Animal Spirits Podcast - Democracy Has Failed (EP.166)

Episode Date: September 9, 2020

On this week's show we discuss why tech stocks are finally selling off, why the best companies have to crash, stopping a depression in its tracks, the TINA market in bonds, benchmarking endowment funds, investing in timeshares, Airbnb 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, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain position, and the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. I think this is going to happen every time we get a correction. So tech stocks are falling off. I think the NASDAQ 100 is off. It was off almost 10% this morning. We're taping this at the opening on Tuesday. Are we going to have these every time this happens, we're going to go, okay, this is the big one?

Is that the feeling? That's permanent. Yes. Your line is every time stocks fall a little, it feels like they're going to fall a lot. But doesn't it feel like even more so because of, of the state of the world right now? I think that given the fact that the NASDADAQ is up, what is it, 3.4 billion percent from the lows. I think that people are eager for more than a healthy

correction or healthy pullback, whatever we're calling it. One of the things that makes investing so hard, I think, is the fact that there doesn't always need to be a catalyst. There's nothing that happened to cause this. So sometimes the reason stocks fall a lot is because they went up a lot. We already said NASDAQ 100 is down almost 10%. Wayfares off almost 25%. Overstock is down 45%. Even Apple's down 13. Zoom is down 22.

DocuSign is down 22. Tesla is down 30% now. And these moves are all over the last like three trading sessions, basically. So obviously there was an initial catalyst for these things rising, the work from home trend and all this stuff and technology becoming even more entrenched in our life. But they didn't ring a bell and say these stocks are going to fall. I guess other than Tesla because it had, they said now it's not going to be coming the S&P. It's down, what, 17% today or something.

Don't you think maybe it's time for the committee to figure out a better way of adding names to the index? Don't you think that they have to consider the fact that you can have such front running for these names like this now that ETFs and index funds are such a large part of the market? Your question is, why does it need to be telegraphed? Yes. Can they do this more on the down low? And that wasn't the whole reason Tesla ran up so much, but that had to be part of it. I don't think that it usually is telegraphed this way. Hold on a sec. Santoli had a piece this morning

talking about what happened. And what were the other stocks that went in? Etsy, Telodyne, and Catalan went in. H&R Block, Cody, and Coles came out for it. But I think that it was so telegraphed because Tesla is such a gigantic company. Was that more of a good narrative than anything? And you're saying that wasn't part of it? No, no, I'm saying it. was. I'm just saying that I don't think that the index always telegraphs what's going in. I think that Tesla is a one-off because of its size. In other words, were these other three companies, did these other three companies run up? They always announce them before it happens. They always do this announcement like this so they can all these funds and such can get ready to do the trading. But I'm saying,

do this behind the scenes. Don't tell everyone so they can front run it. That just seems like a dumb way to do this now that there's so much knowledge of index funds and ETFs. I just don't know why they continue to do things that way. You'd think that they would just do it and then make the announcement after the fact. Maybe it's too hard to keep something like that secret. But wait, hold on. So, for example, on Friday they said that Tesla's not going in. Right. So one of the changes being made? So you're saying a lot of it was they thought Tesla was going to go in, but it was just, it was still up in the air. Yes. Okay. I'm just saying I wish they should figure out a way to do this without ever telling anyone besides the

VTF providers and index funds that are doing this. What I'm saying is I don't know the lag time between the time that they announced it and the time that the change is actually implemented. I think it's days, not weeks and months. People are smarter than that and they would figure it out anyway, so it doesn't matter who knows.

So it sounds like everyone wants to blame this whole run-up that we've had over the past few months on SoftBank, which doesn't it seem like that guy from SoftBank just wants to be in the news? he felt a little bad because WeWork had just totally dropped off the map. So the FT had this thing and they called it the NASDAQ whale that bought billions of dollars of derivatives based on the NASDAQ 100 and the call options on those stocks that are included in it. Do you think this is, I mean, does this mean anything?

What in doubt blame derivatives. So Sentiment Trader and Ben Eifer were all over this. So here's what was going on. Yes, SoftBank bought $4 billion. worth of options, but a lot of it was call spreads, meaning they were buying one and selling another. So the no short amount was oftentimes neutral. So there wasn't any effective buying pressure. And they were buying it three to six months out. So that's what SoftBank was doing. On the other hand, you have retail traders, not just robin the traders, but retail traders

that bought $40 billion worth of premium. And a lot of that is like two weeks, one week or two week. So the amount of gamma in those names was enormous. And gamma, it's like the same. steroid on the steroid. So gamma is what affects the delta, which is what affects how many shares the option makers need to buy yourself to hedge their position. And I've gone cross-eyed. Exactly. So when this is coming in, when you're buying weeklies and the stock is moving so much, that becomes self-fulfilling. Maybe not self-fulfilling, but that feeds on itself. Whereas what SoftBank was doing, the $4 billion that SoftBank was buying and selling way out, three, six months isn't what was moving in the market. Right. Let's blame the We were

