On this too big to fail front, my former

colleague Eric Balchunas, former cuz I

used to be at Bloomberg at Bloomberg

Intelligence ETF analyst, he wrote this

piece that I found really interesting

where he talked about the US market

being too big to fail.

And this is a

point I've touched on in conversations

on this show over the past several

months, which is that the participation

in the equity market is so vast. And

this shows that the biggest growth, this

is one of the charts from his piece, the

biggest growth has come in in in

households, in individuals who have

gotten into the market. And so

what I've talked about is that maybe

that caps the downside, right? Or limits

the downside in stocks. But as he points

out, he says if there's another crisis

and we get a bear market, maybe the Fed

could buy equity ETFs and that's how it

could support the market.

>> The concept in 2008 there was a moral

hazard, right? This is all that people

cared about. The idea that you can

incentivize people to be reckless actors

by providing some sort of government

backstop. That's why Bear was allowed to

fail. There is no conception of a moral

hazard and where the US government

outright owns equities. Not AIG style

bailout, not not, you know, General

Motors style bailout. This is an actual

strategic stake that we've taken. So we

are literally, all of our money is

invested in these companies whether we

like it or not. I think it was a great

point. I thought it was a great piece. I

don't think it's very good for the

market. I think it distorts incentives

when you have CEOs who feel like they

can do whatever they want and investors

who kind of expect that they'll be

bailed out, that there's some sort of

structure there. It doesn't create the

right incentives and is a big reason why

we're up 10% even when all the

indicators are flashing red.

>> Yeah, it's like yep. Keep buying Nvidia,

why not, right? Cuz it's if we're going

to be backstopped, but I don't know

Julie, this kind of reminds me of just a

little bit, you know, back in '08, we

mentioned '08, when there was like the

whispers like, "The Fed is buying call

options. The Fed is buying options."

[laughter] And now it's like, "We're

going to buy the corporate bond ETFs and

maybe we'll buy some stocks." You know,

according to

potentially destroy the market.

>> It's like it's okay now to do these

>> past that line.

>> Right, right.

>> believe that

>> the Fed, especially Kevin Warsh Fed,

>> Mhm.

>> would make a move like this, especially

since he's been very vocal in the past

about wanting to shrink the the balance

sheet.

>> Yeah.

>> So, I don't know if it would actually

happen, but does it matter if it would

actually happen if the market

>> thinks

>> expects it's going to happen? I don't

know, and I don't know how broadly the

market expects it's going to happen for

that matter.

>> Yeah.

>> But

>> I mean, it's a very provocative piece. I

mean, to think about the fact that this

guy makes a pretty good case that this

could potentially If we had any big

challenges uh to our to our portfolios

and things start kind of crumbling and

there was sort of no indication of a

Trump put or whatever you want to call

it,

>> Yeah.

>> would the Fed step in? And And

the writer is saying potentially maybe

it makes sense. Look what Look what's

happening in other other other

countries' central banks, right? They're

already potentially doing things like

this.

>> A little family fight as Warsh says.

>> Yeah, I mean, to your to your point, I

mean, it it feels like we are in a um

post-moral society anyways. Certainly

from the from the government perspective

on down, we've seen all the reports of

money-making activities on the part of

members of the administration. Um but I

think it's worth like um pulling the

thread from what you were saying a

little bit, Rohan. Why would it be

misaligning incentives? Like why So,

let's say um

let's say maybe that the hyperscalers

say, "We're going to cut spending. It's

not It's not working. We're going to cut

some spending." And the market falls

20%,

and the Fed or there's some other

systemic risk, and the Fed says, "Okay,

we're going to go in and buy equity

ETFs."

Why then? Like what then?

>> What would be so bad about it?

>> I'll make a I'll make There's an actual

Take autos for example. You have actual

inputs and those drive the cost of the

output. Although I saw that Fiat car and

it looked really fun and really nice.

I'm never going to try it, but like you

have actual costs and those costs have

suddenly gone up because the inputs go

up. There is no actual profit-making I

love Ed Siteron. I think some of his

writing is amazing. He is the biggest AI

bear out there and his point is very

fundamental.

These companies don't make money. There

is no pathway for them to make money.

Forget about spending the money that

they say they're going to spend. They're

not even close to profitable. So, the

idea on like a pure business fundamental

sense that investors or the government

should continue to underwrite something

that may never make money, it's at least

with fiber the comparison is always

made, there was going to be utility in

those assets at some point. You can't

use these data centers if there's no

demand for them. So, what you're

effectively asking people to do is

borrow, finance, unlimited expenditures

in this theoretical situation where the

the Fed is buying ETFs or or, you know,

we are talking about some sort of larger

scale government backstop for for for

corporations or for hyperscalers, you

are asking people to subsidize something

that creates no actual value. In the

bear scenario, at least when you had a a

bailout of insurance, well,

that has a real impact on the real

world. The bailout of the automakers,

that has a real impact on the real

world. Right? These are These are

companies that actually employ hundreds

of thousands of people that make a thing

that we sell, that we export, that's

tangible or real or stored. These

companies,

fairly or unfairly, a lot of Americans

feel like this is a massive wealth

transfer from them, whether it's taking

their jobs or taking their money, to

very powerful, very wealthy people. And

we had Bradley Tusk on our show, this is

the last point I'll make. He made a very

simple point to be the only way to think

about how governments make decisions is

every politician gets elected, whether

it's 2 years or 4 years or 8 years,

whatever it is, and every decision they

make is about increasing and maintaining

their electability. So, whether or not

there's a precedent for it, why I love

the Bloomberg piece so much is if Trump

thinks or any member of his

administration thinks that this will

increase the odds of their electability,

of their popularity, whether it's

through the Fed or another vehicle, they

will do something like this if it means

staving off short-term economic pain.

>> I think you may raise it I mean, you

almost touched on it was like

what does it say about risk-taking?

>> Yeah.

>> Uh is it the moral hazard's gone, right?

People are just keep piling in and raise

the possibility of an over worse

situation if you keep piling into the AI

names, the chip names, and things like

that. Do you think that that's going to

stop going to come going to come in? I

think that's sort of a a big concern,

too, right? Is the fact that we don't

know if we're just building a bigger a

bigger bubble.

>> Yes. And then might we can't

>> I mean, you mentioned EdTech run. I was

I now I'm thinking of the of them as the

Eds now in my in my head. Ed Elson, um

from the Professor G podcast, writing a

piece this morning also talking about

again this possibility that the US would

invest in an open AI

>> Yeah.

>> for example, you know, and when when

President Trump says, "Oh, we can share

in the profits." Uh which which profits

>> [laughter]

>> And also the downside because to your

point about risk, it used to be that you

you you opted into risk. If you were if

you were a junk bond investor or a

venture investor or or in any sort of

distressed asset, you wanted to be there

by choice because you thought there was

more alpha there, there was more upside

there. A lot of people weren't. They're

value investors, they want to hold

stocks, they want to hold assets. Now

the risk is everywhere. You can't escape

that risk. Even safe assets are down

20%, 30% year-to-date not because of any

fundamental issue with the asset class,

but because everyone else is rotating

out of them.

>> Yeah.

>> There's no safety anymore. Risk is just

everywhere.