SpaceX IPO With Rupert Mitchell, Consumer Discretionary Is Not an Econ Signal, Halo ETF Launches

[Music] We're getting roasted in the chat for being a minute late, Michael. What are you gonna do, right? Aren't we doing the best we can? I always am. Okay, Jonathan 7-7-6-8 said his Josh must be combing his hair. You're not totally wrong. Not today. All right, hey everybody, welcome to What Are Your Thoughts. The world's greatest investing podcast, at least in my opinion. We are back because it is Tuesday. It's 5 p.m. East Coast. So, you know what that means, it's time for an all new edition. What are your thoughts? And with me today, my co-host, Michael Batnik. Michael, say hello. Hello, hello. The live chat is going off right now. Happy Tuesday, Compounders from Real Mani. Yes, I made it live, ZEEK-360. Welcome, brother. Joe Al-Tomorrow says, "Well, what's up, Pounders?" Daniel Cux says, "My crown is bigger than Walmart and JPM. Combined?" No. Can't be, right? Just bigger than both. All right, they had the change into Nick's Gear, Biff Greibulls. We didn't have the change into Nick's Gear. We haven't taken it off. And I don't see it happening anytime soon. Tonight's show, we're going to get into all the biggest topics in the market. The economy, stocks, bonds, IPOs, interest rates, all the things. But before we do, we have a sponsor tonight. Michael, who's the sponsor? That's what Josh, this podcast is sponsored by DBMF. A market-leading managed futures ETF. Alternatives should do two things. Be uncorrelated to traditional asset classes. And deliver strong performance. But many alternatives don't do those things very well. That's where DBMF comes in. With its revolutionary log cross approach, DBMF has grabbed the attention of savvy allocators, looking to deliver both alpha-generating returns, and genuine diversification portfolios. Find out why managed futures should be a foundational part of any alternative allocation. At www.dbmf.com/wayt, the funds investment of Jacks' wrist charges and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company. It may be obtained by visiting www.imgp.com. The IMGP DBI managed futures strategy ETF is distributed by Alps, distributors, Inc. This episode is sponsored by Clearbridge Investments. A mid-rising geopolitical tensions and continued market uncertainty, investors are looking for stability. Even before recent developments in the Middle East, stocks backed by real assets were gaining momentum and can offer more predictable cash flows as volatility increases. Position your investment portfolio for wider equity participation with fundamentally driven, clearbridge active equity strategies. Clearbridge, a Franklin Templeton company, go to Clearbridge.com to learn more. I think we really need to start with the SpaceX S1. We sort of touched on a. What in the world? Just look at that face. Oh my god! It's Rupert Mitchell from Blind Squirrel MacRill. How did you get here? Hey Jen. Good to see you guys. It's so crazy that you're here because we were going to talk about some of your research that you've been putting out. What an unbelievable coincidence. We're so excited to have you. Thank you Rupert. It's a pleasure. It's a pleasure. I'll set it up for you guys anytime. You just happen to be in the neighborhood, aka in Hong Kong. It works out perfectly. Let's get into SpaceX. You have been writing a lot and speaking a lot about the topic. You've got a lot of experience in the investment banking world. You have thought a lot about the sheer size of the. Let's call it the opportunity. The basic argument. I'm going to quote you to you and then have you react. The basic argument that you're making here is that a lot of people already own this stock. All of the people who are going to be speaking positively about it. Not only are they extremely long, but they're long from pennies. They own this thing, I don't know, from seven years ago, nine years ago, ten years ago. People with a cost basis that they almost own the stock for free. That's a very important point. This is not as though venture capitalists or Wall Street players participate in a series de-round two weeks ago at roughly an equivalent valuation. We're talking about people who are up huge. This is your actual quote. You are currently being submitted to a continuous barrage of propaganda. You must tune out CNBC bubble vision rockets. Mars, wow, SpaceX has also co-opted the entirety of Wall Street. The assembled syndicate is probably looking at a fee. Of $850 million, which is an underwriting commission of 1%. Let's put this graphic up. This is from Blind Squirrel macro on Substack. This is everyone. I can't think of anyone that's not on here to your point. There is one missing Josh. Who's that? Jeffries is not on there. They've got a very highly ranked aerospace defense analyst. So keep an eye out there. Okay. Do we know, has there been any public comment about why they're missing? No, but I've got my ear to the ground. Okay. Tell us to start with why you think we're on the receiving end of this barrage. Surely it's not because people genuinely think that they need to promote this. It sort of promotes itself. It's Elon Musk. Yeah. Well, let's -- the world is motivated by constraints and opportunities and incentives. Right? And right now everybody is on one side of the incentive bus. Right? Pretty much anyone who's anyone has had the opportunity to buy Basics and has bought Basics at significantly lower valuations over the course of the last 20 years. And trust me, everybody owns it. Right? There's not a sovereign wealth fund. There's not an institution. There's not a mutual fund. There's not a private empty shop. There's not a crossover hedge fund that doesn't own this thing in size at a much lower price that's being -- than what is being offered to the market. Now, I don't want to -- I have given views on valuation. You can read it in the notes. I don't want to clutch my pearls around the governance stuff. I just want to focus on the size. Right? So let's do the numbers. They're talking about a $75 billion primary raise. By the way, $20 billion of that's going back to pay the bank. So that's not exactly a growth stat story. But $75 billion -- that's just about four-point -- well, what you need to do is you need to add the green shoe, the over allocation option. So actually, they need to find a home on day one for $86 billion worth of stock. Oh, my God. In one shot. In one shot, one day in June, where everyone that's big -- now, trust me, there's going to be a lot of performative participation in this deal by big Wall Street names. They're just averaging up, right, by a tiny bit. Right? So you have to tune that out. I have no doubt that there are a lot of people that are really excited about owning the rocket ship company. I have no doubt. Right? So first thing, how are they solving this? First of all, they are co-opting the passive funds effectively. The rule of being changed with the NASDAQ, with the NASDAQ and the S&P and the Russell indices. This thing's going into the index as fast as humanly possible. Now, I've run the numbers, right? And I've looked at all of the funds that are both passively benchmarked to these indices