Animal Spirits Podcast - Do Economies Need to Go Bust? (EP.124)

Episode Date: February 5, 2020

On today's show we discuss the amazing run by Tesla's stock, why markets aren't like casinos, Ray Dalio's beef with the WSJ, Zeri Hedge getting banned from Twitter, sports gambling as the next stock-picking, why more risk doesn't always equal higher returns 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

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that we're going to talk about today, and they will give you 20% off of your initial 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 Finn 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 Rit Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast.

Welcome to Animal Squids with Michael and Ben. It's Tuesday morning. We're recording this during the epic meltup in Tesla. and CNBC read an article or a tweet or whatever. Ron Barron, the investor Ron Barron, was on Squawk Box this morning talking about Tesla. And he said something that I think is pretty out there. He sees Tesla getting to $1 trillion in revenue in 10 year. Of course, no company has ever done that.

For a comparison, Walmart, which sells everything to everyone, did $520 billion in the last 12 months. in order for Tesla to get to a trillion dollars over 10 years from their current base, which is 24 billion or so, they would need to compound their top line at 45% a year. Again, something that from this base, I would imagine, has never been done. So here's what happens. You see that headline, and the knee-jerk reaction, myself included, is to dunk on it, right? Oh, my God, this is insane. Are you kidding me?

What an idiot. What a moron. Well, this guy, Ron Barron, bought 1.3 or 6 million. shares of Tesla spent $350 million-ish. That's his average cost. And now those shares are worth, I forget what I said, over a billion dollars. Holy moly. So you're saying he was right about the past, he's going to be right about the future. Is that your claim? It's just funny how the knee-jerk reactions to dunk on the tweet, but like really, oh my God, the joke's on us, or I guess not really, but he crushed it. Tesla is a perfect example of sometimes the intelligent money is the dumb money.

the intelligent money has been telling us for a long time, Tesla is going to zero. It is a bankrupt company. The financial statements are cooked. They're never going to be hit any of their targets. And yet the stock continues to rise. The crazy thing to me about all of this and there's a lot is that it already crashed. In other words, Josh said, listen, if you want to short this thing, don't show it on the way up, short it on the way down as it's cascading towards zero. Obviously, you can't know that. But the point is Tesla already broke. Like in 2019, it was in a 50 plus percent draw down. And you thought, at least a lot of people did, okay, here's the death spiral. And then, out of nowhere, it did this. And to your point about the sales thing, so let's say, let's say

Ron Barron is right. And best case scenario, Tesla goes bananas. So you looked at Walmart is the biggest company by sales, like $520 billion. The next biggest one is Amazon. This is just the S&P 500. And out of all the biggest, the 10 biggest companies in terms of sales last year, the biggest grower by far was Amazon at 20%. These companies are way bigger. And I looked at how many companies did S&P actually had their sales increase over the last 12 months by 45% or more? There were 10 companies. And the biggest one by revenue was EOG Resources, which is like $17 billion in revenue and a $42 billion market cap. So these are all much smaller companies.

They're on like the 10 to $15 billion range. Well, here's a path. On the surface, given what the numbers that you just described, it seems impossible that this could happen. But here's the path. Elon finds a hidden planet where there's 17 Chinas with huge demand. And boom, gigafactory is the whole thing. He's going to build ghost towns on Mars. So even this, listen to this. So Toyota GM, Ford and Chrysler, which is now owned by Fiat. So I guess it's Fiat Chrysler or whatever. In the last 12 months, those four combined have done 700 billion in revenue. So those are the biggest car companies. I guess you could get Daimler and it'll be closer to a trillion. So you're telling me this a chance. So a trillion dollars in sales would mean Tesla would literally take over the entire car market. So the way that I, my favorite case of this in terms of trying to bring this to reality is Michael Mobeson always talks about having a base case. And I think Amazon is probably the one that has

completely destroyed the base case in a lot of ways in terms of growth in every metric. But you take the base case and figure, has a company ever done this in the past? And if they haven't, that doesn't mean it's impossible because impossible things happen in the markets all the time. it just means it's really, really tough. And the run in Tesla, regardless of whether this company ends up changing the world or just doing nothing, we talked about a short squeeze two weeks ago. Our podcast was titled Short Squeeze on January 22nd. It's up 60% since then.

So what do you call this? I don't, I guess it's got to be a melt-up. I can't. So Whitecharts has this feature that shows the percentage of shares that are sold short on Tesla. And as of January 15th, that's the last date. they have it updated through, it was 13%, almost 14. And it was 25% at the end of May, which is right when this thing started cooking. And it's up 400% since then.

I would love to see what the date is going to be at the end of January, because that's got to be a huge, huge part of it, just people covering. And obviously people are jumping in, because what is this? Someone posted about how Robin Hood people are buying in now. Someone tweeted that 4,000 Robin Hood traders bought Tesla for the first time above 700, and everyone says, oh, these stupid millennials. Do you think that, did Einhorn add to his Tesla shorts? Or am I making that up?

