Pod Insights Prof G Markets The Goldilocks Economy & The Biggest Risk to the Market Right Now — with Josh Brown About this episode Josh Brown, co-founder and CEO of Ritholtz Wealth, returns to the show to discuss what’s driving the current bull market and how he’s managing portfolios accordingly. He discusses whether an AI bubble could trigger a recession, and shares why he thinks we’re on the verge of creating more millionaire households than ever before.
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Transcript 10,299 words · 10 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:01 Speaker 00 Hogging seats on a crowded train, not saying excuse me, watching videos on your phone with no headphones in. Sometimes it feels like we don't know how to act anymore. What we have been seeing increasingly is people breaking rules. Why should I play by the rules if nobody else is going to do that for me? This week on Explain It To Me, how to mind your manners. New episodes Sundays, wherever you get your podcasts.
0:30 Scott Galloway? Today's number, $11,600. That's the average cost of childcare per year in America. Ed, true story. My son came home and said, Dad, I'm asexual. And I said, son, I need you to be a plus sexual.
0:55 Scott Galloway? Is that wrong? Welcome to Prop G Markets. Today, we're speaking with Josh Brown, co-founder and CEO of Ritholtz Wealth Management, about the current investment cycle, portfolio durability, and the number one risk in the markets right now. But first, here with the news is Prop G Media Analyst Ed Elson. Ed, was that joke dirty enough? Do I need to do something a little saltier?
1:17 Ed Elson? I kind of like, I like, I like when you have a nice sort of clean dad joke. It's good. It switches it up.
1:22 Scott Galloway? Good.
1:23 Ed Elson? We've got two a week now. So, you know.
1:25 Scott Galloway? Keep it real.
1:26 Ed Elson? Diversity is good. How are you doing?
1:28 Scott Galloway? I'm great. I saw a couple of movies. This, I haven't seen, I was thinking about it. I don't think I've seen two movies in one weekend in 20 or 30 years. I went to, so what movies did you see, Scott? Well, let me tell you. Ed, so just so you know, your role here is to ask more about Scott.
1:47 Ed Elson? Oh, yeah. I don't do enough of that. Sorry.
1:48 Scott Galloway? So, so anyways, so Friday, a friend of mine took me to see the premiere of Mad Max Furiosa, which is a prequel. The highlight was that guy, what's his name?
2:01 Ed Elson? Chris Hemsworth.
2:02 Scott Galloway? He is really handsome. They brought up the entire cast in front of the audience. Standing next to him, they all look like defects. They all look like the factory is supposed to produce him and they produce these things that you need to send back to the factory. I just could not stop staring at that guy. The movie itself was a lot. You feel like a piece of beaten flank steak by the time you get out of there. There's just so much action and so much, Jesus, it's like, God, I'm exhausted. I mean, I need like a week in Anguilla and like a frozen margarita just to, just to get over that thing. I didn't think it held together. I don't, I, I don't think the franchise held up as well as it usually does.
2:45 Ed Elson? The one before that was incredible.
2:47 Scott Galloway? Incredible. I agree.
2:48 Ed Elson? One of the best movies I've seen.
2:50 Scott Galloway? Yeah. What'd you do this weekend? I'm not that interested, but I feel like I need to.
2:55 Ed Elson? I would go to see, uh, let's see, I went to a, to a DJ concert, which was pretty fun with some friends. I watched Man City win the Premier League, which was.
3:03 Scott Galloway? I saw that. I did that too. Disappointing.
3:06 Ed Elson? Cause you're an Arsenal fan now, aren't you?
3:07 Scott Galloway? Oh God. Seriously, every year, fucking Man City, literally every year.
3:12 Ed Elson? You're probably going to be a City fan next year, I think. You went from Spurs to Chelsea to Arsenal. I mean.
3:18 Scott Galloway? No, I've always been, I've always been Arsenal. I just can't come out. I'm just finally.
3:22 Ed Elson? That's, that's not true.
3:23 Scott Galloway? That's totally true. I just have come out of the closet because when, when you tell people you're a team, you alienate 90% of London, they're like, we thought we could count on you. People are just so disappointed. Chelsea's made a big comeback. Spurs started off strong, ended pretty weakly. Or weaker. Chelsea's, I think Cole Palmer could be, could be a real.
3:44 Ed Elson? Man in the world right now.
3:46 Scott Galloway? He's amazing, isn't he?
3:47 Ed Elson? He's incredible.
3:48 Scott Galloway? Yeah. Really is amazing.
3:50 Ed Elson? All right, shall we do our job?
3:51 Scott Galloway? Go for it. Light this candle.
3:53 Ed Elson? Let's start with the headlines.
3:55 Speaker 03 Now is the time to buy. I hope you have plenty of the well at all.
4:01 Ed Elson? The Dow closed above forty thousand last week for the first time in history. That was also its fifth straight weekly gain. Meanwhile, the S and P five hundred and Nasdaq finished the week up one and a half percent and two percent respectively. Reddit is allowing OpenAI to train its models with Reddit content. The social media company will also begin offering some OpenAI features to its users. Following that announcement, Reddit shares surged thirteen percent. OpenAI dissolved its super alignment team, which was focused on controlling the long term risks of AI. The team's leaders, Ilya Sutskever and Yan Leica, had both announced their departures from the company just days before this announcement. And finally, you may remember back in April, we had my uncle, Charles Elson, on the podcast. He's a corporate governance expert at the University of Delaware.
4:46 Ed Elson? And we discussed this issue of Elon's pay package at Tesla, which he has generally disapproved of. Well, last week, The Wall Street Journal published a story with a headline that read, quote, "A legal scholar critiqued Elon Musk's pay, now he's out of a job." That would be Charles. Charles was a consultant for the law firm Holland and Knight. But as Charles was preparing a legal brief about the Tesla pay package, Tesla reached out to the law firm and said they would terminate their relationship if he continued to make these comments. Holland and Knight alerted Charles of Tesla's threat. Charles decided to file the brief anyway, and he resigned. He said, quote, "If you have to choose between your job and your integrity, you choose your integrity every time." Nice quote from my uncle there, Scott. Thoughts on these headlines?
5:30 Scott Galloway? Free Charles Elson.