and are -- and those that sort of close it -- benchmarked. They're benchmarked again. They're kind of -- they can't afford to completely ignore it. Right? If you assume you've got almost full compliance, right, by the -- well, full compliance by the passive guys. And reasonable compliance by the closet benchmarkers, you get to a number of about $44, $45 billion of that, of that 86. Then -- and this is quite an amazing stat. They reckon they're going to place 30% of the deal with retail. Right? That's $26 billion. I don't know -- I don't know if that's 100 or 105 times more than has ever been placed with retailers. But it's a staggering absolute and relative number. We were talking before we went live. You were saying of the millions of deals that you've seen in your career, 5% to retail is considered risky or high. So I'll tell you a story. So, I mean, I -- you know, we used to get twitchy if we had to place more than 5% with retail, right? And then we'd go, well, that's great. If retail -- if retail flips completely -- flips the deal completely -- we've still got a 15% breenshoew. We don't really have -- we need to just worry about that. about how tight the top of the institutional book is, right? And I remember this is in my city days back at the time of the Facebook IPO. I was running, I was doing US listed deals out of Asia, think Alibaba or another's back then. I remember getting, I was on the chat with the guy that ran the Smith Barney retail network, just as the IPO was going out. And he was saying, "Hey, by the way, do you want any Facebook stock?" And I said, "You've got something?" "Yeah, you can have as much as you want." And at that point, I went, "Whoa!" That's not great. But we all know what happened to Facebook. Yeah. Opened up at, opened at 40, ended up at, I don't know, 18. Okay. What if everyone just sells 10 shares of my car? Boom, we pay for the whole deal. That's a really good point, right? It's not as easy as that. So let's get to the scale point. Just to finish on the layout, right? That leaves 16, assuming we get all the index guys, get that retail sticks, that's a big ask. You've got another 16 and a half billion dollars just to get to one times covered. Right? Then the next problem is, is that Vanguard, BlackRock, State Street and Invesco, the guys that run the big ETS. Well, SpaceHets isn't yet in the index. They can't come into the order book. So essentially, the hedge fund community writ large is going to have to warehouse this stock until this thing goes into the index. And they're going to need to hedge that position. And the prime broker community has never supported that kind of quantum of warehousing before. These aren't treasuries. It's a hand off. If BlackRock, State Street, Invesco, the big index ETF houses, they have to wait, it's 10 days. Well, I mean, the last act 100 is going to be the first to admit. 15 days. 15 days. But that's that's only six billion dollars. Right? Out of the 24. So there's actually quite an extensive wassing period. Right? Yeah. So the hedge funds are going to be the bridge from the IPO date until the index providers and all of the active funds that are mimicking the index defacto can come in and buy. So you have this two week period where it's almost like, well, who else is left to buy it? Yeah. And it's unclear that's going to be. It's a bit like the Spider-Man meme, right? They're all going, no, I'm going to sell it to Invesco. No, no, I'm going to sell it. I mean, I think, you know, they're going to look around and they're all of their peers are doing exactly the same trade. And I think that the risk managers at the big investment banks are going to be like, how much of this stuff are we really warehousing? Right? Yeah. They're being paid a small fortune to do the deal. But hey, I think this is hard. I think this is really hard. And then the other thing is right. That's to get to one times covered, right? If this thing's going to pop off the bat, right? We need to raise what? We need to get to two or three or at least four or five times covered. You're going to see some, I mean, if this is an ignore the noise because if you're hearing a number that's more than twice covered, that just isn't that kind of money going around. It's impossible. It's impossible, right? It's not five trillion in demand for a two trillion dollar IPO. It's impossible. Well, yeah, I mean, it's it's it's well. Two trillion market cap. Two trillion market cap, right? But you make a really good point, Josh, because if you look, if you read the S1 in a bit of detail, the lock up agreement reads like a Siv, right? Essentially, all of the X Elon float. So that's 60% roughly of the economic interest. You know, basically is unlocked by November of this year. And it all happens in stages. Now, I'm not necessarily opposed to the idea of avoiding a cliff edge, a cliff edge investing for insiders because that that looks like a sort of, you know, runaway locomotive coming at you. But what I'm saying is that as these guys get unlocked into the free float and it happens much faster than normally happens in an IPO, just there's just going to be constant supply to absorb any any any any, you know, any people to this constant supply to support support the passive index demand that's coming in. So it isn't a short squeeze on the passive community. There's going to be a lot more than enough stop for them to buy as as these shares become unlocked. So if you think this is some kind of opportunity to play a short squeeze on the backs of the vanguards and the and the and the and the investors of this world, I think think again. It's 3% of the float trading or something. Well, what's the out of the gate 4.3%. But you know, you have got shares, shares coming into the float incredibly quickly, right? Within 30 days, right? Then if the if the share price performs by 30% from IPO price, a whole load more gets unlocked. So just as just as this thing's really getting going, there's a whole load more stock that comes out to hit it. It's not a six month lock up, which is what investors are accustomed to. It would be a typically a typical clean 180 day lock up. Right. Yeah. Why why don't you think the market is big enough to absorb this or do you want to poison your math? No, I actually am this is where I'm really concerned about the broader market right now because top of book liquidity inequities is not what it used to be. Right. And actually, I don't know if you follow the work of Mike Green on passive. You know, you've got this in elastic market effects coming into play right now whereby, you know, 44 billion of money that needs to be raised from those passive funds to fund to fund their to fund their participation is going to create an awful lot of damage on the top of the S&P. You know, all that look all that liquidity vanishes any kind of any kind of pressure. And if you've got all of the passive guys trying to sell 50 bits of Google video or in video. Who's picking that who's picking up that tab right. How much money is how much money is coming into index funds on any given week. You know, you get the drip drip drip of the 401k flows every month. You used to have the drip drip or the suck suck suck of