Animal Spirits Podcast - Buy the Housing Dip (EP.49)

Episode Date: October 3, 2018

The new Howard Marks book on cycles, why super-investors may not be as helpful as you think, how the first Vanguard index fund was run by a part-time worker, SoftBank's lofty tech aspirations, choosing the right asset allocation for your portfolio, our beef with surveys, the fraud of the week, when to buy a house 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, the podcast that takes a completely different look at markets and investing, hosted by Michael Battenick and Ben Carlson, two guys who study the markets as a passion and invest for all the right reasons. 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 Ritthold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Howard Marks has a new book out called Mastering the Market Cycle, and he just recorded a podcast with Barry Ritholtz, which will be out this weekend. But that's not what we're going to be talking about. We're going to be talking about the podcast that he did with Tim Ferriss. But there were some things in here that he said that caught your eye. Well, it was kind of more the entire message. So I've been reading Marx for a long time. I thought the most

important thing was excellent. I think it's probably one of the better investing books I've read. And I think his philosophy is great. We've talked before how he's one of the master communicators in the investing field. But let me posit this question to you. And maybe I'm off base here. But is it possible that people like Marx have actually done more harm than good for the invested community? Wow, hot take. A little bit of a hot take. He's he is so good at like using aphorisms and one-liners and his writing style is great. inaccessible. He's a great communicator. Is it possible that he does something that 0.001% of investors can do? And the fact that he makes it sound so easy is actually

a detriment to investors. And people like him and Buffett have actually made investors think it's so easy to just be a contrarian and they've actually done more harm than good in terms of making people think that they can mirror what they do. Okay. I understand what you're saying, but I'm going to, my answer to that is going to be no. And here's a why. I think his one-liners and his, you know, interesting ways of looking at the market are not really tangible pieces of advice. Whereas, like Jesse Livermore, perhaps quoting him, has made it seem, has made training seem way easier than it actually is. But as an example, one thing that has really influenced me from Marx is his idea of second level thinking, which I think that he

probably got that from John Maynard Keynes with the beauty picking context. thing. So that was like a really interesting way to break down markets. But no, I think my answer is no. I don't think that anybody is looking at Howard Marks and saying he makes it look so easy. But I will agree, and I'm speaking on both sides of my mouth, that a lot of what he writes about is sort of fluffy, not tangible stuff. But that's fine. I mean, not, you know, most things should not be actionable. I did like from this podcast, how he said that his line, we cannot predict, but we can prepare. He said he stole that from a Northwest Mutual ad in the 90s. Oh my God. Yeah, I thought that was kind of interesting. But I think the idea here is that like you can be a just be a

contrarian and wait for the fat pitch and get a margin of safety. That sounds so easy to do, but is so much harder to do in reality when you actually have to crunch the numbers and figure it out. And plus the idea that he is a distressed bond investor and not really in the stock market. So I think that maybe that gives him some space from the retail investor as well, I guess. But I think sometimes when these guys are so good at communicating their ideas and drilling down into the main topics that I think it could be misconstrued by investors as it's much easier than it really is when those one-liners are hard to turn into an actual investable strategy. Yeah. I guess I would say that Marks never really gets into different asset

classes. He just talks generally. And if we want to take a shot from the cheap seats, then allow me to take my shot. He's been saying for, the last few years to move forward with caution. I don't even know what that means. I know what he's trying to say, but he said we're in the eighth inning on the Ferris podcast. Did he? So he said, yeah, he asked him where we are and he said, we're in the eight thinning. You know what bothered me about that podcast? He wouldn't tell us what he does for breakfast. Like, what are his secrets? He just wouldn't tell us. Right. If I could only get his morning routine, then I could invest like him. But I think the best thing Marx has done for me in terms of understanding the markets is

