Animal Spirits Podcast - Cash on the Sidelines (EP.14)

Episode Date: January 31, 2018

On this week's show we debate whether the Fed has really been punishing savers, take a step back and admire the current bull market, talk about the best black swan hedges 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

Welcome to Animal Spirits, the podcast that takes a completely different look at markets and investing. I hate the people who talk about it all the time, so I didn't want to be one of those people. From two guys who study the markets as a passion. Can I count on you to talk me off the ledge partner? Yes, and that's what this podcast is for. And trade for all the right reasons. That's my due diligence. I'm in. Dude, if you're in, I'm in.

A line of thinking is the higher the volatility on an asset, the higher the volatility on the opinions. so I feel like you have crazies on both sides. Here's your host of Animal Spirits, Michael Batnik. I can say that I was never driven by money. So you were trading three times leveraged ETFs for the love of the game. Exactly, man. I'm a purist. But anyway, and Ben Carlson.

This is true. I do not drink coffee. I've never been on Facebook. I've never done fantasy football. Oh, one last thing. Michael Batnik and Ben Carlson work for Ritt Holtz 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 Ritthold'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. Now, today's show. Welcome to Animal Spirits with Michael and Ben. We're back after a week-long break because I was on vacation. I took my family to Disney World, so I apologize to other listeners who didn't get to listen to our soothing voices last week.

So I basically unplugged for the whole week. I kind of did as little social media in market watching and reading as possible. So why don't you tell me what I missed on my week off? So here's what you missed when you were in Disney. The stock market went up every single day and Twitter added 100,000 new bot followers a day. That's pretty much it. All right, nothing else. Okay.

So I was at Disney for the week and it was kind of interesting. I hadn't been there since I was in fourth grade, so it's been a really long time. and the thing that shocked me the most, I think, of anything is just how big of a moat I think they have in terms of brands. So not only do they have the recurring Disney characters I've been around forever, but they have all the Marvel Avenger people, and they have the Star Wars thing now. So I was really blown away at how much Disney sort of has on this brand thing, because do you remember the thing from Scott Galloway when he talked at our conference in the fall? I know you were sick, but do you remember the stuff he said about branding and how basically how brands are just all going in the tank? And the only thing that really matters going forward is personal brands, not corporate brands.

Yeah. So this whole idea, and I totally kind of agree with that, the thing that personal branding is going to matter much more than the name of the door going forward. But I think Disney may be one of the few places that actually has something on that where they have these entertainment brands that might actually have some staying power. And so I read, Derek Thompson's book Hitmakers earlier this year. He actually did a podcast with Barry, too. And he looked at the behind the scenes on Disney and actually said that in the 30s when Walt Disney started the company, they made all their money on movies. But they actually weren't this huge

brand making a ton of money because they were taking all the money they made from the movies and rolling it into new movies. And it wasn't really until this guy came to him, a guy named Kay Kamen and said that, you know, what you really need is merchandise to actually make some money. So they turned it into merchandising. And the first one that really set it off was Snow White, which came out in like 1938. And the stat he used was he said in the first two months after the movie premiered in 1938, they made $2 million from the sale of toys, which was more than the movie made the entire year. And at that time, it was the highest grossing movie of all time. So I kind of thought about all this stuff as I was there, as I was thinking in my sort of

business brain while I was there. So that's just a really, really impressive place with the brand and stuff that they've built. And you know, it's kind of funny. Over the last three years, the S&P 500 has done more than twice as well as Disney. Has it? Yeah. Yeah. Well, yeah, it's, yeah, it's, I guess it's all what expectations at this point. So take your motor throat in the garbage asshole. All right. Well, I did my, I did my part to help their earnings because it is ridiculously expensive there. Food, beverages, all that stuff. But the older I get, the more I realize, and you and I talk about this, how much, how much it pays to spend your money and experiences. It's definitely true where the money didn't really matter.

