Animal Spirits Podcast - Broke & Overweight (EP.93)

Episode Date: July 24, 2019

On this week's show we discuss why are fewer people subscribing to Netflix, will we ever really reach peak podcast, how many people own their home outright, what is the chance your home will go down in value over 5 years, Elizabeth Warren's plan to rein in Wall Street, Mira Sorvino's thoughts on the stock market, Ray Dalio's thoughts on the coming paradigm shift, a boglehead's risk parity strategy on steroids & 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 episode is brought to you by Y Charts. Go to Y Charts. Tell them that we sent you for 20% off a new subscription. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt 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 positions in the securities discussed in this podcast. Whitecharts has this thing called a one-page

report for any company that you're looking at. So I brought up Netflix because that was very much in the news this week. And so it shows you the income statement, the balance sheet, cash flow statement for the last, I don't know, called six years. And what really stands out here looking through this is the company's free cash flow, which has been getting more and more negative in the recent years. So at 2015, it was under a billion dollars. And in the last 12 months, their free cash flow is negative $3 billion. So I posted a quick one on Twitter about this. And the great thing about Y charts, why I like them is the search function is pretty easy. So I just typed in Netflix, and then if you want to look for a metric, you just type it in

and it'll give you 10 options that you can choose from. So I compare Netflix price to free cash flow from the past 12 months, and they're going in opposite direction. So the price is going up into the right. The free cash flow is going down into the right, and it's negative $3 billion over the past 12 months. But the problem is the stock price has exploded in that time. So who cares, right?

Is that the deal? Well, investors haven't cared, and maybe they're going to start to care. So I was looking at this and I'm looking at the performance. So I emailed our contact at YTron said, hey, I think the performance is broken. It says 54% of the last three years. And then I go to Y-Tarts and I'm saying that it's like 270%. And he goes, no, no, that's right. It's annualized.

And I was like, oh, duh. I saw you got actually pretty hard there. In my defense, I think I set the email before I had coffee. But the stock has done ridiculously well over the last few years to say the least. So here's my problem with these tech companies. I guess this is always going to happen. But it seems like this happens with Apple probably once every 18, 24 months. Like there comes an earnings report and everyone goes, okay, that's it. New story. It's totally over. Whatever happened before, this is a new thing. And they're doing it Netflix now too last week. Whatever the numbers were, they kind of disappointed. And they said, all right, that's it. Is this a new day for Netflix? And does it always have to be that important? Everyone is always like, oh, you've got to think and act along. term. And then we get this one quarterly report where everyone goes, all right, that's it. This company is totally different now. Okay. Normally you would be right. You're going to do this? I am doing this right here right now. Okay. I'd like to hear this argument because I think that that's a

bunch of hogwash every time they do. Like every once in a while, that's the case. But most of the time, like, this just happens when a company has seen such insane growth. Okay. To the stock price, I would agree. However, look at what I have in the Google Doc. It is actuals versus forecast. global subscribers, forecast versus actuals, and look at the degree to which they missed this time. They were expected to add 5 million users and they only added 2.7, which is a humongous loss. Okay, so who missed here? The analysts or Netflix? Well, it's a difference. Maybe the analyst just got too far ahead of themselves.

Oh, stop getting cute. That's not being cute. That's being realistic. You're looking at analyst estimates here. Maybe they're the ones who messed up and not Netflix. Well, it doesn't matter because the stock price is reacting to the estimates. Okay, but is this the kind of thing in... No, but hold on. 12 and 15 months, we're going to look back and go, oh, that was stupid.

Why did Netflix drop 10% in a week or a day? Maybe. That's probably what's going to happen. Maybe. All right. They have 150 million subscribers. At some point, that has to slow down. I don't know.

Did you see the preview for that point blank movie? That's going to bring... I think the only reason that they made that movie was so people would get it mixed up with point break and accidentally click on. it. Oh, wait. When you said point blank, I heard slash thought point break. There was some movie called point blank that was screaming at me every time I opened it up. And it was some cheesy action flick that Netflix made that I'm sure they thought people would click on because they thought

it was point break. Actually, that just reminded me of something, how my brain automatically thought point break. Yes. So I was talking to a friend about like maybe getting solar panels and I said that because I brand new. Why are you going to get solar panels for? Like the top of your house? Yeah, well, hold on him. Okay. I'm going to get there because it's cost effective to do it that way. But I said to him, well, I think I have like new units and my bill, my electricity bill has actually been pretty low. It's been like $85 the past few months.

