Hope is a Dangerous Thing with Liz Young of SoFi

Bullish Studio

Check out our show notes and transcript: https://riskreversal.com/podcasts/on-the-tape-podcast-hope-is-a-dangerous-thing-with-liz-young-of-sofi/  Guy, Dan and Danny are joined by Liz Young, head of investment strategy at SoFi, to discuss summer rally for stocks (4:00), the Fed meeting at Jackson Hole (10:47), young investors (15:40), how the markets could shake out after Jerome Powell’s speech (22:00), student loan forgiveness (26:30), Salesforce and Snowflake earnings (37:43), Liz’s note on what’s happening in China (44:33), Danny’s investor quiz (51:51), and EY from SoFi unplugged (56:27).

Transcript

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00:01:20 (upbeat music)

00:01:21 I'm sure a lot of you people out there think

00:01:24 you guys plan these guests ahead of time

00:01:26 and sometimes that's true.

00:01:28 Sometimes it's kismet.

00:01:30 Sometimes the stars align,

00:01:32 but sometimes we plan a guest for a reason,

00:01:35 Dan Nathan and Danny Moses.

00:01:36 And I find myself reading a lot lately.

00:01:40 I've reread the book, "The Fountainhead."

00:01:43 I've also recently started "Atlas Shrugged."

00:01:46 You Ayn Rand fans out there might be familiar.

00:01:50 I mention that because one of her lesser known works,

00:01:55 the Ayn Rand Library, "The Voice of Reason,"

00:01:59 essays and objectivist thought by Ayn Rand.

00:02:03 Now I mention that because you always say,

00:02:06 you, Danny and Dan, your hair's on fire, you hate the Fed.

00:02:10 So we thought we would bring in a voice of reason today

00:02:14 in the form of EY from SoFi.

00:02:18 You know her from Market Call.

00:02:20 You know her from SoFi.

00:02:21 You know her from the Halftime Report.

00:02:23 You know her from just about every news organization

00:02:26 out there that needs an intelligent voice of reason.

00:02:30 Well, she's joining us today on "On the Tape."

00:02:33 How are you, EY?

00:02:34 I'm fantastic.

00:02:35 I feel like the title of this episode should be

00:02:38 three bears and a bull turn on the mics.

00:02:40 Well, hold on.

00:02:41 First things first, Liz Young, so that's L-Y,

00:02:44 but you have a little thing that you call her E-Y.

00:02:47 And then for the rest of us who read "The Fountainhead"

00:02:49 in high school or college or whatever,

00:02:51 we just call her Ayn Rand.

00:02:52 I don't know.

00:02:53 I was wondering if that's how I call her, Ayn.

00:02:55 It's not Ayn.

00:02:56 That's insulting.

00:02:57 It's Ayn.

00:02:58 It rhymes with nine.

00:02:59 Hold on a second.

00:03:00 We just declared, Liz said, three bulls and a bear.

00:03:03 How do you know?

00:03:04 Three bears and a bull.

00:03:05 I mean, three bears and a bull.

00:03:06 How do you know?

00:03:07 Because I listen to the podcast.

00:03:08 So I'm bullish.

00:03:10 Are you bearish?

00:03:11 No.

00:03:12 All right, just checking.

00:03:13 I'm making sure you see.

00:03:13 The short guy is bullish?

00:03:14 Yeah.

00:03:15 You just turn that whole thing around here.

00:03:16 And just to be really clear,

00:03:18 Danny just closed a really cool deal, a cannabis deal.

00:03:20 He just got done with a closing party last night,

00:03:22 so he's here.

00:03:23 So Danny might not be as sharp

00:03:25 as normal Thursday afternoon.

00:03:27 I'm just saying, you know what I mean?

00:03:28 How's Brady doing?

00:03:29 He's good.

00:03:30 He's good.

00:03:31 We'll get to him later.

00:03:32 All right, sorry about that.

00:03:33 Yep.

00:03:33 It's great to have Liz Young from SoFi with us.

00:03:37 And listen, in all seriousness,

00:03:39 your work is extraordinarily thoughtful.

00:03:41 And before we met, I was a fan of your work.

00:03:44 I'm more of a fan now for obvious reasons.

00:03:46 And listen, the Voice of Reason, I think,

00:03:48 is a great title for this,

00:03:49 because as we have this Jackson Hole tomorrow,

00:03:53 the day this drops, Friday,

00:03:55 we're gonna hear from all these different characters.

00:03:57 And you know where Danny and I sit.

00:03:59 Dan is a little more measured.

00:04:01 But as we get into what's gonna be

00:04:03 an interesting series of conversations,

00:04:05 I'm sure, on the back of this,

00:04:07 you've been extraordinarily thoughtful in your work.

00:04:10 In the fall of last year,

00:04:11 you were the one saying we've gone

00:04:12 from a buy-the-dip market to a sell-the-rally market.

00:04:16 So you've been way ahead of all this stuff.

00:04:19 As the world looks to you now at the end of August,

00:04:21 what are your thoughts here, just sort of on a macro level?

00:04:23 No pressure, right?

00:04:25 So first of all, I love that you are trying to avoid

00:04:28 using the buy-the-dip-sell-the-rip rhyme.

00:04:31 I'm gonna use it. - No, I, stop.

00:04:32 I'm just gonna tell you one thing.

00:04:34 You noticed that I was very cautious in not saying that.

00:04:37 I mean, you know the type of people that say that.

00:04:40 I will spare the audience from the word

00:04:42 that I text you from time to time, but please continue.

00:04:45 - Oh, yeah, yeah.

00:04:46 So, okay, I think that we are in a time

00:04:49 where the market can't decide

00:04:51 if we're mid-cycle or late-cycle.

00:04:53 And you watch the sector behavior,

00:04:55 which is what I watch most closely.

00:04:57 You watch what does well and what doesn't do well in rallies

00:05:00 and this last one that we had,

00:05:03 that moved from June 16th until about August 16th,

00:05:06 you saw a bunch of stuff that would signal

00:05:08 early to mid-cycle and then utilities,

00:05:11 which signals late-cycle.

00:05:12 And we've still got high energy prices.

00:05:14 We're still worried about oil spiking again,

00:05:17 which sends all these late-cycle signals.

00:05:19 Still worried about inflation, as we should be,

00:05:22 but where we're at at this moment is, I think,

00:05:26 very anticipatory of what Jay Powell,

00:05:30 I'm gonna call him Jay Powell, is gonna say tomorrow.

00:05:32 Honestly, I would have thought

00:05:34 that we would sell off this week

00:05:35 and then have a relief rally after he talked tomorrow,

00:05:38 but we haven't really sold off.

00:05:39 So now I'm afraid that we're gonna sell off tomorrow

00:05:41 when he comes out and says, "I'm still hawkish.

00:05:43 "We're still hawkish.

00:05:44 "We still have to hike.

00:05:45 "We still have to fight this."

00:05:46 - Take a step back for a second,

00:05:47 because I still don't think we know

00:05:49 that our economy can function in a higher rate environment.

00:05:51 We haven't really seen it yet.

00:05:52 We've seen fits and starts,

00:05:53 especially as it relates to the 10-year yield moving higher.

00:05:55 Here we are again, mortgage rates hitting new highs again.

00:05:57 You know, we're piercing that.

00:05:58 And that tends to have a lag impact

00:06:00 to what we see coming later.

00:06:01 So we had this respite on credit spreads coming in.

00:06:04 Yields came in a little bit.

00:06:05 I think that was the reason,

00:06:06 one of the reasons for the surge in the market.

00:06:08 Curious to get your thoughts on that,

00:06:09 because it's still unproven to me.

00:06:11 You know, proof is in the pudding

00:06:11 if we can really get through this and going into Q4.

00:06:14 - First of all, labeling anybody as a bull or a bear,

00:06:16 I only do that jokingly because I don't think it's fair,

00:06:19 and I don't think that this is a time

00:06:20 where we can be that clear cut about it.

00:06:22 And I think what's happening right now,

00:06:26 especially with rates, you see things like the move index,

00:06:29 which is bond volatility.

00:06:31 You see that spike higher.

00:06:33 So it doesn't really make sense

00:06:34 that equities would do well in that environment.

00:06:37 Now, you're right.

00:06:38 We don't know if the economy can do well

00:06:40 in a higher rate environment as the Fed is hiking.

00:06:42 History would tell you that it can't.

00:06:44 History would tell you that it never really works that way.

00:06:46 But I think the one piece that always makes me question

00:06:50 is when people start talking about a big recession

00:06:53 being inevitable, unavoidable,

00:06:55 that's the moment when it becomes evadable, actually,

00:06:59 and that we are all so braced

00:07:01 for this terrible Armageddon situation

00:07:03 and that we've prepped ourselves for it,

00:07:06 and here we are and it's coming.

00:07:08 What if it never comes?

00:07:09 And, you know, I think too, if you compare,

00:07:13 to go back to the yield curve situation,

00:07:15 look at what happened in the first half of the year.

00:07:17 And I know we talked about it on Market Call.

00:07:19 We've talked about it many times.

00:07:20 We had these couple little fake inversions on the curve.

00:07:24 Right, they were like,

00:07:25 they inverted for about seven minutes and then it stopped,

00:07:28 or it inverted very, very shallowly.

00:07:30 This one is real.

00:07:31 This one, if it does signal a recession,

00:07:34 if it does signal something bad coming,

00:07:36 it signals that it's coming in 2023.

00:07:39 And that's where I fall on the, I guess,

00:07:41 more bullish camp for the rest of this year, market-wise.

00:07:44 - Yeah, so the question would be,

00:07:45 is that in the lows in June,

00:07:47 when the S&P was down more than 20%,

00:07:49 NASDAQ was down 30%,

00:07:50 was that that anticipatory decline for this 2023 recession?

00:07:55 I just don't think so, right?

00:07:57 And so market participants got really,

00:08:00 really bearish into that.

00:08:01 We had a Fed that for some reason,

00:08:03 people interpreted some of the tea leaves,

00:08:05 I guess, that they were likely to pivot sooner

00:08:08 than I guess the markets at the time were thinking.

00:08:11 And that's why we had that equity rally.

00:08:12 But it is interesting.

00:08:13 I mean, since then, yields have not let up.

00:08:16 10-year US Treasury yield is back here,

00:08:18 just about 3%, which we hadn't seen in a while.

00:08:21 So I guess my point is,

00:08:22 is that if that was like a fake inversion that we had,

00:08:26 I don't know about that, because in 2019,

00:08:28 we had a very brief inversion of the 210 spread.

00:08:31 And in 2020, you can say it was a black swan event,

00:08:34 but we had a recession.

00:08:35 - But not caused by the same thing

00:08:36 that the inversion was signaling.

00:08:38 And so back to the drawdown that we saw

00:08:41 up until that bottom in June,

00:08:42 no, I don't think that was what was foreshadowing

00:08:45 a terrible recession to come.

00:08:46 I think that was what we would call

00:08:49 a non-recessionary bear market,

00:08:50 which is typically somewhere between 25 and 30%.

