Animal Spirits Podcast - Capitalism As We Know It (EP.142)

Episode Date: April 29, 2020

We discuss why credit card payments will be the first thing to go for people with financial problems, why so many people prefer real estate as an investment, colleges, and gyms are in trouble, people who will leave big cities, how a crisis can change your investment thesis on the fly 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 our friends at YCharts. On today's show, we are going to be looking into some of the credit card companies and see how much trouble they're in. And we pulled up some macro data on credit cards, just looking at the actual average credit card rate. We're going to look at some of the biggest impacted and most impacted companies and using some help from Y charts. If you're interested in checking it out, it's great at home because you can use it on any device. Go to YCharts, tell them Animal Spirits sent you, and get 20% off of your first subscription. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching.

Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the security. discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. So someone asked us this weekend on Twitter what we would like to do to make the finances of people on the low end of the income scale more adaptable to this crisis and how you can help them. And we're going to talk

about the unemployment stuff maybe towards the end of the show a little bit. But I threw out there the idea, why can't they just wipe out credit card debt? Would that have a bigger impact than completely wiping out student loans? Obviously, this. is just a theory and throwing it out there. And obviously, I don't think this would ever happen, but there would be ramifications for the financial industry. I guess the Fed or the government would have to basically just pay them off. But what do you think about that idea? Would that have a bigger bang for your buck? Because last week we talked about the fact that once people got these checks, they spent them and would paying off people's credit card debts

and having that weight lifted off their shoulders, could that be something that would help people stay afloat and maybe even spend some more money during this crisis? Can't hurt. Here are the numbers. Student debt, this was from the New York Fed as of Q2 2019, so a little stale, but still applicable. Student debt $1.48 trillion, credit card debt, $870 billion. So not quite as big. Student loan debt is almost twice as large. However, people aren't expected to pay out their student loan debt in one shot. You know what I mean? So the incremental pain that people are feeling from their credit card debt is probably orders of magnitude, on average, larger than student loan debt. So I looked up the, this is from Y chart, the U.S. commercial bank interest rate on credit

card payments for all accounts. This goes back to the late 90s, and it just shows the average credit card rate. Right now, the latest reading is over 15% for the average credit card rate. The lowest it went during the crisis in 2008 was 12% and it probably got there. It's basically stuck in the 12 to 15% range. So not only, it's less debt. but you're paying way more in interest than you are in student loans. So let's call it double or triple the rate in sometimes. So yeah, I think especially for people on the low end of the income scale who are probably the most impacted by it, it would have an effect. Obviously, if that happened, again, this is just a thought exercise. You're probably bailing out some of these credit card

companies who were in pain. And there was a story in the Wall Street Journal. The title was millions of credit card customers can't pay their bills. Lenders are bracing for the impact. It sounds like this isn't so much a Visa and MasterCard story, since I don't know there may be a little more diversified, but there are some companies that are really getting hurt from this, from the fact that people are just saying this is one of the ways that we're cutting back or we're negotiating or we're figuring ways out of it where we just can't pay this credit card bill anymore. Well, so these companies are Capital One Discover and Synchrony Financial, and they're down anywhere between 45 and 60%. Visa and MasterCard are both down just 10%. American Express, which is more exposed to the actual consumer is down 30%. but these companies are exposed not to the high-end area of the market, but to the lower end. And Josh has been talking about this. Credit cards are probably the first place where you're like, sorry, I'm not paying.

What are you going to do? I'm already in debt. My credit report already is shit. Sorry, I'm not paying. So there was a quote in the article, I probably won't pay it if they're not willing to work with me. That was from somebody. And so these places are already allowing a month or longer for forgiveness. And I know this is a hypothetical on hypotheticals, but if you wiped out credit card debt,

wouldn't you see these same people back in the same place a year from now? I mean, potentially, but wouldn't it give them a shot in the arm now while they're waiting? I mean, maybe it would be, I don't know, harder for them to get credit or something. I don't know. And maybe a lot of these places are going to make more stringent rules on it. But don't credit cards, don't they have a bigger buffer in place because people are paying 15%? Obviously, they build a default into that. And it's got to be a pretty high default rate.

I don't know what the default rate is now. but earning 15% on that money, even if you're only collecting from, I don't know, 70% of the people whoever pay it back, isn't that giving yourself a margin of safety as it is? What if people that stop paying their credit card bills were on a report for next time? Like, let's say that they wiped it all out and they said, okay, these people, they're not getting in credit anymore. Yeah, I mean, that's why the rates are so high in the first place, obviously, because you're not doing a bunch of credit checks on people.

You're offering this easy-to-access credit for you're not doing a huge background check and due diligence. And so that's part of the reason, obviously, that they have to offer such a high rate. It is just surprising to me that every interest rate on Earth has come down in the last decade except for credit card rates. That has just remained the same place that it's been the entire time. Yeah, but I understand why, because I don't think that... But shouldn't they be tied to some sort of benchmark and not just this absolute level?

If households credit scores and balance sheets were actually improved coming out of the crisis, which for 10 years they were improving, shouldn't those rates come down a little bit and impact based something on these other rates when the 10 years and nothing right now? I don't know that I think so that, because high rates incentivize you to pay it off. Junk bond rates have come down enormously since the crisis. Shouldn't there be a similar, at least fall and a little drop on those rates? It's just crazy. Even people with good credit still pay 12 to 15 percent on their credit card.

