Animal Spirits Podcast - Half the Population (EP.38)

Episode Date: July 18, 2018

The recession signal everyone is talking about, Amazon somehow being touted as a value stock, the paradox of choice in the fund world, houses are getting bigger, Time Warner is going to ruin HBO, how tariffs are affecting the lobster industry 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, the podcast that takes a completely different look at markets and investing, hosted by Michael Batnick and Ben Carlson, two guys who study the markets as a passion and invest for all the right reasons. 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 positions in the securities

discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Ben, what are we looking at here? The big topic de jure this week is the yield curve. So Jeff Gunlock of double-line funds was in Barron's this week. I think it was the Barron's roundtable. I don't know. A lot of people were talking about this. And he says we're getting closer to a recession. And so here's a quote from Gunlock. The one indicator that is somewhat negative is the yield curve, which has been flattening pretty relentlessly for the past year or two as the Fed has been tightening. There's a narrative out there that says the flattening yield curve isn't sending any message about a recession and that couldn't be more wrong. In fact, rates so low, the yield curve is even stronger than usual.

So he says we're getting closer to recession. When the curve goes flat from the two-year treasury to the 10-year, meaning that yields are identical, the recession risk is at least a year away. All right, so a lot to unpack here. How worried are you about an inverted yield curve, which for the layperson that doesn't understand, that is the 10-year treasury and the year treasury. And so when shorter term rates on the two year go above the 10 year, that means the yield curve has inverted, as Tom Cruise would say in Top Gun. Aren't we always getting closer to a recession? This is true. I guess the longer a recovery lasts, the closer we are to a recession. Well, let me ask you a question. Has the yield curve ever inverted with the rates as low as we are now?

Well, that's true. I did some work on this last year. I guess it was this year. And the problem is, It's true. Every time the yield curve has inverted since the 1970s, we've had a recession. The problem is there's a lag time. So I looked at all these. There's only been five instances. So that's how far back I could get the data. And so every time 1980, 81, 90, 2001, and 2007, the average lag time was roughly 17 months from the time the curve inverted to the start of a recession. My problem with this, and so there was actually an article in CNBC again two last week. And Richard Bernstein, who was an other strategist who's always out in the media says people are watching the yield curve blip by bit and trying to figure out when it's going to invert. In other words, they're trying to forecast a forecasting tool, which is kind of an interesting way to look at it. He said, that's kind of weird because even when the curve inverts, it still gives you about six to 12 months to reposition your portfolio, which I think using these historical correlation and causation things like this is just a recipe for disaster because it's so easy to look back and say this

worked every single time. It's going to work exactly like that going forward. And that's just way too easy, in my opinion. Yeah, I could not agree with you more. This sounds like it's way too obvious. Is this something we look back in 50 years and say that correlation and causation thing was a complete, it was just random and it was just lucky? So remember when yields on stocks and bonds converge, that used to always be the signal that a bear market was around the corner? Yes. And it was every time until when was it, the mid-50s, that it just stopped working. Exactly. And so I looked at it too. I said, what happens from the start of the yield curve? to the start of the recession. And again, it was like a 17-month average period. In these five times

since the mid-70s, this has happened, S&P has returned on average 16%. There's only one time when the yield curve inverted to the start of the recession that stocks fell. And that was from February 2000 is when the yield curve inverted around the tech bubble, which was right around the peak of the market falling. So it actually fell 16% before the recession started. But I just think trying to time these things is just there's no way it's going to work out that easily. I guess one quiver on the arrow of people that put a lot of faith in this analysis is that there are economic reasons why an inverted yield curve would not be great. So a steepening yield curve is indicative, like all else equivalent, in theory, that the economy is doing well, it's humming along. And I guess it makes, you know, it stands to reason that the opposite would suggest the opposite. Correct. And so yeah, there is an economic and like risk reward rationale here. Like, investors should be compensated for taking a longer maturity profile in bonds. And so if you're getting the same yield from a 10 year to 2 year,

obviously, why would you take the maturity risk if you could just earn the same return in a 2 year than a 10 year? But what's to say that it has to be inverted? Why wouldn't the recession signal start when they're getting close to being inverted? Or I don't see what the, I guess it's kind of like Dow hitting 25,000 or whatever, people like these round numbers. But I think trying to time it exactly when it hits. And then we have six to 12 months of safety. I think it's just there's no way that it's going to work out that that's simply in Neely. I mean, this would literally be the ringing of the bell. And to your point,

come on. Correct. And of course, it's the kind of thing where we could have a recession in the 24, 18 months following that and people would look at this. But I think whenever the next recession hits, people are going to look back and say, see, it was the tariffs in the trade war or the inverted yield curve or whatever it is. And I think it's really hard to put an exact neat bow on these things and come up with a perfect reason. And also there's the fact that they time these, when they call these a recession, they look back and a lot of times we're in a recession before anyone even knows it. And so that when they actually try to date these things, you're looking backwards in so we could be in a recession and not even know it at the time. So I don't know. I guess we might be in a recession right now.

