Animal Spirits Podcast - A Noob Whale Picker's Market (EP.143)

Episode Date: May 1, 2020

We discuss how hard it is to outperform the market, why investors need to be more open-minded, how the crisis will impact millennial home-buying, how the Fed is redefining central banking, Occam's razor on interest rates, how inflation impacts growth and value stocks, noobwhales attracted to market turmoil and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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 position. and the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben.

It is Thursday morning. Weekly jobless claims, 3.839 million, bringing the total up to 30 million, I believe. U.S. personal spending plummeted by a record 7.5% in March. Again, this just goes to what we were saying that all these charts are going to be busted forever. They also showed the personal savings rate, which shot up to 7.5% to 13.1%. That's the highest has been since. since 1981 as far as savings go. How do they get these personal serving rates? Is this a survey conducted via Twitter? I think it's kind of like a plug-in number.

It's the kind of number I think that can be revised in the future, so I don't take it for gospel. But it kind of makes sense in a way. If spending went down a lot, you'd think for some people saving had to go up a little bit. I think, again, it's probably just a plug number. Maybe we'll get revised lower. The stock market is finally, I guess, selling off on one of these claim numbers.

maybe it'll shoot higher, but regardless, over the past five weeks, the stock market has just been on a tear. Small caps are up close to 40%. I think it was 37% as of the close yesterday. The S&P 500 is is up 33%. I mean, I couldn't find anything that saw a dead cat bounce like this. Could you? No, hold on. I'll come back to that. I just want to say, so personal spending again, 7.5% decline. In 2009, it looks like it fell 1.5%. Right. Yeah. So again, this chart is just completely busted forever. Okay, so members that thing that we ran about from Scentimate Trader probably three weeks ago, that there's never been a bare market rally like this.

There's no precedent for this. Wouldn't it be so 2020 for this to be an unprecedented bear market rally that rolls over? We just keep setting records and so many things that have never happened before are happening now. Would it surprise you if stocks rolled over? No, not at all. Uncharted territory has to be at an all-time high right now in terms of the usage rate because everything we're experienced now is just, yes, it's off the charts. It just doesn't comprehend. So honestly, the fact that this stuff is happening so hard and fast, I don't know, it almost

makes sense because no one knows what to think. And the extrapolation is just, I mean, I don't know how far people are thinking. Some people are worried that the stock market is thinking too long term, like, and it should be thinking more short term. Other people are worried that we're just not paying attention to what's going on. I understand being confused here. Do you think, though, that some investors at this point should say, you know what, maybe it's time for me to just have a more open mind after all of this. Because there were so many people who were certain of what was going to happen and it didn't happen, maybe instead of trying to blame people or blame forces outside of your control, maybe just have a more open mind and say, you know what, maybe my view of the world

is not the correct way to look at this anymore. That's not going to happen. Well, okay, maybe the view of the world thing. But just having a more open mind and saying, maybe I shouldn't be so certain about these things anymore because how many people were certain that this was going to happen? And let's say would people have been placated if stocks went down 50% but then had a 50% rally? Obviously, that's not an apples to apples comparison in terms of making back as many gains as we've made back now. But if it would have gone down further, would people have been happier, even if it would have shot back up just as fast? What's confusing is that stocks had been rallying on these releases. So on the first big job list claim number that we got, I think stocks were up 6%.

and then 3% the next time and then 1% the next time. And maybe stocks are rallying because the number is a little bit less bad than expected. But obviously, stocks don't rally because job disclaims are high. They fell in anticipation of them rising and now they're just recovering because expectations are being reset. Right. And the way that this goes bad is people are saying, well, the unemployment rate is probably going to be higher than wasn't in the Great Depression, which was like 25 or 26%.

The thing in the Great Depression was it was above 20% through the unemployment. entire decade of the 30s until like 1939. So that's the case where if it stays elevated for that long, then we're in really, really big trouble. And if it doesn't snap back within a couple years or something a little bit, then that's when we're in big trouble. But I put this out on Twitter yesterday. Do you think the past 10 to 12 years is the hardest market it's ever been to outperform? If we're talking about just the overall U.S. stock market, which is basically the S&P 500 or Russell 3,000, I don't think. I think you could make the case that it's never been hard. harder to outperform. So there was a chart, I think this from Goldman, showing market breadth.

And this is measured by the percent below 52 week high, S&P 500, less the median stock. And right now, we're at the lowest breadth that it's been in quite some time. And what's going on? Well, we know what's going on. The giant mega-cap stocks are winners. And if you're not at least equal weight to them, then you want to perform. It's pretty much that simple. The caveat would be like people say, well, if you just own the big tech stocks, then you're outperforming. but I mean, okay, sure, that sounds easy, but maybe the point is just owning the market has just shown to be just such a hard strategy to beat for the last, pretty much since 2008. And this period has not made it any easier. Like a lot of people were hanging their hat on the risk management thing,

and I'm going to perform much better when a bear market finally hits, and that's when these things are going to shift and change. And that hasn't really happened yet. So I'm sure there's a lot of investors out there who are not just the people who were waiting for a 50 or 60 percent drop, but people who have legitimate strategies are probably pulling their hair out right now that it's not really going their way. I can totally sympathize with that. Well, because the biggest stocks just keep getting bigger and it's justified. So we got earnings reports from Google, Facebook, and Microsoft this week. Apple is coming out after the bell today. And all three of them are humming along. They're really seeing very little disruption in their business. So it's not that investors are

