Animal Spirits Podcast - Free Oil (EP.140)

Episode Date: April 22, 2020

We discuss fairness in the bailout process, why no one believes in this market, why it's been so difficult to outperform the market during this bear, Munger and Buffett's changing appetite for risk, why epidemiologists would make good investors 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

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain position, and the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. Do you think there's a single person that believes that this rally is real in the stock market? Ram capital. I mean, don't you think 80% investors right now think to themselves like, I'm a contrarian because I think stocks still have more to fall. Doesn't that seem just like the easy stance to take? I think the contrarian move is being a bull here. Like everybody else, I just don't see it.

I hate to say the market is wrong because that's so. arrogant and so unlike how we viewed the state of the world. I just, I don't get it. I'm really struggling with this one. I don't know. There's no one alive that's a contrarian anymore, but don't you think a contrarian is a person that says, I don't know, and I just have no clue what's going to happen. No, that's consensus. Maybe. I don't know that there is a consensus right now, but there's a lot of people out there who say, every time I post a blog post, and again, Twitter sentiment doesn't count, but someone will say, well, you don't understand this time is different. And here's exactly how it's going to play out.

because this time is different. My sentiment is, I know it's different this time. And so that makes me even more confused than ever about what's going to happen. I just, either route would surprise me now. If somehow this virus is contained a little and we have better testing, not contained, but just spread out in hospitals end up being okay, would it be out of the realm of possibilities to see all-time highs in stocks by the end of the year? Never say never. Right. That would be insane to think about, but I wouldn't put it out of the realm of possibilities, just like I wouldn't put it out of the realm of put it out of the realm of possibilities of this depression is really, really bad and gets worse and more people are out of work than we thought. Do you mean recession? You just said

depression. Are you already in depression mode? You don't think we can call this a depression at this point? I'm calling this a depression. I don't know. No, no, we can't call us a depression. Why not? What is your definition of a depression? I think this is going to be called a depression someday. You can't have, here's why you can't call it the depression. 20 million people file for jobless claims in the last four weeks. How is that not a depression? Because a depression defines an entire generation and it leaves permanent scars. I think it's too soon to say that that's what this is. That's not true because the 1800s and early 1900s had like a depression every seven or eight years. They had a difference between a depression and a recession. A depression

was just a really nasty recession. And I think that's what this is. I think it's too soon. What if the market bottomed and the virus is not as bad as we thought? How can you say it's a depression if we're 13% off the highs. I'm not talking about market-wise. I'm talking about economically. And this gets back to our point of maybe the economy is worse than the markets this time around. Because people don't remember that there was a depression in 1920 and 1921 to lead off the decade back then before there was the Great Depression. Here's why. I don't think this makes any sense. All right, here's why. Let's just say that it's not as bad as we thought. Let's say that the death count is way lower and the economy is up and running sooner than we

imagined, is it possible that we get back to 100% of what the market was doing previous to this? No way. I don't see how that's possible. What's best case? We're up and running 80% of the way there. How can markets make new all-time highs? I guess the simplest answer is just Fed liquidity. What else could it be? Right. Yeah, that's it. It's just fiscal stimulus. And the Fed and the government put enough money out there to appease the market. I'm saying it's monetary stimulus. Okay. Right.

It would be insane if that happened. But would I be completely shocked? Probably not. Just like it wouldn't be shocked if it went the other way. I would be absolutely shocked if stocks make a new all-time high. My draw would be on the ground. 15% probability. How about that?

Something like that. Yeah. I think the probability of seeing stocks hit an all-time high is probably a little higher than seeing stocks fall 60 to 70%. How's that? Okay, I agree with that. Which I don't think a lot of people think right now. They think their stock's going to fall 60 or 70 percent, and I'm going to be there to clean up what it happens. And with the amount of money being thrown at this system right now, I don't think that's going to happen. Who knows? Maybe I'm wrong. But again, here's what happens. Nobody's there to clean up at the bottom. You're not Warren Buffett. Stop. True. That's true. I'm going to wait for the fat pitch. But again, I'm sorry, maybe this is quibbling over. This is semantics. But this to me is this is a depression. This is our depression. And maybe this.

It's the only one that we see this whole century. Tomato tomato, I agree. Listen, if you're unemployed and your industry is shut down and has Disney employees, for instance, theme park employees, hospitality, like, when's that coming back? So for these people, it is a depression. I just think that depression is like a generational thing. I hope I'm wrong. So there's been a lot of stuff about the bailouts going around.