I'm pretty sure the double dip started in 2011. It just hasn't kicked in yet. And so Colin Roche had an interesting take on this whole thing. And he says people are kind of worried about rising interest rates, which would ding bonds. And of course, that's what's causing the yield curve to invert is shorter term rates rising. But he's saying, listen, if shorter term rates are rising, which causes an inverted yield curve, which then causes a recession, that means the Fed is eventually going to have to lower short term rates, which would actually be good for bonds. And so it's kind of funny that people are simultaneously worried about rising rates, hurting bonds, and an inverted yield curve. It's kind of like you can't have both of those worries at the same time of interest rates going to 6% and the Fed causing a recession.

So Colin was actually saying this is maybe an argument for holding bonds if this is going to cause a recession. There's a lot of – I'm getting bored. Yeah, there's a lot of dominoes here. But the basic thing is no one knows. That's what I'll say. All right. Survey of the week time. This one was from CNN Money. They found in the survey of, I don't know how many Americans, this is from bankrate.com. So they probably talk to like four people. They say 29% of Americans actually have a recommended six months of expenses dashed away. Just 18% have enough to cover three to five months of expenses and nearly one in four Americans have no emergency savings at all. I don't believe this for a second. I really don't believe that 29% of people have six months of expenses. saved away. No freaking white. And I would actually say the one in four have no emergency savings is low. I would

have expected that to be way higher. Yeah, these surveys aren't even trying anymore. I don't know. But what is your, do you have a personal preference on this sort of thing? Because my, wait, I wouldn't mean by personal preference on how surveys are conducted. No. Hey, we're an anti-survey podcast. We've got to stick with that. But no, in terms of how much you need saved in an emergency account. Oh, no, I don't. I think certainly at least three months. but I keep probably more than I need to, but that's fine. My thought process has changed on this in terms of, I don't think you, like a lot of people will see like nine to 12 months even.

And I think that's probably asking too much of people where I think if you have a true emergency, that's when you actually hit things like a home equity line of credit or a credit card, like instead of using those up front. So I kind of, I don't think it's, you have to have a number on these things. But my, my max on these things has definitely come in in recent years. I don't think you need to have as much as the experts. that's just me all right so what's this population chart okay so pew research found that half of the world's population lives in seven countries and so what is this a survey no this is census date i believe

yeah they asked a thousand people and so this is the united states brazil pakistan india china indonesia and the wild card for me here was that nigeria is part of this so representing africa so so half the world's population lives in these more than half the world's population lives in these seven countries. The other half of the world lives in the remainder of the countries, which was pretty shocking to me. You ever read the book by Dan Brown, where they're doing something, I think it might be one of the most recent ones, like trying to eliminate half the world's population? Yes, they actually made a movie out of that one, which, yeah, that was a decent movie. And they, yeah, he wanted to eliminate, isn't that kind of the same thing that happened

to the Avengers as well? Oh, yeah. That was a rip-off. Yeah, rip off of Dan Brown book. So the, the infinity stone was like the thing that Dan Brown. Anyway, so what's the point? This is just more of an interesting than anything that you can bring up at your next dinner party. The other good stat they had in here was the UN projects that the number of people living to at least age 100 will increase 140 fold by the year 2100. So from 150,000 now to over 21 million in the year, 2100. Which is why Elon is trying to colonate Mars. Pretty much. So I think our kids will have a good shot of living to 100. So sticking with the population theme, here's another one that people are worried about.

In about 20 years, this Weldon Cooper Center estimates that half of the population in the United States will live in just eight states. So everyone is going to the more populous places and larger cities. And the worry here is that this is going to affect voting patterns and the smaller states are actually going to have more power than the larger states because of the way that things work in when you vote. So what do you think? Because why? Are electoral votes fixed or do they vary with population changes? Well, no. The electoral votes are fixed and then this will kind of mean that some of the larger states won't have as much of a say in some things, which my problem with this one is predicting the sort of immigration patterns and how people are going, where people are going to want to live 20 years out in terms of states, I think this is a little hard to do. I don't think. Well, yeah, of course. I don't think this one is that. I guess this one is not as easy as it.

This is not as much of a lay-up as they make it sound, I say. All right, let's move on to an article that was circulating last week from Bloomberg talking about actually Amazon is a value stock. This was. And it turns out, it turns out that value actually just had an amazing decade. We were just looking at it all wrong. This is kind of like if you just included Amazon and the Dow, the Dow would be at $9 million or whatever. like, this is, this is kind of a tough one too. So what's the reasoning that they give for Amazon being a value stock? I don't know. You put this in the dark. Okay, you're putting this one on me.

