Animal Spirits Podcast - An Extraordinary Decade (EP.236)

Episode Date: December 22, 2021

On today's show we discuss Omicron, why the market is over the virus, Cathie Wood's bold return forecast, why everyone is lowering return expectations, why the middle class is unhappy, the future of movies 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

Today's Animal Spirits is brought to you by Y charts. Ben, Houston, we have a problem. I mean, the problem is I'm looking at the U.S. Consumer Price Index, the official data. And year over year, we're up 6.8%. And if you look at a chart, this is going to leave a permanent mark. My point is that when you're looking at this data series before this year, it was pretty much like 1970 and then everything in comparison was a flat line. And for the first time at a long

time, you see inflation, not just in the grocery, you see it on the chart. Are you doing technical analysis of inflation right now? That's a breakout. Are we having a breakout? This is one of the charts that I've gone back to more than any other probably in the last 12 months. But here's my other takeaway from this, going back to the 1960s it looks like. Just look at how volatile it is. It's never just flat. Even in the last 20 or 30 years when it's been relatively low, it's still all over the place. I feel like in our minds, we want inflation to be this flat thing where it's the same every year. That's just never the case.

If you look back historically, it's constantly moving. For the last decade, it was in a pretty tight band between 0 and 3%. But yes, you're right. Of course. It's a volatile data series. Okay. If you want to look at this chart with us, go to whitecharts.com, tell them Animal Spirit sent to you and get 20% off when you sign up for 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 Holtz Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain. positions and the securities discussed in this podcast. Welcome to Animal Spears with Michael

and Ben. Michael, my holiday gift to you today. I have a lot of takes today. I feel like I've been saving them up, bottling up. At the end of the show today, it might take me 10 minutes. I've got Ben's overarching theory of the future of the movie industry. I put it all together this weekend for you. Okay? So just... I also have takes. Put a pin in this. I've got a lot of takes today. So that's where I am. That's my holiday gift to you. Oh, I can't wait. I hope you appreciate it. Okay, three weeks ago on this show, we talked about a bet that we made on Kalshi, where you can do this binary betting market. And literally three weeks ago, how much of U.S. COVID cases will be Omicroned by the new year? And the bet was, will it be above 1%? And we were trying to figure out if that made sense. I bet yes. You bet no. That seems silly now three weeks later. But wait, hold on. Context, where was the market at? It's not like it was 50-50.

No, it was 70-30, I think, 65, 35, something like that. In favor of yes. Yes, and it was in favor of yes, but it was not a slam dunk. And I just can't believe how quickly this moved. Did you turn on the news last night and see this 73% number? You mean Twitter? Yes, I did. Or sorry, Twitter, yes. Basically, yeah. Now it's 73% of cases. In three weeks, that's where we've gone. Holy cow. Can this go above 100%? Should I have maybe paid more attention to biology class in high school? You know when I was out? when we had to dissect the cats. That's when... Cats. I'm done. Yeah, we dissected cats. We had to give it a name. Cats. And then when you're done, you know what you do? You put in a bag and you throw in the dumpster. Yeah, we dissected cats.

I dissected a frog. I feel like there's a big difference. Yeah, I wasn't... Nope, I'm out. That was me. As far as science goes, that was my... I was done of it. So, yeah, so obviously the virus is spreading rapidly... Here's another... This is from CNBC. They said, Delta is now 27% of cases, and it made up 87% of cases. is one week ago. Holy. So this is, you know all the compound interest things that you get in a finance book that says, if you took one piece of rice on a checkers board and double it every day, it fills up your house with rice or something. That's this. This is, finally, we get to use

those compound interest analogies. What's interesting to me is how the market is digesting this information and moving past it pretty quickly. The bad news is this virus is spreading rapidly. The silver lining is, and people that are vaccinated, it seems to be having moderate to very mild effects. Healthy people from what I'm seeing aren't getting particularly sick and like they were with the other waves. And the market is responding to that. Can I try to put a positive spin on this? Not knowing anything about what's going to, like we could get 15 more variants and Lord knows what happens and some of them jump over. And I remember a couple weeks when we were talking about it. I said, after I got COVID, my theory was everyone's going to get

at some point. I thought that might be everyone over the course of like five to seven years. It's going to be like this slow burn. What if this thing just tears through everyone and then it's gone? Is that possible? Sure. I don't know. Why not? Or not gone, but we have some more immunity and I don't know. It's hard. I tested myself Sunday night only because people I was with were COVID positive and I was going to be in the city on Monday. And so obviously I had to take the test, just to make sure. So I took a test negative. But at this point, unless I get symptoms, like, I don't want to take the test. Like, honestly, if I'm asymptomatic, maybe that sounds like being very selfish, I don't want to know that I have it. I think maybe unless you're going to be around people who are older, like your

parents or something. And don't get me wrong. If I even have a sniffle, I will get tested. Here's, I think, the thing that people have to prepare for, and it does sound like it's not going to, like, make you, if you're vaccinated and you get your booster, you're probably going to be fine. Or if you don't have preexisting conditions, you're probably going to be okay. For us, the worst part was, you have this too. You have young kids. kids who have not been vaccinated, which I don't know why they're taking so long on that, that the under five is still not vaccinated. We have twin four-year-olds who can't be vaccinated yet, so we still have to kind of worry about them, even though my son had it already and

just didn't even touch them at all. It's just household disruption. So I think they're telling people who are vaccinated and boosted now. Maybe you have to, as long as you test negative after five days, you're okay. But with kids, it could be up to like 10 or 14 days that you have to just basically stay away from people. That's the worst part is just the disruption. This vacation season is going to be a nightmare. When all the kids come back? Yes, yes. I have the boys home this week, and I'm just planning because there was an exposure,

and I'm just guessing that's going to happen after the holidays, too. Yes, it's the teachers get it or the other kids get it or we've been having days here and they're canceled at school because people are sick or have someone in their family that's sick. That's the thing. People for the next few months are going to have to prepare for a ton of disruption, especially if you have kids. There's no easy answer.