00:08:54 We didn't quite get to 25%, but we got close enough.

00:08:57 - Is it the average bear market, though,

00:08:58 also in recessions, 30-some percent or something like that?

00:09:02 - 35 to 45, yeah.

00:09:03 - I just don't think there's any historical precedent

00:09:05 for this.

00:09:06 And I would say, I've been saying for a long time,

00:09:08 if you want me to get bullish on the equity market,

00:09:09 I actually want 10-year yields to move higher,

00:09:11 'cause that signals to me,

00:09:12 and this last move we've seen kind of overall

00:09:15 with 10-year yields moving higher in the market,

00:09:16 kind of, yeah, it had a big sell-off last couple days.

00:09:18 It's come back a little bit.

00:09:20 That's a healthy cleanup.

00:09:20 And the stock action that I'm seeing,

00:09:22 some of the crappy names being left behind now

00:09:25 are not rallying.

00:09:26 If that sustains itself,

00:09:27 that is a healthier state of the markets

00:09:28 as far as I'm concerned.

00:09:29 - What were you smoking last?

00:09:30 I mean, seriously.

00:09:31 (laughing)

00:09:32 What do they call that, the gunge or something?

00:09:34 What the hell is this? - I'm just trying

00:09:35 to be more balanced.

00:09:36 I'm trying to be more balanced.

00:09:37 And listen-- - Losing your mind.

00:09:38 - So you're saying one part THC, one part CBD?

00:09:41 You know what, I don't need this.

00:09:42 - That's what you're saying.

00:09:43 - What are you doing?

00:09:43 Our moms listen to this.

00:09:44 I don't need this.

00:09:45 - I'm just saying.

00:09:46 - I'm not under the influence of anything at the moment.

00:09:47 I'm trying to be objective and say,

00:09:49 call it like I see it.

00:09:51 And if I see healthier activity going on in the market,

00:09:52 it doesn't mean the market's not gonna go down.

00:09:54 - So I'll play your reindeer game, Danny.

00:09:56 - Go ahead.

00:09:57 - So 10-year yields have gone from 2 1/2%

00:10:00 in a extraordinarily quick fashion.

00:10:02 They're now north of three.

00:10:04 I mean, it's crazy, these moves.

00:10:06 I gotta tell you something, Dimo.

00:10:08 10-year yields are not rallying

00:10:09 'cause the economy is magically getting better.

00:10:12 I think they're rallying

00:10:13 because that inflation genie's out of the bag, my opinion.

00:10:16 And although the yield curve has flattened somewhat,

00:10:19 I would submit this is an environment

00:10:21 where yields going lower is probably a really bad thing,

00:10:24 and 10-year yields going higher is a really bad thing.

00:10:27 And you know where I learned that from?

00:10:28 The Danny Moses I knew prior to 20 minutes ago.

00:10:31 - Listen, I'm trying to take just a microcosm

00:10:34 of what's happening and just trying to kinda,

00:10:36 week to week, we gotta kinda comment

00:10:38 on what we're kinda seeing.

00:10:39 But guy, if you think our rates are volatile,

00:10:41 take a quick look at the German 10-year

00:10:43 and the British 10-year.

00:10:46 So we're recording this on Thursday afternoon.

00:10:48 The Fed comes out tomorrow.

00:10:50 He's speaking at Jackson Hole Palace.

00:10:51 We all know the Fed Fund futures are telling us

00:10:54 either 50 or 75, it's 50/50 at this point

00:10:56 what it's gonna be three weeks, four weeks from now.

00:10:59 So what is he gonna say that's different?

00:11:01 I think this market has allowed him

00:11:02 to be a little bit more hawkish

00:11:04 than he probably potentially could have been

00:11:05 to maintain credibility.

00:11:07 There was other Fed governors out there saying 375 to four

00:11:10 is kinda the target of where we are.

00:11:11 So I still believe they're not going to get there.

00:11:14 But tomorrow's gonna be a hawkish tilt.

00:11:15 So does the market sell off on that?

00:11:17 They're anticipating hawkish.

00:11:18 I don't know.

00:11:19 There's economic data also that's gonna be coming out again.

00:11:21 So listen, I don't think we're out of the woods,

00:11:23 obviously, by any stretch.

00:11:24 - Well, the data gets worse before it gets better.

00:11:25 Liz, do you agree with that, that this 15% rip

00:11:28 in the S&P 500 over the last, call it,

00:11:30 month and a half or so gives the Fed some cover

00:11:32 to kinda maintain, you said September is 50/50.

00:11:35 The CME FedWatch tool is pricing about a 60% chance

00:11:38 of a 75 basis point.

00:11:40 - Right, it changes on every economic.

00:11:41 - No, I know, but if it moves towards 70,

00:11:43 what I'm saying is that, again,

00:11:45 it really isn't about the data.

00:11:47 It really is about the inflation readings, right?

00:11:49 And so at the end of the day,

00:11:50 I mean, Guy's been all over this idea

00:11:53 that the shortages as far as natural gas

00:11:55 and the situation over there gets worse again

00:11:57 before it gets better.

00:11:58 And is that the thing that kinda keeps the Fed hawkish

00:12:02 through the fall?

00:12:03 And sorry, buddy, you're gonna lose that bet

00:12:04 as far as-- - Good luck.

00:12:05 - Oh, I'm just telling you.

00:12:06 - You never won one. - But Liz, do you buy

00:12:08 into that, that is the equity market

00:12:10 giving the Fed a little cover here?

00:12:11 - First of all, I'm not making any $5,000 bets.

00:12:13 I think that's what-- - You should with him.

00:12:15 You'll win.

00:12:16 So just pick anything. (laughing)

00:12:18 - I don't think they're gonna-- - Green Bay Packers

00:12:19 over under total wins.

00:12:20 Just do something. - I'll bet on the Packers

00:12:22 irrationally all day long.

00:12:23 Okay, so first of all, the market is pretty split

00:12:26 between 50 and 75 at this point.

00:12:29 I think we have to, number one, keep in mind

00:12:31 that when they have that meeting, it's September 21st.

00:12:34 September is the month where we double the pace

00:12:37 of quantitative tightening, okay?

00:12:38 So we do this balance sheet runoff twice as big

00:12:41 as we did before, and they are gonna look at that,

00:12:43 whether or not we communicate it or not,

00:12:46 they're gonna look at that as another element of tightening.

00:12:49 So I don't know that they have to do 75.

00:12:52 I think the only way that we get another 75

00:12:54 is if inflation does not decelerate further.

00:12:58 So the market, having rallied, although sure,

00:13:02 it might give them a little more clearance

00:13:03 because it's one of the inputs

00:13:04 into financial conditions, right?

00:13:06 So if the market rallies, then it would look

00:13:07 like financial conditions have loosened

00:13:10 so that they have some more leeway to tighten.

00:13:12 But I think what gives them more flexibility

00:13:15 to continue tightening is the labor market

00:13:18 and the fact that we've got, it came out today,

00:13:20 we've got gross domestic income that's still pretty positive,

00:13:23 not necessarily gross domestic product,

00:13:24 but income that's pretty positive.

00:13:26 So they have room.

00:13:28 Last thing I'll say about this is moving from 75 to 50

00:13:32 is not dovish.

00:13:33 50 is still tightening, 50 is still hawkish.

00:13:36 And if we look back on that 10 years from now,

00:13:39 we'll say that was a hawkish Fed.

00:13:41 - There's something else going on.

00:13:42 It's pretty interesting is that the amount of auctions,

00:13:45 treasury auctions that are going on are down a lot.

00:13:47 Like they've taken down quantitatively that amount.

00:13:50 And if you look at the quote QT that has supposed

00:13:52 to been going on for the last three months,

00:13:53 it hasn't been anything, just a slight runoff.

00:13:55 There's been really been nothing.

00:13:56 And what's funny about that is people say,

00:13:58 "Well, look, it's good.

00:13:59 See, it's not gonna hurt us

00:14:00 because the government's gonna issue less bonds."

00:14:03 Well, let's look ahead three, six months from now.

00:14:05 What earnings gonna look like?

00:14:05 What are tax receipts gonna look like?

00:14:07 What is that?

00:14:08 So you know that the budget deficit is gonna grow.

00:14:10 You know that this is a temporary little move down,

00:14:12 improving a budget deficit.

00:14:14 So those are kind of the other things going on

00:14:16 that have a direct impact, I think,

00:14:17 on the speed at which the Fed can go and so forth.

00:14:20 - Dan, we do a show called Fast Money,

00:14:22 5 p.m. Eastern time, Monday through Friday.

00:14:24 You might be familiar with it.

00:14:27 I know Danny is, he gets tired of this.

00:14:28 By the way, that's a running joke, you're right.

00:14:30 Danny's eyes, I'm sure, are rolling over.

00:14:32 And don't do that, Danny, it's not a joke.

00:14:33 - I'm not, I didn't do it.

00:14:34 - But I'll say this.

00:14:35 We had Paul McCulley, who, by the way, got fantastic hair.

00:14:39 He was on Fast Money about a week or so ago,

00:14:41 and I asked him that exact question.

00:14:43 I'm like, "I get what you're saying,

00:14:44 it's all well and good."

00:14:45 I said, "Paul, what nobody seems to be talking about

00:14:48 is the fact that the Fed's balance sheet

00:14:50 is gonna start to roll up, $9 trillion balance sheet."

00:14:53 I said, "Are you not concerned about that?"

00:14:55 He goes, "Oh, no, not at all,

00:14:57 because the overnight repo market suggests,"

00:15:00 and maybe he's right, I don't know,

00:15:02 "but there's north of $2 trillion looking for a home,

00:15:06 and that balance sheet runoff will be gobbled up

00:15:08 by all these banks with excess liquidity."

00:15:10 Danny, I ask you, is that just flat out wrong?

00:15:13 Because listen, I'll take him at his word,

00:15:15 but I think he's underestimating the impact of this.

00:15:18 - For sure, and we've yet to see your favorite thing, guy,

00:15:21 the reverse repo rear its head yet,

00:15:23 and I'm sure at some point it's going to.

00:15:24 When you start to take out that type of liquidity

00:15:27 in the market, there's always an impact.

00:15:29 I mean, look what's happening, global treasuries,

00:15:30 how those things trade.

00:15:32 Just imagine, and now, I've talked about this before,

00:15:34 I'll put everyone to sleep,

00:15:35 but we're moving off of LIBOR onto the SOFR,

00:15:38 which I'm sure Liz has talked about or written about

00:15:40 in one of her blogs, and that's an untested, quote, thing

00:15:43 that's supposed to track basically

00:15:44 the Federal Reserve overnight rate.

00:15:47 - You know what's really interesting about that guy?

00:15:48 I was on that night, and I was shocked that he said that,

00:15:51 but then you have to remember what PIMCO is.

00:15:53 Everyone talks their own book to some degree or whatever.

00:15:56 I was just really surprised by that answer,

00:15:59 and one of the things, I will say this,

00:16:01 that Liz, since you started coming on on the tape,

00:16:03 I think it was early 2021, and obviously, Guy,

00:16:06 and you and me, we do Market Call,

00:16:08 Danny, you're involved in a lot of conversations we have.

