Animal Spirits Podcast - Asset Price Hyperinflation (EP.164)

Episode Date: September 2, 2020

On this week's show we discuss modern market cap theory, the continued move higher in Tesla shares, the Fed's new inflation mandate, millennials are finally buying houses, Michael is never going into a car dealership again 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 by Y charts. I had a chart that I was looking to make, which was a ratio chart of the NASDAQ 100, divided by the NASDAQ 100 equal weight. I didn't know how to do it. I contacted Y charts that told me it was very easy and it was very easy. I did that. It took two seconds. And what I wanted to show was we compare tech stocks to small cap stocks to the S&P 500. Obviously tech stocks are outperforming everything, but they're also outperforming themselves. So again, I created this chart showing the cues versus the equate version, and it's going parabolic. It's going vertical. We'll talk about it in a minute. Go to whitecharts.com. Tell them Animal Spirits sent you. If you're a new subscriber, you'll get 20% off your first purchase.

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 Ritthold's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. All right, Ben, it's Monday morning. Tesla started the day or it ended the weekend at a $412 billion market cap. It's up 9 or 10%

today because why not? Last week, I wrote a piece called Modern Market Cap Theory, which was a play on MMT, the idea that there's no such thing as too much money. What you really have to focus on are inflation and things like that. So the question that I asked was, does market cap matter? Is there no limit to how big these companies can get? Last week, I forget what day it was, maybe Wednesday or Thursday. Salesforce, which is a giant company, it was up 25% on the day. Facebook, a giant company was up 8% on the day. Facebook added $70 billion in a day. Netflix, giant company was up 12%. What's happening? I feel like this is sort of analogous to the insurance story I gave last week with my kidney stone. Like, do numbers just have no meaning

anymore? When I took the CFA, they never told me those textbooks that the best way to create shareholder value is to do a stock split. No one ever told me that. So Tesla is up 80% since it's announced a stock split. Tesla's up 80% since this podcast started. So I was looking at the NASDAQ 100. Did you create a NASDAQ 100 pie chart yet? No, I didn't. That's a good one. That's your next chart crime. The NASDAQ 100 is now approaching 30% above. its 200 moving average. So this is the highest that it's been in 20 years. At the peak in 1999, it was 60% higher. So there are no rules of thumb, any laws. Can this thing go on longer? Yes. Why not? My thing I said to you last week off air was last time this happened in the

tech bubble, the percentages were all bigger. But this time, the market caps just dwarf anything that went on back then. So the biggest company back then, Cisco was for a little while the biggest company in the world. It was $400 billion market cap. What is that inflation adjusted? Well, we haven't had inflation for a while, so I don't know. Can't be that much. So that's the thing is just the numbers are different today. So this is a stat from Josh Wolf on Twitter. He said, in 2007, the European Union, if took all the stock markets there, was four times bigger than the tech sector. Today, the U.S. tech sector now has passed the European Union, and his numbers say 9.1 trillion for the tech sector versus 8.9 trillion for the European Union stock market.

Think about that. The tech sector in the U.S. is bigger than the European stock market, which that's where stock markets were started, basically, in the 16 and 1700s. So 400 billion in today's dollars is $615.615 billion is nothing. I tweeted like seven companies or eight companies on a single day added about $350 billion in market cap. So, Ben, you're 100% right that the bubble of the dot com era was insane in terms of the percentage increases or something that we might never see again. But the dollars that are being added today dwarf that. Here's another theory I threw it to you last week.

If we see a post-pandemic world, whenever that may be, could we see a huge reversal in this trade, where everything has been pulled so forward because of this and people think that technology is ruling the world. Could we see that reversal like we saw on the dot com? Not necessarily that it crashes 80% like the NASDAQ did back then, but just that we see these other small cap areas and value, the stuff that has gotten killed in a relief rally where this momentum pandemic tech play, would that be too much to ask for people who are not in this area? Ben, if we've learned anything this year, it's that when you ask a question, can the answer? is yes. Can this happen? Yes, it could happen. Anything could happen. We always go to history

when we look at this stuff. But I mean, maybe these things could get to 50% of the stock market. Who knows? No one thought they could get this big in the first place. You said stuff that happens that has never happened before happens all the time. A few months ago we were talking about this. I was like, this can't continue because if they continue to grow, if the big five continue to grow at this pace that they have in the past, what did I say? In 60 years, they will be 50% of the market. maybe that's where we're headed. I think in the next few years, Apple is going to be a bigger piece of Berkshire Hathaway than Berkshire Hathaway is. Is that what's going to happen? His holding an Apple. How bad would that company be if he didn't own Apple? Doesn't it make up like 40% of the value of the company now or something ridiculous? So the big news last week was what's going on with the Fed and changing their targeting inflation to the average inflation. This was big news, but was it really? It was big news in a corner of the world, yes. No, but I mean, they never said it before, but...