Well, okay, it says a share of Amazon stock costs 70 times more than the company's estimated per share of future earnings. That means investors are willing to pay much more for each dollar of Amazon's earnings than a share of Microsoft, Apple, Facebook, alphabet, or Alibaba. Which, by the way, I still claim Google not Alphabet. I don't like calling it Alphabet. Yeah, I think everybody's with you there. And it says the P-P ratio for Amazon is four times higher than the S&P. But even at this valuation, all but one of 52 analysts surveyed by Bloomberg recommend owning the stock. And 48 of them say that investors should buy it and keep it according to data compiled by Bloomberg. I'm still not seeing why this is a value. Okay. Holy cow. This is wildly idiotic.

So because 51 out of 52 analysts surveyed by Bloomberg, say this why we can't trust surveys, recommend owning the stock, dot, dot, dot, dot, dot, which makes Amazon something few analysts ever believe it could become a value stock? What? So they're saying it's a value stock based on expectations and not based on... Wait, okay, so if a stock has more sells versus buys or holds, which never will, will that make it a growth stock? Yeah, there's a little bit of a faulty, like Amazon is the definition of, even if it's not a growth stock, it's definitely a momentum stock. I don't know how you could ever. Well, it definitely is a growth stock.

Right. Yes. And yeah, this one's kind of tough. I wonder how many value investors have thrown in the towel and said, I'm just going to buy these stocks, though, and make this justification to themselves. All right. It's chart time. So we did something similar to this last week. Was last week the JP Morgan episode? Yes. So we went through the Herculane effort of looking at ICI's 348 slides. And we pulled out maybe a dozen or so of the best charts. which, of course, we will link to in the show notes. So this is from the 2018 investment company fact book. We read it so you don't have to, right?

Yep. So a few things about this first chart, which shows total net assets of worldwide regulated open-end funds, which just surpassed $49 trillion. There are, as of 2017, 114,000 worldwide regulated open-end funds. That is a lot of choice. Which includes money market, bond funds, stock funds. and alternative funds of all types, closed funds, real estate funds, mutual funds, ETFs, all this stuff. A lot of choice. A lot of choice. And the next chart,

number of investment companies by type, and this is, I don't know if this is for the U.S. only, man, this is not going well. But there are 9,000 mutual funds, open end, 530 close-end funds, 1900 ETFs, and 5,000 UITs for a total of 16,000, is that more so that's that's more stocks than they're on the u.s correct have we not determined that before there are more funds and there are securities one of the crazy things that i found in this was that there are 288 index funds covering the s and b 500 wow and i'm sure that there's a large range of expenses for those funds that do the exact same thing the interesting thing here is that so uITs are more than double the size in numbers and then ets didn't we talk about the ui did we

was that what we talked about a few weeks ago? I think we did. And that was news to both of us. Okay. Yes. So now I guess it shouldn't be news if we are actually listeners of our own show. So this pie chart breaks it down in terms of where the assets are. In 2007, index mutual funds were 9% of total assets. And today they're 18%. So they doubled in the last 10 years. And index ETFs went from 6% to 17%, which still leaves actively managed mutual funds taking the lion's share 65% of total net assets. It's worth mentioning that this is just in terms of fund assets. So just in terms of all kinds of funds, index funds, active funds, all that stuff. So there was $9.5 trillion in fund assets in 2007. By the end of 2017, there's close to $20 trillion in assets. Not bad. So that means that everyone did really well in that decade-long

period. And then the next chart is one that I had tweeted on Sunday night. This surprised me. So it shows that index funds share of the U.S. market is still small. So in terms of all assets, it is 13% of the pie and active funds are 16% of the pie and other investors, which they defined as life insurance companies, pension funds, hedge funds represent 71% of the remaining assets, which I guess is mostly individual stocks and SMAs. Yeah. So I will do a little bit of actually on this one because that 71% is more or less institutional investors. And a lot of them, instead of just buying into an index fund or ETF, we'll do an SMA of that index fund on their own. So they'll go to someone like State Street and say, create this for us and they'll pay like half a

basis point, like if you're a pension fund. So it would be interesting to see what percentage of that is index funds. But it is interesting to know that we talk a lot about the fund world. And then that's just a minor part of the entire overall pie in terms of where the money is. is these days. So there's still over 70% in more or less institutional capital controlling the markets versus 30% for the fund world. So to that point, I don't know if there's a chart, but there's certainly a data point that 90% of mutual funds are owned by individual investors. That is interesting. So institutions make up just 10% of that. And a lot of that, and a lot of that was in money market funds. Oh. So again, to your point, institutional investors really don't use mutual funds the way