I'm not like pointing figures because it's tricky. But like one of Logan's teachers or Kobe's teachers, I can't remember, the teacher is vaccinated, wears a mask all day. My kids wear a mask. She's asymptomatic and she has it. And so now I understand the class has to quarantine. But like, what about my other son who is with his brother all day? He can go back to school. This is going to be the weird part going from a pandemic to an endemic. How do these norms change over time if this is going to be with us forever, basically? And everyone's going to get it. I think people are already over it. The train was packed yesterday going to New York City. Obviously, if you get it, you're probably going to be fine.

You have your booster. Are you more nervous going into the city now that everyone seems to be getting it there? I feel like I'm invincible. I'm 80% kidding. But I just got boosted last week. Or are you just like rip the bandit off and let me get it and get it over? Well, if I'm going to, again, I'm talking out of my ass here, obviously. But from everything that I'm seeing, this strain is not as deadly as the other ones.

You just had your first death from Omicron in Houston from an elderly unvaccinated man. The hospital cases from what I could tell aren't spiking. So if everyone's going to get it. And this seems like to be like the one to get. I don't know. But yeah, it's not fun. I feel like this feels so much worse than Delta. I think because everybody was sort of expecting a second wave.

And it seemed like we were so far on the other side of the valley. And for this to spike with the rapidity at which it did is just such a bummer, especially now around Christmas time when everybody's trying to see their families. It just sucks. It's just so bizarre. We're two years into this. It just sucks. So, yeah, it's crazy.

Like we've been talking about Kalshi a bunch, K-A-L-S-H-I. We've been talking to them. And we want to disclose that we are now advisors and shareholders. And so we are going to integrate them into the show. And we've got some ideas. And we're very excited about sharing them in the new year. We're going to be making binary bets on them. So either Michael and I against each other or maybe on the same team.

We have some really cool ideas working with other men on. We could tell you some ideas. If any listeners have any ideas, please feel free to share them. The only thing is you have to have some sort of data source. There has to be some sort of yes or no. There has to be some sort of economic outcome. For example, we can't bet on like, will Logan Roy die in season four? But what we can bet on.

Which we thought about and they told us, no, you can't do that. Will Eath flip Bitcoin? Will ARC outperform the NASDAQ 100? Those sort of things were definitely going. Will there be a spot Bitcoin ETF approved in 2022? Stuff like this. These are the ideas we're kicking around that we think people will be able to bet on. And then as you get closer to the date, you can see how the market is changing, which I think is really cool.

If anybody missed it, we spoke with Tarek, one of the founders on. a couple months ago. They're regulated by the CFTC, which is really cool. It is easy to get your money on and off. So anyway, more to come on that. We started playing around of it and it's really cool. I think the other cool thing is it's kind of like options where I bet on the 1% Omicron thing when it was at like 70 cents. And then within 10 days, it was immediately up to 98 cents or whatever it is. And I cashed out instead of waiting for the expiration, I was already close enough. So there's enough liquidity in a platform where you can sell and then move on to another bet. We've been playing on it in it.

I'm down 15%. Okay. But I'm a long shot guy. I'm taking long shots, taking flyers. You got to hit like one out of 10. You're going to be fine. All right. Michael, we talked about Vanguard last week a little bit, returner expectations.

JP Morgan has theirs out now. There's are like, this is 10 to 15 years, 4% U.S. large cap, 6% Eurozone, 5% Japan, 4% U.K. Is anyone optimistic about the future in saying like, we're going to do 9% or 10% a year in the stock market? It doesn't seem like we're there at all. And so I know people say that there's all this euphoria in the markets and maybe so. but I feel like in 99, people were predicting like 15% annual returns forever. It seems like people for years now have still been predicting the U.S. stock market or any stock market just is not going to do what it did historically.

And I think that's actually, it makes sense to temporary expectations. But like, what would it take for this to happen? Would technology have to be 80% of the market for that to happen? Like, what would it take for us to just get 10% returns for the next 20, 30 years? I don't know. Yeah, technology. We've been saying something like this can't continue forever. And I agree with that. But it has continued forever.

It feels like. Here's an amazing thing. We're going to talk about a research report from GMO. And I think I knew this, but just, I don't know why to stop me in my tracks. From September 2011 to September 2021, the MSCI U.S. index outpaced inflation by 14.6% a year. Jeez. 14.6% real returns annualized for the last decade, Ben.

What's it historically? Five? By the way, when people ask, how do I protect against inflation when inflation is here? You don't protect against inflation when it's here. You protect against inflation before it gets here. Good answer. So you protect against inflation when it's higher. That's why you own stocks.

Good answer. You know that on the price is right when they could answer. Good answer. Even if it's the worst answer. Good answer. Oh, that's family feud. I think you're thinking of. Oh, what did I say?