I don't want to be defending the credit card companies here because it does seem like 24% APR, whatever it is, is pretty steep. Right. But yeah, you're right. If I was in this position, though, as some of these people are in the Wall Street Journal story, that would be the first place I'd look to. And I would say, I'm not going to pay 15% interest every month while I'm just drowning here in other stuff.

That would be the first place that I'd go to. Right. Because the first thing, you have to pay rent or mortgage, or at least that's probably your biggest line item. You have to pay your phone, credit card. You're like, what are you going to do? What are you going to take from me? I have nothing.

I'm not paying. Yeah. So we looked at some of these companies. So XLF, which is the financial sector, ETF, is off close to 30% from the highs. Synchrony Discover and Capital One are down 45%, 53%, and close to 60%. So these companies have, it's being priced in that they're going to feel some pain from this. Again, it all seems to roll down to the financial firms and the banks in this, which almost makes me feel okay about stuff because isn't all this just going to roll to the Fed eventually? isn't the Fed as a lender of last resort? Doesn't this make you feel a little better that they're going

to be the adults in the room and not have to worry about the federal government bailing some of these places out if everyone just allows everything to head downstream to the banks eventually, that the fed's got their back? I think the appetite for bailouts is waning very quickly. But guess what? With the Fed, who cares? You think Powell's going to go, oh, no, there's a guy on Twitter who says the Fed's bailing everyone out. We better stop now. I mean, that's not going to happen, right? Yeah, but it's not just the Fed. The Fed is working in conjunction with the Treasury. and they do need political backing for this. Not really.

For what they've done already, I don't think there's going to be anyone who's going to say, all right, backup, stop it now, it's over, we've done enough. Once you've gone down this path, if you turn it off, everything just goes to shit. I disagree vehemently. I think that they're going to have a lot harder time continuing to pass these stimulus bills or relief bills or whatever we're calling it. Yeah, that's the government. I'm saying the Fed for the banking system, they can basically do whatever they want.

Do you think anyone's really overseeing? the Fed right now saying, what are you doing? You've already done $6 trillion worth of loan guarantees and loans and bailouts and such. I'm saying as far as it goes to the banking system, I'm not talking about bailouts of airline companies and fiscal stimulus to people. The Fed is kind of on their own. And I think they're on an island and they can, Powell can do what he wants, basically. So I'm saying if it reaches the banks, I think the Fed is going to do whatever they can. And if it gets to $10 or $15 trillion, who's going to stop them? Right? The algos. I don't know. I'm saying for the system, I think this is a good thing that it's going

to make a lot of people angry who like to shout about free markets and price discovery, but I don't think Powell really cares about that. All right. Leon Cooperman, what did he have to say? So he's a hedge fund manager who's been around for a long time. He was on C&BC last week. He's getting into the ways that the virus is going to change things. And he's one of these people that says he thinks capitalism is going to be altered completely because of what we're doing to the economy. because of this. He says the U.S. is moving more to the left. So he thinks taxes will have to go up because we're doing these bailouts. He thinks that we're moving more towards this progressive socialist type of attitude where I think he's saying we're going down a path where we're going to see some

sort of UBI or something like this where the government is bailing people out and giving people more money. He actually thinks stock buybacks will fade away. Maybe at this point, just to like throw people of bone, maybe that is something that could be on the horizon. I don't know if they just throw it in one of these bills to just say stock buybacks are gone and just pay them in dividends. I don't know, or they relax the taxes on dividends somehow. I don't think stock buybacks are the biggest issue that we have, but that's not the hell I want to die on. If that has to go, I feel like that's like low-hagging fruit. Yeah, yes, exactly. Because guess what? They'll use that money for something else because they don't do it as much overseas. They have higher dividend

yield. So right now, dividend yields in emerging markets in Europe and some of these other countries are roughly double what they are in the U.S. And part of that is because the way they're structured and some of the companies and sectors there, but part of it is just because they don't do as many buybacks as we do. And I guess if you want to say, yeah, just pay everyone out in dividends instead of buybacks. Is that really going to change much in terms of wealth inequality and stuff? No, but maybe that makes people happy, I guess. But the whole, I don't know, capitalism being altered here. I think that's a little bit of a stretch. I feel like people are just going way out on a limb on some of these changes we're talking about. And I know we're only six or seven weeks into this crisis, even though it feels like six or seven years. But completely altering the shape of capitalism. Do you think that we, I was going to get to this later, but maybe it's just time to bring it up now. I listened to a podcast with John Barry, who's the guy who wrote the great influenza book that I talked about towards the beginning of this crisis. And I highly recommend you read it if you have any of it.

But he was on Peter Attia's podcast. So if you just want the condensed version, listen to that. After I listened to that podcast, I went back through my notes from the book. I was going to write a little bit more about it. But he talked about how after the 1918 pandemic, there basically weren't even any books written about it. After going through that, no one even really wanted to talk about it. It didn't really exist on people's radars. Obviously, we were going through World War I, so that was more in people's minds.

