Animal Spirits Podcast - Can the Markets Cause a Recession (EP.249)

Episode Date: March 23, 2022

On this week's show we discuss the crazy moves in interest rates, mortgage rates going much higher, how to think about bond yields right now, why the U.S. consumer will keep spending even with higher prices, the housing market is very unhealthy right now, betting on the Oscars and more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.   Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by NASDAQ. They just released a really neat report on the shifting profile of retail investors that we will obviously link to in the show notes. So, Ben, in this report, they said, when asked which companies they were aware of, see, this is a survey we can get behind. It's not a survey. It's not, are you good to buy stocks in 12 months? It's yes or no questions, right?

So believe this data. This is not with the grain of salt data. This is real data. When asked which companies they were aware of, the following score. the highest among all respondents regardless of age. Okay. So you've got the Ys, the millennials, the boomers, and everything in between. 95% said J.P. Morgan. Who are the 5%? Who doesn't know JP Morgan? Is that possible? I guess it's possible. 92% of said fidelity. 95% of anything is pretty high. Fair. I guess. Maybe that's just the upper bound. So 92 each for fidelity and for

Schwab. They asked Gen Z, which is, I guess, Gen Z comes after millennials. So those are like the youngest investors. They asked Gen Z if they were aware of the company, and these are their recognition. So Robin Hood, 64%. Vanguard, 38, Fidelity 29, JPMorgan, 20%. Interesting. So Robinhood totally, totally dominates. And yet the market cap, what's Robin's stock doing? Still getting crushed? So I guess that also shows how brands matter a lot for, in certain cases. but not a lot for younger people probably. I'm calling it. I mean, Robin has been trying to bottom. I think it's, I think it's enough. Okay. Keep trying. No, no, no. It's not, listen. There's not an opinion. Factually, Robin Hood stock stopped crashing. That's not an opinion. Well, it's not

an opinion. It just did. It stopped going down. Right. All right. If you would like to learn more about the shifting profile of retail investors, head on over to the report that we will put in the show notes. 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. Welcome to Animal Spirits with Michael and Ben. Michael, we spend a lot of our time talking about the stock market because it's interesting. Interest rates and bond market are getting way more interesting right now. So I pulled up a little treasury yield curve on Y charts. Look at the 30-year treasury down to the three-month treasury bill. So the 30 years trading at like 2.6. The three-month now off the floor is at almost 60 basis points. Here's where it gets interesting. the five-year treasury now yields more than the 10-year treasury. Basically the same. It's about one-bases point different. But even like a one-year treasury bill is up to 1.4%. Two-year treasury rate is at 2%.

So people have asked us for years, how do I get more yield on whatever? Yield is historically, these are still very low. Has Marcus rates moved yet? No, here's the thing. You will probably not see your savings account move until the Fed actually hikes rates. I'm guessing at that point we'll see something. But they already did. Well, true, but those were already at 50 basis points. We're probably not going to see much for your savings account. So everything else is moving up. But here's the kicker. On this chart, I also put the inflation rate. You see these huge moves and interest rates. All the bond nerds are talking about how big these are, especially in like the two year yield. It's gone from basically on the floor to 2% in a very short amount of time. But then you

overlay this with the inflation rate. And I was looking at this the other day. And the inflation rate just makes all these interest rates look silly. So this is by far the furthest I could find where the trailing 12-month inflation rate is never been this far ahead of 30-year treasury bonds as far as the yield goes. So I don't know what that means in terms of what's going to happen to these rates. Like, are they going to keep going up or does inflation come down eventually? But this is hitting pocketbooks too. So mortgage rates, I looked on the federal.

Wait, hold not. Hold on. Before we get the mortgage rates, question for you, maybe this is a Kalshi thing. Do we think that we will have positive real interest rates on the 10-year by this time, next year. That's the crazy thing. If you look at these on a real basis, they're still ridiculously low. By this time next year, positive real interest rates. So that would be a 10 year at 3% and a inflation rate at 3% maybe would just get you there almost. I'm going to say yes, but barely. I think it's going to be close. I'd be inclined to say no, actually. You're right.

It'll be close. But here's the thing. I think we're going to get some crazy inversions in the yield curve where we could have the five year, like 50 basis points above the 10 year. I think that these weird inversions are going to happen? I would love to talk to a bond expert. Like, what causes the different dynamics, the 5 and the 10 versus the 20 and the 30 and all that sort of stuff? So obviously, if you're thinking the bond market is smarter than everyone else, which it's not always, but let's say it is, the idea here would be because 30-year rates aren't

moving up very much, they move up a little, not much. Barely. You'd think very long-term, the bond market does not think inflation is going to be of risk. shorter term, it is now definitely pricing in the risk, or at least the risk of the Fed raising rates enough. But I think we're going to see some crazy inversion. Like, could you see the two-year meaningfully above the 10-year? I think that's a very good possibility. Well, let me ask you this. I joked this morning that the stock market is now pricing in three rate cuts for 20-23. What's going on right now? Or rising rates are all of a sudden good for stocks? Obviously,

I'm kidding. They're not. But why are stocks ripping right now? Is it just because they went down? I think it was like a loaded, coiled spring kind of thing. 2018, we were on this podcast. We kind of said, this doesn't make any sense. This is not going to last. We had a V-shaped recovery. 2020, at first, I was worried the world was going to end. The government threw a bunch of money, not to brag.

I was saying we're going to see new highs by the end of the year. We did. What year was this? 2020. You said my take is going to age like a stale cheeseburger or something. That takes an age, well. This is the one time, the first time since the great financial crisis, maybe since 2011. That felt pretty tricky, too, where this feels like we could either be in an extent.

