Euphoria Has Taken Over The Markets — ft. Barry Ritholtz

Ed Elson and Scott Galloway are joined by Barry Ritholtz to break down the market's reaction to the SpaceX IPO, including whether he thinks the valuation is justified and why he's concerned about the company's float. They also discuss why he believes comparisons to the dot-com bubble are misguided, what he makes of the circular deals in the AI industry, and how he thinks about hedging in today's market. Barry Ritholtz is the co-founder, chairman and chief investment officer of Ritholtz. Subscribe to the Prof G Markets Youtube Channel Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:29Scott Galloway?

  Today's number, 31,500. That's how many years it would take to count to one trillion. Ed Tristow, I had a sex worker over at my house the other night and I thought, oh no. As I do, I got really fucked up, passed out, and I thought, oh God, he's probably left with my money and my watch and now he's going to take my car. And so I ran down and phew, my worst fears. All of those things were in the trunk.

• 2:08Scott Galloway?

  What was the start? Thirty one thousand five hundred days to count to a trillion? That's how many, no, how many years it would take to count to one trillion. Yeah. So get, better get started. Yeah, gotta get started. Trillionaire status soon. What, do you think you'd want to be a trillionaire? Well, I never missed a chance to talk about myself in virtue signal, but I never imagined being a trillionaire. But when I sold L2 in 2017, I had very distinct plans and a path to a billion dollars. And I just, I thought, I thought, I just liked the sound of Scott Galloway billionaire. It just felt right as rain to me. It does sound good. Yeah. Doesn't it sound good? And I lost a friend and I was at that age. Let me see. That was nine years ago. So I was 42, 52.

• 2:53Scott Galloway?

  And I'd, I don't want to say I had a, an epiphany, but I realized, okay, I've got enough money. Unless I fuck up again, which I have done several times, I'm going to be able to do pretty much whatever I want, whenever I want. And I have decided, and I'm kind of on this rant, but there is a purpose here. Pick a number and then beyond that, um, and everyone has different needs or different appetites. But beyond that, once you get above that number, spend it or give it away. And I have not increased my net worth in nine years, despite an unbelievable, one of the greatest bull markets in history, because I either spend it or I give it away. And I believe I am, I am happier than your average bear.

• 3:38Scott Galloway?

  Also, I believe a virus that infects the United States is hoarding. And I think hoarding capital beyond, and when I say, I don't want to say basic needs. You know my life. I live an exceptional life, but above a certain amount to believe that you're going to be a better allocator of capital and to keep striving for billions and billions and hundreds of billions. I think it not only doesn't make you any happier, I think it's bullshit. You get less happy. I don't, I think that's true either, but I think it is a weight. On society, I think hoarding infects. And I think we're going to have a really interesting conversation over the next few years. And it's the following, the last two decades, we've been having a conversation or been totally obsessed with how do you create wealth?

• 4:21Scott Galloway?

  I think we're going to have a more interesting dialogue in the next few years around what is your obligation around what you do with your wealth? And I'm convinced that I've got the ultimate life hack. And that is, once you get to a certain point of wealth, don't be infected or fall victim to the virus of hoarding. Spend it and give it away.

• 4:38Ed Elson?

  All right. My number is a trillion dollars. Anything beyond that.

• 4:44Scott Galloway?

  You'll give away or you'll spend?

• 4:45Ed Elson?

  I'll give it away.

• 4:46Scott Galloway?

  Have you thought about what your number is?

• 4:47Ed Elson?

  It's just very hard because you constantly see more and more things that you might want. I mean, I walk around and I see these beautiful townhouses in Manhattan. I'm sort of like, oh, that like, if I can comfortably get that, that would like, it would, I'd be good. Everything I wanted is there. But then, of course, I'm going to start seeing like, oh, well, there's people who have houses out here in the Hamptons, there are people who have houses here in upstate New York. And then Scott goes to Florida sometimes. Like, I just think I'll keep going. So it's very hard for me to like, pick a number. But I certainly want to make lots of money, that's for sure.

• 5:23Scott Galloway?

  Now, there is a bit of a hamster wheel, and there is always more. I've found that. The problem is, you spend so long on the hamster wheel that you forget how to get off.

• 5:33Ed Elson?

  All right. With that, let's get into a conversation where we're going to talk about how to become as rich as possible.

• 5:38Scott Galloway?

  There you go.

• 5:39Ed Elson?

  With Barry Fritz. It's been a historic year for the stock market. The S and P 500 has climbed 25% in the past year and notched 23 new all-time highs along the way, and it's showing no signs of slowing down. The index has now posted nine consecutive weekly gains, its longest winning streak since 2023. The optimism has extended to the IPO market as well. Last week, SpaceX completed the largest IPO in history, debuting at a $1.75 trillion valuation and reigniting excitement around the public markets. The stock has been on absolute tear in its first few trading days.

• 6:23Ed Elson?

  But the question on our minds this week is simple, and that is, have we reached peak euphoria? Joining us to help answer that question is a veteran investor who spent more than two decades making sense of market cycles and investor behavior, known as the Blog Father for his influential finance blog, The Big Picture. He's one of the most respected voices on Wall Street. Here is our conversation with Barry Ritholtz, co-founder, chairman, and chief investment officer of Ritholtz. Barry, it's great to see you. Thank you for joining us on the show. I would love to start with SpaceX, and then we'll get into the stock market at large. But I mean, this stock is just absolutely nuts to me.

• 7:06Ed Elson?

  Currently valued at more than $2.5 trillion. We'll see how that number will change by the time the episode comes out. Fifth most valuable company in the world, more valuable than Amazon, apparently. It was briefly more valuable than Microsoft, apparently. I'd just love to hear your thoughts on the valuation.

