Animal Spirits Podcast - A Moral Margin Call  (EP.246)

Episode Date: March 2, 2022

On today's show we discuss investing during a war, the biggest questions we have right now, why it's impossible to predict the future, the rising potential for a financial crisis, how to win during a market correction and 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

This episode of Animal Spirits is sponsored by our friends at Y-Charts. Remember, Y-charts platform helps you make smarter investment systems and become a more effective communicator, right? Yep. One of my favorite things on Y-Charts I've mentioned before is the comp tables. So you enter in an index, Russell 3,000, S-P-500, MSCI, EFA. Huge comp-table guy. Using it all the time. So it gives you all the names in there.

And then you can look at the different factors of them, the market cap, the price, the returns, whatever. Wait, Ben, can I even go one step before? Do it. Are you a time series analysis guy? Comp tables over time. I haven't used that as much. You have, obviously. Not to brag. Okay. So in recent episodes, we've talked about the fact that all these gross stocks are getting killed. The SP 500 still is just down 9%ish, I believe. So what is it? And so I had a research channel, Sean, look at this for us. And I said, break down the companies that are within 10% of their all-time high because most of the time stocks are going to be in some sort have drawn on. But they're closer all-time high and then break it up by market cap. And it's a lot of boring

stocks. Berkshire Hathaway, United Health, Procter & Gamble, Bank of America, MasterCard, Exxon, Coke. The Dow. Yes. Chevron, Pepsi, Verizon. It is. It's the Dow. So this is why the stock market is still actually holding up relatively well because these boring stocks, no one ever talks about, are holding up well. This is the return of the boomers. So if you want to do comp tables or comp tables over a time series, reach out to Y charts. We just had someone in my DMs yesterday, saying, hey, I got 20% off three subscriptions at my hedge fund using Animal Spirits. Was that your burner account? You DM yourself? What a screaming deal.

Buycharts.com and tell them we sent you. 20% off your 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 Carlson. or any podcast guests are solely their own opinions and do not reflect the opinion of Ritthold's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may maintain positions

in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Michael, watching the world history play out on Twitter is kind of frying my brain this past week or so, and I guess these past few years, I feel like we're just not supposed to have that happen, where you watch things happen in real time. Maybe it's because I originally grew up in the pre-internet world, but seeing this stuff happen in real time is both like terrifying and inspiring at the same time. And my brain is having a hard time dealing with it. There's a book about the Cuban Missile Crisis and 11 minutes to midnight, something like that. You ever read that one? No.

Hang on. This is sticking to my craw. Is that what it is? That's not what it is. There's a book. something minutes to midnight. I can't remember what it is. And it details that event in the early 60s where we were like truly on the brink of annihilation. Oh, one minute to midnight. That makes more sense. Is the name of the book. Actually, fun fact, I read that when we were in the hospital when Kobe was being born. That's needed to hear nor there. But in the book, they detailed the fact that Kennedy was talking, RFK was talking to the advisors and something was going on. And it had been six hours later, and he said, does the president know? And it was six hours after the event. Now, we are seeing everything in real time. And it's sensory overload, emotion overload.

It's horrifying and beyond seeing the videos of families being like ripped apart and little kids being taken away from their fathers because the men are staying behind. It's hard. It also puts into perspective how much of your life is just determined by luck. Like those people in Ukraine didn't ask to share a border with a madman. Where you're born, it's total genetic lottery type of thing. It's everything. It's everything. Yes, it just shows how much luck is involved with that.

By the way, I did a little piece updating on war stuff. It was 13 days that we are on the brink of nuclear war and Cuban missile crisis. In that 13 days, the Dow was down 1.2%. And then after it was over, it finished the year up 10% from that level. Now, I know this is not the case, but somebody said, like, in the case of a nuclear annihilation, why would you sell stocks? Because what's the difference? But it is hard to believe that stocks were so calm during that event. The other weird thing about seeing this all played on social media is this feels like the first time in a very long time, maybe in the social media era

where I can remember that we all have sort of a common enemy. Obviously, there's some psychopaths who are like jeering on Putin, but for the most part, everyone is kind of on the same side here. Countries are banding together. It's kind of bizarre. It almost felt like COVID should have been like that, and it wasn't. It was this divisive political thing. And obviously, there are people using this for political gain, but it's kind of refreshing. And it's almost too bad. It has to be this way. You have to have something like this to happen. This one passage in Sebastian Younger wrote this book, Tribe. You ever heard that really quick read? That was a good one. This stuck out to me. He wrote it in like the very end of the book, like a conclusion. And he said that the United States

is so powerful that the only country capable of destroying her might be the United States herself, which means that the ultimate terrorist strategy would be just to leave the country alone. That way America's ugliest partisan tendencies could emerge unimpeded by the unifying effects of war. It is so bizarre that you have these tragedies and this terrible stuff going on. And that is the kind of thing that throughout history has unified people, nations and the world. And it's almost too bad that it takes something like this for that to happen, I guess. Yeah, we'll get into all the specifics about what's going on. It's scary. We don't know what this guy is going to do. When you start talking about nuclear threats, like, unjokingly, a thought went through my head, like, should I start driving west just to, like, get away from the cities? And it feels like in the last, between now and a week ago, do geopolitics has changed for decades potentially because of this, because of basically what one man decided to do. It's bizarre. So I pulled this out. I've written about this before. I can't remember what book I found it in, but this Pentagon staffer, Lynn Wells, wrote a two-page memo to Rumsfeld and Bush in April 2001, so like five or six months before 9-11. And it went through every decade from 1900 on, and it was basically like showing how hard it is to guess.

