Animal Spirits Podcast - Housing Bubble 2.0?

Episode Date: April 7, 2021

On today's show we discuss the rise in Gen Z traders, how retail investors are impacting the market, the 4 types of Robinhood traders, the dependability of market cycles, going from being a saver to being a spender and more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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I.O. today and tell them animal spirits sent to you to skip their 10,000 person waitlist. See important information at masterworks.io slash disclaimer. See important information at masterworks.io. Disclamor. 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 positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. I were searching through the Twitter archive. I forget what I was looking for, but I came across a tweet from Eric Balchunis, April 2nd, 2020. So just over a year ago. Here's the tweet.

Unreal. Mutual funds have seen $356 billion in outflows in March. It's hard to describe how wild that is, so I'll just let the chart do the talking. So this is last year at the height of everything. This is a chart. I feel like the last year or so has produced more charts with a huge increase up or increased down on the line, where it just looks like something unfathomable based on the trend. I found one more chart from, oh, I remember how I found this. When I was compiling the movies that I've seen over the last year, I was just going through our show notes.

And I came across some of these charts. This one was from March 20th. And it shows the difference between current exposure and average exposure to stocks over. over the past five years, and it breaks it down into discretionary equity holders. So think traditional stock pickers versus systematic strategies like whatever, anything that's systematic, anything that's rules-based. And the degrossing, to use the Winnie of the Poo Meme, we got the selling and then the de-grossing. The amount of selling that they did compared to the discretionary was remarkable. By the way, Winnie the Poo Meme, selling and then the rich guy version

degrossing. There it is. I thought of another one over the weekend. It's just a great format. Somebody was talking to me about Top Shot, and they said, I guess there goes the rarity argument. And I said that trigger. It's like, oh, you mean scarcity. Rarity is what regular people say. Scarcity is what people who know things say. Scarcity is what promoters say. Exactly.

So anyhow, this is just another wild chart that a lot of the selling came from systematic strategies. Also, it looks easy in hindsight to say everyone bought this dip. It was a generational buying opportunity. But obviously at the time, a lot of people weren't. And I guess according to this, maybe as the pros. So I looked at... But wait, hold on. One more point I want to make here is that this gets back to your point, Ben, about how

the nature of markets might be changing. Corey Hofstein has written a lot about this. We actually highlighted some of the stuff that Corey wrote last year, how the way markets function today just might change the nature of behavior, prices, how we think about things. I'm not saying throw out historical data, but things are different today than they were in, say, in 1978. And regardless of if that's true going forward or not, you think the reaction next time there's a bear market is going to be a little different.

Like, are people going to be rushing in to buy a little quicker because they assume, well, spending's coming from the government or the Fed's going to throw another bazooka at this thing or whatever it is? I think it could, at least for the next few bear markets, change the way people think about buying one of the blood in the streets and maybe getting in a little earlier. So you think that'll take us through retirement? Because I just want to make sure that I plan this out properly. But this was, I mean, as much as this term's done around, that was a general.

operational buying opportunity. So I looked at the returns last week and I showed you this data since 1950 because I wanted to take off some of the depression stuff because those kind of like this period take everything away. Over 12 month period, price gains only. I looked at. I ranked every daily gain over every rolling 12 month period. And from the bottom, this was the best 12 month return we've ever had since 1950. It was like 75%. How long does that take you to do? Not that long. I had all the data already. I just had to sort it. Can you imagine life before Excel. Imagine So, again, this goes to like the changing nature of markets. The fact that we're able that everybody is able to do something like this, which is obviously

so anybody could do this with the computer, that also changes the nature of the market. Seriously, in the past, how would you have done that by hand? I don't even know what that would look like. I have daily data going back to like 1928. Not to brag. Not to brag, Philip Fisher, but your data has nothing on us. But you just click a button and you sort it. You're right.

In the past, someone would have been writing this out by hand and scribbling it on. Yeah, it takes two seconds. Oh, wait, here's the downside. Okay, so I looked at, okay, anything over 50% in a 12-month period is pretty rare. So what's happened in the past? This was an interesting one. 65% of the time, the ensuing 12 months was a negative return. All right, consolidation.

No big deal. Yes. That's, yeah, nice technical analysis term. But over the ensuing three years, then it was positive 100% of the time. Ben, there's a phrase for this. It's called resting once higher. Okay. So, all right, I was also looking at some stuff.

yesterday and was at a generational buying opportunity? Like in other words, will we never see those levels again? Here's how much we need to fall in each index. I think the S&P needs to fall 45% to get back to those levels. So could happen. 45% from here could happen. The NASDAQ 50%. And here's the Kudagra. By the way, somebody emailed me. It's Kudagras. And I know at this point I'm using it improperly. I'm a Kudegra guy. The Russell 2000, 60% from here. It would have to fall 60% to see the March 2020 bottom. That might never happen again. Never say never, but it might not.

But if you were to price the S&P 500 in lumber prices, stocks are actually down over the last year. Did you know that? Oh, so Ben just showed me the worst, you can never say the worst tweet of all time, but this is a chart crime and a half. It was showing the S&P 500 priced in the Fed's balance sheet. Is that even a trade that? I knew I shouldn't have gone short the Fed's balance sheet along the SP 500. That was a terrible trade.

Anyway, just a... Technically, the S&P 500 is sideways since 2008, if priced in the Fed's balance sheet, which... Just a comically bad chart crime. So Morningstar is out with some of their ETF numbers. This is remarkable. In 2020, there was $232 billion of stock inflows into ETFs. Q1 of 2021, $199 billion. Again, $199 billion in inflows in Q1 versus $232 in all of 2020.