the buybacks every every month, provide you weren't in a lot. Now, they're all the hyperscalers are all spending money on on data center cat X right now. So that that bid that bid is gone away. You know, you've got people worried about their jobs in 401k land. So, you know, there is there is there is there is you know, I think that could go in that that could become a net supply of equity into the market over the next few years. So all of the positive US deacquitization dynamics that we've lived through for the last 10 years like the perpetual money machine. A lot of that stuff is I'm not saying screaming into reverse but maybe kicking back into neutral right now, which is a really bad time to be really testing the debt of liquidity when the. I want to do one of your charts real quick. So the first point you made all of the people that we're going to hear from are super long from a super low price put this space X stock chart up. So with the caveat that obviously this is privately held. But it's I mean, this is the perspective. So this goes back to 2020 and you could see that this company had a valuation of a couple of billion dollars. What do you think the valuation was in 2020, 20 billion? It's a fraction there. I don't know if you've got the other chart with the cap table, not probably having it. It's in now people can look it up. And by the way, all of my stuff on space X is is completely free anyone can anyone can take a look at it. But essentially, I think the really important point here guys is that for this $2 trillion company. Have a guess what the total quantum of equity checks written to it are over the last 20 years. Is it like a stupidly small number of billion dollars? No, not that stupid. Like like just under 11 billion dollars. That's a lot of. Yeah. Well, this way everybody loves the online. He's looking much money makes people. He's made a stop promotes of the ever lived, right? And he's and he's a decent decent decent company runner inventor, whatever like. I understand that there's a lot of parlor tricks that he plays that pisses people off, but like he's done some incredible shit. Let me ask you this, Robert. And I'm not like me not stand far from it, but I think it credit where credit is due. So I think everybody understands what you're saying. And I would encourage listeners to go read the piece because it was excellent. Very, very well done. Whenever people speak about or call some warning shots, which is very fair game. Nothing that you're saying is like hyperbolic or an accurate. There is going to be a lot of supply hitting the market. Not to I'm going to put you in the spot and not to make you look like a jackass because I'm genuinely curious. The level of concern zero. You have no conviction. A hundred. You have all the conviction in the world that this is going to go south for the broader market. Like where are you in your conviction on that? 15 to 20 delta. Roughly. 15 to 20. 10 chance. Okay. 100% answer this get really nasty, which is high percentage, which is high, which it's high, it's high when you think about the stakes around that around this transaction, right? It's enough to be pretty wary, right? And you know, people have not got their left tail, they haven't got their downside in short right now. And just it's just something to keep a close eye on. Now personally, you know, I am almost in the camp where I think this is too big, right? I think that this might not happen. And let's agree, let's agree on one thing, right? It makes sense for all of the Elon companies to be under one roof, right? Ultimately, the car company's got to go with the rocket ship/AI company and all make sense. I, this is tinfoil hat territory, but okay. Let's get nuts. Let's get nuts. So, so, so, so, so, Goldman Sachs, my, my former employer got appointed leftly. Now, Morgan Stanley has been Elon's bank rover last years. They went through a ton of pain. My, my, my, Michael Grimes financing the Twitter buyout and we're left holding the bag in terms of the old yolo for a long period of time. And that must have been really painful. And then suddenly, you know, just because apparently DJ Sol slides into Elon's DMs on Twitter, picks up the, you know, the, the trophy actually capital markets mandate of all time, right? Lead left on the SpaceX IPO. I just wonder, I just wonder if Grimes is working on Plan B in the background. I mean, he's, he gets, he gets gets to be lead advisor on the shotgun marriage of SpaceX and Tesla when they realize he gets to represent Tesla. Yeah. Okay. I mean, I'm all the lead advisor on the combination. Listen, that's crazy. It's one percent probability priced on polymarket right now of a Tesla SpaceX merger announced by June 30, 100 to one shot. I think that's, I think that's, I think that's worth doing. It's worth. Can I have a Rupert SpaceX IPO layout analysis? So, nope, no, no, that's not it. Well, that's something else. But that's, we could do that. Yeah. That shows SpaceX on the chart. Yeah, that was a wise. Yeah, but this is great. This is great stuff. What are we looking at? So this is, this is incredible. And the red number toward the bottom middle, the shortfall. So, I know you gave us the, the, oh, the 50,000 square foot view. But basically, like, that's the dollar amount that you think we don't know where it's going to come from to get to. And I'm getting out of money. I'm being pretty charitable, right? About 42 billion. That, that, that 30% sticking with retail, right? And also giving full credit to the passive demand with the proviso that that's got to find a warehouse, right? Before the passive guys can buy it, right? Right. Okay. So you have to stress out of it. And anyone can download this from the, from the, the research piece. Rupert, I have a question for you. Um, obviously, I hope you're wrong. And not because you don't seem like a very lovely guy, but nobody wants you to be right, right? Okay. I don't want to be Indiana, either. I mean, I just, I'm just, well, you know, that's why I was asking how, how much conviction you ask? I feel a lot better now. If you were saying like, no, I've, I've been in this business a long time. I've done these deals 90%. I would have said, all right, um, Josh. So I feel, I feel better, better. But let me ask you this. I would have, I would have thought that if, if this was going to go south and obviously it might, we'll find that in a couple of weeks, I probably would have thought that shares of Tesla, in anticipation of raising money to buy this deal, I probably would have thought that shares of Tesla would sell off in front of this and it hasn't. Does that, is that, is there any signal in there to you whatsoever? So, you know, for me, the, the mid curve trade into the SpaceX IPO was to short the hell out of Tesla, right? Because all of the fanboys were going to migrate into Musk's favorite baby. Raise capital to the new one. That's the one thing that makes me think that 1% polymarket price on the merger is the wrong price, right? Because, because it, you know, the shorts would get completely run over if that trade happens, right? Yeah. So that, that, that, that makes me pause for thought, certainly. Yeah, I mean, I, I think that