talking about the reliability of cycles and how everything is cyclical. And he spends a lot of time talking about sentiment in market psychology. And even though that stuff is very hard to quantitatively figure out, I think that's kind of the right way to look at the markets and thinking about everything, everything is cyclical. And I think if you can understand those things that nothing grows to the sky and just because a crappy asset is trading at a low price doesn't mean that it can't give a high return, that sort of thing. One thing that I really enjoyed about this conversation was Tim Ferriss asked, because Marks was saying about one the most important thing is to not be unemotional because that's not possible, but to be

less emotional. And Ferris asked whether that can be taught or if it's something that you're born with. And Mark's compared it to basketball, the old saying, you can't coach height. And I think I tend to agree with him. I think that, and we spoke about this last week, that a lot of the analysis that people do is so biased by just their personality. And whether they view the world as a keg-half-fall type of thing or whatever. So I don't know if that thing sort of can be coached. I think a lot of it is just who you are.

Yeah, and I think he rightly kind of downplayed that. Like, Ferris was asking, what can we learn from you and how can we become more like you? And he said, it's just sometimes you're just born to it. It's not going to happen, unfortunately. So there's another good podcast this week. I loved this one with Rick Ferry and Jack Bogle. And it's like every time you listen to read a book or listen to an interview with Bogle, you kind of know exactly what was going to say, but I think he still finds ways to make it interesting.

And he's, what, 89, 90 years old or something like that, he's still. he's so got it, right? He still has the voice and the memory. Yeah, he's got like the 95-mile on our fastball every once in a while still. But some of the stuff he talked about here, he, he kind of went through his history. It's kind of astounding that he's still around. Like, this was a crazy kind of weird what-if, and it's kind of dark, but he said he had his first heart attack at age 30. Yeah, I think he's on like his fourth heart. Like how different would the world be if Jack Bogle did make it past age 30? That's kind of maybe sick to think about. But the stuff that he's done is pretty amazing. So my favorite thing I found in here was that he talked about

how the first index fund in the S&P 500 for Vanguard because it didn't raise that much money, what was it, $11 million, I think. He said they couldn't necessarily buy all 500 stocks in the S&P because it just wouldn't make sense from a scalability perspective. So they bought 275 stocks and just tried to kind of make the index as good as they could do by industry. And the first ever index fund was actually run by a woman who did it as her part-time job because her full-time job was in the family furniture business, which is kind of one of those things that you can't even make up. So it was just such a sort of a rag tag start, it sounds like, and that kind of blew me away. So, yeah, that was an amazing story. And the whole episode is great. Bogel said that in

1990, less than 10% of Vanguard's assets were index funds. And today, that's 75%. And Ferry asked at one point, do you remember what the numbers were when you were tired? And he just rattled it off. He's like, yes, I do. It was, whatever it was. And I just thought he is just a steel trap. of facts. The one thing that did surprise me is that they've kind of, it sounds like they've kept him at a distance. He said he doesn't, he's not privy to some of the information that he was when he ran the firm. And he said they kind of go about running the firm without me. And it seems like they've kind of kept him at an arm's length in some ways, which is kind of interesting, considering he's the guy who started the firm. And he said, he sounded okay with it. But I was, that just kind of shocked

me a little bit. How about the part where he was talking about how he created growth and value index funds. And he assumed that they would generate similar returns. And sure enough, over the previous 25 years that these things have been around, they have generated pretty much identical returns, obviously a different path. But he said that he created them more as a financial planning tool, whereas I believe he went with the fact that it was growth for earlier in life where you weren't going to be paying taxes on dividends and then value later in life. And he said, of course, investors totally misused them. And I forget what the behavior gap was, two percentage points in growth and foreign value or maybe I have that reverse. But I thought that was really

interesting. I don't know if I ever heard it put that way before. And he said they're by far the biggest factor funds available on the markets, which is kind of surprising. I wouldn't figure Vanguard for that. But yeah, this is definitely worth a listen. And Ferry has a podcast called the Bogleheads, which is worth listening to. So someone called the top this week at the Wall Street Journal. So the headline is, blockbuster deals and stock market records are signs of a top, and the lead here was great. We're definitely not trying to call a market top here, but it's hard not to. Yeah, I mean, I get it. There are signs all over the place. By the way, I wish I could take a screenshot off your face right now. You have a great smile on.