Right. So that, so you'll carry that with you for the rest of your life. Oh, yeah. Yeah. My daughter's almost four. she just had the time of her life. So it was totally, totally worth it, even though I spent a lot of money there. So I'm going to be going there sometime in the next few years. How was the technology? Because I've been there in like 20 years. I'm sure you seem for you. Yeah. It was that, that was probably the most impressive thing to me. They had an app that would tell you all your wait times. You have a wristband that you used to pay with everything. So I'm thinking Disney should probably do an ICO for their wristbands. And you just, you just swipe it and enter in a four,

four digit code and that pays for everything. So you have no idea how much money you're spending at this place. So you're just constantly swiping a wristband to pay for everything. So they really have it figured out. It was very efficient in the way that they like move you through the park and they have these fast passes where you can just go to the front of the line for like three rides a day. It's really, if you plan out your trip, it's, it's really well done there. So it probably costs you like $75 a minute. How do you settle up when you're done? They just, it's tied your credit card. They tie your credit card into your, and the funny thing is, we stayed at a Disney property, and the wristband works as your hotel, too.

So you don't even check into hotel. It's just activated, and you just go to your room. It's pretty impressive. Awesome. But, yeah, yeah. So it was fun. So, yeah, I was out for a week, kind of tried to stay away from reading the markets, everything. It was actually kind of nice to just take a break, but now I'm back and ready to go.

And we tried to do a podcast, actually, the Friday before I left, and we had some technical difficulties. Michael's not exactly the tech support at Redholz wealth management. but yeah we'll try to get back on schedule here okay so i wanted to talk about something today with you i posted sort of a snarky thing on twitter last week because there was talk about uh or this is two weeks ago i guess people talking about how the fed punishes savers through the low interest rate policies because you basically make no money in a money market or a savings account anymore and i said well the fed has been punishing savers with 15% annual returns in stocks since 2009 so i wanted to get your take on this balance between super low interest rates by the Fed, but people always say

that the Fed has been propping up the stock market, which obviously, you know, we don't think is true. But the sort of dichotomy between stocks doing really well, but your bank account not doing so well. Yeah, so risk assets have been doing really well over the last decade, whether it's stocks, bonds, or a mix of the two. But I sort of understand the argument that Savers have been punished because if you were relying on either cash to give you returns or or high quality bonds, that just has, that went away in the last 10 years. So you really had to adapt. In other words, I guess push out onto the risk curve, which is what the screamers, probably people that were directing their snark right back to you, would talk about, that

the Fed has manipulated the behavior of the markets because people are reaching for risk in every single corner of the market. But I wonder how many, how many, like what piece of the pie in terms of the population is really the quote unquote savers, the people that are 75 and above, 100% bond portfolio, living off social security. I think it's probably like a fairly small piece. Yeah, and that's the pushback I got. Someone said, well, what if you're an 80 or 90 year old person who doesn't want to take much risk in stocks or can't take much risk? How about then? And obviously that's a tough situation to be. But we've done some work on this in the past where we said it basically almost never makes sense to be 100% in bonds, looking at the math of it in history

because even adding 10, 15, 20% stocks to a bond portfolio, as of diversity, actually increases the return with the same amount of volatility if we're doing this sort of efficient frontiers type of thing. I guess it all depends on time frame because bonds are safe in the fact that they're going to pay you what they pay you and they're not going to lose 12% of their value in a week. But there's been, I think there was a 50 year period where bond real returns were negative. Yeah. And I think people also have an antiquated view of retirement a lot where they assume you have to just live on the income the whole time. And people think that it's like a sin to pay down your principal and use your principal balance.

where, you know, instead of just living off of the income of a bond or the dividend on a stock, you know, you can actually, you know, spend down your principle and think in terms of total return, not just the income part of it. And where does it say, what law is there that says that savers have to earn two and a half percent risk-free returns? Right. Yeah. Yeah, I totally agree.

I actually wrote on this a few years ago using some stuff from William Bernstein, actually, and he wrote a book, and he kind of made the point that after a certain point when society's mature, that interest rates should fall as wealth grows. And so, yeah, so why should someone be earning four or five percent risk-free on short-term funds in a society like this where there's a ton of wealth? Like, what's the incentive to pay that out for someone? And the interest of full transparency, because we'd like to do that around here, you do have a bromance with William Bernstein. Yes, that's fair. I'll take that. Yeah. So, yeah, he's probably one of my favorite, favorite authors. So anyway, yeah, I think it's a tough position to be.

if you're an older person and want to live off your income. But the alternative of higher rates and higher dividend yields and lower evaluations is the fact that portfolios haven't grown as much and the wealth is, effect, is not there anyway. Yeah, so sorry this sounds so crass, but I'd rather like this scenario play out where the quote-to-quote savers are punished versus savers are rewarded and everybody else is punished. Right. And guess what? The rest of everything else is doing bad. Right. So yeah, it's a function of sometimes you have to take risk to get return. and if you're not going to be willing to take any risk, unfortunately, there's risk in that as well. Yeah, so for the answer for like what does an 80-year-old do who needs 4% a year, that's probably like more of a financial planning question than strictly a portfolio management question.