And they're talking about a lot of these food chains that are nationwide food chains and some of them are publicly traded companies and they're getting bailouts. And so it's like Pot Valley and Shake Shack and some of it. of these places. And there's already been a lot of ink spilled about how unfair some of these practices are. I think the fact that they threw this money out there so quickly, there's no way it was ever going to be perfect. Could it be better, of course? And I hope the next round helps. And it sounds like they are thinking about another round. But would the European model have just been more fair for everyone? Some of the European countries are saying, we're going to pay everyone

80% of what they were making. And everyone is going to stay working. And they're on the government's payroll, so they don't even go through the companies. They just go straight to the individuals. I have no idea how hard that would have been to pull off. Dude, we can't even get these $1,200 checks to people. We don't have the infrastructure to pull it off, which is embarrassing. Yeah, and maybe that's Mark Andreessen in his piece said, we collect taxes from all these people, but we have no way to give money back to them. That makes sense, and that was his point about building more. But setting aside the logistics, obviously, the fact that they got the SBA loans out so quick, again, I think perfect is the enemy of good here, and the fact that they did that is kind of amazing.

even though if it wasn't a perfect way to do it. And some of the banks probably help their bigger clients or whoever had relationships. But in terms of fairness, because there's a lot of people out there who all they want to do is debate how fair these bailouts are and how mainstream is getting screwed. And it's all a big bailout for corporations again, which I don't necessarily agree with. I agree with some of that, but not all of it. But would it have been more fair to go to the European model if we just went straight to the individual and bypassed the corporations completely? I mean, that sounds good to me. but I mean at that point you're going to say well you're bailing out people who make a million

dollars a year and so I feel like no matter what happens it's going to be unfair and I just think the way that we do things in a piecemeal fashion so there was I wrote a piece a couple weeks ago about how I think the fact that the U.S. has bungled the response to this crisis so terribly that I think that maybe this is showing signs of things to come that maybe this isn't going to be the U.S. century like it was the last century and someone wrote me from Europe and said no you've got this backwards. The reason that U.S. stocks outperform European stocks and they have lately is because European countries care more about their citizens than the U.S. people do, which kind of hurt when I heard that, but it kind of makes sense. They basically said the European

countries, because they have a bigger social safety net, care more about their citizens than people in the U.S., and that's why U.S. corporations outperform. I've never heard it put like that, but it actually kind of makes sense as bad as I was wincing when I read it. It makes sense a little bit? Do companies care more about their shareholders than their employees? So this was in the FTA this week. I know I've been talking about Disney a lot lately, but they're in the eye of the storm. Disney will stop paying more than 100,000 employees this week. Labor is 45% of their operating expenses. So this is going to save Disney $500 million a month. Now, mind you, they're still paying full health care benefits for people that are furloughed. Bob Eiger did give up the remainder of his $3 million

salary for the year, which I guess is a drop in the bucket considering here on 65. million dollars in 2018 and $47 million last year, which, by the way, this is it. Here are 900 times, more than 900 times the median Disney worker, 900 times. That's a lot. So here's the rub. So they're stopping to pay 100,000 employees, but they're still paying a $1.5 billion dividend payment in July. What do you think has taken the stock buyback people so long to move on to dividends? Why hasn't that happened yet? Do you think it's because that goes against everything that they stand for in terms of buybacks are evil and dividends are not, even though they're basically the same thing? I think that because buybacks are used to offset

executive compensation and to, quote, boost the stock price, whereas dividends are just paid out directly to investors. So I think that's the divide. But maybe the emailer has a point that we, meaning like companies, care more about their shareholders than their employees. And I think, listen, this is hard, like balancing the responsibility to shareholders and employees. Don't you think that the longer this thing lasts that the more heat dividends are going to start taking where there's going to be a lot more companies they're going to have to suspend them that maybe never would have in the past? And there's going to be, there's a lot of those lists of the companies that have raised their dividend for 40 straight years or whatever it is. Are some of those companies actually going to be in trouble and they're going to feel some heat and have to cut that dividend payment to keep people on their payroll because people are going to start getting upset? Why are you taking care of your shareholders when you should be taking care of your employees? Is that going to happen? Probably. So another company specific news that was in the news this week, Bezos came out with his letter. And there was news about Amazon made news last week. They are cutting back significantly on their affiliate program. The commission rates from 8% to 3% on some products, 5% to 1% on other products. So companies like BuzzFeed in New York Times are like big beneficiaries of this where you link to something in Amazon and you get paid in full disclosure. We have it on our website. And to us, it's like the minimis. But people that rely on this, like influencers, for example, are going to definitely. feel the heat. And one of the reasons why they're doing this, I think, is because Amazon up their minimum wage by $2 per hour. And they said that their wage increases are going to cost more than

