Pod Insights Big Technology Podcast Meta's Stock Plunge + Market Volatility — With Josh Brown of Ritholtz Wealth Management About this episode Josh Brown is the CEO of Ritholtz Wealth Management and a regular CNBC contributor. Brown joins Big Technology Podcast to discuss what's behind Meta's historic $251 billion stock plunge, and Amazon's equally shocking $190 billion rise. This is a discussion about Meta and Big Tech, but as you listen you'll get a window into market fundamentals like "whisper" earnings targets and why growth stocks are going out of style. We also discuss what happens inside companies when their stock prices plummet.
You can find Josh's podcast — The Compound and Friends — here: https://pod.link/1456467014
And here's my 'Metaverse or Bust' story: https://bigtechnology.substack.com/p/for-facebook-its-metaverse-or-bust
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:17 Alex Kantrowitz? Hello and welcome to the Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. Look, if you've been watching the stock market over the past year, you've seen some, or the past week, really, you've seen some of the most unbelievable fluctuations in stock prices, especially when it comes to the tech companies, perhaps that you've ever seen. You had Facebook losing $250 billion in market cap basically overnight. Amazon gaining $190 billion in market cap overnight. Snap moving up 61% after hours after an impressive earnings result.
1:51 Alex Kantrowitz? Well, this is, of course, like totally crazy market movement and it's really tough to figure out what's going on and what the implications are and the repercussions will be for the companies. And so to discuss it, we have a guest I am so excited to bring on. It's Josh Brown. He's the CEO of Ritholtz Wealth. He also wrote three books, How I Invest My Money, Clash of the Financial Pundits, Backstage Wall Street. You can find him on Twitter at Downtown, Downtown Josh Brown. And I always love watching him on CNBC. He's a fellow CNBC contributor. Josh, welcome to the show. Thank you so much for having me, Alex. Thanks for being here. I want to get into the more systemic stuff, you know, as we move on through the show, but why don't we just start with the one that really has
2:34 Alex Kantrowitz? me scratching my head. And I know you have a strong perspective on this and so do I. So it'll be fun to get into it. And that's Meta. So last week, Meta lost daily active users in the US for the first time, went down by a million a day, but it also gained 9% monthly active users. Its family of apps now is used by 3.59 billion people each month and actually beat on revenue and missed on profitability because it was spending on the next bet, which is Metaverse stuff, Oculus VR, AR, and things of that nature. So, you know, it does, I understand how the, you know, market will react poorly to the fact that it is shrinking in North America, at least when it comes to daily active users,
3:18 Alex Kantrowitz? and didn't hit the profitability marks that it did. But it doesn't seem like a terrible miss to me. And maybe I'm crazy, but you go up 9% monthly active users, your revenue is up. Okay, your profitability took a hit because you're investing in the future. So why does the market then go ahead and take Facebook down by $250 billion, which I think, you know, I've heard Scott Galloway talk about is the equivalent of like putting BMW, Mercedes, Twitter, and Pinterest and snap together in terms of the amount of market cap that it lost.
3:46 Speaker 01 So there's a couple of things going on here. The first thing is there's the number and then there's the whisper number. And the whisper number is away from the research reports that the sell-side brokerage firms put out, like the real number that everybody in the back of their head is saying, Facebook better do this or else. And that is not unique to Facebook. That's just how the street is. So there's always the earnings number. That's the consensus expectation. And then there's the whisper. And sometimes the whisper is above, sometimes it's below, it's absurd. Obviously, we live in a digital age. People are not even sitting at steak houses whispering numbers to each other. But this is the, this
4:25 Speaker 01 is the culture. I, I can't control it. I can only explain it and apologize for it. So that's the first thing that you'll hear from Wall Street guys. The second thing is that-
4:36 Alex Kantrowitz? Pause on that, on that first thing with the, so basically, we hear, and I've never heard about this before, we hear the estimates that analysts want the companies to hit. But what there's this underground, like what WhatsApp or Signal groups among investors who are like, you know, Facebook is-
4:52 Speaker 01 I don't think it's that formal. I don't think it's that formal.
4:54 Alex Kantrowitz? So it's just this, like, what is it then? And it's, it's just like, they think that they should actually do better than what the street is expecting. Do they set expectations low for the street so they can beat them?
5:03 Speaker 01 Yeah, exactly. They, it's called sandbagging the quarter. So they will, they will give a range of guidance to analysts during the previous quarter's conference call. There will be several, they, uh, see, this tends to matter more for smaller mid-cap companies where there's like seven analysts covering it. And you can really influence where those consensus numbers go. In Facebook's case, you had 50 plus analysts on the sell-side covering it. And then you have all these buy-side analysts that don't publish their research, but they've all got their own estimates that are internal at asset management firms, hedge funds. And the general idea is that there's the consensus number, whatever it
5:46 Speaker 01 is. And then usually the whisper number is like a penny or two above. And it's childish, but that's, that's how it's always been. But I think, I think what's more important in the case of Facebook is this concept. There's no such thing as good or bad on Wall Street. No, it doesn't exist. It's not, good or bad is not the thing. The thing is, was it better or worse than expectations? So, Facebook's earnings were good, like they're making a ton of money. And yeah, they spent a little bit more than people expected and the growth rate that they're projecting was a little bit of a shock. Talking about three to 11% growth after people have grown accustomed to this company growing 25, 30% reliably.
