Animal Spirits Podcast - Bad Ideas (EP.173)

Episode Date: October 21, 2020

On this week's show we discuss why baby boomers are selling out of stocks, the 4% rule, the newest star fund manager, why FICO scores are rising this year, companies piling on debt, how social media is making people miserable, some optimism on the pandemic front and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought you by Interactive Brokers. Savvy investors use Interactive Brokers portfolio analysts to create a consolidated view of their finances and check the health of their complete financial portfolio. Sign up for free at Portfolioanalyst.com. 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 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. Welcome to Annal Spirits with Michael and Ben. Michael Santoli had a nice piece on CNBC over the weekend and there was a chart in here. It was a breakdown of household equity and mutual fund ownership by generation. So we're talking close to $40 trillion. And they break it down by silent baby boomer, Gen X, and Millennial. Baby boomer is the biggest of 53% ownership of the stock market.

Gen X is 27%. Millennials at tiny at 3% and the silent generation still loan 17. This is something we've been talking about in Santoli hit on it, how weird fund flows are and I think are going to continue being because baby boomers are selling. So you have to take mandatory withdrawal from your portfolio at age 72. And we're going to talk about the 4% rule a little bit today. But it's kind of funny that if you're in a tax deferred account, your mandatory withdrawals are close to 4% of the beginning anyway. It's like 3.6%. Anyway, they basically said this year,

they calculate on these numbers, $75 billion had to be sold. And by 2030, it's going to be $250 billion a year. And people use these things. They see equity outflows happening in a year where stocks are up and say, how could this be happening? And it's because baby boomers have to sell in a lot of ways. So trying to use these as signals is not helpful anymore. Yeah. Is that a big number? Relatively speaking, is that like a lot of selling pressure on the market, I would imagine, not. Well, no, if it's $39 trillion of equities, because obviously there's more money in individual stock holdings than there is in the mutual funds and ETFs, like households own more than mutual funds, I believe. But there's also target date funds. So Cintoli looked at flows of target date funds. And the near term ones in say 2020, 2020, 2025 or whatever, 2030, those ones are seeing outflows, but you're seeing inflows into the ones in 2050 and 2016 and 2065. So I think you are having,

millennials come in and pick up the slack a little bit. I actually didn't read this article yet. I'm going to. You slack this to me. And I just saw the hyperlink. Older Americans are selling the stock market slowly but ceaselessly to junior generations. My first thought was, wouldn't this be such a continuation of current trends where millennials are mad at boomers if boomers sell out of the stock market at elevated valuations and stocks don't go anywhere for 25 years? And people our age, millennials that are now 65 are yelling at their deceased parents for leaving them with stocks at such high valuations. Would that just be the cherry on top of all this? Yeah, the final FU from the boomers. Here, take our expense of stocks. From the grave. Yeah. That's true. The other thing is

that these target date funds are really ramping up in terms of how much they can move. As you said, it's a drop in the bucket. We're talking about the entire stock market. But if these things hit a button and rebalance, that can have a big effect on flows. If you're trying to read the tea leaves on this stuff. And I think that's the idea is that just throw those stuff out the window when you're looking at fund flows. You can't say that like people are scared of stocks because they're selling. I completely agree with you. However, the stories of fun flows are never going to stop, even though there's so much noise. That is probably the noisiest piece of information. When my target date fund comes due in 2050, you're still going to be talking about fun flow stories

because those are your favorite things to talk about. You're not wrong. All right. So there was a story in Market Watch of a $10 billion value fund. Well, hang on. Set the table. I believe it was you who asked last week. Was it last week or was it two weeks ago? One of the recent shows. Well, what did you ask? I said, how were there no value investors hanging it up at this point? And this is a $10 billion fund. Ted Aronson is, I've heard this name before. He's pretty well-known value investors. It's AJO partners in Philadelphia and Boston. And basically is shutting it down. Calling it quits, $10 billion fund. fund. That's pretty big. I mean, is it almost more surprising we haven't seen more of these? When are we going to see like the David Einhorn close up shop and become a family office? Aren't we get into that point potentially? Unless those hedge funds pivoted to be just growth investors. A lot of them were bottom-up fundamental investors. I'm surprised it hasn't happened more. Here's a quote. The last five years have been so painful. Value stocks will come back, but we are throwing in the towel. Is this a Julian Robertson moment of 1999 where he was the value hedge fund investor? And Pazina

asset management had this breakdown between value and growth. They looked at the Russell 1000 value and the Russell 1,000 growth. They looked at the different drivers of return. So dividends are roughly the same for these two. It's not much. EPS growth for the growth stocks was 24% versus value of 1%. But then multiple expansion was 68% for growth and 5% for value. So this is since 2017. The difference in total return is 118% for growth and 17% for value. But the majority of that has come from multiple expansion. So I guess if you're looking for a silver lining, I guess it's just that a lot of the latest round of this for growth has been just playing catch-up and expectations and not really in as much in fundamentals. Well, we spoke about that a few

weeks ago, the tweet storm that Jesse Livermore did. Right. Yeah. On what's driving this, and it's just been a lot of multiple expansion. All right. So let's stick with value investors. So I read the latest memo from Howard Marks. And at one point, he's talking about the potential ramifications of the rescue. Why does he get to call it a memo not a blog post? Can I call my stuff memos now? Well, because you memo five times a week. That's a difference. Okay. If you slowed down, then yes, you could change it. I was getting a little bit irked because I was just thinking like, I'm so sick and tired of billionaires talking about how potential ramifications of the stimulus, how bridging the gap and MMT is going to lead to destruction. Like, I'm just so

sick of that whole thing. And then as I'm reading, he wrote something that I was like, oh, okay, all right, cool. He said, finally, I want to stay clearly that nothing I've written on the subject for the rescue and its possible ramifications is intended to be critical of the Fed and Treasury and their actions. I put it simply, just because something has potential negative consequences doesn't mean you shouldn't do it. In the case of the pandemic and associated recession, there was absolutely no alternative. While not perfect, the policy response has been brilliant. So kudos to him for doing that because that's the part that you usually don't see. You just see a lot of people getting angry about the potential ramifications for printing money and propping up the economy,