$500 million just through the end of April. And I guess the affiliate program is an easy place to cut some fat. Don't you think it's also true that Amazon is just big enough and so well known that they don't really need people to help send them their way? Probably. That could be. But this is not a coincidence. Don't you think that this is exactly why they're doing it now? You wonder how many of these news organizations are going to be in trouble. I saw last week or two weeks ago, Vox Media, which is a pretty big one, was requesting people make donations to them because obviously the ad model is going to be really, really hurt. I don't know. Some of these companies have to file for bankruptcy. Are they getting some of the small business loans? The list of companies and businesses and individuals

that are impacted by this just seems to be just snowballing every week that you think about it. So Amazon is another company that's in the crosshairs of people who say they don't pay any federal taxes. Last year, they actually did pay over $1 billion in federal income tax because they did show profit. But they employ 840,000 workers worldwide, including over 590,000 in the U.S., 115,000 in Europe, 95,000 in Asia, and they directly and indirectly support another 2 million jobs in the U.S., which are people that either third-party sellers or infrastructure or construction products, things like that. But they paid, according to a blog post they did, they paid more than $2.4 billion in 2019, $2.4 billion in federal taxes and $1.6 billion in state and local taxes. So $4 billion in taxes, a lot of which was payroll taxes from all the people they employ.

In the middle of March, they put out for another $100,000 full and part-time jobs that were filled. And then they just put in an additional $75,000 jobs. So they're going to continue to grow and need more people. And obviously, there's a lot of people losing jobs elsewhere, but there are going to be certain places along the supply chain, Amazon and grocery stores and some of these places are going to need people. And I can't imagine the need for cleanup crews, what that's going to be like. So there's going to be a lot of labor-intensive work that's going to need to be done in the coming months as we start trying to somehow reopen this thing. And so my hope, and there was some economic study done that people have been talking about that said, if you look back at the history of pandemics, they actually show that wages have grown after the pandemics. And it's kind of a weird thing because they actually went back to,

like the Black Plague, which was so long ago. I can't even imagine that making that comparison. But one of the crazy things was is that you get rid of some of the labor force and you need so many new jobs coming out of it. And so maybe that's one of these things where some of those people that are actually on the ground and in the service are going to be so in demand and maybe hard to get that they're going to need to increase that and pay some sort of hazard pay to get people out of their house to come work for them. So I guess that would be the hope where some people who have been the most impacted will hopefully see some benefits from this that they can get paid more and maybe get a better, more stable job coming out of this, if that's possible.

All right. Bloomberg had an article this week. It sounds like retirement investors are not panicking quite yet. So they said 5.6% of people who are enrolled in a 401k plan changed their allocations through the first three months of 2020, which is according to a Morningstar study of almost 700,000 participants. This was kind of interesting. The people who had self-directed 401k, so they picked the funds themselves or the stocks themselves, almost 11% of those people made changes. By contrast, just 2.4% of investors in Target Day funds touch their portfolio. So showing the benefits of an all-in-one portfolio of letting someone do it for you, I thought that was interesting. But do you think the fact that this thing has happened so fast that it's going to take a much longer

drawn-out bear market for people to actually panic. It seems like the numbers are showing so far. People haven't really en masse panicked just yet. I think the longer this goes and the deeper it goes, yeah, investors almost didn't have time to panic. It was so quick. But if this goes on for another nine months, 18 months, yeah, people are going to sell. You think, okay. Are you sure? What do you think? No, of course, I'm not sure. I don't know. It's hard to say. I think this has to be like an 18-month thing where people just keep getting false hope rallies. Let's say this was a false hope rally and we drop again and then we'd have another rally and drop again where it just crushes people's spirit. I think that's probably what needs to happen. At that point, it's not

even panic. It's just like throwing your arms up and saying, I give up. I can't take this anymore. Just get me out. I'm sick of it. I can't handle it's not worth it. I think that's the thing. So it's kind of crazy that a 30% fall that happened so quickly didn't cause people to just say, all right, I'm capitulating, get me out. It needs to be almost more pain that happens faster because at that point, I guess, don't you think maybe some people were expecting this V or hoping for this V rally to happen? And guess what? It actually did, which is crazy. So as of Friday, stocks were up, I think, 28.5% from the lows. Still, looking at the chart of the S&P is, it hurts your head a little bit, doesn't it? Just to see that enormous drop and then the spike right