6:30 Speaker 01 That definitely shocked everybody. So it's not that it was a bad quarter. It's that it was worse than expected. And so everybody then resets their expectations for the next go around. And in today's day and age, we don't do that over the course of weeks. We do that in seconds because it's not humans and nobody is sentimental. It's software. So the software, the software is doing the trading based on parameters programmed by humans. And these reratings, which is a fancy way of saying a big stock price fluctuation. These reratings happen in, in seconds, not days, not weeks, not months, the way they used to.
7:12 Speaker 01 And I think that can be shocking to casual observers of the stock market. They can't believe a company like Facebook could be worth 25, uh, 25% less from a Wednesday to a Thursday. It's like inexplicable.
7:27 Alex Kantrowitz? Yeah, it's unbelievable. I mean, that's how I felt watching it and I pay attention to the stock market. But I mean, this is again, why I thought having you on would be great because you can give us this window into what's actually happening.
7:36 Speaker 01 So one of the, I, I would say like just this concept of value, valuation, um, what, what a company's worth, market cap, like it's a, it's a sandcastle. Nobody gets, nobody, you don't get to keep it. The next wave comes in and could completely wipe out the sandcastle. It's not like this thing that's chiseled in stone. So Facebook was worth a trillion dollars like 15 minutes ago. And now it's worth 600 billion. That 400 billion wasn't wiped out. See, this is the thing you hear on TV all the time. Oh, Facebook had 400 billion of market cap wiped. No, it's not wiped out. It went, it went to Amazon. So it's somebody else's market cap now.
8:20 Speaker 01 The money still exists. It's just doesn't belong to Facebook. So keep, take this with a grain of salt. Whenever you hear such and such company is worth blank. Yeah, today it is, right? But it's not, they don't get to keep that forever. Maybe they'll be worth more, but just as quickly, they could be worth a whole hell of a lot less. Because in the end, it's not really their money. It's their shareholders' money and their shareholders could decide in a moment's notice that they want that money to be invested in something else.
8:49 Alex Kantrowitz? But it has real implications for the company inside.
8:51 Speaker 01 Oh, yes.
8:52 Alex Kantrowitz? Especially when it comes to employee compensation. That market cap goes down, that stock price gets 25% shaved off. All of a sudden, those people that were counting on the money, uh, you know, to, um, make their decision of whether to stay or go, those equations change when the market cap loses.
9:09 Speaker 01 I think it's less shocking in Silicon Valley. I think people that are Facebook employees, they've been on this roller coaster. They've seen the stock, Facebook, don't forget, Facebook got cut in half its first six weeks as a publicly traded company. And IPO'd at 40, it was $18.
9:25 Alex Kantrowitz? Right, that day.
9:26 Speaker 01 Yeah. Uh, so people, so I think it's less shocking for a technology company to suddenly shed 25% in a day. It's more shocking if that happens at Procter and Gamble. It's more shocking to see that happen with, you know, a big insurance company stock or, uh, you know, something that appears like the perception from within and without is that, you know, it's a blue chip company and it's stable and it never has big growth. It, it never has too little, uh, growth. It doesn't shock you. So with, it's not that surprising to see a gigantic tech stock go through a rerating like this. Um, it is the biggest ever.
10:10 Speaker 01 In dollar terms, we've never had a publicly traded company lose $240 billion in a day. It's just, it's a quarter of a trillion dollars. It's a lot of money. It's never happened. But Apple, Microsoft, Alphabet, they've all had days where they were 180, 170 billion. The thing is, all of those were in March of 2020, the onset of the pandemic. This is really remarkable because it's idiosyncratic to Facebook itself. It was not market driven. It happened to have taken place in the context of a very volatile NASDAQ. But this was really Facebook specific in a way that you probably have to go back to Lehman Brothers, Bear Stearns.
10:55 Speaker 01 You know, to find a day percentage wise that was that bad for such a large company. That had nothing to do with the overall market.
11:03 Alex Kantrowitz? Yeah. So why don't we then kind of hammer back on the point that we started with, which is, why do you think it was so big? Because yes, it was definitely a, you know, resetting of expectations, but you know, were the algorithms programmed to the point? Or was the whisper earnings level, you know, missed so badly that it caused such a shock to the stock?
11:27 Speaker 01 I think the perception, look, this stock is owned by sovereign wealth funds. This stock is owned all over the world in size. It's a huge part of almost every index fund. Similar to Apple on a slightly smaller scale, it's, it finds itself in every growth fund. It finds itself in every tech fund. Interestingly enough, it's not even classified as a technology company by Standard and Poor's. It's actually in the communications. It's with, you know, it's with Google and Netflix in the communications basket. But either way, it's an important stock globally. Uh globally invested in and the perception is that uh this kid has his head up his ass. He's living in the metaverse in the meanwhile. Yeah.
12:12 Speaker 01 His competitors in the real world, in the three dimensional world that you and I actually inhabit, are eating away at a lot of the things that we thought were were had moats around them. And just just listen to the count of how many times TikTok was mentioned on the conference call. So I I listen to these calls. Um I use an app called Quarter. Earnings call. Yeah, Q A R T R. If your listeners are looking for a way to really quickly, I skip right to the Q and A. I don't listen and so that you could do that with a push of a button on the quarter app. So I try to listen to that thirty minute Q and A where like Goldman Sachs, all the analysts, they can ask their questions. TikTok, TikTok, TikTok. It's, look, here's the truth.