I thought he put it nicely there. He's a distressed investor. He would have liked to see more distressed prices. I'm sure he had investors lined up ready to go to put money in as this cycle of distress happened and then it was taken away from them in an instant, basically. Well, that's exactly right. And here's the quote. And I didn't take this as like him whining about not being able to swing at the fat pitch. I just thought it was interesting to hear him say this. So he said, this is an unusual crisis, one marked by a non-financial, exogenous cause and lack of lasting pain for most investors and not by widespread opportunities for bargain hunters. Great investments are often made when an investor is willing to buy something. No one else

will touch at any price. We were able to do just that in past crises because what you needed was money to spend it, and we had those things when most didn't. Other investors, lack of money and nerve and past crises made them great times for buying. Today, thanks to the Fed and Treasury, everyone's got a lot of both, that makes things much tougher, end quote. So to me, this was Marx describing the reality of where we are in the investing landscape with not just monetary stimulus in the picture, but obviously a ton of fiscal stimulus. And he's just describing the new world that investors live in. So this is a nice segue to Corey Hofstein, who wrote a piece that was just like hats off, bowed down to Corey for doing this, basically questioning everything that he's done

as an active manager of the last dozen years or so. And Corey Hobson, we've done an episode with him, friend of the show. He has built an asset management business, I think primarily based around trend following strategies. And Corey wrote, when does the breadth of contemporary evidence supersede the depth of historical data? In other words, how do we know when it's really different that we spoke a couple of weeks ago about Corey analyzing the current market landscape?

And I thought this piece was just so kick-ass. This is a commentary to his investors that you can read for public use. So he said, our research on liquidity cascades suggests an increased probability of rapid market meltups and meltdowns. Not exactly favorable for trend following. And I tend to agree with this. They basically are kind of blowing it up and starting over. So this is one of those things where people say, okay, what if you had to sell everything today and you started with cash? What would you buy? Would you still buy your same positions or would you start over? And he's basically saying, we're kind of starting over. And so he still thinks that treasuries can.

be helpful because they still provide the best hedge against stock market falling and flight to safety. But he said a prolonged decline would be trend following, which they use, but maybe just not as much. And then you have these melt-up and melt-down dynamics where maybe you have momentum stocks and out-of-the-money call options versus melt-down would be quality stocks and out-of-the-money put options, which is kind of what we talked with Simplify a couple weeks ago. But it sounds like he's basically not blowing up his firm, but rethinking things in terms of what is the the best way to implement a portfolio now. And I've been talking about this for a while now, too, that I think he might be right, that the whole meltdown thing, I think that's not forever,

maybe, but for a while, I think maybe that's the dynamic we're living with for a few reasons. One, because there's so much more government intervention, two, because interest rates are so low. And I think people are going to have their finger on the trigger much more quickly than they would have in the past because of that. And how about technology and the financialization of everything? Yeah. That chart you shared from JPMorgan a few weeks ago. Which one? You and Josh talked about it. It shows the percentage of the economy in each sector versus the percentage of stock marketing sector. I'll put it in the show notes. What's your point? Just the fact that technology plays such a larger role in the stock market now. You don't mean like Apple and Amazon.

You mean like literally being able to trade quicker and stuff like that. I think both. I think the fact that technology sector is such a larger part of the stock market now, I think that maybe has ramifications on the expectations people build into the overall stock market as well. Could be. Anyway, I thought these three things, reading them all last week, the value investor throwing in the towel, Howard Mark's talking about how past crisis he used to be able to do things that he can't do anymore. And then Corey putting out a post like this, I just thought it was a really interesting confluence of memos and blog posts. Even if you don't decide to blow it up and start over again from scratch. Just thinking about this stuff, I think you have to as an

investor, at least consider, is my philosophy or my strategies, are they still relevant to today's world, which is potentially different than it was in the past? So Aaron Stanhope, who we've spoken about in the past, he does a daily or semi-daily newsletter, did a post last week where he showed the average change in debt and the average debt to equity ratio for all stocks. And he broke it down by stocks with negative earnings and stocks with positive earnings. And we understand why companies issued a ton of debt in the third quarter. They still have to get to the other side to continue funding operations. Interest rates are still low. So all this made sense. The numbers are $267 billion for investment grade corporates and $119 billion for high yield.

But the thing is this. In this chart, when you see average change in debt for U.S. stocks, you see the ones with negative earnings spiking up over 20 percent euro per year over year, year, and are companies going to eventually have trouble servicing this debt? Well, it depends if rates stay low and can they roll it over again. Rates are so low, why wouldn't these companies continue to borrow? The built-in lower interest rate expense, I think changing your balance sheet right now, whether you're in trouble or not, probably makes sense, right? Yeah, for sure. Jesse Livermore wrote that article a few weeks ago upside down markets. So Aaron wrote, despite the uncertainty stemming from COVID-19,

investors can be certain that companies losing money while piling on debt produce poor investment outcomes, end quote. Let me ask you a question. Is that true? I mean, it seems so obviously true. What if that's not true anymore? It's possible. Borrowing three, four, five percent versus borrowing nine, ten, eleven percent in the past, that's a huge advantage. So Google was able to borrow at, I forget, two percent. So obviously Google is not a company that's losing money, but companies that are losing money, what are they borrowing at? What's their borrowing rates? I don't think it's in the teens. The yield on the J&K high yield ETF is, I don't know, four to five percent range, which is what treasuries used to be.