I'll read some of them. It's like, by 1920, World War I would have been fought and won, and you'd be engaged in naval arms race with your Ernstoyle allies, the U.S. and Japan. By 1930, naval arms limitations treaties were in effect. The Great Depression was underway, and the defense planning standards had no war for 10 years. nine years later, World War II had begun. And he kind of goes to this series by decade how crazy geopolitics have been and how basically impossible it is to predict and finishes it up with all of which is to say, I'm not sure what 2010 will look like, but I'm sure that it will be very little what we expect, so we should plan accordingly. Of course, 9-11 happens a few months later. We go on to have

two wars that were seemingly never ending. We have the biggest financial crisis into Great Depression that same decade, like all these things. Think about obviously the stuff we've dealt with the last two years, the insurrection of the capital pandemic. Now we have war. This is just the folly of trying to predict what's going to happen, especially when it comes to this sort of geopolitical stuff, is just really impossible. And obviously, this is the kind of situation that leaves you with more questions and answers. The range of outcomes at this point is frighteningly wide. And you also have to feel for the innocent citizens of Ukraine and obviously Russia too, who woke up to a scenario where their currency is effectively worthless. What are those people

supposed to do? I honestly don't know. What are the of the unintended consequences of just crashing an economy like that. If anyone missed it on Monday, we had a talk with Ian Bremmer, who was a geopolitical strategist, and he kind of went over it. And you asked him, like, this is the 11th largest economy in the world. What are the second order effects? I don't think we know what they are. And we've never had this playout in the social media era like this, where you have a cosmopolitan city like that that is getting bombed day after day. but we've also never had like the financialization and the ability for governments to put these financial sanctions on, basically overnight in some cases that completely just can annihilate an economy.

It's financial warfare as much as anything. And the market is taking this very seriously. When Putin invaded Crimea in 2014 and you look at credit default swaps and their levels in terms of just basically pricing in the risk of a default, this dwarfs that. So right now, as of yesterday, I'm sure it's higher today. Bloomberg ran an article, a Russian swap single record 56% chance of default on sanctions. I pulled this one from Peter Bernstein. Remember that Capital Ideas Evolving book? Yes.

Oh, my God. One of the best. So he wrote about how in August 98, when there was this Asian currency crisis, and then all of a sudden, out of nowhere, Russia defaulted on their government bonds, and it devouted the ruble by 25%. And there was, like, this three-month moratorium on foreign obligations of Russian banks. And, like, they had three and a half billion dollars. And that led to, like, a bare market.

And it was like 19% in change on the S&P. way worse than emerging markets and stuff. And that was a bad situation. And that happened from obviously different reasons. That was just a financial crisis, not what we're going through now. But what's happening in the Russian economy now is 10 times worse than that probably. And they may not be as important as we're beyond the energy markets. But I don't think you can even begin to think of like the second, third, and fourth order effects of this. So we're going to see some funky stuff continue to play out in commodities markets. It's not just energy, unfortunately. It is soy, wheat, corn. There's some really scary stuff going on. So we just don't know how this is going to play out.

I don't see how this doesn't prolong supply chain problems and potentially lead to higher inflation for much longer than people had anticipated because of this. It has to. So Matt Levine wrote about this yesterday, and I'm just going to quote him for a minute. He said, as a Friday, Russia had about $630 billion of foreign currency reserves, a large cushion designed to allow it to withstand economic sanctions and prop up the value of the ruble. But foreign currency reserves are not an objective fact. They are mostly a series of entries on lists maintained by foreign currency issuers and intermediaries. If those people cross you off your list or put an asterisk next to your entry freezing your funds, then you can't use those funds anymore. So Russian's foreign

reserves consist of a set of accounting entries. But in a crisis, the accounting entries don't matter at all. All that matters are relationships. If your relationships get bad enough, then the money is good as gone. is why like basically the entire financial system and you could say like the stock market and banking all this stuff. It's all trust. And if you take trust out of there, it's just gotten. You're right. The people in Russia are those citizens that are going to be affected by this too. I don't know what comes next. And obviously you throw in obviously the biggest wildcard is just you're dealing with a psychopath over there who is making decisions and who knows what he can

do now that he's potentially cornered. One more thing that Matt Levine said, he was talking about the fact that a lot of companies and countries, frankly, are trying to divest with their Russian shares. And the Russian Central Bank is ordering or the state is ordering companies to just shut it off, say no, they cannot withdraw. And by the way, is there a stock market open today? I know it's closed yesterday. I can't imagine it's open. I guess I didn't realize how long. I mean, it's because they went turned into a communist state. I was looking it up today. They had the graph of the Russian stock market. So in 1917, it closed. Basically for good until 1991. It was closed for that long. That's like the William Bernstein has like the deep risk versus shallow risk. Shallow risk is a

temporary fall, even a crash and you eventually make it back. Deep risk is like the government confiscates your assets or you completely use everything like Russian stockholders and bondholders back then lost 100 cents on every dollar. So BP owns a ton of one of the biggest Russian oil companies and they're going to lose about $25 billion on the deal. By the way, that was crazy how quickly they did that. I mean, that must have been what a one meeting decision. And then they're like, we're going to write off $25 billion? Quote, now is not, from a financial perspective, a great time to divest from Russian energy companies, but you don't always get a choice of timing.

BP got, as it were, a moral margin call on its Ross enough shares, and now they have to go. A moral margin call is amazing. That's a good way to put it. That's exactly what this is. And obviously, they probably didn't have any other choice, but the fact that these decisions are being made so fast. And I do think that you can say social media is playing a role in how swift and fast this is happening.

There's obviously bad parts about Twitter that there's misinformation being spread and stuff and probably a lot of this stuff if you see a video or a headline you want to make sure you find three or four different sources for it to make sure that it's right. But I don't see how you can think Twitter has been anything but to help to all of this.

Yeah, for the most part, I would agree. And being able to get messages about and... Ben, before the market, before the invasion, I should say, which was on Sunday night, you wrote a post called the three ways to win during a market correction. And you said that the three basic options are do more, do less, or do nothing.

Let's hear it. I'm trying to simplify for it because it seems like when markets go haywire, a lot of people's fight or flight response is I'm going to put my hands on the wheel and I'm going to do something. Take control. Yeah, you want to take control. But the problem is most of the time it's an illusion of control because trying harder and doing more makes you feel like you're doing something.