guy makes for a way better story than people all over the place have been and continue to speculate. If you look back at the stuff for the 1987 crash, not saying this is that, obviously, the biggest reason that we had that fall is because stocks were up so much leading into it. There didn't have to be the straw that broke the camel's back. Stocks were up like 45 or 50 percent in the first nine months of the year and almost had to have a fall and then that cascaded on top of itself. Do you know what month it is? Uh-oh. We're getting there, huh? That's right. That's right, folks. October is just around the corner.

One of the things that I never would have tracked in the past, but now I'm watching because people are talking about it in the real estate market, lumber prices went from $300 to $900 through this thing. And now they've quickly fallen back to like $600. And it's another one of those things where that ball just got rolling and speculators took it and went crazy and now it's backfilling. I don't know. This to me actually feels like a healthy correct. correction for a lot of this stuff. Well, it feels healthy for you because you're in Target Date funds. I own a bunch of tech stocks in my Robin Hood account.

If you bought tech stocks last week, this doesn't feel too healthy. Yeah, true. But I think healthy in the fact that the stuff that was going on was not healthy. That was unhealthy to me. That was a binge. This coming back, and I mean, if you felt like you missed out on some of these names, guess what? Here you go.

Traders drank too many tech stocks, and now they're throwing up. there's a hangover. Yeah, which you need that. I will never drink again. Yeah, me every weekend in college. But I said to you last week, and you're my unofficial time stamp on this, I said, these stocks are going to crash at some point. That's not like...

Guys, Ben called it. Yeah. But that's a really so far and advanced thing to say. That's like, you know that's going to happen. And that happens to that. I looked at like all the best stocks in history, Apple and Walmart and all these, Apple has fallen over 75% three times. So let's say these stocks do become take over the world. Peloton is the workout champion and they totally take everything over and Zoom becomes the next Google or

something. Let's say in some far out world that happens. That's probably not going to happen, but let's say it does. Even if that happens, these companies, if they are so great, the expectations are going to become so out of whack with reality, they have to crash at some point. So even if these become the next Amazon and whatever, that crash is coming regardless. list. So you have to prepare yourself if you're going to be a long-term shareholder in one of these funds. Yeah, but that's the thing. Who the hell is buying this for the long-term? True. Well, okay, there's a lot of speculated, but you don't think that there's some people that think, okay, in March 2020, life changed forever. And these stocks are going to, I feel like there's

a lot of tech people who are like that, who say, I do think they believe that, but it's more based on the price rather than the fundamentals of the company. Sure. I think that a 300% increase convince them that this is going to continue to go up. Right. I still do think someday when we have the post-vaccine world, you're going to have a long, normal, short work from home. And that's going to be a glorious trade for someone that timed it perfectly. You're looking at him. That's going to be you. Okay. And then the other end, there was a new study out that said that Americans didn't touch their retirement savings, basically. We've seen a few of these from Vanguard and Fidelity. This is from the Investment Company Institute. Two percent of 401K or other defined

contribution participants stopped contributing the first half of 2020. By the Great Recession, it was 5 percent, which granted that crash lasted 18 months, I think, from peak to trough. This one lasted, what, three weeks. So that's not bad, though. That's surprisingly lower than I would have imagined, people that stopped making contributions. So people were still saving as this was happening. Okay, so last week, unemployment numbers come out once a month on Friday, unemployment down to 8.4%. I said to you, I think this number to me is more surprising. If you would have told me this back in March, unemployment by September is down to 8.4%. I would have said that would be more shocking to me than stocks at all-time highs. Stocks at all-time highs. No way.

Actually is believable. We talked about it on this show. The Federal Reserve was predicting 30% unemployment. at one point. Their forecast, in June, they said the unemployment rate by the end of the year is going to be 9.3%. It's now 8.4%. So even in June, when we saw a little recovery happening, they didn't predict that it was going to be like this. Now, again, things are not all fixed and there's still people in the service sector and in certain parts of the economy that are in a lot of pain and people that are laid off and probably going to have a hard time finding a job. But this is way more of a V recovery, I think, than anyone could have ever expected back in March. Is safe to say? I agree with that. I think the government stopped a depression in its tracks.