People were used to it. I mean, because obviously to get your fixed income return, you start with a yield and then you take away anything that goes bad. So that with high yield, you have to take into some rate of default there. And with a lower rate, that rate of default makes your return not quite as large. But again, that also makes it easier for these companies to fund their operations if they have the ability to borrow. This was a remarkable statistic from NACA Rossi. 94% of ETF assets are in products launched prior to 2015. And he said pretty remarkable, given that 1,500 products have launched since the beginning of 2015.

I'm guessing the majority of those assets would be in large index funds. SPY, VTI, Vanguard. Yeah. I mean, I guess that makes sense because to stand out these days, you can't launch another one of those and also ran because the cost difference is impossible to fix at these point since it's almost zero. Let's say that 6% of ETF assets are up for grabs. That's still a big number. Yes, especially as the ETF industry grows, as the pie gets bigger, that's not an insignificant amount of money. So I guess the other, I mean, I don't know where the other 6% is, but I just thought that was interesting. All right. So Michael Kitsy's had Bill Bengin on his

podcast last week, and he's the creative of a 4% rule. This is something I've been seeing people write about more. And obviously, it's kind of a boring retirement concept for a lot of people. But the idea is, what is your safe withdrawal rate in retirement? So as all these baby boomers are retiring, interest rates are low. I can't just live off the interest. That would have been nice if you could have just invested and live off the interest every year. I get 5% on my money market. That's what I'm living off of. It's not that simple. You have to invest. And so the reason this is important is because you don't want to take out a bunch of your portfolio when stock market gets crushed. So if you're taking out a bunch in March, when it's down,

can really hinder your ability to not outlive your money. Bangen actually wrote this. He went through the whole story on the podcast, created it in 1994. That's when the research paper came out because he was trying to create something like this for his clients. He didn't even mention the 4% rule in the original paper. I actually went through and read it this weekend. I wrote about this. Well, when you say for his clients, you might have said this, I'm sorry, that he was a financial advisor. So he's a financial advisor. He started an RIA. The reason he put this research out was because he was trying to figure out a strategy for his own clients. How much should they take out of their portfolio every year to be safe in over 30-year window, not see their money run out. Obviously, as a retiree, that's your

biggest risk is outliving your money. And it never was actually called that and I read it. And the research was interesting because I don't think I really realized that the 4% rule, that's the worst case scenario. He was saying it's probably closer to 5% historically. And he said absolutely safe as 3 because there was never a, he looked at stock allocations between like 40 and 75%. Did he show Japan? No, Japan. I think. he actually said that basically a 50 to 75% allocation to stocks was the sweet spot. Anything way less than that or way more than that and you add too much risk. This is our thing a few

weeks ago where we said once you get the allocation away from cash or away from all stocks, you're pretty good with the diversified portfolio. Here's the thing that was interesting to me. The first part he talked all about the 4% rule. In the second part of this podcast, he talked about, and so the 4% rule is you hold a diversified portfolio, you rebalance it, and it's a buy-and-hold strategy and then you take your money out. You start with 4% and increase that amount by inflation every year. He talked about how through his RA for his clients, he was timing the market and getting out at the top of the tech bubble or getting out right before the financial crisis. And he never got his clients back in until, I don't know, 2013 or something after the great financial crisis.

I just thought it was interesting that the guy who based his, what he's known for, his life's research on this 4% rule based on a diversified long-term buy and hold strategy, didn't really follow with that strategy himself. It seemed like it was almost theoretical. He said that number has haunted me for years because I don't think I ever used the term 4%. He said one number cannot represent the experience of so many retirees. So it's really, to your point, it's really kind of funny that people like us have spent so much time tearing this apart and reputting it together and figuring out where it makes sense. And he used it theoretically. And it's true that you can never use a rule of thumb for everyone because your circumstances are different. But I think thinking about it in terms of your

portfolio, like how many years worth of spending can I get out of this? I think that's an intelligent way to think about it. But obviously, you never know what the inputs are going to lead to in terms of what your actual returns are. And he was saying, well, maybe now it can actually be a little higher because inflation is so much lower, which people were probably surprised about because interest rates are so much lower than they were. In 1994, when he put this out, the Treasury yielded between 7 and 8 percent through that year in 94. But the trailing 25 years, inflation was running like 6% a year. Now it's 1% of years. So anyway, you're right. It's impossible to ever use rules of him like this, but I just thought this was an interesting discussion to hear how he came up with this

and then trying to implement this stuff is not as easy as it sounds. So ARKKK has been one of the best performing ETFs for years now. Ben Johnson did this tweet showing the best performing unleveraged ETF going back to 2009. and their subsequent three-year annualized return. And the story is not shockingly that pretty much, not always, but pretty much the ETF that had the best return in any given year did not do so great over the next three-year period. The last one on the list without a three-year, complete three-year of history is ARKKK. So in 2017, this fund returned 87%. And if the three years ended today, obviously it'll end at the end of it'll be over in 45 days. But as of being the best return

in 2017, their subsequent three-year annualized return is 40%. Four, zero percent. They are so far off the charts of anything on this list. It's bananas. Yeah. So I show them up 214% in the last three years. And we've talked about the fact that there's this death of the star manager. Does Kathy Wood, who's the portfolio manager for this fund, deserve more credit? Yes. I feel like she does not get enough credit. One of the reasons I think she doesn't is because their main holding for a while has been Tesla and Bitcoin and other moonshots that people think probably she just got lucky on. But to her credit, she stayed with them. Now, I was all trying to give them credit. And then this weekend, they launched this commercial, which I'm on the fence

about because, so they launched this commercial and it's bad luck, totally trolling. It's talking about how they invest in all these innovative companies. And it's saying if you don't want to invest in innovative companies by a broad-based index fund. And I feel like they're poking the market gods with this tweet because their performance has been so good. If this marks some sort of turning point, it's probably not going to. Let's be honest. Poetic justice never seems to work out that way. It was funny. I'll give them that. It was clever, but poking a horn at its nest. Let's give her credit, though. So over the last three years, the QQQQ, which has destroyed everything, is up 100%. This ARKK fund is up 215% almost. Yeah, I think they deserve a lot.

