Animal Spirits Podcast - $35 Trillion Giveaway (EP.212)

Episode Date: July 7, 2021

On today's show we discuss unplugging from social media for the weekend, the big move in stocks from the bottom of the bear market, why this time is different, the great migration from CA to Austin, Robinhood's S-1, the coming inheritance wave, some thoughts on The Tomorrow War and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at Y Charts. I was doing a little work this weekend, and I found that from the March 23rd, 2020 bottom, the S&P 500 is up 98.7% with dividends. I'm rounding that up to 99%, and then rounding that up again to 100%. Just to make a point. So it's basically a double, and I was able to easily figure this out because they actually have the S&P 500 total return on Y charts. I want to talk about that a little bit today.

but it's nice to be able to use that function because I was able to go back to previous bear markets and figure out what happened from those bottoms to figure out, like, is this an anomaly or is this something that typically happens from a bear market? So we doubled in 15 months, which seems very fast to me. Some other people might not think so. I'm going to start the show off today by talking a little bit about what my research showed, and I got that research from Y charts. Go to Y charts, tell them Animal Spirits send you.

If you don't have a subscription, you can get one and get 20% off of that initial. subscription. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rittholt's wealth management may maintain positions in the securities discussed in this podcast. Michael, I feel like we haven't talked

about markets very much lately. We said there's nothing to talk about because things are kind of boring, at least at the index level. However, I think I saw a stat that this is the second best first half year performance ever. I think Marco was up 14%. Could that be this? That description just sounded like my third, his second cousin from another marriage. But wait, is that possible? 14% is the second best first half ever? That sounds pretty weak. No way. I don't buy that either. Well, it could be true because as we know, markets are usually a second half story. Everything's a second half story. All right, here's what I found doing a little research yesterday. I got back into the swing of things yesterday. So I basically took, I talked to you Wednesday afternoon.

I basically just secluded myself from all technology. I didn't read anything. I didn't go on Twitter, really. I stayed off social media. It wasn't like a conscious decision. I just did it. And so yesterday was a a catch-up day for me. But I got to say, unplugging like that was really good. I highly recommend it. Even though I'm not one of those people that will say like, okay, it's time to unplug social media, delete the apps from your phone. I will never be that person. But just taking a break from it, even though I didn't plan this out, it just sort of happened, was kind of amazing. You sent me an article yesterday, speaking of this, somebody over in the Atlantic wrote an article about how she unplugged from Twitter and how basically it broke her life. And guilty, I was at the beach

yesterday, checking Twitter, and I literally, it was so timely that you sent me this article because I'm on my phone and I'm like, Twitter. Why the hell am I on my phone? I'm at the beach. Why am I on my phone? We were even, we were out and about, we were on the lake. We were taking bike rides. We're going and walks. And there was like four or five times where my wife goes, oh, pull your phone out, we'll take a picture of the kids doing this. And I'm like, I don't have my phone on me. And guess what? I'll just store this one of the memory bank. And that's good enough. We don't need a picture of everything. So anyway, it was kind of nice. Even though, like, I, I'm certainly not going to do that forever and always, but taking a small break was definitely nice.

How did you feel the time? All those seconds. I know. It was a holiday weekend, and we had family around and friends, and we were on the water, and it was nice. So we were just kind of busy. So it wasn't like I said, I'm not going to be on my phone or Twitter or reading stuff this whole weekend. It just sort of happened. And it was kind of like, after we did it, I was like, oh, wow, that was amazing.

So anyway, but I got back into it. And I'm not going to be one of those people that says everyone should delete their apps in their phone. because it's riding your brain, I still will go back to it for sure. But having that break was nice. All right. So I looked at every bear market, going back to the Great Depression starting 1929. This was the second fastest double for the S&P 500 ever, ever for the U.S. stock market from the bottom of a bear market. Didn't the depression double in like 40 days or something nuts? It was basically three months. So it bottomed in June and basically went nowhere from there. and in July and August, it was up 91% from the Great Depression.

I think you could say the markets were a tad oversold after falling 83%. And so the huge bounce. Then, of course, it rolled over again. But the second and third fastest ones ever were March 2020 and March 2009. So it took about two years to bottom from March 2009, 15 months from March 2020. I'm feeling pretty good about my faster markets theory. As you should. In the Wall Street Journal, I had another one on this.

Mark Holbert. This was interesting. So he said that bear markets from higher valuations. I think a lot of people worry about that because the Shiller Cape is at, what, 38 now? Yeah. People are saying, all right, well, great, we've had our fun. Once the fun is over, the bear market is going to be 10 times worse. You just keep pulling forward. Because the higher you are, the higher you have to fall. You know, I really think the dot-com bubble like broke finance and ruined all of our brains because we're all so anchored to that one time in history where growth stocks got killed, value had the resurgence, anything not growth outperformed. I really think we're so anchored to that. I think people forget that it wasn't just the dot-com bubble, because I was, as I was doing my

research, I mean, we had the Enron and what wasn't just that whole blowup. I mean, we also had the Enron and Worldcom scandals. We had 9-11 that happened, which was a pretty big correction towards the end of that. So it wasn't just the dot-com valuation stuff that it was working off. It was all these other things that happened. But he looked at bear markets that began from like highest PEs or highest cap ratios and lowest. And actually, the lower P.E ratios had worse bear markets in terms of magnitude, and they lasted longer. And I think that's probably because those bear markets happened in the past when valuations were lower. And so actually bear markets in the past were worse because you didn't have as much Fed intervention

or government intervention. That's the point. And he was saying, like, don't expect this one to be a really lengthy bull market just because valuations are high. A lot of that has to do with the government and central banks and what they can do to it. So anyway. On more and more in the camp that as much as we like studying history, that every situation is different, all of these anecdotes, not anecdotes, all of this historical data needs to be taken with a big grain of salt if you're looking for a roadmap of how today might play out. I think like the best thing from studying history is just that it's full of surprises. Nobody at the time knew what was going to happen. And that probably should be the simplest, cleanest takeaway from studying their markets and whatever. And my other one from this was especially now, if you want to update your priors a little bit, the market can get away from you in a hurry. If you were one of these people who was entrenched in cash in March 2020 waiting for that other leg to fall or other shoe to drop, whatever the saying is, and you blinked and you missed a double. That's a hard thing to come back from. I think that like the last 10 years are a much better time to study how markets work than the last 90 years.