00:16:10 When I think about who you're speaking to,

00:16:13 I first saw you on Halftime Report on CNBC

00:16:16 on all different shows, but when you think about

00:16:18 the SOFI customer, in a way, we just talked,

00:16:21 everyone's kind of talking their book a little bit,

00:16:23 you guys lead heavily into financial literacy,

00:16:26 that's a big part of your mission there,

00:16:28 but you're also trying to demystify

00:16:30 some of these big things.

00:16:31 So when Danny, you just said,

00:16:32 you've probably written about SOFR, maybe you have,

00:16:34 but you've probably done it in a way where you're saying,

00:16:36 how does this affect me?

00:16:37 How does it affect my savings?

00:16:38 How does it affect my investment philosophy?

00:16:40 That sort of, talk to us a little bit about how your job,

00:16:44 you used to talk to really fancy institutional investors

00:16:48 in your prior life as a strategist.

00:16:50 Now, you're really trying to speak to a customer base

00:16:53 that is coming into the, I guess, the investment world.

00:16:56 Is that fair to say a little bit or no?

00:16:58 - It's totally fair.

00:16:59 So SOFI's investor base, 60% of it, more than 60% of it,

00:17:03 is between the ages of 20 and 40.

00:17:05 So you have to think about that

00:17:06 just from an asset allocation perspective.

00:17:08 If I'm talking to an investor who, on average,

00:17:10 is 30 years old, they've got a really long time horizon.

00:17:13 So I'm not telling them that they should move

00:17:16 their money around in three to six months' time.

00:17:19 It's about making sure that you can stomach it

00:17:21 in the meantime, 'cause I know they're looking

00:17:23 at their portfolios every day, which is not something

00:17:25 that investors of that age did 20 years ago.

00:17:28 I know they're looking at it every day.

00:17:30 So what I have to try to do is explain to them

00:17:32 what's happening, why it's happening,

00:17:34 and why over the long term,

00:17:36 it probably isn't that big of a deal.

00:17:38 And the biggest thing in this market that we've had to do,

00:17:42 which it really is more fulfilling, I think,

00:17:45 to talk to this type of investor, at least for me,

00:17:47 'cause you get to educate and you get to really connect

00:17:50 to the actual investor.

00:17:52 The biggest thing has been that many of them,

00:17:54 this is the first bear market they've ever seen.

00:17:56 It's the first one they've ever lived through

00:17:58 and invested through.

00:17:59 And I've said many times,

00:18:00 your first bear market will shape you.

00:18:02 And the first one I ever went through was 2008, 2009.

00:18:06 I was running three departments,

00:18:08 one of which was a small business association

00:18:10 loan department, and we were the custodian.

00:18:13 So we had to price these loans.

00:18:14 Imagine how that went.

00:18:15 We had to price these loans on a weekly basis.

00:18:18 I will never forget that, right?

00:18:19 And you start to pay attention to indicators.

00:18:22 The client's on the phone screaming at me

00:18:23 about the price of the loans.

00:18:24 I can't do anything about it.

00:18:25 It shapes you in the sense that I am now obsessed,

00:18:28 no matter what happens in the environment,

00:18:31 I'm obsessed with credit spreads.

00:18:32 I'm obsessed with debt.

00:18:34 I'm obsessed with watching those indicators.

00:18:35 - But bringing it back to the things

00:18:36 that some of these customers are invested in

00:18:38 and really how to interpret it.

00:18:40 One thing that we were doing market call earlier in the week

00:18:42 and I was reading a story off of FactSet

00:18:44 and it was about some sort of survey

00:18:46 that some brokerage firm did about young investors

00:18:49 who had been burned in meme stocks and crypto

00:18:51 and they're really pessimistic about the current environment

00:18:53 and you actually said, well, we just did a survey

00:18:56 of your customer base and you're actually getting

00:18:58 some different data and Dani, I know that you're really

00:19:00 interested in this sort of the psychology of this investor

00:19:03 to your point because this is the next investor,

00:19:06 the next real big money investor, your existing investor.

00:19:09 So talk to us a little bit about what your survey says

00:19:12 about this age group.

00:19:13 - Yeah, so we surveyed all of our invest members

00:19:15 and 74% of them said that they were planning to invest

00:19:19 just as much if not more in the next six months

00:19:22 regardless of volatility that had occurred.

00:19:24 And this was before really the big rally that happened.

00:19:28 So it was comforting because it was like,

00:19:30 okay, they're not scared off by it

00:19:32 and they're intending to keep going in this

00:19:34 which is a great thing to hear and see.

00:19:37 And I think as a young investor and somebody who has

00:19:40 that kind of time horizon, maybe they're coming around

00:19:43 to the idea that, okay, this is just a natural part

00:19:45 of the business cycle.

00:19:46 - But Liz, what's not natural and you just said it yourself,

00:19:48 you went through in 2008, 2009, the stuff that you saw.

00:19:51 I go back to 2000, I go back really to,

00:19:53 I was in college in 1987, so I've seen a lot of stuff.

00:19:56 These are not normal credit spreads

00:19:57 and you just talked about how you're nervous about it.

00:20:01 We know we're in uncharted territory.

00:20:02 We know the Fed's had our back since 2009.

00:20:05 So we have yet to see, and I know deep,

00:20:07 and that's in the back of your mind,

00:20:09 the average age of the Robinhood trader happens to be

00:20:10 the average age of the people you're talking to

00:20:12 at SoFi, right, it's 32, 33, whatever.

00:20:15 These people don't have any basis to understand that.

00:20:17 So it's all been one way.

00:20:19 So how do you convey that message to these people?

00:20:22 Like, listen, I just want you to understand,

00:20:23 maybe you get too deep in the weeds,

00:20:24 I want you to understand something,

00:20:25 how a true functioning capitalist society works,

00:20:28 'cause this is not how it works.

00:20:29 - So a few different ways.

00:20:31 So when you look at, one of the things that's bothered me

00:20:33 about this market, even when we were at the lows,

00:20:36 was that credit spreads didn't blow out the way

00:20:38 that they normally would in that time,

00:20:41 which it sounds perverse to sit there and think,

00:20:43 God, I wish things were worse.

00:20:45 But you wanna see some of those indicators get worse.

00:20:47 So the way that you have to communicate it then is,

00:20:49 okay, what is a credit spread?

00:20:51 Why does it matter?

00:20:52 It matters because it means that risk is more expensive,

00:20:55 right, you wanna make sure that you're managing the risk,

00:20:57 you wanna know what the level of risk is out there,

00:20:59 and they understand the word default.

00:21:02 So if you make it into a default conversation,

00:21:05 and how that kind of ripples through an economy,

00:21:07 then it's more understandable.

00:21:09 What you have to wrap it then up into

00:21:11 is this package of, how do we know that it's actually done?

00:21:15 How do we know that we had enough of a wash?

00:21:17 And you can look back at a lot of those indicators,

00:21:20 whether it's even stock market valuations,

00:21:22 did the PE get low enough?

00:21:24 Did credit spreads get high enough?

00:21:26 I would say at this point,

00:21:27 if we're going into a real recession, no,

00:21:30 that stuff didn't happen yet.

00:21:31 We didn't get low enough in PEs,

00:21:33 we didn't get high enough in credit spreads.

00:21:35 So the market right now is still hoping,

00:21:39 I know hope is not a strategy,

00:21:41 hoping that we can somehow manufacture something less bad.

00:21:46 - Danny, you rushed it, she didn't get it.

00:21:48 No, I mean, see Danny, that's the problem.

00:21:50 Sometimes you rush things.

00:21:52 - I rush, I get so excited.

00:21:53 - I mean, it's so bad.

00:21:55 - Shawshank, it's Shawshank.

00:21:57 - I have seen that one.

00:21:58 - Anyway, sorry.

00:21:59 - Anyway, so right now,

00:22:01 because we haven't hit those indicators,

00:22:02 I think the market is still operating

00:22:04 under some kind of assumption

00:22:06 that we can manufacture something less bad

00:22:08 than a hard landing.

00:22:09 By the way, I tried to come in,

00:22:10 I'm just getting so bared up right now.

00:22:12 I came in, I swear, I walked in,

00:22:13 I even misstated three bulls and a bear.

00:22:16 I'm so bullish right now.

00:22:17 - It's not pretty.

00:22:17 - I'm so bearish right now.

00:22:18 - Oh my God!

00:22:19 - Anyway, did it again.

00:22:20 Anyway, so listen, now we are finally starting

00:22:22 to see price discovery on corporate debt.

00:22:25 We are seeing things actually start to happen, right?

00:22:27 Stuff trading down 40 cents, 30 cents, 20 cents.

00:22:30 And finally, some of the equity people are waking up

00:22:32 to say, you know what?

00:22:33 That debt's trading at 30 or 40 cents,

00:22:35 maybe that equity is actually worthless.

00:22:37 So I think this cycle we're going to see,

00:22:39 the funding that's going to,

00:22:39 we've already, we talked about a couple of weeks ago

00:22:41 about these fallen angels.

00:22:42 S&P and Moody's downgrade these things

00:22:44 into junk territory corporate bonds.

00:22:45 It is feast or famine now, it's going to happen.

00:22:47 And I think people need to understand that.

00:22:49 And by the way, that's a huge opportunity.

00:22:51 - Huge opportunity.

00:22:52 - You can recognize it on the long and the short side.

00:22:53 - Well, because what happens on the other side?

00:22:54 Rising stars, right?

00:22:56 - Exactly.

00:22:57 - So if you catch a falling angel,

00:22:58 it crosses over into junk.

00:22:59 - Oh my God.

00:23:00 - You gotta get it on the chain.

00:23:01 - You gotta get it on the chain.

00:23:03 - By the way, every time you guys say that,

00:23:04 I think of the commercial.

00:23:06 Visiting angels, the number one name in home,

00:23:10 there's some damn thing which makes my head fricking explode.

00:23:13 So I swear to God, if you say fallen angels or something,

00:23:17 I'm going to lose my mind.

00:23:18 I'm just telling you.

00:23:19 - She talks to angels.

00:23:20 - And don't catch a fallen angel.

00:23:21 - Danny said it first.

00:23:22 - That's just, I'm going to leave.

00:23:23 - All right, so guy, tomorrow,

00:23:25 by the time our listeners are just keyed in on this.

00:23:28 So the Fed, J-PAL's little speech is going to be done.

00:23:31 How do you think the markets react?

00:23:33 We have an S&P that sold off sharply last week.

00:23:36 It was 4% off of its highs.

00:23:37 It's kind of trying to hold in here a little bit.

00:23:40 We have, again, crude found a bit of a bottom

00:23:42 right near those November highs.

00:23:44 We have the 10-year yield back above 3%.

00:23:48 We have the U.S. dollar index, the Dixie,

00:23:50 trading near, what, multiple-year highs here.

00:23:53 There's a lot of things that actually speak to me

00:23:56 about a very vulnerable equity market.

