webinar and I heard them say that and I said

Do you have any idea how human beings work? You really thought that they weren't gonna be meamed into the Stone Age

It's a classic lesson. He'll say nothing to see here like dude

All right, I had this idea that what could potentially put a stop to the panic

Is a really big acquisition of one of these there are 10 publicly traded private equity private credit

Specialty finance companies. These are some of the best brands on Wall Street blackstone KKR

Apollo like these are about Carlisle. These are storied

Companies that have decades of experience. I don't think that it's like this

2008 redux thing. That's not my belief

I'm not that I'm not that cynical

What if some giant European or Chinese or even American bank

Looks takes a look at let's just use blue owl and says you know what

The market is way too panicking and overreactive

We could fix this company just by virtue of our balance sheet

Like our credit waiting we could fix this whole situation in two seconds

They kind of happen with be read if that happens

That's where I was going. Yeah, if that happens

I think that puts an end to this panic like stops in his tracks

Yeah, and then the redemption's cool off and everybody calms down

I would love to see that. What do you think? I think you need as Mike just alluded to

I think you need that investment into the funds themselves. So Calpers did that. That's it was

University of California. Oh, not not the acquisition of one of the companies

But let's make sure that everybody listening knows what we're talking about be read was having the same problem

Gating investors who were all getting out because of the commercial mortgage back tsunami that was coming by by the way

I mean step back for a second remember how much press that guy. Yeah, and like the regional banks are doing fine

Blackstone is doing fine. Okay, but back to the point university of California came in and made

A preferred deal with them. It wasn't preferred. It was big. Yeah, but it was big and it was a vote of confidence

That's what I think you need to see a somebody coming in saying I'm in you know the blue owl corporate

Almost like in 20 people forget in 2011 Bank of America went to like

$6

And Morgan Stanley or or $10 Morgan Stanley went to eight out three years after 2008

During the European financial crisis

All the US investment bank stocks went back to single digits

Because everybody said here we go again

And that's when Berkshire stepped in and did some of those preferred deals. Yeah people think they lumped it together

They think that happened in oh eight and it didn't

Though that era

Where uh Berkshire stepped in yeah, I think they did the bank of America preferred deal with a 10% coupon. Yeah, so

I agree that that would be meaningful um, I don't want to I don't want to not get a chance to do this

I asked you for some of your favorite stocks for this year. Yes

I so I have one that I feel strongly about but I want to hear I want to hear what you're thinking for this year

Okay, so I think the one you may be alluding to is Amazon. I know you're I know you're bullish on it

And I am too. I was much later. He's a shot. Why does it stop app like ass every single day that I was just

It's probably what you guys is it because I'm Jewish no

I know is that are you Jewish? Yeah, sort of it wasn't with anything. No, I don't know

Why does the market hate me so much every time I buy this stock? It's like an intermediate term top

It just it just sucks. Why I want to break out it just sucks. All right. Don't good. What do you laugh at that?

For what do you like about Amazon? Why won't this stop make me money? It will it well

Let me look we see what's going on with Amazon web services again

Same thing Andrew jassy saying that he has more demand that he can meet so everybody's saying well

They're spending too much well. They're spending for profitable compute that they're bringing online

There's obviously the retail business we know that there's all different levers that they're pulling here

I mean we don't even talk anymore about the ad business

Which one it started not that long ago was brand new logistics business

The third largest advertising business in the world. Yeah, nobody cares. Nobody cares. I they will

I think they're doing everything right on the AWS side. I think the

strategic partnership with anthropic

Was genius. Yeah, that's so early and now they're in business with open AI

50 billion dollars worth of business with chat GPT. They're almost like

Cucking Microsoft with it with an open air and just stop getting the same thing. They both should be doing well

No credit. Okay, I want to talk about Apple for a second go. Did you see the journal today? I thought I did what was on Apple today. Okay

Apple is way behind an AI and still making a fortune from it

You've heard me talk about this

Basically

We've seen 300 something billion dollars in gross revenue from the generator of AI apps

Which is perplexity Claude chat GPT

Okay

Apple's collecting a nine hundred million dollar commission on that activity

They are

Literally, I think in the poll position to be the the biggest beneficiary of all this AI and they haven't even launched the new Siri yet

