Animal Spirits Podcast - A Bear Market in Housing (EP.286)

Episode Date: December 7, 2022

On today's show we discuss continued strength in the labor market, sticky high inflation, why the market isn't listening to the Fed anymore, the case for a 20% decline in housing prices, why Netflix rules streaming, sending back a drink at the bar 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.      (Wealthcast Media, an affiliate of Ritholtz Wealth Management, received compensation from the sponsor of this advertisement. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information.)  Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at Y Charts. On the show today, we're talking labor markets. All right, so we've pulled up some of my favorite charts here. U.S. job openings, non-farm, obviously, total unemployed people in the U.S. and total quits. Quits is basically flatlined. Unemployed persons has come down and has also kind of flatlined, and job openings is rolling over but just a little bit. To the normal person, this is good news.

to the economist, this is bad news because people are still quitting their jobs, which is a sign of a healthy labor market. And there's still a ton of job openings, more job openings than unemployed people. And this means bad news for inflation, which means the Fed keeps raising rates. Fair? Yeah, we're going to get into the jobs report data last week and the market's reaction to it. It was an interesting one. If you want to check out charts like this, remember go to whycharts.com, tell them animal spirit sent to you. Get 20% off that first 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 Rithold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. A few updates before we get into brass tacks. What the hell does that line mean? I got nothing. Can we talk about how awkward this setup is real quick? Well, I was going to. I was going to lay some groundwork. So Ben and I are recording this in a hotel room with Duncan,

and we're going to do our best to look at the camera. But when I go like that or when Ben's doing what he's doing now, we're looking at each other. We're trying to play off the audience. and one another. So we do our best to stay focused there. So if our eyes wander, that's why they're wandering. Riddholz wealth management is looking for a tax planner to join our tax team. So if you are that person, reach out to us. Hiring at Rittholtswealth.com is the place to send your resume.

Here's the other thing. We're always looking for advisors. Always. If you're a financial advisor, reach out to us. We're always happy to talk to you. And the compound and friends, myself and Josh, we're joining the On the Tape podcast. That's Guy Adami, Dan Nathan and Danny Moses. We are hosting a fan appreciation night at the NASDAQ market site in Times Square.

There are still tickets available, but not too many. So if you are interested, we're going to have a link in the show notes for you to buy a ticket. Tickets are 100 bucks. All of the proceeds are going to a good cause. They're going to No Kid Hungry, which we've done some work with in the past. So if you want to see us, December 16th, that's a Friday evening, 530, Friday to December 16th. You should probably wear a tropical broil shirt for that. Yeah, maybe I should.

All right, Ben, let's get into it. So last week, when does a job report come out every Friday? It was Friday. So Friday, jobs report came out. The labor market remains strong. So if you look at the data from BLS and you add up all the jobs gained this year, it's 3.9 million jobs, kind of a lot, especially since we went into recession six months ago. Not really.

I called you that day. In the market, immediately, of course, the algorithms trade, and they immediately go down. The market went down. But it didn't feel like we've had in the past, call it six to eight months, where a strong dropped report, the market was getting annihilated. Because how many times could the market be surprised that the data is still strong? The S&P was down, I can't remember, it was down less than 1% on the day. But Ben, you're right.

Earlier in the year, that type of surprising strong report would have sent the market down 3% of the day. So Nick Cole has talked about this at data track. He said, as much as Chair Powell is trying to contain investors animal spirits, good one, talking about persistently high interest rates, markets are rejecting that message. Instead, they're looking through his rhetoric and they think they see an inflection point for monetary policy. That is a reasonable setup for continued stock market rally, just as it was from June to August. And I know it seems like the Fed officials come out and say something and the stock market falls a little bit, but it almost doesn't feel like it's totally into it anymore. It's like a person who's going through

the motions in their marriage. I'm thinking about this because we've been watching the Fleischman show. They're teetering on the edge of divorce. It seems like the market wants to get to a divorce from the Fed. Oh, interesting. How do you like that? I just came up for that on my own. Isn't that great? But this is causing people to worry because the labor market remains around. Now, call me crazy. I think if the labor market remains strong and inflation is falling, that seems like a good thing to me. I think a lot of economists think those two things can't happen. We can't get to the Fed's target. I mean, that sounds like a soft landing, though. So Jason Furman said, you probably want to revise your views on inflation and its overall dynamic more based on today's job report than any

other data report this entire year and not in a favorable direction. And that was because of wage inflation? Wages came in higher than expected. Matthew Klein wrote a piece about this too. He's basically saying the wage data remains so much stronger than most economists would have expected. He said, unless that changes inflation net of temporary factors will probably persist around four to five percent per year. So the worry there again is if we don't get back to two to three percent like the Fed wants and it stays higher at four to five percent, then maybe the Fed's going to have to continue to stay higher for longer or keep raising rates. I have a dumb question. What does three to four percent inflation mean long term?