00:23:58 We'll talk about some of the earnings

00:23:59 that we've seen in the last week or so,

00:24:01 because I do think some of the high-valuation

00:24:04 kind of SAS names, some of the things

00:24:06 that we saw this week, might be really telling.

00:24:09 Talk to me a little bit about how you think

00:24:10 this shakes out on the way out,

00:24:12 assuming that it's just kind of status quo.

00:24:14 You mentioned this earlier to me,

00:24:16 that Neel Kashkari, the biggest dove

00:24:19 who's ever sat on a Federal Reserve board,

00:24:22 sounds pretty hawkish right now.

00:24:24 - He basically was, read the RIOT Act,

00:24:27 and he's gotten himself in line.

00:24:28 By the way, the arrogance that he portrayed

00:24:31 during that whole transitory period,

00:24:33 I mean, he was the flag waver of transitory.

00:24:36 It made me crazy, the certainty with which he spoke.

00:24:40 And now he's finally had his come-to-Jesus moment,

00:24:42 and he's figured this entire thing out.

00:24:44 Better late than never, as they say.

00:24:46 In terms of answering your question,

00:24:48 I think the setup for a move lower

00:24:50 is basically right in front of us,

00:24:52 and obviously we're gonna know a lot more

00:24:54 24 hours from when we're taping this,

00:24:56 but I'll say this.

00:24:57 The move from the mid-June lows

00:24:59 to the recent highest north of 4,300,

00:25:02 I think was expected.

00:25:03 Why do I say that?

00:25:04 Because we talked about it, when?

00:25:06 Back in mid-June, number one,

00:25:07 and it got to the levels we thought.

00:25:09 But I think people, again, are misunderstanding

00:25:13 some of the commentary coming out of this Federal Reserve

00:25:16 and the people around it.

00:25:17 They have pretty much marched out

00:25:19 every single person that ever had a Fed label around them,

00:25:23 and are basically telling you how inflation is a problem,

00:25:26 we're here to combat it, we're gonna do what it takes.

00:25:28 So I don't know what more they need to say.

00:25:31 My sense is, given the fact that the market has rallied,

00:25:34 since really the last time you heard from Jerome Powell

00:25:36 and Ernest, it gives him ammunition

00:25:39 to an earlier comment you made to EY from SoFi.

00:25:41 So I think the fact that the market has rallied

00:25:44 gives them the opportunity to be even more aggressive

00:25:47 in their tone than it would have been

00:25:49 maybe 500 or so S&P points ago.

00:25:51 - Danny, what's the downside of them being more aggressive?

00:25:54 - He didn't answer your question.

00:25:55 - He just said it sets us--

00:25:56 - What do you mean?

00:25:57 - You are not paying attention.

00:25:57 - But I answered the question.

00:25:58 - He said it sets it up.

00:26:00 He said we had a rally into it,

00:26:01 but we're back down below 4,200.

00:26:03 So what did you ask and what is the equity market do tomorrow?

00:26:05 - Are you listening to Bob Marley

00:26:06 in one of your headphones or something?

00:26:08 Are you licking the sleeve?

00:26:09 - Guy thinks next stop is 4,000

00:26:11 and there's an unfilled gap at 3,800.

00:26:13 - I was just saying for tomorrow.

00:26:14 I was talking about for tomorrow.

00:26:15 You didn't answer the question for tomorrow,

00:26:16 which is what you asked.

00:26:17 - Danny's on my grill.

00:26:18 I love that, by the way.

00:26:19 - I feel like I heard down for tomorrow.

00:26:20 - I heard down. - Thank you.

00:26:21 - Thank you. - I heard down.

00:26:23 - But Liz, people hear what they wanna hear.

00:26:24 Dan, you know this.

00:26:25 - And they disregard the rest.

00:26:27 - Thank you, Paul Simon.

00:26:29 Wasn't that the title?

00:26:30 I got a funny story.

00:26:30 Can I tell a story? - Of course.

00:26:32 It's your podcast, Guy.

00:26:33 Have at it.

00:26:34 - So my daughter Lily's home.

00:26:35 She works in the city, but she's living home, right?

00:26:38 And last night, Wednesday night,

00:26:40 I do this because it's important to give context.

00:26:42 There was no baseball in town.

00:26:44 The Yankees of New York weren't playing.

00:26:45 The Mets from Shea Stadium weren't playing.

00:26:47 Not that I would watch them.

00:26:48 There was no preseason football.

00:26:50 So she sat down and said, "Gigi, let's watch Maverick Top Gun."

00:26:54 I'm like, "Absa-frickin-lutely."

00:26:56 I saw it and I mean that, I'm all in for that.

00:26:58 So she went to like Amazon Prime Video

00:27:01 or one of those stupid,

00:27:02 like there are a hundred of those friggin things

00:27:04 that run across your screen.

00:27:05 - Yeah, we know.

00:27:06 We all use them.

00:27:07 - Hula Hoop and Hulu and Roku and all that shit, right?

00:27:10 So she came across Amazon Prime Video

00:27:13 and she clicked on it and Maverick Top Gun.

00:27:16 And she hit it, then you had to go to your phone

00:27:18 or something.

00:27:19 I'm like, "This is what people your age actually do?"

00:27:21 I'm like, "Absolutely not."

00:27:23 She goes, "Okay, you know what we should do then?

00:27:25 "I'll make Danny happy.

00:27:26 "Let's watch the big short."

00:27:27 I'm like, "Absolutely not."

00:27:29 - You're such a dick.

00:27:29 (laughing)

00:27:30 Seriously, do you want?

00:27:31 I know he's watching it, by the way.

00:27:32 I know he has.

00:27:33 He just plays me all the time.

00:27:34 - I've watched it.

00:27:35 - I actually don't think.

00:27:36 Do you think the guy who plays him

00:27:37 is much better looking than him or no?

00:27:38 - Oh, you're gonna put me in that spot?

00:27:40 No, of course not.

00:27:41 I think the real Danny Moses

00:27:43 is just absolutely handsome off the charts.

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00:29:54 (upbeat music)

00:29:57 - Can we talk about,

00:29:58 because I know it's near and dear to your client base,

00:30:01 the student loan thing that's gone on here, right?

00:30:03 I'd imagine most people you're talking to are in Vegas now.

00:30:06 I mean, that was like a massive win of all,

00:30:10 but you don't have to share your thoughts.

00:30:12 This is not a political question at all.

00:30:13 It's just back to the moral hazard issue

00:30:15 that we all went through for the last 13, 15 years

00:30:18 and stuff, the Fed has your back.

00:30:19 FedEx, really?

00:30:20 All of a sudden?

00:30:21 Those are pretty wide ranges for forgiveness, right?

00:30:25 And these student servicing companies,

00:30:26 some of them had already given up the ghost

00:30:28 and transferred it back and so forth.

00:30:30 But to me, it's really nuts how this thing went down

00:30:32 like quickly it felt like.

00:30:33 I know it was planned, but it came back.

00:30:34 - Oh, it didn't feel quick to us.

00:30:35 It felt like it lasted a long time

00:30:37 to anybody working at SoFi.

00:30:39 But something that's interesting, this is anecdotal,

00:30:41 but this was a few years ago.

00:30:43 I have a friend who's in the business

00:30:44 and he has two little kids.

00:30:46 And we were talking about investing and saving for college.

00:30:49 And we were talking about tuition costs.

00:30:50 And he was like, you know what?

00:30:51 I don't even have college savings accounts for them.

00:30:53 And I was guffawed.

00:30:55 I couldn't believe that somebody like him

00:30:57 didn't have college savings accounts for his kids.

00:30:59 And he said, the debt is so ballooning,

00:31:01 the student loan debt is so ballooning

00:31:03 that the government's gonna have to do something about it.

00:31:05 And look at what happened.

00:31:07 It's not as if he called this particular scenario,

00:31:10 but look at what happened.

00:31:11 So look, I think it's good for people

00:31:14 that it's going to benefit in the sense

00:31:16 that it was completely imbalanced,

00:31:18 the struggle that they were gonna have

00:31:19 due to their student debt.

00:31:21 It doesn't really solve the problem.

00:31:23 'Cause if you start college next year,

00:31:25 you're still paying these huge tuition costs.

00:31:27 You're still gonna have to take loans out.

00:31:29 So it doesn't solve the problem.

00:31:31 It's a temporary band-aid that we're putting on

00:31:33 during a time when people are already under stress.

00:31:37 I think it's a conundrum.

00:31:38 I'm not really sure what we were going to do about it.

00:31:40 I think the argument is that these were non-performing loans

00:31:42 in the first place, but still,

00:31:44 it doesn't reduce the amount of non-performing loans

00:31:47 that we're gonna continue to have.

00:31:48 - Don't you actually think it encourages,

00:31:50 as sick as it sounds, people to go take out more loans now

00:31:53 that maybe would not have done it?

00:31:55 Think about it, because we're overthinking it.

00:31:56 Just keep it simple.

00:31:58 If I'm thinking about getting,

00:31:58 you know what, I'm gonna get that student loan

00:32:00 'cause maybe I never have to pay it back.

00:32:02 I think you're gonna see huge growth

00:32:04 in student loan demand as a result of this forgiveness.

00:32:06 - Well, don't you think PPP did the same thing?

00:32:09 When you think about that, I mean, corporations,

00:32:11 they take out a lot of debt.

00:32:12 They do a lot of stupid fucking things.

00:32:14 - Yeah, but you couldn't prevent COVID

00:32:16 as it relates to a four-year decision.

00:32:17 - No, but what I'm saying is that it's same thing

00:32:19 happened to auto companies and AIG.

00:32:21 I mean, the list goes on and on.

00:32:22 So moral hazard's moral hazard.

00:32:24 For the first time in a long time,

00:32:25 people under $125,000 in income got a little something.

00:32:28 That's all I'm saying.

00:32:29 - Listen, I think the colleges should have to pay

00:32:32 for some of this stuff back, but seriously,

00:32:34 this all really started on the for-profit stuff years ago.

00:32:37 So when I was at Frontpoint with Steve Eisemann,

00:32:39 I mean, he went in front of Congress, right?

00:32:40 He testified in 2010.

00:32:42 He wrote a check to a woman

00:32:44 who couldn't pay back her for-profit loan.

00:32:46 What happened was those for-profit universities,

00:32:48 Corinthian, Apollo, ITT, this group of them,

00:32:51 they figured out a game

00:32:52 where they bring in a prospective student.

00:32:54 They said, "Oh, take out this government loan,

00:32:56 "and you can pay for your college with this."

00:32:58 And people started to figure out this game

00:33:00 was just a game because they couldn't get real jobs

00:33:01 out of all these schools.

00:33:02 Some they could, but some they couldn't.

00:33:04 And so we started to build up losses

00:33:06 on these loans over time.

00:33:07 And that's where this all kind of started about,

00:33:09 "Hey, we gotta get forgiveness."

00:33:10 That forgiveness to me is different.

00:33:12 And those companies were never set up

00:33:13 to really educate people, get them jobs.

00:33:15 They had these income tests that were going on at the time.