Bair market or just a very choppy environment for a while where we just don't get that immediate V. And maybe I could look like a fool very quickly, but this feels to me like the probability of that is way higher than it's been in a long time. I agree with you. I think I don't understand why stocks are going up. And again, it's mostly random in the short term. I think that stocks probably should be trading lower based on stocks were getting killed earlier before all this started because of forward guidance was not very good. The pandemic pulled a lot of things forward as companies were having difficult comps for the previous year. So that sort of was what got this going.

And then maybe it found itself momentum, interest rates, all that sort of stuff. But now, we still haven't even seen really inflation start to impact the consumer. And I just have to think that higher price, food prices especially, which we haven't seen yet really. I mean, we have actually. That's not true. The impact of the commodity spike in Ukraine, we haven't felt that. How does that not hit consumers and how does that not hit earnings?

We're going to get into the consumer stuff a little later. There's also been all the macro podcasts that have people on saying maybe this is recency bias, but all of them saying $200 oil is basically a high probability event now. Like, it's almost going to happen. $200 oil. They're basically saying the reason oil crashed was more to do with market dynamics than it was with anything else of demand falling off, which, by the way, who said this? I listened to one of the Obots podcasts in the last couple weeks.

I can't remember who it was. By the way, oil fell 30%. Price of the pump still down one penny from the highs, 425 to 424. I read a really great thread about the lag how this works. Okay. Why is there not a lag on the way up, though? No, there is. No, there is.

No, there is. There is. There is. There is. It just doesn't feel like that way. In a week. In a week. And now it's been two weeks since oil crashed.

And prices are still the same thing. Yeah, it happened on the leg. All right. Here's another one, though. I looked at this. This was the Fed's website, Fred, which great website name. Fred. It's the St. Louis Fed.

Mortgage rates were 2.7 percent. they basically bottomed in January 2021. 4.2% as of last week for the average. Bill McBride tweeted yesterday, calculated risk our go-to-on real estate, spoke with a major lender today. Their 30-year fixed rate, no points hit 5% today. This repricing is happening so fast, mortgage rates. And by the way, they're like gas prices.

I've made this point before. They're going up way faster than other rates. Why is a 30-year mortgage repricing so much faster than the 10-year bond of 30-year bond? It's happening very fast. Plus, there's still got to be a lot of demand. Maybe it's because there's... That is a good question. I have no idea.

But this happening so fast is going to be fascinating to me to see with the housing market. Does this spook some new buyers? Or does it make things worse because people retrench and say, I'm not selling my house so supply becomes even harder in prices. So I feel like going from 2.7 to 5 is usually probably not a great thing. But the fact that it's happening so fast, I think is going to have some weird ripples effects on the housing market. So, like, rising rates.

What does that mean for bonds? Because, as we know, they're inversely related. Rates go up. Bond prices go down. You're about this too. But here's some losses in bonds. This is as of close on Monday. TLT, which is a long-term bond fund, down 16%. This is after including interest rates too. This is not just price. LQD, which is the corporate bonds, down 11%. The 7 to 10-year IEF is down 9%. Total bond market fund, which is B&D for Vanguard, is down almost 8%. Three to seven-year Treasury is down 7%, and then the one to three years down 3%. Here's the thing, though, if you look at the yields now, the short-term bond fund, SHY yields 1.5%.

30-year bonds yield 2.3%. So your short-term bonds yield almost as much as your long-term bonds, and you're not getting nearly the duration risk or the volatility in those. I guess the only bet is we're going to go into recession and rates will fall. I don't know why you would own long-term bonds right now. Well, because if you think that rates are going to fall, that's where the juices. But I'm saying in a rising rate environment, yes, that's why we're going to fall. Yes, that's where the juice is.

In a rising rate environment, I don't know why you wouldn't be on the very short to intermediate term spectrum right now of bonds because you're getting the same yield. Well, I'm saying if you think that rates got ahead of themselves and they're going to drop lower, that's where the juices. That's why. I guess. Why else would you do it? I don't know.

The 20 plus year treasury bond ETF is down 16%. That's what? Seven years worth of interest that is lost? Assuming that rates don't change. But at the current rate, you just lost seven years worth of interest. Hold on. So the yield was, or the yield is. The yield is 2.3% and it's down 16%.

Right. Yeah, it hurts. That gulf and a gift, dude, you wrote this piece about bonds and the drawdown. You're showing, what's your 6040 stat here? So what's particularly painful about this is that people are not used to losing money in bonds at all. It's been a long time. The last time we lost money in bonds was 2013, before that in 1994.

People are not used to losing money in bonds. And they were especially not used to losing money in bonds while stocks are falling. And so we are in this weird situation where if you go back to 1976, bonds and stocks have never declined for three consecutive months. That was almost about to happen. And it still could if the S&P rolls over prior to the kick save. So at the lows a couple of days ago, you had SPY and B&D both in a 10% drawdown. the last time that happened was 2008.

And you could make the argument that actually bond declines. Not only they're not buffering stock declines, that might be causing them. Rising interest rates, not might. Rising interest, I think, is one of the reasons why stocks are falling. But the key point is, first of all, zoom out. A 6040 portfolio has treated you pretty well, pretty pretty well. You have nothing to complain about. That's number one.

