Animal Spirits Podcast - CEO Departures (EP.110)

Episode Date: October 30, 2019

On this week's show we discuss company performance after a CEO leaves, never-ending finance arguments, what would happen if we banned buybacks, Elizabeth Warren's plans to break-up big corporations, Tesla as a sentiment barometer, why China matters more to Hollywood than the US, the glut of realtors and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at YCharts. A couple weeks ago, I was looking to write a piece for Fortune about the buyback thing because Bernie Sanders wanted to ban buybacks. I don't know, 10% of finance Twitter, 20% is kind of on board with that. And so I wanted to look at what the cumulative amount of buybacks has been in comparison to dividends. So I called up our friend Caleb at Y charts. He broke it down for me by company. And actually there's a way to do this on Y charts.

We can look at how much money each company. and the S button back in their own stock, and I could find it going back to 1996, and then I could roll it up into every single company in the S&P. So I did that. That's going to be a piece in my blog that you should see this week by the time this runs. And if you want to take wide charts for a spin, tell them Animal Spirits, then they'll give you 20% off your very 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 Batnik 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 Ritthold's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. So in the last couple weeks, there have been a bunch of big CEO departures. and I've got a hot take on this already. So Nike and Under Armour CEOs both left in like the same week.

Is that a coincidence with all the China NBA stuff going on that that's happened? Yes. You think it's a coincidence? Yes. Like I don't know what the plans were. I'm just completely pulling us out of Finnair here, but that they wouldn't want to deal with this stuff and the potential ramifications of it. No way.

This is not succession. Okay. You don't think that there's a 5% chance this is a thought process of having to deal with this. The NBA stuff happened like two weeks ago. You think they were like, here. These things take time. It's possible. Wasn't it kind of weird they were announced the same week that it just sort of happened? Yes, it is a bit...

I mean, if you were a CEO, would you want to deal with those questions? So you've gone into this whole woke as a business strategy thing, and now maybe potentially China has just ended that whole business strategy for all global corporations? Let's just say it's fortuitous timing. I'll give you that. That's all I'm saying. Five percent chance that in the back of their heads, they're going, I don't want to deal with this crap. That's not all you're saying. You are implying that they bailed it. You're just a show for the NBA. You're wearing this U.S.

say Dream Team sweatshirt right now. I don't think we can trust anything you say on the matter anymore. What does the data say? Friends at Y-charts looked at almost 1,200 CEO departures through September and wanted to know what happens. Is this the ultimate ego boost slash hit to your ego if your stock price either rises or falls after you step down? That's got to be hurt a little, right? A year or two ago, I want to say the founder or CEO, couldn't be founder, of Hershey died or something like that, and the stock like rocketed upon his death. That's a tough look. Like, geez, too soon, investors. So they looked at all of them and they broke them down

by the type of departure. So did these people go out on good terms or unexpected terms and what happened over the next 30 days? Companies that experience unexpected CEO departures, and again, I don't know if Nike and Under Armour were unexpected, maybe they are. They underperformed the S&P over six and 12 months windows by about 3% and 5% respectively. And companies with expected and well-managed CEO departures tend to outperform the S&P. I guess it's more about expectations than anything. If it's an unexpected thing that comes out of nowhere, but it's kind of this thing that the market overreacts and then it comes back. This to me sounds like a corporate governance thing. In other words, if you have a well telegraphed transition plan, things are probably going pretty smoothly.

If you're leaving abruptly unexpectedly, well, it's usually not for a very good reason, right? Like, you're not leaving to, quote, spend more time with your family because things are going so long. Yeah, so Whitecharts broke this down for us, and we're going to include these in the show notes. They have them by company. So someone like Papa Johns, the guy was supposed to resign because he said some dumb stuff. And that stock was down 30 days against the S&P by almost 20%. So it's kind of interesting to go through these and look. at the good terms versus bad terms. And again, I think that's just the thing that the market

doesn't like these unexpected sort of announcements. But then it sort of comes back and at the end of the day, it probably doesn't matter as much as these executives would like to believe. So are the CEOs, maybe this is too much of the elite, but in a lot of ways, are they like the president where what they do in certain instances doesn't matter as much as you think? Nah, I think they have way more control over. Yeah, I mean, they control what time they get up in the morning, how many podcasts you listen to, how many books they read. Okay. So I alluded to this in the intro here about buybacks. This is the argument that will never end. You wrote a piece about this based on something we talked about last week. So you took one for the team and read a whole book about buybacks, which can you imagine going back to 18 year old you and telling yourself you're going to do that? No. I'm going to read a book about buybacks for fun. It was more of a pamphlet than a book. It was like 50 pages and then a lot of charts. Actually, plug. So that book was by Ed Yardini. We spoke about that last week. Ed is going to be doing a video with Barry and I. And then. Ben Hunt, who has been very controversial on this topic, is going to be doing a video with Josh