Right, and how much you have to spend. And yeah, there's always, there's always different caveats and things of that. So, yep, but I thought that was an interesting little pushback that I got on that. So switching gears, our friend near Kacer wrote a really good post for Bloomberg Gadfly. and one of the things that he talked about was how the price of earning ratio has changed. So I quote near here. He said the PE ratio has averaged 26.4 since 1998 or 11% higher than it is right now. And it's comforting to conclude that the average PE ratio over the last two decades better reflects the market's fair value. But that conclusion has problems.

For one thing, looking at just the two most recent decades and 150 years of data reeks of, well, recency bias. And it doesn't help that those two decades include two historic asset bubbles. And a side note on that. Matter of fact, the 2000s were the worst decade ever for the S&P 500 in terms of real returns, which is something that I don't think gets enough attention. But anyway, back to near. Quote, a fair value P.E. ratio of 15 makes more sense. It implies a real earnings yield of 6.7% which closely approximates the S&P 500's real return of 7.3 annually since 1926. Yeah, these valuation things are always kind of tough because it is like, do you use the last 30 years as an average? these last 25 years, these the last 50, 100. What is most representative? The Schiller one goes back to what, 1871 or something. It's a tough game to play. Me and you talk about this stuff

and look at this stuff all the time. And there is no right or wrong answer, I don't think. Yeah, I think, I mean, this is the boring commentary, but I think it's really true that the better solution, rather than adjusting your portfolio to capture expensive or cheap markets is really just adjust your return expectations, which sounds corny, cliche, and whatever. And it's, you know, easy to say, I guess, hard to do. And the hard part about predicting where P.E. ratio is going to go is because the two things you're predicting are really hard. Like the fundamental part of it is earnings, which you could slap on a long-term growth rate and figure that out fairly easily. But you're also deciding what people are willing to pay in the future. And that's basically deciding how people feel about the markets. And that's impossible to forecast. Yeah, I wrote a post years ago that even if you knew with clarity what the earnings growth would be for the next year, you still had no idea where the market would be. Right. If you had a post years ago, right?

if you had 8% earnings growth, but the market was expecting something hard, you could have had a negative return. Yeah, I'll have to dig this up, but I had a post I wrote where I showed the earnings growth rate by decade and then the stock market returned by decade. And they don't match up at all, basically. They rarely ever do. And to Nears point about the, I mean, I guess that sure that sounds good, the P. of 15 makes more sense because that gives you close approximation to what stocks earn. But, you know, I don't want to be one of these people that says it's different this time and things are going to be elevated forever because I don't believe that. But why should stocks continue to earn this six or seven percent real return?

Why do they have to get back to that? What if things were much riskier in the past and investors were compensated for that risk and costs were much higher? This is something we've talked about on the podcast. So back to that point that we made before, what if that real return is a thing of the past and returns are just lower going forward and people are going to have to get used to that? So it would be really interesting if we enter a new sort of normal period in time where valuations are higher and returns are lower.

Right. That seems ridiculous because lower returns should be paired with lower valuations, but it would, I think, just be totally confounding if the new normal is higher valuations and lower returns. Yeah. If we just had sort of a step up and there's a new average and things don't necessarily go all the way back to the former average, yeah, I think that's very possible. And again, the point that we've made here before is there's a difference between gross

and net returns. And I think that those historical returns going back to the 20s, how many? investors were actually getting those on a gross basis when you factor in all costs and taxes. And I don't think that many, as many were as people think. I forget who said this. Maybe it was Peter Bernstein, but in terms of like talking about it and thinking about regression to the mean, when the mean is all over the place, there's no reason to think that it should regress there. Right. Or when a data set has changed enough, why does it have to go back to this mythical level when things have changed? But it does make things interesting. When people talk about valuations being elevated, it's always like a comparison to what. And obviously, you'd be crazy to argue that they're not elevated now. And I think we agree. It's just, I think there's just a difference in opinion of what that means. And what your response should be. Yes, that's very true. So it doesn't mean that markets are going to crash or doesn't mean that returns are going to be going lower going forward or do we just hit the reset button and get back there or a fundamental is going to eventually keep up. That's kind of the one argument