00:33:17 Can you really go earn?

00:33:18 If you can't prove that you're gonna earn,

00:33:19 get a job after you shouldn't be able to get the loan.

00:33:21 Anyway, that's where this whole thing kind of started.

00:33:23 And that was like 2010, '11,

00:33:25 when this thing really came to the forefront.

00:33:27 And now those things are basically all gone.

00:33:29 But that was a huge amount of the debt

00:33:31 on the student side was from these colleges,

00:33:32 which we could go on forever about.

00:33:34 - I have a question for EY,

00:33:35 and then I have a question for Danny Moses.

00:33:37 In order, if you may, Danny mentioned Corinthian.

00:33:40 If I said to you, EY, "Corinthian leather,"

00:33:42 what do you say quickly?

00:33:45 - I have no idea.

00:33:46 - Of course you don't.

00:33:47 That's a problem.

00:33:48 See, that in and of itself is a problem

00:33:51 because you've missed the whole Ricardo Montalban

00:33:54 back in the day,

00:33:55 humping cars with rich Corinthian leather, number one.

00:33:58 I'll let you Google that

00:33:59 as I ask Danny Moses this next question,

00:34:01 which is 1.6 trillion with a T, college student loan debt,

00:34:06 which is an astronomical number.

00:34:08 Credit card debt, Danny Moses,

00:34:10 is now north for the first time ever

00:34:12 of a trillion dollars in this country.

00:34:14 And we were talking about credit before,

00:34:16 and I still think that's gonna be the domino

00:34:18 that's gonna fall.

00:34:19 And these numbers are getting out of control

00:34:21 with rates going higher.

00:34:23 I know these are things you look at, Danny.

00:34:25 Can you just speak to that?

00:34:26 - Yeah, people are using credit now more than cash.

00:34:29 Dollar Tree came out with their quarter.

00:34:30 It's called Dollar Tree now that's a buck 25,

00:34:32 but that's a whole nother story.

00:34:33 And they're saying they're seeing high-end consumers,

00:34:35 middle-income to their stores, same as Walmart told us.

00:34:37 And they're seeing a lot more credit being used than cash.

00:34:40 So that is not great when rates are rising.

00:34:42 And if you start to look at your APRs

00:34:44 on your credit cards,

00:34:45 start to look and see what's going on, it's going up.

00:34:47 And God forbid you miss a payment now,

00:34:50 it's a good thing that the CFPB still exists,

00:34:52 Consumer Financial Protection Bureau,

00:34:53 because at least they're looking out

00:34:54 and keeping people honest.

00:34:55 Because Liz, I mean, you obviously check the stuff

00:34:58 very closely. - Well, so I have a question,

00:35:00 and this is just collectively to the group.

00:35:02 I think there've been so many people saying

00:35:05 the consumer is so strong.

00:35:06 The consumer is what's gonna keep us out of a recession.

00:35:09 There's all this cash on the balance sheet.

00:35:11 If there's all this cash on the consumer balance sheet,

00:35:13 why are people spending on credit cards?

00:35:15 Is it just that we're having this K-shaped recovery

00:35:18 like we've talked about?

00:35:19 You've got low-income consumers

00:35:21 who are spending on credit cards

00:35:22 and high-income consumers who are just saving money

00:35:24 and not using it because they don't have to.

00:35:27 And then I have a second question

00:35:29 that I think everybody should answer.

00:35:31 Did you make any adjustments in your personal spending habits

00:35:34 because of inflation?

00:35:35 - Let's go back to the credit cards.

00:35:36 So everyone had all these rewards built up for a long time.

00:35:39 There's so many rewards being drained right now.

00:35:41 So ask me the one thing that I've done

00:35:43 is I've looked to use points and whatever I have

00:35:46 to see what's out there.

00:35:47 That's one thing that's happening right now for sure.

00:35:49 - Edibles?

00:35:50 Because that's clearly what's going on during this show.

00:35:53 Anyway, please continue. - Can you buy those

00:35:53 with points? - Yeah, you can buy.

00:35:55 Sure, why not?

00:35:56 I don't know, ask Dan.

00:35:57 But anyway, it's a buy now, pay later type mindset, right?

00:36:01 And that's kind of where we are right now

00:36:02 is that, oh, I can pay it in a month.

00:36:03 I'll worry about it then.

00:36:04 I'll just go buy something.

00:36:05 So I think it's affordability combination

00:36:07 with people actually looking at rewards

00:36:08 and seeing what they have too.

00:36:09 - I think the thing about food and energy inflation

00:36:12 right now, there's a part of the US consumer

00:36:15 where it's just not affecting.

00:36:16 We see savings rates start to drain a little bit.

00:36:19 We see some of the wage gains kind of moderate a little bit.

00:36:22 And so again, it really does feel

00:36:23 like a slow moving train wreck if you think about it.

00:36:26 The one thing you mentioned earlier, Liz, though,

00:36:27 I think is gotta pop is this employment situation.

00:36:30 I mean, we are still at 3.6%.

00:36:33 We are at that pre-pandemic low, which was a 40-year low.

00:36:37 And I was in an elevator this morning.

00:36:39 I was going up to a VC-backed FinTech company.

00:36:44 And all these 20-somethings were roaring

00:36:46 into the elevator.

00:36:47 It was nine o'clock.

00:36:48 And one of the guys looks at one of his coworkers and says,

00:36:51 "There's a lot of people back on the streets,

00:36:52 "and that's really good, but I can't tell.

00:36:54 "Half of them look like they're going to yoga class.

00:36:56 "They're in their athleisure and stuff like that."

00:36:58 People are not working.

00:36:59 The productivity that we are seeing

00:37:01 by the amount of people that are employed

00:37:03 and what the managements have learned

00:37:06 in the last two years about this hybrid work model,

00:37:08 it is gonna be nasty for these people

00:37:11 who think that they can just sit on these really great jobs

00:37:14 with these really great wages.

00:37:16 That's coming to a theater near you.

00:37:17 And I've been talking to a bunch of my friends

00:37:20 who run companies who've been doing nothing other

00:37:22 than expanding over the last,

00:37:24 let's call it three or four years.

00:37:26 And if they haven't made cuts yet,

00:37:28 this is the first chop that they take is to jobs.

00:37:31 It's just that simple.

00:37:32 So we've had some of the bigger companies do it in tech

00:37:34 over the last few months.

00:37:35 That's the one thing to me, man.

00:37:37 I just think when that unemployment rate

00:37:39 starts to tick up a little bit,

00:37:40 that's when I think a lot of these things start to snowball.

00:37:42 And so if we're already talking about

00:37:44 savings not being used or at least savings rates

00:37:47 being drained and then consumer credit ticking up

00:37:50 at a time where we've seen rates go up so dramatically,

00:37:53 guy, it just seems like a really,

00:37:55 what would you call that, what brew?

00:37:57 - That would be a witch's brew, in my opinion.

00:37:59 Halloween coming up, by the way,

00:38:01 if you're looking for a costume.

00:38:02 Always a great one to go to, a standby, a staple,

00:38:06 as they say, I'm gonna effort an attempt

00:38:08 to answer EY's question about the US consumer

00:38:12 and balance sheet and everybody.

00:38:14 I will tell you this, if you watch CNBC's "Fast Money"

00:38:16 or watch "Market Call" or listen to the "On the Tape" podcast,

00:38:21 what I have said religiously now for years is

00:38:25 I never underestimate the consumers want to spend.

00:38:29 It's their ability that I've always questioned.

00:38:31 And the reason why people say that on TV so often

00:38:33 because it's a lazy, bullshit answer

00:38:37 that nobody ever pushes back on

00:38:39 'cause they don't have the data behind.

00:38:41 And when you see now $1 trillion with a T, once again,

00:38:45 of credit card debt in the United States, a record number,

00:38:48 with some absurd amount of new credit cards

00:38:51 being opened since April, you have to say to yourself,

00:38:54 things aren't that good.

00:38:55 Oh, by the way, somebody just won bingo.

00:38:58 If you want more proof positive, Danny Moses,

00:39:00 I just saw a headline about some tsunami,

00:39:03 and I hate the word 'cause I can't spell it.

00:39:05 I know I think it starts with T,

00:39:06 but I don't understand really why,

00:39:08 people not paying their energy bills.

00:39:11 20 million homes in the United States.

00:39:14 And if you don't think that's out there around the corner,

00:39:16 that's something we should be watching as well.

00:39:18 And we won't even talk about what's gonna happen in Europe

00:39:21 over the next couple of months, Danny.

00:39:22 - Listen, we are stuck right now, I think,

00:39:24 just obsession with the Fed, and everybody's so keyed in,

00:39:27 they're not taking a step back.

00:39:28 There are layoffs happening every day.

00:39:29 Is it horrendous?

00:39:30 No, but it's there.

00:39:31 That's a lag impact, obviously, on the economy.

00:39:33 All the things we're kind of talking about,

00:39:35 I think all of us in this room know

00:39:37 there's gonna be a reset of some kind,

00:39:38 whether it's stock picking certain stocks.

00:39:40 I mean, I'm just gonna go back.

00:39:41 I know Dan hates talking about the meme stocks.

00:39:43 I'm not gonna call them meme stocks,

00:39:44 but when you see Peloton act the way it does today,

00:39:47 it gives me hope.

00:39:47 They come out, they announce their deal with Amazon.

00:39:49 They're gonna sell their bikes on Amazon.

00:39:50 Next day, puke a quarter.

00:39:52 They have $1.2 billion in cash left.

00:39:54 That's what they lost in this quarter, right?

00:39:56 So that's not sustainable, right?

00:39:57 When you start to see those type things occurring,

00:39:59 Bed Bath & Beyond.

00:40:00 They're pricing this incredibly expensive debt

00:40:04 that literally is coming in.

00:40:05 It makes you, you know that the equity is worthless.

00:40:08 Like those are, so anyway, I'm getting hopeful now

00:40:10 because I'm starting to see these stocks act

00:40:12 much more rational in a way,

00:40:13 and the money should leave those and go to somebody's quality.

00:40:16 That being said--

00:40:17 Seeing the meme stocks act more rational?

00:40:18 Yeah, because they're coming.

00:40:19 I'm saying they're actually starting to fade.

00:40:20 They are definitely deflating here.

00:40:22 They're losing their sponsorship, right?

00:40:23 Oh, we scared the shorts away.

00:40:24 Great, now there's no one left to buy the stock,

00:40:25 but that's great.

00:40:26 My point is that when we pull all this back,

00:40:28 we go into a fundamental tape in Q4

00:40:31 in the next three to four months,

00:40:32 the market will come in.

00:40:33 Because once you start trading on fundamentals

00:40:35 and get past the obsession with the Fed,

00:40:37 that's when I think we're gonna finally have,

00:40:39 and it'll be a healthy sell-off.

00:40:40 I know that sounds horrendous, but it'll be a healthy sell-off.

00:40:42 So stab back down to previous lows or a higher low?

00:40:45 I mean, I think we're gonna pierce back through 36, 3500.