• 7:26Speaker 09

  Well, the difference between SpaceX and companies like Amazon and Microsoft is they have trillions and trillions of dollars of shares that trade hands every day. Whereas this supposedly $2 trillion now public company has a float of $75 billion. I mean, that's walking around pocket change. That's not real public company money. And so whether you love Elon or hate Elon, at the very least, you have to be aware that he is a brilliant engineer, and I'm not talking about space or electric cars. He is a brilliant Goldman

• 8:09Speaker 09

  Sachs level financial engineer, because really, everything he's done has been in order to drive the valuation of this to record heights. The inclusion in the NASDAQ 100, the tiny, tiny float, just all of this smacks of

• 8:32Speaker 09

  Engineering, which tends not to be fantastic for investors.

• 8:37Ed Elson?

  I'm so glad you brought up the point about the small float. And I'd love for you to expand on that. I mean, just to frame it for people, only 4% of the shares are publicly traded. And that's what we call the float. And as we have mentioned in previous episodes, the rules for NASDAQ, for NASDAQ inclusion, were changed. It used to be that you needed at least 10% of your shares publicly traded. And they changed it for SpaceX, and SpaceX is only 4%. So it's a very, very small float. And your point is, this means that it's, I guess, less serious, that we should take the valuation perhaps less seriously than you would a company like Microsoft or Amazon,

• 9:21Ed Elson?

  where trillions of dollars worth of shares being publicly traded. Could you just expand on that? Why is that important? And why does that smack of engineering, as you say?

• 9:31Speaker 09

  It's artificial scarcity. If you want a Porsche 911ST, they only make 100 of them, and they're charging $300,000 over what this should be going for. So that's a problem, number one. And number two, you know, you end up with this crazy imbalance, which is artificial. Look, Rolex has been doing that very successfully for 10 years. They sell 2 million to 3 million watches a year. Why can't you just walk into a Rolex dealer and buy the Daytona you want?

• 10:11Speaker 09

  Well, you can't because they've created this imbalance, this artificial imbalance between, hey, they could double their production and not sell out, still sell out and not have a problem. But by keeping production low, they keep profits high, they keep demand high. They're very foremost in buyers' minds. And what SpaceX did was very much the same thing. 4% of the float is nothing. They will eventually get to almost all of the float being public, but it's like a 12-month process. So we will really have a better idea of what the price discovery, what the collective

• 10:54Speaker 09

  belief of the true value of SpaceX is sometime in 2027.

• 11:00Ed Elson?

  I would add on to that. I mean, if we're making the Rolex comparison, what would happen to the price of Rolexes if there was a guy who owned the majority of the Rolexes in the world and then one day he decided, okay, now I'm going to list it on the market. Now I'm going to sell them. That would have a significant impact, which brings me to the lockups and the expiration of the lockups for SpaceX, which will happen over the course of the next 150 days-ish. They have a slightly strange lockup expiration agreement, but the point is, many of the insiders cannot sell yet, but eventually they will be able to sell, at which point you got to ask the question, are they going to sell? And if they do, what will that do to the price? What do you think?

• 11:45Speaker 09

  My frame of reference is looking at the dot coms that went public, looking at every time there's a hot sector and suddenly there's a few hundred newly minted millionaires. The weird thing, and I'm going to pull from Scott's line, it's never been harder to become a millionaire, it's never been easier to become a billionaire. When you look at these companies that finally go public after a long time, you know, the challenge is how do you keep the staff motivated? How do you keep them working? Suddenly, you tend to be a little less excited about going to work when your bank account is 10 or 11 digits,

• 12:25Speaker 09

  when you're $100 million. How much are you going to be grinding away? A handful of exceptions like Warren Buffett, who just keep working for the love of it, it doesn't matter what they're worth. So I think you're going to see some stocks shake loose. This company has been private for a while. It's raised incredible amounts of venture and secondary financing, and there have been very slight

• 12:52Speaker 09

  Opportunities for liquidity, but the expectation was there's going to be a big IPO. We should all sit tight. And if you've been with this company for three years, five years, seven years, and you suddenly have the opportunity to ring the bell for $50 million, $100 million, $200 million, I think any financial advisor would tell you, you've won. You're foolish not to lock in the sort of generational wealth. And if you don't, we've seen this happen with everybody from not just the disasters like Lehman Brothers or the missteps like General Electric, but Peloton. They were hot for a while, then they weren't.

• 13:35Speaker 09

  And the stories were that that round trip cost insiders billions of dollars. So the general insight is sell, mortem or sell, at least for half, and lock in never having to worry about money for yourself, your kids, maybe even their kids.

• 13:54Scott Galloway?

  The company itself has created different, what I would argue, different classes of shares of stock with lockups that some shares are subject to and others aren't, outside of the insiders, but also the demand side by being included in the NASDAQ 100. And I can't figure out if it's 10 or 50 billion of incremental demand that has to go find these shares. Has anyone at Bloomberg done the analysis or at Ritholtz around when that demand, how long do they have to put that money to work? When, I mean, I look at this thing and I'm like, okay, let's agree it's overvalued, but as long as there's money out there buying at any price, it can continue to stay irrational longer than you can stay liquid.

• 14:38Scott Galloway?

  Do you have any sense for when that money from the indices is deployed and it no longer will enjoy that sugar high?

• 14:46Speaker 09

  Oval valuation is always relative. And just because something is overvalued doesn't mean it's not going to get more overvalued. Or undervalued doesn't mean it's not going to get cheaper. So that's number one. The whole hysteria around the index inclusion, and I use the word hysteria purposefully, was really about the big dog. It was really about the S and P 500, which is multiples the size of the NASDAQ 100. While it's a fun index and like myself and my wife own it for the high-octane portion of our portfolio. But it's tiny relative to the S and P 500,

• 15:30Speaker 09

  which is measured in trillions. Like if there was a mandate, and kudos to Dow Jones S and P for not giving in to Elon and making an exception. It's called seasoning for a reason. The company needs to trade for a year. It has to show that it's profitable. It has to show that it's got all the requirements of being a public company and all the requirements that make it appropriate for inclusion in a major index. Not that I want to piss off anybody at NASDAQ, but what they're essentially saying is, hey, we're a minor index. We can waive the rules for Elon because we like the sexiness of it. And we're not going to stick to our own.