there's an interesting dynamic, just if it happens, right? Think about all of that transit you've got, you've got 60% of a two trillion and rising company transitioning, you know, from transitioning into the passive world, right? Because all of these guys that have got these really low basis, they've made their 40, 50, 60 baggers, they're selling now, right? Yeah. You know, they've got, in most cases, they've got a fiduciary obligation to sell now that they've been in, in the investment for 10, 15 years. And this one, you're going to hate Josh, because I know that you don't like an equal weight indices. But I, I think that I, I think that the RSP, the equal weight S and P is going to outperform the mag 7, right? Until this deal is fully seasoned, right? That's my prediction. If this season, the seasoning is what? Two years before they take, it's going to take, it's going to take 9, 12 months for this sort of equalized, right? So even if I'm not predicting sort of fireworks of, you know, two minute 11, which I, you know, I think there's a risk, right? But I think if, if the syndicate never on thought that that was going to happen, right? I think they would move to plan B pretty quickly because, you know, there's a lot of people that have got a lot of skin in the game here. And, you know, it's the investment bank's prime broker balance sheets are going to have to support that transition to the passive funds. And if, if they're worried about liquidity, generally, you know, that's going to contribute towards the plan B. I want to ask you, um, during the Snowflake IPO, this was a situation. So this is the fall of 2020. It was the biggest IPO ever, I think, at that time, or maybe like neck and neck with Alibaba or something, but like it was huge. And a lot of the hedge funds that were sort of had like a VC bent to them. I don't know. The D1s, the O2s that, yeah, those guys. Yeah. So what they ended up, some of them ended up doing rather than make the cell decision or the whole decision, they distributed the stock to their LPs, which is the third option that people forget exists. Yep. Depending on the fund, many funds have the ability to say, you know what? We don't know if it's the right time to sell Snowflake. We were smart enough to get you into it 100 x ago. And now we're going to put that decision in the hands of the LPs. We're actually going to distribute the shares that they got. Do you think in a situation like this where like everybody understands that this is the ultimate unknowable? Like there's no multiple, there's no real cash flow, like everybody gets that this is pixie dust. Do you think there will be a higher likelihood of funds just saying as soon as they're able, you know what? You figure it out. I think that's something that's taking it. I think that would be the right thing to do. That's what I would be doing at the CIO. That's what you would do if you were running the fund that bond is. Because the insider stock is all loose anyway. So you're not protecting your investors by staying strong and keeping the float tight. That's all loose. So you should absolutely distribute in specie this investment to your LPs and say, you call it. This is a stock at 100 times revenues. You know, that may make sense in some universe. And we can talk about the universe. Okay. Last one I wanted to ask you, do we start saying mag eight right out of the gates? Because this is I think instantly going to be five or six in market cap. And as sort of an ancillary, a lot of people are saying Nvidia is the thing that's going to get sold the hardest in order for people to own SpaceX. I don't know why, but I'm seeing that everywhere. Do you have any insight into why people think that? It doesn't make a great set the deal of sense to me. I mean, you know, Elon with a lot of money building space, building colossus and colossus too. And he's a big customer. He's going to keep the flywheel going for Jensen, right? Yeah. But I just think it's I wouldn't try and single out. I'd keep it much more high level. Look at, you know, long RSP short mags, right? And I think that I think that works as a trade. Once this thing's priced, I you know, once this thing's out of the gate, then the machinery's rolling now. And that is just going to put a huge amount of pressure at the top of the stack on the top of the S&P. Okay. I told you 15 minutes. We kept you for 30. I can't tell you how much the audience and I and Michael appreciate having your insights. This is obviously a major historic moment for the stock market. And your writing has been really making this much more clear to people that don't have insights directly into these types of deals. So we really appreciate it. Thank you so much, Rupert. Thanks so much for having me on, guys. Of course. And guys will drop a link to Rupert Substack. It's a blind squirrel macro and he's also got a podcast. So if you enjoyed learning from Rupert, the way that Michael and I have, there's more where that came from. Thanks again, Rupert. Have an awesome day. All right, cheers. What do you think? You know, it's interesting. I thought that a lot of the narratives that I'm seeing out there are an artificially low flow to inflate the stock. Yeah, and then the index inclusion is just further pumping. So you know what? Who cares what I think? Throw up this polymarket thing. By the way, this to me, this is this is the vision and the premise in my opinion of prediction markets. This should can't be gained. Nobody knows where this is going to lay. But I take, I take a decent amount of signal and something like this. I think this is very cool. The dollar amounts are tiny though. Still I wish they were there. I mean, well, they'll get there. They'll get there. But it's not, it's not nothing, dude. So most of the money is, and this is the closing market. I guess on day one, most of the money and to Josh's point, it's not a gigantic, but it's $143,000. It's not nothing is between two and $2.5 trillion. Okay. So that's where the market on polymarket has settled out in terms of people's expectations of where this thing will. So that would be bullish if that happens, frankly, no. Yeah. So there was two different conversations that we were having with Rupert. One is what happens in the first two weeks in terms of like who supports the float until the NASA 100 comes along and starts to buy. And then long more time. I think the value, just stuff to me is kind of boring. I think we all, he didn't even want to do that. Right. We all like everyone said, everything that you could say has already been said. The mission, the mission did read a little we work a, the consciousness of the, the hell we say. Read it. Our mission is to build the systems that technologies necessary to make life multi planetary to understand the true nature of the universe. Come on. Yeah. And to extend the light of consciousness of the stars. All right. The light of extend the light of consciousness to the store. All right. I'll buy the crystal. Right. So Eric newcomer said this may be one of the largest leaps of faith, Musk has ever asked investors to take. And great tagline that is that's like for a movie. It's good. And you know what? I'm so excited to