5:36 Scott Galloway? So with respect to your uncle, you seem like a thoughtful guy. Good for him. I'm not sure the law firm did anything. They probably could have handled it more elegantly, but as a contractor, if he writes an opinion that's not good for their clients, they're right to say, sorry, boss, we're a for-profit company and our biggest client.
5:56 Scott Galloway? It's like, did you see a Mad Men where one of the account executives is basically molested by a guy that Lucky Strike cigarettes?
6:04 Ed Elson? Yeah, Sal.
6:05 Scott Galloway? And they come and Sal, Sal says, you know, he, you know, basically, you know, touched me or whatever. And, and Lucky Strikes sees him and is, the guy comes in and is angry and leaves the office. And they come to Don Draymer and go, but he molested him. He's like, oh, he's like, he's like, Sal, you're fired. He's like, he's like, if, if Lucky Strike goes away, this whole firm goes away. And I'm not suggesting, I'm not suggesting that's the right thing. Unfortunately, there are laws to protect that type of situation now. But I'm trying to bring this home. I'm trying to lamb this.
6:43 Scott Galloway? Molested? No. What, what, what I don't like, and this isn't, this isn't your, I think your uncle did the right thing.
6:48 Ed Elson? Yeah.
6:49 Scott Galloway? And I want to say Holland did what they, they're allowed to do. Whether you think it was the right or the wrong thing, they're allowed to do it.
6:54 Ed Elson? Yeah, I agree with you. It doesn't say much about Holland and Knight. But I, it feels like it does reflect quite poorly on Tesla, who are clearly very sensitive about this issue. And in my opinion, for lack of a better word, butthurt about the compensation, that they have nothing better to do than to threaten the employers of people who say anything even remotely critical of the CEO. You know, it just seems strange that this is what they spend their time.
7:21 Scott Galloway? That's Elon. That is totally.
7:22 Ed Elson? So I guess my question to you is, what does this say about Tesla?
7:26 Scott Galloway? Well, it, it says it's run by a megalomaniac who isn't a good person, but that's not news to anybody. And what I would say is that, you know, memo to young people going into the workplace, the only thing I can guarantee you is a series of injustices. And it, it really doesn't matter, you know, sure, you, you hope they do what's right. But these companies are there to make money. And if for whatever reason, how noble your viewpoint is, you get in the way of them making money, they're there to, to take in a certain amount of inputs and produce it at a higher value. I do think the arc of justice in corporate America is really jagged, but I do think it bends towards the righteous, and that is people who are good and work hard and are good people, ultimately over the long
8:11 Scott Galloway? term do well. And also, it's good to be Charles Elson because your uncle is kind of an icon in the legal world. He's going to be fine. He doesn't need the money. And he'll get hired by a lot of other people who want someone of his caliber and esteemed to write legal opinions. Who this really sucks for is, of course, bringing this back to me, a lot of young people, a lot of young people write me and say, I want to be more provocative and fearless in my comments. And they're very positive and say these provocative things. And I say to them, are you rich? No, then don't. Because you're taking a risk. They want people who are going to do hard things and make the company more profitable. That is always the flavor of the month.
8:52 Ed Elson? Any thoughts on Reddit's contract with OpenAI or the Super Alignment Team dissolving?
8:58 Scott Galloway? Well, first off, anyone that named themselves a team called Super Alignment deserves to be fired. I mean, that's just, when I first read, members of the Super Alignment Team, right then I thought, I hope something bad happened to them. This is kind of met all over. They pretend to give a shit about this stuff. And then, when these people are virtue signaling and concerned and getting away in the profits, they just blow them all out. And it makes for good media. The investors don't care. Microsoft doesn't care. And at the end of the day, I'm still going to type into ChatGPT, summarize these business notes for me, or whatever it is. I don't think this has much of an impact. And I'm sick of the media. I'm sick of people believing that these companies are there to do anything
9:41 Scott Galloway? but make a profit, nor will they do anything. All their actions will just line up to trying to make a profit. I think the Reddit, I'm a shareholder there. It's great that the stock is up. But the fact that our online discourse is going to inform the majority of the new digital dialogue, and that is LLMs, scares the shit out of me. Because here's the thing, our discourse has become more coarse. And it's entirely because of the fucking cancer of our society, which is social media. It has normalized shitposting each other. And the thing that really worries me about these new developments with Reddit and the fact that these digital platforms are now becoming the grist for the LLM mill, is that everything that informs business moving forward and media is informed by
10:26 Scott Galloway? this really toxic dialogue. The LLMs are not crawling. The kid who came up to me at Granger's yesterday and said he knew my podcast and said really nice things. They're not crawling the guy at At, you know, the Arsenal game yesterday, who high fived me and asked where we're from. People are, I find people in person are generally speaking lovely. They're nice. They're nice to you. They open doors for you. They say nice things to your kids. They ask what breed is your dog? You go online and they say what dog you look like.
11:05 Scott Galloway? I mean, it's just, so if that's going to inform our new discourse, I think it's really fucking ugly. So I'm kind of worried and what I will say is that I do think the L L Ms have put in place so far, a lot of safeguards to make them less hostile and vile. So you got to give them some credit. But the idea of where all this AI, I just see so many things that are really unsettling about how AI is developing. What are your thoughts?
11:33 Ed Elson? Well, I, I think it's hard for me to say much about this because the terms of the deal weren't disclosed. And I just find it interesting, you know, the stock went up 13%. It surged, but no one actually knows what this is even worth. I mean, it could look like Reddit's deal with Google, which was around 60 million. I think most analysts are expecting that. Or it could look like the rest of OpenAI's contracts, which are as low as 1 million. So, you know, as I've said before, I've generally been underwhelmed by the size of these, these AI licensing contracts in the industry. I think the publishers should be charging way more. But, you know, regardless, I think the most important detail here, at least for the markets, is the price.
12:15 Ed Elson? So until we know that, I don't, I don't have much of an opinion on it.
12:19 Scott Galloway? So in terms of the Dow hitting new highs, I mean, I have a couple of points of frustration. One, I don't want Biden as president, but I want Trump to lose. And I am incredibly frustrated at the Biden administration's inability to pimp out, take credit for, run up the flagpole, record markets, Goldilocks economy, whatever you want to call this, right? Strongest growth of the G7 while the lowest inflation just pulled off the impossible. And yet I don't see Buttigieg, I don't see Geraldo, I don't see. I mean, what is it? Are they have, do they have a gag order? Get out there and start talking. They should be on CNBC, on Morning Joe, on Fox, every fucking day. Put Secretary Buttigieg on Fox and I love his responses.