and I in about two weeks. So we're very excited for both of those. There's just a lot of really, it's a polarizing topic. Either you want buybacks banned completely or you think that it's a ridiculous argument. So Yardini is tackling this from the data point of view where he's saying that not only does buybacks not boost earnings per shares to the extent that people say, but the biggest thing here is that two-thirds of buybacks, I might have said this last week, but two-thirds of buybacks are done to offset share issuance. And then Ben Hunt's piece is really, I would characterize it as there's quantitative stuff, but more qualitative, whereas, yeah, two-thirds of it are done to offset buybacks because they're transferring wealth from stakeholders or shareholders to management. And that, I think, is really the third rail of this argument.

He used Texas Instruments, TXN, as an example. And a lot of people were talking about this on Twitter last week for some reason. So they did $15 billion in buyback since 2014, but they actually retired 10% of their outstanding shares through that $15 billion of repurchases, meaning that they issued a lot of stock to executives as compensation. Okay, that's fine. So the idea is, all right, they're not really doing anything to help shareholders. But since 2014, the stock is up 220%.

So obviously the market doesn't care and they're doing something right. So don't you think it's the case that we could always pull out these one-offs and it's just going to be the case. So one of my favorite studies on buybacks was done by our friends at Elf Architect. So our friend Jack Volga, Elf Architect, looked at this and he said, okay, the alternative is, let's say, instead of doing these buybacks, these firms were doing investing in R&D and and CapEx, whatever, back to the company. In the 1980s, General Motors spent $67.2 billion on R&D in CapEx, while the ending equity value at the end of the decade was $26.2 billion. They spent more than double on CapEx and R&D than their actual market value at the end of the term.

So to put that into context, the equity value of Toyota and Honda combined was $21.5 billion in 1985. GM could have bought both of those companies and still had $40 to spend. So guess what, sometimes investing back into the company is not a good idea either. So I think you could always find these one-offs that prove your point, but I don't think that really proves anything as a whole. There's always going to be these bad actors and companies that misallocate capital in some way that you don't like, don't you think? Yes. So Ben Hunt sarcastically says, good thing they're using that tax windfall, talking about Texas instruments, to hire new workers and invest in new facilities. But to your point, a lot of times the best use of capital is buying back shares, and obviously not in every case, but oftentimes

spending an R&D or M&A is just a waste of money. So I think Ben Hunt's main point, and I'm very excited to talk to him about this, is this. Management teams like that at Texas Instruments have sucked the future of their company dry for the now of their personal enrichment. Public companies are managed today to mortgage of future over and over and over again for the primary benefit of management shareholders and the secondary benefit of non-management shareholders. And their main tool for this is a stock buyback. I don't necessarily agree with that. I don't want to say Bono, although, but here's a part of his argument that does resonate with me. Diamond, Iger, Cook, Nadella, these people are not founders like Gates or Bezos. They're not

investors like Buffer-Dalio. He says they're management. And these people are billionaires. And I do think he makes a good point on the income inequality. And stock compensation is obviously a huge reason for it. Now, this is such an enormous topic. It's political. It's personal. I don't know what the answers are, but that part makes sense. These buybacks were banned and they paid dividends. Guess who was receiving the biggest dividends, all these CEOs. And so you could say, Jamie Diamond received $100 million in dividend payments last year. How is that any different? I guess he would say that, I'm making this up. I don't know what he would say, is that maybe they shouldn't be based on stock compensation. That shouldn't be what they're based on. Okay, then what do you base it? I don't know what else you base it on if you're not going to... I don't know. All right. It's a tough topic and I can see some points here and there, but I think using buybacks as the boogeyman for all this, I just don't see it. Well, let's stick with that boogeyman for a second because David Rosenberg said that this is the most acute debt for equity swap of all. Call it continued to tweet of this. $4 trillion in corporate debt issuance used to absorb $4 trillion of equity to the point where the SEP 500 share count has dwindle to a two decade low. First of all, shares are down like 1% a year as Yardini Road. So barely anything. And then it's not a debt for equity swap. It's really something that should be on the income statement

because these are just, again, shares being bought back to mostly offset issuance. So it's not that they're being funded with debt. They're being funded with compensation. And let's say it was funded with debt. Doesn't matter. We have like the lowest interest rates in a generation right now. Wouldn't that be smart use of your capital allocation skills? That was a secondary point that O'Shaughnessy asset management made. And I guess we can go on this for hours. But let's just end it here. We'll put all this in the show notes. Okay. I just, we're going to be having this conversation for years. I just, it's never going to go. Well, I also don't think that this can be settled with data.