We were in a depression and they stopped it because they threw so much money at it. I keep coming back to this. How could any sane politician not use these same tools in future downturns? Enjoy that hyper-infation, bro. If you're a politician and you know you can pull these levers and obviously this is the most unique recession ever because everyone knew when it happened. Can we call this a Tom Hanks recession, something like that? Like, when the Tom Hanks and the NBA stuff happened, that's immediately went, okay, we're in a recession now. That's not going to be the case in the future. But Jerome Powell is Captain Phillips.

Yes, I'm the captain now. I just keep coming back to the fact that it worked. You always hear these expressions like, though, they're pushing on a string and it's not going to help. And this time, it worked. And so I just don't see how we ever go back. Hold on. It's not all rainbows and butterflies. These are some numbers from the chief economists at Deutsche Bank.

He said, looking under the surface, the optimistic take seems to be much less warranted. We're not getting passive virus. And I would argue that what we're calling temporary layoffs look exactly like permanent layoffs. So here are the numbers. Last month, permanent job losses jumped 534,000 to $3.4 million, the highest level since 2013. In July, more than 50% of those on temporary layoff were unemployed for 15 weeks or longer.

And in August, there was 6.5 million people out of work for 15 to 26 weeks compared to 830,000 a year earlier. And this is the scariest part. Like, if you're out of work for a long, long time, that has all sorts of really ugly political ramifications. I would love to know what percentage of these numbers are in the services leisure and hospitality sector. It's got to be a huge percentage of it. Look at the next chart. The New York Times did a similar piece showing which industries are back to normal. And it broke it down by like retail, manufacturing, education and health. And the giant loser is leisure and hospitality still is nowhere. close to what it was. I think I read there's still either 40 or 60 percent off the highs. I can't remember. Which unfortunately makes sense. And again, it comes back to, it's so tough that something like this is just bad luck for these people, that through no fault of their own, that's just the way

that this pandemic has impacted people. Speaking of leisure and hospitality, somebody asked us, I think, to talk about timeshares one time. And I have no experience with that. You ever get involved in a timeshare? I mean, have you ever heard a story of a timeshare that went well? Have you ever heard a good timeshare story? This is a good example of that. This guy said that a timeshare was the worst financial decision he ever made. He told the story about he used to travel a lot for business and he was in Hawaii and he bought a timeshare. And as he was debating whether or not to do it, one of the guys said, I'm a CFA charter holder.

This is the best decision I ever made. And the guy wondered like, was this a plant or was this guy really a charter holder? So basically what he said was like, I've heard stories about how really difficult it is to resell it and all the fees involved. And he basically said, like, listen, I had a really bad experience. I've heard some people do well with it. But you have to be like, I think from what I understand, you have to be like all over it and really know the lay of the land. That'd be super committed to it. It's not as easy as everybody makes it sound. I'm sure there's a lot of horror stories. You can't be a passive investor in timeshares. You have to be an active investor. Right. Exactly.

So this is a story in Bloomberg about Brazil. So they said 30% of the population has been getting roughly the equivalent of $110 a month, making it the most ambitious social program ever taken in Brazil. They said that people living on less than $2 a day fell to 3.3% in June from 8% last year, meaning their poverty line went from 22% from 26% and both represent 16-year lows. Could governments around the world, if they're borrowing at today's rates, could they effectively end poverty? No. This is going to be telling like a dumb thing to say, but couldn't they make it way better for a lot of people? Yes.

Couldn't governments, if they wanted to end inequality, okay, not end it, make it way, way easier for people on the bottom? Yes, but there's no political incentives to do that, because money is power and how that goes. I think that we have the ability, the United States has the ability to do a lot more than we're doing. I don't think other countries, so I just did a quick post this morning about will money printing cause inflation and a lot of the MMT stuff that Stephanie Kelton wrote about in the deficit myth, we have the ability.

to print money and fund our government and keep borrowing forever and ever. Not every country can do that. There's a limit to investor appetite for Brazilian debt. So can we do a lot more than we have in the past? Yes. Are we going to? Is there their political appetite for that? I don't know. All right. Not I don't know. The answer is no, there's not. So for the first fiscal year ever, which starts in October, we're going to spend more than the entire economy produces for the first time since I think 1945 or 46. And so people look at the deficit. They look at the size. But in an article in the journal, they said net interest costs on the debt have declined 12% during the first 10 months of the fiscal year compared with the same period of year earlier,

despite rising red ink. Isn't that pretty wild? So debt is getting way worse, but the rates are so much lower that were paying less in interest expense. Exactly. So the people that hate the size of the deficit are free market people. But if you believe that they're there's any sort of signal in markets at all. If the markets were at all worried about our ability to repay our debt, then they wouldn't fund it at such low rates. Right. People would sell their bonds and rates would rise. Yeah. If people were worried, exactly. They would do exactly what you just said. Speaking of bonds. In the latest GMO piece, bonds have been killed in how many different ways over the past 10 years probably? Their premature death announcement. Other than timber and emerging