12:56 Speaker 01 They've never had a competitor in any vertical the size of TikTok. They have beaten the shit out of Snap and much companies that were much smaller than them in terms of reach, in terms of global reach, in terms of how many users. They never really have had to build a product to compete with something as large as TikTok. So they're hyper focused on making Reels an advertising platform. The problem is Reels is not catching on at the speed that they would have liked. And it's not clear that it's effective for advertisers yet. And so they are fighting not as an incumbent in this particular case.
13:37 Speaker 01 They're fighting as like an upstart and that, I don't think that's something that Facebook has had to do since two thousand eight. Like taking on MySpace, really. So that's an interesting dynamic. That is definitely in their heads and you could tell by how often they tell you how much they respect TikTok. And what a great job TikTok is doing. They hate TikTok's guts. They they would love nothing more than for uh the US to kick it out of the country like what almost happened before the election. Exactly. But the other dynamic is, and I said this on TV. This meta business is ridiculous. They changed, they changed, they changed the company's name to, I guess, like, I guess, like,
14:22 Speaker 01 set the table, like, this is our whole focus now is gonna be the metaverse. This is the next big platform, it's the next big bet. That's great, but then you can't tell us in the next breath that you're not gonna make a dollar on this for 15 years, which is the other thing there, which is insane. So I think there's a lot of confusion and, you know, people say, oh, what's in a name? A lot. It's Silicon Valley. The name is the name. It's, it's important. It tells people what they're invested in. So now you have people basically invested in something where they're, they're like switching their focus to an unprofitable business after having been known as one of the most profitable businesses in the world.
15:04 Speaker 01 And I think that represents an albatross now that makes it very difficult for people to get bullish again.
15:10 Alex Kantrowitz? Right. And so it's interesting because like in this conversation, like we've heard about this, um, you know, the whisper target for earnings and the algorithms that are trading. And I was about to say, hey, you know, so maybe it's just this like, uh, you know, system that was ready to get set off with the trigger and it got set off. And actually the fundamentals of the company aren't any different than they were the week before. However, some of the stuff that I'm hearing you say is that actually, you know, this is a, to Tik Tok point, I've been listening to this, uh, earnings calls with Zuckerberg for years also, and I've never heard him talk about a competitor that way. So perhaps what we just saw with this great offloading and the earnings miss were the numbers finally catching up with the other things that people were seeing and confirming
15:52 Alex Kantrowitz? the fact that this company has shifted and become weaker, uh, and, and the market responded.
15:57 Speaker 01 Yeah, I think that's right, Alex. I think you nail it. And it's not that they're a weak company because let's face it, they are, they are still generating absolutely enormous revenue, enormous cash flow. And if any company has a shot to really build this next generation platform and bridge the gap between 2022 and 2030.
16:21 Speaker 01 When we're all walking around in a virtual saloon with digital cowboy hats we've bought from Gucci. And we're playing poker with each other, uh, seated at a table together. Like if anybody could really do that and make a holodeck and make it profitable and put ads in there. It is gonna be Facebook or Alphabet. There's probably nobody else uh, that has the guts to spend money this way. But while they're doing that, and I talk about bridging that gap. It's a very long gap to bridge if in the real world, you're under assault. By all of these real world competitors. And I think that dynamic now is un-un.
17:03 Speaker 01 It's, it's, it's unequivocally true and. The stuff with Apple iOS is not going away. So they're gonna solve for it. They're gonna have workarounds. They're gonna try to play up to their advertisers that. Alright, we can't track those old metrics, but look, we just created new metrics that might be even better. They're gonna fight. They're gonna do their best, but it's not gonna go away. The fact that those ads will be less effective in Europe and then eventually North America. Uh, it's, it's inescapable. And so I think that that's part of that rerating and part of that rethinking. They just do not seem as dominant. Now, even worse.
17:46 Speaker 01 Look at that in the context of what Alphabet just told us. Alphabet's advertising platforms are absolutely on fire. Whether we're talking about YouTube, which has just become this, this absolute juggernaut, could be worth as much as Netflix someday. Um, or we're talking about uh, search, which has never been better like. Google does not seem to be struggling with these same iOS privacy issues that Facebook is. That could change. But so now let's say you're a fund manager and your job is to invest in social media or the internet. Like that's your, you're a portfolio manager and that's like your universe. Of course, you would rather have money invested in Alphabet than Facebook.
18:30 Speaker 01 Given that perception of, well, these guys have it figured out and these guys don't. Now along comes Amazon and Amazon for the first time ever breaks out their advertising numbers and they're sick.
18:44 Speaker 01 Amazon's third-party advertising platform is sick. And that's yet another competitor for investment dollars away from Facebook. So Facebook now has a lower valuation than both Alphabet and Amazon. You could say, okay, this is when value-oriented tech investors may step in, and that's true. Maybe that's what stabilizes the stock. But the other way to look at that is, who the hell wants to invest in a tech value stock? Has that worked for IBM? Has that worked for Cisco? Does that work like a lot? You know, there's a lot of cheap tech stocks. Qualcomm, these are stocks that tend not to go anywhere for years or even decades on end.