It's really like you have your opinion and then you use data to support your arguments. And I understand that there are, I mean it sincerely, there are points, decent points made on both sides. How many arguments can be settled by data today? I feel like it's not that many because people just choose to ignore it and not care about it. And for every data point, there's an offsetting data point. So I'm not going to get to the bottom of this one anytime soon or agreement, I should say. I thought this was really just incredible. I saw a post introducing Facebook news.

journalism plays a critical role in our democracy. When news is deeply reported and well-sourced, it gives people information they can rely on. When it's not, we lose an essential tool for making good decisions. Like, way to not read the room, Mark Zuckerberg. He didn't have a great week or two, but don't you think he can just do whatever he wants?

It doesn't matter. He owns all the controlling shares at Facebook. We can complain all we want. Who wants to get their news from Facebook? Okay, so Elizabeth Warren is one who wants to break them up. and I guess breaking them up would mean Instagram would be its own company. WhatsApp would be its own company again. And WhatsApp?

I guess you could make the case that Instagram has been a huge driving force of their growth. But does Facebook's power come from Instagram? I know Instagram's enormous, but what would that do? Yeah, especially the amount of daily users that Facebook has, it does seem like Instagram wouldn't be that big of a debt. Maybe their market cap would be much lower, but in terms of their reach, I don't think that really... I think Facebook should spin off Instagram and then buy it back. What if they spin off all their Instagram influencers before that bubble?

bubble pops. Then, talk about goosing earnings per share. Okay, so anyway, so the economist had a piece on Warren. And I mean, I give this less than 1% chance of actually happening. First of all, she has to be elected president and get through the Democratic primaries. But they're talking about how she wants to remake capitalism. So they said with her regulations, this is her plan she's put in place. Banks would be broken up, split between commercial investment banking, which it was in the past. Tech giants such as Facebook would be dismembered and turned into utilities. Energy would ban shale fracking. And so basically the whole, they added this up of the economists. Roughly half the stock market and private equity owned firms would be broken up undergoing heavy re-regulation or

see activities abolished. This would be great for the stock market now? Yeah, obviously, again, small chance of this ever happening. Isn't this the type of risk, though, that this is why you don't just own all U.S. stocks or you don't own any stocks in one country, have a home country bias? Let's say this actually happened. Again, tiny, tiny outlier chance of happening. She gets in there and breaks up all these firms. That would be down 24 percent in next day. I mean, obviously, there's so much money in corporate interests and seeing this ever happen would be pretty tough to ever see realistically. Let's say she does break up some of these companies. Isn't this the thing that could unleash potential huge returns overseas where

U.S. finally gets all these benefits and advantages the U.S. has had for a few decades over the overseas companies, maybe it kind of goes away a little bit and that's why you don't have all your money in a single home country? Does that make any sense? Yeah, I see what that you're trying to connect. I guess the good news is getting back to our point earlier of like how much control does the president have over the economy and the market and other things. Like there are checks and balances. It's not as if even if she were to be put into office, this would happen overnight. So how many campaign promises actually end up getting done? Right. But it's an interesting thought experiment to go through. That'd be crazy. But, okay, any spinoff company, if you could

like buy a spinoff company, what would it be? So you have the Amazon Cloud thing, Instagram. Yeah, AWS. Okay. I think AWS is like the obvious answer, right? Yes. Don't you think these tech companies would want to get ahead of it, though? Let's say they see the writing on the wall. She's going to be president. She's coming after him. Don't know those tech companies go ahead and do it on their own and not want to be shown to be doing what the government wants them to do. They want to show they do it on their own. Now, this is second level speculating. I don't know. All right. I'm the Howard Marks of paper trading. What can I say? So I thought Howard Linson had a very good tweet. Tesla is a much more important barometer of the health of the market and attitude good or bad towards risk than we work. Risk is still very much on. blah, blah, blah. So Tesla was up 20% the other day on news that they are going to go bankrupt in the future, but not today. Is that what happened? I think Tesla is such a one-off company. Well, I think it's point is that WeWork is really the one-off. Okay. Well, I think there's a lot of one-offs. How about that? I'm not good at the market sentiment stuff, especially with a single company or a group of companies. You don't even know that we're doing not QE again. Yeah. Do you even do finance, bro? Okay, what do you think? Is Tesla the barometer of the market? Is that what you're going to use? It's such a volatile stock. There's no way you can, It's been all over the place. I feel like you're getting defensive. No, I'm just saying, do you agree with it?

Yeah, I thought it was a good tweet. Okay. I mean, because there's been years when Tesla's been down enormously and the market has done fine and vice versa. That's not the point. That is the point. You're using it as a barometer of risk. No, no, no. You are missing the far as for the tweets.

He's talking about today. Oh, okay. Just today. All right. But next week, it's something else. Oh, my goodness. You're tough. I'm just putting it out there.