flocking to the tech stocks because momentum or price chasing or whatever, their businesses have held up the best. So it's like a double whammy. Yeah, this is not the dot com bubble where these companies are growing at ridiculous growth rates and it's totally detached from reality. In this instance, it actually makes a lot of sense. So last week we were talking about this idea that maybe this will change people's preferences for owning a house. I'm not sure that I'm sold on that theory, but there was an article in CNBC showing that home sales show signs of recovery. Here's a quote from the article. We're still down roughly 65 percent, but more positive news is coming out of the new home market,

particularly for builders who are targeting the first time and entry-level buyers. She noted that a wave of renters are leaving their apartments and eyeing new homes. Don't you think that that would actually make sense that someone would want a new house at this point and if they're turned into some sort of a germaphobe, that it would almost make sense. So you talked to Logan Motashami this week about the fact that he's been claiming in predicting that 2020 to 2024 is when we're going to see this huge wave of millennial homebuyers. And that was in a YouTube video that we'll post. And honestly, again, I can see for that segment of the population, this being the catalyst for pushing them

into wanting to buy a home. And so I could actually see this where we could see maybe overall the market doesn't move much. But for certain segments, I actually do think it makes a lot of sense. Yeah, I think a lot of this is just like Logan was saying, it's demographics. So I figure what the age cohort is. What is the 26 to 30 is now the biggest piece of the population. So maybe it was just time. And so maybe it's time and it's a combination of the COVID just kicking that into third gear. Maybe this because there are going to be fewer people listing because there's not going to be open houses or anything for a while and maybe a lot of this moves online. maybe the market clearing price doesn't go down as far for real estate as people think because

the supply is going to be constrained. In anyone who does want to buy a house, there's going to be way more competition. Well, we've spoken about us in the past that housing tenure is at an all time high. People are moving as much. So from that article, they said that there is way more supply of newly built homes, actually twice a supply of new than existing home sales at this point. I'm doubling down in my theory of people if they don't want to move than doing some work to their house because the fact that you're just in your house more and able to see things that are wrong that you want to point out that are probably just staring you in the face every day for two months. I mean, I think our house in two months having all three kids home all the time

has probably aged, I don't know, three years from them being home for two months and just wrecking shit, basically. I just feel like my day, I just feel like I'm cleaning everything all the time. All we do is clean. Yeah, we basically clean the same. We bought a new vacuum because we're using it so much. I think our old one broke down. We basically cleaned the same room in our house. We have like the open kitchen family room area. We probably clean that room six times a day. It feels like Ground Talk Day where every morning I wake up and I empty the dishwasher. I am definitely getting to the point where I wake up and it takes me a while to forget what day it is. I'm just like, wait, what is it? We're definitely at that point.

Article in the Wall Street Journal, Banks can prove a weak partner in the coronavirus recovery. So there's a lot in here. I'm just going to read some of it. The changes in regulations and market infrastructure that made banks safer than they were in 2008 also made them less effective at their basic job, moving money from those who have it to those who need it, which could be a drag on the nation's recovery. Sharp swings in treasury bond prices in March showed markets at their breaking points. So the Fed stepped in where banks no longer could, buying treasuries even faster than it did in 2009. J.P. Morgan's chief economist said the Fed is now the commercial bank of last resort for the entire economy. Hasn't that always kind of been their job, though? The

banker of last resort? Yeah, but now it's commercial banker. So they were the backstop, but now they're a commercial bank, facilitating lending and stuff. Again, I think if we didn't have 2008 before this, I think we would be in an even bigger world of pain than we are, because I think the Fed really learned some lessons from the 2008 crisis and what went on and how to work with the banks. I think if that didn't happen, they would not be acting as swiftly as they are right now, and I think things would be a lot worse than they are, actually. Well, look at that chart. So, we did learn a lot from 2008 because there's a chart showing the percentage of assets that banks hold and the amount that they have in reserves and treasuries and safe securities has skyrocketed

due to regulation. So the next article pairs nicely with this one. This was also from the Wall Street Journal. I think this was Hills and Wrath and somebody else. The Federal Reserve is changing what it means to be a central bank. By lending widely to businesses, states, and cities in its effort to insulate the U.S. economy from the coronavirus pandemic, it is breaking century old taboos about who gets money from the central bank in a crisis on what terms and what risks it will take about getting that money back. So they talked about the fact that their $600 billion main street lending program is feeling a need. And so they said obviously the government is helping out small businesses with the PPP stuff. And they're also helping out really large businesses with some bailout money.