Are the implications big? Yeah, but maybe just the fact that they came out and said this. So they said they're not going to raise rates early, basically, like they did it starting in 2015. Their 2% inflation target, isn't it kind of laughable that can you imagine telling someone in the 70s or 80s that 2% inflation is supposed to be high now? But just the fact that they're going to keep rates lower longer, didn't everyone kind of know this already, though?

It is news, but just the fact that they said it, but it seems like, oh, Okay. It's one thing to know and it's another thing to hear them stamp it. So Greg Ip did a really good little evolution of the Fed. He said the Fed was created in 1913 after a major banking panic with the purpose of serving as a lender of last resort to the banking system. It was revamped during the Great Depression to better manage the broader economy. When inflation and unemployment both rose throughout the 60s and 70s, Congress responded

by amending the Federal Reserve Act to make maximum employment and stable prices of the Fed's goals. And now this. They've now said, we care more. about getting people back to being employed than we do about inflation. We're going to let inflation run high if that's the case. And I guess what they were saying is raising rates a bunch of times in 2018 was maybe a mistake now, I guess. But I mean, my youngest kids are three years old. In 15 years when they're going off to college, it would not surprise me in that time if we don't ever see rates over two or three percent. Don't you think that rates are going to stay low for a long,

long time now if they're willing to let this happen? Can you see the Fed ever getting rates over three or four percent again in our lifetime, potentially? I'm like shell-shocked by this market cap stuff that I'm afraid to give an opinion. Yeah, maybe that, yeah, get it thrown in your face in 10 years, but. How about this? People saying, oh, there's no inflation. Have you seen prices at whatever, the grocery store is one that we always. You told me I can't say it anymore, so I'm not going to say it. But I would ask a question to these people. The Fed has to measure prices somehow. If CPE is not the preferred metric, what do you suggest they use? Should they? Should they? they have different interest rates in different geographies? In other words, if gas prices are high

in California, should California have its own set of interest rates versus whatever, Nebraska? I sent you last week a video from Russ Roberts and he looked at this and he said the way that they do it too is really hard to fathom because you compare a TV in 1970 versus a TV today and the cost actually isn't that different. But the TV in 1970 was this tube 24 inch thing and today you can get a 46-inch one with a bigger screen and a better screen, but you're comparing those two same items, even though today's is way better than it was in the past. What was the book he recommended to me, the great inflation? Oh, did you get it yet? I started reading that. And the thing that jumps out to me about that book is, even looking back on it now, I wasn't really happy with

the explanation he gave for why it happened. He still couldn't really get through the reasons why we got that severe inflation back then. Well, he was saying that it wasn't necessarily the war. saying it was policy mistakes. He said it was more policy than anything. He said they were trying to stop recessions from happening. And that's what we're doing now when we're not seeing inflation. So I didn't really come away satisfied with the explanation. But I think that's the reason, because it's something that it's hard to wrap your head around understanding why it happens and how it happens. And the Fed is putting this out there. Even though they're saying they want inflation to get higher, they may not get it just because they say that. That's what makes this so

hard. And so what they're saying is inflation can stay above or below because they're going to use an average. What are they using? A monthly moving average? What are they using? So I looked at the inflation rate, the trillion 12 months, going back to the start of the last decade of 2010, 63% of the time since the start of the last decade, inflation has been below 2% now in the U.S. So it's already been pretty low for a while. So them letting it go. Again, it's funny. If you had told people three or four percent inflation is going to be considered high a few decades ago, they would have said, what's wrong with you? That's not high inflation. That's nothing. And so obviously it's always a relative world. The other side of this, of course, is that Bloomberg said they think

the Fed is going to be holding rates at zero for at least five years in this new policy. Mike Bloomberg said that? Wow. Yeah. Can you believe it? Zing. Another difference was, I guess Powell said, this change reflects our appreciation for the benefits of a strong labor market, particularly for many in low and moderate income communities. Yeah. So they're trying to do what they can. basically, right? And they're also saying to Congress and the rest of government, listen, we're going to keep rates extremely low for you. You can borrow at nothing right now if you want to. Help us out with fiscal policy. And then if the Fed needs to change their mind, down the line, they can. They're saying, we're setting the table for you. It's all ready. You're not going to borrow at anything. Do what you

need to do. Another maybe textbook relationship that needs to be rewritten is unemployment versus is inflation. Now they're saying the natural way of inflation, the idea that we're going to go below that and then inflation is going to shoot up is not necessarily the case anymore. So, I mean, another table we're setting here, are we going to get potentially the mother-all asset bubbles from this? People are going to be able to borrow for low. There's going to be nowhere else for people to put their money but the stock market. If you're putting that head on, I believe it's asset price bubble. Yes, asset price inflation. Asset price hyperinflation is coming, right? Rates are going to be low for a long time and people are going to

blame the Fed. And listen, I think the Fed is playing the hand they've been dealt. I think they're also saying in some ways the recovery after 2009 was way, way slower than it should have been. And we probably could have done more to help that. And we're not going to make that same mistake this time around, which I think is, again, they're trying to do the right thing here. But there's going to be people who want free markets and they're going to be angry at the Fed no matter what. Here's something I didn't see coming from the Wall Street Journal. The price to earnings ratio on the S&P 500 against the past 12 months is over 25. which is the highest level since 2002, the faux P.E. same thing. By the way, 2002, obviously,

that was a trough in earnings, which is why stocks might have appeared expensive based on that metric, but they were cheap. This is not what I expected. The headline is the median S&P stock has never been more expensive. To which I would say, this isn't what you'd expect it in March, obviously. But now the market has made all-time highs, not including today, seven days in a row. we've had 20 new all-time highs this year as of last Friday. With stocks back at all-time highs and interest rates at all-time lows, shouldn't we not be surprised that valuations are so high in the fact that tech stocks dominate the stock market now? Doesn't this actually make sense?

