Good morning, investors. Given the uncertain economic outlook, we sat down with Danny Moses — one of the investors from The Big Short — to unpack the biggest risks and opportunities in the market today.

But before we dive in, some personal news.

I’m getting married in California this weekend!

That means, after more than 350 editions, I’ll be taking my first day off from this newsletter. I’ll be back in your inbox next week (with wedding photos!).

Lessons from the end of the financial world

Anyone can beat the S&P 500 in a good year, but calling the crash that rewrote history requires far more conviction. 

Danny Moses did just that with his team in 2008, immortalized in Michael Lewis’ book The Big Short and the Hollywood movie of the same name. He joined us to explain how that trade reshaped his worldview, what concerns him in today’s markets and what he’s most bullish on this year.

This Q&A has been lightly edited for clarity.

You were early and right on the trade of a generation. How did that experience reshape your trust in financial markets and the people who run them?

Danny Moses: It is very difficult to see the literal end of the financial world and then unsee it.

You always need to pay attention to how the people peddling financial products are compensated, especially when they are using a bank’s balance sheet to take on risk. It’s always leverage that causes financial chaos.

Nobody, not even us, had any idea how levered the entire system was to really one thing — home prices.

The entire thesis was “home prices never go down.” Rating agencies didn’t even have a model with declining home prices.

When the defaults began and demand dried up, Wall Street pulled the warehouse lines they were providing to mortgage originators, which caused the MBS market to freeze. In some cases, they bought those mortgage companies and brought them in-house. 

I agree that banks became over-regulated after 2008, but it also spawned the proliferation of private equity and private debt. These asset classes lie outside the traditional banking system and, while not posing a systemic threat, should warrant caution — especially as the product finds its way to retail investors.

The same way investors believed that home prices would never drop, it’s similar to the “mark to model” vs. “mark to market” we are seeing in the private markets.

What concerns you most about today’s financial landscape?

DM: I’m concerned that investor and consumer protections are being weakened through changes at the SEC, CFPB and other government agencies. 

The advent of meme stocks, meme coins and giving retail investors access to sophisticated products — including private investments — screams “caveat emptor.”

The biggest risk to the entire system is higher long-term rates [10-year Treasury yields]. A financialized economy can’t grow or function smoothly in that scenario.

The same way the GFC was all about home prices, that’s what 10-year yields represent today. We shifted risk from banks post-2008 to the government balance sheet. Gold and BTC are rallying while the dollar weakens — all signs of concern.

We are kicking the can on deficits and debt-to-GDP. We’re not pricing in a recession.

What happens to government receipts if the economy begins to contract?

What risks do you think retail investors are underestimating today?

DM: This market has been the antithesis of behavioral finance — it’s been about fastest access to information and execution vs. fundamental research and valuations.

“This time is different” can work for periods of time but not over the long run. 

Even secular themes like AI eventually become cyclical. Stick to quality and express themes through great companies like Alphabet that have great balance sheets, a global presence, and exposure to growth trends.

Look no further than some public companies shifting their strategy and using their balance sheets to buy crypto — and in some cases issuing debt and equity to do it. Some of these companies trade at 2-4x their underlying asset value.

As an investor, why not just buy the crypto in an ETF to express that theme? It’s inevitable that the gap narrows over time. 

The moral hazard created post-GFC has baked in a BTFD [buy the f*cking dip] mentality.

Which sectors or themes are you most optimistic about over the next 12 months?

DM: Energy. Especially nuclear. It’s rare to find a theme both sides of the aisle agree on. 

With the advent of AI, energy supply is needed and we are seeing capex and dealmaking in every area — the grid, nuclear plant construction, uranium mining. 

The traditional energy sector [oil and gas] has gone through a massive transformation over the last several years because of ESG initiatives and M&A.

That’s left fewer companies with healthier balance sheets. Current rig counts are at five-year lows and with oil in the mid-$60s, the sector looks undervalued.

The energy sector is under a 4% weighting in the S&P 500, and the long-term average is 7%.

What’s your current view on bitcoin, and how has it changed over time?

The advent of Bitcoin ETFs created not only a new avenue for buyers — including institutional capital — but also credibility, given that firms such as BlackRock and Fidelity are sponsors.

The reasons to own Bitcoin have changed over the years, and have evolved to a “store of value” and a hedge against central bank and government incompetence, as no real commercial use case has developed. I personally choose gold for that theme.

The irony is that crypto enthusiasts now welcome regulation, when that is the complete opposite of the original thesis.

There is a fine line between validation and government oversight.

You can follow Danny Moses on X, and tun into his podcast “On the Tape.”

The best stocks beat the market

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Rapid-fire

• Tesla earnings were better than expected and Elon Musk talked up robotaxis (Barron’s)

• Alphabet beat earnings expectations and raised its spending forecast (CNBC)

• Prediction markets see 17% odds Powell is out as Fed Chair before 2026 (Kalshi)

• Detroit carmakers don’t sound happy about the Japan trade deal but their stocks are rallying anyway (WSJ)

• The US dollar has lost 30% of its purchasing power in the last five years (Pomp Letter)

• June home sales drop as home prices hit a record high (CNBC)

• The Magnificent 7 is no longer the unified Big Tech trade it was a year ago (Opening Bell Daily)

• GoPro and Krispy Kreme have joined the meme stock surge (CNBC)

Last thing

About me

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day — unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else.

Feedback? Reply to this email, ping me on X @philrosenn, or write me directly at [email protected].

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