And then we had the roaring 20s and people kind of forgot about it. But he said, like, if you go back and look, there's not really many books written about it. Do you think the fact that people went through so much crap back then? Life expectancy wasn't that long as it is today. The health care system wasn't that great. People just lived a much harder life. A lot of people worked on farms. Do you think because of the fact things are so good today,

that that's why people are freaking out even more than they normally would because of this? Because this is just isn't something that we're psychologically prepared for anymore because life in most ways versus the past is just better. Yeah, there's definitely a kernel of truth there. Morgan said something like, if COVID-19 was around in the early 1900s, it would just be like maybe one sentence in a textbook, if that. They're always dealing with epidemics and just a shorter life expectancy in general. So, yeah, I think that we have a pretty good these days. Right. But what's your point? I just think maybe we will see some overreactions from this that you wouldn't have seen in the past.

The 1918 thing, the crazy thing to me was the government didn't even really mention it at the time. And they were so, they almost made it, I think they somehow made it like illegal to talk against the United States of America at that time. So in the government effectively wasn't telling people anything. It was up to the local governments. It's just so hard to figure out what the over and underreactions are going to be from this. And even if there are some, how quickly they'll fade away if and when we get through this and we have a vaccine and we move to the other side of it. Do you think there's any areas where people are underreacting? Because I'm with you, I think there's a lot of overreaction on how different life is going to be after.

to this. Do you think there's any places that we're not seeing how much things are going to change? That's a good one. I don't see people not going to concerts and sporting events and stuff in the future if we get to a safe place treatment or health care wise. I just don't see that being underreaction. When you say in the future, are you talking about like 12 months or five years? Whenever vaccine is here. So let's call it two years, hopefully, 18 months. I would have to think about the underreacting thing. I would not bet against human nature and people's years and years of habits being broken from this. Maybe I'm wrong, but I think maybe the underestimation here is the government's willingness in a crisis to spend money. Maybe that is just

something that is going to be here with us for good now. And I think 2008 put some cracks in the dam and this thing broke it. All right. I want to talk about that. Well, first of all, I think that handshakes might be gone. I'd be fine with that. Who cares? I mean, yeah, that's not a lifestyle. But I think the thing about this government having our back always are unintended consequences that we're not thinking about today. So here's an example of how unintended consequences work. Justin Costelli invited me onto this app where I thought it was like the honor system where you check in, you say, okay, I've done the pushups.

And if you miss a day, you have to pay some money to the pot. That's the concept. So it's like, oh, I like this. Okay, 35 pushups a day. I could do this easily. So I signed up for it. I did 35 pushups. and then it started the next day.

So I did five sets of seven, no big deal. But then the next day when I had to check in, they give you 30 seconds to record yourself on a video. So I'm like, wait, I can't do 35 pushups in 30 seconds. What the hell? So what I did was I faked it. I went on my knees and I started doing like the half pushups and I did 35. And then I was thinking like, well, this is funny.

I was actually excited to start doing pushups. but now I've got these conditions that are making me actually cheat the system. And you see that with unemployment benefits being more than some people make at their job. So there are all sorts of unintended consequences that go on in the world. And I think that this is probably one of them. People are still going to complain, but people are going to be more accepting of it. That could be our Great Depression baby thing, not like, oh, people are going to hunker down and save more. I think it's just people are going to say, okay, you're saving more from our taxes and you're going to help us in the future and bail us out. Maybe that could be it. But I'm just, I'm having a

hard time wrapping my head around a lot of stuff. I think the people who think that this is going to lead to more online schooling, I just, I'm going purely anecdotal here. And all I have is a six-year-old and two, three-year-olds. But whenever I ask my daughter, are you okay? How's it going? I know you're not in school. How are you feeling? And she just says, I miss my friend. So I think people just really underestimate. A lot of times it's like entrepreneurs and Silicon Valley people who say, oh, this is going to accelerate AI and online learning. I feel like sometimes people who are so successful, don't think about normal people. A lot of normal people just need that social interaction in going to school. And I think that's just a huge part of it. And so I think maybe this

could be almost the end of online learning where maybe you're going to have tutors online in the future in AI and that stuff. But a lot of people going fully online for learning, I just don't see how that can happen without that social interaction. Survey of the week, I guess, Gallup Paul, Americans' views on the best long-term investment is real estate. And this is not necessarily a reaction to COVID-19 or anything. This is pretty steady. Can you imagine telling some of this in 2007 or 2008? It's surprising. So real estate is at 35%. Stocks are going down. Stocks are like 21%. People put savings account in CDs almost the same level of stocks and Goldwood in there too. I put this in here because I remembered it. This was in 2011. In August of 2011, they asked people

what the best long-term investment was. And this basically called the top in gold. But gold was close to 35%. Real estate was down at 19%. So real estate has almost doubled since 2011. Stocks have moved up a little bit, which is surprising because stocks were up so much since then. I guess this is one of those things where a lot of people are momentum players in all this. But I don't think so. Look, real estate hasn't budged in five years. In 2011, it was 19%. Now it's 35%. You're right. It's flatlines since then. I think after the GFC, that was probably the outlier. I'm sure if you look at a long-term trend, I think real estate is probably always the number one, at least since the 70s. And we've talked about because the majority of the middle class has all of their money tied up in