back up. Obviously, we're still 15 or 60 percent off the highs. We kept throwing around the term bailout to companies that use like the PPP thing. Is that a bailout or isn't it just relief? I think that bailout terminology has stuck from 2008 because a lot of that for the banks, that truly was a bailout. I don't think people have taken the time to go through a lot of what these programs really are. And Colin Roche has been on the front line trying to fight this. he might as well be employed by the government at this point because he did a whole story about understanding the COVID-19 aid package. And again, there are a lot of people out there stirring things up saying it's only a corporate

barrel. And he wanted to show that it's not as much as you think. And a lot of this money is going to corporations and going through them to keep people on their payroll. So we'll link to his posts in the show notes. But it's not as bad as it seems. But then again, there are so many cases that are bad that those ones stick out in your head and you go, why would they do this or why would they allow this to happen?

Well, the post of trial for that is as airlines. Galloway did a post about this. He said, and of course he talks about compensation package and buybacks and everything like that. But the buyback stuff, throw it out the window. That was a decision made in another world. I don't think you can harp on people for buybacks at this point and say they should have saved that money to wait for a pandemic. I just think there's no reason that should be brought into the conversation. I agree. So he said that the six largest airlines spent 96, of their free cash flow on buybacks. I agree that's sort of a non sequitur here. This to me is an issue. Since 2000, U.S. airlines have declared bankruptcy 66 times. It's a crappy business.

I mean, I'm trying to think, what is the alternative? Because if they, I don't know, if they go through bankruptcy, would anyone be there on the other end to be waiting with open arms to take them over? Do they just come back from a reorg? Does the government need to nationalize them? I mean, I don't know. I agree that the airlines and the cruise ships are. I know. The airlines and the cruise ships are definitely probably the worst offenders here in terms of what do we even do? Here's the thing. So Galloway wrote, just as there's no crying in baseball, there's no fairness in shareholder accretion or destruction.

So I guess on the one hand, you say, listen, sometimes you do well due to fortunes outside of your control and sometimes you get the short and the stick and that's just capitalism. So you can ask a question, listen, what does fair have to do with anything? Yeah, this isn't fair. So what? Life's not fair. But here's the thing.

If you just take that attitude and say, burn it down and let everything fail, what if that's like 50% of the economy? Right. That's the thing. Okay, we're quibbling over depression. If we let all these companies fail, that is certainly a depression. So what about 50% of the economy that are small businesses that never did a buyback that don't have ridiculous executive compensation?

Do you just let them fail because tough shit? Listen, life's not fair. And maybe that's the point, too, that you're not just saving the airlines. You're also saving a lot of places that are tied to them. But what if all this fiscal and monetary stimulus that we're getting and fiscal monetary rescue maybe is a better term, what if it saved us from having 40 or 50% unemployment versus 15 or 20%? Right. And so sometimes you're going to get people and companies that don't, quote, deserve the relief that are getting it. And okay, deal with it.

I feel like this is certainly a black and white issue and there's not a lot of room for middle ground and nuance. And I can honestly see both sides of this argument of saying, man, there are companies that are getting these bailout funds that. just shouldn't, and they're bad actors, and they pay their CEO too much, and they just made dumb decisions in the past, and look at what's happening. And then there's other ones that aren't getting anything yet or haven't gotten help, and they're going out of business, and it does just seem unfair. Short of completely nationalizing everything and the government completely taking over, I don't know how to make this more fair. Because the impetus for this was get this money out fast, because if we don't get it out now, these firms are going to fail

and they're not going to make it because they can't make payroll. So I just think, I honestly can see both sides of this. And I think there's some people who just are on one side no matter what. And it's just a really, hopefully, again, we learn from this. But I don't know, because I think we did learn a few things from 2008. And one of the things was, we need to make this happen fast and get it out. And because 2008, they dragged their feet a little bit and probably made things worse the government did. And I think the one thing they've done right here is get it out fast.

hopefully these next few packages and phases that they put out there will be an improvement on this first phase that went out. And it sounds like it didn't help as many really tiny small businesses as it should have. So I want to talk a little bit about Andreessen's piece. Basically, it's time to build. And he looked at all the things that we haven't done right. And I had an idea about this. So we've spoken a lot about Jack Vogel's piece on what companies can do with their capital, how they can do dividends, they can return it to shareholders in the forms of dividends or buybacks, they can do R&D. And a lot of companies that spend most heavily in R&D, their shareholders weren't rewarded for that. Remember that article?