market value stocks, has GMO liked a single asset class in the past 10 years? They've killed everything. In their defense, and in defense of everybody who is saying that the 60-40 portfolio cannot work the way that it used to, I'm in that camp. I mean, this is not anything other than arithmetic. The 40% of bonds are not going to deliver 8% the way that it used to. I mean, that cannot happen. That's not controversial. I guess it's almost a little bit boy who cried wolfish, only biggest people have been saying this since the tenure was at two and a half percent. But now I really mean it. The thing that I take umbrage with is they said they don't think that bonds can hedge against an economic disaster. That I disagree with. We just saw that they can and they did in March.

And even if you don't have the same income, you still have the flight to safety. So of course bonds are lower. I read this whole piece and the thing is, and to their credit, they didn't say like we have the answer. Here it is. There is no answer. Maybe that's the Tina. Tina used to be there is no alternative right now for bonds that Tina is there is no answer. So they said you could do tips in case inflation rises. They said, I kind of like this one actually. They said, let's say you take out 5% of your stocks and 5% of your bonds and put them in to higher yielding corporates or junk bonds. So maybe that's a way to increase your yield a little bit. You're taking more risk, but you're taking a little bit from stocks, a little bit from bonds. They pump some liquid alts like put

selling and merger ARBs, value stocks, natural resources, stocks, these sorts of things. But the way that bonds hedge, they're right. There's nothing that can replace that. Meb tweeted that since Japanese government bonds, since their yield went below 2%, I don't know what year that was. It's been a long time. Those Japanese government bonds have returned over 30%. Then it might be over the 25 years or longer. But this is actually funny because somebody emailed us saying something about how Meb had said over the past few years that when everybody's on the same side of the boat, watch out with respect to people lowering their return expectations, and I think everybody's been in that camp for the past five years on the stock side. And all we've seen

was higher and higher and higher and higher. What if it's the same thing with bonds that everybody is expecting bonds to give you nothing? But I guess the thing is there is a lower bound. Like what if everyone's wrong on bonds the way that they were wrong on stocks? But But there's a lower bound. Like, how negative can rates go? That's the thing. You're right. Bonds are math.

And at a certain point, you're pulling things forward. I think the people who are trying to scare you what bonds the most, they're thinking that it's going to go back up to double digits like it did in the 70s and early 80s. I'm not seeing anybody call for that. But that was the point that the guy in the email made. Nobody is calling for that. Nobody is calling for bonds at 5, 6, 7%. What if that happens?

Imagine what that would do to people's plans? Yeah. Well. That would actually be a good thing. I guess in a vacuum. It would be short-term pain for long-term gain, yes. That's the thing. People don't realize rising rates would be the best thing that could happen to bonds

because eventually you get paid those higher rates. Yeah, so it'll be a painful step back short-term. But the only way that we're actually going to earn real money on our bonds is if we take a few flesh wounds. Here's the thing, though, so rates went from 2% to 15% from the 1960 to 1980, basically. And nominally, bonds did okay. They gave you a few percent a year in that time. it was on a real basis because inflation got out of control of that.

I think the worst annual return when rates went from 2 to 15 was like negative 5% or something. Yeah, bonds did it because eventually you catch up and get those new income levels at the higher yield. So yes, rising rates, especially if we got rising rates in concert with maybe better economic growth or inflation that didn't get out of control, that would be a good thing for fixed income investors. Obviously the Japan scenario where they don't do anything, I would be leaning more towards that than I would 5 or 6% rates. everybody's in that camp. Everybody. Are they? Yes. Because a lot of people are now predicting inflation, which people usually associate with rising interest rates. I haven't seen anybody call

for higher interest rates. You think people are resigned to the fact that we're going to get inflation, but no rising rates because of the Fed? I think that's more consensus, maybe, if anything. I mean, I guess if we're using history as a guide here, which never works. There's basically been three bond market cycles. From the early 1900s to the 1950s, bond yields went nowhere. Then for 20 or 30 years they rose and now for 40 years they've fallen. So we've had these really long drawn out cycles. Maybe that's the difference now. Maybe we'll get some faster cycles in the bond market.

I don't know. Or the Fed just controls everything. One of the big headlines last week was if the 6040 keeps working, that democracy has failed. Paul McCulley said that on the Odd Lots podcast with Wisenthal and Tracy Allaway. I haven't listened to that yet. Do you think he was workshopping that with someone and goes, that's it? nailed it. 6040 versus democracy. That was a very good podcast. That line was seemed a little

because actually, you sound jealous that you didn't think of it. Yeah. But from if you look at the numbers, I'm going to run these just to show. If you look at the 40 year numbers from 1940 to 1980, 6040 portfolio actually did pretty good with low rates because the stock market held up fine. So that's the whole thing. If the stock market does well and does what it's done historically, then that would make up for a lot of pain in lower bond yields. Obviously, we're not going to get what we got since the 80s. Siegel said 7525 is the new 6040. But I don't even, that's not even the case.