their household. Don't you think that this situation in this quarantine almost will make people think real estate is even more important to them in their lives, the difference between someone who's renting now and someone who's owning some property? Don't you think that makes sense that people would, maybe this won't lead to some sort of crash in real estate because people are going to realize see now now you're overreacting you think so i'm just thinking about the person the young person in new york city who's 25 years old and living in a 500 square foot studio those people are fine if you're 25 and you have a 600 square foot studio in new york city i get it that's no fun but the people that are really in trouble are people that have one or two kids in a 800 square foot

apartment yes i actually think that there could be something to the even if it's it's like a short-term blip, this exodus from cities into the suburbs for a certain subset of the population, like older millennials. I think we could see a huge of that one age group or demographic. Do you think that anybody's going to be like, I can't handle this next time? Or do you think that people are going to view this like Hurricane Sandy as a once-in-a-generation type thing? I think what could happen is that people get houses, and I'm talking about New York in particular, people get cheap houses like way upstate as a bunker place. You know, wonder if a couple years down the line after this is all over, if it is something people look back on

and say like, okay, that was it. It's never happening again, though. I can see people having that attitude of, okay, that was terrible, but yeah, we're done now. That's it for pandemics. Obviously, not knowing anything at all about medicine and viruses, I don't know, I'm sort of operating as this is a once in a lifetime type thing. Is that ridiculous? I'm not positive. I'm just saying, like, I don't know. Bill Gates is kind of on the line of this is the kind of thing that could happen again. And it sounds like from the book I read historically. Is he saying could or will?

Could. Because of course it could. But they're saying historically two to three times a century you get a pandemic. I'm going to say 40% chance. Okay. Yeah, sure. You can't lose with that number. Okay.

So last week we talked about the negative oil prices and how a lot of it was ETF driven. I guess this is something I didn't think of either, but Bloomberg had a story called the 20 minutes that broke the oil market. And you don't think about it because you think of everything from the perspective of a U.S. investor, at least we do, I guess. But they talked about how there was actually this product in China where people were buying and they were advertising this product saying that crude oil is cheaper than water and showing an image of golden barrels of oil. And I guess there's this huge retail piling in of people from China buying oil too and that had something to do that. You don't really think about, obviously oil is a global phenomenon. And it's

just not just a US-based thing. It's people from all of the world were putting into this. So maybe that's one of the reasons that you had just this weird stuff going on. And it wasn't just people betting on USO and Robin Hood accounts like people want to make it out to be. There's just this huge, all around the world of people putting money into this. And it's crazy. And so they talked about how collectively people in China lost close to $100 million or something. And this one bank is going to have to pay $56 million to settle them from their futures account. And so we wondered what happens if they go negative. Is someone in their brokerage account can be hit for this? No, it's probably the fund company, right?

Miles wrote a really good piece this weekend about profits profiting and Ackman was an obvious winner. Where are all the winners or losers? Like, who's getting blown up? Who's making fortunes? And Miles said, like, if there was huge winners at this point and losers, we probably would have heard about it. That is kind of surprising that especially in the oil stuff, you haven't heard of someone who was on the winning side of some of those trades? Because obviously, there has to be a winner and a loser. So who wins on those? Yeah, you're right. I haven't heard that yet either. It is also surprising. And the Ackman one was pretty early in this. And obviously, we heard about the tail risk hedge fund, which made a bunch of money. Yeah, but that's a drop in the bucket.

Right. There hasn't been a big short. Maybe that just shows how crazy this thing kind of came in and swept people up that happened so quickly that there wasn't anyone who could have possibly positioned their investments to take advantage of this. Barron's big money poll. Did you see this? I wrote about this briefly yesterday. Who do they talk to for these? 107 money managers. I don't know exactly who they're talking to. But the 2020 made sense to me. You got 41% neutral. Again, that's 40% number. It's always that safe space. You got 20% bearish, 39% bullish. 21, however, 83% bullish, 4% bearish. 4%. That's it. These are probably all long-only mutual fund managers from that perspective, if it makes sense.

Don't you think though, 2021 right now is just like a fake made-up place for people? Like, yeah, sure, I'll be bullish for then. It doesn't matter. I can say whatever I want. If you ask them at the end of 2020, if things are still crazy, then they'll change their tune. What if the survey was a month ago? Yeah, it's possible. This is like strategists who update their year-end price targets throughout the year.

I feel like the closer you get to that date, the more people will update what they think based on what's happening at the moment. But, yeah, anti-survey. You know the images where you mash what the average NBA player looks like? You mash all their faces together? I didn't know that was a thing. All right. Well, picture that.

That concept, this quote perfectly encapsulates the state of the American investor in general. In the grand scheme of things, I'm bullish. It's a vote of confidence in America. I have confidence that we're scientists and that were business leaders. I also have confidence in the American's consumer. While some habits and patterns may be different than a post-pandemic world, we believe that a lot of the demand has been pushed out instead of eliminated. I guess that would be the general sentiment of the stock market right now

and why the stock market is up, right? Maybe a lot of people just have that similar mentality that everything will be fine. 2020 is going to be awful. We're going to completely write it off. But after that, everything is fine. So, Ben, welcome to the club. You're a Palaton rider. Do you know that I actually literally took physical delivery today?