But no one was really helping out the small and mid-sized. And the Fed is offering four-year loans through the banks. And they basically said, we're trying to help these businesses that are too big to qualify for the small business loans, but too small to issue debt. And I feel like they're just plugging holes here and doing whatever they can to fix things. They're lending directly to small and mid-sized businesses. And again, people talk about bailouts, but these are loans. They're not just giving the money away and saying, here, take it. It's a loan. These companies have to pay it back. So it's not like it's completely just. Well, not all of it are loans. A lot of are just grants. not from the Fed. The Fed is charging loans. The grant stuff, that's from the United States government. The Fed is charging loans. And Powell says in here, he says, none of us have the luxury of choosing our challenges. Fate and history provide them for us. Our job is to meet the tests we were presented. Yeah, that was good. That was really good. He's really impressed me. I know people hate on the Fed, but I think the stuff he's doing is probably helping things not get worse than they potentially could be. And obviously, things are already bad. But here's a potential unintended consequence that we've been speaking about. Oh, by the way, speaking of unintended consequences, I had another.

one. Did you do your push-ups yet today? Not yet. Kobe is now fully potty trained, which is obviously good, but he used to sleep till 7 o'clock every single morning. Every single morning he slept past 7 o'clock. Now every single morning he wakes up at 6 a.m. on the dot and says, I have to go pee-peep. So he won't pee in his diaper anymore. So great, he's potty trained, but the unintended consequences now we have to wake up. We have to wake up an hour earlier. Here's what Howard Burke says to you. He says the fact that something can have negative unintended any consequences doesn't mean it's mistake. Exactly. So potty trading was the proper thing. But what I was getting at was this. So this is getting political as it inevitably was going to. Because now

Ted Cruz is sending a letter to Mr. Powell asking the central bank to come up with ways to lend to oil and gas companies that have too much debt to qualify for existing Fed programs. Can you imagine being in the government and asking the Fed for money when the government can do this themselves? Why don't they do it? But this is the thing. Obviously, Cruz is from Texas and his home state is getting battered. So I understand why he's doing it. But that's the thing where the government doesn't want to show that they're taking on more debt, so they want the Fed to do it for them. And that's again, like I think the Fed is like the adult in the room here. They're doing whatever they have to and they can because the federal government probably isn't holding up there into the bargain to keep things afloat as much as they could, even though they have done a lot of spending. They probably are going to need to do more. There are some really good charts in here in terms of what the Fed is doing. Of course, people are sending this chart all over the place in terms of the Fed's balance sheet relative to GDP, which is skyrocket, and this is a lot of fodder for the bears. But if you look at the next one, the rapid response, it shows a change in holdings of Fed assets since the start of each program. So it shows QE1, QE2, QE3, and what we're recently going through. And what we're recently going through, as everybody knows, is off the charts. Just straight up in a matter of, that's the thing that is crazy, how fast they were able to add.

This is the inverse of the chart that I created that fastest bear market ever. Yes. Every chart right now is like that. But they also show here they said rates were just above 2% when the Fed began lowering them in mid-2019, leaving it much less room to cut in the past. Don't you think they're showing that, yeah, the interest rate, it was low, but it doesn't matter. They can do so much other stuff that cutting interest rates wasn't going to do anything anyway.

So the fact that they're buying all these bonds and they're making these loans, that's much more important than cutting interest rates. and giving themselves more room to do that. The interest rate at this point is it doesn't matter, basically. I think Powell also said in a press conference yesterday that they are not out of AMA. Of course they're not. They can literally push a button and create money out of thin air. They're never going to run out of ammo. Sticking with the theme of markets just working so much quicker now. Cumulative outflows from emerging markets following a major risk event. So they show the global financial crisis and they show what's going on today. And investors are just

ripping money out of emerging market economies at a rate that looks like, I don't know, five times as fast as they did previously. But then there's other areas. I guess they're being selective. Some countries are able to raise money. So for example, Indonesia sold $4.3 billion of bonds in April, including the one that will come due for 50 years. And then it said the bond rallied on secondary markets with the yield ticking down to 4.5 from 4.8 when it was issued. So that got me thinking, are markets so liquid and so financialized? that you could issue anything, literally anything. There could be a market on what Dave Portnoy's like P&L would be, and that would get traded.

I guess, yes. How many degenerate gamblers do you think have moved from gambling to the markets at this point? I think you're right. I mean, they've turned markets into, you can bet on who the president is going to be. We talked about buying shares in an art a couple weeks ago. You can buy shares of cars. I think, sure, anything can be financialized. So this debt thing, the fact that people are buying high quality debt, I threw out a piece this

week and I gave you my theory behind it. I said, isn't the simplest explanation for the fact that the stock market has been so resilient? Just that interest rates are so low. I looked at it. If you look back at any starting point over the last, call it 50 or 60 years, the income you can earn on a 10-year treasury has been much higher. So currently it's 65 basis points. So that means if you had a million dollar portfolio, you're breaking in 6,500 bucks a year from current interest rates on a 10-year treasury. In 1960, that was close to 50 grand. In 1980, it was over 100 grand. Even in 1990, it was 82,000. 2000, it was 67,000. Even in 2010, it was 37,000. So the fact that this is the Tina argument, obviously, there's plenty of holes you can poke in that, but the fact that, but my

idea is, like, money has to go somewhere. By the way, Tina means there is no alternative. And obviously, that theory doesn't hold water all the time because stocks fell 35% in the blink of an eye. that money obviously exited. But, I mean, all these endowments and foundations and sovereign wealth funds and family offices and wealthy individuals, do you think they're all just going to put their money in cash and try to wait this out? No, that money has to be invested somewhere, some combination of stocks, bonds, real estate, cash, and other investments. Okay. So now show Japan. Right. Okay. And that's what people said to me. And they said, well, that doesn't really make sense because there's been stimulus in Europe and Japan. Rates have been low there forever, too.