Right. The companies who actually did the buybacks outperform the ones who did the research and development. So maybe this gets back to the fact that we're obsessed with shareholders and stock performance. What if more companies actually did what was less capital efficient and they, quote, burned money in R&D, but out of a lot of failed projects that never came to fruition that never led to the iPhone or the AirPods or anything like that, what if all of these failures built on top of one another and we got some miraculous discoveries because it was being built on top of previous failures? So what if it was bad for the individual, in this case the company, but beneficial for

society at home? But don't you think there are a lot of companies that are doing that? Amazon has failures all the time. They've tried to put out a fire phone that didn't work. Google hasn't done anything besides their search program forever. And they throw a ton of money. Don't you think those things are just not as well publicized because they are failures and people latch on to the success stories? I think you're 100% right because I guess the way that I was talking was as if R&D doesn't exist. But we've shown charts from Mary Meeker previously where R&D at tech companies actually is through the root. So all people want to talk about are buybacks and the fact that R&D isn't happening is just completely false.

So maybe I just contradicted what I said five seconds ago. But she also, she meaning Mary Meeker, had some charts over the weekend talking about the size of the stimulus bill compared to what we did in 2009 and compared to the New Deal. And obviously, the New Deal needs to be adjusted for inflation. But this is so much bigger, so, so, so much bigger than what we did in 2009 and the 30s in particular. Right. And it's only going to get bigger from here, which again, this should make people understand the stock market a little better, I think. Just the fact that maybe it's not what those dollars are doing where they're going. It's just that maybe the market, quote unquote, or the investors feel like the government actually understands we have to continue throwing money at this. And maybe that would be the impetus for a huger leg down if the government screwed this up a little bit and turned off the spigot and said, all right, this is it. you're on your own now. I can see that being a reason for another big leg down in the market if the government starts screwing stuff up and not helping people in businesses a way they

potentially should. So I saw a chart last week that Carl Kintaneda tweeted. I think Ben, you wrote something about this, how the top 50 stocks, and I should say the biggest stocks, the ratio chart of them compared to other companies, has absolutely gone parabolic. It looks like a Bitcoin chart from 2017. And so James Bianco has a chart showing the largest stock in the S&P 500 or the largest five stocks in the SP 500. And right now, it's at the highest level as it was since the mid-70s. So the big are getting bigger.

And look at ExxonMobil, for example, in the early 90s. It was the biggest stock for four years. I wonder where it is now. Is it even in the top 10? Right. So I think GE in Cisco were two of the biggest stocks in the year 2000. G, I think it's probably falling out of the top 50. Cisco is still in there. I looked at the Russell 3,000, which includes small and mid-cap stocks, but that's only an extra another 10%. So the top

30 stocks in the Russell 3,000 make up roughly 40% of the total. The Russell 3,000 is a good proxy for the entire stock market, just not some OTC stocks and pink sheets and microcaps, but it's like 2,800 stocks. The top 30 make up 40% of it. So if that's what, if you want to know why the stock market as a whole continues to rise. It's because those biggest companies are doing much better than everyone else. And they're holding it up. So you mentioned earlier, if you were long, tech, short energy, would have been the best performing manager this year. So Michael Mobus and Dan Callahan did this really good research report. And in the chart, they included the dispersion of dispersion. And right now we have the largest dispersion in stocks since

2009. And he took it a step further. He looked at what's the difference between the best stocks the next best and the bad and the very worst. So, for example, in 2019, the top half of outperformers and the Russell 1,000 were up 67 and a half percent. And the bottom half of outperformers were up 37%. So the dispersion of dispersion for the winners was 30%. So he did that again for the bottom, which is, and the bottom is like not off the charts, but it's extreme. So the difference between bad stocks and the worst stocks this year is ridiculous. So my guess would be because it seems like the winners coming into this have been the winners going over so far. If you were outperforming as a manager before, you're probably still outperforming, but the portfolio manager who held the

stocks that have been performing well, you'd assume they would be the ones who continue outperform and that would be whoever growth or fad chasing investors. And the ones who are underperforming would be value or people who are tilting away from those. So it's almost like the composition of that hasn't changed. It's probably just gotten worse since it's been those big companies. And so If you have tilted away from them at all, you've been in some pain. It's worth mentioning that oil is crashing. I saw that prices in Canada, I think, for some futures contracts in the future went negative. Not enough 30% today or something.