So again, this bear market has changed things. and ETFs are only sped up now from what they were in the past. Truly remarkable. It's coming faster. Okay, so A16Z had this really good story on active trading. It's called Buy and Hold No More, the resurgence of active trading. And they make some pretty good points in here. They talk about how we've seen this rise in passive, but they talk about how like this

American exceptionalism thing did this really cool chart that shows by country and it shows the average perception of financial risks and benefits by country. And most of them are like the risk and benefit are pretty totally, wound and the United States is way off on its own, basically saying we're hugely overconfident. But to me, that's not really an argument for, because I think we've always had this American exceptionalism. We've always been overconfident. So I don't think that's anything new, but they say, okay, what is new is all these fintech platforms. And you have this rise of free trading and wealth front, inserted it with wealth front emberment, and then public and acorn and Titan and

Common Sox, Stocktwits, Robin Hood, Eitoro, all this stuff that came on board. And I think there is something to that, that it's just the technology has caught up to this low-cost thing and come together at the same time. And I think that's really changed. And I do think that they're saying like basically the Gen Z people, active trading is here to stay for them. And I think that there is an argument to be made for that. I think that's fair. I agree. Here's one knit that I'm going to pick. They said, which is a great post. They said, in short, retail portfolio theory, buy and hold for 30 years is being replaced by new investing approaches, including bottoms up communities and zero-cost passive investing. We believe that in the years to come, active strategies will have a place in every retail

investor's portfolio. So the only hole that I'm going to poke is I don't think that one is replaced in the other. I think they're perfect compliments. I don't think that people are going to start day trading in their 401k, nor should they. But if they want to take a piece of their money exactly like you and I are doing, Ben, in our Robin Hood accounts, I'm all for that. And I agree, it's not going away. In fact, it's only just begun. Did you see the chart that I posted last night from the Wall Street Journal? No. So the Wall Street Journal, they have a great chart showing the net U.S. equity purchases by individual investors. And they said on March 26th, individual investors purchased about $772 million of U.S. equities on a net basis, which was a 60% decline from the

almost $2 billion reached in just one day on January 29th at the height of the meme craze. So January 29th was when we got GameStop, AMC, whatever, all of those meme stocks. So it's not surprising that that couldn't end. That was unsustainable. I think everybody in real time knew that was unsustainable. So we're in a 60% decline from those levels. However, if you look at this chart, it's still 2x what it was in 2019. So I think a lot of the Johnny Come late, these got washed out.

I think a lot of the people that came later going to get washed out with the market pulling back all of these high flyer names. So that's contributing to it. And I think that this number is only going to continue to decline because the weather is getting nice outside. The economy is going to reopen. People are not going to be in front of their screens. But let's just say that one in ten, Robin Hood traders, one in ten newly active traders stay. That's still an enormous amount of money because retail traders are now 25% of the volume. I did a post on this because I like the 816s post so much.

And we throw out this term Robin Hood Trader so easily, and it makes for good memes and Twitter jokes. But we hear from people all the time when we talk about this and they say, no, no, no, you got it wrong. I trade a Robin Hood and this is what I do. And so I think we have a pretty good look into the window into this group of people. And so I said, okay, there's actually four types of Robin Hood Trader. So you have your Yolo Trader who is on like the TikTok Convester thing and they're saying, I have no idea what I'm doing. You have people who are just dipping their toe in the water and starting to learn. I call this like the student trader.

they're trying to figure out what exactly works for them. Then you have like the Reddit trader who actually knows what they're doing. They are sophisticated. They understand options. They understand how this works. They know short squeeze and gammas and all this stuff. And then you have the dabbler who, which is like you and I pretty much. We have the automated stuff.

Frankly, the 401K is one of the reasons that ETFs are still going to have some challenges for mutual funds in the years ahead because the 401k system is so big and that mutual funds are just made for that better. And so you have people who, and I think most people funnel down, if you're going to stick with this and eventually make it, most people funnel down. to that dabbler like us, where they're going to have 5, 10, 15, 20 percent of their portfolio in something like this, they're going to be a little more active or they're going to have some other status investments and stuff that they enjoy. And the rest of it is going to be more or less automated. And that's why I think, honestly, this rise up active investing for

Gen Z is bad for the active management industry. Because I thought that was a great take. They're going to say, no, no, I'm not going to pay an active manager to do this one. I can just do it myself. And then I'll just, the low cost stuff will take care of itself. So I think it's actually a benefit for passive and bad for the active management industry. I think so, too. Phil Huber does this thing, a post that he calls the paper trail, and it's some of the best charts from the month. And I just wanted to talk about a few of them.

This is going to be a chart-heavy podcast. As always, we'll link to all of this in the show notes. I don't know where did this chart come from. Don't know. But it's a chart showing companies broken down into different quintile. So five buckets of companies, it's bucketed based on their profitability. So high profitability all the way to the right, low profitability. all the way to the left. They got that backwards. But high profitability or low profitability. And this is so

interesting. Total return from 2011 to 2016 and then total return from 2017 to 2020. And it is a complete flippening. In other words, high profitability stocks did really well from 2011 to 2016. And then the baton was passed almost like linearly to low profitability stocks. I think this is one of the things that makes it so hard to be an investor with cycle speeding up is that we always think in the back of our heads that the current cycle is going to last forever. And so people see this stuff where, okay, profitability is the fact of the matters. And then, okay, now it's low.

And then now we've switched again in 2021 where it's going to go back to values. So let me put it to you this way, Ben. I have a question. And I don't think there's a right answer here. But neither of these are easy. Do you think that you're more likely to have success finding a style of investing? And let's just say that that's value investing. or let's say that that's growth investing or whatever you land on.

And again, nobody should go all in on one thing. But let's just, for the sake of this argument, let's just say that that's what you're doing. Do you think that's easier to stick with the strategy through thick and thin? Because we know that sometimes when it's thin, it's really, really bad for anything. It doesn't have to be just value. Momentum gets crushed. Sometimes growth gets crushed. Or are there investors that can be chameleons that can change with the cycles?