13:03 Scott Galloway? Whenever he responds to one of these idiots on Fox, they look as if they've been caught masturbating. They literally don't know how to react. The other thing that upsets me about this, although we should be, you know, dancing the streets, is that one of the things that young people have been fooled into believing, and this goes to some of our comments with Josh, there are two stages in your life. There's the investing stage and there's the harvesting stage. From, from, ideally from the age of like, to pretty much call it, I don't know, you're harvesting someone else's savings up until the age of 22 or 25. Basically, your parents are still in loans. From 22 to 65, you're investing. You're hopefully making more than you spend. And then you deploy an army of capital to try and fight for you and your family and your sleep. Right? Investments that start generating passive income and growth.
13:48 Scott Galloway? And then at 65, you start harvesting. You start saying, I want a nicer life. I'm not going to work that hard. My earned income is, is not as great. So I'm going to start harvesting from my passive income and my investments. I'm going to start taking money out. When you're investing, you want the markets to crash. You literally want them to crash. I mean, granted, there might be some shrapnel that hits you. You might lose your job or whatever. But the reason I'm wealthy is because several times across my lifespan, the markets have crashed. And because I was always making money and I always had a job, I had a chance to kind of dollar cost average, if you will, into stocks and real estate when at some point they were fairly inexpensive, even cheap at some point. Here's the myth that keeps getting fomented to you and your generation.
14:32 Scott Galloway? That strong markets touching new highs are good for everybody. No, they're not. They're good for me. This is another great thing for people my age and another not so great thing for people your age.
14:44 Ed Elson? We'll be discussing this in a second with Josh Brown. Stay with us.
15:00 Speaker 04 So like any good millennial, I have a love hate relationship with Gen Z. It's the phenomenon rattling millennials. They just look at you.
15:08 Speaker 05 They want something bigger themselves. Lifestyle is a priority. Motivation is being inspired.
15:14 Speaker 04 But regardless of how you feel about Gen Z, it's undeniable that they're changing national politics.
15:20 Speaker 06 Generation Z is increasingly showing less loyalty to traditional political parties. Many now more likely to identify as independent.
15:28 Speaker 04 So what is going on with the kids?
15:30 Speaker 07 I think the biggest misconception about Gen Z's politics right now is that all of a sudden they're all socialist. That is just not the case.
15:36 Speaker 04 Yeah, yeah.
15:36 Speaker 07 They are embracing candidates who are offering new bold ideas in the absence of those ideas from establishment Democrats.
15:44 Speaker 04 This week on America Actually, Gen Z researcher Rachel Jamfaza joins us to separate Gen Z fact versus fiction.
15:52 Speaker 07 It's not rocket science. And this is, you know, I keep saying like, gun voters aren't that complicated. After all, it's pretty simple.
15:57 Speaker 04 Catch us every Saturday on YouTube or wherever you get your podcasts.
16:08 Ed Elson? Welcome back. Here's our conversation with Josh Brown, co-founder and CEO of Ritholtz Wealth Management. Josh, thank you so much for joining us.
16:15 Josh Brown? It's a pleasure as always.
16:19 Ed Elson? So the Dow closed above 40,000 for the first time ever on Friday. S and P was up one and a half percent last week. Nasdaq up 2%. Generally, just a very broad-based rally that we're seeing across pretty much every sector right now. So just, I'd love to start with a pretty high level question. What's your general read on investor sentiment in the stock market right now?
16:43 Josh Brown? So my general read now and forever is that sentiment follows price. It never works the other way around. So of course sentiment is improving because prices are going up. People are being rewarded for things they're buying relatively quickly, and that makes them want to buy more things. This is not really a market story. This is a story of human nature. Volatility is low. We've had a pretty successful earnings season. Earnings ran about 8% higher than than the prior year, which was better than the Wall Street expectation. And even though you had a few individual company blowups, if you looked at the share
17:25 Josh Brown? price two to three days after those individual earnings reports, you saw stocks regain everything they lost relatively quickly. Netflix is a great example of that. I can give you five or six other high-profile examples where a company reported earnings
17:41 Josh Brown? The media said it was a quote unquote disappointment on guidance. Stock fell five, six percent. Couple of days later, it was like nothing happened. Share prices bounced immediately. That's indicative of a market that is being relentlessly accumulated. And investors are willing to look past things like, you know, revenue shortfalls or lowered guidance. Because in the end, they want to be long stocks.
18:06 Ed Elson? Do you think this has anything to do with inflation as well? I mean, we've had this somewhat positive inflation news. CPI ticked down a little last month. It's now at around 3.4%. Meanwhile, you've got most fund managers expecting a rate cut this year. I think the number is actually eight out of 10. Does this have to do with inflation as well? And how are you feeling about our inflation progress at the moment? Are you pleased, disappointed, optimistic?
18:31 Josh Brown? So there's very little change in inflation month to month. It's, it's, it's, we're talking about one tenth of a percent up or down. So the inflation rate, while higher than we'd like, has actually been fairly steady. And again, it's, it's not anywhere near the Fed's target. It's three and a half percent. The Fed is repeatedly pounding the table that they are not satisfied until they get 2%. But the thing is, it's not moving. And I think that lack of rate volatility, to answer your question, absolutely does help to improve sentiment. Everyone understands that the trajectory is still lower, but the last mile is pretty slow going.
19:12 Josh Brown? The big picture thing that happened in the last couple of weeks, though, that I think led to Dow 40,000 was an employment report that was cooler than expected. In recent months, the employment numbers have been coming in higher than expected, which freaks out the market a little bit because the market starts worrying, uh oh, what if they don't cut rates? Or what if this continues and they actually have to raise rates? I think the last employment report took that off the table to some extent. And in the meanwhile, the economic data is solid with moderating inflation. That's a Goldilocks scenario. And for as long as it continues, I think stock prices will remain buoyant.
19:53 Ed Elson? How much does this matter? I mean, we've been paying attention to rate cuts and interest rates so much this year. And one conversation we had with Aswath Damodaran is that this is kind of a new thing, our obsession with every single Fed meeting. Just you as a wealth manager and investor, how much do you care about all this?