He's been short for a long time, correct? Tesla and Netflix, I know. Don't moves like these. It has to just be short covering in large part. No, but there has to be an element of buying here, too. Don't you think? This is a melt-up that's so big that there has to be an element of, this seems like the first piece of euphoria that I've seen in the market

that is actually like, whoa, this is kind of crazy to me. Well, okay, I don't know. I guess it's impossible to tell. But getting back to your point about that tweet, 4,000 Robin Hood traders just bought Tesla for the first time above $700. Wow, what geniuses? They're up 20% in just two days. But okay, so the knee jerk reaction is obviously to roll your eyes and say this won't end well. And maybe it won't. But to me, the real take is that Robin Hood is potentially teaching some young traders invaluable lessons. So, okay, you buy two shares of Tesla. whatever. And let's just say that this is the top and it's a bubble and it collapses and you lose 50% of your money. Fine, let's just say that happens. Okay, so what? And these people probably about like fractional shares of it. Who cares? Yeah, even furthering the point. I think a platform like Rob Hood is invaluable for young traders getting their faces ripped off. And the other thing is people keep saying like, oh, this is markets are really efficient now. Tesla's up 300% in a couple months, markets being efficient doesn't mean that the price is always right. And a lot of people

are saying, like, this is a casino, this is crazy, this is why markets are rigged, fundamentals don't matter. So, Byrne-Malkiel told Barry this on... It's one stock. Yes. It's one stock. And the other crazy thing is it would have to fall almost 50% just to get back to the 420 level where he said funding secured and people mocked him. That's how far this thing has just gone bananas. So anyway, Byrne Malkiel said this to Barry on Masters in Business a few years ago, and it always stuck out to me. And he said, what efficient markets are associated with, which is wrong, is that efficient markets mean the price is always right. That the price is exactly the present value of all the dividends and earnings that are going to come in the future and the price is perfectly right. That's wrong, he says.

The price is never right. In fact, prices are always wrong. What's right is that nobody knows for sure whether they're too high or too low. It's not that the prices are always right. It's that it's never clear that they're wrong. The market is very, very difficult to beat. That's perfect. the thing like literally no one knows what this thing should be priced for and that's the process

that we're going through here is that sometimes people get ridiculously pessimistic about the future and sometimes they get ridiculously optimistic and it just swings in both directions and sometimes way too far especially with a company like this that has this enigmatic egotistical owner who spins a good story and an innovative product that frankly anytime you talk to someone who owns a Tesla they all say the same thing, like, this thing will completely change your mind when you drive one. I've heard so many people say, I will never go back to driving anything else after I drove a Tesla. And so, I don't know. Again, this feels to me like the first piece of a little bit of euphoria in the market.

Yep, agreed. Franklin, I'm kind of glad we finally got here. If we're going to do it, let's do it, right? Well, you know what? This feels second inning to me. Still feels early. For Tesla or the market? So, all right, Bill Miller.

up 120% to 2019 and sticking with some big name investors. How about that? It sounds like he missed his calling as a hedge fund manager, which is basically what he's doing now instead of being a mutual fund manager for all those years because he's obviously using leverage, it says, and he said he'll leverage it anywhere from one to three times. Obviously, he didn't go 120% without leverage last year. But I don't know.

I feel like every other year we have a Bill Miller is over and Bill Miller a comeback story. So this is obviously the comeback story. Well, I feel like he does own Bitcoin still. He's had a great run. Obviously, he got killed in the crisis, and his reputation was much maligned, and the 15-year record was in question, and how much of it was luck and skill in. Being portrayed buying Bear Stearns in the movie The Big Short wasn't a great look. But actually, since he retired, his track record has been phenomenal from the sounds of it.

Yes. All right. Another big name investor was in the news this week, as he has been for much of the past few years. Mostly on the thought leader side, this time on the, I guess, fake news side, Ray Dalio. So there was a profile of him in the Wall Street Journal again. And this did, I think I'm Team Dalio on this one. This felt sort of like a hit piece. It was a little hit piecey.

But he invites this stuff, don't you think? With his management style? The way that he manages and the way that he tells people, like this is obviously people within his firm are reaching out to the Wall Street Journal and giving these stuff. stories. I mean, honestly, if you got this stuff as a Wall Street Journal reporter, would you not put it out there, whether it's a hit piece or not? So yes, I think some of the stuff, did we really need to know this stuff about him? Probably not. The tweets and the headlines was all about Putin. That was immaterial. Yes. But again, if someone from inside Bridgewater

came to you as a reporter and told you that stuff, would you not put it out there just because it you know would make a big, obviously that's not the greatest, most useful financial news. But if someone gave that to you, and obviously it came from someone internally that has a beef with him, wouldn't you use that? So I don't know if I really, it's obviously a hit piece, but I think when you get to that level, you have to expect this stuff. I wasn't a huge fan of his retort on LinkedIn where he said that basically all financial news is fake news. You can take umbrage with something that's written about you without saying that the entire Wall Street Journal was fake news. well okay fine fair but i thought the piece was not that fair talking about his 2019 performance which was pretty rough and i want to say his i mean bridge waters which he has said he's really not