Um, hey, let me read this to you

Apple's Siri chatbot is still weak by modern AI standards

What Apple does have that the other AI players don't is a dominant position making devices

However fancy open AI Google and Thropic and X AI make their chatbots

iPhones are still the primary way to deliver them to consumers

That means they typically pay the app store tax

Roughly 30% of subscription fees in year one and 15% a year thereafter

Um generative AI apps paid Apple nearly nine hundred million in app store fees in 2025

So the the better the the more adoption

Those apps get from the consumer the more money Apple makes

And they have no capex increase apples capex is lower last year than it was the year before they're laughing at everybody

So like to me that explains why Apple is

Close to its of 52 hi. I think it's in a 14% drawdown

Which is not bad compared to the others

I really think Apple is distilled could it be distell AI winner

And they might get there being the latest with their own products

So I did mention Apple in pretty much the same breath as Microsoft when we were talking about it earlier

And just a few months ago it was around 33 times forward earnings now. It's around 26

I may be waiting to 28 times rather. I may be waiting too long

I have half the market weight in Apple which some people would say okay

Then you're short Apple if you're benchmarked to the sb 500

I want to add that extra

Bit of Apple back to bring it to to market weight. I'm gonna wait a little longer

I mean, we've just seen with every stock in the mag seven that at some point they come down to the low 20s

I may be waiting too long. I just can't buy it at 28 times everything you said

Sounds smart as hell. I mean, I'm sitting there and saying why aren't I buying it?

You're just gonna have to indulge me on this one. I'm gonna wait a little longer

I think what's gonna happen is we're gonna get the agent xiri announcement this year. Mm-hmm

Um, I don't know when it'll come

But the idea that every app in the app store has to be interoperable with agent xiri

So that the user can give agent xiri commands to go do things on the apps. Yep

And that to me that'll be the moment when the whole world wakes up and realizes oh

You know what the most important feature of AI is that it works

That like can actually do things on your phone

For you while you and I think that moment comes this year as you've been going through the list of positives for apple

The one thing you left off which I'm astounded by is that they somehow have access to Gemini on the iPhone for $20 billion a year

Yeah, I mean, that's a steal and but to steal and Google is gonna be detect provider to agent xiri which was already announced

The Google's given it away. Yeah, why do you say that? That sounds like a lot of money

Not not for the size of these companies. I mean if if you think about alphabet

How much they put into Gemini and how much you know, they've spent on it

Uh, they need and and this is the mother load

This is the mother load of how you distribute that and you're giving it away for $20 billion

You're kind of setting a ceiling on where your revenue is gonna be one of the stuff one of those stocks here

Are you excited about for this year? What do you got uh city group? Okay, why?

They've got this bannamex cipo coming up later this year

That's the mexican subsidiary that's the mexican subsidiary is the final piece of the puzzle to get to spin out get rid of it

Get rid of it. Yeah in the meantime Jane Frazier and company have done a great job of increasing profitability

Trade the book value. It's got like a two and a half percent dividend yield

I just think that's easy. Okay. Yeah, that's the easy button for investors. Okay. Got it anymore. Well, they're not so easy button as oracle

I mean if you believe that AI is not a bubble

Then oracle is the coiled spring that you just want to sit on and wait for it to take off and send you to how far below

It's 52 he ties his stock now

55 50 it's over 50 percent

Um here. Let me let me give you what's the like what's the best case scenario for oracle like what could happen here that that turns

Well, nobody believes that open AI can pay them that contract

Mikey went right to it. Okay, so that's exactly why the stock came down from 350 to wherever it is right now 160 and change or 150 and change

Gross, um, nobody is so unbelievable, but open AI rally was equally stupid

Open AI just raised $110 billion, right? They're gonna go public

Sometime later this year most likely raise a few more $100 billion. They've got contracts starting to come in

Absolutely the market doesn't think that open AI is good for for the money

But they don't have to be good for all of it. They just have to be good for some of it

And with the contracts and the fundraising that open AI is doing

There's enough here that earnings should flow through to oracle. So you like it right here. I do all right

We talk about the book. Yeah. All right. I want everybody to buy this book

um

Obviously, you know

Jim Labenthal is an absolute man. She's a wonderful guy

He's also very bright as as you have just learned if you didn't know that already

Um, but you can write

Hmm. Have you always had always wanted to do a book? I have always wanted to do a book. Okay. What why?