I made the joke today that the monthly cost of the middle ground Netflix subscription is more than the barrel of oil today. This is insane. So the energy, in 2008, when oil was $150 a barrel, energy stocks made up roughly 17% of the S&P 500. I look today, it's like 2.7% of the S&P 500, which is crazy. And again, isn't all of this just, maybe this is just because this is the way things are working out, but doesn't this show why it's so hard to beat the market? Because this handful of stocks can completely carry the day. You have all these other hundreds and thousands of companies

to choose from. And if you chose any of them, or most of them, you're underperforming. If you just stuck with this one group or just held the S&P 500, you're doing better than the majority of investors out there who tried to pick something different. It just shows market cap investing that the winners rise to the top. And even when you have losers like Exxon and energy stocks that get hit, you have these other winners that come up and take their place. And it just shows why this has been such a difficult period for active managers. Are you saying the market is hard to beat? A little bit, yes. But, I mean, you're saying this is the best chance stock pickers have had. Don't you think that the numbers probably aren't going to bear that out in terms of active outperformance?

No, because when you look at what, I mean, I'm saying that like using air quotes, even though it's the truth. When you look at where the dispersion is coming from, it, you're right. It's basically as long as you weren't in airlines, energy, and cruises, you were kind of fine. But although, I will say, XOP, which is the ETF that holds oil and gas exploration companies, up 1.6% today. So maybe, uh, maybe the bad news. is all priced in. You look at some very weird ETFs that I've never heard of before. This is not a weird ETF. I don't know. This is like the third oil ETF that you've mentioned or energy ATF in the last couple weeks that I've never heard up before. Well, you're a target date guy.

On your radar screen, yeah. Target date funds are doing fine today. Yeah, I just think this will be a painful period for active managers. I'm just guessing when the numbers come out and check out because there hasn't been a change in leadership. Again, maybe it happens when stocks truly do bottom. We have a shakeout. But as of right now, it's just not happening. So Jason's Y got Charlie Munger on the phone and people have been waiting to hear what Berkshire is going to do because they have all this cash. And he didn't really help anyone else at all. He basically just said they're being patient. They don't know what's going to happen. And they just, they're not ready to deploy quite yet. I thought they were supposed to be greedy when others are

fearful. What's going on? They're confused when others are. Confident? I don't know. Do you think, so Munger is what, 95, 96? Buffett is, I think so Munger is 96. Buffett is 89 or 90. Obviously they're getting, I think Buffett is 90. They're both getting up there. Do you think that instead of just rushing to put all that cash to work, they're saying, you know what, if we do something now, this is our last big deal. And what if we put in something that it just works out horribly and blows up in our face? Do we want that? last deal to be like this? Why don't we just sit in our cash? Maybe we'll buy back some shares of our own company and not do anything. So they never put it out there. Is it possible for two guys

like this to see their risk profile change because they're so much older? I think so. I mean, I know this might offend a lot of the Munger Buffett acolytes, but Munger said, quote, we just want to get through the typhoon and we'd rather come out of it with a whole lot of liquidity. We're not playing, oh, goody, goody, everything's going to hell. Let's plunge 100% of the reserves into buying businesses, end quote. But isn't this what they've always done in the past? Like, why is now different? That's what I'm saying. If Buffett was 35 or 40, and obviously it's just because their company is so much bigger now. Hell, if he was 75. Right. It does seem, maybe they're just so big trying to move the needle. It's really hard for them. Whatever they tried to buy, it wouldn't

move the needle and doesn't make any sense for them. Yeah. So Ted Seidy's really good piece in institutional investor that they have reckoning for private equity. He said, while active management in the public markets battled withdrawals and feed compression, private equity managers escape scrutiny and generative returns. Massive fund commitments followed. Then came the virus. So he's wondering, like obviously, leverage buyouts, there's a lot of leverage there. This is a crazy stat. 80% of all companies rated triple B are backed by private equity. Right. So a lot of the Dan Rasmussen has written about this, the fact that a lot of, and a lot of hedge funds actually were created and invested in a lot of this credit. So it's kind of like a circular. thing here, where maybe these companies get some lifelines in the short term, but he's saying, listen, their borrowing costs are going to go up. They have so much leverage. That's going to hurt them on the way down. Are a lot of these companies just going to be toast? It makes sense. Again, I think because they have that one or two trillion in dry powder waiting for them. By the way, I have to correct myself.