see how far they leap with him. Like he is a singular inventor creator, founder, entrepreneur, carnival Barker. Like he is a one of one. I was going to say it's like a combination of jobs, Edison, but then also, and he's a show. Barnum, right. Also PT Barnum, one of like all rolled up into one. It's he's a one of one. So so here's another good quick. And think about something clever to say. Oh, Malik said at $1.75 trillion space, sex is asking investors to price in the orbital data centers, the Mars mission, the chip manufacturing and the plan to build the infrastructure of a type two civilization. The believers won't know the difference. The faithful have been well rewarded before. They've also occasionally learned that their Messiah is known to blow air hotter than the exhaust of those rockets. Well, he is so I said this on TV the other day, not in defensive, Elon or not that anyone cares if I defend them or not, but he does deliberately do this thing where he says self driving cars in three years and then seven years goes by and they don't exist. But he has, I don't know if this is in the Isaacson biography, but he is like explained that he's like, well, if I give a realistic timeline that's further out than everybody just takes their time. If I put a more ambitious timeline up people break their net to get there and they may not get there. But imagine if they weren't killing themselves to get there. How long everything would take. So there's a there's a methodology to this. It's not crazy. Or it might be crazy, but this particular thing that he does is there's a point. I guess there's a point to it. And it's not really you need to be a little bit crazy with with your goals in order to raise the amount of capital that he has. Here's another really good one. And this is the stuff that pisses people off. Musk's company. This is from I think I pulled this from the journal. I can't forgive me. I can't remember who pulled this from. So SpaceX bought this is not stupid. SpaceX bought 131 million dollars of cyber trucks. What are they? Armageddon. Remember the movie Armageddon. They had this cyber truck on the planet. So SpaceX bought a million of them. 131 million dollars of cyber trucks at the manufacturer suggested retail price. He can't even get it discount. Here's another one. Okay, in 2025, SpaceX also purchased 506 million dollars worth of mega pack energy storage products from Tesla. Meanwhile, Musk's X AI has paid Tesla about 731 million dollars since the beginning of 2024 through February 2026. It's funny. A lot of people myself include a thought that I thought Starlink was a company. Like I really thought that that's what it was. That was like the backbone of this company. And apparently he's he's selling it like No, forget about Starlink. Not forget about it. But it's it's it's the enterprise application of the AI level showed this tam that he made $22 trillion. So Starlink is whatever the Starlink broadband is sort of an afterthought. I thought that was the whole company. It is the whole company fundamentally. It's the only it's the you know, there are NASA contracts and then there's the Starlink revenue. But like the The cash flow is coming in from Starlink, which is hugely successful and is not even close to full penetration of its own individual tam. And really doesn't have and really doesn't have any competition to speak of. It's got companies that would like to compete and might in five years last week. We talked about Amazon Leo. And and you know some of like the some of the things holding them back starting with they don't have their own rockets. They have to rent space on other rockets to put their satellites and space. Whereas Elon's already got 8,000 satellites in orbit. Not a pipe dream. It exists right now. I have a starlink is a great business. But he has always done this where he's bootstrapped the growth of the company from like a starting point of like here is some revenue coming in. That weekend then build on like that's not that if you're if you've been long Tesla, then you recognize this playbook. He's not selling this is those Starlink is the end point. Starlink had 2.3 million sub-stribers at the end of 2023. The year later was 4.6. Then it was 9.2. Now it's 10.3 million. You know, I said this to bet on the part today. I love people that do the work. There's a lot of people that read the headlines and they look at the numbers and they don't reach. And the one that got all the headlines are all the attention was star links are the average revenue per user going down dramatically and people like what are you going to be kidding me. Well, thankfully we have people like omalic who actually took the time to read it. And he said. There's an explanation for this it started with maritime terminals they pay between 250,000. The highest cost. Yes, and then it was. Then it was. In the airplanes and they spend 12,500 to 25,000 dollars per month. He said consumer residential is where the growth is now. It is the lowest paying tier. And outside of North America increasingly price sensitive. Fast forward. So the mix explain this to households in Brazil. But he said the media is paying what the original buyers were paying. It's not it's not a mystery is my point. Yeah, that mix explains the slide from 99 to 66 dollars in our point three years. Maritime and aviation gross slowly and pay well consumer gross fast and pays less each year. But I think the bigger point that I am genuinely so curious to fast forward. How does the market absorb all of this supply that is coming. And yes, it's a two trillion mark cap. The float is is is relatively small. The numbers are big 50 75 billion dollars. But to Rupert's point like if there is success early on it unlocks more float faster. And what might that do to the market. So chart can made this chart. This is not inflation adjusted, but whatever not whatever it's not inflation. Just OK. In the dot com bubble. What fuel the bubble was a true and Josh you were there a true IPO mania. Yep. Like an unsatiable amount like sweet three to five a day five days a week. OK. So in 1998. The US markets the US IPO is raised 34 billion dollars in money. Then 65 and then 65 the year later from 1998 to 2000. nominal dollars space X open and then the topic are estimated to surpass all of the money raised in those three years. Yeah. And these are the big differences. Obviously the quantity of deals was much higher than but lower quality. Not that I'm saying like these are all high quality or there aren't issues with these. Those were people would. People would bought would would go to verisign and buy a URL. And call Goldman Sachs and start working on IPO paperwork. Like it was literally like we just we launched a website. You also had existing companies. Build a tracking stock for the online part of their business and IPO that. So like a really funny example. Johnson, Lufkin, generate DLJ sort of like a smaller version of Goldman Sachs, but it was a big deal 25 30 years ago. They had an online brokerage website. Fairly any customers. They call the DLJ director. they IPO'd it. Like you could do that just because it would be like a way to raise equity capital to build your website. So