20:11 Josh Brown? Well, I hate it because I come from a different time. I come from a time when Alan Greenspan would deliberately go out of his way to say absolutely nothing. He would give, he would give testimony in front of Congress twice a year. And he would speak in as obtuse. It was almost like listening to the Caterpillar from Alice in Wonderland speak. It was, he would talk Congress in circles and they of course had no idea what he was saying. And that was the point. And that gave him the, the room to do what he wanted to do. And he wasn't always right in everything that he wanted to do. But there on CNBC in the 1990s, they would film him walking across the street
20:54 Josh Brown? from the Federal Reserve to Capitol Hill. And they would try to get a gauge of how thick his fucking briefcase was.
21:01 Ed Elson? Which means what?
21:02 Josh Brown? How many papers were sticking? I'm not, you can Google this. How many papers are sticking out of Greenspan's briefcase? And that would be some sort of indicator of whether or not he was going to cut interest rates or hike interest rates. So I like that better. I don't like 12 Fed governors roaming the country, looking for lecterns to talk for an hour in front of. I, I think it's, it's a Tower of Babel. It, it sends the media into, into hysterics. They're parsing every, um, every word and every phrase in every one of these speeches. And in the end. Like the Fed keeps saying we're going to be data dependent.
21:44 Josh Brown? So, you know, I wish it would stop and, you know, maybe we're going to get to a place where it calms down and we don't hang on the Fed's every word, the way that we have been, but the start of a cycle, whether it's a hiking cycle or a cutting cycle, it does lend itself to this kind of parlor game where everybody tries to nail the timing. So we'll, we'll get the first rate cut at some point before the end of the year. It'll be largely symbolic because there's absolutely no emergency, there's no need for the Fed to get easier. Federal Reserve generally does not need to be cutting at full employment with a stock market at record highs and a real estate market on fire. It's just like, we're cutting to do, to accomplish what? So, you know, it'll, it'll be symbolic, but I think we'll get it.
22:28 Josh Brown? And then maybe everybody will stop crying.
22:30 Scott Galloway? It reminds me of my favorite economic indicator. My colleague David Yurmac used to track the tail numbers of private jets of CEOs. And if they were scheduled to go to some, you know, fat, warm place like St. Bart's Anguilla the day after an earnings call, he would say that means the earnings call is going to be good.
22:47 Josh Brown? I like that. I don't hate that.
22:49 Scott Galloway? It was, it was found that there was a correlation based on if the guy was going on vacation after the earnings call or if he was staying at the office. Anyways, the rally here is a global rally. It's Brazil, it's India, it's Canada, it's Japan. Do you see this as, so, and maybe I'm being too reductive here. I think of things as either being cyclical, animal spirits, people going on margin, going all in, you know, spending their, spending their student loans, taking out student loans to buy stocks. Or do you see it as structural? The market over the medium and long term tends to be up and to the right because of demographics and productivity. Do you think this is what you would call a healthy rally? Or do you think we're inflating somewhat of a bubble globally? Because this is more than just the US.
23:32 Josh Brown? So what's interesting is in Europe, they'll be doing a rate cut also. And in, in Japan, they've managed to stoke some inflation. They've been trying for four decades. They finally got a little bit, which psychologically is important. Japan has been in this. State of paralysis due to disinflation and outright deflation. Now, all of a sudden, if people have a sense that there is like some positive price growth in the economy. It leads to more investment, it leads to more urgency. And on balance, it's a really great development. So you've so if if you've got Europe and Japan, the two large developed markets in the world with stock prices acting in concert.
24:16 Josh Brown? And then you add in the reforms in China. They want to at least appear as though they're more stock market friendly. One of the things that Larry Fink from BlackRock did with his annual letter to shareholders is he explained the difference between the recovery from the great financial crisis that the United States has experienced versus all of these other global markets. And he ascribes it to in the United States. We we have a stock market that has been a powerful driver of behavior and incentives and investment and spending. And in these other places, the stock market is just not as important. And that's the thing that global leaders now I think want to change.
24:59 Josh Brown? So China threw out the head of its securities regulator. Coincidentally, that is the week that the Chinese stock market bottomed. It's up substantially since then. In Japan, more stock market friendly measures to get retail investors interested. That's taking place in Europe. If you look at the way Macron is talking in France. His whole invest in France initiative. These countries have figured out that if they fix their investor class. All of the dominoes will then fall in their actual economy. And of course, these things take time and there are some cultural reasons, but Scott, to address what you're saying. Yeah, this is much bigger than just Apple and Nvidia driving earnings in the S and P 500.
25:42 Josh Brown? There is an investment wave, there was an investment cycle taking place all over the world. And investors are returning to equities again. And that's a really powerful thing when it happens on a global synchronized basis.
25:55 Scott Galloway? Where do you think bonds are relative historically?
25:58 Josh Brown? Well, I think that bonds have largely been pretty wrong in this cycle. So if you, if we think that's where the smart money is, you look at these wild moves in rates in both directions. What that's telling you is that fixed income market, that volatility, the fixed income market has absolutely nothing to be confident about in its own ability to handicap what the central bank will or won't do, what the inflation rates will or won't be. So I, I don't think that either market is particularly the smart money. One thing that I guess you could say is that stocks have gotten this moment more correct than bonds have. If you just look
26:42 Josh Brown? at what's happened since the market bottomed in, in 2022, it almost perfectly timed and discounted the recovery in corporate earnings. So the bears in this cycle, the main thing that they've gotten wrong is not the macro, the bears got the, the stock market bears, got the earnings situation wrong. They underestimated the extent to which corporate America would find a way to grow profits, find levers to pull, layoffs to do, cost rationalizations, cutting spending. They just systematically underestimated that capability. So now you have some of the fastest earnings growth in years. If you annualize what we've
27:27 Josh Brown? seen over the last quarter, almost no one expected it. No one's numbers were where they were supposed to be. So that's on the stock side. On the bond side, look, I think right now overnight rates are incredibly appealing. What wealth managers like myself are trying to do though, is extend durations and explain to clients that we are now at a juncture where you might want to give up a little bit in nominal yield in a portfolio in order to lock in a fairly high level of income for a longer stretch. And I think that that's going to play out now across portfolios all over the world, whether we're talking about insurance companies or individuals and everything in between. If you say to yourself,
28:10 Josh Brown? look, yes, it's great. I can get 5.1% on an overnight rate. The thing is, on the first time the Fed cuts interest rates, that rate is no longer going to be there and then I'm going to have roll risk. If you could extend out that duration to one year, two years, three years, and start thinking longer term, even if you're accepting four and a half percent or 4.75% as you extend, you're giving yourself a lock-in that's longer and you're reducing the risk of having to roll those bonds when they mature at what could be a much lower level. So I think if you ask wealth managers like us, how are you approaching the fixed income market right now?