He said, wait until you get your July statement. So I have had the units cranked up, obviously, because it's been really hot. And so my bill was $285 this month, which I think it's like sort of reasonable. and immediately like there was not effort but my brain said okay that's $10 a day it's not so bad

Yeah you have to seasonally adjust those numbers because July's always going to be the highest though right What are solar panels going to do for your air conditioning bill Isn't that for heating? I don't know

Listen I'm not a lawyer Apparently you're not a electrician either No doesn't it affect your heating and your cooling? I kind of thought solar panels were just for heating Maybe I could be wrong here Okay. Anyway, back to Netflix. I'm not calling a top in the stock. I have no idea.

You see some near-term headwinds. You're cautiously optimistic. Listen, all I'm saying is this competition. So what did they say was the reason for Netflix seeing the drop off, though? I guess that's the one thing I didn't really see. Subscriber growth. But why did it, why did it, though? Is there a reason that Netflix saw fewer people sign up? This is your classic law of large numbers. I mean, I could take the idea that there's just going to be so much competition for other streaming content. But I still think Netflix is like the- Disney hasn't even launched yet. Disney is coming out of November.

Yeah, I still think Disney versus Netflix is not a thing, though, because I still think Disney is going to be for parents and kids, and Netflix is going to be for everyone else. Well, maybe it's price increase. The cost went up to $13 a month. You know, Ben, I went to the movies on Friday. I love to work early. By yourself? by myself and I was going to see Lion King but I feel like I don't need to go to the theater for that

No you know what you do need to go to the theater for Top Gun That is definitely one I will go see in the theater I did go to the theater And I was telling you last week I've never seen Top Gun I don't know how or why There's a few other movies

That's that's borderline You're a communist Okay there's a few other movies Like that are on my list that I I feel like at this point, I'm just never going to see them. Like, for instance, the godfather part two. Okay. I've only seen the first one, actually. I never saw the second one either. All right. So anyway, so I did go to the movies and, wow, this movie bombed. Well, it's only done

six million dollars so far. Maybe that's not a bomb, but it feels like a bomb. I saw a crawl. Do you know what that is? Never heard of it. It sounds like a really good use of your time. It's like the Meg, but with Alligators. Oh, God. You should have seen a lying thing then. No, but have you seen how many trashes in that movie? Well, a hurricane comes and they're stuck in the house with alligators. I feel like that was like, that was written for me. That sounds awful. We got an 83% on Rotten Tomatoes.

It was pretty good. But this is the reason why like the critic stuff doesn't matter in a lot of way. Like I heard that there was like a tepid response to the Lion King and it still did like 500 million. Like my kids are already listening to the soundtrack every single day. Every time we get in the car, they ask, and they haven't even seen the movie yet. It did $185 million. This is why, like, whatever the estimates are for Disney Plus, I say, like, add a 30% premium because

that thing is going to be enormous. I'm sticking with that call. So maybe that's why, yeah, maybe you're right. Maybe that's why Netflix went down, but I still don't see that. Wait, so are you putting your paper short Netflix trade back on? No, just long Disney. Okay. So the New York Times had a piece about podcasts, and it's funny. It said peak podcast. This kind of reminded me of like, is value investing debt? I feel like we're going to see, is this peak podcast, like at least once a year, right?

eternity because podcasts are not they're probably not going to peak but it said they're now operas of 700,000 podcasts and there's between two and three thousand new shows launching each month. Wow. But between March and May of this year, only 19.3% of existing podcasts introduced a new episode. So they're all dead. Yeah, meaning yeah, they're mostly dormant and people started one and then it's hard to kind of stick with it. I thought the anecdote in this story was interesting. People were going to start a podcast called the advice podcast. Didn't you kind of feel like this was one of those interviews where like the one the Wall Street Journal interviews some Schmuck Joe Joe Schmuck investor who like is jumping into out of the market every week. And like it's like,

it's not really representative of all investors. They just found this one guy who does move. This is like kind of the woman they interviewed in this in this story. Like she's like, oh, I just thought we would start getting me undies sponsorships because we're doing. this advice podcast, even though I have no advice to give. Did you read the article about doctors and regular people getting to private equity? Yes. Was that the journal or the Times? Because that was also a fluff piece.

That was New York Times. Oh, so New York Times, two for two with the nothing burgers. I didn't realize that, so Conan just tweeted that he is finishing up season one with Julia Lewis Dreyfus. I didn't realize that he just started the podcast. I feel like I've been listening to him for a while. I guess I didn't realize there isn't seasons either. that he's doing him this way.

But yeah, it feels like it's been on for a while. Definitely the best, my favorite new one of the year. I listen to all of them now, I think. So here's my take, my opinion on podcast. I don't think that there is peak podcast. I think that, like, what does that even mean? That maybe the pace of new podcast is going to slow down. Maybe that's possible.