we just had, I don't know, 1,000 IPOs and most of them were kind of a joke. We had some good ones, but most of them were a joke. - So I'll come back to today. I think that, listen, I don't know if this is gonna be a top or the obvious, I feel like in hindsight, if this is a top, this would be with the benefit of hindsight the most obvious top we've ever seen. - Right. - That's exactly what you just said is what I have in the back of my head. It's too obvious. - It's too easy. - It's too, how could it be so obvious that the biggest IPO of all time, coming public via the biggest showman of all time, who will literally say anything, and every major investor is already, look, looking for the exit. They've been in this stock forever. Like, how could this, how could it be so obvious? Of course, it won't be the top. - You know, the breaking bad scene where Mike is like, you stupid bastard, we had it all and you f***ed it all up or something like that. - Yeah. - Oh, is that how we're gonna look back at Elon? It's like you dumb asshole. You did. - The combination of this andthropic and open AI or going public inside of the year might be too much. - It might be too much. I don't know, you know me, I'm the primary, where's the money coming from guy? Like, this is my whole thing. So for me, I just don't believe that there's $2 trillion on the sideline. - Stop saying that. It's not $2 trillion, that's the market cap. It's not the buy power. - I understand, I don't think there is 80 billion for him. There's another 40 billion for open AI. Another 40 billion for anthropic. - It does sound like a lot of money when you put it that way. I don't think it's in cash. I think it's gotta come from somewhere. Where's it gonna come from? If they sell my stocks to buy this thing, I'm gonna be pissed. (laughing) - All right, let's, I like your next topic. - All right, this is one of those things where this is, we're gonna provide a service to the public. We're gonna put an end, we're gonna put an end to something that too many people do. Too many way too many people do. They look at the consumer discretionary sector of the S&P, and then they look at the consumer staple sector of the S&P, and they tell a story about the economy. And it's (beep) nonsense. It's a great intuition. Like, oh, if we look at maple syrup and canned fruit, that's like the stuff people have to buy, and we compare that to the things that people might wanna buy like leather jackets and pickup trucks, and we can sort of see like the priorities of the consumer, or we can see how the institutional investors are betting. Are they buying the staples because they're worried, or are they buying the discretionary because they're bullish on the economy? Throw it out, it's garbage. It's always been garbage, but never more so than it is right now. Here's what I wanna show you. This is the consumer discretionary ETF. Just the price, okay? It is at or close to highs. That's fine. Let's not use this as a story to say that the consumer spending appetite is this, or it's that, or it's the other thing. Because when you actually decompose what's in here, you realize this is just being led around by two very large, very important stocks, but I wanna make a different point, which goes a little bit further. This is the staples ETF, put this one up, and we're dividing it by the, excuse me, we're dividing discretionary by staples here, so it's a ratio chart. So 1.4, the way to think about that is 40% move by the discretionary versus the staples. And a lot of people would look at that and say, well that's indicative of how strong the consumer is, or how good investors feel about the strength of consumer appetites. Do I have you so far? Do you have me on that so far? These are the things people would say. Okay. Now when we take a look at the equal weight consumer discretionary, this is gonna control for those two gigantic stocks, which I'll mention in a second. That's the purple line. So now obviously doesn't look as good. So we're comparing this to the consumer discretionary, the regular sector is an orange, the one that everyone talks about, that of course over the last year is up 16%, but the equal weight is up only six. And so if we're gonna say that this says anything about the consumer, we're gonna have to say that the equal weight is the more legitimate. I don't agree with the premise that it's saying something about the consumer, but I would say like if we have to, let's at least equal weight it. And here is why. This is the price of gasoline is in blue, up 58% of the last year. And what you can see in this chart is that the orange line, which is just the regular consumer discretionary sector, holding up pretty well, and the purple line starting to break down right around the time that gas prices really accelerated. And that's not an accident. I think that is the true state of the consumer discretionary situation is in purple. And I think the driver of a lot that happens in that equal weight index is the price of gasoline, not the only, but right now the most important one. This comes from Edward Denney, give me the next chart. I want you guys to understand what's actually in the consumer discretionary. 10% is a parallel, retail apparel. So this would be like Abercrombie and Fitch and Lil' Lemon and Gap. Then we've got like all retailers, 9.3%. And then when you look at everything else in this index, this is year to date. This is year to date. So all of that gain is coming from those two categories that I mentioned. Everything else is detracting. Casinos are down 17%. Auto parts are down 13. Home improvements down 10. Even hotels, resorts and cruise lines are down almost 10. Home building, we know the story there. It's shit. Rest of us are down. Automobile manufacturers, which are also in discretionary, are down. This sector is not in good shape. It's being artificially propped up. Ed points out, give me this next chart. This is market cap and the earnings. And we're talking about the share of the index. So the sector is 9.8% of the S&P's market cap. Next chart shows you Amazon and Tesla, which are 62% of the market cap weighted consumer discretionary. 