If we have that for the next three years, what does that do for the economy, the job market, the stock market? What if we adjust to like that new normal? Does it have to be terrible? The crazy thing is, I mean, obviously, inflation is all over the place. If you look historically, it's not like it ever stays in a steady state. It's all over the place. But the last hundred years, the average inflation rate in the United States is roughly 3.1%. So that's the law. Yeah. By the way, Tuesday, 10.25 Eastern time. We're on Central Time, but I still use Eastern. Is Houston Central Time? You know, when they came up at that? Yeah, it's Central Time. What is Mountain Time? I don't know. don't you think there should just be Eastern and Western? Do we need the middle? Can't the middle just be the same as us? And why is Grand Rapids or Michigan? Why are you on Easter time? I don't know. We're like the last cutoff. Is that science or is that somebody just decides? So we drive down from Grand Rapids to Chicago. Chicago's two and a half, three hours away and we go from Eastern

to Central Time following the lake. It makes no sense. I drive to Indiana and I teleport an hour behind. Also, as of right now, the S&P 500 has given back most of the gains from, when did Powell speak? It was Wednesday. That massive update, most of those gains have now been taken back. So I don't know what the market is looking for. So is this a slow realization of the Fed stuff? Or is it just we had a massive rally? How many bear market rallies have their business year? At least four? Well, there was one in January. There was like a two-week rally, January or February. There was one from February to March.

There was one from May to June. When you say February, are you using the R? February. February. I think you're the only person in my life that uses an R in February. That's just good, clean. All right. Wait, what's the word for eloquence or articulation?

That's good, clean articulation. That's what that is. There was one from June. There's a long one from June to August. and then there was one from October to where we are today. So it's a bunch, a lot of rallies. I stay in the position that having a strong labor market for once. Wait, what do you mean you stay in the position when the facts change, sir?

No, but I've been in the position that why do we all of a sudden want to punish workers if they're finally having a good run? Oh, this again. How many times we have this conversation? I don't understand why economists are so quick to worry about inflation when workers finally have the upper hand for the first time in 40 years. They don't care about that. Obviously.

It's funny because, so they're obviously locked into the 1970s. They do not want to repeat of the 70s. I get that. You don't like the Fed's mental models. But do you think in 40 years are people going to go, we don't want a 2020s again? However, this shakes out, are we going to forget about the 70s eventually? Well, when you are the chair of the Minneapolis Fed, you will have memories of the 2020s and you will be just like them.

I also still don't get why there's a Minneapolis Fed. No offense to my Midwestern brother in there. Well, is the Kansas City Fed as well? That had to be something that just happened in the early 1900s. All right, just some more breakdown. Leisure and hospitality gained 88,000 jobs. At the beginning of the pandemic, this is for Bill McBride. Leisure and hospitality lost 8.2 million jobs.

TLDR, they added back 88% of all the jobs lost in March and April, which is pretty incredible, considering, again, that was 8 million jobs. Construction employment is now 126,000 above the pre-pandemic levels. manufacturing is construction things not higher because there's been so much demand i bet that's a case where it would be higher if there were enough people for those jobs doesn't it seem like there's still a lot of demand there anecdotally i heard from the builder we use i'm doing my channel checks he said because new home building has basically fallen off a cliff that they're still building projects it's actually easier them for find workers now because it's slowed so dramatically

Well, there's an update on my mudroom situation. So the one guy who we've used in the past gave us this quote that I said, nope, told my wife to get other quotes. We got another quote that was almost 50% lower and we're trying to like square those circles. And we told him and he said, he can't do it for that cost because the supplies are a third of his cost and I guess labor. So you go with the person of the lower quote.

Why would there be such gigantic differences between what people are quoting you for the same job. Do you think that's kind of like the growth investor who is waiting for 10-time sales companies to come back? And they're living in the past of 2020 and 2020. Yeah, maybe the one guy, the primary guy is looking backwards. And the guy who gave me the other quote, he's forward-looking. It's a new reality. I've got some real estate thoughts. Put a pin in this one. I've got some thoughts. Okay. But yeah, the labor market is super strong. Building products is trying to people that are unemployed for over 26 weeks. And it is low as the toe. Not budging. What was that? Low as a Okay. Never heard that before. Not bad. Sam Rowe did this thing. Looking at, Josh has been on this thing that a lot of these. Hey, Sam Rowe said it's pronounce ticker on Twitter. He told us. No, we know that. What did you call it? What did you call it? It's literally TKR. So Sam said U.S. employers had 10.3 million job openings listed in October. During this period, there were 6 million people unemployed. So that means there was 1.7 job openings per unemployed person in October, which is,

off the charts. Are you in the camp that you think that a lot of those job openings are bunk and are fake? Yeah, but they're directionally right. So he said in October 22, LinkedIn has this tracker where they're looking at there's one job opening for every job seeker. So whatever. So maybe the official numbers from the BLS or perhaps. Even if they're on equal footing, that was Matthew Klein's whole point is that people still have the ability to move to a new job and make more money, which again, call me crazy. I think is a good thing. I think it's a good thing that people are able to improve their standard of living. But obviously, the counter to that would be, well, fine, but inflation is eating into it.

What do we make of Bank Councilmanus' chart? The continued strength of real consumer spending is pretty remarkable. It's accelerating over the past few months as inflation has eased. So you see that. And then you see the savings rate collapsing. Those things, don't they kind of go hand in hand? People are spending down their savings or they're not saving as much so they can continue spending. And I think the missing variable, the missing ingredient in here is still the

excess savings being worked off. Yes. And to my point, we saved so much money in the pandemic and I think it's just all going to be eaten away. People are not going to buckle down unless there come job losses. That is interesting because the excess savings are perhaps what caused inflation in the first place, but they're also making for a potential soft landing. It remains a confusing scenario because don't you think if we keep seeing inflation readings go down to 7% and then 6% and then 5% eventually, it's going to be hard to get the markets to assume it's not going to keep going to 2 or 3 because, again, people are worried it's going to be stuck at 4 or 5.