28:55 Josh Brown? We are trying to work with clients to accept the trade-off. We want to lock in a good rate, not focus so much on what the overnight rate is and obsess to the detriment of later performance.
29:09 Scott Galloway? Have you changed your recommended ratio of stocks to bonds? I mean, I'll put forward a thesis and then answer that question. For a long time, for a decade plus, it seemed as if you really weren't getting paid for the risk you were taking in bonds. And now it feels like you are getting paid. And A, do you believe in that? And B, if so, have you changed the ratio or the recommended ratio where your clients put their money equity to credit?
29:32 Josh Brown? So we haven't changed the ratio. But what we have done in 2020, we put out a letter saying exactly what you just said, where we explained to clients, there is no benefit to holding longer dated bonds if they're yielding the same amount as shorter dated bonds. I mean, for us, it's not like, we're not a hedge fund. But we made this fairly aggressive change in fixed income allocation so that we would be much, much, much shorter duration. And we weren't really giving up anything on yield. In February of this year, we made a change. So we put out a letter to clients in February explaining why we are now going to be lengthening our duration in bonds because right this minute,
30:15 Josh Brown? there is no benefit to longer duration, but we think there's a doubt to be. And so that'll come as a consequence of overnight rates being cut. It won't have an immediate impact right now on client returns, but we're not really trying to time the market. What we're trying to do is do the best with what the market has to offer. We have to have considerations about not just what's the most nominal yield we can collect right now, but what is the way that we can make sure a portfolio is durable enough and prepared for any environment going forward?
30:49 Ed Elson? I want to shift slightly to, you mentioned Nvidia earlier. I'd like to ask you about Nvidia. Last week, we were discussing AI and we were discussing the possibility that this is a bubble, as indicated by just the massive levels of speculation that we're seeing, both in the private markets and the public markets. And Scott made this comparison to Cisco, which is that, you know, back in 1999, the safe bet for the internet boom was this company that would be providing all this infrastructure to power the internet, and that company was Cisco. But if you invested in Cisco, you got burned around 90%. Could that perhaps, could AI perhaps be the next shoe to drop?
31:30 Ed Elson? And do you think there's a possibility that Nvidia could be the next Cisco?
31:35 Josh Brown? So the Nvidia-Cisco comparison is very popular and people have been making it for four years, and that's been a huge money loser.
31:43 Scott Galloway? No, it's not. It's fucking genius and original, Josh.
31:47 Josh Brown? Rob Arnaud made it on stage with us at Future Proof last year. And the similarity is, everybody has to own Nvidia, just like everyone had to own Cisco, because Cisco was the backbone of the internet. So if you believed in the technology, then you had to believe that Cisco was a good investment. That's true. Here's where things are different. Nvidia has actually gotten cheaper since the AI boom started, which took place in, ChatGPT was introduced in November of 2022. Nvidia has gone from like 60 times earnings to 50 to 40 to 30. Why does it keep getting cheaper?
32:28 Josh Brown? Because the spending that every company and every government organization, everyone on earth, is now basically being forced into doing, that that spending is what's fueling the earnings growth in Nvidia. Cisco got more expensive because that earnings growth did not materialize. And why not? Cisco was a beneficiary, like many other high-tech companies of the time, of this capex explosion due to fears surrounding Y2K. People don't remember that this was a real thing. Literally, there was a global prank called Y2K that a handful of scientists played by saying planes were going to fall out of the sky
33:13 Josh Brown? if everyone didn't upgrade their equipment and software. Not next year, not in two years, today, right this second. Unfortunately, Wall Street took that capex boom and extrapolated it out into infinity. And when the clock turned over from 1999 into 2000, we really didn't have planes fall out of the sky. And please believe me that I'm not joking. Spike Jones directed a Nike commercial, and it was a jogger on New Year's Day with planes falling out of the sky and houses exploding. This was a true driver of a capex bubble that fizzled out in the year 2000. It's not coincidental that the Nasdaq topped in March.
33:56 Josh Brown? So, that didn't happen this time around because it's not an artificial capex boom being driven by fears of planes falling out of the sky. It's a legitimate race amongst some of the largest companies on Earth, including not just the United States, but China as well, to be positioned for the next technology wave. Everyone involved here is old enough to have been involved in the internet boom. And the thing they remember was eventually the land grab. If you didn't grab your land, you were out of the game. So, Apple, Microsoft, Alphabet, Amazon, these companies literally have unlimited amounts of capex,
34:38 Josh Brown? and their spending generates spending amongst everyone else, all of their customers. So, you have these hyperscalers, and you have all of the companies that are working with the hyperscalers in a race to acquire GPUs and build out their AI services. We're going to modernize $2 trillion, they say, worth of data centers so that they are GPU, AI-capable data centers. And that's why Nvidia's earnings are going up. Whereas Cisco's did not. So it's a great comparison until you understand the fundamental difference in spending patterns.
35:16 Scott Galloway? My sense is every company you speak to is spending money and a lot both financial and human capital and trying to figure out how AI is going to upgrade Nabisco's business, right? Every company has been tasked with figuring out how AI is going to help Chipotle be more efficient or whatever it is. And if AI doesn't prove to be kind of the game changer that I think a lot of people think it is across every company, at the first indication that a lot of these companies don't feel like they need as much AI, they don't need as much compute, and then these GPU sales just level out, could you see, you know, a pretty serious drawdown? Because the number I saw that scared the shit out of me is there's been a $2.5 trillion increase in market capitalization around the four
36:01 Scott Galloway? big cloud companies. And that's across a variety of dimensions. Their businesses are really robust. But the actual incremental revenue increase that these AI LLMs have inspired is about 20 billion. So you have 120 times revenue based on pretty serious expectations. That you don't see that playing out.
