Animal Spirits Podcast - Elon Buys Twitter (EP.254)

Episode Date: April 27, 2022

On today's show we discuss what Elon Musk can do with Twitter, bonds & stocks falling together, growth stocks keep getting killed, inflation vs. mortgage rates in the housing market, 3 reasons inflation might be peaking and more.   Find complete shownotes on our blogs...‍ Ben Carlson’s A Wealth of Common Sense‍ Michael Batnick’s The Irrelevant Investor‍ Like us on Facebook‍ And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.‍ Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by Y Charts. Why Charts sent us a new research piece they do. It's not just for researching stuff. They actually do their own research. And it's called the real impact of mega-cap stocks on your portfolio and the market. And they looked at these mega-cap tech stocks. And it's Apple, Amazon, Facebook, Google, Microsoft, Netflix, Nvidia, Tesla. Maybe Netflix is not a mega-cap anymore.

But they wanted to break down and see if you have a diversified portfolio, Now, diversified is not just 60, 40, U.S. bonds. They're looking at 60, 40, 70, 30, 80, 20, 20, 10 in all stock. But they're also looking at if you hold international stocks and emerging market stocks. If you click on the report, you can get the weights there. Well, for the people that can't see, what are we looking at here? So they're showing how much these eight stocks, so if this is an all-stock portfolio, again, diversified globally. These mega-cap tech stocks make up like 13% of your portfolio around.

If it's a 60-40 portfolio, it's more like 7 or 8%. And then they also broke it down by Target Day funds. They're speaking my language here. 2065 fund, which is for younger people, it's over 11%. 2025 fund, it's more like 7%. And then it goes to that range. 2016 and 2065 look exactly the same. You think there's like an ARB opportunity here?

Short than 65, pick up a few bips. I think that's by design. But interesting because I think for the last, whatever, five to seven years, a lot of people thought, why don't I own more of these stocks? these are the best stocks in the world. And guess what? You pretty much already did. You had a pretty large weighting in this handful of stocks.

Even if you diversified outside the U.S. into foreign stocks and emerging markets and bonds and all these other things, now I'm guessing some people are saying, I want to way too many of these stocks. I need to diversify even more into small caps or value or whatever it is. If you want to learn more about this research, go to our show notes, check out Y-Charts, Real Impact of Mega Cap stocks in your portfolio. Remember, Whitechart sponsors us.

They have for how many years now? Four years maybe? Four. And we do nothing but give back to the listeners. So 20% off your initial subscription if you mention Animal Spirits at the time you subscribe. 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 Batnick and Ben Carlson work for Ritt Holtz Wealth Management.

All opinions expressed by Michael and Ben or any podcast guests are so. solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Michael, I underestimated the sheer amount of F-U money Elon Musk has. Hand in the air. Hand up. I was wrong about this. You were wrong about this. Let's go through the timeline of last two weeks. Elon Musk puts a 13G passive ownership stake in Twitter at like 9%.

Just passive. He's just going to hands off, passive. Then a few days later, they announced he's going to be on the board. I think two days after that, no, he's not going to be on the board. And then, okay, I'm going to put some funding together, but I don't have it yet. And then Twitter's going to poison pill him. And now he just bought the company. Do you think this is a case of the board just going, all right, we're out?

No way. I'm not going to fight this. It's not worth it to be dragged through the mud on Twitter and in the head. headlines. See you later. Because I cannot believe another tech company didn't swoop in here. Like Google. Same. I was positive another, at least to like jack it. Like if you go to an auction and you want to like jack the price up on someone else, I'm surprised no one did that here. Do you think that says a lot about Twitter as a business that it's just a dumpster fire and it's not making any money? Or is it just that like you need someone like Elon Musk who does not care

about the optics. And he's the only natural buyer here. I'm surprised that Bill Gates is short Tesla, by the way. I'm surprised that he's short Tesla. I'm also surprised, like, given their little back and forth, or it seems to be one-sided at this point, that Bill Gates isn't like, you know what, I'll go 50 just to stick it to Elon. By the way, you saw Elon's tweet about the, you want to lose your boner fast? Yes, yes, I did. So Elon Musk bought Twitter, as we know, or is buying Twitter. Actually, it's not done yet. But would this be the largest purchase in the history of mankind by a single individual by a very, very, very wide margin,

Elon Musk is paying $44 billion for Twitter. This is probably is bigger the number two through ten combined. What's the biggest purchase of all time? It's got to be, yes, good point. You see, the thing is... Elon Musk's buck, what? What is hard to believe? I'm still...

I'm not there. If you take how much he's going to be paying in interest rate costs on the debt he's taking on to buy this, there's no way Twitter as a business comes close to paying that off. in its current form. Obviously, some people would say, well, it's going to make more money if he makes these changes. But I think the analogy I made a couple weeks ago when you first

decided he said he was going to buy it is this to him is like a sports team. So instead of like buying the Knicks or some other franchise, he's buying Twitter. Yeah, good analogy. Do you think he really cares if he makes money on this? Obviously he doesn't want to like have it be a total failure, but I don't think he cares. So compound 248 tweeted some of the details. Looks like 13 billion of debt financing with $12.5 billion of margin lending against his Tesla holdings, and he's a $21 billion equity commitment. It's an enormous amount of money. And again, to him, it's still like if he lost all this money, would his lifestyle change one iota? No, it could go to zero and it wouldn't matter to him, except for his legacy. Do you think the user experience is going to be

any different, better or worse? I think a lot of people are thinking at the extremes right now, and I never really get in that mindset. So some people are saying it's going to be crazy and it's going to be, all hell is going to break loose. And yeah, free speech is finally legal again. By the way, if free speech is legal again, I got a lot of thoughts. First of all, Star Wars is overrated. IPAs are overrated. Oh, wait, sorry. Stop. Free speech is legal again. They told me. And the other people say, he's going to change everything and Twitter is going to be so much better. And like, I think it's, I'm in the middle there. Like, I don't have any hot takes on Elon Musk is going to drive this thing off

a cliff or he's going to make it like the best thing ever now. Because if you think about it. Speaking of you not having hot takes, I like Dan Arellie calling you out for being very wishy-washy. That was kind of funny. That was good. Yeah, I missed that one. That was a really treat to talk to him. I've been reading his books for a while. That guy is great.