As I said, Triple B. What I meant was B3, which is basically, it is definitely very speculative. It's below investment grade. Right. These are junk bonds for the most part. And, And so I'm guessing their borrowing costs are going to go up, even though, or it's going to be harder for them to borrow. So I think people confuse these things of they see that the Fed is lowered interest rates and they see it like the 10 years down and they assume that it must be easy for everyone to borrow. But a lot of these places and a lot of banks are going to make the standards harder for them

to borrow. So even if interest rates are low, if credit is not loose, it's going to be harder for these places to borrow. And so having them roll their leverage over is probably going to be harder too. So basically, what are we saying here? There's just nowhere to hide probably, right? I guess what Ted was saying is the way that hedge fund's image was forever tarnished after the GFC, same thing is going to happen with private equity companies when all the dust settles.

I could see that. The only difference is because it takes a long, long time to see that results for private equity companies, I think they can string this out. And you're not going to know for seven or eight years probably. And I think that's why with the hedge funds, you know right away they had a bad quarter or a bad month. with private equity, I think it's going to take a long time. And I think a lot of these investors, these endowments and foundations and sovereign wealth funds and pensions aren't going to know they got a raw deal for a long time and they're going

to look back in a decade and go, oh, my gosh, this was awful. This was just this huge albatross for us. And it didn't work out. All right. There was a good article in the Wall Street Journal, Economics versus Epidemiology. They said that the Northeastern team estimates the actual number of U.S. deaths at 34,000, compared with 159,000 in the unmitigated scenario, implying that. that we've saved more than 100,000 lives.

So they asked the question, what is the value of those lives saved? And of course, life is precious, like duh, but there is actually a value on it, think like life insurance. So the statistical value of life is around $10 million, multiplied that by Northeastern's estimates and the benefits of a mitigation measure so far come to $1 trillion. And they say that'll grow to $5 trillion by month. And so survey of economists by the Walshirt Journal forecast annual GDP growth of 0.9% through of 2022, which is down from a forecast of 1.9% in January. So if they estimate that amounts

for a loss of $3 trillion, in this accounting sense, the tradeoff is worth it. And again, there's so many variables involved. They're just saying, like, if you could quantify this and if you could forecast this, that actually staying home is better for the economy. That makes sense. Don't you think if they turn some of these epidemiologists into Wall Street strategists or economists that they would actually be more believable? I find that the way that they look at the world is so much better than the way a lot of people on Wall Street look at the world because they look at probabilities and a range of outcomes. And if then, like if we do this, then our situation will improve. I've really enjoyed reading a lot of these people and

listening to them on interviews. And I feel like a lot of them are coming out of this looking really, really good so far in terms of their warnings and how they talk about this stuff and how they track it. I have much more faith in these people than I do an economist or Wall Street strategists. I agree. In the way that they approach their field. So this is kind of wild. 75% of overdraft fees are paid by 8% of customers. So the parade up principle, I guess, in action here. Consumers spend $24 billion a year in overdraft fees.

And so that was an article in the New York Times said that more than 39 million Americans had incurred overdraft fees within the past year. And where I'm going with this is that banks are legally allowed to withhold funds that go into accounts that have a negative balance. And this is a great example of journalists making a difference, which we've spoken about recently. So the USAA, for example, was garnishing these wages. And after the article was published, they would pause overdraft collection for the next 90 days. And I was actually surprised that Bank of America, J.P. Morgan, Chase, Citibank, and Wells Fargo

are pausing their collections on negative account balances. So their statement from Chase was, we are temporarily crediting for the overdrawn amount for customers, giving them full access to their stimulus payment. We hope this gives them a chance to catch their breath. And a rare, rare kudos to the big banks for doing the right thing. Right. Don't you think that they have to almost come out with some sort of blanket credit card? I'm sure they've done some forbearance and they're working with people on individual cases.

But whatever the default rate is on credit cards now, it's going to be massive going forward, right? Yeah. Like we haven't even started to see the effects of the consumer yet, unfortunately, of how bad things are already yet. Right. And obviously there's a ripple effect. that doesn't happen in a vacuum. Everybody, everybody who's exposed to these loans will be affected. Okay. Assuming the market falls again in the near future, any point, say 20% or more, what are your thoughts of ramping up savings? So 401K, Weifs 403B, IRAs, even if it means that

temporary decrease in post-savings, cashwell forces you to dip in your emergency savings to cover living expenses. This kind of feels like attempting to time the market, but also feels like a great way to get some extra return. Isn't that like barring from your left pocket to give it to your right pocket? A little bit, but I guess it's another case. of front-loading your retirement account contributions now while stocks are down, the problem would be if you regret it down the line, if stocks continue to fall further? I understand the mentality. I'm going to take advantage. I think that just continue your contributions instead of overthinking it because I did this work. I'm like rebalancing and when's the

best time to buy and what if you did this and what if you did that? Listen, the more money you put into the market, obviously the better if you're going to be down the road. But I think that this is not worth overthinking it. I don't think this is worth ramping up and potentially having to tap your savings account later. I don't know. Or like maybe if you wanted to increase the amount you save for a time period and not help out your emergency fund or something. But yeah, I think just keeping these things simple and not overthinking it is probably your best bet because I think any time you make it too complex, you're bound to make mistakes. Recommendations, what do you got? I watched on your recommendation. I watched the gentleman, which was the guy