I'm inclined to say that's almost impossible. somebody that could go from the cyclicals to the growth to the momo, like you almost have to be a trainer at that point. Yeah, I mean, if you're trying to choose between like growth and value or high quality, low quality, whatever it is, whatever the factors are, you have three choices. You could stick with one where you're just going to pick growth tech stocks. You're just going to be value like Buffett. Or the second option is I'm going to try to pick which one is in favor.

That's probably the hardest trying to time these factors. And the third option would be, I'm going to be diversified and hold some growth stocks and some value stocks and some quality companies and some momentum. Whatever it is. I'm biased here, but that seems like the simplest approach to me is the one that gives you the least amount of regret, basically. So if you're going for this regret minimization strategy of, yes, I'm going to own the losers when they're underperforming, but I'm always going to hold the winners to some degree. I think that's the idea. That's where I've fallen because I think that's the one that gives you the least amount of psychological pain. I think Jack Bogle said, why search for the needle in the haystack, just own this haystack?

That's pretty good advice. Yep, I think so. This is a true story. It happened right here in my town. One night, 17 kids woke up, got out of bed, walked into the dark, and they never came back. I'm the director of Barbarian. A lot of people die in a lot of weird ways.

We're not going to find it in the news because the police covered everything all up. On August days. This is where the story really starts. Weapons. All right, another chart that he showed, oh, this is so timely, 36-month correlation between bond yield changes and value versus growth returns. And we'll link to this in the show notes, but the TLDR is good freaking luck. The correlation is all over the place.

In other words, sometimes rising rates can be positive for growth, negative for value. Other times, it could be backwards. Just looking at this chart, there is no. rhyme or reason to this relationship. The funny thing is, all correlations in asset classes look like this eventually. Yes, yes. They come in and on a style and it's never static. But don't we hear that rising interest rates are better for value because they're

lower duration securities versus growth? I mean, that's the story. And this chart just says, actually, that maybe is kind of bullshit. Right. A lot of it probably depends on what the relative valuations are and which one is done better and just mean reversion. That's, again, why these cycles are so hard to predict. Nate Garassi, stat of the day via Wall Street Journal.

This is a good one. The S&P 500 had 4,000 today after first reaching 3,000 in July 2019, five stocks, I'm repeating for emphasis, five stocks contributed 44% of this thousand point gain. This is back to your haystack thing. But in getting back to the interest rates, so interest rates were up, I think, 80 basis points in the first quarter. And that's like one of the highest quarterly rises in a long time. Sir, I prefer a percent of a percent.

Oh, sorry. Interest rates were up five-eighth. But the S&P 500 hit 15 new all-time highs in the first quarter. So it's like, yeah, I guess rates probably will matter eventually. But what's the line in the sand? What point do you get there? But this five-stock thing. It's Facebook, Apple, Amazon, Microsoft, Google.

This is why I don't feel sorry for active managers that have hired hard time. I don't feel bad for them, but I certainly feel empathy. I mean, it's brutal. This is the thing. If you're not long, you're short. But seriously, if you're not logged these names, then effectively you are short them, if you're an active manager. And I got to be honest, I'm kind of enjoying them lagging a little bit,

although I think that they're starting to go again. This is why closet indexing exists because you could have a situation like this. By the way, as we type on Monday, or as we speak, Facebook all time high, Google all time high, Microsoft all time. Holy shit, these things are busting out. Apple and Amazon are still a ways back. But all right, so sorry, it's still going to be tough. Because these names are so big. That's what I mean if you're short, you're long. And obviously, that's like mostly a joke, but it's kind of not in this case. Facebook is up 4%. Google's up 4%. And again, these are massive, massive names that dropped the

benchmark. Someone come to me, say, I wrote my piece on the rise of active traders and investors for young people. A lot of people said, okay, well, that means that it's going to be easier to pick off of the suckers for active managers and take advantage of them. But I don't see how that's the case with active mutual fund managers who have a more long-term approach in terms of they're not day trading and looking for ARB opportunities. I mean, maybe for hedge funds in places like Citadel and Renaissance technologies that are taking advantage of small relative value changes over very short periods of time. But I don't think the rise of the retail trader and investor makes it easier for someone who's picking a active growth stock mutual fund.

I don't see how this makes it easier for them. That reminds me. By the way, so higher interest rates killing growth, right? That was a narrative. The cues are pretty close to an all-time high again. Again, I think sometimes people look for an excuse to sell something and then make a narrative after the fact. So I've had this paper open in my window, in my tab, probably since February when it was

purchase. I almost never do that. If I've got a window open for more than like two days, it's goodbye. Are you sure? I feel like you're a 30 tap guy on Google. I'm really not. I usually have two windows with about five or six tabs each. Okay. I don't let things get stalled. Like if I haven't gotten to something in 24 hours, I usually delete it. But this one, I was waiting for the right time, and that was yesterday. So the paper is called the equity market implications of the retail investment boom. And a lot of it was equations that are way, way, way over my head. But here's the TLDR. They were trying to quantify the impact that Robin Hood traders had on the market. And they just focused on Robin Hood, which was $65 billion. That's not to say anything of

Schwab, TD and all the other IBKR and all the other retail robin-like traders. They said the demand of Robinette traders accounted for 7% of the cross-sectional variation in returns observed during the recovery in Q2. Consider the fact that they hold roughly 0.2% of the aggregate U.S. market capitalization, their contribution is enormous. Here's one more important data point. Withdrawing the approximated $65 billion in Robbenates Assets Center Management from the U.S. equity market would have lowered the aggregate market capitalization in July by roughly $355 billion. So in other words, they hold 0.2% of total market cap, but they move the market.