Just because I feel like this same article could have been written 25 times over the last six years. And it talks about how there's huge mergers and acquisitions going on. And this is one of my favorite all-time financial media lines. And it says there may be trouble lurking below the surface of the market. Is that technical? That's a little technical. Yes. But it's just talking about the fact that deals are being made that seem rich and valuations are rich. And there's a Tina market. And so stocks, it's definitely a top. And I don't know. Can you explain what TNA means for people that don't know? Sorry. There is no alternative. So because interest rates have been so low, people thought that the only place to invest was a stock market, which doesn't really hold water

when you look at the fund flows and everything is flowing into bonds. But I think that's more of a market structure thing than anything. But one of these articles is going to be right and they're going to sound like a genius because they're timing, but these types of anecdotes aren't going to be the thing that's going to call for you. So I read this article after reading the one we're about to talk about a Bloomberg article. So we've spoken about SoftBank and it's in the news all time, but I don't think I ever really knew much about it. So I had no idea that SoftBank was started as a distributor of PC software. I literally thought it was just like a bank. It's financial. Yeah. I guess you could have tucked me into that too. I didn't really know either.

So in 1995, this guy wrote a $2 million check in his first meeting with Yahoo. And that's sort of his deal. He is certainly a gunslinger. He just writes huge checks all over the place. And after reading this article and then reading that Wall Street Journal headline about the market top. I think I sort of get it. Let's see. So the Vision Fund, I thought this was interesting. It's now run by nine managing partners, five in Silicon Valley, two in Japan, two in London. And he says that he plans to increase the number of dealmakers to 300 over the next five years. Well, it says he's going to raise a new $100 billion fund every two or three years. And I think a lot of the first one, it sounds like, came from sovereign wealth funds. And they want to spend $50 billion a year, which they

show in here for perspective. In 2016, the entire U.S. venture capital industry, invested a little over 75 billion. So every year he wants to invest two-thirds of the current venture market on an annual basis. Yeah, I'm trying to think of an equivalent analogy. I don't have anything, but I was trying to think of the market implications of this. And honestly, I don't think it really impacts the VC world all that much because most of the VC world deals in really tiny, small deals. And they can't really move the needle of those. So I think if anything, if this thing goes on to be successful or if it just continues, it's just going to push out going public for a lot of the bigger companies because they talk about how they put money into Uber and Slack

and some of these other more well-established private companies. But if you're a small venture capital firm, I don't know why this should really impact you that much unless they're just driving up the prices and multiples on everything else. Well, aren't they going to run out of companies? They're going to have to eventually just put money into big tech firms and maybe do some acquisitions. And so some of those companies that maybe would go public, maybe they'll stay private longer because they have this liquidity from something like this. So it's possible that it could alter the structure of the market. I'm just not sure if you can at that size, even call it venture capital investing anymore. Well, it's certainly not early stage venture. That's for sure.

I guess they are probably changing the landscape, certainly for founders. Here's a quote from the article. In 2015, online lending startup, social finance was looking to raise a few hundred million dollars, but Son wanted to invest more. According to Sofi co-founder Mike Cagney, Sone told him that he was going to invest $1 billion in online lending. Whether that capital went to Sofi or its competitors was up to Cagney, the entrepreneur opted to take the deal. Right. No one's going to say no to that, obviously. So, yeah, I thought that was interesting. But yeah, I mean, there's a lot of stuff that you read in here and you're like, all right, if this is the top. This is a pretty poetic article to market. Yeah, and I guess it will be interesting to see if