You said prices. I'm sorry. I watched prices right for years. I'm my family feud. Okay. So sticking with this, I've got some questions, Ben. and I don't doubt their data here, I'm just sort of questioning it because it flies in the face of what we spoke about very recently. So stick with that 14% number. They said multiple expansion of

nearly 10% a year for 10 years resulted in valuations more than doubling. Why is the market now willing to pay such a higher multiples for U.S. companies when the companies themselves look to be delivering fundamental returns that are more or less the same as they delivered in the prior decade. So they showed the last 10 years, and then they showed the last 10 years before that, and they showed that the 14% return was like basically all the matter of expanding valuations. And a couple weeks ago with Shannon... I'm going to take the other side of this one. I'll explain. It says their fundamentals are an average of sales, gross profits, smooth earnings, and GMO's economic book value. They're basically using cape, some sort of cape. And I did this thing where

I took John Bogle's return for him. He says, returns are dividends plus earnings growth, plus or minus a change in P.E. I showed the 2010s were like 14% per year, 2% of that was dividends, 10.6% of that was earnings growth and 1% of it was P.E change. So what this is really saying, for me saying that we didn't get multiple expansion in P.E. growth, obviously valuations changed, but here's a Mobeson thing that he told to Barry on his podcast this past week. He said multiples are not valuations. So all this is saying from John Bogle is that stock price, rose in concert with earnings growth. You're saying that stocks are not detached from earnings growth. That doesn't mean that the CAPE ratio didn't rise. I guess if you think that the CAPE ratio

is valuing the market correctly, then you have been paying attention for the last 30 years because that's the thing that's detached from reality. The whole thing is, so if you look at the 2000s, earnings growth was 0.8% per year. Dividends give you 1.2% and your annual terms are negative 1. So the valuation thing here in fundamentals is are stocks growing in line with earnings, basically. You're saying that they have, and GMO is saying that actually not even close. They're looking at the 10 years smooth average. Here's the thing. When Mark and Driesen wrote software is eating the world, they probably should have been a footnote eulogy for the Cape ratio. Yes. Because Mobison's whole point with Barry on his podcast last week was all the intangible stuff,

he's basically saying the old way of looking at the world through multiples is broken. And using that as a way to try to value the market is never going to get you. Which I agree with. quickly to use smooth seven or 10-year earnings? Well, think about the earnings back then versus the earnings now. The composition of the earnings? Yes. And the companies and like, it's so so different. I don't know. Couldn't you make the case that the forward PE right now is probably a better indicator of value than the Cape ratio? Yes. And I mean, this just seems disingenuous. To quote them, why is the market now willing to pay such higher multiples for U.S. companies when the companies themselves look to be delivering fundamental returns that are more or less

the same as he's delivered in the prior decade. So we talked about this a little last week of the biggest stock. So Calc Bench, who does this really deep dive research into financial statements of all these companies and pulls them together. They did a little research piece for me. And they took the top 25 firms in the S.P 500. They took the net income by year from 2016 to 2021. And then they ranked them.

Then they compared those rankings, how much the top 25 companies brought in versus their fundamentals and their profits. And they showed last year the top 25 companies were 37 percent of the index. Makes sense. But there were 56% of profits. This year so far through Q3, they're 42% of the index and 46% of the profits. Every year, the profits of those companies have been bringing in is bigger than they're waiting in the index. So these companies are undervalued, are underrepresented in the index. No, you're right. This chart kicks ass. Yes. So it's saying that like these companies are big for a reason. They've backed up their market caps with their fundamentals. It makes sense.

This one was definitely a head scratcher to me. Ben, you know who is optimistic? Kathy Wood. Okay, I was going to say technology people, but yeah, Kathy Wood is probably the, yes. So she wrote a post, innovation stocks are not in a bubble. All of her funds are down. I think the flagship was down 40% from its highs. Again, while the index market is barely correcting, so the five giants, she said after correcting for nearly 11 months, innovation stocks seem to have entered deep value territory.

I give her credit because she knew what she was doing here. This was a, how do I get people to click on this and also be very outraged at the same time? Do you think her and Musk are friends? Yes. They know each other because they have a lot of the same tendencies where they are both extremely bright and they know how to push people's buttons on both sides, people who are with them and people who are against them. All right.

These are two things that made my eyebrows go to the back of my head while I was reading this. She said by 2030, Autonomous Taxi Networks could scale from no revenue today to 9 to 10 trillion globally. For perspective, U.S. GDP today is roughly $21 trillion. Okay, a little stretch there. Positive spin zone for us. That would be great because then we don't have to drive our kids around high school at all. They can just be driven around by autonomous vehicles and we don't have to worry about them at all.

Lastly, and yes, this is what drives some people nuts. With a five-year investment time horizon, our forecast for these platforms suggest our strategies today could deliver a 30 to 40 percent compound annual rate of return during the next five years. Have you ever been seen something like this? Maybe their compliance department doesn't care, but how do you think this got through compliance that you could say something like that? I guess could. The word is could. 30 to 40 percent annualized? I mean, I hope she's right, because if she's even close to right, then the world is going to be in a better place. So the difference between Vanguard and J.P. Morgan, who think like 2 to 4 percent returns and Kathy Wood at 30 to 40 percent, maybe we're somewhere in the

middle. This, I thought, was a very good point. She said, in our view, the wall of worry built on the back of high multiple stocks bodes well for equities in the innovation space. The strongest bold markets do climb a wall of worry, a fact that those making comparisons to the tech, and telecom bubble seem to forget. No wall of worry existed or tested the equity markets in 1999. This time around the wall of worry has scaled to enormous heights. I think that's a very good point. That's a good point. But I will also say, I think the wall of worry is here to stay forever. We're never going to not have a wall of worry anymore because of the internet. So like, there's always going to be detractors and contrarians. So the wall of worry is now here forever.