the needle by 1% according to these calculations, which archegos eat your heart out. I mean, that's pretty incredible. I'm not sure I get this here. Why is this the case? Why are they having such a multiplier effect? I mean, that I can't tell you. There was a lot of equations. I just took the word for it. I can't fact check them. This is why I'm kind of dubious to these sometimes with all these equations because I feel like the correlation causation thing here could be a little too much. I guess it makes sense. So they're saying, I understand that they are amplifying the variance of returns. I don't see why I would add to market capitalization. Well, hang on. Ben. By that much. Just open your slide for a sec. I just want to show you this chart. This is long. It's

56 pages. Go all the way to the bottom. Okay. Because this is usually the point where I get one of these and then I read the introduction and the conclusion and that's it. I skipped over the formulas, but I didn't even most of this. Go to page 45. It shows the valuation effects and the repricing based on size. And not surprisingly, the biggest stocks, the apples and Google's the world and then zero impact on. But look at the smallest stocks. Decile one, decile two. Okay. So they're saying it's having a way bigger impact there. Yeah. So I think I've read somewhere that like they had a 30% whatever that means impact on the smaller stocks. They really, really, really, really move the needle on smaller stocks, which again, Hertz declared bankruptcy.

Oh, yeah. The price went from two to 50. I mean, yeah, that's Robin Hood. And then that equity was worth nothing. It's gone now, right? And speaking of, I think GameStop just finally announced secondary. Do you see the news this morning? I don't know what took them so long, to be honest. They're selling more shares. Oh, wow. The stock is well off the lows. I guess Warren Kitty still likes the stock. It went from, all right, it was down 17% earlier in the day. It's now only down 4%. Okay. Benjamin Graham, Scarbutt level. We've spoken about this a few times, Ben. J.P. Morgan is out with their guide to the markets. So we just made the case that 44% of the return of the S&P 500 came for those five stocks. By the way, who do you think

makes this from them? I want someone to step forward and say, I'm part of this every quarter, because monthly, because it's honestly one of the better free tools that there is available to investors. It's fantastic, but I bet they snap their fingers and they just update this in two seconds, right? Because they've already got the template done. Because they have Microsoft Excel. There you go. Top 10 stocks in the SEP 500 are responsible for 27% of the last 12 months worth of earnings. That's pretty wild.

So take out the top 10 stocks. The remaining 490 are trading at 19.6 times forward. 12 months estimated earnings. I don't know. Does that seem bubbly to you? I don't think so. But the top 10 are trading for 30 times. Right. Well, forget about those. But yes. So anyway, the average is 15.6, but the average has been rising for the last, I don't know, many years. So those big huge trillion dollar stocks that have big multiples, which seems to make sense, those are the ones that are making things look more bubbly than they really are. I could buy that. I also think, I mean, talking about bear markets being changed going forward, the window of

time to get cheap stocks just seems to be shrinking and shrinking. I mean, it went under like the long-term Cape average for like a month in 2009 or whatever it was. Oh, I meant to do that. I meant to do that post. For this last period, it got, it was so short. How low did Cape get? Did it even get below 25? This time around, I think it was barely even. It was in the high 20s still. I think just getting that fat pitch is going to be, I don't think we're going to see it as much going forward. Two more quick charts from JPMorgan. They have this really neat chart showing international stocks and U.S. stocks, their relative performance, and it usually in the past has gone back and forth, international outperforms the U.S. back and forth, back and forth. The U.S.

has outperformed for 13 years. It has been a long, long time, and as a result, or maybe, I don't know if this is causal or whatever, but they show the price to earnings discount of international stocks versus the U.S. And going back to 2001, international stocks have been about as cheap. as they've ever been based on this metric, whether or not that materializes into the pendulum swinging the other way. This is the one you look at 10 years from now and you say either, A, of course it made sense international stocks outperformed, look at this chart, or B, of course they didn't outperform. They were cheap for a reason. But here's the setup. The third chart shows global earnings growth. It shows the China, U.S., E.M., Japan, and Europe. And earnings projections for the rest of the world are, larger than the US. So the U.S. is projected to grow earnings by 26%. EM 37%, Japan, 33%, Europe, 33%. And if you look at the percent of cyclical sectors in EM, Japan, and Europe, it's way higher than it is for the U.S.

So one of the reasons why the U.S. has outperformed is because we have so much more technology stocks versus Europe, Japan, EM. So that's been a headwind for them. It could turn into a tailwind if we get this synchronized global growth. So that to me is very much in play. So cyclicals in the U.S. is 34% and Europe is 55%. Right. That makes sense. So that's been a drag in returns in recent years that could be the springboard going forward. Exactly. That makes sense. It's all cyclical, Michael. It's all cyclical. Let's move on to some personal finance. All right. Survey by EBRI Nonprofit Research Group conducted in September 2000 Americans. they looked at what's going to happen when you go from being a saver to a spender.

This was kind of surprising. So they basically found the percentage of people who are going to spend down all their assets is very small. It looks like more than half of all people intend to either grow their assets, spend down none of their assets, or spend down a little portion of your assets. And then, yes, the ones who are going to actually spend it down to zero is like 15%. Pretty small. And so they said, why does this happen? People are worried about unforeseen costs. It's not necessary.

They want to leave money for other people, afraid of running out of money. I think there's two reasons for this. One is psychologically, it's really hard to go from that being a saver to a spender. And so our colleague, Chris Ben, has talked about this in the past where he's had to talk to clients of ours and say, listen, you've won the game, you've got enough money. Go out and have a little bit of fun. If you've already, what's the point of taking it all if you're not going to do something with it?

Go buy that. You can't take it with you. Yeah. If not now what? Buy that convertible, buy that second. home. If you're in a good position to do it, do it? Don't be so worried. The other thing, I don't know, do you think people are worried about living longer than they did in the past and having their money you last longer and health care costs and all these things? Do you think that's part of it?