So you're saying this time is different, Michael. Is that it? I am saying this time is different. you mentioned something that made me think of this point. I saw, I forget who said this, making money is rarely comfortable, something like that. There's a quote. That's sort of the gist of it. Well, that kind of sounds like something you say when you've done really bad for a really long time. In other words, being short, the S&P 500 for the last 10 years has been extremely uncomfortable. Doesn't mean it's going to be profitable. In fact, it's been killer. Yeah, good point. All right. So, and hold on, just to finish the thought, sometimes making money is actually pretty comfortable. Just being long an index fund, March 2020, notwithstanding. It's been very comfortable.

So I looked back at this other one. I was checking bottoms and I went back on Y charts and I looked from the March 2009 lows. The S&P 500 is up 730%. It's almost 19% annualized from the bottom. What about from the top? I mean, it's probably still pretty good. But just thinking back, like the index fund purchases I made in my 401K throughout 2008 are probably going to be the best investments of my lifetime. You forgot to say not to brag. Okay, sorry, not to brag. I'm just saying it's not like this magical investment that I made in Amazon at the IPO

or something. It's just simple index funds in the overall market during a huge financial crisis. Not only are you disciplined investor, but you also have biceps. And speaking of physical appearances, somebody sent us an email of the top of their head. Apparently, I'm a consultant now to the balds. You have your first client. I died at this. I did that pro bono.

What did you tell the guy? So it looked like a relatively young guy. He sent us a picture of the crown of his head, and he had what appeared to be a developing bald spot. And he said, my brother is four years older than me and has one that's 10 times worse. I'm worried that this is my future. Do I shave it now, Michael? What did you say to this guy?

Well, past performance is actually indicative of future performance. We're talking to hairpool, jeans. So what I told them is that it's coming. Right now it looks pretty good, but it's coming. I was going to say, that's just a little. a little, I think you don't need to shave it quite yet. That would be my choice. But you got to get ahead of it. Like the earlier you shaved the better off because it's better to bald once you're already have a shaved head than it is to bald with what used to be a full head of hair and then shave

it like I did like an asshole. So the earlier you shave it, the better off it would be. All right. Hit us with your Rogain story. You teased this last week on our Twitter spaces. Yeah, it's not really a great story. But here's what I'll say. I bought Rogain and I subscribed. I think this is, I guess the lesson here is how powerful inertia is. I just got like six boxes. They came every like six months and I never really used it and they just accumulated. So they had to go to the dump. It was like a covert op because I didn't want anybody to see me. So I carried in like a black bag and dumped it into the ocean. Wait, how far along and your baldness life is like to worry you when you bought the Rogain? I was fairly deep. But the problem was like you

can't disguise it because it like smells. It doesn't have a bad odor. But it has like an alcohol Coloni type smell to it and it like mats down your hair. So you can't like do it discreetly. If it was a pill, I definitely would have stuck with it. I was going to say this guy could try the pill one. What's the pill one called? I have no idea. Okay. There's a pill you like for Propecia. Propecia. Yeah. Propecia. Yeah. Try porpecia. See if that thickens it up a little bit. I'd give that a chance. I could extend to you for a few of years. You never know. All right. Robin Hood's S.1 came out last week. I don't know. I guess this. It's interesting to me that so this company has $80 billion, which is more than we thought in assets. It's just funny how much

more attention they get. They have $80 billion, which seems like a lot of money. Vanguard has $7.5 trillion. And I feel like... Now show the Fed's balance sheet. I feel like Vanguard's basically been pushed to the side by Robin Hood the last 18 to 24 months. Maybe just because Robin Hood is so much more interesting. But I was actually surprised by some of these numbers. I felt like, okay, it's hard to be shocked anymore by anything. Some of these numbers are shocking to me. Okay, so I like the fact that they're going to allocate like 20 to 35% of their IPO shares to clients. That'll be really funny if their clients buy the shares and then tanks or they short their own shares. The number, Matt Levine did a whole breakdown on this. It said, Robin Hood

extracted 9.5% of the value of its customers' options portfolio for itself in the first quarter, almost $200 million in revenue on $2 billion of assets. So he's breaking down like their revenue versus their assets in showing that these numbers are insanely high. So it was like over 1% for crypto, it was only 0.2% for stocks, but 9.5% for options. Wow. It's a good business. A lot of people pointed out, again, I was a little slow on Twitter, so I missed a lot of the inside jokes here. I'm sure you were on some of those, but like the fact that they said Dogecoin was a big risk in the S1 because it made up such a bit. What was it like?

Crypto was 3% I'm doing this on memory, so I think this is right. Crypto was 3% of their total revenue in the fourth quarter. It was 17% in the first quarter. Okay. And Doge coin. I think a third was Doge. This happened like before the Elon Musk thing came out. So this is Matt Levine made this point.