So why haven't those low rates driven up stocks in those markets? And that actually is probably one of the fairer points that I heard. So William Bernstein wrote this a long time ago. He wrote this piece in, I think, 2001 on his efficient frontier bug. And he asked, who killed value? He looked at the value factor going back to the 1930s versus inflation. And if you look at this chart here, I put in here, it shows when inflation has been higher, value stocks have done better. When inflation has been lower, and especially when we've had deflation, growth stocks have done better. So value tends to do better when inflation is high. Growth stocks tend to do better when inflation is low. And the U.S. is obviously dominated by growth stocks. And Europe and Japan are definitely more

of a value bent. The reason to think about this is if inflation is higher in the future, a growth stock, you can almost think of it like a bond. That growth is going to be less tomorrow than it is today. So when rates are low and inflation is low, that makes growth stocks more attractive and valuable. Yeah, I get that argument for the value versus growth piece, but I still don't know how that answers the Japan-Europe thing, especially Japan. Those markets are dominated by financials and other value-type stocks. So with low rates there and low inflation, value stocks have gotten hurt more. And if you look at it, I did this for foreign stocks too. Foreign stocks have done better when inflation is higher, which makes sense because it has the value bent to it. So the fact

that the U.S. is dominated by growth stocks, meaning in a low inflation, almost deflation environment, growth stocks are going to do better, which means the U.S. is going to do better. But isn't value and growth relative? Yes. And I think my point, I'm finishing a piece up now. My point is going to be even if we don't get inflation, which some people are already worried about, which seems kind of crazy at the moment, but maybe in a couple of years, who knows? But eventually, maybe that inflation is just inflated expectations, and those expectations get too far, and that's the catalyst. Because there are periods where when you get into the 2 to 4% inflation range, these

relationships aren't quite as strong and it's not as easy to see. So there's a bunch of times where it's happened where inflation is more subdued and then you can kind of switch back and forth between value and growth working. So I think that makes sense, too, that if expectations go too far, that's when you get the flip between value and growth. I understand, but I don't know if that suffices. I think that if low rates really did inflate stocks, then you would see it in other markets and you just haven't. So you could look at the growth and value thing. And I think that's a piece of it, but I don't think that answers everything. Okay. I do think your point of thinking about unintended consequences, rates have never been this low in the U.S. And those other countries don't dominate the markets like the U.S. does. The U.S. makes up over 50 percent of the equity market cap. now. We've never seen rates like this low in the U.S. before. But counterpoint, then how do you explain the giant tidal wave of money going into bond ETFs year after year after year after year?

That's one of the reasons that rates have come down. How does that push stocks up if so much money is going into bonds? Because that's money from retail investors and ETFs and mutual funds. They don't really control the market. That's a small percentage of the market. Retail investors aren't the ones who are. There's hundreds of billions of dollars going into bonds. How many trillions of dollars are there? That's a drop in the buck. But if you look at stocks X buybacks, and sorry to do that, but it looks like there's not a ton of buyers for stocks. Right.

Well, again, the people buying stocks are the wealthy people. It's the corporate executives and it's not the retail people. Again, so I think they're the ones who push around the money. It's professional money, not the retail money. Just a theory. Well, what if we have a bare market, a 10-year bare market from here? Yeah. That's certainly reasonable.

But I'm saying, is it possible that lower interest rates have put something of a floor under the markets where it could have been before. I think that's certainly possible where stocks fall 30 percent. You're saying, geez, I'm earning nothing in cash and nothing in bonds. It's great. They haven't gone anywhere. But I need to eventually earn something. So, geez, the stock market is now yielding 4 percent because stocks have fallen so much. When stocks were at the bottom, they were yielding 2.6 percent, I think, while the tenure was yielding half a percent. So I think that we can say that part of the reason why stocks have done so all over the last decade is because of low interest rates. I don't think that's controversial. But I also don't think that that

stocks will continue to do well forever and ever because of low interest rates. Yeah. And my other point was, I think the low interest rate thing means we're going to see more booms and bust now because it does push so many people out on the risk scale to maybe where they don't want to be. I would love to be able to tell a retiree, you can put all of your money in a 6% treasury bond right now. If you had that option like you did in the 90s or even in the early 2000s, that would be great to just say, you know what, take all your money off the table, leave 20% in the stock market and earn your safe 6%. That would be wonderful.

Of course it would, but we know that if rates were 6%, the market would not be where it is. Right, but the crazy thing is, in the 90s, the market was higher with higher rates. You could have got a 10-year treasury at 6% going into the dot-com crash. In 1987, you could have got 10% on your treasury bond going into that crash. I mean, you get into this relative world where back then the rates didn't matter as much. It's just gotten so low that now it finally matters. That's what I'm trying to say. Maybe I'm

wrong. So there was a Wall Street Journal piece, speaking of dividends, where they said companies are suspending dividends at the fastest pace in years. They said there's been like $23 billion in savings. This one kind of surprised me. Which part? Bank of America said dividend payouts will fall around 10% this year. That's their prediction. That's a lot, right? They don't usually fall that much. No, that's saying that's low to me. My point is dividends hold up much, much more than people give them credit for. Schiller wrote this in one of his books. Dividends on a real basis have never fallen 50% or more during a crash, even though markets obviously have. So we've written about this in the past that dividends are way more stable. So I think 10% is actually a pretty decent drop.