That seems high relative to history. People are going to be worried about that. But I would think the markets would think that's a good thing still. We'll say. I have a question for you. Ben Johnson tweeted a table of the market share of active and passive funds. Oh, I'm sorry. I was misreading this.

my bad. So we're looking 20 years ago versus today. And what threw me off was, I thought this is 2022. 20 years ago, if you look at commodities, for example, in U.S. mutual funds and ETFs, 100% of commodity funds and ETFs 20 years ago was actively managed. Today, that number is down to 30%. That actually still seems kind of high. Yeah, these numbers are interesting. Look at the sectors, too. I mean, all this stuff is moving. to passive? I guess the biggest one is U.S. equities. 20 years ago, it was 83% active. Now it's 43%. Wow. That's a pretty good push. Has anything stayed active? Municipal bonds. That makes sense. Because there isn't really a good municipal bond index, right? No, there are ETFs. But I guess

the bulk of it is actively managed. I want to do my weekly segment, investing is hard. I think I got this from your latest compound and friends. Who was the guy that was on it from Jeff DeGraph. Jeff DeGraff. He was great. So he was talking about energy stocks and how countercyclical they are. Do you think the way that people treated commodities as this diversifier back in the day, could the energy sector become that someday where people say, you know what?

Because commodities this year have gone up and come down. Could they say, I'm going to just do energy stocks now for that piece? I reject that premise. Why is that? I think there's a very unusual time period. I don't think that anybody will use XLE as a diversifier. It seems if you just did the back test, you'd look at this and go, why wouldn't I use that as an offset? It's like the stock market does good, energy stocks do bad.

I do wonder if this is the most non-correlated XLE has ever been to SPI. So I would say directionally, it's got to trade with the stock market. Energy is a big political thing. And so I looked back at some of the headlines when Trump took over in 2016. And it talked about how he's going to deregulate energy. He's going to drill more. He's going to produce more and all this stuff. And the energy industry is going to be huge winners from his presidency.

And from the time he took office, the day after the election, until election day in 2020, energy stocks were around 50%. Wow. Energy stocks under Biden and the Democrats, he would think, no, wait, hold on, time out. Even before the pandemic. Yes. This was pre-pandemic. They were already- It was flat. And the market was up substantially.

Yes. And so under Biden now, in the Democrats, energy stocks are up over 230 percent since Biden was elected. Wow. I mean, if you would have gone back and said, who's going to be the beneficiary? This is why I do think that that's probably one of the easiest rules of thumb you could have is just never invest based on politics. I mean, obviously, you could say, well, what people say in campaign speeches is not exactly what they put through when they actually get in office and all these things.

But that's just why I know Barry's been hitting on this one for a long time that investing in politics don't mix. But I just thought the stark difference there just between it's so much more macro and rates and inflation and all these other things. that politics really has nothing to do with it. The new BMO VI Porter MasterCard is your ticket to more. More perks, more points, more flights, more of all the things you want in a travel rewards card, and then some.

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of design ideas and affordable options to complement any budget. After all, you're in your small space era. It's time to own it. Shop now at IKEA.ca. Last week, you said, does Biden or the White House get a little bit of credit for energy coming down? And sure enough, President Biden tweeted, our releases from the Strategic Petroleum Reserve and my call for global partners to release reserves of their own have helped gas prices drop below where they were prior to Putin's division of Ukraine. We're blunting Putin's price hike.

I don't know enough to say if this is fair, 100% BS. I don't know, but he is taking credit. It still remains one of the more surprising things about the markets to me this year. I'm going to ask, is it easier or harder for you to interrupt me within the same room? I see no difference. I'm not even looking at you. Keep you a professional. Okay. Put the blinders on.

We haven't done a flow chart in a while. 2022 is on track to be the second best year for ETFs with over $750 billion of inflows. I wonder if some of that is, again, money coming out of actively managed mutual funds and going into passive ETFs. So last year was the record, obviously. And to that end, we've got some granular data from Eric Dautunus. The top 10. Never thought you would be a granular guy. What do you mean?

It's kind of jargony. Granular? Granular. So granular, robust. I think granular is on the edge of being jargony. Listen, it's a good word. I had a colleague early in my career who used that word all the time. And I feel like, no offense to you, it's a word you use to make yourself sound smarter.

It's jargon. Really? Oh, man. Duncan's got my back. That honestly surprises me. Listen, it's a good word. I have a bad vocabulary. To me, granular is just, it's not even an SAT word.

It's like right down the middle. Anyway, the top three are all U.S. market-based ETF. So VLO is Vanguard's S&P 500. VTI is Vanguard's total market. IVV is the I-Share's S&P 500. So those are the top three, perhaps not. Not entirely surprising. Number four is TLT.

That is very surprising. Because that thing is down 27% on the year. What's SCHD? And BNDA is number six. Huh. What's SCD? I don't know that one. Is it the dividend one?