This is from Q1. So this is like pre-Elon Musk on SNL. So it probably was bigger. And they're saying Dogecoin is a big risk because they derive so much revenue from it, which is just nuts. But my thinking is people said, okay, well, when that ends, then there goes some of the revenue for Robin Hood. They're going to be there with their arms wide open for any. of these meme stocks or things that people decide to hop on next. So it doesn't matter. So one more time? So people were saying like, okay, well, when the doge coin stuff rolls over

and that goes away. But any meme stock, any fad investment, any craziness that's going to be going on to the market with all these new speculators out there, Robin Hood is going to take advantage. So it doesn't matter. It's going to go. It's our alien thing. Somebody had a good take that Robin is going to make a killing when they bring sports betting onto the platform. Oh, that's not a bad idea. This blew my mind. They did $270 million in revenue in 2019, and they did $960 million in in 2020. So for context, let's just call it a billion. They did a billion dollars in revenue last year. On 80, what was the average AUM in 2020? Let's call it 50 billion. So a billion in revenue on $50 billion in assets. Vanguard has $7 trillion in assets. And in 2020,

they did $7 billion in revenue. Wow. So I'm feeling pretty secure about my Robin Hood is the Facebook. That's crazy. So I just want to emphasize that one more time. Vanguard did $7 billion in revenue on $7 trillion in assets. I know it's apples to oranges. I'm just saying. Robin Hood did a billion dollars. Robin Hood did a billion Vanguard. It did $7 billion. Robin Hood might cross Vanguard and revenue one day. Not might. They probably will. I think that, We are, the investor class is so lucky that someone like Jack Bogle existed. Vanguard is essentially a charity at this point when compared to most other financial firms. Here's another one that I'm pretty secure in my Robin Hood is the Facebook of finance theory.

47% of Robin Hood's users use the product daily, which basically is in line with social networks, the number-wise, that people are just addicted to this thing. I mean, here's a fairly simple projection for Robin Hood. They're going to be paying out fines and dealing with lawsuits for years to come and none of it's going to matter. They're going to continue to make tons of money, and it won't matter. That FINRA fee was $70 million, which is a lot of money. It was the biggest fine ever, I think, in the history of FINRA, but 47%. That actually seems kind of light. In other words, just, well, daily people check their account every day. Remember they said that most of

their investors are long term or most of their investors don't day trade? I love how we're calling them investors, but I guess just looking at it doesn't mean you're using it, but that still shows the addictive nature of it and how hard does it to look away. But I mean, if you think about How much Robin Hood is extracting from, like, options and crypto and stuff? Does this bother you, though? I'm not bothered by it. I'm wondering how much, like, Citadel is probably making more than Robin Hood. Off of this stuff from buying the... Yeah, they're paying them a fraction.

Does it bother me? Yeah, it bothers me. Which part? Just everything about it. I think it's on a net basis. It's bad. Really? I think it's bad. I think they pulled forward a lot of the... Just reading through all this stuff from there, I think them making so much money off of people's speculating. I just, there's no way that's a net positive for society. Is it? Well, Oh, but I got free, I saved $3.95 a trade. Yeah. I just don't see how, I think it's kind of gross.

We're being dead horse. It's complicated. I know. It is. The more broker accounts, the better, but certainly some of the stuff. Here's another crazy number. As of March 31st, 2021, our Robin Hood Snacks and Lose Letter and Podcasts had nearly 32 million subscribers. Now, I think that they just subscribe every one of their users to this, because I think I get the email and I never signed up for it. But it's kind of a big list, I guess. It's huge. By the way, so we're talking about addiction and social media. And if we consider robbing at a social media app, which yeah, it is. They are. Why do we think people are going to become unaddicted once the economy reopens? I was at the beach yesterday on Twitter. Now, to be clear, I wasn't on Twitter the entire day,

but still, I was on my phone and I was thinking, what hell am I doing at the beach? Did you fire up any good beach tweets at least? I was actually swatting away defenders of my the Tomorrow Wars, a good movie take, which we'll get to later. But, I saw you were, people were going at you, people were going at you are. I did see that. We'll get to that later. But addiction is a powerful thing. I don't think that these people are going to become unaddicted once the economy reopens. I think Robinhood is going to be stickier than people might suggest. I just think this company is obviously not going away and they're going to be huge. And I think that the brand awareness of them, I think so many other firms in finance just totally

underrated the amount of brand that Robin Hood could build doing this and kind of like just didn't see it coming. Nobody's leaving Robin Hood. For as many outages as they had, nobody's leaving inertia. They had a lot of problems in 2020 and they got stronger. I ordered six boxes of Rogan just because I forgot to turn it off. So inertia is a powerful thing. Subscribe and save, yeah. Stop. Do you know how fast you were going? I'm going to have to write you a ticket to my new movie, The Naked Gun. Liam Neeson. Buy your tickets now and get a free Tilly Dog.

Chili Dog, not included. The Naked God. Tickets on sale now. August 1st. All right. Let's talk about what the pandemic did to some of the older people in our population. There's a few charts. There's one from, who is this from, from Goldman and Bespoke did one, showing the gap between, what was it, retired people and like the counterfactual. If there was no pandemic. and way, way, way more people retired because they were forced to, basically, due to lack of work.

So I think it was, here's a number. Sorry, that was a really messy intro, but over 1.2 million workers have retired early during the pandemic, is the TLD. Do you think part of it was not only being forced to stop work, but it was also people reevaluating their life? Because think about how many older people died from this. I don't think so. I mean, yes, there is an element of that.

And people saying, like, wait, life is short. That's it. I'm done. I'm going to stop working. Yes, for sure. But the New York Times said that among people with incomes at or below the national median, 55% of retirements were involuntary. So I guess if you flip that on its head, 45% were voluntary. So yeah, there was definitely an element of that for sure. Okay. So we're going to see a wave of people taking Social Security then.