the investors continue to come depending on what the results are, because a lot of times in venture capital, you don't know for 10, 12, 15 years how good your returns actually are. So it depends how shaky things get in these markets and if investors will actually pony up the capital for these $100 billion funds every few years. Wealth Management.com did an article, Bernstein, Swenson, Brown, or Swedro, how the financial group was taken. signature portfolios have fared for individual investors and which are best suited going forward. So they took a look at some model portfolios. And you know what was, I'm not sure, why did they start in 2005? I'm not sure it could have been that that's when the asset classes

were available to run it. But yeah, they took a look at all these different asset allocation portfolios. And the interesting thing to me, and we'll share this data in the show notes. And so they did four of these portfolios. And these have been written about in books or white papers, and then they compared it to a 60, 40, and the annualized returns and annualized volatility for all these portfolios was fairly similar, even though the asset allocations were far off. And so I think the big takeaway for me is that any sort of long-term asset allocation and mix between stocks and bonds or hard assets or whatever, if you hold it and rebalance it, it's probably going to do fairly similar over the long term. So the biggest hurdle

in most cases, it's just picking an allocation and sticking with it. Yeah, I mean, I could not agree more. I think, so like, for instance, I'm just going to read off the average annualized return for, so I was 6040 over this time was 7.4%. And Swenson was 75, Swaydra was 6.5, Bernstein was 725, and Harry Brown was 6.8. So they all get to around the same place. It's just a matter of finding what works for you. So the permanent portfolio, for instance, is probably going to look the most different.

in terms of the path of returns it takes, and that is suited for a very specific type of personality, who is very comfortable going against the green and away from the herd, and that's not for everybody. But I guess probably another thing that stands out is looking at the permanent portfolio, the maximum drawdown was by far, by far the most attractive in this model. It was a max drawdown of just 12.6%. Right, because a lot of the money is in bonds and cash, which some of the other ones aren't. I actually thought the most The most interesting thing about this article was the fact that they called William Bernstein a guru, because one of my favorite quotes of his is he said the reason that guru is such a popular

word is because charlatan is so hard to spell. I love that one. Great point. So I didn't realize that the permanent portfolio was actually a mutual fund. And it's got, I think, two or three billion dollars in assets in it. And you showed this to me. So the actual permanent portfolio, which I think you and I've probably both written about, is the U.S. stock market, U.S. long bonds, gold and cash each in 25% increments. But the actual permanent portfolio mutual fund you found is not like that at all. Yeah. So I was sort of surprised. It's 20% gold, 5% silver, and that's not that big of a deal. But 10% is in Swiss franc assets. And I forget exactly what that represents, but 15% is in real estate and natural resource stocks. Another 15% is in aggressive growth

stocks. And then 35% is in dollar assets, which I guess they're a mix of bonds. So it's not quite what I thought it was. And the traditional permanent portfolio, the 25, 25, 25, 25, 25, 25, I think that makes sense. Like, I can get behind that because you have four things that are going to act very differently from one another and all ostensibly made with the exception of gold that have positive expected returns. I just think that even though it makes a lot of sense, again, I just think it takes a very specific personality type to invest in that and really stick with it for 30 years.

Yes, and to rebalance into the pain because you know that there's almost always going to be pain somewhere, which I suppose is likely for a lot of these things. But, you know, Meb spoke about this. Before we move off real quick, Meb Faber once, I think did a similar piece. And he said, it's basically like when you're making chocolate chip cookies and you have the ingredients and some people are going to use more flour and some people are going to use more sugar and some people are going to use less chocolate chips. But at the end of the day, you're baking chocolate chip cookies.

And that's sort of how I think about asset allocation, which is going to be the best. who the hell knows, and it doesn't even really matter. You're not going to know ahead of time. So just pick something that is sensible that you think you have at least a decent chance of sticking with. And while we're sticking with analogies here, I'm trying to one-up marks. And the other one I heard was asset allocation is like a bar of soap. The more you touch it and play with it, the smaller it gets. So that's from, I heard that.

I've heard that before. I didn't hear about it relating to asset allocation, but relating to investing. and I think it was a chief strategist at Merrill Lynch, something like that. Yeah. Okay. So before we get into our survey, we had to read an email from some listeners about our survey work, since we are an anti-survey podcast. And so this listener email said, my wife and I both love your podcast.