lot more credit than they got. She deserves a lot of credit, and I don't think she probably gets enough as the just home run all-star portfolio manager right now. Can not agree more. They had a piece out last week called Bad Ideas, where they spoke about, basically they invest in areas that they think are going to get disrupted. So I wanted to pull out a few of those ideas and talk about them. One of the things that they spoke about was linear TV. When did it start going by the word linear TV? That's a new one to me. By the way, I'm a linear TV watcher still. I'm not. never going to cut the cable. I'm on record of saying that. I'll take the other side of this. I think they're wrong here. But here's what they wrote. Since speaking in 2011, the number of U.S.

linear TV households, and I guess linear TV is what? Just people that pay for cable? Cable, yeah. If you're streaming, are you considered an exponential TV viewer? Could be. The number of U.S. linear TV households has been declining at an annual rate of 2%, a rate that we believe will accelerate to 15% in an annual rate during the next five years. Cumulatively, linear TV households have dropped 48%. Okay, no way, maybe. But I will take the other side of this hard, 15% annually. So people have been cutting the cord.

It's dropped at 2% a year. So their projections, in my opinion, are way too aggressive here. Yeah, I agree with the fact that this linear TV watching is going to, people are going to continue to cut the cord, but probably not at the rate. That does seem, I don't know what would be the trigger that would get everyone to do that all of a sudden. Another one that they talk about is transportation. If robotaxies become the dominant form of urban transit, ARC expects U.S. auto sales to drop from 17 million units today to roughly 10 million by the end of the decade. I think that this could happen, but they know a lot more about this than we do. But I'm thinking this is like 20, 30 years away

where it's sci-fi and everything's just taxis. What do you think? Here's the other side of this. As we get younger people coming up in the country and moving out of big cities, I think there's going to be influx of people having to buy cars. If you're moving from Europe, City and you're moving to the suburbs and you're going to start settled down and have a family. Can you imagine with your little kids trying to use a robot taxi, whatever they're calling it, with all the stuff you need to bring everywhere, in car seats, in stroller, I just don't see how that works for young family. So what if that helps offset this in some ways? Younger people having to buy cars. This is an interesting take. They say once a disruptors, ride hailing companies

seem to be in the cross-hairs of disruption today. So think Uber and Lyft. Arc does not believe that any of them will be competitive with autonomous technology providers. That's pretty bold. So that means it's going to be Tesla and Google making autonomous cars. Right. And crushing Uber and Lyft. They're just going to put them out of business. I could see that. Would it be that hard for Google or Tesla to create the same technology on your phone as an app as Uber and Lyft? Probably not, right? I think that they're right. This is the direction things are going in. But by the end of the decade, again, knowing nothing seems pretty aggressive. Rory Sutherland has been on a few podcast in the last few months. He's a marketing guy.

And he said how he thinks the best thing Uber did was psychological because you could see the car coming. So even if you knew the car was going to be 10 minutes away, just the fact that you can look at it on the screen, coming to you getting closer, that makes you feel better. And you're not just getting angry the whole time wondering where this car is and where it's going to be. So I like that idea of thinking in terms of not only the technological innovation, but what's the psychological impact going to be? How is this, though? How hard would it be? Assuming that they can do this, that robotaxies are really going to be a thing. and they saw the technology there.

Wouldn't it be very easy to order a taxi with two car seats? Isn't it like the least difficult part? Yeah, I guess that's possible. How long does it take you to leave the house? For us, if we say we're going to leave the house at a certain time, always add 20 minutes to that. Getting in and out and moving and carrying all your crap with the little kids, I think it's just so much easier to have your own.

And that's why sales of SUVs and trucks and stuff have skyrocketed in the past decade. What's interesting about these big ideas is they are big ideas. So if they're right about this, there's ramifications, obviously, for car dealerships, which they got into. There's ramifications for Duff, Ford and all those cars. But insurance, auto insurance. But do you think by the time our kids are 16, my oldest is 6 and your oldest is 3? By the time they're old enough to drive, will we be having a lot of these driverless cars on the road? My knee jerk is to say, I don't think so.

But I kind of feel silly saying that because I don't know anything about where the technology is at. I think probably the biggest impediment is government regulation and how they let this stuff go. My knee-jerk uninformed opinion is no, I don't think we're going to see that when our kids are driving cars. Yeah, I think it could probably be a while too. All right. Here's another one that I thought was interesting. In our view, the 77,000 bank branches in the U.S. represent an untenable commitment to acquire customers for roughly $1,000 on average and monetize them. I agree with this one. I concur. This was the one that jumped out at me as like, holy shit, this seems pretty obvious.

occupancy expenses per bank branch is up to like a lot of money. I think $550,000, they said. When's the last time you went to a bank branch? And how often do you ever want to go? I do check deposits on my phone now. I do online banking. I do not want to go into a bank branch unless I absolutely have to. I think there's two reasons to go into a bank branch. One, if you use their safe, right, if you have like a safe there, a deposit box. Do you have one of those? No, that's a boomer thing. I don't have one of those. That's totally a boomer thing. The other thing is, if you're taking out a lot of cash, that's like a drug dealer thing. So did I ever tell you that in college for two summers, I thought this would be a great

way to get into banking. I was a bank teller for two summers. I don't think you told me that. Worst job I've ever had in my life. Really? There's no upside to doing your job right and tons of downside if you mess up somehow. Can I tell you how non-marketable I was as a potential employee at, I don't know, 24 years old? I couldn't get a job at a bank branch.