I got a bicycle. A real one? A real one. Okay. Has Peloton done that yet, or does that sort of eat up on their own business? Do they have outdoor bikes they could sell? So maybe this is something that people are underreacting to. So they said Pelotin had 23,000 people in a live class.

Maybe certain subset of the population is going to figure out ways to work out a home and never go back to the gym. Are there going to be some people who do that? It's possible. Maybe young people like going there and showing off. And gyms are in huge trouble. That January crowd of people making, what is that thing that they do at the end of the year? New Year's resolution. I think that's done. That's potential. The New Year's resolution crowd is all out on gyms. Yeah, sure. I'm giving up gyms this year. It's done. I mean, maybe that's something where people say, you know what? I'm not young and single and I don't like to go to the gym to be seen. What's the point if I've got something that I've figured out and I'll save a little money? I could see that happening. That could be a thing. I think it'll be a while till I enjoy going to the gym just because it's nice to get out in a different place. but I could see that happening. So yeah, Bloomberg had a story that 23,000 people were in a single live class for Peloton. They're almost one of the unintended winners from this.

Obviously, they could have never planned for something like this, but I'm sure they're doing well. A lot of people told me that it's taking them five to seven weeks to get a bike. Somehow I lucked out and got ours in like a week, but I could see that. I'd be pushing my foot on the gas pedal and coming out with newer products if I was them as fast as I could because there will be demand for that if they could do something like that. Do you wear a helmet on your peloton just to hedge the tail risk? Yeah, nice. All right. So the New York Times had a story about the $600 unemployment booster shot state by state. And this is, they had a really cool graph in there. And it says workers in more than half of states will receive,

on average, more in unemployment benefits than their normal salaries, which that's a crazy number. So they went through state by state and showed which ones are better off and which ones are worse off. And this is one of the main pushbacks to people who say, oh, this is just a corporate bailout. You're bailing out of the corporations and rich people again. This extra money in unemployment benefits is a huge stimulus to a lot of people. And I've heard some anecdotes from people who family members or friends who are getting this and saying, this thing saved me. And I'm now making more money for the next four months than I would have before.

It's pretty crazy. Obviously, this is just a short-term boost for a lot of people. And when that four months runs up, it's probably going to be painful if they're not able to find a job. and we're still stuck in this. But for the time being, this is a huge shot in the arm for a lot of people. So I didn't know this. They asked a question, why $600 a week? And the answer is, well, when you add $600 to the national average unemployment payment, the replacement rate goes from 38% to almost exactly 100%. So that's what they're trying to do. And we spoke about this. I think you've said this on two straight podcasts. Why aren't they just doing what Denmark did,

which is replacing 80% of people's comp from the New York Times article? If the goal is to replace everyone's wages, why not do it in a manner similar to how other countries are paying large percentage of workers' salaries to prevent layoffs? I forget who this person is. She's obviously involved in the system. She said the unemployment insurance system is the system that we have. So basically, we just don't have the infrastructure to do what you and so many other people have recommended. Right. I didn't realize this either the whole, the $600 averages out to making everyone whole for their income. So that actually was a pretty ingenious idea. I wonder if they're going to extend it. So I saw a story last week from our local places. In Michigan alone,

an estimated 820,000 people have received $1.3 billion in unemployment benefits. And I think we're actually one of the highest states for people who are out of work because we have a big manufacturing arm, which is crazy. So there was a story in J-Store, which looked at why being laid off hurt so much. And obviously people see this and they say, oh, these people are making as much money as they did before. But it still adds so much uncertainty to your life. And they talked about how, especially construction workers, they followed these people around who had been laid off. And it was like such an emotional blow for these people. This one guy said, he told the researchers, when I get laid off, I still feel bad. I feel like I swallowed a butcher

knife. And I'm always trying to figure out why. It's because I have no skills. And I always feel like it's me. So there are a lot of people who, even if they have the financial backing for a while, I feel like people still get a lot out of going to the job every day, even if some people hate their jobs. A lot of people have their identity wrapped up in that. And for some people, that uncertainty and who knows what's going to happen is a tough pill to swallow. So this is kind of bizarre from the unemployment stuff. The National Bureau of Economic Research has already got a paper that they're pushing out and they just put it out there pretty quickly from this.

And they looked at, because the unemployment numbers are a survey. And so you have the labor force and we've had this 26 million people that filed for jobless claims, but they actually think that the unemployment rate may not go up as much as that number because a lot of these people who are going into unemployment actually told the researchers for these surveys that they're just going to take early retirement. So you wonder how many older people out there that is going to do this too. So, I mean, I don't know how much of an impact this will have if it may just cap the unemployment rate a little bit. But a lot of people, and I think this happened during the Great Recession, too, that they just decided,