Yeah, oh, for sure. So by the survey, 2,000 Americans age 6, 2 to 75, 97% of these people are already retired. So when they ask people, well, why don't you plan on spending your money? The biggest answer was saving for unforeseen costs, afraid of running out of money. So that's legit. I totally get that. So I think that's one part. of it. And the other part of it is what you already said, which is psychological. So one participant said, I think this really nails it, that for a lot of retirees, drawing down their assets to cover expenses feels like a loss. Abundant psychological research shows that people strongly dislike the sensation of losing money. So it's like they're so used to accumulating money for their

career that to see it go in reverse is psychologically scary. And I do think there is the fact that, well, listen, I'm living longer. I'm afraid of running out of money. But for somebody that has, I don't know, six million bucks? Like, what are you waiting for? So we had a little imprompt to interview with our friend Patrick O'Shauncey the day on Spaces. Again, we're doing that every Wednesday at four. And he said something that kind of resonated with me. He said, I've been a collector of assets ever since I started investing. He's like, I've always bought stuff and I've never really had to sell anything. I thought, well, gee, I'm the same way. I set aside some money for vacations and stuff maybe. I'm a complete opposite. But I don't, I haven't really had to

saved for anything in my life that has had to be used immediately. And I think that is going to be a weird sensation to go from putting this stuff aside in investments and then using it for something big. I just, I've never had to do that. So I feel like I'm more of a collector than an investor in some ways with some of the stuff that I've been saving for. Ben, who are we kidding? You're going to live off the interest of your portfolio. The negative interest rates. You're going to pass your portfolio right onto your kids. But you've used investments for purchases in the past. You've done that a little differently. But I've never had to do this. So I understand this mindset. I think. I think I've sold everything I've ever owned.

Yeah, so I guess I was thought about that way. Like, oh, you know, you're right. I've been in accumulation mode, and that's a good thing, I think. But it is going to be hard to turn that around a little bit. But I think that's, I don't think young people, like millennials and Gen Z are going to have as hard of time as baby boomers in that. Like, my dad's generation, I can tell. His mindset has always been you leave an inheritance for the kids or something. Like, that's just beaten down into that generation, I feel like.

I don't think that's the same. mindset with our younger generation. I think it's either spend it on now and enjoy it now or spend on your kids. I think there's a big shift. And I've talked about that with friends many times too, that some of the stuff we pay for. My parents never would have paid for it. Like, we pay someone to do our driveway with snow. Just something really stupid like that. It doesn't even cost that much money or cut the lawn for us or something that the past generations. I think most of them would just scoff at something like that. I don't think this generation has that same feeling. That's a good point. I'm totally a pay somebody to shovel the driveway type of

person. Yeah, especially for us in Michigan. Well, how much does a snowblower cost? Two grand? I'm making that up. Oh, I mean, five or six hundred bucks, maybe 700 bucks. But for in Michigan, which is really bad, we pay $200 for the entire winter season to do our driveway. Oh, my God. Are you kidding? It's a steal. Right. That's nothing, right? And that's for every time it snows. So, yeah, I think that's a pretty good deal. All right. Last week, we spoke about, oh, we showed that famous chart showing that Gen Xers and especially the millennials, are so far behind compared to where their parents were at this age. Oh, that reminds me. So I did a post basically showing that, like, I don't think our parents exactly had it that

great compared to us. I think that's a lot of malarkey. And one of the pieces of evidence that I used was the divorce rate spiking. And somebody set me straight that that had nothing to do with anything other than the law changing. There was like something called no fault divorce. So basically, I don't know what that means. But what the person was trying to say is there was a lot of pent demand for divorce.

And what's the law changed, people were allowed to get divorced. You know, the other divorce debunking it that I can't remember what book I read it in, but you see the stat that's like 50% of all marriages end in divorce. But the problem with that stat is there's so many people that get married like three, four, or five times. And so they're bumping up the average. So that's the problem with that stat. All right.

So people who have multiple marriages. Well, yeah. We also, you use this in your piece. read the whole thing, but we received a very thoughtful email from a boomer who is a listener of ours who said, wait a minute, it wasn't so easy for me. I came to the job market in the 70s. He said, that's the point where all the baby boomers were going to college at the same time. So the competition was higher. We had higher rates. We had inflation. He said, getting into college was tough, even though things were cheaper. He said, yeah, we were buying assets

for 30 years, but we went through the dot com bus and then the great financial crisis. And so he's like we haven't had it as easy as you think. And think about that. Let's say that they're really starting to get into their peak earning years and they've got the dot-com bubble burst. Then they claw it all back. And seven, eight years later, as some of them are approaching retirement, they get the nastiest crash that we've had in a long, long, long, long time. So they probably thought at the time, man, came into the job market with stackflation, high inflation, low economic growth. I saw one stock market crash. I was starting to earn money.

And now as I'm getting ready to retire another stock market crash, man, pretty brutal. So it's easy now to look back in hindsight, 12, 13 years removed from the crash and say things have worked out. But come on, give me a break. It wasn't easy for them. Anyway, the real point in all of this is that it's kind of silly that we're grouping together age classes like this because millennials could be 39 to 23. So this person, the college investor, had a great post showing the starting salary.

So the class of 2003, 2004, 2005, and yeah, people my age, and a little bit younger got kind of screwed graduated into the GFC. Their starting salary dip significantly. But class of 2018, their starting salary is 51 grand. It's not so bad. And then it also shows the average millennial net worth by age. Again, comparing a 39-year-old to a 22-year-old and lump in the temp together, you would never do it. It doesn't make any sense. They're completely different stages in their life.

So not surprisingly, a 22-year-old has a negative $40,000 net worth because what do they have? all they have her liabilities, all they have a student loans and no assets. The average 39-year-old has a $70,000 net worth and there's plenty of millennials that are beyond filthy rich. So like the average millennial, what does that even mean? Right. And then you have the thing of way more millennials are going to college, so they're putting back a chance to start earning money and accumulate assets. So it's happening later in life. So I think you're going to see a really quick catch up where you have these early late 20s. by the end of their 30s, they're going to have this.