36:20 Josh Brown? Oh, no. I actually 100% agree with you. And there's two other elements to this that I think are even scarier. So I point out that Nvidia has gotten cheaper on earnings, which is true, to distinguish this from Cisco. But I think the risk here is an air pocket, and Nvidia will be the last company to see it coming. So by air pocket, I mean exactly what you just described. There could come a moment, and some people say it's guaranteed, and some people say, we'll see. But there could at any time come a moment where there's
36:56 Josh Brown? enough customer feedback at AWS, or at Alphabet, or at Oracle, where the customer feedback says, look, thank you for all these tools and all this compute that you're offering us, but there's just no ROI from it, and we're going to slow down. Nvidia is the caboose. They are the component supplier to this. They will be the last to know. You'll hear one CFO make one comment. Actually, some of these plans that we laid out for scaling up, blah, blah, blah. Uh, a- actually, here's our new guidance and it's lower. And then other CFOs will hear that and they might say, you know what?
37:39 Josh Brown? If Microsoft's not going to spend at breakneck speed next quarter, maybe we aren't either. And you absolutely could see this convulse through the S and P 500. And I think that is the biggest risk to the market right now, the number one risk. An air pocket where all of a sudden Jensen Wang comes out and says, look, it's very early on in AI. And some of the spending that we thought would materialize in Q3 is getting pushed out into Q4. As companies reassess their plans. That stock price is not ready for that. That's a, that's a 20%. That's a 20% haircut instantly. So we are, right now, we are pricing the largest technology companies
38:24 Josh Brown? on the premise that there will not be an air pocket. There will be no slowdown, there will be no hiccup. And if one materializes, Nvidia will be the last to hear about it. And so I think if your portfolio is full tilt AI, you're putting yourself in a position where you're probably going to take more pain than you need to. The other thing, Scott, is it's really incestuous. My spending is your income, your, your, your earnings growth. Your earnings growth is my spending. And we are seeing the, the seven largest market cap companies basically giving contracts to each other. And it, there's no such thing as a perpetual motion machine.
39:09 Josh Brown? No one has ever invented one. So at, at a certain point, something exogenous will stop that if it's not being stopped internally.
39:18 Ed Elson? We'll be right back.
39:30 Speaker 04 AI panic is everywhere.
39:32 Speaker 03 We do not want a data center in this county.
39:37 Speaker 09 AI models are becoming superhuman in their ability to break in and out of computer systems. The flock damn rose, bro. I hate those things.
39:44 Speaker 04 But where is that panic really coming from? According to a poll from the New York Times and Sienna, less than 1% of voters listed artificial intelligence or data centers as their top priority in this year's midterms. I'm an old school person. I don't care about AI. Saying that doesn't register for you. And sometimes I wonder, do they care about AI in so-called real America? What people in my district are saying is, we think the risks outweigh the benefits. This week on America Actually, I'm talking to Michigan congressional candidate Will Lawrence on why he shaped his entire campaign around confronting the AI revolution. Really, it's about control, I think, above all. Who decides?
40:26 Speaker 04 Because people feel like they just are not really given any say so in the whole matter. Catch us every Saturday on YouTube or wherever you get your podcasts.
40:39 Ed Elson? We're back with property markets. This conversation's been so interesting because we started out, it appeared that you were quite bullish on AI and you were talking about the fundamentals and the idea that it is a land grab and something is going to come of this. But then, as you described, the incest and this perpetual motion machine concept, the situation feels actually extremely dire based on that characterization. And, you know, last time we spoke, we were sort of talking about, oh, is a recession going to happen? Do we know? And you said, well, no one knows. But what you pointed out is that it's going to take a shock to the system. There has to be one exogenous event that occurs, and that's what would trigger the recession. That's the only thing we know.
41:25 Ed Elson? The thing that you just described, the story that you just told, that feels to me like that could easily be the shock. So I'm just wondering how you're. How you're computing those two thoughts at the same time.
41:39 Josh Brown? Ed, we had a recession, we had a recession caused by, caused by the hangover of Y2K in, in 2000, which I won't rehash the whole thing, but there was this capex explosion that was then not repeated. You had a lot of jobs and startups. You had a lot of economic fuel coming from the instantly wealthy people who were benefiting from this dot com slash wireless telecom bubble. And when it went away, it slowed down a lot of spending. It was not a catastrophic recession. If, if you were Scott, if you were Scott Galloway, it was, but, but for most people,
42:14 Ed Elson? wasn't it?
42:15 Josh Brown? If you didn't, if you didn't live in Silicon Valley, it's very possible that you just like had a normal life and didn't even notice. So statistically, it was a true recession. It was multiple quarters of, of GDP growth in contraction. But it was not on a par with what we experienced five years later in 2007, 2008, the onset of that. What was interesting about the 2000 recession is that two horrible things happened on the heels of that capex bubble meltdown I described. Both of which, uh, one of which is definitely an exogenous shock and the other is kind of a stock market related shock. So just, just humor me on this. It's, it's worth getting into.
43:00 Josh Brown? The first thing that happened was this dot com bubble meltdown. The NASDAQ fell 90%. That was catastrophic for people working in the high tech industry and people working on Wall Street. The investment banking machinery just ground to a halt. There were no more IPOs. There was no more M and A. It was just a disastrous time for capital formation, for venture, for, for tech. Okay. But then here's what happened on the heels of that. Because of that stock market meltdown, everybody started to ask more questions about their investments in general. And two massive frauds were uncovered. One was Enron. The other was WorldCom. These contributed to a sentiment depression for stocks.
43:42 Josh Brown? Which prolonged the negativity of that economic cycle. Nobody trusted anyone anymore. Arthur Andersen, the largest accounting firm in the country, was literally forced out of business. WorldCom was one of the most widely held stocks. It was MCI. It was the equivalent of what Verizon and AT&T are today. Enron was one of the largest publicly traded companies, a giant utility. If you can't trust the phone company and the gas utility as investments, what the fuck else would you invest in? So this was a malaise that hung over the beginning of the millennium and had a real sentiment and therefore fundamental impact on markets.
44:22 Josh Brown? And then, as if that wasn't enough, into the same stew, we had 9/11. And so, that cycle, that cycle had these highly specific exogenous shocks. And I think, to answer your question, the next one was, well, but can Nvidia crashing on the stock market cause an economic recession in the real economy? I'm not so sure about that one. So that could be catastrophic for the stock market, but it doesn't necessarily rise to the level of shock that you're describing that would spill over into the real economy and cause a recession.