• 16:14Speaker 09

  Here are the guidelines for being admitted unless you're this guy.

• 16:19Scott Galloway?

  But wasn't it also the MSCI? Wasn't there, I mean, on again, a small flow? Didn't the inclusion in some of these indices again create this effect of more people rushing through a small door? I guess the question is, at what point do some of this manufactured scarcity, exogenous forces begin to abate? And the company has to find something resembling value, if you will?

• 16:51Speaker 09

  So the predecessor, ironically, to SpaceX in terms of this exact issue, float, profitability, trading volume, and admission to an index was famously Tesla in 2020. Everybody knew it was going in the index. Everybody knew they had crossed all sorts of requirements. And rather than jump on that, and by the way, the company had been public for a few years at that point. The S and P sat on their hands and when they finally admitted them, kind of later than sooner, there were a lot of people that saw this huge artificial pop. Most famously Kathy Woods of ARK. She did nothing wrong.

• 17:37Speaker 09

  She just in 2020 had a giant position in Tesla as well as Bitcoin. And was plus 160% for the years, one of the greatest years of any mutual fund or ETF manager in history. And then of course, both Tesla and ARK came back to earth. And have been a little, I don't know if I want to call it normal, but a little less frenetic. Now we're seeing the same thing play out with SpaceX. And to answer your question directly, I'll send you a sheet we put together internally. That shows all of the individual dates where different share classes come live, different things happen.

• 18:22Speaker 09

  It's like a 12 month process to get some, I don't want to say all, but some of the stock out. But there's going to be so much excitement. The fear was not that this would be another Tesla, but that this might be another Facebook. It's very retail. Everybody's enthusiastic about it. Not exactly the smart money. But you know, the price cost 200 bucks not too long ago. It's been trading for all of 48 hours. The underwriters have to be pretty happy.

• 18:53Ed Elson?

  When you say not exactly the smart money, the division between the dumb money and the smart money. Which I, I've also held that view, which is I feel as though this IPO was predominantly marketed to retail investors. Basically Elon Musk fans who will buy whatever he puts out there at whatever price, the price doesn't matter.

• 19:16Ed Elson?

  Which might sound maybe a little patronizing, but I think it's generally speaking, pretty true. But at the same time, I do see a lot of people on Wall Street who seem to have a similar. Sentiment who say, I mean, seasoned investors who say the fundamentals don't matter here because SpaceX is trying to save humanity, never bet against Elon Musk, you know, this is like the most important company in the history of the world, you know, they're kind of buying into that hype and they are putting real capital to work here. And it seems to be reflected in the stock market, though, as you say, the float is so small that it's a little bit hard to tell. I'd just be interested to hear what what your conversations with

• 20:00Ed Elson?

  other investors on Wall Street have sounded like when it comes to SpaceX. And are you seeing that level of exuberance and enthusiasm from institutions, the same level we're seeing from retail?

• 20:11Speaker 09

  Let's start with the retail first. In three decades on Wall Street, I was a newbie when Netscape went public. I was on a trading desk and I very explicitly was told, hey, newbie, stay away from the IPO. That's not for you. So that was 96. That was 30 years ago. Over the ensuing 30 years, I have never had more people reach out to me and ask about an IPO. Friends, family member, colleagues, professionals, hey, what do you think is going on here? What's going to happen? And my answer to all of them was the exact same thing. Generally speaking, IPOs tend to be a crappy investment when you take them en masse.

• 20:56Speaker 09

  A year later, most of them have underperformed the broad market. But this seems to have so much buzz, I expect it to, before it goes down, I expect it to go up, which is a very milli-mouthed way of not taking any possession. Because, and I've said this to people over and over again, hey, I have no frame of reference, there's no history, you're asking me, what is the collective insanity of everybody who is, you know, experiencing FOMO, experiencing excitement? I don't know if Elon still has the same, he still definitely has a deep following, but I think the cult kinda...

• 21:39Speaker 09

  Got dinged up by both his affiliation with the president and with Doge. So I think the Elon brand, while still very strong and still very shiny, witnessed the SpaceX IPO, is definitely a little more tarnished than it was two years ago. So generally speaking, there was a ton of interest. But I don't know how that interest is going to translate into conviction. Are these in the crypto world, are these diamond hands? Or are these people who just like free money? I'll flip this, I'll make 30, 40% and I'm done.

• 22:20Ed Elson?

  What we're asking you to do and what every investor is being asked to do is to measure and figure out, put a number on the collective insanity of the market, which is a very difficult task. However, we have seen many moments in history where collective insanity was on display. I think you could make a decent argument that it was on display in the crypto market. There was a time where people said that NFTs would change the world. And a lot of credible people said that.

• 22:52Speaker 09

  They did, they did.

• 22:54Ed Elson?

  With a lot of money and invested a lot of capital into that movement, Web3, all of that. There was, I'm sure, and you've seen many more of them because you've been in this game and at the top of this game for a long time. So I guess, how does this compare to previous periods of collective insanity? And can we draw any parallels or make any distinctions?

• 23:18Speaker 09

  What makes this era so challenging is that everybody's muscle memory, everybody's recall of the last few times we saw a boom like this, the obvious comparo is the dot coms. And I think that's the wrong comparison to make. And that comparison leaves people to go down the wrong, to reach the wrong conclusion and to use a totally wrong framework. So let's look at SpaceX, and let's be blunt, $75 billion.

• 23:53Speaker 09

  Like it's a tiny float, it's a tiny... If it was a $75 billion market cap with all the stock trading, it's barely in the S&P 500, it's in the bottom 20%. Hold this speculative frenzy aside from the cult of Elon, and when we look at the broader market, you have a couple of things going on that is just perplexing people and causing them to reach the wrong conclusion. So number one, we have just had a series of all-time highs, year after year after year, and I love to say this because it pisses people off. There is nothing more bullish than all-time highs.

