Animal Spirits Podcast - Bailing Out Main Street (EP.131)

Episode Date: March 20, 2020

On today's episode, we discuss the number of businesses impacted by the coronavirus shutdown, the potential fiscal stimulus plan, why interest rates are rising, how to think about rebalancing into the pain, Great Depression comparisons and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain position, and the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. I want to start off the show talking about layoffs specifically in the restaurant industry. So Danny Meyer has a company called the Union Square Hospitality Group. They're laying off 2,000 employees, which is about 80% of their workforce. And from the article, quote, hourly and salaried employees at both the restaurants and overarching corporate offices have been laid off due to a near complete elimination of revenue. The staffers who remain there are to keep basic corporate functions, operate. And it sounds like Danny Myers said that he was foregoing all his compensation and donating to a relief fund for all of his employees. So I was watching CNBC this morning and somebody

that owns a bunch of property and restaurants said, we don't have contingency plans for the absolute worst case scenario. There's people that are saying, why didn't some of these companies plan better for this? You could never in a million years plan for this. And if you did, investors would tell you you're stupid, right? Like, there's never any reason. The fact that these bigger companies like Apple and Amazon, Microsoft have these cash hordes for this, they weren't preparing for this. They just honestly have nothing else to do with their money. So especially these smaller businesses like this, I don't know how you could ever prepare for this and survive as a company the majority of the time. You're preparing for something that happens 0.1% of the time or something

or 1% of the time? Yeah, hard to blame them. So we got some initial claims today, 281,000, up 70,000 from last week, which is the highest level since September 2017. Are we going to see seven figures? That seems like it's going to happen, right? Like really soon. I mean, it certainly, I mean, this has to go to double digit unemployment, right? It peaked at 10 percent, I think, for the crisis. I mean, that's, it has to be there, right? That we have to get. Do you think the baseline assumption right now is double digit unemployment, double digit GDP decline? I mean, double digit GDP decline hasn't happened since the depression. So Ben, if you scroll down, you see this chart, even 0809, I think was 5%.

Yeah, it was five. So, yeah, the last time was actually, there was a huge recession following World War II and GDP fell like 10 or 12 percent, but we haven't had that since then. So it's been 70 or 80 years since we've had a double-digit decline in GDP. So I think that has to be almost your baseline now. J.P. Morgan is saying their selection, their forecast for real annualized GDP growth in Q1 to negative 4%, followed by negative 14%. in Q2 with a recovery in Q3 and Q4. Oh my goodness. So Bloomberg had an article. Are we going to

see 20% unemployment? Manuchin said that that's where we're headed if we don't get this ridiculous bazooka of fiscal stimulus going. I'm actually optimistic that the government is going to do what they have to because we were saying on Wednesday, is this worse than 08? 2008 was, forget about the stock market for a second. 2008 was the epicenter was the housing market and banks. With this one, everybody is in the crosshairs. No industry, maybe grocery stores for now, no industry is immune from this. But here's why I'm optimistic.

I think that they're going to do what they have to. I don't think that they're going to let 90% of small businesses go bankrupt. I think they're going to put cash in hand. I think they're going to allow these businesses to remain softened to take on interest-free loans. Whatever they have to do to backstop this. And I saw a tweet from Bespoke this morning, and I could not agree more. And it's easy. It's easy to go to a dark place right now.

I've had those moments. But the human spirit will prevail. Here's what Beespoke tweeted. We've seen a race to shut down around the country over the last week. We'll adapt in the coming weeks and learn to live with and fight and beat this virus. As we adapt, there will be a race to open back up with no one wanting to be last. And I think that you are going to see people absolutely sprint back. and you are going to see the human spirit shine like we have never seen before.

So I'm incredibly optimistic that we're going to get through this on the other side. Now, that's not a commentary in the stock market because forget about that for a second. But just in terms of getting this thing online and up and running, I'm really confident that we're going to see some great things. Anyone and everyone who can, there's going to be so much pent up demand. How many people are going to want to go on vacations when we get the green light for that? I am. We put off our vacation that was supposed to be in April. I'm going to want to go on a vacation when this is all over.