running anymore that he has backed off he denies their claims they kicked ass in 2018 so i feel like that was mentioned but i don't know this is what i did find interesting that he wrote in his lincoln piece he said by the way still hilarious that he's running on lincoln i don't know i said i don't know why i think it's hilarious that his blog is on lincoln i did not see ray dahlia at Tony Robbins, but here we are. He wrote, the Wall Street Journal and other publications don't have investigative journalists write complimentary articles on people because those articles don't sell, which is why our country has no heroes. And I think there's a lot of validity there. Here's my take on this. I think in the past, that's all there was is puff pieces,

that the financial media was part of the, they were the cheerleaders. And after the crisis, they got caught with their pants down like most people did. And they decided after that, we're not getting caught again. We're going to be skeptical. And so the financial news media has been very skeptical for the past 10 years about everything. And I think that's kind of an outcropping of what happened in the crisis. Because before, the financial media was just, they were cheerleaders the whole time. So I think now you've gone the other direction. And here we are. But I don't really buy that there aren't hero article still written. But for him, he obviously has gotten a lot of bad press in the last couple of years. And so I can see why he is not happy about it. All right. Let's talk about an anti-hero. Zero hedge. So Zero Hedge, there was big news, big, big news over the weekend. I believe it was Friday night on his permanent suspension. In my mind, when I hear suspension, I think about high school. You either get suspended or you get expelled.

Being expelled is a permanent suspension. So to me, permanent suspension, I don't get it. So does that mean he's gone forever? Do you want me to define permanent for you? I mean, I know a permanent means, but. Yeah, I don't know what the language is. Twitter and... All right.

So I don't even really know what happened. There are some conflicting reports that he was suspended because he was spreading false information that the coronavirus was started by a Chinese scientist and he was transmitting the person's information. But then he says that, or they say that this information was already out there. So there's a lot of conflicting reports. But I think the important thing is that people were outraged. Weird hill to die on.

That's what I'm going to say. Here's my claim to fame. I've never once followed Zero Hedge on Twitter, so I don't really care that much to tell you the truth. But the people that are saying, First Amendment, those people don't know what they're talking about. I could walk into McDonald's and spout out garbage Fed theories and say, the Fed is manipulating the repo market and the Fed is controlling the stock market. And McDonald's could say, thank you, sir, for your opinion. Please get out of here and never come back. So there's nothing to do with the First Amendment. It's a slippery slope. Guess what? If you put out garbage conspiracy theories all the time. Obviously, they pissed off the wrong person too many times, because it wasn't like, it sounds like this one, it wasn't just this. It was a bunch of stuff. So you know that Vontes-Berfect guy who played for the Bengals? He would always... Where are you going with this one? He would always have those like dirty hits. And each time he got another dirty hit, the NFL would suspend him a little bit more. And they took into account his past actions when they made this suspension. So people who were worried about this one time,

it's obviously not a one-time thing. Again, I don't care. If people want to go on his blog and burn their brain cells on the comment section, have at it. I don't see what the uproar is for. All right. So here's a few takes. One, not at all surprised at the, oh, well, this is the top sentiment. Like, oh, Zero Hedge getting banned. He didn't get banned for his market calls, as far as I can tell. And then I'm also not surprised that people like Ben... You'd be nice if you could get banned for your market calls, though, wouldn't it? Go in the penalty box for a month for being an idiot. The least surprising thing is that Ben Hunt is outraged.

Absolutely beyond outrage, not surprising. And I'm not surprised that they're outraged. I think I understand their mentality, that this is a slippery slope, that this is how democracy dies, that the technology firms are silencing their critics. I understand that mentality, even though I disagree with it. Here's my take. We have never had this much free speech ever. Zero hedge can still say whatever they want on their blog. Nobody is silencing them. They got kicked off of a platform. Yes. I don't think this is a First Amendment thing. And by the way, if you really want to be anti-establishment, don't make millions of dollars selling ads on your website. How about that?

I don't know. I've never gotten it. The people that, like, stand up for it are the same people that say, ignore the noise, but why can't we listen to Zero Hedge? That contradictory thing for some people to me is, I don't really. I disagree. I think there's very little Venn diagram overlap between those two camps. Okay. You're the guy that says ignore the noise, and you don't follow Zero Hedge.

That's what I'm saying, but there's a lot of people who spout that stuff. And so Ramp Capital tweeted out there put its post about it. about after the Kobe Bryant stuff about being first. And he put out this clip from Denzel that has been shared widely before about the race to be first. And it's an interview and Denzel talks about how it's another sort of slippy slope that the fact that we just like to get news out there first instead of sitting back and thinking about what's going to happen. This hit close because I feel like we're definitely guilty of this, at least in terms of like the sharing the content and it can feel so exhausting. And I'm sure our listeners are like, oh, for fuck's sake, like more recommendations. So I'm sensitive to the fact that we are, it's so overwhelming.

And there's definitely something to this. So in other words, if we didn't have this podcast, there's no way that we would be consuming as much as we do. But we feel like it's sort of not our job, but like this podcast exists because of all the content that we consume, right? I didn't know you're going to throw us under the bus there. But my take is though like. By the way, yes, I do have recommendations later. But some of the blame has to go on the audience at some point, 24-7 news cycle and getting stuff out there. and guess what, if people in the past could have gotten news out faster, they would have.