• 24:36Speaker 09

  There were 582 all-time highs from 1982 to 2000 in the S&P 500, and I guess you can make the argument that the very last one in March 2000 was really bad. But the previous 581 were nothing but more gains, more upside, more upside. And what are the odds that this all-time high is going to be the last one and you're going to tap out and avoid the downdraft? So that's number one. Number two, hold aside AI, which is a big issue. Number two, we have seen earnings across every other sector, just about every other sector,

• 25:20Speaker 09

  hit record levels and record levels of growth. So not only have earnings been at all-time highs, but earnings growth is pretty close to all-time highs. Super powerful one-two punch. If you were to say to me, "Hey, I'm going to put you in a room with a computer, but you're only allowed to see one data point in order to manage your portfolio, what would that data point be?" My answer is easy, earnings. Because if you look at a long-term chart of stock prices, it follows earnings growth very, very consistently. But then the third thing, and this is where people kind of lose their shit over, artificial intelligence, again, is not a good comparison to...

• 26:02Speaker 09

  The dot coms, not only because there's huge revenue, huge growth, real profits, real products, it's not clicks or eyeballs. It's enterprise level, multi-billion dollar contracts. But the better comparison in my mind is the industrial revolution. Not, not mobile, not even semiconductors, which played out over time. This is so much more rapid than semis, than mobile, than internet. This is having an impact on so many companies at such a level. You know, everybody's been talking about the magnificent seven for so long. That maybe they didn't notice that last year and this year, the 493 are doing much better than the magnificent seven.

• 26:47Speaker 09

  It's two years in a row. And secondly, the reason for that is we don't know which of the AI companies are going to be the winner. What were there, 3,000 car companies? You're left with three car companies in the United States. Even just go back a couple of decades to the HPs and gateways and all these different computer companies. Now it's Apple, Dell, maybe a couple of other Korean manufacturers and Chinese manufacturers. But essentially what was hundreds of competitors. So I, is it, is it Anthropic? Is it OpenAI? Is it going to be Microsoft? Is it going to be Google? I have no idea who's going to be the AI winner.

• 27:30Speaker 09

  Other than to say, the rest of the market, the 493 that are not that, that tech stack of concentrated technology and AI focus. They're all going to be more productive. They're all going to be more efficient. And I think they're all going to be more profitable. And that's what, where the enthusiasm comes from.

• 27:53Ed Elson?

  We'll be right back after the break. And if you're enjoying the show so far, send it to a friend. And please follow us on YouTube, Spotify, or wherever you get your podcasts.

• 28:08Speaker 10

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• 29:44Ed Elson?

  We're back with Profty Markets. One of the things you mentioned when we compare like .com era to today, to what we're seeing in AI today,

• 29:53Ed Elson?

  is that the business models, like we're seeing real revenues agreed, incredible, like unprecedented revenue growth agreed. But then you also say we're seeing real profits. There, I think... You might have a little bit of contention because the the big companies that we're talking about, like OpenAI, like SpaceX, the profitability isn't there. They're losing billions of dollars. And in addition, if we're talking about like, what metrics are real and what revenue is real and what profits are real, what we're also seeing is this this issue of this circular deal making, where a lot of those enterprise contracts, which are massive, are being handed

• 30:35Ed Elson?

  over by their investors. You know, Google goes and buys billions of dollars worth of GPU chips from SpaceX and Google is an investor, a significant shareholder in SpaceX, which makes you question how real that revenue actually is and how long it will actually last. So that's one point that I'd like to get your views on. And the reason I bring that up is because the dot com era had similar metrics which seemed real, but when you looked at them, clicks, eyeballs, how real is it? Really questionable. And the second thing I want to get your reaction to, you know, back in the fall, there was a lot of the comparison to the dot com bubble to today. Are we seeing the same thing? And a lot of

• 31:17Ed Elson?

  people said, you know, there's an AI bubble, valuations are getting stretched. And our view on this show was, maybe there's a bubble, but the valuations don't hold a candle to what we saw in the dot com era. But now I'm looking at the Shiller-PE ratio today. And as of today, the Shiller-PE is 42. It's the second highest reading ever. The only time it was higher was in 1999, but it wasn't that much higher. It was around 44. And that was right before the dot com crash. And my point is, it seems like right now, valuations actually are comparable to the dot com era. Yes, we're seeing significant earnings, but

• 32:01Ed Elson?

  prices are pretty high at this point, at which point I'm starting to think, maybe this actually is dot com all over again. I just want to get your reactions to those two points.

• 32:11Speaker 09

  So let's start with, the Shiller-PE has been showing that it's, the market's been overvalued, pretty much straight up since 1991. So it's a useful tool, but certainly not as a timing vehicle, or even as any particular insight as to whether or not you should be long equities. What I find the Shiller-PE

• 32:34Speaker 09

  The cyclically adjusted P ratio is useful for is it gives you a pretty good sense of what should your expected returns be looking out 10 years? I don't know why we continue to see it get used so often because it's it just doesn't give anybody any sort of, any sort of timing. That's number one. And then number two, you threw a lot at me there, so I'm trying to unpack.

• 33:04Ed Elson?

  I was talking about the profitability and the fact that many of these aren't profitable and that there's the circular revenue question, which makes me question all of it.

• 33:12Speaker 09

  So the profitability thing is kind of shocking from this perspective. And I always think back to the initial Jeff Bezos letter from Amazon. These companies are as profitable as they want to be. Like if they choose to consistently reinvest, reinvest, reinvest. So they're not showing a profit. They don't have to do dividends. They don't have to pay taxes. Like Bezos famously sent that letter, hey, don't expect profits from us for 20 years. And they didn't get, they didn't have profits for 20 years. So, so there's that. The circular question, I think, is a little overwrought. All these companies have a side venture arm.