We could have talked to him for another half hour, I feel like, at least. The thing is, it's such a huge platform for driving news and driving conversation. It doesn't have that many users still. Do you think anything he does would drive more people to use it? No, I don't think he's going to change the user experience. I think they're going to slow down on the users on the ad-supported model and maybe try and charge users, if I had to guess, which I'm fine with. I clicked on an ad for a watch. I don't know why.

On Instagram, I just clicked on it. And now they won't stop serving me watch ads. And I keep clicking on them. I'm not really sure, but I've clicked on them. So now they got me. Twitter still has no idea who I am. Maybe the ad thing is just never going to work on Twitter. And what they need to do is the power users who are addicted to it like us, if he

ruins this and drives it off a cliff and Twitter is like a dumpster fire, personally, that's going to impact me because I love Twitter. It's my source of news. It's my source of analysis. It's where I go to understand what's going. out in the markets. If he did wreck it, that'll be tough for me. So charge people like me, like if there was a finance Twitter that you had to pay for, I would pay for it. If I'm paying to use finance Twitter, I don't care what they charge me. I'm probably going to pay for it because

it's very useful to me. So I think charge those people who are addicted. But we use it for business. I get very little personal satisfaction of Twitter these days. I'm more dislike it than I do like it, but it's where all of our information comes from for the show. You're welcome. Speaking of the show. We've got 50 people in the audience right now. This is our first ever live podcast to people who own our entities. So we've got the animals here. The NFT holders are actually in Riverside with us right now. So that's fun. That's fun. You're having fun? There's a chat and I see a lot of people already say my IPA take is already stale. I'm just saying if you go to the brewery, just like one or two fewer IPAs and like what do you order? I like a good red beer like a Pilsner. I'm a

meat potato's kind of guy, Michael. But here's the thing. So I've got I've got a rule. I've got a personal rule. I don't trick IPAs if they're less than a 6% ABV. I'm not trying to waste my time. I'll do a 5-9, but a 4-5, no chance. Speaking of drinks, I did get a few Miami vices, and I will say they're delicious. It's amazing, right? You don't get drunk off those. How many of those are you going to drink? It's the atmosphere. You have one. That's it greases the wheels, so to speak. When you get to the resort, you order one and they say, do you want an extra shot on top of it? You have to get that. Of course. It's a lovely, lovely pool drink, right? What are we animals? Yeah, it's terrific. All right, we don't

Twitter? Yeah, I mean, we're going to be talking about this for a long time coming, I think. So I think there's plenty to say in a few. Again, I don't have any hot takes on him like, by the way, I got nothing. Likelihood of this deal going through. Where would you put it right now? I'd go 50-50. I'm not like confident this is going to go through. Oh, I don't know. I feel like we've been wrong at every turn on this. So now I'm perfectly hedged. I will no longer take a stand. No, remember I said you got to go 51-49. So all the 51-49, he goes through with it. I'm going to say, I'm going to go the other way. I'm going to go the other way. I honestly think all the people saying there's no way he's going to do this. He's

going to ruin it. I think that goaded him into doing it. I don't think he wanted to buy the company when he filed like a 13G or whatever it is. This story's not going away. That's all I'm saying. So I did this tweet last week about the bond market and the bond market is kind of harder to pin down than the stock market. There's the aggregate bond market, but that doesn't hold everything. There's no S&P 500 for bonds. But if you look at long-term treasuries, intermediate trim treasuries, even like shorter duration, like three to seven year, corporate bonds, junk bonds, all of these at one point were doing worse than the S&P. Now, the S&P is fallen in a few days.

The S&P's on 11 or 12% now, so it's taken out some of those. But we've never been through a period like this where the bond market is doing substantially worse at some points than the stock market while the stock market is down. I think I said this a couple weeks ago. This is unusual and it's a painful period of time because investors are used to bonds

buffering stock market losses. Not only is that not happening, but you could make the case that bond losses are causing stock market losses and bond losses in some cases are even worse than stock market losses. Every dollar has to be invested in something. So let's say there is some panic selling because people see their bond losses and go, get me out of here. This is not what I signed up for or the stock market is falling and they say, get me out of here because this could get worse. What is more likely? People sell their stocks and buy bonds or people sell their bonds and buy stocks. Or maybe they sell both and they put it in cash.

Neither. No, they go to cash. I think if you're selling stocks or your song bonds, right now you're going to cash. But inflation is 8.5%. Maybe we're at the point in time where we start to get some real fear and people do by treasuries, because that's what typically happens. So I'm talking panic. I'm thinking the regular mom and pop investor who always kind of gets a black eye by people in the media. But let's say big institutional dollars. To them, this is, okay, bond yields, like if you're an insurance fund or a pension provider or whatever, this has to be a great thing for you because yields are finally higher.

Wouldn't they be leaning into this and putting more money into bonds at some point? The thing is, when you're going for the safety of bonds, you're not doing it because you plan on owning it. You're parking your money. You're not going to park your money and things that are risky.