So I don't want to be inside. It died in 2011 and it still got. You want to say grow up, but come on, let's put this into context. But number two, if you've been complaining about low interest rates, which who hasn't been, we want rates to go up. We need them to go up. The only way that you're going to get a return of your fixed income is if that fixed income goes up. And so it's not fun to take more than one, to take six steps backwards, but that's the only

way that we actually move forward to return our bonds. Short term pain for long-term gain. I was looking at this. we had married childs on the compound last night. I looked at this. She had something in her book, which I'm going to get into later in recommendations, about the taper tantrum. I forgot how quickly this happened. So the 10 year was at 1.6% in summer of 2013. And by the end of that year, it was up at 3%. So we've seen this before where rates have a very quick readjustment like this. And obviously, from there, it backed down. That was a much different scenario because we didn't have the same

inflation we're having right now. But it's not like it's out of the realm of possibilities that you get this really quick repricing. And then it sort of stops. And I don't know. We just had the worst three-month return for bonds since the early 1980, nominal and real. Now everyone's pricing in. Here's your stock thing. So you're talking about how real rates are still negative. Is that the thing that could put a floor under stocks? Because if real rates are still so negative, well, you got to go somewhere? Like, why would you own bonds? Is that the stock bullish thesis as Tina? We saw massive outflows from bond funds, which you never see. Yeah, you're right. So bonds for 40 years, obviously there was some give and take along the way. But if we're seeing massive outflows for

bonds, where's that money going to go? Maybe cash or money markets if you have higher yields, but stocks probably bought apes. It is tricky because if you don't like the returns on bonds, and again, who does, what are you going to do? Are you going to keep it in cash and lock in that negative real return? Are you going to put it back into stocks if you're already pretty exposed to stocks? It's not easy. Real estate? And it's not like stocks are like a screaming buy here where it's not an easy time. I know it never is, but it's particularly challenging.

And by the way, it almost feels like the monstrosities that are going on on the other side of the world are almost like back burner now because the market has calmed down. Isn't that kind of effed up how that happens? How like market volatility has abated. And so we don't really hear about if the doubt was down 800 points, it would be because of, or whatever, whatever. One follow-up from last week, we asked, what does the holding profile look like

for treasuries for the government bond? And Jeffrey Patak, who provides some nice stats for us, there is a fund that holds all U.S. treasures in proportion to their holdings. And so above 20 years is like 19%. It looks like... Which fund is this? It's like, I can't remember the name,

but it's like basically U.S. Treasury Fund. It's all U.S. treasuries. Basically 70% of them is seven years or less. and the highest proportion is one to three years at 30%. So this is why the thing that people worrying about government default or interest rates, don't you think in that instance, if the government really got into trouble, that they would just have the Fed, assuming inflation isn't out of control like it is right now, the Fed lowers short-term rates and they just borrow short-term and they can roll.

I don't know. I really have no idea how the Treasury functions, but you would think that the Treasury would do the opposite of what investors should do, where it's like, all right, if the curve's flat or inverted, between the five and the 10, why borrow for five years? Let's just lock in 10 years at the same price. Or right now, lock in 30 because it's not that much higher than any of the shorter term ones. Is Janet Yellen like an active bond trader or bond issuer? That's a good question. Matt Levine wrote something that really stopped me in my tracks when I read it.

He said, quote, the U.S. is not expected to pay any long-term real economic costs for the death and disruption associated with the pandemic or the Russian invasion of Ukraine. I think this is Matthew Klein, not Matt Levine. But there's a lot of math. I'm sorry. I'm sorry. That's what I meant. That really shook me because I didn't read like.

What did he mean by this? Let me see the context of this. Well, it doesn't matter. Well, I was going to look to it. It's behind the paywall. I can't get in right now. I can't remember the context. But this specifically, I think it sounds crazy.

I don't think that's entirely wrong. Saying that it's going to be way worse on people in Europe, basically, than it is here. Just the U.S. is not expected to pay any long-term real economic. Costs for the pandemic and the death and disruptions associated with the Russian invasion. Meaning we're kind of in a decent place? My point, okay, you know those charts, like I've done this before where you show like a long-term return of the S&P 500 and you just take out the bare markets, you just like delete them. If you did that within economic charts of you just deleted the pandemic, we're at all-time highs. We're back to trend.

It's insanity. Right. Okay. I understand. We haven't stopped chugging. So, Ben, you mentioned the St. Louis, or St. Louis Fed, the Fred, or whatever, which is a staple in our repertoire. The New York Fed also has a site. And I clicked on, I was poking around. They have a graph where it shows the probability of a U.S. recession predicted by Treasury Sped. Don't ask me what the inputs are exactly. I'm guessing if it gets inverted.

I'm sure that's the long and the short of it, but not super high right now. Well, no, it's getting close, though. If you see every time it gets to zero, basically, it goes into recession. Isn't that the idea? this wrong? No, no, no. It's the opposite. Every time it spikes, there's a recession. Oh, okay. I got you. Oh, so it's showing the inverted, basically. Yeah. So you're not worried. So my colleague at the Fed, Jerome Powell, said he is not worried about a recession next year. What do you think? If you're taking that bet on Kelsey right now, is the U.S. going to have a recession? What's he supposed to say? Things are going to get ugly? Let's say Jerome Powell came out today. And he said, I think we're going to go into a recession. That would nuke the market. Do you think he has the ability to

cause a recession by saying that, though? Yes, yes, yes. Even though Greenspan, when he said irrational exuberance, didn't really cause a recession, but do you think Powell today could have it? Just because if people believe that, they would think he would somehow be able to do it, so make it happen. That would nuke the stock market immediately, and it would change people's behavior. I think he could cause a recession.

Okay. Ten random Americans. Do you know who this is? Put up a picture of your own Powell. How many would know who he is? None, but that's completely besides the point. That has nothing to do with anything. Okay.