45:03 Josh Brown? I suppose it could, but to answer your question, I don't think that that's the thing. That's not the thing that I think causes the next big economic event. I think it'll be a big, a big deal on the stock market. It'll cause valuations to realign. It'll definitely hit venture valuations. It'll definitely change attitudes, but you know, I don't think that's the catastrophe that everyone seems to be looking for.
45:27 Ed Elson? I have in my notes here, discuss meme stocks. So yeah, so just to rehash, you know, GameStop shares surged, so did AMC, so did a few other meme stocks. Those shares are now basically coming back down to earth. You know, I'm sure the first GameStop saga was a surprise to you. I'm wondering, did this one catch you off guard as well?
45:52 Josh Brown? The only comment that I would really make on this is that the sequel is never as good as the original. With the exception of Empire Strikes Back and Godfather 2.
46:00 Ed Elson? Aliens.
46:01 Josh Brown? This was never gonna run. Okay, there's some exceptions, but. As a general rule, I don't think that anyone should have thought that we were going back in time to 2021. By the way, same reason I don't think the quote unquote tech bubble today in any way echoes, you know, what went on in the year 2000. I think there are bubbles at all times and, you know, in 2021, we had a SPAC bubble, we had a crypto bubble. These things will crop up. So what's happening today is a little bit of an echo of 2021 with the meme stocks, but it's not going to rise to that level. It ain't going to be on Saturday Night Live. It's not going to be as much fun on Twitter.
46:43 Ed Elson? If it is a permanent feature of the markets, how important is it for you and for other investors?
46:49 Josh Brown? It's not.
46:50 Ed Elson? To be paying attention?
46:51 Josh Brown? It's not because these waves will ebb and flow and I'm not a hedge fund. We're not shorting stocks. It's not what we do. We're not at risk of this stuff. One thing I'll say is that I was there for the birth of the original meme stock. It was a company called Io Omega.
47:07 Ed Elson? Oh, yeah.
47:08 Josh Brown? It had captured the attention of investors on message boards. This is prior to social media. So this is mid to late 90s. It was the first time investors had a venue from all over the country, all over the world to exchange comments with each other. Prior to that, it was people sitting in the waiting room at a brokerage firm, looking at the TV. You would talk to two people at a time about the markets. This was hundreds of thousands of people who would wake up, go on the early version of the internet message boards. It was a site called Raging Bull. There was Yahoo Finance. There were a small handful of places that you could go and you could talk to people for the first time about the stocks that you were interested in.
47:52 Josh Brown? Io Omega was a penny stock that basically got taken up to a massive valuation. You had people on these message boards goading each other into buying more. You had people doing their own homespun due diligence, like driving past the corporate headquarters parking lot and putting up messages about how many cars were in the lot. And it was a lot of fun. That was the first meme stock and that predates Twitter. And it predates Facebook. So this is not new. It's not a new phenomenon. And so I don't think we should treat it as anything novel or unique. There are unique aspects to it. The scale of it obviously grows with the scale of the internet. But people have been doing this since the bucket
48:34 Josh Brown? shop days 120 years ago. And Jesse Livermore would somehow orchestrate it so that an entire room of bucket shop brokers and traders in St. Louis would all get excited about the same railroad stock at the same time. And the results were no different than what we saw with GameStop and AMC.
48:52 Scott Galloway? Josh, what what do you think the media is missing in the investment markets? What do you what do you think is going to be a story that people aren't talking about right now?
49:00 Josh Brown? I think we're on the verge, we're in the process and on the verge of creating more multimillion dollar households, 30 something households and 40 something households than ever before in the history of America. When you look at 401k balances, when you look at the rate of accumulation, people have enjoyed as a result of stock options, stock-based compensation. When you look at liquidity, you look at salaries, millionaire is now going to be like this generic catch-all for the middle class. One of the things that you talk about a lot, Scott, and I try to
49:40 Josh Brown? talk about as well is if you're not somehow in the stock market, even if that just means the company you work for is giving you stock, or you're not in real estate, you literally have no chance, no chance
49:53 Scott Galloway? You're missing out.
49:53 Josh Brown? to to to live in the world that is currently under construction. We are building a system where if you don't have financial assets, you just are not going to be a part of it. I know a lot of people are trying to address it. I talked to Brad Gersner a bunch about issuing issuing stock market accounts to babies at the time of their birth. But like in the end, we have to figure out how to make everybody an owner in this economy and give everyone the opportunity to enjoy the growth of profits. Because if we don't,
50:27 Josh Brown? The bifurcation that we've experienced thus far is only going to get worse. We are going to have an explosion in middle-class millionaire households like nothing we've ever had before. It's going to reshape the economy. And if you're on the outside of that, it's going to be really problematic, not just for you, but for subsequent generations. And I think about that all the time because of where I sit. I talk to current and potential investors. And when you hear people's stories, how they got to their first half million dollars, how they got to their first five million dollars. You just realize like this is what everyone's going to have to be able to do.
51:08 Josh Brown? The prices in the economy, the costs, the inability to invent more hours during which to work for hourly pay. It's just going to engender the situation where you're going to need to have a portfolio to fund the lifestyle that you want to live.
51:25 Ed Elson? To follow up, last time we had you on, Josh, you gave me some really great advice around investing. You told me.
51:29 Josh Brown? Buy Nvidia.
51:30 Ed Elson? Yes. Buy Cisco.
51:36 Ed Elson? You told me, stop rooting for the for the market to rally. Because as you correctly pointed out, I'm young, I'm in buying mode. I should be rooting for cheap stocks. And I thought that was really great advice. I'd love to ask for just to end just one more round of advice. Lots of college graduations happening this week. What would be your advice to any graduating seniors who might be listening right now?
51:58 Josh Brown? Make yourself useful. This is the single best advice that I ever got, and I try to pass this on. You come into a situation, get a job, you have people above you. Point blank, go to the person that you directly report to and say, what is the worst part of your job? What do you hate doing the most? I'll do it. Give me the worst 10% of your job and then ask for more. Okay, I'm now doing the worst 10% of your job. I want the next worst 10% of your job. What is the thing you could train me to do that I can make it so you never have to worry about it again? Once you're doing the 20% worst part of someone's job, you are indispensable.