Like, wouldn't it be more shocking if the market was low valuations here? Then you think something's wrong. If the market had screaming low valuations where all this is going on, wouldn't you say, well, this doesn't make any sense? I think the opposite. What's going on does make sense. But think about what's gone on the rest of the world. We have had low valuations and low interest rates. So that dynamic can exist. I guess what I would say to this biggest pushback is that hasn't Hussman should have been using the median stock market cap as an indicator for a few years now. That's the thing. And it hasn't mattered. He was doing that for a while. Oh, he was doing median market cap to revenue, I believe was the chart that he was using. And by the way, I'm not saying all of this market cap stuff is irrelevant. I'm just saying we've learned that this might matter. It might not. not, but this is a really difficult way to invest your money is what is the S&P 500 valuation level.

Earnings fell off a cliff because of the pandemic and now people are betting on future earnings, not just next year's earnings, right? It's not just the next 12 months. Theoretically, if we're going to be long-term stockholders, you're betting on the next 30, 40, 50 years of earnings, not just the next years. Obviously. Yeah, that's how the market works. You don't think Robin Hood traders are doing a discounted cash flow analysis and using a terminal value to get back to the present value? They're not doing that? I don't think anybody's ever used this kind of cash flow analysis. At least that's what Trent says about Buffett. Okay. He does

it in his head, but everyone else has to use a spreadsheet. Anyway, so there was an article in the Walsh Journal that our very own Nick Majuli contributed to showing, so people talk about the speculators here, the Robinit traders. This market is still dominated by institutions. They still make up over 80% of the trading. In China, for example, individuals often account for more than 80% of volume. In Korea, it's 85%. Wow. Wow. That's huge. I wonder, to me, like the obvious question is, that's a lot of suckers potentially at the table. Do active managers in China and Korea outperform the indexes? Or why aren't more hedge funds in the U.S. trading those markets to try to take advantage? They said, this is from Tab Research Group. And they said in the first six months

of the year, individuals accounted for 19.5% of shares traded in the U.S. stock market up from 14. 15.9% last year and double the level of 2010. But again, to your point, if you invert this, that's still 80% of the market that's being driven by pros. So trying to blame this all on Robin Hood short-term traders, they're still one-fifth of the trading volume. They're not moving it. They're not going to move the big names, even the Tesla's of the world. So I think in the chart that Nick created, are they going to potentially push around shares like Kodak and Nicola? Yeah. But trillion, two trillion dollar companies, get out of here. So speaking of of Kodak. Do you know what it's down from the all-time high? Or not from the high of two weeks ago,

three weeks ago, four weeks ago? What did it go to 60? It's down 82%. Your plumber got out just in time. So it's down back to under $6 a share. My plumber's sharp ratio is 11. So it went from $2 a share to $30. How did it get? What's to 60? Oh, 60 in the day, intraday, and then back down to So that's fun. Anyway. Again, that shows you that if you're riding one of these waves with these short-term traders at the Wall Street Reddit forum or whatever, you can push some of these things around based on a headline or just some anecdote. Whenever people are looking at value versus growth, they typically point to the Russell indexes, which were created in 1979. So based on every metric, growth has not been in value.

even going back to inception. And the Russell indexes, I don't want to go as far as says they're flawed, but they do some things that are above and beyond just simple, very simple, naive valuation analysis. So they use book to market. They use a medium term forecast earnings growth rate. And they look at sales per share growth rate based on five year historical sales. So it's not just cheaper expensive. And what Jack Vogel at Alpha Architect did was he recreated this index and just simply said he just drew the line at 500 if you're above or below. So below the cheapest 500 above the most expensive 500 based on nothing other than PE. And I think he did an annual rebalance. And looking at this metric, value actually still outperformed by, I think, am I allowed to say

300 basis points a year? I'll allow it. Okay, there we go. Anyway. So you're just saying that the value is in the eye of the beholder and the way that you look at it can change? Kind of. There's no amount of data mining or defining how value works that would repair the last five or 10 years. However, you slice it. You couldn't data mine value out of this. There's no way to jujitsu value outperforming growth over the past 10 years. But if you reconstruct the index a little bit, there you go.

If you would have just bought all the stocks that split over the last three months, you outperformed value over the last 90 years. That's obviously a new factor. What do we call that? Stock split factor? I don't know. The concussion factor? because, I don't know, you have to have brain damage to invest on it?