no one ever makes is that eventually fundamentals will catch up to valuations. Well, that seems like the one that's most hard to believe that we're going to get like, you know, 5% real GDP numbers because we're such a more mature economy than we used to be. And I would definitely not put myself in that camp of expecting that fundamentals are going to catch up. But speak to like markets changing and structural changes. Since 1990, the cap ratio was below its long-term average, just 5% of the time. Yeah. So if you're waiting on that, good luck. That's a whole, that's a whole career for some people. So, yeah. So again, we've said this before, but these things are definitely not timing indicators or signals. They're more to craft expectations. And even then, it's,

it's not easy. So there was an article, a lot of articles about this. Somebody at TD Ameritrade said that cash levels are as low as they've been. I don't know if it's ever or since a certain date. But I think the number was like something like 12%. Cash levels down to just 12% in retail people's account. The implications are that people are all in, which is sort of funny because 12% still seems like quite a bit of cash. But it's funny because at the same time that that came out, you had people at Davos talking about how people have too much cash. And Larry Fink said that – an article for Bloomberg said Larry Fink is urging investors around the world to stop keeping money in cash as stock markets reach new highs, which obviously sounds like the perfect type of thing that you see at market tops. But anyway, he said that the pool of money that's sitting in cash worldwide has never been greater.

45% in China, more than 70% in France, money is just sitting in a bank account, and it's one of the bigger crimes that we don't all talk about. And then also, I think the day before that, Ray Dalio said, there's a lot of cash on the sidelines, which makes us cringe a little bit, just that statement. It feels stupid to hold cash in this type of environment. Yeah, that is interesting. I think it's hard for people to wrap their heads around the difference between like a savings account or like an emergency backdrop and then like an investment account. So I was kind of surprised for that 12.5% number two, that does seem pretty high still to me.

And I think honestly one of the reasons that those things are coming down, especially in the retail world, are things like target date funds because those things force you to, be fully invested where as if you're in just picking your own mutual funds you might hold some cash you're not buying it i don't buy that how many people use a target date fund in their brokerage account that's a fair point uh i guess that's more 401k's in that sort of thing but but i think boom roasted sorry all right yes you give me a nice face there uh yeah but the the other one part about this international thing i think a lot of that it's kind of interesting culturally how much people are sort of risk-averse i did a speech in italy a few years ago and they

were basically saying everyone here held all their money for years and years in government bonds and real estate. And so they had no idea what to do with the stock market because they never had to do it before. We have to post this on the show notes. In Italy, you spoke in front of like hundreds of people, was it maybe even thousands. And you came out and there was for some inexplicable reason, a giant rainbow that led you onto the stage. Okay, there was a cartoon of me. like my introduction was a cartoon and I'm yeah my face my face would have been so red this is a I this is like one of the first big speeches I ever did and it was in front of 2,500 people it was enormous I'd never I had no idea what I was getting myself into and the guy before me was like

the pump up guy it was like going to a basketball game and I walked out from a smoke machine and shut up they played a Beatles song and someone at this bank that I spoke for did a whole cartoon. I think I sent it to you the whole company on Slack. They did a cartoon at the end. It was like this cartoon version of me, like walking on this like gold, like yellow brick road or something. It was crazy.

Okay, this will definitely be in the show notes. Sorry. I got to find that. So anyway, but yeah, but that was like the big thing that I got out of that was culturally people like there didn't really even have any idea what the stock market held for them because they never had to. And now the bond deals are so low. they've had to. So I wonder if that's the same thing in these other countries.

Yeah. So I think one of the interesting is the things about the TD Ameritrade study is that I have no problem with holding cash. I don't think that like, oh, if you have $50,000 in cash, think about what that does earning 7% a year for the next 30 years. Like to me, that's a dumb thing to say because I think there's really something to be said for having a safety nest just emotionally. Let's say the market goes down 40% and you want to invest more money in it. For all those reasons I think that holding cash is a really, really smart thing to do. However, I would never hold like 20% of my brokerage portfolio in cash. To me, that seems like sort of nonsensical thing to do because to me, a brokerage account is to be invested. I do kind of like the

argument of cash allows you optionality, but it's also like the psychological crutch that you can just sit on forever and I'll just invest when there's a 10% crash or all invest when it falls 20%. And then it becomes like an addiction where you're addicted to cash and you can never get out of it because you're just waiting for another shoe to drop and it never becomes easy. So, yeah, I think it depends what they use is for. And if you're using it for a backstop or if you're really waiting for a better entry point or like a bigger pitch to swing at it. If 12% is like a record low, then what's the average? Like 20%, and to think that somebody that holds that, I mean, that is a series drag on returns. And let's just say the number is 20%.