Um, because there's an idea that's been just rattling around in my head that there's things that I believe in

Not everybody's gonna believe in them

But I'd like people to know about it and maybe get some advantage of it now if I just wrote a book of

Hey, here's what I believe people that I got whatever who cares. Yeah

So what I tried to do with this book is take something that I am peculiarly excited about

Which is the New York City subway system. Are you crazy? I don't know. I'm worried about you

I don't want you down there without I really wish you guys had known my father. I said this last time

I mean, he would have loved you guys. You would have loved him. He was a showman

He was an advertiser. He legend that you guys have done legendary

And he was a municipal financier who would do ads from the subways from the sewer systems like you know to remember this

But there were TV commercials and it was like it was like a thing like Labenthal was known as

Did that's where you buy muni bonds? So I remember. Yeah, it was like the Frank Perdue. Yeah, municipal bonds

I don't know if you know

Perdue check it. I would have gone with like Tom Carvelle

But even that would go

Very young so anyway my dad would take me on the subways all the time

And I just got a kick out of it

And I still do we were talking about earlier that I take the subway from midtown down to the stock exchange every time

I'm on the show now tell you the truth every time I go in the subway

I just get a thrill. I do. I don't know what it is little boys like trains something like that

So what I've done in this book is use the subway as a metaphor for investing lessons and

Now I went a little further and this might be a little bit conceited of me

But just personal beliefs I have of how you should carry yourself in the business world

That may be a little bit more than some people want to read some people may find it's ain't demonious

But I think it's useful and learning learning basic investing concepts patience. Can I ask for a teaser?

Yeah, like let's give us like a life a life lesson. What do you believe that makes people successful in life?

So I'll give you a couple. I was just going on one one is being patient

Obviously, I'm more of a value investor. You've got to be patient

You've got to let things play out city group. We were just talking about how long did I have to wait for that?

You made a hilarious comment once on the show you said Jimmy you've been in that of like since I was bar mitzvah

I think you've been in this office more than 10 years

And it's and it's it's worked over that time for us

Patients you got you can't just get thrown off the train or or like get off

You know the train hasn't come so I'm going to walk that's not going to work

Another thing that I pretty strongly believe is we're all in this together

It's not a zero-sum game. We're all trying to use the subway to get to where we're going

You might be more of a technical analyst you know using rsi

I might be using more fundamental peg whatever we're all trying to get to the same place

You don't have to succeed by my failing and vice versa and I think that's a lesson

I love that. I think it's great that there are so many people with so many different disciplines in the market

I think I think that's like I think that's why you have a healthy market not like totally agree

People should not have to agree with each other in order to respect each other's

Work absolutely. It's not a zero-sum game where you guys are where we are right now Brian square

You could if you wanted to go down to the stock exchange walk west to take the two three to get to Wall Street

You could walk east to take four or five four or five. No, it's just showing off. Yeah

I'll do show you off weird stuff. Show you off that I'm a weirdo Mike. Thanks. I see

So used to because CNBC sends me like a suburban. Yeah, and it has to be late model like 23. Well, imagine the headlines

But you don't think the start stop CNBC star Josh Brown thumbs first somebody to death. I'm the subway with a tire

No, I don't know what is it? It's a tire thump. I don't walk around with a tire

Don't distort my

Don't distort you already distorted things that I do so you

So you go down to the subway reminds you of your dad. It does. I love that almost every time

Dude, that's awesome. Well, I'm proud of you and I hope a lot of people buy I hope a lot of people buy the book

And we will absolutely link to it the book is called How to Ride the Subway by Jimmy Leyvin thought congratulations

Thank you, brother. Thank you, bro

We do have to point out that the compound and friends the logo are the New York City subway. It's true

The New York City subway is iconic and also life threatening. All right guys

Thank you so much for watching. Thank you for listening special thanks to James Leyvin thought

My buddy and congrats on the book. We will talk to you soon. Thanks again everyone

Thank you