What's so funny? Somebody being a clown in this chat? What's going on? What are you laughing at? Well, we have a... Am I getting dunked on? Yeah, we have someone who is an NFT holder who actually owns a brewery in Michigan

and he said he's going to speak for the Michigan brewers that Ben is not allowed to live here anymore. So I think that's fair. All I'm saying is like, kind of like at the kiddie table. The one kid wants a Shirley Temple. Like, give me my Pilsner and you guys can all have your IPAs. That's all I'm saying.

A Pilsner is the Shirley Temple of beers. Yeah. Do you drink Blue Moons? I actually love Blue Moon. Of course you do. All right. Well, Blue Moon, I like Irish beers, that kind of stuff. No, the Blue Moon is really the 60-40 of beers. It really is good, isn't it? Yeah, it tastes good with a little orange slice. All right. So this chart from Jim Bianco is nuts. I mean, we've never seen anything remotely close to this. And it is causing some consternation. Did I use that word right? So the Bloomberg aggregate bond index only goes back to

1976. So to me, it's not surprising because we're going from such low levels. In 1976, rates were 8 or 10 percent, basically. So we've been living in a period with much higher rates or falling rates. So the fact that this, I guess if you go back to the 1930s, this isn't as much out of whack as it is going back to the 1970s. But for anyone who's been investing for the last 40 or 50 years, we've never, ever seen anything like this before. I don't know how you could, like, Ben is on the fence again, how you could have certainty about one way or another right now, I think you have to be nuts. This is one of those times where I kind of throw my hands up and go, I'm confused.

Like, I don't know how investors are going to react to this because we've never seen, there's no precedent for this. Correct. All right. So sometime last week, this person at FX Macro on Twitter, quote tweeted Eric Balchunas, who said, I don't think I've ever seen the three amigos, SPY, IVV, and VLO, the biggest three S&P 500 ETFs, at the top of weekly outflow. like this. They command for $18 billion in outflows causing a rare negative. All right. Anyway,

so this person quote tweeted and said, that was the tax selling and it's over. There is no more supply in equities only demand going forward. And when I saw this tweet, I out of my head, I agreed. Well, it turns out there is more supply because as we're taping this, the NASDAQ is down almost 3%. The S&P's down 1.7. I feel like we're getting close to, it doesn't matter if I say short term bottom or not, but I feel like we're getting there. This feels like capitulation. I'm not saying that the bottom is in, but it feels like we're getting to a bottom. Everyone is bearish. There are nobles. Everyone is bearish. If I was a short-term trader type person, myself included, unfortunately. You call this coiled spring, right? So the thing is, no, I'm saying,

I think we're due for like a fast move. Either we get a whoosh down to 20% from the S&P or like we go right back up. And I feel like that kind of move is being set up for. What you're describing, when I hear Coiled Spring, I think of a stock that's like going sideways. Some traders, some chart people draw like triangles on it. It's like doing one of these. This is like the rubber band being stretched so far one direction. I think that's what you're saying, that it's going to snap back and go the other way. Wait, a coiled spring and a rubber, that's the same thing. The coiled spring is like you're pushing it down and then it springs up.

That's the same thing as a rubber band being pulled back. Maybe you are saying the same thing. When I hear coiled spring, I think of something going sideways in a tighter and tighter range, but maybe you're right. Maybe you're right. I always thought the coiled spring was like you're compressing it and then it's going to shoot up. I'm not a mechanic. I don't know about this things.

Well, obviously neither am I. Speaking of which, I actually did something handy over the, weekend. I've got a small garage. I don't understand how my garage was even built. I've never pulled a car into my garage. Does anyone have a big garage in New York? That's got to be impossible. There are a few big houses with big garages. But if I pulled my car into my driveway, I don't think they could open both doors. So anyway, I don't have a basement. So my garage is where I tend to store a lot of stuff, a lot of junk piles up. So we did a spring cleaning this weekend. By the way, and I've got my bicycle. Spring cleaning as a homeowner is just a great feeling, isn't it? That's how

you know you're getting old when you're like, ah, this is amazing. Rob is that she went to Home Depot and was packed. I was like, yeah, no kidding. It's spring. There's what we do. We get out. So I got like the thing that you hang on the wall so you could put your bicycle on, is it a bike rack? I guess.

My bike is hanging. So I don't have a stud finder. Do you have a stud finder? No, my father-in-law does. I just rely on him. I texted my neighbor. He goes, no, just knock it. You'll hear it.

I'm like doing this. I always do that and I can never find it. It all sounds the same. You need like hearing aids to find it. to happen. Anyway, not to brag, I was able to figure it out. He's like, no, you see the line here. This is where your beam is and the studs are 16 inches apart. So, now I've got a hanging bike. By the way, I mentioned a few weeks ago that, like, you can tell you're getting older when you're searching on Zillow for houses you're never going to buy. We've done some work to the house.

We've been in our house for five years now. We got the interior painted because my kids just ruined the walls. And we just had someone come, like, wash the exterior. We have a white house and they came and washed the exterior. And my wife and I are like three or four times, like looking at it, Like, man, they look so nice. You don't own a power washer? I do, but like our home is three stories and you can't get the whole. Not to brag. You have three stories.

Wow. And by the way, I didn't want to make you feel inadequate, but we have a three-stall garage. Three. Yeah, sorry about that. That's what you get in Michigan. You get way more. They're just showing off. But anyway, like, that's the kind of stuff where, that's how you know you're a

homeowner because, like, it feels so good to do that stuff even though it's like, who cares. Oh, power washing the side of the house feels amazing to see all the green go away. So I don't know if I got a lemon of a house, but like, my house. House is like new-ish, I guess, semi-new construction. But now it's like settling. And I've got cracks everywhere. Okay. Like my molding, it's all messed up.

All of it. They had that too. I think that just happens because houses move. What do I do? I just fix my whole house? No, when we got our house painted, they fixed all the cracks for us too. And it was awesome. Highly recommend.