And maybe podcast does settle down. It's like a winner-take-all type of environment like everything else these days. I was listening to the rewatchables on Inglorious Bastards, which is probably a top three movie for me. Really? I love that movie. Very good movie. I don't think, know if it would crack my top 100.

You know what? Top three is ridiculous. Can I take that back right now? Definitely top something, though. It's in my top something. I love that movie. Is it as good as the alligator crossed with Meg? Crawl.

By the way, I'm not saying that you should go see Crawl, but if you like... So you're like one of the 35 people in the country that saw the movie this weekend. There was one other person to the theater with me. If you like those type of movies, then go see it. If you don't, they don't. But as I was listening to the rewatchable, as I thought to myself, I'm not going to probably rewatching in glorious bastards. I mean, I've probably seen it five times, but it's what, two and a half hours?

Yeah, it's a long one. And with podcasts, I was in the grocery store listening to this. I came home and I did my dishes and I was listening to this. That's why I like the medium so much is because it doesn't, it just basically fills free time. True. But here's why I think the subscription thing with podcasts. maybe it's never going to take off. You don't re-watch or you don't re-listen to a podcast.

Like you don't go back and go, unless there's really something you're looking for and digging to like write about or something or a quote you're looking for. You don't really go back. Like with Netflix, you can re-watch movies and re-watch shows. I agree,

but what's your point? That's why I think that like the subscription model for podcast is probably not going to take off anytime soon or it's definitely not going to be as big. I just don't see that working because people don't re-listen to them. There just needs to be more and more new content. And maybe that's, if 700,000 are out there, there's no shortage of that.

But I just don't see how the subscription model works for that, works for podcasting. I also have never listened to a podcast. But what we didn't mention was the new season of communities and cars getting coffee. Yes, I was going to save that for recommendations. Well, let's talk about it now since we're on the content. I pretty much flew through the whole season this weekend. Oh, really? Yes.

But what did you think about the Eddie Murphy one? Because that's the only one that I saw. Okay. I listened to it. The Jamie Fox one was hilarious. That was probably the best one. He's great. Jamie Fox.

Ricky Jervase was awesome. Martin Short was really good. The Eddie Murphy one, here's why I liked it. Some people say they thought it was kind of boring. I thought it took him a while to heat up. But Jerry Seinfeld probably has to be one of the most, like, self-confident or self-aware people on the planet, right? Like, he is so confident, like, in his own skin.

And I felt like Eddie Murphy kind of threw him for a loop. Like, I felt, it looked awkward. At the beginning, it heated up. And I thought by the end, Eddie was, like, rolling a little bit. And I told you there's some Adam Sandler theory happening if Netflix does give Eddie Murphy his own stand-up. But now I think I'm walking that back. I think he'd kill. His story is great.

Oh, yeah. You're actually yourself? What changed? Watching him with Seinfeld. I thought he, like, he's still got it. He's like a very, seemed like a very reserved guy. But I think there was, I thought it was another comedians in cars where Chris Rock said they all go out and hang out with Eddie Murphy. And he said it could be the best comedians in the world.

And Eddie Murphy still will hold that room and just crush. So I think if he came back, it would be great. You know what I noticed? What's that? That was kind of interesting. I wouldn't have thought this. Seinfeld is one of these guys. Yes.

Did you notice that? Yeah. Like more than twice when Eddie Murphy said something funny, Seinfeld gave him an elbow. Yes. I do not like that. Like when you, the people that elbow you on the side, when you say something funny, what is that?

Yeah. That's a good question. That's why I got to sit at the other side of the table. But I thought, like, Seinfeld was like. I think Barry does that. He was in, that sounds right. He was in deference to Eddie Murphy, though, a little bit. He was.

That was the first time I've ever seen that. He was, like, kind of blown away to be in his presence. And that was kind of, because, I mean, Eddie Murphy was the mega, super duper star in the 80s. He was the best stand-up comedian. He was on SNL. And he was a super-duper movie star for, like, a five-year period. He just, like, own the world.

And then he just kind of went away. Well, so Netflix said, $70 million, or was that just a rumor? But he said that he's ready to get back. Yeah, they're working. Yeah, they're working it out. That would be, yeah, I thought it would at first. I'm like, that wouldn't work, but I think it would. Okay.

I am very excited to see that. This stat surprised me this week. Okay. About 37% of U.S. households are free and clear, meaning they no longer have a home mortgage to pay, according to Zillow. But this is a survey. A lot of people don't get into the weeds of it. I looked at it. Did that number seem high to you?