that individuals do. Right. Yeah, which makes sense from how they structure their portfolio and in terms of... Right, because if they have, if they have whatever, $18 billion to throw into the SB 500, they're not going to buy the ETF and pay even three basis points or a mutual fund to pay more than that. They're going to go straight to the company and pay, you know, a 10th of a basis point. Correct. So they'll do, it's almost like that direct indexing like we talked about before. Yep. And then, again, same theme. There's a chart that shows that index equity mutual fund share continue to rise. it was percentage of equity mutual funds total net assets was 13% in 2008, and that's up to 27% at the end of 2017. And over that time, and this is a chart that Mobeson shows a lot in

the Credit Suisse book, not book, one of his things. And then they recreated it from 2008 through 2017, indexed domestic equity mutual funds and ETFs received $1.6 trillion in net new cash, while actively managed domestic equity mutual funds experience a net outflow of 1.3 trillion dollars. And they show a chart, which shows how sensitive flows have been to market returns, right, which is normal. So I'm skipping down a little bit, Ben, just for your benefit. But that relationship broke. So in 2017, stock returns were positive year over year, but active funds saw outflows in all but two months in 2017. By the way, it is interesting that you look at all these graphs, and we'll include in the show notes, is the fact that

it all starts in 2008. And I think we're going to look back in a few decades. And obviously there's a lot of people out there who I think have a misunderstanding of the fund world and assume that this stuff is all just a fad. But I think we're going to look back at the financial crisis in the Great Recession and say this was really a turning point which put the kerosene on the fire and really lit a fire under investors in terms of going into ETFs and index funds. And I think this is going to continue where we see this widening out in 2008 is going to be that turning point, I think, in a lot of these studies when we look back on this. Another chart that shows just investors' preference for moving away from high fee active mutual funds is expense ratio is incurred by mutual fund investors that decline substantially to 2000 and went from 99 basis points to 99 to 1%. And it's just been steadily declining down to 59 basis points in 2017. So the average expense ratio is 1.25%, but the asset weighted average expense ratio is 0.59%. which just shows that investors are voting with their feet and actually moving their money to lower cost options, which is good. The crazy thing is that you're right, the average fee for an

active fund is still relatively high. That hasn't, I mean, it's come down a little bit, but it hasn't budged as much as you would assume. It's just that people are going to the lower cost options. Man, it's sort of wild. In 2003, the average expense ratio was 1.68%. Wow. And, yeah. And then, of course, think about how many were that much higher. Right. Which again shows you, these fees are high enough for the actively managed funds to stay in business still make a lot of money. People are kind of trying to start the funeral for active funds, but they're still making plenty of money. And I think that's one of the reasons a lot of these funds are just going to continue to beat zombies and continue to, even if they lose assets, to make money and stay in business because they charge so much more. Well, sticking with that, one chart that surprised me was fund industry employment in the United States has grown,

56% since 1997, from 114,000 workers to 178,000 workers today. You wonder how much of that is just operational and stuff that they have to do for regulations, but that's pretty crazy. You'd think you'd see more consolidation, and I would imagine these numbers are going to start coming down, but that's actually a surprising one to me. Well, there was a pie chart that I didn't include that broke it out by, like, function. Oh, okay. Interesting.

So I think it was like 40% portfolio management, and then I forgot what the exact breakdowns were, but it's in the giant book. Oh, here's the next chart. It does show household told 90% of mutual fund total assets. Okay. Interesting. And institutional investors are a much smaller piece, which again, makes sense. So institutional investors have $1.1 trillion in money market funds and just $800 billion in mutual funds. Wow. Which is, yeah, a much smaller piece. All right. That is, that's it for our chart session. Okay. So I saw a chart floating around today. Eddie Elvenbine tweeted this out, and it shows how houses are getting bigger over time,

which is kind of interesting because families are getting smaller. So they looked at this data, and they found from 1920 to 1914, so 95 years or so, the average floor area for a house in the U.S. has increased from roughly 1,000 square feet to almost 2,700 square feet. So houses have gotten 2.5 times bigger. Furthermore, the average floor area per person is more than quadrupled from 242 square feet to over 1,000 square feet. So the number of people living in houses has gone down and the size of the house has gone up roughly three times. So we're living in much bigger houses now with fewer people, which is kind of insane. So people kind of complain about the cost of housing.

And I think one of the reasons is probably because they're much bigger these days, which probably works for most places in, I don't know, probably not in New York or at least in the city, I suppose. So I live in an apartment, which is 730 square feet, and I have a spouse, a child, and a dog. Okay, right. So the four of us, we're 180 square feet per living thing. So if you live in the city, you're bringing these numbers down. And if you're someone like me who lives in the suburb, then you're bringing them way up. Although we are starting to think about moving back to Long Island. and I think these numbers sound about right.