We're getting old. Oh, last recommendation while we're talking about that stuff for parent stuff. So as listeners know, I spent last week at Markowai. Island, which, by the way, whoever sent me multiple recommendations and emails, which wasn't you bet. You didn't send me anything, actually, now that they think about it. One restaurant. While I was, so listeners told me to take a shell ship. We took a boat. We did shelling. Phenomenal. Thank you for all those recommendations.

Should I take my kids there next year? 9-3. The only complaint that I have is that I had to wake up and get online for chairs, for beach chairs, for pool chairs, at like 7 o'clock because it opens at 8 in the lot. Anyway, it was terrific. Very kid-friendly, highly recommend. Here's what we did. there was a FedEx inside of the hotel in the basement and so my wife

had a great idea she said why don't we ship home our dirty laundry great idea because my wife over packs so even we had to

sit on the suitcases to get a closed there was no way that we were going to pack the laundry pack whatever we bought there and be able to close

it was just no way so I sent it from FedEx home 40 bucks that's worth it is that a good use of 40 bucks that's not bad

I'm surprised you didn't pay someone to come fold your laundry for you in your hotel room This is a true story It happened right here in my town

One night 17 kids woke up Got out of bed Looked into the dark And they never came back I'm the director of barbarian A lot of people die in a lot of weird ways We're not going to find it in the news

Because the police covered everything Willa On August days This is where the story It really starts. Weapons. By the way, we've got a lot of the doc. We're falling behind.

Let's talk about some of the stock market related stuff. I'm staring at these charts and my face is totally blown. All of the gains, all of the outperformance of all of the growth stocks. It's gone. From 2020 are gone. Even Shopify. Think about how much more successful, how much bigger Shopify's businesses today than it was pre-pandemic, doesn't matter. Don't fight the Fed.

Liquidity is coming out of the market. Rates are rising. People want low duration stocks. Look at this chart. It really, really, really is hard to believe. I did this the other day, too. Shopify's $55 billion in market cap. Was it $300?

Yeah, you got up. So Facebook, PayPal, Netflix, Shopify, all these. If you go back to late 2019 are now underperforming the S&P. Sick. What's the takeaway? Investing is hard.

Sell at the top. Sell at the top. Don't be an idiot. Sell it the top. We've said it a million times, but how many questions did we get about? should I just put all my portfolio in high-growth tech stocks? So, so, so, many.

Arc just bounced 40% from March 15th to March 30th, had a 38% bounce, gave it all back. Jeez. How sick is that? That's really not good. That's like really, really, really not good. That's no fun. By the way, we were talking, investing with Duncan, our producer, before we got on here.

And what was his analogy that the market is right now? He had a good one. Duncan, come back. What do you say? Oh, he said it's like playing fantasy baseball and losing every game. Is that it? I'm going to cut this from the actual podcast. But I said it's like being a baseball fan and every game being rained out for the whole season.

No, Duncan, you're not going to cut it. That's a great analogy. Matthew? Yeah, that was good. All right. Thank you, Duncan. You had these charts that explain the world and you use ratio charts. Some good ones I pulled here.

Physical world to digital world. And physical is what, Caterpillar and some of the miners and such. in the physical world is Coinbase, Facebook, and Vida, and you can see, it looks like everything kind of bottomed in that 2021 period. Renters versus builders. This one is kind of crazy to me.

So Invitation H, and what's AMH again? American homes for rent. Because if you think about it, like that's one of the reasons that owning a home in inflationary time is such a good deal beyond the fixed rate mortgage kind of thing. If it's more expensive to build a home

because labor costs are going up and the cost of supplies are going up, the home you own should be worth more because comparatively rebuilding that would be more expensive. So if you're a renter, you're in a much better place than the people that are building right now because you already have the homes and you're just renting them out. Not good. Not good. Not good. Hey, by the way, I laughed very hard watching the back. That was very funny. By the way, I wasn't drunk for the episode. A lot of people thought you were. You really, you told me you would not been drinking yet.

I wasn't drinking. This is the other one. I'm a professional. Wait, hold on time out. I don't understand. For Animal Spirits live, it says we have 59 people, but in the chat it says 153. That's how many comments there have been, I think. Oh, I can't believe you. Okay. Carry on. So this is another one. Trad-Fi to fintech, and places like J.P. Morgan, Charles Schwab, Morgan Stanley, Visa, American Express are crushing a firm, Robin Hood, Coinbase, PayPal.

So if I've heard Howard Linson opine on this and say, I've been, like, investing in fintech companies for 20 years and he's done awesome, obviously. But the incumbents are only getting stronger, it seems like. These up-incomeers are not taking over the incumbents. And it's got to be kind of surprising. It's strange because it's not as if the financials that are in the Tradfite bucket are on fire, but relative to SoFi, which just loses a billion dollars every day in market cap. That's not true, by the way. What is Sofai's market cap?

Is it under $10 billion? Do you think it's possible for the market to roll over more in these stocks? Five billion? These stocks to continue to get hammered? Or could we see these growth stocks that are down 60, 70 percent, like, rally into a stock market collapse. Would that be way too much to ask? What you described me is like a first out, first in type of situation. But some of these things are down 80%. That's basically gone. It's all gone. Here's my like counter trade potential. Interest rates have ridden

so much and the Fed has only raised 25 basis points. Could we see the Fed continue to raise but other longer term rates start falling before the Fed is done raising? Could we see that other stuff fall as the Fed is still raising short term? Because the market's already moved so much and done it for them. How far behind this is the Fed? I'm over thinking this. I'm going to No. Where rates? Where are Fed funds rates? 25 basis points. 25 to 50? I mean, come on. Come on. All right. Where are we going next?