But oftentimes in the market, like that doesn't lead to better results. In a lot of ways, if you start working out and you go to the gym four or five times a week, you're going to see results from your body's going to change potentially. If you put in more hours and you study more, your grades are going to get better. If you put in more time in the markets and do more stuff and trade your account more, it doesn't work like that. It doesn't necessarily lead to better results. Most of the time, especially when like emotions are flying high, it often leads to worse results.

Almost every time, if you're making decisions after the fact, so like trying harder doesn't necessarily lead to better results. And I think especially in a time like this, when emotions are higher than they would be any to me, remember when we were paying attention to all the market stuff for COVID going on? It was interesting to talk about the market stuff when it was happening and watch what was going on, but it still almost felt secondary. Even in our talks with clients at the time, remember, in March and April 2020, a lot of times it was like, listen, we just want to make sure that we're healthy and everything's good and it stinks that our portfolio is falling, but there are

more important things right now. This situation feels like that as well. But obviously, like the ramifications, economic relationships that were just here a week ago or like conclusions about the economy have potentially changed. I don't know how this doesn't create a potential financial crisis in another country, like a lot of other countries potentially. If not now, then down the road. Like, is it possible the Fed doesn't raise rates at all in March now? Bond rates have fallen, I think from 2 to 1.7 for the 10 year. Is this a good thing for the Fed? Is it a bad thing? Are we going to get hyperinflation in Russia? Like all these different things. This could potentially make inflation worse, but make it harder for the Fed to raise rates because we're in the throes of a geopolitical conflict.

So it's just like another monkey wrench if you're a policymaker that I don't know how you look at this. And then in terms of how the market responds to this, the Dow was down 900 points the morning of, was it Monday morning? No, it was Thursday. Thursday, yeah, when it happened. It was Thursday. I don't know I said Sunday. It was Thursday. And then the market rallied a thousand points off the lows, had an amazing day in the next day.

And for people that are selling or just looking, you have to think, like, I don't even understand how this happens. How do markets bottom on bad news? I wonder if part of this is just the feeling that markets feel we're going to be getting some more foot on the gas pedal from central bankers and policymakers as opposed to taking the punch bowl away. That's the only thing I can think of. The crazy thing is, so I think I've written about this one before. Someone sent me this. It's from the Fed. And it's this old piece from like 1944 or something, still World War II. And it's called Business Booms and Depression since 1775. And it goes through every war and conflict since 1775. And it shows how up until World War II,

there had been this playbook for dealing with it. Like, this was part of people's investment strategies. Like there would be this period of uncertainty. Then you'd have this big post-war recovery, which is like inflation. And then you'd have a depression from that because things went too far. And then you'd have prosperity. That was like a playbook for them. And the crazy thing for us now is that like I feel like all these things, people always say like, oh, all the young investors have never seen a bare market if they just started investing in 2020 or whatever, all that. But we're dealing with stuff like that. Like inflation is highest has been in four decades. So the majority of the investing public has not really been through that. We're dealing with this war in

Europe, which is the biggest since the 1940s. So no one has ever dealt with that. So all of these different things coming at us at once that people have zero experience dealing with. And then we've got markets that move faster than ever. And we've got information that moves faster than ever. So we're putting all of these different pieces into play at the same time. And there is no playbook for this is kind of my point is we don't have one for modern investors. As if there wasn't already enough going on. The Wall Street Journal had this piece. And I hate to like make light of them because it's not a time to joke in a serious situation. But they said Goldman Sachs had a call with clients on Monday. And they said they assigned like a five to 10 percent probability that Putin would

leave from office and they said, well, if that happens, we expect to see a 10% rise in the S&P from current levels, which I don't know how you handicap that, but... Whatever. But, and I can't believe they wrote this. They put a 1% chance on the use of nuclear weapons, which would result in a total loss of the S&P 500. Thanks, I guess, for that. I'm just saying, like, trying to handicap this stuff right now, if there are other worlds a time to say, like, I just don't know, this is it.

I'm trying to look at CME, the probability of no rate hike in March. Where are we right now? So for the March... So we're looking at this on Kelsey in early February. Everyone's still saying that they're going to go. 25 to 50 is, but you know what's off the table. So a week ago, by the way, the way the rates market moved is just wild. Rates are plummeting.

As always, bonds are the only hedge. Yes. The only real hedge during times of crisis is U.S. government bonds. You sell stocks and you buy bonds. That's what you do. So a week ago, there was a 41% implied probability of a 50 base point rate hike. 41%. Now it's 0.0.0. What's interesting to me is that, again, a week ago, 25 to 50, meaning one rate hike, like one incremental rate hike, it was 58%. Now that's up to 98%. So basically,

everybody still thinks that they're going to go. I'm a contrarian. I like the odds of 10 to 1 odds. I bet that they're not going to go. Early February, I put a bet on that after the Fed's going to raise rates twice to 50 basis points the first time. And on Kalshi, as of February 10th, it was was 70% odds. I should have taken my bet off. Yeah, after they had a spike in the job market, and things did really well from economic data, and now that's back down to, what, 10% basically?

Oh, really? What do you think the Fed does in March? I mean, it's two weeks away. So they probably hike one time. They probably like 25 basis points. But like you said, could they potentially pause because of this? It's very bizarre because it felt like the market was doing all the work for them and going up, and now rates are falling down drastically.