62 and rising, pretty much every week for the last, I don't know, the capitalization share is in blue. That's the percentage of them. So in 2018, they were 18% now they're 62%. They're almost the entire average when you think about that. And last one, this is just breaking it down in cap size. The S&P 500 is in blue. This is the consumer discretionary stock price, but by cap size. So the discretionary names, the S&P 400, those would be mid caps, that's in red. They look much worse than blue. And then of course, small cap discretionary in the S&P 600 look the worst. Actually are negative versus 2021. So the more you go down in cap size or the more you equal weight, the more the consumer discretionary theme comes back down to earth. And it's all being distorted by those two gigantic stocks that are now almost two thirds of the index. So doing ratio charts, doing storytelling, surrounding like consumer discretionary, consumer staples, it's always been nonsense, but these days, what you're really saying is, stocks versus two gigantic companies. And that's my stack. - I agree with almost everything you just said. I don't think it's always been nonsense. I think there used to be simpler times the market wasn't as dynamic and it used to make a lot more sense than it does today. But I completely agree with the premise of looking at these two areas of the market and concluding anything about the economy, pump the brakes. Here's why. Look at restaurants, for example. A lot of them are doing really poorly. Oh, the consumer must be not able to afford a lot of these prices. Yeah, partially true. Obviously it's a part of it as an inflation story. You know what else is part of the story? Supply, valuation. The valuations of a lot of these quick service restaurants were so stupid that they're now normalizing. Comfort tougher. There's too many sweet greens and cavities and the Miami pure of eat this. The competition tells you nothing about the consumer. Okay, that's number one. Another area worth looking at or thinking about is the performance of the stock might tell you the opposite about the consumer and who knows in which case. So for example, is dollar general with dollar general or dollar tree, be ripping because the lower end consumer is in good shape, and they're able to buy more stuff, or would dollar general be doing poorly because people that are trading down can no longer, like where else are they gonna go, or, or, or third scenario? No, the consumers do it poorly, but the middle class is now trading down and therefore the stock is performing better. Like it's so messy and you can craft-- - Middle class people are going to dollar general, therefore the economy's bad, but it helps dollar general stuff. - Yeah, okay, it's just, it's very convoluted. - Stop! - Yeah, so I think you have to, you really have to look under the hood with this, when I totally agree. - Oh, yes, and for God sake, again, Tesla and Amazon are almost two thirds of the index, so you're not saying anything about the consumer, you're saying something about whether or not people wanna buy those stocks or not. - Amen, sister. All right, let's get topic through. That's Evergreen, we can do that next week. Let's do, you wanna do immune to the news? Or do you wanna skip a poll? - Well, this was just a question I wanted to ask you. - Okay. - Are we immune to the news, Michael? - No, no, no, I reject that. - Okay, this is the way I wanted to phrase it though. You have a ran, whatever the (beep) is going on there this week. It's either a ceasefire or we're gonna wipe them off the earth, it's like one of the other, a truce or world worth three. Okay, oil prices related, the Fed now on hold, maybe hiking also related, inflation related, tariffs, the sort of orthogonal. All of these things though have basically become background noise, made a record high last week. The Dow is over 50,000, so you can't tell me that people are actually reacting to the news in any meaningful way. I think they're just ignoring it. The next thing that's gonna, I bring this up because I think in a few weeks we're having the midterms conversation. - I don't wanna have it. - I don't either, but it's gonna happen in the market. It's gonna be in all those stupid surveys and it's gonna start whipping the stock market back and forth. The Republicans are gonna lose the house. What does this mean for tax reform? What does this mean for this? What does it mean for that? That's gonna be like the market conversation. And part of me feels like, oh, that's gonna be so annoying, but then part of me is like, actually no, we're just gonna ignore it. We're ignoring everything. Maybe this will be the thing that we don't ignore. I don't know, what are your thoughts? - Yeah, no, I just disagree with the whole premise of we're ignoring the news. The reason, and you say ignoring it because with the backdrop of the market is out of the ultim high and therefore, we are ignoring the news. No, that's part that I reject. The market is out of the ultim high because earnings and profits are in ultim high. The market will be going-- - Therefore we're ignoring the news and focusing on earnings. That's the question, that's what I'm asking you. The premise of that, and maybe not you per se, but when everybody's saying, why aren't we reacting to this and this? Why are we ignoring everything? We're not. We're focusing on what matters and investors are focusing on the bottom line. - Stop. I agree, but that's-- You're not disagreeing with me. I know you want to. You don't like the premise, but that's what the premise is. The premise is, yeah, there's, there's, check going on in the Middle East. There's geopolitics, whatever that means. The market doesn't care because it's focused on fundamentals, not news. The fundamentals are the earnings. - Yes. - So we agree, the market is better than ever at tuning this all out. I don't think Kevin Warsh got even a 24 hour cycle like in the minds of the average investor. We used to talk about the new Fed share, like it was the new Pope. - This is so much better. - And we were Catholics. We just know, it's like, all right, new Fed share. It's Trump's son-in-law, who is it? Whatever, I don't care. Next, like we're not doing these news discussions anymore in the stock market. And I'm sure at some point, they will be big enough news. There's a guy outside the White House like two days ago firing an automatic rifle. Do you even know that it happened? Does anyone-- - I saw that briefly. - Can you imagine if that would happen in 1997? - Yeah, it's crazy. - It would have been on the news for five nights straight. So I think I'm sure something crazy is gonna happen and that's gonna make this look crazy what I'm saying. I think we're sort of like in a post macro geopolitical news backdrop for a little while until something gets extreme enough. - It's because the AI story is so all encompassing and ingrosing. - Yeah. All right, that's all I wanted to ask you on that. - All right, let's skip everything else. Let's just go to your make the case. We could do the Macon stuff on TKF. - Good idea. Oh, we have good guests for that too. This week. - Here we go. - Okay. Oh, I did want to mention the Halo ETF. So this actually ended up happening. We got the Halo ETF finally began trading. And I have to read a disclosure because I am involved in it. Halo is offered through Round Hill Financial. I, me, Josh Brown have a outside business activity where I act in a limited consulting role for Round Hill to advise in their marketing efforts, investing in Vals Rizq, possible loss of principal capital, nothing discussed should be considered personal financial advice or a solicitation, all the things are expressed on my own, not the opinions of World's wealth. The way that they built this, I have the top 10 holdings. So basically it's a rules based strategy. Round Hill is the ETF company behind DRAM, which I think is the most successful ETF of the year. And they've done some other thematics. What jumps out at you about this top 10 holding screen that we have up here? - Obviously you have a limited role because I see this is equal weighted. So of course they don't care what you think at all. - They don't care what I think. - No, I didn't create the index