I don't know. That was a dad joke. All right, sorry. That's okay. This is another good chart. This chart, particular, is another way of saying the same thing we've been saying over and over and over, showing the SEP 500 broke it down by decile. And the metric that they're using is the market value of intangible assets per employee. Obviously, left to right, it's pretty linear.

And that's because companies that have ton of intangible assets per employee. employee are, you know the names, as somebody accused me of saying very often. That's one of your favorite phrase. So if you have more of a tech dominant firm, you're outperforming. If you have a more asset-heavy firm where you're having to invest in stuff and you're an old school firm, industrial energy. You're doing much, much worse. So now Amazon Go, the cashierless technology may come to Whole Foods as soon as next year. So this is the idea where you walk into the store, it scans your phone or some QR code or something, you never go to a cash register. As you put stuff in your car or your bag,

it automatically charges your Amazon account. You walk out. You never have to check out. So would we put this in the great for consumer, terrible for society camp? Maybe terrible is overstated, but. If you count up all, this is in one of the Scott Galway books, I think. Three million people are employed as some form of cashier or checkout kind of thing in all stores and but what is the upfront investment to put this in at stores and how long would that take to get that going? I don't know. There's going to be a transition period. And have you ever tried to check out at one of the self-checkout lanes? You can't do that without a human. Yeah. What do you mean? You never get caught behind the person who can't scan it and check out themselves. Like there's

going to be some back and forth of this. And I mean, you think about obviously this type of technology, there's going to be these huge disruptions and the same thing happened to the 20s with farmers in the early 1900s. But, I mean, if you think about it, even if we get these self-driving trucks that carry all of our cargo across the country back and forth, there's still probably going to need to be someone on that truck, even if they're not driving, just to make sure that the stuff gets loaded and offloaded correctly. They're going to have to be there for maintenance and upkeep. And so even if you're not driving, so there's going to be still a need for people in these things. You might just have to change your skill set. Of course. But yeah. Change your skill set. What are you a Twitter VC person now?

No. You just have to change your mindset, learn to code. I'm just saying it's just going to be different than for long-haul truckers. If you're on one of these Tesla trucks that could drive itself, you're going to have to be sitting there and being maintenance for the truck instead of driving it, putting in the routes. Let me ask you a question. Does that happen, though? When people are displaced by technology, do they just adopt to whatever technology has displaced them? Like in the example you gave. 80% of people worked on farms in the late 1800s, and now it's 2% of people, but it's just the transition to get to that place that's difficult for everyone. That's the part where if the Fed's going to keep the interest rates low forever, the government has to step in and help those people out if they're going through that rough transition period. Bezos now has a personal market cap of $200 billion. So that would make him, what, the 30th biggest stock in the S&P probably, 20th biggest stock maybe? It's crazy. So, Let's talk about my car leasing experience. Okay. You've been pretty pumped about this.

Set the table here. There's a piece in Axios that talked about how in mid-March, it says every major auto manufacturer stopped production for the first time since World War II, which is kind of crazy. And I think this happened in a lot of areas, which is why we're seeing a spike in things like people are talking about the demand, but lumber prices are just going bananas right now. They're up, what, three or four times from the lows? And obviously, part of that is people are fixing their houses and building new houses,

but part of it is just probably that they stop production. This is why I think we could get like an inflationary headfake because the supply fell off way fast in the demand. But they said the average transaction price on a new car is over $38,000. It's up about $400 since January and $1,200 since last July. The profits are up too. If you're trying to find a new car or even a used car, I guess, it's really hard to do. I could corroborate that, which I will in a second. This part surprised me.

Gross profit on new vehicle sales were more than $1,100 per unit versus $800. bucks last year. So that's not a lot of money. If these dealerships are making a thousand bucks on a car on average, pretty thin margin. That's not a lot. Pretty thin. So I guess a lot of their profits are made on the service side, which makes sense, I guess. I never really thought about that. But this explains why salespeople and car dealerships don't really chase you. So for example, I first went to a dealership. There's, I don't know, a dozen of more Jeep dealerships on Long island. So I just wanted to go in and get some sort of baseline for what these cars are going to cost, and it varies. So what I really wanted was a Jeep Wrangler. I wanted to take the top off.

That was pretty much my only requirement. I didn't care about Apple Play or cloth versus leather. Do they tell you, excuse me, sir, you're bald. We're not going to sell you a Jeep or you can take the top off. It's not a good idea. Sorry, continue. So I didn't really care about the model. There's the sport, which is like the lowest model. And there's the Sahara, and then the Rubicon. I wanted the cheapest one. I just wanted a Wrangler. I didn't care.

I didn't want any rainbow colors. I just wanted black, white, gray, whatever. The first guy said, we have two on the way. They'll be here in a few weeks. So what's the price? Punched up on the computer. This is the price. I was like, all right, that's more than I wanted to spend.

What about the Grand Chararchy? What's the price on that? So he told me what the price was. And I just said, okay, thanks a lot. And I walked out. And he didn't try and negotiate. I wasn't looking to negotiate. I just didn't like the vibe.