19:28 Speaker 01 So I think when you're a tech company, growth is more important than anything else. And Facebook's got to somehow get back to finding that growth, and it's not going to be that easy.
19:39 Alex Kantrowitz? Yeah, and I definitely want to talk about that growth because it seems like growth has been a detriment, at least to some investors, when they're pulling back right now in the stock market. So let's talk about that in the second half. And I also have a bone to pick with your point about the meta name. So folks, this is going to be fun after the break. Stick with us, we'll be back right after this. This episode is brought to you by App Point. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about. All that AI runs on your data, and most teams have no single way to see it, secure it, and prove it's under control. That's exactly what App Point does.
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21:01 Alex Kantrowitz? And we're back here on the Big Technology Podcast with Josh Brown, CEO of Good Hope's Wealth Management, also a regular contributor on CNBC. You can catch him on The Halftime Report and other great shows. I always love watching Josh on air and make sure to catch his clips on YouTube. Always a great perspective and
21:19 Speaker 01 Thank you.
21:19 Alex Kantrowitz? It's been myself to be speaking with him right now. So thanks again for being here, Josh. Let's talk about the meta thing. You've been on air and here previously made an emphatic point that Facebook never should have changed its name to Meta. I have a different perspective on that.
21:34 Speaker 01 I would love to hear it.
21:35 Alex Kantrowitz? My thought is that what we're seeing right now, especially with the TikTok stuff and with the recent earnings, is that Facebook's flagship business is hitting a ceiling. And in tech, when your flagship business hits a ceiling, the only thing to do is move on to what's going to be what you believe is the next computing platform. And so I do think that for Facebook right now, or Meta as they call it, it's metaverse or bust. Just like Microsoft, when the desktop operating system in Windows was hitting a ceiling, they went to cloud. To me, it seems like going to Meta, you know, whether it's going to work or not, if that's your vision of the future, you go all the way in. And so I don't have a big problem with the name change. What do you think about that?
22:15 Speaker 01 Well, we're not talking about where the focus of the company should be. We're talking about nomenclature and you'll notice that Microsoft did not rename the company Azure, which I think may have gone fine had they done it, because by the time it became apparent that Azure was going to be the horse that they were going to be riding, and in fact, they plucked Satya Nadella from that unit to run the company. So like, when it became apparent that that was what they were going to do, I think it would have been viewed as odd by investors, given how many other businesses are under the Microsoft umbrella. But they
22:53 Speaker 01 probably would have been okay, because that was not a business unit that was wildly early and loss-making in the way that Meta is. Second thing is, we might have a disagreement about what you consider to be Facebook's flagship business, because I think it's Instagram. And had they done a name change to Instagram rather than Meta, um, and then told the story about the role that Instagram will ultimately play in the metaverse, which I believe is going to be an important role. That might have been a little bit more, uh, common sense and, and maybe a little bit easier to swallow. So I think, I still feel they jumped the gun, but I do agree with you. They do need to figure out the next platform.
23:37 Speaker 01 Um, it's hard to imagine the Facebook, uh, app itself ever growing again. Like I just, I feel like it could maybe maintain as more births and, and new people turn 18 and decide they want to be there. But I, I mean, I don't know any kids that are like, I can't wait to get on Facebook. So I, it's hard, it's hard for me to picture that even stabilizing. I think it's, I think Instagram really is, is where the growth is going to be while they, they build up Meta, not Facebook.
24:08 Alex Kantrowitz? Two last questions about Facebook, um, just kind of your, your gut, uh, on a few things. Uh, do you think Reels has a chance of, of challenging Tik Tok in a real way? And then, you know, gut check, is the metaverse actually going to be a thing? Or do you think that it's just kind of like this hobby horse for gamers that will never expand beyond where it is?
24:26 Speaker 01 I think the, let's do the last one first. I think the meta, I think the metaverse is great because it's whatever you say it is. No, still truly, so I've, I have an investment in Roblox. I happen to believe that that's the actual metaverse right now. It's closer to the metaverse than anything Facebook is doing, but like it's.
24:44 Alex Kantrowitz? Can you expand on that? Yeah, I want to talk, hit on that.
24:46 Speaker 01 It's interactive, it's interactive, it's completely immersive. It's, uh, young people spending a big chunk of their day there and actually living their lives there. And, you know, I have a, I have a, a 13 year old and he has conversations with his friends on, on, uh, on the game console. So yeah, they could FaceTime, but very often they'll go into Fortnite and just talk to each other. They might be talking about school or what assignment somebody has. Um, but they'll log into games to, to, to, to me, that's metaversy. That's not like I have to wear a helmet and walk into walls like an idiot.
25:26 Speaker 01 That's like, I'm actually living this portion of my day and interacting with other people in a virtual uh setting. Um, so you think about musicians doing concerts inside of Fortnite. You think about people building their own games and then earning money from licensing fleet fees on a, on a platform like Roblox. But that's the metaverse. The, I don't think the metaverse is logging in um to, to uh, you know, via Quest or Oculus to have a business meeting. I, I don't know anyone that's try, that really wants that or is trying to do that. So, look, there are gonna be thousands of different things that are gonna be big technologies.