And that's not newspapers in the past, always got it right. No, the audience wants this stuff. This stuff wouldn't be made and advertisers wouldn't spend money if the audience wasn't consuming it. Some of the blame has to go on the audience. Did you blame home purchasers for Ninja Loans, sir? Oh, wow. Good one. No, come on.

See, I mean, obviously, these people know human nature better than the humans know themselves, of course. But, I mean, it's not like in the past things we're always right. Remember the headline that said, do we beat Truman or whatever with the presidential because they tried to rush it out and get the headline out and it was wrong? In the past, people didn't get stuff right all the time either. It's just there wasn't as much of it to consume. And now we have the spire hose. So I think some blame that's going to go in the audience. I wish there was a way to help people filter better. But if they want to be on record, I want to be on record. I'm on the other side of that take. Okay. And if people want to consume zero hedge, he hasn't been canceled from

the internet. You can go to the blog. But if Twitter bans them, honestly, I don't care if it's on it or not, but I'm not going to partake you the way, so. So another Twitter beef last week was Jorke's Perks got into a debate with the Northman Trader guy. What's his name? Sven. He's been a perma bear for, I don't know, since he was born, I guess. I think he says he's not a perma bear. He doesn't identify as one.

How many perma bears ever identify as a perma bear? No one who is a perma bear has ever said, I'm actually a perma bear. Does that be a, right? Of course. Of course they're going to say that. I'm not a barber bear. I'm realistic. Yeah. I'm not bearish on the price, just the world. But it kind of led to a thing about, are recessions good or are they bad? And George's point was there are way too many people out there that are rooting for a recession. And the other side of recession is not good for a lot of people, especially on the lower middle class of the income scale. They are the ones who get hit the hardest when we have a recession. So the fact that the Fed has done all they can to prevent a recession, That's not something people should be mad about. They should be applauding that. And that was the crux of the argument, correct? Yes. That was a good summation. I guess what people like Sven are saying,

whether or not they truly think this, it's almost like a virtuous thing. They're saying the Fed is propping up assets to heights that we've never seen before such that the next recession is going to be so much worse because they've prolonged it. That's their argument. Right. If we don't have a crash now, we're going to have a crash later. That's the argument. I get some of the hatred. I don't get it all. I taped a podcast last week with a guy named Ted Richards in Australia, who's a fund manager and advisor down there. And he said, should we be getting worried in Australia because we're going on our 28th or 29th straight year of an expansion? And I've seen some stories about that. I feel like it's still probably for a developed country doesn't get enough publicity.

The fact that they've gone that long, and obviously they're not as diversified in economy as the U.S. But we're in our longest period already. What's stopping? us from going a little longer. And would it really make things that much worse? The Australia example is it helps to have China be your biggest trade partner. Yes. That's a nice luxury. But I guess the question is, do booms have to bust? And I don't know. Booms have to bust, but it's, do we have excesses? That's the thing. Excesses are what caused the other side. Right. So it's been the first decade ever, but we're in a so much more mature

economy. I know famous last words, but seriously, the standard deviation of GDP, like, we're not booming. This is not a boom. So it doesn't have to bust. Now, that's the economy. You could easily make the case that the stock market is booming, and that has to bust. So maybe two separate things. So I went to Atlantic City for the Super Bowl, and we stayed at a casino called Oceans. It used to be revel. So I feel like Revel open and closed in like three years. And as I'm walking around, the city is so depressed. And either in the next recession, or in 10 years, these casinos will all be gone. I think that's like a reasonable, knowing nothing.

I mean, I could be way off, obviously. But there was, again, I know it's a Sunday and maybe people don't travel for the Super Bowl, but like there were sections of the casino that were just closed off. There was machines off all over the place. So I'm thinking for this casino specifically, what did the investor pitch deck look like? In other words, who bought this casino? Like, who were the investors? Because the same casino in a different name was just built.

It's beautiful, gigantic, beautiful building. building couldn't make it. So why did the new investors think that, I don't know, the whole thing which just blew my mind. Nookie Thompson was the buyer, actually. Yeah, very depressing scene. Here's what I'm driving at. Maybe the sports book keeps it alive. So there was a tweet showing that preliminary numbers from state gambling, gaming regulators showed that patrons bet $54 million at the New Jersey casino, and the payout was $58 million. Beatt's a lost money on that, which is sort of funny. But, okay, so as I sat down to play blackjack, as I always do, I was betting $25 hands and $25 in the scheme of things, not a lot of money. But as I sit down and as I'm playing, my heart starts beating out of my chest.

The blackjack feeling is one of the greatest feelings on Earth, is it not? So I'm like, okay, this is pure adrenaline. What is going on? It's not a lot of money, but it's like I'm living and dying on these $25 chips. So this had me thinking about an article that I wrote or a post that I did last week about people who say I'll never sell. And it's really hard to write posts like this when you're overgeneralizing to such a large degree. And I think the point I was making was that it's easy to tell yourself that you'll never sell to think, listen, I could take a 30% drawdown.