But you're saying market people would know. Yeah. All right. And I think markets can cause a recession. In fact, of course they can. Possibly. Actually, I think now, getting back to like you saying the consumer, isn't it more likely that the market could cause a recession now than consumers? Yes. Agreed. Unless, dude, prices are really high. Counterpoint. So a long-term inflation rate over the last 100 years is like 3.2%. The way I look at it, we've only been above that level since April of last year. So it's almost been a year. I know it feels painful, but the 70s, they dealt with, like, before they started really jacking up rates. Seven days were like the worst decade in the history of this country besides the 30s. But I'm saying they were dealing with high inflation for like 10 years before the Fed stepped in. It did something. We've been dealing with the for one. Do you think one year of high inflation is really enough to change people's behavior as far as spending goes? One year?

I feel like we might need more pain to change consumer, especially with the fact that people have pent up demand from the pandemic and want to travel. Yeah, but that's going to abate. Once a pent demand is met with supply, it'll go away. The Delta CEL last week said we had the busiest two-day sales and the history of our airline. Do you think those are just one-off things? Dude, that's not repeatable. That's not permanent trend. The people that want to travel are good at travel and then they're not going to travel again in the following month. The demand for travel might be elevated for, I'm making it up, two, three months. I have no idea. It could be six months or more. I don't know. But I'm saying like that's temporary. I think it could be more like a year. Maybe.

I don't know. All right. Good news and bad news of looking at a bear market. So the NASAC as of last Monday was down like 22%. And then it immediately snapped back 10%. We talk about this choppy market we're in. I'm guessing there's a lot of people who said bear market rally dead cat balance, which maybe they're right. Well, the data on like that balance looks pretty legit. Okay. Like from Santa a trader and bespoke. This is a pretty vicious balance you typically see at market bottoms. I trust the market more than my opinion, but I'm sort of perplexed. I feel like you throw that data out the window these days because remember no one thought we bottomed in March 2020 because markets don't bottom on a big up day. No, I like that data. Okay. You like this? I'll use it. So I looked at

the NASDAQ since 1970, which is when it was started. I kind of 12 previous bear markets, which if you want to quibble with my data here, you can because I won't. I won't quibble. It topped out in 2000 and fell 80%. And between there, you could have had all these 20% up and 20% down. I'm counting that as one. So I got 12. The average loss for those was 38%. And some of them were really bad. Like 1973 was down 60%. The peak in 2000 was down 80%. Like I said, what if you just bought when NASDAQ was down 20? For the most instances on average, it's going to go down even more than that. But let's say, okay, it goes to nowhere market you buy. The majority of the time, the average returns are pretty darn good, going out one, three, five, and 10 years. And actually,

the only time you were negative after 10 years was if it was the top in 2000. So, obviously, past is not prologue, all this stuff, yada, yada, yada. You know Jeremy Siegel's quote, fear has a far greater grasp on human action than the impressive weight of historical evidence. This chart is exactly what he's talking about. Like, I see this chart, I like it, but it doesn't make me feel any better. It will not change. The problem is, especially now, you think, okay, but this is a dot-com top. The dot com is the one outlier there where you go. But I understand. But I'm saying a lot of people would say that would be the counterpoint to, okay, but this is the dot-com top. And in 10 years, NASDAX stocks are going to be down more.

My point is, guess what? I'm never a long-term bearish. I could say right now, I don't get it. It doesn't make sense. But I'm never like a long-term bearer. I would never say that now is a good time to sell your stocks because in three years they're going to be even lower than they are today. Like that never crossed my mind. It does not feel like this is a good time to buy stocks if inflation stays higher forever and blah, blah, blah.

My point is buying stocks are down 20% as a whole is typically a pretty good strategy over the Auto buy. You have to. Yes. That's what I'm saying. Unless you're a trader, you got to be buying. Did you dunk on the Bloomberg piece about inflation? No, I don't like doing this. Everybody else did. It's like, all right, I get it. And you know what? Here's the thing, though. Who cares? It's a bad piece. And the tweet was brilliant. This was not an accident. The tweet was brilliant. Here's my take on this. So they say inflation sings the most of you're in less than $300K. Here's how to deal. Take the bus. Don't buy in bulk. Which, by the way, I think buying in bulk is actually makes censoring inflation. Try lentils instead of meat. And no one said this would be fun. I think the point here, and I've seen on like the Today Show, them trying to say like drive 60 on the highway instead of 75, their inflation tips for personal finance just there are no small things you can do. I have noticed in the last couple of weeks, maybe we should keep our heat down at 70 instead of 71 or 69 instead of 70. Nice. And little things like that.

But the point is like I think there's not many little things you can do to help with 8% inflation. Right? There's big things you can do, like having a mortgage, a 30-year mortgage, but that is something you do beforehand. Like making $301,000. That fixes this. But don't you think they're trolling? I mean, this is a very well-crafted tweet, credit where credit is due.

Yes, social media managers know how to get the outrage. My point is, though, that there are not many small things you can do that will make a big dent in 8% inflation. So I think it's the big things ahead of time, like having a good savings rate and having a fixed rate mortgage, which if you own a house... That's your hedge, basically. Do you think a Costco membership is a good hedge against inflation? I think it probably is.

Do you have a total wine by you? No. Okay. I went to this place. It's on Long Island near the Costco next to Costco in the same parking lot called Total Wine. It is just a gigantic warehouse of beer, wine, and alcohol. It was remarkable.

Did you want a Friday afternoon? Because it would be the happiest place on Earth. Yes, good call. I've been told about that. I've heard about this over the years. I just, for whatever reason, never want. It's phenomenal. Next time you're on the island, Ben, check it out.