Yes. Probably early and earlier than they would have. So in the 15 months since the pandemic began, about 2.5 million. Americans have retired. That's twice the number of people who retired in 2019. Okay, we may need to recalculate that 10,000 baby boomers retiring a day now then. It's probably 11,000. Yeah, okay. Social Security, 2020 forecast. Social Security is 17% of the federal budget. We've got earmarked $1.1 trillion. dollars. Holy smokes. It's 17% of the federal budget. It's enormous. That's why I love people who say

that social security, when it runs out of money, we're all screwed and you're like, I'm sorry, that is never getting cut because for so many people that is their retirement. That's their forced savings is social security. It's not going to run dry. Can you imagine trying to cut social security for all the people who vote? That'd be very popular. That's why I say for young people who say we're never to get Social Security, you might have to take it later in life or something, but it's going to be that there's no way that a politician would ever be dumb enough to wait, wait a minute. Probably they would, but I would be hard pressed to see people ever touch Social Security. Do you think somebody will run on that campaign? And to Social Security. There's no way

they'd ever get the votes because the old people would go, uh-uh, I don't think so. We're the ones who go to the voter ballot still. You're not going to get this past us. The only thing, there would be less popular, somebody running on a campaign for, we should only be able to have one child, one child per couple. Yeah, what country would ever do that? Yeah. All right. At the end of the first quarter, Americans age 70 and above had a net worth of nearly $35 trillion. That's 27% of all U.S. wealth up from 20% three decades ago. That wealth is equal to 157% of U.S. gross domestic product more than double the proportion 30 years ago. This is always funny to me when we look at debt to GDP. People rarely look at these stats saying that

wealth for older people is double the GDP, what was 30 years ago. They're basically saying that there's going to be $70 trillion. And I've heard this number forever between 2018, 2042, that's handed down to the next generation, basically $61 trillion to millennials and gen X. Millennials are going to be so rich. So I guess, I mean, we've certainly never seen anything like this before because no demographic has ever been this big that's lived this long before. with instructions, like on how to transfer money to the next generation. And how to take care of it in retirement. I mean, part of it you'd think, well, baby boomers are going to be living longer,

so they're going to spend some of that. But obviously, a lot of it is held in the top 10%. So it's going to be passed down. I guess this is where millennials and Gen Xers, like, extract their revenge on baby boomers and just go ahead and spend it all when they get it. Because don't you get the mentality? This is totally anecdotal. I still feel like from my parents' generation,

they see handing down the money to the next generation as still, a big thing to like, that's what they wanted to do with their money because that's what their parents taught them. I feel like our generation is like, no, no, no, let's spend way more of it now and have those experiences now instead of leaving you a bunch of money when we're dead. Don't you feel like that could be a mentality shift from generation to generation? I think this is personal and teach their own, but I think, I don't know how I'm going to feel when I'm older, but I think obviously if you could do both, that's like the best of both worlds. But I think like dying with no money is kind of like a noble goal. Like spend it all

while you're alive. Treat your family to amazing experiences. Take care of them. Raise healthy, adjusted, well-earning adults if you can and enjoy your money while you're alive. There's nothing wrong with the other side. I'm just spitballing here. Here's something I was thinking about this week as far as like parent advice. Our kids are getting a little older. My oldest daughter's seven. She's like started to become like she's seven going on 15. We're trying to figure out how to balance giving them this great experience in life and especially I feel like since a pandemic this summer we've been supercharged like doing as much as we can to them because last summer just kind of was terrible especially for the kids that didn't get to do as much like how do you

teach a child gratitude how do you give them everything that you want to give them while also teaching them to be grateful for what they have because obviously they don't know any different life than what they have they assume this is probably normal for everyone so how do you like as a reasonably be well off person, give your child these great experiences all the time, but also teach them be like, oh, actually, not everyone gets to have this. It's funny you ask, because I consider myself something of an expert in this category. Okay, let's hear it. Of teaching kids' gratitude. No, I'm kidding. I have no idea. I don't know. It's time. I mean, so we've been trying, like, when we have a family dinner, we'll like ask the kids, like, what was something that

made you happy today and try to get them to understand, like, and my daughter went to camp last week and for a whole week at day camp and just loved it outside, rock walls and canoeing and lake and all this stuff. And afterwards, she's like, I'm really sad that this is over. And I wanted to be like, well, that's like a good thing because you had a good experience. You have to, like, remember, like, it's not always going to be good. So you have to. I'm just speculating here because my kids are four and two. But like, I think you probably have to say no. You can't give them everything. Like, if you give them everything, then. Yeah, you teach them the value of hard work. And I want my kids to be successful and understand hard work and the value of the dollar and all that stuff.

But my kids are going to be bald when they're 19. Gratitude will be forced on them one way or the other. They will be grateful for the hair they head. Maybe that's how you teach gratitude is like just pointing at your head every day when they have hair and be like, listen, this is what's coming. This is coming for you. Hopefully it's skipped a generation. I want to talk about an absolutely epic fail. And our system, unemployment system, the way that we distribute money, was not built for a pandemic. So there's no fingers pointing whatever, but we're just, we got to do better. And not ironically, I feel like blockchain. Technology somehow has to be like a part of the solution here. So smart contracts,

maybe, that sort of thing. Something. What we're doing right now, it doesn't work because at these nine million Americans were thrown out of work, didn't receive any unemployment benefit. Nine million Americans. I'm sure for a lot of people, the system is just antiquated. It's confusing. Yeah, it wasn't ready. Half of the 64 million people who sought help, that's massive number. Again, the system was not built for that. But half of the 64 million people who sought help were rejected or not paid. So again, it was just a scale thing. And the other half got stolen by hackers in Russia, we were told. Forty-nine million workers, which is 30% of the U.S. labor force, received at least one weekly payment. We set out $750 billion in unemployment

benefits. But nine million Americans were just completely screwed. Hopefully this child tax credit thing is the beginning of fixing this problem. So I think it starts July 15th. People are going to start receiving weekly checks for the child tax credit thing. Hopefully that system they're building is something that can be implemented to make it easier to give people money. It was also a state-by-state thing. So for example, Bloomberg did this big piece, one link to. California paid more than 70% of the claims. So obviously, there's no way for these people to go back and say, I missed out on $10,000 in unemployment benefits, write me a back check. You know, it's not that it wouldn't help now, but they needed it and they didn't get it. So California paid more than 70% of claims.