Duncan. How do you know that? Do you own that? At some point. Okay. The other one that's interesting is JEPI, which is JPM Morgan's call option one. I know we had to talk your book on that a few weeks ago.

on that strategy, but people... We did? No, we did it. Yeah, we did. The Madison investment. Oh, I thought you meant with Jav Morgan. Okay. Yeah, not with them, but it's interesting

that one is in the top. What's VT, there's two others that are unfamiliar to me, V-T-E-B, I don't know what that one is. Isn't that the Muni-Bond one? I think a lot of this is just, this is your active-to-passive moves where I have some losses in my bonds. Okay, that I'm going to shift them to lower cost,

more tax-efficient. U.S.F.R. do you know what that is? I don't know what that. that one. You know, I'm not embarrassed to say that. I don't know what these are. Credit to me. Oh, wow. That's Wisdom Trees floating rate treasury fund. That makes sense. That thing's probably flat on the year to maybe even up. Oh, here is. Again, it says right here. All right. That's up one and a half percent. That's taken in $10 billion. Makes sense.

They're the only, well, I guess JP Morgan is outside the Vanguard I shares. Anyway, Duncan, the new segment is going to be, you guys do the mystery chart on what are your thoughts? It's going to be mystery ticker. I feel like I'm good with tickers. USFR was not on my radar. I didn't know that one either. Lumber round tripped. Silence, nothing.

Okay, moving on. It's actually roundtrip twice. We've heard the story from Ramp Capital about his home buying experience. He actually wrote a blog post about it like a month ago. That was pretty good and how painful it was. I can't imagine building a house and buying when, like, lumber prices were so high and locking in those. Brutal. So inflation is coming down in most places.

I added a story that I forgot to share last week. and the story is this. I went to pick up a salad for Thanksgiving. I hosted. Healthy guy, huh? Yeah, right. My weight is actually A-Thing right now. All time.

Can you notice? I didn't see in the gym with me this morning, so. Duncan just not at his head. What? So I get back to my car. I said, hey, wait, how much was that? So I look at the receipt. It was $110.

plus tip. Do you tip when you take out? I always do. Not to brag. Honestly, I tip more now since the pandemic than I did before. It was like 120 bucks. Credit to me. And I opened it. I opened the bag. I got two salads. Where do you get salads that cost $120 from? I got two salads. So like normal size trays, like a family style tray. Not like a big tray. Normal tray. What is it? 12 by 8. I don't know. A normal size tray. $50. I opened it up just to see what was inside. And it was kale and goat cheese in one. And the other, I didn't see what the other one. I don't do this. I don't send things back. I called Robin. I said, I'm taking this back. This is insane.

I went on the internet to see comparable priced salads from a place like Mateo's, which if you're a Long Islander, it was a Mateo style salad. Their Caesar salad is 26 bucks. That's all I needed to know. That's it. I'm done. So I walked back inside and I said, I'm sorry. I need my money back.

You did? Yeah. Can you return a... I said, like, I wanted more. So the hostess just took the salad back. She's like, okay. But I wanted to be like... Wait, that's pickup from a restaurant.

Yeah. I wanted like some dial-like. I wanted to be like, am I insane? This thing is $50? How much should this cost to make? Four bucks? You know what your solution is? Buy your own ingredients.

Salad's pretty darn easy to make. I could make a salad. Do you think a salad at a restaurant is really better than a salad you could make from the grocery store? I think most takeout food is. I'm not sure salad. There's not as big a spread. The salad in a restaurant versus a salad. You can make it a home by service.

The sandwich they can make. There's a premium on the sandwiches. Also, I want to call BS on you not sending stuff back because at the bar last night, you complained about the expensive tequila they gave us. Duncan, you miss that. The manager had to come over. That is true. That is true.

Ben, you called me out, and that's a good callout. Also, an unusual. We go to the bar. I got a margarita and Michael, and Josh got a tequila. And I think you asked for Casamigos, but they get. gave what it Casa Azul, which is like a really expensive tequila, which, listen, I asked for Casamigos, which should be, I don't know, 15 bucks a drink. There was how many of us? Was there six of us? Five, I think, yeah. And so you got a margarito with a Class Azoal? That's blasphemy.

I see Michael looking at the receipt. And then the next thing we know, the manager is over profusely apologizing in offering to give us like their best table. And you guys want to eat. Hold up. All that I said to the bartender was I ordered Casamigos. That's all I said. I didn't say I want a free drink or I want my money back. I simply mentioned it. This is why the quits rate is so high in the United States. I simply mentioned it. And then the manager came over and said, are you dining with us tonight? And we weren't dining with them tonight. Did I ask for a free drink? I didn't ask for anything. It was just a hey, I ordered Casamigos. And the bill was four times what I thought it should have been. There was a waterfall in the restaurant. It was great. All right. Google searches for inflation fell at the lowest level since the start of the year. This has to be gas prices. Gas prices fall. People don't care about inflation as much. I think you can simplify all of inflation to gas prices. Here in Houston, we were talking about this, gas, 280.

I thought it was like Venezuela. I was saying last night it should be like 10 cents a gallon. I figured we're in Texas. Another teaker, ticker. Damn it, Ben. So Sam did this thing from, I think he pulled it from Goldman, saying that all of the headline lieoffs are in tech, but it's like 3% of the workforce.