Good point. Tom Sarapagas flagged that they're launching in Europe three times and negative three times versions of ARKK and a couple of other funds. And they're also rolling out a five-time version, Levin version of the Q's. So they showed a chart in here of the daily moves. It looks like a five X NASDAQ 100 would have had a 60% daily decline at one point. So can one of the ETF nerds please explain to me? Why is it that Europe gets to launch all these products?

They have like a Bitcoin ETF already, a spot Bitcoin ETF. If they have like defy products, they have this stuff. But I thought the whole thing was we were all about deregulation in the United States and Europe was about regulation. So why is it so much easier to get financial products regulated there versus here? That doesn't make any sense to me. Don't know. That's a good point.

But could you imagine a 60% loss in a day? Yeah, you've got to be a maniac to trade these things. This is for the what if I've got a 30-year time horizon crowd. All right, buy this. All right. To Kathy Wood's point, so Cliff Asnes posted this chart showing the, global value spread. It's just value versus growth. I don't know how he said, this is the whole blog post. All he did was show this chart. And it shows that basically value stocks versus growth

stocks are cheaper now than they were in 1999. And it's kind of like, you know, people will post something on Twitter and say, that's the tweet. No comment necessary. Yeah, whatever. How about this for a, this is looking in the Kathywood thing? So I guess if you look at the numbers from 1920 to 2010 or whatever, value probably outperform growth by what? Two percent a year. I don't have the formal French numbers, but that's probably, right, the numbers that people would say, what would it take for growth to catch up and get even with value again after all that time? What if that's happening? But growth has trounce value in the last two decades, no?

Well, no, growth has trounce value since 2010, basically. Value outperformed. So I'm saying I'm saying the 20-year numbers. 20 for sure, but I'm saying if value beat growth for 60 years or 70 years or whatever it was, what if growth has got its own 60 or 70-year just to catch up, throwing it out there? What if that's the real flea-year? flipping, not ethel or Bitcoin. I guess the other point is, obviously, by any sort of traditional valuation metrics, these are not deep value. It's comical. But this is the disconnect, is that she's living in the future, at least she's investing 10 years from now, and valuation metrics are backwards looking. If your fund is down 30 to 40%, everything probably feels like deep value to

you. When you have individual companies that are down 60 or 70%, that probably feels deep value. but yeah, deep value territory was a little bit of a stretch. And again, she knew what she was doing here. Oh, yeah. She's using the Elon Musk marketing playbook. Yes. All right. So this is from Bloomberg. I think I'm touching on why I think the middle class is unhappy from last week. We talked last week, you said, well, it's not the really low-income people who take out the debt. It's more middle-class people. But the low-income people are seeing the biggest rise in income this time around. I think the most unhappy group right now is probably the middle class. So Bloomberg's show, this is from the Federal Reserve. They put out this on a quarterly basis. They show the wealth.

And I broke down some of these numbers. They break it down to like top 1%, 90 to 90, 50 to 90 and bottom 50. The bottom 50% has seen their wealth since the beginning of the pandemic grow by 75%. That's even bigger than the top 1%, which has seen like a 30% increase. And then you have like the middle cohort who's seeing their wealth increase by like 20%. I think that we are all just, what does William Bernstein say about us being apes? who envy or something like that. On an absolute basis, everyone, I say that in quotes, because of course not every single person, is richer now than the word pre-pendemic by a wide margin. Like our net worth has never been higher, and it was supercharged from the pandemic. But you have the top 1% in the bottom 50% and have seen their wealth grow much faster than that other middle cohort. So I think we look at the world on a relative, not an absolute

basis. And that is part of the reason people are unhappy right now because they're seeing people other than them do better than them or get bailouts or get checks, more checks, whatever it is. I paid $14. and change for a burrito bowl at Chipotle yesterday. Is this a new weekly segment? Michael pays too much for something? Bacon, breedables.

Dude, over $14. Did you get double meat? There's no positive bid zone. Okay. I guess I assume everything in New York, you just add $10 to whatever I pay in Michigan. It feels like a lot. Ben, you wrote a post. So people are talking about, like, the Fed is behind the curve.

Some people are of the opinion that they should raise rates, jack up. I don't know if they say jack up rates, but raise rates, which they should, by the way. I agree with that. To curb the economy and like Paul Verkel's playbook. It's not even curb the economy. Like, you don't raise rates because you want to slow economic growth down. You raise rates because you get back to a normal level when you can, when growth is rising. If we couldn't do three or four rate hikes now, when inflation is already at 7%,

economic growth is going to be like 10% this quarter. When could you do it? But the thing is, I said last week, listen, the Fed can't unload those container ships any faster. The Fed can't build semiconductors for us. They can't fill the car lots. A bunch of people came to me and said, well, if the Fed raises rates enough, they can't cut demand down. Why do we want to cut demand? Why isn't there a middle ground between the Fed letting everything go crazy and the Fed completely cutting off demand and potentially starting a recession? Why can't we find something in the middle that we get a little normalization. Like, we had no demand for 12 years following the Great Financial Crisis. Why don't we let let it run a little bit and see what we can do on the edges to make things a little better before we

just completely say, let's slice demand off and slow the economy if we can. And this, that surprised me. You said by the time Paul Volcker raised interest rates enough to throw the United States into a recession in 1980, the inflation rate had averaged 6.9% for the previous 11 years. So the long-term inflation rate, going back 100 years, whatever, is like 3%, more or less. we've been above that rate for eight months. They're at 7% for 11 years. So it's like obviously then they waited way too long to do something. But the people now saying that we've been letting inflation on above average for eight months,

that we need to do something immediately. Like that seems a little short-sighted to me. I think you're right. We need to raise rates to normalize, not to cut demand, just to get back to normal. Honestly, if we can't raise rates to 1% right now. Then how are we ever going to lower them? How are we ever going to raise them? then we're never going to raise rates again. And they might as well just say that.