Montana didn't pay benefits to 89% did not pay to 89%. Wow, that's tough. So you think about how helpful, like the unemployment stuff has been that boost for a lot of people. Like, it could have been way more helpful than it even was, I guess. Because obviously what happened certainly helped, right? Yeah, no. It saved millions of lives, but it was devastating for the people that Yes, it could have been slipped through the cracks. All right. Someone sent this to us. I thought this was interesting talking about the older people. Someone sent us this survey from Japan. It said a nationwide survey conducted by the cabinet office in 2020 of people 60 or older in Japan found that 63.6% had either no worries or few worries concerning their day-to-day spending. Basically, it showed the older you

get, the more money you have in Japan, which makes sense. But how is this possible? I need like a 10-page expose on this. How are these people in Japan still so wealthy? If all we've ever heard is that their stock market is underwater after 30 years. Their real estate market is still well below the 1989 highs. It's obvious. They all started investing in 1991. Even then, it hasn't done. So I just, I don't get it. How are people in Japan so financially? Is it the pension system? Is it the government? Anyway, I need someone to do a deep dive in this for me. And let me know how, if all we've heard is like things are so terrible in Japan for 30 years now, how come their unemployment rate is so low and people seem to be so happy and financially well off.

I just don't understand. J.P. Morgan estimated that staking is currently a $9 billion business for the crypto economy, and they think it will grow to $20 billion following the Ethereum merge. I can get to $40 billion by 2025. That sounds low to me. By 2025? You don't think that there's a bunch of stuff coming online where there's going to be, because it's not easy to do now, if you're a new like us,

but I got to imagine that there's companies coming on board from, all this Andresen Horowitz crypto VC funds that are going to make it easier for people. Or Robin Hood, click a button, put your stake your Ethereum. Why doesn't Robita democratize staking? Yeah. How many people listening to this podcast do you think no what staking means? We have a pretty educated audience. I'm going to say 130%.

Explain it to me like I'm five. Well, I mean, come on. I'm an expert. I can't do that. Okay. It's basically just putting your Ethereum or some other token as collateral to create a liquidity pool and then earn a rate of interest on it. Your five-year-old would understand what you just said?

Your five-year-old knows what liquidity is. Yeah, that's true. This is something. I don't know if you notice a lack of inflation at your barbecue this weekend, Ben, but I sure didn't. The White House tweeted, planning a cookout this year? Catch up on the news, L.O.L. According to the Farm Bureau, the cost of a Fourth of July barbecue is down from last year.

So it says the cost of a Fourth of July cookout is down 16 cents from last year. Who thought this was a good idea to press on? 16 cents? You know what this tells me? The White House is trying to get ahead of this inflation thing. And they don't want that to be a... You don't want jokes from the White House. They said, it's a hot dog.

The Biden economic plan is working. And that's something we can all relish. Come on. Get lost with these dad jokes. Remember pre-pandemic days when the only thing people worried about in the markets were tariffs and how tariffs were going to ruin everything? And how did we get to the point? where we transitioned to a new White House and those tariffs are still there. Wasn't that the easiest

thing on day one to say, listen, all these tariffs gone, especially now that we're in an inflationary environment and supply chains are a problem, there's shortages everywhere, isn't one of the ways to ease inflation by taking off all those tariffs immediately? What am I missing here? I'm not a policy guy. Not a policy guy. But yeah, I didn't even know they were still in effect. Okay. I thought they rolled off. I don't think so. Because if they did, the market would be up even more. Maybe that's where we get the second half surge. Take the tariffs off, boom. All right.

It's second half story. Okay. J.P. Morgan is out with their guide to the markets, and they have this really neat looking chart showing the S&P 500 valuation dispersion, and it shows the median S&P 500 PE, which is economics favorite indicator. That is at an all-time high, but it's also showing the valuation spread. So it's showing the dispersion between the 20th and 80th percentile of S&P 500 stocks. So the very cheap and the very expensive.

And just eyeballing this, it looks to be about as wide as it's ever been. And I think this is part of the reason why there's so much, I don't want to say confusion, but so much chatter about a bubble. And again, there's bubbles all over the place, micro bubbles, whatever you want to call them. We've discussed this. But if you're looking for bubbles in the stock market, you could find them. they're right there. You know what you say if you're a portfolio manager and you see this?

Stock Pickers Market, right? It's easy. Is it not? It's always and never a stock pickers market. Yeah, so basically the tech stocks and software stocks are really, really highly valued. The value of stocks are really low valued. And now it's like, okay, what do we do with that information? I don't know.

Pick your fighter. Do you think this is a thing that stays, though, where we have this software class of stocks that are just always going to be very highly valued? Probably not. All right. Now, you're saying it's different this time. No, it's possible. I just think that there's so many more of these software stocks now.

So remember in 2020, we were like, how are private businesses going to recover from this? Like, where is the funding going to come from? Well, actually, turns out that, so private markets are on fire. Total M&A fees hit $17.9 billion in the first half of the year. The highest since records began in 2000. Private equity firms had their busy as six months since. records began four decades ago. This is from the FT, by the way. Striking deals worth more than $500 billion, helping to propel mergers and acquisitions to an all-time high.