• 33:57Speaker 09

  When they find something they like and they say to someone internally, hey, not for nothing, but we think these guys are going to be huge. Maybe you want to take a piece of it. I'm less concerned about that circular stuff because it's still real capital investment. You're getting real dollars. Now, let me show you my favorite contra to that. When Cisco went public in the late 80s, early 90s, they manufactured routers, which were sold to startups that were all venture funded. And those venture funded companies would buy these routers for cash.

• 34:36Speaker 09

  By the time we got to the late 1990s, it was late 99, Cisco started a couple of years earlier. Manufacturer of financing from their purchasers. Sort of like Ford Credit and GMAC and those sort of things. Where the builder is running a separate finance arm. And it turned out that Cisco was financing something like 93 or 94% of all their sales. So in other words, they weren't selling all these routers. They were giving these routers away and accepting a promise to pay one day from sketchy, borderline, maybe they'll make it, maybe they won't, VC-funded startups.

• 35:20Speaker 09

  And so when the dot-com implosion happened, Cisco, which was a big, stable company, because of that sort of circular financing. So those companies' VCs were the same as Cisco's VCs. Everybody knew each other, everybody played each other. The problem was, it was a promise to pay, not actual cash. And so when the tide went out, Cisco fell 93%. By the way, this was happening just as Fortune put, or Forbes, I don't remember which, Cisco on the cover. The one stock you have to own, the stock did nothing but go down for the next 20-plus years. Down 93%. It was only last year. It finally got back up to that level.

• 36:04Scott Galloway?

  That's right.

• 36:04Speaker 09

  25 years of zero returns for the one stock you have to own. So that was truly circular. If I see just like a lot of stock swaps or a lot of, you know, paper and notes, I'm very skeptical. But if Google is going to the bond market to get $75 billion to buy more of these chips and build more of these data centers, this is real money. All right, so admittedly, they're taking debt, but it's not just a piece of paper. They're getting cash for it. So, yeah, the degree of circularity is a little annoying, but it's certainly nothing like what we saw in the 90s.

• 36:46Scott Galloway?

  So the farm team players, whether it was Rocket Lab or Virgin Galactic, they sold off. And I think a lot of people decided, why own the farm team when you can own the Yankees? But what was impressive, or more shocking, was that the ETFs holding Nvidia, Apple, Amazon, Alphabet were down the same week. Usually, when you see this, there's kind of these players trade up in sympathy or people get excited about the market.

• 37:14Scott Galloway?

  So it's not, it's not the Rocco lab went down. It's just SpaceX was large enough to pull capital out of Nvidia, Microsoft, Amazon and Apple. I'm curious if you think there are other, going to be other losers here that, you know, there is a finite amount of capital for IPOs of these types of companies. And when you have SpaceX on top of OpenAI, on top of Anthropic, do you think generally speaking, the, the rest of the magnificent 10 gets hurt?

• 37:43Speaker 09

  I don't really think so. There's, there's a great chart out of Deutsche Bank that looks at the market capitalization percentage of new issuance, new stocks, IPOs, as a percentage of total market, market cap. And if you look at the last peak, that was 20 and 21 during the little bit of that SPAC frenzy that we saw. And at, at the worst point in 21, 2.2% of the total outstanding market cap of US equities were new issuances. That collapsed in 2022 to something like less than 0.2%.

• 38:25Speaker 09

  Here we are, we're just about at the halfway point of 2026, and that's 0.8%. So not even a little more than a third of the peak we saw in 2022. Now, by the way, you go back to like the late 90s and you end up with 1.1, 1.2, 1.3. So that SPAC peak was unusual. If we end up at 1.4, 1.5 for the year, yeah, that's a high amount of money. But when you think about it, you know, everybody was complaining, companies don't want to go public, there's so much cash around, these, these firms can stay private for forever.

• 39:09Speaker 09

  So it's weird to hear people first say, ah, you know, it clearly is something wrong with the market and none of these companies want to go public. And then just a few short years later, oh my God, look at how much money is coming out of everybody else because these companies are going public. I don't think 1, 1.5, 2% is all that meaningful to companies like Apple, Amazon, Google, Microsoft. It really isn't. When you think about the way professional managers buy stocks, and I love the phrase, my partner Josh came up for this, called "the relentless

• 39:50Speaker 09

  bid." When you own 60 stocks in a mutual fund, or 30 stocks in an ETF, and flows continue to come in, this is absolutely true, when it comes to 401k money, every paycheck, people have a little piece of money peeled off, and it goes into their 401k. Rarely are these managers going out and opening up a brand-new position. It happens a few times a year, but 9 out of 10 flows go into their existing holdings. So if maybe $1,000 comes in, and instead of that getting spread out amongst 100 or 500 stocks, maybe now it's gonna be

• 40:35Speaker 09

  something like $990, it really just gets lost in the wash. I don't think that's gonna have a significant impact on the long-term prospects of companies like Google and Apple. So many cross currents, so many different things are going on, it always forces me to recall and to remember how little we know about the future, how little we understand about what's happening right now. The predictions, the forecasts, the hot takes, you know, they have such a short life, such a short shelf life, because everything changes so rapidly,

• 41:14Speaker 09

  and it takes a solid... Like, I'm really amazed how many people were whining about market concentration throughout 2025, even as it was pretty clear, of the magnificent seven, only two of them beat the S&P 500, Nvidia and Google. So wait, five of the seven underperformed the broad index, and the market was still up 18% for the year. And by the way, that was the worst returns. The rest of Europe and Asia and Japan and Korea did much better. And so sometimes you dig into the data, and it's, alright, we think we know it's happening, but we really don't.

• 41:53Scott Galloway?