26:10 Speaker 01 And if you want to, you could say, oh, this is the metaverse. Like, there's no question that companies like Disney are thinking about movie formats that are immersive. Where you actually walk onto the virtual set of a movie, maybe even become a character in it. Obviously, that's the kind of stuff that they've been doing for fifty, sixty years and they put you on a ride. They want you to feel like you're inside the movie. Why wouldn't they do that digitally? How could they not be great at that, right? So do we wanna say that's metaverse or do we just wanna say that's entertainment? I don't know. If we wanna say it's metaverse, then the metaverse really could be anything and everything. So, I, I don't know that we're gonna ever,
26:56 Speaker 01 or at least not anytime soon, say that any one company has a shot to own the whole thing. Including Facebook. It'd be very hard. Now, will they have a head start in technology? Maybe, because as we talked about, they have more money to invest than almost anybody else. Right? At least for now, they do. We'll see how big the losses get, but at least right now they do.
27:17 Alex Kantrowitz? Cash balance went up over the past quarter, though.
27:20 Speaker 01 Yeah, yeah. So, so, so we'll see. Look, if they lose another 200 billion in market cap, the next time they report earnings, the, the investments might have to stop. But it's, it's premature. Maybe they'll, maybe they'll get more of a leash than, than we think. On the Reels question, I'm probably not the right person to give you a good answer there. I don't dance. I don't, I don't do skits. I have no idea. I have, I have a TikTok. I'm a verified TikToker. I've posted about 12 videos and they're all terrible. And I'm not doing anything personally on Reels, so I don't know if Reels is gonna overtake or even really compete with TikTok. Maybe, maybe I'll ask my daughter and get back to you.
28:04 Alex Kantrowitz? Yeah, definitely. If she, I'm gonna try to write about it this week, so if she wants to be quoted about which one she's using, just let me know. Growth stocks. So you talked about it a little bit in, in the beginning and the first segment about how tech companies want to be growth stocks. And I think like the fact that the tech companies had all this growth potential is a big part of why they achieved such amazing valuations during, you know, the end of last year, you know, Apple going to three trillion, which is like crazy. It took it, what? Forty years to get to one trillion, 18 months to get to two trillion, and then another year or so to get to three trillion. I mean, I might be fudging the numbers a bit, but that's directionally accurate. But now with the fact that the Fed is about to raise rates, it seems like the market is a little, being a little bit
28:47 Alex Kantrowitz? more careful about growth stocks. So why are growth stocks, and I'm talking about like big tech stocks are obviously, you know, first and foremost in that category. Why, why are they so vulnerable? Now, after being such a prized investment previously?
29:03 Speaker 01 The reason they're so vulnerable is because people are using a discount rate. They're they're taking the net present value of a future stream of earnings and they're discounting that back to today. So the idea is like, and Amazon is the classic example of this. You're buying Amazon in the late 90s, early 2000s. They tell you basically that there is absolutely uh no interest in generating profit right now. Instead, they want to grow user base, revenue, market share. And then later, all of a sudden, once they've done that, they can pull a different lever, focus on profitability and it'll be a gusher.
29:47 Speaker 01 And it's really audacious what they did and it worked. And around 2015, if you look at a stock stock chart of Amazon, sometime around the second or third quarter of 2015, it became apparent that Amazon pulled it off. And not only was it a high growth, but they had built enough scale that the profits were going to start to gush out of that thing like like uh like they struck oil. And if you look at a stock price um of Amazon uh pre 2015 and post 2015, you see a really big difference in the way uh we started to think about
30:29 Speaker 01 that that premise, let me build the platform first, let me get the the market share first and then we'll focus on profitability. And all of a sudden, there was a sea change in investor attitude. It helps that interest rates were extremely low during that period of time. But there was a sea change of investor attitude where all of a sudden, the only thing people wanted to hear about was TAM, total addressable market. How big can your company get? Not how profitable can it be this year? How big can it get? And think about the logic behind that. Let's say money is free, which it basically became free. Okay, so capital is not the scarce resource anymore. What's the scarce resource?
31:13 Speaker 01 Companies that can dominate an entire TAM. An entire total address. That's the thing that everybody wants to be invested in. Because once you dominate a TAM and you have the users, then you can you can focus on profitability. You can raise prices. You can introduce new products. You could do whatever you want. So Netflix, the investors in Netflix caught that fever. Right? Tesla. We saw that phenomenon play out like in a host of technology companies that were focusing instead on TAM and market share and growth. And we'll deal with the profits later. And it worked. If you were an investor in any of those businesses, it worked.
31:56 Speaker 01 So I think that sea change was made possible by ultra-low interest rates. Because if you're borrowing money and you're only paying three or 4% on that money, you can afford to wait four years for a stream of earnings. If you're an investor, you're taking that money. You have a certain amount of coupon that you owe back on that. But it's not high. So you don't need profits today to pay the interest. You can you could be cool, right? You could be patient. You could wait for those earnings far out into the future. Now, you look at a two-year Treasury. It was 15 basis points a year ago. It's free, free money. That's now 120 basis points.