I'm just saying stocks fell 35%. The economy is grinding to a halt. 10%. I would have guessed it would be way lower than that because companies need to find ways to cut back more. So I'm saying this is relatively stable as far as I'm concerned. It's not over. You could get a lot worse. Yes. So, 81 companies have suspended or canceled their dividends, which is more than the 10 years combined. So that adds up to savings of about $23 billion. So that's a lot of money. I would love to see how many of those are energy stocks. It's got to be a huge percentage of those.

So dividend aristocrats are stocks that have raised their dividend for 25 straight years. There are, I think, 64 of them. In five years, dividends aristocrats are going to be companies that haven't cut their dividends in the last 25 years. Do you have to drink a cup of tea when you own the dividend of It just sounds so hoity tooty. Does it not? It does. So people love their dividends. There's an ETF for this, N-O-B-L, which has about $5 billion in assets. And if you look at the total assets under management versus the price chart. Even the ticker of the ETF is thumbing its nose at me,

noble. Yeah, right? I only invest in dividend aristocrats. Yes. So anyway, the money has not left the ETF, even though it has gotten crushed along with everything else. Dividend investors are pretty well-behaved. Yeah, it makes sense. I just think this is more stable than I would have thought it would be. And again, it could potentially get worse than a lot of these companies have to cut back even further. But I think that's a win for the stock market investor. If you're banking and getting income from somewhere, that's the place right now, I guess. Let's move off of the aristocrats and onto the newbies. Who knew that a side effect of the coronavirus was becoming a newb whale? I never would have thought. Literally headline in the Wall Street Journal,

coronavirus turmoil, free trades, draw newbies into stock market. Do we know an editor there that we can tell them to start using noob whale? Have at it. Use it. So they showed this chart is crazy. TD Ameritrade, daily average client trade. They show when they cut commissions to zero in, I guess it was December or November, ever since then, it's gone through the roof. How much of that do you think you can count to market craziness versus trades going to zero? I mean, is it 50-50? I mean, part of that has to just be markets went crazy. and people trade more because they're panic buying and selling. It's the perfect storm for New Wales.

Can we come up with a new term for Perfect Storm, please? Why? I don't know. I'm sick of that one. Please email us in your thoughts for a new perfect storm. I don't know. It's just... I love it.

Great phrase. We need to come up with something new. They said 50% of new Robin Hood users are first-time traders, according to the company. TD Ameritrade opened a record 608 new accounts in the quarter ended March 31st. 600,000. Yeah, what did I say? 608. Okay, 608 would have been kind of low.

More than two-thirds were open in March. E-Trade saw net game 363,000 accounts, and Charles Schwab saw 609,000 new brokerage accounts for the quarter. I mean, this is easy to, like, make fun of the new whale investors, but for years, people were saying, this is a joke. People are just passive investing in buying index funds, and where's the price discovery going to come from? I don't know.

Is this price discovery? These people all coming in and just buying and selling? at will? Are these just people to take advantage of? Is this a good thing or a bad thing? So a lot of new investors are coming on during a crash. I think, I don't know, maybe this is kind of a good thing if some people will end up staying in the market and trying to learn and invest better. Well, these people are guppies, obviously, for Renaissance technologies and other companies to take advantage of. But big deal, because if you're just trying to learn about the market and you lose a few dollars, I feel like that's a small price to pay. As usual, the Wall Street

Journal was able to find some person off the street. How'd they find this person? This is my favorite part about Wall Street Journal stories. This guy says, he talked about how he put like 15 grand to the market for the first time. And he says, I feel like everything that I buy. I watch pretty closely. And if it's something that's not doing well, I generally try to put that money into something that is doing well instead. It's like, wow, we've got a new Ben Graham here. This guy's cutting his losers and adding to winners. I love it. It's Paul Tudor Jones. Yeah, I guess so. Losers, average losers. Okay, so this was a question from a listener that was talking about something we've been mentioning in the past a couple weeks. So many people have second rental properties that rely on

and they need a rental income from places like Airbnb and VRBO and they carry second mortgages. If COVID-19 shutdown continues and Airbnb rentals are down as much as many anticipate, do you think that a ton of those rental properties will we put on the market for sale in the next three, six, 12 months? Yes. Yeah, I think they almost have to be. They're going to be for closed and the bank is going to put them on. So this was another Wall Street Journal. They're basically saying, so this is the headline of Bargain with the Devil, Bill comes due for over-extended Airbnb hosts. And one of these people that they was in Michigan, apparently there is this burgeoning industry in the last few years of people who buy a ton of rental properties and

rent them out on Airbnb. And obviously, they are screwed at the moment. They profile a few people who are. I guess this is one of those cases. And they talked to this 54-year-old woman who has a few properties. And she says she has $22,000 in monthly expenses for her Airbnb portfolio, which includes a handful of houses. I mean, this is the kind of place where no one's going to be there to bail someone like this out, obviously. I mean, obviously, I feel bad for these people. I don't think they necessarily would deserve a bailout. This is, it's unfortunate in it. I don't really know what else to say. It's sad. I think maybe this company is in bigger trouble than they're letting on in the moment. And if a lot of these people are going to lose their homes that they were renting, so not only is travel going to be down, do you think as we enter this weird phase of, you can look at the market in three phases of the economy right now?