Oh, really? You were trying? I was trying. I got rejected, I think, twice. No offense. I can't really see you as a bank teller handing out suckers to the kids in the drive-thru lane. But, yeah, it was not the most fun job I've ever had in my life. I've got a bad idea of my own. Thank you cards. How does that still exist? And let me explain. We did not go to a child's birthday party. So we sent a gift, right? We sent a gift on Amazon. We got an alert saying, like, oh, it was delivered or picked up by the doorman or whatever.

two or three weeks go by and she's like, can you just text your friend and just make sure that they got the gift? So I said, hey, did you get our gift? And he said, yeah, thank you card is coming. Shouldn't text messages replace the thank you card? Now, there are cases where I think it could make sense. Like for a wedding gift, you're not going to text somebody. Hey, thank you so much for the money. You're going to write a card. For kids' birthday parties, for example, parents don't have time to write thank you cards for that. So this was my idea from a few years ago. Every year we do a holiday card and we send it out to people from Shutterfly or one of those places, why not just get it printed up and put it on Instagram? And instead of having to get everyone's address and put it in everyone's address and mail it out, put it on Instagram and guess what, all your friends who are following on Instagram can see the card.

Yes, the only thing is the reason why I think text is better is because sometimes you don't know if somebody got your gift and you just want to make sure that they got it. That's why a text message just solves all of these problems. I'm in. Obviously, you get people who have nostalgia for this stuff and think that you're going the extra mile would maybe disagree. That a handwritten note, but yeah. I get that. A handwritten note is very nice, but I don't think it's necessary in the year 2020. But if you don't get like a thank you card from someone at a wedding, I don't care. No, it's kind of rude. It is, but can't we all come to an agreement that who cares? I get it. You don't need to write that thank you card. I'm good. I'm fine. You open it up and you throw it away. Well, that's true too.

Yeah, like, oh, great, they remembered. Good for them. Eight months later. Okay, J.P. Morgan had a couple charts on the unemployment benefits, which I just find fascinating. All the economic data is coming in from this CARES Act thing. They showed the spending of people who are employed versus unemployed. It's kind of crazy. Starting in April and going through August, pretty much, people who were unemployed were spending more per capita than people who were employed. Wait, what? Look at this chart here. It's showing that unemployed people spent more of their money. Am I reading this wrong? How can they measure this? This is weekly spending.

They're defining debit card payments and credit card outflows, all this stuff that you spend. And they show that people who are unemployed and got these benefits spent more than people who were employed. I think this is showing the change in spending. That's remarkable. Here's a question. Do you think this is a one-off that wonky economists look back fondly, every time there's a recession and say, remember when we did this and we helped unemployment people? I have mixed thoughts. Is this something that we're going to have the political will

to implement every time and help people out? And like every time the unemployment rate is above 10%. All right, send out the checks. Yeah, I have mixed thoughts. I think that because this was a virus that was nobody's fault that just hit us like a meteor, I think Congress had to act. If there is a split Congress, which there always is, and there's always politics involved, and one party is being blamed for the cause of the recession because of their policies or whatever, I don't know that the political will will be there to do it. I think in a perfect world, yeah, it makes sense when we have a recession, pump the stimulus out. I don't know. I tend to think that this is not necessarily the playbook that we'll use going forward, unfortunately. That's the biggest detriment

to this whole thing is what is the political will for it? This data is screaming at you in the face of this has really helped. Well, in other words, like this was an epic crisis that we just experienced. And so was the last recession. The last recession was not one of the mill. It was extraordinary. So if we just have a garden variety recession, not to sound so blasé about it, but a regular recession where GDP declines by three or four percent, I don't necessarily think we're going to do what we did this time. I would appreciate a rules-based system, though. Anytime the unemployment rate is above 8 percent, we're sending people money that are unemployed. We're increasing their take home just to help them get through this. So sticking with this theme, this was a hell of a lead in the

Wall Street Journal. Millions of Americans lost their jobs and skipped debt payments this year. You wouldn't know it looking at consumer credit scores. So basically, to your point, people got the bridge from the government. They were able to continue to pay their bills. But what's interesting is that a quote from the article for lenders, the rise in credit scores is yet another confounding factor that is making it difficult to assess risk. The average FICO score spiked this summer in spring. Well, look at this chart. I don't know, Ben, I think you're probably off the charts based on your comment from last week. This doesn't go high enough for you. But FICO scores, yeah, they've been rising. This is interesting. A June survey of about 1,300 households found that those who got stimulus payment used 35% of the funds to pay down debt. Yeah, it's amazing. People repaired their balance sheets through a recession. Crazy to me that the FICO store stuff can increase that quickly. Isn't it to you? I would have thought this stuff is more slow moving and kind of like an average. But it's crazy. crazy to me that people could pay down some debt and immediately see a spike in their credit score. I think that's actually a good thing, that people can repair it pretty quickly.