We still have a lot to get there, but I agree. In the government, at first, people were arguing, well, should they do something or should they do something? Obviously, now that we've gotten to the point we are where they're making it impossible for businesses to operate, they have to step in. They have to do everything in their power to keep people afloat. And they've been throwing out stuff where they could give out $2,000 a person per month and $1,000 a kid. I'm guessing it'll be lower than that. Who knows? But they're going to have to shut down people's bills. I know in France, they stopped people from having rent payments. They're going to have to just shut everything, shut the payments. system down for the next two or three months, too, aren't they? Just to... I think so. There's a story yesterday saying that a place like Ally is allowing people to defer mortgage and car payments. I think interest will still build up, but they don't have to pay those. I think we're going to see a lot of this. And that makes me optimistic that like a lot of these companies get it too. We're in pain here, but so are all the people. And everyone's going to have to be in this together because like we talked about on the last show, who's going to backstop all this? Getting to a million unemployed. I mean, that sounds like we're going to. Yeah, that's pretty

much a guarantee at this point. So somebody tweeted that in the past two days, 31,000 people from Minnesota have filed for unemployed insurance, which is roughly 160th of the U.S. population. If other states have the same rate, it would be $1.8 million. And you got to think, this is only the beginning. So there are going to be millions of people unemployed. And we just have to hope and pray that this is going to be a matter of weeks or maybe two months and not quarters. I'm banking on at least, I mean, the month of April is just gone. I'm banking on that one just be completely gone. And May too, probably. Probably. May. I'm banking on school being done. That's making life interesting. Nobody's going to want to

be last to get their business up and running. People are going to be so fired up. People are going to be, nobody who is going to want to be the last one in. So there was a good article in the Wall Street Journal, cash is all that matters. And to that point, there was a great quote from the head of financial research at Renaissance Macro. His name is Howard Mason. He said, we don't have a flight to quality. We have a flight to cash. And so I think, Ben, you said this earlier at this point, people are using treasury bonds as an ATM machine. Yeah, and bonds really front ran this thing. They already priced in a recession with a huge decline in rates that we had. So now I think everyone says, okay, what's my source of cash right now for either other investments or commitments

or just spending purposes? And that's been treasury. So you've seen bonds sell off in the last week or so, and pretty hard too, especially on the long end, because they went up so much. Look at this chart from Bianco Research, Jim Bianco puts out a lot of great stuff on Twitter, showing the price versus NAV of the long bond, TLT for my shares. It's trading at a 6% discount, which is by far, by far the lowest it's ever been. So people are just using anything to sell. And I think this is a good reason why markets shouldn't close. Because people, need to use the market as a source of funds? What if you're living off dividends? What if you're living off interest? What if your business goes under and you have a portfolio of stocks and bonds you need to tap? We can't close the market. And when the market closed in World War I, it was in 1914 it did it or 1915? It was June or July to December. It wasn't nearly the type of market that we have now. The products didn't exist. Most of the people weren't involved in the markets.

The investment world wasn't nearly as mature. So that's not a very good comparison because it didn't matter as much, then I agree. Right now, if you shut down the markets, a lot of people would just, that's just shutting down their sources of cash in a lot of ways, and they need this stuff. So a lot of strong opinions everywhere, obviously. And on TV yesterday, you had Bill Ackman having an absolute meltdown. It's the only way that I could describe it. And I'm not discounting. I'm not pointing fingers. He might be right. But he seemed pretty hysterical that if the government doesn't do everything they need to, I think he said this at the end of America as we know it. So pretty strong feelings there. You talked about how on the other side of this

people are going to want to take off. I think there's also going to be a cohort of people who get stuck behind and they're going to get so stuck in the negativity and the pessimism and this is bad and it's never going to get any better. And that happened in 08 to a large degree. I think there's still some people who never came around after 08, even during the recovery. You're going to get a lot of people like that who are going to go into that bunker mentality and they're going to be stuck there and they're not going to come out and they're not going to realize that we've moved on and we're going to recover and things are going to get better. Those people are going to be stuck behind. So I'm trying to caution people, don't get stuck following these people who seem like they're right now because