I'm not going to go back and look for work again. I'm just completely dropping out of labor force. So actually, the labor force itself could drop from this, which would impact the unemployment rate, that people just say, what's the point of going back? things are so uncertain. I'm completely dropping out as it is. Yep. Sorry. I don't really. Okay. It's just a good tidbit. Okay. I don't really have anything to add. All right. Did you read the long Bill Gates note? I read the abbreviated version. Okay. He wrote a much longer one. And I tried to pull out some of the good news from this because

obviously some of it's bad. But he was trying to compare how the exponential run, of this thing was just always really hard to wrap your brain around, which makes sense. But he said exponential decline is even less intuitive. A lot of people will be stunned that in many places we will go from hospitals being overloaded in April to having lots of empty beds in July. The whiplash will be confusing, but it is inevitable from the exponential nature of infection. We obviously got this huge upswing. It's potentially going to go back the same way. And he says, of course, that exponential growth could come back if we have a second wave. Again, pulling out some other good stuff. He said during World War II, an amazing amount of innovation, including radar,

reliable torpedoes, and code breaking help end the war faster. This will be the same with the pandemic. I break the innovation into five categories. Treatments, vaccines, testing, contact tracing, and policies for opening up. So again, he's saying the science is potentially going to be the biggest breakthrough here. And he said, he thinks 18 months is still the vaccine. That's like best case scenario. He said it could be as short as nine months or closer to two years. So he's still staying with that, which I think is pretty good because I think there's a lot of people were saying, well, we're never going to get a vaccine. So some optimism from Bill Gates on this. I said to you, don't you think that it's going to be hard to write a financial book about

this time? Because it wasn't the markets blowing up that did this. It wasn't a financial crisis. Don't you think the best book about this is going to be about the science and how we get to the end game here? Who figured out the treatments and the vaccine and how they did it and how they work together? I think that's going to be the best book about this crisis. I think that's a good take. Who writes that? I mean, whatever. probably be Malcolm Gladwell or Michael Lewis, everyone would think, but someone of that ilk. But Charles Duhigg had a really good piece in New Yorker about how the difference between Seattle and New York, a lot of it was in Seattle. They listened to the scientists. And in New York, they didn't

listen. And they let the scientists take front row seat instead of the politicians. And obviously, there's a million other different reasons. But I think the science behind this stuff is what's really going to be fascinating after the fact to realize what was all going on. I don't think we're too far from, especially if the numbers continue to come down, I don't think we're too far from just people not listening to any stay-at-home orders anymore. And I think that there's definitely legitimate arguments to be made on that side. Obviously, it's so complicated. Ours are done. They told us last week that in Michigan, May 15th is the end date, which I think it was March 13th. That was the day that they first put it in and schools were closed. So two months of stay-at-home orders.

And obviously, they're going to tell people, if you don't have to go out, please don't go anymore, but that's a long time. And people are, you see people on Twitter on the weekends posting pictures. Oh, look at all these idiots at the park. What are they thinking? Or look at these people out and about doing stuff and protests. Even if the numbers, I don't know, what do you think? 80% of the country followed this stuff. Isn't that kind of amazing that we did that? Like, just by being asked, there was no, if you go out, if you leave your home, you're going to be, like, in China with some people that come in and they quarantine when they first get in the country for 14 days, they have like a security alarm placed on their door. And if they leave their room,

that alarm goes off. Like, we don't have any of those measures in the United States. And a lot of people still really did a good job following this. So I think that is actually kind of commendable. You can always look for the bad stuff, but I think that a lot of people did their civic duty and stayed home. And even if it wasn't the entire population, a huge percentage of us did that. Will there be a false semester on campus? I don't. I think colleges are in trouble. And a lot of colleges are saying we need to get back because they know they're in big time trouble. So on one of Scott Galloway's recent podcast, he interviewed someone from the education world and they talked about what's going to happen. And they predicted that what this is going to do

is make the bigger colleges even stronger because they're going to open up their enrollment and say, all right, we're going to do online classes, but we're going to allow 40 or 50,000 people in addition to what we already do and just expand. And I guess in that case, all the smaller private schools are just out of luck. But this piece from Wall Street Journal says college campuses almost couldn't be set up much worse for the coronavirus. And I guess you kind of have to agree. They're going to be in for some trouble, I think. I don't think that the harvest of the world are going to expand their audience or attendance. Like one of the reasons why they're able to judge what they do is scarcity. But he was saying if they have a better online version and maybe

they work with Google or Apple or one of these big tech companies to make that more of a reality, that they could open it up that way and bring in a ton more revenue through the online version if kids are willing to say, you know what? I'm not getting my regular college experience, but I'm going to get that Harvard name, Princeton or wherever, and maybe that's worth it to me. I don't know. Harvard Online doesn't have the same ring to it, the same pedigree as Harvard does. I don't know. You can still on your resume forever, right? I know. I don't think that's going to happen. I think personally, if I had to pay for an online college, I would have a really hard time doing it.

If one of my kids was 18 right now in a senior in high school and they were figuring what to do, I would probably tell them, go to community college for a year and get a bunch of your prerex out of the way. If you're not going to get that college experience, let's save some money, not build up student loan debt. And if you want to stay for an extra semester in real college at the end, have at it. But I don't see the point of paying a ton of money to go to a school just for online classes. That does not sound like it's worth it to me. almost 165,000 people took hardship withdrawals from their 401K, according to Fidelity. I don't know if that's Fidelity alone. I imagine it is. The average withdrawal in April was

$5,500, while 3,200 people took out $100, which was the maximum allowed under the CARES Act. This is tough because it's great that people had access to this. It's kind of sad that they had to tap into this, though. This is a double whammy of taking it out. And yeah, that's too bad that has to get to that place for a lot of people. I teased this on the last podcast. I wrote a piece. I've just got a little five or ten percent of my portfolio in a brokerage account. I actually keep it at Robin Hood. And surprisingly haven't moved it from there, even though they've had some problems. This is the only place that I do a little bit of trading. You have something similar, don't you? Were you a trading account or did you close that? Close it down.