The 161.8 retracement on this thing should set resistance right around 720. So that's where you should expect to see FICO scores top out. A double top is coming. Okay. All right. Last week, you called me out for being bearished a whole way up. And yeah, guilty is charged. I was definitely shocked by the stock. market's path upward. And I definitely don't think I was alone. Did you just remember this a week later? Are you giving me a mea culpa? Yeah, kind of. I just want a more fleshed out response is there's no doubt about it. I did not see the rise coming, which I'm not embarrassed to say. I don't think many people did. But to my credit, a little Ben's waving his hand. Ben saw it coming. Listen, just because

you tweeted it doesn't mean that you saw it coming. Did you use leverage? Show me your portfolio. You know what? I was going to use leverage. I was going through the process of taking out my HELOC. I told you this. That's true. I was going to buy hand over fifth. Could a shot of woulda. I know. I know. Honestly, I didn't get my home equity line of credit in time and the stock market bounced back before I could put it in there. But I was going to borrow to buy stocks. You sound like Howard Marks, disgruntled that you didn't get to swing. Yes. I, yes, if my distressed fund did not come through. Anyway, real quick, the Howard Marks thing, back in my Endowment Days. We invested, they had a, in like 2013, they had a fund set up for distressed

opportunities that are coming. And it was like, we're not going to call any of it in or charge you fees on it, but we're going to have it ready. I mean, they had like $10 billion ready to go for this fund. Obviously, it's still, it's 2020 now and that fund has never called in, obviously. No, I don't know if that's true, because there was a ton of distress in 2015, the stealth recession and the energy collapse and spreads blowing out. I bet you they put that money to work. Yeah, maybe. Anyway, okay. So back to you being bearish. Okay. So anyway, my point is this. Yes, guilty is charged. But I didn't do anything about it in my portfolio. I never sold anything. I was buying on the way down, obviously in hindsight, not as much as I should have. But I didn't act on my suspicions. You've said this in the past. You're fearful and other people are fearful. That doesn't mean you do anything about it. Correct. That's a good thing to have. You have rules in place and then you don't mess of them. Yes, I am definitely fearful when everybody else is. I am definitely that way. Okay. Last week, you spoke about this. collapsing levels of trust, this article by David Brooks, which I wish I read before the conversation because I thought it was really good and really depressing. We talk about all the

time about statistics showing how the world is getting better, people coming out of extreme poverty and I don't know, man, I read this and I'm like, you know what? Things really are pretty bad. I'm not trying to be like dramatic or hyperbolic, but let's just call what it is. Things are not great for a lot of people. I think too, and I think obviously things are bad for a lot of people. and you wrote about this last week how the extreme poverty numbers aren't as great as they look because people just move from extreme poverty to poverty, right? So some of that stuff is not as good as it seems. But I also think that they're going to look back in 100 years, and it's not going to be the

internet coming. That was the big thing. I think when social media hit, I think people are going to think things are so much worse than they really are for themselves. And I think social media in the future, people are going to back and go, wow, this was just this was so bad for so many people. So we look back on the Vietnam War as a turning point. People basically trusted the government.

What the president said, it doesn't matter what party you were belonged to, people believed what they said. And I learned about this a few weeks ago. I was listening to Dan Carlin, not on hardcore history on his addendum. He has a show where he spoke about a guy that did a book on Vietnam. And when I heard that, I was like, oh, that's obvious. I never really thought about that because I'm young and I wasn't around for Vietnam. But that was obvious to me.

Hearing him said that trust broke down after Vietnam War and then Watergate was gasoline. And to your point, I think social media. is the thing that people will look back on and it's like, wow, that really, really destroyed and not to be too like, again, downer, but... And the weird thing is, is like, social media for us has been really good. Personally, like, it's been great. And for a lot of people can point to it saying it's been this wonderful thing for them.

So I was going to use this in my recommendations, but I'll talk about it now because it kind of relates. So I've been reading these truths by Jill Lepore. It's this book about the history of America, basically starting from when Columbus found America. And the first chapter in the intro, she talks about how so much. much of the historical record of the world, pre, I don't know, pre-1800 maybe, is just gone because it was either lost or got destroyed or like so many written accounts of what happened

just are gone. We kind of just go with these tales that we've been told. And so she talks about in the history of the world, most of the people who have ever lived either did not know how to write or if they did left no writing behind, which is among the reasons why the historical record is so maddeningly unfair. And I wonder now, since everyone is writing stuff all the time. In 50 or 75 years looking back, are there going to be just 10,000 different versions of history because there's so much written record about what happened. And we can't agree on what's happening in real time because people bring politics into what's happening and how they feel about the world. Isn't history going to be so screwed up in the future because we have so much written record

now? We didn't in the past. Yes, that's a very good point. That's no fun to think about. My favorite Norm McDonald's bit was he talked about how his great-great-grandfather had one photo, looked grumpy, and it was this shade of brown. And he's like, in the future, someone's going to say, hey, you want to see 100,000 pictures of my great-great-grandfather? Because we take pictures. Yeah, anyway. Sorry, my delivery's not as good as norms. So this is a quote from the article, and this made me think of social media. Quote, for many people, it is impossible to think without simultaneously thinking about what other people would think about what you're thinking.

That's a quote from Frederick DeBoer. He goes on to say, this is exhausting and deeply unsatisfying. As long as your self-conception is tied up in your perception of other people's conception of you, you will never be free to occupy a personality with confidence. You're always at the mercy of the next person's dim opinion of you and your whole deal. And I think that is such a weight on people's shoulders. I'm about to tweet, what are people going to say, this picture on Instagram, what are people going to think of me?