they're the most negative. Those are not the people that are going to get you to the other side of this. And by the way, Akman was actually also saying that he's buying stocks. And I don't know if his mentality is, listen, if the world ends whatever. So yeah, just please be careful getting stuck in that mentality because it's a dangerous one and it's a seductive one. And I understand. I understand that things are scary. There are some rumors going around. This is on Twitter. So take them for what it's worth that a lot of the big hedge funds are now starting to see problems. And probably not only because of their investments, but because a lot of people are just coming in and saying, give me my money back. I don't want it in there. We'll get to that in a second because I have

some data here. And then you had Bill Miller on TV saying that stocks were cheap. And of course, people are rolling their eyes and showing with the video from 2008. Obviously, he was in the big short, talking about how Bear Stearns he's buying. And at the same time, simultaneously, Bear Stearns was going out of business. So there's nothing there. Just because he was wrong once. I wouldn't listen to him. I'm not saying that he's right. I'm just saying it's easy to scoff, but don't pay attention to that. And lastly, today, this morning, Ray Dalio was on CNBC, pounding the table on this 1930 stuff, which he's been doing for years now. Maybe he's right. I think that we will come out of this. And one of the ugly things about coming out of this is, unfortunately,

I think this is only going to widen the wealth inequality even further. So you don't think that, I was almost going to take that another way. You don't think that the rich are the ones getting hurt the most by this? I guess everyone's getting hurt. I mean, on an absolute basis, yeah, they're losing billions and billions of dollars, but who freaking cares? Because it hits Main Street a lot harder than it hits them. So I think that this is time. We bailed out Wall Street in 2008. I think it's time to bail out Main Street in the most serious way possible. Yeah, in a big, big way. I mean, I think that just nothing should be off the table now. And I think I was looking at the returns last night. So I looked at Apple, Amazon, Google, and Microsoft. and those stocks are all outperforming the S&P this year. So I think that on the other side of this, you could potentially get this winner take all only gets worse because those big companies are set up for something like this. Apple has whatever, $200 billion in cash.

Amazon is obviously getting tons of people using their stuff. I mean, Amazon has probably one of the most useful companies for my family. We've been using them a ton. Stuff for the kids to do, food, stuff around the house that we don't want to leave. We've been getting it all on Amazon. I saw that they were hiring another 100,000 people. people. So people were worried that, oh, once these companies fall, that's going to be the downfall of the market. And it's this winner take all thing. I think, especially in the markets,

we could see the winner take all thing get even worse, where these big companies are going to get bigger because a lot of these small companies are not going to be able to survive. Or if they do survive, don't you think a lot of them are going to have to get bought out by the bigger players so they can survive? Don't we get some, like a ton of consolidation from this where you just have all these, I think for a lot of them, that's going to be the only way they survive, right? is Amazon throwing them a lifeline. So I think if the government has some of these big companies buy a bunch of little ones and consolidate, it'll be like if you scratch my back, I'll scratch yours type of thing.

Kind of like how they quote-unquote forced J.P. Morgan to buy Bear Stearns. I think we're just going to see a ton of consolidation in that. And it hurts your brain a little bit to go down the rabbit hole and think of the types of companies that are impacted by this. You sent me yesterday the stock prices for Hertz and one of the other rental car companies. Avis. They're both down 85% or something. Yeah.

If you start just going through the businesses impacted by this, you could go forever probably. Yeah. You said that you think that entrepreneurs are going to be scarred for life? Explain, because I'll take the other side of that. I'm wondering if the other side of this is people think, you know what? From a risk perspective, starting my own business is really, really risky. And wouldn't I be better off going to a big company and working for Amazon or Apple or Google where maybe I can't have this huge payoff, but I'm safer. My family's taking care of, my benefits.

When you have a small business, think about how many of these startups are just going to be gone. And so now we're talking about 20 years worth of dot com bubble blow up, great financial crisis, this pandemic crisis that we're going through. I'm concerned that it will lead to this entrepreneurial mindset being dampened a little bit and thinking, if this is going to happen every 10 years and I'm putting my company at risk up this startup that just can't survive this. What's the point of even trying? I hope I'm wrong, but I'm wondering if that mindset is going to take hold a little. I think this is a VC Bragg's type of quote, but I don't think that you can damage the entrepreneurial spirit. I think that investors' psychology can be scarred for