  You introduced a concept to me that I hadn't considered before, and I think it's a really novel concept, and that is, we have this natural instinct that when something hits an all-time high, we should think about selling. And you introduced me to the concept that if you invested just on the days where the market hit all-time highs, you would have done really well.

• 42:11Speaker 09

  Better than investing on any other day, which is mind-blowing to me.

• 42:15Scott Galloway?

  Yeah, I think that's an incredibly unique concept. Let me ask you this, though. At some point, when, and I don't know what the metric is you look at, if it's not Case Shiller, or P E, or the Buffett Index, but at some point, do you, Barry Ritholtz, would you say, you know, at some point, it is time to start hedging? And whether you hit an all-time high or not, when you look at it and go, okay, folks, we have officially entered crazy town, and it would be very... I look at the valuations of these AI companies, and it reminds me in 99 was this notion that we moved to a different model of economics,

• 42:57Scott Galloway?

  and that this is new, and these companies will compound it five times, and they're revolutionizing every portion of the economy. And that multiples are forever, that there's a floor on multiples, yeah.

• 43:07Speaker 09

  "A permanently high plateau" was Irving Fisher's famous line in 1929.

• 43:13Scott Galloway?

  "It's different this time," is basically what they're saying again. Is there a point at which Barry Ritholtz says, okay, folks, we need to bring our horns in? And what are the metrics you look at?

• 43:24Speaker 09

  So first, start out with the understanding that it is more art than science. There isn't just a series of data points where you can say, when A and B and C happens, here's guaranteed where the market's going next. For a couple of reasons. First, it's every, the setup each time is unique, because 2025 isn't, 2000 isn't, '87 isn't, '29. Like, the world is very different, even though human nature, when people, the line about the most expensive words in the English language are, this time it's different, it's because human nature is unchanged, and you can rely on people to panic at the exact worst possible time, number one.

• 44:09Speaker 09

  There have only been two moments in my entire career where I said, "Sell everything or get short and move to cash." One, I was a little early in January 2000. And for the wrong reason, I thought, "Hey, everybody who's sitting on a ton of gains in '99, they're not going to want to pay taxes on that in April." So they sell in January. You got to April 2001. Totally wrong, had nothing to do with it. The second time was January of '08. And I had been pounding the table for, I don't know, two years before that, talking about subprime mortgages, talking about the backwards, low-rate,

• 44:51Speaker 09

  real estate-driven economy, talking about derivatives. And I spent about a year being the biggest putts on Wall Street because I wasn't even forecasting this. I was just saying, "We are wildly underestimating the risk that is taking place today." And that was '07 and '08. And so moved, at the time, the firm I was at was all institutional. So it was very easy to move the model portfolio to all cash. We were short companies like CIT and Lehman and AIG. By the way, very hard to hold a short, even as they're heading down, because nothing goes straight down. They, every jank up, just, it's a knife in and twist

• 45:35Speaker 09

  and you're waiting for the stock to get called away. And I wasn't savvy enough to own a put with each short. "All right, the stock gets called away, I have a put, who cares?" The hedging question is really interesting. And we all hedge every day, we just don't realize it. You have health insurance and auto insurance and homeowner's insurance. And that's a hedge against the loss of this property or an unexpected cost. We don't get upset if our house doesn't burn down. "Oh, I wasted $25,000 on homeowner's insurance. I didn't make a claim." But when it comes to investors, and I'm going to say to somebody, you have a $10 million portfolio.

• 46:17Speaker 09

  I need about $400,000 to hedge your downside totally. And there's no guarantee it'll work. All it means is, we're going to prevent the downside from being too large, while still maintaining the upside. People are upset that, wait, I'm taking a 4% hit? And the market, I mean, if you did that in '25, and the market's up 18%? I spent almost half a million dollars and $10 million. I have nothing to show for it? Well, you were hedged. You own your downside. You have a whole year of no worries about downside. People hate that. So, in my personal account, I fool around with a few hedges. I am long emerging markets.

• 47:02Speaker 09

  I'm long Japan. I'm short silver. I think, this is before the war was ended or settled, or I don't even know what the hell to call this. Is it a war? Is it a military action? Is this a temporary truce? Like, we'll find out sometime. But as oil prices and commodities start to come down, you should see gold lose a little bit of its luster, and silver, which had a crazy run. For me to really want to hedge my portfolio, I would have to see a lot of things start to go wrong. Right? And keep in mind, this has been an incredibly robust economy.

• 47:45Speaker 09

  I continue to see profits growing. What's the other side of that? Well, the mayhem of this presidency is a risk factor. The tariffs were a problem. I'm long companies like Ford and GM, and I previously were long things like Walmart that did well when the tariffs were overturned. So, we survived that. The war, maybe this is over. So, this risk factor is done. All of the ICE stuff, which is a contributing factor to sentiment at record lows, that's another factor. And on top of the K-shaped economy, where, you know, you can't have the top 10% driving half.

• 48:30Speaker 09

  of all of the consumer spending. Like, that's just not a sustainable situation. So I look at all those factors and I'm tracking sentiment, which is useless except at extremes. So when the sentiment is at record lows, at least short term, that tends to be bullish. We're not seeing massive layoffs. We're not seeing a whole lot of hiring and we're only seeing modest wage increases. Like, all the things that are risk factors that would make me say, hey, I want to get out of these equities or at least hedge my core portfolio and get out of the... I own the Q's. I own an AI ETF, BAI,

• 49:14Speaker 09

  which has doubled over the last year. All of the wacky, high-growth, high-octane stuff, that's the first thing I would do when I start to say, and again, more art than science. All right, we're pretty close to the top. I'm going to cut this, this, and this. I've held them long enough that the taxes are going to be as low as I'm going to get. And then, let me start watching these factors. But it's so much feel and so much intuition and so much craft and so little science that you're making these decisions and in the back of your head, you're constantly saying, what happens if I'm wrong?