Like, I don't want a giant house. I guess like 2,500 square feet is like average-ish. It is kind of interesting. I think that one of the main points is what people have tried to say is that there's maybe more wasted space in housing these days. And that's one of the reasons that it's getting more expensive because they're so much bigger and they're much nicer than they were in the past, which a lot of people maybe don't realize.

And I think like bunk beds were a huge thing back in the day. Yes, I had to share a room with my brother for the majority. of my childhood. That doesn't really seem to happen as much anymore. No. Okay. So there was a takeover in recent, or maybe a merger, I guess, in recent months between AT&T and Time Warner and our friend of the show, Scott Gallo, can I call him a friend of the show since he spoke at our conference? He doesn't know who we are. Barry interviewed him once. We like to read his insights. He has a weekly newsletter that goes out. I think we've mentioned before. And he says that Time Warner is going to ruin HBO. And so he talks about one of the people that came in on this merger and

they basically want to change HBO and turn it into Netflix. And so this is from the New York Times and he says this guy, Mr. Stanky described a future HBO. You're laughing at his name. It's a funny last name. Wait, is it Stanky or Stan Kee? Okay, it could be Stan Kee. I prefer Stanky. He definitely doesn't call himself Stanky. Maybe he does. All right, go on. Mr. Stanky described a future in which HBO would substantially increase its subscriber base and the number of hours that viewers spend watching its shows. To pull it off, the network will have to come up with more content, transforming itself from a boutique operation with a focus on its signature Sunday night lineup into something bigger and broader. So basically they want to compete with Netflix more

and keep up and go for more of a quantity or quality thing in HBO, which a lot of people are worried about will completely ruin it. Yeah, they can't do that. One of the reasons why Netflix is such a huge advantage in that respect is that, they throw a bunch of crap against the wall and if it doesn't stick, you don't have to watch it. But the way that HBO works where it's scheduled television

makes it much, much more difficult to throw these sort of Hail Marys. Well, and the thing is, I kind of feel like if something makes it to HBO, I will have a greater propensity

to watch it because I know it's probably going to be pretty high quality. Like if there's a new show that comes... It's been vetted. Yes. In Netflix, there's so many new shows. It's kind of,

I take a wait and see approach. So he's saying, Yeah, it's if they try to change HBO into that and in really ramp up their streaming and try to turn them into Netflix, then that they're going to ruin all that. What goodwill they have already got from people over the years, which I totally agree with. So there was a new show that started two weeks ago called Sharp Objects. Are you going to watch this one on HBO? Never heard of it. Amy Adams is in it.

It's actually, it was a novel that I read a number of years ago. and it was by Jillian Flynn, who also wrote the book Gone Girl, which has turned it into a movie with Ben Affleck. Oh, yeah. Wait, is this a detective show or a movie, book? She's a reporter. And so I read the book, and I remember the book being good. And I watched the first episode, and it was really good.

And I will definitely continue to watch. I remember the book was really well done, too. But that came out, and it was on HBO, and I could tell about quality is going to be high, and I knew I would watch it if. But I don't think you get as many of those high quality shows on something like Netflix or even Amazon Prime. So I, so this guy also said this, Mr. Stanky, he said, he used the following analogy to describe the coming year to HBO employees, you will work very hard in this next year will, my wife hates it when I say this, feel like childbirth. You'll look back on it and be very fond of it,

but it's not going to feel great while you're in the middle of it. I feel like this guy has zero percent chance of succeeding with this strategy, especially when he uses that analogy. Yeah, that's short. Yeah. All right. So somebody on Twitter shared with us an article. this is the gender gap women should be talking about. And one of the quotes is she has consulted a financial planner once, invested around $1,000 through a robin hood app account and feels good about her 401k and financial future, but she invests conservatively, quote, because I feel like if I'm going

to invest, I need to know what I'm doing and I don't. So this was actually a study from Bank of America Merrill Lynch, and it shows that women are much less confident in their finances or investing than men. So they found when it comes to managing investments only about half of women say they are confident compared to 68% of men, which is kind of a double-edged sword because I think a lot of times what happens is when you don't have that confidence, you don't really save or invest. And they kind of show here that a lot of women looking back in hindsight, wish they would have invested more money and saved, which is fairly obvious thing for a lot of people. But the other side of things here is that, and we've mentioned this betterment study before, women tend to be better investors because they

don't have as much confidence as men. And so they're willing to spread their bets a little bit, don't take as many chances as men. So it's kind of a double-edged sword. If they actually do invest, women can be better because they have that lack of confidence. But it depends if it sort of, you know, takes you away from doing it in the first place. Yeah, I would say that it's not just a lack of confidence. It's probably a lack of overconfidence. Right. Yeah, true. Right. Like, it's funny, like women that don't know, at least according to this, that don't know about the market are not confident, but men who don't know about the market for whatever reason are overconfident. Yeah, that's fair. So Sally Krawcheck, who's,

heavily involved in this space said it's not that she's risk averse she's risk aware and the industry has done a poor job explaining risk to her when she understands it she's happy to take it i think that's a really really good yeah i like that risk averse versus risk aware that's pretty good all right we spoke about towers on the trade war last week two more things that we saw this week that were interesting one is that gm sells more cars in china than in the u.s i that is definitely news to me That's surprising. I mean, I live in Michigan where people live and die by cars, Ford and GM and such. So that's pretty surprising. How about this? Wait, a little teaser. We're going to talk about cars next week. Yes. Yes, based on a tweet I sent out last week. That was a good radio, by the way. Keep them coming back for more.