00:40:48 I mean, I personally think that,

00:40:49 but there was something that happened this week,

00:40:51 and Guy and I talked about it earlier today on Market Call,

00:40:54 but I think it's a really good topic here.

00:40:56 And Michael Burry tweeted this out earlier.

00:40:59 So he is Michael J. Burry on Twitter.

00:41:02 "Subscription software and hardware revenue models

00:41:04 "revolutionize the way business is done

00:41:06 "and made for higher multiples in the market,

00:41:07 "but this means many businesses will show weakness

00:41:10 "later in a downturn."

00:41:12 As we enter the fourth quarter and the lap, first quarter,

00:41:15 this should become more apparent.

00:41:17 So I think it's really interesting.

00:41:18 On the week, we had Salesforce.com.

00:41:20 This is $160 billion market cap company

00:41:22 with $30 billion in sales.

00:41:25 Their co-CEO, Brett Taylor,

00:41:26 said something about more measured buying.

00:41:29 So think about who their customers are.

00:41:32 These are large corporations of all sorts

00:41:35 who buy licenses for this software as a service here.

00:41:39 But if they're starting to lay workers off,

00:41:41 we're gonna see companies like this

00:41:44 start to tell us that first.

00:41:45 And to Burry's point is that we're also starting

00:41:48 to see valuations that don't make

00:41:51 a whole heck of a lot of sense.

00:41:52 On the flip side of that,

00:41:53 so Salesforce is down on a disappointing guide.

00:41:56 It was down, I think, at its lowest about 6%.

00:41:58 That was about $10 billion in market cap.

00:42:00 And then here's a stock, Snowflake,

00:42:02 that has $10 billion in gains today.

00:42:04 It's up 20% as we speak because they beat and guided higher.

00:42:08 There's a company that now trades

00:42:10 at 30 times sales this year, 20 times next.

00:42:14 And it's still down 50% from its all-time highs last year.

00:42:18 So again, Guy, lay it out a little bit.

00:42:20 What are you cueing off here

00:42:22 when you see these two companies

00:42:23 and you see these two directions of the stocks,

00:42:25 you see the differing valuations here,

00:42:28 what do you wanna extrapolate here,

00:42:29 especially as we get through the stretch here for Q3,

00:42:33 and we're gonna start to probably get some preannouncements,

00:42:35 especially with the way the dollar is right here.

00:42:37 - Snowflake is a stock story,

00:42:39 and it happens to be a good one over the last 24 hours.

00:42:42 Salesforce comes out, CRM is an economy story,

00:42:47 and that's the one you should be focused on.

00:42:48 Now, if you're trading stocks, doesn't matter.

00:42:50 You don't really care necessarily.

00:42:52 One stock is up big.

00:42:54 If you owned it, that's really great.

00:42:55 But if you're trying to do second derivative work

00:42:57 and look at what Salesforce said,

00:42:59 what's the word you used?

00:43:01 Customers are now more measured.

00:43:02 That's code for basically saying

00:43:04 there's a slowdown in sales.

00:43:06 I mean, let's just put it out there,

00:43:07 and that's what they're seeing.

00:43:08 But it didn't start there.

00:43:09 I mean, we heard from Bill McDermott a month or so ago,

00:43:12 and he started this train rolling.

00:43:14 So again, these are great companies.

00:43:16 Slowdowns are natural.

00:43:17 I just don't think the market

00:43:19 is taking it into full consideration.

00:43:20 What it means, and I've said this now a dozen times,

00:43:24 the Microsoft quarter a few weeks ago

00:43:26 was not a great quarter.

00:43:27 I'll say it again if you didn't hear me the first time.

00:43:30 The Microsoft quarter was not a great quarter.

00:43:32 As a matter of fact, that day the stock closed at 255.

00:43:36 Within 15 minutes after reporting, it was trading 242.

00:43:40 The only thing that saved that stock that day

00:43:42 was they came out, said during the call

00:43:44 that they did not see a slowdown in demand,

00:43:46 which may be true.

00:43:47 Good for them.

00:43:48 That's coming to that same theater

00:43:50 that Dan mentioned a while ago.

00:43:52 So the stock reaction was great.

00:43:54 The Apple reaction to their quarter was great.

00:43:56 But I'll say this, and I'm not an Apple hater,

00:43:58 so please don't @ me on Twitter.

00:44:00 I'm really not interested anymore.

00:44:02 I will indulge you.

00:44:03 I will eviscerate you if you come at me

00:44:05 'cause that's my want to do.

00:44:07 But again, the Apple quarter was not great.

00:44:09 We are now talking about a company,

00:44:11 forget the name for a second,

00:44:12 that's trading at 26 times next year's numbers,

00:44:17 that has just rallied 34% in two months

00:44:20 with low single digits revenue growth

00:44:23 and mid single digits earnings growth.

00:44:25 You tell me.

00:44:26 Oh, and by the way, for you bingo players again

00:44:29 that had it twice, 2% year-over-year revenue growth

00:44:32 for Apple is a unmitigated disaster.

00:44:36 There you go, Dan.

00:44:36 - Well, I have a couple things.

00:44:38 Let's broaden out.

00:44:39 I'm not gonna talk about individual names,

00:44:40 but here's what I think we're gonna start to hear

00:44:42 because this happens in phases.

00:44:44 So a company that, if they know they're trading

00:44:47 at an inflated multiple

00:44:48 and they don't want their stock to get hit,

00:44:50 but they have to engage in layoffs

00:44:51 because they're trying to cut costs,

00:44:53 you're gonna hear about what's called restructurings

00:44:56 or divisions that got moved around

00:44:59 or product lines that got changed,

00:45:01 which is just layoffs disguised as a restructuring.

00:45:04 So it's gonna be all about the messaging.

00:45:06 And then what I think we start seeing

00:45:07 is a pickup in M&A activity,

00:45:10 particularly in certain sectors that have gotten killed,

00:45:12 but there's a difference between M&A activity

00:45:15 for strategic reasons and M&A activity

00:45:17 for financial reasons.

00:45:19 So you start to see M&A for financial reasons,

00:45:21 which is more of an M&A rescue plan, right?

00:45:24 So I think there's a few phases of this before,

00:45:27 if we do hit a big recession and really hit the skids,

00:45:30 a few things will happen before that.

00:45:33 - This is the problem with rates moving higher

00:45:35 into a slowing economy.

00:45:36 M&A explodes when rates are low

00:45:38 because we know the financing costs

00:45:39 and the leverage that goes into it.

00:45:40 So that's gonna be much harder to overcome.

00:45:43 As it relates to Salesforce and how it reacts,

00:45:45 yes, they announced a $10 billion buyback.

00:45:47 I think it was expected.

00:45:48 That's not what you wanna see

00:45:49 when you own a growth company.

00:45:50 It's great, it's nice.

00:45:52 It's not what you wanna see when you own a growth company.

00:45:54 And to Guy's point on Apple,

00:45:55 that was always the obsession for a long period of time.

00:45:57 It was never a crazy expensive name.

00:45:59 People wanted to extract value.

00:46:00 What are you gonna do with your cash?

00:46:02 I think Apple for a while said,

00:46:03 "We're gonna grow our business."

00:46:04 And then, go ahead.

00:46:05 - I said, you know what, Danny,

00:46:06 when I saw that headline in their press release,

00:46:08 Salesforce was like, "We're excited to announce this."

00:46:10 When you look back,

00:46:11 one of the first things that Tim Cook did in 2012

00:46:14 when he took over Apple,

00:46:16 rates were really low.

00:46:17 They had a shit ton of cash.

00:46:18 Okay, here was a company that was still innovating

00:46:21 and growing in a strong, secular sort of shift

00:46:24 that was smartphones, and they started their buyback.

00:46:27 When Ruth Porat went over to Google,

00:46:29 I think, what was it, Guy, 2014 or something like that,

00:46:32 similar sort of situation,

00:46:34 started to buy back their stock.

00:46:36 Microsoft started doing it, I think, in the early aughts.

00:46:39 And it was just different times.

00:46:40 When you see a company where the stock is down

00:46:42 the way it is, and they're supposed to,

00:46:45 there's no organic growth there.

00:46:46 And listen, they bought Slack last year.

00:46:48 They bought, I mean, they bought company after company.

00:46:50 Benioff, the CEO of that company, he started at Oracle.

00:46:54 He was one of their biggest salesmen.

00:46:55 He said, "That's just a big, old-fashioned roll-up.

00:46:57 "There hasn't been organic growth

00:46:59 "at Oracle in a long time."

00:47:00 So that just signified what that company is.

00:47:03 It's no longer a growth company.

00:47:04 They're gonna have to financial engineer it.

00:47:06 And the point I was just making

00:47:08 about Apple and Microsoft and Google,

00:47:10 very different situations, I think,

00:47:11 and a very different rate environment.

00:47:13 - Hey, EY, have you ever seen people

00:47:15 play on those Slackline things?

00:47:17 They connect them between trees.

00:47:18 I mean, they're like fricking acrobats.

00:47:20 Like, they're kids in the neighborhood that do this shit.

00:47:23 It's unbelievable.

00:47:24 - Like when you glide through a jungle?

00:47:25 - It's like a big rubber band they huck between trees.

00:47:28 - Do we call that a trapeze artist?

00:47:30 What do we call that guy?

00:47:31 - Like when you hold onto the thing

00:47:32 and you glide through trees?

00:47:34 - No, that's a zip line.

00:47:35 I mean, some people listening

00:47:37 know exactly what I'm talking about.

00:47:38 - Very few.

00:47:40 - You know, one of the things, by the way,

00:47:42 that I look forward to, I look forward to a lot of things.

00:47:44 I look forward to waking up in the morning at my age.

00:47:46 That is a win.

00:47:47 I put that in the win column, check.

00:47:49 One day I won't, by the way.

00:47:50 I don't even know it,

00:47:51 but that's probably for another podcast.

00:47:54 But you put out your piece every Thursday.

00:47:56 It's wonderful, but I will tell you,

00:47:59 and I know this to be true,

00:48:01 there are nights when you sit around

00:48:02 with your feety pajamas on,

00:48:04 thinking, how am I gonna piss guy off tomorrow?

00:48:07 You don't have to admit it.

00:48:08 I know it to be true.

00:48:09 I will tell you that Journey is one of the worst bands

00:48:13 in the history of mankind.

00:48:14 I have one song on my 700, now 65 song,

00:48:18 Spotify playlist that's Lights,

00:48:20 and that song is marginal at best,

00:48:21 but I thought I had to put it in

00:48:23 because it pays homage to San Francisco.

00:48:26 With that said, the note you put out about China,

00:48:29 I mean, what's going on in China, separate ways.

00:48:33 I mean, it made me, again, talk about my head exploding,

00:48:36 and I know you did it on purpose.

00:48:38 You can say I'm completely self-absorbed.

00:48:40 That's true.

00:48:41 Doesn't mean that I'm not right.

00:48:42 So talk to us about your note on China

00:48:44 and all things China,

00:48:45 'cause it actually was extraordinarily good.