I highly doubt that there are other 80% of their portfolio is earning market returns. You know what I mean? Yeah, I agree. The idea that they're going to be so disciplined in index funds and hold that much cash, you know, it doesn't add up. Yeah, there's a difference between having your cash in like an online savings account or a money market account or having it at a brokerage account. I agree with that.

So I have an account at Goldman Sachs or Marcus, I think they rebranded, and it's yielding 1.5%, which is pretty freaking good. And you have to wonder, like, at what point do rising shows? short-term rates creep into maybe resetting valuations or affecting the stock market. Yeah. So I wrote about this a while ago. Actually, when I make very few predictions on my blog, but I wrote one, you know, kind of a what-if scenario when Trump became president. And I said, here's what could lead to a bubble under the Trump presidency. And I said, if interest rates rise and people get kind of scared out of bonds, actually, that could, that money could come into stocks a

a little bit. And we could see like this rotation where... Would you call it a great rotation? But I mean, on the other side of it, how do you define like a bare market in bonds? It's not like a 20% like in stocks. Dalia said that we're in a bare market in bonds right now. And they're down what, three or four percent, maybe from the high, like 10 year treasuries. So it's kind of hard. So it's possible. And I think maybe that's another thing where I could see people holding more in cash because there's a lot of people who are scared of stocks and bonds right now. So that doesn't I mean, it's rational because I think a lot of, especially about bonds, a lot of the fears are really overdone.

But I think that could be part of it, too, where people just are scared of stocks and bonds. They think they're going to get crushed in both. Yeah, that's, yeah, that is definitely a fear that I'm hearing from people. One of the things that you did miss while you were in Disney was there was a lot of charts going around. I forget if it was a 10 year or the 30 year. I think it was the 10 year. If it breaks 26, then there's no resistance until 261.

All right. Mark that down. the way, I love the technical analysis of like a 40-year bond chart. They just draw a line straight down. I don't know. Is that really useful? No, no, not at all. We're breaking a 40-year I mean, there's been like two trends in bonds since like the 1920s. Yeah, I don't think, I'm not one of those people that thinks that technical analysis is just voodoo bullshit, but I don't know. I don't know on this one. Yeah. All right. Over a period of that long, I just. And what I say, I don't know, I mean that is utterly ridiculous.

Right. Okay. Anyway. Our friend Eddie Elfin Bine tweeted an article from 2009 in the Walshut Journal. Title was, by most measures, stocks no longer look cheap. And again, May 2009. So at that point, stocks had already bounced 33% to just two months, but they were still 40% from their highs. Obviously, Robert Schiller was quoted in that article. And I sort of feel bad for because he's like...

He always is. Obviously a really brilliant guy. And there's a lot of nuance to what he actually says, but, you know, when it's in a newspaper, all of that is lost. And it's just, it's just some quotes that really haven't aged well. So, let's see. Schiller compares stock prices to a 10-year trend in earnings adjusted for inflation. In March, his normalized PE ratio dropped to 13.

It's low as since 1986. Now the measure is close to the historical average with a reading of 15.9. That's a reading that suggests average returns for the next 10 years. Mr. Schiller says, quote, however, he adds, I still think the market is risky right now. out, end quote. And since that article, the SEP 500 is up 270%. The thing about, I mean, it's easy to like mock those bearish pieces back then. I mean, there obviously could have been different outcome. But I think people forget how hard it was in 2009, 2010, even like 2011 and 12, there was constant stream of people predicting double-dip recession and the European crisis

was flaring up. And the whole easy money thing, you know, the easy money has been made. It was hard investing back then. How about when the U.S. debt got downgraded? Right. It's crazy. There's, yeah, I got another one. Henry Blodgett wrote this in January 11th, 2010. It says U.S. stock surged back towards bubble territory.