I think it's hard to put market sentiment on one company or stock or. Oh, I roll. All right, next. Okay, we've been getting actually it a lot lately, and I think I'm going to blame it on you because you're Captain Rotten Tomatoes, and people keep saying that we do not understand how Rotten Tomatoes works, and I don't want to be lumped in with you because I'm not a Rotten Tomatoes user. I use IMDB.

I've just jumped on the Rotten Tomatoes bandwagon recently, and I feel like you led me down the wrong path to understand how it actually works. Okay. Our movie critic credentials are being called into question here. No, that's totally my fault. But I tweeted about Amazon if you were short the stock, you had less than one penny. Yes. And I was kidding.

Obviously, the whole thing that you hear all the time is don't short stocks because you have unlimited risk. So I was just doing the inverse of if you were long. And I did not expect the tweet to blow up. Now, I'll be honest. It took me a second to think about how to calculate it when you're actually shorting a stock. And I'll be even more honest. I had to Google it.

There, sue me. But once I did Google it, I felt very embarrassed because to calculate how your gains or losses are affected when your shorting stock is incredibly simple. It's CFA level one stuff. So I'm embarrassed. There, I'll admit it. What does this have to do with Rotten Tomatoes? Well, I'm telling you, because I didn't know how to calculate the short gain or loss

in a stock. I didn't know how Rotten Tomatoes works. I'm embarrassed. Hand up. You're a newb whale. Admit it. I have a total nob whale. Okay.

So, Rotten Tomatoes, the way that critics scores work, it's either thumbs up or thumbs down. And then the score that we see on the tomato meter is an aggregate of these thumbs up or thumbs down. Now, if you really want to know what a critic actually thinks, there's an average score. Did you know that? I'm not a Rotten Tomatoes person, so you've got to tell me. So it's basically just aggregating how many people have a positive view of the movie versus how many have a negative view. I still think it's pretty close. Okay, so Fortune had a piece. No, wait, wait, wait, wait. So in this Vox Splainer, they said, quote, plenty of movies from Psycho to Fly Club to Alien

would have earned the Rodden ratings from Rotten Tomatoes upon their original release only to be reconsidered and deemed classic years later. So this is not necessarily a Rotten Tomato story, but you listen to Edward Norton on Bill Simmons? Yes, he said Fight Club got booed at the first film festival is that. That's why you can't trust movie critics, I say. They said they booed it. Well, no, no, no, no.

You can't trust your first reaction to a movie. I didn't like... No, no, no, no. I don't think so. Hold on. Hold on. No way. You can't rewatch something and go, okay, actually I hated it, but now it's a classic.

That's bullshit. I didn't like Anchorman. What is wrong with you? You didn't like Anchorman or office space? Your credentials are being pulled. No, no, no. I want to be very clear here for a second. I liked Office Space very much.

I just don't think it's a 98. That's all. Now, Anchorman, I didn't love it the first time I saw it. Really? I thought it was immediately one of the funniest movies I had ever seen. All right, so maybe it's me. Maybe my instant reaction to movies are not credible. And I'll take that.

Could be because you go to movies alone and so you don't have another person to lap with. I was with friends. So you talked a couple weeks ago how it's kind of bizarre. There's no Chinese villains in movies. And so Fortune had a piece on how Hollywood is trying to work with China the hard way. They had this thing about how Quentin Tarantino's movie once upon a time in Hollywood was pulled in China because they wanted him to make some cuts and he said, no, I'm not going to do it. So they just completely pulled the movie. And they said next year for

the first time ever, Chinese ticket sales are projected to be higher than U.S. ticket sales, making it the largest film market in the world, which is pretty crazy. So they're going to continue to have this sway over the movies just like they have over you and your brainwashed NBA people as but it's kind of crazy that they take a movie and say change it for us and delete these scenes of Bruce Lee or whatever that they don't like we're about to get actually big time because if you think that's crazy you should see what they do to their people yeah well yeah of course we're talking about it in a business context it's just crazy how much pull they have now yes so if you were like the chinese films are what would you have changed about office space no I'm just kidding

But it is kind of crazy how much That's why, again, people like The Rock They're making their movies for China now More than they are for the U.S. audiences, I think. Don't you agree? They care more about that than anything. No. Seriously?

You think The Rock is making movies thinking about what Chinese audiences are? Most definitely. And it's not even a question at this point. Look at some of the Rock's movies. No, no, no. It is a question because I'm debating. I disagree.

I think that the movie studios are making that choice. I don't think the Rock is smarter than you give him credit for. He knows what he's doing. He gets those numbers every day. when his movies are released and where the ticket sales come from. You're a Gibroni. All right. I'm pulling your movie credentials.