00:48:48 - So first of all, I did think of you,

00:48:51 but only because I wasn't on Market Call today,

00:48:54 so I figured you might not even see this one

00:48:56 and it wouldn't irk you as badly.

00:48:57 - No, it irked me.

00:48:58 - And I really wanted to use it.

00:49:00 So what I did in this week's note was,

00:49:04 first of all, we're so obsessed with the Fed, right?

00:49:06 I'm kind of tired of being obsessed with the Fed,

00:49:08 so I just wanted to talk about something else.

00:49:09 That was part of it.

00:49:10 But the other part of it is,

00:49:11 we're obsessed with monetary policy just as a globe,

00:49:14 and here we are as the biggest economy in the world,

00:49:17 worried about tightening,

00:49:18 and we've got the second biggest economy in the world

00:49:20 loosening and stimulating.

00:49:22 And as I was writing it,

00:49:24 I started to debate with myself

00:49:26 about which one had it right and which one had it wrong.

00:49:28 And if you think about what China did coming into this,

00:49:32 or even through the pandemic,

00:49:33 they didn't throw as much liquidity at it as we did,

00:49:36 and if you look at what I did in the note,

00:49:38 I talked about M2, the money supply.

00:49:40 Our money supply ballooned, which we all know.

00:49:43 China's didn't move very much,

00:49:45 and their argument was,

00:49:47 we didn't do that because we didn't want to drive inflation.

00:49:49 We didn't want to have this inflationary problem.

00:49:51 Okay, but now they're in this pretty big growth slowdown,

00:49:54 and they've got a completely plateauing,

00:49:57 if not crumbling, property market.

00:49:59 So they're dealing with a different set of problems.

00:50:01 You look at the US, and it's like,

00:50:03 well, but we have really low unemployment,

00:50:06 factory production is still okay,

00:50:08 we're not in this terrible recession,

00:50:09 so maybe we did it right.

00:50:11 Can we tighten and get out of it?

00:50:12 My argument is, we can't both have done it right.

00:50:15 One of us screwed it up, and I don't know which one yet.

00:50:18 We're gonna find out probably in the next six months or so,

00:50:20 but one of us screwed it up.

00:50:21 But I wanted to just kind of draw the parallels,

00:50:24 show people what's so different

00:50:27 about each of these central banks,

00:50:28 and then how do you invest in that environment.

00:50:30 At this point, I am not a China bull.

00:50:32 I am not an EM bull.

00:50:33 I think that they've got a lot of things to work out there.

00:50:35 I'm also not a Europe bull.

00:50:37 But you have to know what's going on around the world

00:50:39 to really understand it as an investor.

00:50:41 - Geopolitical risk, we talk about it,

00:50:43 has been underpriced for a long time.

00:50:44 That's more economic, but geopolitical risk

00:50:46 is associated with Taiwan and everything like that.

00:50:48 But that's the one thing that's underappreciated,

00:50:50 and you just said the obsession of the Fed.

00:50:52 When you dig your head out of, not your head,

00:50:54 people dig their head out of obsession with the Fed

00:50:56 and look around, it's not pretty.

00:50:58 And there are a lot of moving parts.

00:50:59 I mean, you have higher commodity prices, right,

00:51:01 at the same time that things are slowing.

00:51:02 You have crazy things that are happening right now,

00:51:04 and that just is not a great recipe,

00:51:06 I think, for what's ahead.

00:51:07 So we'll get past this stuff tomorrow,

00:51:09 and then we'll get past the next Fed meeting.

00:51:11 But to Dan's point, if I start to see Fed fund futures

00:51:14 start to price in less, or 50, or even down to 25

00:51:17 at some point in the future, to me,

00:51:19 it's like, why did they do that?

00:51:21 And they're doing it because they're starting

00:51:22 to see things come in really hard.

00:51:24 - It seems like an unmitigated disaster over there.

00:51:26 Xi's got this, he's up for re-election.

00:51:28 He already named himself Premier for Life or whatever.

00:51:31 Here's a headline, though.

00:51:32 This is as they are easing that China shuts down

00:51:35 EV charging stations.

00:51:37 When you think about that, and you think about this move

00:51:39 that they've had towards changing their electrical grid,

00:51:42 but because they have a heat wave, we all have a heat wave,

00:51:45 we all have some constraints on electricity

00:51:47 and energy in general right now.

00:51:49 Isn't that kind of like crazy to think about?

00:51:52 They've been pushing their citizens to do EVs,

00:51:54 and now you can't charge 'em.

00:51:55 So that one seems like a crazy mess to me.

00:51:58 And I'll just say this, you saw the headlines.

00:51:59 Guy's all geeked up, he's getting in line

00:52:01 at his local Apple store right now.

00:52:04 Apple's gonna introduce their next 14,

00:52:06 or the iPhone 14 or whatever.

00:52:08 You saw a headline that some of the production

00:52:10 after the initial production is gonna be in India.

00:52:13 I mean, so we're seeing the reliance

00:52:15 on China unwind right now, and I think the more we see that,

00:52:20 the greater the likelihood we have some sort of dust up.

00:52:22 And so, Guy, just curious thoughts here,

00:52:25 because last night Tim on our show said,

00:52:27 he declared globalization is dead.

00:52:30 Is globalization dead, and what does it mean

00:52:32 for our economy, is this a good thing?

00:52:34 You saw Intel cut this deal with Brookfield.

00:52:37 We know that the CHIPS Act is incentivizing

00:52:40 our chip makers $52 billion worth to kind of onshore

00:52:44 some of these things, create some fabs here.

00:52:45 Thoughts?

00:52:47 - If globalization is dead, and I'm not suggesting

00:52:49 that it is, but Tim's entitled to his opinion,

00:52:52 you are gonna be wishing we had 8.5% inflation.

00:52:56 That's what you're gonna be wishing for.

00:52:57 That's gonna be like, oh my God,

00:52:59 remember when inflation was 8.5%,

00:53:02 saying it in a hopeful way

00:53:04 that we could somehow get back there.

00:53:06 So I don't think it's dead, I think it's changing.

00:53:09 Clearly, things have been going on

00:53:10 to necessitate exactly that, but it's no way dead.

00:53:13 And listen, you know how I feel.

00:53:15 In the fall, I talked about geopolitical risk

00:53:17 being the number one thing that nobody was talking about.

00:53:20 We talked about Russia-Ukraine, that happened.

00:53:22 We thought it would be post-Olympics,

00:53:23 it happened midway through.

00:53:25 I'm surprised the China-Taiwan situation

00:53:27 hasn't basically accelerated more than,

00:53:29 I'm not wishing for it, I just thought

00:53:31 it would happen quicker than it has,

00:53:33 but I still think something's gonna happen there.

00:53:35 None of this, by the way, is particularly bullish

00:53:38 for the equity markets.

00:53:38 And the fact that we don't talk about Russia-Ukraine anymore

00:53:41 doesn't mean it's still not going on.

00:53:43 And that situation doesn't resolve itself overnight as well.

00:53:47 And the food inflation that you're dealing with now,

00:53:50 that's basically, a lot of it is predicated

00:53:53 on what happened in Ukraine.

00:53:55 That one, I could absolutely say Putin's inflation

00:53:58 because in terms of food, that's what's going on,

00:54:00 Ukraine being the fourth largest commodity country

00:54:03 in the world.

00:54:04 So, globalization dead?

00:54:05 No, if it is dead, buyer beware.

00:54:08 A lot of you have come to not only expect,

00:54:11 but yearn for what we call a rot, a rip off the tape,

00:54:15 a Danny Moses time where he basically rants.

00:54:18 Prior to Danny's rot, I'm gonna do a G Swiss rot here.

00:54:23 I will say that The Sopranos, to this day,

00:54:27 is one of my favorite shows of all time.

00:54:29 I can sit and watch Sopranos episode and be enthralled

00:54:32 by it, knowing every line of every show.

00:54:35 No doubt, EY from SoFi has never seen it,

00:54:37 that's for another show.

00:54:39 But I will tell you, this is where they jumped the shark

00:54:42 and fortunately they jumped it in the finale

00:54:45 of the last show when they played that shitty song,

00:54:48 "Don't Stop Believing" in the diner.

00:54:51 Once again, Journey sucks with that, Danny Moses.

00:54:55 - That's your rot, I love that.

00:54:56 - That's my rot, it's always yours.

00:54:57 - So I always search SEC websites,

00:55:00 I try to find something, 'cause I figured

00:55:02 they'd come out--

00:55:03 - Can I tell you something? - Yeah.

00:55:04 - You must be a fricking ball at parties.

00:55:06 - Listen to me.

00:55:07 - This is my bio, my name's Danny Moses, I got great hair.

00:55:10 I always search SEC websites on Friday nights.

00:55:14 If you're out there and interested, I mean, oh my God.

00:55:18 - Perhaps you see me in such things as sec.gov

00:55:21 and sec.org.

00:55:22 So I started searching, 'cause I'm obsessed

00:55:24 with Barry Diller and Alex von Furstenberg

00:55:26 and David Geffen and nothing has happened

00:55:28 on the Microsoft Activision, so I look all the time.

00:55:30 I mean, it was April, the last we heard

00:55:32 of anything was April, right?

00:55:34 So I'm like, oh, let me look around.

00:55:35 So I'm going on the site, I'm like, I find this quiz

00:55:38 on this investor.org on the SEC website,

00:55:40 I'm like, what's this, take an investor quiz.

00:55:42 Thinking maybe they're trying to educate

00:55:44 the retail investor and let you know what's going on.

00:55:46 So I go on this quiz and there's all there are,

00:55:48 10 questions about, oh, an index fund is better

00:55:51 than a mutual fund because, passively managed funds

00:55:54 are better than active because, and I'm like,

00:55:55 hold on a second, 10 questions that BlackRock

00:55:57 obviously authored.

00:55:58 Like, I mean, when I read it, I'm like, okay.

00:56:00 So then I start to, then I conspiracy, whatever.

00:56:02 So then I said, I'm going to come up with my quiz

00:56:04 on what I would ask retail investors.

00:56:06 So my rot is the 10 questions that I would ask.

00:56:08 Now, I know we're going to put in our notes,

00:56:11 we'll put this.org and you can read the 10 questions

00:56:13 and put yourself to sleep on their end.

00:56:15 But my 10 questions are the following, you guys ready?

00:56:17 One, should you rely on Wall Street sell-side research

00:56:20 for your investment decision?

00:56:22 These are pretty much, you know, rhetorical questions,

00:56:23 but the answer is obviously no.

00:56:25 Does a stock split actually increase

00:56:27 the fundamental value of a company?

00:56:29 The answer is no.

00:56:30 Is it wise to ignore fundamentals

00:56:31 when choosing an investment?

00:56:33 The answer should be no.

00:56:34 But again, none of these things are on there, right?

00:56:36 When the bonds of a company trade below 60 cents

00:56:38 on the dollar, should you be concerned that the equity

00:56:41 of that company might be worthless?

00:56:42 Footnote, bond price, Bed Bath & Beyond, 30 cents.

00:56:45 Question, should you be concerned?