You do no more trading or anything, no more options, no more triple lever at anything. I own one stock in my Roth IRA, which is not a ton of money. I own Slack. Do you think that during your trading days when you kept the trading journal, would you have been trading like the three times levered oil fund during this whole blowup? Is that something you would do? Probably. Yeah. Yeah, I could see that. Okay. So I just came to some observations from my, again, 5% of my portfolio. I think this is kind of the scratching an itch type of thing. And I think a lot of people should do this. Even if you have an advisor, I think keeping a little bit of money to the side if you want to just go crazy. I think it's actually a good behavioral release valve.

And so this is one of those places of my portfolio where I really don't have an investment plan. I buy and sell a bunch of different stuff. I'll take some flyers on stuff I normally wouldn't. But I've just noticed, especially during the crisis, how having a little portfolio like this, if this was your whole portfolio, I can see how it would increase the stress because I check the performance of this thing probably every day, which again, 5% of my portfolio, it shouldn't be taking up 95% of my time. But if this was my whole portfolio, I could see myself going crazy because I was constantly checking. And I think it's easier to check individual stocks than it is. I still haven't checked any of the balances of my retirement accounts. Have you looked

yet? I don't plan on it. Maybe at the end of the year. I have a basic idea. Well, listen, I'm 100% stocks. I know what the stock market is doing. So yes, exactly. I don't need to see it. I know it's ugly. I think when you have these individual names like this, it just adds so much more temptation. I'm not saying people can't do it, but it just makes it constantly looking and checking and it just, it makes it more tempting to do stuff. I'm like you, I own like four or five companies in there, and I would never tell people to buy them based on I've done, but it's funny how sometimes you can back into a good thesis on a company. Like, I bought Slack a while ago, and this thing sped up the work from home stuff, and Slack has done really

good. I think it's still up year to date, probably. I don't know what the exact percentage is, but I I know Slack's been having a pretty good year, but something like this can also make a thesis to go bad for you. So I own Disney and I bought a bunch of shares for my kids. I bought them each one share for every time they have a birthday or something happens. You know, when I bought Slack, the other stock I was debating between Slack and Zoom. Oh, really? I chose wrong. Yeah, but I mean, again, Slack's still doing pretty good year to date. It's up year to date. And so Disney was one where the crisis backed me into a bad thesis because you never could have planned. So I bought it before all the Disney Plus stuff. And I looked like a gym.

genius because it was up a lot from that. And now it's gotten obviously hammered. So it's just, it's funny how going into a crisis can change your thesis when you didn't even plan on there being one in both a positive way and a negative way. By the slacks up 20% zoom's up 145. Okay. So Zoom, yeah, I was going to buy Zoom too. I swear. I just never got around to it. No. What do you mean? I'm not right. I chose wrong. I'm just kidding. You can't turn this around asshole. I was wrong. I was kidding. Okay. In my paper portfolio, I'm triple levered zoom. I swear. Anyway, I think it's not a bad idea for someone to have that type of account.

If you want to just scratch that itch and play around a little bit, I certainly do. Okay, let's get into some listener questions. Here's a good one. With value not providing any downside protection during this downturn, have you guys changed your view of the style? You would think profitable companies with low prices would have helped a bit, but growth continues to charge ahead. When can we consider value dead? wait a minute. Why do value stocks have to be profitable? Okay, that might have just been an assumption, but That changes things dramatically. That's a huge assumption. Okay, well, this is just asking, you're quibbling with the details here. Is value dead? So the thing is, value has underperformed for a long time now, this whole bull market cycle. And now during the crisis, it's performed even worse and growth has performed better. And you and I have talked about this recently. If coming out of this, because we've seen spreads bounce to,

dot com level between growth and value, not only on relative performance metrics, but on the valuation metrics. So coming out of this, whenever this ends, if in three to five years value doesn't either keep up or outperform, you'll never be able to say, oh, it's completely dead, but I think you can say, is it worth that anymore? And what's the point of having in your portfolio if this happens? Do you think that's fair? Yeah, I mean, if this is five years and we're saying any day now, just give up some more time, you have to question. You have to question previous assumptions. You just have to. Yeah, and I think it's okay at that point to say, maybe even if it works in the future, maybe it's just not worth it. So I think that you

potentially do give yourself an end point. I think this crisis will speed up that decision possibly, right? It would seem crazy to think that the big tech stocks could continue their dominance for another cycle, three, five, seven years from here. That seems outlandish. But if that happened, could you really question being a value investor and kept having that as a huge tilting your portfolio, I think potentially that makes sense, yes. Yep, agreed. Are any recommendations? Yes.