Jeffrey Klein-type has this really great chart. Short duration stocks, meaning low price of cash flow, continue to outperform in markets around the world as they have since interest rates began to rise in August 2020. This is the whole enchilada, which, by the way, that restaurant that you gave me, I had an enchilada. Big enchilada guy. Pretty good, right? This is the entire story. It is rising interest rates, high. inflation, don't want to pay for the potential to get big fat earnings down the road,

you want the cash flow today. That's it. That's what striving the entire market. By the way, you sent Josh and I a slack last night with low P.E. stocks are outperforming high P.E. stocks by decile. And it was a perfect line down. And I thought, this actually makes a lot of sense. And then this morning, you wrote us back and said, disregard, disregard.

I sorted by returns, not valuations. It was the ultimate face palm. In my defense, I was watching the Nets game while I was doing that. You literally sent us a graph that ranked stocks by their returns and put them into desiles. So you showed us that the best performing stocks are outperforming the worst performing stocks. I was not drunk for that either. That's the only humor that you can appreciate if you're a markets person, I guess. We find that funny.

Some other people would not. All right. What do you think about this whole Melfin Capital thing? I blame the investors. Like, the hedge funds kind of do what they want. And this guy's probably got a great track record pre. 2021 or whatever, if the clients of him, the LPs, did not completely, like, just come at him with pitchforks and, like, after he suggested this, if they want to lose their high watermark

and they're going to pay for it, like, they deserve whatever happens. They deserve the fees they're paying. I think it's ridiculous he even asked, like, oh, let's just close this fund and start a new one. What are these LPs doing? What are they thinking? Melvin has lost 51.8% since January 21 through March. Sell one of your $50 million homes. You don't get your fees back. If I was an investor, I'd want to clawback fees that this guy took before losing 50%. So I don't like to pile on.

It's hard to defend, but at least he did write a letter and he said to our fellow partners, I am sorry, I got this one wrong. I made a mistake. I apologize. I was initially torn deaf. Exactly. Big time. Not good.

Just not good. I mean, this is truly not good. But my whole thing is that these hedge fund people are so out of touch with reality. This is a perfect example of that. This guy is so out of touch with reality that he thought, like, well, I got these losses. And the high watermark is there for a reason. Like, you've signed legal documents saying that I don't get paid my performance fees unless we hit that high watermark again. And we're going to have to double our fun performance to get there.

So let's just shut it down and start again. No high watermark. Just erase it. It's ridiculous. It's completely insane. It really is. You have those old performance fees you hung on to so you could buy your $50 million dollar mansions. Now you've got to eat these and not earn those for a long time until you get us

our money back. That's pretty stunning. All right. So we've spoken about valuations for late stage companies coming in as all of these companies have, not surprising. But valuations for late stage VC back crypto companies have gone up by 91% this year on average to $4 billion, while overall global late stage VC valuations have fallen by 14% to $700 million. This is a supply demand thing. There's too many VC dollars still chasing these startup deals. Well, in traditional or in growth equity, but not in VC. So there's another one. Basically the same thing, just showing that VC investments have gone like this, and

crypto is up into the right. Any thoughts on Fidelity offering Bitcoin? I put it in here. What is wrong with the SEC? Why would they let it get to this point where Fidelity can offer spot Bitcoin prices in their 401K? It sounds like it's up to 20%, like they cap it at 20%. it also said that they are going to give people an educational box that's going to pop up every time

you want to buy it. But why don't we have a Bitcoin ETF? It doesn't make any sense. I don't know what they're doing. By the way, I've got a serious bone to pick with accreditation rules. I've got a post-brewing. I've got some takes. I don't like it at all. Okay. Who's this hurting? Who is what hurting? The accreditation rules because I've heard a lot of people say the VCP. It hurts Duncan. Duncan wanted to make an investment in a startup that he believes in and he can't. You can't do it. It's nonsense, but you could buy NFTs, reverse options, but you can buy anything. I mean, I don't know why we have like arbitrary loans based on nonsense. A lot of this stuff feels antiquated or just it conflicts with one another. It doesn't make any

sense. How about some educational standards or check a box? Speaking of checking a box, I did TSA pre-check and Robin actually made a good joke. We went to Staples, took two seconds, and now when you're TSA pre-check, you don't have to take your shoes off. You don't have to do a lot of nonsense. And so she said, like, oh, going to Staples proves that you're not a terrorist. That's where you said. So, wait, you didn't have pre-check before? I used Clear. Oh, okay. But Clear's not at every airport. Oh, okay, right. Yeah, you have to have that. That is funny. Especially with codes. Yes, exactly. So this is funny. Sean sent us this. Chipotle unveils $50 million early stage VC fund, which, by the way, it makes sense. Why wouldn't

they do this? I don't think this is a financial thing. I think this is strategic. So it makes total sense. A walk is really expensive. I haven't had Chipotle in a car. couple weeks. I have to see where my line is. It's probably getting dangerously close. And then also the same, a couple of days later, Amazon launches a billion dollar fund to invest in warehouse technologies. So Amazon prime capital, but also it makes sense. Why wouldn't they be investing? These huge corporations with the amount of cash that they have, like taking a flyer to understand who their competitors might be or something that they could a takeover candidate, it seems like they all kind of have it these days. All right. Where are we going next, Ben?

Inflation. We got some inflation stuff. All right, Ryan Dietrich. Three reasons inflation could be peaking. His first one is that used car prices are rolling over, which is such a big part of it. I'd never heard of this one before. There are two different types of inflation, according to the Atlanta Federals, are sticky and flexible. So sticky is things that change relatively slowly, and then flexible is things that obviously like gas that can whipsaw in a hurry. His whole thing was basically that sticky inflation is not moving up quite much yet, and the majority of it is this flexible inflation that's moving up.