So Jason Furma tweeted a really good chart. The 24-month percent change on an annualized basis for durable goods and services. And durable goods are big-ticket items, things that get shipped here, like laundry machines, for example. And so that has gone parabolic. And inflation for services has definitely gone up, but not even by close to as much. So he said, when you look at this picture, are you comforted about the future trajectory of inflation or scared? Most people are comforted. They picture goods inflation falling while services. Inflation stays the same. I'm in that camp. He says, but what if the shift from goods to services raises services inflation? I guess the hope for most people was we'd stop spending so much money once things got a

little calmed down a little better and we were traveling more. And obviously, so I think the pandemic has done a pretty good job of pushing this away because that's what we were doing before is the service thing. You can see the durable goods were falling for a long time from what, 2013 to 2018, basically. They were in negative territory. That's technology, right? Making this cheaper. And I think that's the hope for most people is like, we'll figure this out. This is not like the 70s that's going to be here for a long time. I think that's what most people are hoping for. But it's like how much pain do we endure before we get to that point? Are you still team Warren? No, I think I'm done to that one. I was with her up to a point about like she's saying that the

margins for some of these companies. Now she says, giant grocery store chains force high food prices onto American families where rewarding executive investors with lavish bonuses and stock buybacks. That's like blaming the gas station for high gas prices. Good analogy. The grocery store does not make high prices. It's the companies that are inputting them and giving them the supply. They're setting the prices, not the grocery store. And aren't grocery stores like low margin businesses? Very low. Yes, exactly. I was on Team Elizabeth Warren for like two weeks with the beef producers and stuff and their profits, but she lost me. She went down a hole.

Ben, here's a question for you. Just thinking, is a way to navigate inflation using credit card rewards to your advantage between pay raises and if one were to say use a card that gives back three points rewards and grocery purchases, wouldn't one be able to kind of still beat inflation? That's a stretch, but this is definitely a big time personal finance brain here who said this. So that means my credit card rewards are beginning over the years have been a huge inflation hedge the whole time.

There you go. The problem is when inflation actually hits those rewards points and they start being not worth as much anymore, which tends to happen. Ben, one of the emails that we've been getting a bunch is, like, from people that haven't even tried to understand crypto at all, it's like, where do I begin? This is a difficult thing to answer because it's a completely different language. And so there's no, like, crypto for dummies necessarily. There's not even a book because people said, well, what book should I read? It's like, by the time a book would get published, the information would already be stale. First of all, you don't have to do anything.

But if you're asking that question and you want to learn, just start somewhere. You just got to start somewhere. You gave a list of six or seven different resources a couple weeks ago in one of your blog posts. We'll link to it. The one where you talked about our crypto index. That's not a bad place to start. Everyone is still learning because there's so much to learn. What word did I use for? You were looking for composable. I meant to say composable. I said transposable. I couldn't think of it. Still learning. There's two reports of particular that I will link to. Wait, sorry, here's where you can't learn. The people who are doing YouTube video screaming at you about the price of Bitcoin it's going to be. Forget that nonsense. Crypto theseses for 2022 from

Masari and 2022 digital asset outlook from the block. These are both very long, but very, very good stuff in here. Also, one final thing. Index coupe is investable for anyone with a metamask wallet or any wilder that wants to get set up. Again, digital native people, our product, even if you want to buy it, you can't. So just some more further clarity on that. See, we're learning from the crypto people. Scarcity sells. Yeah, it's good. Hopefully soon. So Jack took the Twitter CEO title away. And apparently, credit to him, how long has he been holding back? Because this is out of character as far as, like, his Twitter personality goes, he was pretty restrained. Last night, Chris Dixon, who was a big Web 3 proponent, tweeted, first they ignore you, then they laugh at you, then they fight you with a we are here.

They fight you. Then you win. Jack tweeted, you're a fund determined to be a media empire that can't be ignored. not Gandhi. So he started out by saying you don't own Web3, the VCs, and their LPs do. It will never escape their incentives. It's ultimately a centralized entity with a different label, know what you're getting into. And that was obviously shot across the ball for A16Z who's investing in all these platforms.

And he makes a compelling point. Someone is always going to have to be the first at the ground level in this stuff investing. Of course, someone's going to get rich off of this. So I think that's his whole point. Obviously, you're right. He's probably been bottling this stuff up because people are saying, oh, the Web 2, Facebook, and Twitter, and we're going to make better versions of those on Web 3,

and Google and, like, all those. And so I'm sure he's been hearing this forever, and he finally just bottled up and, like, let it go. Yeah, enough of it. And honestly, I've kind of taken some shots at him in the past, probably. Billionaires are just like us, right? Online. Insecure.

Yes. Billionaires are... Angry. They're a lot like us. Bald. They're petty. They have, like, battles back and forth. I don't know.

This is, like, one rich guy versus another rich guy. So it's kind of like, ah, whatever, they both already won. But that's good to see that they're just like us. Okay, so Josh is our entryway into Wall Street research. He sends us the good stuff. So he sent us this financial report from Bank of America. And they had this stuff on Robin Hood. I thought it was interesting.