Almost 40% of people own their home? Yeah. Like, what if someone said guess? I would have said, 20%, maybe 15? 12. I mean, I guess if you assume a lot of houses maybe are in families and they're passed down through generations, I don't know, but they said they analyze data from the American community survey, which occurs annually and includes 3.5 million responses. Here's what I want to know. That's a lot of responses. Have you ever received a survey before? Yes. Really? See, I don't think I've ever received a survey for one of these things. They know how staunchly anti-survey you are, so they don't even bother. Yeah, I'm on a list. I bet I'm on an anti-servy list. He's on the anti-survey list. Hey, how do I get on that list?

And they talked about how they showed over the past decade. It's gone up a little bit. But it was still, even in 2006, 2007, it was like 35%. They showed in West Virginia, it's the highest state. 54% of people own their homes free and clear. All right. Are you ready to put your technical analysis hat on? Oh, is we have a triple top here?

But this just surprised me that it would be this high. And of course, some of the states that are the highest are like the least. lowest, it was Mississippi and West Virginia and Louisiana, some of the cheaper states to live in. 29%. Come on. I don't believe that for a second. Yeah, some of these might be. With these numbers, was this survey audited? That's why it just doesn't seem right to me, but maybe. Okay, here's another one on the housing front. So our friends at Unison actually did a study. I think we talked about this when we talked with Brody for our talk your book. They tried to figure out what the price volatility of owning a home is.

versus stocks and bonds. And they go back to like 2000 and they found the long term is like 9% for homes, 17% for equities and 3% for treasuries. Obviously, that's impossible to figure out. And they said it got up to like 40% during the crisis, which was even higher than the stock volatility. So that's kind of interesting. But here's a stat that I thought was interesting.

Any given home has roughly a 30% chance of ending up being worth less in five years time than it is today. So this kind of gets back to my starter home thing. And I'm guessing that doesn't even take into account things like the cost of, like the frictional cost of changing over house, the closing costs and the realtor fee and all that stuff. What do you think about that number? 30%. Yeah. I mean, if you compare it to the stock market, that's pretty similar to the stock market, right?

If you did the five year, how often is the stock market down? Isn't that about 70, 30? I had a very weird dream this week. Boy. Like where. That's the worst thing in the history of the world to start off a conversation. with. I want to hear about my dream last night? Where our family member was like, sorry, I have to move back in the house and you guys have to

move. And I, and one of my first thoughts was like, oh, but we already paid all this money for closing costs and lawyers. I don't know why I had that dream, but my starter home stuff is working on you. Well, I was like, I don't want to go to a starter home. I guess it just makes sense. That's the reason why you don't want to make these like short-term decisions because if you just pick the wrong neighborhood, the wrong region of the country or whatever, you could be selling at a loss. Plus, you're having all this costs anyway. You know why you're thinking is classic Midwestern elitist? Okay. Because most people... I'm a flyover elitist.

Most people have to buy a starter home because that's what they can afford. So what are you suggesting? Rent longer. Rent for longer and give yourself some more options and then buy a bigger home that it's going to be your one to stay in for 10, 12 years later. That's the thing. If you're going to buy a home, make sure you're going to stay into it for, I'd say, at least seven years minimum. That'd be my baseline for people as an expectation. Because otherwise, if you're planning on flipping it quickly,

obviously in the bigger cities, that's probably easier to do. But you could get stuck, and that's when you're screwed. Fair? Fair. Elizabeth Warren had a post my plan to rain in Washington, Did you read this? No, but I saw a lot of tweets about it. So that means I've done a lot of analysis.

Good enough. She says, we should start by transforming the private equity industry, the poster child for financial firms that suck value out of the economy. And she gave some stories about retail and newspapers and a lot of companies that we've actually spoken about on the show in the past. Those are companies that were probably going in the wrong direction anyhow or industries, I should say. But a lot of her solutions, in my opinion, seem fairly reasonable.

Obviously, the politics gets mixed into this because she's running for office and so she has to be a bit over the top. But I think some of this stuff is reasonable. For instance, she said, preventing lenders, so one of her solutions, I think she gives like six or seven bullet points. One of them was preventing leaders, I'm sorry, lenders and investment managers for making reckless loans to private equity-owned companies already swimming in. debt and then passing along the danger to the market by requiring them to retain some of the risk. Fair? But aren't private equity companies that are already swimming in debt? Like, those are risky companies in the first place. Correct. That maybe if they didn't have, maybe if they didn't have private equity loans, like they never would have made it in the first

place. And so maybe sometimes the only way they can make it out is by adding more debt to the equation and just hoping against hope that they make it. So maybe I'm, I'm, I'm, I'm going to stand up for private equity companies in this. Like, a lot of the businesses they take over, even though they cut costs to the bone and they fire people and stuff, like, isn't the alternative worse that the business just ceases to run? Maybe. I don't know. So I guess you're saying, so maybe you have some sort of rate, some sort of debt to equity ratio that you have to, if it's above this certain level, you can't be loaned any more money. Something like that.