Big deal. But the point that I think people are missing is that stocks don't fall 30% for for no reason. They fall 30, 40, 50% because things are seriously bad. And that's the thing that people are, I think, failing to realize. So we got an email, and somebody said, by Michael's definition, I am an average investor. My wife and I have contributed regularly to our retirement plan, made additional investments, and have only sold when there was a financial need. We have never changed our investments based on market conditions ever. And now, here's the point. You guys say all the time that most people freak out and want to sell when things start tanking. But is this true of most average investors? What percentage of these folks actually take

with their 401 case when things start to slide? Do you have any numbers or is this just anecdotal? you should do a survey to find out, LOL. So, okay, I want to be very clear here. I don't think that everybody freaks out when the market falls. I think that there's plenty of people who understand that this is money that they can't touch. So I don't want to misrepresent the fact that the average investor needs a financial advisor because they're not equipped. I don't subscribe to that. I really don't. But the experience that I had at the poker table just gave me a little reminder that when the money is on the line, your brain starts doing funny things. Yes.

And some of that stuff, you can't really help. And obviously, when stocks do fall, someone is selling or someone is not wanting to jump in and sellers are overwhelming the market. So obviously, it is happening. So that's the other thing is that maybe there's some irony involved in that what really moves money are institutional investors. And I guess you could say that institutional investors ultimately represent retail at the end of the day, to some extent, maybe, the mutual funds and stuff like that. But I don't think

that what's causing the selling is everybody liquidating their 401 case. Right. Yeah, it's more short-term money, probably taxable in a lot of cases. And it's a lot of professionals as well that are moving around. Right. So the irony is that maybe it's the professionals freaking out, not the retail investors. So as I'm driving to Atlantic City with my friends, the conversation comes up about politics and markets. And my friend says, and again, just anecdotal, whatever, or whatever. So take it with a grain of wheat or rice or whatever, whatever grains we're talking here. He said something along the line. So if Bernie Sanders becomes president, should we go to cash? So I'm trying to walk this tightrope of. Listen, people said the same thing with Trump and nobody really

knows. However, yes, I would agree that in a vacuum, the idea of Bernie Sanders's president does not make me excited for the prospects of the markets. But you have 30 years. We're not touching this money. So it's going over that whole spiel. And so I do think that people do talk like this. And I don't know that they necessarily act on it. So again, what percentage of the overall average retail investor? Is this 10 percent? Is it 40, 70? I have no idea. So yes, I'm painting with a broad brush, but I just want to be very clear that I don't think retail investors are sheep. Right. But there are people who make investment decisions based on their politics, which they shouldn't do. They make them based on viruses that are going on in China, which they

shouldn't do do. So people react to things that they should react to all the time. And sometimes they panic too early and sometimes they panic too late. But people do panic. That's just the nature of human beings. So it's going to be always be a some segment of the population. Back to your gambling thing. Barron's had a story a couple weeks ago about how there's a huge opportunity in gambling stocks. And they talked about how since the Supreme Court decision in May 2018 struck down the banning of wagering or federal states that it just opened all the floodgates to this. And I guess there's already 20 states that have legalized sports betting. Another dozen could approve. And they say that an estimated $150 billion is bet on sports illegally each year,

which I'm guessing is way higher than that, because that's got to be a hard number to track. And they're saying states are eager for tax revenues, which I'm in the camp that, I remember back in the day, so in northern Michigan, we had a lot of Indian reservations, and they would have casinos on those. And those were your only opportunities back in the day for casino. Now casinos are everywhere and not just on Indian reservation land. And I think a lot of it is because these states need the revenue. And so that's why I think it's been so easy for a lot of states to say, okay, to making marijuana legal. So I think anything that they can make legal and get tax revenues on, they're going to.

So I'm guessing a lot of these places are going to go into the sports gambling stuff as hard as they can. And I think this is probably maybe the next stock picking thing as a habit. Wouldn't you say, where you're going to be allowed to have a little iPad at your seat and bet on the next play in a game to make things like baseball more exciting and get people keep coming to the stadiums. They're going to bet on just about anything. I think that's an enormous market for this, enormous. And this was the idea with Barstool being bought by Penn National Games. gaming, which I guess has been a publicly traded company for a long time now, a few decades. And they valued barstool at $450 million because they have a huge gambling presence and a

huge gambling audience. And so it honestly, in some ways, makes a lot of sense to me. Yeah, agreed. So last week, sticking with this, Michael Antonelli, who I'm a big fan of, was talking about how there should be a barstool for finance. And I love you, Michael. It's a horrible idea, in my opinion. And here's why. Let's just start with a few obvious things. First of all, we're in it, so we might not realize it. But the audience for financial content is like way, way, way smaller than people think. And much smaller than sports and pop culture as well. It's a tiny, tiny, tiny sliver. That's one. Two, let's just talk about like monetizing this. The ad business is not what it used to be. How the heck would somebody make a living doing this? Yeah, the thing people don't realize the ringer was another company that almost got bought. by Spotify, apparently. Between the Ringer and Barstow Sports, they have two of the largest podcasts sports podcasts in the country that get like anywhere from one to two million downloads per podcast. That's a lot of the revenue right there just from those two huge podcasts. And so if you don't have an enormous audience like that, it's tough to run a business. Yeah, so what?