So I went to, there's a place five miles down the road. So I went to this place. And I met with the young person who was very nice, was telling me what's going on with inventory, how they only have the higher-end Wranglers, but they have a ton of Cherokees. And I probably was there for an hour and a half. And I walked out, he did the thing where he goes, let me just talk to the manager. He's like, I'd probably get you in a grand charioteer for $400 a month. Talk to the manager, came back.

All right. here's the best we got, 3.79, something like that. And I said, all right, let me just call my wife. He was offering me like the cloth, no Apple play, no sunroof. And I didn't even realize no four-wheel drive, which is kind of important. So I said to the guy, can I come back in 10 days? I don't need the car today. He's like, he can come back, but this is the best deal that we're going to give you today. That's like, all right. So then he's like, wait, wait, wait, what if I can get you the Wrangler? If I could find the Wrangler for you for $4.60 a month, would you do that. So I said, yeah, I'll sign paperwork today if you can get me that. Anyway, I emailed him

twice. He never got back to me because if there's only $1,000 gross profit, what's available to the salesperson? A hundred, 200, maybe 300 bucks, maybe. So they're in the volume business. They're not looking to work too hard, I guess, for each individual sale. I'm generalizing. I have no idea. So if you're in the car industry and you're listening to me, sorry if I totally missed the mark on this. But anyway, so now I have quotes. I know roughly what the car is going to go for. So then I called three different dealerships. I spoke to a receptionist, told them what car I wanted. I spoke to a salesperson to talk about miles and specifics of the car. So I spent that one day I was in the dealership for probably three and a half hours, killed a whole afternoon. That's not a fun

experience either when you're the person who has the information disadvantage. Yeah, and I'm not an animal in there. I don't get steamrolled, but I'm not aggressive. I don't like being put in that situation. It gives me anxiety. I just, some people really enjoy the art of negotiating, I guess, the art of the deal. I'm not one of those people. So I spent a lot of time doing this hours and hours. And I got nothing to show for it. Because on the phone, they wouldn't negotiate with you.

They're like, well, come in and we have what you look for, just come in and we'll ham this out. I was like, but I don't want to come in. I'm telling you, if you can give me what I'm looking for, I will drive there. I'm 10 minutes away. I will get the car today. I am a serious buyer. And I couldn't get a single quote from three dealerships. So a friend of mine was like, why don't you just use a car broker?

I know a guy. So I've heard of car brokers, but I thought that they were only for like super high-end cars, luxury automobiles, which this is not. I was looking to spend in the 400s a month for this car. So anyway, I texted him on Sunday. He called me back in two minutes. I told him what I was looking for. That was a total of probably two to three minutes on the phone. He said, all right, I'll call you tomorrow and let you know what the deal is.

inventory is tight, but I'll call you on Monday. He called me on Monday, said, I can find you a Wrangler, but you're going to be paying $125 to $150 more a month than what I could have got for you in January. So that's up to you, but I'm just telling you that you're going to be significantly overpaying. That's a pretty crazy difference in eight months. I'm making the numbers up, but he's like, I could get you this for $4.75, no money down. I could have got this to you for 320, 330 in January. I'm like, no, I'm not doing that. Why would I do that? I want but I'm not, like, desperate for it. He's trying to sell you a Wrangler at a 30 PE.

So I said, all right, let's just do the Grand Cherokee. I want either granite or black. He's like, what package do you want? I was like, I don't know. Just I guess can I get a remote starter? He's like, yeah, no problem. So that was another four minute conversation. On Tuesday, he called me and said, all right, I found your car.

Here's the price. So I was like, what would this cost me in the dealership? He's like, listen, I don't want to bullshit you. inventory is tight, as you know. I probably could have got this for you lower earlier in the year. He's like, I definitely could have got it for you lower earlier in the year. But you know the specs. Why do you go into a dealership and see what you could get it for?

And I was like, I'm not doing that. Why would I do that? I'm talking to you because I don't want to do that. But I just know based on what they told me where I would be price-wise. And he definitely had got me cheaper than I would have gotten for myself. So that was Tuesday. He took my credit check. On Wednesday, he said, all right, I found the car.

And I said, cool. I'm leaving tomorrow morning. I'll be back on Sunday. So I guess I'll get it when I get back. He's like, what time are you leaving? So I said 10 o'clock. He said, all right, I'll call you back in two minutes. Call me back and said, all right, the car will be in your drive flight at 6 o'clock.

He gets paid out of the commission. So there's no out-of-pocket expense for this. So again, I probably spent a total of, call it 15 to 20 minutes on the phone with the guy. I think the worst part of it for me for the last two cars that we've taken on, how did the paperwork process work? Is it all docu-sign? No, they brought me the physical papers. I had to sign an initial maybe eight times. For ours, we had to do it.