It's gone. Okay. I can't believe my credentials have been revoked. Okay. So this is something else we've talked about, and I've written about in recent months and weeks. Why are real estate agents so expensive? And so Justin Wolfer is that the New York Times wrote about this. This was pretty interesting.

He was saying there's so much competition for realtors that they actually don't make as much money as you assume. So those 6% commissions are so high because there are so many people that are trying to do it. So the median real estate agent made $48,000 in 2018. This was the one that was crazy to me. Maybe this is an outlier because it's New York, but there are basically 2,800 New York real estate agents that were licensed last year. There was 5,900 transactions, basically an average of two per agent. Obviously, some people are doing this part-time. Some people get more than others.

his whole point is that it's more a problem with the supply of realtors than it is anything else. Okay. I will pat myself in the back. We said this. And I understand why the commissions are so high. And it's not as if the real estate brokers are like ripping people off and wear the customer's yachts type of thing. There are too many agents. There are virtually no barriers to entry. So I think that this is probably an absolute winner take all market with a bunch of like little side deals done where somebody will do two. And it does seem like the perfect kind of. I'm going to do a side hustle and do this on my spare time that people sign up for and maybe just never. Right, because getting your license, I don't believe it's too difficult. Yeah, you have to take some tests and it makes sense. These numbers in New York City kind of shocked me though. And again, I'm guessing a lot of those people, most of them probably never make a sale during the year. But it makes more sense now.

But I guess the question is, how does that ever get fixed then? It probably doesn't unless there's like a ton of consolidation in the industry. Well, we know that, I mean, we spoke about us in the past that some tech companies are trying to make in with here, but it's labor-intensive, so I don't know that this is necessarily technological, a thing that tech can tackle. Don't you think it doesn't have to be labor-intensive, though? I feel like as young people become more comfortable looking at housing pictures and stuff online and shopping online, that it doesn't have to be so labor-intensive? Nah. And just you go to the house and you look at it yourself, you punch in a code to get in. You don't need the realtor there.

Unless you could do like a virtual tour where it's really good, but you want to see the house that you're buying. I mean, people will go to the grocery store. No, I'm saying, I'm saying, do you need the realtor there when you're looking at the house? Can't you just put keypad on the door, type it in and scan your license so they know you are. Well, that was sort of why I sold my apartment because when I bought my apartment, the selling broker literally opened the door for me. Yeah. She met me at the apartment and she unlocked the door. And other people need help and where realtors have been helpful to us in the past is through the bargaining and negotiating and the paperwork and all that and the contracts. That's very helpful. I just don't know if it needs to be as

labor-intensive as it used to be. Maybe they can act as more of that negotiating help and work from that end instead of trying to show you different places where you can always just look at them online. Okay, we've been talking about the public versus private markets lately, and one of our listeners sent us some comments from Dan Rasmussen at the Grants' Interest Rate Observer Conference, who you just had on a video with Barry as well, and that will be out when? This week probably? Thursday. Okay. So what did you cover with Dan before I get into some of the numbers that he said at the conference that we were emailed.

We covered what he always talks about and what you're about to cover. That I think the main driver of private equity returns in the past, the reason why they did so well was because they had low valuations and leverage. And now they have high valuations and leverage. And in his words, that's a pretty dangerous combination. Okay. Here's an interesting fact to me. So he said over the past five years, private equity has outperformed the S&P by 1% per year.

And 72% of investors feel like over the next five years, it's going to outperform by 2% or more. This is really the crux of it as expectations are totally out of. Yeah, but he said all the outperformance came in Q4 of 2018 because the S&P was down double digits and private equity is down one to two percent. But the problem is those private equity marks don't come in for six to nine months usually because they're on a huge lag for when they actually catch up to and mark these things down to match up with the public markets. And so if you back that out, that means all of private equity's gains over the last five years are gone if you put them on par with the S&P, and they've actually lost by a percent a year. But so what? This just gets back to my

idea that a lot of these institutions don't really understand how this works. And when they measure performance and use these numbers, they're using them. Okay, fine. In not a very constructive manner, and they don't know what they're doing most of the time. I think it's worth it. In other words, if you could be shielded from the actual day-to-day returns, and let's say that there's a cost of doing that. Let's say that you lag, let's say the SEP 500, whatever, by 100 basis points a year and you only get to see the marks twice a year, four times a year. I think that's a price worth paying. Yeah. So you're basically shielding volatility. It's there, but you don't know it. Yes. If that's a case, don't use these stupid sharp risk-adjusted return ratios to prove how smart