Is that what it is? Yes. I think that makes sense. Okay. That could be reasonable. But there was an article in New York Times about. Again, the New York Times, talking about a bunch of doctors and lawyers and engineers that are starting funds because they're bored with mutual funds. Now, this headline seems very topy, but it looks like they've been doing this.

I think it's said for like six or seven years. Dr. Keith Wright, a dermatologist in Atlanta, is part of a group of lawyers and business people in city who have been pulling their money for about, oh, here it is, for about six years, in search of the outsides of returns of private equity. I mean, this article is really nothing. There was nothing really in here. Doctors and dentists since the beginning of time have been looking for crazy stuff to invest in. Like, they'll invest in real estate.

Have you been around a group of doctors before? This is how you know you're around a group of doctors. They tell you their doctor right away. Wait, I feel like you just made that up. You've never been around a group of doctors. Okay. And friends, we have a lot of doctors that live in my neighborhood. I know people who have been around groups as doctors.

And that sounds like something I would say. Yes. That's my Chris Farley from Bill. Madison. I was thinking about this. I know. But doctors and like, these are the people that will always get taken advantage of in something that sounds like a really good investment because the stock market is too boring for them. Right. Like they have, they have the money to spend and probably like they probably do have some sort of capital that they can take these sorts of risks with. But like this is not a new thing. This is not a sign of the times. This is just what like

these amateur investors are always doing. Well said. Do you remember the Aryan Foster IPO talk? Yes. What was it called? FanDex. Okay. Oh, that's okay. Right.

That was in 2013. And so how has your performance been in your Arian Foster stock? Well, he actually did an IPO because he got injured. But I don't know if the company ever actually gained traction. Okay. Oh, no, this story says Arian Foster isn't going public anymore in 2015. Fake news from you. What do you mean?

I just said he never IPO. Oh, okay. So I guess it never got off the ground. I mean, it makes sense. Wait, did he do a direct listing? Yeah, him and Slack. I mean, it's kind of interesting because it feels like a lot of these players are like trading cards anyway these days or like trading stocks anyway because they jump from team to team so often. So who knows, maybe you can invest in anything these days, I suppose. Okay. Do you remember Miros Sorvino, actress? Of course I do. Romney and Michelle's high school reunion. I feel like this is one that you would have seen from her called Mimick, where she's. She works at a museum and some animal crawls out of one of the crates or something. Of course I saw Mimic. Okay.

I don't know what she's been doing lately. Wait, hold on. Before you get into her, let me just say, I prefer, I feel like Mimic was sort of a rip off of. Well, there was like a time for, there's monster movies. Have you seen the Relic? Sounds familiar. Great movie. They're in the Chicago Museum of Natural History.

Oh, okay. And a monster comes up. So there's the relic and then mimic, like, within a year of each other. That's what I'm saying. That sounds about right. Right. Kind of like the Armageddon and Deep Impact. Yes. The meter. Okay. So I guess she was a big, she, surprisingly, she won an Oscar.

For what? Some Woody Allen movie in the 90s, Mighty Aphrodite. I didn't realize that. She was best supporting actress. But she was on, she was interviewed on Yahoo Finance the other day. And I thought her comments were interesting. So she said, what? How did you even find that? That somebody says this here? Someone sent me this story and read some of the quotes in here. So she was interviewed on how. finance and she said, I'm not a gambler. I don't enjoy playing with money and seeing go down. So she said,

like the headline is she's not a fan of the stock market. She said she invested in the stock market earlier in her career but lost money after 9-11 and the Great Recession and realized that market timing was not for her. Things plummeted and I had to pull out money before I could grow back. Now if I kept it in, but you know, literally my kid's college fund has gone down in the past year and I'm like, what, what? No, no, no. We're putting money in. That number should be steadily rising. And so she basically says, I don't trust the stock market. So my question to you is, there's people who make mistakes in investing and you try to like advise them and help them get better. Are people with this sort of mindset that they think the stock market is rigged or that it never works? Is there any

saving these people that don't understand like the idea of risk and reward or they, is it a loss cause? Loss cause. I think in many cases, it's not just an education thing where they misunderstand or they just don't know how the stock market works. But I think this is a personality thing. Right. So unfortunately, there are probably people who just can't. And honestly, if you're someone who works in Hollywood, maybe you make enough money where it doesn't really matter. And you're just, you already made enough and it doesn't really matter what you do with it. But yeah, because there's a difference between helping people who are already investing and understand the idea of risk and then, you know, minimizing the mistakes versus not trusting the market at all.