The guy was haggling me over trying. He wanted to sell me insurance on the little key fob. He's like, if you lose one of those, it's $300. So you got to buy insurance on it for like a dollar a month. I'm like, no, I'm not going to do that. I'll take my chances if I lose the key. Honestly, it took my wife and I half a day to go through all the paperwork and back and forth on it.

And we lost half a day. And I'm like, yeah, you're right. I would much rather have someone do all that for me. And I don't care. I'm not kidding when I say, this guy was great. I'm going to use him forever. He took care of me. It was easy.

It was painless. Now, I got a few emails and messages from people that work in the industry. Some were like, yeah, we have to do a better job. Be more transparent. And I kind of feel bad. I'm not trying to ruin somebody's whatever. All right. Someone's going to have to write a substack on the financials behind a car transaction

and the profit and loss there because if you're saying that the margins are so thin, but this car broker can still make money and get paid by the dealers, I'm going to have to see the breakdown of those numbers. I would love to see that. So some of the responses that I got were check out Carvana, check out AutoDirect USA, Vroom.com. Apparently Costco has a really good situation where they give you the car $200 bucks over MSRP. There's a no-haggle price with Costco where they set you up with the dealer and they basically

say you're going to get the lowest price that they could give you. We've already done the haggling for you. Amazing. Yeah. But I still had to go through the dealership thing. If someone would deliver it to me and I can sign the paperwork at home, I would much prefer that. Look what you did.

Did you see this? Somebody tweeted, how does anyone take this guy seriously? Tech billionaire Mark Benioff wants every CEO to take a no-lawoff pledge as part of an eight-point plan to deal with coronavirus. That was in March. And then in August. And then they just laid everyone off? Yeah. After Blockbuster quarter, Salesforce lays off nearly 1,000 employees.

So the day they laid off 1,000 employees was the day their stock, what was it up, 25%. 25%. It's tough luck. Okay. So obviously, you're a millennial. you were buying a car. I mean, it wasn't that long ago. People said millennials are never going to buy a house again. There was plenty of stories written about that, how it's never going to happen, they can't afford it. Another one from the Wall Street Journal, which, by the way, does the Wall Street Journal

have the best charts of any big financial publication there is? It's not even close, right? Over 50% of home purchases as of July were from millennials versus 38% in 2019, 32% in 2015. So it says this is from a Walter Jordan article, Millennials could be responsible for at least 15 million home purchases in the next decade. And of course, they're now the biggest demographic. But this is another one of those things where you just knew this was coming at some point. It's almost shocking to me that people thought this wasn't going to happen. Because guess what? People grow up. They have responsibilities. They need to settle down. They have families. Of course this was going to happen. Yeah. And then I would say that this is just the accelerant. COVID just sped up trends that were already in place. Yes. We're going to have to retire that phrase, though, eventually, because what, accelerant? Yeah, that's just the one everyone's, that's the go-to. Sorry. That's turning into cliche now. Sorry, no, I've used it too. That's why I love you. I appreciate you keeping me honest.

But if you want to sound smart about COVID, if you want to sound like you know what's going on, listen, it's just an accelerant for trends that were already in place before it happened. Right? I've said it too. Sorry, I didn't mean to, yeah, that was me as well. Here's another one. This is not an accelerant. This is a complete course change, change of course. Fire extinguisher? Someone sprayed a fire extinguisher on this one. Sovereign wealth funds invested $4.4 billion in real estate in the first seven months of 2020, down 65% from the same period a year ago. And this is sovereign wealth funds. They're usually typically buying in commercial real estate. This isn't like they're buying residential. So this is commercial real estate pullback, obviously. So if one of the biggest buyers steps back, so it says a three sovereign funds sit within the top 10 largest real estate investors. Wow. How is commercial property not a short? I mean, I guess

maybe prices are already so low that they were by. I don't know, but just... But there are probably people who were sitting on them who said, I'm not going to sell them out because I'm selling at a huge loss if I don't have to. There's probably not much of a market there at the moment. Okay, so this was interesting one from Derek Thompson. He talked about, he's been covering this pandemic from a bunch of different ways. But isn't it kind of crazy how the evolution of where things have gone? Remember at first it was like, don't touch your face and you have to wash your hands for 20 seconds. And then it morphed into, it seemed kind of weird to even be thinking about masks. And now, there was one step. How about wiping off your groceries? Oh, yes. We did that for a few weeks, wiping off your groceries,

all these weird steps that you know, you don't even think about. But the mask thing, I know people still push back on it, but I comment to my wife yesterday, when you go up any store or into a restaurant to pick up takeout or whatever it is people are masked up everywhere it just seems like it's kind of kind of maybe people don't do it as much in some outdoor settings i don't know what the story is there if you have to or not but it seems like the mask thing has we've gotten pretty good adoption so he's saying now they're trying to figure out how does this thing transmit and the science behind it and they're actually saying that talking quietly or just not yelling and being loud he's saying if we implement library rules and just that basically is the same thing

as wearing a mask. So he's saying if we could get people to tone it down a little, so people have been trying to figure out, why have things in Japan been working so much better? And they still have these subways that are packed with people in Tokyo. Would you just take it easy, Walter? Yes. They have unwritten rules.