Richie movie with Matthew Beganahe. I thought it was great. It was just a really fun movie. I love... Who was your favorite character? Hugh Grant was great. I love Colin Farrell. I love the British accents that they use in those movies that he does. It's almost like a slang British accent. And Hugh Grant was amazing in that. It was just a fun movie. It was over the top, but it was great. I rewatch Sideways this weekend. Never saw it. You never saw it, really. It's the kind of movie that the first time you see, you're not blown away because it got such good reviews and it grows on you. I've probably seen it 10 times at this point. And you should watch it because the two lead characters, everyone has a friend like at least one of the two characters. Okay. It's been on my list.

They're complete opposites. I think it was on stars or something maybe. I really enjoy that movie. And there's like three or four parts. It's not a comedy, but there's three or four parts that are laugh out loud funny, I think. I finally, oh, did you watch the Jordan documentary? Do you start last night? Of course. Okay, both episodes? Yes. If I could have, I would have watched all 10 straight through the night. It was amazing. Lived up to the hype. I've been watching a lot of old NBA on NBA TV and MSG. So I was born in 1985. So the earliest Knicks, like I remember the Charles Smith game vividly, but I don't remember anything about it other than the moment of Charles Smith getting blocked a million times. So like the 92-93 Knicks was a little hard

from, like I was seven and eight years old. So I was really young. My wheelhouse was like the late 90s Knicks with the heat and the Pacers. So this has just been nostalgia overload. I'm loving it. See, I really started getting into basketball when the Pissons, the bad boy Pissons won in, oh, 89 and 90. I was going to say 04, but I forgot how old you are. That's like when I first started watching basketball. And so Jordan's bulls dethroned them and basically put them out to pasture. So I hated him initially, and he won one or two titles. And then I started, then when he went away and came back, that's when I just, I couldn't hate him anymore because he was just so good. And I missed having him around.

So if you watch, I mean, just the music is awesome. The highlights, the stories. It's really good. and I finally put my toe back in the water and tried to read a little bit. I read The Power of Bad by John Tierney, which I thought was a good one for this period because it's all about loss aversion and negativity and why thinking negatively all the time is so bad for you and how the bad always overwhelms the good even when it shouldn't. So that was one of the, that's my first nonfiction one in a while that I've started, which is pretty good. I watched Mid-Somar.

Are you familiar with it? No. It's a very, and I paired it with the, big picture podcast. I listened to him. He was on the guy who directed it, who also did Hereditary, another horror movie was on it. So I guess it's a horror movie, but it's interesting in the sense that it takes place, the entire thing takes place during the day and there's beautiful colors and it's just sort of a trippy that way. If you're into weird, weird movies, weird horror movies specifically, and there's no other way I can explain it, then I would

recommend it. That's got to be a niche audience. Yeah, I'm sure there's probably like 1% of the listeners. If you're not, and that's most people to stay far, far away. It was like, oh, maybe I'll actually catch up on some, like, horror movies that I miss. So you ever hear the dissent? It's like a cult classic. Like, I think people love that movie. Yeah, that sounds familiar. I didn't get it.

I didn't think it was funny. I mean, of course, it's not funny. I didn't think it was very scary. I don't know. Didn't really care for it. I tried to, this is going to upset some people. I watched, so in 1974, I watched Blazing Saddles. Okay.

And. I don't think I've ever actually seen it before. Okay. So I understand. that obviously Mel Brooks is a legend, and this movie is incredibly important, given what it did, how it changed the entire genre. But it's tough. I watched 30 minutes and I turned it off.

Didn't do it for you? Maybe it's me, but it's just very, very dated. Did not age well. I have a hard time getting into any movies pre-80 besides like the godfather. But I'm sure for a lot of people, it's just nostalgia about what happened back then and where you were when you watched it. Okay. Animal Spiritspot at gmail.com. We'll see you on Friday.

You know,