life, but I think that there's always going to be 20-year-olds that are just gung-ho, full blast. So I'm not really worried about that per se. Maybe the hope is people discover I'm going to get into the science field because of this. I'm going to get into the medical field. That would be great if we had some of that where people decided, guess what? I would rather have these young, bright minds going into the scientific fields rather than figuring out how to get food delivered to my door faster. I would much rather have that. So if this jumps some sort of entrepreneurial spirit and science, I would be all for that. And that would be great. I would love to see it. And some of the stories you're seeing about that stuff, how quickly they're working and how much

these people are working, these like 19 and 20 hour days trying to come up with the vaccine. That optimistic about this stuff to getting through this and seeing the other side. Ben, you could take a victory lap or at least maybe a quarter mile. Lisa Bramooks tweeted that investors are paying for the privilege of getting their dollars back in a month. The rate on four-week T-bills has gone negative. I saw that. So we have negative rates, even though rates elsewhere are rising. So maybe that's the thing is obviously the Fed lowered theirs to zero again, basically. So I suppose it was only a matter of time. The one thing that is kind of crazy to me, I was looking at mortgage rates yesterday, they've shot up. They were well below 3% and now they're back above 4. So supposedly all

the demand that has come in has raised rates and it's more of a supply demand issue. Yeah, that makes sense. And obviously rates everywhere have gone up a little. Are you nervous at all that your bank comes in for your refinance and says and comes up with an excuse to not do it now that they're seeing slowdown. They want to just not take on any new loans at lower rates. Not necessarily. I mean, I'm almost finalized. They asked me for a few more things. Listen, if it happens, it happens. I mean, there's much bigger things to worry about. But sure, that's a possibility. And if that happens, I will move on very quickly. Okay, where were we? So, let's talk about hedge funds for a second. So there was an article in the Wall Street Journal talking about Bridgewater again. I think the FT picked up on that first. We spoke about recently, but said, while the SP500 is down more than 24% year to date, the HFRX Global Hedge Fund Index was down 7.2% this year as of Monday. So I'm, I'm sure that there are pockets of absolute decimated funds, obviously, because it just goes without saying. But I'm encouraged to see these numbers.

So again, through Monday, down 7.2 percent. That's the index versus 24 percent for the S&P. It would be nice to see hedge funds kick some ass for a while, wouldn't it? Yeah, I'm not sure how much I buy those numbers because a lot of these... Oh, come on, Ben. No, they're self-reporting. And so if you have a fund that's down 30 or 40 percent, are you going to report it and let everyone know, or are you just going to hold it to yourself? So guess what? The ones who report

are the ones that are doing well. Now, I agree. There's bound to be a few funds that are doing well and not just a little bit, but a lot. I'm sure there's funds that have hedged or bought puts and have done extremely well. It'll be interesting to see the money flood into those products like they have in the past and probably at the wrong time. It's one of those things where investors decide, they've probably been pouring out of them and now they pour back in. It's like you buy insurance after the hurricane came through kind of thing. I'm sure we'll see a lot of that where there will be stories come out where you have these enormous returns. But yes, credit where credit is due. These numbers look pretty good. I'm just not sure how accurate they really are.

All right, fine. Let's talk about the volatility. So Greg Zuckerman wrote an article in the Wall Street Journal about systematic selling. What's going on there? I didn't read the article. He's just trying to say that this panic buying and selling, a lot of it is because of the algorithmic trading that's going on. And he's saying a lot of these systematic strategies just really take their equity holdings down and they've been the ones pushing this stuff up and back. Some of it was about risk parity, which we've talked about before. I don't think you can really blame risk parity for all this stuff. But all the systematic trading, it's certainly made things worse, I think. I don't know what else you could ascribe to the fact that we're seeing these huge up days and then huge down days

and huge down days. And it's just happening all so fast. Obviously, there's a lot of uncertainty right now, but there seems to be no reason that we're going up and down eight, nine percent a day. But what about on the way up? Do you think they're going to make the recovery quicker as well? Yeah, that's possible. I think this is one of those times where, I mean, this is the perfect storm where, again, everything just happened so fast. And the market's repricing like this actually made a lot of sense. But yeah, I think the repricing on the way up, don't you think it's going to be just massive when it happens? With the rebound? Whenever it happens, yeah. Yes. So let's talk about.