Their commuters try to avoid talking loudly. And they haven't had any breakouts on their trains because they don't talk loudly. Obviously, in a place like New York, would this ever fly? If they said, stop yelling at each other or talking, that wouldn't work. And obviously, if we told people, his thing, and he replied me in Twitter on this, I said, okay, maybe in schools we shouldn't have kids talk as much. We should have them communicate through technology, since that's how they do anyway. But he said that one of the epidemiologists said, maybe in school they should be using

microphones, because that's the way that you dispel these droplets is by shouting and yelling. Anyway, just kind of bizarre. I'm just looking for anything right now because my daughter is going to school two days a week. And it's really weird. She had her first day of school today, got all dressed up and ready and pictures in front of the house just so she could go sit at our kitchen table to do her school project. And yeah, anyway. So I'll take anything at this point because it's bizarre. So the governor of New Jersey is an animal spirits listener? Yes. So a bunch of people sent this to me because I said this a few weeks ago. So the idea is people born in New Jersey are going to be entitled to a $1,000 state finance nest egg. And here's my only problem with it.

They're buying bonds. They're going to buy bonds with it. Instead of Tesla. Yes, instead of maybe splitting it. And they're going to invest it in like the 30-year bond, which pays out 1.3%. So after 18 years, that $1,000 would be $1,70. But it's a start. So it says the initiative will apply to children born into families earning less than

$131,000 a year, which would be about 70% of New Jersey residents. And it would be available to these kids after they turn 18. I think it's great. anything down this path, I think it's a great idea. And even if it is, whatever, $1,000 or something to someone just entering college or just getting out of high school or whatever, that's still a lot of money. That can be a big difference in helping those people out. So I think if we get something like going, I'm all for it. But just put it in the stock market. So Jay Woods did a post for ramp capital saying basically like, I saved money in a $529 for all these years

and now what do we have to show for it? It sounds like he said he's got kids that are 15, 17, and 19, and he's been saving for him for college, and now that this college experience that he thought he was saving for is more or less taken off the table. Will this change how you think about what you're going to do for your kids' college? No. I don't think so. I still think this is a odd situation.

I mean, what would the alternative be? Not save for them and say, I don't know. I think college is, the four-year university system that we have in places is undisruptible. I tend to think, there's a lot of people who think education is going to be, this is a turning point, this is a fork in the road. I think this is one of those things that is just going to go back to normal. Maybe there's some bigger schools that will try to implement more of an online course, but I just don't see how you're going to ever get 18-year-olds to not want to go to a way to campus with kids their age and their peers and have fun.

Well, how about this? What if we could say that Michigan and Florida and those schools will always be maximally employed or whatever. They will always have max tuition there. But maybe the idea of paying 40 grand for liberal arts degree, college doesn't have to be for everyone. And if this can give birth to some alternatives, then I'm all for that. Yeah. I do agree that the private, small liberal arts colleges that you don't get as much out of maybe,

those are probably the most easily disruptible. You would assume that people would be calling you to question that. but I just think this is one of those areas where it's just going to go right back to normal. If some of these schools don't run into so much financial peril that they have to really cut back, I think most of them are going to be just the same as they ever were, unfortunately. All right, let's move on to listener questions. By the way, I should mention that we're so backed up on these listener questions. I think we've got about almost 30 in the queue. We might devote a full episode to one of these. Because we are getting really good

questions. Yeah, and we just can't get to all of them. All right, so let's get to a few today. The assumption is that sports gamblers turn traders will return to sports gambling post-COVID. What of the sports gambling takes a major long-term hit from this? Markets are much more fun, and the sports book Vig is insane. What if the long-term result is that the sports betting industry is forced to evolve to a market-based approach or face problems in Tyson gamblers back? The current system feels archaic. Actually, there was a story this week that MGM is laying off 18,000 workers, which is a quarter of their job source. Now, I guess they had to after six months so they could bring them back.

But in July, revenue in Vegas was down 39%, which is not as much as I would have thought. I'm guessing that in May and June, it was probably down 70, 80%. Anyway, what do you say to this person? If this happened in sports gambling took a hit, then all the podcasts that are now tied with them would take a hit too. But I mean, I think they're going to figure out ways to integrate this with everything and make the fan experience of the game. So you're going to probably have your phone or an iPad there, and you're going to be betting on the next play. I think they're just going to jam this stuff down to people's throats. I would not want to bet against this trend.

I think sports gambling is going to, as it's growing and maturing and it's legal in more places, I think this is just going to evolve and get even bigger. And I think people are going to end up getting crushed. If you're betting, I don't know, 50, 100 bucks at a game and you're just having fun and betting, okay, it's third and 10. Are they going to pass here or run a draw and you're betting on it somehow? I think that stuff is going to happen at some point. And it's kind of funny.