So should I follow her into gold? Is that where she's going? I'm surprised she didn't mention Bitcoin at all. That seems like a worthy, but no, because it goes down. Okay, so did you read this Paradium. How do you say the word? Paradigm. This is our niche versus Paradigm. Paradigm. Yeah, sorry. Wait, was that a joke? Yes, that was my niche versus niche for the week. Wait, but Paradigam? That's what it looks like, right? Oh, okay. Anyway, paradigm shifts from Ray Dalio from Bridgewater, which he blogs on

LinkedIn, which I still think is hilarious. Did you read this? It was a really long piece. Nope. They're not even open it. Okay. I'll give you the, like the summary was very good. went back and he, I mean, he went over the last hundred years. We went back to like the 1920s and he showed like these huge shifts in what happens in the markets and the economy every decade. And some of it was a little too neat because just because a new decade starts doesn't mean something new is happening. And he talked a lot about like what happens with the Fed and how like what happens when there's too much debt in the system. And one interesting point he made was that like the Fed and monetary policy shifts back and forth between like

helping debtors at the expense of creditors by keeping interest rates down. And then there's the other side, helping creditors the expense of debtors by keeping real interest rates up. And he had all these really great things. And he said, listen, I can't predict when this shift is going to happen, but I think something is going to happen soon. And I think those who will do back. The classic saying something with saying nothing. It was a lot of, a little bit of that. But he said, I think that these are unlikely to be good real returning investments in talking about equities and private equity in VC. And that those that will most likely do best will be those that do well when the value of money is being depreciated in domestic and international

conflicts are significant, such as gold. So the TLDR that I did not expect was buy gold, which was an interesting, he said a lot of, like, interesting stuff about the economy, and then he said buy gold, which, and there was really no, like, here's why you should do it. It was just like, things are crazy by gold. I don't know. It just, it was, it was a good novel with a crappy ending. is what I'm saying.

Maybe he's right, but like, looking at back at all the shifts throughout history, like, does that ever make it any easier to predict what the next shifts are going to be besides saying, like, oh, there's going to be a crash eventually? Well, I had a thought of a question about private equity. Okay. I was reading VC in American history, which I put on hold because I just started rereading super forecasting, which is very good, as good as I remember. Yes, it aged well.

And there was a section in the book saying that in the 1950s, investors wanted no part of venture capital and private equity because the stock market was booming. And it's sort of reminded me of this New York Times article, even though it's sort of anecdotal. But it is sort of odd to think that we're going to have a recession and public equities are going to be hit or, you know, lower expected returns, and therefore you should invest in private equities. Like, if public companies aren't going to do bad, wouldn't it stand the reason that private companies are going to do bad also? Yeah, they're just going to do bad on a lag because it takes them so long to revalue those companies.

But the thing that I don't get about these days is that people keep blaming what's going on on cheap money, you know. Inter rates are so low, so that's why these venture and private deals keep going through. But, like, the 90s was one of the craziest decades in history in terms of, like, blowing a bubble. I looked at the other day, I think I'm going to try to write a piece about this. The average 10-year treasury in the 90s, what do you guess? The average 10-year treasury yield throughout the decade of 90s. 5.8. It was like 7% almost, like 6.7%. And so there's a huge difference between like appetite for risk and interest rate yields. So that's, there's totally

different things. So just because interest rates are loan out does not mean that people automatically take more risk with their money. I think it's just that investors have become more accepting of private deals in a lot of the ways they're becoming more like public markets. Now did Japan. Nailed it. So, I mean, right, yeah. Japan for 30 years.

Why hasn't there been a huge influx of private equity money in venture capital in Japan when they've had interest rates at zero negative for 30 years, basically? How do you know there hasn't been? I don't know. Facts? Facts? Yeah. Like, there hasn't been?

Challenge. You know nothing about the Japanese private equity market. Why isn't the Walkman still alive then? Sony Walkman dead. Venture capital didn't say that. AirPod. Okay. Oh, wait, iPod. Not AirPods. Okay. So a couple weeks ago, we talked about who uses like leveraged ETFs and who could use them kind of responsibly. And someone sent me this thread from Bogleheads a long time ago, which is a hugely enormously popular website for those who don't know. And this one person did a, They're going to carve out a strategy, 15% of their portfolio where they use 60% in the triple leveraged 10-year or long-term treasury, so like the 20-to-30-year treasury, and 40% in the long-term, or in the S&P 500, triple leveraged.