you are. That's my problem with it. Okay, well, fair. I totally agree. I totally agree. The risk-adjusted returns are total horseshit. But I think that it is worth paying. Now, what price is worth paying? Is 200 basis points worth paying? I don't know. That's not for me to decide. So here's the other one that was interesting. This may not matter. Rasmussen said 76% of institutional investors believe that their private equity portfolio has a credit quality of double B and above, which is just a fixed income way that they measure these things. AAA is obviously the best. Moody's did a study of private equity portfolios included that 98% of them had a deal rating of B or lower. So a lot of times they're getting into more junky companies than they even realize. Part of the reason that it's done so well in the past is because if you buy undervalued junky companies and put a bunch of leverage on them,

a lot of times some of them are going to do pretty good when they come up a little bit in their evaluations. And that's the idea. So there seems to be a huge gap in expectations and probably a gap in understanding as well, it sounds like. Yeah, that's kind of been my point on private equity the whole time, is just that go into it with your eyes wide open. It's not necessarily good or bad, but just understand what you're getting yourself into. All right. So Barron's did a big money poll, and the reading of Bulls is down to 27 percent in terms of money managers that identify themselves as bullish for the stockmark over the next 12 months. That's the lowest reading in more than 20 years. Did they happen to say what it was a year ago from last year?

Because this time last year, stocks were already kind of in midst of a drawdown? It was 56% a year ago. So they bought the dip. How do you like that? Okay. Not bad. Here's the thing. The thing that really stood out to me is this poll asked for opinions. I might do a quick piece about this. They asked for opinions on real GDP over the next 12 months. When will the next recession arrive? What will the 10-year-year-year? yield one year from now, how likely is it that U.S. yields will turn negative, predict the levels of of oil and gold as of June 2020? And it asked eight questions on politics and seven questions on policy. Who has that many opinions? Why have we never gotten one of these surveys before?

That's what I'd like to know. You know, like we always see, why are people answering these questions publicly to be in a newspaper or an article? It's like these things do not serve you well. Somebody said, politics are really playing a much bigger role than past market cycles. There's such a stark division between political parties that it is weighing on the psychology of where the country is and where the economy and the markets are. Don't you think that as total projection they're being influenced by politics, not necessarily like the markets are, it don't seem to be. We're on all-time highs today.

You could have told me that quote was from like 1968, and I would have believed you because you could say that in any cycle basically about politics. Could you not? So when you're talking about how these things impact how you're investing your client's money, it really sounds like you're sort of making it up. Yes. And a lot of times what they say is not exactly how they're positioned either because there's no way that that many investors are positioned to not be bullish or long or whatever it is. So it's kind of a watch what they do, not what they say sort of thing. So sentiment trader who has a lot of good stuff tweeted, he said, how's this for perspective? At the bottom of the market in 2002, 43% of big money investors in a Barron survey were bullish. At the bottom in 2008, 59% were bullish. At the bottom in 2016, 38% were bullish. Now, only 27% are. So, is this another wall of worry type of thing where people just don't trust this? Is that what the idea is that there's no euphoria? The thing is,

it does make sense to get more bullish, just in a vacuum. I'm not saying people do. It makes sense to get more bullish as stocks go lower because future expected returns go higher. But we're only talking 12 months out here. So this is a relatively short-term call. So I don't know what to make of the fact that people are so unenthusiastic about stocks. Maybe they're right. There's a lot of reasons to be concerned. I just thought it was fascinating. Yeah, 12-month period is pretty tough to use any sort of fundamental data to try to figure out exactly where it's going to be. So Matthew Klein and Barron's wrote an article, The Economic Case for Paternity Leave, and this was the meat of it. Paternity leave is strongly correlated with the female share

of board seats because policies that allow child care needs to be met, but do not place the burden of care explicitly on women, increases the chances that women can build a business document and professional contacts necessary to qualify for a corporate board. So, I guess the case for leveling the playing field is to have everyone take time off. And that will make sure that the career penalty for any individual worker disappears. How much time off are we talking here? So he's taking 20 weeks. That's great. What are your thoughts? I think it would be nice if people had the option, if more companies allowed this to happen. Some people need this. And some people, frankly probably need to get back to work. But I think if more companies had this as an option,

I think that would make things much easier. You know, you're just going through this now. You know how hectic can be when this happens. But don't you think that one of the reasons why there is such a wage gap is because women are discriminated against because they have to take time off when they have children? Definitely. And a lot of them end up feeling this pressure to potentially stop working or cut back and go part-time or whatever it is. It's definitely a part of that whole deal. But I think that I don't know that this would ever be a mandatory type of thing. I guess maybe some companies can implement it. But again, not a mandatory, but it would be nice if more people had the option. Yeah. The option. Right. So survey of the week. Jason Zweig wrote a really

good piece about the crash and how stocks crashed 90% from 1929 to I think 1931 was the bottom. they didn't achieve new alt-time highs until 1954. And it's funny that people are like, well, dividends reinvested. It's like, come on. I mean, seriously, come on. How many people were reinvesting dividends back then? First of all, there was no automatic dividend reinvestment option. And if your stocks are down 80%, 90%, some of them are going out of business, a lot of them are cutting their dividends. I mean, this is really the type of thing where it's like, you are totally missing the point. But you only think if there were buybacks back then, instead of being down 90% the market would have down like more like 85%. Totally.