Hand up here. I've been patting myself in the back lately for being right about the real estate stuff. I have been wrong for years about private equity. Like I said like five years ago, all these institutions that are going into private equity are going to regret it. The valuations are higher. Turns out having trillions of dollars go into an asset class that is levered up. And even if it's just beta, if it's levered up, it's still going to do okay. So I thought that it was like some of the private equity stuff, even when I got out of that stuff from my endowment days, that it just seemed like it was overcrowded. As long as there's money flowing in and people willing to do deals and these private equity firms have to do deals and they're using leverage to

juice these deals a little better, the returns are probably going to be okay. So anyway, credit to me, I was wrong there. Big time. I think private equity funds have probably as a whole done just fine. Even if you took the S&P 500 and added some leverage on it, you made out okay. Oh, before we get to this real estate, I just want to mention, it's possible that you missed it. Ben and I had a conversation with the CEO of Ground Floor. We released it on Monday. So the Friday episodes are going to be released on Monday going forward. And I think you could probably tell that if you did hear the conversation, it's not exactly what we thought it was going into it. So maybe our bad for not doing great research, but that was very interesting. We thought

that they were lending money to like, whatever. Go listen to it. It was very interesting. Yes. I think as an investment opportunity, we've already gotten a ton of emails about it saying, did you guys thought about this? What about this? We've gotten some emails from people who said they use the platform to invest on. I think kind of going in blind to some of those is actually not a bad thing for us, though, because I feel like we're learning on the go as are our listeners. True. So we're new whales on purpose for those. Yeah, I'm dipping my toe. You know the gift where the toe extends into the water? That's you?

That's bad. With this? Okay. All right. The San Francisco Chronicle had this story about people from California moving to Austin. And they talked about Austin's median home price searched 35% in May compared to a year earlier, up to a record high of over $560 grand. Total sales were up 55%. But their point is, all these people are coming to California, like that's a high number, obviously, over half a million dollars for a home.

But all these people are coming to California where their average home price is like a million dollars. So for them, they're saying that, like, they're interviewing all these realtors and one of this guys saying that, like, if it's an attractive house, we'll see 30 to 50 offers and the Californians tend to win every time. And it's funny. He says they understand this game better than Texans, but it's like, no, they don't. They just have more money. That's the game. And then the Toll Brothers CEO said the pricing power of Austin, which is number one in the country is driven by California, plain and simple. The phenomenon is fascinating. We've never seen a migration like this. So Austin is now, I guess it had like a 20% jump in population since 2019. It's, like the 10th biggest city in the world almost, sorry, in the country. This is another thing that was probably going to happen eventually, but the pandemic, whatever, pulled forward. So I wrote about this early in the pandemic about the air conditioning effect, how in the 60s, all these people migrated south because of air conditioning. That totally changed population and voting patterns and all this stuff because more people could move to the south because it became more bearable. The remote work thing seems to me like that is going to be something similar, where you have these up-and-coming cities. Austin

obviously is huge now, but all these people. places in North Carolina or Tennessee or wherever, Georgia, where people are moving to because of this and they're moving out of the big cities. I think like the migration from this, the reverberations are going to be felt for years to come on this. Don't you think that like that's where the remote work stuff is going to have the biggest impact is like just migration patterns for cities? Yes. If you weren't tied down to family, would you consider like moving from New York ever if you had this remote work opportunity? Oh, absolutely. Don't you think that there has to be tons of people in New York who were transplants and weren't born there like you are that

are still like, wait a minute, I'm out of here. Absolutely. Maybe that's why everyone in your neighborhood is selling. By the way, I feel like every week you have somebody in your neighborhood selling their house. So there's four corner houses near me. Three out of the four are for sale or we're sold. Three to the four are for sale actually? Do you think that are they trying to one up each other with price every time another one comes on market? Actually, one sneaky person, they listed theirs below. They listed for whatever. It was a lower number.

To try to drive up bidding more? Did it work? I don't know. Okay. They just listed a week or so ago. But yeah, no, I do think that you're right that this trend is, I think that we are probably underestimating the impact that this is going to have. So Len Kiefer had this thing where he looked at states with a 24-month percentage change

in housing prices over 20%. So he's looking at comparing May 2005, which is like the height of the real estate bubble. And he used 24% because that, takes the pandemic, that smooths out a little bit. And he compared it to... Oh, wow. That's a good chart. States with home price changes over 20% from May 2021. And this thing is totally national. Back then, it was kind of coastal. Now it's national. It's almost all the state... It looks to me eyeballing it. I don't know, 40 out of 50 states, where back then it was probably more like 20 out of 50 states. Yeah, wow. Huh.

The price gains we're seeing now are dwarfing those that we saw in the real estate bubble, which causes a lot of people to say, okay, that's it. This is worse than that. The difference now is it's not strawberry farmers with a $14,000 income who are getting a $800,000 house in California. It's people who have their net worth at all-time highs and have great credit scores and all that stuff. Right. All right.

So we just spoke about this, but I just want to read this one paragraph. This is from the Atlantic, that Twitter thing. For the past few years, I felt a strange restlessness. as I read and the desk in my bedroom was piled with wonderful books, I gave up on long before the halfway mark. I had started to wonder if we were in a post reading age or if reading loses its pleasures we age, but I knew that wasn't really true. I had suspected for a while that my reading problems had something to do with Twitter. And several times I tried leaving my phone in another room, but it was no good. Twitter didn't live in the phone. It lived in me.

And that's what I realized what those bastards in Silicon Valley had done to me. They'd worm their way into my brain, found the thing that was more important to me than Twitter, and cut the connection. I've been thinking about this. Patrick tweeted something about books this week, and I can't remember what he wrote, but this book from Conneman and Sunstein and Sybony, noise, this came out in May. I haven't seen a single person talk about it. This would have been massive pop culture news, probably just five years ago. Even like FinTwit culture news. Certainly. I mean, I read, I think I read 60 pages. It was good, but so what? I honestly think I'm in a great. I'm in a depression for nonfiction books. I feel like for most of these books coming out, Michael Lewis

book, the Kahneman book, they all went on five different podcasts. I feel like I got 80% of the book from those podcasts. And I'm like, that's definitely an element of it for sure. There's so many other ways to get analysis and thoughts. And like the book process is so slow and cumbersome that by the time you're finished writing it, it comes out 12 to 18 months later. And obviously you can say, well, it's going to be timeless. But the Twitter thing, this is going to sound like a weird humble brag, but I don't have like an addictive personality. I could probably shut it off if I wanted and I'd be like, I'd feel like I'm missing some stuff.