And so, yeah, I think the range of the outcome, trying to lump people who are in their 20s and then going into their 40s together just doesn't make any sense. And then one more thing that somebody emailed us was like, our parents bought houses when they were 22 years old. So that cycle just got pushed back a decade. So maybe that's one of the reasons

why this chart looks so out of wax. So, like, I'm just dubious of the chart. I think it paints a picture that's not entirely accurate and I can't fully debunk it, but I just don't really believe it. Think about our parents' generation for the most part. They would have their kids in their 20s, probably early 20s, mid-20s. Now for most people, it's, okay, I'm hitting 30.

Now it's a certain thing about having kids. So everything is shifted, I think. And one more thing, think about when the wealth transfer happens from, I know this is morbid, but from our parents to our generation. I don't think that happened to them because our parents' parents died when they were 62. They didn't accumulate all this money like our parents did. So when the transfer happens from our parents to us, I mean, the numbers are going to be off the charts in terms of how much wealth our generation has.

From the survey, them not wanting to spend it down and more time to grow, right? Right. Yeah, I agree. I'm bullish on millennials. I'm bullish on young people and I'm bearish on that chart. All right. Here's a take on Barish on. So this was in the Wall Street Journal and it talked about if you sell a house these days,

the buyer might be a pension fund. And they try to make this out to be very scary. They interviewed this guy and he said, you know, have permanent capital competing with a young couple trying to buy a house. And this is like a real estate consulting firm. He said, that's going to make U.S. housing permanent. more expensive. And they use these examples where they say, Houston is a favorite place for investors. And so it's counted for 24% of all home purchases there. And the same in the

place like Miami, Phoenix, Las Vegas. And it's among properties priced below 300,000 and a decent school districts. So what they're saying is investors are coming in and realizing single family housing, especially in a low rate environment, it's a pretty decent way to earn some income. And these places are coming in. They're fixing up these houses and they're renting them out. I don't understand why this makes this housing bubble and makes it permanently more expensive. There are always going to be, I don't know, 60 to 70% of the population that's going to be homeowners. And the other 30 to 40 is going to be renters. I think this is a good situation for people who want to rent because they're getting a more professional organization who's probably going to fix up the house nicer than a single landlord.

I think this is actually kind of a good thing. I mean, if you're a first time home buyer, you're saying, no, they're pricing me out of the market. But in the end, I don't see why this makes the housing market a huge bubble. This argument doesn't make sense to me. I'm mildly sympathetic to it. Here's a few data points. Nearly three in every four homes sold in February, sat on the market for less than a month, according to the National Association of Realtors.

All nine regions of the country posted year-over-year price gains of more than 10%. I'm not saying that this is the default of, not the iBuyers, the invitation homes of the world and whoever else. But I think that's probably part of the story. I think a lot of the story, it is the perfect storm for home prices to rise. You have low interest rates, people working from home permanently. So they're looking for bigger houses. You have people not moving.

You have supply at an all-time low. And, oh, the biggest story is demographics. There are 26 million people? My age, did I make that up? It's a gigantic number of first-time home buyers. So I don't know that any one story is responsible. But I think that Blackstone is not coming into Grand Rapids of Michigan and buying up houses. Like, I don't know, maybe they should.

But it's hot here too. So I'm saying it would have been hot regardless of these professional buyers buying stuff up. completely agree. And oh, by the way, this is not a housing bubble. How many people do you know are buying multiple houses? How many people do you know with a credit score of 640 that are getting houses? It's the opposite. Okay. So here's, let's follow us up. This is why this is not a housing bubble, another one from the Wall Street Journal. This is a piece called need a mortgage loan. Good luck. Lenders are tightening standards. This doesn't happen in a bubble. So they're saying that mortgage credit availability, a measure of lender's willingness to issue mortgages is near its lowest levels since

2014. And 70% of mortgages issued in 2020 went with borrowers of the credit scores of at least 760, up 61% from 61% in 2019. So found the inflation. It's in credit scores. So we've talked about this, the fact that they are not giving loans out to everyone. This is a perfect example of why interest rates are not always the main driver of speculation. Like credit standards matter too. Rates were way higher in the housing bubble, but they're giving out loans to everyone. And now they're not doing that. Here's the other thing. If they wanted to turn this into housing bubble, you relax the credit standards. And like, isn't that another leg up in housing? If they say, all right, things are getting better. Housing prices are doing fine.

The pandemic is in a rearview mirror. I'm guessing a lot of that has to do with the pandemic. Like, you can see a huge drop off from last year in the availability of mortgages. That's a good point. As this gets more and more in the river mirror, you would think that lending standards are going to be relaxed. I almost understand banks doing that last year, worried about what's going to happen and people defaulting the loan rate away or not being able to make payments. So I actually think that is a precursor to more housing growth than anything. If you have these people who haven't been able to get a loan, now they're able to do it. I just think this decade is, it's going to be hard to stop housing.

Here's where I feel. I feel very, very badly for first-time home buyers. I think they got a raw deal. So you're a younger person. You're making more money coming out now, back to our millennial study in Gen Z. But buying your first-time home is really tough right now. I agree. But there's literally tens of thousands of young people that are getting shafted here.

because they were prepared, they had a down payment, and now it's not enough. So for those people, I feel terrible for that. We've been talking a lot about title insurance. I think I know what it is now and why they should be on the blockchain. Well, there's a company. There's a young company that is trying to disrupt title insurance that's going public via SPAC. It's called DOMA. Here's a quote from an article. Right now, our patitin machine intelligence technology reduces title processing time from five days to as little as one minute. Our goal is that the entire mortgage closing process moves from a 50-day ordeal to less than a week. So maybe it's not a blockchain issue. Maybe it's just technology needs to get better. And maybe DOMA's the company to do it. So I'm all

for that. Okay. I just feel like if realtors haven't been disrupted yet, I don't see how all those other stuff doesn't get disrupted too. I feel like it's a racket in a lot of ways that they don't want things to change. I think if the industry pushes back enough, I don't know how technology firms are all of a sudden going to make it better. I would be nice if they did. I don't know if they're going to be able to, even if that technology is way, way better. So, can we say the economy is on fire? Yes. If it's not, now it's going to be.