This is more interesting. data. Nearly a third of the discussions about job cuts from a U.S. company earning calls are stemming from the technology sector, which again, only employs less than 3% of all people. I think this makes sense. I wrote some about this. So the tech sector, you could argue it makes up like a third of the S&P because Facebook is in communication. You have to argue it is. Yeah. So it's like a third of the S&P. And so that's why I think investors pay so much attention to tech and why it gets all the headlines because it's such a big part of the stock market and it's not nearly as big a part of the economy.

If you ordered a $10 drink and they sent you $35 drinks, you wouldn't have said anything? You wouldn't have said anything? Well, you're a pushover. No, I wasn't part of the ordering process. But no, I give you credit for saying something. This is Zerohead shows that Wells Fargo cut hundreds more mortgage employees in the slowdown. I feel for people in the real estate industry because the boom bust that they went through, which was no fault of their own, like if you were a realtor, you could sell every house in a day.

if you wanted to for like, what, 15 to 18 months, think about that has to get into your psyche and then nothing. It falls off. Like, I can't imagine going from that easy of a period to this hard way period and how you deal with that in your employment, not having that be more steady. The same thing with people in refinancing or loan departments. I feel for people in that situation. So a lot more fallout from crypto. This was the week that SPF went on his world tour. he's talking to Andrew R. Sarkin, who we spoke about last week. I thought he did fine. Actually, I thought he did well. I thought the applause was kind of a little bit, not a little bit. It was gross. He probably should have said, instead of saying, give him a round of applause,

probably should have said, give him a round of booze. Did he say give him around applause? I think he did. We'll check the video on it. All right, whatever. I'm waiting to see a story about him in my local paper. He's talking to literally everyone. Was he on Good Morning America? Yes. There was some sort of affair between the two lead anchors on Good Morning America. Oh, my wife just told me about that. So my wife was tuning in to Good Morning America instead of the Today Show because of the affair thing because she wanted to watch it. And then it happened to be on and I watched Sam Bankman-Fried.

He is doing his best to pretend like he is an idiot. Before he was trying to prove how smart he was. Now he's trying to prove how dummy is and it's all an act. Think Frank did a great podcast with him. It was two hours. It's impossible to get into somebody's mind and know what their intentions are, what they're trying to do. I think he might be delusional. There's probably some of that.

I think he might convince himself that what he's saying is the truth. I think he might be delusional because he keeps saying to the best of my knowledge and he was the guy making these decisions. We've also shown he has limited data. When you throw billions of dollars at someone who's that young and then everyone tells them they're a genius, think about how many geniuses we've had that have kind of gone off the reservation. Kanye West was called a genius for years. Adam Neumann was called a genius. Sam Bingham, like all these people. Yeah, you give them so much money.

You give them so much adulation. And unfortunately, a lot of human beings can't handle that. There was an article in the F.T. about Alameda. So they said that they stepped into shelter FTX from a loss of up to $1 billion on a customer trade that blew up. And the thing about FTX was they were so out there about the liquidation mechanism that this was like the most sophisticated exchange and that I'm not saying they said that CME should operate this way, but like U.S. exchanges should have followed their lead. Well, it turns out that in April of last year, there was a token called mobile coin.

Sounds legit. Whatever. So that spiked from $6 to $70 before crashing down. Apparently, Alameda was forced to step in and assume the trader's position to protect FTX. So there was a billion dollar loss right there. Haven't we also learned that none of the crypto hedge funds basically were really hedge funds? They were all just levering up huge positions in riding that wave. Alameda certainly looks like that's what they were doing.

Whether or not they were ever a profitable enterprise at all. is certainly up for debate. This is a hell of a tweet from Jordan Weissman said, man, CoinDesk's investigative reporting did so much damage to the crypto industry that the site's parent company and now it needs to sell it. Who owns CoinDesk? DCJ. Okay.

So CoinDesk was the one that broke the news on the relationship. What was their initial reporting? Was it the relationship between FTX and Alameda? I can't remember exactly what it was. On Frank's podcast, they were talking about like, who were the people that were oversaw? seeing the financials and Sam he couldn't name them and then Frank said like you can't name one person and he said well I don't want to I can't believe that obviously the other employees who are big into this have lawyered up and smartly are not saying anything I hope one of them turns on him because

he's obviously trying to throw other people under the bus I hope they all turn on him and take him down that's where I am I'm looking at a picture that Duncan took of us okay this is hilarious So we are in a very nice hotel. It's called the Post Oak Hotel. The only five-star hotel in all of Texas. And in this picture, which will appear as I'm talking on YouTube, what does this even appear? It looks like I'm sitting on the bed. But in fact, I'm standing and I'm propping my computer up on, there's like an island where the TV pops out of the island.

Yeah, you hit a button. I immediately took a video of it and sent it to my wife and I said, oh my gosh, it's the TV that pops up as out of nowhere. And we were also talking about the economics of a hotel like this in particular. I don't know how this place makes money. I don't know how most businesses make money. I mean, the real estate is done. It's just upkeep now. How many rooms do they have?