So this is an interesting one I saw that you posted here. So China's tariffs on live lobster now stands at 40% and 35% on processed lobster. And it's a major price barrier for sales to Chinese buyers who can get the same species from Canada. at a 7% tariff, and they actually interviewed a guy here, and this was on NPR, and he says, I sell 50% of my lobsters on mainland China. We might live through the fall. We won't live through next winter. It's kind of crazy when you get down to small businesses for these things, and you can actually see a big impact on what it has in their lives and their livelihood. Yeah, brutal. I don't really have much to add, but it's just like we spend so much time thinking about how this is going to affect whatever, commodities and stocks and, you know, all these short-term

things, but this is having a real, real, very real impact on people's lives. Well, the other interesting aspect of this for me is the fact that it kind of shows why, in a lot of ways, the U.S. does have the upper hand here because China has to get so much other stuff from us. They have to buy it from us in many cases, right? They don't have the same natural advantages we do in a lot of instances. So it's kind of interesting, which, again, I just don't. Are you saying we should do more?

No, I'm saying it just makes. I'm saying we have a great relationship where we have, we pay much less than a lot of things because it's sent over there and they make it for us. And I don't see the reason to mess with any of that. So one more survey. And I took this from the Federal Reserve Bank of New York, which I don't know, somehow feels more legitimate. I'm not sure why. But I think that they asked 12,000 people.

So if this came from the Federal Reserve Bank of Grand Rapids, you wouldn't like it as much? Is that what you're saying? So they ask, will stocks be higher one year from today? And it's broken down by age under 40, age 40 to 60, age over 60, and 40 to 60 track each other pretty closely. But the general theme here is that this goes back to the summer of 2013. At no point in time has more than 50% of the survey people, surveyors, of the people asked, thought that stocks were going to be higher a year from now. surveyes. Is that a word? No, it is interesting, though, and you plotted this out. Those surveyed. Yes. And the crazy thing is, it's roughly 70 to 75% of the time. Historically, stocks have been higher over a given calendar year. And basically at no time did this even get above 50. So this is kind of surprising. You know, I was thinking about this the other day, if the S&P 500 is positive on the year in 2018, that'll be 10 years in a row of gains for stocks, which would be a record. I wonder how many people, how much of the population knows that fact? I would guess it's got to be a very small percentage, correct? Yeah, like zero.

It's, I think it's just, there's a big disconnect between the headlines and what really happens and what people really see or feel or think the experience between what actually happens. Okay, so we'll share this one. This was a good, this was a good chart. And maybe you can share this one on Facebook. We actually meant to mention, Michael and I spend a majority of, our social media time on Twitter. I think it's pretty safe to say. And if you listen to some of the earlier episodes, you know that I actually don't have much experience with Facebook, but we do have

an Animal Spirits Facebook page, and we're going to make a concerted effort to be a little more active on there. So... Good plug. Yes. How do they find us not there? Because I honestly don't know. Oh, I don't know either, but we'll drop a link. There will be links in our show notes. But so if you wanted to find someone on Facebook, I've never done this before. You just search them? I honestly don't know. I think, yeah, that's a good question. question okay well facebook search for animal spirits on facebook you google facebook animal spirits on facebook okay so we've we've been doing a little bit more posting there we've been sharing some thoughts on some of the stuff we're reading maybe some of the stuff that doesn't make it if you

google animal spirits on facebook we do not come up so we will so we will have a link in the show notes and yeah there'll be links on either of our websites and we're going to make a more concerted effort to start posting there just because we're trying to diversify our social media accounts is that right that's right all right let's get on to some listener questions Okay, do you have advice for people who are looking to invest for generational wealth? Well, I may not be, well, I may not have millions to invest now. I, like many in our age bracket, may inherit a significant sum. I'm looking to invest for the very long, long, long term and invest each month in addition to a 401k.