Oh, my God. I mean, it is funny to look back at that now because, I mean, I'm sure it made sense at the time, but it is good for investors to realize, like, I mean, 2017 was an amazing year, which I think is another reason to sort of sit back, whether you're bullish, bearish, or in between, like, this market has just been unbelievable. What did you send me the other day? You just said, you sent me a message on Slack and it just said, this market, man. Like, it is, it's crazy that we've come that far from those depths, you know, that long ago.

And we've been sort of climbing this wall of worry ever since. Sometimes it's just, you have to sit back and realize, like, this could be one of the markets for the ages where we look back in a few decades and say, like, this was an insane time to invest. Crazy stuff is happening right now. So Bespoke had a few good stats over the weekend last week. This is now officially the longest rally ever without a 3% correction. It's been almost 450 days. So we've been within the all-time high for 450 days going back to November 2016. That's crazy. Another one from them. The S&P 500 has not had a decline of 0.6% in 96 trading days. by far a record. So not even like a 1% or half percent or a half percent, a little over a half percent. And on the flip side, what's really interesting is that it's not as if market, yes, markets will be going higher every day, but there's like no euphoria. I guess there is euphoria by plenty of measures. But like there's no, there's been no plus 2% plus 3% days where it's like a buying panic. It's just the slow grind higher every single day.

And I cherry picked a piece of data last week. So on Friday, the market finally had a 1% up day, but it had gone four and a half months up 14% without having a single plus 1% day, and that had never ever happened. So never, in the history of markets, was there a 14% move over four and a half months without a 1% up day? And it's going to be interesting when we do finally have a correction. And I think this quote was probably from you where you said, like, every time stocks fall, you assume they're going to keep falling further.

So it'll be really interesting to see what happens, you know, when this happens and it will happen. You know, the average entry year drawdown on stocks is like 14% a year or something from high to low. So, you know, last year was sort of an aberration. So when we do get even like a five or seven or 10% correction, what are people going to think? You mean crash. You mean crash. Yes. At this level, it is kind of a crash, it seems like. Are people going to freak out? I don't know. Over the past few years, it felt like every time there was a little bit of a dip, like the put-call ratio spiked and people already had one foot at the door. And I don't even know remember what that feels like because there hasn't even been, to be spokespoint,

there hasn't even been a 3% correction. No. And this is, I mean, come on. And this is not just the U.S. this is the world, too. I think the U.S.C.I World All-Stock Index is the same as the S&P where it hasn't had

a down month since October of 2016. So it's been up for 13 or 14 months straight. And we're up, what, seven or eight percent again this year already in the U.S. It's funny. It's really hard to take a step back and enjoy it. Right. Because it just feels like, oh, my God, how is this going to end? When is this going to end? But you're right. It's just, let's just try and enjoy it while we can.

Yeah. Yeah. Or are people going to panic at the end? I don't know. And kind of speaking to the other side of this, so we got a question from a listener. And he basically said, you know, I'm getting worried. Are there any ETFs or funds that would act as insurance for stocks in something of a black swan event? Wondering if there's an easier way to insure against a crash then with options. What say you? There was an article in the journal in 2010 talking about all the black swan funds that. popped up after the fact. So this is a good question to be thinking about, you know, buying some insurance before the storm as opposed to after, which is what typically happens. And the only one that I could think about at the top of my head is Meb Faber's ETF tail, which is basically a bond portfolio that buys out of the money put options. And I love Meb's approach in terms of like the way that he brands it. He says, listen, this has negative expected returns. But if there is a crash

and you want to protect against some tail risk, this is one of the ways to do it. So I love that messaging. I think the easier answer for most people is going back to cash is to hold more cash if you're really afraid. Yeah, cash rebound. And Meb's thing is basically this thing's going to, any kind of tail fund or a black swan fund, if it's done right, it should lose a little bit of money every year because the markets typically go up and then it'll make a lot when things get hairy.