Let's turn to the market. This was an amazing, amazing lead from the Wall Street Journal. What was the title of the article? It's about SPACs. It doesn't matter what the title was. A startup battery maker that wooed investors with rapid growth forecasts said it would miss its revenue target by as much as 89%. Nearly half of all startups with less than $10 million of annual revenue that went

public last year through a special purpose acquisition company have failed or are expected to fail to meet the 2021 revenue or earnings targets. provide to investors. So one of the things that people liked about SPACs was you can make forward-looking statements. And apparently these companies are saying- How many people have gotten hurt because of this? Right. And we still don't have a Bitcoin spot ETF. Yet they let people buy SPACs with these charlatans making promises basically just out of thin air. They were making up numbers, obviously. Here's a good one, too, from the growth stock sell-off. This is actually from our producer Duncan. New will topic for you guys to discuss. How does a company stock price impact the company? Could

promising young, innovative companies go out of business from their stock crash, 75% or more. I wouldn't look at it as much as them going out of business. So on Shopify's call, I think it was last week, they had the earnings call. I listened. And the very first question from an analyst was, how is morale for employees? If the stock is down 60%, are you having a harder time retaining talent? And I think that could be a problem for people. Now, obviously, no one is going to give Kleenex to someone who went from having stock options that are $5 million to two. But if you've lost 60% of your stock options at that company or even more, it's probably going to be easier for you to look to go somewhere else potentially, did not say this. So I do think for some of these

companies that are having it the worst, that are down 60, 70, 80% in some cases, retaining talent is going to be difficult for sure. Yeah, no doubt. That's our currency. That's how they compensate people. This is such a small percent of the population, but this also eventually impacts the real economy a little bit. I was going to buy a $2 million house because my options were worth $10 million. Now they're worth $2 million. Now what do I do? I'm not going to use it all. So it is interesting. This chart is bananas. This is from Goldman. The most popular hedge fund long positions have suffered their worst 12-month return relative to the S&P 500 on record. How? They were all in on these arc names? It must have been. They must have been all growth. Like there are

long, short, value-oriented managers finally having their time in the sun. It's been a long decade. Isn't this chart why the losses are maybe bigger than some would have anticipated? Because I'm guessing a lot of these hedge funds had some leverage on there, too, and they're unwinding those books now. And they're for sellers because they don't want to show their investors that they have holdings that are down 60 or 70 percent. Or margin calls. Exactly. What else could this chart be other than those high beta names? Yeah, it has to be. It must have been all software stocks. So our boy, Derek Thompson, has probably the best podcast I've heard keeping up with the Russian Ukrainian conflict. So he's had three podcasts. I think I've played in English in the last

week probably. Excellent. And a couple of them left me not feeling better than when I started, but it's good to hear the truth and the probability of certain outcomes. But he had a piece last week at the Atlantic on the five-day work week potentially being dead. So he was interviewing some people who are experts on this space. And this one guy, Nick Bloom, who's head of research at Stanford on working environment, says, I talked to hundreds of companies about remote work. 95% of them say they're going to go hybrid, while the other five percent are going full remote. Basically, they're saying like the number of in-person days at the office going back to five is like never going to happen. And the whole idea that having a five-day work week again for most company and

most people in white-collar jobs is probably gone. They're talking about how Thompson interviewed Brian Chesky from Airbnb and said that Mondays and Tuesdays are the fastest growing days of the week for travel. So people are like turning these into long weekends and stays. And I mentioned before, I never thought of Airbnb that much before because why wouldn't you say to hotel? But people in the white collar world doing this and having this be, for a lot of people, there's no going back. And I'm not willing to say like, it's done forever because it seems premature to say that at this point. But for a lot of people that are in position to do it right now, the people who have the leverage to do it, those people are never going back. But he was also saying,

listen, there's people who have no choice but to go to the office. Hospital workers or service employees, there's going to be this real divergence. And this is another inequality thing where wouldn't you be angry if you see someone in a white color job that is able to work at the office two days a week and home the rest and have all this flexibility and time and ability to travel for weeks at a time and still do their job while you have to go to your place of work every day. Like the groundswell of this of people being angry about this is got to happen eventually. Yeah, I think there's no going back to the way it was, but slowly but surely some companies are bringing their employees back to work.

This is affecting us and big deal. We'll figure it out. But he said New York, Boston and San Francisco, like subway ridership might never come back to where it was pre-March 2020. We have a babysitter that, I don't want to say babysat. I don't know what else to call her, but she watches the kids. She takes them off the bus at 3.30. And so she's with us for an hour and a half, two hours a day.

And she's going back to work. So we have to find somebody else. I believe nanny is the term if you're a millennial. Nanny, okay. If you have some like that in your millennial, you say nanny. I also have two other friends in New York that are getting called back to work. So I think slowly people are getting the tap on the shoulder. And is it going to be hard for you to find someone?

Probably. Or replacement? Probably. This chart we've been talking about the council of economic advisors tweeted a chart of real market income growth since 2020. And it's beautiful to see the bottom 50% leading the charge. But the problem is behind the bottom 50% you've got the top 10. And then at the bottom, you've got the next 40. Again, the middle class is getting the wrong into the deal. This is why every sentiment indicator right now is negative. There's another one today that someone was saying, asking people how job growth is right now. All the readings were totally wrong. People saying it's a terrible time to find a job, even though this is probably the best

job market we've ever had in our life. And that's because, again, I think the middle class part is getting left behind. I got a text from Robin over the weekend. How much did you pay for this car wash? It sucks. There's no way she can tell the difference. I swear to God, a literal text. That's what she texted me. I don't buy it. I blame it on the fact that all the roads are still really dirty right now because winter's ending. No, you know what it was? They didn't do a good job cleaning the inside. It's not the outside. The outside, the water gets it all the way. It was the inside. And then funny, Antonelli sent us a DM like a day later. Hey, boys, you'll be proud of me. I just went for the cheapest car wash. I went this weekend. I got a quality car wash for

$6 instead of the overpriced $14 version. This is how you find inflation. Wait, wait, wait, wait, wait, It's $6, literally? Yeah. Stop it. What is it in New York? 27? The cheapest option was, yes, $25. 25?

No, this is just outside, though. This is just to go through a car wash and wash the outside, not even said it. Oh, okay. All right. So my buddy, Chris Hutchins, has this podcast, all the hacks. It's probably a year old. And I go in and out of the personal finance stuff of credit cards, but he had this guy Richard Kerr on who works for built.

And actually, Duncan, our producer, put us on to this one. They now have a credit card. And I guess there's a wait list for it, but it's going to end soon, where you can use your credit card to pay rent and you get reward points on your rent, which has always been impossible. And no fee on it and you get points for other stuff as well, which actually sounds like a pretty darn good deal to me. By the way, I was actually on the Albaqs podcast three or four weeks ago. If you want to hear yours truly talk about investing and stuff, go check that out. But they also said, it's time to ditch to chase Sapphire preferred account or credit card. I'm listening.

