The Compound and Friends
00:37:47 · Michael Batnick, Alex Altmann, Josh Brown
[00:37:47] S2: Yeah. [00:37:48] S1: In the sense that we're having few... We've had fewer IPOs and more buybacks. So by definition, there's less available stock to trade. Right? So with those combination of factors plus the ballooning of AUM plus leverage from PBs on top, you end up with this crowding out effect. And everyone will say, oh, okay. Hang on a second. It doesn't matter because I've neutralized everything. No. All you've done is push the crowding into other aspects of your portfolio that you are either aware of or unaware of. Right? And this really matters because when you've ballooned the size of the number of strategies, so to speak, you're creating more of these vicious... The propensity for these vicious unwinds. [00:38:24] S0: So every... Everyone unwinds one aspect of a portfolio at once. It hits the stocks three times harder than it otherwise would have. [00:38:31] S1: Correct. Which is why you're seeing very little index vol and an absolute ton of factor vol, single vol, negative correlation. Yeah. [00:38:40] S2: And you see what the stocks that are like... Obviously, Spotify and Netflix are related ish, but for a year, it was the exact same chart, like, identical. And there's a million different stocks like that that trade... That just trade... They're just in the same basket of stocks that people are buying and selling.
00:38:40 · Michael Batnick, Alex Altmann, Josh Brown
[00:38:40] S2: And you see what the stocks that are like... Obviously, Spotify and Netflix are related ish, but for a year, it was the exact same chart, like, identical. And there's a million different stocks like that that trade... That just trade... They're just in the same basket of stocks that people are buying and selling. [00:38:56] S1: Correct. And and by the way, a lot of those people are actually just computers. Right? So you got obviously very sophisticated quant funds that are running sort of real time stat ARP strategies that are looking for the one day or even intraday, you know, price differential. They can play mean reversion. So there's those playing the super short term stuff. You've got the discretionary alpha guys, which are looking for time horizons I'm which is called... Let's call it three to six week, and that's generally on single stock pairs as well for mean reversion around earnings. That's why on earnings day, the majority of of a single stock flow is coming from discretionary. And then on non earnings day, vast majority is coming from quant and retail. [00:39:29] S0: In the media, people are looking at the preponderance of all of this data, and they're coming up with the story that explains it to non market participants who don't appreciate the degree to which this is computers trading with computers. [00:39:43] S1: Yep.
00:39:43 · Alex Altmann, Josh Brown
[00:39:43] S1: Yep. [00:39:43] S0: And it sort of remind... I taught I taught my my daughter... My daughter had a a unit, I remember, in elementary school. They were learning about Greek mythology. So she's, like, sitting reading this book. She's like, she can't make heads heads... Why are they giving us fairy tales to read? I said, you don't understand. This was science. Like, why does the sun rise in the East and set in the West? Oh, it's because Apollo on his chariot is being pulled across the sky, and he's glowing, and so that's the sun. Why is there an earthquake? The gods are mad. You did this. Why is there a volcano? Like, this is what humans do. They need... Even if it's absurd [00:40:24] S1: We have to [00:40:24] S0: explain they have to explain it. So in the media, they're looking at the net result of all this stat arb and everything that's happening. That's not a satisfying explanation. Why did the market change its mind about AI today is yes, and because, and then they find a headline that explains why it changed its mind. [00:40:44] S1: I mean, this is the shameless plug to to to, like, the team. You know? Like, the the whole point of why we exist is to kind of... We The bet... [00:40:52] S0: The bets [00:40:52] S1: team. Yeah. The bets team at Barclays. Like [00:40:54] S0: How many of of you are there? [00:40:56] S1: Globally, now we're 11. [00:40:57] S0: Okay. [00:40:58] S1: So we've got three in New York. We've got three in in London, and we've just hired additionally in Asia. So we've now [00:41:06] S0: got five So 11 people on the bets team?