And so. So I love that idea, though, if you're so inclined that, hey, I expect this thing to lose whatever, pick a number 5, 7% a year. It's going to be 8% of my portfolio. My portfolio is going to lose 2.3% or whatever the number is. And if shit hits the fan, this is going to keep me invested in the core of my portfolio. Right, whatever works. And I think the, my ultimate black swan is just U.S. Treasuries. I think so. So I've done some work on this where I showed, I have a graph, and I did this for a Bloomberg piece recently, where I showed every down year in the SP 500 going back to the late 20s, showed how 10-year treasuries did against it. And I think

only three times have both stocks and treasuries fallen. In the times that stocks fell and the bonds fell minimally. So it was like 21 to 24 times bonds had positive annual returns when stocks were down. And so that's just the simplest one where we get people panic and then they rush to U.S. Treasuries, which are high quality. And the bonds were up like an average of 14 percent. Or sorry, when stocks fell, they were down an average of 14 percent and bonds were up an average of 5 percent when they fell. So that's your simple one right there. bonds would even provide more insurance. However, one of the things that people are afraid of is that what if a bond bear market causes stocks to sell off? I don't see how that's possible

and also get sky high inflation because- Well, money has to go somewhere. Right. Money has to be allocated somewhere. And I think bonds and stocks, quote-unquote, crashing at the same time would be hard to see. So yeah, there's been, there hasn't been a down year where the S&P 500 and U.S. Treasuries, 10-year treasuries fell in the same year since 1969. which is pretty crazy. It doesn't mean it can't happen, but see, both of them crashing at the same time, I think that would be a very long-shot event, you know, never say never. So rates skyrocket and stocks crash, but there has, I think that the longest in terms of months now,

stocks and bonds have both fell, fallen, I'm having trouble with that. Four months was the longest period ever. I think that happened once, and then they fell consecutively for three months, like two or three times. So it has never happened, I guess doesn't mean that it can't, but just like the way that markets work, it seems highly unlikely that can persist for more than four or five, six months. Which is why I think stocks and bonds are still the ultimate form of diversification where they just act differently because they're structured so differently. So I think, yeah, both can fall in the short term together, I think.

But over the long term, I think they don't think you have to worry about stocks and bonds having an enormous crash together unless we'd see it on a real basis with inflation. picking up. Okay, one more thing before we get to our sort of content. This was a good one from our friend Todd us at Abnormal Returns. Here were to post called, Will Podcasting Kill the Conference? And the basic idea was based off of a few pieces. It's kind of an interesting thing for us because we take part in a conference and we've done three of them now. And this idea that podcasting could take over conferences is kind of interesting because in the past you were going to conference and paying for them because you wanted to get in and see the

keynote speaker or the headliner. But a lot of those headliners these days have much more exposure. They might have their own podcasts. They might do podcasting on different ones with other people. And it's like, does it make sense to go to a conference just to hear someone like that speak when you can hear them in different forums at a TED Talk or a podcast or whatever these days? You know who would sell tickets is Seth Clarman and James Simons? Because they don't do anything in terms of media. But if you are curious to hear what Ray Dalio thinks, you don't need to go to a conference, you could just listen to one of his five podcasts that he's been on or one of his multiple TV appearances. So I definitely think there's an element to that. Conferences will

never go away because it's a great chance to socialize to meet people, especially for advisors that work with a small team. You're living in your own sort of bubble. So to hear from other people in the same industry is incredibly valuable. Yeah. By the way, I listened to Clarem and speak at a conference in 2009 just after the crisis and it was it was awesome he was very good to hear him talk about like war stories from 2008 and all the the distressed opportunities they had but I agree and Tadas even says in his conclusion that you know conferences aren't going away anytime soon but like maybe the marginal ones can and should and I think that's that's a big part of it that you talk about and I think that's that's part of the reason that we like to have our events is because

it's a great way to get out and see people face to face and network and meet some people that maybe you wouldn't otherwise, and technology makes it so easy to communicate these days, but I think there is something to be said for meeting in person and going to dinner or drinks or talking to someone at a break or whatever. All right, so moving on to the content, so you were in Disney, and I've got some stuff built up for the last two weeks, so I started watching Black Mirror, and I do like the idea of it being a show where you could jump around, that there's no, like, start to finish one through 10 episodes that you have to watch.