the volatility. So, XHB, which is the S&P Home Builders ETF, is down 32% in the last five freaking days, down 32%. These numbers are just so ridiculous. It makes 2008 lequaint. I looked at, this is just one random cherry-picked measure of volatility, but I looked at the absolute return for the Dow over the last 18 days, meaning if a day is up 5% and down 5%, you just take the negative away, so they're both up 5%. The average is 5% for the day, for the two days. And so we're at the highest level since 1929. I can't even believe that I'm saying that. But you know what's even more remarkable? So somebody shared an article, I believe it was value stock. I can't remember exactly. Stocks fell less than 5% on the day Lehman collapsed. And they fell 4.9%

on the day after the market real, but after 9-11. So the volatility is so insane. But what's really insane, I think, is how quickly you get used to it. So oil was down 20% yesterday. And my reaction, actually was just like, yeah, that happens. You're going to see that. Did you see the stories that said it's possible if Saudi Arabia keeps doing what they're doing that the oil price will go negative? Stop. Because you pay to store this stuff, there was a story saying that it's possible that oil prices go negative if Saudi Arabia continues to oversupply as they have. Unbelievable. I looked at commodities the other day. So the Bloomberg Commodity Index goes back to 1991. I think there's another.

one that goes back to the 70s. The CRB one, I think. The Bloomberg Commodity Index is now 38% lower than its inception in 1991. So we're back to levels where we were in the 1970s. I guess you have to ask, is this the death now for the idea that commodities are investments? It's, yeah, I mean, a 30-year period of that is just brutal. And I think it's also showing why something like gold is not a commodity, or if you've considered gold a commodity, you've probably done a little bit better, even though that's getting hit now, too. Isn't it crazy to you, though, how quickly we've gone from 2008 comparisons to 1929 comparisons? In market-wise, maybe some of them have been. So I looked, we've now had two of the six worst daily drawdowns in history, and three of those

were in 1929. Beast book said three of the worst 10 days over the last week. By the way, I want to give a shout to them because they're, and really all the content creators, Patrick Ashana sees podcast and just everyone's stepping it up and just pumping out amazing stuff. It's been really inspiring to say. Yeah. And we, for the foreseeable future, we're going to do two shows a week. By the way, I hope that's not the case. I would love for things to settle down. And we stop. There's just, there's so much to talk about. But I want to talk a little bit about the Great Depression comparisons because I've done a ton of reading on this over the past few years. I find that time period to be just utterly fascinating. The difference between now and then is the policy

response now is so much greater. And we could see some numbers in terms of, like we said, GDP and unemployment. So I think the unemployment in the Great Depression got to 25%. GDP was down 27%. Again, we could see double-digit GDP decline. I'm guessing we'll see double-digit unemployment. So some of the numbers could be great depression-like. The problem is back then, the Fed was basically more harmful than they are helpful. Right now, the Fed, doesn't it seem like every night the Fed is doing something else with the repo market or shoring up the bond market? Did it the Fed raise rates? The Fed was raising rates. The government decided to balance the budget instead of spent. So right now we're looking at fiscal stimulus. Back then, they were pulling back

their spending and trying to balance the budget. So back then, the government made things worse. Right now the government is doing everything. And honestly, don't you think this policy response is 10 times better and faster than 2008 so far. I mean, they haven't really passed anything on the fiscal side yet, but in 2008, a lot of what they did didn't help Main Street. And I think this right now, this is what they're trying to do. They're obviously going to bail out some companies. I think they probably have to. But the policy response that we've got now is so much swifter and faster and it needs to be than it was back then. Back then, I think it actually just made things worse. So that's the one silver lining of this depression that people are trying

to make this to be. I read a biography on Herbert Hoover. I can't know what it's called. But he basically refused to acknowledge that there was even, forget about depression. He wouldn't even acknowledge the recession. He just kept saying like things are going to get better, like nothing to see here. So is a response today better? Yeah, you better believe it. Right. So that, another thing that gives me hope that we're going to have probably two or three quarters of economic data that might look similar to that. Even though the funny thing is, technically they didn't even have GDP back then. didn't know what it was. GDP wasn't really invented as a measure until after the Great Depression. So back then, they were flying blind. They didn't know anything about what was going on.