give or take. So the point is just be humble. The market owes you nothing. Having a long time horizon, it doesn't guarantee you anything. And that's a point that we've, I think, tried to make over and over. I don't know what it would be, but don't you think the Great Recession for our lifetime, maybe this is a dumb comment. Tell me if it's dumb if you think, don't you think if there wasn't 80 or 90 percent crash in U.S. stocks during the Great Recession, it's never going to happen here again? I don't know. I tend to think that way. I think that was as close to a depression. as we could pretty much ever get. So stocks were down almost 60%.

And to your point, that was pretty bad. So stocks made all-time highs, and I think the fall of 2007, they didn't make new highs until 2013. So six years. So I think, you know what? Six years is a really long time to be underwater, especially when in that six-year period you lose almost 60% of your assets. The other crazy thing that a lot of people don't know about the Great Depression,

which I've learned in the last couple years, it was like less than 1% of the population was actually invested in stocks. And everyone who was invested was just margined as high as they could go. And so it was all borrowed money. And so that had a lot to do with it, obviously, that sort of cascading snowball effect. But you think with the roaring 20s what we had back then that everyone was in stocks. But it really wasn't the case. Ben just gave an air quote, by the way, on the everyone. Yes. So the survey, in 1954, there was a survey. Only 7% of middle class household, so they prefer to invest in stocks over saving bonds, bank accounts, or real estate. Which, honestly, at the time, that was probably a pretty decent survey. I think didn't

you do a piece like this, or maybe I did, I'm getting us confused here. If you look at a long-term chart in 1954, how scary that looks, it's not the same thing as looking at one now and going, oh, see, that was a blip and that was a blip, and everything is fine now, buy and hold. But back then, no one was preaching buy and hold in the 50s, right? Yeah, buy and hold. Yeah, hilarious. The whole idea would have seemed absurd. And so I get it. So, again, you have to be humble with what your expectations are. In 1954, as stocks were approaching all-time highs, Congress called in Ben Graham to testify

and explain what's going on because they were so weary. They thought it was like, I don't know if it was manipulation or that another crash was coming. I guess you could say Graham was the one person preaching by and hold back then, right? He'd held through the depression because he lost a bunch of money. He got destroyed. And he did a few pieces for, I think it was fortune in the bottom of the market that most stocks were worth more dead than alive. In other words, they were selling at less than the amount of cash I had on the balance sheet

because literally people thought that these companies would not exist in the next six to 12 months. Yeah, and those opportunities just don't really exist. So a good time to be a stock picker. But yes, he actually was conservatively invested going into the crash. A lot of preferred stock and cash, but he bought way too early. I think he bought in 1930 thinking that the worst is over and he ended up losing like 60%. So he got crushed also. Wall Street Journal had a piece in an investor letter dated Wednesday announcing his decision.

Mr. Vinnick, 60 years old, wrote, it has been much harder to raise money over the last several months than I anticipated. So Jeffrey Vinnick, I think he started his career at Fidelity, raised a fund, bought the Tampa Bay Lightning, had a story, Wall Street career. So this is kind of funny. He raised $465 million, and I think he tried to raise $3 billion. So still was quite successful in raising money. I guess it wasn't enough. he said he needed to manage significantly more money for the, quote, economics to make sense for himself and his business partners. Isn't it kind of amazing? He raised $465 million and still the

economics didn't work out. Yeah, and it wasn't enough. Here's the kiss of death. When he came back, he said, I am committed to this and I'm extremely hungry. We won't shut it down again. It's like, okay, shouldn't have said that maybe. It's hard to be extremely hungry when you're a billionaire. But it also said that he shut it down in the year 2000 to spend more time with this family. And then he picked it up again, then shut it down again. People were trying I'm going to say this is some sort of sign of the times of hedge fund investors, and maybe it is if he would have come out with like a venture capital or private equity fund. If he was that sort of investor, maybe it would have done much better. But I don't know, maybe this is a good

thing that investors aren't just throwing billions of dollars at a hedge fund person just because they have a good track record in the past. Good point. Do you think that this is dead until the next bear market? Potentially. But I mean, would you feel good giving your money to someone who's already shut their fund down twice? In a vacuum, just not specific to him. No. I would not. I don't think we're doing a lot of things in a vacuum on this podcast. Well, because some of these things just need context. And I don't know anything about this person. So I don't want to like- I'm just saying if you knew nothing else other than he's shut down his fund twice already, it's a huge pain in the ass when you have to get your money out of a hedge fund after it's been shut down. And it looked like his returns weren't even that bad. They were just okay. But getting your money out of a hedge fund after it shuts down. And I guess it is mostly in cash right now. But it's not easy to do. So if you want to invest to someone, you'd want to invest to someone who you know is going to be there for the long term. And obviously, he's kind of jumped in and out of this whole thing, and maybe his heart's not in anymore.