32:41 Speaker 01 We've priced in four Fed funds quarter-point rate hikes. Right? So now a two-year Treasury is yielding one and a quarter. That affects all of the rates for everything all over the economy. Everything takes a level step up. Right? That's the basis of what money costs. Not just the United States, all over the world. Right? Even even even in Europe and in Asia. Like, it has this ripple effect. So now money costs something. It's not free. You gotta pay the vig on the money now. You gotta, you gotta pay the juice now. So now you're saying, well, shit is, there's interest due. I don't know if I want to wait 10 years for earnings.
33:23 Alex Kantrowitz? Hmm.
33:24 Speaker 01 I don't know if I want to give all of these venture, uh, venture-backed startups that just came public at these massive valuations. Lucid and, uh, you know, all these, um, all these electric vehicle companies and alternative energy companies and solar businesses. They're, you know, when money was free, I could wait seven years for a stream of earnings. Now I have, now I have to pay this, this, this vig. I actually want profits today. So you see this next sea change where all of a sudden profits are in vogue. And old school banks, oil, utilities, consumer staples.
34:06 Speaker 01 Those stocks dominate the fourth quarter and so far the first quarter of 2022. Because investors have changed their mind on what their, their tastes are, what their priorities are. And this plays out every year, every decade for hundreds of years. That, that sea change in investor predilection. Right now they want steady cash flows, profitability, high quality balance sheets, current income. And as rates go up, they're going to be looking for companies that have the ability to raise prices and pass along those higher costs and more importantly, increase their dividend in order to compete with the higher rates on bonds, which we know are going up now.
34:51 Speaker 01 So you're going to see, I think, a challenging year for companies where the premise is, don't worry, we're going to grow the user base, we're going to invest a ton of money and there'll be cash flows later. It's going to be very tough for those companies to find a receptive audience among the investor class. Um, and that's how rates affect valuations, uh, prices and the trend for growth stocks.
35:19 Alex Kantrowitz? Right. So it seems like, I mean, those companies that you talk about, you know, let's have some, uh, give us some patience and we'll have results later.
35:26 Speaker 01 Tough. Those are tech companies. Mid, mid cap biotechs have been cut in half since, uh, since last fall. Why? All their drugs, half is effective? No, of course not. The premise of investing in biotech is we're going to spend millions, tens of millions, hundreds of millions on drug development and discovery and R and D. There is no payoff. Maybe for a decade, the most successful blockbuster biotech drugs of all time took seven years, nine years, 12 years before even a dollar was coming in. Again, you can do that when money is free. Harder to do when the cost of money is rising and, and you see that all over the, all over the markets right now.
36:12 Alex Kantrowitz? Josh Brown is with us. He's the CEO of Ritholtz Wealth Management, also CNBC contributor and the author of How I Invest My Money, Clash of the Financial Pundits and Backstage Wall Street. I want to cover inflation and a little bit more about the market volatility. So we have a few minutes left. We'll do it right after the break.
36:31 Speaker 02 Now, more than ever, we need someone on our side. But Rob Whitman? Whitman's votes drove up costs, cut Medicaid and risked 350,000 Virginians healthcare to pay for tax breaks for himself and his donors. He's not on our side. Shannon Taylor will fight corruption, cut taxes and bring down costs. This November, vote for Shannon Taylor. She's for us. Paid for by HMP, the House Majority PAC dot com, not authorized by any candidate or candidate's committee.
37:02 Alex Kantrowitz? And we're back here on the Big Technology Podcast with Josh Brown, CEO of Ritholtz Wealth Management, very engaging speaker on all topics, finance. I'm sure you stuck with us up until this point. You understand that Josh just has a great way of explaining the way that the financial world works.
37:17 Speaker 01 And now I'd like to talk about the truth about vaccines. We have time. Can we get into any of that? Can I talk about ivermectin, please?
37:25 Alex Kantrowitz? You know, it's not just for horses.
37:27 Speaker 01 All right. You want to, you want to do that next time I come on? I'll save that.
37:30 Alex Kantrowitz? Look, I think that a good cancellation strategy is something any small media company needs. So, um, you know, we don't have to wait. I got three boot, three shots and then got COVID. So.
37:42 Speaker 01 I'm just kidding. I'm, I'm double vaxxed. I get a booster every week. I'll do, I'll do whatever you want. Just leave me alone. All right. Go ahead. What do you got?
37:50 Alex Kantrowitz? Let's talk a little bit about, I actually have a follow up question from our last segment about the fact that the market is moving away from longer term investments.
37:59 Alex Kantrowitz? So how does that reshape the economy? Because if these biotech companies aren't going to get the support from investors, then do they cut back on experiments? Do do public tech companies become less invested in longer term projects? And more interested in shorter term profits? I'm thinking about Meta again. You know, does this, does it lead not necessarily in that case, but in other cases for them to be focused more short term? I know every CEO says they don't care about the stock price, but come on, of course they do.
38:27 Speaker 01 Sure, sure. Right.
38:30 Speaker 01 I said something to you before that's applicable here, where there's no such thing as good or bad, just better or worse than expectations. So I don't think this is necessarily all bad. And I'll explain to you why. The first thing is the SPAC boom is dead. You're not going to see another 300 IPOs come out. It's going to be much more difficult to go public. Why is that good? Well, we of course still want capital formation. We still want companies to go public. We still want founders to have their dreams realized. But maybe it's not healthy for any company that feels like it to be able to raise money at the blink of an eye.