• 49:58Speaker 09

  What, where's my line in the sand? Where I say, because I started on a trading desk and there's no difference between being early and being wrong. Right? If you tap out at 50,000 Dow and it goes to 60,000 and on a weight of 30,000, you weren't early, you were wrong. You could have tapped out at 55 or 60 or wherever the hell that number is. So the biggest...

• 50:24Speaker 09

  The biggest warning sign is going to be a major trend break in a number of these different sectors and broad indices. We're not seeing that. We're seeing positive momentum. We're seeing all-time highs. Yeah, I say this every cycle. There absolutely 100% is a top out there. There's a top coming. There's a shitstorm coming our way. There's going to be an ugly, ugly market of down 20, 25, 30, 35%. I just don't see it happening tomorrow or the rest of this week, or probably not the rest of this month. And when I take my Magic 8-Ball, the outlook is cloudy beyond that.

• 51:10Ed Elson?

  We'll be right back. And for even more markets content, sign up for our newsletter at profitemarkets.com.

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• 53:02Scott Galloway?

  We're back with Profitec Markets. I think that a decent lesson, and I want you to validate or nullify this thesis, but when people immediately go to the notion of hedging, what I would suggest they do is they think about diversification as opposed to hedging.

• 53:18Speaker 09

  I think people use the phrase hedging incorrectly. So my favorite example of hedging was when Yahoo bought Broadcom.com and Mark Cuban said, "Oh, my God, not only am I suddenly a billionaire, but all of this is tied to Yahoo's stock." And I think he was limited with what he could do for six months and then put on a zero-cost collar, which is just a way of saying, "Listen, I'm not selling the stock. I'm locking it in this tiny range. And if it goes over that range, it gets sold. And if it goes under that range, it's sold. But I'm stuck here. So it doesn't look like a sale until it's sold." And of course, Yahoo proceeds to drop 90%

• 54:02Speaker 09

  and he sold somewhere around 200. And it was one of the greatest trades of all time. That's a legitimate hedge. How do I prevent downsized from affecting this specific holding? When people are broadly invested in indexes or broad mutual funds, you end up with a different situation where markets are down one out of four years. You look at the history of the S&P going back to 1929. It's about 26% of the time markets are negative on the calendar year. And if you look at...

• 54:44Speaker 09

  5% drawdowns happen two or three times a year. You get a 10% drawdown. I think it's like every 1.2 years on average. Meaning it doesn't come along like clockwork. Sometimes you get a few of them in a row. Sometimes you don't get any. The down 20% is like once every three or four years. And the down 30% are kind of generational. It's 10, 15, 20 years. You know, if that's what you're trying to hedge, that's just the normal course of how markets work.

• 55:17Scott Galloway?

  But in a lot of the semantics, what you just described with Mark Cuban, I would say is diversification, not a hedge. He didn't go short the stock. He didn't buy puts. He legally sold the stock effectively such that he could put the money in something else without triggering a capital gain.

• 55:37Speaker 09

  And that zero cost collar includes as part of one of the legs is a put. That when the stock fell, he's essentially locked in from there. So, but then he did roll it into a whole bunch of other things, including the Dallas Mavericks. He did, you know, I love that approach of saying, maybe this doubles from here, but I don't want to be greedy. I want to lock in a big win and then do really good things with it. So diversification is useful if any given sector or geography or style falls out of favor. But think back to, you know, the first quarter of 2020 or think back to '08 or '09.

• 56:20Speaker 09

  In a real crisis, all correlations go to one and everything moves in lockstep down. And so that's the risk you're always facing when, when people say, am I diversified? Do I need to hedge? I really look at that as two, two different questions. If you're diversified, two things. First, in a real crisis, it won't matter for the most part. But second, being diversified means there's always something in your portfolio that you have to apologize for. We spent the better part of the 2010s apologizing for overseas equity forces. Europe, Asia, even South America, they all did really poorly. And yet, over the past two and a half, almost three years.

• 57:05Speaker 09

  They've been significantly outperforming the US. Perhaps this is the start of a 10-year period of overseas outperforming. So could the US crash and not drag the rest of the world down? Most of the time, we do drag the rest of the world down. Maybe if we have just, let's say we're up 14, 15% for the year. Let's say we give that up by the end of the year and the rest of the world isn't doing as poorly, is doing OK. You're not hedged, but you're diversified and that offsets the risk of a concentrated US domestic portfolio.

• 57:43Ed Elson?

  You mentioned earlier that there's a difference between being early and wrong. That if you, if you think you're going to see a correction and you take some action based on that belief, either you sell or you hedge or whatever it is, and then the market goes up another 10% after that, then you were wrong. And I guess I want to hear a little bit more about that philosophy because I'll just tell you how I'm feeling about this market. I think it is frothy. I think these valuations are crazy. I think SpaceX has a giant red flag. I don't think the valuation makes any sense. I don't necessarily think we're going to see dot com again,

• 58:28Ed Elson?

  but I think that we might see something like 2022. And by the way, you mentioned that the SPAC supply, which did precede almost immediately this pretty negative year for the markets, especially negative for tech companies in 2022. And my expectation, my feel, and no one knows, I don't know, is that we'll see something like a 2022 start to transpire over the next, call it, six months or so. And then the question becomes like, what do you even do about it, about that? If that is your belief. My view is that it would make sense to start thinking about how to hedge against that event.

• 59:11Ed Elson?

  But if I have it in my head that I need to make sure that I time it correctly such that I'm correct, as you say, between the difference between being early and wrong. Then, I don't know, that's another thing to deal with. So I guess, how do you think about that? You said that you don't see this market turning negative in the next day or the next week or the next month. But if you think it's going to happen over the next, I don't know, six months or over the next 12 months, then what would be your approach to hedging in that situation?