So this guy is, or gal, I don't know who sent this to us, is trying to figure out what to do if they inherit a large sum of money. Yeah, this is going to be, I mean, obviously more and more common when wealth gets transferred from one generation to the next. So do I have general advice on how to invest? We will link to all previous podcasts. One thing I would say in terms of figuring this out, I think one thing that a lot of people probably don't plan on, and it's kind of like succession planning in a business, is having that conversation with your kids. So the older generation probably should have that conversation so the kids can actually

plan on someday understanding what is going to be left for them without knowing exactly when that day is going to come. I think it probably makes sense for the parents' generation of the kids to actually breach the subject and say, you know, let's have a talk about finances. So the children aren't planning on mom and dad someday leaving them a huge sum of money, but instead it gets passed along to the favorite charity. That's a really good question. So talk to your parents instead of the podcast people. Correct. The investing thing, that's probably much easier than actually having that conversation and figuring out, you know, what it all means because people hate talking about money generally.

that's been my experience at least. All right. Over the next two years, my wife and I would like to save for both a down payment on a home as well as the cost of an elite MBA with the ultimate goal of minimizing MBA-related debt and purchasing a home shortly after graduation from the MBA program. Hmm, I'm confused. Is this an MBA for themselves or for their child? I, for themselves.

In general, what is, they're saying it's coming up soon. General, what is the right way to think about approaching our household savings over the next two years? Do we balance these two saving goals, investors save them, money to be used for these two purposes. I think this is actually a fairly easy one because if you know the end date of your savings and you know in two years you're going to need this money, it's a fairly easy way to invest. You just don't take a lot of risk. That's my... Either buy bonds or with two-year maturities or buy CDs. Right. It's much harder if you know you have something 20 to 30 years out in trying to match up your time horizon with your assets. But when you know

how much that liability is going to be and when, I think you just, you don't try to take much risk because if you need to pay for it and you're trying to negate the effects of debt and you want to just pay it off, then you have that money in a fairly safe account that doesn't take much risk. Yeah. Okay. We're going to probably be kind of biased on this one, but here's a question. Are you bullish or bearish on wealth management as a career over the next 10 to 20 years

given the rise of automation and passive investing? I think we have to say, we kind of have to say bullish because that's the career we've chosen. But I actually get this question a lot from people outside of the industry saying our robo advisor is going to take your job. And I think it's definitely something to pay attention to, but it's, we've said this in the past, anything that can be automated, will be automated in the future. So I think it's, if you have a job that can be automated and you don't provide value above what that automation can do, then of course you should be probably worried about your job.

I think, but I think especially in the financial services industry, the people's skills are much, going to be much more in demand than most people think, especially as we have these 10,000 baby boomers retiring every day who are going to need someone to help them know what to do with it and to make sure they're going to be okay. Yeah, no, I'm not, I'm not too concerned with Robo advisors. I think maybe they, you know, on the margin, they will make it more challenging, but I think that certainly Vanguard's personal, what's it called is it, personal advisor services? Yes. I think that is probably a much bigger threat, but the relationship cannot be automated. So I don't think that, I don't think that people in, in my field have anything to

worry about. And so I actually give, I, generally speaking. I've been giving some talks to different financial advisor groups over the past 18 months or so. And one of the stats I gave my talk is that there's roughly 300,000 plus financial advisors in the country right now. And roughly half that number is over the age of 55. So many of the financial advisors there are now are going to be retiring in the years ahead as well. So I think there's actually going to be a huge, huge supply demand and balance in the years ahead. And hopefully, I'm guessing there will be a lot of firms who do efficiently use technology to their advantage and can scale up. But I think there's going to be more of a need for people in this industry, especially financial advisors, than

there is going to be a number of customers. So I think that there's going to be huge demand in the years ahead for this industry. So I think. Yeah. So I guess the real question is, should I not go into the wealth management space because the jobs are going to disappear? The answer to that is unequivocally no. I would say, as long as you can provide value to a client and prove that to them, then yes, I think wealth management is a good career to be in. And we've already proven that over the next 10 to 20 years. There's going to be 10,000 baby boomers retiring every day, correct? Do you buy that one yet? Correct. All right. But one out of four of them have no, nothing saved. All right. A good tweet that we saw this week that somebody sent to us

This comes from at VGR, retirement planner product idea. A, where can I afford to retire a widget that shows a color-coded world map. Red equals in your dreams loser, try the lottery. Orange equals if you work ridiculously hard and get a bit lucky. Yellow equals reachable by 70. Green equals dump you could retire to right now. This is actually a good idea. So it's really based on the standard of living and your money can go a lot further in some

places than others. So I think this is interesting. I actually had a couple email me. I wrote a piece about retirement. This was probably a year or two ago. and they actually went to a different country because it was much cheaper. So I think something like this, if you're willing to be a little adventurous, is actually a good idea. Yeah, I sort of think it's really nice that people, that people like are going to move in retirement.