Is somebody just going to rise and start this? There's going to be somebody with a built-in audience who's going to quit their day job to pursue this. It just doesn't make sense. Next, investing is a mostly serious business. Obviously, we have fun on Twitter and stuff like that. But nobody wants to follow somebody who's a clown who's like, I don't know, chugging beers every time a stock that they don't goes up. You know what I mean? That would get stale very quickly. So to that point, Portnoy is a one and a million character. He is Barstool. If he left, I feel like the place would fall. And it's not to say that he doesn't have a strong supporting cast, but you need that one and a million personality. And then finally, isn't Finance Twitter already Barstool?

That's about as close as we're going to get. That's what it is. So I don't think that barstool needs. And then like, how about some legal ramifications of maybe being sued, giving like stock advice? Like, who needs that? Yeah. It sounds good in theory. But yeah. And the barstool of trying to like model something after someone else is already done is really hard to do when you don't know the path that took them to get there and how long it took and building the audience. And their audience, frankly, is mostly younger college kids. Guess what? That audience is not the same audience. as you get for a finance crowd, again, who is just completely different. Yeah, it's two different

things. And I think you're right. Finance Twitter is probably as close as you're going to get. So James Clear had an article why facts don't change minds. And I want to highlight one thing that he said. There is another reason bad ideas continue to live on, which is that people continue to talk about them. Silence is death for any idea. An idea that has never spoken or written down dies with the person who conceived it. Ideas can only be remembered when they are repeated. They can only be believed when they are repeated. So I totally agree with this. So taking screenshots of things that are silly and posting them, it's counterproductive. That being said, I'm going to be counterproductive. Last week, we were talking about the fire movement and that our beef lies not

with the idea at all, but with the presentation of it's really not that hard. Anybody could do it. No, not anybody can't do it. And so the very next day, MarketWatch gave us another hint of oxygen at this opinion. I retired at 35 by following these principles. It's not that hard. So I just thought that was serendipitous. So sorry, we're not going to let this idea die. Yeah. And our colleague, Nick Majuli, had a really good piece called the biggest lie in personal finance that came out today that broke down something that we talked about last week but didn't put numbers on, why it's so hard for certain segments with the population to actually save. And he went through the spending and showed that a huge percentage of the population has to spend more than they make on necessities. And basically

can never, and he broke it down to about the bottom 40% of people, maybe 50, that are going to have a hard time ever saving, unfortunately, which is a problem that I don't really know how to ever fix. Yeah, it's tough. So there was an article in the Times, does personal finance still work in our changing economy? And they said traditional personal finance advises people to save 10% of their income for retirement. The problem is that it's both unrealistic for many people, but also not enough to fully fund the retirement. So this dovetails nicely with what we were talking about last week about the idea of, or maybe a few ago, like financial literacy, does it work? And you tell me about I missed this podcast from Christine Benz and Jeffrey Patak over at Morningstar.

They spoke with, I believe his name was John Lynch. I forget it exactly. Does that sound right? Yes. So he made some interesting points. So a lot of the gist or the meat of the conversation was talking about financial education and the effects that that has versus like nudging consumers. And financial education decays over time, but that can be applied to everything. what you learned at 7 or 11 or 13 doesn't necessarily stick with you at 28. Right. I don't remember trigonometry from high school. Exactly.

So he made a really good point that I hadn't considered. So we act as if, or there's some school of thought like, well, why don't we teach personal finance in high school, in middle school? I don't think that we should. I definitely think that this conversation is worth having and it probably should be done. But he made a point something along lines of, you can learn everything the right way. And I guess people could disagree on what good financial advice is. but you can learn everything by the book and come home and your parents tell you that's completely

wrong. Where did you learn that? Yeah. Sometimes it comes down to who your mentors are and what you're learning. Yeah, I agree. So again, I'm not saying you throw all this in the trash can and just throw our hands, but say, oh, it doesn't work. Don't even try. But there's like structural forces here at work. I guess what I'm saying is that a financial class in high school is not going to solve all of our problems. True. Honestly, though, the 10% thing, if people could save 10% of their income as a starting point, maybe that's not enough for retirement. That's probably not a bad place to start, right? If you did one thing? How about that? Okay. Also, shameless plug, I will be on the long view this week. I believe it comes out the same day as our podcast. So listen to ours first,

and then you can hear me talk about a bunch of stuff with Jeff and Christine. So take a look at that. So there's a great chart, Ned Davis, and we will link. So Ned Davis does like this awesome research, and we're going to throw a link in the show notes if you want to check out their product. There's a chart showing MSCI Acquis versus Top 40 Acquis stocks by Market Cap. So Acquis is all country world index. Yes. And not surprisingly. This has been on the move up and up and up. And right now, the top 40 stocks, this was as of October 2019, represented 28.5%. And it looks like this is probably crept up since this is published, probably closer to 30%. Looks like it's gone up by 50% since 2014-ish. The big

stocks are doing better, right? Yes. So a story that we know very well, I just thought this was a really pretty eye candy. Here's one of my favorite headlines of the week. High yield was oxy. Private credit is fentanyl. So this was a piece. And Tesla is crystal meth. Now we're talking.