We just binge listen to the last few episodes during a long country drive, cross-country drive. However, we are dismayed by repeated references to be an anti-survey podcast. While we appreciate the general jovial nature of this reference, we heard you make the same comment more than once in our concern that you may be perpetuating a harmful. whole falsehood. And we definitely don't want to do that. So they said specifically we've made comparisons between the size of a sample and the size of a total population. They say, you know, trying to take 2,000 people out of 30 million is basically how statistical sampling works. So in truth, the marginal gains in accuracy by increasing the size of a sample are surprisingly small

after the sample reaches a certain size. And they kind of go on to say, the only way you can really get 100% confidence is if you did a complete census and even that will never get you the whole way there. So we need to defend our honor of being an anti-survey podcast here. What's say you? Gosh, darn right, we do. Well, my biggest thing is we've looked at so many of these and so many of them come to such different conclusions when talking about asset allocation or retirement savings or who owns Bitcoin in the article. You mean one survey can contradict another? Yeah, and we've looked at so many of these that so many of them do contradict one another.

And then the articles will say 30% of Americans. instead of saying 30% of people from this survey. So it's kind of misleading in a lot of ways. And I think when you've looked at enough of them from a financial perspective like us, especially when you talk about things like sentiment, a lot of times when you're talking about money, people lie.

And it's more important to look at what people do, not what they say. Because a lot of times people make stuff up. That's exactly right. The reason why I'm anti-survey, and I feel like we've got over this a million times, is because people answer oftentimes the way that they think they're supposed to answer. So that's one.

But even if they are being truthful, or at least they think they're being truthful, if they're asking about, if they're answering a question about, are you more likely to take out a mortgage or are you more or less likely to buy stocks, or whatever it is, they're going to answer based on where mortgage rates have gone or coming from. And same thing with stocks. So they're going to, like, are you bullish or bear? Well, what did stocks do the last six months? Right. Price drives the narrative. Maybe that's a bad example. Maybe that's a bad example, but I also do think that asking 2,000 people that visit a certain site is like a very self-selecting sample.

So I just, I will stand by the fact that 2,000 people concentrated in one area is not, it does not do. Yes. And in some cases, there's no, there's nothing else to go on beyond that. And so you have to go with what you have. But I don't think you can take that small sample size and say it counts as all Americans because that I just. All right, so, you know what, let's look at a, let's look at a survey. So in J.P. Morgan's Guide to the Markets, they surveyed people. The survey was conducted January 6th, 2017 through January 13th, 2017 through online interviews.

So right there, it's people that are likely to be online. 16171 individuals, ages 25 or older. All right, that's all I got. I felt like I was about to drop the mic, but that was it. All right, anyway. Anyway, the nature of the survey, the nature of the survey is this. So they asked people, do you think that you will need $500,000 or more for retirement? And 64% of people said yes.

Now, which leads to the other question, what are the other 36% of people saying that they don't need a 500,000 or that they need more? So that's another thing that was omitted. So in this particular survey, there's not enough details. Maybe that 36% is actually being truthful. themselves and realizing they're never going to get there. Yeah, you need to dig deeper. So it shows the median value of retirement account by age of household. And not a lot of people have, like basically nobody, the median, no median is over $500,000.

It's not even close. And yet 64% of people think they need more. So I guess this is just trying to show the retirement savings gap. Yeah, this shows the median retirement savings for people 65 to 74 is $126,000. So it's just a very small percentage that actually gets there. So people saying they need it, even when it's never going to happen, there's a disconnect. You know what? We bungled this and I think maybe the emailers have a point.

Anything is possible. I do agree. Like statistical sampling, like there's nothing that's ever going to be perfect. And I think that's our point. It's just that it's never going to be perfect. And moving along. All right. So let's talk about the fraud of the week.