Okay. What if I'm in Long Island? No, that doesn't happen. So full stock economics, which we've talked about before, they had a piece basically saying, so the Fed estimated that by the end of this year, 4.3% inflation. That's their target. I don't know if that's updated through war and everything. I think it is. But full stock economics had a piece saying basically a combination of oil, rising rents, rising food prices and supply chocks mean that that's probably too low and we're still going to have high inflation here to stay at least through this year. Can I interrupt? I don't know why. I haven't to choose a random symphony for composer, and I have to choose the one that looked

like it was constructed after somebody took a bong hit. There's actual, like, normal strategies. I don't know. It's been thinking about me since I mentioned the dragon portfolio, which is I'm not a dragon guy. What's the name? I'm telling you, it was called dragon portfolio. Oh, okay. Okay, okay.

Hey, there's a lot of people who like that stuff. If you're going to do complex, you make it rules-based. Okay, here's from the New York Times. This kind of gets back to our agricultural commodities thing we talked about a couple weeks ago with Sal from Tukrium. In February, U.S. grocery prices were already up 8.6% over a year prior, large increase in 40 years. For those living on the brink of food insecurity, the latest price surge could push many over the edge. After remaining mostly flat for five years, hunger rose by 18% during the pandemic. The United Nations said the war's impact on the global food market

alone could cause an additional 7.6 million to 13.1 million people to go hungry. So I think this is your part saying the economic impact on the U.S. is not going to be as bad, but there are some countries that are going to have a world of pain. And I think our number was 30% of the exports for wheat come from Ukraine and Russia, the longer this stuff goes on, the harder it will be for that stuff to get out. Yeah, it's unfathomable. It's horrible. So here's a gas buddy guy, which I think...

Gas buddy guy? There's a site called Gas Buddy that tracks gas price. I think he's actually originally from Grand Rapids. According to Gas Buddy, weekly U.S. gasoline demand rose 3.3% from the prior week and was 4.8% above the four-week rolling averages to the highest since the week of August 8th, basically saying gas prices are much higher. people are not rolling back their purchases of gasoline, they're probably traveling more. And the whole thing is, again, people complain about inflation, but then still don't change their

spending habits. I think that's going to be what happens here. It's going to have to be the market that causes a recession and not consumers because I don't think consumers are slowing down anytime soon. And if going between the choice of I'm going to curtail my spending habits or I'm going to spend down my savings and going to debt, I'm guessing the latter is going to be what happens. gas buddy guy this just reminds me of a pet peeve i think it's probably everybody's pet peeve when people call you buddy or guy or boss or chief particularly at a pizzeria pal yes oh and speaking of composer if you're like what the hell is he talking about shout to our youtube channel composer sponsored the youtube channel today so if that was a non sequitur now you know where it came

from ben we haven't spoken about this and if you're not watching the youtube channel you can see all of the gifts all of the charts we're talking about what else photoshop sometimes Duncan and john do a great job photoshopping here might be a photoshop opportunity I'm a coach, you're a coach. Wait, what are you? So I'm the assistant coach for football, for flag football. I was also an assistant coach. Wait, so your Kobe is, what, five now?

He's five. You know what's nuts? So last week I was getting totally abused on the sidelines. The kids were destroying me. They were climbing on me. They were totally taking advantage. They mistook my kindness for weakness, and they won. It is pretty remarkable at the age of five.

And given that your son is a son of a former star running back, I'm guessing he's in the ladder. I don't think Kobe's an athlete because every, time kids touch the ball. There's like five kids that run for a touchdown every single time they touch the ball. And there's like five kids that just don't. Coe's one of the five kids that don't. It's amazing at that age, like you could see it already. Yes. Which kids have the natural ability? Is Georgia Tank? Does he run for a touchdown? He's kind of a physical freak. He was walking by like nine months. So his body developed faster than his brain. I'll put it that way.

Apple doesn't fall far from the tree. But so I was coaching a much of four and five year olds. I think our youngest was even three on the team in I was the assistant. I was the assistant. basketball coach for basketball. And you know, I've decided I never want to be one of those parents that gets mad and yells at the refs or yells at like the team or anything. I've kind of decided for the younger, I always was kind of anti, like I don't want to coach. That's way too much pressure and too many kids and parents. I think I'm going to keep the coaching thing up until they get into middle school. Oh yeah? I kind of like it actually. Okay. The kids actually got better as the year went on. And I thought I'm like, I'm actually decent at this. You know what my trick is for teaching

how to shoot a basketball? Your follow through is you reach into the top of the cookie jar on the fridge. If you make an analogy like that, this is like writing about investments. So every time I tell the kids, you reach into the cookie jar and that's how you shoot a basketball. And they remember that. All right. So my early take, I will reserve the right to change my mind. But at the five-year-old level, I don't love it. I don't think I'm great with kids. I'm not great with like a big group of kids.

I don't know. I feel like they're judging me. This coach doesn't know what he's talking about. I think if you can keep them paying attention to you for longer than five minutes, you've kind of won the day. Just so they're not like daydreamy and looking around like this. So, Robin signed me up. She didn't even ask. She just signed me up. That's what happened. I lost a coin flip, I think.