It is just kind of the defining thing in our life, don't you think? Yeah, it's constant. Yeah, I agree. In optimistic news, because he can't be pessimistic all the time, but I certainly am not. I'm probably too optimistic. But there's an article that you shared, Ben, on what's actually going relatively well with COVID, if you could say such a thing. Yeah, so this is from the New York Times. And the guy's name is Donald McNeil, and he's a health science expert.

And he talks about how, here's a quote, events have moved faster than I thought possible. I have becoming cautiously optimistic. Experts are saying with genuine confidence that the pandemic in the United States will be over far sooner than expected, possibly by the middle of next year. And he's talking about how we've had so many breakthroughs in health sciences this year and basically being forced into this, that he thinks that 330 million Americans could be vaccinated by next June, which I don't know, probably not very many people think is possible right now.

He's trying to put an optimistic note about it. He said, this is kind of crazy. Mask wearing went from basically zero in March to about 65. percent early summer to 85 or 90 percent in October. I don't want to play the what-if game. What if the day that everyone ended in quarantine in mid-March, they said, all right, federal mandate, you have to wear a mask anytime you're on another person, and we're going to snuff this thing out. How much better does this go? How would they enforce that? I'm saying in public, wherever, mask up. But how would they enforce that? What, they're going to give people tickets? I don't know. I'm just saying, when did we

actually start using masks? May, maybe? April? I don't know. Probably April. I don't know. Maybe it wouldn't matter because people are masking up now and the virus is still going. But anyway, he's also saying that like the flu usually comes from the southern hemisphere after their winter ends because people bring it up travel and they're not coming here and the flu season one isn't bad there. Anyway, good optimistic tone for once. There was a crazy giff in the New York Times about the virus and where it's starting and where it is. And you see this chart showing a spike in the Midwest? Are you seeing this in Michigan? Not so much in Michigan. I think it's mostly happening in Wisconsin actually. Do they know why?

That's a good question. I really have no idea. Michigan's been moving up a little bit, but still they were one of the early spikes and have contained it relatively well. We've got schools open for most kids and there haven't been many problems with the schools yet either, which is pretty good. We spoke about this a while ago that there's to be a ton of businesses that are starting now. Beespoke tweeted, Epic Surge and business applications during Q3. I think there's reason to be optimistic and pessimistic in here. I think the reason to be optimistic is the next Tesla, Airbnb, whatever, is definitely in here. I have zero doubt about it. it's also really lousy that people are forced to start businesses because they have no alternatives. Yeah. I mean, even something like the restaurant industry, take the pandemic off the table. Even without that, it's a hard industry to stay solvent in. And for a lot of businesses, most of them fail. You only hear the success stories, but most small businesses don't make it. I guess it's good that the innovative spirit is still there. Speaking of spirit, how about this chart from Eddie Elfinbine? Retail sales, beer, wine, and liquor stores. Holy moly. That's a huge spike up. I don't know. I mean, I've,

probably helped this a little bit. My drinking, I think this is fairly common. My drinking, I never used to drink at home. Go out for cocktails, but I never used to drink at home. And probably March, April, May, I had to drink five nights a week. And I wasn't overdoing it. I was probably having one. But still, I never drank at home. And it just became, it's scary because it's easy for these things to become a habit. I peaked and plateaued. Then I went into a little bit of a valley temporarily. Only, I took like two weeks to cool off and then was drinking again. I'm in a valley and I think I finally like, okay, I need to, this is life now. It's not like a vacation, you know, so. Yes. It did seem like that at first. Anything goes. I try to keep it

to the weekends usually. So that's what I'm doing. I'm trying to not drink during the week. That's usually how to keep it. All right, let's move on for the listener questions. This was not really a question as much as a comment. When our daughter was born in 2015, we switched our Miles points credit cards over to Fidelity, 2% back credit card that drops it into her 529 that tracks the S&P. I love it. Did you know that was a thing? No, that's not a bad idea. The Fidelity 2% back credit card. Interesting. People send me that one before. Yeah. This was something I've really never thought about. Do you guys have a view about accepting

LinkedIn requests? How well do you need to know someone before you accept? I work in a large company and sometimes I get a request right after a meeting with someone or something as a vendor. Personally, I'd only like my network to be people I actually know and have some experience with. But it seems some people, I mean, do you have a view on LinkedIn? I don't really use LinkedIn that often. So if someone sends me requests, I don't know, once every couple weeks, I'll just go through and I accept everyone. I don't use it for anything.

What's the difference? How do you accept everyone? So I've got 424 people that want to connect with me, and there used to be a way to accept all of them. Now I don't know how. And they're just piling up, not to break. That's why I do it every once in a while, so I'm not the jerk with 400. Yeah, I don't know, I guess.

You manually do it? Yeah, every couple weeks I look in there. So I've fallen behind and I can't catch up. So sorry, I'm not accepting anyone on LinkedIn requests. Anyhow, the point is... You are not receiving a happy one. work anniversary for me this year. I really don't have a view on this. I'm sorry. I guess when I was accept anybody, there was nobody that I blocked. How about that? I accepted everyone. It depends

how you use LinkedIn. But for me, I don't really use it that often. So yeah, sure, I'll accept you. I'll accept it. I don't care. If you reject somebody or ignore it, do they get a notification? Because that would be awkward. Yeah, probably. I don't know. All right. Last one. Hey, guys, I have accounts of Fidelity and Rambudhood and a 401k with my company, you have $5.30 for my kids, etc. My robin accounts are for speculating. I'm mostly indexed funds in my 401k. Any ideas of how I can aggregate this into one place to see a complete breakdown of where my money is and what I'm invested in? Yes, we do. So the sponsor of the show today, Interactive Brokers, has a thing called portfolio analysts where you can suck in all of your information from various accounts, just as you

described. Portfolioanalyst.com is the URL if you're interested in doing that. I sign up for this too because I'm starting to get a large number of accounts, brokerage, And then I have my SEP IRA and my 401K. I was just talking about this with Robin because I've tried to get her involved in the finances and she just doesn't care. She's just like, that's your thing. But I have to start a Google Doc to put all of my accounts and my logins in one place for her.