I've got one of those. Basically, it's not worth it anymore. And they said Chase lost a ton of money on it. They're making it harder and the points aren't going to be worth as much. And it's time to ditch it, they said. All right, where do we go next? It's not worth a $600 annual fee. 600? Yeah, it's $500. Yeah, it's $5.99, I think. Jeez. It started like four. So you can downgrade from the Sapphire preferred to the just Chase preferred. No, reserve. It's pretty similar. Reserve to the preferred. Okay. Go to the $99 one, basically. And one of the personal finance thing. Someone, did you see this email last week? Someone sent us. us, hey, my friends lived in Costa Rica for a month. They were talking about it because we've been talking about Airbnb a lot. And they sent us a link to it, so I clicked on it. And it was this beautiful bungalow in the rainforest overlooking the ocean. And it was $100 a night. And I said, geez.

So I looked at all these places in Costa Rica. And you can get just these fantastic places in Costa Rica for like $60 a night, like these beautiful places with like that. What's the catch? What's the catch? Well, I think the catch, I had a friend who went to Costa Rica for his honeymoon. And so I texted him and said, hey, you went there, right? and he said, yeah, the trouble is, like, depending on where you go,

it could be a pain in the butt to get there. It could be two or three flights and then, like, a bus or whatever to get there. All right, so there you go. No free lunch. Well, here's my Airbnb idea, though. They just need to plan it all for you. So they need to do plane tickets and travel plans when you get there. Like, they need to do it all besides the house.

They need to be the entire travel agent for you. That sounds great. I'm going to give them the benefit of the doubt and just say that they've thought of that and it's not worth it. Okay, just thrown out there if Brian Cheskey's listening. I have ideas. All right. this is our last great quarter guys. We are users, investors in the quarter app, and they've got a new

commercial coming out. Love that new commercial. They're advertising mostly on CNBC, I think, but they have some very good advertising ideas. All right. So we're going to say two things. One, I believe this is our last week of covering this because earnings season is ending. And number two, thank you, Sean, who has done a lot of heavy lifting for us. So let's get right into it. Ben, last week we spoke about Roku. And I read an article this week. I just wanted to touch on real quick. Roku is going to grow revenue at a slower than expected pacing combination with a massive rampant expenses into potentially a global economic slowdown with increasing levels of competition. That doesn't sound bullish to me. Does that sound bullish to you? No. I'm still bullish on the Roku system, though. I love it

having it on my TV. But here's why I highlighted this. So that came from an analyst who downgraded Roku's shares to a sell. Now, listen, I understand the analyst's job is impossible. You only get information from the quarterly reports. Like, they only release information four times a year. So you got to do with what you work with. But they did that after the stock's down 71%. So is it possible? And maybe not. But who does that help? All of the challenges that this person just identified, competition, global headwinds, blah, blah, blah, blah. Yeah. That's the stock's down 70%. All right.

Yes, the market is kind of already gotten it. This surprised me, though, from the same article. Roku ended 2021 with about 52% of connected TV users in the U.S. market. That's a lot of people that have a Roku TV. So they must just be built on all these new smart TVs, basically. And I'm telling you, next time you get a TV, find a Roku one. In terms of searching for the movie, one of the hard things is you want to find a movie, but you don't know what platform it's on.

If you search for a movie to figure out if it's there, it pulls all of the different platforms. So it'll tell you this is on Hulu or HBO Max or Amazon or some other crazy free one. We got a report from Teledoc last week. And look at this chart. Just yucky, yucky, yucky. Sorry, I lost my place on the dock. Unprofessional.

I apologize, listeners. Showing the revenue growth year over year. And it is slowing dramatically. So obviously, their pandemic boost didn't last. They got this one big time bump and growth and it didn't stick. Down 75% from its highs. 75%. So Josh was right. We were talking about this. I said it's the depression. And he corrected me. It's the tech bubble bursting. It's not the depression. It's the tech bubble bursting. Yes. But I guess things never got quite as crazy. So like in the tech bubble, a lot of those big companies got way overvalued too. Coke and General Electric and all these big companies back then. That's what didn't happen this time. That's why all those companies we talked about at the beginning, those ones holding up fine because that's what didn't happen this time around. So, Teledoc, their revenue grew 45% year-over-year, which is a lot, obviously, but felt short of

expectations, guidance wasn't good. And actually, I have a chart right here talking about guidance. Guidance has been terrible. That's what's doing it. It's not just misses. It's guidance is awful on a go-forward basis. You've got the highest percentage of stocks guiding down since, what is this, 2016, the ratio of negative to positive guidance. It does feel like if your stock is down 75%, you throw the kitchen. and sync out and you just say, you set your expectations so low that like it's such an easy hurdle to get over the next time, right? You have to do it at this point. You know what's interesting? I listened to Open Door, another stock. Oh, actually, we probably mentioned this,

but look at Open Door, Redfin and Zillow. All down more than 70%. All of them in the hottest housing market ever. Literally they're all down 70%. Open door was another one down 65, 70% going into earnings, fell 20% after. And I listened to the call and I fast forwarded to the Q&A. And I fast forwarded to the I think somebody said great quarter. I can't remember, but I'm pretty sure somebody said congratulations on the quarter and listening to it, there was no indication, at least as far as I can tell, that the stock was in an absolute catastrophic situation. You would have known. They must tell the CEOs, like, do not mention the stock price. Whatever you do, you cannot talk about it because they never really do. And you're right. Sometimes it's really hard to know

what is going on. The company versus the stock. It's completely detached. The funny thing is, Zillow was outperforming Open Door and Redfin, despite like the crazy stuff that they've had happened to them in terms of a drawdown over the last year. Zillowl's down 64%. Open Door's down 71%. No, no, more, more, more from the highs. Zillow's down like 77%, I think. Sorry, that's their one-year return. So not their percent of the high. Oh, by God. All right. So Home Depot reported the consumer still seems to be doing well. Supply chain issues cost them a billion dollars. What's fascinating is this. Home Depot is trading at the same price to earnings ratio as in April 2009. Now it seems cherry picked, but anyway, good job, Sean. The company has grown from $55 billion to $375 billion with zero multiple expansion. Fundamentals for the win. Don't you think that the home remodeling thing, there's no way that's coming down for a long time? Because how many people are saying, I don't want to go buy another house because it's impossible to buy one right now. I'm just going to fix up my house and make it look better.