39:11 Speaker 01 Like, maybe that's not the right kind of capitalism that leads to good results for everybody. Maybe it would be healthier if there were some constraints about raising money, which forced you to actually build a real business, not just hand a flaming bag over to a bunch of idiot kids who are on Robinhood buying SPACs and have no idea that the average investment they make is going to get cut in half. Like, maybe we actually want to enforce a little bit of discipline, valuation discipline, business model discipline. Maybe it shouldn't be enough. Oh, look, I have a slide deck. I'm worth $80 million. Like, maybe that should end. I don't think that that's a healthy environment.
39:54 Speaker 01 That is the environment that we've lived through for most of the last two years. So I don't necessarily think it's negative for the investor class to be more focused on profits and cash flows. I think it's like a corrective kind of pendulum swinging back in the other direction. It could go too far. We don't want to close out the capital markets to everybody. But there are currently over 900 unicorns on earth. There are 900 companies worth a billion dollars or more that have yet to go public. The prior year, there were 500. So are we saying that there are twice as many great businesses from one year to the next? Probably not, right?
40:37 Speaker 01 There's probably, there's probably the same amount of great businesses, just double the amount of businesses that are overvalued. That's gotta, that's gotta cool off, I think, for, for everyone's own good, right? So we've had this phenomenon of a lot of new investors join the market, a lot of investors who have never experienced the down cycle, a lot of investors who are buying things because it has a cool ticker, or because the sportscaster they like is tweeting about it, or because the ETF has a, has a cool name. There's a lot of that kind of non-economic investment activity that has gone on that I think needs to go away, and it's painful. And we're watching that process play out.
41:20 Speaker 01 And you have SPACs that, you know, were $10, they announced the deal, they went to $30. Now they're back at $3. Like that, that hurts. That's ugly. And we don't root for people to lose money, but sometimes that's what's necessary in order for a market to regain its sanity. And you might see that later this year in an area like crypto. You might see that in the private market, in, in the venture market, in the angel market. There's gonna be ripple effects from what goes on in the, in the real stock market. There always are. So I think this is gonna be a year, let's put it euphemistically, and say it'll be a year of digestion. We're gonna digest a lot of the new companies that have been formed,
42:03 Speaker 01 a lot of the new ideas that have been funded, some would say overfunded. And it might be a little indigestion in some cases, but again, I think it's healthy. I don't think another three years straight of, of
42:18 Speaker 01 maniac pace activity is gonna help anyone in the long run. So I'm trying to, I'm trying to stay positive, I'm trying to test negative. I'm trying to, you know, I'm trying to like just explain to people, it's not good or bad. There are good aspects even of a bear market.
42:38 Alex Kantrowitz? Right. And what I just the crypto question. You said it could, we could see it happen in crypto. Do you think Bitcoin has sort of hit the bottom of its slide or does it have room to go?
42:50 Speaker 01 If you, if you told me next week it'll be 25,000, I would believe you.
42:55 Alex Kantrowitz? Okay, yeah.
42:56 Speaker 01 And then if you said next, if you said next week, it'll be 100,000, I wouldn't argue.
43:02 Alex Kantrowitz? So what do you tell your clients then when it comes to investing in this stuff?
43:05 Speaker 01 I think the way to do that is to just be honest and say, none of this is trading on anything other than sentiment. There are no cash flows. There's no intrinsic value. A project could become the most popular thing overnight and become one of the top three cryptos, or it could go to zero. And if you're going to invest in this space, of course, you want to be educated. You don't want to just roll the dice and throw darts. There should be a framework. Should, you know, so we have, we built an index approach for our clients to crypto. We built it with Wisdom Tree. There's 11 different coins or tokens in, in the index. It's free floating. We're not in there making decisions each day. Should we buy more Ethereum? Should we sell Solana?
43:48 Speaker 01 It's, the index is the index. The framework is how big is the project to start with? You know, how many engineers are involved with it? Like, does it serve a real world purpose? Was it a token just invented to speculate? Did it start as a joke token? Like, you, you, you set these rules in advance. You build the index based on them. And then you're kind of at the mercy of what happens in crypto. And some of the tokens that you're invested in will fall out of that index because they lose relevance. And some will double in, in market value and as a result, become larger in the index. So we're, we're big believers that markets are fairly efficient. They're not perfect.
44:31 Speaker 01 But ultimately, the crowd will figure out what has value and what doesn't. And that's the way that we'll be invested. So we run that on the Gemini platform. It's not open to the public. It's only open to our clients. But it's a good solution to, you know, to answer your question, what, how do you invest for people? My clients are not laser eyed psychos. They're, they're, they're successful people. They're real estate developers. They're surgeons. They're, they're, they're, they've won in life. They could afford to take a percent or two of their portfolio and have it invested in the crypto market. What they don't want to do is have a wallet hacked or have their money in a scam coin that where there's a rug pull.
45:16 Speaker 01 Not that the money would change their lives or affect the way they live. It's just who wants to, who wants to be treated like a fool? So that's the solution that we ended up coming up with. I'm very comfortable with it. I had my own money in it and I think it keeps them from making much worse decisions. Uh, and it keeps my clients from reading white papers filled with bullshit. Like, nobody has time for that, you know, in among my client base. So I think we're solving that problem. We'll see.