And I say four out of the week because I feel like it's, I really do feel like it's becoming a weekly occurrence where you're seeing these, these SEC lawsuits. So I want to, I don't know. Do you have a Google alert set up for this or what? No, no, but people tweeted whether it's, I don't know who, honestly I don't know where this is coming from. They go from Twitter. So let me just read one of the complaints. Merrill, and this is by the way, this is just a classic Ponzi fund. This guy, Merrill, misappropriated at least $45 million, including by transferring over seven.

million dollars to his personal bank accounts. So he's getting investments and just going straight into his bank account, spending $10 million and at least 25 high-end automobiles, $5.5 million toward the purchase of a house in Naples, Florida, over $2 million for home renovations, $500,000 for an interest in a Gulfstream 200 private jet, a $100,000 club membership in Naples, $350,000 on a boat, and transferring approximately $1 million to casinos. So I guess when you're investing with these people, you don't always see what their lifestyle is like, but holy shit, isn't this a giant red flag? when you see people that you're investing with living this kind of lifestyle?

I see it says like 52 million of the 345 was by family offices who usually consider themselves to be fairly sophisticated as investor. Yeah, you wonder what kind of due diligence is done here. So this guy wasn't from Merrill Lynch. His name was just Merrill. His name was Merrill. Well, speaking of due diligence, so this is what the investors were promised. And I don't know what they were buying.

It was some sort of loan portfolio or something of the other. So it was different in each case, but the documentation typically stated that, investors would receive a fixed return ranging from 12 to 15% and split the remaining profits with Merrill and Ledford entities. And then it goes on to say later, a presentation advertised that the investors would get 100% of net collections up to 25% of the principal investments, and then profits over 25% split 50-50, up to 40%, and profits over 40% would be split 80-20. I mean, it's just like when the 10-year is at 2%, and you're being promised guaranteed returns

of 12 to 50% and up to 40% and blah, blah, blah. I mean, holy shit, like, use some common sense. 41% are over. I love how they put that in as like a teaser. Like, oh, man, if we get up to that high. Like, the number one rule with this stuff is if it sounds too good to be true, it probably is. And people just can't wrap their heads around that.

Well, here's the awful thing about how Ponzi schemes work is that they talked about a few different investors in the fund and the typical experiences that they had. An investor A gave, you know, half a million dollars. and then he got $100,000 back over the next six months. And then, of course, he gave more money. And he did that like four or five or six times. And I don't really know how you protect yourself against this other than to just be weary of something that looks too good to be true. But like I said, if you are getting payouts, then everything seems to be copacetic.

Yeah, as long as you're higher up the pyramid than other people, I suppose. You got me. Yeah. So we go through the JPMorgan Guide to Markets. and there's always a few interesting new slides. And I don't know that this one is particularly new, but this certainly stood out to me. There was a chart showing S&P 500 profit margins.

And I think Grantham has called this the most mean reverting series in finance. And we'll look to this with the show notes, and it has just not mean reverted at all. Right now it's at 11.5%. And it's just been making new highs and new highs, and this is kind of incredible. Right.

If you did technical analysis on this, you'd say the trend is going higher from the 1992 start, right? Not only is the trend going higher, I see no signs of resistance. Okay. Yeah, it's one of those things that's hard to believe. And I agree with his, in theory, what he's saying, that the basics of capitalism say that profit margins shouldn't be high forever because new entrants come in and competition should drive them down. But we've talked a lot about the structure of the market changing and how cheap everything is. And I think the Internet has really changed this in a lot of ways. And who knows, maybe there's just a higher level of these than the historical averages show.

I guess this chart also can make the point that the companies have gotten so giant, there is no room for competition. So nobody is competing with Apple. Nobody's competing with Facebook or Google. And I mean, I guess maybe they're all competing with each other. But no smaller companies are coming in to do anything about what their margins are. Or they're buying up those companies before they can compete. But, yeah, I think. That's not to say profit margins will remain elated forever, but I think that maybe there's a new average people need to look at. So Nick at FP tweeted a chart from UBS on market concentration. And of course, we've spoken at nauseam about concentration, especially in market cap-weighted index funds being a feature, not a bug.