All right. Let's do some personal finance here. Ryan Radio tweeted, net worth held by millennials and Zumers has more than doubled during the pandemic, growing from $4.5 trillion to $9.1 trillion, or about $86,000 per adult and current dollars. Pretty good. Pretty bad still, on the other hand. I looked at the total, 6.4% of total wealth is held by millennial still. Boomers still own everything, almost Gen X is getting bigger. The funny thing is people will look at this and say, see, millennials are screwed. It's never going to happen. Eventually, the millions are going to get wealthier. And here's the thing, why did that

wealth double? Obviously, some of its stock market related, probably housing, because the millennials started buying houses in like 2013, 2014. That has to be a big part of it. Housing is out of control. It's out of control. I'm looking at inventory in my neighborhood, which is just my neighborhood, but the stuff that's on the market for over a million dollars is horrible. I cannot imagine. I cannot imagine that these houses are going to get bought for over a million dollars. They're like literally like normal houses that aren't even updated between, I don't know, I guess decent-sized houses like 2,500 square feet, maybe a little bit more. Kitchen that was updated in the 80s.

Maybe this is a bad analogy, but it's almost like a form of Stockholm syndrome where if you're so desperate to get a house, you'll take anything you can get. I feel like that's part of the way it is. So the houses, they're being listed for that. There's no way in the world that they're going to sell for that much money. I would be stunned. Absolutely stunned. You don't think that there's enough people that are desperate enough.

Do you think people are pulling back at this point? Yeah. I mean, there's a house on my blog that's asking for one, two. And I mean, they can ask for whatever they want. I'd be shocked if they got nine, honestly. So let's say you're putting in your finance brain now. You're going into a house like this, and now that mortgage rates are four and a half percent, you walk in and say, at 2.5 percent, this was my payment.

At 4.5 percent, this is my payment. It's a big difference. Huge difference. Obviously, the counter is, okay, so the Fed right now is raising rates, so then in three years they can lower them. and eventually you'll be able to refinance anyway. I guess that would be the silver lining. You can't buy a house to say maybe I could afford it one day.

I think a lot of people do that. Oh, that's true. That's true. That's true. I think a lot of people do that. All right. You're right. I take that back. So that would be the one silver lining for people who are paying a higher mortgage rate right now and saying like, oh my gosh, I missed it by eight months. I missed the bottom by eight months.

That has to be tough. All right. So let's get into some stuff about housing getting crazier. And then I'm going to bring it back and say, we'll see. Wait, what? I got other data. Don't worry. Median home sale price surged 7% during the four-week period ending March 13th.

Remember, we were talking about having a bet about will housing go up 8%. It was up 7% in four weeks. Nuts. Months increase on Redfin's data, which goes back to 2017. Whatever our bet was, I was wrong. I think so. The supply stuff is just crazy to me. With mortgage rates also storing the typical homebuyers monthly payment reached a new high

of over $2,100. That's more than $530 more than the typical pre-pendemic homebuyers. Time out. Time out. that's insane. Yeah, that's a lot. So it's up 25%, 33% maybe since the pandemic started. That's like a stunning increase for what is the biggest expense for most people.

If you own a home, that is your biggest expense. Yeah. Are home prices still too cheap? We'll get to that. It's getting worth. 45% of homes that went under contract had an accepted offer. Getting worse! Had an accepted offer within one week of hitting the market an all-time high.

48% of homes sold above list up from 37%. So you're talking about your $1.2 million house is not getting bought. There's no way. I don't know. Trust me. They might. Dude, there's no way. If you've been living in the city,

you've been living in the city for two years. No, no, no. Your spouse is saying we need to get out of here. We need a house. We're going to the suburbs. I don't care. We're buying. No, no.

They're not getting what to. This house is going to sell for a ludicrous nine and a quarter. That's so far over the line. Pre-pandemic, pre-any of this, that house is maybe $750, maybe. Here's another one from the Wall Street Journal. Zillow's home index grew 19% in 2021. Zillow bouncing.

I don't know. I don't look at my stocks anymore. Yes, pretty nice. Pretty nice. So from 2020, the typical house in 2021 was up over $52,000, which is slightly higher than the median U.S. full-time worker earned, $50,000. So their point was the median house last year made more money in a year than most people do from their income. Okay.

In San Diego, for example, the typical home gained about $160,000 in value while the typical worker earned $55,000. My point, homeowners are so flush with cash, and I can't imagine that money's not going to be sucked out eventually. Like home equity line of credit are going to go nuts. To counteract high inflation or go on your trips that you didn't go on, whatever. This whole thing feels like this like once in a lifetime reset and housing prices that he's just going to have lasting impacts for years and years, and we don't even know how. I don't like it at all. It almost doesn't seem fair for people like us that bought. Almost.

Well, yeah, you're right. No, imagine if you missed buying a house by one or two years because of where you were in your life. Yeah, I know a lot of people that did. It's horrible. It's so unfair. Good news from Bill McBride. Combined there are 1.58 million units under construction of housing between like single family and multi-unit family.

This is the most since August 1973. The bad news, he says, the reason that this number is so high because construction delays. And they can't build them fast enough because of supply constraints and later. labor shortages, and the housing market is basically broken right now. I mean, you can't even say it's a bubble because it's just, it's unhealthy. You know what's interesting? I feel like the Fed is, their silence is deafening. They haven't really commented on the housing market, have they? That's true. Duncan, John, make this giff of Jerome Powell over Leslie Nielsen's face with the nothing to see here. And put the housing market above it. I'm just saying like, rates have come up.