So this is a piece about the private equity industry is by Dan Rasmussen and Greg Obenchain. And Dan has been on the compound before talking to you and Barry about private equity. And obviously they are anti-private equity and they've trying to give some evidence for that, but just put that out there before we talk about it. But they talk about how they talk about how they. There's just been this, obviously, this huge inflow into private equity, but that is also coincided with this enormous outcome of this growth in private credit funds, because a lot of

the banks aren't giving these private equity funds the leverage they need in the debt capital they need to buy these firms. It's actually private credit funds, which has grown from 109 billion in 2010 to 261 billion to 2019 from $37 billion in 2004. And there's currently 436 of these funds. up from 261, five years ago. Their main point is that a lot of these funds that are providing the capital for private equity are doing so in a not great way. And it's crappy credits, basically. And one of the ways that they tried to show how just because you invest at a higher interest rate,

it doesn't always work out, lending club, which is a thing that people tried to get into in terms of consumer lending a few years ago. I think it's still a publicly traded company. This is where people can take out personal loans. They showed it. They have these ratings from A to F, in terms of A is best, F is worst, and A would be an average interest rate of 7.1%, F gets up to 26%. The crazy thing is, so although these rates range from 7 to 26%, the highest return in an investor got on them was 5.7%. And actually, the highest rate of interest rate, people were paying 26%. Got the lowest return at 3.1% because there's so much defaulting going on. The point is that taking more risk and just because you're getting a higher interest rate doesn't mean you're actually going to get more

return. So sometimes, especially in the fixed income world, more risk does not equal more return, which was an interesting way of looking at it. I'd never seen this graph before. Yeah, he called it fools yield. And I will say getting back to the point about retail investors, this is a mistake I've run across repeatedly from friends and family. Talk to me about something that now yields 11%. And I would say that's a fairly common mistake. And so we work bonds. Are those rated G? More like L? I don't know. Pretty bad. So you put this story in here about high frequency trading. And I want you to read what it's about. And then I'm going to poke some holes in this. I feel like this is almost like a survey. Okay. High frequency traders earn nearly $5 billion on global stock markets a

year by taking advantage of slightly out of date prices, imposing a small but significant tax on investors. A new study says, and say what you're going to say, I have a feeling that I have the exact same take. Yeah, this makes no sense to me. And also the way that they figured this out, so they said there's a tax of 0.0042% on daily trading volume. And they got to these figures by examining, two months of activity on the London Stock Exchange in 2015. Well, to me, this is like showing the assets without showing the liabilities. You're only showing one side of the ledger. So what have HFTs done in terms of spreads and making markets function quicker?

Yes, the bid-ask spread. So maybe you look at this $5 billion as a tax as their fee for making markets work better. And a matter of fact, there's a really cool chart that shows the financial chunk of meat that the financial services industry takes out of the U.S. economy. And it hovers between, I think, two and three percent a year, which is something that I've heard Michael Kitts has talked about in the past. But we'll learn to this in the show notes. It's a really cool chart. Yeah, there's a cost of doing business sometimes. And do high-frequency traders, are they necessary? Probably not. It would be interesting to see what would happen if they are all

a sudden shut off, like what would happen to the liquidity in the markets, I guess. May 2010? Yes, flash crash. Okay, here's another survey that I just really don't believe. So this was on CNN, and they said last year Americans visited the library more than they went to the movies, live sporting events, museums, concerts, amusement parks, casinos, according to a Gallup poll. U.S. adults reported taking 10.5 trips to the library on average in 2019. No way. Right? There's no way that number is correct. Did they survey librarians? Yeah. A sample of 1,025 random adults. Not buying it. There's no way people are going to the library 11 times a year. I'm sorry. Not buying it. All right. Let's hit a question. What do we got? Would I be better off investing in private equity common stock, i.e. BlackRock or KKR,

than the private equity funds themselves? You'd probably be better off working for a private equity company and earning two and 20. How does that sound? Obviously, we don't know. But if you had access to both of them, that would actually be an interesting comparison. Because, I mean, honestly, if the private equity funds themselves do poorly over the coming years, the stock's probably going to do poorly too. So I guess it depends on. much their asset bases and what they're earning on fees. But I would say it's a toss-up, basically. I would like to hear your perspective on cryptocurrency of potentially having some sort of inverse relationship to the market. Would it be a place investors will put money when

the economy had a downturn, a safe haven of sorts similar to gold in the past? I don't know about the second part in terms of will it do well in a downturn. Will it be like gold? What I do feel fairly confident in saying is that it is a fantastic might be too strong word, maybe the ultimate diversifier in the sense that it, as far as I can tell, has nothing to do with what stocks and bonds do and traditional assets. So not saying that it's going to go up, I have no opinion there, but I will say that it can offer substantial diversification benefits potentially if you are the type of person that can monitor this and rebalance into the pain and those sorts of things. The correlation thing, it wouldn't necessarily have an inverse