So UBS did some work, and they came to the conclusion that this is not abnormal. And I'll just read a quote from the piece. the top five contributors of the last 12 months were Amazon, Apple, Microsoft, and Berkshire Hathaway, and Google. An investor who invested in this portfolio a year ago would have gained 50%. An investor who had bought the SEP 500 portfolio X to these names would have gained 14%. So the current performance gap is 36%. This level of outperformance is broadly in line with history. Right. So if you know how the markets function, those scary headlines about concentration shouldn't be all that scary. Yeah, this is good. We'll post this in.

the show notes. Listener questions. So I know I shouldn't expect home prices to crater like they did after 2008, but I'm wondering if there's any reasonable expectation that home prices will eventually level off or drop enough to make a buying opportunity. I just want to buy the dip, which I don't think I've ever heard buy the dip in real estate before, but what do you think? Well, I have good news for this person. The Walsh Journal reported that home price gains have slowed for the fourth straight month in July. So there you go. Buy the dip. I think it's tough to do, and especially since, like what happened in the mid to late 2000s was totally an entire or the entire country and that is fairly rare and so a lot of this is typically regional and has to do with where

you're at or your neighborhood or your local economy and so it's so hard to predict those things like when they will drop or level out and it's hard especially if you're actually selling another house it's it's hard to find a deal and buy the dip because you're you you're selling higher to buy higher. So in a lot of ways, it's not like you're going to be able to make any hay there. So I think trying to time the real estate market is really tough. Well, so the good news is that home price appreciation is slowing, but the bad news is that the U.S. average 30-year mortgage rate just hit 4.97% the highest

since April 2011. So, yeah, I mean, I agree with you, of course. It is impossible to time the housing market. I mean, what are you going to do? You're going to continue to rent because you're waiting for a pullback. what if that's four years? I mean, at some point, you just have to move on with your life. And I mean, I feel this guy's pain because I am looking for homes on Long Island, and it seems like they're just all way higher than they probably should be. And most people don't, I don't

view buying a home the same as buying another asset because there's so many other factors involved in that decision. I think it's more of a family, personal, emotional decision than anything. So it's hard to. And if you end up waiting for five years and real estate market doesn't come down, then you're going to be kicking yourself. So it's a tough one. Yeah. All right, one of your listener questions this week was a recommendation how to allocate funds for needs in three, five, seven years. Can you elaborate how you think about allocating short term needs in comparison to allocating to an emergency fund? My initial thought is nothing would change, but just to keep it in cash, my thinking about this the wrong way. I think a lot of this,

I wrote about this recently. A lot of what people assume is an emergency is really just a expense that is non-periodic. So it's not going to happen every single month, but you know it's going to happen. So things like car repairs, every year you're going to have to pay your annual insurance premium for your house or your car. And so for a lot of those things, I think you just have to kind of build those into your budget and understand that those payments are going to have to come. And so it's not an emergency. It's just a way of life, basically. So answer the question.

Yeah, I think you still, for those, I think you still have to be fairly safe with those in terms of investing because those are shorter term than even the stuff we talked about last week. But I think that you, again, I think the right line of thinking is to sort of space those out and understand that they're going to have to be part of your budget, whether they happen on a monthly basis or not. So, yeah, I mean, I agree with you. Don't have much to add there. Let's move on to some recommendations. But before we get there, I want to bring some things up that, so I use Slack as a place to store messages and drop links for later. And last night, by accident, I slacked them to you. Yeah. That was that. It was a Chris. So I was like, whoops. So you told me, when we were in Chicago last week, you told me that you played football, you played two high school games at the Silver Dome. Yes.

Have you never told me that? I don't know. I guess we never talked to that far back. It feels like a long time ago. But no, that was when I was in high school, they played the state championship games and the Silverstone, which I think doesn't even exist anymore. So we played there twice. Wait, so you were on the high school state championship team?