Their whole thesis on Robin Hood is, and the companies, by the way, has just been getting destroyed. What's it down now, the stock? I bought it again. Oh, yeah. I swear. But, all right. Hold on, hold on, hold on. I'm breaking my own rules, but following my rules because I am keeping a very tight leash on this. I will not lose more than a couple of percent on the trade, not on my overall portfolio, of course, just on this trade. Very tight leash. And I'm looking for a 10, 50 percent upside. Just a quick little scalp. 16 billion dollar market cap. Do you think all the VCs sold out at like 40 or 50 and made a ton of money? Or do you think they held on? Like the VCs were invested in Robin. Do they sell right away? Okay. Anyway, they said Robin Hood already has 23 million accounts.

which compares to an adult population of 66 million adults in the U.S. age 20 to 34, which is a target market, basically. They're more or less saying the future growth is going to be hard to come by. They also say, like they had almost a million account closings in the quarter, like they call that their churn. Their client losses, over the quarter, $9 billion. And then they said, why did Hood's clients lose so much? We estimate on average they underperform the markets. So this is the kind of thing where you, like, live by the meme stock, die by the meme stock kind of thing. Like when this stuff turned and they are all invested in growth stocks, their AUM gets crushed because their clients are getting crushed.

Here's the thing, though. This is not the fault of sell-side features. It's the nature of the beast. This thing is down 75% from its highs. So this is the type of thing that you would want to read, like here's our short thesis. True. So you're saying that they're giving reasons after the fact. Well, of course. I mean, the stock has down 75%. So a lot of people came to me and said, PayPal is the one who needs to buy Robin Hood. That was the one I got from about five different people. All right. Yeah. I could see that. Survey time. A survey pulled investors with one million dollars or more in assets, and these are millennial millionaires. Over half of them say they hold crypto. One third have at least three cores of their wealth and crypto assets.

No, no, no, no. Wrong. 83% of them. Oh, oh, sorry. 83% owns something. I'm crypto. Over half say they have... Over half own... Okay, I got you. Over half have over 50% of the portfolio on crypto. So again, these are millennial millionaires. Do I believe that 83% of millennial millionaires own crypto? Yeah, I do. No way. That's way too high. No, it's not. Think about how many millennial millionaires are like family wealth that has been passed down. You think they all own crypto? No way. No, I think 83% of them do. That's way. I don't think so. I'm a millennial. There's older millennials who don't own this stuff. There's no way. First of all, you're not a millennial. I am a millennial. I'm the oldest millennial. In 1981, I'm a millennial. What do you think

it is? I'd say half. I'd say 50. It's probably a decent number. 83. That's very high. Dude, if you have a million dollars, let's just assume it's liquid net worth. What do you think you're investing? You think it's stocks and bonds and no alternatives, no crypto? Come on. 83% is pretty high. You're using your target date fund brain. All right. Wall Street Journal had a piece on basically millennials driving the home market. I'm not going to take a victory lap here, but we've been talking about this for a while. What was my initial call? 2017, maybe? 2017.

Housing shortage? 2017? 2018? Wow. I don't remember. We replayed it a couple months ago. I don't remember we went back that long. Good for you.

Whatever. So they said that Millennials account for 67% of first time home purchase mortgage applications in the first eight months of 2021. I think there's probably still more to come on this, don't you? Like, I think you combine this chart with housing starts, which are still way below where they were basically the pre-2000s levels. They're finally rising a little bit. but there's still such a shortage of housing.

I still don't see what stops this from just being a runway freight train. The housing market. Yes. Well, we're going to bet on it. What's your number? You set the terms. See, you keep moving the goalposts. I'm not moving the goalpost.

You're the one moving the goalpost. You're like housing prices are going to stay red hot. They're going to go up 2% a year. We're going to talk to Logan Motishami and he's going to set the middle ground for us on this. What would be a favorable middle ground for housing growth? I'd say like housing growth of 7% of 2022. I think that's still pretty hot. Wait, hold on.

You're talking about home prices? Yes. Okay. What do you want to bet on? I feel like 7% is the number. So I take the over, you take the under. 22. Case Schiller National Housing Price Index.

What does I mean? How about this? The average for the year. Well, no. It's a total growth for the year. So it's December to December? Yeah, so it's up 7%. Now I don't like that.

No, average. My personal inflation rate just jumped. My wife stopped by to talk about buying a piece of furniture for the house. Oh, bad? I don't. She said it's going to be more expensive than she thought. Oh, well, somebody emailed us. I think about a kitchen. Pre-COVID quote, $35,000 to not pull the trigger, backed out as COVID was on horizon. Year one, COVID quote, none of my bidders were even available.

Year two, current COVID quote, 70K, limited selection, but good enough inventory. I pull the trigger now. Thanks, a husband who promised this pre-COVID. Honestly, I wouldn't. Sorry. Unfortunately, like, it's waiting to buy a house. in the last year or so has been a tough financial decision because if you look at it, so Bill McBride has this chart on rents, showing that rents are up like 17% year over a year. So if you decided to wait to buy a house, not only are housing prices up with lower mortgage rates, which mortgage rates seem to continue to go and back down again, but rents are now higher.