The new 6040 is like 1.30, 30. Pretty much. But that's the other thing is just expectations that people can't expect bonds to do as well they've done because they did so well since 1980. And the only reason is because rates were so high then. You started at high rates. That's it. Do we even need to talk about this?

Yeah. You threw a yellow flag on Michael Antonelli? Yeah. So I thought there's a lot of them. have been your Twitter burner account. Michael Lantinelli said the top five contributing stocks and the SEP 500 now account for 1,113 basis points of outperformance. That was an egregious use of basis points. I think we talked about this before. Anything over, I'd say 300 basis points or so, I'm throwing a flag because then you have to use percentages. That's like saying my kid is

38 months old. Sorry, you can't do that. There has to be a limit to this. Good analogy. All right, But this chart is really something. Yeah. So the top five stocks have accounted for more than probably 11%. For all, all, all of the gains in the S&P 500. Okay. Okay. So this is if you broke it down just to those five.

Those five would dwarf any, they'd offset anything from the other 495 companies. So you take these stocks away and the gain for the S&P 500 is zero because the S&P is up like 11, 12% this year. Again, people always say this up. it's a bad thing. This is a good thing. This is the best part about market cap waiting investing, is it not? If you tried to pick the five best every year that do this, guess what? You would lose. There's no way you could ever do it. Yeah, but like I think what's a great year is like 2013, for example, when the S&P was up 30%, and the top five gave you just 300 basis points of that 3,000 basis points. Okay. The thing is, if stocks are going up, why should you care? Where your gains come

from? Breath. Okay. Technical analysis. Technical analysis. Anyway, okay, hit me with your institutional study here, and I'm going to debunk it immediately. All right, so I'm going to throw you the softball. What did you think of this article? I thought it was bunk. Okay. Thank you. Go continue. Here's a quote from the article. I think endowment managers deserve a raise. Using the global benchmark and assuming five-year rebalancing, endowments have outperformed the benchmark by two to three percent, 2010. This guy was saying that all of the studies showing that the endowments lost to a 60-40 portfolio used cherry-picked data. Now, Ben, what's your? Right. And so he's saying it should have been way better. What's the five-year rebalancing? That seemed bizarre to me. That you'd rebalance your

portfolio every five years. That sounded weird as it was coming out of my mouth. This was a study done by an alternative investment management firm, I think. So take it for this word. I've done these comparisons to endowments over the years because I used to work in the endowment world and I find it interesting. And I've made the 60-40. If you rebalance every 3rd July. Yeah, you just rebalance every leap here. The thing is, here's my contention. Obviously, I get the case that comparing it to the S&P 500 or a 60-40 portfolio. It's all U.S. doesn't make sense. I looked at it using the Vanguard three-fund portfolio. And I looked at it 60, 40, 70, 30, and 80-20 because I think you could make the case that a 60-40 portfolio is far too conservative as a benchmark for the endowment

funds because college endowments that have over a billion dollars have just 10% of their money in cash and fixed income. So they have 90% in equities or real assets or alts. So 900 basis points in real assets and alts. Wow. Unbelievable, right? So anyway, it's hard to do. I mean, one of the hardest things for these places to do is to set their own benchmark. And a lot of times what happens is they'll set their internal benchmark that's two inches high so they can jump that two-inch hurdle and earn a bonus payout on it or something because they outperform quote unquote or they make it a sharp ratio or some risk-adjusted thing. The point is they use so many complex investments in these endowments, it's almost impossible to benchmark

perfectly because half the time they don't know what their returns are using these private investment vehicles. A hundred percent of endowments that benchmarked to Tevix outperformed. Yes. Last year we beat XVIX. What was the one that went under? XIV. XIV. That was it. XIV. Yeah. Is Tevick still around? I think it is. All right. There was an article in Bloomberg talking about like the quant, the darkness of the quants or something like, I forget the title. Basically, it showed stellar performance only exists in back tests and has no indicative power for real performance. The average above market return for smart beta strategy uses 2.77% per year before they are listed. That flips to a loss of 0.44% after fees once it actually become

ETFs. I don't think that this is limited to smart beta. I think that this is just, the way it is. What do you make of this? Right. No one releases a new product. Yeah, nobody's going to buy a bad back test. No one shows, we did this back test that looked 40 years ago, but over the last 10 years, it looked awful. Please start this new fund based on this awful back test. That makes sense. You show a good back test, and then something that's performed really well is probably going to underperform after you release it. So I don't think that anyone is to blame here. I don't think that the people that demand the products are to blame, whether it's driven by advisors or retail themselves or DIYers. I don't necessarily blame the product managers.