You can say the Fed is doing something. But if rising rates don't do anything because we still have these shortages because of they can't build enough houses fast enough. By the way, the Fed's not doing anything. They should have raised rates. They literally have to. They've talked rates up. But don't you think interest rates basically doubling on mortgages is the Fed

doing something? Because if that doesn't work, then nothing's going to work. They don't control mortgage rates. Well, they do by talking up bond rates because there's some sort of relationship there. All right, so value stock geek, a man after my own heart. I got tagged on this tweet by a million people. median home price in 1990, $127,000, median home price today, $408,000, average 30-year mortgage rate

1990, 10.3%. Today, 4.2%. 90 mortgage payment adjusted for inflation, $2,500. Mortgage payment on today's median house at today's average rate, $2,000. Okay, now show me the down payment. I'm just saying. No, I'm just saying, you can't afford it. You can't afford the down payment. 5% down. Erroneous. Throw this junk out. Get it out of my face. all right we are excited to announce that the animal spirits nfts is going to be minted on march 30th so here's what we're asking you to do we're ready to unveil where your eth is going to be going so high level we've spoken about this but just for people that might have missed it point one eth is the purchase price which at today's prices unfortunately crypto is doing a little better

it's 300 bucks that point one is not going to us it's not going to audiograph, it's going to no kid hungry. No kid hungry, actually, this is great. So I think we're going to be able to set it up so that their wallet actually so that we don't have to send the money. Literally, their wallet is going to be on the address. Yeah. So, all right, this is not great.

It's actually awful. One in six children in the United States could face hunger because of the coronavirus. And with so many children still not attend to school full time and parents still out of work in the wake of the pandemic, childhood. hunger remains incredibly high during the crisis and in the long recovery ahead. No Kid Hungry is helping schools and communities feed kids. And by the way, getting back to the food price rising. Yeah, it's going to be worse. It's going to be worse. So we'll link to this in the show notes. Please, please, please, please. If we've given you an ounce of entertainment,

please, please, consider giving us or giving No Kid Hungry. Point one Eath for the kids. It's 300 bucks and you actually get something. You get a nifty NFT, which I think, how many do we make? Like 30 different types? There's Ben NFTs, Michael NFTs, Animal Spirits, NFTs. We also, we didn't mention this before. There's going to be an Animal Spirits Discord channel. Someone's going to have to show me how it works, but there is Discord channel. We're going to be on it. Your wallet will allow you to enter to listen to our recording live once a month. And you're going to be able to ask us questions, which we will deliver a video recording straight to you. So we will link to this in the show notes. Please, please, please.

We're going to have Quinn from Audiograph on. We're going to have that on Saturday to kind of go with some more details. Yeah, I'm not one to beg. I'm not one to beg. But for the kids, please, we're going to have Quinn from AudioGraph on, we're going to do it Saturday. So Quinn from AudioGraph came to us, I don't know, if it was a year ago, whatever, with the business idea, which has since pivoted from the original thesis, and we're going to talk all about our relationship with them and how we got to where we are today. So we're very excited about that. So that will happen on March 30th. The other thing is, so people who aren't crypto-native again, they're going to have consumer customer service hotline set up to help. And they're also going to make it so. If you don't want to move crypto over and get into wallet, you can buy it with your debit card. They'll help you set it up so you can buy this with your debit card. So the people who don't understand how crypto works, it's going to be very easy. And we're going to- And last thing, unfortunately, you cannot get a tax deduction.

But please, if you're listening to this show, a lot of you are in the fortunate position where you can't afford to give $300 to the kids. So please do that on our behalf. It would mean a lot to us to be able to do that for the kids. Check out the show notes. We're going to have links to all this stuff. And I'm going to write a blog post too about this, maybe next week. Okay, very nice. Actually, one more thing.

One more thing, the NFT holder will get access to our Google Doc archives. That's right. I don't know how they did that, but they did it. So someone asked me today, what is your and Michael's process for the podcast? And I said every week, we're putting stuff in, we're putting charts and stories and quotes into a Google Doc, and that's what we go on. And it gets to be like 20 pages. And you're going to have access to that to see what we basically do our show off every week. And you're going to have access to that every single week, plus the archive of historical ones.

Duncan says it's 25 NFTs, but I believe, actually, I'm, I'm, I'm, actually positive that you're not going to know ahead of time. It's like random. So you'll get what you get. You won't get upset. All right. So we spoke on the podcast this week during the listener mailbag about leverage. Somebody emailed us.

I chime in with my story of how the risk on these things are greater than you can know. I had been running a rules-based strategy. Oh, this person, meet composer. Okay. I had been running a rules-based strategy with a small portion of my portfolio that relied on buying specific country ETFs. I did this for a few years and it was working out splendidly. I got greedy and seeing the success I was having once.

a strategy pointed to buying Brazil, I figured, why not buy the three-time bull ETF? It's all fun money anyways. Speaking of known risks, I of course knew there were big risks with Brazil itself, the currency, the general political upheaval, et cetera, et cetera. I know how the ETFs work with time decay and all those sort of things. March 2020 hit and the ETFs crashed like 92%. I knew that was a possibility. That's life, a return to risk, yada, yada.

What I didn't see coming was direction announced they could no longer secure the leverage for a three-time CTF, so they were converting it to two times. While it would have been a tough road to recovery, those losses, even with three times, given the precipitous fall and the reset, there was no way to make your money back at two times when you were riding that elevator down. So all this is to say that volatility is not the only risk to some of these leverage products. Good lesson. What's the table that says what your return has to be after a 90% loss?

A million percent? It's got to be big. I have it in front of me. All right. All right. We have time for one list of question. Should we just get it? We did listener questions on Monday if you had missed it.

Let's go about it. I got one on streaming real before getting a recommendation. So Forbes had this thing on Enkanto. And they talked about Enkanto is one of only two albums to spend at least nine weeks at number one during the past five years. We definitely helped with this. My kids listened to it all the time. Beginning and since March 18th in Conto will be the first musical soundtrack to debut as a sing-along special on Disney. We already watched that.