So Heather Long tweeted, we got jobs reports last Friday. Breaking, the USA added back 916,000 jobs in March, the strongest gain in seven months as the economy picks up steam. Official unemployment rate is 6% down from 6.2% in February. Overall, the U.S. is now gained back 13.7 million jobs, 62% of the 22.2 million lost in the pandemic. So I think there's still going to be people who can get the extended unemployment until mid to late summer. So I think it could take a while until we get back to, so we're still

yet 8.4 million jobs below where we're in February 2020. I think you're going to see tons of stories this summer about shortages of businesses that can't find people to hire. And that's going to push up wages. And again, this is going to get the inflation talk started because wages are the thing that really kicks in an overdrive. But again, is this going to be something that it's slowed because you have this unemployment stuff still coming on? And then in the fall, we find they get people coming off and going back to work. Check out the chart. Small businesses with hard-to-fill job openings, all-time high. Wow. This is, I think, a month old. Okay, so it's higher now, probably. So this is the thing that we talk about probably every week is the wages. And if wage inflation

arrives, if that continues, then maybe things start to get a little hairy. It's going to come in the services sector, though? Like the places that have- I hope so. The people that have been displaced, I hope they see their wages rise. That would be fantastic. Right. There's a story. In New York, couldn't you guys be paying $86 for a beer then? Because they're just going to raise prices. The thing is, though, I hope people don't complain. Like, because a lot of those places are probably going to raise prices just to maybe make up for lost ground and to pay them. No, people won't complain. They never do. That's true. Yeah, never. But I think that that's the kind of place where hopefully people would at least be like, okay, you know what, you guys raise your

prices. That's fine. You've had such an awful 12 or 13 months here. Have at it. Rental car prices are spiking because during the pandemic, a lot of these places to stay afloat were selling their cars. They had a parking lot of cars sitting. And now that demand has come back online, now that people are traveling, there's a shortage of cars. So there was a story that in Hawaii, car prices are like 600 bucks a day. For a rental car? Yeah. I also heard anecdotally, like Uber and Lyft prices are much higher than they were pre-pendemic. So you're going to be paying more for those as well. It will be interesting to see people getting used to being back to normal when this stuff happens, what the sticker price shock is for some of this stuff. But again, I don't think

people are going to care if they're going on vacation for the first time. They're paying a little more since they haven't done it in a long time. I think people will get annoyed if it starts to bleed over into daily life beyond gasoline prices. I'm talking bandades, tissues, whatever. Because we already see inflation in lumber. You're seeing gas prices take up. I get why there's concern. I mean, obviously, I'm not completely oblivious to it. Didn't you over hear this Sebastian Manuscalco bit on Band-Aids? You're only supposed to buy one box of Band-Aids your whole life. It's supposed to last you that long.

Okay. So you go, Ed. All right. Should we move on to listener questions? Yeah. And we're going to mention we've got such a big backlog of listener questions. We're going to be doing another show fully dedicated to listener questions this week. And that will be coming up on Friday.

Before we get to that, let me just read an email that we got about crypto and blockchain. Somebody said, the industry is right for a technology revolution. Let me be clear. I hate the use of the cliche, but my previous life gave me unique insight as a technologist for 32 years working for a county auditor who is responsible for assessment appraisal recording of property. The blockchain could be leveraged to vastly improve the efficiency of maintaining and changing the custodial records of real estate.

Today, too much effort is put into recreating information related to real estate as a matter of transacting business. Great example of the attorney not filing the lien release with the local official where the blockchain can be used to track and verify all things real estate. Anyway, it sounds like help is on the way from that company that we mentioned. Doma, was that the company? Okay. I remain dubious that the real estate industry is going to all of a sudden accept all this new technology immediately. And how about this? I'm going to make a vow right here

right now. I'm done with talking about title insurance. You've been on one lately for title insurance for sure. And I could barely explain what it is. What do we say we put that topic to bed? I mean, we're going to retire it. I don't know. I mean, most people will deal with it three times in their entire lives probably. I mean, whatever. All right. Wait. You want to going to read this long one about New York? Sure. Okay. Go ahead. I tweeted this out to the two of you, even before coronavirus, I had to browse homes on the south shore of Long Island. I said somebody in my backyard and thought prices were high then and now they are astronomical. How could someone justify spending 500 can in a three-bedroom, one bed that needs to be completely renovated? But yet people

are buying. Yes, they are. We have just gone through a wild transformation in the way society functions. Real estate in the tri-state area had such a great value because of its proximity to NYC, which in 2021 does not have the same values it did in the 50s to today. Companies have been outsourcing certain job functions to cheaper parts of the world for a while. Now, what happens when the same thing begins to happen to more job functions? I started in public accounting, so I'll use this as an example. Why do companies need to continue paying people in traditional, more expensive markets or someone in Boise, Idaho can prepare the same 1040 tax return?

If companies start to realize this, wouldn't that substantially bring down the value of the tri-state area? So more remote work opportunities means why? do people have to live around cities? I think that's the question. I think my initial answer would be one step at a time here. So if people are moving from Manhattan and Brooklyn into the suburbs of Long Island, that's one step. I think going from Manhattan and Brooklyn to move somewhere else, and that totally depresses the entire surrounding area of the real estate. That seems like a way longer term step in terms of depressing those values because of this. Yeah, New York is New York.