Obviously, this is like good for us. But for the spouse, I need to get on that. Yeah. I'm going through the will trust process right now, too, saying my wife has been harping that one for a while. Maybe I'll share that in a week's head how I went through that one too. I have to do that as well. All right, recommendations. What do you got? Okay. So one of Bill Simmons episodes last week, he interviewed this guy, Cooper Rafe, a guy in his young 20s. He wrote a movie as a sophomore in college. He directed it himself, started with some of his buddies. He sent it to one of the Duplas brothers who are filmmakers and they make indie films. And he said, I dare to watch this. And the guy watched it and he said, all right, let's make it a real movie. So this guy wrote, directed, and stars in a movie about college. And we watched it this weekend. And I loved it.

It's funny, it's awkward. I thought it just nailed the college experience. And the movie is called Shit House, because that's the name of a party house at his college. I can't believe they actually let him name it this. I listened to it. I didn't watch a movie yet I'm going to on your recommendation. But he was so mature. Yeah, I don't think you're going to like it.

Oh, really? Okay. I don't think you like movies like this. It felt like a realistic college experience between two people. And I just couldn't believe how this kid. It was almost a better movie because this kid wrote, directed, and started it himself. I was actually kind of inspired by this kid how good it was. This is one of the many reasons why I love you.

First of all, what I was about to say is that that kid sounded so mature on the podcast. I couldn't believe that he was only 23. But in the movie, he played a very awkward guy who was having a hard time at college. And it was kind of cringy at times, but he was so believable. I love that you're able to tell me that you enjoyed a movie, but you don't think that I would watch it. You know, there's people that just whatever they like, you have to see it. Yes. It's like, yeah, but we have different taste.

So I appreciate that. If you like a certain kind of movie, you're going to love this. Give me a parallel. Like, what is this similar to? I mean, it's just a coming of age story. I mean, not a lot happens. It's just about this relationship with this guy that he meets in his girl. He meets at college.

I'm out awkward. And yeah, you probably won't like it. I really liked it. All right, here's a take for you. I got sucked into four weddings and a funeral the other night, Hugh Grant. I need to see that. I've never seen it. Oh, really?

It's a great movie. Great 99. So Hugh Grant did four weddings in a funeral, Notting Hill in Mickey Blue Eyes in 1990s. Love Notting Hill. I got to thinking. Just because this is a line works. Is Hugh Grant the Michael Jordan of 1990s romance? Com's. He's kind of undefeated there. Here's the LeBron to his Jordan. McConnor. Matthew McConaughey in

2000. He did Ghosts of Girlfriends Pass, Fool's Gold, Failure to launch, How to L's Day in 10 Days, and the wedding planner. Now, here's the deal. Hugh Grant is Michael Jordan because he was undefeated in the 90s. He didn't lose any. McConaughey has some L's in there, but he was in the finals every year. So that's my analogy. Hugh Grant is to Michael Jordan, because what did LeBron lose? He won five out of 11 championships or four out of, I can't remember. LeBron lost five or six? So McConaughey in the 2000s is LeBron and Hugh Grant is Jordan in the 90s. Can I say something?

As somebody who's on the record for liking rom-coms, I've never seen any of the McConaughey's. Not one. Okay, I'm pretty sure I've unfortunately seen them all. By the way, I watched one up on your wreck. Was that? Sorry, not one up, plus one. And? Good night great.

Yeah, it's a good movie, right? I enjoyed it. Robin fell asleep. I thought it was good, not great. If you didn't really like that movie, you won't like Shithouse. Okay, that I'm definitely out. Because I've seen better, I've seen worse. I generally enjoyed plus one. Okay.

I rewatched The Departed, and I'm not sure why I did, but that's either here nor there. One of my favorites. Great movie. I love it, too. I probably haven't watched it in 10 years so thoroughly rewatchable. I actually went back and listened to the rewatchables, and they killed Jack Nicholson. I enjoyed his performance. Yeah, I don't know why.

I like him, too. They were very hard on him. Alec Baldwin and Mark Wahlberg stole the movie. Yeah, I think so, too. Matt Damon as a bad guy was also really good. Did you finish The Boys Season 2? No, we're three or four episodes in maybe. Okay, I thought it kind of started slow.

It gets a lot better. Homelander is the most disturbing, demented character in the history of television. Yeah, he's pretty good. It's a good show. Every single time he's on TV. Anyway, I love that show. I just wish I loved anything as much as they love blowing people's heads up in that show. They do.

Heads were just disintegrated. You told me to listen to Meb had a podcast with Jeremy Shorts and Yes, Cole on Japan. And this is great. I had no idea that they said that, so Yasper has been in Tokyo for, or Japan for a long time. I don't know if he's in Tokyo. He said that Japanese central banks deliberately pop the bubble. Yeah, in 1989. I didn't realize that either. I did not know that. And this was an really interesting data point he gave. He said, Tokyo is the only major city where if you work at a Starbucks on an average annual salary there, you can afford to buy an apartment within 45 minutes of the city. That one stuck out to me too. That was a really good stat. He said basically

no other big city in the world, can you do that? All right. That's it for us. Animal Spiritspod at gmail.com. Thank you very much for listening. On Friday, we're talking with Marvin Lowe again from State Street about all things fed, fixed income. That should be a good one. Have a good weekend. We'll see you next time.