Well, I would imagine that they didn't pay for this thing with cash. How much would it cost to build this thing? What's the interest on this? What are the mortgage payments or whatever it is? That'd be a good substack, the economics of the hotel business. All right. Let's make the case for a bare market in housing. This was Mike Simonson, who's at Altos Research, had Rick Placios.

So these are like two of my favorite real estate people on Twitter, constantly sharing good graphs and anecdotes. Rick Placios is a guy who does like the channel checks with builders and talks about what's going on in different areas. So he made the case for 20% downturn in housing. And honestly, listening to his case, it makes sense. But I don't think it's going to be the ending that a lot of people buying houses are going to want to hear. 20% national drawdown takes us back to what? He said like end of 2020 prices. Because we're up four. End of 2020. So it's nothing. Yeah. So there's still gains in there.

And what had houses fall in the GFC? I think it was like 26 to 28%. Something like that. So this could theoretically or potentially be the largest percentage? We did a decade's worth of gains in 18 months. So even seeing that shouldn't worry homeowners that much. So here's his baseline. And he said, listen, all of this hinges on mortgage rates. Our baseline is that mortgage is if they stay above 6%. This is our baseline.

So he says, if mortgage rates stay this high, we've talked about this many times. They've come down quite a bit. They did come down. So if they get to 5%, I think you can probably throw this out the window. But also, side note, if mortgage rates get to, to five percent, and it's because bond yields are falling, 2023 could be the year where everything rallies. This is the year where everything corrected.

Side note to the side note. If home prices fell 25%, would that alone in a vacuum change consumer spending? It could. Listen to why it would happen. His baseline is we've talked about the housing market, no one wants to sell and no one wants to buy. Obviously, there's still some people, but compared to normal, that's not happening. His theory is, okay, who's the marginal seller going to be?

And he says the marginal seller is going to be builders who own, land and have to sell houses. And he said, their margins were so good in 2020 and 2021 that they are going to go to their suppliers, tell them, listen, the world has changed. We're going to bring costs down and we're going to sell and we're going to meet buyers at the point. So he's saying, what if new builds becomes 30 to 50 percent of the market and these builders have to sell? What is it now? I'm not sure exactly. So we were talking about this yesterday. The delta between just kidding, I hate that word. That word I do hate. That might be worse and granular. No, no, no. That's my I know. When people say Delta in regular conversation, instead of difference.

Huge red flag. Huge red flag. So the difference between new and existing home sales and price could be dramatic in the sense that new home sales are much lower, which paradoxically, too many big words. That shouldn't be true. But that was similar to cars where used cars were going for more than new cars. It could be the same sort of weird funky dynamic. So if prices are driven down buy home builders and prices fell 15 or 20 percent because they're going to meet the market where it is and all these other people don't sell in existing homes. Unfortunately, for most people wanting to buy a home that doesn't put you in a much better position. But there's not enough new homes to satisfy demand. That's the thing. Again, his point was who's the marginal

seller? If there's so few home transactions and they're the ones coming down to meet the market at the price now with higher rates, it still feels very unhealthy, regardless of what's happening to prices. So yeah, mortgage rates are not 6.30. This was an interesting one from Taylor Marr on Twitter. They looked at number of homes that have mortgages. Forty-two percent of homes as of Q2 2022 have no mortgage, which is kind of incredible. Is that basically all baby boomers? That is wild. Is that number higher or lower than you would have expected? It's higher, right? It has to be. Yeah, I would have guessed 41. Wow. All right, let's talk about this B-Wewit thing. So this is more of an advisor story. I think advisor would be interested in this. The general public,

probably not so much. But the deal is Blackstone has this product called B-Reed that is primarily driven from advisor flows. Private real estate. Private real estate. So they said that the amount of withdrawals. Now, obviously, private real estate, it's not liquid. This is not stocks. This is actual physical real estate. So there is a limited liquidity, which, all investors should know about, certainly the advisors know about, prior to being invested in one of these things. So they have a monthly limit of 2% of its net asset value and a quarterly threshold of 5%. That's the maximum amount of money that can come out in any given month and quarterly period. So they had some large redemption request coming from Asia, which I would

be curious to know more details there. And so the TLDR is they could not grant money to everybody that wants their money back. I think it said like 43% of requests were met. Who knows why those happened? But I think in some cases, if you're the one fund that's up for the year and people need to rebalance or just need some cash, guess where that money is coming from? You're the ATM. And so they must have too many people wanting to get it out.

And it's an illiquid product. There's an illiquid holding. So, yeah, I don't think this is necessarily a fraud situation. No, I don't think so. It's just, again, an asset liability. It's a mismatch as everything is. Liquidity. Blackstone, the stock got pummeled. I think it felt like almost 10% that day. Really? Interesting. Yeah, stock got killed. I guess people are like where there's smoke. Well, it's a massive fund. I think 70 billion. I also saw numbers of 125. I'm not sure. I thought it was 70. But anyway, there's an index of non-traded reeds that had a total annualized return of 11% over the past five years compared with 3% for the total return of the MSCI U.S. REIT index.