So I guess this is kind of like fixed versus variable. And finally, he said shipping costs are finally, finally coming down. saying inflation could be peak. I think, I mean, wouldn't it make sense to see that big spike from the war that that would be around the peak? And then the base effect of that trying to go higher from that level

is going to be much harder. That, to me, intuitively makes sense as long as something else doesn't break. Not good. I do think, like, the fact that a lot of the macro tourists are dunking on the transitory people is, like, take your victory lap there.

You were right. Like, it wasn't transitory. But once the numbers do start falling, those same people are not going to believe the numbers that they're falling. They believe them when they're higher, but when they start going lower, they're going to say, the government is making this up or look at this, it's actually a much higher.

Like, they're not going to believe it when they fall. So I listened to while I was waiting in line for my pool chairs. I listened to Michael Saylor. He was on with Lex Friedman. And he gave some wild examples of hyperinflation. But it is weird how such highly intelligent people can have such what I would describe as crazy views. And by the way, not all of his views are crazy. There was some of the stuff I thought, and this is the thing about just Twitter in general,

there were some points in time where I really wanted to turn it off because I was like, man, this is so wrong. But that's just the way that people are, which is why we get tribes, people yelling at each other. As I was listening through the whole thing, some points that he made I completely agree with. But it's really hard to get to that point to hear the reason because when you disagree so viscerally

with some of the things people say, you just tend to discard everything they say. Do you think that a lot of the business leaders of the past were always a little nutty and we just didn't know about it because social media didn't exist? You watched the Howard Hughes movie. I read a book about him after watching that movie. And I read the Thomas Edison book. Edison had this story where he, on his wedding

night, went back to the lab, like an hour after his wedding. And his wife was waiting for a home, like, what's going on? And he just went there and worked through the whole night and, like, didn't go back to his wife on their wedding night. I think a lot of history's geniuses are always a little nutty and flawed. And I think we're seeing that now, like with some of these, especially the tech people that get rid so early, like, I think you almost have to be a little nutty to get to that level. And now it's just, it's under a microscope for everyone to see where it was in the past. It was much easier to hide how nutty these people were. Yeah, because these people are living 40 years ahead of us or whatever, so they see things

that we don't have opinions that we are not privy to, but some of the takes on economics and what inflation actually is, it's rough. I agree, yes. We spoke a couple of weeks ago about people potentially top taking the inflation trade. This is from Bank of America, the global investment strategy, what is this? Oh, inflows. Infoes into materials. Look at this chart.

People chased hard. So people are starting to chase these stocks. And energy stocks recently got crushed. But again, these are like, I think the energy and material sector make up 7% of ES&P or something. It's a tiny amount. Here's another thing. I think we joked about, like, can we get a recession where consumer spending increases? I mean, I think by definition we can't.

But Samro tweeted from Wells Fargo, the numbers confirmed that despite what consumers are saying about inflation, they are still spending. Banks' earnings calls indicate the U.S. consumer remains very active. Several banks characterized spending as strong and hinted out the capacity for this to continue. This chart was going on. I think Carl Kintiniya tweeted this. It shows household debt and cash. So it's showing total debt, cash, and the net debt, which net debt is just netting out cash from the debt. And it's showing for the first time in 30 years since like the early 90s. If you take debt plus cash, it's actually going negative, meaning people on their balance sheets have more cash than debt. You can see the net debt to nominal GDP ratio has been falling off a cliff too. I guess the one caveat here would be, yes, this looks great, but how much of this is.

driven by wealthy people. This has to be at the higher end, the top 10% or 20% has the majority of that cash, wouldn't you think? So we've talked before about the low income households are seeing the biggest increases in their wages. I do really think the last few years, the middle class has probably been squeezed the most. Because the wealthy class is fine. They have the means and the resources to either have their assets go up and beat inflation that way or just spend through it because they have the money and the income coming in. I think the middle class is the one that's getting screwed here. That'd be my take here. So this peaked before the housing bubble burst.

Do you think this consumer is delivering? Is it delevering or is it deleverging? What do you say? I think I've heard both. It's a good question. We need like a judge's ruling here. I say de-lever. But that's the thing is that consumers have been de-levering since the financial crisis.

And then you can see, look at how much it sped up after the little recession in early 2020. Then it fell off a cliff and cash went up too. All right, data track, which was Nick Hollis, which was an amazing episode on the compound and friends that Josh and I had him on a couple weeks ago, they tweeted U. Gasoline consumption is running 3% lower than last year, a worrisome sign about consumer spending patterns. All right. According to Investipedia, de-leverging is when a company or individual decreases their total

financial leverage. Okay. That's fine. I'm in the de-lever camp. All right. That makes sense. What Investipedia says, I will take with a grain of sand. How's that?

Let's get into housing. Okay. Lizanne Saunders, number of housing units authorized but not started has surged to the highest level since the 1970. So I looked at this chart on white charts a couple weeks ago. I didn't put it in the doc here, but it's basically housing starts are at their highest level in a very long time, but housing completed has flatlined or fallen. So you have this alligator chart where housing starts are flying and looking great. So what's going on? Short is?

Yeah, they can't finish them. So labor supply stuff, it's taking longer. So they're starting it, but they can't finish them. That's the problem. Oh, wow, this chart. Look at the next chart that we got here. Lizanne tweeted, no signs of reversal yet for housing market tightness. Spread between completions and construction is most negative in history. Yeah. So that's what I was just talking about. Basically, like, it's taking way longer to build a house. So everyone wanted one. Look at this chart of mortgage rates. 5.2% of the average 30-year mortgage is the highest since 2010.

It's not the level, but look at the speed. That's what we haven't dealt with before. So George Perks did this. Housing Affordability is getting actually smashed. It shows the monthly payment to cover median existing home sales price, assuming 20% down, and then a 5% down. You can see it's shot up in the last two months. Here's the thing.