52:40 Josh Brown? You are imminently useful and they cannot live without you. If you carry yourself that way in your twenties, by the time you're in your thirties, you're gonna have people begging you to do the worst part of your job. That is, from my perspective, the number one thing that young people mostly don't seem to understand. They're more worried about the amenities of their job. You have to be useful to the people above you. And one day, the people younger than you will be begging to be useful to you.
53:14 Scott Galloway? Josh Brown is the co-founder and CEO of Ritholtz Wealth Management, a New York City-based investment advisory firm managing more than $4 billion in assets for individuals, corporate retirement plans, and foundations. Josh, you know this, we love having you on the show. Thanks for your time.
53:27 Josh Brown? Thanks, Josh. Thank you guys so much. This has been so much fun.
53:38 Ed Elson? Algebra of wealth. Scott, you often tell young people not to follow their passion, but to follow their talent. Can you break down what you mean by that and how it relates to attaining financial security?
53:50 Scott Galloway? Well, we are really squeezing as much juice out of this lemon as possible. That's literally gonna be on, it's literally gonna be on my tombstone. Don't follow your passion.
53:58 Ed Elson? I'm pretty sure it's on your Wikipedia page. Scott Guy is a professor of marketing. He says to not follow your passion.
54:05 Scott Galloway? Yeah, yeah, could be, could be worse. At least it doesn't say I was like a priest that was defrocked. That's what I want to be known as. I don't know where that came from. Uh, look. Here's the thing, and I've said this, the person telling you to follow your passion is already rich. And the majority of people who got wealthy did it in a fairly boring industry. Young people often mistake their hobbies for their passion. I wanted to be quarterback of the Jets. And then I thought, well, maybe I can, you know, write films or some of their write scripts. And then what I realized is that, okay, I'm a really mediocre athlete. I'm not that talented at that point at writing. I wanted to be an investment banker because it sounded really romantic. I wasn't very good at that. I kept workshopping, and this is your job in your twenties, to keep workshopping until you find something that you have some
54:50 Scott Galloway? natural ability at, that you could be great at. And here's the key part, has a 90-plus percent employment rate. And the good news is 98% of industries do have a 90-plus percent employment rate. The romance vanity industries have a 90-plus percent unemployment rate because every kid initially wants to follow their dream and open a restaurant, or be a DJ, or pursue their career in fashion. So there are too many people, which means the few companies that make it in those industries can pay those people next to nothing. And I don't want to crush anybody's dream. If you want to be an athlete, if you want to be a fashion designer, if you want to have a jewelry line, whatever it might be, fine.
55:32 Scott Galloway? But set, ring fence it with a certain time limit. And if you aren't getting flashing green lights, that you're in the top 0.1%, which you will need to be, then try and find something where you can be in the top 10% in an industry that has a 90-plus percent employment rate. SAG-AFTRA is the union for actors, and 87%, this is the most talented 180,000 people in the world in the field of acting. And last year, 87% didn't qualify for health insurance because they didn't make more than $23,000. Whereas the millionaire next door opened a car wash and then bought another one. Be a DJ on weekends. Find something you're good at, that you could be great at, and then the- The money, the accoutrements, the prestige, the camaraderie, the relevance will make you
56:14 Scott Galloway? passionate about whatever that thing is. Get passionate about economic security, taking care of your kids, taking care of your parents, and living a wonderful life, which a capitalist society offers to anybody that makes good money, regardless of how fucking lame it sounds.
56:32 Ed Elson? And don't become a business podcast co-host. Okay.
56:37 Scott Galloway? There you go. But you're in the top 0.1%. You're in the top 0.1%. You would describe this as a sexy business? Do you think this is a vanity business?
56:45 Ed Elson? It's on the cusp. It's almost. It's kind of, kind of. We kind of want to be sexy, but not quite. I mean, it's, yeah. I love my job.
56:54 Scott Galloway? But let's just, let's just double click on this. Podcasting, right? There are 1.7 million podcasts. 1.7 million podcasts with people writing, producing, recording, editing, distributing. I mean, this is, this is, it sounds easy, it's not, right? It's real work. 1.7 million. How many do you think are profitable? And I don't know the answer, I'm just going to guess. Of those 1.7 million, how many do you think are profitable?
57:20 Ed Elson? I don't know, mate. I mean, I've, I've heard from you, it's the top 1%. Something about the top 1%, but I don't know. I would guess maybe 1,000, 10, 10,000? That's probably too much.
57:32 Scott Galloway? Okay, 1% would be 17,000. There's no, there's no way.
57:36 Ed Elson? Yeah, yeah.
57:37 Scott Galloway? The number 17,000th most downloaded podcast is not hemorrhaging money. I would bet optimistically, optimistically, it's the top 1,000. So that's the top 0.01%. In other words, it's about probably the same as being a professional basketball player. And by the way, and you know, this is a flex, we're in the top 100. We're in the top 0.0005%.
58:04 Scott Galloway? So right now, you're not Kobe Bryant, you're not Michael Jordan, but you're Scottie Pippen. So it's a great life for you. But be clear, folks, don't go into podcasting expecting to be that.
58:15 Ed Elson? I just want to point out that if I'm Scottie Pippen, I think you basically just call yourself the Michael Jordan.
58:19 Scott Galloway? Oh, 100%, 100%, 100%. I think I'm more like, I'd like to be Rex Chapman. I like him. He's soulful. Went through a pretty big crash, but came back and is now helping people. I'm the Rex Chapman of podcasting. I would take that.
58:35 Ed Elson? I think Rex Chapman is the Rex Chapman of podcasting. He's got his own podcast.
58:38 Scott Galloway? That's right. He's doing really well, isn't he?
58:39 Ed Elson? You already took that.
58:41 Scott Galloway? He's doing really well.
58:41 Ed Elson? Stick with Michael Jordan. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producers are Jason Stavas and Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thanks to the Fundrise team for their support and thank you for listening to Prof G Markets from the Vox Media Podcast Network. We'll be back with a fresh take on markets on Monday.
Previous GameStop & Market Manipulation + Is AI Becoming a Bubble, and Is Nvidia Safe? Next Nvidia’s Blowout Earnings & Stock Split + Britain’s Damaged Economy Page updated October 6, 2026 · transcript and summary are machine-generated