So if you said, I'm going to keep renting and wait for housing prices to come down, if you're rolling your lease over, you're paying higher in rents and housing prices have gone up and you've missed out, that's a tough place to be. Don't you think eventually the FOMO is so much that people say, oh, screw it, I'm just going to do it. If you've been waiting on the sidelines to buy a house, I feel like that FOMO goes up every single day. If you know you're going to do it,

I feel for people in that situation because it's tough. Yes. It's not easy. Oh, the guy signed this email, a husband who promised this pre-COVID. Every day he's hearing about this. Yes. Oh, that's tough.

Ben, full transparency in my Robin Hood trade. I bought it at 1877 on Friday. What's it at now? So it's basically still there. 1869. Okay. And I bought it. I waited for it to stop crashing. I bought it on a green candle and I'm giving it a tight leash. So what does that mean? When would you sell when it's down 5%? So here's the thing. I'm going to risk 5% to make hopefully close to 20%. If it goes down 5% you're out. Yeah. Something like 4 to 1. Okay. What market cap would Robin Hood have to get where you say, I'm going to buy a bunch and just sit on it? 10 billion? Yeah. That's a good point because this is a trade, if I'm wrong amount, but it's...

What would turn Robin Hood into an investment for you? Probably close to $10 billion. Where is it at now? 15. 16. Okay. So I don't think it gets there. By the way, it's crazy to think that getting to that level would be falling 70% and then

another 60%. That'd be a stretch. Could? Yeah. No, that's not 60%. Okay. Less than that. Another 30%.

Sorry. I can't do math. Want to do one question? Ben Michael, you guys are awesome, especially Michael. He's so cool. No, just kidding. I made that part up. A long time listening here, it's been cool to have followed the animal spirits pot over the past couple of years.

Watch your audience and reach grow from early on has been inspiring. It makes me feel like I'm really part of a meaningful community. Well, thank you. It's very nice of you. Here's my question. Since Michael is deep down the rabbit hole already, is it completely crazy to consider leveraging some of the social community building aspects of Web 3 like NFTs or social tokens to not only monetize your community, but create an opportunity for us listeners to participate on a deeper level. I'm thinking exclusive Animal Spirits Club NFTs with real utility. I find this the most fascinating trend of Web 3 for 2022.

We'll love to hear your thoughts about this on the show. So were we just talking about this? Kevin Rose did something like this, very similar to this, right? He sold like a thousand NFTs that gave specific early access to podcasts, different communities. Yes, he did something that was like this. He created a community for his podcast. So maybe, not maybe, we probably would do this if we didn't have day jobs. Like, we don't have the time to, like, engage deeply with our audience, which we still do, by the way.

Our inbox lights up. We're firing off, I don't know, 15 to 20 emails a day. So we are very engaged. But to offer something like this and to charge you guys for this is not something that we're looking to do. But we have to have someone else run it. We are talking with a company about something like this, maybe not necessarily for us, but for other podcasters. So stay tuned to that. If someone else did it for us, we'd be willing to be the guinea pigs.

But yeah, you're right. We're not going to let somebody engage with our community on our behalf. No, I'm saying if someone else ran the platform for us and made it easier for us to do to just answer comments and questions, basically. But anyway, interesting idea. This is the future of how content creators monetize their audience, I think. All right. Recommendations. I want you to go first because I know you're going to be crap about Spider-Man numbers.

So I went that first, then I'm going to give you my theory into the future of movies. Okay. Well, I actually have a theory on the future of movies. movies, too. I laid this out to Morgan first, so he can corroborate that I'm not front-throning you. Okay. First, I want to give a plug. It's Christmas season for Daffy. Daffy is a new company. It is a donor-advised fund in the 21st century. So if you want to gift crypto, for example, Daffy could help you do that. So they are bringing charitable giving for people with stocks and other assets into the 21st century. We will link to that in the show notes. All right.

Recommendations. I saw, somebody recommended this to me about like, if you're a Paul Thomas Anderson kick, check out Inherent Vice. Inherent Vice has one of the better casts in a movie that I've seen. This is a 2014 Paul Thomas Anderson movie. And let me just rattle off. So the lead was Joaquin Phoenix. Then there was Catherine Waterston, which is not a big name, but you've probably seen it before. Owen Wilson, Josh Brolin, Reese Witherspoon, Martin Short, Benicio del Toro, Eric Roberts, Michael. Rudolph. A lot of them were small camera roles. But I got to tell you, I'm not saying that this was like a bad movie. I feel like I watched this and turned it off. Okay. Like maybe, again, the artsy stuff, though. A boring movie. Just boring. Yeah. Just not my cup of tea. Just really boring. All right. Gigantic recommendation, Ben, listen up. There's a podcast that I was put on to called Our Thing. It's about Sammy the Bull. I forget his last name. Sammy the Bull was a hitman for the mafia. And he's an amazing storyteller. His stories are absolutely insane. I don't if he actually pulled the trigger, but he was involved in killing Paul Castellano outside of Spark

Steakhouse. He was John Gotti's right-hand man. So it's actually him telling these stories? He's telling the stories. And it's well produced. It's only him. Literally, it's only him. And it is amazing. Highly recommend. No fear of retribution anymore if you tell these stories when you're that old, huh? He's probably close to 80. Okay. That's true. You don't care anymore. Okay. So I was listening to Ben Affleck on with Bill Simmons. Yes, I heard that too.

Taking a walk called Morgan, was talking about, I have an idea. Because so few movies are getting made these days. Amanda Dobbins and Sean Fantasy called, they said that movies are zero sum now. They're alluding to Spider-Man, which we'll get into in a moment. Everything is being fractionalized and democratized. and studios are basically saying no to everything at this point. So what if there are dows for funding movie projects and they just get released on YouTube?