Subscribers have watched the film an average of five times according to the streaming company, racking up more than 180 million repeat views globally since its debut. This is why Disney is in a better position. than almost all the streaming companies. From my perspective as a parent, because rewatch. My kids rewatch everything. They beat it into the ground. They find a new movie.

They watch it 10 times. Then they listen to the soundtrack in the car and they listen to the soundtrack on Alexa. You don't rewatch a crappy Netflix movie. You watch it or it comes and goes. You don't think about it. Disney's rewatchability is way higher than any other streaming service. That's their leg up against the competition. Fact.

All right. You do your recommendations first because I don't got much this week. I was watching NCAA basketball. for okay so i for whatever reason i'm not a college basketball fan i don't know why i don't whatever whatever people in new york are not college fans in general sports it's mostly pros because you don't have a good college there to follow so i had an epiphany not an epiphany that's like overstating it i had a realization the rewatchables is my favorite podcast and if i can be a guest in any podcast no questions asked just give me a chance i want in on that podcast so badly i do love that podcast too i was listening to

panic. And that's when it dawned on me. And I think it's because it takes you back to your childhood. And they were talking about like how DiCaprio and Kate Winston had their whole career ahead of them. There's just so much going on. I just, I love all of it. I rewatched two movies this week. One in fall, one on the train when I was a little bit tipsy. That one was Desperado, which, why has that not been on the rewatchables? That's on Netflix. If you haven't seen it, I haven't seen the movie in a long time because I probably saw it a hundred times when I was younger. The Bushemi scene is a classic. The quick Tarantino cameo is phenomenal. Holy shit, is that movie amazing. Holds up phenomenally well. I assume you've seen Desperado. Yeah. What was

the sequel with Johnny Depp? What's about time in Mexico? I like that one, too. The machete spinoff? Great violent movie. I forgot about Desperado. You're right. Antonio Bander's back in his 1999, it looks like. That's like peak Michael. That's when I peaked. I peaked at 10 years old. That's on Netflix right now. You're right. That is a good movie. Holy moly does that hold up just perfectly well. If you're a younger listener and you haven't seen that, do yourself a favor. Watch that immediately. Okay, I watched this in fall. I'm not quite sure why, but I got sucked in and I watched the entire movie. You ever see Troy? Yes. Okay. When was Troy made? Sudden theater. I think I might have as well. Oh, 2004. It was a little disappointing. It was okay, but not great.

You're right. It was good, not great. I'd like to bet on the rewatch because you had such high expectations going into it. And this, I'm not really sure what to make of this. Very dreamy as Achilles. Yeah. Oh, gorgeous. He sucked. It was very strange. He was like noticeably bad, and I don't really notice those things. I guess Eric Bannon was better than him in that one. So much better. I know Orlando Bloom.

And what's the dude's name from Logan Roy? Why forget his name? I'm drawing black on his name. He was fantastic. So the movie as a whole, very good. But here's the point that I want to make. So that was done by Wolfgang Peterson, who's done the Never Ending Story, which is my personal, that's my childhood favorite film.

The Perfect Storm Outbreak Air Force One. He's done a bunch of other movies. Troy made $500 million in 2004. And it's like a fairly forgetable move. Like it was, whatever, it's decent. How much did the Ridley Scott, the last duel make? Like $7? $18 million.

It was something really small. Okay, and I did watch. This was a recommendation by Kevin. Thank you for this. Triple Frontier? I liked it. I liked it. Is it a great movie?

No, by no stretch of the imagination. Based on the actors in it, I expected a little more. Great cast. It gave me what I was looking for. Let's put it that way. Gave me what I was looking for. Okay. So I've mentioned, over to you.

We had Mary Childs on The Compound to talk about her Bill Gross book, which I thought was excellent. I read it in four or five days pretty quick for me. His whole story and the whole story of Pimco, I thought it was really well done. This is your finance book of the year so far for me. I thought it was really good. Check out the video we did with her. She's excellent. All right.

I got stopped out of a show. Mayor of Kingsdown. Oh, good for you. We made it four episodes. Jeremy Renner's show. It's the guy who wrote Yellowstone. The guy from that guy. Taylor Shared.

Not Matthew Fox. Whatever. His name is. He's not Matthew Fox. He looks like Matthew Fox. He was in the Friday Night Live show. Yes, Kyle Chandler. Okay.

We made it four episodes, and it was like, it was okay. And Jeremy Renner was pretty good, but it's kind of like, it's one of those ones where we weren't excited to watch it. We were just kind of doing it because we thought we had to finish it, Paramount Plus, and I got stopped out. Sorry, if you like this show, fine, but it just, it didn't do it for me. It didn't suck me in. Finally, Oscars are this weekend. I made eight bets on Kelsey for Oscars. I put a 13 cent bet on Koda to win the best picture.

13 cents. Oh, oh, I got it. That's when I put it on. It's higher now. I also bet on Power of the Dog as the frontrunner for 49 cents. Bet Will Smith for Best Actor at 64 cents. Some of these I'm going to lose, but I put eight bets down on the Oscars to win. Any other time I would not be watching the Oscars because I bet on it, I probably will have it on the background to see if I won any of my eight bets. But the great thing is because there's like eight different people for each category, the odds are pretty well spaced out. So you can get a good payout if you're right. This could be the worst Oscars ever. Probably. Power of the Dog was. not great and that's like the one of your I hope Hoda wins. I really enjoyed that movie. I would double down on that if you've never seen it because it's on Apple Plus, Apple TV Plus. Animal SpursPod at gmail.com. Thank you for listening. We will see you next time.