So we have this like crash quarantine phase that we're potentially coming out of where everything is just awful and the date is going to be awful. And then we're going to have this phase two where it's going to be, we're going to have this kind of opening, it's going to be weird. We're going to have still social distancing and people are wearing masks and people aren't going to be doing what they were before. and we're going to have an economy that's still operating at the parking break is almost still on, but we're operating at 50 or 60 or 70 percent, whatever it is. I guess the third phase would be hopefully post-vaccine and everything kind of goes back to normal. In this weird middle phase, isn't a place like Airbnb? I mean, if you are traveling, wouldn't you much rather stay at a hotel that has professional

cleaning crews than someone's house that's an Airbnb that has people that came in before you? That's a good point. Don't you think that the chains are going to make people feel safer than just a, random house or apartment or something? This is why it's so hard to look at the market, the S&P 500 specifically and figure what is going on? Because you think about, okay, let's say that the economy reopens and let's just say that we get up to 70% back to normal. We just get 70%. But the thing is a lot of the companies that are like all of the casinos, all of the airlines, all of the energy, all of the retail and hospitality, all of that combined is I'm making up a number 10% of the index.

And you have the giants like Amazon and Apple and Google that are like 95% intact. And that's how we end up with an S&B 500 that's only 15% off the highs. It doesn't mean that this makes sense or it's logical or it can't go a lot lower. But that's what's going on. Right. The way the market has priced this stuff actually kind of makes sense in a lot of ways and that those industries have been absolutely slaughtered. Their stocks have gotten crushed.

And so you could actually say that investors have actually looked through this and searched through the rub a little bit and made decent choices. Obviously, that could flip if and when some things happen. but so far, investors are almost piling into the winners, and it kind of makes sense for the time being. So Airbnb is the de facto central bank for the hosts. They let their hosts set their own refund policies. However, due to extenuating circumstances, they overrode their cancellation policies when the pandemic hit. So some people say that they felt like Airbnb hung them out to dry.

Here's a quote. I don't think that hosts ever thought their policies would be overridden. They're very guest-centric. So then later, Airbnb said that it would pay host 25. percent of what they would have received for canceled bookings, but it's capped at $5,000 per host. So that's not enough to get these people to the other side. There's absolutely going to be a lot of these listings on the market. One third of people that are hosts own between two and 24 properties and one third own more than 25 properties. So two thirds of them own multiple

properties. Yeah, that $5,000 isn't going to go very far. And these people are, unfortunately, that's a risk you take when you build up that much leverage. I mean, unfortunately, that's just the risk when you take something like this, that there would be a disruption, whatever it is. So these people are obviously out of luck unless the banks are willing to work with them because, I mean, if the banks were willing to extend them mortgages for 25 properties, again, this kind of rolls up to the bank. So what are they going to do? Are they going to work with them a little bit? Or is the bank just going to take over the houses? You're right. How long do events like this change people's psychology? How quickly are people going to come back

to this thing and be like, hey, you know what's a good business opportunity? Airbnb. Is that Three years? Is it 10 years? Is it never? I mean, obviously, it comes back eventually. Don't you think these are the people that moved to something else, though? So, like, we had the dot-com crash in the 2000s, and people went from tech. And then later in the early to mid-2000s, we had the real estate boom. People went from day-trading stocks to becoming mortgage brokers. And I'm sure a lot of those same people went to Bitcoin hawkers or something in the recent years, and then maybe real estate employers, whatever it is. I think wherever there is some sort of speculation, people are going to find it, whatever it is. Maybe it's not a

Airbnb in the future, but it's something else. It'll be interesting to see how long it takes this company to come back because I think they've gotten investor dollars to help see them through, but I think they could be in trouble if people's risk appetites are changed in terms of just wanting to stay at those places. I know we keep talking about this. I would love to see Airbnb traded publicly what it would be doing. Yes. So sticking with a chain thing, Derek Thompson wrote this really long piece in the Atlantic and he's been all over this stuff and how things will change. He said the pandemic will change American retail forever. He talked about the fact that as we hit this phase two where things are kind of weird, he's expecting chains to

really take over. And he talked about the fact he said everything that urban residents typically despise about chains, their cold deficiency, sterility, and predictability may come to feel like mixed blessings during a period when people feel stocked by murder pathogens. In the past month, chains have taken $3 out of every $4 spent eating out. And so this is, for our city in Grand Rapids here, over the past 10 years or so, we've gotten a ton of new restaurants. And they've all been independent. And a lot of the chain places have actually closed because no one wants to eat in those anymore. They've all been these new breweries or distilleries or any type of new place. And I wonder coming out of this, how many of those new places are going to make it and

how many are going to be replaced by chains, unfortunately. So there's already been a couple of really well-known places here that have closed. I wonder if that's going to be a trend where some of these great new independent restaurants are going to not survive and not be able to make it. and the chain places are going to swoop in and they're going to be the ones that take advantage. Yeah, I mean... There's millions of places in New York when you walk by that are just these little mom-and-up hot places.