There was no collaborative effort to fix that thing. Again, they made it worse. So that's another thing that makes me hopeful about this, that this time around, they're not going to sit and let this thing go down like they did that then. Another shout to the New York Times. Ron Lieber and Tara Siegel-Bernard have a side up called Your Money, a hub for help during the coronavirus crisis, talking about how unemployment insurance works, help for renters and home. is just everything you might want to know. It's a tremendous resource. All right. So Patrick O'Shaunice, he tweeted, assuming testing capacity and efficiency is one of the key things to alleviate economic lockdown and freeze. The pathetic ramp of testing capacity in the U.S. will go down as one of the

most tragic failures in our history. So it's a chart from Vox showing the test per million people versus the population. And we are so far behind. It is so embarrassing and dangerous and scary. And this was, I don't know when this was done exactly, but it sounds like, okay, it sounds like finally we are getting our act together, even though it's obviously too late at this point. But with industry shutting down, GM said they might move to use their facilities for ventilators, which actually has some precedent. In World War II, they were using their plans for tank production. Yes, Elon Musk said on Twitter he would build ventilators if need be. But don't you think that that guy gets in and says this stuff every time? I would like to see him

follow through that, and I hope he does, but if he kind of gets involved and says this stuff every time, I'm sure there's going to be a lot of stuff written and done in the future about our lack of policy response to this. And hopefully it makes us more prepared in the future. But yeah, I'm still, what's the Churchill quote about how the Americans... You can always count on Americans to do what's right after they've exhausted all other options. We're going to have to play ketchup, it sounds like, but I'm hopeful that now that everyone realizes how serious this is, that we're going to play catch up very fast. And I, I, I hope that's the case.

This is some good news. Jonathan Farrow at Bloomberg tweeted. China's getting back to work. FedEx says demand rebounded more than expected. Sixty-five to 70 percent of small businesses operating again. 90 to 95 percent of large manufacturers are operating. Let's go. Right. They opened up some of the Apple stores in China. The news out of there sounds pretty great. I feel like there's so much policy stuff going on right now. I wanted to get some of it out because a lot of people probably aren't seeing a lot of this. So the government actually postponed the April 15th tax payment deadline for people. And so they gave people an additional 90 days to pay their tax bills, assuming they own the government money, which I guess has never happened before.

So that's available to anyone who was a million dollars or less in corporations who owe $10 million or less. So you could potentially hold on to that money, use it for other stuff if you need it. You're still going to have to pay it. But I think that's just a good thing to push things back. So that should be helpful to people. For sure. Lightshed has some really good research. That's Rich Greenfield and his colleagues on what might happen to the advertising industry.

So he said that from 08 to 09, there was a lot of damage, obviously, ranking them by millions of dollars spent. So the automotive industry, which is the number one advertiser fell 23 percent. And then within that, dealer specifically fell 36 percent. Financial services fell 18 percent. And so they also have a table of who the biggest advertisers are today. So I guess this probably doesn't change that much over time. You have autos and the restaurants, insurance, mortgage, retail, movie streaming.

And so then within that, the top five are guys. Geico, Progressive and State Farm, which is kind of funny, but that's what it is. That is Verizon, T-Mobile, AT&T, McDonald's, Sprint, Domino's, Toyota. Don't you think that I'm trying to put on my Howard Mark's second-level thinking hat here? Everyone is going to be on their computer, on their phone, or on their TV for the next two months, call it. Don't you think now is actually the time where you're going to get the most bang for your buck out of your ad dollar? Yeah, but that's like buybacks. You get the most bang for your buck now, but you can't do it.

True, but I mean, don't you think places that are reliant. on heavily reliant on internet services. Those places can still advertise and hopefully get a bigger bang for the buck and get more people to come to them. Sure. Trying to look on the bright side here. Well, there was also a data point in that article. Verizon stated that video streaming is up 12% over the last week. That actually sounds kind of light. I'm expecting that to continue higher. I would love to see the Netflix numbers in terms of how much streaming, like Netflix and Disney Plus, they've had to have just an amazing spike in their viewership. All right, listen to questions. What are we got? We've been getting a lot of good questions.