at all. - No, I know, I'm teasing. What jumps out to me? These are names that, these are not individual styles anybody buys. Except for Philip Morris. - Okay, so for people listening, AutoZone, TFI, Cummins, JB Hunt, Lamar advertising, Lennox International, Rider System, Magna, Philip Morris, and AutoLive. I would say nobody in our audience owns these stocks individually, except for maybe Philip Morris. - Philip Morris is a, yeah. So no tech, no financials. And in fact, the index was built by a company called Acros, which is an index provider to the ETF industry. And financials are explicitly ruled out of being owned by the Halo ETF ticker is LOHA. By the way, for people that wanna check it out. Apparently Halo was actual HALO was taken by a biotech company. They can own financials because the rules that they're applying to determine heavy assets, low obsolescence risk, don't apply to financial companies. There's one tech stock in the index, and I've never heard of it. Right now, the index will change, but right now the companies that made the criteria and there's one communications services stock. That's it. So in other words, tech is 1% communication service, 1% of this. I think communications is charter. And I think-- - We need to have a broadband conversation. We'll do that one of these weeks. Holy shit dude. - What's that? A broadband conversation? - Oh my god, they're gonna go to zero. - And then the other thing, the other, all right, so I have two charts of some holdings in here. Here's Cummins, CMI. Okay, so we're not talking about sleepy stocks. This thing is, I wanna say it was $250, it was $200 a share, a couple years ago, it's almost 700. And the other one, Southern Copper. Obviously, this is a rock and roll stock. It doesn't only go up, of course, it goes up and down, but here's a name that's gone from 60 to almost 200. The reason I bring those two up is, I think they're emblematic of this moment. They're halo because they have heavy assets and very low obsolescence risk. No one's gonna disrupt the copper mine. Like for obvious reasons. And Cummins is making engines. You can't just decide I'm gonna chat GPT myself an engine. So these are like quintessential halo stocks and they're in the index, but they also benefit from the AI story. So while we're betting on stocks that we think aren't disruptable by AI, we also sort of in some of the names get the tailwind of all the AI activity. I think 36% of the portfolio is industrials. - Oh wow. - And you better believe a lot of the industrials and then index are AI beneficiaries. So just thought it was interesting the way they constructed the index. Anyway, that's my spiel on halo. I know we talked a lot about on the show about me suing people. We're gonna do the next best thing. We're, I'm gonna help round tail out with their product and I'm pretty excited that I've birthed this into the world. And in many ways you're a midwife to this product. - Whoa, whoa, I never had that before. - You have helped to shepherd its birth. So that's the story. - Love it. All right, let's, was that, wait, you have a different make the case, don't you? Yeah, we're not going to do that tonight. Yeah, we're out of time. All right, good. Let's do a mystery truck real quick. Let's knock it out. All right. Ooh. OK, so the purple line is the S-B500. This is the last five years. The orange line-- and don't guess yet. The orange line is a country. Next chart. This is an equal weight version. This is an equal weight sector version. You're definitely not going to get this. You're probably not going to get the other one. I just want to-- Equal weight sector version. What does that mean? It's equal weight sector of that country. So first chart. This is a country that is beat in the-- Yeah, you could say beat in the pants off. So the orange becomes purple in the next chart. The orange is a country ETF. Let's start. What am I guessing at? The second chart or the first chart? Let's start this one. All right. And it's a country. Is this a G7? I don't know what that means. I'm going to say Korea. No, that would have been more vertical. This is a neighbor of ours. Ooh. Our neighbor to the north? Yeah. Is it Canada? How do you know? [APPLAUSE] The Deppard. Wow, this is oil. OK, oil and gold. OK, I'll better one do you. Next chart. You're not going to guess this. So let me just tell you. This is equal weight financials of Canada. What in the world is happening here? Ooh, that's interesting. Like literally. Like it's the-- wait, it's equal weight that it owns all the Canadian financials. How bizarre is this? The best one of the Canadian financials. What is the Canadian financial? Like the five big cartel bench? Like a royal bank of Canada. Is there a no viscorded office? I guess they-- Well, they benefit from higher oil and gas prices and activity and probably a little bit of sprint, a little bit of gold on that. And so that Jason and the chat is saying it's all Brian Belzky. That could also be-- So for as much as we rightly talk-- so by the way, by the way, it's 40% of the indexes financials. 40% is financials. Then it's 90% energy, 15% materials, and 10% industrial. So it's not just energy. Financials are rock and rolling. I say one. But I say one funny thing. God. Everyone thinks Belzky is from Canada. He's from Minnesota. He's from Minnesota. He worked at a Canadian bank called BMO for a long time. He's no longer there. People just think he's Canadian. He's going to be back on the show this summer. It drives him up a wall. Well, he's because he sounds a two. That's a problem. He used the right research on Canadian stocks also. So he kind of did it himself. Anyway, just do the exercise. If you're thinking that the value issues don't make sense work, nor the news, it's a bubble, look at global stock markets. They're doing really well. It's not just us. That's a really great point, great place to end. As Michael mentioned, we have an all new addition of the compounded friends coming at the end of the week. So much to talk about. I'm super excited about it. Once again, special thanks to our guest, Rupert, who joined us to talk about SpaceX. If you were into his stuff, make sure to check out Blind Squirrel macro on Substack. Tomorrow's an all new animal spirit's coming out with Michael and Ben. Any next talk? I love it. You guys, Ben doesn't give a shit at all. He doesn't want to hear it. Right. All right. And we'll do ask the compound this week. So there's a lot happening. I also wanted to mention we dropped this two hours ago. Also on the channel, we did sort of like a-- I don't know if you'd call it a trailer or a mini documentary. It's three minutes. That's good stuff. But we had a big launch party for our Porterhouse portfolio strategy. And a lot of the people that you guys have seen on this channel, a lot of the financial rock stars in our orbit came out. And I think it would be a fun watch for you. So go look for that. It's on the compound channel. All right. That's it from us. Thank you guys so much for tuning in. Thanks for coming live. We'll talk to you soon. [MUSIC PLAYING] Redholz Wealth Management is a registered investment advisor. 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