I mean, this is just human nature. What do you expect? Yeah, this is kind of how it's always going to be. People are going to pay for performance, then they're going to underperform. This surprised me, though. Smart beta is more than a fifth of the $4.8 trillion dollar US ETF market. Bigger or smaller than you would have thought? You know, actually, I just caught myself. Why should that be surprising? I guess it's just such a big number, but now that I think about it, So I guess cap weighted is probably half of that. So I guess it makes sense for it to be a fifth. You know what?

I'm surprised it's not bigger on second thought. All right. I saw the light bulb go off over there. All right. I think this is good news anyway you look at it. So there was this report from Zumper, which I've never heard of. It's like rental price date of place. Do you think they were all out of letters for real estate firms when they're making

these fintech firms and they all picked a Zillow and Zumper and anyway? Median one-bedroom price for a San Francisco apartment was down 14.1% from a year ago. Median one-bedroom in New York was down 10.9% from a year ago. Now, again, these median one bedrooms are still $3,000 in San Francisco and 2,700 in New York. But all this death of the big city stuff, obviously, is taken too far in both directions. Because now aren't there, don't you see every day on social media? Someone posting a picture of a park in New York and going, see, New York's not dead, I told you. It's like, yeah, we get it. It's not really dead. No one really meant that. But this stuff with this

transition of seeing double digit decreases in rents, this is good because this allows young people to come in and have a more affordable place to live in these cities because those are the ones that are going to keep it going in the years ahead. So I think this whole thing, if we do have a bunch of people leaving, which it sounds like it's still happening, otherwise this wouldn't be happening. I think this is a good thing. So they said nine out of ten of the nation's most expensive cities accelerated their year-over-year declines in one better median rent compared to last month. I think this transition phase is a very good thing for cities. It'll attract more young talent, and I think overall that's a good thing. It's a healthy correction. Yes, that's a healthy correction. By the way, that's our total for this podcast, healthy correction, right? So these SPAC companies, which are essentially the blank check companies, Bill Ackman has one. And apparently he approached Airbnb about buying them out. So this is the idea that he would buy them out as a private company. They wouldn't have to go for an IPO. would just become a private company because he has a SPAC, and they rebuffed him.

Is this like an irrational confidence move by him? Can you see the employees at Airbnb signing off on? Okay, we're going to sell out to Bill Ackman's SPAC. Ackman just pulled off from half court with 22 seconds left on the shock lock. Doesn't it feel like, I mean, I guess I give him credit for that, but I can't see one of these huge tech firms ever saying, yeah, let's sell out to a huge hedge fund guy. That doesn't make any sense to me. Maybe I'm wrong.

and they don't want to go through the whole process. But so this data from Axios looked at the weekly spends at Marriott and Airbnb. And they said Airbnb spending is running 75% higher this time than it was last year. That means for the first time Airbnb's revenues have comfortably surpassed Marriott's for the first time. I mean, you know what? If Airbnb was a public company, it would have declined. It would have crashed by 60% and then it would have quintupled. Like in March, it would have had a 60% crash and then it would have quintupled from the load.

So I don't know what it's going to be when they, I think their latest valuation was in April and that was like $26 billion or something that had dropped at that point because they were hurting. Do you agree with what I just said? Oh, yeah, definitely. They would have been the ones that got killed and then, yeah, now in this healthy correction, they would be down 20% because they got too far ahead of themselves. Exactly. I think out of all of these unicorn companies, I think they have the biggest chance to be the next Facebook as success stories. I'm horrible at guessing this stuff. Obviously, this is not advice,

but Facebook came out as a $100 billion valuation. I don't think Airbnb will that big. Let's say it's $50 billion. I don't know how big. I'm a paper buyer on the IPO and the paper account. I think that they could use this as a springboard and take over a huge chunk of the leisure hospitality industry. And I think they could be one of these huge tech firms that comes up and gets into the same realm with some of these other ones, or at least close. But they're not a tech company.

Okay. Some antics. No. Sir. Okay. So Amazon is a logistics company? You're deflecting. Airbnb is hospitality.

Yeah, hospitality with a tech bent. Hospitality, tech, leisure tech. Okay. Not everything's tech. All right. Sorry, they're a Silicon Valley company. There you go. How does that sound?