And they show, like, they go back into this huge back test on what this would have been like. And they show that over, I think they start in the, they go from 1987 to 2018. they show, well, if you would have done triple levered treasuries, and with a triple levered S&P, you would have had like a 17% return versus just 10% in the Vanguard 500 index. And the drawdown is kind of similar because stocks and bonds can kind of offset one another. So taking that leverage, this is like a risk parity fund. And it sounded kind of, the guy went through a really long detailed analysis of this. But obviously, since the 80s, interest rates have gone down and stocks have gone up.

So both stocks and bonds have done really well. So leveraging two asset classes that have done really well, obviously, is going to work pretty good. So I sent this to our resident fact checker, Jake, at Economic, and he kind of did the analysis for me. He went back to the 1960s on this. And I got a chart for this. He shared it on Twitter, but I'll share it on our show notes as well. So he showed a 60-40 portfolio that's just regular stocks in long-term treasuries versus a 40% stocks triple levered and a 60% treasurer is triple levered and showed in the 70s from 1970s. 62 to 1980, basically, that portfolio was down like 70%.

And then ever since the 80s, it's done enormously well. So all of that, so this is kind of one of those things why just looking at an annual return number is kind of difficult to gauge a strategy because it actually helps looking at rolling return numbers to see how bad things can get. But obviously, the 70s is kind of like you're now due Japan thing because in the 70s, stocks and bonds both did horrible. Gold. Gold worked quite well. Yeah. You just had to gone and mined the bars yourself or something to own them back then.

And I think pay like a 10% commission to buy them. But still, no, gold degree. So the idea is, of course, if stocks and bonds both do terribly at the same time, then a levered portfolio of those at the same time is going to do really bad. I guess that's the idea here. Yeah. But it was an interesting subset. And this guy said, listen, I know this is a lot of work. The funny thing was he said he put $100,000 in and it's 15% of his portfolio. and he hopes within 20 or 30 years that $100,000 grows to like $10 million or something, which is a little... That's ambitious.

Maybe, yeah, ambitious. But it's interesting to read if you're into this kind of stuff. Two observations. Well, one, I think having 15% of your portfolio in a strategy like this is totally in bounds. I can get behind that if you can stick to this. It wasn't the whole thing. I agree.

If you're going to do it and you right size the position and you understand you're getting yourself into, sure, have fun. Yeah. But the other thing is like when looking at back tests, you know, you like take a quick, glance at this thing. You're like, okay. But look at these drawdowns. Like, for instance, look at early 1990. It looks like the S&P 500 was down 15%. This thing was down 30. Yeah. That's a big difference.

And then again, in 94 when the Fed hiked, S&P down, I don't know, 5%. This thing down close to 30. Right. And then again, over the recent years, this thing has had multiple 15, 20% drawdowns where stocks really haven't. So to do this in size is probably impossible because you're going to get scared it out. And I would imagine like the rebalancing on this would have to be like some occasionally there's going to be like some enormous rebalances when stocks and bonds diverge. So yeah. But an interesting case study and like how someone could potentially use these and this person is using them or they say so in a strategy that is if you're into like risk on steroids, this is where you go, I guess. So Ben, I think it's time that we spend shame people. Let's do it.

Do you know the number one thing that Americans bust their budget on? Did you read this? I did. I can't tell if this, this is why we don't like surveys. The number one thing Americans bust their budget on is dining out according to a research released by the financial company principal. Nearly one in three Americans said that dining out was their top budget buster for them, followed closely by food and groceries.

Wait, what? So they're bust their budget on food? Yes. They're basically busting their budget on staying alive. So they're damned if they eat it and they're damned if they eat out. So when we talked to Ramee, he talked about, like, don't talk about $3 questions, talk about $30,000 questions. This is more like talking about a $300 question maybe. And I think people probably just, obviously for some people, especially families, food can be a pretty big part of the budget.

But there's no way that your food is going to make or break you, right, unless you live in New York City and you eat out every day. This still gets back to the idea that, like, your home, where you live, what your income is, and then your sort of mode of transportation, those are all, way more important than going out occasionally and spending your money and going out, right? But they also say that this is why Americans are broke and fat. So unfortunately, yeah, I feel like this is just a survey where people probably just don't understand where their money is going or how the whole budgeting process works, correct? But again, if you went out to eat everyday New York City, could you like go broke? Absolutely, right? Yeah. Looks like we have no listener question. So why don't I just ask you a question? Okay.

So we spoke a lot about content on the show. You bought Spotify stock for your kids? Yes. No. That was just my personal fun account. I bought my kids Disney a few months ago. So Spotify. What's your risk management, bro?