correlation. But if you had a correlation of negative one, that would mean when stocks go up, Bitcoin will go down. When Bitcoin goes up, stocks go down. So I don't think it definitely has certainly has that. But let's say it has a correlation probably closer to zero where it just does its own thing. That's what you want in something of a diversifier probably is something that just walks to its own beat. And so that would be the case. I hate to use the term holy grail of what you're looking for. But if you think about alternative assets, not like strategies, but like if you're thinking about like I don't know, commodities or tips or reeds or whatever, like they all are in some way, shape, or form tied to the economy. Bitcoin is truly, I guess, decentralized. That's the thing. It does what it does. And Bitcoin has like some emotional diversification because there's so many whack jobs that push it, right? How about that?

All right, recommendations. A little behind you, but I watched Parasite a couple weeks later. I really enjoyed the movie just because it was so unique, indifferent. And it was also a really interesting take on class warfare in some ways. Do you think this is the kind of movie they'd remake in the U.S. since it was done in South Korea? because Hollywood has no shame in terms of remaking stuff? That would be terrible. Yeah, it would.

It was just really good to see a movie that was just so different, and that's what I really liked about it. Finish reading fewer Richard Greene. Yeah. As you're watching Parasite, so obviously the movie, and this is no spoilers, but the movie takes a sharp turn at some point. As you're watching it, did you feel like, okay, sort of slow going, but something is going to happen.

Did you get in the back of your head, you feel like, okay, something's going to happen here, and it did, and it was not what I expected, and it was, you could just kind of tell. It was building. the suspense built, it was, it was very funny, too. There was a lot of good humor in it. It translated well even through subtitles. I finished Fewer Richard Greener by Lawrence Siegel, which we talked about a couple weeks ago. It's one of those books where if you've read the books about being optimistic about the future and why things are better, like factfulness or anything

by Stephen Pinker, probably come across a lot of the data. I still liked it because I enjoy reading this stuff. So here's some good stats for you. Okay, in 1846, until 1846, all surgery had been performed without the use of anesthesia. They were basically using, like, cocaine and whiskey to dull the pains for people. And people would do... That sounds better. But they had no way of knocking people out, basically. All right, here you go. A greater proportion of 20-year-old Americans today have a living grandmother than had a living mother in 1900. Wow. In the United States, there are more trees today than there were in 1950. That one kind of surprised me.

And here's another one. In 1900, the U.S. high school graduation rate was 6%. I love reading about this stuff about how things have changed in the last couple hundred years. If you like that stuff, you like this book. You do. Okay. Just kidding. All right.

Your turn. Are you excited about the McDonald's lottery fraud documentary on HBO? Isn't it a multi-part one? Yeah. Seems like the kind of thing you do in one show, but yeah, it looks good. in in the fraud stuff obviously. Okay, so I revisited, I forget the guy's name, I'm even going to try to pronounce it, the director of Parasite. So he has a movie that was made in English and it's available on, I believe, Netflix. It's called Snowpiercer and thematically

very similar in terms of the difference in social classes. So this movie is, I guess it's science fiction. It's definitely out there. So if that sounds like it's up your alley, if you enjoyed Parasite and you enjoy science fiction, I do recommend this movie. Is this one with Chris Evans? Yes. Did you see it? Oh, yeah. I saw that a long time ago.

I saw when it came out. Oh, really? What did you think? I liked it. Did you realize that that was the same director? I did not. Not until now. But that was one that took place on the train.

Yes. At the end of the world? Yeah, it was actually very, it was bizarre, but it was very good. It was very good. It was definitely out there. So if that's, so instance, it's up your alley. Check that out. If not, stay far away.

And then lastly, I watched. So Noah Boundback did marriage story this year. So there's a movie of his on Amazon Prime called The Squid and the Whale. Also takes place in Brooklyn. Also a divorced family. Jeff Daniels, and I forget her name, forgive me, the mother from Ozark or the wife from Ozark, you know who she is. Yeah, Laura Linney. And Jesse Azerberg's in it.

Yeah. Oh, you saw it? Yeah, a long time ago, yeah. Good movie. It was hilarious. I and Anna Pacquin, I thought it was better than marriage story. I think it's way better than marriage story. Yeah.

The little kid, I mean, I don't want to spoil anything, but it was... Jeff Daniels is excellent in it. One of the Baldwin brothers, it was so good. It was such a good movie. Highly recommend that. I don't kind of put him on the map. Okay, so, yeah, that was 2005. So, Jesse Eisenberg was great in that.

He also was on Conan this week, or two weeks ago, on the Conan podcast. It was awesome. I'm into him. I thought it was a great conversation. So, all right, that's it for us. Full episode. Thank you for sticking around. Animal Spiritspot.

At gmail.com, and we'll see you next week. Oh, wait. I'll do it next week. All right. for us.