actually because a lot of people, all right. Recently switched jobs began working on the investment team of a local wealth management firm. I began a 401k rollover process at the start of the month and my retirement savings have been out of the market since the beginning of March. Not bad. Should I invest my proceeds right away since I got lucky with the timing or should I stay in cash until the market shows signs of stabilization for the reference my 401k is 100% in equities and not too bad down only 7% year to date. I got this. This person is 25 years old. Okay. So I just want to say, there won't be signs of stabilization because this market is not going to stop going down and then just sort of there's probably not going to be an L-shaped recovery where we just start going down and just fizzle out. There's going to be an explosive recovery off the bottom. You're not going to get it. So listen, if you're 25 years old and you literally have freaking 35 years, you don't need to get the bottom. You're not going to. Stocks can fall another 30% from here, but you're not going to get the bottom and you don't need to. So I wouldn't try and time the market. If you absolutely have to because you're panicking and you need to dollar cost

average, all right, that's not the worst idea in the world. And you're playing with house money, the fact that you got out and the timing work. And guess what? Stocks are going to stabilize when the news is the worst. The news is going to be so bad. We're going to have the highest number of cases. I mean, there's no one that can call the bottom. But I have to imagine cases are going to explode and markets are probably going to get even more volatile. And I think the time when the market is going to finally ramp up is when we start seeing cases slow down or go down. But that's when the news is going to be the worst and there's going to be the most people dying and it's going to be horrible. And I think that's when the market starts looking forward and saying,

all right, this thing's going to get better eventually. Right. All right, I am bleeding cash into stocks and rebalancing from bonds into stocks. It feels wrong. Looking forward, pessimistically, I was debating. If losses go past a 50% to break from my 60-40 stock bond ratio will be more aggressive. Theoretically, I won't need the money for another 10 to 15 years. It feels like pressing response to loss of erosion, but there's some sense to it. Have you ever changed your diversification significantly like this? I would just say, you don't need to panic by with your allocation. Obviously, you're drifting if you're 6040 or 50, 50, or whatever you are, you're drifting. But again, you don't need to shoot all your dry powder right now. The market's not going

anywhere. So this question is, should you over rebalance now that stocks are down so much? And I think that's actually, for people who have the intestinal fortitude, when stocks are down 40 or 50 percent, when is the time to do it? If not now. If not now, when? Well, there's some people saying what happens if stocks fall 70 percent. Then guess what? Stocks fell 70 percent? No one's going to have any dry potter left anyway. That's what happened in the Great Depression. People bought and bought and bought and fell. And I think if we're in a great depression scenario, you're going to have a lot more to worry about than your stock market balance. So I guess to answer this question directly, have you ever changed your diversification

significantly because of a declining market. I'm going to write about what I've been doing. I'm going to worry about this soon. If stocks fall 50%, I'm backing up the effing truck. Okay. And honestly, if stocks fell another 20 or 30% from there, in 30 years, am I going to care if I bought when stocks were down 50%? Sounds baghaldry.

All right. Yeah. If I regret that decision in 30 years, then I have bigger problems on my hands than my stock portfolio. Okay. Agreed. For many years, I have maintained that portfolio of total market index. funds allocating assets between bonds, rates, and stocks from Canada, US worldwide, split about

50, 50 between bonds and the rest. I rebounds periodically, but I have to say it has been mostly on the way up. I have always been expecting a day when stocks fall seriously and I have to rebalance using my bond ETFs as a dry padded to buy stocks. Now I am wondering, is this the day or is it too unstable still and should one wait a few months? Okay, so we keep going to the same questions. To reiterate, no, if you've been waiting for this opportunity, it's right in front of you. What are you waiting for? This is the whole reason you set an asset allocation to be with because you're going back to it. So I wouldn't worry about timing the rebalance. Like if you set that asset allocation and it's 9010 or 80, 20 or whatever, it is 40, 60, you set that for a reason. And the

reason is because that's within your risk profile and time horizon and risk parameters and stomach for losses. So if you're going back to what your target is, that's a good thing because you set that in advance knowing that something like this could happen hopefully. I would never feel shy about rebalancing because you set those percentages to begin with because that's the portfolio that you felt comfortable with. I would also say, listen, a bare market is where you learn what your real risk tolerance is. And if you were previously 6040 and you learned, hey, you know what, this doesn't feel too good. I'm having trouble sleeping. Okay, fine. No harm, no foul. If your real risk tolerance is 50-50 or whatever it is, they just go there. That's fine. I currently save 16%

in my 401k, the company I work for matches 4% up to 8%. My stock to bond is 9010 with this downturn to you. I should save more in my 401k or save that extra in my savings account. So this is more of a personal finance question. I would say first and foremost, in this economy, more than ever, you need to have cash. Oh, that's the first time I've heard in this economy in a while. It's been a long time. It's been a long time.