I was listening to, actually, I just want to talk briefly about Netflix. So this is from The Verge. Ted Sarando said our 2020 slate of series and films are largely shot and are in post-production stages and locations all over the world, and we're actually pretty deep into our 2021 slate. As it stands right now, there are more than 200 products being worked on remotely. So Netflix might come through for us. Remember this idea that, this was like years and years and years ago, that Netflix had nothing proprietary that anybody could step into the space? Now, that was true before they had like the giant movie production studio. Netflix is incredible. I was listening to the big picture podcast as I've been talking about recently. And Sean Fantasy said something that I think I was trying to get at, but he just said it in a much better way. He said that Netflix movies always have a weird pacing and they only feel about 80% done. Yes, I totally agree. There's always something.

thing missing. I watched Spencer Confidential. That movie with Mark Holberg. It sucked. Yeah. Like Six Underground was a lot of fun, but you're like, what the hell did I just watch? I watched extraction with Chris Hemsworth. I didn't see it any good. Pretty good. Like, it definitely still had the Netflix feel, but it was good. There was a lot of high intensity, close action, kind of like John Wick. Okay, so on the other side of this, I agree that something never feels right on Netflix. So we started watching Defending Jacob this week, which is the new Chris Evans show on Apple TV. If you have an Apple product, you get a free year's worth of Apple TV. So I know a lot of people probably don't have a subscription there yet.

The shows on Apple TV feel like HBO shows. They feel like they're really well done. This one is a high quality. It feels like a movie almost. They release the first three episodes, and then there's five more. It's just a mini-series. It's Chris Evans, who plays Captain America, and then Michelle Dockery, who is Matthew McConaughey's wife and the gentleman that we just talked about.

And it's a crime, thriller, murder, mystery one. It is really good, and it's really... What's it called? Defending Jacob. I think it could be best new show of 2020 depending on it ends. I really like it. So last week, I jumped the gun with that Code 8 movie. But like, it was the same thing. It started out really promising. And then it just died. It's just bizarre. It feels second tier for whatever reason. So Kobe bought Bad Boys for Life. This is the second time he's done that. An accident. So this movie got good reviews. It was fine. I didn't really love it. I'm not recommending it. Are you a bad boys fan? I mean, I like the first one. I figured by the time they get to the second and third one, it's got to be just a derivative of the first one. Pretty much. It was like, I mean, Martin Lawrence and Will Smith, they're old.

Yeah. It was definitely pass on that. I'm sure you know what it's like before you go into it. Yes, but paid 20 bucks for it. Now I own it forever, so I figured I had to watch it. Two things that I watched that only because they both took pace on Long Island, one was lost girls. They never found this guy. He was just killing girls and dumping them in Gilgo Beach. I think that's by Jones Beach. Also, not very good. it was fine. It was on Netflix and it was just okay. There was a movie on HBO bad education with Hugh Jackman, also based on a true story. The superintendent of the Rosson School District, which was on the North Shore of Long Island, was embezzling money. I think he took like $11 million. He went to jail. Not a very exciting movie. Like how exciting could they have really made that? Well done, but also a pass. All right. So anyway, I just mentioned a bunch of movies that you

shouldn't watch. Here's one that I thought was pretty good. Killing them softly is a movie that I think it's on Netflix. It has a great cast. The guy from Bloodline, who was like the Junkie Brother, plays a similar character. Him and the guy from Narcos, Rob Ray Leodas card game. And I think there's some ties to the mob. And so Brad Pitt and James Gandalfini are the hitman. So good cast.

It sort of flew into the radio. This movie was from 2012. I don't remember hearing anything about it. I remember liking it. Yeah, it's been a while, but I saw when it came out. Very dark. Very dark. Not an uplifting movie, but if that's your thing, killing them softly as on Netflix, it was a good movie. Okay, my more uplifting rewatch was Garden State as on stars. It's definitely a sentimental one. So if you're not into the sentimental movies, don't watch it. But I love that movie. For some reason, at any time in time, I'll watch it. And then listen to Lawrence Gonzalez on the Jim Rutt Show, which is not a podcast I've heard of. But Gonzalez is the author of Deep Survival, which I think is one of the better books I've read in the last 10 years probably. And he goes through some of the stories in the book, and I've forgotten a lot of them.

So I'm going to have to pull my copy out and look through some of these. But how people survive extraordinary times and getting lost on mountains or getting lost in the woods or lost at sea in some of the ways that people cope. And the difference between how to prepare for his show on this podcast, really, I'll put a link to it in the show. And it's really good. And I think if you haven't read Deep Survival, definitely read that. It's probably one of my favorite books in the last 10 years. One last thing that I forgot. Homeland.

They stuck the landing. It was awesome. Oh, well, okay. I haven't watched it yet. No spoilers. You loved it. I hate people who say this word, but the pen ultimate or second to last episode, I thought was amazing. And I'm like, I could have watched 10 more episodes. I thought this season has been really good. It built up and got better as it went along. So you're saying the ending was great. I was wondering, how are they going to wrap it up? It feels like they ran out of time. But I'm sad to see that show go. I'm glad I stuck with it. I think season one of Homeland is probably the best first season of any show ever. I think you could easily make that claim. That season, one was just one of the best seasons of television ever. And I'm glad I stuck with it because the show reinvented itself like 12 times. Yes. When Brody died, it was like, okay, now what? Yeah. And so I'm glad I stuck with it because the second to last episode I thought was one of the better ones of the entire series. So I'm, I'm watching tonight. All right, send us an email, Animal Spiritspot at gmail.com. Thanks to Matthew Passy, as always, for producing this show.

We'll see you on Friday.