which are stocks. So there's a tremendous gap and you're thinking, well, that doesn't really make sense. Why would there be such a big gap? I think some of this is actually explainable. Leverage has to be a big piece of it. So there's that, but also real estate shouldn't be marked to market on a daily basis. I do think that the REIT stock market is, I don't want to say it's gaslighting investors, but I think those daily marks might be not real. So if there was a giant gap between what you expect private equity returns to be versus public equities, you're like, well, they both sort of trade on the U.S. economy. But with REITs and real estate, I do think that it could be different. As a for example, they said that this B-Reed, they sell their 49.9% stake in

MGM Grand, Las Vegas and the Mandalay Bay to its co-owner, this company Vici Properties. The deal values the properties at $5.5 billion and will deliver a profit of more than $700 million to Blackstone, which bought them less of three years ago. So not bad there. But the point is, those are real marks. It's just the nature of this business. And then Blackstone did like a Q&A. How has B-Reeds delivered a positive 9% U-to-day return for investors when publicly traded REITs are down 23%? And what did they say? They said public real estate represents just 8% of overall commercial real estate. That spread, it seems like you should probably meet in the middle. Like, obviously, the REIT market overreacts when the stock market goes out. You mentioned,

like our real estate value is really down that much. I don't know. There's a difference between publicly traded. Like there could be overreactions there. But it seems like that spread is really, really wide. You can explain some of that, but I don't know if all of that. So I can unpick had this chart. Year to date returns through October. And B. Reit is the only one that's positive. Literally everything else on this chart. I don't know if this is all publicly traded real estate or what, but everything else is negative. So I think, Ben, you're right. I don't think that This is complete BS. I'm not saying that, that these marks are all fake.

But I think that this does stand out. Yeah, they may be a little optimistic on their market because it's private transactions and they're marking them themselves, I guess. But again, it is possible that the public markets are overreacting. And I feel like that's usually not my default setting, but it is a little bit of both. All right, survey of the week. This is from the National Association Realtors. They talked about new home buyers.

And they asked, what is your median expected 10 year in your home? You buy your home, how long are you going to live in it for? That has gone from seven years in 2007 to 18 years now. This is for first-time homebuyers. I call BS. People may say this, but there's no way people are going to stay in their house for that long, especially if you're a first-time home buyer. People don't know.

People have no idea. I think that's part of it. People just don't realize it. Ben, last week we spoke about, or you did a post about the golden age of people lying or something like that. Yes. Well, it turns out that Liver King, and if you are a person that, is on the internet, you know who liver king is. For those of you who don't know who liver

king is, he is a gorilla man. He's muscles on muscles on muscles. His 12 pack is bulging out of his stomach. He never wears a shirt. He walks around Times Square with chains on his back, carrying trucks behind him. His veins look like arms. Yeah. And he was promoting ancestral living. All that this guy eats are cow testicles. That's his diet. And so it turns out that Liver King was on steroids. Not a huge shocker there. I'm shocked. Credit to him, I watched his entire six-minute apology.

Why did you do that? I'm not sure. I'm not sure. I pressed play and I was captivated because that is how you apologize. He fessed up to it. He was like, I f***ed up. And he just kept getting into his lying, which, again, good on him. That's how you apologize.

I'm not like outing anyone here, but I had a friend in college who did a cycle of steroids. He was a big weightlifter guy. And he said that he could see immediate results in his strength. That's got to be the kind of thing where if you do that, I could see how you could keep going down that road and not want to stop. Yes. All right. Last week, we talked about Knives Out and why it was only in theater for a week. It didn't make any sense.

Someone emailed us instead of working in a film business. And I can tell you that the limited theatrical release for Knives Out is to qualify for Academy Awards. So they had to go in the theaters for even a little bit of time. I'm surprised they didn't go longer, but that actually makes sense. I am not going to get to that in theaters, unfortunately. But I didn't want to. I'm kind of surprised. I loved the first one.

This was a big week in artificial intelligence. We've heard for years more recently that it's coming. Derek Thompson did a really good story on this that I recommend reading. But this is the week that was the name of this company, OpenAI, Chat, GPT. There's a lot of letters in here. there is a search engine, where it's actually like an answer engine, where you can have this robot do more or less anything you want. The only limit is your imagination. You could say, like, have J.K. Rowling write a rap song. I don't know why I just said that, but the world is your

oyster. So, for example, Joe Wisenthal, I'm just picking him out, but everybody was tweeting this this week, said, write a dialogue where Joe Wisenthal and Tracy Allaway welcome Stephanie Kelton onto the Outlots podcast to explain modern monetary theory and its prescriptions for dealing with inflation in a way that doesn't hurt workers. And it did it. It did it very, very well. It said, welcome to the Outlots podcast. I'm Joe Wisenthaw and I'm Tracy Allaway. And today we have a very special guest. And then I went into what Stephanie would say. And it is something. This felt like the first time in a long time that I used something that was like, holy moly. People are talking about how this could be helpful with education. Are you going to Facebook this? Are you never going to

try it? I haven't tried it. This is just personal. I see the applications. That doesn't make sense. How are you not curious? Because I know it's fake. And for whatever reason, it's kind of when you watch a movie and it's a true story that gets like a 20% premium for me for being better. If I know this is fake, I don't see the point in it.