45:44 Alex Kantrowitz? Yeah. Do you have time for one last question?
45:45 Speaker 01 Shoot.
45:46 Alex Kantrowitz? We talked about Facebook's big drop, the $250 billion drop. Uh, we, we poked at Amazon, right? Going up 190 billion. We talked a little bit about Snap, 62% increase after hours, trading right after reported earnings. I've felt that I've never seen any, well, not even felt, I have never seen fluctuations like that before. I mean, they're both historic, the Facebook and the Amazon thing.
46:11 Speaker 01 How old are you?
46:12 Alex Kantrowitz? I'm 34.
46:13 Speaker 01 Okay.
46:14 Alex Kantrowitz? So, I mean, maybe you can help me out, but is, is this, uh, is this something that we need to get used to in the more volatile market? And, um, you know, yeah, just tell us a little bit about like,
46:26 Speaker 01 Well, this is what the real, this is what the market really is. I think you could make the case that things that used to take weeks or months now take hours and days because of software. So the pace of some of these moves is breathtaking. And a really great example of that is, is the coronavirus crash. We had the fastest bear market ever, down 35% in 16 days. But that was immediately followed by the fastest bull market ever. It was, it was, it was two weeks before we were up 20% plus off those lows. All of that took place within like a five week time span between the middle of March 2020 and the middle of April. That process in the 1960s might've taken two years.
47:12 Speaker 01 Because information didn't travel at the speed of travels and you didn't have software programs doing the buying and selling of stocks. So we have like this overnight price discovery now on news that would have normally taken weeks or months to circulate. Think about it. So it's logical that this is the way the market now is and it's logical um to see that speed. Now, as far as the magnitude of the fluctuation, I gotta tell you, this is really what the market is. And I say that I'm I'm ten years older than you. I'm forty four. So my formative experience was like my first ten years in the in in in the in
47:55 Speaker 01 the stock market, I saw the S and P five hundred get cut in half twice. And then my first ten years were bookended by uh ninety eight, ninety nine, two thousand, that whole rock opera. Uh, the NASDAQ ended up falling eighty five percent. And then we had Enron. And then just as like we were like, oh, my god, fucking nine eleven. Like, literally, that all happened in eighteen months. So that's the first thing I ever saw was grown men weeping and and eighty five percent of the NASDAQ uh being wiped out. Like I so none of this shit phases me anymore. I mean, two years ago, we saw the price of oil go
48:37 Speaker 01 negative. Think about that. Think about that. Negative. I'll pay you to take my oil. That's literally a thing that happened. So I would say like, yeah, the fluctuations, it's it's it's noteworthy, but you know, stick around a while. You will see you will see more. Um, and I only have the benefit of of ten extra years, you know, ahead of you. So now think about somebody who's twenty four, ten years younger than you, and just started investing last year. Look at the circus they walked into, right? So think about what's normal to that person. To them, the stock market is like crypto, right? So,
49:20 Speaker 01 you know, try try not to uh try not to get shocked or be shocked, but don't stay shocked. Because it's only gonna get more insane from here is is my guess.
49:30 Alex Kantrowitz? Josh Brown, thank you so much for joining us. It's such a great
49:33 Speaker 01 So much fun, man.
49:34 Alex Kantrowitz? opportunity to speak with you. I appreciate it.
49:36 Speaker 01 Thank you so much.
49:37 Alex Kantrowitz? I'm Josh on Twitter.
49:38 Speaker 01 Follow me on TikTok.
49:39 Alex Kantrowitz? On TikTok.
49:39 Speaker 01 No, the real thing, can you, can we tell people? I have a podcast that's called The Compound and Friends. And we have a lot of fun on that show. My last guest was Tim Dillon. And he went cra- he went crazy on, on the podcast. He's the best. But, uh, we come out every Friday morning. So that's, that's the best place to hear more of, of my, uh, of my antics.
50:01 Alex Kantrowitz? Amazing. Well, we'll link it in the show notes and Josh, thanks again. I hope you come back. This was super fun.
50:05 Speaker 01 Thanks, man. Be good.
50:07 Alex Kantrowitz? Okay. Thank you everyone for listening. Thanks, Nick Watney for doing the edit. Red Circle for hosting and selling the ads. We will see you actually on Friday. Kara Swisher is coming on for a bonus episode ahead of Pivot MIA. Her event with Scott Galloway in Miami. So until then, take care. Appreciate you joining as always.
50:35 Speaker 02 Now, more than ever, we need someone on our side. But Rob Whitman, Whitman's votes drove up costs, cut Medicaid and risked 350,000 Virginians healthcare to pay for tax breaks for himself and his donors. He's not on our side. Shannon Taylor will fight corruption, cut taxes and bring down costs. This November, vote for Shannon Taylor. She's for us. Paid for by HMP, the House Majority PAC dot com. Not authorized by any candidate or candidate's committee.
Previous Digital Publishing’s Next Evolution — With Brian Morrissey Next Crypto Scams, Big Tech Tumult, and Tech Optimism— With Kara Swisher Page updated October 13, 2026 · transcript and summary are machine-generated