All right. These comparisons were probably better now that before the healthy correction, but there was so many different comparisons last week of Apple being bigger than something. So Jim Bianco said Apple's market cap is now surpassed the Russell 2000, which is basically all the small cap stocks. There was another one that said Apple is now worth more than the entire Futsi 100, which is all the British businesses. So Apple is worth 1.7 trillion pounds, where the Futsi 100 is worth 1.6 trillion pounds. That's pretty wild. And our friend Jake at economic pick put this graph out, which he said chart of year candidate.

I think for dorky market circles, he might be correct. He looked at the weighted average market cap between the Russell 1,000 growth and value. And the value one is basically unchanged since 2005. It's about the same $100 billion. And the growth that metric was the same from 2005 to 2015. It was around $100 billion as well. Now it's shot up for $100 billion to $700 billion. And so the difference between weighted average market cap between your typical growth and value stock is now about a $600 billion difference from what it was. And these two were tracking right along. that's your basically they all turned into mega calves and value stocks did not yes all right listen to questions what do we got 41 year old of the 20 year time horizon in a mix of different account types

Roth 403B taxable money what do you think of selling my bond portion of the allocation which is 10 and allocating those funds to funderize or a similar crowdsourced reet terrible idea pros are as uncorrelated asset classes with higher returns cons no bonds in my portfolio I think it's a terrible idea because there's no liquidity. So if you have such a long time horizon and you want to take advantage of a dislocation in the stock market to sell some bonds and buy some stocks, you can't do that. Yeah, the rebalancing hurts. You don't get to take advantage of diversification. On the other hand, if you're a net saver and you have 20 years left, you can rebalance through your future contributions. So you can rebalance that way. Fair, fair, but not entirely. Maybe you want

to deal with the piece of your portfolio and not sell all your bonds. Like we talk about with the GMO thing, what if you took two and a half percent of your bonds and two and a half percent of your stocks and did a five percent allocation to something else that you want to take a little more risk in? Maybe you split the difference that way. All right. Next. I'm in my early 30s. So we got a 40 year old. Now we got a 30 year old. Early 30s and I've been an expat working in different parts of the world for the past few years. And we'll be moving to the U.S. next year and intend to bring the majority of my net worth with me. As such, I need to reorganize my personal finance set up from scratch. I've always managed my finances on my own. However, there seems to be an endless. number of options in the U.S., whether it be full-service banks, wealth managers, online brokers, or personal finance alternative options. Any recommendations or advice, how would you guys go about this

process? Okay, so this is an interesting one. So he's got a clean slate to start with. Where do you begin? Do you think he's going to use Bitcoin to make sure all of his money transfers across the borders when he moves to the U.S.? I would hope so. I think this depends on what type of an investor you are, right? I don't think that there's any blanket advice. You can go to Vanguard and have them do it. You can go to Betterment. You can go to Schwab and do it on your own or Robin Hood or whatever. You can... Personal capital, one of those. Yeah, it depends how you want to view all your accounts. But that's a good point. There are so many options. So where does one begin? What's the one that you use for budgeting purposes these days? Tiller HQ. You could do Mint.

But I think that a lot of these services, certainly the brokerages at this point are commodities. Like, do you see a huge difference between TD or Schwab or Fidelity? Not really. I think a lot of lot of it is if you're starting with a clean slate, the best thing you could do is just have all your money at one place. So if you like Vanguard, go with them. If you like TD Mayer Trade, go with them. If you like Tiro Price, I think just find one you like and stick with it and then have your brokerage account there and your retirement accounts there and have it all in one place and just avoid the complexity from day one of having four or five accounts at different places that are hard to track. And so I think that's the biggest thing is just simplifying where all

your investment accounts are and have it all just be in one place. All right, recommendations. Okay. I found what I think is the funniest podcast I've ever heard before. It's a new one called Smartless, and it's with Jason Bateman, Will Arnett, and Sean Hayes. And Sean Hayes is the one from Will & Grace. I heard Bateman on Dex Shepard's podcast, and so I listened to it. And I caught up on the first eight or nine episodes. It came out, I think, a month ago, two months ago. The concept is they have three people, all three of these guys, and one of them invites a famous friend on that the other two don't know who's going to come, and they just kind of lob questions back and forth. And you'd think with four people, it wouldn't really work, especially since they're doing it on Zoom.

It actually works flawlessly, and these guys are so sharp and quick, and I find myself multiple times with the literal LOL on this show. The literal. Yes, the literal laugh out loud. By the way, I heard someone pronounce it Loll recently and kind of blew my mind. Nope, yellow flag. I had to do a double take. But they are all so sharp and quick, and they talk about all the stuff they've been working on and

how they do it. And Robert Downey Jr. one was great. So I didn't realize he was in jail for 26 months at one point before he turned it around and got an Iron Man. He heard a lot of the stories. I've never heard many interviews with him. The Will Ferrell one was fantastic and they did it with Maya Rudolph, which was good too. Here's a point they keep coming back to that I thought was interesting. They all agreed. So Jason Bateman is done.