I got an anecdote where I live. By the way, Home Depot said that to drive sales higher, they're rolling out personalized recommendations online and in store. What could that be? Hey, this screw is really for you. You know the worst part about Home Depot? Walking around for 10 minutes and trying to find someone to ask them where to go. Can I tell you something?

Always the worst. I got a hack. You're right. That is the worst. There's an app, a Home Depot app, where you can put in your location, put in what you're looking for, and it tells you the aisle and the bin.

Oh, really? I've never done that before. Isle and Bin. It gets very specific. When I found, I'm like, I'm an idiot. How do I not do this existed? Because you're right. Or they're talking to someone and you just sit there waiting behind them.

Like you're wait to talk to your teacher at school or something? It's a warehouse. You're like this. Yes. Yes. All right. So, yeah, I don't know how they're doing personalized recommendations, but they got a 15% increase to the dividend. So all good there.

Although, I believe Home Depot and Lowe's both got, yeah, they got killed. They got killed. Of course. Everything. Through this lens. okay, it's a reset of expectations. It might not feel it, but this is generally good for the market. The SP's up the lowest price to earnings ratio since a long time.

The crazy thing is, but a lot of these round-trip numbers that you're seeing, the returns were so high coming out of the crisis that a lot of them have just kind of come back to where they were pre-crisis. Now, that seems like a lot, a stretch because the market is up since then, but that's what's happened to a lot of them is their returns were just so, so good before, and it was all pulled forward. Look at like a five-year chart of the S&P 500. what doesn't look normal is the post-pandemic stock market.

That doesn't look normal. You know why? Because it's not. I think it was my research said it was like the fastest 100% gain off of a bare market ever. You're right. It was just way too much too fast. Did you listen to Coinbase? No.

Fill me in. Look at this chart. Coinbase, you were 100% right. I was 100% wrong. That Coinbase is a proxy for Bitcoin at this point. That could change. But for now, it's been pretty remarkably... So Josh has been saying, like, they don't need a spot Bitcoin ETF.

Coinbase is a spot Bitcoin ETF. It tracks it almost one for one, right? It's pretty darn close. So retail trading volume was $177 billion, an increase of 90% compared to last year. This is a monster business. I'm not saying it's cheaper. I'm not going to accompany them. This is a big, big, big business.

I guess the takeaway is, I think a lot of people in finance thought that the price that they charge to trade would have to come in from competition, and it just hasn't happened yet. They've got no impetus to do it yet. Eventually it's going to have to happen, but no one cares at this point. Let's actually stick with crypto. Crypto is so weird. It's just very weird. It acts exactly like a risk asset sometimes. On Thursday morning, when markets were plummeting around the globe, crypto did as well, nose dived along with every other risk asset. When we got higher than inflation numbers. It nosedived along with every other risk asset. I think one of the reasons why is because it has gotten so much institutional adoption. We're looking at this chart

of crypto trading on a monthly volume. Institutional investors, they dominate trading. So they're using this as a proxy for risk. And then here we are a week, I guess it's Monday, so five days after Thursday or what day is today? Today's Tuesday. Today's Tuesday. We had a 15% rally yesterday because the speculation was people in Ukraine and Russia are buying it. I guess this to me is why Bitcoin is kind of like gold in the sense that people want to have a hedge for everything. They want to have a hedge for geopolitical conflict and war and inflation and central banks and money printing and all this stuff. And that hedge does not exist. That one asset that's going to hedge you against everything. And so that's why, like last year, gold just kind of sucked

as a hedge because inflation was rising and all this other stuff was going on and gold didn't work. And now we have war and gold seems to be doing a little better. It's one of those things where you can't expect a one-to-one hedge for every one of these events. It's just, it's not realistic. What's interesting about crypto and I hate to frame this lens, but that's what we're talking about here is the financial aspects of it. What's going on with the geopolitic stuff, not just in Ukraine and Russia, but Canada and all over. Like, this you would think should be uber bullish for crypto, for people having their own digital assets.

For adoption, it would make sense. Also, potentially bearish because I think a lot of nations around the globe are going to be looking at this and saying if we're going to be putting down economic sanctions and having economic war too, crypto needs to be way more regulated because we need to have a little bit of control on this. So there's going to be a fight. But that's the point. Like how do you regulate the block?

also just bullish on like digital assets in general. Maybe not Bitcoin specifically, but in terms of central banks getting their own digital currencies. But that idea of getting your money out of a war-torn country because you have it on a USB drive, that whole idea, that's one of the things like if you're an American, and again, because we're so lucky, we're not having to deal with this that you don't understand that, but that use case definitely makes a lot of sense when you look out of that lens. Ken Griffin did an interview with Bloomberg and he said, crypto has been one of the great stories in finance over the course of the last 15 years. And I'll be clear, I've been in the naysayer camp over that period of time, but the crypto markets today has

a market capitalization of about $2 trillion, which tells you that I haven't been right on this call. I still have my skepticism, but there are hundreds of millions of people in this world today who disagree with that. To that extent, we're trying to help institutions and investors solve their portfolio allocation problems. We have to give serious consideration to being a market maker in crypto. It's fair to assume that over the months to come, you will see us engage in making markets in cryptocurrencies. If they made a lot of money on Robin Hood, they're going to make so much money on crypto trading. They're just going to sweep it all up.

They're just going to mint money. As we talked with Lee a few weeks ago about how the stuff that people figured out way late in finance that works in regular markets, it works 10 times better in crypto because of the behavioral stuff, that a place like Citadel is going to just mop up money. We got a listener email. I'm a believer in crypto, not a zeal, but definitely a believer that it will disrupt the business landscape and the business model landscape. Here's my issue and I would love to get you guys thoughts.