And I'm sure there's going to be stories in like the AP in the future. I think that's the point. There's going to be things that you won't know are fake. That you won't know. I'm sure that that stuff is coming. But to me, I don't see the need. I feel like everyone who's posting these is like Leonardo DiCaprio in the meme where he's got the champagne glass and he's like, look at how witty I am. I don't want to like totally poo-poo

because there's a lot of applications here. I think the tech industry is kind of like the finance industry after the big short where I think one of the problems with tech is the internet was obviously a life-changing technology. The smartphone was a life-changing technology. I feel like the tech industry, anytime something like this happens, wants to make it the next big thing like that. And that's why they did with crypto and Web3 and now it's this. I feel like every new technology has to be like the next big thing. Every investor is looking for the next big short. and those things are like once in a lifetime trade sometimes. I feel like you are poo-pooing this a little bit.

I am. I'm skeptical because I feel like every year the technology crowd says, this thing is going to change your life forever. And then it doesn't happen. Stop making fetch a thing. I'm writing blog posts. I could say, give me an outline and it gives me three quarters of a blog post where I'm going to write.

I could see how that would be very helpful. But are we sure this isn't like, you know, like the Boston Dynamics things where I feel like those robots are better for viral videos than they are for actually doing stuff? Are we still in that phase where like this stuff is. better for viral stuff than it is for actually helping anyone? I see immediate application here. I interact with Siri and Alexa and the talking stuff, and I feel like it just hasn't improved

it all. So could this really be that much better than those? The only thing we use Alexa for is music. Well, we were talking to somebody yesterday about the next version of this, which is coming in, I think, early next year. And he said, just wait until you see that. Obviously, you can see the applications. There's a there there. I mean, this is like an answer engine, whereas Google's a search tension. You ask Google questions and this gives you answers. I went through college with no Google. Google really didn't become a big thing until I was done with college. I had to actually go to the library and look up magazine articles and stuff. Can you imagine if you were in school and you ask a question for this and it just gives you an answer? Is it a good thing or a bad

thing? I don't know. I think it's too soon to give some knee-jerk takes, but there will be takes. I gave a knee-jerk take and my need-your-take was not everything is life-changing, but I do see the applications for this, for sure. That was a pretty good hedge. So, all right, let's move on recommendations. I'm a diversified investor, Michael. Okay, go ahead. I watched bodies, bodies, on the airplane on the way down because of your recommendation. You said it'd be fun. It kind of reminded me a little bit of like a 90s movie almost in that. It's a clue. It's a bunch of young people in a house and people start dying and you have to figure out what's happening. So who done it? It's a who done it. And it was good. And then the ending was so good and caught me totally by

surprise that the ending made the movie even better for me. If it was just like a, oh, it was that unexpected person. I probably wouldn't have liked it as much. But the way that they did the ending was so smart, I thought, and I really enjoyed it. I was surprised at how much I like it. Good on you for that one. Thank you. That makes me happy. I watched a movie on the airplane as well called Emily the Criminal, which was with Aubrey Plaza, who is fantastic in White Lotus, which is also incredible. And this movie was the opposite. It was a good watch, but the end's kind of stunk. It could have gotten a 20% premium from the ending being good, but this actually got a discount. But it was a good Airplane movie.

Two things, actually. Ben, let's take a look at the highest grossing films of 2022. Number one, Top Gun Maverick. No surprise there. $717 million at the domestic box office. TC is rumored to make $100 million off of this movie, not bad. Number two, Dr. Strange in the multiverse of madness. Did not see it.

Number three, Black Panther Reconda Forever. Did not see it. Number four, Jurassic World. I can't believe Jurassic Park. The New Jurassic Park made so much money. Awful. Minions, the Rise of Gru. I saw it with my kids, but I think I fell asleep.

I think we did the $20 to buy it. The Batman. That was a good movie. That was not bad. Thor, Love, and Thunder did not see it. Sonic the Hedgehog 2 did not see it. I saw that in the theater with my kids. Black Adam, and then number 10, right now, number 10 is Elvis.

This is a horrific, horrific top 10 list. And I saw a lot of movies this year, but this is alarming. I think this is alarming. This is alarming. Lucas Shaw did an article about this. He said there is a very big problem for movie theater advocates. It's not clear most people care. Ticket sales are down more than 30% compared to 2019.

Even if Avatar is the biggest movie of all time, sales will still be down. I feel like we're going to need to take a half day off of work to see Avatar. It was like four hours. I can't wait. The five biggest animated movies released this year gross an average of $400 million, less than half of what they did in 2019. No animated movie hit a billion dollars. So people are just not going to the theaters.

I don't see what changes this. He has a great chart in here about streaming losses. Disney, Paramount, Warner Bros. What's this, HBO Macs? Comcast. What's Comcast? Is that Peacock? Might be Hulu. Netflix, of which I'm a proud shareholder, is the only one that's not losing money. So he said the number and rate of people canceling their streaming subscriptions hit a new high in September. Close to 6% of all customers cancel their service. It's almost double the rate from 2019. So now people are like churning through. When is the bundle going to happen? Yeah. The worst turn rates are Apple TV, Peacock,

stars, Showtime, and Paramount Plus. He said the number one TV. show in the world is whatever is on Netflix. Netflix accounts for 75% of the most watched streaming programs every week. Wow. It's pretty impressive. It's Netflix and everything else. That makes sense. All right. That's it. Animal Spiritspod at gmail.com. Thank you for listening and we will see you next week. Thank you.