He started out in comedy and then he went to Ozark and did more drama. These people all agreed and had mentioned it more than one time that comedy is harder than drama in terms of acting. They said drama is actually relatively easy if you tow the line in both camps. I would have thought it would have been the opposite. Comedy would be way easier, but they said trying to land that stuff and show enough enthusiasm and hit the punchline perfectly in how you say it is way, way harder than drama, which gets back to our point of how they should have a comedy award at the Oscars. Speaking of comedy, how amazing was Nicholas Cage? I think an interview asked him, like, how do you know when you're going over the line? And what did he say? How do you amp yourself up for scenes like that? Or is, you know, what does the term over the time? top, even register? You show me where the top is, and I'll let you know whether I'm over it or not, all right?

I design where the top is. Brian could speak more to this than I can. He knows how spiritual acting is for me. I don't even like the word acting anymore. I don't, because it implies lying in some way. I don't act. I feel and I imagine and I channel. Speaking of, this inspired me I saw on Netflix, The Frozen Ground, was on.

It's with John Cusack and Nicholas Cage. You ever see it? No, it looks awful. Not a good movie. Just not good. Bad. Yeah. I mean, Nicholas Cage, I think, has come into some tax trouble in recent decades.

So, Nick, do you want to do this? Yes, I'm in. And you know what? It could have been good. It was based on a true story. Those always get me. I'm a big fan of based on a true story, even if it's very loosely based. So this is 2013.

Got a 61% of Monna Tomatoes. Audience gave it a 50. I'm with the audience on this one. Say 50 is fair. Maybe like 45. It sucked. Isn't it funny how people like John Cusack and Nicholas Cage and even like Bruce Willis to some degree, and I think like Travolta's probably there too?

They get to a point where they just stop making good movies and then they just start making these ones that go straight to DVD or Netflix. I think this was a real movie. I'm slacking you this. Just look at this picture of this Nick Cage on the cover of this. Just like, look at this and given what he said in the... that interview. By the way, that interview totally sounded like something Hansel would say. Yes. I don't act because I feel like that's like lying. I couldn't tell if he was being serious

or joking. I think he was actually being serious. That was not a joke. By the way, how about that backhanded compliment? Somebody said that they like our podcast, but fast forward to the end because basically everything we say sucks, except for they like to listen to what we have to say on the recommendations. Yeah, someone listed out their favorite podcasts and they said animal spirits. They said it's a basic concept, basic podcast. Investing is discussed but not recommended. Skip to the last five minutes for what they watched each week. Pretty good because a lot of people say our recommendations are crap. So I guess I'll take it. Thanks. Okay. What do you got? Class Action Park on HBO Max. Speaking of literal LOL, I literally LOLed multiple times.

That was very funny. It kind of reminded me. Is it a movie or documentary? It's a documentary. There was a water park in New Jersey where there was no rules. It was basically run by teenagers and a crazy guy that had all these wacky ideas where people got hurt, people died. Remember the show on VH1, the 90s? Remember the 90s? I love the 90s. I love the 90s. It was just people like sitting down kind of pseudo famous people talking about the 90s. That's what this was. There was like one really funny guy. And it's like 45 year old people talk about when they were teenagers and how crazy it was. I highly recommend that. That was on HBO Max, which by the way, I don't pay for HBO Max. I get it through Verizon Fios. It's not worth paying

for, but... So technically you pay for it. It's part of your bundle. It's a hidden fee. The Boys is back on Amazon Prime. Do you watch a show? Yeah, I watched the first season. I liked it.

Okay. They released three episodes, and then it's going to be every Friday. So if you like the first season, this is a full endorse. It's one of my favorite shows. So if you haven't watched it, I cannot recommend it strongly enough. It's probably one of the few superhero ones that I actually like. Yeah, because it's, oh, so Kobe walked in the room and he saw Homeland there. And Kobe's obsessed with superheroes.

He watches Spider-Man all day long. long. He goes, Daddy, who's that superhero? And I was like, nope, nope, nope. I turned it off right. Yeah, not for kids. All right. Check it out. If you missed on Friday, we released another personal finance when we did the economics of parenting. And we didn't mean to scare everyone as much as we did. We got a few emails from people saying that they're worried about the financial implications of having kids now. I think we're just trying to open people's eyes to what we went through. So I think our experience isn't what everyone goes through, but we just wanted to share what we went through. So check that up. You haven't seen it yet. Animal Spiritspot at gmail.com.

and we'll talk to you next week.