I consider myself moderately techsafy and everything I try. try to do related to crypto is incredibly painful from a user interface experience. None of it's intuitive. I feel like the user interfaces and steps to accomplish anything are written for people who are already immersed in crypto. Yeah, I mean, Metamask was built for developers. That's not intuitive at all. I think there are other apps that are trying to clean it up, but it's hard. Coinbase is better, but even that doesn't always make it easy, all of which is a long way to say that even assuming scaling issues, I don't think we will see the next round of explosive growth until it's an Apple-like company that focuses on the user experience and making the easy and

intuitive across platforms. Yeah, cannot agree more. And guess what? That's inevitable. Don't you think? You would hope that all of this money from VCs is going in to solve something like this, that we're going to make it easier. All the behind-the-scenes stuff and moving around wallets and gas fees and stuff. Yes. Because it's right. You don't get the normal person in crypto if they don't have that ability. It looks like Russia can't use crypto. There was an article here, could Bitcoin be Putin's economic savior? That's unlikely experts say. And basically because everything's so transparent, they're not able to use the blockchain to do the laundry that people are speculated. They might want to do. But Ukraine can. And so doing analytics, somebody built a

tracker just for eth donations. They've raised $17 million just from Ethereum, people just giving money. That's pretty cool. People have been posting places to give money in terms of getting supplies. And I did see that their Airbnb is going to put up like 100,000 people, refugees in different countries and put them up for free. There's a place you can, it's like Airbnb.org to give there. But if anyone has any other good places to give money, let us know. We'll be sure to post them. Yep. Did you read this Peloton story at the Financial Times? Oh, no, I didn't. I didn't. Okay. I read the article about from the new CEO. So this talked about, they did a story on what happened and how it got wrong. And they talked about the CEO. They gave someone of his quotes

from prior calls. And this is on October 2020, he was mad because people were saying that it's, this is a COVID story, nothing else. And he said, when I hear Peloton being a COVID story, it'd always a crap out of it because what we were building is here to stay. He was talking about the fact that this is going to be a one trillion dollar company in 15 years. And his board was like, please, please do not say that. And they were saying like the CEO's hubris was kind of what brought them down. He hired thousands and thousands of people. They were expanding. They said that several of their biggest executives had borrowed against their share. they said, and a lot of them did it with the huge gains of 2020. They said a lot of them face

margin calls, one executive southern net worth for all 35 million to seven million in a matter of days for margin calls. But that's another one of those things where it's like, how does something this happen? And you can say like it was an economic story and all this other stuff, but it was also just hubris. That's like the way so much of this stuff falls is just overconfidence. And this CEO just believing that what happened from the pandemic, was all his doing and not just this crazy accidental, lucky break for them, basically. By the way, I forgot to mention this. Speaking about the housing markets, I have family members that put their house on the market. You know how long it was on the market for? One day.

Jeez. We got an email from someone in our neighborhood recently being like, hey, I have relatives moving here in like six months. If anyone wants to sell their house, please let me know, don't put it on the market. That's like the lengths people are having to go now. All right. Can we move on to listener questions? Let's do it. What do we got? Oh, here's a good one. This is a listener email more than a question. Okay. On the latest episode, you wondered if anyone had just denied title insurance on purchasing a home. I did just that.

This person is my hero. Bought our house in 2016, and title insurance was more than I wanted to pay after everything in the closing. They already did a title search and, of course, found a clean title before they loaned me the money. I was a second owner of the home. The original owners built it, and before that it was a farmland that developed houses, seemed pretty low risk claim of me for a title, so I denied it. I decided to self-insure in case anything happened, and of course it hasn't.

They did look at me kind of funny when I told them I didn't want it, but I was like, yeah, if someone wants to claim this title, they have to pay an attorney out of pocket, right? And they said, yeah. So this person fought title insurance and didn't get it. They said that they were looking at him like who's crazy, but this is our hero. Love it. All right.

Recommendations. What do you got this week? All right. I got a new show I'm very bullish on. Severance on Apple TV. Do you have Apple TV? Do you ever watch it? Not only do I have Apple TV.

I've never used it except for, what was that Tom Hanks movie? Oh yeah, Greyhound or the other one. But I'm three episodes. into severance, so let's talk about it. Okay. It's definitely a show that's not for everyone, but it feels like it's two shows in one. Yeah, I'm all the way. So I have the workplace one and out. You can explain the premise without spoiling it. So the premise is these people go to work for a company and they have a procedure in their brain that makes them, when they're in the office, they have no idea what's going with their life outside the office. The only thing they know is in the office.

And when they're outside of the office and they leave, their brain only knows outside of the office. They're two separate people effectively, one in the office and one out of the office, and they don't know what the other person is doing. It definitely had some similarities to Eternal Sunshine of the Spotless Mind, I thought. Never saw that one. Oh, really? Okay, very good movie. And I'm all in. And the idea of figuring out, like, what the hell is going on here?

I love those kind of TV shows. Yeah, I'm very bullish on that as well. Great. And then Christopher Walken is in it for like two minutes so far. Like an amazing cast. That scene was incredible. There's a scene with John to Turley. and Christopher Walken, and you just see the two of them.

They're standing next to each other. They're talking about nothing. I didn't know what they're talking. But for some reason, seeing the two of them interact that way was kind of like a De Niro Pacino moment. They're very different actors. And seeing them together, you're right. It was two minutes, but that really stood out to me.

I got sucked into 10 things I hate about you this weekend. And I'm just finishing up the 90s by Chuck Klosterman. And the 90s really were a different time. Just like the whole vibe of everything. And I kind of hate what we use. that word is these days. But like the vibe of that movie in the 90s were just, it's so different than anything these days. Like the 90s really was this magical decade, I think, in a lot of ways. And obviously a lot of his nostalgia and misremembering, but I love the vibe of 90s, especially

like rom-com high school movies. Two books. I also liked being 15. That too. Life was a lot easier back then, huh? Even though you thought, all your problems were the biggest problems you ever had. Two books that I've been going back to these days just because of what's going on. Why we don't learn from history by Liddell Hart. He's this military historian who was also a British soldier. And he's written a lot of books about military strategy. This book is about military strategy, but it's also about the human nature involved. He has this whole chapter about authoritarian leaders and dictators in the pattern that they have. And if you read this, this was written in 1944, it feels like you're reading an excerpt about Putin right now. It's crazy.