Well, I think what's going to happen is all good movies now. And I think there's a difference between like a good movie and entertaining movie. Obviously, Spider-Man is an entertaining movie. It's not like The Godfather, though. So what we're going to get in the future is the really entertaining movies like the Marvel ones in DC and then Fastening Furious. be the ones that have huge box office draws, and the good movies will have to be made on HBO, Netflix, or Apple. I watched the last duel this weekend with Affleck. It was very good. I really

liked it. I wouldn't say highly recommend it. It was a solid movie that 20 years ago would have been huge. It was like a medieval movie. It had a great cast, Adam Driver. Remember, he made that comment about how millennials killed this movie. 20 years ago, this would have been a huge. The production value was great. I think actually Damon was kind of an unlikable character. That might have hurt it a little bit, but it was a very good movie. The way they told the story was really well done. I liked it a lot. And it did nothing. So here's one from Boy, Derek Thompson. Okay. I threw out a take and you steamrolled me. Oh, the Dow thing. Okay. So I'm going to steamroll your take with my take. I'm saying good movies will be made there. Yes,

a Dow, I guess could, I don't know, just because it's so hard to predict these things with movies, but I would still rather lean on studio execs. But I'm saying it's a good thing Apple and it. Studio execs suck. Well, I'm saying it's a good thing Apple, Amazon, and Netflix have a big bankroll because they're going to be the ones they're going to have to make good movies because they won't go to the theater anymore. Even Affleck said, we're going to have to go through streaming now. It's just the way things are going to be. But here's the thing. All good movies from now on are going to be miniseries. So have you watched the Station 11 yet in HBO Max? No.

It's freaking awesome. So it's this book that was turned into a show. It's a mini series, 10 episode miniseries. Probably 10 or 15 years ago, it would have been a movie. And I watched the first three episodes with my wife. I'm highly intrigued. It feels like a movie, even though it's a miniseries show. It's so good. And my thought is, if the Godfather were made today, it wouldn't be a movie. It wouldn't be two movies. It would be one long mini-series. Totally.

So good movies going forward that are like original content are going to be mini-series going forward. That's my take. That's a good take. How about this? Any other good movies are going to have to be made on Apple or Amazon or Netflix. I do think that it doesn't need to be in a doubt, but like crowdfunding movies, if the studios aren't going to make us good movies, we have to take it back into our hands.

I would gladly invest money in a movie project. I think that'd be awesome. That's a doll I could give a hundred. Don't you think a lot of people would be thrilled to kick in a thousand bucks to make a Ben Affleck movie? I did see Gwyneth Paltrow yesterday. It was giving way Bitcoin on Twitter, so maybe she can be involved. I know. By the way, so the last duel, every medieval movie has like the scene after the battle where it's like dark and they're drinking and candles.

Everyone's like sloshing around like their beer, wine or they're drinking and chugging. And every medieval movie has that scene where everyone's in a hall. they're celebrating after the victory. You have to have that scene in a medieval movie, correct? Correct. We didn't even get to Spider-Man, by the way,

which I saw last night at 10 o'clock, theater was filled. That's my thing is like, it was so big. I think those movies are going to keep movie theaters alive. They're going to jack up the prices, make it a better experience,

those like really big, entertaining movies, but then there's not going to be very many ever any more good movies at movie theater. It'll be just the entertaining movies we'll have to be there. Well, what's the other

Guillermo del Torre? has a movie out that nobody's seeing. Right. So here's Derek Thompson. Of the top 10 grossing movies of 2019, nine were sequels or live action remakes of animated Disney movies, with one exception, Joker, being a Batman franchise. Nightmare Alley's Guillermo Lator.

And this is a good cast. Bradley Cooper, Rudy Mare, Kate Blanchett, Ron Perlman. This is like big time. And nobody's saying it. And that's probably the fault of people like me who would rather wait for a good movie to come on their couch instead of going to see it at the theater. It's definitely the fault of millennials like you.

Now I'm a millennial. Not going to get to me. If Ridley Scott says you're a millennial, you're a millennial. I'm just happy that we have these places with such deep pockets that will hopefully continue to make good movies like that and just put them on the small screen instead of the big screen. I'm okay with that situation as long as they keep making them. Otherwise, like I said, the godfather today, like there was so much, I read that book a couple years ago and there was so much that they left out of the book.

I am almost positive if they made it today. It would not be two movies. It would be 10 or 12. No, well, wasn't the godfather, wasn't the second godfather like three hours? Nobody's sitting around for that. Yeah. Okay. We figured out the future of movies. Nice work. What's the future of movies? Blockbusters and streaming.

Blockbusters, streaming and miniseries. I'm telling you, try this Station 11 out. I watched the first three episodes. It has a lot of promise. But the weird thing is it's an apocalyptic movie about a flu pandemic that wipes out 99% of the population. Wait, why you recommend this? It seems weird. This was actually, the book was written in 2014 before any of this happened. But I'm telling you, it's very good. Watch it. Well, good news for AT&T shareholders. The stock is finally, finally bouncing. That can be your hedge for Robin Hood by AT&T and own it for the dividend. Oh, speaking of that, we have a listener mailback episode coming out on Monday. We answered this. Somebody was complaining about Verizon.

Very nice pounds. Hopefully he held on. Or actually, hopefully he sold. Yeah. All right. Animal spirits pod at gmail.com. We'll see you on Monday. Happy holidays.

Merry Christmas. We don't talk you before then. Yes, absolutely. Goodbye.