Speaking of being there for the long term, Paul Rudd, he has been around for a long, long time. And I was thinking about him because we spoke about him last week. So he was in Ant Man, obviously like he's huge for that now. But listen to this run of movies. Anchorman, I Love You Man, knocked up, and this is 40, 40-year-old virgin, role models, forgetting Sarah Marshall. That's a pretty good run. I mean, that's really good.

Yeah, he's out of one of his podcast interviews recently. He wasn't even in comedy very much until Anchorman was like his first comedic role, actually. So last week, or maybe two weeks ago, you talked about the best TV characters of all time. So I thought about this. And the obvious answer, bar none, is Danny Tanner. Okay. Someone told me Michael Scott. That was a pretty big miss.

I think put that on the list. So I didn't watch The Sopranos or The Office. I never finished Mad Men, I never watched Seinfeld, I stopped Game of Thrones, I stopped The Walking Dead, and I never watched The Wire. Okay, the Walking Dead doesn't belong in that list, but keep going. No, I think its audience is right up there with all of those shows. Well, actually, Mad Men never actually had a big audience. It was just more of a critically game show than anything. Oh, really? Hmm. Okay. So my list, admittedly not a very good list. Walter White, Larry David, and I have a sweet spot for Funkhauser, rest in peace.

Carrie Matheson, Jack Bauer, Zach Morris. Okay. All right, that's not bad. I actually never watched 24. So we had no questions this week. Well, actually, I did get a question. I'm going to use it for my recommendation. Someone asked me, I get a lot of questions because I talk about all these fiction books that I read.

Someone asked me... I get no questions. Yeah, you're really hurting about that. Someone please send Michael a question that doesn't deal with punking him for the office space. Actually, hold on. We were talking about this last week. week. Somebody sent to you a DM asking a question about something that I wrote. Yeah, so it was your piece on Bybacks asking for my thoughts on it. What? Am I that big of an A-hole that people are

coming to you to ask me questions? It was like my, what are your thoughts on Michael's piece? So someone asked me to give a list of my favorite detective or private investigator series. I'm going to have to think about this on a little bit. Yeah, I got to think about it and come up with it. Someone asked me that, so I got to come up with a good list of, and I got to bracket them by certain buckets because that's a tough one to add. It's kind of like coming with your favorite movie and thinking about like putting comedies and dramas in the same. It's a tough question. I'm going to come up with it. But my recent one that I've been reading, I just read another one called Winter of the Wolf Moon by Steve Hamilton. That wasn't the guy who writes about the private eye in the Upper Peninsula

in Michigan. And I read the second one of that, the Alex McKnight series. First one was good. Second one was also good. So I'm going to stick with this one. This is going to be my new series. I'm going to be picking up. So that's one of the books I've been reading lately. I can't fact check you on this, but I don't believe it. That what? I'm reading another one? Okay, have you caught up with Watchmen at all on HBO? I did. I watched it last night as well.

Okay, I watched the very first one. I'm intrigued. I really don't know much about it. I know the movie was just okay, but this series seems to be a little different. And there's a lot of questions, obviously, but I'm in. I'll say this. After watching it last night, I'm intrigued as well. I don't know that I want to work this hard.

In other words, I think I'm going to give it one more episode, and it might turn out to be very good when I come back to it. Oh. But I think I'm going to give it. Because it was made by the lost guy, you feel like you're going to put in some effort for it. just where it's going. It's very disjointed and there's a lot of side stories. This is great for Chris because he likes to go on Reddit and read all about it. I don't really care. It's an hour. It's a lot of time. I'm giving it one more week for it to really hook me in. Okay. I think I'm going to stick with this one. It's fine. It's fine. What do you got for recommendations? Oh, we are both reading. Are we both reading a short little history of everything? Yes, we are. I'm probably 20% of the way through it. Long book, but we're going to try to do that for our next rekindled. Exactly. So if you want to read along with us. Bill Bryson, yep. I think that's all I got. No recommendations, no movies, nothing? Books?

Well, we spoke about Watchmen. I told you what book I'm reading. What else do you want from me? Okay. And we're both going to do probably some reviews on the new Jim Simon's books, which will come out next week. And we're going to be interviewing the author actually when I'm in New York City next week. So look for a video and possibly a podcast on that as well. Send us an email, Animal SpiritsPod.com. We'll speak to you next week. Thank you.