00:41:06 · Josh Brown, Alex Altmann, Michael Batnick
[00:41:06] S0: got five So 11 people on the bets team? [00:41:08] S1: So for now. [00:41:09] S0: Yeah. Now is it true you guys are allowed to kill? [00:41:12] S1: We we are we are Okay. Kill only. Okay. Yeah. Capture only. Yeah. Kill. Yeah. Okay. We're not we're not in the capture business. [00:41:18] S0: Okay. [00:41:18] S2: What do you do about earning season? So, like, for example, today, ServiceNow is down 27%. Is there, like, a blackout period where you're like, alright. We're just... What we do on the tactical side does not work when there are these major announcements? [00:41:32] S1: It's a really good question. So, this is why maybe one day bets will be 12 or 13 because we wanna get more involved in the single stock business. I mean, Barclays has phenomenal spec sales that cover specific, you know, sectors and so on and so forth. That's that's their business, and we partner with them. But from a kind of macro thematic perspective, we tend to stay out of way. So for for me, earning season is an environment where [00:41:56] S0: It's landmines. [00:41:57] S1: Yeah. There. That was the word I was trying [00:41:59] S0: to There's almost no Tactical. There's no structure there's no structure to it until you put one on it. Like, you can't... The traditional way of thinking about how stocks are trading, then a company comes out and a random con... Comment in a conference call could, like, take a stock from being up 10% to down 10%. [00:42:17] S1: Totally. Look. [00:42:18] S0: Can't model that.
00:42:18 · Alex Altmann
[00:42:18] S1: The the only the only time where we really get involved in any season is the fact that equities... I mean, to the benefit of my career, equities have become more macro. Right? AI is a macro theme. Yeah. Right? Hyperscalers are no longer just institutional securities for the, you know, for moms and pops. They are they are... They have eyeballs on them from every single corner of the investment community, whether you're a credit guy, macro guy, retail, whatever. Right? So the the... Those businesses during earning season, I will I will scrutinize just as much as as as the next man. I'll listen to the conference calls. We are... We will we will, you know, put them through natural language processing. We'll talk to, obviously, our spec sales, and we'll talk to research. We'll talk to all the great teams that we can within Barclays to sort of be as informed as an equity investor. We are equity investors, but be informed at a micro level. Luckily for me, I started my career as a single stock analyst in 2004 at JPMorgan. So, like, my DNA is kind of there already, and I pivoted to macro in 2012. So I've got kind of, like, a bit of that legacy, muscle memory to be able to go... Sort of go into that during only season if we need to. And we kind of need to now because, you know, the Google Google results were all about that. Microsoft results were all about that. We're obviously gonna get... I think we're getting Amazon tonight. Right? So, you know, these do matter. And and whilst AI is the theme, and, you know, we can talk about that whether it's gonna be a theme for the future.
00:43:42 · Josh Brown, Alex Altmann, Michael Batnick
[00:43:42] S0: What's driving, like, two thirds of the economic growth are coming from some CapEx related spending that has to do with AI? [00:43:50] S1: It's like You know you know wild stat? Yeah. Yeah. So next year next year, 2027, consensus S and P earnings, 75% of that is expected to come from semiconductors and hyperscalers. [00:44:03] S2: Great. Love it. Right? [00:44:04] S0: God, let's hope there's not a financing that extends into next year. [00:44:09] S1: Like, it's it's wild. So, I mean, I took... I mean, we kind of joke around it. It's like the S and P has just become the KOSPI. [00:44:16] S2: Right? Yeah. Almost. Meta is spending 70% of their top line on CapX. Of their top line, of their fucking revenue just on capex. It's unbelievable. Dan, you could throw up chart eight. So I'm curious to get your take, Alex, on how much the equity issuance is impacting the stock market. So we're looking at Microsoft cloud revenue growth. Think it [00:44:40] S0: needs like ten minutes to digest right. So what's