Look at that whole period from, say, 2009 to 2017. And then compared to the 90s, do you think we're going to look back in the future and people are going to say, wow, the 2010s was an amazing decade. You had low inflation, stock markets went crazy, bond markets did fine, growth was okay, housing was affordable. Why was everyone so unhappy? Totally, but they weren't there. They weren't there. That's like looking at James Harden's stats and saying, wow, he's the best basketball player at all time. No, he's not. Watch him. Because here's the thing. Housing was affordable at the very, time most people could not afford to buy a house after the great financial crisis. That's like the

rub here is that when things are going great, housing prices are going to be up. And when things are going crappy, housing price is going to be down, but no one can afford one. So, like, unfortunately, that's how it works. The best time to buy stocks is when they're down, but sometimes people can't afford it. And the Great Depression of Diary, that guy's got a great quote about how cheap stocks are, but nobody has any money to buy them. Yeah. This is from Bill McBride, one of my favorite charts he's produced. I think I saw the first one in like 2015. He did this. So the U.S. Census Bureau puts out the largest five-year cohorts by year in terms of age. So you can see in 2010, it was 45 to 49 years, 50 to 54 years. Look out to 2030. 30 to 39, 40, 34, 30 to 34. These are the biggest age brackets in the country. And if you look at the next one, shows the most popular year by age. In 2010, the most popular were 50, 49, 49, 48, 47, 36. The demographic wave, is still coming. You could see higher mortgage rates, put the brakes on things for a while,

and they probably should, and it would be a good thing. But that demographic wave is not going to stop. And hopefully, we get some baby boomers start selling, too, and then they have some... Well, they're not selling either. Where are they going? Hopefully, by the end of the decade, the baby boomers will have to start selling. Don't you think? I hope. I don't think so. My dad's 69. Nice. I don't think he's selling his ass. By the way, I should clarify, James Hardin clearly doesn't suck, but relative to what his stats would suggest, he's also not one of the top five players of all time, or top 10, which is where his numbers would say, and in 20 years, if you're just looking at the numbers, you know who really sucks, Julius Randall, he sucks.

You can say that because you're next. All right, here's an email from someone, maybe the demographic thing. I think the thing that people don't realize is that it's going to impact rents too. So this is a listener email, and he works at a large private equity firm. I won't name the name. So he makes a pretty good living probably. Just offered my landlord. I live in Manhattan on 23rd and 2nd. Good place to live? I don't know what that means. 23rd and so, yeah, it's like Mari Hell.

Okay, so we offered the landlord a thousand dollar rent increase for $4,100 a month to $5,100. he told me no. Then we bid on a rent-a-place in Tribeca last week that was listed at 5,800. We bid $6,300. By the way, I didn't know that you could bid higher for rent. This is a thing? Is that just a New York thing? I didn't know there was bidding wars for rent. It went for $7K a month and 12 hours with a new renter agreeing not to see the apartment before signing. Where is all this money coming from? Here's a question. How can we have rents in Manhattan up 30% year over year? Vacation and luxury spending through the roof and yet markets are incredibly risk off. How does this end? I'm lost. Are we in a minor recession? I mean, my initial take is... Are we in a minor recession?

Wouldn't this suggest the opposite? I think so, too. But I think comparing New York to anywhere. So I was in New York last week. You were not there. Miss you. But we were talking with some of the younger people of the office and they talked about

their rent's increasing because they got these wonderful deals during the pandemic. And Nick Majuli was telling me some of the studio rent prices in New York in certain nice areas. Three, four, five thousand dollars a month for a studio and like these really nice areas. The first part of me as a Midwest sensible guy was going, I'm telling him, like, you can't

imagine the kind of house you get for that mortgage and taxes for what you're paying. That's like the spreadsheet guy in me. The other person in me goes, yeah, but where Nick lives is amazing. That's the point. Yeah, it's amazing. You pay that to live in New York, and I think that's the point is that, like, I don't know you can compare New York to anywhere else and have it like make sense for the rest of the country. I think New York in those kind of places in San Francisco are like their own beast. And I don't think you can use them to gauge what's going on with the rest of the economy. That's my point. Here's what I want to say about Netflix. My knee-jerk reaction was that this is Netflix-related

and it has no see-through-to-tech. I want to take umbrage with my knee-jerk reaction because actually... But you're arguing with your own hot take? Yes. Facebook also stopped growing. It is kind of ironic that they got smashed. It happened so close together. Facebook rolled over... But maybe not because this is a big week. What if we find that from Apple and Google that people aren't buying phones? Do you think this is the most important earnings week ever until the next one? And now you're saying that ironically, but I really do. Okay. I really do.

Something's actually matter. You're going to retire in 2063 and go, do you remember April of 2022 that earnings week when Apple and Google reported? Does it? Well, then nothing matters. You're an eye list. Nothing matters then.

Somethings matter. They'll matter for like three days and then the market moves on. Those stocks will either do well or get crushed and everyone go, okay, this is the tell. And then another company reported, it'll be fine. That's how it works.

People move on. I just want to say, credit to Bill Ackman for putting his hand up and saying, I got it wrong. That's very hard. I know people get dunked on him. I give him credit for that one. I'm not a huge blackman.

I feel like there weren't that many people dunking on him, though. I feel like that's a straw man. I think everyone was saying credit to him. Okay. What do we got with Tesla? You know what? I didn't even look at this. Let's keep going.