Here's what I would say. People used to live further out east in Suffolk County because you can get much more banged for your buck. You get a lot more land there. My neighbor, I'm looking at their house. It's 10 feet outside of my window. There's no land on the South Shore where I am. We live on 60 by 100 foot plots. It's a grid. Our neighbors are on top of us. So if you go out a little bit further east, the money goes farther. You actually get some land. That might start to change. I wonder, as people don't have to commute five days a week into the office. So if somebody was going to move to where I live, and they'd could get a lot more for their money 20 minutes further out east, and now they only have to go into the city once or twice a week. Now that commute becomes viable. Previously, you're not going to take a 90-minute railroad five days a week. You could do it two days a week. So maybe the prices start to go up a little bit further out east. But Ben, to your point, this is not going to happen overnight. And to the reader's question, there's still an incredible demand for people that are still leaving the city. So I don't think that. So this was another piece we didn't get to. This was the Bloomberg story, Manhattan homebuyers are coming back, but only for deals. Of the homes that

sold in Q1, 97% closed at or below asking, the highest share since 2009. So you're not seeing above asking prices in Manhattan right now because people are moving out. So that's like the first step of this. You're seeing prices rise everywhere. So I don't think you're going to see prices rise in some places and crash in other places. I think I just keep coming back to the fact this is a demographic story more than anything. Right. All right. One more quick one more first time home buyers. I got into a huge debate with my coworkers about inflation. I'm hoping you can help. What's the best source to report on year-over-year inflation? We're debating the annual salary increases given to our salary to employees, and we do not

give pay raises last year due to inflation. He's suggesting we need to give 6% pay increases just to keep employees whole with inflation. I think this is something we're looking at CPI is probably not the right way to do it. I think if you're looking at- They break it down by cities, don't they? Yeah, well, but I think you have to almost break it down by industry. How fast is your industry going? So geography and industry.

Yeah, could your employees go somewhere else and earn more or have a faster increase? there. So I think you have to base it on how fast your industry is growing and what people could make if they decided to leave and go work somewhere else. This is another thing with the inflation stuff. Inflation is so personal that you're going to have people that experience inflation very differently from one another. What do you mean there's no inflation? I have to pay my people 11% more just to get them back to work. So it's going to be very, very specific. All right, Ben, recommendations. What did you watch this weekend? Godzilla versus King Kong. I mean, exactly what you'd expect.

No more, no less. I mean, they could have easily shaved off a half hour. That movie probably should have been 90 minutes. It ran a little long, but I mean, you get what you ask for for that one, right? You know how they say, like, oftentimes in the rewatchable, they'll single out a character, and they're like, do they even know what movie they were in? So Rebecca Hall, I'm not blaming her, but she was like not in the right. There was a couple storylines they could have completely got rid of, and a movie would have been different at all.

Yeah, her character was very odd. But listen, the fighting scenes, are you kidding me? I'm all. Okay, here's a question for you, though. Has there ever been a good, God's it? Zilla standalone movie because the Matthew Broderick one in the late 90s or 2000s was eh. And then they did the Brian Crancy one a few years ago that was, eh.

No, neither of those were very good. I love them, but they weren't very good. Like the King Kong one they did with Adrian Brody and Naomi Watts and Jack Black was actually kind of a good movie. That was a good movie. Well, that was Peter Jackson. Yeah. Skull Island was a legitimately good movie.

Did you see that one? Okay. I think I only saw bits and pieces of that one. There's one scene where King Kong eats an octopus and he bites off its tentacle. It's fantastic. Okay. We started a new show on HBO Max called Search Party. I think it was actually on TBS before.

It's like four seasons. It's been recommended several times to us. Yeah, it's very good. It's actually not very good. It's good. Each episode is like 20 minutes long, so we're already through the first season. It's kind of like a dark comedy,

but they have like two or three really good characters in the show. It's about a bunch of young people in New York. The twist is it's a comedy, but it's also like there's a girl who's missing, and so they're trying to solve a mystery. And it's almost like the flight attendant, but it's better than that. I don't know how they're going to do it for four seasons with a mystery thing because it's already been on.

So maybe people can tell me if it's worth sticking with or not. But I, so far, season one, and just having a 20-minute episode makes it easier to watch instead of like knowing that it's an hour-long show or something. So I'm like that one. A book I've been reading called The Weirdest People in the World by Joseph Henrik. I know that author. What does he read in? I don't know what else he wrote. But it's basically a book that debunks all the psychology studies that you and I use for behavioral finance.

I don't want to say it's debunking, thinking fast and slow by Connman, but it kind of is. basically saying every psychology study that we rely on is done on undergraduates in college and saying that is not a representative sampling of the population. Connemant Dfreskes did bad surveys. It kind of says that. It's interesting. It's definitely a different look at that stuff. I think it's worth seeing the other side.

It's an interesting book. That's all I got. You put in a lot of work last week on movies. Yeah, I did. The Millie Bobby Brown character, I mean, that whole storyline was just. The two kids, they could have cut that out completely. And the guy with a weird podcast, yeah, I agree. Terrible.

Paper boy from Atlanta, as much as I like him. All right, we've got listener questions on Friday, full episode. You're not going to get any wrecks today? I watched a few movies that aren't worth recommending. Well, real quick, you put together this list of, like, all the movies you watched in the last year, and you said it was like 100 movies. And then you rated them. I'm actually, like, impressed that you did all this.

And your conclusion was movies just aren't as good as they once were anymore. Well, we're running out of time. Let's save this for next week. I have serious thoughts, but we've got something else in two minutes. Okay, here's my takeaway really quick. We killed movies so we could have better television shows. Fair trade. I think that's a fair trade.

I'd take it every time. All right. Okay. Annelspiritspod at gmail.com. We will talk to you on Friday. Thank you.