Yes. Did you win? Not to brag. We lost one in one-one. Wait, so did you play or were you a starter or a bench? Yeah, no, I played. I was a small high school, so everyone played both ways, basically. You'll be very shy about this.

These are the things that come out over beers in Chicago, I guess. Yes. No. Fine. Well, if I can make you even more shy, I was also told, and I didn't hear this, that you won most fashionable as your high school superlative. I believe the actual award was Mr. GQ, but again, not to brag. Well, you look lovely today.

Oh, thank you. Again, these are the things that come out. Listen, I can't say this, but you've got this green and blue plaid. on it's really to die for. All right. Thanks for building me up. You really know how to make a guy feel good about himself. All right. What do you got? We talk a lot about expectations driving how you feel about a movie. And I went in with supremely low expectations. My wife and I rented tag this weekend, which with John Hamm, Jake Johnson, Jeremy Renner, we heard about that one. Yes. Thinking it was, I mean, the plot sounded dumb. It was a story about these guys who have been

playing a game of tag for 25, 30 years. Supposedly, it's based on a true story and they made a movie out of it, which was a little more over the top than the real story. So I thought it would be, eh, let's see how it is. It actually wasn't that bad. I want to say it was actually kind of good and funny. Like, they didn't take them to too seriously. And I think I actually kind of liked it, going into the really low expectations. Okay, that's good. Hold on. Hold on. Before you move on, how many people were in your high school? I think my graduating class was 65 people. Oh, wow. Yeah, really small. All right. That explains it. All right. Get back. Sorry. So you just had to take me down a peg before.

after tucking me up. Okay. Then this week I was reading the Steve Martin book, Born Standing Up. It was his autobiography. I loved it. He was, he's a very good writer, way better than I thought. He talked about his jokes and how he sort of came up in the stand-up world and how it wasn't, it was anything certain.

He almost quit the industry at age 30. And I thought this was a great book. And it was about 200 pages for an autobiography, which I think is great. Like the biographies you read that are like five or 600 pages, this one was the perfect length, and his writing style was amazing, and it was one of the better books I read in a while. What's his pivot? Pivot, I say. Oh, Pivot is the new podcast with Kara Swisher and Scott Galloway, and it's just them talking about tech. It's like a 20, 25-minute podcast. I think it's going to be good, and those are two

my go-to people in tech in the media to understand what's going on. So I have two D recommendations. Speaking of expectations, I had low expectations, but it fell even short of those low expectations. So the mummy with your boy TC, I heard it was awful, but I just had to see for myself. I watched the first 20 minutes and holy moly was that bad. Yeah, I turned it off. It was on HBO a few months ago. I turned it off half hour in. Yeah, I have a high tolerance for crap, but that was really bad. And on the plane home from Chicago, I watched Rampage. And, you know, I knew what I was getting myself into. Monsters, the Rock. It was, it really was pretty bad. Yeah, he's got to change it up and

do like a serious movie or something. His beyond action and comedy. His movies have kind of fallen flat lately. Yeah, pretty bad. So Stephen Johnson has a new book out, which I have not read, but I did read, this week I read a book from 2010 called Where Good Ideas Come From. You ever read that one? Yeah, it wasn't nearly as good as his other one, I thought. I totally agree. I thought that there was, I mean, there's a lot of really good stuff in there, but you sort of had to work for it. What was his book that we really love. I've got it right on my bookshelf, and I can't find it right now. But it was about the six biggest innovations. How we got to now? Yes, how we got to now, which is an amazing, amazing book. Yes, I loved it. But this, yeah, that one wasn't nearly as good. And it was

kind of along similar lines, but not as good. So I'm looking forward to his new one. If it's not good, he's dead to me forever. Okay. All right. Writing off writers is probably a good place to leave what do you think okay sounds good send us an email animal spirits pod at gmail.com it'll talk you next week