00:56:46 I would think so.

00:56:47 Five, is it better to make investment decisions

00:56:50 based upon tweets from CEOs, large shareholders,

00:56:54 or should you do your own work?

00:56:55 We know the answer to that question.

00:56:57 Do you have any idea what a 10Q, a 10K or an 8K is?

00:57:01 The answer is obviously for the majority of people, no.

00:57:03 Do you know how to track insider buying and selling?

00:57:06 And do you have any idea what a 10B51 plan is?

00:57:08 These are the type of questions.

00:57:09 I'm going to keep going unless I got three more.

00:57:11 All right?

00:57:12 - Thank God.

00:57:13 - Stick around.

00:57:14 Oh, come on.

00:57:14 Try to get away with insider trading.

00:57:16 Is it necessary to be rich enough to line the pockets

00:57:20 of politicians and hire the best lawyers?

00:57:23 Yes, obviously it is.

00:57:24 Is PFOF, Paying Forward to Flow, a stock symbol?

00:57:27 Or is it pursuant to a bookie that already knows

00:57:30 the score of a game before he sets the line?

00:57:32 See Ken Griffin's real estate holdings.

00:57:34 At number 10, do you think the markets are structured

00:57:37 in a way that over a long period of time,

00:57:40 institutional money managers will outperform

00:57:42 the retail investor?

00:57:43 And the answer to me is yes,

00:57:45 because we know how this game is set up, Liz.

00:57:47 So those are the 10 questions that will never show up

00:57:49 on an SEC website that I wish we get on the show,

00:57:52 we try to educate the retail investor,

00:57:53 'cause we want them to get smarter

00:57:55 and make better decisions.

00:57:56 And I think you probably don't like how long it was,

00:57:58 but maybe you agree with some of those questions

00:58:00 that I would ask.

00:58:01 Liz, wouldn't you ask these exact questions?

00:58:02 - I think I passed at least.

00:58:04 - Yeah.

00:58:05 - At least with 80%. - I think you got 10 out of 10.

00:58:06 Exactly.

00:58:07 So.

00:58:08 - I mean, I would ask some of those questions.

00:58:10 I think some of them were a little leading,

00:58:12 if I'm being honest.

00:58:13 - Yeah, I think you know,

00:58:14 the horse to the pond or something.

00:58:15 But yeah, I mean, those are important questions to ask,

00:58:17 right?

00:58:18 How do you analyze something?

00:58:19 What stuff should you think about?

00:58:20 What should you pay attention to?

00:58:22 Something that I just talked about in my last podcast

00:58:24 was you have to purposely seek out information

00:58:27 that is different than what you believe, right?

00:58:29 You have to purposely seek out a contradicting idea

00:58:32 or argument and make sure that it doesn't make

00:58:35 a ton of sense, because sometimes I'll tell you what,

00:58:37 it does, right?

00:58:38 And then you have to rethink,

00:58:39 you have to go back to the drawing board and do your own.

00:58:41 - Wait, you have a competing podcast to us?

00:58:43 - I didn't say competing.

00:58:44 - Oh, really?

00:58:45 So what is it called?

00:58:46 It's called The Important Part.

00:58:47 - It's called The Important Part.

00:58:48 - So follow it.

00:58:49 Guy, will you head down to your local podcast store,

00:58:52 your favorite podcast store?

00:58:53 - Well, it's funny you say that,

00:58:54 because it is Thursday night, we're doing this.

00:58:56 I was actually planning on going

00:58:57 to the local Apple podcast store.

00:59:00 It's one in Randolph, I think,

00:59:01 right next to a Chipotle Mexican grill.

00:59:03 Looking forward to it.

00:59:04 - Well, this one's free, if that helps.

00:59:07 - So Danny, great job with that rot.

00:59:09 - Really?

00:59:10 - You're one of the best producers.

00:59:12 - The top 10 list.

00:59:12 Oh, is that what he was going with, is a top 10 list?

00:59:15 - Whatever, Dan.

00:59:16 You know, are you high?

00:59:17 I'm sick and tired of this.

00:59:18 I saw you drink your Como's tequila in here, in a bottle.

00:59:21 I know what's in that thing.

00:59:21 - Liz is only doing this for the Como's tequila.

00:59:23 - Okay, fair enough, right.

00:59:24 - Who listens to Smart List?

00:59:25 Let's just wrap it up with, bye.

00:59:27 - Letterman's staff is on line five.

00:59:29 Oddly enough, Gary Gensler is on line six for you.

00:59:32 So well done by you with that rot.

00:59:34 But before we get out of here,

00:59:35 I think people always want to get to know our guests

00:59:38 just a little bit.

00:59:39 So EY from SoFi, we knew you grew up

00:59:42 in the breadbasket of the United States, Wisconsin.

00:59:45 I love Wisconsin.

00:59:46 As I've mentioned a number of times,

00:59:47 I got my ass kicked in Wisconsin once.

00:59:49 Nobody seems to know what that is,

00:59:51 nor do you, by the way, which is fine.

00:59:54 But just talk to us, give us sort of the 30-second EY

00:59:57 from SoFi behind the curtain, unplugged,

01:00:01 those types of things.

01:00:02 - Behind the curtain and unplugged.

01:00:04 I mean, yeah, I grew up in Wisconsin.

01:00:06 I am always through and through a Midwest girl.

01:00:10 If you talk to me two beers in,

01:00:12 you'll hear my accent a lot stronger.

01:00:15 I don't know.

01:00:16 I mean, I love this business.

01:00:18 I love being in this business in New York City

01:00:21 because it gives me a perspective of crazy people.

01:00:25 And I get to maintain the groundedness of the Midwest

01:00:30 and look at it through that lens.

01:00:33 And it's honestly, it's really fun.

01:00:35 It's really fun to do.

01:00:37 - Well, I appreciate that little synopsis.

01:00:39 And by the way, when you said crazy people,

01:00:42 you looked directly at me when you said it, which is fine.

01:00:45 I take that as a compliment.

01:00:46 But we're gonna play a little speed round

01:00:48 because that's what we do.

01:00:50 So I'm gonna say a word.

01:00:51 You're gonna basically blurt out.

01:00:53 Don't think, by the way.

01:00:54 If you hesitate for even a second, I'm moving on.

01:00:57 So you ready?

01:00:58 - Danny, I'm gonna need some--

01:00:59 - All right, let's do it.

01:00:59 Ready?

01:01:00 - Yeah.

01:01:01 - Okay, all right.

01:01:02 - I need a couple of beers.

01:01:03 - Yeah.

01:01:04 - Paul Molitor.

01:01:05 - Number four.

01:01:05 - Well done.

01:01:08 Aaron Rodgers.

01:01:09 - Number 12.

01:01:10 - Come on.

01:01:10 I mean, it's just as a number thing now?

01:01:12 Okay, I'll play your reindeer game.

01:01:14 George Bamberger.

01:01:16 - No idea.

01:01:17 - Of course you don't.

01:01:18 Here's one for you.

01:01:19 This is going sort of deep.

01:01:22 Ray Nitschke.

01:01:23 - Oh, I feel like I should.

01:01:26 I was gonna say Packers,

01:01:28 and then I got confused if maybe it was a hockey player.

01:01:30 But yeah.

01:01:31 - You know what?

01:01:32 I like it.

01:01:33 It sounds like a hockey player,

01:01:34 but I got it right the first time.

01:01:36 - Yep.

01:01:36 - Here's one for you.

01:01:38 Another one.

01:01:39 Brad Cooper.

01:01:42 - Bradley Cooper?

01:01:43 You mean the Bradley Cooper?

01:01:45 - Well, I know him.

01:01:46 I call him Bradley.

01:01:47 - Shallow.

01:01:48 - There you go.

01:01:49 - Lady Gaga.

01:01:51 - Weird.

01:01:53 - Your friend group.

01:01:56 - Well, hold on.

01:01:57 You just went and saw Lady Gaga last week in concert.

01:01:59 - What I love about her

01:02:00 is that she's unapologetically weird.

01:02:02 - Yeah.

01:02:03 - Guy doesn't love that word weird, though.

01:02:05 Guy, what do you think of when you think of weird?

01:02:06 - The weird thing about weird

01:02:08 is actually the word itself is weird.

01:02:10 It's that whole I before E except after C,

01:02:12 unless sounding like way is a neighbor and slay,

01:02:15 if you recall.

01:02:16 Weird does not fit under any of those things.

01:02:19 It's weird.

01:02:20 - Well, listen, it's been our sincere pleasure

01:02:22 to get to know Liz over the last couple of years.

01:02:23 She's been a great contributor

01:02:25 with everything that we do on "Risk Versal Media."

01:02:27 I think you first came on in the first half of 2021

01:02:30 on "On the Tape," and we got to know

01:02:32 just kind of the way you think about markets,

01:02:34 the way you think about investing,

01:02:36 the way you think about monitoring the economy.

01:02:38 We take a lot of time and effort

01:02:41 to kind of separate all of those

01:02:43 rather than think of them as a monolith.

01:02:45 And it's been really,

01:02:46 Guy and I have had a whole heck of a lot of fun

01:02:47 doing "Market Call" with you on Thursday.

01:02:50 So it's always fun, Liz, to have you on "The Tape."

01:02:53 We did this IRL, and we hope you will come back.

01:02:57 So thanks a lot.

01:02:58 - Of course, of course.

01:02:59 I've loved working with you guys, too.

01:03:00 And you know what, you've made me a better investor.

01:03:02 I love the bear takes.

01:03:04 - There you go.

01:03:05 I'm trying to transition.

01:03:06 This is not gonna happen probably.

01:03:07 (Liz laughing)

01:03:08 As quick as I would like.

01:03:09 I try to become bullish.

01:03:10 I really do.

01:03:11 I try to come in and do it.

01:03:12 And by the way,

01:03:13 what we do have in common now is my son's in Madison.

01:03:15 So I'm starting to experience the Wisconsin thing.

01:03:17 It's unbelievable.

01:03:18 What a great state.

01:03:19 - Yeah, it's amazing.

01:03:20 Good spirit there.

01:03:21 - All right, Liz Young, thanks for joining us.

01:03:23 - Thank you.

01:03:24 - Thanks once again to CME Group and iConnections

01:03:29 for sponsoring this episode of On the Tape.

01:03:31 If you like what you heard,

01:03:32 make sure you hit follow and leave us a review.

01:03:35 It helps people find our show

01:03:37 and we love hearing from you.

01:03:39 Can also email us at onthetape@riskreversal.com anytime.

01:03:44 Follow and connect with us on Twitter @OnTheTapePod.

01:03:48 And we'll see you next time.

01:03:50 On the Tape is a Risk Reversal Media production.

01:03:53 This podcast is for informational purposes only.

01:03:56 All opinions expressed by me, Dan Nathan,

01:03:58 Guy Adami, Danny Moses, and any other participants

01:04:01 are solely our opinions and should not be relied upon

01:04:04 for specific investment decisions.

01:04:06 (upbeat music)

01:04:08 [BLANK_AUDIO]

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