How do those places survive something like this? I mean, even if they get a loan, how long can that really see them through? I just think that I kind of agree with him that this retail experience could, especially from the independent versus chain places, that could really stop a trend in its tracks for a while at least. This just keeps getting back to the big getting bigger at the corporate level, income inequality.

Somebody asked Powell during the press conference, do you worry about workers who just got jobs in the last couple of years? He said, yes, unemployment tends to go up faster and be much higher for minorities and those at the lower end of the income spectrum. It is heartbreaking to see good labor markets threatened. Yeah, unfortunately, we mentioned this probably a month ago, the inequality stuff. I think that's honestly one of the reasons that people get so angry that the stock market is going up, Because so much of it is held in the hands of so few, people got mad at me because I said, why don't we wipe out people's credit card debts? A few people said I made their blood boil, which is great. Obviously, I'm just throwing out stuff here against the wall. I'm hoping it sticks.

I wasn't actually thinking we should wipe out people's credit card debt. But what if during one of these fiscal stimulus things, they put part of that into, we're going to put $1,000 into the stock market for you. And everyone now owns a piece of the stock market as a part of fiscal stimulus. We're still going to give you checks to help, but we're also going to put a grand in the total stock market fund for you. Wouldn't people be less angry at the stock market if it wasn't just this place where they see wealthy people and everyone had a stake in it? No way. Think about the unintended consequences of that. People would say, why the hell are you buying stocks? I need money now. Yeah, true. I just, I think you can continue to demonize the stock market or you can figure out a

way to help that other 50% who isn't invested in it somehow take part in it. Here was a tweet from yesterday. America in a nutshell. Twenty-six million people laid off. Goldman Sachs CEO getting a 20% raise to $27.5 million. Yeah, again, that stuff's just going to get worse. Okay, so Bloomberg had a piece. I'm continuing to worry about what school is going to look like in the fall. They had a piece about what China is doing, so they had 260 million kids go back to school. Masks are, of course, mandatory. They said, I think basically they're going every other day, so maybe they break it up into half kids go one day, half kids go the other day. They have to eat in the cafeteria at a large grid of standalone desks that are spaced exactly 1.8

meters apart. Some schools are eating in shifts. Some schools have created dining cubicles where children are walled off from one another. Four-time daily temperature checks. Basically, the kids can't socialize. And I don't know that the U.S. is going to take things that far, but the school year next year is going to be bizarre. Our day care sent us an email the other day saying they're opening May 18th, which is the first day after. the regulations are lifted where things can't open back up, even if they're going to open

and I can't imagine they're going to that they're going to push it back a little bit more, what percentage of people are going to send them? And let's say school does open up to September and a lot of people still don't feel safe? Don't you think a lot of parents are going to hold their kids back if they can and say, I don't feel safe sending my kids to school yet? It's that whole thing. I don't know how that's going to work or how weird school is going to look. It's hard. I don't know because I also think that so many parents are just going to be so desperate to get their kids out of the house. Yeah, a lot of people are going to have to because they need to go back to work and earn

money and, yeah, because it acts as a form of daycare for people. I just, it's, yeah, the remainder of 2020 with a school thing I think is going to be bizarre and I don't know how it's going to work out, but I'm increasingly worried about the fall. Okay. So there was a story about Trolls World Tour, which we have now rented twice. So you pay the $20. We've gotten it twice.

The soundtrack is wearing out in our house from Alexa. All we do is listen to Troll's music. My kids love this, and they talk about how the sequel made more money than the original did in five months of release in the theaters, and the digital release has only been out for three weeks. This is another weird trend. Obviously, it's hard to do apples to apples comparison on this because you don't know how much of the pull forward has happened in terms of people that would have bought it on demand. All I know is when this comes out and it's available to buy, we will probably buy it too because my kids have such a high appetite for repetition. I think this whole trend just makes a whole lot of sense because we never would have taken all our kids

to go see this in a million years in the theater. So the fact that it was available to us was probably extra money in their pocket that they wouldn't have gotten otherwise. Maybe that's more of a thing just for families and it wouldn't work for all movies, but I think this is a trend that there's almost probably no going back

for a lot of these movies unless it's a really huge, huge movie that they just want in the theaters. I think some of the smaller movies like this, it totally makes sense just if people pay up a little bit for it. And honestly, 20 bucks for us for a family of five, that's a bargain. Because if we would have gone to the movie theater, the tickets would have been more than that and the concessions and everything else. And plus the fact that when you rent it for 20 bucks, you get it for 48 hours. And so we watched it multiple times or my kids did. I think this is just a great idea. And this is

one of the trends that there was a theater chain. I think AMC said, all right, universal pictures are no longer allowed in our theaters. It's like, you can't fire me. I quit. Yeah. I don't know if you got to the George Costanza yet in Seinfeld where he breaks up with the girl. friend because he knows she's going to break up with him first. No, I'm breaking up with you. That's what this is. But I think this is a trend that totally makes sense and probably would have happened anyway. Yeah. Listen to questions. What effects do you think a large reduction of inflows to mutual funds and ETFs will have on the overall market? Where is the dry powder and investment money coming from over the next four months for the mom and pop investors? Wouldn't it all

have to be cash on the sidelines and invest in taxable accounts? This is a confusing question. I guess this is saying if people are making less money or losing their job, it's not going into the 401K. Where's the money coming from the overall market? I guess that makes sense and potentially people pulling out of their 401k. It would be interesting to see the numbers of 401k if we're seeing a drop off in contributions or if people have slowed them down or stopped them. It sounds like for Vanguard from some of their numbers, it hasn't quite happened yet. But I guess you would have to make the case that it's bound to happen. But again, mom and pop are still a drop in the bucket in terms of the overall market. And they're not the ones pushing it around.