It wouldn't hurt me, but I know that there are people who have those addictive personnel. I have a ton of friends who get addicted to everything. You're looking at them. I hate Twitter. I mean, I hate love it. Like I love hate it. But I don't sit and scroll through Twitter repeatedly. I never scroll like more than twice.

You know what I mean? But I check it 50 times a day and I hate it. I hate that I do that. I still think that the value for us is probably more of a net positive. We've gotten way more out of it than good than. bad, but for a lot of people who are addicted, social media has turned their brain to mush and whether it's YouTube or Facebook or Twitter, whatever it is. I was listening to Rusillo this weekend and Fanduel, I pretty sure heard this right, Fandul is giving 30 to one odds on your

first bet, which just goes to show how difficult it is to, like if they're willing to do that and they know that not only you're going to blow through that if you do win, but you're going to come back for more, talk about addictive. They're experts on human psychology. They know if they pull you in, they cap those first bets. I think You can win a max of like $100 or $150. But they get you to win once, and then they have you. Yeah. And then you put more money, and then you try to bet more.

And then if you lose, you try to bet more to make it back. And if you win, you keep betting until you lose. I love Rousilla's got this segment called Life Advice. And I think some of them are particularly hilarious. And so I was telling my friend said, hey, do you ever listen to Riscilla? You ever listen to this? He's like, ah, f***er or something like that. He's like, he doesn't know anything.

And I was like, what do you mean? He's like, he's just like a sports fan who has a microphone. He's like, same thing with Simmons. And then I was thinking like, oh, you're just a troll. If you worked in finance, you would hate me and bet. You would say like, oh, these guys don't know anything. What do they know that I don't? I'm a fan.

They just happen to have a microphone. And I just think like that's the mentality of trolls, especially, I don't want to say especially in finance. It's probably in every single field. People that are on TV, there's people that aren't who point and say, what the hell does that person know? He's an idiot. Isn't it funny to have friends in your life like,

pre-internet age. I have my high school anniversary or reunion this weekend. That's my 20th high school reunion. It was supposed to be last year. So now it was technically our 21st. And all these people I knew pre-social media internet age. I mean, we had AOL Instant Messenger that came on board when I was in high school. But don't you feel like these people you knew like before the internet? Like the internet changes. Like you said, your friend like, oh, you're a troll. Like, yeah, I said, I was like, who do you like? You hate everyone. Like, I'm kind of nervous to, see some of these people again because it's like, oh, you turned into one of those people? Because I feel like the internet does change who you are in a lot of ways.

Yeah. Anyway. Oh, so we've been speaking a lot about substack. There's another one. Matt Klein. Matt Klein was at Bairns for a long time. Excellent writer covers the economy and I guess policy and stuff like that. Really good stuff.

But he just started a substack. So I was thinking that substack is awesome for creators like Matt Klein. Oh, Chad Ford. By the way, he was on Rusilla talking about how he just went to substack. That's got to be a huge leap for people. Yes. I'm a fan of both of theirs, but I don't know, like, how big of the audience is for a chat forward NBA draft stuff.

There's a thing, like you need like 100 true fans, a thousand true fans. I mean, I don't know. If you get a thousand subscribers, they're paying 10 bucks a month, you're earning a living. That's a good living for a lot of people. So I think that's the idea. It's like, I think it's great. The flip side of this is this is a potential huge opportunity for young people to fill their shoes? Oh, right, to step into the actual column roles and at a big name publication. That's a good point.

Exactly. This is kind of like migration out of cities. So you have all these people who are more established moving out of New York and San Francisco, and that lowers the rents for young people to come in and take over. Exactly. It's the circle of life. All right. Let's move on to listener questions. Here's an anecdote. We get a lot of good ones for people. So I wanted to give you guys a quick anecdote about how the shortage in hourly workers is impacting business. This person works for a large retailer, said basically our supply chain needs to be running at max throughput to keep up with demand this year. However, we have struggled to staff our distribution centers since spring. We have raised our starting hourly wage by at least 40 percent and still cannot attract

enough workers to meet ideal output. Because of that log jam to have begun and that handcuffs our ability to provide the customer with what they demand, most of our sales come from everyday essential products and we simply cannot move fast enough. Coming full circle, I have a few friends that recently quit their hourly warehouse jobs. Now they cannot stop complaining about how they couldn't find what they needed at the local stores. So these people are quitting, but they also can't find what they want. The irony is fantastic. I don't really know what the solution is. Other than businesses finding a wage that tracks workers back or maybe this is temporary and people are taking some well-deserved time off with savings, they have accrued. I think this is

the kind of thing that just works itself out. Yeah. I think like there is no such thing as like an equilibrium, but I think as close as you can get to that where you find what wages are and people needing to go back to work and living off their savings, I think eventually this is the kind of thing that this is not long-lasting and it just works itself out. Oh, didn't want to plug one thing. Speaking of substack, we had a listener who switched careers was in the spirits industry. And now he's writing a substack. It's called Ah, So Insights.

So we'll link to that. If you are, you can't imagine we have too many listeners in the wind and spirits industry. But if you are and you're curious about how it works, we'll link to this in the show notes. All right. Recommendations. What do you got? Let's talk about Tomorrow War, because you said that tomorrow war, what did you say? If you like aliens and time travel, you're going to like this movie.

I was very, very specific with what I said. I chose my words deliberately. I saw you were getting dragged on Twitter. I mean, I said, if you like aliens and if you like time travel, and I would imagine by my prefacing that I'm not talking to the entire population. I honestly can't imagine the person who saw this movie and said, that movie sucked because what were you expecting? This is not citizen cane. I mean, it's about aliens and it's about time travel. Like, you have to set your expectations, people. Here's Ben's movie review on this. So I'm pegging the benchmark for this movie as The Edge of Tomorrow with Tom Cruise and Emily Blunt as an alien sci-fi time travel movie from a few years ago. I've probably watched it one or two times. I re-watched it like a month or two ago.