• 59:41Speaker 09

  All markets end, all cycles end. And this will, like every other cycle before us, will eventually reach its natural or unnatural conclusion. When you make the decision to, hey, this market is crazy, frothy, overvalued, whatever, you are making three decisions. And most people don't think about the third decision. So decision number one is, all right, I have too much exposure to this equity, whether it's technology or US or just equities in general. So you're choosing where you're overexposed. Decision two is, all right, so maybe I think I could pick the top and I'll try and get out there.

• 1:00:25Speaker 09

  Or maybe I think I can and I'll peel 10% of my holdings down to wherever I want to take them every month, the opposite of dollar cost averaging, dollar cost liquidation. So, all right, I'm not going to get the exact top, but I'll get enough of the curve that by the time everything gets really ugly,

• 1:00:46Speaker 09

  I'll have a cost price sale way above where we are. But the third decision is the one that people forget, which is just simply, what are the rules? What are the parameters? And what will trigger me re-entering these markets? And I can't tell you how many people, we were getting emails, not just 2010, but 2013, 14, 15. Hey, I followed you out of US equities in January 2008. And when you jumped back in in March 09, I thought you were nuts. And by the way, I'm still sitting in cash.

• 1:01:25Ed Elson?

  That's the real risk.

• 1:01:26Speaker 09

  Like, you can't miss that recovery. Because, like, the market very quickly recovered. It took till 2013 from the 07, October 07 peak, March 09 lows, back to 2013. Like, if you're not back in then, you're never going to get back in. P.S.

• 1:01:51Speaker 09

  Academic research has found that people who panic sell into a crash, about 30% of them never come back to equities. So you want to avoid that.

• 1:02:02Ed Elson?

  I think that's really, really great advice. And by the way, I would just put another option out there, which is another one that I'm considering, which is do nothing and stay invested for the long term.

• 1:02:12Speaker 09

  Ed, how old are you? Because I think you're a little younger than me and Scott.

• 1:02:16Ed Elson?

  27.

• 1:02:16Speaker 09

  So wait, you have a 40-year time horizon.

• 1:02:20Ed Elson?

  Exactly.

• 1:02:20Speaker 09

  Your responsibility is don't just do something. Sit there because the math of bear markets is kind of fascinating. Think about 2000 to 2013 or 1966 to 82 in anticipation of the 82 to 2000 bull market. If you dollar cost averaged into either of those periods, you lost 75% in real terms, in inflation adjusted terms, of the money you put to work from 66 to 82. And as soon as 82 crossed and we started this bull market,

• 1:03:00Speaker 09

  you're just accumulating assets of unloved indexes at deeply discounted prices. And they exploded higher over the next. The market had a series of giant rallies and sell offs, including 73, 74, which was very equivalent, 56% to 08, 09. And so if you religiously dollar cost averaged, you ended up at the end of that period of no return, zero returns in nominal terms and minus 70, 75% in real inflation adjusted returns. You just own everything so much cheaper. And it's weird to think about this.

• 1:03:45Speaker 09

  But as much as we love the bull market and that's where the gains start to show up. Setting up for that during a bear market, especially if you have decades to look out. Scott and I have a few years left, but I don't think we have 40 years of dollar-cost averaging in us. You will find that nobody like the equivalent today is the 87 crash, right? Not even 40 years ago, right? So someone your age in 1986, if they just kept buying straight through that, the worst one-day 22% crash, like, yeah, I'm a buyer. Yeah, I got 40 years. I don't care. Think about the market,

• 1:04:26Speaker 09

  which had fallen from like 900 to 600 on the Dow. It's now 50,000. That's what having a four-decade time horizon does for you. And the other side is, what are the odds that you'll get out remotely close to the top and get back in remotely close to the bottom? If ever, if at all.

• 1:04:48Ed Elson?

  Yeah, and I think, you know, every time I talk about any reasons to feel bearish whatsoever, and I've said, I think we're kind of close to the top. I think your point is an important one, and it's something I would like to make on this show right now. I'm not saying when I say that, oh, you should sell. I mean, I should be very clear about where I am. I'm still very long equities in my full portfolio position. Just because I think that stocks might go down tomorrow doesn't mean I'm like, oh, my God, we got to sell everything now. That's not the implication. The reality is, we got to talk about markets because we're here and we're talking about markets. Sometimes they go down. But ultimately, yeah, we should all be long equities. We should all be invested. So I'm glad that you point that out.

• 1:05:31Speaker 09

  By the way, this is the reason I love having a cowboy account. Take 5%, 4% of your liquid net worth. Trade to your heart's desire. Buy crypto, short silver. Get long whatever you want. Speculate on the hideous meme stocks and shitcoins there are.

• 1:05:53Ed Elson?

  Yes.

• 1:05:53Speaker 09

  And the beauty of that is twofold. So first, when it's not your real money and stuff is running, you can let it run because it's a small portfolio. You know, very often we'll speak to people. I have a $15 million portfolio. 14 million of it is Nvidia, Amazon, or Microsoft. I don't know what to do. Well, you're highly concentrated. Let's work out a plan for you.

• 1:06:20Speaker 09

  And very often, those people are rare because most people, the stock doubles or triples, and they're out and they don't let it run. But the other thing is, that scratches the bias towards action, is the technical term. And then you can do something. You could sell that all day long, but leave your proper main account unmolested and it'll be fine. Screw around all day long with the cowboy account. That's what it's there for. That's my behavioral hack.

• 1:06:51Ed Elson?

  Barry Ritholtz is the co-founder, chairman, and chief investment officer of Ritholtz. He also hosts Bloomberg's Masters of Business podcast, writes the Big Picture blog, and has authored multiple bestselling books, including Bailout Nation and How Not to Invest, great title. Barry, this was awesome. Thank you so much for joining us. Thank you, Barry. It was good to see you.

• 1:07:13Speaker 09

  Thank you, guys. Thank you, Ed. Thank you, Scott.

• 1:07:18Ed Elson?

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty. Our research team is Dan Shalun, Isabella Kinsel, Chris Newdonahue, and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director, and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

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