Yeah, it's really hard. I don't know how we can quantify. Like, who's setting the prices, you know? Right. It's definitely not retail investors. I will say that because the stuff they're investing in Target Date funds, those things don't trade very often as it is. So they're not the ones that are seeing this heavy, heavy turnover. And so, yeah, it's the big money that's moving the market. It's not little mom and pop. All right. Any recommendations? I'm taking some elves on my watching. I watched a movie on HBO on demand called dragged across concrete, which is probably a movie that nobody has heard of, and for good reason. So being Jewish and not exactly a huge Mel Gibson advocate, it's a Mel Gibson and Vince Vaughn movie

from 2018. It cost $15 million and just did $660,000 at the box office. Once again, Ron and Tomatoes has failed me. How come no one ever talks about the Vince Vaughn bear market? I feel like he's been in a bear market for like eight years now. He did the third season or the second season of True Detective. Yeah, which was awful. Terrible. He wasn't that funny in curb this season.

I think Vince Vaughn is in a bare market. Putting it out there. He's at level's last scene in 1993. Yes. So anyway, so this movie got a 75 on Rotten Tomatoes, and I know the calculations don't email me, but the audience also, 69%. And, eh, waste the time.

So I've wasted now, probably wasted 10 hours in the last week on bad movies. Yeah, but honestly, what the hell else are you going to do, right? There's literally nothing else to do. You know what? Actually, I'm doing more than I ever have. Listening to more sports podcasts. Because of the last dance, which is so good, I'm listening to every Zach Lowe podcast. So I listen to every Bill Simmons podcast and I have for a long time, but now I'm listening to every Zach Lowe podcast also. Just to talk about that, yeah, there's nothing else talk about. I took some heat a couple weeks ago when I said, Better Call Saul was boring. I'm doubling down on that. Ooh. But with a caveat. So the first three seasons were awful. They were slow. Nothing happened. It was three seasons of character building, which is way too much. If this was not a show that was about Breaking Bad and they didn't have Breaking Bad fans, I don't think it would have made it. See, I just finished season four. Season four was good and better, and that's when you start getting into the stuff about Gus Fring and how they build out the underground layer where they make all the meth. So you start getting into all these characters from Breaking Bad. So it's really good, and I heard season five is even better.

So I think here's the theory for the people who don't want to sit through three seasons of just boringness and nothing happens, watch the third season finale and then go right into the fourth season. You miss nothing. If you really want to get into the breaking, and the breaking bad stuff is kind of cool how they lead up. And you see all these characters that were in it. You're like, oh, I forgot about that person. So it's good. But I'm doubling down on the fact that the show is just really, really slow at points and it doesn't heat up until season four. Here's an L for me, Little Fires Everywhere, which is based on a book, is a Hulu show with Reese Witherspoon. in Carrie Washington on Hulu, kind of like your Netflix movie from the other day where you said, they just feel 80% complete. This show, Reese Witherspoon basically plays the same character she plays in Big Little Lies, but it's just not as good. And we have a couple episodes left, and the only reason I'm finishing is because of sunk costs. Is your wife on the same page? Because my wife liked that show. My wife probably likes it better than me, but it's, I'm surprised Reese Witherspoon did this. It's not very good. And finally, the 30th book in my Pray series by John Sanford, it's called Masked Pray. His first book was in 1989.

It's about a detective from Minnesota. He's done one almost every year. I think it took one or two years off, and this is the 30th one. And just as good. This one is about an alt-right conspiracy theory taking out some kids of interweaves social media and the alt-right. And this is a pretty good one. So Masked Pray by John Sanford. I'm dipping my toes back in the book, back in the book game.

I'm reading new ideas from dead economists, still getting to that FDR biography. I'm reading all the devils were here by best. Anthony McLean and Joe, John O'Sara. But I'm just reading like, I don't know, 20 minutes at a time. I just, I can't get myself to go all in. Yeah, I'm the same way. I read like 20 minutes before bed and that's all I can muster in terms of reading. Oh, speaking of which, I was telling Ben before this started, I'm ready to about slow down on the two times a week. It's a lot of work. And I feel like I'm just, all we do is read articles and it's getting kind of exhausting. And also, given that the market has chilled out a little bit, I'm petitioning for going back to once a week.

We'll see. We might need to do a survey on this. Maybe if there's stuff going on, we'll do two a week. Otherwise, maybe shift back down to one. We'll see. I think there's still enough craziness in the world going on where we could do two. I know, but I'm getting burnt out. I don't want to retire. Okay.

All right. Well, I wouldn't want to get burnt out from podcasting. It's a really tough game, you know? I feel like Jordan in 93. I have nothing left to prove. Maybe you need to up your game in the Peloton and do a few more classes a day. Send us an email. Tell Michael why he's a big wimp for not wanting to do two podcasts a week.

Animal Spiritspot at gmail.com. We'll talk to you next week.