and I understand why people like it. It's definitely entertaining and it's fucking weird to say, to state the obvious. There's a, it makes you think it's uncomfortable, definitely thought provoking. So if you're into science fiction and being creeped out a little bit, then I would recommend it. Yeah, too cringeworthy for me. I liked it a little bit, but it was way too cringeworthy to continue to watch it. But it's definitely interesting. So I read a few books, The Idea Factory by an author named John Gertner. And this was about the history. of Bell Labs and a lot of interesting characters that I didn't really know much about, like Claude Shannon and a lot of the other people that worked with him. And there was a really great, great quote that I think is so relevant to today because of the type of work that we do and a lot of other people do. He said, quote, you get paid for the seven and a half hours a day you put in here. Kelly often told new Bell Lab

employees in a speech to them on their first day, but you get your raises and promotions on what you do in the other 16 and a half hours, end quote. And Kelly was the director. of the company. So it was about like the breakup of AT&T and it was just, I mean, that was just one of the things, but very good book. And Chris gave me this book called Savage Harvest by Carl Hoffman. And this was a crazy story that I never knew about. So Michael Rockefeller, who was son of Nelson Rockefeller, who was the vice president and governor of New York. And Nelson was the grandson of John Rockefeller. So Michael Rockefeller's John Rockefeller's great grandson, he was Eden. Can I get an organization

flowchard on that one real quick? Sorry. So John Rockefeller's great grandson was Eden in the South Pacific. Have you ever heard that story? No. So it's not proven, but they're pretty sure that he fell off his boat, made it to shore, and a bunch of cannibals ate him. Whoa.

That's a pretty crazy one. Crazy story. And then another one that you and I both read was read noticed by Bill Browder. Yep. And on the cover, it reads like a John Grisham book, and it totally does, except it's true and it's finance related and it was freaking awesome. You read that, right? Yeah, on your recommendation, I plowed through it in about a week and, yeah, it was really good. And the guy, he's a good writer too. It's, if you're, yeah, if you're like a finance dork and you like, you want something a little more uptempo, I think. That was a good read.

Yeah, probably the most entertaining finance book I've read since the Goldman Sachs Elevator dude. Yep, that was good. And lastly, there's a new podcast by Dan Carlin at Hardcore History. and it's called paintfotainment, and it is about the history of torture and why people seem to enjoy this in the 1500s to the 1800s. Oh, really? Interesting. I haven't written yet. And it's just like how and why did people use to enjoy it and now they no longer do. And when I was in Italy, in a town called San Jiminyano, there was a torture museum. And it was just like horrifying to go in and see some of the devices that were used. And it's just a totally different mindset, obviously. Yeah, I went to one of those in the Czech Republic, too. It's bizarre,

so I have to listen to that. And by the way, side note, like, Dan Carlin is the man. And I feel like if I would have had that podcast when I was in, like, grade school or high school, I would have been much more interested in history. Because the way he presents it is so enthralling and interesting to listen to. Yeah, he's an unbelievable storyteller. He was on Tim Ferriss years ago, and I think that he doesn't, like, it's not scripted. Like, he probably has notes all over the place, but he just goes. So really entertaining. And then lastly, Bill Simmons reunited with Jalen Rose. It was freaking awesome. Just a really good history. I listen to that too. I was great, right? I'm an Michigan. So, yeah, the Fab Five stuff I always love.

Okay. As a Nick, I'm the man. I hated Jailen Rose growing up with his time from the Pacers, but really, really good podcast. Okay. I kind of stayed away from reading and even podcasts when I was on my vacation, but I have been plotting through a book lately. That's pretty interesting. And I got, someone recommended this to me on Twitter. It's called Traffic, Why We Drive the way we do. And so here's a question for you. So, you know when they close a lane on the highway and you're two lane highway and it says like two miles back, it said like left lane closed ahead, veer over. Have you ever been one of those people that passes the whole line and just sneaks in up front? No, of course not. Those people should be eliminated. Okay, yes. So he starts

the book out with that and he says actually what type of human being does that yeah it's horrible and so he talked about he used that as like uh it's kind of like an unwritten rule where no one really knows but actually the better way to do that for these traffic people is not to have a sign two miles back is to have a sign like 500 yards ahead because when you have the sign so far back it just causes congestion but he's so he's saying the people that want to go faster actually provide a valuable service which i can't could never wrap my head around because they're i think they're jerks but it's a really good book and it goes through scenarios like that and it also talks about the psychology behind driving and how easily distracted we are and it makes it made me reading

this book made me realize why I think that 85% of all drivers are terrible because it's so easy to get distracted and not pay attention and so that that book is really good I highly recommend it's kind of a different view on behavioral psychology through driving so it was that was one of the better ones I've read in a while all right well that was a long one for us thank you for sticking with us if you're still listening and we will catch you next week Thank you.