In this economy? You need to have cash. Would you agree, Ben? Yeah, but I feel like that's something everyone said for four years. after a wait, right? I can't believe we're back there already. Brother, I can't. Oh, yeah, but I agree. Yeah, that's a personal finance thing. And if you don't have your personal finances short up, don't worry about your investments until you have that stuff taken care of, especially now when your income could be impacted, your family, whatever.

Make sure your personal finances are locked up. All right, question for you about the rainy day fund that we should all have access to. Does access to something like a home equity line of credit qualify as this, or is this too risky? I wrote about this recently. I think, I think now is the time. How many people do you think have, this is a survey of one. How many people actually have that six-month rainy day fund? 10%, 20 at the most? No, no, no, no. So I think now is the time, and the time was probably a couple weeks ago, to start shoring up backup plans. And I think something like this, where you have this home equity line of credit to see you through if you have this personal depression, I think can totally qualify as something like that.

What good is that money sitting in your house if you're going to lose the house and you can't pay your mortgage. Sure, I think, unfortunately, sometimes borrowing more doesn't help, but in this case, I think that's a good emergency savings backup. All right. Last one for today. I am 25 years old and sitting for this first CFA exam the summer while working fall time and enrolled in an evening MBA program. I'm really sorry to say that you will not be sitting for the first CFA exam because they canceled. That sucks for people that have been working really hard studying. Again, as far as the level of suckage, that's pretty low down the list. Yeah. And honestly, now the quarantine is a perfect time to just study all day, too. But they canceled. Yeah, that's what I'm saying. That's tough.

What is your take on the evolution of PM rules? Do you think the ability to code will become more of a requirement in the future? Well, the PMs at RAs require a vastly different set of skills. Boy, does this seem like totally irrelevant right now or what, Ben? It's funny because this is a totally reasonable question, so I'm not poo-pooing. I'm just saying. Yeah, it does feel irrelevant, but life for people is going to have to go on, too, and people are going to have to think about their careers and moving forward. How many young people were pushed back because of that 2008 crisis, they went back to school or they couldn't buy a house. That's why I hope the recovery for this is so much quicker. So we don't get another generation of young people who are

just angry at the system because their timing was so bad. Do you think the sell-off changes anything in terms of what the financial industry looks like, specifically within asset management? I mean, there's got to be a ton of every company in the financial industry who is somehow tied to the stock market, obviously is going to see their revenue fall and in a substantial way. No, of course. So the job opportunities are going to be tougher now and they've been tough to begin with. But in terms of the role of the PM, do you think anything has changed fundamentally over the last few weeks? Not over the last few weeks. I think this is just another ringing endorsement for having some financial advice component to what you're doing because guess what? You and I were talking about this yesterday. Let's say you had the, you were the greatest stock picker in the world and you had all this alpha and you're outperforming by 700 basis points. Guess what? You're down 25% instead of 32. Does anyone care about that? right now. If you pick some better stocks that are more defensive and you've outperformed, stuff seems to only matter when stocks are going up. So I think a lot of people, especially retirees, are realizing very quickly how much pain there in terms of their financial plan

in understanding, okay, my stocks are down 30%. How am I going to survive? Can I still retire? That's why I keep telling young people over and over again, if you want to have a place in this industry, obviously there's always going to be a need for the investment management side of things. And people who get their CFA will probably have a better chance at least getting their foot in the door for an interview. But I think the financial advice component is just going to continue to rise in importance in the years ahead because there's got to be so many scared retirees out there right now who are saying I was going to retire in two years. My portfolio is down 20, 25 percent or whatever. What am I going to do? So we'll be back with our regular episode on Wednesday

and hopefully this will be the last Friday one, at least for a week or two. We'll see. I think Just going to be stuff that keeps getting crazier for a while. I hope I'm wrong, but... Yeah, I suspect you're right. All right. Everybody stay safe out there. Animal Spiritspot at Gmail.com. We love hearing from you, and we will talk to you next week.