Well, I'm using the Fibonacci. 0.75 retracement. And I'm going to sell every time. Noob whale. Okay. I don't know. This is one of my fun money account, and I heard him on a,

podcast, Daniel Eck is the CEO and founder. And I was so impressed with him. I'm like, I want to own this company, even though they're technically valued at the same amount like the whole music industry was a few years ago. And I don't even use Spotify. I was just so impressed with him. It's a very small position. So I bought Spotify. How is how is your trading account going? Actually, funny US. I don't want to brag, but let's see, I put a thousand dollars in. And now it's a thousand 38. Oh. Hey-oh. There you go. Nailed it.

Okay. Any other, I got a few recommendations. Do you got any more? Oh, this might be controversial. Have you ever read a Hitchhackers Guide to the Galaxy or the Hitchhackers Guide? No. I'm about 60% of the way through. Considered a classic by many, right?

Yeah, I don't get it. No. I'm struggling with it. When did it come out? How old is it? I don't even know. 1978, I believe. Okay.

Doesn't age well? I don't, like, I'm not having fun with it. And I kind of like that genre. Okay. I can get into sci-fi, but I don't know. Didn't do it for you, huh? Okay. Well, I'm probably a little bit behind you, but our friend Todd us and colleague

Abnorma Returns recommended one giant leap to us about the moon landing. It was pretty good timing, too, because there's been all this stuff about the 50-year anniversary. The book is so good. It's like a history of book as well as stuff on the moon. I love the frame of reference for the book that they said people were worried that after we landed on the moon, we didn't really do anything else in space. But all the technology that went in that decade to get us to the moon has really led to. Like, they talked about how there really was no technology industry before.

It was all like defense contractors. Like that was technology. Yeah. And after that, there was this huge boon in the technology sector, basically, from all the work that went into the moon landing. So I thought that was kind of a fascinating look. Did you say boon with an N? Yes. Is that proper or is it boom?

No, Boone is like something that is helpful or beneficial. Never heard that before? I don't know. I feel like I have. But sometimes when you're talking, you really notice things better. Like, I feel like from doing the podcast, I have a better appreciation of how little I understand the English language. Fair. Yeah, that's pretty good.

I can agree with that. Okay. I finished Stranger Things last week. I talked about it a little bit halfway through. I loved it. I thought the second season, I was like, okay, this is a show that's probably not going to age well. the third season was just like a home run it was just as good as the first

didn't you watch the first season and give up well I didn't give up okay I mean it was a it was an active decision to stop watching okay like I think if you liked the first season you could skip the second one and go into the third and still not miss a beat in the third one I thought I thought was really good really well they could have probably ended the series

I know they're going to keep going but like they could have had it be a finale for the series and it would have been really good uh big little lies was I feel like big little lies is kind of like if Kevin Durant went to the 73 win warriors, like that's Merrill Streep as Kevin Durant, and then they missed the playoffs. That's what Big Little Eyes was this season.

Like, there was no reason for it. Did you write that down? I thought about tweeting it out. That was a verbal tweet on the show. No, because I was going to say, although if that was off the cuff, that would have been very impressive. It sounded manufactured.

No, I thought about it as, because like they got one of the greatest actresses in history to an already loaded cast, and the whole season was just kind of a dud. it, like, that should have been a one-season show, just like the O-A. That was a quality verbal tweet. Oh, thank you. Should I put that out on Twitter on the Twitter sphere?

Or did I ruin it? If I put it on Twitter, you have to like it. You gotta promise me. The OA was another one that should have just been one season. Oh, you watched the second? What are you nuts? I know. It was like, it started off good.

I'm like, oh, okay, this is kind of picking up. And then it just got super weird and just went off the rails, like, after a few episodes. But then I, with some TV shows, I have, like, the sunk cost thing gets me. I thought you had an 8% stop on that. I know. I usually do, but I'm like a trader where, like, I just want to break even. If I can just get back to even, like, if you watch the finale and the finale's good, then you're like, oh, I'm back to even.

And then the finale's bad, and you're like, I'm going to sell at a loss. Hope is not a strategy. Yes. Thank you. Thank you for those trading, that trading wisdom. If you put that on like a sunset and put it on Instagram, you'll do well for yourself. Okay. Keep reading Super Forecasters.

We're going to try to do that one for next week, right? It's Super Forecasting, by the way. I got that wrong thing. All right. And I'm going to push for against the gods for our next one after listening to Allison Trigger, talk with Barry and his podcast. Think about that one. I think that could be our next...

That's heavy lifting. You think so? I love that book, but that's... It's been a long time since I read it, so it might be worth worth a read. We'll talk about that one. All right, Animal Spiritspot at gmail.com. Let's see you next week. You know,