I did listen to the Netflix phone. Nothing with Tesla? I don't know. I mean, they're C. Did he let just get it right? Like Tesla was really properly valued this whole time? Here's the thing. His greatest trade was not taking Tesla private

because there's no way that Tesla gets the premium is getting in the public markets if it was still private because there wouldn't be enough people trading it up and giving him equity to keep funding stuff. So not taking that private was the best thing he did. I don't understand this. So sales are up 81% year over year, record profit of $3.3 billion. They delivered $3,000,000, up from $184,000 a year earlier. I don't understand how they're doing it, and everybody else is getting squeezed by the supply chain slash chip issues.

How are they doing it? He complained about it a little on Twitter, saying it's hard to finish. Have you seen how expensive Teslas are now? It's like $100,000 for new Tesla. For which model? The Model S. It's a lot. I bet it's more. Yeah, if you get all the bells and whistles. All right, CNN Plus, we never spoke about this because I figured there would be time for us to say how ridiculous of an idea this was.

But this, wow, just wow. Speaking of out of touch, who thought that there was an audience for this? Stunning. It really is. And a lot of them that were interview shows where I'm not going to sit down and watch an interview show. No, that's what a podcast is. All right. Survey of the week.

74% of investors see value outperforming growth in 2022. Wow. What happened? How much reflexivity is there of that actually investors thinking that and positioning themselves and making it happen? It's kind of it, right? I know that's performance chasing. So there's all of these docu dramas going on. I'm over it. Me too. Thank you. I am too. I'm out on all of them. Okay. I am going to watch We Crash because everybody says it's great, but I don't need this in my life. I don't need it. I think the Lakers show, I'm not into it. I watch two episodes

and I'm out. You know what I am going to watch, though? The magic documentary on Apple, that I will watch. I don't need to see somebody playing magic. I just don't. I'm out. So the funny thing is, all of my friends and people I talk to, they're like, have you heard of this We Crash thing? Did you believe, like, because we were talking about it every week, not to brag, on Animal Spirits, every week we talk about the we work stuff. And I feel like we kind of lived it. So to watch it again, I don't see the need.

But it's the algorithm. It's the algorithm. It's the algorithm. More, more, more, more, more. I don't want any more. It's enough. So Matt Damon and Benhouse, like, I'm sick of worshipping sociopaths. Like the Travis Kalanick and Elizabeth Holmes and Adam Newman, like, they're trying to make them

empathetic, too, and like stop doing that. These people are A-holes. Ben Affleck is going to play Nike's Phil Knight. Oh, really? Whatever. Is it based on Shoe Dog? Hmm. I don't think he got there.

All right. Anyway, we've got five minutes. Let's do some rocks. What do you got? Okay. So I watched The Batman on HBO, which, by the way, you thought, like, what, six weeks ago, and it's already in HBO Max? That is just awesome.

I love it. It goes streaming so fast. HBO. Back in the day, it took eight months to get to freaking VHS. It's awesome. And nobody was over VHSS. That's a video cassette. I liked the Batman.

It was a video cassette. It was very emo, Robert Pattinson was, that was certainly like a millennial Batman. I liked it. Honestly, it felt like if you took the superhero elements away from it, this felt like the movie seven to me. It felt like a serial killer movie, which I kind of like. I've heard people say it's too long. It was definitely too long. But I thought it was really well done.

I think Colin Farrell, I would have not have known that was him if I didn't look it up her head and heard it before. As the penguin, he's good. Okay, here's another one. The worst person in the world. It is a Norwegian movie. Now, this one was on a lot of film Twitters, people, so I think I got this

from Sean Fennacy at The Big Picture. I think it was a highly acclaimed movie. You look at up on an IMDB it's like a 7.9 or something. It is not a Michael movie. It's like a coming of age, this woman in Norway who's in the 30s dealing with relationships and love and honestly, though, it was a fantastic

movie. I really enjoyed it. There was a couple bizarre parts, but it's subtitled from Norway, and the woman who starred in it is fantastic. Like, I would be shocked if she didn't become an actress in some rom-coms or some sort of series in the United States. She was great. The worst person in the world, very good.

Okay. I'm very excited to watch We Own This City. What is it on? HBO. You're of it yet? It's on HBO Max. John Bernthal, who's amazing. I like that guy.

And Josh Charles is a big, that guy. It's from the creator of the wire, right? Oh, is it? Yes. I've never seen The Wire. I got to write that wrong. I'm three episodes in Tokyo Vice. Did you know that Michael Mann directed the first episode?

I heard about that, yeah. It's pretty good, right? I love the feel of the show. I like the characters. I like the music. I like the directing. I love it. I'm really enjoying it.

Okay. The Northman. What is it? Like a Viking movie? Yeah, it's with the guy from True Blood. It's by this guy, Robert Eggers, who did what I would consider it to be the worst movie of all time. No offense.

The Lighthouse. I also feel like you've probably seen most of the worst movies of all time as well. You'd be a good person to judge that. I've seen a lot of them. He also did The Witch, which I did like. But the Northman. It's like a film. There's some blood and stuff,

but it's like, it's a filmmaker's film. I listen to him with Sean Fantasy. I'm probably out. I'm probably in. I'm probably going to watch it. I'm probably going to hate it. Speaking of Sean Fantasy,

there's a new-ish podcast on The Ringer called The Town, which is very good. Talks about like the business. Oh, the Hollywood. I get into that too. Very good. I agree.

And it's shortish. I love that. All right, what do we think? People in the chat are not having you never seen the wire. I know, I know. I feel like you've got a lot of the best TV shows

of all time that you've just never seen. But I agree that it's very hard to catch up when you've missed something that there's five or six or eight seasons ahead of you. It's very hard to catch up. What am I going to do? I have time for that. I know, I know.

That's what you were supposed to do before you had kids. I missed that. All right, it's 1259. I got to go. Everyone who tuned in live, thank you. See you in the Discord. Look at this NFT utility.

Look at that. So much utility. So much. So much utility. Animal Sparyspot. com. We'll see you next time. Thank you.