So I'm pegging that as the benchmark. Say that's a 75. This one is a 60. Okay. So I thought it was like the last 40 minutes, it kind of went off the rails a little bit, but there was some really good action. I thought this was the first streaming movie that actually felt like an actual blockbuster? It's like a blockbuster. I mean, it costs $200 million. Let me just say this. When I'm watching a movie that is about time travel and aliens, I have one criteria, one screen of judgment. Did I have fun? That's it. I'm not picking nits. Some people were telling me that the story didn't make sense. It's about time travel and aliens. What are you talking about? Listen, here's the thing. I generally hate people who like nitpick movies like this because you have to

suspend reality because of this. But there were a few parts that were like, oh wait, why didn't they just do this. But still. Yeah, of course there was. I love alien movies that rely on, like, if we just find this one little vial, we'll kill them all. I love that plotline, because that's always the plot line. We just need to find this one thing. I had a ton of fun, and the people that are trying to poke holes in the plot line, come on. There were some definite cheesy parts. It was a little over cheesy at times with Chris Bratt stuff, but generally, like, I stand by your tweet. If you like aliens and time travel, like, I didn't love this movie and I didn't hate it. So it's in between love and hate.

How's that? Right in the middle. Did you have fun? Well, yeah, I'm glad I watched it. All right. So it was over the top. I'd say from the minute 30 to minute 90 were really good. There was some awesome action in there.

When he went and found, spoiler alert, found his daughter in the future, that whole stuff, I thought that was great. Ben, you know, I'm a huge monster person. Come on. If I like alligators, you damn what better believe I'm going to like aliens. All right. I do have a couple books. So I'm nonfiction. I'm not reading really much anymore.

I read Ocean Paray, which is a John Sanford one. It's a Lucas Davenport novel, probably my 30th one of that book. All right. Nobody cares. Here we are. In the year 2021, you're giving detective recommendations. It's about like a heroin deal where they drop it off in the ocean and you have divers that have to go down and get it.

It's really good. Also, it should make that into a movie. I'd watch a movie. You probably would be. So also, this is, you see this Once Upon the Time in Hollywood? I do see that. Quentin Tarantino. He was on a few podcasts.

So he wrote a book after the movie. and it's great. It feels like this old school paperback from what you'd buy in like 1989. What are you doing with that book? I'm going to read this on the beach. I can't wait. So I really liked this movie. I thought this is one of the best movies of the past few years. You didn't like it.

But he said on the podcast that he kind of wrote this book from the narrator's perspective and he's going to give all these different thoughts on the movie industry in it. And I'm just interested because my brain doesn't have the creativity, whatever, the left or right side of the brain. I can write about markets and numbers and stuff, but I could never write a movie or a piece of fiction. You know what this reminds me of? You've seen Airheads, one of my favorite early 90s movies. Been a while, yes. So there's a scene where they hold a radio station hostage,

and their brilliant idea is to make ludicrous demands from the police, ludicrous hostage demands so that they complete insanity later. So Steve Bouchemey goes, let's get 10,000 copies of Moby Dick. And she goes, the book of the movie? And he goes, they made a book out of that? That's what this reminds me of. He made a book of the movie? What's going on here?

And he's giving it from like different perspectives, I guess, of characters and his description of it on the big picture podcast made me want to read it because here's the thing. Tarantino's written a bunch of movies. I've never really read anything of his. So I'm interested in that creative side of like him as a writer. And so I'm going to read it. All right. Can I just say, I don't want to say shame on me. That might be too strong, but I'm like the only person that I've come across who really didn't like once upon a time in Hollywood. So I'm just going to go ahead and raise my hand and say that I'm wrong just because everybody else seems to like it. And I think what happened was I might have gone heavy on the

edibles that night. Now, but I think what happened was my expectations for the movie were completely off. I had no idea what I was getting myself into. Speaking of edibles, what other podcasts in the country were ever going to get an Airhead's reference in? I forgot, though. It was Bushemi and Sandler and Brennan Frazier and Chris Farley. Oh, that's right. Yeah. Okay. This is the police officer. J. Thomas? But not bad. Anyway, once upon it, I'm, I can't wait to read this on a beach somewhere because I read everything in my Kindle now. And he said, no, you have to buy this in the paperback. So I did. Okay. I watched adaptation. Who did this movie? I don't know what took me so long. It's Charlie Kaufman movie.

Oh, so he's the Bean John Malcovich. Yes. I thought this movie was highly underrated. 2002, Spike Jones directed it. This was out there in a good way, Merrill Streep. Is that maybe Nicholas Cage's last good movie? Yeah, so I want to make the point. Has there ever been an actor go from Nick Cage to Nick Cage, the way Nick Cage did? Like, the first half of his career was dynamite. So this happened to Bruce Willis, happened to John Cusack. Who else? It just happens to some people.

Well, well. Think about Meg Ryan fell off the face of the earth. This happens to a lot of actors. But Bruce Willis couldn't get roles because he was this action guy and then turned middle age and just whatever. Nick Cage, like... Look at the John Cusack, IMDB. He's got the same thing.

Not a John Cusack guy. Nick Cage has been making movies for the last... He's been making tons of movies. They just, they're terrible. Yeah, because he owes people money. He spends $150 million. million dollars on a dinosaur skull or something. But yeah, that is a great movie. Like the twist at the end, that's a really great movie, isn't it? Merrill Street is in it. Nick Cage playing twin

brothers. It's very good. Chris Cooper. Yeah, did not see that coming. All right. All right. Anything else? Remember, our talker books now is going to be on Mondays. Yes. So we'll see you then. Animal Spiritspot at gmail.com. Thank you.