I guess it's so far away, but I feel like I'm going to be in New York forever. Yeah. I hope that's not true. All right. You're never going to move somewhere nice to actually get a tan one day? Yeah, I don't do well with the sun. All right. But no, I think it makes, it's definitely a big, it's one of those spreadsheet things where,

the standard of living can make it have a huge impact, but it kind of gets back to our talk from a few weeks ago about moving for a job. Are you actually going to want to move away from your home and your friends and family to a place that's cheaper? Will your life satisfaction really be as well if you, you know, so it kind of, there's a lot of balance there. All right, any recommendations for this week? So I, I spent the most of my consumption this week on the Ken Burns documentary. I'm now through four episodes. My God, they're so long. But he is just brilliant. It's so well done. One of the amazing quotes, which there are many, that stood with me is from a soldier who said, we tend to fight the next war in the same way

we fought the last one. We are prisoners of our own experience. That's pretty good. Yeah, so that's that. Let's see. Oh, I did furiously spend time this weekend listening to the new Dan Carlin hardcore history called Supernova in the East. Oh yeah, what is it about? I haven't looked into it yet. It's about Japan. their culture and their history and how they got involved with China. I didn't realize that Manchuria was such a huge, a huge, like, hot-button issue. He is the absolute best storyteller. So I cannot recommend it enough. It was just great. And it looks like this is going to be just the first part of a series because he ended it with just before they go to war with China.

Oh, okay. So definitely one worth, okay, good. That's on my cue. Yeah, absolutely worth listening to. And then lastly, Robin watched The Staircase, and I came in and out for a few episodes. I think I missed a few in the middle, but I got the gist of it. And pretty good. If you're into like making a murder and those sort of documentaries. I tried a few more of those, and I can never really get into it anymore. One or two in, and then I feel like there's just so many of them now.

Well, the thing is, like, it's like, oh, I don't really want to watch 13 episodes of this. Yes. I would love it if there was a 90. minute one. But yeah, I mean, if you're into those things, there's so many of them now. But it was good. If you are at all interested in, like, if you did like making a murder, then this, then I highly recommend that if it's not for you, then this will definitely not be for you. Okay. So I've been reading the attention merchants by Tim Wu lately. Did you read this one before? I stopped after 100 pages, I think, not because I didn't like it, but I think

because I was writing my book. And I definitely, I will revisit it. What did you think? It's really good book. I think it kind of, it shows how we got into this sort of attention based economy where you're really trying to change how people think about the world in terms of advertising and news and it talks about how even like the government the first time that the government realized they could use like a propaganda machine was World War I where they needed people to step up and sign up and how they could use their power to persuade people to sign up

and it talked about how Britain in like two months got 750,000 people to sign up for the war and they were like wait a minute we actually have power to influence people this way when we've never tried it before. And I think it's really interesting in terms of thinking today about how how addicted we are to information and how it's kind of evolved to get there. So I think that's a good one. We watched A Quiet Place This Week We rented it. And I think you've mentioned that one before.

That's probably my favorite movie I've watched this year. It was really well done. And it was intent from like the get-go. It was intense. And I loved the fact that it was only 90 minutes long because I feel like way too many movies are like two, two and a half hours these days that shouldn't be. So this movie was like action-packed from. the get-go.

You know what I loved about it, that they didn't really get into the backstory of the monsters because that was besides a point? Yes, I did the trivia in IMDB to get the backstories because it was in the, it was on the wall. Remember they had all the newspaper clippings? I won't spoil it for anyone. Well, I won't spoil it for it when I wasn't seen it, but I'll tell you offline. But in the trivia of IMDB, they actually have where the aliens came from.

And, yeah, this movie was great. And last week I mentioned that there aren't very many good rewatchable movies. and I put that to the test this week and searched through Amazon and Amazon Prime and Netflix for an hour and a half and couldn't find anything and finally stumbled to pause across Drive with Ryan Gosling

which is from 2011-ish maybe did you ever see this one? I only saw it once. It aged well. It was worth a re-watch and so I will say that was one movie that's re-watchable from this generation of movies and that one, it's a little gory in parts

but I really like that movie. So is that one idea that you have ripped up Yes. No, I'm sticking with that. Here's my problem. How many sequels are ever worth rewatching? And that's all there is these days. It's a sequel. Wait. What does that have to do with anything? The reason there are fewer rewatchable movies these days is because there's so many more sequels and remakes. And so none of those are worth rewatching again. That's my theory. All right. That's a fair theory. Whenever the Avengers came out, which was probably what, 2007-ish, 2008, they killed the rewatchableness of movies. That's my stake. And I'm, I'm sticking with that one. Okay. All right. Send us an email, Animal Spiritspot at gmail.com. Visit us on Facebook as we try to figure out how to use it.

Facebook.com underscore the colon animal spirits. Yeah. I believe it's on America Online or something. If you have a disc, you can find it. Anyway, thanks for listening. We'll see you next week.