It's a crazy good book, really small. It's like 100 pages or something. Why we don't learn from history or why don't we learn from history? And then Wealth War and Wisdom by Barton Biggs. I think Nick Majuli put me on to this one a couple years ago. It goes through what happened to the German, London, and U.S. stock markets during World War II. And it's kind of an also World War II history book. So that's worth a read, too, if you want to kind of read some history to help you better understand today, I guess. Okay. I just want to say how much I love Rotten Tomatoes. I think it catches a lot of flack, but I put in, I'm looking at the French dispatch, a Wes Anderson film. I am staunchly anti-West Anderson. Same. I want to say staunchly.

I mean, it's just not my cup of tea. I understand why people like him. They're very pretentious movies. I did like the Royal Tenenbaum's. I'm not sure why. That one I did like. I think after Royal Tenenbaum's, his early ones I loved, but they got more and more anyway. So anyway, I'm looking at the French Dispatch.

Here's what we've got from the critics' consensus. So it's just two sentences from the critics from the audience. Here's what the critics say. A loving ode to the spirit of journalism, the French dispatch will be most enjoyed by fans of West Anderson's meticulously arranged aesthetic. All right. So I'm immediately out. Every one of those words is allergy. So I'm out.

But then just to like hammered home, in case I was on the fence, which I wasn't, but in case I was, here's what the audience says. The French dispatch can be a little hard to follow. But if you're a fan of West Anderson's filmmaking, you don't want to miss it. Oh, my God, do I want to miss it? I need to miss it. This sounds like punishment. By the way, I said Nightmare Alley a couple weeks ago. I think we'd only watch the first half of the movie and fall asleep in the couch or something.

Because it's a really long once we, in the first half, I'm like, oh, this is a pretty good movie. We finished it. it's very boring. Told you. I'm going to rescind my take on that one. That's a critics movie and not an audience movie. Not bullish on that director. Lastly, I don't know that I like Ryan Reynolds.

I mean... Whoa. Yeah, yeah, yeah. That one hurts. I think his new movie on Netflix looks awesome. The Adam Project comes out in like a week. Okay, maybe I'll check it out. He's the same actor in literally every single thing that he does.

He plays himself. He plays himself in any and every role. And I just watched him with The Rock. And I kind of thought that was fun. I started watching Free Guy, and I watched 20 minutes of it. And I said, you know, I just, I don't want to watch this. And that's very rare for me. I'm not saying that movie might not have been fun, but I was just like, I just don't, nah. I actually enjoyed that movie more than I thought it would be. But let's be honest. It's a movie for teenagers and younger people, probably. So we watched that a little bit with my son because he loves video games. Okay. Maybe the truth is I like Ryan Reynolds in small doses. Maybe one Ryan Reynolds movie a year. I feel like I just saw him and I can't see him again. You're right. He does play himself. but I think him playing himself is funny. When's the last time you've seen Van Wilder?

It's been a while, and that's one of those movies where I love that movie in college, and watching it again, it's a little cringy. Oh, really? Okay, because I haven't seen that movie in 15 years. It's one of those movies that, like, at the time, you're like, oh, this movie is awesome because I was watching it while I was in college, and then you watch it again, and you're like, oh, not nearly as funny as I thought it was. Okay, well, let me give two movies that do hold up very well.

I recently rewatched in Fold the other guys, and that is one of my favorite comedies of all time. That's like one of the last good Will Ferrell movies, I think. Will Ferrell and Mark Wallberg just slay in that movie. It's so funny. Like laugh out loud, funny. Even Mendez as the wife and Wilfellow being like, she's kind of cute, I guess. First of all, she's not hot. She's cute. Yeah, it's so good. And then lastly, so I am not an in bed TV watcher. When I lay down, I fall asleep. Yeah, in the same way. So my wife watches TV in bed, but that's neither here nor there. Here's what I want to say. I had like a 10-minute window. where I got into bed, my office was in the shower.

I said, yeah, I got 10 minutes. Let's throw something on. I put on Die Hard with a Vengeance. Now, I haven't seen Die Hard with a Vengeance since I saw it in the theaters. I remember what year that was, but it was a long time ago. I've seen that movie many times. Okay, holy shit. The first 15 minutes of that movie are incredible.

Well, Jeremy Irons is also an amazing bad guy. I got to go back and finish it. I'm going to finish it. But wow, what a movie. That's actually probably the most underrated of the diehard movie because they made 12 of them ever since then. But I think three is actually better than two. Let me double down on my Rotten Tomatoes fandom

because I bet you Rotten Tomatoes absolutely nails what you want to see here. So here's what the critics say. Oh, there's no audience. It's only critics. All right, whatever. 83% from the audience, 59% from the critics. I mean, is that perfect or what? Pretty good.

Yeah, Samuel Jackson also amazing in that movie. So good. Zeus. Zeus. I forgot about that part, not Hey, Jesus. Oh, if you want to watch us on YouTube, the compound YouTube channel just pass 100,000 subscribers. So thank you to Duncan and John and everybody else on our team that's worked hard to make that

happen. And the audience. Thank you. Love big red numbers. Yeah. Love big red numbers. Yeah. If you want to see all the charts and stuff we talk about and all the great photoshopping

they do, check out the YouTube. Anything else? I hope that the next time we speak to you guys, cooler heads have prevailed. We've got Zach Prince on Monday. from BlockFi, and we spoke a lot about what is going on. They were in the news recently with the settlement, so we spent a lot of time there. And we have a bonus one coming on Saturday as well. Oh, yes, we do. That's going to be a good one. Bullish on that one. All right. Animal Spiritspot at g-mo.com. We'll see you next time.

Thank you.