Legalized sports betting, it just started. I think that they're going to have to improve the technology. Pandemic has shown us anything is that people's willingness to speculate is very high. If they want to, they're going to. In a recent episode, Michael claimed the advice to take the CFA exams among the worst advice he has ever received. Boy, I don't think that's going to go on the CFA website. What would you say to a young financial planner who has his or her CFP and is considering

the CFA to deepen their expertise? What I meant by that was it was such sort of flippant advice, like, oh, just to the CFA and you'll get a job as an analyst at a hedge fund. And I was like, oh, cool. That's what I meant. It was not real-life advice. I'm glad that I did the CFA. I wouldn't like go back and not do it. But specifically to address you, what would you say to a young financial planner who has his or her CFP and is considering the CFA to deepen his or her expertise? Nothing wrong with trying to deepen

your expertise. I don't necessarily think you need the CFA to do that. And I think that really and truly it is table stakes to be a sell side analyst. Like I don't think if you're a CFP, you necessarily need to spend time on this. Because it's such an enormous. enormous time commitment. I felt like I gave up years of my life studying for this stuff, not being able to go out. Yeah, if you already have your CFP, and even if you take full control over your client's portfolios as a financial planner, I think you're going to get more out of self-study and working your clients than you are out of getting the CFA. I think the CFA is more for people who are in that entry level and need something to get ahead. What do you got? Recommendations. All right. First of

I'm having Yellowstone withdrawals. We caught up and watched all three seasons. I think that the Season two and season three finalies for two of the best episodes of TV I've seen all year. So that one, again, is my strong recommend for the third time. Now that we're caught up and there's no more seasons, it hurts. And it's one of those things where you get done with a good show and you don't have to do. So we moved on to Cobra Kai. It's on Netflix now. I guess it was a YouTube thing.

Did you watch it yet? Who's the audience? Because you would think that it's for people in our age demographic, but then it's also kind of like for teenagers, it feels like. Like if you didn't know anything about the karate kid and you just watched the first three episodes, you would say, who is the intended demographic? You would say, ah, 15-year-olds? We watched the first two episodes and we're like, yeah, I guess we'll stick with it. I wouldn't watch it if I hadn't watched the Karate Kid, but...

Well, because they're 24 minutes. It's easy. Getting back to our 80s and out, how many episodes have you watched? Three? I mean, it's not very good, is it? It's not. But getting back to the 80s thing, in the 1980s, you had unintentional comedy because it was just so cheesy. And now this show is doing a wink, wink, nod, that we know it's cheesy and we're going to do this cheesy too, but to make fun of it, not unintentionally. They're leaning into it, and I appreciate that.

Yeah. So they're ironically being cheesy. It's okay. Just because it came to Netflix, I just tried it out. How about this? It's a very easy watch. It's pleasant. Yes. And I kind of actually like looking at it from the Johnny Lawrence's perspective, the Coburg High guy. Best movie we have seen in a while that we watched in like 2016 when it came out and forgot about it called Allied with Brad Pitt. Never saw it. It's a World War II slash spy slash love story. Not a true story or anything, but it's just a really good spy one where you're going back and forth and trying to figure out who's on which side. I'm a big love story guy. Yes. And so it's got all those elements. I liked it.

I watched a love story this weekend on HBO Max. Somebody emailed us and was like, Michael, Casablanca is a classic for a reason. Go watch it. It's funny. And Allied, they meet in Casablanca. There you go. Anyhow.

I've never seen it before. I was thinking about it and I couldn't really articulate what exactly about it was so special. I'm thinking it was just Humphrey Bogart was so incredible. It was just excellent. It really was. So it's on HBO Max. It was an hour, 40 minutes. Gone with the wind, I think is like three hours. I've never done that. Don't know if I'm going to. This was a great love story. It was 1942. It didn't feel dragged on. You didn't mind watching a black and white movie? Not at all. Not at all. I loved it. So anyway, I also watched another American classic that got all sorts of accolades.

And actually, I think I was listening to on the Big Picture podcast, Ben Affleck is making a movie on the making of this movie, Chinatown with Jack Nicholson and Faye Dunaway. Have you seen that? No. Have you heard of it? Yeah, I've heard of it. So, 1972, it was pretty good, kind of like on some people's Mount Rushmore. It's in the Pantheon, but that's not there, huh?

I didn't get it. It was a good movie. Okay. If you knew nothing about it, you wouldn't, you know, anyhow. You're really hard pressed for movies these days if you're going back to like 1940s and 70s. I'm getting to the classics. No, I'm saying like you, though, we've run out of movies to watch.

Oh. We're rewatching all old. movies now. Yeah. But this is kind of nice. I mean, when would I have ever found the time to do this? Yeah. So one of the silver linings of this whole experience. Okay. So you're going to give us your favorite movies from 1940 list next week? The 40s was a mediocre decade, I have to say. Okay. What I was saying, listen, that list that I gave last week, those were all good movies. Some of them were great movies. My point was, if you look at the 90s, the list could be 300 movies. There was a shockingly small number of classic movies or great movies from the 80s.

That's all. That's fair. Okay. Send Michael an email about his bad takes to Animal Spiritspot at gmail.com. People love my bad takes. All right. Talk you next week.